Rotam Agrochemical Company Ltd & Anor v GAT Microencapsulation GmbH

On 25 October 2018 I delivered judgment after the trial of this matter. As is apparent from my judgment the Claimants, to whom I will refer as “Rotam”, failed in their case that there had been a contractual collaboration agreement, and that there had been a binding data transfer agreement, and also in their claim based on tortious misrepresentation, but succeeded in their claim in unjust enrichment. This meant that they were entitled to a recovery of €291,087.03, but not more.

That judgment has given rise to an issue as to costs. The parties contend for very different orders as to costs.

Rotam contends that they are the successful party. They say that they should therefore have their costs, subject to a percentage reduction to take account of their failure on some issues, which they contend should be of no more than 25%. They say that they are the successful party, and that there is no reason to depart from the general position that costs should be awarded to the successful party, and in particular they draw attention to: (a) the fact that the Defendant, to whom I will refer as “GAT”, made no offer; (b) the fact that the unjust enrichment case, and GAT’s defence to it, involved a consideration of many of the same matters as were raised by a consideration of the contractual claims; and (c) that GAT abandoned reliance on Austrian law at the beginning of the hearing, a matter on which, Rotam contend, considerable costs had been incurred.

By contrast, GAT says that it is the successful party. It says that Rotam’s aim in the action was always to seek to make a recovery in respect of their contractual (and/or tortious) claims. Their claims in respect of those causes of action were for damages initially quantified as $16.4 million, and thereafter at $11.3 million. Rotam had instead succeeded only on an alternative claim, the factual basis of which had been contrary to its factual case in the action, which had been that there had been a binding collaboration and/or data transfer agreement, and which only yielded a recovery of some 3% of the amount claimed by way of damages in contract or tort. It says that the fact that it made no offer is not relevant, as any offer in the amount of the sums eventually awarded would have been rejected out of hand, and in any event, it was impossible to have made a Part 36 offer other than on the basis that it forewent an entitlement to costs in relation to matters on which it was ultimately successful. The appropriate order was, accordingly, that GAT should be awarded its costs, subject to a reduction to take account of Rotam’s success in relation to unjust enrichment. GAT’s contention was that this would result in GAT being awarded around 90% of its costs.

The starting point is the terms of CPR Part 44.2. It provides as follows:

The parties are at one in contending that the first matter which I should consider is which was the “successful party”. In support of their differing contentions as to which was the successful party they rely, however, on two different strands of authority.

Thus, GAT contends that the correct approach is to identify who, in the words of Sir Thomas Bingham MR in Roache v News Group Newspapers Ltd [1998] EMLR 161, “as a matter of substance and reality has won”. It contends that this will involve asking, to quote further from Sir Thomas Bingham’s judgment:

“Has the plaintiff won anything of value which he could not have won without fighting the action through to the finish? Has the defendant substantially denied the plaintiff the prize which the plaintiff fought the action to win?”

GAT further relied on the decision of the majority of the Court of Appeal in Medway Primary Care Trust v Marcus [2011] 5 Costs LR 808, which it described as “the leading authority” in the area. In that case, the claimant had sought £525,000 in respect of an allegedly negligent amputation, but had lost on the issue of causation, and been awarded only £2000 for pain and suffering in relation to admitted breaches of duty. The trial judge had awarded the claimant 50% of his costs. The majority of the Court of Appeal found that this was an error of principle, and substituted an order that the claimant pay 75% of the defendant’s costs.

GAT referred to the fact that in Medway v Marcus the majority had placed reliance on the earlier case of Oksuzoglu v Kay [1998] 2 All ER 361, where the plaintiff had claimed that the amputation of his leg was due to negligence on the part of his medical practitioners. He had failed on causation, but been awarded some £5000 for pain and suffering and various expenses. The Court of Appeal had ordered that the defendants should recover 90% of their costs of the trial of the issues of liability and causation. The majority of the Court of Appeal in Medway v Marcus had referred to and relied on a passage of Brooke LJ’s judgment in Oksuzoglu v Kay in which, after considering a number of other authorities, he had said (at paragraph [58]):

“In this line of cases, where the plaintiff only recovers between 1% and 3% of his original claim (sometimes, but not always, after a late amendment) the court is entitled to ask itself: ‘Who was essentially the winning party?’ It will not be distracted from making a just order as to costs by the absence of a payment into court which the plaintiff would obviously not have accepted … or where the defendants did not have a proper opportunity to make a payment into court which obviously would not have been accepted … Although all these cases are different, in the present case the substantive lis between the parties on the trial of the preliminary issues related to the big claim on which the plaintiff wholly failed.”

GAT further particularly relied upon the judgment of Tomlinson LJ, especially at paragraphs [47] and [49-51]. In paragraph [47] Tomlinson LJ had stated that, given that the claimant had only recovered £2000 and had not recovered compensation for the loss of his lower leg, it was “beyond argument” that the defendant “substantially denied the claimant … the prize for which he fought the action to win”. In paragraphs [49-51] Tomlinson LJ had said that it would not have been possible for the defendant to make a Part 36 offer in anticipation of an award of some £2000 without incurring a liability in costs wholly disproportionate to that outcome; and further that such an offer would not have been accepted, would have been “a mere matter of ritual”, and that “no weight should be attached to a party’s failure to make such a ritual act”.

GAT’s contention was that the approach of the majority of the Court of Appeal in Medway v Marcus remained the correct approach, notwithstanding the dissent, in that case, of Jackson LJ, and the decision of the Court of Appeal in Fox v Foundation Piling Ltd [2011] EWCA Civ 790, in which Jackson LJ gave the leading judgment. In support of this contention, GAT relied upon the decision of Briggs J in Magical Marking Ltd v Ware & Kay LLP [2013] EWHC 636 (Ch), [2013] 4 Costs LR 535. In that case, the claimant had succeeded in recovering some £28,000, but its claim had been for £10 million. Briggs J had awarded the defendant 85% of its costs. Briggs J considered Medway v Marcus and Fox v Foundation Piling and said that the former was, but the latter was not concerned with who was the successful party, because in Fox v Foundation Piling the issue of which was the successful party had become common ground before the Court of Appeal.

For their part, Rotam rely on a line of authorities which emphasise that the primary indicator of which is the successful party is which party is awarded a sum of money. They refer to this having been stated by Longmore LJ in AL Barnes Ltd v Time Talk (UK) Ltd [2003] EWCA Civ 402, in particular at paragraph [28]. They contend that this approach gains further support from the decision of the Court of Appeal in Day v Day [2006] EWCA Civ 415. At paragraph [17] Ward LJ referred to the question of who was the unsuccessful party being easily determined in a case such as that “by deciding who has to write the cheque at the end of the case”.

Furthermore, a week after the decision in Medway v Marcus, in which Jackson LJ had dissented, the Court of Appeal delivered judgments in Fox v Foundation Piling. It is the case that, in the Court of Appeal, the defendant had conceded that the claimant was the successful party. The decision in the case concerned whether the circumstances of the case and the claimant’s conduct justified a departure from the general rule. Rotam relied, however, on the fact that, in the course of his judgment, Jackson LJ said this:

“[46] A not uncommon scenario is that both parties turn out to have been over-optimistic in their Part 36 offers. The claimant recovers more than the defendant has previously offered to pay, but less than the claimant has previously offered to accept. In such a case the claimant should normally be regarded as ‘the successful party’ within rule 44.3(2). The claimant has been forced to bring proceedings in order to recover the sum awarded. He has done so and his claim has been vindicated to that extent.

…

[62] There has been a growing and unwelcome tendency by first instance courts and, dare I say it, this court as well to depart from the starting point set out in rule 44.3(2)(a) too far and too often. Such an approach may strive for perfect justice in the individual case, but at huge additional cost to the parties and at huge costs to other litigants because of the uncertainty which such an approach generates. …

[63] … In the context of personal injury litigation where the claimant has a strong case on liability but quantum is inflated, the defendant’s remedy is to make a modest Part 36 offer. If the defendant fails to make a sufficient Part 36 offer at the first opportunity, it cannot expect to secure costs protection. …”

Rotam also drew my attention to the decision of Patterson J in Cutting v Islam [2014] EWHC 1515 (QB), [2014] 4 Costs LO 652. There the claimant had recovered only just over 3% of her original claim. Patterson J found that nevertheless the claimant was the successful party.

In Northampton Regional Livestock Centre Company Ltd v Cowling and Lawrence [2015] EWCA Civ 651, [2015] 4 Costs LO 477, Tomlinson LJ referred (at [110]) to the statement of Longmore LJ in AL Barnes v Time Talk as to the surest indication of success being who has to pay money, with approval, though it is right to say that the issue facing the Court of Appeal was not the same as that which arises in this case.

Finally, Rotam drew my attention to Cook on Costs 2018, and to Civil Procedure 2018 at paragraph 44.2.13. In the former, at paragraph 22.7 the authors state, after referring to the authorities, many of which I have referred to above:

“For our part we prefer the AL Barnes, Day and Fox approach. At a time when the court has no desire or resource for further rounds of the ‘costs wars’ it has the virtue of clarity and simplicity. Concerns over conduct, partial success etc can be addressed in any event when looking at whether there are reasons to depart from this starting point…”

As set out in Medway v Marcus at paragraph [46] by Tomlinson LJ, the starting point is to identify the successful party, and that this “surprisingly elusive process” has never been better described than by Sir Thomas Bingham MR in Roache. That involves a determination of which party “as a matter of substance and reality” has won. As the line of cases relied on by Rotam indicates, in very many cases it will be clear that the party which is to be paid money has won. Nevertheless there is no inflexible rule to that effect, as is shown by Medway and Magical Marking, in each of which the court needed to decide – unlike that in Fox v Foundation Piling – which was the successful party.

Consistently with this, I consider that if a party, though ordered to pay a sum of money, has in reality and in substance won, it should be regarded as the successful party. In my judgment, in the present case it cannot be said, with any degree of plausibility, that Rotam won, or that they were, in the terms used in Oksuzoglu v Kay, “essentially the winning party”. By contrast it can be said that GAT, substantially and in reality won, and in particular that GAT substantially denied Rotam the prize which Rotam fought the action to win. Rotam recovered an amount of only some 2% of their claim as initially put forward, and some 3% of their subsequently reduced claim. Their recovery was very significantly exceeded by the costs which they incurred in the action, which were over £1.5 million. In reality, Rotam would not have incurred costs of that magnitude had the prize which they were seeking to win been the recovery which they ultimately made.

Furthermore, the claim in unjust enrichment on which Rotam prevailed was an alternative claim, which only succeeded on the basis that Rotam’s primary claim failed. Rotam’s evidence and argument in the trial were very largely directed to seeking to establish that a binding collaboration agreement or data transfer agreement had been concluded. To only a minor extent were they directed to establishing a right to restitution on the basis of a failure of consideration, because success on that claim could only arise if Rotam’s principal claims in contract failed. As Mr Cuddigan QC for GAT put it, the claim in unjust enrichment was one which Rotam wanted to lose. This emphasises that it was not the prize which Rotam fought the action to win.

I do not consider that the absence of a Part 36 or Calderbank offer from GAT alters the conclusion that it was GAT which was the successful party. I consider that the correct date to judge when any offer might reasonably be expected to have been made was at the point that the claim in unjust enrichment was added to the Particulars of Claim in January 2017. While there had been reference to the sum paid to GAT in the original Particulars of Claim, it was not pleaded as a claim in unjust enrichment. By January 2017 significant costs had already been incurred by the parties in dealing with Rotam’s originally pleaded causes of action, which, as I have decided, were unfounded. A Part 36 offer would have meant that GAT could not recover those costs. A Calderbank offer made by GAT at or after the time of the amendment to pay the amount of the enrichment plus the costs of that issue, but on the basis that Rotam should pay it the costs incurred in relation to the other causes of action, would undoubtedly have been rejected, and the making of such an offer would have been a “mere matter of ritual”, as it was put in Medway.

Accordingly I consider that GAT is to be regarded as the “successful party” for the purposes of CPR 44.2(2)(a). The general rule, therefore is that it should have its costs. I consider that that general rule should be followed in this case, subject, however, to the fact that there needs to be an order which reflects the parts of the case on which GAT did not prevail. The most significant of these were: (1) that it was found liable in unjust enrichment; (2) that it abandoned its case on Austrian law at the outset of the hearing; and (3) its case that there could not have been a binding collaboration or data transfer agreement because of the terms of the Confidentiality Agreement.

In my judgment these matters require a considerably larger reduction in the percentage of the costs which should be awarded to it than that for which GAT contends. Thus:

Furthermore, in one significant respect I considered that GAT’s conduct of the litigation had been unsatisfactory. This was that GAT produced a considerable quantity of documentation only during the trial, including in particular some 2000 pages of handwritten notes of Dr Gimeno and Mr Reismuller.

Taking these matters into account in my judgment the appropriate order is that Rotam pay 50% of GAT’s costs, to be assessed on the standard basis.

For the sake of completeness I should state that, even had I been persuaded that, by reason of the fact that they were recipients of a sum of money pursuant to my judgment, Rotam were to be regarded as the successful party, I would nevertheless not have made an order that Rotam was to have their costs, or a substantial proportion of their costs, under CPR 44.2(2)(a), but would have made a “different order” under CPR 44.4(2)(a), and I doubt that the overall result would have been significantly different from that which will follow from the order which I have made.

GAT has sought, in the event of a costs award in its favour, that there should be an order for a payment on account. I consider that in principle that is appropriate. I hope that the amount can be agreed between the parties, failing which I will resolve the issue on the basis of written submissions.