The New Lottery Company Limited & Anor v The Gambling Commission

I am going to give a judgment on the two main issues on costs which have arisen today. In doing so, I am inevitably going to have to give short form reasons because we have to get through various other matters at this consequentials hearing and have only limited time. If any party wishes to have more detailed reasons, then I will of course provide those by way of a reserved judgment in due course. For now, I will do my best to identify the main reasons for the decision that I have arrived at.

I take first the question of indemnity costs. It is common ground that the claimants must pay the defendant’s and IPs’ costs of the proceedings on a standard basis. However, the defendant and the IPs seek to recover their costs on an indemnity basis. In essence they say that they are the winning parties and that the conduct of the claimants throughout the entirety of the proceedings is such as to warrant an order for indemnity costs.

There is no dispute between the parties on the principles to be applied. I was referred to the cases of Three Rivers DC v Bank of England [2006] EWHC 816 (Comm) at [25] per Tomlinson J, citing the well-known case of Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879. I was also referred to the succinct summary of the law in Hislop v Perde Kaur [2018] EWCA Civ 1726 per Coulson LJ at [35]-[36].

Essentially, there must be conduct which takes the case out of the norm. That is a highly fact sensitive question and the Court’s discretion is extremely wide. The touchstone is unreasonableness, but that unreasonableness must be “to a high degree”. Unreasonable in this context does not mean merely wrong or misguided in hindsight. The Court may have regard to an aggregation of factors and there are infinite situations that may give rise to highly unreasonable conduct.

Mr Mallalieu KC, acting today on behalf of the claimants without the assistance of any of their trial counsel, has conceded (realistically) that there are certainly grounds for the making of an award of indemnity costs in respect of the costs of the trial of the Process Claim, or perhaps in respect of the costs of the Process Claim from the date of the PTR. However, he argues that the Court should properly order standard costs for everything else. In other words, he contends that an order for standard costs is appropriate in respect of the Modifications Claim in its entirety and the costs of the Process Claim up to (either) the PTR or the start of trial. Despite his valiant submissions, I am not persuaded by them.

In my judgment, an award of indemnity costs in favour of both the defendant and the IPs is appropriate in respect of the entirety of the proceedings in both the Process Claim and the Modifications Claim. In brief, my reasons are as follows:

This was a huge and important claim, billed by the claimants, as I recorded in my judgment, as “the most financially significant procurement process in UK history”. The claimants sought damages of over £1 billion together with a declaration of ineffectiveness which, if granted, would potentially have brought the National Lottery to a standstill. One would expect such a significant and substantial claim to be advanced in a serious, responsible, and proper manner. That was not, in fact, what happened. I note, in particular, my observation at [7] of the Judgment, which bears repetition:

“Notwithstanding the size of the claim and the legal resources available, I observe at the outset that the Process Claim has been advanced by the Claimants in an apparently unfocused manner, leading to various of the (numerous) original issues being dropped at the outset of trial, at the outset of closing submissions and even during closing submissions by the Claimants. In many cases, the issues were not dropped until it was specifically drawn to the Claimants’ attention by the court or by the other parties that they had not been addressed in the Claimants’ written closing submissions or that there no longer seemed to be any viable basis on which they could be maintained. The extent of this moveable feast was regrettable and (given the legal resources available to the Claimants) inexcusable. It led to significant time being wasted by the other parties in dealing with issues which were subsequently abandoned. It also risked leaving the court with an imperfect understanding of how the case was being advanced. To describe this as surprising, given the nature and alleged value of this claim, would be an under-statement”.

There were numerous serious and wide-ranging allegations (including of impropriety and dishonesty) made by the claimants running through the litigation from the outset. These included allegations of: (i) bias against the defendant as a whole and against specific individuals working for the defendant; (ii) conflicts of interest of varying types; (iii) pre-determination by the defendant’s Evaluators of the outcome of the Competition leading to only a perfunctory review at moderation; (iv) amendments to the defendant’s reasoning after the award decision was made but before it was communicated to the applicants so as to “retrofit” the feedback and comments to the scores awarded; and (v) preferential treatment of Allwyn by the defendant in the provision of Phase One Feedback. These allegations were all advanced over an extended period of time. Many of them were only dropped shortly before or at the trial in wholly unsatisfactory and unreasonable circumstances, as I have explained at length in the judgment.

By the end of trial, the list of issues, which originally ran to 64 issues in relation to the Process Claim and 17 issues in relation to the Modifications Claim, had been very substantially reduced, often without any proper notice being given to the other parties. This was, in my judgment, highly unreasonable and wholly out of the norm – I have dealt with various of the myriad abandonments in my judgment and do not repeat them here. However, I observe that no explanation has ever been provided by the claimants for their abandonment of any of the issues, nor has any reason been given by them for what I consider to be a cavalier and highly unusual and unreasonable way of proceeding.

One of the most serious of the allegations made in the Modifications Claim was that the need for the Challenged Modifications was brought about “wholly or substantially by Allwyn’s failures to meet its obligations under the Enabling Agreement”, an allegation which was (unsurprisingly) taken seriously by Allwyn, but (as explained in the judgment at [887]) mysteriously abandoned by the claimants without explanation during the course of the trial.

In addition to these numerous, serious, and wide-ranging allegations, the scale of the abandonments of these allegations caused very significant disruption to the Court and to the other parties, which I again consider to be out of the norm. It caused significant prejudice to the other parties in terms of their defence of the proceedings; in particular their understanding as to the case that was being advanced against them and the costs they have spent in trying to address that case. It also made it difficult for the Court, as I have recorded in my judgment, to understand the way in which the case was being advanced. At times, it was advanced in a fluid and apparently fully flexible and opportunistic manner.

Indeed, the claimants advanced a number of wholly unpleaded and unparticularised allegations at the trial and frequently sought to amend and reformulate existing allegations in a manner which I consider also fell well outside the norm. I commented on this approach in numerous places in the judgment. At [746] I observed that the claimants had been forced in light of their abandonments “to reformulate (and often to reinvent their case) at every opportunity” throughout the trial. I observed that this appeared to me to be a strong indicator that there was “really no basis whatever for [the] claim of manifest error or, indeed, therefore, for the intervention of the court”.

Indeed I consider that the claimants advanced weak and speculative allegations in respect of both the Process Claim and the Modifications Claim from the outset. They pursued these all the way to trial notwithstanding that they had been notified by the defendant that those claims were doomed to fail from early in 2023.

In the Process Claim the claimants had to overcome an almost insuperable hurdle (as described in the judgment at [182]): they had to establish that TNLC would have passed every one of the 12 Pass/Fail Areas in respect of which it was failed during the Competition and (ii) that Camelot and Allwyn should both have been disqualified.

The issue of standing, which I found against the claimants in the Process Claim, meant that, absent proper evidence as to the counterfactual, the Modifications Claim could not succeed. Yet, the claimants fought the Modifications Claim (which it is now accepted was intertwined with the Process Claim) without such evidence. I also agree with Ms Hannaford KC that the Modifications Claim was always very weak in its own right owing to TNLC’s woeful performance in 4NLC – the gap between its score and the scores of Allwyn and Camelot being 30%.

Mr Mallalieu correctly cautions me against the exercise of hindsight, and I have of course considered whether any of these matters might be affected by hindsight, but I agree with Ms Hannaford that hindsight does not affect the analysis in this case given the way in which this trial and case has proceeded from the outset.

Individually or cumulatively, the matters I have identified, in my judgment, are highly unreasonable and take the case out of the norm. I rely upon the many detailed points made in the judgment as to the claimants’ poor and unparticularised pleadings, their abandonment of claims, the prejudice and disruption caused by these abandonments, the extent of the unpleaded and fluctuating allegations and the weak and speculative nature of the claims.

I do not accept the claimants’ evidence in the thirteenth statement of Mr Bryant that they were not to blame for the approach they took to the litigation or that their conduct was the consequence of circumstances imposed upon them. I also do not consider it to be appropriate to “salami slice” the orders for costs by reference to individual issues or periods of time, as Mr Mallalieu valiantly suggested. I accept Ms Hannaford’s submissions that the conduct of the claimants which warrants an order for indemnity costs is not just their conduct at trial, because that conduct is itself a consequence of the highly unreasonable way in which these proceedings have been advanced and pursued from the beginning. The pleadings were inadequate and unparticularised from the outset, the claims were weak and none of these issues was remedied prior to trial. The pleadings gave no proper indication to the defendant and the IPs as to the case that they must meet. The allegations made by the claimants, as Mr Howard KC has said, were broad and scattergun because there did not appear to be a realistic pleaded case. They were not supported by adequate evidence from the claimants. Yet the defendant and the IPs had to expend very considerable amounts of money in preparing to meet those allegations as best they could, only to find them being peremptorily abandoned or changed at trial.

Accordingly, the conduct that I have found to be highly unreasonable is, in my judgment, conduct running through the whole of the case. It plainly warrants an order for indemnity costs in relation to the entirety of the proceedings. Further, I agree with Mr Howard that there is a need to mark disapproval on the part of the Court of such extraordinary conduct by the making of such an order.

During the course of his submissions, Mr Mallalieu suggested that the defendant’s and IPs’ costs were extremely high, that there were issues arising in relation to their proportionality, and that this was a relevant consideration to take into account in the exercise of my discretion. Specifically he prayed in aid the disproportionate nature of those costs in seeking to persuade me not to award costs on an indemnity basis. However, I reject that submission. There is nothing in the authorities to suggest that proportionality is a relevant factor in considering whether to make an order for indemnity costs and I am inclined to think that it is not. If a party has conducted itself in a highly unreasonable fashion which is out of the norm so as to justify the award of indemnity costs, that party has forfeited the right to any assessment based on arguments of proportionality. In any event, even if I am wrong about that, I do not consider that Mr Mallalieu’s arguments on proportionality would have shifted the dial given the serious and highly unreasonable nature of the conduct in this case. The conduct here is such that there is no injustice in the claimants being unable to challenge the quantum of the other parties’ costs on the grounds of proportionality.

I turn then to deal with the claimants’ application for the Court to depart from the general rule that the winning party should recover all of its costs. The claimants seek an order for a reduction to the defendant’s costs to reflect various issues that they have identified with the disclosure exercise, as explained in the thirteenth statement of Mr Bryant. In short, the claimants submit that the defendant’s approach to disclosure has substantially increased the costs of all parties involved and that it would be unreasonable or unjust to expect them to pay those increased costs.

I was referred very helpfully by Mr Mallalieu to the relevant principles in relation to the approach to costs, which are set out in the case of TMO Renewables v Timothy Yeo [2021] EWHC 2773(Ch), [2021] Costs Lr 947 at [7]-[14]. I bear those in mind, but do not need to recite them here. In the evidence of Mr Bryant, it was suggested that there should be a 7.3% reduction of the defendant’s costs to reflect the unreasonable costs incurred during disclosure. However, in the claimants’ skeleton argument for this hearing it was suggested for the first time that there should be a 20% reduction. No adequate explanation was given as to why that should be the case.

Having considered the arguments, I am not prepared to make any reduction to the defendant’s costs. Having regard to all the circumstances of this case, I consider justice to require that the defendant, as the winning party, should be entitled to recover all of its costs.

This application was made only on 18 May (today being 22 May) in the witness statement of Mr Bryant. Ms Hannaford describes Mr Bryant’s witness statement on the subject as “extremely thin”, and I agree. No adequate explanation for the proposed reduction has been given. The defendant has had no proper opportunity to put in evidence in response to the application, which I consider to be unfair, and I bear in mind that the judgment in this matter was handed down over a month ago and that this consequentials hearing is taking place, therefore, some considerable time after receipt of the judgment. If an application for a 20% reduction (or any reduction) from the defendant’s costs was to be made, it should have been made with proper notice being given to the defendant.

I agree, therefore, with the defendant that this is little short of a last-ditch attempt on the part of the claimants to obtain a reduction of the defendant’s costs. A reduction of 20% would have the effect of slicing around £4 million from the defendant’s cost bill. I do not consider there to be any basis for such an order, nor do I consider it to be fair, just or in accordance with the overriding objective to make that order.

The defendant has excluded both existing costs orders made during the course of the proceedings and costs incurred in relation to its inadvertent disclosure of privileged documents from its overall application for indemnity costs. It has confirmed that these will not be added back later. If the defendant spent an unreasonable amount of time on disclosure, that can no doubt be addressed on the assessment of costs. I do accept that there were difficulties in this case with disclosure, but I bear in mind that the issues raised in these proceedings necessitated a substantial and complex disclosure exercise. Disclosure in tranches was the subject of Court orders, including as to costs. That is not unusual in a case of this magnitude and I do not consider the disclosure issues identified by the claimants to go beyond what one would expect to see in the ordinary cut and thrust of litigation of this type.

Accordingly, in the exercise of my discretion and having regard to the relevant principles and the overriding objective, this is not a case in which the Court should depart from the general rule that the losing party must pay all of the winning party’s costs.

Finally, I observe that the extent of the IPs’ interest in these proceedings was agreed by the parties in the list of issues which was annotated with relevant references to the pleadings. The trial proceeded on the basis that the list of issues accurately identified and delineated the IPs’ involvement. I do not consider there now to be any scope for the claimants to go behind that identification and delineation when it comes to the assessment of costs.