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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Coward v Phaestos Ltd & Ors [2014] EWCA Civ 1256 (02 October 2014) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2014/1256.html Cite as: [2014] EWCA Civ 1256 |
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CIVIL
DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(Mrs Justice Asplin)
HC10C02788
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE RYDER
and
MR JUSTICE DAVID RICHARDS
____________________
MARTIN JOHN COWARD |
Appellant |
|
- and - |
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(1) PHAESTOS LIMITED (2) MINDIMAXNOX LLP (3) IKOS CIF LIMITED (4) IKOS ASSET MANAGEMENT LIMITED |
Respondent |
____________________
(Transcript of the Handed Down Judgment of
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
(instructed by Lewis Silkin LLP) for the Appellant
Ms ELSPETH TALBOT RICE QC and Mr JAMES ABRAHAMS
(instructed by Herbert Smith Freehills LLP) for the Respondents
Hearing date: 23 July 2014
____________________
Crown Copyright ©
Mr Justice David Richards:
Introduction
Facts
The proceedings
The outcome on substantive issues
"We acknowledge that your clients have a right to press on with a claim that this code infringes intellectual property rights in the 2009 Software. However, since such code would not have any significant commercial value, we invite your clients to compromise such a claim on the terms set out above. For the avoidance of doubt, Dr Coward does not admit that the acts described above constitute an infringement of any intellectual property rights in the 2009 Software or that it is open to one or more of your clients to bring a claim in respect of the code written whilst on gardening leave."
"Our clients continue to believe that their own software was used in the creation of [the New Venture Software] code, and that this would become clear at trial. But with the giving of this undertaking there is no longer any need to pursue this in these proceedings, as your clients will have to clean up the NVS code by removing offending elements pursuant to its undertaking. Our clients will therefore not be pursuing their pleaded claims that the NVS (as disclosed and in its current form) infringes their copyrights or database rights, or that the making or use of the NVS (as disclosed and in its current form) involves a breach of confidence."
"It is intended that a regime whereby the Burns and Steyning Materials in Dr Coward's possession can be returned and/or destroyed, subject to the retention of a single image will be agreed. Therefore, I am not concerned directly with this part of the counterclaim."
At the end of her judgment, at [308]-[310], the judge said:
"(19) What should the regime be for the delivery up/destruction by Dr Coward of the Burns/Steyning materials?
308. It has been agreed that a forensic image of all of the Burns and Steyning materials should be retained by Navigant, an independent firm which has been jointly retained by the parties for similar purposes to date. It is also agreed that there be liberty to apply in this regard.
309. With regard to the Steyning PC, although it is not disputed that it is the property of the Defendants, as I understand it, they do not press for its return at this stage as long as it is also held by Navigant.
310. Although I will hear further submissions in this regard also, it seems to me to be relatively clear that all other copies of the Burns and Steyning Materials in the possession, custody or control of Dr Coward should be destroyed and the completion of the destruction confirmed on oath."
Order as to costs
The Calderbank offer
(1) A declaration that the software and databases used by IKOS were not the subject of any copyright or database rights owned by Dr Coward and did not incorporate any earlier versions of software or database which were subject to any copyright or database rights owned by him, and might without the further consent of Dr Coward be lawfully used, maintained and updated.
(2) An order providing for the handover to IKOS or destruction of all copies of the 2009 Software, and the destruction of the Burns materials in the possession, custody or control of Dr Coward or his lawyers or experts, and for the verification by witness statement that this had been done.
(3) An order that Dr Coward pay to IKOS the sum of £50,000 in settlement of its claims to financial relief, including interest.
(4) A declaration that the New Venture Software was not the subject of any copyright or database rights owned by IKOS.
(5) An order that Dr Coward pay IKOS's costs of the proceedings up to acceptance of the offer or 21 days from the date of the offer, such costs to be assessed on the standard basis if not agreed.
Submissions to the judge on costs
"In deciding what order (if any) to make about costs, the court will have regard to all the circumstances including
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and
(c) any admissible offer to settle made by a party which is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply."
"A party may make an offer outside Pt 36 for various reasons. Commonly it will do so because it wishes to offer specific terms as to the costs of the litigation, something which is not possible under Pt 36. While the court's discretion is wider under r. 44.3 than under Pt 36, where such an offer would have been better accepted by the otherwise successful party, the court may order that party to pay costs from the time that the offer expired."
"But in the context of the new Part 36, where money claims and non-money claims are to be treated in the same way, "more advantageous" is, as Rix LJ observed in the course of argument, "an open-textured" phrase. It permits a more wide-ranging review of all the facts and circumstances of the case in deciding whether the judgment, which is the fruit of the litigation, was worth the fight."
"For the purpose of paragraph (1), in relation to any money claim or money element of a claim, "more advantageous" means better in money terms by any amount, however small, and "at least as advantageous" shall be construed accordingly."
Judgment on costs
"8. It seems to me, to start with, that the case of Carver was concerned with Part 36 and with a money judgment, and therefore it is not directly relevant here. I am concerned with the wider discretion under CPR 44.3 [44.2] and in that regard an offer not of a Part 36 nature is one of the factors that is to be taken into consideration, and I have already referred to the notes in that regard. The question is whether that offer would have been better accepted by the party who actually is successful at the end of the trial. In such circumstances there is discretion as to whether, nevertheless, the court should order that the costs be paid from the date of the offer, but discretion it is.
9. Therefore it seems to me that Carver v BAA plc is not directly in point. It does not deal with CPR 44.3 [44.2], and that rule itself requires consideration of all the circumstances, including those set out in (a) to (c), which at (c) expressly includes non-Part 36 offers.
10. Nevertheless, was it worth the fight, which is the way that Ward LJ puts it at paragraph 30 of Carver? A different way of expressing the overall judgment to be made is simply whether it would have been better to have accepted the offer. I put no more weight therefore behind the judgment in Carver than that."
"Mr Abrahams on behalf of the defendant [IKOS] says that there was a further element in relation to what became known as the New Venture Software, which he says was brought in later. That was not pursued at trial because it is said by the defendants that it was at the eleventh hour that it was revealed that the mostly similar elements in the New Venture Software and the code used by IKOS arose from what became known as the Gardening Leave Code, although not all were synonymous with the Gardening Leave Code. They concluded it was not proportionate to pursue the rest of those issues."
Approach to appeals on costs
"Decisions on costs after a trial are pre-eminently matters of discretion and evaluation. Further, it is particularly important to bear in mind that a trial judge especially after a trial such as this one will have a knowledge of and feel for a case which an appellate court cannot begin to replicate The ultimate test, of course, for the purposes of an appeal of this kind is whether the decision challenged is wrong. But it is well established that an appellate court may only interfere if the decision on costs is wrong in principle; or it if involves taking into account a matter which should not have been taken into account or failing to take into account a matter which should have been taken into account; or if it is plainly unsustainable."
Submissions on appeal: general
Submission on appeal: the Calderbank offer
"42. (d) is that there was no injunction included in favour of IKOS. Mr Bloch says in that regard that there was insufficient threat of continued use of the 2009 Software and so that was something which was beside the point. Mr Abrahams points out that what actually has transpired is that Dr. Coward has undertaken to cleanse the New Venture Software of the 2009 Software and he also points out that Dr Coward sought a negative declaration that the New Venture Software was not subject to any rights vested in the defendants. Therefore he says it was very important and the effect of the finalised order is that the cleansing take place.
43. It seems to me that the mixture between the New Venture Software and the 2009 Software, and the way in which it is dealt with, and the fact that an undertaking has been given, is important in this case, given the fact that both the defendants and the claimant pursue the very same kind of business."
"Once again, Mr Bloch says that these matters are trivial and very small. He referred once again to the clock procedure. It seems to me, nevertheless, that the intermingling, as I have already said, of these two elements and the way in which they were interrelated was hotly disputed at the time and this was part of the issue in relation to infringement and security for both defendants and claimant. The extent of it was unclear and it seems to me that it was important."
"Mr Abrahams, on the other hand, says that this all boils down once again to Mr Bloch's assertion that all these matters were only housekeeping, whereas in fact they have taken up a huge amount of time and the security in knowing how this information has been dealt with and that it has been properly destroyed is of particular importance to the parties in this case. It is clear to me, given the huge amount of time which has been taken in relation to these details, that it is of some considerable importance."
"Mr Bloch says that that could have been agreed. Although that may be the case, it seems to me that such assignments would be extremely useful, given the huge importance of the software to the businesses concerned. That was not a term of the offer as it stood."
Discussion
(i) The Calderbank offer
"The upshot of these cases is in my judgment clear. The judge must look closely at the facts of the particular case before him and ask: who, as a matter of substance and reality, has won? Has the plaintiff won anything of value which he could not have won without fighting the action through to a finish? Has the defendant substantially denied the plaintiff the prize which the plaintiff fought the action to win?"
"Given that wish, it is in my view incredible that they would have allowed a settlement to founder for want of an undertaking by them not to republish. No reason has been suggested why they should have acted in such an uncommercial way. I do not accept the judge's view that "the plaintiff had to pursue the matter to judgment in order to obtain an injunction". The overwhelming probability is, in my view, that if he had chosen to accept the money in court he could have had an undertaking, equivalent in effect to an injunction, for the asking."
Judgments to the same effect were given by Stuart-Smith LJ and Simon Brown LJ.
(ii) Further clarification of the Calderbank offer
" the offer was not one without which further clarification and addition could have been accepted in July of 2012. The queries raised by Herbert Smith, on behalf of the defendant, were not dealt with at all in correspondence between July and the further counter-offer which was made in December."
(iii) The overall result
"The present case was essentially one where the exercise of the discretion to award costs had to reflect the reality that Quayside had substantially failed on its counterclaim, which on any basis was substantially exaggerated. Moreover consideration clearly had to be given to whether an issue based, or partial, costs order was appropriate."
As regards the various offers made by the parties, the court concluded that the judge had failed adequately to consider whether Walker's Calderbank offer of £30,000 inclusive of costs represented a reasonable offer to settle, having regard to the judgment ultimately achieved by Quayside and the appropriate proportion of its costs that Walker might reasonably have expected to pay on the basis of such a recovery.
"That is what the position would be but for the "drop hands" offer. However, that offer now affects the position. Since that letter offers a drop hands settlement and no order as to costs, it is in substance the same as the end result of the litigation. It is true, of course, that the claimant did recover the small amount of £6,750, but that is insignificant for these purposes. In the light of what I say the proper costs would otherwise be, this was an offer that the claimant ought to have accepted. I do not think that the £6,750 makes any difference this litigation was never about that small sum of money. Since it was an offer which ought to have been accepted, the costs since the date when it should have been accepted ought not to have been incurred. That they were incurred is the responsibility of the claimant. Accordingly the defendants should have their costs from the date when that offer ought to have been accepted (14th January 2005, on the terms of the letter)."
Apportionment of costs
Is Part 36 relevant?
"It can be seen from Part 36 as a whole, as well as from the extracts cited above, that it contains a carefully structured and highly prescriptive set of rules dealing with formal offers to settle proceedings which have specific consequences in relation to costs in those cases where the offer is not accepted and the offeree fails to do better after a trial. In cases where there has been no Part 36 offer or a Part 36 offer has been bettered the judge has a broad discretion in dealing with costs within the framework provided by Part 44. Rule 44.3(4) provides that when exercising its discretion as to costs the court will have regard to the general rule that the unsuccessful party should pay the costs of the successful party, but will also have regard to the conduct of the parties and any payment into court or admissible offer to settle made by one or other party which falls outside the terms of Part 36. In seeking to settle the proceedings, therefore, parties are not bound to make use of the mechanism provided by Part 36, but if they wish to take advantage of the particular consequences for costs and other matters that flow from making a Part 36 offer, in relation to which the court's discretion is much more confined, they must follow its requirements."
"44 From this review of authority I draw the following conclusions. First, where one party makes a Part 36 offer and then achieves a more advantageous result than that proposed in his offer, the provisions of rule 36.14 modify the court's general discretion in respect of costs. This is important because parties who choose to use the Part 36 mechanism in their settlement negotiations need to have a clear understanding of the legal effects of making, accepting and rejecting offers under Part 36.
45 Secondly, parties are quite entitled to make Calderbank offers outside the framework of Part 36. Where a party makes such an offer and then achieves a more advantageous result, the court's discretion is wider. Nevertheless it may well be appropriate to order the party which has optimistically rejected the Calderbank offer to pay all costs since the date when that offer expired."
"Once that position is appreciated, however, I have the greatest difficulty in seeing how the costs regime of Part 36, whether indirectly or by analogy, can properly be invoked. Rule 36.14 represents a departure from otherwise established costs practice. It imposes a deliberately swingeing costs sanction, by rule 36.14(3), on a claimant who fails at trial to beat a defendant's Part 36 offer. That is, for policy reasons, designed to encourage a sensible approach of claimants to offers and to promote settlement (that defendants do not get corresponding benefits under Part 36 may be for reasons in part explained by Simon Brown LJ in para 6 of his judgment in Kiam v MGN Ltd (No 2) [2002] 1 WLR 2810). But there is no reason or justification, in my view, for indirectly extending Part 36 beyond its expressed ambit. Indeed to do so would tend to undermine the requirements of Part 36 and the repeated insistence of the courts that intended Part 36 offers should be very carefully drafted so as to comply with the requirements of Part 36. As Mr Browne observed, Part 36 is highly prescriptive with regard to both procedures and sanctions. "
"(vii) if (a) one party makes an offer under Part 36 or an admissible offer within rule 44.3(4)(c) which is nearly but not quite sufficient, and (b) the other party rejects that offer outright without any attempt to negotiate, then it might be appropriate to penalise the second party in costs."
Insofar as that passage refers to an admissible offer within CPR 44.3(4)(c) (now 44.2(4)(c)), it is in my view entirely correct that in the circumstances there stated it might be appropriate to penalise the offeree in costs. Whether it would be appropriate to do so would of course depend entirely on the facts of the particular case.
Conclusion
Lord Justice Ryder:
Lord Justice Moore-Bick: