The opera ain't over ... or is it? Court clarifies interplay between Part 36 and fixed costs caps
In the case of Nicholas Martin & Big Hat Stories Ltd v Julia Kogan,, Nicholas Martin had sought a declaration that he was the sole author of the screenplay of the film 'Florence Foster Jenkins' (the "Screenplay"). Julia Kogan, who had previously been in a relationship with Mr Martin, filed a counterclaim for a declaration that she was the joint author of the Screenplay and that Mr Martin had infringed her copyright in such. She also joined the production and financing companies for the film as Part 20 Defendants against which she sought relief for infringement.
Further details of the liability decision can be found in our comment here, but in conclusion, on 22 November 2017, presiding in the Intellectual Property Enterprise Court ("IPEC"), HHJ Hacon held that Mr Martin was entitled to a declaration that he is the sole author of the Screenplay and that accordingly, he dismissed the counterclaim and Part 20 claim.
A couple of weeks later, the judge addressed the issue of what order for costs would arise from this earlier decision in favour of Mr Martin, especially in light of certain settlement offers that had been earlier made.
The Part 36 offers
Prior to the initial trial on liability, both Mr Martin and the Part 20 Defendants had made offers to Ms Kogan to settle their disputes with her under the Civil Procedure Rules ("CPR") Part 36 ("Part 36").
At the costs hearing, counsel for Ms Kogan urged the judge to reconsider his earlier and controversial decision in Phonographic Performance Limited ("PPL") v Hagan. In PPL v Hagan, HHJ Hacon had held that in the event of a claimant obtaining at a trial in the IPEC a judgment that is at least as advantageous as proposals contained in an earlier Part 36 offer made by the claimant, then the consequence would be that the amount of costs that the claimant can recover may, at the Court's discretion, exceed the overall staged level recoverable costs cap of £50,000 that usually applies in the IPEC.
The interplay between the costs consequences of Part 36 offers and their effect on the fixed costs recoverable in IPEC has led to sharply divided opinions. Some support the view that those who reject Part 36 offers should as a general rule be penalised on costs so as to encourage the resolution of disputes prior to trial. Alternatively, there are those who believe that the system of fixed recoverable costs in the IPEC (and other tribunals) should be regarded as sacrosanct as they provide certainty to litigants as to the extent to which they are exposed.
Mr Martin made two Part 36 proposals to Ms Kogan prior to trial.
(1) Prior to the issue of proceedings, on 18 February 2016, Mr Martin made an offer of £35,000 in full settlement of Ms Kogan's claim for compensation plus her costs to be assessed, if not agreed, on a standard basis, if such is accepted within 21 days after the date of the offer, i.e. by 10 March 2016.
(2) On 19 September 2017, he offered the sum of £35,000 with interest in full settlement of the claim and her counterclaim, but this time on the basis that Ms Kogan would pay his costs up to the date when the offer is accepted.
On 14 September 2017, the Part 20 Defendants made a Part 36 offer whereby in full and final settlement of her claim against them, they would pay to Ms Kogan the sum of £5,000 less any sums she accepted from Mr Martin (the "Part 20 Defendants' Offer").
Ms Kogan did not accept any of the offers.
The interplay between CPR 36.17 & the IPEC costs caps
The amount of costs claimed by Mr Martin and the Part 20 Defendants were, respectively, £202,835.88 and £84,898.75 – far in excess of the IPEC's overall costs cap of £50,000.
The decision in PPL v Hagan was based upon the judgment by the Court of Appeal in Broadhurst v Tan which, although not an appeal from the IPEC, did address the tension between fixed recoverable costs (in the context of low value personal injury claims) and successful Part 36 offers.
Under what is now CPR 36.17(4), where a claimant has made a Part 36 offer that has not been bettered at trial, the court must, unless it considers it unjust to do so, order that the claimant is entitled, in addition to compensation and interest at a rate not exceeding 10% above base rate, to (i) costs on the indemnity basis from the date when the period for accepting the offer had expired and (ii) an additional amount not exceeding £75,000, which is calculated by applying a prescribed percentage to the amounts of compensation or costs awarded to the claimant.
By way of his ruling, the judge:
(1) affirmed his decision in OOO Abbott v Design & Display Limited that the additional amount was not a species of costs and thus unaffected by the costs caps;
(2) declined to reverse his decision in PPL v Hagan and held the IPEC cap limits can be exceeded in the event of a successful Part 36 offer by the claimant;
(3) confirmed that, unless there are exceptional circumstances, as the implementation of CPR 36.17(4) is always subject to the court's discretion, it will be usually subject to some limitations.
In this instance, after consideration by analogy of the level of capped costs that is currently being run in a pilot scheme started on 4 December 2017 in the London Circuit Commercial Court, the judge held that the total amount of the costs recoverable by Mr Martin would be raised by 25% from the usual cap of £50,000 to £62,500.
After assessment, Mr Martin was awarded £50,790 and the Part 20 Defendants £25,820.
Joint parties & separate counsel
CPR 36.17 is not applicable to the Part 20 Defendants' Offer, as it is to be treated as a defendant's offer; the production and financing companies were Part 20 Defendants to Ms Kogan's claim for copyright infringement.
As a general rule, as from 5 October 2017, the Part 20 Defendants would have been entitled to their costs plus interest arising from 5 October 2017, i.e. 21 days after the Part 20 Defendants' Offer, being five days before the start of the trial. However, HHJ Hacon held that it was not reasonable to give the Part 20 Defendants any of their costs for the trial and the handing down of the judgment, because there was no reason why they had to instruct counsel and a legal team separate from that of the team instructed by Mr Martin.
This scrutiny by the IPEC (and presumably other courts) as to whether the appointment of separate legal teams by co-claimants and co-defendants, has continued. For example, in the unregistered design right infringement dispute of Thelma Madine t/a Nico & Anor v (1) Leanne Phillips (2) Pauline Phillips & Ors, although Miss Recorder Amanda Michaels sitting as an IPEC judge had dismissed the allegation of joint tortfeasance against Pauline Phillips (the second defendant), she concluded that Pauline Phillips should recover just 20% of her costs, as in that case – despite a conflict between the witness testimony of the first and second defendants – the judge held that it was not reasonable for the second defendant to instruct a separate legal team.