Indemnity Costs - DSN v Blackpool Football Club
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Jane Lambert
Queen's Bench Division (Mr Justice Griffiths) DSN v Blackpool Football Club Ltd [2020] EWHC 670 (QB) (20 March 2020)
Paragraph 8 of the Practice Direction - Pre-Action Conduct and Protocols which I discussed in Practice Direction - Pre-Action Conduct and Protocols Update on 12 Oct 2019 advises:
"Litigation should be a last resort. As part of a relevant pre-action protocol or this Practice Direction, the parties should consider whether negotiation or some other form of ADR might enable them to settle their dispute without commencing proceedings."
Paragraph 9 adds that parties should continue to consider the possibility of reaching a settlement at all times, including after proceedings have been started. Paragraph 10 lists the types of ADR that are available to litigants such as mediation, arbitration, early neutral evaluation and ombudsman schemes. Paragraph 11 warns:
"If proceedings are issued, the parties may be required by the court to provide evidence that ADR has been considered. A party’s silence in response to an invitation to participate or a refusal to participate in ADR might be considered unreasonable by the court and could lead to the court ordering that party to pay additional court costs."
This is not a dead letter. In my article, I indicated that one of the consequences of non-compliance is that the party in default could be ordered to pay indemnity costs.
A case that makes the point is Mr Justice Griffiths's decision in DSN v Blackpool Football Club Ltd (Rev 1) [2020] EWHC 670 (QB) (20 March 2020). This was a claim for damages for sexual abuse for which the football club had been vicariously liable. His lordship gave judgment in that case in DSN v Blackpool Football Club Ltd [2020] EWHC 595 (QB) (13 March 2020). After judgment, the parties agreed damages, interest and an additional payment under CPR 36.17 (4) (d). They were not, however, able to agree whether costs should be on the standard or indemnity basis, the amount of an interim payment on account of costs and whether there should be permission to appeal. Those matters came back before the judge on 20 March 2020.
Part of the claim for indemnity costs was based on CPR 36.17 (4) (b) which the judge decided in favour of the claimant. The other basis was breach of the following direction of the master:
"ALTERNATIVE DISPUTE RESOLUTION
At all stages the parties must consider settling this litigation by any means of Alternative Dispute Resolution (including Mediation); any party not engaging in any such means proposed by another must serve a witness statement giving reasons within 21 days of that proposal; such witness statement must not be shown to the trial judge until questions of costs arise."
The claimant made a number of Part 36 offers and invited the defendant to negotiate settlement of the proceedings. The defendant did not respond to the offers and served the following witness statement explaining why:
"I make this statement pursuant to paragraph 4 of Master McCloud's order dated 30 October 2018, namely that any party not engaging in any means of Alternative Dispute Resolution (ADR) proposed by another party must, within 21 days of that proposal, serve a witness statement giving reasons for not engaging in ADR.
Olivia Coffey, the solicitor acting on behalf of the claimant, emailed me on 30 October 2019 advising that she had been instructed by the Claimant to invite the Defendant to enter into settlement negotiations in respect of this claim. I attach a copy of this correspondence marked 'CRW1'.
The parties have now completed all outstanding evidential directions prior to trial in this matter (save for service of the counter schedule of loss which is due on 26 November 2019). Having considered all of the available evidence, the defendant continues to believe that it has a strong defence to this claim and stands by the contents of its Defence dated 10 May 2018. In the circumstances I respectfully submit that no purpose would be served by any form of ADR."
In a covering letter, the defendant's solicitors wrote:
"I attach my statement dated 6 November 2019 made pursuant to paragraph 4 of Master McCloud's order dated 30 October 2018. You will note that the Defendant does not intend to engage in settlement negotiations and remains confident in the strength of its defence."
"I attach my statement dated 6 November 2019 made pursuant to paragraph 4 of Master McCloud's order dated 30 October 2018. You will note that the Defendant does not intend to engage in settlement negotiations and remains confident in the strength of its defence."
The last Part 36 offer, which was well below the damages awarded at trial, was made just after the defendant's witness statement had been served. In response to the offer, the defendant said:
"I do not have instructions to accept the offer. As advised in my statement dated 6 November, my client continues to believe that it has a strong defence to this claim and stands by the contents of the Defence dated 10 May 2018.
I now urge you to turn your attention to the trial bundle index which is due to be agreed by 23 December 2019…"
"I do not have instructions to accept the offer. As advised in my statement dated 6 November, my client continues to believe that it has a strong defence to this claim and stands by the contents of the Defence dated 10 May 2018.
I now urge you to turn your attention to the trial bundle index which is due to be agreed by 23 December 2019…"
Mr Justice Griffiths summarized the defendant's position as follows at paragraph [27] of his judgment:
"In summary, the Defendant in this case failed and refused to engage in any discussion whatsoever about the possibility of settlement. It did not respond to any of the three Part 36 offers (except to reject the final one). It was required by paragraph 4 of the Order of Master McCloud "to consider settling this litigation by any means of Alternative Dispute Resolution (including Mediation)". It was warned by the same Order that if it did not engage in any such means proposed by the Claimant it would have to give reasons, and it was also warned that the reasons it gave might in due course be shown to the trial judge when the question of costs arose."
"In summary, the Defendant in this case failed and refused to engage in any discussion whatsoever about the possibility of settlement. It did not respond to any of the three Part 36 offers (except to reject the final one). It was required by paragraph 4 of the Order of Master McCloud "to consider settling this litigation by any means of Alternative Dispute Resolution (including Mediation)". It was warned by the same Order that if it did not engage in any such means proposed by the Claimant it would have to give reasons, and it was also warned that the reasons it gave might in due course be shown to the trial judge when the question of costs arose."
His lordship took the view that the reasons given for refusing to engage in mediation were inadequate. He added at [28]:
"They were, simply, and repeatedly, that the Defendant "continues to believe that it has a strong defence". No defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution. Experience has shown that disputes may often be resolved in a way satisfactory to all parties, including parties who find themselves able to resolve claims against them which they consider not to be well founded. Settlement allows solutions which are potentially limitless in their ingenuity and flexibility, and they do not necessarily require any admission of liability, or even a payment of money. Even if they do involve payment of money, the amount may compare favourably (if the settlement is timely) with the irrecoverable costs, in money terms alone, of an action that has been successfully fought. The costs of an action will not always be limited to financial costs, however. A trial is likely to require a significant expenditure of time, including management time, and may take a heavy toll on witnesses even for successful parties which a settlement could spare them. As to admission of liability, a settlement can include admissions or statements which fall short of accepting legal liability, which may still be of value to the party bringing a claim. In the present case, for example, I have already in my previous judgment commented (at [2020] EWHC 595 (QB) paras 188-189) on the opportunity missed by the Defendant at the very least to acknowledge and accept that the Claimant was sexually abused by Roper (it having no positive case to the contrary, and no evidence to support a case to the contrary). The passage in the Claimant's witness statement which I quoted in paragraph 188 of my previous judgment shows that the Claimant was not primarily motivated by money (and the low figure of his final Part 36 offer confirmed that). He 'expected the club to want to engage and to understand what had happened'. The club could have engaged with him (having received his statement, which was dated as long ago as 28 May 2019) without prejudice to what it presented at trial as its strongest defences: namely, that the claim was outside the limitation period and that the club was not vicariously liable for Roper's sexual abuse of the Claimant, even if that abuse were to be admitted. It did not engage at all."
"They were, simply, and repeatedly, that the Defendant "continues to believe that it has a strong defence". No defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution. Experience has shown that disputes may often be resolved in a way satisfactory to all parties, including parties who find themselves able to resolve claims against them which they consider not to be well founded. Settlement allows solutions which are potentially limitless in their ingenuity and flexibility, and they do not necessarily require any admission of liability, or even a payment of money. Even if they do involve payment of money, the amount may compare favourably (if the settlement is timely) with the irrecoverable costs, in money terms alone, of an action that has been successfully fought. The costs of an action will not always be limited to financial costs, however. A trial is likely to require a significant expenditure of time, including management time, and may take a heavy toll on witnesses even for successful parties which a settlement could spare them. As to admission of liability, a settlement can include admissions or statements which fall short of accepting legal liability, which may still be of value to the party bringing a claim. In the present case, for example, I have already in my previous judgment commented (at [2020] EWHC 595 (QB) paras 188-189) on the opportunity missed by the Defendant at the very least to acknowledge and accept that the Claimant was sexually abused by Roper (it having no positive case to the contrary, and no evidence to support a case to the contrary). The passage in the Claimant's witness statement which I quoted in paragraph 188 of my previous judgment shows that the Claimant was not primarily motivated by money (and the low figure of his final Part 36 offer confirmed that). He 'expected the club to want to engage and to understand what had happened'. The club could have engaged with him (having received his statement, which was dated as long ago as 28 May 2019) without prejudice to what it presented at trial as its strongest defences: namely, that the claim was outside the limitation period and that the club was not vicariously liable for Roper's sexual abuse of the Claimant, even if that abuse were to be admitted. It did not engage at all."
To reinforce his point that "no defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution", his lordship said that even if the defendant had had a strong defence "its responses to the Claimant's settlement overtures and the statement made in compliance with paragraph 4 of the Order of Master McCloud would still, in my judgment, have fallen short of an acceptable level of engagement with the possibility of settlement or Alternative Dispute Resolution."
The learned judge referred to the Chancellor's remarks in OMV Petrom SA v Glencore International AG [2017] 1 WLR 3465, [2017] 2 Costs LR 287, [2017] WLR 3465, [2017] EWCA Civ 195, [2017] 2 Lloyd's Rep 93, [2017] WLR(D) 218, [2017] CP Rep 24:
"The parties are obliged to make reasonable efforts to settle, and to respond properly to Part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably, and if they do not, the court's powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process."
The judge directed himself that it is conduct which "takes the case out of the norm" as in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnston (Costs) [2002] EWCA Civ 879 or "outside the ordinary and reasonable conduct of proceedings" as in Esure Services Ltd v Quarcoo [2009] EWCA Civ 595, Waleys (Bradford) Limited v Bennett [2017] EWCA Civ 2143 and Dunnett v Railtrack Plc (Costs) [2002] 2 All ER 850, [2002] EWCA Civ 303, [2002] 1 WLR 2434, [2002] WLR 2434, [2002] CPLR 309 that justifies an award of indemnity costs.
He ordered indemnity costs from one month after the master's order and 8 months after the claimant's first Part 36 offer. Costs from the issue of proceedings until that date were to be paid on the standard basis.
This decision is particularly relevant to IP disputes where the parties have unequal resources. Professor William Kingston of Trinity College Dublin complained in Enforcing Small Firms' Patent Rights, EU Directorate-General for Enterprise, 2001 that parties with the longer pockets use the costs of litigation to extract unmeritorious concessions and settlements. The Arnold reforms and the launch of the small IP claims track have made that harder but it still goes on. Mr Justice Griffith's judgment is another potential weapon against such abuse.
It is, however, important to note that arbitration, mediation and other forms of ADR are not cost-free. A proposal for a day's mediation before a fashionable silk or a partner of a magic circle law firm can be just as intimidating to a litigant on a budget as the litigation itself. As I pointed out in my article on the new pre-action practice directions:
"Of course, mediation and other forms of ADR, expert opinions and even pre-action correspondence carry a cost which could pressure parties into making unnecessary concessions. For that reason, paragraph 4 provides that a pre-action protocol or the Practice Direction must not be used by a party as a tactical device to secure an unfair advantage over another party. Only reasonable and proportionate steps should be taken by the parties to identify, narrow and resolve the legal, factual or expert issues. Paragraph 5 adds that the costs incurred in complying with a pre-action protocol or this Practice Direction should be proportionate."
I should not wish to finish this topic without noting that Blackpool Football Club has a very illustrious history. Founded in 1887 it won the FA Cup in 1953. Probably its most famous player was Sir Stanley Matthews. It has not done quite so well in recent years but it has a very loyal following on the Fylde.
Turning to a radically different subject, I announced last night in NIPC News that I shall give a free 90-minute introductory talk on patent law at 14:00 on 22 April 2020. One person signed up immediately and as of 11:24 today 524 people had seen my announcement on Linkedin, 11 liked it and 2 re-shared it. I also got a few likes on Facebook and Twitter and one or two re-tweets. But only 3 persons have actually visited the Eventbrite page and unless you register through that page you can't hear the talk.
Now I acknowledge that I have given only 5 days notice and normally that would be nothing like sufficient but we are all in lockdown, the courts are on vacation and transacting very little business even in term, many businesses and law firms have furloughed their staff. So, unless you work for the NHS or a care home, stack shelves in Sainsbury's, drive a delivery van or work in some other front line service, the chances are that next Tuesday is as good a time to do some training as any other. I gave a very similar talk last year at the Cambridge IP Law Summer school for which attendees were charged £3,499 plus VAT and I am booked to speak and chair a session again this year if the course takes place. I won't be giving any more talks online unless I get a good audience for this one.
Having said that, I wish everyone as happy a weekend as possible in this third week of seclusion. I hope everyone is safe and well. Should anyone want to discuss this article or anything else, call my clerk on 07986 948267 during office hours or send me a message through my "Contact" form.
"The parties are obliged to make reasonable efforts to settle, and to respond properly to Part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably, and if they do not, the court's powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process."
The judge directed himself that it is conduct which "takes the case out of the norm" as in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnston (Costs) [2002] EWCA Civ 879 or "outside the ordinary and reasonable conduct of proceedings" as in Esure Services Ltd v Quarcoo [2009] EWCA Civ 595, Waleys (Bradford) Limited v Bennett [2017] EWCA Civ 2143 and Dunnett v Railtrack Plc (Costs) [2002] 2 All ER 850, [2002] EWCA Civ 303, [2002] 1 WLR 2434, [2002] WLR 2434, [2002] CPLR 309 that justifies an award of indemnity costs.
He ordered indemnity costs from one month after the master's order and 8 months after the claimant's first Part 36 offer. Costs from the issue of proceedings until that date were to be paid on the standard basis.
This decision is particularly relevant to IP disputes where the parties have unequal resources. Professor William Kingston of Trinity College Dublin complained in Enforcing Small Firms' Patent Rights, EU Directorate-General for Enterprise, 2001 that parties with the longer pockets use the costs of litigation to extract unmeritorious concessions and settlements. The Arnold reforms and the launch of the small IP claims track have made that harder but it still goes on. Mr Justice Griffith's judgment is another potential weapon against such abuse.
It is, however, important to note that arbitration, mediation and other forms of ADR are not cost-free. A proposal for a day's mediation before a fashionable silk or a partner of a magic circle law firm can be just as intimidating to a litigant on a budget as the litigation itself. As I pointed out in my article on the new pre-action practice directions:
"Of course, mediation and other forms of ADR, expert opinions and even pre-action correspondence carry a cost which could pressure parties into making unnecessary concessions. For that reason, paragraph 4 provides that a pre-action protocol or the Practice Direction must not be used by a party as a tactical device to secure an unfair advantage over another party. Only reasonable and proportionate steps should be taken by the parties to identify, narrow and resolve the legal, factual or expert issues. Paragraph 5 adds that the costs incurred in complying with a pre-action protocol or this Practice Direction should be proportionate."
I should not wish to finish this topic without noting that Blackpool Football Club has a very illustrious history. Founded in 1887 it won the FA Cup in 1953. Probably its most famous player was Sir Stanley Matthews. It has not done quite so well in recent years but it has a very loyal following on the Fylde.
Turning to a radically different subject, I announced last night in NIPC News that I shall give a free 90-minute introductory talk on patent law at 14:00 on 22 April 2020. One person signed up immediately and as of 11:24 today 524 people had seen my announcement on Linkedin, 11 liked it and 2 re-shared it. I also got a few likes on Facebook and Twitter and one or two re-tweets. But only 3 persons have actually visited the Eventbrite page and unless you register through that page you can't hear the talk.
Now I acknowledge that I have given only 5 days notice and normally that would be nothing like sufficient but we are all in lockdown, the courts are on vacation and transacting very little business even in term, many businesses and law firms have furloughed their staff. So, unless you work for the NHS or a care home, stack shelves in Sainsbury's, drive a delivery van or work in some other front line service, the chances are that next Tuesday is as good a time to do some training as any other. I gave a very similar talk last year at the Cambridge IP Law Summer school for which attendees were charged £3,499 plus VAT and I am booked to speak and chair a session again this year if the course takes place. I won't be giving any more talks online unless I get a good audience for this one.
Having said that, I wish everyone as happy a weekend as possible in this third week of seclusion. I hope everyone is safe and well. Should anyone want to discuss this article or anything else, call my clerk on 07986 948267 during office hours or send me a message through my "Contact" form.
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