Date 31 January 2008
Welcome to the January 2008 issue of Stay Alert.
In this edition, we bring you up to date on recent developments in Commercial Litigation and cover:
- The recovery from your opponent of the costs of your staff and management for dealing with litigation
- Whether a claimant can recover from the defendant more than the amount of fixed costs specified on the claim form
- Whether a costs order can be made against a person who was not a party to the litigation after the amount of those costs have been determined
- Whether it is possible to recover from your opponent as part of a success fee the costs incurred by a costs draftsman
- Whether you have to disclose the existence and details of an insurance policy to your opponent
- A potential danger of including a general email address on your business literature
- Whether a barrister is obliged to draw to the Court’s attention points which assist your opponent
- The extent to which documents have to be disclosed in patent litigation
We hope that you find this edition of Stay Alert useful and interesting. We value your opinions and always welcome any comments you may have. If you have any feedback on this edition or any suggestions on what you would like us to cover in future, please email Clare Mackay – clare.mackay@salaw.com. We look forward to hearing from you.
Can a business recover the cost of its management and staff dealing with and investigating claims that lead to litigation?
As anyone who has been involved in litigation will know, the amount of time that both management and other members of staff need to devote to running the claim or defence can be significant. By way of example, it may be necessary to divert staff from their normal activities to locate and review documents which are relevant to the dispute – time which they would otherwise have spent in more productive and lucrative work for their employer, Is it possible to recover from your opponent damages for this lost time?
In Aerospace Publishing Limited and Another v Thames Water Utilities Limited, 2007 the court indicated that a business must ask itself two questions when commencing a damages claim for recovery of staff costs:
- Was staff time diverted as a consequence of investigating the claim or mitigating the problem?
- If so, did the diversion cause disruption to its business?
- But for the diversion of the staff, would they have generated revenue for the business?
A business must produce evidence on all of these points in order to be successful in a claim, however, proof of lost income/profit is not necessary.
As confirmed in Bridge UK.com Limited t/a Bridge Communications v Abbey Pynford plc, 2007 it is clear that the amount that may be recovered is based upon staff time. In this case, a director’s salary was used as a guideline to quantify damages. In the Aerospace Publishing case above, the costs of employing staff members to carry out and deal with the investigations was used. It can be seen therefore that it is not just staff time that can be recovered, but that management time is also recoverable.
In order to assist a business in recovery of these costs, when dealing with investigating a claim, the business should keep a record of:
- The activities carried out by its diverted staff
- The duration of these activities
- The activities that the staff would otherwise have been engaged in
- The reason that a particular member of staff was chosen to undertake the investigations and deal with the claim.
Without this type of record, recovery of the costs in having staff dealing with the investigations would be difficult as there would be no proof that time was in fact spent on investigations that would not otherwise have taken place.
When are fixed costs not fixed costs?
The Civil Procedure Rules fix the amount of legal costs that a successful party can recover from his opponent in a number of specific circumstances. The most common of these is where proceedings are issued for a specified sum of money and the defendant either:
- pays the amount claimed within the 14 day period for responding to the claim; or
- ignores the claim and judgment in default of any response to the claim is obtained.
The advantage of including a claim for fixed costs is that the amount is included on the claim form and so the defendant knows exactly how much it has to pay to dispose of the claim. The downside is that the amount of fixed costs are generally insufficient to reimburse the claimant for the monies it has expended to that point on legal fees, leaving it out of pocket. However, even in cases where fixed costs apply, the Court retains a discretion to order a higher amount of costs.
In Amber Construction Services Limited v London Interspace HG Limited Akenhead J was asked to consider whether fixed costs should be payable if the defendant to a claim admits or pays the sum claimed within a few days of issue or on acknowledgment of service. It was held that the amount claimed or not claimed for fixed costs on the Claim Form is not determinative as to what costs will be ultimately awarded, as it is the circumstances surrounding the claim and the parties’ conduct that will influence the costs award.
A claimant cannot therefore prevent the application of fixed costs to a case by simply omitting to fill in the fixed commencement costs on the Claim Form. Whether the box is or is not filled in is immaterial if the court feels that it should use its discretion on the matter of costs so as to reach a just figure.
Can a person who was not a party to litigation still be ordered to pay the costs of that action even after the amount of such costs has been determined by the Court?
The general rule in litigation in the English Courts is that the losing party is ordered to pay a proportion of the winner’s costs. Can a person who was not a party to those proceedings also be made to contribute to the costs of the litigation?
Under section 51 of the Supreme Court Act 1981, a person who funds litigation but is not a party to the proceedings may be ordered to pay all or part of the costs of one of the parties to the litigation if the non-party either :
- substantially controls the proceedings or
- will benefit from the proceedings
After the conclusion of a case, the assessment of the amount of costs payable can take some time. In the absence of an agreement as to the amount of costs payable, the Court determines that question by a process known as detailed assessment proceedings. During that process, both sides have the opportunity to put to the Court their arguments as to the amount of costs that should be recoverable. It may be that a costs order against a person who was not a party to the main proceedings is not sought until after the costs of the action have been determined by the Court – for example, if it subsequently transpires that the paying party to the action is unable to pay those costs. If the Court has already assessed the amount of costs payable, the non-party has no opportunity to make representations and challenge the level of costs he is ordered to pay. Could a non-party therefore resist such an order being made on this ground?
The answer to this is no. The case of David Nelson v Greening & Sykes (Builders) Limited and Another [2007] EWCA Civ 1358 has confirmed that a non-party must comply with a costs order made after costs have been assessed even though that non-party has not had the opportunity to challenge that assessment. This decision was surprising, as previously the unwritten rule was that a non-party ought not in principle to be bound by costs already assessed as they had not had the opportunity to challenge. Therefore if there is the possibility of a non-party being made the subject of a costs order, it is essential to bear in mind that even if a sum of costs has already been assessed the non-party may still be required to contribute towards them.
Costs fee ruling
Whilst on the subject of the detailed assessment of costs, part of the process involves the drawing up a detailed bill of costs which sets out in considerable detail the work done by the solicitors involved, together with a breakdown of their time and costs incurred. The drafting of bills of costs is routinely done by costs draftsman, who may or may not be employed by a firm of solicitors.
Solicitors are now able to act for clients on conditional fee arrangements. Such arrangements enable solicitors to charge an additional fee, known as a success fee, in the event of a successful outcome to the case. The issue arose whether such a success fee can be recovered on work done by costs draftsman as well as the work done by the solicitors.
The Court of Appeal held in Crane v Canons Leisure Centre [2007] EWCA Civ 1352 that the fees of external costs draftsmen are profit costs and not disbursements, and so solicitors can charge a success fee on them. Hallett LJ held that the work done by costs draftsmen was undoubtedly solicitors’ work and that even though this work can be delegated to others, the solicitors never relinquish control and responsibility of it. The court also held that there was no reason of principle to have a lower success fee for costs proceedings than that for the main action.
Does a Defendant have a duty to disclose the nature and extent of their insurance cover to Claimant during litigation?
In Harcourt v FEF Griffin [2007] EWHC 1500 (QB) the court had to consider whether details of the Defendant’s insurance cover should be disclosed to the Claimant following an application for specific disclosure. An order for specific disclosure requires a party to disclose a particular document or class of documents.
Generally the CPR provide that there is no general duty to disclose the nature and extent of insurance cover to a Claimant in the course of litigation as it may discourage the Claimant from settling the matter at any point short of the limit imposed by the insurance cover. However, this then leaves Claimants uncertain as to whether a Defendant can satisfy any award for damages, let alone any costs orders made.
Against the usual grain of the CPR, in this case the court dismissed the arguments of the Defendant, and ordered the Defendant to disclose details of their insurance policy to the Claimant. The court held that:
- There must be an extremely good reason before the court will enforce disclosure of such a contract, but nevertheless, there are many circumstances whereby disclosure may be compelled if it is relevant to an issue in the case.
- The fact that there was no authority permitting the disclosure of this type of information did not mean that Parliament did not intend for such a request to be met.
- Disclosure issues such as these were to be decided on a case by case basis as the court accepted that it may lead to situations whereby the Claimant was given a tactical advantage.
- Disclosure of this kind should only be ordered where a Claimant can demonstrate that there is a real concern that a realistic award in the case may not be satisfied.
Following Harcourt, there remains no general duty on a Defendant to disclose its insurance cover under the CPR, although this is now a valid request under the disclosure rules and will be decided on an individual basis at the discretion of the court.
Is email to a general email address a valid service method in arbitration?
Do you include a general email address on your business stationary and website? If you do, you may end up being served with arbitration proceedings and be unable to overturn the arbitrator’s award if you fail to respond to the claim.
The case of Bernuth Lines v High Seas Shipping (the ‘Eastern Navigator’) [2007] has illustrated how a general email address can be used in arbitration proceedings and can become a ‘procedural trap’ if proper precautions are not taken.
The arbitration clause between the parties stated that disagreements would be referred to the Small Claims Procedure of the London Maritime Arbitrators Association. This procedure provided that “all communication or notification under this procedure may be by letter, telex, telefax or email.” The email sent by the Defendant was to the Claimant’s general email address, which appeared in the Lloyd’s Maritime Directory 2005 as well as on their website. No response was ever received from the Claimant, however the Defendant and the arbitrators continued to send correspondence and documents to the same address. In the absence of the Claimant’s defence, the arbitrator issued the final award. This award was sent to the Claimant via email and post.
On receiving the award, the Claimant sought to challenge the award, alleging that the arbitration proceedings had not been properly brought to their attention which constituted a serious irregularity and caused substantial injustice. At court, the Claimant gave evidence that they had received the notice of arbitration, although the persons who received it had not known what to do with it and had simply ignored it. Their explanation for this was that they received hundreds of spam emails each day and they had no reason to believe that this was not spam. It was also argued that email was not recognised as a method of service by the CPR.
The court rejected these submissions, recognising that email was not a valid method of service under the CPR but taking the view that they were not an appropriate benchmark for considering whether service by email in arbitration proceedings was valid. It was accepted though that clicking the ‘send’ button did not automatically mean valid service; if the email was later rejected by the system then the email would no longer be valid. The court considered that the email address was held out by the Claimant as the only email address they had, and that it was due to the Claimant’s own internal failures that the emails were not received by the appropriate person. Therefore, the arbitrator’s final award was allowed to stand.
This case is a sharp reminder to businesses that frequently use a general email address in their literature that unless they clarify the purposes for which it can be used, for the purpose of arbitration hearings the court will allow service of correspondence and documentation to that address even if those items are never received or acted upon by the correct persons.
Limits on counsels’ duties to inform the Judge of points that may assist your opponent
To what extent is a barrister who is instructed to represent one party at a hearing obliged to draw to the attention of a Judge something which may be beneficial to the other side?
The Court of Appeal in Etedal Khudados v Jacky Hayden and others [2007] EWCA Civ 1316 considered whether there was a duty on counsel to bring the judge’s attention to evidence that was favourable to the other side. The court made a distinction between the evidence in the case and points of law of which counsel is aware. Counsel is under a duty to inform the Court of points of law, in the form of relevant decisions and legislative provisions. This obligation is set out in the Bar Code of Conduct. Counsel is not however obliged to draw to the Court’s attention any evidence that is favourable to the other side. To require Counsel to do so would be a failing on Counsel’s part to uphold his duty to his client.
Even though the other side was a litigant in person in this case (and so did not have lawyers acting for him), the court’s view was unaltered. The decision emphasised that although CPR 1.3 required the parties to assist the court in furthering the overriding objective to ensure that cases are dealt with justly, this is at most a duty to the court and did not require counsel to assist the other side in highlighting the strengths of their evidence and placing their own client at a disadvantage in doing so.
Patent disputes – the road to cheaper and faster litigation
The expense of patent litigation has since the nineteenth century been blamed on the huge amount of documents detailing inventions required for the disclosure process, which typically does not turn out to be crucial to the case. Although the concepts of proportionality and ‘standard disclosure’ were introduced in 1999 by the Civil Procedure Rules as completely new concepts, they appear to have had little effect in reducing the cost of patent litigation.
Standard disclosure requires a party to disclose to his opponents (i) documents on which he relies (ii) documents which adversely affect his own or another party’s case or supports another party’s case and (iii) documents which a practice direction requires him to disclose. In practice, this can lead to a large amount of documentation being disclosed at considerable cost to the parties.
In the recent case of Nichia v Argos , Jacob LJ stated that standard disclosure in patent cases no longer required the automatic disclosure of inventors’ notebooks and other papers containing details of their inventions and that such disclosure should not normally be ordered. The reasoning behind this was that what the inventor had thought or done had no direct relevance to the usual four-step structured approach taken in the granting of patent status to an invention. This approach requires an invention to be new, to involve an inventive step, to be capable of industrial application, and to fall outside of those excluded from protection by statute, and therefore disclosure regarding information irrelevant to this approach was unnecessary. Despite this, the other two judges disagreed, believing that a blanket ban on disclosure of this type would lead to dishonesty and cavalier attitudes towards litigation. It was therefore proposed that there would be a rigorous application of rationale of standard disclosure.
It should now be only in the rarest of cases that patent judges are prepared to order extensive disclosure of an inventor’s papers, and as a result, patent litigation should become less expensive and more attractive to potential litigants.
© SA LAW 2008
Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them. You are recommended to obtain specific advice in respect of individual cases.