When the litigation loser becomes the winner

The general rule for litigation in England and Wales is that the unsuccessful party will be ordered to pay the costs of the successful party. But who is the ‘unsuccessful party’ where the defendant admits liability in a £15m claim but is only ordered to pay nominal damages of £2?

This is precisely what happened in Marathon Asset Management v James Seddon and ors [2017] EWHC 479 (Comm). In this case, Marathon spent nearly £10m in pursuit of damages of £15m against Luke Bridgeman for misuse of confidential information. Bridgeman admitted liability very early on, so the claim principally concerned an assessment of quantum.

It transpired that Bridgeman had tried to settle the dispute halfway through the proceedings with a part 36 offer of £1.5m. The question for the court was whether the usual order for costs should be varied so as to disentitle the otherwise successful party from recovering any or part of its costs.

Part 36 of the CPR provides that if a claimant does not accept an offer from the defendants and does not achieve a result better than that offer at trial, the court must order it to pay the defendants’ costs from the period 14 days after the offer was made, unless it considers it unjust to do so.

Marathon argued that, despite the award of nominal damages and the defendants’ offer to settle, Bridgeman should be liable for its costs up to the 14-day point, and that it should only have to pay 50 per cent of Bridgeman’s costs thereafter because he had brought the proceedings on himself.

Marathon contended that it was right to have conducted its investigations into the misuse of confidential information and to have gone to trial because it would not otherwise have known the extent of the wrongdoing. It argued that, if substantial use had been uncovered, it would have been pleaded at least as an alternative case.

In respect of the post-part 36 period, Marathon’s position was:

• There was no general rule that a claimant who is awarded nominal damages should pay the defendant’s costs. In particular, Marathon claimed that Bridgeman’s conduct took this case out of the ordinary run of things because he had brought it on himself;

• Given the nature of its business, clients and investors had a legitimate expectation that Marathon would take action to protect confidential information and documents; and

• Costs incurred by Marathon in issuing proceedings to recover confidential information and identify the extent of its misuse were caused by Bridgeman because he had not been open about the misuse.

Bridgeman argued that the court is required to treat success in litigation as a ‘result in real life’ and with the exercise of common sense. A claimant who recovers nominal damages has in reality lost because the defendant has established a complete defence and should, therefore, recover their costs.

Further, Bridgeman had admitted liability and had made it clear from very early on that any use he made of the documents was extremely limited.

Marathon’s only objective with this claim was to win a financial ‘jackpot’, which it failed to do. It was also refused permission to appeal. Therefore, the judge found that the defendants were successful and approached the question of costs of the misuse claim on that footing, ordering that Bridgeman pay Marathon’s costs up to the point when he admitted liability, and Marathon pay Bridgeman’s costs thereafter.

In respect of Marathon’s costs of investigating the alleged wrongdoing, the judge found that a party which pursues a claim for damages for misuse of confidential information without evidence, but in the expectation that such evidence may be uncovered through the litigation process, takes the risk that it will not be uncovered because it does not in fact exist.

The judge noted that, notwithstanding the defendants’ conduct, he would not have departed from the usual part 36 rules, citing the judgment of Briggs J in Smith v Trafford Housing Trust [2012] EWHC 3220 (Ch) that anyone seeking to depart from the usual consequences faces a ‘formidable obstacle’ as the ‘salutary purpose of part 36… would be undermined’. The part 36 offer was a ‘game-changer’ and cast the pursuit of the litigation in a very different light.

The fact that Marathon refused the £1.5m offer in the pursuit of ‘jackpot damages’ made it fair for the court to treat it as litigating entirely at its own risk. It is a painful message to any recipient of an offer to settle to put motives to one side and to consider carefully and strategically what has been put before them.

Lesley Timms is a solicitor at Withers, which acted for Bridgeman in Marathon

@WithersLLP www.withersworldwide.com