In Coward v Phaestos Ltd & ors [2014] EWCA Civ 1256, 2 October 2014, the defendants were awarded their costs, having obtained significantly more in their counterclaim than that provided for by the claimant’s rejected Calderbank Offer. The Court of Appeal dismissed the claimant’s appeal that the judge erred, holding that trial judges are afforded wide discretion in ordering costs under CPR 44 which is in no way constrained by the costs rules under CPR 36. The issue arose in the context of an intellectual property dispute concerning highly valuable quantitative trading software.​

In 2010, the claimant, Dr Martin Coward, commenced proceedings against the defendants (referred to collectively as IKOS), seeking declarations that he was the owner of copyright and database rights in the software and databases used by IKOS in their quantitative trading business. Dr Coward, a mathematician and computer programmer, had recently acrimoniously split from his wife and business partner Ms Elena Ambrosiado. Together, they started and ran an extremely successful quantitative trading business whose success was founded on highly valuable computer software protected by copyright, database and confidential information.

Following Dr Coward’s resignation from IKOS, he founded a competing business. A year later, Dr Coward commenced proceedings in the English High Court seeking declarations that he was the owner of copyright and database rights in the software and databases used by IKOS. IKOS counterclaimed for declarations that those rights were not owned by Dr. Coward. They also counterclaimed that Dr Coward had retained IKOS’s valuable confidential information and trade secrets and was infringing its copyright in using the software code.

In March 2013, Asplin J dismissed Dr Coward’s claims. The judge held that the software written by Dr Coward was owned by the partnership, not Dr. Coward. Asplin J also held that Dr Coward had infringed copyright in certain software. Other software which had been in dispute had been settled before trial.

Arguments on costs at trial

Prior to the trial, in July 2012 Dr Coward made a without prejudice save as to costs offer (the Calderbank Offer) to settle the case. IKOS rejected the offer. At the costs hearing following trial, Dr Coward argued that the Calderbank Offer provided substantially all that was subsequently achieved by IKOS at trial. Dr Coward argued that the introduction of CPR r36.14(1) had not overridden the Court of Appeal decision in Carver v BAA Plc [2009] 1 WLR 113. CPR r36.14 states that costs should be awarded where a claimant fails to obtain a judgment “more advantageous than a defendant’s Part 36 Offer”. Dr Coward argued that despite this provision, Lord Justice Ward’s dicta in Carver remained relevant in that “one must consider in an open-textured way whether the fruit of the litigation was worth the fight.” Dr Coward argued that the case had not been worth the fight, especially in circumstances where IKOS had incurred approximately GBP 13 million in costs in comparison to Dr Coward’s of GBP 6 million. IKOS argued that Carver had been superseded by r36.14(1) and, in any event, the outcome of the trial had significantly beaten the Calderbank Offer.

The judge held that Carver was not relevant because it addressed cost consequences under Part 36. Asplin J’s discretion on costs fell under the ambit of CPR 44.2, which affords judges a wider discretion as to costs orders. She held that IKOS had materially beaten the Calderbank Offer in four respects. The judge therefore did not award Dr Coward costs. Dr Coward appealed.

Decision

The Court of Appeal dismissed Dr Coward’s appeal, holding that the trial judge’s exercise of her discretion could not be faulted. In reaching its decision, Richard LJ, giving judgment of the court, held that:

• Decisions on costs are a matter of discretion for the trial judge who is best placed, having sat through the trial, to determine whether and what costs should be granted.
• The approach of the appellate court in relation to costs is clear: the appellate court may only interfere with the trial judge’s decision on costs if it is wrong in principle, has taken into account a matter which should not have been considered or is plainly unsustainable (F&C Alternative Investments (Holdings) Ltd v Barthelemy [2013] 1 WLR 584).
• The judge was right to conclude that IKOS had achieved a significant advance at trial on the terms of the Calderbank Offer. Two main reasons were cited by the court to support this view. First, at a post-trial hearing, when it had become clear the court was going to order an injunction to stop Dr Coward from using software code that he had downloaded from IKOS in November 2009, he reluctantly agreed to an undertaking in similar terms.  Second, shortly before the trial Dr Coward agreed to delete code that had been written by his employees during their gardening leave periods while they had been employed by IKOS.  These factors pointed to IKOS having obtained a result at trial that was a significant advance over the Calderbank Offer.
• The decisions in Fulham Leisure Holdings Ltd v Nicolson Graham & Jones [2006] EWHC 2428 and Walker Construction (UK) Ltd v Quayside Homes Ltd [2014] EWCA Civ 93 were not relevant to this case. In those cases, the courts considered that even though a claimant was strictly successful, their success was so insignificant in comparison to the costs of the action that this should be a factor for the court when ordering costs. Unlike those parties, IKOS had succeeded in the entirety “of its defence of the claim and to a very substantial extent in its counterclaim”. Further, those offers had provided the parties with everything that they subsequently recovered (save for a trivial sum in Fulham Leisure). IKOS had obtained a significant improvement on the Calderbank terms at trial. Finally, although IKOS obtained a majority of the terms of the Calderbank Offer at trial, “it is not disproportionate for a claimant to pursue a claim for substantial relief to which it is held at trial to be entitled”.
• Even if Dr Coward had been successful, the rules on Part 36 are not relevant in the consideration of costs under a Calderbank Offer. Part 36 and Part 44 are separate regimes with different purposes. Part 36 is a highly prescriptive and self-contained code dealing only with offers made under those rules. Any discretion by the judge as to those costs is highly restricted. Part 44 confers on the court “discretion in almost the widest possible terms” as to whether costs are payable by one party or another. It would be contrary to import the rigidity of CPR r36.14 into Part 44. The Court of Appeal accepted that the discretion conferred by Part 44 can come at the price of certainty on arguments as to costs, but that is the nature of costs being a discretionary remedy dependent on circumstances.

Comment

The English court will be reluctant to interfere with a trial judge’s discretion in ordering costs save for the specified circumstances set out in F&C Alternative Investments (Holdings) Ltd v Barthelemy [2013] 1 WLR 584, nor will it adopt a Part 36 style analysis when determining costs awards under CPR 44. For Calderbank Offers to be strategically effective in putting costs pressure on the other side, litigants must ensure that the terms of their offers limit the ability for a party to obtain significantly better results at trial. Otherwise, on the question of costs, the fruit of the Calderbank Offer may be proven to be worth the fight.