G & A Ltd v HNJ Jewelry (Asia) Ltd

Costs in a contractual construction appeal are not determined on an all-or-nothing basis. A party may be substantially successful even though its precise construction is rejected. The costs order should give credit for that failure while reflecting the party’s overall success. The court may also take account of whether the construction ultimately adopted could have been accepted at an earlier stage. This may justify varying the first-instance order and awarding a proportion of the costs of both stages. On the facts, 75 per cent was the appropriate proportion.

The appeal arose from a December 2003 decision by Crane J in the Queen’s Bench Division concerning the construction of a supply contract. The respondents contended that the contract was a three-year rolling contract requiring three years’ notice. The appellants contended that it was terminable on reasonable notice, on differing bases.

In its earlier judgment on the merits, the Court of Appeal adopted a construction suggested by Waller LJ. The contract required reasonable notice before the end of the first year of a three-year period. The present judgment concerned the consequential allocation of the costs of the trial and appeal, including the effect of an injunction point on which the respondents had succeeded.

Costs order varied. The respondents were awarded 75 per cent of their costs before Crane J and 75 per cent of their costs in the Court of Appeal.

1. The respondents’ three-year construction had not been accepted, but they had been substantially successful in the contractual construction issue. The construction adopted by the Court of Appeal produced substantially the same practical result. The appellants’ contention that success in the appeal entitled them to all the costs was therefore unrealistic.
2. The court’s suggested construction was relevant to the costs assessment. If it had been advanced before Crane J, the respondents would probably have accepted it. It had also been clearly set out during the appeal, so the appellants could have accepted it but did not do so. That justified giving the respondents some credit for the failure of their precise construction, without depriving them of the costs attributable to their substantial success.
3. The respondents had also succeeded on a point concerning the terms of the injunction. Taking the overall position into account, the proper costs order was 75 per cent of the costs at each stage. The order below was varied accordingly against the first and fourth defendants and the third defendant.
4. Costs were assessed at £40,000, with the normal order for payment of 75 per cent. The £100,000 interim payment was to be dealt with in the costs of the trial below. Jonathan Parker LJ agreed.

• Court of Appeal (Civil Division): In the earlier merits judgment, the court adopted a construction requiring reasonable notice before the end of the first year of a three-year period. In this judgment, it varied the costs order and awarded 75 per cent of the relevant costs.
• High Court, Queen’s Bench Division: Crane J held in December 2003 that the contract was terminable on three years’ notice. The Court of Appeal varied the resulting costs order.