Douglas & Ors v Hello! Ltd. & Ors

The general rule that costs follow the event does not require a single order covering the whole litigation. The court may make different orders for discrete issues and must assess who won in substance and reality. Conduct, proportionality, the relationship between successful and unsuccessful issues, and the cost consequences of unnecessary litigation are relevant. Indemnity costs require conduct sufficiently outside the norm, but earlier misconduct may already have been marked by a previous costs order. Interest on costs may be awarded where a party has been out of pocket, subject to proof that the relevant costs were paid. A judgment obtained by fraud may be set aside where the fraud materially contributed to the order challenged.

This was a costs hearing following earlier liability and quantum judgments in proceedings brought by Michael Douglas, Catherine Zeta-Jones and Northern & Shell plc against Hello! Ltd and other defendants. The claimants had recovered damages from the Hello! Defendants, while their claims against the Marquesa de Varela and Neneta Overseas Ltd had been dismissed. Earlier orders had addressed costs of an appeal and interlocutory applications.

The court determined costs of the liability and quantum hearings, interest on damages and costs, whether the Court of Appeal’s costs order should be set aside for fraud or dishonesty, and the costs consequences of the unsuccessful claim against the Marquesa and her company.

1. Liability hearing. The court treated the claimants as the winners in substance and reality, despite their failure on several issues. Their alternative claims were reasonable in light of the Hello! Defendants’ misleading conduct and the evidential uncertainty created by it. Nevertheless, some issues caused unnecessary or disproportionate expense. The claimants were awarded 75% of their costs of the Liability Hearing, assessed on the standard basis.
2. Quantum hearing. The claimants were awarded 85% of their costs, assessed on the standard basis. Their alternative bases of quantification could be reflected in the costs order without requiring an election.
3. Interest. The evidence did not establish that Northern & Shell plc itself had borrowed at the commercial rates relied upon for interest on damages. The award was therefore reduced to £120,000. Interest on assessed costs was awarded under CPR 44.3(6)(g), at base rate plus 1.5%, running only on sums shown to have been paid and ending when judgment interest replaced it.
4. Court of Appeal costs order. CPR 3.1(7) did not permit a first-instance court simply to vary an order of the Court of Appeal. However, the pleadings supported a separate action to set aside that order for fraud or dishonesty. Applying the materiality requirement identified in Kuwait Airways Corporation v Iraqi Airways Corporation and James v Williams, the court held that the misconduct would have materially affected the Court of Appeal’s costs decision. The order was set aside and replaced with no order as to costs.
5. Marquesa and Neneta. The claimants received no costs in respect of their unsuccessful claim against those defendants. Disclosure had been obtained, but the court was not satisfied that joinder was necessary to obtain it, and the claim had continued after disclosure was complete.
6. The parties were directed to draw up a Minute of Order, with liberty to restore the matter if agreement proved difficult.

The judgment concerned costs following earlier judgments in the same proceedings. It also considered the effect of an earlier Court of Appeal order for costs, reported as [2001] Q.B. 967, and set that order aside in the separate fraud-based claim pleaded before the High Court.