Shepherds Investments Ltd v Walters & Ors

After a split trial, the court retains a broad discretion under the Civil Procedure Rules 1998 Part 44 to reserve costs until an outstanding inquiry into damages or an account of profits is complete. The rules do not require an immediate costs order after liability is decided. A Part 36 offer does not remove that discretion. The likely result of the outstanding inquiry and other settlement offers may be relevant to the eventual costs order. An appellate court need not decide the construction or validity of an offer if that issue does not determine when the discretion should be exercised. It may be left to the judge deciding costs with the benefit of the full context.

Following a seven-day trial, Etherton J found that three individual defendants had breached fiduciary duties and contract by establishing competing companies. Some claims failed, misuse of confidential information was not established, and no loss was proved. The claimant elected for an account of profits.

At a later costs hearing, the judge reserved costs until the account was determined. The claimant appealed, arguing that its offer to settle for £1 plus costs was a valid Part 36 offer requiring an immediate order for indemnity costs. The central issues were whether costs could properly be deferred and whether the Court of Appeal should determine the construction of the offer.

The Court of Appeal, with Lord Justice Mummery giving judgment and Lady Justice Smith and Lord Justice Toulson agreeing, dismissed the appeal.

1. Following a split trial, the discretion under Part 44 of the Civil Procedure Rules 1998 is sufficiently broad to permit different costs orders. A judge may order liability costs immediately, reserve the costs of an inquiry or account, or reserve all costs until quantum is determined.
2. The CPR does not require an immediate costs decision after liability has been determined. Where the outcome of an account of profits may affect the overall costs allocation, an immediate order may be premature. The relevant authorities included JJ Harrison (Properties) Limited v Harrison, Weill v Mean Fiddler Holdings Limited [2003] EWCA Civ 1058, HSS Hire Services Group plc v BMB Builders Merchants Limited [2005] 3 All ER 486, and Intense Investments Limited v Development Ventures Limited [2006] EWHC 1628 (TCC).
3. The judge’s reference to Civil Procedure Rules 1998 CPR 36.21(4) was erroneous. That error did not invalidate the exercise of discretion because the judge’s reasoning was based on factors relevant to the overall discretion under Part 44.3.
4. The construction of the claimant’s settlement letter was not determinative of when the discretion should be exercised. The Court of Appeal therefore left that issue open for the judge deciding costs after the account, who would have the benefit of the full surrounding circumstances. The lower judge’s construction was obiter and was not binding.

The claimant was ordered to pay the costs of the appeal, summarily assessed at £13,000 plus VAT, within 14 days.

1. Court of Appeal (Civil Division): In [2007] EWCA Civ 292, the appeal against the costs order was dismissed. The claimant was ordered to pay the appeal costs.
2. High Court of Justice: Etherton J determined liability on 12 April 2006 and ordered an account of profits. On 22 June 2006, he reserved the costs of the trial until the account was determined.