Peer International Corp & Ors v Editora Musical De Cuba

A first-instance costs order is vulnerable on appeal only for an error of law, including material misdirection or inadequate reasoning, or where the result manifestly produces injustice outside the generous ambit of reasonable disagreement. The general rule that the unsuccessful party pays the successful party does not create an automatic entitlement to costs. A judge may assess costs in the round and consider issues unreasonably prolonged and failed, including fraud allegations, even where the party lacked standing to raise them. A case’s status as a test case does not remove the costs consequences of wholly unsuccessful issues. The judge need not identify every relevant matter if the reasoning shows sufficient awareness of the material circumstances.

The Respondents brought proceedings concerning UK copyright in songs written by Cuban composers. After a lengthy trial, Lindsay J declined to grant them relief and, in a subsequent costs judgment, made no order as to costs between the Respondents and Editora Musical de Cuba (EMC). The main judgment is reported at [2006] EWHC 2883 (Ch).

EMC appealed, arguing that the judge had misdirected himself, inadequately explained his reasoning, and failed to account for the test-case character of the litigation and the parties’ conduct. The Respondents served a contingent Respondent’s Notice. The central issue was whether the costs order disclosed an error of law or manifest injustice.

1. Appeal dismissed. The Court of Appeal unanimously upheld the order that there be no order as to costs.
2. The appellate jurisdiction over costs is limited. Intervention requires a material legal misdirection, inadequate reasoning amounting to legal error, or a result that manifestly produces injustice and falls outside the generous ambit within which reasonable disagreement is possible. The court must not simply substitute its own view of the appropriate order.
3. Under the costs regime in the Civil Procedure Rules 1998, the general rule that the unsuccessful party pays the successful party is an important starting point, but the judge must consider all the circumstances. A full issue-by-issue assessment is not required and may properly be avoided where it would be massive, expensive and highly contestable.
4. The judge was entitled to treat EMC’s conduct as materially adverse to its costs position. EMC had raised and at least unreasonably prolonged a host of unsuccessful allegations concerning fraudulent misrepresentation, undue influence, unconscionability and duress. The fact that EMC lacked standing to raise many of the issues did not itself make its conduct unreasonable. The judge was also entitled to regard the failure of allegations of fraud as a significant costs factor. His reference to dolus concerned the Cuban and Spanish concept under which the fraudulent-misrepresentation case had been advanced.
5. The principle discussed in Straker v Tudor Rose [2007] EWCA Civ 368, that an allegation relied on for costs purposes should be clearly identifiable as having been unreasonably pursued, did not assist EMC. In this case the judge’s reasoning, read with his main judgment, sufficiently identified the relevant issues. He was not required to mention every potentially relevant matter, including each complaint about disclosure or late amendments.
6. The test-case character of the litigation explained why wider issues might reasonably be raised, but did not immunise a party from costs consequences when it wholly failed on those issues. The complaint about the unaddressed modus operandi argument concerning the Further Dealings did not establish error: the point had not been advanced at the costs hearing and was absent from the Grounds of Appeal.

1. Court of Appeal (Civil Division): Appeal by EMC against the High Court costs order dismissed on 26 November 2008. The contingent Respondent’s Notice was unnecessary.
2. High Court of Justice, Chancery Division: Lindsay J declined to grant substantive relief after the copyright trial, reported at [2006] EWHC 2883 (Ch), and subsequently made no order as to costs between EMC and the Respondents.