BSkyB Ltd & Anor. v HP Enterprise Services UK Ltd & Ors (No. 2)

A successful party may receive a proportion, rather than all, of its costs where it pursued a wide-ranging case and failed on substantial issues, particularly where an issue-by-issue allocation would be impracticable. Indemnity costs require circumstances taking the case outside the norm; fraud in the underlying transaction or weak litigation conduct will not automatically suffice.

Where lost profits would have attracted Corporation Tax at a different rate from the tax likely to apply to damages, the court may adjust damages to reflect the claimant’s real loss. Interest may likewise be calculated on the net loss after tax, using a broad and pragmatic assessment.

Following the main judgment in the substantial commercial and technology dispute between BSkyB Limited, Sky Subscribers Services Limited and the EDS defendants, the court determined consequential issues concerning costs and taxation.

Sky had succeeded on central allegations of fraudulent misrepresentation, negligent misstatement and breach of contract, but had failed on other allegations and abandoned one issue. The parties disputed the proportion of costs payable, the basis of assessment, the effect of changes in Corporation Tax on damages for lost benefits, and the treatment of tax when awarding interest.

1. Costs proportion. Under CPR rule 44.3, the general rule that the unsuccessful party pays the successful party’s costs is subject to the circumstances of the case, including partial success and party conduct. A proportionate order is appropriate where the successful party pursued a broad case and failed on substantial issues, but the costs of individual issues cannot practicably be separated. Common costs attributable to successful and unsuccessful issues should be recognised. Sky was therefore awarded 85% of its costs.

2. Basis of assessment. Indemnity costs require circumstances taking the case outside the usual run. Although the defendants had made a fraudulent representation and given perjured evidence, the dishonest conduct was limited to one individual. Other disputed defences and allegations were not so unreasonable as to justify indemnity costs. The costs were therefore to be assessed on the standard basis.

3. Corporation Tax and damages. The compensatory principle requires damages to reflect what the claimant has really lost. Following British Transport Commission v Gourley [1956] AC 185 and the reasoning adopted in Amstrad plc v Seagate Technology Inc (1998) 86 BLR 34, the court held that the change in Corporation Tax rates should be taken into account. The necessary assessment could be made on a broad basis despite potential complexity. The damages were to be adjusted for the difference between the tax treatment of the lost benefits and that likely to apply to the damages.

4. Interest. Interest under section 35 A of the Senior Courts Act 1981 should be based on the net amount of the lost benefits after tax, avoiding a windfall for loss of use of sums which would have been payable in tax.

5. The judgment was handed down after the parties had reached a complete settlement of the outstanding matters.

First-instance judgment arising from consequential issues following the main judgment. The judgment records that the parties subsequently reached a complete settlement of all outstanding matters.