Astrazeneca UK Ltd v International Business Machines Corporation

Where parties have agreed an express contractual indemnity for costs, the court should ordinarily exercise its costs discretion to reflect that agreement. A reference to costs calculated on a solicitor-own client basis is properly equated, under the modern Civil Procedure Rules, with assessment on the indemnity basis. Such an indemnity may cover costs incurred both in pursuing and defending disputes, where the contractual wording is sufficiently broad.

Where success is divided, the appropriate proportion should reflect the importance of the issues and the time and costs spent on them, rather than simply counting issues. Conduct will justify a separate costs order only where it was unreasonable or materially affected the proceedings.

The judgment concerned the costs of Part 8 proceedings arising from the termination of a master services agreement between Astrazeneca UK Ltd and International Business Machines Corporation. The substantive judgment had determined several competing contractual construction issues, with each party succeeding on some issues.

The court considered whether contractual indemnities for “Defence Costs” applied to costs incurred in pursuing claims, whether “solicitor-own client” costs meant indemnity costs, whether AstraZeneca’s conduct justified a special order for costs incurred before 24 October 2011, and how the parties’ divided success should affect the overall costs order.

1. Contractual indemnity. The court held that the definition of “Defence Costs” was not confined to costs incurred in defending a claim. Clauses 89.4 and 89.5 covered reasonable fees and disbursements incurred in pursuing or defending a dispute concerning the construction, meaning or effect of the master services agreement, where judgment was given in favour of the relevant party.
2. Basis of assessment. The phrase “solicitor-own client basis” was equated with the indemnity basis described in EMI Records Limited v Ian Cameron Wallace Ltd [1983] Ch 59. Costs were recoverable unless unreasonably incurred or unreasonable in amount, with the receiving party receiving the benefit of any doubt. The court therefore awarded costs on the indemnity basis.
3. Exercise of discretion. Contractual rights to costs are an alternative basis of recovery from the court’s statutory and procedural discretion, but the discretion should ordinarily reflect the contractual bargain. The court relied on John v Price Waterhouse [2002] 1 WLR 953, Gomba Holdings (UK) Limited v Minories Finance Limited [1993] Ch 171 and Venture Finance Plc v Mead [2006] 3 Costs LR 389.
4. Proportion and conduct. The parties’ conduct before 24 October 2011 did not justify a separate order because the evidence and case-management process were not unreasonable. In assessing divided success, the court considered both the number and importance of the issues, together with the time and costs incurred. AstraZeneca was substantially successful, but the overall order was that it recover 50% of its costs on the indemnity basis.
5. Final orders. AstraZeneca was awarded 50% of its costs, assessed on the indemnity basis, including the costs of the costs hearing. IBM was not awarded a special proportion of its costs. AstraZeneca was to receive £300,000 on account.