Magical Marking Ltd & Anor v Ware & Kay LLP & Anor

In a substantial claim producing only a small recovery, costs depend on who won in substance and reality, rather than mechanically on which party received money. The court must identify the real prize pursued and assess whether the recovery justified the litigation. A late amendment which is the source of the claimant’s success may also justify awarding the defendant costs incurred before the amendment. The absence of a Part 36 offer does not necessarily prevent a defendant from being treated as the successful party where the claim was overwhelmingly unsuccessful and an offer would have exposed the defendant to disproportionate costs. Interest may be reduced or postponed where a claim was unreasonably delayed, while allowing for the defendant’s use of the money and the circumstances explaining the delay.

The claimants pursued a professional-negligence claim against the defendants after advice concerning the removal and settlement of a shareholder dispute. Damages exceeding £10 million were claimed following a three-week trial. In an earlier judgment, the court found only a modest proportion of the allegations proved and awarded £28,000.

The present judgment determined the consequential issues of costs, interest and permission to appeal. The principal questions were which party was successful in substance, whether the defendants’ failure to make a Part 36 offer affected the costs order, when interest should run, and whether either party had a real prospect of success on appeal.

1. Costs. The defendants were the successful parties in substance and reality. Applying the approach in Roache v Newsgroup Newspapers Limited [1998] EMLR 161 and the related authorities, the court considered the overwhelming failure of the principal claim, the trivial scale of the recovery compared with the sum claimed, and the fact that the recovery would not have justified High Court proceedings.
2. The decision in Fox v Foundation Piling Ltd [2011] EWCA Civ 790 did not alter that conclusion. The successful-party issue had been common ground in Fox, whereas it had to be decided in the present case. The reasoning in Medway Primary Care Trust v Marcus [2011] EWCA Civ 750, concerning the absence of criticism for failing to make a Part 36 offer where doing so would expose the defendant to disproportionate costs, was applicable.
3. The defendants’ refusal to admit any negligence justified a modest reduction. The claimants were ordered to pay 85% of the defendants’ costs, subject to detailed assessment on the standard basis if not agreed. The late amendment which founded the successful claim also supported awarding the defendants their costs up to the amendment, applying Beoco Limited v Alfa Laval Co Ltd [1995] QB 137.
4. Interest. Applying the principles summarised in Claymore Services Ltd v Nautilus Properties Ltd [2007] EWHC 805 (TCC), the court treated the successful claim as substantially introduced only at trial. Interest on the £28,000 damages was therefore awarded from the midpoint between April 2004, when payment became due, and the date on which the amendment was allowed.
5. Permission to appeal. The claimants’ proposed appeal principally challenged factual findings and had no real prospect of success. The defendants’ challenges concerned established breaches and a discretionary amendment decision. Permission to appeal was refused to both parties.

First-instance judgment. The court refused permission to appeal to both parties.