Merck KGaA v Merck Sharp & Dohme Corp & Ors (Costs)

Where a court determines a discrete preliminary issue, the unsuccessful party will ordinarily pay the costs of that issue when it is decided. The fact that the issue forms part of wider litigation, that the arguments were reasonable, or that some work may have ongoing utility does not ordinarily justify postponing or apportioning costs. Sub-issues on which the successful party was less successful do not necessarily alter the overall costs order. Questions about whether particular work was necessary or proportionate are generally matters for detailed assessment. The court should also order a reasonable payment on account of costs unless there is good reason not to do so.

The claimant and defendants were engaged in proceedings concerning alleged contractual liability. At the defendants’ request, the court had determined as a discrete preliminary issue the proper law governing a 1970 Agreement and a 1975 Letter. The claimant succeeded on that issue, although the ultimate contractual claim remained to be determined. The court considered the appropriate costs order, including whether costs should be in the case, apportioned by percentage, or assessed under the usual rule, and the amount of any interim payment on account.

1. The claimant was the successful party because it had succeeded on the only issue heard and decided. Under the general rule in Civil Procedure Rules 1998, r 44.2(2)(a), the defendants should therefore pay the claimant’s costs of the preliminary issue.

2. The fact that the preliminary issue arose within a wider contractual claim did not justify postponing costs until trial. The issue had been separately requested, prepared and heard. It was a discrete aspect of complex litigation, and there was a salutary principle that a party losing such an aspect should generally pay its costs when it loses it.

3. The court declined to make a different order under r 44.2(2)(b). The reasonableness of the parties’ competing arguments was not material: an ordinary costs order is not a penalty for unreasonable conduct, and losing a hearing carries a predictable costs risk even where the argument was realistic.

4. Possible overlap between the preliminary-issue work and work required for the eventual trial, alleged disproportionality, and detailed challenges to the amount claimed concerned the quantum recoverable on assessment. They did not justify departing from the principle that the defendants should pay the costs.

5. The defendants’ success on an issue within the broader proper-law issue did not warrant apportionment. Complex issues necessarily contain sub-issues and sub-sub-issues, and success on some of them does not, without more, displace the general rule.

6. Under r 44.2(8), there was no good reason to withhold a payment on account. Having regard to the costs claimed, the hard-fought nature of the hearing, the extensive historical inquiry and the likely assessment discount, £220,000 was a reasonable interim payment.

The defendants were ordered to pay the claimant’s costs of the preliminary issue, assessed on the standard basis if not agreed, together with interest on costs and £220,000 on account.