Cabo Concepts Limited v MGA Entertainment (UK) Limited & Anor.

Indemnity costs may be ordered where the conduct or circumstances of litigation take the case outside the ordinary and reasonable conduct of proceedings. The court retains a wide discretion, and an aggregation of factors may justify the order even where no single instance of conduct is unreasonable to a high degree. The assessment is compensatory, not penal, and depends on all the circumstances.

An unless order is a powerful case-management sanction. Before imposing one, the court must identify its purpose and decide whether the condition and sanction are proportionate and effective. A payment on account of costs thrown away should ordinarily be ordered where a reasonable sum can be estimated, subject to any good reason not to do so.

The claimant brought proceedings alleging statutory and intellectual-property-related wrongs said to have caused the failure of its toy business. Shortly before a four-week trial, the defendants disclosed that approximately 40% of documents had been missed during harvesting and that serious deficiencies affected the disclosure exercise. The trial was vacated and relisted for 2024.

The court had already ordered a further disclosure exercise and considered three consequential issues: whether the claimant should receive its wasted costs on the indemnity basis, whether the defendants’ Defence should be subject to an unless order, and whether costs should be paid on account and, if so, at what level.

1. Indemnity costs. The court adopted the broad approach in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879. The critical question was whether the conduct or circumstances took the case outside the norm, meaning outside the ordinary and reasonable conduct of proceedings. The requirement that conduct relied upon be unreasonable to a high degree was relevant, but it was not an exclusive condition where an aggregation of factors made the case out of the norm.
2. The defendants’ insistence on conducting disclosure in-house, the absence of proper expert supervision, the use of inappropriate harvesting methods, serious technical failures, failures to investigate red flags, deficient re-harvesting and inaccurate evidence about supervision formed a continuing narrative of failings. Taken together, and in the context of the importance of disclosure to a fair trial, those matters were outside the norm. Costs thrown away by the adjournment were therefore payable on the indemnity basis.
3. Unless order. Under CPR 3.1(3), the court had a broad power to control future litigation. A conditional order striking out a statement of case was a powerful sanction and required a proportionate and effective condition directed to an identified purpose. The independent e-disclosure provider required by the July Order, the time available before the relisted trial and the absence of deliberate non-compliance meant that an unless order was unnecessary and disproportionate. The application was refused.
4. Costs on account. Under CPR 44.2(8), a reasonable sum on account should ordinarily be ordered where costs were to be subject to detailed assessment. Only costs that would have to be repeated were properly costs thrown away. The court estimated a reasonable sum by reference to the evidence and awarded 45% of the claimant’s pre-trial costs, namely £578,444.17.