Jonathan Friend v Friend Media Technology Systems Limited

This is my judgment in relation to consequential matters. The parties have agreed that the issues which arise should be determined on the basis of written submissions and without a hearing.

The Claimant, a founder of the Defendant company, sought summary judgment and to strike out the Defence in a claim for reimbursement of legal fees pursuant to an indemnity in an Investment Agreement (“the Agreement”). The central issue was whether Clause 19.4 (“the Clause”) of the Agreement entitled the Claimant to recover the costs of litigation incurred in enforcing rights under certain documents (“the Transaction Documents”).

I determined that, properly construed, Clause 19.4 was confined to the reimbursement of non-contentious legal advice relating to the interpretation and limited enforcement of the Transaction Documents and did not extend to indemnifying the costs of litigation. The Claimant’s construction was commercially unrealistic and inconsistent with the structure of the agreement, particularly where other provisions expressly addressed litigation costs. The Claimant’s application for strike out and summary judgment (“the Summary Judgment Application”) was therefore refused, as was the Defendant’s application for reverse summary judgment.

The Claimant submits that the appropriate order is that there be no order as to costs. He contends that there was no clear winner on the Summary Judgment Application: neither party obtained summary judgment or strike out, and both parties advanced competing constructions of Clause 19.4 of the Agreement, on which each succeeded in part and failed in part. In those circumstances, the case falls within the category of partial success where the court should depart from the general rule that costs follow the event.

In the alternative, the Claimant submits that costs should be in the case or adjourned to the trial judge. The Judgment resolved issues of contractual construction but did not determine whether, and to what extent, sums are payable under Clause 19.4. A trial is therefore required to apply the court’s construction to the invoices relied upon. The Claimant argues that it would be premature and potentially unfair to determine costs now, and that the trial judge will be better placed to decide where the costs of the application should ultimately fall.

It is argued in support of these submissions that although the Claimant’s application for summary judgment was dismissed, the Defendant’s invitation to the court to order reverse summary judgment or strike out was also refused. The Claimant submits that this indicates that neither party can properly be characterised as the successful party. The Claimant further relies on the fact that the court rejected the Defendant’s central contention that Clause 19.4 was confined to advice concerning entry into or variation of the Transaction Documents, holding instead that the Clause was capable of encompassing certain advice given once a dispute emerged.

The Claimant submits, accordingly, that the Judgment vindicated his decision to bring the proceedings and the application, because it established that Clause 19.4 is not as narrow as the Defendant contended and that, applying the court’s construction, he is entitled to recover a substantial proportion of the sums claimed (said to be approximately 50%), subject to determination at trial. In those circumstances, it would be unjust to order him to pay the Defendant’s costs of the application.

The Claimant relies on the Defendant’s pre action and post judgment conduct, including its refusal to make any payment even on a reduced basis following the Judgment, as reinforcing the appropriateness of a neutral or reserved costs order.

If the court is nevertheless minded to award the Defendant its costs, the Claimant submits that any such award should be subject to a substantial reduction to reflect:

On a broad-brush basis, he contends that any recoverable costs should be reduced by around 50% or more.

The Defendant submits that the position is straightforward: the Summary Judgment Application was dismissed in its entirety. The Claimant obtained none of the relief he sought, including payment of the £307,641.69 claimed. Accordingly, the Defendant was the successful party and should receive its costs in the usual way pursuant to CPR 44.2.

The Defendant rejects the characterisation of the outcome as one of partial success. It submits that the refusal of reverse summary judgment is irrelevant to costs, because the invitation to the court to enter judgment involved no additional arguments or costs beyond those incurred in resisting the Claimant’s application and was, in the circumstances of this case, simply the logical corollary of a successful defence of the application.

The Defendant points out that the Judgment does not determine that the Claimant is entitled to recover any sums under Clause 19.4. It merely recognises, as a matter of principle, that certain non-litigation costs might fall within the Clause. The Claimant has yet to establish that any of the invoices relied upon satisfy that test. Accordingly, the Defendant submits that there is no basis for saying that the Claimant was vindicated by the application or that the Judgment confers on him any substantive success.

The Defendant contends that to the extent issues of conduct arise, the facts are in its favour and points to the Claimant’s post judgment correspondence as unreasonably increasing costs. It submits that the Claimant sought impermissibly to “re write” the Judgment by formulating supposed “principles” which, in substance, attempted to bring litigation costs within the scope of Clause 19.4 contrary to the court’s express reasoning. The Defendant says that a significant part of the further costs incurred after judgment were occasioned by having to respond to these misconceived contentions.

The Defendant submits that the usual rule that an unsuccessful applicant pays the costs of a summary judgment or strike out application serves an important policy function in discouraging unmeritorious interlocutory applications. That principle should not be diluted by treating an unsuccessful application as cost neutral merely because the court, in dismissing it, construed the relevant clause as giving rise to a potential entitlement which is wholly fact sensitive and could not be determined factually as part of the Summary Judgment Application.

The court’s discretion as to costs is governed by CPR Part 44. The general rule is that the unsuccessful party pays the costs of the successful party, but that rule is subject to adjustment where the circumstances of the case justify a different outcome.

The application before the court was the Claimant’s application for summary judgment (and/or strike out), seeking immediate judgment for a substantial sum said to be due under Clause 19.4 of the Agreement. That application was dismissed in its entirety. The Claimant therefore failed to obtain the relief he sought. Prima facie, the Defendant was the successful party on the application.

In my judgment, that starting point should not lightly be displaced. Summary judgment is a discretionary remedy, and an applicant who fails to surmount the high threshold for such relief will ordinarily be required to pay the respondent’s costs. Considerations of procedural discipline and proportionality point strongly in that direction. As Freedman J observed in Matrix Receivables Limited v Musst Holdings Limited [2024] EWHC 2167 (Ch) at [27]:

However, I accept that the court must consider carefully whether the overall outcome does fully represent the balance of success on either side. In particular, CPR 44.2 requires consideration of the extent to which each party succeeded or failed on the issues in dispute.

Although the Claimant was unsuccessful in obtaining summary judgment, he did succeed on an important issue of contractual construction. The Defendant advanced a narrow construction of Clause 19.4, contending that it was confined to advice relating to entry into or variation of the Transaction Documents and could not apply to advice given once a dispute had arisen. That construction was rejected. I held that, in principle, Clause 19.4 was capable of extending to certain categories of post transaction, non-litigation advice.

That conclusion represented a rejection of the Defendant’s primary case on the scope of Clause 19.4, and materially altered the landscape of the dispute going forward. It also explains why the case could not properly be resolved summarily and must proceed to trial.

At the same time, the Claimant’s success on that issue must not be overstated. The Judgment did not establish that any particular sums are recoverable under Clause 19.4, nor did it determine that the invoices relied upon by the Claimant fall within the Clause as construed. It remains for the Claimant to prove his case at trial. The application therefore failed in its central aim of securing early and final relief.

Weighing these matters together, I am satisfied that the Defendant should be regarded as the overall successful party on the application, but that its success was not complete. This is accordingly an appropriate case for an order that the Claimant pay the Defendant’s costs, subject to a reduction to reflect the Claimant’s success on an important issue of construction and the mixed outcome more generally.

The Defendant submits that this is a suitable case for summary assessment. The costs claimed arise from an interlocutory application and have been the subject of written submissions.

I do not consider it appropriate to reserve the costs of the application to the trial judge. The application was a discrete interlocutory step, and it is both practicable and proportionate to deal with costs now rather than deferring the issue. I accept that costs incurred in relation to consequential matters since the hearing may also be recovered as part of the assessment.

As to the amount of its costs it seeks to recover, the Defendant relies on two N260 statements of costs totalling approximately £149,000.50. Accepting that a discount is appropriate on a summary assessment, the Defendant submits that a broad reduction of around 20% is fair, producing a figure of £120,000. The Defendant contends that the case justified the rates charged because of its value, complexity and heavy commercial nature, and that this is not a case where guideline hourly rates should be rigidly applied.

The Defendant contends that the application justified the level of work undertaken because of:

It submits that its hourly rates are reasonable for City solicitors acting in a substantial commercial matter and that guideline hourly rates should not be applied mechanistically.

The Claimant does not dispute that the court has jurisdiction to summarily assess the Defendant’s costs, but submits that exercising that jurisdiction must be approached with caution given the overall level of costs claimed.

The Claimant’s principal objections are that:

The Claimant therefore submits that, if the court summarily assesses the Defendant’s costs, it should apply a significant reduction, either by reference to:

I bear in mind that, on a summary assessment, the court’s task is not to undertake a detailed, item by item analysis, but to arrive at a figure which reflects, on a broad-brush basis, costs which were reasonably incurred and reasonable in amount, having regard to the overriding objective and the principle of proportionality (CPR 44.3).

As set out earlier in this judgment, I have concluded that the Defendant was the overall successful party on the application, albeit with mixed success, and that the Claimant should therefore pay the Defendant’s costs of the application, subject to an appropriate reduction.

Turning to quantum, the Defendant’s total costs of the application are claimed in the sum of approximately £149,000. I accept that the application involved issues of some complexity, including careful analysis of contractual construction, and that the Defendant was entitled to take the application seriously given the size of the claim and its potential impact on the litigation.

However, I also accept the Claimant’s submissions that:

In accordance with the Guide to the Summary Assessment of Costs (2021), the Guideline Hourly Rates provide the appropriate starting point and, on a summary assessment, a strong steer as to what is reasonable and proportionate. The work in this case was carried out predominantly by Grade A fee earners, with more limited involvement from Grade B and C solicitors. The tasks undertaken, advising on and preparing a summary judgment application, settling written submissions, and routine correspondence, were well within the scope of work ordinarily undertaken by solicitors of those grades in commercial litigation. The issues were narrow, concerned a short point of contractual construction, and did not involve exceptional complexity, novelty, urgency, or specialist expertise of a kind that would justify departure from the guideline rates.

Where work suitable for delegation was undertaken by more senior solicitors, that was a matter of choice for the receiving party and does not warrant recovery at enhanced rates. Nor does the importance of the case to the parties, of itself, justify exceeding the guidelines, which already reflect work undertaken by experienced London practitioners. Having regard to proportionality and the nature of the work actually required, this is not a case where there is any proper basis for allowing rates above the applicable Guideline Hourly Rates for the grades claimed.

In all the circumstances, I do not consider it appropriate simply to allow the Defendant’s costs as claimed, even subject to an arithmetical adjustment. Equally, I do not think it would be practicable or proportionate to attempt to excise individual items or categories of work on a summary assessment where the challenge is not just to rates but to the distribution of work between fee earners of different grades.

The fair and proportionate course is therefore to apply a global percentage reduction to the Defendant’s claimed costs to reflect:

Doing the best I can, and exercising my judgment on a broad-brush basis, I consider that a reduction of 40% is appropriate.

Applying that reduction to the claimed figure of £149,000, I summarily assess the Defendant’s recoverable costs in the sum of £89,400.

I therefore order that the Claimant pay the Defendant’s costs of the Summary Judgment Application in the sum of £89,400, such sum to be paid within 14 days of the date of the order which will otherwise be in the terms of the draft order submitted by the Defendant.