Cantor Fitzgerald International v Tradition (UK) Ltd & Ors

Factual and Procedural Background

The appellants commenced proceedings on 20th June 1995, alleging that the respondents infringed copyright in certain computer software used for bond-broking in financial markets. The software comprised a "front office" system (user interface for brokers) and a "back office" system (trade recording and accounts). Certain programmers employed by the appellants resigned in January 1992 and joined the respondents, subsequently developing a "front office" system by April 1992. It later emerged that these programmers had taken the appellants' source code with them, a fact initially unknown to the respondents, who defended the claim on the basis that the programmers had no access to the appellants' software files. The respondents discovered in early 1997 that the programmers had indeed brought and accessed the source code.

Following this discovery, the respondents successfully applied to adjourn the trial to conduct an internal investigation and interview the programmers to obtain admissions regarding copying. The respondents' solicitors undertook to use best efforts to interview the programmers and communicate admissions to the appellants, a process termed the "admissions process". The first admissions schedule was served on 15th August 1997, followed by a series of further admissions over nine months, with the last on 22nd May 1998. The respondents reserved the right to correct errors and subsequently withdrew some admissions, without objection. These admissions concerned only the "front office" system.

Experts for both sides examined the material to determine the extent of copying. The respondents' expert report was served on 7th September 1998. On 30th September 1998, shortly before trial, the respondents made an open offer admitting liability for certain code lines and proposing an inquiry into damages, which the appellants did not accept. At trial, the appellants failed to establish liability beyond the scope of this offer. Certain claims relating to the "back office" system and the "architecture" of the "front office" system were found to lack foundation or did not survive the trial.

Regarding costs, the trial judge divided the proceedings into three parts: the trial, the period before trial until three months after the first admissions (15th November 1997), and the period from then until trial. The appellants were ordered to pay all respondents' costs of the trial; appellants were entitled to their costs until 15th November 1997; and from that date to trial, appellants were ordered to pay 75% of respondents' costs. The judge reasoned that after receiving the first admissions and a reasonable period to consider them, the appellants should have limited their claim, as the subsequent admissions did not materially alter the scope.

Legal Issues Presented

1. Whether the trial judge erred in principle in fixing the date from which the appellants should have circumscribed their claim for the purposes of costs.
2. Whether the appellants were justified in awaiting completion of the admissions process before limiting their claim.
3. Whether the court should interfere with the trial judge’s exercise of discretion on costs in light of the continuing admissions process and subsequent developments.

Arguments of the Parties

Appellants' Arguments

• The appellants were not in a position at the date of the first admissions or three months thereafter to decide whether or to what extent to limit their claim because the admissions process was ongoing.
• Correspondence made clear that further admissions were expected and the process was not complete.
• The appellants could not have known that subsequent admissions would not significantly enlarge the scope of admitted copying.
• The judge erred in exercising his discretion by fixing the date for circumscribing the claim prematurely.
• The appellants contended that the period during which they were entitled to costs should extend until three months after the final admissions, i.e., 22nd August 1998.

Respondents' Arguments

• The trial judge was entitled to use hindsight and consider that by the time of the first admissions and a reasonable period thereafter, the appellants had all relevant information to assess their case.
• The judge was justified in fixing the date for the end of the first cost period despite the ongoing admissions process because the appellants’ claim included unreasonable elements, notably relating to the "back office" system and the "architecture" of the "front office" system.
• The judge struck an appropriate balance reflecting the parties’ conduct and the issues raised.
• If error was found, the matter should be remitted to the trial judge rather than this court substituting its own judgment on costs.

Table of Precedents Cited

Court's Reasoning and Analysis

The court acknowledged that the trial judge correctly began from the premise that the appellants were justified in initiating and continuing proceedings until the respondents' admissions should have prompted circumscription of the claim. The judge identified this point as three months after the first admissions were served, reasoning that the admissions were not materially added to thereafter. However, the Court of Appeal found fault with this reasoning because it assumed the appellants would have known at that time that subsequent admissions would not significantly enlarge the scope of admitted copying.

The court emphasized that the admissions process was explicitly ongoing at the relevant times and that the appellants were entitled to await its completion before narrowing their claim. It was unreasonable to expect the appellants to limit their claim while the investigation and admissions process was incomplete, especially given the respondents’ undertaking to complete it. The trial judge erred by using hindsight and failing to consider what the appellants reasonably knew or ought to have known at the time.

While the judge correctly identified some claims as unsound, such as those relating to the "back office" system and the "architecture" claim, it was not reasonable to expect the appellants to have abandoned the "architecture" claim before the investigatory process concluded. The court concluded that the trial judge omitted a relevant factor in his discretion and thus erred, warranting appellate intervention.

Given the passage of time and the effort required to remit the matter, the Court of Appeal exercised its own discretion on costs, adjusting the periods for cost liability accordingly.

Holding and Implications

The Court of Appeal ALLOWED THE APPEAL in part and substituted its own order on costs. It held that:

• The respondents must pay the appellants' costs up to and including 22nd August 1998 (three months after the final admissions).
• From 23rd August 1998 until the start of trial on 6th October 1998, there shall be no order as to costs.
• The appellants must pay the respondents' costs of the trial commencing 6th October 1998.
• The appellants must pay all respondents' costs related to the "back office" system claim.

The decision directly affects the allocation of costs between the parties for specified periods and claims but does not establish new precedent beyond clarifying the proper approach to costs where an ongoing admissions process affects the reasonableness of continuing claims. The court emphasized the importance of assessing the parties’ knowledge at the relevant time rather than relying on hindsight.