Sycamore Bidco Ltd v Breslin & Anor

Factual and Procedural Background

This opinion concerns the third post-judgment hearing in a complex commercial litigation matter involving claims for damages, interest, costs, interim payments, permission to appeal, and outstanding inquiries related to a warranty and misrepresentation dispute arising under a Sale and Purchase Agreement ("SPA"). The claimant, referred to as Sycamore, was awarded damages and interest following earlier hearings, and this hearing addresses the consequential issues of costs, including the impact of two Part 36 settlement offers made by Sycamore, and related procedural matters. The defendants challenged various aspects of costs, including the application of the Part 36 offers and the conduct of the proceedings. The case involves multiple claims, some successful and some failed, including significant failed claims for misrepresentation and breach of warranty. The litigation has been protracted and costly, with the claimant’s base costs estimated around £3.9 million and additional uplift under a conditional fee agreement ("CFA"). Both parties have raised detailed points about the allocation and reasonableness of costs, as well as the appropriate interest rates and timing for costs and damages. There are also issues concerning specific disclosure applications and the costs and interest related to a separate LTIPs claim.

Legal Issues Presented

1. Whether the claimant, as overall winner, should be entitled to all its costs or whether some costs should be disallowed due to failed issues and conduct in running the case.
2. Whether the normal consequences of beating the claimant’s Part 36 offers apply in full or whether circumstances justify lesser burdens on the defendants.
3. What orders should be made regarding the costs of two specific applications made during the proceedings.
4. What interest rate should be awarded on costs.
5. Whether the start date for interest on costs under the Judgments Act should be postponed.
6. Whether the defendants should be granted permission to appeal.
7. Whether there should be a stay of enforcement pending any appeal.
8. Other minor questions regarding outstanding inquiries and costs related to the LTIPs claim.

Arguments of the Parties

Claimant's Arguments

• The claimant contended it was entitled to its full costs as the successful party pursuant to CPR rule 44.3(2)(a).
• The claimant argued that the failed points were overstated by the defendants and that much of the documentation and evidence was necessitated by the defendants’ requests.
• The claimant submitted that the costs of specific disclosure applications were reasonably incurred and should be included in the costs to be recovered.
• The claimant sought interest on costs at 5% above base rate, based on evidence of borrowing rates within its corporate group.
• The claimant opposed the stay of enforcement pending appeal unless escrow arrangements were agreed.
• Regarding the LTIPs claim, the claimant accepted liability for costs but disputed the amount claimed and interest rate proposed.

Defendants' Arguments

• The defendants argued for a significant disallowance of costs (60% reduction), on the basis that the claimant pursued multiple unsuccessful claims that increased costs unnecessarily.
• They contended that the failed misrepresentation claim and other failed warranty claims consumed substantial trial time and resources, justifying a costs deduction.
• The defendants sought to exclude costs related to specific disclosure applications, arguing these were pointless and not reasonably incurred.
• They challenged the claimant’s claimed interest rate on costs, advocating for the same rate as interest on the judgment debt.
• The defendants disputed the application of Part 36 consequences to one defendant due to the limited liability under the SPA and argued it would be unjust to apply full Part 36 sanctions to the other defendant based on various factors including late quantification of the claim and reliance on witnesses.
• They sought permission to appeal and a stay of enforcement pending appeal, citing financial risks and proposing escrow arrangements.
• The defendants resisted an early inquiry under clause 8.14 of the SPA as premature given the pending appeal and tax uncertainties.

Table of Precedents Cited

Court's Reasoning and Analysis

The court commenced by acknowledging the claimant’s overall success but recognized that significant issues were lost, including the principal misrepresentation claim and several warranty-related claims. Applying established principles from authority such as Multiplex v Cleveland Bridge, the court considered whether to make an issue-based or proportionate costs order. The court found that the failed claims were substantial, severable, and had consumed significant time and resources, justifying a deduction from the claimant’s costs.

The court examined the conduct of the parties and rejected the defendants’ submission that the claimant’s conduct merited a costs deduction on grounds of unreasonableness or impropriety, finding the litigation was conducted with a "no stone unturned" approach rather than "no holds barred" misconduct.

On quantifying the deduction, the court accepted a broad brush approach, concluding that a 40% reduction of the claimant’s costs was appropriate, awarding 60% of costs to the claimant.

Regarding specific disclosure applications, including the third-party disclosure against Rees Pollock and a trial disclosure application, the court found those costs to be reasonably incurred and ordered them to be costs in the case.

On the issue of costs against individual defendants, the court declined to apportion costs between them despite differences in their financial liabilities, reasoning that they had acted jointly in the defense.

The court considered the Part 36 offers and concluded that the claimant had beaten the offers as to the aggregate sum, triggering the usual Part 36 consequences, except in relation to one defendant whose capped liability was less than the offer. The court held that the Part 36 sanctions did not apply to that defendant due to the offer’s terms and the nature of the claims.

For the other defendant, the court rejected arguments that applying Part 36 consequences would be unjust, emphasizing the policy of encouraging reasonable settlement and the risks inherent in litigation. The court ordered interest on costs at the same rate as interest on damages, rejecting the claimant’s higher rate based on related-party lending.

The court exercised its discretion to postpone the start date for Judgments Act interest on costs by four months, considering the large costs bill and issues of proportionality.

The court ordered an interim payment on account of costs at £1.5 million, reflecting the percentage deduction and the irreducible minimum costs likely to be payable.

Permission to appeal was granted on grounds with a real prospect of success.

The court granted a stay of enforcement pending appeal, based on the defendants’ undertakings to protect the claimant’s position through escrow arrangements and to avoid dissipation of assets, while noting some difficulties in agreeing the detailed terms.

On a contractual inquiry under clause 8.14 of the SPA relating to tax on warranty payments, the court declined to order an inquiry at this stage as premature given the pending appeal and unresolved tax issues.

Regarding the LTIPs claim, the court ordered the claimant to pay the costs of that claim and made an interim payment of £40,000 towards those costs, despite limited evidence, due to the overall context of the litigation.

The court equated the interest rate on the LTIPs claim and its costs to the rate applicable to damages interest in the main claim.

Finally, the court rejected a submission to allocate the interim payment under the LTIPs claim exclusively to the trustees, instead ordering a pro rata allocation to all claimants, including the defendants involved in the main action.

Holding and Implications

The court held that:

• The claimant is entitled to 60% of its costs, reflecting significant failed issues that justify a costs deduction.
• The costs of specific disclosure applications are recoverable as costs in the case.
• The Part 36 consequences apply fully to one defendant but not to the other due to the nature of the offer and liability caps.
• Interest on costs shall run at the same rate as interest on damages, not at the higher rate claimed by the claimant.
• The start date for Judgments Act interest on costs is postponed by four months.
• An interim payment on account of costs is ordered at £1.5 million.
• Permission to appeal is granted on grounds with a real prospect of success.
• A stay of enforcement pending appeal is granted, subject to escrow arrangements and undertakings to protect the claimant’s interests.
• No inquiry under clause 8.14 of the SPA is ordered at this stage as premature.
• The claimant is ordered to pay costs of the LTIPs claim, with an interim payment of £40,000, and interest at the same rate as damages interest.
• The interim payment under the LTIPs claim is to be allocated pro rata among all claimants, including the defendants involved in the main action.

Implications: The decision directly affects the parties’ financial liabilities for costs and interest, applying a significant but proportionate deduction for failed claims. It clarifies the application of Part 36 sanctions in multi-defendant cases with capped liabilities and emphasizes the importance of clear settlement offers. The court’s approach to interest on costs and postponement of Judgments Act interest reflects a balanced discretion considering the scale and complexity of the litigation. The permission to appeal and stay of enforcement preserve the parties’ rights pending further judicial consideration. No new legal precedent is established beyond the application of established principles to the facts.