Passing off: publicity and costs orders

Background

A court may make publicity orders in favour of a successful defendant when it is just and convenient to do so (section 37, Senior Courts Act 1981) (section 37).

The test in the case of an order sought with respect to a non-infringing product is whether there is a need to dispel commercial uncertainty in the marketplace (Samsung Electronics (UK) Ltd v Apple Inc, www.practicallaw.com/3-522-6097).

An offer to settle made in accordance with the Civil Procedure Rules (Part 36) has important costs consequences. Where the defendant does not accept a Part 36 offer and the claimant obtains a judgment that is equal to or more advantageous than its offer, unless it considers it unjust to do so, the court must order the defendant to pay the claimant's costs on the indemnity basis from the date the relevant period expired and interest on those costs of up to 10% above base rate; interest on the whole or part of any sum of money (excluding interest) awarded at up to 10% above base rate ; and an additional amount of 10% of the first £500,000 of damages awarded, or 10% of the first £500,000 of costs where there is no monetary award, and 5% of any amount above those figures, subject to the limit of £75,000. (CPR 36.17(4).

A damages-based agreement (DBA) is an agreement between a representative and a client, whereby the representative's agreed fee is contingent on the success of the case and is determined as a percentage of the compensation received by the client.

Facts

A butcher's business, P, brought a claim in passing off against a supermarket chain, L.

The High Court dismissed the claim. After trial, but before judgment, P and its solicitors assisted a journalist with an article focusing on the case, which received nationwide publicity.

L applied for a publicity order, arguing that the reporting of its conduct had been so unfair because of P's and its solicitors' communications to the press that it would be just for the result of the case and a link to it to be published at P's expense in the same press outlets in order to set the record straight. L also applied for permission to appeal.

On costs, L applied for P to pay L's costs on the indemnity basis, on grounds which included P's failure to beat L's offer under Part 36.

Decision

The court refused to make the publicity order, but granted L permission to appeal.

There is an equitable discretion power under section 37 to make publicity orders in favour of a successful defendant when it is just and convenient to do so. These orders should not be the norm and should be granted only when necessary and proportionate. Where the need to do so arises from inaccurate reporting by journalists, a party will only be held responsible if it has contributed to the inaccuracy.

Here, a publicity order was not necessary to remove commercial uncertainty. The press article complained of had been inaccurate and widely publicised, but it was not clear to what extent P and its solicitors were responsible for its content. If the court made the order and P succeeded on appeal, a further order might be needed. There were uncertainties about the terms of any order, whether the media would publish it or should be consulted about its terms, whether it would achieve its purpose and whether it would hinder settlement of the dispute.

The court dismissed L's argument on costs, as P's refusal to accept the Part 36 offer was not unreasonable so as to be out of the norm and justify indemnity costs. Although the Part 36 offer had been a reasonable one, and the making and acceptance of reasonable offers should be incentivised and refusal strongly disincentivised, a reasonable claimant would not have concluded, at that stage, that it was better than the likely outcome at trial. However, P's post-hearing submissions on whether indemnity costs would be appropriate, made to justify the terms of its DBA at a 50/50 share, suggested that its claim might have been exaggerated. Therefore, the court adjusted the costs order to allow L to apply to vary the costs order in future if, for example, the litigation did not produce a significantly more favourable outcome for P than the Part 36 offer.

If the court takes an approach to costs which facilitates claimants and their lawyers pursuing agreements which enables them to appropriate large gains if the claim succeeds but leaves defendants with irrecoverable losses if the claim fails, this could lead to the unfair allocation of litigation risks and create a range of undesirable incentives. For example, it might encourage a claimant to run litigation in a way that was more expensive to a defendant and refuse reasonable offers to settle. This points towards indemnity costs being appropriate where a claim, which the claimant knew was weak or speculative, has failed. However, that raises the question of whether the court is able to determine that the claim was exaggerated or a settlement offer was reasonable, where quantum has never been determined because there is an order for a split trial and the claimant has failed at the liability stage.

While creative forms of litigation financing are permitted, the courts should take account of the possibilities for abuse and unfairness and seek to address that, as far as possible. An ongoing review of the progress of litigation by independent lawyers is sensible, in order to reduce the risk of an indemnity costs order against the unsuccessful funded party, and this applies equally to cases conducted under a DBA as well as those where there is a conditional fee agreement. Responsible DBA litigation is to be encouraged and lawyers who are party to DBAs should undertake a dispassionate review of whether the claim is justifiable on the authorities and the facts. There is a public interest in the court making litigants face up to the real costs that rejection of a reasonable offer may impose on others.

Comment

The court’s findings on costs, particularly in the context of Part 36 offers, will be of interest to those involved in litigation funding, especially DBAs.

Case: Philip Warren & Son Ltd v Lidl Great Britain and others [2021] EWHC 2372 (Ch).

First published in the October issue of PLC Magazine and reproduced with the kind permission of the publishers. Subscription enquiries 020 7202 1200.