The Death Knell for Costs Awards in Interim Injunctive Relief Applications?

One of the questions that claimants considering applying for interim injunctive relief frequently ask is whether they will be awarded their costs if successful in obtaining the injunction. 

That can be of particular importance in employee competition claims because: (i) the vast majority of such claims settle prior to trial; and (ii) a costs award against a defendant can be a powerful weapon for the successful (former) employer.  Based on some recent cases, many have taken the view that the modern approach is generally for the winner of an injunctive relief application to be awarded their costs of that application at the end of the interim relief hearing.

However, in Digby v Melford Capital [2020] EWCA Civ 1647, by a judgment handed down on 4 December 2020, the Court of Appeal (Lewison and McCombe LJJ) put firmly to bed the notion that the modern approach to interim relief applications involved anything other than an order that costs be reserved, save where special factors justify an alternative approach.

The “traditional approach”

Desquenne et Giral UK Ltd v Richardson [2001] FSR 1 involved a dispute about the enforceability of a non-compete covenant in an employment contract.  The judge granted the injunction and made an order for immediate payment of costs by the defendant.  The Court of Appeal allowed an appeal against the costs order (substituting an order that costs be reserved) because, primarily, the injunction had been granted on the balance of convenience in order to hold the ring until trial, and it was therefore unjust to decide that one party was successful for the purposes of the costs rule. 

In Picnic at Ascot v Kalus Derigis [2001] FSR 2 (essentially an intellectual property dispute) Neuberger J, applying Desquenne, made an order that costs of interim injunction proceedings be reserved, save for the costs of a hearing where, after a long adjournment, the defendant agreed at a late stage to the grant of an injunction pending trial.  Neuberger J acknowledged the basic position that, in the absence of special factors in an interlocutory injunction case, costs would normally be reserved, but stated that the Court of Appeal in Desquenne had not tied the judge’s hands in deciding what costs award to make.  He referred to a number of factors that the judge should take into account, including that:

1.             A defendant who accedes to the grant of an interim injunction before a hearing should not for that reason alone be subject to a more disadvantageous costs order than if he had fought and lost.

2.             There will be cases where the balance of convenience is so clear, and the outcome of the hearing of an application for an interim injunction should be so plain to the parties, that an order for costs against the defendant should be made for wasting time and money in fighting the issue (whether or not the defendant eventually concedes).

3.             A case may not go to trial, and: (i) if it does not go to trial, and does not settle, then a ‘costs reserved’ order may as well never have been made; and (ii) undecided costs issues may make settlement difficult.  Further, there can be difficulty for a trial judge in reconstructing how things looked at the time of the interim application.  Neuberger J suggested that the Court should take a realistic attitude as to whether the case was likely to come on for trial (for example, considering whether a speedy trial had been ordered).

4.             Where the Court takes substantive merits into account without the evidence having been tested at trial, it must be careful before taking them into account on the question of costs.  However, if the Court’s views on the merits is based on incontrovertible factors or the construction of a document, then that may point to a more favourable costs order than costs reserved.

5.             It may be that a defendant who is successful in resisting an interim injunction will find it easier to persuade the Court to order costs in his favour, since he had no choice but to come to court.

6.             Ultimately, the judge should ask whether it would be unfair for the claimants to have their costs of the application even if they go on to lose at trial, and whether the opposition to the application was justified.

The “modern approach”

In Taylor v Burton [2014] 3 Costs LO 337, the Court of Appeal (per Rimer LJ) stated that “Whereas in times gone by “costs in cause” orders, or “claimant’s costs in cause” orders were commonly made on interim applications, nowadays they are more rarely made, and the winner of an interim application will commonly be awarded his costs there and then, regardless of what happens at the trial”.

These remarks came frequently to be cited by successful claimants (and defendants) to interim relief applications.  In the employee competition case of Visage Limited v Mehan [2017] EWHC 2734 the High Court (Yip J) referred to the approach of the Court of Appeal in Desquenne as the “traditional approach” and the more “modern authorities” exemplified by Taylor.  In practice, many judges seemed to follow the “modern” approach.

What did Digby decide?

In Digby, Birss J granted interim injunctive relief restraining use of what was alleged to be confidential information, requiring delivery up of a laptop computer, and giving related relief, effectively continuing relief that had been made (more or less by consent) at an initial hearing on informal (short) notice.  Birss J ordered the defendant to pay the claimants’ costs (and to make a payment on account of those costs).

In making the costs order at first instance, Birss J:

1.             Stated that it had not been “possible or necessary to resolve the underlying merits of what is clearly a hotly disputed case” (in the context of disputed continuing membership of an LLP).

2.             Referred to Desquenne and Picnic at Ascot saying they “were made shortly after the CPR came into force.  I suspect the reality is that those two cases have been overtaken, I would say for some years, by the modern approach to costs under the Civil Procedure Rules.  In the end, of course … it is a matter of the court’s discretion.”

3.             Identified the claimants as the successful party for the purposes of CPR 44.2, because they had achieved the continuation of the injunctions they sought with some modifications (the defendant’s witness statement for the return date hearing had consented to the continuation of the injunction subject to modifications).

4.             Said he was concerned that he might be penalising the defendant for taking a pragmatic approach to consenting to the injunctions rather than spending two or three days arguing over them, but noted that: (i) the defendant had asked the claimant to issue proceedings seeking injunctive relief if matters were not agreed; and (ii) the defendant had breached an undertaking he had offered not to contact investors (the judge had been misinformed on this point – in fact, the defendant’s email to the investors was sent prior to his offer of undertakings).

5.             Concluded that “Taking an overall view, this is not a case in which I should do anything other than make what I regard as the usual order, which is that the successful party’s costs are paid by the unsuccessful party”.

The Court of Appeal:

1.             Held that Birss J erred in relying upon the general rule in CPR 44.2 that the unsuccessful party will be ordered to pay the successful party’s costs in the context of an application for an interim injunction. 

2.             Held that, in respect of interim relief applications, Desquenne and Picnic at Ascot represent the law and are accurately summarised in the White Book as follows: “Where an interim injunction is granted the court will normally reserve the costs of the application until the determination of the substantive issue … However, the court’s hands are not tied and if special factors are present an order for costs may be made and those costs summarily assessed.” 

3.             Specifically rejected the submission that the “pay as you go” principle (i.e. the “modern approach”) has precedence over the Desquenne approach that the normal order will be costs reserved. 

4.             Said that “the quest for the successful and unsuccessful party in such cases is usually fruitless” because the Court is not resolving the underlying disputed issues.  “Success” in obtaining an injunction preventing a defendant from doing something for a period of time is only provisional, because at trial it may turn out to be unfounded (activating the cross-undertaking in damages).

5.             Said that the pragmatic approach taken by the defendant in Digby of effectively consenting to the injunction on short notice and consenting to continuation of an interim injunction prior to the return date hearing were “very strong grounds on which to reserve the costs”.

6.             Said that “it is likely to be helpful to parties endeavouring to make sensible arrangements in cases such as this pending trial that they should know that costs are likely to be reserved”.

The death knell for costs orders at injunctive relief hearings?

Digby undoubtedly makes it more difficult for claimants to obtain costs orders at the end of interim relief hearings relying on any notion of a “modern” approach to identifying the successful party at such hearings.  It may well sound the death knell for (at least the vast majority of) ‘costs only’ hearings, where a judge is asked to rule solely on a dispute as to the appropriate costs order where the defendant has consented to interim relief – in such circumstances the ultimate order will very likely be costs reserved.

However, the prospect of a costs order in favour of one party or the other at the end of some interim relief hearings remains alive and kicking.  The Picnic at Ascot factors set out above provide scope for argument about an order for the immediate payment of costs in a number of different scenarios.  For example:

1.             A defendant who unreasonably refuses to offer undertakings to comply with prima facie enforceable covenants over to a speedy trial may well still be at risk of an order that (s)he pays the costs of attending the contested hearing (not least given Balcombe LJ’s guidance from Lawrence David v Ashton [1989] ICR 123 that a defendant who has entered into a contractual restraint should consider offering an appropriate undertaking in such circumstances).

2.             In Digby the claimants had not made any request to the defendant to return his work laptop prior to issuing proceedings – if a request to return the employer’s property was made and refused by the defendant without any good grounds, such that proceedings had to be issued to secure the property, that may justify an immediate costs order.

3.             Defendants who successfully resist an application for interim injunctive relief may still succeed in obtaining the costs of that application.

In conclusion, Digby may make it more difficult for claimants to obtain immediate costs orders on interim injunctive relief applications, but it is not the death knell for such orders.  On the contrary, practitioners can expect hotly disputed arguments about the costs of interim relief hearings to continue.

Craig Rajgopaul

Blackstone Chambers

7 January 2021