Lycra owner gets in a tight spot on costs: Unjust Part 36 offers, ex employees, breach of confidence & more

Lycra being put through its paces

Legal costs are not always seen as the sexiest topic for a blogpost (anyone with colleagues who cycle into the office may have similar views about Lycra). However, the approach that the courts take toward costs is of huge practical importance and sometimes there is a decision which is sufficiently "wait, what?" that it deserves to be shared with a wider audience.

I am talking of course about the Invista v Botes saga and the treatment of a Part 36 offer.

What happened?

In January 2018 Mr Justice Birss found in favour of various former employees of Invista Textiles who had set up their own business shortly after leaving Invista. Invista makes polymers, chemical intermediates and fibres including nylon and the intermediates used to make nylon. Put it another way, Invista is responsible for Lycra leggings. 

In that judgment, Invista Textiles (UK) Ltd & Anor v Botes & Ors [2019] EWHC 58, Birss J considered various issues related to an employment agreement including ongoing duties of confidentiality and breach of restrictive covenant and non-solicitation clauses. They are summarised below:

i) Are the individual defendants in breach of their duties of confidence towards Invista UK either in contract or equity?

ii) Have the individual defendants retained "Company Property"?

iii) Is the post-employment restrictive covenant enforceable? If so, was it breached?

iv) Is the non-solicitation clause enforceable. If so, was it breached?

v) Did the individual defendants failed to act in the best interests of their employer during the course of their employment?

vi) Did any of the defendants induce a third party to breach its agreement with Invista?

vii) To what extent, are the corporate defendants liable for the actions carried out by the individual defendants, including by part of a common design as to the same.

The judgment (see paras 172 to 274) paints a clear picture. Once put under the Birss microscope, in most instances, the contractual position went found to go far beyond what was necessary to protect Invista's legitimate interests and consequently was invalid.

By way of example, a three-month non-compete clause was found to be an unreasonable restraint of trade because it was not linked to any genuine need to preserve confidential information. However, one of the individual defendants was found to have breached a non-solicitation clause.

One thing that is clear from the judgment is the sheer amount of time and money thrown at the case by Invista (around £2million!), particularly as far as disclosure was concerned. This led to a couple of documents being identified which the individual defendants had retained but the case did not turn on these few items of evidence.

For a great and far more comprehensive review of the contractual issues in the case, check out Mark Anderson's post for his excellent IP Draughts blog.

As with ABBA...
in the world of legal costs,
 the Winner Takes it All 

The costs judgment

The costs judgment is available here: [2019] EWHC 1087.

Although the Claimants obtained some relief against the Defendants in this case, it is clear from the January judgment that the "winners" were the defendants. Birss J reminds us that "just because a claimant has obtained some relief, it does not mean that they are necessarily always the real winner." [51].  

This inevitable conclusion was inevitably met with some resistance from Invista who tried to convince the court that they were the winners. The reinterpretation of the judgment by Invista was met with some surprise by Birss J, particularly as regards the corporates being "competitors". This clearly caused some judicial annoyance:

64. The finding that VideraBio is a "Competing Business" has been trumpeted at the forefront ofInvista's case post-trial as if it shows that it won this action. It has almost always between presented without any qualification at all... The trumpeting of this point in this way is a thoroughly misleading submission by Invista and a mischaracterisation of what happened in these proceedings. It is not what I would have expected of a company of Invista's standing.

As Birss summarised, "it is manifest that the predominant case, when the action began, was based on misuse of confidence... That part of this action has failed."

Birss concluded that the claimants should pay 71% of the defendants' costs assessed on a standard basis. The reduction in the percentage of costs awarded was to take into account the fact that the  claimant had some success in relation to documents. (Although not enough success to be the winner of the action).

So at the end of a detailed costs review, Birss concluded that: (i) the overall winner was the defendants; (ii) the claimants had not obtained a better result than their Part 36 offer; and, (iii) the claimants should pay the defendants 71% of the defendants' assessed costs. This was not the end of things and the parties were back in court a month later... This was due to a dispute as to the facts of the case.

The Part 36 offer 

Part 36 offers are a procedural feature of English law. They are aimed at encouraging the parties to settle a dispute pre trial (although they can also apply to appeals). In essence, they enable the party making the offer to put the other party under pressure to accept an offer because of the costs consequences of refusal. 

Following further review after delivering the first costs judgment, Birss concluded that the position on the facts was indeed wrong and that the Claimants had obtained a better result than the Part 36 offer in relation to some of the documents. 

The position is summarised in [22] of the April decision [2019] EWHC 1086 (Ch):

Once the claimants had offered in the Part 36 offer to abandon everything claimed except the 1367 documents, for them to then obtain relief for those documents as a result of the admission and for quite a number more, and to win some other minor causes of action at trial is, in a straightforward sense, a more advantageous position in terms of the relief actually sought. The value is inherently unquantifiable but that does not stop it from being more advantageous as long as it is tangible (which it plainly is).

Because of the particular circumstances, including the fact that the offer was not a money offer and that the defendants were the overall winners. Birss J analysed the offer by Invista as being really "an admission of defeat by Invista" but one which the defendants could not accept because of the costs consequences of Part 36 (the defendants would have been required to pay the claimants, by then substantial, costs up to the date of acceptance).

There is an exception to Part 36 applying if the consequences would be unjust. This is reserved for exceptional circumstances but upon careful consideration, Birss J considered that this was one such circumstance. He reached this conclusion because of:

(i) the context in which the offer was made;

(ii) the terms of the offer; and

(iii) his conclusion that the Part 36 offer itself was not a genuine offer to settle ("if anything, I think the offer has proved to be a barrier to settlement").

As the Part 36 offer was found to be "unjust" the judge stuck to his original conclusion on costs and ordered that the claimants pay 71% of the defendants costs.

A final point to note - there was considerable judicial criticism of much of the communication, particularly from the defendants which was considered "bad tempered" and helped to "raise the temperature" unnecessarily. A nice reminder that this approach to correspondence is not always ignored by the court and rarely serves a positive purpose.