England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE CHANF 98/1239/3

Royal Courts of Justice

Strand

London WC2

Friday 19 February 1999

B e f o r e:

THE MASTER OF THE ROLLS

(LORD WOOLF)

LORD JUSTICE MUMMERY

LORD JUSTICE MANTELL

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PHONOGRAPHIC PERFORMANCE LIMITED

Applicant/Respondent

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AEI REDIFUSSION MUSIC LIMITED

Respondent/Appellant

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(Transcript of the Handed Down Judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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THE HON MICHAEL BELOFF QC and MR H MALEK (Instructed by Messrs Eversheds, London, EC4V 4JL) appeared on behalf of the Appellant

MR J RAYNER JAMES QC (Instructed by Messrs Green Sheikh, London, W1H 2BY) appeared on behalf of the Respondent

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JUDGMENT

(As approved by the Court)

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©Crown Copyright

Friday 19 February 1999

JUDGMENT

LORD JUSTICE MUMMERY: This appeal is concerned with the circumstances in which it is appropriate for an appellate court, to which an appeal lies on a point of law from a tribunal (or court), to interfere with the exercise of a wide discretion to make an order in relation to the payment of the costs of the proceedings.

The appellant, AEI Rediffusion Music Ltd (AEI), carries on the business of providing a satellite delivered service consisting of the transmission of music selections to subscribers for use as background music in premises. The transmission involves the broadcasting of sound recordings. That is an act restricted by the copyright in a sound recording.

The relevant broadcasting rights in the sound recordings are vested in the respondent, Phonographic Performance Ltd (PPL). PPL is a collecting society for its members, who are record companies initially entitled to the copyright in sound recordings, including the right to broadcast them in the United Kingdom. The record companies assign the broadcasting right to PPL, which, on behalf of its members, licenses users to exercise the right. The sound recordings concerned are collectively called "the repertoire", which includes the vast majority of sound recordings available to the public in the United Kingdom.

PPL is a "licensing body" for the purposes of Chapter VII of the Copyright, Designs and Patents Act 1988 (the 1988 Act). In order to broadcast the sound recording by satellite AEI requires a licence from PPL.

Under the 1988 Act application may be made by a copyright user to the Copyright Tribunal in respect of schemes operated by, or licences granted by, a licensing body. PPL operates a licensing scheme in respect of the broadcasting of sound recordings by commercial radio stations. AEI could have sought to claim a licence under that scheme. Instead, AEI claimed the use of sound recordings as of right in broadcasts. The statutory provisions conferring that right are contained in Sections 135A to 135H, which were inserted in the 1988 Act by amendments in the Broadcasting Acts 1990 and 1996. The effect of the amendments is to create, in specified circumstances, a statutory licence to broadcast sound recordings in the repertoire. If the licensing body and the copyright user are unable to agree terms as to payment or other conditions the matter is referred by the user to the Copyright Tribunal to:

"... consider the matter and make such order as it may determine to be reasonable in the circumstances " Section 135D (1) and Section 135E (2).

As this appeal is limited to the issue of costs it is unnecessary to set out the provisions of Sections 135A to 135H in full. The operation of the statutory licence may be summarised as follows:-

1. The relevant right is the inclusion of sound recordings in a broadcast (or cable programme service). The right takes the form of a statutory licence which the owner of the copyright (in this case PPL) is treated as having granted. The effect of the licence is to protect the licence holder who broadcasts the sound recording from liability for infringement of copyright, provided that he complies with specified conditions for the exercise of the right. They include making

" the payments to the licensing body that are required by this section."

See Section 135C (1)(c).

2. The amount of the payments to be made depends on whether that matter has been determined by an order of the Copyright Tribunal.

3. The Copyright Tribunal has power to settle the terms of payment and other conditions between a licensing body and the person wishing to avail himself of the right. The matter comes before the Copyright Tribunal on an application to settle the terms of payment and other conditions for the exercise of the right.

4. The application to the Tribunal is made by the person intending to avail himself of the right. He must make application to the Copyright Tribunal before he begins to exercise the right.

5. On the application the Tribunal makes such order as it may determine to be reasonable in the circumstances.

6. An order of the Tribunal has effect from the date when the applicant began to exercise the right. Adjustments are then made in respect of payments which have fallen due between the start date and the date when the Tribunal made the order. Those adjustments may take the form either of repayments of sums, which have been overpaid, or of additional payments, as the case may be.

7. Provision is made for payments in the interim period between the start date and the date of the order of the Tribunal. The mechanics are these. It is incumbent on the applicant to take the first step by requesting the licensing body to propose terms of payment. It is then for the licensing body to propose terms of payment. When the licensing body's proposals are received by the applicant, the applicant must give reasonable notice to the licensing body of the date on which he proposes to begin exercising the right, and the terms of payment in accordance with which he intends to do so.

8. Before the applicant begins to exercise the right he must also give notice to the Copyright Tribunal of his intention to do so and of the date on which he proposes to begin to do so. He must apply to the Tribunal to settle the terms of payment. Unless the licensing body and the applicant reach an agreement, the payment to be made is that determined by the Tribunal to be reasonable. Until there is such an order the applicant is to pay to the licensing body the amount which he has specified in the notice to the licensing body.

This statutory machinery was invoked by AEI on 1 February 1996 when it notified PPL of its intention to avail itself of a statutory licence pursuant to Section 135C. PPL was asked to propose its terms of payment. PPL responded by sending a draft licence to AEI on 2 February 1996. On 22 February 1996 AEI objected to both the operating conditions and the payment terms in the licence proposed by PPL. It notified PPL of its own proposals as to, inter alia, the rate of payment. On 6 March 1996 AEI notified the Tribunal and PPL that it intended to exercise the statutory licence to broadcast the sound recordings with effect from 22 March 1996. On 11 March 1996 PPL made a request to AEI information and notified the conditions (other than financial terms) which it stipulated for the exercise of the statutory licence. On 22 March 1996 AEI made applications to the Tribunal (a) under Section 135D to settle the terms of payment and (b) under Section 135E to settle the conditions of the licence.

The application relating to conditions under Section 135E was not determined by the Copyright Tribunal, since, subject to some minor amendments, AEI ultimately dropped its opposition and accepted PPL's proposed terms.

The hearing in the Copyright Tribunal about the terms of payment took place between 8 and 12 September and on 17 September 1997. On 11 November 1997 the Tribunal handed down its decision under Section 135D. Although it was called an Interim Decision, it was final on all matters save costs.

The main points of the Tribunal's decision may be summarised as follows:-

(a) It accepted the 15% royalty rate proposed by PPL and rejected the 5% rate advanced by AEI;

(b) It rejected PPL's definition of "relevant revenue" by excluding equipment and messaging revenue, a major part of AEI's present and potential operations. It accepted AEI's contention that the royalty was to be calculated on "music only" revenue;

(c) It reduced PPL's alternative approach of a fixed fee per site from £150 to £60 per annum per site. It rejected AEI's contention that there should be no such fee at all.

On the costs issue there were written submissions and oral submissions on 23 January 1998 relating to the exercise of the Tribunal's discretion under Section 151 of the 1988 Act which states:

"(1) The Copyright Tribunal may order that the costs of a party to proceedings before it shall be paid by such other parties as the Tribunal may direct; and the Tribunal may tax or settle the amount of the costs, or direct in what manner they are to be taxed".

That broad discretion is reflected in Regulation 48 of the Copyright Tribunal Rules 1989 made under Section 150 (1) of the 1988 Act. That provides:

"(1) The Tribunal may, in its discretion, at any stage of the proceedings make any order it thinks fit in relation to the payment of costs by one party to another in respect of the whole or part of the proceedings."

The Copyright Tribunal issued guidance in a Practice Direction in 1995, (superseding an earlier Direction) which includes the following provision on the power to award costs:-

"15. Parties are reminded that under Rule 48(1) the Tribunal has power to award costs. The Tribunal will consider exercising this power against any party which it considers is guilty of undue prolixity in its evidence or at the hearing. Further, though it is not the Tribunal's practice that in all cases costs will follow the event, the fact that a party's case may have been unreasonably maintained will weigh heavily with the Tribunal."

In PRS -v- BEDA [1993] EMLR 325, 334 Hoffmann J described the Tribunal's discretion as

"a wide discretion, similar to that exercised by a court."

There are, however, two significant respects in which the discretion vested in the Tribunal and the circumstances of its exercise differ from the discretion on costs currently vested in and exercised by a court.

(1) Order 62 Rule 3 of the Rules of the Supreme Court states the following general principle:-

"(3) If the Court in the exercise of its discretion sees fit to make any order as to the costs of any proceedings, the Court shall order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs."

This also applies to costs in the County Court by virtue of CCR Ord.38. Neither the 1988 Act nor the Copyright Tribunal Rules contain any such statement of general principle affecting the exercise of discretion.

(2) The second difference is related to the first and arises from the nature of the Tribunal's jurisdiction on an application to it. As already noted, the Tribunal may make such order as to terms of payment and conditions as it "may determine to be reasonable in the circumstances". It is rare for a court to enjoy such a wide discretion in its decisions on substantive matters. In most civil proceedings the Court's application of the law to the facts results in a decision in favour of one party and against another. So it is not usually difficult to say who is the winner of the case and who is the loser. But the Tribunal's decisions as to what is reasonable in the circumstances are more likely to produce outcomes in which there is no clear winner and loser. The Tribunal's determination of what are reasonable terms of payment will often be in an amount less than the licensing body proposes and more than the copyright user is willing to pay. In those circumstances it is not surprising that the statutory provisions and rules relating to costs in the Tribunal do not contain any statement of general principle relating to the outcome of an application, based on the "following the event" approach stated in Order 62 Rule 3(3). In the Tribunal there may be no meaningful "event" to follow in the accepted sense of those "two imposters, Triumph and Disaster". The present position is that there is far more room for flexibility in the Tribunal than in the Court, both as to substantive outcome and as to payment of costs.

The decision of the Copyright Tribunal on costs was given by the Chairman (Mr Antony Watson QC) on 4 February 1998 and is reported at [1998] EMLR 459. He concluded that the appropriate order should be that PPL pay two thirds of AEI's costs. He drew no distinction between the costs of the Section 135D application, pursuant to which the Tribunal settled the terms of payment, and the Section 135E application on conditions, which was not contested at the hearing before the Tribunal. Indeed, the Chairman made no reference at all to the separate Section 135E application.

Before stating the reasoning which led him to that conclusion the Chairman made the following observations:-

1. The Tribunal had concluded in its Interim Decision of 11 November 1997 that the terms offered by PPL

"were inappropriate in that the royalty they sought was significantly in excess of the one ordered by the Tribunal."

2. The Tribunal had also concluded that

"the offer made by AEI was far too low."

3. He added that "somewhat bewilderingly for the Tribunal", both sides had made the same submission on costs, namely that costs should follow the event. The reason for the unanimity of argument was that both sides insisted that they had clearly won the application. (Though by no means unknown, this situation rarely occurs in ordinary civil litigation where the principles and practice governing the award of costs are conveniently summarised in Re Elgindata [1992] I WLR 1207).

4. The Chairman's first impression on the question of who had won the application was that

"overall it was roughly a draw in that the royalty rate decided upon by the Tribunal was somewhere between the rival proposals. Further, the settled royalty terms are not sufficiently close to either proposal that it could be said that in substance one proposal had been accepted rather than the other. In these circumstances I was at first taken with the consideration that the appropriate order would be no order as to costs, this order only to be altered to make allowance for the major time consuming issues which had failed and which might, if regarded as improper or unreasonable, require an adjustment one way or the other."

The Chairman then explained, however, that he had reached a different conclusion on consideration of what he described as the "special jurisdiction being exercised in this case by the Tribunal". He abandoned his first impression as "not an appropriate way to approach the question of costs."

The Chairman's reasons for rejecting his first impression and for making an order for costs of the application against PPL were as follows:-

"The jurisdiction of the Copyright Tribunal relevant to this case was set up by Parliament to provide control over the powers of those exercising an effective monopoly. A party wishing a licence from a licensing body such as PPL has the option either to take the terms offered or apply to the Tribunal. It seems to me that, if the Tribunal concludes that the offer made by the licensing body is unreasonable (normally as to the royalty but potentially also as to other conditions), prima facie the licensing body has lost in the sense that the Tribunal has ruled that the licence terms were not reasonable and has substituted different licence terms. The position would of course be different if the Tribunal had only made minor adjustments to the offer made by the licensing body. However, where the licensing body's offer has been held in significant respects to have been unreasonable, in my view, as a matter of policy, the general order for costs should be on the basis that the licensing body is the loser and should pay the costs on the Elgindata basis. I have of course in mind, as already indicated, that AEI were also the losers in the sense that their submissions, as to what the appropriate rate should be, were also found to be unacceptable. However, it was necessary for AEI to apply to the Tribunal to arrive at far less onerous terms than those proposed by PPL. Where the Tribunal has agreed with the applicant that the terms offered were unreasonable, I do not think that the fact that the suggested terms of the applicant were likewise held to be unreasonable, alters the overall position that the applicant's actions in refusing the licence offered and asking the Tribunal to substitute a different licence were justified. I conclude therefore that AEI were the "winners" and that PPL should pay AEI's costs subject to any diminution that seems appropriate by reason of the way in which AEI conducted their cases following the principles in Elgindata. I have in mind that the successful party does not lose his costs just because some of his arguments did not succeed and only the costs of "improper or unreasonable " issues should be excluded."

The Chairman held that two lines of argument pursued by AEI (namely, that they should be treated as radio broadcasters and as to the actual receipts basis of royalty from overseas customers) were found by the Tribunal to be wholly without merit and that allowance should therefore be made for the costs incurred on those issues raised by AEI and rejected by the Tribunal. This led the Tribunal to reduce the costs which it proposed to order against PPL to two thirds of AEI's costs.

Section 152 of the 1988 Act provides that

"(1) An appeal lies on any point of law arising from a decision of the Copyright Tribunal to the High Court......".

It is common ground that the exercise of the Tribunal's discretion on costs can give rise to a question of law if the Tribunal has not correctly interpreted the discretion conferred upon it or has erred in principle or has reached a decision which is plainly wrong.

PPL appealed successfully to the High Court. On 9 July 1998 Neuberger J set aside the order for costs made by the Tribunal in favour of AEI. On the Section 135D application he substituted an order that there should be no order as to costs. On the Section 135E application he ordered AEI to pay PPL's costs. The judge disturbed the Tribunal's exercise of discretion on the basis that the Tribunal had erred in principle in making the award of costs to AEI. He accepted the submission of PPL that (page 11 of the transcript)

"....the exercise before the Tribunal was really the determination of a royalty payment, which each party accepted was to be paid in principle; the only issue between them is the question of quantum; in those circumstances, and subject to any special factors (such as one party effectively succeeding in whole or one party taking unreasonable points) where neither party wins, the correct order in principle is no order as to costs."

The judge rejected AEI's submissions that, as an applicant was required to make an application to the Tribunal to settle the terms of payment, it was to be treated as a plaintiff and that PPL was to be treated as a defendant, as in litigation concerning a money claim. On the basis of this analogy it was argued that AEI ought to be awarded its costs against PPL, as it had done significantly better than it would have done by accepting the terms of payment proposed by PPL. It followed that it was the "overall winner" and in the position equivalent to that of a successful plaintiff on a money claim in court.

The judge considered that the money claim analogy was a "dangerous one". He pointed out that, although AEI was the applicant, PPL occupied a position closer to that of a plaintiff: PPL was like a successful plaintiff in that it was entitled to receive money from AEI and, on that analysis, PPL was better off as a result of the Tribunal decision, because it received more than the royalty rate that AEI had been willing to pay (and had in fact paid) pending the Interim Decision of the Tribunal.

The judge rejected the submissions of AEI. He refused leave to appeal. Leave to appeal to the Court of Appeal was granted by a single Lord Justice on the basis that, although the appeal would only be concerned with the issue of costs which were in the discretion of the Tribunal, a point of general principle was involved which needed to be settled for the guidance of the Tribunal on future applications.

In his typically trenchant and commendably concise submissions Mr Beloff QC argued that it was the judge, not the Copyright Tribunal, who had erred in principle on the issue of costs.

The nub of his argument was that the judge failed properly to take account of the statutory context of the Tribunal's jurisdiction which gave AEI no choice but to challenge PPL on an application to the Tribunal. The provisions of Section 135A to 135H were enacted to counter the monopoly position of licensing bodies, such as PPL, by means of a compulsory statutory licence procedure. The provisions gave protection to the copyright user by allowing him to make interim payments under the statutory licence at the level chosen by the user until the Tribunal had settled reasonable terms of payment, which, when determined, were backdated with consequential adjustments. In those circumstances PPL was required by the statutory provisions to propose terms of payment for the licence. AEI was required to apply to the Tribunal to settle the terms of the payment. If PPL had initially proposed terms of payment which were not unreasonably high, the proceedings before the Tribunal would not have been contentious and costly.

In this case, however, PPL had proposed terms of payment which the Tribunal found to be unreasonably high. The options open to AEI were either to accept the unreasonably high terms of payment proposed by PPL (a course counter to the object of the provisions) or to challenge the terms on an application to the Tribunal. The trigger for the contentious Tribunal proceedings, in which the considerable costs were incurred, was PPL's proposal of unreasonably high terms of payment. The Tribunal rejected these terms for that reason. It was entirely within the power of PPL to avoid contentious proceedings before the Tribunal and to minimise the costs incurred in them by proposing reasonable terms of payment at the outset. PPL had failed to do that.

As for AEI, its position was directly analogous to that of a plaintiff with a money claim in ordinary litigation where a defendant had made a derisory offer of settlement and the plaintiff was faced with the choice of accepting that offer or litigating the claim. If the judge had followed that analogy and appreciated the substance and reality of the matter, he would have concluded (as the Tribunal did) that AEI had won the application, because it had achieved something of value which it could not otherwise have expected to receive: See Roache -v- News Group Newspapers Ltd [1988] EMLR 161. The normal rule should apply: costs should follow the event. That rule is not displaced or modified simply because AEI had unsuccessfully raised issues in response to PPL's claim. The overall result of the application was that the Tribunal substituted different and less onerous terms in place of those proposed by PPL and AEI had to pay to PPL licence fees in an amount substantially less than it would have had to pay if it had accepted the terms proposed by PPL. That counted as a victory by AEI.

Mr Beloff pointed out that the consequence of the judge's approach was that AEI (and other statutory licensees in a like position) had to fund costly contentious proceedings before the Tribunal, despite the fact that an unreasonable proposal on the part of a licensing body, such as PPL, had necessitated those proceedings by the user in the first place. That result was incompatible with the intention of Parliament, as expressed in the 1988 Act, that the purpose of provisions such as Section 135A to 135H was to protect copyright users from the abuse of monopoly power by licensing bodies. This was an important practical consideration, because proceedings before the Copyright Tribunal are of a complex commercial nature involving high level of costs. The knowledge that a copyright user would have to fund the costs of such an application, even if the Tribunal ultimately concluded that the licensing body had proposed unreasonable terms, would discourage copyright users from challenging the licensing body's terms in the Tribunal. That would undermine the compulsory jurisdiction of the Tribunal. Copyright users would be reluctant to take matters to the Tribunal for fear of the costs that might be incurred. The Tribunal would be deprived of the assistance required by it to discharge its functions.

For all those reasons the Tribunal had exercised its discretion on costs with proper regard to relevant matters and had taken a correct approach that costs should follow the event and be ordered against PPL. The Tribunal had heard the evidence and determined what was a reasonable order to make. It, not the judge, was in the best position to decide how the discretion should be exercised. The judge was not justified in interfering with that discretion.

Mr Beloff accepted that if, contrary to his submissions, the judge was entitled to interfere with the exercise of the Tribunal's discretion, the judge's order that there should be no order as to costs of the Section 135D application should remain. He did not contend that the judge should have followed the normal course of referring the exercise of discretion back to the Tribunal for it to reconsider the question of costs in the light of the judgment on appeal.

As to the costs of the application under Section 135E, it was contended that the judge was wrong to make an order that AEI should pay to PPL the costs of that application. The judge correctly stated that the determination of that application was achieved through negotiation leading to mutually acceptable conditions of the licence. It was not correct to characterise PPL as "the winner." To do so was inconsistent with the judge's own reasoning on costs in relation to the Section 135D reference. Indeed, if the judge had applied the correct approach to costs, that they should follow the event, the costs of that application should be awarded to AEI which had won something of value on the application which it could not have won without making the application.

The position was that the Tribunal had, in the exercise of its discretion, decided that the costs of the Section 135E reference should form part of the overall costs awarded to AEI. That was a permissible exercise of the discretion and the judge was not justified in interfering with it.

Like the Chairman of the Copyright Tribunal I have succumbed to second thoughts. My initial view was that the Tribunal was legally entitled to make the order for costs against PPL and that the judge was not entitled to disturb that order on an appeal on a point of law.

On reflection I have concluded that the judge was right to interfere with the exercise of that discretion on the basis that the Chairman erred in principle by ordering costs to follow the event that AEI was to be treated as the winner and PPL as the loser of the application to the Tribunal.

I would dismiss this appeal. My reasons are these.

1. On an application to settle terms of payment or other conditions the Tribunal has power to make such an order as it may determine to be reasonable in all the circumstances. Such a power is so different in its nature and scope from that of a court in adjudicating upon ordinary civil claims between plaintiffs and defendants that the civil litigation analogy must be used cautiously. Most civil cases, if they are not settled, do result in a judicial decision on a claim or a counterclaim which can reasonably be described as an "event" enabling a court to identify the winner and the loser and to make a clear cut decision on the issue of costs accordingly. The determination of the Tribunal, however, is likely in many, if not most, cases to produce an outcome which is not so clear cut. This is not like ordinary civil litigation: it is a compulsory arbitration on quantum by reference solely to the criterion of reasonableness.

2. The special nature and scope of the Tribunal's substantive power is reflected in the very width of the discretion on costs contained in Section 151(1) of the 1988 Act and in Regulation 48(1) of the Copyright Tribunal Rules. It is significant that the legislation and the rules do not expressly state any general principle such as is set out in Order 62 Rule 3(3) of the Rules of the Supreme Court. It was appreciated by the draughtsman of the legislation and the Rules that it was not appropriate to fetter that discretion by reference to the outcome of the application; although it is, of course, legitimate for the Tribunal to give and follow the guidance contained in its Practice Direction.

3. As the discretion on costs is not expressly subject to general principles (save as stated in the 1995 Practice Direction) or provisional statutory steer or fetter, it should be interpreted and applied as a wide discretion to be exercised judicially and reasonably by taking account of, and giving due weight to, all relevant factors in a principled and proportionate fashion. Relevant factors include an assessment of the respective positions taken by both parties on the application in the light of the outcome, both overall and on the different issues on which the Tribunal heard evidence and argument from each side: the terms of the initial proposals and the counter-proposals; the points taken by each side at the hearing; and the length of time and amount of money spent on the preparation and the presentation of the evidence and arguments on the issues.

4. The Chairman of the Tribunal took the wrong approach. He proceeded on the basis of a self-imposed fetter on the discretion. He was influenced by the perceived need to find a winner and a loser in a case where the final determination of the Tribunal was somewhere between the respective positions adopted by the parties. It is true that there will be some applications to the Tribunal where it is possible to say that the licensing body is the winner. The Tribunal may hold that the terms of payment and other conditions initially proposed by it were reasonable and that the terms of payment and conditions proposed by the user were unreasonable. Equally, there will be some applications where it is possible to say that the user is the winner of the application, because the terms initially proposed by the licensing body were unreasonable and the terms proposed by the user were reasonable. But where, as in this case, the Tribunal determines that both the licensing body and the user proposed terms ultimately held to be unreasonable, it is not correct to proceed on the basis that the outcome must produce a winner and a loser. That is what the Chairman did in this case. In the mistaken belief that, "as a matter of policy", he had to find an event for the costs to follow and identify a winner and a loser, he wrongly characterised PPL as the loser because its terms had been held to be unreasonable. He did not regard AEI as the loser, even though its terms were also held to be unreasonable. He did not think that that altered "the overall position that AEI's actions in refusing the licence offered and asking the Tribunal to substitute a different licence were justified."

5. That conclusion on "the overall position" of AEI is only reached by starting from the wrong position; it is that false starting point that leads to the result that PPL is the loser and that AEI is therefore the winner, irrespective of the unreasonableness of its proposed terms. That is an error of principle. It infected and vitiated the exercise of discretion in law. That entitled the judge to set aside the order of the Tribunal on both the Section 135D and the Section 135E application. The costs of both applications were apparently lumped in together, irrespective of outcome, on the basis that AEI had had to make the applications in order to secure the terms that it did on both payment and conditions of the licence.

6. The true position on the Section 135D application is this. On the one hand, there was material before the Tribunal on which an order for costs could be made against PPL, because it had proposed unreasonably high terms of payment. On the other hand, there was also material, which the Tribunal wrongly excluded from consideration as it regarded AEI as the winner, on which an order for costs could be made against AEI, because it had adopted an unreasonable position in its proposals for payment to PPL. It is incorrect to regard PPL as the loser simply because the terms proposed by it were unreasonable. Looking at all the relevant matters in the round there was a dispute between PPL and AEI on the amount to be paid under the statutory licence. AEI was entitled to broadcast the sound recordings under the statutory licence, provided that it followed the statutory procedure. It had to apply to the Tribunal to settle the terms of payment. But on the matter of payment both parties took up positions which the Tribunal ultimately determined to be unreasonable: PPL was asking for too much, AEI was prepared to pay too little. The outcome of the Section 135D application, as determined on the basis of what was "reasonable in the circumstances", was somewhere between those competing proposals. No order as to costs is the appropriate order in the case of the Section 135D application. Neither side was the winner or the loser. The fact that the statutory provisions required AEI to make the application to the Tribunal is not determinative of how the discretion on costs should be exercised. It was also necessary for PPL to join in an application for the Tribunal to settle the terms of payment. The considerable costs of the contested application were incurred because both PPL and AEI took up unreasonable positions. The monopoly position of PPL as a licensing body is irrelevant to this point. The potentially detrimental consequences of PPL's monopoly over the licensing of the broadcasting of sound recordings are fully met by the provisions for the licence to be available to the copyright user as of right before (and subject to) the final determination of the amount of payment. AEI was entitled to broadcast the sound recordings in the repertoire on the terms of payment proposed by it to PPL before the Tribunal finally determined the amount of the reasonable royalty. On the application to the Tribunal the issue was not whether PPL, as a licensing body, was unreasonable in its refusal to grant a licence. AEI already had the licence to do what it wanted to do as of right. The issue before the Tribunal was what was the reasonable amount to be paid for use of the sound recordings under that licence. On that question it was relevant for the Tribunal to have regard to all the evidence and arguments of each side for the purpose of determining both (a) the reasonable payment to be made by AEI to PPL for the use of its repertoire and (b) the appropriate order to be made for the payment of the costs incurred in the application.

7. On the Section 135E application this approach led to the conclusion that AEI should pay PPL's costs, since it ended up agreeing to almost all of the conditions proposed by PPL without a contested hearing in the Tribunal.

For these reasons the judge was entitled to substitute orders that (a) there be no order as to costs on the Section 135D application and (b) AEI should pay PPL's costs of the Section 135E application.

I have read the judgment in draft of Lord Woolf MR and agree with it.

I would dismiss this appeal.

LORD JUSTICE MANTELL: Why was the hearing necessary? Was it because PPL had been unreasonable in asking for too much? Or would AEI have gone to the Tribunal in any event? The Chairman addressed the first question but not the second. If he had, and given AEI's stance at the hearing, the answer must have been 'yes'. That being so there was no basis for distinguishing between the parties on costs. In my judgment the Chairman did get it wrong and the judge was entitled to interfere.

I, too, would dismiss this appeal.

LORD WOOLF, MR: I agree that this appeal should be dismissed for the reasons set out in the judgment of Lord Justice Mummery. I gratefully adopt his description of the background to this appeal. I also agree with the judgment of Lord Justice Mantell. However I regard the appeal as raising points of general significance in relation to costs and for that reason give this judgment.

When deciding on what is the appropriate order for costs to make it is always desirable and usually essential to consider the circumstances of the case as a whole.

Standing back and considering what are the overall consequences of the respective orders made first, by the Chairman of the Tribunal and secondly, by Mr Justice Neuberger, the position appears to be as follows.

In accordance with the Chairman’s order AEI was to receive from PPL two thirds of their costs. Under the judge’s order each side were required to pay their own costs, but AEI had to pay PPL’s costs of the second application under subsection 135E of the Copyright, Design and Patents Act 1988 (“The Act”). We were not informed of the amount of PPL’s costs, but we were told that AEI’s costs were approximately £600,000 and that the costs attributable to the second application under subsection 135E came to very roughly one fifth of the whole. There is no reason to think that AEI’s costs would be dissimilar to those of PPL and to illustrate, in the most rough and ready way, the different practical consequences of the Chairman’s order and that of the judge, I will assume that these very approximate figures indicate the costs of each of the parties. On this assumption, under the Chairman’s order PPL will have to pay to AEI approximately £400,000. Under the Judge’s order, instead of PPL having to make a payment to AEI, AEI will have to pay over £100,000 to PPL.

The scale of the difference between the effect of the two orders is especially striking because of the comments that the Chairman made when giving his decision. He said:

"Somewhat bewilderingly for the Tribunal, both sides insist that they have clearly won and that the costs should follow that event.

In terms of who has won my first impression was that overall it was roughly a draw in that the royalty rate decided upon by the Tribunal was somewhere in between the rival proposals. Further the settled royalty terms are not sufficiently close to either proposal that it could be said that in substance one proposal had been accepted rather than the other. In these circumstances I was first taken with the consideration that the appropriate order would be no order as to costs, this order only to be altered to make allowance for major time consuming issues which had failed and which might, if regarded as improper or unreasonable, require an adjustment one way or the other."

If the Chairman had adhered to his first impression, the appropriate order, subject to the adjustment to which he referred, would have been that each side should pay their own costs. On the assumption I am making that would result in both sides having a liability of approximately £600,000 in relation to their own costs. However the order he finally made required PPL to pay to AEI approximately £400,000, thus increasing PPL’s liability in relation to both its own costs and AEI’s costs to approximately £1,000,000 and reducing AEI’s expenditure on its own costs to £200,000.

Mr Justice Neuberger’s decision results in a financial picture which is in line with the order the Chairman initially was minded to make but substantially different from the order he in fact made. In the case of the subsection 135D application, each side was to pay its own costs. As to the section 135E application PPL was to receive its costs. So, under the judge’s order, instead of AEI receiving £400,000, AEI would have to pay PPL over £100,000 and PPL would therefor be over £500,000 better off.

On the appeal, Mr Beloff QC’s realistic approach on behalf of AEI was to challenge the jurisdiction of Neuberger J’s to interfere with the decision of the Chairman of the Tribunal. If Neuberger J. was entitled to set aside the Tribunal’s decision, Mr Beloff does not submit that, as a matter of discretion, the judge could not come to the decision which he did in relation to the subsection 135D application.

The figures to which I have referred, I re-emphasise are no more than very approximate, but they do demonstrate the very different practical consequences of the order made by the Tribunal from those of the order made by the judge. The initial impression must surely be that the results are so strikingly different, that it cannot be the case that a tribunal, in the proper exercise of its discretion could come to either result without making any error of principle. A decision by this Court that it is possible, as a matter of discretion, for a tribunal to perfectly properly reach either of such different decisions would send an appalling message as to the scale of the uncertainty which litigants face in relation to orders as to costs. It would place the results of orders as to costs on a par with those provided by a lottery.

The Tribunal’s discretion under rule 48(1) of the Copyright Tribunal Rules is wide. That rule provides:

"The Tribunal may, in its discretion, at any stage of the proceedings make any order that it thinks fit in relation to the payment of costs by one party to another in respect of the whole or part of the proceedings."

The 1995 Practice Direction of the Tribunal has to be read together with that rule. Paragraph 15 of the Practice Direction provides:

"Parties are reminded that under rule 48(1) the Tribunal has power to award costs. The Tribunal will consider exercising this power against any party which it considers is guilty of undue prolixity in its evidence or at the hearings. Further, though it is not the Tribunal’s practice that in all cases costs will follow the event, the fact that a parties case may have been unreasonably maintained will weigh heavily with the Tribunal." (emphasis added)

The scope of the discretion of the Tribunal does not differ materially from that of courts as to costs. Section 51 of the Supreme Court Act 1981 provides:

"(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in

...

(b) the High Court ...

shall be in the discretion of the court.

(3) The court shall have full power to determine by whom and to what extent the costs are to be paid."

O.62 r.3 of the Rules of the Supreme Court provides :

"3.-(3) If the Court in the exercise of its discretion sees fit to make any order as to the costs of any proceedings, the Court shall order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs."

Order 62 r.10 provides;

“(1) Where it appears to the Court in any proceedings that any thing has been done, or that any omission has been made, unreasonably or improperly on behalf of any party, the Court may order that the costs of that party in respect of the act or omission, as the case may be shall not be allowed and that any cost occasioned by it to any other party shall be paid by him to that other party.”

The Tribunal rule does not expressly refer to costs following the event, but the practice direction does and the requirement for the costs to follow the event under O.62 r.3(3) is qualified by the words which both proceed and follow the rule. The Tribunal rule and practice direction do therefore provide a similar frame work for the award of costs to that which applies in the courts. However in general tribunals adopt a more restrictive approach to making orders for costs than courts because they are concerned not to impede access to the tribunal by those who might be deterred if the risk of being made to pay costs is too great. The language of the Tribunal’s practice direction appears to reflect this approach.

The Civil Procedure Rules 1998 which have now been made and come into force on 26 April 1999 confer an equally broad discretion as to costs as the existing O.62 r.3 but are much more specific as to the matters to which the courts should have regard in deciding what order should be made. I refer to Part 44.3(2) and (4) which have to be considered together with the Overriding Objective of the Rules contained in Part 1:

“(2) If the Court decides to make an order about costs -

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b) the Court may make a different order.

(4) in deciding what order (if any) to make about costs, the Court must have regard to all the circumstances including -

(a) the conduct of all parties;

(b) whether a party has succeeded on part of his case, even if he has not been wholly successful;

(c) any payment into Court or admissible offer to settle made by a party which is drawn to the Court’s attention ..."

Part 44.3(5) defines “conduct” as including :

"(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended his case or a particular allegation or issue; and

(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim”.

Part 44 also sets out the wide range of different orders which the court can make in 44.3 (6).

I draw attention to the new Rules because, while they make clear that the general rule remains, that the successful party will normally be entitled to costs, they at the same time indicate the wide range of considerations which will result in the Court making different orders as to costs. From 26 April 1999 the “follow the event principle” will still play a significant role, but it will be a starting point from which a court can readily depart. This is also the position prior to the new Rules coming into force. The most significant change of emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues. In doing this the new Rules are reflecting a change of practice which has already started. It is now clear that a too robust application of the “follow the event principle” encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take. If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your effort to do so.

It was correctly accepted by the judge that his right to interfere with the Tribunal’s decision on costs was constrained in the same way that this Court’s discretion is constrained in relation to decisions of judges of first instance. The conventional approach of this Court is conveniently summarised by Stuart-Smith LJ in Roache v News Group [1998] EMLR 161 at p.172 in these terms:

"Before the Court can interfere it must be shown that the judge has either erred in principle in his approach, or has left out of account, or taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the Court is forced to the conclusion that he has not balanced the various factors fairly in the scale. See per Griffiths LJ in Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394 at 403G of the latter report."

The Chairman of the Tribunal departed from his initial impression as to what should be the result because of his understanding of the decision of this Court in re Elgindata Ltd No. 2 [1992] 1 WLR 1207. Nourse LJ in that case set out some useful general principles which provide a guide as to the ordinary approach to costs which he derived from an examination of earlier cases. He said (at p.1214A) :

"The principles are these :

(i) Costs are in the discretion of the Courts.

(ii) They should follow the event, except where it appears to the court that in the circumstances of the case some other order should be made.

(iii) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of the costs.

(iv) Where the successful party raises issues and makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or part of the unsuccessful party’s costs.

Of these principles the first, second and fourth are expressly recognised or provided for by rules 2(4), 3(3) and 10 respectively. The third depends on well established practice. Moreover, the fourth implies that a successful party who neither improperly or unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party’s costs." (Emphasis added)

The “well established practice” on which Nourse LJ based his third principle is, as I have already indicated less generally followed than it has been in the past and it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed. However where the Chairman of the Tribunal was in error was in attempting to apply Nourse LJ’s principles to a case for which they were quite unsuited. Here it was not appropriate on his findings to regard either party as being successful in relation to the 135D application. The decision meant that there had in the words of the Chairman been “roughly a draw”. Nourse LJ’s principles are not to be regarded as requiring a party to be treated as successful when this is the situation. The Chairman thought this was what he was required to do. He says:

"I conclude therefore that AEI were the “winners” and PPL should pay AEI’s costs subject to any diminution that seems appropriate by reason of the way in which AEI conducted their cases following the principles in Elgindata . I have in mind that the successful party does not lose his costs just because some of his arguments did not succeed and that only the costs of “improper or unreasonable” issues should be excluded."

This entitled the judge to intervene and the approach of Neuberger J in doing so seems to me to be correct. There is no dispute in this case that AEI had “caused a significant increase in the length or costs of the proceedings” and therefore, as it was just to do so, Neuberger J was entitled to deprive them of their costs even under Nourse LJ’s principle (iii).

That costs on the scale of which the court was informed in this case are incurred before a Tribunal in order to resolve the issue which was before the Tribunal must be a matter of regret. This Court could not carry out an inquest over what went wrong so as to result in costs of this level being incurred. That some unnecessary and unreasonable costs were incurred is not in dispute. The Chairman’s decision makes this clear. The question which this appeal raises is why the Tribunal is allowing arguments to be advanced which the Chairman describes as being put forward bona fide, but as being “wholly without merit” (even if they are only marginally on the wrong side of the line). The approach as to costs can influence the manner in which those who practice before Tribunals or Courts advance their case. The vice of the approach adopted by the Tribunal in this case is that it encourages parties not to discriminate between good points and bad points and not to concern themselves as to whether they are causing excessive costs to be incurred. The Chairman’s approach places far too great a significance, in a case where there are a number of issues, in trying to find a party who can be described as the overall winner and then attaching importance to that label. Both sides had adopted positions which meant that an unreasonable amount of time and costs had to be incurred. This was the type of conduct which called for the vigorous application of the policy reflected in the decision of Neuberger J in this case.

AEI contend that the approach of the Chairman of the Tribunal should be upheld because otherwise small enterprises would be in considerable difficulty in challenging the rates demanded by PPL before the Tribunal. The Chairman of the Tribunal had recognised the problems that exist for “comparatively small enterprises”. The Tribunal said that it doubted whether they had the resources to fight a contested case in this Tribunal and added “in any event, costs would have been wholly out of proportion to the sums at stake”. This reveals a very undesirable position, a position which the Tribunal by use of case management and appropriate orders for costs should endeavour to minimise. Experience shows that the largest deterrent to litigants of modest means is not the costs which they would incur themselves in bringing proceedings (over these they have some control) but the costs which they may be liable to pay another party. In this context, if this case is at all typical, it is clear that the danger of having to pay PPL’s costs must be an overwhelming deterrent to a licensee who is not in a very substantial way of business. I therefore firmly endorse the comment of Neuberger J that he considers:

"that the Tribunal is well able to deal with licensing bodies which use their financial muscle to intimidate small applicants; no doubt if any licensing body were acting in such a way, it would be a perfectly proper reason for penalising the licensing body in costs. It may also well be that the Tribunal would think it right not to impose a disproportionate costs liability on a small applicant in relation to a small claim."

One purpose of having a tribunal rather than a court to determine issues of this type, is so that the Tribunal can use its expertise to provide access to justice in a way in which it would be difficult for a court to do. The discretion of the tribunal as to the manner in which proceedings are conducted before it and the orders for costs which it can make should be used to encourage disputes to be properly ventilated without excessive expense.

The reason why Neuberger J granted PPL its costs of the 135E application, although it was settled through negotiations, was because it is preferable “to encourage parties to negotiate rather than to litigate ab initio ”. I entirely agree. Certainly having regard to the scale of costs which are being incurred before this Tribunal, contested applications should be a last resort.

I would also dismiss this appeal.

Order: Appeal dismissed with costs. Leave to appeal to House of Lords refused.