In 2018, we discussed the “Implications of Actual Costs and Taxation of Costs – A Notable And Welcome Change In the IP Regime” in our blog post on Sketchers USA v. Pure Play Sports. In the said post, we delved into the impact of the Delhi High Court (Original Side) Rules, 2018 (“DHC Rules”) which came into effect in March of 2018, particularly Chapter XXIII of the DHC Rules, which deals with ‘Cost & Taxation of Costs’ and inter alia provides that at the time of decreeing or dismissing the suit, the High Court shall award costs ‘guided by and upto actual costs as borne by the parties’.
In this follow-up post, we discuss the journey of the matter, the learnings and the hurdles faced five years, thereafter, which are common to such litigations, while pursuing execution proceedings to realize the actual legal costs awarded by the court and also defending various belated and frivolous challenges to the decree despite the passage of five years. Such hurdles are very often faced by litigants who are subjected to unnecessary court proceedings by miscreant parties to desperately escape their liability under the decree. Such vexatious litigation also results in the courts getting overburdened which has a detrimental effect on the justice delivery system (while analysing the developments in the matter, we are taking the better part of 2020 till 2022 as a non-effective period since the world along with the legal system was hit by the Covid-19 pandemic).
The matter in its entirety sets three distinct precedents under the IP regime, particularly within the territorial jurisdiction of Delhi:
- Actual legal costs ought to be awarded in the prosecution/defence of the civil suits;
- Actual legal costs ought to be awarded during the execution proceedings; and
- The review mechanism under the DHC Rules is extremely limited and time-bound.
To better understand the journey of the matter, we are dividing this post into two parts. One being the challenge by the Judgment Debtors / Pure Play Sports in the disposed-off suit and the other being the Execution Action initiated by Decree Holder/ Skechers.
Chapter XXIII Of the DHC Rules
DHC Rules under Rule 3, Chapter XXIII provide that legal costs ought to be awarded to the successful party and are to be calculated by the ‘Taxing Officer’ appointed by the High Court based on the Bill of Costs filed by the parties. Such Bill of Costs is to be filed by the parties along with documentary evidence evidencing the costs incurred upon court fee, process fee, advocate fee, expenses incurred by witnesses as well as travel and lodging costs, as clarified in Rule 5.
The Taxing Officer’s decision with regard to the calculation of legal costs can be subjected to review proceedings under Rules 13 and 14 of Chapter XXIII of the DHC Rules, provided the said challenge is made no later than 15 days from the date of the Taxing Officer’s decision. Rule 9 of Chapter XXIII of the DHC Rules further clarifies that “No application for review of taxation shall be allowed, unless made before the decree is signed.” As such, the long stop date under the DHC Rules for challenging the amount of the costs calculated by the Taxing Officer is the date on which the decree is signed.
Challenge to the Taxing Officer’s Order calculating the Legal Costs
In the present case, there were two distinct sets of challenges to the Taxing Officer’s order, albeit unsuccessfully. Both these challenges were raised after the decree had been signed which awarded legal costs of INR 86,98,173/- and execution proceedings pursued by Skechers to recover the said amount.
The first challenge to the Taxing Officer’s order was in 2018 by one of the partners of the Judgment Debtor through a Chamber Appeal. The concerned partner challenged the quantum of legal costs assessed by the Taxing Officer on the basis that it was assessed without issuing notice upon the Judgment Debtor. The Court outrightly rejected this contention by placing reliance upon Rule 4 of Chapter XXIII of the DHC Rules, to arrive at the conclusion that there is no requirement for the Taxing Officer to issue notice upon the other side before assessing costs to be awarded to the successful party. Moreover, relying on Rule 13, the Delhi High Court noted that a notice from the other side is required to be issued only if a review is filed against the Taxing Officer’s decision. It was also pointed out that wherever it is deemed appropriate to provide an opportunity to oppose costs, a provision has been made thereof in the DHC Rules, such as remedy for review under Rule 13 of the DHC Rules. This challenge was eventually dismissed as withdrawn before the Delhi High Court in 2019.
Thereafter, the second challenge came in a form of a review application filed by another partner of Pure Play Sports under Rule 13, Chapter XXIII of the DHC Rules. This was filed in August 2022, i.e. more than 3 years after the first challenge was withdrawn. Under the said application, the decree was not per se challenged. Instead, he adopted a different approach, contending that the decretal amount was ‘exorbitant’ and ‘unreasonable’ and sought the leave of the Delhi High Court to reduce the same to a ‘reasonable’ amount without any cogent reason.
The review proceedings opened up entirely new questions of law since the challenge was based on the purported and alleged unreasonableness of the Taxing Officer in awarding the amount of legal costs. Moreover, it was alleged that such an amount was mechanically ascertained by the Taxing Officer.
The Delhi High Court, by way of a detailed judgment dated February 14, 2023 (“Judgment”), dismissed the review application. At the outset, the High Court noted the fact that the review application has been filed belatedly after an unexplained delay of 1054 days and upon applying the principle of ‘vigilantibus non dormientibus subvenit lex’ (law supports those who are awake and not those who sleep over their rights) held that the said review application cannot be entertained on account of being time-barred. The High Court further took the view that the grant of actual legal costs was in line with the amended Section 35 of the Commercial Courts Act, 2015 as well as Chapter XXIII of the DHC Rules. The Court further held that ‘cost’ would cover any or all incidental costs incurred in relation to litigation. Accordingly, the High Court held that the assessment and computation of actual legal costs arrived at by the Taxing Officer taking into account the ‘Bill of Costs’ (which includes expenses incurred towards Court Fees, Process Fees, Senior Advocate’s Fee and Advocate Fee) was proper and no reason had been made out to interfere with the same. The Delhi High Court categorically held as follows:
“The Taxing Officer has assessed the costs on the basis of the bill of costs submitted by the Plaintiffs which as is evident includes Court fee, Process fee, Senior Advocate’s fee and Advocate’s fee and this Court finds no reason to interfere with the impugned order and that too at the behest of a party who has chosen to sleep over his rights for over 4 years.”
It is often said that “the difficulties of the litigant in India begin when he has obtained a decree” which was the case here as well. Without dwelling too much into the aspect of the slow roll of the execution action, the authors would like to highlight that during the execution proceedings, the High Court, relying on Rule 10 of the DHC Rules, opined and took the view that Decree Holders are also entitled to the actual cost incurred while pursuing execution proceedings as well. Such costs would be in addition to the cost of litigation incurred up to the passing of the decree.
Impact And Key Takeaways
The orders and the Judgment passed by the Delhi High Court in this matter go on to demonstrate the positive changes introduced by the DHC Rules, particularly Chapter XXIII which has provided clarity in relation to the taxation of costs. By streamlining the procedure for taxation of costs, the DHC Rules have further fortified the object and purpose of Section 35 of the Commercial Courts Act and have in essence given credence to the position that actual legal costs ought to be awarded in commercial matters, particularly IP matters, which are clearly bought out from the orders and the Judgment passed in this matter.
Such determinations are in line with the objectives of the Commercial Court Act, 2015, read with the DHC Rules and follow the judicial trend that in commercial matters actual legal costs ought to be paid by unscrupulous parties taking up false defences and wasting the precious judicial time of the Court. The Delhi High Court vide the Judgment has conclusively closed all loops under Chapter XXIII of the DHC Rules which governs the imposition of legal costs as well as taxation/ review of costs. Furthermore, these positive developments will certainly serve as a strong deterrent for the future against litigants who belatedly attempt to challenge orders in a bid to escape their liability.