England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		21/10/2015

Master Clark:

The application

1. This is my judgment on the application made by notice dated 10 February 2015 by the defendant, Star Phamaceuticals Ltd, to revise its costs budget dated 20 February 2014.

Claim and parties

2. The claim is for trade mark infringement arising out of the parallel importation by the defendant of a product made by the claimant. It is a pre-filled syringe containing a drug called methotrexate in solution. The syringes are intended to be self-injected by patients suffering from rheumatoid arthritis on a regular basis.
3. The claimant's product is sold under different names in different countries. In the UK it is sold under the trade mark METOJECT. In Italy it is sold under the trade mark REUMAFLEX. The defendant has repackaged and rebranded the Italian product in the UK as METOJECT, because, on its case, it is necessary to rebrand in order to obtain unhindered access by the parallel imported product to the market in the UK or a substantial part of it.

Procedural history

4. The claim was commenced on 23 August 2013. The defendant's original costs budget is dated 28 October 2013 and was revised on 2 occasions. On 6 February 2014, Master Bragge approved the parties' budgets, and the defendant filed its approved budget dated 20 February 2014 in the sum of £340,000. The trial was listed to commence on 2 March 2015.
5. On 28 October 2014 the claimant notified the defendant that it intended to amend its particulars of claim, enclosed a draft amended pleading and sought its consent. On 3 November 2014 experts' reports were exchanged. It is common ground that the claimant's expert report also raised new issues which required to be addressed by the defendant. On 10 November 2014 the defendant's solicitors wrote to the claimant's solicitors, informing them that its consent to the proposed amendments was conditional upon:

(1) Both parties giving further disclosure on the new issues raised in the proposed amendments and the claimant's expert evidence;

(2) The defendant (but not the claimant) having permission to file and serve further evidence in respect of the proposed amendments

(3) The claimant agreeing to the revision of the defendant's costs budget.

The same letter stated that the revised costs budget would need to take into account costs of and consequent to the amendments, the newly pleaded issues, disclosure, review, additional evidence, conferences and the additional time taken up at trial.

6. The claimant's solicitors replied in their letter of 18 November 2014 agreeing that the impact of the new issues would require the parties to consider their current budgets.
7. On 7 January 2015 the claimant served a Product and Process Description dealing with some of the new issues. The amended Particulars of Claim was not served until 8 January 2015, less than 2 months before the trial date. On 27 January 2015 the claimant sent its proposed revised budget to the defendant, and this was revised again on 6 February 2015. The claimant's application to revise its budget was also issued on 6 February 2015 and was based on there having been "significant developments in the case".
8. The claimant's application to revise its budget was supported by a witness statement dated 6 February 2015 of Graeme Orchison. He set out (at para 13) that, as part of discussing the case with the Claimant's expert, three new unforeseen but significant points ("the Additional Points") arose which made it necessary to further amend the Claimant's case. These were:

(1) Whether the Medicines and Healthcare Products Regulatory Agency ("MHRA") had ever in fact approved the defendant's re-packaging of the product – which consists of an outer box marked METOJECT and a syringe marked REUMAFLEX;

(2) Whether having different names/labelling on the outer packaging and on the syringe meant that the defendant was in breach of Articles 54 and 55 of Directive 2001/83/EC;

(3) Whether it was possible, under good manufacturing process, for the defendant to remove the syringe from its protective pouch and oversticker the REUMAFLEX mark.

9. Mr Orchison continued (at paragraph 38):

"Regarding the trial itself, the most noticeable difference is that the approved budget is predicated on the basis of the trial lasting "… no more than 3 days …". On 24 November 2014 the Defendant's solicitors wrote to me explaining that in their view and in the light of the Additional Points, the original time estimate for the trial of 3-4 days was too light. I agreed somewhat and considered that an appropriate estimate would now be 1 day pre-reading with 4 days for trial. The Defendant's solicitors estimate that an appropriate trial length would now be 1 day pre-reading with 5-6 days for trial. On this basis, it is prudent for the Claimant to provide in its revised budget for the maximum possible trial length of 6 days."

In my judgment, the claimant thereby accepted the principle that the costs for a 6 day trial were within the range of reasonable and proportionate costs.

10. The defendant's initial proposed revised budget was also dated 27 January 2015. This was revised on 9 February 2015 and the defendant's application was made by notice dated 10 February 2015. There were then two further versions dated 16 and 18 February 2015 to show respectively which costs had been incurred at the date of the budget, and to correct some minor arithmetical mistakes.
11. On 6 February 2015, the Court of Appeal gave judgment in Speciality European Pharma Ltd v Doncaster Pharaceuticals Group Ltd [2015] ETMR 19, in which issues closely related to those in the present case arose.
12. Although the two applications to revise budgets were initially listed for separate hearings, I directed that they be heard together on Tuesday 24 February 2015. On Thursday 19 February 2015, following consideration of the Speciality European Pharma decision, the claimant served Notice of Discontinuance of its claim. Without reference to the defendant it vacated the hearing on 24 February 2015.
13. The defendant seeks to pursue its application notwithstanding the discontinuance. The claimant argues that the application can no longer be pursued, or if it is, that the revisions should not be permitted.
14. The defendant is only seeking to revise its budget in respect of estimated future costs as at the date of the application i.e. the trial preparation and trial phases; and is not seeking to revise the budget in respect of the witness statement and expert phases (which were incurred costs at the date of the application). This means that there are no material differences between the budget of 9 February 2015 and the 2 later revisions (referred to in paragraph 10 above), so no point arises in relation to those.

Relevant provisions

15. The relevant provisions as to discontinuance and costs in the CPR are:

Right to discontinue claim

38.2

(1) A claimant may discontinue all or part of a claim at any time.

Procedure for discontinuing

38.3

(1) To discontinue a claim or part of a claim, a claimant must –

(a) file a notice of discontinuance; and

(b) serve a copy of it on every other party to the proceedings.

Right to apply to have notice of discontinuance set aside

38.4

(1) Where the claimant discontinues under rule 38.2(1) the defendant may apply to have the notice of discontinuance set aside.

(2) The defendant may not make an application under this rule more than 28 days after the date when the notice of discontinuance was served on him.

When discontinuance takes effect where permission of the court is not needed

38.5

(1) Discontinuance against any defendant takes effect on the date when notice of discontinuance is served on him under rule 38.3(1).

(2) Subject to rule 38.4, the proceedings are brought to an end as against him on that date.

(3) However, this does not affect proceedings to deal with any question of costs.

Liability for costs

38.6

(1) Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant.

44.9

(1) … where a right to costs arises under –

….

(c) rule 38.6 (defendant's right to costs where claimant discontinues),

a costs order will be deemed to have been made on the standard basis.

16. The effect of discontinuance under CPR 38.6 and 44.9(1)(c) is therefore that there is a deemed standard basis costs order in favour of the defendant for the costs of the action.
17. The relevant CPR provisions as to costs management are:

3.12(2)

The purpose of costs management is that the court should manage both the steps to be taken and the costs to be incurred by the parties to any proceedings so as to further the overriding objective.

3.15(1)

In addition to exercising its other powers, the court may manage costs to be incurred by any party in any proceedings.

3.15(3)

If a costs management order has been made, the court will thereafter control the parties' budgets in respect of recoverable costs.

3.18 Assessing costs on the standard basis where a costs management order has been made

In any case where a costs management order has been made, when assessing costs on the standard basis, the court will—

(a) have regard to the receiving party's last approved or agreed budget for each phase of the proceedings; and

(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so.

(Attention is drawn to rule 44.3(2)(a) and rule 44.3(5), which concern proportionality of costs.)

PD3E, para 7.6

Each party shall revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions. Such amended budgets shall be submitted to the other parties for agreement. In default of agreement, the amended budgets shall be submitted to the court, together with a note of (a) the changes made and the reasons for those changes and (b) the objections of any other party. The court may approve, vary or disapprove the revisions, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed.

The parties' arguments

18. The claimant opposed the application on four grounds:

(1) that discontinuance had brought the proceedings to an end;

(2) that a costs management order after proceedings have terminated is a contradiction;

(3) that to grant the application would be effectively to ratify an overspend by the defendant and to undermine the function of costs management of controlling costs;

(4) that the defendant's delay in bringing the application should preclude it from being granted.

Discontinuance brings the proceedings to an end

19. The first ground was based on a construction of CPR 38.5(3) as referring only to separate detailed assessment proceedings commenced by serving a notice of commencement pursuant to CPR 47.6; and that a defendant who seeks an order as to costs other than the default order provided for by CPR 38.6 must apply to set the notice of discontinuance aside.
20. The defendant's position was that applications, and in particular applications about costs can be entertained after discontinuance. It relied on CPR 38.6 as conferring jurisdiction to vary the costs order deemed to arise on discontinuance.
21. However, at the adjourned hearing of the application, the claimant did not pursue the point for the purposes of this application, in view of the decision of Mr Roger Wyand QC in Hoist UK Ltd v Reid Lifting Ltd [2011] 1 Costs LR 36, a decision with which I respectfully agree, for the reasons the Judge gives.
22. I deal with the application therefore on the basis that the discontinuance of the claim does not prevent me from having jurisdiction to do so.

Costs management order after proceedings have terminated is a contradiction

23. The claimant's counsel referred me to CPR 3.12(2) and to CPR 3.15(1), set out above. He submitted that once the proceedings have terminated, there are no further steps to be taken or costs to be incurred, so there is no further costs management to do.
24. He relied upon Elvanite Full Circle v Amec Earth and Environmental (UK) [2013] 4 Costs LR 612, in which the claimant served a revised draft budget on the defendant before the trial but did not apply for permission to revise it until after the trial. Coulson J said that such an application would be a contradiction in terms:

"it would mean that the exercise would no longer be a budgeting exercise, and would instead be based on the actual costs that have been incurred."

25. This conclusion is not in my view supported by the CPR provisions governing costs management set out above. Costs management is carried out by reference to a budget as at a certain date, and the categorisation of costs as incurred or future costs is as at the date of the budget. But, other than within the structure provided by the practice direction for revising budgets, it is not part of the costs management process for the court to inquire into the parties' actual position since the date of the budget (including their position at the date of the hearing).
26. The lapse of time and the fact that costs shown in the budget as future costs have been incurred by the date of a hearing does not therefore in my view render budgeting those costs a contradiction in terms. A clear illustration of this is that most of the costs of the CCMC phase are normally future costs when the initial budget is prepared; and have normally all been incurred by the date of the CCMC hearing itself. If the claimant's counsel's argument were correct, budgeting those costs would be a contradiction in terms; whereas in fact the Court manages and approves them as future costs, notwithstanding the actual position at the hearing.
27. In any event, this case differs from Elvanite, in that in this case the defendant's application was made on 10 February 2015, to approve a revised budget dated 9 February 2015; whereas in Elvanite the application itself was not made until after the conclusion of the trial, albeit in respect of a budget dated before the trial. In this case, the purpose of costs management would not be defeated by approving such a budget, merely because the proceedings have now concluded. The court would thereby be controlling the costs recoverable by the defendant from the claimant: see CPR 3.15(3).
28. If, in the absence of discontinuance, the defendant would have obtained approval of its revised budget, then there is no reason in principle why it should not recover its costs from the claimant on the basis of such a budget; and in my judgment unjust that it should not be able to do so.

Costs management controls not ratifies costs

29. The claimant's counsel's third submission was that to grant the application would be to undermine the function of costs budgeting, which is to control costs. He submitted that the defendant does not need to seek approval of its revised budget, because the claimant has accepted (in its letter of 15 April 2015) that insofar as additional costs were caused by the amendments, that is "good reason" for the costs judge to depart from the budget; and insofar as other costs are concerned which are not caused by the amendments, they are simple overspend in respect of which approval could not properly be given.
30. He submitted that the costs judge would be best placed to determine whether the increased costs were caused by the amendments, and that there was no need for IP expertise in such a task. He argued that the costs judge would have detailed bills, and supporting documents in the assessment which would put her/him in a far better position to decide whether the amendments justified the additional costs sought by the defendant and in particular a 6 day trial. He submitted that I was being asked to decide this issue on limited material, and then bind the costs judge who will have full material.
31. When I pointed out to the claimant's counsel that the letter of 15 April 2015 only accepted that the amendments provided "good reason" for departing from the budget, he extended his concession to the new issues raised by the claimant's expert's report.
32. Although I was initially attracted by this argument, I have concluded that it is ill-founded. I consider that it conflates the two functions of costs management and detailed assessment. In costs management the court's task is to approve costs, provided that they are within a reasonable and proportionate range. This does not involve the detailed consideration of the matters which a costs judge will consider. It is of its nature a broad brush exercise.
33. The test of whether a revised budget should be approved is whether there have been significant developments in the case that justify the revisions. The claimant accepts (as it must) that there have been significant developments. These consist of the Additional Points (set out at para 8 above) plus an issue as to whether the defendant's packaging and labelling of the product was defective.
34. My task is to decide, on admittedly limited material, whether, given the significant developments, the defendant's revised budget and the relevant phases in it are within the range of reasonable and proportionate costs. Thus, although detailed submissions were made by both sides as to whether or not the new issues were capable of justifying an increase in the trial estimate to 6 days, it is not necessary for me to form anything other than a broad view. I consider that these issues were capable of justifying the increased time estimate; and, indeed, as set out above, that the claimant itself accepted (in para 38 of Mr Orchison's statement) that budgeting on that basis did not render either the defendant's or the claimant's budget outside the range of reasonable and proportionate costs. If the claimant's position had been that it did render the defendant's budget outside the range, then it could not consistently have applied to revise its own budget on the basis of the increased trial estimate.

Delay

35. The claimant's final argument was based on delay by the defendant in applying to revise its budget. This was said to matter for two reasons. Firstly, it is said to seek to deprive the court of its power to manage costs because future costs have become incurred costs. However, for the reasons given above, this could only be said of costs which were incurred as at the date of the proposed revised budget. Since the defendant is only seeking revision of its budget in respect of future costs shown in that budget, this argument has no application.
36. In any event, such an argument cannot apply to an application to revise a budget. The court deciding whether to approve a revised budget effectively has control over incurred (as well as future) costs, because its decision is whether to allow revision of the budget as a whole. This is a different decision from that made at the initial costs management conference, where the Court has no power to manage incurred costs.
37. The claimant's second argument was that by delaying the defendant took the risk that the hearing would not be listed before the relevant costs had been incurred, or even not listed until after the trial. The defendant is also said to have taken the risk that the claimant might discontinue in the light of the successful appeal in Speciality European Pharma.
38. This argument might have more force if the claimant had applied to revise its budget significantly earlier than the defendant. In fact, as noted above, the claimant issued its application on 6 February 2015, only 4 days before the defendant's application, and this was listed to be heard on 12 February 2015. I directed that both applications be heard together; and in the absence of the claimant's discontinuance they would have been heard together on 24 February 2015. I do not consider that the closeness of the application to the trial would have justified refusing to approve the revised budgets of both sides, if otherwise it was right to do so.

Conclusion

39. For the reasons set out above therefore, I hold that I can determine the defendant's application to revise its costs budget, and that the revisions in respect of the trial preparation and trial phase based on a 6 day trial should be permitted.