Intellectual Property Enterprise Court

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY ENTERPRISE COURT

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		03/02/2015

Judge Hacon :

Background

1. In these proceedings the claimant seeks relief for the alleged infringement by the six defendants of the copyright in a film called "Bhopal: A Prayer for Rain". The film is about the severe industrial accident which took place at the Union Carbide facility in Bhopal, India, 30 years ago.
2. The claim form was issued on 1 April 2014 and was served on the defendants with Particulars of Claim shortly thereafter. The Particulars of Claim were rightly criticised in correspondence, particularly by the first to fourth defendants, as being inadequate. The sixth defendant served a Defence on about 22 May 2014 and the fifth defendant on 11 June 2014. The claimant indicated that he proposed to amend his Particulars of Claim and by an order dated 11 June 2014 made in writing, with the consent of the claimant and the first to fourth defendants, I allowed the first to fourth defendants to serve their defence 28 days after service of the Amended Particulars of Claim.
3. On 22 July 2014 the defendants were sent draft Amended Particulars of Claim.
4. On 29 July 2014 the first defendant was dissolved and thus has played no further part in the proceedings.
5. In a letter dated 29 August 2014 the solicitors acting for the second to fourth defendants advanced detailed criticisms of the new draft and stated that it disclosed no cause of action in respect of which the claimant had any prospect of success. The fifth and sixth defendants in due course agreed.
6. By an Application Notice dated 22 September 2014 the claimant applied to amend his Particulars of Claim in the form of the draft sent to the defendants.
7. At a hearing on 11 December 2014 I dismissed the claimant's application to amend. I was not persuaded by the defendants that the claimant had no prospect of advancing a case for joint ownership of copyright in the film and infringement of that copyright but I took the view that the draft Amended Particulars were unsatisfactory in a number of respects. Thus, the claimant is not shut out from trying again to draft a pleading which both satisfies the rules of court and supports a sufficiently arguable case.

Unreasonable behaviour

8. In relation to costs, I ruled that the claimant had behaved unreasonably, for a combination of two reasons. First and most importantly, the initial Particulars of Claim (not drafted by counsel) were on any view wholly inadequate and came nowhere close to satisfying CPR 63.20. It is never appropriate for a claimant to serve undeveloped Particulars of Claim in the hope that some sort of pleading might be enough to provoke a settlement. Particulars should either be served in conformity with the rules or not at all. Failure to do that will almost inevitably waste time and costs.
9. Secondly where, as here, the claimant concedes that amended Particulars are undoubtedly required, he should take particular care to ensure that the amended pleading both satisfies the rules and sets out sufficient matters to support his case. In my view bearing in mind the detailed criticisms made against the draft Amended Particulars of Claim, insufficient account was taken of those criticisms. A claimant in that position should anyway come prepared with a further alternative draft to be advanced in whole or in part in the event that the court is not satisfied with the amendments currently proposed. In the present instance the claimant can have been in no doubt what the inadequacies in the amended draft pleading were alleged to be. Counsel for the claimant was entitled to dispute the criticisms raised and he did. But once I had ruled that the claimant could not amend the Particulars in the form proposed, though I was not shutting out the possibility of the claimant advancing a properly pleaded case, he had no fall-back pleading to put before the court. This was not the sort of instance where a bit of tweaking could be done on the spot. The upshot was that the claimant could go away and try again but this was not satisfactory. For those reasons taken together, I ruled that the claimant had acted unreasonably.

Costs consequences

10. Where a party has behaved unreasonably there are two express consequences set out in the rules. Pursuant to CPR 63.26(2) the court may make an order for costs at the conclusion of the hearing, rather than reserving the costs according to the usual practice (CPR 63.26(1)). Also CPR 45.32 provides that costs awarded under rule 63.26(2) are in addition to the total costs awarded under CPR 45.31.
11. At the hearing not all the defendants were in a position to provide the information necessary for me to make a summary assessment of costs there and then. I said that I would make such an assessment in writing following receipt of statements of costs from the defendants. I also asked all the parties to make submissions on the relevance and application in this case of the stage cap of £3,000 on the costs of an application in the IPEC. Counsel for the various parties provided very helpful written submissions which together dealt with the following matters:

(1) Whether the effect of CPR 45.32 is that costs awarded under CPR 63.26(2) may exceed the maximum imposed for the relevant stage of the claim set out in Practice Direction 45. The alternative is that the effect of the rule goes no further than removing the costs awarded under CPR 63.26(2) from consideration when the court comes to consider the cap on total costs (set out in CPR 45.31).

(2) If the stage cap applies, whether there should be a separate cap for each defendant.

(3) If the stage cap would normally apply, whether the court should exercise its discretion to ignore the cap in this case.

(4) Whether the claimant's conduct had amounted to an abuse of process such as to remove the usual limitations on the award of costs in the IPEC.

Whether the stage costs cap applies where there has been unreasonable behaviour

12. The starting point is CPR 45.30.

"(1) Subject to paragraph (2), this Section applies to proceedings in the Intellectual Property Enterprise Court.

(2) This Section does not apply where –

(a) the court considers that a party has behaved in a manner which amounts to an abuse of the court's process; or

(b) the claim concerns the infringement or revocation of a patent or registered design or registered trade mark the validity of which has been certified by a court or by the Comptroller-General of Patents, Designs and Trade Marks in earlier proceedings.

(3) The court will make a summary assessment of the costs of the party in whose favour any order for costs is made. Rules 44.2(8), 44.7(b) and Part 47 do not apply to this Section.

(4) 'Scale costs' means the costs set out in Table A and Table B of the Practice Direction supplementing this Part."

13. Before turning to the main issue under this head, I should say that I have avoided using the term 'scale costs' except where I am directly referring to a rule in which the term appears. This is because, at least on one view, 'scale costs' is used ambiguously in the rules notwithstanding what appears to be a clear definition in rule 45.30(4). That paragraph states that 'scale costs' mean the maximum stage costs set out in Tables A and B of Practice Direction 45, Section IV. On another occasion there may be argument about how strictly the definition should be applied. I do not attempt to decide the matter here since it is not necessary to do so. However for reasons of clarity, particularly having in mind the written submissions filed by the parties, where possible I will use instead the term 'stage costs' to mean the costs set out in Tables A and B, often as opposed to 'total costs', being the costs of the proceedings as a whole.
14. There are limits to the use of costs caps in the IPEC, as appears from paragraph (2) of rule 45.30. Where either (a) there has been an abuse of process or (b) the proceedings concern a registered right which has been certified, costs are not subject to either of the usual limits in the IPEC. (Circumstance (a) presumably only relates to costs against the offending party.)
15. Paragraph (3) provides for another feature of IPEC costs: they are always assessed summarily; there is no provision for detailed assessments. This has general application – paragraph (2) provides for exclusions from the capping regime but even where the exclusions apply the costs will still be assessed summarily.
16. Next there is rule 45.31:

"45.31 (1) Subject to rule 45.32, the court will not order a party to pay total costs of more than –

(a) £50,000 on the final determination of a claim in relation to liability; and

(b) £25,000 on an inquiry as to damages or account of profits.

(2) The amounts in paragraph (1) apply after the court has applied the provision on set off in accordance with rule 44.12(a).

(3) The maximum amount of scale costs that the court will award for each stage of the claim is set out in Practice Direction 45.

(4) The amount of the scale costs awarded by the court in accordance with paragraph (3) will depend on the nature and complexity of the claim.

(4A) Subject to assessment where appropriate, the following may be recovered in addition to the amount of the scale costs set out in Practice Direction 45 – Fixed Costs—

(a) court fees;

(b) costs relating to the enforcement of any court
order; and

(c) wasted costs.

(5) Where appropriate, VAT may be recovered in addition to the amount of the scale costs and any reference in this Section to scale costs is a reference to those costs net of any such VAT."

17. Rule 45.31 does five things. First, it imposes the overall caps on costs, to be applied after any set off (paragraphs (1) and (2)). Those paragraphs are expressly stated to be concerned only with the 'total costs'. Secondly, it provides for maximum costs to be applied to each stage of the proceedings: those set out in Tables A and B in Practice Direction 45 (paragraph (3)). Thirdly, it provides that the award of costs for each stage should be calibrated to the nature and complexity of the claim (paragraph (4)). Fourthly, it allows certain costs to be awarded in addition to the 'scale costs' (paragraph (5)). Fifthly, rule 45.31 provides that 'scale costs' are net of VAT. Where, unusually, the VAT on such costs may be claimed by a party, VAT is added without regard to the relevant caps.
18. Subject to any set off under rule 45.31(2), the words of rule 45.31(1) allow for only one exception to the overall caps on total costs: where rule 45.32 applies.

"CPR 45.32

Costs awarded to a party under rule 63.26(2) are in addition to the total costs that may be awarded to that party under rule 45.31." 

19. Costs under rule 63.26(2) are those awarded where there has been unreasonable behaviour in the course of an application:

"(2) Where a party has behaved unreasonably the court may make an order for costs at the conclusion of the hearing."

20. Despite the wording of CPR 45.31(1) it would not be accurate to say that there can only ever be that one stated exception to the overall caps on total costs. In Henderson v All Around The World Recordings Ltd [2013] EWPC 19; [2013] FSR 42 Judge Birss held that the general discretion given to courts regarding costs by CPR 44.3 (now CPR 44.2) has not been excluded by the special rules about costs in the Patents County Court (now the IPEC). He added this, at [12]:

"The discretion exists but to exercise it to depart from the cap in anything other than a truly exceptional case would undermine the point of the costs capping system. … the point of the PCC costs rules are to favour certainty as opposed to a fully compensatory approach to costs."

In F H Brundle v Perry [2014] EWHC 979(IPEC) I took the view that the general discretion could be exercised to lift one or more of the caps on stage costs in less than truly exceptional circumstances if the result was that the overall cap on total costs was left undisturbed (at [16]). Necessarily the court will only be in a position to know if this is the case when assessing costs at the conclusion of the proceedings.

21. By contrast with rule 45.31(1), the maximum stage costs imposed by rule 45.31(3) are not made subject to rule 45.32. Certainly the exceptions provided for by rule 45.30(2) (abuse of process and proceedings where a registered right has been certified) and the overall discretion of the court on costs still apply, but at least on the face of rule 45.31(3) the stage limits on costs in Tables A and B are unaffected where a party has behaved unreasonably.
22. The second to sixth defendants submitted that notwithstanding how CPR 45.31 and 45.32 are drafted, unreasonable behaviour does result in the stage caps on costs being lifted. Taken together they made the following submissions

(1) CPR 45.32 refers to the whole of rule 45.31, not just 45.31(1).

(2) A party's costs for a stage in the proceedings will often reach or exceed the stage cap. If the cap is not lifted in the event of unreasonable behaviour, there will be no sanction for such behaviour.

(3) In simpler types of litigation, where there is no counterclaim, reply, expert evidence or experiments, the sum of all the maximum stage caps applicable comes to less than £50,000. In such instances lifting the overall £50,000 cap in the event of unreasonable behaviour would make no difference. Again, in practice, there would be no sanction for unreasonable behaviour.

(4) In BOS GmbH & Co KG v Cobra UK Automotive Products Division Limited [2012] EWPCC 44; [2013] FSR 39 Judge Birss ruled that the reference to 'paragraph (1)' in rule 45.31(2) (at that time rule 45.42(2)) should be broadly construed. By parity of reasoning costs awarded where there has been unreasonable behaviour should be independent of the stage costs caps.

(5) In Phonographic Performance Limited v Hamilton Entertainment Limited [2013] EWHC 3467 (IPEC) Birss J assumed that where there had been unreasonable behaviour the stage caps did not apply. He awarded costs of £3,505 for the relevant application, notwithstanding the cap of £2,500 then in force.

23. I will take these submissions in turn. I see little force in the first point. Rule 45.32 states that costs awarded under rule 63.26(2) are in addition to the total costs that may be awarded 'under rule 45.31'. True, it could have said 'under rule 45.31(1)' which is where total costs are dealt with in rule 45.31, but there was no need. As a matter of drafting use of the term 'total costs' in rule 45.32 is a sufficiently clear indication that reference is being made only to paragraph (1) of rule 45.31.
24. In support of this first submission it was also said that the rules do not treat 'total costs' and 'scale costs' as separate principles and therefore the term 'total costs' in rule 45.31(1) should be treated as referring also to scale costs (i.e. stage costs). I do not accept that. I have earlier mentioned that the meaning of the term 'scale costs' is not as clear in the rules as might at first appear. But that is not the same as saying that 'total costs' should always be treated as meaning 'total and stage costs' and I see no sound basis for that interpretation.
25. Turning to the second submission, it is not accurate to say that there is no sanction against an unreasonable party if the innocent party's costs for the relevant stage exceed the cap. First, the innocent party may receive its costs forthwith instead of waiting until after trial. Secondly, in such a case, postulated to be in the course of relatively costly proceedings, it may be that the innocent party's total costs will exceed the overall cap, in which case the unreasonable party will suffer the sanction of paying a sum in excess of the overall cap.
26. Judge Birss more than once pointed out that the point of the PCC (now the IPEC) costs rules are to favour certainty as opposed to a fully compensatory approach to costs, see Henderson at [12] (quoted above); Gimex International Groupe Import Export v Chill Bag Company Ltd [2012] EWPCC 34; [2012] 6 Costs LR 1069 at [18]-[19] and Liversidge v Owen Mumford Ltd [2012] EWPCC 40; [2012] 6 Costs LR 1076 at [14]. I respectfully agree and would add that likewise in some instances the rules may favour certainty over punishing unreasonable behaviour.
27. In the circumstances contemplated by the third submission the unreasonable party would again have the sanction of paying costs forthwith. If the court were to come to the view that the facts were nonetheless such that rule 45.32 was of little or no practical effect and that justice required an appropriate sanction, such facts might provide for one of the exceptional circumstances in which the overall discretion on costs should be exercised, notwithstanding rule 45.31. Each case would be treated on its merits.
28. In dealing with the fourth point, I should say something more about BOS v Cobra. Judge Birss was considering the effect of the set off provided for in rule 45.31(2). (The equivalent rule at the time was in fact rule 45.42(2). In the passage from BOS quoted below I have used the current rule numbers to avoid confusion). Among other things Judge Birss took into account the costs in relation to an item of prior art called 'Butz', a citation relied on by the successful claimant but which the Judge viewed as having been 'hopeless'. Therefore the claimant's costs were to be assessed after setting off the 'Butz' costs. The question was: should the caps on the claimant's costs be applied before or after the set off? Judge Birss ruled that both the overall cap and the stage caps should be applied only after the set off:

"24. An important aspect of the matter is [CPR 45.31(2)]. This states that the provisions of para.(1), which set the £50,000 cap on the trial costs in the PCC, apply after the court has applied the provision on set off in accordance with [r.44.12(a)]. That set off rule is part of general [r.44.12] relating to costs and applies when a party who is entitled to costs from the other side is also liable to pay them to the other side. … [Rule 45.31(2)] provides that the £50,000 costs cap is applied after the set off. On its face [r.45.31(2)] does not mention the scale costs since they are dealt with in [r.45.31(3)] and not [r.45.31(1)]. However it seems to me that the only way to apply this rule sensibly is to apply the set off before the scale limits and the £50,000 cap. In other words I find that the proper interpretation of [r.45.31(2)] means that the Butz set off should be applied before the scale limits. On that basis the other discounts should be applied in the same way."

29. In effect, Judge Birss ruled that the reference to 'paragraph (1)' in CPR45.31(2) should be construed to encompass the maximum stage costs referred to in rule 45.31(3) in order to reach a proper result. The defendants' fourth submission requires something more drastic, namely a major re-interpretation of rules 45.31(3) and 45.32. This is said to apply 'by parity of reasoning' with what Judge Birss ruled in BOS v Cobra. To my mind the parallels are not exact. The defendants' suggested constructions of rules 45.31(3) and 45.32 would have the effect of amending them to mean:

CPR 45.31(3):

"Subject to rule 45.32 the maximum amount of scale costs that the court will award for each stage of the claim is set out in Practice Direction 45."

CPR 45.32:

"Costs awarded to a party under rule 63.26(2) are in addition to the total costs and may be assessed irrespective of the relevant maximum stage costs that may be awarded to that party under rule 45.31."

30. If rules 45.31(3) and 45.32 had been drafted in that way, it would have given rise to a workable alternative result. But they were not. And there are policy arguments for both alternatives.
31. Finally, I accept that in PPL v Hamilton Birss J appears to have assumed that where there has been unreasonable behaviour such that rule 63.26(2) is engaged, there is no stage cap on the costs of the application. But there is no sign that the point was argued. Indeed Mr St Quintin, who appeared for the second to fourth defendants and who had also appeared in PPL, very properly confirmed as much when I asked him. The point has now been squarely raised and I must deal with it afresh.
32. It seems to me the words of rules 45.31 and 45.32 are too clear to permit the conclusion that costs awarded against an unreasonable party pursuant to CPR 63.26(2) are free of the stage caps on costs set out in Tables A and B of Practice Direction 45. In my view those caps still apply.

Whether the stage cap should be applied separately for each defendant

33. In Gimex v Chill Bag Company [2012] EWPCC 34; [2012] 6 Costs LR 1069 Judge Birss held that where there are several defendants in the same proceedings, they share the costs cap. He had primarily in mind the overall cap on total costs, but his reasoning applies equally to the caps on stage costs. It would also make no sense to have separate caps for stage costs and a single cap for total costs.
34. In paragraph 23 Judge Birss allowed for the possibility of a more flexible approach in certain circumstances. The defendants argued that flexibility was called for here. I do not agree. As I read his judgment, Judge Birss was contemplating the sort of possibility in which two defendants might be obliged to run distinct arguments which barely overlap. If this were to be raised at the CMC it may be that the court would rule that there would be separate costs caps. On certain facts this might be more just and at least the claimant would know from the CMC onwards that his exposure on costs would not be what a claimant would normally expect it to be.
35. There was nothing of that nature here. In fact it is not clear to me why there were three separate legal teams representing the second to fourth defendants, the fifth defendant and the sixth defendant respectively. It was not explored at the hearing and so I say no more about it, but in due course at the CMC the defendants may be expected to explain this arrangement. In any event, a good reason for having single costs caps applying to all defendants in the IPEC is that it discourages unnecessarily overlapping representation.
36. It follows that a single stage cap of £3,000 applies to all the defendants in relation to the costs of this application, subject to an exercise of the general discretion on costs.

Whether the court should apply its discretion to lift the stage costs cap

37. As discussed above, lifting the overall cap on total costs would require exceptional circumstances – see Henderson. Lifting a cap on stage costs at the conclusion of proceedings is less exceptional provided that the overall cap remains unaffected – see Brundle. The present circumstances do not fall neatly into either category. Lifting the stage cap could never jeopardise the overall cap on total costs because rule 45.32 applies. However it seems clear to me that where there has been unreasonable behaviour by a party to an application, the sanctions provided for by the rules should generally follow. There can be no question of a further sanction in the form of the lifting of the stage cap on costs of the application without unusually bad behaviour on the part of the offending party. I have set out above the reasons why the claimant's behaviour was unreasonable. In my view this does not give rise to the exercise of the court's discretion to lift the stage cap. The extent to which the defendants are adversely affected is not a relevant consideration.

Whether there has been an abuse of process

38. An abuse of process would require an even more extreme form of unsatisfactory behaviour by the claimant. There has been no abuse of process in the conduct of this application.

Wasted costs

39. No argument was raised by any of the defendants in relation to wasted costs and rule 45.31(4A)(c). That rule does not permit the court to assess wasted costs at the conclusion of a hearing, unlike rule 63.26(2). However it will be open to the defendants at the conclusion of the proceedings to submit that the claimant's behaviour was not only unreasonable, as I have found, but also resulted in wasted costs that should be awarded in addition to the scale costs within the meaning given to that term in rule 45.31(4A). Having heard no argument I say nothing about whether there would be force in the submission.

Conclusion on the costs to be awarded to the defendants

40. Without prejudice to any application at the end of the proceedings relating to wasted costs the defendants are entitled to their costs now of the hearing of the claimant's application to amend the Particulars of Claim. Each of the three teams acting for the defendants claims costs well in excess of £3,000. The second to sixth defendants are together entitled to an award of the maximum permitted for an application in Table A, namely £3,000, to be paid within 14 days of the date of the order following this judgment.

Directions in relation to Amended Particulars of Claim

41. I do not think that the claimant's right to re-plead his case should be without a time limit. The defendants are entitled to know within a reasonable period the position which the claimant intends to take. If the claimant wishes to amend the Particulars of Claim it must serve a draft on the defendants within 21 days of the date of the order following this judgment. Within 14 days of service the defendants should serve any comments they have on the draft. Within 14 days of the service of the last of such comments the claimant should either apply to the court for permission to amend the Particulars of Claim in the form of an agreed draft or, as the case may be, in the form of a draft still subject to dispute.