England and Wales High Court (Patents Court) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		18 February 2003

MR JUSTICE LADDIE:

1. I have before me today an application by the claimant in this action, Dyson Limited ("Dyson"), for an interim payment on account of its costs of an inquiry as to damages in a patent action. The defendant is Hoover Limited ("Hoover"). It was sued successfully by Dyson for infringement of a Dyson patent relating to cyclone cleaners.
2. After succeeding on liability, Dyson elected to proceed to an inquiry as to damages. In circumstances I will explain more fully below, Dyson accepted a payment of £4m. This was very considerably below the sums it had sought to recover on the inquiry. After accepting that payment in, the matter came before Jacob J. At one stage Hoover had indicated that Dyson should only be awarded 50 per cent of the costs of the inquiry due to arguments that it wished to advance in relation to proportionality. However, it chose not to advance those arguments before Jacob J because it came to the conclusion that they could and should be advanced before the costs judge. In the result Jacob J ordered Dyson's costs of the inquiry to be assessed on the standard basis if not agreed. As I have indicated, the issue of proportionality was left over to be considered by the costs judge.
3. Dyson's current application is for an interim payment under the provisions of CPR 44.3.8. The sums involved are very substantial indeed. The trial lasted some eight days. The costs incurred were £480,000. However they are modest compared with the costs incurred on Dyson's side in preparation for the inquiry. They exceed £2.5m. In the light of that liability to its professional advisers, Dyson seeks an order for payment on account of £1,472,000, being 60 per cent of the total costs incurred by it in preparation for the inquiry after certain deductions have been taken into account. Alternatively, it asks for £1,227,000 on account, being 50 per cent of the total costs incurred, less necessary deductions.
4. Because of the large sums involved, this application has taken up more of the court time and has been the subject of far more evidence than normally would be the case in an application for interim payment. The arguments have covered a wide area. As a result it has been necessary to analyse such authority as does exist in relation to orders for interim payments and to consider the issue from basic principles. However, before turning to the relevant provisions in the CPR and authority, there are one or two additional facts to which I should refer.
5. I have already mentioned that the trial took some eight days. It was heard by Mr Fysh QC, at that time sitting as a Deputy Judge of the High Court. After judgment and after Dyson had made its election as to the form of financial relief it was pursuing, the parties served their respective written contentions on the inquiry and there was exchange of witness statements. Accountancy experts were to be called on either side, and the matter was due to come to the court for resolution with a hearing estimate of two weeks. It was only weeks before the hearing was due to commence that the claimant accepted the payment in.
6. A major factor which Mr Purvis, who appears on behalf of Hoover, prays in aid of an argument that the issue of proportionality will be important in deciding what costs are payable by his client, is the difference between the amount accepted by Dyson and the amount it was claiming in the inquiry. At one stage Dyson was asking for in excess of £27m by way of damages, although I understand that for most of the time its claim was restricted to about £21m. Certainly at the time of the acceptance of the payment in, Dyson were still pursing a claim for many millions of pounds more than they accepted.
7. I have referred already to the fact that there has been considerable evidence filed on this application. Within that evidence the issue of the difference between the amount sought on the inquiry and accepted has been addressed. As I have indicated already, Mr Purvis argues that the disparity is a fairly good indicator that the inquiry was being run in a profligate way. In the light of this and other factors, he says that, when it comes to deciding what the costs should be, the costs judge will have to address with considerable care the argument that the total costs expended by Dyson of about £2.5m is disproportionate to the sum of £4m accepted.
8. On the other hand, Dyson has put in evidence, with understandable reluctance, indicating that shortly before the inquiry it was placed in an invidious position by one of its own witnesses, who, at that time, was one of its employees. That person seems to have believed that giving evidence on behalf of his employer presented him with an opportunity to extract a large sum of additional money out of the employer. In the end the employee threatened not to give evidence on behalf of Dyson unless he was paid a considerable sum. Dyson has put in evidence suggesting that this last-minute act of sabotage was a major factor, although not the only factor, which led to the acceptance of a sum of damages which was less than it thought it was entitled to. Evidence has also been put in of other financial considerations, which made it attractive for Dyson to accept the payment in. Perhaps it could be put another way. The various factors rendered it less unattractive to accept the money paid in rather than to incur the very considerable additional costs which would have been involved in pursuing the inquiry through to its bitter end, with the no doubt real prospect of an appeal by one side or the other thereafter.
9. I can now turn to the questions of law which arise for consideration on this application and the application of the facts to the law. There is no dispute that the court has power under CPR 44.3.8 to make an interim payment even when, as in this case, it has not heard the trial. In other words, it has the jurisdiction even when it has not had a chance, through hearing the proceeding in which the costs were incurred, to appreciate the complexity or otherwise of the issues, assess proportionality and consider the relative strengths and weaknesses of the claims and defences raised. However, Mr Purvis says that because in this case the sums involved are very large and this court has not had a chance to go into the detail of the issues between the parties, there are two consequences. First, it is appropriate to consider de novo the approach to be adopted in relation to applications for interim payment. Second, because of the court's comparative ignorance of the issues the parties had to address in preparing for the inquiry, it is ill positioned to make an order for an interim payment now. I will take these two points in that order.

The approach to applications for interim payment of costs

10. The starting point in considering the proper approach to the application of CPR 44.3.8 must be Mars UK Limited v Teknowledge Limited [2000] FSR 138 in which Jacob J said the following:

"I now turn to the second issue, whether or not there should be an order for payment. The first thing to do is to consider what the general rule should be, interim payment or not. There is no guidance given in the rules other than that the court may order a payment on account. There is no guidance in the Practice Direction. So I approach the matter as a question of principle. Where a party has won and has got an order for costs the only reason that he does not get the money straightaway is because of the need for a detailed assessment. Nobody knows how much it should be. If the detailed assessment were carried out instantly he would get the order instantly. So the successful party is entitled to the money. In principle he ought to get it as soon as possible. It does not seem to me to be a good reason for keeping him out of some of his costs that you need time to work out the total amount. A payment of some lesser amount which he will almost certainly collect is a closer approximation to justice. So I hold that where a party is successful the court should on a rough and ready basis also normally order an amount to be paid on account, the amount being a lesser sum than the likely full amount." (p 153)

11. Lower, on the same page, the judge said:

"Thus I start from the proposition that there should be an interim payment in general. However, the court has a discretion. In exercising that discretion the court must take into account all the circumstances of the particular case."

12. Thus Jacob J took the view that, although there was no guidance in the rules, the norm should be an order for an interim payment. He explained the benefits of this in another passage on the same page of his judgment:

"This is likely to have practical advantages in another way. The motive for trying to prolong a detailed assessment, namely putting off the evil day when payment has to be made, will be considerably reduced when he who has to pay can only put off the evil day in respect of a considerably reduced sum. Moreover the whole point of the detailed assessment as a commercial matter may become less important with the result there will be less detailed assessment than there used to be of taxation of costs."

13. Mr Purvis argues that in coming to the conclusion that the norm should be a payment on account, the learned judge only appears to have had regard to the provisions of CPR 44.3.8. He says that there are other provisions in the rules, which do not appear to have been brought to his attention, which throw considerable light on the issue, and that I should depart from the approach adopted by Jacob J in Mars.
14. In considering this argument I think it is also important to bear in mind the nature of the point which Jacob J was considering in Mars. He identified the issue as follows:

"This part raises a general question and in part a question specific to this case. The general question is what the normal rule should be after a full trial." (p 152)

15. It seems to me that whatever the normal rule should be where there has been a full trial, different considerations may apply where there has not been a full trial. As is apparent in this case, there is a world of difference between a judge's ability to make a fair and rational assessment of costs for payment under the provisions of CPR 44.3.8 when he has heard the whole trial, or the whole inquiry as to damages, compared with his ability to do that when he has heard virtually nothing. The latter is the sort of case with which I am now concerned. Here there has been settlement of the dispute, and I have no detailed knowledge of the nature of the arguments to be advanced, their strengths and their weaknesses, the extent of the evidence to be given, its relevancy or otherwise and the extensiveness and relevance of any disclosure given. All that I have seen is the material which has been put before me for the purpose of this application.
16. In considering the question of the approach to be adopted in exercising the discretion under CPR 44.3.8, I wish to make it clear that I am only considering the approach which would be appropriate where the judge has not had the benefit of having heard the whole trial or, as in this case, inquiry.
17. Mr Mellor, who appears for Dyson, says that the approach adopted by Jacob J in Mars should apply just as much here as in a case where the judge who is invited to order the interim payment has heard the full trial. As he puts it, the reasons why such an order makes sense and is attractive, as expressed in the passage on page 153 of the Mars judgment to which I have already referred, apply just as much in a case where a judge has not heard the trial or inquiry as where he has. I will come back to consider that in a moment, but first I should consider how CPR 44.3.8 fits into the overall scheme of the provisions in the CPR dealing with costs.
18. Once a judge has made an order for costs, as Jacob J did here a few weeks ago, the matter is then sent to a costs judge. The powers of the costs judge are set out in particular in CPR 47. The receiving party must lodge a bill of costs. The paying party is given a period of three weeks within which to lodge points of dispute. The period can be extended. That is then followed by a request for a detailed assessment. It is open to the receiving party to put in points in response to the points of dispute. Once the request for a detailed assessment has been lodged, the costs judge will have to determine what is the right sum to be paid by the paying party in all the circumstances. Mr Mellor does not dispute that the costs judge would have to take into account, amongst other things, questions of proportionality.
19. However, there are additional points relating to the procedure to be followed before the costs judge, upon which Mr Purvis relies. In particular, he points out that in principle the receiving party is protected in respect of the period from the date of the order that costs be paid to the date on which the costs judge finally determines what the figure for those costs should be. This is achieved by the imposition, in a normal case, of interest at judgment debt rates on the costs to be paid. Thus although the receiving party may be kept out of his money for a time, the rules already incorporate a safeguard for him. Mr Purvis says, it does not look like this point was drawn to the attention of Jacob J in Mars.
20. Second, Mr Purvis says the position of the paying party is also protected. I have mentioned already that after the service of the bill of costs there is a limited period within which points of dispute and subsequent pleadings need to be served. In fact there is an additional requirement imposed upon the receiving party. He must serve the bill of costs and initiate the assessment procedure within three months of the order for costs in his favour. Failure to do so can result in a penalty being imposed upon him. This penalty is set out in CPR 47.8. Under that general heading, "Sanction for failure to commence in time", that Part provides as follows:

"47.8 – (1) Where the receiving party fails to commence detailed assessment proceedings within the period specified –

(a) in rule 47.7 or;

(b) by the direction of the court,

the paying party may apply for an order requiring the receiving party to commenced detailed assessment within such time as a court may specify.

- (2) On an application under paragraph (1), the court may direct that, unless the receiving party commences detailed assessment proceedings within the time specified by the court, all or part of the costs to which the receiving party would otherwise be entitled will be disallowed."

21. Together, these two provisions give the court a powerful weapon to disallow some or all of the costs if a receiving party fails to commence assessment on time and if he then breaches an order imposed at the behest of the paying party to commence within a specified period.
22. Perhaps of more importance to the application before me are the provisions of CPR 47.8.3, which read as follows:

"If:

(a) the paying party has not made an application in accordance with paragraph (1); and

(b) the receiving party commences the proceedings later than the period specified in 47.7

the court may disallow all or part of the interest otherwise payable to the receiving party under –

(a) Section 17 of the Judgments Act 1838; or

(b) Section 74 of the County Courts Act 1984;

but must not impose any other sanction except in accordance with rule 44.14 (powers in relation to misconduct)."

23. Mr Purvis argues that where the receiving party has been late in commencing the assessment, CPR 47.8.3 is designed to allow the court to remove the whole or part of the interest, and that provision would be side-stepped if a late commencing receiving party obtains an interim payment. The reason why these provisions are important here is that Dyson failed to commence the assessment procedure within the time set down under the CPR.
24. Mr Purvis illustrates his argument as follows. Assume that all the arguments advanced by Hoover for a reduction in the amount of costs payable fail and at the end of the assessment somewhere in the region of £1.4m by way of costs is ordered to be paid by it to Dyson. Mr Purvis says that it will be open to his client to argue at that stage that although it has to pay £1.4m in costs it will not have to bear all or some of the interest. However, if an interim payment is ordered now the sanction to be found in CPR 47.8.3. would have been avoided because Hoover will have received the money. The delay cannot be penalised because Hoover will have been able to invest the money paid to it on account and obtain interest on it. [Note: The last two references to Hoover should be to Dyson – Picked up by the law reporters who sent proofs for the WLRs]
25. Mr Mellor argues that, on the particular facts of this case, that that is a most unreal suggestion. His client was only one month late in commencing the assessment procedure, and the prospect of it being penalised in respect of interest for the whole or even a significant part of the period from the order for costs to the determination on the assessment is unreal. These provisions are irrelevant. I think he is right on that point on the facts of this case. It may well be that in other cases where there has been a greater delay in commencing the assessment procedure, this will be a factor which will need to be taken into account.
26. The relevance or otherwise of CPR 47.8.3 is distinct from the question of what is the approach that the court should adopt in a case like this, where it has not heard the full trial or full inquiry.
27. There is one other provision of the rules which bears on this general issue; that is to say CPR 47.15, which provides as follows:

"(1) The court may at any time after the receiving party has filed a request for a detailed assessment hearing –

(a) issue an interim costs certificate for such sum as it considers appropriate;

(b) amend or cancel an interim certificate.

(2) An interim certificate will include an order to pay the costs to which it relates, unless the court orders otherwise.

(3) The court may order the costs certified in an interim certificate to be paid into the court."

28. Mr Purvis says that these provisions mean that the costs judge has a power to order an interim payment.This is part of the costs regime provided for by the CPR. It throws light upon whether or not the norm should be an order for an interim payment, as suggested in Mars.
29. As I indicated earlier in this judgment I am not concerned with cases like that facing Jacob J in Mars, where the judge being invited to order interim payment has heard the full trial. I am only concerned with the application of the rules in a case like the present one, where an application for interim payment is brought before a judge who knows very little about what has gone on between the parties and the breadth of the dispute between them.
30. It seems to me that in this type of case CPR 44.3.8 should be taken simply at face value. There is me no presumption that an order for an interim payment should be made. On the other hand I do not accept the suggestion, which I think is inherent in Mr Purvis's argument, that there is a presumption against ordering such an interim payment because of the interest provisions, to which I have already referred. It seems to me that the interest provisions are merely factors which the court can take into account in deciding whether in particular circumstances the proper exercise of the discretion should be in favour of making an order.
31. It seems to me that the court should simply consider an application for an order for interim payment on its own merits. Because the receiving party is asking the court to exercise the discretion in its favour it will need to justify the court doing so, but save in this respect I do not think there is any particular norm which applies.
32. So what should the court do when faced with an application like this? What are the factors that it should take into account? Once again, I think it is useful to go back to what was said in Mars:

"In exercising the discretion the court must take into account all the circumstances of the particular case. One of those is that the defendant may wish to appeal. Another is dealing with the case in a way which is proportionate to the financial position of each party, one of the matters that one must consider in allowing the overriding objective of enabling the court to deal with the cases justly. The overriding objective applies as much to the exercise of the costs discretion as to any other discretion given under the Rules. This is a case, for example, where there is a wealthy successful party and a financially weak unsuccessful, party. That is one thing that should be taken into account. Other things that may be taken into account are the likelihood of an appeal or possibly successful appeal. For example, there may be a case where a claimant is financially weak. Even if it succeeds there might be an appeal by the defendant and the claimant needs the money to respond to the appeal. That would be a particularly good reason for ordering a payment on account." (p 153-4)

33. All of those considerations, it seems to me, apply in all cases. Mr Purvis argues that, for example, it may be that both parties are very wealthy and that there is no pressing need for an interim payment. It seems to me that the ability of the receiving party to repay part of an interim payment, if it is found at the end of the day that it over estimates the receiving party's recovery, is also a matter which the court should take into account. However it seems to me that there is a crucial matter which arises out of what was said at page 153 of Mars, which I have cited above in the passage beginning, "This is likely to have practical advantages in another way…"
34. As Jacob J pointed out, moves to try to prolong a detailed assessment and thereby put off of the evil day, might well be reduced if an interim payment is ordered. That is because only a small sum would be expected to be left to argue about. That is particularly likely to be so where the judge making the order for payment on account has heard the full trial and can therefore hope to make an assessment of what the costs are. His assessment is likely to be close to the figure the costs judge will arrive at. The outstanding balance is likely to be small. I would add that the smallness of the difference is also likely to make it easier for the parties to reach a settlement without the need for a determination by the costs judge.
35. I do not feel I am in a position to make a reasonable assessment save at a low figure of what Dyson would inevitably recover from the costs judge. I am fairly confident that costs of £400,000 or £500,000 will be recoverable. I think there is a good prospect of costs above that being recoverable. However, were I to order a payment of, say, £500,000 on account it would be likely to achieve little because the gap left between the parties is so great, and my order would be so clearly a stab in the dark, that it will not act as a significant deterrent to Hoover pressing on with its objections to the costs being sought by Dyson and it certainly will not deter Dyson from pressing on for more. If Hoover were minded to delay, such an order on account would not act as a deterrent. Such a payment would be unlikely to advance the prospects of a settlement between the parties.
36. Furthermore, the provisions which give the costs judge the power to issue an interim certificate are important. What is noticeable about them is that they proceed on the basis that the costs judge's power to order interim costs has to be preceded by steps designed to put him in a position to make a meaningful and informed assessment of what interim order is appropriate. As I have said already, before the provisions of CPR 47.15 kick in, the costs judge must have received the bill of costs, that is to say the fully itemised bill. He must have received the points of dispute and he must have received a request for detailed assessment. He will have a considerable amount of information in front of him which will put him in a position to decide whether or not to issue an interim certificate, and, if so, its size. When making that decision, the costs judge will be in a similar position to that occupied by Jacob J, who had heard the whole trial, in Mars.
37. Unlike either the costs judge at the interim certificate stage or Jacob J in Mars, I know very little about this case save that it has been fought on a grand scale and that very large sums of costs are involved. I am loathe to exercise an important discretion like this in favour of ordering an interim payment when doing so would achieve little, for the reasons I have already indicated. It would look more like playing roulette, than making an informed and reasoned assessment.
38. To some extent it seems to me that the point was made unwittingly by Mr Mellor in his submissions to me. In considering whether or not the costs judge could rapidly exercise his powers under CPR 47.15, Mr Mellor said that it was unrealistic to suggest that the costs judge would be in any position to issue an interim costs certificate without having analysed a detailed response to what would unquestionably be detailed points of dispute lodged by Hoover. I agree, but if it is going to take a costs judge some time to analyse whether or not to make an interim costs certificate because of the complexity of the matters in dispute between the parties, this emphasises the need for me to exercise particular caution when invited to make an interim payment now when I am effectively blind on the issues dividing the parties.
39. I have indicated already why I think I should be very careful before exercising the discretion in favour of ordering an interim payment, and I have pointed to the fact that such knowledge as I do have of the issues dividing the parties on costs is very limited. I have seen limited evidence served on this application, and of course I am aware of the judgment in the Dyson v Hoover trial. Some flavour of the superficiality of the material with which I am faced here can be gathered from the schedule of costs which has been prepared by Dyson in support of this application. Although it is tendered in support of an application for over £1.4m it only extends to some four pages. It contains virtually no detail at all as to how costs were incurred. It just contains some global figures.
40. In deciding how to exercise my discretion I take into account not just CPR 44.3.8 but the knowledge that the costs judge will be in a position to do a fairer job of ordering an interim payment under the powers that he has under CPR 47.15. The sums of money involved in this dispute are far too large to justify shooting from the hip. It seems to me preferable for the costs judge to consider taking a more careful aim than that. For these reasons I will not make an order for interim payment.