England and Wales Patents County Court

IN THE PATENTS COUNTY COURT

		Rolls Buildings 7 Rolls Buildings London EC4A 1NL
		24/02/2012

His Honour Judge Birss QC :

1. The application concerns costs. The parties have settled these proceedings subject to costs. They have agreed all other outstanding questions but it falls to me to decide what the appropriate costs order should be. They are far apart. Broadly each side contends that the other side should pay all or most of the costs of the action.
2. The action concerned infringement of database right. As a result of seed data in its database the claimant discovered that the defendants were using its data. Although unknown to the claimant at this stage, the data came to the defendants from the claimant via a company called BDO. The complaint was first made in about August 2007. By March 2008 both sides had made offers to settle. The claimant's offer was made on 27^th February 2008 in accordance with CPR Part 36. The key element in it was to accept £1,230 by way of damages for the infringement. The defendant's offer was to pay that sum in damages and to contribute £4,000 in costs. Whether the latter is strictly a Part 36 offer or just an offer "without prejudice save as to costs" is in dispute. In any event neither side accepted the offer of the other. The clear problem was costs although that was not the only matter in dispute at the time.
3. The sum by way of damages being discussed rose shortly after that to £3,095 and the parties continued to negotiate. Again it is clear that the key problem was costs (albeit again it was not the only issue in dispute). There was an exchange of correspondence in October 2008. The defendants' solicitor contended that this exchange had settled the proceedings. Purporting to act pursuant to the alleged settlement, the sum of £3,095 in damages was then paid into the claimant's solicitor's client account. The claimant did not agree the matter had settled and proceedings were issued. The money was left as a sum on account. The proceedings were issued on 9^th February 2009. Thus this is not a case to which the new Patents County Court costs capping procedures apply. The defendants denied infringement of database right and also pleaded the settlement as a defence. In addition they pleaded an estoppel in relation to the damages arising essentially from the same circumstances as the settlement.
4. In my judgment on 26^th October 2010 [2010] EWPCC 12 I held the action had not settled and struck out those parts of the defence which relied on the contention that it had. I also gave summary judgment on subsistence and title to database right but not on infringement. The estoppel was ordered not to be dealt with at trial since it only related to damages and was to be dealt with at the inquiry (if any). I noted that on any view the sums at stake on the inquiry were likely to be very small indeed relative to the cost of such an exercise (judgment paragraph 52). At the end of the judgment I also observed that this was a case which ought to have been capable of being dealt with very quickly from now on and in an economical fashion (paragraph 77). The parties negotiated further, to no avail and proceeded to trial. The key problem was costs.
5. In June 2011 I heard the trial on liability and found for the claimant in a judgment dated 20^th June 2011 [2011] EWPCC 22. I directed that there be an inquiry as to damages or an account of profits, with permission to the parties to seek directions including directions for disclosure to allow the claimant to elect which remedy to seek. I recall that the claimant suspected the extent of infringement had been greater than had been revealed so far. I also ordered the defendant to provide a full copy of the BDO database they had bought and a full mailing list used. The costs were reserved. I recollect that was because I was told there were Part 36 and "without prejudice save as to costs" offers which needed to be taken into account and also having regard to the defendants' estoppel argument. At the same time I ordered the defendants to make a payment on account of the claimant's costs of £23,000 on the basis that albeit costs were to be reserved, it seemed very likely that a substantial costs order would be made in the claimant's favour given that the defendant had fought and lost the issue of infringement. At that stage neither party drew my attention to CPR Pt 44.3(8) which only provides for a payment on account when a party is actually ordered to pay costs.
6. The disclosure required was provided by the defendants and the parties continued negotiating. By the end of 2011 however no progress had been made. On 13^th December 2011 the defendants brought the matters to a head by applying for a disposal hearing on the basis that the claimant had failed to seek an inquiry or account. The defendants asked for a hearing to be listed to deal with quantum and costs and they proposed suitable directions. The application for directions was listed for today 7^th February 2012. It had the desired effect because by the time the matter was ready for me to deal with it, the parties had reached agreement subject to costs. The key term of the agreement was that the claimant accepted the sum which had already been paid (£3,095) as its damages in the case.
7. Thus the only issue before me is costs. The claimant is represented by Jonathan Hill instructed by Birketts LLP and the defendants by Lawrence Power instructed by Ashton Bond Gigg.
8. The claimant submits the position is that a valid offer in accordance with CPR Part 36 was made by them on 27^th February 2008. The key term was that the damages were to be £1,230. They have recovered a higher sum (£3,095) and so the full machinery of Part 36 applies. That means that the defendants pay the claimant's costs on the standard basis up to 19^th March 2008 and indemnity costs thereafter. The claimant submits this should apply up to and including the trial. For the position post trial the claimant argues that it should recover 50% of its costs. The claimant's investigations did not lead to the conclusion that an inquiry or account would yield any further sums so it accepts it should not recover those costs but on a rough and ready basis half the post trial costs have been caused by yet more fruitless negotiations about costs and they should be the claimant's. In effect they are general costs of the proceedings.
9. The defendants deny this. They contend that the claimant's approach to these proceedings has been unreasonable and disproportionate throughout. They propose four alternatives arising from this basic submission. First they argue that their offer of 18^th March 2008 was a reasonable one and should have been accepted since when considering the costs, delay, stress, inconvenience, the inevitable costs shortfall, and wasted management time in proceeding to a trial, the claimant has not beaten the offer. So the claimant should pay all the defendants' costs since then. Second they argue in the alternative that the claimant should pay the defendants' costs since February 2009 to date. February 2009 is the date on which the £3,095 sum was paid to the claimant's solicitors. Third they argue that I should make no order as to costs for the entire proceedings. Fourth they argue that I should order the claimant to pay the defendants' post trial costs but make no order as to costs up to and including the trial. The result of these orders would be repayment of the £23,000 held on account.
10. The claimant does not agree. It submits that it is the defendants who have been unreasonable throughout the negotiations in these proceedings. It maintains its claim for costs.
11. Before addressing the issue to be decided I cannot avoid observing that it is nothing less than tragic that this state of affairs has arisen. One way of looking at this case is that all that was between the parties in money terms as at March 2008 was about £2,000 out of a total costs sum of about £6,000. Damages of £1,230 (at that stage) were acceptable. No settlement was reached then or later. I have no precise figures for the parties' actual costs now since neither side prepared any such evidence. I gather that sums of the order of £50,000 to £70,000 appear to have been spent on each side, which would be on the high side of realistic for this case of infringement of database right. So the levels of costs now incurred have dwarfed the sums in issue and dwarfed the financial gap between the parties as it was in 2008.

Principles to be applied

12. Neither party made any submissions on any issues of principle arising here. It seems to me that there are three distinct sets of principles arise in this case, the rules under CPR Pt 36, the general rules on costs in CPR Part 44 and the principles applicable to costs when the parties have otherwise settled.

CPR Part 36

13. CPR Part 36 consists of a set of rules about settlement offers and the consequences of their acceptance or non-acceptance. Part 36 offers can be made by claimants or defendants. Once made there is a relevant period within which to accept them. In this case the relevant period is 21 days from the offers (by the terms of the offers themselves and r36.3(1)(c) and r36.2(2)(c)). If the offer is not accepted and the matter proceeds to trial and judgment, r36.14 applies.
14. The provisions for the application of the rule are in r36.14(1) as follows:

36.14 Costs consequences following judgment

(1) This rule applies where upon judgment being entered-

(a) a claimant fails to obtain a judgment more advantageous than a defendant's Part 36 offer; or

(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant's Part 36 offer.

(1A) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, "more advantageous" means better in money terms by any amount, however small, and "at least as advantageous" shall be construed accordingly.

15. So in this case each side say they have satisfied the corresponding limb of r36.14(1).
16. If the claimant fails to obtain a judgment more advantageous than a defendant's offer then, subject to paragraph (6) which does not apply in this case the relevant provision is that:

(2) […] the court will, unless it considers it unjust to do so, order that the defendant is entitled to-

(a) his costs from the date on which the relevant period expired; and

(b) interest on those costs.

17. On the other hand, if the judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant's Part 36 offer then (subject to irrelevant matters):

(3) [...]the court will, unless it considers it unjust to do so, order that the claimant is entitled to-

(a) interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) his costs on the indemnity basis from the date on which the relevant period expired; and

(c) interest on those costs at a rate not exceeding 10% above base rate.

18. In either case paragraph (4) applies, as follows:

(4) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3) above, the court will take into account all the circumstances of the case including-

(a) the terms of any Part 36 offer;

(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

(c) the information available to the parties at the time when the Part 36 offer was made; and

(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.

19. In any event Part 36 cross-refers to Part 44 r44.3 which requires the court to consider an offer to settle that does not have the costs consequences set out in this Part in deciding what order to make about costs.
20. One important matter to note is that paragraph (1A) was introduced in July 2011 in order to reverse the effect of the decision in Carver v BAA [2008] EWCA Civ 412. That was the case in which a claimant only beat a Part 36 offer by a small amount (£51) which was more than offset by the irrecoverable costs incurred by the claimant in continuing to contest the case for as long as she did. The claimant was ordered to pay the defendant's costs. Paragraph (1A) makes it clear that in money terms "more advantageous" means better by any amount, however small.

CPR Part 44

21. The general rules about costs in the CPR are in Part 44. Rule 44.3 provides for the court's discretion as to costs and at r44.3 (3) provides that the general rule is that the unsuccessful party pays the costs of the successful party but the court may make another order. In considering all the circumstances two factors are relevant in this case, the conduct of the parties and whether any admissible offers to settle have been made which are not part 36 offers (r44.3(4)).

Settlement subject to costs

22. I had to consider briefly the principles applicable to a case in which there had been a settlement subject to costs in my judgment in Convatec v Smith & Nephew [2011] EWHC 3461 (Pat) (sitting in the High Court). In paragraph 71-73 I said:

71. For the principles applicable in a situation like this one Mr Mellor cited BCT Software v Brewer (Court of Appeal) [2003] EWCA Civ 939 and Venture Finance v Mead (Court of Appeal) [2005] EWCA Civ 325. As Chadwick LJ said in the Venture Finance case (paragraph 10) it is not in dispute that a judge has jurisdiction to make an order for costs in proceedings in which all substantive issues have been disposed of by agreement but he it not obliged to do so and the dangers in embarking on that course were illustrated in the BCT Software case. In BCT Software Mummery LJ observed at paragraph 9 that in the course of counsel's submissions they "dipped into the detail of the compromised action to such an extent that, at times, there was an uncomfortable feeling that this court was being asked to try the action, which, because it has settled, has never been tried by anyone".

72. In paragraph 23 of his judgment in BCT Software, Chadwick LJ held that unless the court is satisfied that it has a proper basis of agreed or determined facts upon which to decide whether the case is one in which it should give effect to the general rule (i.e. that the unsuccessful party pays the costs of the successful party) or a "different order" (and if so what order) it must accept that it is not in a position to make an order about costs at all.

73. Mr Mellor also mentioned Brawley v Marczynski (which is referred to in Venture Finance) as authority for the proposition that where there was an obvious winner the court can decide the costs.

23. Throughout their submissions the parties have assumed that Part 44 and Part 36 are directly applicable to the question I have to decide and did not address whether the settlement itself has any impact on the basis on which I should approach the questions I have to decide. I will deal with that below.
24. In order to resolve the dispute before me I first need to analyse what happened in the proceedings and then to consider what to do in the light of that analysis.

(1) What happened in these proceedings

The claimant's Part 36 offer on 27^th February 2008

25. The claimant's 27^th February 2008 Part 36 offer was in the following terms (in summary):

i) To accept £1,230 in damages on the defendants' assertion about the extent of its use of the database material, with a proviso in case further information came to light;

ii) To enter a full settlement agreement. This had various terms in it such as undertakings not to repeat the acts complained of and a requirement to identify the source of the database the defendants had used.

iii) The defendants would pay the claimant's costs assessed on the standard basis.

26. The term about disclosure of the source was important. The claimant had been pressing for this and the defendants had refused to divulge it. It was entirely reasonable for the claimant to insist on this information.
27. At the same time as making the offer under Part 36, the parties were engaged in open correspondence. One argument before me was that the claimant at this stage unreasonably turned down a suggestion of mediation by the defendants.
28. Meditation can be a very powerful tool for resolving disputes and a failure to even try mediation is a factor which can be taken into account in considering this costs question. The reason the claimant refused to enter mediation at that stage is clear from the claimant's solicitor's open letter of 27^th February 2008. The claimant was concerned about the likely expense of doing so at that stage. At that stage in the open correspondence the parties were debating the merits in some detail. The claimant was also pressing for disclosure of the source. There was a serious issue about terms on which the details of the seed (which the claimant had used to catch the defendants in infringement) would be disclosed. The claimant's solicitors stated that in their view the terms of the disclosure of the seed was the only real issue in dispute between the parties at that stage. Once they could agree terms, the defendants would see the seed and would realise that their attempts to challenge the claimant's rights were futile. Therefore the parties' efforts would be better spent sorting out the seed issue first before a mediation. In my judgment the claimant's solicitors were entirely right. The key to an effective mediation is to conduct it at the proper time. At that stage the costs spent were very low and, while mediation is very cost effective relative to the costs of a full action, it has its own inevitable cost. I reject the defendants' submission that the claimant's refusal to enter mediation at that stage was such as to be relevant on costs.
29. Returning to the position created by the 27^th February 2008 Part 36 offer, there was nothing unsurprising about the terms of that offer. The terms required were the kinds of things the court would order if the claimant succeeded. Thus the claimant could be confident that after the 21 day period, if it won the case and recovered more than £1,230 damages, CPR r36.14 would apply. The effect of this would be that the claimant would be entitled to all its costs, with its costs incurred after the expiry of that 21 day period assessed on the more generous indemnity basis.
30. The 27^th Feb 2008 offer was not accepted by the defendants. They made a counter-offer on 18^th March 2008. Before I deal with the counter-offer, I will record that by now the defendants and their lawyers will have been (or ought to have been) well aware that the defendants were at risk under the Part 36 regime.
31. In my judgment the claimant has indeed beaten its February 2008 Part 36 offer. The orders I made at trial included injunctions restraining continued infringement and disclosure. The sum paid by way of damages is more than £1,230, it is £3,095. The fact that the difference is small relative to the final costs sent does not matter in working out that the result is at least as advantageous to the claimant as the offer. I will not deal with the consequences of this finding until I complete the story.

The defendants' 18^th March 2008 offer

32. The next step was the defendants' counter-offer. It was in the following terms (in summary):

i) They would pay £1,230 in damages.

ii) They would identify the source but would not provide documents relating to it.

iii) They would give undertakings not to use the claimant's database in future, although the undertakings offered were qualified in that they would not "knowingly" do the acts.

iv) They would pay £4,000 as a contribution to the claimant's costs.

33. The claimant submitted this offer was not in accordance with Part 36. I do not need to resolve that in this case. The offer was clearly beaten by the claimant for the simple reason that they have recovered more damages than were on offer.
34. Nevertheless Mr Power submitted that the claimant's non-acceptance of the offer was unreasonable given all the circumstances and the sums at stake. I reject that. First it seems to me that the qualifications sought by the defendants were such that the claimant cannot be criticised for not accepting them. An injunction would not normally be drafted to refer only to "knowing" infringement. The claimant would normally be entitled to disclosure relating to the source.
35. Second, in March 2008, the claimant discovered the source of the infringements anyway because Mr Bothwell of BDO made contact directly. Clearly he had been in touch with the defendants and decided to approach the claimant. Mr Bothwell said he had urged the defendants to disclose his identity to the claimant in 2007 but they had refused. This led to the claimant changing its stance on confidentiality. Hitherto the claimant had been prepared to agree to a confidential settlement but now the claimant felt the defendants had not been forthcoming. The argument about the seed now seemed to the claimant to have been a disingenuous one since, given what Mr Bothwell was saying, it was actually clear what had happened. The defendants did not need the seed details to see that. The claimant decided it would not accept confidentiality. In my judgment the claimant's position on this was a reasonable one in the circumstances. The fact that in all probability if the costs had been agreed the other issues would probably have been capable of agreement too is not the issue.
36. The position on costs is equivocal. The offer of a £4,000 was made in the context of the fact that on 27^th Feb in open correspondence the claimant's solicitors had stated that their client's costs were £4,300 plus VAT. If the only issue at this stage was costs (which it was not) then in my judgment refusing to accept that costs offer at that stage might well be something to be taken into account in the end. However it is clear that costs were not the only issue at that stage.

Subsequent correspondence after March 2008 (all without prejudice save as to costs)

37. In reply to the 18^th March offer the claimant's solicitors wrote on 29^th April 2008. They explained that they had been in contact with Mr Bothwell and that their client was not prepared to settle on a confidential basis. They also explained that their client's costs were now £6,800 inc VAT. As I understand it the defendants complain that the costs had jumped. I do not agree. Costs will inevitably rise as matters proceed. There is nothing in that criticism. The 29^th April letter contains a further offer from the claimant to settle.
38. On 9^th May 2008 the defendants' solicitors replied. They insisted on a confidential settlement and offered to pay £5,000 (inc VAT) towards the costs. This was rejected on 22^nd May 2008. The claimant refused to settle confidentially and rejected the £5,000 costs offer. The claimant argued that the defendants' position on the source was not reasonable and had caused costs to increase. The claimant's costs were now £6,150 plus VAT. The claimant also correctly pointed out that if the case went to court and the claimant won (racking up more costs), it would recover much of its costs on an indemnity basis. The claimant offered to accept £1,230 damages, £6,000 costs and a non confidential settlement.
39. Looked at from the position today nearly four years later, the parties were tantalising close at this stage in the negotiations. However no settlement was reached.
40. On 4^th June the defendants' solicitors replied to the claimant's offer. The defendants had reconsidered the damages and the defendants' solicitors explained that they had advised their clients that the true amount the claim was worth was no more than £3,095. One might think this was a positive step. However at the same time the defendants' solicitors also contended that any proceedings, if commenced, would be allocated to the small claims track and that as a result there would be no costs recovery. Accordingly they offered to settle for a total payment of £5,230 (to include both costs and damages) and on a confidential basis. Thus although the sum offered in damages had increased, the amount on offer from the defendants in costs had dropped from £5,000 on 8^th May to just over £2,000 on 4^th June.
41. The claimant's solicitors replied on 16^th July. They pointed out the defendants' solicitors were wrong about the small claims track. Under CPR Part 63 the claim would be allocated to the multi-track as an intellectual property case and so costs would ordinarily be recoverable. They repeated that their client was not prepared to settle on a confidential basis but would be prepared to agree a joint statement about the circumstances to minimise the damage to the defendants' reputation. The claimant's solicitors indicated that the claimant were prepared to accept £3,095 as damages and that their client's costs were now £7,185.
42. The defendants' argument about the costs consequences of the small claims track was mistaken. The claimant's solicitors were correct about this. The case is automatically allocated to the multi-track as it concerns database right.
43. It is a matter of regret that the defendants did not accept that 16^th July offer or simply reply with an offer in the same terms but to pay the claimant's costs to be assessed. Had the defendants accepted the 16^th July 2008 offer at that stage they would be in substantially the position they are today but at far less cost. It may also be noted that irrespective of the merits of the defendants' solicitors' argument about the allocation of the case to the small claims track, their client was at some risk as a result of the Part 36 Offer made in February. That is because although Part 36 itself does not apply to cases on the small claims track (CPR Part 27 r27.2(1)(g)), the restriction on costs recovery in the small claims track is subject to a test of unreasonableness (r27.14(2)(g)) and while a party's rejection of an offer in settlement will not itself constitute unreasonable behaviour the court may take it into consideration when applying the reasonableness test (r27.14(4)).
44. No agreement was reached and the parties continued to debate the matter. A key area of dispute was costs. The defendants' solicitor's argument was that the claimant's costs at that stage were disproportionate. In the overall circumstances that argument now seems somewhat ironic but even at the time it was not realistic. The sums claimed as costs by the claimant were not large and were consistent with the nature of the dispute and the work that had to be done.
45. As I have mentioned already, there was a simple way in which the defendants could have protected their position on costs. That is by making an offer to pay the claimant's costs to be assessed on the standard basis if not agreed. The defendants would have had the security of knowing that the court would always have been able to ensure that disproportionate costs were not awarded. No such offer was made by the defendants at this stage. When I asked Mr Power about this he referred me to an offer made two years later on 7^th October 2010. I will return to that below.

October 2008

46. On 1^st October 2008 the claimant's solicitors made a further offer and on 8^th October the defendants' solicitor replied by email. This was the exchange I considered in my judgment on the settlement point [2010] EWPCC 12. I held it did not amount to a concluded agreement. The offer on 1^st October had four parts, (1) the settlement agreement had to be agreed, (2) damages of £3,095 would be paid, (3) the parties would agree a joint statement, and (4) the defendants would pay the claimant's costs to be assessed if not agreed.
47. The 8^th October reply was that point (1) was agreed subject to a meeting of minds about the draft, and points (2) and (3) were agreed. I considered point (4) in my earlier judgment (paragraphs 37 to 39). In summary I held that the defendants did not accept point 4. They were prepared to have costs assessed on the standard basis but they were not accepting liability (on whatever basis) for all the claimant's costs. The costs of the argument about allocation to the small claims track were reserved as was the defendants' ability to argue about what the "real issues" were.
48. I asked the claimant whether I should regard the defendants' solicitor's 8^th October 2008 email as a counter-offer and therefore whether I should evaluate whether the claimant's non-acceptance of that counter-offer was itself relevant to costs. After all in terms of relief apart from costs, the claimant has not achieved any more than was being put forward by the defendants' solicitor in the 8^th October email.
49. Mr Hill submitted that seen in its context the 8^th October "counter-offer" was not one which the claimant could be criticised for not accepting. His first point is that it was not really an offer at all. A key problem between the parties at that stage was that the defendants' solicitor was contending it was an acceptance, not another offer. While I see that, it seems to me that the claimant must have (or ought to have) at least considered whether the terms put in the 8^th October email were reasonable in themselves.
50. Mr Hill also referred to the debate about whether the costs should be assessed on an indemnity basis or a standard basis and submitted that the claimant was entitled to reject that offer because it was not offering costs on an indemnity basis given the existence of the claimant's earlier February 2008 Part 36 offer. I have already in effect rejected that argument in paragraphs 32 and 38 of my previous judgment. I held that properly construed the 1^st October offer was to assess the costs on a standard basis and the 8^th October email was also proposing standard assessment. Given that finding, it seems to me that to insist on indemnity costs as a justification for not accepting the 8^th October 2008 terms would not be reasonable.
51. However, although I regard it as a close call, it seems to me that the claimant was reasonable in not accepting the 8^th October counter-offer as a result of its substantive qualification about what costs would be paid. Again, had the defendants simply offered to pay the claimant's costs to be assessed, the situation would be very different, but they did not.

After October 2008

52. As I held before, the events in October 2008 did not amount to a concluded settlement. On 6^th January 2009 the claimant made another offer to settle. That was for a total of about £13,000 including the £3,095 damages figure and the balance being costs. It was not accepted.
53. The proceedings began and eventually the strike out hearing was scheduled to be heard on 13^th October 2010. That led to another offer from the claimant to settle on 5^th October 2010. This offer was to accept £3,095 damages, undertakings and other matters. As regards costs, given the 27^th February 2008 Part 36 offer, the offer was to accept costs assessed on a standard basis up to 20^th March 2008 and an indemnity basis afterwards.
54. The defendants reply was a counter-offer on 7^th October 2010. This is the offer Mr Power took me to as an occasion on which the defendants had offered to pay the claimant's costs without qualification (assessed on the standard basis). The offer was to accept the terms of the compromise agreement the defendants contended had been reached in October 2008 with the costs to be dealt with by their paying the claimant's costs on the standard basis "from the material date in 07 to 08.10.08".
55. Mr Power submitted on instructions that the reference to 08.10.08 may be a typographical error and really may have meant 08.10.10. In other words the offer was to pay all the costs up to and including the date of the letter itself, which was 7^th October 2010, and indeed one day afterwards. Although sincerely put, it is a submission I reject. It is perfectly obvious that "08.10.08" is not a typographical mistake at all. It is the date on which the defendants contended the compromise had been reached.
56. The terms of the 7^th October 2010 counter offer are in effect what the defendants should have offered on 8^th October 2008 – i.e. to pay costs up to that earlier date. Had they offered those terms at that earlier time then things would have been different but they did not. By October 2010 the claimant had commenced proceedings and the strike out application was coming up. I am not surprised that the claimant did not accept the 7^th October 2010 offer. It was not a reasonable offer.

After the strike out hearing

57. After the hearing on 13^th October 2010 the case was stayed until 10^th December for the parties to discuss settlement. It was agreed that counsel would speak. They did so in early November. There was still an argument about confidentiality but the main dispute was costs. The claimant's statement of costs served for the strike out hearing showed total costs of about £34,000. Of that about £18,000 were the costs of the application and the remainder were costs of the action. I had summarily assessed the costs of the application at £12,000. Given that £18,000 of the £34,000 were attributable to the application, the claimant's outstanding costs were about £16,000. Apparently a further £3,000 had also been incurred since the hearing. So the claimant regarded its outstanding costs as about £19,000.
58. Mr Power offered £12,000 towards costs. Mr Hill took instructions and on 3^rd November he spoke to Mr Power. He confirmed that the offer was rejected and in response Mr Power offered £15,000 towards the costs. That offer was acceptable to the claimant and Mr Sleep thought that settlement was likely to be achieved because he thought the other outstanding matters such as confidentiality were likely to be able to be agreed.
59. On 4^th November the defendants' solicitors wrote to the claimant's solicitors. They questioned the rejection of the £12,000 offer but appeared to take no account of the offer of £15,000 which had been made the day before. The letter required the claimant's solicitor to provide a breakdown of their client's costs to date, copies of client care letters and a detailed time costs print out.
60. Mr Sleep of the claimant's solicitors spoke to Mr Kalaher of the defendants' solicitors. The defendants' position was that they would not consider the other outstanding points (such as confidentiality) unless the claimant provided the costs breakdown. Mr Sleep was confused by this since it was inconsistent with the offer of £15,000. He was also reluctant to produce costs breakdowns and the like would just incur yet further costs. Moreover a statement of costs had been provided shortly before the 13^th October hearing and therefore although it could not address costs incurred afterwards, it justified the claimant's general stance on costs. In effect the defendants were resiling from their offer to pay £15,000 costs.
61. In the end the parties did not settle and the matter proceeded to trial. In my judgment the claimant's stance at this stage was a reasonable one.
62. On 13^th January 2011 the claimant made a further offer to settle. This time the offer was to settle on terms that the defendants would pay the claimant's costs to be assessed if not agreed and with the basis of assessment to be decided upon by the court. It was not accepted by the defendants.
63. The matter proceeded to a trial on liability and I found for the claimant. There is no dispute about what happened after trial. In summary the parties finally did reach a concluded settlement very shortly before this hearing. The settlement includes a term that the court will deal with the costs.

(2) What should I do in the light of all that has happened?

64. First, I should say that it seems to me that the fact the case has settled (subject to costs) has a fundamental impact on the court's approach. In my judgment it is not correct to say that Part 36 has been satisfied in this case. Although there was a judgment on liability following the trial, there has been no judgment on quantum and the case has come to an end not by a judgment but by a settlement. The £3,095 sum is referred to in the schedule to the Tomlin order in the following terms:

"The Claimant shall retain the sum of £3,095 previously paid to the claimant's solicitors by the Defendants by way of damages."

65. No court has adjudicated on that figure. Rule 36.14 is concerned with the costs consequences following a judgment and rule 36.14(1) refers in terms to judgments being more or less advantageous than offers. It seems to me that the fact I am making an order when the parties have settled subject to costs means that Part 36.14 as such does not apply.
66. On the other hand this is a case in which I am satisfied that I have a proper basis of agreed or determined facts upon which to decide whether the case is one in which I should give effect to the general rule (i.e. that the unsuccessful party pays the costs of the successful party) or make a "different order" (and if so what order) (see the passage I quoted from Chadwick LJ in BCT Software above).
67. Furthermore it seems to me that in deciding what to do about costs, the provisions of Part 36 should be taken into account. If that were not so then Part 36 could operate as a disincentive to settle a case because the claimant would risk being worse off accepting damages which were more than the amount they were prepared to accept in a Part 36 offer. On the other hand taking the terms of Part 36 into account cannot necessarily be the same as applying them mechanically as if the court had indeed entered a judgment in terms of the settlement sum. Otherwise the defendant would have a disincentive to settle because they would be no better off settling than in submitting to judgment.
68. I have been through the history of the negotiations in these proceedings in detail because that is the only way to test Mr Power's submission that the claimant's position has been unreasonable and disproportionate throughout. I reject that submission. The parties were agonisingly close on a number of occasions throughout the 4 ½ years since this dispute arose but on all the various occasions on which the defendants made offers to the claimant which I have considered, the claimant was not unreasonable to reject them and was not behaving in a disproportionate fashion. If the defendants had ever simply offered to pay the claimant's costs assessed on a standard basis that might have been different but they never did. Had they wanted to protect themselves on costs an offer of that kind could and should have been made. Since February 2008 the defendants have been at risk as a result of the claimant's Part 36 offer. Despite all the negotiations, no offer was ever made on the defendants' behalf which could be said to put the claimant at a corresponding risk.
69. In my judgment the overall winner of these proceedings has been the claimant. They fought a trial on liability and succeeded. They obtained public recognition of the existence of their intellectual property right and of the fact that the defendants had infringed it. That is an important factor on costs.
70. It is also fair to say that the claimant have obtained a settlement now which is more advantageous to the claimant than the offer they made under Part 36 in February 2008. That seems to me to be an important consideration on costs.
71. Thus far I am satisfied that I should make an order that the defendants pay the claimant's costs of these proceedings up to and including the trial on liability. Two questions remain, should those costs be assessed on a higher scale after the Part 36 offer and what should be done about the costs after the trial?
72. In considering the matter of indemnity costs, it bears pointing out that this is not a case in which indemnity costs would have been awarded on the ground of conduct. They would only ever have been awarded under Part 36.14. It seems to me that it would not be fair to assess the claimant's overall costs on an indemnity basis in this case for two reasons. First the case has in fact come to an end as a settlement and to order indemnity costs here would act as a disincentive on the defendant to settle. Second looking at the matter overall, although I think the claimant was reasonable in not accepting some of the defendants' offers at various stages, that has been a fine balance on at least two occasions. I have the clear impression that overall had the claimant been a little more flexible on the issue of costs at an early stage the other matters would have been sorted out. That would not justify depriving the claimant of its costs but it does seem to me to be such as to make it unfair to award indemnity costs here.
73. As regards the costs after trial, I believe the position is clear. I reject Mr Hill's submission that his clients should receive half the costs. The correct way of looking at it is that the claimant sought an inquiry as to damages but has settled for a sum in damages which has been on offer since 2008 and was actually paid in January 2009 albeit on account. It is clear that in substance the claimant was pressing for an account or inquiry in order to do better than the £3,095 sum. The claimant did not do so. The fact that some of the costs incurred post trial have been negotiation costs is irrelevant. In my judgment none of the post trial costs should be recovered by the claimant. In addition to his other submissions, Mr Power contended further that if I was to order the defendants to pay the claimant's costs up to trial, I should then order the claimant to pay the defendants' post trial costs and have a set off. There would then have to be two assessments in order to arrive at the correct set off figure.
74. While I acknowledge some of the force of Mr Power's submission, I regard the prospect of two costs assessments in this case to be utterly disproportionate. The costs after trial will have been very modest. No inquiry or account was even started. There was a modest degree of disclosure but that is all. Some of the disclosure was of material which the defendants should have disclosed before trial anyway.
75. To reflect the post-trial costs I will award the claimant 90% of their costs up to and including the trial. The deduction of 10% is made instead of ordering a separate assessment of the defendants' post-trial costs and ordering a set off. I am well aware that the parties chose to give me no information about their levels of costs which would have allowed for a more accurate deduction to be made but I have a very approximate idea of the levels of costs and to prolong this issue any further would itself be disproportionate. 10% is a fair deduction.

Conclusion

76. The defendants will be ordered to pay 90% of the claimant's assessed costs up to and including the trial and judgment on liability. The costs will be assessed on the standard basis. There will be no other order for costs.