England and Wales Patents County Court

IN THE PATENTS COUNTY COURT

		Rolls Building 7 Rolls Buildings Fetter Lane London EC4A 1NL
		27/03/2013

Judge Birss :

1. On 13^th February 2013 I gave judgment for the claimant in this action ([2013] EWPCC 7). Today I have heard the parties on the question of costs. The debate on costs raised some issues which are of general significance in the Patents County Court. Amongst other things the question of how to handle CFA success fees and ATE insurance premiums arises. This judgment deals with the costs issues. The representation before me is the same as before.
2. I decided that I should award the claimant her costs of these proceedings subject to three points. I will award the defendant its costs of the misconceived copyright claim, I will award the defendant half its costs in relation to an application heard in January 2013 (this was three formal applications but will be treated as a single application) and I will make no order for costs in relation to the claim about Pozer. These orders will be put into effect by applying a set off. The set off will be applied in accordance with my judgment in BOS v Cobra [2013] EWPCC 44, that is to say before the stage limits are applied.

CFA success fees and ATE premiums

3. A point which arose in the skeletons was whether CFA success fees and ATE premiums were covered by the PCC costs cap at all. Mr Pearson's skeleton for the claimant had argued they were not but Mr Harbottle's skeleton for the defendant argued that they were. In my judgment Mr Harbottle is right. Costs in the PCC are governed by CPR Part 45 Section VII. Rule 45.41(1) limits the total costs to be ordered at the final determination of liability as no more than £50,000. The term "costs" is defined in r43.2(1)(a). That rule includes within the ambit of "costs" any additional liability incurred under a funding arrangement. That includes ATE insurance premiums and CFA success fees (r43.2(1)(a), (k), (o), (l), (m)) and so these are subject to r45.41(1). This was envisaged by the IPCUC working party which proposed the various reforms to the procedure in the PCC in their Final Report (31 July 2009) at page 12.
4. The PCC cost capping system also has a cost scale. CPR r45.42(3) provides that the maximum amount of scale costs that the court will award for each stage is set out in the Costs Practice Direction. "Scale costs" are defined in Rule 45.41(4) as costs as defined in r43.2(1)(a) and so the definition ties back to the general costs definition and includes ATE premiums and CFA success fees. Thus not only are ATE Premiums and CFA success fees covered by the overall £50,000 cap, they are covered by the scale limits set out Table A and Table B of Costs Practice Direction (CPR Pt45) Section 25C, paragraph 25C.2.

The discretion

5. Mr Pearson submitted that the court has a discretion to depart from the costs cap and he submitted that I should do so in this case because to do otherwise would be a denial of justice for Miss Henderson. That involves two questions, is there a discretion and if so, should it be exercised.
6. Mr Pearson submitted that the discretion derives from CPR r44.3 (and, if necessary from the overriding objective in r1.1 of enabling the court to deal with cases justly). He relies on my judgment given on the first occasion the new costs rules in the PCC procedural code came to be addressed in Westwood v Knight [2011] EWPCC 11 at paragraph 20. I said:

20. Rule 44.3(1)(b) provides that the court has a discretion as to the amount of costs but despite that it is clear that the limits at the various stages and the overall £50,000 limit are intended to be adhered to. The purpose of the limits is to aim for certainty for litigants (see section 5 Costs Recovery in the Final Report of the IPCUC's Working Group on Proposals for Reform of the Patents County Court). The correct approach must be to apply the limits if they can possibly be applied, recognising however that in the end the court always has a discretion as to costs (CPR r44.3) and that includes as to the amount of costs. It is a discretion which in my judgment will very rarely (if ever) be exercised to exceed the limits set by Section VII. For one thing specific exceptions are provided for (r45.41(2)). Furthermore to exercise a discretion on a wider basis in all but the most rare and exceptional case would undermine the very object of the scale in the first place. For the scale to give a measure of certainty to litigants, it has to possible to be sure that the limits will apply well before any costs are incurred and most likely before any action has even commenced. Before they embark on litigation to enforce their intellectual property rights (or defend themselves) the potential users of the Patents County Court system need to be able to make a prediction in advance as to their likely costs exposure. Their legal advisers need to be able to say with confidence that the costs capping provisions can be relied on.

7. Mr Harbottle submitted that I was wrong in Westwood and that there was no discretion to disapply the PCC costs cap. Mr Harbottle suggested that the court had probably not heard full or perhaps any argument on the point in Westwood and that it was obiter. He invited me to reconsider the matter.
8. Neither party referred me to it but there is a reference in the White Book (2012) at paragraph 45.43.2 which refers to a judgment of Mann J in which he referred to a discretion to exceed the limits but held that it would only be exercised in rare cases. However the judgment mentioned in the note must be a bad reference as it does not contain any discussion on the point.
9. Mr Harbottle is right that the point was not argued in any detail in Westwood. From my memory of the hearing, I doubt it was argued at all. The point arose in that judgment because I was there seeking to work through the new rules applicable to costs, put them in context and understand how the PCC costs regime worked. It was certainly open to Mr Harbottle before me to make the submission he did and invite me to reconsider the matter. I am grateful to Mr Harbottle and Mr Pearson for their submissions. I can now decide the point having had the benefit of proper argument from lawyers on both sides.
10. Mr Harbottle pointed out that Section VII of Part 45 is written in unequivocal terms. Rule 45.42 (1) says the court "will not order a party to pay total costs of more than … (a) £50,000 on the final determination of a claim to liability". There are two exceptions built in and expressly catered for. Section VII itself does not apply in cases of abuse or if there is a certificate of contested validity of a patent or registered design (r45.41(2)). In those cases the entire proceeding and both sides costs are outside the costs cap (I dealt with the costs of a certificate of contested validity in a case last year and came to that conclusion in Polymer Logistics v DS Smith (31^st May 2012) (the oral judgment has never been transcribed)). The other exception is for the costs of an application when unreasonable behaviour has been found and r63.26(2) applies. In that case the costs of the application are not subject to the cap but the rest of the case is still covered by the cap (r45.43). He submitted that this wording and the express exceptions leave no room for a general discretion.
11. Mr Harbottle supported his argument by noting the structure of another section in Part 45. In Section II costs in road traffic cases are fixed by r45.8 but r45.12 provides that the court will entertain a claim for an amount greater than the fixed costs in exceptional cases. However if anything I think this analogy with Section II is against Mr Harbottle. Rule r45.8 is written in unequivocal terms without any reference to an exception in a very similar way to its PCC equivalent, r 45.42(1). Yet there is an exception in another rule. So the existence of unequivocal wording does not rule out the existence of an exception.
12. More fundamentally however, having reconsidered the matter, I prefer Mr Pearson's submission. Rule 44.3 is the general rule about costs applicable under the CPR. Costs are within the court's discretion and that includes the amount. The exercise of that discretion is strongly conditioned by the special rules about costs in the Patents County Court but in my judgment it has not been excluded entirely by the rules. I can only refer again to what I said in Westwood. 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. As I found in Gimex v Chillbag [2012] EWPCC 34 (and see also Liverside v Owen Mumford [2012] EWPCC 40), the point of the PCC costs rules are to favour certainty as opposed to a fully compensatory approach to costs.

Should I exercise the discretion and depart from the cap in this case?

13. Mr Pearson submits I should exercise the discretion in this case and depart from the cap in a partial sense. In this case the claimant's case has been conducted under CFAs with her solicitors and counsel and with ATE insurance. He submits the base costs of solicitors and counsel should be assessed in the normal way in the PCC and subject to the scale limits but that success fees and the ATE premium should not be subject to the PCC costs cap and should be added on separately.
14. To see the significance of this submission it is necessary to look at the claimant's actual costs. The actual base costs were £88,103.50 for her solicitors (plus VAT £17654.70), £8,285 for counsel (plus VAT of £1,657) and disbursements of £889.67 (plus VAT of £168.73). The success fees under the CFA were 60% for her solicitors (£63,400.80) and 100% for counsel (£9,942). The ATE insurance premium was £42,665. This produces a grand total of £213,285.77 (ex VAT) or £232,676.20 (inc VAT).
15. Mr Pearson submits that the claimant's base costs assessed on a normal PCC basis and capped, would come to a total of about £46,000. I will have to assess the claimant's costs on a summary basis in any case (below) but for now I will take Mr Pearson's figure to explain his submission. He says that the court should then add onto that £46,000 further sums for the ATE premium and success fees. Of course each is itself the subject of a summary assessment and that may not arrive at the sum actually claimed, but taking the figures as they are, it would produce an award of costs to the claimant of £46,000, plus success fees of £63,400.80 and £9,942, plus the ATE insurance premium of £42,665. In other words a costs award of about £162,007 (ex VAT). The actual sum would be higher because of VAT but there is no question that VAT, if appropriate, is dealt with on top of the PCC costs cap (r45.42(5)).
16. Mr Pearson submits that this is a truly exceptional case for two reasons. First the claimant Miss Henderson has no money at all. She is completely impecunious. Mr Harbottle pointed out there was no evidence for this but was disposed to accept it in any event. I also accept Mr Pearson's submission. However Mr Pearson realistically did not suggest that this alone could be sufficient to justify exercising the discretion in his client's favour.
17. He submitted that the key was Miss Henderson's lack of means combined with the imbalance of power in this case between the individual claimant and the defendant record company. Mr Pearson reminded me of certain passages in my judgment in which I referred to the imbalance between Miss Henderson and All Around the World. He submitted that the presence of this combination made this case highly unusual and sufficiently exceptional to justify the course he proposed. Otherwise the claimant would simply not get justice in this case. As an individual singer songwriter with no means the claimant had no other course to take. She could not have argued the case on her own, she needed to seek legal assistance and advice from specialist solicitors and counsel like Fladgate and Mr Pearson. She had to take out an ATE insurance policy since the alternative if she lost would be bankruptcy and that would have caused her to lose her copyrights in her other music since such rights would be subject to the bankruptcy. If the cap is not lifted, Miss Henderson will remain liable for these sums but will not recover them from the defendant. She will have to pay them out of the money she presumably will recover by way of damages or an account of profits from the defendant. He argued that it is likely that the sums due will to a considerable extent be eaten up by the costs over and above the cap. These problems all arose from the combination of Miss Henderson's lack of means and the imbalance of power between an individual musician and a powerful record company. Mr Pearson repeated his point that this combination of factors was highly unusual and so to lift the cap now would not undermine the certainty of the Patents County Court costs capping procedure. He said that justice in this case simply could not be done without removing the costs cap.
18. Mr Harbottle argued to the contrary. He argued that the rules were clear and that even if a discretion existed (as I have found contrary to his submission) it would be one which should only be exercised very sparingly indeed. This was not an exceptional case at all. Many litigants before the PCC have little or no means. As for the imbalance of power, Mr Harbottle referred me to other relevant passages in my judgment such as paragraph 88 in which I had held that Mr Nuttall's conversation with Miss Henderson had not been cynical from his point of view.
19. Mr Harbottle also argued that Miss Henderson had a course open to her if she had wanted to litigate in such a way as to be able to recover a higher proportion of her costs in the event of victory. She could have brought this claim in the High Court. There, had she succeeded, she would have recovered all the costs now sought (indeed rather more given that the costs scale would not itself have cut down on her base costs). Mr Pearson argued that if the case had been commenced in the High Court it would have been transferred to the PCC given the sums at stake and so there was nothing in Mr Harbottle's point. Mr Harbottle replied that if the claim had been in the High Court and the defendant had sought transfer, the claimant could have and would have argued the very same points now being put by Mr Pearson that the cap would work an injustice since it would not allow Miss Henderson to cover her liability for the CFA success fees and ATE premium. That would be a strong factor against transfer.
20. I heard the argument on this issue before moving to perform the summary assessment of the claimant's costs. At that point I indicated that I would reserve judgment on the issue and then the hearing moved on to deal with the summary assessment itself. Although it was not a reason for reserving, in retrospect I am sure it was the right thing to do because it seems to me that I can only decide whether and if so how to exercise the discretion after I know what effect it would have and that in turn depends on the summary assessment itself. I will therefore now turn to deal with the summary assessment of the claimant's costs.

Summary assessment

21. On the defendant's behalf it was argued that the claimant's base costs were much too high and disproportionate and that the ATE premium was unreasonably large. In relation to base costs Mr Harbottle argued that the rates charged by the claimant's solicitors were too high and outside the relevant guideline rates. He argued that the time spent was much too long and generally made the point that the costs incurred were disproportionate given what was at stake and given that it was a simple case concerned with issues of fact, a few witnesses being called, no technical evidence and little disclosure. Mr Pearson did not accept that the rates were too high or that the times spent were too long. He argued that that the case was of some significance and that his client's costs were not disproportionate.
22. The approach to summary assessment of costs in the PCC is that set out in the Westwood case. In previous cases in the PCC I have prepared a summary table setting out my findings on summary assessment. I will take the same approach in this case. The table is this:

	actual	Summary assessment	set off (sums due to D)	result	PCC scale	Award
Particulars of Claim	£7,752.00	£4,000.00	£830.00	£3,170.00	£6,125.00	£3,170.00
Defence	£6,730.25	£4,000.00	£641.25	£3,358.75	£6,125.00	£3,358.75
Reply	£6,684.45	£2,000.00		£2,000.00	£6,125.00	£2,000.00
CMC	£3,154.00	£1,500.00		£1,500.00	£2,500.00	£1,500.00
Application (half to D)			£1,482.50	-£1,482.50		-£1,482.50
Disclosure	£15,557.60	£10,000.00		£10,000.00	£5,000.00	£5,000.00
Witness statements	£7,871.00	£6,000.00	£0.00	£6,000.00	£5,000.00	£5,000.00
Trial	£47,727.30	£35,000.00		£35,000.00	£15,000.00	£15,000.00
Total	£95,476.60	£62,500.00	£2,953.75	£59,546.25	£45,875.00	£33,546.25

23. The figures for "actual" are the actual charges from solicitors and counsel. The total does not match the figures given earlier for a number of reasons which do not matter. Also the figure for the trial costs is different from a figure provided in some of the documents because I have included the costs of the post-trial argument and also costs attributed to a stage "determination on the papers" which was not correctly claimed.
24. The column for summary assessment reflects my summary assessment of the claimant's actual base costs. It takes into account argument about rates and time spent and the overall proportionality. Mr Harbottle's proposed values for these sums were much lower and I have not accepted the extreme nature of the defendant's argument. But I do think the time spent on what was a simple factual case was relatively high, in particular the pleadings in this case were simple and the sums actually spent were too big. I have at this stage included a deduction reflecting the costs decision in relation to Pozer and I have also taken into account overall proportionality in arriving at the second column of figures.
25. The next column sets out sums to be paid to the defendant as a set off. The figures for Particulars of Claim and Defence take into account that I am allowing a sum for the copyright claim but make no order on Pozer. For the application, on summary assessment I allowed the actual sum incurred by the defendant but the sum in the table is half that because the decision was to award half of the defendant's costs of the application. The "result" column takes the Defendant's costs into account as a set off.
26. The next column is the PCC scale and the final award column is the award I will make in relation to base costs. This is self explanatory.
27. In the cases in which the fees include sums for counsel and solicitors, I need to distinguish between them because the CFA uplifts were different. The relevant rows are witness statements and trial. Of the £5,000 awarded for witness statements I will allocate £500 to counsel and £4,500 to the solicitors. On the trial costs, the actual costs were £7,700 for counsel and £40,027 for the solicitors. Of the £15,000 awarded, I will allocate the costs in the same approximate proportion: £12,580 to the solicitors and £2,420 to counsel.
28. Thus the £33,546.25 awarded is made up of £2,920 counsel's fees and £30,626.25 solicitors' fees.
29. In terms of VAT, although the VAT rate changed so that some early Fladgate bills were covered by the lower VAT rate, the sum for VAT I will award (r45.42(5)) will be 20% of the two figures for solicitors and counsel. The figures will be £6,125.25 and £484 respectively.
30. That leaves the CFA success fees and ATE premium. First, as part of the summary assessment process, I need to decide what reasonable success fees and a reasonable premium would be. Mr Harbottle pointed out that no material had been disclosed in relation to the success fees in this case but he did not suggest I should therefore disallow the success fees altogether. He left the matter to me. Mr Pearson pointed out that as a case turning heavily on fact and the credibility of witnesses, the success fees (60% for the solicitors and 100% for counsel) were reasonable. I find that 60% was a reasonable uplift for both. I am not satisfied that in this case there was a good reason for a 100% uplift for counsel given that the solicitors uplift was 60%.
31. The figures for the ATE premium are startling. The policy would have paid out costs of £50,000 plus VAT (i.e. £60,000) with a premium due of £42,665. So if the claimant had lost and the ATE policy had paid £60,000 to cover the defendant's capped costs plus VAT, the impecunious claimant would still have owed the insurer a premium of £42,665.
32. The £50,000 figure for ATE cover was obviously chosen because of the PCC costs cap. However Mr Harbottle submitted that that figure was too high. Give the PCC scale limits and also bearing in mind proportionality, he submitted that a reasonable costs sum to have insured against would have been no more than about £30,000 plus VAT. On that basis I should reduce the premium pro rata. Although one could envisage calling expert insurance evidence to say what the premium for that cover would have been, calling it would itself have been disproportionate. He submitted I should allow a premium of 42/60ths of £36,000 which is £25,200.
33. I accept Mr Harbottle's submission in principle but I will not use a base costs figure ex VAT of £30,000. In my judgment a fair base costs figure (ex VAT) to have insured against was £38,000. That is what I would regard as a proportionate sum for a costs award in this case under the PCC costs capping procedures. With VAT it comes to £45,600 and on the pro rata basis gives a premium of £31,920. I find that a reasonable premium in this case would have been that sum.
34. The figures I have arrived at are:

Item Amount

Base costs £33,546.25

Success fee (sol) £18,375.75

Success fee (counsel) £1,752.00

ATE premium £31,920.00

Total (ex VAT) £85,594.00

VAT £6,609.25

35. In getting this far I have not dealt with CFA success fees and ATE premiums in the context of the PCC scales. Mr Harbottle submitted I should apply the CFA success fees to the costs of the various stages and should apportion the ATE premium in some reasonable fashion across the stages. It may be noted that the base costs sum arrived at of £33,546.25 is less than the total of the relevant scale limits in this case of £45,875 so there is about £8,000 of headroom between the base costs and the total for the scale limits. Although I think Mr Harbottle's approach would be a correct application of the PCC costs rules, and may be the fair approach in some cases, it is not the only possible approach. I think another legitimate approach, and the fair approach in this case when the success fees and ATE premium together are much larger than the headroom figure, is simply to allow by way of costs the total of the various relevant scale limits. In this case that would be £45,875. That is what I will do. So, subject to Mr Pearson's submission about exercising my discretion to lift the cap, I would order that the defendant must pay the claimant £52,484.25 in costs (i.e. £45,875 capped costs plus £6,609.35 VAT).
36. I can now return to the question of the discretion. If I order £52,484.25 to be paid by the defendant then there will be a very substantial shortfall suffered by the claimant. Taking the figures I have assessed as reasonable, the shortfall would be £39,719 (£92,203.25 - £52,484.25) . That is a substantial sum of money but it is not as large as the sums being considered when the argument about discretion was being advanced.
37. I am not prepared to exercise my discretion to disapply the costs cap in this case and order the defendant to pay £92,203.25 in this case. This is for two reasons.
38. First I am not satisfied this is a sufficiently exceptional case to justify disapplying the cap. Although there was an imbalance of power between the claimant and the defendant, as a factor alone or as one combined with the claimant's lack of means, this does not take the case into truly exceptional territory. Moreover insofar as the argument was an attempt to seek to paint the defendant in a bad light, I reject the submission that the defendant's conduct explained in my main judgment, as a whole, was such as to justify any departure from the normal costs approach in the PCC. Given the circumstances in this case, if it was fair to disapply the costs capping system, that would create considerable and highly unwelcome uncertainty about costs in the PCC and would weaken access to justice for other litigants.
39. Second I accept Mr Harbottle submission about the High Court. A litigant who wishes to recover a reasonable proportion of the totality of his of her legal costs has a clear option available, to litigate in the High Court. In that system none of the problems now faced by the claimant would arise. I do not agree that the case would simply have been transferred to the PCC if it had been commenced in the High Court. Mr Pearson submitted that justice would not be done if I did not depart from the costs cap. That submission would have provided solid grounds for the claimant to argue in favour of keeping her case in the High Court. Indeed if it was a concern to the claimant or her legal advisers in the first place, the case should have been begun in the High Court.
40. As I have repeated on numerous occasions hitherto, the point of the Patents County Court is to facilitate access to justice for smaller litigants in intellectual property cases. To make a costs award which risks causing a winning claimant to be deprived to a significant extent of the fruits of her victory is very unwelcome. However I believe what is really happening in this case is an example of a psychological phenomenon I have become familiar with in the PCC. When the risk was in the future, the claimant wished to litigate in the Patents County Court to protect herself against the risk of an adverse costs award. That is why proceedings were brought and pursued in this court with this costs regime. The impact of the PCC cap on the claimant's actual costs if she won was predictable. If the claimant had lost, the costs cap would have been strongly relied on. The claimant was able to enforce her intellectual property rights in this case because of the predictability of the costs cap remaining in place. She was relying on it. Now that the claimant has won, the uncertainty has evaporated. The balance of risk and reward is now entirely different. In today's circumstances it now seems to the claimant quite unfair that the cap prevents her from recovering a higher share of her costs. But that is because the position after judgment is very different.
41. I reject Mr Pearson's submission that justice would not be done if I do not depart from the costs cap in this case. I believe the demands of justice mean that I should not depart from the costs cap.

Conclusion

42. I will order that the defendant pays the claimant £52,484.25 in costs. There is no need to attend the handing down of this judgment.