Neutral Citation Number: [2012] EWPCC 12

IN THE PATENTS COUNTY COURT
	Case No. PAT 09053	

The Rolls Building
Date: Monday, 23rd January 2012

HIS HONOUR JUDGE BIRSS, Q.C.
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B E T W E E N :

(1)  HOLLISTER INC.
		(2)  DANSAC A/S	Claimants

-  and  -

		MEDIK OSTOMY SUPPLIES LIMITED	Defendant

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MR. G. FERNANDO  (instructed by DWF LLP) appeared on behalf of the Claimants.

MR. R. HACON  (instructed by Sloan Plumb Wood LLP) appeared on behalf of the Defendant.

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J U D G M E N T

JUDGE BIRSS:

1.	In a judgment dated 20th December, 2011 I dealt with an account of profits between the claimants and the defendants in this action.  I will not rehearse that judgment.  The conclusion was that I ruled on various matters arising and then the idea was that the parties' accountants would get together and calculate the consequences for the account.  I was ruling various items in or out as the case may be.  

2.		This is the hearing to decide the outstanding matters on the form of order arising from my judgment. There is one matter arising relating to the precise calculation of the final award. Apart from this point, the calculation is agreed.  	

3.	The issue is as follows:  In my judgment at paras. 99 to 103 I dealt with a related company to the defendants, called Clinisupplies.  There were two aspects to it. There were Clinisupplies staff, who were engaged in repackaging and there were Clinisupplies general staff.  I decided in the end not to allow costs deducted in relation to Clinisupplies, in para. 101 relating to the repackaging staff, and in para. 103 relating to the general staff.  

4.	Mr. Hacon submits that the logic of the judgment is such that I should now deduct some costs in relation the Clinisupplies general staff.  He does not submit that the judgment was wrong. What he is putting forward is a further point which was not before me when I gave my judgment.  He says the consequences of the judgment are such that it leads to a further deduction from the sum to be calculated. The deduction is not trivial, but it is not a large sum of money.   Mr. Hacon I think said it was something like £5,000.  I think when it is grossed up with interest it comes to a little more.  But, it is certainly a sum, if I may put it that way from Mr. Hacon's point of view, worth fighting about at least for a while.  

5.	Mr. Fernando submits there are three reasons why I should not make this further deduction that Mr. Hacon seeks.  The first, he says, is that the logic of my judgment in para. 99 is that the costs paid for Clinisupplies staff by Medik did not relate to the relevant business and therefore, on my findings, he says that the costs which Mr. Hacon wishes to deduct simply should not be deducted, and that is the end of it.  He also says that the point was not raised before and although there is a jurisdiction to entertain points after judgment, it is wholly exceptional and this point could, and should, have been raised earlier.  Finally he says that the accountants in question - Mr. Watts for one side, and Mr. Geale for the other - knew about the figures, but thought they were irrelevant for different reasons, and had never dealt with it before, and that is a further reason why I should not deal with it.

6.	Mr. Hacon, on the other side, submits that on the logic of the judgment - and, in particular, the point that one takes the defendant as one finds it in assessing the account – means that it would not be fair not to take this sum into account.  

7.	I will deal with Mr. Fernando's three points in turn.  First of all, I am in the curious position of now having to either construe or interpret my judgment.  The relevant paragraphs are paragraphs 99 to 101 and 103.   They are as follows: 
“Clinisupplies staff
99. Medik has a sister company called CliniSupplies and Mr Watts had allowed a cross-charge between the businesses to cater for repackaging carried out by staff actually employed by CliniSupplies.  I have real doubt that this charge for CliniSupplies staff is allowable.  The volume of repackaging work did not vary materially over the period and yet in 2006 and 2007 Medik had spare capacity to assist CliniSupplies.  On that basis it seems to me that a fair inference to be drawn is that Medik itself could handle all its repackaging work.  On that basis I doubt there is any reason to attribute any CliniSupplies costs to the relevant business in this case.   On the other hand part of taking a defendant as one finds it involves accepting that even if a cost was unnecessary, if it was incurred then it falls to be considered. 
100. A real problem is that the way in which matters were handled between CliniSupplies and Medik was in fact by a series of cross-charges in the company accounts which were (in the words of Medik’s Financial Controller Mr Pathmanathan) performed on an arbitrary basis.  Mr Watts sought to determine what the correct cross-charges should have been for CliniSupplies.  Although I can understand why that might have been attempted, it seems to me that it runs counter to the principle that one takes the defendant as you find them.  In fact what were charged were arbitrary cross-charges.  Those are not properly attributable since they were arbitrary and once they are put to one side, it seems to me to be wrong in principle to invent actual charges which were not in fact employed and then deduct those.
101. I will not allow CliniSupplies repackaging staff costs.
[…]
CliniSupplies general staff
103. There was also a suggestion that other CliniSupplies staff costs could be apportioned.  This issue stands or falls with the CliniSupplies repackaging staff.  I will not allow it either.”

8.	Mr. Fernando relies on the penultimate sentence in paragraph 99.  He submits that that means that I have found that Clinisupplies costs do not relate to the relevant business. I understand why Mr. Fernando submits that, but it seems to me that his argument loses sight of the final sentence of that paragraph. 
9.	After paragraph 99 I went on in paragraph 100 to describe what I regarded as a real problem, which was that the costs I was being invited to deduct were notional costs charges. Then, at paragraph 101 I decided to disallow the Clinisupplies repackaging costs.  In paragraph 103 the same conclusion followed for the Clinisupplies general staff.  I remind myself that the costs I am considering are Clinisupplies general staff.  

10.	It seems to me that what I decided in fact was to refuse these costs because the figures put forward were notional costs charges.  Paragraph 99, as I read it, is a decision that I did not resolve the balance between, on the one hand, doubting there was any reason to attribute the costs and, on the other hand, taking the defendant as one finds it. Therefore, Mr. Fernando's first point - that I have definitively ruled that any costs by Clinisupplies did not relate to the relevant business, is not correct.  I have not so definitively ruled.

11.	The question which therefore arises is whether I should permit this point to be raised in the circumstances of this case.  I must say, I find that troubling because most of what Mr. Hacon said are points which were perfectly good reasons why this point could have been raised during the course of the proceedings.  Essentially what he says is that the logic of what was part of Mr. Fernando's case - which I accepted - meant that he would have had an alternative fall-back position to say that these costs should have been discounted as well.  Mr. Fernando submits that it could, and should, have been raised before.  The question is:  What should I do in the exercise of my discretion?

12.	In the exercise of my discretion I will permit Medik to make this deduction.  It seems to me that the logic of the judgment was that you take the defendant as you find it.   To be precise, it means that I have not ruled that those costs do not relate to the relevant business.  The only question was the notional charges. Since the sums claimed now are not notional charge but actual charges, then the apportionment that I have already ruled on applies to them.  I am permitting this to be done because it seems to me that it can be dealt with extremely briefly.  The argument and the evidence dealing with it are extremely brief and the point, although not trivial, in the end is a relatively small matter in the overall scheme of things.

13.	Accordingly, in my judgment the best way to do justice is to allow this point in these circumstances and make a further deduction.

L A T E R

14.	It now falls to me to decide what to do about the costs.  I decided that the defendants should pay the claimants half the sum being claimed, based on various calculations, which comes to approximately £196,000.  The claimants were asking for a sum of approximately £500,000. The defendants were submitting that the correct sum was zero - or, a nominal sum. 

15.	Mr. Fernando submits that I should make an order for costs in his clients' favour because I have ordered that near enough £200,000 must be paid. Therefore, his clients have succeeded.  Mr. Hacon submits that I should make an order for costs in his clients' favour - at least in the sense that I should make an order that his clients receive 30 percent of their costs from the claimants - on the basis that his clients have essentially succeeded in significant measure (approximately 30-odd percent of the sum being claimed is what I have ordered, more or less - the precise percentages do not matter for this purpose) and he submits that I should make that costs order.

16.	The principles to be applied are those set out in CPR Part 44, Rule 44.3. The court has a discretion as to costs.  The general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, but the court may make a different order, and in deciding what order to make I should take into account the conduct of the parties; whether a party has succeeded on part of his case, even if he has not been wholly successful; and any payments in or admissible offers to settle which have been made. 

17.	I should deal first of all with conduct. There was a dispute about the conduct of the parties.  Mr. Fernando puts the points more in relation to whether I should make an order for costs on an indemnity basis rather than on a standard basis. Although it is a factor which is clearly material in general terms to CPR Part 44.3, on the particular facts of this case it is more convenient for me to deal with it later and I will deal with it later.  It seems to me that that is the right thing to do.

18.	That leaves, first of all, the question of who is the successful or unsuccessful party.   Mr. Hacon essentially submits that the sum I have ordered is sufficiently low as compared to the sums that were being asked for that 30 percent of the costs should be paid to his clients.  Mr. Hacon submits that this is not a case like the cases which were before the court in Gibbon v. Manchester City Council [2010] 1WLR, 2081, because in this case, liability having already been admitted and dealt with, it was purely an account of profits.  There was a continuous spectrum and some sum was going to be paid anywhere from zero up to £540,000-odd.  He submits that in those circumstances, where I have come to a conclusion which is closer to the bottom of the range than the top of the range, his clients have, to a significant extent succeeded and I should make a costs order in their favour.  

19.	Mr. Fernando submits that on the authority of Gibbon the position is that his clients have succeeded because I have been shown a Part 36 offer from the defendants, dated 14th February, 2011, in which they offered a sum of £100,000, inclusive of interest (which, when it is calculated out, bearing in mind interest, means essentially a sum of about £70,000 as a principal sum and £30,000 of interest), and therefore he has recovered significantly more - nearly double that.  He submits that on the authority of Gibbon the correct test for all but the rarest of cases - which this is not - obtaining a judgment for greater than the amount on offer is likely to be regarded as a success.  In particular, Mr. Fernando relies on para. 40 of the decision of Moore-Bick, LJ and para. 49 of the decision of Carnwath, LJ (as he then was).

20.	Mr. Hacon submits that that case can be distinguished from the present case because the case before me is a spectrum of sums of money.  There was always going to be a sum of money paid - it was simply a question of how much.

21.	The other matter before me in evidence in terms of the question of success is that I am told that the claimants also made a Part 36 offer - they would accept something of the order of £400,000 (the precise number does not matter for present purposes) from the defendants.  At one stage Mr. Hacon was disposed to submit that there was a perfect analogy between that offer and the fact that his clients had beaten it by being ordered to pay a lesser sum, and the converse argument in relation to his Part 36 offer.  I do not think that is correct. I will summarise what I understand to be the position as follows:   In relation to the claimants' Part 36 offer the position is that had the claimants recovered more than the sum it was offering to accept by way of payment, then costs and interest on a higher scale would have been at least potentially awarded.  So, there was something to be gained from the claimants' point of view in making the offer and then, if they had beaten it, those consequences would have followed.  There is no analogy with that and mr Hacon’s client’s offer.   Of course, if the sum I had awarded was lower than the Part 36 offer which had been made by the defendants, then they would have been perfectly entitled and would, of course, have submitted that they should recover all their costs because they had made an offer that was more generous than sum I had awarded.   

22.	It seems to me that, in fact, this is not a complicated case.  The correct answer is that I have found the sum of £196,000 odd to be paid.  The relevant Part 36 offer was the offer from the defendants for the sum of about £100,000.  That has been very substantially beaten - nearly double. The correct approach therefore is that the claimant is the successful party in this case.  That does not necessarily mean that I should award all the costs to the claimant.  But, that is an important factor which bears on my discretion under Part 44, Rule 44.3.

23.	The next matter is to consider the issues.  Mr. Hacon submits that when you analyse the issues in this case and in the judgment, he can enumerate twelve issues on which his clients have succeeded, whereas there are only six issues on which the claimants have succeeded.  Of course, both sides recognise that one can debate precisely whether one issue is not in fact two issues, or two issues are in fact one issue. But, Mr. Hacon submits he has been careful to go through my judgment and identify specific points in the judgment which I have decided.  On that basis he submits that his clients, on the issues which had to be dealt with, have been significantly more successful than the claimants.  Therefore, that should be reflected in the overall costs order.

24.	While I understand what Mr. Hacon says in terms of counting issues, it seems to me that in actual fact, looked at more broadly than in the judgment itself, and bearing in mind the relative importance of the various issues, an issue based approach does not mean that a different order should be made from an order which reflects the fact that the claimants have won. 

25.	Essentially what I have decided is that the Boehringer II question, and all the various sub-elements which arise under it, ultimately led me to decide that I should order half the sum calculated to be paid. That was certainly less than the claimants wanted, but it was also significantly more than the defendants wanted.  It seems to me that it stands or falls with the basic result.  The basic result is that a sum which has beaten the offer from the defendants has been awarded.  It seems to me on that basis that it would be quite wrong to say that the Boehringer II issue has simply been decided in the defendants' favour.  It has not.  

26.	The other matter is the precise accounting on the account.  It is true that certain issues on the account were decided in the defendants' favour. But, in my judgment, having heard the case, the majority of issues on which costs were incurred seem to me to have gone with the claimants.  

27.	Accordingly, bearing in mind all these factors, the correct order is not a particularly surprising order: it is an order that the defendants pay the claimants' costs of this account. I will so order.

L A T E R

28.	I am not going to make an order for indemnity costs in this case.  The various factors put forward by Mr. Fernando are all factors which will have increased his clients costs and which his clients will be entitled to recover their properly assessed costs in relation to.  On the material I have, that submission about Mr. Badiani is not a submission I am prepared to accept.  As far as Mr. Watts is concerned, the claimants will get their costs. It is not clear to me that there is anything justifying indemnity costs -- conduct out of the norm so as to justify indemnity costs.

29.	So far as the other matters raised by the claimants' instructing solicitor in his witness statement,  I am afraid they seem to me to be things which are, sadly, not out of the norm in any sense.  It is simply litigation - it takes time and costs money to deal with.

L A T E R

30.	As I have indicated, I will give both sides permission to appeal in relation to what I will describe as the Boehringer II question.  If it needs to be drafted more carefully than that, I can resolve any dispute in writing.  That is clearly the main question in this case.  In my judgment it is clear that this is a case in which both sides have what I can call a real prospect of success on appeal. This is a new area of the law to be resolved.   

31.		I will refuse both sides permission otherwise.   As I understand it, Mr. Hacon does not seek wider permission.  Mr. Fernando seeks wider permission on two grounds. First of all, although there are a number of issues of fact, he does not seek permission on those - those were the ones relating to the exercise of my discretion and other matters.  But he does submit that I should give permission in relation to the question of the assembly reports.  In my judgment, considering permission to appeal, that is a pure question of fact on my assessment of the evidence as a whole.  I will refuse Mr. Fernando permission on the basis that he has no real prospect of success.  The Court of Appeal will always be in a position, if they wish, to give his clients permission if they think they should.    

32.		The other matter is the principles to be applied on an account of profits.  In my judgment the principles are well-settled, albeit they have not been considered in detail at Court of Appeal level. But, that on its own is not a reason to give permission to appeal.  It seems to me that this case can be resolved by the Court of Appeal in a relatively short and straightforward way, in terms of factual matters, by deciding the Boehringer II question.  It is not clear to me that any questions of principle arise in relation to the account.  I will not give permission on that basis either.  Again, the Court of Appeal, if they wish, can always entertain an application from Mr. Fernando's clients.

MR. HACON:  Your Honour, something does occur to me - but I have not had a chance to take instructions and I do not think I can do it in a moment.  I may be asked to seek permission to appeal in relation to what I think is a point of law - that is to say, the assessment of costs on an inquiry - whether the principles in Gibbon can be applied.  I do seek permission ----

JUDGE BIRSS:  No.  I am afraid I am not giving you that permission.  If you have identified a point of law by the time you get to the Court of Appeal, you can explain it to the Court of Appeal.

MR. HACON:  But I think it should be recorded that you have refused permission on that point.

JUDGE BIRSS:  Gentlemen, will you produce a signed minute of order.  Me saying "Permission on Boehringer II" sufficient?

MR. FERNANDO:  Yes, I think so.

JUDGE BIRSS:  You know what it is.  You will draft a minute of order.  If you cannot agree, I will resolve it in writing. 

	Thank you.

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