Neutral Citation Number: [2012] EWPCC 28
Case No. CC11P04108
IN THE PATENTS COUNTY COURT

Rolls Buildings, 
7 Rolls Buildings, 
London EC4A 1NL

Date: Wednesday 13th June 2012

Before:

Mr Recorder Douglas Campbell 

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Between :

	LUMOS SKINCARE LIMITED
	
Claimant	
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	(1) SWEET SQUARED LIMITED
(2) FAMOUS NAMES LLC
(A company formed under the laws of the State of Nevada, USA)
(3) SWEET SQUARED (UK) LLP

Defendants	

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Richard Hacon and Chris Hall (instructed by Bolt Burdon) for the Claimant 
Denise McFarland (instructed by Lupton Fawcett LLP) for the Defendants 

Determined on paper

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JUDGMENT 

Mr Recorder Douglas Campbell: 

Introduction
1.	Following my judgment of 10th May 2012, the parties provided written submissions as to the form of order to be made.  Before going further, I should point out some of the procedural history to the action.
2.	After what the Defendants describe as "quite a significant amount of pre-action correspondence" in early 2011 the action was commenced in the High Court on 17th May 2011.  Apparently there was an order made by Master Price on 26 July 2011, but I have no more information about that.  The Defendants also issued an application seeking security for costs on 23 August 2011, which was eventually resolved on 6th January 2012 when the Claimant produced information about its funding (including details of its after the event insurance).  There was an attempt at mediation on 9th September 2011, but that failed.  
3.	The next step was the Claimant's application, on 7th October 2011, for an expedited trial.  This application was dismissed by Mann J on 19th October 2011, who also ordered of his own motion (a) that the action be transferred to the Patents County Court (b) that costs be costs in the case.  
4.	A case management conference was then heard by HHJ Birss QC on 20th December 2011.  There was a dispute at that hearing about whether the costs over the period 19th October 2011 to 20th December 2011 should be on the High Court scale or on the Patents County Court scale.  I am told that HHJ Birss QC asked whether Counsel wanted this point to be determined immediately or at trial, and Counsel said that it should be done at trial.  The Defendants' argument is that it had to comply with Master Price's Order dated 26th July 2011 and exchange disclosure documents before the case management conference on 20th December 2011; that these are costs incurred in complying with a High Court order and should therefore be assessed under High Court rules; and seeks £9 653.98 plus VAT.  
5.	VAT should not be included in a claim for costs if the receiving party (ie the Defendants) is able to recover the VAT as input tax: see the Costs Practice Direction at [5.3].  The material before me does not make it clear whether these Defendants are so able, but I will assume that they are and will ignore VAT from now on.  If I am wrong then VAT will need to be added on to all of the figures awarded.  It should be noted that scale costs in this Court exclude VAT: see CPR Part 45.42(5).
6.	On 28th February 2012 the Claimant made an application to strike out part of the Defendants' witness evidence, which was dismissed by Floyd J.  I am told that during this hearing Floyd J provided a clear indication that he would have given the Defendants their costs, but for the effect of CPR Part 63.26.  As it was he reserved costs of that application to the trial judge: see paragraph [4] of his order.  I return to the significance of this below.  
7.	The Defendants made a without prejudice save as to costs offer of £15 000 on 18th January 2012 but no reply was received from the Claimant.  
8.	It seems that no previous costs orders have been made at any point during this action, save for the order of Mann J in relation to the costs of the application before him.  It is not disputed that the Defendants are entitled to their costs in principle, nor has the Claimant argued that any discount should be applied.  Instead I am asked to determine the following issues:
(a)	Summary assessment of High Court Costs in the period up to 19 October 2011.
(b)	The correct scale for the Defendants' costs in the period 20th October 2011 to 20th December 2011; and the summary determination of such costs.
(c)	Summary assessment of the Defendants' Patents County Court costs.
(d)	Whether the cap on the Patents County Court scale of costs should be lifted; and the determination of such costs if so.
(e)	Whether the Claimant should have permission to appeal.  
Summary assessment of High Court Costs in the period up to 19 October 2011
9.	It is common ground that these costs are to be determined on the High Court scale: see the order of HHJ Birss QC dated 20th December 2011 at [18].  The basis of this assessment is therefore as set out in CPR Part 44.4.  The first issue is to identify the relevant basis (standard or indemnity) and then to decide the amount of costs having regard to the factors set out in CPR Part 44.5.  
10.	The Defendants have provided a detailed breakdown for this period and their costs for the period total £44 789.50.  Both sides have however approached this part of the assessment at quite a high level of generality.  Essentially the Claimant argues for 50% of the billed figure and the Defendants argue for 80% of the billed figure.  
11.	The Defendants do not seek indemnity costs as such.  Instead they rely on the following factors as demonstrating unreasonable conduct generally:
(a)	The lack of merit in the action, as stressed by the Defendants in a number of communications with the Claimant.
(b)	The Claimant's decision to issue proceedings in the High Court is said to be unnecessary, disproportionate, and not consistent with the overriding objective.
(c)	The fact that the Claimant pursued the case under a conditional fee arrangement with after the event insurance such that it had no incentive to settle at any point.
(d)	The Claimant's application for an expedited trial before Mann J is said to have been hopeless.
(e)	The Defendant's Security for Costs application is said to have involved unnecessary costs as a result of the Claimant's unreasonable conduct.  
12.	I do not consider that any of these establishes unreasonable conduct.  The mere fact that I found for the Defendants does not mean that it was unreasonable of the Claimant to bring the action: all it means is that the Claimant lost.  This case was certainly suitable for the Patents County Court, but I note that the Defendants did not apply for transfer either promptly or at all: this transfer was done by Mann J of his own motion.  The Claimant's funding arrangements are irrelevant to the factors set out in CPR Part 44.5.  I have nothing to suggest that Mann J thought the Claimant's application before him was hopeless, and if he had considered that to be the position then it seems unlikely he would only have ordered costs in the case.  No particular material has been brought to my attention in support of the allegation that the Claimant's conduct in relation to the security for costs application was unreasonable.  Finally, I should add that no attempt has been made to estimate by how much the Defendants' costs were actually increased as a result of any of the above, hence it is not clear what specific result any finding of unreasonable conduct would have had.
13.	The Claimant did not take issue with any of the individual items in the Defendants' cost schedule for this period.  Instead the Claimant drew attention to the fact that the Defendants' costs during this period exceed the costs incurred by the Claimant over the same period (said to be £27 225).  In particular the Claimant submits that in the normal run of cases a Claimant's costs will exceed those of the Defendants, especially in the early stages of proceedings, and hence the Defendants' costs for this period must be excessive.  I do not accept this submission.  The Defendant had to take this action seriously since otherwise it would have had to rebrand the product complained of in the UK with major consequences for its business.  In addition merely pointing at the overall level of costs is a blunt tool with which to make a submission of unreasonable expenditure.  
14.	I have considered the Defendants' schedule of costs for this period.  I note that about 20 hours relate to "work done on negotiations", about 30 hours relate to "other work, not covered above", and about 60 hours relate to "work done on documents".  The first figure appears to demonstrate a serious commitment to negotiations but the latter two figures are insufficiently explained.  On the other hand, the Defendants did have to deal with the application for an expedited trial and some of these hours may relate to that.  Given the generality of the argument, I have to take an accordingly general approach and I will award the Defendants £30 000 under this head.  
The correct scale for the Defendants' costs in the period 20th October 2011 to 20th December 2011; and the summary determination of such costs.
15.	I have no doubt that these costs should be assessed on the Patents County Court scale, for the following reasons.  
16.	First, the action was transferred into this Court on 19th October 2011.  Actions in this Court are in general to be determined in accordance with Section VII of Part 45: see CPR Part 63.26(3); see also Westwood v Knight [2011] EWPCC 011 at [8]-[20].  There is no basis in the rules for the Defendants' argument that some costs incurred in this Court should still be determined under High Court costs rules even after transfer.
17.	Secondly, I am unclear as to what Master Price's order is said to have required the Defendants to do.  If it is, or was, disclosure, then I would point out that the Patents County Court only allows specific disclosure and even then only if it satisfies the cost/benefit test under CPR Part 63.23 and 63PD paragraph 29.1.  Hence it is unsafe to assume, in advance of a case management conference in this Court, that disclosure will be ordered at all.  If a party incurs the expense of disclosure in such circumstances then this is at its own risk.  If the Defendants were genuinely worried about being in breach of a High Court order they could and should have applied for an extension of the time necessary to comply with such order until the case management conference.  They should not have carried on incurring costs as if the action had never been transferred at all.  
18.	Thirdly if the Defendants' approach were the law then it would generate undesirable satellite litigation about what costs were, and/or were not, incurred in consequence of a High Court order.  The Patents County Court cost rules are part of a clearly-defined package of cost-saving measures and are not to be whittled down by ad hoc exceptions.  In addition this particular ad hoc exception would tend to undermine the purpose and benefit of transferring the case to the Patents County Court in the first place, ie saving costs: see Caljan Rite-Hite v Sovex [2011] FSR 23 at [30].  
19.	Hence the costs incurred during this period will be assessed on the Patents County Court basis.  The Defendants have provided a costs schedule demonstrating that their costs over this period were £12 067.47.  As HHJ Birss QC pointed out in Westwood v Knight at [22]: 
"In order to conduct the assessment the party seeking costs will need to provide information about its costs broken down by stages corresponding to the stages in Table A (for a liability trial)."  
However that approach was not taken for this part of the case.  In particular the relevant schedule is not broken down in accordance with the PCC scale in Table A, eg into disclosure (for which up to £5 000 can be allowed) and the case management conference (for which up to £2 500 can be allowed).  This has made assessment difficult.  I should add that I am not aware of any other heading under which the work done in this period could properly be claimed: see the Defendants' skeleton argument at [15], last sentence.
20.	It is true that, as Counsel for the Claimant points out, the Defendants have not produced any evidence of their billed costs for the case management conference itself but in the Defendants' solicitors' letter of 9th May 2012, the costs attributable to "attendance at a case management conference" were said to be "£2 500 plus VAT".  This figure is open to some criticism since it appeared under a heading of "Costs from 20th December 2011", which obviously post-dates the case management conference, rather than under the correct heading of "Costs from 19th October 2011 until 20th December 2011".  In addition the wording also appeared to have been copied verbatim from Section 25C of the Part 45 Practice Direction: see the reference to "a" case management conference, although there was only one in this case.  That said I do have figures for other applications (eg the application before Floyd J, which is said to have cost the Defendants £7 836) so the claim that the Defendants spent over £2 500 on preparing for the case management conference on 20th December 2011 is inherently credible.  I therefore award £2 500 to the Defendants for attendance at the case management conference.  
21.	It is difficult to work out how much the Defendants spent on disclosure over this period from the information supplied by the Defendants.  I note that in the Defendants' solicitors' letter of 9th May 2012, they claimed that their costs of "providing or inspecting disclosure or product/process description" were "£5 000 plus VAT" but (just as with the costs of attending the case management conference) these costs were stated by the Defendants to relate to costs from 20th December 2011.  I also note that there was no "product/process description" in this case so this appears to be another example of verbatim copying from Table A.  Moreover the Defendants subsequently produced a breakdown which showed that their costs of disclosure from 20th December 2011 were not £5000 plus VAT at all, but only £40 plus VAT.  Hence this letter is not a reliable source of information.
22.	The Defendants' schedule of costs for this period does include entries such as attendance on the Defendants and work done on documents but some or indeed all of this may relate to the case management conference.  In addition, the Defendants' work on disclosure may have been done prior to the hearing before Mann J on 19th October 2011, so the fact that little work on disclosure was done after 20th December 2011 does not necessarily imply that a substantial amount of this work was done between 19th October and 20th December.  
23.	The upshot is that I have no clear information about what the Defendant's costs on disclosure were over the period 20th October 2011 to 20th December 2011.  I am not prepared either to make assumptions in the Defendants' favour about matters which the Defendants could have proved, or to award some arbitrary sum, since to do so would be unfair to the Claimant.  I therefore make no award for the Defendants' costs relating to disclosure over this period.  
Summary assessment of the Defendants' Patents County Court costs
24.	The Defendants seek off-scale scale costs, and in particular seek an extra £20 000.  In support of this application, the Defendants rely on procedure before the UKIPO where (according to the Defendants) "there are fairly regularly made applications for costs to be awarded on a basis not limited to the 'scale' costs set out in the Patent Office Guide".  No examples were given of any UKIPO cases where off-scale costs were actually awarded.  
25.	The Defendants rely on 4 factors, as follows:
(a)	Issuing and pursuing (initially in the High Court) an action which was doomed to fail and which the Defendants had pointed out was inherently weak and unjustified.
(b)	Failing to take reasonable steps in accordance with the Overriding Objective to try and settle the matter or at least explore ADR options despite the Defendants' several attempts to do so.
(c)	Making ill-advised and hopeless applications.  
(d)	Refusing to supply basic details relating to the basis of its ATE insurance cover.  
26.	It will be seen that these overlap with the points considered above at paragraph [11]-[12].  However, it should be noted that this Court can only depart from the standard scale of costs in very limited circumstances as follows.
(1)	First, the Court can depart from the standard scale entirely in the circumstances set out in CPR Part 45.41(2).  These are where the court considers that a party has behaved in a manner which amounts to an abuse of process (45.41(2)(a)) or where the claim relates to a patent or design where a certificate of contested validity has previously been granted (see 45.41(2)b).  Otherwise the Court is restricted as per CPR Part 45.42.  These rules are quite different to the UKIPO rules.
(2)	Secondly, the Court can depart from the standard scale of costs in relation to an application where a party has acted unreasonably.  If so the Court will make an order for costs at the conclusion of the hearing in question and these costs are in addition to the costs which make be awarded under CPR Part 45.42: see CPR Parts 63.26(2), 45.43.  
27.	I have no hesitation in dismissing the suggestion that the present claim involves an abuse of process.  I have also borne in mind HHJ Birss QC's comments in Westwood v Knight to the effect that legal advisers need to be able to say with confidence that the costs capping provisions can be relied upon.  
28.	Indeed I am not even satisfied that the four factors relied on under this heading establish unreasonable conduct.  The Defendants' best point is that the Claimant could and should have tried harder to settle.  For instance the Defendant's costs schedule demonstrates substantial time spent on negotiations at an early stage of the action; the evidence at trial demonstrated that neither party had any interest in the other's core market, and I note that the Claimant did not even reply to the Defendants' without prejudice save as to costs offer in February 2012.  However I am not in a position to conclude that the Claimant acted unreasonably in this respect.  
29.	Furthermore, even if I were to conclude that the Claimant acted unreasonably in any of these four respects I do not have carte blanche to award an uplift of costs generally.  On my reading of the rules, any such uplift by reason of unreasonable behaviour has to be tied to a particular application: see again CPR Parts 63.26(2), to which 63.26(1) is made subject, and Part 45.43.  If unreasonable behaviour justified a general uplift in the costs of the action with respect to the standard scale, then I would have expected unreasonable behaviour to have been mentioned in CPR Part 45.41(2).  The uplift of £20 000 sought does not appear to be tied to any particular application, nor have the Defendants explained how it is calculated: see [22] of their skeleton argument.  
30.	The Defendants also draw my attention to the hearing before Floyd J when sitting in this Court.  They said that the Claimant's application (made to strike out parts of evidence) was hopeless.  However the fact that Floyd J made no order for costs pursuant to CPR Part 63.26(2) is inconsistent with any suggestion that he considered the Claimant's behaviour was unreasonable.  It would be entirely wrong to revisit his decision as the Defendants invite me to do.  
31.	I will therefore award costs in accordance with the PCC scale for this period.  It is accepted by the Claimant that the Defendants are entitled to £2 500 for the application before Floyd J, £5 000 for preparing witness statements and £15 000 for the costs of trial, all of which are the maximum allowed.  The Defendants also claim £40 for disclosure, which I will allow.  Finally the Defendants claim £487.50 for "Defence and Counterclaim stage", 21st December 2011 to 21st March 2012.  It appears that this relates to amending the Defence and Counterclaim.  Counsel for the Claimant points out that there is no specific order entitling the Defendants to these costs, but it seems to me that the Defendants are entitled to them as costs in the action, and I allow them.  
Whether the Claimant should have permission to appeal
32.	Permission should only be granted where the Court considers that the appeal has a real prospect of success, or there is some other compelling reason why the appeal should be heard: see CPR Part 52.3(6).  The Claimant relies solely on the former ground: see its skeleton argument at [43].
33.	The Claimant submits that 2 errors of law arise.  Both appear to relate to deception.  
34.	The first alleged error is that I applied the wrong test.  In particular it is said that I favoured a test whereby, in order to make a negative finding in relation to deception "it is sufficient for a court to conclude that the skincare and nail case markets are distinct" whereas I should have applied a test whereby the court is required to find "that one market is so remote from the other that the same trade mark is unlikely, on the balance of probabilities, to imply a common trade source".  
35.	I reject this ground of appeal.  First, I did not apply a test whereby it was sufficient to conclude that the skincare and nail care markets were distinct.  I applied well-established law (see eg paragraphs [3], [70], [83], [87] of my judgment) and the difference in the markets was merely one factor on which I relied: see [87(4)].  Secondly the Defendant's proposed test is not supported by any existing law.  
36.	The second question of law is said to be "whether the Claimant's case could be made worse by evidence which the court rejected as evidence of deception": see the Claimant's skeleton argument at [42].  I am not sure that I have understood this argument, or what evidence I am said to have rejected, but it appears to be inviting a reconsideration of primary fact evidence.  That is not an error of law.  I therefore refuse permission to appeal on this ground as well.
Conclusion 
37.	In the result I assess the Defendants' costs at £55 527.50, and refuse permission to appeal.  
38.	The Defendants point out that the operation of the costs provisions in this case means that they will be substantially out of pocket.  For instance their total costs are £137 012.47, but they have only recovered just over 40% of that.  I have some sympathy with this position, but I also note that the Defendants spent £53 745.89 on preparing for trial, and £18 046.11 on preparing witness statements, at a time when they should have known that they were only likely to recover at most £20 000 for that work. The Defendants' decision to exceed the allowable costs for this stage of the case by over £50 000 was theirs alone, and they did so despite their stated position that the Claimant was "extremely unlikely to succeed" in any event.  
39.	The parties appear to have agreed a confidentiality provision relating to certain exhibits in the case, and 21 days for payment of the sum awarded.  I am prepared to make these orders.