WHEN SHOULD A WINNING PARTY PAY THE COSTS OF THE OTHER SIDE?

In Hospira UK Limited -v- Cubist Pharmaceuticals LLC [2016] EWHC 2661 Pat Mr Justice Henry Carr considered the question of when an “issue based” costs order should be made.

“In my view, this apparent dichotomy may be resolved by a proper understanding of the phrase “suitably exceptional”. It is intended to indicate that if the unsuccessful party succeeds on a particular issue, that is not, on its own, sufficient to award costs against the successful party. There must be something which makes it appropriate and just to order not only that the successful party does not recover his costs, but also that it should pay the costs of the relevant issue. On the other hand, it is not intended to imply that such awards of costs will be extremely rare. Where there is a discrete issue, which required substantial expenditure of costs, it may be just in all the circumstances to order payment of costs.”

THE CASE

The claimant had successfully applied to have three of the defendant’s patents revoked.  It was common ground that the claimant was entitled to its general costs. The question arose as to who should bear the costs of certain issues on which the claimant had not, generally, succeeded.

THE APPROPRIATE APPROACH

  1. I now turn to the issues in respect of which there is some dispute as to whether there should be a deduction and, if so, how much. It is often said that the correct principles to apply in patent actions are very well known. In particular, in Monsanto v Cargill No.2 [2007] EWHC 3113, [2008] FSR 16 at [2]- [9], Pumfrey LJ set out the approach that the courts should take to costs in patent actions under the CPR. This approach was subsequently approved by the Court of Appeal in MMI v Cellxion [2012] EWHC Civ. 139. In summary:
i) The overall winner is likely, save in the most exceptional circumstances, to be entitled to payment of all his costs which are not or cannot be allocated to a particular issue, which are the general costs of the action.

ii) If costs are suitably circumscribable so that they can properly be allocated to issues upon which the overall winner has nevertheless lost, there are two questions:

a) should that party recover his costs of that issue; and

b) is the case so exceptional that the winning party should pay the otherwise unsuccessful party’s costs incurred in respect of that issue?

  1. The fact that those principles are frequently cited disguises an uncertainty in their application, namely, what is meant by the phrase “so exceptional that the winning party should pay the otherwise unsuccessful party’s costs”. Mr. Waugh has referred me to the principles set out in the White Book at paragraph 44.2.7, p.1254. The authors state that:
“The rules themselves impose no requirement to the effect that an issue-based costs order should be made only in “a suitably exceptional case” and none is to be implied, although there needs to be a reason based on justice for departing from the general rule, and the question of the extent to which costs of a particular issue are to be disallowed should be left to the evaluation and discretion of the judge by reference to the justice and circumstances of the particular case.”
  1. This summary is supported by the decision of the Court of Appeal in F&C Alternative Investment (Holdings) Ltd v Barthelmy (No.3) [2012] EWCA Civ 843; [2013] 1WLR 548, per Davis LJ at [47]- [49]. When rejecting a submission that, under the issue based approach, the court should only order payment of costs by the winning party in an exceptional case, he said:
“47 In my view that is a hopeless argument. The Rules themselves impose no requirement of exceptionality as such and none is to be implied — although there of course needs to be reason, based on justice, for departing from the general rule set out in Part 44.3(2).
49 … The application of the rules in this context requires no further gloss. The question of the extent to which costs of a particular issue are to be disallowed or notionally paid should be left to the evaluation and discretion of the judge, by reference to the justice and circumstances of the particular case.”
  1. Arnold J applied this approach in patent litigation in Hospira UK Ltd and Novartis AG [2013] EWHC 886, where he said:
“Is it appropriate in all the circumstances of the individual case not merely to deprive the winning party of its costs on an issue in relation to which it has lost but also to require it to pay the other side’s costs.”
  1. Nonetheless, it will be seen that there is a tension between the requirement of a suitably exceptional case before costs are ordered in a patent case against a successful party; Monsanto v Cargill No.2; and the express rejection of this requirement in F&C Alternative Investment (Holdings) Ltd and Barthelmy. This raises the question of whether the approach to awards of costs in patent cases differs from that adopted in other types of litigation. In my judgment it does not. Patent litigation is very expensive, and it is important that parties should be encouraged only to pursue their best points, and to be aware of the cost implications of failing to do so.
  2. In my view, this apparent dichotomy may be resolved by a proper understanding of the phrase “suitably exceptional”. It is intended to indicate that if the unsuccessful party succeeds on a particular issue, that is not, on its own, sufficient to award costs against the successful party. There must be something which makes it appropriate and just to order not only that the successful party does not recover his costs, but also that it should pay the costs of the relevant issue. On the other hand, it is not intended to imply that such awards of costs will be extremely rare. Where there is a discrete issue, which required substantial expenditure of costs, it may be just in all the circumstances to order payment of costs.

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