Makeality Limited v City Doggo Limited & Anor [2025] EWCA Civ 400

[2025] EWCA Civ 400Case No CA-2024-002347
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES, INTELLECTUAL PROPERTY LIST (ChD), INTELLECTUAL PROPERTY ENTERPRISE COURT
His Honour Judge Hacon
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 11 April 2025
Before
LORD JUSTICE HOLROYDELORD JUSTICE ARNOLDLORD JUSTICE DINGEMANS
Between
MAKEALITY LIMITEDClaimant/(1) CITY DOGGO LIMITEDDefendants/Respondents(2) LAURENCIA WALKER-FOOKSRespondent
Michael Edenborough KC and Anneliese Mondschein (instructed by Brandsmiths) for AppellantNicholas Saunders KC and Mark Wilden (instructed by DAC Beachcroft) for RespondentsHearing Hearing date : 3 April 2025
Approved JudgmentThis judgment was handed down remotely at 10.30am on 11 April 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................

Introduction

[1]The issue on this appeal is whether the claim should be allocated to the multi-track of the Intellectual Property Enterprise Court (“IPEC”), as the Claimant contends, or to the small claims track, as the Defendants contend. On 3 October 2024 HHJ Hacon ordered that the claim should be transferred from the multi-track to the small claims track for the reasons given in his extempore judgment of the same date. That was a case management decision by a judge of unrivalled experience in this field. Furthermore, it is obviously undesirable for further costs to be expended on the issue of track allocation. I nevertheless granted permission to appeal because the appeal appeared to raise an issue of law of some importance.

The claim

[2]The Claimant is the proprietor of United Kingdom Trade Mark No. 3179581 PIDDLE PATCH (“the Trade Mark”) registered in respect of “pet litter box tray containing real turf; litter boxes (trays) for pets” in Class 21 and “turf grass for use as pet litter and sold in a biodegradable box tray” in Class 31 with effect from 10 August 2016. The Claimant has marketed what is said to be an innovative product consisting of a patch of grass in a biodegradable box for toilet training pets under the Trade Mark since September 2016, and claims to have generated substantial goodwill in connection with the Trade Mark. Among other matters, the Claimant relies upon the fact that its director Rebecca Sloan appeared on the well-known BBC television show Dragons’ Den in January 2022 with a view to obtaining investment in the Claimant’s business (and was successful in getting offers of investment).[3]The First Defendant has sold a similar product under the sign “Oui Oui Patch” since November 2020. The Second Defendant is the director of the First Defendant. The Claimant contends that the First Defendant’s use of the sign “Oui, Oui Patch” infringes the Trade Mark pursuant to section 10(2) and section 10(3) of the Trade Marks Act 1994 and amounts to passing off, and that the Second Defendant is jointly liable with the First Defendant.[4]The Claimant also complains that the First Defendant has used the sign “piddlepatch”/“Piddle Patch”/“PiddlePatch” in various ways. The Claimant contends that such use infringes the Trade Mark pursuant to section 10(1) of the 1994 Act and amounts to passing off and that the Second Defendant is jointly liable. The Defendants admit certain uses of this sign, which they contend were de minimis, but say that the First Defendant stopped when the Claimant complained. The Claimant disputes this, but before the judge the Defendants gave an undertaking not to use the sign in the future.[5]In addition to the usual relief of an injunction to restrain further infringement or passing off, delivery up, an inquiry as to damages or an account of profits, interest and costs, the Claimant claims (in the event that it elects for damages rather than an account of profits) additional, aggravated or exemplary damages for allegedly deliberate and flagrant infringement and/or passing off pursuant to regulation 3(2)(a) of the Intellectual Property (Enforcement, etc.) Regulations 2006 (SI 2006/1028), which implements Article 13 of European Parliament and Council Directive 2004/48/EC of 29 April 2004 on the enforcement of intellectual property rights (“the Enforcement Directive”).[6]The Defendants deny infringement of the Trade Mark or passing off by the First Defendant, and deny that the Second Defendant is jointly liable for any infringement or passing off.[7]Among other defences, the Defendants pleaded in paragraph 16 of their Defence that the Trade Mark was registered in breach of section 3(1)(c) of the 1994 Act, although unusually there was no counterclaim for a declaration of invalidity. Despite this, neither the Claimant nor the Defendants included validity of the Trade Mark in the lists of issues which they prepared for the case management conference. The judge understood from this that validity was not in issue. Although the Defendants’ position does not appear to have been made explicit prior to the hearing before this Court, counsel for the Defendants confirmed that the plea in paragraph 16 of the Defence had been abandoned.

The proceedings

[8]The Claimant issued the claim form in IPEC on 15 February 2024 and served it together with Particulars of Claim on the following day. On 2 April 2024 the Defendants served a Defence contending, among other things, that the claim was unlikely to be worth more than £10,000 and was suitable for the small claims track. On 30 April 2024 the Claimant served a Reply contending, among other things, that the claim was likely to be worth more than £10,000 and was unsuitable for the small claims track due to its complexity. On 18 September 2024 the Defendants applied for the claim to be transferred to the small claims track. This application was heard by the judge at the case management conference. Both parties were represented at the case management conference, as they had been throughout the proceedings up to that point, by solicitors and junior counsel.[9]IPEC is the successor to the Patents County Court (“the PCC”). The PCC was created in 1990. It was intended to provide access to justice for small- and medium-sized enterprises in intellectual property disputes. Although the PCC’s special jurisdiction was initially limited to patents and designs, it had the ordinary jurisdiction of a county court in respect of copyright and related rights, and subsequently it was given jurisdiction over trade marks. Unfortunately, the PCC was not a success.[10]In April 2009 the Intellectual Property Court Users’ Committee established a Working Group to formulate proposals for the reform of the PCC in time for submission to Sir Rupert Jackson as part of Phase 2 of his Review of Civil Litigation Costs. In June 2009 the Working Group published a Consultation on Proposals for Reform of the Patents County Court. On 31 July 2009 the Working Group published a Final Report on Proposals for Reform of the Patents County Court. Among the proposals made by the Working Group were(i) a financial limit on claims of £500,000,(ii) a system of scale costs and(iii) a cap on recoverable costs of £50,000 for liability and £25,000 for quantum.[11]Recommendation 35 in Sir Rupert’s Final Report published in December 2009 was that the Working Group’s proposals should be implemented. This led initially to reforms to the PCC in 2010 and 2011 and then to its reconstitution as IPEC in 2013. It is not necessary for present purposes to explain the details of that process or to discuss the general rules applicable to IPEC. It is sufficient to note that, for cases allocated to the IPEC multi-track, costs are awarded for each stage of a claim in accordance with the scales set out in Practice Direction 46 Tables A and B and that costs are now capped at £60,000 for liability and £30,000 for quantum: see CPR rule 46.21.

The IPEC small claims track

[12]Part of recommendation 37 in Sir Rupert’s Final Report was that a small claims track should be introduced into the PCC. This was not among the Working Group’s proposals. This recommendation was supported by Professor Ian Hargreaves in Chapter 8 of his report Digital Opportunity: A Review of Intellectual Property and Growth published in May 2011. Following a Call for Evidence by the United Kingdom Intellectual Property Office in January 2012, the recommendation was implemented by rule 10 of the Civil Procedure (Amendment No.2) Rules 2012 (SI 2012/2208), which came into force on 1 October 2012. At that time the small claims track was intended for claims of up to £5,000, but this was increased to £10,000 in 2013. When the PCC was reconstituted as IPEC, the small claims track was retained.[13]As paragraph 7.1(g) of the Explanatory Memorandum to the 2012 Rules explained:
“The small claims track is extended to include lower value intellectual property claims proceeding in the Patents county court. Currently all claims issued in the Patents county court or the High Court are allocated to the multi-track with the associated costs regime. It has been recognised that there was a gap in the provision of litigation for the lowest value cases, and the general procedures governing low value claims that is already existent within other courts should be applied. … The small claims track is expected to benefit those claimants currently deterred by the cost of bringing such a claim within the court system. It will deal with the lowest value copyright, unregistered design and trade mark claims and will be quicker and cheaper than the current options for resolving disputes through the court. It is expected to be of greatest benefit to small and medium enterprises/entrepreneurs with straightforward claims, for example, the use of photographic material without consent.”

Relevant provisions of the Civil Procedure Rules

[14]CPR rule 63.27 provides: “Allocation to the small claims track(1) A claim started in or transferred to the Intellectual Property Enterprise Court will be allocated to the small claims track if– (a) rule 63.13, but not rule 63.2, applies to the claim; (b) the value of the claim is not more than £10,000; (c) it is stated in the particulars of claim that the claimant wishes the claim to be allocated to the small claims track; and (d) no objection to the claim being allocated to the small claims track is raised by the defendant in the defence.(2) [Omitted](3) If either – (a) the requirements of rule 63.27(1)(a), (b) and (c) are satisfied, but in the defence the defendant objects to the claim being allocated to the small claims track; or (b) the requirements of rule 63.27(1)(a) and (b) are satisfied, but not (c), and in the defence the defendant requests that the claim be allocated to the small claims track, the court will allocate the claim to the small claims track or the multi-track in accordance with Part 26 (case management – preliminary stage). For that purpose the court will send the parties a directions questionnaire and require them to file completed directions questionnaires and to serve them on all other parties within 14 days.(4) Part 27 (small claims track) shall apply to claims allocated to the small claims track in the Intellectual Property Enterprise Court with the modification to rule 27.2(1)(a) that Part 25 (interim remedies) shall not apply to such claims at all. Section VII of Part 46 (scale costs for claims in the Intellectual Property Enterprise Court) shall not apply to claims allocated to the small claims track in the Intellectual Property Enterprise Court.” (a) rule 63.13, but not rule 63.2, applies to the claim; (b) the value of the claim is not more than £10,000; (c) it is stated in the particulars of claim that the claimant wishes the claim to be allocated to the small claims track; and (d) no objection to the claim being allocated to the small claims track is raised by the defendant in the defence. (a) the requirements of rule 63.27(1)(a), (b) and (c) are satisfied, but in the defence the defendant objects to the claim being allocated to the small claims track; or (b) the requirements of rule 63.27(1)(a) and (b) are satisfied, but not (c), and in the defence the defendant requests that the claim be allocated to the small claims track, the court will allocate the claim to the small claims track or the multi-track in accordance with Part 26 (case management – preliminary stage). For that purpose the court will send the parties a directions questionnaire and require them to file completed directions questionnaires and to serve them on all other parties within 14 days.[15]Rule 26.13 provides, so far as relevant:
“Matters relevant to allocation to a track (1) When deciding the track for a claim, the matters to which the court shall have regard include— (a) the financial value, if any, of the claim; (b) the nature of the remedy sought; (c) the likely complexity of the facts, law or evidence; (d) the number of parties or likely parties; (e) the value of any counterclaim or additional claim and the complexity of any matters relating to it; (f) the amount of oral evidence which may be required; (g) the importance of the claim to persons who are not parties to the proceedings; (h) the views expressed by the parties; and (i) the circumstances of the parties. (2) It is for the court to assess the financial value of a claim and in doing so it shall disregard— (a) any amount not in dispute; (b) any claim for interest; (c) costs; …” (a) the financial value, if any, of the claim; (b) the nature of the remedy sought; (c) the likely complexity of the facts, law or evidence; (d) the number of parties or likely parties; (e) the value of any counterclaim or additional claim and the complexity of any matters relating to it; (f) the amount of oral evidence which may be required; (g) the importance of the claim to persons who are not parties to the proceedings; (h) the views expressed by the parties; and (i) the circumstances of the parties.

(b) any claim for interest; (c) costs; …”

[16]Rule 27.14 provides, so far as relevant: “Costs on the small claims track(1) This rule applies to any case which has been allocated to the small claims track. …(2) The court may not order a party to pay a sum to another party in respect of that other party’s costs, fees and expenses, including those relating to an appeal, except – (a) the fixed costs attributable to issuing the claim, calculated in accordance with Table 2 in Practice Direction 45; (b) in proceedings which included a claim for an injunction or an order for specific performance a sum not exceeding the amount specified in Practice Direction 27A for legal advice and assistance relating to that claim; (c) any court fees paid by that other party; (d) expenses which a party or witness has reasonably incurred in travelling to and from a hearing or in staying away from home for the purposes of attending a hearing; (e) a sum not exceeding the amount specified in Practice Direction 27A for any loss of earnings or loss of leave by a party or witness due to attending a hearing or to staying away from home for the purposes of attending a hearing; (f) a sum not exceeding the amount specified in Practice Direction 27A for an expert’s fees; (g) such further costs as the court may assess by the summary procedure and order to be paid by a party who has behaved unreasonably; …(3) A party’s rejection of an offer in settlement will not of itself constitute unreasonable behaviour under paragraph (2)(g) but the court may take it into consideration when it is applying the unreasonableness test. …” (a) the fixed costs attributable to issuing the claim, calculated in accordance with Table 2 in Practice Direction 45; (b) in proceedings which included a claim for an injunction or an order for specific performance a sum not exceeding the amount specified in Practice Direction 27A for legal advice and assistance relating to that claim; (c) any court fees paid by that other party; (d) expenses which a party or witness has reasonably incurred in travelling to and from a hearing or in staying away from home for the purposes of attending a hearing; (e) a sum not exceeding the amount specified in Practice Direction 27A for any loss of earnings or loss of leave by a party or witness due to attending a hearing or to staying away from home for the purposes of attending a hearing; (f) a sum not exceeding the amount specified in Practice Direction 27A for an expert’s fees; (g) such further costs as the court may assess by the summary procedure and order to be paid by a party who has behaved unreasonably; …[17]Practice Direction 27A paragraph 7.2 provides that the amount which a party may be ordered to pay under rule 27.14(2)(b) is a sum not exceeding £260.

The Guide

[18]The Guide to the Intellectual Property Enterprise Court Small Claims Trackpublished by HM Courts & Tribunals Service states, so far as relevant:
“Value limits The IPEC SCT is only suitable for claims where the amount in dispute (not including costs) is £10,000 or less. If the claim has a value of more than £10,000, it is unlikely to be suitable for hearing in the SCT, unless the court orders otherwise. … Allocation to the IPEC SCT … The court will consider the value of the claim, the type of intellectual property rights it relates to, the likely complexity and the number of parties and the number of witnesses that may be needed to give oral evidence. A claim where both liability and amounts (‘quantum’) cannot be resolved within one day (including judicial reading time) are usually not suitable for the IPEC SCT. For example, cases concerned with the validity of trade marks (rather than the infringement of a trade mark) are unlikely to be suitable. … Legal representation in the IPEC SCT The IPEC SCT is designed to be used by parties who do not have a legal representative acting for them. It has more simplified procedures than a standard civil claim, hearings are more informal in nature and evidence is not usually taken on oath. If all the parties agree, the court may deal with the claim without a hearing by considering the documents in the case and the written arguments of the parties instead (CPR 27.10). The court will still apply the law and will decide the case based on the evidence the parties have made available. Each party can choose whether to be legally represented in the IPEC SCT. A party may be represented by a solicitor, barrister, patent attorney or trade mark attorney. … Costs recovery The general principle that an unsuccessful party will pay the legal costs of a successful party does not apply to IPEC SCT claims. In the IPEC SCT there are only very limited circumstances in which the court will order one party to contribute to the costs of another (CPR 27.14). …”
Allocation to the IPEC SCT Legal representation in the IPEC SCT

Costs recovery

[19]The judge’s reasons for acceding to the Defendants’ application may be summarised as follows: i) No point had been taken on access to justice by the Defendants (judgment at [6]). ii) Although the Claimant said that it expected the quantum of damages, if it elected to claim damages, to exceed £10,000, it had provided no sales or profit figures to support that suggestion despite being challenged to do so by the Defendants. The court therefore had no means of reaching any conclusion about the likely loss of profit, if any, suffered by the Claimants because of the First Defendant’s sales of the product in issue ([10]-[11], [13]). iii) The Second Defendant had estimated that the First Defendant had made a total net profit of about £4,000 on turnover of about £390,000 on sales of 11,800 products (predominantly the product in issue, but also accessories and other products) in the period from November 2020 to 1 March 2024, but subsequently said that this profit figure was likely to be a significant over-statement. Although the court was little better off with regard to the relevant profits of the First Defendant than in the case of the Claimant, it did at least have the Second Defendant’s estimate of the total profits ([7]-[8], [13]). iv) On the evidence before the court, which was very little, it was more likely than not the relevant profits of both the Claimant and the First Defendant were below £10,000 ([15]). v) The case was not too complicated to be heard in the small claims track in one day. On the contrary, it was exactly the sort of case that had frequently been heard in the IPEC small claims track without undue difficulty. This was not affected by the fact that the Second Defendant was likely to give evidence by video link since she now lived in Australia ([16]-[19]). vi) The fact that both sides had legal representation was not a factor against transfer. The First Defendant was a one-woman company, and the Claimant was also a small company ([20]). vii) Given that it was unlikely that there was much at all at stake, it was entirely appropriate that the parties should be required to devote as little as was reasonably possible in the way of resources to resolve the dispute ([21]).

The grounds of appeal

[20]The Claimant appeals on two grounds. Ground 1 is that the judge was wrong to transfer the claim to the small claims track because the overwhelming majority of factors favoured its retention in the multi-track. Ground 2 is that the judge erred in law because intellectual property cases must be tried in a forum that allows for the award of a significant and appropriate part of the winner’s reasonable legal costs, which is not possible in the IPEC small claims track.

Ground 2

[21]Ground 2 is based on Article 14 of the Enforcement Directive. The Enforcement Directive was intended substantially to harmonise the procedures for enforcement of intellectual property rights in the Member States of the European Union, although it is not an exhaustive harmonisation. Article 14 provides:
“Legal costs Member States shall ensure that reasonable and proportionate legal costs and other expenses incurred by the successful party shall, as a general rule, be borne by the unsuccessful party, unless equity does not allow this.”
[22]In the United Kingdom the Enforcement Directive was implemented by the 2006 Regulations. These included regulation 3 referred to in paragraph 5 above, among other provisions. As explained in the table accompanying the Explanatory Memorandum to the 2006 Regulations, the Government took the view that no specific implementation was required for Article 14 as it reflected the general practice of the UK courts.[23]It will be appreciated from what I have said above that the IPEC small claims track did not exist at the time that the UK implemented the Enforcement Directive. All intellectual property claims were then allocated to the multi-track, whether they were issued in the High Court or the PCC. It does not appear that compliance with Article 14 of the Enforcement Directive was considered when the small claims track was introduced into the PCC. (By contrast, Article 14 was considered by the Working Group in its Consultation document at page 19; but as I have said the Working Group’s proposals did not include a small claims track.)[24]Article 14 of the Enforcement Directive was considered by the Court of Justice of the European Union in Case C-57/15 United Video PropertiesInc v Telenet NV [EU:C:2016:611]. This was a reference from the Antwerp Court of Appeal. The underlying case was a patent infringement action. At first instance the Belgian designation of the relevant European Patent was held to be invalid for lack of novelty. A Belgian Royal Decree of 26 October 2007 established a scale of standard reimbursements of legal costs depending on the value of the claim. The claimant UVP was ordered to pay the defendant Telenet EUR 11,000, which was the maximum amount available under Article 3 of the Royal Decree, as adjusted for inflation pursuant to Article 8 of the Royal Decree, for actions whose object could not be evaluated in monetary terms.[25]UVP appealed to the Antwerp Court of Appeal. Following parallel English proceedings finding that the UK designation of the Patent was invalid for lack of inventive step, UVP discontinued its appeal. In the light of the discontinuance Telenet requested that UVP be ordered to reimburse it EUR 185,462 in respect of lawyers’ fees and EUR 44,000 in respect of a technical expert’s fees. In accordance with the Royal Decree Telenet could only claim EUR 11,000 for each instance in respect of lawyers’ fees, and in accordance with Belgian case law Telenet could only claim a technical expert’s fees if UVP was at fault in bringing or continuing its action and those costs were a necessary consequence. Telenet contended that these restrictions were contrary to Article 14. The Antwerp Court of Appeal referred two questions to the Court of Justice, the first of which was concerned with lawyers’ fees and the second with the technical expert’s fees.[26]In answer to the first question, the Court of Justice held at [22] that “legal costs” included lawyers’ fees. It went on at [24]-[27] to note that Article 14 only required the reimbursement of “reasonable” legal costs. It said that a flat-rate for reimbursement of lawyers’ fees “could, in principle, be justified, provided that it is intended to ensure the reasonableness of the costs to be reimbursed, taking into account factors such as the subject matter of the proceedings, the sum involved, or the work to be carried out to represent the client concerned”. That could not, however, justify “legislation imposing a flat-rate significantly below the average rate actually charged for the services of a lawyer in that Member State”, which would be incompatible with the requirement in Article 3(2) of the Enforcement Directive that procedures and remedies be dissuasive.[27]As for the requirement that the costs be “proportionate”, the Court of

Justice said:

“29. … The question of whether those costs are proportionate cannot be assessed independently of the costs that the successful party actually incurred in respect of the assistance of a lawyer, provided they are reasonable within the meaning of paragraph 25 above. If the requirement of proportionality does not imply that the unsuccessful party must necessarily reimburse the entirety of the costs incurred by the other party, it does however mean that the successful party should have the right to reimbursement of, at the very least, a significant and appropriate part of the reasonable costs actually incurred by that party. 30. Therefore, national legislation that lays down an absolute limit in respect of costs attached to the assistance of a lawyer, such as that at issue in the main proceedings, must ensure, on the one hand, that that limit reflects the reality of the rates charged for the services of a lawyer in the field of intellectual property, and, on the other, that, at the very least, a significant and appropriate part of the reasonable costs actually incurred by the successful party are borne by the unsuccessful party. It is not possible for such legislation, particularly in a situation in which that limit is too low, to prevent the amount of those costs vastly exceeding the limited [sic] provided for, so that the reimbursement which the successful party may claim becomes disproportionate or even, where applicable, insignificant, thus depriving Article 14 of Directive 2004/48 of its practical effect. 31. The conclusion in the preceding paragraph cannot be called into question by the fact that Article 14 of Directive 2004/48 excludes from its scope situations in which equity does not allow the legal costs to be borne by the unsuccessful party. That exclusion covers national rules allowing courts, in a specific case in which the application of the general scheme regarding legal costs would lead to a result considered unfair, to disregard that scheme by way of exception. On the other hand, equity, by its very nature, cannot justify a general unconditional exclusion of reimbursement of costs exceeding a specified ceiling.”
[28]Accordingly, the Court of

Justice ruled:

“Article 14 of [the Enforcement Directive] must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which provides that the unsuccessful party is to be ordered to pay the legal costs incurred by the successful party, which offers the courts responsible for making that order the possibility of taking into account features specific to the case before it, and provides for a flat-rate scheme for the reimbursement of costs for the assistance of a lawyer, subject to the condition that those rates ensure that the costs to be borne by the unsuccessful party are reasonable, which it is for the referring court to determine. However, Article 14 of that directive precludes national legislation providing flat-rates which, owing to the maximum amounts that it contains being too low, do not ensure that, at the very least, that a significant and appropriate part of the reasonable costs incurred by the successful party are borne by the unsuccessful party.”
[29]When the United Video Properties case returned to the Antwerp Court of Appeal, that Court did not apply the Court of Justice’s ruling with respect to lawyers’ fees on the basis that Article 14 had no horizontal direct effect and the State was not a party, and thus the Court was bound to apply the regime set out in the Belgian legislation. The Court of Appeal accepted that national law had to be interpreted so far as possible in accordance with the Enforcement Directive, but explained that it could not rule contra legem. Accordingly, it awarded Telenet EUR 12,000 for the legal costs of each instance: Rovi Guides Inc v Telenet NV (2012/AR/2489, 8 May 2017). Telenet was successful, however, in recovering the fees of its technical expert.[30]In Tumber v Independent Television News Ltd [2017] EWHC 3093 (IPEC) HHJ Hacon held the costs regime in the IPEC small claims track complied with Article 14 of the Enforcement Directive as interpreted by the Court of

Justice in United Video Properties for the following reasons:

“30. …. The point emphasised by the CJEU is that a significant and appropriate part of the reasonable costs incurred by a successful party are to be borne by an unsuccessful party. The whole purpose of IPEC small claims is that it would be unusual for the payment of those costs to be appropriate. It provides a low cost forum for parties to litigate IPEC cases which is undoubtedly in the public interest. 31. The rules also provide for the payment of costs by a successful party in circumstances in which, in the view of the IPEC small claims court, are appropriate. …”
[31]The Claimant argues that, contrary to what HHJ Hacon decided in Tumber, the IPEC small claims track costs regime does not comply with Article 14 of the Enforcement Directive as interpreted in United Video Properties, because it does not enable the successful party to recover a significant and appropriate part of reasonable lawyers’ fees it has incurred. The only sum that can be recovered in respect of lawyers’ fees is £260 if an injunction is claimed (unless there is unreasonable behaviour on the part of the other party). Accordingly, the Claimant contends, the judge was wrong to transfer the present case from the multi-track to the small claims track.[32]The Claimant accepts that it did not advance this argument before the judge. It contends that it should be permitted to do so on appeal because the compatibility of the IPEC small claims track costs regime with Article 14 is a pure point of law. Although counsel for the Respondents disputed that the issue was a pure point of law, I consider that the Claimant is right about this. I cannot see that the Respondents are prejudiced in any way by the fact that the point was not taken below. Accordingly, I would grant the Claimant permission to raise the argument.[33]The Defendants contend that HHJ Hacon was right to hold in Tumber that the IPEC small claims track costs regime complied with Article 14. Given that the purpose of the small claims track is to provide a forum for claims of low value and lesser complexity, the Defendants argue that it is appropriate and proportionate for lawyers’ fees not generally to be recoverable by the successful party. Even if that is wrong, however, the Defendants contend that there are two fundamental obstacles to the Claimant’s argument (neither of which was identified in the Defendants’ Practice Direction 52C paragraph 19(1) statement opposing the grant of permission to appeal).[34]The first obstacle is that, as explained above, Article 14 was not implemented by the UK while it was a Member State of the EU. Even if the UK were still a Member State, the Claimant would therefore need to show that Article 14 has direct effect. Counsel for the Claimant accepted that Article 14 does not have horizontal direct effect. He argued that it does have vertical direct effect, but accepted that that would not assist the Claimant because the Defendants are not State bodies. Accordingly, he was reduced to arguing that the relevant rules should be interpreted so far as possible in accordance with Article 14 applying Case C-106/89 Marleasing SA v La Comercial Internacional de Alimentación SA [1990] ECR I-4135.[35]Counsel for the Claimant did not argue that CPR rule 27.14(2) could be interpreted consistently with Article 14 if the Claimant is correct that, in intellectual property cases, the successful party must be able to recover a significant and appropriate part of reasonable lawyers’ fees even for a small claim. Rule 27.14(2) says that the court “may not order a party to pay a sum to another party in respect of that other party’s costs, fees and expenses” with certain limited exceptions. Those words cannot be interpreted as empowering the court to order the payment of a significant and appropriate part of the successful party’s reasonable lawyers’ fees.[36]Instead, counsel for the Claimant’s argument was that, when applying rule 26.13(1) to intellectual property claims where the parties are legally represented, the court must take into account the fact that a transfer to the small claims track would deprive the successful party of its entitlement to a significant and appropriate part of its reasonable lawyers’ fees. The problem with this argument is that, if accepted, it would mean that no intellectual property claim could ever be transferred to the small claims track if the parties were legally represented (and possibly even if only one party was legally represented).[37]In my judgment that would plainly go against the grain of the legislation for two inter-related reasons. First, rule 63.27(3) provides that the ordinary rule on allocation contained in rule 26.13(1) applies to IPEC claims, and rule 26.13(1) does not differentiate between intellectual property claims and other claims. Secondly, it is clear from the rules that the small claims track is designed to be a forum in which, subject to very limited exceptions, there is no costs shifting. The rationale for this is partly to enable low value claims of lesser complexity to be litigated at proportionate cost, and partly to ensure that litigants are not deterred from litigating such claims by the fear of adverse costs orders. Accordingly, I consider that the Claimant’s interpretation of rule 26.13(1) cannot be justified by the Marleasing principle.[38]Even if I am wrong about that, the second and decisive obstacle to the Claimant’s argument is the Retained EU Law (Revocation and Reform) Act 2023 (“REULA”). Whatever may have been the position under the European Union (Withdrawal) Act 2018 as amended by the European Union (Withdrawal Agreement) Act 2020, section 2(1) of REULA repealed section 4 of the 2018 Act with effect from 31 December 2023; section 3(1) of REULA amended section 5 of the 2018 Act to insert section (A1), which provides that “[t]he principle of the supremacy of EU law is not part of domestic law” after 31 December 2023 “in relation to any enactment or rule of law (whenever passed or made)”; and section 4(2) amended section 5 of the 2018 Act to insert section (A4) which provides that “[n]o general principle of EU law is part of domestic law” after 31 December 2023. It follows that it is no longer open to the Claimant to advance an argument based either on Article 14 having direct effect or on the Marleasing principle.[39]Counsel for the Claimant’s only answer to this was to argue, somewhat faintly, that rule 26.13(1) should continue to be interpreted as it would have been interpreted between 28 July 2016, when United Video Properties was decided, and 31 December 2023. This argument has no foundation, however, since this claim was commenced in 2024, and the whole point of RUELA was to curtail the applicability of EU law after 31 December 2023. It is not even the case that the Claimant is able to rely upon any decision of a domestic court interpreting rule 26.13(1) in the manner contended for prior to 31 December 2023 (or, which may be more important, prior to 31 December 2020).

Ground 1

[40]It is well established that appellate courts should uphold robust, fair management decisions by first instance judges, and that such decisions can only be overturned on limited grounds: see e.g. Jalla v Shell International Trading and Shipping Co Ltd [2021] EWCA Civ 1559 at [27]-[28] (Coulson LJ).[41]The Claimant contends that the judge’s reasoning suffers from four flaws. The first flaw relied upon is that, although the judge was correct to say that the Claimant had not given any evidence as to the quantum of any claim for lost profits it might make, damages could be assessed by way of a reasonable royalty on infringing sales. The Claimant argues that a royalty of 5% on the First Defendant’s turnover of £390,000 would yield damages of £19,500, well above the level for IPEC small track claims indicated by rule 63.27(1)(b) of £10,000. Even a royalty of 3% would yield damages of £11,700.[42]As the Defendants point out and the Claimant accepts, this is not an argument which the Claimant advanced before the judge, and therefore he cannot be criticised for not taking it into account. Furthermore, it assumes that a reasonable royalty in this case would be 5%, or 3%, but there is no evidence to support that assumption. It also ignores the fact that some of the First Defendant’s turnover comprises sales of products other than the one in issue. The Claimant argues that damages are recoverable on the other products on the basis that they are “convoyed goods”, but even leaving aside other potential problems with this argument it is difficult to see why the same royalty should necessarily apply to the other products.[43]As counsel for the Defendants pointed out, the problem which the Claimant faces is entirely of its own making: it was challenged to produce evidence to support its contention that the financial value of the claim exceeded £10,000, but it failed to do so.[44]Secondly, the Claimant argues that the judge omitted to consider a number of issues when making his assessment of the complexity of the case and that it is unrealistic to suppose that the case could be tried in one day. As the Guide indicates, cases which will take more than a day to hear are usually not suitable for the small claims track.[45]In addressing this argument, it is right to begin by acknowledging that the Claimant’s claims have been elaborately pleaded in Particulars of Claim settled by counsel and that the Defendants’ defences have been equally elaborately pleaded in a Defence settled by counsel. As discussed above, the Defence included a challenge to the validity of the Trade Mark. It even included passing reliance upon regulation 4 of the Business Protection From Misleading Marketing Regulations 2008 (SI 2008/1276). Although counsel for the Claimant did not put the point in quite this way, one theme of his submissions was that the way in which the case was pleaded by both parties demonstrated that neither side had approached it in a manner consistent with it being suitable for the small claims track. I will return to this point below.[46]The judge sensibly based his assessment of the complexity of the case on the lists of issues prepared by the parties. Both sides’ lists summarised the issues at an appropriately high level of generality. The only significant difference between the two lists is that the Claimant’s list included the issue of infringement under section 10(1), but the Defendants’ list did not. Counsel for the Defendants suggested that this meant that the issue did not need to be determined, but he was unable to say that infringement was admitted, and therefore the issue does require determination.[47]Counsel for the Claimant pointed out that, in his summary of the issues, the judge omitted to mention(i) section 10(1) infringement,(ii) passing off,(iii) the claim for additional damages or(iv) joint tortfeasance. Counsel for the Claimant submitted that these omissions vitiated the judge’s assessment of the complexity of the case.[48]I do not accept this submission. The judge was plainly aware of these issues, because they were included in the lists of issues to which he referred. The judge evidently did not consider that these issues were significant ones. I am not persuaded that he was wrong to take that view. The only real defence to the section 10(1) claim appears to be that the uses complained of were de minimis. The passing off claim adds nothing to the section 10(2) claim. The Claimant did not suggest to the judge that the claim for additional damages raised any point of complexity, and it need not do so. The only real issue on joint tortfeasance is the extent of the Second Defendant’s knowledge.[49]Counsel for the Claimant also criticised the judge’s statement at [17] that the Claimant “did not list any factual dispute” in its list of issues. Taken out of context, this statement appears to be incorrect. For example, one of the issues listed by the Claimant was whether it owned substantial goodwill in connection with the Trade Mark, which is certainly a factual issue. Read in context, however, it seems to me that what the judge meant was that the Claimant had not listed any dispute as to whether or not the First Defendant had stopped using the sign “piddlepatch”/“Piddle Patch”/“PiddlePatch” when the Claimant complained. As he said, this issue is only relevant to quantum anyway.[50]Overall, the key question is whether the judge was entitled to take the view that the claim could be tried in the small claims track in one day. I think it is fair to say that, if the claim were tried in the IPEC multi-track, it would probably be listed for a two-day trial. Given the judge’s experience, however, I see no reason to doubt his assessment that it could be tried in one day. I note that the judge left open the possibility of quantum being determined separately if necessary, which would enable the whole of the day to be devoted to the issues on liability.[51]Thirdly, the Claimant argues that the judge was wrong to discount the fact that both parties are legally represented. In my view it would have been open to the judge to conclude that the approach which both sides had taken of instructing solicitors and counsel, and serving elaborate statements of case, indicated that it was not suitable for the small claims track. Nevertheless, he was also entitled to conclude that the approach adopted by the parties up to that point should not be permitted to dictate the court’s decision on allocation given that there is nothing to preclude parties from being legally represented in the small claims track if they so wish.[52]Lastly, the Claimant contends that the judge was not justified in concluding that little was at stake and therefore the parties should be required to resolve their dispute within the constraints imposed by the small claims track. This contention rests upon the premise that the judge was wrong to assess the financial value of the claim as being below £10,000, and probably well below that figure. For reasons given above, the judge was fully entitled to proceed on that basis.[53]Given that the financial value of the claim is below £10,000, and that it can be tried in the small claims track in one day, the judge was entitled to conclude that the overriding objective, and in particular the requirement to determine claims at proportionate cost, meant that the claim should be allocated to the small claims track. As the judge recognised, that will require both sides to conduct the litigation in a more cost-effective and proportionate manner than hitherto if they are not to face the prospect of significant irrecoverable costs even if they are successful.

Conclusion

[54]For the reasons given above I would dismiss the appeal.[55]I agree.[56]I also agree.

Cited in 2 later judgments