Syngenta Ltd & Ors v Chemsource Ltd & Anor [2012] EWHC 1507 (Pat)

[2012] EWHC 1507 (Pat)Case No HC 11 C 03433
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 29/05/2012
Before
MR. D. ALEXANDER Q.C.(Sitting as a Deputy Judge of the Chancery Division)
Between
(1) SYNGENTA LIMITEDClaimants(2) SYNGENTA CROP PROTECTION UK LIMITEDClaimant(3) SYNGENTA PARTICIPATIONS AGClaimant(1) CHEMSOURCE LIMITEDDefendants(2) AGCHEMACCESS LIMITEDDefendant
(Computer-aided transcript of the Stenograph & Shorthand Notes ofMarten Walsh Cherer Limited, 1st Floor, Quality House, 6-9 Quality Court,Chancery Lane, London, WC2A 1HP.Telephone No: 020 7067 2900. Fax No: 020 7831 6864.Email: info@martenwalshcherer.com)
MISS ANNA EDWARDS-STUART (instructed by Bristows) appeared for Claimants.MR. SIMON MALYNICZ (instructed by Leathes Prior) appeared for Defendants.
JUDGMENT

MR. D. ALEXANDER Q.C. :

[1]These are applications by the claimants and defendants respectively for certain procedural orders in this action for patent infringement, trade mark infringement and passing off.[2]Among the orders sought by the defendants is a costs capping order pursuant to CPR 44.18. Because such orders are not commonly sought in intellectual property cases and, so far as I am aware, have never been made, save by consent, in a patent case, I reserved judgment on these applications. The other orders sought relate to disclosure, further information and an application to amend the pleadings.[3]The applications are respectively supported and answered by evidence from Mr Robert Barlow, partner of Leathes Prior, solicitors for the defendants, and Ms Sally Field, partner of Bristows, solicitors for the claimants, from which the factual material in this judgment is drawn. The court has also been referred to the earlier evidence on the case management conference.

Background to this claim

[4]The claimants are members of a substantial agrochemical businesses group concerned in the development, manufacture, distribution and sale of crop protection and related products. Among their products is a fungicide known as azoxystrobin. The claimants' sales of azoxystrobin worldwide in 2010 were in excess of £1 billion and, in the UK alone in that year, £17 million.[5]The first claimant is the proprietor of EP(UK) 382,375 which covered azoxystrobin and which expired on 24th January 2010. Azoxystrobin continued to be protected by a SPC GB/97/016 until 3 April 2011 when the SPC based on that patent relating to that product expired. The second claimant was the first claimant's licensee under the patent and SPC. The third claimant is the proprietor of certain registered trade marks for a device and for the shape or a container and the second and third claimants are alleged to have a substantial goodwill and reputation in the device marks and in the shape of the containers.[6]The defendants are dealers in agrochemical products. The first defendant, Chemsource, is a small company with limited assets as shown in its abbreviated balance sheet to 28th February 2011. The second defendant, Agchemaccess, is an agrochemical broker with a substantial turnover and a profit in the latest year for which details are exhibited of about £400,000. Its business involves dealing in both genuine proprietary products sourced from within the EEA and generic products.[7]In 2010, the first claimant commenced previous proceedings from infringement of the SPC against Agchemaccess. That resulted in a consent order dated 11th June 2010 whereby Agchemaccess undertook not to deal in azoxystrobin products save those manufactured and/or first marketed by or with the consent of the first claimant in the European Economic Area.[8]At some point prior to expiry of the SPC, the claimants found a container of azoxystrobin in the hands of a distributor in the UK which, from its label, purported to originate with Chemsource. It was labelled “CS Azoxy” and the container bore certain similarities to the containers in which the claimants have marketed their azoxystrobin products. The claimants took the container away for analysis of its contents, providing a container of their own azoxystrobin in exchange.[9]The claimants' laboratory analysis showed that the defendants' CS Azoxy product differed from the azoxystrobin formulations manufactured by or on behalf of the claimants in two ways. First, there were different levels of a by-product known as R290237. Second, the defendants' CS Azoxy product did not contain propylene glycol, which the claimants' azoxystrobin formulations do contain. Although it is not stated in the evidence what the propylene glycol is there for, one common use for that additive is as a non-toxic anti-freeze suggesting perhaps that the CS Azoxy tested may have been intended for warmer climates. The claimants' conclusion from this testing was that the product in the 5-litre containers purporting to originate from the first defendant was a generic product, the sale of which in the UK infringed the SPC.

Tests are provided to the defendants

[10]The results of the claimants' tests were provided to the first defendant on 29 March 2011, well before commencement of these proceedings, and samples were offered for testing. On 1st April 2011, the first defendant's solicitors stated that, according to their instructions, since October 2010, it had purchased and sold 2000 litres of CS Azoxy. They enclosed two supplier invoices and one customer invoice. The first supplier invoice, dated 15th October 2010, was from a Romanian company. The product sold was described as “AMISTAR (azoxystrobin 250gl)” in 5 litre packs. The total quantity was 1600 litres for a price of some 62,000 Euros. The second supplier invoice was dated 8th October 2010 and was from a company named AgChemAccess.Com Limited in respect of a product described as “Syngenta Quadris” 400 litres at a total price including VAT of some £13,000. The customer invoice dated 25th November 2010 was to AgchemAccess.Com Limited and was for 2,000 litres of a product described in the invoice as “CS Azoxy”. The total invoice value was for some £71,000 including VAT. Instructions were given on the invoice to deliver the product to AgChemAccess.Com Limited at an address in Norwich. The letter of 1st April 2011 also stated that the Syngenta Quadris product had been supplied by Verde Bio in Italy and that details of the batch numbers were not available but further enquiries were being made.[11]After some further correspondence the first defendant responded by its solicitors, noting that they were unable to take a view on the reliability of the test results. They did not, however, request samples to undertake their own tests.

The proceedings

[12]After further correspondence over the summer of 2011 including unsuccessful attempts to resolve the matter, these proceedings were commenced on 4th October 2011. The claim includes claims for an injunction to restrain trade mark infringement and passing off (together with delivery up of infringing product and materials), damages in respect of infringement of the SPC, trade mark infringement and passing off, publication of the judgment and, by proposed amendment, a declaration that certain rights have been infringed. There are also claims for further and other relief.[13]As regards infringement of the SPC, the only acts in respect of which relief is sought are the sale of the 2,000 litres of CS Azoxy. The defendants contend that the profit on the sale of this consignment would not have exceeded some £7,000 and that the claim is therefore for a sum which, in the context of the claimants' business, the defendants' business and by the standards of the High Court patent claims, is very small.[14]The defence and counterclaim, served on 16th November 2011, stated, among other things, that the defendants were “very successful companies” and gave the turnover of the second defendant as £24 million. The defendants denied trade mark infringement and passing off and contended that the marks relied on were invalid. They admitted that they had disposed of a formulation of azoxystrobin under the name “CS Azoxy”, but contended that the products were made by or under licence of the claimants, or any of them, and that they were first placed on the market in the EEA with the consent of the claimants. They stated that, pending inspection and/or testing, the defendants were unable to admit or deny whether the product specifically pleaded in the particulars of infringement was an example of such products. They did not admit the inferences sought to be drawn by the claimants that the product in question had originated from them.[15]The reply and defence to counterclaim served by the claimants on 8th December 2011 noted that at least the first defendant had been notified of the claim on 10th March 2011 and was provided with a copy of the analysis of the product referred to in the particulars of infringement and that a sample had been offered for testing as had inspection of the container. The claimants denied that the azoxystrobin formulation in the consignment which contained the 5 litre container in question was made by, or under licence of, the claimants or any of them or that they were first placed on the market in the EEA with the consent of the claimants. The claimants, inter alia, contended that neither the Romanian company, SC Axopan, nor the Italian company, Verde Bio, from which the defendants' product was alleged to have come, were authorised distributors of the claimants' azoxystrobin products or were licensed to manufacture or sell the claimants' azoxystrobin products.[16]A number of specific responses were also made to the pleadings relating to the trade mark and passing off issues, but it is not necessary to outline these here.[17]In January 2012, there was an exchange of requests for further information to which I shall refer in more detail below. At a case management conference on 6th February 2012, at the claimants' request, Floyd J ordered that there should be a preliminary trial of the following issues:(1) Whether the azoxystrobin formulation referred to at paragraph 17(1) of the particulars of claim and paragraph 1(1) of the particulars of infringement was part of a consignment of azoxystrobin formulation placed on the market by the defendants or either of them (“the Azoxystrobin Consignment”).(2) Whether the azoxystrobin consignment is genuine, namely, whether the azoxystrobin consignment was manufactured by the claimants or with their consent.(3) Whether the azoxystrobin formulation in the azoxystrobin consignment falls within the scope of SPC/GB97/016.[18]Directions were made for the trial of those issues, which has now been fixed for July 2012, with an estimated length of two days and pre-reading estimate of half a day. The directions included the full suite of provisions in substantial patent cases including disclosure; experiments (with provision for repetitions); experts (one each); and factual evidence. Floyd J stayed all of the other issues.[19]During argument on that application, Floyd J expressed concern about whether the costs of the case were proportionate to the value of the claim. In his judgment, he said at paragraph 14:
“I do not have before me the material on which it would be appropriate to make a cost capping order. However, I do not rule out the making of such an order in due course if either side applies for one. In the meantime, I propose to order both sides to produce a costs estimate for the preliminary issue, so that before the procedural steps necessary to try that issue are embarked upon I have a realistic estimate of the costs which each side propose to expend on that issue.”
[20]He ordered the parties to serve schedules of their costs to date and their anticipated costs through to the conclusion of the trial of the preliminary issues. Floyd J also made certain orders regarding the service of responses to the requests for further information which the parties had served on each other in January 2012, in each case requiring that the parties serve “a response” to the other side's requests (in the case of the defendants, limited to the requests relating to the preliminary issues).[21]The claimants had also served a notice to admit facts. The defendants' response to it has, in effect, admitted nothing and has required the claimants to prove every part of their case (including the technical case as to whether the product the subject of the particulars of claim fell within the SPC). Among other things, the defendants stated that the claimants were required to prove whether the sample analysed by them was a sample of CS Azoxy and that the analysis results, as detailed in the technical report dated 17th February 2011, were accurate and reliable. The defendants also did not admit that the sample fell within the scope of the SPC.[22]The parties served statements of costs pursuant to Floyd J's order. They showed that claimants' costs to trial were likely (on the estimates given) to exceed £300,000 down to trial of the preliminary issues whereas the defendants' costs were estimated to be about £70,000.[23]The parties provided standard disclosure pursuant to Floyd J's order and the claimants served a substantial notice of experiments on 20th April 2012. The notice of experiments requested that the defendants state by 27th April 2012 what was admitted and state before 4th May 2012 whether they wished to inspect a repeat of the experiments identified in the notice. That notice of experiments referred to test results on two samples, the original sample referred to in the particulars of infringement and a further sample which is the subject of a proposed amendment to the claim. The experiments involve gas chromatography, mass spectrometry and flame ionisation. They are said to show, for each of the samples, the quantity of azoxystrobin present, the level of a particular impurity which is said to differ in the case of genuine azoxystrobin (i.e. that originating from the claimants) and generic product. The experiments also show the levels of propylene glycol in the respective products. The experimental report, which is the subject of the notice, provides more detail than that originally provided to the defendants in March 2011 but, in substance, it makes the same point, that there is a significant difference between the azoxystrobin in the containers bearing the first defendant's name and genuine azoxystrobin made by, or for, the claimants.[24]The defendants have not yet served a complete response to the notice of experiments, nor have they indicated whether they wish to witness a repetition or undertake experiments of their own. The current position is therefore that the defendants have effectively put the claimants to proof on almost all aspects of the SPC claim. They have not accepted any part of the claimants' experimental evidence and are contending that the samples that the claimants have tested may not have originated from them, despite the fact that the first defendant's name is on the 5 litre cans from which the samples tested by the claimants were drawn and that there is no dispute that the defendants have dealt in azoxystrobin. That is against the background of the second defendant having previously given undertakings not to infringe the SPC in respect of previous consignments of azoxystrobin in the manner outlined above.[25]I should also note that, while the defendants' position in this litigation has been to admit relatively little, they proposed open terms in May 2011 for settlement prior to commencement of the litigation. Those were however unacceptable to the claimants.[26]I now turn to the applications.

Cost Capping Order

[27]The first is the defendants' application contained in its notice dated 14th May 2012 seeking an order that the claimants' future costs from the date of the order to the trial of the preliminary issue, herein currently listed for 17th-20th July 2012, and any damages inquiry or account of profits following such trial be limited to £50,000.

Principles

[28]CPR 44.18 came into force in 2009 and now codifies the power of the High Court to make costs capping orders. Such orders had been applied for and in some cases made prior to that provision. The position pre-CPR 44.18 was reviewed by Coulson J in Barr & Ors v Biffa Waste Services Ltd (No.2) [2009] EWHC 2444 (TCC) (“Barr”) as follows:
"2. COSTS CAPPING/RELEVANT PRINCIPLES OF LAW 2.1 Pre-April 2009 4. CPR 44.18 came into force in April 2009. It is therefore necessary to consider, albeit briefly, the pre-April 2009 authorities dealing with costs capping before setting out the new provisions. 5. The starting point for any consideration of costs capping orders is the decision of Musa King v The Daily Telegraph Group Limited (Practice Note) [2005] 1 WLR 2282, in which the court's power to make such orders was affirmed. It was a defamation case in which the claimant's solicitors were working on a CFA with a significant uplift, but there was no ATE cover. In other words, the defendant was faced with what Lord Hoffmann described in Campbell v MGN Limited (Number 2) [2005] 1 WLR 3394 as 'the blackmailing effect of defamation litigation conducted under a CFA without ATE insurance'. In King, the Court of Appeal set out robust general rules relating to the making of costs capping orders. 6. Guidance as to the circumstances in which a costs capping order may be appropriate was provided in Smart v. East Cheshire NHS Trust [2003] 80 175. In that case Gage J (as he then was) said this: 'In my judgment the court should only consider making a costs cap order in such cases where the applicant shows by evidence that there is a real and substantial risk that, without such an order, costs will be disproportionately or unreasonably incurred, and that this risk may not be managed by conventional case management and a detailed assessment of costs after a trial, and it is just to make such an order. It seems to me that it is unnecessary to ascribe to such a test the general heading of exceptional circumstances. I would expect that, in the run of ordinary actions, it would be rare for this test to be satisfied, but it is impossible to predict all the circumstances in which it may be said to arise. Low value claims will inevitably mean a higher proportion of costs to value than high value claims. Some high value claims will involve greater factual and legal complexities than others.'"
'In my judgment the court should only consider making a costs cap order in such cases where the applicant shows by evidence that there is a real and substantial risk that, without such an order, costs will be disproportionately or unreasonably incurred, and that this risk may not be managed by conventional case management and a detailed assessment of costs after a trial, and it is just to make such an order. It seems to me that it is unnecessary to ascribe to such a test the general heading of exceptional circumstances. I would expect that, in the run of ordinary actions, it would be rare for this test to be satisfied, but it is impossible to predict all the circumstances in which it may be said to arise. Low value claims will inevitably mean a higher proportion of costs to value than high value claims. Some high value claims will involve greater factual and legal complexities than others.'"

CPR 44.18

[29]CPR 44.18 provides as follows:
"(1) A costs capping order is an order limiting the amount of future costs (including disbursements) which a party may recover pursuant to an order for costs subsequently made. (2) In this rule, 'future costs' means costs incurred in respect of work done after the date of the costs capping order but excluding the amount of any additional liability. .... (5) The court may at any stage of proceedings make a costs capping order against all or any of the parties, if (a) it is in the interests of justice to do so; (b) there is a substantial risk that without such an order costs will be disproportionately incurred; and (c) it is not satisfied that the risk in sub-paragraph (b) can be adequately controlled by – (i) case management directions or orders made under Part 3; and (ii) detailed assessment of costs. (6) In considering whether to exercise its discretion under this rule, the court will consider all the circumstances of the case, including (a) whether there is a substantial imbalance between the financial position of the parties; (b) whether the costs of determining the amount of the cap are likely to be proportionate to the overall costs of the litigation; (c) the stage which the proceedings have reached; and (d) the costs which have been incurred to date and the future costs." (b) there is a substantial risk that without such an order costs will be disproportionately incurred; and (c) it is not satisfied that the risk in sub-paragraph (b) can be adequately controlled by – (i) case management directions or orders made under Part 3; and (ii) detailed assessment of costs. (a) whether there is a substantial imbalance between the financial position of the parties; (b) whether the costs of determining the amount of the cap are likely to be proportionate to the overall costs of the litigation; (c) the stage which the proceedings have reached; and (d) the costs which have been incurred to date and the future costs."
[30]As Coulson J said in Barr, these provisions reflect the approach to the making of costs capping orders in Smart v. East Cheshire NHS Trust. In Peacock v. MGN Limited [2009] EWHC 769 (QB), Eady J observed that the new rules comprised a more restrictive approach to costs capping than that favoured by many and that the proactive and interventionist approach recommended by Brooke LJ in Musa King was on the wane. He said that the contrasting judicial viewpoint, exemplified by the more cautious approach of Gage J (as he then was) in Smart v. East Cheshire NHS Trust was reflected in the wording of the new rules. The application of CPR 44.18 must be approached with that in mind.

The conditions in CPR 44.18(5)

[31]As was done Barr, it is convenient to consider the conditions in this rule in a somewhat different order and deal with the interests of justice at the end. The first question then is, therefore, whether there is a substantial risk that, without a costs capping order, costs will be disproportionately incurred.[32]In Barr, Coulson J. said, at paragraph 42:
"In truth, the critical issue arising on this application is this: what does 'disproportionate' mean? Disproportionate to what? In the reported cases, the costs capping order has been sought by a defendant concerned about the claimant's expenditure on costs which, so it is commonly argued, is disproportionate, either as against the value/worth of the litigation, and/or when measured against the costs that the defendant itself is incurring."
[33]I propose to follow this approach. The primary yardstick for assessing whether the costs are disproportionate is the value/worth of the litigation and the costs incurred by the other side. However, applying that yardstick can be easier said than done.[34]In some cases, an apparently modest claim may have great commercial value in that success with it, even if of limited importance in the given case, deters others from engaging in similar infringing conduct. In others, an individual claim may not be worth a great deal but the claim may be brought to establish a principle of wider application. Moreover, the parties may have different views as to the value of a case. A defendant may contend that a claim is trivial, but a claimant may say that it is worth a great deal. Indeed, the value of the claim may be one of the main issues in the case. In addition, there are some claims which are expensive to establish or defend, no matter how parsimoniously they are conducted. For such cases, even a quite large absolute value of a claim may appear modest as compared with the costs of litigation. In those circumstances, large costs are inevitable if the issue is to be litigated at all. It is harder to stigmatise proposed costs if there is no way in which a claim can fairly be advanced for less, even with the parties both trying their best to keep costs down.[35]There are also difficulties in comparing one side's costs with the other side's. A party's activity in litigation and the costs they incur depend on whether they bear the burden of establishing a point. If the claimant has to make the running and the defendant can legitimately sit back criticising the claimant's case, the costs that a claimant may reasonably need to incur to advance its claim may significantly exceed those of a defendant. In addition, the costs a party has to incur may depend on the conduct of the other party. If an opposing party makes non-admissions whilst indicating that it intends to criticise every aspect of a case advanced at trial on grounds which it declines to identify, that is likely to increase the work required to ensure that potential points are covered. In those circumstances, it may be harder to conclude that costs which are large, relative to the other side's costs, are disproportionate.[36]These are in, my judgment, all points that a court evaluating a claim under CPR 44.18 should bear in mind. The jurisdiction to impose costs caps is designed to limit the costs in the interests of justice. Such applications should not be an opportunity for complex secondary disputes about the value of the claim and how "disproportionate" should be measured. In determining whether there is a risk that costs will be disproportionately incurred, the court must look beyond purely numerical comparisons, but, in my judgment, the basic questions are:
"what is the party asking for in its pleadings"; "are the costs of determining whether the party should get what it is asking for likely to be a particularly striking multiple of that?"
This requires a broad, overall, evaluation.[37]In the present case, the claimants' primary pleading as regards SPC infringement is for damages. If the defendants are correct, the gross profit on the sale of the CS Azoxy is less than £10,000. Damages are likely to be limited.[38]It was contended on behalf of the claimants that other aspects of the relief claimed might be of significance. I am not persuaded of that in this case. The claimants have already been provided with details of the undertakings who supplied the defendants with the product in issue. The additional value of a declaration that there has been infringement of patent over and above a judgment to that effect is of merely cosmetic significance. In my judgment, the value of the claim for infringement of the SPC is largely financial and is modest. There is no evidence that this claim is a test case in any real sense. In saying that, I do not ignore the value of the other relief but this is not like a defamation claim where great value lies in the vindication of reputation regardless of the financial award.[39]I turn then to the costs, first dealing with those incurred down to the date of the costs schedules.[40]By 16th February 2012, the claimants had incurred costs of about £47,000, including pre-claim costs. Those costs involved investigating the claim, corresponding with the defendants about it, dealing with the expert analysis of the sample, pleading the case of patent (SPC), trade mark infringement and passing off, addressing requests for further information and attending a contested case management conference, including preparing evidence for an application that certain matters be heard as preliminary issues, which was successful.[41]The case was conducted by a senior partner, two solicitors, a trainee and specialist junior counsel. The charging rates of these individuals do not appear to be excessive, by the standards of specialist London lawyers, nor do the hours spent on the case seem particularly high, although it would ultimately be for a costs judge to determine those issues. The schedule suggests that the bulk of the work was conducted by solicitors, with a moderate amount of partner involvement.[42]The defendants' costs schedule to 24th February 2012 is not broken down in the same way, but it shows total costs (excluding VAT) to 24th February 2012 of about £19,000. Those costs are significantly lower than those of the claimants, but the defendants are using a Norwich firm and, from the materials I have seen, appear not to have undertaken as much work as the claimants.[43]The claimants estimated that their future costs to trial (from 16th February 2012) would be £220,000. Given what is required to prepare the case for trial, I regard that figure as surprisingly high. Disclosure has been modest. Although the notice of experiments served in April 2012 contains somewhat more detailed results, it is not materially different in content to the report originally provided to the defendants. Some work will need to have been done on that, but even making allowances for that and the work which will be required on the short factual evidence concerning the containers and perhaps brief evidence to explain the experiments and confirm that they have been conducted in an appropriate way, this is a very generous estimate. There is provision in the costs estimate for large numbers of hours of work on documents, disclosure, attendance on counsel, and so on, each of which pushes up the total significantly. It is of course possible that the costs estimate was prepared on the assumption of a worst case scenario in which the claimants were faced with having to deal with unreasonable conduct on the part of the defendants, thus driving up the costs.[44]In my judgment, were the costs actually incurred at the level indicated in the claimants' costs schedule, they would be disproportionate to the value of this claim. It is, in my judgment, prima facie disproportionate for a claim worth no more than about £10,000 to attract costs of over £300,000. The condition in CPR 44.18 5(b) is, in my judgment, therefore satisfied, making the comparison of the costs with the value of the claim.[45]In this case I do not think it would be right to place so much weight on the fact that the claimants have estimated that their costs are likely to be much greater than the defendants'. This is a case in which, in the light of the defendants' stance so far, the claimants have had to make the running in proving their case, whilst the defendants have not, it would appear, had to do as much work.[46]The next question is whether the court is not satisfied that the risk in sub-paragraph 5(b) can be adequately controlled by case management directions or orders made under Part 3, and detailed assessment of costs.[47]The court has wide powers of case management, and it has already exercised some of them to order the trial of the preliminary issues. The court decided not to dispense with disclosure, experiments or expert evidence and, accordingly, the order made by Floyd J. necessarily carried with it some of the expense involved in a major patent trial. That has been compounded by the fact that the defendants have made limited admissions so far. Moreover, given the very modest financial sum at stake in this case, almost any case management directions, no matter how frugal, would result in costs which were disproportionate to the value of this claim. It is likely that the costs of this application for a costs capping order themselves exceed that value. There comes a point when the value of the claim is so small that almost any litigation devoted to fighting over it is disproportionate, no matter how carefully controlled it is by case management. This case falls into that category. In such a case, it is not possible to remove the risk that costs will be disproportionately incurred by making case management directions alone; and I am not satisfied in this case that case management directions down to trial can adequately control the risk that costs will be disproportionately incurred, given the nature of the claim and what is required to determine it.[48]I am also not satisfied that the risk that disproportionate costs will be incurred can be adequately controlled by a detailed assessment of costs. In my judgment, the reference to the "detailed assessment" in paragraph 5 of CPR 44.18 is to the specific procedure for assessment of costs, not to the general power of the courts under CPR 44.3 to determine whether costs are payable by one party to another, the amount of the costs and when they are paid. A detailed assessment of the costs is not an appropriate forum for determining fundamental questions, such as what proportion of costs a paying party must pay. That is for the trial judge: see Lahey v. Pirelli Tyres Ltd [2007] EWCA Civ 91. Costs may be controlled in a detailed assessment by a costs judge's application of principles of proportionality. Although those powers are wide, I am not, however, persuaded that this provides an entirely adequate means of addressing costs which are so far out of line with the value of the claim in this case.[49]In reaching this conclusion, I have borne in mind the observation of Coulson J. in Barr at paragraph 50, namely:
"I am unable to say, on the evidence before me, that case management directions and cost assessments could not, between them, control any risk that the claimants' base costs will be disproportionately incurred. There is, I think, no cogent evidence that would allow me to reach a different conclusion. Indeed, I venture to suggest -- echoing Mann J. in Knight and Eady J. in Peacock -- that it would be a very unusual case in which a High Court Judge did not feel able to utilise one or both of these tools to control disproportionate costs. That is, after all, what they are there for."
[50]I respectfully agree. However, there are rare cases, of which this is an example, in which the most stringent case management directions will not, of themselves, reduce the costs to a proportionate level and in which the inability of a detailed costs assessment to address the fundamental problem that the claim is worth less than the costs of the most economical litigation, may limit the potential of such an assessment alone to bring the recoverable costs to a proportionate level.[51]I turn then to the requirement that it must be in the interests of justice to make a costs capping order.[52]In Barr,Coulson J. concluded that it was in the interests of justice for an order to be made but that he was not empowered to make it because the other requirements of CPR 44.18(5) were not satisfied.[53]However, there are cases which may operate the other way around. For example, there are situations in which the court may conclude that costs are likely to be disproportionately incurred but that the reason is that the person seeking the costs capping order is making the case needlessly expensive to run. In those circumstances, the court could legitimately conclude that it would not be in the interests of justice to make an order even though costs were threatening to get out of control. Cost capping orders, at first blush, have the entirely benign effect of protecting a party against unreasonable conduct by his opponent. However, in tactically astute hands, they can be used to work injustice. A party who has had his opponent's costs capped is in a much stronger position to run a case in such a way as to force his opponent to incur large irrecoverable costs, with a view to inducing the opponent to settle on attractive terms, on the basis that pursuing the litigation is not cost effective, in the light of the irrecoverability of costs beyond the capped amount.[54]In determining whether it is in the interests of justice to make an order in any given case it is also, in my judgment, relevant to take into account the wider powers of the court to determine what costs award is just at the conclusion of proceedings. If the court is able to do better justice on costs at the end of the day than pre-emptively, that is a powerful reason why it should stay its hand in making a costs capping order.[55]In considering that issue, it is axiomatic that the court has a wide discretion as to costs under CPR 44. For example, it may deprive one or both sides of costs if it concludes that the party's conduct has led to an unnecessary trial or unnecessary issues. In certain cases, the court has deprived a party of costs where the addition of a particular claim resulted in the case being allocated to the multi-track rather than to the small claims track: see, for example, Peakman v. Linbrooke Securities Ltd [2008] EWCA Civ 1239. Moreover, in cases where there would ordinarily have been an allocation of a case to a particular track, in certain circumstances the court has the power to apply the costs regime appropriate to that track. Thus, in Voice & Script International Ltd v. Alghafar [2003] EWCA Civ 736, through oversight, the case had not been allocated to any track but was suitable for the small claims track.

Lord Justice Judge, with whom Lord Justice Dyson agreed, said:

"20. ... I can turn briefly to the principle, which seems to me to be perfectly clear. By treating the absence of allocation to track as conclusive, in my judgment District Judge Jenkins misdirected himself. The omission may have meant that the small claims costs regime did not follow as a virtually automatic starting point, but it did not preclude the court even from considering whether it would be reasonable to make an assessment consistent with the small costs regime or, for that matter, to apply the regime to a claim which should never have exceeded and never was anything more than a small claim. If that approach is not expressly stated in the Civil Procedure Rules, it follows from two essential principles, first, the discretionary nature of costs orders, and second, the overriding requirement of proportionality in civil litigation generally, and also as an essential ingredient for consideration when any question of costs arises: see Home Office v Lowndes [2002] EWCA 365. "21. In my view in the absence of any specific factors suggesting otherwise, in a case like this where, if sought, an allocation would have been made to small claims track the normal rule should be that small claims costs regime for costs should apply. While respecting Judge Oppenheimer's hesitation about interfering with a decision which he personally would not have reached, in my judgment he should have done so on the basis of the misdirection which I have identified."
[56]The appeal on costs was therefore allowed: see also Dockerill & Anor v Tullett [2012] EWCA Civ 184 (24th February 2012) where a similar approach was applied. Those cases turned on specific facts and the application of specific small claims costs regimes, and it will be for the trial judge to determine in this case what, if any, application the principles there articulated have to the present case which is of a kind which would ordinarily be heard in the Patents County Court, where there is a fixed costs regime, but which in this case could not be wholly heard there for jurisdictional reasons. However, those cases illustrate a wider point that, in certain circumstances, the fact that a case is being heard before a given court does not automatically entitle the litigants to recover costs on the basis ordinarily applicable in that court if the case falls most naturally within the financial jurisdictional ambit of a different court for which a lower scale costs regime is applicable.[57]In addition, the court has the power to take into account any offers, whether they are open, made pursuant to CPR Part 36 or without prejudice save as to costs, in deciding what orders to make. The court also has the power to take into account any unreasonable refusals to mediate a claim in determining what costs should be awarded.[58]In Knight v. Beyond Properties Pty Ltd. [2007] 1 WLR 625, Mann J, concluding that no costs capping order was appropriate, said that any extravagant costs should be left to detailed assessment post-trial, rather than by way of any application before the costs had actually been incurred. He observed that "retrospective judgments about such things are likely to be more reliable than prospective judgments". I respectfully agree.[59]I am not satisfied that in this case it is in the interests of justice to make a costs capping order and, in the specific circumstances of this case, any disproportionate costs are more effectively controlled post-trial. Moreover, the trial judge will be in a better position to assess at the conclusion of the case whether the claimants have been running up costs unnecessarily despite the defendants' attempts to limit them, or whether the defendants' approach to the litigation has forced the claimants to incur the costs in question to advance the claim at all.[60]For those reasons, I do not consider that all of the conditions in CPR 44.18(5) are satisfied in this case. However, even if I had concluded that they were and that it was in principle in the interests of justice to make an order, I would have declined to do so in the exercise of my discretion pursuant to CPR 44.18(6) in all the circumstances, having particular regard to the stage the proceedings have reached, the costs which have been incurred to date and the future costs. The trial of the preliminary issues is less than two months away. A significant proportion of the costs of the case will already have been incurred. Although there is a substantial financial imbalance between the parties, it would not be a factor of sufficient weight to overcome the other factors against making such an order. I should say that I am not persuaded that the claimants have maintained this action for improper collateral purposes as the defendants allege.[61]For those reasons I refuse the defendants' application for a cost capping order in this case. However, as Mann J said in Knight v. Beyond, "This should not, of course, be taken as some form of encouragement or blessing of the claimant's proposed expenditure." To the contrary, it should be taken as a warning that neither party should assume that success on the preliminary issues entitles them as a matter of course to require the other side to pay costs which are out of proportion to the value of the claim. It should also serve as a reminder that an opposing parties' costs are often most effectively controlled by making as many admissions as reasonably possible, limiting the scope for costs to be reasonably incurred on the other side. One of the reasons why costs may be disproportionately large in a given case is because the other side's level of engagement in narrowing the issues is disproportionately small. Whether that is the case here and the costs consequences of it, if it is, should, in my judgment, be left to the trial judge to determine.

Other applications

[62]I therefore turn to the other orders sought.[63]The defendants also seek the following orders in their application notice dated 14th May 2012: First, an order that the claimants provide the identity and contact details of the alleged distributor referred to at paragraph 8(a) of the defendants' part 18 response dated 24th February 2012, together with a full explanation as to the circumstances by which the claimants came to acquire the sample. That order is sought pursuant to CPR Part 18.[64]Second, an order that the claimants make and serve a further disclosure list and further disclosure statement relating to documentation in relation to the alleged provenance of the 5 litre sample of CS Azoxy referred to at paragraph 1 of the particulars of infringement, such documentation to include all correspondence with the alleged distributor, all transactional, shipping and delivery documentation, any documentation relating to the supply to the alleged distributor of the said sample by any third party, and any documentation relating to any testing or storage of the said sample not already disclosed by the claimants. Further orders are sought in relation to inspection of such documents. That order is sought pursuant to CPR 31.12[65]Third, a further order is sought in relation to inspection of documents in the claimants' disclosure list. As to that, the parties have indicated that they may be able to reach agreement on the terms of confidentiality on which those documents should be inspected, and I say no more about that.[66]I turn to the first request for further information. This issue arises in the following way. The claimants obtained the container which is pleaded, and whose contents are the subject of the notice of experiments, from an unnamed distributor. The distributor has requested that the claimants do not disclose its identity for commercial reasons. It does not want to become involved in this litigation and the claimants have agreed with the distributor not to disclose its identity. Ms. Field's evidence states that the claimants therefore do not intend to do so unless ordered by the court. She states that the distributor is "independent of the claimants, is not a known counterfeiter, and has no reason to undermine the defendants". She observes that the suggestion of interference with and contamination of the sample are merely speculative, and that evidence will be served in June this year detailing exactly what happened to the samples from the date they were obtained to the time that the seal of the samples were broken ahead of testing.[67]The defendants, on the other hand, contend that it is unjustifiable for the claimants to withhold details of where the sample product was obtained, particularly since the defendants may wish to challenge the link of the product tested with them. They say that the contents of the container are in issue and that the container could have been tampered with or falsified by someone, or the contents refilled by someone, before it was provided to the claimants. They say that they may wish to subpoena the distributor or seek a non-party disclosure from it. Mr Barlow says in his witness statement:
"In preparing their case the Defendants need to understand the chain of supply and whether the products can, in fact, be traced back to them and whether there are issues regarding the storage, re-packaging, transportation, contamination, mixing or tampering with products. Provenance is clearly in issue and will need to be considered by the Defendants' expert and addressed in the Defendants' evidence."
[68]The procedural background to this application is that, on 11th January 2012, the defendants served a Part 18 request seeking information concerning the 5l sample referred to in the claimants' pleadings, namely,(a) from whom the sample was obtained;(b) how that party claimed to have gained possession of it;(c) the price paid for it, and any documentation relating to the sale of the sample and(d) any documentary or factual basis for the claimants' assumed link between the sample obtained by the claimants and the defendants. The claimants provided a response to these requests, among others, pursuant to the order of Floyd J of 6th February 2012, but they did not identify the distributor by name.[69]The defendants do not contend that the claimants are in breach of Floyd J's order in not previously providing this information since Floyd J did not specifically require that to be done. His order required only a response to be served, not an answer to any specific given question.[70]CPR Part 18.1 provides that the court may at any time order a party to clarify any matter which is in dispute in the proceedings, or give additional information in relation to any such matter. In King v. Telegraph Group Ltd [2004] EWCA Civ 613, Brooke LJ at paragraph 63 observed that:
"... the emphasis, as always in the CPR, is on confining this part of any litigation ... 'strictly' to what is necessary and proportionate and to the avoidance of disproportionate expense."
[71]As to the claim to confidentiality, in Toussaint & Anor v Mattis [2000] EWCA Civ 167 (22nd May 2000), the Court of Appeal set aside an order made by Toulson J which had directed disclosure of the name of an intermediary referred to anonymously in further and better particulars of the claim. The defendant in that case had contended that the disclosure of the intermediary's identity was necessary for a fair trial of her defence based on illegality of a contract. The claimant had contended that the name of the intermediary was confidential; it would ruin his business if it was disclosed and would put his life in danger. Moreover, it was argued that disclosure was a breach of an implied term of the agreement in issue. The Court of Appeal took the view that it might be possible to identify and determine issues in such a way that made disclosure of the identity of the intermediary unnecessary at that stage of the proceedings and gave directions accordingly. It reversed the order of the judge and held that the claimant was not at that stage required to disclose the identity of the intermediary.[72]The Court of Appeal in Toussaint referred to the need to perform a balancing exercise where third party identification was concerned, and referred to the well-known passage in the speech of Lord Wilberforce in Science Research Council v. Nasse [1980] AC 1028 concerning discovery of documents in breach of a duty of confidentiality to a non-party. Lord Wilberforce said at 1067D-F: "... the process is to consider fairly the strength and value of the interest in preserving confidentiality and the damage which may be caused by breaking it; then to consider whether the objective - to dispose fairly of the case - can be achieved without doing so, and only in a last resort order discovery, subject, if need be, to protective measures. This is a more complex process than merely using the scales: it is an exercise in judicial judgment”[73]In my view, the following factors are of significance in undertaking the exercise required.[74]In this case, witness statements are due to be served in early June. On the claimants' side, that evidence will necessarily deal with the provenance and scope for contamination of the samples tested to some degree.[75]On the defendants' side, if the case of potential contamination or tampering is pursued, evidence will need to be served which shows that this is prima facie plausible. If, for example, the defendants' evidence is that they sold numerous 5l containers of CS Azoxy containing azoxystrobin from the Romanian and Italian suppliers, and that they have, for example, positive evidence to show that what they sold was quite different to that which the claimants have tested (as regards the presence of propylene glycol and the contaminant referred to in the claimants' notice), that would support their case that, notwithstanding the fact that the claimants tested azoxystrobin from a container with the first defendant's name on it, the contents of the container did not originate from them. There may be other ways of raising a prima facie case that the subject of the testing did not originate from the defendants. In those circumstances, a sufficient case may have been made out for the defendants to receive full information about the supplier of the sample in question. However, until that is done, it seems to me that the defendants' case that there may have been contamination or tampering prior to the containers being picked up by the claimants is highly speculative.[76]In all the circumstances, I have come to the conclusion that it would not be right to require disclosure of the name of the distributor at this stage. Notwithstanding the well-judged submissions of Mr. Malynicz for the defendants, I am not satisfied that it is "... 'strictly' necessary or proportionate", particularly having regard to,(i) the speculative nature of the issue to which it relates,(ii) the fact that evidence is shortly to be served which may render the information less relevant,(iii) the fact that the claimants have given an undertaking to the distributor to keep its name confidential and(iv) the particular need to limit costs in this case.[77]Accordingly, I propose to adjourn this part of the application with liberty to restore after service of witness statements. I will, so far as possible, reserve any restored application to myself and contemplate that it may be made on paper or by a telephone hearing if that is more rapid and cost effective.[78]As to the second order for disclosure, I propose also to adjourn that application for similar reasons. I do not believe that the disclosure sought is necessary or proportionate at this stage of the proceedings.[79]Moreover, the claimants have asserted that the documents the subject of the application are all the subject of legal professional privilege.[80]As to that claim to privilege, in West London Pipeline and Storage Ltd v. Total UK Ltd [2008] EWHC 1729, Beatson J comprehensively summarized the law and said as follows at paragraph 86:
"It is possible to distil the following propositions from the authorities on challenges to claims to privilege:- "(1) The burden of proof is on the party claiming privilege to establish it: See Matthews & Malek on Disclosure (2007) 11-46, and paragraph [50] above. A claim for privilege is an unusual claim in the sense that the party claiming privilege and that party's legal advisers are, subject to the power of the court to inspect the documents, the judges in their or their own client's cause. Because of this, the court must beparticularly careful to consider how the claim for privilege is made out and affidavits should be as specific as possible without making disclosure of the very matters that the claim for privilege is designed to protect: Bank Austria Akt v.Price Waterhouse; Sumitomo Corp v. Credit Lyonnais Rouse Ltd (per Andrew Smith J)." "(1) The burden of proof is on the party claiming privilege to establish it: See Matthews & Malek on Disclosure (2007) 11-46, and paragraph [50] above. A claim for privilege is an unusual claim in the sense that the party claiming privilege and that party's legal advisers are, subject to the power of the court to inspect the documents, the judges in their or their own client's cause. Because of this, the court must beparticularly careful to consider how the claim for privilege is made out and affidavits should be as specific as possible without making disclosure of the very matters that the claim for privilege is designed to protect: Bank Austria Akt v.Price Waterhouse; Sumitomo Corp v. Credit Lyonnais Rouse Ltd (per Andrew Smith J)."
[81]Beatson J went on to outline the courses of action open to the court where a claim to privilege was open to question.[82]In my judgment, paragraphs 14-17 of the second witness statement of Ms. Field and the correspondence there referred to are not "as specific as possible without making disclosure of the very matters that the claim for privilege is designed to protect". In this case, the claim to privilege in respect of these documents is not self-evidently justified, although it is doubtless made in good faith. I raised this with the parties at the hearing and neither side objected particularly strongly to the claimants having an opportunity to address the claim to privilege more specifically. Given the course I am taking with regard to disclosure of the name of the distributor, I shall order that if, or to the extent that, the claimants wish to assert privilege in respect of any of the documents the subject of the application, they serve at the same time as the factual evidence in the Preliminary Issues a further witness statement or affidavit which contains the required specificity for a claim to privilege to be maintained. In considering whether such a claim is justified, the claimants must also bear in mind the submissions on behalf of the defendants that documents volunteered by the distributor may not legitimately be the subject of privilege at all. If the matter remains in dispute, I will resolve it in a similar way to that of the identity of the distributor.

Claimants’ applications

[83]The claimants apply, by application notice dated 21st May 2012, for permission to amend their particulars of claim and particulars of infringement to plead reference to the additional sample, and certain consequential orders, in the form indicated on 20th April 2012 in correspondence.[84]There is no dispute that these amendments are arguable and that they will not increase the length of the trial. The defendants' real objection to permission being granted is that it should not be allowed since the claimants have not disclosed complete information about the provenance of the samples or given information as to why this application is made only at this stage. I am unpersuaded that these arguments are sufficient to refuse permission to amend. In my judgment, it is not necessary for the claimants to provide this information as a condition of amendment. The claimants' notice of experiments already contains information about this additional sample, and this material may serve to shut down an argument that only one sample showed the relevant characteristics. I therefore grant permission, subject to argument about time for service of responsive pleadings.[85]Finally, the claimants apply, also by their notice of 21st May 2012, for an order that the defendants provide specific disclosure of all documents recording or evidencing all communications and/or correspondence with the Chemicals Regulation Directorate in relation to the defendants' importation into, and distribution within, the United Kingdom of azoxystrobin formulations.[86]Thus formulated, it is too wide on any view and I would not make an order in those terms. However, it was indicated at the hearing that, if suitably narrowed, the defendants may not object to it in principle. If the parties are unable to agree a more modest reformulation, I will make an order on this subject on paper.[87]In conclusion, I dismiss the defendants' application for a costs capping order, adjourn the defendants' applications for further information and disclosure until after service of factual evidence, give permission to amend the particulars of claim and particulars of infringement as sought. I will hear the parties on consequential directions and the outstanding points on confidentiality and the claimants' application for disclosure if that is not agreed.

Cited in 1 later judgment