The IPEC – part 36 offers and recovery of costs above the costs “cap”

In a recent decision in the Intellectual Property and Enterprise Court (“IPEC”), HHJ Hacon has held that Part 36 Offers to settle can, in some circumstances, override the caps on recovery of costs in the IPEC.

Part 36 Offers to settle are a key tactical tool used by litigators, however their use in the IPEC has been somewhat fettered by the IPEC costs capping regime. This decision of HHJ Hacon therefore restores some of the impact of making properly framed settlement offers to the other side in a dispute, focusing their minds on the costs consequences of ignoring that offer.

IPEC Costs Caps
The IPEC offers a streamlined procedure for IP disputes, that is intended to be more cost effective for the parties. Specifically, the IPEC is used for IP disputes with a value lower than £500,000 and involving issues that are sufficiently simple to be heard in a two day trial. Costs are capped at each stage of the proceedings, up to a maximum of £50,000.

This concept of costs capping can be attractive to litigants, since it reduces their overall exposure in the event that a decision goes against them. In practice however it arguably reduces the pressure on parties to settle. In particular, the effectiveness of making a Part 36 Offer, one of the most useful tactical weapons in the armoury of a litigator, is arguably reduced. Part 36 Offers place automatic cost consequences on parties that do not “better” at trial Part 36 Offers made to them at an earlier date. In practice, such costs can be substantial. A suitably timed and pitched offer therefore acts to focus minds on the quantum of damages and costs likely to be recovered if the matter proceeds to judgment. If those costs are capped however, the impact of refusing or ignoring a Part 36 Offer is much reduced.

Background to the dispute 
Parties have tried on several occasions to encourage the IPEC to award costs and damages above the specified thresholds, without success. However the recent case of Phonographic Performance Ltd v Hagan [2016] EWHC 3076 (IPEC) (“PPL v Hagan”), heard by HHJ Hacon, has been the first case in which the Court has addressed the interaction between the Part 36 costs regime and the IPEC costs caps.

PPL v Hagan was a case involving infringement of the copyright subsisting in sound recordings, which were played without a license by the defendant at two North London bars. The claimant made a Part 36 Offer early on in the dispute, which was not accepted by the defendant. In the event, judgment for substantially higher damages was awarded to the claimant.

The decision
HHJ Hacon recognised that there is a tension between Civil Procedure Rules Part 36 (costs consequences of offers to settle) and Part 45 (costs caps in IPEC). He referred to the decision of the Court of Appeal in the personal injury case of Broadhurst v Tan [2016] EWCA Civ 94. In that case, costs capping was also at odds to Part 36 Offers made, but not bettered, at trial. HHJ Hacon concluded that the Part 36 rules took precedence over the costs cap, ie higher costs could be awarded in some circumstances. Applying two of the principles put forward by Lord Dyson MR in Broadhurst v Tan:

• where fixed costs are intended to prevail over Part 36, the civil procedure rules explicitly say so. In the case of Part 45, they do not; and
• if there is any doubt, the court is entitled to refer to the Explanatory Memorandum which states that, if a claimant makes a successful Part 36 Offer, “the claimant will not be limited to receiving his fixed costs, but will be entitled to costs assessed on the indemnity basis…”.

The result of this decision is that, in some circumstances, the costs caps imposed by IPEC might not apply if a Part 36 Offer is made, but not bettered at trial.

Conclusion
There remain some uncertainties about how the interaction between Part 36 Offers and the costs capping rules in IPEC might play out in practice. In particular, the remedy sought by claimants in IPEC is often injunctive relief, however it is not clear how injunctive relief ordered by the Court could be valued to see if it “beats” a Part 36 Offer.

That said, this decision is generally welcome news to users of the IPEC. A well-timed Part 36 Offer might now encourage settlement, where previously it might have been ignored.