Phonographic Performance Limited v (1) Raymond Hagan

30 January 2017

His Honour Judge Hacon has handed down a decision from the Intellectual Property Enterprise Court (IPEC) which concerns the legal costs recoverable by a successful claimant in the IPEC.

The IPEC, a specialist court within the High Court, is designed as a low cost forum for litigation of IP rights in the UK. To that end, the costs payable by a losing party to the successful party in an IPEC action are capped at £50,000. Further, the damages which can be recovered in the IPEC are capped at £500,000. His Honour Judge Hacon, the IPEC Judge, has previously resisted attempts by claimants to set aside the costs limit on the basis that “truly exceptional” circumstances would be necessary before the costs cap could be relaxed (Brundle v Perry).

The present case concerned the interplay between the IPEC costs cap and Part 36 of the Civil Procedure Rules (CPR). Part 36 CPR provides, inter alia, that when a claimant makes a settlement offer according to the provisions of that Rule, the defendant should suffer a number of penalties if it (a) declines the Part 36 settlement offer and (b) ultimately suffers an adverse judgment which is at least as advantageous to the claimant as the Part 36 settlement offer. The penalties set out in this regard include recovery of the claimant’s legal costs on an indemnity basis.

In the present case, the claimant, Phonographic Performance Limited, had made a Part 36 offer to the defendant. The judgment against the defendant was more advantageous to the claimant than the Part 36 offer, and the claimant was therefore entitled to costs on an indemnity basis. However, costs on an indemnity basis would exceed the IPEC cost cap of £50,000. There was therefore a question as to whether the IPEC cost caps override the Part 36 rules, or vice versa.

His Honour Judge Hacon had previously decided that the IPEC cost caps should override Part 36 awards of indemnity costs (OOO Abbot v Design & Display Limited). However, subsequent to that decision, the Court of Appeal in Broadhurst v Tan ruled that Part 36 overrides the fixed costs regime for low value personal injury cases and His Honour Judge Hacon therefore reconsidered the issue of which should prevail: Part 36 CPR or the IPEC costs cap.

The Judge concluded that two of the grounds relied upon by the Court of Appeal in Broadhurst v Tan applied by analogy to the tension between the IPEC cost cap and Part 36. Firstly, Part 36 contains a list of circumstances when fixed costs are intended to prevail, and it makes no mention of the IPEC caps. Secondly, the Explanatory Memorandum prepared by the Ministry of Justice relevant to Part 36 CPR 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 …

His Honour Judge Hacon thus decided that the claimant was entitled to its costs on an indemnity basis, not subject to the IPEC cap on costs. This approach may encourage claimants in the IPEC to make settlement offers under Part 36 CPR. By doing so, an IPEC claimant may be able to increase the pressure on a defendant, which could be liable for legal costs in excess of the £50,000 cost cap if it continues to defend the action.

The full decision is available here.

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