In a recent Intellectual Property Enterprise Court (IPEC) decision, HHJ Hacon decided that staged and overall costs caps and the damages cap in the IPEC do not apply to an award of costs following a Part 36 offer. The question raised is whether or not this decision reinforces right holders ability to recover sums due to them, or exposes small parties to costs orders they cannot afford to pay.

IPEC is only concerned with IP claims where the damages claimed are less than £500,000. In addition, the IPEC has a number of caps for each stage of the proceedings with an overall costs cap of £50,000. Over the years the court has also held that both ATE premiums and indemnity costs are subject to the costs cap.

Part 36 Offers
A Part 36 offer allows claimants and defendants to state the amount they would be willing to settle an action for. This then allows the other party to decide whether to accept the offer. If the offer is rejected, then should the court decide the case against the rejecting party on terms more advantageous than those in the offer, then the successful litigant can recover any costs after the date of the Part 36 offer on an indemnity basis.

The Case
In this particular case Phonographic Performance Limited (PPL) claimed additional damages against Hagan, the owner of a bar who had used its music without a licence. As a result of the 2015 Absolute Lofts decision, the holder of IP rights is entitled to claim under either UK or EU law, depending on which law will yield the greater amount in damages. It was decided that the non-payment of the licence fees was done in full knowledge that they were due to PPL. As a result the recovery under damages in UK law was significantly more than the recovery under the EU law alternative of the reasonable licence fees that were due to PPL.

In addition to this, the pursuer had made a Part 36 offer in October 2013 to settle to case out of court.

The Decision
The judgment was made in favour of PPL and was more advantageous than the Part 36 offer which had been rejected and so the following applied:

a. interest on the sum awarded at a rate not exceeding 10% above base rate from the date on which the offer expired;
b. costs on the indemnity basis from the relevant date;
c. interest on those costs at a rate not exceeding 10% above base rate; and,
d.  an additional amount of 10% of the sum awarded.

However, an award in line with these entitlements would take the damages and costs beyond the respective £500,000 and £50,000 caps. In light of this HHJ Hacon held that two considerations came into play:

  1. Where fixed costs amounts were intended to prevail over Part 36 indemnity costs, then the civil procedure rules would explicitly say so; and,
  2. If there was any doubt in respect of this limitation, then the court could have regard to the Explanatory memorandum which provided that in the case of a successful Part 36 offer having been made and rejected, “the claimant will not be limited to receiving his fixed costs, but will be entitled to assessed on the indemnity basis…”.

As such the award due to PPL on an indemnity basis was not limited by the IPEC’s caps on damages and costs.

The effect
The judgment gives a Part 36 offer more weight and importance as the case plays out. It highlights one way for parties to circumvent the caps that were initially introduced to protect small parties to litigation from facing large costs bills. The decision may in turn undermine the entire concept of the costs caps in the IPEC, if the litigant can get round the costs cap with a well-pitched Part 36 offer. 

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