A Khan Design Ltd v Horsley & Anor

This is an application for further directions, costs and other relief in an action for infringement of United Kingdom and Community registered designs in relation to wheel hubs for motor cars. There is a counter application to strike out any further proceedings in the action.

The case started on 17 June 2010, and the trial was concluded and judgment given on 25 May 2012. Judgment was given ex tempore at the end of the day and directions were given in relation to two outstanding matters. The claim for infringement succeeded and, accordingly, the claimant became entitled to an order for an inquiry as to damages or an account of profits. The following provisions were made in relation to that matter. First, there was an Island Records type order for disclosure (paragraph 3) in these terms:

“The Defendants shall on or before 8^th June 2012 by the most appropriate officer duly authorised, make and serve on the Claimant’s solicitors an affidavit disclosing in respect of the 'RS-8' wheels to the best of the knowledge, information and belief of the deponent:

(a)

The dates of purchase and sale, purchase price, quantities purchased and delivered to the Defendants;

(b)

The names and contact details of the people to whom the Defendants sold or supplied the wheels;

(c)

The names, addresses and contact details of the parties or party who i) manufactured and ii) supplied the Defendants;

(d)

The price(s) of sale and/or supply by the Defendants;

(e)

An estimate of the profits made by the Defendants.

exhibiting complete and legible copies of all orders, invoices, delivery notes, documents, and records in the Defendants' possession, custody or control.”

Secondly, there was an order for an inquiry or account and subsequent directions in these terms:

“5.

At the claimant’s option, there be an inquiry as to damages or an account of profits in respect of the Defendants' acts of registered design right infringement.

6.

The Claimant shall within 21 days of receiving disclosure pursuant to paragraph 3 of this Order elect between an inquiry as to damages and an account and communicate such election to the Defendant.

7.

The Claimant shall be at liberty to apply for:

(a)

the provision of further information by the Defendants in the event that the information provided pursuant to paragraph 3 above is not adequate to enable it to make its election under paragraph 6 above; and

(b)

further directions in relation to the said election or inquiry or account.”

Although the trial was set down for a one-day hearing, I was told that costs schedules had not been prepared and I made the following orders in relation to costs:

“9.

The question of costs shall be reserved to be determined by the trial Judge, together with the question of costs of the claim for infringement of UK Registered Design No. 2,093,429, upon the written submissions of the parties.

10.

The following directions shall apply in relation to the aforementioned written submissions:

(a)

The Parties shall exchange costs schedules by Wednesday 6^th June 2012.

(b)

The Claimant shall serve its written submissions in respect of costs by Wednesday 13^th June 2012.

(c)

The Defendants shall serve their written submissions in respect of costs by Wednesday 20^th June 2012.”

The reference in paragraph 9 of the Order to “UK Registered Design Right No 2,093,429” was a reference to another infringement claim which had been settled prior to the trial, and it was contemplated that I would deal with the costs of that claim as well.

The objective of the costs provisions was to enable the matter to be dealt with on paper at a time when the subject matter of the action was fresh in the court’s mind, and the court would have been well able to deal with the matter, having received written submissions. That was the object of the exercise, that is what I intended to happen, and I am quite sure that counsel at the time were of the same view. I am told that I gave these directions at the end of the trial, and I have seen from the court record that on 29 May 2012 Mr Norris, for the claimant, submitted a draft form of order. Miss Bowhill, who was then acting for the defendant, signed it the following day, and at some time after I appear to have approved the order.

The Island Records affidavit, provided by the order of paragraph 3, was not served on 8 June as provided by the order. It was served some 2 working days late, on 12 June. No objection at the time was taken to this late service, and the affidavit disclosed the sale of some 308 wheels, with a profit to the defendant of some £500.

With respect to the requirement that the claimant elect 21 days after disclosure, that was to be on or before 7 July 2012, unless the claimant made an application under paragraph 7(a) for further information in the event that what had been provided under paragraph 3 was not adequate in order to make a properly informed election. No such application for further information was made by the claimant.

7 July 2012 came and went, as did the rest of 2012, and it was not until 5 June 2013 that there was any further mention of the enquiries in relation to damages and so on. That mention came in an email from the claimants, saying that the issue of costs recovery and damages remained outstanding, and the claimant’s solicitors had instructions to conclude matters in the case. The response to that was in a letter of 27 June 2013, which was to the effect that my order had required the claimant to elect between an inquiry or account on or before 15 June 2012. That was a mistake. It was not 15 June at all; it was 21 days after the provision of the affidavit, which was provided on 12 June. Be that as it may, the letter made the point that “Your client”, i.e. the claimant, “decided to elect for neither on account of profits”, and it goes on to say that the claimant must have been impressed by Mr Horsley’s affidavit to the effect that damages would be small. The letter did not use that language; it used language which in fact is not particularly accurate, but that is the tenor of it. The letter goes on to say: “You have never countered this position and are now estopped from so doing.”

Instead of bouncing back to the effect that these contentions were all misconceived, the claimant did nothing for a further 6 months. Then, by a letter of 23 December 2013 (at least 18 months after the trial), the claimant wrote saying that the affidavit in purported compliance of paragraph 3 of my order was grossly deficient, that that had caused the claimant to do more work on its own behalf, and the claimant purported to elect for an enquiry as to damages. It also proposed that it filed points of claim in the enquiry by 3 February 2014, and various other directions. The letter also dealt with costs, but I am going to come back to that when I deal with the issue of costs. That letter of 23 December was met by the defendant’s letter of 14 January, saying that the claimants were out of time to elect and they had forfeited the right to do so. It went to say that the affidavit which it was now claimed to be deficient was served some 18 months previously, and that there had been a provision within the order for making enquiries, and that none of that had happened. And it contended that the delays were fatal.

That was 14 January 2014. Instead of replying or serving a points of claim as suggested in the 23 December letter, the claimant did nothing for some months. Then, on 28 May, the claimant indicated it wished to proceed with its inquiry as to damages, although it still did not put forward any points of claim.

With respect to costs, it will be recalled that my order had provided for exchange of submissions, giving 7 days for each party after the service of the costs schedules. On 24 July 2012 the claimant had written in these terms:

“We refer to our exchange of costs schedules on 4 July 2012. Pursuant to the Judgment and the consent order ... the Claimant’s position is that it is entitled to its costs as set out in the schedule served on 4 July 2012. As to costs relating to the claim for infringement of UK registered design no. 2,093,429 against the First Defendant, the Claimant’s position is they are de minimis.”

The letter goes on:

“We are unable to add to the above at present as we do not know whether the Defendants agree or disagree with the above. If it is the latter, then we invite them to serve their submissions which we may reply to.”

The letter then proposed a timetable for the defendant’s submissions, and went on to say:

“We trust you will agree this is the most sensible and logical approach to this matter.”

That was dealt with by the defendant’s solicitors on 31 July 2012. They thanked them for the letter on the question of costs and said:

“We enclose a copy of our letter dated 20 August 2009.”

That is a “without prejudice save as to costs” letter, which proposed settlement terms. It goes on:

“Our client’s position is that your client is not entitled to recover costs incurred after 17 September 2009. Indeed, in all the circumstances, we take the view that your client should be paying our client’s costs incurred after 17 September 2009. Whilst we would have been able to have presented submissions on costs on the dates as agreed by counsel in the original order had your client complied with the specified timescale, our counsel will be on vacation throughout August and will not be in a position to draft submissions until September. We understand that the Court ordered that your client should file its submissions first and that our client would reply thereto. We propose Friday 31 August for the provision of your client’s submissions with our client’s response by 14 September 2012. We wait to hear from you.”

So, in answer to the assertion “You pay our costs”, the defendant replied saying “No, no, you pay our costs”, and provided a revised timetable. That letter received a bare acknowledgment on 1 August 2012, and then the matter seems to have gone to sleep for 12 months, on costs as well as on damages.

On 5 June 2013 the claimants responded, as I have said earlier, and said this in relation to costs.

“In that regard [i.e. costs] I refer to our letter of 24 July 2012. As set out in that letter my client’s position is that it is entitled to its costs because it won at the liability trial. We consider costs for the claim relating to infringement of UK registered design number 2093429 against the First Defendant to be de minimis”.

Thus, the claimant repeated what it had said before. It went on:

“Given this position, the logical sequence of dealing with costs ought to be that your client now provides its submissions if it disagrees with the above, so that we may reply to them.”

There is an important sentence that follows:

“Whilst this deviates from the wording of the Order given post trial, we consider this to be the correct method given the initial position our client takes on its costs. Please would you confirm whether or not your client will now supply its cost submissions on this basis?”

There is significance in the observation that the proposal deviates from the wording of the order, because before me today, and, indeed, subsequently in the correspondence after 5 June 2013, Mr Norris submits that that first letter of 24 July 2012 contained the claimant’s submissions on costs. The response to that letter of 5 June was, as I have already noted, on 27 June 2013 and, with respect to costs, it says this:

“In any event, the order clearly requires that the Claimant is to make any submissions on costs first, and then requires the Defendants to respond within seven days. These submissions should have been made in July last year and our clients see no reason why it should be necessary to change the order in which the Court required the submissions to be filed, notwithstanding the fact that your client is now out of time for doing so.”

So that was June 2013. From the correspondence, it would appear that both sides appreciated that neither side had actually put in submissions by that time, the claimant suggesting that the order should be varied and that the defendant go first; the defendant saying, “What’s wrong with the order? You should comply with it.”

It was on 23 December 2013 that the claimant asserted, it seems to me for the first time, that its letter of 24 July 2012 contained its submissions on costs. It referred to that paragraph of the letter which says:

“Pursuant to the Judgment and the consent order agreed on 18 May, the Claimant’s position is that it is entitled to its costs as set out in the schedule served on 4 July. These are our client’s submissions.”

The response to that letter in respect of costs was the 14 January 2014 letter which, in a nutshell, says that the suggestion in the 23 December letter that the claimants have already made their submissions on costs is “ridiculous”; and that the delay in complying with the orders of the court is fatal.

There is an application by the defendants to strike out the further pursuance of this claim in relation to both costs and the enquiry as to damages. It is pointed out in Miss Lane’s skeleton, and it has also been pointed out in correspondence, that the claimant ought to apply for an extension of time in relation to compliance with the orders, particularly so in the light of recent guidance from the courts as to the importance of complying with court orders, and if they are not going to comply with them, at least explain why and set out fully and frankly the position. That was dealt with in pre-hearing correspondence, but it was not until Mr Norris came to address me that he accepted that there was a need for his clients to be granted an extension of time, and even in that respect he was hesitant. I put to him, did he want an extension of time or not, and invited a “Yes” or “No” answer, and eventually got an answer that he did need to apply for an extension of time in respect of both the provisions dealing with costs and the enquiry.

In relation to costs, it is true that there is no express direction to the effect that, once there has been an exchange of submissions, then these are provided to the court to enable it to make a determination within a reasonable time. However, I would have thought that such is plainly obvious, and moreover I am 100 per cent confident that the parties were aware at the time that the expectation of the court was that once these submissions had been exchanged, then they would be submitted to the court timeously, in order that a determination could be made.

The first question is whether or not that letter of 24 June 2012 did amount to the claimant’s submissions on costs. I do not find that a particularly difficult question. In my view, it was plainly not a submission on costs at all; it was an assertion that the claimant was entitled to its costs without giving any particular reason other than that it had won, without attending in any way to the bill or justifying any aspect of it, without making any comment on the defendant’s bill, in fact, without making any submissions at all.

It has been said that delay is the enemy of justice, and I refer in particular to the observations of May LJ in Purdy v Cambran [2000] CP Rep 67 at paragraph 46. It is particularly an enemy of justice in circumstances where costs come to be assessed by a trial judge shortly after a trial, because that is the time when the court has in mind the conduct of both parties, it has in mind the way the litigation has been conducted, the subtleties of the various attacks and the defences, and is in the best position it can be in order to make an assessment of costs and, accordingly, that is what normally happens. What happened in this case is that the defendants are now in the position whereby Mr Norris for the claimant is inviting me to deal with costs by giving them to his client, I, having completely forgotten about any detail of the litigation, and having, by the lapse of time, been deprived of the information the court was in possession of at the time and from which probably there is no means for recovery. So that is a very, very serious matter to my mind, and therefore I have to ask myself why it is that we are in what can only be described as a lamentable position.

There is an explanation in the evidence for this delay, and it applies both to the delay in prosecuting the costs claim, and also to the prosecution of the enquiry as to damages claim, and the explanation is this. The claimant was funding this litigation through insurance, and it wanted the insurer to pay all the bills. Apparently the insurer was not so keen on paying the bills, unless it thought that it was getting reasonable value for money, and there is some evidence which shows that reluctance on the insurers paying. The simple reason for the delay, as far as I can understand it, is that nothing has been done to progress matters because the solicitors were not in funds because they had not received any or sufficient money in from the insurers. That explanation might – I do not say it would – have attracted some sympathy had there been also some evidence that the claimant itself could not have put the solicitors in funds to provide the necessary information, but strikingly, to my mind, there is not a scintilla of evidence in this case about the claimant’s finances. The only reason that I can surmise for that is that the claimant has plenty of money, but is not prepared to spend a penny of it on this kind of litigation. It has paid its insurance premium, and Mr Norris has acknowledged that, having paid the insurance premium, it did not want to have to pay any more. That, to my mind, is not a good explanation at all. Certainly it is not a good explanation for placing the defendant in what I regard as a very severe disadvantage in me not being in a position to assess costs fairly and, in particular, to be much less able to deal with costs now than I was at the time contemplated by the order.

Although the failures of the claimants were some 2 years ago, and the topic of timeous compliance with orders is currently very hot, nevertheless I am quite sure that had the position with respect to compliance with orders now been the same as it was in 2012, and had we had a 2-year delay and a failure to do simple things like putting in submissions on costs and doing nothing for 2 years, I am quite sure that the court would have taken the same view now as I in fact take.

But given the approach set out in Denton v White, Miss Lane reminds me that there is a 3-stage approach, and the first is to identify and assess the significance of the failure and whether or not I consider the breach serious or not. It seems to me that the breach is very serious, because it has put the defendant, who is likely to be the person who has to pay costs, at a disadvantage. I say likely to be the person who pays costs, but of course that is not taking into account the defendant’s submission that it ought to be receiving costs because of the benefit of a “without prejudice save as to costs” order. No doubt that would have been in its submissions, and no doubt that would have been in my mind at the time, or it might have been. So although I say that it is likely that the defendant would be the recipient of a costs bill, it is not, of course, conclusive as to that, and it might not be the case.

The second stage I have to consider is why the failure or default occurred. It seems to me that the failure or default occurred in this case entirely because of the claimant’s choosing. It chose to use only funds from its insurer rather than from its own coffers, and at the same time it does not seem to have cared that it was not complying with the orders with respect to costs. One could also say, I suppose, that the proof of the pudding is in the eating, to the extent that had the claimant thought that costs recovery was worthwhile, then it would have made a bit more of an effort and would have put forward some of its own funds. So it seems to me that there is no good reason at all for the failure to comply with the order.

I then go on to the third of the Denton stages. I must consider all the circumstances of the case so as to enable the application to be dealt with justly. I have to remind myself that we are in the Patents County Court, renamed the Intellectual Property Enterprise Court during the passage of time, and I am also reminded that costs are capped in this court, and also I cannot help noticing that this hearing has taken half a day or more, and the whole trial took only an hour or so longer, and it seems to me that, in all the circumstances of the case, the claimant’s failure to take forward its claim for costs, as provided by my order, and the claimant’s failure to do it timeously or at all until either December 2013 or even now, is simply not acceptable, and in my judgment it would be an abuse of process for that claim to be pursued now and, for that reason, I strike out the claim for costs.

The position is very similar in the context of the enquiry as to damages, although it might be suggested that it is in fact more graphic, because with respect to the enquiry as to damages there is the added factor that the defendants have given some evidence as to the quantum of their sales – they say it is just over 300 – and the claimant bounces back and says, “We don’t accept that figure. We think the defendant is lying, because previously it had given two smaller figures ...” But the order provided machinery in case the claimant was not satisfied with the information or thought the information provided in the Island Records disclosure was not sufficient. It provided machinery, and implicit within the order is that that machinery be taken advantage of within the 21 days, after which they had to make an election, because the order provides, “You can get more information, if the information you already have is not sufficient to make an election.” The claimants did not bother to do that, and again why, what is the reason? The reason is that the insurer would not pay because the insurer was not satisfied that it was worth it, and the claimant did not dip its hand into its own pocket.

We are now 2 years down the track, and one of the things I have to consider is whether or not it would be fair upon the defendants to visit upon them now an enquiry as to damages in respect of matters which took place some 2 years ago, and in respect of which the costs might well be not insubstantial. On the defendant’s figures the damages that are going to be paid are going to be quite small. Even on the claimant’s figures they are not going to be very high, because the claimants put in no evidence whatsoever, but I was told that these 300-odd sales, had they been made by the claimant, would have generated a revenue of £150,000. There is no evidence as to the profitability of that turnover, but let us assume it is 5 per cent or 10 per cent – I do not know – but it is still a very small figure. So is it right to visit upon the defendant in respect of an action which has been asleep for 2 years, and in which there have been various proposals by the claimants which have led to nothing, or at least nothing for months, to give directions now for the further conduct of an enquiry, when the enquiry should have started probably in about September 2012, and it is now July 2014. In my judgment, it is not appropriate at all. Again the reason for it not being appropriate is that it seems to me that it is an abuse of process.

What I have not mentioned yet is the fact that we are urged these days to take into account two matters under the present version of CPR 3.9: “Litigation must be conducted efficiently and at proportionate cost.” It is perfectly plain, I would hope, from my description, that the litigation since 2012 has not been conducted efficiently at all. With respect to the costs since 2012, I do not know what those costs are, but it certainly has not been conducted efficiently. The second point is to encourage compliance with rules, practice directions and orders. Here there seems to me to have been a complete disregard for the orders that I made, and the reason for that disregard is because the claimant chose not to spend any of its own monies. It did not even say it did not have any money. It says that the real reason is that the insurer did not put it in funds. That does not, as I have said, seem to me to be a satisfactory reason at all. What could have happened is that letters could have been written, saying, “We need further time to do this.” An application could have been made on paper to the court saying, “We need further time to do this.” The whole procedure of what is now the Intellectual Property Enterprise Court is to enable matters to be dealt with on paper at minimum cost, but none of those provisions which are available to litigants were taken advantage of in this case.

Accordingly, I concede to Miss Lane’s application to strike out any further claims by the claimant for costs or damages.