COSTS AND CONDUCT 3: THE COURT OF APPEAL AND ISSUE BASED COSTS ORDERS

This is the third case today about the issue of costs and the conduct of proceedings. It is the most  complex, Smith & Nephew plc -v- ConvaTec Technologies Inc [2015] EWCA Civ 803.

THE CASE

The Court of Appeal allowed an appeal by Convatec and dismissed an appeal by Smith & Nephew in relation to a patent relating to the silverisation of gel-forming fibres used in wound dressings. The parties could not agree on the costs consequences and the question of costs.

KEY POINTS

Following a successful appeal:

• The Court of Appeal did not interfere with any interlocutory costs orders.
• Because of issues that were raised (and not proceeded with) the successful party was held to be entitled to 60% of first instance costs and 86% of  the costs on appeal.

THE JUDGMENT ON COSTS

1. The background is helpfully summarised by Ms Macdonald, ConvaTec’’s solicitor, in her ninth witness statement.

2. Smith & Nephew began these proceedings seeking a declaration of non-infringement of the Patent in relation to a process for the manufacture of Durafiber Ag using not more than 0.77% of binding agent (the “”Modified Process””). It maintained that the lower limit of the claimed range was exactly 1% or, as its secondary case, 0.95%.

3. ConvaTec resisted the declaration and counterclaimed that the Modified Process infringed the Patent on the basis that, on its proper construction, the claimed range embraced concentrations of binding agent greater than or equal to 0.5%. They also complained about Smith & Nephew’’s development work.

4. It then became apparent that Smith & Nephew had carried out an earlier process (the “”Original Process””) in various experiments conducted by way of process development. As we explained in our main judgment, this was a serious matter because ConvaTec asserted that data generated by using the Original Process were relied upon by Smith & Nephew in support of their application for marketing approval. ConvaTec therefore amended their counterclaim and, by way of a secondary case on Smith & Nephew’’s 0.95% construction, sought springboard relief.

5. Details of over 80 experiments were eventually produced but for many of them Smith & Nephew then pleaded a defence of experimental use. Eventually, and shortly before trial and with the benefit of full disclosure, ConvaTec amended their case to rely on only four experiments which were used by Smith & Nephew for the purposes of obtaining regulatory approval and for which no experimental use defence had been pleaded. ConvaTec maintain they could not have narrowed their case down in this way any earlier than they did.

6. We have summarised the findings of Birss J at the trial in our main judgment at [7]-[13]. In short, he accepted Smith & Nephew’’s fall back argument on construction and that the lower limit of the claim was 0.95%. It followed that the Modified Process did not infringe. As for the experiments, he found that carryover should be taken into account but that it should be calculated by the theoretical rather than empirical method. Accordingly, the four experiments did infringe. The judge therefore granted an inquiry in respect of these experiments, accepted that Smith & Nephew had derived an unwarranted advantage from them in the form of regulatory approval but declined to grant a springboard injunction.

7. In dealing with costs, Birss J considered that Smith & Nephew were the overall winners and he ordered ConvaTec to pay 82.29% of their costs. The judge arrived at this figure by deducting certain calculated percentages to reflect a costs order made in ConvaTec’’s favour at an interim hearing and because ConvaTec had succeeded on part of their counterclaim.

8. ConvaTec initially appealed to this court on construction, carryover and springboard. Shortly before the hearing, ConvaTec dropped their appeal on carryover and springboard. For their part, Smith & Nephew also appealed on construction; but they also contended that the judge fell into error in the way that he approached carryover in that he was wrong to reject the empirical approach. In the result we have accepted ConvaTec’’s submissions as to construction with the result that, as both sides accepted, the empirical approach issue fell away.

9. We must now decide where the costs burden of the first instance and appeal proceedings must fall. We will take them in turn.

The trial and other first instance costs

1. ConvaTec say that the effect of our judgment has been to turn them from partial winners into complete victors and that they should receive all of their costs at first instance. Smith & Nephew respond that ConvaTec have won on a point of construction but, at first instance, did not have the courage of their convictions and pursued two costly and time-consuming fall-back positions. The first was to assert a broad infringement case encompassing every experiment that Smith & Nephew performed in the course of product development. This required Smith & Nephew to undertake a very costly disclosure exercise and to prepare detailed evidence. Yet at trial ConvaTec cut their case back to just four experiments and withdrew their case on all the others. Thus very substantial costs were needlessly incurred. The second was the claim for springboard relief, which was again based upon the 0.95% construction and which occupied more than half the time at trial. In the result, say Smith & Nephew, very substantial costs were once again unnecessarily incurred. Smith & Nephew continue that ConvaTec’’s behaviour was such that, far from having their costs of these issues, they should pay Smith & Nephew’’s costs. Finally, Smith & Nephew point to the various interim costs orders made in favour of each of the parties and say that ConvaTec’’s proposal takes no account of them and is flawed for this reason too.

2. We have given our anxious consideration to all of the submissions and the evidence filed in relation to the costs issues. We also have well in mind the relevant provisions of the CPR and, in particular, CPR 44.2. Having done so, we believe the following matters are particularly material.

3. First, we think there can be no doubt that ConvaTec are now the real winners and we do not understand Smith & Nephew seriously to dispute that this is so.

4. Second, we see no basis for interfering with the interim costs orders made in favour of each of the parties or in which no order for costs was made. There is no real dispute about these and appropriate deductions must therefore be made from ConvaTec’’s total costs to take them into account. The percentage figures to which we refer hereafter are to be taken as referring to ConvaTec’’s costs after these deductions.

5. Third, we recognise that very substantial costs have been incurred in relation to both the claim for infringement in respect of Smith & Nephew’’s product development work and the claim for springboard relief. Focussing first on the product development work, we see the force of the points made by Smith & Nephew but we also have regard to the way this aspect of the infringement claim developed. It was originally advanced on a broad front. Disclosure was provided which led to the identification of over 80 experiments; and this disclosure also revealed that there were some experiments for which Smith & Nephew could plead an experimental use defence and some for which they could not. In due course, ConvaTec narrowed their claim down to four experiments which were used for the purposes of obtaining regulatory approval but for which no experimental use defence could be claimed. Moreover, both before the judge and on appeal, ConvaTec have established that these four experiments amounted to an infringement. Looked at in the round, we do not think ConvaTec’’s behaviour can be characterised as unreasonable. Nevertheless, we think there is also some merit in Smith & Nephew’’s submission that a very great deal of time and money has been expended on the claim for infringement in respect of all of Smith & Nephew’’s experimental work, only a small part of which was ultimately relied upon at trial.

6. Turning to the claim for springboard relief, this was dealt with by the judge both in his main judgment and in his further judgment on the form of order ([2014] EWHC 86). From this it is clear that the judge found that, by obtaining approval as they did in June 2012, Smith & Nephew did secure an unwarranted advantage by infringing the Patent. However, he also found that, by the time of his judgment, any conceivable springboard advantage had expired. In a sense, therefore, each side secured a measure of success on this issue. Nevertheless, in the judge’’s view, the success achieved by ConvaTec was not such as to justify an adjustment of his costs order in their favour. But again, we do not believe that, in pursuing the claim for springboard relief, ConvaTec can be said to have acted unreasonably.

7. Stepping back, we are clear that it is not appropriate to require ConvaTec to pay any part of Smith & Nephew’’s costs arising from the withdrawal of part of the claim for infringement in respect of most of the development work experiments or in respect of the springboard claim. Nevertheless, we consider that these are relatively circumscribed issues and that justice demands that we reduce the costs recoverable by ConvaTec to reflect the various matters to which we have referred and upon which Smith & Nephew so forcefully rely. Having regard to the various analyses of the costs incurred in relation to these issues, we have come to the conclusion that a fair and just result would be achieved by reducing ConvaTec’’s recoverable costs by 20% in respect of the development work experiments and by 20% in respect of the claim for springboard relief.

8. It follows that ConvaTec are entitled to 60% of their first instance costs after the various interim costs orders have been taken into account.

The appeal costs

1. The issues here are relatively simple. ConvaTec say that they are entitled to their costs. Smith & Nephew respond that to make such an order would be to disregard the late withdrawal of a large part of ConvaTec’’s case relating to springboard and carryover and that, as a result, their recoverable costs should be reduced by between about 30% and 40%. ConvaTec reply that they withdrew these issues because they were subsidiary to the main construction issue, that they behaved entirely reasonably both in raising them in the first place and then withdrawing them to simplify the appeal, and that Smith & Nephew’’s estimate of the money wasted on them is flawed because only about 35% of the appeal costs were expended when they were in play and at that time there were five issues under consideration.

2. We have come to the conclusion that a deduction from ConvaTec’’s recoverable costs should be made to reflect the costs expended on these issues but that, in the context of this hard fought litigation, ConvaTec have not behaved unreasonably and that it is not appropriate to require them to pay any portion of Smith & Nephew’’s costs. We believe that a fair and proportionate result would be achieved by awarding to ConvaTec 86% of their appeal costs.

Payment on account

1. ConvaTec seek a payment on account of their costs of the appeal and at first instance of 60% of the relevant figures. We think this is reasonable and appropriate.

2. ConvaTec also seek an order for repayment of the £500,000 paid on account of Smith & Nephew’’s costs below together with interest pursuant to Smith & Nephew’’s undertaking at paragraph 8 of the order made by Birss J. We can see no objection to such an order.