Kavanagh Balloons Proprietary Ltd. v Cameron Balloons Ltd.

Where a costs dispute concerns clearly distinct issues, the court may allocate costs issue by issue, having regard to their relative importance in time and money and to the fair outcome. Overall commercial success is not decisive.

Under the Civil Procedure Rules 1998, rule 36.20, a claimant who rejects a defendant’s Part 36 offer and fails to obtain a more advantageous judgment must ordinarily pay the defendant’s post-offer costs. The injustice exception is narrow. Ordinary uncertainty in witness evidence, including in a prior-use case with limited documentary evidence, is insufficient. Courts should be circumspect before finding injustice, because the rule encourages settlement.

The claimant, an Australian company and proprietor of a European patent concerning hot-air balloon vents, sued its former licensee for infringement after termination of the licence. At trial, claims 1, 8 and 9 were invalidated by prior use; claims 2 and 10 were obvious; and claims 3 and 11 were valid and infringed. An allegation concerning claim 4 failed.

The Patents County Court ordered the claimant to pay 60 per cent of the defendant’s costs for the period after a Part 36 offer, made no order for costs for the earlier period, and separately dealt with costs relating to specified witnesses. The defendant appealed only the principal costs order. The issues were whether the earlier costs should be allocated by reference to distinct issues and whether the evidential character of the prior-use defence made the post-offer order unjust.

Appeal allowed in part. The appeal concerned paragraph 11 of the costs order. The separate order concerning the evidence of three witnesses was not challenged.

1. Costs before the Part 36 offer. The court’s discretion under rule 44.3 required consideration of all the circumstances, including partial success and the relative importance of the issues. The issues were clearly distinct. The prior-use issue occupied substantial time and generated most of the costs, and the defendant succeeded on it. The issue-by-issue approach in David West v Fuller Smith and Turner Plc [2003] EWCA Civ 429 was applied. The claimant was ordered to pay 75 per cent of the defendant’s costs for the first period.
2. Costs after the offer. Rule 36.20 was mandatory, subject only to injustice. It required the claimant to pay the defendant’s costs after the latest date on which the offer could have been accepted where the offer was not accepted and was not beaten. The rule was intended to encourage settlement, so courts should be circumspect before finding injustice.
3. The absence of patent documents and the need to test witness credibility in the witness box did not constitute injustice. Such uncertainty is common in litigation and was not a sufficient reason to avoid the rule. The reasoning in Ford v GKR Construction Ltd [2000] 1 WLR 1403 did not assist the claimant: the relevant concern would be misleading conduct or withholding information needed to assess the offer. Detailed particulars of objection had been served, and no such injustice existed.
4. The claimant was therefore ordered to pay all the defendant’s costs for the second period, apart from costs covered by paragraph 10 of the County Court order. Costs were to be assessed by a costs judge, and the respondent was to make an increased interim payment of £55,000. Lord Justice Jacob agreed and added that a party who unnecessarily allows a costly issue to proceed to trial and loses it should ordinarily bear its costs.

• Court of Appeal (Civil Division): On 11 December 2003, allowed the appeal in part, varied the costs order, directed assessment by a costs judge, and ordered an increased interim payment of £55,000.
• Patents County Court: His Honour Judge Fysh QC made the costs order on 7 April 2003, including no order for costs for the first period and an order that the claimant pay 60 per cent of the defendant’s costs for the second period.