Aktiebolag & Anor v Irish Ferries Ltd.

An appellate court may interfere with a costs order only where the basis on which the judge exercised the discretion is shown to be flawed. Under the Civil Procedure Rules, costs may be allocated issue by issue where the issues are sufficiently distinct. A party may therefore recover the costs of issues on which it succeeded despite losing the action overall, without proof that the successful party acted improperly or unreasonably. The trial judge is best placed to determine whether an issue-based approach is appropriate and to assess the relative time and expense attributable to each issue.

Stena brought patent proceedings against Irish Ferries concerning the vessel Jonathan Swift. Irish Ferries succeeded on a discrete point concerning section 60(5)(d) of the Patents Act 1977, thereby defeating the infringement claim, but lost the remaining infringement and validity issues. The appeal and cross-appeal on the substantive issues were dismissed.

Laddie J ordered Stena to pay 20 per cent of Irish Ferries’ costs and Irish Ferries to pay 80 per cent of Stena’s costs. Irish Ferries appealed against that issue-based allocation. It contended that, as the overall successful party and in the absence of misconduct, it should have received the bulk of its costs. The question was whether the judge had erred in principle by adopting an issue-based approach.

1. Appeal dismissed unanimously. Aldous LJ, with whom Chadwick LJ and Munby J agreed, held that the trial judge was entitled to allocate costs by reference to the distinct issues. No error of principle had been shown in his exercise of discretion.
2. An appellate court does not begin by asking whether it would have made the same costs order. It first asks whether the basis on which the judge exercised the discretion has been shown to be flawed. Only if that threshold is met may the appellate court exercise the discretion afresh. The court applied the approach stated in Summit Property Ltd v Pitmans [2001] EWCA Civ 2020.
3. The Civil Procedure Rules introduced a greater readiness to make costs orders reflecting success and failure on individual issues. A party need not have acted unreasonably or improperly before being required to pay its opponent’s costs of an issue on which it failed. Where an issue-based approach is appropriate, the court identifies the successful party on each distinct issue and may direct that costs follow the event on that issue.
4. The section 60(5)(d) question under the Patents Act 1977 was a discrete issue of construction which could have been determined relatively cheaply and quickly. The remaining validity and infringement questions constituted, in substance, a full patent action requiring detailed evidence and argument. Although success on the statutory construction point enabled Irish Ferries to defeat the claim overall, the judge could treat it as the losing party on the patent-action issues and allocate costs accordingly.
5. The appeal against the costs order was dismissed with costs. Permission to appeal to the House of Lords was refused.

1. Court of Appeal (Civil Division): The substantive appeal and cross-appeal were dismissed. The separate appeal against the issue-based costs order was also dismissed unanimously: [2003] EWCA Civ 214.
2. High Court, Chancery Division, Patents Court: Laddie J ordered Stena to pay 20 per cent of Irish Ferries’ costs and Irish Ferries to pay 80 per cent of Stena’s costs, reflecting their respective success on distinct issues.