David Parsons v Convatec Limited

Section 106 of the Patents Act 1977 does not require the court to consider the parties’ financial positions when approving costs budgets. Costs budgeting determines the reasonable and proportionate costs that may be incurred, rather than the costs ultimately to be awarded. Financial position remains relevant when the court later decides whether to award costs and, if so, what costs to award. The provision may apply to procedural decisions forming part of the process of determining costs, but it does not alter the ordinary costs-budgeting exercise where financial circumstances cannot affect the reasonable and proportionate figure.

The claimant, a former employee who brought a claim under section 40 of the Patents Act 1977, sought compensation for the alleged outstanding benefit derived from inventions and patents used in the defendant’s wound-dressing products. The claim could be worth up to £366 million.

The parties agreed that the claim should be subject to costs budgeting. The court had already approved the parties’ budgets on the assumption that section 106 had no effect, reserving the question whether the provision required any adjustment because of the claimant’s financial position and limited after-the-event insurance cover.

1. Construction of section 106. Section 106(1) requires financial position to be considered when deciding whether to award costs and what costs to award. It does not apply merely because a decision forms part of the procedural path leading to a later costs award.
2. Costs budgeting. Costs budgeting determines the reasonable and proportionate costs of each phase and is not a detailed assessment or an advance determination of the costs ultimately payable. The claimant’s financial position cannot affect the reasonable and proportionate costs that the defendant may incur. Accordingly, section 106 did not apply to approval of the budgets.
3. The purpose of section 106 is to reassure parties to section 40 disputes that financial position will be considered at the stage of deciding the costs order. It does not guarantee that an inventor can litigate without financial consequence or risk. The court may later consider a different order, including an order under section 106(2), before ordering payment of standard-basis costs.
4. Shanks v Unilever PLC and others. The reasoned order of Floyd LJ, which rejected reliance on section 106 at the permission-to-appeal stage, was instructive and consistent with the court’s analysis. It was not binding on the costs-budgeting issue because it concerned a different procedural decision.
5. The claimant’s proposed alternative limits—IP Enterprise Court scale rates, available ATE cover, or one third of his budget—would not have been justified even if section 106 applied at the budgeting stage. They failed to reflect all relevant circumstances, including the scale and complexity of the claim and the defendant’s greater disclosure burden.

The existing costs-budgeting conclusions were unchanged.