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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Hoist UK Ltd v Reid Lifting Ltd [2010] EWHC 1922 (Ch) (28 July 2010) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2010/1922.html Cite as: [2011] Bus LR D58, [2010] EWHC 1922 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		28 July 2010

1. This is an application by a Claimant, having discontinued a threats action, for an Order that there be no order as to the costs of that action.
2. Before I consider the merits of that application there is a procedural point that is taken by Mr Speck on behalf of the Defendant. As Mr Speck puts it, this is a technical point but it is none the worse for that. If it is correct, then it is an answer to the Claimant's application. The technical point is this. The Notice of Discontinuance in the Action was served on the Defendant on 23^rd December 2009. Pursuant to CPR 38.5 the proceedings against the Defendant are brought to an end against him on that date, however this does not affect proceedings to deal with any question of costs. CPR 38.6 provides that, unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred before the date on which notice of discontinuance was served on the defendant. The present application was not issued until 27^th January 2010. Accordingly Mr Speck submits there are no proceedings in which this application can be issued. The proceedings as such have been brought to an end by the Notice of Discontinuance and there were, at that date, no proceedings to deal with any question of costs. Had there been such proceedings these would not have been affected by the discontinuance but the rules do not allow for an application to be made after the effective date of discontinuance. Mr Speck submits that an application under CPR 38.6 should have been made before or, at least, at the same time as the Notice of Discontinuance was served.
3. Mr Speck points to the fact that CPR 38.4 allows the defendant to apply to have the Notice of Discontinuance set aside, but this must be done within 28 days of the date when the Notice of Discontinuance was served on him. Mr Speck argues that it would be unfair to require a defendant to apply to have the Notice of Discontinuance set aside before knowing the costs order that is being sought by the claimant. There must be certainty that the proceedings have come to an end and the terms on which it has come to an end argues Mr Speck. He submits that if Mr Ward, on behalf of the Claimant, is correct then an application such as this could be made some considerable time after the discontinuance of the action. He points out that the assessment of costs should be commenced within 3 months. In these circumstances he argues that the provision in CPR 38.5 that proceedings to deal with any question of costs are not affected by the discontinuance should be interpreted strictly to mean proceedings which are already commenced at the date of discontinuance. There were no proceedings to deal with any question of costs at the date of discontinuance in the present case and it is too late for them to be commenced more than a month after the event.
4. In his oral submissions Mr Speck argued that there was no merit in the Claimant's application and I should dismiss it on that basis and that his technical point did not need to be considered unless I was against him on the merits. However, this is a fundamental point which, if correct, would mean that I have no power to entertain the Claimant's application and I believe that I should address it first.
5. I must confess that I did, at first, find Mr Speck's arguments attractive. The scenario he conjured up of the claimant who serves a Notice of Discontinuance, waits the 28 days until it is no longer open to the defendant to challenge the Notice and then makes an application to avoid the usual costs consequence of his discontinuance seems, at first blush, to be a travesty of justice. However, a more detailed consideration of this possible scenario dispels this view. The provision that the defendant can apply to set aside a Notice of Discontinuance is unrelated to the costs issue. An application to set aside the Notice is not made because of the costs consequences but rather would be on the basis of it being an abuse of process of the court. If a claimant makes an application under CPR 38.6 to avoid the normal costs consequence the defendant can, as in this case, oppose that application and is not disadvantaged by the fact that he cannot apply to set aside the Notice of Discontinuance on some other point.
6. Furthermore, during the course of argument I drew counsels' attention to the note in the White Book at 38.6.1 where it refers to the case of Mireskandari v Law Society [2009] EWHC 2224, concerning an application made by a defendant to have its costs paid by the claimant on the indemnity basis. I suggested that if Mr Speck's argument were correct, the court would not have the jurisdiction to make such an order. Since this was not a point that had been raised before I gave counsel an opportunity to file written submissions on this point and both counsel did so.
7. In his written submissions Mr Speck submitted that neither Mireskandari nor the case of Atlantic Bar and Grill v Posthouse Hotels [2000] CP Rep 32 address the issue as to the timing of the application for indemnity costs and so neither is of any real assistance to me in this case. He further submitted that a defendant could make an application under CPR 38.4 asking for the Notice of Discontinuance to be set aside and the claimant only be allowed to discontinue on terms that the claimant pay indemnity costs.
8. Mr Speck is correct to say that nothing appears to have been said in Mireskandri on the issue of timing, it would seem to have been accepted that an application concerning costs could be made after the Notice of Discontinuance. It appears from the judgment that the defendant indicated that it would make an application for indemnity costs when the Notice of Discontinuance was served. There is certainly nothing to suggest that the defendant was seeking to have the Notice of Discontinuance set aside. It would be strange if an application under CPR 38.4 is the only way in which a defendant can seek to have its costs on an indemnity basis since usually the defendant will be only too pleased that the claimant has discontinued and will not want to risk setting the discontinuance aside.
9. It seems to me that CPR 38.5(3) must be construed in such a way as to allow such an application unless it is impossible so to do. It is not. I would construe CPR 38.5(3) as meaning that discontinuance does not affect any proceedings to deal with any question of costs, whether or not such proceedings have already been commenced at the date of discontinuance. It seems to me that that is in accordance with the overriding objective.
10. Clearly the court has a discretion to exercise when it considers an application under CPR 38.6 and one of the factors that it may take into account would be the fact that such an application was made some time after discontinuance. In the present case, although the present application was not made until over a month after the effective discontinuance of the action the Notice of Discontinuance itself clearly stated that the claimant "intends to seek its costs of the claim''.
11. I find that I do have jurisdiction to entertain this application and I shall now consider the merits of the application.
12. The parties are rival manufacturers of lifting equipment including gantries consisting of cross beams supported by uprights attached to "A-frames". The Claimant, Hoist, developed a gantry ("the Hoist Product") and secured an exclusive distribution agreement with a company called Pfaff-Silberblau ("PS"). The Defendant, Reid, became aware of the Hoist product in August 2009 in a PS catalogue and Mr Battersby of Reid rang Mr Sherwin, the managing director of PS, whom he knew, on about the 21^st of August 2009. He asserted that the Hoist Product infringed intellectual property rights of Reid. Mr Sherwin told Mr Battersby that the product was designed and made by Hoist.
13. This resulted in PS withdrawing the Hoist Product from its range and telling Hoist that Reid was claiming an infringement of its intellectual property rights.
14. Hoist's patent attorneys wrote to Reid on 4 September 2009 stating that PS were refusing to sell the Hoist Product as a result of having been contacted by Reid and therefore Hoist was being damaged and pointing out that groundless threats are actionable.
15. Reid's patent attorneys responded on 7^th September 2009 alleging that the Hoist Product infringed UK unregistered design rights in a previous Reid product and requested undertakings "in the absence of which [Reid] will have no alternative but to take further action This was answered by a letter from Hoist's patent attorneys, the copy of which appearing in the bundle for the hearing bears no date but which would seem, from subsequent correspondence, to be of the 28^th September 2009. It is headed "Without Prejudice Save as to Costs". The final paragraph of this letter states, inter alia, "In this regard, we once again reiterate that as a result of your client's approach, our client is suffering financial damage and that in the circumstances, if your clients do not provide us with a written undertaking by 6 October 2009 that the threat is unjustified and moreover, undertake to pay our client's legal costs incurred to date to deal with your client's ill informed approach, you will leave us with no option but to instigate an action by virtue of Section 253 of the CDPA 1988. "
16. Reid then instructed Geldards, solicitors, who wrote on 23^rd October 2009 stating "our client has now instructed us to progress its claim of design right infringement arising as a result of your client's manufacture of its aluminium gantry. "
17. Hoist then instructed DLA Piper who responded to Geldards' letter on 28^th October although apparently it was put in the post with a DX address and was not delivered until the 10^th November. This letter gave Reid until 4^th November "either to set out a credible case or to acknowledge its threats are groundless and formally withdraw them for the record (accepting the consequences that will follow from that in terms of costs and damages). "
18. By the end of October Hoist had not been able to sort out the problem with Reid through their lawyers and Mr Dickson of Hoist sent M Sherwin of PS an email asking for details of the conversation he had had with Mr Battersby. Mr Sherwin replied by email as follows:

"From memory Mick rang and said the gantry breached their IPR. He asked where we purchased it from and that's why they contacted you. I told him I did not think it did but would not sell the gantry until the matter was cleared up. We have not quoted it since. We would still like to push the unit but if Reid do have a case then it's a problem I can do without. Talking to Paul I think Reid are clutching at straws but lawyers are lawyers. "

19. Geldards responded to the delayed letter of 28^th October on 12^th November. This letter denied that any threat had been made by Mr Battersby to PS and set out Mr Battersby's account of the conversation. Evidently Mr Battersby thought that PS was responsible for the manufacture of the gantry. Reid and PS have a long standing relationship and Reid is a customer of PS. Mr Battersby called Mr Sherwin, whom he knew, and stated that he was disappointed to see the gantry in the PS brochure as it was extremely similar to Reid's product and he believed that it infringed Reid's intellectual property. Mr Sherwin explained that the product was not PS's product and referred Mr Battersby to Hoist. PS's decision to cease dealing with the Hoist Product pending resolution of this dispute was made voluntarily by Mr Sherwin. The letter went on to maintain that the Hoist Product was an infringement of Reid's design right in its gantry although it dropped the claim based on two specific features of the design that had been mentioned previously in correspondence. It concluded by requesting either an undertaking that Hoist would cease manufacture of the alleged infringing gantry together with appropriate relief or an undertaking to take a licence to be settled by the Comptroller in default of agreement between the parties and said:

"If neither of the undertakings referred to ...above are provided by your client by the date specified, then we will advise our client further in respect of commencing proceedings against your client for design right infringement without further notice. In the event that your client may pre-empt matters by serving its groundless threats claim, our advice will obviously focus on the filing of a defence and counterclaim for infringement. "

20. The date specified was the 27^th November. In the event, Hoist served the threats action proceedings on the 13^th November. In a further letter, dated the 17^th November, Geldards set out the basis for a copyright infringement claim relating to the inclusion of a drawing of the Hoist Product in the PS brochure. The letter addressed the position of PS and stated:

"However, entirely consistent with our client's ongoing good relationship with Pfaff-Silberblau, and it not having made any threats to that company to date, our client will not be pursuing a claim for copyright infringement against Pfaff-Silberblau in respect of its unauthorised reproduction and distribution of Your Client's Drawing. Our client regards Pfaff-Silberblau as an innocent third party in this matter, and will pursue its claims against your client alone. "

21. On the 7^th December DLA Piper wrote to Geldards suggesting, inter alia:

"Your client could of course resolve matters very quickly by simply withdrawing the threats in complaint and permitting our client to go to market. Your client has been asked to do this a number of times during the histoty of this dispute, but has on each occasion refused."

22. On the 11^th December DLA Piper wrote to Geldards referring to the above passage in the letter of the 17^th November and the explanation of Mr Battersby's conversation with Mr Sherwin in the letter of the 12^th November and concluded:

"Presumably, in the circumstances, your client will have no objection to writing to Pfaff-Silberblau making it clear that it has no objection to Pfaff-Silberblau selling our client's gantry. Please confirm whether or not your client is prepared to do this and if it is not, please tell us why. "

23. The response from Geldards was to send a copy of a letter from Mr Battersby of Reid to Mr Sherwin of PS dated the 9^th December, i.e. between the two DLA Piper letters. The letter starts by referring to a conversation that Mr Battersby had had with Mr Sherwin on 19/20 November about the threats action. It continues:

"I remain absolutely clear in my mind that what I said to you in August did not amount to a threat to bring a claim against Pfaff and nor could it have been construed as such a threat. However, so as to leave the matter beyond any doubt at all, I am now writing to you to confirm that it is not, and never has been, Reid's intention to pursue any sort of claim against Pfaff in respect of this matter. Indeed, Reid regards Pfaff as a long standing and highly trusted and valued trading partner.

" Whilst we would of course be delighted if Pfaff were to continue its current policy of declining to deal with the Hoist Gantry, until our dispute with Hoist has been resolved, I can give you my absolute assurance that if Pfaff were to decide to change that policy, and to start to sell the Hoist gantry, then Reid will not commence design right infringement proceedings against Pfaff. As I say, this has always been our position. "

24. On the 10^th December Mr Sherwin responded to Mr Battersby's letter by email:

"Many thanks for the letter confirming your position on this matter. My position will remain the same in that I will not sell the aluminium gantry until the matter is resolved. I promised this on the telephone when we first spoke and will keep to my word. I very much look forward to meeting you in the New Year to discuss future business opportunities.

25. On 15^th December 2009 Reid served its Defence and Counterclaim for infringement of unregistered design right in features of the gantry and infringement of copyright in the drawing of the gantry reproduced in the PS brochure.
26. On 23^rd December 2009 Hoist served a Notice of Discontinuance indicating its intention to apply for an order that Reid pay the costs of the discontinued action. The present application was launched on 27^th January 2010.
27. Hoist submitted that the claim for unregistered design right was ill founded and Reid submitted that there had been no actionable threat and the threats action was misconceived. Nevertheless I think that both Mr Ward and Mr Speck accepted that I was in no position to decide these matters. In any event I do not regard it as appropriate for me to express any view as to the strength of either side's case without

full evidence and cross-examination and I do not take such considerations into account in reaching my decision.

28. Hoist accepts that it is for it to establish that there is some reason why the normal rule that the discontinuing party pays the costs of the discontinued action should not be followed in this case. The principle to be applied is summarised by Chadwick LJ in In Re Walker Wingsail Systems plc (Walker v Walker) [2005] EWCA Civ 247:

24. "The matter came back before the judge on the application to discontinue on 17 June 2004. He referred to the relevant rule, CPR 38.6(1). It is in these terms:

"Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom he discontinues incurred on or before the date on which notice of discontinuance was served on him."

The form in which that rule is expressed - which differs from the earlier rule, Ord.21,r.3 in the Rules of the Supreme Court 1965 - makes it clear that the normal order on discontinuance is that the claimant bears the defendant's costs up to the date on which notice of discontinuance is served. The rule makes it clear that a court may order otherwise; but the burden is on the party who seeks to persuade the court that some other consequence should follow; and the task of the court is to consider whether there is some good reason to depart from the normal order.

25. The judge directed himself by reference to two authorities to which he referred - Britannia Life Association of Scotland v Duncan-Smith, a pre-CPR case, and Everton v WPBSA. a post-CPR case - that he had to look at the state of the action as it was at the date when the application for leave to discontinue is made and see what was the fair and just thing to do at that time. He thought that that was really all that had to be done. He went on to say this, at paragraph 12 in his judgment:

"Taking into account what is fair and just, I take into account the following matters whether the application by the defendant can be safely equated with defeat or acknowledgment of defeat, whether the proceedings had in some way become academic, whether the claimant has obtained some legitimate benefit from the proceedings which it might not otherwise have obtained, what the economic value of the claim is, what the potential benefits of the claim might be, what the strength of the claim on a very prima facie basis is, not so as to conduct a mini trial but simply to see whether there was a reasonable basis for the claim and a continuing reasonable basis for the claim."

26. In making that list of the matters which he took into account, the judge made no reference to the relevance of any change (or not) in circumstances between the date when the proceedings were started and the date when the application to discontinue was made or the decision to discontinue was taken. In other words, he left out of account any consideration as to why a claim which was started on the basis of certain expectations should be discontinued without an order for costs against the claimant in circumstances where the expectations have not, in fact, changed - even though they may have been re-evaluated.

29. Mr Ward for Hoist seeks to establish that there has been a change in circumstances between the date when the proceedings were started and the date when the application to discontinue was made. He relies upon the letter from Mr Battersby to Mr Sheldon of the 9^th December. As he put it in his skeleton argument:

"Of course once the letter of 9 December 2009 was sent, the picture looked rather different. Now there was an express statement to the effect that no proceedings would be issued against PS. No reasonable person would or could consider that the threat was ongoing at that point. Thus the principle basis for the threats claim was removed....

"The removal of the threat, something which Hoist had repeatedly invited Reid to do, was plainly a significant change in circumstances. It struck to the very basis of the claim...

"Of course, Hoist suffered damage as a result of the period in relation to which the threat was operative. However the costs of the litigation would rapidly have become disproportionate to that damage. Were Hoist to have continued its threats action in circumstances where the threat was no longer operative, it would quite rightly have been heavily penalised in costs. Discontinuing was the proper course for it to take. "

30. Mr Speck for Reid submits that there has been no change in circumstances since the proceedings were commenced. As he put it in his skeleton argument:

"Mr Battersby explains that the letter he sent on 9^th December has not changed Pfaff-Silberblau's position on not selling the product and that it continues not to sell it. .....

"Accordingly the suggestion that the need for the action simply went away after the 9^th December letter is simply not right. Pfaff-Silberblau continues not to sell Hoist's design. "

31. Mr Speck says that this shows that it was not because a threat was made that PS stopped selling the Hoist Product (he denies that a threat was made) but because PS wanted to "do the right thing" while there is an issue over the lawfulness of the product.
32. Mr Speck also relies on two other factors, namely: (1) that the Particulars of Claim allege that "It has not been possible for Hoist to sell the Hoist Product to or via alternative retailers because of the threats ", and; (2) that Hoist has redesigned the Hoist Product thus accepting that it cannot sell the design which is the subject of the claim. So far as (1) is concerned, Mr Speck points out that nothing has happened to change the situation with regard to other retailers since the letter of 9^th December was only sent to PS. Thus, he says, the only thing that has changed is that Hoist has decided not to sell the Hoist Product but is hoping instead to sell a redesigned product. This is not a relevant change in circumstances.
33. I believe that Mr Speck is correct. The purpose of the action was to enable Hoist to sell the Hoist Product. After the 9^th December letter it was still not able to sell the Hoist Product unless it either pressed on and succeeded in the threats action or it took a licence under the unregistered design rights being asserted by Reid. It chose to do neither of these but chose instead to redesign the product. That is its choice and I am sure that it is a sensible commercial decision but it does not justify requiring Reid to pay the costs of defending the discontinued action.
34. Mr Ward submits that once the letter of 9^th December was sent, there was no more threat and therefore, although there had been damage from the threat, there was no continuing damage. Thus, he says, pursuing the claim would be disproportionate to the damage that could be recovered. I do not believe that is correct. Although the threat, if there was one, no longer existed the damage had been done and would continue until the matter was resolved.
35. Thus taking into account the history of the correspondence between the parties, the course of the proceedings and the actions of Hoist, Reid and PS I do not believe that there was any relevant change in circumstances that would justify departing from the usual order that the discontinuing party should pay the costs of the discontinued action.
36. There was one other issue that was raised in argument and that is the costs of the counterclaim. Reid have indicated an intention to discontinue the counterclaim. They say that the costs of the counterclaim are nominal since part of their defence was that the Hoist Product does infringe their unregistered design right. Mr Speck referred to the case of Mobiqa v Trinity Mobile [2010] EWHC 253 (Pat) in which Floyd J. dealing with a similar application to this in relation to a patent infringement action with a counterclaim alleging invalidity of the patent said:

"I should dispose of one short issue at the outset. It seems to me that the counterclaim is really a necessary consequence of the challenge to validity which was put forward by way of defence and if I come to the conclusion that the Claimant should pay the Defendant's costs of the action, it should have the costs of that counterclaim as well. The additional costs are minimal and it cannot be said that it ought to be deprived of its costs merely because it has not, in the events which have happened pursued that counterclaim to judgment."

37. There are two factors here which are different from the facts of that case. First, in this case there is a claim for copyright infringement which cannot be said to be part of the defence to the threats action. The second factor is that whether or not a threat was made to PS, clearly consideration had been given to the issue of unregistered design right infringement and further, Geldards said in correspondence that they were instructed to prepare a claim for unregistered design right infringement before the threats proceedings were issued. In those circumstances, any work done on that claim before the commencement of the proceedings by Hoist would not have been part of Reid's defence to the action. I have no way of knowing whether either of these factors led to any significant incurring of costs by Reid but I would exclude them from the order for costs against Hoist. I do not have any issue relating to Reid's counterclaim before me since there has been no Notice of Discontinuance served to my knowledge and I am not dealing with any costs of the counterclaim as such.