Sony Communications International and SSH Communications Security Corporation [2016] EWHC 2985 (Pat)

Sony Communications International and SSH Communications Security Corporation [2016] EWHC 2985 (Pat) – Mr Roger Wyland QC sitting as a Deputy High Court Judge 24/11/2016

In this matter the court, when dealing with a summary assessment of costs, considered whether to depart from the court approved budget of a successful claimant where the claimant had failed to seek a variation of the budget on becoming aware of their overspend and where the claimant sought to combine two phases of trial preparation and Trial to take advantage of a significant underspend on the Trial phase. The Claimant also sought to change agreed apportionments within some phases where the court had approved the total for the phases and the Defendant had agreed the apportionment.

Judgment had been given on the determination of the order for costs following Trial of an action for revocation of the Patent with Part 20 claim for infringement of the Patent.

Costs budgets prepared, exchanged and agreed in writing and approved by the Court by a Costs Management Order 21 December 2015.

Judgment was given with the Patent held to be invalid but would have been infringed by one of its product ranges if it had been valid.

The parties agreed that as the Costs Budgets had been identified as reasonable and proportionate there was no need for a detailed assessment and the Deputy High Court Judge was invited to make a summary assessment of the relevant Costs Budget.

It was accepted by SSH that Sony was the commercial winner and was entitled to costs subject to a deduction in respect of certain issues where they lost.

The judge considered the first stage of the assessment was to assess Sony’s costs against its budget and that it was necessary to look at each phase and to compare that with Sony’s actual expenditure with Sony entitled to the lower of the two figures.

The approach was agreed by the parties however Sony sought to increase the budget figure for some of the phases in respect of which it had exceeded the budget by a relatively large margin. The request was opposed by SSH.

Consideration was given to Henry v New Group Newspapers Ltd from which the Judge took the following propositions:

  1. The budget was not a cap but a guideline from which the court had the power to depart;
  2. Each phase of the budget was to be considered separately and it was not legitimate to combine two phases where one was overspent and the other underspent;
  3. The court would only depart from the budget where it was satisfied that there was good reason to do so;
  4. The parties had a duty to revise their budgets if significant developments in the litigation warranted such revisions;
  5. The court could depart from the budget even where the parties had not revised their budgets;
  6. In considering whether there were good reasons for departure from the budget the court was required to take into account all the circumstances of the cases;
  7. A particular consideration was the function of the budget in ensuring costs incurred were proportionate and reasonable;
  8. A further function of the budget to be considered was the benefit of the opposing party understanding what was being done and what it was going to cost; accordingly, a factor in the assessment is whether any requested increase would take the paying party by surprise.

Sony relied on the following factors when requesting the court to exercise discretion:

  1. The case was one of the type of cases normally regarded as too large for costs management therefore the court should be more indulgent to errors in estimating the costs to be incurred;
  2. That Sony did get “impressively close” to a correct predication of anticipated costs;
  3. That Sony was not seeking a total award above its total budget therefore the opponent was not being asked to pay more costs than it agreed were reasonable and proportionate.

SSH did not agree and submitted the following factors should be taken into account:

  1. SSH had sought a costs management order because of concern that Sony, with its greater resources, might make the litigation very expensive;
  2. Sony had failed in its duty to keep the court informed as to variations from the agreed budget;
  3. Sony had exceeded its budget and was seeking to recover costs as though there had been no costs management order;
  4. Sony had failed to put forward any good reason to depart from the budget.

The judge identified three phases where Sony overspent namely expert reports (£580,906.16 against the budgeted £215,425.75), Trial preparation (£164,793.40 against budgeted £111,448.75) and Trial (£336,273.62 against budgeted £380,325.00 – an underspend of some £44,000.00).

Dealing with the “Expert” phases the judge was advised that the budget SSH for their expert reports was some £100,000 more than the budget for Sony at £323,268.98; Counsel for Sony submitted a reasonable and proportionate figure would be “half way between Sony’s budget figure and the actual spend, i.e., £398,165.96.

The judge considered Sony had “clearly” failed in its duty to seek to vary its budget when it became aware of the overspend however took on board that it had not been suggested that SSH had been taken by surprise that there was an overspend since their budget for the same phase was higher; the judge considered there was good reason to depart from the budget on the Expert Report phase. The judge increased the budget for the experts phase to £323,270.00. reflecting SSH’s budget which he deemed to be the “best indication” of what SSH thought was reasonable and proportionate.

Sony suggested two phases “Trial preparation” and “Trial” should be “lumped together” referring to the “arbitrary nature” of the split between Trial preparation and Trial depending on whether the work was undertaken by counsel of the solicitors during the period immediately before Trial and the first day of the Trial; Sony suggested that by merging both phases the overspend was a modest £9,000.00.

SSH again resisted the submissions made submitting that the rules made it clear that each phase was to be considered separately and referring to the guidance notes to Precedent H which expressly stated that the Trial phase includes “Dealing with draft judgment and related applications” and submitting that the Sony’s post Trial costs of some £80,000.00 should be added to the Trial costs.

The judge was not prepared to treat Trial preparation and Trial as one phase and could see not good reason to depart from the budget for Trial preparation.

With regard to the Trial phase the judge considered the same was to include consideration of the post Trial costs but accepted that the post Trial costs were greater than could have reasonably been foreseen. The Figure post Trial was reduced to £70,000.00 allowing £406,273.62 for the Trial phase.

The figures were then the subject of further consideration as to what, if any, reduction was to be made to each phase to reflect the issues where Sony was unsuccessful; there were five phases where the claimant sought to vary the apportionment appearing in its budget and the court dealt with each individually with the judge applying a percentage reduction where appropriate.

The case raised an unusual issue in relation to the apportionment of the costs of the infringement issues in order to make the appropriate deduction from the claimant’s costs. The issue arose because of the two extra columns in Precedent H of the claimant’s costs budget, labelled “infringement” and “validity” under a heading “Apportionment” which detailed an apportionment between infringement and validity by percentage for each phase. CPR PD 3E did not intend any distinction to be drawn between budgets which had been agreed and those which had been approved. Otherwise, upon realising that their apportionment was wrong, the claimant’s solicitors would have to seek the defendant’s approval to change it and failing that would have to apply to the court for approval. However, the court’s approval only related to the total figure for each phase and the apportionment was outside the remit for the court’s approval. Where it was apparent that the allocated apportionment was wrong, it would be invidious if the court could not, with the parties’ assistance, make its own assessment.