PCC Page 31: Tentacles flapping to keep head above the water?

Portentously promulgated by the Chartered Institute of Patent Attorneys (CIPA), the PCC Pages seek to explain how litigation works in the recently-revamped Patents County Court (PCC) for England and Wales, taking as its theme a dispute between Cautious Co and IPOff Ltd as to whether IPOff has infringed the IP rights of Cautious in its robotic octopus. In this episode, the 31st, former CIPA President Alasdair Poore reviews the question whether the defendant may be able to seek and obtain security for costs.

"Last week Cautious's patent attorney looked at the procedure up to trial and considered what needed to be covered in the order to be made at the Case Management Conference – such things as whether experiments need to be carried out with the octopus football results predictor’s legs to see if they are good enough at pointing to the right result.  One of the issues raised by IPOff’s solicitor, always looking for a way to make life more difficult, is that IPOff proposes to apply for “security for costs” at the CMC.  At the moment IPOff’s solicitor has only made a generalised assertion that his client will apply.

The criteria for applying for security for costs are set out in Civil Procedure Rules CPR 25.12 and 25.13.  The “conditions” are set out in CPR 25.13:

The most usual conditions – ones which should be at the top of Cautious’s patent attorney’s mind, as soon as a claim was contemplated, are that the claimant be resident outside the jurisdiction (of England and Wales) (CPR 25.13(2)(a)(i)) or of a Brussels Contracting State, a State bound by the Lugano Convention or a Regulation State (essentially EU States and  Iceland, Norway, or Switzerland) – see Brussels Regime – CPR 25.13(2)(a)(ii); or that the claimant be a company or other body (whether incorporated inside or outside Great Britain) and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so (CPR25.13 (2)(b)).  The remaining provisions are more unusual and relate to a suspicion that the claimant might be seeking to make it difficult to enforce any order for costs; that the claimant has changed address to avoid the consequences of litigation, has given an incorrect address on the claim form, is a nominal claimant (ie not the one with a real interest in the litigation) and believed to be unable to pay costs, or that the claimant has taken steps to put assets outside the reach of the defendant.

Cautious & Co is not resident outside the jurisdiction, so that is not an issue.  So the key question looks as though it is whether Cautious & Co is facing financial difficulties. It is possible that it is one of the later grounds – Cautious's patent attorney hopes not, as it might suggest that Cautious is being a little financially reckless.  On the other hand, since Cautious has been using him for patent work for many years, he did not carry out any financial checks before commencing the litigation and just assumed he would be able to pay since he had written to Cautious saying what the risks were.  Now he has now carried out those checks, they do reveal a bit of gloomy picture.  He now writes:

“Dear Cautious, I know that you will find this a strange request, as you are renowned for your financial prudence.  IPOff’s solicitors have written indicating that they intend to apply for “security for costs”.  This may just be one of their games, but I need to check the position with you.  Security for costs may be required from a company which makes a claim if there is reason to believe that it is in sufficiently rocky financial straits that it will be unable to pay the defendant’s costs if it is ordered to do so.  The reason for this is to prevent a company bringing proceedings and leave the other party at risk as to costs because it is broke.  Of course in this case the liability for costs if you lose (which I am sure you are not going to) is only for £50,000, the costs cap in the first stage of proceedings in the PCC.

I have now carried out the usual checks, and these do not show Cautious & Co in perfect health. We can resist this claim in several ways: (1) by your providing some security or offer of security immediately – it would be easiest if this is for the full £50,000, but we may be able to argue for a lower amount at this stage with a top-up before trial; (2) by submitting evidence that in fact you are fine to meet a liability for £50,000 in about six to nine months time when this would likely come up for trial – for example you have some big orders which are likely to give you that cash; or (3) showing that the financial rocks are a result of IPOff’s outrageous activity.

Can you give me a call and we can discuss how to take this forward.
ps.  I will need you to put me in some funds immediately in the light of this gloomy news”

There are some interesting things to note about the position here. 

1.         It is always a wise move to check the financial position of both your own client and any defendants before starting any litigation.  It can avoid tears later.  A bust defendant may give your client victory – possibly without even going in for much of a fight, but the client quite often wants to know in advance whether costs will not be recovered.  A bust claimant may leave you out of pocket – a form of contingency fee which you were not really catering for.  For longer litigation it is important to refresh such checks on a regular basis to make sure things have not turned for the worse.

2.         Security for costs is almost always available against a non-resident company or individual (ie resident outside the EEA) – so it is important to be aware of this. 

3.         Note that security for costs is only available to a defendant (CPR 25.12).  That can also be a claimant on a counterclaim – but it is unlikely in many IP infringement actions, because often the counterclaim is no more than a restatement of the defence – eg the patent is invalid.  In that case it is unlikely that there will be a significant increase in costs in defending the counterclaim over fighting the claim.  But in this case IPOff are also making a claim of threats – there could be some costs incurred in that claim.

4.         Rocky financial times is generally only a basis for a claim for security against a corporate claimant.  An individual is entitled to bring a claim even if they are impecunious – but that is where some of the other steps come in, for example CPR 25.13(1)(g).  But there may be other ways of obtaining security, for example, if the claim is arguable but weak, the judge may make it a condition of bringing the claim that the claimant pay give some security for costs.  The route to obtaining this is through an application for summary judgment on a weak case (CPR 24 (eg 24.6), PD24 5.1(4) and 5.2 and CPR 3.1(3) and (6A)).

5.         The application for security which IPOff might be tempted to make needs to be supported by evidence (CPR 25.12(2)), so Cautious would be entitled to ask for information about how IPOff propose to support the claim.  But credit reference agency reports are usually sufficient prima facie evidence of inability to pay.

6.         If security is not given, after an order to do so, the claim may be struck out – and there will be a requirement to pay the costs thrown away in the first claim before commencing or progressing with a second.  An example of this was in Redwood Tree Services v Warren Apsley [2011] EWPCC 14, para 6, and CPR 3.4(2)(c).

An application for security for costs can be a very effective way of putting pressure on a claimant, especially where he is from, for example, the USA.  It makes the point that they may have to meet the costs if they lose more forcibly than sometimes their lawyer is able to.

The PS also raises an interesting question about retainers – for a later week.".