David Parsons v Convatec Limited

Introduction

1. The Claimant ( Dr Parsons ) was employed by the Defendant ( Convatec ) for 32 years. Dr Parsons says that, during his employment, he made several inventions that were used in a number of Convatec’s commercially successful wound dressings. In the substantive proceedings, by way of high level overview, Dr Parsons claims compensation under s40 of the Patents Act 1977 (the Act ) to reflect what he says is the “outstanding benefit” that Convatec has derived from his inventions and patents that resulted from them.

2. Dr Parsons has not yet quantified the amount of his claim. That is not a criticism: disclosure is not yet complete. However, his claim has the potential to be large indeed. His pleaded claim is for an award of 10% to 15% of the value of Convatec’s sales of particular products. Convatec says that the logic of Dr Parsons’ own pleading, without saying anything about the actual value of Convatec’s sales, is that the claim is for up to £366 million. Despite the size of this claim, for reasons that are not material to this judgment, both parties agree that it should be subjected to the costs budgeting regime set out in Section II of CPR Part 3.

3. This judgment is concerned with the question whether s106 of the Act has any effect on the costs budgeting exercise. Dr Parsons says that it has a significant effect. Convatec says that it has none. On 30 January 2026 I gave an oral ruling on both sides’ costs budgets on the assumption that s106 of the Act had no effect (the Costs Budgeting Judgment ). I reserved judgment on the question of whether it had some effect, contrary to that assumption, and explained that this reserved judgment would make such adjustments if any to the costs budget as are necessary in the light of my conclusion. Section 106 of the Act and the question of statutory construction

4. Section 106 of the Act provides, so far as material, as follows:

106. Costs and expenses in proceedings before the Court (1) In proceedings to which this section applies , the court, in determining whether to award costs or expenses to any party and what costs or expenses to award, shall have regard to all the relevant circumstances, including the financial position of the parties. (1A) This section applies to proceedings before the court (including proceedings on an appeal to the court) which are— (a) proceedings under section 40 ; […] (2) If in any such proceedings the Patents Court directs that any costs of one party shall be paid by another party, the court may settle the amount of the costs by fixing a lump sum or may direct that the costs shall be taxed on a scale specified by the court, being a scale of costs prescribed by rules of court.

5. The parties are agreed (as am I) that s106 is, so far as material, correctly set out in the extract quoted above. That extract does not reflect the version of the legislation published on the legislation.gov.uk website, although it does reflect the version published in practitioner texts such as Butterworths IP Law Handbook , Terrell on the Law of Patents (20 th edition) and CIPA Guide to the Patents Acts (9 th edition). It also reflects the version set out on Westlaw.

6. The fault in the legislation.gov.uk version appears to have occurred because of the somewhat confusing way in which s14 of the Patents Act 2004 has expressed changes made to s106 . Those changes required the words “proceedings to which this section applies” to be substituted in s106(1) for the words from “proceedings” to “the court ) ” in the predecessor version of s106(1) . The problem is that the words “the court” appear multiple times in that predecessor version, raising some question as to the extent of the phrase to be substituted. However, close inspection of s14 , and the parenthesis after the word “court” (which I have deliberately emboldened), shows which words were to be substituted and I suspect that the legislation.gov.uk version simply overlooked the significance of the parenthesis.

7. There are some oddities in the drafting. One might wonder why it is necessary to provide that a court should have regard to “all the relevant circumstances” in s106(1) since a court exercising the discretions specified would presumably be doing that anyway. Both sides proceed on the basis that s106(1) is seeking to require a court always to have regard to the “financial position of the parties”, (even if that might otherwise not be a relevant circumstance) and also to consider other relevant circumstances.

8. It might also be thought that s106(2) would follow naturally from s106(1) as specifying additional orders that a court might make, having considered those relevant circumstances. However, that suggestion is somewhat negatived by the fact that s106(1) applies in all courts, whereas, s106(2) is expressed to apply only in the Patents Court.) It is appropriate, therefore, to regard s106(1) and s106(2) as separate provisions so that, whether or not a court is in a position to make an order of the kind specified in s106(2) , it must still have regard to the financial position of the parties whenever determining whether to award costs or what costs to award.

9. Section 106(1) refers to the court “determining whether to award costs or expenses to any party and what costs or expenses to award”. I took the parties to agree that the conjunction “and” simply means that the court must consider financial circumstances both when considering whether to award costs and when considering what costs to award.

10. Section 106 raises two issues for present purposes: i) Whether it applies at all to the costs budgeting exercise that the court is undertaking. Dr Parsons says that it does on the basis that the costs budgeting exercise involves the court “determining … what costs or expenses to award” for the purposes of s106(1) . He does not argue that it involves the court deciding “whether to award costs or expenses”. ii) If so, what effect it has on that exercise. Dr Parsons argues that, taking into account his financial position as s106(1) requires, means that there should be a substantial reduction to Convatec’s approved costs budget. He suggests three options: (a) directing, pursuant to s106(2) , that Convatec can recover costs only at the scale rates applicable in the Intellectual Property Enterprise Court ( IPEC ), (b) limiting Convatec’s approved costs to the extent of the presently available ATE insurance cover (of around £664,000), or (c) limiting Convatec’s approved costs budget to no more than 1/3 of his approved budget.

11. The parties agree that the question set out in paragraph 10.i) is one of statutory construction. I must decide what the statute means when it speaks of “determining … what costs or expenses to award” and whether the process of costs budgeting answers to the statutory description. Both sides agree that I should apply orthodox principles of statutory construction by considering the meaning of the words used having due regard to statutory context and the purpose of the provision.

12. There was a dispute between the parties as to whether I should refer to Hansard . As will be seen, I do not regard s106 to be ambiguous and so I will not have recourse to Hansard as an aid to construction. There was a debate between the parties as to whether I could refer to Hansard with a view to ascertaining the purpose of s106 . However, that was largely theoretical since both sides accept that s106(1) was expressed to apply to disputes under s40 of the Act because such disputes will often involve an inequality of arms as an employer might be expected to have greater financial resources than an employee. It seems to me clear, simply from the statutory words used and without any recourse to Hansard , that Parliament wished the court to have tools that would reduce the risk that a concern about an ultimate costs award would operate as a disincentive to employees bringing claims under s40 . Costs Budgeting

13. The parties were agreed on the nature of the task that the court performs when approving their costs budgets, how it should approach that task and the effect of the court’s approval. So far as material to the present issue those matters can be summarised as follows (with the summary ignoring any different effect that s106 might impose): i) In the present case CPR 3.15A does not apply. Therefore the court is able to approve only costs to be incurred after the costs management hearing (CPR 3.17(3)(a)). ii) The court may record its comments on costs incurred up to, and including, the date of the costs management hearing (CPR 3.17(3)(b)). I was invited to exercise this power but in the Costs Budgeting Judgment I declined to do so. iii) The court’s role is to determine the reasonable and proportionate costs of each phase of the budget. In doing so, it will have regard to the factors set out in CPR 44.3(5) and 44.4(3) including a consideration of where, and in what circumstances, the work is to be done (Paragraph 5 of Practice Direction 3D and the notes in paragraph 3.15.2 of the current edition of the White Book). iv) In determining the reasonable and proportionate costs of each phase of the budget, the court is not conducting a detailed assessment in advance. Rather, it is considering whether the budgeted costs fall within the range of reasonable and proportionate costs. (Paragraph 12 of Practice Direction 3D). v) When performing an assessment on the standard basis, the court must have regard to the party’s last approved, or agreed, cost budget. The court must not depart from that last approved or agreed budget unless satisfied that there is good reason to do so (CPR 3.18(b)). This constraint does not, however, apply if the court is assessing costs on the indemnity basis. vi) The requirement to identify a “good reason” to depart from an approved or agreed costs budget operates, as Davis LJ said in Harrison v University Hospitals Coventry and Warwickshire NHS Trust [2017] EWCA Civ 792 ; [2017] 1 WLR 4456 , as a “significant fetter on the court having an unrestricted discretion; it is deliberately designed to be so. Costs judges should therefore be expected not to adopt a lax or over-indulgent approach to the need to find a ‘good reason’…” Whether s106 applies at the costs budgeting stage of this dispute

14. The essence of Dr Parsons’ position is that, when approving costs budgets, the court is “determining … what costs or expenses to award” since that phrase encompasses all steps on the critical path to determining what one party should pay to the other by way of costs. He supports that analysis as follows: i) The wording of s106 is broad. It can be contrasted, for example, with s63(2) of the Act which requires a court, having determined that a patent is only partially valid, to take into account certain matters “when awarding damages, costs or expenses or making an order for an account of profits”. If Parliament had wanted to limit s106 to situations where the court is making a final order as to costs, it would have used the s63(2) formulation. ii) Authorities on cases concerning the court’s jurisdiction ( Taylor v Evans [2023] EWHC 2490 and Czech Republic v Diag Human SE and another [2023] EWCA Civ 1518 , [2024] 1 WLR 3593 ) confirm that a court can be said to be “determining” a matter when it is making a decision that includes a step towards that determination. iii) Applying s106 to costs budgeting would be entirely consistent with the purpose of s106 . Conversely giving s106 no role at the costs budgeting stage would be contrary to the purpose of s106 . The court should, therefore, adopt an interpretation that best fits with the purpose of s106 by analogy with the stream of authority on qualified one-way costs shifting set out in cases such as Wickes Building Supplies Ltd v Blair [2020] EWCA Civ 17 , [2020] 1 WLR 1216 , Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654 , [2018] 1 WLR 6137 and Ho v Adelekun [2021] UKSC 43 [2021] 1 WLR 5132 .

15. Convatec’s position is that, read in any straightforward way, s106 cannot apply to the costs budgeting exercise before the court. When approving a costs budget, the court is essentially determining the extent to which costs that each side proposes to incur in the future are reasonable and proportionate. It is not “determining” what costs to award. Convatec makes the following points in support of what it submits to be that straightforward interpretation: i) The court could logically only determine what costs to award after deciding whether to award costs to either party. Not having determined the outcome of the trial, the court is accordingly in no position to determine what costs to award. ii) Convatec submits that it does not need to go as far as the position outlined in paragraph (i). Even recognising that a good reason would be needed to award costs different from those set out in approved budgets, when approving budgets, the court is not making any advance determination of what costs to award. For example, (a) it might decide ultimately not to award the winning party any costs at all if its conduct of the litigation was to be deprecated, or (b) it might award the winning party costs on the indemnity basis, in which case the budgeted costs would be completely irrelevant. iii) Section 106 proceeds on the basis that having regard to the parties’ financial position can have some bearing on what costs to award. So, for example, a court might decide after trial that it would be minded to award the receiving party its costs to be assessed on the standard basis. However, after considering the paying party’s financial position it might decide to order payment of a lower lump sum instead, or award costs by reference to a scale. Such options are not available when costs budgeting. If it is reasonable and proportionate for one party to spend, say, £50,000 on a particular phase, £25,000 does not become the reasonable and proportionate figure just because the other party has limited financial means.

16. In my judgment, an analysis of the relatively slender difference between the wording of s106 and the wording of s63(2) of the Act adds little. Section 63(2) is clearly concerned with the position after a substantive trial (as the premise of the section is that there has been a finding that a patent is only partially valid). Section 106 , by contrast, applies throughout the course of proceedings, and so can catch the costs of interlocutory hearings. Since s106 and s63(2) are concerned with different matters, there is no reason why minor differences in the words used in s63(2) should inform the construction of s106 .

17. I am prepared to accept, without deciding, that there might be occasions where a court is “determining … what costs or expenses to award” even if its decision does not either fix an amount of costs payable or a basis on which costs are to be determined. So, for example, if the court is fixing a case management hearing at which the question of whether to award costs, or what costs to award, is to be debated, it may need to decide where that hearing should take place, or whether it should take place in person or remotely. I see something in the argument, by parity of reasoning with the cases on jurisdiction referred to in paragraph 14.ii), that when making a decision such as this, the court is making a decision on what costs or expenses to award since its determination is part of an overall process that will necessarily lead to such a decision. Such an interpretation would be consistent with the purpose of s106 . No doubt the court would in any event be considering financial position when deciding how the hearing should proportionately take place, but s106 may well be seeking to spell this requirement out.

18. However, I have concluded that the costs budgeting hearing I have conducted is not such an occasion. Following that hearing, if (i) the court decides, in the future, to award Convatec its costs at all, and (ii) it makes any such award on the standard basis then (iii) the court has determined the amount of future costs (not incurred costs) that Convatec will be awarded unless (iv) there is good reason to depart from that figure. I do not accept that this involves the court determining “what costs or expenses to award”.

19. I am fortified in that conclusion by the fact that Parliament can only be intending a court to have regard to financial position when reaching a particular decision if financial position can have an impact on that decision. In the obvious situation where a court is considering what award of costs to make after trial, it might decide that ordinarily the loser would have to pay the winner’s costs to be assessed on the standard basis. A consideration of financial position might lead the court to make, instead, an order of the kind set out in s106(2) of the Act . Less obviously, if the example set out in paragraph 17 is within the scope of s106(1) , a court might conclude that considerations of financial position mean that the hearing should take place remotely, rather than in person. However, Dr Parsons’ financial position can have no bearing on the matters that the court must determine as described in paragraph 13. The costs and disbursements that it is reasonable and proportionate for Convatec to incur in this case are the same whatever Dr Parsons’ financial position.

20. I acknowledge that in theory a well-resourced employer might seek to conduct litigation expensively so as to force an impecunious inventor to abandon a s40 claim. In the Costs Budgeting Judgment, I rejected Dr Parsons’ request that I make a finding that Convatec is doing this. In any event, if an employer did engage in such conduct, its budgeted costs would necessarily be unreasonable and/or disproportionate not because of the inventor’s financial position, but because of the employer’s own conduct, and anticipated conduct, of the litigation. That behaviour would therefore be counteracted on a conventional costs budgeting exercise, even without s106 . In short, I accept Convatec’s argument summarised in paragraph 15.iii) in the context of this case.

21. Nor do I consider that this analysis is contrary to the purpose of s106 . Section 106(1) is evidently intended to offer some reassurance to both sides to an action under s40 of the Act that financial position will be taken into consideration when deciding whether to award costs or what costs to award. That reassurance is likely to be of most value to an inventor in a “David versus Goliath” dispute with his or her employer. However, even if I make no adjustment to Convatec’s cost budget, Dr Parsons has that reassurance as, when the trial concludes, he will be free to argue that his financial position should have some effect on any costs order that the court makes.

22. Dr Parsons argues that this is no reassurance at all given the provisions of CPR 3.18. I do not agree. CPR 3.18 applies only if Dr Parsons is ordered to pay Convatec’s costs assessed on the standard basis. Before the court makes any order to this effect, Dr Parsons is entitled to require the court to take into account his financial position and so make a different order, for example an order of the kind specified in s106(2) , or an order that he pay only a percentage of Convatec’s costs.

23. Dr Parsons also argues that the reassurance is worth little in practice. He says that his financial position means that he could not bring the claim without further ATE insurance. If Convatec is given a high approved costs budget, the premium for that ATE insurance would be so high that he would need litigation funding to pay the premium which would run the risk of substantially diminishing the value of any award that he obtains if his claim succeeds. That, he argues, operates as precisely the kind of disincentive to bring his claim under s40 of the Act that s106 was intended to mitigate.

24. However, in my judgment, that is simply an articulation of the practical difficulties that Dr Parsons is facing in this particular case having chosen to bring a claim that, on his pleaded case, could be worth up to £366m and which has drawn a detailed and robust response from Convatec. Those difficulties, in my judgment, have no bearing on the proper construction of s106(1) . Section 106(1) was not intended to ensure that an inventor bringing a claim under s40 could do so without any financial consequence or risk at all. Its purpose is simply to ensure that both sides to a s40 dispute could have the reassurance that their financial position would be taken into account when the court is deciding whether to award costs and, if so, what costs to award. As I have explained, Dr Parsons has that reassurance.

25. My conclusion is that s106 of the Act does not require me to have regard to Dr Parsons’ financial position when approving either side’s costs budget.

26. Thus far I have set out my own analysis of s106 without reference to any authority. I was also referred to a reasoned order of Floyd LJ given in Shanks v Unilever PLC and others. That reasoned order is not reported. Professor Shanks had brought a claim under s40 of the Act and was unsuccessful both before the UK Intellectual Property Office and on his first appeal to the High Court. He sought permission to appeal to the Court of Appeal and, in his Appellant’s Notice requested an order that the recoverable costs of the appeal be limited to the extent which the court specified pursuant to what was then CPR 52.9A(1). Professor Shanks set out three possibilities for the court to consider: i) no costs recovery at all, ii) the respondents’ cost recovery be limited to the amount of his available insurance cover; or iii) such other terms as the Court of Appeal might specify.

27. In support of that application, Professor Shanks expressly relied on s106 . I was informed by Mr Green KC, who was involved in the case, that all parties made written submissions on Professor Shanks’s application.

28. Floyd LJ gave permission to appeal and did make an order limiting any party’s recoverable costs of the appeal to £50,000 pursuant to what was then CPR 52.9A(3). In his reasoned order, Floyd LJ stated that he did so “so that access to justice is facilitated”. However, he expressly rejected Professor Shanks’s reliance on s106 saying: I am not persuaded that section 106 of the Patents Act 1977 has any application at this stage as opposed to when costs are awarded. I leave open whether it applies at all in the Court of Appeal.

29. Both parties were agreed that Floyd LJ’s reasoned order could be cited as authority: although it arose in the context of an application for permission to appeal it was not itself a decision either granting or refusing permission to appeal. Moreover, Floyd LJ made his order after having considered written submissions from both sides. Convatec goes further and argues that Floyd LJ’s conclusion is binding on me, although it is fair to say that neither party was in a position to make detailed submissions as to the binding nature of Floyd LJ’s conclusions.

30. Floyd LJ’s reasons indicate that he did not consider that an application for the limitation of recoverable costs under what was then CPR 52.9A(1) (now CPR 52.19) involved the court deciding whether to award costs or what costs to award. I am prepared to accept, without deciding since I had so little argument on the point, that this is a binding determination as to how s106 interacted with CPR 52.9A and how it now interacts with CPR 52.19. However, Floyd LJ was not dealing with costs budgeting. Therefore, while his conclusion is instructive and, I am reassured to note, consistent with my own analysis set out above, I do not consider it to be binding on me. What order should I make if s106 does apply?

31. This issue does not arise given my conclusion set out in paragraph 25. For completeness, I will however, consider whether, if s106 does apply, I should make any of the orders that Dr Parsons suggests set out in paragraph 10.ii).

32. I agree with Convatec’s overarching objection to those proposed orders to the effect that they are, in reality, “costs capping” orders that operate in one direction only since they cap only Convatec’s costs. However, that is in effect another way of putting the argument summarised in paragraph 15.iii), which I have accepted. It seems to me that in this section I should approach matters on the assumption that I was wrong to accept that argument and, in that counterfactual, I consider that Convatec’s overarching objection would fall away.

33. I have had evidence as to Dr Parsons’ financial position. From that, I am quite satisfied that his means are modest and limited. He certainly has nowhere near the resources of Convatec. Dr Parsons has obtained an insurance policy that initially provided him with £800,000 of ATE cover in relation to the costs of these proceedings. However, some of that sum has already been accessed and most, if not all of the remainder would be needed to pay expert fees and other disbursements before trial. Dr Parsons’ incurred costs to date are some £2.6m.

34. Dr Parsons’ first proposal is that Convatec’s budgeted costs should be limited to IPEC scale rates. In oral submissions on behalf of Dr Parsons, Mr Hutton KC fairly acknowledged that this might seem unattractive since Dr Parsons was not proposing that his own costs be limited in this way.

35. I see no principled basis for making such a limitation. Section 106 requires the court to take into account all circumstances, not just Dr Parsons’ financial position. It is relevant, therefore, to take into account the fact that Dr Parsons has chosen to bring his claim in the High Court rather than IPEC. His reasons for doing so are obvious: his claim as formulated is completely unsuitable for a determination in IPEC as he is seeking compensation of an amount that could be as high as £366m: an order of magnitude more than the £500,000 limit that applies to IPEC claims absent agreement to the contrary. His claim has been listed for a 27-day trial, much longer than the maximum length of 3 days applicable in IPEC. Having regard to those circumstances as well as Dr Parsons’ financial position makes it inappropriate, even if s106 does apply in the way Dr Parsons argues, to limit Convatec’s budgeted costs to IPEC scale rates.

36. Dr Parsons’ next suggestion is that Convatec’s budgeted costs should be limited to the amount of ATE cover available (currently £664,000). Convatec suggests that this means that their budgeted costs would effectively be nil given that none of Dr Parsons’ ATE cover would remain following trial given the points made in paragraph 33 above. I consider that objection to misunderstand Dr Parsons’ proposal. He was not saying that Convatec’s cost recovery should be limited to the balance of his available ATE cover. Rather, he was, as I understand it, suggesting that Convatec’s budgeted costs should be set at £664,000.

37. That outcome would reflect Dr Parsons’ lack of means. However, it would not, in my judgment properly take into account all relevant circumstances. In particular, it does not take into account the fact that Dr Parsons has made such a large claim against Convatec. Moreover, he bases his claim on each invention that he made, each patent that resulted and any combination of patent and invention such that Convatec will have to spend a great deal of time and money to defend it. That indeed is part of the reason why I approved Convatec’s costs budget at many multiples of £664,000. Limiting Convatec’s costs budget to £664,000 ignores the wider context.

38. Dr Parsons’ final suggestion is that Convatec’s approved budget should be limited to 1/3 of his own. In support of this, Dr Parsons argues that every £1,200 of VAT-inclusive costs that Convatec incurs cost it just £750 in post-tax terms (as Convatec can obtain an input tax credit for £200 of VAT and it obtains a tax deduction against its corporation tax liability for £1,000 residual cost which is worth 25% of that amount given the prevailing rate of corporation tax). By contrast, Dr Parsons says that £1,200 of VAT-inclusive costs represents a cost to him of £1,200 since, as a private individual, he obtains no input tax credit and no tax deduction.

39. I can, therefore, accept that, on a post-tax basis, costs bear more heavily on Dr Parsons than on Convatec. However, that does not of itself explain why Convatec’s costs budget should be 1/3 of that of Dr Parsons. Moreover, as I explained in the Costs Budgeting Judgment, one of the reasons why Convatec’s budgeted costs are higher is because they have more work to do than Dr Parsons, particularly in areas such as disclosure. I therefore do not consider that Dr Parsons’ proposal gives effect to all relevant circumstances.

40. Many of the reasons given for rejecting Dr Parsons’ suggestions bolster the analysis to the effect that the effect of s106 is appropriately considered if, and when, the court is considering making a costs award against Dr Parsons. At that stage, all relevant circumstances can be considered and the court could, in addition to Dr Parsons’ suggestions, consider making an order under s106(2) of the Act . In conclusion, even if I do have to consider s106 now, at the point of costs budgeting, I would not adopt any of the suggestions that Dr Parsons has put forward and would prefer to wait until later in the process when all relevant circumstances, including financial position, can be considered. Disposition

41. For all of those reasons, I do not consider that s106 alters the conclusions that I expressed in the Costs Budgeting Judgment.