CPR 63.26(2) | IPEC Costs Order Quashed Where 'Unreasonable Conduct' Finding Overstated Application's Lack Of Merit

The Court of Appeal’s decision clarifies that IPEC judges making immediate costs orders under CPR 63.26(2) must properly assess whether applications truly meet the “unreasonable behaviour” threshold, and must apportion costs when addressing only part of a multi-aspect application.

CPR 63.26(2) immediate costs orders IPEC unreasonable behaviour threshold Court of Appeal

COSTA V DISSOCIADID LTD & WILKINSON [2025] EWCA Civ 1475

In Sergio Mendes Costa v Dissociadid Ltd & Anor, the Court of Appeal set aside an IPEC costs order where the judge had found the appellant’s application “so lacking in merit” as to constitute unreasonable behaviour under CPR 63.26(2). The appellant, a litigant in person, had applied on 1 July 2024 to strike out parts of the respondents’ quantum claim and for further information under Part 18, though the application notice referenced only the strike-out due to a character limit. HHJ Hacon’s order of 15 July 2024 dismissed the strike-out application, found it unreasonable, and ordered costs of £2,500 without addressing the Part 18 aspect or apportioning costs between the two elements. The Court of Appeal held the judge erred in two respects: first, the strike-out application’s core argument—that the quantum claim exceeded the scope of an earlier declaration—was not so devoid of merit as to satisfy the high threshold for unreasonable behaviour; second, the judge failed to address the Part 18 request and should have apportioned costs accordingly. Lord Justice Arnold dissented, finding the judge’s case management decision within his discretion. The appeal was allowed and the case remitted for further directions.
Link to full judgment

As I have noted above, the Defendants accepted at the hearing of the appeal that they could not claim damages arising prior to that date, and it was only after the hearing that they corrected the position, and contended that the 10 November Order should not be construed as limiting the recoverable damages in that way. The merits of this point cannot in my view be described as 'so lacking' as to justify a finding that it was unreasonable behaviour on Mr Co sta's part to make the argument on his strike out application.

Citations

Salomonsson v Sweden [2002] ECHR 736 Addressed the implication of Article 6(1) of the European Convention on Human Rights, noting that it generally entails a right to an oral hearing at least before one instance. Micallef v Malta (17056/06) Held that Article 6 applies only to proceedings determining civil rights or obligations and that not all interim measures qualify; applicability depends on whether certain conditions are fulfilled. Mireskandari v The Law Society of England and Wales [2009] EWCA Civ 864 Confirmed that a judge may make further case management orders even when a recusal application is pending, but should consider whether it is preferable to defer such decisions until the recusal issue is resolved.  
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Key Points

  • The threshold for a court to make an immediate costs order under CPR 63.26(2), rather than reserving costs to the conclusion of the trial, is a finding that a party has behaved unreasonably. [78]
  • An application cannot be characterised as so lacking in merit as to constitute unreasonable behaviour for the purpose of a costs order where it advances at least one key argument that is properly arguable and not devoid of merit. [63, 82]
  • Where a single application notice encompasses multiple distinct heads of relief, a costs order made in respect of the entire application is flawed if the court fails to adjudicate on all parts of it. Any justified costs order should be apportioned to reflect only the costs of the parts that were considered and dismissed. [63, 65, 75]
  • The making of an application which generates additional and unnecessary costs for the other party and requires the expenditure of scarce court resources can, in itself, be found to constitute unreasonable behaviour justifying an immediate costs order, irrespective of the underlying merits of the arguments advanced. [79]
  • A first instance judge’s decision on whether to make an immediate costs order under CPR 63.26(2) is a case management decision in respect of which they have a wide discretion, informed by their experience of managing proceedings in that particular court. [79]

"In those circumstances, the judge should have addressed both aspects. At the very least, faced with a draft order which went beyond the strike out indicated on the face of the application notice, and parties who themselves clearly appreciated that the application covered both aspects, the judge should have clarified with Mr Costa whether he intended to limit his application to the strike out aspect before declining to deal with the other aspects."

Key Findings In The Case

  • The judge’s order of 15 July 2024 awarding the Defendants £2,500 in costs was based on a finding that Mr Costa’s strike-out application was “so lacking in merit that it constitutes unreasonable behaviour”, thereby triggering the exception under CPR 63.26(2) for an immediate costs order [23].
  • The judge failed to adjudicate upon the Part 18/specific disclosure element of the 1 July Application, despite it being clearly included in the draft order and addressed in the evidence and submissions. Consequently, the costs order applied to an application that had not been fully determined [24], [61].
  • The costs order of 15 July 2024 was set aside on appeal due to the judge’s failure to take into account a properly arguable issue raised by Mr Costa—namely, whether the Defendants’ claim for damages exceeded the scope permitted by the 10 November 2022 Order—rendering the finding of “unreasonable behaviour” legally unsustainable [63], [82].
  • The summary assessment of costs at £2,500 was flawed on the basis that it did not apportion costs solely to the component of the application actually decided (i.e., the strike-out), and improperly encompassed the unresolved disclosure-related aspects [65].
  • The appellate court reaffirmed that the IPEC rules typically require costs to be reserved until the end of trial under CPR 63.26(1), and deviation from this norm by immediate costs orders under CPR 63.26(2) should occur only in cases of genuinely unreasonable conduct, not where the application contains a substantive and arguable point [78], [82].

"There was no attempt by the judge to apportion this to the costs of the strike out aspect of the application, and the amount awarded shows that no account was taken of the fact that a significant proportion of the Defendants' costs of responding to the application would have related to the Pt 18 aspect. Had any costs order been justified (which it was not – see ground 7 above), the judge was wrong not to limit the costs payable to the costs of resisting the strike out aspect of the application."

The Court of Appeal’s decision in Costa v Dissociadid Ltd [2025] EWCA Civ 1475 establishes that findings of “unreasonable behaviour” under CPR 63.26(2) cannot rest on overstated characterisations of applications as “so lacking in merit” where key arguments have real prospects of success.

Background

The case concerned an appeal against three case management orders made by HHJ Hacon in the Intellectual Property Enterprise Court (IPEC). The underlying dispute involved a claim by Sergio Mendes Costa, a litigant in person, for copyright infringement against Dissociadid Ltd and Ms Chloe Wilkinson. The Defendants operated a YouTube channel for raising awareness of dissociative identity disorder, and Mr Costa alleged infringement of his copyright in certain works he provided, including a text used as a “Disclaimer” on the channel. The Defendants counterclaimed for damages, alleging that Mr Costa’s takedown requests to YouTube constituted the tort of causing loss by unlawful means.

In a judgment dated 22 July 2022, HHJ Hacon found that the Defendants had infringed Mr Costa’s copyright in some works. The counterclaim was partially successful, with the judge finding that Mr Costa had made misrepresentations to YouTube regarding his authorship of the Disclaimer. A declaration was made in the order of 10 November 2022 that the counterclaim was successful in relation to URLs disabled by YouTube on or about 25 June 2021 based on takedown requests concerning the Disclaimer. The assessment of the Defendants’ loss under the counterclaim was adjourned to be heard alongside an inquiry into copyright infringement.

Quantum proceedings were initiated by the Defendants in July 2023. Mr Costa defended these proceedings, contending that the scope of the claim was too broad and sought damages for losses outside the scope of the 10 November 2022 Order. By an order dated 19 January 2024, agreed by the parties, HHJ Hacon directed that the question of quantum would be determined on the papers. A subsequent order on 13 June 2024 permitted Mr Costa to provide further written submissions in response to the Defendants’ points of claim.

On 1 July 2024, Mr Costa issued an application (the “1 July Application”). Due to a character limit on the application form, the notice itself only specified an application to strike out parts of the Defendants’ points of claim. However, the attached draft order and supporting witness statement also sought orders for further information and disclosure, and a variation of the 13 June 2024 order. The Defendants opposed the application and sought their costs on the indemnity basis, citing unreasonable conduct.

HHJ Hacon dealt with the application on the papers by an order of 15 July 2024 (the “15 July Order”). The order dismissed the application and required Mr Costa to pay £2,500 in respect of the Defendants’ costs. The judge’s reasons addressed only the strike-out aspect of the application, finding it lacked merit and constituted unreasonable behaviour. He declined to deal with the requests for further information and disclosure, noting they were not specified in the application notice and could be pursued at a future case management conference.

Mr Costa subsequently applied on 19 July 2024 (the “19 July Application”) seeking, amongst other things, the recusal of HHJ Hacon and to set aside the 15 July Order. By an order of 29 July 2024, the judge dismissed the applications to set aside or stay the earlier orders and refused permission to appeal the 15 July Order. He stayed the recusal application pending the outcome of any application to the Court of Appeal. A further application by Mr Costa on 30 July 2024, seeking an extension of time for his final quantum submissions, was not directly addressed in the resulting order of 31 July 2024.

Costs Issues Before the Court

The central costs issue before the Court of Appeal concerned the order for costs made in the 15 July Order. Specifically, the court was required to determine whether HHJ Hacon erred in making an immediate costs order against Mr Costa on the basis that his 1 July Application was “so lacking in merit that it constitute[d] unreasonable behaviour“. This engaged the interpretation and application of CPR 63.26(2), which provides an exception to the general rule in IPEC that costs of an application are reserved to the conclusion of the trial. The appeal also raised issues regarding the procedural fairness of dealing with the application without a hearing and whether the judge should have addressed all parts of the application, including the request for further information, when making the costs order.

The Parties’ Positions

Mr Costa, acting in person, appealed the costs order on several grounds. He argued that:

      • the judge erred in principle by concluding his application was without merit and by penalising him for unreasonable conduct;
      • his arguments regarding the scope of the Defendants’ damages claim, particularly that it sought recovery for losses outside the parameters of the 10 November 2022 Order, were arguable and not so devoid of merit as to justify a finding of unreasonable behaviour; and
      • the judge failed to fully adjudicate the 1 July Application, as he did not consider the Part 18 request for further information, and therefore the costs order should not have encompassed the entire application.

The Respondents (Defendants), represented by counsel, defended the costs order. They submitted that:

      • the judge, with his extensive experience in IPEC, was in the best position to assess the reasonableness of the application; and
      • the judge was entitled to find the strike-out application unreasonable because it generated unnecessary costs and consumed court resources, irrespective of the ultimate merits of the underlying arguments on quantum.

They supported the judge’s characterisation of the application as lacking in merit and his decision to exercise his discretion under CPR 63.26(2) to make an immediate costs order.

The Court’s Decision

The Court of Appeal allowed the appeal in relation to the costs order. The lead judgment, given by Lord Justice Zacaroli (with whom Lord Justice Newey agreed), held that the judge’s conclusion that the application was “so lacking in merit” that it constituted unreasonable behaviour was unsustainable. The court found that one of Mr Costa’s key arguments – that the Defendants’ quantum claim sought damages for losses falling outside the scope of the 10 November 2022 declaration – could not be described as so lacking in merit to justify a finding of unreasonable conduct. This was particularly so given the Defendants’ own shifting position on this point during the appeal.

Furthermore, the Court of Appeal found that the judge had erred by not addressing the Part 18 aspect of the 1 July Application. As the application, when viewed as a whole including the draft order and evidence, clearly encompassed a request for further information, the judge should have considered this element. The failure to do so meant that the costs order, which was made in respect of the entire application, was flawed. The court held that any justified costs order should have been apportioned to reflect only the costs of resisting the strike-out aspect.

Lord Justice Arnold delivered a dissenting opinion on the costs issue. He would have dismissed the appeal on ground 7, arguing that the judge was entitled, as a case management decision, to find the making of the strike-out application itself constituted unreasonable behaviour due to the costs and resources it consumed, regardless of the underlying merits. He emphasised the judge’s wide discretion and experience in managing IPEC proceedings.

Ultimately, the majority allowed the appeal on the costs issue. The costs order in the 15 July Order was set aside. The case was remitted to the IPEC for the recusal application to be considered first, followed by directions for the future conduct of the quantum proceedings, with the court noting it was difficult to see how quantum could be fairly determined without a hearing.

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SERGIO MENDES COSTA V DISSOCIADID LTD & CHLOE WILKINSON [2025] EWCA CIV 1475 | LORD JUSTICE ZACAROLI | LORD JUSTICE ARNOLD | LORD JUSTICE NEWEY | HHJ HACON | [2022] EWHC 1934 (IPEC) | INDEMNITY BASIS | CPR 63.26(2) | CPR 3.4(2) | CPR 23.8(3) | CPR PART 18 | STRIKE OUT APPLICATION | SUMMARY ASSESSMENT OF COSTS | COSTS ON THE PAPERS | UNREASONABLE CONDUCT | COSTS PENALTY | QUANTUM PROCEEDINGS | CASE MANAGEMENT COSTS | COSTS ORDER SET ASIDE | PROPORTIONALITY IN COSTS | ABUSE OF PROCESS | APPLICATION WITHOUT HEARING | DAMAGES IN IPEC | VIDEO DAMAGES | SPONSORSHIP DAMAGES | CENTUS DAMAGES | FURTHER INFORMATION REQUESTS | DISCLOSURE REFUSAL | PART 36 LIMITATIONS | SECTION V CPR 63 | DEFAULT PAPER DETERMINATION IN IPEC | CAUSATION IN DAMAGES INQUIRY | TAKEDOWN REQUEST DAMAGES SCOPE | COSTS AT CONCLUSION OF TRIAL RULE | RECUSAL APPLICATION | COSTS OF STRIKE OUT APPLICATION | COSTS IMPLICATIONS OF STRIKING OUT | PROCEDURAL ERROR IN COSTS ORDER | ORDER OF 10 NOVEMBER 2022 | ORDER OF 15 JULY 2024 | ORDER OF 29 JULY 2024 | ORDER OF 31 JULY 2024 | UK COPYRIGHT DAMAGES QUANTUM | TAKEDOWN LIABILITY LIMITATION | EUROPEAN CONVENTION ARTICLE 6(1) | COSTS CAP IN IPEC | DISPROPORTIONATE COSTS APPLICATIONS | SALOMONSSON V SWEDEN [2002] ECHR 736 | MICALLEF V MALTA (17056/06) | MIRESKANDARI V LAW SOCIETY [2009] EWCA CIV 864