Court of Appeal Limits Pre-Transfer Costs To IPEC Scale Where No Good Reason to Depart From Transferring Judge's Indication

Where proceedings are transferred from IPEC to the Patents Court, a transferring judge’s indication that pre-transfer costs should be assessed on the IPEC scale carries significant weight and should only be departed from for good reason.

SALTS HEALTHCARE LIMITED V PELICAN HEALTHCARE LIMITED [2026] EWCA Civ 93

In Salts Healthcare Ltd v Pelican Healthcare Ltd [2026] EWCA Civ 93, the Court of Appeal determined a costs issue arising from the transfer of a patent infringement claim from the Intellectual Property Enterprise Court (IPEC) to the Patents Court. The claim was dismissed at first instance. The appeal concerned whether costs incurred during the IPEC phase, prior to transfer, were subject to IPEC’s scale costs caps under Section VII of Part 46 of the Civil Procedure Rules 1998. The Court held that paragraph 9.2(1) of Practice Direction 30 provided the transferring court with a discretion to set terms, including that pre-transfer costs be assessed on the IPEC scale, approving Comic Enterprises Ltd v Twentieth Century Fox Film Corp [2012] EWPCC 13. As HHJ Hacon’s transfer order had indicated that such costs “should” be assessed under the IPEC caps, the trial judge erred by not treating this as the starting point and by offering no good reason to depart from it. Re-exercising the discretion, the Court of Appeal varied the costs order to limit Pelican’s recoverable pre-transfer costs to the IPEC scale.

The correct approach must be to apply the limits if they can possibly be applied, recognising however that in the end the court always has a discretion as to costs (CPR r44.3) and that includes as to the amount of costs. It is a discretion which in my judgment will very rarely (if ever) be exercised to exceed the limits set by Section VII. For one thing specific exceptions are provided for (r45.41(2)). Furthermore to exercise a discretion on a wider basis in all but the most rare and exceptional case would undermine the very object of the scale in the first place.

Citations

Virgin Atlantic Airways v Premium Aircraft Interiors [2009] EWCA Civ 1062 The case summarised principles of claim construction emphasizing claims must be construed purposively in context, not standalone. Actavis UK Ltd v Eli Lilly & Co [2017] UKSC 48 The Supreme Court articulated a three-step test for allowing patent infringement by equivalence, focusing on the inventive concept of a patent. Adaptive Spectrum and Signal Alignment Inc v British Telecommunications plc [2014] EWCA Civ 1462 This case differentiated the purposes of the specification and claims in a patent, focusing on setting the limits of a patentee’s monopoly. Roache v News Group Newspapers Ltd [1998] EMLR 161 The case stated principles for appellate review of costs decisions, requiring an error in principle or misbalanced consideration by the trial judge before interference is warranted. AEI Rediffusion Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507 Echoed principles set in Roache, reinforcing the need for clear errors in cost awards for appellate intervention. Comic Enterprises Ltd v Twentieth Century Fox Film Corp [2012] EWPCC 13 This judgment noted that upon case transfer from IPEC, the court has discretion to specify terms for costs, potentially maintaining IPEC scale costs. Westwood v Knight [2011] EWPCC 11 Stressed the IPEC costs regime being designed for certainty, usually not exceeding limits unless exceptional circumstances exist. Henderson v All Around the World Recordings Ltd [2013] EWPCC 19 Emphasised the purpose of the IPEC costs rules to ensure certainty, as opposed to a fully compensatory approach to costs. Akebia Therapeutics Inc v Fibrogen, Inc [2020] EWHC 866 (Pat) Discussed the principle that disclosure in the specification without claim amounts to disclaimer in patent law. Formycon AG v Regeneron Pharmaceuticals Inc [2025] EWHC 2527 (Pat) This case stated that the inventive concept of a patent should be assessed consistently with claims, focusing on their level of generality.

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Key Points

Where proceedings are transferred from the Intellectual Property Enterprise Court (IPEC) to the Patents Court, the IPEC’s power under Practice Direction 30 paragraph 9.2(1) to “specify terms for such a transfer” includes the power to order that costs incurred prior to transfer be assessed in accordance with the IPEC scale costs caps in any event. [150, 151]
If the transferring court does not make an order specifying that pre-transfer costs are to be assessed on the IPEC scale, the court that finally determines the proceedings retains a discretion as to whether to apply the IPEC scale to those costs. [151]
When exercising its discretion on pre-transfer costs, the receiving court should treat any clear indication given by the transferring judge regarding the applicable costs regime as a starting point, and should depart from it only if there is a good reason to do so. [153]
The purpose of the IPEC scale costs regime is to provide litigants with certainty about their potential costs exposure from the outset of proceedings, favouring predictability over a fully compensatory approach. [148, 149]
In the absence of a specific order made on transfer under PD 30 paragraph 9.2(1), there is no automatic rule that costs incurred in IPEC prior to transfer are confined to the IPEC scale; the general discretion of the court as to costs applies. [146, 151]

"HHJ Hacon's order recited that "costs prior to transfer should be assessed in accordance with the usual IPEC scale cost caps", albeit that he left it open to the Patents Court to make a different order. In my judgment it follows that the exercise of the discretion should have been approached on the basis that HHJ Hacon's indication could be departed from if, but only if, there was a good reason to do so. The judge did not give any reason for departing from HHJ Hacon's indication. Rather, he treated the pre-transfer costs as being at large, and hence subject to the approach to costs ordinarily applicable in the Patents Court."

Key Findings In The Case

The judge determined that the costs incurred prior to the transfer of proceedings from the IPEC to the Patents Court should not automatically be limited to the IPEC scale cost caps, as this was not specified by the transferring judge, and the discretion regarding costs remained with the court finally determining the case [151].
It was established that Practice Direction 30 paragraph 9.2(1) empowers the IPEC to specify that pre-transfer costs should adhere to the IPEC scale cost caps, but such an order was not made in this case, leading to the retention of general cost discretion by the receiving court [150, 151].
The judge ruled that in exercising discretion on pre-transfer costs, any indication given by the transferring judge regarding costs should serve as a starting point, and deviations should occur only with good reason. However, in this case, the judge did not adhere to the transferring judge’s indication due to lack of explicit rationale, resulting in costs being assessed as if they were part of the Patents Court proceedings [153, 154].
The purpose of the IPEC’s costs regime, which aims to provide cost certainty over full compensation, was acknowledged as an important consideration in cost-related decisions, highlighting the role of predictability in managing potential costs exposure for litigants [148, 149].
The judge’s decision to exercise discretion and deny limitation to pre-transfer costs based on IPEC scale was questioned, as it was viewed as not aligning with the initial indication by the IPEC judge, ultimately leading to the decision’s variation to adhere to the IPEC scale [153, 154].

"The factors relied upon by Pelican in support of that contention all concern Salts' conduct of the proceedings in the period prior to transfer. As Pelican's own submission to him recognised, HHJ Hacon was well placed to assess that conduct, because he took it into account when making the order for transfer, but he did not consider that it justified Salts being exposed to above-scale costs. I am not persuaded that this Court should take a different view. I would therefore vary the judge's costs order so as to limit the pre-transfer costs payable by Salts in accordance with the IPEC scale."

The Court of Appeal’s decision in Salts Healthcare Limited v Pelican Healthcare Limited [2026] EWCA Civ 93 clarifies the costs consequences of transferring proceedings from the Intellectual Property Enterprise Court to the Patents Court, establishing that a trial judge who departs from the transferring judge’s indicated costs regime without good reason commits an error of principle.

Background

The underlying dispute was a patent infringement and validity claim concerning UK Patent No. 2569212 for an ostomy appliance. The Claimant, Salts Healthcare Limited, alleged that the Defendant, Pelican Healthcare Limited, had infringed the patent by marketing its ModaVi range of ostomy bags. Pelican denied infringement and counterclaimed for revocation. The claim was commenced in IPEC but was subsequently transferred to the Patents Court.

The procedural history relevant to costs began on 24 May 2023 when Pelican applied to transfer the claim. On 11 July 2023 HHJ Hacon acceded to the application and ordered the transfer for the reasons given in his judgment [2023] EWHC 2232 (IPEC). A recital in HHJ Hacon’s order stated that the court had indicated “that costs prior to transfer should be assessed in accordance with the usual IPEC scale cost caps pursuant to CPR r.46.21 and Practice Direction 46 albeit costs were reserved and this was an issue for the judge making the assessment”. Paragraph 2 of the order provided simply: “Costs reserved”.

The substantive trial took place in the Patents Court before Ian Karet OBE, sitting as a Deputy High Court Judge. In a judgment dated 5 March 2025, the judge dismissed Salts’ claim for infringement, declared claim 8 invalid as granted, and granted permission to amend. The judge addressed costs in a consequential judgment on 1 April 2025, in which he declined to order that Pelican’s pre-transfer costs be assessed in accordance with the IPEC scale cost caps.

Costs Issues Before the Court

The primary costs issue before the Court of Appeal was whether the costs incurred by Pelican during the period when the claim was proceeding in IPEC, prior to its transfer to the Patents Court, should be assessed subject to the IPEC scale costs caps. IPEC operates a distinctive costs regime under Section VII of Part 46 of the CPR. Rule 46.20(1) provides that “this Section applies to proceedings in the Intellectual Property Enterprise Court”. Rule 46.21(1) imposes a cap on total recoverable costs of £60,000 on the final determination of a claim in relation to liability. The only express exceptions are where a party has abused the process of the court or the claim concerns a patent, registered design, or trade mark the validity of which has been certified in earlier proceedings. In the Patents Court, by contrast, costs are assessed on the standard basis without pre-determined caps.

The dispute turned on the interaction between these provisions and the power to set terms on transfer under Practice Direction 30, paragraph 9.2(1).

The Parties’ Positions

Salts contended that the IPEC scale cost caps applied to all costs incurred while the proceedings were in IPEC, irrespective of the subsequent transfer. Its primary argument was that rule 46.20(1) governed costs for work done in that court, and that the only bases for exceeding the caps were those in rule 46.20(2), neither of which applied. Salts relied on the purpose of the IPEC scale as articulated in Westwood v Knight [2011] EWPCC 11: to provide certainty about costs exposure from the outset, enabling potential litigants and their advisers to predict their costs exposure before any action is commenced. In the alternative, if the judge had a discretion, Salts argued its exercise was flawed because he failed to give proper weight to HHJ Hacon’s indication and provided no good reason to depart from the IPEC scale.

Pelican argued that the IPEC scale cost regime applied only to proceedings that both started and concluded in IPEC. It relied by analogy on CPR 27.15(1), which expressly provides that where a claim is allocated to the small claims track and subsequently re-allocated, costs are assessed as if allocated to the new track from the outset. Pelican submitted that the absence of an equivalent provision for IPEC supported its interpretation. It also contended that the judge had correctly exercised his discretion, emphasising that the pre-transfer work formed an integral part of the overall litigation in the Patents Court.

The Court’s Decision

The Court of Appeal (Lord Justice Arnold, with whom Lord Justice Miles and Lord Justice Newey agreed) allowed Salts’ appeal on the costs issue. The court’s reasoning proceeded in three stages.

Interpretation and Discretion: The court held that rule 46.20(1) did not provide a clear answer to the question of what happens to pre-transfer costs after transfer. It rejected Salts’ primary argument that the IPEC caps applied as of right. However, it equally rejected Pelican’s interpretation that the caps only applied to cases that finished in IPEC. The court observed that Pelican’s reliance on CPR 27.15(1) was, if anything, a point against its own case, precisely because there was no equivalent provision for IPEC.

The key to the issue was found in paragraph 9.2(1) of Practice Direction 30, which provides that when ordering a transfer to or from IPEC, the court may “specify terms for such a transfer”. The court approved the earlier decision of HHJ Birss QC (as he then was) in Comic Enterprises Ltd v Twentieth Century Fox Film Corp [2012] EWPCC 13, which confirmed that this power includes the ability to order that pre-transfer costs be assessed on the IPEC scale in any event. The court agreed that it lies in the discretion of the judge making a transfer order whether to make such an order. It followed that, where no such order is made, the receiving court retains a discretion as to whether to apply the IPEC scale to pre-transfer costs.

The Purpose of the IPEC Scale: In reaching this conclusion, the court endorsed the statement of purpose given by HHJ Birss QC in Westwood v Knight, describing the scale costs regime as one of the key reforms implemented to improve access to justice for individuals and SMEs in intellectual property disputes. However, the court considered that the rationale for scale costs did not apply “at least with full force” to claims started in IPEC but then transferred to the Patents Court, since transfer inherently means the parties will no longer be protected by the scale costs provisions for future costs. The court expressly reserved for future consideration the question whether there is a residual discretion to depart from scale costs even in cases that remain in IPEC.

Flaw in the Exercise of Discretion: The Court of Appeal found that the trial judge’s exercise of discretion was flawed. The judge had concluded that it was “not an invariable rule” that pre-transfer costs were capped and that, because the IPEC work was integral to the Patents Court dispute, Pelican should recover its costs in the court in which the matter was determined. The appellate court held that this was the wrong approach. The recital in HHJ Hacon’s transfer order contained a clear indication that pre-transfer costs “should” be assessed under the IPEC caps. The discretion therefore fell to be exercised on the basis that HHJ Hacon’s indication should be departed from “if, but only if, there was a good reason to do so”. The trial judge had not identified any such reason. Rather, he had treated the pre-transfer costs as being at large, subject to the ordinary Patents Court costs regime.

Re-exercise of Discretion: Having found the exercise of discretion flawed, the Court of Appeal re-exercised it. The court noted that HHJ Hacon, as the IPEC judge who heard the transfer application, was well placed to assess the parties’ conduct during the IPEC phase. Pelican’s arguments about Salts’ pre-transfer conduct — the same arguments it had advanced before HHJ Hacon — did not persuade the court to take a different view. The court therefore varied the costs order to limit Pelican’s recoverable pre-transfer costs in accordance with the IPEC scale.

The court added, per curiam, that although its analysis referred to transfers from IPEC to the Patents Court, the same principles apply to transfers of copyright and trade mark claims from IPEC to the High Court.

Key Takeaway

This decision establishes that where IPEC indicates at the point of transfer that pre-transfer costs should be assessed on the IPEC scale, a receiving court may only depart from that indication for good reason. Practitioners acting in IPEC proceedings that may face transfer should ensure that the question of pre-transfer costs is expressly addressed in the transfer order — and, where appropriate, that a binding term under PD 30 paragraph 9.2(1) is sought rather than a mere indication in a recital.

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