England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE No CHANI 97/0196/B

IN THE COURT OF APPEAL (CIVIL DIVISION) CHANI 97/0198/B

Royal Courts of Justice

Strand

London WC2

Monday, 27th October 1997

B e f o r e:

LORD JUSTICE HOBHOUSE

LORD JUSTICE PILL

LORD JUSTICE MUMMERY

HODGKINSON & CORBY LTD (T/a Raymar)

and

ROHO INCORPORATED

- v -

WARDS MOBILITY SERVICES LTD

HODGKINSON & CORBY LTD (T/a Raymar)

and

ROHO INCORPORATED

- v -

WARDS MOBILITY SERVICES LTD

(Computer Aided Transcript of the Palantype Notes of

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London EC4A 2HD

Tel: 0171 831 3183

Official Shorthand Writers to the Court)

MR SIMON THORLEY QC and MR GUY TRITTON (Instructed by Reynolds Porter Chamberlain of London) appeared on behalf of the Appellant

MR ROBERT DEACON (Instructed by Roberts Richards of London) appeared on behalf of the Respondent

J U D G M E N T

(As Approved by the Court )

(Crown Copyright)

LORD JUSTICE HOBHOUSE: This is an appeal from the judgment of Neuberger J dated 6th November 1996. It raises a question of the application of what was described as the Rules in Henderson v Henderson [1843] 3 Hare 100. I quote from the well-known passage from the judgment of Sir James Wigram V-C:

" ..... I believe I state the rule of the Court correctly when I say that, where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at that time."

Coming to a more recent date, Stuart Smith LJ in Talbot v Berkshire County Council [1994] QB 290 commented:

"The rule is thus in two parts. The first relates to those points which were actually decided by the court: this is res judicata in the strict sense. Secondly, those which might have been brought forward at the time, but were not. The second is not a true case of res judicata but rather is founded on the principle of public policy in preventing multiplicity of actions, it being in the public interest that there should be an end to litigation: the court will stay or strike out the subsequent action as an abuse of process."

He referred also to Lord Wilberforce in Brisbane v Attorney General for Queensland [1979] AC 1 425. There Lord Wilberforce said:

" ..... it ought only to be applied when the facts are such as to amount to an abuse: otherwise there is a danger of a party being shut out from bringing forward a genuine subject of litigation."

There are similar statements in other authorities.

I quote from Fidelitas Shipping Company Ltd v V/O Exportchleb [1966] 1 QB 630 which was cited by Mr Deacon who appeared on behalf of the defendants in this appeal. In that case Lord Denning MR said at page 640:

"Within one issue, there may be several points available which go to aid one party or the other in his efforts to secure a determination of the issue in his favour. The rule then is that each party must use reasonable diligence to bring forward every point which he thinks would help him. If he omits to raise any particular point, from negligence, inadvertence, or even accident (which would or might have decided the issue in his favour) he may find himself shut out from raising that point again, at any rate in any case where the self-same issue arises in the same or subsequent proceedings. But this again is not an inflexible rule. It can be departed from in special circumstances."

What we have to consider on this appeal is the application of those principles to the particular circumstances of this case.

The plaintiffs in the action are two companies, the first plaintiff Hodgkinson & Corby Ltd being a United Kingdom company carrying on business in this country, and the second plaintiff RoHo Inc, a company incorporated in Illinois and carrying on business in the United States of America. Those companies were respectively concerned with the importation and marketing into this country, and the design and manufacture, of an invalidity cushion known as the RoHo cushion. This is a successful design of an invalidity cushion which consists of finned cells which are interconnected pneumatically and can be controlled pneumatically. It thus provides a highly efficient and beneficial method of supporting patients who suffer from immobility or who are suffering from pressure sores.

RoHo is the trademark that is used for this cushion. It is their designers who were respectively the alter ego and employee of RoHo, Mr Graebe and Mr Klotz, who had, in the 1980s, both originated and developed this particular design.

The defendants, Wards Mobility Services Ltd, are a United Kingdom company who deal in and import various types of medical and related products. In 1993 they were preparing to import and sell, in competition with the plaintiffs in this country, a similar product to the RoHo cushion. Their cushion was called the Flo'tair cushion which was made in France by a company called Asklé, and which had been designed by a Frenchman. The defendants had been displaying the Flo'tair cushion and had taken it to trade fairs or trade demonstrations. That was how it came to the notice of the first plaintiffs. At this time it had on it in small letters a trade name R'KO. That, on any view, was going to be suggestive of RoHo.

When the plaintiffs caused a solicitor's letter to be sent to the defendants on 16th June 1993 they made two complaints. One was that the defendants were preparing or seeking to pass off their cushion as the plaintiffs' cushion and the other that they were infringing the RoHo trademark which was vested in the second plaintiffs. The defendants' solicitors responded promptly. They agreed to remove from the Flo'tair cushion the offending letters "R'KO", but they strenuously denied that there was any passing off of the defendants' goods as the plaintiffs' goods. By a letter that was sent a short while later on 28th June 1993 the plaintiffs added to the complaints that they were making against the defendants an allegation that the defendants were infringing the design copyright of the plaintiffs. At that stage, understandably, the plaintiffs' solicitors said that they were investigating the point. They still did not have access, it would appear, fully to the actual design or construction of the defendants' cushion.

On 30th June the writ in the action was issued by the plaintiffs against the defendants. It claimed relief which was based on the complaint about passing off and about the infringement of trademark rights. The primary relief claimed were various

injunctions. Ancillary to that there was an order prayed for delivery up and destruction of infringing articles and an inquiry into damages or, alternatively, an account of profits. The correspondence relating to the question of copyright and infringement of copyright was continued between the solicitors. On 5th July additional information was given by the plaintiffs to the defendants regarding the basis of the copyright allegation. On 6th July the defendants' solicitors responded to that letter, disputing in comprehensive terms any infringement of copyright. On 7th July, that is the following day, an ex parte injunction was obtained by the plaintiffs from Morritt J. In fact, although it was an ex parte application, it must have been made on notice to the defendants because they were

represented by counsel on that hearing. An interim injunction

was granted until the further hearing of a motion. It restrained the defendants from importing or dealing in cushions which corresponded to the plaintiffs' cushions which by then had been described in some detail in one of the plaintiffs' solicitors' affidavits. There was the usual implied undertaking cited in the order that was drawn up. It was contemplated or directed that there would be an opposed motion inter partes that would be listed before a judge in the following month. During the remainder of July up to the end of the month there were further exchanges between the solicitors for the two sides. Most of

those exchanges were in the form of open letters or faxes, but there were also certain "without prejudice" communications. The primary subject of these matters were the additional complications which had been introduced by the allegation by the plaintiffs of infringement of copyright.

By 27th July an agreed way forward had been settled. In a letter dated 27th July the plaintiffs' solicitors were able to write to the defendants' solicitors:

"We write to confirm that we have reached agreement for the resolution of our clients' Notice of Motion dated 30th June 1993 as follows:

1. Your client will give undertakings to the Court until after judgment in this action or further order in the terms of the injunctions ordered by Mr Justice Morritt on 7th July 1993; the undertaking regarding the R-KO trade mark is also to continue until after judgment or further order.

2. Our clients will give a cross-undertaking as to damages.

3. The Plaintiffs' costs of the Motion (including the costs of the hearing before Mr Justice Morritt) are to be the Plaintiffs' costs in the cause.

4. Both parties will consent to directions designed to bring the action on for a speedy trial prior to 1st August 1994.

We will prepare a draft Order and forward it to you for approval."

The order in that form would contemplate that the trial was going to be simply concerned with the passing off allegation alone because that was all that was alleged on the pleadings at that time.

However the parties had also been discussing what should be their respective attitudes to the dispute regarding the question of infringement of copyright. It is necessary to explain the context in which that arose. The infringement of copyright was an infringement of design right existing under Section 213 of the Copyright Designs and Patents Act 1988. The assertion that the plaintiffs did have such a right would raise various issues as to whether or not the designs upon which they were relying qualified for protection under that and the related sections. Similarly, the allegation of infringement raised factual issues as between the plaintiffs and the defendants as to whether there were primary infringements. The question of secondary infringement by importation or marketing had by that stage become dependent on the primary issue because it could not seriously be disputed that the defendants had been put on notice of the plaintiffs' assertive right to copyright in the relevant design.

However under the Act and the interim provisions of that Act, the full right to protection against infringement of copyright would only subsist until 1st August 1994. From that date, under the provisions of the statute, the defendant would be entitled to a licence as of right. They would have to pay appropriate compensation or royalty to the copyright holder. But the existence of the availability of the licence of right would render the costs of litigation disproportionate in comparison with the low cost of paying a royalty. Therefore, as regards the position after 1st August 1994, it was extremely unlikely that it would be in the interests of either party to litigate the point.

Reverting to the position in August 1993, the position was that the plaintiffs had in hand the injunction which they had obtained ex parte and which, unless further order was made, would cover the position until any pending trial, that is, as a matter of practical politics it was likely to cover the position up to the following summer and 1st August 1994. If the question of breach of copyright was introduced into the existing action it could only serve to strengthen the plaintiffs' case for their interim injunction if that interim injunction were to be challenged.

From the defendants' point of view their primary interest was, and appears to have been seen to be, to establish a position which would allow them and their suppliers to market their cushion without the relevant restrictions from 1st August 1994. The defendants were equally unwilling to incur the disproportionate costs of unnecessary dispute by infringement of copyright, certainly not as regards any position after 1st August 1994. It followed from that, and is apparent from the parties' conduct, that both parties chose to treat as their priority the obtaining of a decision on the trial of the action on the passing off point and to do so in advance of 1st August of the following year. This was certainly the interest of the defendants in the action and it appears to have been the primary motivating interest. The defendants were also interested in limiting the costs that they would have incurred. The parties continued to disagree in correspondence about the copyright issue. There was never any concession on the part of the defendants that there had been any infringement of copyright, and if the copyright issue was to be fought out at any time it would have to be done on a foundation of the issues between the parties. Once a licence of right had been applied for and granted then it would not be open to the licensee to challenge the right which he was licensed to exercise.

Following the logic which I have outlined, no further proceedings were issued by the plaintiffs claiming a relief in respect of the alleged infringement of copyright; nor did they apply to make any amendment of the existing proceedings.

The position is summarised by the second affidavit sworn by Mr Hobson on behalf of the plaintiffs which has been read to us this morning by Mr Deacon. I read from paragraph 36 and following of his affidavit:

"As the person of this firm dealing with the copyright aspects of the claim my intention, when writing my firm's letters of 5 and 8 July, was, unless we obtained the contractual undertakings demanded, to commence separate proceedings with Mr Graebe as Plaintiff. I had Mr Graebe's authority to proceed, and intended to apply for an interim injunction to restrain the Defendant from infringing copyright. Those were my clear instructions. I also intended to apply for the passing off and copyright actions to be consolidated.

The reason for proceeding in that manner would be to avoid complicating the passing off action by introducing into it applications for leave to amend the writ in this action by a new cause of action. Denton Hall's letters of 16 July 1993, and the ex parte injunction obtained in the passing off proceedings, meant that there was no further threat from the Defendant and an application for an interim injunction in the copyright claim would have been hopeless.

However as can be seen from the contemporaneous correspondence, exhibited at ..... the Defendant's behest the Plaintiffs did not pursue proceedings based on copyright, because it concurred with the Defendant's view that the Plaintiffs were adequately protected by the injunction and subsequent undertaking in the passing off proceedings.

As I have said, by 27 July 1993 the parties were agreed that there should be a speedy trial to take place before 1 August 1994."

I stress in that quotation the phrase "at the Defendant's behest the Plaintiffs did not pursue proceedings based on copyright".

The adjourned motion together with a question of directions came on before Rattee J on 12th November 1993. It came on on the basis which had been agreed by the parties, and we have before us the attendance notes which were made by the respective solicitors of what occurred on that day. Neuberger J did not have those attendance notes before him and his judgment was not able to deal with this aspect of the facts which, as I will explain, I consider to be of central importance to the question that we have to consider. At the hearing on 12th November 1993 the defendants were represented by Mr Platts-Mills of counsel and the plaintiffs by Mr Tritton, who has also appeared before us

today, and Mr Thorley QC. I will take first the attendance note

prepared by the plaintiffs' solicitors which says:

"Mr Platts-Mills, Counsel for the Defendant, explained that the parties had agreed that the action be dealt with by way of speedy trial. He handed up to the Judge the Minutes of Order.

[Mr Platts-Mills] proceeded to explain that Mr Justice Morritt had granted an injunction on 7th July 1993 and stood over the motion to be heard as a motion by order. The Plaintiffs had made an allegation of infringement of copyright although there are no proceedings on foot yet. In any event, under the provisions of the 1988 Copyright Act, the Defendant will be entitled to a licence of right from 1st August 1994. With this in mind, it had been agreed between the parties that the sensible course would be to deal with this action by way of speedy trial before 1st August 1994 so that the issue of passing off is resolved prior to this date. [Mr Platts-Mills] confirmed that proceedings were closed although there was an outstanding request for Further and Better Particulars which need not trouble the Judge. [Mr Platts-Mills] asked for an order to be granted in the terms sought in the Minutes of Order."

It continues with the judge asking counsel what was the position

about the list and whether they checked it. The parties were sent away to find out what the position was from the listing officer. That was done by the parties' solicitors. They gave the listing officer a time estimate of 7 days. The clerk agreed that that could be accommodated and the clerk was satisfied that the state of the action was sufficiently prepared, that the pleadings were closed and discovery would be completed by 2nd December and all the relevant papers could be appropriately lodged. It was on that basis that the listing officer was prepared to accept the case for a date in June or July and for that length of hearing. The parties returned before the judge and explained the position to the judge. The judge was asked to order a speedy trial. Mr Tritton, counsel for the plaintiffs, at that point intervened to support Mr Platts-Mills' request that if a speedy trial was not ordered the plaintiffs would be bound to lodge proceedings for infringement of copyright which would lead to a far more lengthy trial and agreed that this was a matter best suited to a speedy trial. The judge made the order asked for in the minutes.

The other attendance note I need not quote at the same length. It refers to the motivation which was influencing the defendants which I have already summarised. It again indicates that it was Mr Platts-Mills who was presenting the matter to the court and who was taking the initiative in persuading the court to make an order for a speedy trial. It rather indicates that the judge was told that not only would the failure to order a speedy trial give rise to a substantial interlocutory motion which would, inevitably, involve the copyright issues as well as the passing off issue, it also bears out that the judge was told that instead of the hearing of a very substantial motion including copyright the sensible course was to have a speedy trial as to the passing

off so the matter would be resolved by the time they obtained the licence of right in the proceedings. The defendants' attendance note confirms fully and rather more emphatically the position with the listing officer and the need to restrict the hearing that is going to take place the following summer. It also repeats what was said by Mr Tritton at the conclusion of the hearing before the judge on the second case. The defendants' solicitor recorded:

"Guy Tritton addressing the Judge and confirming that the copyright case for the plaintiffs was stronger than the passing off case and the interlocutory would canvass passing off and copyright issues and may be far more complex than the trial itself [because] the trial would only have half the complexity of the interlocutory and there is an undertaking as to damages in the meantime and the terms are agreed, the sensible course was to crack on with the speedy

trial of the passing off action."

It was on that basis that the matter proceeded to trial. It was heard before Jacob J between 28th June and 6th July 1994 (reported at 22 FSR 169). The judge gave judgment in favour of the defendants. The passing off allegation comprehensively failed. It followed that the interim injunction was discharged. The judge also ordered an inquiry as to the damages in respect of the interim injunction and the cross-undertaking that had been given.

Parties exchanged contentions in the inquiry. The defendants' statement of contentions included paragraph 5 which said:

"By reason of the matters aforesaid, the Defendants lost profit on sales of the product which it would have made between 7th July 1993 and 20th [July] 1994, amounting to £377,803."

Also additional sums which raised the total figure to something

of the order of £800,000. The plaintiffs responded to that by saying:

"Paragraph 5 ..... is denied. The Plaintiffs aver that the marketing of the FLOT'AIR cushions would have been unlawful absent the injunction and/or undertakings as such marketing would have constituted an infringement of the Second Plaintiff's copyright and/or the copyright of Mr ..... Graebe, at all material times the president and principal shareholder of the Second Plaintiff, who designed the ROHO cushion. The following paragraphs ..... concern the ..... copyright claim ..... "

They set out particulars of both the design right which they say

they had and the infringement by breach of copying. It was under those circumstances that it was considered necessary to order a preliminary point to be tried in the inquiry. The order was made by Jacob J. He ordered that the preliminary trial be -

"Whether the Plaintiffs are entitled to rely upon copyright which is alleged to subsist in the design of their air flotation cushions in order to contend that the Plaintiffs can be under no liability whatsoever in respect of the Defendant's claims in the inquiry, on the basis that the Defendant could not lawfully have sold the FLO'TAIR cushion without infringing copyright."

He gave certain directions faced with that and for the subsequent conduct of the inquiry. It was in those circumstances that the matter came before Neuberger J on the trial of that preliminary issue. The matter was considered on affidavit evidence. It appears that the affidavit evidence was either primarily or wholly affidavits on the plaintiffs' side. Certainly those are the only affidavits upon which reliance has been placed before us.

The judge had to consider three points. The first was a point raised by the defendants whether the plaintiffs were shut out altogether by the fact that an inquiry had been ordered and, therefore, they were precluded from taking a point which would wholly defeat the claims for damages. The judge considered that

point and rejected it. The second point which arose was whether he could and should look at the "without prejudice" correspondence which had been exchanged with the solicitors in July 1993. The judge held that he could refer to the correspondence, but "I considered that it did not advance the plaintiffs' case." He held also that it did not advance the plaintiffs' case in any material respect. The third point which

he considered was the application of Henderson v Henderson and whether the raising of the copyright issue was an abuse of process. He held that it was an abuse of process and that the defendants should not be entitled to rely upon it. It is against the second and third of those points that the plaintiffs appeal to this court.

The striking feature is that, unfortunately, the parties were not able to refer the judge to the detail of what happened on 12th November 1993 and, in particular, were not in a position to place before him the attendance notes from which I have extensively quoted. It would be obvious that those attendance notes subsumed the question of the "without prejudice" exchanges which had taken place in July and related to the same subject matter. The matter having been fully ventilated inter partes on 12th November, there is no further need for either side to rely upon the "without

prejudice" correspondence or what it contained. It was always apparent that "without prejudice" discussions had taken place at that time and the existence of "without prejudice" discussions is not something which could be excluded.

In view of what happened on 12th November 1993 the right approach to this matter is to look at what was then said, what it shows about the attitude of the parties and the basis upon which the case then proceeded without the copyright issue being pleaded either on that action or in any concurrent action. In my judgment what happened on 12th November does make a radical difference to the assessment that has to be made. It was not taken into account by the judge for the reasons that I have mentioned. In my judgment it is central to the relevant question. What happened was that, with the concurrence of both parties, the action went forward on the basis of obtaining an early trial with a view to achieving that decision before 1st August 1994 and gearing up the entitlement of the defendants to market their cushion from 1st August 1994 onwards. If, of course, there was the tort of passing off, then unless something radical was done to avoid passing off a decision on passing off in favour of the plaintiffs would continue to restrain the defendants from marketing their cushion after 1st August 1994. But suppose the defendants succeeded, as they did, the way would be open for them, in exchange for a royalty, to obtain, either themselves or through suppliers, a licence of right. That was the interests of the defendant, and it was reflected in the common approach to the future conduct of the action that was adopted by both parties.

It was the common approach of both parties that there should not be introduced into the action the additional copyright issues and that the prior concern should be the obtaining of the speedy trial, limited as I have indicated. This is borne out by the leading role that was played by Mr Platts-Mills in November 1993

and the attendance note from which I have quoted. It is also

corroborated by the affidavit of Mr Hobson from which I have

also quoted and the phrase "at the Defendant's behest the

Plaintiffs did not pursue proceedings based on copyright".

It is obvious, and indeed it is accepted by both counsel before us, that no one in November 1993 focussed on the interrelationship of the copyright point and the cross-undertaking in damages. It was something to which neither side gave thought. It was not something which at that stage either party thought ought to be raised, whoever it would help.

In general, any party who is seeking to obtain or hold an injunction, be it interlocutory or final, must advance his best case and make the claims of right or allegations of fault which he says support the grant of the injunction. So here in the present case, as Mr Thorley recognised, if the action had continued in the more normal way, the plaintiffs would have been obliged either by amendment or consolidation to bring before the court their case on infringement of copyright so that the judge could decide it as part of the trial as well as the issues of passing off. The present case was not the ordinary sort of case. Both parties agreed on a speedy trial, patently agreed that the copyright issue would not be covered by the trial.

In my judgment, on the facts of this case, the plaintiffs were

not shut out from arguing infringement of copyright in the trial

of the issue on the cross-undertaking if it should become material. For them to do so is neither an abuse nor unjust. In my judgment the analogy is with the case of Barrow v Bankside [1996] 1 WLR 257. That was a case which arose out of the Lloyd's litigation in which the court imposed a scheme of managed litigation upon the very numerous litigants who had come before

the commercial court with widely varying claims arising out of the problems of Lloyd's. Mr Barrow, the plaintiff, was a party

whose claims potentially covered more than one of the categories which were dealt with in the directions and orders that were made by the commercial court for the management of that whole scheme of litigation. He had an action which had proceeded in respect of one type of claim. The question for the Court of Appeal in Barrow v Bankside was whether the fact that he had not in that action pursued another type of claim against the same agency precluded him from doing so. The decisive factor in the judgment of the Court of Appeal was the background on managed litigation. It was not appropriate, and Mr Barrow probably would not have been permitted to raise the second claim in the action which had previously been tried which was confined to another type of allegation against the agency. It was held that in the circumstance of that case it was neither an abuse of process nor was it unjust that Mr Barrow should be allowed to continue and proceed with a claim against the agency in respect of a different cause or complaint.

By parity of approach the parties in the present case reached an agreement which, in effect, managed their own litigation. It was done for sensible, practical reasons in the interests of the defendants as much as in the interests of the plaintiffs. That resulted in a limited trial which was expedited which did not deal with the issue with which we are now concerned, the copyright issue. If it was appropriate that they should deal with the matter in that way, it is inappropriate that that should be treated as precluding the plaintiffs from raising the copyright issue now it has become material between the parties.

Accordingly, for reasons which were not really available to the judge, I would allow these appeals.

LORD JUSTICE PILL: It is common ground that at the time of the hearing before Rattee J on 12th November 1993 both parties sought an early trial of the action. The learned judge now appealed against did not have the advantage of submissions as to what occurred at that hearing. Following counsels' submissions, events have now been analysed by Hobhouse LJ. The action was subsequently heard before Jacob J in late June and early July 1994 as a passing off action. The plaintiffs' claim was dismissed. They now seek to defend themselves against a claim for damages based upon the cross-undertaking they gave when they obtained an interlocutory injunction by alleging that the defendants were infringing a copyright. Copyright was not pleaded or argued, though it could have been, before Jacob J. There was no express agreement that arguments based upon infringement of copyright could be reserved until an inquiry into the defendants' claim for damages on the cross-undertaking, if that arose.

For the defendants, Mr Deacon submits that the rule in Henderson v Henderson [1843] 3 Hare 100 applies and that there are no special circumstances on which the plaintiffs can rely. The rule can apply, he submits, within the same action as well as where there are successive actions (see Fidelitas Shipping Company Ltd v V/O Exportchleb [1966] 1 QB 630. The judge adopted a similar approach, stating at page 34 of the transcript:

" ..... I must start with the proposition that, at least on the face of it, permitting the plaintiffs to raise the copyright issue at this stage would breach the rule in Henderson. However, it is clear that the rule is subject to exceptions."

The flaw in Mr Deacon's argument, in my judgment, is in the assumption that the rule must apply upon proof that infringement

of copyright could have been but was not argued before Jacob J. Upon such proof, he submits, the rule applies to the ancillary proceedings resulting from the cross-undertaking. In my judgment, investigation as to why the point was not argued is necessary to decide whether any rule applies. Whether the rule applies depends upon the circumstances in which the action was contested. In this case the sensible decision was taken by the parties to obtain an early trial, that is, a trial before 1st August 1994 upon the passing off issue. If the plaintiffs succeeded the defendants could not continue to market the goods. If the plaintiffs failed the defendants could obtain, and indicated that they would obtain, a licence of right. In the meantime the plaintiffs were protected by undertakings given in relation to marketing the goods. A licence of right could be obtained as from 1st August 1994. That being so, there is nothing inequitable in the plaintiffs' alleging infringement of copyright upon the claim for damages brought by virtue of their cross-undertaking.

The basis of the rule in Henderson v Henderson is abuse of process. As Lord Upjohn stated in Carl Zeiss Stiftung v Rayner & Keeler Ltd No 2 [1967] 1 AC 853 at 947 D-E:

"All estoppels are not odious but must be applied so as to work justice and not injustice and I think the principle of issue estoppel must be applied to the circumstances of the subsequent case with this overriding consideration in mind."

In Henderson v Henderson Sir James Wigram V-C in the passage which my Lord has cited stated that the rules applied -

" ..... to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."

In the present context the time in question is the time up to and including the action before Jacob J and the question is what properly belonged to the subject of that litigation. The events of 12th November were a very important circumstance. In Barrow v Bankside Agency Ltd [1996] 1 WLR 257 there were two actions. Hobhouse LJ has summarised the facts in that case. In the second action the defendants sought to rely on Henderson v Henderson in order to prevent the plaintiffs taking a point, a similar argument to that employed by Mr Deacon in the present case. Saville LJ stated at page 266 G:

"Where I part company with Mr Simon [counsel for the defendants in the case] is not so much with this part of his argument as with his basic premise that the rule is applicable to the present case. In my judgment the circumstances are such that it could not fairly be said, to use the words of Lord Kilbrandon in Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581, 590 that the matters now raised could and therefore should have been litigated in the earlier proceedings."

Having analysed the facts in that case, Saville LJ concluded:

" ..... in the circumstances of the present case the matter now raised could not and should not have been litigated first time round."

In my judgment that principle applies in the present case. Upon the situation as it existed in November 1993 it was entirely

sensible that infringement of copyright was not pursued. It

would not have helped either party to do so and it was not in the interests of either of them that it should be raised.

Hobhouse LJ has described the events before Rattee J on 12th November. I cite only four sentences from the note taken by the defendants' solicitors:

" ..... in relation to copyright, we were planning on taking a licence of right for the drawings on 1st August 1994. That instead of a hearing of a very substantial motion including copyright the sensible course was to have a speedy trial as to passing off and so the matter would be resolved by the time we had got the licence of right proceedings ..... In the meantime, the Defendant was prepared to give undertakings until Judgment for further Order as set out. Counsel explained the copyright position to the judge, in particular, the licence of right being available as at 1st August 1994 and so that issue falls away."

As Hobhouse LJ has demonstrated, there was a common approach to the procedure which was to be followed and an appropriate procedure was agreed. Express agreement that the plaintiffs

could make allegations of infringement of copyright upon the inquiry into damages on the cross-undertaking was not in the circumstances required to protect their position.

I agree with Hobhouse LJ that the plaintiff should be permitted to take the point and that the appeal should be allowed.

LORD JUSTICE MUMMERY: I would also allow these appeals. I agree with both judgments.

I add a few words on the future conduct of this inquiry. Fresh directions will have to be sought from the Chancery Division as to how this inquiry should now proceed in the light of this court's decision. It is not appropriate for this court, on an appeal on a limited preliminary point, to decide these matters. The position is potentially complex and requires full and careful thought.

The defendants in the action are applicants on the inquiry.

Mr Thorley QC accepted that the burden is on his clients, the plaintiffs, to make good the copyright claims relied on in diminution or, even as he contends, in extinction of the compensation claims made on the cross-undertaking. If, as the 1993 solicitors' correspondence indicates, there are still live issues on questions of title, originality, copying and infringement by substantial reproduction, the copyright point on the inquiry is likely to assume the proportions of a full scale infringement action in the unusual context of assessment of damages on an inquiry. Detailed directions will need to be sought from the Chancery Division in relation to pleading, to discovery of documents and to the conduct of the trial of those issues. Questions of liability and quantum will have to be decided before final submissions can be made by the parties on the impact of the resolution of those issues on this inquiry as to damages.

Order: Appeals allowed