England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL
ON APPEAL FROM
THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY
COMMUNITY TRADE MARK COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		9th October 2014

LORD JUSTICE VOS:

Introduction

1. The appellants in this appeal are the first, second and fourth defendants to the action; AVELA Inc., Poeticgem Limited, U Wear Limited, and J Fox Limited. I shall refer to those four parties as "the appellants". They are the defendants to an action for trade mark and copyright infringement and passing off. The third defendant, known as "The Partnership (Trading) Limited" is now in administration and plays no part in this appeal.
2. There are three applications that have been adjourned for me to hear today. First, the appellant's application for a stay of paragraph 22 of Birss J's order, dated 6th May 2014, ordering that the appellants pay £475,000 on account of costs, by 3rd June 2014. This application is contained in the Appellant's Notice, dated 2nd June 2014.
3. Secondly, there is the respondent's application for an order that the appellants pay £475,000 as a condition of prosecution of the appeal. This application is contained in the respondent's application of 4th August 2014.
4. Thirdly, there is the appellant's application to vary Floyd LJ's order, dated 15th September 2014, under CPR Part 3.1(7), so as to permit them to file their skeleton argument before 5.00pm on 17th October 2014. This is contained in an application dated 5th September 2014. I shall return to this point, but on one analysis, the application should more sensibly be treated as an application for further time to file the skeleton argument in support of the appeal.
5. Before turning to the issues that I have to decide, I should set out the slightly complex chronology that provides the backdrop to these applications. It is that chronology that has given rise to the arguments on both sides in relation to the three applications.

Chronology

6. On 25th February 2014, Birss J gave judgment, after a five-day contested trial, for the claimants in respect of trade mark infringement, in respect of five UK trade marks and four community trade marks, and in respect of passing off.
7. The copyright allegations that had been made in these proceedings had been hived off to a trial due to start in January 2015. It is perhaps important to note that, in the course of his judgment, Birss J held that the President of AVELA Inc., Mr. Leo Valencia, was not a reliable witness: see paragraphs 27 and following of his judgment.
8. On 6th May 2014, Birss J granted the appellants permission to appeal and ordered the defendants to pay the claimants' costs of the action, and made the order for an interim payment on account of costs of £475,000 to be paid by 3rd June 2014.
9. On 19th May 2014, Birss J gave his second substantive judgment in the case, which related to an application made after the original trial had concluded, in relation to the question of whether the English court had jurisdiction to hear the matter at all. Birss J had, somewhat confusingly, already made the order in relation to the jurisdiction application on 6th May 2014, but only delivered his judgment on 19th May 2014.
10. In that judgment, he refused to stay the UK proceedings and granted the respondents summary judgment on certain allegations of bad faith concerning the validity of the trade marks that were due to be tried in January 2015.
11. On 2nd June 2014, the appellants filed their Appellants' Notice in respect of Birss J's substantive judgments, and sought a stay in that Appellants' Notice in relation to the interim costs order to which I have already referred.
12. On 10th June 2014, Miss Emma Himsworth QC, then counsel for the appellants, who had appeared at both the trial and the jurisdiction application, wrote to the Case Progression Manager of the Court of Appeal seeking an extension, until 23rd July 2014, in which to file her skeleton in support of the appeal on the grounds of her work commitments.
13. On 18th July 2014, Miss Himsworth wrote again to the court, saying that she was, at that stage, without instructions and unable to act any further for the appellants.
14. On 23rd July 2014, the appellants' solicitors wrote to the court, seeking an extension of time for the production of their skeleton argument in support of the appeal, until 5th September 2014, on the ground of the appellants' funding difficulties.
15. On 4th August 2014, the respondents issued an application notice, seeking an order that the appellants make the £475,000 payment on account of costs as a condition of the continued prosecution of the appeal and seeking an order that, in default of that payment, the appeal should be struck out.
16. On 22nd August 2014, the matter came before Kitchin LJ, on paper. He extended the appellants' time for filing their skeleton on the substantive appeal issues until 5th September 2014 and he referred (a) the appellants' application for a stay of paragraph 4 of Birss J's order, and (b) the respondents' application for a payment of £475,000 as a condition of prosecution of the appeal to an oral hearing. He gave directions for filing evidence.
17. It will immediately be noticed that his order contained an error in referring to an application for a stay of paragraph 4 of Birss J's order. In fact, the application was for a stay of paragraph 22 of Birss J's order, but nothing turns on that mistake.
18. On 5th September 2014, the appellants issued their application notice, seeking an extension of time to file their skeleton argument until 3rd October 2014 and an extension of time for filing their evidence in support of their application for a stay of the payment of £475,000, and in opposition to the respondents' application, to 19th September 2014. The grounds of the application said that the appellants anticipated sorting out their funding difficulties within the next two weeks (i.e. by 19th September 2014).
19. On 15th September 2014, Floyd LJ looked at the matter again on paper. He ordered that the appellants' time for filing evidence in support of their application for a stay should be extended until 5.00pm on 19th September 2014, and that the application should stand dismissed if the evidence was not filed by that time. He also ordered that the appellants' time for filing their skeleton in support of their appeal should be extended until 5.00pm on 2nd October 2014 and that the appeal should stand dismissed if the skeleton was not filed by that time.
20. On 15th September 2014, for what it is worth, an Italian court in Bari dismissed the appellants' request for a referral of the jurisdiction matters that had been considered by Birss J to the Court of Justice of the European Union.
21. Mr. James Mellor QC for the respondents has submitted that the Italian court judgment is irrelevant to what I have to decide and Mr. Gwilym Harbottle, counsel before me for the appellants, has not orally said anything to the contrary.
22. On 18th September 2014, Mr. Philip Herbert, of the appellants' solicitors, filed his sixth witness statement in support of the appellants' application for a stay of the payment of £475,000 and in opposition to the imposition of the same condition for the prosecution of the appeal. I shall return to the detail of that evidence in a moment.
23. On 2nd October 2014, the appellants filed an application to vary Floyd LJ's order, dated 14th September 2014, so as to permit them to file their skeleton on 17th October 2014. I have already referred to this application.
24. Mr. Vanhegan QC's, letter, dated 1st October 2014, to the court was attached to this application, in which he said that he had only been formally instructed by the appellants on 1st October 2014, had not received all the papers at that stage, and that he sought an extension for the production of the skeleton until 17th October.
25. On 6th October 2014, Floyd LJ once again had cause to look at the matter on paper. He ordered that the appellants' application for an extension of time to file their skeleton be adjourned to an oral hearing fixed today for 9th October.
26. On 8th October 2014, out of time, new counsel, instructed on behalf of the appellants, Mr. Harbottle, filed his skeleton argument. That reached me very late, at 2.20pm yesterday, despite repeated requests for it, but nonetheless, I agreed to grant him permission in the course of the hearing today to rely upon it. Mr. Harbottle also filed a further helpful note overnight, which I have also had regard to.
27. It is to be noted that the substantive appeal in this matter is floating in a window, between 3rd November 2014 and 2nd March 2015, and no date has yet been fixed. The parties are agreed that time estimate for the appeal will be two days.

Evidence filed

28. Mr. Nicholas Rose of the respondents' solicitors filed his seventh statement on 7th July 2014, in response to the appellants' application for a stay contained in their Appellants'Notice. He complained that no evidence had been filed in support of the application and queried the assertions in the Appellants'Notice that none of the four appellants would be in a position to pay the £475,000 without risking or facing immediate insolvency.
29. In the briefest of outline, he produced evidence, first, that the first appellant, AVELA, was involved in extensive ongoing litigation, for which it was apparently paying; that it was attending a large trade show for which it had apparently paid the expenses; and that AVELA was a US company without publically filed accounts.
30. He said that the second appellant's last filed accounts, as at 31st March 2013, which he exhibited, showed current assets of £13 million, with £1.7 million in cash. In fact, they showed net assets of £6.1 million, with £1.7 million in cash; the error apparently being to add the group assets and the company's assets together, instead of regarding them as separate entries.
31. He said that the fourth and fifth appellants' accounts, which he also exhibited, showed current assets of £256,000 and £827,000 respectively, including modest amounts of cash in each case.
32. Mr. Rose complained of numerous breaches of Birss J's order by the appellants and submitted that the appellants appeared to be able and willing to pay to fight the copyright elements of the claim in 2015, notwithstanding their supposed insolvency.
33. On 18th September 2014, Mr. Philip Herbert of the appellants' solicitors filed a statement in support of the appellants' case. He should have filed that statement at the time of the Appellants' Notice, in compliance with the practice direction.
34. It would not be unfair to say that Mr. Herbert, whilst giving some limited information as to the financial position of the appellants, does not entirely meet head-on the information that had already been provided by Mr. Rose. Again, in the briefest of summary, Mr. Herbert said that the appellants' had been unable to arrange funding to pay the £475,000 and also expeditiously to pursue the appeal.
35. He gave evidence about the court judgment in Bari, Italy, which he said related intimately to the matters that Birss J had decided. He said that the respondents had served statutory demands on the second, fourth and fifth appellants, and that Mr. Leo Valencia of the first appellant had told him that AVELA did not have the necessary funds to pay the £475,000.
36. At a later stage in his evidence, Mr. Herbert put it another way, saying that AVELA was "simply unable" to pay "unless significant income is received". He did not explain when or whether significant income was expected.
37. Mr. Herbert then attached an abbreviated profit and loss account for AVELA for January-July 2014. It was a very abbreviated document, and showed net losses of £24,000 odd. He also exhibited a very abbreviated balance sheet for AVELA, showing negative equity of £1.28 million. I assume that that is what it shows, but bearing in mind that AVELA is an American company, and there is no denomination mentioned in the document, it could be dollars not pounds. Mr. Herbert said that AVELA's litigation was mostly on a 'no win, no fee' basis, which explained their ability to continue with it.
38. In relation to the second appellant, Poeticgem, Mr. Herbert said that Mr. Elliott Matthews, the Licensing Director of that company, had told him that it was unable to pay the £475,000 and that if the sum were to be paid "it would leave the company insolvent and staff liable to lose their jobs". The inconsistency between those two statements is to be noted.
39. Mr. Herbert exhibited an income statement for Poeticgem from the period from 1st April-15th August 2014 and a projected cashflow statement up to 31st December 2014. He said that the business of the second appellant had been significantly affected by what he described as "soft retail take-offs" which I understand to mean poor sales.
40. The management accounts for 15th August 2014 show losses of £753,000 for the previous four and a half months and the projected cashflow projects cash at the end of August of £36,000 in the hands of Poeticgem, negative cash at the end of September of £187,000, with that figure increasing as the months progress to the end of 2014.
41. No explanation is given in the financial documents as to where some £6 million-worth of assets have gone since the end of the 2013 financial year, on 31st March 2013, save, of course, that there was a loss for the four and a half months mentioned in the income statement, and that one can presume that other losses may have been incurred in the period between 1st April 2013 and 1st April 2014.
42. Finally, Mr. Herbert refers to information given to him by Mr. Ashwin Rao, the Managing Director of the fourth and fifth appellants. He exhibited balance sheets as at 31st July 2014, for those companies showing net assets of £22,000 and £310,000 respectively, with modest amounts of cash.
43. Finally, Mr. Herbert alluded to the appellants' need to meet historic costs liabilities as well, and said that the defendants "contend that they are simply not in a position to pay this sum [£475,000] but do not wish the appeal to be stifled as a result of the condition that the £475,000 is paid ...". The rather strange formulation about the prospective stifling of the appeal is obviously to be noted.
44. Finally, on 30th September 2014, Mr. Rose filed his eighth statement, acknowledging that the net assets of the second appellant had only been £6 million, not £13 million in the last filed accounts, as at 31st March 2013, and making certain submissions and comments in rejoinder to Mr. Herbert's evidence.

The key issue

45. The key issue that I have to decide is really the first one, namely whether there should be a stay of the interim costs order on the grounds that if payment is required, it will stifle a genuine appeal for which permission has been granted by the judge.

The CPR

46. CPR Part 52.9 provides as follows, in relation to the conditions that may be applied to an appeal: "(1) The appeal court may ... (c) impose or vary conditions on which an appeal may be brought. (2) The court will only exercise its powers under paragraph (1) where there is a compelling reason for doing so. (3) Where a party was present at the hearing at which permission was given he may not subsequently apply for an order that the court exercise its powers under sub-paragraphs (1)(b) or (1)(c)".
47. As can be seen from part 52.9(3), if the party was present at the hearing at which permission was granted, which in this case was on 6th May 2014, when Birss J granted permission to appeal, then that party may not subsequently apply for conditions to be applied to the permission.
48. Thus, it seems that Part 52.9 is not applicable here, because of the provisions of Part 52.9(3) and, therefore, that it was not open to the respondents to make their application of 4th August 2014 in the terms that they did. Mr. Mellor did not seriously contend otherwise, at least orally before me, although he pointed out, as is the case, that it is somewhat strange that a change of circumstances does not, under Part 52.9(3), allow the court jurisdiction to impose conditions later in the progress of an appeal.
49. That may be an interesting point for the Rules Committee to consider, but it does not enable me to gainsay the clear provisions of Part 52.9(3) and, accordingly, I dismiss the respondents' application dated 4th August 2014.
50. CPR Part 52.7 deals with the stay of an order of the court below as follows:  "Unless (a) the appeal court or the lower court orders otherwise; or (b), the appeal is from the Immigration and Asylum Chamber of the Upper Tribunal, an appeal shall not operate as a stay of any order or decision of the lower court."
51. The notes, at page 1868 of the CPR, at paragraph 52.7.2, cite Hammond Suddard Solicitors v. Agrichem International Holdings Ltd [2001] EWCA Civ 2065, and comment as follows:  "The balancing exercise. If an appellant puts forward solid grounds for seeking a stay, the court must then consider all the circumstances of the case. It must weigh up the risks inherent in granting a stay and the risks inherent in refusing a stay. See e.g. R. (Van Hoogstraten) v. Governor of Belmarsh Prison [2002] EWHC 2015 (Admin); Gater Assets Ltd v. Nak Naftogaz Ukrainiy [2008] EWCA Civ 51. In Hammond Suddard Solicitors v. Agrichem International Holdings Ltd [2001] EWCA Civ 2065, December 18, 2001, unrep, CA, Clarke LJ described the correct approach as follows at [22]: "'Whether the court should exercise its discretion to grant a stay will depend upon all the circumstances of the case, but the essential question is whether there is a risk of injustice to one or both parties if it grants or refuses a stay. In particular, if a stay is refused what are the risks of an appeal being stifled? If a stay is granted and the appeal fails, what are the risks that the respondent will be unable to enforce the judgment? On the other hand, if a stay is refused and the appeal succeeds, and the judgment is enforced in the meantime, what are the risks of the appellant being able to recover any monies paid from the respondent?' (The last sentence might be more felicitous if the word 'able' is changed to "unable").' "In considering whether, absent a stay, the appeal would be stifled, the court does not look only at the means of the appellant. It also considers whether the money can be raised from the appellant's directors, shareholders, other backers or interested persons: see Contract Facilities Ltd v. Estate of Rees (deceased) [2003] EWCA Civ 465 at [10]. …"

The first issue, the requirement to pay ££475,000

52. Paragraph 27 of Clarke LJ's judgment in Hammond Suddard makes clear that the principles developed in relation to the grant of security for costs, where it would stifle a genuine claim, in Keary Developments v. Tarmac [1995] All ER 534, at pages 539-542, are applicable to a case where it is said that a refusal of a stay would have that effect. Peter Gibson LJ made clear there that it was for the appellant to satisfy the court that it would be prevented by the order from continuing the litigation: see page 540J in his judgment.
53. Mr. Mellor submits for the respondents that the evidence produced by the appellants as to their supposed inability to pay the £475,000, is wholly inadequate. He says that even taking the documents that have been produced at face value, there is no real evidence that the money cannot be paid and that the court should regard the poor quality of the evidence as suspicious.
54. Mr. Harbottle, on the other hand, has submitted that it can be seen, taking the evidence at face value, that appellants simply cannot afford to pay the £475,000 and the chances are that the appeal will be stifled if they are required to do so. He submits that the poor evidence is, in itself, a sign of genuine impecuniosity. He says that court should not assume that figures have been made up, since there is no evidence that that is the case. All-in-all, he says, undertaking the necessary balancing exercise, the court should conclude that the appeal will be stifled, as Mr. Herbert has said it would, in the event that a stay is not granted.
55. I have to undertake the balancing exercise explained in the passage to which I have referred from the judgment of Clarke LJ in the Hammond Suddards case. I have to look at all the circumstances of the case and, particularly, the risks of injustice to one party or the other in the event that the stay is granted or not granted.
56. I have tried to undertake that exercise as best I can on the available evidence. As it seems to me, the appellants have failed to provide very convincing evidence of their present impecuniosity. The first and second appellants have produced unsigned, un-vouched, pieces of financial information that are extremely exiguous and, in some cases, so exiguous as to be meaningless.
57. The third and fourth appellants have been more forthcoming, but even they have failed to explain why, with positive net assets and some cash, they are unable to make any payments at all to the respondents in compliance with Birss J's orders.
58. None of the appellants has explained whether or not any of the natural persons who are directly or indirectly behind the four corporate appellant entities is able to raise the necessary funds from their own resources, from their bankers or whether the monies can be borrowed or obtained elsewhere.
59. The more financially powerful first and second appellants have not adequately explained, in my judgment, the change in their financial worth from last year. That is particularly so in the case of the second appellant, which last year had net assets of some £6 million. As shown by the Income Statement ending on 15th August 2014, that they have lost some £750,000, but have not shown what has happened to the remainder of their net assets.
60. The second appellant has not explained when the receipts that were referred to in Mr. Herbert's statement are actually expected. There is really no information upon which I can judge whether the second appellant is now or will in the future become able to pay the £475,000, save for the bare statement that it cannot do so.
61. I have to say -- and I do so with hesitation -- that I am left with the clear impression that the first and second appellants have not been frank or candid with the court and have not produced the full and fair explanation of their financial position that would be necessary if the court were to be persuaded to grant a stay on the ground that the appeal would be stifled if it is not.
62. Whilst I accept that if the stay is denied the appellants may decide not to pursue the appeal, I think that that will be more an economic decision than anything else, no doubt balancing their view of the prospects of their likely success against the costs of pursuing the appeal and having to pay further adverse costs if they lose.
63. I have also to consider the effect on the respondents. It is true that they are financially more secure -- as Mr. Herbert was keen to emphasise in his evidence -- but that does not mean they should be required to go through an expensive appeal lasting two days in court, with leading counsel, only to find that their costs are not paid and that even their costs of the trial, which have already been incurred and ordered against the appellants, are also not paid.
64. On balance, looking at the matter in the round and considering all the circumstances that I have tried to highlight in the course of this short judgment, I am simply not persuaded that the appellants have established on the evidence that their appeal will be stifled if a stay of the order that they make a £475,000 interim payment of costs is refused. I think it far more likely that they can pay, but would much rather not do so. This seems to have been their approach to other court orders in other areas as well.
65. I am not, therefore, prepared to stay the order for payment of the interim payment, and I dismiss their application.

The filing of the skeleton argument

66. As Mr. Harbottle has submitted, this is not a case properly so-called for relief from sanctions under Part 3.9, because his application was made before the time for filing the skeleton argument expired under Floyd LJ's final order. Under that order, the skeleton should have been filed by 5 p.m. on 2nd October 2014, and Mr. Harbottle's application was made before that time. (See Jackson LJ in Hallam Estates v. Baker [2004] EWCA Civ 661 at paragraph 26).
67. That said, the fact that this application is not formally an application for relief from sanctions does not mean that the factors mentioned in the Denton case in relation to an application for relief of sanctions will not be in some way relevant to what I have to decide.
68. I do not think that the application is, in truth, properly regarded, an application to vary Floyd LJ's order of 15th September at all. There has been no substantial change of circumstances since Floyd LJ made his decision. The points that were made in relation to impecuniosity are the same points that were made at that time. It cannot possibly be suggested that Floyd LJ fell into error in granting the extension only until 2nd October 2014, because that was broadly what he had been asked to do. In fact, he was asked to extend it until 3rd October, but the difference is immaterial.
69. Therefore, the criteria that would apply to an application for the variation of an order under Part 3.1(7) do not seem to me to be central to this application. (See Tibbles v. SIG plc [2012] EWCA Civ 518 at paragraphs 39 and following). If it were properly to be regarded as an application to vary Floyd LJ's order, it would have to be on the basis that there was inadequate material before him at the time (which, as it seems to me, is hardly the case) or on the basis that there was a material change of circumstances (which, also, hardly seems to be made out).
70. I am, however, prepared to treat the application, despite the fact it not having been made in this way, as an application for a further extension of time for filing the skeleton argument on the grounds that the appellants have not been able thus far to raise the funds to pay their lawyers to draft the skeleton.
71. I have been told today by Mr. Harbottle that Mr. Vanhegan is, indeed, in the course of drafting the necessary document and that the appellants fully expect that the document will be ready before 5 p.m. on Friday, 17th October 2014, which is now only eight days away.
72. It seems to me that the dispute about the stay may well have overshadowed the appellants' ability to concentrate on instructing and paying their lawyers to draft the skeleton. There was considerable uncertainty, and this application was looming. Whilst that is hardly a good excuse (as Mr. Mellor has pointed out) for failing to pay what is unlikely to be more than some £20,000 or £30,000 for the drafting of the skeleton, it is at least a reason of sorts.
73. Moreover, there was a reason for the appellants' failure to comply with past orders to file their skeleton. That reason does not justify their delay, but it at least explains it. They were undoubtedly having difficulty identifying what funds they needed for what purpose, including the £475,000 that was looming over them.
74. The failure to comply with repeated orders to file the skeleton is significant in terms of the Denton test. There should be no mistake about that.
75. So, I come to decide whether time should now be extended for provision of the skeleton in the face of a significant breach of repeated court orders but an explanation (of a kind) for those breaches.
76. In my judgment, one final extension should be allowed. I accept that Floyd LJ made his extension on a final basis, but that was to expire before this hearing took place.
77. I should make it clear that a lack of funds will not be an excuse for any further delay. A skeleton must be filed by 5 p.m. on Friday, 17th October 2014. Otherwise, the appeal will stand dismissed. No further application for an extension of time will be contemplated, unless there is a real change of circumstances, which I cannot imagine will be the case, since everything has been said today that the appellants have wanted or been able to say.
78. I should make it perfectly clear that it will not assist the appellants next week to provide further or better financial information that should have been provided today in support of their applications before me. In short, this is the "last chance saloon". If the skeleton is not filed next Friday on time, the appeal will be struck out.

Conclusions

79. For the reasons I have given, the appellants' application for a stay of the interim payment of the costs ordered by Birss J will be refused. The respondents' application for a condition to be imposed requiring the payment of the £475,000 if the appeal is to be prosecuted is dismissed. The appellants are granted a further final extension of time for filing their skeleton argument in support of their appeal until 5.00pm on Friday, 17th October 2014. If their skeleton is not filed in court by that time, the appeal will stand struck out without further order.