England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		13 February 2014

LORD JUSTICE KITCHIN:

1. This is an application by the defendant, MacDermid, for a stay of these proceedings for malicious falsehood pending the determination by this court of an appeal against a judgment of Birss J given on 14 November 2013 and his consequential order refusing MacDermid's application that the proceedings be struck out or alternatively for summary judgment. That appeal is brought with the permission of the judge.
2. The claim arises out of a dispute between the claimant, Niche, and MacDermid about statements they have made to their respective customers about each other's products. In very broad summary, MacDermid invites us to stay the proceedings on the basis that a trial would pre-empt the decision of this court on the appeal, and indeed render that appeal redundant. It also says it would be unjust to allow the proceedings to continue having regard to the severe restraints on recoverable costs in the Intellectual Property Enterprise Court ("IPEC"). It says it has already exceeded the costs cap and that the further costs which it incurs will be irrecoverable even if it ultimately wins. Niche responds that to accede to the application would simply add to the overall costs of the wider dispute, undermine the case management directions given thus far in the case and provide MacDermid with relief which it has previously sought and been refused.
3. The background is set out in the judgment of Birss J dated 14 November 2013 and in an earlier judgment which he gave in these proceedings on 7 March 2013. For the purposes of this application, the material aspects of that background can be summarised as follows.
4. Niche and MacDermid are rivals in the oil business. Niche is based in England and MacDermid in the USA. They both make and sell hydraulic fluids which are used to control the functions of oil and gas wells via remote hydraulic systems. One of Niche's products is called Pelagic 100, and MacDermid's competitive project is called Oceanic HW 443.
5. Niche contends that in 2009 or 2010 MacDermid changed the formulation of its Oceanic HW 443 and that its new formulation, referred to by the judge as Oceanic HW 443 Version 2, has materially different properties. It also asserts that MacDermid told its customers that Version 2 had the same characteristics as the old version, Version 1, when that was not in fact the case. In order to establish that the two versions have materially different properties, Niche conducted comparative tests upon them in the spring of 2012 and produced a report, called the Niche Report, which supported its contentions and expressed the view that the major cause of those differences was a change in the corrosion inhibitor.
6. MacDermid did not agree with the Niche Report and on 18 June 2012 it issued a rebuttal, letter called the MacDermid Letter. This stated, amongst other things, that MacDermid had:

" ... received notification regarding the distribution of misleading information from a specific competitor on Oceanic HW 443 Series V1 versus V2. We believe that the information provided is erroneous. The chemical specifications and performance of Oceanic HW 443 remains unchanged. We would like to formally address these competitive misleading comments which you may or may not have received."

A little later, it continued:

"If you have received competitive misleading information regarding our product, please disregard it."

7. Both the Niche Report and the MacDermid Letter were sent to customers and the parties then began to exchange correspondence which continued until, on 20 August 2012, MacDermid began proceedings against Niche in Texas. This claim, brought under the Lanham Act, is for false and misleading advertising.
8. Some four weeks later, on 18 September 2012, Niche began these proceedings in what was then the Patents County Court ("the PCC") against MacDermid alleging, inter alia, malicious falsehood. It contends that the MacDermid Letter is false, stating as it does that the Niche Report is "misleading" and "erroneous". It says that MacDermid must have known that the Niche Report was accurate and not misleading or, alternatively, it published the MacDermid Letter recklessly as to whether these statements were true or false, and that the MacDermid Letter was therefore published maliciously. It also argues that the publication of the MacDermid Letter was calculated to cause and has caused damage to it in its business.
9. MacDermid then issued an application to stay these proceedings in favour of the Texas proceedings. It argued that they should be stayed permanently on the grounds of forum non conveniens or pending the outcome of the Texas proceedings as a matter of case management. Niche opposed that application, which came on for hearing before His Honour Judge Birss QC, as he then was, on 20 February 2013. In his judgment given on 7 March 2013, the judge dismissed the application. He explained at paragraph 14:

"At the heart of this dispute is a simple question - whether Oceanic HW 443 V2 is materially different from Oceanic HW 443 V1. If "yes", then Niche are right. "If no", then MacDermid are right. Both torts (malicious falsehood, and, insofar as I can see from the pleadings, infringement of the Lanham Act), have more to them than this question such as the issue of malice in the UK, but in truth the centre of gravity of this dispute depends on that relatively simple factual question. To resolve the question will require expert evidence, will involve a bit of chemistry and no doubt evidence about the performance of hydraulic fluids and their additives, but it is not an unduly complex technical issue. It is the kind of technical question decided in patents cases on a regular basis."

10. The judge continued that the dispute arose in England and had a closer connection to England than to Texas. The changes which led MacDermid to introduce its Version 2 product came about as a result of European regulations. Moreover, the MacDermid Letter was itself UK focused. In all these circumstances, and were it not for the existence of the Texas action, he would have had no difficulty in finding that the English court was the most appropriate forum. He did, however, express concern that if he refused the stay sought then there would be two actions running in parallel. However, on the facts of the case, that was not sufficient to make Texas the more appropriate forum.
11. As for case management, the judge explained that he had well in mind that in proceedings in the PCC there is a particular focus on proportionality and cost benefit considerations. The court was established to seek to improve access to justice in intellectual property cases for small and medium sized enterprises. Costs are capped, and a firm control is maintained over procedure. This particular claim was, the judge thought, relatively straightforward, and hinged on what appeared to him to be a relatively straightforward question. It was, he observed, the sort of question the case management machinery in the PCC was designed to deal with. It would not be costly to try, and the claim was likely to come to trial in either December 2013 or early 2014. He recognised that committing the parties to a trial would mean that they would incur further legal costs in addition to those they would incur in Texas, but he did not consider that to be a strong point because case management would reduce the costs considerably and either party would be able to keep its own costs to a relatively low level if it chose to do so. Some of the costs, such as the costs of experts, would not need to be incurred twice.
12. The judge also had in mind that Niche is not a large organisation. In the end, the decisive case management factor was, in the judge's view, timing. As he explained at paragraph 45:

"If I refuse the stay, then the claim in this court will come on to trial in either December 2013 or at the latest very early 2014. If I grant the stay, then this claim will not be revived until after September 2014. There would be a case management conference in autumn 2014, and a trial would probably be no earlier than the summer of 2015. The incremental costs of these proceedings over and above the cost of the Texas action are modest. Staying this action in order to seek to save those incremental costs does not justify such an inordinate delay."

He therefore refused the stay sought. In a further hearing on that same day, he refused an application to transfer the case from the PCC to the High Court.

13. MacDermid appealed against the order refusing a stay, and that appeal came on for hearing before Warren J on 13 May 2013. By his judgment and consequential order of 5 June 2013, Warren J dismissed the appeal. On that same day, MacDermid filed a Part 18 request for further information, and on 21 June 2013, Niche filed a response. Further directions were given on 26 June, including a timetable for statements of case and the setting of a further case management conference in September.
14. It seems that it was at about this time that MacDermid indicated that it intended to apply to strike out the proceedings, and the directions therefore provided that an application should be listed to be heard at the same time as the further case management conference. The date for that conference and the hearing of MacDermid's application to strike out was duly fixed for 25 September, that is to say approximately one year after the commencement of proceedings. Birss J (as he now was) heard argument on that day in the IPEC (as it had now become), but reserved judgment. However, he gave directions that the trial set for January 2014 should be of the various technical issues lying at the heart of the case. They are set out in paragraph 4 of the order, which reads:

"The trial set for 14 January 2014 shall be a trial of the following preliminary issues:

(1) whether the technical report [the Niche Report] as defined in the particulars of claim is accurate and not misleading;

(2) whether the defendant's Oceanic HW 443 V1 and Oceanic HW 443 V2 subsea control fluids differ in at least the respects set out in paragraphs 19(5) and 19(6)(b) of the particulars of claim, and whether those respects are material to the long term performance of subsea control fluids;

(3) whether there are differences between the defendant's Oceanic HW 443 V1 and Oceanic HW 443 V2 which mean that it is not appropriate to infer without further testing that the long term performance of the defendant's Oceanic HW 443 V2 fluid is the same or substantially the same as that of Oceanic HW 443 V1."

There has been no appeal against that order.

15. As I have indicated, the judge gave his judgment on the strike out and summary judgment application on 14 November 2013. He held it was at least arguable that the characterisation of the Niche Report in the MacDermid Letter as being "misleading" and "erroneous" did constitute an actionable malicious falsehood. Nevertheless, he granted permission to appeal against his order to this court. At that point, it seems MacDermid made an application to stay the proceedings pending the appeal, save for the independent testing, which, as I understand it, was shortly to begin. The judge refused that application. He said that a stay would not be proportionate and would not further the overriding objective. It would increase the costs of the action and introduce significant delay. The issue of whether or not there were material differences between Oceanic HW 443 Version 1 and Version 2 remained the core of the dispute between the parties, both here and in the USA. It was well on the way to being resolved, and the trial of that issue was scheduled for January 2014.
16. A further hearing took place before Birss J on 28 November 2013, by which time it had become apparent that the independent testing had been delayed and that the trial of the preliminary issues set for January 2014 could not be met. Accordingly, Birss J directed that it be adjourned and listed for hearing over three days from 9 to 11 April 2014. It seems that MacDermid did not take the opportunity presented by that hearing to request that the trial be delayed until after the hearing of the appeal. Further, and prior to today, MacDermid has never taken any steps to have this appeal expedited. To the contrary, MacDermid asked for the trial to include two other issues, namely malice and quantum of damage. MacDermid's counterclaim for defamation was, however, stayed.
17. This application for a stay was referred to me in January 2014 and I directed that it be referred to an oral hearing to come on as soon as reasonably possible. I refused a stay pending that hearing on the basis that this would preserve the status quo. In the meantime, MacDermid issued another application for a stay in the IPEC. That application came on for hearing before His Honour Judge Hacon on 31 January and he handed down his judgment on 3 February. The grounds on which the stay was sought were summarised by Judge Hacon as being:

(1) that the trial would pre-empt the ruling of this court on the strike out issue;

(2) if Niche were to win at trial, MacDermid would be obliged to start a new appeal;

(3) the trial judge was likely to be influenced by the ruling of Birss J on the law relating to the strike out issues;

(4) if the trial were to be heard first and then MacDermid succeeded in the appeal, the costs of the trial would be wasted, and these would be irrecoverable at least in part because of the cost capping regime in the IPEC;

(5) there would be no prejudice to Niche if the trial were to be adjourned.

The judge was not persuaded by these points, individually or collectively, and, as I say, he refused the stay sought. Accordingly, the position is that the parties are continuing to prepare for the trial in April.

18. Upon this application, Ms Adrienne Page QC has appeared on behalf of MacDermid. She points out that there has been considerable slippage in the timetable. She has told us on instructions that the independent testing has again been delayed and is now due to begin today or tomorrow and will not be completed until about 14 March. Thereafter, the independent laboratory carrying out the testing will need a further seven days to complete its report. The experts will then need to finalise and exchange their reports and prepare and exchange reply reports. In the result, Ms Page submits, the April trial date is in real jeopardy.
19. Ms Page also submits that it is highly unsatisfactory and indeed manifestly unjust that there should be a trial of all the issues in the claim, including the actionability in principle of the words complained of, whether there has been actual or likely pecuniary loss and the issue of malice, all of which will be the subject of arguments before this court on the appeal against the order of Birss J, and before this court has decided whether there should be a trial at all. A trial before the appeal will therefore pre-empt the appeal and render it redundant. On the other hand, if the trial is deferred, the trial judge will have the benefit of the decision and guidance of this court on the particular issues to be tried, assuming of course that the appeal fails.
20. Ms Page continues that it is unjust to require MacDermid to fight and incur the expense of a full trial when it has a real prospect of persuading this court that the claim should have been struck out. As she says, the courts in this jurisdiction do not exist to decide factual disputes between the parties when there is no legal case to answer. This injustice is, submits Ms Page, compounded by the severe restrictions on recoverable costs in the IPEC, that MacDermid has already exceeded the costs ceiling and, in reality, the further costs it will incur in fighting the trial are costs which it will have to bear in any event.
21. Ms Page further submits that the stay MacDermid seeks will not cause Niche any prejudice. She has told us on instructions that Version 2 is no longer being sold and so the technical issue is relevant only to which party, if either, is entitled to substantive relief against the other.
22. These are all powerful points and it does seem to me to be wrong in principle for the trial judge to have to decide the very issues which are raised by the appeal to this court. In my judgment, a trial of all issues will indeed pre-empt the appeal. However, as Mr Michael Hicks, who has appeared on behalf of Niche, has made clear, this is not something that Niche itself seeks. He has emphasised to us that the trial on all issues is taking place pursuant to the direction made by Birss J on 28 November 2013 at MacDermid's request. Niche is, he says, entirely content for the trial to be limited to the preliminary issues identified in Birss J's order of 25 September 2013 to which I have referred.
23. It is the preliminary issues which have therefore emerged as the real battleground between the parties so far as today's application is concerned. Ms Page invites us to stay the whole claim, including the preliminary issues. Mr Hicks, on the other hand, invites us to stay the proceedings except for the preliminary issues. On this particular question, and despite Ms Page's persuasive submissions, I have come to the conclusion that Mr Hicks is right and that we should allow the preliminary issues to proceed to trial. My reasons are as follows.
24. First, I believe that Birss J was entirely right to characterise the central issue in dispute between the parties as being whether Oceanic HW 443 Version 1 is materially different from Version 2. This issue was identified by Judge Birss (as he then was) in his judgment of 7 March 2013, and again by Warren J in his judgment of 5 June 2013. As Mr Hicks submits, this central issue is relevant to three disputes, namely Niche's claim for malicious falsehood, MacDermid's claim, added by counterclaim, for defamation, and MacDermid's claim in Texas. In that latter connection, I should also explain that by an opinion and order dated 2 August 2013, the Texas proceedings were "stayed and administratively closed" by United States District Judge Melinda Harmon pending the outcome of these proceedings, at which time either party could apply to lift the stay and re-open the case. In the course of her opinion, District Judge Harmon herself recognised that these proceedings would likely increase the speed and efficiency of the Texas proceedings by first resolving the basic dispute from which all of MacDermid's claims spring, that is to say, whether Niche's tests of Version 2 were, as she put it, fraudulent. If Niche loses this issue, then, as Mr Hicks accepts, it may well be determinative of all three disputes. Furthermore, Mr Hicks does not accept that these matters are of historical interest only. As he says, MacDermid and Niche are fierce competitors and these products have a working life of very many years. Accordingly, the parties still have a live and ongoing commercial interest in having the issues in dispute resolved.
25. Second, this technical issue is one which is ideally suited to the IPEC. The judges of the IPEC are well used to trying technical issues of this kind, and the rules and procedures of that court are designed to ensure that they are resolved as speedily and cheaply as possible consistent with justice being done. No doubt these considerations underpinned the refusal of Judge Birss (as he then was) to transfer the proceedings to the High Court after declining to stay them in favour of the Texas proceedings. It is of course open to any party to exceed the recoverable cost cap if it wishes, but any further costs which that party may incur are not recoverable. This is a particularly important consideration for those businesses which cannot afford the costs commonly associated with High Court proceedings.
26. Third, the judge directed the trial of the preliminary issues by his order of 25 September 2013. I accept Ms Page's submission that MacDermid opposed that order, but it seems to me to be a relevant part of the background that it did not appeal against it.
27. Fourth, at the hearing on 14 November 2013, MacDermid did not request a stay of the independent testing. Further, when the judge refused the application which MacDermid did in fact make for a more limited stay, it must have appreciated that it was very likely that this appeal would come on for hearing after the trial which was at that time fixed for January. Yet it did not at any stage seek expedition of this appeal. Moreover, when the matter was restored before Birss J on 28 November 2013 for further directions, MacDermid did not take the opportunity presented by that hearing to seek a direction that the trial be delayed until after the hearing of the appeal.
28. Fifth, I recognise that it is undesirable to require any party to fight and incur the expense of a trial if the claim is misconceived. Indeed, the case management powers of the court to strike out a claim or grant summary judgment are designed, amongst other things, to prevent parties from pursuing unwinnable cases and so prevent unnecessary costs being incurred. However, it seems to me that we cannot today anticipate the outcome of the appeal, and although there is a real prospect it will succeed, it must also be acknowledged that there is a real prospect it will fail, and a stay in the meantime will mean that the April trial date will have to be vacated and a decision on the central technical issues in dispute between the parties will again be delayed. Niche also fears that it may have the consequence that the stay of the Texas claim will be lifted, resulting in a much more expensive and far less convenient trial of these central issues before a jury, that being something it can ill afford.
29. Sixth, I think it must be recognised that, even if this court were to allow the appeal and strike out Niche's claim, a determination of the central issue would still be valuable because it needs to be determined in order to deal with MacDermid's counterclaim and the Texas proceedings. I accept Ms Page's point that the court does not exist to decide factual issues between parties when there is no legal case to answer. However, it seems to me to be wholly unrealistic to ignore the reality of the situation in considering the prejudice which MacDermid would suffer should it prevail on its appeal to this court but have to fight a trial on the technical issues in the meantime.
30. Seventh, I accept that MacDermid is likely to incur costs in connection with the forthcoming trial which it will not recover from Niche whatever the outcome, but it seems to me that in deciding what weight to attach to this factor it is necessary to have in mind that a stay is not something which MacDermid sought in its application to Birss J on 14 November 2013 or when the matter came back before him later that month. Moreover, costs capping is a feature of the IPEC, and MacDermid's attempt to have the case transferred to the High Court has failed. Costs capping is therefore something that both parties have to live with, as do all litigants in that court.
31. Eighth, the independent testing has now begun, or will begin in the very near future. The protocol has been set and the main tests, namely those which, as I understand it, take the longest to carry out, are due to begin today or tomorrow and to run for about a month. In practice, the parties are therefore committed to a programme of testing and their experts are no doubt ready to deal with the results when they emerge. I accept that the timetable to trial is tight but I have no reason to doubt that with goodwill on both sides, and any necessary directions from the judges of the IPEC, it can be met. As Mr Hicks has pointed out, there is much the experts can be getting on with by way of preparation of their reports before the final results of the testing come through.
32. Ninth, I of course recognise that the parties are commercial competitors and that in cases such as this it is natural to have anxieties about the preservation of trade secrets. A confidentiality regime has, however, been set, and once again the IPEC judges are well used to conducting proceedings in such a way that the confidentiality of genuine trade secrets is maintained while ensuring that justice is done.
33. Last but not least, it seems to me that the decision of Birss J not to stay the proceedings pending the determination of this appeal involved an exercise by him of his discretion on what is, in substance, a trial management issue, and it is not one with which this court should really interfere unless he has erred in principle or his decision is wholly wrong. In my judgment, his decision in relation to the technical issues was one which was plainly open to him.
34. For all of these reasons, and despite Ms Page's powerful submissions, I have come to the conclusion that the trial of the preliminary issues should not be stayed, and that she should be granted only limited relief, the terms of which I would discuss with counsel.
35. Finally, I should mention that Ms Page has today invited us on behalf of MacDermid to expedite the hearing of the appeal. In the light of this judgment and the stay which I propose that this court should grant, expedition is no longer necessary. Accordingly, I would refuse it.

LORD JUSTICE RIMER:

36. I agree.