England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice London
		2nd February 2000

MR JUSTICE NEUBERGER:

1. This is an appeal by the claimants from the order of Master Bowman made on 11th January, whereby he ordered the claimants' action to be dismissed on the grounds of delay in prosecution. The action concerns a database developed by the first defendant, Mr Mark McDonald Gibson, said to contain reliable information relating to the ability of a number of computer programmes and applications to cope with the so- called Millennium Bug. In 1997 the first defendant provided independent consultancy services relating to the Millennium Bug through the second defendant, Solus Consultancy Services Limited.
2. In their final form the claimants' claims fall into two parts. The first part concerns the claimants' alleged entitlement to exploit the database. The claimants' case is as follows. The first defendant entered into a series of transactions which resulted in his rights in the database being exclusively licensed to the first claimant, Annodeus Limited, a subsidiary of a company called Acclaim Entertainment Inc, a substantial computer games company. The first claimant made advance royalty payments totalling a quarter of a million pounds under this exclusive licence agreement. The claimants' case is that by June 1998 the first defendant had failed to deliver a full version of the database and had threatened to licence it to other parties, which resulted in the claimant bringing the present proceedings, the second and third claimants being brought in, pursuant to the provisions of section 102(1) of the Copyright Designs and Patents Act 1988. The defendants deny that any agreement entered into was exclusive, and the first defendant denies any knowledge of the exclusivity of the agreement, if it was exclusive.
3. On 1st July 1998 the claimants issued the writ in these proceedings and were granted an order applied for without notice, by Rimer J, requiring the defendants to provide a copy of the most complete version and other versions of the database. This order included a search order, an Anton Pillar order as it was then known, although it was in limited terms. The order also restrained the defendants from licensing the database to others, subject to a proviso relating to the provision of in-house services.
4. A week later, on 7th July, at a hearing where all parties were represented, Laddie J continued the injunction but gave further relief to the defendants. On 31st July 1998, after a three day hearing, Jacob J continued the injunction subject to a further relaxation in favour of the defendants, and extended to the claimants the right to use the database commercially.
5. That brings me to the second part of the claimants' case. They say that it transpired that the database was not complete or reliable enough to be commercially saleable, and that the first claimant failed to sell any copies of it despite very considerable efforts. The claimants' allegation, which is hotly contested by the defendants, is that the defendants, in particular the first defendant, misrepresented the nature of the database, most significantly by saying that it contained reliable tested information. The first claimant contends that it lost a substantial amount of money, including the £250,000 advance royalty payment. A further $3 million is said to have been lost as a result of setting up marketing channels for the database and related services.
6. The procedural history is as follows. As I have mentioned, the writ was issued on 1st July 1998. The defendants acknowledged service on 20th July 1998. The statement of claim was served on 5th October 1998. To reflect the second part of the claimants' case the writ had to be amended with leave; such leave was given, and the new writ served at about the end of October 1998.
7. The defence was served on 17th December 1998 and, as a result of this, close of pleadings (under the old RSC) occurred on 31st December 1998. Nothing further happened in the proceedings until, on 19th November 1999 the claimants' solicitors requested a date from the court for a case management conference, and on the same day sent proposed directions to the defendants' solicitors.
8. Despite a chasing letter five days later, and another one a week after that, the defendants' solicitors did not reply. This appears to be because they were in the process of coming off the record, which they formally did on 5th January 2000. Meanwhile, on 17th December 1999 the defendants had issued the present application to strike out the claim on grounds of delay in prosecution, and that was the application which came before the Master and succeeded on 11th January 2000.
9. I turn first to consider the periods of delay. On the face of this history, the first period of delay is between 4th August 1998 and 5th October 1998, that is because the statement of claim should have been served 14 days after acknowledgement of service in accordance with RSC O.18, r.1. The second period of delay is some two weeks from 14th January 1999 because discovery should have taken place 14 days after close of pleadings (see O.24, r.2(1)). The third period of delay is from 31st January 1999 until 19th November 1999 because on 31st January 1999 the claimants should have issued a summons for directions in accordance with RSC O.25, r.1(1). It appears to me unrealistic to hold the claimants guilty of delay in relation to the first two periods. So far as the first period is concerned, I have been provided with correspondence and documents which show that the claimants obtained from the defendants' solicitors clear extensions of time for service of the statement of claim until 5th October 1998, which is when the statement of claim was served. They extended the time either by consent or pursuant to unopposed applications to the court.
10. So far as the second apparent period of delay is concerned, it is clear from the evidence that both solicitors agreed, in the middle of January 1999, that time for service of lists of documents would be postponed and would be dealt with at the hearing of the summons for directions. So it appears to me clear that the period of delay in this case is from 31st January 1999 to 19^th November 1999.
11. I turn now to consider the principles which are applicable now when the court entertains an application to dismiss a claim for want of prosecution. First, a claimant has and always has had a duty to get on with proceedings, and is liable to sanctions if he does not.
12. Secondly, this duty was taken more seriously under the RSC even before the CPR came into effect: see Arbuthnot Latham Bank Ltd v Trafalgar Holdings Ltd [1998] 1 WLR 1426. This is a point of significance in the present case because part of the period of delay was before the CPR came into force.
13. Thirdly, following the coming into effect of the CPR, keeping to time limits laid down by the CPR or by the court itself is accorded more importance than it was previously, see per Lord Woolf MR in Begudsi v Rank Leisure plc [1999] 1 WLR 1926 and 1932G. One sees that principle reflected also in the observations of Lord Lloyd of Berwick in UCB Corporate Services Ltd v Halifax SW Ltd (Unreported) 6th December 1999 at paragraph 17.
14. Fourthly, under the old law a claim could normally only be dismissed for want of prosecution where the plaintiff's default or delay had been intentional and contumelious, or where he had been guilty of inordinate and inexcusable delay, giving rise to a substantial risk that a fair trial would not be possible, or to serious prejudice to the defendant (see Birkett v James [1978] AC 297, taking the summary essentially of Lord Diplock's speech from the head note at 298D).
15. Fifthly, the court is now prepared to dismiss a claim for delay even if neither of Lord Diplock's two requirements as laid down in Birkett v James is satisfied (see Begudsi generally and at 1932B in particular).
16. Sixthly, the duty of a claimant to pursue an action expeditiously and in accordance with the rules is all the more important when the claimant has already had a significant benefit at the expense of the defendant from the action -- for instance, in this case the benefit of the search order. This is perhaps even more true where the claimant has, and continues to have, the benefit of a continuing interlocutory injunction to the defendant's disadvantage, which injunction is to run to trial. That principle is perhaps most graphically illustrated by the decision of the Court of Appeal in Hytrac Conveyors Limited v Conveyors International Ltd [1983] 1 WLR 44, where delay of a month or two in the service of a statement of claim was held to justify, on the facts of that case, an order dismissing the action in a copyright claim where the plaintiff had already obtained an Anton Pillar or search order against most of the defendants.
17. Seventhly, the CPR enable the court to adopt a more flexible approach. The previous "all or nothing" extremes of either dismissing the claim for delay or permitting it to continue are now merely the two ends of a spectrum. The court has other sanctions at its disposal which it can and, in appropriate cases, should impose, rather than adopting one of the two extreme positions. Those weapons, those sanctions, are discussed in the judgment of Lord Woolf in Begudsi at 1933D to 1934C, and I do not propose to set them out here save to mention that they include payments into court, providing for no interest in favour of the claimant or for high rates of interest in favour of the defendant and for appropriate directions and supervision for the future conduct of the trial. As the decision of the Court of Appeal in Axa Insurance Co, Ltd v Squire Fraser (Unreported) 9th December 1999, shows, it is also possible for the court to exercise its jurisdiction to strike out parts of the claim (see per Tuckey LJ at paragraph 25).
18. Eighthly, in light of general principle and the overriding objection (see CPR, rule 1.1(2)) the sanction, if any, to be invoked by the court to deal with a particular case of delay should be proportionate. To dismiss a claim where the claimant appears to stand a reasonable chance of success and of recovering substantial damages is a strong thing to do. Particularly so bearing in mind Article 6(1) of the European Convention on Human Rights, a point touched on, in somewhat different circumstances, by Laddie LJ in Re; Swaptronics Limited (Unreported) 24th July 1998 and Evans-Lombe in Re: Arrow Nominees Inc (Unreported, [1999] EWHC Ch 198) 2nd November 1999. In those cases the question was whether to strike out a claim in circumstances where the claimant had been in contempt of court, in the latter case the contempt being directly related to documents concerned with the action.
19. Ninthly, it appears to me that it is normally relevant to consider the following factors. First, the length of the delay; secondly, any excuses put forward for the delay; thirdly, the degree to which the claimant has failed to observe the rules of court or any court order; fourthly, the prejudice caused to the defendant by the delay; fifthly, the effect of the delay on trial; sixthly, the effect of the delay on other litigants and other proceedings; seventhly, the extent, if any, to which the defendant can be said to have contributed to the delay; eighthly, the conduct of the claimant and the defendant in relation to the action; ninthly, other special factors of relevance in the particular case.
20. In the present case the defendants' contention, which found favour with the Master and justified, in his view, the claim being dismissed, was that the delay in this case was nearly a year in circumstances where the claimants had had the benefit of a search order and the continuing benefit of an interlocutory injunction, and that the delay was very serious, bearing in mind the date of 1st January 2000 because the benefit of the intellectual property, the subject matter of the proceedings, effectively died on 1st January 2000. Further, the first defendant, who appears in person on behalf of himself as well as the second defendant, says that Jacob J, at the hearing which ended on 31st July, made it clear that he considered it desirable and important that this action came on early in 1999. There is a dispute between the parties as to precisely what happened in this connection, and I think it is safe to assume that Jacob J indicated that that is what he expected, but I do not think it is right to go any further than that.
21. Although it is accepted by the defendant that there were negotiations during part of the period of the delay, it is also pointed out that there was no question of any negotiations between 31st January and 28th April 1999, which was the approximate date when negotiations began. In any event, it is said that the mere existence of negotiations represents no excuse.
22. So far as prejudice is concerned, the first defendant points to the fact that, having the proceedings hanging over his head and the head of the second defendant is bad enough in terms of the financial consequences to the second defendant and the consequences to his own physical and mental health, but that the effect of the continuation of the interlocutory injunction over that period has also caused him substantial financial disadvantage and worry. He also says that the consequence of the financial disadvantage and the effect to his health is that the prospects of a fair trial are at least diminished because he and the second defendant no longer have the money to fund a defence, and that in so far as he is responsible for the defence, he is not in a very good condition to deal with it. There is no doubt that he has a fairly formidable case.
23. The claimants' answer is that although not all of the delay is explicable -- in particular the first three months to which I have referred cannot be explained - - the rest of the delay is explicable on the basis that negotiations were taking place. In this connection it does seem clear that negotiations took place starting, as I have mentioned, at the end of April. It is also clear from two letters I have seen, albeit that they arguably are privileged, that negotiations were still taking place in October 1999 and reached a conclusion, albeit that it was not a positive or particularly helpful conclusion in terms of settling the case or any part of it, on 12^th November 1999. On that date it is right to say that the claimants, through their solicitors, indicated to the defendants' solicitors that they were prepared to agree that the injunction made by Jacob J would be discharged. In fact it appears that the injunction was probably only discharged at the hearing before the Master. The claimants point out that once that point was reached on 12th November, the claimants acted promptly because a week later they communicated with the court and with the defendants along the lines indicated, and it was the defendants who then held things up by not replying.
24. Further, the claimants rely on the fact that during those negotiations the defendants were advised by solicitors who, although they were acting for nothing, to their credit, were a very respectable, experienced and well known firm, namely Allen & Overy. They did not press, or take any steps to press, the claimants to proceed.
25. Whilst the existence of the negotiations does not, in the absence of any express agreement to the contrary, serve to justify the delay in the same way as the positive agreement to extend time for service of the statement of claim justifies the delay, Mr Martin Howe, QC, who appears for the claimants with Miss Charlotte May, contends that it is a significant mitigating factor. He also points out that while something was said by Jacob J about the matter coming on quickly, and that 1st January 2000 was obviously an important date, the defendants' attitude through Allen & Overy during 1998 did not indicate a desire to proceed speedily with the action. On the contrary, says Mr Howe, the defendant was happy to agree several extensions of time for the service of the statement of claim and, indeed, the defendants themselves were some two months late in serving their defence. While that was not a culpable delay because claimants were happy to extend time, it nonetheless does help to support the contention that the defendants were not manifesting a desire that the claimants proceed speedily with the action during 1998.
26. It is also said on behalf of the claimants that while the injunction may have been continued by the delay, in practice if matters had proceeded very speedily the injunction would not have lasted much longer than it has in fact lasted, and indeed may have lasted as long as it has lasted. As I have mentioned, there was in practice an agreement that the injunction was not effective in November 1999. Mr Howe says that if there had been no delay it is unlikely the hearing of the matter would have taken place in July 1999; however, given the subject matter of the case, if the matter had proceeded as it should have done I think it may well have come on in July 1999, but I can put it no higher than that. If it had and the judge had been prepared to give an ex tempore judgment, or to give judgment without much delay, then the interlocutory injunction might have ended in early August 1999. However, I accept that starting at the end of January 1999, given what I have seen of these proceedings, it is quite possible that it would not have come on until October 1999, in which case the injunction would have been discharged more or less when it was discharged.
27. Thus, while I consider that there is a real prospect that the injunction might have been discharged earlier than it was had the delay not occurred, I see no reason to think that it would have been any earlier than July 1999. That, I should add, is not inconsistent with the view expressed by Jacob J because he did not, I suspect, envisage the defendant agreeing to significant extensions of time for the service of the statement of claim, or the defendants themselves then wanting extensions of time for the service of their defence.
28. So far as the mental and physical distress caused to the first defendant and the potential financial disadvantage caused to the first and second defendants are concerned, Mr Howe accepts that the delay may have contributed something. However, he points out that this added amount of mental, physical and financial distress cannot have been that great. The defendants' complaint is that there was a period of delay when nothing happened in these proceedings. Apart from the fact that the defendants were talking to the claimants during part of that period, nothing happened during the period of delay to put pressure on them. If these proceedings are revived, the defendants will suffer further distress and strain, but, says Mr Howe, that is something which merely has been postponed.
29. Ultimately, accepting that delay has occurred and accepting a degree of culpability for the delay in the sense that three months of the period of delay is indefensible on any view, and the remaining seven months are explicable if not wholly excusable on the part of the claimants, Mr Howe contends that to dismiss the claim, which involves a substantial sum of money and has a real prospect of success, would be a disproportionate sanction for the delay and the claimants' culpability for the delay.
30. Before turning to my conclusion, I should mention that I have heard argument on a number of matters which I do not think take the issue before me much further. First, the merits of the claimants' case and of the defendants' defence. All I need to say is that I am satisfied, on the documents I have seen and the limited arguments I have heard, that the claimants' case on their two points is an arguable case, with a reasonable chance of success, and that the defendants also have an arguable case with a reasonable prospect of success. It would certainly be inappropriate for me to express a view as to who is more likely to succeed. To my mind, once I come to the conclusion that both the claimants and the defendants have a reasonable prospect of success, it is inappropriate on an application such as this, save in the most exceptional circumstances, to dig any deeper into the substantive point. The first defendant has made a number of points which may well have force, but to my mind they are not the sort of points that I should deal with on an application such as this.
31. Secondly, the claimants point out that the first defendant's honesty is at stake. To my mind, that is not a matter which assists. Once I decide that each side has a real prospect of success and, if they succeed, the claimants have a real prospect of recovering a substantial amount of money, then the question of whether or not the defendants' honesty is at stake is not in point. Mr Howe did not suggest, it is fair to say, that this somehow meant that I should look at the defendants' arguments and evidence in relation to today's application with scepticism, he merely relied on it to emphasise the importance of the case. At the moment I am not satisfied that it is a relevant factor.
32. Thirdly, the first defendant suggests that the claimants obtained the order from Rimer J, and possibly also the order from Laddie J, without giving full disclosure. He could be right, but it is fair to say that Mr Howe has taken me to pieces of the evidence which were undoubtedly before those judges which indicate that there is a strong case for saying that there is nothing in the point. It is right to record my view that, particularly in a case such as this, if I were satisfied that the claimants had obtained an order without complying with their duty to give full and frank disclosure, that would have been a factor, albeit probably not a very major factor, in deciding whether or not to dismiss for want of prosecution. In the present case I am not satisfied by any means that there was failure to disclose and it is not a factor in any event which would alter the decision I have reached.
33. Fourthly, the first defendant suggests that the claimants have acted oppressively, both in negotiations before the action was brought and in negotiations during the action, indeed that they were deliberately playing him along in the negotiations between April and November 1999. It is always possible, and indeed it is by no means unknown, for claimants, particularly when they are substantial, to bully or string along defendants, particularly when they are small. In the present case the claimants are big and the defendants are small. It is fair also to say that defendants in that position feel they are being bullied and honestly feel they are being bullied when they are not.
34. Again, if there were telling evidence to support the proposition that the claimants were bullying the defendant, and even more if the claimants were cynically stringing the defendants along in the negotiations between April and November 1999, that would be a telling factor. However, on the evidence I have heard and the documents I have seen I am a long way away from being satisfied, even on an interlocutory basis, that there is anything in this allegation. The defendants were advised throughout the negotiations by Allen & Overy. The threats which the first defendant alleges were made at meetings where, in one case, counsel and a solicitor representing him were present, and in another case at least a solicitor representing him appears to have been present. I have no evidence from either counsel or solicitor to suggest that threats were made.
35. Furthermore, those threats would have been made before the negotiations took place in April 1999. It seems to me that it can fairly be said that the defendants and their legal advisers would have been on notice of the possibility that the negotiations were not genuine on the part of the claimants. I cannot rule out the possibility of the claimants having acted oppressively throughout this case, but it is fair to the claimants to say that at the moment there is no basis for thinking that they have acted oppressively other than the fact that the defendants have raised it.
36. In these circumstances, I turn to my conclusions. I have to say that bearing in mind the existence of the injunction, the obtaining of the search order and the importance of sorting the matter out as soon as possible and well before 1st January 2000, I have considerable sympathy with the defendants' application and the decision of the Master. Nonetheless, I have come to the conclusion that this is not a case where the claim should be dismissed for want of prosecution. Most of the delay was during the period of negotiations, at a time when the defendants were being advised by a reputable and experienced firm of solicitors. That delay may be culpable in the sense that there was no application to the court to extend time, but of the ten months of delay it seems to me that seven months can be explained, while that explanation is not by any means wholly satisfactory.
37. Secondly, it does not appear to me that the three months period, for which no excuse can be put forward, caused substantial prejudice over and above that caused by the seven months delay.
38. Thirdly, the injunction, which put a heavy onus on the claimants to proceed more speedily than they did, and put a very heavy onus on them, would have run until July, and could well have run until October, 1999, going forward from the start of the period of delay, namely 31st January 1999.
39. Fourthly, this is not a case where the claimants can be said to have been in frequent or persistent breach of the court's orders or of a succession of time limits. Nor is it a case where, save for the three months period, it can be said that the claimants were inactive or in any way led the defendants to believe that they were not proceeding with the action.
40. It appears to me that to dismiss the claim in light of the claimants' delay in all the circumstances of this case, would be too harsh a penalty for the claimants and indeed a windfall for the defendants, when judged against the culpability of the claimants and the prejudice suffered by the defendants. It appears to me that it would be right to impose some appropriate sanction on the claimants, but dismissing their claim is too heavy a sanction. To my mind the order for costs below in favour of the defendant should stand. There was culpable delay and this application was properly brought. I would be more than willing to consider an appropriate sum to be paid forthwith, subject to further argument. I am very tempted to order that the defendants should also have the costs of this appeal, but I do not believe that would be a proper exercise of my discretion. The application was properly brought and should carry with it a costs order in favour of the defendants, but the appeal has succeeded and it would be wrong, to my mind, to make an order any more favourable to the defendants on the appeal than no order for costs or costs reserved.
41. So far as interest is concerned, there is a powerful argument for saying that if the claimants succeed in recovering any damages those damages should not carry interest in respect of the period from 31st January to 17th November 1999, or that if the defendants succeed in the action that the damages (if any) which the defendants recover on the cross-undertaking for damages, should carry interest at a higher rate than they would normally bear, say 5 per cent per annum more.
42. At the moment, however, in light of the approach of the Court of Appeal in the Axa Insurance case, to which I have made reference, it would be appropriate for the order to provide that the judge assessing damages, should consider refusing interest for the claimants for the period indicated and/or to give extra interest to the defendants for the period indicated, but I do not think it would be right to impose an obligation on the judge to do that: see paragraph 2 6 of the judgment of Tuckey LJ in the Axa Insurance case.
43. It also appears to me appropriate to give directions in the proceedings. I would like to make two last points. The first is that Mr Howe contended that a reason for allowing this appeal was that the defendant had the benefit of the injunction and the crossundertaking in damages, and it would be unsatisfactory in those circumstances to dismiss the claim for want of prosecution. Either the claimants would be doubly disadvantaged: they would not only lose their claim for damages, but they would also lose the ability to take points, that they would have taken in the proceedings, to justify not having to pay damages on that crossundertaking or only having to pay reduced damages; alternatively, all the points that they would argue in the proceedings which had been dismissed would be open to them to argue on the cross-undertaking in damages, which would therefore mean that the action might as well proceed.
44. I found that a seductive argument; however, it appears to me that the result stands the whole matter on its head. It means that, in a case where a claimant has the benefit of an interlocutory injunction, it is more difficult to dismiss the claim for want of prosecution than in a case where he has not got the benefit of an interlocutory injunction. It seems to me that that cannot be right. The answer to Mr Howe's point is that a claimant is not normally prevented from arguing the points on the cross-undertaking in damages that would have been open to him at trial. The dismissal of the claim and the cross-undertaking in damages are two different things. By delaying unreasonably, coupled with prejudice and other matters, the claim may be dismissed, leaving the cross-undertaking in damages to be pursued by the defendant to the extent that he and the court thinks it justified.
45. Secondly, with wisdom of hindsight it seems to me that where one has inter partes hearings of the sort that took place before Jacob J, particularly in circumstances where the matter is very time-sensitive, it would be highly desirable for the court to give directions for the future conduct of the case there and then. I do not say that critically of anyone who was present in court at the end of July 1998; this is merely the result of what has happened since that date. As a matter of general practice I would have thought it highly desirable that in a case which is inter partes, where there has already been a search order and where the court is being asked to continue an interlocutory injunction, the court and the parties at least consider directions being made and agreed there and then, above all in a case where the parties and the court are aware that the matter is time- sensitive.
46. In the event, therefore, I propose to allow this appeal to the extent of reinstating the action, but to impose the orders I have indicated with regard to costs, the indications I have given with regard to interest and invite the parties to agree directions, or at least make submissions on directions.
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