England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		11/03/2008

Mr Justice Warren:

1. On 19 February 2008, I granted summary judgment of the Claimants' claim, including injunctive and declaratory relief, an order for delivery up of infringing material and Island v Tring disclosure. There then followed argument about the costs of (i) the summary judgment application incurred since 18 January 2008 (when an application by the defendant seeking a letter of request to the Californian court was heard by me) and (ii) the claim generally. I made an order in favour of the Claimants in respect of both of those, although not, as had been sought by the Claimants in relation to the first, on the indemnity basis. I ordered an interim payment of £100,000.
2. In the course of argument, I was informed that there had been a Part 36 offer by the Defendant. During his submissions, Mr Richard Arnold QC, who appears for the Claimants, stated that the Part 36 offer was a money offer only. I was not told of its amount. It now turns out that that was an error, for which Mr Arnold has apologised, and which, as he says, is an object lesson in not relying on memory. In his defence, I would point out that what he said was not contradicted, indeed it was confirmed, by Ms Perkins who appeared on behalf of the Defendant. No-one else in court corrected the error. It does not matter all that much because the error was realised before my order was drawn up. The Claimants sensibly agree that I should revisit my decision.
3. The Part 36 offer was contained in a letter dated 4 September 2007 headed "Without prejudice save as to costs". The material part reads as follows:

"We are instructed to make an offer of £ [redacted in the copy provided to me] to your client in full and final settlement of this claim. In addition, to the extent our client has not already done so, our client will undertake to destroy the master copy and any other copies of the Recordings within its possession, power, custody or control and will undertake not to distribute, sell or otherwise exploit copies of the Recordings in breach of your client's rights."

4. Mr Christopher Symons QC, who now appears with Ms Perkins, for the Defendant, submits that, in the light of that offer, the appropriate order to make is that the costs should be reserved. In summary, he says this: It is only once the quantum of the Claimants' claim is established (either by agreement or following an enquiry) that it will be known whether the offer has been beaten so that only then will the court know who the real winner is. The additional part of the offer about which I was not told before makes all the difference because it effectively gives the Claimants everything to which they are entitled: the court knows that an offer has been made that will protect the Claimants' rights for the future and any offending material will be destroyed. At this stage the court does not know what real issues remain between the parties. For reasons which I will come to in a moment, he says that the real issue between the parties is money and only money so that, as in any other case where the dispute is about money, the question of costs following a part 36 offer can only properly be dealt with after the quantum of the claim has been established.
5. He says that the fact that the order which I made was for delivery up rather than destruction does not make any difference. A money offer was made, together with an offer to destroy the infringing material; if the Claimants wanted delivery-up rather than destruction, they should have spoken up at the time. There is no reason, he suggests, for thinking that, if the money amount was satisfactory, the Defendant would not have agreed to that course. He says that that is the way in which litigation must now be conducted under the CPR; it is no longer possible for a claimant simply to sit back and say that, in the event, he obtained something which was not offered. Similarly, he submits that if a claimant wants declaratory relief over and above what is offered, then he should ask the defendant to agree to that relief if the money offer is otherwise satisfactory. If he does not, and incurs court time and costs as a result, he must bear the consequences. The reality, he says, is that if a satisfactory money offer had been made to the Claimants in the present case, the action would have settled. That may be true: but I would remark that that all depends on the amount of the money offer and that the Claimants might perceive a trade-off between receipt of a substantial sum of money and obtaining further relief.
6. In this context, Mr Symons relies on the Court of Appeal decision in Roache v News Group Newspapers Ltd [1998] EMLR 161. That was a libel action where the plaintiff recovered the exact sum paid into court. At first instance, the plaintiff was also granted an injunction against re-publication which the defendant had resisted. The judge ordered that the plaintiff should have the costs of the action because it had had to pursue the matter to trial to obtain an injunction. The Court of Appeal reversed this decision. As Sir Thomas Bingham MR puts it after reviewing a number of authorities:

"A judge must look closely at the facts of the particular case before him and ask: who, as a matter of substance and reality, has won? Has the plaintiff won anything of value which he could not have won without fighting the action through to a finish? Has the defendant substantially denied the plaintiff the prize which the plaintiff fought the action to win?

7. The judge at first instance had been influenced by the decision in Colgate Palmolive Ltd v Markwell Finance Ltd [1990] RPC 197, a case concerning two actions, one for passing off and one for trade mark infringement. In relation to that, the Master of the Rolls said this at p 169:

"In accordance with the established practice in intellectual property cases of this kind, a two stage procedure was adopted. At the first stage the plaintiff sought to establish his right to relief. If he succeeded, an injunction would be granted and an enquiry as to damages would be ordered (unless damages were accepted as nominal). The second stage, if the plaintiff succeeded at the first and claimed more than nominal damages, would be the inquiry into the quantum of damages. The issue in the case as reported arose because the defendant, unsuccessful at the first stage, resisted an application by the plaintiff for the costs thus far; the defendant argued that as there was a payment into court of undisclosed amount and as it could not be known until after the enquiry whether the plaintiff had recovered more or less than the sum paid in, costs would be reserved until the outcome of the enquiry was known. The judge rejected that argument and awarded the plaintiff its costs of the first stage. He did so because of the established practice in such cases, because a plaintiff was entitled to come to court to establish his right and his claim to an injunction irrespective of any payment into court and because a separate hearing for the assessment of damages was throughout contemplated.

I do not doubt the correctness of this decision on its facts. But procedurally it was far from the present case, in which there was no question of the plaintiff's right to relief being determined in one proceeding and his claim to damages in another. Although the damages were a matter for the jury and the injunction (if the jury found for the plaintiff) was a matter of the judge, both matters were to be determined at the end of a single trial. This procedure in intellectual property cases has never applied in defamation cases……"

8. It is to be noted that the Master of the Rolls recognises the existence of the established practice in intellectual property cases. He does not doubt that it is the practice or suggest that it is one which needs reconsideration. It remains the practice today. In nearly all infringement cases where money compensation is sought, the first stage is to establish infringement. Following that if the claimant is successful, Island v Tring disclosure is then ordered to enable the claimant to elect between his remedies of damages and an account of profits. Until such disclosure is given, he is not in a position to know which way to elect. Once that is given and an election made, the second stage takes place to establish quantum.
9. The established practice was applied in Brugger v Medicaid [1996] FSR 362 (see Jacob J at 365-366) and C&H Engineering v F Klucznik & Son Ltd [1992] FSR 667 (see Aldous J at p 671). Each case must, of course, be decided on its particular facts. It is, nonetheless, interesting to see the approach of Jacob J in Brugger since it shares, with the present case, which is itself an intellectual property case, the absence of any offer of delivery up. I do not really gain any assistance from C&H Engineering: indeed, Mr Symons submits that it would not survive the introduction of the CPR, but I do not need to say anything about that.
10. That is not to say that an approach more in accord with Roache might not be appropriate on the facts of a particular case even if it is an intellectual property case. Thus, if it were clear on the evidence that all that a claimant was interested in was money, and that the other relief claimed was no more important to the claimant than was the injunction to the plaintiff in Roache, I would see force in Mr Symons' submissions. But even then the position might not be clear, since a claimant might need Island v Tring disclosure to put him in a position to make his election and to make an informed decision about whether to accept a defendant's money offer.
11. Mr Symons did not go quite as far as saying that the Claimants in the present case were, in fact, only interested in money (although in the Defendant's solicitors' letter to me, received since the last hearing as part of the further submissions which I invited, it is said that the real issue was money). But he did say that I should not assume that that was not the case. He told me that there was without prejudice correspondence – not simply without prejudice save as to costs – after the part 36 offer. Mr Arnold did not, at the time of the hearing before me, have that correspondence so he was not in a position to respond to Mr Symons' suggestion that he, Mr Arnold, might find himself unable, professionally, to advance the submission that the Claimants obtained more as a result of my summary judgment order than they were in reality looking for. In other words, Mr Symons' submission was that this case was, or at least might well be, really about money.
12. Mr Arnold was thus put into an invidious position. I, of course, gave him the opportunity to consider the correspondence and allowed each party to make further written submissions. Mr Arnold has taken the pragmatic course of providing me with the relevant letter from the Claimants' solicitors since, he says, it fails to establish the proposition for which Mr Symons would like to contend, namely that the dispute was simply about money. He protests, nonetheless, about having been put into this position and says that this correspondence should never have been referred to at all.
13. The material paragraph of the letter responding to the part 36 offer is dated 2 October 2007 and reads as follows:

"Our clients are prepared to accept the sum of £ [again redacted in my copy but I assume a greater figure than in the Part 36 offer letter] in full and final settlement of their claim in these proceedings. This sum represents damage caused to our clients' film and CD project which, as you are aware, was planned for release earlier this year but which has had to be delayed following your client's actions, lost revenue on CD/DVD sales (given that your client distributed some 1.5 million units of the Royal Albert Hall CD), together with legal fees and expenses to date. In addition our client will require the usual undertakings in relation to delivery up and further distribution of the infringing recordings."

14. The letter does not request Island v Tring disclosure; but that is hardly surprising since, if the offer were accepted, the relevant sum of money would be paid, a sum which the claimants must have estimated would cover their loss. What the letter does ask for, however, is the usual undertakings and delivery up. It is only one sentence at the end of the paragraph, but no less important and no less part of the counter-offer for that. It cannot be seen as simply a throw-away request to be abandoned if the proposed sum of money was agreed. I consider that the letter makes it clear that the Claimants did, in fact, require the further relief sought in the action. For my part, I see no reason for saying that, had the Defendant agreed to pay the sum sought in the letter, the Claimants would obviously have accepted it without the further relief sought. In actions of this sort, it is often important to establish the title to the intellectual property right in question. This case is no exception; indeed, the Claimants have been in litigation with other persons in relation to this same material, and it will be of considerable assistance to them in their attempts to prevent unauthorised use in the future to have in their hands my judgment on their summary judgment application against the defendant and the order which I have made.
15. Further, if this case was simply about money, then the Defendant could have protected itself by admitting infringement, thus disposing of the first stage which normally applies in intellectual property cases. It never did so, instead only offering the undertakings to destroy and not to distribute or sell further copies as part of their overall offer. It was still necessary, in order for the Claimants to proceed to a damages/profits enquiry, for them to obtain judgment on liability, something which was fiercely resisted before me.
16. It is surprising to me that Mr Symons submitted at the hearing that the proper course for the Claimants to take, on receipt of the part 36 offer, was to inform the Defendant that the offer of destruction was not enough and that delivery up was required. That submission suggests that such a request was not in fact made. The reality, however, can be seen in the letter of 2 October 2007 where the Claimants made precisely that demand. It is true that that demand was made in a without prejudice letter; but if Mr Symons can seek to rely on the correspondence to demonstrate that the dispute was only about money, surely, I ask, the Claimants can rely on it to show what they really wanted.
17. There is nothing which persuades me that I ought to alter the decision on costs which I made on 19 February 2008. That is so whether or not I take into account the without prejudice letter dated 2 October 2007.
18. That conclusion is subject to the correction of one error. The interim payment of £100,000 was based on an error in the schedule of costs with which I had been provided by the Claimants' solicitors. Counsel's fees were overstated by some £16,000 odd. On that basis, I reduce the interim payment figure to £90,000.
19. I should not leave the case, however, without mentioning again Mr Arnold's protest about the reference to the 2 October 2007 letter. There are limited situations in which it is permissible to refer to the fact of without prejudice discussions about settlement having taken place, for instance to explain delay in the conduct of proceedings. I doubt very much that it can ever be proper to refer to without prejudice discussions in an attempt to demonstrate the contents of those discussions. However, since Mr Arnold has helpfully waived the privilege (other than in relation to the amount of the counter offer) for the purpose of this application (but no further), I do not need to decide the point since, even with that letter available, my decision on costs remains.