England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		The Rolls Building, 7 Rolls Buildings, London, EC4A 1NL
		19th February 2014

MR. JUSTICE NUGEE :


 


1. I have before me an application by the defendants for trial of a preliminary issue. The background is set out in paragraphs 7-14 of the Defence, which is largely, but not entirely, admitted in the Reply.
2. I will not read it all, but in summary, the Merck business was founded in Germany in the 17th century and by the 19th century had a US presence. During the First World War, the US business was largely acquired by the US government. It was bought back after the war, but since then the US business has been separate from the business based in Germany.
3. In 1932, the two parties entered into an agreement ("the Treaty Agreement"), but in 1945, the District Court of the United States for the District of New Jersey held that the Treaty Agreement was in breach of the anti-trust legislation of the United States and ordered that it be cancelled.
4. A new agreement was finally reached between the parties in 1955 and US Department of Justice approval was sought for the entry into that agreement by the US company.
5. That agreement was replaced by a new agreement in 1970, which recorded, at paragraph 12, "This new agreement, which provides for formalistic amendments caused by a change of the company name of the German party, has been submitted to the United States Department of Justice for review. The Department has agreed that since the changes are formal only, they do not require approval by the court." The 1970 Agreement is still in force. It is supplemented by a letter dating from 1975.
6. In essence, the 1970 Agreement provides that the US companies, ("US Merck"), which are the defendant companies in this action, can use the trade mark "Merck" in the US and Canada, but in other countries, such as the UK, US Merck agree to discontinue all use of the trade mark "Merck". It was however recognised by "German Merck", which is the claimant, that the use of "Merck Sharp & Dohme" did not involve an infringement of that restriction.
7. In this action, the claimant is German Merck, which complains of the use of the name "Merck", other than in the name "Merck Sharp & Dohme", in the UK. Four types of complaint have been identified by Mr. Hollingworth, who appears for the defendants.
8. Firstly, various US-based websites where the question is whether they are targeted at the UK; secondly, social media such as Facebook and Twitter; thirdly, UK-based websites where, for example, contacts are given using a merck.com e-mail address; and fourthly, some instances of persons from US Merck attending conferences in the UK and using the name "Merck" in their presentations.
9. These matters are complained of as being an infringement of the UK trade mark and a breach of the 1970 Agreement as supplemented by the 1975 letter. One of the issues between the parties is what is the proper law of the Agreement, the two rival systems of law being New Jersey and Germany. The defendants contend that the 1970 Agreement is governed by the law of New Jersey and the claimant that it is governed by the law of Germany.
10. The defendant has applied for this question to be tried as a preliminary issue. I was referred by Mr. Hollingworth to the relevant provisions of the CPR, which are in CPR 3.1. These set out the court's general powers of management, including the powers to "(2)(i) direct a separate trial of any issue" and "(j) decide the order in which issues are to be tried".
11. I was also referred to the well-known dictum of Lord Scarman in Tilling v Whiteman, that preliminary issues are too often treacherous shortcuts: see [1980] AC 1, 25, where he said "... the decision in the county court was upon a preliminary point of law. Had an extra half-hour or so been used to hear the evidence, one of two consequences would have ensued. Either Mrs. Tilling would have been believed when she said she required the house as a residence, or she would not. If the latter, that would have been the end of the case. If the former, your Lordships' decision allowing the appeal would now be final. As it is, the case has to go back to a county court to be tried. Preliminary points of law are too often treacherous shorts cuts. Their price can be, as here, delay, anxiety and expense."
12. That was a case, therefore, where a preliminary point of law was taken in an attempt to shut out the necessity for a trial at all; when however the point of law ultimately failed in the House of Lords, it meant that a trial was required.
13. I was also referred, by Mr. Carr, QC, who appeared for the claimant, to the statement on page 11 of the White Book, at note 1.4.5, which refers to the Court of Appeal decision of McLoughlin v Grovers [2002] EWCA Civ 1743; [2002] 2 WLR 1279, CA, where David Steel J said "(1) any order for the trial of a preliminary issue should be made by the court following a case management conference, (2) only issues which are decisive or potentially decisive should be identified, (3) such issues (a) should usually be questions of law, (b) should be decided on the basis of a schedule of agreed or assumed facts, and (c) should be triable without significant delay, making full allowance for the implications of a possible appeal."
14. He made the point that, of those requirements summarised by David Steel J, this issue was not said to be decisive or potentially decisive; nor is it a question of law; nor is it going to be decided on the basis of a schedule of agreed or assumed facts.
15. That, also, was a case where the attempt to take a preliminary point was with a view to avoiding a trial at all. It was a case where there was a claim for damages against a firm of solicitors, the allegation being that the solicitors had negligently handled the claimant's criminal trial with the result that he was wrongly convicted and suffered psychiatric stress in prison, and a preliminary issue was taken as to whether such loss was reasonably foreseeable.
16. I have this guidance well in mind, but cases are infinitely variable and the court, in exercising its case management powers is, of course, seeking to give effect to the overriding objective, which is to deal with cases justly and which involves the saving of expense and dealing with cases expeditiously and fairly.
17. In a case such as the present, I do not think the guidance laid down in the other cases is a sure guide. I have the reassurance that Norris J, in Seiko Epsom Corporation v Dynamic Cassette International Limited [2012] EWHC 316 (Pat),a very different type of case, said at paragraph 17, "I find myself in agreement with the views expressed by Lewison J in Philips v Harvard [2009] EWHC 1600 (a) that the relevant rules to which I have referred [CPR 3.1(2)(i) and (j), set out above] are expressed in entirely unfettered terms and (b) that the Court of Appeal has on many occasions deplored the use of judge-made checklists to supplement the rules (so that one should not mechanically address the 10 factors which had been identified by Neuberger J in Steele v Steele [2001] CP Rep 71 as relevant to the consideration of the ordering of a preliminary issue)."
18. In my judgment, the ordering of a preliminary issue is bound to include advantages and disadvantages, or pros and cons, some of which are predictable and some of which are less predictable. As I see it, the task of the court in being asked to order a preliminary issue in a case such as this, is to weigh up the possible pros and cons of ordering or not ordering a preliminary issue and decide where the balance lies. When I put this, or something like it, to counsel, neither of them demurred.
19. The advantages of ordering a preliminary issue in this case are fairly easy to state. The question of which is the proper law of the Agreement is an issue which has to be decided anyway. It is not like the point of law in Tilling v Whiteman or the issue of foreseeability in McLoughlin v Grovers, where if the facts at trial had been decided one way, the issue of law would never have arisen at all.
20. The decision on the issue will mean that the parties will then be able to prepare and appear at trial in the knowledge of what system of law governs the Agreement. That will obviously obviate entirely the need for expert evidence of the other system of law.
21. By contrast, if one goes to trial without a preliminary issue, the parties will have to prepare for trial, and instruct experts in both New Jersey and German law and there is at least a risk that the defendants might feel it necessary to ask the court for permission to call two experts in New Jersey law, one dealing with the law of contract and one dealing with the law of trade marks, although they have not yet taken this step and it may never happen.
22. In addition, Mr. Hollingworth says, although Mr. Carr does not accept, that it will shorten the trial more generally, because although the underlying facts of infringement and of the use that has been made of the name "Merck" and of such matters as acquiescence by the claimant in the use by the defendants of Merck on its websites would remain the same, the parties would need to look at the issues of interpretation of the contract and acquiescence and the like through two systems of law, rather than just one. Mr. Hollingworth says that only having to regard all the evidence against the background of one system of law will make the trial easier and shorter.
23. It is also a relatively, although not entirely, discrete area of inquiry. The question of the proper law of the 1955 Agreement will turn on such documentary evidence as is available as to the circumstances in 1955. This is likely to be fairly limited in extent, although Mr. Carr did point out that the documents that are in his client's possession will be in German and will have to be translated.
24. When one comes to the 1970 Agreement, the defendants accept that this is bound to be governed by the same law as the 1955 Agreement. The claimant does not, at this stage, accept that although Mr. Carr said that he thought that that was no doubt likely to be the case.
25. So far as further disclosure is concerned, I accept that there may be some further disclosure leading up to the 1970 Agreement, which may shed light on these matters, although as I have said, it seems to me likely that the real question will be the evidence as to the circumstances in which the 1955 Agreement came into being.
26. So far as oral evidence is concerned, the defendants at this stage do not intend to call any oral evidence. The claimant does have in hand the possibility of a witness who was chief executive officer of the claimant at the time of the 1970 Agreement. He is, unsurprisingly, now quite old, being in his nineties and it is not known whether he will be called or not, but I accept that there is at least a real possibility that the claimants will wish to call oral evidence and, therefore, that there may be some cross-examination in relation to his evidence.
27. There is unlikely, on the material that I have seen, to be any substantial dispute on the applicable law. The applicable law is the common law English conflict rules, which both sides accept mean that one has to investigate with which system of law the contract has its closest and most real connection.
28. The trial of the preliminary issue itself is bound to take some time. The estimates range from one day to one to two days to possibly two days. I, on the material before me, would expect it more likely to take one day than two, but as I have said, some things are unpredictable and I cannot rule out the possibility that it might need a second day.
29. The parties have caused investigations to be made as to when a one to two day hearing might take place, which has revealed a surprising discrepancy with the defendants being told that it could be heard before the summer and the claimants being told that it might not take place until the early part of next year.
30. In those circumstances, I have made my own inquiries with the listing office and the answer that I have been told is that, whether it is a one-day or a one to two-day case, it is likely to be heard some time between the beginning of June of this year and the end of October of this year, which I have to say seems to me more in accordance with what I would have expected, than it having to go off until next year.
31. There is largely, but not entirely, a lack of overlap between the issues that will be involved in the trial of the preliminary issue, and the other issues which would arise at trial. As I say, the question that would arise on the preliminary issue is with which system of law the contract had its closest and most real connection, a matter to be determined by reference to the surrounding facts at the time when the 1955 or, possibly, the 1970 Agreement was entered into.
32. One other issue, the interpretation of the 1970 Agreement, will also, to some extent, turn on the surrounding matrix of fact and I accept that there will be, to that extent, some degree of overlap between those two issues. However, save for that point, all the other issues will be entirely discrete from the matters to be determined in the rest of the action.
33. Those, then, are the advantages of ordering a preliminary issue. In short, it is a reasonably self-contained issue which needs to be determined at some stage and hearing it first will clear away a second alternative case which is bound, whichever way the preliminary issue is decided, to turn out to be unnecessary.
34. On the other hand, the disadvantages of that course are also fairly obvious. Firstly, there is the question of delay. The court cannot guarantee when the issue would, in fact, be heard. Nor can there be any guarantee whether, once it has been disposed of, that will be the end of it, because the losing party may well seek (and, at this stage, it must be assumed, may obtain) permission to appeal.
35. There is, therefore, likely to be some delay before the matter can be regarded as finally disposed of. I am not myself quite as pessimistic as Mr. Carr, but I accept that there is likely to be some prejudice. It is unclear how much there would be. It is impossible to be sure.
36. The next question is whether (and to what extent) hearing the preliminary issue would, in fact, shorten the remaining issues at trial at all. I accept that it is likely to shorten the trial by some extent. This is obvious because if a preliminary issue is decided it will rule out one system of law and the experts in that discipline will not need to appear at all.
37. However, it is unclear, of course, how much time will be saved at trial. That will depend on how much time the experts in the system of law which is ruled out would have taken at trial. This will depend on how much, in practice, the experts, once they had been instructed and exchanged reports, had met and agreed what they could, would require to be cross-examined and take up time at trial. This is of course impossible to determine.
38. I also accept, as Mr. Hollingworth said, that having to look at the question of interpretation and the questions of acquiescence and the like, through the eyes of both German and New Jersey law, will take a bit longer to try at trial than only having to do it in respect of one system of law. However, again, it is impossible to say how much time, will in fact, be saved. The underlying facts will have to be gone into in any event.
39. It is, therefore, very difficult to predict how much time will, in fact, be saved at trial by having the preliminary issue, but I do accept that there will be some time saved and only having to deal with one system of law at trial would mean that both the trial and the preparation for it would be simpler both for the parties and for the trial judge. Doing the best I can, it might, perhaps, save one day of the trial, which Mr. Carr estimated at six days, and it might bring that down to five days or so.
40. Having a preliminary issue is likely, as I have said, to cause some delay in the hearing of the trial. Again, there are a number of imponderables, depending in particular on whether (and, if so, when) there might be an appeal. Again, my inquiries are that if a six-day trial were fixed now, it would be likely to be heard some time between the beginning of March and the end of May 2015.
41. Allowing for a pessimistic view of a preliminary issue being ordered and not being heard until October and there then being an appeal, I think it inevitable that there would be some slippage in that trial date. On the other hand, I do not think it would be anything like as large as has been suggested and I think it would be of the order of three months or so.
42. Mr. Carr has suggested that it might be appropriate if a preliminary issue is ordered for there to be a stay of the main action in the meantime. This is not, in my judgment, something that would be necessary in this case.
43. Of course, the experts would not be instructed until the question of which experts were required was finally resolved, but in the meantime, the parties could get on with what is likely, depending on argument this afternoon, to be a fairly extensive disclosure exercise and with preparing witness statements and the like. The underlying facts and questions as to breach and acquiescence are likely to be needed on either view.
44. Then there is the question of costs. Again, there are pros and cons which go each way. I accept that there are bound to be some extra costs in having a preliminary issue which will, effectively, be a separate hearing, but there will be some costs saved at trial, and some costs in the preparation for the trial. My overall impression is that there is a risk of duplication of some costs, but that it is far from certain that there would be significant extra costs in ordering a preliminary issue.
45. Those being, as I see it, the pros and cons -- I have not thought it necessary to refer to other proceedings which are taking place in France and Germany, which, in the end, neither side placed much reliance on -- is it in the parties' interest to order the issue or not?
46. So far as I can see, this is not a case where there is a tactical advantage for one party or the other in having the issue. If it is to save time and costs, it will do so for both sides, and if it is to increase costs and delay the trial, it will do so for both sides. So, the very fact that the parties have taken such different positions tends to support the view that the advantages and disadvantages are quite finely balanced.
47. However, having taken account of everything that has been said on both sides and all the potential advantages and disadvantages, in my judgment, this is a case for a preliminary issue. I regard it as a point which should be capable of being resolved reasonably quickly and without too much difficulty. It will, if necessary after an appeal which would, if it took place, itself be in quite a narrow compass, resolve the issue one way or the other and enable the parties to prepare for trial in the knowledge of which law applies to their contract, which will enable them to focus their evidence and argument at trial accordingly.
48. In my view, it will assist both parties to know the position as soon as possible and before trial and will also make it easier for the court itself to focus on the relevant considerations with both sides and the court being able to run a trial without having to consider two alternative bases. I will, therefore, make the order as asked.