Pannone LLP v Aardvark Digital Ltd

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Morgan
Judgment Date26 Mar 2013
Neutral Citation[2013] EWHC 686 (Ch)
Docket NumberCase No: CH/2012/0037

[2013] EWHC 686 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Rolls Building, London, EC4A 1NL

Before:

Mr Justice Morgan

Case No: CH/2012/0037

Between:
Pannone LLP
Claimant and Respondent
and
Aardvark Digital Limited
Defendant and Appellant

Anneliese Day QC (instructed by Clyde & Co LLP) for the Claimant/Respondent

Mr Andrew Weston represented the Defendant/Appellant

Hearing date: 14 th February 2013

Judgment Approved by the court for handing down

Mr Justice Morgan

Introduction

1

On 14 th December 2011, District Judge Obadai in the Manchester District Registry ordered the Defendant to give security for the Claimant's costs, in relation to the Defendant's Counterclaim, by paying the sum of £57,164.00 into court by 28 th December 2011. The District Judge further ordered that all further proceedings on the Defendant's Counterclaim should be stayed until security was given. The Defendant did not provide security as ordered and the Counterclaim has accordingly been stayed since the date of that order.

2

The Defendant has appealed against the order for security for costs. The Defendant says that no order for security should have been made in relation to the Counterclaim. On 30 th July 2012, having considered the matter on the papers, I granted the Defendant permission to bring this appeal.

3

The Defendant's case on this appeal has been presented by Mr Andrew Weston who is an employee of the Defendant and the brother of the sole director and shareholder of the Defendant, namely, Mr Christopher Weston. The Claimant was represented by Ms Anneliese Day QC.

The Civil Procedure Rules

4

CPR rule 25.12 (read together with rule 20.3) allows a Claimant to apply for security for its costs in relation to a Counterclaim brought against it. By rule 25.13, the court may make an order for security for costs under rule 25.12 if it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order and one or more of the conditions in rule 25.13(2) applies. One such condition, in rule 25.13(2)(c), applies where the person against whom security is sought is a company and there is reason to believe that the company will be unable to pay the costs of the person seeking the security if ordered to do so.

The issues

5

There is no issue as to the jurisdiction of the court to make an order for security for costs in favour of the Claimant in relation to its costs of defending the Counterclaim. The Defendant is a company and it is accepted that there is reason to believe that the Defendant will be unable to pay the costs of the Claimant in relation to the Counterclaim, if the Defendant were ordered to do so. The issue which was argued before the District Judge was whether it was just to make such an order having regard to all the circumstances of the case. The Defendant raised a large number of matters on this appeal. Those matters can be divided into three groups, as follows: (1) an issue as to whether the court should decline to order security in relation to the costs of defending the Counterclaim on the ground that the Claim and the Counterclaim raised the same or substantially overlapping issues ("the first main issue"); (2) a number of points which I will consider under the hearing "other matters"; and (3) questions as to whether an order for security would stifle the Counterclaim and, if so, whether that was a sufficient reason for not ordering security ("the second main issue").

The litigation

6

I will summarise the matters which are the subject of the Claim and of the Counterclaim. Between 4 th April 2008 and 20 th October 2008, the Claimant acted for the Defendant as its solicitors and, in particular, the Claimant advised the Defendant and acted for it in relation to claims which the Defendant wished to bring against third parties for the alleged infringement of the Defendant's intellectual property rights. During that period, the Claimant billed the Defendant in relation to its fees. The Defendant appears to have paid only a small sum on account of fees and the Claimant alleges that the sum of £22,429.57 remained unpaid by the Defendant. On 6 th October 2008, the Defendant wrote to the Claimant complaining about the advice and the service provided to it by the Claimant. On 20 th October 2008, the Claimant terminated its retainer by the Defendant on the ground that the Claimant had not paid the fees due to the Claimant and on the further ground that the solicitor/client relationship had broken down.

7

On 6 th January 2009, the Claimant sued the Defendant in the Manchester County Court for fees allegedly due and remaining unpaid in the sum of £22.429.57. On 1 st September 2009, the Defendant served (in an amended form) a detailed Defence and Counterclaim.

8

Apart from a very minor point which it is not necessary to describe, the Defence to the claim was pleaded as a set off of so much of the sum counterclaimed as would wholly extinguish the claim. However, there are paragraphs in the Counterclaim which might more properly have been pleaded by way of Defence. I refer to paragraphs 27 to 29 of the Counterclaim. In paragraph 27, the Defendant pleads that the advice given by the Claimant and the steps which they took were of no value to the Defendant and that the consideration for the Claimant's services had wholly failed. A similar point is made in paragraph 29 of the Counterclaim.

9

In its Counterclaim, the Defendant sets out its version of the history of the Claimant's involvement as its solicitor. The subject matter of the instructions given to the Claimant was the Defendant's alleged intellectual property rights in relation to certain exercise treadmills and a trade mark. The Counterclaim asserts that the Defendant had reasonably good claims, and at least arguable claims, as to infringement of its copyright in relation to certain parts of the controls of the treadmills. It is pleaded that this copyright had been infringed by two competitors, namely, Sport & Leisure and Specialist Performance. It is also pleaded that Sport & Leisure was liable for alleged passing off. Later in the Counterclaim it is pleaded that another competitor, Imperial Teak, was selling a treadmill which infringed the Defendant's trade mark.

10

In its Counterclaim, the Defendant alleges that the Claimant was negligent in relation to the advice it gave the Defendant as to what it could and should do to protect itself against the alleged infringements of its rights. In particular it is alleged that the Claimant should have, without delay, initiated proceedings on behalf of the Defendant and obtained interim relief against the alleged infringing parties and that the Claimant failed to give the right advice or take the appropriate action in this respect. The Defendant pleads that it has suffered very heavy trading losses as a result of the allegedly negligent advice and failure to act on the part of the Claimant. As regards the alleged acts of infringement by Sport & Leisure and Specialist Performance, it is said that these companies continued to sell substantial quantities of treadmills which infringed the Defendant's rights when they should have been stopped from doing so by interim injunctions. It is said that the sales by these third parties resulted in the Defendant losing its own sales. This meant that the Defendant lost substantial revenues and profits and that its business in relation to exercise treadmills all but collapsed. The figures pleaded suggest that the Defendant's losses are of the order of £3.5 million. It seems to be accepted by the Defendant that after October 2008, when the Claimant was no longer acting for the Defendant, the Defendant did not take any steps to pursue Sport & Leisure or Specialist Performance. In that regard, the Counterclaim pleads that the losses which the Defendant suffered meant that it was not in a financial position to pursue its claims against these parties and further it is suggested that Specialist Performance would not have met any judgment obtained against it. In relation to the alleged trade mark infringement by Imperial Teak, it is pleaded that the consequence of the Claimant's negligence was that Imperial Teak continued to infringe the Defendant's trade mark and the Defendant lost a profit of £120,000. It is pleaded that Imperial Teak later went into liquidation and no damages would be recoverable from it on that account.

11

On or about 26 th October 2009, the Claimant served a detailed Reply and Defence to Counterclaim. In particular, the Defence to Counterclaim pleads a large number of detailed matters as to the dealings and communications between the Claimant and the Defendant between April and October 2008. The Claimant denies that it was negligent in any way and further says that the alleged shortcomings on the Claimant's part did not cause any loss to the Defendant.

12

Although the Reply and Defence to Counterclaim was served in October 2009, the action has not really progressed since that time. However, the parties have not been inactive and, in particular, certain matters raised by the Defendant have caused the Claimant to incur legal costs which, in due course, the Defendant was ordered to pay but the Defendant has not paid.

13

In brief summary, when the Claimant filed its Reply and Defence to Counterclaim with the court and served the same on the Defendant in October 2009, the Defendant contended that this pleading was out of time and that it was entitled to enter judgment on its Counterclaim. The Defendant's case was that the Claimant was a few minutes late in filing and serving its Reply and Defence to Counterclaim, in contravention of an unless order made by consent, and that the delay was fatal to the Claimant's ability to defend the Counterclaim. The procedural history in relation to this contention is set out in the decision of the...

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1 firm's commentaries
  • Getting the Deal Through – Dispute Resolution 2018 – England & Wales
    • United Kingdom
    • JD Supra United Kingdom
    • 16 Agosto 2018
    ...also be satisfied that, in all the circumstances, it is probable that the claim would be stifled (Pannone LLP v Aardvark Digital Ltd [2013] EWHC 686 (Ch)). It is important to note, generally, that a party’s conduct in litigation will be considered carefully by the court when exercising its ......

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