Pittville Ltd (as Assignee of the Rights of Mastercigars Direct Ltd) v Hunters & Frankau Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Snowden |
| Judgment Date | 27 October 2016 |
| Neutral Citation | [2016] EWHC 2683 (Ch) |
| Docket Number | Case No: HC10C02780 – HC-2010000037 |
| Court | Chancery Division |
| Date | 27 October 2016 |
[2016] EWHC 2683 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
RollsBuilding, Fetter Lane,
London, EC4A 1NL
Mr Justice Snowden
Case No: HC10C02780 – HC-2010000037
Mr Nicholas Strauss QC (instructed by Rosenblatt, Solicitors) for the Claimant/Respondent
Mr Tom De La Mare QC and Mr Michael Watkins (instructed by Ashurst LLP) for the Defendants/Appellants
Hearing dates: 22–23 March 2016
Judgment Approved
These are appeals against two decisions of Deputy Master Cousins given on 14 July 2015 and 29 September 2015 which were then reflected in an order of 7 October 2015. In the first decision ("the First Judgment") the Deputy Master decided to grant relief from the sanctions that had been imposed upon the original claimant, MasterCigars Direct Limited ("MasterCigars") some four years earlier for failure to comply with an unless order requiring the provision of security for costs by way of cash or a bank guarantee. The application for relief from sanctions was made by Pittville Limited ("Pittville") that had, in May 2014, obtained an assignment of the rights of action of MasterCigars from its liquidators. In the second decision ("the Second Judgment") Deputy Master Cousins decided to permit Pittville to be substituted as claimant in place of MasterCigars and to vary the unless order so as to give Pittville three months to obtain an after-the-event insurance policy (an "ATE policy") to provide security for the costs of the claim.
The appeals are brought by the Defendants, Hunters & Frankau Limited ("Hunters & Frankau"), a company incorporated in the United Kingdom and carrying on the business of, inter alia, supplying hand rolled Cuban cigars (also known as " habanos") in the United Kingdom, and Corporaçion Habanos, Sociedad Anonima ("Habanos"), a Cuban corporation holding the trademarks and exclusive worldwide rights for the marketing and export of all such cigars.
THE BACKGROUND
During the period from 30 June 2002 to 31 March 2012, Hunters & Frankau and Habanos operated an exclusive distribution agreement whereby Hunters & Frankau were appointed as the sole and exclusive distributor of Habanos to import, sell and distribute habanos in the United Kingdom, the Channel Islands, Gibraltar and the Republic of Ireland. At this time, MasterCigars was also in the business of purchasing habanos on the open market at official sales outlets in Cuba and importing those cigars (duty paid) into the United Kingdom. MasterCigars and Hunters & Frankau were therefore direct competitors in relation to the importation and sale of such Cuban cigars. The case relates to steps allegedly taken by Hunters & Frankau unlawfully to protect the Defendants' position against competition from MasterCigars between about 2004 and 2010.
The first set of proceedings
In 2004, Hunters & Frankau lodged an application with Her Majesty's Customs and Excise ("HMCE") under section 89 of the Trade Marks Act 1994 and/or Council Regulation (EC) No. 1383/2003 giving notice to HMCE that it was the proprietor or licensee of various registered trademarks for habanos in the United Kingdom. The notice asserted that Hunters & Frankau believed that goods which were, in relation to those registered trademarks, infringing goods, were expected to arrive in the United Kingdom, and requested that HMCE should treat them as prohibited goods.
As a result of the application, a consignment of habanos which had been purchased by MasterCigars was seized by HMCE and Hunters & Frankau were given the opportunity to examine the goods in order to determine whether they were counterfeit or not. After examination, on 24 September 2004, Hunters & Frankau declared to HMCE that the sample of goods that it had examined included counterfeit goods.
This seizure of the consignment of cigars led to a 16-day trial before HHJ Fysh QC in 2005. MasterCigars sought declarations that the consignment was not counterfeit and Hunters & Frankau counterclaimed for trademark infringement on the basis that the goods constituted unlawful parallel imports and/or that the consignment contained counterfeit goods. HHJ Fysh QC concluded that the goods were not counterfeit but that they did constitute unlawful parallel imports: see [2006] RPC 32.
All legitimate habanos sold in Cuba have a hologram fixed to their packaging and the hologram cannot be removed from the packaging without leaving a visible mark. One of the issues at the trial of the counterfeit allegations related to a single box of cigars which lacked a hologram, or any mark of hologram having been removed and which was alleged to have been included in the consignment. HHJ Fysh QC stated that the evidence as to how the box came to be in the consignment showed that the case was "riddled with mysteries, lacunae and above all, with procedural unfairness to [MasterCigars]". He concluded that the box had not formed part of the consignment on its arrival into the UK, and that it had not been introduced into the consignment by anyone acting on behalf of MasterCigars. HHJ Fysh QC also concluded that the only party who could legitimately have been in possession of such a box of cigars without a hologram in the United Kingdom was Hunters & Frankau, who received such boxes prior to affixing their own "national" seal. HHJ Fysh QC did not, however, go on to conclude that the box without a hologram had been added to the consignment by Hunters & Frankau, or make any findings as to how or why it had been added to the consignment.
MasterCigars subsequently appealed against the judgment on the parallel imports case. There was, however, no appeal by the Defendants against HHJ FyshQC's decision on the counterfeiting claim. In March 2007, the Court of Appeal allowed MasterCigars' appeal in relation to parallel imports, concluding that the Defendants had given implied consent to the imports in question: see [2007] RPC 24. Shortly thereafter the Defendants took steps to protect their trademarks, making it plain to MasterCigars that they did not consent to any further parallel imports.
The second set of proceedings
In August 2010, MasterCigars issued a new set of proceedings against the Defendants ("the Claim"). In the Claim, MasterCigars alleged that the statements and allegations made by Hunters & Frankau to HMCE in 2004 and during the first set of proceedings that the consignment included counterfeit goods were false, and that the Defendants knew or ought to have known that they were false. On this basis, MasterCigars claimed damages for alleged abuse of a dominant position, misrepresentation and unlawful conspiracy. MasterCigars contended that Hunters & Frankau's actions had been part of a wider plan to make false statements and then to force MasterCigars into expensive and time-consuming litigation in order to put it out of business.
By this time, the business and finances of MasterCigars had deteriorated, and following the commencement of the Claim in 2010, the Defendants applied for security for costs under CPR 25.13 on the basis that MasterCigars would be unable to pay any costs order that might be made against it. That application was heard and determined by Master Bragge on 5 May 2011. In his judgment on the application, Master Bragge considered an argument from MasterCigars that it would be unjust to order it to provide security because it would stifle the Claim. He declined, however, to hold that the Claim would be stifled by an order for security for costs on the basis that he had not been provided with sufficient evidence by MasterCigars of other potential sources of funding, in particular the outcome of negotiations with third party funders, or as to the financial position of the directors of MasterCigars.
As to the form of such security, Master Bragge accepted that it was possible in principle for security for costs to be provided by way of a suitable ATE policy, but he pointed out that MasterCigars did not have any such policy in place so that the adequacy of its terms could not be considered. The risk of an ATE insurer being able to avoid liability under the terms of the ATE policy is an important factor in deciding whether to permit security for costs to be given by such a policy: see e.g. Michael Phillips Architects v Riklin [2010] BLR 569. Master Bragge therefore decided to order security to be provided by MasterCigars in the more conventional form of cash or a bank guarantee, but left open the possibility that MasterCigars might be able to obtain a suitable ATE policy and tender it as appropriate security in whole or in part.
Following his judgment, on 18 May 2011 Master Bragge made an order for security for costs ("the Security Order") under which he ordered MasterCigars by 2 June 2011 either:
(1) to provide security for the Defendants' costs of the Claim up to and including the hearing of any application to strike out all or part of the Claim in the sum of €290,043.97 by way of payment into the Court Funds Office or by provision of a bank guarantee; or
(2) to supply to the Defendants' solicitors a copy of an ATE policy covering its potential liability to pay the Defendants' costs up to the sum of at least €290,043.97.
The Security Order then provided that if the proposed ATE policy could not be agreed between the parties as adequate security in place of cash or a bank guarantee, MasterCigars could make an application for variation of the order in light of the proposed policy; but that if MasterCigars did not comply with either means of providing security, the Defendants could apply for the court to determine the consequences.
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