Spy Academy Ltd. v Sakar International Inc

Mr Hayden Price, a litigant in person as director of his company The Spy Academy Limited, asks for permission to appeal on behalf of his company from the judgment of HHJ Brown QC given on 15 September 2008 in the Birmingham Mercantile Court.

The essential issue relates to security for costs of Spy Academy’s claim. Spy Academy is a UK company but it is common ground that it is impecunious. It is in fact, on Mr Price’s evidence, a special purpose vehicle specifically created for the transaction in question, which is a licence agreement to the defendants, Sakar International Inc, which is an American company. The licence agreement concerns a range of media toys and is essentially a ten-year licence under which Sakar International will market in North and most of South America the Spy Academy range of toys, and for these purposes is obliged under the contract to maximise the brand’s exposure in its markets. The agreement puts upon Sakar International the obligation, within nine months of starting to test one of the products using the Spy Academy brand, of the re-branding of its entire ongoing and future range of toys which had previously been marketed under the Matrix Zone brand.

The essential issue in the particulars of claim and defence, as I read them, is whether or not the licence agreement has come to an end under clause 12.2.5 of the agreement on the basis that the entire Matrix Zone range had not been re-branded within the appropriate nine months. Clause 12.2.5 says that, in that event, contracts will be deemed cancelled and all rights will revert back to the original rights’ holder. Sakar International believes that, in these circumstances, the contract has come to an end and that there is no liability under it. However, it is reasonably arguable on the terms of the contract that the termination of the contract through cancellation in that way is there for the protection of the licensor of the original rights’ holder and not for protection of the licensee, Sakar International, who have ex hypothesi failed to carry out its obligation to re-brand within the nine months. Thus clause 13, as a consequence of termination, states that upon termination the accrued rights and obligations of the parties at the date of termination remain unaffected. That is also the effect of an addendum to the licence agreement which the parties entered into in September 2007 (that is some fifteen months after the agreement was made) which states that the parties agree, with immediate effect, that all rights under the agreement are hereby terminated and that the licensee, Sakar International, has no further ongoing obligations to the licensor but that the termination:

“…does not affect the accrued rights and liabilities of the parties as at the date of termination.”

Such an addendum is arguably inconsistent with the idea, in any event, that the licence agreement came to an end after the nine-month period spoken of in clause 12.2.5, and in any event emphasises that termination is without prejudice to accrued rights and liabilities. So that is the essential structure of the litigation. The agreement is not in doubt. The question is whether the re-branding called for under the agreement has been performed; whether the licensee has maximised, or used its best efforts to maximise, the brand’s exposure in its markets; whether there has been any breach; or whether, as Sakar International submits, it has no liability at all irrespective of any breach, which in any event it denies, because the contract has ended in deemed cancellation. That being the structure of the dispute, it seems to me that the claim in itself -- which as pleaded is potentially for as much as some £300,000 but has been limited to just under £50,000 in the claim form in order to keep, I suppose, within the jurisdiction of the court in which it was filed -- is, as I see things at the moment, a perfectly bona fide claim with a perfectly reasonable prospect of success, subject, of course, to trial and all its vicissitudes.

It is in the context of this claim that Sakar International, having first tried to strike out the claim on the basis that the wrong party had been made claimant to it but having failed to strike out the claim, has returned to what Mr Price would describe as the bullying attack by seeking to achieve the same result by claiming some £27,000 by way of security for costs. The judge allowed Sakar International security for costs of £20,000. The difficulty with the judgment below, as Mr Price sees it, is that he was put in the unfortunate position before the judge whereby his evidence, contained in his witness statement dated 7 September 2008, was excluded from consideration by the judge. The circumstances in which that happened was that an order had been made by HHJ Alton, dated 13 August 2008, requiring any evidence that the claimant wished to rely upon to be filed no later than 29 August 2008. This was in good time for a hearing set down for 15 September 2008. Unfortunately, a copy of that order of HHJ Alton failed, it would seem, to be served upon Spy Academy because, although the court had the correct address on file and served the notice at that address, it failed to direct that service to Mr Hayden Price at that address, and instead, understandably (but incorrectly, in terms of the address filed with the court), addressed the service to Spy Academy, the claimant. The difficulty with that was that that address was an address of convenience, or what has been described as a virtual address, at a multi-office correspondent unit; and, unless the document in question was addressed to the right addressee at that address, the recipients of the document in question had no way of ensuring that it was directed to the right quarter.

That is what appears to have happened on Mr Hayden Price’s current evidence on this occasion. He only learnt about the time directions of HHJ Alton as a result of an e-mail which he received from Sakar International’s solicitors on 5 September 2008, by which date Spy Academy was already out of time. However, he had put his evidence in order by his witness statement of 7 September, to which I have referred, and that witness statement was e-mailed to the defendant’s solicitors on 9 September and to HHJ Brown himself, or at any rate to the court for the attention of HHJ Brown, on either the same day or 10 September; so at any rate in adequate time for the hearing, albeit well out of time so far as HHJ Alton’s order was concerned.

When Mr Price sought to explain the difficulty that he had been put in by the events to which I have referred on the hearing date itself, 15 September, he was given fairly short shrift, as the transcript of the proceedings would indicate, and there was an application by Sakar International to the judge that Mr Hayden Price’s evidence should be excluded, to which application the judge acceded. Mr Hayden Price did have a brief opportunity in oral submissions to explain to the judge what had gone wrong and why, in any event, his company should not be required to put up a security for costs; but, without calling for any further submissions from Sakar International, the judge immediately gave judgment against Spy Academy. One can well understand in such circumstances that a litigant in person, for all Mr Price’s ability, as such is in considerable difficulties.

Such litigants in person find it useful to commit their thoughts at greater leisure in writing so that it might be said that, whether or not Mr Price’s witness statement contained evidence or submissions (and in my judgment it contained elements of both), it was material which he would very much have wished the judge to have read and taken into account before forming his conclusions and giving his judgment.

In these circumstances I am satisfied that there was an arguable material error here in the proceedings which should entitle Spy Academy to an appeal. Whether that appeal has good prospects of success or not is another matter. I consider that it has prospects of success. It is perfectly true that it is common ground that Spy Academy is impecunious and would be unable to pay costs ordered against it following trial if its claim failed. Nevertheless, Mr Price makes two essential submissions on the back of what he says is a bona fide and reasonable claim.

First, he submits that the company, being the special purpose vehicle it was, was always known and accepted by Sakar International as being a company without funds, specifically, he says in his evidence, because, as was discussed and accepted between the parties, Mr Price was concerned about being drawn into litigation in America. Secondly, Mr Price submits that its continuing impecuniosity entirely arises out of Sakar International’s breach and repudiation of its licence agreement. That was a ten-year licence agreement and might have been considered to have generated sufficient funds to have enabled Spy Academy to pursue such claims as it might have to do in the long run.

It seems to me that those are considerations which could, for whatever final effect, be fairly put before the court; but, which in the circumstances I have described, the judge was not really in a position to take account of seeing that he had refused to look at Mr Price’s evidence. Mr Price also says in that context that if, on the grounds of Spy Academy’s known impecuniosity, Sakar International would only proceed with the litigation on the basis of the awarding of security for costs, then it should have sought security for costs at the very outset and not only about a year into the proceedings and after it had already sought and failed to strike out the claim on another procedural basis.

So that is the essence of the argument. It seems to me that where, through no fault -- as I understand the evidence at the moment -- of Mr Hayden Price or Spy Academy, he, and it, did not know of the deadline for the evidence, and where the judge proceeded to reach this conclusion without regard to Mr Price’s evidence, this court ought to be in a position where it can provide an opportunity for the matter to be reviewed on appeal.

That, however, as I have made clear to Mr Price, is only on condition that an outstanding and prior costs order against Spy Academy for £1,555 -- on which, I do not know, there might be some interest payable as well -- should be paid within fourteen days as a condition of the grant of the permission to appeal. So that is the essence of my order, that there should be permission to appeal against HHJ Brown’s judgment on condition of the payment within fourteen days of that costs order.

There was also due to be heard on that day Spy Academy’s application for further information under CPR part 18. The judge refused to deal with the matter that day, and I think there is then subsequently a history of that application being refused and then reinstated and then refused again. In any event, I believe it to be the case that the current application for permission to appeal incorporates an application for permission to appeal in respect of that application too, which I think has never been looked at on its merits in the light of the history concerning the security for costs. If I am right about that, then it seems to me to be fair and appropriate that there should be permission to appeal for the rejection of that application under part 18, ancillary to the conditional permission which I have granted in respect of the security for costs matter. So that is the effect of my judgment.