Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
THE HONOURABLE MR JUSTICE PETER SMITH
Between:
(1) J.W. Spear & Sons Ltd (2) Mattel Inc (3) Mattel UK Ltd | Claimants |
- and - | |
Zynga Inc | Defendant |
Mr Thorley QC & Mr Heald (instructed by Bird and Bird) for the Claimants
Mr Mellor QC & Mr Roberts (instructed by Olswang LLP) for the Defendant
Hearing dates: 15, 16, 17, 20, 21, 22, 23 and 24th May 2013
Judgment RULING ON AMENDMENT
Peter Smith J:
INTRODUCTION
On the eighth day of this 5 day action I heard an application by the Defendant for permission to Re-re-re Amend its Defence and Counterclaim. The application was fully contested and at the conclusion I indicated that I would grant the Defendant permission subject to production of a revised draft in the light of my disallowance of various matters set out in the proposed Re-re-re Amended Defence and Counterclaim produced at the hearing.
I said I would give reasons in a later judgment. This is that judgment.
BACKGROUND
The Claimants have a number of trade marks (“the Scrabble trade marks”) and a further trade mark (“the Scramble trade mark”). These the Claimants contend are designed to protect the goodwill and property the Claimants have in the well known board game Scrabble. They have exclusive rights in respect of these marks save in the United States and Canada. In those countries a different company has the relevant exclusive rights, Hasbro.
The Scrabble game is a well known board game and I do not think it is necessary to set it out in this judgment.
The Defendant is the world’s largest social gaming company and leading applications software (“App”) developer and retailer. Social games are digital games that are played between two or more players over the internet or mobile telecommunications network.
The Defendant’s relevant game which is under challenge in this action is “Scramble with Friends” which was launched on 5th January 2012.
The Claimants contend that Scramble with Friends infringes the trade marks and constitutes a misrepresentation that it is provided by or with the consent of the Claimants. It is contended by the Claimants that the representation is calculated to lead to the perception on the part of a substantial number of members of the public to that effect and is therefore trading off the Claimants’ goodwill in relation to the Scrabble sign in particular.
The Defendant denies it is liable and further challenges (inter alia) the validity of the Scramble trade mark and seeks declarations that it is invalid or ought to be revoked.
ISSUE
The issue that has arisen arises out of the fact that the Defendant’s game Scramble with Friends is it says a 5th version of the game. In paragraph 11 of the Defence and Counterclaim it set out the 4 previous versions which were launched between late 2007 and December 2011.
Neither side clearly addressed the relevance of those earlier games. The Defendant referred to them but did not expressly in its pleading allege that the Claimants were aware of the earlier games and that awareness with no action taken in respect of the alleged infringement prohibited the present claim.
The nearest the Defendant comes to putting the fact of those earlier games in issue is in paragraphs 33 and 34 of the Defence and Counterclaim. In those paragraphs the Defendant responded to the Claimants’ assertions that the use of the sign Scramble or Scramble with Friends or Scramble with Friends device constituted use where there might exist a likelihood of confusion or use of the sign without due cause and thus taking advantage of or was detrimental to the distinctive character or reputation of the trade marks.
In respect of both of those allegations the Defendant referred back to paragraph 11 of its Defence and Counterclaim. It did not set out how the earlier user of the earlier versions was relevant to those paragraphs.
The Claimants in their Re-Amended Reply and Defence to Counterclaim did not plead in response to those paragraphs.
There the matter rested with a certain element of opaqueness as to the relevance of the Defendant’s earlier Scramble versions.
DISCLOSURE
The Claimants on advice provided no disclosure of any internal documents which related to any of the earlier versions of the Defendant’s games. Nor did they seek to amend the Particulars of Claim to seek to claim any relief in respect of those earlier games. By the time of the issue of the proceedings in March 2012 those earlier games had been superseded by version 5 which might explain why the Claimants chose not to pursue those earlier games in 2012. It does not explain why they did not pursue them between 2008 and 2012.
The Defendant did not challenge the lack of disclosure in respect of the earlier games provided by the Claimants.
EVIDENCE
The Claimants provided (inter alia) a witness statement dated 8th March 2013 by Nick Karamanos a Vice President of Mattel’s Girl’s Brands Portfolio (he having been Vice President of Mattel Games Global Marketing until February 2013). He had responsibility for the global marketing of Scrabble.
In this first witness statement (paragraph 22) he referred to the 4 earlier versions produced by the Defendant describing them in some detail. He did not explain why he felt the need to refer to these earlier versions. Finally in paragraph 52 he said this:-
“As the above chronology shows, Zynga says that it first launched a game called “Scramble” in late 2007 or early 2008. I do not know how successful the game described at point (i) to (iv) of paragraph 22 above were for Zynga. However I do know Zynga’s Scramble App did not register with management at Mattel until it was released in its current form”.
That was a paragraph which to my mind posed a considerable number of questions. First it was provided by Mr Karamanos who was not involved in the marketing of Scrabble until July 2011. Therefore he was commenting on things before he had a relevant role in the Claimants. Second the expression that the “Defendant’s App did not register with the management at Mattel” is difficult to understand.
The Defendant upon receipt of Mr Karamanos’ witness statement contended that his evidence was incongruous when compared with the Claimants’ pleading and sought clarification as to whether or not the claim of infringement arose in respect of any previous versions of the Defendant’s game. The Defendant’s solicitors chased that on 12th April 2013 and they did not receive any response beyond the Claimants confirming their case remained as pleaded and that they were free to refer to the previous versions of the Defendant’s Apps in evidence.
During the cross examination of Mr Karamanos it emerged that members of the Games and Digital teams of the Claimants were responsible for monitoring what other games similar to Scrabble were on the market.
As a result of that evidence the Defendant made an application for further disclosure of documents that the Claimants might have in relation to the monitoring activities carried out by employees of the Claimants concerning other products that were on the market. The Claimants opposed that application but I granted it for reasons set out in an extempore judgment. It seemed to me that although it was somewhat oblique the question of what happened in relation to the previous versions was germane to paragraphs 33 and 34 of the Defence and Counterclaim. Further it seemed to me that when Mr Karamanos gave evidence in respect of these products, and in particular the express reference to the lack of register with the management the Defendant was entitled to disclosure of the internal documents of the Claimants to be satisfied that what Mr Karamanos was saying was true.
The relevance of it is clear. First whilst the question of infringement and confusion is a matter for the trial Judge the fact that the Claimants’ internal people do not believe there is any threat for many years might be supportive evidence of the Defendant’s case that there is in reality no threat to the Claimants’ products. The same thing happened in A & E Television Networks LLC v Discovery Communications Europe Ltd [2013] EWHC 109 (Ch). It is not determinative but is it evidentially probative. Further the internal documentation might show that the present action is being brought not because of any genuine belief that the sale of the Defendant’s product infringes any of the Claimants’ rights but rather as an attempt to drive a competitor out of the market without any legal basis for doing so. This is particularly significant bearing in mind the fact that these parties were in negotiations about (for example) the Claimants manufacturing a board game based on the Defendant’s product at the same time they apparently believed that the Defendant’s products were an infringement of their own rights. The litigation ensued after those negotiations broke down.
These are all matters which in my view the Defendant is entitled to investigate as relevant material to the issues between the parties in this action.
I do not think the Defendant’s desire to investigate the extent of the Claimants’ internal response to the previous 4 products is merely fishing or as to credit. It therefore goes beyond the refusal of disclosure for those reasons see Thorpe v Chief Constable of Greater Manchester [1989] 1WLR 665.
DISCLOSURE PURSUANT TO ORDER
The Claimants disclosed a large amount of material pursuant to the disclosure order. The Defendant contends (as set out in paragraph 17 of its skeleton in support of its application) that there are a large number of Mattel employees including many senior staff with responsibilities encompassing Scrabble and/or extending beyond North America who were plainly aware of one or more of versions 1-4. Further several of them were actually involved in playing the games. Despite all of that no complaint was made about versions 1-4 and no complaint is made about versions 1-4 now.
The original pleading did not put in issue the question of knowledge. However the issue of versions 1-4 was plainly relevant. Further it was relevant very early in the course of the proceedings. On 30th March 2012 the same day as the Claim Form was issued Stephanie Cota swore her first witness statement in support of an application for a speedy trial. At paragraph 20 she referred to the awareness of “some” (unspecified) people at Mattel of versions 1-4. She considered that these versions had not registered with the management as a risk (Mr Karamanos echoed this).
The Defendant in the first version of its Re-re-re Amendment set out in paragraph 12 the Claimants’ structure for marketing the Scrabble brand and identifying perceived threats to it. A total of at least 39 members of staff were identified.
The Defendant (paragraph 12 D) in the light of that gathered clan of employees of the Claimants with knowledge of products 1-4 invites the Court to infer that each of these employees did not perceive the previous versions of the Defendant’s Scramble game was a threat and that there were no likelihood of confusion or damage and that the Defendant was not free riding upon the Claimants’ reputation.
In other words the Defendant by its amendment is seeking to assert that this is not a genuinely brought action it is merely an attempt at trade protection and that the Claimants do not seriously believe they have a genuine case. It has a real prospect of success in my view. In my view if the Defendant establishes that it will afford a Defence to the Claimants’ actions. To refuse the amendment will be to deny the Defendant an argument which will provide it with a successful Defence if established on this evidence.
CLAIMANTS’ CONTENTIONS
I refer to the evidence of Morag Macdonald in her 5th witness statement dated 24th May 2013. That evidence was not challenged and it demonstrated graphically in my view that the suggestion in the proposed draft Re-re-re Amended Defence and Counterclaim that 39 or more employees of the Claimants had knowledge of the Defendant’s product and believed it did not pose a threat to the Claimants’ product would have presented an impossible burden on the Claimants. For them to be able fairly to deal with it they would have had to interview each employee referred to in the pleading. That would have been a formidable task had the pleading in that form been served at the proper time. It is most unlikely that the Court would ever have allowed the action to be overwhelmed with such a large number of witnesses. Given that the suggestion by the Defendant that this exercise should be gone into after day 9 of the trial originally listed for 5 days was an impossible submission to make. Mr Mellor QC accepted that and over the course of the hearing produced a second draft Re-re-re Amended Defence and Counterclaim which limited the number of witnesses that were relevant in effect to 3 namely Heather Litfin the Marketing/Brand Manager, Cindy Ledermann and Cynthia Neiman. He also accepted that unless the Defendant could establish a case in respect of Heather Litfin or Cynthia Neiman alone it could not rely on the fact that the Claimants had not considered the position of the other 37 or so employees. Without that concession I would have refused the Re-re-re Amendment application.
CLAIMANTS’ OPPOSITION
I refer to the Claimants’ two skeleton arguments in opposition to the Defendant’s application. They submit that the application should be refused on the facts for the following reasons.
First the question of the issue of versions 1-4 was flagged up as early as 30th March 2012 by Ms Cota which referred to some knowledge on the part of employees of Mattel of the existence of the earlier versions.
Second the first list of documents dated 26th October 2012 indicated the nature of the searches that had been made and showed by that list that no searches had been conducted in relation to the knowledge of Mattel or of its employees of the existence of the earlier versions and that no documents going to that issue were disclosed.
Third Mr Karamanos signed his first witness statement on 8th March 2013 referring again to that knowledge.
Despite all of those matters it never occurred to the Defendant to seek the disclosure and then after that disclosure to seek to Re-re-re Amend the Defence and Counterclaim at a more traditional time.
Thus the Claimants contend that the Defendant has had a long time to raise this issue and they did not do so.
As regards the pleading the Claimants complain that all of the relevant employees are in the United States where the Claimants hold no rights to Scrabble and the fact that an employee in the US is or may be aware of the existence of these Apps does not justify the inferences the Defendant asks the Court to draw. The Defendant’s product has been marketed in the United States and is not the subject matter of proceedings by Hasbro which has the identical rights that the Claimants have outwith the United States. However it is clear that these employees’ knowledge was relevant for the Claimants’ products outside the United States. The fact that they were employed in California to my mind is irrelevant. It must be born in mind that the Claimants had no rights to sell Scrabble in the United States. If their activities are confined to the United States their employment seems to be purposeless. In any event it is a matter of considering the position after the conclusion of the evidence and not speculating as to what the evidence might show.
The Claimants further object to the relevance of this evidence bearing in mind the observations of Kitchin LJ in Specsavers at paragraph 87 where he said “In my judgment the general position is now clear. In assessing the likelihood of confusion arising from the use of a sign the court must consider the matter from the perspective of the average consumer of the goods or services in question and must take into account all the circumstances of that use that are likely to operate in that average consumer's mind in considering the sign and the impression it is likely to make on him. The sign is not to be considered stripped of its context”.
Thus the Claimants contend a “few” employees’ views outside the EU might be of no weight. I do not accept that the view of those employees will necessarily be of such insignificance. It is impossible in advance of seeing witness statements and cross examination to see. It is the same point as regards survey evidence. It might provide secondary evidence as it did in the AETN case.
PREJUDICE
The Claimants contend that they have been “mucked about” by the Defendant’s tardiness. The disclosure exercise is being done speedily and was thus expensive (an estimate of costs was £65,000). Further costs will be incurred in interviewing employees and providing evidence. There will be further delay because of the need properly to prepare that evidence and to make it ready for trial. That delay is an injustice to the Claimants it is said. They were rebuffed in their application for a speedy trial and further delay disadvantages them.
The answer to those points is threefold. First by requiring the Defendant to reduce significantly the number of relevant employees the Claimants’ tasks has been similarly considerably reduced. Second given that reduction there is no reason why this trial cannot resume and be finalised within this term. That is a delay but it is a slight delay. Third the Claimants do not have any resource issues. Further there is no doubt the Defendant can satisfy any judgment as regards costs. As I indicated in argument I would be prepared to make a conditional order in any event against the Defendant and I will consider that when I hand this judgment down. Although those are all relevant matters, there is to my mind no significant prejudice by the short adjournment.
As to the question of lateness that to my mind is two edged. In my view once the versions 1-4 were adverted to by the Claimants they ought to have provided disclosure of the internal documentation which supported Ms Cota’s and Mr Karamanos’ evidence that the matter eluded the Claimants’ senior management. They did not do so. They flagged up that they had not done so and the Defendant missed that. However, the greater failure is on the part of the Claimants for not providing proper disclosure not the Defendant for its failure to appreciate that and prosecute it. It is a bold submission by the Claimants in my view to suggest that because they were in breach of their obligations as to disclosure and the Defendant did not spot it timeously that should count against the Defendant rather than the Claimants.
DISADVANTAGE TO THE DEFENDANT
If the amendment application is refused the trial will proceed but the true state of knowledge of versions 1-4 will not be fully investigated. The trial will therefore proceed in an artificial situation where some of the relevant facts are ignored. If the Defendant is not allowed to pursue the amendment it will in my view feel a real sense of injustice in that it is not allowed to deploy material which it contends if established shows that it has a real prospect of establishing that there is no genuine belief on the part of the Claimants that their products are being damaged by the Defendant’s products.
Those are the relevant facts which surround the present application.
PRINCIPLES AS TO AMENDMENT
This area has not been without a little difficulty.
The first principle on amendment is CPR 17.1 (2) which provides that a party may amend only “with the permission of the court”. The CPR is silent as to the principles governing the exercise of the court’s discretion to permit amendments to statements of case. The relevant principles are therefore governed by the overriding objective CPR 1.1. The purpose of the CPR is to provide a procedural code with the overriding objective of “enabling the court to deal with cases justly”.
CPR 1.1 originally provided as follows:-
“1.1 (1) These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly.
(2) Dealing with a case justly includes, so far as is practicable –
(a) ensuring that the parties are on an equal footing;
(b) saving expense;
(c) dealing with the case in ways which are proportionate –
(i) to the amount of money involved;
(ii) to the importance of the case;
(iii) to the complexity of the issues; and
(iv) to the financial position of each party;
(d) ensuring that it is dealt with expeditiously and fairly; and
(e) allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases.”
From 1st April 2013 a proportionality requirement was introduced and the new rule provided as follows:-
“1.1 (1) These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly and at proportionate cost.
(2) Dealing with a case justly and at proportionate cost includes, so far as is practicable –
(a) ensuring that the parties are on an equal footing;
(b) saving expense;
(c) dealing with the case in ways which are proportionate –
(i) to the amount of money involved;
(ii) to the importance of the case;
(iii) to the complexity of the issues; and
(iv) to the financial position of each party;
(d) ensuring that it is dealt with expeditiously and fairly; and
(e) allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases.
(f) enforcing compliance with rules, practice directions and orders.”
Proportionality is undefined. However it must be appreciated that the overriding objective is still to provide a just result. The court in achieving a just result must have regard to the matters identified in sub rule (2).
In the context of the present case the trial had already overrun for 4 days. It would not have finished on time even if the Defendant had not made its application for disclosure (which was successful) and the consequent ensuing application for Re-re-re Amendment. By the time the latter application was made the trial had already overrun and would not have finished before the Whitsun vacation. The court should (with the assistance of the parties) try and finish cases as expeditiously as possible. However it is all too easy to criticise parties for underestimating cases. The extent of cross examination and developments is a very difficult exercise to predict. Trials are often untidy affairs. This is often overlooked (and not even understood by some people). The duty of the trial Judge is to hold the ring fairly as between the parties so as to ensure that the dispute is determined by the Judge as justly as possible. That involves as far as possible giving each party the fullest opportunity to present its case as it sees it having regard to the overriding objective. This involves the trial Judge regularly having to make robust decisions to ensure that the trial is driven expeditiously to achieving that result. The phrase “ordo ab chao” springs to mind although that should not be pressed to far.
Until recently the leading authority referred to in the White Book was the unreported decision in Cobbold v London Borough of Greenwich (9/8/1999) (CA) where Peter Gibson LJ stated:-
“It is, of course, important that trial dates, when they are fixed, should be adhered to, but I fear that [the first instance judge in that case] may have let that factor dictate his approach to the question of amendment. The overriding objective is that the court should deal with cases justly. That includes, so far as practicable, ensuring that each case is dealt with not only expeditiously but also fairly. Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon provided that any prejudice to the other party or parties caused by the amendments can be compensated for in costs, and the public interest in the efficient administration of justice is not significantly harmed. … There is always prejudice when a party is not allowed to put forward his real case, provided that that is properly arguable.”
That decision was in the context of late applications to amend. The relevant test is the same as that on CPR 24 namely it must have a real prospect of success that it is properly arguable and is to be contrasted with a fanciful prospect of success (3 Rivers DC v Bank of England (no 3) [2001] 2 All ER 513 at 568 per Lord Hobhouse).
I followed that principle in the case of Swain-Mason v Mills & Reeve [2010] EWHC 3198 (Ch) I need not set out the facts of that case except to note that it was an amendment application that was made at trial acceded to by me and that decision was overturned by the Court of Appeal. I refer to the Court of Appeal judgment [2011] EWCA Civ 14. The Court of Appeal reviewed my decision to allow the amendment and then not to disallow it in paragraphs 78-88 as follows:-
“78 The judge's grant of conditional permission to re-amend on 24 November and his refusal of the Defendants' application to disallow it on 10 December go together, in substance. Both required the exercise of a discretion by the judge. An appellate court can only interfere with such an exercise if the judge has misdirected himself; that is particularly so where the decision is one of case management, as these are, and maybe yet more so when the judge is the trial judge. The judge's reserved judgment on 6 December addressed the relevant issues. The points that he considered include nothing other than relevant topics. In that sense, it cannot be said that there is any relevant matter that he failed to take into account, or that he had regard to any irrelevant matter. He set out his understanding of the amendment, which corresponded with that of Mr Simpson and that of Mr Mathew when drafting the amendment, as well as his view of the original case, and the need for an amendment to rely on a wider case. He referred to the need for supporting evidence, and to his adoption of the course of allowing the amendment conditionally, subject to putting in evidence. As relevant to discretion, he referred to the earlier history of amendment in the case, which he rightly said was relevant but not in itself decisive. He referred to the principles as regards amendment. His reliance on what Peter Gibson LJ said in Cobbold (see paragraph [32] above) is unfortunate, given what had been said in Worldwide Corporation v GPT and other cases, but the judge had not been shown that decision of the Court of Appeal, and had probably seen no more of Cobbold than the passage which he quoted, it being set out in the notes to the White Book. ”
79 He then referred to issues of prejudice. He said there was no issue as to compensating the Defendants for costs thrown away. The proceedings were stressful, but for both sides. The adjournment would be fairly short, the new case would not be greatly lengthened, and it was not said for the Defendants that they could not meet the case at the resumed trial. On the other side the Claimants (as he saw it) would otherwise be proceeding to trial on a false and artificial basis, because of the dim view he took of their original case. He also had regard to the substantial size of the claim as a reason for not depriving the Claimants of the ability to put it forward. All of those are relevant factors.
80 His reasons given on 10 December for refusing to disallow the amendment are more open to criticism, though it is of course necessary to bear in mind that this judgment was given off the cuff. One problem is that he gave judgment on both the disallowance application and the Part 24 application without having heard argument on the Part 24 application. He analysed paragraph 8.1A.3 as including both a deferral and a non-deferral case, which is right as a matter of language but not, in my judgment, satisfactory as a matter of pleading, nor did he attach any particular importance to the change of tack on the part of Mr Mathew. He took what seems to me to be the wrong view as to the amount of detail that the Defendants are entitled to be given in the pleading as to the nature of the scheme which the hypothetical solicitor would have advised. He then dealt with the Part 24 application, and said that the Defendants knew precisely what case they would have to meet at the resumed trial. The strength of his adverse view of the Defendants' position is shown by his having referred to their applications as an abuse of the process of the court, not only in the course of his judgment but also when writing down his reasons for refusing permission to appeal. Then when Mr Simpson came to attempt to argue the Part 24 application, he said that the original case was supported by "other evidence", unspecified, which contrasts oddly, to say the least, with his having described it, only 10 pages earlier in the transcript, as "unsustainable".
81 It seems to me that it would have been a great deal better if the judge had required the amendment to be supported by evidence before he considered whether to allow it. Among other things, that would have given Mr Mathew more time to think through the implications of his new case, as well as having the benefit of the expert's report on the point, so that the amendment would have been able to be put into a more satisfactory state. Then the judge would not have found himself grating permission on one understanding of the case made, only for it to turn out that the expert supported a different version. By itself, using the alternative of granting permission conditionally, subject to disallowance, would not be a reason for setting aside the judge's decision. One factor that seems to me to vitiate the judge's first decision is that it was made on a false basis, in the sense that, as it turned out, the judge's understanding of the new case to be made was different from that supported by the expert report and therefore now advanced by the Claimants. The fact that, as a matter of a literal reading, paragraph 8.1A.3 covers both versions does not help the Claimants. It only shows how unsatisfactory the pleading is.
82 I also consider that the judge was too relaxed as to what the Claimants ought to have shown. They ought to have put forward a significantly clearer, fuller and more precise pleading, one which immediately satisfied all the obligations on a party as to proper pleading, without any need to be supplemented or clarified by evidence or by further information. They ought also to have supported their case for justifying the amendment with evidence as to why the application was made at this extraordinarily late stage.
83 Of course, Mr Mathew sought to argue before the judge that the case of a duty to advise not dependent on knowledge of ill health and the operation was open to the Claimants in any event. However, it seems to me that the judge was quite right to rule that this case was not open to the Claimants on the pleadings. Although the judge introduced into the debate various ideas of his own during argument on 23 November, the basic point was that the case made until then was dependent on knowledge of the operation, but even before any intervention by the judge Mr Mathew wanted to argue a wider case. The need for an amendment therefore did not result from anything the judge said other than his ruling that the wider case was not yet pleaded. The Claimants' advisers ought to have foreseen that outcome.
84 In this context it is relevant that the Claimants had already sought to amend in a series of different ways in April 2010, having at that stage prepared for trial and therefore, one must suppose, having focussed on the true nature of the case that they wished to advance. No explanation is advanced as to why they did not identify this point at that stage.
85 Since the judge did not have the benefit of the Worldwide Corporation case, nor of any of the more recent cases in which it has been followed, it is understandable that he should not have required the Claimants to justify more strongly the lateness of their application. His reliance on what Peter Gibson LJ said in Cobbold was, in my judgment, mistaken and wrong in law, though understandable because of the limited citation to him. The quotation from Cobbold in the notes to the White Book is accurate, but reference to the judgment shows that it was much more appropriate in that case to permit the late amendment. For one thing, Greenwich had provided the material on which the new case was made to the tenant's solicitors months beforehand, and had made it clear well in advance that they intended to run the new case. For another, in the end it was not necessary to adjourn the trial date as a result of the amendment. Accordingly, while the statement quoted from Cobbold is entirely proper in itself, it does not provide sure guidance in a case such as this where the amendment had not been prepared for well in advance but came out of the blue, and where permitting the amendment to be made did require the trial to be adjourned. In such a case Worldwide Corporation v GPT is far more relevant, and it is a great pity that the judge did not have the benefit of it on 24 November. Even apart from that, however, it seems to me that the judge was wrong to allow the pleading to go forward with the new paragraph 8.1A.3, both because it is not clear enough or full enough in itself to show the Defendants what the case is that they have to meet, and because, though not appreciated at the time, it was equivocal and therefore embarrassing and unsatisfactory as to the case that was to be put forward.
86 As for the later judgment, again it seems to me that the judge took too relaxed a view as to the adequacy of the pleading. He was right to analyse it as covering both a deferral and a non-deferral case, but he was wrong to regard it as a satisfactory pleading in the light of that. I do not understand why he considered that the Defendants' application, for which he had provided, was not only unjustified but an abuse of the process of the court (not a point which Mr Mathew had made, or that he supported, at any rate in his oral submissions to this court).
87 For those reasons it seems to me that the judge's decisions on the amendment were the product of misdirections, both as to the correct approach of the court to a late amendment, and by taking too relaxed a view of the adequacy of the pleading in itself.
88 It follows that this court must itself consider whether to allow the Claimants to re-amend their pleading to raise the wider case of a duty not dependent on knowledge of Mr Swain's ill health and his forthcoming operation.”
My reliance on the Cobbold decision was described as being unfortunate (paragraph 78) given what has been said in the decision by the Court of Appeal in Worldwide Corporation Ltd v GPT Ltd 98/75263/3 (unreported). That is an unusual word to use bearing in mind the fact that the Court of Appeal acknowledged that the decision was not cited to me and did not appear in the White Book.
In paragraph 78 the Court of Appeal acknowledged that the points I considered were “nothing other than relevant topics” and that it could not be said “that there is any relevant matter that he failed to take into account or that he had regard to any irrelevant matter”.
My failure to refer to a case that was un-cited to me and not referred to in the White Book was described as being wrong in law (paragraph 85).
The Court of Appeal referred to the Worldwide case earlier in the judgment at paragraphs 68-75 as follows:-
“68 Mr Simpson showed us a decision of the Court of Appeal, powerfully constituted by Lord Bingham LCJ, Peter Gibson LJ and Waller LJ, in Worldwide Corporation Ltd v GPT Ltd, [1998] EWCA Civ 1894, decided on 2 December 1998. It seems to me unfortunate and surprising that this case features neither in any report nor in the notes to the White Book. Searches on electronic databases reveal that it was referred to and followed in at least six cases in the Court of Appeal between 1999 and 2004, as well as in a number of first instance decisions. Particularly worthy of note is the endorsement in paragraph 79 of the judgment of Rix LJ in Savings & Investment Bank Ltd v Fincken [2003] EWCA Civ 1630:
"As a postscript I would add that, although decided prior to the introduction of the CPR and concerned with an egregious application to change direction in the course of trial itself, the judgment of this court in Worldwide Corporation Ltd v. GPT Limited contains a full compendium of citation of authorities as at that date which emphasises that, even before the CPR, the older view that amendments should be allowed as of right if they could be compensated in costs without injustice had made way for a view which paid greater regard to all the circumstances which are now summed up in the overriding objective."
69 The appeal in Worldwide Corporation v GPT Ltd was by the Claimants against the refusal of Moore-Bick J in the Commercial Court to permit amendments to the claim in the first week or so of the trial, amendments prompted not by discovery of some unsuspected evidence or fact but by a re-appraisal by newly instructed Counsel of the merits of the case. It was said that he felt that the case previously pleaded would fail and that only by way of the amendment could the case be put on an arguable basis. Waller LJ gave the judgment of the court, setting out the reasons why the appeal had been dismissed. Mr Stanley Brodie Q.C. for the Claimants relied on observations as to the generous approach of the court to amendments required to enable the true issues between the parties to be resolved, so long as any injustice can be avoided, mainly by terms as to costs: Bowen LJ in Cropper v Smith (1884) 26 Ch. D. 700 at 710-711 is one of the classic statements of this attitude. Another is that of Brett MR in Clarapede & Co v Commercial Union Association (1883) 32 WR 262 at 263. More recent statements include that of Millett LJ in Gale v Superdrug Stores plc [1996] 1 WLR 1089 at 1098 and following. The court in Worldwide Corporation v GPT said this about this attitude:
"We are doubtful whether even applying the principle stated by Bowen LJ, the matter is so straightforward as Mr Brodie would seek to persuade us. But, in addition, in previous eras it was more readily assumed that if the amending party paid his opponent the costs of an adjournment that was sufficient compensation to that opponent. In the modern era it is more readily recognised that in truth the payment of the costs of an adjournment may well not adequately compensate someone who is desirous of being rid of a piece of litigation which has been hanging over his head for some time, and may not adequately compensate him for being totally (and we are afraid there are no better words for it) "mucked about" at the last moment. Furthermore the courts are now much more conscious that in assessing the justice of a particular case the disruption caused to other litigants by last minute adjournments and last minute applications have also to be brought into the scales."
70 Later in the judgment the court said this under the heading "Approach to last minute amendments":
"Where a party has had many months to consider how he wants to put his case and where it is not by virtue of some new factor appearing from some disclosure only recently made, why, one asks rhetorically, should he be entitled to cause the trial to be delayed so far as his opponent is concerned and why should he be entitled to cause inconvenience to other litigants? The only answer which can be given and which, Mr Brodie has suggested, applies in the instant case is that without the amendment a serious injustice may be done because the new case is the only way the case can be argued, and it raises the true issue between the parties which justice requires should be decided.
We accept that at the end of the day a balance has to be struck. The court is concerned with doing justice, but justice to all litigants, and thus where a last minute amendment is sought with the consequences indicated, the onus will be a heavy one on the amending party to show the strength of the new case and why justice both to him, his opponent and other litigants requires him to be able to pursue it."
71 The court also recognised, as I do, the reluctance with which an appellate court will interfere with discretionary case management decisions, perhaps especially those of a trial judge.
72 As the court said, it is always a question of striking a balance. I would not accept that the court in that case sought to lay down an inflexible rule that a very late amendment to plead a new case, not resulting from some late disclosure or new evidence, can only be justified on the basis that the existing case cannot succeed and the new case is the only arguable way of putting forward the claim. That would be too dogmatic an approach to a question which is always one of balancing the relevant factors. However, I do accept that the court is and should be less ready to allow a very late amendment than it used to be in former times, and that a heavy onus lies on a party seeking to make a very late amendment to justify it, as regards his own position, that of the other parties to the litigation, and that of other litigants in other cases before the court.
73 A point which also seems to me to be highly pertinent is that, if a very late amendment is to be made, it is a matter of obligation on the party amending to put forward an amended text which itself satisfies to the full the requirements of proper pleading. It should not be acceptable for the party to say that deficiencies in the pleading can be made good from the evidence to be adduced in due course, or by way of further information if requested, or as volunteered without any request. The opponent must know from the moment that the amendment is made what is the amended case that he has to meet, with as much clarity and detail as he is entitled to under the rules.
74 The Worldwide Corporation decision was made under the RSC, not the CPR, which only came into force some five months later, but it seems to me that it reflects the tenor of the CPR, which was no doubt in the minds of the judges, who will have been very familiar with the terms of Lord Woolf's reports that led to the reform of the rules. As appears from the passage quoted above from Savings & Investment Bank v Fincken, it has been endorsed as appropriate under the CPR.
75 The judge was not shown the Worldwide Corporation case on 24 November 2010, as Mr Simpson did not have it in mind then – understandably given the very short notice of the point and that it is not noted in the White Book. (He did show it to the judge on 10 December.) He was shown Woods v Chaleff, decided in May 1999, under the CPR, in which Otton LJ and Waller LJ reversed a decision of Gray J to allow an amendment made about a week before trial. Otton LJ made brief observations consistent with what I have quoted from Worldwide Corporation as regard the court's general attitude to late amendments.”
The particular concern is in paragraph 72 where the Court of Appeal appears to introduce a “heavy onus” on a party seeking to make a very late amendment to justify it as regards his own position, that of the other party in the litigation and that of other litigants in cases before the Court.
If it does it is difficult to see the basis for introducing such a rule. This is especially so when it is supposedly based on the Worldwide Corporation case.
I make the following observations. The Worldwide case was delivered in 1998. It was decided under the RSC not the CPR which came into force 5 months later. It was not referred to in the Cobbold case which itself was delivered in August 1999.
The Cobbold case was decided under the provisions of the CPR. The leading Judgment was delivered by Lord Justice Peter Gibson. He was one of the Judges in the Worldwide Corporation case and it is inconceivable in my view that he would have overlooked the Worldwide Corporation case if he thought it had any relevance to an application to amend late in the stages of a case under the CPR.
In my view the Worldwide case does nothing more than reject the bold submission made that it was almost a matter of right that an amendment should be allowed at almost any time provided the other parties could be compensated in costs.
The Court of Appeal rejected such a submission and rightly so. It is important to consider the context in which the Court of Appeal in the Worldwide case referred to the heavy onus. It is set out in paragraph 70 of the Judgment of the Court of Appeal in Mills & Reeve. The heavy onus (so far as is possible to discern what that means) applies where granting the amendment is sought despite the fact that it will delay the trial and cause inconvenience to the other litigants.
I do not see that the Court of Appeal in Worldwide was saying anything other than they were rejecting Mr Brodie’s broad submission and saying that if there is long delay at the inconvenience to the other parties there must be some significant factors that need to be introduced to obtain the amendment despite the consequences.
It is significant however that in the relevant paragraph reference is made to disclosure only recently being made. That is certainly the case here although I accept the reasons set out earlier in the judgment that there was a possible scent laid which could have led to the application being made somewhat earlier. However part of that was, for the reasons I have set out above due to the Claimants own failings.
In Brown v Innovatorone Plc [2011] EWHC 3221 (Comm) Hamblen J said the following at paragraph 14 (having reviewed the authorities):-
“14. As the authorities make clear, it is a question of striking a fair balance. The factors relevant to doing so cannot be exhaustively listed since much will depend on the facts of each case. However, they are likely to include:
(1) the history as regards the amendment and the explanation as to why it is being made late;
(2) the prejudice which will be caused to the applicant if the amendment is refused;
(3) the prejudice which will be caused to the resisting party if the amendment is allowed;
(4) whether the text of the amendment is satisfactory in terms of clarity and particularity.”
In my view the cases do not properly understood, lead to a conclusion that there is some hurdle of an extra heavy onus to be applied in respect of a late application. There is no justification for that in the cases in my view and it is contrary to the principles of the CPR and the overriding objective which requires the Courts to dispose of cases justly.
I considered this in the case of Notts Fire Authority v Gladman Ltd [2011] 1 WLR 3235 in paragraphs 24-67 and in particular paragraphs 58-67 as follows:-
“58 I refer to paragraphs 78-79 of Lloyd LJ’s judgment in paragraph 44 above.
59 In relation to the Cobbold case Lloyd LJ said this:-
“Since the judge did not have the benefit of the Worldwide Corporation case, nor of any of the more recent cases in which it has been followed, it is understandable that he should not have required the Claimants to justify more strongly the lateness of their application. His reliance on what Peter Gibson LJ said in Cobbold was, in my judgment, mistaken and wrong in law, though understandable because of the limited citation to him. The quotation from Cobbold in the notes to the White Book is accurate, but reference to the judgment shows that it was much more appropriate in that case to permit the late amendment. For one thing, Greenwich had provided the material on which the new case was made to the tenant's solicitors months beforehand, and had made it clear well in advance that they intended to run the new case. For another, in the end it was not necessary to adjourn the trial date as a result of the amendment. Accordingly, while the statement quoted from Cobbold is entirely proper in itself, it does not provide sure guidance in a case such as this where the amendment had not been prepared for well in advance but came out of the blue, and where permitting the amendment to be made did require the trial to be adjourned. In such a case Worldwide Corporation v GPT is far more relevant, and it is a great pity that the judge did not have the benefit of it on 24 November. Even apart from that, however, it seems to me that the judge was wrong to allow the pleading to go forward with the new paragraph 8.1A.3, both because it is not clear enough or full enough in itself to show the Defendants what the case is that they have to meet, and because, though not appreciated at the time, it was equivocal and therefore embarrassing and unsatisfactory as to the case that was to be put forward. ”
60 It is not said that the Cobbold case is wrongly decided. Indeed it is the later of the two cases and is one under the CPR. I am faced with a conflict as to the relevant criteria arising from the Cobbold case and the Mills & Reeves decision referring to the earlier Worldwide decision. This puts me in a difficult position faced with conflicting authorities. In my view I should follow the Cobbold decision in preference to the other authorities for the following reasons.
61 With respect to Lloyd LJ if in so far as he seeks to find in the Worldwide Corporation and thus his decision a requirement to justify things more strongly when they are lately made I would disagree that that is a correct analysis either of Worldwide and cannot be squared with Cobbold which is a decision binding on Lloyd LJ in respect of the application of these principles under the CPR.
62 It is inevitable in my view that if the Mills & Reeves decision stands a further gloss which is not justified under the application of the CPR as identified in Cobbold will inevitably arise. This will lead to further complicating satellite litigation at trials and will further handicap what ought to be the full unfettered power of the Judge to decide these applications in the light of all circumstances as they appear to him. Lateness is a factor but it should not be given an elevated status above any other factor in ensuring that justice is done between the parties. One must never lose sight of the fact that that is the overriding duty of the courts to come to a just and correct result and if for one reason or another because of the creation of a gloss or an over technical approach to pleadings a party is unable to deploy a case or give evidence which justice requires it to be able to deploy then that is not an appropriate exercise of a discretion. I say that of course that in allowing late amendments and late introduction of evidence the position of all parties has to be taken into account. If there is no prejudice (and there was none identified or made out by the Defendants in the Mills & Reeves case) it is difficult to see how an application to amend late should be disallowed because of the super imposition of a higher onus to justify. As the Gale case said people should not be punished for mistakes. The consequence of disallowance of an amendment like this if the trial is subsequently lost when there was a case that could have been run if it had been re-pleaded simply denies justice and even worse potentially transfers the compensation to the disappointed party’s lawyers.
HEAVY ONUS
63 No guidance is given as to what this means. Does it mean a higher burden of proof and if so what? Does it mean that an explanation is to be given (possibly involving questions of privilege?). What would happen if the advocates say simply “I overlooked it”? One can see all manner of arguments being deployed to resist late applications. One can see a great potential for injustices to occur and decisions made that merely transfer the liability to the unsuccessful applicants legal team.
64 It is not of course for me to revisit the Court of Appeal’s decision on the actual case. It would be quite wrong to do that because the trial has already taken place and this is not the place to do it. I can do no better than echo what Arnold J said when he delivered judgment in the case. The trial proceeded shorn of the amended pleadings. The Claimants attempted to argue that the broad principle was still in the existing pleadings. (Called in the judgment the Alternative Case). Arnold J on the first day of the trial ruled that it was not open to the Claimants to advance any case which was not dependant on knowledge of the heart procedure. He confirmed this in his judgment (paragraph 186) but rejected the Defendants’ submission that the Claimants could not rely upon any breach prior to 16th January 2007 including any breach of duty in a Letter of Advice. Thus pre 16th January breaches could be addressed but only by reference to knowledge of the heart operation or procedure. In paragraph 202 he said this:-
“It seems to me that the introduction of a reasonably competent private client tax team would have led to them (i) advising Mr Swain and his daughters that there could be potential tax consequences in the event of Mr Swain’s death after completion of the MBO, particularly bearing in mind that some of the consideration was deferred for up to ten years, (ii) enquiring what tax mitigation and/or estate planning Mr Swain had undertaken, and (iii) upon receiving the answer “essentially none”, offering to advise him as to his options. If one pauses there, that is in a nutshell the case the Claimants wanted to plead in the re-amendment to the Particulars of Claim which the Court of Appeal disallowed (although that pleading also specified particular options which it was said that Mr Swain should have been advised about). It is therefore not open to the Claimants to advance that case without more. ”
65 Thus Arnold J is referring to the pleadings that were disallowed by the Court of Appeal in its judgment. He had rejected the primary case which was linked to the heart procedure. Nevertheless he went on to consider the alternative basis and his judgment said this :-
“Causation
In the light of my conclusions on the primary issue of breach of duty, the secondary issue on causation does not arise. I will nevertheless deal with it in case I am wrong about breach of duty.
In the light of the evidence, I am satisfied that, if Mr Swain and his daughters had been advised to consider deferring completion of the MBO until after the heart procedure because of the risk of adverse tax consequences if Mr Swain were to die during or a result of the procedure, then they would have decided to delay the MBO. As at 31 January 2007 it had taken them over seven months (i.e. since 27 June 2006) to get to the point of being ready to complete. Completion had already been postponed several times. There was no particular urgency to complete on 31 January 2007, and no reason why completion could not have been delayed for, say, another three weeks. I accept the Claimants’ evidence that Mr Swain would have wanted to avoid even a small risk of a large IHT bill and a substantial CGT bill. Counsel for Mills & Reeve argued strenuously that it would not have been rational for a man in Mr Swain’s position to delay such an important transaction because of such a small risk. In my view this argument is based on the fallacy that Mr Swain would have approached the matter on the basis of a cold, mechanical calculation of probabilities. I am quite sure that he would not have approached the matter in that way. As studies of the psychology of risk perception show, human beings rarely do.
Mr Comer’s evidence was clear that the MBO team would have agreed to such a postponement if Mr Swain had requested it. As Mr Comer explained, it was not their idea to enter into the MBO at all, but Mr Swain’s, and they were far from desperate to complete it. Nor would they have sought to renegotiate the terms. Equally, it is clear from Mr Webb’s evidence that, not only would there have been no difficulty with the MBO team’s financing whatsoever if completion had been deferred for up to three months from 29 January 2007, but also there would in all probability have been no problem in the event of a longer delay.
Accordingly, if the Claimants were to succeed on their primary case of breach of duty, I would accept that the losses claimed were caused by that breach of duty. As for the Claimants’ alternative case, if the Claimants succeeded in establishing a duty which included a duty to suggest deferral of the MBO by that route, then again I would accept that the losses claimed were caused by that breach of duty.”
66 It was of course not open to the Claimants to argue this wider case because it had been removed by the decision of the Court of Appeal. Arnold J commented on that in the last paragraph of his judgment as follows:-
“Conclusion
It would be entirely understandable if, at the end of this case, Claire, Abby, Gemma and Christa were left with a strong feeling that they had been ill-served by the legal profession. Nevertheless, for the reasons I have given, I conclude that the Claimants’ claim must be dismissed”.
67 A decision to exclude a late amendment or witness statement where there is no identifiable prejudice that cannot be addressed can lead to unfairness in the trial procedure and it is essential that the courts ensure that the Overriding Objective is followed and all parties have a full and fair hearing consistent with that approach. ”
I am reinforced in that view in my opinion by the observations of Lord Philips in NML Capital Ltd v Republic of Argentina [2011] 2 AC 495 UKSC 31 at paragraphs 74 and 74 where he said:-
“74. I believe that Mr Sumption is correct. Procedural rules should be the servant not the master of the rule of law. Lord Woolf, by his Reports on Access to Justice, brought about a sea change in the attitude of the courts to such rules. This included the adoption of the “overriding objective” with which the new CPR begins. CPR 1.1 states that the overriding objective of the Rules is to enable the court to deal with cases justly, and that this involves saving expense and ensuring that cases are dealt with expeditiously.
75. Where an application is made to amend a pleading the normal approach is to grant permission where to do so will cause no prejudice to the other party that cannot be dealt with by an appropriate order for costs. This accords with the overriding objective. Where all that a refusal of permission will achieve is additional cost and delay, the case for permitting the amendment is even stronger.”
I followed that decision in the case of PCE Investors Ltd v Cancer Research UK [2012] EWHC 884 (Ch) at paragraph 63.
My conclusion is that insofar as it is contended that there is some extra requirement in the case of a late amendment of a heavy onus I reject such a contention.
RELEVANT FACTORS
The relevant factors in the present case appear to be as follows:-
The application is made very late.
The application might have been made earlier but that is with great hindsight.
The application is made after disclosure was made during the trial.
The order for disclosure was made as a result of an application made during the course of the trial. The Claimants had not provided proper disclosure as determined by me on that application.
There will be a slight delay in the trial.
Extra costs will be incurred but both parties have significant means such that the amount of costs thereby incurred will not be significant.
There is of course often the fact that delay continues the stress of litigation. Litigation is stressful and when parties come to court expecting the matter to be finally resolved and then find those expectations dashed because of a late adjournment that is a factor to be born in mind when considering whether or not to accede to an application which causes that adjournment. In the present case there are no really stressful issues as regards the witnesses. This is a piece of commercial litigation between two large US corporations. I do not think that there is any stress element in this case.
If the amendment is refused the Defendant will be deprived of raising a matter at the trial which if established would provide them with a Defence. The Re-re-re Amended Defence and Counterclaim (as truncated) has a real prospect of success.
The extra costs of investigating further evidence (following the truncated proposed draft) is not significant in the context of this case.
Taking all of those factors into account it seems to me that the potential disadvantage to the Defendant if the application is refused far outweighs any of the other factors counting against it.
APPLICATION OF HEAVY ONUS
If the Defendant is required to satisfy some heavy onus to obtain permission to Re-re-re Amend its Defence at this late stage I am satisfied when all of the factors set out above are considered that it has done so. This is not like the Worldwide case where there would be a long delay or where the other parties are being “mucked about”. It is not an attempt to recreate a case in the light of disaster of the existing Defence and there are none of the prejudices identified in the Worldwide case applicable to this case.
Therefore for all of those reasons I will grant the Defendant permission to Re-re-re Amend their Defence in a form which will have to be finally agreed or determined by me in the light of this judgment.
Lastly I should observe that the overriding objective requires the court to deal with cases justly. The other provisions of the CPR are designed to achieve that purpose. As Lord Philips said (see above) they are the servants not the masters. To allow a late amendment might be said to be as a result of my having a “relaxed” approach to pleadings. If that means that I am willing to accede to a late amendment despite its lateness where there is no prejudice if to refuse it will lead to the subsequent hearing not proceeding justly I fully accept that position. If it is intended to mean that in some way I am lax about pleadings I would reject that. It is far more important for a case to proceed justly as opposed to one that proceeds by rigid application of time limits and the rules. That leads to injustices as is well demonstrated by the subsequent trial of the Mills & Reeve case before Arnold J where he said in [2011] EWCH 410 (Ch) at paragraph [209]:-
“It would be entirely understandable if, at the end of this case, Claire, Abby, Gemma and Christa were left with a strong feeling that they had been ill-served by the legal profession. Nevertheless, for the reasons I have given, I conclude that the Claimants' claim must be dismissed.”
The Court of Appeal (on appeal from Arnold J) said this in [2012] EWCA Civ 498 at paragraph [83]:-
“The trial, and its outcome, will have been disastrous for the four daughters of Mr Swain: not only in costs terms but also (it is not difficult to apprehend) in terms of anxiety, pressure and emotional upset. The trial judge himself indicated at the end of his own judgment concerns at their likely feelings at the outcome. One feature, at all events, that seems to me to shine through the evidence is Mr Swain's evident long term wish, as a father, to make as handsome financial provision as he could for his daughters. I anticipate that this will not, in the result, have been achieved: his wish will have been frustrated.”