Malgar Ltd v RE Leach (Engineering) Ltd [1999] EWHC 843 (Ch)

EWHC-Ch
Malgar Ltd v RE Leach (Engineering) Ltd
[1999] EWHC 843 (Ch)
(Tape Transcription by Marten Walsh Cherer Ltd., Midway House, 27/29 Cursitor St., London, EC4A 1LT. Telephone: 0171-405 5010. Fax: 0171-405 5026.)MR. JONATHAN TURNER (instructed by Messrs. Taylors, Blackburn) appeared for the Claimant. MR. G. FERNANDO (instructed by Messrs. Woodcock & Sons, Bury) appeared for the Defendants.

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THE VICE-CHANCELLOR: The application before me this morning is by the Claimants, Malgar Ltd., for permission to bring proceedings to commit the Defendant Company, R.E. Leach (Engineering) Ltd., and two of its officers, Mr. Eric Leach a director and Mr. Mills a manager, for contempt of court in making false statements in documents verified by statements of truth. It is implicit, of course, that it is alleged that those statements were made by the individuals in question without an honest belief in the truth of such statements. The application is made under CPR 32.14. It is, I believe, the first such application to have been made since the Rules came into force on 26th April this year.PRIVATE The Rules made two relevant changes regarding the contents of pleadings and regarding the manner in which evidence for the purposes of interim applications might be given. As to pleadings, the Rules (subject to a qualification which I will mention in a moment) require that statements of case, whether claimants' statements of case or defendants' statements of case, be verified by a statement of truth. A statement of truth is a statement signed by an appropriate person, verifying that the allegations made in the statement of case are true. Once a statement of case has been verified by a statement of truth the contents of the statement can be used as evidence in interim proceedings. The one qualification is that if a statement of case is not accompanied by a statement of truth it is not per se invalid. There is, however, the opportunity for the other party to ask the court to order that it be so verified and if the court does so order and it is not verified by a statement of truth it will then be struck out. So when I say that statements of case must be verified by a statement of truth it is subject to that qualification.The other variation in procedure brought about by the Rules that is relevant to this application is that evidence for the purposes of interim applications can be given by unsworn witness statements. Of course, to the extent that the statement of case has been verified by a statement of truth the contents of the statement of case thus verified can stand as evidence. But, in addition, it will often be desirable for the parties to put in additional written evidence and, although it is permissible to do that by affidavit, it is now possible (and indeed I think in the Rules encouraged) for this to be done by a witness statement. A witness statement is not sworn. It does not have a jurat. It simply has at the end of the contents a statement by the maker of it that he believes the contents to be true.The introduction of statements of truth raises the question how the use of statements of truth can be policed. Affidavits were, of course, sworn. To knowingly swear a false affidavit always has rendered the maker liable to be prosecuted for perjury, a criminal offence. It has often been observed that the makers of affidavits whose contents were held in judicial proceedings to be untrue were very rarely prosecuted. The sanction of prosecution for perjury as a means of trying to ensure that false statements were not made in affidavits was not a very real one. A much more real sanction was that an individual who had sworn to facts which appeared to the judge considering the case to be false would inevitably have his credibility so impugned as to make it quite unlikely that he would persuade the judge of the veracity of other critical parts of his or her evidence.Be that as it may, some means of policing statements of truth was necessary. The solution was CPR 32.14. CPR 32.14 provides as follows:
"(1) Proceedings for contempt of court may be brought against a person if he makes, or causes to be made, a false statement in a document verified by a statement of truth without an honest belief in its truth.
(2) Proceedings under this rule may be brought only --(a) by the Attorney General; or(b) with the permission of the court."Hence, the application to me this morning for permission.It is, I think, necessary to make clear that Rules of Court cannot make substantive changes in the law of contempt. There is much case law describing in what circumstances a contempt of court is committed. There are civil contempts and there are criminal contempts and the line between the two is not always easy to draw. But the circumstances which may justify a finding of contempt are established by case law and set out in the text books on the subject. It is not open to Rules of Court to introduce a new category of contempt, and CPR 32.14 does not do that. It provides for the possibility of a person being prosecuted for contempt if he makes or causes to be made a false statement, etc., but it does not predict what the outcome of the prosecution will be. That is a matter which must be left to the general law.So what is the general law in this particular area? The general law of contempt is that actions done by an individual which interfere with the course of justice or which attempt to interfere with the course of justice are capable of constituting contempt of court. In order for the individual who has done acts which fall into that category to be liable for contempt, an appropriate state of mind of the individual must be shown. As to this the case law is not entirely clear and I am certainly not going to attempt to resolve it on this application. On one view it must be shown that the individual who is being prosecuted for this species of contempt intended to interfere with the course of justice. The other view is that it must be shown that the individual intended to do the acts in question, and that the acts interfere with the course of justice. I only mention that for the purpose of showing that there are difficulties which may arise if an attempt is made to commit for a contempt consisting of interference with the course of justice. The difficulty lies in knowing quite what mental state on the part of the accused has to be shown. But I would think that it must in every case be shown that the individual knew that what he was saying was false and that his false statement was likely to interfere with the course of justice.Proceedings for contempt are not private law proceedings. They are public law proceedings. They may in appropriate circumstances be brought by private individuals. They can always be brought by the Attorney General, but private individuals may be able to bring them. An injunction granted in an action between two private individuals restraining one from doing some act which is to the prejudice of the interests of the other can be enforced by committal proceedings brought by the party for whose benefit the injunction was granted. Committal proceedings of that character can be brought without permission. But under CPR 32.14 a private individual can only bring committal proceedings with the permission of the court. The reason for that is the nature of the proceedings. These are not proceedings where the alleged contempt consists of the breach of an order obtained by an individual in protection or furtherance of his own private rights. It is a case of an allegation of public wrong, not private wrong. Interference with the course of justice is plainly a public wrong and it is right therefore that there should be a public control over the launching of proceedings for this species of contempt. The Attorney General has a public function which needs no further explanation. The court from which permission is sought will be concerned to see that the case is one in which the public interest requires the committal proceedings to be brought. I repeat that these are not proceedings brought for the furtherance of private interests. They are brought in the public interest and are in some respects like criminal proceedings. Nonetheless they are civil proceedings and they are civil proceedings to which the overriding objective set out in CPR 1 is therefore applicable. The overriding objective enjoins the court to deal with cases justly, ensuring so far as practicable that the parties are on an equal footing, that expense is saved and that the case is dealt with in ways which are proportionate to the money involved, to the importance of the case, the complexity of the issues and the financial position of each party. These are general imperatives which are as relevant, in my opinion, to an application for permission under CPR 32.14 as to any other form of civil proceedings.Let me now, after that rather lengthy introduction, describe how this particular application has arisen. A company, Lancaster Brothers Ltd., carried on business as a manufacturer and seller of slurry handling equipment. Slurry handling equipment is used by farmers and other agricultural contractors for the purpose of disposing of, distributing or spreading slurry produced by livestock, mainly cows I imagine, although no doubt pigs produce their fair share as well. Lancaster Brothers Ltd. fell into difficulties. I do not know whether it actually went into liquidation or whether there was simply a receiver appointed to sell its undertaking, but at all events it had to close down its business and its undertaking was for sale. The Defendant, R.E. Leach (Engineering) Ltd. was anxious to acquire the business. It appears to have optimistically supposed that it would succeed in that endeavour because it set about advertising its slurry handling machinery before it had acquired the business or had any to sell. In due course the Lancaster Brother Ltd. business was purchased, not by the Defendants but by the Claimants, Malgar Ltd. Malgar was the trade mark under which Lancaster Brothers Ltd. had sold its equipment and the successful purchaser of the business took the name Malgar Ltd. for the purpose of carrying on the business that had been acquired. The assets acquired included, obviously, the right to use that trade name. They included the trade marks associated with the business and the goodwill of the business. They included also all other intellectual property rights used by Lancaster Brothers Ltd. in connection with the business. Some of those rights were assigned slightly later, but nothing turns on that. The Defendant, having failed to acquire the Lancaster Brothers slurry handling business, set up in competition without the benefit of that acquisition. The Defendant was in competition, therefore, with the Claimant, Malgar Ltd., which had acquired the Lancaster Brothers Ltd. business.That introduction may deprive the listener of any surprise in learning that proceedings began between Malgar Ltd. and the Defendant in which allegations were made of unfair and unlawful competitive practices carried on by the Defendant. There were allegations of breach of copyright in regard to the price lists which Lancaster Brothers Ltd. had used and which Malgar had acquired, of breach of design right in regard to the slurry handling equipment, of passing off and perhaps other causes of action as well. A claim form commencing proceedings was issued by Malgar Ltd. on 17th June 1999. It was accompanied by particulars of claim. The particulars of claim set out the detail of the complaints which the Claimant was making and asked for declarations that the Defendant had been passing itself off as the manufacturer of Malgar products and had infringed the Claimant's registered trade marks, copyrights and design rights. Injunctions were sought restraining these wrongs and an enquiry as to damages, delivery up and forfeiture of infringing copies of designs and so on were claimed.On 23rd June the Claimant issued an application notice asking for summary judgment on each and every one of the claims made in the claim form and particulars of claim. The Defendant prepared evidence to resist that summary judgment application. Mr. Eric Leach, a director of the Defendant, made a witness statement verified by a statement of truth. Mr. Mills, who had been an employee of Lancaster Brothers Ltd. but on the demise of that company had joined the Defendant, also made a witness statement verified by a statement of truth. These witness statements set out evidence challenging the claims made against the Defendant by the Claimant.On 22nd July 1999 the Defendant filed a defence. The defence was verified by a statement of truth signed by Mr. Eric Leach. On 29th July the Claimant's summary judgment application came before Rimer J. The Defendant submitted to judgment for the Claimant in respect of the Claimant's claims for infringement of copyright in the contents of the Lancaster Brothers Ltd. price lists that the Claimant was now entitled to and of the copyright of a photograph of a Lancaster Brothers tanker that had been reproduced by the Defendant in an advertisement which it had placed in the Farmer's Guardian in April. I should add that there were many other copyright claims as well in respect of which judgment was not entered. Judgment on those two copyright claims was accompanied by the grant of an injunction restraining the Defendant during the existence of copyright in the publications in question from reproducing them and by an order requiring the delivery up of infringing copies and an inquiry as to damages including the question of whether flagrancy damages should be awarded. Subject to that, the Claimant's application for summary judgment was dismissed. Rimer J.'s order was a consent order.The position that had been reached, therefore, was that the copyright claims in respect of the price lists and the photograph had been resolved by consent in the Claimant's favour. All the other issues were left for resolution at trial. Orders for costs were made by Rimer J. which reflected the nature of the order he had made.On 25th October the Claimant issued an application under CPR 32.14 seeking permission to proceed against the Defendants Mr. Eric Leach and Mr. Mills for contempt of court in having made in the two witness statements and in the defence false statements about the price lists and about the photograph.

(c) which says this:

"It is admitted that the Defendant ... produced and distributed price lists as referred to in exhibit 'GL7' to the affidavit of Gary Lancaster. It is denied that such price lists were copied from any price lists in which the Claimant owns copyright. The Defendant's price lists were independently created as set out in paragraphs 36 and 37 of the Mills statement. Further and in the alternative and for the avoidance of doubt if, which is not admitted, the Defendant's price lists were copied from any price list to which the Claimant may be entitled to copyright the Defendants will contend that no substantial part has been reproduced."
That, therefore, takes one to paragraphs 36 and 37 of the Mills statement. Mr. Mills in those paragraphs gave evidence as to how, according to him, the Defendant's price lists had been produced. In paragraph 36 he started by saying that he had approached a firm, which he named, and asked them to produce and design a price list. He said that he asked them to design the price list to be as different as possible from Malgar's. Then he commented on the similarities between the Lancaster Brothers price list and the price list that the Defendants had produced and were using and said that the similarities were the result of the fact that similar products were offered for sale by both companies. He said he believed that similar similarities would be seen in the price lists of most manufacturers in this industry.In paragraph 37 he gave more detail about the manner in which he said the contents of the Defendant's price list had been produced. Again he said that he deliberately tried to make the Defendant's price list as different as possible from the Malgar one but went on:
"Obviously, however, despite my efforts I have obviously used the same or similar phrases in both texts. This was not as a result of copying but simply because I was endeavouring to describe similar products using my own vocabulary and phraseology."
Paragraph 37 goes on for another half page, but I have read the parts particularly relied on by the Claimant.Mr. Leach, in paragraphs 46, 47 and 48 of his witness statement deals with the allegation of copyright infringement in the price list. He says there was no intention to copy and endeavours to explain away similarities as resulting from the nature of technical specifications. Then, in paragraph 51, he goes on to try to describe how the individual prices charged by the Defendant and specified in the Defendant's price list were arrived at. One of the points made by the Claimant, strongly made by Mr. Turner in submissions before me, is that the prices specified in the Defendant's price list bear a very close arithmetical resemblance to the prices specified in the Lancaster Brothers price list. There appears to have been an uplift of a standard two per cent above the Lancaster Brothers price list in order for the majority of the Defendant's prices to be arrived at. In paragraph 51 of his statement Mr. Eric Leach gives a quite different explanation of how the Defendant's prices were arrived at. He describes a process whereby the constituent parts of the machinery would be costed, the costings would be added together, a mark up would be allowed and thus the price would be arrived at. The comparisons between the Defendant's prices and the Lancaster Brothers prices set out in the schedule exhibited to Susan Hall's third affidavit justify, I think, some incredulity in accepting that explanation. This is a matter to which I must return.Those are the alleged false statements which the Claimant wishes to punish by the committal proceedings for which the permission of this court is being sought. The application requires some thought to be given to the purpose of committal proceedings in cases such as the present. Mr. Turner has submitted very forcefully that a statement of truth constitutes an important ingredient in the new Rules. Statements of truth in relation to pleadings certainly do. Statements of truth in relation to witness statements are a substitute for the jurat in affidavits, but statements of truth in relation to pleadings are undoubtedly new and important. Mr. Turner submits that unless a strong line is taken to ensure, so far as one can, that parties approach the verification of statements of case in a responsible manner, the benefit intended to be derived from requiring statements of case to be verified by statements of truth would be at risk of being lost. A statement of case, he pointed out, must be forthcoming as to the case of the claimant or defendant, as the case may be. A Defendant is not entitled simply to sit on his hands and decline to admit or to deny without giving details on which the denial is based. But in giving the details, the nature of the case that the Rules now require, responsibility and veracity are needed. Hence the importance of the statement of truth; hence the importance that, if it is apparent that lies have been told, permission for committal proceedings should be granted.Much of what Mr. Turner submitted I would fully agree with. I agree with him about the importance of statements of truth and I certainly agree that it is important that flagrant breaches of the obligation to be responsible and truthful in verifying statements of case and in verifying witness statements should be policed and enforced if necessary by committal proceedings. The problem in the present case, however, relates partly to the nature of the Claimant's case for challenging the veracity of the statements and partly on the stage that the proceedings have reached. In so far as the alleged falsity of the statements regarding the price lists and the photograph may be relevant at the trial to the issues that remain between the parties, challenge may take place at trial when one or other of the witnesses is cross-examined. I would well understand a cross-examination endeavouring to impugn veracity by reliance on the inconsistencies that Mr. Turner has pointed out in the course of his submissions this morning. But it has to be borne in mind that the false statements in the witness statements, if they are false statements -- the alleged false statement in the defence seems to me to be a not very cogent one -- were not persisted in. On the price list and photograph copyright claims the Defendant submitted to judgment. The Defendant did not resist the summary judgment application by relying on the allegedly false statements relating to those copyright claims. Moreover, everything happened within a short time span, June-July. The allegedly false statements were made in June and abandoned in July. Does this context show an attempt to interfere with the course of justice of a sufficient seriousness to warrant committal proceedings?In my judgment it falls short. If the statements had been persisted in and had eventually been found to be as flagrantly and obviously untrue as Mr. Turner has submitted they are, the matter might appear differently. But, as I have said, the statements were not persisted in. Accordingly, the nature of the committal application seems to me to be tenuous. It does not seem to me to be so serious as to require in the public interest to be prosecuted.Moreover, there are still substantial proceedings on foot between these two parties. There will have to be case management directions given for the cases to come to trial and what the end result of that will be I have not any idea. That there remain substantial issues between the parties that warrant a trial seems to have been accepted by the parties in agreeing to the consent order under which, bar the copyright claims I have mentioned, the summary judgment application was dismissed. Mr. Eric Leach and Mr. Mills are likely to be leading witnesses for the Defendant. I think it highly undesirable that at the same time as those proceedings are being prosecuted there should be outstanding a committal application against Mr. Eric Leach and Mr. Mills. If there had been a strong case for believing that the sanctity of the administration of justice needed protecting the case might be otherwise. But given the, as I have already described it, somewhat tenuous nature of the proposition that these two individuals, even if their statements were false, need to be proceeded against for contempt, the committal application would constitute an undesirable and unnecessary interference in those proceedings. It would obstruct the sensible disposal of what remains outstanding between these parties. That is an additional reason why, in my judgment, permission should not be granted.For those reasons I dismiss this application for permission. I regard a committal application as disproportionate in all the circumstances.

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