Practice: Permavent Ltd and another v Makin
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Patents Court (HH Judge Hacon) Permavent Ltd and another v Makin  EWHC 3495 (Pat) (17 Dec 2020)
A Tomlin order is a way of settling litigation. It consists of a settlement agreement that is confidential to the parties annexed to an order staying the proceedings. If a party fails to abide by the agreement, the order permits the other party to apply to the court to enforce it without bringing a new action, It is called a Tomlin order because it was first made by Mr Justice Tomlin in Dashwood v Dashwood  WN 276, 64 LJNC 431, 71 Sol Jo 911 (1 Nov1927). Mr Justice Tomlin subsequently issued a practice notice for such orders which is now contained in CPR 40.6 and para 3 of the Part 40B Practice Direction,
In Permavent Ltd and another v Makin  EWHC 3495 (Pat) (17 Dec 2020) a dispute between the claimant companies and the former managing director of the first claimant over which of them was entitled to the patents for certain roofing products that the defendant had invented was settled by a Tomlin order. In the schedule, the claimants agreed to pay the defendant 5% of the sales revenues and licence fees that they might receive from sales of the patented products. Fearing that the claimants would not honour their obligation, the defendant registered equitable interests in the patents. The claimants regarded the registration of those equitable interests as a breach of the settlement agreement and applied for orders that they were absolved from making any more payments and were entitled to recover the payments already made. The defendant counterclaimed for payment of the moneys due to him under the agreement.
By an order dated 11 May 2020, HH Judge Hacon ordered the equitable interests to be removed from the register and gave directions for the trial of the remaining issues, Those directions included disclosure limited to known adverse documents and documents relied on by each party to support its case. Up to that point, the defendant was legally represented. Afterwards, he represented himself.
On 26 Nov 2020, the defendant applied for disclosure of 14 categories of documents on sales from 1 Sept 2017 to 30 Sept 2020. The claimants resisted the application partly on the ground that para 2.43 of Practice Direction 57AB limits disclosure for shorter trials but mainly because the settlement agreement entitled the defendant's auditor to examine the relevant documents. In a letter dated 3 Dec 2020 they invited the defendant to instruct an accountant to carry out an audit under that provision instead of pursuing the disclosure application.
The defendant did not agree to the suggestion because the claimants required the auditor to sign a confidentiality agreement that contained the following words:
"I shall be permitted to take such Copies in which any irrelevant and confidential information has been redacted as may be necessary for the purpose of evidencing any discrepancy in the records reviewed and the payments that have been made to [the defendant], as provided in Clause 2.8 of the Settlement Agreement."
The defendant interpreted that sentence as a restriction on what could be shown to his accountant and responded as follows on 6 Dec 2020:"However, your amendments, in particular that any irrelevant and confidential information is redacted, are not acceptable as this would give your client free reign to redact any document he chooses on the basis that it is, in his opinion, either irrelevant or confidential."
Judge Hacon said that the confidentiality agreement contained an ambiguity. It could mean that the claimants might redact documents provided to the accountant and that he would be permitted to take copies of them. Alternatively, it might mean that the auditor would be allowed to see unredacted documents but to the extent that he wished to show them to his client, the claimants could redact them first.
The judge held that the defendant was entitled to a means for checking the claimants' sales records and any other records that his accountant might reasonably require in order to understand whether he had been sufficiently paid under the settlement agreement. It seemed to his lordship that the only reason why the mechanism of clause 2.8 had not worked was a misunderstanding between the parties regarding the terms of confidentiality proposed by the claimants. He did not believe that the claimants were suggesting that documents provided to the accountant would be redacted. Nor did he understand them to say that the accountant would be denied access to any documents which he might reasonably need in order to verify payments made to the defendant. If the accountant wanted to show any of those documents to the defendant the claimants would be entitled to redact confidential information. He, therefore, dismissed the application.
However, he did not award the claimants any costs because the application had been rooted in a misunderstanding. That should have been apparent to the claimants when they read the defendant's email of 6 Dec 2020. When an opposing party is a litigant in person, a legal team must take particular care to avoid such misunderstandings. The claimants' solicitors should have answered the defendant's email, clarifying their clients' position on confidentiality.
There are three takeaways from this short judgment. First, there has to be a modicum of trust between the parties if a Tomlin order is to work. Without such trust, there is likely to be satellite litigation which could be as protracted and expensive as the original cause. Secondly, draconian sanctions for the breach of a settlement agreement and making it difficult for a party to verify performance tend to undermine trust. Thirdly, legal representatives should take particular care when communicating with litigants in person in complex commercial litigation.