Copyright - Photobooth Props Ltd v NEPBH Ltd

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Jane Lambert

intellectual Property Enterprise Court  (John Kimbell QC) Photobooth Props Ltd and another v NEPBH Ltd and others  [2022] EWHC 750 (IPEC) (1 April 2022)

These were interlocutory applications by both claimants and defendants in an action for copyright infringement and rescission of a contract. The works alleged to have been infringed were artwork for the panels on the outside of photo booths known as "skins". The claimants claimed copyright in works that had been made by one Lie Xie, a director of the second claimant, whch were referred to as "the new works" and works in which copyright was said to have been assigned to the second claimant by the first defendant known as "the assigned works".

The claimants applied for summary judgment under CPR Part 24 of their copyright claim,  The defendants applied to strike out allegations of fraudulent misrepresentation in support of the rescission claim and sought an order for security for costs.  The applications came on before Mr John Kimbell QC on 24 Feb 2022.  The learned deputy judge handed down judgment on 1 April 2022 (see Photobooth Props Ltd and another v NEPBH Ltd and others [2022] EWHC 750 (IPEC) (1 April 2022).

CPR 24.2 enables a court to give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if—
(a) it considers that
(i) that claimant has no real prospect of succeeding on the claim or issue; or
(ii) that defendant has no real prospect of successfully defending the claim or issue; and
(b) there is no other compelling reason why the case or issue should be disposed of at a trial.

Mr Kimbell directed himself to the applicable principles which are set out at para. 24.2.3 of Vol 1 of the 2021 White Book:

"The following principles applicable to applications for summary judgment were formulated by Lewison J in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) at [15] and approved by the Court of Appeal in AC Ward & Sons Ltd v Catlin (Five) Ltd [2009] EWCA Civ 1098; [2010] Lloyd's Rep IR 301 at [24]:

i) The court must consider whether the claimant has a 'realistic' as opposed to a 'fanciful' prospect of success: Swain v Hillman [2001] 1 All ER 91;
ii) A 'realistic' claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8];
iii) In reaching its conclusion the court must not conduct a 'mini-trial': Swain v Hillman;
iv) This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10];
v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No.5) [2001] EWCA Civ 550;
vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] F.S.R. 3;
vii) On the other hand it is not uncommon for an application under Pt 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725."

The deputy judge also referred to Fox, The Intellectual Property Enterprise Court: Practice and Procedure (3rd ed 2021) in paras 6-065 – 6-070 and found that IPEC does not diverge to any great extent from the approach in the rest of the High Court, save that more frequent use is made of the power to dispose of applications on paper in order to save costs.

Mr Kimbell refused the summary judgment application in respect of the assigned works for the following reasons. First, there was a triable issue as to which of the assigned works were to be transferred to the second claimant. Secondly, there was no evidence of how the allegedly assigned works were created and only some evidence that the designs were commonplace or generic. It was for the claimants to prove subsistence, transfer and infringement of copyright and so far they had not done so. Thirdly, it was far more appropriate for the trial judge who would hear evidence on those points to determine those matters.  

It was a different situation with the new works. There was ample evidence as to how those works came into being,  The similarities between the originals and the putative copies were overwhelming. The defence consisted mainly of non-admissions and gave no explanation for the similarities. In the deputy judge's view, there was no real prospect of defending that claim.

The claimants sought to rescind the contract on the basis that certain representations that the deputy judge listed at para [38] of his judgment were untrue and fraudulent.  The defendants argued that they were not statements of fact, only of opinion or intention.  Mr Kimbell rejected their contention,  He said at para [41]:

"I have no hesitation in dismissing the application, As the editors of Chitty on Contracts (34th edition, 2021) observe at para 9-008, "the distinction between a statement of fact on the one hand and a statement of opinion or intention on the other, is not clear cut". Whilst it is true that the pleaded representations are to a large degree statements of intention or future conduct, it is well recognized that such statements may nevertheless be held to be misrepresentations if the representor did not in fact have any such intention – see Chitty para 9-016-17:

'9.016 A statement of intention may be looked upon as a misrepresentation of existing fact if, at the time when it was made, the person making the statement did not in fact intend to do what he said or knew that he did not have the ability to put the intention into effect; for the promisor's state of mind was not what he led the other party to believe it to be. Thus, where a man ordered goods having at the time the intention not to pay for them, he was held to have made a fraudulent misrepresentation. Equally, if a person makes a statement of an intention that he should have known he was not able to carry out, in appropriate circumstances he may be held to have made an implied representation that he did have that ability. There is no doubt that a statement as to the intentions of a third party is a statement of fact and can constitute a misrepresentation in the ordinary way.
9.017 A statement of intention or as to the future may carry the implication that the party making it does not know of facts that will make it impossible to carry out the intention.71 But "there is no rule of law that any particular statement carries with it any particular implication. All depends upon the particular statement in its particular context"'"

 The defendants had applied for security for costs under CPR 25.13 (2) (c)  They contended:

"a. The Claimants are young and insubstantial companies: PPL was incorporated on 25 August 2016, LPL on 26 August 2019.
b. PPL has a share capital of only £2, LPL only £1
c. PPL's accounts to 31 August 2021 reveal
i. a deficit in shareholders' funds of £63,870 (substantially worse than in 2020's figure of £17,127),
ii. assets down (£79,200 as against £122,798 in 2020);
iii. creditors up (£143,518 as against £137,430 in 2020)
d. LPL's accounts to 31 August 2021 show shareholders' funds of only £23,650."

The claimants filed evidence by one Sherrington (one of the second claimant's directors) and one Turley in response which the deputy judge summarized at [52]: 

"a. The Claimants currently hold in excess of £100k worth of stock (Turley 2 para 21);
b. As of the morning of 18 February 2022 the Claimants had ready access to cash in the sum of £80,965.41 (Turley 2 para 22), which is now nearly £107,000 (Sherrington 1 para 11);
c. PPL's turnover from September 2021 (5 and a half months) is £152,996.85 not including VAT (Turley para 23);
d. The deficit in accounts as at 2021 is as a result of:
i. difficulties, experienced by all businesses, in obtaining stock from China meaning that less stock than usual was carried, however the most recent accounts do not include the delivery of stock – if it did there would be no deficit (Sherrington 1 para 7.a);
ii. stock loans being repaid from C2 to C1 (Sherrington 1 para 7.b);
iii. the business recovering from reduced sales from various lockdowns which is inevitable for this type of business (Sherrington 1 para 8);
iv. a drop in sales caused by the Defendants' activities in 2020-2021 (Sherrington 1 para 8);
v. the businesses carrying forward losses whilst new and growing, as is common with any newly started business (Sherrington 1 para 11)."

Mr Kimbell referred to paras 25.13.12 – 14 of the White Book:

"25.13.12: Security for costs may be ordered against a company or other incorporated body (whether English or foreign) where there is reason to believe that it will be unable to pay the applicant's costs if ordered to do so. However, security is not ordered as of course against such companies: the court's power is discretionary, to be exercised having regard to all the circumstances of the case (see above para.25.13.1). Rule 25.13 (2) (c) refers to a company which is a claimant. As to this, see further paras 25.12.3 and 25.12.4 above…
Applicants will fail to establish ground (c) if they cannot adduce sufficient evidence to give the court reason to believe that the claimant company "will be unable" to pay costs if ordered to do so; evidence giving the court reason to believe that the claimant company "may be unable" etc is not enough (Re Unisoft Group (No.2) [1993] B.C.L.C. 532, construing similar words in s.726(1) of the Companies Act 1985; SARPD Oil International Ltd v Addax Energy SA [2016] EWCA Civ 120; [2016] B.L.R. 301 at [11])…
25. 13. 14 An applicant for security for costs who relies on r.25.2(13)(c) has to persuade the court that there is reason to believe that the company will not be able to pay costs if it is subsequently ordered to do so. It is not enough to show that the applicant has a reasonable belief to that effect: the court will take account of the evidence adduced by both sides (Re Unisoft (No.2) [1993] B.C.L.C. 532)."

He also noted in Fox, The Intellectual Property Enterprise Court: Practice and Procedure (3rd edition 2021) at para. 3-26, that IPEC is designed to facilitate access to justice for SMEs.

The deputy judge dismissed the application. In his view, the defendants had failed to show that there was any reason to believe that the claimants would not be able to satisfy a costs order of £50,000. They were small businesses and a costs order of that size would not be easy to absorb or pay but he was not persuaded on the present evidence that there was reason to believe they would be unable to pay it if ordered to do so. He added at [53]:

"This is it seems to me a classic case where there is reason to believe that they may not be able to pay it but that is not sufficient."

There was a further judgment on 27 June 2022 because the parties could not agree as to costs.   The claimants wanted:

"a. Their costs of the part of the claim which has been summarily determined – i.e. substance, ownership and infringement of the New Works (the "Determined Part of the Claim");
b. The costs of the Claimants and Defendants' applications to be paid immediately owing to the unreasonable behaviour of the Defendants under CPR 63.26(2);
c. Those application costs to be summarily assessed and off the usual IPEC caps; and
d. The CMC costs to be reserved to trial."

The defendants submitted that the costs of the Applications be reserved until the conclusion of the trial in accordance with CPR Part 63.26(1) and the costs of the CMC be costs in the case.

Mr Kimbell referred to CPR 44.2,  para 9.2 (b) of the Part 44 Practice Direction and CPR 63.26.  At para [12] of his judgment in Photobooth Props Limited and another v NEPBH  Limited and others  [2022] EWHC 1634 (IPEC), he said:

"CPR 63.26 (1) in my judgement reverses and displaces the general 'pay as you go presumption' in PD44.9.2 (b) for claims in IPEC. It is significant that the word 'will' in 63.26 (1) is not qualified by 'usually' or 'generally'. CPR 63.26 (1) in my judgement creates a very strong presumption in favour of reserving costs of applications made in the course of IPEC proceedings. This reading of CPR 63.26(1) is consistent with IPEC Guide at para. 4.10 (with emphasis added):

'Costs of an interim application Costs of the case management conference or any other interim hearing will almost always be reserved to the conclusion of the trial (Part 63 rule 26 (1)). The most usual exception arises when a party is found to have has behaved unreasonably. In such a case the court may make an order for costs at the conclusion of the hearing, to be paid shortly thereafter. These costs will be awarded in addition to the totality of the capped costs which the receiving party is entitled to at the end of the trial, see Part 45 rule 32.'"

He added that CPR 63.26 (1) could have easily created an exception for summary judgment or strike out applications which finally determine one or more issues between the parties but it did not.   He noted at[14]:

"The reason for the different general rule is that IPEC's costs rules form part of an overall package of measures designed to make the court an effective forum in which to litigate lower-value, less complex intellectual property cases cost effectively and with predictable and proportionate levels of exposure and recovery. The tables of costs in section IV of PD45 which set out 'caps' for each stage of the determination of liability (Table A) and for an enquiry into damages (Table B) are a key part of this package. It is well established that even a wholly successful party who has spent more than the capped sum will not necessarily recover the maximum permitted for any particular stage – see Vernacare v Environmental Pulp [2102] EWPCC 49 and Scopema v Scot Seat [2013] EWPCC 37 at [14]."

As to whether the defendants had behaved unreasonably, the deputy judge referred to paras 9 – 059 – 9-061 of Fox. He summarized the applicable principles as follows:

"a. The mere fact that an application fails is not in and of itself evidence that the applicant was unreasonable to bring it.
b. The bringing of a truly groundless application may amount to unreasonable conduct.
c. "Unreasonable conduct" under r.63.26 (2) is not concerned with the behaviour or attitude of the parties generally, but rather with their behaviour in and towards the process of the court.
d. Behaviour that only forms part of the general 'cut and thrust' of litigation is unlikely to be regarded as unreasonable for the purposes of r.63.26 (2).

In his view, the defendants' applications had not been unreasonable or without merit.  He ordered the costs of the applications to be reserved until trial and the costs of the case management conference to be costs in the case.

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