Practice - Lufthansa Technik AG v Panasonic Avionics Corporation
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Court of Appeal (Lady Justice King and Lords Justices Newey and Birss) Lufthansa Technik AG v Panasonic Avionics Corporation and others  EWCA Civ 1273 (1 Nov 2023)
Proceedings in the Chancery Division take place in two stages. First, there is a trial to determine whether the defendant is liable to the claimant, If the court finds that the defendant is liable it can order an account of profits or an inquiry as to damages. An account of profits is a determination of the profits that the defendant has gained from his or her wrongdoing followed by an order for him or her to pay those profits to the claimant. An inquiry as to damages is a determination of the injury, loss or damage that the claimant has suffered as a result of the defendant's wrongdoing and an order for payment to the claimant.
A claimant is entitled to an account of profits or an inquiry as to damages but not both. He or she can choose the remedy but he or she can only make an informed choice if the defendant discloses information about his or her business. In Island Records Ltd. v Tring International Plc and another  3 All ER 444, 1 WLR 1256, FSR 560,(1995) Times, 28 April, Mr Justice Lightman directed a copyright infringers to furnish within 2 months of the order an audited schedule setting out the particulars that the claimant would require to make an election. Directions of that kind are known as Island Record orders.
In Lufthansa Technik AG v Astronics Advanced Electronic Systems and another  RPC 6,  EWHC 1968 (Pat) (22 July 2020)) Mr Justice Morgan held that the defendants had infringed the claimant's patent by supplying certain goods. By para 10 of his order at the conclusion of the trial, the judge directed the first defendant to provide by one of its directors information about the company's sales revenue for the relevant infringing goods, along with information about the costs. In October 2020, the defendants supplied a witness statement made by someone who was not a director which suggested that their net profits were in the region of US$165 million.
The defendants appealed against Mr Justice Morgan's order. The claimant took no steps to seek an account or an inquiry while the appeal was proceeding. In Lufthansa Technik AG v Astronics Advanced Electronics Systems and others  EWCA Civ 20 (14 Jan 2022) the Court of Appeal dismissed the appeal. Relying on the information that the defendants had supplied to it in October 2020 the claimant elected an account of profits and issued and served Points of Claim.
Shortly after receiving the claimant's pleading, the defendants served a further witness statement verified by one of the first defendant's directors which disclosed a cost referred to as a "sales credit" that reduced its profits by US$30 million. The claimant objected to the evidence on the ground that it had already made its election between an account and an inquiry. The defendants responded by offering the claimant the opportunity to reconsider its election in the light of the new evidence.
The claimant responded by applying for an order to exclude the additional evidence. The defendants replied with a cross-application for the time for serving the evidence ordered by Mr Justice Morgan in 2020 to be extended to the date of service of the second witness statement. The application and cross-application came on before Mr Recorder Douglas Campbell KC sitting as a deputy judge of the High Court on 27 April 2023.
The parties treated the cross-application as an application for relief from sanctions even though it was not described as such. The recorder referred to CPR 3.9 and the Court of Appeal's decision in Denton v TH White Limited and others  BLR 547,  WLR 3926,  WLR(D) 299,  CP Rep 40,  1 WLR 3926,  1 All ER 880,  4 Costs LR 752,  EWCA Civ 906, 154 Con LR 1, He considered the seriousness and significance of the defendant's failure to serve an accurate witness statement verified by a director, how it had occurred and other relevant circumstances. He concluded that he could not grant relief from sanctions.
On appeal, the defendants argued that the cross-application should not have been treated as an application for relief from sanctions under CPR 3.9 but case management directions under CPR 3.1. That was a point that had not been raised below but Lord Justice Arnold gave permission for an appeal on that ground even though he doubted its cogency,
Lord Justice Birss considered CPR 3.8 (1):
"Where a party has failed to comply with a rule, practice direction or court order, any sanctions for failure to comply imposed by the rule, practice direction or court order has effect unless the party in default applies for and obtains relief from the sanctions."
He said that CPR 3.8 (1) and CPR 3.9 do not create sanctions. He noted that many kinds of applications for an extension of time in cases of breach do amount to applications for relief from sanctions but it did not follow that every rule, practice direction or order that required something to be done within a certain time necessarily imposed sanctions for non-compliance. His lordship then turned to the purpose and effect of Island Record orders. Their purpose was to enable a successful claimant to choose between an account or an inquiry. It could be provided by disclosure or some other alternative satisfactory means such as a witness statement. The information did not have to be exact and should not be the product of an over lengthy or sophisticated exercise. It had to be something that could be produced fairly quickly and at proportionate cost while remaining sufficiently reliable for an election to be made.
Mr Justice Morgan's order had not imposed any sanctions for non-compliance. The claimant sought to rely on CPR 31.21 which prevents reliance on a document that has not been produced on disclosure. That rule could not apply because the defendants did not seek to rely on a document. The claimant argued that an analogy could be drawn with the disclosure of documents. Lord Justice Birss rejected the analogy for two reasons. The first was that unlike disclosure an Island Record order is not part of an ongoing process. It exists simply to enable a successful claimant to make an informed choice of remedies. Another reason is that estimated figures are permitted by Island Record orders which means that some degree of inaccuracy can always be expected. The claimant argued that there should be a remedy for an inaccurate statement on policy grounds. The learned Lord Justice agreed but that did not give the court power to impose a sanction where none existed.
For these reasons, his lordship concluded at para  that no automatic consequence is provided for breach of an Island Records order, either expressly or by implication, by any rule, practice direction or order. No relief from sanctions already in existence was therefore required. The defendants did not, therefore, have to persuade the court to disapply a sanction in place. The court had to apply the overriding objective. It followed that the approach to be taken to resolving the rival applications before the court was on an entirely different basis from the approach below based on what was then common ground. However, Mr Recorder Campbell had found a serious and significant breach of Mr Justice Morgan's order. The defendants had taken time to correct their earlier evidence which had resulted in the applications before Mr Campbell and an appeal to the Court of Appeal.
As the proceedings were still at an early stage Lotd Justice Birss reasoned that the claimant would suffer no prejudice by allowing the defendants to rely on the additional evidence. The claimant would be allowed to reconsider its election in the light of the further evidence. He therefore dismissed the claimant's application and allowed the extension of time for complying with the Island Record order if and insofar as it was needed. Lord Justice Newey and Lady Judgtice King gave concurring judgments.
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