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Pittville Ltd v Hunters & Frankau Ltd & Anor [2016]

November 11, 2016

In Pittville Ltd v Hunters & Frankau Ltd & Anor [2016] EWHC 2683 (Ch) (27 October 2016) the matter was heard before Mr Justice Snowden in the High Court in respect of two Appeals against the decisions made by Deputy Master Cousins on the 14th July 2015 and 29th September 2015 brought by the Defendants who  “were appointed as the sole and exclusive distributor of Habanos to import, sell and distribute habanos in the United Kingdom”.The Claimants were also in the business of buying habanos “on the open market at official sales outlets in Cuba and importing those cigars (duty paid) into the United Kingdom”.

The Defendants had in 2004 given notice to HMCE in accordance with s.89 of the Trade Marks Act 1994 that it was the owner of various trademarks for habanos in the UK and goods were due into the country which should be treated by Customs and Excise as prohibited goods.

When the goods arrived, which had been bought by MasterCigars, they were seized and the Defendants were allowed to examine them to ascertain whether they were counterfeit. The Defendants confirmed some were, following which there was a 16 day trial in 2005 where the Judge concluded they were not counterfeit but “they did constitute unlawful parallel imports”.

MasterCigars appealed against this. In March 2007 the Court of Appeal allowed the Appeal in relation to parallel imports on the basis that the Defendants had given implied consent. The Defendants followed this by ensuring their trademarks were protected, to reinforce to MasterCigars, they had not consented.

In his First Decision, Deputy Master Cousins granted relief from sanctions that had been imposed upon the Claimant, MasterCigars Direct Limited, four years before. They had failed to comply with a requirement of an Unless Order to provide security of costs in the form of cash or a bank guarantee. The application for relief from sanctions was made by the Claimant in May 2014 after they obtained an assignment of the rights of action of MasterCigars from its liquidators.

In the Second Decision made by Deputy Master Cousins he allowed the Claimant to take the place of MasterCigars  and vary the Unless Order allowing the Claimant three months to procure an ATE policy in respect of security of costs.

In August 2010 MasterCigars had issued new proceedings against the Defendants where they alleged the allegations made to Customs & Excise in 2004 by the Defendants were false and, which they knew at the time. They claimed damages arguing the Defendants “actions had been part of a wider plan to make false statements and then to force MasterCigars into expensive and time-consuming litigation in order to put it out of business”.

After the claim commenced in 2010, MasterCigars business had deteriorated and the Defendants applied for security of costs under CPR 25.13 on the grounds that MasterCigars would be unable to pay any costs order made.

Master Bragg heard this on the 5th May 2011 and decided that, as they did not have an ATE policy in place, he would make an order for security of costs in the form of cash or a bank guarantee, leaving it open for them to obtain an ATE.

MasterCigars did not comply with the security order and the Defendants applied for an Unless Order which Master Bragg made on the 12th July 2011. They were ordered to provide the amount of security for costs by payment into court or by bank guarantee by 10th August 2011. If they failed to do so the Claim would be struck out. Master Bragg decided not to include the procurement of an ATE policy in the Unless Order.

The Claim was struck out. MasterCigars did not provide the security and the Defendants applied for judgment to be entered against them with costs to be assessed. The application was granted by Deputy Master Nurse on the 26th August 2011.

Mr Justice Snowden observed that the Claimants, whose owner had previously been owner and director of MasterCigars, on the 27th November 2014 made an application to restore the Claim. He noted the Claimant in this matter had been specifically incorporated by the owner so as to pursue the Claim. The application was made some six months following the assignment of it from the liquidators of MasterCigars in May 2014.

In the application, they applied for the judgment to be set aside, they be substituted as Claimant and, the Unless Order be amended to allow three months to provide the security.

Mr Justice Snowden observed that Deputy Master Cousins had based his first decision as to relief from sanctions on the three-stage guidance given in the Court of Appeal in the case of Denton and, in accordance with the first two stages of the Denton guidance that the breaches by MasterCigars of the security order and Unless Order were serious.

The Deputy Master considered there to be a “good reason” for the breach and proceeded to “consider all the circumstances of the case so as to enable the court to deal justly with the application”. He regarded the breaching of the orders by MasterCigars as being a result of the owner and director trying for three years to meet its obligations under the order and, with a possibility of third party funding being available, time should be given for this to happen after the judgment had been set aside. He found there to be serious delay but, looking at all the circumstances, was understandable and, granted relief from sanctions.

The matter returned to Court on the 21st July 2015.  In a reserved judgment of the 29th September 2015, Deputy Master Cousins amended Master Bragg’s Unless Order to allow for an ATE policy to be obtained for security of costs. He extended time to the Claimants for this possibility until the 8th January 2016 and gave his reasoning:

“The basis of this conclusion is that there have been material changes in circumstances in that it is now said such a policy is likely to be forthcoming. I also place reliance in this regard on the reasons set out in paragraph 26 of the [First Judgment], upon which the findings were made in paragraph 53(6).”

He made an order setting aside the judgment against MasterCigars and replaced MasterCigars with the Claimant. He amended the Unless Order to give the Claimants until 8th January 2016 to obtain  an ATE policy or give security in cash or by bank guarantee.

Lord Justice Snowden observed that although the Deputy Master had observed the requirement to look at all the circumstances to enable the court to deal with the matter justly he had not considered CPR 3.9 (1) which is the requirement that litigation should be dealt with in an efficient manner, at proportionate cost and in compliance with rules, practice directions and orders. He referred to Denton, paragraph 34:

“Factor (a) makes it clear that the court must consider the effect of the breach in every case. If the breach has prevented the court or the parties from conducting the litigation (or other litigation) efficiently and at proportionate cost, that will be a factor weighing in favour of refusing relief. ”

He observed in this case, neither MasterCigars or the Claimant were able to provide any security for costs and, in particular, he noted there was no prospect of getting cash or a bank guarantee to comply with the Unless Order. He considered this was enough not to grant relief from sanctions. The Claimant’s only chance of providing security of costs was an ATE policy which the owner of the Claimant company had been unable to get over the years.

He referred the Deputy Master to stage three of the Denton analysis where it would only be right to grant relief from sanctions if appropriate. He considered in this matter there was no misstatement of fact , the Deputy Master had made his decision on what he thought was “a material change of circumstances since the order was made, or upon the backdrop to the case being “well out of the ordinary”.  Mr Justice Snowden considered him wrong.

He considered that the Deputy Master had made an error in finding that MasterCigars had a “good reason” for not complying with the Unless Order and, had not presented any strong argument to granting relief from sanctions and amending the Unless Order. He observed that the owner of the Claimant Company had not been successful over a long period of time in obtaining funding and there was no guarantee he would in the future.

He found that the Deputy Master should not have reached the decisions he did regarding the relief from sanctions and variation of the Unless Order. He allowed the Appeal and set aside the Order of Deputy Master Cousins of the 7th October 2015 and restored the judgment and Order of Deputy Master Nurse of the 26th August 2011 in favour of the Defendants.