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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Luk Leamington Ltd v Whitnash Plc & Anor [2002] EWCA Civ 295 (27 February 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/295.html Cite as: [2002] EWCA Civ 295

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr Justice David Steele)

		Royal Courts of Justice Strand London WC2 Wednesday, 27th February 2002

1. LORD JUSTICE CHADWICK: Mr McCaughran, your power and skill as an advocate have persuaded us that this is a case in which permission should be given. My Lord will give a short judgment explaining why.
2. LORD JUSTICE MANCE:This is a renewed application for permission to appeal in respect of a matter where I refused permission on paper, sitting as a single judge. The action arises out of a joint venture agreement which was set up in December 1995 to exploit and develop technology in the field of automated clutch and transmission systems ("ACTS"). These are systems for automating, first, the operation of the clutch and, secondly, the changing of gears in a gearbox.
3. The joint venture parties were (i) Kongsberg Automotive AS, a Norwegian company, and (ii) the first defendant, Whitnash plc, an English company, known at the time as AP plc. Each of those companies had businesses concerned with ACTS. They agreed to withdraw from that market and to transfer their respective ACTS assets, technology and businesses to the joint venture company, which was formed as Kongsberg TechMatic UK Limited ("KTM") and is now known, as a result of a transfer of ownership, as LUK Leamington Limited and is the claimant.
4. The agreement under which the joint venture was set up was a shareholder agreement dated 21st December 1995 and in it appear the clauses which are now relied upon. Very briefly, it recites, in clause 2.1, that the primary object of the joint venture company was "to take over the existing business of both AP and Kongsberg relating to ACTS and to develop new ACTS". The clause further provides that the joint venture company should carry out, amongst other things, product research and development.
5. By clause 18.1, AP warranted to the joint venture group and Kongsberg that, save as set out in the disclosures, the warranties and undertakings set out in the third schedule in respect of the AP existing ACTS business were true in all respects. That third schedule includes, in clause 1.1, a definition of "the business", wherever referred to in the schedule, as a reference to AP's existing ACTS business. That harks back to the distinction in clause 2.1 of the main agreement between the existing business and any new business which might be developed.
6. Then in the third schedule, at clause 8.1, is the presently relevant warranty, which, under the head "Material Information", reads as follows:

"8.1.1All information given by AP, AP's solicitors or AP's accountants to the Company relating to the business [i.e. the existing business] or Assets was when given and is true, accurate and comprehensive in all respects.

8.1.2to the best of AP's knowledge, information and belief, there are no material facts or circumstances in relation to the business or Assets which have not been fully and fairly disclosed in writing to the Company."

7. The word "Assets" is defined in clause 1 of the agreement as meaning various fixed and moveable and intangible assets, but not including, amongst other things, intellectual property rights.
8. The joint venture agreement included, in the sixth schedule, a list of patents, described as "relating to the `products' owned by AP", which were then under the agreement licensed to the joint venture company.
9. The current complaint (arising many years later, in November 1999, following a transfer of ownership to a German company, LUK Lamellen und Kupplungsbau GmbH, from which the present claimant no doubt acquires its name) relates to certain patents which were not included in the sixth schedule. These have been described as the "omitted patents" and they belong either to AP or to a sister company of AP, INC. It appears that they all originally belonged to INC, but some were transferred to AP for United States tax reasons and, so far as active, were licensed back to INC. These patents are not said to have been used in the existing business, which was transferred to the claimant company, but it was said in this litigation that they were omitted from the list of patents transferred relating to the products owned by AP in such circumstances that rectification should take place. Alternatively, it was claimed that the failure to mention them or disclose them was a breach of clause 8.1.
10. The claim for rectification failed unequivocally before the judge. Indeed, in paragraphs 79 to 81 of his judgment he recites evidence which indicated that the common intention was simply and solely to transfer patents used in the existing business. That also appears to have been what was expressly contemplated by the prior memorandum of understanding, to which Mr McCaughran draws attention in his skeleton. That, under the heading "Intellectual Property Rights", provided:

"AP and Kongsberg will license all their respective IPR's which are used in the business of the JVG companies to the JVG companies."

11. However, Mr McCaughran says that that is not the end of the matter because there was an oversight relating to the omitted patents. Nobody focused on them. But nonetheless, in his submission, they were objectively relevant to the business and so, he submits, related to the business under clause 8.1.1 or constituted matters in relation to the business under clause 8.1.2.
12. The present application relates solely to that aspect of the claimant's case. It is not sought in this court to renew the arguments on rectification. They have been, as I said, categorically, and at length, rejected by the judge. However, it is sought to renew the arguments on clause 8.1 of the third schedule, which, not surprisingly perhaps, the judge dealt with in his judgment very shortly, in paragraphs 99 and 100. The argument Mr McCaughran's clients wish to pursue is that, firstly, there was a breach of clause 8.1 of the nature I have indicated; secondly, if there had not been a breach, then disclosure would have been made and the consequence would have been that a different contract would have been made, which would, in one form or other, have given the benefit of these patents to the joint venture company. That may, on the same face of it, seem an ambitious argument and certainly it seemed to me, as a single judge, to be so. However, I have been persuaded by Mr McCaughran's submissions and the references that there is sufficient in the matter to justify a hearing before the full court.
13. Mr McCaughran acknowledges that there was no evidence at trial that these omitted patents, or any of them, were actually being used to ward off or hinder any competition. The difference between them and the patents which were included in the sixth schedule goes to an important technical aspect of the joint venture business. The existing business was confined to hydraulic operated automatic systems. The patents (with one possible and partial exception, in so far as it was a mixed hydraulic electrical system, at least in some of its forms) relate to electrically operated systems and, although in the automated market as a whole these are competing systems, they are technically quite different. Mr McCaughran therefore has to submit that, although there was no evidence at trial as to any actual use of the patents to protect the business which was transferred to the joint venture company or, indeed, any evidence as to why these patents were being maintained by AP, nonetheless they must be regarded as having some value or potential value. They were kept up and they could, he submits, fulfil the prime function of a patent: that is, its monopolistic function of preventing others from competing, at least to some degree, even though their competition took the form of a different type of automatic clutch transmission system.
14. He makes three points, which really all amount to that single set of arguments. He points out that there was in fact no other business in the AP group which was concerned with ACTS and he asks rhetorically, "What were these patents if they were not relevant to the one part of AP's ACTS business which was transferred to the joint venture company?" To that a possible answer might be that these patents were not relevant to any business: they were just there historically, so far as they had relevance, and they were licensed, in some cases, it appears, to INC.
15. However, Mr McCaughran was able to draw our attention to some points, which are set out in his skeleton in paragraph 26. In particular, he refers to evidence from Mr Comfort, which seems to me to be of some interest, particularly since it was not cross-examined to on this point. Mr Comfort in his witness statement attests from his own knowledge (since he appears to have been with the joint venture company at the relevant time) to what he regards as the significance of these patents and their interest to the existing business. Whilst he was not called as an expert, his evidence may perhaps be of some materiality. It is not dealt with in the judge's judgment.
16. Then Mr McCaughran draws our attention to the fact that at any rate one of the patents was, as I have said, a mixed patent. It was, as regards gear shift, electrically actuated but, as regards the clutch, hydraulically actuated. There appears, from the joint statement of experts which Mr McCaughran also referred to, perhaps to have been a disagreement as to the extent to which that might or might not make it relevant to the existing business or increase its monopolistic function.
17. Be that as it may, I for my part have come to the conclusion, having heard Mr McCaughran, as I have said, that there is sufficient in this to justify a hearing before the full court. One important reason for saying that is that I have been persuaded that it is relevant to have a better understanding as to the general background, both to the original joint venture agreement and the general technical background to the arguments, before reaching a conclusion that the matter is or is not as simple as the judge thought. For those reasons I would give permission to appeal in respect of the one matter on which it is sought.
18. LORD JUSTICE CHADWICK:I agree that permission should be given in this case. The test which this court is required to apply on an application for permission to appeal is set out in CPR 52.3(6):

"Permission to appeal will only be given where -

(a)the court considers that the appeal would have a real prospect of success; or

(b)there is some other compelling reason why the appeal should be heard."

19. It is not suggested, on the present application, that, if the appeal has no real prospect of success, there is any other reason -let alone any reason which could be regarded as compelling - why permission should be granted.
20. The question, therefore, is whether this is an appeal which can be said to have a real prospect of success. It is important, in this context, to appreciate that the hurdle is not to be set too high. It is not for the applicant to persuade the court that he is likely to succeed on an appeal; the question is whether he should have access to the resources of this Court in order to challenge a conclusion adverse to his case which has already been reached by a judge in the court below. The resources of this Court are limited. They are not to be wasted by the hearing of appeals where the prospect of success can be dismissed as so remote as to be fanciful. But if there is a realistic, as distinct from fanciful, prospect of success, then the appeal requires and deserves a hearing before a full court; and the resources of the Court must be made available for that purpose.
21. Like my Lord, I am persuaded by Mr McCaughran's submissions that this is an application which surmounts the hurdle, so as to require this Court to afford a full hearing to this appellant.
Order: application for permission to appeal granted; costs in the appeal [estimated time of hearing 2 days; parties encouraged to provide an agreed statement as to technical background and court to be given proper opportunity to pre-read before hearing]