Commercial litigation update: recent cases organisations need to be aware of

The law is constantly evolving, adapting to new factual scenarios, technology and commercial realities. Even principles that are considered to be ‘settled law’ can be subject to change. It is important, therefore, for those businesses facing disputes, or considering litigation, to be alive to the latest legal developments , and how the court’s approach may impact on their particular situation.

We have highlighted some recent cases of note, focusing on:

• The extent to which a court will consider the merits of a claim, when dealing with an application for relief from sanctions
• Whether aspects of artificial intelligence, namely an Artificial Neural Network, can be patented
• A case digest on Manolete Partners plc v Ian White, that illustrates how the courts will deal with applications by those who seek to side-step prohibitive law by adopting novel strategies within their enforcement applications.

To what extent should a court consider the merits of a claim when dealing with an application for relief from sanction?

Background

The case of Christine Bangs v FM Conway Limited was heard at the end of last year in which Lord Justice Males, Lord Justice Snowden and Lady Justice King neatly clarified the extent to which a court will consider the merits of a claim as part of an application for relief from sanctions.

The short answer to the question is, consideration of the merits is the exception, not the norm.

In Bangs v FM Conway, the Court of Appeal overturned a High Court decision in which a Judge had set aside an order striking out Christine Bang’s claim and granted her relief from sanctions, that order having been made following Ms Bang’s failure to properly serve the Particulars of Claim and FM Conway’s subsequent application to strike out the claim (which had been successful).

Why did the High Court grant relief from sanction?

The High Court criticised the manner in which Ms Bangs had litigated her case, in that she (through her solicitors) had failed to serve the Particulars of Claim in accordance with the Civil Procedure Rules, failed to respond to enquiries from FM Conway as to why no Particulars of Claim had been served, and then also failed to respond to FM Conway’s application for strike-out.

However, Mr Justice Johnson took the view that there was something to be said for the strength of Ms Bangs’ claim, relying upon an admission of liability by a representative of FM Conway in October 2020. FM Conway had, during pre-action negotiations, withdrawn that admission of liability, properly and in accordance with the Civil Procedure Rules, but Mr Justice Johnson nonetheless considered it significant in circumstances where there was no explanation of why the admission had been withdrawn or of what the defence to liability was.

Taking into account the severity of an order for strike-out (which removes the claimant’s ability to litigate their case), Mr Justice Johnson took the view that, when considering all the circumstances of the case, the merits of Ms Bangs’ claim were sufficiently strong that the strike-out should be reversed.

Why did the Court of Appeal overturn the order?

The Court of Appeal was asked to consider whether Mr Justice Johnson made an error in his application of the law.

The Lord and Lady Justices stated that the court has consistently insisted that, when dealing with case management decisions, of which relief from sanctions is an example, it is not appropriate to investigate the merits of a claim in any depth. The logic behind this, is that there is a significant risk that all case management decisions would become an expensive and laborious mini-trial were that to happen.

The exception to this general rule is where a party has a strong enough case to obtain summary judgment (i.e. where the case is so strong that a trial is not necessary). In theory, this could have justified Mr Justice Johnson’s decision to set aside the strike-out and grant relief from sanction.

Importantly, however, the Court of Appeal made the point that:

“Basic fairness requires that if a party is going to contend that the merits of the underlying claim are so strong (or so weak) that they should be taken into account for case management purposes, notice of this contention should be given in advance of the hearing so that the other party can consider what evidence it needs to deploy.”

What is crucial in this case, is that neither Ms Bangs, nor her representatives, gave any notice to FM Conway that it intended to ask the court to take into account the merits of her case. In fact, they did not even make these submissions during the hearing. The court took the merits of the case into account of its own volition.

On the basis of Ms Bangs’ failure to provide the proper notice to FM Conway, the Court of Appeal considered that Mr Justice Johnson erred in his application of the law. They said that, if Ms Bangs had provided that notice, there is no doubt that FM Conway would have filed evidence which sought to explain the withdrawn admission of liability.

Therefore, notwithstanding the strength of Ms Bangs’ case (on the face of things) the Court of Appeal overturned the High Court order, concluding that Mr Justice Johnson had erred in the law.

What does this mean?

This case is a stark reminder that, even in a claim where there a strong prospects of success, there are no guarantees in litigation.

The Court of Appeal has again reiterated that the rules governing litigation are important and must be followed, otherwise severe sanctions may be imposed which can prevent parties from pursuing even the strongest of cases.

Our team at Thomson Snell & Passmore is alive to these issues, and ready to assist should you need to make, or oppose, an application for relief from sanctions.

Supreme Court update: Emotional Perception AI Ltd v Comptroller-General of Patents

Background

Emotional Perception AI Limited developed a program that it claims makes music and other media recommendations, based on how the users have been categorised. It is said that this program uses trained artificial neural networks (ANNs), which is an AI system the High Court framed as “a black box which is capable of being trained as how to process an input, learning by that training process, holding that learning within itself and then processing that input in a way derived from that training and learning”.

After development, Emotional Perception applied for a UK patent for its system. However, the hearing officer at the IPO refused the application on the basis that the system as a whole was a computer program, which are excluded from patentability under UK Law. They can only be patented where they fit within an exclusion, that the product has a “technical contribution” which lifts them out of being a computer program.

What has happened since?

Challenging the IPO’s decision, Emotional Perception filed a claim in the High Court, which ruled in its favour. The High Court considered that an ANN was not a computer program, as such, but even if it were, the ANN in this case would still be patentable because it amounted to more than a computer program due to the presence of a “technical effect”.

Since then, the case has been before the Court of Appeal, which overturned the High Court’s decision, determining that ANNs do constitute computer programs, before determining that the contribution made by Emotional Perception’s program was an aesthetic one, not a technical one.

The decision was challenged once again, with Emotional Perception seeking permission to appeal to the Supreme Court, who have given permission for that appeal.

Now, the Supreme Court will need to consider crucial questions about AI patentability, including:

1. What constitutes a “computer program”
2. Whether ANNs fall under that classification
3. What qualifies as sufficient “technical contribution” for patent protection.

What is the significance?

Firstly, the fact that the Supreme Court has given permission to appeal is significant. Cases will only be heard in the Supreme Court where there is a matter of general importance to the public. Therefore, any decision of the Supreme Court is likely to have wide ramifications moving forward.

Making a determination, and providing obiter guidance, on the above matters will hopefully provide answers as to what extent AI can be patented. In particular, setting out what a “computer program” is, and what qualifies as sufficient “technical contribution” should provide much needed clarification in an ever-changing world.

Creditor refused injunction to deprive a debtor of his pension

Background

Ian White was the owner and controller of a company, and the only member of a small self-administered pension scheme. Mr White’s company went into administration and liquidation in 2017, where the liquidators assigned certain claims to Manolete Partners plc.

Manolete obtained a court judgment against Mr White for £1 million, and sought to enforce that judgment. To enforce the judgment debt, Manolete applied to the court for an order that would have entitled its solicitors to draw down Mr White’s pension and pay it to Manolete to discharge the debt.

What is the applicable law?

Section 91 of the Pensions Act 1995 restricts the surrender, commutation or assignment of entitlements or future rights to a pension under an occupational pension scheme, subject to certain exceptions.

Where the restriction applies, section 91(2) prevents a court from making an order “the effect of which would be that [the member] would be restrained from receiving” the pension unless the order is an attachment of earnings order under the Attachment of Earnings Act 1971, or an income payments order under the Insolvency Act 1986.

What happened?

To circumvent section 91 of the Pensions Act 1995, Manolete obtained an order from the High Court that would instead require Mr White to draw down the funds from his pension scheme into an account in his own name and allowed Manolete to “police” what he did with those funds, essentially providing him with no choice but to pay the judgment debt.

Mr White appealed the High Court’s order, and the Court of Appeal agreed with his appeal.

The court found that Manolete’s approach was part of a wider strategy designed to enforce the judgment against Mr White’s pension. The Court noted that section 91(2) prohibits the making of an order in which the effect would be that the member [Mr White] would be restrained from receiving their pension and, importantly, for their own benefit. Therefore, receiving the payment, for it to be subsequently paid to Manolete due to the ‘policing provisions’ of the High Court’s order, would have be contrary to section 91 of the Pensions Act. The injunction was therefore refused.

What is the significance?

This is a helpful demonstration of the scope of the restriction in section 91 of the Pensions Act, and a clear reminder to those seeking to enforce judgment debts, that future pension entitlement is off the table. It is also a helpful reminder that courts can look at the wider strategy of an application, and restrict an applicant from acting in a way that is inconsistent with the meaning and purpose of existing law.

If you have any questions about any of the topics raised in this article, please get in touch.