United States: High Court Declines To Vary Embargo On Draft Judgment To Allow It To Be Shared With A Third Party

In a recent decision, the High Court took a dim view of the claimant’s application to widen the embargo on a draft judgment awarding it substantial damages, where the claimant’s aim was to seek to recover sums from a third party which was likely to be embarrassed by certain findings in the judgment: New York Laser Clinic Ltd v Naturastudios Ltd [2019] EWHC 2892 (QB).

The issue arose in the context of a claim for breach of collateral warranty relating to the supply of laser hair removal devices to be used in the claimant’s business (see our blog post on the substantive aspects of the decision here). The claimant alleged that there were serious defects in the devices supplied by the defendant, which were manufactured by a third party called Formatk. The claimant asked the court to vary the usual embargo so that it could provide a copy of the draft judgment to Formatk, in the hope that Formatk might wish to provide money to settle the proceedings and avoid the embarrassment of the judgment being released.

The court’s decision suggests that, although the court has a discretion to widen the terms of embargo relating to a draft judgment, it is unlikely to do so where the purpose of the request is to enable a party to put pressure on a third party to settle the dispute and avoid judgment being handed down. That will apply with even more force where the judgment addresses issues that may be of general importance, such as the court’s conclusions in the present case on the requirements for a claim for breach of collateral warranty.

Ramyaa Veerabathran, an associate in our disputes team, considers the decision further below.

Background

Where the court reserves its judgment, the draft judgment will normally be circulated to the parties under “embargo”, ie on the basis that it is to remain confidential to the parties and their legal representatives. The purpose is so that they can review the draft for minor errors such as typos or obvious factual mistakes, and to allow them time to consider whether any consequential orders will need to be sought.

Practice Direction 40E of the Civil Procedure Rules (PD 40E) sets out the restrictions that apply where a draft judgment is provided under embargo. In summary, it forbids the parties and their legal representatives from: (a) disclosing the draft judgment or its substance, or using it in the public domain; or (b) taking any action in response to the judgment, other than internally, before it is handed down. Where a party is a company, government department, partnership or other organisation of a similar nature, the draft judgment may be circulated internally in confidence, provided that “all reasonable steps” are taken to preserve confidentiality and the restrictions set out above are adhered to. Any breach of the embargo may be treated as contempt of court.

In the present case, the claimant brought a claim against the defendant for breach of collateral warranty relating to the supply of laser hair removal devices which had been manufactured by a third party, Formatk. The defendant was not represented and did not attend trial. At the conclusion of the claimant’s closing submissions, the claimant’s counsel requested the court to vary the usual embargo, so as to enable the claimant to show the draft judgment to Formatk.

Decision

The judge refused the request to vary the terms of embargo.

The judge noted that the court has a discretion to vary the scope of the embargo, and this is sometimes done where there is a third party to the proceedings which has a direct interest in the outcome. In his experience this included, for example, cases where a public authority was the nominal defendant to a test case, but was really acting on behalf of a government department, or where a trade union brought a claim through a test case claimant. In such cases, permission might be given to show the draft judgment in advance to the government department or trade union because they are, in substance, parties to the litigation, or there is a public interest in the third party being able to respond as soon as the judgment is handed down.

The claimant’s request to be allowed to share the draft judgment with Formatk in this case was, the judge said, of an “entirely different character”. The only reason for the claimant’s request was the hope that Formatk might agree a payout to the claimant to settle the proceedings, to avoid the embarrassment and commercial implications of having a judgment out in public domain which contained negative findings about the performance of one of Formatk’s products. This was against a background where the claimant had concerns about whether the defendant would be willing and able to pay the damages awarded by the court.

The judge refused to exercise his discretion to widen the embargo for a number of reasons:

• It would offend against the principle of open justice. It was “wrong in principle” that a party which has been successful in obtaining a favourable ruling should be enabled to make use of the draft judgment to seek to persuade a third party, which is likely to be unhappy with the judgment, to agree a payout in return for the successful party’s co-operation in seeking to ensure that the judgment never sees the light of day. In the judge’s view, it would be wrong for the court to be complicit with a party to put pressure on a third party in this way.
• It would be wholly inconsistent with the spirit and purpose of PD 40E and with the purposes for which a draft judgment is supplied to the parties and their legal advisers. In Prudential Assurance Company Limited v McBains Cooper [2000] 1 WLR 2000, the Court of Appeal observed that there was no indication in the provisions that were the predecessor to PD 40E that it was aimed at allowing the parties to have more material available to them to help settle their dispute. Rather, its purpose was to introduce an orderly procedure for the delivery of reserved judgments.
• Even where a dispute is settled after a draft judgment has been circulated, the judge has discretion as to whether to publish the draft judgment. In Prudential the Court of Appeal noted that this discretion arose as a matter of public policy as, otherwise, powerful defendants could pick and choose which judgments they were happy to see published and which judgments they were willing to pay money to suppress. The same public policy consideration applied to the claimant’s application in this case, where it was a third party that would be given the opportunity to pay money to suppress the judgment.
• The Court of Appeal in Prudential recognised that it may be appropriate to hand down the judgment in the public interest, even if the case has been settled, where the judgment deals with a point of general importance. The judge noted that, in the present case, his consideration of the requirements for collateral warranties, and the question as to whether loss of profits damages are available for breach in such cases, may be of general interest.
• This was not a case where the dispute had been compromised after the trial hearing but before the draft judgment was circulated: the court recognised that, in such a scenario, it would generally be inappropriate for the judge to hand down judgment.
• Even if the claimant could reach a settlement with Formatk, the judge said he thought there would need to be a settlement with the defendant before the possibility of avoiding a formal hand-down of the judgment would arise.

Finally, the judge commented that the position taken by the claimant in its closing submissions was "in stark contrast" to what was said in its opening, when its counsel had said the claimant wanted a judgment on the merits rather than a strike-out, because it wanted other people to know the dangers that the laser devices posed.

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