The Codemasters Software Company Ltd v Automobile Club De L'ouest

In deciding whether amendments and expert evidence should be permitted, the court held that the relevant question in recovering sums paid under a third-party settlement is whether the settlement itself was reasonable, not whether the claimant acted reasonably in reaching it.

Mitigation principles do not provide a defence to a claim under a contractual indemnity, although mitigation may be relevant to damages claims or, arguably, claims under warranties. The scope of an indemnity remains a matter of construction. Expert evidence must address a genuinely arguable and relevant issue and should be excluded where it concerns matters for the court or adds disproportionate and unhelpful material.

The proceedings concerned claims arising from a licence agreement for the inclusion of motor manufacturers’ marks and designs in a video game. The defendant sought amendments to its Defence and Counterclaim and permission to rely on expert evidence concerning lost profits, licence costs, the reasonableness of negotiations, removal of vehicles from the game, and alteration of promotional material.

The claimant argued that the proposed case improperly relied on mitigation, despite the relevant contractual provision being an indemnity giving rise to a debt claim. The court therefore considered the proper approach to settlements, mitigation, remoteness, causation and construction, and whether the proposed evidence was relevant and admissible.

1. Amendments and expert evidence. The proposed amendments were allowed only so far as necessary to permit the defendant to advance construction arguments. Expert evidence was admitted to a limited extent.
2. Reasonableness of settlements. Following Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314, and agreeing with the analysis in DSL Group Ltd v Unisys International Service Ltd (1995) 41 Con LR 33, the relevant question is whether the settlement was objectively reasonable. That differs from asking whether the claimant acted reasonably in reaching it. Evidence may be relevant to the reasonableness of the settlement even if it also bears on the claimant’s conduct.
3. Indemnity and mitigation. Following Royscot Commercial Leasing Ltd v Ismail (unreported: 29 April 1993), mitigation does not provide a defence to liability under a contractual indemnity where the sum is payable as a debt. That principle does not prevent a defendant from arguing, in an ordinary damages claim, that the liability to a third party should have been reduced by reasonable mitigation.
4. Other issues. The defendant had no arguable case based on mitigation as such or remoteness. Causation was left undecided. It was arguable that the warranty claim could in principle be subject to mitigation, and that the indemnity’s scope might be informed by the warranty provisions, although the construction argument was weak. The court also considered the scope of indemnity obligations by reference to The Eurus [1998] 1 Lloyd’s Rep 351.
5. Evidence concerning the likely lost profit from removing vehicles was relevant. Further evidence on licence costs and the reasonableness of negotiations was unnecessary or irrelevant. Evidence concerning removal of vehicles could be admitted if the construction argument succeeded. Evidence about altering the promotional video was excluded as unhelpful and disproportionate.

First-instance interlocutory decision in the High Court concerning amendments to pleadings and admissibility of expert evidence.