Hipgnosis Music Limited v Merck Mercuriadis & Ors

The claimant applied for a split trial so that liability and causation would be tried first and quantum at a later hearing. The court refused the application. The court applied the default case-management principle in CPR r.1.4(2)(i) and the established starting point that as many issues as possible should be tried together (citing Daimler AG v Walleniusrederierna Aktiebol [2020] EWHC 525 (Comm)).

The judge found the claimant's counterfactual valuation-based loss case was understandable and capable of being put by expert evidence but not so intractable as to require a split trial. Practical disadvantages of splitting (delay, likely repetition of factual witnesses, and increased aggregate costs) weighed strongly against a split trial. The court also considered the conventional approach of hiving off an account of profits but concluded that, on the material before the court, the account did not need to be hived off now; the account could be taken as part of the same trial, with liberty to revisit that decision if the case developed otherwise.

Background and parties:

• The claimant, Hipgnosis Music Limited (acting by its liquidators and as assignee of a claim vested in Hipgnosis Copyrights plc), alleged that the first defendant, Merck Mercuriadis, diverted a maturing business opportunity away from the claimant and Copyrights and set up the second and third defendants to pursue that opportunity. The second defendant later achieved a successful IPO and substantial market value.
• The claimant asserted breaches of directors' duties under the Companies Act and breaches of undertakings in a Shareholders' Agreement and a Service Agreement by the first defendant, and dishonest assistance by the second and third defendants.

Nature of the application: The claimant sought a case-management direction for a split trial: a first trial limited to liability and causation and a second trial limited to quantum (loss and account matters). The defendants opposed the split trial; one defendant proposed trial of all issues with the taking of an account to be hived off.

Issues framed by the court:

• Whether a split trial was necessary or desirable in the particular circumstances.
• Whether, alternatively, the account of profits should be hived off as conventional practice.
• Practical consequences of splitting the trial, including delay, witness repetition and costs.

Court's reasoning:

• The court started from CPR r.1.4(2)(i) and the established presumption that issues should be tried together where practicable. Daimler AG v Walleniusrederierna was cited as authority for the norm against splitting a trial.
• The claimant's counterfactual loss case (that, absent the breach, a business of similar value to that actually created would have been built) was admitted to be complex but capable of being trialled with expert evidence. The possibility that defendants might run alternative hypothetical scenarios did not make a split trial necessary at this stage.
• Practical disadvantages of a split trial—likely long delay (possibly about a year), probable need to call factual witnesses in both trials, and increased aggregate costs—militated strongly against an order for a split trial.
• The court accepted the conventional practice of hiving off an account of profits because of the claimant's election between compensation and an account, but on the material before it did not regard the account as sufficiently complex to require hiving off at this stage. The court left open the possibility of hiving off the account later if disclosure and expert evidence showed it to be necessary.

Outcome: The application for a split trial was refused; the court directed that all issues could be tried together, subject to reconsideration about hiving off an account if the case develops.

The claimant's application for a split trial is dismissed. The court concluded that, applying CPR r.1.4(2)(i) and relevant authorities, the trial should proceed so that liability, causation and quantum are determined together because splitting would produce substantial delay, duplication of witnesses and increased costs; an account of profits need not be hived off now but may be reconsidered later if necessary.