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Mr. Justice Teare :
This is another dispute as to where claims between parties should be heard. The Claimants wish the claims to be heard in England. The Defendant wishes the claims to be heard in France. The Defendant has issued an application seeking an order that the proceedings issued in England by the Claimants should be stayed. Any such stay is opposed by the Claimants.
The Claimants have also issued an application to amend its Claim Form. That application is opposed by the Defendant.
The background
The Claimants (two French companies) and the Defendant (an English company) are involved in the development, production and sale of medical devices such as syringes and feeding tubes. For some 10 years the parties were in an ongoing business relationship involving the production, distribution and certification of such medical devices. In late 2014 the Claimants were acquired by another company, Corpak. As a result of what the Claimants say were breaches of contract by the Defendant the relationship came to an end. The breakdown of that relationship has given rise to litigation in France and in England.
On 21 December 2014 Medicina France, a subsidiary of the Defendant, commenced proceedings against the Claimants in the Marseilles Commercial Court based upon Article L.442-6 of the French Commercial Code which imposes liability in tort for terminating a business relationship without reasonable notice, notwithstanding anything to the contrary in the contract. The proceedings commenced in December 2014 were an action en référé seeking emergency relief, in particular an order that the Claimants resume their business relationship with Medicina France. An order to that effect (ordering the Claimants to resume their business relationship for two months) was made on 10 February 2015. The evidence tendered by the Defendant to this court is to the effect that the action en référé is "finished" and not subject to appeal.
Also on 10 February 2015 Medicina France filed a motion before the Commercial Court in France seeking disclosure of documents in relation to an allegation of unfair competition. An order to that effect was granted on 17 February 2015. The evidence tendered by the Defendant is again to the effect that this proceeding is "finished".
On 19 March 2015 the Claimants issued the present proceedings in the English Commercial Court. The claim form alleged a repudiatory breach of contract by the Defendant which was accepted by the Claimants. Declaratory relief was sought, in particular, that the contract between the parties was governed by English law and subject to a non-exclusive jurisdiction clause in favour of the English courts, that the Claimants were entitled to cease to supply medical products to the Defendant and that the Claimants had no liability to the Defendant. The Claim Form was not served immediately.
On 30 March 2015 Medicina France commenced an action au fond against the Claimants before the Commercial Court in Marseilles in relation to the unlawful submission of a business partner to obligations creating a significant imbalance in the rights and obligations of the parties and also in relation to the unlawful termination of a contractual relationship without proper notice. The latter complaint was, like the action en référé, based upon Article L.442-6 of the French Commercial Code. However, there was unchallenged evidence from the Claimants' avocat that an action au fond and an action en référé are distinct and separate from one another. The action au fond concerns substantive proceedings on the merits which proceed to trial in the normal way, whereas the action en référé is a summary procedure most often used to prevent imminent harm, danger or unlawful activity. An action en référé does not become an action au fond. In the present case the action au fond is due for trial in February or March 2016.
I mention at this stage something which is not common ground but which is disputed. Evidence was adduced by the Defendant that on 13 March 2015 the Claimants' avocat called the Defendant's avocat and asked him not to serve the action au fond because she would be on holiday during the week 16-22 March 2015. The Defendant's avocat said that he acceded to that request and did not send the action au fond to the bailiff for service until 23 March 2015. It is further alleged that "in order to avoid litigating the case before the French jurisdiction" the Claimants "have organised the postponement of the service" of the action au fond "in order to prior seise the English court and then claim that the French Court should decline its jurisdiction". This serious allegation has been denied. The Claimants' avocat has said that she did not ask the Defendant's avocat to postpone service and was not aware of any intention by the Claimants to issue proceedings in England. There is a clear conflict of evidence. It is not possible for the court to resolve this matter on this application. It was raised for the first time on 1 October 2105, shortly before the hearing and long after the application to stay the English proceedings was issued on 11 August 2015.
On 17 April 2015 the Claimants served their Claim Form on the Defendant and on 20 April 2015 the Defendant acknowledged service. There was no challenge to the jurisdiction.
On 20 May 2015 the Claimants provided the Defendant with a proposed Amended Claim Form and with Particulars of Claim. The Amended Claim Form seeks, in addition to declaratory relief, the remedy of damages. Further, the remedy of damages is sought not only for breach of contract but also for passing off and conversion.
On 5 June 2015 Medicina France served a civil complaint seeking the enforcement of penalties granted by the Court on 10 February 2015 in the event that the Claimants did not resume their business relationship with Medicina France. It was accepted by counsel for the Defendant that this was a separate proceeding. That concession was consistent with the evidence that the action en référé commenced on 21 December 2014 was "finished".
Also on 5 June 2015 the Claimants issued an application to amend its Claim Form.
The submissions of counsel
Counsel for the Defendant made 4 submissions. First, he submitted that the sole purpose of the Claimants' proceedings in England was to frustrate the Defendant's proceedings in France and that they should therefore be stayed. Second, he submitted that it would not be just to grant the declarations sought by the Claimants and therefore the Claim Form issued and served by the Claimants seeking certain declarations should be stayed. Third, he submitted that pursuant to Article 30 of Regulation (EU) No 1215/2012 (to which I shall refer as the Judgments Regulation) the courts of France were first seised and that therefore the English court should stay the proceedings before it. Fourth, he submitted that the proposed Particulars of Claim have no real prospect of success and should be struck out.
Counsel for the Claimants submitted that permission to amend the Claim Form should be granted. He submitted that this court was the court first seised and that therefore this court had no discretion to stay the proceedings in this court pursuant to Article 30 of the Brussels Regulation. Finally, he submitted that the proceedings should not be stayed on any of the other grounds relied upon by the Defendant.
Abuse of process
It was submitted that the sole purpose of the English proceedings was to obstruct the French proceedings commenced by the Defendant in the Marseilles Commercial Court. This was said to be an illegitimate purpose with the result that proceedings should be stayed pursuant to the principles set out in JSC BTA Bank v Ablyazov [2011] 1 WLR 2996, especially at paragraphs 22-23.
The evidential basis of this submission is that in his witness statement Mr. Catterall, the solicitor acting for the Defendant, said at paragraph 10:
"It seems that the purpose of this claim was to obstruct the anticipated substantive proceedings in France under French law, instead of defending them in the French courts."
That evidence has not been denied.
In addition, reliance was placed on a letter dated 20 April 2015 in which the Defendant's solicitor asked the Claimants' solicitor why the proceedings had been issued. In response the Claimants' solicitors said in their letter dated 22 April 2015 that the English court was the court first seised and therefore that it was expected that the French court would stay the proceedings before it.
These matters support the case that at least one purpose of the Claimants in issuing proceedings in England was to cause the French court to stay the proceedings before it. However, the Claimants' solicitors also referred in their letter dated 22 April 2015 to the fact that the Claimants had made complaints of the Defendant's conduct. That must have been a reference to the matters upon which the Claimants relied to justify their termination of the relationship between the Claimants and the Defendant. The Claimants have a legitimate interest in establishing that their termination of the relationship was justified. In circumstances where it is the Claimants' case that the applicable law for the determination of disputes between the Claimants and the Defendant is English law it is not surprising that the Claimants wished to obtain a declaration to that effect from the English court together with a declaration that the Claimants were entitled to cease to supply products to the Defendant and that they had no liability to the Defendant in that regard. This is not therefore a case where the sole purpose in issuing proceedings is an illegitimate purpose. In JSC BTA Bank v Ablyazov it was held that where a claimant had two purposes for commencing proceedings, one legitimate and the other sufficiently collateral as to be illegitimate, their commencement would not be an abuse of the process of the court, even if the illegitimate purpose were the Claimants' predominant purpose. It follows that there is no cause to stay the Claimants' proceedings in this court as an abuse of process.
No prospect of success
It was submitted that the claim for declaratory relief had no real prospect of success and that it should therefore be stayed. The basis of this submission was that in considering whether to grant a declaration the court should take into account justice to the Claimants, justice to the Defendant, whether the declaration would serve any useful purpose and whether there are any other special reasons why or why not the court should grant the declaration: see Financial Services Authotity v Rourke [2002] CP Rep 14 per Neuberger J. It was submitted that in the present case justice requires that the Claimants should defend the Defendant's claim (brought in the Claimants' own country) on its merits and that that claim should not be obstructed by the procedural device of claiming declarations that have no useful purpose other than obstruction. However, as I have already said the suggestion that the proceedings are merely a "procedural device" with no purpose "other than obstruction" is mistaken. I therefore see no grounds for being able say that the claim for declarations has no prospects of success.
Article 30
Article 30 of the Judgments Regulation provides as follows:
"1. Where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings.
…….
3. For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings."
Counsel for the Defendant submitted that the proceedings in England and in France are "related actions" and the French court was the court first seised. He relied upon two arguments in this regard. It is convenient to take the second first because it concerns events in their chronological order.
The submission was that the French court was first seised in December 2014 when Medicina France, a subsidiary of the Defendant, commenced proceedings against the Claimants in the Marseille Commercial Court based upon Article L.442-6 of the French Commercial Code which imposes liability in tort for terminating a business relationship without reasonable notice, notwithstanding anything to the contrary in the contract. The English court was not seised until March 2015 when the Claimants commenced proceedings in this court.
Counsel for the Claimants submitted that since the action en référé commenced in December 2014 is "finished" those proceedings do not count because they are no longer pending. He further submitted that they were between different parties having been brought by Medicina France rather than by Medicina Limited and were of "a provisional kind".
Counsel for the Defendant submitted that the French proceedings should be looked at in the round. Adopting that approach the action en référé commenced in December 2014 and the action au fond commenced on 30 March 2015 should be regarded, for the purposes of the Judgments Regulation, as "of a piece", a "single procedural unit".
It is now established that the court should first ask whether the actions are related at the time of the hearing for the application for the stay and, if they are, ask which court was first seised; see Starlight Shipping v Allianz Marine & Aviation [2014] Bus L R 873 at paragraphs 75-76 per Lord Clarke.
As at the time of the hearing of the Defendant's application for a stay the action commenced in England and the action au fond in France were, it is common ground, related. That is no doubt because they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.
When deciding which court was first seised for the purposes of Article 30 there can be no doubt that a broad common sense approach is appropriate. In FKI Engineering Limited v Striborg Limited [2011] 1 WLR 3264 at paragraph 125 Rix LJ referred to the approach of Lord Saville in earlier cases that:
"the Convention/Regulation rules for lis pendens were designed to be approached in a broad commonsense way, free of over-sophisticated analysis or encouragement to satellite litigation. That approach is plainly supported by the Regulations' preamble. Rules should in general be highly predictable and the rules relating to lis pendens should provide a clear and effective mechanism for resolving relevant cases."
In applying Rule 30 in a broad commonsense way the purpose of the lis pendens rules as expressed in the preamble must be borne in mind. They are designed to minimise the possibility of concurrent proceedings and to ensure that irreconcilable judgments will not be given in two member states. This is also apparent from the definition of related actions in Article 30(3).
The action en référé is a separate proceeding from the action au fond. It was not a proceeding designed to resolve the substantive dispute between the parties as to whether the Claimants' termination of the contract between the parties was justified or not but was designed to provide emergency relief. Thus the action en référé and the proceedings in this court were not parallel proceedings which gave rise to a risk of inconsistent judgments as to whether the Claimants were entitled to terminate the relationship between the parties. By contrast, when the action au fond was commenced that action and the action in this court were parallel proceedings which gave rise to a risk of inconsistent judgments.
This understanding of the respective proceedings suggests that when deciding which court was first seised it is not appropriate to have regard to the action en référé. When one has regard to the purpose of the lis pendens rules in Article 30 the action en référé does not appear to be relevant because it was not designed to produce a judgment on the merits. By contrast, the English action and the French action au fond were designed to produce a judgment on the merits. Thus, adopting a broad and purposive approach, the court first seised of the substantive dispute in relation to which there was a risk of parallel proceedings with a risk of inconsistent judgments was the English court. The action in England was commenced on 19 March 2014 whereas the French action au fond was commenced on 30 March 2014.
This conclusion and reasoning is supported by the approach of Saville J. in Rank Film v Lanterna [1992] I L Pr 58. In that case Saville J. was concerned with, amongst other matters, Article 22 of the Judgments Convention (a predecessor of Article 30 of the Regulation) in circumstances where Lanterna had sought temporary relief from the Italian court on 22 November 1990 and one week later Rank had commenced an action against Lanterna in the Commercial Court in England. On 21 December 1990 Lanterna applied to the English court for an order staying the English action pursuant to the Judgments Convention. Ten days later Lanterna commenced further proceedings in Rome (in a different court from its first proceedings) claiming damages for Rank's alleged breach of contract. Saville J. rejected the application for a stay pursuant to Article 22. First, the November 1990 proceedings and the English action were not related because there was no risk whatsoever of irreconcilable judgments resulting if the proceedings remained. The temporary relief ordered by the Italian court was not a final order or judgment on the merits. Second, "the proposition that under Article 22 this court should stay Rank's claims on the merits in London because there is a pre-existing action in Rome in which it is not possible to hear and determine Rank's claims on the merits has only to be stated to be rejected."
Saville LJ, as he had become, applied the same approach in Boss Group v Boss France [1997] 1 WLR 351 in which case a company had terminated its relationship with another company. The defendants had commenced proceedings in France of a provisional nature on 8 July 1994 and the French court ordered the claimants to continue to trade with the defendants. On 28 September 1994 the claimants commenced proceedings in England seeking a declaration that they were under no obligation to trade with the defendants and that their relationship had been lawfully terminated. The defendants then applied to the English court on 29 November 1994 for an order that the English court had no jurisdiction. Saville J. referred to Articles 21-23 (on which no application had been based) and observed:
"In the present case it is important to note that it is not suggested that the French court was the court first seised of the matters in issue in the present case. It appears from the material put before us that the proceedings in France were of a provisional kind where the court did not seek to adjudicate finally upon the substantive merits of the case, which would, if heard in France be considered by another court altogether. "
Before reaching a final conclusion on this matter it is necessary to consider the decision of the European Court in Case C-296/10 Purrucker v Perez [2010] ECR I-11163. That case concerned rights to the custody of a child and was governed by Regulation (EC) No 2201/2003 concerning jurisdiction, recognition and enforcement in matrimonial matters and matters of parental responsibility (to which I shall refer as the Family Regulation). Article 19(3) of the Family Regulation is similar to Article 30 of the Judgments Regulation in that it provides that where the jurisdiction of the court first seised is established, the court second seised shall decline jurisdiction in favour of that court. Article 20 of the Family Regulation concerns provisional measures and provides that in urgent cases the provisions of the Regulation shall not prevent the courts of a Member State taking provisional or protective measures even though the courts of another Member State has jurisdiction as to the substance of the matter. It seems to me that notwithstanding the similarities between the Judgments Regulation and the Family Regulation caution is required when using the decision in Purrucker v Perez to interpret and apply the Judgments Regulation.
In Purrucker v Perez three sets of proceedings were commenced. The first was brought by the father in Spain concerning provisional measures relating to custody of the parties' children. The second was brought in Germany by the father concerning the enforcement of provisional measures ordered by the Spanish court. The third was brought in Germany by the mother and concerned the award of rights of custody. The Spanish and German courts differed as to which court was first seised (see paragraphs 49 and 50) and so questions were referred to the Court of Justice for a ruling (see paragraph 51) as to the meaning of Article 19(2) of the Family Regulation which provided that where proceedings relating to the same child and involving the same cause of action are brought before the courts of different Member states the court second seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established. The first question that was referred to the Court of Justice was: "Is Article 19(2) ….applicable if a court of a Member State first seised by one party to resolve matters of parental responsibility is called upon to grant provisional measures and a court of another Member State is called upon to rule on the substance of the matter."
The court's reasoning and conclusions on this question are to be found in paragraphs 64-86. Rather than set out those paragraphs in their entirety I shall attempt to summarise the court's conclusions. The court considered that lis pendens within of article 19(2) arises where actions before different courts of Member States are directed at obtaining a judgment capable of recognition in a Member State other than that of the court seised with jurisdiction as to the substance of the matter (paragraph 72). In that regard no distinction is to be drawn between the nature of the proceedings, whether they are proceedings for interim relief or substantive proceedings. The same is true of the Judgments Regulation (paragraph 73). The crucial issue is whether the claim before the court is directed at obtaining a judgment as to the substance of the matter (paragraph 75). Therefore in each case it will be necessary for the claim before the court to be carefully examined to see whether, whatever the nature of the proceedings, there is an action as to the substance of the matter (paragraphs 77-80). For example, it may appear that although a court granted provisional relief that relief was only a preliminary step towards a subsequent judgment to be delivered by that court when there is no longer a need for an urgent decision. In such a case the claim for provisional measures and the subsequent claim relating to matters of substance may constitute "a procedural unit" (paragraph 80). In its formal ruling the Court referred to an action on the substance of the matter being "linked" to the action to obtain interim measures.
It therefore appears that under both the Family Regulation and the Judgments Regulation the mere fact that the court in country A granted provisional relief will not mean that the court in country B where substantive proceedings were later commenced will be the court first seised. If the proceedings before the court in country A can, although they commenced with the grant of provisional relief, proceed to a determination of the substantive issue between the parties (as in an English action) then the court of country A can be regarded as the court first seised. The approach of the English court in Rank Film v Lanterna and Boss Group v Boss France is consistent with this approach.
In the present case the evidence of the French proceedings is to the effect that the action en référé is separate and distinct from the action au fond. As it was put by counsel for the Defendant in his Skeleton Argument "under French procedure interim injunctions …………are obtained in separate proceedings from substantive claims…." There was no evidence that the court before which the action en référé had been commenced could proceed to a final judgment on the merits. On the contrary the evidence was that it was the court before which the action au fond had been commenced that would proceed to a final judgment on the merits. There was no evidence of any "link" between the action en référé and the action au fond.
I have therefore reached the conclusion, applying a broad purposive approach to Article 30, and assisted by the approach of the English court in Rank Film v Lanterna and Boss Group v Boss France and by the approach of the Court of Justice in Purrucker v Perez, that the English court was the court first seised. It follows that the English court has no jurisdiction to stay the action before it; see Starlight Shipping v Allianz Marine & Aviation at paragraph 74.
Counsel for the Defendant had a further argument to the effect that if the Claimants obtained permission to amend its claim, its "new claim" would not relate back to the date of issue and the English court would be deemed to be seised of it when the amended claim was lodged with the court for issue. That occurred after the commencement of the action au fond in France and accordingly the French court was the court first seised. This was an argument which required the court not to follow the approach of the Supreme Court in Starlight Shipping v Allianz Marine & Aviation and to refer a question to the Court of Justice.
The premise of this argument is that the Claimants' proposed amendment raises a "new claim". I am not persuaded that it does. The claim for declaratory relief remains (see the final sentence of the Amended Claim Form and paragraph 30 of the Particulars of Claim) but there is added a claim for damages for breach of contract. This is not a new claim but the addition of a further remedy. The facts and matters out of which the claim for damages and declaratory relief arises are one and the same. Further causes of action are relied upon, passing off and conversion, but these all arise out of the same alleged conduct of the Defendant which is said to be a breach of contract (see paragraph 23 of the Particulars of Claim). Where additional remedies or causes of action arise out of the same facts and matters there is no "new claim" as explained by Auld LJ in Lloyds Bank PLC v Rogers (No.2) [1999] 38 EG 83 in the context of an analogous limitation issue.
There being no new claim counsel's second argument on "first seised" is without foundation. The question whether the English court is to be regarded as seised of a new claim added by amendment does not arise for decision. It is unnecessary to consider whether this court should follow the approach of Lord Clarke in Starlight Shipping v Allianz Marine & Aviation at paragraphs 84-88 (to the effect that the court must ask which court is seised of an action rather than if it is seised of a cause of action or of an issue) or should, as Lord Clarke might have done had the point been critical to the decision, referred a question to the Court of Justice (see paragraph 90).
I must therefore dismiss the application for a stay pursuant to Article 30 of the Judgments Regulation.
It was also suggested that the court should grant a stay on case management grounds on the grounds that the action au fond in France was due for hearing in February or March 2016 and that a stay would prevent the risk of a duplication of proceedings. However, the Regulation, in particular Article 30, is designed to prevent such risk and the court, being the court first seised, has no jurisdiction pursuant to Article 30 to grant a stay for the purposes of avoiding duplication of proceedings.
No real prospects of success
Finally, it is said that the Claimants' claim should be struck out on the basis that the particulars of claim have no real prospects of success. This submission is based upon the suggestion that the Claimants' case that the agreement between the parties remained in force until 2014 has no prospect of success in circumstances where the express terms of the agreement provided that it would be for a period of one year. In response the Claimants' evidence is that the parties continued to deal with each other on the terms of the agreement. It is also noted that the Defendant has not suggested that any other terms governed the parties' relationship. I therefore find it impossible to say that the Claimants' case as to the continued applicability of the contractual terms has no real prospect of success. With regard to breach the Claimants' case is supported by evidence. That evidence is challenged but that is a long way from saying that the Claimants' case on breach has no real prospect of success. I therefore dismiss the application to strike out the Particulars of Claim.
Amendment
There remains the application by the Claimants to amend their claim form. This was opposed by the Defendant on the grounds that it may prejudice the Defendant by enabling the Claimants "to argue that the entirely new claims now sought to be raised should be deemed to be have been commenced when the Claim Form was originally issued (even though they were not in fact) – thereby potentially depriving [the Defendant] of the possibility of having them stayed in this Court under Article 30 of the new Brussels Regulation, and enabling [the Claimants] to contend that [the Defendant's] action in the Marseilles Commercial Court should be stayed." However, it will be apparent from this judgment that the amendment does not enable the Claimants to argue that the English court was first seised. The English court was the first seised regardless of the amendment. Since the amendment arises out of the same facts and matters as were originally alleged there can be no reason to refuse permission to amend. The grant of permission will enable the matters in dispute to be justly tried and will cause no prejudice to the Defendant.
It was also suggested that permission should be refused as a means of avoiding duplication of proceedings. However, since the court has no power to grant a stay for that purpose pursuant to Article 30 of the Regulation I do not consider that it would be appropriate to refuse permission to amend for that purpose.
Conclusion
The court dismisses the Defendant's application for a stay and/or strike out and grants the Claimants permission to amend the Claim Form. I shall ask the parties to prepare an agreed order giving effect to this judgment and to the agreed transfer of the claim to the Chancery Division (because of the passing off claim and the related intellectual property claim commenced by the Defendant against Corpak in that division). |
The Honourable Mr Justice Flaux :
Introduction
The sole director and shareholder of the claimant company is Mr Neville Hendricks. His business and that of the claimant is the production of reality television programmes featuring the real lives of popular show business personalities. Specifically, for some seven years until the summer of 2011, when the dispute with which this case is concerned crystallised, the claimant had produced a series of reality television programmes featuring Mr Peter Andre the singer, initially concerned with his marriage to the model Katie Price (formerly known as Jordan), then after their divorce, featuring him and his life in programmes called "Peter Andre: The Next Chapter" and "Peter Andre: Here to Help". The claimant also produced reality television programmes featuring the singer (and former member of the group Atomic Kitten) Kerry Katona called "Kerry Katona: The Next Chapter".
These programmes featuring Peter Andre and Kerry Katona were broadcast by the defendant ITV2, part of the ITV group of television channels, with whom the claimant had a series of television production agreements. The most recent of these with which the dispute is concerned was an ITV2 Production Agreement contained in a letter from ITV2 to the claimant dated 9 December 2010. In respect of the programmes featuring Mr Andre, the agreement was for three years, with Peter Andre: The Next Chapter series 4 and 5 and Here to Help series 1 to be produced in the first year, Peter Andre: The Next Chapter series 6 and 7 and Here to Help series 2 in the second year and Peter Andre: The Next Chapter series 8 and 9 and Here to Help series 3 in the third year. In respect of the programmes featuring Kerry Katona, the agreement was for two or three years, with Kerry Katona: The Next Chapter series 2 to be produced in the first year and The Next Chapter series 3 in the second year, with series 4 to be made in the third year, subject to ITV2's right to break after the end of year 2. As the numbering of these series suggests, three series of Peter Andre: The Next Chapter and one series of Kerry Katona: The Next Chapter had been successfully produced by the claimant and had been or were going to be broadcast by ITV2 pursuant to earlier agreements.
The manager of both Peter Andre and Kerry Katona at that time was Claire Powell, whose company CAN Associates worked in close association with the claimant. Indeed the "CAN" in the names of both companies was an abbreviation for "Claire and Neville". Mr Hendricks and Ms Powell had been both business and personal partners for some years and had a son together who was six in 2011. Their physical relationship came to an end during the course of 2010, but initially the business relationship appears to have continued relatively unaffected. Both Mr Hendricks and Ms Powell were always involved in the editing process for each of the programmes produced before the programmes were sent to ITV2 as broadcaster. The final decision as to editing the programmes rested with ITV2.
It was the unchallenged evidence of Mr Hendricks and his former personal assistant and colleague, Nicola Partridge, who also gave evidence, that the editing process at the claimant, involving as it did the participation of both Mr Hendricks and Ms Powell, remained unchanged throughout the production of Peter Andre: The Next Chapter series 4, which was delivered to ITV2 on dates between 14 March and 6 June 2011, and would have remained unchanged in the production of series 5 had that ever been produced by the claimant. For reasons which will require elaboration hereafter, the series was never produced by the claimant, since on 17 August 2011, ITV2's solicitors wrote to the claimant terminating the Production Agreement for repudiatory breach by the claimant.
It is clear that, by some time in May 2011, relations between Mr Hendricks and Ms Powell had deteriorated considerably. It will be necessary to make detailed findings about the events between May and August 2011, but in broad terms they can be summarised as follows. What appears to have particularly incensed Mr Hendricks was the discovery that Ms Powell had taken her latest boyfriend Mr Drew Rush (who worked for the security company employed by the claimant) with her to Dubai during filming of a calendar shoot with Mr Andre and other clients and that they had been conducting their affair whilst his six year old son was around. He assumed that other people, including Mr Andre, had known about the affair but kept it from him. Mr Andre described in evidence an occasion when he was filming Here to Help in Harrow, probably on 19 May 2011, when Mr Hendricks had come to his dressing room and remonstrated about the affair between Ms Powell and Mr Rush.
By the beginning of June 2011, it is clear that Ms Powell was looking for an opportunity to replace the claimant as the production company for the Peter Andre programmes. She told ITV2 on the telephone and at a meeting on 20 June 2011, that Mr Andre had issues with Mr Hendricks. What those issues were was never explained to Mr Hendricks. At the meeting she suggested that a company other than the claimant be used to produce the Peter Andre programmes, but ITV2, through Ms Sarah Clarke, Director of Business and Legal Affairs, did not take her up on this suggestion.
At around the same time, on 17 June 2011, the management agreement between Ms Powell and Kerry Katona came to an end in somewhat acrimonious circumstances. The popular press picked up a rumour, which was untrue, that Ms Katona was having an affair with Mr Hendricks. He considered, with some justification that this rumour was being generated and spread by Claire Powell or people who worked for her or with whom she was on good terms. Ms Katona then consulted Max Clifford who, before his recent disgrace, was the supremo of celebrity management and he ensured that the rumour ceased.
It was this rumour and his anger about the affair with Drew Rush which led Mr Hendricks on 23 June 2011 to open a Twitter account entitled @TheNevCan. Within a short period of time he was in communication with two other twitter users, @LLuke33 and @KMaddock, neither of whom has been identified but both of whom appear to have been sufficiently close to Ms Powell and her circle of friends, including Mr Andre, to have been able to tweet intimate details of their private lives, often in the most scurrilous and vitriolic terms. Mr Hendricks himself tweeted some pretty unpleasant tweets over the period from 26 June to 17 August 2011. Although it is fair to say that most of his bile was reserved for Ms Powell, there were a few tweets which were directed at Mr Andre.
Although attempts were made to resolve the differences between the claimant and CAN Associates/Mr Andre and there were two mediation sessions on 27 July and 9 August 2011 which seem to have made some progress towards resolution, ultimately on 16 August 2011, Mr Andre's solicitors wrote a letter to the claimant's then solicitors Swan Turton saying the efforts to resolve the dispute had failed. The letter referred to grossly offensive messages on Twitter about Mr Andre and his team. It concluded that Mr Andre wanted no further dealings whatsoever with Mr Hendricks or the claimant.
ITV2's solicitors Quinn Emanuel were aware of that letter and it was that letter which almost certainly led to the letter the following day, 17 August 2011 from Quinn Emanuel terminating the Production Agreement with the claimant for alleged breaches of ITV's General Terms and Conditions which were said to have been incorporated into the Production Agreement. The letter accused the claimant of breaching the confidentiality provisions, undermining Peter Andre: The Next Chapter and undermining the relationship between the claimant and PJA Promotions. These were said not only to amount to Events of Default under the General Terms and Conditions entitling ITV2 to terminate the Agreement but a fundamental breach of the Agreement entitling ITV2 to terminate.
So far as Ms Katona is concerned, as I have said, after Ms Powell ceased being her manager, she was represented by Max Clifford. She had been approached by Channel 4 to take part in Celebrity Big Brother which she was anxious to do in order to make money to discharge her bankruptcy. With the assistance of Mr Clifford this was arranged. ITV2 was not keen on this proposal, contending that the claimant had undertaken that ITV2 would have the exclusive television services of Ms Katona and that the proposal would be a breach of that obligation. ITV2 was prepared, with some reluctance, to take four programmes rather than eight of Kerry Katona: The Next Chapter series 3 in the event that she appeared on Celebrity Big Brother. Mr Hendricks countered that he would agree to six. ITV2 sought to terminate the Production Agreement on 17 August 2011 also on the ground that the proposal that Ms Katona appear on Celebrity Big Brother was a fundamental breach by the claimant of its exclusivity obligation under the Production Agreement.
The proceedings
The Claim Form and Particulars of Claim were issued and served on 22 May 2012. The claimant's claim was and is that the purported termination by ITV2 by its letter of 17 August 2011 was wrongful and a repudiatory breach of the Production Agreement. The claimant claimed damages consisting of the lost profits which the claimant would have earned on the licence fees for the remainder of the Term, which were estimated at £6-7 million. The claimant also claimed £549,060 under an outstanding invoice delivered to ITV2.
The Defence and Counterclaim was served on 10 July 2012. It pleaded that the posting of the tweets by Mr Hendricks constituted breaches by the claimant of (i) an implied term of the Production Agreement that the claimant would not act in any way such as to damage the necessary relationship of trust and confidence in the relationship between Mr Andre as the subject of a reality television programme and the claimant as the producer of such a programme; (ii) an implied term that the claimant would use reasonable skill and care in providing services under the Production Agreement and (iii) various provisions in the ITV General Terms and Conditions. The effect of those breaches was said to be that (a) the claimant was unable to perform its obligations under the Production Agreement; (b) Mr Andre was unwilling and unable to render his services. Schedule 1 to the Defence and Counterclaim set out what the body of the pleading described as: "The full text of the tweets in question of which ITV2 is currently aware (and prior to disclosure)". The tweets set out in that Schedule were the sixteen tweets set out in the schedules to the termination letter. In relation to Ms Katona, the claimant was said to have been in breach of the exclusivity term in the Production Agreement. All these breaches were said to have been repudiatory and to have entitled ITV2 to terminate the Production Agreement. Various other breaches of the Agreement were alleged by ITV2 but those have not been pursued at trial.
It was pleaded in the alternative that the Agreement was frustrated because Mr Andre and Ms Katona became unavailable to perform their services, so that ITV2 was discharged from performance. ITV2 counterclaimed the repayment of all sums paid to the claimant under section 1 of the Law Reform (Frustrated Contracts) Act 1943.
ITV2 admitted that it had not paid the outstanding invoice. It claimed that some £264,886 fell to be deducted from the invoice because of a reduction in the number of programmes. It denied that the profits which the claimant could have earned could ever have been anywhere near £6-7 million and denied that this estimate was given in good faith. It counterclaimed on the basis that the claimant's breaches of contract had caused it loss and damage consisting of diverted management time incurred, including in mitigating its loss. The sum claimed was £284,174 which was said to extinguish or diminish anything otherwise due to the claimant.
The Defence was amended in November 2012 to add to Schedule 1 two further tweets both sent on 12 July 2011 (dealt with in more detail below), one from Mr Hendricks which I will refer to as the "I chose Nicola tweet" and one from Ms Partridge which I will refer to as the "Nicola Partridge tweet". At that stage therefore, only eighteen tweets were relied upon.
On 2 October 2013, ITV2 issued an application to re-amend its pleading to add to what now became Schedule 1A a substantial number of additional tweets from Mr Hendricks, including many which were alleged to have endorsed the tweets by @LLuke33 and @KMaddock. Tweets posted by those two tweeters were also relied upon. In all 302 tweets were relied upon. The reference in the body of the pleading to the tweets in the Schedule was now on the basis these were examples. Following directions concerning the re-amendment at a hearing before Cooke J on 4 November 2013, permission to re-amend the Defence and Counterclaim was eventually granted pursuant to a Consent Order of Leggatt J dated 16 July 2014.
Not long before the trial, on 16 June 2015, the claimant amended its Particulars of Claim to set out its case on the quantum of loss in more detail by reference to the expert evidence, including the Joint Statement of the experts dated 7 November 2014. The loss of profits claim was quantified as £5,251,320 alternatively £4,721,320. On 18 June 2015, ITV2 served a Re-Re-Amended Defence and Counterclaim. That reduced the deduction to be made from the claimant's invoice to £205,346. It continued to take issue as to whether the claimant had pleaded its case on loss of profits properly. It denied that the claimant was entitled to reimbursement of various costs claimed.
The contractual framework
The ITV2 Production Agreement
The contractual relationship between the claimant and ITV2 in respect of Peter Andre: The Next Chapter for series 4 onwards, Here to Help and Kerry Katona: The Next Chapter was governed by the ITV2 Production Agreement contained in a letter from ITV2 to the claimant dated 9 December 2010. The preamble to that agreement included the following:
"We refer to the separate agreement entered into by [ITV2] with PJA Promotions Limited ("Lender") of even date but effective as of 1st December 2010 ("the PA Agreement") relating to the services to be provided by Peter Andre ("PA") with respect to various series of programmes to be produced for ITV2 (and in any event not less than twenty two (22) hours each year in accordance with the terms of the PA Agreement) ("the PA Programmes") during the period of three (3) years commencing 1st December 2010 and expiring on 30th November 2013 ("the Term").
We also refer to the separate agreement ITV2 has reached with CATV (as detailed herein) regarding ITV2's commitment to commission CATV to develop and produce a minimum of an additional sixteen (16) hours (each year) of additional observational documentary programmes featuring Kerry Katona ("the KK Programmes") for the first two (2) years of the Term and CATV's commitment to procure the exclusive television services of Kerry Katona ("KK") during the Term so as to enable CATV to produce and deliver the KK Programmes."
The express terms of the Production Agreement then included the following:
"2 Production Role
2.1 It is agreed that, unless ITV2 and CATV agree otherwise in writing, CATV shall act as the production company in respect of each of the following Programmes: [the Agreement then set out the various series to be produced to which I have already referred at [2] above].
In accordance with the Terms of this Agreement provided always that CATV's production obligations shall be conditional upon and in respect of sub-clause 2.1.1 ITV's commissioning obligations shall be conditional upon:
2.1.1 with respect to the PA Programmes, the PA Agreement remaining in full force and effect;
2.1.2 ITV2 having paid all remuneration to PA in accordance with the terms of the PA Agreement;
2.1.3 ITV2 having paid CATV in accordance with the terms of this Agreement;
2.1.4 the provisions of clause 2.2 below.
2.2 CATV shall use reasonable endeavours to procure that Kerry Katona shall not during the Term (i) commit any criminal act or (ii) commit any action which is in breach of Ofcom rules or (iii) make any statement or do anything which is derogatory of ITV or likely (in the reasonable opinion of ITV2) to bring ITV or KK into disrepute or damage the good name and standing of ITV (or any of its officers, directors, agents or employees) or Kerry Katona. In the event of the occurrence of any of the above, ITV2 shall be entitled to immediately terminate this Agreement but only with respect to the production of future KK Programmes…In the event of any such termination of this agreement by ITV2 with respect to the KK Programmes for the reasons set out above, CATV shall not be deemed to be in breach of this agreement and this agreement shall remain in full force and effect with respect to the PA Programmes and the Other Programmes.
2.3 ITV2 confirms to CATV that it will commission and fully finance CATV by means of payment of the licence fees referred to in clause 2.4 below:
(i) to develop and produce twenty two (22) hours of the PA Programmes for each year of the Term as detailed in the PA Agreement and as further detailed in clause 2.1 above; and
(ii) to develop and produce sixteen (16) hours of the KK Programmes for the first two years of the Term (or any extension thereof, as agreed between the parties in accordance with clause 4.1 below) as detailed in clause 2.1 above (subject always to clause 2.1.4 above).
It is intended that the Programmes to be produced under this Agreement during the first year of the Term will be produced and transmitted by ITV2 in accordance with the dates set out in the First Schedule.
2.4 It is agreed that, unless ITV2 and CATV agree otherwise in writing, CATV shall act as the production company for all of the Programmes. CATV shall enter into a separate production and commissioning agreement with ITV2 with respect to each series of the Programmes to be produced under the agreement and the PA Agreement in the form attached hereto as the Second Schedule ("the ITV2 Licence Agreements") whereby ITV2 shall pay a licence fee to CATV for each of the Programmes in an amount of [£120,000 for each of the PA Documentary Programmes, £145,000 for each of the PA Format Programmes and £130,000 for each of the KK Programmes].
2.6 …Furthermore, CATV acknowledges and agrees that ITV2 shall require CATV to produce and deliver the Programmes in HD…and CATV shall submit a budget to ITV2 in respect of the HD costs for each of the Programmes to be approved in advance by ITV2 (such approval not to be unreasonably withheld or delayed)…ITV2 agrees that the extra HD costs for all series of KK Programmes and PA Programmes in 2011 are …£11,500 per episode and that, accordingly, ITV2 shall pay CATV the difference between such amount and the …3% figure referred to above.
8 Publicity and Sponsorship
8.3 …It is intended that PA and KK shall for so long as ITV2 continues to commission and exhibit the …Programmes be some of the faces of the services known as ITV2 and CATV acknowledges and agrees that such artists' image may be used by ITV2 to promote the ITV2 services or platforms…
9 Miscellaneous
9.7 Save for any ITV Licence Agreement and/or separate licence agreements which ITV and CATV may conclude relating to any of the Programmes, this agreement constitutes the entire agreement between ITV2 and CATV relating to the Programmes and the agreements at the date hereof and any variation to this agreement is valid only if it is in writing and is signed by or on behalf of each party."
Clause 4 of the Production Agreement headed "Review and Option to Extend Term" contained detailed provisions concerning ITV2's option to extend the Agreement in respect of KK Programmes for a third year, which it is not necessary to quote here. It is only necessary to note that there was no contractual obligation on ITV2 to extend the Term. It follows that for the purposes of computing any damages claimed by the claimant in respect of the loss of revenue from KK Programmes, only the first two years of the Term are relevant on the well-established principle that damages are assessed on the basis that the contract would have been performed in the manner least onerous to the defendant. Although Mr Mallin did not concede this point, he realistically did not pursue it in his closing submissions.
The First Schedule to the Production Agreement did not in fact set out the Production, Delivery and Transmission Dates for the various series, which were all "TBC" (to be confirmed). In the event, as set out in more detail hereafter, Peter Andre: The Next Chapter series 4 was filmed between the weeks of 3 January and 16 May 2011, edited between the weeks of 7 February and 23 May 2011, delivered to ITV2 between the weeks of 14 March and 16 June 2011 and broadcast on Thursdays between 21 April and 9 June 2011. So far as Here to Help series 1 is concerned, according to an Excel spreadsheet produced by the claimant after the trial, filming took place between the weeks of 28 March and 26 June 2011, editing between the weeks of 4 April and 31 July 2011 and delivery to ITV2 between the weeks of 11 July and 15 August 2011. The first programme in Here to Help series 1 was broadcast on Thursday 14 July 2011 with the other programmes following on subsequent Thursdays. However, because of the disputes which gave rise to this litigation, Peter Andre: The Next Chapter series 5 and Kerry Katona: The Next Chapter series 3 and subsequent series of all the Programmes were never made with the claimant as production company.
The Second Schedule to the Production Agreement was the template ITV2 Licence Agreement. ITV2 and the claimant entered into production and commissioning agreements in the terms of this template for Peter Andre: The Next Chapter series 4 and Kerry Katona: The Next Chapter series 2 on 26 May 2011 (but with effect from 28 March 2011) and for Here to Help series 1 on 25 May 2011 (but with effect from 14 April 2011). However, there is no allegation made by ITV2 in this litigation that there was any problem with the filming or editing of either of the Peter Andre series, which were successfully broadcast on ITV2. The alleged problems in relation to Mr Andre arose in the context of The Next Chapter series 5, in relation to which Mr Andre refused to start filming if Mr Hendricks and Ms Partridge were involved in the production. Because no series were made with the claimant as production company after Peter Andre: the Next Chapter series 4, Here to Help series 1 and Kerry Katona: The Next Chapter series 2, it follows that no licence agreement ever came into force in respect of the subsequent series.
That template agreement contained terms relating to the production and content of the Programmes produced pursuant to it, including granting final editorial control and approval rights to ITV2. By clause 4.15, ITV's General Terms and Conditions were to apply to any licence agreement. The ITV General Terms and Conditions set out the specific mechanics of matters such as production, delivery and the transfer of IP rights. They contained the following provisions upon which ITV2 rely:
"18.1.16 the Producer will not at any time do or say anything which is or may be considered by ITV2 (acting reasonably) to be detrimental or prejudicial to or to affect adversely the name, image, reputation or business of ITV2 or any member of the ITV Group or otherwise to bring ITV2 or any member of the ITV Group into disrepute.
23 TERM AND TERMINATION
23.2 Any one or more of the following events shall be an "Event of Default":
23.2.1. a party [here the claimant] commits a material breach of this Agreement or is in breach of any material term of this Agreement either of which is incapable of remedy or, if capable of remedy, is not remedied within 14 days of notice being given by the party not in breach to remedy such breach;
23.2.4 any of the Specified Persons [i.e. Mr Andre and Ms Katona] shall… be unable or unwilling fully and properly to render his or her services on the Programmes as contemplated herein and the Producer is unable to procure the engagement of a substitute approved by ITV (such approval not to be unreasonably withheld or delayed) within 14 days of notification from ITV.
23.3 If the Producer suffers or commits an Event of Default which in the reasonable opinion of ITV has or may:
23.3.1 affect the Producer's ability to deliver any Delivery Materials by the applicable Delivery Date;
ITV may…terminate this Agreement with immediate effect by notice to that effect to the Producer."
ITV2 also relies on: (a) clause 3.1 (failure to produce and deliver the Programmes strictly in accordance with the agreement); (b) clause 3.2 (failure to produce the Programmes to the standards of a first class producer of audio-visual programmes); and (c) clause 6.1 (failure to perform its obligations under the agreement as diligently and expeditiously as possible to the said standards).
The problem with ITV2's attempt to rely upon the ITV General Terms and Conditions is the obvious one that the Production Agreement itself does not incorporate those Terms and Conditions and no Licence Agreement (which would have incorporated the General Terms and Conditions) was ever entered in respect of the Peter Andre series which are the subject of the dispute. Mr Nambisan on behalf of ITV2 seeks to overcome that problem by relying on clause 9.7 of the Production Agreement, contending that on the true construction of that Agreement, the "entire agreement" between the parties consisted of the terms of the Production Agreement, the Licence Agreements and the ITV General Terms and Conditions.
I consider this point is completely hopeless. Quite apart from the fact that the object of an entire agreement clause such as clause 9.7 is to narrow the scope of what can be relied upon by way of contractual terms of the particular contract and not widen it, the clause conspicuously does not incorporate the terms of the template Licence Agreement even if no actual Licence Agreement is ever concluded in respect of the particular Programmes under consideration. The clause refers to "separate licence agreements which ITV2 and CATV may conclude relating to any or all of the Programmes" so that it expressly provides that only licence agreements actually concluded are part of the "entire agreement". It is no answer that licence agreements were concluded for Peter Andre: The Next Chapter series 4 and Here to Help series 1, because there is no dispute about those programmes and clause 2.4 of the Production Agreement provided that there would be a separate Licence Agreement for each series of Programmes, which there never was for series 5 or any subsequent series of the various Programmes. It follows that the General Terms and Conditions were not incorporated into the Production Agreement so far as series 5 or the subsequent series are concerned.
To the extent that ITV2 seeks to argue that there was a term of the Production Agreement that the claimant would not act in any way such as to damage the necessary relationship of trust and confidence in the relationship between the subject of a reality TV programme and the producer of such a programme, it can only do so on the basis that such a term was to be implied into the Production Agreement. Before considering the issue of implication of terms, I should consider the remaining agreements which formed part of the overall contractual framework and the issue of exclusivity in relation to Ms Katona.
The PA Agreement
The PA Agreement between ITV2 and PJA Promotions Limited (Mr Andre's company) dated 14 December 2010 (but with effect from 1 December 2010, matching the Production Agreement) incorporated Deal Terms, Special Conditions and ITV2's Terms and Conditions. Under clause 14 of the Deal Terms is a provision that ITV2 engages Peter Andre for the Contract Period (i.e. the same 3-year period as the Term of the ITV2 Production Agreement), and PJA Promotions agrees on behalf of Mr Andre to procure and provide his exclusive services in the field of television programming during the Contract Period. It concludes that PJA Promotions: "shall procure that for each Programme [PA] shall enter into an agreement for his exclusive services with [CATV] and no such agreement shall be deemed to be in breach of the exclusivity provisions hereof".
Term 11 of the Deal Terms provides that the "Artist's Minimum Commitment" ("AMC")" will be 22 Programme hours in each of Years 1 – 3. Clause 9.1 of the Terms and Conditions to the PA Agreement provides that PJA Promotions shall procure that Mr Andre shall be available to ITV2 and/or the claimant (as appropriate) on a first call basis at times to be agreed between the claimant and Mr Andre to ensure that he is able to satisfy the AMC. Clause 9.2 of those Terms and Conditions provides that ITV2 will procure that it commissions production of sufficient Programmes to ensure that he is engaged by the claimant for the AMC.
Clause 4 of the ITV2 Terms and Conditions headed "Exclusivity and Availability" sets out a detailed provision that PJA Promotions procures that Mr Andre will not, without ITV2's prior consent (not to be unreasonably withheld or delayed), take part in other television programmes or advertisements or commercials if in ITV2's reasonable opinion it would compromise the editorial impartiality of the Programmes or breach any OFCOM code or if such advertisement or commercial promotes another television channel. There is a detailed carve out in clause 4.3 excluding from this prohibition Mr Andre's existing commitments and matters such as guest appearances on chat shows or drama acting roles.
In early December 2010, Mr Andre signed an undated "Inducement Letter" addressed to ITV2 under which he consented to the execution and delivery of the PA Agreement, warranted that PJA Promotions was entitled to enter that Agreement and make his services available pursuant to it, agreed to render all the services required of him by that Agreement and agreed that in the event of a breach of his obligations under the Inducement Letter, ITV2 would be entitled to legal or equitable relief against him without any obligation of first resorting to or exhausting its legal right or remedies against PJA Promotions.
Before the present dispute arose, the claimant and PJA Promotions had entered into a production agreement (which I will refer to as a "filming agreement" to avoid confusion with the Production Agreement) in respect of each of Peter Andre: The Next Chapter series 1 to 3 for the services to be provided by Mr Andre in collaborating with the filming of the Programmes. Those agreements had been signed by or on behalf of Mr Andre, after the benefit of legal advice from his solicitors, without demur. They provided, inter alia, that PJA Promotions would provide the claimant with access to Mr Andre on an exclusive basis for the purpose of filming him with respect to the production of the Programmes. In May and June 2011, the claimant produced filming agreements in materially similar terms to those previous agreements for Peter Andre: The Next Chapter series 4, Here to Help series 1 and Peter Andre: The Next Chapter series 5 and submitted them to Mr Andre and his solicitors Clintons for signature. Notwithstanding the fact that the proposed filming agreements were in substantially the same terms as before and that Peter Andre: The Next Chapter series 4 had finished filming and Here to Help series 1 was close to filming being finished, Clintons refused to sign the agreements on behalf of Mr Andre, contending in correspondence with both ITV and the claimant's then solicitors, Swan Turton, that the terms of the agreements were not reasonable or transparent. As set out in more detail in the chronological findings of fact I have made, given that previous agreements in similar terms had been signed without demur after legal advice, this refusal has to be seen for what it was, part of an overall scheme by Ms Powell (to which Mr Andre was a party) to replace the claimant as the production company and a pretext for putting commercial pressure on the claimant and ITV2 to agree terms which they must have known would not be acceptable to Mr Hendricks.
The claimant did enter similar filming agreements with Ms Katona for the provision of her services for Kerry Katona: The Next Chapter series 1 and series 2. Clause 2.1 of each of those agreements provided:
"2.1 KK shall provide the Company with access to KK on an exclusive basis for the purposes of the filming of KK with respect to the production of the Programmes in accordance with the production schedule and details set out in Annex 2 and/or on such other dates as shall be jointly agreed in good faith by the Company and KK. KK shall make herself exclusively available for filming during the period [12th March 2010 until 4th September 2010 in the case of series 1 and 4th October 2010 and 22 April 2011 in the case of series 2]. It is acknowledged that KK's children and family and friends will also be filmed and that they will be featured in the Programmes."
The Exclusivity Term
One of the matters in issue between the parties is whether, on the true construction of the Production Agreement, there was an express obligation upon the claimant to procure that Kerry Katona provided exclusive television services to ITV2 during the Term of the Agreement. ITV2 contends that the provision in the preamble or recital to the Agreement: "We also refer to…CATV's commitment to procure the exclusive television services of Kerry Katona during the Term so as to enable CATV to produce and deliver the KK Programmes" is such an express obligation. It also contends that the reference to Ms Katona being one of the "faces" of ITV2 in clause 8.3 is only consistent with there being such an obligation of exclusivity. If she were free to appear on Channel 4 or any other channel, she could hardly be one of the "faces" identified by the public with ITV2.
Mr Mallin on behalf of the claimant contends that these words in the preamble are "pre-operative" by which he means that they are not an obligation in this agreement but a reference to a pre-existing commitment. On that basis, he submits that the court is entitled to look at the pre-contractual negotiations leading up to the Production Agreement to see exactly what the nature of that commitment was. He relies upon the evidence of Mr Hendricks that at a meeting in November 2010 with, inter alia, Mr Zai Bennett of ITV, he made it clear that the claimant could not give any undertaking as regards providing the exclusive services of Ms Katona because of her bankruptcy. That evidence was strongly contradicted by Ms Sarah Clarke for ITV2. Her evidence was that whilst ITV recognised that the bankruptcy made it impractical for Ms Katona to enter into a separate agreement with ITV2 along the lines of the PA Agreement, it was always the understanding of both parties to the Production Agreement that Ms Katona's television services would be provided exclusively to ITV2 and she said that Mr Hendricks gave a commitment to that effect at a meeting on 8 November 2010 which she attended.
I make detailed findings about the evidence later in the judgment and for the present simply record that I do not accept Mr Hendricks' evidence on this issue, essentially for three reasons. First, I do not consider that the suggestion that an undertaking of exclusivity could not be given because of Ms Katona's bankruptcy makes any sense. She may not have wanted to commit herself because a lucrative offer might come along which would help her discharge her bankruptcy, but in no sense was it not possible to give an undertaking of exclusivity because of her bankruptcy. This has all the air of an ex post facto attempt to exculpate the claimant for her seeking to appear on other television channels. Second, I am quite satisfied that ITV2 would never have agreed to her being free to go on other television channels and if Mr Hendricks had, as he suggested, told them he could not guarantee her exclusivity, I have little doubt that they would have insisted that he did make a commitment to procure her exclusivity. Third, the conversation which Mr Hendricks contends took place in which he said he could not guarantee her exclusivity because of her bankruptcy and ITV2 was apparently prepared to accept that, is wholly inconsistent with the preamble to the Agreement. Even if Mr Mallin were right that this was a reference to some prior agreement or commitment, what is referred to, a "commitment to procure the exclusive television services of Kerry Katona during the Term", is in unqualified terms, pointing strongly to there having been some such commitment, as Ms Clarke said in her evidence.
In any event, it seems to me that the point about the commitment being "pre-operative" is a non-point on analysis. As Mr Nambisan submitted, it is well established that, where the wording of a recital manifests a clear intention that the parties should do certain acts, the Court may infer from that wording a covenant to do such acts as if the instrument had contained an express agreement to that effect, citing Chitty on Contracts 31st edition [13-025]. Furthermore, where there is ambiguity within the operative parts of a contract and a recital is clear, the recital will govern the construction of the contract: see per Lord Esher MR in Re Moon (1886) 17 QBD 275.
Mr Mallin had an alternative submission that, if there was a contractual obligation on the claimant to procure the exclusive television services of Ms Katona, it was only an obligation to use reasonable endeavours to do so. The obvious difficulty with that submission is that, unlike the obligations in clause 2.2 concerning Ms Katona's behaviour, the commitment referred to in the preamble was unqualified by the words: "shall use reasonable endeavours". It is understandable why those obligations in clause 2.2 should be qualified in that way given what seems to have been her somewhat erratic behaviour in the past. Her behaviour was marginally less controllable by the claimant than procuring her exclusive television services, which was a question of ensuring a sufficiently tightly-drawn provision was inserted in the filming agreement between the claimant and Ms Katona. If clause 2.1 of the filming agreement with her did not ensure her exclusivity, which at least arguably, it should have done, the claimant should have imposed a stronger provision on her. In conclusion on the issue of exclusivity, I consider that it was a term of the Production Agreement between the claimant and ITV2 that the claimant would procure the exclusive television services of Kerry Katona.
Implied terms of the Production Agreement
The applicable test for the implication of terms is that set out in [21] of the speech of Lord Hoffmann in the Privy Council in A-G of Belize v Belize Telecom Ltd [2009] UKPC 10; [2009] 1 WLR 1988:
"It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must "go without saying", it must be "necessary to give business efficacy to the contract" and so on – but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?"
Following that reformulation of the relevant test, there was a certain amount of academic debate as to whether it was still the law that a term would not be implied into a contract unless it was necessary that the agreement should contain such a term to give effect to the agreement of the parties, although it might be thought that it was, from the fact that Lord Hoffmann expressly adopts necessity to give business efficacy as one way of expressing the test. That necessity is still required is made clear by the decisions of the Court of Appeal in Mediterranean Salvage and Towage Ltd v Seamar Trading ("The Reborn") [2009] EWCA Civ 531 and Marks & Spencer Plc v BNP ParibasSecurity Services Trust Company [2014] EWCA Civ 603; [2014] L&TR 26. In the latter case helpful guidance is provided in the judgment of Arden LJ at [26]-[28]:
"26 Furthermore, as this court made clear in Mediterranean Salvage and Towage Ltd v Seamar Trading and Commerce Inc ...The Reborn) [2009] EWCA Civ 531, and Mr Dowding submits on this appeal, the court will not imply a term as a matter of interpretation following the Belize approach unless it is necessary that the agreement should contain such a term to achieve the parties' express agreement, purposively construed against the admissible background. Lord Hoffmann also made this point in Belize:
'An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves.'
27 Mr Fetherstonhaugh accepts this but points out that the word "necessary" is imprecise, and that courts have not always applied this test strictly (see per Lord Wilberforce in Liverpool City Council v Irwin [1977] AC 239). I agree that what is necessary must depend on the particular type of contract. So, for example, the House of Lords implied a term that directors should use their power under their company's articles to pay bonuses so as not to frustrate the expectations of holders of annuity policies which contained a guaranteed annuity rates (Equitable Life Assurance Co Ltd v Hyman [2002] 1 AC 408). In this case, however, there is little admissible evidence of communications between the parties beyond that contained in the lease, and so the exercise admits of less room for argument than might otherwise have been the case.
28 However, I would accept that a party does not show that a term is unnecessary simply by showing that the parties' agreement could work without the implied term. That approach overlooks the fact that as part of the process of interpretation the court seeks to find the parties' common aim in entering into the agreement. A term may be implied if it is necessary to achieve the parties' objective in entering into the agreement."
What ITV2 contends for in the present case is an implied term of the Production Agreement that the claimant would not act in any way such as to damage the necessary relationship of trust and confidence in the relationship between the subject of a reality television programme and the producer of such a programme. What is immediately striking about this implied term is that it is not said to involve a relationship of trust and confidence between the parties to the Agreement, ITV2 and the claimant, but between the claimant and a third party, Peter Andre.
Even where the alleged implied term of trust and confidence is said to arise between the parties to the contract, the courts have been reluctant to permit implication of such a term into a commercial contract like the present. For example, in Bedfordshire County Council v Fitzpatrick Contractors [1998] 62 Con LR 64, Dyson J (as he then was) refused to imply such a term into a highway maintenance contract, stating:
"…the court should in any event be very slow to imply into a contract a term, especially one which is couched in rather general terms, where the contract contains numerous detailed express terms such as the contract in this case. In my judgment, in such a case, the court should only do so where there is a clear lacuna. The parties in this case took a great deal of trouble to spell out with precision and in detail the terms that were to govern their contractual relationships. The alleged implied term is expressed in broad and imprecise language. I can see no justification for grafting such a term onto a carefully drafted contract such as this."
That reasoning and approach were adopted by HHJ Peter Coulson QC (as he then was) in relation to a franchise agreement in Jani-King (GB) Ltd v Pula Enterprises Ltd & ors [2007] EWHC 2433 (QB). The authorities and principles to be applied when considering an implied term of trust and confidence were recently helpfully reviewed by Richard Spearman QC (sitting as a Deputy High Court Judge in the Chancery Division) in Chelsfield Advisers LLP v Qatari Diar Real Estate Investment Company & Ors [2015] EWHC 1322 (Ch). That case concerned the implication of such a term of trust and confidence into the contract between the parties said to have the relevant relationship, there a contract between the promoter of a property development project and the intended development manager.
The learned deputy judge recognised that in certain categories of contract, specifically contracts of employment, there may be such an implied term implied by law as an incident of all such contracts, citing the decision of the House of Lords in Malik v Bank of Credit and Commerce International [1998] to that effect. However, he was not prepared to imply such a term into the contract before him. At [61]-[62] of the judgment, he said this:
"Accordingly, Malik v Bank of Credit and Commerce International SA [1998] AC 20 is authority for the proposition that there may be implied by law as an incident of all contracts of a certain description (in that case, contracts of employment) mutual obligations that each party will not conduct itself in such a way as, assessed objectively, is likely to destroy or seriously damage the trust and confidence that is required if their relationship is to continue in the manner that the contract implicitly envisages.
In my judgment, that is a far cry from the implied term for which Mr Choo-Choy contends in the present case, which (a) does not relate to a class of contract in respect of which any such implication has previously been recognised in any decided case to which I have been referred, (b) does not depend upon one party conducting itself in breach of an implied promissory obligation, and (c) would give rise to a right to terminate the contract not on the basis of any objective criteria but instead on the subjective basis that the other party genuinely considers that trust and confidence has broken down. In this regard, in argument Mr Choo-Choy made clear that the test for which he contended was that loss of trust and confidence had to be genuine or honest, but did not have to be reasonable."
The learned deputy judge pointed out later in his judgment that many of the arguments advanced in support of the alleged implied term could be made in relation to the implication of a duty of the utmost good faith, but that outside those categories of contract where such a duty was implied as a matter of law [such as insurance contracts] the courts would not imply such a duty. At [80] he addressed this point:
"I am in any event very sceptical about the suggested implication. It seems to me that arguments to like effect as many of the submissions made by Mr Choo-Choy could be made with regard to the implication of a duty of good faith. However, although a duty of good faith is implied by law as an incident of certain categories of contract (including contracts of employment), the general rule in commercial contracts is that 'If the parties wish to impose such a duty they must do so expressly' (see Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest) [2013] EWCA Civ 200, Jackson LJ at [105]). I consider that the case is stronger still for saying that if the parties wish to produce the result that each of them has the right to terminate the contract in the event that it loses trust and confidence in the other, even when the other party is not in breach of contract and if that may be unreasonable, then they should do expressly."
Mr Nambisan was not able to point to any authority where an implied term of trust and confidence had been implied into a television or film production agreement between the parties to the agreement, let alone between one of the parties and a third party. He sought to justify the implication of the term contended for by reference to the particular characteristics of reality television programmes. These were set out in Ms Clarke's witness statement and were largely accepted by Mr Hendricks in evidence and can be summarised as follows:
(1) Reality television programmes are underpinned by the concept of exclusivity, in that they provide exclusive access to both public and behind the scenes aspects of the subject's daily life.
(2) The subject necessarily agrees to provide access to his or her daily life, including to interaction with family members and friends.
(3) The subject must be sufficiently comfortable with the people who film, edit and produce the programmes in question.
(4) Image and "brand" are of central importance in return for allowing the intimate access and the subject expects and is entitled to expect the programmes to portray him or her in a sympathetic light.
(5) Content must be up to date maintaining relevance.
Despite the emphasis placed by ITV2 and Mr Nambisan upon these allegedly unique characteristics of reality television, I am unconvinced that they even begin to justify the implication of the term alleged. Ultimately, this intimate access to his private and public life is provided by Mr Andre in return for a substantial fee and the contractual relationship is a commercial one like any other. Since Mr Hendricks did not appear in any Peter Andre: The Next Chapter programmes after episode 4 of series 4 which was filmed in February and March 2011 and it was not intended that he would appear in any of the series 5 or Here to Help programmes, concern about Mr Hendricks being on set was misplaced. There was no suggestion by Mr Andre that he was not comfortable with the film crew who filmed the various programmes.
It seems to me that Mr Andre does not have to like or have particular trust and confidence in Mr Hendricks as editor and producer, since ITV2 as broadcaster would have exercised its rights under the Licence Agreement to correct any deficiencies in his editing or producing or simply have refused to broadcast the programmes in question. In fact of course, at the very time when Mr Andre claims that he had lost or was losing trust and confidence in Mr Hendricks in the period May to July 2011, Mr Hendricks was editing both Peter Andre: The Next Chapter series 4 and Here to Help series 1 properly and professionally. There was no complaint by Mr Andre or ITV2 about the editing or production of those programmes or suggestion that Mr Andre's image or brand had been adversely affected by that editing or production.
The allegations made by Clare Powell and Peter Andre about loss of trust and confidence in the claimant and Mr Hendricks, which I will consider and analyse later in the judgment really demonstrate that the alleged implied term suffers from precisely the same defect as the judge identified in [62] of Chelsfield, that the question of whether it was breached would not be determined on the basis of any objective criteria, but on an entirely subjective basis. Indeed the position would be worse than in that case, because it is not even a question of whether the other party to the contract genuinely considers that trust and confidence has broken down, but of ITV2 having to assess whether the protestations of the third party are genuine or not, whether the conduct in question viewed objectively is such as should cause the breakdown of trust and confidence and whether it has in fact caused such a breakdown. This sort of subjective analysis is inappropriate in the performance of what is a commercial contract between ITV2 and the claimant.
Furthermore, the implication of the proposed implied term is not necessary in the sense that it is not necessary for the Production Agreement to contain such a term in order to achieve the parties' express agreement construed against the admissible background. This agreement was, as I have shown above, part of a contractual framework negotiated between experienced lawyers on both sides and, had they thought such a term was necessary, no doubt they would have included an express provision. In the circumstances, there is no scope for the implication of the proposed term.
Contrary to the thrust of some of Mr Nambisan's submissions, this does not leave ITV2 without a remedy in a difficult situation. If the behaviour of Mr Hendricks in relation to the tweets or otherwise was such as to evince an intention on the part of the claimant not to perform the Production Agreement, leading ITV2 reasonably to conclude that the claimant no longer intended to be bound by the contract, that would amount to a renunciation of the contract entitling ITV2 to terminate for that breach. I consider in more detail later in the judgment the question whether there was a renunciation of the Production Agreement by the claimant.
So far as the implication of other terms into that contract is concerned, it is common ground that the Production Agreement contained a term implied by law, under section 13 of the Supply of Goods and Services Act 1982, that the claimant would perform its services with reasonable care and skill.
The witness evidence
Before setting out my detailed findings of fact, I propose to summarise the view I formed of the various witnesses who gave evidence. For the claimant, Mr Hendricks and Ms Partridge were called. Mr Hendricks was an engaging personality. He comes from a relatively humble background and has made a successful career in music management and, latterly, reality television, where (certainly until this dispute) he was one of the most respected producers of this particular genre of television, which in a very real sense, he had devised. He is, by his own admission, a volatile character and often foul-mouthed, but I was simply not prepared to accept that he was capable of the level of violence ascribed to him by Mr Andre and Ms Powell. Whilst it is true that, when angry he made some very unpleasant threats in his tweets, it is clear that he would not have carried them out, since although his temper was quick to rise, that temper would evaporate as quickly as it came. I do not consider that either Mr Andre or Ms Powell felt genuinely threatened by Mr Hendricks and I reject utterly any suggestion that he made death threats, a matter to which I return in detail below.
I found him to be an essentially honest witness. Although I could not accept his evidence about having told ITV2 that an undertaking of exclusivity could not be provided in relation to Ms Katona and I preferred the evidence of Ms Clarke on that issue, in all other respects where his evidence and that of Ms Clarke was in conflict (specifically in relation to the meeting on 20 June 2011), I preferred his evidence. The other area where I was somewhat sceptical concerned whether he had said something very unpleasant about Mr Powell to his builder Mr Clinton Gadd. I considered that in all probability he had said something unpleasant, although falling a long way short of the death threats against her which Mr Andre alleged Ms Powell had told him that Mr Gadd had told her Mr Hendricks had made.
Ms Nicola Partridge was a patently honest witness who was clearly still understandably upset at the way she had been treated by Ms Powell and Mr Andre. She gave her evidence in a measured and dignified manner. To a very large extent, her evidence in her witness statement was unchallenged by Mr Nambisan on behalf of ITV2. Furthermore, he did not put to her some of the matters which were being alleged against her by Ms Powell and Mr Andre, specifically that whilst on the film set of the Peter Andre programmes she was in effect acting as a "spy" for Mr Hendricks reporting back to him on the telephone about what was happening. I do not accept Mr Andre's evidence about Ms Partridge constantly reporting back to Mr Hendricks. Her evidence about the editing process was also unchallenged. She said that Ms Powell and she were involved in viewing the first cut and integral to the editing. There was no change in that procedure after Mr Hendricks and Ms Powell fell out or in the editing of Here to Help or Peter Andre: The Next Chapter series 4.
The claimant also called Mr Clinton Gadd, to whom Mr Andre alleged Claire Powell had told him the death threats were made, in order to counter the suggestion that any death threats were made. In his short witness statement, he described something very unpleasant Mr Hendricks had said about Ms Powell, but which fell a long way short of being a death threat and which was said after termination of the Production Agreement, not some time in June 2011 as Mr Andre alleges. Mr Gadd gave his oral evidence in somewhat peculiar circumstances, in that he was interposed during the cross-examination of Mr Hendricks, with Mr Nambisan showing a disinclination to cross-examine Mr Hendricks about the death threats. After I had indicated that the court expected ITV2 to cross-examine Mr Hendricks about such a serious allegation, if it was proposed to call Mr Andre to repeat the allegation, Mr Nambisan only in fact put to Mr Hendricks what Mr Gadd contended he had said to him, which as I have said was not a death threat. Mr Hendricks denied saying this. Mr Gadd was then called, but Mr Nambisan did not put to him the death threats alleged by Mr Andre, only cross-examining him about the timing of the comment Mr Hendricks had made to him about Ms Powell. Mr Gadd said that he had looked at various emails and thought that it was on 16 September 2011 that he and Mr Hendricks had the relevant conversation in his office. At the actual time of termination he was on holiday and he said that the conversation could not have been before. I see no reason not to accept that evidence.
Ms Sarah Clarke is a solicitor who, having worked in private practice for nearly ten years, joined ITV in 2009 originally as Head of Commercial Affairs. After a period of maternity leave immediately after the events with which the current dispute is concerned, she took up her current role as Director of Legal and Business Affairs in May 2012. Ms Clarke was essentially an honest witness, but she was put in a difficult position because, for whatever reason, she was the only representative of ITV2 called to give evidence. Accordingly, she was in effect the "mouthpiece" for the defendant, occasionally driven to defend positions taken by ITV2 which were difficult to defend. Her evidence about the meeting with Mr Hendricks on 20 June 2011 was an example of this. She persisted in maintaining the position that Mr Hendricks had raised the question of editing and that there had been a discussion about a solution to the editing process, that Mr Hendricks should step back and someone else come in to edit the programmes. In my judgment, for reasons I develop in detail later, it is inherently unlikely either that Mr Hendricks raised the question of editing or that there was a discussion about the editing process. Ms Clarke did not really have a clear recollection of the meeting and fell back on her witness statement, which I had the distinct impression did not really set out her actual recollection. On this issue I much preferred the evidence of Mr Hendricks.
Mr Peter Andre is a successful performer both as a pop singer and as the star of reality television and it is clear that his success is due in part to an engaging manner. However, he was an extremely unsatisfactory witness. Much of his evidence was (i) exaggerated, for example his evidence about the effect on him of Mr Hendricks' tweets and some frankly ridiculous evidence about everyone on the film set shaking in fear of Mr Hendricks even though he was not on the set at all or anywhere near it, or (ii) designed to show himself in a good light, for example his refusal to accept that he had wanted Ms Partridge removed from the programmes, in the face of correspondence from his own solicitors making that one of the conditions of continuing to work with the claimant. Regrettably I formed the view that on some issues his evidence was not truthful. Two examples are (i) his attempt to avoid knowledge of the fact that Ms Powell was writing to his own solicitor on 2 June 2011 discussing the removal of the claimant as production company, by claiming that he never read emails "cc'd" to him; and (ii) his evidence about what he alleged Ms Powell told him about the death threats, which I have concluded was a complete fabrication designed to denigrate Mr Hendricks and bolster Mr Andre's exaggerated evidence about the impact of the tweets. I suspect that Mr Andre was driven to some of the extremes he exhibited in his evidence out of loyalty to Ms Powell, but that did not make his evidence any more impressive or credible.
There were a number of other potential witnesses who one might have expected ITV2 to call to give evidence. Obviously, there is Ms Powell herself, although since she is not an employee of ITV2, one can see that it might not have been possible to procure her cooperation. Ms Zolkwer on the other hand is still employed by ITV and could have given useful evidence about her dealings with both Mr Hendricks and Ms Powell.
The parties called forensic accounting experts on the issues of quantum raised by the claim and the counterclaim. Ultimately, as is so often the case, there was not all that much between them, certainly as regards the claim. The claimant called Mr Frederick Brown a Client Service Director at Grant Thornton LLP. He gave his evidence in a straightforward and objective manner and was careful to limit himself to matters which were within his area of expertise. ITV2 called Mr Gregory Harman of FTI Consulting LLP. He was clearly an experienced expert witness. I have no doubt he was endeavouring to assist the court, but at times I felt that his evidence assumed positions which meant it was not as objective as it might have been. He also had a tendency to seek to give evidence about matters which were for the court rather than for him. Where their evidence differed, I preferred the evidence of Mr Brown.
Factual chronology
The history of the relationship with Peter Andre and Claire Powell before 2011
Much of the past history of the professional relationship of the claimant with Mr Andre and Ms Powell is not controversial and is set out in Mr Hendricks' first witness statement.
Mr Hendricks has known Claire Powell for the best part of twenty years. In 1999, they started a personal relationship which continued on and off until about February 2011. They have a son together, Nysna, who is now eight. They set up CAN Associates Limited, a PR and Celebrity Management company of which they were both directors, in 2002. In 2004, Mr Hendricks set up CAN Associates TV Limited (the former name of the claimant) of which he was the director and Ms Powell was company secretary. The purpose was to have a television production company to produce television programmes starring the clients whom Ms Powell managed, particularly reality television programmes the production of which was a particular skill of Mr Hendricks. One of Claire Powell's clients was Peter Andre and it was through her that Mr Hendricks met Mr Andre. In evidence Mr Andre said he had known Ms Powell over twenty years and she was one of his best friends.
At around that time in 2004, Peter Andre had appeared in "I'm a Celebrity, Get me out of here" enduring the privations of life in the jungle. Whilst there, he met and started a relationship with the model Katie Price (then known as "Jordan"). Mr Hendricks invested his own money in filming them together from the time they came out of the jungle and this developed into a highly successful reality television programme "Katie and Peter" produced by the claimant. This raised the public profile of Mr Andre to a considerable extent, his popularity having dipped prior to going into the jungle. Mr Hendricks also worked with Mr Andre on his albums and his tours. He also assisted Mr Andre financially.
Mr Andre and Ms Price split in 2009. The evidence of both Mr Hendricks and Ms Partridge was that the tactic adopted by Claire Powell as his manager was to portray him as the victim in the break-up and demonise Ms Price. In cross-examination, Mr Andre indignantly rejected any such suggestion and it is not necessary to resolve any issue about that aspect of the history. Suffice it to say that the split increased public interest in Peter Andre and it was that which led to the production by Mr Hendricks and the claimant of reality television programmes which allowed access to Mr Andre in the immediate aftermath of the split and thereafter rebuilding his life. Initially there was a one off special entitled Peter Andre: Going it Alone broadcast in August 2009, followed by the first series of Peter Andre: The Next Chapter, which was filmed four or five weeks after the split.
Mr Hendricks' evidence was that in August/September 2009 he decided that he no longer wanted to be in a relationship with Ms Powell and moved out of the house they shared together. On the business front, he transferred his shares in CAN Associates to her and he owned the claimant. He remained a director of CAN Associates and she remained company secretary of the claimant. He said they intended to and did work together seamlessly, including continuing to work together on Mr Andre's programmes and career.
After the filming of any given reality television programme, a process of editing the rough cuts of filming took place with a view to reducing what was sent to ITV2 pre-broadcast. Mr Andre described 200 hours of filming being reduced to 20 hours, which presumably was a reference to the filming of a whole series. The evidence of Mr Hendricks and Ms Partridge (who was not challenged on this point) was that Ms Powell was always involved in this editorial process with Mr Hendricks and continued to be involved to the same extent as before, even after their relationship turned sour in the spring and summer of 2011. That is a matter to which I return in detail later in the judgment.
Mr Hendricks said that in late 2010 they tried again to see if their personal relationship could work. Indeed, they can be seen together with their son on Mr Hendricks' shoulders enjoying a bonfire night party in episode 8, the last episode of Peter Andre: The Next Chapter series 3, which was presumably filmed some time in early November 2010 and was delivered to ITV2 on 22 November 2010. However, Mr Hendricks' evidence was that by January 2011, he knew the relationship was over, as all they ever talked about was work. Nonetheless the split was amicable and they continued to work together. Again they can be seen sitting next to each other, apparently perfectly amicably, at a family dinner of Mr Andre's in episode 1 of Peter Andre: The Next Chapter series 4, filmed in January 2011 and delivered to ITV2 on 30 March 2011.
In his witness statement Mr Hendricks says that in all the time they knew each other, he and Mr Andre rarely had any issues. He does say Mr Andre was obsessed with not being seen to be the bad guy. That was certainly a characteristic which manifested itself in his evidence in cross-examination, specifically in his insistence, in the face of contemporaneous correspondence from his own solicitors to the contrary, that he had never wanted Ms Partridge removed from involvement in the filming and production of the programmes, a matter to which I return in more detail below. In cross-examination, specifically about the alleged death threats, to which I also return in detail below, Mr Andre's evidence in answer to questions from me was that Mr Hendricks had a tendency to lose his temper and to become aggressive and threatening throughout the period from 2004 onwards that Mr Hendricks was involved in his management. That evidence is of some significance, since it inevitably casts doubt upon the extent to which Mr Andre's assertion that he lost trust and confidence in Mr Hendricks subsequently was genuine, as opposed to siding with his manager of 20 years and close friend in seeking to engineer the replacement of the claimant as the producer of his reality television programmes. This is also a matter to which I return in more detail below.
Negotiation of the Kerry Katona agreements
Before turning to deal with events leading to the complete souring of relations between Mr Hendricks and Ms Powell, I should deal with the negotiation of the Kerry Katona agreements. Ms Katona was another artist managed by Ms Powell. Mr Hendricks first approached ITV2 in early 2010 about the production of reality television programmes showing Ms Katona's life after her move down south from Manchester. ITV2 was initially reluctant because of her well-publicised personal difficulties, including drink and drug issues. She was also an undischarged bankrupt. A first series of Kerry Katona: The Next Chapter was filmed successfully during the course of 2010 and Mr Hendricks then sought a deal with ITV2 for the broadcast of reality television programmes involving Ms Katona. In October and November 2010, there were negotiations between Ms Clarke on behalf of ITV2 and Mr Jeremy Gawade of Lee and Thompson, the claimant's then solicitors in relation to what became the Production Agreement entered into on 9 December 2010, covering both Mr Andre and Ms Katona.
In those negotiations, ITV2 were seeking an arrangement whereby Ms Katona would contract direct with them in the same way as PJA Promotions did for Mr Andre, but there were evidently difficulties with that because of her bankruptcy. In an email to Mr Gawade (copied, inter alia, to Mr Hendricks) of 4 November 2010, Ms Clarke sought clarification of whether Ms Katona would be able to contract direct with ITV2. A meeting was arranged for Monday 8 November 2010 at which this issue amongst others was to be discussed.
Mr Hendricks' evidence in his witness statement was that he had explained to ITV2 that she could not enter into the same type of exclusive contract with ITV2 as Mr Andre as all her monies would go to her trustee in bankruptcy. He said he negotiated a deal with her trustee whereby her fees for each show were included in the production fee ITV2 paid the claimant, as in that way he could control her monies whilst he tried to negotiate her way out of bankruptcy. In cross-examination, Mr Hendricks expanded on that evidence and said that this explanation that Ms Katona could not enter an exclusive arrangement was given to Mr Zai Bennett, Director of Digital Channels at ITV at a meeting.
It was accepted by ITV2 that Mr Hendricks had explained that Ms Katona could not contract direct with ITV2 in the way that Mr Andre had through PJA Promotions because of her bankruptcy, but it was strongly disputed that he had ever explained that she could not provide an undertaking of exclusivity or that ITV2 had ever agreed to this. Ms Clarke said in cross-examination that she was at a meeting with Mr Hendricks and Ms Powell and Mr Bennett and Adam Crozier for ITV. She did not recall any issue about Ms Katona's bankruptcy being raised at that meeting. The issue was raised by Mr Hendricks at the meeting with her and Mr Gawade on 8 November 2010. Mr Hendricks had explained that Ms Katona could not enter a direct contract with ITV because of her bankruptcy, but she said it was "absolutely not correct" that there was a discussion about Ms Katona not being able to enter any exclusivity deal. She said that she recalled very clearly that, at the meeting Mr Hendricks had said that although there could be no direct contract between Ms Katona and ITV, the claimant would procure her exclusive services.
On this issue, I prefer the evidence of Ms Clarke to that of Mr Hendricks and reject the suggestion made by him that he had explained to ITV that he could not procure the exclusive services of Kerry Katona because of her bankruptcy. I have reached this conclusion for the three reasons already set out at [37] above. In summary they are, first that the suggestion makes no sense. It is difficult to see how the fact of bankruptcy could adversely affect the ability to agree to provide exclusive television services and, indeed, that is essentially what Ms Katona agreed to in clause 2.1 of the filming agreement between her and the claimant. Second, the inherent probabilities of the situation are that ITV would always have insisted on an assurance that she would provide her television services exclusively to ITV2 during the Term of the Production Agreement. As Ms Clarke said, exclusivity was "fundamental". Third, the conversation which Mr Hendricks says took place is inconsistent with the preamble to the Production Agreement.
That it was understood on both sides that Ms Katona would be providing her television services to both sides is also apparent from a "Kerry Communications Plan" prepared internally within ITV on 11 November 2010 which seems to have been sent to the claimant. That identifies as a key message: "ITV2 has made a long term investment in Kerry and the ambition is to build her profile as a key part of the ITV2 family over time". Without a commitment that her services would be provided exclusively to ITV, it is difficult to see how she could have been a key part of the "ITV2 family" or, as expressed in the Production Agreement, a "face" of ITV2. A press announcement of her joining ITV2 was released on 12 November 2010. As recorded in that announcement, a one-off 90 minute special called Kerry Katona: Coming Clean was screened in early December followed later the same week by the first episode of Kerry Katona: The Next Chapter.
It follows that I have concluded that the claimant did make a commitment to ITV2 in unqualified terms to procure the exclusive television services of Ms Katona for ITV2. As I have already held in the analysis of the contractual framework, that commitment was confirmed in the preamble to the Production Agreement, which was concluded on 9 December 2010.
Events up to the end of May 2011
As already noted above, Mr Hendricks appeared with Ms Powell in the first episode of Peter Andre: The Next Chapter series 4, filmed in the weeks of 3, 10 and 17 January 2011. Filming of the next few programmes continued in February and March 2011. Mr Hendricks also appeared in episode 4, in a cold bath and sauna with Mr Andre and others. That was filmed in the weeks of 28 February and 7 and 14 March 2011 and delivered to ITV2 on 9 May 2011. In the event, that was the last programme in Peter Andre: The Next Chapter series 4 in which Mr Hendricks appeared. It was not intended that he appear in any of the programmes in series 5 or in Here to Help, the first programme of which was filmed in the week of 28 March 2011. Editing of the first few episodes of Peter Andre: The Next Chapter series 4 took place in February and March 2011 and the first episode was delivered to ITV2 in the week of 14 March 2011. Editing of episode 4 took place between the weeks of 28 March and 18 April 2011. Editing of the first episode of Here to Help also took place in early April 2011. Although the relationship between Mr Hendricks and Ms Powell had ended for a second time, they appear to have been able to continue with their professional relationship and there is no suggestion by ITV2 of any filming, editing or production problems in that period in relation to any of those programmes.
On 14 April 2011, Ms Powell received an email from Ros Phillips, a talent executive with a company called Endermol, who was responsible for casting the next series of Celebrity Big Brother. She was keen to talk about clients of Ms Powell's who might appear on the programmes, specifically Amy Childs, who had starred in The Only Way is Essex ("TOWIE"), and Kerry Katona. Ms Powell and Ms Partridge met Ms Phillips at the Mayfair Hotel on 20 April 2011. Following that meeting, on 26 April 2011, Ms Phillips sent them both an email saying she would like to meet Amy Childs provided that her TOWIE contract would allow her to take part in Celebrity Big Brother. She asked if Ms Katona's shooting schedule would allow a 3-4 week stay in the Big Brother house in August, although she referred to their having had doubts at the meeting. In response on 28 April 2011, Ms Partridge said that they would have to rule Ms Katona out as they would be shooting her reality show [i.e. Kerry Katona: The Next Chapter series 3] and could not afford to lose her for that time period.
On 20 April 2011, Mr Hendricks emailed Ms Powell about various business matters saying: "I thought it better to just email them as we will just argue". One of the matters he raised was a magazine article about Mr Andre which caused him concern:
"…we need to be careful when doing articles in magazines. All that, I am an animal in the bedroom will damage his family/image/brand. I know you won't agree with [me] about this, but you should ask yourself the question, would David Beckham do an article along those lines? The answer would be no, so I am just flagging it."
In the same email he referred also to the need to stop Kerry Katona "running her mouth off about the new fame chaser". This was a reference to the fact that Ms Katona had taken up with a man called Dan Foden who Mr Hendricks thought was only interested in her because he thought it could make him famous and Mr Hendricks was worried that Mr Foden would hurt her and she was talking to the press about Mr Foden in a way which would make her look foolish when he dumped her, which he eventually did. Mr Hendricks wanted Ms Powell to get Mr Foden to sign a confidentiality agreement in order to protect Ms Katona which is what they usually did for clients in such situations and he could not understand why Ms Powell did not do this, but just let Ms Katona dig herself in deeper.
It was during this period in the first few months of 2011, that, according to Ms Partridge (whose evidence on this issue, which was not challenged, I summarise in this and the following paragraph), Ms Powell started a physical relationship with Mr Drew Rush, who was employed through a security company as a security man by the claimant. During the filming of the first episode of Here to Help, Ms Partridge learnt that he was sneaking into Ms Powell's hotel room at night, which worried Ms Partridge. At the beginning of May 2011, Ms Powell and Mr Andre flew out to Dubai for a calendar shoot with a party of people which included Mr Rush. A few days later, Ms Partridge flew out with Kerry Katona and Amy Childs. Whilst in Dubai, Ms Partridge witnessed the relationship between Ms Powell and Mr Rush at first hand. That and his attitude towards Ms Partridge made her uncomfortable. She was also concerned about the effect of Ms Powell's behaviour on Mr Hendricks and on the business. She raised her concerns with Ms Powell who said they could speak about it when they got back to the United Kingdom and not to worry.
On her return to England, Ms Partridge arranged to meet Mr Hendricks and told him she wanted to leave CAN Associates. Although she did not mention Mr Rush, she had a feeling he knew about the relationship, possibly from the film crew who had been in Dubai, who were very loyal to Mr Hendricks. When Ms Powell returned from Dubai, she and Ms Partridge met and there were heated exchanges, although Ms Powell did not want her to leave CAN Associates. Ms Partridge was clearly uncomfortable about Ms Powell's relationship with Mr Rush and felt as if she was being forced to lie about something she knew was true. She worked with Mr Andre on 14 May 2011 and from their conversation in the evening was in no doubt he knew about Ms Powell and Mr Rush. Mr Andre's evidence was that he wasn't sure if he had known about the relationship when they were in Dubai, but he did find out soon after they came back. He certainly knew by the time of the encounter with Mr Hendricks in his dressing room on 19 May 2011 to which I refer below.
In his witness statement, Mr Hendricks confirmed that he found out about the relationship between Claire Powell and Drew Rush in late April/early May 2011. Mr Hendricks also found out that Mr Rush was engaged and that his fiancée was pregnant with his child. He confronted Ms Powell about the relationship but she denied it, so he checked his information was correct and confronted her again. However, she denied it again, swearing on their son's life that she was not having an affair, which Mr Hendricks said in his witness statement that he found utterly contemptible. In cross-examination he confirmed that he had three issues about the relationship with Drew Rush: (i) the fact that Ms Powell had hidden the relationship from him and sworn on their son's life; (ii) the fact that Mr Rush was engaged and his fiancée was pregnant could be a PR catastrophe for Ms Powell and for Mr Hendricks and their companies and (iii) he found out there was an issue relating to Mr Rush's accreditation as a security professional which could expose CAN Associates or its directors to prosecution.
Mr Hendricks said this put a strain on his relationship with Ms Powell and they argued, but by 12 May 2011 things were back on a more even keel and they agreed to meet, which they did the following day at Bray Studios to discuss personal and professional matters. Mr Hendricks described the meeting as entirely amicable. He made a note of the meeting. That note discloses, inter alia, that it was agreed that he would work with her on all projects that related to her clients working with the claimant and that arrangement was to be reflected in a legally binding document. He was not to handle any business dealings with Mr Andre going forward or attend business meetings regarding Mr Andre unless it was to do with television. He would advise her on any legal issues regarding Ms Katona if requested. She would offer him any new clients she felt had television potential and he would decide if he wanted to take the client on. If he declined, she was free to work with another production company. They agreed to have fortnightly board meetings to update each other on all aspects of their business dealings. She and Ms Partridge would attend any production meetings that were required to give their input.
Despite that meeting, it soon transpired that Ms Powell had other ideas. On 16 May 2011, Mr Hendricks received an email from her which referred to his trying to control and bully her and how he had insulted her and stamped on her. She said she now intended to run CAN Associates on her own. He said he thought at the time that this email had been drafted for her by somebody else and that he subsequently discovered that it was drafted by her sister Victoria Allen. In cross-examination he described this as a script, a set up so that he did not reply to it. It seems to me that he may well be right about that and that this email may be the beginning of Ms Powell's scheme to replace the claimant as the production company for Peter Andre's reality television programmes.
On 18 May 2011, Mr Hendricks took Ms Clarke and her assistant Alexia Edwards for lunch which seems to have been a jolly occasion. The following day she sent him an email thanking him saying: "Thank you so much for a delicious lunch and a lovely time yesterday. It was great to catch up and have a good old chin wag…It was a great opportunity for a rare week day lunch out and a lot of fun." Mr Hendricks replied the same afternoon, 19 May 2011, saying: "I just wanted to thank you both for being such great company and restoring my faith in that there are still some lovely people in our industry."
It was on 19 May 2011 that Mr Hendricks spoke to Mr Andre in his dressing room on the Here to Help filming location in Harrow. Filming of the series had resumed that week. Mr Hendricks' account of this meeting in his witness statement was that he had asked Mr Andre to tell him if he knew about Ms Powell and Mr Rush. Mr Andre was clearly embarrassed and said he had known but did not want to get involved. Mr Hendricks thought this was hypocritical, given how upset Mr Andre had been when he thought people had hidden things from him about Katie Price, but Mr Hendricks did not say so. Mr Andre asked how this would affect them workwise to which he replied: "You know me Pete, I will be professional at all times." This was the last occasion on which he spoke to Mr Andre, since it was not necessary to do so on a day to day basis during filming, as that was for other staff including Ms Partridge. Mr Hendricks was not cross-examined about his account of this meeting.
Mr Andre agreed in cross-examination that this was the last occasion on which he had spoken to Mr Hendricks. However what he described in his evidence was a much more stormy and emotionally charged encounter. He agreed that Mr Hendricks had asked him if he had known about the relationship with Drew Rush which Mr Andre said he had. He described Mr Hendricks as fuming, effing and blinding about Ms Powell sleeping with Mr Rush. Mr Andre had said to him: "Don't ask me to take sides." Mr Andre returned to his evidence about this encounter later in his evidence when he described Mr Hendricks as having been in a rage during this period of time in May and June 2011.
Although Mr Andre could not remember if he had seen Mr Hendricks during the filming of Here to Help which finished filming at the end of June 2011, other than on the occasion at Harrow on 19 May 2011, I am quite satisfied, on the basis of Mr Hendricks' evidence which I accept, that he was not present during the filming because he did not need to be and that the last time they saw or spoke to each other was on 19 May 2011. It follows, as Mr Mallin put to Mr Andre that he cannot have seen Mr Hendricks in a rage after the Harrow meeting.
Even in relation to the Harrow meeting, I suspect Mr Andre is exaggerating the extent to which Mr Hendricks was angry. It was clear to me, particularly from his distinctly unimpressive evidence about hearing from Claire Powell about death threats Mr Hendricks had made (which I deal with a little later in this judgment) that Mr Andre was prone to exaggeration in his evidence and was at pains to portray Mr Hendricks as someone who was aggressive and threatening. Mr Hendricks is undoubtedly someone who is volatile and loses his temper as he was essentially prepared to accept, but the temper evaporates as quickly as it has flared up. I very much doubt whether he was in as much of a rage on 19 May 2011 as Mr Andre sought to suggest. After all, he had known about the affair for some weeks and this meeting was on the same day as he sent the friendly email to Ms Clarke to which I referred above.
Claire Powell's scheme to replace the claimant as Mr Andre's production company
The claimant discovered more about the extent to which, from at least the beginning of June 2011 onwards, Claire Powell was trying to oust the claimant as the production company for Mr Andre's reality television programmes, after termination of the Production Agreement by ITV2, when a brown envelope containing copies of various emails sent by Ms Powell to others, including her solicitors and Mr Andre's solicitors, was delivered anonymously to Mr Hendricks' home address. A suggestion in cross-examination that Mr Hendricks himself had procured these emails illicitly was denied by him and abandoned by ITV2 when I pointed out the seriousness of the allegation. The emails in fact included the draft of the email of 16 May 2011 drafted by Ms Powell's sister. The copies are poor and although they have been transcribed, it has not always been possible to decipher the whole text of the email.
The first emails of relevance for present purposes are an exchange between Ms Powell and Mr Andre's solicitor, Mr Andrew Myers of Clintons. This is incomplete. There is a fragment of an email from her at 8.36 a.m. saying "hi Andrew" then a response from him saying: "perfect. Do you want to meet up to discuss the way forward and what needs doing?" Her reply to him the same day is copied to Mr Andre's email address and reads: "Yes that would be good. One of the first things is moving Peter ITV deal away from CAN TV filming it. His contract is direct with ITV and we don't start filming until July again but if I send it over can you or a TV lawyer look over it to see if I am correct then I can go to ITV".
Although Mr Nambisan sought to downplay the significance of this email in his closing submissions, in my judgment it is of considerable significance. It demonstrates that Ms Powell (and Mr Andre) were looking to oust the claimant as the production company of his reality television programmes from at least the beginning of June 2011 onwards. It is quite clear from the subsequent correspondence that, thereafter, they were looking for some pretext or loophole in the claimant's contract with ITV2 which would justify termination. The fact that they had this intention at this early stage inevitably casts some doubt over the genuineness of the issues and concerns raised later (including in relation to the tweets from Mr Hendricks and the alleged editing issues) and of the alleged loss of trust and confidence. It is difficult to give much credence to the contention that Mr Andre lost trust and confidence in Mr Hendricks in circumstances where this strategy to replace the claimant was being devised at the beginning of June 2011, before any alleged death threats and some weeks before the Twitter account was even set up. Furthermore, at least at this stage on 2 June 2011, Mr Andre does not seem to have had any issues with Mr Hendricks (at least none is mentioned) and it is difficult to see what those issues could have been, given that both Peter Andre: The Next Chapter series 4 (all but one episode of which had already been delivered to ITV2 and the last episode of which was delivered in the following week of 6 June 2011) and Here to Help series 1 (which was then being filmed and edited) were successfully made and broadcast.
In cross-examination, Mr Andre tried, in a most unconvincing manner, to claim that he was unaware of this email exchange. He claimed that he never read emails which were "cc'd" to him and that he did not see these emails until he was preparing to give evidence in these proceedings. I simply do not accept that evidence. It is inconceivable that Ms Powell would have been discussing such an important matter as changing the production company for his programmes without consulting him or that he would not have read emails to and from his lawyers on this subject. After all, he was the "talent" and, however close their relationship, she was only his manager and agent. In my judgment, this scheme or strategy to replace the claimant was devised and carried out with the full knowledge and consent of Mr Andre.
Of course Mr Hendricks was unaware of this scheme or strategy which was being devised behind his back. In his witness statement he describes how on 2 June 2011, he and Ms Powell were in touch about sums she wanted the claimant to pay in relation to trips to Dubai and a skiing trip. They were tetchy with each other and she threatened to stop any filming in respect of Mr Andre and Ms Katona until CAN Associates was paid. He was concerned about what had happened and wanted to check these expenses. Over the next few days, professional relations improved, with her assuring him she was not trying to damage the claimant and wanted the companies to do well. They agreed the terms on which they were to work together would need to be recorded in writing.
On Monday 13 June 2011, the claimant's solicitor Mr Gawade emailed Ms Powell saying the ITV2 contracts had been signed and he had prepared final drafts of the filming contracts for Mr Andre (through his loan out company) and Ms Katona for the three series currently in production/being delivered. ITV2 were asking for signed copies of these contracts, so he asked her to get them signed as soon as possible and returned to Mr Hendricks for signature. He made the point that the drafts were based on the ones used regularly in the past, so she should not have any issue with them.
Also on 13 June 2011, Ms Berendsen of the claimant sent Ms Powell an email about, inter alia, Mr Andre's itinerary, saying:
"I still have no news for Pete and his itinerary. I need July/August…anything. Can you let me know when I'll receive something. I have a meeting with the new controller at ITV on Mon for which I'll need some kind of heads up on series 5. They will expect me to know something".
Ms Powell responded to that email later the same day, saying: "tomorrow". However, she did not provide Mr Andre's itinerary the next day, nor did she provide Mr Hendricks with signed copies of the filming contracts. Instead, she arranged a meeting for the afternoon of 14 June 2011 with her solicitors, evidently to discuss how to replace the claimant as the production company. This is apparent from another of the "brown envelope" emails from her assistant Kerry Baldwin to Debbie Minter of her solicitors Simons, Muirhead & Burton ("SMB") at 12.21 pm that day forwarding, at Ms Powell's request, a copy of Mr Andre's agreement with ITV. The email states:
"Claire would like to continue with ITV but no longer wants to use CAN TV as the filming production company and this is one of the topics she wishes to discuss with you when she comes in to see you at 3.30 pm today."
On the same day, 14 June 2011, Ms Powell telephoned Ms Claire Zolkwer, Commissioning Editor: Comedy and Entertainment at ITV and told her that there were issues between Mr Andre and the claimant with Peter Andre: The Next Chapter going forward. She seems to have said the relationship was untenable. Since neither Ms Powell nor Ms Zolkwer gave evidence, it is not possible to discern what issues Ms Powell may have identified, although it seems likely, from the email referred to in [104] below, that they included the blurring out of Mr Rush in the editing of one of the programmes, for which Ms Powell blamed Mr Hendricks. It seems possible that Ms Powell also mentioned her concern about the fact that Mr Hendricks had control over the editing process, although the clear and unchallenged evidence of Mr Hendricks and of Ms Partridge was that nothing changed in the editing process after the breakdown in the relationship between Mr Hendricks and Ms Powell and she had the same input into that process as she had always had. If Ms Powell was suggesting that there were issues with the editing process, that was not true and was just a pretext.
Whatever it was that Ms Powell mentioned, Ms Zolkwer seems to have regarded it seriously since in her reply the following morning she says that if Ms Powell was saying the situation was untenable and Mr Andre could no longer work with the claimant, both parties would have to acknowledge this to ITV's business affairs department [i.e. Ms Clarke] in order to formalise the position. However, the email from Ms Zolkwer says that ITV's position is that they would prefer to retain the arrangement they had with Mr Andre and the claimant especially so near to the start of a new deal, which had proved a fruitful deal to date. She said they would hope that any production company and talent would be able to work out any difficulties, continuing: "If it were a simple case of being able to feel secure that there were some safety nets in place for approval-that would be our best outcome-and in many cases, in my experience, that works well." She ended by saying that Ms Powell should let her know if she wanted to discuss further although it would be better if the business affairs department was there too.
Also at 08.53 on the morning of 15 June 2011, before he was aware of this contact between Ms Powell and Ms Zolkwer, Mr Hendricks sent Ms Powell an email saying that he had said countless times that there was no reason why their split should impact on their professional relationship. The one area they could not agree on was Mr Rush. He said it would not be good for either of them or for clients. He pointed out that Mr Rush's fiancée was expecting his child, so how would it look if her relationship with Mr Rush got into the press. He said the fallout would be catastrophic for both of them. He also said that she had gone out of her way to make it as difficult as possible for his company to work with her. He said his reputation was everything and he would not allow her to try and damage his good working relationship with ITV.
Mr Hendricks then received a text from Ms Zolkwer at 13.24 on 15 June 2011 saying: "Pretty much straight after we spoke I had a worrying call from Claire yesterday-it seems there are issues with Pete and the Next Chapter going forward. Should I be alarmed or are you resolving it?" Mr Hendricks replied: "Trying to resolve. The issue is not PA it's Claire. Call and I will update you."
Later that afternoon Mr Hendricks sent Ms Zolkwer an email saying:
"I am sorry that Claire decided to air to you what she thinks are problems between CAN Associates and CAN TV. Actually there are no problems between the companies and no problem with the talent. There is however a major problem with Claire. Below is the email [the one referred to at [101] above] that I sent this morning before I received your text.
This is the issue. Nothing else. Everything that you have been told is just a smoke screen to cover what is outlined below. Peter has not complained about CAN TV, this is just Claire thinking that she can act like a lovesick teenager without thinking of the damage it will do."
Later the same evening, Ms Powell responded to the earlier email from Ms Zolkwer saying she had spoken to her lawyers and to Mr Andre and they thought the best thing would be to come in and see ITV's business affairs for a meeting as soon as possible. There is then an email which is one of the "brown envelope" emails which is dated by the transcriber as 1 June 2011 (but which it seems to me must in fact be dated 15 or 16 June 2011 after Ms Powell had asked Ms Zolkwer for a meeting with ITV's business affairs department) from Ms Powell to her own solicitor, Mr Simon Goldberg of SMB. Not all of this is legible but it concerns a complaint by Ms Powell about something that Mr Hendricks had done vis-à-vis Mr Rush. It seems likely that this is a reference to the blurring out of Mr Rush in one of the programmes in Peter Andre: The Next Chapter series 4, since she says:
"surely this should help with the ITV situation as he [i.e. Mr Hendricks] hasn't done this in the best interests of Peter show….whenever I was standing next to Drew. Peter and I had a conversation last night saying this is exactly the point we are making saying that because he had editorial control he has the power to do this.
Claire Zolkwer hasn't come back to me on a meeting but I was thinking in the meantime if you knew any TV production companies that they would be happy to work with me that has shot reality TV shows before as we are due to start filming his next series."
In fact, Ms Powell was being unduly paranoid about Mr Rush being blurred out of a scene. This was done not by Mr Hendricks but by the creative director of the claimant, Daniella Berendsen, because she did not know whether they had clearance for Mr Rush. She explained this to ITV2 at the meeting she and Mr Hendricks attended on 20 June 2011 which I refer to below. No doubt Mr Hendricks and Ms Berendsen could have explained this to Ms Powell and Mr Andre as well, had they bothered to ask. Furthermore, the editorial control Mr Hendricks had as producer was no greater than it had always been and Ms Powell still had the input in the editorial process she had always had.
At 07.48 am on 16 June 2011, Mr Hendricks sent an email to Mr Mike Brooks of Lee & Thompson asking him to look into what redress there would be against CAN Associates, Ms Powell and Mr Andre for damage to his reputation. He said:
"Seeing that CP has gone to ITV stating that PA working relationship is untenable, which is an outright lie. CP is just using PA as leverage to damage CATV and myself. If we don't bring her to heel immediately the damage at ITV will be terminal".
Later that morning at 10.25 Mr Hendricks sent an email to Ms Powell (which he copied to Ms Zolkwer) saying:
"I have been informed by ITV that you have stated that Peter Andre has some issues with Can TV. I am not aware of any issues with Peter and Can TV and I am somewhat surprised that you have raised these issues with ITV and not informed us of them first.
Please outline exactly what the issues are, so that we can look into them and try and resolve them."
It is striking that Mr Hendricks did not ever receive a reply to that email nor did Ms Powell or Mr Andre ever set out for the claimant's consideration what the alleged issues were. The reason for this failure is not hard to discern. In reality there were no issues, other than possibly the blurring of Mr Rush, which by no stretch of anyone's imagination was sufficiently serious to make the relationship untenable and for which there was an innocent explanation which Mr Hendricks and Ms Berendsen could easily have provided. What Ms Powell seems to have been doing is looking for some pretext to remove the claimant as the production company, so leaving it in the air what the "issues" were no doubt suited her.
Rather than send an email setting out what Mr Andre's issues were, Ms Powell sent a somewhat emotive email at 12.26 pm on 16 June 2011 which purported to be a response to the email Mr Hendricks had sent her at 08.53 the previous day. She made reference to the other relationships he had been conducting and asked if his reputation mattered why had he gone into Mr Andre's dressing room and told him very private matters about her private life, evidently a reference to the meeting at Harrow on 19 May 2011. She also complained about some incident the previous evening involving clients of hers. The email ended: "You told me again on Monday night you didn't want to work with me. I'm running a business not a kindergarten and I won't be treated like this anymore." She copied the email to her own solicitors and to Lee & Thompson.
Mr Gawade of Lee & Thompson emailed Mr Hendricks advising him not to reply, because as they had discussed they needed to avoid her having ammunition to show the professional relationship had broken down. However, before receiving that email advice, Mr Hendricks had responded to her at 12.54 along much the same lines as previously.
Also on 16 June 2011 at 14.57 Ms Berendsen chased up on her email of Monday 13 June 2011 to Ms Powell about Mr Andre's itinerary, saying: "How are we looking for a PA schedule of sorts? I expected to hear something on Tuesday? I have a team starting a week on Monday, so we are tight for time. Not knowing any of his itinerary (or what we need to do to compliment it) so close to the start of filming a series is a bit of a concern" Ms Powell responded: "Please discuss with Neville Daniella. Sorry".
In the evening of 16 June 2011, Ms Powell's solicitor Mr Goldberg of SMB emailed Mr Gawade saying:
"On the Peter Andre situation, to enable me to advise my client in relation to the contractual aspects that you raised, please urgently send over a copy of the CAN TV Agreement with ITV2.
I have also been advising Claire's company in relation to its management contract with Kerry Katona, who has indicated to Claire that her management is now going to be taken over by your client. Do you have any instructions on this separate matter?"
It is difficult to see what interest Ms Powell's lawyers would have in seeing the Production Agreement between the claimant and ITV2, other than to see if they could pick holes in it with a view to persuading ITV2 to terminate the agreement on some ground or other. In fact at around this time Lee & Thompson said they could no longer act for the claimant because of a conflict of interest in relation to Claire Powell. Given that they had acted for Mr Hendricks in his family dispute with her (to do with their child) he was understandably aggrieved by this. He instructed Swan Turton in their stead.
So far as Ms Katona is concerned, the reason why she wished to terminate her relationship with Ms Powell as her manager was mainly to do with Ms Powell's relationship with Drew Rush, in other words similar grounds to those which led Ms Partridge to want to part company with Ms Powell, as Ms Partridge confirmed in evidence. However, what happened is that a press release was issued on 17 June 2011, which Ms Powell seems to have been behind, saying that Ms Katona had been dumped by her agent the day after going on a six hour bender. Other rumours were circulating that Ms Katona was back on drugs. In his witness statement Mr Hendricks said that, to Ms Powell's knowledge, these claims were false.
This was compounded by the fact that Dan Wootton, a journalist who is a close contact of Ms Powell's to whom she apparently feeds stories, posted a tweet insinuating that Ms Katona was having an affair with Mr Hendricks. Although the tweet was taken down because it was untrue, the story was picked up by OK Magazine which ran an article a few weeks later where Ms Katona denied the allegations. Quite apart from the adverse effect on Ms Katona's reputation, this rumour was deeply hurtful to Mr Hendricks. As he told me, Ms Katona regarded him as a father figure and she is the same age as his own daughter, so one can see why the rumour would be hurtful. In fact, it appears that the various rumours about Ms Katona were shut down after Ms Katona consulted Max Clifford, who started acting for her again, having done so before she went to Ms Powell.
Mr Hendricks' evidence was that around this time in June 2011, Ms Powell made a number of untrue allegations, including that he had smashed into the gates of the house they shared to intimidate her, that he had stolen jewellery from the house (in relation to which he was interviewed by the police but they accepted he had nothing to do with it) and that he had been violent to his ex-wife and smashed up her house. He had to get statements from his ex-wife and daughter to refute these untrue allegations.
It was the untrue allegations and rumours about Ms Katona and about Mr Hendricks referred to in the last few paragraphs which led him to open the Twitter account which he did on 23 June 2011. This is probably an appropriate place in the chronology to deal with the alleged death threats.
The alleged death threats
In his witness statement, Mr Andre says that he was told by Claire Powell that she had learnt from Mr Clinton Gadd that Mr Hendricks had told Mr Gadd that he was going to kill her and to ruin Mr Andre's career. He couldn't remember the exact words but she definitely understood that her life was being threatened and Mr Andre said he recalled that she was shaking when she told him. She also told him that she understood from Mr Gadd that Mr Hendricks had made similar threats to the life of both Drew Rush and Carl Machin, Mr Andre's friend and road manager. Mr Andre relies upon these allegations to justify his alleged loss of trust and confidence in Mr Hendricks. He does not put a date on when he learnt about the threats in his statement but from the context of his allegations, he must be pinning it to some time in June 2011 when the filming of Here to Help was still taking place.
In view of those extremely serious allegations, the claimant obtained a statement from Mr Gadd, in which he said that the allegations were incorrect. He said that he did recall a conversation with Mr Hendricks at the latter's office where Mr Hendricks was very upset with Ms Powell and Mr Andre for their involvement in ITV2's decision to terminate the contract (from which it is obvious the conversation was post-termination, in fact in cross-examination he said he thought it was on 16 September 2011). Mr Hendricks was extremely angry saying that: "the fucking bitch has taken Pete up to ITV behind my back" and that he wanted to be "standing over Claire Powell with my foot on her back and a flag of triumph stuck up her cunt and pull it out of her mouth". Mr Gadd said he thought Mr Hendricks was being somewhat imaginative in his description as to what he would like to do to her and although he thought she should be careful, he did not take this as a death threat. At no stage in the conversation did Mr Hendricks threaten to kill Ms Powell or Mr Rush or Mr Machin or threaten to ruin Mr Andre's career.
The way in which the issue of the alleged death threats was dealt with in cross-examination of the claimant's witnesses was unsatisfactory. At the beginning of day 3 of the trial, when Mr Hendricks was still in the middle of being cross-examined, a request was made to interpose Mr Gadd at some point that day during the cross-examination. I indicated that this was acceptable, provided that Mr Hendricks had been cross-examined about the death threats before Mr Gadd was called. No objection was raised. Shortly before lunch, at a point where Mr Nambisan had not yet cross-examined Mr Hendricks about the death threats, Mr Nambisan suggested it would be a convenient moment to interpose Mr Gadd. I pointed out that he had not cross-examined Mr Hendricks about the death threats to which Mr Nambisan replied that he did not intend to cross-examine Mr Hendricks about them, apparently because ITV2 did not rely on the death threats and had not known about them at termination, only learning about them during the course of the proceedings. As I pointed out, if ITV2 was going to call Mr Andre who made these allegations, given their seriousness, the allegations had to be put to Mr Hendricks in cross-examination.
When the case resumed after lunch, Mr Nambisan did put to Mr Hendricks the statement of Mr Gadd and what Mr Gadd said Mr Hendricks had said about what he would like to do to Claire Powell. Mr Hendricks denied saying any such thing. On balance I consider he probably did say something along those lines but, although it was extremely unpleasant and offensive, it fell a very long way short of a death threat and it was not seen as such by Mr Gadd, who could therefore hardly have told Ms Powell that Mr Hendricks had made a death threat. In any event, whatever was said, it was said a month after termination and not at around the time that Here to Help was being filmed in June 2011, as Mr Andre sought to suggest. What were never put to Mr Hendricks in cross-examination were the very serious allegations which Mr Andre was making in his witness statement.
Ms Clarke had not known about the alleged death threats at any stage prior to termination and only learnt of them during the course of the proceedings, although in her witness statement she said that, given Mr Hendricks later abusive conduct, she was not overly surprised to learn of the threats. In cross-examination, Mr Mallin invited her to withdraw this evidence which she declined to do, but she then had considerable difficulty justifying her stance. She sought to do so by reference to a tweet where Mr Hendricks referred to "burying" someone which she took to be a very unpleasant threat. Mr Mallin asked her if she was saying to the court that she thought he was a violent man and she said no, she was not saying that. She accepted that after termination she had met Mr Hendricks on more than one occasion, once in a café, apparently without any concern. Furthermore, for reasons I elaborate later, no-one reading the "burying" tweet could have thought it was meant literally.
This evidence of Ms Clarke's was unworthy of her. As Mr Mallin put to her and I agree, it was all part and parcel of an attempt by ITV2 to paint Mr Hendricks in a bad light. The fact that she said it at all and then was not prepared to withdraw it having heard Mr Gadd's evidence did lead me to doubt how objective some of her evidence really was. It seemed to me that this was an example of Ms Clarke seeking to maintain in the witness box a particular position which ITV2 wished to adopt in the litigation.
Mr Andre maintained in cross-examination his evidence that Ms Powell had told him about the death threats, but he was unable to explain why, if he had been told about these threats, he had not told his solicitors, despite apparently being shocked and appalled by what he was told. He said he had told Ms Powell to report the matter to the police, but he was unable to tell the court whether she had or whether he had chased her to do so. He also alleged that Ms Powell told him she was going to increase the security at her house in view of what had happened.
In the light of the evidence of Mr Hendricks and Mr Gadd I am quite satisfied that no death threats were ever made by Mr Hendricks against Ms Powell or against anyone else. That leaves two possible explanations of Mr Andre's evidence: either Ms Powell lied to him and told him there had been death threats when there had not or his evidence is a complete fabrication. Obviously I have thought long and hard before reaching this conclusion about a well-known entertainer who is in the public eye, but I have concluded that this evidence has been made up by Mr Andre. If Ms Powell had ever told him about the death threats, it is inconceivable that he would not have told his solicitors and that they would not have told ITV2 immediately. In view of the fact that he and Ms Powell were clearly looking for grounds upon which the claimant could be removed as the production company, which was well-known to their respective solicitors, these death threats, if they had ever been made or mentioned by Ms Powell would have been manna from heaven, a complete vindication of the alleged loss of trust and confidence. No need in those circumstances to rely upon "editing issues". This would have been the clearest possible renunciation of the Production Agreement by the claimant and Ms Powell and Mr Andre and their respective solicitors would have undoubtedly gone straight to ITV with the information about the threats.
Equally, if there had been death threats, when Mr Andre discussed the tweets with Ms Clarke at the time of the second mediation on 9 August 2011, he would surely have said words to the effect that these offensive tweets were not the half of it, Mr Hendricks had also made death threats. Yet clearly he never told Ms Clarke about these death threats. The only sensible explanation for that is that they were never made and he was never told about them. Also, if Ms Powell had told him about the death threats and he told her to go to the police, it is inconceivable that, as her close friend of twenty years he would not have followed that up and insisted she went to see them, if necessary going with her. There would have been a police investigation and yet there was none. I consider the evidence about Ms Powell saying she would put extra security in place at her home was also a fabrication.
In all the circumstances, I completely disbelieve Mr Andre's evidence about the alleged death threats. Inevitably that conclusion means that I have treated with considerable scepticism much of his other evidence, save where it is consistent with that of Mr Hendricks or with contemporaneous documentary evidence. I am particularly sceptical about his evidence about the effect on him of Mr Hendricks' tweets, a matter to which I will turn in detail later.
The meetings on 20 June 2011
On the morning of 20 June 2011, Mr Hendricks and Ms Berendsen went to ITV's offices for a development meeting with Ms Zwolker and her colleague Ms Jain. They were not expecting to discuss anything legal but Ms Clarke and Ms Edwards turned up to the meeting without warning. Mr Hendricks' evidence was that, during the meeting, the ITV representatives asked him if he knew what the "issues" between Mr Andre and the claimant were and he said he did not. He asked if they knew what the issues were and Ms Clarke said they did not. He thought that the blurring out of Mr Rush in one of the programmes in Peter Andre: The Next Chapter series 4 came up and Ms Berendsen explained that she had done this because she wasn't sure if they had clearance for Mr Rush to be in the programme, a perfectly innocent explanation. Mr Hendricks said in cross-examination he thought it must have been at this meeting that that issue was discussed because that was the only meeting with ITV at the relevant time which Ms Berendsen had also attended and it was she who had given the explanation.
Ms Clarke's version of the meeting in her witness statement was that it was Mr Hendricks who had raised the concerns Ms Powell had about the editing of the programmes and ITV had asked if there were any practical solutions that Mr Hendricks could think of to give whatever comfort Mr Andre was seeking. For example, whether he could personally step away from production and someone else, an employee or freelance producer be brought in. She said she couldn't recall his reaction except that he did not think that was a practical solution given his central role.
When this version of what happened at the meeting was put to Mr Hendricks in cross-examination, he was adamant that this is not what occurred. The only editing concern raised by ITV was the blurring of Mr Rush which Ms Berendsen had explained. There was no discussion with him of practical solutions or of the comfort Mr Andre was seeking. In her evidence in cross-examination, although Ms Clarke stuck to the line that it was Mr Hendricks who had raised the issue of the editing process, I was left with the distinct impression that she was much less sure of her ground and did not really have a clear recollection of the meeting. When pressed, she could not say what the issues about the editing process were. She accepted that no-one was saying there were any issues with Peter Andre: The Next Chapter series 4 or Here to Help series 1. She accepted also that she had no personal knowledge of any changes in the editing process and could not gainsay the unchallenged evidence of Mr Hendricks and Ms Partridge that there was no change in the process after the split between Mr Hendricks and Ms Powell.
Her cross-examination about the meeting took place either side of lunch on day 4 of the trial. After lunch she repeated pretty much verbatim what she said about the meeting in [24] of her first witness statement. It emerged that, somewhat surprisingly, she had re-read her statement over the lunch break. Mr Mallin then pressed her about what she could actually recall about the meeting. She said she did recall Mr Hendricks walking away from production being discussed, but couldn't recall who raised it. She also accepted that she could not recall anyone raising the issue of a freelance producer and that, although she had given that as an example of a practical solution in her statement, it was not her evidence that that example had in fact been raised at the meeting. In the light of that, I had a real concern about the extent to which her evidence about the meeting was really recollection as opposed to an ex post facto reconstruction on the basis of ITV's case.
Part of the problem was that, if Ms Clarke had made a contemporaneous note of the meeting (and it remained unclear whether she had or not), it was not disclosed by ITV because litigation or legal advice privilege was claimed. The issue of privilege had been challenged by the claimant and resolved in favour of ITV2 at an interlocutory hearing before the trial by Cooke J. That ruling would of course have been subject to what emerged in cross-examination at trial. Mr Mallin cross-examined Ms Clarke about the claim to litigation privilege at the time of this meeting, after which I was in considerable doubt whether litigation privilege could in fact be claimed as at 20 June 2011. Furthermore, I also doubt whether legal advice privilege could really be claimed for those parts of any note of the meeting which simply recorded what had been said rather than the advice Ms Clarke had given as a consequence. However, Mr Mallin did not renew any application for disclosure and I proceed on the basis that privilege was legitimately claimed, so that no adverse inference can be drawn from the failure to disclose any note of the meeting.
I much preferred Mr Hendricks' evidence about what was discussed at the meeting. Quite apart from the fact that I had a real concern as to whether Ms Clarke's evidence was really recollection as opposed to an ex post facto reconstruction on the basis of the case ITV was running, the inherent probabilities support his account of the meeting. He had gone for a development meeting not a legal meeting and he did not know what the alleged issues were, let alone that they concerned the editing process, if they did. He had asked Ms Powell in an email on 16 May 2011 to tell him precisely what the issues were so that he could address them and she had not responded, so that his evidence that ITV asked him what the issues were and he said he didn't know is consistent with his state of knowledge at the time. In those circumstances, it is difficult to see how it could have been Mr Hendricks who raised the issue of the editing process as Ms Clarke contended.
It also seems to me improbable that ITV asked him what practical solutions there were since Ms Zwolker already knew that bringing in someone else was a solution, since she had raised that in her email to Ms Powell on 15 June 2011. Equally if there had been any suggestion that Mr Hendricks should step back from the editing role, it is likely he would have had an angry reaction but Ms Clarke did not suggest that she recalled such a reaction. In my judgment, all that happened was that ITV2 asked him what the issues with Mr Andre were and he said he did not know, which is true. There was in all probability some discussion about the blurring out of Drew Rush and Ms Berendsen explained what had occurred. Mr Hendricks' evidence, which I accept, was that he was not told at the meeting that ITV had a meeting with Ms Powell arranged for that afternoon and that he did not know about that proposed meeting.
In cross-examination, Ms Clarke accepted that prior to the meeting on 20 June 2011, the claimant was not in breach of contract and had done everything it was supposed to. She also accepted that there was never a time, subsequent to the meeting, when the claimant was other than ready, willing and able to perform its side of the bargain with ITV2 in relation to the production of Peter Andre: The Next Chapter series 5. It is also worth emphasising that, at this stage, whatever the basis was upon which Ms Powell and Mr Andre were seeking to replace the claimant as the production company, ITV2 does not and cannot allege that the basis was any breach of contract by the claimant. There were no genuine editing issues and the Twitter account was not even set up until some days later.
The only account of what transpired at the meeting with Ms Powell in the afternoon of 20 June 2011 is that of Ms Clarke in her evidence and again no note of that meeting was disclosed on the grounds of privilege. Ms Powell attended with her solicitor, Mr Goldberg. Ms Zwolker and Ms Edwards were there with Ms Clarke for ITV. Ms Clarke agreed in cross-examination that, although Ms Powell had said Mr Andre had serious concerns personally, she had not said what the nature of the concerns was. Ms Powell was concerned about Mr Hendricks being the only arbiter of what went into the programmes and was keen to be involved in the editing process to redress the imbalance. In fact, of course, on the basis of the evidence of Mr Hendricks and Ms Partridge, nothing had changed in the editing process from what had been the practice before the split between Mr Hendricks and Ms Powell, so Ms Powell was effectively asking for something to which she had not previously been entitled.
Ms Clarke said that Ms Powell raised the possibility of a new production company being brought in to replace the claimant, thereby removing the issues created by the relations between Mr Hendricks and Ms Powell. This suggestion surprised Ms Clarke. She closed down the suggestion very quickly. Whilst ITV2 was open to something being done to alleviate the editing process, it was not prepared to agree to a new production company. She reiterated that the parties should sit down and discuss how to work together and that the impasse needed to be resolved, so that filming could start as soon as possible.
Ms Clarke accepted in cross-examination that at the meeting she had a concern that ITV2 was potentially being set up by Ms Powell. She accepted that, despite this, ITV2 had not protested that Ms Powell was in effect suggesting that it should breach its contract with the claimant. Nor had ITV2 told Mr Hendricks after the meeting that Ms Powell was suggesting the replacement of the claimant as the production company. After the meeting, Ms Clarke's concern was that the fall-out between Ms Powell and Mr Hendricks could potentially jeopardise the future production of the programmes and, in particular Peter Andre: The Next Chapter series 5. However, although she repeated that she had a concern that this was some sort of set up on Ms Powell's part, she took what was said about editing issues at face value, rather than Ms Powell creating a pretext. However, ITV2 had not enquired as to the precise nature of the alleged problems.
In my judgment, as at that date in June 2011 (and indeed thereafter), there was in fact no objective basis for any concern about the future filming, editing or production of the programmes. All the programmes in Peter Andre: The Next Chapter series 4 had already been successfully broadcast, the last episode going out on 9 June 2011. The filming of Here to Help was drawing to a close, in fact finishing on 26 June 2011, and editing was in process throughout June and July 2011. In due course, the programmes were delivered to ITV2 in July and August 2011. ITV2 has never identified any issues with the programmes or their editing and, in due course, they were successfully broadcast.
From the setting up of the Twitter account to the Quinn Emanuel letter of 14 July 2011
Mr Hendricks set up the Twitter account @TheNevCan on 23 June 2011. His reason for doing so was to deal with what he saw as the lies and distortions being published about him by Claire Powell and others, including in relation to Kerry Katona. I should deal first with the question whether this was a personal or a company account. Mr Hendricks was insistent that it was a personal account, "TheNevCan" being a play on words: "The Nev [Neville Hendricks] can and will" and that any Twitter account of the claimant would only have been used for matters such as publicity. In my judgment this was a somewhat arid dispute. I have little doubt that he is right to say it was a personal account, but since he was the principal director and shareholder of the claimant and was identified with the claimant by those with whom he dealt, including ITV2, it seems to me that the claimant cannot escape liability for breach of contract (if the sending of the various tweets was a breach of the Production Agreement) by saying the account was a personal one which had nothing to do with it.
Immediately after opening the account, Mr Hendricks encountered tweets on Twitter from someone called Luke G@@LLuke33. This person has never been identified, but was evidently someone close to Claire Powell since he or she (for convenience I will assume he) was already disseminating what appears to have been accurate information on Twitter about Ms Powell and her private life from about 19 June 2011. On that day, @LLuke33 told the journalist Dan Wootton that his story about Ms Katona's split from CAN Associates was incorrect. In later tweets also on 19 June 2011, @LLuke33 said that both Ms Partridge and Ms Katona had left CAN Associates because Ms Powell was sleeping with a security guard, Drew Rush, who was engaged and whose fiancée was pregnant. In tweets on 23 June 2011, @LLuke33 tweeted that the stories about Ms Katona and drink and drugs were being spread by Ms Powell and that Ms Katona had had a negative result on a drug test so that Ms Powell had been lying. All this information was disseminated by LLuke 33 on Twitter before Mr Hendricks started tweeting.
On 24 June 2011, @LLuke33 first realised that @TheNevCan was actually Mr Hendricks. He continued tweeting to the effect that Ms Powell hated Mr Hendricks because he had found out about Mr Rush, hated Ms Partridge because she resigned about Mr Rush and hated Ms Katona because she would not lie to Mr Hendricks about Mr Rush. On 26 June 2011 @LLuke33 tweeted that his sources were saying that Ms Powell would do everything in her power to destroy Mr Hendricks and that she was saying that Ms Katona was playing the victim. Mr Hendricks replied to that tweet: "You can tell Claire to bring it on. Also Kerry is not playing the victim, she just moving on and CP lying about me will backfire". That is in fact the first tweet relied upon by ITV2 in Schedule 1A to the Re-Re-Amended Defence and Counterclaim as being "aggressive, abusive and/or threatening" although it is difficult to see how it could be viewed in that way.
During the course of that day there were a stream of tweets from @LLuke33, to the extent that Mr Hendricks tweeted that he was bored with him. To that his response was: "did you know that C has already had a meeting with ITV behind your back. Who's bored now?" evidently a reference to the meeting Ms Powell had on the afternoon of 20 June 2011. Mr Hendricks' response was: "I owe you an apology. I had my suspicions but I did not know about the ITV meeting. So I can add deceit and treachery to her list." That tweet is also relied upon by ITV2 in Schedule 1A as aggressive, abusive and/or threatening and is the first tweet which is said to endorse a series of aggressive, abusive and/or threatening tweets from @@LLuke33 and @@KMaddock. I will deal later in the judgment with ITV's case about Mr Hendricks endorsing tweets from @LLuke33 and @KMaddock. For the present, it is only necessary to note that, at the time, in June to August 2011 prior to termination, neither ITV2 nor Mr Andre nor Ms Powell complained to Mr Hendricks or his lawyers about his having endorsed tweets from others, nor was that relied upon as a ground of termination.
It appears that on 27 June 2011 Ms Powell may have been trying to shut down @LLuke33's tweets since he tweeted Mr Hendricks: "will you [keep] your word and answer anything I put up with a yes or no, because C is trying to shut me down and I need back up". Mr Hendricks responded: "If you want me to confirm from now on I will just say this is true, yes or no and I will answer." There was no direct evidence from Twitter as to the position in relation to shutting down an account in 2011 and there was a conflict of evidence between the witnesses, specifically in relation to whether Mr Andre could have shut down the account of @KMaddock if what was being tweeted about him was untrue. Mr Hendricks' evidence was that it was always possible to shut down any Twitter account that was making statements that were untrue. Mr Andre said that this was a rule that had only come in more recently with the focus on Twitter trolls and that he had asked his lawyers to take steps to shut down @KMaddock but had been told it was not possible. I was not convinced by that evidence and it seems to me far more likely that it was always possible to get Twitter to shut down an account which was being used to spread lies.
In the meantime, on 24 June 2011 Ms Powell emailed her solicitor Mr Goldberg (this was another "brown envelope" email) setting out the reasons why she could no longer work with Mr Hendricks. She referred to the fact that a new Twitter account had been created in the last twenty four hours and that if it was a fake, Mr Hendricks should follow the procedures to have it removed. She said:
"I can no longer work with Neville due to the breakdown of our personal relationship last year and also the breakdown of our business over the last few weeks. Peter and myself feel that he will make things difficult [illegible] filming and [illegible] the final edit.
Neville has a lot of issues with people surrounding Peter's show and Pete is now worried about how this will be edited. He blurred a face of someone on the show…and Peter worries if he doesn't like someone he will edit them out or show them in a bad light.
My relationship with Nicola Partridge has broken down beyond repair and she is the client liaison at Can TV. We refuse to work with her…
Pete has been finding out many things about Neville in the last few days and has no longer got any trust in him. I don't think you need to add this in Simon but I just wanted to put that.
The only way it could work is if I deal with Danielle at Can TV and another person in the middle and Nev isn't anything to do with it otherwise we go back to ITV and suggest a JV [joint venture]."
Mr Nambisan submitted that, because this email was sent to her own solicitor, I should work on the assumption that what she was telling him was true. I very much doubt whether that would be a safe assumption. The issues which Mr Andre allegedly had with Mr Hendricks are not identified nor did she ever tell Mr Hendricks what those were, despite his request. It also remains a mystery what were the many things Mr Andre had learnt about Mr Hendricks in the last few days, let alone why it meant he had lost trust in him. Mr Andre's own evidence did not elucidate this mystery. It cannot have been tweets since, whilst Mr Hendricks had set up the account the previous day, he had yet to send any of the tweets of which complaint is made. Mr Andre had not seen Mr Hendricks for over a month since he came to Harrow. Filming of Here to Help was about to finish (on 26 June 2011) and editing had been going on since early April. No complaint has ever been made about those programmes. In the circumstances, it seems highly unlikely that what Ms Powell said about Mr Andre having lost his trust in Mr Hendricks was true.
In my judgment, what this email demonstrates is that, having failed to get ITV2 to buy into having a new production company at the meeting on 20 June 2011 (which of course Mr Goldberg had attended), Ms Powell was suggesting a change of tack to having other people than Mr Hendricks and Ms Partridge dealing with the production and editing. If that failed, they should go back and suggest the joint venture to ITV2 which was probably a reference to another production company in which she had an interest (there is some reference to this in emails from ITV2 after termination). In the meantime, the many things Mr Andre had learnt about Mr Hendricks were for Mr Goldberg's information, as ammunition no doubt, although she evidently did not want him to deploy it yet, hence saying he did not need to add it in, presumably to any communication he had with ITV2 or the claimant's solicitors. However, Ms Powell must have known that Mr Hendricks would never agree to being removed from his central editing and production role.
In line with this change of tack, Mr Goldberg then wrote a letter to the claimant's solicitor, Ms Catherine Fehler at Swan Turton, in relation to various points. He reiterated the request he had made to Mr Gawade for a copy of the Production Agreement saying: "Without knowing what the contract says, it is impossible for me to advise my client properly as to the detail of ITV2's contractual commitment to your client". As Ms Clarke accepted in cross-examination, the most likely motive for Ms Powell's lawyers wanting to see the Production Agreement was to see if there was a way ITV2 could get out of it, so this was hardly a legitimate request.
The letter also mentioned the Twitter account which it said: "contains content that is extremely damaging for my client's business" although it did not identify what content and how it was damaging. It is difficult to see how the tweets sent by Mr Hendricks up to that point could be categorised in that way. The letter said that, if this was a fake account, the usual procedural steps should be taken to have the account removed. It continued that Ms Powell had explained to ITV2 that the personal issues were jeopardising the future of the series. The most sensible solution would be for CAN TV to continue with production but with Mr Hendricks having no personal role or involvement, including in editing. He said his client would accept an independent third party dealing with editorial issues. He also said his client would not accept the ongoing involvement of Ms Partridge but would be happy to liaise with Ms Berendsen. The letter concluded: "Subject to us reaching an agreed resolution along [these] lines, my client would be prepared to provide the itinerary for Peter Andre that your client has requested."
On 28 June 2011 Ms Clarke emailed both Ms Powell and Mr Hendricks asking them to let her know where they were in terms of exploring ways to fulfil the production commitment for Peter Andre: The Next Chapter. She referred to the letter which she had understood was being sent by Mr Goldberg but which she had not seen. She also referred to the fact that the series was due to start filming in about a week and asked for an update. Mr Goldberg then sent Ms Clarke a copy of the letter he had sent Ms Fehler. Ms Clarke said in cross-examination that, until she had read that letter, she had not been aware of the Twitter account. She agreed that through this letter Ms Powell was clearly exerting aggressive commercial pressure. Mr Mallin put that, given that there was a strong likelihood that Ms Powell was trying to set ITV up, as Ms Clarke had accepted, it was likely that these concerns in the letter were bogus. Ms Clarke said that there was some sort of concern in relation to editing, but that she was concerned about this being a bit of a set-up. She accepted in answer to me that there was absolutely nothing wrong with the programmes in Peter Andre: The Next Chapter series 4 and that Mr Hendricks and Ms Powell seem to have been working together fine up until about 15 June 2011. Later in cross-examination, she accepted in answer to me that bringing someone else in to do the editing would effectively be writing Mr Hendricks out of the script.
In my judgment the reality is that there were no genuine editing issues. If ITV2 had pressed Ms Powell and Mr Andre to give specific examples from the programmes actually made or being filmed at that time which gave any cause for concern, as it seems to me ITV2 should have done given the suspicion that it was being set up, they could not have pointed to anything, other than the blurring out for which there was an innocent explanation and which in any event had nothing to do with Mr Hendricks. The obvious question for ITV to ask then would have been, if there was nothing wrong with Peter Andre: The Next Chapter series 4, what was it that had suddenly changed that was going to make series 5 so difficult to make. If ITV had taken that robust commercial approach with Mr Andre and his manager, as one might have expected it to do, given that the effect of the refusal to provide an itinerary unless demands to which they were not contractually entitled were met, was a threatened refusal by Mr Andre to perform his contractual obligations to ITV (filming had in fact originally been due to start on 27 June, the day before the letter was written, but it had been put back to 13 July 2011), ITV2 would have flushed out that what was really going on here was a strategy to replace the claimant as the production company.
The fact that there were no genuine issues also emerged from an email from Mr Hendricks to Ms Clarke on 1 July 2011. He said that they had finished filming Here to Help and were in the edit. There were no issues with Mr Andre during the shooting and he had told the team how much he liked working with them. Also Ms Partridge was part of the team during shooting and there had been no issues there either. Mr Hendricks said they had not had the itinerary for the next series and that the "PA issues" were a smoke screen, saying this was all about Ms Powell, who he had been told by a very reliable source was out looking for another production company. He also said the filming release forms (i.e. the filming agreements) had not been signed by Mr Andre either, despite their being exactly the same as usual. He gave her his word that the claimant had done nothing to cause this dispute. He was trying his best to sort this, but Ms Powell had a different agenda and it was not about reconciliation.
Swan Turton replied to the SMB letter on 1 July 2011. On the demand for a copy of the Production Agreement, Ms Fehler said: "I am unclear as to why you consider it necessary to advise your client on the detail of ITV2's contractual commitment to my client and await clarification." Ms Fehler asked for details of the content of the Twitter account that Mr Goldberg's client considered damaging to its business and said she would then be in a position to take instructions. The letter continued: "My client has received no indication that Peter Andre has any concerns and is unaware of any such issues involving him in its production of the programmes, which it continues to complete in a first class manner. When we spoke you stated that the interests of Peter Andre and your client were 'seamless'."
In relation to the demands about editing being carried out by someone else, the letter made Mr Hendricks' position entirely clear in terms of his contractual arrangements with ITV2:
"Your letter indicates that ITV have made express suggestions concerning the filming and programming going forward. Please provide full details of such, as I am unaware of the same. You refer to one particular suggestion of ITV of an independent third party dealing with editorial and other programming issues. If ITV has made that suggestion, I do not know the basis upon which your client, Peter Andre's agent, believes it is in a position to 'accept' or reject it; this point is reiterated in respect of your client not accepting the ongoing involvement of Nicola Partridge and regarding the continued involvement of Daniella Berendsen.
While my client is keen to maintain a suitable framework for the smooth operation of these matters, it is wholly inappropriate to request that Neville Hendricks should have no personal role or involvement with any of the series, particularly when he is the owner and director of the company contracted to deliver the programmes. This is plainly an unsustainable position, however my client is willing to put in place practical arrangements such that Neville Hendricks and Claire Powell's interaction can be appropriately limited."
Ms Clarke had asked to be sent a copy of the reply to Mr Goldberg's letter and this was duly sent to her. The first paragraph quoted in the previous paragraph is a further indication that Ms Clarke's evidence about the 20 June 2011 meeting with Mr Hendricks is mistaken, since if it was he who had suggested someone else doing the editing, she would surely have told Mr Hendricks and Ms Fehler that this part of the letter was wrong. Ms Clarke also accepted in cross-examination that the offer to put practical arrangements in place to ensure Mr Hendricks and Ms Powell's interaction was limited was a reasonable approach, whereas demanding that Mr Hendricks had no further involvement in the production did not seem particularly reasonable.
Mr Andrew Myers of Clintons then emailed Ms Fehler on 6 July 2011 asking for a copy of the Production Agreement in order to advise Mr Andre properly about his TV arrangements. The email said he was playing catch up to some extent as he had only recently been asked to advise Mr Andre. This was not really correct, as he had been in email communication with Ms Powell and Mr Andre more than a month previously about replacing the claimant as the production company. Mr Goldberg did then email Ms Fehler providing Mr Andre's itinerary on 7 July 2011 but maintained his demand for a copy of the Production Agreement and also raised with Ms Fehler another issue concerning £472,000 allegedly due from the claimant to CAN Associates and demanding immediate payment. It is noticeable that that email did not address Ms Fehler's request for details of how the tweets posted were said to be damaging to Ms Powell's business.
On 8 July 2011, Mr Myers sent an email to Ms Fehler about the filming agreement which the claimant was requesting that Mr Andre sign. He said that this was not acceptable and that it was also not acceptable: "for you to seek to use the production schedule as leverage to get our client to sign an agreement which is neither equitable nor transparent." The email set out various provisions of which complaint was made and demanded a copy of the claimant's agreement with ITV. This is an extraordinary email, since the filming agreement Mr Andre was being asked to sign was in the same form as he had signed without raising any objection demur previously. Since, as I address in more detail below, it appears that Clintons had advised Mr Andre in the past about his agreements with ITV, it would be surprising if they had not also advised him about his parallel filming agreements with the claimant. Ms Clarke accepted in cross-examination that it was an unfair characterisation to describe the claimant as using the production schedule as leverage but would not accept that the email was commercially unacceptable. In my judgment it was commercially unacceptable, given that Mr Andre had previously signed the contracts in this form.
On 11 July 2011 Mr Myers emailed Ms Clarke saying that Mr Andre had concerns relating to the claimant and did not feel able to begin filming until certain matters had been addressed and safeguards put in place to protect him and the quality of the show. He asserted that Mr Goldberg had sought over the previous three and a half weeks to engage the claimant in a constructive manner and the only response was to present the filming agreement the terms of which were not reasonable or transparent. They had not seen the Production Agreement with ITV which they had asked for. He now had no alternative but to involve her, something they had hoped to avoid.
The email continued:
"The first of Peter's requests was that Nicola Partridge should not be involved in the show in any way at all and/or referred to as his manager. This request has simply been ignored.
The second and principal request was that past editing practices be replicated. This could be achieved if CATL were to agree contractually to provide first and second 'cuts' to Claire for her comments and to agree to incorporate the suggested amendments into the final cut sent to ITV2.
The third request was to have sight of the CATL Agreement…
Peter's primary concern is the continued quality of the programme and that the filming and editing process goes smoothly. He feels that the requests referred to above are an essential part of making sure that happens. You will understand his reluctance to begin filming unless these are put in place."
In the light of this email from his own solicitor demanding that Nicola Partridge not be involved in the programmes in any way at all, Mr Andre's evidence about his attitude to Ms Partridge was quite extraordinary. He claimed that they were great friends, "besties" as he put it and that his only issue with her was her constantly phoning Mr Hendricks from the set. He said he and Ms Powell had just wanted her to take more of a back office role. Mr Mallin then put to him her evidence that there was no back office role for her and that this was tantamount to saying that she should lose her job. In fact, of course, both the letter of 28 June 2011 from SMB and Mr Myers' email of 11 July 2011 were not talking about Ms Partridge only having a back office role, but about her having no job at all.
Even when confronted with the first request to which Mr Myers had referred (that Ms Partridge have no involvement in the programmes) in cross-examination, Mr Andre claimed he had never made the request and he had never wanted Ms Partridge not to work with him. He just wanted her to have a back office role. In my judgment, this evidence about never having wanted Ms Partridge removed altogether is simply not true. It is inconceivable that an experienced media lawyer like Mr Myers would have referred to this being a request of Mr Andre's that had been ignored, if those were not his instructions from Mr Andre. This evidence of Mr Andre's was simply an example of his not wanting to appear to be "the bad guy". I am quite sure that, as the email said and as had been said in Mr Goldberg's letter of 28 June 2011, both Ms Powell and Mr Andre wanted Ms Partridge removed from any involvement at all in the programmes, which would effectively mean she had no job. This seems to have been driven by a desire for revenge on Ms Powell's part because she thought, wrongly, that it was Ms Partridge who had told Mr Hendricks about her affair with Drew Rush, but Mr Andre was clearly happy to go along with it.
So far as the other matters raised by Mr Myers are concerned, Mr Andre's evidence about the editing process was very confused. At an early stage of cross-examination, he accepted that he did not know how much of what was filmed Ms Powell ever saw for the purposes of editing. It subsequently emerged later in cross-examination that there was no editing issue on Here to Help, which was not a reality television programme. He was not able to identify any editing issue with Peter Andre: The Next Chapter series 4. That is scarcely surprising, since the editing process had been completed in May 2011 before relations between Mr Hendricks and Ms Powell really deteriorated and the programmes had been successfully broadcast between 21 April and 9 June 2011. The stark reality is that, despite a great deal of hyperbolic and vague evidence about concerns and fears, Mr Andre was not able to identify a single editing issue where Mr Hendricks had done something which showed him in a bad light. Equally, he could not gainsay the evidence of Mr Hendricks and Ms Partridge that nothing changed in the editing process throughout the relevant time.
Another striking aspect of his solicitor's email of 11 July 2011 is that, although in his evidence Mr Andre said he had had serious concerns about the tweets Mr Hendricks was posting from the very outset, on 26 June 2011, and that he had told his solicitors about those concerns, there is no mention of the tweets anywhere in the email. It seems to me inconceivable that, if that was one of the concerns Mr Andre raised with him, Mr Myers would not have mentioned the concern about the tweets in the email, especially given that he was in close liaison with Mr Goldberg, who had raised the Twitter account in his letter of 28 June 2011. The most likely explanation for Mr Myers not mentioning the tweets was that at that stage, contrary to his evidence, Mr Andre had not raised any such concern with his solicitors.
It also striking that, although in cross-examination Mr Andre sought to contend that, from the moment that Mr Hendricks starting tweeting on 26 June 2011, he was saying that he could not work with Mr Hendricks and that he was so upset by the tweets because they were public, the one thing he never did was to contact Mr Hendricks and say to him that the tweets were really offensive to Mr Andre and Mr Hendricks should stop posting them. He only ever contacted Ms Powell.
In cross-examination about the email from Mr Myers of 11 July 2011, Ms Clarke accepted that saying that Mr Andre did not feel able to start filming until certain matters had been addressed was in effect a direct refusal to perform his contract with ITV. She agreed that the reference to the draft agreement not being reasonable and transparent was not accurate. Although Ms Clarke did not necessarily accept this, I agree with Mr Mallin that this email was a continuation of the agenda or strategy to oust the claimant as the production company.
By this period in the first half of July 2011, there were a lot of tweets posted by @LLuke33 and also by @KMaddock, who is also an unknown person, but again someone who seemed to know a great deal not only about Ms Powell but also about Mr Andre. There was some suggestion it was a woman in Australia who had known Mr Andre or his family in the past, but there is no evidence about that. The tweets posted were often extremely offensive and included further allegations. Mr Hendricks did not respond to all the tweets and indeed on 6 July 2011, he tweeted asking @LLuke33 to back off Ms Powell saying: "it's my problem and I will deal with it. That said I would like to thank you for putting the truth out there."
The demand that Ms Partridge have no involvement at all in the programmes provoked a reaction on Twitter from both Ms Partridge and Mr Hendricks. Ms Partridge (who seems to have been an infrequent user of Twitter, at least on the "Nicola@Can" account, her previous tweet being in February), tweeted on 12 July 2011: "@MrPeterAndre just because I wouldn't lie for @ClaireatCan it should not be a reason for you to want me to lose my job". In cross-examination, Ms Partridge was clearly still upset about the way in which she had been treated by Ms Powell and Mr Andre. She said in her witness statement that the tweet was sent out of anger and frustration at the way she was being treated by Ms Powell and Mr Andre as she felt they were vindictively trying to punish her for not wanting to lie about Ms Powell's affair with Mr Rush. In cross-examination she said she would challenge anybody not to be extremely hurt by that. She thought Mr Andre probably did want her to lose her job. She made the perfectly valid point that she wasn't exactly inundated with phone calls saying: "Nicola, this isn't the case."
Also on 12 July 2011, Mr Hendricks, who was clearly angered by the treatment of Ms Partridge by Ms Powell and Mr Andre posted two tweets in particular. One was addressed to someone tweeting as "@THE EIIiH1":
"…personally I am very happy, but I have staff jobs to protect and I will not let CP or PA put people's jobs on the line over CP mission of revenge. Not on my watch. I will do whatever it takes and take down whoever stands in my way because we have done nothing wrong other than not want to be part of CP bullshit circus. Ask you yourself you started all this with a pack of lies".
Allowing for the somewhat emotive language which is explicable as indicative of Mr Hendricks' anger, this tweet was an understandable reaction to what Mr Hendricks rightly saw as a spiteful act of revenge on Ms Powell's part, with which Mr Andre was prepared to go along.
The second tweet seems to have been directed to Ms Powell: "CP, if you or PA think that I am going to get rid of Nicola Partridge to continue working with you both. You're wrong. I choose Nicola." As Mr Hendricks said in his witness statement, this tweet was not aggressive or threatening, but factually accurate in circumstances where Ms Powell and Mr Andre were trying to get rid of Ms Partridge who had worked for Mr Hendricks for seventeen years. As he said, she had been a good friend to both of them and had done absolutely nothing wrong.
The posting of those tweets by Mr Hendricks and Ms Partridge led Mr Myers to send a further email to Ms Clarke later that afternoon 12 July 2011. These tweets were alleged by him to have rendered the relationship between Mr Andre and the claimant "untenable". Mr Myers attached a screen grab of the tweets. He reiterated his theme from the previous email that the proposal (that Mr Hendricks relinquish his editing role) was constructive and said: "At no point has our client sought to exclude Can TV or taken any steps that were capable of undermining his relationship with them. It cannot be the case that requesting that a production company's member of staff not be involved on a shoot and that contractual arrangements be regularised, can be considered in any way inappropriate or unreasonable. It certainly cannot in any way justify NH's and NP's actions." The email goes on to talk about trust and confidence being at the heart of the relationship between production company and the subject of a reality television programme and how the claimant had put itself in an untenable position. Mr Myers said that he understood that filming had already been delayed and urged that a solution be found quickly.
Of course, filming of Peter Andre: The Next Chapter series 5 (which had already been put back from 27 June) was due to start the following day 13 June 2011. Mr Myers' email to Ms Clarke was only copied to Mr Goldberg, not to Mr Hendricks or Ms Partridge. Instead, without prior warning, at 6.25 pm on 12 June 2011, Jeanette Whiston of CAN Associates emailed Gus Hurdle of the claimant saying: "Peter will be unable to start filming and we will confirm with you in due course when the necessary arrangements have been made which will allow for the process to commence." Mr Hurdle replied: "Are you saying that contrary to the itinerary that you sent at the end of last week (which documented filming starting this Weds 13 July) PA no longer wishes to begin then and prefers to curtail filming to a date of his convenience. Obtaining a firm date at this point is imperative as you know the effects of curtailment have been made quite clear. The delivery of the show to meet its transmission date is beginning to be jeopardised and I'll need to inform ITV if this is going to be the case."
Given that Ms Powell and Mr Andre had been engaged in a strategy to remove the claimant as the production company since at least the beginning of June 2011 and Mr Myers had been party to that strategy (being the recipient of Ms Powell's email of 2 June 2011), the first sentence of the passage from his 12 June 2011 email which I quoted above asserting that his client had not sought to exclude the claimant was simply not true, as Ms Clarke accepted in cross-examination. She could not recall being lied to in solicitors' correspondence before, but was seriously concerned.
When asked about Mr Myers' second email, Mr Andre maintained that he had not known about this email either and that Mr Myers had got it wrong, since he had not wanted Ms Partridge to lose her job. For the reasons I have already given, that evidence is not truthful. It is inconceivable that Mr Myers would have sent an email of this seriousness (which in effect was a refusal by Mr Andre to perform his contractual obligations) without consulting his client and taking detailed instructions. Furthermore, Mr Andre had said himself in his third witness statement that he had read print-outs of tweets provided to him by his lawyers before they were attached to letters or emails to ITV, which was normal because his lawyers usually run letters and emails by him before they send them. As Mr Mallin pointed out, only the email of 12 July 2011 and Clintons' letter of 19 July 2011 attached tweets. Despite Mr Andre's unimpressive attempt in cross-examination to suggest that he did not read emails and letters his lawyers were proposing to send, on the basis of his own witness statement (which reflects entirely what one would expect), it is clear that he did read the correspondence the lawyers were proposing to send, including this email.
Mr Andre claimed that when he saw the Nicola Partridge tweet he was shocked and upset as he had not wanted Ms Partridge to lose her job. He also claimed to have rung Ms Powell to ask what was going on, but he could not recall her response. However, if he really had not wanted Ms Partridge removed from the programme and Mr Myers had somehow misunderstood the situation, one might have expected him, as someone who professed to be such a good friend of Ms Partridge, to have phoned her, not Ms Powell, and to have said that there must be some misunderstanding. However he did not, which was precisely the point Ms Partridge made about not being inundated with phone calls. The truth is he did want her removed from the programmes or, at least, Ms Powell did and he was prepared to go along with that demand and instruct his solicitor to make it.
Mr Andre also gave evidence in his witness statement about a conversation with Ms Partridge which he alleged had taken place when Here to Help was being filmed and Drew Rush was on set. Mr Andre said that he told her that there was no need to tell Mr Hendricks that Mr Rush was on set that day as it might cause trouble. She said something like: "so you expect me to lie" to which he said he certainly did not. Ms Partridge said in cross-examination that she thought this conversation had not happened. Mr Mallin put to Mr Andre that his evidence about the conversation was a piece of fabricated evidence designed to deal with the Nicola Partridge tweet on the basis that he had misread it as referring to him having asked to lie rather than Ms Powell. That may be right, but whether it is or not, I find that the alleged conversation did not take place.
Mr Andre claimed in evidence that he had also found Mr Hendricks' tweets, which were an attack on Ms Powell and through her on him, given that he was associated with her in the entertainment industry, distressing. However, as Mr Mallin pointed out they are directed primarily at Ms Powell. Furthermore, if what was being said about him, that he wanted Ms Partridge to lose her job, had not been true and there had been a misunderstanding, then if he had really wanted a solution as his solicitor professed in the email, the simplest thing in the world would have been to contact Mr Hendricks and Ms Partridge to tell them that there had been a misunderstanding and to ask them to post corrective tweets, which there is no reason to suppose they would not have done.
However, as I have already found, there was no misunderstanding and, as his solicitor was saying on his behalf, Mr Andre did want Ms Partridge removed altogether from the programmes. In relation to all the tweets of which Mr Myers complained, if they upset Mr Andre at all, that can only have been because Mr Hendricks and Ms Partridge were saying things in a public forum which were true, but which he was concerned would not match his "good guy" image. In my judgment that was no good reason for saying they had rendered the relationship untenable or that there had been a breakdown of trust and confidence. That was all feigned and Mr Myers' email was a continuation of the strategy to engineer the removal of the claimant as that production company. That was the real "solution" that was being sought.
On 13 July 2011, Ms Fehler emailed Mr Goldberg and Mr Myers about the email from Ms Whiston saying that Mr Andre would not start filming. She pointed out there had been no prior warning of cancellation and that if Mr Andre failed to conform with the agreed schedules, the claimant would be unable to deliver the programmes as it was contracted to do. In the event that the claimant was put in a position of breach, it would have no alternative but to take all appropriate steps against relevant parties. The stark position was, as Ms Clarke accepted in cross-examination, that there was a unilateral refusal by Mr Andre to perform his contract.
In those circumstances, Mr Goldberg's response to Ms Fehler which suggested that because the first programme in series 5 was not due to broadcast until October, he was surprised that the claimant considered that the postponement put it at risk of being in breach, was an extraordinary position to take. Ms Fehler replied on 14 July 2011 saying that, as they had provided the itinerary, Mr Andre should be complying with it. She said that aside from the cancellation of filming, Swan Turton were not aware of any issues and if it was necessary, she was happy to discuss a suitable protocol.
As Ms Clarke said in evidence, ITV2 was concerned that the postponement of the filming would mean the programme would not be made. On 14 July 2011, ITV2's solicitors, Quinn Emanuel, sent a letter to Clintons, Swan Turton and SMB referring both to the Production Agreement and the PA Agreement and inducement letter. The letter stated that ITV2 needed to see a resolution by no later than 1 August 2011 of the current impasse which was already delaying filming of series 5. It pointed out that all parties had agreed that the first programme would be transmitted on 20 October 2011. If the series was not produced and delivered on time, ITV2 would suffer loss and damage and the reputation of the series as a product would be damaged. The letter continued that PJA Promotions and the claimant appeared unwilling to continue to work together towards the production of the series pursuant to the terms of the Agreements. It stated that the recipients of the letter must resolve their differences without delay by no later than 1 August 2011 and that ITV2 required them to explore all possible avenues of resolution, including if necessary, mediation.
In cross-examination Ms Clarke agreed that the claimant was not unwilling to perform its contract with ITV2 but it was clear that the parties could not find terms which would make it happen. It was not that the claimant of itself was unwilling, it was the circumstances around it that made it not possible.
From the Quinn Emanuel letter until the first mediation on 27 July 2011
On 18 July 2011, Swan Turton responded to the Quinn Emanuel letter. They referred to the claimant's desire to comply with its contractual obligations and continue the ongoing business relationships. It referred to the emails from CAN Associates stating that Mr Andre was "unable to start filming", pointing out that the claimant was unaware of the reasons for this inability and, although an explanation had been sought, none had been forthcoming. The claimant had never indicated that it was unwilling to continue working with Mr Andre, whom it urged to comply with the itinerary provided. Given that Mr Myers had said his client was committed to the filming schedule, they were at a loss to understand the reasons for the impasse, which had not arisen through any act or omission on the part of the claimant. They asked Quinn Emanuel to provide any pertinent information arising from the meeting between ITV and Ms Powell and Mr Goldberg [i.e. the meeting on 20 June 2011] which might assist in clarifying or indicating the reasons behind the communication that Mr Andre was "unable to start filming". It is telling that ITV2 did not provide any information about that meeting and, in particular, did not inform the claimant or its solicitors that Ms Powell had suggested the replacement of the claimant by another production company, which of course would have been very pertinent information, pointing to commercial pressure to replace the claimant being the motive or at least part of the motive for the refusal to begin filming. Once Mr Andre had begun filming with the claimant as the production company, moving to another production company at least for series 5 would have been impractical.
Clintons on behalf of Mr Andre replied to the Quinn Emanuel letter on 19 July 2011. Their letter stated:
"Our client takes issues with some of the contentions in relation to the letter of 14 July and particularly with the suggestion that our client is unwilling to continue working with Can TV. Our client welcomes not only the sentiment in your letter but also your willingness to take an active role in achieving a workable solution.
It would be disingenuous not to say that our client hoped that ITV would take a firmer line with Can TV and expressly acknowledge the shocking and deplorable conduct of Neville Hendricks and Nicola Partridge on Twitter over the last week…
[Their] postings on Twitter since 12 July 2011 have not only been personally offensive to and defamatory of both our client and his manager Claire Powell, they are also extremely damaging to the programme. We attach screen grabs of their most recent 'contributions'. We cannot conceive of a clearer example of conduct designed to destroy this necessary relationship of trust and confidence."
[The letter then goes on to say that if there is an agreement between the claimant and Mr Andre, the claimant has repudiated it. Mr Andre's rights are reserved.]
Four pages of Tweets posted by Mr Hendricks are attached to the letter. Despite the assertion in the body of the letter, there are no further tweets from Ms Partridge beyond the "Nicola Partridge tweet". So far as Mr Hendricks' tweets are concerned, many of them are expressed in extremely offensive language about Ms Powell, but essentially repeat what he had already been saying, namely that she had lied to him, that she was sleeping with Mr Rush and that @KMaddock seemed to be spot on in her information. The screen shots are difficult to read, but, of the tweets relied upon by ITV2 in the schedules to the termination letter, there are only five on the screen shots.
Furthermore, only one of these tweets was attached to the email which Ms Clarke sent to Mr Hendricks the following day, 20 July 2011, expressing concern about his Twitter traffic. That was the one sent on 14 July 2011 which referred to the episode of Here to Help scheduled to be broadcast that evening and read: "tonight you will see acting at its best. CP, PA, MA & Carl all being nice to Nicola on camera, but behind closed doors?????" As Mr Hendricks explained it in cross-examination, at the time the programme had been filmed, they had all appeared to get on and now weeks later they were saying they could not work with Ms Partridge, which was hypocritical and inconsistent. Mr Nambisan sought to suggest to Mr Hendricks that this tweet was damaging to Mr Andre's image or brand, in the same way as Mr Hendricks himself had recognised that the magazine article saying that Mr Andre was an animal in the bedroom would be damaging to his image or brand. In my judgment, the two are simply not comparable. The magazine article containing the interview in which Mr Andre was talking about being an animal in the bedroom was clearly capable of damaging his family image. As Mr Hendricks put it in cross-examination: "he's gone off on his ego going "oh, I'm an animal in bed" and we are trying to create a family brand and at the same time I'm talking to people like Mothercare". In contrast, whilst this "acting" tweet was one which, as Mr Hendricks accepted in the email he sent Ms Clarke on 21 July 2011 he should not have sent, it is difficult to see how it could really have been damaging to Mr Andre's image or brand and it was certainly not abusive, aggressive or threatening. Mr Andre sought to suggest in cross-examination that that tweet frightened him. I simply do not accept that evidence.
There was then a tweet on 16 July 2011 addressed to @KMaddock which read: "If I find out this is true, certain people and their careers will find themselves dead and buried…It's proper Cangate. Just off to get my shovel because I am now out to bury some people. Be afraid, be f..king very afraid. Trust me, if ever someone needed a super injunction it's them. Even I am shocked about the info you have. I am shaking with anger. But they all know me and what's coming to them. If this true. This going to be proper Elm Street and I won't stop until it's done."
It is quite clear that Mr Hendricks was very angry when he sent this tweet. In his witness statement he said this was to do with Claire Powell trying to stop him seeing his son. Mr Nambisan suggested in cross-examination that this was in fact a response to a tweet @@KMaddock had posted on 12 July 2011 about Ms Powell and Mr Andre having a "carefully woven plan together to try and take them down," the "them" apparently being either a reference to Mr Hendricks and Ms Partridge or to the contracts @KMaddock thought Mr Andre had signed with the claimant [which in fact he had not]. Mr Hendricks was not disposed to accept this and one of the obvious difficulties in analysing the tweets is determining after this length of time to what tweet or tweets they are a response. However, on the basis that Mr Nambisan is right and @KMaddock had somehow found out about the strategy to replace the claimant as the production company, about which Mr Hendricks had not previously known, an angry reaction on his part was understandable, even if his language was excessive.
To the extent that this tweet was relied upon (particularly by Ms Clarke when defending her statement that when she heard about the death threats she was not surprised) as somehow demonstrating a propensity on Mr Hendricks' part for violence, the tweet has to be put in context. To begin with, the threat to "bury people" is clearly metaphorical not literal, hence the reference to super injunctions. Furthermore, it is clear that a number of people tweeted complaining about this tweet because two tweets on, on the same day, Mr Hendricks apologised for his reaction: "I hear you all. I will not do anything until I get the truth and is one thing that's not been easy to get for them these days. But I will get to the bottom of this as if my life depended on it. So excuse me for being a little angry, but it will pass, it always does and I only do revenge with a very very cool head. As for lawyers, only the best for The Nev. See back to chilling already." That seems to me to defuse the unpleasantness of the earlier tweet. Reading the two together, it does seem to me likely that what he had learnt about that had made him angry and would require lawyers was indeed learning that Ms Powell and Mr Andre had an agenda to replace the claimant as the production company. Given that this was indeed what they were seeking to achieve, reliance on this tweet by Clintons as justifying a loss of trust and confidence has a distinctly hollow ring to it.
There were then three tweets on 17 July 2011 addressed to @Claire33Claire, a tweeter who seems to have been supportive of Ms Powell. Two of these were about Ms Powell reaping what she sowed and @KMaddock being: "as an enemy…your worst nightmare and that's why their shitting themselves because no one knows what she is going out with next. She has told me stuff I didn't know and I was CP partner." The third tweet included this passage: "Go to Aus and find KM and ask her, you might find CP, PA and MA [Michael Andre, Mr Andre's brother] are on the same plane with a massive suitcase filled with money to pay her off."
These tweets are all essentially about how @KMaddock seemed to know a great deal about Ms Powell and about the Andre family. Mr Hendricks explained in his witness statement that the context of these tweets was his anger that Ms Powell was preventing him from seeing his son and his ongoing issues with her. Mr Andre said in his evidence that he found the "suitcase" tweet highly offensive. He said the problem with the Twitter traffic was that this was becoming public and that was what upset him. Mr Mallin put to Mr Andre (albeit he would not accept it) that he had effectively been caught in a side swipe by Mr Hendricks primarily directed at Ms Powell. Although this is clearly another tweet which Mr Hendricks should not have sent, it has nothing whatever to do with the filming, editing or production of the programmes and, in any event, it is difficult to see how anyone could really take it seriously. It is striking in that context that, although Mr Andre's solicitors wrote this letter to ITV2 and enclosed the screen shots, they never once wrote direct to Mr Hendricks to ask him to stop tweeting.
Having referred to the tweets, the letter of 19 July 2011 from Clintons to ITV2 then continues:
"The fact of the matter is that despite the difficulties with Can TV, our client remains willing and able to render his services to ITV. The contractual provision in the ITV agreement which specified that Can TV had are to be the producer do not come close to having the status of a warranty or condition and therefore the inability to use Can TV should not be an impediment to the production of the programme. It will certainly not be from our client's perspective an impediment to him providing his services to ITV.
Historically of course Mr Andre's agreement with ITV made no specific reference to which production company would be entrusted with the filming of the programme. We suspect that in the normal course of events, the vast majority of such agreements do not. The fact is that our client did not realise that such an insertion had been made. We are currently investigating the circumstances that allowed the insertion of such a provision into the ITV agreement, to the detriment of our client. We trust that it will not prove necessary, but it is right that we put you on notice that our client may in due course require information from your client as to the facts and circumstances surrounding the negotiation of the ITV agreement. For the record, this firm neither advised Mr Andre in relation to his agreement with ITV or his previous agreements with Can TV."
Ms Clarke accepted, albeit with some reluctance, that the first paragraph was a repeat of the suggestion that the claimant be replaced as the production company. There is little doubt that this whole passage in the letter was seeking to ratchet up the commercial pressure on ITV2, in a rather menacing way as Mr Mallin submitted, to agree to a replacement production company, in effect as a condition of Mr Andre agreeing to start filming which he had refused to do a week earlier. Again, this letter from Clintons must have been approved by Mr Andre before it was sent, so that he was aware of and agreed to the approach which was being adopted. Furthermore, the suggestion that Clintons had not previously advised Mr Andre in relation to any of the agreements may not have been entirely accurate, as appears from the next two paragraphs of this judgment, but whether they had advised him or not, it would be surprising if he had signed previous agreements with the claimant without the benefit of some legal advice.
On 20 July 2011, Mr Myers emailed Ms Fehler on a number of matters raised in recent correspondence. First he said that Clintons had only advised Mr Andre in relation to his first contract with ITV, advice that was sought on the day before the deadline and was not concerned with the terms of the agreement, but its effect on an entirely separate matter. He said that Clintons had not advised Mr Andre in relation to the agreement with ITV dated 14 December 2010 or any of his agreements with ITV. The email went on to assert that the fact that Mr Andre had previously signed the filming agreement in the same form was irrelevant, because he should not have done so without seeing the claimant's agreement with ITV. However, it seems that the suggestion that Clintons had not advised Mr Andre about any of the agreements may not be entirely correct. Ms Fehler returned to this issue in her letter of 1 August 2011, to which she exhibited some emails. First there was an email from Mr Nick Pedgrift, evidently an agent or adviser, to Mr Myers of 8 October 2004 headed "Peter Andre TV Agreement". This reads: "As discussed today, subject to Peter's instructions please could you let me have your marked comments on the attached." It is not clear whether the attachment was an agreement with ITV or with the claimant, but this email suggests that Mr Myers did look at the terms of the relevant agreement and provide his comments.
Ms Fehler also exhibited an email from Mr Hendricks to Mr Myers of 24 November 2008 headed "Peter Andre ITV2 Talent Agreement" which stated: "Peter has asked that I forward to you his new ITV2 Talent Agreement to look over before signing. I have also attached the previous 2006 agreements for terms of reference." These various emails suggest that Mr Myers had given advice about Mr Andre's ITV agreements on at least two different occasions. To be fair to him, it is unclear whether the agreements he saw and advised on included Mr Andre's filming agreements with the claimant, but as I said above, it would be surprising if Mr Andre had signed these without the benefit of legal advice. It would be equally surprising if Clintons advised him about his agreements with ITV, but neglected to advise him about his parallel filming agreements with the claimant, which they must surely have known he was signing.
Mr Myers' email of 20 July 2011 went on to say that, without prejudice to the contention that there was no extant agreement between Mr Andre and the claimant, the conduct of Neville Hendricks and Nicola Partridge "in particular their defamatory and grossly offensive postings on Twitter puts your client in clear breach of the term of trust and confidence to be implied into any production agreement which provides for the subject of the filming giving the production company access to his home and children". This somewhat hyperbolic statement does not identify which tweets are being complained about, how tweets posted by Mr Hendricks were defamatory of Mr Andre or how the single tweet posted by Ms Partridge was defamatory or grossly offensive. It clearly was neither, for reasons I have already given. Nor does the email state that Mr Hendricks must stop tweeting. Despite the aggressive tone of the email, it ends by expressing a willingness to participate in the mediation, although only on the basis of seeing a copy of the Production Agreement before the mediation. In the event, Swan Turton did not provide such a copy before the mediation.
Ms Clarke's reaction to Clintons' letter of 19 July 2011 was not as one might have expected to write back in strong terms protesting that illegitimate pressure was being put upon ITV2. Instead she sent an email to Mr Hendricks at 9.21 pm the following day, 20 July 2011, raising the issue of his extensive Twitter traffic as an issue of real concern to ITV2 which was in danger of undermining the proposed mediation. She attached screenshots of three pages of tweets which she described as "just some of them" and said; "we are very concerned that they are both undermining the programming and are also contrary to the terms of the agreement with Can TV and the express confidentiality provisions. We do need to consider the potential repercussions of the traffic under our agreement but in the meantime can you please confirm that you and Can TV generally (and all of those employed by or working for Can TV and representing the business) will cease the traffic and not comment on any issues that relate to any of the programmes or our agreement?"
The screenshots attached consisted of (i) a page of Mr Hendricks' tweets from late June 2011, the best part of a month previously, the only ones of which could conceivably be of any relevance were three tweets to @LLuke33 two of which were those I have referred to at [143] and [144] above and the third merely confirming the second; (ii) a page of tweets including one from @KMaddock and two from Dan Wootton, but including the Nicola Partridge tweet and the "acting" tweet from Mr Hendricks of 14 July 2011; and (iii) a page of tweets from @LLuke33 sent on 26 and 27 June 2011.
Mr Hendricks replied to Ms Clarke's email at 6.32 am the following morning, 21 July 2011. He started by saying that he wanted to make it perfectly clear that the tweets from @LLuke33 and @KMaddock were nothing whatsoever to do with him or anyone working for him. He said he had joined Twitter after he had been told he needed to see tweets being posted about Kerry Katona and how she had been dumped by Ms Powell for drinking and failing a drugs test, which was untrue and a deliberate attempt to damage Ms Katona's reputation. Prior to his joining Twitter, @LLuke33 was already posting information that was pro Ms Katona and anti Ms Powell. He also noticed that @LLuke33 was very accurate and posted things he did not know, so it was obviously someone very close to Ms Powell who disliked her immensely. More importantly @LLuke33 was tweeting that Ms Powell was lying about Ms Katona and knew the real reason why she had left CAN Associates. Mr Hendricks tweeted to confirm the information was true to protect Ms Katona. He then referred to the fact that he had been told that Dan Wootton had posted that he and Ms Katona were having an affair but then removed the tweet. He said though that the story had gained enough momentum that OK! had run it on its front page a fortnight previously. He said that out of nowhere @KMaddock started tweeting on 4 July 2011 about Ms Powell and the Andre brothers. He said he didn't know who @KMaddock was but was certain they did as the tweets were about things going back to Mr Andre's time in Australia. The information relating to Claire Powell was very accurate but he repeated nothing to do with him or anyone working for him.
His email concluded:
"I take on board that I should not have tweeted about them acting being nice to Nicola Partridge, but I was really angry when I found out that they did not want Nicola working on any of Peter's shows after Nicola had worked so loyally and professional for the last 7 years with Claire plus Nicola has been in my employment for the last 16 years and does not deserve to be treated so badly. Please excuse my long-winded reply, but I still don't know what the issues [are] that Peter Andre has with Can TV and I am not going to allow them to use Twitter traffic that has nothing to do with me or my company as an excuse, seeing that they seem to have brought these Twitters upon themselves.
I confirm that I will not tweet anything relating to the shows, but I will not give any undertakings not to tweet to protect my reputation if called upon to do so."
In cross-examination, Ms Clarke said that she was happy with this response, which she found acceptable. She did not write back taking issue with anything that Mr Hendricks had said. Mr Hendricks did continue tweeting after his email of 21 July 2011, but not about the Peter Andre programmes. The only one of those tweets sent before the first mediation on 27 July 2011 relied upon in the schedules to the termination letter is one on 24 July 2011 which reads: "Don't worry, I watching what's being said and I will deal with it in my own time and in my own way" and which, frankly, is completely innocuous. However, in Schedule 1A to the Re-Re-Amended Defence and Counterclaim, ITV2 rely upon six further tweets sent before the first mediation all of which are said to be endorsement of @LLuke33 and @KMaddock. I deal with ITV2's case about endorsement in a separate section of the judgment later.
There was further solicitors' correspondence between SMB, Clintons and Swan Turton prior to the mediation which it is not necessary to set out. The mediation took place on 27 July 2011. Obviously what was discussed has not been disclosed, although in a subsequent email Ms Fehler says she thought it was generally productive. It did not lead to any overall settlement, but a second mediation session was arranged for 9 August 2011. Ms Clarke was not at the first mediation and she was away from the office until about the time of the second mediation, as she was heavily pregnant and had various hospital appointments. Indeed, it appears that no representative of ITV was present. Mr Andre was not at that first mediation either, only his lawyers.
From the first mediation to termination
On 29 July 2011 Mr Martin Davies of Quinn Emanuel emailed Ms Fehler asking for an update on the discussions (i.e. the mediation). On 4 August 2011 she replied saying that the claimant had agreed to provide the Production Agreement on terms, which Clintons had just agreed. She asked whether ITV2 was happy for filming to resume after Mr Andre returned from holiday on 6 August 2011.
It appears that at the mediation, there was a further discussion between Clintons and Swan Turton about Clintons being provided with a copy of the Production Agreement, since on 1 August 2011, Swan Turton wrote to Clintons agreeing to provide a copy with commercial terms redacted, on the basis of an undertaking by Clintons not to release the copy to either their client or SMB. That letter also referred to email exchanges indicating that Clintons had previously advised Mr Andre in relation to the agreements he had signed and enclosed an email exchange of 24 November 2008 and an email dated 8 October 2004, to which I have referred earlier. There does not seem to have been any response from Clintons explaining what those emails concerned, if it was not advising Mr Andre about the terms of the various agreements.
Between the two mediations, Mr Hendricks continued to tweet. ITV2 relied upon nine [in fact eight because two are the same tweet] of these tweets in the schedule to its termination letter. These are also relied upon in Schedule 1A together with a few more said to be endorsement of @LLuke33 and @KMaddock. The first was on 27 July 2011, the day of the first mediation and seems to have been prompted by a story which Ms Powell had leaked that day about her giving up her half of the claimant. This incensed Mr Hendricks because it was not true. He pointed out in the tweet that he had set up both companies and given her shares in both. 18 months previously he gave her Can [Associates] and kept [the claimant]. He continued: "It's all on record so stop lying about it CP or can't you tell the truth anymore. Take this as your final warning, you lie about me once more and I will stand you up in a court to repeat the lie. That's a promise." Whilst expressed in fairly trenchant language, that tweet was prompted by what he saw as her lying about the companies. It had nothing whatsoever to do with Mr Andre and it is difficult to see how it can be said to have led to a loss of trust and confidence.
There is then a tweet of 4 or 5 August 2011 to someone called Tom Spicer. The tweet to which this is a response is not available but so far as it concerns Ms Powell it says: "The person you need to thank is CP without her lies we would all be in bed now", presumably a reference to tweeting late at night. Again this has nothing to do with Mr Andre. Likewise a tweet to @pepperpurple referring to the possibility of suing Ms Powell. He says: "My lawyers are considering that option. I would like nothing more than to see the lying bitch in a courtroom". Although expressed in offensive language, given the situation with Ms Powell trying to replace him and the claimant, the sentiment was understandable and again had nothing to do with Mr Andre.
There is a tweet on 7 August 2011 to Galwaykelly expressing the same sentiment: "Some people have tried to stitch me up and think because of their so called status and who they know that they will get away with it. But I swear on my life I won't let it go until they get theirs. I always stated that I never started all this, but I promise I will finish it, fuck with me for no reason and you will pay the price". Again this is expressed in emotive language but the point is the same: he considered that he was being set up by Ms Powell, which of course in one sense he was.
In a tweet also on 7 August 2011 to @kimcalum Mr Hendricks said: "I only came on twitter because certain people you all know stated that I was having an affair with KK which was a total lie. They never thought that I would bring them on twitter. So that why I am here, without twitter everyone would just believe their lies. I want my day in court and until then, I fucking love twitter. It only hurts you if you tell lies and it's free." ITV2 relies on this as aggressive abusive and threatening but, aside from the swear word it is difficult to see how it can be characterised in that way. Again there is nothing about Mr Andre. That is made clear by the very next tweet also to kimcalum which states: "So seem to care about things that are negative against PA and that's your choice, but get your facts straight before you sound off because there's a big difference a rumour and a fact. I only deal in facts, I let the liars handle the rumours. I don't mention PA that's @KMaddock and they have to deal with her, not me. I like her and at least she is up front and says it as it is." The tweet from kimcalum to which that is a response is not available, but as I said in cross-examination of Mr Andre, it seems likely that kimcalum had asked something along the lines: "why are people tweeting nasty things about Peter Andre?"
ITV2 rely upon this tweet as an endorsement of what @KMaddock was tweeting, but it seems to me that it is not, at least as regards what she was tweeting about Peter Andre. Mr Hendricks makes it clear that he is not mentioning Mr Andre, consistent with his position throughout that it was Ms Powell and what he saw as her lies that he was seeking to counter by tweeting. In cross-examination, Mr Andre was asked by Mr Mallin to identify the tweets sent between the two mediations which contributed towards the relationship between him and the claimant becoming untenable. This was one of the tweets he identified apparently because if you were reading the tweet, you could click on @KMaddock within it and see what she was saying. It seems to me that that tweet cannot in any sense be construed as offensive to or about Mr Andre. It is explaining the difference between what Mr Hendricks is dealing with which is Claire Powell and what others are tweeting at the same time about Mr Andre. This is borne out by another tweet at around the same time on 4 August 2011 to bexter2, not relied upon by ITV2, which states in terms: "I have no issues with the Andres. My issue is with CP." In my judgment, apart from the "acting" and "suitcase" tweets, his tweets simply cannot be construed as an attack on Mr Andre.
There is then a tweet addressed to Ms Powell herself which reads: "make sure your lawyer copies all my tweets so he can stack them up against all your lies. I am coming for you and that's not a threat, that's a promise. So you had better get that wanker Dan Wootton tweeting on your behalf real soon, whilst he is looking for a job." ITV2 rely upon this as aggressive abusive and threatening, but again, whilst it uses foul language, in its context, the threat is clearly about legal proceedings not a physical threat. One does not know what Ms Powell had tweeted to which this is a response. So far as Dan Wootton is concerned, the offensive comment was no doubt prompted by the fact that it was he who had tweeted the rumour about Mr Hendricks having an affair with Ms Katona. It is also worth noting that, amongst the tweets on the screenshots attached to Ms Clarke's email of 20 July 2011, were two from Mr Wootton which can only be described as stirring things up. In any event, whatever the rights and wrongs of the relationship between Mr Hendricks and Ms Powell, this tweet had nothing to do with Peter Andre.
The next tweet on 7 August 2011 relied upon by ITV2 is another one to @pepperpurple saying: "you seem to be attacking @KMaddock for the wrong reasons. If CP had never lied in the first place, PA would not be dealing with her [i.e @KMaddock]. @KMaddock saw what CP was doing to me and decided that she would come to my defence and for that I am grateful to her." Mr Andre also identified this particular tweet as one which contributed towards the relationship between him and the claimant becoming untenable. When Mr Mallin put to him that all Mr Hendricks was saying was that @KMaddock had only come on the scene because of Ms Powell's lies (which was Mr Hendricks' evidence about this tweet) and that it was not an attack on him, he said that it was because it offended him that his best friend and manager was being called a liar.
As I pointed out to Mr Andre, if Mr Hendricks genuinely thought, as he did, that Ms Powell had lied to him, the fact that he was saying on Twitter that she had lied to him about the affair could not of itself have been sufficiently offensive for Mr Andre not to want to have anything to do with him. Mr Andre could see the force of the point, but was not inclined to accept it. When Mr Mallin pressed him, he countered by talking about Mr Hendricks' relationship with another woman and said now that Claire Powell was happy with Drew Rush, he was not going to stand there and watch her be demoralised publicly. That was no doubt a laudable attitude, but in my judgment the tweeting saying that Ms Powell was a liar cannot have made Mr Andre's relationship with Mr Hendricks untenable.
What emerged from this part and indeed from other parts of the cross-examination was that Mr Andre seemed to have an all-embracing concept of what offended him. In effect anything which he regarded as unpleasant said about anyone who had anything to do with him, whether his family or friends was offensive. Even if that degree of sensitivity was genuine (as to which I have considerable doubts), it cannot justify the assertion that tweets which were unpleasant about a friend, here Ms Powell, rendered the professional relationship between Mr Andre and Mr Hendricks untenable, particularly in circumstances where Mr Andre never once asked Mr Hendricks to stop tweeting. Furthermore, this extensive subjective sensitivity on Mr Andre's part, even if genuine, demonstrates precisely the danger of the implied term for which ITV2 contends. How can an objective assessment be made of whether the relationship has become untenable?
The second mediation took place on 9 August 2011. Mr Hendricks was not present, because he was on holiday. However his solicitors were there, together with representatives from Clintons, SMB and Quinn Emanuel. Ms Clarke was there, as was Mr Andre. There was some discussion between the two of them about the tweets and she said in cross-examination that he made his feelings about the tweets very clear, but given that the mediation process was all without prejudice, no further evidence could be given about those discussions, nor was it possible for Mr Mallin to explore in cross-examination exactly what was discussed.
It appears that some progress was made at the mediation, although no final resolution was reached. However, on 10 August 2011, Mr Goldberg sent an email to Clintons and to Martin Davies of Quinn Emanuel. He said: "…notwithstanding the progress that was apparently made at yesterday's mediation, Neville Hendricks tweeted late last night several hours after the mediation had ended saying that this would be his last tweet but with the comment: '…going to court is the best way of dealing with this'. I'm not sure how this statement is compatible with the aim of the other participants, which was/is to come to a resolution which avoids litigation. I hope that we all hear from Swan Turton in positive vein and sooner rather than later."
The full text of that tweet which was a response to two tweeters called @samglover82 and @leanne sao, read: "I have decided that going to court is the best way of dealing with this. So this is my last tweet. But before I go I just wanted to say thank you to those have you that have supported me and I promise to keep it real going forward. The NevCan and will." In his witness statement, Mr Hendricks explains that the context of this tweet was his attempts to see his son and to deal with the false claims that Ms Powell had made against him (i.e. the claims that had prevented him seeing his son). In other words it had nothing to do with Mr Andre or the making of the programmes. That explanation was not challenged in cross-examination.
That the tweet might well be nothing to do with the subject of the mediation was appreciated by Mr Davies in his reply to Mr Goldberg's email, in which he said: "We had seen the tweet although the context of the comment in the overall scheme of things is not entirely clear." In those circumstances, it is a little surprising that this was one of the tweets relied upon by Quinn Emanuel a week later in the schedule to the termination letter. Ms Clarke accepted in cross-examination that it was not clear what this tweet was referring to.
Later on 10 August 2011, Mr Goldberg emailed Clintons and Mr Davies again referring to budgeted items from the Peter Andre series for which the claimant had to account to CAN Associates and said his client and Mr Andre would insist that these were paid as a condition precedent of any agreed deal with the claimant if it was to be the production company for ongoing series. That demand does seem to me to cast some doubt on the extent to which either Ms Powell or Mr Andre was genuinely prepared to reach a settlement with Mr Hendricks through the mediation process. The outstanding invoices, about which there was in any event, a dispute, had nothing to do with Mr Andre or the making of the programmes and the condition precedent demanded was an attempt to impose a unilateral condition not in the relevant contractual documentation.
Mr Hendricks continued tweeting after the second mediation. The termination letter does not rely upon any of those tweets as justifying termination, other than the one about going to court to which I have already referred. However, Schedule 1A to the Re-Re-Amended Defence and Counterclaim relies upon a number of these tweets. Most of these are said to be endorsing @KMaddock and I will deal with that allegation compendiously later. However, since Mr Mallin pressed Ms Clarke in cross-examination to say which of the tweets between 9 and 16 August 2011 she considered offending so far as the Production Agreement was concerned and she identified two of the "endorsement" tweets as Mr Hendricks endorsing what @KMaddock was saying, I should refer specifically to those.
First, there is a tweet to two other tweeters saying: "prove there are lies, you all had long enough, but you can't so you revert to trying to smear @KMaddock. I can back everything I said in a court of law, so why don't your lot meet me in one. Not one piece of evidence to prove KM is lying." Of course we do not have the tweets to which these are a response so it is not possible to say that they were about what @KMaddock was saying about Mr Andre as opposed to Ms Powell. However, from the reference to backing up what he is saying in court, it is clear that Mr Hendricks is talking about Claire Powell, not Peter Andre.
The second tweet Ms Clarke referred to was one again to two other tweeters saying: "I have stated that everything that relates to CP, that she has put up is true and that's all I'm interested in". However, it is quite clear that this is only about what @KMaddock is saying about Ms Powell, not about what she is saying about Mr Andre, the truth of which Mr Hendricks would not know about. As I pointed out to Ms Clarke during cross-examination, Mr Hendricks is actually quite careful in these tweets prior to termination to say that he is really dealing with the Claire Powell issue and that what @KMaddock was saying about Mr Andre was between @KMaddock and Mr Andre, given that Mr Hendricks was not in Australia in the 1990s or 2000s, to which period some of what @KMaddock was saying about Mr Andre related. This is made crystal clear by the last tweet he sent before termination, on 16 August 2011 which read: "…I have always stated that KM is not my problem. Her comments regarding CP are true and that's all I have responded to. All the other stuff is for other people to deal with."
Of the tweets sent after the second mediation said in Schedule 1A to be aggressive abusive and threatening, whilst they continue to use offensive language, they are not directed at either Ms Powell or Mr Andre, except for one which refers to Ms Powell, from Mr Hendricks to a journalist called Clemmie Moodie. The context was an article she had written in the Daily Mirror on 8 August 2011. Mr Hendricks' tweet said: "Hi Clemmie, I had no problem with the article and can see why she went ballistic because the truth is finally coming out and she is shitting it." In cross-examination, Mr Andre said he had read the tweets to and from Ms Moodie and they made him more nervous now that Mr Hendricks had involved a journalist.
That was an exaggerated misreading of what these tweets were about. In an earlier tweet (not relied upon by ITV2) Mr Hendricks had said to Ms Moodie: "Hi, I saw your article in The Mirror and just wanted to correct a major error. I have made some massive mistakes regarding CP but actually marrying her was not one of them. If you need any information just DM [direct message] me. Anyway, hope you are well, speak soon, Nev x." Evidently there is then some telephone or email discussion between them and she says "Done" after which he sends the tweet complained about. That article was in the public domain anyway and, despite Mr Andre's alleged reaction, there is no suggestion that Mr Hendricks somehow put Ms Moodie up to write the article. The fact that he said Ms Powell was going ballistic and "shitting it" because the truth was coming out was evidently his opinion, but it does not seem to me to be remotely aggressive or threatening and is only abusive in the sense that, as he so often did, he used foul language in his tweet.
It seems that following the mediation, there was no further communication between Clintons and Swan Turton until Clintons wrote on 16 August 2011 saying that Mr Andre wished to have no further dealings with Mr Hendricks and would take all necessary legal steps to protect himself from Mr Hendricks' abusive and unlawful behaviour. The letter referred to the efforts to resolve issues at the mediations and that those efforts had failed. That was not entirely accurate since progress had been made.
The letter referred to the central issue between Mr Andre and the claimant and Mr Hendricks as the grossly offensive tweets about not only Mr Andre and his team but also about the series. This was said to have caused Mr Andre grave concern and distress, particularly where the making of the series involved him, his family and his home. The letter said the tweets had continued unabated despite ongoing attempts to resolve the matters. The letter then referred to the fact that Mr Andre had no extant agreement with the claimant and he had no wish to enter any such agreement. It is striking that, although the letter clearly alludes to some of the earlier tweets for example the "acting" tweet and asserts that the posting of offensive messages had continued unabated, it does not identify any particular tweet posted since the first mediation, which was being relied upon.
Clintons and Quinn Emanuel were clearly communicating with each other after the mediation as Ms Clarke accepted and ITV2 and Quinn Emanuel must have been aware this letter was going to be sent. In my judgment it is no coincidence that the termination letter was sent the very next day. Before considering that letter, I should deal with the distinct issue surrounding Kerry Katona's decision to appear in Celebrity Big Brother.
Kerry Katona and Celebrity Big Brother
After Max Clifford became Ms Katona's agent again, Celebrity Big Brother approached him on her behalf and offered £300,000 for her to appear in the programme. On 4 July 2011, one of his staff emailed Mr Hendricks to say they were accepting the offer that day but Ms Katona must not discuss it with anyone. Mr Hendricks replied the same day saying that ITV2 would not be happy about her going into Big Brother as it would impact on the delivery schedule for the reality television programmes. He thought they could get round this by saying that she was doing this to clear her bankruptcy, which he thought ITV would agree to, but they would not agree to her being tied into Big Brother after she came out of the house, so they had to make sure no contract was signed which was at odds with ITV.
On 12 July 2011 Ms Clarke told Mr Hendricks that ITV2 was not happy with Ms Katona doing Big Brother. He emailed her explaining that clearing her bankruptcy was Ms Katona's "holy grail" but if they could come to some arrangement to pay off her bankruptcy without her having to do Big Brother, he knew that she would be happy. He said Mr Clifford had told him that he had arranged a meeting with ITV to discuss matters and suggested Mr Hendricks attend. After a further email exchange Mr Clarke stated that ITV's position was that they would not pay more than agreed under the contract and expected Ms Katona's exclusive services to be provided in accordance with its terms in order to go ahead with Kerry Katona: The Next Chapter series 3. Mr Hendricks responded asking if Ms Clarke was saying that if Ms Katona went into Big Brother ITV would not want series 3 so he would be free to place it elsewhere, because Ms Katona wanted to clear her bankruptcy more than anything else.
By this time in mid-July 2011, the claimant was in the process of filming series 3 of Kerry Katona: The Next Chapter and had completed four programmes. There was a meeting between ITV2 and Max Clifford on 14 July 2011 at which ITV made it clear that their arrangement with the claimant for Ms Katona's reality television programmes was based on the claimant being able to provide her exclusivity.
On 27 July 2011 Ms Katona informed Mr Hendricks that she had entered an agreement with Endermol UK to participate in Celebrity Big Brother and that filming was due to start on 19 August 2011. Mr Hendricks instructed Swan Turton to write a letter to her, which they did the same day, 27 July 2011. This pointed out that if she participated in Celebrity Big Brother during the Term she would be in breach of her obligation to the claimant to make herself exclusively available for filming series 3. This would cause disruption to the arrangements for filming and production of the series and would put the claimant in breach of its obligations to ITV. The letter said that the claimant was not prepared to tolerate any breach and asked her to confirm by return whether she had entered an agreement with Endermol, that she would not take part in Celebrity Big Brother during the Term and that she would continue to comply with her obligations under the Agreement with respect to series 3. The letter threatened an application for an injunction if she did not provide the confirmation sought.
Ms Katona's lawyers Grosvenor Law replied on 28 July 2011, denying that Ms Katona was bound by the draft filming agreement (which of course she had not signed) and asserting that she was free to appear on Celebrity Big Brother. Up until then, the claimant had continued filming Kerry Katona: The Next Chapter series 3 without any issue. However, on 29 July 2011 Ms Partridge received a voicemail from an assistant of Max Clifford saying that the claimant had to stop filming with Ms Katona immediately and that Adam Crozier at ITV2 was looking at "sorting something", but until then filming must cease.
On 1 August 2011, Denise Palmer-Davies in Max Clifford's office emailed Peter Fincham, Director of Television at ITV, saying that all filming was on hold until they heard from ITV otherwise, but that Ms Katona and Mr Clifford were fully committed to completing the third series. Mr Fincham replied the same day referring to the meeting of 14 July 2011, where ITV had said their arrangement with the claimant was based on the claimant providing her exclusivity and stated that her decision to sign for Celebrity Big Brother was an issue for ITV as it: "undermines the value of our exclusive reality series and certainly from an editorial perspective renders the third series filming prior to her going into the CBB house redundant, as well as making post CBB material less valuable to us." He concluded that this placed ITV in a very difficult position not of its own choosing and said they would prefer to continue with the producing the third series maintaining their exclusive reality access to Ms Katona.
On 5 August 2011 Mr Fincham emailed Mr Clifford direct. He expressed sympathy for the position Ms Katona was in but said that needed to be balanced against the rights ITV had acquired for exclusivity. They had the option of taking this up legally with Mr Hendricks but if it was the case that Ms Katona was going to take part in Celebrity Big Brother come what may, they were prepared to explore her appearing on ITV2 on a different basis. They had told Mr Hendricks in a letter that they were willing to consider taking a four episode series (on the basis that in the circumstances there would not be enough material for an eight episode series) with a reduced licence fee and clear and appropriate editorial guidelines that allowed for the two to work together. It was not their preferred option but worth talking through to avoid the alternative legal route. If they were not able to reach a suitable arrangement that worked for ITV editorially, they would have no alternative but to refer to their legal rights and remedies under their contract with the claimant.
The letter to Mr Hendricks to which Mr Fincham referred was evidently a letter of 5 August 2011 from Quinn Emanuel to Swan Turton which set out ITV2's case on exclusivity and their entitlement to terminate for breach but said that ITV2 might be prepared to consider the alternative of a 4 episode series (on the basis there would not be enough material for 8 episodes) with a pro-rata reduced licence fee and clear and appropriate editorial guidelines to ensure that the two productions could both operate successfully. The letter went on that ITV2 was willing to explore this alternative and proposed that Swan Turton reverted with the claimant's suggestions as to a clear logistical and editorial framework for how this might be feasible. At that point it might be appropriate for the next stage of discussions to be carried out by the relevant individuals at the respective clients in order for the detail of the proposal to be finalised. In the event that a satisfactory resolution could not be reached, ITV2's rights and remedies were reserved.
That letter was sent on a Friday. In fact, Mr Hendricks was on holiday from the Monday 8 August until 22 August 2011. However, Swan Turton responded to Quinn Emanuel's letter on the Monday 8 August 2011, setting out the claimant's case that the commitment in the preamble to the Production Agreement was only to procure Ms Katona's exclusive television services in order to enable the claimant to produce and deliver the programmes. The letter went on to say that the proposal for four episodes was not acceptable, because of the contractual commitments the claimant had, inter alia to the production team. However, the letter did also continue: "Our client…is prepared to explore suitable alternative arrangements in order to progress this matter…We understand that your clients have been in direct communication with Ms Katona's solicitors and we suggest it may be sensible for the parties' solicitors to meet as a matter of urgency to progress matters on a sensible basis", a clear indication of a willingness to negotiate about the programmes and reach some compromise acceptable to all parties.
Also on 8 August 2011, there was what seems to have been a cordial email exchange between Mr Hendricks and Ms Angela Jain, Director of Digital Channels and Acquisitions at ITV. She mentioned viewings she had in her diary for Ms Katona but said it seemed inappropriate for her to be doing them whilst the matter of editorial spec., delivery and broadcast of the series remained unresolved. He replied saying he was away on holiday until 22 August but he gathered the lawyers had been speaking so he would respond once he knew the state of play.
She replied: "Great thanks. I am sure you agree that we should aim to resolve this fairly quickly as any potential delivery would be right up against it now." He replied on 9 August 2011 saying: "My understanding of the current situation from my lawyers is that ITV have suggested that they would consider taking 4 shows, whilst allowing Kerry to take part in CBB. That offer is unacceptable to me. However, I would agree to us delivering 6 shows, that meeting you half way. I gather that the lawyers are meeting today [a reference to the mediation], so an answer to 6 shows alternative is required urgently."
Quinn Emanuel sent a letter on 9 August 2011 in response to Swan Turton's letter of 8 August 2011. That letter took issue with the claimant's construction of the exclusivity term in the Production Agreement. It asked Swan Turton to confirm when Celebrity Big Brother was due to start, which Quinn Emanuel understood was on 18 August 2011. It noted that from the definition of term in Swan Turton's letter of 27 July 2011, they agreed that the exclusivity provisions in the Agreement would be breached in any event. It is unclear whether that letter was sent before or after the mediation took place and, of course, the court heard no evidence about what was discussed at the mediation.
On 12 August 2011 Swan Turton wrote a further letter to Quinn Emanuel in response to that letter of 9 August 2011. The first paragraph referred to the fact that they were aware that ITV had corresponded direct with Max Clifford and indicated a more co-operative approach. They asked for copies of the exchanges which were clearly pertinent to the issue. They then referred to the dispute as to the extent of the exclusivity obligation. They also made the point that Celebrity Big Brother, which was due to start filming on 18 August 2011, was not to be broadcast at the same time as Kerry Katona: The Next Chapter. They made the point that the claimant had not sanctioned Ms Katona's decision to take part in Celebrity Big Brother and was not responsible for the schedule.
In my judgment, the letters from Swan Turton on 8 and 12 August 2011 cannot possibly be construed as a refusal by the claimant and its solicitors to discuss further with ITV2 a possible compromise in relation to Kerry Katona: The Next Chapter series 3. ITV2 had put forward a proposal to take four programmes, to which Mr Hendricks had countered with the suggestion that they take six in his email to Ms Jain of 9 August 2011 and Swan Turton had indicated that the claimant was prepared to negotiate. Indeed, Swan Turton were asking for copies of the correspondence with Max Clifford, a further indication of a willingness to reach an accommodation. Quinn Emanuel did not send that correspondence and there was no response from them or ITV on this issue or in response to Mr Hendricks' proposal to deliver six programmes prior to the termination letter. Nor did Quinn Emanuel or ITV follow up on requesting the "clear logistical and editorial framework" they had asked for.
The termination letter and events post termination
The termination letter was sent on 17 August 2011, the day after Clintons' letter stating that Mr Andre would not sign the filming agreement and wanted nothing further to do with the claimant as production company. I do not propose to quote the letter extensively, but to highlight the main points it makes. On the analysis of the contract, much was made of obligations imposed on the claimant under the ITV General Terms and Conditions. However, as I found above when dealing with the contractual framework, those Terms and Conditions were not incorporated into the Production Agreement. They would only have been incorporated into any Licence Agreement for series 5 but none was ever entered so reliance on the General Terms and Conditions was misplaced.
In relation to Mr Andre, the letter referred to Quinn Emanuel's letter of 14 July 2011 and Swan Turton's response on 18 July 2011 saying the claimant was unaware of the reasons for the impasse in filming but it was not as a result of any act or omission by the claimant and the claimant would conform with its contractual obligations and produce the series in a consistently first class manner. The termination letter then alleged that it was clear that the claimant had not abided by that position, undermining the series and the necessary relationship between the claimant and PJA, without which the claimant could not produce the series at all.
The letter then summarised the background and recent developments. It referred to the "acting" tweet of 14 July 2011 saying that Mr Hendricks had said the programme was not real but staged which was an extraordinary statement to publish that undermined the programmes and those appearing in them. This was a complete misreading of what Mr Hendricks had meant by the tweet, which he had explained to Ms Clarke, apparently to her satisfaction, in his email of 21 July 2011.
The letter said that ITV2 had then asked Mr Hendricks to cease such conduct and refrain from commenting on any of the programmes or the Agreement. They had understood from his response on 21 July 2011 that he would not repeat the conduct and would abide by the terms of the Agreement. However, he had not done so. The letter attached two Schedules of tweets, one of those before 20 July 2011 and the other of tweets thereafter, giving a number of examples of his recent tweets attacking and threatening individuals close to Mr Andre and who appear in the series. It says those attacks are taken personally by him and goes on that the aggressive nature of the tweets had created an atmosphere of animosity and fear between the claimant as producer and those it was filming. It refers to the need for the subject of reality television needing to be allowed to behave and be filmed naturally. The claimant was alleged to have failed to be a first class producer and that it had become impossible for it to produce and deliver the series. This was said to be a fundamental breach of the Production Agreement entitling ITV2 to terminate the Agreement which it did with immediate effect. It is to be inferred that the tweets which were set out in the two schedules were the ones which particularly concerned Mr Andre and that the schedules were prepared after consultation with his solicitors.
In relation to Ms Katona the letter set out the recent developments. It referred to ITV2's attempt to reach a resolution by saying it might consider a reduced 4 episode series if the claimant was able to revert with a clear logistical and editorial framework for how that might be feasible. The letter continued that the claimant had not provided an indication of how this might work, nor provided a clear logistical and editorial framework and had rejected the proposal. Accordingly the claimant remained in fundamental breach.
The letter concludes that to the extent that the claimant contended that the impasse was not of its making, the fact remained that it could not continue as producer as it could not secure the necessary access, so that in the alternative, the Agreement had been frustrated.
After termination there was immediately discussion on 18 August 2011 between Ms Jain and Mr Tim Miller, Creative Director of ITV Studios (a separate company which had produced the Katie Price series for ITV2) about ITV Studios filming series 5, which is what in fact occurred. However, in November 2011, Ms Powell was looking to take the next series elsewhere. As Ms Kate Maddigan Commissioner Entertainment at ITV said in an email of 16 November 2011 to Mr Miller: "We all know her agenda as she has a JV interest with the other company [i.e. another production company]. We are continuing to try and resist but she makes it very difficult by making it a talent issue…" Ms Maddigan asked if ITV Studios would be prepared to make the next series. Mr Miller responded: "yes absolutely up for this series but understand talent rules!" In the event, Ms Powell appears to have backed down and ITV Studios continued to produce the programmes.
Were ITV2 entitled to terminate the Production Agreement?
Alleged loss of trust and confidence
I have already held that no term is to be implied into the Production Agreement that the claimant would not act in any way such as to damage the necessary relationship of trust and confidence in the relationship between Mr Andre and the claimant. Nonetheless, it is necessary to consider the allegations of breach of trust and confidence for the purposes of the overall analysis, including in considering whether there was a renunciation of the contract by the claimant.
In the Re-Re-Amended Defence and Counterclaim, the case in relation to breach of the implied term is put on the basis of the offensive tweets which Mr Hendricks posted and those of @LLuke33 and @KMaddock which he is alleged to have endorsed. These are set out in Schedule 1A to that pleading which runs in all to 302 tweets. As I said in the section of the judgment dealing with the proceedings, all but 18 of these were first relied upon by ITV2 in a re-amendment eventually served in July 2014. The 18 originally relied upon in the Defence and Counterclaim consisted of the 16 tweets identified in the schedules to the termination letter plus the "I choose Nicola" tweet and the Nicola Partridge tweet, both dated 12 July 2011, which were added to the Schedule by amendment in November 2012.
I deal with the issues of massive expansion of the Schedule and endorsement in more detail below, and for the present assume that ITV2 is entitled to rely upon all these tweets in support of its case. That case depends in large measure on the evidence of Mr Andre, since it is pleaded that: "The direct and foreseeable effect of CATV's [tweeting] was that Mr Andre was unable and unwilling to render his services on the Programmes due to the breakdown of the necessary trust and confidence in the relationship between him and CATV."
I have already said that I regarded Mr Andre as an unsatisfactory witness. His evidence about the tweets was particularly unreliable. Having seen and heard him giving that evidence in cross-examination, I formed the clear view that he had no recollection of which tweets he saw at the time and what his contemporaneous reaction was. A particularly striking example of that was his reliance in cross-examination on tweets where he said the police had got involved. Those tweets were in fact sent a long time after termination and had nothing to do with the termination, but Mr Andre was clearly confused and thought that he had seen them before termination.
I was also not convinced by his evidence that, in effect, he was checking his mobile phone or computer all the time to look at the various tweets. He was unable to distinguish between his reaction at the time and his reaction subsequent to termination, in particular when his statement was being prepared and when giving evidence. That inability is obviously of considerable significance in a case in which it is said that the tweeting by Mr Hendricks caused a loss of trust and confidence at the time. On the basis that Mr Andre would have informed his lawyers about the tweets which particularly concerned him, it seems to me that the only reliable evidence of those tweets which he actually saw and which caused him any concern is in the contemporaneous correspondence: the email of 12 July 2011 and the letter of 19 July 2011 from his solicitors, Clintons, the email from Ms Clarke of 20 July 2011 and the termination letter of 17 August 2011 (on the basis that that was sent after Ms Clarke had discussed the tweets with Mr Andre at the mediation on 9 August 2011 and the schedules were prepared after consultation with his solicitors). In my judgment, it is likely that in the contemporaneous correspondence both Clintons and Quinn Emanuel/ITV2 put forward what they regarded as the best tweets from their respective perspectives.
I considered that the evidence Mr Andre gave as to his reaction at the time to the tweets he saw was extremely exaggerated. Whilst many of the tweets sent by Mr Hendricks were offensive and expressed in foul language, I reject Mr Andre's suggestion that they caused him to fear for himself and his family. As Mr Mallin correctly submitted, the suggestion that a grown man in the position of Mr Andre was genuinely scared by what was said in the tweets has to be viewed with considerable scepticism. Mr Andre's evidence about that fear was, of course, to a large extent dependent upon his assertion that this was a man who had made death threats, which, as I have found, was a complete fabrication. It seems to me that it is not remotely true that the tweets caused him to fear for himself, his family and children, either that they would come to harm or witness something awful. I have little doubt that if he had genuinely had that concern at the time, he would have contacted the police.
I also considered that the suggestion that the tweets were damaging to his reputation or image or brand was another complete exaggeration. There is no evidence that they had that effect: indeed Mr Andre seems to have remained as popular as ever with the public. Very few of Mr Hendricks' tweets were in any sense directed at Mr Andre personally. The two principal exceptions were the "acting" tweet on 14 July 2011 and the "suitcase" tweet on 17 July 2011. Given that, as I have found, Mr Andre went along with Ms Powell's act of revenge in seeking to remove Ms Partridge from the programmes and, on his own evidence, he had no issue with Ms Partridge other than the phone contact with Mr Hendricks (which I do not accept), the first tweet was understandable and in large measure reflected the true position. Mr Hendricks accepted a month before termination that it should not have been sent, but I reject the suggestion that it could have caused a loss of trust and confidence.
The second tweet should not have been sent either but I regarded Mr Andre's evidence about his reaction to it as exaggerated. It is difficult to see how anyone could take it that seriously. Again I reject the suggestion that that tweet could have caused a complete breakdown of trust and confidence.
The tweets which were offensive about Mr Andre were those posted by @KMaddock and, to a lesser extent, @LLuke33. For the reasons set out in more detail below, I do not accept that Mr Hendricks can be "tarred" with these tweets or that there is a sustainable case that in some way he endorsed them in a manner that could conceivably have caused a loss of trust and confidence. Indeed it is striking that neither Mr Andre's solicitors nor ITV2 suggested at the time that Mr Hendricks was endorsing the tweets from @LLuke33 and @KMaddock. Mr Hendricks was very clear in his email to Ms Clarke of 21 July 2011 that those tweets were nothing to do with him, his staff or his company and that statement was never challenged or contradicted contemporaneously by ITV2. Ms Clarke said she was happy about this response.
The vast majority of the offensive tweets from Mr Hendricks were directed at Claire Powell. Whilst many of them used foul language and were extremely unpleasant, they are to be viewed against the background of Mr Hendricks: (i) discovering that she was having an affair with Drew Rush and had lied to him about it; (ii) seeking to counter scurrilous allegations about Ms Katona which he believed Ms Powell was behind and (iii) then discovering that she had gone to ITV behind his back and was trying to get the claimant replaced as the production company. All of those matters made him extremely angry and whilst they may not be an excuse for the tweets, they certainly provide an explanation. It is also the case that, even whilst sending those tweets, he continued to edit Here to Help in exactly the same way as before, that Ms Powell was not excluded from the editorial process and that neither Mr Andre nor ITV had any issues with the programmes produced.
As I said earlier, it appeared from his evidence that Mr Andre had an all-embracing concept of what was an attack on him, viewing an attack on Twitter against anyone close to him, including his manager or indeed anyone else in his "team" as in some way an attack on him. I do not consider such an egocentric approach appropriate. The tweets from Mr Hendricks about Claire Powell were often offensive, but they cannot be construed as an attack on Mr Andre himself.
Given that Mr Hendricks was not responsible for filming the programmes, which was done by a separate film crew, that it was not intended that he would appear in any of the programmes in Peter Andre: The Next Chapter series 5 and that he had continued editing and producing Here to Help in the same professional manner as all the other programmes he had produced, despite the tweets, I do not consider that the alleged loss of trust and confidence on the part of Mr Andre was genuine. In relation to the filming of the programmes, if there were a relationship of trust and confidence, it would be with the film crew. I can see that a reality television star has to be comfortable with the crew filming him and his family and friends. However, there is no suggestion that Mr Andre or Ms Powell, for that matter, had an issue with the film crew, nor is there any evidence that the film crew treated Mr Andre or Ms Powell differently at any stage.
The suggestion that the tweeting caused Mr Andre to lose trust and confidence in Mr Hendricks and the claimant is difficult to accept when the circumstances were that Ms Powell and Mr Andre (through his solicitor) were discussing a strategy to replace the claimant as the production company from the beginning of June 2011, three weeks before the Twitter account was even opened. The pursuit of that strategy was hardly the action of people who considered they had a relationship of trust and confidence with the claimant. In those circumstances, if there was ever such a relationship, it seems to me it had broken down before the Twitter account was even set up, for reasons for which Ms Powell and Mr Andre were responsible, not the claimant or Mr Hendricks.
I consider that Mr Andre and Ms Powell used the tweets as a pretext, first to justify refusing to start filming Peter Andre: The Next Chapter series 5 and second to put illegitimate commercial pressure on ITV2 to terminate its contract with the claimant and use another production company. If the tweets had caused Mr Andre so much concern and upset, one would have expected him to contact Mr Hendricks and ask him to stop tweeting altogether. It is striking that that is the one thing which Mr Andre never did, a further indication that the tweets were being used as a pretext to further the commercial strategy of removing the claimant as the production company. In my judgment, had it not been for Ms Powell and Mr Andre wanting to get rid of the claimant as the production company and to use the tweets as a pretext for doing so, their reaction to the tweets would have been completely different: they would have contacted him and said something along the lines of: "Look Neville, you can't do this. If we are to go on with our relationship in a professional manner and produce the programmes despite the personal differences between you and Claire, you are going to have to stop this tweeting altogether."
It follows that, even if I had concluded, in favour of ITV2, that there was an implied term in the Production Agreement that the claimant would not act in any way such as to damage the necessary relationship of trust and confidence in the relationship between Mr Andre as the subject of the reality television programmes and the claimant as the producer of such programmes, I would have concluded that the claimant was not in breach of such implied term.
I can deal briefly with one of the other ways in which ITV2 pleads its case, that the posting of the tweets was a breach of the implied obligation on the part of the claimant to use reasonable skill and care in providing its services under the Production Agreement. I agree with Mr Mallin that the suggestion that in posting the tweets, the claimant was performing its services under the Production Agreement or was failing to use reasonable skill and care in doing so, is unsustainable.
Expansion of ITV2's case and alleged endorsement of @LLuke33 and @KMaddock tweets
As set out earlier, ITV2 originally relied in its Defence and Counterclaim only on the sixteen tweets referred to in the two schedules to the termination letter. By an amendment served in 2012, they added two further tweets the "acting" tweet and the Nicola Partridge tweet. By an amendment finalised in July 2014, ITV2 amended Schedule 1A to rely upon in total 302 tweets, including substantial numbers of tweets posted by @LLuke33 and @KMaddock and a large number of tweets posted by Mr Hendricks, which were said by ITV2 to "endorse" what was being alleged by those two tweeters.
Of course, in a case where a party terminates the contract for alleged repudiatory breach, there is no bar in principle to the party relying subsequently upon some different or further ground to justify termination beyond the ground relied upon at the time of termination. This is what is sometimes known as the principle in Boston Deep Sea Fishing v Ansell (1888) 39 Ch D 339; see Chitty on Contracts 31st edition [24-014]. However a major difficulty which ITV2 faces here, in relation to this multitude of other tweets not relied upon at the time of termination, is that it simply cannot establish which of these tweets were the ones which Mr Andre or ITV2 itself read at the time and considered so offensive that they rendered the relationship with the claimant untenable (even if, contrary to the conclusion I have reached Mr Andre did genuinely read them and consider them offensive). As I have already held, the only reliable evidence as to the tweets which caused either Mr Andre or ITV2 concern at the time is to be found in the contemporaneous correspondence attaching tweets and was effectively limited to the eighteen tweets relied upon in ITV2's pleading before the re-amendment. In those circumstances, it does not seem to me that ITV can demonstrate that any of the other tweets posted by Mr Hendricks at the time which they now seek to rely upon caused a loss of trust and confidence.
So far as the tweets which are said to have endorsed the postings by @LLuke33 and @KMaddock are concerned, ITV2's case faces additional difficulties. First, this concept of endorsement was not raised at the time either by ITV2 or Mr Andre. It is clearly a lawyer's construct thought up some two years later in an attempt to justify termination. Although Mr Andre sought in cross-examination to make much of Mr Hendricks having made comments about the accuracy of what @KMaddock in particular was tweeting as having caused him distress, I simply do not accept that evidence. If what Mr Hendricks was tweeting about @KMaddock and @LLuke33 really had caused Mr Andre distress at the time, because it showed Mr Hendricks endorsing the truth of what they were tweeting, I have little doubt Mr Andre would have raised that with Mr Myers who would have immediately raised that complaint with ITV2, particularly in circumstances where, as I have found, Ms Powell and Mr Andre were using Mr Hendricks' tweets as a pretext to stop filming and put commercial pressure on ITV2 to terminate the Production Agreement and Mr Myers was writing aggressive correspondence to ITV2. The fact that no such complaint was made about the "endorsement" tweets now relied upon gives the lie to any suggestion that they caused a loss of trust and confidence at the time.
Second, although Mr Nambisan maintained that in some of the endorsement tweets Mr Hendricks was endorsing the truth of what @KMaddock was tweeting about Mr Andre, I do not consider that individual tweets can be considered in isolation. Looking at the endorsement tweets overall, I consider that a fair reading of them would lead to the conclusion that Mr Hendricks was only saying that what @LLuke33 and @KMaddock were saying about Claire Powell was true, he was not endorsing anything they were saying about Mr Andre. A number of the tweets make that very clear, including those referred to above at [207], [208], [210], [219] and [220], which include the last one posted before termination.
Third, this concept of endorsement is a nebulous one. It is not being alleged that he encouraged @LLuke33 and @KMaddock to send tweets which they would not otherwise have done and any such allegation would be unsustainable: clearly they were going to tweet whether he was also tweeting or not. Indeed @LLuke33 was already tweeting about Claire Powell before Mr Hendricks even opened the Twitter account. Equally, it can hardly be suggested that he should have tried to shut them down and that he somehow endorsed their tweets by not doing so, in circumstances where Mr Andre did not do so. I simply did not accept Mr Andre's evidence that he had asked his solicitors to get @KMaddock shut down and they could not do so. If that had been the case, it seems to me that that is something else which Mr Myers would have raised with ITV2.
Fourth, in his response to Ms Clarke on 21 July 2011, Mr Hendricks made it clear that the tweets from @LLuke33 and @KMaddock ware absolutely nothing to do with him or his company or staff. ITV2 did not challenge that explanation and respond: "we do not accept what you say, we consider you are endorsing what they are tweeting. All this tweeting must stop". On the contrary, Ms Clarke did not respond at all, no doubt because, as she accepted in cross-examination, she was happy with his response. In those circumstances, not having raised the issue of endorsement in response to Mr Hendricks' explanation that the @LLuke33 and @KMaddock tweets were nothing to do with him, I consider that it is not open to ITV2 to seek to raise these alleged "endorsement" tweets two years after termination as a justification for termination. For all these reasons, in my judgment the endorsement case is unsustainable.
Renunciation
I accept Mr Mallin's submission that the correct contractual analysis in the present case in considering whether there was a repudiatory breach by the claimant entitling ITV2 to terminate the Production Agreement is not through the implication of the term for which ITV2 contends, but through the application of the doctrine of renunciation. A clear statement of the scope of that doctrine is to be found at [24-018] of Chitty on Contracts 31st edition:
"Renunciation
24-018
A renunciation of a contract occurs when one party by words or conduct evinces an intention not to perform, or expressly declares that he is or will be unable to perform, his obligations under the contract in some essential respect. The renunciation may occur before or at the time fixed for performance. An absolute refusal by one party to perform his side of the contract will entitle the other party to treat himself as discharged, as will also a clear and unambiguous assertion by one party that he will be unable to perform when the time for performance should arrive. Short of such an express refusal or declaration, however, the test is to ascertain whether the action or actions of the party in default are such as to lead a reasonable person to conclude that he no longer intends to be bound by its provisions. The renunciation is then evidenced by conduct. Also the party in default:
'… may intend in fact to fulfil (the contract) but may be determined to do so only in a manner substantially inconsistent with his obligations.'"
The issue for determination is thus whether, looking at all the circumstances objectively, that is from the perspective of a reasonable person in the position of ITV2, the claimant had clearly shown an intention to abandon and altogether refuse to perform the Production Agreement: see Eminence Property Developments v Heaney [2010] EWCA Civ 1168; [2011] 2 All ER (Comm) 223 at [61] to [63] per Etherton LJ, cited at Chitty on Contracts [24-020]. One can postulate circumstances where the words or conduct of Mr Hendricks on behalf of the claimant would satisfy that test. For example, if he had said: "I am going to ruin Mr Andre's image through the way in which I edit and produce the programmes in Peter Andre: The Next Chapter series 5" or if his conduct was such as did ruin Mr Andre's image.
However, applying that test to the present circumstances, I do not consider Mr Hendricks' words or conduct come anywhere near what a reasonable person in the position of ITV2 would consider evinced an intention not to perform the Production Agreement. So far as the tweets are concerned, I have already held that, even if the implied term for which ITV2 contends were implied into that Agreement, the tweets posted were not such as to destroy any relationship of trust and confidence between the claimant and Mr Andre. Furthermore, although the tweets were unpleasant and offensive to Ms Powell, they fell a long way short of being a threat to ruin Mr Andre's image. In that context, it is of particular significance that Mr Hendricks was editing Here to Help right through to the end of July 2011 when the tweeting was going on and yet there is no suggestion that his editing was anything other than professional and up to his usual high standard, showing Mr Andre in a favourable light.
In his oral closing submissions, Mr Nambisan confirmed that it was no part of ITV2's case that the editing process or how Mr Hendricks conducted it was a breach of contract by the claimant. That confirmation was a realistic recognition that any suggestion that the claimant was in breach of contract in relation to editing would be completely hopeless in the light of: (i) the unchallenged evidence of Mr Hendricks and Ms Partridge that the editing process and Claire Powell's entitlement to be involved in it did not change after their personal relationship broke down and (ii) the evidence that Mr Hendricks produced and edited both Peter Andre: The Next Chapter series 5 and Here to Help in an entirely satisfactory manner and that both series were successfully broadcast by ITV2.
There is absolutely nothing to suggest that the claimant did not intend to perform its obligations under the Production Agreement to edit and produce all the future programmes to the same high standard and with reasonable skill and care as previously. Furthermore, any contention by ITV2 that a reasonable person in its position would have considered that the claimant had evinced an intention not to perform its obligations under the contract faces the obvious major obstacle that Ms Clarke, the only employee of ITV who gave evidence, accepted that the claimant was always ready, willing and able to perform the contract. As she put it in the passage in her evidence I referred to at [181] above, it was the circumstances which made it not possible for the claimant to perform. However, since, as I have found, Mr Andre and Ms Powell were using the tweets as a pretext to refuse to start filming unless conditions which they had no contractual right to demand were satisfied, the true position is that what rendered performance of the contract not possible was the clear breach by PJA Promotions and Mr Andre of their obligations to film the programmes under the PA Agreement and the inducement letter.
Furthermore, whilst ITV2 relies upon the cumulative effect of the tweets in support of its case of renunciation, given that, in relation to the tweets preceding 20 July 2011 about which Ms Clarke wrote her email to Mr Hendricks that day, Mr Hendricks provided an explanation which Ms Clarke regarded as satisfactory, it seems to me that there must be a real question mark whether it is open to ITV2 in effect to "blow hot and cold" and rely upon pre-20 July tweets in support of its case that there was a renunciation. I do not consider that the tweets sent by Mr Hendricks after 20 July 2011, none of which mention the Peter Andre programmes or the editing or production of them, whether taken individually or cumulatively, amount to a renunciation. In any event, even if it is open to ITV2 to still rely upon pre-20 July tweets, I do not consider that the whole body of tweets, whether looked at individually or cumulatively, amount to a renunciation.
In my judgment, there is no question of the claimant having renounced the Production Agreement.
Breach of the Kerry Katona exclusivity term
I have already held that there was a term of the Production Agreement that the claimant would procure the exclusive television services of Ms Katona for ITV2 during the Term and that that obligation was absolute, not limited to the use of best endeavours. In those circumstances, the decision of Ms Katona to participate in Celebrity Big Brother would have been a breach by the claimant of that obligation, at least once she started filming on 18 August 2011, the day after termination. The critical issue for present purposes is whether there was an anticipatory breach by the claimant as at the date of termination which was repudiatory.
The test as to whether a breach is repudiatory can be taken as that formulated by Diplock LJ in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 66:
"Does the occurrence of the event deprive the party who has further undertakings to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings?"
In my judgment, the breach of the exclusivity term here cannot be said to have deprived ITV2 of substantially the whole benefit of that part of the Production Agreement concerned with the Kerry Katona programmes on the basis that the Production Agreement in fact comprised two separate or severable agreements as regards Peter Andre programmes and Kerry Katona programmes, as is made clear by the preamble quoted at [13] above. In circumstances where, albeit reluctantly, ITV2 was prepared to accept four programmes from series 3 and there was at least one more series to be produced in 2012 (on the basis the agreement was for sixteen hours of programmes in the first two years of the Term) and an option for a third year and further series, it cannot be said that the breach of the exclusivity clause in relation to Kerry Katona: The Next Chapter series 3 was repudiatory. Ms Katona through Mr Clifford had made it clear that, although she was keen to appear in Celebrity Big Brother, she was also keen to continue making programmes for Kerry Katona: The Next Chapter. Once the furore over Celebrity Big Brother died down, there is no reason to suppose that subsequent series of Kerry Katona: The Next Chapter would not have been produced by Mr Hendricks to his usual high standard and broadcast successfully by ITV2.
However, even if the breach of the exclusivity term had been repudiatory, I consider that it was not open to ITV2 to terminate the Production Agreement for that breach on 17 August 2011. The termination letter alleged that the claimant had not provided an indication of how the ITV2 proposal for a reduced 4 episode series might work, nor provided a clear logistical and editorial framework for it and that the claimant had rejected the proposal. In my judgment, that is not a fair summary of the position.
The position as I see it was that in their letters of 8 and 12 August 2011, Swan Turton had indicated a willingness on the part of the claimant to negotiate a compromise and asked for copies of the correspondence with Max Clifford. Quinn Emanuel had not responded prior to the termination letter. Mr Hendricks had said the proposal to take only four programmes was not acceptable to him and suggested a compromise of six. ITV2 had not responded at all to that counter-proposal. He was in fact on holiday until 22 August 2011 as Ms Jain knew, so the alleged failure to provide the clear logistical and editorial framework is not surprising, if as ITV2 knew, he was away, nor had ITV2 chased for it to be provided. It seems to me that the parties were still in negotiation about achieving a compromise and that it was not open to ITV2 to terminate the contract for alleged repudiatory breach where those negotiations had not concluded.
It follows that, for all the reasons set out above, I have concluded that ITV2 was not entitled to terminate the Production Agreement and in purporting to do so by its solicitor's letter of 17 August 2011, ITV2 was itself in repudiatory breach of the Production Agreement.
Frustration
The alternative case pursued by ITV2 that the contract was frustrated was not elaborated by Mr Nambisan in his closing submissions, perhaps in recognition that it was not a sustainable case. The test as to whether a contract has been frustrated was restated by Lord Simon of Glaisdale in National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC:675 at 700:
"Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance."
In relation to the Peter Andre programmes, there was no supervening event which so significantly changed the nature of the outstanding contractual rights and obligations from what the parties reasonably contemplated at the time the Production Agreement was entered. Under that Agreement, ITV2 was obliged to commission five further series of Peter Andre: The Next Chapter after series 4 and two further series of Peter Andre: Here to Help after series 1 during the remainder of the Term. Whilst it is true that the obligation to commission the programmes was conditional under clause 2.1 upon the PA Agreement remaining in full force and effect, that Agreement did remain in full force and effect. All that happened was that Mr Andre refused to comply with his obligations under that Agreement and the Inducement Letter to provide access to his life for filming. He was under an obligation to provide such access, which was not conditional upon his relationship with the producer. His refusal to proceed with filming unless ITV2 replaced the claimant as the production company was not something he was contractually entitled to do and that refusal placed him and PJA Promotions in breach of the PA Agreement and Inducement Letter. ITV2 cannot rely upon the fact that Mr Andre and PJA Promotions were in breach of the PA Agreement and letter to contend that the Production Agreement was frustrated.
The position is equally clear in relation to the Kerry Katona programmes. Ms Katona was willing to film the remaining programmes and series, but ITV2 decided not to pursue that course but to purport to terminate the Production Agreement for repudiatory breach by the claimant. If, as I have held, ITV2 was not entitled to terminate for such breach, it cannot save its position or avoid the consequences of its own breach by relying on the doctrine of frustration.
There was a faint argument floated by ITV2 to the effect that there was impossibility of performance of the Production Agreement. Any such argument suffers from the same fundamental defects as the argument based on the doctrine of frustration.
The claimant's claim for damages
Causation
Before dealing with the claim for lost profits, I need to deal with a point on causation raised by Mr Nambisan for the first time in his written closing submissions. This was a contention that, even if ITV2 was in repudiatory breach of the Production Agreement, that breach did not cause the loss of licence fees claimed by the claimant. Although the contention was elaborated at some length in the written submissions, the essence of the contention was that, since Mr Andre had said he was not prepared to make the programmes with the claimant as the production company, there was: "only one possible counter-factual (assessed in accordance with the principle of 'least onerous obligation') namely that ITV2 would have terminated the PJA Agreement such that it would no longer be in full force and effect." Accordingly, it was submitted that since the obligation on ITV2 to commission the programmes under clause 2.1 of the Production Agreement was conditional on the PA Agreement remaining in full force and effect, that obligation would have fallen away.
Ingenious though the contention is, it faces a number of serious difficulties. The point was neither pleaded nor foreshadowed in opening submissions. This is not a technical objection but one of substance. Had the point been pleaded, ITV2 would surely have had to call a more senior executive than Ms Clarke, for example Mr Fincham, to give evidence as to what ITV2 would have done had it not wrongfully terminated the Production Agreement and to be cross-examined about that evidence. Furthermore, if Mr Mallin had known that this point was being taken, he would no doubt have cross-examined Ms Clarke as to what steps ITV2 would have taken had it not terminated the Production Agreement but rather supported the claimant as it should have done, in effect to bring Mr Andre and Ms Powell to heel and require them to comply with his filming obligations. He would also have wanted to cross-examine Mr Andre as to whether, if ITV2 had taken a tough line with him and insisted that he and PJA Promotions perform their obligations under the PA Agreement and Inducement Letter, he would really have held out for the replacement of the claimant, particularly if faced with the prospect of a substantial claim for damages from ITV2 if he continued to refuse to perform. No evidence was led by ITV2 from Mr Andre on this point, which is of course why Mr Mallin did not cross-examine about it. In view of the fact that this causation point was not raised until closing submissions, I do not consider that, in fairness to the claimant, ITV2 should be allowed to run the point at all.
In any event even if ITV2 were allowed to run the point, the assertion that the only possible counterfactual was that ITV2 would have terminated the PA Agreement because of Mr Andre's refusal to continue filming suffers from a fundamental fallacy, namely that it proceeds on the assumption that Mr Andre's loss of trust and confidence in Mr Hendricks because of the tweets was genuine. However, as I have found, it was not genuine. The tweets were being used by him and Ms Powell as a pretext to pressurise ITV2 into replacing the claimant as the production company. In those circumstances, I consider that if ITV2 had taken a tough line with Mr Andre and indicated that it would maintain the Production Agreement with the claimant, whilst insisting that Mr Andre perform his obligations under the Inducement Letter or face a claim for substantial damages for non-performance, it is likely that he and Ms Powell would have backed off and abandoned their attempt to replace the claimant and Mr Andre would have continued filming.
In my judgment, the one thing that ITV2 would have been least likely to do if the Production Agreement had not been terminated was to terminate the PA Agreement, because to do so would have exposed ITV2 to paying Mr Andre the balance of the minimum guaranteed payments under the PA Agreement, some £1.4 million. It would also have exposed ITV2 to the collateral damage of terminating its relationship with Mr Andre, one of its best "faces". It follows that the assumptions upon which Mr Nambisan's contention are founded are misconceived.
There is another fundamental objection to the causation point raise by Mr Nambisan as a matter of legal analysis. Whilst it is correct that damages for breach of contract are assessed on the basis that the party in breach would have performed the contract in the manner least onerous to it, the court will make its counterfactual assessment on the basis that the parties would have acted in good faith albeit with their own commercial interests in mind. The applicable principle is set out clearly in the judgment of Patten LJ in Durham Tees Valley Airport v BmibabyLtd [2010] EWCA Civ 485; [2011] 1 Lloyd's Rep 68, applying the principle enunciated by the majority of the Court of Appeal in Abrahams v Herbert Reiach Ltd [1922] 1 KB 477:
"None of the cases I have referred to has or could have questioned the principle laid down by the majority of the Court of Appeal in Abrahams which is set out most clearly in the judgment of Atkin LJ. The court, in my view, has to conduct a factual inquiry as to how the contract would have been performed had it not been repudiated. Its performance is the only counter-factual assumption in the exercise. On the basis of that premise, the court has to look at the relevant economic and other surrounding circumstances to decide on the level of performance which the defendant would have adopted. The judge conducting the assessment must assume that the defendant would not have acted outside the terms of the contract and would have performed it in his own interests having regard to the relevant factors prevailing at the time. But the court is not required to make assumptions that the defaulting party would have acted uncommercially merely in order to spite the claimant. To that extent, the parties are to be assumed to have acted in good faith although with their own commercial interests very much in mind."
The relevance and applicability of that principle in the present case is not affected in any way by the recent decision of the Supreme Court in Bunge SA v Nidera BV [2015] UKSC 43; [2015] 3 All ER 1082, upon which ITV2 relies. The passage from [23] of the judgment of Lord Sumption JSC to which Mr Nambisan refers is concerned with an analysis of the decision of the House of Lords in The Golden Victory [2007] UKHL 12; [2007] 2 AC 353, where, in a case of anticipatory breach, the party in breach had a right to cancel the contract, which the House considered it would have exercised.
The present case is not concerned with a right to terminate or cancel the PA Agreement given by the Production Agreement, but with the question whether, had the Production Agreement with the claimant as producer not been terminated, ITV2 would have terminated the separate PA Agreement. On the material before the court, I do not accept that it would have done so. That would have been to act in a manner which was uncommercial in order to prevent the claimant from recovering substantial damages. In my judgment, what ITV2 would in all probability have done is take a tough line with Mr Andre and his manager and insist that the PA Agreement was performed in conformity with its existing terms. In those circumstances, as I have said, it seems to me that Mr Andre and Ms Powell would have realised that the attempt to replace the claimant as the production company was not going to work and would have found some sensible way of working with Mr Hendricks, especially since, as I also find, Mr Hendricks himself was always willing to find a way of carrying on with the business relationship.
Mr Nambisan also sought to maintain an argument that because as at the date of ITV's purported termination of the Production Agreement and hence, ITV's repudiatory breach, Mr Andre was refusing to perform his obligations under the PA Agreement and inducement letter, that Agreement was not in full force and effect meaning that ITV2 was under no obligation to commission the programmes under clause 2.1 of the Production Agreement. That argument was misconceived. ITV2 never sought to rely upon that refusal to perform as a repudiatory breach by PJA Promotions and Mr Andre of the PA Agreement and the Inducement Letter entitling ITV2 to terminate those agreements. Unless and until ITV2 had done so, on well-established contractual principles, that breach was "writ in water" and certainly, a refusal to perform did not mean that the PA Agreement was not in full force and effect.
Furthermore, the PA Agreement continued in full force and effect. It was not terminated. Indeed, ITV2 went on to make the other series as contemplated, albeit with ITV Studios as the producer. At the time when the Production Agreement was wrongfully terminated, the PA Agreement was in full force and effect and, accordingly, ITV2 was obliged to commission the various programmes. Mr Nambisan's submission that there was no obligation under the Production Agreement to "deliver" Mr Andre is simply wrong: ITV2 had agreed to commission the programmes and remained under the obligation to do so. If Mr Andre did not make himself available, that no doubt posed a problem for ITV2 vis-à-vis the claimant to whom it had undertaken to commission the programmes, but it did not relieve ITV2 of the obligation to do so. That is another reason why I consider that if ITV2 had not terminated the Production Agreement, it would have been anxious to hold Mr Andre and his company to their contractual obligations.
Once the causation argument is seen to be misconceived, the claimant is entitled to recover as damages for breach of contract the losses it has suffered as a consequence of that breach by ITV2 in wrongfully terminating the Production Agreement. As I have just held, if ITV2 had not terminated, what would have happened is that in effect, the bluff of Ms Powell and Mr Andre would have been called and, in all probability, Mr Andre would have performed his contractual obligations and continued filming Peter Andre: The Next Chapter and Peter Andre: Here to Help, for the remainder of the Term. Equally, it seems to me that in relation to the Kerry Katona programmes, some compromise would have been worked out whereby ITV2 took four programmes of series 3 and the other series would have been filmed thereafter.
QuickBooks
In terms of the quantification of damages, there was a great deal of common ground between the forensic accounting experts. One area of disagreement concerned QuickBooks the computerised accounting package used by the claimant and its reliability. Both Mr Harman in his evidence and Mr Nambisan in his cross-examination of Mr Brown sought to contend that it was unreliable and that, as a consequence, the claimant's books and records were in a mess, so that evidence coming from the claimant as to costs and expenses incurred was not to be trusted. Mr Brown was not prepared to accept that criticism. He considered that Quickbooks was a package which recorded the core data well. There were some errors and adjustments which would have been picked up by the company's external accountants at year end when preparing the accounts for the financial year (as a small company the claimant was statutorily exempt from the requirement for an audit). The year end was 31 October 2011 and in the normal course, the external accountants would have been making the adjustments the following spring. However, because the Production Agreement was terminated in August 2011, removing the claimant's sources of income, the claimant had entered a Creditors Voluntary Arrangement in February 2012. Accordingly, no accounts had ever been produced for the year to 31 October 2011.
In those circumstances, Mr Brown had sought to take account of the adjustments to the QuickBooks data required, with the assistance of Mr Hendricks, whose third and fourth witness statements dealing with financial matters were produced pursuant to the Order of Cooke J dated 7 February 2014. Mr Brown had also spoken to the external accountants. I found Mr Brown's constructive evidence, which recognised the limitations of the data but sought to make such adjustments as were necessary in consequence, of far more assistance than the approach of Mr Harman which was essentially to cast doubt on the reliability of any of the internal accounting evidence or any evidence about financial matters emanating from Mr Hendricks, even though much of what Mr Hendricks said was not challenged in cross-examination.
Helpfully, the experts attached a Summary Table at section 11 of their Joint Statement dated 7 November 2014 which set out the figures that were agreed and those which were not agreed and I propose to follow that table in dealing with the various quantum issues.
Income under the Production Agreement
The main source of income under the Production Agreement was of course the licence fees which would have been generated from the programmes produced for the remainder of the Term. Because ITV2 had no contractual obligation to continue the Agreement into a third year in respect of the Kerry Katona programmes, damages are to be assessed on the basis that licence fees on those programmes would only have been earned in the first two years of the Term. The figure of £9,660,000 this produces requires reduction, presumably by £520,000 (i.e. £130,000 x4 under clause 2.4(iii) of the Agreement) to reflect the fact that, as I have found, a compromise at four programmes for series 3 would have been reached.
Mr Brown's evidence is that another source of income which has to be taken into account is the costs of delivery of episodes in High Definition (HD) pursuant to clause 2.6 of the Agreement. Because no costs were actually paid by ITV2 due to termination, Mr Brown has taken the agreed "deemed" figure of £11,500 per episode for 2011 under the clause and used the same rate for the subsequent years as the best evidence of what would have been earned had the Agreement been performed. The resultant figure of £705,000 will require some reduction to take account of the fact that there would only have been four programmes of Kerry Katona: The Next Chapter series 3 and no third year for the Kerry Katona programmes.
Mr Harman's position on HD costs was difficult to understand. He relied upon instructions from ITV2 that any HD costs would only have been payable if certain conditions were met under the Agreement which were not satisfied and said he had seen no evidence of the level of HD costs actually incurred. Accordingly, he allowed nothing for HD costs. That approach ignored that conditions had not been met and HD costs not in fact incurred because ITV2 had wrongfully terminated the Agreement. The exercise in assessing damages is one of assessing the net profits which would have been earned if the Agreement had been performed and the various episodes delivered, in which case ITV2 would in all probability have required delivery in HD. Furthermore, given that the production costs and expenditure for which allowance is made against the income in order to arrive at the net figure does include the cost of producing episodes in HD, it seems to me that the HD costs recoverable from ITV2 do need to be brought into the balance on the income side of the equation.
Ultimately it was agreed that no allowance should be made for development funding in assessing income so that although Mr Brown originally included a figure for this, it is now left out of account.
Production costs
The base production costs taken by both experts in the table were £5,462,599 and although Mr Harman continued to cavil at the accuracy of the books and records in his evidence, I propose to take and accept that figure. On the basis that there would not have been a third year of the Term in respect of the Kerry Katona programmes, those production costs fall to be reduced by £994,392. The other item within the production costs was the Kerry Katona appearance fees which (because ITV2 did not have a separate contract with her unlike the position with Mr Andre) were included in the licence fees to be paid to the claimant and which therefore require to be deducted from income.
Mr Hendricks' evidence was that of the £10,000 performance fee per episode agreed with her, £5,000 was held back and not paid to her, but would have been paid to her when she came out of bankruptcy. The allowance that is to be made for the performance fee obviously falls to be reduced to the extent that only four episodes of series 3 would have been accepted by ITV2 and there would have been no third year of the Term.
Overheads
The starting point 27 month overhead costs were agreed between the experts as £1,380,281. One area that was particularly in issue was whether that figure had to be reduced to remove any editing suite and training costs payable in years 2 and 3 of the Term. Mr Brown explained, following discussions with Mr Hendricks, that in year 1 £25,462 was payable to Cutting Edge, for whom an employee called Mr Kruger set up an editing suite for the claimant and trained a Mr Lever, an employee of the claimant, in supporting the equipment. Mr Kruger returned to Australia and, based on Mr Hendricks' explanation, Mr Brown assumed that this was a one-off cost which would not be repeated, so he considered that the overheads fell to be reduced by £25,462 per year for the second and third years, £50,924. Mr Harman's position was that allowance should still be made within the overheads for other costs at the same level in the subsequent years, but I found that evidence unimpressive. Mr Harman had no basis for challenging that the Cutting Edge costs were one-off and his suggestion that there might have been other costs not accounted for was pure speculation. In my judgment the overheads fall to be reduced by £50,924.
Mr Brown also considered that an allocation for the costs of development work of £282,844 should be excluded from the overhead costs. Although Mr Harman did not agree this, given that the cost of development funding is not being pursued as part of the claim, the costs of development should clearly be excluded from the overheads for which an allowance has to be given against income.
Mr Harman sought to include within his assessment of overheads various other figures. One of these was in respect of the remuneration of Mr Hendricks by way of executive producers' fees, in the sum of £178,750. Of this £100,000 was shown in the books as executive producers' fees paid on 31 December 2010. However, that appears to have been in error. in his fourth witness statement Mr Hendricks explained that he would not have received any executive producers' fees under the Production Agreement because Ms Berendsen was employed by the claimant as executive producer and Mr Hurdle as head of production. Mr Brown said that Mr Hendricks had explained that the £100,000 paid to him was repayment of a director's loan. I see no reason not to accept that explanation, which seems much more likely than that Mr Hendricks would have paid himself such a substantial amount by way of executive producer's fees at the outset of the Production Agreement, completely out of line with the much more modest fees he had received in earlier years. I also see no reason not to accept his evidence (on which he was not challenged in cross-examination) that he was not going to receive any executive producer's fees as Ms Berendsen and Mr Hurdle were performing that role. The fees payable to their respective companies are already included in the overheads, so no further allowance needs to be made.
As I have said above, there were errors in the QuickBooks data which required adjustment, but having made the necessary adjustments, in particular in relation to petty cash, Mr Brown was satisfied that no further adjustment was required. Although items had been misposted in the data giving an apparent discrepancy on the petty cash balance, the bottom line was correct and the relevant items of expense were accounted for elsewhere. In contrast, Mr Harman persisted in his position that a further sum by way of petty cash balances of £262,503 should be deducted as part of the overheads. According to the Joint Statement he had concerns about the explanations provided by Mr Brown. It did not seem to me that any of those concerns had any validity. To the extent that Mr Brown's explanations, which I accept, left an explained balance of some £4,700, that was clearly de minimis and can be safely ignored.
Mr Harman also sought to make a deduction of £84,400 in respect of depreciation. However, as Mr Brown pointed out on the basis of Mr Hendricks' evidence in his fourth witness statement, the equipment which the claimant used and would have continued to use to perform the contract was all newly purchased and no further equipment would have required to be purchased. In the circumstances, I accept his evidence that no deduction fell to be made in respect of depreciation or capital expenditure. Mr Harman's suggestion that some of the capital expenditure on equipment of £400,000 should be taken into account in reducing the damages because the claimant could have put the equipment to use elsewhere not only trespassed on a matter which is for the court, but was wrong in law, as I pointed out when he gave that evidence.
Inflation
Mr Harman applied an increase to costs of 2% per year in years 2 and 3 to reflect inflation. In his oral closing submissions Mr Mallin did not press the contrary argument very hard, it seems to me correctly. It may be however that the figure of £187,491 requires adjustment to reflect matters such as the four programmes for Kerry Katona: The Next Chapter series 3 and the fact that a third year of the Term should not be taken into account for Ms Katona's programmes.
Actual costs and unused advance
Figures for wasted costs and overheads which should form part of the damages were agreed between the experts at £386,056 and £126,766. A deduction of £205,346 was also agreed in respect of unused advance.
That left the issue of the rent incurred for the balance of 2011 after termination of the Production Agreement. Mr Brown relied upon the information in QuickBooks that some £200,000 plus VAT liability to pay rent was incurred by the claimant to Bray Management Limited, a related company and from the supervisor of the CVA that £225,000 inclusive of VAT remained outstanding for the period September to December 2011. Accordingly, this was not a cost which had in fact been paid, apart from a small amount, but a liability which would have to be discharged at some stage. Mr Harman did not make any allowance for rent, on the basis that there was no evidence it had been paid, although he accepted that it might be paid hereafter, subject to the claimant mitigating its loss.
There was another point of difference between the experts in relation to the amount of rent that would have been payable going forward. Mr Brown took this as £810,000 at £30,000 per month for 27 months on the basis of Mr Hendricks' evidence that the rent being charged by Bray Management Limited had been increased to £50,000 from £30,000 per month in April 2011 to cover a capital repayment of £100,000 which it had to make to HSBC in respect of its mortgage in August 2011. Mr Hendricks said that once that capital repayment had been made by Bray Management Limited, the rent would have dropped back to £30,000 a month. Mr Harman on the other hand took the figure of £50,000 per month for the whole 27 month period. I see no reason not to accept Mr Hendricks' evidence, about which he was not cross-examined, in which case the correct figure is Mr Brown's £810,000. However, a logical consequence as I see it is that the outstanding rent for the period September to December 2011 should be reduced from £200,000 to £120,000, but since no submissions were addressed on that point, I will allow the parties the opportunity to make submissions.
As I have indicated, a number of aspects of the quantification of damages may require adjustment in the light of my findings. To the extent that the parties are unable to agree these, I will give liberty to apply. The outstanding invoice must clearly be paid by ITV2.
The counterclaim
Since I have concluded that it was ITV2 not the claimant which was in repudiatory breach of the Production Agreement, the counterclaim for alleged diverted time lost by ITV2 executives and employees falls away. However, even if I had concluded that the claimant was in repudiatory breach, I would have held that the counterclaim was not recoverable for two reasons with which I can deal shortly.
ITV2 itself did not employ any of the relevant employees whose time was said to have been diverted. According to its accounts for the year to 31 December 2011, they were all employed by other companies and the costs of their employment on ITV2 business was recharged to ITV2 by ITV Plc. The total of staff costs recharged to ITV2 in 2011 was set out in the annual accounts as £1,909,000. However, ITV2 did not produce any breakdown of the charge paid for any of the individual employees and, as Mr Harman accepted, it was a reasonable assumption that it could have done. However, the information about the salaries and the recharge for individual employees was said to be confidential and was not disclosed by ITV2 or ITV Plc. Indeed, the counterclaim was not based upon the wasted actual salary costs of the employees recharged to ITV2 but on a notional benchmark by reference to what comparable executives were earning at other broadcasters, in fact as I understand it, the BBC.
This benchmarking approach to assessing the cost to ITV2 of diverted time was one of the three approaches adopted by Mr Harman in his expert reports to assess that cost, the other two being a cost-based approach and a profit-based approach. It is not necessary to dwell on any of these. All three were wholly artificial constructs adopted to avoid the fundamental difficulty that, for reasons best known to itself, the ITV Group chose not to disclose or provide evidence as to the actual salaries of the executives or the actual recharge for each such executive which ITV2 had to pay.
That gives rise to the first reason for rejecting the counterclaim. The evidence about the actual salaries and a breakdown of the recharge was evidence that it would have been reasonable for ITV2 to produce and, having failed to do so, but relying instead on an artificial construct, the court is entitled to conclude that ITV2 has chosen not to make out its case. The relevant principles were stated by Wilson LJ in Aerospace Publishing Limited v Thames Water Utilities Limited [2007] EWCA Civ 3; [2007] BusLR 726 at [86]:
"I consider that the authorities establish the following propositions: (a) The fact and, if so, the extent of the diversion of staff time have to be properly established and, if in that regard evidence which it would have been reasonable for the claimant to adduce is not adduced, he is at risk of a finding that they have not been established. (b) The claimant also has to establish that the diversion caused significant disruption to its business. (c) Even though it may well be that strictly the claim should be cast in terms of a loss of revenue attributable to the diversion of staff time, nevertheless in the ordinary case, and unless the defendant can establish the contrary, it is reasonable for the court to infer from the disruption that, had their time not been thus diverted, staff would have applied to activities which would, directly or indirectly, have generated revenue for the claimant in an amount at least equal to the costs of employing them during that time."
The second reason why I would have rejected the counterclaim also appears from that passage. ITV2 would have to demonstrate that the diversion of time caused a significant disruption to its business. It cannot do so. About 50% of the alleged diverted time consists of the time of the in house lawyers (40% Ms Clarke alone) but they were not generating revenue but rather providing support services. There was no evidence at all that, because Ms Clarke and her colleagues were diverted into dealing with the dispute with Mr Hendricks, the actual revenue generators in ITV2 had to engage in more non-revenue generating activities. The alleged diverted time for the other executives is often very short amounts of time which also does not begin to demonstrate a significant disruption to the business.
Conclusion
For all the reasons set out above, I have concluded that the claimant was not in repudiatory breach of the Production Agreement and that the contract was not frustrated. Rather, the purported termination was a repudiatory breach by ITV2 in respect of which it is liable for substantial damages to the claimant. The claimant is also entitled to recover the amount of its outstanding invoice in full. The counterclaim is dismissed. |
Mr Justice Burton :
This application arises out of the freezing and then the purported termination without notice by the Defendant, S, of its banking relationship with the Claimant, N.
The Claimant is an English company registered with the Financial Conduct Authority as an authorised payment institution under the Payment Services Regulations 2009 and with HMRC under the Money Laundering Regulations 2007. It provides foreign exchange and payment services to its customers, including foreign exchange delivery and payment services to private clients, to expatriates sending money home, to corporate clients and to investment funds. It also supplies foreign exchange hedging services to corporate clients and investment funds, pre-paid cards for private clients' travel money and anti-money laundering services to funds and fund administrators. It transacts in excess of 300 bank transfers per day (domestic and international), with an average daily payment amount of £2.7m, and its daily average foreign exchange turnover for the period 5-9 October was £6.2m. It has made profits of more than £1m per year in recent years and was recently valued at approximately £27m. It has a full money laundering reporting and compliance team, and has not been the subject of any criticism or complaint by the relevant regulatory authorities, and has indeed recently received commendation from the City of London Police.
The Defendant is a bank and is authorised and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The Claimant has been its customer since at least January 2013, and has maintained approximately 160 accounts with the Bank, of which there are four main accounts through which the bulk of the Claimant's transactions flow, and those accounts have an annual turnover of approximately £700m.
Both the Claimant and the Defendant are, of course, subject to the provisions of Part 7 of the Proceeds of Crime Act 2002 ("POCA") relating to money laundering. The three money laundering offences of concealing (etc) criminal property, entering into or becoming concerned in an arrangement and acquiring, using or possessing criminal property are established by ss.327 to 329 of POCA. Each of those sections provides, in sub-section (2), a provision that a person does not commit such an offence if he makes an authorised disclosure under s.338 of POCA and (if the disclosure is made before he does the relevant act) has the appropriate consent. For these purposes the duty to disclose is to the National Crime Agency ("NCA") and a timetable is provided by s.335 of the POCA for the provision of consent in the event of disclosure to it. The NCA has seven working days to respond to the making of a disclosure, and if it does not respond then consent is deemed to be given, while if there is a refusal of consent within such timescale there is then a moratorium period of 31 days during which the NCA must take steps, and if no such steps are taken then the end of the moratorium (therefore a maximum, providing for working days, of 42 days after disclosure) effectively consent is deemed to be given. Each offence relates to the concealing, making arrangements, acquisition, use etc. of "criminal property". The interpretation section is in s.340 of POCA whereby:
"(3) Property is criminal property if—
(a) it constitutes a person's benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and
(b) the alleged offender knows or suspects that it constitutes or represents such a benefit."
At the end of September 2015 the Defendant formed suspicion about seven accounts relating to particular customers of the Claimant, now eight, about which the Claimant's own compliance had already been carrying out retrospective reviews, and those accounts were frozen by the Defendant, and it has been common ground between Claimant and Defendant that those accounts should remain frozen.
The Defendants however then took further steps, namely to freeze effectively all the Claimant's accounts with them on 12 October 2015, in particular being the four main accounts referred to above, and followed this up with suspending the Claimant's access to the bank's on-line FX liquidity platform to buy/sell currency, which deprived the Claimant of the ability to buy or sell currency, and shortly thereafter the Defendant also lost access to the online facility to view and make payments from its other client currency accounts and GBP accounts. All the Claimant's banking transactions were entrusted to the Defendant, and could not be activated, and, while the Defendant continued to accept incoming payments from the Claimant's customers, the Claimant was unable to identify (as a result of the revocation of on-line access) which payments had been made and in which currencies. The Claimant commenced these proceedings for a mandatory injunction and interim declaratory relief on 15 October, and on 16 October the Defendant gave notice to terminate all of the Claimant's banking facilities with the Defendant (other than outstanding FX trades) with immediate effect.
The Defendant did so in reliance upon the following contractual provisions:
i) The Bank's terms of business for the Claimant's current account ("current account terms") provide that the Bank may close an account without giving a reason, but that the Bank will give a customer not less than 60 days' written notice for such closure unless it considers that there are exceptional circumstances. The terms provide that on closure of an account, the Bank will return any credit balance to the customer and the customer will repay any debt balance to the Bank. The terms further provide that the Bank will have no liability for, and may delay or refuse to process any payment if in its reasonable opinion it is prudent to do so in the interests of crime prevention or compliance with laws including sanctions laws and regulations.
ii) The Bank's terms of business ("FX terms") relating only to the FX trading services (forwards and options trades) provided by the Defendant to the Claimant provide that the Bank may at its absolute discretion refuse to accept or act in accordance with any instruction given by the customer, and that where the Bank refuses to act on any instruction, it will notify the customer of that refusal but will be under no obligation to give reasons. Those terms also confirm that nothing in them obliges the Bank to do anything it believes to be contrary to any applicable regulation. The terms further provide that the arrangement to which they give effect shall be terminated forthwith and without notice if the Bank considers it necessary or desirable to do so for its own protection or to prevent what it considers is or might be a violation of any applicable regulation or good standard of market practice.
However, it was further explicitly provided in the FX terms that termination will not affect the completion of any outstanding transactions and any other legal rights or obligations which may already have arisen.
The immediate effect was that there were some 476 individual transactions (identified in a confidential schedule before me) which were left in limbo, many of them involving individual customers' very urgent requirements, such as the imminent completion of property purchases. The Claimant has no alternative banking arrangements that could effect the outstanding transactions. Although there was the saving in the FX terms in relation to FX transactions, there was no such saving in the current account terms.
The witness statement of Ms Thackeray on behalf of the Claimant described in vivid terms the real crisis which was thus caused to the Claimant, not only in respect of the imminent loss to those customers but ongoing in the near future in relation to outstanding commitments and imminent transactions. In paragraphs 27 to 29 of her witness statement she described the real risk of loss of customers, of the risk of being pursued by customers for damages as a result of interruption to their business activities, the damage to its reputation as a result of its being unable to process on-going transactions and the serious risk of failure of the Claimant's business: the Claimant's best estimate was that it might be able to continue for a matter of days before business had to cease altogether. She estimated, on instructions, that the Claimant had around £22.8m of client money held by the Defendant which was due to be paid out, in the process of currency conversion or in the process of being transferred to the Claimant Group for cash custody, and had been unable to book and process foreign exchange trades worth approximately £1.5m, and had already lost in excess of £45,000 profit in relation to transactions that it had to turn away and was suffering further losses because it had been unable to effect the anticipated currency conversions.
Mr Downes QC on behalf of the Claimant applied ex parte on notice to the Defendant before Walker J on 15 October, who adjourned the matter to come on, as it eventuated, before me, on 19 October, and he ordered a timetable for the production of evidence and a skeleton argument from the Defendant and also for such production of evidence and argument from the NCA, which had been given notice of the hearing before him but had written by letter dated 15 October to say that they did not intend to attend the hearing before Walker J as "it does not consider that it will be able to assist the Court in relation to the Claimant's position".
The Defendant produced within the required timescale a witness statement from Mr Stephens, their solicitor, who revealed at paragraph 16 as follows:
"16. I can now confirm that the Bank has reported to the NCA in connection with the Claimant's accounts on a number of occasions since 29 September 2015. Much, but not all, of that reporting has also involved requesting the NCA's consent to carry out specified acts. Where consent has been sought by the Bank, it has been phrased in terms of the consent to return funds to the Claimant upon the Bank terminating the banking relationship. That consent was granted on 15 October 2015 (save that a more limited consent in respect of certain accounts was granted on 8 October 2015). The Bank has not requested consent to allow it to effect any specific transactions."
In short the NCA had given consent for the return of the Claimant's funds to the Claimant (of course subject to the common ground referred to in paragraph 5 above).
I am entirely satisfied that for the purposes of the interlocutory relief before me today the Claimant has an arguable case by reference to the question as to whether the Defendant was entitled to terminate its banking relationship without notice, in accordance with either its current account terms or its FX terms, and in any event by reference to the Claimant's allegations of breaches of the Defendant's duty of care.
The relief sought is by way of mandatory injunction. It is clear from Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670 and National Commercial Bank Jamaica v Olint Corp Ltd [2009] 1 WLR 1405 that I am entitled and obliged to exercise the ordinary principles relating to interlocutory injunctions, albeit that this would be a mandatory rather than a negative injunction. I am satisfied that there is both a serious issue to be tried and that the balance of convenience and justice requires that the Claimant should be given protection from the very substantial loss and damage which I am satisfied they imminently face, provided that the Defendant can be given protection by reference to the provisions of POCA.
The Claimant submits that I can and should grant such protection, and the Defendant seeks it, if I am otherwise to grant the relief sought by the Claimant, by reference to the grant of an interim declaration in the form sought, namely that in performing the transactions identified the Defendant will not commit any criminal offence under POCA or otherwise ("the Criminal Law") and that the Defendant is not obliged to make any disclosure as would or may be required by the criminal law or any other law.
The jurisdiction to grant an interim declaration is set out expressly in CPR 25.1(1)(b), as from the introduction of the CPR in April 1999. Its existence was however trailed earlier, such as in Clarke v Chadburn by Megarry VC [1985] 1 WLR 78, where he in fact made a final declaration on an interlocutory application. The jurisdiction to grant an interim declaration is discussed in Lewis: Judicial Remedies in Public Law (5th Ed) at paras 7-070-3 in Judicial Review Principles & Procedure: Auburn etc (paras 29.55ff) and in De Smith's Judicial Review (7th Ed) at para 18-021, and all commentators are agreed that it is likely to be rarely exercised. However plainly, like final declarations, it can be exercised in the case of declarations in relation to criminal law (Lewis para 7-054ff), and a signal example of such use was in R (AM) v DPP [2012] EWHC 470 (Admin) (Divisional Court), where an interim declaration was sought and granted in circumstances relating to assisted suicide. That was a judicial review case, but it is clear, not least from the fact that CPR 25 is not so limited, that it is available in ordinary civil proceedings. Lord Woolf LCJ in Bank of Scotland v A [2001] 1 WLR 751, itself a money laundering case, spelt out the availability, and (in circumstances where there is a genuine dilemma for a bank) appropriateness, of the making of an interim declaration. At paragraph 40 Lord Woolf considered that the bank in that case was in a "genuinely difficult situation", and discussed the making of an interim declaration "for a fairly limited period". At paragraph 45 he discussed the historical development of the declaration, recorded that the development of declaratory relief had not been confined to judicial review and recorded that "now the Civil Procedure Rules acknowledge that just as interim injunctions can be granted, so can interim declarations". He stated in terms at paragraph 47 that "the use of the Court's power to grant interim declarations in proceedings involving the [Serious Fraud Office, whose duties have now been replaced by the NCA], will protect a bank from criminal proceedings".
Whereas the consent of the NCA was, as described by Mr Stephens, sought and granted as he there described (a matter to which I shall return), no express consent has been sought from the NCA by the Defendant in respect of the transactions the subject matter of this application. If it were now sought, the periods of time specified in s.335 of POCA referred to in paragraph 4 above, of up to 42 days would now triggered, with realistically almost certain disastrous consequences for the Claimant. The draconian consequences of the money lending legislation in this regard has already been discussed, with concern, by the Courts: in Squirrell Ltd v National Westminster [2006] 1 WLR 637 at para 7, and by Ward and Sedley LJJ in UMBS Online Ltd and SOCA [2007] EWCA Civ 406 at paragraphs 8 and 58.
I am satisfied that this is an appropriately exceptional case in which, particularly given the balance of injustice weighing in favour of the Claimant, with the consequent injustice to the Defendant if no declaration is given, an interim declaration should be made:
i) The significant fact here is that the NCA has already given its consent in terms, which can only be deduced from the evidence of Mr Stephens set out in paragraph 11 above, to the return by the Defendant of the Claimant's funds to the Claimant, upon the Defendant terminating the banking relationship. That plainly means, and I am satisfied, that there is no evidence known to the NCA that the monies being so transferred with its consent are criminal property or suspected of being so, and that no objection is being taken to the Claimant, as indeed on the evidence before me there is no reason to do. The Claimant has followed and does follow all necessary compliance procedures.
ii) In any event it is clear from R v Montila [2004] 1 WLR 3141 at paragraphs 30, 37-38 and 41, but in particular from the common ground between the parties recorded by Supperstone J in Shah v HSBC [2013] 1 AER (Comm) 75, that it is necessary, by reference to s.340 of POCA to establish a case, at least at this stage an arguable case, not simply that (in this case the Defendant) suspects that monies constitute or represent a benefit from criminal conduct, but that such monies must also in fact constitute or represent such benefit in relation to the transactions before me. There is no evidence in that regard.
Without the benefit of such declaration, the Defendant asserts, and reasonably so, that it would be left in the dilemma referred to by Lord Woolf. The Defendant seeks not simply a declaration in respect of the position under criminal law but also for its fullest protection a declaration that gives it similar protection in relation to civil liability. Lord Woolf addresses this at paragraph 47 of Bank of Scotland:
"The use of the Court's power to grant interim declarations in proceedings involving the [NCA] will protect a bank from criminal proceedings, but it will not automatically provide protection for the bank against actions by customers or third parties. However it seems almost inconceivable that a bank which takes the initiative in seeking the court's guidance should subsequently be held to have acted dishonestly so as to incur accessory liability."
Although I can see that that does leave open the possibility of some prejudice to the Defendant, I am not prepared to make such a declaration, which might have effect on the rights of third parties, and the absence of that final piece of comfort does not in my judgment weigh against the overwhelming case made by the Claimant for the grant of an injunction and an interim declaration as to the absolution of the Defendant from criminal liability.
I am entirely satisfied that I am able in the light of the authorities to make a declaration which protects the Defendant, in relation to the operation of the Claimant's bank accounts, being an interim declaration, with liberty to apply.
There have been banking instructions given to the Defendant prior to termination, and I am told there are also instructions which have been given this morning, with which the Bank has not complied, and with which in the circumstances the Claimant requires compliance, given that I have found that there is an arguable case on the evidence that the retainer has not been lawfully terminated and that they were not entitled to terminate without notice.
I have no doubt at all as to which way the answer lies with regard to the balance of convenience or justice and in addition the Defendant will have the benefit of a cross-undertaking in damages given by the Claimant. So far as a mandatory order is concerned I shall hear the parties as to whether I need to make that mandatory order or whether it can be done by consent, but the essential part is the making of a declaration.
Both the Claimant and the Defendant wish such a declaration, the Claimant because, although it does not affect the Claimant, it is content for the Defendant to have that protection, the Defendant because it is, as Miss Stanley QC put it, neutral, but would certainly would not be prepared to give consent or to comply with any mandatory order which puts it at the risk of criminal liability, fanciful as that may be in respect of the particular bank in question.
So it is to the NCA to whom I look to see whether there is any reason why I should not grant the interim declaration. Mr. Saynor has appeared today for the NCA, and has emphasised that the NCA has not given consent for anything other than the transfer of the moneys back to the Claimant. As I indicated earlier in this judgment, I am satisfied that that carries with it of necessity the fact that the NCA has no evidence as of now that any of this money is the proceeds of crime or constitutes or represent the benefit from criminal conduct, nor any objection to the Claimant, a registered entity. All these instructions with which I am now dealing have been given, and I have seen many of them, relating to small amounts, and relating, I am told by Mr. Downes, to 98% of the business of the Claimant, with regard to which there has been no complaint. As indicated above, as to such 2%, the Claimant itself has been concerned and the Claimant is content for those moneys to remain frozen and any transaction or instructions in respect of those moneys not to be complied with by the Defendant.
I am clear that there ought to be, on the balance of convenience, compliance by the Defendant with its outstanding instructions, including instructions given up to and including 1 p.m. today, rather than have this extraordinary scenario of an immediate termination, leaving large numbers of transactions in limbo. The Defendant has been willing to agree to comply with instructions in relation to FX transactions, notwithstanding the absence of consent by the NCA, and I conclude that the Defendant should also be, and indeed, to be fair, it is, also willing to comply with other instructions, and the only way in which they can be so protected in relation to all transactions, both FX and other transactions, is if I make an interim declaration.
Mr. Downes is not content with the grant of an interim declaration in relation to existing instructions, although he cannot foresee at this moment circumstances in which there will be any operation of the bank account other than in accordance with existing instructions. He understandably reserves his client's position as to whether it might not be as straightforward as they at the moment hope to find a new bank who can comply with fresh instructions, but that, I am satisfied, should not lead me to do other than make an interim declaration in relation to the existing transactions. There is inevitably liberty to apply in relation to transactions eventuating over the next few days and until the Claimant is able to transfer all its transactions and moneys to a new bank, and I give liberty to the parties to apply, and reserve it to myself.
With that exception, I am prepared to make a declaration in the terms that are sought by the Claimant, limited to those transactions in relation to which instructions have prior to 1 p.m. today already been given to the Defendant. |
Mr Justice Burton :
This has been a consolidated hearing of two arbitration claims under ss. 67 and 68 of the Arbitration Act 1996 ("the Act") brought by Stockman Interhold SA as Claimant, represented by Mr James Collins QC and Mr Siddharth Dhar and Arricano Real Estate PLC as Defendant, represented by Mr Matthew Weiniger QC.
The arbitration claims arise out of agreements entered into between the Claimant and Defendant in February/March 2010 in relation to a Cypriot joint venture company, Assofit Holdings Ltd ("Assofit"), which, at the time of the transaction, through its Ukrainian subsidiaries owned a large shopping centre development ("Sky Mall") in Kiev. The agreements between the parties included a Share Purchase Agreement, dated 29 December 2009, pursuant to which the Claimant purchased 50% plus 1 share of the issued share capital in Assofit, a Shareholders Agreement (the SHA) and a Call Option Agreement (the COA), both dated 25 February 2010.
The SHA regulated the parties' respective rights in Assofit. The COA gave the Defendant the option to call for the Claimant to sell its entire shareholding in Assofit to it in certain circumstances ("the Call Option"). In relation to the Call Option and the payment of the option price there was an Escrow Agreement dated 24 March 2010.
The SHA provided for disputes to be resolved by arbitration under the UNCITRAL Rules, while the COA provided for disputes to be resolved by LCIA arbitration, by a sole arbitrator.
A dispute arose between the parties. The Claimant contended that the Defendant had breached the SHA and the COA by soliciting a third party, Dragon-Ukraine Properties & Development PLC ("DUPD") as an investor, and for such purpose disclosing confidential information to DUPD. The Defendant issued a Call Option exercise notice on 5 November 2010, with a view to purchasing the Claimant's shares in accordance with the COA. The Claimant countered by asserting that by disclosing confidential information to DUPD the Defendant had repudiated the SHA and the COA, and issued a notice of termination of both agreements. On 9 November 2010 the Claimant commenced LCIA arbitration proceedings seeking a declaration that (i) the COA had been validly terminated and (ii) that the Call Option could not be exercised. On 21 December 2010 the Defendant commenced UNCITRAL arbitration proceedings, seeking a declaration that the SHA had not been validly terminated and therefore continued to bind the Claimant.
The UNCITRAL arbitration provided for a tribunal of three, to which each party nominated an arbitrator, and Mr Audley Sheppard QC was appointed jointly by the parties as Chairman. Mr Sheppard was also appointed as sole arbitrator ("the Arbitrator") in the LCIA arbitration. By virtue of the relationship between the two arbitration proceedings, the parties agreed to stay the LCIA arbitration until the UNCITRAL arbitration had been concluded, and in addition reached an agreement which is recorded as an order of the Arbitrator in Procedural Order No.1 in the LCIA arbitration:
"Any determinations in the UNCITRAL arbitration . . . shall be binding on ("with prejudice" to) the parties to this LCIA arbitration."
In accordance with this agreement the UNCITRAL arbitration proceeded first, and the Tribunal issued its award on 9 June 2011 (the "UNCITRAL Award"), which included the following paragraphs relevant to my decision:
"181. Whether [the Defendant's] alleged breaches go to the root of the SHA is influenced by whether [the Claimant] is viewed as a short term investor/funder or a longer term strategic partner of [the Defendant] in the Sky Mall project.
182. . . . Clause 11.2 of the SHA provides that neither party may dispose of its shares or there to be a change of control for 2½ years from 1 July 2010, i.e. till 31 December 2013, defined as the "Standstill Period", unless mutually agreed. At the end of the Standstill Period, if either Shareholder wants to sell, it has first to offer its shares to the other party.
. . .
184. However, the SHA also included a Call Option (Clause 13), which entitled [the Defendant] pursuant to the terms of the COA to acquire [the Claimant's] shares "exceptionally within period starting from 15 November 2010 up to 15 March 2011 inclusive" (Clause 3.2, COA). It is not for this Tribunal to interpret the COA (which is subject to a separate arbitration), and in particular what is meant by "exceptionally", but the fact that [the Defendant] could in certain circumstances buy-out [the Claimant] within several months from signing the SHA indicates that the parties did not necessarily envisage that they were inextricably united until December 2013. The fact that the COA set out what the payment to [the Claimant] would be for every day during the exercise period to achieve an IRR of 40% indicates that the parties envisaged its exercise to be a real possibility.
. . .
187. The Tribunal considers that [the Claimant] was entitled to be viewed as a medium term investor, at least up until 31 December 2013, unless and until [the Defendant] validly exercised the Call Option, and that [the Claimant] was entitled during that time to insist upon strict compliance with the SHA by [the Defendant] (unless waived). [The Claimant] was entitled to be treated with due respect as a co-shareholder with a common interest and objective to that of [the Defendant] (being the success of the Sky Mall project) and [the Defendant] was not entitled to ignore or undermine [the Claimant's] rights as set out in the SHA.
. . .
193. The SHA and the COA were disclosed to DUPD for the specific purpose of persuading DUPD to invest in the Sky Mall project (and other projects) . . .
. . .
197. The majority of the Tribunal finds that such disclosure was a fundamental breach or a breach going to the root of the SHA entitling [the Claimant] to consider itself discharged from further performance. It was critical to the ongoing relationship that [the Defendant] did not tout the Call Option in the market with a view to finding new investors to replace [the Claimant]. [The Defendant] knowingly and intentionally ignored those confidentiality requirements, with a view to persuading DUPD to become its new partner and to provide funds to use to exercise the Call Option and remove [the Claimant] as a shareholder. Accordingly, [the Claimant] was entitled to terminate the SHA on 8 November 2010."
Of the Tribunal of three, the Arbitrator was the dissenting minority.
"210. . . . [the Defendant's] conduct was cynical . . . [and] evidences [the Defendant's] complete disregard for the SHA and the obligations owed to and rights of [the Claimant].
. . .
213. Accordingly [the Claimant] was entitled to terminate the SHA. . ."
The LCIA arbitration then proceeded, and the Arbitrator issued his award on 13 December 2011 ("the First Award"). He concluded that the Claimant had validly terminated the COA, in the following terms:
"247. Given the Parties' agreement to be bound by the determinations in the UNCITRAL Arbitration, I consider that I should apply the reasoning of the majority of that Tribunal mutatis mutandis. Accordingly, I find that disclosure of the terms of the COA to DUPD amounted to a fundamental breach of the COA.
248. Had it not been for the Parties' agreement, I would have found that disclosure of the COA to DUPD did not amount to a fundamental breach (preferring the view of the minority expressed in the UNCITRAL Arbitration Award). . . . I would have concluded that [the Defendant's] discussions with DUPD, including mention of the Call Option, were not so egregious nor went to the root of the contract so as to amount to fundamental breach."
He also concluded that although the Defendant had complied with the provisions of the COA in relation to the exercise of the Call Option, it had not validly exercised such option by reason of its failure to comply with provisions of the Escrow Agreement: paragraph 291: "I am forced to conclude that service on the Escrow Agent prior to 15 November 2010 is not effective vis-à-vis the Escrow Agent . . .": paragraph 302: "the Call Option exercise notice was not signed by, nor sent under any cover letter or other communication from [the representative of the Defendant identified in the Escrow Agreement]".
The Defendant then brought a number of challenges before this Court under s.68 and s.69 of the Act to the UNCITRAL Award and the First Award, but succeeded on only one of them before Field J on 16 July 2012. Field J accepted the Defendant's submissions that the Arbitrator, in breach of s.68(2)(d) of the Act, had not dealt with an important issue raised before him, namely that non-compliance with provisions of the Escrow Agreement did not vitiate the Claimant's liability to sell its shares in Assofit to the Defendant or invalidate the exercise of the Call Option (paragraphs 37 and 45). By his Order of 16 July he remitted the First Award to the Arbitrator "for him to (a) reconsider his finding that the call option was not validly exercised by [the Defendant] on account of its failure to comply with the requirements of the Escrow Agreement; and (b) thereafter to decide any remaining issues that arise for determination."
After the remitted hearing, the Arbitrator issued his Second Award dated 19 August 2014, by which he concluded that compliance with the provisions of the Escrow Agreement was not indispensable for a valid exercise of the Call Option. He therefore concluded that the Defendant was entitled to specific performance of the COA, rejecting the arguments of the Claimant (inter alia) that the Defendant was disentitled to such equitable relief by virtue of unclean hands, namely by reference to its repudiatory conduct in respect of the SHA and COA.
The Claimant raises three challenges to the Second Award, of which I leave the third (the "paragraph 168 point") to later in this judgment. The two challenges are based upon the Claimant's case that in excess of his jurisdiction or his power, or by way of a serious irregularity (in breach of s.67 and s.68 of the Act) the Arbitrator made findings directly inconsistent with the findings of the UNCITRAL Award (by which in his First Award he had rightly accepted he was bound) in breach of Procedural Order No.1 and/or in excess of the jurisdiction remitted to him by Field J. The two respects were as follows (I quote from paragraph 25 of the founding witness statement of Mr Kasolowky for the Claimant dated 12 September 2014):
"(1) In paragraph 77 of the Second Award, where the Arbitrator purported to find that [the Claimant] was to be regarded as a short term investor rather than a medium term investor;
(2) In paragraph 113 of the Second Award, where the Arbitrator purported to find that [the Defendant] had not acted egregiously in disclosing the COA to DUPD."
(1) Short Term Investor
The case was somewhat expanded by Mr Collins in his submissions, and in a way which Mr Weiniger submitted fell foul of the principle, enunciated by Colman J in Westland Helicopters Ltd v Sheikh Salah Al-Hejailan [2004] 2 Lloyd's Law Rep 530 at 38, that claimants in arbitration proceedings challenging an award are limited to the matters set out in their claim form (which in this case reflects Mr Kasolowky's summary). I was prepared to accept that the way Mr Collins was putting the case as expanded did not stray outside the general ambit of the pleading, and that, insofar as it did so, was by way of reply to the Defendant's response. Mr Collins' expanded case was put on the basis that the inconsistency lay in the Arbitrators' conclusion in his Second Award that the Claimant was envisaged as a short term investor and that it was more likely than not that the Defendant would exercise the Call Option.
The paragraphs of the Second Award which were considered for the purposes of addressing this argument are as follows:
"1. Compliance with Escrow Agreement not Indispensable
. . .
75. Accordingly, my task is to discern the intention of the Parties, objectively speaking, from the words used in the COA in their relevant context and against the factual background in which the COA was created.
76. If there are two plausible constructions, I am entitled to prefer the construction which is more consistent with "commercial common sense", if that can be ascertained.
77. The context and factual background to the SHA, the COA and the Escrow Agreement were set out in the First Award. In summary, [the Defendant] needed funds to acquire and develop a shopping complex in Kyiv, referred to as Sky Mall. [The Claimant] provided a substantial cash injection and became a "50% + 1 share" shareholder in Assofit. However, [the Defendant] was given the right to buy all of [the Claimant's] shares (i.e. the 50% + 1 share, comprising 1601 shares in total) during a prescribed period and at a predetermined price, pursuant to the terms of the COA. There was argument during the UNCITRAL Arbitration and the first phase of this arbitration whether it was envisaged that [the Claimant] would be a short or long term investor but my view of the evidence is that it was envisaged that [the Claimant] would be a short term investor, providing bridge finance for which it would receive a very high rate of return (i.e. 40% p.a.). The less likely scenario was that [the Defendant] would decide not to exercise its Option and [the Claimant] would remain the majority shareholder in Assofit. In any event, it was envisaged that while [the Defendant] and [the Claimant] remained joint shareholders, their relationship would be regulated by the SHA.
. . .
91. After further careful consideration, I conclude that compliance with the Escrow Agreement was not indispensable for valid exercise of the Call Option.
. . .
93. Clause 2.1 of the COA states that [the Claimant] grants to [the Defendant] an option to require [the Claimant] to sell all the Option Shares "on the terms set out in this Agreement" – it does not add "and the Escrow Agreement". In order validly to exercise the Call Option, I find that [the Defendant] had to satisfy Clause 3.3 of the COA only. I have already found in the First Award that it did.
. . .
2. Escrow mechanism not the only permissible means of completion
. . .
100. Again, there is force in [the Claimant's] argument that the Escrow Agreement should be seen as inseparable to the COA and that the requirements of both agreements are cumulative. On [the Claimant's] case, Completion could only take place by the Escrow Agent returning the Envelope to [the Defendant], in strict compliance with Clauses 2.1 – 2.3.1 of the Escrow Agreement. On balance, for the reasons just given, I do not agree.
101. I acknowledge that the COA is open to two plausible constructions. I consider that my preferred construction better accords with the context and background of the COA, which was to give [the Defendant] the right to acquire the Option Shares and take back control of Assofit. I concluded from the evidence in the first phase of this arbitration that it was the expectation of the Parties that [the Claimant] would be bought out and I note that [the Claimant] is referred to in the COA as "the Investor" in the COA. It is consistent with that context and background that compliance with the Escrow Agreement should not be indispensable and that the Escrow mechanism should not be the only permissible means of Completion. My preferred construction is also more consistent with business common sense, because it does not give inflated significance to the mechanism of Completion to the detriment of [the Defendant's] substantive right to acquire the Option Shares once it has delivered the Call Option Exercise Notice. In this respect, Credit Agricole was the Keeper of the Envelope, whose role was to give comfort to [the Defendant] that the documents would be kept safe and that it would get the documents upon payment and comfort to [the Claimant] that the transfer documents would not be released without payment from [the Defendant] and would be handed only to Mr Pinchuk. It would be unlikely that common sense businessmen would expect the terms of an escrow arrangement to frustrate their underlying bargain which in this case was transfer of the Option Shares back to [the Defendant] within a prescribed period for full pre-agreed consideration.
102. [The Defendant] referred me to Ener-G Holdings plc v Hormell [[2012] EWCA 1059] in support of the proposition that notice requirements should be construed in favour of the beneficiary of the bargain. That case was concerned with the issue of whether the specific requirements for serving notice had to be complied with. The issue of the adequacy of the Call Option Exercise Notice under the Escrow Agreement cannot be reopened in these remission proceedings. That case nevertheless is instructive as to how to approach the question of whether certain contractual procedures are permissive or exclusive. The COA is governed by English law and the comments of Lord Justice Gross are apposite to the present case, where he said (at [58] and [60]) that certainty is important in commercial transactions, so that parties can know where they stand and act accordingly: but despite the desirability and importance of certainty, a good many commercial contracts are less tidy than might be desirable as a matter of strict theory. In this respect, commercial contracts reflect the realities of commercial life. It is thus no surprise to find in a commercial contract surplus language, for instance that which merely states the obvious. Likewise, it is by no means uncommon to find that, whichever of two rival constructions is preferred, anomalies or apparent anomalies will remain. The present arbitration is such a situation, where some anomalies remain with my interpretation of the COA. But very much on balance (and I certainly do not agree with [the Defendant's] submission that [the Claimant's] interpretation is "commercial nonsense"), I have concluded that strict compliance with the Escrow Agreement was not indispensable for a valid exercise of the Call Option under the COA nor was the Escrow mechanism the only permissible means of Completion."
Mr Collins submits as follows:
i) He accepts that on the face of it the Arbitrator in paragraphs 101 – 102 puts forward two reasons for his conclusion that compliance with the provisions of the Escrow Agreement is not indispensable for exercise of the Call Option. The first reason is the context and factual background of the SHA and COA, as described in paragraph 77, including that his "view of the evidence is that it was envisaged that [the Claimant] would be a short term investor". The second reason is that the construction which he prefers (that the Escrow procedures are permissive but not mandatory) is "also more consistent with business commonsense". However Mr Collins submits that it is significant that even with those two reasons the Arbitrator only made his decision "very much on balance". It is clear therefore in his submission that the Arbitrator's reliance on the short term investor reason 'tipped the balance', and that without it he would or might not have decided as he did. If he was not permitted to rely on that reason, then not only was that a serious irregularity, but it has caused the Claimant substantial and continuing injustice, because the court only needs to be satisfied that the Arbitrator "might realistically" have adopted a different course if there had been no serious irregularity: he relies on the MV Ocean Glory [2015] 1 Lloyd's Law Rep 67 at paragraph 30 and Merkin Arbitration Law at paragraph 20.8. If necessary he submits that in any event the 'second reason' is substantially dependent upon the 'first reason'. Mr Collins submitted that it would seem from the last sentence of paragraph 101 that even for the purpose of the business common sense argument the Arbitrator was assuming that the underlying bargain was the exercise of the option – i.e. assuming that it would occur.
ii) As to the 'first reason', the Arbitrator's finding in paragraph 77 of the Second Award, upon which paragraph 101 is founded, is inconsistent with the finding of the UNCITRAL Tribunal in paragraph 187 of its Award. The Arbitrator is not entitled, by reason of the Procedural Order No.1, set out in paragraph 6 above, to do other than accept the findings of the UNCITRAL Tribunal, and he has failed to do so. By purporting to revisit the short term investor point after it had been disposed of by the UNCITRAL Award, by which in his First Award he rightly accepted he was bound, there was a clear excess of power because he made the finding in breach of the Procedural Order No.1, and Mr Collins relies upon Lesotho Development v Impregilo SpA [2006] 1 AC 221 at 29. Hence the Arbitrator has reached a conclusion, upon which his finding as to the construction of the COA relied, namely that the Claimant was envisaged as a short term investor, which he had no jurisdiction or power to make, the UNCITRAL Tribunal, in his submission, having concluded in paragraph 187 of the Award that the Claimant was "entitled to be viewed as a medium term investor". The previous determination was, in Mr Collins' submission, final and binding, and created an issue estoppel, leaving the Arbitrator functus officio, and deprived of any jurisdiction to reconsider the question of the Claimant's status. He relies so far as necessary upon Emirates Trading Agency LLC v Sociedade De Fomento Industrial Private Ltd [2015] EWHC 1452 (Comm) per Popplewell J at 26. Further or in the alternative the Arbitrator went outside the remission to him by Field J, which was intended to leave unaltered all findings other than those specifically referred back. It may be, Mr Collins suggested, that the Arbitrator, in referring, in paragraph 77 of his Second Award, to there having been "argument during the UNCITRAL Arbitration whether it was envisaged that [the Claimant] would be a short term or long term investor", was overlooking that there had actually been a finding in that regard.
iii) In any event Mr Collins submits that the Arbitrator acted in breach of his duty under s.33 of the Act to act fairly, and thus committed a serious irregularity under s.68(2)(a), by failing to give the Claimant a reasonable opportunity of putting its case on the short term investor issue. He relies on Omnibridge Consulting Ltd v Clearsprings (Management) Ltd [2004] EWHC 2276 (Comm) at 44 and the Ocean Glory at 25. The 'first reason' was not one that was canvassed by the parties or by the Arbitrator during the hearing.
iv) Mr Weiniger did not accept that the UNCITRAL Tribunal made the finding as described by Mr Collins, as discussed below, and in answer to such submission Mr Collins developed the further argument to which I referred in paragraph 12 above. He submitted that there was, or was also, a similar impermissible inconsistency between paragraph 184 of the UNCITRAL Award, in the last sentence of which the Tribunal recorded that the parties envisaged the exercise of the Call Option to be a "real possibility", and paragraph 77 of the Second Award, whereby the Arbitrator concluded that it was more likely than not that such option would be exercised ("the less likely scenario was that [the Defendant] would decide not to exercise its option".
Mr Weiniger responded as follows:
i) Mr Collins by his pernickety analysis of the words of the UNCITRAL Award and the Second Award falls into the trap identified by Bingham J in Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14:
". . . as a matter of general approach, the courts seek to uphold arbitration awards. They do not approach them with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults in awards and with the objective of upsetting or frustrating the process of arbitration. Far from it. The approach is to read an arbitration award in a reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault that can be found with it."
ii) The UNCITRAL Award was addressing a different question from that determined by the Arbitrator. The issue for the former was whether the disclosure of confidential information by the Defendant constituted a repudiatory breach, and the status of the Claimant was relevant to that question. The issue for the Arbitrator was the construction of the COA so as to consider whether it was a mandatory requirement of exercising the option for there to be compliance with all the procedural provisions of the Escrow Agreement. The Arbitrator did not challenge the finding of the UNCITRAL Tribunal, and did not 'overlook' it or that he was bound by it, not only, as he made expressly clear on more than one occasion in the First and Second Awards (as set out in paragraph 8 above, and also in paragraph 233 of his First Award), but as is manifest from the words of the last sentence of paragraph 77 of the Second Award:
"In any event it was envisaged that while [the Defendant] and [the Claimant] remained joint shareholders, their relationship would be regulated by the SHA" [my underlining].
iii) Mr Weiniger submitted that Mr Collins was taking the words of the UNCITRAL Award, upon which he relied, out of context, and failed to address important words in that context of which they formed part in paragraph 187, namely "the Tribunal considers that [the Claimant] was entitled to be viewed as a medium term investor . . . unless and until [the Defendant] validly exercised the Call Option" [my underlining]. Thus he submits that what the UNCITRAL Tribunal (of which the Arbitrator had formed part) was concluding was that the Claimant was to be viewed as a medium term investor in terms of the question of repudiatory breach of obligations owed to it by the Defendant so long as the relationship lasted (unless and until the Defendant exercised the Call Option). That did not relate to the likelihood of the exercise of the Option. It is clear that the Arbitrator was addressing the question of short term investor not in the context of repudiation, but in the context of the likelihood of exercise of the option.
iv) As to such likelihood, he points out that, significantly, both the UNCITRAL Award and the Second Award identified factors relevant to the likelihood of the exercise of the Option: the former in paragraph 184, pointing out that the (Schedule to the) COA set out what the payment to the Claimant would be for every day during the period for exercise of the Call Option, while in the latter the Arbitrator pointed out (at paragraph 101) that the Claimant is referred to in the COA as "the Investor". The two Awards expressed different views as to the likelihood of exercise of such options. The UNCITRAL Award recorded in paragraph 184 that "the parties envisaged its exercise to be a real possibility", while the Arbitrator recorded in paragraph 77 that "the less likely scenario was that [the Defendant] will decide not to exercise its option". But insofar as this constituted an inconsistency, it was not a material or relevant inconsistency, i.e. the degree of likelihood of exercise of the option was not a determination of an issue by the UNCITRAL Tribunal by which the Arbitrator was bound.
v) Consequently Mr Weiniger submitted that the Arbitrator lacked neither jurisdiction nor power to reach the conclusion he did. As to the question of serious irregularity by way of unfairness, he accepted that the Defendant did not raise the question of short term investor, or indeed likelihood of exercise of the option, as an argument why the procedural provisions of the Escrow Agreement were not of the essence. The Defendant did run the arguments set out persuasively and at some length in paragraph 101 and 102 of the Second Award, set out in paragraph 13 above, which were clearly accepted by the Arbitrator. As for the 'second reason', it is plainly self standing. He submitted that the kind of analysis given by Mr Collins to the last sentence of paragraph 101 (referred to in paragraph 14(i) above) particularly exemplified the approach deprecated by Bingham J discussed above, because the reference to the words 'their underlying bargain, which in this case was transfer of the Option Shares' must plainly mean in the context 'the relevant part of their underlying bargain, which for these purposes was the exercise of the option'. The Defendant's contentions before the Arbitrator relating to frustration of bargain and permissive/exclusive use of contractual procedures were plainly good reason for the Arbitrator to find as he did. Given the existence of the 'second reason', there was no substantial injustice to the Claimant (s.68) and in the Court's discretion it should not set aside a well-justified determination (s.67): see Integral Petroleum SA v Melars Group Ltd [2015] EWHC 1893 (Comm) at 26 per Andrew Smith J.
I am entirely persuaded in respect of the 'first reason' that there was no inconsistency between the Arbitrator's conclusion and that of the UNCITRAL Tribunal, for the reasons given by Mr Weiniger. The decision in relation to repudiatory breach was reflected by the position pending any exercise of the option, when the Claimant had to be viewed as a medium term investor, as the UNCITRAL Tribunal found: and the difference between the two Tribunals as to the precise likelihood of the option being exercised, whether it was a real possibility, or a better than 50/50 likelihood, was a conclusion, insofar as it reflected on the construction of the COA, to which the Arbitrator was free to come. There was no excess of jurisdiction or power, no offence against issue estoppel and no exceeding of the issues remitted to the Arbitrator by Field J.
It is the case that the 'first reason', which I am satisfied was not interdependent with the 'second reason', was not put to or by the parties at the hearing, and hence that constituted a potential unfairness to the Claimant. However I am satisfied that, although the Arbitrator made it clear that he found it a difficult decision, the matters which he elaborated at length in most of paragraph 101 and the whole of paragraph 102 of the Second Award were sufficient of themselves to justify the conclusion to which he came. I am not persuaded that without the 'first reason' he might realistically have decided differently.
There is no ground for challenge to the Arbitrator's conclusions in this regard.
Clean Hands
That disposes of the challenge to the declarations as to the validity of the exercise of the Call Option which the Arbitrator made in paragraph 166(a) of the Second Award. However there is a challenge to the making of the specific performance order in paragraph 166(b) of the Second Award, on a very similar basis to that discussed above, namely that the Arbitrator in rejecting the Claimant's case as to unclean hands was finding inconsistently with, and consequently failing to follow and be bound by, the conclusion of the UNCITRAL Tribunal, thus acting without jurisdiction alternatively without power.
The majority of the UNCITRAL Tribunal concluded that the Defendant was in repudiatory breach of the SHA. I have set out the relevant passages (in paragraphs 197 and 210) in paragraph 7 above, in which the Defendant's conduct is described as cynical and intentional and in complete disregard for the SHA. As set out in paragraph 8 above, the Arbitrator recorded in the First Award that he would apply the same conclusions to the question before him as to whether there was repudiatory breach of the COA, to those applied to repudiatory breach of the SHA by the UNCITRAL Tribunal. Indeed he made it clear in paragraph 248 of the First Award (there set out) that but for his conclusion that he was bound by the decision of the UNCITRAL Tribunal, he would not himself have found that the conduct of the Defendant described by the UNCITRAL Tribunal in the passages cited in paragraph 7 above was so egregious as to constitute fundamental breach.
The Arbitrator had to address in the Second Award what Mr Collins concedes to be a different question from the question of fundamental breach, namely whether the conduct of the Defendant was such as to disentitle it to equitable relief (and that there was sufficient nexus between the unclean hands and the relief sought). The Claimant's case was set out by the Arbitrator in paragraph 105 of the Second Award:
"[The Claimant] submitted that [the Defendant] should not be granted specific performance because it (i) may not benefit from its own misconduct or else (ii) must come to equity with clean hands, which it does not. This argument had also been raised in the first phase of the arbitration. In its Post-Hearing Brief . . . [the Claimant] contended that the Call Option was not exercised lawfully because it was preceded and made possible by service of a purported Call Option Exercise Notice in bad faith, fundamental breaches of the SHA, breaches of the COA, breaches of fiduciary duties, and repudiatory conduct."
Bad faith and taking advantage of its own wrong, dealt with in paragraph 106-111 of the Award, are no longer pursued. The issue now addressed, described in paragraph 114 of the First Award as whether the Defendant "should be viewed as not having "clean hands" because of its repudiatory breach of the confidentiality provisions in the COA" were dealt with by the Arbitrator in paragraphs 112-113:
"112. [The Claimant] argued that [the Defendant] should not be granted the equitable relief of specific performance because it did not come with "clean hands" . . . [The Defendant] responded that it does come with "clean hands" and in any event it must be shown that the conduct complained of has an immediate and necessary relation to the equity sued for (see e.g. Halsbury's Laws of England, vol. 16(2), para 560; and Royal Bank of Scotland v Highland Financial Partners LP and ors [2012] EWHC 1278 and [2013] EWCA Civ 328).
113. The first question is, therefore, whether [the Defendant] has "clean hands". The majority of the UNCITRAL Arbitration Tribunal found that [the Defendant's] conduct in breaching the confidentiality provisions of the SHA amounted to repudiation of the SHA justifying termination of the SHA, which analysis I reluctantly adopted, mutatis mutandis, in my First Award for the reasons explained therein (paras 223 and 248). A decision not to grant specific performance of contractual rights when the applicant is otherwise entitled to that remedy should be made sparingly. The decision whether or not to grant equitable relief is discretionary and should be based on my assessment of the conduct of [the Defendant], not the view of the majority of the UNCITRAL Arbitration Tribunal. I do not share the opinion that [the Defendant] acted egregiously in talking to DUPD and, accordingly, in this Award where I have the opportunity to decide the Remitted Issues, I am not persuaded that I should decline to order specific performance."
Mr Collins submits that it is perfectly apparent that the Arbitrator was differing from the view of the majority of the Tribunal as to the egregiousness of the Defendant's conduct, because he says so in terms in paragraphs 248 of the First Award (set out in paragraph 8 above) and in paragraph 113 of the Second Award set out above. As he was bound by the UNCITRAL Tribunal's findings, he was not entitled to do so.
Mr Weiniger once again emphasises that the issue which the Arbitrator was deciding in the Second Award was different from that decided by the UNCITRAL Tribunal in the UNCITRAL Award. It is wholly apparent that the Arbitrator knew that he was bound by the UNCITRAL Tribunal's finding as to repudiatory breach of the SHA, because he said so, and he also proceeded to apply loyally the same reasoning, so as to find that there was repudiatory breach of the COA. But he was here addressing whether the conduct of the Defendant was sufficiently egregious as to amount to unclean hands. There is the clearest possible exegesis of this point in the transcript of the remission hearing which is set out in full in the witness statement of Mr Kennelly on behalf of the Defendant at paragraph 51 (and also fairly referred to by Mr Kasolowky in paragraph 39 of his witness statement, and indeed the transcript itself is exhibited). The difference between the issues could not be more clearly elucidated:
"51(a) At page 84, lines 1-5: "THE ARBITRATOR: So to the extent I am exercising a discretion, one might say it is more personal than the finding of breach sufficient to justify repudiation of the agreement, which was what I felt I was bound to decide and the basis of the agreement of the parties'; and
(b) At page 88, lines 16-24
"MR KASOLOWSKY: But the question really is not whether it is a fundamental breach to allow for discharge, the question is whether the breach is so bad that you should be exercising discretion.
THE ARBITRATOR: Exactly, exactly.
MR KASOLOWSKY: So I mean, there needs to be some kind of assessment of the severity of the breach.
THE ARBITRATOR: Exactly, I completely agree, yes.
MR KASOLOWSKY: Yes."
It would perhaps have been clearer if in paragraph 113, instead of his recording that he did not share the opinion of the majority of the UNCITRAL Tribunal (but was bound by it so far as the finding of repudiatory conduct is concerned) the Arbitrator had instead, or in addition, said "I am addressing a different question". But that is what he was doing and he was entitled to do so, and to reach the conclusion that the Defendant's conduct did not amount to unclean hands, even if it constituted repudiatory conduct.
There is no need in those circumstances for me to deal with the additional case, which the Claimant would also need to have established in order to succeed on this point, namely the question of whether there was (as it is put in paragraph 114 of the Second Award) "sufficient nexus between the offending conduct and the benefit to justify depriving [the Defendant] of its contractual rights". If there were, as the Arbitrator concluded, and I have upheld, no unclean hands, then the nexus point does not arise. But for the sake of completeness I should record that Mr Collins submitted that, if unclean hands had been established, the Arbitrator erred in the manner in which he addressed the issue of nexus. Mr Collins submitted that, contrary to his obligations, as enunciated by (for example) Gloster J in SoeXimeX
SAS v Agrocorp International Pte Ltd [2011] EWHC 2743 (Comm) at 19-20 and Gavin Kealey QC in Buyuk Camlica Shipping Trading & Industry Co Inc v Progress Bulk Carriers Ltd [2010] EWHC 442 (Comm) at 38, the Arbitrator failed to deal with what Mr Collins describes as the "fungibility issue".
The contention in this regard was, as Mr Collins accepts, fairly described by the Arbitrator in paragraph 58 of the Second Award, in the context of the case made by the Claimant, that, although in the event the DUPD monies were not used to finance the Call Option, but the option price was to be funded, on the Defendant's evidence, by accessing other monies i.e. from the sale of the O'Key Group, nevertheless without the DUPD monies the O'Key monies would have had to be used to fund other liabilities (met by the DUPD monies in the event) and would thus not have been available for the option price. Paragraph 58 reads as follows:
"[The Claimant] maintained that the evidence put forward by [the Defendant] in support of its assertion that it was unnecessary for it to receive the DUPD investment in order to pay the Call Option consideration is ambiguous at best and falls short of demonstrating that the DUPD had no effect on [the Defendant's] ability to exercise the . . . Call Option. The evidence indicates that [the Defendant] breached its confidentiality obligations in order to persuade DUPD to finance the Call Option. DUPD monies that were ultimately earmarked for other projects and reduced [the Defendant's] other obligations nevertheless meant that [the Defendant] had funds to pay the Call Option Price."
This argument was run also by reference to the "taking advantage of own wrong" case referred to in paragraph 22 above, and so the Arbitrator dealt with it in the section addressing that case, and then referred back to it. The Arbitrator said as follows:
"109. [The Claimant] submitted that [the Defendant] was only in a position to exercise the Call Option because it had got funding from DUPD, in breach of the confidentiality requirements of the SHA. [The Defendant] responded that in fact it had obtained the funds required to pay the Option Price from the IPO of the O'Key Group SA (in which Mr Teder had a beneficial interest) and not from DUPD.
. . .
111. . . . The evidence shows [the Defendant] was negotiating with DUPD for DUPD to finance the Option Price (see e.g. the DUPD Shareholders Agreement dated 10 September 2010, and press release on 13 September 2010). However, I accept the uncontested evidence that by November 2010, [the Defendant] / Mr Teder had other sources of funding such as monies from the sale of O'Key Group to pay the Option Price. Accordingly there is not sufficient nexus between the wrong and the benefit to justify depriving [the Defendant] of its contractual rights.
. . .
114. Assuming, however, that I am wrong and [the Defendant] should be viewed as not having "clean hands" because of its repudiatory breach of the confidentiality provisions in the COA, then for the same reasons as wet out three paragraphs above, I find that there is not sufficient nexus between the offending conduct and the benefit to justify depriving [the Defendant] of its contractual rights."
I have no doubt at all that it cannot be said that the Arbitrator did not deal with or address the issue at all. He is plainly, in paragraphs 111 and 114, rejecting the Claimant's argument which he has set out in paragraph 58, quoted above. The most that can be said is that he has not set out his reasoning in full for rejecting the Claimant's contention, but it is clear that, even if that were so, inadequacy of reasoning does not begin to amount to a failure to deal with an issue within s.68(2)(d), and Mr Weiniger points to Hussmann (Europe) Ltd v Al Ameen Development & Trade Co [2000] 2 Lloyd's Rep 83 at 56, Margulead Ltd v Exide Technologies [2004] EWHC 1019 (Comm) at 42, Petrochemical Industries Company (KSC) v Dow Chemical Co [2012] 2 Lloyd's Rep 691 at 16 and the helpful analysis by Akenhead J in Secretary of State for the Home Department v Raytheon Systems Ltd [2014] EWHC 4375 (TCC) at 33. I agree.
I would therefore have rejected the challenge in respect of unclean hands in any event.
The balance of the relief sought
I referred in paragraph 11 above to what I call the "paragraph 168 point". In that paragraph of the Second Award, after making the declaration and the order for specific performance of the Call Option, the Arbitrator recorded:
"I reserve jurisdiction to hear a claim by [the Defendant] for damages in lieu of specific performance arising from the purported transfer of [the Claimant's] shares in Assofit to Althor Property Investments Limited and any subsequent transfer."
This arose as a result of the discovery, only just prior to the Second Award, that the Claimant had, it seemed, transferred its shares in Assofit, which might render any order for specific performance nugatory. The Claimant has challenged in these proceedings whether the Arbitrator would have any jurisdiction to hear such a claim, whether for damages in lieu of specific performance or indeed damages in addition to specific performance. The paragraph is ambiguous, and the Defendant is content through counsel to accept what has in fact ensued, namely that the Arbitrator did not purport to assert jurisdiction, but was reserving the question of jurisdiction, and indeed the parties have taken part in subsequent proceedings, and there have been further awards and orders, with a view to a decision by the Arbitrator as to whether he has such jurisdiction. By an Order dated 16 June 2015 he has directed that the issue of jurisdiction be tried together with the merits of the claims for damages. Accordingly the parties have agreed that I do not need to address the paragraph 168 point upon the basis that it be read as if it had said what it seems the Arbitrator, and at any rate the Defendant, believed it to say, namely "I reserve the question as to whether I have jurisdiction".
In an additional Arbitration Claim Form dated 16 January 2015 two further matters were raised by the Claimant, relating to paragraph 166(d) of the Second Award and paragraph 57(a)(ii) of a Fourth Award dated 19 December 2014, arising out of a further discovery namely that there has or may have been disposition of Assofit's interest in the Sky Mall; and relating to whether, under those paragraphs or otherwise, the further disclosure orders, which have in fact been made by the Arbitrator and at least partially complied with by the Claimant, could be made. After hearing argument, and in particular being informed that the Arbitrator himself will be dealing with all questions of jurisdiction whether to make those orders or otherwise, I adjourn the issues raised by the second Claim Form, to be restored to this court if necessary after the further hearing or hearings before the Arbitrator.
With the exception of the issues thus agreed or adjourned, I dismiss the Claimant's claims for relief under the Act. |
Mr Justice Males :
Introduction
On 31 March 2015 a worldwide freezing order was made by Eder J to restrain the Respondents from dealing with their assets until further order. It contained the usual provision permitting payment of a reasonable sum on legal advice and representation:
"This Order does not prohibit either the Second or the Third Respondent from each spending £500 a week towards her/his ordinary living expenses, and it does not prohibit any of the Respondents from spending a reasonable sum on legal advice and representation. But before spending any money the Respondent must tell the Applicant's legal representatives where the money is to come from."
It contained also permission for the Applicant ("Tidewater") to seek an order of a similar nature in Switzerland in order to freeze an account held in Geneva either with Bank Leumi or with Bank Julius Baer. In fact there appear to have been two accounts held with Bank Julius Baer, one in the name of the Second Respondent and the other in the name of the Third Respondent. Tidewater obtained an attachment order from the Swiss court, but it appears that it froze only the Second and not the Third Respondent's account there.
So far the Respondents' (by which from now on I mean the Second and Third Respondents) legal fees in this action have been met, with the agreement of Tidewater, from the Third Respondent's account with Bank Julius Baer, but the funds in that account are now exhausted. By an application which I heard on 4 September 2015 the Second and Third Respondents seek an order which will enable them to use the funds in the Second Respondent's account for the purpose of funding their defence to this action and discharging an order for costs of £60,000 already made in favour of the Applicant. At this stage the Respondents ask to withdraw £145,000 to pay their solicitors and £60,000 to pay the costs which the Second Respondent is obliged to pay to Tidewater, a total of £205,000. Because the Swiss attachment order contains no exception for legal expenses, the mechanism by which this would have to be achieved would be a joint request by the parties to the President of the Tribunal of First Instance in Geneva for a variation of the Swiss order to enable the funds in the account to be used in this way.
The Respondents say that there are no other sources of available funds from which their legal expenses can be met and that if the order is not made their solicitors (who are currently owed some £95,000 in addition to the £294,000 which they have already been paid from the Third Respondent's account) will have to cease to act, leaving them unrepresented and unable to defend themselves in this complex litigation.
Tidewater is prepared to join in making such a request to the President of the Tribunal of First Instance if this court determines that the Respondents' legal expenses of this action should be funded from the Second Respondent's Bank Julius Baer account, but objects in the strongest terms to any such determination. It does so essentially on two grounds. The first is that the Respondents have not shown to the necessary standard that there are no other sources of available funds. The second is that, even if there are no other sources of funds, to make the order sought by the Respondents would be unfair (or as Mr David Allen QC put it, grotesque) having regard to the overall justice of the case, in circumstances where the Respondents are in continuing contempt of a mandatory order of this court and the Third Respondent is a fugitive from justice.
Following the conclusion of the hearing I informed the parties that the Respondents' application would be dismissed and that my reasons would follow. These are my reasons for that decision.
The parties
Tidewater is a Cayman Islands company carrying on business as a manager and operator of vessels engaged in the offshore oil and gas industry. In October 2005 it entered into two agreements with the First Respondent ("PhoenixTide"), a Nigerian company. The agreements related to vessels to be bareboat chartered to PhoenixTide by affiliates of Tidewater and, in turn, time chartered by PhoenixTide to oil companies or their service providers operating in Nigerian waters. Both agreements contained exclusive jurisdiction clauses providing for English law and jurisdiction. The background to these agreements was the Nigerian Coastal & Inland Shipping (Cabotage) Act 2003, which resulted in preference being given to local Nigerian businesses in relation to shipping and chartering support services to the Nigerian offshore sector. The Second Respondent (who has been referred to in these proceedings as "the Otunba", this being, as I was told, a tribal title in Nigeria) was the Chairman of PhoenixTide and her son the Third Respondent (referred to in the proceedings as "Toks") was the managing director.
Tidewater's claim against PhoenixTide
It was Tidewater's case that pursuant to the agreements between the parties PhoenixTide was obliged to direct the oil majors or their affiliates who were the time charterers of the vessels to pay hire to Tidewater and that, in the case of substantial sums payable by several Total companies, PhoenixTide wrongfully failed and refused to do so. In action 2013 Folio 290 Tidewater sought declarations as to its right to receive hire and other sums payable by Total together with an order that PhoenixTide by its managing director (i.e. Toks) send a letter to the applicable Total companies instructing and authorising them to pay these sums to identified Tidewater bank accounts. It is unnecessary for the purpose of this judgment to explain in further detail the basis of that claim. It is fully set out in the judgment of Burton J [2013] EWHC 2960 (Comm) delivered on 1 October 2013 dismissing PhoenixTide's challenge to the exercise of jurisdiction by this court in that action.
The mandatory order
Following the dismissal by Burton J of its challenge to the jurisdiction, PhoenixTide decided not to file a fresh acknowledgement of service. On 22 November 2013 Tidewater issued an application for a mandatory order that PhoenixTide sign, through its managing director or other authorised representative, a letter to Total directing it to pay the sums in question over to Tidewater. On 5 December 2013, at a hearing of which PhoenixTide had been given proper notice but which it chose not to attend, Burton J made that order. It was endorsed with a penal notice warning both the Otunba and Toks that they might be held to be in contempt of court if PhoenixTide did not obey the order and provided as follows:
"2. The Defendant must send, by each of the methods stipulated in paragraph 3 below, by no later than 1800 hrs (West Africa Time) on Monday, 16 December 2013, to [Total] a letter in the form set out in Schedule 2 of this Order, signed by the Managing Director or other duly authorised representative of the Defendant and copied to the Claimant, instructing and authorising them to make payment forthwith of the undisputed hire and other sums payable in respect of the [named vessels]."
The order was served on PhoenixTide on the same day it was made. The Otunba and Toks accept that they personally saw it, but they say that they only did so on some unspecified date in January 2014. PhoenixTide did not comply with the order, either by 16 December 2013 as the order itself required, or in January 2014 when (if their evidence is true) the Otunba and Toks saw the order, or at all.
The default judgment
On 14 February 2014 Tidewater issued an application for a default judgment in the light of PhoenixTide's failure to file a fresh acknowledgment of service. On 7 March 2014 Burton J made an order entering judgment against PhoenixTide. His order included a declaration that the right to payment under each of the Total time charters was held by PhoenixTide on trust for Tidewater as the equitable owner of the rights and that as between Tidewater and PhoenixTide it was Tidewater that was entitled to receive all payments made by the charterers pursuant to the time charters. It declared also that:
"The Defendant was under obligations as trustee and as a matter of contract to procure that the Claimant received the time charter remuneration, in particular but without limitation by instructing and authorising the charterers to make payment to the Claimant of all remuneration due under the Time Charters"
and that PhoenixTide had wrongfully breached those obligations.
In addition to the declarations, PhoenixTide was ordered to pay damages in the total sums of US $5,398,436 and Nigerian Naira 1,797,403,582, together equivalent to about US $15 million.
PhoenixTide did not pay the damages awarded. Instead it has done everything within its power, so far successfully, to frustrate Tidewater's attempts to obtain recognition and enforcement of the judgment in Nigeria.
Committal for contempt
On 23 June 2014 Burton J gave permission to Tidewater to serve an application to commit all three Respondents for contempt of court. That application, together with notice of a hearing for 3 October 2014, was duly served on 24 June 2014. Burton J was persuaded to adjourn the application, but the adjournment was followed by proceedings issued by PhoenixTide in Nigeria seeking an anti-suit injunction against the continuation of proceedings here including the contempt proceedings. That was met by an anti-anti-suit order made by Burton J. The Respondents' application for permission to appeal from that order was refused by Tomlinson LJ as wholly without merit. It appears, however, that PhoenixTide nevertheless continued with the Nigerian proceedings, although ultimately these were dismissed.
Eventually the contempt application came on before Burton J on 9 February 2015. Despite a direction that they should attend the contempt hearing, neither the Otunba nor Toks was present. One working day before the hearing their then solicitor served an affidavit to explain their absence. He said that the Otunba was seriously ill, that she was being cared for at a hospital in Lagos, and that Toks "cares for her round-the-clock and as a result … is unable to leave her to attend court".
The Respondents were represented at the hearing by leading counsel who argued, among other things, that a finding of contempt and the imposition of sanctions was no longer possible as a result of the default judgment by which Tidewater had obtained declarations together with an award of damages. Burton J rejected that argument at [29] of his judgment [2015] EWHC 417 (QB):
"29. Mr Slade further says that the imposition of the default judgment, which has effectively ended the proceedings, which was granted as I described in my earlier judgment, on 7 March 2014, has overtaken the need to enforce my Order and thus rendered it unnecessary. He may put it even higher, in terms of some kind of merger. I am not satisfied as to that at all. The Order that was made was not until trial or further order. It has not been set aside. It has not been discharged. It has not run out of time. It was an order that a letter be sent, admittedly giving a date for expected compliance, but the Order expected continued compliance if the letter was not served by 16 December, and it remained in place. As for the default judgment, what there now is is a declaration that the Claimant is beneficially and legally entitled to the monies presently held by Total, and any method of obtaining those monies will only be part and parcel of an enforcement of that declaration."
Burton J found all three Respondents to be in contempt of court. He found that the failure to comply with the order was deliberate and that even when the contempt application had been served, everything which the Respondents had done had been directed to avoiding the consequences of their non-compliance with the order rather than complying with it. He said:
"36. The last point that is raised is that in some way the Defendant or Respondents apologise. It is not clear what this means, because it would have been, and still is, so easy for them to have purged the contempt by signing the letter, even now. As I have indicated, the default judgment has led to recognition by the English Court that the Claimant is entitled to the monies held by Total. There has been no attempt to set aside that judgment, no attempt to seek an extension of time for an acknowledgement of service in order to seek to do so. The position is that the Defendant and Respondents have simply just refused to recognise the jurisdiction of this court, as they did when they sought unsuccessfully to challenge it, and the Order made by this Court. In those circumstances I am satisfied that they are and remain in contempt."
This was a decision, therefore, that notwithstanding the default judgment, the Respondents were and remained in contempt of the order requiring them to sign a letter instructing Total to release the monies to Tidewater. There has been no appeal from Burton J's decision.
Burton J sentenced Toks to four months imprisonment and the Otunba to one month. PhoenixTide was fined.
Although evidence had been provided to the effect that the Otunba was seriously ill and was in Lagos being cared for by Toks around the clock, it transpired that she was in fact in England and had been since before the committal hearing, although Toks was not. Further hearings followed in which Tidewater sought an order for surrender of the Otunba's passport, while the Otunba contended that as she had now resigned her directorship of PhoenixTide, there was no longer any point in her complying with the injunction to sign the letter because she now lacked the relevant capacity to give such instructions, an argument which (not surprisingly) Burton J described as unattractive. (Subsequently Toks also resigned as managing director, no doubt in order to avail himself of a similar argument).
It was also said on the Otunba's behalf that she was wheelchair bound and only left her London house (held by a trust fund) to attend medical appointments. That was not true either. In fact as was revealed by covert surveillance which Tidewater had arranged, she had been shopping in London without the need of a wheelchair. She did eventually attend court in a wheelchair on 16 March 2015 to apply for her prison sentence to be discharged or suspended. The covert surveillance revealed that the wheelchair had been delivered to her for the first time the night before. Her application was refused and she was sent to HMP Holloway and ordered to pay costs of £60,000. Toks remained in Nigeria as a fugitive from justice and has not served his sentence. Evidently he preferred that his ill and elderly mother should go to prison rather than that Tidewater should obtain the monies to which this court has held that it is entitled.
The claim against the Otunba and Toks
Tidewater now seeks a personal remedy against the Respondents. It puts its claim against them in four ways. The first is that they deliberately and dishonestly assisted breaches of trust and fiduciary duty by PhoenixTide in refusing to enable payment by Total to Tidewater of the sums due under the time charters. The second is a claim in conspiracy to injure Tidewater by unlawful means, the means in question consisting of a failure in contempt of court to issue the required letter. The third is a claim for the tort of intentionally causing loss by unlawful means, the means again consisting of the contempt of court. Finally, Tidewater contends that committing a contempt of court and thereby causing financial loss is independently actionable as a tort.
Initially Tidewater sought to bring these claims as part of action 2013 Folio 290. However, the Respondents' new solicitors (Mishcon de Reya, who came on the record on 11 May 2015) maintained that as Tidewater had already obtained judgment in default against PhoenixTide in that action, the only remaining jurisdiction of the court in relation to it was for the purpose of enforcement of the judgment. In any event, Tidewater also commenced a new action, 2015 Folio 595. The 2013 action has been stayed. The new action was served on the Otunba at her London residence with her solicitors' agreement (she was then in hospital in London) and was served on Toks pursuant to an order for alternative service made by Burton J on 20 May 2015.
The Respondents deny liability for the claims brought against them by Tidewater and (according to their solicitor's witness statement) will contend that compliance with the order to sign a letter instructing Total to make payment to Tidewater would have been a breach of an order of the Nigerian court. They have issued an application to challenge the exercise of jurisdiction over them by this court on the ground that Nigeria is clearly and distinctly a more appropriate forum for the claim. In summary they contend that each of the claims advanced against them is a claim in tort or delict within the meaning of the Rome II Regulation (Regulation 864/2007/EC); that in contrast with the position of PhoenixTide those claims are not subject to any exclusive jurisdiction clause; that the law applicable to the claims pursuant to Article 4 of the Regulation is Nigerian law because the damage to Tidewater occurred predominantly in Nigeria and (if necessary) the claims have a manifestly closer connection with Nigeria than with England; that this factor of Nigerian governing law is itself a strong ground for holding Nigeria to be a more appropriate forum; and that in any event other connecting factors considered overall point more strongly to Nigeria than to England.
It remains to be determined what law is applicable to the claims against the Respondents, whether this court should exercise jurisdiction over those claims, and whether in accordance with whatever is the applicable law the Respondents are under a personal liability to Tidewater. All of those issues are for another day. It is, however, entirely clear that the issues arising in the 2015 proceedings only arise at all because of the Respondents' breach of the mandatory order for signature of the letter instructing Total to pay the charter monies to Tidewater. If the Respondents had provided that letter, as they were ordered to do, these proceedings would never have been necessary. It is equally clear, and has been determined by the judgment of Burton J, that so far as this court is concerned this conduct of the Respondents was wrongful and constituted a contempt of court which has been proved to the criminal standard of proof. Indeed their conduct represents, and has continued to represent, a refusal to recognise the jurisdiction of this court and to comply with its orders when they choose not to do so.
The worldwide freezing order
Meanwhile on 31 March 2015 Eder J made the worldwide freezing order which has given rise to the present application. As well as the provision for payment of legal expenses, it contained the usual asset disclosure orders requiring information to be provided by each Respondent (in this case as to all assets exceeding £5,000 in value), to be followed by a confirming affidavit. Unusually, however, it also contained in paragraphs 9(3) and 9(4) orders for the Otunba to attend for cross-examination as to her assets and those of PhoenixTide and to surrender all current and valid passports in her name.
The process of asset disclosure by the Otunba was rendered more complex, and took longer than it would otherwise have done, because of her medical condition. Despite the lies which were told about her condition at an earlier stage, it appears that she is seriously ill, has suffered from recurrent cancer for some years, has required frequent medical treatment, and was admitted to hospital in London in May 2015. Indeed medical evidence was provided to Tidewater's solicitors at that time to the effect that she was not likely to live for more than a few weeks, as a result of which Tidewater agreed to the discharge of paragraphs 9(3) and 9(4) of the freezing order so that she could return to Nigeria to be with her family. Moreover, the Respondents' solicitor (Mr Hugo Plowman of Mishcon de Reya) has described the difficulties of taking instructions from the Otunba as a result of her poor health, limited eyesight and general weakness, as a result of which documents have had to be read out to her, primarily over the phone while she is on her back in bed. I accept that these are genuine difficulties, and that the Otunba's condition is serious, but I am nevertheless concerned that there is still a degree of dishonest exaggeration in the Otunba's own evidence about her health. In an affidavit provided on the day before hearing of this application, she gave the impression that she was unable to walk for periods longer than about 20 minutes per day, and that she was otherwise spending all of her time lying down. That is difficult to reconcile with Tidewater's evidence in response, which I see no good reason to doubt, that the Otunba and Toks attended a meeting with the Nigerian Federal Inland Revenue Service in Lagos approximately two weeks before the hearing.
The Respondents' asset disclosure
Toks provided his asset disclosure by letter on 1 May 2015 and followed this with an affidavit provided on 18 May 2015. The principal assets disclosed consisted of a bank account with Bank Julius Baer in Geneva with a credit balance of US $439,000 (after transfer to Mishcon de Reya of US $235,000), and various Nigerian bank accounts with Naira credit balances. Various other assets were said to be worth less than the figure of £5,000 specified in the freezing order. Toks said that he owned no real estate, the house in Lagos which he occupied being owned by a trust (the Ayora Educational Trust) established by the Otunba for her children and their heirs which also paid his children's school fees, while the house in London at which he and the Otunba stayed was owned by another trust (the Phillimore Trust) also established by the Otunba of which he was a beneficiary. Similarly he said that he did not own the expensive cars which he drove, which were owned by an investment company of which he was a 20% shareholder.
The Otunba provided her asset disclosure by letter on 26 May 2015. She provided further information on 18 June and an affidavit dated 14 July 2015. The principal assets disclosed consisted of an account with Bank Julius Baer in Geneva with a net asset value of some US $3.9 million which was used for investments in bonds and similar investments as well as to hold cash; bank accounts with Nat West (a credit balance of about £14,300 at the date of the order, from which living expenses of £500 per week were taken) and Barclays (about £5,000); various Nigerian bank accounts; some shareholdings in Nigerian companies; a property in Virginia in the United States; and a vehicle worth about US $30,000. She disclosed also that she was a named beneficiary of the Phillimore Trust referred to above, although this was intended to provide for her children after her death. This trust was said to own two principal assets, the property in London used by the Respondents which was valued at £925,000 in 2012 and an investment portfolio with a value of about £640,000.
In her affidavit the Otunba referred to a loan of some US $3 million made to her by Bank Julius Baer. She said that the loan monies had been spent, partly on general living, travelling and medical expenses, but mainly "on the charitable and philanthropic ventures of the Ayora Foundation, in particular donations to several churches". The Ayora Foundation is a charitable foundation established by the Otunba in Nigeria. More recently, following questions by Tidewater's solicitors, the Otunba has acknowledged in her affidavit provided immediately before the hearing that this information was wrong. She says now that the loan monies were not used in this way at all, but were used to provide leverage to her capital contribution to the investment portfolio which forms part of the Bank Julius Baer account. The loan monies were used to acquire additional investments in the portfolio and have therefore been reinvested within the account.
The Otunba explained also in this latest affidavit that the commissions due to PhoenixTide from the business conducted with Tidewater between 2006 and 2012 (which Tidewater says amounted to some US $10.3 million) were paid into her personal Bank Julius Baer account. She said that about 30% of that sum, about US $3.09 million, had been distributed to her children, that the balance on the account in April 2013 had been about U$4.4 million, and that the rest, about US $2.81 million, would have been spent, including expenditure of about US $650,000 on her daughter's wedding. However, no bank statements were provided to verify these figures.
This application
These are the circumstances in which this application is made. On behalf of the Respondents Mr Sa'ad Hossain QC submitted in summary that it is a long-standing principle that a litigant should be entitled to use his or her own assets to defend a claim; that the Otunba's account with Bank Julius Baer is the only source of funds available to the Respondents to pay for legal representation to defend this claim; that if the Respondents are not allowed to use these funds, their solicitors will have to come off the record and they will be unrepresented, which would be a wholly unjust outcome as well as inconvenient for the court which would be left to deal with complex issues of jurisdiction and merits without the benefit of legal representation of behalf of the Respondents; and that the Respondents should therefore be allowed to use these funds in order to avoid the freezing order becoming a tool of oppression in the hands of Tidewater. Although the present application is for permission to use the sum of £205,000, it is apparent from the Respondents' evidence that this will be insufficient even to fund the Respondents' jurisdiction challenge, that if the present application is successful further requests for permission to use the Bank Julius Baer funds will follow in short order, and that at the present rate of expenditure, and if the jurisdiction challenge fails, the funds in the account are likely to be very substantially depleted by the time this litigation comes to trial.
Legal principles
Although there was only a limited area of dispute, it is convenient to summarise the legal principles applicable to an application of this nature.
The standard freezing order provides that a Respondent is entitled to spend a reasonable sum on legal advice and representation without obtaining the Applicant's permission, but the requirement to tell the Applicant's legal representatives where the money is to come from gives the Applicant an opportunity, if it objects, to bring the matter before the court. Once it does so, the principles summarised below apply. (This is not a case where a proprietary claim over the Respondents' assets is asserted). In the present case the effect of the Swiss attachment order is that the funds in the Otunba's Bank Julius Baer account cannot be used by the Respondents without a variation of that order, which will only be made if Tidewater either volunteers its agreement or is directed by this court to join in an application for such a variation to be made. It was not suggested, however, that this feature of the present case makes any difference to the principles to be applied to this application.
The starting point is that a freezing order has been made against the defendant. Otherwise the question of use of frozen funds to pay legal expenses could not arise. This means that the court has already concluded that, even before the claimant's claim has been established, justice requires that the defendant's freedom to dispose of its own assets as it sees fit should be restrained. However, a freezing order is not intended to provide a claimant with security for its claim but only to prevent the dissipation of assets outside of the ordinary course of business in a way which would render any future judgment unenforceable. While the disposal of assets outside of the ordinary course of business is prohibited as being contrary to the interests of justice, payments in the ordinary course of business are permitted even if the consequence will be that the defendant's assets are completely depleted before the claimant is able to obtain its judgment. This has been clear since the decision of Robert Goff J in The Angel Bell [1981] 1 QB 65 in the early days of what were then called Mareva injunctions. Moreover, so long as the payment is made in good faith, the court does not enquire as to whether it is made in order to discharge a legal obligation or whether it represents good or bad business on the defendant's part.
A further principle is that a defendant is entitled to defend itself and, if necessary, to spend the frozen funds, which are after all its own money, on legal advice and representation in order to do so. This is recognised by the standard wording of the usual freezing order, although the defendant's right to spend its own money on legal advice and representation is limited to expenditure of "a reasonable sum". (Despite the substantial figures for legal expenditure in this case, it was not submitted on this application that the sums which the Respondents propose to expend were unreasonable). It was held by Sir Thomas Bingham MR in Sundt Wrigley Co Ltd v Wrigley (unreported, 23 June 1995) to be "the ordinary rule" in a non-proprietary case. He put it this way:
"In the Mareva case, since the money is the defendant's subject to his demonstrating that he has no other assets with which to fund the litigation, the ordinary rule is that he should have resort to the frozen funds in order to finance his defence."
Two points should be noticed here. The first is that even where the defendant has no other assets, its right to use the frozen funds is only "the ordinary rule". It is therefore capable of being outweighed in an appropriate case by other considerations. Ultimately it is the interests of justice which must be decisive. The second point represents an important qualification on the defendant's right to choose how it spends its own money. That qualification is necessary in order to strike a fair balance between the parties. It is that in order to be permitted to use the frozen funds, the defendant must demonstrate "that he has no other assets with which to fund the litigation". This places an onus on the defendant to demonstrate that there are no other assets available, not frozen by the order, which he could use to pay for legal advice and representation in defence of the claim.
This second point has been adopted in many later cases, for example Halifax Plc v Chandler [2001] EWCA Civ 1750 where Clarke LJ said at [17]:
"… in the Mareva case, in order to be allowed to spend frozen monies, the defendant must show that he has no other assets which he can use."
He added at [27] that:
"… it is incumbent on a defendant, like any applicant, to put the facts fully and fairly before the court."
The burden on the defendant to put the facts before the court has been emphasised in further cases. It was described as "the burden of persuasion" by Sir Anthony Clarke MR in Serious Fraud Office v X [2005] EWCA Civ 1564 at [35] and [43], a case concerned with a restraint order made under section 77(1) of the Criminal Justice Act 1988 to which the same principles were held to apply. It is necessary that the defendant should have this burden in part because it is the defendant, not the claimant (at any rate in the usual case), who knows the facts, but also because the court has already concluded that there is a risk of disposal of assets outside the ordinary course of business or it would not have granted the injunction in the first place. Judges are entitled in an appropriate case to have a "very healthy scepticism" about unsupported assertions made by a defendant about the absence of assets, as Sir John Donaldson MR noted in Campbell Mussels v Thompson (1985) 135 NLJ 1012.
At [43] of his judgment in Serious Fraud Office v X, Sir Anthony Clarke MR identified the issue in these terms:
"43. … The question for the judge was whether X discharged the burden of proof or, as I would prefer to put it, the burden of persuasion. That depends upon an analysis of the facts. As I see it, on an application to vary a restraint order in a case of this kind, where the order relates to all the defendant's assets, the position in principle is that it is for the defendants to satisfy the court that it would be just to permit him to use funds which are identified as being caught by the order. If the court concludes that there is every prospect of the defendant being able to call on assets which are not specifically identified in the order, or assets which others will provide for him, I do not think that the court is bound to vary the order in the terms sought."
Thus it is relevant to consider not only the defendant's own assets, but whether there are others who may be willing to assist the defendant to obtain legal advice and representation. In this respect the position is similar to that which obtains when the court is considering an argument that security for costs should not be ordered on the ground that it would stifle the claim (cf. Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534, where Peter Gibson LJ referred to consideration of whether a claimant "can raise the money needed from its directors, shareholders or other backers or interested investors", pointing out that "as this is likely to be peculiarly within the knowledge of the plaintiff company, it is for the plaintiff to satisfy the court that it would be prevented by an order for security from continuing the litigation").
Clarke LJ went on in Serious Fraud Office v X, at [46] and [47], to approve statements of principle contained in the 5th Edition (2004) of Gee on Commercial Injunctions. These were as follows:
"20.054 … Therefore, the principle is that a defendant can use his own money which is frozen under a Mareva injunction to fund the defence provided that it is apparent that there are no other funds or source of payment which should as a matter of objective fairness be used to pay for the defence rather than the frozen funds. This may require the defendant to adduce 'credible evidence' about his other assets before the court can be satisfied that it is just that he should be able to use the particular frozen assets.
…
20.056 The same principle of objective fairness applies when an injunction is granted worldwide and the question arises whether the defendant should be at liberty to pay an expense using his English assets or assets safely frozen outside the jurisdiction by a local court, or whether he should be left to make the payment from assets which are not effectively frozen or may not be available for execution or satisfaction of the judgment."
It is inherent in this approach that, because the court is dealing with risks and prospects rather than certainties, and is doing so at an interlocutory stage, there is a real risk that the court, even doing the best it can on the material available, may reach what is in fact a wrong conclusion. It may conclude that a defendant has failed to adduce credible evidence that it has no other available assets and has therefore failed to discharge the burden of persuasion even if, in fact, the defendant has no other assets. It may conclude that there is a reasonable prospect that a defendant's friends or associates will rally to his support, but that prospect may not materialise. In such circumstances the court will refuse to allow the frozen funds to be used, even if that means that in fact the defendant is left unable to pay for legal representation to defend the claim. However, this is no different from any other situation in which there is a risk that the court may make a mistaken interlocutory assessment, for example when it concludes that an order for security for costs will not stifle a claim. It should not deter the court from making the best assessment it can on the material available and imposing on the defendant the burden of persuasion for the valid reasons identified above.
Immediately before the passage quoted above and approved in Serious Fraud Office v X, paragraph 20.054 of Gee puts the matter in this way:
"In exercising the discretion whether or not to grant an application to vary an injunction the court acts in accordance with what is 'just and convenient'. This is the test laid down in s.37(1) of the Supreme Court Act 1981. On an application for a variation, the claimant has already established a real risk of dissipation and a good arguable case. The principles which apply in considering whether to grant a variation are the same as those which apply when considering whether or not to grant Mareva relief. …
The correct test is to consider objectively the overall justice of allowing the payment to be made including the likely consequences of permitting it on the prospects of a future judgment being left unsatisfied, and bearing in mind that the assets belong to the defendant and that the injunction is not intended to provide the claimant with security for his claim or to create an untouchable pot which will be available to satisfy an eventual judgment."
I accept this as an accurate summary. Its value, in my judgment, is the emphasis which it rightly gives to the need for an assessment of "the overall justice" of the case. The principle that a defendant bears the burden of persuading the court that there are no other assets available to fund the litigation is one aspect of that assessment, but not the only aspect. In most cases the absence of other assets will be decisive. Justice will require that such assets as there are should be available to fund the defendant's defence. But in what is likely to be an exceptional case, this is capable of being outweighed by other considerations.
In the present case Tidewater relies upon what it says is the injustice of allowing Respondents who have flouted orders of the court when it suits them to do so and who remain in contempt of court to invoke the court's discretion, as a matter of justice and convenience, to permit a variation of the injunction. Mr Hossain for the Respondents submitted that this is an irrelevant consideration and that the present application should be confined to an examination of whether the Respondents have access to funds which are not effectively frozen by the order. I do not agree. In my judgment the overall justice of the case needs to be considered, and that is capable of extending to the wider considerations relied on by Tidewater.
Availability of other sources of funds
In accordance with these principles I turn to consider whether the Respondents have discharged the burden of showing that they have no funds available to pay for legal advice and representation other than the funds in the Otunba's Bank Julius Baer account. They do of course have funds held in Nigerian bank accounts as well as other assets in Nigeria, but they have provided evidence that Nigerian foreign exchange permission would not be available to pay for ongoing litigation expenses, although apparently it would be permitted for payment of a judgment debt. This seems surprising, but it is evidence which Tidewater has not challenged. I proceed, therefore, on the basis that their Nigerian assets are not available to the Respondents to pay for legal advice and representation in this action. However, as Mr Allen pointed out, there appears to be no reason on the Respondents' own evidence why their Nigerian funds should not be used to pay the costs of £60,000 which they have been ordered to pay, which are in effect a judgment debt.
I have summarised above the Respondents' evidence as to the assets which they hold. There is no positive evidence of any other source of funds available to them outside Nigeria. If the burden lay on Tidewater to prove positively the existence of some other source of funds, it would be unable to do so. However, as already explained, that is not an unusual situation and the burden of persuasion lies on the Respondents. In my judgment they have failed to discharge that burden. I reach this conclusion for the following reasons.
First, as shown above there is no doubt that the Respondents have been prepared to give false evidence in the past in order to frustrate Tidewater in its attempts to obtain the payments to which it has been held by this court to be entitled. The false claim as to the Otunba being seriously ill in Lagos and cared for round-the-clock by Toks is an example, as was the claim on another occasion that she was wheelchair bound. That does not necessarily mean that their evidence now is untrue, but it does entitle me to view with scepticism their unsupported assertions.
Second, their assertions as to their lack of available assets outside Nigeria are indeed unsupported. While I do not overlook the difficulty which a party may face in attempting to prove a negative, it is striking that the Respondents have produced very few documents to demonstrate their financial position. I accept that they were not required to do so by the terms of the freezing order. However, in seeking a variation of the order the burden of persuasion is upon them and if that burden is to be discharged, credible evidence is likely to be needed. An obvious example of such evidence in the present case would have been statements from the Bank Julius Baer account which would show the sources of payments into and destinations of payments from that account. These could easily have been provided if the Respondents had wished to do so, just as they did produce some documents from the bank summarising the Otunba's current holdings. I do not accept that problems with the Otunba's health would have made the provision of such documents impracticable. There must be accountants and other employees who would have been able to gather the necessary documents to provide to the Respondents' solicitors.
Third, although I reach no final conclusion, it seems to me that the claim (made on oath) that the loan monies of about US $3 million had been spent mainly on charitable and philanthropic ventures is much more likely to have been a deliberate falsehood by the Otunba than an innocent mistake as is now suggested. Her explanation is that as a 10% (and later 20%) shareholder in PhoenixTide, the Ayora Foundation was entitled to a share of the commissions received from business with Tidewater, and that she accounted for this share of commissions by making donations on behalf of the Foundation from funds held by her in Nigerian Naira in Nigeria. She has chosen not to produce the accounting documents which, if this explanation is correct, must exist to demonstrate the Foundation's entitlement and the funds which it has received in this way. In any event, even if the explanation is correct, it does not explain why the claim that the loan monies had been expended in charitable donations rather than invested in the account was made in the first place.
Fourth, the Otunba's explanation as to the way in which the US $10.3 million of commissions paid by Tidewater to PhoenixTide between 2006 and 2012 have been utilised is vague in the extreme, although the provision of bank statements would have made the position clear. It means that she has failed, other than by the most general of unsupported assertions, to account for the receipt and disposal of substantial sums. I am left with the strong impression, however, that the lifestyle which the Otunba and her family appear to enjoy and the extent of charitable and philanthropic donations which she claims to have made indicate a considerably greater degree of remaining personal wealth than she has been prepared to admit.
Fifth, very little information and almost no documents have been provided relating to the various trusts established by the Otunba and the assets which these hold. Again, very general assertions have been made with no supporting evidence.
Sixth, the evidence of Toks is also very vague and, in some respects, seems hard to reconcile with the practicality of modern life. For example, he says that he holds only one credit card but has never used it.
Seventh, although the Otunba and Toks as her eldest son must be well connected and highly respected members of their tribe, and perhaps also of wider society in Nigeria, they have made no attempt to show that family, friends or business associates would be unable and unwilling to assist them in obtaining legal representation for the defence of this claim.
In accordance with the principles set out above, my conclusion that the Respondents have failed to discharge the burden of persuasion which they bear is sufficient for this application to fail.
Overall justice of the case
However, I go on to consider the overall justice of the case on the assumption that, contrary to this conclusion, the Respondents have no available assets with which to pay for legal advice and representation other than the Otunba's Bank Julius Baer account. In that event, if they are not permitted to draw on this account to fund their legal costs, their solicitors will come off the record and they will be left unrepresented. Moreover, the Otunba is likely to be unable in view of her poor health to play any active part in representing herself. Toks, who was the managing director of PhoenixTide, is (I assume) an intelligent and articulate businessman who would be as well able as any litigant in person to represent his and his mother's interests, although he has no legal qualification which would undoubtedly be a disadvantage. He would also labour under the handicap that as a fugitive from English justice he might choose not to attend hearings in this court lest he be required to serve the outstanding sentence of four months imprisonment for contempt, but that (it seems to me) is a matter for him. Nevertheless the fact that the Respondents would be left unrepresented is an important factor in favour of allowing them to use the funds in the Bank Julius Baer account.
Ordinarily, as already noted, the fact that a defendant would be left without legal representation if not allowed to draw on frozen funds which are the only funds available with which to fund the defence of the claim would be decisive in favour of allowing such funds to be used. However, this is in several respects an exceptional case. It is exceptional not only because the Respondents are and remain in contempt of court, but also because it is only because of that contempt that this action is necessary. If the Respondents had done what they were ordered to do, Tidewater would have received the monies to which it is entitled, there would have been no need for any personal claims against the Respondents, and none of the legal costs of this action would have been incurred by either party. Even now, despite their resignations as directors of PhoenixTide, I am not at all persuaded that the Respondents would be unable to procure the release of the monies payable by Total to Tidewater if they chose to do so.
Accordingly these are Respondents who have deliberately flouted orders of this court and continue to do so and who have been prepared to mislead the court when it suits them, but who now come seeking an exercise of the court's discretion in their favour as a matter of the overall interests of justice. It is particularly ironic, to say the least, that the order which they seek is an order that Tidewater should do the very thing which the Respondents themselves have refused to do, namely to procure the release of funds. They have in my judgment been unable to explain satisfactorily why justice requires that Tidewater should procure the release to the Respondents of funds attached by the Swiss order, but not that the Respondents themselves should comply with this court's order to procure the release of funds to Tidewater. In these circumstances I accept the submission of Mr Allen that to order Tidewater to join in an application to the Swiss court to procure the release of funds to the Respondents would indeed be grotesquely unfair when this matter is considered overall. It would inevitably mean the very substantial depletion of what may well be the only funds available to Tidewater in the event that it is able to make good its claims in this action. Tidewater would rightly be left with a sense of grievance that there is one rule in this court for it and another for the Respondents.
Accordingly I would have dismissed this application even if the Respondents had adduced credible evidence that the Otunba's Bank Julius Baer account represents the only source of funds with which to defend this action. That, in my judgment, is what the overall interests of justice would have required. Even if this means that the Respondents will be unrepresented in this action, that is a consequence of their own deliberate conduct. |
HHJ WAKSMAN QC:
Introduction.
The 27 claimants in this action are all ex-employees of the first defendant, AIG Management France SA formerly known as Banque AIG, a French company, or in the case of three of them, employees of the second defendant, AIG Financial Products Corp, a Delaware corporation, but who were seconded to work for the first defendant's London branch along with all the other claimants.
The third defendant is not relevant for present purposes. The fourth defendant, AIG Trading Group Inc is another Delaware company. The fifth defendant, AIG Asset Management (Europe) Limited, is an English company. The sixth and seventh defendants, AIG Markets Inc and American International Group Inc, are also Delaware companies, and the seventh defendant is the ultimate holding company for the various AIG companies.
Because of the number of defendants and for the sake of brevity I am going to refer to them hereafter simply as D1, D2, et cetera, except where the context otherwise requires.
The essential claim
All the claimants seek compensation for non-payment of substantial sums which they say were owed to them by way of annual bonuses, but which in truth would comprise a large proportion of their employment income, pursuant to two particular schemes known as the deferred compensation plan (DCP) and the special incentive plan (SIP). It is unquestionably the case that on the face of the plan documents, the primary party liable thereunder is D2, as will appear in due course. Indeed, that is the claimants' primary case. The claimants also say that along with D2, D1, as their former employer, is also liable. However, that contention is not a matter in issue today.
As might be expected, the non-payment of the sums said to be owing to the claimants followed the financial crises of 2007 and 2008, in which the AIG group suffered enormous losses. From at least October 2008 onwards, D2 asserted that no further sums were then payable under the plans or would be likely to be paid in the future, because D2 was entitled to set off against the profit figures in certain periods (on the basis of which the bonus payments would be drawn) the large losses made in other periods. This resulted not merely in a zero balance but what has been referred to as a negative balance on the claimants' bonus payment accounts.
The claimants contend that this constituted a breach of contract and it is said that the total claims could exceed $100 million.
These proceedings
On 8 October 2014 the claimants issued a claim form against all seven defendants. On 6 February 2015 the claimants served the claim form on D5, the only English defendant. The other defendants were served out of the jurisdiction with permission of the court between 2 and 7 April 2015.
On 10 April 2015 the claimants served Particulars of Claim. Although expressed to be only as against D5, it is accepted that the allegations made therein will in due course appear in the same or substantially the same form as against the other defendants where relevant.
The following applications are now before me.
(1) an application by D4 and D6 seeking to set aside service upon them out of the jurisdiction, on the essential ground that there is no serious issue to be tried as between them and the claimants.
(2) an application by D5 for summary judgment under Part 24 so as to dismiss the claim against it on the ground that the claimants have no reasonable prospect of success, nor is there any other compelling reason for a trial.
(3) an application by the claimants to add a further four claimants with similar claims.
I should record the extensive evidence which was filed on the various applications. On the applications made by D4 to D6, there is the first witness statement (WS) of Suzanne Horne, a solicitor for all of the defendants, dated 10 March 2015. That was accompanied on the same date by the first WS of Angela Daniel, who is the head of the finance function of D5. The there is the third and fourth WSs of Kiersten Lucas, a solicitor for the claimants, dated 26 March and dated 10 April. Then the fourth WS of Ms Horne dated 15 May, and eighth WS of Ms Lucas dated 12 June, and a WS of Mark Balfan, the chief financial officer and managing director of D2, D4, and the CFO of D6, dated 15 May. There is a sixth WS of Ms Horne dated 26 June and the eighth WS of Ms Lucas dated the 15 June. In relation to joinder, there is Ms Lucas's sixth WS statement of 15 May, Ms Horne's fifth WS of 29 May, and the seventh WS of Ms Lucas dated 9 June.
The claims against D5 and D6
The DCP and SIP provisions
The point which lies at the heart of the separate applications made by D5 and D6 is the same and I deal with it first.
It arises out of provisions contained in both the DCP and the SIP in materially the same form. It is agreed that for present purposes reference should be made to the 2010 version of the DCP. This document is headed in capitals "AIG FINANCIAL PRODUCTS CORP [that is D2] DEFERRED COMPENSATION PLAN."
And underneath that, and I quote:
"AIG Financial Products Corp (including, where applicable, all subsidiaries thereof, and AIG Trading Group Inc [which is D4] (including where applicable all subsidiaries thereof, "AIGTG") (together, "AIGFP")) establishes in this document the AIGFP deferred compensation plan."
I then move to the material clause which is 4.01, which is headed "AIGFP's liabilities". Subparagraph (a) reads:
"The benefits payable hereunder shall constitute an unsecured debt of AIG Financial Products Corp to the participants and their beneficiaries and to AIG and shall not have the benefit of any guarantee by AIG."
Later on:
"The payments of benefits payable hereunder shall be made only from the general funds of AIG Financial Products Corp."
Sub-paragraph (b) begins:
"The outstanding balance credited to the deferred compensation accounts shall be subject to reduction from time to time to the extent of any losses incurred (i) by AIGFP excluding AIGTG or (ii) by AIGGT resulting from transactions entered into after January 1, 2003."
That sets out the basis under which losses can be taken into account and I quote further from the same subparagraph:
"AIG Financial Products Corp shall be obligated subsequently to restore accounts so deducted plus accrued interest thereon at the interest rate determined in accordance with section 3.03 and in connection thereof the board shall adopt a plan setting forth a schedule under which AIG Financial Products Corp shall restore amounts deducted from the participants in AIG's accounts balances. Any such restoration plan shall provide that any restored amount shall be paid in 2013."
Then the final part of that subparagraph reads:
"For the avoidance of doubt if AIG Financial Products Corp consolidates or amalgamates with or merges with or into or transfers all or substantially all of its assets to another entity, then the resulting surviving or transferee entity shall assume all of the obligations of AIG Financial Products Corp hereunder."
For present purposes I concentrate upon that final part of clause 4.01(b) to which I shall refer as "the transfer provision".
The nature of and reason for the alternative case
The claimants contend in the Particulars of Claim, and in the alternative to their primary case against D1 and D2, that there has been a transfer of all or substantially all of D2's assets to D5 and/or D6, such that the latter are now liable in respect of the monies due to the claimants under the plans and not D2.
It is important to understand how this alternative contention came about. In correspondence the solicitors for the claimants suggested that the transfer provision might have been engaged and they were concerned to know (a) if AIG, to use a collective term, contended that there had been such a transfer, and (b) if so, to whom or (c) whether, as the claimants principally contended, they accepted that D2 was liable. Any doubts on this score were laid to rest in the evidence before me and indeed by reason of the very applications made by D5 and D6. Leaving to one side D2's contention that it has a substantive defence to the claim, in other words the actions it took were justified, it accepts that if the claim is well-founded that it indeed is the party liable. See by way of example paragraph 16 of the sixth WS of Ms Horne made on 26 June 2015.
One might have thought that this was the end of the matter. The claimants now had the comfort they sought and it was now common ground that the correct defendant was D2, leaving to one side the claim that D1 was also liable and a separate argument that D4 was jointly and severally liable, which I deal with below (neither of which points concern the issue here).
However, as can be seen from the Particulars of Claim, the claimants wish to maintain their so-called alternative case against D5 and/or D6, even though their primary case has been admitted by AIG.
In oral argument the reason for this, in my judgment, became clear. There is a concern on the claimants' part that D2 may not be able to discharge its unsecured liability to the them in the event that they succeed on the merits. D5, and/or D6 may, however, be able to do so. Even if the claimants cannot show now that the transfer provision was engaged so that D5 and/or D6 become liable, they might be able to do so later, after disclosure and/or cross-examination, and they might then change horses as it were and make the liability of D5 and/or D6 their primary case.
Although Mr Leiper in oral argument sought to suggest there was more to it than that, because the claimants wished to test out whether D2's acceptance of liability under the plans was "real" as opposed to tactical, that in my view boils down to the same thing. It is moreover a curious argument when it remains C's primary case that D2 is the correct party – so this suggestion does not really add anything.
The Claimant's position is a very odd one to take. It would mean that D5 and D6 are in this action on a speculative basis. It is at present a position which is wholly inconsistent with the claimants' own primary case, which is that D2 is liable, which means there has been no transfer. It also fails to answer the question that if there has been a transfer, is it to D5 or to D6?
An alternative case usually arises where the claimants' primary case is denied by the relevant defendant and there is in that event an alternative case, but here, the primary is admitted. On that footing, not only is there no serious issue to be tried as between the claimants and D6, there is no issue at all.
For the same reason it cannot be said that as against D5 the claimants have a real prospect of success. Nor do I consider, in relation to the claim against D5, that C's desire to keep it in the action in case (a) it can later show that the transfer provision was engaged in relation to it and (b) it wished to make that its primary case because it preferred to have a judgment against D6, that this can constitute some other compelling reason for a trial.
The above findings are enough to dispose of this point, to set aside service as against D6 and dismiss the claim as against D5. However, there was extensive argument before me that on the present materials there was in fact no real prospect of the claimants showing that there had been a relevant transfer to D5 or D6 anyway. Accordingly I now deal with that matter as well.
Real Prospect of success of the claims against D5 and D6
While there is at the beginning of the DCP plan a definition called AIGFP, which includes if applicable any subsidiaries, and D4 and its subsidiaries, it is plain from clause 4.01 that the liability is that of D2 alone, referred to by its full name (a matter which will be explored further when I deal with the position in relation to D4), and consistent with that, the transfer provision concerns D2 and D2 alone. Again it is here referred to not as AIGFP but by its full name. Accordingly the question is whether it, ie D2, has transferred all or substantially all of its assets to some other entity.
I consider first the position of D2 itself. It is common ground that it has since 2008 been in the process of winding down its operations. Those operations consisted of D2 acting as principal in standard and customised financial transactions involving interest rate, currency, equity, commodity, energy and credit products, with top tier corporations, financial institutions, government agencies, institutional investors and high net worth individuals throughout the world. It also raises funds through municipal investment contracts, investing the proceeds in a diversified portfolio of securities and derivative transactions. That appears in paragraph 12 of Ms Horne's first WS and has not been challenged. The key point here is the essential activity of D2 as being a proprietary one, as Mr Hunter put it, or acting as a principal.
In paragraph 13 Ms Horne goes on to say that parts of its portfolio suffered significant losses; it received some government support. In paragraph 14 she says that since October 2008 it has been unwinding its business and portfolios, but the wind-down will take a substantial period of time due to the long-term duration of the derivative contracts and the complexities of the portfolios.
As to what D2's assets were and are, there is evidence from Mr Balfan. Prior to making his own WS his evidence was conveyed through Ms Horne's first WS to show the asset position of D2 as follows and as set out in a table in paragraph 16. This shows the assets and the liabilities' position by reference to unaudited balance sheet figures. As at the end of 2011, US$29 billion of assets and US$64 billion liabilities. As at the end of 2012, US$22 billion of assets and US$57 billion of liabilities. At the end of 2013, US$19 billion assets, and US$53 liabilities, and at the end of September 2014, US$15 billion assets and US$49 billion liabilities. The net position broadly speaking has been the same, namely a negative position of US$35 or US$34 billion.
It is plain from those figures that the total number of positions held has fallen, albeit that the net negative equity remains about the same. This is because D2 has disposed of a number of them, which otherwise might take years before they expire or close out. As Ms Horne explains in paragraph 17, this is all part of the wind-down of its business, which nonetheless has to be managed actively in the meantime. But the fact that it is in run-off, as it were, does not entail that it must have transferred all or substantially all of its assets to D5 or D6, or indeed to any single entity.
Points have been taken as to whether there has been adequate disclosure of D2's asset position. Mr Balfan's evidence is that the defendant no longer produces standalone accounts and its accounts are now a part of the consolidated group accounts. They form part of the reporting within the voluminous Form 10-K documents produced by D7. The claimants have had the option of reviewing those documents which are publicly available on AIG's website. I see no reason to doubt the accuracy or broad accuracy of the figures shown in the table at paragraph 16.
Against that background it is necessary to consider the position of D5. As its name suggests, it is not in the business of holding or dealing in derivatives, etc , as principal. Rather it manages such assets for others. Its position and operations are set out in detail in the WS of Ms Daniel. Given its essential management role set out in particular at paragraph 6 of that WS, it would be surprising if it acquired all or substantially all of D2's assets.
As its own account shows, and there has been extensive financial disclosure here, its net assets increased from £2 million in 2008 to £7.5 million in 2010, £13 million in 2011 and up to £27 million in 2013. But according to Ms Daniel none of this increase was due to any transfer of assets to it from D2 as a principal. Given the size of D2's assets, any transfer of all or substantially all of those assets would have led to assets in D5 in the billions, and not in the millions. The same for corresponding liabilities.
Rather the amount of assets under its management increased, but that is a different matter. It is explained in the directors' report for the year ended 31 December 2012, to be found at 2/2/20/511. It is however common ground that in 2011 and 2012, D1 transferred the business carried on at its London branch to D5 pursuant to various agreements. The total value of the assets transferred was some £34,000, and US$9,000. Moreover, the business at the London branch constituted only a small part of D1's overall assets according to Ms Daniel.
Most of the employees of D1 and D2 were, following the crash, made redundant. Out of 111 employees at D1's London branch, 24 were transferred to D5 and they occupy senior positions. However, (a) I do not consider that these employees can be regarded as "assets", and (b) even if they were, I fail to see how they can by themselves or together with the transfer of the London branch business which was the subject of the agreements show or begin to show that D2 transferred all or substantially all of its business to D5. Indeed I do not consider that D1's own assets should be regarded as D2's assets for the purpose of clause 4.01(b) anyway. It is a separate legal entity. What D2 owned in relation to it were the shares in it. But they were not transferred to D5. However, even if one includes D1's assets as D2's, the transfer of employees and the London branch business (to the extent that it was transferred) cannot possibly amount to a sufficient transfer of D2's assets to D5, because of the clear disparity in the figures.
I therefore turn to D6. This is dealt with initially by Mr Balfan. At paragraphs 11 and 17 he said this:
"D6 serves as a derivatives intermediary between the AIG group and third parties to provide hedging services. The derivatives portfolio of D6 consists primarily of interest rate and currency derivatives [which of course will indicate the hedging function] and also included certain legacy credit derivatives that had been novated from D2."
In paragraph 16 he said that D2 had been winding down its business; it had not transferred all or substantially all of its assets to D6 as part of that process.
In paragraph 17 he said that D6 had some dealings with D2 in relation to certain of D2's derivative transactions as part of the wind-down. The derivatives portfolio of D6 consisted primarily of interest rate and currency derivatives, but there were legacy credit derivatives novated from D2. Specifically certain credit derivatives between third parties and D2 were novated in order to secure more favourable terms, but in each case D6 then entered into back-to-back transactions with D2 where the financial risk involved remained with D2. Under existing servicing arrangements between D6 and D2, D6 provided services with regard to D2's existing derivatives transactions. The example he gave earlier on was the hedging function which pre-existed the crash.
This was expanded upon by Ms Horne in her sixth WS. At paragraph 11.2 she said that in relation to the novation agreements D6 assumed derivatives which were either in an asset or a liability position and depending on which, D6 either paid to or received from D2 the full fair market value of the asset or liability. There was no net impact on the financial position of either D2 or D6. Then she refers to the back-to-back arrangement.
But at paragraph 11.4 she said the pricing basis of the back-to-back transactions reflected fair market value of the ultimate derivatives.
The fact that some derivatives which had belonged to D2 were transferred to D6 in this way does not mean that D2 transferred all or substantially all of its assets to D6, and Mr Balfan expressly confirms that it did not.
One then looks at D6's own financial position. Like D2, D6 does not now produce standalone accounts but it retains computerised information from which headline figures can be produced. One such set of figures was produced and it is to be found at 3/33/1044. Looking at this document, there is one line which says on the asset section "Unrealised gain on swaps options and forwards third party". There is a corresponding liability line. As against that line there is US$208 million as at the end of 2012, US$53 at the end of 2013, and US$97 at the end of 2014.
The corresponding liability figures are US$400, US$228 and US$248. I am told that the hedging contracts for D2 and the additional derivatives taken from D2 into D5 all form part of the figures against that line where the present position on the asset side is $97 million. But not all of those figures are attributable to D2 contracts alone.
However, the size of such assets and liabilities is very small compared to D2's assets and liabilities. Indeed D6's total assets, ignoring liabilities, come to something just over $1 billion. As Mr Balfan explains in paragraphs 12 to 13 of his WSs, such assets held by D6 are not substantial relative to the balance sheet of D2, which is obvious. He also states through Ms Horne's sixth WS that the values attributed to the derivatives are fair market value.
D6 had no obligation to produce standalone accounts or audited accounts, and while the computerised information reflected in this document does not follow GAAP rules, there is no reason to disbelieve it or Mr Balfan's evidence here. Mr Balfan has added that the figures for D6 are calculated on the same basis as for D2.
In addition, it is correct to say, as shown for example at page 152 of D6's Form 10-K for 2011, reference 22/22741, that D2 stopped doing one ancillary part of its business which was to act as an intermediary between AIG subsidiaries and third parties, which is distinct from its activities as a proprietary dealer, and that intermediate role has now been assumed by D6. This was due to the wind-down of D2's activities. But this does not entail a transfer of assets as such and in any event one is still left with the comparison between the assets and liabilities position of D6 as against that of D2.
Reliance is also placed upon a statement which appears at paragraph 39 of Ms Lucas' third WS, that the claimants believe that the business in which they were employed is now carried on by D5 and/or D6, but that very generalised statement takes the matter a little further. The question is the particular one of the transfer of all or substantially all of D2's assets and the evidence relating to that.
It is also said in the last part of paragraph 39, that the claimants believe that D2 has only retained those complex assets which it cannot move, and that this is uncontradicted; effectively, therefore, all such assets should be ignored when deciding if there has been the relevant transfer. But there is no basis for that construction at all even if the assets remaining - and they are extensive, running into billions - cannot be transferred, as to which there is no real evidence anyway.
At the end of the day in my judgment the comparative numbers speak for themselves.
Mr Leiper also takes the point that one might expect to see other assets in the document at page 1044, for example office, office equipment, etc, whereas there appear to be none against the line "other assets". I see that, but (a) one would imagine any such assets to be relatively small compared to the other figures here, and (b) there is no evidence that D2 ever transferred such assets to D6.
In conclusion, therefore, on the materials before me, it is plain that there was no transfer by D2 of all or substantially all of its assets to D5 or D6 or, if this were possible within the transfer provisions, to both combined.
I accept that in some cases under Part 24 a claimant might establish a real prospect of success by showing that reasonable grounds existed for the belief that a further investigation into the facts would add to or alter the evidence available to the trial judge and so affect the outcome, see Doncaster Pharmaceuticals v Bolton Pharmaceuticals [2007] FSR 63 at paragraph 15. This is not in my judgment such a case.
Accordingly, if it were necessary to consider the claimants' so-called alternative plea against D5 and D6 at all, it would have to be dismissed in any event.
I should add one footnote. In his submissions Mr Hunter argued that in relation to the claim against D6 the claimants in fact needed to show a good arguable case on the merits, since the same contractual points were relied upon in order to pass through the appropriate gateways for service out. Mr Leiper retorted that at least one of the gateways, necessary or proper party, did not depend on the point at issue. I do not consider it necessary to pronounce upon this debate because, as appears from what I have already found, Mr Hunter in any event was prepared to proceed on the basis of serious issue to be tried, which approximates to real prospect of success, and not set any higher standard in relation to the cases against both D5 and D6 albeit the burden is allocated differently in each case.
The position of D4.
As clarified in argument, the claimants' short point now is this (having abandoned various other contentions as to how D4 may be liable to pay under the plans): the definition at the beginning of the document constituting the DCP reads, and I repeat it:
"AIG Financial Products Corp including, where applicable, all subsidiaries thereof, and AIG Trading Group (including where applicable all subsidiaries thereof) ..."
Mr Leiper contends that the proviso "where applicable" governs D2's subsidiaries, but not D4 and its subsidiaries. Ergo any reference in the document and in particular 4.01 which refers to AIG Financial Products Corp or AIGFP necessarily and at all times includes D4. So when clause 4.01 at the beginning states "AIGFP's liabilities", that is a liability of D4 as well. It is said that this contention is fortified by reference to D4's losses as distinct from D2's losses in 4.01(b). Thus D4 is jointly and severally liable with D2.
In my judgment this is a hopeless contention. As a matter of construction I see no basis, linguistic or otherwise, for construing the opening words as Mr Leiper suggests. The presence of a comma after the words "all subsidiaries thereof" does not mean that the proviso does not govern what comes later. That is reading far too much into a comma. Moreover, no reason has been advanced as to why objectively the parties would have intended this result. Accordingly Mr Leiper's claimed interpretation is unarguable.
That being so, it is necessary to look at the context to see whether, despite this, D4 should be read as included within D2 ie whether such inclusion is "applicable". In the context of the payment obligations, which I have read, the words make plain that this is a liability of D2 specifically and no one else. See the references to its liability as unsecured, and its general funds. The fact that later on D4's losses can be taken into account does not alter who is liable in my view.
Appendix B, which sets out the form of the deferred compensation statement, which is mandated by clause 4.07, also makes this plain. The statement says:
"The balance in your account is an unsecured subordinated liability of AIG Financial Products Corp to you and your beneficiaries ..."
All these references using the full name of D2.
I regret to say, therefore, that this latest attempt to bring D4 into the firing line, as it were, must fail and D4's application for summary judgment succeeds so that that claim against D4 must be dismissed.
Joinder
Finally I turn to joinder. The claimants apply to join an additional four claimants, ("the new claimants"), all of whom worked for D1, although one of them, Mr Robinson, transferred to D5. The application for joinder was made on 15 May 2015. The claims of the new claimants are the same as those of the existing claimants.
AIG contends as follows:
(1) insofar as the new claimants' claims are directed to D4, D5, and D6, permission to join them should be refused since there is no real prospect of a successful claim against those defendants for the reasons articulated in those defendants' own applications. That contention is well founded in the light of my findings above and I say no more about it;
(2) secondly however, and in relation to all claims, AIG contends that by the time of the making of the application, the relevant limitation period had expired. I now turn to that matter.
The governing law of the plans is Connecticut law. It is not suggested that in general terms it differs materially from English law on limitation and it is common ground that the relevant period for claims of this kind is six years. It follows that if the relevant causes of action arose at any point prior to 15 May 2009, they were time-barred as at the date of the application, which AIG is content to accept is the relevant cut-off point for present purposes.
The court's general power to add a party is contained in CPR19.4. But because the issue of limitation has arisen one needs to turn to CPR19.5. This states that it applies to a change of parties after the end of a period of limitation. Subparagraph 2 says:
"The court may add or substitute a party only if the relevant limitation period was current when the proceedings were started and the addition or substitution is necessary."
Subparagraph 3 says:
"The addition or substitution of a party is necessary only if the party is satisfied that (a) the new party is to be substituted for a party [that is not this case] or (b) the claim cannot properly be carried on by or against the original party unless the new party is added or the original party has died."
If the limitation period had expired the claimants do not suggest that the addition of the new claimants was necessary in the very narrow sense contemplated by CPR19.5, nor could they. In oral argument Mr Leiper for the claimants sought to argue that the joinder of the new claimants could be justified by bringing them within the different rubric of CPR 17.4(2) which applies where a party applies to amend his statement of case in one of the ways mentioned.
Subparagraph 2 says this:
"The court may allow an amendment whose effect will to be add or substitute a new claim but only if the new claim arises out of the same or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings."
Mr Leiper says that he can bring the new parties within that, on the basis that their claims arose out of the same or substantially the same facts by reference to the nature of the contracts, though not the identity of the employees, and the issues already pleaded. However, in my judgment that argument is misconceived. As its language clearly shows, CPR17.4 is concerned with a new claim which an existing party wishes to add to that party's existing case. It does not deal with new parties at all. Their position in limitation cases is governed exclusively by CPR19.5.
However, and in addition, the claimants argue that in fact limitation had not expired in relation to the new claimants by the 15 May 2015. So CPR19.5 is not engaged anyway. In relation to new claims by an existing party, in the well-known case of Welsh Development Agency v Redpath Dorman Long [1994] 1 WLR, 1409, the Court of Appeal held that:
"The burden is on the claimant to show that the defendant does not have a reasonably arguable case on limitation. If the defendant has a reasonably arguable case that the claim is statute barred, the appropriate course is to require that claim to be raised in fresh proceedings in which the limitation point can be tried."
The reason for that is obvious. It avoids there being any prejudice where the amendment is allowed and which carries then with it the principle of relation back to the commencement of the proceedings - yet the defendant establishes at trial that his limitation point in fact was well founded.
Mr Hunter QC for AIG submits that by analogy the same approach should be taken where the limitation issue arises in the context of the addition of new parties. I agree, and I did not understand Mr Leiper to contend otherwise. Accordingly the position is this. If there is no reasonably arguable case that the new claimants' claims are time-barred, then CPR19.5 does not govern, joinder is simply a matter for the discretion of the court, and there were no discretionary matters which were urged upon me to reject the joinder of these new claimants. If, however, there is a reasonable argument that the new claimants are time-barred then they cannot be joined and they must be left to issue fresh proceedings.
A useful starting point here is the Particulars of Claim. I begin at paragraph 28. 28.1 provides that in or around October the seventh defendant informed the claimants that D2 had in the last 13 months incurred large losses which exceeded the amount previously credited to the account balances. Then it says in 28.2:
"The purported losses were not trading losses in that financial year, they were historic losses, so they could not be permissibly applied to the relevant individual's account balances."
The date of October 2008 is reflected in a letter sent to employees on 9 October from AIG and in particular it stated:
"Accordingly I expect the accounts of AIG and AIGFP participants in the plans to have substantial negative balances at the end of the current compensation year. Further, any future deferrals under the terms will be affected by the substantial negative balances."
The date of 9 October is no doubt why the claim form was issued but not immediately served on a protective basis on 8 October 2014. That fact of course is not determinative as to when time actually started to run.
It is right to say that there is a brief statement of Connecticut law in paragraph 22 of Ms Horne's fifth WS. She says that she discussed the matter with a partner Patrick Shea, admitted to the Bar in Connecticut. He informed her that Connecticut had a six year statute of limitations. The negative balance claim asserted accrued as of 9 October when all parties were notified that losses would be applied to accounts and would result in negative balances. At that point the claimants had a right to bring suit for a claimed breach and the statute of limitations began to run. So limitation expired on October 9, 2014. There has been no response to this, though admittedly it is a short statement. But in any event, assuming Connecticut law is the same as English law in its essence, it is difficult to see why there should not have been an accrued cause of action at this stage for the reasons there given.
I then read paragraph 28.4 and 28.5. The former says that:
"On 4 November a representative of AIG sent the claimant a document saying there was no limit on the extent of such reductions. The cases are so large negative balance results. Future deferrals must first offset the negative balances before DCP and SIP accounts will carry any positive balance."
Then 28.5 says that in purported reliance on that treatment AIG failed to credit any returns or to make any payment or distribution in respect of the plans since a date unknown, pending disclosure, but believed to be around January 2009.
In that regard there is a document from AIG headed "Losses for the quarterly period ending 31 March 2009". This refers to clause 4.01 and says that:
"It summarises the balance in your account as at January 1, 2009, after the allocation of losses for the 2008 compensation year. Your account balance was reduced to reflect losses incurred for the year ended 30 November 2008. The negative balances do not create any obligation on your part to pay any amount but D2 does not expect to make any further interest or instalment payments as long as the accounts carry negative balances."
And the negative balance is in the region of $10 million.
It seems that employees such as Mr Borek received that document or something similar by a letter dated 15 May 2009 saying:
"Enclosed herewith are statements of your account balances in the 2007 special incentive plan and the DCP as of January 1, 2009."
However, the decision to create the negative balances was clearly taken earlier, given the correspondence referred to above. On the claimants' own pleaded case, thus far, the contention is clearly that by January 2009 the relevant defendants were in breach of contract.
It is not necessary to read any more of paragraph 28, but I then turn to paragraph 29, "Particulars of breach of contract". Subparagraph 1 says that:
"The defendant wrongfully applied or failed to remedy the application of an accounting treatment which reduced the entitlements of the claimants from the calendar year 2008 onwards and in any event wrongly reduced or failed to remedy the reduction of the account balances not merely to zero but to negative balances."
Subparagraph 3 and 4 allege, and it must be in the alternative, a wrongful failure to establish a restoration plan in accordance with the terms of the plans so as to remedy the negative balances created, ie if the creation itself was not a breach.
Subparagraphs 5 and 6 plead a failure to make payments in accordance with the true entitlements and a renunciation of any obligation to do so and subparagraph 7 alleges a wrongful failure to provide information.
In my judgment the core allegation of breach is and must be the implementation of the scheme to set off at the outset, and it will have an impact for the future, on what would otherwise be the employees' positive balance, ie monies owed or to be owed by the trading losses. Such set-off which would turn them into negative balances.
Although AIG has not provided any further information in this regard, there is on any view a reasonable prospect of successfully arguing that all of this occurred before, indeed considerably before 15 May 2009. On that footing the correct course would be for the new claimants to commence fresh proceedings and not to be joined in this action.
However, in his skeleton argument and in the course of oral argument Mr Leiper suggested that there may be continuing breaches, for example the non-payment of monies owed in the years 2009 and beyond, and/or that a failure to restore could be regarded as an ongoing breach, as could a failure to provide information.
Allied to that point was the suggestion made by Mr Leiper at the hearing that if necessary the new claimants would be content to be joined on the basis that the claims they made would not be "related back" to the commencement of proceedings but only to 15 May 2015 when the application was made.
I can see that one might have been able to make an application back then, which said that permission was sought to join the new claimants to pursue such claims as arose on or after 15 May, but this would have to have been properly articulated and the particular claims identified with precision given the periods involved. Instead the suggestion is only made now, and somewhat on the hoof.
Moreover, the continuing breach arguments may not be as straightforward as Mr Leiper suggests, because if the negative balance was applied and created as it appears to have been at the outset, then it may well be said that this is when the damage was done; this is when the real breach occurred, even if its effects run-on for several years.
I note, as Mr Leiper did, the statement in paragraph 21 of Ms Horne's fifth WS. That said:
"If the potential claims were joined, it should be on the basis there is no relation back, as to do otherwise would be to risk unfair prejudice to the defendants' accrued limitation defences."
But I do not read that as meaning anything other than a willingness to see the new claimants joined once the matter has been considered but with no relation back at all. That is really no different from adopting the WDA approach, which is to refuse joinder and its usual consequences and instead require the new claimants to issue fresh proceedings now, a course which is open to them.
If Mr Leiper is right and there are continuing and actionable breaches going forward from beyond the first part of 2009, then they can all still be captured by such new proceedings. If he is right that even the main claim did not arise until now or shortly after now, that can be captured too.
In those circumstances in my judgment the application for joinder must fail and the new claimants must be left to fresh proceedings. |
Mr Justice Phillips:
On 4 October 2014 process servers acting on behalf of the claimant ("Mr Tseitline") purported to effect personal service of these proceedings on the first defendant ("Mr Mikhelson"). They first attempted to do so as Mr Mikhelson arrived at the Whitechapel Gallery ("the Gallery") in London, accompanied by his daughter, Victoria Mikhelson. Further attempts took place after the process servers had followed Mr Mikhelson into the Gallery.
By Application Notice dated 17 November 2014 Mr Mikhelson challenges the jurisdiction of the court. The first ground of challenge is that he has not been served with the proceedings. The second and alternative ground is that, if he has been served, England is not the appropriate forum for the determination of the claim, Mr Mikhelson contending that Russia is clearly and distinctly more appropriate. By cross-application dated 1 December 2014 Mr Tseitline seeks an order that, if the attempts at personal service of proceedings on Mr Mikhelson were ineffective, any errors be waived or rectified or the attempts be constituted good service or service otherwise be dispensed with.
On 18 December 2014 Burton J directed that the issues relating to service of the proceedings be determined prior to the forum issue. This is my judgment on the question of whether Mr Mikelson was validly served or should otherwise be deemed to have been served.
The claim
Mr Tseitline is a businessman resident in Israel. Mr Mikhelson understands him to be a national of both Russia and Israel.
Mr Mikhelson is a businessman resident in Russia and it appears to be common ground that he is a Russian national. He asserts that, apart from a few words, he does not speak or understand English. Mr Tseitline did not seriously challenge that assertion.
Mr Tseitline's claim in the proceedings is in respect of alleged breaches of an agreement he made with Mr Mikhelson in 2007 relating to the commercial development of real estate in St Petersburg owned by a company in which Mr Tseitline held a controlling stake. The claim form was issued on 13 June 2014 and amended on 8 September 2014. It is not necessary, for the present purpose of determining issues as to service, to consider the claim in any greater detail.
The evidence
Mr Mikhelson's uncontested evidence is that he rarely travels to the UK, but was in London from 3 to 5 October 2014, having arrived on a private chartered flight from Moscow at about 4pm on Friday 3 October. The main purpose of his visit was to attend a private reception at the Gallery the following evening to mark the opening of an exhibition organised by the V-A-C foundation, of which Mr Mikhelson is the founder and president. The foundation is named after his daughter Victoria, who had arrived in London earlier on 3 October from New York, where she lives and studies Art History. Victoria Mikhelson is a fluent English speaker, having lived in London as well as New York. Mr Mikhelson spent Friday evening with his daughter, Teresa Mavica (the director of the V-A-C foundation), various acquaintances and his interpreter, Ekaterina Burgess.
On Saturday 4 October Mr Mikhelson and his daughter were chauffeur-driven to the Gallery, arriving outside at about 6.20pm. Awaiting their arrival were the two process servers, Paul Austin and Darren Harber, each in possession of an envelope, marked only with the printed name of Mr Tseitline's solicitors. The envelope contained a sealed copy of the amended claim form (with certified Russian translation) and the response pack, together with a covering letter in English and Russian. Mr Harber also held in his hand a covert camera, the size of a key fob, with which he recorded what he could of the process which then ensued of attempting to effect personal service on Mr Mikhelson. At the invitation of the parties I have viewed Mr Harber's video recording and considered the parties' respective attempts to transcribe what can be heard on that recording. Mr Austin, Mr Harber and Ms Burgess have each made one witness statement and Mr Mikhelson, Victoria Mikhelson and Teresa Mavica have each made two witness statements giving their version of events.
The events which occurred outside the Gallery are relatively clear from the video recording. They can be summarised as follows:
i) After Mr Mikhelson had alighted from the rear driver's side door and was standing in the road by the boot of car, he was approached by Mr Austin, who held out his envelope, saying "I'm here to serve you papers as part of a High Court, a High Court claim. We're here to serve you [the] claim papers". Mr Harber filmed the exchange from the other side of the car.
ii) As Mr Austin spoke, Mr Mikhelson took hold of one side of the envelope in his right hand, whilst Mr Austin retained his hold of the other side of the envelope.
iii) At the same time Victoria Mikhelson walked round the back of the car to join Mr Mikhelson and Mr Austin. Mr Mikhelson looked at his daughter and said "A chto eto takoe?" (translation: What is this?). No response from Victoria Mikhelson is audible, but Mr Mikhelson loosened his grip on the envelope so that he held it between his index and middle fingers of his right hand, and then he released the envelope altogether, leaving Mr Austin holding it alone. At no point during this exchange did Mr Austin let go of the envelope.
iv) Mr Mikhelson and his daughter then walked towards an entrance to the Gallery, where they were directed to another entrance. As they walked, Mr Austin remained beside Mr Mikhelson, stating several times that he was there to serve papers "as part of a High Court" and that Mr Mikhelson needed to take them. On three occasions Mr Mikhelson said to Mr Austin, in English, "Speak only Russian".
v) As Mr Mikhelson and his daughter walked past the entrance to Whitecapel underground station, en route to the second entrance to the Gallery, Mr Austin said to Victoria Mikhelson "Can [or Could] you give these to your father, he needs to take these. These are part of a High Court, the High Court. You need to give these to your father". Mr Mikhelson said to his daughter "Ne slushay ego" (translation: "Don't listen to him"). As they entered the Gallery, Mr Austin said "You need to take these. You've now been served" [possibly adding with High Court papers].
Mr Austin and Mr Harber accompanied Mr Mikhelson and his daughter as they entered the Gallery, walking through a short passageway to the foyer. At this point the video recording became less steady as Mr Harber took out his envelope containing the documents for service. Further, given Mr Harber's proximity to a number of other people and his own close involvement as described below, he was unable to capture all of the relevant events in the recording. However, the following is apparent:
i) Mr Mikhelson and his daughter joined Teresa Mavica and Ekaterina Burgess, who had been waiting for them in the Gallery. They spoke in Russian, although their words were not caught on the recording. Mr Austin stood next to them. Ms Mavica accepts that she heard Mr Austin say that he was there to serve papers: Mr Austin states that he referred to serving High Court papers.
ii) Mr Mikhelson then walked away from the group and encountered Mr Harber at very close quarters, telling him (in Russian) to "go away". Although not captured by the recording, it is common ground that at this point Mr Harber attempted to serve the envelope on Mr Mikhelson. Mr Harber states that he placed it "in between the crook of [Mr Mikhelson's] arm and his body where it lodged after I let it go". Mr Austin states that Mr Harber "thrust the envelope … into Mr Mikhelson's chest/arms ... As Mr Mikhelson walked away from us he threw the envelope … to the floor." Mr Mikhelson, in his second witness statement, says that Mr Harber "tried to shove the envelope behind my lapel, but it fell to the floor". Ms Mavica states, in her first statement, that Mr Harber "tried to place an envelope ... against Mr Mikhelson's chest … Mr Mikhelson … opened his arms so that the envelope fell on the floor".
iii) Although not apparent from the video, it is clear that Mr Mikhelson then walked through a door from the foyer into the ground floor of the Gallery. Mr Austin states that he threw his envelope after Mr Mikhelson, but that it hit the door as it closed and so Mr Austin picked it up.
iv) Meanwhile Mr Harber picked up the envelope he had attempted to serve on Mr Mikhelson and lodged it between Victoria Mikhelson's back and her shoulder bag, in which position it can be seen on the video. That envelope fell to the floor, where it was picked up by a woman in a white jacket, but something was said or indicated to her, causing her to place it back on the floor. Mr Austin then picked up that envelope as well. He and Mr Harber then left the Gallery.
Mr Mikhelson's evidence is that, as he does not speak English and as nobody translated what was being said to him, at no point did he know or even suspect that 'the ambush' by Mr Austin and Mr Harber had anything to do with English legal proceedings, let alone that it was an attempt to serve him with legal documents. Mr Austin, on the other hand, states that there were exchanges between Mr Mikhelson and his daughter in Russian which were not picked up on the video recording and that it was plain to him, from Mr Mikhelson's reactions, that Mr Mikhelson understood what was taking place.
On 6 October 2014 the Claimant's solicitors wrote to Mr Mikhelson at a number of residential and business addresses in Russia (among others) stating that he had been personally served on 4 October and enclosing copies of the documents which had been in the envelopes that day. On 20 October 2014 Mr Mikhelson filed an Acknowledgment of Service indicating an intention to contest the jurisdiction of the court.
The law relating to personal service
CPR 6.5 provides:
"(3) A claim form is served personally on –
(a) an individual by leaving it with that individual;"
The Rules provide no further guidance as to the interpretation of that provision.
In Kenneth Allison Ltd v A.E. Limehouse & Co [1992] 2 AC 105 the House of Lords considered what was meant by "leaving a document with the person to be served", being the equivalent (and effectively identical) requirement for personal service in the former RSC (Order 65 r 2). Lord Bridge of Harwich stated, at p. 113E:
"There is abundant authority for the proposition that personal service requires that the document be handed to the person to be served or, if he will not accept it, that he be told what the document contains and the document be left with or near him."
At p. 124C Lord Goff of Chieveley stated as follows:
"Prima facie, the process server must hand the relevant document to the person upon whom it has to be served. The only concession to practicality is that, if that person will not accept the document, the process server may tell him what the document contains and leave it with him or near him."
Both parties accepted that the above test, recognising a distinction between where a document is accepted (the first limb) and where it was not accepted (the second limb), was equally applicable to personal service under CPR 6.5(3). However, the parties differed as to meaning, effect and consequences of the Kenneth Allison test in a number of respects, giving rise to the following issues:
i) whether a document will be considered to have been 'handed to' and accepted by the person to be served (within the first limb, requiring no explanation by the process server) if its nature is not apparent from the face of what is delivered, such as where (as in the present case) it is contained in an envelope with no explanation of its contents on its face;
ii) whether a document will be considered to have been 'handed to' or 'left with or near' the person to be served if it is subsequently taken away by the process server;
iii) whether, where an explanation of the contents of the document was required because the document was not accepted (the second limb), it is sufficient if the process server gave an explanation which would be understood by an English speaker, even if it was not in fact understood by the person to be served (an objective test as to whether he was 'told'), or whether it is an additional requirement that the explanation resulted in the person to be served having actual knowledge of the nature of the document (a subjective test as to whether he was 'told').
These issues are considered in turn below.
(i) Is a document 'accepted' if its nature is not apparent when it is delivered?
In Banque Russe et Francaise v Clarke [1894] WN 203 the Court of Appeal held that:
"Handing to a defendant a writ…enclosed in an envelope, whether sealed up or not, the defendant not being informed of its contents, and having no knowledge that an action has been or is about to be commenced against him, is not good personal service."
In Re A Debtor [1939] Ch 251 the Court of Appeal held that delivery of a bankruptcy petition in an envelope to the debtor, without any indication of the contents, was not valid personal service. Sir Wilfred Greene MR, at p. 256, stated that in such a situation:
"… what is after all the essential thing in service cannot have been complied with, the essential thing being that the documents served shall be brought to the personal knowledge of the person whose concern it is … In the case of a writ it could not be suggested, I venture to think, that mere proof of delivery of a sealed envelope containing the copy of the writ, or notice of the writ, would be sufficient service … It is no exaggeration to say that the practice in regard to writs and the requirements of the law in regard to the service of writs are, and have always been, regarded as matters strictissimi juris. In the case of the service of a bankruptcy petition, I can see nothing in the section and Rules which can fairly be construed as relaxing the strict requirements which are to be found in the case of the service of writs and other documents under the Rules of the Supreme Court. I therefore hold that Mr Blagden's first point, namely, that mere proof of delivery of the documents in a sealed envelope without more would be sufficient, fails."
In that case the petitioner argued that, as the envelope was addressed to the debtor and was opened, it should be inferred that the contents of the petition had come to the knowledge of the debtor. That contention was rejected by Sir Wilfred Green MR at p. 257, in robust terms:
"I find it quite impossible to draw inferences of that kind in a matter of so strict a nature as service. It would be intolerable, and would lead to the gravest injustice, if a litigant who was desirous of bringing his opponent before the Court by proper process could satisfy the requirements of the law as to service by proving facts such as those and asking the Court thereon to draw an inference as to the crucial fact having happened, the crucial fact being the coming of the document into the hand of the person to be served in such manner that the nature of it is brought to his mind …
I am not laying down any general rule as to the circumstances in which it may be possible to provide service notwithstanding delivery in a sealed envelope. For example, if the envelope were opened by the addressee in the presence of the server and the contents inspected, that would be one case."
Mr Lord, leading counsel for Mr Tseitline, submitted that the above authorities no longer represent the law, the modern approach to service of a originating process requiring only that specified steps be taken (which, since 1979, have included sending by post) which would be reasonably likely to enable the person to be served to ascertain the contents of the document: it is, he contended, unnecessary to demonstrate that the document actually came to the intended recipient's attention, referring to Cooper v Scott-Farnell [1969] 1 WLR 120 at p.132D per Phillimore LJ, a case concerning service of a county court claim by post. Thus, he submitted, the first limb of the Kenneth Allison test simply requires that the document to be served be handed over, so that it could be inspected, with no requirement that the recipient need understand what he had been given.
Mr Lord's summary of the modern approach is plainly right (and is expressly implemented by the Rules) in relation to methods of service other than personal service. CPR 6.14 provides that service is deemed to have taken place two business days after completion of the relevant step specified in CPR 7.5(1), so that, for example, service by post is deemed to have taken place two days after posting and service by email is deemed effective two days after the email is sent, regardless of whether the document is actually received, let alone read, by the person to be served. In relation to personal service, however, the 'relevant step' under CPR 7.5 is that specified in rule 6.5(3) – leaving the document with the person to be served. The 'deeming' provision therefore does nothing to mitigate the pre-existing requirements of personal service in any way.
In my judgment there is nothing in the Rules nor in the authorities which supports the contention that personal service can now be effected without the nature of the document being readily apparent or known to the recipient or otherwise explained to him so that he can be taken to know its nature. Personal service remains the required method of service of judgments or orders fixing or varying time to do an act (CPR 81.6), save where it is specifically dispensed with, and is a pre-requisite of committal for contempt of such an order (CPR 81.5). That requirement is imposed precisely because it is only if such a judgment or order has been brought to the recipient's attention that it would be appropriate to pursue committal proceedings against him for breach of the order. If, as Mr Lord contends, personal service could be effected without that being achieved, it would undermine the essential feature of personal service and the intention of those provisions which specifically require service by that means.
Thus I do not accept that the first limb of the Kenneth Allison test should be read as applying to situations where the nature of the document being handed over is not readily apparent, such as where it is contained in an unmarked envelope. There is no reason to believe that Lord Bridge and Lord Goff intended to overrule or doubt the authorities referred to above in relation to purported service of a document in an envelope: indeed, the Banque Russe decision was cited in argument in support of the very proposition endorsed by both Law Lords (see p. 110B).
It follows that the reference in the first limb of the Kenneth Allison test to a document being 'handed to' a recipient is to the handing over of the document itself, in a situation where its nature is immediately and readily apparent on its face. Indeed, if the document's nature is not apparent on its face, it is difficult to see how the document could be said to have been 'accepted' by the recipient in any meaningful sense. If it has not been accepted, the case falls within the second limb of the test, where an explanation is required. The reason why an explanation is required under the second limb was itself explained by Hoffman LJ in Walters v Whitelock (Unreported, 19 August 1994):
"The purpose of the requirement that he be told is that he should not be able to say that he ignored the document on the grounds that it was simply junk mail or something which did not necessarily require his attention at all."
That reasoning applies with equal force to a recipient who has been handed (and has taken) an unmarked envelope: in the absence of any explanation or other basis for knowing what it contained he might discard it as junk mail without ever appreciating its contents required his attention.
(ii) Is a document 'left' if it is taken away by the process server?
Mr Choo-Choy, leading counsel for Mr Mikhelson, submitted that if documents are left with a defendant, but are then taken away immediately afterwards whilst the defendant is walking away, that does not amount to a 'leaving' of the documents.
That submission is, however, difficult to reconcile with Nottingham Building Society v Peter Bennett & Co (a firm) (1997, The Times 26 February). In that case a process server had handed documents to a partner of the defendant firm but, when the partner read them and objected to their form, took them back. The Court of Appeal rejected the contention that the documents had not been 'left with' the partner, Waite LJ stating:
"The Oxford English dictionary gives, as the primary meaning of the transitive verb 'to leave':
'To cause or let remain' and 'to depart without taking'
There appears to be a difference between those two nuances of meaning, in that one describes the mere process of allowing to remain, and the other introduces an element of departure without removal. It is understandable, given those alternative senses of the verb, that the judge should have found it a difficult point. Was the concept of 'leaving' a document introduced by the Rule to be regarded in the former sense or the latter?
Once the intended recipient (assuming him to have required knowledge of its nature) has been given a sufficient degree of possession of the document to enable him to exercise dominion over it for any period of time however brief, the document has been 'left with him' in the sense intended by the Rule."
Although the Court of Appeal in the Nottingham Building Society case was considering a case under the first limb of the Kenneth Allison test, where the documents had been accepted, the reasoning is no less applicable to situations where documents have been left with or near the person to be served within the second limb of that test. Further, and in any event, it is difficult to see how the fact that the process server picks up the documents after the recipient has walked away from or otherwise abandoned them can have any effect on whether they had been left with the recipient prior to that abandonment.
(iii) Need the recipient understand the explanation of the document?
Mr Lord's original submission was that it was sufficient for the purposes of the second limb of the Kenneth Allison test to provide an explanation of the document which would be understood by an English speaker, whether or not such an explanation would in fact be understood by the person to be served; the person seeking to serve would, he submitted, have 'told' the recipient the nature of the document, the test being entirely objective. There is, he contended, no obligation when serving within the jurisdiction to find a process server who speaks the same foreign language as the intended recipient or otherwise arrange the presence of an interpreter: there is no case in which such a requirement has been recognised.
However, Mr Lord accepted during the course of argument that it would not be sufficient to provide an oral explanation to someone who was known to have impaired hearing: similarly, an explanation in English to someone who was known not to understand English (and had nobody to interpret) would not amount to telling them the nature of the document. Mr Lord's resulting position was the question of whether the intended recipient was told the nature of the document must be considered from the point of view of the party effecting service, given their knowledge of the recipient. If the explanation was reasonably likely to be understood from that point of view, the recipient should be regarded as having been 'told' whether or not they in fact understood.
Mr Choo-Choy submitted that the second limb of Kenneth Allison requires both that the intended recipient be told what the document is and that he should have knowledge of its nature: a partly objective and partly subjective test. Thus, he contended, a sufficient explanation must be given, but it must be one which results in the intended recipient having actual knowledge of the nature of the document.
The question of what amounts to 'telling' in this context was considered by Hoffman LJ in Walters v Whitelock (above). In that case a process server left papers relating to a committal application with the defendant by poking the documents into his jacket, following which they fell or were thrown to the floor. Hoffman LJ, treating the case as one where the documents were not accepted but had been left with the defendant (within the second limb of the definition in Kenneth Allison case) stated:
"The question in this case is whether the process server can be said to have told the appellant what the documents contained. The evidence, as we have seen, is that he said: "I have documents for you." It is accepted that the appellant was familiar with the process server from all the previous occasions on which he had been served, and that he must therefore have known that the documents related to this litigation in which he was involved.
With what degree of particularity does the rule require that the person served be told what the documents contain? In my judgment, one must look at this in a practical way. I think it is sufficient if it is brought to his attention that it is a legal document which requires his attention in connection with proceedings. The purpose of the requirement that he be told is that he should not be able to say that he ignored the document on the grounds that it was simply junk mail or something which did not necessarily require his attention at all. "
In Elkateb v Elkateb [2001] FCA 1537 the Federal Court of Australia considered the meaning of O7.r2(2) of the Federal Court Rules, a provision that effectively codifies the second limb of the Kenneth Allison test, as follows:
"If a person refuses to accept service of a document, personal service may be effected on him by putting the document down in his presence and telling him the nature of it."
Stone J rejected a contention that a process server had not sufficiently identified the nature of a bankruptcy petition for the purposes of the provision, stating:
"13. The question then is whether the respondent was informed of the nature of the document … Although the word "nature" may be somewhat vague, it is clear that the rule is not very demanding ... Further, the person served need not be informed of the "nature" of the document orally ... Thus if the "nature" of the document is clear on its face and the document is not placed in an envelope or otherwise concealed, r 2(2) will be satisfied ...
14. I should also note that, whichever account [of what was said by the process server] is adopted, it is likely that the respondent would have been able to deduce the nature of the document served from his past dealings with the applicant in this Court, including contested proceedings regarding the bankruptcy notice. Thus, the conversation took place in a context where there was some element of assumed knowledge between the parties. In Taylor v Marmaras [1954] VicLawRp 66; [1954] VLR 476 it was decided that, where the person served knew the nature of the document from past history in relation to a matter, service would be valid despite the fact that the nature of the document was not clearly stated by the process server.
15. … It also seems that, had Mr Elkateb not appreciated the importance of the document or been aware of its nature, he would not have known to file a notice of intention to oppose the petition …"
In my judgment it is plain from these authorities (and from the special nature and role of personal service discussed above) that the process of leaving a document with the intended recipient must result in them acquiring knowledge that it is a legal document which requires their attention in connection with proceedings. Whilst this is expressed as requiring that the intended recipient be 'told' the nature of the document, the focus is on the knowledge of the recipient, not the process by which it is acquired. Whilst in most cases knowledge of the nature of the document will be found to have been imparted by a simple explanation, it is clear that it can be also readily be inferred from pre-existing knowledge, prior dealings or from conduct at the time of or after service, including conduct in evading service: see Barclays Bank of Swaziland Ltd v Hahn [1989] 1 WLR 506 at 512A.
The burden and standard of proof
It is common ground that it is for Mr Tseitline to demonstrate a good arguable case that service was effected on Mr Mikhelson.
Mr Choo-Choy submitted that, as Mr Mikhelson is resident and domiciled abroad, the question of service goes to jurisdiction. Therefore, he submitted, in order to demonstrate a good arguable case the claimant must establish 'a much better argument on the material available' than the defendant, referred to as 'the Canada Trust gloss' (Canada Trust v Stolzenburg (No.2) [1998] 1 WLR 547 CA at 555, approved by Lord Steyn in the House of Lords, [2002] 1 AC 1 at p.13). He accepted, however, that this was, from the outset, recognised to be a lower standard than the balance of probabilities and that the most recent decision of the Court of Appeal on the point (Aeroflot v Berezovsky [2013] 2 CLC 206 at para 50) expresses the view that the word 'much' should now be omitted from the test, requiring only that the claimant has the better of the argument.
However, the present case does not arise in the context of an application to serve a party out of the jurisdiction, but is a simple question of whether personal service was effected in the jurisdiction under domestic rules of service. I recognise that Langley J in Cherney v Deripaska [2007] I.L.Pr 49 appears to have regarded the Canada Trust gloss as extending to issues of personal service on a foreigner in the jurisdiction, but I can see no reason why the test for whether domestic service has been effected within the jurisdiction should differ depending on the domicile of the defendant. I am fortified in that conclusion by the observation of Longmore LJ in Kazakhstan Kagazy Plc v Arip [2014] EWCA Civ 381 at para 25 appearing to confine the Canada Trust gloss to applications for service out of the jurisdiction.
In any event, the parties were agreed that the precise formulation of the standard of proof was unlikely to be of significance in the present case, particularly given that the events in question are largely evident from the video recording, enabling me to reach relatively firm conclusions as to what took place.
Whether service was validly effected
(a) By Mr Austin, outside the Gallery
Mr Lord contended that Mr Mikhelson was personally served with the claim form whilst standing by his car outside the Gallery. Two issues arise in relation to that contention. The first is whether the document was indeed 'handed to' Mr Mikhelson or otherwise left with him. The second is whether the document was in any event served given that it was contained in an envelope and Mr Austin's explanation of its contents was in English. Given my conclusions as to the relevant law relating to service of a document in an unmarked envelope, it would be necessary to be satisfied that Mr Mikhelson acquired knowledge of the nature of the contents of the envelope.
As to the first issue, although Mr Austin proffered the envelope to Mr Mikhelson as they stood by the car outside the Gallery, and although Mr Mikhelson took hold of it for a few seconds before releasing his grip, Mr Austin at all times retained his own hold on the envelope and was left holding it at the end of the episode.
Mr Lord submitted that, in those circumstances, the document had been handed to Mr Mikhelson and was within his control. I do not agree. In my judgment, a process server who does not release the relevant document and retains control of the document at the end of the purported service cannot be said to have 'left' the document with the person to be served. The process server has not completed the process of handing the document to the person to be served (the basic requirement specified in Kenneth Allison) and the intended recipient has not been given a sufficient degree of possession of the document to enable him to exercise dominion over it for even a short period of time (as required by the test propounded in the Nottingham Building Society case). On any analysis, the term 'leaving with' connotes relinquishing control of the document, something Mr Austin simply did not do outside the Gallery. That is, in my view, the short and complete answer to the contention that service was effected outside the Gallery. That attempt did not amount to valid personal service.
The second issue therefore does not strictly arise for decision. However, it will be apparent from the discussion below that I am satisfied that Mr Mikhelson, despite not speaking English, acquired knowledge of the nature of the documents in the envelope when Mr Austin proffered that envelope to him whilst they were standing in the road outside the Gallery. Had Mr Austin released the envelope before Mr Mikhelson let go of it himself, it would have amounted to good personal service of the claim form.
(b) By Mr Harber, inside the Gallery
By the time Mr Mikhelson encountered Mr Harber in the foyer of the Gallery it was plain that Mr Mikhelson was not willing to and did not accept the envelope. It is therefore necessary for Mr Tseitline to establish a good arguable case, within the second limb of the test in Kenneth Allison, that (i) the envelope was left with or near Mr Mikhelson and (ii) he was 'told' what it contained, in the sense discussed above.
(i) Whether the envelope was left with or near Mr Mikhelson
On the first aspect, Mr Harber's actions, no matter which version is most accurate, clearly amounted to leaving the documents with or near Mr Mikhelson. The envelope was placed on Mr Mikhelson's upper body and fell (or was thrown by him) to the ground by his feet, so there is no doubt that it was left near him and that Mr Harber had relinquished control of the envelope to him. An almost identical process was regarded as 'leaving' the document in Walters.
As indicated above, Mr Choo-Choy argued that, because Mr Harber picked up the envelope and lodged it between Victoria Mikhelson's back and her bag whilst Mr Mikhelson was walking away, it was not left with him. For the reasons given above, in particular the reasoning in Nottingham Building Society, it matters not if documents are taken away by the process server if the recipient had sufficient control as to be able to exercise dominion over them, even for the briefest period: the documents have been left with the person being served.
(ii) Whether Mr Mikhelson was told what the documents contained
The second and more controversial question is whether Mr Mikhelson was told what the documents contained. In his second statement Mr Mikhelson acknowledged that, when Mr Harber attempted to serve him, he realised that Mr Austin and Mr Harber were together and acting in concert, so Mr Austin's actions and statements are an integral part in considering what Mr Mikhelson was told.
Mr Austin spoke directly to Mr Mikhelson on numerous occasions, in English, saying he was serving High Court papers and/or that the papers related to the High Court. It seems clear (and Mr Choo Choy did not ultimately dispute) that, if Mr Mikhelson had been an English speaker, such information would have been sufficient to entail that he had been told what the envelope contained. He would have known that the documents inside were claim papers requiring his attention in relation to High Court proceedings.
Despite Mr Mikhelson's protestations to the contrary, and those of his companions at the Gallery, I am entirely satisfied (well beyond finding there to be a good arguable case) that the gist of what Mr Austin had been saying had been communicated to Mr Mikhelson by his English speaking companions by the time Mr Mikhelson encountered Mr Harber, so that he fully appreciated that the envelope contained claim papers relating to court proceedings. In particular:
i) Mr Mikhelson initially took hold of the envelope willingly and apparently without reservation, in what was at that stage a calm and civilised encounter with Mr Austin, who was smartly dressed and entirely polite and reasonable. It was only after asking his daughter what the envelope was that Mr Mikhelson loosened and then released his grip. Whilst nothing is picked up on the recording, I infer that Victoria Mikhelson told him, quietly and in Russian, what was happening. At the very least an indication appears to have been given that he should not accept the envelope.
ii) Mr Mikhelson then sought to ignore Mr Austin, telling his daughter not to listen to him. That would have been strange behaviour if Mr Mikhelson genuinely did not understand what Mr Austin was attempting to give to him, particularly as he accepted in his evidence that he appreciated that it was to do with his business.
iii) By the time the group entered the Gallery, Mr Austin had spoken directly to Victoria Mikhelson and made it plain that he had High Court papers for her father, something he repeated to Ms Mavica. It is inconceivable that that information would not have been communicated to Mr Mikhelson when he spoke with his daughter, Ms Mavica and his interpreter in the foyer of the Gallery, if he had not already been so informed.
iv) Mr Mikhelson's subsequent conduct, clearly attempting to evade the service of the envelope by Mr Harber and telling him to go away, confirms my conclusion that he knew that the envelope contained court papers.
v) Perhaps even more revealing is that other persons present were astute to ensure that the envelopes were not retained by anyone connected with Mr Mikhelson, demonstrating that word to that effect had been spread amongst the attendees.
vi) Mr Mikhelson, in his first statement (and to a lesser extent in his second), sought to explain his behaviour on the basis that he considered Mr Austin and Mr Harber had an aggressive demeanour and he felt threatened. The video recording does not support that characterisation. Mr Mikhelson further suggested that he had no understanding of what was taking place. However, there was nothing to prevent Mr Mikhelson asking Mr Austin, through his daughter or his interpreter, what he wanted. The clear and obvious inference is that he did not do so because he had already been told.
I therefore find that Mr Mikhelson was told the nature of the document being served in the presence of persons who could be expected to and did translate what was said to him. Further, I find that he thereby acquired knowledge of its nature. He was therefore personally served with the claim form on 4 October.
Mr Tseitline's application
In view of my conclusion above that valid personal service was effected on Mr Mikhelson inside the Gallery, Mr Tseitline's application does not require determination. It is sufficient to state that, if I had found that Mr Tseitline had failed to effect valid personal service on Mr Mikhelson, it would not have been appropriate to have dispensed with service under CPR 6.16 (requiring exceptional circumstances) or otherwise have deemed service to have been effected under CPR 6.15 (requiring good reason). Where, as here, a defendant can only be served out of the jurisdiction in accordance with the relevant provisions of CPR Pt 6 (absent valid personal service within the jurisdiction), a claimant should not be allowed to circumvent those provisions and prevent the defendant challenging the efficacy of any service purportedly effected by that route: see Cherney v Deripaska [2007] I.L. Pr 49 per Langley J at para 53 and the cases there cited. The position is even clearer where, as here, the defendant is domiciled in a Hague Convention State: there will rarely be good reason to circumvent the agreed service process under that Convention, alternative service only being permitted in exceptional circumstances: see Cecil v Bayat [2011] 1 WLR 3086.
Conclusion
For the reasons set out above, I find that Mr Mikhelson was validly and effectively served with the claim form on 4 October 2014. The first ground of his challenge to the jurisdiction of the court accordingly fails. |
The Honourable Mr Justice Flaux:
Introduction
By an Order dated 5 June 2015 (as varied by an Order dated 9 September 2015), I ordered the trial of the following preliminary issue:
"As at 27 June 2014, before the auction of the Ferrari model 375 Plus Grand Prix Roadster, serial no. 0384AM (the "Car"), did:
(i) Ms Swaters; or
(ii) Ms Lawson and Mr Ford
have title to the Car (including, for the avoidance of doubt, any spare parts)
without prejudice to any dispute as to title between Ms Lawson and Mr Ford on the one hand, and Mr Gardner on the other."
The Car is one of only six 375 Plus Ferraris ever made, only four of which remain in existence. It is presently in a container in Southampton in a fully restored condition pending the determination of the disputes between all the various parties arising from the auction by Bonhams at the Goodwood Festival of Speed in 2014. Although the preliminary issue refers to "the Car" there are in fact three elements to consider: (i) the chassis; (ii) the spare parts and (iii) the original engine. There is no dispute that Ms Swaters owns the original engine which she located in the United States and purchased for U.S. $610,000 in 2009. The preliminary issue concerns title to the chassis and the spare parts.
The purpose of ordering the preliminary issue was to determine one of the principal issues concerning the ownership of the Car, that between Ms Swaters on the one hand and Ms Lawson and Mr Ford on the other, with a view to narrowing the remaining issues for determination at any subsequent trial involving other parties. At the 5 June 2015 hearing, Bonhams, Ms Swaters and Mr Wexner were agreed that there should be a trial of the preliminary issue. Ms Lawson and Mr Ford, who were then represented by the same solicitors and counsel, resisted the ordering of a preliminary issue. Their position was and is that all issues of title between themselves and Ms Swaters should be determined in Ohio, in proceedings in the Court of Common Pleas in Hamilton County where Ms Swaters commenced proceedings in February 2010 to recover the spare parts.
Ms Lawson and Mr Ford in fact issued a Part 11 application seeking to set aside or stay the proceedings against them but I dismissed that application, determining that it was made far too late and after they had both submitted to the jurisdiction of this court by the filing of their Defence and Counterclaim. Although they clearly do not like that ruling, neither of them has sought permission to appeal it to the Court of Appeal and they are bound by the ruling.
The Car had been bought by Ms Lawson's father Karl Kleve from a James Kimberly in a damaged condition in 1958. The wrecked chassis is alleged by Ms Lawson and Mr Ford to have been stolen from a field at the premises of Mr Kleve in Ohio on about 13 January 1989 and then sold by the thieves to a car dealer in Georgia, Guy Anderson. Mr Anderson in turn sold it to Michel Kruch, a Belgian dealer whose company traded as L'Exception Automobile.
Ms Swaters' case is that her father, Jacques Swaters, acquired title to the chassis when he bought it in good faith from L'Exception Automobile pursuant to a written contract in Belgium on 15 March 1990. The spare parts and the engine were missing when he acquired the chassis. The chassis remained in the possession of Mr Swaters until his death in 2010 and since then has been in the possession of his daughter. Further or alternatively, Ms Swaters says that, on 2 September 1999, pursuant to a Settlement Agreement governed by New York law, Mr Kleve settled any claims he had to the Car as a whole (including the spare parts) and transferred to Mr Swaters any and all rights which he might have had in the Car. Accordingly, Ms Swaters' case is that Mr Swaters acquired good title to the Car either under Belgian law or New York law and Ms Lawson and Mr Ford have no rights to the Car.
Mr Kleve died in Ohio in 2003. Ms Lawson has continued to claim that she inherited the Car despite the 15 March 1990 sale contract and the 2 September 1999 Settlement Agreement. Mr Ford, whose business is the acquisition of distressed assets, purchased a majority share in whatever interest Ms Lawson had in February 2010. Before then, he had had no involvement with the Car or its history.
Both in the proceedings in Ohio and in the present proceedings, Ms Lawson and Mr Ford have advanced a series of allegations, some of which are quite improper, against Ms Swaters and her father in their attempt to establish a claim to the Car. Their case has shifted and changed. For a long time, they made allegations of forgery in relation to the Settlement Agreement, but those allegations have been shown to be false by the joint report of the expert forensic document examiners.
By the time of the trial of the preliminary issue, Ms Lawson and Mr Ford had dispensed with the services of their solicitors and counsel. Ms Lawson declined to attend the trial, writing a letter to the court dated 14 October 2015 in which she again sought to challenge the jurisdiction of this court to determine the ownership issue, notwithstanding my previous ruling that the court had jurisdiction and that she had submitted to the jurisdiction, a ruling which she has not sought to appeal.
Mr Ford represented himself at the trial. Although he has a qualification as an attorney in Louisiana, it appears that he has hardly practised. As I have said his business is the acquisition of disputed and distressed assets. As he put it in cross-examination he cherry picks what to acquire and is a consultant solving complex problems. Although he was not familiar with English court procedure, he was well able to present and argue his case and had some assistance from Mr Timothy Smith, an Ohio criminal attorney who was an acquaintance of Mr Kleve and had given certain advice to him and who has acted for Ms Lawson in the Ohio proceedings since 2013. Mr Smith also attended the trial of the preliminary issue to give evidence.
The case of Ms Lawson and Mr Ford as pleaded by counsel then acting for them in relation to the issue whether Mr Swaters had acquired good title in the Car in March 1990 was set out in the Amended Defence and Counterclaim served on 6 July 2015. In summary, that case was that Mr Swaters had not acted in good faith because (i) he was an experienced dealer; (ii) this was the only unrestored Ferrari 375 Plus; (iii) prior to the purchase there had been a high profile criminal trial in Atlanta concerning the theft of the vehicle; (iv) the theft had also been covered in industry publications; (v) Mr Swaters was aware at the time of the purchase that there was an allegation that the car he was purchasing had been stolen in Ohio; (vi) the Car was being sold without its VIN (Vehicle Identification Number) plate; (vii) he purchased it at considerably below market value for the equivalent of less than U.S. $100,000 when its real value was about U.S. $500,000; (viii) there were irregularities in the documentation accompanying the Car including that the receipt for the sale to Mr Kruch was for a price of only U.S. $4,500, the bill of lading described it wrongly as "racing automobile parts" and the import declaration differed from the bill of lading and correctly described the Car but gave its value as U.S. $4,500; (ix) as part of the alleged purchase, Mr Swaters agreed that he would deal with any claims in the event a third party claimed to be the true owner; (x) shortly after the alleged purchase, Mr Swaters offered to purchase Mr Kleve's rights to the Car for U.S. $85,000; (xi) not having obtained any such agreement with Mr Kleve, Mr Swaters subsequently arranged for the Car to be restored in Italy using the VIN 0394 which he knew to be incorrect; (xii) that in the premises there was at least reasonable doubt as to the true ownership and title of which Mr Swaters was on notice.
At the trial, it appeared that Mr Ford maintained all these allegations but he also went further and sought to suggest that the sale contract was some sort of sham and that Mr Swaters had actively sought to conceal the Car from being discovered by Mr Kleve or others by describing it with a chassis number 0394AM rather than 0384AM. In effect, he accused Mr Swaters of dishonesty in relation to those matters, neither of which was pleaded. It is wholly unacceptable that such serious allegations should be advanced without being pleaded or supported by any evidence.
In relation to the Settlement Agreement, the pleaded case as set out in the Amended Defence and Counterclaim was that there was no valid and binding settlement. The following allegations were advanced: (1) that Mr Kleve only ever agreed to enter a Settlement Agreement for a price of U.S. $3 million not the price of U.S. $625,000 set out on the first page of the Settlement Agreement and his offer to do so expired; (2) Mr Mark Daniels, the agent who concluded the Settlement Agreement on his behalf, did not have actual authority as a matter of New York law to conclude the Settlement Agreement for U.S. $625,000 because it was agreed between him and Mr Kleve that any actions taken by him were subject to Mr Kleve's approval, the Settlement Agreement was concluded by Mr Daniels for his own benefit, not that of Mr Kleve and that the Limited Power of Attorney dated 18 August 1999 did not reflect the true scope of Mr Daniels' authority; (3) Mr Daniels did not have apparent authority as a matter of New York law to conclude the Settlement Agreement because there were numerous irregularities which would have put a reasonable or prudent person on enquiry; and (4) there was no contract formed in respect of the Settlement Agreement because Mr Kleve's offer made on 16 July 1999 was not accepted within a reasonable time as required by the New York Uniform Commercial Code and/or because Mr Lancksweert failed to make full payment to "Daniels for the benefit of Kleve and Daniels" as required by clause 5 of the Settlement Agreement.
The specific matters relied upon in support of the allegation that there were irregularities which would have put a reasonable person on enquiry are: (i) that Mr Philippe Lancksweert (Mr Swaters' former business partner who negotiated and concluded the Settlement Agreement on his behalf) knew or should have known that Mr Daniels' statement that the spare parts had been stolen was not true; (ii) that there were redacted signatures in the documentation presented by Mr Daniels on 1 September 1999; (iii) that there was a lapse of time of 44 days between Mr Kleve's signature on 16 July 1999 and 2 September 1999, during which time the price of U.S. $625,000 was negotiated; (iv) that Mr Daniels was unable to produce the Power of Attorney referred to on the first page of the Settlement Agreement but only a letter of authority dated 18 June 1999 which required Mr Kleve's consent before any agreement as to price was reached; (v) that Mr Daniels produced only a copy of the 18 August 1999 Power of Attorney which it is alleged had been fraudulently altered; (vi) that Mr Daniels requested two cheques to be paid over, one for U.S. $400,000 made out to Kleve and Daniels and one made out to National Search Services ("NSS"), Mr Daniels' company, for U.S. $225,000; (vii) that Mr Daniels requested and Mr Lancksweert agreed to omit the identity of the escrow agent and (viii) that Mr Lancksweert demanded an affidavit from Mr Daniels concerning liability for any deficiency in his authority.
At trial, it appeared that all these points were still being pursued by Mr Ford, together with further points such as (i) that Mr Lancksweert and the New York attorneys who advised him in relation to the Settlement Agreement were on notice of Mr Daniels' absence of authority because the 18 August 1999 Power of Attorney was asynchronous with Mr Kleve's signature of the Settlement Agreement on 16 July 1999; (ii) the request for payment to NSS was suspicious in that it indicated that Mr Daniels was defrauding Mr Kleve and payment to the agent was not permitted by the Power of Attorney as a matter of New York law so that the Settlement Agreement was in some way invalid and (iii) Mr Kleve never received any payment under the Settlement Agreement so that it was void for want of consideration.
Ms Lawson and Mr Ford also relied on Ohio law, to which the New York lawyer whom they called as an expert, Mr Jason Racki, said the New York courts would defer, for two propositions which they contended defeated Ms Swaters' claim: (i) that Ohio law imposes a six month time limit for claims to be brought against the estate of a deceased and no claim had been brought by Ms Swaters against Mr Kleve's estate in relation to the Car within six months of his death, so that her claim in the present proceedings was somehow time barred and (ii) that the Certificate of Motor Vehicle Title Act of Ohio imposes certain requirements for a valid transfer of title of an Ohio titled vehicle and there were irregularities in the title document transferring title to Mr Swaters, so that there was not a valid conveyance of title to him. For reasons set out below, Ohio law is irrelevant, but even if it were relevant, these are both thoroughly bad points.
The witness evidence
Before making my findings as to whether Mr Swaters acquired good title to the Car in 1990 or 1999, I should state my views on the evidence of the witnesses called by the parties. Ms Swaters gave evidence. Inevitably, her evidence about events in the 1990s was limited to matters of which her father had informed her as she had no involvement with the Car until later, after the Settlement Agreement, but she gave her evidence in a straightforward and honest manner. Mr Lancksweert also gave evidence for her. He had been Mr Swaters' business partner for many years and he was involved both in the decision to acquire the chassis in 1990 and in the negotiation and conclusion of the Settlement Agreement in 1999. I formed a favourable impression of him as a man of integrity and I accept his evidence.
Mr Swaters died in December 2010. Before he died, he swore an affidavit dated 15 May 2010 in the Ohio proceedings setting out the circumstances in which he had bought the chassis and his attempts to establish that it was indeed 0384AM as opposed to some other chassis number, given the confusion that had existed, both at the time that the various 375 Plus cars had been raced in the 1950s and subsequently, as to which cars bore which chassis number and which had crashed, leading to uncertainty as to which chassis had survived. Ms Swaters has served a Civil Evidence Act notice in respect of that affidavit. Despite Mr Ford's attempt to impugn the integrity and good faith of Mr Swaters, I see no reason not to accept the evidence he gave in that affidavit.
Mr Ford called Mr Timothy Smith, who as I have said, is an Ohio criminal attorney who was an acquaintance of Mr Kleve and provided advice to him at various times. His evidence was confused and implausible. He has acted for Ms Lawson in the Ohio litigation since August 2013 and, like her, refuses to acknowledge the jurisdiction of this court. He has a financial interest if the litigation is concluded in favour of Ms Lawson and Mr Ford and he also accepted that he had been in some professional trouble, having been on probation in the United States and therefore suspended from practice. I had doubts as to his probity and did not consider him a reliable witness.
Mr Ford gave evidence himself. He was not in a position to give any direct evidence of events in the 1990s, not having been involved with the Car or the people concerned until he purchased what is in effect a majority share of Ms Lawson's interest in the litigation in 2010. This lack of any personal knowledge did not stop him from expressing opinions and speculating both in his witness statement (most of which was strictly inadmissible) and in his oral evidence. He was, as Mr Eschwege for Ms Swaters described him, a professional litigant and his evidence was of no assistance to the court other than to highlight that he was prepared to advance any argument, however outrageous or outlandish, that he thought might assist his cause.
One factual witness for Mr Ford and Ms Lawson, who might have been in a position to give relevant evidence, particularly in cross-examination, was Ms Lawson herself. For example, she could have given evidence about her father's knowledge of the Settlement Agreement and the settlement monies. Her absence is particularly striking in circumstances where it is alleged by her and Mr Ford that no monies were received. The fact that she declined to attend to give evidence, but her attorney, Mr Smith did give evidence was extraordinary. Mr Eschwege invited me to draw appropriate adverse inferences against Ms Lawson and Mr Ford from her failure to give evidence, applying the principles in Wisniewski v. Central Manchester Health Authority [1998] PIQR 324 at p.340 per Brooke LJ.
The parties produced expert reports from forensic document examiners, Mr Steven Slyter for Ms Swaters and Mr Stephen Cosslett for Ms Lawson and Mr Ford, but in the event, they produced a joint report in which they agreed that there had been no alteration to the amount entry of U.S. $625,000 on the first page of the Settlement Agreement, so that there is no question of the Agreement having been somehow fraudulently altered, a point which was previously centre stage in Ms Lawson and Mr Ford's allegations. It was agreed that it was not necessary for the experts to give evidence. I set out their findings in more detail when I deal with the Settlement Agreement below.
The parties also produced expert reports from Belgian lawyers, Professor Matthias Storme for Ms Swaters and Mr Stan Brijs for Ms Lawson and Mr Ford, but, as is apparent from their Joint Report, on the critical aspects of Belgian law for present purposes, they were in agreement so that it was not necessary for them to give oral evidence.
Reports were produced on New York law from New York lawyers, Mr John Kiernan, co-chair of the litigation department of Debevoise & Plimpton LLP in New York for Ms Swaters and Mr Jason Racki for Ms Lawson and Mr Ford. They both gave oral evidence. Mr Kiernan was an impressive witness, as Mr Eschwege rightly described him the epitome of what this court expects of an expert, measured and objective. The same could not be said of Mr Racki. I have considerable doubt as to whether he could properly be described as an expert on New York law at all, since he seems only to have qualified as an attorney in 2011 or 2012 and appears to work on contract to firms as some sort of independent contractor for particular projects. He was certainly not measured or objective but was prepared to advance a series of curious propositions, such as that a New York court interpreting the Settlement Agreement would have deferred to Ohio law, which were clearly designed not to assist the court in establishing the relevant New York law but to assist Ms Lawson and Mr Ford if he could in winning the case, in complete disregard of the duty of an expert to the court. Save where his evidence corresponded with that of Mr Kiernan, I reject it and I accept the evidence of Mr Kiernan on every point of New York law.
I gave permission to Ms Lawson and Mr Ford at the case management conference on 9 September 2015 to call expert evidence of Ohio law although I was convinced (and remain convinced) that it is of no relevance for the reasons set out below. Ms Lawson and Mr Ford produced a report from William Graf and Ms Swaters one from Bryce Lenox. Neither was called to give evidence, but I accept Mr Eschwege's submissions that Mr Graf's report, which proceeds on an erroneous factual basis, is flawed and should be rejected. I accept the evidence of Mr Lenox.
Events leading up to the purchase of the Car by Mr Swaters
Mr Swaters was a highly decorated war hero, having fought in the Belgian resistance in the Second World War. After the war, he took up motor racing and raced for a number of years as a "gentleman" driver. He set up a racing team which became known as Ecurie Francorchamps which raced classic cars including Ferraris. In 1952, he became the first official Belgian importer of the marque and began a long relationship with the Ferrari factory and friendship with Enzo Ferrari himself. He established Garage Francorchamps as a Ferrari and classic car dealership. In 1980, he entered into a business partnership with Mr Lancksweert. As Mr Lancksweert said in his witness statement they had a good reputation and built up a highly respected dealership.
As Ms Swaters described in her witness statement, in 1989 Mr Swaters was approached by a well-known Belgian car dealer, Michel Kruch, who sought assistance from him in identifying whether the wreck of a car that Mr Kruch had located in the United States was a Ferrari. Mr Kruch showed her father a photograph of the wreck and asked if he thought it was a Ferrari. He had apparently asked some other Belgian car dealers whether they thought the car in the photograph was a Ferrari. Mr Swaters investigated the photograph and, with the assistance of the Ferrari factory concluded that despite its terrible state, it could be a Ferrari. He told Mr Kruch that if he bought it, Mr Swaters in turn would buy it from him in order to restore it. Mr Ford sought to suggest in his submissions that in some way this involvement of Mr Swaters before the chassis was imported into Belgium demonstrated that he was on notice or was aware that the chassis was stolen. There is no evidential basis for this assertion.
Mr Kruch purchased the car from Guy Anderson's company in Georgia, the Worldwide Exchange, for U.S. $4,500. The sales invoice issued by Worldwide Exchange described the car as "1 car disassembled in parts" and described the car in a Note: "This is as is where is. The car is only 40% complete, no engine, no seats, no interior, no wheels, no bodywork in rear. Car only includes chassis, trans, nose section (severely damaged) 1 spare tire". Mr Ford submitted that the price of U.S. $4,500 was at a gross undervalue. He also submitted that the bill of lading pursuant to which Mr Anderson shipped the container with the wreck inside was suspicious because it referred to the contents as "Racing Automobile Parts". He went so far as to suggest that this was an attempt on the part of both Mr Anderson and Mr Kruch to conceal the exportation of the chassis out of the United States from the U.S. Customs. In this context it is important to note that Mr Anderson and two other men named Kelley and Christian were charged with interstate transportation of stolen motor vehicles and conspiracy (the two thieves pleaded guilty). They stood trial in Atlanta in November 1989 but, at least so far as Mr Anderson and Mr Kelley are concerned, they were acquitted, as the prosecution was unable to establish to the satisfaction of the jury that they had known the chassis was stolen when they took possession of it. In my judgment, the description of the contents of the container in the bill of lading was not inherently suspicious. It accorded with the description of the car in the sales invoice as a car "disassembled in parts".
One of the leitmotifs of Mr Ford's submissions was that the criminal trial in some way would prove his case that Mr Kruch and Mr Swaters had not acted in good faith. Given that the man who sold Mr Kruch the chassis was acquitted and neither Mr Kruch nor Mr Swaters were involved in the trial, it is difficult to see how anything that occurred at that criminal trial in the United States could implicate Mr Kruch or Mr Swaters. In any event, although Mr Ford referred to transcripts of the trial which would in some way establish his case, he only produced a handful of pages from the transcripts and exhibits at the trial in his supplementary bundle for the preliminary issue trial. Since he drew the court's attention to these in his skeleton argument for the hand down of the judgment, I have considered them carefully but contrary to his submissions, do not consider that they assist in the determination of the preliminary issue.
He also relied upon the fact that the same Ferrari expert, Mr Nowak, who later ascribed a value to a 375 Plus in restored condition of U.S. $3 million had given expert evidence at the criminal trial that the chassis was worth U.S. $500,000, Mr Ford's intention being to demonstrate that both the sale by Mr Anderson to Mr Kruch and the sale by Mr Kruch to Mr Swaters were at a gross undervalue. However, he did not produce copies of any expert report Mr Nowak had provided and, although he produced a single page from the transcript of Mr Nowak's evidence at the criminal trial, in which Mr Nowak asserted that the chassis was worth U.S. $500,000, Mr Nowak was not called to give evidence at the trial before me. Given the seriousness of the allegation that the sale to Mr Swaters was at a gross undervalue, the court would have expected the party making the allegation, Mr Ford, to call expert evidence as to the value of the chassis in its then condition in 1989, not merely to rely on evidence at a criminal trial in the United States more than twenty five years ago, which Ms Swaters has had no opportunity to challenge.
Even if such expert evidence that the chassis was worth U.S $500,000 was given at the criminal trial I would find it very difficult to accept that the chassis in its then condition was worth anything like that amount. Although Mr Ford cavilled at the description of the chassis as "a burnt-out wreck", Mr Eugene Glenn of the Federal Bureau of Investigation ("FBI") described it in a letter to Ferrari in Italy on 6 October 1994 as a "dilapidated carcass". In his affidavit, Mr Swaters refers to the chassis number being almost illegible: "due to the vehicle's damaged condition and also a result of fire". In a report in February 1996, the FBI described the Car in these terms: "the rear portion of the Plus, its hood, two doors, wheels, and three brake drums had been removed". They also described how the VIN plate had been prised from the firewall by vandals the year before the theft.
In my judgment a chassis in that dilapidated condition with no VIN plate to definitively identify it was not worth a fraction of U.S. $500,000. If it had been worth anything like that much, it would surely not have been left in a field by Mr Kleve. After his death, his entire collection of other classic vehicles was valued (in Exhibit D to in the Amended Schedule of Assets filed by Ms Lawson as Administrator of her father's estate with the Probate Court in Ohio) at only U.S. $86,770. Tellingly, the 375 Plus chassis was not included in his assets on his death by Ms Lawson. However, if the chassis when he was in possession of it had been worth anything like U.S. $500,000, it would surely have been given pride of place in his collection, not left to moulder in a field. Furthermore, this is an example of an issue on which Ms Lawson could have been asked questions if she had attended the trial and given evidence. I reject Mr Ford's suggestion that the price paid by Mr Kruch for the burnt out chassis was at a gross undervalue.
Returning to events in Belgium, it appears that the U.S. authorities became aware that the chassis was in Belgium and requested the Belgian authorities to return the vehicle to Mr Kleve in the United States. In August 1989, Mr Kruch became aware of the allegations that the chassis had been stolen and immediately informed the Belgian authorities that he was the owner of the chassis, scarcely the act of a man with a guilty conscience. The Belgian authorities seized the chassis and the public prosecutor ("procureur du Roi") conducted an investigation. It appears that the investigation included a request for information from Mr Paramore, a Belgian lawyer instructed by Mr Kleve, although it is unclear whether Mr Kleve ever provided the information sought by Mr Paramore in his letter of 1 February 1990.
On 14 February 1990, the office of the public prosecutor issued a written release lifting the seizure of the Car and permitting Mr Kruch "free use" of the Car. The original French refers to "disposition libre" which seems to me to make it clear that the prosecutor was saying that Mr Kruch was free to dispose of the Car as he wished, including by sale. The release provided in full, in translation, as follows:
"RE: wreck of Ferrari type 375 plus automobile, serial number 0384 AM
The undersigned Michel WATERPLAS, Superintendent at the Brussels Criminal Investigation Department, hereby certifies that, further to the ruling handed down by the King's Prosecutor in Brussels (Dr. 27.11.1233/89), seizure of the automobile referenced above has been lifted today, 2/14/90.
Mr. KRUCH may therefore have free use of this automobile."
In his submissions, Mr Ford sought to suggest that the Belgian authorities had not investigated thoroughly the circumstances in which Mr Kruch acquired the chassis. He even seemed to be insinuating that there had been some sort of complicity between the Belgian authorities and Mr Kruch and Mr Swaters designed in some way to thwart Mr Kleve. Those allegations are very serious and, whilst I am prepared to make every allowance for the distrust some Americans have for Europeans, the allegations should not have been made. They are unpleaded and unsupported by any evidence and I reject them.
Although the release by the public prosecutor referred to the vehicle as 0384AM, because of the absence of the VIN plate it remained unclear whether the chassis was indeed that of 0384AM because, as Mr Swaters says in his affidavit, the chassis number was almost illegible on the frame due to its damaged condition and as a result of fire. Mr Kruch arranged for an x-ray inspection of the chassis by Sabena Technics (the technical department of the Belgian airline) to determine the true chassis number. In a letter dated 21 February 1990, they stated: "we hereby confirm that by x-ray inspection we discover the number 3?4AM (? =8 or 9) on the vehicle frame. I am also convinced that this frame is original". In other words, that x-ray analysis could not determine whether the chassis number on the frame was 0384AM or 0394AM. Mr Ford sought to cast doubt upon the status of this letter because it contained the notation at the bottom "For internal purposes only". Whatever the reason for that notation, the report did not remain internal to Sabena Technics but was given to Mr Kruch (who had commissioned it) and annexed to the contract of sale to Mr Swaters (see below). In any event, I consider there can be little doubt that the report sets out accurately what Sabena Technics were able to discern from their x-ray analysis. I will return to the uncertainty as to chassis numbers of Ferrari 375 Plus cars a little later in the judgment, when I deal with Mr Ford's contentions as to why the sale to Mr Swaters was not in good faith.
On 15 March 1990, a written sales contract was entered into between L'Exception Automobile, represented by its chief executive, Mr Kruch, and Garage Francorchamps represented by its directors, Mr Swaters and Mr Lancksweert, for the sale of the chassis. The preamble to the contract stated: (i) the vendor had purchased the wreck of a vehicle presented as a Ferrari 375 Plus with the chassis number given as 384AM, in the United States in February 1989; (ii) the vendor had lawfully imported this wreck to Belgium from the United States and paid the import duties; (iii) there had been legal proceedings in the United States against various persons suspected of having concealed the wreck which had allegedly been stolen from its owner; (iv) that in August 1989, having learnt that the wreck was sought by the judicial authorities, the vendor immediately informed the authorities of the fact that it owned the wreck which had been stored in its garage for several months; (v) that the wreck was therefore put under seal at the garage and the vendor was interviewed by the Belgian judicial authorities; (vi) that following detailed explanation by Mr Kruch as to how he had purchased the wreck in good faith and as to his peaceful, public, continued and unequivocal possession of the wreck, the seals were lifted on 14 February 1990, with the vendor having free use of the vehicle, as set out in the letter from the public prosecutor which was annexed to the contract; (vii) that the vendor had had a technical assessment carried out by Sabena Technics, their report also being annexed to the contract, which established that the 3 and the 4 were legible but there was doubt as to whether the middle figure was an 8 or a 9 and that their assessment showed the numbers were those struck originally and not therefore altered by subsequent improper modifications; and (viii) the purchaser was a professional in the field of vintage Ferraris and prior to the agreement had had every opportunity to examine the wreck in detail and form a detailed opinion with regard to its origin and history, taking account notably of its consultation of the archives of the Ferrari factory in Italy.
The contract then provided that the vendor sold the wreck to the purchaser on the basis that the sale was at the exclusive risk and cost of the purchaser, without any guarantee for hidden defects or for breach of quiet possession due to a third party. The only guarantee given was as to the accuracy of the preamble. It was expressly agreed that if the wreck became the object of claims by any third party (including anyone claiming rightly or wrongly to be the dispossessed true owner) the purchaser was solely responsible for such claims. The sale price agreed was 3,500,000 Belgian francs for which receipt was duly given. Transfer of ownership took place from that day, 16 March 1990. The agreement was governed by Belgian law. It was signed by Mr Kruch, Mr Swaters and Mr Lancksweert.
In addition to the sales contract, there was an invoice from L'Exception Automobile to Garage Francorchamps for the price of the vehicle, which was described as "vehicule en epave" in translation, a vehicle which is a wreck. That invoice set out the purchase price of 3,500,000 Belgian francs. After addition of 33% value added tax, the total price was 4,655,000 Belgian francs. That invoice was signed by both parties and above the seller's (i.e. Mr Kruch's) signature is written: "Recu cheque KB No 222367", confirmation that Mr Kruch had received a cheque in payment of the price.
Acquisition of good title in the chassis as a matter of Belgian law
At the time when that agreement transferred title, the chassis was in Belgium. On normal conflicts of laws principles, Belgian law as the lex situs governs whether good title to the chassis was transferred to Mr Swaters: see Dicey, Morris & Collins, The Conflict of Laws (15th edition) [24R-001].
Belgian law has two modes by which a person may acquire title to property: (i) transfer based on contract and (ii) bona fide acquisition pursuant to Article 2279 of the Belgian Civil Code. So far as the application of the first mode is concerned, Mr Swaters bought the chassis pursuant to a sales contract with Mr Kruch's company so that, if Mr Kruch acquired good title to the chassis, then Mr Swaters acquired good title in any event. As Mr Storme points out in his report, under the relevant provisions of the Belgian Criminal Code, the public prosecutor could only release the chassis to and upon the demand of the owner and the restitution of the chassis to Mr Kruch indicates that the public prosecutor was satisfied that Mr Kruch was the owner i.e. that he had acquired it in good faith. In the circumstances, I consider that Mr Kruch did have good title as a matter of Belgian law when he subsequently entered into the sale contract with Mr Swaters, from which it follows that Mr Swaters acquired good title pursuant to that contract.
If Mr Kruch did not have good title then the issue arises whether Mr Swaters nonetheless acquired good title pursuant to Article 2279. That provides, so far as relevant (in translation):
"I. In matters of personalty, possession is equivalent to title.
II. Nevertheless, one who has lost or from whom was stolen a thing may claim it during three years, counting from the day of the loss or theft, against the one in whose hands he finds it, saving for that one his recourse against him from whom he holds it…"
The Article has two requirements: (i) possession and (ii) good faith at the time of the acquisition. The relevant principles of Belgian law are essentially agreed between the Belgian law experts:
(1) It is sufficient for the possessor to be in good faith for the purposes of Article 2279 at the time he acquires possession. Good faith is to be assessed on the basis of his knowledge at the moment of acquisition. That does not exclude subsequent conduct (such as intentionally hiding possession) as evidence of lack of good faith at the moment of acquisition.
(2) There is a rebuttable presumption that the possessor acquired possession in good faith.
(3) Good faith means that the possessor believed and could have believed that he acquired the goods from the owner or from a person who had capacity or authority to transfer title, even if this was not the case in reality.
(4) The good faith of the possessor is a fact intensive enquiry which takes into account all the circumstances. It is thus a question of fact for this court and not for the experts, although Mr Brijs purported to express his view on the issue.
So far as the third of these agreed propositions is concerned, in their joint report the two Belgian law experts cited as an example of a case where that proposition was applied the decision of the Cour de Cassation (the highest Belgian court) of 16 December 2010. Mr Storme had in fact cited that decision for this proposition in [78] of his report. In an extraordinary passage in his closing submissions, Mr Ford contended that he had downloaded and translated the case, that it did not support the proposition for which Mr Storme contended and that this somehow cast doubt upon the veracity of Mr Storme. Mr Ford had apparently overlooked that the experts agreed the proposition and referred to the case in their joint report. This was another regrettable example of the impermissible lengths to which Mr Ford was prepared to go in seeking to disparage anyone involved with Ms Swaters (here her Belgian law expert) in support of his case.
So far as the fourth agreed proposition is concerned, the Belgian law experts agree that the release of the chassis by the public prosecutor does not give rise to res judicata but is a relevant factor for determining the buyer's good faith, although they disagree as to its significance. Ultimately, that is a question of fact for the court.
One issue about which the Belgian law experts were not agreed was whether the effect of Article 2279 (II) is to vest title in the possessor immediately, or only to do so after three years. Mr Storme's view is that under the Article the possessor who has acted in good faith will acquire at least a conditional title immediately and that his title will only be set aside by a "revindication", court proceedings commenced under Article 2279 (II) by the person from whom the goods were stolen or who has lost them within three years of the theft or loss. Mr Brijs on the other hand considers that the possessor only acquires good title after three years in the case of goods which were stolen or lost. If this point mattered, I would prefer the analysis of Mr Storme, but it is not necessary to decide the point, because on any view Mr Kleve did not commence proceedings to regain possession or revindication within three years of the chassis being stolen, from which it follows that, if Mr Swaters' possession was in good faith when he acquired the chassis, by 13 January 1992, at the latest, Mr Swaters had good title in the chassis and has had good title ever since.
On the question of whether the purchase of the chassis was made in good faith, Mr Swaters stated that he and Mr Lancksweert had acted in good faith in his affidavit in Ohio, where he said: "In March 1990, I partnered with Philippe Lancksweert and purchased the Vehicle in good faith from L'Exception Automobile in Belgium." In his witness statement, Mr Lancksweert made it very clear that he and Mr Swaters were only prepared to buy the chassis after the investigation by the Belgian authorities had concluded in the release of the Car to Mr Kruch on the basis he had free disposition of it. Mr Lancksweert said: "Jacques and I had not been prepared to buy the chassis if there was any question mark over its ownership. Mr Kruch also reassured us that he had bought the Car in good faith. The release of the chassis by the Belgian authorities was the critical moment for Jacques and me. The Belgian authorities had investigated the allegations and were satisfied that Mr Kruch could sell the Car. The release gave us the assurance that in Belgium we in turn as buyers from a Belgian seller were now free to work on the chassis."
In cross-examination by Mr Ford, Mr Lancksweert said that, as Ferrari representatives in Belgium, he and Mr Swaters would not have agreed to buy a stolen car. Mr Ford put to him an advertisement in the Ferrari Market Letter in February 1989 about stolen Ferraris, including the 375 Plus, but Mr Lancksweert said he had not seen this advertisement and did not know whether Mr Swaters had. They had not known the Car was stolen until after they bought it. I see no reason not to accept the evidence of Mr Lancksweert, whom as I have said I considered an honest witness. I consider that, despite the slurs on his and Mr Swaters' character insinuated by Ms Lawson and Mr Ford, it is inconceivable that, as reputable dealers and the sole Ferrari distributors in Belgium, they would have risked their reputation by buying the chassis, if they had known it was stolen or if the person from whom they were buying it was implicated in theft.
Of course they knew that there had been allegations in the United States that it was stolen and criminal proceedings against various people in the United States, since this is recorded in the preamble to the sales contract but that is not the same thing as knowing that the chassis was in fact stolen, let alone that Mr Kruch was implicated in the theft (which, of course, he was not). They were entitled to rely upon the fact that the Belgian public prosecutor had investigated the circumstances in which Mr Kruch had acquired the chassis and released the chassis back to him on the basis that he was free to dispose of it as he wished. As I held in [41] above, the public prosecutor would only have released the chassis to Mr Kruch if satisfied he was the owner and had acquired the chassis in good faith. In the circumstances, I consider that in relying upon the restitution of the chassis to Mr Kruch by the public prosecutor, Mr Swaters and Mr Lancksweert themselves acted in good faith for the purposes of Article 2279.
So far as the points relied upon by Ms Lawson and Mr Ford as demonstrating lack of good faith at the time of the sale contract are concerned, in the findings I have just made, I have dealt with the allegations referred to in sub-paragraphs (i), (iii) to (v), (viii) and (ix) of [11] above. Apart from the issue of the absence of the VIN plate, in order to determine whether there is any force in the other allegations, it is necessary to set out some of the history of the confusion over chassis numbers of Ferrari 375 Plus cars and some of the events and correspondence subsequent to the sales contract, whilst bearing in mind the agreed principle of Belgian law that subsequent events are irrelevant to the issue whether the possessor acted in good faith at the time of acquisition, save to the extent that those subsequent events and correspondence are indicative of bad faith at the time of acquisition.
In relation to the allegation about the absence of the VIN plate being indicative that the provenance of the chassis was suspicious, in cross-examination Mr Lancksweert denied that there was anything alarming or strange about the VIN plate having been ripped off, saying that there are cars which are sold without a VIN plate and that was why the Sabena Technics report was required. Quite apart from that evidence, which I accept, the suggestion by Ms Lawson and Mr Ford that the absence of the VIN plate was suspicious is unconvincing, given that the VIN plate was not removed because of or during the theft but had been torn off by vandals prior to the theft in an unconnected incident.
Mr Swaters exhibits to his affidavit in the Ohio proceedings material which precedes the sale contract which supports the case that there was uncertainty as to the chassis numbers of the Ferrari 375 Plus cars, even in the 1950s when they were being raced. For example, in an article from 1984 in Cavallino magazine, which describes itself as the magazine for Ferrari enthusiasts, it is stated that the 375 Plus cars were built solely for the offensive of the half dozen races of the Sports Car Championship of 1954, there were only a few constructed and many early Ferrari race cars have disappeared because Ferrari usually set them aside when done with them.
In relation to the 1954 races, the article describes how in the Tour of Sicily, a 375 Plus driven by Umberto Maglioli went off the road and crashed heavily, but it is not known which chassis this was and whether it was repaired. The article describes how two 375 Pluses were entered in the Mille Miglia in May 1954, one for Farina and one for Maglioli. Farina's car went off the road and hit a tree and the chassis of that car is reportedly known as 0386AM. It was said to have been discarded as beyond repair, but that was not definite. Maglioli's car was reported as 0394AM, with certain distinctive features such as a streamlined headrest and a more penetrating nose, but that car crashed as well. In the next race at Silverstone a car similar in appearance to 0394AM appeared driven by Froilan Gonzalez, which won the race. The article then describes how other evidence suggests that the car which won at Silverstone was in fact 0392AM.
The article continues that at Le Mans in June 1954, Ferrari entered three cars, one driven by Maglioli and Paolo Marzotto, numbered 3 which some commentators have said was 0394AM, because of its similarity to the winner at Silverstone, but the competition record for 0392AM states that it was car number 3. Having described subsequent races, the article stated: "There is a great deal of confusion over all these 375 Pluses, not only at Le Mans, but at all the other races as well. The only thing that can be stated with any certainty is that the real winning car may never be known conclusively."
Another example, which Mr Swaters exhibits to his affidavit, of the confusion over the chassis numbers is Ferrari Album 2 from 1981 which describes the car driven by Gonzalez at Silverstone and then driven by Maglioli and Marzotto at Le Mans in 1954 as 0394AM, which was then sold to Jim Kimberly. The Album includes photographs of "0394AM" at Silverstone where it was driven to victory by Gonzalez and of Mr Kimberly in practice in 0394AM at March Field in 1954. Mr Swaters also exhibits a Ferrari Market Letter from March 1986 which includes a photograph with the caption: "Jim Kimberly's 375 Plus S/N 0394. Car did not finish the 1954 24 Hours of Le Mans, with Paolo Marzotto and Umberto Maglioli." The text of the letter states: "Attempting to put together the individual history for each car requires a heavy reliance on the physical appearance of the cars. Until recently, given the fact that S/N 0384 was not believed to have been a 375 Plus and S/N 0386 had been destroyed, it was fairly simple-only S/N 0394 had the streamlined nose. But now S/N 0384 can lay claim to the same feature."
What emerges from those articles is that, at the time of the sales contract, there was considerable confusion, even among the specialists, as to what the chassis numbers were of the 375 Pluses, whether 0384AM and 0394AM was the same car, which 375 Plus had won which race and which 375 Pluses had survived into the 1980s. This provides an illuminating background to two allegations made by Ms Lawson and/or Mr Ford, that the sale to Mr Swaters and Mr Lancksweert at a price equivalent to about U.S. $100,000 was at a substantial undervalue and that Mr Swaters concealed the true identity of the Car by describing it as 0394AM.
So far as the first of those allegations is concerned, this was strenuously denied by Mr Lancksweert in his evidence. In his witness statement he says that the price they paid reflected the wrecked condition of the chassis and the risk they were taking that the wreck might not turn out to be one from the famous car. In support of that he refers to Mr Swaters' affidavit. In cross-examination, Mr Ford put to him that the price at which Mr Kruch bought from Mr Anderson of U.S. $4,500 was an absurdly low price, to which his response was: "it is a low price but nothing to do with us. We paid the right price for a wreck". Given the uncertainty as to whether the wreck was the car raced by Maglioli at the Mille Miglia and by him and Marzotto at Le Mans and by Gonzalez at Silverstone and the physical condition of the chassis at the time of purchase, I am quite satisfied that the price paid by Mr Swaters and Mr Lancksweert of 3,500,000 Belgian francs was a reasonable and fair price as Mr Lancksweert maintained, and not a purchase at an undervalue. As I have already found, I reject the case advanced by Ms Lawson and Mr Ford based upon some undisclosed and untested expert evidence in the U.S. criminal proceedings that the chassis was worth U.S. $500,000 at the time of the purchase by Mr Swaters and Mr Lancksweert in March 1990.
Despite Mr Ford's assertion in his submissions that Mr Swaters was aware, at the time of the purchase in March 1990 and thereafter, that the wreck was definitely that of 0384AM and that he then deliberately concealed its true identity by describing it as 0394AM, the contemporaneous correspondence belies that suggestion. In his witness statement Mr Lancksweert describes how he and Mr Swaters were aware of Mr Kleve's claims and after the purchase did not want Mr Kleve to continue to make allegations about the Car and try to damage their reputation. He describes how they approached Mr Kleve to see what they could do to stop him making claims and also to obtain the missing parts for the Car such as the fuel tank if Mr Kleve had them. He describes writing to Mr Kleve direct and through lawyers and how he even went to Ohio to meet Mr Kleve to see if he would be willing to settle his claim that the chassis was his, but at that stage the discussions came to nothing. He found Mr Kleve an odd man to deal with, quite eccentric.
This evidence of Mr Lancksweert was not challenged in cross-examination and is borne out by the contemporaneous correspondence. On 26 March 1990, Mr Lancksweert wrote to Mr Kleve on Garage Francorchamps notepaper with a Ferrari logo a letter which confirmed that Ferrari of Belgium (clearly a reference to Garage Francorchamps) in addition to paying him a sum of money for the frame of the car would feature him and his assistance in the recovery of the car in the history to be written after the car had been restored at the Ferrari factory and subsequently exhibited at the Ferrari Museum in Brussels.
At about the same time, on 2 April 1990, New York attorneys acting for Mr Swaters and Mr Lancksweert wrote to Mr Kleve. Criticism is made by Mr Ford of the fact that the letter stated: "As you know I represent Ferrari" as somehow misrepresenting the position. There is no basis for that criticism. Garage Francorchamps was the exclusive representative of Ferrari in Belgium and this statement presumes that Mr Kleve knew who he represented. There is no evidence Mr Kleve was misled. The letter went on to offer him U.S. $85,000 for the title to the car, stating that for that sum Ferrari would also expect his assistance in locating other parts from the original car and in providing his knowledge of its history.
Mr Ford submitted that the fact that, within days, Mr Lancksweert was prepared to offer Mr Kleve U.S. $85,000 for the Car demonstrated that the sale contract with Mr Kruch was at an undervalue. In my judgment, that submission is based upon a misapprehension. The offer of U.S. $85,000 was clearly made on the basis that Mr Swaters had already purchased the chassis from Mr Kruch for the equivalent of about U.S. $100,000, so that that offer of U.S. $85,000 was the price for buying out Mr Kleve in respect of his claims to the Car, together with purchasing the spare parts he had. That offer has no bearing or relevance to the price Mr Swaters was prepared to agree for the chassis.
Mr Lancksweert explains the reasons for these approaches to Mr Kleve in his witness statement:
"We did not doubt that we had title to the Car, but we were prepared to see what we could do so that Mr Kleve would not continue to make claims about the Car, which, as far as we were concerned were not correct. Of course at the time we had bought only the chassis. It was damaged and incomplete. It was missing the parts such as the fuel tank. If there were spare parts retained by Mr Kleve it made sense to reunite these with the chassis even if their true value was low or doubtful. That was why we approached Kleve in 1990…"
That explanation makes perfect sense and again was not challenged by Mr Ford in cross-examination. The correspondence certainly does not suggest that Mr Swaters and Mr Lancksweert knew the chassis was stolen, only that Mr Kleve was claiming it was his. Also that correspondence belies the suggestion that they were concealing the Car from Mr Kleve. They were quite open about their intention to restore the Car at the Ferrari factory in Italy then exhibit it in the Ferrari Museum.
At around the same time, there was correspondence about the Car between Mr Swaters and a well known Ferrari expert in the United States, Mr David Seibert, editor of Prancing Horse Magazine. Mr Seibert sent a fax to Mr Swaters on 3 April 1990 saying he was fairly certain that 0384AM was the car driven by Marzotto in the 1954 Mille Miglia where it crashed. He said he had a copy of the assembly sheets indicating the car was revised for the Carrera Messicana run in November 1954, but he did not believe it ran in the race. He continued that, as Mr Swaters knew, the car ended up near Cincinnati, Ohio in a field with a number of other cars, all apparently owned by Mr Kleve. Mr Seibert then set out some of the history of the theft of the vehicle, some of which subsequently proved inaccurate. The only significance of what Mr Seibert said for present purposes is that it would suggest to someone in the position of Mr Swaters in Belgium that the history was confused but that, although the car may well have been stolen at some stage, if he had purchased in good faith, as I have held that he did, he would be the owner. Indeed, having referred to the fact that none of those charged in the United States criminal proceedings made any claim to ownership, Mr Seibert himself stated: "It is possible that a subsequent 'purchaser' in Europe may be able to make some claim of having purchased the car in good faith, and therefore has some ownership interest."
Mr Swaters' response on 4 April 1990 to this fax was enthusiastic:
"Thank you very much for your fax of yesterday. What a wonderful documentation you sent me. This will help me a lot for the negotiation and for the rebuild of this car. …
Don't you think that this car, which is definitely the 0384 is the car that was entered by Ferrari at the Mille Miglia for Maglioli at the Le Mans Marzetto/Maglioli and Silverstone Gonzales?
At the three events Ferrari entered the car under the number 0394. But 0394 according to the factory was never build, was only an engine sold to Vandervell/Whitehead.
According to Ferrari documentation, 0384 was rebuild 1954 Sept 2 and sold to Kimberly.
On the chassis of this car you can found the number 03?4. The ? is for sure either a 8 or a 9. That's why I think it possible that, by mistake they entered 0384 at the Mille Miglia, Le Mans and Silverstone under the number 0394.
Last week I was in Maranello and looked through the archives and found:
0384 KIMBERLY
0392 GOLDSMITH
0396 EDGAR
0398 VALIENTE
0400 DESTROYED BY THE FACTORY
Do you know what happened between KIMBERLY and KARL KLEVE (Cincinnati)??"
This information was evidently derived from Mr Swaters' own researches into the history of the Car, both from the various publications which he exhibited to his affidavit twenty years later and in the Ferrari archives. This version of the history contradicts what Mr Seibert was fairly certain about in his fax, as Mr Seibert admits in his subsequent fax referred to below. Mr Ford alighted on the statement by Mr Swaters in his fax that the car "is definitely the 0384" as demonstrating that he knew that the car he had bought was 0384AM stolen from Karl Kleve and he had actively sought to conceal its identity thereafter by misdescribing it as 0394. In my judgment, the fax demonstrates nothing of the kind, only the obvious enthusiasm of a Ferrari expert who hopes he has purchased the chassis of a famous car, although there are still doubts as to whether it really is 0384. As Ms Swaters said when Mr Ford suggested to her in cross-examination that her father had sought to conceal the identity of the Car: "I remember my father didn't know which number it was due to the Sabena x-ray and he was obsessed with knowing the truth". In that context, it is also striking that, in their report in February 1996 the FBI state: "From 0384's first race it was mistakenly identified by sports writers as 0394AM and is still historically identified in motorsports literature as 0394AM."
Mr Seibert responded to Mr Swaters' fax the following day saying that: "if this chassis really 'owns' the history usually ascribed to 0394, many questions might be answered. My belief that 0384 was the Marzotto car (crashed) from the 1954 Mille Miglia was based on the assumption that 0394 was a different car, that the car crashed by Farina was 0386 and that Marzotto was driving a 4.9 liter car. By process of elimination this would most likely have been 0384. If, instead, this is the car which is usually described as 0394, then its history would include the Maglioli entry at the 1954 Mille Miglia. Marzotto and Maglioli at Le Mans and Gonzalez at Silverstone. The car would then have been sold to Jim Kimberly who sold it to Howard Hively of Cincinnati, Ohio. Another interesting fact, tending to support your theory, is that I have data sheets for several 375 Pluses: 0384, 0392, 0396 and 0398. These seem to be the only ones sold from the factory, if 0400 was destroyed and 0394 was only an engine. On the other hand, if the Maglioli MM car was 0384, then I'm not sure of the identity of the Marzotto car-could it perhaps have been 0400?"
Mr Swaters responded the next day saying he had asked Ferrari to search in the old documentation for something more "and at actual point they think 0394 may have existed and been sold with another engine and that engine 0394 have been sold to Vandervell. They are specially trying to find the original invoice to Kimberly." I have referred extensively to this correspondence to demonstrate that, contrary to Mr Ford's assertion, there was no certainty about the precise identity and chassis number of the Car. Rather, here were two Ferrari enthusiasts swapping theories on the subject.
On 11 April 1990, Mr Swaters faxed Mr Seibert to say his attorney, Nick Ackerman, who was trying to buy 0384 for him from Mr Kleve, had spoken to a William Victor who was a good friend of Mr Kleve. Apparently Mr Kleve would never sell to a trader but would sell to a real Ferrari Museum and Mr Victor was ready to convince him. The problem was Mr Victor did not know Mr Swaters and was not convinced he would restore the car with the help of the Ferrari factory for final destination in a Ferrari Museum. Mr Swaters asked Mr Seibert to speak to Mr Victor to explain the story of Mr Swaters and Garage Francorchamps.
Mr Seibert then spoke to Mr Victor, as recorded in his fax to Mr Swaters also on 11 April 1990. Mr Victor worked for a Mr Stegman, a Ferrari collector, and he was familiar in general terms with Mr Swaters and his cars. He and Mr Stegman both knew Mr Kleve well and described him as eccentric. He doubted whether Mr Kleve would sell as he wanted to start his own museum. He referred to Mr Kleve having many parts of the Car including the gas tank, the other wheel and the steering assembly.
Mr Swaters responded on 12 April 1990 thanking Mr Seibert for his help. He summarised the situation in these terms:
1. I would like very much to buy the car and rebuild it with the help of the Factory, make clear the situation, 384 or 394 and keep it in the future museum. I think this car is worthwhile.
2. I have already spoken with the factory and they agree to help me to found the real story and to rebuild the car.
3. The man who owns the car in Belgium is ready to sell to me the car, because he realises he will never be able to rebuilt the car, but he is a trader and is asking 1.000.000 US $ towards the Belgian law, he is the real owner, because he bought it in good faith, imported it regularly, paid the taxes…
4. Before to reach at an acceptable deal with the actual legal owner in Belgium, I want to make an acceptable agreement with Karl Kleve.
5. If I don't buy the car, the actual owner for sure will sell it to another trader. I think that Lamplough [a dealer whom Mr Seibert had said had been in Cincinnati and offered Mr Kleve US $800,000 for the car] wants to pay 500.000 US $ for the car but he wants the ownership and physically the remain of the chassis."
Mr Seibert replied on 17 April 1990 and said he supported Mr Swaters' attempt to buy the Car from the Belgian owner as well as from Karl Kleve. He would like to see the Car restored and believed Mr Swaters was the person to do this. He said that legally he suspected that by international law and Belgian law, the owner in Belgium had the right to sell the Car to him, even though it was stolen prior to purchase. From talking to Mr Victor he believed Mr Kleve did not understand this and believed his car was going to be returned to him and only he had the right to sell it. Mr Seibert did not believe that he could explain the matter to Mr Victor and Mr Kleve in such a way that they would accept his representations. Mr Swaters' attempts to buy Mr Kleve's title via Mr Seibert seem to have ended there.
Mr Ford relied upon Mr Swaters' fax of 12 April 1990 quoted at [71] above as evidence that Mr Swaters had not in fact purchased the chassis at that date and that therefore the sale contract of 16 March 1990 was not genuine, but in effect a sham. The fax of 12 April 1990 is certainly a curious document, but on the other hand, an allegation that the sales contract was not genuine or a sham is an allegation that the signatories of that contract, namely Mr Kruch, Mr Swaters and Mr Lancksweert were acting deceitfully: (see the classic definition of a "sham" by Diplock LJ in Snook v London and West Riding Investments Limited [1967] 2 QB 786 at 802C-E). Whilst Mr Ford cross-examined Ms Swaters about the fax of 12 April 1990 and put his case to her, notwithstanding that, since she was not involved at the time, she was unable to throw any light on what was going on, he did not put the fax or his case to Mr Lancksweert who was the one person giving evidence, who not only signed the allegedly sham contract, but might have been able to provide an explanation for Mr Swaters' fax. In view of that omission to put the allegation to Mr Lancksweert, I would be extremely reluctant to conclude that he had participated in a sham and, indeed, given the potential adverse effect on his reputation of such a conclusion, I consider it would be quite wrong to reach that conclusion.
Quite apart from that difficulty for Mr Ford's case, the question remains what is the most likely explanation for the fax of 12 April 1990. In my judgment, the most likely explanation is that, for whatever reason, Mr Swaters did not want Mr Seibert to know he had already purchased the chassis from the Belgian owner. Mr Ford's case that the fax represents the true position, namely that he had not purchased the Car at that stage so that the sales contract was not genuine is frankly implausible. That case must involve the sales contract having been created subsequently to make it appear that Mr Swaters had purchased the chassis in March 1990. However, if that is right, why on earth fabricate a sales contract document with a price appreciably lower than the price at which the 12 April 1990 fax states that the Belgian owner was prepared to sell. Surely if any contract was being fabricated subsequently, it would have contained a price which was the same as the U.S. $1 million referred to in the fax or more, particularly since, on this hypothesis, those who fabricated the sales contract document were not acting in good faith and would have been anxious to avoid any suggestion of a sale at an undervalue. Furthermore, the manuscript notation on the invoice referred to at [39] above is clear evidence that the price of 3,500,000 Belgian francs was paid by Mr Lancksweert at the time, a strong indication that the sales contract was made on 15 March 1990 and is genuine.
Accordingly, as I have said, it seems to me that the far more likely explanation is that the sales contract was genuine but that, for whatever reason, Mr Swaters did not want to tell Mr Seibert that he had already purchased the chassis. Obviously that gives rise to the question whether that subsequent conduct (which would otherwise be irrelevant to the question of whether Mr Swaters purchased in good faith as a matter of Belgian law on 16 March 1990) indicates lack of good faith as at 16 March 1990. In circumstances where Mr Lancksweert, who as I have said, might have been able to provide a legitimate explanation, was not asked about this in cross-examination, I would be extremely reluctant to conclude that the fax was indicative of lack of good faith.
Aside from the issue of price which I have dealt with, Mr Ford's principal point as to lack of good faith is that Mr Swaters was trying to conceal from Mr Kleve the whereabouts of the Car. Given that part of the context of the correspondence with Mr Seibert was a negotiation with Mr Kleve for the purchase of his rights, any suggestion that the fax of 12 April 1990 was designed to conceal the whereabouts of the chassis from Mr Kleve is entirely fanciful. The approaches to Mr Kleve by Mr Swaters, Mr Lancksweert and the U.S. attorneys made it quite clear that Mr Swaters and/or Mr Lancksweert had physical possession of the chassis, so that there is no question of them trying to conceal the Car or its provenance from Mr Kleve. In my judgment, the suggestion that Mr Swaters tried to conceal the true position as regards ownership or the location of the Car from Mr Kleve is unsustainable.
Mr Ford also alleged that Mr Swaters subsequently tried to conceal the whereabouts of the Car when he had it shipped to Ferrari in Italy for the repair and restoration work in 1991 and 1992 because all the invoices and shipping documents described the Car with chassis number 0394. This allegation is fanciful in the extreme. There was genuine uncertainty as to the identity of the Car and it does seem to have been interchangeably described as 0394 or 0384. The continuing confusion as to the identity of the Car and as to chassis numbers appears from the FBI letter to Ferrari of 6 October 1994: "During the August 1992 FF-40 exhibition sponsored by Garage Francorchamps, Francorchamps owner Jacques Swaters displayed a newly restored 375 Plus, reported to be chassis number 0394AM. This vehicle is an exact duplication of the Umberto Maglioli, Froilan Gonzalez, Paolo Marzotto, Jim Kimberly and Howard Hively car with its distinguishing notched headrest, sloping front and headlights, and overhanging front, universally referred to in racing periodicals as 0394AM but which now appears to be the stolen 0384AM of Mr Kleve's". There is nothing in the suggestion that Mr Swaters was trying to hide the Car from Mr Kleve or anyone else. He was open about and understandably proud of his restoration project.
In the circumstances, nothing in Mr Swaters' subsequent conduct has any bearing on his good faith at the time of his purchase of the chassis in March 1990 and, in my judgment, he obtained good title to the chassis as a matter of Belgian law in March 1990. Furthermore, although Mr Kleve had some correspondence with the U.S. Embassy in Brussels in April and May 1990 seeking their assistance in recovering the chassis from which it is pretty clear he knew Mr Swaters had the chassis, he did not commence proceedings in Belgium for revindication within three years of the theft or at all, notwithstanding that he received advice from a Belgian lawyer, Mr Paramore. Accordingly, on any view, Mr Swaters had good title as a matter of Belgian law from 13 January 1992.
Events leading up to the Settlement Agreement
The restoration of the Car undertaken by Mr Swaters was a long and expensive process. As the FBI recorded, in August 1992 the Car returned to Belgium from Italy and was exhibited at an event to celebrate the 40th anniversary of Ferrari Francorchamps, which was attended by individuals from Ferrari in Italy. In all, including the subsequent purchase of the original engine, Ms Swaters and her father have spent some £637,500 restoring the Car.
In December 1994, Mr Lancksweert left Garage Francorchamps to work for Ferrari in the United States. As part of his exit deal, Mr Lancksweert and Mr Swaters agreed to divide their interest in the Car equally.
Although Mr Kleve made no claim to the ownership of the Car in Belgium, in Ohio he made a series of applications to the Ohio authorities to have issued to him a number of 'certificates of title' (dated 24 March 1994, 16 March 1995 and 21 March 1997) recording that he was the purported owner of the Car. I agree with Mr Eschwege that these documents are irrelevant to the analysis of ownership. I accept the evidence of Mr Lenox that possession of an Ohio certificate of title cannot of itself confer ownership of a vehicle. The certificates of title cannot apply to the chassis, which was in Belgium, and cannot apply to the spare parts, which do not in themselves fall within the scope of the Ohio Certificate of Motor Vehicle Title Act, which only applies to a "motor vehicle" as defined. The spare parts do not fall within that definition.
On 5 April 1995, Mr Kleve appointed Mr Mark Daniels of NSS as his agent to recover the Car. He entered into arrangements to pay NSS a commission if the Car was recovered which was set out in a Contract dated 23 August 1995 as 30% with all costs included in the fee, although informants' fees were not to exceed U.S. $250,000, to be paid at the time of final disposition (liquidation, settlement or return of the property to Mr Kleve). Mr Kleve signed a series of powers of attorney giving Mr Daniels authority to act on his behalf in relation to the Car, in particular Limited Powers of Attorney dated 6 March 1997 and 28 October 1998.
The Power of Attorney dated 6 March 1997 seems to have been given in anticipation of discussions which took place between Mr Daniels and a Doug Freedman who acted as an intermediary between Mr Daniels and Mr Swaters. Apparently in anticipation of a possible settlement, on 21 March 1997, NSS was registered with the Ohio court (as recorded on the certificate of title granted to Mr Kleve that day) as first lienholder of the Car, the lien presumably being in respect of any fee or commission due to NSS if there was a settlement. However, whatever discussions took place in March 1997 came to nothing. It was not until the spring of 1999 that serious negotiations to resolve the dispute as to ownership took place.
Mr Swaters appointed Mr Lancksweert, who was then living in Los Angeles, as his agent in the negotiations. In due course, Mr Swaters executed a document headed "Designation of Agent" which designated Mr Lancksweert as agent on behalf of the business partnership between them with due authority to take all necessary actions and execute and deliver all necessary documents to consummate the transaction contemplated under the Settlement Agreement between Mark Daniels, Karl Kleve and Mr Lancksweert.
Mr Daniels acted on behalf of Mr Kleve. Mr Lancksweert instructed the New York law firm Seyfarth, Shaw, Fairweather and Geraldson ("SSFG") to act for him and negotiate with Mr Daniels. As he explained in his evidence, SSFG vetted and arranged all the documents, formalities and payment mechanisms. This is an important reality check as regards the plausibility of many of Ms Lawson and Mr Ford's multitude of arguments as to why the Settlement Agreement was not valid and binding on Mr Kleve. If they are right, then SSFG were negligent at best, possibly worse. It is inherently unlikely that experienced New York lawyers would not have satisfied themselves, for example, that Mr Daniels was authorised to enter into the Settlement Agreement and that any documents he presented were genuine.
Drafts of the Settlement Agreement and associated documentation were being negotiated by April 1999. This is apparent from a fax of 29 April 1999 from Mr Steven Greenspan of SSFG to Mr Daniels, enclosing the "attached revised Settlement Agreement, General Release and Covenant not to Sue for both Karl Kleve and yourself and the Bill of Sale". In that draft the settlement amount is recorded as U.S. $750,000. Mr Lancksweert's evidence is that that was the figure he and Mr Swaters were prepared to offer. Although Mr Ford sought to make much (by reference principally to telephone conversations between Mr Daniels and Mr Kleve which Mr Kleve recorded and to which I return in more detail below) of the suggestion that Mr Kleve was only prepared to settle for U.S. $3 million, Mr Lancksweert's evidence, which I accept, is that no-one ever told him that Mr Kleve wanted U.S. $3 million.
On 16 June 1999, Mr Daniels faxed Mr Nathaniel Akerman of SSFG sending revised agreements, saying: "After much discussion with Karl, this is what he has agreed to and has already said has or will be executed." The attached agreements were essentially in the form eventually signed by the parties. The amount of the settlement (which was to be paid by Mr Lancksweert into an escrow account) is left completely blank on the first page of the Settlement Agreement faxed on that occasion.
On 23 June 1999, SSFG sent the draft agreements back to Mr Daniels with a number of suggested amendments in manuscript, including a modification to the "Transfer Documents" Mr Kleve would be required to deliver pursuant to clause 2, to include the original VIN plate. This presented Mr Kleve with a problem, since he could not locate the original VIN plate. It had not been stolen with the chassis, since as noted above, prior to that, it had been ripped off by vandals, but he could not locate it. In due course, at Mr Daniels' suggestion he reported it to his local police in Green Township, Cincinnati, Ohio, as recently lost or stolen and also swore an affidavit to that effect which was provided to SSFG.
On 16 July 1999, Mr Kleve appeared before Denise Schmidt, a notary public in Ohio, and signed the Settlement Agreement. The notarisation stated: "Before me, the undersigned authority, on this day personally appeared KARL KLEVE known to me to be the person whose name is subscribed in the foregoing. GIVEN UNDER MY HAND AND SEAL THIS 16 DAY of JULY 1999". The Settlement Agreement which he signed consisted of three pages and, as I find, in all probability, at the time of his signature, the settlement amount on the first page was left blank. This not only accords with the fact that the amount was still to be negotiated between Mr Daniels and Mr Lancksweert, but is borne out by the expert opinion of the forensic document examiners, to which I refer below. On 19 July 1999, the Settlement Agreement was then signed by Mr Daniels "Acting Agent (Attorney in Fact) for Karl Kleve and as corporate officer of National search Services" before Eric Salani, a notary public in Florida, who subscribed the same rubric as set out above.
On 27 July 1999, SSFG sent Mr Lancksweert a draft of an escrow agreement pursuant to which SSFG would act as escrow agent. Under clause 1 of the draft Settlement Agreement (and indeed of the executed Agreement) Mr Lancksweert was to pay the settlement amount into the escrow account, from where, under clause 2, it would not be released until Mr Daniels had delivered executed Transfer Documents. Mr Ford pointed out that the draft escrow agreement set out the documents that Mr Daniels was to present at closing of the transaction, including "Letter of Authority from Kleve authorising Daniels to enter into the transaction contemplated under the Settlement Agreement", but no such letter had ever been produced. I do not regard that as in any sense suspicious, given the width of the Power of Attorney which Mr Kleve undoubtedly did sign, as referred to below. SSFG also sent Mr Lancksweert a draft amendment to the Settlement Agreement to deal with keeping it confidential. That draft amendment also stated: "Mr Karl Kleve and the current owner of the 1955 Ferrari 375 Plus serial number 0384AM have reached a mutually satisfactory settlement with regard to the sale of the automobile. As a result of the settlement, all claims with regard to ownership of the automobile have been resolved." In due course, that amendment was signed by both Mr Lancksweert and Mr Daniels on behalf of Mr Kleve.
On 31 July 1999, Mr Lancksweert faxed back to Mr Greenspan of SSFG the signed escrow agreement and amendment. He asked Mr Greenspan to check with Mr Daniels if he could provide all the requested documents. He stated: "We should find an agreement on the amount within 48 hours". On 5 August 1999, Mr Lancksweert telephoned Mr Greenspan to say that, in light of the missing VIN plate and certain original parts (for example the front bonnet and the fuel tank) the parties had agreed to adjust the settlement amount downwards from U.S. $750,000 to $625,000. Mr Lancksweert explained this in his witness statement: "Jacques and I had originally been prepared to pay Mr Kleve U.S. $750,000 in order for him to release any claims. However, as far as Jacques and I were concerned the agreement was in relation to the Car as a whole, and the releases were in respect of the Car as a whole. But since the Car was missing the VIN plate and some other parts, Jacques and I thought that there should be a reduction in the settlement price to U.S. $625,000".
Although, understandably, in his statement Mr Lancksweert said he could not remember the negotiations in detail, this demonstrates that, at around that time at the beginning of August 1999, Mr Daniels told Mr Lancksweert that the VIN plate and spare parts were missing. Ms Lawson and Mr Ford have a pleaded case that Mr Daniels told Mr Lancksweert that the spare parts were stolen, a statement which Mr Lancksweert knew or should have known was false because SSFG had copies of photographs of the spare parts on display at Mr Kleve's premises and a FBI report listed those parts as not being reported stolen. This is said to be one of the matters that should have put Mr Lancksweert on enquiry so that Mr Daniels did not have ostensible authority. This was always an odd plea, but none of it was put to Mr Lancksweert in cross-examination. In any event the mere fact that there were photographs of the spare parts does not mean that they could not have been stolen subsequently, so that it is difficult to see how it could be said that Mr Lancksweert was put on enquiry.
Furthermore, given that Mr Kleve in fact still had the spare parts, if his agent Mr Daniels did lie to Mr Lancksweert and say that the spare parts had been stolen when they had not, I do not see how that could have put Mr Kleve (and therefore by definition Ms Lawson and Mr Ford) in a better position as regards the issue whether, on the true construction of the Settlement Agreement, Mr Kleve forewent any claims and transferred title to the spare parts. Otherwise, Mr Kleve would have been able to profit from his agent's dishonesty. In cross-examination of Mr Lancksweert, Mr Ford sought to extract from him an admission that, because the price was reduced, the spare parts were excluded from the Settlement Agreement, but in my judgment, although Mr Lancksweert showed some tendency to accept that, the issue whether the Settlement Agreement included the spare parts is ultimately a question of construction for the court.
On 11 August 1999, Mr Daniels faxed Mr Greenspan apologising for the delay, saying that whenever he needed something from Mr Kleve it took ten times longer than it should. He referred to the fact that there was now an affidavit about the VIN plate. In relation to the question of release of his lien, he said that the Head Supervisor Clerk of the Title Division of the State of Ohio had told him that, if he released the lien, it would no longer be valid, which would leave him with some exposure. The procedure was that, once the lien was satisfied by receipt of payment, the lienholder would sign off the lien portion and forward it to the State and the Clerk's Office would stamp it "Cancel". Alternatively, on payment the lienholder would forward Title to the new owner, who would then forward it to the Clerk for cancellation and the Title would be delivered to the new owner's address. This would obviously cause some delay, so Mr Daniels proposed a solution which was that he would forward a lien release agreement and SSFG would then make a wire transfer to NSS whose bank details he set out and once SSFG got the [cancelled] Title back from the clerk, then they would make a second wire transfer or a cashier's cheque payable to Mark Daniels and Karl Kleve for the remaining amount. This is obviously the genesis of the payment of the two cheques.
On 18 August 1999, Mr Kleve appeared before Ms Schmidt the notary public again and signed a Limited Power of Attorney which was notarised by the notary with the same rubric as set out at [89] above. The Power of Attorney constituted and appointed Mr Daniels Mr Kleve's true and lawful Attorney-in-Fact:
"with power to act in my stead and in my behalf regarding Ferrari 375 Plus (Grand Prix Roadster) Chassis No: 0384AM With full complete authority and power, including but not limited to, investigate, negotiate, present documents, receive documents, convey, make endorsements, to sign and swear to any document, to perform any act that may be necessary or require[d] by United States or International law or regulation…
Giving and granting to this Attorney-in-Fact power and authority to do and perform every act necessary and proper to be done in the exercise of any of the foregoing powers as fully as I might or could possibly do, if present, with full power of substitution and revocation, hereby ratifying and conforming all that my Attorney-in-Fact shall lawfully do or cause to be done by virtue of this document.
This power shall remain in full force until cancelled in writing…
This power shall be binding upon and inure to the benefit of the parties herein, their estate, successors and assigns".
On 23 August 1999, Mr Daniels faxed various documents to Mr Greenspan, including the report from Mr Kleve to his local police department on 17 August 1999, that, at some point in the last year, the VIN plate had been lost or stolen.
On 30 August 1999, no doubt in anticipation of the closing meeting that was to take place at SSFG's offices in New York on 2 September 1999, Mr Daniels had a copy of the original 18 August 1999 Power of Attorney certified by a notary public in Palm Beach, Florida where he lived. The notary certified and sealed an Affidavit of Certified Copy which provided: "I, Beth A Ryan, a Notary Public in and for the State of Florida, do hereby state and certify based on satisfactory evidence and the production of documentation by the presentor, that the attached document is a true and correct copy of the original document personally viewed." On 1 September 1999, the same notary public certified and sealed an Affidavit of Certified Copy in the same terms in respect of the Settlement Agreement. The copy which she certified now contained the settlement amount of U.S. $625,000, strong evidence that, on or before 1 September 1999, that amount had been written on to the original Settlement Agreement by Mr Daniels.
On 1 September 1999, Mr Daniels also faxed to Mr Greenspan copies of the Settlement Agreement (the first page of which had the settlement amount of U.S. $625,000 in his manuscript), copies of three different versions of a General Release and Covenant Not to Sue, to be provided by each of Mr Kleve, Mr Daniels and Mr Lancksweert, an Agreement Release of Theft Status, a Lien Release and a Bill of Sale. On the same day, on 1 September 1999, Mr Daniels faxed Colonel West of the Green Township police department referring to the fact that, at the point that settlement was reached, it would be necessary to remove the vehicle from theft status. Mr Daniels sent as part of the fax copies of the notarised Power of Attorney and Letter of Authority executed by Mr Kleve for his file. He said that if settlement was reached, he would forward a request to remove the vehicle from theft status.
The closing meeting and the agreements signed
On 2 September 1999, the closing meeting took place at SSFG's offices in New York. Both Mr Lancksweert and Mr Daniels were in attendance. In his witness statement Mr Lancksweert said that the meeting went smoothly. He executed the necessary documents. In particular, Mr Lancksweert signed the original Settlement Agreement (with the settlement amount of U.S. $625,000 in it) upon which Mr Kleve and Mr Daniels had already placed their notarised signatures. Mr Lancksweert's signature was notarised by Yvonne Williams a notary public in the State of New York, with the same rubric as set out at [89] above. The notary public also certified a true and correct copy of the original Settlement Agreement. Mr Lancksweert's signature on the Amendment referred to at [91] above and the General Release and Covenant not to Sue from him were also notarised by the same notary public.
Mr Daniels signed the other documents as the Attorney-in-Fact of Karl Kleve, pursuant to the Power of Attorney: the Amendment, the Bill of Sale, the General Release and Covenant not to Sue from Karl Kleve, the Lien Release and the Agreement Release of Theft Status. Mr Daniels also signed the General Release and Covenant not to Sue from himself. His signature on all those documents was witnessed and notarised by Ms Williams, the notary public.
In proof of his authority to act and sign on behalf of Mr Kleve, Mr Daniels produced the copy of the 18 August 1999 Power of Attorney which had been certified by the Florida notary public, together with her Affidavit of Certified Copy in respect of the Power of Attorney. At the closing meeting, Mr Daniels also signed (and his signature was witnessed and notarised by Ms Williams, the New York notary public) an Affidavit which referred to the Power of Attorney dated 18 August 1999 giving him complete authority to convey the Car to Mr Lancksweert and to take whatever action was necessary to convey that property including execution of the various documents. He confirmed in the Affidavit that he had no knowledge of the death or incapacity of Mr Kleve or of any revocation of the Power of Attorney and represented that he had complete authority under the Power of Attorney to convey the Car under the operative sales documentation he was signing and executing that day. He agreed to return any consideration paid to him in the event that his authority under the Power of Attorney did not apply to the transaction.
Mr Ford sought to rely upon the fact that Mr Daniels had provided this Affidavit, evidently at the behest of SSFG, as somehow demonstrating that Mr Lancksweert and SSFG were aware that he did not have authority to enter into the Settlement Agreement or the other documentation. In my judgment, it demonstrates nothing of the kind. It is far more likely that this was the New York lawyers being ultra-cautious in circumstances where Mr Kleve was not at the closing meeting and the Power of Attorney had been signed a fortnight earlier. It is certainly not indicative of knowledge of any defect in his authority.
So far as the terms of the documents signed at the closing meeting are concerned, the Settlement Agreement itself provided in the Recitals:
"WHEREAS Kleve is the owner of the herein referenced automobile, [of] which was removed from his possession in or about 1989. The automobile described TO WIT
FERRARI 375 PLUS serial number: 0384AM ("Subject Automobile")
Thereafter Kleve retained the services of Mark Daniels/National Search Services to locate and recover the subject automobile, or alternatively negotiate any resolution, disposition or settlement, subject to the satisfactory approval of Kleve and;
WHEREAS Daniels is the corporate officer of National Search Services Inc having encumbrance for services rendered for the benefit of Kleve on the subject automobile and Daniels personally is appointed Attorney-in-Fact holder of a Power of Attorney executed by Kleve, and;
WHEREAS Lancksweert is the agent/representative of the person or entity currently in possession of the subject automobile for purposes of settlement, resolution and disposition of the aforementioned subject automobile and;
WHEREAS the parties are negotiating and acting in their capacity for the benefit respectively of their agency."
The operative provisions of the Settlement Agreement provided inter alia as follows:
1. THAT as soon as reasonably possible upon execution of this Agreement Lancksweert shall deposit an amount equal to U.S. $625,000 in lawful United States currency in an escrow account ("the Account") satisfactory to Lancksweert, such amounts to be released only upon written direction of Lancksweert after satisfaction of the conditions set forth in section 2 below.
2. Upon deposit of the escrow amount and written notice to Daniels or a designated representative's verification of the escrow deposit, Daniels shall within two days following such notice, deliver to a designated representative of Daniels executed ownership documents of the subject automobile; to include the Title, Power of Attorney, Letter of Authority, Lien Release and Bill of Sale, all of which have been reviewed by Lancksweert in advance (collectively the "Transfer Documents"). In addition to the Transfer Documents, Daniels and Kleve shall provide a letter certifying that the release of the theft status of the subject automobile and the transfer of good and clear title and executed relevant documents for the benefit of Lancksweert or to any other person or entity as Lancksweert may designate shall be valid and released to Lancksweert upon satisfactory evidence that Lancksweert has deposited the full and complete amount and the receipt thereof, as previously herein indicated in Section 1. Simultaneously upon release of the Transfer Documents to Lancksweert, the funds in the Account shall be released to Daniels or designated representative. If Daniels fails to deliver the transfer documents and related documents, the funds held in escrow shall be returned to Lancksweert immediately.
3. (a) Kleve and Daniels represent and warrant, jointly and severally, that upon consumation [sic] of the transactions provided for above, Lancksweert, or any other person or entity that Lancksweert may designate, shall have good and clear title to and hold all rights, title and interests in the subject automobile free and clear of any claims, liens or encumbrances.
(b) Kleve and Daniels represent and warrant, jointly and severally, that good and free title to the subject automobile shall be conveyed to Lancksweert free and clear of all liens, claims, charges and encumbrances of any kind or nature.
(c) Kleve and Daniels represent and warrant, jointly and severally, that there are no claims, litigation, actions, proceedings, hearings or other administrative or judicial matters pending or threatened, or third party consents required from any person or entity, which would in any way affect the ownership of the subject automobile.
5 Non Performance or Breach by Lancksweert
Lancksweert expressly agrees that he and/or any person or entity on whose behalf Lancksweert is acting, or any person or entity who is acting on behalf of Lancksweert, breaches or fails to remit the complete and full payment as stipulated herein for the benefit of Kleve and Daniels, Kleve and Daniels withdrawl [sic] any agreements or representations, and shall reserve all rights to the subject automobile, as well as, any and all rights to pursue and necessary legal remedies and action.
9 New York Law
This Agreement will be construed in accordance with and governed by the internal laws of the State of New York without reference to the conflicts of laws principals [sic] thereof.
The Bill of Sale provided that Karl Kleve: "for good and valuable consideration, the receipt of which is hereby acknowledged, does hereby sell, transfer, convey, assign and deliver unto Philippe Lancksweert ("Buyer")…good and marketable title to the Subject Vehicle (as that term is defined in the Settlement Agreement), free and clear of any and all liens, claims. liabilities or encumbrances of every kind and nature, to have and hold such Subject Vehicle unto Buyer its successors and assigns, to and for its or their use forever". The Release of Theft Status provided that Mr Kleve agreed to release the theft status as reported to the Green Township Police Department in the theft report dated 24 January 1989. It is not necessary to set out the terms of the General Releases save to note that they reflected the terms and purpose of the Settlement Agreement to resolve and settle any and all disputes between the parties in respect of the Car.
The Lien Release provided by Mr Daniels provided that "for good and valuable consideration, the receipt of which is hereby acknowledged, [he] does hereby release any lien, liability and encumbrance" and then continued in similar terms to the Bill of Sale. In fact, Mr Daniels produced at the closing meeting the 21 March 1997 Ohio Certificate of Title of Karl Kleve which had recorded the lien, with notation by NSS that the lien had been discharged and a stamp from the Clerk of Courts in Ohio dated 26 August 1999 "Lien Cancelled". On the reverse of the Certificate Mr Daniels as Attorney-in-Fact for Mr Kleve warranted that the title was free of all liens. That warranty was sworn to and subscribed by him before Ms Williams, the notary public in New York on 2 September 1999.
At the closing meeting Mr Lancksweert also produced two cashier's cheques drawn on an account with Fidelity Trust Company International dated 2 September 1999, one in favour of National Search Services for U.S. $225,000 and one in favour of Karl Kleve and Mark Daniels for U.S. $400,000. Although clause 2 of the Settlement Agreement provided that the monies were to be held in escrow until Mr Daniels provided the Transfer Documents, since he provided the Transfer Documents and the Certificate of Title with the stamp "Lien Cancelled" on it at the closing meeting, it is apparent that the escrow account did not in fact need to be operated and the cheques were released to Mr Daniels.
On 2 September 1999, Mr Kenneth Crook, the FBI agent who had investigated the theft and subsequent history of the chassis and who had been in contact at various stages with Mr Kleve, sent Mr Greenspan of SSFG a fax confirming that the Car was not currently reported stolen because there was no record of the VIN with the NCIC, the FBI's National Crime Information Center. From this it is clear that Mr Crook knew that the Settlement Agreement was being concluded and it would be surprising, to say the least, if he knew that, but Mr Kleve did not.
It appears that the cheques were presented by Mr Daniels promptly to his bank, since on the cheque in favour of Mr Kleve and Mr Daniels there is an endorsement by him in favour of Mr Kleve on the reverse on which the stamps indicate that this was endorsed at a bank in Orlando, Florida on 3 September 1999. I deal later in the judgment with the suggestion by Ms Lawson and Mr Ford that Mr Kleve did not receive any money.
On 11 November 1999, the Green Township Police Department produced a statement requesting that the case of the theft of the vehicle be cleared due to the civil agreement (i.e. the Settlement Agreement) reached on 2 September 1999. Again, it would be surprising if this statement from the police was provided without Mr Kleve's knowledge.
Authenticity of the Settlement Agreement
As noted above, until relatively recently, the main case pursued by Ms Lawson and Mr Ford, as set out in Further Information served on 17 April 2015, was that the Settlement Agreement had somehow been fraudulently altered, in particular that the amount of U.S. $625,000 had been substituted in some way for the amount of U.S. $3 million which it was alleged was originally on the document or that Mr Daniels replaced the original page one of the Settlement Agreement, which bore the figure U.S. $3 million, with a page one bearing the figure U.S. $625,000. There was never any evidence to support this forgery allegation. In particular, Ms Lawson and Mr Ford have never produced a copy of the Settlement Agreement signed by Mr Kleve bearing the figure U.S. $3 million. Although Mr Kleve seems to have faxed a copy of the Settlement Agreement to FBI Agent Crook on 6 June 2000 with the figure of U.S. $3 million filled in on the first page, that copy was unsigned by anyone, so it cannot have been a copy of the document actually signed by Mr Kleve on 16 July 1999.
The case that the Settlement Agreement signed by the parties had been fraudulently altered is comprehensively exploded by the expert evidence of the forensic document examiners. In their joint report, Mr Slyter and Mr Cosslett, who examined the original at different times, agree that there was no evidence of abrasion of the surface of the paper associated with the U.S. $625,000 entry on the first page. They concluded this entry had not been altered. Mr Cosslett examined the document using the ESDA technique to see what indented impressions there were on the second and third pages. He found impressions on both of the amount entry U.S. $625,000 showing that the amount was written on the first page whilst it was above the second and third pages and he found no impressions of any other amount entry.
In my judgment, that demonstrates that the only amount ever entered on the first page of the original as signed by all three signatories was U.S. $625,000, which was almost certainly inserted by Mr Daniels at a time when the first page was stapled to the second and third pages. If the pages had been loose, the impressions on the second and third page of that amount entry would in all likelihood have been slightly blurred. Mr Slyter was able to examine the three staples on the top left hand and concluded there was no evidence they had been removed and that the three pages could not have been changed after they were stapled. By the time of Mr Cosslett's examination the staples had been removed, but there was an entirely innocent explanation for this, that it had been done by staff at Bonhams' solicitors, Jones Day, for photocopying purposes.
Mr Slyter found that the three pages of the original all had the same physical properties and were in all probability from the same stock of paper. He also examined the copy of the Settlement Agreement certified by the Florida notary public, Beth Ryan, on 1 September 1999 and concluded that the Settlement Agreement had not been altered since that certified copy was made.
The suggestion that Mr Kleve signed the Settlement Agreement at a time when page one bore the figure U.S. $3 million and Mr Daniels subsequently swapped that page one for another page one bearing the figure U.S. $625,000, is implausible in the extreme. It involves the hypothesis that Mr Kleve or someone else inserted the figure U.S. $3 million on the original page one at a time when it was not stapled to or sitting on top of pages two and three, because otherwise there would be some indented impression of that figure on the original page three, which there is not. It seems highly unlikely that the figure would have been inserted on the original at a time when the pages were separated in that way. Furthermore, unless the three pages were being dealt with loose which seems highly unlikely, Mr Daniels could not have replaced the first two pages of the document after they were stapled together, given Mr Slyter's evidence that the staples had not been removed and his conclusion that the three pages could not have been changed after the corner had been stapled.
On the basis of that expert evidence, I consider that, in all probability, when Mr Kleve signed the Settlement Agreement on 16 July 1999, the amount of the first page was blank. That would also be consistent with the fact that at that time negotiation of the settlement amount was still ongoing between Mr Lancksweert and Mr Daniels. Mr Daniels then filled in the amount of U.S. $625,000 on the first page at a later date, in all probability at around the time on 1 September 1999 when Mr Daniels had the copy of the Settlement Agreement notarised in Florida and when all three pages were stapled together. There is no evidence that Mr Kleve ever signed the third page of the original Agreement with any figure filled in on the first page as is borne out by the fact that Mr Cosslett found the impression of the U.S. $625,000 but no other figure on the third page actually signed by Mr Kleve.
In my judgment, the Settlement Agreement is clearly an authentic document which was binding on Mr Kleve if Mr Daniels had authority to enter into the Settlement Agreement and it is to that issue of authority which I now turn.
Mr Daniels' actual authority to conclude the Settlement Agreement
Ms Swaters' primary case is that Mr Daniels had actual authority, conferred by the 18 August 1999 Power of Attorney signed by Mr Kleve. The law of New York on the effect of such a power of attorney as stated by Mr Kiernan is very clear and is essentially the same as English law. It can be summarised as follows. A power of attorney signed by a principal constitutes a grant of actual authority to the agent. The agent designated in the power of attorney becomes the principal's alter ego, with full power and authority to bind the principal within the scope specified in the power of attorney. Where a third party relies on a signed power of attorney, questions concerning the scope of authority that arise from ambiguities in the language of the power of attorney are resolved against the principal in favour of the third party. The Court of Appeals of New York (the highest state court) stated the purpose of a power of attorney in these terms in Keyes Metropolitan Trust Co (1917) 220 N.Y. 237: "The purpose of a written power of attorney is not to define the authority of the agent, as between himself and his principal, but to evidence the authority of the agent to third parties with whom the agent deals". Mr Racki seemed to cavil at that principle because the case was decided a hundred years ago, but his unwillingness to accept a basic principle of New York law seemed to me to demonstrate both what an unsatisfactory witness he was and that he was not really an expert on New York law at all.
The 18 August 1999 Power of Attorney was clearly in wide enough terms to authorise Mr Daniels to execute the Settlement Agreement and agree the amount of the settlement. It gave Mr Daniels power to act "in my stead and in behalf regarding" the Car and gave him "full complete authority and power" "including but not limited to" a list of actions, which included conveying, a clear indication that the powers given included to convey title to the Car. Mr Kiernan's evidence, which I accept, is that, as a matter of New York law, the 18 August 1999 Power of Attorney gave Mr Daniels actual authority to bind Mr Kleve to the Settlement Agreement. According to the joint report, Mr Racki was not prepared to give an opinion on that question, a reticence I found distinctly unimpressive.
Ms Lawson and Mr Ford seek to challenge the 18 August 1999 Power of Attorney in a number of ways, all of which I consider to be without merit. First they allege in their pleading that Mr Daniels fraudulently altered the Power of Attorney from the one which Mr Kleve signed, but there is absolutely no evidence to support that allegation, which should not have been pleaded. Mr Kleve clearly did sign the Power of Attorney on 18 August 1999, since it was witnessed by a notary public. Mr Daniels then had the Power of Attorney notarised by a notary public in Florida, where he was resident. The statement by that notary demonstrates that she saw the original and was confirming that what she notarised was a true copy. Mr Ford (who as I have said is a non-practising Louisiana attorney) went so far as to assert that it was not open to a notary to do this as a matter of Florida law, which was plainly a nonsensical suggestion made in an effort to overcome an obvious obstacle in his and Ms Lawson's case.
Equally, there was nothing in the point which he also advanced that all that was produced by Mr Daniels to the New York lawyers for Mr Lancksweert was the certified copy of the Power of Attorney and not the original. The fact that it was a certified copy establishes that there was a genuine valid Power of Attorney which the notary public had seen, of which she was certifying the copy and that it had not been altered.
Second, Ms Lawson and Mr Ford's pleaded case is that Mr Daniels' authority to conclude the Settlement Agreement was circumscribed by a letter of authority signed by Karl Kleve on 18 June 1999. That contains manuscript additions: "approved by Karl Kleve" and "by Karl Kleve" which are in Mr Timothy Smith's handwriting and which purport to limit Mr Daniels' power to present offers to any counterparty to offers approved by Mr Kleve. Mr Smith claimed in his witness statement that this was done whilst he was on the phone with Mr Kleve. In cross-examination he was unable to say when the manuscript amendments were made although he did not think that he would have altered the letter after Mr Kleve had signed it. Mr Eschwege put to him another copy of the letter with different manuscript, albeit the same words, which he said was also in his handwriting. He was unable to explain why he had added manuscript amendments to two copies of the letter, nor why he had not got Mr Kleve to countersign the amendments, which would have been the usual practice of any competent lawyer. In any event, he was unable to say when the amendments were made.
In my judgment, it cannot be safely assumed that these manuscript amendments were made at or around the time that the letter of authority was signed by Mr Kleve, as opposed to at a much later date. As I have said I did not consider Mr Smith a reliable witness and he has a financial interest in this litigation being determined in favour of Ms Lawson and Mr Ford. However, whenever the letter was altered, it had been and was superseded by the 18 August 1999 Limited Power of Attorney, so that, at the time that the Settlement Agreement was actually concluded on 2 September 1999, the letter of authority (even if the handwritten amendments had been made to it by then) cannot circumscribe Mr Daniels' actual authority which was clearly granted by the later document, the 18 August 1999 Power of Attorney. Furthermore, Mr Lancksweert's evidence, which I accept, is that he neither received nor saw the 18 June 1999 letter of authority at the time of negotiation and conclusion of the Settlement Agreement. That is borne out by the fact that there is no copy of the letter of authority in SSFG's closing file.
Ms Lawson and Mr Ford's pleading also includes a somewhat bizarre allegation that Mr Daniels was unable to produce the Power of Attorney referred to on the first page of the Settlement Agreement, but only the 18 June 1999 letter of authority. In so far as this is a variation on another theme of their case, that Mr Daniels could only have been authorised to conclude the Settlement Agreement by a Power of Attorney in existence at the time when Mr Kleve signed that Agreement on 16 July 1999, the point is based on a wholly misconceived analysis. Whether as a matter of New York law or English law, there was no concluded contract until Mr Lancksweert signed the Settlement Agreement on 2 September 1999 and what matters in terms of the authority of Mr Daniels to conclude a contract on that day is what Power of Attorney he then had, which was, of course, the 18 August 1999 Power of Attorney. The fact that the authority clearly conferred by that Power of Attorney was not given by Mr Kleve to Mr Daniels until after Mr Kleve signed the Settlement Agreement is wholly irrelevant.
Furthermore, since Mr Lancksweert's evidence which, as I have said, I accept, is that he never saw the 18 June 1999 letter of authority, this particular allegation appears to be based on a fundamental factual misapprehension as well. In any event, it was not suggested to Mr Lancksweert by Mr Ford in cross-examination that he did not see the 18 August 1999 Power of Attorney but only a letter of authority.
Third, as I have said, Ms Lawson and Mr Ford have produced transcripts of a number of telephone calls between Mr Kleve and Mr Daniels which Mr Kleve appears to have recorded, according to Mr Smith because he was concerned about being cheated. These calls are relied upon in support of two aspects of their case: (i) that Mr Kleve was only ever prepared to settle for U.S. $3 million and that (ii) there was a limitation on Mr Daniels' authority that any settlement amount had to be approved by Mr Kleve. Generally, I agree with Mr Eschwege's submission that little reliance can be placed on these transcripts. Much of what is said, particularly by Mr Kleve who was by this stage 85 and who was evidently quite eccentric, is confused.
However, what does emerge is that at some stage he and Mr Daniels were intending to trick Mr Lancksweert into signing the settlement documents so that in some way this would amount to an admission which would incriminate him and Mr Swaters, which would assist them in litigation to recover the Car. Thus, on 10 July 1999 Mr Daniels is recorded as saying: "What I want to do is get these idiots to commit. After they see that you've signed this stuff, get them to sign it, and then I've got those suckers locked". Then again on 17 July 1999, he is recorded as saying: "in this case, with them, being Swaters or his representative, being Philippe, committing to something in written form is a lot better, it holds more water with any type of a litigation or criminal-type pursuit". Mr Kleve's reaction in the continuing discussion about committing Mr Lancksweert to signing an Agreement which would be used to try and recover the Car was to say, on 19 July 1999: "Yeah, we got a win-win situation here". This all smacks of sharp practice which does not reflect well on either of them. As a consequence, I am not able to accept at face value what Mr Kleve is recorded as saying after the Settlement Agreement was concluded to FBI agent Kenneth Crook to the effect that he was only ever prepared to settle for U.S. $3 million and that he had not been paid any money by Mr Daniels.
So far as the figure of U.S. $3 million is concerned, it is certainly true that Mr Kleve mentions this figure during the recorded telephone conversations with Mr Daniels, but this seems to be in the context of telling Mr Daniels that he had other prospective buyers for the Car in the United States prepared to pay that sort of money and he seems to have had a hope of pushing up the price by getting the Belgians to compete with these American buyers. This was wholly unrealistic, as Mr Daniels appears to have tried to explain to him. Mr Swaters had possession of the Car, he had good title as a matter of Belgian law and it was he who had incurred the expenditure restoring the Car. It is inconceivable that Mr Swaters and Mr Lancksweert, let alone some buyer in the United States, would have been prepared to pay anything like U.S. $3 million for Mr Kleve's interest in the Car. Whilst the fully restored car in his possession might have been worth that much, his interest in the Car which was not in his possession, or even in the United States, in circumstances where, for whatever reason, he could not even produce the VIN plate or the spare parts, was worth far less than that.
I am also concerned that there may not have been complete disclosure by Ms Lawson and Mr Ford of all the transcripts of telephone conversations between Mr Kleve and Mr Daniels, but only of those which they consider assist their case. It seems to me extremely unlikely that Mr Daniels would have agreed the eventual settlement amount of U.S. $625,000 without having spoken to Mr Kleve about it, told him that this was the best settlement he was going to obtain and secured his agreement to settlement at that level. In those circumstances, I suspect that there were other conversations between them after Mr Kleve signed the Settlement Agreement in blank, the transcripts of which have not been disclosed or for which there are no transcripts, in which Mr Daniels persuaded Mr Kleve to accept settlement at U.S. $625,000. It may be that Mr Kleve did so in the hope that, as he and Mr Daniels had been discussing earlier, he could use the Settlement Agreement in some way in litigation to get the Car back to the United States and to obtain the U.S. $3 million he had been thinking of (or something close to it) and that may explain his subsequent conduct.
Again, this question of Mr Kleve's knowledge that the Settlement Agreement had been executed and his dealings with Mr Daniels are areas where Ms Lawson could have been cross-examined if she had come to give evidence. I find that, in all probability, Mr Kleve did agree to settlement at U.S. $625,000 and did know that the Settlement Agreement had been concluded at that amount. However, even if he did not know and (as I have said is extremely unlikely) Mr Daniels concluded the settlement at that amount without informing Mr Kleve, Mr Daniels had clear actual authority to do so granted by Mr Kleve by the 18 August 1999 Power of Attorney.
It does seem that, under the earlier Powers of Attorney, Mr Daniels was required to obtain the approval of Mr Kleve before concluding any settlement. Indeed this was recorded in the first recital to the Settlement Agreement itself. However, any discussion in the recorded telephone discussions about his authority being limited in that way predates the signature by Mr Kleve of the 18 August 1999 Power of Attorney which did not require his prior approval of a settlement and which Mr Daniels seems to have persuaded him to sign on the practical basis that there would be a problem if he were incapacitated or died. Thus the 18 August 1999 Power of Attorney is the latest in point of time and the one in force when the Settlement Agreement was concluded.
Furthermore, since the 18 August 1999 Power of Attorney provided that it was to remain in force until cancelled in writing, Ms Lawson and Mr Ford would have to establish that there was some written communication causing a reasonable person in Mr Daniels' position to understand that the scope of his authority was more limited than set out in that Power of Attorney. That was Mr Kiernan's evidence as to the position in New York law, which I accept. Ms Lawson and Mr Ford cannot and do not point to any such written communication.
In all the circumstances, the various challenges by Ms Lawson and Mr Ford to the validity and scope of the 18 August 1999 Power of Attorney are without merit. That Power of Attorney was valid and subsisting as at 2 September 1999 when the Settlement Agreement was concluded and, accordingly, Mr Daniels had actual authority to negotiate and agree the settlement amount and to conclude the Settlement Agreement on behalf of Mr Kleve.
Apparent authority
In the circumstances, it is not strictly necessary to consider in detail Ms Swaters' alternative case that, even if Mr Daniels did not have actual authority to conclude the Settlement Agreement on behalf of Mr Kleve, he had apparent authority to do so. However, I will deal with the various matters relied upon by Ms Lawson and Mr Ford as putting a reasonable person in the position of Mr Lancksweert on notice that there was a problem with Mr Daniels' authority, since there is considerable overlap between those matters and the matters they rely upon in support of their assertion that the Settlement Agreement is not valid and binding.
The relevant principles of New York law in relation to apparent authority are very similar to those of English law and can be stated shortly as follows:
(1) Where an agent acts without actual authority in respect of a transaction, he may nevertheless act with apparent authority where a third party reasonably believes, based on manifestations traceable to the principal, that the agent has authority to act on behalf of the principal;
(2) Where a principal signs a power of attorney, but separately communicates to the agent that the scope of his authority is narrower than that set out in the power of attorney, the agent will continue to have apparent authority to the full scope of the grant with respect to a third party who is aware of the power of attorney and reasonably relies on the scope of the authority granted therein, but who does not know about the separate limitation.
That second principle of New York law was stated by the New York Supreme Court, Appellate Division in Neildan Construction v Angona 619 N.Y.S. 2d. 590 (1994), citing an earlier decision of the Appellate Division in Grasso v Fiumara 562 N.Y.S. 2d. 181 (1990) in these terms: "the third party…was entitled to rely upon the facially valid power of attorney since the circumstances surrounding its presentation would not have put a reasonable person on notice that something was amiss."
In my judgment, there was nothing suspicious about the 18 August 1999 Power of Attorney, in particular about the fact that Mr Daniels did not produce the original, since he produced a notarised certified copy in relation to which the Florida notary public certified that it was a true copy of the original which she had seen, all of which confirmed that there was a valid Power of Attorney. I have already found that there is nothing in the point that Mr Kleve had signed the Settlement Agreement on 16 July 1999, whereas the Power of Attorney was given on 18 August 1999. The suggestion that any Power of Attorney had to be subsisting at the date Mr Kleve signed the Settlement Agreement is based on a complete misapprehension. There was no contract made until 2 September 1999, when Mr Lancksweert signed the Settlement Agreement and he and Mr Daniels concluded the transaction. Provided that the 18 August 1999 Power of Attorney was valid and subsisting at the date the contract was concluded, which it was, it is irrelevant that the authority conferred by it was not granted until after Mr Kleve signed the Settlement Agreement.
I have also already dealt with the point made by Mr Ford about the fact that Mr Lancksweert and SSFG asked for the affidavit from Mr Daniels effectively warranting his authority and agreeing to indemnify Mr Lancksweert in the event that there was a defect in that authority. In my judgment, asking for that affidavit does not mean that Mr Lancksweert and SSFG knew or were put on notice that there was something amiss with the Power of Attorney. It is inconceivable that, if SSFG had thought that there was anything amiss, they would not have advised Mr Lancksweert not to proceed without further evidence from Mr Kleve himself. All SSFG were doing was protecting their client's position in a particular eventuality, which is not the same thing as knowing or suspecting that eventuality will occur.
Equally, there is nothing in the point upon which Mr Racki sought to place some reliance that there was something suspicious in the lapse of time of 44 days between the signature of the Settlement Agreement by Mr Kleve on 16 July 1999 and the closing meeting on 2 September 1999, which should have put Mr Lancksweert on enquiry. As Mr Daniels said in his fax of 11 August 1999 referred to at [94] above, there does seem to have been some delay in obtaining responses and information from Mr Kleve. Furthermore, Mr Lancksweert readily accepted in evidence that some delay had been caused because he was away on holiday in August. There is nothing remotely suspicious in the lapse of time.
Much was made by Mr Ford of the fact that Mr Lancksweert was asked by Mr Daniels to make payment of two cheques, one to NSS and the other to Mr Kleve and Mr Daniels, in support of his and Ms Lawson's case that this should have alerted Mr Lancksweert to there being some defect in Mr Daniels' authority. There is nothing in this point. The Settlement Agreement signed by Mr Kleve itself provided in clause 2 that the settlement funds were to be released to Mr Daniels or his designated representative, so that Mr Kleve must have understood that the settlement amount in the first instance would be paid to Mr Daniels. Furthermore the provision in the Power of Attorney that Mr Daniels had full complete authority and power to "recover, collect and receive all such properties, interests, assets and demands whatsoever" and "to take lawful ways and means for the benefit, recovery and receipt thereof by legal process or any other act thereof to be executed" was clearly wide enough to cover receipt by Mr Daniels of the settlement funds.
In relation to the U.S. $225,000 paid to NSS, that represented 30% of the original settlement amount of U.S. $750,000 and it seems likely that amount of commission would have been due to him under the Contract of 23 August 1995 with Mr Kleve because Mr Daniels had procured agreement to that figure, which was only reduced to U.S. $625,000 because Mr Kleve did not produce the VIN plate or spare parts. The Settlement Agreement referred in terms in the recitals to NSS having an "encumbrance" for services rendered for the benefit of Mr Kleve, clearly a reference to the lien. The closing documents, as I have said, included the Lien Release together with the Certificate of Title stamped with "Lien Cancelled" by the Court clerk in Ohio. There was nothing remotely sinister in Mr Daniels requiring payment to NSS of the commission as a condition of his releasing the lien. Furthermore, Mr Lancksweert's evidence was that when Mr Daniels asked for the U.S. $225,000 to be paid to NSS, he checked with his New York lawyer, who was satisfied from the documents that Mr Daniels could give instructions to that effect, a point on which SSFG were right.
One of the more extravagant allegations advanced by Ms Lawson and Mr Ford is that Mr Daniels stole the settlement funds. This allegation is unsupported by any evidence. I have already said that, as regards the U.S. $225,000 he was entitled to be paid 30% of any sum recovered pursuant to the Contract with Mr Kleve of 23 August 1995, up to a ceiling of U.S. $250,000, which was not exceeded. So far as the balance of the settlement funds, the U.S. $400,000, is concerned, I have already referred at [109] above to the fact that, the day after the Settlement Agreement was executed, Mr Daniels appears to have endorsed that cheque in favour of Mr Kleve, a strong indication that Mr Kleve did receive those funds. I set out in the next section of the judgment the other evidence which supports the conclusion that he did receive the funds. Whilst it is true that, in an affidavit sworn in the Ohio proceedings on 9 July 2010, Ms Lawson states that she went through her father's bank records after his death and there was no payment of U.S. $625,000 or $400,000, she has neither produced the bank records in the present proceedings nor come to court to be cross-examined about her assertion that there was no trace of the payment.
Even if Mr Kleve was not paid, that is a matter between him and Mr Daniels as his agent. It cannot either bring into question the authority of Mr Daniels under the 18 August 1999 Power of Attorney or render the Settlement Agreement invalid. During the course of the trial, Mr Ford advanced a new proposition of New York law (which was not pleaded) and in relation to which Mr Racki produced a Supplemental Report with the permission of the court, that, if an agent is to receive compensation direct from funds payable by the third party to the principal via the agent, there has to be a specific clause to that effect in the Power of Attorney given to the agent. In support of that proposition, Mr Racki relied upon § 5-1505 of the General Obligations Law of New York. However, as Mr Kiernan points out, that provision is in a section of the New York Code dealing with "Financial and Estate Planning" and is only applicable to Powers of Attorney granted in that context, for example in relation to a testamentary disposition. It is not applicable to a power of attorney granted for commercial purposes, as in the present case.
Once that proposition is shown to be a false one, there is nothing in the fact that some of the monies were paid to the agent direct to put Mr Lancksweert on enquiry that there was something suspicious going on. As Mr Kiernan put it, there is no obligation on the third party to determine the amount of any allocation between the principal and the agent. As a matter of New York law, as in English law, that is a matter for the principal and agent inter se and does not affect the contractual relationship between the principal and the third party.
As set out at [14] above, various other points were pleaded by Mr Ford and Ms Lawson as somehow putting a reasonable person in the position of Mr Lancksweert on enquiry. The first is that the statement by Mr Daniels that the spare parts were stolen was something Mr Lancksweert knew or should have known was not true. As I said at [91] above, the apparent basis for this allegation was that there were photographs of parts on display at Mr Kleve's premises and an FBI report accompanying the photographs in SSFG's closing file. The obvious answer is that none of that dealt with whether the parts had been stolen since the photographs were taken and the FBI report was filed. Furthermore, Mr Lancksweert was not cross-examined about this point. In my judgment there is no basis for the suggestion that he knew or ought to have known that what Mr Daniels said about the spare parts having been stolen was not true.
Next a point is taken that the draft agreements sent by Mr Daniels to SSFG by fax on 1 September 1999 had the signatures of Mr Kleve and Mr Daniels himself redacted. It is certainly correct that what was sent by fax did not include the signatures which Mr Kleve and Mr Daniels had put on the document in July 1999, but there may be an explanation for that and in any event, this is a non-point since Mr Daniels produced the Settlement Agreement, with their signatures on it, duly notarised, at the closing meeting the following day. The suggestion that Mr Lancksweert or SSFG having been presented with the signed notarised Agreement should have been in the slightest bit interested in what had been included in the fax the previous day, let alone been put on enquiry, is preposterous.
Finally, there is the suggestion that Mr Daniels asked and Mr Lancksweert agreed, that the name of the escrow agent be omitted. This allegation, which was not put to Mr Lancksweert in cross-examination, is incoherent. The Settlement Agreement provided that the monies were to be paid into escrow and SSFG were to act as escrow agent, as was known and understood by Mr Daniels and Mr Lancksweert. In the event, as I have said, it appears that the escrow provisions did not need to be operated.
In all the circumstances, in my judgment, there is nothing in any of the alleged irregularities identified by Ms Lawson and Mr Ford which would or should have put a reasonable person in the position of Mr Lancksweert on enquiry that there was something amiss with Mr Daniels' authority to agree the settlement amount and conclude the Settlement Agreement on behalf of Mr Kleve. Had I not concluded that Mr Daniels had actual authority, I would have concluded that he had apparent authority.
Subsequent events after the Settlement Agreement
Before considering the question of whether the Settlement Agreement was a valid and binding contract against Mr Kleve and thus against Ms Lawson and Mr Ford as his successors, I should deal briefly with the subsequent events in so far as they are of any relevance.
One issue upon which the evidence of subsequent events throws some light is the issue whether Mr Kleve received payment of the U.S. $400,000 settlement amount after the commission of U.S. $225,000 had gone to NSS. I have already referred to the evidence that, on 3 September 1999, Mr Daniels endorsed the U.S. $400,000 cheque in favour of Mr Kleve. Mr Lancksweert's unchallenged evidence was that, about two months after the closing meeting, he telephoned his bank to see if the two cheques had been paid and cleared. He was told that the cheques had cleared, a further strong indication, given the endorsement of the cheque for U.S. $400,000 in favour of Mr Kleve, that the monies were paid to Mr Kleve.
One of the transcripts of telephone conversations relied upon by Ms Lawson and Mr Ford is between Mr Kleve and the FBI agent Mr Kenneth Crook on 5 June 2000, during the course of which Mr Kleve seems to be suggesting that the settlement he thought was going to be closed was for U.S. $3 million, that the other number (i.e. the U.S. $625,000) was news to him and that he had received none of the monies. Mr Crook says that his understanding from Mr Daniels was that documents went back and forth to get Mr Kleve's permission and they closed the settlement at what he thought was less than U.S. $600,000. He also refers to being told by Mr Daniels that there was a stipulation that Mr Kleve was to receive another car, a beautiful roadster. In relation to the monies, he said his understanding was there was "a bunch of money in the trust account" and a $340,000 car sitting in a warehouse. It was following that conversation that Mr Kleve apparently gave Mr Timothy Smith an unsigned copy of the Settlement Agreement with the settlement amount filled in on the first page as U.S. $3 million in what Mr Smith said was Mr Kleve's handwriting, for Mr Smith to send it by fax to Mr Crook.
On the basis that the figure of U.S. $3 million was filled in by Mr Kleve, the question arises when that was filled in and why. As I have found, at the time that Mr Kleve signed the Settlement Agreement on 16 July 1999, in all probability the settlement amount was left blank. It seems likely that Mr Kleve filled in the figure of U.S. $3 million on a copy of the first page at some later stage. It was certainly not filled in on the original, given the evidence of the forensic document examiners that the amount of U.S. $625,000 had not been altered and that there is no indent of any other amount on the signature page. Given that Mr Smith said that he did not think he had this copy in his file until Mr Kleve gave it to him to send by fax to Mr Crook, it seems to me that it is most likely that Mr Kleve filled in that amount on that copy in June 2000 at the time of his conversation with Mr Crook.
As to why he did so, I consider the most likely explanation is that Mr Kleve was trying to convince Mr Crook that he had only ever been prepared to settle for U.S. $3 million. However, as I held at [128] above, any settlement at U.S. $3 million was wholly unrealistic, as Mr Kleve's interest in the Car was worth considerably less than that. That must have been known to Mr Kleve since, as I have also held, it is inherently unlikely that Mr Daniels would have closed the settlement at U.S. $625,000 without in practice informing Mr Kleve and obtaining his agreement, although the 18 August 1999 Power of Attorney did not require him to do so. The likelihood is that Mr Daniels told Mr Kleve that, without the spare parts and the VIN plate and in circumstances where Mr Swaters and not Mr Kleve had possession of the Car, the best settlement that he could achieve was the U.S. $625,000 being offered by Mr Lancksweert.
The charitable explanation for what Mr Kleve told Mr Crook on 5 June 2000 and for his getting Mr Smith to send the fax of the Settlement Agreement with the figure of U.S. $3 million in it the following day is that he was an old man (by then he was 86 years old) and was confused. A more cynical view would be that, although he knew in September 1999 that there had in fact been a settlement at U.S. $625,000, he remained dissatisfied and convinced he could get more money, he wanted to create the impression that he had only been prepared to settle for U.S. $3 million and that the settlement at U.S. $625,000 was something he had not been prepared to agree. That explanation of what was going on is borne out by Mr Smith's assertion in his witness statement, that he ran into Mr Kleve on the street on about 6 June 2000 and Mr Kleve said he had heard a rumour that people thought he had sold his Ferrari but he had not, which Mr Smith claimed was consistent with what Mr Kleve had told Mr Smith earlier about not being willing to sell for U.S. $750,000 but that he could get U.S. $3 million if he could get the Car back to the United States.
In that context, it is also striking that Ms Lawson exhibits to her 9 July 2010 affidavit in the Ohio proceedings another unsigned copy of the Settlement Agreement with the figure of U.S. $2,500,000 filled in as the settlement amount and with a manuscript alteration to clause 2 to provide that the funds were to be released to "Kleve" or designated representative, not Daniels or designated representative. The provenance of that copy is unclear. It was not in Mr Smith's "Ferrari file", in other words the papers he handed over to Mr Ford in 2010, but in cross-examination Mr Smith claimed to recall that Mr Kleve had told him first of all that he could get U.S. $2,500,000 for the Car, then he had told Mr Smith that the Belgians had offered U.S. $750,000 for the Car but he was going to turn it down, because he could get U.S. $3 million for the Car. I found that evidence implausible.
In my judgment, that copy of the Settlement Agreement with the manuscript amendments, which were not in the original signed by Mr Kleve, was drawn up at some point long after the event to give the impression that Mr Kleve was only prepared to settle on those terms. It does not reflect what was actually agreed. I am fairly sceptical as to whether the conversations that Mr Smith claimed to have had with Mr Kleve did in fact take place, as I found Mr Smith an unreliable witness, but whether they did or not, I consider that, as I have said, Mr Kleve was aware, at the time that the Settlement Agreement was made, that the best settlement amount Mr Daniels could procure was U.S. $625,000 and that the Settlement Agreement had been concluded at that figure.
I also consider that, in all probability, Mr Kleve was paid by Mr Daniels. Quite apart from the endorsement of the cheque and Mr Lancksweert's evidence that both cheques were cashed, at a later stage in February 2005 Mr Lancksweert spoke to Mr Daniels who confirmed that he paid Mr Kleve in part in cash when visiting the bank (which is borne out by the endorsement and the cheques having been cashed) and in part by giving or selling him a Ferrari 250 for free, which tallies with what Mr Daniels told Mr Crook in 2000.
Another reason why it is difficult to accept at face value what Mr Kleve told Mr Crook in June 2000, is that this whole story that Mr Kleve was never prepared to settle for less than U.S. $2.5 million or U.S. $3 million is thoroughly implausible. Quite apart from the fact that, as I have held, those sort of figures were unrealistic and the price being offered by Mr Lancksweert was a reasonable and fair one, Mr Kleve never once approached Mr Swaters or Mr Lancksweert subsequently in the period before his death four years later, to say that he had not agreed the settlement at U.S. $625,000 and therefore demanded that they hand over the Car. He did not complain to them that he had not been paid, nor is there any evidence that he ever made any sort of claim against Mr Daniels.
In any event, even if Mr Kleve was not aware of the settlement amount at the time and did not specifically approve it, that is of no relevance where the 18 August 1999 Power of Attorney conferred actual authority on Mr Daniels to negotiate and agree the settlement amount and conclude the Settlement Agreement on Mr Kleve's behalf, irrespective of whether Mr Kleve had given his consent to the particular transaction. Equally, if, contrary to the conclusion I have reached, Mr Kleve was not in fact paid anything by Mr Daniels, that cannot provide Ms Lawson or Mr Ford with any sort of defence. The Settlement Agreement which Mr Kleve signed provided specifically in clause 2 that the funds were to be released to Mr Daniels or his designated representative. That is exactly what occurred, so that Mr Lancksweert provided the consideration as contemplated by the Settlement Agreement. Any issue Mr Kleve had as to non-payment by Mr Daniels was a matter between himself and Mr Daniels as his agent. It could not affect the validity of the Settlement Agreement.
Mr Kleve died on 24 December 2003. Ms Lawson was appointed administrator of his estate, of which she and her two sisters were beneficiaries. She lodged with the Probate Court in Ohio an Amended Schedule of Assets of his estate in March 2005. That included at item 9: "Automobiles and auto parts detailed on Exhibit D attached hereto $86,770". Exhibit D listed a number of cars Mr Kleve had owned and Item 31 of the Exhibit was "Miscellaneous Parts" valued at U.S. $25,000. At the end of the Exhibit was a statement signed by Ms Lawson as administrator: "I certify the above information to be complete and accurate to the best of my knowledge. These values were determined after reviewing Old Cars Price Guide and Old Car Trader valuation guides".
It is striking that this Amended Schedule of Assets of Mr Kleve's estate did not include the Car, an omission which is some significance not only in relation to Mr Racki's point, to which I refer below, that in some way the validity of the Settlement Agreement should be determined by Ohio probate law, pursuant to which any claim by Ms Swaters would now be time barred, but also in relation to the question whether the claim now advanced by Ms Lawson and Mr Ford that they have ownership in the Car, because Mr Kleve did and retained such ownership on the basis that the Settlement Agreement is invalid, is a bona fide claim. Again the omission of the Car from the Amended Schedule of Assets is an issue on which Ms Lawson would almost certainly have been cross-examined, had she given evidence.
Later in 2005 Mr Swaters and Ms Swaters became aware that Ms Lawson was intending to auction items from her father's estate including the spare parts to the Car, at an auction held without reserve by auctioneers Kruse. The auction notice referred to "Ferrari 375 parts". In August 2005, Mr Swaters' U.S. lawyers wrote to Ms Lawson explaining that the spare parts formed part of the Settlement and sought to collect them. No response was received. However, the auction of the spare parts did not proceed. In cross-examination, Mr Ford sought to suggest that the spare parts were never going to be auctioned at all and were removed from a subsequent auction notice. It was unclear why he was so anxious to deny that the spare parts were put up for auction, possibly it was because the auction was without reserve and that was inconsistent with his case that the spare parts were of considerable value. Whatever the reason for his evidence about this, I did not find it at all convincing.
In December 2006, Ms Lawson sought to offer Mr Swaters title to the Car including the spare parts for U.S. $750,000. As Mr Eschwege rightly submits that offer is completely at odds with Ms Lawson's and Mr Ford's allegation in these proceedings that Mr Kleve's offer price was U.S. $3 million. Thereafter, Ms Lawson's failure to deliver up the spare parts prompted Mr Swaters and his daughter to commence the Ohio litigation to recover the spare parts which they contend were wrongfully retained by Mr Kleve.
The Settlement Agreement is a valid and binding contract
In my judgment, given that Mr Daniels had actual, alternatively apparent, authority to conclude the Settlement Agreement on behalf of Mr Kleve and that the Settlement Agreement has not been fraudulently altered as Ms Lawson and Mr Ford originally contended, that Agreement was a valid and binding contract which bound Mr Kleve. It settled all the disputes as to ownership and passed title to the Car to Mr Swaters. I deal with the spare parts and the irrelevant points on Ohio law in the next section of the judgment. Ms Lawson, as the administrator of Mr Kleve's estate and as a beneficiary of that estate, can be in no better position than her father. Mr Ford, who only came on the scene when he purchased a majority share of her interest in February 2010, can only claim through her. None of the various points raised by Ms Lawson and Mr Ford in an effort to impugn the validity of the Settlement Agreement has any merit.
I have already set out earlier in the judgment why, if, contrary to my principal conclusion, Mr Daniels did not have actual authority to conclude the Settlement Agreement, he had apparent authority to do so and why none of the points relied upon by Ms Lawson and Mr Ford would be such as to put a reasonable person in the position of Mr Lancksweert on enquiry. To the extent that the same points are relied upon in support of their case that the Settlement Agreement was not a valid and binding contract (for example the point about there being two cheques, one of them payable to the agent, which rendered the Agreement invalid as a matter of New York law) it is not necessary to repeat what I have already said above. Those points do not make the contract in any sense invalid, any more than they should have put Mr Lancksweert on enquiry as to Mr Daniels' authority.
The point about the lapse of time of 44 days between 16 July 1999 when Mr Kleve signed the Settlement Agreement and 2 September 1999, when Mr Lancksweert signed it and it was concluded was also relied upon by Ms Lawson and Mr Ford as demonstrating that the offer made by Mr Kleve was not accepted by Mr Lancksweert within a reasonable time as required by the New York Uniform Commercial Code, so that the offer is to be taken to have lapsed so that there was no contract. There are two principal reasons why this is a bad point.
First, although Ms Lawson and Mr Ford refer to "Mr Kleve's 16 July offer" in their pleading, they do not specify what that offer was. Since, as I have found, in all probability the settlement amount on the first page was left blank when Mr Kleve signed it, it cannot have been an offer to settle at any particular amount. The negotiation about the amount of the settlement was between Mr Daniels as Mr Kleve's agent and Mr Lancksweert later in July and in August 1999. There was delay in finalising and closing the Settlement Agreement, in part due to Mr Kleve being slow to respond (as Mr Daniels said in his fax to SSFG of 11 August 1999) and in part because Mr Lancksweert was on holiday in August, but there is no question of the offer made by Mr Daniels on behalf of Mr Kleve not having been accepted within a reasonable time and thus lapsed. In any event, as a matter of New York law, as Mr Kiernan said in his report: "Mr Daniels' execution of the Transfer Documents pursuant to the terms of the Settlement Agreement after Mr Lancksweert signed the agreement conclusively demonstrated that Mr Kleve's offer remained open under New York law when Mr Lancksweert accepted it by signing an agreement with all the blank terms filled in." That analysis is clearly correct.
Second, as Mr Kiernan says, the Uniform Commercial Code only applies to an agreement concerning a transaction in goods, which is determined by the agreement's predominant purpose. The predominant purpose of the Settlement Agreement was to settle Mr Kleve's claims to the Car. Accordingly, the Uniform Commercial Code does not apply to this transaction.
Ms Lawson and Mr Ford also contend that there was a breach of clause 5 by Mr Lancksweert because he did not make full payment to Mr Daniels for the benefit of Kleve and Daniels but paid one of the cheques to NSS. This contention is misconceived. As Mr Kiernan explained in his evidence, New York law requires contracts to be read as a whole. Clause 5 must be read with clauses 1 and 2. Clause 2 provides that, upon release of Transfer Documents to Mr Lancksweert, "the funds in the Account shall be released to Daniels, or designated representative". The payment procedures 'stipulated herein' to which clause 5 refers thus expressly contemplated payment to Mr Daniels' designated representative, which NSS was and the payment was made at his request. In any event, the sum advanced to NSS was in the context of the settlement as a whole for the benefit of "Kleve and Daniels", because without such payment, the lien would not have been released and Mr Kleve and Mr Daniels could not have given the warranties they did in clause 3.
In what is something of an echo of Mr Kleve's apparent intention to use the Settlement Agreement as an admission of some kind by Mr Lancksweert, Mr Ford relies upon the statement in the preamble that: "Kleve is the owner of the herein referenced automobile" as some sort of admission by Mr Lancksweert that calls into question the veracity of his evidence that he and Mr Swaters had purchased and acquired good title to the chassis. There is nothing in this point. The recital is merely a statement of the historical position and not some form of admission by Mr Lancksweert and, in any event, the Amendment to the Settlement Agreement signed by Mr Lancksweert and by Mr Daniels on behalf of Mr Kleve, referred to at [90] above, contains a contradictory statement to the effect that there is a "current owner" other than Mr Kleve (i.e. Mr Swaters), negativing any suggested admission. Furthermore, this point of Mr Ford's cannot affect the validity of the Settlement Agreement.
Finally, Ms Lawson and Mr Ford contend that the Settlement Agreement was somehow void for want of consideration because Mr Kleve never received any of the settlement amount. This point is also a bad one for two reasons. First, as I have found, in all probability Mr Kleve did receive the U.S. $400,000. Second, as I pointed out in [159] above, clause 2 of the Settlement Agreement provided specifically in that the funds were to be released to Mr Daniels or his designated representative. This is exactly what occurred, so that Mr Lancksweert provided the consideration as contemplated by the Settlement Agreement which Mr Kleve had signed. Even if, contrary to the finding I have made, he did not receive the funds from Mr Daniels, that is a matter between him and his agent and cannot affect the validity and enforceability of the Settlement Agreement.
Spare parts
As I said at [93] above, the case advanced by Mr Ford on behalf of himself and Ms Lawson was that because, when Mr Daniels indicated to Mr Lancksweert that the spare parts and VIN plate were lost and stolen, the price was reduced from U.S. $750,000 to U.S. $625,000, the spare parts were excluded from the settlement. Although Mr Lancksweert showed some inclination to accept that proposition, ultimately it is a question of construction of the Settlement Agreement whether the "subject automobile" included the spare parts or not. In considering that question, New York law, like English law, applies an objective approach, looking at the meaning of the language used.
The starting point is that it was plainly the intention of the Settlement Agreement and related documents (such as the Bill of Sale) to transfer the ownership rights to the Car as a whole and resolve any disputes as to ownership. Mr Kleve and Mr Daniels warranted in clause 3 that Mr Lancksweert and any other person he should designate (which would encompass Mr Swaters) would have "good and clear title to and hold all rights, title and interests in the subject automobile". The "subject automobile" (or "subject vehicle" in the Bill of Sale) was defined as "Ferrari 375 Plus serial number 0384AM", clearly a reference to the Car as a whole, not just to the chassis. It would have made no commercial sense for the Settlement Agreement to settle the rights in respect of some parts of the Car but not other parts and if it had been intended to reach such an uncommercial result, it seems to me that the Settlement Agreement would have carved out the spare parts to exclude them and defined the Car differently, either as "the chassis of the Ferrari 375 Plus serial number 0384AM" or as "the Ferrari 375 Plus serial number 0384AM excluding such parts as are retained by Kleve or have been lost and stolen".
The moment one seeks to define how such a carve-out would have been expressed, it can be seen that the "subject automobile" or "subject vehicle" as defined: "Ferrari 375 Plus serial number 0384AM" must include whatever spare parts Mr Kleve had any rights to or interest in. As Mr Eschwege submitted, the chassis and the spare parts make up the Car as it was in 1999 (it being common ground that Mr Kleve did not own or possess the original engine at any time relevant to the present preliminary issue and that Ms Swaters did not locate and purchase the original engine until 2009). Indeed, in their Amended Defence and Counterclaim, Ms Lawson and Mr Ford describe the spare parts as representing "the original DNA of the Car, which gave it its rarity, authenticity and value". This assertion that the spare parts represented the original DNA of the Car was repeated by Mr Ford in his witness statement. In cross-examination, Mr Eschwege put this assertion to Mr Ford and asked whether, without the spare parts, the Car was not really 0384AM, to which Mr Ford responded: "Yes it is a replica". On that basis, it necessarily follows that, objectively, the transfer of title to the Car effected by the Settlement Agreement and the Bill of Sale included transfer of title to the spare parts.
In my judgment, there is no ambiguity about this in the language of the documents, so that it is neither necessary nor permissible to have regard to the background and extrinsic evidence, but even if it were, this does not assist Ms Lawson and Mr Kleve. The evidence of both Mr Lancksweert and Ms Swaters in their witness statements was that as far as he and Mr Swaters were concerned, the Settlement Agreement was in respect of title in the Car as a whole. Ms Swaters recalls her father saying that the spare parts were part of the deal concluded in the Agreement.
Contrary to Mr Ford's assertion, the reduction in price did not mean the spare parts were excluded from the Settlement Agreement. It simply reflected that since it was being represented that Mr Kleve could not transfer physical possession of them because they were lost or stolen (which was in fact a misrepresentation) the value of the interest he had to transfer was reduced. However, I consider that on the true construction of the Settlement Agreement, he was transferring title and any interest he had in the Car as a whole, so that in the event that the spare parts or VIN plate were located (which in the case at least of the spare parts they were because they had never in fact been lost or stolen) then ownership in them vested in Mr Swaters by virtue of the Settlement Agreement and Bill of Sale.
Irrelevance of Ohio law
The case advanced by Ms Lawson and Mr Ford is that the Settlement Agreement was in some respect invalid or unenforceable as a matter of Ohio law, either because Ms Swaters did not make a claim against Mr Kleve's estate within the six month period following his death imposed by Ohio law, so that the claim is time barred, or because the requirements of the Ohio Certificate of Motor Vehicle Title Act were not complied with, so that there was not a valid conveyance of title to Mr Lancksweert and Mr Swaters. Even if Ohio law were relevant, these points are bad ones, for reasons I will elaborate shortly below.
However, before any consideration of Ohio law could arise, Ms Lawson and Mr Ford face the obvious obstacle that the Settlement Agreement is expressly governed by the internal laws of the State of New York, without reference to New York conflict of laws principles. Mr Racki contends in his report that New York law would defer to Ohio law as regards a claim against the estate and title to the Car, but it is clear that his basis for this assertion (even if it were correct, which it is not for the reasons set out below) involves the application of New York choice of laws i.e. conflict of laws principles. His argument overlooks that the New York law clause in the Settlement Agreement expressly excludes the application of New York conflict of laws principles, so that his argument is fundamentally misconceived.
Even if it were permissible to have regard to New York conflict of laws principles, the New York courts would give effect to the choice of law clause and apply New York law to the exclusion of Ohio law. The clear evidence of Mr Kiernan in his supplemental report was: "New York law and the language of the Settlement Agreement would equally call for application of New York law, not Ohio law, to all issues relating to the effectiveness and validity of the Settlement Agreement". That proposition is undoubtedly correct and Mr Racki's contrary argument is absurd.
His argument rested upon his analysis of two federal authorities. The decision of the District Court for the Southern District of New York (Edelstein DJ) in John v Sotheby's Inc 858 F. Supp. 1283 (1994) is a case where the plaintiff contracted with Sotheby's to sell a Rembrandt painting at auction, representing that she owned it. Before the auction a third party came forward claiming to own it and Sotheby's withdrew it from auction. The case concerned the rival claims to ownership. The court found that the plaintiff and her late ex-husband who were resident in Wisconsin purchased the painting in 1960. They were divorced in 1985 and an action was then commenced in Wisconsin for the division of their marital property, in which they entered a stipulation that her ex-husband would not sell the painting. Notwithstanding that stipulation, the ex-husband purported to sell the painting to the third party pursuant to a contract made in June 1985. In November 1989, the plaintiff and her ex-husband entered a Final Marital Settlement Agreement which was approved by the Wisconsin court and which provided that the painting and other paintings should be placed for auction with Sotheby's in New York and the sale proceeds divided equally between the parties.
In his analysis set out in his Conclusions of Law, the learned judge, applying the federal diversity jurisdiction, said that he had to determine which law applied to the June 1985 contract between the ex-husband and the third party. It should be noted immediately that there was no express choice of law clause in that contract. Pursuant to the diversity jurisdiction, the federal court had to follow the conflict of laws rules in the place where it was sitting, there New York, under which as the judge found at [7]-[10]: "the law of the jurisdiction having the greatest interest in the litigation will be applied and…the facts or contracts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict…The Court will apply the laws of the jurisdiction that has the greatest interest in, and is most intimately concerned with, the outcome of a given litigation."
At [11] the learned judge concluded that, although the painting was in New York, the third party was in California and the plaintiff and her ex-husband had been divorced in Nevada, Wisconsin had the greatest nexus to, and interest in, the contract dispute at the heart of the case. His reasons for reaching that conclusion were as follows. The orders issued by the Wisconsin court had a direct bearing on the interpretation of the June 1985 contract. The plaintiff and her ex-husband had resided in Wisconsin, including at the time that contract was made. Following the divorce, the division of the marital property, including the painting, occurred in Wisconsin. The decision of the District Court would impact the property rights of the plaintiff, a Wisconsin resident, and the estate of her ex-husband which was being administered in Wisconsin.
Although in cross-examination Mr Racki obstinately insisted that the facts of that case were strikingly similar to those of the present case, in my judgment there is no real similarity. The relevant contract in the present case was made in New York between a Belgian citizen and a resident of Ohio through an agent resident in Florida. The relevant property was located in Belgium at all material times (with the exception of the spare parts) and the chassis had not been physically in Ohio for more than ten years. In so far as there were probate proceedings in relation to Mr Kleve's estate those did not commence until after his death, in 2005, six years after the Settlement Agreement was concluded. The validity of that Agreement is to be assessed at the time it was concluded, not six years later and, on the basis that it was valid and binding on Mr Kleve at the time it was concluded, ownership of the Car (including the spare parts) had passed to Mr Swaters in 1999 and therefore could not have formed part of his estate. It is striking that Ms Lawson did not list the Ferrari 375 Plus in Schedule D.
Furthermore, there is a fundamental distinction as a matter of legal analysis between that case and the present. Here there is a choice of law clause providing that the Settlement Agreement is governed by the internal laws of the State of New York, without reference to its conflict of laws principles. It follows that any court, whether state or federal, considering which law applied to the question of the validity of the Settlement Agreement would apply New York law and would not consider its conflict of laws principles. In contrast the court in John was applying those conflict of laws principles, at least in part because there was no express choice of law. In my judgment, the reasoning in that case is of no application to the present case.
The other case relied upon by Mr Racki was the decision of the Court of Appeals of the Second Circuit in Walter E Heller v Video Innovations 730 F 2d 50 (1984). The plaintiff was a Delaware corporation which leased video equipment from the defendants, who were all resident in New York, pursuant to contracts governed by the law of Illinois, where the plaintiff had its principal place of business. However, before the District Court at first instance, both parties relied primarily on New York law and the judge decided the case on the basis of New York law. One of the issues on appeal was whether he had erred in doing so. In concluding that the judge had not erred, Van Graafeiland CJ giving the judgment of the Court of Appeals stated (omitting the citation of authority in the second paragraph quoted):
"…both in the court below and in their original briefs in this Court, the parties relied primarily upon New York authorities to support their respective contentions. It is not clear whether the parties did so because they believed that New York law governed or because they believed that there was no material difference between the laws of the two States. Whatever their reasoning, we find no grounds for reversal in the reference to New York law.
Because this is a diversity case, we must apply the choice of law rules of the forum State, in this instance, New York. Although New York courts generally accord deference to choice of law provisions in contracts…such provisions are not controlling and may be disregarded where the most significant contacts with the matter in dispute are in another State. Moreover, in the absence of a strong countervailing public policy, the parties to litigation may consent by their conduct to the law to be applied."
Mr Racki relied upon this case as authority for the proposition that New York courts adopted the "substantial relationship" approach, which allowed them to disregard an express choice of law, even if the parties had a reasonable basis for it, if the most significant contacts were with another State. Mr Kiernan disagreed, considering that Heller was not a case where the court disregarded the parties' choice of law in favour of its own judgment as to with which State the transaction had its most significant connection, but was a case where the parties had chosen themselves to disregard their contractual choice of law and the court held they were entitled to do so. I agree with Mr Kiernan's analysis of Heller and consider it is not authority for the proposition for which Mr Racki contends.
In the present case, there is no question of the parties choosing to disregard their choice of law. It is Ms Lawson and Mr Ford who wish, unilaterally, to disregard the express choice of the internal laws of the State of New York and to apply Ohio law through the application of New York conflict of laws principles which the contract says are not to be applicable. In my judgment, this is precisely the sort of situation in which New York courts would enforce the choice of law provision and apply New York law to the construction and validity of the Settlement Agreement.
In any event, even if Mr Racki's proposition were correct, as Mr Kiernan says, Mr Racki has not: "presented considerations of Ohio interest sufficient to warrant the extraordinary step of disregarding the parties' contractual choice of New York law to govern disputes relating to the transaction." The Settlement Agreement was made in New York between a resident of Belgium and a resident of Ohio, the latter acting though a Florida agent. With the exception of the spare parts, the Car had not been in Ohio for more than ten years. On no view could it be said that the contract or the underlying dispute it was settling had its most significant contacts with Ohio.
It follows that in construing the Settlement Agreement and considering its validity, a New York court would and this court should, applying principles of New York law, disregard Ohio law which is of no relevance to those issues the court has to decide. Even if, contrary to that conclusion, Ohio law were of some relevance, the particular provisions of Ohio law relied upon by Ms Lawson and Mr Ford have no application in the present case.
As I have held, the validity of the Settlement Agreement is to be assessed as at the date it was concluded by reference to its governing law, New York law. Since the Settlement Agreement was, as I have also held, valid and binding on Mr Kleve from the moment it was concluded, 2 September 1999, and it and the Bill of Sale passed ownership to Mr Lancksweert and Mr Swaters with effect from that date, no part of the Car (including the spare parts) can have formed part of Mr Kleve's estate on his death in December 2003. Ms Lawson's statement as to the accuracy of Exhibit D to the Amended Schedule of her father's Assets forming part of his estate was incorrect. The spare parts did not form part of his estate. As Mr Lenox, Ms Swaters' Ohio law expert, (whose evidence I prefer to that of Ms Lawson and Mr Ford's Ohio law expert, Mr Graf) puts it in his report: "In Ohio, an asset that is not rightfully owned by the decedent cannot be an asset of the estate."
As Mr Kiernan observes in his supplemental report, a Probate Court Order in Ohio purporting to approve the transfer of property of an estate cannot determine the ownership of the property if the property was not actually owned by the deceased at death. It follows that any Order of the Probate Court in Ohio Ms Lawson has obtained has no relevance to the question of ownership of the Car (including the spare parts), as such ownership was transferred to Mr Lancksweert and Mr Swaters by the Settlement Agreement and the Bill of Sale four years before Mr Kleve's death and the ownership rights created by those documents cannot be affected by such a court Order.
In those circumstances, contrary to the assertion of Mr Graf, there was no requirement for Mr Swaters and Ms Swaters to present claims as creditors of the Kleve estate and the six month time limit for presentation of such claims is of no relevance. Mr Ford sought to argue in his submissions that the Complaint filed by Mr Swaters and Ms Swaters against Ms Lawson individually and in her capacity as a beneficiary of her father's estate in the Court of Common Pleas in Ohio on 12 February 2010 was such a claim against the Kleve estate. However, it is clear that the claim was being made on the basis that the Settlement Agreement and Bill of Sale had transferred ownership in the entire vehicle, including the spare parts to Mr Swaters through Mr Lancksweert.
As a matter of Ohio law, the claim by Mr Swaters and Ms Swaters, as true owners of the spare parts pursuant to the Settlement Agreement and related documents, against Ms Lawson is not a claim as creditor of the estate so the time limit for such claims does not apply: see the decision of the Ohio Supreme Court in Lewis v Steinreich (1995) 73 Ohio St. 3d 299 at 301:
"When property held by the decedent at the time of her death is actually owned by another from whom possession is wrongfully withheld, such property is not property belonging to the estate and the party claiming ownership is not a creditor of the estate."
The other point taken by Mr Graf to the effect that there are defects in the Certificate of Title (which was in fact notarised by Ms Williams, the Notary Public in New York, at the closing meeting) such that, by application of the Ohio Certificate of Motor Vehicle Title Act, it did not transfer title from Mr Kleve to Mr Swaters, is an equally bad point. The Act concerns procedures for the registration of vehicles located in Ohio and only applies to vehicles which are in Ohio at the date of the relevant transaction. As Mr Lenox states, the mere fact that a person possesses an Ohio certificate of title does not, in and of itself, confer 'ownership' upon that person. He also states that Ohio and federal courts applying Ohio conflicts of laws principles have held that the law of the State where the motor vehicle is located at the time of the transfer determines the creation and transfer of interest in the vehicle: see the decision of the Ohio Supreme Court in State ex rel. Hertz Corp v Rice (1968) 14 Ohio St. 2d 34 applied most recently by the Court of Appeals for the Sixth Circuit in McCaughey v Garlyn Shelton Inc (2008) Case No. 05-3450.
In the present case, at the time of the transfer of ownership from Mr Kleve to Mr Swaters in September 1999, the Car (apart from the spare parts) had not been in Ohio for more than ten years and was in Belgium. So far as the spare parts are concerned, they do not in themselves constitute a 'motor vehicle' within the meaning of the Ohio Act and the words of the Act make clear that where a motor vehicle is dismantled such as to lose its character as a motor vehicle, the certificate of title must be surrendered and cancelled.
In any event, even if there were defects in the Ohio certificate of title and even if the Ohio Act applied, which it does not, it does not follow that title did not pass to Mr Swaters as a matter of Ohio law. The case upon which Mr Graf relies, the decision of the Court of Appeals of Ohio in Walther v Walther (2005) Ohio App LEXIS 933 was a case where there was no evidence of any contractual or other legal obligation to transfer the vehicle. In those circumstances, the court held that a proper transfer of title under the Act was required to effect a transfer of interest in the vehicle. However, in the present case, Mr Kleve had legally obligated himself to transfer the vehicle by the Settlement Agreement. Neither he nor his daughter Ms Lawson could rely upon a certificate of title which they were not entitled to have, to contend that they still have title, because he had transferred his rights under the contract. Indeed if there was any defect in the certificate of title which impeded transfer of ownership as a matter of Ohio law, that would constitute a breach of warranty by Mr Kleve under clause 3 of the Settlement Agreement and Ms Lawson and Mr Ford cannot purport to set up rights which only arise because such a breach of contract has occurred.
So far as the transfer of title in the spare parts is concerned, if, contrary to the conclusion I have reached, Ohio law is of any relevance, then I accept Mr Lenox's evidence that Ohio law would look to the Settlement Agreement to determine the question of ownership of the spare parts:
"Ohio law would therefore look to the agreement of the parties to determine whether title to goods had passed from seller to buyer. The fact that Kleve, and subsequently Ms Lawson might have retained possession of certain Ferrari Spare Parts and after the 1999 Agreement was consummated is not dispositive of title under Ohio law. Instead, the question of ownership of the rights in the Spare Parts would be determined by the 1999 Agreement."
Conclusion
Accordingly, for all the reasons set out in this judgment, the answer to the preliminary issue is as follows. As at 27 June 2014, before the auction of the Ferrari model 375 Plus Grand Prix Roadster, serial no. 0384AM (the "Car"), Ms Swaters had title to the Car including, for the avoidance of doubt, the spare parts. |
Mr Justice Knowles :
On Tuesday 27 October 2015, after a period of pre-trial reading, I was due to commence the hearing of the trial in this litigation.
In the event, immediately after I entered Court I was informed by Counsel for the Claimant that "in the last five minutes the parties have come to terms." Further discussion revealed that, although terms were agreed, the form of Order to be made had not.
Not surprisingly, a Tomlin form of Order was raised by the Claimant's Solicitor, through Counsel for the Claimant, as a potentially suitable form of Order. In response to this I asked that a draft Order come to my Clerk when ready. I added: "For the avoidance of doubt, do let me have sight of the agreement. I appreciate that will be confidential, but I just need to be happy that it is something that is suitable should the stay need to be lifted and its terms need to be enforced. I will obviously treat it in confidence."
Counsel for the Defendant indicated he had nothing to add.
After I had commended the parties and the teams assisting them for achieving a compromise as "possibly always one of the better outcomes in a case like this", the short hearing concluded.
There was then disagreement between the parties over some details of the agreement and over the form of Order. This disagreement has been referred to me in writing and both parties agree that I should resolve the disagreement and do so in writing. In the circumstances of the case I am happy to do so.
I have been provided with contemporaneous documents and with written argument. I approach the task keeping in mind that the parties are commercially experienced parties, each a private equity house, and that the parties have had the assistance throughout of very experienced commercial Solicitors and Counsel.
It transpires that the evening before the hearing there was an email exchange between Solicitors to try to settle the case after previous unsuccessful efforts. The exchange ended with a counter-offer from the Defendant. Just before I entered Court on 27 October the counter-offer was accepted orally by the Claimant. It appears that there had been, moments before, a further exchange about settlement, but it is sufficiently apparent that, in the circumstances of this case, the original counter-offer remained open for acceptance at the point it was accepted.
After the hearing the Claimant sent a draft Order to the Defendant. The draft Order provided for payment of a stated sum within 14 days and for the release of certain security held in Court. The Defendant responded with amendments proposing confidentiality and a release of claims (including against employees and others). A later point was then raised by the Claimant, proposing that the payment be referred to in the Order as "in respect of the Claimant's claim for damages". This attracted a response from the Defendant that "[t]he claims on the proceedings were for damages, restitution and interest, and the agreed payment settling the case is to compromise all of those claims". (In a further response, the Claimant states that it would be content for an Order to state that it is full and final settlement of all of the Claimant's claims in these proceedings but the payment should be referred to as a payment in respect of damages claimed.)
The subject of whether the payment was in respect of damages can be traced back from the counter-offer to an earlier email from the Defendant which referred to payment of the same sum "in full and final settlement of your client[']s claims". I am quite satisfied that the counter-offer is to be read in the same way.
The subjects of time for payment, release of security, confidentiality and release of claims had not been addressed expressly in the email counter-offer of the evening before. The subject of confidentiality had been referred to in the short hearing, in the manner described above.
On time for payment, I conclude that a reasonable time for payment is implicit in the agreement reached, and that 14 days is a reasonable time.
On release of security, I conclude that this follows administratively from the agreement reached and should, for reasons of clarity, be set out in any Order.
On confidentiality, although this was not expressly agreed when the counter-offer was accepted, the brief hearing before me confirmed to me that both parties acknowledged that, even if an Order in Tomlin form was not ultimately used, their agreement was to have the degree of confidentiality that would regularly be found in an Order in that form. That is, that the agreement between the parties would be in the form of a confidential Annex to an Order of the Court. If necessary, I would conclude that that acknowledgement amounts to a further agreement simply on the subject of confidentiality.
On release of claims, the Defendant (through Freshfields) urges as follows:
"… the Claimant has brought very serious allegations of deceit against our client on the basis of statements (allegedly) made by its employees. In these circumstances we have sought confirmation from the Claimant that it will not seek to pursue our client's employees personally for claims arising out of the same facts as the litigation."
That position is a reasonable one, but it is not one that I can conclude formed part of the agreement when the counter-offer was accepted. It is not unreasonable for the Claimant (through Quinn Emanuel) to insist that, as it was not agreed, so it should not be recorded in an Order of the Court.
However, it may be that in practice little will turn on this. The Defendant (through Freshfields) has made clear that should further proceedings be commenced it will apply to strike out those proceedings as an abuse of process. In that connection it may be useful to bear in mind the question whether, had proceedings against employees been envisaged, that is a matter that would have required to be raised as a case management issue in the current proceedings, but was not (see Aldi Stores Ltd v WSP Group plc [2007] EWCA Civ 1260; [2008] 1 WLR 748, and Otkritie Capital International Ltd v Threadneedle Asset Management Ltd [2015] EWHC 2329 (Comm)).
In the result the Order will be in the form provided to the parties with this Judgment. |
MR JUSTICE PHILLIPS:
In June 2007 the Claimant, Claverton Holdings Ltd, a property holding company based in the British Virgin Islands, purchased an interest rate swap from its bankers, Barclays. In these proceedings Claverton claims that Barclays mis-sold the swap. It is alleged that two employees of Barclays Capital, Messrs Bulloch and Challis, made numerous misrepresentations and, having assumed a duty to advise Claverton, provided negligent advice and recommendations in relation to the swap and its suitability for Claverton's needs. Claverton seeks rescission of the swap and restitution of all monies paid under its terms or, alternatively, damages. Barclays denies each element of the claim.
The parties have given standard disclosure and the matter is set down for a 5-day trial in June 2016.
Claverton now applies for specific disclosure from Barclays, pursuant to CPR 31.12, of documents relating to other allegations of complaints of mis-selling swaps involving Messrs Bulloch and Challis, including complaints involving the FCA and the Financial Ombudsman Service, court proceedings and disciplinary processes. In this regard Claverton refers to the fact that the FCA review of swaps mis-selling identified that Barclays had been obliged to offer redress to 2,896 customers to date. Claverton invites the inference that a significant number of complaints will have related to the conduct of Messrs Bulloch and Challis, given their role at Barclays Capital. Indeed, Claverton has obtained copies of Particulars of Claim in two other sets of proceedings, each of which make allegations of mis-selling against Mr Bulloch.
Claverton submits that documents relating to complaints against Messrs Bulloch and Challis should be disclosed as, although they are not directly relevant to the matters in issue, they establish collateral facts which will be or may be admissible at trial as similar fact evidence, supporting the claims advanced by Claverton.
Also before the court is an application by Claverton for an order that Barclays provide Further Information pursuant to CPR Part 18 in the terms requested by Claverton on 27 May 2015. However, Ms Bayliss, counsel for Claverton, accepted that such information would add nothing of significance to what would be apparent from the disclosure, if ordered, and that, in the absence of further disclosure being ordered, the Further Information would be of no assistance to Claverton. It was therefore accepted that the Part 18 application added nothing to the application for Specific Disclosure and did not require separate consideration.
In support of the contention that evidence of other allegations and complaints would be admissible as similar fact evidence, Ms Bayliss relied on the House of Lords decision in O'Brien v Chief Constable of South Wales Police [2005] 2 AC 534. Lord Bingham set out the 2-stage test for determining whether evidence of collateral matters should be admitted as similar-fact evidence at pages 540 to 542 as follows:
"4. That evidence of what happened on an earlier occasion may make the occurrence of what happened on the occasion in question more or less probable can scarcely be denied. If an accident investigator, an insurance assessor, a doctor or a consulting engineer were called in to ascertain the cause of a disputed recent event, any of them would, as a matter of course, enquire into the background history so far as it appeared to be relevant. And if those engaged in the recent event had in the past been involved in events of an apparently similar character, attention would be paid to those earlier events as perhaps throwing light on and helping to explain the event which is the subject of the current enquiry. To regard evidence of such earlier events as potentially probative is a process of thought which an entirely rational, objective and fair-minded person might, depending on the facts, follow. If such a person would, or might, attach importance to evidence such as this, it would require good reasons to deny a judicial decision-maker the opportunity to consider it. For while there is a need for some special rules to protect the integrity of judicial decision-making on matters of fact, such as the burden and standard of proof, it is on the whole undesirable that the process of judicial decision-making on issues of fact should diverge more than it need from the process followed by rational, objective and fair-minded people called upon to decide questions of fact in other contexts where reaching the right answer matters. Thus in a civil case such as this the question of admissibility turns, and turns only, on whether the evidence which it is sought to adduce, assuming it (provisionally) to be true, is in Lord Simon's sense probative. If so, the evidence is legally admissible. That is the first stage of the enquiry.
5. The second stage of the enquiry requires the case management judge or the trial judge to make what will often be a very difficult and sometimes a finely balanced judgment: whether evidence or some of it (and if so which parts of it), which ex hypothesi is legally admissible, should be admitted. For the party seeking admission, the argument will always be that justice requires the evidence to be admitted; if it is excluded, a wrong result may be reached. In some cases, as in the present, the argument will be fortified by reference to wider considerations: the public interest in exposing official misfeasance and protecting the integrity of the criminal trial process; vindication of reputation; the public righting of public wrongs. These are important considerations to which weight must be given. But even without them, the importance of doing justice in the particular case is a factor the judge will always respect. The strength of the argument for admitting the evidence will always depend primarily on the judge's assessment of the potential significance of the evidence, assuming it to be true, in the context of the case as a whole.
6. While the argument against admitting evidence found to be legally admissible will necessarily depend on the particular case, some objections are likely to recur. First, it is likely to be said that admission of the evidence will distort the trial and distract the attention of the decision-maker by focusing attention on issues collateral to the issue to be decided. This is an argument which has long exercised the courts (see Metropolitan Asylum District Managers v Hill (1882) 47 LT 29, 31 per Lord O'Hagan) and it is often a potent argument, particularly where trial is by jury. Secondly, and again particularly when the trial is by jury, it will be necessary to weigh the potential probative value of the evidence against its potential for causing unfair prejudice: unless the former is judged to outweigh the latter by a considerable margin, the evidence is likely to be excluded. Thirdly, stress will be laid on the burden which admission would lay on the resisting party: the burden in time, cost and personnel resources, very considerable in a case such as this, of giving disclosure; the lengthening of the trial, with the increased cost and stress inevitably involved; the potential prejudice to witnesses called upon to recall matters long closed, or thought to be closed; the loss of documentation; the fading of recollections. It is, I think, recognition of these problems which has prompted courts in the past to resist the admission of such evidence, sometimes (as, perhaps, in R v Boardman [1975] AC 421) propounding somewhat unprincipled tests for its admission. But the present case vividly illustrates how real these burdens may be. In deciding whether evidence in a given case should be admitted the judge's overriding purpose will be to promote the ends of justice. But the judge must always bear in mind that justice requires not only that the right answer be given but also that it be achieved by a trial process which is fair to all parties."
Ms Bayliss further relied on the following observation of Lord Hobhouse of Woodborough in R v Z [2002] 2 AC 485 at 508, referred to by Lord Carswell at paragraph 74 of O'Brien:
"Similar facts are admissible because they are relevant to the proof of the defendant's guilt. The evidence relating to one incident taken in isolation may be unconvincing. It may depend upon a straight conflict of evidence between two people. It may leave open seemingly plausible explanations. The guilt of the defendant may not be proved beyond reasonable doubt. But, when evidence is given of a number of similar incidents, the position may be changed. The evidence of the defendant's guilt may become overwhelming. The fact that a number of witnesses come forward and without collusion give a similar account of the defendant's behaviour may give credit to the evidence of each of them and discredit the denials of the defendant. Evidence of system may negative a defence of accident. This is the simple truth upon which similar fact evidence is admitted: it has probative value and is not merely prejudicial."
Lord Carswell further stated at paragraph 76 of O'Brien:
"The appellant's fourth suggested requirement, that evidence of the allegations proposed to be adduced as similar facts will be admitted only if they are proven facts, is in my view wrong both in principle and on authority. It is refuted by the analysis which I have quoted of Lord Hobhouse of Woodborough in R v Z of the cumulative strength which may be built up from a number of relatively frail strands. It is inconsistent with the remark of Lord Mackay of Clashfern LC in R v H [1995] 2 AC 596, 605 that the judge is not to be held to have accepted that the evidence is true. It is also inherent in the decision in Director of Public Prosecutions v P [1991] 2 AC 447 that the allegation was unproven, as both incidents in that case were the subject of the trial of the defendant. Moreover, section 109(2) of the Criminal Justice Act 2003 expressly recognises that the truth of the allegation may not have been formally established. The strength of the allegations, which may be evidenced by their having been established as proven facts, may come into the scales in the second stage, but it is not necessary in the first stage to require that they be so proven."
Ms Bayliss submitted that following the above approach, evidence of other complaints and allegations against Messrs Bulloch and Challis would clearly and obviously be probative of matters alleged in the present case. She acknowledged that in JP Morgan Chase Bank v Springwell Navigation Corporation [2005] EWHC 383 (Comm) Gloster J (as she then was) had struck out pleaded allegations that a bank official, engaged in selling a financial product to the defendant, had made similar statements to other shipping customers at the bank in a similar position, on the basis that they were not logically probative of any of the following matters:
"34 … (a) that the contractual relationship was in any case the same as in the case of Springwell and Chase; (b) that each had the same investment objectives or attitude to risk, or that each had the same views on emerging markets; (c) that each had the same level of sophistication; or (d) that each dealt with Chase in the same way."
Ms Bayliss suggested that that approach was wrong, but in any event pre-dated the flood of complaints in relation to derivative products from 2008 onwards and thereafter and the general recognition that there had been systematic mis-selling of such products to unsophisticated customers.
In the course of argument, however, Ms Bayliss accepted that the mere fact that other allegations or complaints of mis-selling had been made against Messrs Bulloch and Challis was not itself probative that there had been mis-selling in this case: the facts of each case would be different and issues of duty, breach, reliance and causation would require specific determination. Neither could other complaints or allegations be relevant to the extent that the allegations in the present case were based on written communications such as emails and written presentations. The only potential relevance was if other cases contained allegations that similar oral representations or statements were made by the relevant persons, supporting the likelihood that they had been made in this case.
Ms Bayliss therefore proposed a revised form of order requiring disclosure of documents relating to complaints and allegations which involved similar allegations to those set out in paragraphs 85 and 95 of the Particulars of Claim in this case.
A further issue that arose in argument related to the use Claverton proposes to make of the documents relating to other complaints and allegations if disclosed. Ms Bayliss stressed that Claverton did not intend to call evidence to support the other allegations and complaints, but merely to refer to their nature and extent, including by way of cross-examination of witnesses called by Barclays. She contended that this removed the risk of satellite litigation derailing the trial.
However, that approach entails that Claverton would not be seeking to adduce evidence of similar facts, but merely evidence that similar allegations had been made. To the extent that evidence of allegations amounts to hearsay evidence of the underlying facts alleged, such evidence is of plainly little if any probative value. As Mr Sinclair, counsel for Barclays, pointed out, neither party had found any authority where evidence of similar allegations had been admitted. The passage from the judgment of Lord Carswell cited above, if properly understood, does not support such a course. The question Lord Carswell was addressing was whether it was necessary for similar facts to be proven facts before they can be admitted. It is clear that Lord Carswell anticipated that the admission of allegations proposed to be adduced as similar facts entailed calling evidence of those similar facts, as is apparent from his statement at paragraph 77 in O'Brien that a factor in the second stage of the test is that "the lengthening of the trial and increase of costs to which the calling of similar fact evidence will give rise must not be disproportionate".
To meet this further objection, Ms Bayliss sought to refine further the order sought against Barclays by way of limiting it to complaints and allegations which had resulted in an admission by Barclays or a finding by the Financial Ombudsman Service against Barclays. I would add that such admission or finding would, to be probative, have to relate clearly to the specific allegations of fact said to be similar to the alleged facts of the present case.
Ms Bayliss was therefore attempting to avoid both the criticism that Claverton wishes to adduce no more than unsubstantiated allegations on the one hand and a charge that Claverton intends to engage in satellite litigation on the other. In my judgment her solution fails on both counts.
First, it is highly likely that any settlements entered by Barclays with customers who have purchased swaps will have been made without admission of liability, let alone an admission of specific factual allegations underlying any claim. Further, any determination by the Financial Ombudsman Service will be as to the Ombudsman's view of Barclays' responsibility to compensate the customer, not a finding of legal liability and certainly not one which would bind Barclays in these proceedings in relation to any particular allegation of fact. Findings of a court, on the other hand, if there are any, would be readily accessible in any event.
Second, to the extent that Claverton was permitted to adduce evidence of admissions or findings of the Financial Services Ombudsman, it would remain open to Barclays to adduce its own evidence to explain the admissions or findings, to re-open and contradict any admission and to seek to distinguish the facts of the case in which any admission or findings were made. The possibility of satellite issues derailing the trial remains very real to the extent that Claverton were to be permitted to rely on allegations in other cases.
The application has, at this point, in my judgment, become a fishing expedition, hoping to find an admission by Barclays or a finding of similar facts where there is no reason to believe that such exists. It would involve the bank in an extensive and expensive search and analysis of a large number of cases to determine what specific allegations were made and to what extent those allegations were "similar" to the allegations in this case, and, further, the extent to which they have been admitted or are the subject of a "finding". In my judgment such an exercise is wholly disproportionate in the context of this claim.
In conclusion, I am not satisfied that the application, even as refined, is for documents which would be relevant and therefore admissible as similar fact evidence. I further doubt that, even if they crossed the threshold of admissibility, they would be admitted as a matter of discretion. That would be sufficient to refuse to make an order for specific disclosure of documents relating to transactions not directly in issue in these proceedings. But in any event, I am further satisfied that to require Barclays to undertake the search and disclosure exercise proposed would be disproportionate and oppressive. Claverton's applications are therefore dismissed. |
Mr Justice Knowles:
Introduction
The Defendant provides aircraft maintenance and repair services. The Claimant is the owner of a business jet aircraft of the BAe125/800A model ("the Aircraft").
When the Claimant purchased the Aircraft it was already about 20 years old. On 4 May 2009 the Claimant delivered the Aircraft to the Defendant in order that work could be done to it.
This dispute concerns the question whether the Defendant met its responsibilities while the Aircraft was with it, and whether the Claimant owes substantial further sums for work done. As a matter of record the Aircraft is still, today, with the Defendant. Before these proceedings the Defendant asserted a lien to justify retaining possession of the Aircraft whilst (on the Defendant's case) the Claimant did not pay what was due. The Claimant has now said it does not want the Aircraft back.
Common Ground
The following matters are among those that are common ground:
a. On 23 April 2009, the Defendant made a written proposal to the Claimant for work to the Aircraft including replacement of corroded wing bolts, routine maintenance and repainting. The Claimant accepted the proposal.
b. Shortly after the delivery in May 2009, work on the Aircraft was suspended because of proceedings brought by a third party. These proceedings (the "ownership proceedings") put the ownership of the Aircraft into question.
c. Within the ownership proceedings, a consent order was signed on 15 July 2009 ("the Consent Order") under which the Defendant was to provide (and be paid for) hangarage, full systems checks, engine runs and weekly visual inspections. The Defendant did not keep the Aircraft in a hangar at all times but for some periods kept it outside.
d. In June 2010 the ownership proceedings were settled and the Claimant was confirmed as the owner of the Aircraft.
e. On 13 July 2010, the Defendant made a further written proposal to the Claimant for the completion of the work that had been suspended, various inspections and maintenance. The proposal provided that certain works were to be proposed under a Contract Change Order (CCO) process. The proposal set out terms and conditions for the conduct of the work.
f. On 13 July 2010, the 2010 proposal was signed by Mr Sam Iwuajoku (the Claimant's CEO) for the Claimant and Mr Paul Williams for the Defendant. From July 2010, the Defendant worked on the Aircraft under the 2010 proposal.
g. The Defendant told the Claimant that the work was substantially complete in February 2012, and then conducted test flights. During the course of the work to that point, the Defendant issued around 77 CCOs, all but 10 of which were signed by the Claimant.
It is common ground that the Claimant has made payments on account towards the work. The Defendant claims a far larger sum as the price for the work done up to February 2012 plus a further sum for work done since February 2012 (post test flight rectification), plus further charges for ongoing storage and maintenance since the completion of the work. In all the Defendant says more than £1 million is still outstanding and unpaid.
17 February 2012
It is further common ground that in July 2010, there was discussion between the parties about a rebate in the light of the alleged non-compliance by the Defendant with the terms of the Consent Order in the ownership proceedings. No agreement was reached at that point.
At a later meeting on 17 February 2012 the subject was revisited. Mr Solomon Iruafemi, who was present on behalf of the Claimant, discussed with various personnel of the Defendant a discount or rebate on the Defendant's charges. It is the Defendant's case that a discount or rebate and final settlement amount for the work to that point was agreed between the parties, but that is disputed by the Claimant.
I have heard evidence from a number of people who attended that meeting, and from Mr Iwuajoku who did not. With the assistance of that evidence, of the contemporaneous documents, and of the submissions of the parties, I make the findings set out in the following paragraphs.
Mr Iwuajoku is the person behind the Claimant. He is a businessman, with a range of business interests. He came across as a person who is concerned with major points and not with detail. And as a person who is very busy, who understandably relies on others to help him manage and address things. His recollection was not always accurate, but that is not a criticism of him; it is an understandable consequence of the number of things he is dealing with at any one time.
Mr Iwuajoku regularly turned to Mr Iruafemi for assistance in relation to the Aircraft. Mr Iruafemi is an engineer, and understandably proud of his long experience in aircraft. However in giving evidence he could apply a broad brush, and the strokes of that brush were often governed by opinions he has formed in this matter. He was not always careful to be as factually accurate and precise as he could be. Sometimes he sought to avoid a direct question he did not want to answer.
The meeting on 17 February 2012 followed a test flight on 13 February 2012. Some defects were detected on that test flight. However Mr Iruafemi's view, expressed by email, was that these were "expected of this type of Inspection of this magnitude". He sent his "Big Congratulations" and went on "I quite agree that a thorough job was done. Once again I say well done. In the next few days we shall be addressing the Finance …".
The meeting also followed Mr Iruafemi and Mr Iwuajoku receiving a headline statement of account, sent to them by the Defendant by email on 10 February 2012. This showed an outstanding balance of over £1 million. I accept the evidence of Mr Iruafemi that this was discussed between him and Mr Iwuajoku, although Mr Iwuajoku denied knowledge of the statement of account.
I am satisfied that for the purposes of the meeting Mr Iruafemi had also been provided with a quantity of invoices and supporting materials to bring the account up to date. Some of these replaced previous versions, and some brought into the overall account a large amount of more recent work. Mr Iruafemi said in evidence that he "was not given any paper". I find that he was, but I do accept that he chose not to study the paper he was given. His choice, and it is an objectively understandable one, was to approach the discussion with a broader brush.
I accept that some of the, more recently produced, paper had not been seen by Mr Iwuajoku. However I do not accept the Claimant's submission that it was unrealistic to think that the Defendant could have expected Mr Iwuajoku to agree settlement of an account that included invoices that had not been sent to him. They were provided to Mr Iruafemi, and Mr Iruafemi was, as appears below, to be in contact with Mr Iwuajoku during the day. It is that contact that is of defining importance.
At the meeting Mr Iruafemi's approach was, in his language, "let's go to the straight issue, the issue that is going to affect you, affect Mr Iwuajoku is money. Let's discuss money. I'm not interested in 'I did this. I did that', no." Moreover he had arrived for the meeting hoping to fly the Aircraft away (the captain and engineer were on hand), a scenario that would be realistic only if agreement could be reached.
An initial proposal of a £10,000 reduction to the account was made by the Defendant. As the meeting continued the Defendant increased the figure. It reached £100,000 and ultimately £130,000.
At that point Mr Iruafemi left the room (and not for the first time). I accept the evidence called by the Defendant that he said he was doing so in order to speak to Mr Iwuajoku. I reject Mr Iruafemi's evidence that he instead spoke to the Aircraft's captain and engineer. It is implausible he should choose that point at which to do so, and it is not consistent with what he said when he returned. I find that he did indeed speak to Mr Iwuajoku. Mr Iwuajoku's recollection was uncertain in parts in this respect, but insofar as he recalls he was not called from the meeting, I cannot accept that his recollection is accurate.
Mr Iruafemi returned from speaking to Mr Iwuajoku to rejoin the Defendant's team. I accept the evidence of Mr McNeilis of the Defendant that Mr Iruafemi shook hands and acknowledged that agreement had been reached. I conclude that he did so because, in his call with Mr Iwuajoku, he had obtained Mr Iwuajoku's authority to acknowledge that agreement had been reached. The evidence of Mr McNeilis of the Defendant, which I accept, was that when Mr Iruafemi returned to the room "he was clearly more relaxed, he had a smile on his face and he put his hand out to me, shook my hand and said "Gentlemen, we have an agreement".
Was the agreement simply for a rebate of £130,000, leaving the rest of the account at large? In my judgment, no. The rebate was not simply a credit item to address a particular issue. It was an amount to calculate the total the parties were agreed would be charged by the Defendant and paid by the Claimant. Having heard the witnesses, I am clear the whole context of the meeting was to decide the overall amount of money which was due to the Defendant as at 17 February. The amount agreed was the account claimed, less the reduction. That settled what was due for work on the Aircraft up to that date, taking into account any responsibility on the part of the Defendant for the fact that the Consent Order had not been complied with. It did not however include charges for work after 17 February 2012, including post-test flight work.
Importantly, the agreement was not, as the Claimant has argued, subject to Mr Iwuajoku's confirmation. This is because he gave his confirmation at the time through Mr Iruafemi. Whatever Mr Iruafemi's authority at other points in the relationship between the Claimant and the Defendant, on this occasion he had the Claimant's actual authority to convey the fact of Mr Iwuajoku's agreement on behalf of the Claimant.
After the meeting Mr Jones sent an email to Mr Iruafemi. In this Mr Jones summarised that the Defendant had "agreed to a goodwill discount of £130,000 GBP to be deducted from the current statement balance", that "the outstanding amount after making this deduction will be paid by [the Claimant], a value of £932,577.21", that "the work continues on the post flight defects, and the final invoice for this and fuelling will be payable by [the Claimant]" and "any balance owing at the time of departure will be paid before departure of the aircraft". A statement was attached.
Considerable weight was attached by the Claimant to the fact that this email was not sent or copied by Mr Jones to Mr Iwuajoku. Mr John Passmore QC submitted on behalf of the Claimant that if Mr Jones had thought that Mr Iruafemi and Mr Iwuajoku had spoken during the meeting, and that Mr Iwuajoku had agreed something, Mr Jones would have sent the follow-up email, or at least the attached statement, to Mr Iwuajoku. However I find it unsurprising that Mr Jones should send the email and attached statement to Mr Iruafemi when Mr Iwuajoku had been content to speak through Mr Iruafemi at the meeting. And it was to Mr Iruafemi that Mr Jones had, at the conclusion of the meeting, said he would send the email. There was nothing to stop Mr Iruafemi sending it to Mr Iwuajoku if he thought that Mr Iwuajoku would wish to see it.
I consider Mr Iruafemi's response to Mr Jones' email consistent rather than inconsistent with the fact of an agreement having been reached at the 17 February. The response is as relevant for what it does not say as much as for what it does say: "My appreciation goes to all concerned regarding the day's deliberation. … We all had a gentleman['s] agreement so let it remain so nothing more nothing less. .. Once again thank you all for the understan[d]ing demonst[r]ated during our nego[t]iations.".
There was no rejection of Mr Jones' summary; no suggestion that only a rebate had been agreed; no suggestion that the outstanding amount was subject to further negotiation or was other than due. The reference to "gentleman's agreement" was not, in my assessment in the present case, an indication of any lack of intention to create a bargain that was legally binding. Rather, it was a reflection of the matter having been agreed, to Mr Iruafemi's mind, between gentlemen. Mr Cashin's understanding was that it referred to a matter that had been agreed, but agreed other than in the form of a written contract. I think that understanding reflects an objective assessment of the position.
In the weeks and months that immediately followed 17 February 2012 there was no request by Mr Iruafemi or Mr Iwuajoku to continue negotiations, or say that the £130,000 had been considered by Mr Iwuajoku and was unacceptable. This too supports the conclusion that matters had indeed reached agreement, between the Claimant and the Defendant, on 17 February 2012 and in the terms fairly summarised in Mr Jones' email of that day.
Mr Passmore QC presses for a different conclusion, submitting that from 20 February onwards "emails about the aircraft went back and forth between [the Defendant] and [Mr Iwuajoku], copied to Mr McNeilis and Mr Cashin amongst others, as if nothing at all had happened on [17 February]". However in my assessment the emails that followed were primarily about remaining work. They are consistent with the Defendant and Mr Iwuajoku having addressed the state of the account to date on 17 February; as a result that did not need to feature. Of course the financial position did not stand still, for the remaining work added to costs.
It was in that context that Mr Iruafemi wrote on 16 May 2012 (in an email that he did not copy to Mr Iwuajoku) to say that "finance is d [sic] next big issue". His email was not a sign that nothing had been agreed on 17 February. The email was copied within the Defendant under the crisp rubric "Gents, FYI". Mr Passmore QC argues that if there had been an agreement on 17 February then Mr Iruafemi's message would have been seen within the Defendant as an attempt to renege and it is likely that more comment would have been attached. With respect, I disagree. The crisp rubric is consistent with a Defendant that considered, even though they had an agreement on 17 February, they were not yet out of the woods in terms of actually getting paid. And with the further work since 17 February there was more to discuss.
After a short visit in late May, Mr Iwuajoku called the Defendant. After that call the Defendant sent a schedule to him on 30 May 2012 that detailed invoices that had been provided to Mr Iruafemi for the purposes of the 17 February 2012 meeting. In the schedule a £130,000 credit was described as "agreed". Mr Iwuajoku's reply was not one that said he had no knowledge of these invoices, and that nothing had been agreed. Instead he wrote "Please my original cost is £500,000 now the new cost is £1,427,000 due to improper caring of the aircraft which was paid for, I can only pay £732,000 full and final. Thanks." In round figures, £1,427,000 is the total shown by the schedule before allowance is given (as the schedule did give) for payments already made of around £348,000. With that allowance the schedule showed around £1,080,000 still due. As a matter of arithmetic, £732,000 is £1,080,000 less a second deduction of £348,000.
In full form the entry in the schedule for £130,000 is in these terms: "Credit Adjustment – Agreed with Solomon Iruafemi in meeting with SM, PC & GBJ". There is no statement, points out Mr Passmore QC, that "an agreement had been sanctioned by [Mr Iwuajoku]". I do not believe the entry is to be construed as though it was comprehensive. It simply describes the people physically present, and the fact of agreement. As I have pointed out above, Mr Iwuajoku's response to the schedule was not a response that rejected the fact of agreement.
In conclusion, as at 17 February 2012 the Claimant owed the Defendant £932,577.21 as detailed in the schedule. The Claimant is also liable for sums invoiced for work after 17 February 2012, and I return to these further below.
My conclusions on the 17 February 2012 agreement largely dispose of a number of specific issues between the parties on work done, aircraft hangarage, systems checks, engine runs, and costs estimation. However, so that the parties can be aware of the conclusions I would reach on these issues, with the benefit of the evidence and submissions I read and heard, I address these issues shortly in the course of the remaining sections of this judgment.
Charges made for work done and materials supplied
Mr Brian Walton, an expert called by the Defendant, made an assessment of items that should not be charged. These produce in total a sum of between £35,565 and £40,965.20 (subject to any final argument over arithmetic). His assessment seemed to me reasonably arrived at.
Having heard the evidence at trial and considered the documents and submissions, I am otherwise satisfied, that (leaving aside services the subject of the Consent Order) the work charged for by the Defendant was done, that the materials charged for were supplied, and that the sums charged for that work and those materials were reasonable.
Mr Malcolm Cox was called as an expert by the Claimant. His challenges to work done and services supplied were not reliable. My confidence in his evidence generally was badly undermined by the presence of errors and weak assumptions in his detailed work to compile a major schedule, the fact that most of these were in the Claimant's favour, and the fact that he took no initiative to correct those errors. I also found some of his answers came from a place of defending the Claimant's argument rather than of neutrality.
The conclusions above apply equally to work and materials (including fuel) provided after 17 February 2012. I am quite satisfied that the sums invoiced for the period after the 17 February agreement were properly invoiced for what was provided. I found the (limited) challenges in this respect from the Claimant unconvincing. They were again largely based on evidence from Mr Iruafemi and Mr Cox that I did not consider reliable.
Hangarage, systems checks and engine runs
As mentioned, it was common ground that the Defendant did not keep the Aircraft in a hangar during the ownership proceedings but for some periods kept it outside.
The evidence pointed plainly to this being the result of an internal failure of communication within the Defendant. When the Defendant realised the position it hoped initially that this would simply not become known to the Claimant. This initial approach does the Defendant no credit, especially given that it had been raising charges on the basis that hangarage was being provided.
It is not possible to say reliably for how long the Aircraft was left outside. There was, perhaps obviously, evidence that aircraft of this type are designed to be outside but that evidence mostly addresses an operational context. At the same time, there is the real possibility that some of the suggested difficulty with the period of the ownership proceedings may lie with the fact that the Aircraft was left standing, rather than that it was inside or outside. It is not the Defendant's fault that the Aircraft was left standing.
There was internal contemporaneous acknowledgement within the Defendant that leaving the Aircraft outside would cause "an element of airframe condition deterioration". Mr McNeilis recognised when giving evidence that "the period of time the aircraft was outside would have had some contribution to further enhance" existing wing bolt corrosion.
A detailed walk-round inspection was carried out after the resolution of the ownership proceedings. I reject what I understood to be a line of argument by the Claimant that this inspection was directed simply or mainly to matters resulting from the Aircraft being outside. It was a detailed inspection to establish, as far as possible, what work needed to be done to the Aircraft at this stage of its life, of which the delay caused by the ownership proceedings was one part.
The Claimant contends that the Defendant's failure to hangar the Aircraft caused material galvanic corrosion, especially to the wings. This is different to the wing bolt corrosion referred to above, and includes areas between bolts. I am persuaded, on the particular factual and expert evidence available to me in this case, that the cause of the corrosion lay elsewhere than from a failure of the Defendant to hangar.
During a paint strip in 2006 – several years before the Aircraft was delivered by the Claimant to the Defendant to be worked on - a mechanical sander had been used, causing abrasion to wing (and fuselage) surfaces and contact between aluminium and steel. On the evidence an electrolyte would also be required for galvanic corrosion to occur. The evidence did not give a clear picture of precisely how or what electrolyte was at work. But I preferred and accept the evidence of Mr Walton that after 2006:
"It has had two years of flying in all sorts of conditions, different heat applied to the aeroplane going from very high temperatures in Africa to altitude and, you know, you have got different coefficients of expansion to the steel bolts to the wing skin alloys, you're going to get movement, particularly in an old aeroplane, and water will get in. If it's present, it will get in, as will moisture …"
Although there were imperfections in his evidence I found Mr Walton an expert with practical wisdom borne of years of experience. He had seen this type of corrosion before. He recognised that not all the answers on the subject of corrosion in the context of aircraft are clear or certain. I also accept the evidence of Mr Walton that hangarage would not necessarily have meant that galvanic corrosion would not commence or progress.
Galvanic corrosion was not detected at sample sites in the course of a G check in December 2008 and January 2009 but, even though there were more than 50 areas sampled, I am not persuaded that that means galvanic corrosion was not present. The sampled areas comprised the bolts and the immediately surrounding areas to the bolts. Even in those areas, and under 10x magnification and non-destructive testing, the problem would not necessarily be detected. Mr Walton emphasised how difficult it was to predict how long it would take for galvanic corrosion to show in the form of pitting.
The Claimant submitted that by keeping the Aircraft outside the Defendant "subjected it to frequent rain and condensation, combined with constant or very frequent salt and/or environmental contamination". The evidence did not bear out the submission of "constant or very frequent salt and/or environmental contamination". Of course there would have been rain, and perhaps condensation, but the origins of the corrosion lay before the time the Defendant kept the Aircraft outside, and that period was not material to the progress of the corrosion compared to the period between 2006 and 2009.
I do not accept Mr Cox's evidence that the only credible explanation of work required on avionics to this Aircraft was damp in electrical components caused by storage outside. His approach in other areas – including the cockpit, the cabin, the escape hatch and fuel leaks – was not satisfactory; he repeatedly sought to ascribe problems to the period of outside storage without considering the full history and the available detail.
The Consent Order also required systems checks and monthly engine runs. Here the Defendant did not satisfy me that it carried out all the systems checks or monthly engine runs. But the Defendant did satisfy me that there was not deterioration of the Aircraft due to its failure.
Historically the engines of the Aircraft had been covered by a form of insurance programme by Honeywell. Unfortunately, the policy document has not been disclosed by the Claimant. Doing the best I can with the limited material that is available, it appears the Claimant fell behind in payment of premiums to Honeywell. In 2011 a reinstatement fee of US$103,000 was sought by Honeywell, and the Claimant did not pay that. By 2012 Honeywell was looking for US$570,000 as a sense of uncertainty about the engines compounded. I am satisfied that the Defendant's failure to carry out engine runs was not the cause of the problem here. Rather, there was the Claimant's failure to pay premiums. And there was also, on the, impressive and independent expert evidence of Mr Douglas Kelly, the fact that it would not be an absence of log book runs that mattered but rather documents relating to the last shop visit.
Assessment, planning and estimating
It is common ground that it was implied in the 2010 Proposal that the Defendant would carry out the work to the Aircraft and the services which it provided (including planning and estimating in advance) with reasonable care and skill.
I am satisfied that the Defendant inspected the Aircraft and assessed the work to be done, planned the work and estimated time and cost (and informed the Claimant in advance of such estimates), and carried out the work, with reasonable skill and care.
As indicated above, it was common ground that some items were stated in the 2010 Proposal "To be covered by CCO Process". This process, referring to Contract Change Orders prepared by the Defendant for signature by the Claimant, enabled the Defendant and the Claimant to confirm advance (and sometimes retrospective) permission to undertake work, to be charged at the Defendant's usual rates. In overall terms, the process was in my judgment properly undertaken and all work and charges meet the standards of reasonableness. But even where there was no CCO, or entry in a proposal, I am satisfied that the work done by the Defendant was within the scope of the work that the Claimant had asked and intended that the Defendant should do.
In relation to planning, estimating and reporting work and costs the Claimant suggests that had it known what work and cost would have been involved it would have proceeded differently. I completely reject that suggestion. The Claimant was well aware that an aircraft of this age might have quite a number of things to be rectified, and that what was termed "emergent work" would occur.
The 2010 Proposal in July 2010 allowed £109,000 for replacing wing fasteners but this was before the full state of the wing was known, and it was made clear that there would be further work that was not costed at that point. Mr Rawcliffe told Mr Iwuajoku in terms by email on 7 August 2010 that the repairs and remedial work to the wing would prove costly "and will run a lot of man hours". An email from Mr Earl of the Defendant to Mr Iwuajoku and Mr Iruafemi referred to "the huge potential for a large amount of rectification work". A warning that "the costs will escalate very quickly" came on 14 September 2010. These are simply examples. The Claimant was content to continue.
The cost of work on wing corrosion ultimately exceeded £450,000. The Claimant submits that the cost of a new wing was about £360,000 and that it was obvious that repair of the wing was uneconomic. It did not raise this idea at any point in the CCO process. Taking the Aircraft as a whole it is arguable that the Claimant was already prepared to spend a sum on its repair that represented at least a high proportion of its value, and possibly more than its value. This will be among the choices that are made by those with an older aircraft.
It was also suggested that if it had had a proper estimate the Claimant would have pressed for agreement by way of indemnity from the company involved in the 2006 paint strip. There was no convincing evidence it would have done that, or has done that.
Lien, conversion and final matters
On the facts of the case there was no error in the Defendant's assertion of a lien until its charges were agreed and paid. The Claimant has no claim in damages for conversion.
I will hear further argument from the parties, in light of this judgment, on what should happen to the Aircraft now, the Claimant having decided it no longer wants the Aircraft back.
The parties may wish to review the final details on the figures in light of this judgment, and I will resolve any outstanding argument on those and any other details so that all matters are up to date and a final order can be made. |
Mr. Justice Teare :
This is the trial of two actions. In one action an anti-suit injunction is sought in circumstances where one party to a London arbitration agreement wishes to enforce it and another party, despite having agreed to London arbitration, prefers to litigate in another country, in this case China. In the other action a declaration on non-liability in fraud is sought.
The dispute, the arbitration in London and the litigation in China
In August 2007 Nantong Mingde Heavy Industry Stock Co. Ltd. ("the Builder") agreed to construct a vessel and sell the same to Crescendo Maritime Co., ("the Buyer"). As is often the case where a Chinese shipbuilder enters into a shipbuilding contract with a foreign buyer (the Buyer in the present case is managed by a Greek company) the parties agreed that the contract would be governed by English law and that disputes would be resolved in London arbitration.
The price was to be paid in instalments. The Buyer obtained funding by way of a loan dated 29 October 2007 from a Greek bank, Alpha Bank ("Alpha"). In the event that the Shipbuilding Contract was cancelled the Builder was obliged to repay the instalments. As security for repayment of the instalments Refund Guarantees were provided by the Bank of Communications Company Limited Qingdao Branch ("the Bank") to the Buyer. The first was issued on 14 September 2007, the second on 11 July 2008 and the third on 24 December 2009. The Refund Guarantees also provided for English law and London arbitration. As security for its loan to the Buyer Alpha took a security assignment of the Buyer's rights under the Refund Guarantees.
New Future International Trade Co. Ltd. ("New Future") is a Chinese trading house which was responsible for procuring the Refund Guarantees (pursuant to an agreement governed by Chinese law) and became a party to the Shipbuilding Contract as co-seller by addendum no.1 to the Shipbuilding Contract.
In November 2011 the Shipbuilding Contract, after much delay, was brought to a premature end. The Builder purported to terminate the contract. Arbitration in London was commenced and the Builder claimed damages. The Buyer claimed that it was entitled to cancel the contract because of delay and to claim repayment of the instalments. The Builder disputed the Buyer's right to cancel and did not repay the instalments. The Buyer thus made a claim under the Refund Guarantees but the Bank declined to pay pending the outcome of the dispute between the Buyer and the Builder. The Buyer therefore commenced arbitration in London against the Bank. The same tribunal (Mr. Anthony Hallgarten QC, Mr. Ian Gaunt and Mr. Patrick O'Donovan) was appointed in each reference and the arbitrations were managed concurrently.
It is common ground that the Shipbuilding Contract was backdated to 2 December 2006 so as to circumvent the application of certain amendments to the SOLAS Convention concerning tank coatings, which amendments applied to vessels built pursuant to shipbuilding contracts signed after 8 December 2006.
In September 2013, after the exchange of Claim, Defence and Reply Submissions the Bank served Rejoinder Submissions. In those submissions the Bank alleged that there had been fraudulent ante-dating of the Shipbuilding Contract by the Builder with the intention of "sneaking" the financial facility from Alpha. It was said that the "concealment" of the ante-dating was unacceptable. It was claimed (see paragraph 9(2)) that the Bank was "cheated to agree to issue the refund guarantees" and (see paragraph 9(3)) that due to the frauds "the Refund Guarantees are null and void (ab initio) and/or unenforceable against the Respondent". In addition the Bank alleged that the Buyer had assigned its rights under the Shipbuilding Contract to Alpha and it was Alpha, not the Buyer, who was entitled to commence arbitration proceedings.
After Surrejoinder Submissions from the Buyer the Bank served further submissions (described by the parties as Rebutter Submissions) by email dated 24 April 2014. The Bank gave notice that it may charge Alpha with having colluded in the commission of the alleged fraud and repeated that it had been unaware of the alleged fraud until the commencement of the arbitration and that it was "cheated to issue the RG,s which derived from the Buyer's frauds."
In March 2014 a hearing date was fixed for November 2014. Disclosure was given in April 2014 followed by the exchange of witness statements in July 2014.
Notwithstanding that it was the case of the Buyer and Alpha that the security assignment was not absolute and that the Buyer had title to sue Alpha decided in July 2014 to apply to the arbitral tribunal to join the arbitrations so that the alleged assignor and alleged assignee were both before the tribunal.
The Bank maintained that Alpha was not a party and that the tribunal had no jurisdiction over Alpha. The Bank refused to respond to the application and said that it would not even read the application. It added that Alpha's solicitors, Reed Smith, were "conflicted out" because Alpha knew of and consented to the alleged fraud. The tribunal was dismayed to learn that there would be no response from the Bank and, in its email dated 3 August 2014, urged it to respond to Alpha's application. But the Bank did not respond.
On 23 August 2014 the tribunal informed the parties that it had considered Alpha's application. It had concluded, after considering certain authorities including the judgment of Rix J. in Charles M Willie & Co (Sipping) Ltd v Ocean Laser Shipping Ltd [1999] 1 Lloyd's Rep 225, that the tribunal had jurisdiction to join Alpha and had decided to join Alpha. On 4 September 2014 the tribunal explained that it had not decided any substantive issue. "Its decision was limited to simply allowing Alpha Bank to be joined; so that if for instance Alpha Bank rather than Buyers was technically entitled to relief or the presence of Alpha Bank was necessary for Buyers to have relief, justice could be done."
The decision of the tribunal has been subjected by counsel for the Bank to much criticism. It is said that the tribunal misunderstood the Buyer's submissions and that its decision was not a permissible exercise of its jurisdiction. It was further said that the Bank, which agreed to a private and confidential arbitral process, feels let down by the tribunal. Whatever the rights or wrongs of the decision (and it is no part of the court's function in these actions to review it) this comment is inappropriate and unfair. The tribunal was faced with a case management decision which, in the context of arbitration, was difficult. It dealt with it in a practical manner designed to ensure that justice was done.
The Bank decided to take no further part in the arbitration. The tribunal urged it by email dated 13 October 2014 to change its mind but the Bank did not.
Instead, the Bank commenced proceedings in China. On 29 August 2014 the Bank issued a Civil Complaint against the Builder, the Buyer and Alpha as defendants 1-3 and joined New Future as a third party. The Bank requested the court to affirm that the actions of the defendants "constitute fraud as they intentionally concealed the pertinent facts when applying to the [Bank] for the issuance of the Refund Guarantees". They sought damages and a decree "that the [Bank] shall terminate its payment to the [Buyer and Alpha] under the Refund Guarantees." Under "Facts and Justifications" it referred to the backdating of the Shipbuilding Contract and the reasons therefor and said: "The defendants intentionally concealed the real facts and used the false Shipbuilding Contract to apply to the [Bank] for the issuance of Refund Guarantees." It was said that the Refund Guarantees had no legal binding force ab initio.
On 10 and 17 September 2014 the Bank, New Future and the Builder issued applications challenging the tribunal's decision to join Alpha pursuant to sections 67 and 69 of the Arbitration Act 1996.
On 8 October 2014 the Buyer and Alpha served a notice challenging the court's jurisdiction under sections 67 and 69 (on the grounds that the tribunal's decision to join Alpha was not an award but an order).
On 21 October 2014 the Chinese court issued a ruling "freez[ing] the principal sum and interest under the Refund Guarantees…and the [Bank] is refrained from making any payment ….to the [Buyer] and/or [Alpha]."
On learning of the proceedings in China the Buyer and Alpha applied, with the consent of the arbitral tribunal, for an anti-suit injunction. That injunction was sought in Claim No. 2014 Folio 1310 which was issued on 29 October 2014. On the same day Alpha issued Claim No. 2014 Folio 1311 in which it sought declaratory relief (to the effect that it had no liability for fraud) and an injunction. On 31 October 2014 this court (Males J.) granted an anti-suit injunction in Folio 1310. The Bank (and the Builder and New Future) were ordered, on an interim basis, not to pursue the proceedings in China. In addition and on the same day Males J. granted Alpha permission to serve the claim form in Folio 1311 out of the jurisdiction.
The arbitration hearing took place in London on 3-6 November 2014. The Bank, the Builder and New Future did not take part.
On 19 November 2014 the Buyer and Alpha applied for security for their costs of the challenges to the order of the tribunal joining Alpha.
On 28 December 2014 the Chinese court issued a further ruling to the effect that it had jurisdiction over the claim brought by the Bank, thereby rejecting a submission by the Buyer that it had no jurisdiction because of the arbitration clause in the Refund Guarantees.
The arbitration awards were published on 31 December 2014. The tribunal decided the references in favour of the Buyer. It held that the Buyer had validly cancelled the Shipbuilding Contract and that the Buyer was entitled to the refund of the instalments, some US$18,600,000. The Bank was ordered to honour the Refund Guarantees in the event that the Builder failed to refund the instalments. The tribunal's reasons were careful, full and detailed and extended to some 88 pages.
The tribunal held that the Shipbuilding Contract had been backdated at the suggestion of the Builder. The Buyer was aware of the backdating and the reason for it. The tribunal said that backdating was not unique to this transaction. "The evidence was that this was common practice among Chinese and Korean yards who were not yet ready or otherwise willing to work to the new standard." The tribunal held that the Bank and Alpha knew of the backdating. "Each bank would have asked its client the reason why the Contract was being backdated and been given an explanation along the lines set out above" (see paragraphs 42-46).
With regard to the assignment the tribunal held that it was not an immediate legal assignment as contended for by the Bank. It was "by way of security" and subject to a proviso that the Buyer was entitled to exercise all its rights unless a default had occurred and notice of such default had been given to Alpha (see paragraphs 189-190.) It further held that there had been no notice of any default (see paragraphs 210-212).
The tribunal considered whether the Refund Guarantees were void for fraudulent misrepresentation or non-disclosure. It described the essence of the Bank's case as being that it was "cheated" into entering the Refund Guarantees because it knew neither of the backdating of the Shipbuilding Contract nor of the reason therefor. It held that the Bank had failed to establish any relevant misrepresentation, that the Buyer would have assumed that the Bank was aware both of the backdating and the reason for it, that there was no evidence of dishonesty between the Buyer and the Bank, that it was highly probable that the Bank was fully apprised of the situation and that there was no non-disclosure (see paragraphs 197-204).
The tribunal itself raised the question whether the Shipbuilding Contract or Refund Guarantees were unenforceable for illegality. The tribunal did not have evidence that there had been a deception of the class surveyor (he may have known of the widespread practice) or that either the Builder or the Buyer had an intention to deceive him. In those circumstances it was impossible to say that the contracts were tainted with illegality (see paragraphs 223-230).
On 27 February 2015 Eder J. continued the interim injunction and gave directions for a trial both of the claim to a final injunction and of the claim by Alpha to declaratory relief on 27 March 2015.
On 19 March 2015 the Bank issued an application challenging the awards of the tribunal pursuant to sections 68 and 69 of the Arbitration Act 1996.
Also on 19 March 2015 this court (Eder J.) gave the Buyer leave to enforce the arbitration awards dated 31 December 2014 as judgments of the court and entered judgment accordingly.
On 27 March 2015 the trial of these actions was stood out of the list and Hamblen J. gave further directions. This occurred because of an unexpected issue as to whether the Bank was a separate legal entity from its Qingdao Branch.
On 2 April 2015 the Bank issued an application for an extension of time for its challenges to the awards of the tribunal.
On 16 April 2015 the Buyer issued an application for security for its costs of the challenges to the awards of the tribunal.
Between 19 and 27 May 2015 there was correspondence between the Bank's and the Buyer's solicitors as to how the various arbitration applications should be dealt with by the court.
On 29 May 2015 the clerks for the parties' counsel attended upon the Commercial Court Listing Office and a hearing date was fixed for 29 September 2015.
On 30 September 2015 Phillips J. dismissed the challenges to the tribunal's order and awards. The Bank did not appear at this hearing but has issued applications seeking permission to appeal the court's decision.
The Bank has complained that its section 69 application was not heard until September 2015. That complaint appears to me to be difficult to sustain in circumstances where the Buyer was arguing that there was no jurisdiction to entertain a s.69 application and was seeking security for its costs and the date for hearing those and other matters, 29 September 2015, was fixed on 29 May 2015. The complaint also sits unhappily with the Bank's failure to attend the hearing of the arbitration applications.
At the trial of the Buyer's claim for a permanent anti-suit injunction and of Alpha's claim for declaratory relief on 3-5 November 2015 only the Qingdao Branch of the Bank was represented. The Bank was not represented. In the event it proved to be common ground between the Chinese lawyers that the Branch did not have a separate legal identity from the Bank. Thus the references in this judgment to the Bank are a reference to both the Bank and its branch.
Witnesses
There were three witnesses of fact. Alpha called Mr. Flokos, an assistant manager in Alpha. He gave evidence on the question whether Alpha had concealed the true date of the Shipbuilding Contract from the Bank. He appeared to me to be a fair and helpful witness who sought to tell the court what he thought had happened, although at times he gave what appeared to be inconsistent answers which were probably to be explained by some confusion on his part as to what was being suggested. The Bank called Mr. Zhao who gave his evidence by means of a video link. It turned out that he had no evidence to give from his own knowledge and some things he said appeared improbable. There were two expert witnesses of Chinese law. They were called primarily to deal with the question whether the Bank had a separate legal identity from its branch. In the event it appeared that there was no dispute that it did not. However, the experts also gave evidence as to the elements of the Chinese law of maritime fraud and other matters. The Buyer's expert was Mr. Yuan. He was a very good English speaker and I found him to be a fair and helpful witness. The Bank's expert was Mr. Li who gave evidence by audio link alone. Unfortunately, his English, although assisted by an interpreter, was not always easy to follow. He appeared to have a tendency to argue rather than answer simple questions. I therefore found Mr. Yuan to be the more reliable expert on Chinese law. Lastly, Mr. Weller of Reed Smith gave evidence. It was unclear why he was called and/or required to be called because, unsurprisingly, there was little to which he could speak of his own knowledge.
The Buyer's claim for an anti-suit injunction
Although the claim of the Buyer for an anti-suit injunction was put on two bases (first, that the Chinese proceedings are vexatious and oppressive and, second, that they are in breach of the arbitration agreement) it is convenient, because there is an arbitration clause, to consider the claim based upon the arbitration clause in the Refund Guarantees.
English law is very clear. Where foreign proceedings are brought in breach of an agreement to refer disputes to arbitration in London the court will issue an anti-suit injunction unless there are strong reasons for not doing so: see The Angelic Grace [1995] 1 Lloyd's Reports 87 and Donohue v Armco [2002] 1 Lloyd's Reports 425. The reason for that approach is that the claimant has a contractual right to arbitrate disputes within the clause in London and the law will protect that right unless there are strong reasons for not doing so.
The arbitration agreement in the Refund Guarantees refers to arbitration of "any dispute under this guarantee". Mr. Bailey submitted on behalf of the Buyer that on the authority of Fiona Trust v Privalov [2008] 1 Lloyd's Reports 254 such language is broad enough to encompass all of the Bank's claims in the Chinese proceedings, including both the question whether the Refund Guarantees are vitiated for misrepresentation and also any claim in tort for damages for fraud. I did not understand this to be challenged by Mr. Hatt on behalf of the Bank.
The question therefore is whether there are strong reasons for not issuing an anti-suit injunction to enforce that clause. I have read Mr. Hatt's Closing Submissions (of some 58 pages) which were provided to me at the hearing and which I was invited to read after the hearing. As I understand those submissions and the additional points he made orally there were, in essence, three matters upon which he relied to establish the necessary strong reason for not issuing an anti-suit injunction. First, it was said (and this was described as the "key" point) that the claim in China is different from that which had been advanced in the London arbitration. Second, it was said that the natural forum for the resolution of the fraud claim was the Chinese court. Third, it was said that the Chinese proceedings were also brought against Alpha and others who were not party to the arbitration clause and therefore the claim against them could not be brought in the London arbitration.
The claims in arbitration and in China: It was submitted that the Bank's claim in China was different from the Bank's claim in the arbitration because (i) the claim in China alleged that Alpha was party to the fraud whilst in arbitration the Bank alleged that Alpha was innocent of the fraud and (ii) the claim in China alleged non-disclosure whilst the claim in arbitration alleged misrepresentation. It is true that the Bank alleged in arbitration that Alpha was innocent of the fraud (though by the Rebutter Submissions it was being suggested that Alpha might be party to the fraud). It is also true that in China the allegation is of non-disclosure but in arbitration the allegation was of "concealment" which would appear to be non-disclosure. In the event the tribunal addressed both misrepresentation and non-disclosure. I do not consider that the differences in the detail of the allegations, such as they are, indicate that in substance there is any difference between the allegations in China and the allegations in arbitration. In both the arbitration and in China the Bank is seeking to avoid liability under the Refund Guarantees on the grounds that it was deceived into thinking that the true date of the Shipbuilding Contract was the date borne by that contract. Thus in arbitration the Bank argued that it was "cheated to agree to issue the refund guarantees" and that "the Refund Guarantees are null and void (ab initio) and/or unenforceable against the Respondent". In China the Bank is arguing that there was a deliberate concealment of the true facts and that the Refund Guarantees had no legal binding force ab initio. I therefore do not think that such differences as there are can amount to a strong reason not to enforce the arbitration clause.
The natural forum: I accept that the natural forum for determination of the allegation of fraud is China because the fraud is alleged to have been committed in China, the Builder is a Chinese yard and the Bank is a Chinese bank. The relevant evidence, or at any rate the greater part of it, is likely to be found in China. However, the Builder, the Buyer and the Bank have chosen London arbitration as a neutral forum. This is frequently done where Chinese yards agree to build ships for foreign buyers. When that is borne in mind the matters which suggest that China is the natural forum are of little consequence. In Akai Pty Ltd v People's Insurance Co. Ltd. [1998] 1 Lloyd's Rep. 90 Thomas J. (as he then was) said at p.105 rhc:
"Where the parties have chosen a neutral forum connected with neither party, factors relating to the convenience of the parties or the location of witnesses are of little relevance."
In Skype Technologies SA v Joltid Ltd [2009] EWHC 2783 (Ch) at §33 Lewison J (as he then was) said:
"It follows, in my judgment, that what one might call the standard considerations that arise in arguments about forum non conveniens should be given little weight in the face of an exclusive jurisdiction clause where the parties have chosen the courts of a neutral territory in the context of an agreement with world-wide application. Otherwise the exclusive jurisdiction clause would be deprived of its intended effect. Indeed, the more "neutral" the chosen forum was the less the importance the parties must have placed on the convenience of the forum for any particular dispute. If the standard considerations that arise in arguments about forum non conveniens were to be given full weight, they would almost always trump the parties' deliberate selection of a neutral forum. This coincides with the tentative view of Teare J in Morgan Stanley & Co International plc v China Haisheng Juice Holdings Co Ltd [2009] EWHC 2409 (Comm), § 37; and the view expressed by Raphael on The Anti-Suit Injunction § 8.06 fn 10, with which I agree."
Both of those cases concerned exclusive jurisdiction clauses rather than arbitration clauses. However, I do not see why the same approach should apply where a neutral arbitration venue has been chosen by the parties. In Toepfer v Cargill [1997] 2 Lloyds Rep. 98 at p.110 rhc Colman J. regarded considerations of forum conveniens as of little or no weight in the context of arbitration clauses.
I therefore do not consider that the forum conveniens factors in favour of China can amount to a strong reason not to enforce the arbitration clause.
Multiple parties: Alpha is a defendant to the proceedings in China. Although it was made a party to the London arbitration so that, in the event that it was held, as contended by the Bank, that the right to sue under the Refund Agreement had been assigned to Alpha, the decision in the arbitration would be binding upon it, it was ultimately held that there was no legal or absolute assignment in favour of Alpha. Accordingly the Bank was unable to bring a claim in fraud against Alpha in the London arbitration. Nor could it bring a claim in the London arbitration against the Builder or New Future. It was therefore submitted that in circumstances where the Bank wished to allege fraud against the Buyer, Alpha, the Builder and New Future and where that could be done in China but not in London arbitration there was a strong reason not to enforce the arbitration clause. In this regard reference was made to other cases where the existence of multiple parties was a strong reason for not issuing an anti-suit injunction; Bouygues Offshore SA v Caspian Shipping Co. [1998] 2 Lloyd's Reports 461, Donohue v Armco [2002] 1 Lloyd's Rep 425, Verity Shipping v NV Norexa [2008] EWHC 213 and Carlyle Capital Corporation v Conway [2013] 2 Lloyd's Rep. 179.
I accept that the existence of claims against multiple parties, with the consequent risk of inconsistent findings, can amount to a strong reason not to issue an anti-suit injunction. But when one has regard to the circumstances in which the issue of fraud has been raised both in the arbitration and in China it is clear, in my judgment, that the proceedings in China against the Buyer are vexatious and oppressive and that there is strong reason for granting an anti-suit injunction. First, the Bank defended itself in the London arbitration (at least up until the close of pleadings and exchange of evidence) by arguing, inter alia, that the Buyer had committed a fraud such that the Bank should be released from any liability it would otherwise have under the Refund Guarantees. Second, despite having done so it issued proceedings in China alleging the same fraud, or essentially the same fraud, against the Bank and others in China. It is vexatious and oppressive for the Buyer to have to face the same charge in two different tribunals. Third, the Buyer proceeded with the arbitration and has defended itself against the allegations of fraud which the Bank had made in the arbitration. Fourth, the Buyer has obtained an arbitration award in which the allegations of fraud were considered and dismissed. It would be vexatious and oppressive for the Bank to have to defend itself again against the same allegation of fraud. Fifth, just as an attempt to re-litigate abroad the merits of a case which has been lost in the English court is a "classic case of vexation and oppression" (see Masri v Consolidated Contractors International [2008] 2 Lloyd's Rep 301 at paragraphs 95 and 100) so is an attempt to re-litigate abroad the merits of a case which has been lost in arbitration (see C v D [2007] 2 Lloyds Rep. 367 at paragraphs 51-53). This analysis is not based upon a case of vexation or oppression absent an arbitration clause. Rather, it is based upon the existence of the arbitration clause and of the awards which were made pursuant to that clause.
However, the question remains whether the risk of inconsistent findings between the arbitration award and the Chinese proceedings is a strong reason for refusing to issue an anti-suit injunction. I have concluded that it is not. In the circumstances of this case it is, it seems to me, inappropriate and unjust for the Bank to rely upon a risk of inconsistent decisions when that risk arises from the Bank's own decision to allege fraud both in arbitration and in China in an endeavour to secure a finding that it may escape liability under the Refund Guarantees. Having had every opportunity to pursue its case before the arbitration tribunal in which it had alleged fraud it chose not to do so and, having lost in that tribunal, it now wishes to obtain an inconsistent finding in China by way of a collateral attack on the arbitration award.
In my judgment there is no strong reason for not enforcing the arbitration clause.
It must follow that it is appropriate to grant an injunction restraining the Bank from continuing to sue the Buyer in China. Comity is not breached because the injunction is directed at the Bank not at the Chinese court. It was suggested that the injunction has no utility because, as was accepted by Mr. Yuan, the Buyer's expert on Chinese law, it is not easy to enforce an English judgment in China. However, the injunction has utility because the Bank can be expected to obey the order of this court. It has obeyed the interim order of Males J.
In addition to an injunction restraining the Bank from suing the Buyer in China, the Buyer seeks an injunction restraining the Bank from also suing Alpha in China. The basis of this claim is that the suit against Alpha is a collateral attack on the arbitration agreement, the arbitration awards which the tribunal has made in favour of the Buyer and the order of Eder J. permitting the award to be enforced as a judgment of this court. The collateral attack is said to arise because the Buyer is bound under the terms of the deed of Assignment with Alpha to indemnify Alpha. Thus, if a judgment against Alpha in China has the effect that the Bank is not liable under the Refund Guarantees then the Buyer will have to indemnify Alpha in an amount equal to the instalments of the purchase price which Alpha funded. That result would undermine the Buyer's claim against the Bank in the arbitration and the arbitration award which the Buyer has obtained. Reliance was placed on Donohue v Armco [2002 1 Lloyd's Reports 425 at paragraphs 60-62 and Noble Assurance v Gerling-Konzern General Insurance [2007] EWHC 253 (Comm).
In Donohue v Armco Lord Scott explained at paragraphs 61 and 62 that if proceedings abroad are brought in breach of an exclusive jurisdiction clause alleging fraud against a number of parties one of whom is entitled to enforce the exclusive jurisdiction clause that party is entitled to an injunction barring continuation of the claims abroad not only against himself but also against the others who are alleged to be jointly and severally liable with that party. That is because the claims abroad against the others will, if established, involve the party in some consequential liability (liability as a joint tortfeasor to contribute to the damages awarded by the foreign court). In Noble Assurance v Gerling-Konzern General Insurance Toulson LJ (as he then was) held that where a London reinsurer commences proceedings abroad attempting to nullify the result of a London arbitration award against the reinsurer such conduct is vexatious and oppressive and an abuse of process and/or unconscionable. Where the proceedings abroad are brought not only against the person who obtained the award (the reinsured) but also against another who was not party to the arbitration but was the parent of the reinsured and the ultimate assured the objectionability of the proceedings applies with equal force in relation to the non-party because it is a "collateral attack" on the award; see paragraphs 87 and 95-96.
This is a difficult area of the law and the approaches in the two cases are not identical. The observations of Lord Scott were obiter and, with respect, pose difficulty if the basis of the jurisdiction is said to be the arbitration clause to which Alpha was not party. However, the reasoning of Toulson LJ in Noble Assurance v Gerling-Konzern General Insurance was essential to the decision in that case which decision stands as authority for the proposition that where proceedings abroad amount to a collateral attack on an arbitration decision the court has jurisdiction to grant an anti-suit injunction restraining the pursuit of those proceedings not only against a party to the arbitration agreement but also against a non-party to the arbitration agreement. However, whether proceedings abroad against a non-party are a collateral attack on an arbitration award and on that account vexatious and oppressive must depend upon an assessment of the circumstances of each particular case.
In the present case the proceedings in China have been brought against the Buyer and, in addition, Alpha, the Builder and New Future. The Bank seeks, in essence, release from its liability under the Refund Guarantees and also damages. However, if the Bank is released from its liability under the Refund Guarantees it is difficult to see what damages it might suffer. Thus the primary claim would appear to be for release from the Refund Guarantees. Since such a release would be contrary to the arbitration award the proceedings in China appear to be a collateral attack on that award.
In those circumstances the court has jurisdiction to grant an anti-suit injunction restraining the pursuit of the Chinese proceedings. However, whether such injunction should restrain the proceedings against the Buyer alone or whether, as submitted by Mr. Bailey, the injunction should also restrain the proceedings against Alpha is more difficult. Alpha is not a party to the arbitration agreement. Moreover, the remedy of damages against Alpha will only be relevant if the Bank does not avoid liability under the Refund Guarantees, that is, it will only be relevant if the Chinese court agrees with the arbitration tribunal that the Bank is liable under the Refund Guarantees.
Mr. Bailey relied upon the liability of the Buyer under the loan agreement to indemnify Alpha in the event that the Bank was released from its liability under the Refund Guarantees. That, it seems to me, supports the case that the proceedings in China against Alpha are a collateral attack on the arbitration award. But it is not apparent to me that it supports the case that the damages claim in China against Alpha is a collateral attack on the arbitration award. Such damages would only arise in the event that the Bank were held liable under the Refund Guarantees in agreement with the views of the arbitration tribunal. That does not involve a collateral attack on the arbitration award. I was therefore not persuaded that it was appropriate in this case to grant the Buyer an anti-suit injunction restraining the proceedings brought in China both against it and Alpha.
Mr. Bailey also relied upon the decision of the court in Michael Wilson & Partners Ltd. v Sinclair [2013] 1 All E.R. (Comm) 476. However, the decision in that case was also based upon proceedings being a collateral attack on an arbitration award and for the reasons I have given I am not persuaded that the claim for damages against Alpha is a collateral attack on the arbitration award in which it was held that the Bank was liable to the Buyer pursuant to the terms of the Refund Guarantees.
I therefore am unable to accept that the Buyer is entitled to an anti-suit injunction restraining the Bank from pursuing a damages claim against Alpha.
Mr. Hatt raised other considerations which he said would justify the court in refusing to restrain the Bank from proceeding against Alpha in China. It is unnecessary to deal with them but I will do so shortly so that my views, if relevant, are known.
i) Mr. Hatt submitted that if the Bank were restrained from proceeding against Alpha in China it would not be able to start proceedings in tort against Alpha in London and claim damages. However, the issue of fraud has been raised in Alpha's own proceedings before this court and the Bank has not challenged the jurisdiction of the court to deal with the allegation of fraud. The Bank was therefore able to advance its claim in fraud against Alpha in these proceedings (see Article 6.3 of the Brussels Regulation).
ii) Mr. Hatt submitted that in circumstances where the Buyer is a special purpose vehicle set up to buy the vessel and has no assets there is no commercial prospect of Alpha pursuing the Buyer for money. That may or may not be so but even if it were so I would not regard that as a reason for denying the Buyer the relief it seeks.
iii) Mr. Hatt submitted that the order of Eder J. permitting the award to be enforced as a judgment of the court is irrelevant. Although Mr. Bailey relied upon the judgment it is the award itself which gives force to Mr. Bailey's submissions.
iv) Finally, Mr. Hatt submitted that in considering whether the Chinese proceedings against Alpha are vexatious and oppressive the court should take into account the behaviour of Alpha in disclaiming any intention to participate in the arbitration, then applying to join the arbitration and then issuing proceedings in London claiming relief outside the confines of the arbitration. Mr. Hatt submitted that Alpha's behaviour was itself vexatious. I do not accept that.
a) It is true that by an undated latter (but which Mr. Flokos said was signed on 28 November 2013) Alpha stated that they had no wish to become a party to the arbitration and that so long as there was no default of which notice had been given the Buyer remained entitled to exercise its rights under the Refund Guarantees. It is also true that in August 2014 Alpha applied to join the arbitration. There was therefore a change of mind. However, I do not regard that change of mind as vexatious. The arbitration tribunal decided that it served the ends of justice for Alpha to be made a party so that when the title to sue was decided there would be no injustice.
b) It is also true that Alpha has commenced proceedings in this court seeking declaratory relief which it could not obtain in the arbitration because, as the tribunal has held and as Alpha always maintained, it had no title to make any claim in the arbitration. I do not regard the commencement of proceedings in this court by Alpha as inconsistent or vexatious.
c) I therefore do not regard Alpha's conduct as in some way debarring it from seeking the relief it seeks.
Alpha's claim for an anti-suit injunction
Alpha also seeks an injunction in Folio 2014 No. 1310 based upon the arbitration clause and/or the proceedings in China against Alpha being a collateral attack on the arbitration award. Mr. Bailey based this claim on the same passages in Donohue v Armco and Noble Assurance v Gerling-Konzern General Insurance to which I have referred. For the same reasons I have given when dismissing the Buyer's claim for an injunction restraining proceedings against both the Buyer and Alpha I must also dismiss Alpha's claim for an injunction restraining proceedings against it.
Alpha's claims for declaratory relief
A declaration is sought in action no. 2014 Folio 1311 that Alpha is not an assignee of the Refund Guarantees or the arbitration agreements and is not a party to them.
The deed of Assignment between the Buyer and Alpha dated 29 October 2007 provides as follows:
2. ASSIGNMENT
2.1. Assignment
a. By way of security for payment of the Outstanding Indebtedness, the Buyer with full title guarantee and having given written notice to the refund guarantor as required by the Refund Guarantee, hereby assigns and agrees to assign to the Bank the assigned Property provided however that:
b. all moneys payable to the Buyer comprised in the assigned Property (other than moneys described in clause 1.15, 1.15(a), 1.15(b), 6.1(c), 6.1(d) or 6.1(e) which shall in all circumstances be payable to the Bank) shall be payable to such account of the Buyer as the Bank shall from time to time agree and shall be at the disposal of the Buyer until such time as a Default shall occur and the Bank shall direct to the contrary whereupon the Buyer shall forthwith, and the Bank may at anytime thereafter, instruct the persons from whom such moneys are then payable to pay the same to the Bank or as it may direct and any such moneys then in the hands of the Buyer's agents shall be deemed to have been received by them for the use and on behalf of the Bank;
c. unless and until a Default shall occur and the Bank shall have given notice to the Buyer that the Bank intends to enforce its rights under this Deed the Buyer shall be entitled to exercise all its rights under the Assigned Documents (subject as provided in this Deed) in all respects as if the foregoing assignment had not been made;
………….
5.2 Remedy of defaults: Without prejudice to the provisions of clause 5 or the generality of the powers and remedies vested in the Bank by virtue of the assignment herein contained, upon the happening of any Event of Default (whether or not the Bank shall have given any notice in accordance with the provisions of clause 102 of the Facility Agreement) the Bank shall become forthwith entitled, as and when it may see fit, to exercise in relation to the Assigned Property or any part thereof all or any of the rights, powers and remedies possessed by it as assignee of the Assigned Property (whether at law, by virtue of this Deed or otherwise) and in particular (without limiting the generality of the foregoing):
…………
f. to implement the refund Guarantee and to agree with the Refund Guarantor any compromise of the obligations of the Refund Guarantor or grant any release or discharge of the Refund Guarantor;
………….
5.3. Event of Default: At any time after the happening of any Event of Default (whether or not the Bank shall have given any notice in accordance with the provisions of clause 10.2 of the Facility Agreement) the Bank shall be entitled to exercise its powers of assignment and sale hereunder in such manner and at such times as the Bank in its absolute discretion may determine and the Bank shall not in any circumstances be answerable for any loss occasioned by such sale or resulting from postponement thereof.
…………
7.3 Bank as assignee: The Bank shall be entitled to do all acts and things incidental or conducive to the exercise of any of the rights, powers or remedies possessed by it as assignee of the Assigned Property (whether at law, under this Deed or otherwise).
In the undated letter which Mr. Flokos said was signed on 28 November 2013 and to which reference has already been made he said that that there had been no event of default. In his witness statement he said the same. He was cross-examined about this. He said that there had been events (for example, a failure to repay the amounts loaned and a material adverse change in the financial position of the Buyer) which would amount to an event of default under the loan agreement. But he said that Alpha did not regard them as such because they were all due to the default of the Builder. It seems to me that there probably were events of default. However, there is no dispute that notice had not been given by Alpha to the Buyer that it intended to enforce its rights under the deed of Assignment. The dispute between the parties was whether such notice was necessary in order make the assignment absolute. In my judgment notice was necessary. Clause 2.1(c) provided that until such notice had been given the Buyer was entitled to exercise its rights as if the assignment had not been made. Mr. Hatt relied upon clauses 5.2, 5.3 and 7.3 to argue that notice was not necessary. However, I consider that Mr. Bailey was correct in his submission that those clauses grant Alpha further powers but, so long as those powers are not exercised, do not affect the operation of clause 2.1 (c). There was no suggestion that those powers had been exercised.
I therefore consider that Alpha is entitled to the declaration which has been sought. Mr. Hatt said that that the declaration should not be granted because it was of no utility in circumstances where the arbitrators' reasons could be deployed as Alpha saw fit in China. But since Alpha is not a party to the arbitration agreement it is doubtful that such deployment would assist it. Mr. Hatt further said that the declaration should not be granted because it was irrelevant to the Chinese proceedings and to the question of fraud. In this regard he relied upon the acceptance by the Buyer's expert on Chinese law, Mr. Yuan, that the assignment question was of no relevance to the Chinese proceedings. However, the matter was of sufficient importance to the parties that both Alpha and the Bank incurred the expense of arguing the point. That suggests that it is useful to make the declaration so that the parties know the correct position in law.
Alpha also seeks declarations that (i) it did not make any false declarations or non-disclosures to the Bank in connection with or inducing the issue of the Refund Guarantees and (ii) it has no liability to the Bank in respect of any loss or damage suffered by the Bank by reason of the issue of the Refund Guarantees or any alleged misrepresentations or non-disclosures made to it.
Alpha seeks the first declaration on the basis that the Bank was, on the balance of probabilities, well aware of the true date of the Shipbuilding Contract.
The Shipbuilding Contract stated that it had been entered into on 2 December 2006. There is no dispute that it was in fact entered into on 16 August 2007.
On 14 September 2007 the Bank issued a Refund Guarantee in respect of the first instalment of the price up to $6.2m.
Mr. Flokos gave evidence that Alpha had no involvement in those matters. He said that on 29 October 2007 Alpha entered into a loan agreement with the Buyer to provide finance up to the sum of $46.5m. On the same day Alpha and the Buyer executed the deed of Assignment.
When cross-examined Mr. Flokos accepted that in October 2007 he was "in general terms" aware of the Class rules concerning tank coatings. The Builder did not want the new rules to apply. He said everyone was aware of that.
The true date of execution of the Shipbuilding Contract was stated in Addendum no. 2 dated 11 April 2008 to be 16 August 2007. The addendum provided that it shall be "strictly private and confidential between the parties and the Refund Guarantor." That suggests that the Bank was aware of the contents of the addendum. Addendum no.3 is dated 12 April 2008 and provided that Addendum no.2 is "only for the purpose of Buyer use it during procedures required for transactions with their Bank." Again it stated that it is confidential "between the parties and the Refund Guarantor". Thus it also suggests that the Bank was aware of its terms. Mr. Flokos assumed that the contents of the Addenda had been shared with the Bank. He said that Alpha would not have advanced any further funds to the Buyer had they not thought that the Bank had approved the addenda.
When cross-examined Mr. Flokos accepted that in April 2008 he learnt more of the details of class rules concerning tank coatings. He said that the Builder and the Buyer did not want the new class rules. When asked whether there had been a fraud on class he agreed but then said there was no fraud at all "because everybody was aware of everything." In re-examination he said that he did not know whether the class surveyor had been aware of the true date of the contract and that he did not consider at the time whether the surveyor was aware that the contract had been backdated.
On 11 July 2008 the Bank issued a Refund Guarantee which referred to the Shipbuilding Contract dated 2 December 2006 "as supplemented by addendum no.2 dated on April 11th, 2008 and addendum no.3 dated on April 12th, 2008". The guarantee was in respect of the second instalment of the price up to $6.2m. It is improbable that the Bank issued such a guarantee without reading the terms of the addenda. The only probable circumstances in which the Bank would not have read the addenda before issuing the refund guarantee in July 2008 would have been that it had read them earlier in April 2008 when they were made.
Mr. Flokos accepted in cross-examination that at no point did Alpha send addenda nos.2 and 3 to the Bank. However, he said that the practice was for the trading house, New Future, to deal with the Bank. Whilst he could not say that New Future had been to the Bank he did not agree that it was possible that New Future may not have shown the addenda to the Bank because it was the role of the trading house to ensure that everything was in order. He said it was never in his mind that the Bank was unaware of the true date of the Shipbuilding Contract.
Mr. Zhao, deputy head of the Bank's legal department, gave evidence by video link. He gave evidence that when the Bank issued the Refund Guarantees it did not know that the Shipbuilding Contract had been backdated. He said the Bank only became aware of this in the arbitration in January 2014. In particular he said the Bank was not aware of the contents of addenda nos.2 and 3 until seeing them in the arbitration. In re-examination he said that the Bank had only been provided with copies of addenda nos.1, 4 and 5.
However, it became apparent when he was cross-examined that he was not involved in the issue of the Refund Guarantees and had not spoken to those who had been involved in the issue of the Refund Guarantees at the Shibei sub-branch of the Bank. In his witness statement he did not identify the evidential basis upon which he stated that the Bank was unaware that the Shipbuilding Contract had been backdated. When cross-examined he said that he had spoken to a colleague in the international business department of the Bank who he said was Gao Dong. There was no evidence from Gao Dong though in the arbitration the Bank had provided a statement dated 18 July 2014 from Gao Dong. That statement dealt with the issue of the Refund Guarantees following receipt of the Shipbuilding Contract in September 2007 up to the demands made on those guarantees in 2012. No reference was made to the Bank not knowing that the Shipbuilding Contract had been backdated. Mr. Zhao's evidence is therefore no more than hearsay. Moreover, he has not identified what he was told by Gao Dong or what Gao Dong's source of knowledge was. There was no written evidence from Gao Dong confirming Mr. Zhao's evidence and explaining the basis of her belief. Nor was there any evidence from personnel at the Shibei sub-branch saying what the Bank knew. In the result Mr. Zhao's evidence as to what the Bank knew in 2007 and 2008 lacks cogency and no reliance can be placed upon it.
Mr. Zhao also gave evidence that there was no obligation upon the Bank's employees to check the content of addenda nos.2 and 3. When it was suggested that no bank would issue a guarantee without knowing what the addenda said he replied that the Bank conducted its business on trust. He said in re-examination that the Bank's employees would only check basic information such as the date, signature and size of the ship. I found this evidence unconvincing. He did however accept that those reading the Shipbuilding Contract would have seen on the title page to the Shipbuilding Contract "Contract No: MD2007-08-004" and so would have appreciated that the contract had in fact been made in 2007.
My conclusion is that from the time when the Bank first received the Shipbuilding Contract it was aware that the contract had been made in 2007, not 2006 and so had been backdated. I base that finding on the reference to 2007 on the title page to the Shipbuilding Contract which is likely to have been noted, as Mr. Zhao accepted, and on the fact that when addenda nos.2 and 3 were issued in April 2008 the probabilities are that the Bank must have been aware of their contents and yet no objection was made to their contents. That must have been because the Bank was already aware that the Shipbuilding Contract had been backdated. There was no evidence to the contrary from those employees of the Bank who were involved in the issue of the Refund Guarantees.
It must follow that there cannot have been any concealment or non-disclosure of the date of the Shipbuilding Contract by Alpha because the Bank was aware of the true date. I also accept, as submitted by Mr. Bailey, that Alpha cannot have had any intention to deceive the Bank. Alpha made efforts in April 2008 to get the Bank to countersign addendum no.2. Alpha would not have done this had it been seeking to hide the true date of the Shipbuilding Contract from the Bank. Furthermore, it is difficult to identify any reason why Alpha would seek to deceive the Bank. It would only imperil the security afforded by the Refund Guarantees.
The Buyer's case is that the applicable law of the fraud is English law. There has however been expert evidence of Chinese law. With the benefit of that evidence it appears that whether the applicable law of the fraud is English or Chinese the court's findings demonstrate that Alpha can have no liability in fraud because Alpha did not deceive the Bank. In English law fraud cannot be established if there is no deception. In Chinese law the elements of "maritime fraud" were said by the Bank's expert Mr. Li to "include false statement, intention to deceive and inducement of contract". The Buyer's expert Mr. Yuan said that fraud occurs where "one party intentionally provides the other party with false information or deliberately conceals the truth in order to entice the other party to make any false declaration of will." Since there was no deception of the Bank by Alpha and no intention to deceive the Bank by Alpha it does not appear to me that Alpha can have any liability in Chinese law for maritime fraud. On Mr. Li's understanding of the elements of the Chinese law of maritime fraud it is not possible to identify a false statement by Alpha, an intention to deceive or an inducement to contract. On Mr. Yuan's understanding of the elements it is not possible to identify a deliberate concealment of the truth by Alpha which enticed the Bank to enter into the Refund Guarantees. On this basis the court may grant a declaration of non-liability.
Mr. Hatt said very little about the merits of the claim in fraud against Alpha but submitted that the making of a declaration would not be useful and therefore the court should decline to grant the declaration. Mr. Bailey submitted that the utility in granting the declaration was (i) that it will resolve the substantive dispute between the Bank and Alpha as to whether Alpha is liable to the Bank for fraud and (ii) that it will help Alpha to resist enforcement of any inconsistent judgment of the Chinese court against Alpha, for example in Greece where Alpha is domiciled, by operating as a shield pursuant to Article 34 of the Brussels Regulation. It seems to me that these matters show that there is sufficient utility in making a declaration of non-liability.
Mr. Hatt has criticised the drafting of the declarations which have been sought. It seems to me, in the light of my judgment, that the court may declare:
i) that Alpha did not conceal from the Bank that the Shipbuilding Contract had been back dated because the Bank was aware that it had been backdated;
ii) that Alpha has no liability to the Bank in respect of any loss or damage suffered by the Bank by means of entering into the Refund Guarantees.
There may nevertheless be refinements to the drafting which the parties consider necessary. They may be agreed by the parties.
Alpha also seeks an anti-suit injunction in 2014 Folio No.1311. This claim received little attention in either the written or oral submissions. In Mr. Bailey's Skeleton Argument it was said (at paragraph 132) that "the injunctive relief follows the form of relief sought in the Arbitration Claim…..and for the same reasons." Since I have dismissed Alpha's claim for injunctive relief in Folio 1310 it follows that I must also dismiss Alpha's claim for injunctive relief in Folio 1311.
Conclusion
For the reasons which I have given the court will (a) grant the Buyer a final anti-suit injunction in Folio 1310 restraining the pursuit of proceedings against the Buyer in China and will (b) grant the declaratory relief sought by Alpha in Folio 1311. However, the court dismisses the Buyer's claim and Alpha's claim in Folio 1310 and also Alpha's claim in Folio 1311 for an anti-suit injunction restraining the pursuit of proceedings against Alpha in China. |
Mr Justice Knowles :
Introduction
The Defendant is one of two Guarantors under a guarantee entered into on 12 September 2008 (the "Guarantee") in favour of The Royal Bank of Scotland ("RBS"). The Guarantors' liability under the Guarantee is joint and several. The Guarantee also contains an indemnity. Pursuant to clause 2.1 of the Guarantee the liability of the Guarantors is capped at €40,000,000.
Ramblas Investments B.V. is a company incorporated in the Netherlands with its "centre of main interests" in Spain ("Ramblas"). On the same date as the Guarantee, Ramblas entered into a junior loan agreement with RBS under which RBS was arranger, original lender ("Original Lender") and facility agent (the "Junior Loan Agreement") for a loan facility of €200,000,000 available to Ramblas. The full sum of €200,000,000 was drawn down by Ramblas on 12 September 2008.
Amounts due under or in connection with the Junior Loan Agreement fall within the liabilities guaranteed by the Guarantee.
The Defendant and his co-guarantor also, and again jointly and severally, entered into a loan agreement with RBS for €75,000,000 (the "Personal Loan Agreement").
It is common ground that pursuant to a Transfer and Assignment Agreement dated 30 November 2010, and a Transfer and Assignment Agreement Transfer Deed dated 17 December 2010, the Claimants acquired all present and future rights of RBS as Original Lender under the Junior Loan Agreement, and under the Personal Loan Agreement and the Guarantee (the "Transfer").
It is further common ground that as a result of certain interest payment defaults under the Personal Loan Agreement occurring in June and September 2010, cross-default provisions in clause 19 of the Junior Loan Agreement were triggered. In light of this cross-default, an acceleration notice was sent to Ramblas on 30 December 2010 demanding payment of all sums owing under the Junior Loan Agreement. Further notices of demand were sent to Ramblas on 6 Jan 2011 and 11 December 2012.
Ramblas failed to pay the sum owing under the Junior Loan Agreement. Consequently, on 17 January 2011, the Claimants issued proceedings in the High Court of England and Wales to recover the sums owing pursuant to the Junior Loan Agreement and the Personal Loan Agreement.
On 17 June 2011, in the proceedings to recover the sums owing pursuant to the Junior Loan Agreement, Mr Justice Teare made an order, by consent, that Ramblas pay €216,582,038.05 inclusive of interest up to 13 June 2011, and interest thereafter (the "Order").
On 4 March 2014, and in Spain, Ramblas entered into the Spanish voluntary insolvency process known as concurso. In the concurso, the Claimants' debt claims against Ramblas have been classified by the Insolvency Administrator as being subordinated. The Claimants have challenged that classification in the Spanish Insolvency Court. No ruling has yet been issued.
No payment has been received by the Claimants from Ramblas pursuant to the Junior Loan Agreement or the Order. A demand letter was sent by RBS as facility agent, acting on the instructions of the Claimants, to the Defendant on 7 October 2014 demanding payment of €40,000,000 under the Guarantee. No payment has been received from the Defendant.
The Claimants commenced the present proceedings in the High Court of England and Wales as a result. The Guarantee is governed by English Law and the parties to it agreed to the exclusive jurisdiction of the English courts.
In light of other proceedings now before the Courts that are of concern to the same parties, and the possible consequences of the decision on this trial for those proceedings, I have produced this judgment as quickly as I can. I hope I can be forgiven in that circumstance if I concentrate on the essential points; I mean no disrespect to the full range of argument made on each side.
The key issue
At this, the trial of the proceedings, the Defendant's position has been that under Article 97.2 of the Spanish Act 22/2003, dated 9 July 2003 (the "Spanish Act on Insolvency"), the Guarantee, and consequently the debt owing to the Claimants under the Guarantee, has been extinguished.
The Claimants contend that Article 97.2 of the Spanish Act on Insolvency applies to extinguish "guarantees" (i.e. securities) granted by the debtor the subject of the concurso, and in particular to what have been termed "guarantees in rem"; that is, guarantees committing property of the insolvent debtor. It does not, they contend, operate to extinguish the Guarantee as that is a guarantee granted by a third party, i.e. the Defendant.
As a matter of record, there has not yet been a cancellation of any "guarantees" in the concurso. There is also a question about whether Spanish law is the applicable law. However none of these matters are material to the outcome of this trial if Article 97.2 does not operate to extinguish a guarantee granted by a third party.
Decision on the key issue
Having heard expert evidence on the issue whether Article 97.2 operates to extinguish the Guarantee as a guarantee granted by a third party I am fully satisfied that Article 97.2 does not so operate.
The Claimants called Professor Angel Rojo Fernandez-Rio and the Defendant called Mr Pablo Urena Gutierrez. Professor Rojo is Professor of Commercial Law at the University of Madrid. Mr Urena is the head of the Spanish legal firm Urena, Abogados. Although I did not accept all the views expressed, I valued the evidential contribution that each expert was able to make in their reports to the Court and at the trial.
Article 97.2 provides, in the translation of the Spanish Act on Insolvency put before the Court by the parties (a translation published by the Spanish Ministry of Justice):
"If the creditor classified as specially related to the debtor on the list of creditors does not challenge that status in a timely and correct manner, the insolvency Court, on expiry of the term to challenge and with no further ado, shall hand down an order declaring the collateral of any kind constituted in favour of the claims that party might hold to be extinguished, ordering, when appropriate, the reinstatement of possession and cancellation of the entries at the relevant registers. Claims listed under Subparagraph 1 of Article 91 when the insolvent debtor is a natural person are excluded."
"Persons specially related to the [insolvent] debtor" are described under Article 93. By Articles 89 and 92.5 the claims against the insolvent estate held by a person specially related to the insolvent debtor are (subject to exceptions, considered below) "classified, for the purposes of the insolvency proceedings" as subordinated.
In approaching the proper construction of Article 97.2 the experts both referred to Article 3.1 of the Spanish Civil Code. This provides in one translation:
"Legal precepts shall be interpreted in the true sense of their words in view of their context, the historical legislative history and the social reality of the time in which they must be applied, fundamentally in view of their spirit and purpose."
The experts were in agreement that the wording of Article 97.2, and in particular "collateral of any kind" (sometimes translated as "guarantees of any kind") were capable of bearing a literal meaning wide enough to extend to third party guarantees. I accept that evidence. It is supported by an objective consideration of the wording.
It was suggested by the Defendant that the experts intended to convey that the words were not capable, on their literal meaning, of bearing any other (narrower) meaning; that is, that it was not possible for the words to bear a meaning that did not include third party guarantees. I do not accept that suggestion. In my understanding of their evidence, the experts recognised that Article 97.2 did not refer specifically to third party guarantees, but that the words "guarantees of any kind" were wide enough to refer to third party guarantees, and the question was whether the words did so refer.
The Defendant argues that the addition of the words "of any kind" in Article 97.2 "simply makes it impossible to say … that the article refers to only guarantees 'of certain kinds'"; but in fact it is not impossible for a literal interpretation to honour the words "guarantees of any kind" and yet recognise that a question remains whether the language extends to any provider (ie including a third party) of a guarantee of any kind.
I add that if (contrary to my assessment of their evidence) the experts intended to convey that the only possible literal meaning of the words was one that included third party guarantees I would, with respect, not have accepted their opinion. It would not be supported by an objective consideration of the wording. It would not be supported by the approach of the Spanish Court of Appeal in a decision in 2013 and to which I refer further below. And in many ways the very fact, range and depth of the evidence and argument before me at this trial simply served to demonstrate that the words were capable of different literal meanings, and certainly different meanings if "interpreted in the true sense of their words in view of their context" as Article 3.1 of the Spanish Civil Code requires.
Moreover, the expert opinion available did not cause me to understand that the Spanish Act on Insolvency uses a single clear scheme of language or definition in the particular area under discussion. To take three examples: in Article 87.6 "fianza de tercero" is used to describe what was on occasion translated as "third-party guarantee"; in Article 94.2 the expression "garantias personales o reales" is used apparently to make clear that it is to both personal guarantees and guarantees in rem to which reference is there being made. In Article 97.2 itself the Spanish is "garantias de cualquier clase" which in the translation above was rendered as "the collateral of any kind".
When I turn to context, the material points are, I find, those considered in the following paragraphs.
First, it is valuable to examine the framework of the legislation, and consider the detail within that framework. Article 97.2 is within Title IV of the Spanish Act on Insolvency, "The Report by the Insolvency Practitioners and Determination of the Insolvent Debtor's Assets and Liabilities". Chapter II within that Title addresses the "determination of the aggregate assets" of the insolvent estate, and Chapter III addresses the "determination of the aggregate liabilities" of the insolvent estate.
These enable the Insolvency Practitioner to prepare a report to the Court under Chapter I, to which (among other things) an inventory of aggregate assets and a list of creditors is to be attached. Chapter IV provides for publication of the report and challenge to the inventory of aggregate assets and to the list of creditors. Article 97.2 is part of Chapter IV; Article 97 as a whole being entitled "Consequences of failure to challenge and subsequent amendments". The framework of Title IV, and the contents within Title IV, contain no suggestion why it should be the business of Article 97.2 to address third party guarantees.
It is useful next to examine an argument of Mr Peter Arden QC and Mr Patrick Harty, for the Defendant, based on other language to be found within Article 97.2 itself. The argument was to the effect that the final sentence of Article 97.2 itself supports a construction of Article 97.2 that extends to third party guarantees. The final sentence of Article 97.2 provides, in translation: "Claims listed under Subparagraph 1 of Article 91 when the insolvent debtor is a natural person are excluded."
In my judgment the sentence does not illuminate the subject of whether Article 97.2 extends to third party guarantees. The sentence is concerned with a specific, employment law related, exception to the circumstances in which creditors with a special relationship to the insolvent debtor will be liable to receive an order declaring collateral extinguished.
The subparagraph 1 of Article 91 to which the final sentence of Article 97.2 refers is within Chapter III of the Spanish Act on Insolvency and within section 3 of that Chapter ("On ranking of claims"). Chapter III begins with Article 89.1 requiring claims included on the list of creditors to be classified "for the purposes of the insolvency proceedings" as preferential, ordinary and subordinated. After Article 90 ("Claims with special preference") Article 91 turns to "claims with general preference". By Article 91.1 the first of those claims with general preference are (subject to certain limits) claims for salaries "that are not recognised special preference", for compensation arising from the end of the contracts, and for compensation arising from an industrial accident or disease.
Mr Arden QC submits that the only way in which the last sentence of Article 97.2 can be given any meaning is if Article 97.2 can cover personal guarantees given by third parties, and in that way it prevents credits identified in Article 91.1 from losing the benefit of third party guarantees. I do not accept this: Article 91.1 accords general preference for, among other things, claims for salaries "that are not recognised special preference". A creditor might have a guarantee or collateral from the debtor in respect of that claim (eg a guarantee in rem); he or she might, if specially related to the debtor, lose that guarantee under Article 97.2 were it not for the final sentence of that Article. Considered in that way, for the last sentence of Article 97.2 to have meaning it does not have to cover personal guarantees given by third parties.
Mr Mark Phillips QC, Mr William Willson and Mr Ryan Perkins were right to point out that the last sentence of Article 97.2 is not alone in this respect: Article 92.5 creates another specific, employment law related, exception. This time the exception is to the circumstances in which a creditor with a special relationship to the insolvent debtor may see their claim subordinated.
Mr Arden QC responds by saying that an argument that would leave the last sentence of Article 97.2 as superfluous or simply repetitive of another provision is an argument to be rejected. However I do not agree that, appreciated in the way described above, the last sentence of Article 97.2 is either superfluous or repetitive. And I can well understand the legislature having a particular focus, discussed by Professor Rojo in his evidence, to make clear provision in the case of employment-related claims in an insolvency.
It is next relevant to ask whether there is any objective reason for Article 97.2 extending to third party guarantees. That was one of the questions behind the opinion expressed by the Spanish Supreme Court in SC (Civil Division, 1st Chamber) Judgments No 51/2013 of 20 February (RJ/2013/4353) at paragraph 43. The Supreme Court, whilst considering Article 97.2, used the point - that if the Article included guarantees established by third parties then their cancellation would benefit only third parties - to support a conclusion that the particular argument being advanced before the Court would lead to an absurdity. On the trial before me, no credible objective reason for Article 97.2 extending to third party guarantees has been identified.
On behalf of the Defendant it was canvassed that Article 97.2 was directed to encourage funding of companies through capital rather than debt; but I see nothing that supports the suggestion that this was what the Spanish legislature was addressing when enacting this Article in its place within the framework of the Spanish Act on Insolvency.
Separately Mr Urena referred to a decision of the Spanish Supreme Court of 10 October 2011 in which reference was made to the "circumstances justifying the subordination" in Article 97.2 as being "to completely root out the abstract possibility of there being abuses derived from the influence and control which the holder of the secured credit might have exerted over the debtor company." That may show why Article 97.2 addresses extinguishing collateral granted by the debtor but not why it should extend to third party guarantees.
When Mr Urena said in evidence that the "ratio" of the provision was in his opinion to avoid the possibility of the person specially related to the debtor acting "in their own benefit and against the interest of the concurso itself" I can understand that opinion and its relationship to the reference made by the Spanish Supreme Court in 2011. However when he added that the "ratio" was also to avoid the possibility of the person specially related to the debtor acting "against the interests of third parties" I cannot see how that view can be taken from a consideration of the Spanish Act on Insolvency.
The special relationship of the creditor that is involved for the purpose of Article 97.2 is of course with the debtor not a third party guarantor. The Spanish Civil Code contains, as Mr Urena pointed out, provisions to protect guarantors. These can in certain circumstances allow an action to cancel the guarantee. This serves, to my mind, to support rather than detract from the proposition that it is not in a provision (such as Article 97.2) concerned with the list of creditors of the insolvent estate that one will find the Spanish legislature pursuing a policy of protecting third parties such as third party guarantors.
Mr Urena offered the view that the consideration that the third party guarantor's right of subrogation against the insolvent debtor may be subordinated if the creditor's claim was subordinated (because of the creditor's special relationship with the debtor) may be relevant. In my judgment that consideration does not point to a conclusion that the purpose of Article 97.2 was (in whole or in part) to address third party guarantees. There is nothing to explain why, if this was the purpose, Article 97.2 should be concerned to extinguish a third party guarantee where the guarantor knew at the point of giving the guarantee that the creditor was specially related to the guarantee.
Finally, and on the other hand to the points considered above, it is perfectly possible to see why Article 97.2 should refer to guarantees or collateral given by the debtor, and in particular to what have been termed "guarantees in rem"; that is, guarantees committing property of the insolvent debtor. The legislator, having reached the policy decision that some persons specially related to the debtor should be subordinated in relation to some claims, would understandably be concerned to address collateral held by those persons against the assets of the insolvent estate.
Before leaving the key issue, I add that neither expert referred to an instance of Article 97.2 being interpreted by the Spanish Courts as extending to a third party guarantee, or even being applied in that way in the course of a Spanish insolvency process.
Other Issues
In the circumstances, it is not necessary to decide other points that were argued. Some of those points concerned issues of wider general importance and it is undesirable to express a concluded view where that is unnecessary for the outcome in this case. I will limit myself to the observations below out of respect for the arguments advanced.
Insolvency Regulation The Claimants contend that a debt arising under a contract governed by English law is not capable of being discharged, at common law, by insolvency proceedings in a foreign jurisdiction. The Defendant argued in response that Spanish Law applied pursuant to the Insolvency Regulation (Council Regulation No 1346/2000). This prompted a commanding and skilful review of the Regulation by Mr Phillips QC for the Claimants in closing submissions, and I am sorry not to elaborate on that review in greater detail in this judgment.
In my view the mere fact that the Article 97.2 is to be found in legislation dealing with insolvency is not enough to bring it within the Insolvency Regulation. A close analysis of Article 97.2, of the legislation in which it is found, and of the Insolvency Regulation is required. Having regard, in particular, to paragraphs (6), (11), (12), (22), (23) and (25) of the preamble to the Regulation and Articles 1.1, 4 and 25 of the Regulation, if Article 97.2 did indeed extinguish third party guarantee obligations as contended by the Defendant I would have great difficulty in accepting that Article 97.2, in that respect, was a provision that fell within the Insolvency Regulation.
Judgments Regulation The Defendant submitted that if the present matter was not governed by the Insolvency Regulation then it must be governed by the Judgments Regulation, in the form in force before January 2015 (Council Regulation No 44/2001). The submission is open to the objection that it uses too broad a brush, and does not distinguish sufficiently between jurisdiction and recognition. In any event I am entitled to have confidence that the Spanish courts would reach the conclusion that (a) English law governs the question of discharge of the Guarantee and (b) that even if Spanish law governs that question the answer would be that, as a third party guarantee, the Guarantee would not be extinguished under Article 97.2.
Submission to the jurisdiction The Defendant argued that Spanish Law applied because the Claimants have submitted to the jurisdiction of the Spanish Courts. In Rubin and another v Eurofinance SA; In re New Cap Reinsurance Corpn Ltd (in liquidation) [2012] UKSC 46; [2013] 1 AC 236, the Supreme Court of the United Kingdom accepted the submission of the liquidators of New Cap that, having chosen to submit to New Cap's Australian insolvency proceedings, the appellant syndicate should be taken to have submitted to the jurisdiction of the Australian court responsible for the supervision of that proceeding; that "[i]t should not be allowed to benefit from the insolvency proceedings without the burden of complying with the orders made in that proceedings" (see at [157]-[167] per Lord Collins); and see also Stichting Shell Pensioenfonds v Krys and another [2014] UKPC 41 at [32], and the description of what Bacon CJ termed "the compact" in Ex p Robertson; In re Morton (1875) LR 20 Eq 733 at 737-8).
In my view there is a real question whether a submission to the Spanish insolvency proceedings would be held to extend to a submission to the effects of Article 97.2 if and to the extent that that Article 97.2 did indeed extinguish third party guarantee obligations as contended by the Defendant. Again the mere fact that Article 97.2 is to be found in legislation dealing with insolvency may not be enough to mean that, where the Article goes beyond matters concerned with the administration of an insolvent debtor, it is part of what a creditor is taken to have submitted to. That may still be the case even where, as here, the creditor has taken the step of challenging their classification as a creditor specially related to the debtor.
Indemnity Even if Article 97.2 applies to a third party guarantee, the Claimants also have (under clause 2.1(c) of the Guarantee) the benefit of an indemnity and the question remains whether the operation of Article 97.2 above will also apply to extinguish an indemnity. This question was not addressed as thoroughly by the expert evidence as I would have wished had it been necessary to reach a final view. In particular I was not clear whether Spanish Law sees an indemnity as being a contract that is as different in nature from a guarantee as it is in the eyes of English Law. In these circumstances it is not useful for me to say more on this aspect given the conclusions I have reach on points that are decisive.
Conclusion
Mr Arden QC and his team have helped me appreciate all points that might be made on behalf of the Defendant, and I am grateful to them. However in the circumstances, the Claimants are entitled to judgment on the Guarantee. |
Mr Justice Walker:
[Table of Contents]
A. Introduction 1
B. Background: the documentary record 6
B1. General 6
B2. The time and voyage charters 8
B3. The cargo and the bill of lading 10
B4. The sales, the LOIs and discharge of the cargo 14
B5. The letter of credit and payment under it 17
B6. Arrest, part sale and onward delivery of the cargo 20
B7. The Tianjin ship arrest and ESL's defences 21
B8. The bank's Qingdao proceedings 24
B9. ESL enforces the LOIs 25
B10. Security is provided and the vessel is released 27
B11. ESL's jurisdiction challenge in Qingdao 28
B12. Expiry of time bar, issue of claim form & Qingdao dismissal 29
C. The proposed injunction: legal principles and issues 31
D. Has there been a lack of promptness? 40
E. The bank's complaint of prejudice 66
F. Other aspects of the claim 73
G. Conclusion 76
A. Introduction
This is an arbitration claim. The main remedy sought by the claimant, Essar Shipping Ltd ("ESL"), is an anti-suit injunction against the defendant, Bank of China Ltd ("the bank"). The injunction would restrain the bank from commencing or continuing proceedings in breach of a London arbitration agreement incorporated into a bill of lading contract. The claim also seeks a declaration as to the existence of the arbitration agreement and damages for breach of the arbitration agreement.
At the hearing it was recognised that the proposed injunction required qualification so as not to contravene provisions in Regulation (EU) 1215/2012 of the European Parliament and of the Council, December 12, 2012, on jurisdiction and the enforcement of judgments in civil and commercial matters (recast) [2012] O.J. L351/1 ("Brussels I recast") and the Lugano convention as revised in 2007. These provisions have effect as regards actual or potential proceedings in an area which can conveniently be described as "the Brussels I recast/Lugano space". Thus far, however, the present case has been concerned only with proceedings in the People's Republic of China (referred to in this judgment as "China" or "the PRC"). It has not involved any foreign proceedings in the Brussels I recast/Lugano space. This judgment accordingly proceeds on the footing that I need not examine restrictions which would apply to court orders affecting proceedings in the Brussels I recast/Lugano space.
The injunction, if granted, would specify in particular that the bank must not take any steps to pursue or continue the proceedings currently pending before the Qingdao Maritime Court in Qingdao, China, suit number (2014) QHFSCZ No.1061 ("the bank's Qingdao proceedings"). The only question which I need determine in relation to the proposed injunction is whether there has been delay which, on the particular facts of this case, has the consequence that the proposed injunction would be neither just nor convenient and ought to be refused.
The evidence adduced on this question comprises:
(1) a first witness statement made on 8 July 2015 for ESL by Mr David Mark Wartski, a solicitor and a director of Mays Brown Limited, which acts for ESL in the present proceedings;
(2) a first witness statement made on 16 September 2015 for the bank by Mr Mark Sachs, a solicitor and member of Thomas Cooper LLP, which acts for the bank in the present proceedings;
(3) a first witness statement and second witness statement made on 16 and 30 September 2015 respectively for the bank by Mr Wang Feng of Beijing Tiantong & Partners, a Beijing based law firm which acts for the bank in the bank's Qingdao proceedings and which advised the bank prior to those proceedings;
(4) a first witness statement and a second witness statement made on 16 and 30 September 2015 respectively by Mr Liu Ji'an, an employee in the risk management department of the Yuncheng branch of the bank;
(5) an opinion on Chinese law produced for the bank on 10 September 2015 by Professor Wang Pengnan;
(6) a second witness statement of Mr Wartski dated 29 September 2015;
(7) a witness statement made on 29 September 2015 for ESL by Mr Wang Hongyu of Wing Jing & Co, a Shanghai based law firm which acts for ESL in the bank's Qingdao proceedings;
(8) a second opinion produced on 30 September 2015 by Professor Wang Pengnan;
(9) a third witness statement made on 30 September 2015 by Mr Wang Feng;
(10) a second witness statement made on 2 October 2015 by Mr Sachs.
After describing the background in section B below, in section C below I describe relevant legal principles, and the issues which arise, in relation to the claim for an injunction. Those issues focus on two features of the facts. The first feature concerns whether there has been promptness on the part of ESL in bringing the present claim. I deal with this in section D. In section E I deal with the second feature, which concerns the risk of prejudice to the bank if an injunction were granted. In section F I deal with other aspects of the claim. My conclusions are summarised in section G.
B. Background: the documentary record
B1. General
My account of the documentary record is largely taken from ESL's skeleton argument. In this section I supplement that record with certain matters which either are not in dispute, or are expressly stated to be one side or the other's account of events.
The MV Kishore ("the vessel") is owned by ESL's parent company, Essar Shipping (Cyprus) Ltd ("ESCL"). ESL operates the vessel under a bareboat charter.
B2. The time and voyage charters
On 27 November 2013 ESL time chartered the vessel to Ocean Bulk Shipping Pte Ltd ("OBS") under an NYPE form charterparty ("the time charter"). Clause 64 of the time charter provided for the possibility of discharge of cargo on the vessel against a letter of indemnity issued by OBS. Clause 74 provided that the contract was to be governed by English law and that disputes were to be submitted to arbitration in London under the rules of the London Maritime Arbitrators' Association ("the LMAA").
Also on 27 November 2013 OBS voyage chartered the vessel to Atlas Iron Ltd ("Atlas"). Under clause 56 of that charterparty ("the voyage charter") it was governed by English law and was subject to arbitration in London under the rules of the LMAA. It is this provision which ESL relies upon in seeking an anti-suit injunction.
B3. The cargo and the bill of lading
On 25 December 2013 a cargo of 104,012 MT of iron fines ("the cargo") was loaded on to the vessel at Fremantle, Western Australia, for transport to China. Bill of lading number 01 was issued on that date in a set of three originals. I shall refer to it as "the bill of lading". It acknowledged shipment of the cargo, naming Atlas as shipper, and was signed by agents on behalf of the Master. It is common ground that in this regard the Master was acting as agent for ESL.
The bill of lading was in Congenbill 94 form. A section on the face of the bill for identification of the consignee was made out "TO ORDER". Also on its face the bill of lading stated:
Freight payable as per CHARTER-PARTY DATED 27 NOVEMBER 2013.
…
FOR CONDITIONS OF CARRIAGE SEE OVERLEAF
…
The conditions of carriage on the back of the bill of lading provided:
(1) All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated.
Clause (2) of the conditions of carriage was a general paramount clause. The relevant effect of this under English law is common ground: it introduces a time bar so that the carrier and the ship are discharged from liability in respect of the cargo unless suit is brought within one year of the date of delivery of the cargo or the date when it should have been delivered.
B4. The sales, the LOIs and discharge of the cargo
Atlas sold the cargo to Cargill International Trading Pte Ltd ("Cargill"), which became the holder of the bill of lading. Pursuant to a contract dated 8 January 2014, Cargill sold the cargo to Shanxi Haixin International Iron and Steel Co. Ltd ("Haixin"). The payment clause of the contract stated, among other things:
Not later than 20th January 2014, Buyer shall open an irrevocable workable Letter of Credit payable at sight as per Appendix I of this contract for provisional and final payment … in favour of Seller and through a bank acceptable to Seller.
By a letter of indemnity ("LOI") dated 7 January 2014, OBS requested that the cargo be discharged by ESL at Lanshan, China, into the custody of Rizhao Sea-Road Shipping Agency Co. Ltd ("Rizhao Sea-Road") without production of the original bills of lading. Atlas gave a materially identical LOI to OBS on 9 January 2014, and Cargill gave a materially identical LOI to Atlas on 8 January 2014.
The vessel arrived at Lanshan on 8 January 2014. The cargo was discharged into the custody of Rizhao Sea-Road, without production of the bill of lading, on 9 to 11 January 2014. Following discharge of the cargo the vessel left China.
B5. The letter of credit and payment under it
Upon an application by Haixin, the bank opened a letter of credit for US$11,165,128.46 ("the Cargill sale price") in favour of Cargill on 12 February 2014. By this time a month had elapsed since discharge of the cargo into the custody of Rizhao Sea-Road. Cargill then issued a provisional invoice to Haixin on 18 February 2014 for the amount of the Cargill sale price. Payment of that amount was made to Cargill by the bank on 26 May 2014.
The bank accepts that by the time of payment it had learnt that the goods had been released without presentation of the bills of lading. It explains that nevertheless, as the documents required under the letter of credit had been properly presented, it honoured its commitment under the letter of credit and paid Cargill in exchange for those documents, which included the 3 originals of the bill of lading.
Of the amount paid by the bank to Cargill, US$2,265,829.46 was funded from monies held by the bank on account from Haixin and the balance of US$8,899,299.00 ("the unfunded balance") was paid from the bank's own resources. The bank says that the bill of lading which the bank obtained from Cargill was held by the bank as security for Haixin's obligation to pay the unfunded balance. In this regard:
(1) the bank says that Haixin did not make payment to the bank and has not made payment to the bank; and
(2) the bank adds that Haixin is understood to be unable to pay the unfunded balance.
B6. Arrest, part sale and onward delivery of the cargo
After the cargo had been discharged into the custody of Rizhao Sea-Road, an order ("the Lanshan cargo arrest") was made by the Qingdao Maritime Court in Qingdao, China ("the Qingdao Court") on 21 March 2014 arresting 23,776.82 MT of the cargo in order to provide security for charges owed by Haixin to the port authority, Rizhao Lanshan Wansheng Port Service Co. Ltd ("Rizhao Lanshan"). On 4 July 2014, the Qingdao Court ordered the sale of that portion of the cargo. It is said by ESL that local enquiries suggest that the balance of the cargo (80,235.18 MT) was transported to customs authorities in Houma in Shanxi province, China, in February 2014 and was subsequently released into the custody of Haixin.
B7. The Tianjin ship arrest and ESL's defences
The vessel returned to China in or around September 2014. Pursuant to an order made by the Tianjin Maritime Court ("the Tianjin Court"), the vessel was arrested in Tianjin, China, on 23 September 2014 ("the Tianjin ship arrest") upon the application of the bank in order for it to obtain security for its claim against ESL under the bill of lading. The order made by the Tianjin Court recorded that the bank had paid the Cargill sale price pursuant to the letter of credit and had received the bill of lading and other shipping documents. It required ESL to provide a guarantee for the bank's claim within 30 days, i.e. by 23 October 2014, failing which the bank could apply for a sale of the vessel. The order also included a requirement ("the Tianjin commencement requirement") that the bank bring an action, or refer the dispute to arbitration, within 30 days of the ship arrest.
On 28 September 2014 ESL made an application to the Tianjin Court for reconsideration of the arrest. Three grounds were relied upon. They identified suggested defences to the bank's claim under the bill of lading. First, it was said that the cargo had not been taken out of the port and thus "the delivery of the cargo without presentation of the original bill of lading does not occur". Second, the letter of credit was said to have been obviously flawed: it had been opened after the last shipment date, the bank ought to have noticed that the cargo might have arrived, it had acted recklessly and with knowledge that losses would probably result, and on the bank's case Haixin had acted fraudulently. All these matters were said to have broken "the causation link" between the bank's losses and the alleged delivery of the cargo without presentation of the bill of lading. Third, it was said that the bank lacked title to sue. The bank was said not to be a party to the contract of carriage of goods by sea because "negotiation by banks" of bills of lading was "only one of the steps in their international settlement business". Further, it was asserted that the contract between Haixin and the bank gave the bank no security rights over either the bill of lading or the cargo.
Thus all three grounds denied that the bank had any legal entitlement to recover against ESL under the bill of lading. At no stage did the application suggest that the question whether there was such an entitlement was governed by English law. Nor did the application suggest at any stage that the question whether there was such an entitlement had to be determined by arbitration in London.
B8. The bank's Qingdao proceedings
In accordance with the Tianjin commencement requirement, the bank's Qingdao proceedings were issued against ESL and ESCL in the Qingdao Court on 29 September 2014. Those proceedings claimed damages of US$11,165,128.46 under the bills of lading.
B9. ESL enforces the LOIs
Meanwhile ESL had called upon OBS, Atlas and Cargill to comply with their obligations under the LOIs and, in particular, to provide security for the release of the vessel. OBS, Atlas and Cargill initially denied any obligation under the LOIs to indemnify ESL against losses caused by the discharge of the cargo to Rizhao Sea-Road. On 30 September 2014 ESL commenced an action, 2014 Folio 1177, in this court in order to enforce the LOIs. That action was discontinued on 6 October 2014 in favour of proceedings in Singapore, where both OBS and Cargill are registered. The Singapore proceedings were begun on 8 October 2014. They sought, among other things, orders that OBS, Atlas and Cargill provide security as may be required to secure the release of the vessel from the Tianjin ship arrest, and that they:
do provide [ESL] with sufficient funds to defend the proceedings commenced by [the bank] against [ESL] in the Tianjin Maritime Court in China;
…
On 11 October 2014 the Tianjin Court dismissed ESL's application for reconsideration. In its written decision it noted that ESL failed to adduce evidence proving that it had control over the cargo or could deliver the cargo under the bill of lading, and added that the issues raised by ESL "should be determined through substantive proceedings". An order made by the High Court of Singapore on 27 October 2014 provided for ESL to request from the bank details of the security sought, and required OBS and Cargill jointly and severally to furnish that security.
B10. Security is provided and the vessel is released
On 7 November 2014 Cargill provided security for the bank's claim. The Tianjin ship arrest was lifted, and the vessel was duly released, on 8 November 2014. The security provided by Cargill comprised a letter of undertaking ("the DB undertaking") dated 7 November 2014 addressed to the bank (referred to as "the Beneficiary"). The DB undertaking was issued by Deutsche Bank (China) Co., Ltd., Beijing Branch ("DB China") for ESL (referred to by its name or as "the bareboat charterers of M/V "KISHORE"). It stated, among other things:
(1) on page 2, that DB China would:
pay to the Beneficiary on demand such sum or sums, as may either be agreed in writing between the Beneficiary and the bareboat charterers of M/V "KISHORE", or as is adjudged by a final, unappealable judgment or arbitration award of a competent court or the arbitration tribunal, whichever is applicable, to be due to the Beneficiary from the above bareboat charterers of M/V "KISHORE" in respect of the subject dispute, …
(2) on page 4:
The giving of this Letter of Undertaking shall not in any way limit or prevent Essar Shipping Limited and/or any other parties from contesting the jurisdiction of the PRC courts in respect of the subject dispute or related dispute.
B11. ESL's jurisdiction challenge in Qingdao
On 24 November 2014 ESL filed a formal challenge to the jurisdiction of the Qingdao Court. That jurisdiction challenge alleged that the bill of lading contract incorporated the terms of either the time charter between ESL and OBS or the voyage charter between OBS and Atlas, including the arbitration clause. In support of the challenge ESL produced copies of the time and voyage charters.
B12. Expiry of time bar, issue of claim form & Qingdao dismissal
The first anniversary of completion of delivery of the cargo in Lanshan occurred on 11 January 2015. This was the date by which, as a matter of English law, the general paramount clause in the bill of lading required the bringing of proceedings by cargo interests. The Qingdao proceedings had been brought within this period. However no arbitration proceedings had been brought within this period.
The claim form in the present proceedings was issued by ESL on 8 July 2015. It was served on the bank's London branch on 31 July 2015. In the meantime, on 17 July 2015, the Qingdao Court issued a judgment dismissing ESL's jurisdiction challenge. ESL has filed an appeal against that ruling. No judgment on the appeal has yet been issued.
C. The proposed injunction: legal principles and issues
It is common ground that, if what the bank says about its security interest is correct, then the position under English principles of domestic and private international law is that:
(1) the bill of lading incorporated charterparty provisions for English governing law and LMAA arbitration, it being immaterial for present purposes whether they were the provisions in the time charter or the voyage charter;
(2) the bank, under s 2 of the Carriage of Goods by Sea Act 1992, has vested in it rights of suit under the bill of lading, but by s 3 of that Act is subject to liabilities under the bill of lading; and
(3) one such liability is the requirement that the claim is to be resolved by arbitration under the LMAA rules, and ESL will, in principle, be entitled to damages from the bank for breach of that requirement.
It does not, however, follow that ESL is bound to succeed in its claim for an injunction under section 37 of the Senior Courts Act 1981. The grant of an injunction under that section is discretionary. The section confers a broad discretion to grant an injunction in all cases in which it appears to the court to be just and convenient to do so. But the exercise of that discretion is controlled by principles to be derived from a substantial line of authority here and abroad: see the speech of Lord Bingham in Donohue v Armco Inc [2001] UKHL 64, [2002] 1 All ER 749 at paragraph 23.
One such principle is that where parties have bound themselves to a particular forum "effect should ordinarily be given to that obligation" in the absence of strong reasons for departing from it. These were the words used by Lord Bingham, in the context of exclusive jurisdiction clauses, in Donohue at paragraph 24. The principle is also relevant to arbitration clauses: see the judgment of Lord Mance in AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] UKSC 35, [2013] 1 WLR 1889 at paragraph 25.
An injunction is a form of equitable relief. Accordingly under section 37 equitable principles relevant to injunctive relief may be engaged. This was recognised by Lord Bingham in paragraph 24 of his speech in Donohue:
I use the word "ordinarily" to recognise that where an exercise of discretion is called for there can be no absolute or inflexible rule governing that exercise, and also that a party may lose his claim to equitable relief by dilatoriness or other unconscionable conduct.
Lord Bingham noted at the end of paragraph 24 that considerations of comity arise in relation to anti-suit injunctions. Lord Mance at paragraph 25 of his judgment in AES discussed those considerations in the context of injunctions enforcing arbitration agreements. Prior to the decision of the Court of Appeal (Neill, Leggatt and Millett LJJ) in Aggeliki Charis Cia Maritima SA v Pagnan SpA (The Angelic Grace) [1995] 1 Lloyd's Rep 87 it had come to be thought that the power to injunct foreign proceedings brought in breach of contract should be exercised "only with caution", because English courts "will not lightly interfere with the conduct of proceedings in a foreign court". In Angelic Grace the parties had agreed to arbitrate all disputes in London. Owners commenced such an arbitration. Charterers, however, sued in court in Venice. Lord Mance observed that in Angelic Grace the Court of Appeal held that courts ought not to feel diffident about granting an anti-suit injunction, if sought promptly. Without it the claimant would be deprived of its contractual rights in a situation where damages would be manifestly an inadequate remedy.
In Angelic Grace it was urged by charterers that "the proper approach" for the English court would be to leave to the Italian court the question whether it should decline jurisdiction or not. Leggatt LJ, with whom both Neill and Millett LJJ agreed, said at p.95:
For my part, I do not contemplate that an Italian Judge would regard it as an interference with comity if the English Courts, having ruled on the scope of the English arbitration clause, then seek to enforce it by restraining the charterers by injunction from trying their luck in duplicated proceedings in the Italian Court. I can think of nothing more patronising than for the English Court to adopt the attitude that if the Italian Court declines jurisdiction, that would meet with the approval of the English Court, whereas if the Italian Court assumed jurisdiction, the English Court would then consider whether at that stage to intervene by injunction. That would be not only invidious but the reverse of comity.
Millett LJ, with whom Neill LJ agreed, said at p. 96:
We should, it was submitted, be careful not to usurp the function of the Italian Court except as a last resort, by which was meant, presumably, except in the event that the Italian Court mistakenly accepted jurisdiction, and possibly not even then. That submission involves the proposition that the defendant should be allowed, not only to break its contract by bringing proceedings in Italy, but to break it still further by opposing the plaintiff's application to the Italian Court to stay those proceedings, and all on the ground that it can safely be left to the Italian Court to grant the plaintiff's application. I find that proposition unattractive. It is also somewhat lacking in logic, for if an injunction is granted, it is not granted for fear that the foreign Court may wrongly assume jurisdiction despite the plaintiffs, but on the surer ground that the defendant promised not to put the plaintiff to the expense and trouble of applying to that Court at all. Moreover, if there should be any reluctance to grant an injunction out of sensitivity to the feelings of a foreign Court, far less offence is likely to be caused if an injunction is granted before that Court has assumed jurisdiction than afterwards, while to refrain from granting it at any stage would deprive the plaintiff of its contractual rights altogether.
In my judgment, where an injunction is sought to restrain a party from proceeding in a foreign court in breach of an arbitration agreement governed by English law, the English court need feel no diffidence in granting the injunction, provided that it is sought promptly and before the foreign proceedings are too far advanced. I see no difference in principle between an injunction to restrain proceedings in breach of an arbitration agreement and one to restrain proceedings in breach of an exclusive jurisdiction clause … The justification for the grant of the injunction in either case is that without it the plaintiff will be deprived of its contractual rights in a situation in which damages are manifestly an inadequate remedy. The jurisdiction is, of course, discretionary and is not exercised as a matter of course, but good reason needs to be shown why it should not be exercised in any given case.
Applying these principles, Mr Richard Lord QC and Mr Michael Bolding, who appear on behalf of ESL, submit that there are no strong reasons why the arbitration agreement in the bill of lading should not be enforced by injunction. Mr Simon Croall QC, who appears for the bank, submits first that ESL did not issue the present proceedings promptly. There was a delay of more than nine months between the commencement of the bank's Qingdao proceedings and the issue of the claim form in the present case. That, he submits, is of itself a sufficiently strong reason for this court not to grant the injunction sought. If that were wrong, however, Mr Croall submits that unless the bank acted unreasonably in failing to commence an English arbitration before 11 January 2015, it cannot be in the interests of justice for the court to grant an anti-suit injunction which would deprive the bank of its claim. Accordingly for this reason the right course is to refuse to grant an injunction, or to make the grant of an injunction conditional upon ESL not relying upon the time bar.
I turn first to examine the parties' contentions on whether ESL's application for an injunction has been made promptly.
D. Has there been a lack of promptness?
Nearly two months elapsed after the start of the bank's Qingdao proceedings before ESL lodged its jurisdiction challenge in Qingdao. ESL's decision to issue that challenge in Qingdao, rather than to seek an anti-suit injunction here, would make sense if ESL were content to abide by such decision on jurisdiction as might be made by the Qingdao Court.
Once the jurisdiction of this court is properly invoked by ESL then it may well be that ESL, in proceedings here, is not bound by the determination of the Qingdao court in that regard. Nevertheless, if ESL had in mind that it might seek an anti-suit injunction here, then those familiar with Angelic Grace will be likely to find, at least on first impression, that ESL's decision was perplexing. There are two immediate concerns. First, the result of that decision is that ESL has now issued proceedings here nine months after commencement of the bank's Qingdao proceedings and seven months after ESL's Qingdao jurisdiction challenge, a course of action which Leggatt LJ in Angelic Grace described as "not only invidious but the reverse of comity". Second, on ESL's case it had an entitlement not only to say that proceedings should not have been brought in Qingdao, but also to insist that the bank refrain from opposing ESL's Qingdao jurisdiction challenge: see the opening sentences of the citation in section C above from the judgment of Millett LJ in Angelic Grace. The decision taken by ESL not to insist on this entitlement might well be thought to expose ESL to the danger that a subsequent application for an injunction here would be refused for lack of promptness.
ESL submitted that in the passage cited in section C above Millett LJ identified two provisos that are related. What is important in my view is that they are cumulative provisos: the court need feel no diffidence provided that the injunction is sought promptly and provided that, even if the application cannot be criticised for lack of promptness, the foreign proceedings are not too far advanced. In my view there can be no doubt that lack of promptness alone may justify refusal of an anti-suit injunction. In this regard the bank drew attention to the decision of Knowles J in Ecobank Transnational Incorporated v Tanoh [2015] EWHC 1874 (Comm). In that case a submission that delay does not include periods when jurisdiction was challenged in the foreign court was rejected, as was a submission that delay alone (without detrimental reliance) would not suffice. At paragraphs 21 to 24 Knowles J said:
21. However Mr Coleman, for Ecobank, submits that delay does not include any period during which the applicant sought to challenge the jurisdiction of a foreign court and the period pending the foreign court's decision on that challenge.
22. I cannot accept that proposition. Leggatt LJ in The Angelic Grace (above, at 95) described graphically the "reverse of comity" were the English court "to adopt the attitude that if [a foreign court] declines jurisdiction, that would meet with the approval of the English court, whereas if [the foreign court] assumed jurisdiction, the English court would then consider whether at that stage to intervene by injunction". As Christopher Clarke J said in Transfield Shipping Inc v Chiping Xinfa Huayu Alumina Co Ltd [2009] EWHC 3629 at [78] "… comity, which involves respect for the operation of different legal systems, calls for challenges … to be made promptly in whatever is the appropriate court". ….
…
23. Mr Coleman sought to draw on a separate discussion of (the defence of) laches in Fisher v Brooker and another [2009] 1 WLR 1764; [2009] UKHL 41 at [64], to develop the proposition that delay alone was not sufficient to deny an applicant for an anti-suit or anti-enforcement injunction because detrimental reliance upon the delay must (he submitted) also be shown.
24. I am not able to accept that proposition. It is not supported by authority in the area under consideration, and as a matter of principle it would unnecessarily restrict the approach of the courts. The position is best left that the presence of detrimental reliance may be a relevant circumstance to be taken into consideration, but it is not an essential condition to the preparedness of the courts to uphold or decline to uphold an arbitration agreement (or other jurisdiction clause)…."
It was suggested in argument by ESL that Ecobank could be distinguished because it concerned an anti-enforcement injunction rather than an anti-suit injunction. It is clear, however, that Knowles J was treating the relevant principles in enforcement cases as being at least no less onerous than those identified in Angelic Grace. Moreover, I consider that the approach adopted by Knowles J is supported by strong public interests in requiring that those who seek an anti-suit or anti-enforcement injunction should act promptly even though, on the facts of a particular case, there has been no detrimental reliance upon the delay. That does not mean that parties must rush to court prematurely. The starting point is that it is generally desirable to resolve issues speedily. Moreover, there are significant dangers to the interests of the parties and to the public interest if applications for coercive relief are delayed. If such applications are made promptly they are inherently likely to be much less complicated than will be the case at a later stage. Where a party seeking coercive relief does not act promptly, the other side is likely to be understandably aggrieved by the delay. An anti-suit injunction is a particularly intrusive form of relief, barring a party from access to justice in the forum that it would prefer. In the particular context of anti-suit and anti-enforcement injunctions, lack of promptness will increase the danger that such injunctions, although they are granted against a party and are not directed to the foreign court, will nevertheless be seen as inappropriately interfering with the jurisdiction of the foreign court.
ESL in its skeleton argument took objection to "any suggestion that a party seeking an anti-suit injunction is somehow precluded from challenging the jurisdiction of the foreign court before commencing proceedings in England…". The general suggestion that ESL postulates and seeks to attack, however, involves a negative proposition which is obviously too broad. ESL's objection to it does not engage with the two immediate concerns identified above.
ESL's skeleton argument also, however, asserted a positive proposition. Paragraph 33 of the skeleton argument acknowledged, as has been inevitable since Angelic Grace, that despite earlier suggestions to the contrary, there is no requirement for an applicant for an anti-suit injunction first to apply to the foreign court for a stay of the foreign proceedings or to challenge the foreign court's jurisdiction. Nevertheless it was submitted on behalf of ESL that:
… a party to an arbitration agreement is perfectly entitled to do so [i.e. apply in the foreign court first] without prejudicing its position in relation to any application for an anti-suit injunction in England.
If the notion of applying to the foreign court "first" connotes a delay before applying to the English court, then I cannot accept this proposition. It was said to be supported by a citation from paragraph 12-090 of Dicey, Morris and Collins, The Conflict of Laws (15th ed., 2012), where the editors state that the better view is that there is no requirement to challenge the foreign court's jurisdiction before applying for an injunction in England, but they note that:
There is some support for the view that an application is premature if it has not been preceded by an application for jurisdictional relief in the foreign court: as an anti-suit injunction will interfere with the procedures of the foreign court, it may be preferable that the foreign court be asked not to exercise jurisdiction. It would follow that the practice of applying to the foreign court first is appropriate, at least in cases where the foreign proceedings are not themselves vexatious: this has been described as the 'normal' procedure, and it has been said that there must be some good reason why the application is made in England first.
The short answer to that suggestion is that in the sentence which immediately follows on from ESL's citation, the editors of Dicey, Morris and Collins state:
But this approach … was specifically disapproved in The Angelic Grace…
It was added by ESL that its positive proposition was supported by Briggs, Civil Jurisdiction and Judgments (6th ed. 2015) para. 5.50. Here, too, the answer is that the author cites Angelic Grace in answer to the notion that an objection to jurisdiction should be made in the foreign court first. The author adds an observation that:
… an applicant who wishes to have two bites at the cherry is well advised to consider it. …
I read this observation as envisaging a "bite at the cherry" in England which is not appreciably later than a "bite at the cherry" in the foreign court. Any other reading would be inconsistent with the author's own citation from Angelic Grace.
At the hearing ESL acknowledged that its positive proposition required qualification, and that it might not be reasonable if the application to the foreign court would involve "long delay". Again it seems to me that there is a failure here to engage with Angelic Grace: it is not a question of whether it is reasonable to apply to the foreign court, nor of whether there will be long delay in the foreign court, but a question of whether the application in this court has been made promptly.
The oral submissions for ESL rightly accepted that what is or is not "prompt" was fact sensitive. The submissions then went on, however, to assert that in all the cases in which an application for an anti-suit injunction has been held to be too late, "there has been a very significant delay in absolute terms". As to that I decline to examine first instance decisions in which the facts have been held to fall on one side of the line or the other. They are not cases which involve any question of principle and necessarily turn on their own facts.
ESL at the hearing sought to rely upon propositions which it derived from paragraph 8.11 of Raphael, The Anti-Suit Injunction (2008, with first supplement 2011). These suggested propositions were that:
(1) the length of delay in itself is of less importance than the extent to which foreign proceedings have progressed during the delay;
(2) justifiable delay will not be given serious weight against the grant of an injunction;
(3) in accordance with (2) above, delay for a period during which the injunction claimant could legitimately have considered that the foreign proceedings were secondary to the English action may well be permissible; and
(4) waiting for a foreign jurisdictional challenge to be determined, although significant, is less important than permitting foreign proceedings on the merits to unfold.
Each of these propositions was said to be supported by first instance decisions cited in the footnotes to paragraph 8.11. I reject these suggested propositions. I do not consider that the decisions cited are decisions which seek to lay down general propositions. The decisions cited largely involved an examination of the facts in the particular case in order to decide whether an injunction ought to be granted.
I turn to the facts in the present claim. One of the important features is that if arbitration proceedings were to be effective then, on ESL's case, they needed to be brought within twelve months of discharge of the cargo. I deal in section E below with the bank's complaint of particular prejudice in this regard. For present purposes I put that specific complaint to one side. As regards promptness generally, the bank observed that against a twelve month yardstick periods of months should be regarded as significant. I agree. This point was not explicitly addressed by ESL and I can see no answer to it.
Another important feature is the likely delay associated with, and utility of, ESL's jurisdiction challenge in Qingdao. On this, Professor Wang Pengnan's first opinion stated:
(1) in paragraph 6, that although the Chinese legal system is not a case precedent system but is modelled on the civil law, the Supreme People's Court ("SPC") of the PRC has a supervisory role over the lower courts in China, which are required to follow guidance notices issued by the SPC;
(2) in paragraph 7, that SPC notice number 18 of 1995 required first instance courts to take instructions from appellate level courts where the first instance court intended to hold a foreign-related arbitration clause/agreement invalid, and that the appellate court should take instructions from the SPC if it agreed with the first instance court; and
(3) in paragraph 8, that by reference to letters of reply, including two such letters set out in detail in paragraphs 9 and 10:
Chinese courts have definitely set three (3) conditions to be satisfied where an arbitration clause is validly incorporated into the B/L, these are: (1) in the B/L it states that the charter party is incorporated into the B/L; (2) the charter party incorporated should be specified by its date and parties to the charter party; and (3) on the face of B/L it states that the arbitration clause in the charter party is incorporated into the B/L.
Professor Wang Pengnan observed that two of these three requirements were not met, for on the face of the bill of lading it did not state the parties to the charterparty and on the face of the bill of lading it did not state that an arbitration clause was being incorporated.
On behalf of ESL Mr Wang Hongyu did not dispute the passages from Professor Wang Pengnan's first opinion summarized at (1) and (2) above. As to the passages from paragraph 8 cited at (3) above, Mr Wang Hongyu's statement in paragraphs 7 and 8 said:
7. As Mr Wang Pengnan says at paragraph 6 of his opinion, China is not a case precedent system. Therefore, although the courts are required to follow guidance notes issued by the Supreme People's Court of the P.R. of China, the courts are nonetheless able to render decisions based on the facts of each case. Thus in this matter, I consider that although ESL faced significant difficulties in its jurisdictional challenge, it had and still has a properly arguable case based on the facts of this matter. Those arguments are set out in full in ESL's Objection to Jurisdiction … and in ESL's appeal against the decision of the Qingdao Maritime Court …
8. It is an internal rule that the first instance court shall seek guidance from the high court which in turn shall seek guidance from the Supreme Court to determine the enforceability of the arbitration clause incorporated into the bill of lading. In the circumstances, it is not possible to predict which party will succeed on the jurisdictional challenge until the final ruling is handed down, although as I have said above I accept that previous cases put obstacles in the way of ESL succeeding.
Professor Wang Pengnan's second opinion dealt with this at paragraphs 3 to 7:
3. The Claimant would know that it had no chance of succeeding with a challenge to jurisdiction: I refer to paragraph 7 and 8 of Wang Hongyu's witness statement. It is incorrect for Mr Wang to give the impression that the lower court (including China Maritime Courts which are also courts of first instance) and the Higher People's Courts (which are the first appeal level) could decide the question on the jurisdictional challenge on their own. As is clear from the SPC Notice No. 18 in 1995 referred to in my first opinion this is a special situation under Chinese law where the lower courts and appeal court must refer the case for directions from the SPC before issuing their judgment where it takes the preliminary view that the arbitration clause and agreement in dispute is invalid or void.
4. In a case where the facts were truly different and raised new points from previous SPC guidance cases a different result may be possible. However, there is nothing on the facts raised in the present case that makes it any different from the prior cases already decided by the SPC as referred to in my first opinion.
5. Mr Wang Hongyu has referred to (and attached) the full argument put before the Qingdao Maritime Court by him for the jurisdictional challenge (WH1 p. 3-10). I note that these arguments raise no new or special facts or try in any way to distinguish this case from the prior SPC guidance notes.
6. I do not consider that any knowledgeable Chinese lawyer in this area could conclude that there was a reasonable case to argue that the Qingdao Maritime Court should find that it was without jurisdiction. A knowledgeable Chinese lawyer in the area would have properly advised their client that the application had no hope but would only delay matters.
7. It is not unusual for the jurisdictional challenge review process to take time since the Qingdao Maritime Court would have had to report internally to the Shandong Higher People's Court which in turn would have reported internally to the SPC. The SPC is very busy as it deals with regulatory matters in addition to decisions on individual cases. It is therefore not unusual for jurisdictional challenges to result in delays of several months as occurred in this case. I do not believe that a decision within three months as has been indicated would have been realistic at the time in question.
On the material put before this court my assessment is that Professor Wang Pengnan's observations on this aspect of the case are compelling. Paragraphs 7 and 8 of Mr Wang Hongyu's statement did not go beyond saying that the jurisdiction challenge was "properly arguable". They did not say that it had a substantial prospect of success. Indeed they did not even explain how, consistently with following the SPC guidance, there was anything in the facts of the present case that could enable the Qingdao court to decline jurisdiction. The material before this court includes translations of ESL's challenge in the Qingdao court and of its appeal. Those translations fully bear out the observations in paragraph 5 of Professor Wang Pengnan's second opinion.
ESL submitted that, in Millett LJ's words, the bank's Qingdao proceedings were not "too far advanced". For the reasons given above, however, this does not show that ESL's application has been made promptly.
My conclusion is that the bank is right to say that the present claim has not been brought promptly. In a case where there was a potential time bar expiring in January 2015, if ESL were to seek an anti-suit injunction, it needed to issue and serve a claim form here, in the absence of some good reason to the contrary, no later than the end of November 2014. ESL's decision to defer issuing a claim form pending its Qingdao jurisdiction challenge is not a good reason to the contrary, for three reasons both individually and in conjunction with each other:
(1) the decision was inconsistent with Angelic Grace;
(2) there was no objective justification for thinking that the Qingdao jurisdiction challenge would be resolved speedily; and
(3) there was no objective justification for thinking that the Qingdao jurisdiction challenge would be successful.
ESL urged that its delay in seeking an injunction had not resulted in significant wasted expense. I will assume in ESL's favour that this is right. Even so, and after giving proper weight to points relied on by ESL, when all the circumstances are taken into account it seems to me that ESL's lack of promptness is so serious that the proposed injunction would be neither just nor convenient and ought to be refused.
Although it forms no part of my decision, I add that I have a concern that the evidence points strongly to a conclusion that the purpose of ESL's challenge in the Qingdao court was to delay matters. I have real difficulty in understanding how ESL could have thought that there was any substantial prospect of its Qingdao jurisdiction challenge being successful. At the hearing it was said that I could not go behind evidence of Mr Wartski in his second witness statement at paragraphs 20 to 22:
20. In light of the above, there was no appreciable delay between the arrest of the Vessel and ESL's objection to the jurisdiction of the Qingdao Court. The jurisdiction challenge was filed by ESL in good faith and on the basis that it considered that it had a chance of success as has the appeal which has been filed by ESL to the Qingdao Court's ruling on jurisdiction.
21. The Qingdao Court took a long time to consider the ESL's jurisdictional challenge. Indeed, although ESL expected a decision within a maximum of three months, the Court only handed down its decision rejecting ESL's jurisdictional challenge on 17 July 2015 – some 8 months after the challenge was made. This may be an indication that the Court gave serious consideration to ESL's jurisdictional challenge.
22. As I explained in my first witness statement, ESL decided to challenge the jurisdiction of the Qingdao Court by filing an objection to jurisdiction before that court, rather than immediately applying in England for an anti-suit injunction. I do not believe that ESL can sensibly be criticised for doing so. The rationale was that it was unnecessary and a potential waste of time and money to launch expensive and resource-heavy English proceedings when the Chinese proceedings were not being progressed in substantive terms pending the outcome of the challenge to jurisdiction, and never would be if the challenge was successful as ESL hoped it would be. When it became apparent that there was a risk that the Qingdao Court would not rule on ESL's jurisdiction challenge until a significant period of time had elapsed, ESL took the view that it would be better to apply in England for an anti-suit injunction rather than wait for the Qingdao Court's ruling.
For reasons given earlier, I disagree with the suggestion in the last sentence of paragraph 22 that "a significant period of time" had not elapsed before the application for an anti-suit injunction was made. Turning to what, if any, basis there could have been for thinking that ESL's Qingdao jurisdiction challenge had any real prospect of success, Mr Wartski's first witness statement simply did not address that question. In his second witness statement Mr Wartski has carefully not gone beyond stating that ESL "considered" that the Qingdao jurisdiction challenge "had a chance of success" and "hoped" that it would be successful. There is no express statement that ESL believed it had any substantial prospect of success.
These matters would support a conclusion that the prospect of delay was a major factor in ESL's decision to lodge the Qingdao jurisdiction challenge and to defer issuing a claim form here. Even without that conclusion, however, in all the circumstances I consider that I should refuse the application for an injunction because it has not been made promptly.
E. The bank's complaint of prejudice
My conclusions in section D above make it unnecessary for the bank to rely upon its complaint of prejudice. I shall therefore deal with it relatively shortly.
The prejudice that is relied upon is that, even though the bank's Qingdao proceedings were brought within time and are still on foot, an arbitration claim brought now would be out of time. In that regard I have no doubt that if ESL's claim form here had been issued and served by the end of November 2014 the bank could and would have begun protective arbitration proceedings by 11 January 2015. ESL's delay has thus caused prejudice. That remains the case even if, as ESL suggests, the bank has other potential avenues of recourse.
The relevant legal principles are common ground: the bank's ability to rely on prejudice in this regard turns on whether the bank's omission to bring arbitration proceedings within time was unreasonable. The bank accepts that it bears the burden of showing that its omission was not unreasonable.
I cannot accept that the bank has met that burden:
(1) The bank submitted that its conduct must be judged by the standards of a reasonable regional branch of a Chinese bank. The bank relied upon passages in the statements of Mr Liu Ji'an and Mr Sachs in this regard. As to that, the matter was indeed dealt with by the regional branch. The branch sensibly sought advice from a law firm with experience of maritime law. That law firm was not based in the provinces, it was based in Beijing. The question thus becomes whether the bank has shown that it was not unreasonable for a Beijing law firm with experience in maritime law to omit to advise on the need to bring arbitration proceedings within time.
(2) The bank says that there were features of ESL's conduct which led it to believe that there was no intention to object to jurisdiction of the Chinese courts. On the evidence before me, however, I do not consider that such a belief was warranted. ESL's application for reconsideration of the Tianjin ship arrest did not specify arbitration as a potential forum, but it did not need to: the Tianjin Court's order specifically envisaged that the bank might refer the dispute to arbitration (see the terms of the order as described in section B7 above). The remedy sought by ESL in Singapore was not something of which the bank was aware, and in any event was focused upon the need to provide security in Tianjin: it did not specify any particular forum for the bank's substantive claim. When the DB undertaking was provided as security, the undertaking expressly contemplated that the matter might be the subject of an arbitration award, and expressly permitted a challenge to the jurisdiction of the PRC courts (see section B10 above).
(3) The bank says that, prior to ESL's Qingdao jurisdiction challenge on 24 November 2014, it had no reason to think that English law would be relevant or that there might be any need to bring arbitration proceedings by 11 January 2015. For present purposes I accept that this was so, but only until 24 November 2014.
(4) It is common ground that there is no procedure in Chinese law similar to an anti-suit injunction in England. Professor Wang Pengnan's first opinion stated that he did not expect Chinese lawyers to be familiar with anti-suit injunctions under English law unless they had international experience of similar cases. In his second opinion he said that he personally had been involved in two cases where anti-suit injunctions were sought, but he was not aware of published cases, legal literature or articles warning of anti-suit injunctions. Mr Wang Feng in both his witness statements said that neither he nor a colleague who was working with him on the case had had any knowledge of anti-suit injunctions under English law. Mr Sachs's second witness statement records that the legal team at the bank's London branch had not been consulted by the bank's head office about anti-suit injunctions, nor had that team given any advice to the head office about them. I accept that these witnesses have honestly set out their own beliefs and knowledge. However Mr Wang Hongyu stated at paragraph 14 of his witness statement that:
There have been many cases before the PRC Maritime Courts in the past years on the jurisdictional challenge based on the incorporation clause in a bill of lading, especially if the bill of lading is issued according to the charter party terms. Many challenges to the jurisdiction are based on the clause referring to London/Hong Kong arbitration and the application of English law. Anti-suit injunctions brought in English / Hong Kong courts are therefore not an unusual approach taken by foreign shipowners to support their defences in China.
There is no evidence before this court that directly contradicts Mr Wang Hongyu's observation in paragraph 14 of his witness statement that anti-suit injunctions brought in English and Hong Kong courts are not an unusual approach taken by foreign shipowners to support their defences in China. My conclusion accordingly, on analysis of the particular evidence in the present case, is that:
(1) on consideration of ESL's Qingdao jurisdiction challenge, Beijing Tiantong & Partners should have been aware of, and should have advised the bank of, the danger that ESL might make an application here for an anti-suit injunction; and
(2) if that advice had been given within a reasonable period after sight of ESL's Qingdao jurisdiction challenge, the bank would have had sufficient time to take the vital step of bringing arbitration proceedings on a protective basis prior to 11 January 2015.
It follows that the bank has not met the burden which it accepts it must meet if it is to rely on specific prejudice. It must show that it was not unreasonable to have omitted to bring arbitration proceedings prior to 11 January 2015. After analysing the evidence I conclude that it has not shown that its omission in this regard was "not unreasonable". On the contrary, in circumstances where deployment of anti-suit injunctions against cargo owners was not unusual, it was unreasonable to ignore the danger that such an injunction might be sought in the present case.
I acknowledge that the process of reasoning by which I arrive at that conclusion necessarily has been conducted on an examination of written evidence alone, and involves attributing particular weight to one of a number of factors – in this instance, whether by November 2014 a particular type of challenge by shipowners had been deployed against cargo interests in China sufficiently frequently to be described as "not unusual". This, to my mind illustrates the importance of the general principle that those seeking anti-suit injunctions must act promptly. Proof that undoubted prejudice would result from an anti-suit injunction, and could not reasonably have been avoided, will often be a compelling reason for refusing an injunction. But there are general public policy reasons, identified in section D above, why the bank should not, in a case where ESL has delayed in seeking an injunction, have to take the court through a detailed analysis and be in a position where everything turns on a judgment as to whether an omission to act was "not unreasonable".
F. Other aspects of the claim
I noted in section A that ESL seeks a declaration that the arbitration agreement was incorporated in the bill of lading contract. As I understand it, the bank accepts that in these proceedings ESL is entitled to such a declaration.
The remaining matter that I need to deal with is ESL's claim to damages for breach of the arbitration agreement. I am by no means sure that this breach will be found to have caused any relevant loss to ESL at the end of the day. There is no evidence that in the bank's Qingdao proceedings ESL will be deprived of a defence that would have succeeded in London arbitration proceedings. There is no evidence that the costs of Wing Jing & Co. in defending the Qingdao proceedings will be higher than the costs of lawyers in London. Moreover ESL will have saved the expense of paying arbitration fees.
The bank submitted that ESL's claim to damages should in these circumstances be dismissed for lack of evidence. I am not willing to take that course out of hand. If ESL does intend to proceed with a claim for damages, I will invite submissions from the parties as to whether I should give directions for that purpose and if so what those directions should be. It is not clear to me whether the bank seeks to contend that any claim to damages must, consistently with the declaration which I will grant, be brought by way of arbitration. If so, and ESL objects to that course, then it may be necessary to give directions for determination of whether the claim for damages should be stayed pending arbitration.
G. Conclusion
For the reasons given above I will grant the declaration sought, but I refuse to grant an anti-suit injunction. In that regard ESL is left to its claim in damages. |
Mr Justice Burton :
This is an application under s.67 of the Arbitration Act 1996 ("the Act") by the Claimant, Exmek Pharmaceuticals SAC, against an award on jurisdiction dated 3 August 2014 by Mr Natarajan as sole Arbitrator, in which he concluded that he had jurisdiction in an arbitration between the Defendant, Alkem Laboratories Limited, as Claimant and the Claimant as Respondent, pursuant to an arbitration provision, whose validity is disputed by the Claimant, contained in a Distribution Agreement dated 6 May 2005. The Claimant, while reserving its position as to jurisdiction, supplied written submissions to the Arbitrator, but did not appear. It is common ground that I must resolve the issue of jurisdiction for myself ab initio, although I am entitled to look at the award: see Dallah Co v Ministry of Religious Affairs of Pakistan [2011] 1 AC 763 at 813 per Lord Mance, where he approved the proposition that "In making its determination, the court may have regard to the reasoning and findings of the alleged arbitral tribunal, if they are helpful, but it is neither bound nor restricted by them".
The history
The Distribution Agreement contained the following clauses relevant to the dispute before me:
"Article 13: PROPER LAW
The proper law of this Agreement is the law of the UK, and the Parties submit to the exclusive jurisdiction of the Courts of the UK and of all Courts having jurisdiction in appeal from the Courts of the UK.
Article 14: ARBITRATION
All disputes and differences whatsoever which will at any time hereafter arise between the parties in relation to this Agreement which the Parties using their best endeavors in good faith cannot resolve shall be referred to arbitration before any legal proceedings are initiated. The arbitration shall be conducted in the UK in accordance with the provisions of the law in the UK in effect at the time of the arbitration and shall be conducted by one or more arbitrators appointed there under."
There were also the following clauses to which the parties make some reference:
"Article 22: VARIATION OF AGREEMENT
A variation of this Agreement is of no force and effect unless it is in writing and signed by the authorized signatory on behalf of each of the Parties.
Article 23: WAIVER
No omission or delay on the part of the Party in requiring due and punctual fulfilment by the other Party of its obligations hereunder shall be deemed to constitute a waiver by the omitting or delaying Party of any of its rights to require such due and punctual fulfilment and, in any event, shall not constitute or be construed as a continuing waiver or as waiver of other or subsequent breaches of the same or other (similar or otherwise) obligations hereunder, or as a waiver of any remedy it might have.
Article 24: SEVERANCE
24.1 In the event that any term or provision of this Agreement can sustain two or more interpretations, one of which results in the term or provision being valid, legal or enforceable, that term or provision will be given that interpretation rather than an interpretation which would or be likely to result in the term or provision being invalid, illegal or unenforceable."
By notice dated 18 March 2008 the Claimant terminated the Distribution Agreement on grounds alleging breach by the Defendant, and "formally request[ed]" that the dispute "be referred to arbitration in the United Kingdom, to be decided by an arbitration tribunal composed by three arbitrators, in keeping with the provisions set forth in clause 14 of the agreement signed between the parties". By letter dated 27 March 2008 the Defendant acknowledged the termination and "with reference to [the Claimant] invoking the provisions of clause 14 of the said Distribution Agreement . . . hereby signifies its willingness to submit its dispute with [the Claimant] to arbitration, to be conducted in the . . . United Kingdom".
After a chaser by the Defendant dated 11 April 2008, the Claimant wrote on 15 April 2008 concluding that "both parties will be formally notified within a reasonable length of time to proceed to the designation of the arbitrators who will resolve our dispute, according to the rules and regulations of the United Kingdom".
According to the witness statement of Mr Zubiria Remy of the Claimant, he travelled to London in April/May 2008 and spoke to a Mr Clanchy, a member of the Secretariat of the London Court of International Arbitration ("LCIA"), who indicated, as seems clear, that Articles 13 and 14 would not comply with the requirements of the LCIA; and by letter dated 12 May 2008 the Claimant requested the Defendant to "sign an addendum to the Distribution Agreement . . . which will enable us to refine the contract terms of clauses 13 and 14". Article 13 was proposed to be amended simply to provide that the agreement would be construed and enforced in accordance with the laws of the United Kingdom and Northern Ireland and Article 14 was to be amended so that the dispute would be "decided by arbitration in accordance with the rules of LCIA . . . considered to be incorporated into this clause". It was also to provide that the "arbitral tribunal shall consist of . . . 3 arbitrators . . . appointed according to the rules of LCIA" and that the place of arbitration would be London, and the arbitration award be final and unappealable.
By letter dated 30 May 2008 the Defendant's general legal counsel said that he would be responding to the 12 May letter once they had had the opportunity to take a comprehensive view of the situation but said that "it prima facie appears that an arbitration proceeding, in the UK, is inevitable . . . accordingly I am arranging to take the next steps in the matter. This may take some time, since we are in the process of appointing a law firm in London to represent [the Defendant's] interest in arbitration". Mr Zubiria sent an email on 24 June 2008 pressing for a "reply regarding the clarifications needed in the arbitration clause of our contract" and requested them to "expedite the pendings at your end to start as soon as possible the Arbitration process in the UK (London)". After email exchanges between the parties in July and August 2008 Mr Zubiria sent a letter dated 21 August 2008 to "reiterate our request of May 12 2008 for you to agree to sign an addendum to the Distribution Agreement . . . in order to modify and refine contract terms of clauses 13 and 14 about the applicable law and arbitration process".
A further letter was sent dated 10 November 2008 by Mr Zubiria in similar terms, and after receipt of a fax dated 19 November 2008 from the Defendant, which is not in my papers, he wrote again dated 21 November 2008 reiterating his request, again in similar terms. In response to a fax from the Defendant dated 18 February 2009, which again I have not seen, the Claimant stated in a fax dated 3 March 2009 that "if it is not possible to reach an agreement satisfactory to both parties, the dispute will have to be referred to arbitration as stated in the Distribution Agreement". It seems there were some further discussions in December 2009, and there are emails from the Claimant in December 2009 and August 2010, to which it seems there was no response.
On 7 January 2011 the Claimant presented to the Peruvian Courts its claim against the Defendant dated 17 November 2010, claiming substantial damages for breach of the Distribution Agreement; and an order was issued by the Peruvian Court dated 24 January 2011, which the parties agree should be treated as the date of issue. There was then service on the Defendant in India authorised by the Peruvian Court, which it is common ground was deemed effective on 2 May 2011. This gave an opportunity for the Defendant to challenge the jurisdiction with an absolute deadline, i.e. one which in Peruvian law cannot be extended, of 2 June 2011. I have read and accept the evidence of the Peruvian lawyer instructed by the Defendant at the time, Sr Jorge Vega Soyer, in a letter dated 7 October 2015, as to what he advised the Defendant: Mr Andrew Green QC for the Defendant told me on instructions, and Mr Ravi Aswani for the Claimant did not challenge, that the Defendant instructed such lawyer on 20 May, arranging for translations of documents to be carried out, and received the advice from him on 25 May. Sr Soyer advised the Defendant (wrongly, as both sides accept) that there was a 10 day deadline from the Defendant being notified of the claim for it to make a "plea in bar" on jurisdictional grounds, and that this deadline had expired, and he advised, rightly if it had expired, that "if a relevant plea in bar on the basis of an arbitration agreement is not raised within the 10 day deadline then the Peruvian Courts consider the party to have "tacitly waived" the arbitration agreement at least as a basis for challenging jurisdiction of the Peruvian Courts in respect of the matters raised in the claim: this is an "automatic" consequence, in the sense that the Peruvian Courts do not consider why the deadline was missed, and no applications to challenge jurisdiction can be raised once this deadline has passed" (a proposition with which the Claimant agrees); so that on the (mistaken) basis that the 10 day period had already expired (whereas in fact had the correct advice been given, it was not to expire for a further week) the Defendant was out of time, and it indeed became so by 2 June 2011.
Sr Soyer's letter continues as follows:
"As the deadline had passed by the time I was properly instructed by [the Defendant], I advised [the Defendant] that the consequences of this was that the Peruvian Court would conclude that a procedural relationship existed i.e. that the Peruvian Court could take jurisdiction of the dispute between [the Claimant] and [the Defendant]. I went on to advise that [the Defendant] should therefore raise objections to the jurisdiction of the Peruvian courts at the earliest opportunity it could in the circumstances, which was in its Reply and Objections to [the Claimant's] claim, which [the Defendant] filed on 10 June 2011.
On my advice, [the Defendant] raised two arguments at first instance before the 16th Civil Court of Lima as to why it did not have jurisdiction, namely the fact that the parties had expressly agreed to submit disputes to arbitration in the Agreement and the fact that the law applicable to that contract was UK law. I advised [the Defendant] that both were valid grounds to object to the jurisdiction of the Peruvian courts under Peruvian law, notwithstanding the procedural deadline for objecting had passed.
The first instance court in Peru did not render a decision on these arguments on jurisdiction, merely noting that the deadline had passed under Article 478 of the PCPC and instead the judge only gave an opinion on jurisdiction. I advised [the Defendant] that given this was just an opinion (as opposed to a decision) it could not be appealed. Accordingly, the first instance court never reached a decision on the merits of whether the arbitration agreement was valid and binding. I advised [the Defendant] that if it challenged jurisdiction based on the arbitration agreement in the Distribution Agreement in the appeal before the Superior Court, this would not be addressed by the Superior Court because (i) the deadline under Article 478 of the PCPC for challenging jurisdiction based on the arbitration agreement had been missed and (ii) the first instance court had not given a decision on jurisdiction but only an opinion. I advised [the Defendant] that such an appeal would also not be considered by the Supreme Court in Peru.
Instead, in order to preserve its jurisdiction challenge as best it could in the circumstances, I advised [the Defendant] that it should instead appeal only on the applicability of UK law to the Agreement. I explained that that was because if the Peruvian courts decided that the applicable law was English law (as [the Defendant] was arguing) then [the Claimant] would have to bring its claim based on English law rather than (as it had claimed) Peruvian law. If that was the case, then [the Defendant] would be able to argue that whether or not the arbitration agreement was binding was a matter of English law and that under English law it should be entitled to re-assert its challenge to the jurisdiction of the Peruvian courts on the basis of that arbitration agreement (with English law not recognising the Article 478 PCPC deadline for example). In those circumstances, I advised [the Defendant] that it would then also be able to raise its objections to jurisdiction based on the arbitration agreement before the courts in Peru within a new 10 day deadline under Article 478 of the PCPC. Hence the only possible route for [the Defendant] was to appeal on the question of the applicability of English law and I advised [the Defendant] to proceed accordingly.
To be clear, the "tacit waiver" in respect of the arbitration agreement under Article 18 of the PAL as a result of not objecting to jurisdiction within the deadline provided under Article 478 of the PCPC only relates to those matters which are raised before the Peruvian court in the claim. Therefore, to the extent that [the Defendant] could be taken to have tacitly waived the arbitration agreement (as an automatic consequence of the deadline in Peruvian law expiring rather than through any conduct on the part of [the Defendant]), that tacit [waiver] would only apply strictly to the matters [the Claimant] raised in its claim and not any other matters which were not encompassed in [the Claimant's] claim. . ."
The Defendant followed this advice.
By an opinion dated 15 October 2015 Mr Enrique Rojas, the Peruvian lawyer instructed by the Claimant addresses the content of the letter. He rightly points out that the deadline expired not after 10 days but after 30 days i.e. on 2 June 2011, so that it had not in fact expired by the time Sr Soyer's firm was instructed. He also takes issue with (i) the advice of Sr Soyer that the conclusion of the first instance Peruvian Court as to the effect of the arbitration agreement (at paragraph 15 of its judgment) was an opinion rather than a decision and could not be appealed, rather asserting that it could have been appealed and (ii) he took a broader view than Sr Soyer as to what amounts to "matters claimed in court" (by reference to Article 18 of Legislative Decree No. 1071), to which the tacit waiver would apply, so that he takes issue with the last paragraph of Sr Soyer's advice. He does not however take issue with Sr Soyer's advice that if the Claimant were successfully to appeal in respect of the applicability of UK law to the Agreement, then the Defendant would be able to argue that under English law it should be entitled to reassert its challenge to the jurisdiction of the Peruvian Courts on the basis of the arbitration agreement, and would "be able to raise the objections to jurisdiction based on the arbitration agreement before the courts in Peru within a new 10 day deadline".
Accordingly, the Defendant filed on 10 June 2011 its petition of Reply to the Claimant's claim in which, albeit out of time to challenge jurisdiction, it objected to the jurisdiction by reference to the arbitration clause, and asserted the reliance on UK law provided for by the Distribution Agreement. On 23 May 2012 the Corte Superior de Justicia de Lima (16th Civil Commercial Court) delivered its decision. It addressed the issue of the arbitration clause and stated in paragraph 15 that "the Defendant . . . has waived tacitly to arbitration, by failing to deducing the exception of arbitration agreement within the deadlines mandated by law . . . which makes it unnecessary for the Court's pronouncement over the null and void an arbitration agreement is based on the demand" (this is the passage which Sr Soyer describes as an unappealable opinion). In paragraph 16 it dealt with the challenge so far as the law is concerned, and concluded that Peruvian law, under Article 2 and Article 5 of the Civil Code, applied because "it is a contractual claim on which compliance must be verified in Peru", rejecting reliance on Article 13 of the Distribution Agreement, because "the application of this agreement is legally and physically impossible, because the defendant has not offered any probative half to prove the existence of the UK law applicable to the case and also because there are three different legal systems in the United Kingdom. In this regard la Wikipedia on its website . . . said the following . . ." and it referred to the United Kingdom consisting of 4 constituent countries and having no single legal system, but 3 different legal systems, "the law of England, the right of Northern Ireland and the Scottish law".
The Defendant appealed paragraph 16 but, in the light of the advice of Sr Soyer, set out in paragraph 9 above, did not appeal in respect of paragraph 15, the "tacit waiver", in the light of the expiry of the deadline. This appeal was dismissed on 18 September 2012. The Claimant's final appeal to the Supreme Court of Peru was dismissed on 18 November 2013. The Supreme Court noted that "with respect to the submission of any dispute to arbitration . . . the Defendant . . . has tacitly agreed waived arbitration by failing to deduct the exception of arbitration agreement within law": it rejected the Defendant's case on law, upholding the decision of the Appeal Court that it was "legally and physically impossible to apply the law in the UK", and, applying Peruvian law, rejected the Defendant's arguments on the merits, although the Defendant, it is common ground, did not advert to or rely upon any counterclaim. As a result, the judgment of the Peruvian Court, in the sum of approximately US$6 million, was upheld.
The Defendant gave notice of arbitration in London on 6 February 2014, stating that it proposes "in accordance with the Agreement . . . that the arbitration should be conducted by 3 arbitrators". It proposed the appointment of Mr Natarajan as one of the arbitrators, and gave notice that unless an arbitrator was appointed by the Claimant the Defendant would exercise its right under s.17 of the Act to appoint that arbitrator as the sole arbitrator. By letter dated 5 March 2014 the Claimant objected to the Arbitrator, effectively on all the grounds now argued before me and did not appoint an arbitrator, with the effect that, as indicated, the Defendant appointed Mr Natarajan as sole Arbitrator by notice dated 26 March 2014. Mr Natarajan, having accepted appointment, issued directions, and, although the Claimant filed written submissions on the issue of jurisdiction, including objection to him as sole Arbitrator, it did not appear either at the case management hearings or before the Arbitrator at all. His award was issued, as set out above, on 3 August 2014 upholding his jurisdiction, and these proceedings to challenge the award, followed, by a Claim Form dated 29 August 2014. The challenge before me was by reference to s.67 of the Act only (a prior challenge under s.68 not having been pursued), i.e. on the basis of alleged lack of jurisdiction of the Arbitrator, and not by reference to any alleged serious irregularity.
There were effectively 4 issues before me:
i) Is there a valid arbitration agreement? The fact that the Peruvian Court considered it to be invalid (applying Peruvian law) is of no relevance, certainly not, as Mr Aswani submitted, constituting estoppel per rem judicatam, unless the Defendant submitted to the jurisdiction of the Peruvian Courts (and possibly – as per the Court of Appeal in AES Ust-Kamenogorsk-Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2012] 1 WLR 920 (CA) ("AES") at paragraphs 150(v) and 151(vii)-(viii) (at 971-2) – not even then).
ii) Was reliance on the arbitration provision abandoned by the Defendant by its response (or lack of it) to the Claimant prior to the Claimant issuing its Peruvian proceedings?
iii) Did the Defendant submit to the jurisdiction of the Peruvian Courts (or should the English Court recognise the judgments of the Peruvian Courts)?
iv) Was the Arbitrator precluded by reason of either of the Claimant's contentions:
a) that he was not properly appointed pursuant to s.17 of the Act, because there was no agreement for 3 arbitrators?
b) that he was of the same nationality as the Claimant company?
The parties are agreed that if the Defendant only fails on one or other of these latter contentions, the arbitration provision is still valid and there is jurisdiction in this Court, and no time need be wasted, because the Arbitrator only resolved jurisdiction, which it is common ground has had to be reconsidered by this Court (see paragraph 1 above): but there would now need to be appointment of another arbitrator or, if he is not otherwise precluded, the Arbitrator, or another arbitrator, would need to be appointed by the Court pursuant to s.15(3) and s.18 of the Act (in the absence of agreement between the parties).
Issue 1: is there a valid arbitration provision?
The Claimant contends that Articles 13 and 14 of the Distribution Agreement result in there not being a valid arbitration provision. This appears to stem from the reaction of Mr Clanchy of the LCIA. But the fact that Mr Clanchy advised Mr Zubiria that (without more) there would not be a sufficient arbitration provision to render an LCIA arbitration effective is plainly irrelevant, as it is common ground that the provision was not, and not intended to be, an LCIA arbitration provision, but on any basis there was to be an ad hoc arbitration; and in any event, even assuming Mr Clanchy was a lawyer and was authorised to speak on behalf of the LCIA, I am obviously not bound by any off the cuff advice by him.
The arguments which the Claimant musters in support of its case that the arbitration provision is not valid are as follows:
i) The two Articles are inconsistent and cannot be read in such a way as to reconcile them.
ii) There is no such thing as UK law or UK courts, which flummoxed the Peruvian Courts.
iii) There is no express provision for a venue for the arbitration.
iv) The arbitration provision is not expressed to be final and binding.
As to (i), which I shall address without prejudice to the argument in (ii), referring therefore only to 'UK law' and the 'UK Courts', Mr Aswani submits that Article 13 provides for the proper law, and also provides for the exclusive jurisdiction of the Courts of the UK, and thus that there is no room for any arbitration provision in Article 14, which must be inconsistent with it. He further submits that Article 13 cannot be referring to the curial law, because to refer to "all Courts having jurisdiction in appeal from the Courts of the UK" would be inapt, given the restriction on appeals in matters of arbitration. So far as that is concerned, that can be no answer where in fact, at least since the Woolf reforms, all cases (save for exceptional cases such as contempt) require permission to appeal to the Court of Appeal, and the clause would obviously be read as including "if permission be granted".
But he submits that the provision for "exclusive jurisdiction" of the courts is inconsistent with the provision for arbitration, and he relies upon the decision of Webster J in Indian Oil Corporation v Van Oil Inc [1991] 2 Lloyd's Rep 634, in which he concluded that terms in an incorporated document (from the plaintiff's general terms and conditions), providing for arbitration, were inconsistent with a provision in the main contract providing for exclusive jurisdiction of the English Courts. Webster J concluded that the latter provision overrode the former. In any event he concluded (at 635) that: "where an incorporated document contains provisions which conflict with provisions of the written document . . . the terms of the written document in the ordinary way prevail over the terms incorporated by reference". He did not attempt to reconcile them and/or concluded that they were irreconcilable.
Mr Green however relies upon three other decisions of this court, Paul Smith Ltd v H & S International Holdings Inc [1991] 2 Lloyd's Rep 127 (per Steyn J), Shell International Petroleum Co Ltd v Coral Oil Co Ltd [1999] 1 Lloyd's Rep 72 (per Moore-Bick J) and most recently AXA Re v Ace Global Markets Ltd [2006] Lloyd's Rep IR 683 (per Gloster J), in all of which there were similarly apparently inconsistent or contradictory provisions in respect of the English Courts having jurisdiction and the existence of arbitration, and in each case the learned Judges construed them together so as to read both sets of provisions consistently.
He relied upon the following:
i) the maxim, (though he did not refer to it in Latin, but it is still useful to do so, particularly in these days when The Times Latin crossword is encouraging the rebirth of Latin), ut res magis valeat quam pereat. This concept, which encourages the courts to construe a contractual provision or set of provisions in favour of validity rather than invalidity, is particularly relevant in the arbitration field, as is made clear in Fiona Trust & Holding Corp v Privalov [2007] Bus LR 1719;
ii) the approach to construction enshrined by Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, providing for the application of commercial common sense in resolving the question as to what a reasonable person would have understood the parties to have meant; and
iii) the fact that "there is no presumption against surplusage in a commercial contract" (per Gloster J in AXA Re at paragraph 32), such as not to discourage or rule out a 'belt and braces' approach.
He pointed out that whereas in Indian Oil the result of the Judge's conclusion was that one provision survived and overrode the other, the effect in this case, if Mr Aswani's submissions and the conclusions of the Peruvian Courts be correct, is that both Articles 13 and 14 would fall away and be of no effect, whereas the adoption of the purposive construction of the other three decisions would lead to consistency and enforcement of both provisions. Gloster J, in relation to two clauses not dissimilar from the present, and in one of which, as here, the provision in respect of the Courts of England was prescribed to be "exclusive jurisdiction", accepted, as had Steyn J and Moore-Bick J, that the provisions were not inconsistent, by reference to the submission made to her that (paragraph 19) "it is clear that, in appropriate circumstances, and in the context of particular agreements, an agreement that the English Courts will have jurisdiction and an arbitration clause in the same contract are not necessarily irreconcilable".
In reliance upon those submissions and upon the decisions of the three Commercial Judges to whom I have referred, I am entirely satisfied that the two provisions are not irreconcilable and can be read together:
i) Article 13 provides for 'UK law' to be the proper law of the contract and Article 14 provides for the law of the arbitration.
ii) Articles 13 and 14 together provide that:
a) the curial law is 'UK law'; and
b) the courts supervising the arbitration will be the 'UK' Courts, which will apply 'UK law', and such Courts are to have exclusive jurisdiction.
iii) In the event of the arbitration provision being or becoming in some manner ineffective, the 'UK court' is to have exclusive jurisdiction, applying 'UK law'.
As to (ii) Mr Aswani submits that there is no reason to differ from the conclusion of the Peruvian Courts, drawn from Wikipedia, that the provision for 'UK law' is ambiguous and ineffective as not specifying any one of the three potential laws (or courts) involved. Mr Green again relies upon the maxim ut res magis valeat quam pereat, and the construction in favour of sensible commercial interpretation. This is a contract relating to international trade, and the jurisdiction of England and Wales (and its law) is regularly resorted to for resolving such international legal disputes. Mr Green pointed out that there are many cases which have resolved similar issues in favour of the Courts and Law of England and Wales (for example Downing v Al Tameer Establishment [2002] EWCA Civ 721, cited to the Arbitrator); but Mr Aswani emphasised that in many of those cases there have been factors indicating a connection with England or London, and that is not the case here. He also emphasises that it is not permissible to look at the post-contractual conduct of the parties which, as can be seen from the correspondence referred to in paragraphs 5 to 7 above, made regular reference to London (including Mr Zubiria's visit), nor, he submits, at the statement of the Claimant's solicitor in the witness statement in support of service out of the jurisdiction of these proceedings on 26 September 2014 that the claim "concerns a contract governed by English law . . . as set out in Article 13 . . . and . . . contains a term to the effect that the Courts of England and Wales shall have jurisdiction to determine claims in respect of it", referring to the relevant subparagraphs of the Practice Direction dealing with service out: this is now said to have been a mistake, but is perhaps indicative of what an uninstructed commercial person would conclude to be the case. He also submits that there are able arbitrators in Scotland, by reference to a newly published book.
I am however persuaded by the words of Bingham LJ in The Komninos S [1991] 1 Lloyd's Rep 370 at 374, when dealing with a reference to "British Courts", where he said as follows:
"I intend no disrespect at all to the highly distinguished judges who sit in Scotland and Northern Ireland when I say, further, that it is scarcely less far-fetched to suppose that the parties can have meant or intended to embrace those courts. It is widely known that the Commercial Court and the Admiralty Court, both parts of the High Court, deal on a daily basis with a wide range of international maritime business, much if not most of it referred by agreement to English law or jurisdiction. No doubt for historical and geographical reasons, no other court in the United Kingdom enjoys that reputation or dispatches that business. It would, in this class of contract between foreigners, be as unusual to find an express choice of a Scots or Northern Irish forum as it would to find agreement for general average adjustment in Edinburgh or Belfast rather than (as expressly agreed here) London. I feel as little doubt on this point as the cargo-owners' solicitors can have felt when they sought and abtained leave to serve out on the basis of a contract which provided that the High Court should have jurisdiction. While I respect the judge's view that the reference in these bills was equivocal, I cannot share it."
Bingham LJ's reference to the solicitors' statement on service out in that case is similar to my own in this case in paragraph 23 above. I conclude that Mr Green is right, for the reasons he gives.
I turn to (iii), which was not argued at length. I am entirely satisfied that, once Articles 13 and 14 are construed in accordance with my conclusions at (i) and (ii) above, the venue was, and was intended to be, London, and so far as necessary Mr Green helpfully pointed to the approach of Hamblen J in Shagang South-Asia (Hong Kong) Trading Co. Ltd v Daewoo Logistics [2015] 1 Lloyd's Law Rep 504 at paragraph 29 to 38. The procedural law is that of England and Wales, the supervising courts are the Courts of England and Wales and there is no need for any separate express provision for the seat or venue to be in London.
Article 14 requires that disputes "be referred to arbitration" before any legal proceedings are initiated. There is no express provision for such arbitration to be final and binding. Both counsel referred to England and Wales Cricket Board Ltd v Kaneria [2013] EWHC 1074 (Comm) where at paragraph 28 Cooke J incorporated a dictum of Hirst LJ in O'Callaghan v Coral Racing Ltd [1998] Times 26 November (transcript p7) to the effect that:
"To my mind the hallmark of the arbitration process is that it is a procedure to determine the legal rights and obligations of the parties judicially, with binding effect, which is enforceable in law, thus reflecting in private proceedings the role of a civil court of law."
As in Kaneria and in O'Callaghan, and the decision of Thomas J in Walkinshaw v Diniz [2000] 2 All ER (Comm) 237, in which Hirst LJ's dictum was cited, the need to arrive at a conclusion that one of the important elements of the "hallmark of the arbitration process" is present does not need to be by reference to express wording. I am satisfied that the parties intended that the arbitration for which they were providing was final and binding (as would have been spelt out in the Addendum which the Claimant wished signed), and in any event, so far as necessary, Mr Green relied, in my view rightly, on s.58(1) of the Act, relating to all arbitrations governed by English law, of which I am satisfied this is one, namely:
"Unless otherwise agreed by the parties, an award made by the tribunal pursuant to an arbitration agreement is final and binding both on the parties and any persons claiming through or under them."
Issue 2: Was there abandonment of the arbitration prior to the Peruvian proceedings?
This relates to what Mr Aswani referred to as the 'radio silence', and he referred to what he called six failures by the Defendant to respond to the Claimant's formal request for the Defendant to sign the addendum. I am not entirely persuaded that this is a fair description of the correspondence, which I have set out in paragraphs 3 to 7 above: to the first such request of 12 May 2008 there was a temporising response: to that of 24 June 2008 there was a reply which made no reference to the request: to the third request of 21 August 2008 there was no response: to the fourth request of 10 November there was a fax reply of 19 November which I have not seen: to the fifth request of 21 November there was seemingly another reply by a fax of 18 February which I have not seen: and finally the sixth request of 3 March 2009 did not seemingly receive a response.
Mr Aswani submits that the Claimant was driven to issue proceedings in Peru; but the Claimant did not attempt to issue arbitration proceedings otherwise than by reference to the LCIA and the proposed addendum; and there was no refusal of arbitration by the Defendant – indeed the contrary, in its letter of 30 May 2008 "it prima facie appears that an arbitration proceedings, in the UK, is inevitable". The Claimant did not at any time state (i) that an ad hoc arbitration, i.e. one not by reference to the LCIA (which was not provided for in the Agreement), would be unworkable unless the Claimant agreed, as requested, to "modify and refine" Articles 13 and 14 or (ii) that unless the Defendant responded the Claimant would regard arbitration as abandoned or would start Peruvian proceedings (indeed the Claimant's last words on the subject (apart from a subsequent attempt to negotiate in December) was in its letter of 3 March 2009 "the dispute will have to be referred to arbitration as stated in the Distribution Agreement".
Radio silence is of course not enough, nor is the fact that the Defendant did not itself commence arbitration. Mr Aswani referred in this context to 'waiver' (insofar as necessary Mr Green said the Defendant would rely on Article 23 set out in paragraph 2 above) but in any event what is required in order to terminate provisions for arbitration is abandonment, as Mr Aswani accepted. He referred to the Hannah Blumenthal [1983] 1 AC 854, where, at 914, Lord Brandon referred to the concept of the "implied abandonment of a contract as a result of the conduct of the parties" as being "well established in law", and he described how this can arise either by reference to the conduct of each party, leading necessarily to the inference of an implied agreement between them to abandon the contract, or by the conduct of B, as evinced towards A, being such as to lead A reasonably to believe that he has abandoned the contract. Lord Brightman at 924 refers to tacit abandonment by both parties, such that it "ought to be inferred that the contract to arbitrate the particular dispute was rescinded by the mutual agreement of the parties", although it is clear that such tacit abandonment can be inferred from one party so conducting itself as to entitle the other to assume that the contract was agreed to be abandoned sub silentio. This was however considered by the Court of Appeal in Allied Marine Transport v Vale do Rio Doce Navegacao SA [1985] 1 WLR 925, where Robert Goff LJ, giving the judgment of the court, rejected (at 937ff) the suggestion that in the absence of any special circumstances an offer to abandon the reference to arbitration and the acceptance of such an offer could be inferred from the silence and inactivity of the parties.
I am quite satisfied that there was neither an agreed abandonment of arbitration nor a tacit abandonment to be inferred from the conduct, or the lack of conduct, of the Defendant.
Issue 3: Did the Defendant submit to the jurisdiction of the Peruvian Court or should the English Court recognise the Peruvian Court's jurisdiction?
Mr Aswani's detailed skeleton argument did not mention nor deal with either the significant decision of the Court of Appeal in AES, which has very close similarities to this case such that the judgment of the Court of Appeal is particularly significant, or the relevant passage in Dicey Morris & Collins: The Conflict of Laws (15th Ed) Vol 1 at 14-073, which reads as follows:
"The general thrust of the authorities, which were all examined in AES . . . is that for so long as the defendant asserted, and is obviously still asserting, as his primary defence that the court has no jurisdiction over him in relation to the merits of the claim, then even if he also takes steps which are purposeful in relation to the merits of the claim, his doing so should not be taken to mean that he has submitted to the jurisdiction for the purposes of the common law of submission, and has abandoned his challenge for the purpose of s.33. The real question for the English court should not be whether the defendant has taken a step in proceedings which prepared for the trial of the merits, but whether he has chosen to abandon his challenge to the jurisdiction. In answering this, the English court is not bound to follow the law of the foreign court on whether a defendant has succumbed to its jurisdiction; and if the defendant had "no real option but to act as it did", as it was put in AES the court may be reluctant to find that it has submitted to the jurisdiction."
Mr Aswani placed his reliance on the earlier decision of Marc Rich and Co. AG v Società Italiana Impianti [1992] 1 Lloyd's Rep 624 CA, which was a case (described in Dicey & Morris in the same paragraph), in which, after the Italian Court had ruled that the parties had not agreed to arbitrate in London, and that it therefore had jurisdiction over the merits of the dispute, the defendant in the Italian proceedings lodged a defence on the merits, with the result that the English Court concluded that it had thereby submitted to the jurisdiction of the Italian Courts. Marc Rich is expressly distinguished, and hence its result not followed, in paragraph 186 of AES.
As referred to in paragraph 14(i) above, if the English Court is bound by the decision of the foreign Court, the findings of the foreign Court as between the parties could constitute estoppel per rem judicatam. However, this is plainly not so if the English Court does not recognise the foreign Court's judgment, and this is governed by the provisions, as interpreted inter alia in AES, of s.32 and s.33 of the Civil Jurisdiction and Judgments Act 1982 ("the 1982 Act"), which reads in material part as follows:
"32. Overseas judgments given in proceedings brought in breach of agreement for settlement of disputes.E+W+S+N.I.
(1) Subject to the following provisions of this section, a judgment given by a court of an overseas country in any proceedings shall not be recognised or enforced in the United Kingdom if—
(a) the bringing of those proceedings in that court was contrary to an agreement under which the dispute in question was to be settled otherwise than by proceedings in the courts of that country; and
(b) those proceedings were not brought in that court by, or with the agreement of, the person against whom the judgment was given; and
(c) that person did not counterclaim in the proceedings or otherwise submit to the jurisdiction of that court.
(2) Subsection (1) does not apply where the agreement referred to in paragraph (a) of that subsection was illegal, void or unenforceable or was incapable of being performed for reasons not attributable to the fault of the party bringing the proceedings in which the judgment was given.
(3) In determining whether a judgment given by a court of an overseas country should be recognised or enforced in the United Kingdom, a court in the United Kingdom shall not be bound by any decision of the overseas court relating to any of the matters mentioned in subsection (1) or (2).
. . .
33. Certain steps not to amount to submission to jurisdiction of overseas court.E+W+S+N.I.
(1) For the purposes of determining whether a judgment given by a court of an overseas country should be recognised or enforced in England and Wales or Northern Ireland, the person against whom the judgment was given shall not be regarded as having submitted to the jurisdiction of the court by reason only of the fact that he appeared (conditionally or otherwise) in the proceedings for all or any one or more of the following purposes, namely—
(a)to contest the jurisdiction of the court;
(b)to ask the court to dismiss or stay the proceedings on the ground that the dispute in question should be submitted to arbitration or to the determination of the courts of another country;
(c)to protect, or obtain the release of, property seized or threatened with seizure in the proceedings.
. . ."
Though Mr Green referred in his skeleton to cases on waiver within English procedure by reference to the taking of steps in the proceedings (e.g. Eagle Star Insurance v Yuval Insurance [1978] 1 Lloyd's Rep 357), it was common ground at the hearing before me that the question to be decided is by reference to AES and the applicability of s.32 and s.33 of the 1982 Act above, and it also became common ground, by virtue of Mr Aswani's concession in argument, that (by reference to AES at paragraph 163), this Court is not bound by the Peruvian Courts' construction of the English law Arbitration Agreement (subject to any question of submission).
Mr Aswani submits that the Defendant consented to the jurisdiction of the Peruvian Courts and waived the right to apply for arbitration. He relies upon the following:
i) the finding of tacit waiver by the Peruvian Court of first instance at paragraph 15, also referred to in the Peruvian Supreme Court's judgment as referred to in paragraph 12 above, which was based upon the Defendant's failure to comply with the 30 day time limit, rendering a challenge out of time;
ii) the failure by the Defendant to appeal paragraph 15 of the first instance judgment;
iii) what he submits to have been the submission by the Defendant to the jurisdiction of the Peruvian Courts by taking an appeal to the two higher courts, by reference to the case as to application of UK Law and the UK Courts in Articles 13 and 14 as well as by reference to the merits. It does not appear that the Peruvian Courts relied upon this as a submission but, as has been seen, they founded their conclusion upon the basis of the lack of challenge to the jurisdiction by virtue of the Defendant having been out of time vis-à-vis the 30 day deadline;
iv) that this waiver extended to all matters in dispute in the arbitration now commenced, because, although the Defendant did not include a counterclaim in the Peruvian proceedings (no doubt cognisant of s.32(1)(c) of the 1982 Act set out in paragraph 33 above), the matters constituting such counterclaim as well as any defences on the merits were, by reference to the advice of Sr Rojas, referred to in paragraph 10 above, nevertheless "matters claimed in court"; and
v) that the Defendant issued no proceedings in this Court for an anti-suit injunction.
As referred to in 33 above, Mr Aswani raised submissions by reference to estoppel, and to Henderson v Henderson (1844) 6 QB 288 abuse of process, to contend that the Defendant cannot now rely on matters which were or could have been raised in Peru, notwithstanding that the Peruvian Courts applied Peruvian law to the construction of the Distribution Agreement and to the Defendant's defences on the merits, though he accepts that this is subject to the issue of whether there was submission to the Peruvian Courts. His contention is that this Court should be astute not to allow a party to make a tactical decision in relation to the challenge to and/or defence of foreign proceedings and then avoid the consequences of such tactical decisions, if such it was.
It is important however to consider, in the context of whether there was a submission by the Defendant, the following factors:
i) I have already set out in paragraph 9 above the advice which I accept that Sr Soyer gave to the Defendant as to what to do, given that (as he thought, and as in the event eventuated because of his negligent advice) the Defendant was out of time to issue a straightforward challenge to the jurisdiction under Article 478 of the PCPC, namely that they should challenge the applicability of Peruvian law and assert the applicability of English law, and that if such case were in the event successful, that would enable the Defendant to succeed in a renewed jurisdictional challenge. Although Sr Rojas takes issue with some matters in Sr Soyer's advice, as I said in paragraph 10 above, he does not challenge that important proposition, which I am therefore entitled to accept.
ii) It is noteworthy that Mr Aswani's case, as set out in paragraph 47(a) of his skeleton, is that after failing to put in its challenge within the relevant deadline, the Defendant "went on to defend [the Claimant's] claims on the merits and purportedly maintain a jurisdictional defence, but out of time". Whether or not this was intended to be a reference to the advice of Sr Soyer set out in (i) above, that is, I am satisfied what, on advice, the Defendant was doing, i.e. reserving and preserving (in the hope of its subsequent resurrection in the Peruvian Courts) its jurisdictional challenge.
In AES, the Court of Appeal concluded (see per Rix LJ at paragraphs 168, 183 and 186) that even though the defendant in Kazakhstan ran a defence on the merits, it was doing so while reserving its jurisdictional challenge. I conclude that the same applies here. As to the five points raised by Mr Aswani, set out in paragraph 34 above, the fact that the Defendant did not at that stage issue an anti-suit injunction application in this Court, but chose, with the benefit of Peruvian advice, to challenge the Peruvian proceedings and seek to set aside the substantial judgment obtained against it is not, in my judgment, even arguably a waiver of arbitration or an argument in favour of submission. Similarly the question whether in running a defence on the merits its counterclaims were "encompassed" as a matter of Peruvian law is plainly in dispute between the two lawyers, and I cannot resolve it, but it does not matter if I conclude that there was no submission in any event.
I am satisfied that on the facts of this case there was no submission:
i) Insofar as the Peruvian Courts found that at Peruvian law, where there is no basis for an extension of time of the 30 day deadline, the Defendant made a tacit waiver, this Court is not bound by that decision, by reference to s.32(3) of the 1982 Act, given that, as I have concluded, the bringing of proceedings in the Peruvian Court was contrary to the provisions of Articles 13 and 14, and thus within s.32(1)(a).
ii) As a matter of fact I am satisfied that there was no tactical decision here, but that the Defendant was 8 days out of time (a matter which would undoubtedly have been the subject of an extension had the English Court procedures applied, but for which no extension was available under Peruvian law) and this was the result of negligent advice by Sr Soyer: and it then acted diligently by putting in its challenge on 10 June.
iii) There is an issue between Sr Soyer and Sr Rojas as to whether the Defendant was in a position to appeal against paragraph 15 of the first instance decision (see paragraphs 9 and 10, and 11 and 12 above), although, given the fact that the Defendant was out of time and that there was no power to grant an extension, I do not see in fact what purpose an appeal could have had.
iv) However, conclusively, I am satisfied, accepting Sr Soyer's unchallenged advice, that in fact by taking the course it did, on advice, the Claimant was preserving its jurisdiction argument by taking its argument on UK law to the Supreme Court in accordance with that advice, and thereby was not submitting to the jurisdiction.
Mr Green did have a fall-back argument that, even if there was submission to the Peruvian Courts, the English Courts had a discretion not to recognise a judgment obtained in a foreign court in breach of an arbitration or jurisdiction clause, and he relied on the Court of Appeal judgment in AES in the paragraphs to which I have made reference in paragraph 14(i) above. Mr Aswani effectively submitted that the conclusion of Rix LJ, with which Wilson LJ and Stanley Burnton LJ agreed, was per incuriam, because of a critical footnote (383 to paragraph 14-098) in Dicey & Morris and he points out that the existence of such residual discretion was rejected by Carr J in Spliethoff's Bevrachtingskantoor BV v Bank of China Ltd [2015] 2 Lloyd's Rep. 123 at paragraphs 127-128, though accepted and followed by Knowles J in Ecobank Transnational Inc v Tanoh [2015] EWHC 1874 (Comm) at paragraph 27. In the light of my conclusions on the facts of this case that there was no submission to the Peruvian Courts, I do not need to resolve this question.
Was the Arbitrator precluded?
As set out in paragraph 14(iv) above, there are two bases for this argument by Mr Aswani, the s.17 objection and the nationality objection.
The s.17 objection
This arises from the common ground that if an arbitration provision provides for an unspecified number of arbitrators, the procedure followed by the Defendant of appointing a sole arbitrator under s.17 was not applicable. S.17 provides that "unless the parties otherwise agree, where each of two parties to an arbitration agreement is to appoint an arbitrator and one party ("the party in default") refuses to do so, or fails to do so within the time specified, the other party, having duly appointed his arbitrator may give notice in writing to the party in default that he proposes to appoint his arbitrator to act as sole arbitrator", with consequential provisions. If however the arbitration provision does not provide for three arbitrators, then s.15(3) of the Act applies, whereby "if there is no agreement as to the number of arbitrators, the tribunal shall consist of a sole arbitrator": and in that event, in the absence of agreement to the appointment of a sole arbitrator, s.18 of the Act applies, requiring the appointment of such sole arbitrator by the Court. This would mean that if, as I have concluded, there is a valid arbitration provision, governed by English law and under the supervision of the English Courts, there would now, in the absence of agreement between the parties, be the need for an application by the Defendant to the Court for the appointment of an arbitrator to hear the outstanding disputes.
Mr Aswani points to the provision of Article 14 that the arbitration "shall be conducted by one or more arbitrators", such that there was no provision for three arbitrators and s.17 was inapplicable.
The Defendant relies upon the agreement of the parties, by reference to the correspondence summarised above, and in particular the Claimant's letter of 18 March 2008: "arbitration . . . to be decided by an arbitration tribunal composed of three arbitrators, in keeping with the provisions set forth in clause 14": agreed to by the Defendant in its letter of 27 March 2008: itself responded to by the Claimant's letter of 15 April "a reasonable length of time to proceed to the designation of the arbitrators [plural] who will resolve our dispute", followed by the Addendum, which at all times provides for three arbitrators, as drafted by the Claimant.
Mr Aswani submits that the Defendant's case in this regard amounts to the assertion of a variation of the contract, which would not comply with the provisions of Article 22, set out in paragraph 2 above. Mr Green submits that if it were a variation there would have been sufficient compliance with Article 22. But his primary case is that this does not amount to a variation but to a clarification. It is no alteration (variation) of an agreement providing for "one or more arbitrators" for the parties to agree that there would be three, and that is what they did. I agree.
The nationality objection
Mr Aswani points out that the Arbitrator is Indian, and hence of the same nationality as the Claimant company. Mr Aswani points out that a number of rules of various bodies (including the LCIA and the ICC) provide that a chairman or a sole arbitrator should not be of the same nationality as one of the parties. He describes this in his Skeleton as a "well-accepted norm" in international commercial arbitrations, and points to the German Civil Code, which states "In the case of appointment of a sole or third arbitrator, the court shall take into account . . . the advisability of appointing an arbitrator of a nationality other than those of the parties". He submits that if there were an application to this Court under s.18 of the Act for the appointment of a sole arbitrator, the Court would not sanction the appointment of a sole arbitrator with the same nationality as one of the parties; but no authority or example to that effect has been produced to me, and I have not experienced it.
Apart from this background, Mr Aswani points to the fact that in his case management directions of 9 April 2014 in the arbitration the Arbitrator ruled at paragraph 7 that:
"These proceedings are not governed by any arbitral institutional rules. However I will treat the arbitral rules of the [LCIA] . . . as a procedural guideline for conducting these proceedings (modified as appropriate)."
Plainly as Mr Aswani accepts, the arbitrator could not simply say that the LCIA Rules would apply to govern the reference, because the Rules themselves envisage that the LCIA is administering the reference, and there are very few of the LCIA Rules which make no reference to the LCIA court, such that at best he accepts, in paragraph 87 of his Skeleton, that "the Arbitrator could only have sought to be guided by the LCIA Rules rather than unilaterally declare that they applied to an ad hoc arbitration". Indeed if the LCIA Rules had applied, the Arbitrator could not have been in post at all because of the nationality ban, so it can only be that the Rules would apply to conduct of the proceedings; and plainly Articles 14 and 15 of the LCIA Rules are likely to have been in the Arbitrator's mind, namely those relating to the conduct of the proceedings and the submission of written statements and documents, together with Article 18 (party representation), Article 19 (hearings) and Article 20 (witnesses).
Mr Green's "short answer" is that the Claimant's complaint simply does not go to jurisdiction. Neither the Act nor English law more generally impose any nationality restrictions. It seems to me that paragraph 89 of Mr Aswani's Skeleton really reveals the position here, and supports Mr Green's submission: "It would be inimical to the s33 duty of fairness to both parties to suggest it was . . . up to the Arbitrator to select which of the LCIA Rules he would and which he would not be guided by", suggestive of an alleged irregularity under s.68 of the Act. Mr Green's "short answer" is plainly right. There was a s.68 application, but it was not pursued before me. There is no basis for a s.67 challenge.
Conclusion
In the circumstances the Claimant's application fails. |
Mr Justice Andrew Smith:
The Applications
There are before me applications in seven consolidated actions.
i) By an application notice dated 24 October 2014 the claimants in five of the actions seek permission to amend the claim forms;
ii) By an application notice dated 31 March 2015 the claimants in the same five actions seek permission to amend their particulars of claim; and
iii) By an application notice dated 17 July 2015 the second defendants in all seven actions seek to have the claim forms and the particulars of claim struck out, or to have summary judgment entered in their favour.
The Background
The proceedings concern a property at 5 Canada Square, Canary Wharf, London E14 (the "Property"). On 23 July 2007 a wholly owned subsidiary of 5 Canada Square Holdings Limited (the "Company"), which is incorporated in Jersey, acquired the shares in Rhodium Investments 2 Limited ("Rhodium 2"), who owned the freehold, and Drummond Investments Limited ("Drummond"), who had a leasehold interest, and so acquired indirect ownership of the Property. (Rhodium 2 and Drummond were referred to in some of the documentation as the "Targets" and I shall adopt this expression.) According to the claimants, it was acquired from the Royal Bank of Scotland ("RBS") for some £453 million, using (i) debt finance provided by the Bank of Scotland, by way of facilities of £348,350,000 and bridging finance of about £63,350,000, and (ii) an initial equity investment of £40 million.
The Property had apparently been valued on 19 July 2007 at £466.5 million. Thus, the loan to value ratio ("LTV") was just under 75%. By 23 July 2008 it was valued at only £410,850,000. In July 2009 the first defendant, Ulster Bank Ireland Limited (the "Bank") referred in a letter to investors to an investment value of £322 million, observing that the value had "substantially reduced from its peak".
The second defendants, Evans Randall Investment Management Limited ("ER"), are a company in an investment banking group that specialises in real estate investments. They acted as advisers to the Company. They prepared and approved an Investment Memorandum dated 5 September 2007 (the "IM") that invited offers for shares in the Company (and also for units in a trust, the "Exempt Trust", that was to invest in shares in the Company, but the Exempt Trust is not important for present purposes). The claimants contend that, while ER present themselves as no more than advisers to the Company, in reality the scheme was "entirely arranged, orchestrated, managed and dictated by ER and its personnel".
The IM stated that in relation to offers ER were not "responsible for providing potential investors with the protections which it gives to its clients for advising them in relation to the investment and it owes no duties under the [Financial Services and Markets Act, 2000 ("FSMA")] regulatory regime to any person other than to the Company and the Exempt Trust". It was recommended that prospective investors "seek advice as to whether this is a suitable investment for them from an appropriately authorised and qualified independent financial adviser". Various risks of investing were specifically identified.
The IM contemplated that generally investors should subscribe directly for shares in the Company. However, because of the tax regime there, it contemplated that investors domiciled in the Republic of Ireland should not become direct shareholders in the Company, but should invest by subscribing for shares in a Maltese company called Canada Square (Malta) Plc, which in turn owned another Jersey company, Canada Square (Jersey) Limited (the "Jersey company"), which in turn subscribed for shares in the Company.
The IM included an "Application Form for Irish Investors", which was addressed to the Maltese Company and which the applicants were to sign. It stipulated a minimum investment of £200,000, but this was subject to the ER's discretion to accept smaller amounts of not less that the equivalent of €50,000 (a power that, of course, might have been used in particular if the investment had been oversubscribed). The application was to be accompanied by a draft for the investment payable to "Ulster Bank Wealth", which is a division of the Bank. The application form also provided for the applicant to give various covenants, including these:
i) "The Applicant irrevocably offers to invest the sum specified … and to become an investor in the [Maltese] Company".
ii) "The Applicant undertakes to the [Maltese] Company that the [Maltese] Company may rely on the offer made by the Applicant to subscribe for Investments in the [Maltese] Company pursuant to the Memorandum and accordingly this offer may not be cancelled, rescinded or otherwise revoked after the date [of the application]. The Applicant agrees to accept the Investments allocated to him whether the number applied for or a lower number".
iii) The Applicant gave a warranty to the [Maltese] Company and [ER] that he "is making an investment based solely on the information contained in [the IM] and not on any other oral or written statement by the [Maltese] Company, [ER], any placing agent or any partner, officer, director, employee, shareholder or affiliate of any of them".
The IM contemplated that investors should give powers of attorney to act on their behalf in connection with their investments to two named persons, said by the claimants to be directors of the Maltese company and described in the IM as being "of ER", and to any director of the Maltese Company.
The claimants in the seven actions are mostly residents of the Republic of Ireland, one of them, Calry Properties Limited, being a company resident in Northern Ireland. They claim in respect of investments made in the Company between September 2007 and April 2008 through shares and loan notes of the Maltese company. There were 80 claimants in the five actions, if joint investors, such as man and wife, are counted together. Apparently some 18 of the claimants had not in fact invested. However, those claimants and some others, a total of 26, have served notices of discontinuance. It might be that the notices are not effective: CPR 38.2(2)(c) provides that "where there is more than one claimant, a claimant may not discontinue unless – (i) every other claimant consents in writing; or (ii) the court gives permission", I was not told whether other claimants had so consented and the court's permission for discontinuance has not been sought. However that may be, it seems that about 54 claimants wish to pursue claims.
The Bank distributed the opportunity to invest in the Company in Ireland, and all of the claimants but one, a Dr Maccon Keane, were introduced to the investment by the Bank. Dr Keane makes no claim against the Bank: he has served his own separate particulars of claim seeking relief against only ER. (The CPR contemplate that all claimants will serve a single pleading, but no complaint was made about that at the hearing before me.) The claimants say that in some cases, but not all, the Bank provided them with the IM, and in some other cases the Bank is said to have used a four page "summary" to introduce the investment. There is an issue, to which I shall return, about whether the Bank was acting as agent for ER.
The claimants delivered their signed application forms to the Bank between September 2007 and May 2008. The Bank transferred investment funds to the Maltese company to a total of £13,130,000 between about 11 January and 24 February 2008. The Maltese company used the money to subscribe for shares in the Jersey company, which in turn used it to subscribe for shares in the Company. By the end of May 2008, according to the evidence of Mr Adam Brown, a partner in Jones Day, ER's solicitors, the investments of all but six of those claimants who actually did invest had been transferred to the Maltese company, or, in the case of Calry Property Limited, the Company. Share certificates and loan notes were issued to most of the claimants between 22 February 2008 and 5 November 2008, but three claimants were issued with share certificates and loan notes only on 16 October 2009. The scheme closed in October 2008: in a letter to investors dated 9 July 2009 the Bank explained that, in order to close the scheme, (i) preferential equity investment of £25 million paying an accrued 12% annual return for the term of the investment had been accepted from a Luxembourg based fund, which was advised by ER; and (ii) in order to repay the bridging loan the Bank of Scotland had increased its facilities by £4 million. The claimants contend that, by the time that the bridging loan was renewed in August 2008, ER knew that the Property had been given a reduced valuation of £410 million in July 2008, they must have known that there was virtually no prospect of raising subscribed investment of £90 million, and they knew that the LTV covenant in the facilities had been substantially breached.
In the letter of 9 July 2009, the Bank also wrote that, although the investment value of the Property had fallen to £322 million, ER "retains a positive outlook for this property for the longer term …". However, the scheme was unsuccessful: according to the evidence of Mr David Craig, a partner in their solicitors, Johnsons, in May 2010 the claimants were told by the Bank and ER that they had lost all their investments, and this was confirmed by the Bank on 7 July 2010 at an Investors Briefing.
The Proceedings
Five of the actions were issued in the Queen's Bench Division on 23 October 2013, 29 October 2013, 4 November 2013, 23 December 2013 and 25 February 2014. No letters before action were sent. Particulars of Claim in the first action were served on 18 February 2014, and particulars in similar terms were served in the other four actions. These five actions had all been served by 9 July 2014. The Bank and ER served defences dated 31 July 2014.
The defendants criticised the claimants' pleading, and in August 2014 Johnsons wrote that they intended to amend it. They also wrote that they intended to incorporate schedules relating to each individual claimant, estimating that it would take them some 8 to 10 weeks to prepare them. They asked the Bank for early disclosure, but the Bank considered the request unfocused and refused it, observing that, assuming the complaint was about how the Bank presented the investment to the claimants and led them to invest, the important facts were within the claimants' knowledge and they had many of the documents of the categories sought. The claimants did not make an application to the Court to pursue their request.
On 19 December 2014 Flaux J ordered (in face of the claimants' opposition) that the five actions be transferred to the Commercial Court, and he consolidated them. The claimants had not served a proposed amendment, and he directed that, if they were going to seek permission to amend their particulars of claim, they serve a draft of the proposed amended pleading by 4.00pm on 30 January 2015. He also gave the claimants liberty to serve "further voluntary particulars of any existing allegations in respect of the claims of individual Claimants" without prejudice to the defendants' right to challenge them on the basis that permission to amend was required and without prejudice to "any accrued limitation defence". He made directions with a view to having a case management conference on the first available date after 28 April 2015. In the event, however, this was the first substantial procedural hearing since Flaux J's order.
Although this was not known to the defendants and was not mentioned to Flaux J, in October 2014 Johnsons had issued two other claim forms against the defendants in the ordinary Queen's Bench list for other investors. They were served on 16 February 2015. On 30 January 2015, the claimants in the five actions had served draft amended particulars of claim (the "January draft"), and on 23 February 2015 the claimants in the two new actions served particulars of claim that are materially in the terms of the January draft. On 18 March 2015 Eder J made an order by consent that the two actions be transferred to the Commercial Court, consolidated them with the five actions and stayed them pending the case management conference in the five actions or further order of the court.
With regard to the so-called "voluntary particulars of claim" referred to in Flaux J's order, Mr Craig stated in a witness statement of 7 August 2015 that "the process of finalising each claimant's voluntary particulars is almost complete" and that "all efforts" were being made to provide them by 15 September 2015. (Although they are referred to as "voluntary", Mr Craig described them as being "required", rightly recognising, I think, that without them the claimants' pleading is inadequate.) In the event, particulars have been served in respect of 42 investors: those which are signed (for some are not) are dated 22, 23 or 24 September 2015. Therefore, leaving aside those who have served notices of discontinuance, twelve claimants have not served particulars of the allegations about their investments.
A good number of the voluntary particulars that have been served do not refer to the IM at all or state that the claimant does not recall seeing it. Other claimants refer to it but say that they did not rely on it: for example, a Mr Joseph Drury said that he did not "read it in any detail and did not understand the little he read"; a Mr William and Mrs Ann Kelleher said that Mr Kelleher "does not recall the [IM] being explained in any great detail" and Mrs Kelleher was "completely side-lined from any discussions"; a Mr Trevor Hunter said that he only "glanced" at the IM and "did not study it"; a Mr Stephen Daly said that the IM was emailed to him but he did not understand it; a Mr Frank Hemeryck "attempted to read the [IM] but he did not understand it"; and a Mr Eric Poole said that he "looked at the IM briefly but did not understand it and did not read it". I have seen nothing in any of the particulars that indicates that any claimant who had dealings with the Bank or was provided with the IM by the Bank relied on it, still less does any identify a specific representation in it on which (s)he relied.
Dr Maccon Keane, the investor who was not introduced to the investment by the Bank, has served voluntary particulars in which he states that he read the IM and what he understood from it. He does not state that he relied on it when deciding to invest. I accept that in his particulars of claim, which were modelled on the January draft, he stated that "He entered into the Offer to invest in reliance upon the aforesaid representations", but it is unclear quite what representations are there referred to, or what standing the pleading is now intended to have, now that (as I shall explain) the other claimants do not seek to adopt the January draft.
The Unamended Particulars of Claim
I should say something about the claimants' present pleading, the original particulars of claim, in the five actions. After introducing the parties and describing the Property, explaining the structure of the investment scheme and setting out extracts from the IM on which reliance is placed, it is alleged that the Bank and ER each owed the claimants a duty of care to disclose "all material facts pertinent to an informed decision" whether to invest; "between issuing the IM and the asset purchase" to disclose anything that made any representation in the IM inaccurate or misleading; and to "avoid foreseeable loss to the Claimants": the expression "asset purchase" is not defined. It is also pleaded that ER and the Bank were "fiduciaries to each Claimant". And it is alleged that representations about the completeness, truth and accuracy of the content of the IM were "continuing representations" intended to stand until ER and the Company determined or withdrew the offer.
I come to two sections headed "Application Form for Irish Investors" and "Implied Terms". The pleading goes on to allege that in and about October 2007 the Bank invited the claimants to make an application to invest, and they did so and gave powers of attorney to two directors of the Maltese company who were "of ER". It is then pleaded that the attorneys were not required to complete the transaction because the claimants' applications were obtained "by the misrepresentations and/or breach of contract and/or breach of statutory duty and/or breach of fiduciary duty and/or negligence referred to below", and their conduct was "not lawful in completing and closing the transaction when they knew that the claimants would suffer loss". It is also alleged that the claimants' consent should have been obtained by ER, the attorneys and/or the directors of the Company before closing the offer because of changes in the "structure" from that described in the IM in that the preferential equity had been created. It pleads various implied terms of the "Application Offers" made by the claimants and the powers of attorney in them to the effect that the claimants' "right to participate in the investment" should be revoked or withdrawn in various adverse circumstances, and it is alleged that the attorneys, "as agents for" ER and the Bank, were in breach of them in not withdrawing the offers to invest.
There are then two sections of the pleading headed "Conflicts of Interest between the Ulster Bank and Evans Randall" and "Undisclosed Conflict of Interest". They refer to ER acquiring the Property from RBS, and plead that it was a "very significant omission from the IM by [ER] and [the Bank]" that the Property was bought from RBS for £452,000,000, a price lower than the valuation of £466,500,000, that ER knew that by October 2007 the Property has reduced in value, and that it was being sold by ER. It is not alleged that these matters were known to the Bank, but it is pleaded that the Bank is put to proof "as to what steps it took to ensure that those in the RBS Group who were concerned with the solvency of the banks in the RBS Group did not influence [the Bank's] promotion of this investment to the Claimants for its own financial/commercial advantage".
I come to a section headed "Misrepresentations". It is pleaded that representations made by ER on its own behalf and for the Bank were untrue in various respects; that they were intended to be relied on and were relied on by the claimants, who were induced both to invest their own money in the scheme and to borrow from the Bank in order to invest; and that they were made negligently, in breach of the duties of care owed by ER and the Bank, in breach of their statutory duties and in breach of their fiduciary duties. There is then a paragraph in which it is alleged that a Mr Barry Goodman of the Bank said to Mr Brendan McEneaney, one of the claimants, "and others" that the Property would be "a great investment because of its location" and would provide a return of "at least 20% plus interest annually and more". The representations were said to have been false, essentially (i) in that ER represented that the Targets owned the Property without disclosing that it had acquired it, (ii) as to the value of the property, (iii) in that ER represented that the property was an excellent investment and (iv) in that the LTV was said to be "approximately 75%" after bridging facilities were repaid, whereas ER knew various matters that made that improbable: it is said that "the Company was in breach of the loan to value covenants with the Bank throughout the period of the offer and at the date of closing".
A section headed "Breach of Statutory/Regulatory Duty" relies on various provisions of the Conduct of Business Sourcebook ("COBS"). The claimants claim that they are entitled to damages from the Bank and ER under the FSMA for breach of COBS.
There is then an important paragraph, which pleads that "The loss and damage which the claimants have suffered has been caused or contributed to by the breach of the implied terms and/or duty and/or negligence of [ER] and [the Bank] their servants or agents". Particulars of the allegation are given in nine sub-paragraphs. They do not distinguish between allegations against the Bank and allegations against ER. Nor do they distinguish between allegations of breach of implied terms (of the applications, presumably), allegations of breach of statutory or regulatory duty and allegations of negligence. I do not set out all the particulars, but they include these:
i) "Failed adequately to investigate and/or report on the decline in the value of the Property between the IM and completion/closing".
ii) "Failed to inform the Claimants that the loan to value ratio had been breached prior to making the Offer in October 2007 and that it was unlikely that the ratio would be met without (a) additional capital investment, (b) an increase in the ratio, (c) both additional capital and an increase in the ratio or (d) elimination of the ratio".
iii) "Failed to abandon the Offer once it appeared that the Offer would be an unmitigated disaster and that the Claimants would lose all their investment".
iv) "Caused or permitted to close [the] Offer while undercapitalised".
Finally, the Claimants anticipate defences that they thought the defendants might raise in a section headed "Ineffective Exclusion of Liability".
There is then a prayer for this relief against both the Bank and ER:
i) Damages.
ii) "Repayment of the money advanced by the Claimants under the Application Offers".
iii) "Cancellation of all loans the proceeds of which were used to fund the Application Offers".
iv) "A declaration that the Defendants are not entitled to an indemnity under the Power of Attorney or at all".
v) Statutory interest.
I do not find the pleading easy to follow, or to identify what causes of action it is intended to advance. It includes allegations, for example about conflicts of interest, that seem to lead nowhere, it does not state the basis on which the attorneys are said to be agents of the Bank and ER or on which the defendants are liable for what they did (or did not do), it is obscure as to how the defendants are said to have breached the provisions of COBS that are pleaded, and I do not understand the basis of the claims for relief other than damages and interest thereon.
That said, I make these observations about the original particulars of claim:
i) They are, to adopt the expression of Ms Patricia Robertson QC, who represented the Bank, largely a generic pleading: apart from the paragraph about what Mr Goodman is alleged to have said to Mr McEneaney "and others", it pleads nothing of any exchanges between the Bank and individual claimants or about the circumstances of individual claimants and how they came to invest.
ii) They do not allege deceit or any other kind of fraudulent or dishonest conduct.
iii) The claim for breach of statutory duty is pleaded by reference to COBS and the English regulatory regime. It was not disputed before me that, as Ms Robertson submitted, the Irish regime would govern dealings between the Bank and the claimants (apart, I would suppose, from Calry Properties Ltd).
iv) It is pleaded that ER made representations in the IM on behalf of the Bank, as well as themselves, but it is not pleaded that the Bank acted as agent for ER.
v) It sets out that the claimants' applications to invest were stated to be irrevocable, and it does not plead that the claimants had the right to withdraw them or that they would have withdrawn them had they been able to do so.
I must return later in this judgment (at paragraphs 76ff below, where I consider the so-called "back end" claims) to Ms Robertson's submission that the particulars of claim do not plead a case that the Bank was in breach of duties to the claimants after they had made their investments by transferring funds to Ulster Bank Wealth, or at least that it was in breach of duties to advise them or provide information after they had invested.
The January Draft
By the January draft the claimants sought to replace the original pleading with an entirely new pleading. In it the claimants seek relief against the Bank by way of:
i) A declaration that the claimants who borrowed money are not indebted on any loan the proceeds of which were used to fund an application to invest.
ii) "Cancellation of all loans the proceeds of which were used to fund an Application".
iii) A declaration that the Claimants are entitled to an indemnity in respect of all loans.
They also seek against both defendants:
iv) Damages.
v) The repayment of money advanced by the claimants on applying to invest.
vi) "Repayment of money had and received".
vii) "A declaration that the Defendants are not entitled to an indemnity under the Power of Attorney or at all".
viii) Statutory interest.
The January pleading runs to 59 pages and 166 paragraphs (even though it does not set out the old pleading and show it as deleted). Despite its length, the claimants had not sought permission to serve such a long pleading either when they appeared before Flaux J or at any time: see Admiralty and Commercial Courts Guide (9th Ed.) para C1.1(2).
Nor did the claimants initially serve a summary of their pleading: see CPR16PD para 1.4. They did so only when ER pointed out in a letter dated 20 February 2015 that a summary should set out "by reference to the paragraphs of the [January draft], (1) the exact causes of action advanced against Evans Randall; (2) the relief claimed in respect of each cause of action; and (3) the allegations relied on in respect of each cause of action". However, ER justifiably complain that what the claimants served as a summary does not achieve this purpose, and, perhaps more importantly, it impermissibly introduces allegations (apparently allegations of impropriety) that are not in the January draft: for example, an allegation that a requirement of the application forms that they should be executed as deeds was "part of a strategy employed by [ER] … so that it could claim such offers notwithstanding the very substantially changed commercial property market".
Among the complaints made by the defendants of the January draft were that it was prolix, unclear and lacking in particularity. I agree with those criticisms: the proposed pleading did not serve its purpose of defining the issues. The requirements of a proper pleading were explained by Leggatt J in Tchenguiz v Grant Thornton UK LLP, [2015] EWHC 405 (Comm), and I need not repeat what he said or seek to put it in my own words. The defendants also said that the January draft sought to introduce new claims for which the applicable limitation period has expired.
The Bank complained that the claimants sought in the January draft to introduce new complaints against it, which it grouped under five heads:
i) A case in fraud.
ii) A claim for breach of section 85 of the FSMA.
iii) An allegation that the Bank was the agent of the Company or the Maltese company.
iv) A challenge to the validity of the applications to invest made by the claimants, apparently on the basis that they purported to grant powers of attorney but they were not properly attested at the time of signing, an allegation that, I think, was intended to support a claim in restitution.
v) What were labelled "back end" claims: that is to say, claims that the Bank was in breach of duties that continued after the claimants decided to invest and made their investments, including a duty to monitor the investments on a continuing basis and to advise the claimants to withdraw from their investments.
The Bank resisted the application for permission to amend so as to introduce these allegations. Ms Robertson made it clear, however, that the Bank did not resist amendments to the claimants' pleading to set out a case of mis-selling and misrepresentation "at the point of sale", because she accepted that the original of particulars of claim indicated, albeit imperfectly and inadequately, an intention to make such allegations. Nor did the Bank object to the claimants presenting their case by reference to Irish law and the Irish regulatory regime and with allegations of breach of it made in the January draft in so far as they corresponded to allegations in the original particulars of claim of breach of the English regime.
ER identified in the January draft claims that it grouped under five heads:
i) Claims in fraudulent misrepresentation.
ii) Claims under section 85 of FSMA.
iii) The claim in restitution for money had and received, and concerning the powers of attorney.
iv) Claims of breach of statutory duty and COBS.
v) Claims of negligence, including a claim under section 2(1) of the Misrepresentation Act, 1967.
Like the Bank, ER resisted the new allegations.
The Revised Draft
Mr Geraint Jones QC, who represented the claimants, submitted that some of these concerns resulted from a mis-reading of the January draft. However that may be, in face of these and other criticisms, at the end of his oral opening on the first day of the hearing he asked that the hearing be adjourned to allow him to produce a revised draft of the proposed pleading. To save time, I continued the hearing that day, allowing Mr McQuater to complete his submissions about the January draft, but I agreed to sit at 2.00pm on the second day to give Mr Jones time to consider the position.
On the second day of the hearing, the claimants served a revised draft pleading of their proposed amendments (the "revised draft") in place of the January draft, and pursued an application for permission so to amend their pleading. Like the January draft, the revised draft seeks to abandon the original pleading and to replace it. The revised draft is much shorter than the January draft (being 70 paragraphs over 23 pages), and, as I shall explain, it abandons a good deal of the January draft.
The revised draft does not include in its prayer a claim for repayment of money advanced or of money had and received. It omits the claim for a declaration that the defendants are not entitled to an indemnity under the powers of attorney. Further, as will appear from my summary below, the revised draft includes no reference to the powers of attorney, makes no claim under section 85 of the FSMA, and does not allege that the Bank was the agent of the Company or the Maltese company. Therefore, of the Bank's complaints about the January draft, I must still consider those about claims in fraud and in relation to the "back end" claims, and I must consider the claims against ER in fraud, in breach of statutory duty and the provisions of COBS, and in negligence.
It is convenient to mention here that the changes dispose of one point made by Mr McQuater about the claim forms: that they do not include a claim for any remedy in restitution and the claimants had not applied for permission to amend them to do so. A similar point is made about the claims in fraud, and that complaint can still properly be taken in relation to the revised draft. In his skeleton argument Mr Jones acknowledged this procedural deficiency, but nothing has been done to remedy it. This is unsatisfactory, but if it were the only objection to the amendments to introduce the fraud claims, I would not refuse them on this ground alone.
I must try to summarise the revised draft sufficiently to deal with the applications.
i) Using the initials UB to refer to the Bank, it pleads that "each claimant … is a person to whom the Investment Memorandum was directed and upon which reliance was placed [upon offering to invest, save in respect of those offerors who in their Voluntary Particulars disclose that the IM was not brought to his/her attention and/or relied upon UB's oral presentation/representation rather than read the IM] when deciding upon offering to invest". I find it impossible to understand this pleading (or what the parenthesis is intended to connote, which was not explained). As I have said, many of the 42 claimants who have served voluntary particulars indicate that they did not rely on the IM, either because they did not receive it or because they did not read it and understand it, and none of them pleads that (s)he did rely on it.
ii) It pleads that the Bank was "the agent of [ER] for the purpose of selling the investment and obtaining offers to subscribe in the investment …". (Elsewhere it pleads that the Bank acted as "a promoter, distributer, introducer and agent for [ER] and/or on its behalf".)
iii) It pleads that the Bank owed each Claimant a duty of care as his or her financial adviser.
iv) It pleads that ER were under a duty of care to "its clients, the Claimants", described as a "continuing" duty not to misrepresent any material matter and to inform each claimant of any material change.
v) Like the unamended pleading, the revised draft alleges that representations about the completeness, truth and accuracy of the content of the IM were "continuing representations" intended to stand until ER and the Company determined or withdrew the offer.
vi) It alleges that the Bank informed, or gave "the clear impression" to, each claimant about various matters, including that (s)he would acquire a "direct interest" in the Property and be "owners" of it and that the investment was very low risk. It is also alleges that warnings in the IM and elsewhere were "expressly and unequivocally contradicted and over-ridden" by what was said by representatives of the Bank who spoke with the claimants.
vii) It is pleaded that each claimant was introduced to the investment by a Wealth Manager of Ulster Bank Wealth, and that, as was intended, (s)he relied on oral representations by the Wealth Manager and was induced by the Wealth Manager to invest and to borrow money from the Bank to do so, which no claimant would have done but for misrepresentations and breaches of duty. It is also pleaded that the claimants could have withdrawn their investments at any time before the Offer was closed "in the event that the investment became different in any significant particular to that portrayed and 'sold' to the Claimants; incapable of and/or unlikely to achieve the projected performance" because of breach of the LTV covenants with the Bank of Scotland or some other such "supervening event".
viii) The Wealth Managers were negligent and in breach of duties of care and negligently made false representations. I shall set out some of the particulars of negligence when I consider the amendments about "back end" claims.
There is then a section of the revised draft headed "Reckless Fraud by [the Bank]", in which it is said that the Wealth Managers "knew their representations … were false and/or did not and could not reasonably have believed them to be true and/or were reckless as to whether they were true or not and/or made the same negligently" in various respects, some of which I set out below when I consider the application for permission to plead a claim in fraud.
Next, the claimants plead under the heading "Evans Randall" that ER had duties under the 1 November 2007 version of COBS or "its predecessor version" to act "honestly, fairly and professionally in accordance with the best interests of its clients (the Claimants)" and in other respects, and that ER were in breach of their statutory and regulatory duties and made negligent misrepresentations and/or acted negligently "as set out hereafter". However, Mr Jones accepted that in fact the pleading did not go on to particularise these allegations: it was intended to refer back to comparable allegations made against the Bank.
The claimants then plead aspects of problems in the British economy in 2007 and 2008 and what they label the "Radical Change to the Structure of the Investment described in the IM". It is said that the introduction of the preferential equity required the consent of each claimant, which had not been obtained, and the pleading continues "It is alleged that Evans Randall (by its in-house Attorneys) was fraudulent in keeping and/or using the Offerors' monies given the radical and undisclosed change to the structure of the offered product", and that the offers were thereby rendered revocable (even if they were not otherwise). However, in his oral submissions Mr Jones said that the parenthesis, "by its in-house Attorneys" should be omitted from the revised pleading. The revised draft also asserts that the claimants made their offers to invest "in reliance on the aforesaid representations", and that (s)he would not otherwise have done so and would not have proceeded with the investment "but for the fact that [the Bank] and [ER] failed in their duties and/or acted fraudulently and/or negligently" as had been pleaded.
This section does not include the allegation in the original pleading that the attorneys were the agents of the Bank and ER, which has apparently been abandoned.
The next section of the pleading is headed "Subsequent Fraud and Breach of Trust/Dishonest Assistance (the "back end" claims)". Here the claimants' allegation is that, when they paid to the Bank funds for investment, they were held subject to a trust "to pay the same to the order of [ER] to Malta and/or the UK Company upon the Claimants' respective offers to subscribe being accepted", and to repay them to the claimants if "no viable investment was available when the subscription offer period closed"; and that the Bank acted in breach of trust in paying the monies to the Maltese Company or the Company, at ER's request, before the investment offer was closed. This, it is alleged, constituted a fraudulent breach of trust, and it was dishonestly and knowingly assisted or procured by ER. Moreover, it is pleaded that the claimants learned of the transfer of funds that gives rise to the claim only in July 2015, when the payments were referred to in evidence on these applications given by Mr Kent Gardner, the Chief Executive of ER, in a witness statement dated 17 July 2015.
There is then a claim pleaded against the Bank under the Irish regulatory regime. This section does not include an allegation of breach of the regime.
Thus, the revised draft abandons some parts of the January draft to which the defendants objected, but it seeks to introduce claims of breach of trust and knowing assistance or procuring the breach, which were not included in the January draft. These claims are not covered by the claim forms, but no application has been made to amend the forms. In a witness statement dated 9 October 2015, less than two working days before the hearing was listed and after skeleton arguments had been prepared, Mr Craig stated that in light of Mr Gardner's witness statement it had become evident that the claimants should seek to make a further amendment in addition to those in the January draft so as to allege breach of trust against the Bank and dishonest assistance in the breach of trust against ER. He set out a proposed amendment, which is in rather different terms from those of the revised draft. In his skeleton argument Mr Jones said that it was "inevitable" that the claimants would seek permission to introduce the claim of breach of trust. However, in his oral submissions on the first day of the hearing he said that the claimants had yet to decide whether to plead breach of trust, and that they would do so "if necessary". The defendants resist the amendments.
Limitation
The defendants argue the proposed amendments (both in the January draft and in the revised draft) which would introduce new claims are prohibited by the Limitation Act, 1980. The claims against the Bank, and any limitation defences to them, are probably governed by Irish law but all the parties before me were content to proceed by reference to the English law of limitation and to assume that it is not materially different from Irish law. After all, until the revised draft was served during the hearing, the claimants pleaded their claims against the Bank (and against ER) on the basis of English law.
Section 35 of the 1980 Act provides that, "For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced — (a) in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and (b) in the case of any other new claim, on the same date as the original action". The expression "a new claim" includes any claim involving the addition or substitution of a new cause of action. The section goes on to provide that rules of court may allow a new claim to be introduced into an action in some circumstances, but otherwise (subject to irrelevant exceptions) the court shall not allow a new claim after the expiry of any Limitation Act time limit that "would affect a new action to enforce that claim". Accordingly the court may allow amendments introducing a new cause of action only if the conditions specified in CPR 17.4 are met.
In Mercer Ltd v Ballinger, [2014] EWCA Civ 996, Tomlinson LJ explained the court's approach where there is an issue as to whether a limitation period has expired:
"… provided the defendant can show a prima facie defence of limitation, the burden must be on the claimant to show that the defence is not in fact reasonably arguable. … If the availability of the defence of limitation depends on factual issues which are seriously in dispute, it cannot be determined summarily but must go to trial. Hence it can only be appropriate at the interlocutory stage to deprive a defendant of a prima facie defence of limitation if the claimant can demonstrate that the defence is not reasonably arguable" (at para 27).
A claimant can, of course, issue separate proceedings for the new claim in order to protect himself against injustice in the event that the defendant raises on an application to amend a reasonably arguable but ultimately invalid limitation defence. The validity of the limitation defence will then be determined in the separate proceedings. Indeed, on 30 June 2015 63 of these claimants issued a further claim form against the Bank and ER, in which they claim damages for fraud and fraudulent misrepresentation. It is not, of course, for me to determine whether the claims in those proceedings are statute-barred. (I observe in passing that the amount claimed in this claim form is stated to be approximately £10.5 million. This is much closer to the £12.675 million that I was told was the total investment by the claimants and much less than the amount claimed in the other seven actions when they were issued, which I was told was £252.75 million. Even if these claim forms are amended as the claimants seek, the claims would still be said to exceed £100 million. On the face of it, this is a puzzlingly large amount. Mr Craig acknowledged that the original claim forms were inaccurate and sought to explain this on the basis that there had not been time to investigate the amount of the claimants' losses. I regard the explanation as inadequate.)
CPR 17.4 provides that such amendments to introduce claims after a relevant limitation period under the 1980 Act has expired may be made only in specified circumstances. It states, so far as is material, that the court "may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings". Accordingly, where it is reasonably arguable that the relevant limitation period has expired before the amendment is made (not before the application for permission to amend was made), the applicant must show that it is covered by CPR17.4.
The Application to Plead Fraud
I therefore come to the application for permission to introduce claims of fraud against the Bank and ER, and the defendants' objection that the proposed amendments are prohibited by the 1980 Act. Mr Jones acknowledged that the unamended pleading does not plead fraud against either the Bank or ER. It is an ingredient of a claim in fraud that the person making the false representation intended his statement to be understood by the representee in the sense in which it was false (see Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd, [2011] EWHC 484 (Comm) at para 221) and, as it used to be put, there must be "moral obliquity": (per Lindley LJ in Angus v Clifford, [1891] 2 Ch 449, 468, and see Maple Leaf Macro Volatility Master Fund v Rouvroy, [2009] EWHC 257 (Comm) at para 327). That was not originally alleged.
Nor can there be any dispute that the primary limitation period has expired in that more than six years has passed since the claimants suffered the loss that they allege. There might be room for debate about quite when they suffered loss: Mr Jones was inclined to argue that loss was not suffered until the offer closed in October 2008 because, he submitted, until then investors (or at least the claimants) could revoke their offers to invest and recover the money paid to Ulster Bank Wealth. I consider it distinctly arguable that loss was suffered earlier, when the investments were made, even if they were recoverable, but I do not need to decide that. On any view, the claimants' losses were suffered more than six years ago.
In his written submissions Mr Jones contended that the amendments to plead fraud are based on substantially the same facts as a claim for which the claimants have already sought relief in the original particulars of claim, and so are covered by CPR17.4. This argument is apparently put forward on the basis that representations that are now alleged to be fraudulent were pleaded as negligent misrepresentations. I accept that this is true of some, but not all, of the representations pleaded in the revised draft. However, even in respect of those representations that reflect the original pleading, I do not accept that an allegation of fraudulent misrepresentation such as the claimants now seek to advance is substantially the same as an allegation of negligent misrepresentation, or that a claim in fraud relies on substantially the same facts as a claim in negligent misrepresentation. The ingredients of knowledge that the representation is false and of moral obliquity are important and, in my judgment, they put the fraud claims outside the ambit of CPR17.4.
As I understood him, Mr Jones accepted this during the hearing, and he put the claimants' application for permission to introduce fraud claims only on the basis that the claims are not statute-barred because of section 32 of the Limitation Act, 1980, which provides (so far as is material) that, where an action is based upon the fraud of the defendant or any fact relevant to the right of action has been deliberately concealed from the claimant by the defendant, the period of limitation does not begin to run until the claimant discovered the fraud or the concealment or could with reasonable diligence have discovered it. The claimants argued that until the Investors Briefing on 7 July 2010 it was concealed from them that the Company had issued the preferential equity to the Luxembourg fund and ER had negotiated a change to the LTV covenants with the Bank of Scotland, and that only in July 2015 did they learn from the evidence of Mr Brown served on these applications that the investment funds were paid (or, as Mr Jones put it, the investors' funds were "drip-fed") to the Maltese company or the Company before the Offer was closed, and used to pay interest rather than to repay capital loans, so that it was "inevitable" that the LTV would exceed 75%.
In a case to which section 32 applies, time starts running against a claimant once he knows or could with reasonable diligence have discovered those facts which, if pleaded, would constitute a valid claim: see Arcadia Brands Group Ltd v Visa Inc, [2015] EWCA Civ 833 at para 30. Once the ingredients of a cause of action are known or could with reasonable diligence have been discovered, it is irrelevant that the claimant has later learned other matters that strengthen his case: see Halsbury, Laws of England (5th Ed, 2008) Vol 68 para 982. It is therefore nothing to the point that the Investors Briefing or Mr Brown's evidence confirmed matters that the claimants would have to prove to make out a case in fraud: the question is whether they knew them, or could with reasonable diligence have known them, more than six years ago.
I consider that the defendants have a sufficient argument that, even if they did not actually know the relevant matters, at least the claimants could with reasonable diligence have discovered them. The Bank's letter dated 9 July 2009 expressly referred to the preferential equity, and it also referred to the increase in the loan facilities and the reduced value of the Property: if any investor was relying on the LTV, it would have been reasonably apparent from the letter that it was no longer at the 75% ratio referred to in the IM. If this was not understood by an investor, (s)he could have taken up the Bank's invitation to contact the Bank on one of the two telephone numbers provided in the letter for that purpose.
None of the claimants who has served voluntary particulars has indicated that (s)he did not know that the investment fund had been paid over by the Bank before the Offer closed. The letter of 9 July 2009 said that the offer had closed in October 2008: many claimants had received their share certificates and their loan notes from the Maltese company some months before then, and it would have been obvious to them that they were issued on receipt of their investment funds. Certainly they could have come to appreciate this if they acted with reasonable diligence.
In any case, in my judgment the defendants have a reasonable argument that the claimants would have appreciated, if they had exercised reasonable diligence, that their investment funds would have been transferred by the Bank before the offer closed. The application forms signed by investors required that they enclose with them drafts payable to Ulster Bank Wealth for the full amount of the investments, and stated, "These funds will be lodged to a pooled 'Client Money Account', in an eligible credit institution, i.e., your funds will be commingled with other client funds. … The Ulster Bank Wealth Client Money Account is a non-interest bearing account and so no interest will accrue on the funds held in it. Ulster Bank Wealth will forward your funds to the Company". It would have been surprising if that the money was to be held in the Client Money Account for an indefinite period pending closure of the offer (for the IM did not state when the Offer would close or was expected to close), notwithstanding the investors were not benefitting directly from interest and the funds were not put to use to benefit the scheme and so the investment.
I add that in his skeleton argument Mr Jones referred to the statement in the letter of 9 July 2009 that ER retained "a positive outlook for this property in the longer term …", and submitted that this statement was designed to "deflect attention away from a failed/failing investment and to give a contrary impression to investors to lead them to believe in the longer term the investment would be successful". The claimants do not plead this allegation, even in the revised draft. All I need say about it is that it does not sufficiently clearly answer the defendants' arguments about limitation to assist the claimants on their applications to amend.
I therefore conclude that the application for permission to amend to plead fraud should be refused because section 35 of the Limitation Act, 1980.
However, I would also have accepted the defendants' argument that permission for the amendments should be refused because they are not adequately pleaded. In view of my conclusion about limitation, I deal with this briefly. Allegations of fraud must always be properly particularised: in Three Rivers District Council v Governor and Company of the Bank of England (no 3), [2001] UKHL 16, Lord Hope observed (at para 51) that "The more serious the allegation of misconduct, the greater is the need for particulars to be given which explain the basis for the allegation". More specifically, an allegation of fraud is not supported by an allegation that the defendant made a representation that he knew or ought to have known to be untrue. As May LJ put it in Lipkin Gorman v Karpnale Ltd, [1989] 1 WLR 1340, 1351H/1352A:
"… where fraud or dishonesty is material this must be clearly pleaded, if not explicitly, then in such terms that the reader of the pleading can be left in no reasonable doubt that this is being alleged. … where an element in the alleged fraud or dishonesty relied on is the other party's knowledge of a given fact or state of affairs, this must be explicitly pleaded. It is ambiguous and thus demurrable, if fraud is relied on, to use the common "rolled up plea" that a defendant knew or ought to have known a given fact. If it is desired to allege and plead fraud and, in the alternative, negligence based on similar contentions, then the former must be pleaded first and clearly and the relevant part of the plea confined to fraud. The allegation in negligence and then be pleaded separately and as a true alternative contention".
The revised draft (like the January draft) does not clearly allege knowledge on the part of the Bank, still less on the part of the managers who dealt with the claimants for the Bank, and its proposed pleading in relation to the allegation of fraud is replete with impermissible "rolled up" pleas and allegations about what the Bank would have known if it had discharged its duties to the claimants. The following examples suffice:
i) "If [the Bank] had discharged its (aforesaid) duties to each Claimant it would have known that because of the deteriorated economic conditions the reviewed rent was likely to be depressed. …".
ii) "If [the Bank] had discharged its (aforesaid) duties to each Claimant it would have known that [ER] was aware that before repayment of the Bridging Facility the Company was already in breach of the LTV covenants to the Bank and/or the intended LTV ratio and that the steep decline in values would cause the breach to persist unless either the investors raised additional investment capital or negotiated an increase in the LTV ratio or both".
iii) "The investment was doomed to failure and was not a viable "investment" as [the Bank] knew or ought reasonably to have known".
iv) "Any reasonably competent investment adviser knew or ought to have known that the proposed investment could and would not be a viable investment absent almost all of the hoped-for £90 million equity be raised. Any reasonably competent investment adviser knew or ought to have known that absent that happening, the proposed investment would not be viable and was doomed to fail".
v) "Any reasonably competent investment adviser knew or ought to have known that if, as happened, any investor's funds were paid away to [the Maltese company/the Company] prior to a viable investment being established (with £90 million of equity being raised) such monies would be lost".
In my judgment, it is impossible to discern from the revised draft quite what fraud is alleged against the Bank and those who worked for it. It is, if anything, even less clear what case in fraud is alleged in the revised draft against ER. It does not distinctly plead any representation by ER that could support a claim in deceit. The averment that the representations about the IM were "continuing" does not assist the claimants because none of them other than Dr Keane asserts reliance on the IM at all, and even Dr Keane's voluntary particulars do not support a case of this kind. Certainly the allegation about continuing representations is too vague properly to plead a claim in deceit. I have referred to the pleading about ER being "fraudulent" in keeping or using the invested funds in view of the changed structure of the project, but this is not properly linked to a specific representation. Of course, in some circumstances a representation can be made by silence when there is a duty to speak, but that does not excuse the claimant from pleading the tacit representation distinctly.
In these circumstances, I do not consider separately Mr McQuater's further submission that any claim in fraudulent misrepresentation stands no real prospect of success. I cannot do so without understanding what case the claimants intend to plead in deceit against ER.
The Application to Plead Breach of Trust and Knowing Assistance or Procurement
I next consider the new claims against the Bank for dishonest breach of trust and against ER for knowingly assisting in or procuring the breach of trust. It is not said, I think, that these claims were made in the original particulars of claim or that they arise from the same or substantially the same facts as a claim in respect of which the claimants are already seeking a remedy. The claims depend on a new allegation that the investors' funds were to be held on trust and new allegations of dishonesty. What, therefore, is the position with regard to limitation?
Section 21(3) of the Limitation Act, 1980 provides that "Subject to [sections 21(1) and 21(2)], an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued. …". Subsections 21(1) and 21(2) of the Act provide that:
"(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—
(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or
(b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.
"(2) Where a trustee who is also a beneficiary under the trust receives or retains trust property or its proceeds as his share on a distribution of trust property under the trust, his liability in any action brought by virtue of subsection (1)(b) above to recover that property or its proceeds after the expiration of the period of limitation prescribed by this Act for bringing an action to recover trust property shall be limited to the excess over his proper share.
This subsection only applies if the trustee acted honestly and reasonably in making the distribution".
There is no dispute that the causes of action that the claimants allege accrued more than six years ago. The claimants do not rely on section 21(2). The claimants can only amend if the claims are covered by section 21(1) or section 32, or rather if the defendants do not have a reasonably arguable case to the contrary.
In my judgment both the Bank and ER have a reasonably arguable case that section 32 does not apply for the reasons that I have already explained in relation to the proposed amendments to plead fraud. The claimants' argument is that they learned only in July 2015 that their investment had been paid to the Maltese company before the offer closed. I have explained why in my judgment the defendants have a reasonable argument that the claimants would have appreciated, if they had exercised reasonable diligence, that their investment funds would have been paid to the Company before the offer closed.
Section 21(1) does not assist the claimants with regard to the claim against ER. It does not apply to claims of knowing assisting or procuring breach of trust: see Williams v Central Bank of Nigeria, [2014] UKSC 10.
As for the claim against the Bank, as I see it the proper analysis is this: although the revised draft asserts that the breach of trust was fraudulent, fraud is not an ingredient of the cause of action. The cause of action is in breach of trust. As is said in Lewin on Trusts (19th Ed, 2014) para 44-011, "A claimant may refrain from a charge of fraud in the first instance but may wait to see whether the defendant raises a defence of limitation. The claimant must plead fraud in reply and prove it, if he wishes to defeat the defence in that way; the defendant does not have to disprove fraud to establish that the claim is statute-barred". The question, therefore is whether the Bank has a reasonable argument that, assuming that it is liable because it held the investors' funds on trust and was in breach of its duties as trustee in paying them away as it did, it was not dishonest when it did so. There is no specific evidence about this because the claimants made the allegation of breach of trust so late, but to my mind it is fanciful to suppose that the Bank does not have a reasonable argument. As I shall explain, it seems to me (to say the least) clearly arguable both that the funds were not held on trust and even if they were, they could properly be transferred to the Maltese company: the Bank would not have been dishonest if it considered itself entitled to do so.
I therefore conclude that because of the limitation period I should not give permission to introduce the claims of breach of trust and knowingly assisting or procuring breach of trust.
In any case, I am not persuaded that the claims are reasonably arguable. To my mind, the terms of the application forms do not support the case that the investors' funds were to be held on trust: on the contrary, they specifically state that they are to be commingled in the Client Money Account. Nor, as I have explained, did the form or the IM say that the funds were not to be paid to the Maltese company until the offer was closed and there is no reason to imply a term to this effect. Certainly the revised draft does not distinctly plead a basis for contending this.
The Application to Plead "Back End" Claims against the Bank
I next consider the other controversial aspect of the proposed amendments to the case against the Bank: the so-called "back end" claims. The revised draft alleges that the Bank was in breach of a common law duty after the claimants had made their investments by transferring funds to Ulster Wealth Bank. As I have said, the revised draft does not plead that the Bank was in breach of the Irish regulatory regime. It might have been intended that it should do so, and without an allegation of breach it is unclear why the pleading mentions the regime at all. But there is no proposed amendment to consider on the application before me.
Ms Robertson's submission was that the amendments to plead back end claims should be refused in their entirety. Her starting point was that the limitation periods for them have expired. I accept that: just as with the proposed fraud claims, the loss for which the claimants seek relief occurred more than six years ago.
Ms Robertson argued that therefore all these amendments are prohibited by the Limitation Act, 1980 because:
i) No back end claims were pleaded in the original cause of action.
ii) Those in the revised draft are based on a different cause of action from any already pleaded.
iii) They do not arise out of the same or substantially the same facts as an existing claim.
Mr Jones responded that the claimants do not seek to plead a new cause of action: that they are simply making additional allegations of breach by way of particularising a cause of action (negligence) or causes of action (negligence and breach of regulations) that is or are already pleaded.
Tomlinson LJ considered whether a new cause of action is pleaded when there are new allegations of breach in Co-operative Group Ltd v Birse Developments Ltd, [2013] EWCA Civ 474 at paras 19ff. At para 22 he referred, inter alia, to May LJ's guidance in Steamship Mutual Underwriting assn Ltd v Trollope and Colls (City) Ltd, (1986) 33 BLR 77 that "one must look not only to the duty, but also to the nature and extent of the breach relied upon, as well as to the nature and extent of the damage complained of in deciding whether, as a matter of degree, a new cause of action is sought to be relied upon". Tomlinson LJ continued:
"The question to be resolved is therefore one of fact and degree. For my part I am not convinced that one needs to look further than for a change in the essential features of the factual basis relied upon, bearing in mind that the factual basis will include the facts out of which the duty is to be spelled as well as those which allegedly give rise to breach and damage. I respectfully agree with Lloyd LJ, as he then was, later Lord Lloyd of Berwick, who observed in the Trollope and Colls case, at page 101, that "in most cases it will be easy to say on which side of the line the case falls". But as Lloyd LJ observed, there will sometimes be a grey area, where different views are possible. I would not therefore dissent from the following distillation of the principles by Jackson J, as he then was, in Secretary of State for Transport v Pell Frischmann [2006] EWHC 2909 (TCC) at paragraph 38:-
'(i) If the claimant asserts a duty which was not previously pleaded and alleges a breach of such duty, this usually amounts to a new claim.
(ii) If the claimant alleges a different breach of some previously pleaded duty, it will be a question of fact and degree whether that constitutes a new claim.
(iii) In the case of a construction project, if the claimant alleges breach of a previously pleaded duty causing damage to a different element of the building, that will generally amount to a new claim.'
I would simply add my own gloss to the effect that if the new breach does not arise out of the same or substantially the same facts as those already in issue on a claim previously made in the original action, it is likely to be a new cause of action".
In my judgment, the case that the Bank was in breach of duties after the claimants' funds had been transferred involves a different cause of action from the case that the Bank made a negligent presentation (by way of making negligent misrepresentations or giving negligent advice) that led the claimants to invest. Although both cases are presented under the umbrella of a duty of care, to my mind complaints about the Bank's conduct after the claimants had paid their investment funds to Ulster Bank Wealth take the case into a distinct area of factual investigation, and, as Diplock LJ observed in Letang v Cooper, [1965] 1 QB 232 at 242/243, a cause of action is "a factual situation the existence of which entitles one person to obtain from the court a remedy against another person".
This leads to the question whether the original particulars of claim plead back end claims. As I have said, I find the pleading difficult to understand. The difficulties are aggravated because, as Ms Robertson observed, the main focus of the original misrepresentation case appeared to be that ER were the Bank's agent and, as such, had made misrepresentations in the IM and had not corrected them. But the unamended pleading is not confined to complaints about the IM: this much is clear from the allegation about what Mr Goodman said to Mr McEneaney "and others". The vague reference to "and others" cannot sensibly be understood to allege that all the claimants who dealt with the Bank relied on the oral presentation that is pleaded, if only because it is, I think, common ground that Mr Goodman did not have dealings with them all. But it does show that the claimants did not intend to limit their case as narrowly as Ms Robertson suggested.
Although the pleading is vague, the particulars of claim do assert that the Bank (as well as ER) was under a duty of care until the "asset purchase" to disclose to investors anything that was pertinent to a decision to invest or made anything in the IM inaccurate or misleading, and that the representations in the IM continued until "[ER] and the Company shall in their absolute discretion determine or withdraw the Offers". Although the term "asset purchase" is ambiguous, the claimants clearly intended to allege a duty that continued after they had transferred investment funds. And the plea that the Bank was under a duty of care "to avoid foreseeable loss to the Claimants" is not limited by reference to the "asset purchase", whether by way of the investment of funds or otherwise. In any case, when the original pleading gives "particulars" of the negligence alleged against the Bank, it includes, albeit in the unsatisfactory "rolled up" allegations against the Bank and ER, allegations of negligence that are undoubtedly directed to a time after claimants had transferred their investment funds.
In my judgment the original particulars of claim do plead back end claims, and therefore I cannot determine the application for permission to amend to the revised draft on the basis that any back end claim would necessarily be of a cause of action that is time barred: the question is whether the particular back end claims in the revised draft are new, and if so whether they arise substantially from facts already pleaded in support of a remedy that is claimed.
It is therefore necessary to examine the allegations of negligence made in the revised draft by way of back end claims in more detail. The revised draft includes 14 sub-paragraphs by way of particulars of negligence. I understand the first eight and the last are directed to criticism of the Bank's conduct before the claimants' decisions to invest and do not introduce back end claims, but I make it a condition of permitting them that this be specifically stated.
The other five particulars are that the Bank's Wealth Managers:
i) "Failed adequately to investigate and/or report upon the decline in the value of the Property between circulation of the IM and the Offer closing".
ii) "Failed to monitor the proposed investment and update the financial premises upon which the advice to invest had been given when it was or ought to have been apparent to any reasonably competent investment advisor that the nature of the proposed investment had substantially changed; it had become even higher risk; that the Bank of Scotland LTV covenant had been or was imminently to be breached; and that commercial property values were in freefall and upward only rent reviews likely to be significantly depressed as part and parcel of the 2007/2008 economic recession, "credit crunch" and banking crisis".
iii) "Failed to advise each Claimant to withdraw from the proposed investment and/or to cancel the Power of Attorney given to Evans Randall's nominees".
iv) "If it thought that there might be doubt about each Claimant's ability to withdraw the Offer and/or cancel the Power of Attorney, failed to advise each to take competent legal advice thereon".
v) "Failed to monitor and identify the changing and changed nature of the investment subsequent to (about) October 2007 and to reconsider the advice given to the Claimants in light thereof. It is each Claimant's case that had Ulster Bank done so it would/should have advised each Claimant to refuse to proceed".
I do not find it easy to discern from these allegations the structure of the case that the claimants intend to plead about the back end claims, but it seems to me that they must intend to allege that:
i) After the claimants had invested, the Bank should have monitored the investment scheme, and in particular monitored the value of the Property, the impact of falling property values on the LTV and the prospective rental income.
ii) If the Bank had done so, it would or at least should have advised the claimants to withdraw from the scheme or refused to proceed with their investments, or at least to take legal advice about doing so.
iii) The claimants were entitled to withdraw their applications to invest, and, had they taken legal advice, they would have been told this.
iv) Had the claimants been given proper advice by the Bank, they would have withdrawn from their investments (either directly as a result of the Bank's advice or having taken legal advice).
It is not explicitly pleaded why the Bank was at fault in failing to advise the claimants to withdraw or to take legal advice about doing so, but the implication is surely that they should have been given that advice as a result of what the Bank learned from monitoring the scheme. I recognise that the third stage of this reasoning too is not explicitly pleaded in the revised draft (except in as much as a result of that it is pleaded later that the claimants suffered loss "By reason of the matters aforesaid)", but otherwise the allegations pleaded by way of these particulars of negligence would be inconsequential.
It should not be necessary to have to analyse a pleading in this way to work out what it is intended to allege, still less to do so when it is proposed to amend a pleading in these circumstances. For this reason I would in any case not permit the claimants to rely on these particulars of negligence. But I shall go on to consider whether the claimants should be permitted to pursue a case such as I have described if it were properly pleaded.
The allegation that the Bank should have investigated the value of the Property after the claimants had invested is not new. The first of the sub-paragraphs that I have set out (that the Bank's Wealth Managers "Failed adequately to investigate and/or report upon the decline in the value of the Property ...") precisely reproduces a particular of negligence in the original pleading: it is not itself an amendment. The second sub-paragraph would expand the ambit of the continuing monitoring that the Bank should have undertaken, and specifically that it should have included the impact of movement in the value of the Property on the LTV and the prospective rent after review. Further, the unamended pleading does not allege that (i) the Bank should have given advice to the claimants about withdrawing their applications (or not proceeding with them) and taking legal advice in that regard, or (ii) the implicit contention about the claimants acting on the advice. The contention in the unamended pleading is that the investments should have been ineffective because the Attorneys, as agents for ER and the Bank, should have aborted the scheme: that is abandoned.
Thus by the amendments in the revised draft the claimants seek to introduce a contention that the Bank failed in a duty to give advice to the claimants after they had paid their investment funds. In my judgment this contention and the new allegations in support of it are different in kind from anything that is already pleaded and to my mind are such that they would amount to a new cause of action. I also do not accept that the new cause of action would be permissible under CPR 17.4: it does not arise out of the same or substantially the same facts as a claim for which the claimants are already seeking relief. Therefore, even if I had not already rejected this part of the claimants' application to amend on the basis that this part of the revised draft does not set out sufficient clearly what it is intended to allege, I should in any case have refused permission for these amendments.
The Claim against ER of Breach of the Regulatory Regime
I return to the case against ER. ER apply for the case against them to be dismissed under CPR 3.4 on the grounds that the claimants' pleading discloses no reasonable grounds for bringing the claims and under CPR 24.2 for summary judgment. I find it convenient to consider ER's argument by reference to the CPR 24 application, where the question is whether the claimants have a real prospect of success: Mr Jones did not contend that there is any other reason for a trial, so as to bring CPR24.2(b) into play. Of course, strictly ER's application is directed to the original particulars of claim, but applications to amend should be refused unless the new case has a real prospect of success, the test being the same as that for applications under CPR part 24: see CPR 17.3.6. I shall therefore consider application for summary judgment by reference to the revised draft. Mr Jones did not argue that, if the revised draft could not survive an application under CPR part 24, nevertheless a claim pleaded in the original particulars of claim could do so.
The revised draft abandons two of the five heads of claim identified by Mr McQuater as being pleaded in the January draft. I have dealt with the proposed allegations of fraud and knowingly assisting or procuring a breach of trust. There remain the allegations (i) of breach of statutory duty and the provisions of COBS and (ii) of negligence (in making misrepresentations or otherwise).
Mr McQuater advanced two arguments against the claim for breach of the regulatory regime: that the claimants have not identified any proper basis for their case that they were "clients" of ER so as to be owed duties under the regime, and that they have not pleaded any breach of statutory duty that has any real prospect of success.
I did not find it easy to follow Mr Jones' submission about the regulatory regime and its application to the relationship between ER and the claimants. COBS, which is part of the regime of rules made under the general power in section 138 of FSMA, includes the "best interests" rule that a "firm must act honestly, fairly and professionally in accordance with the best interests of its client" (COBS 2.1.1(R)). It applies to "designated investment business" for retail clients and "in relation to MiFID or equivalent third party business, for any client". The original particulars of claim alleged that ER was "at all material times" an authorised person within the meaning of the FSMA and to which [MiFID] is applied by [COBS]", and that that each claimant was "the recipient of financial services from [the Bank]". It went on to plead that ER had various obligations "with respect of each claimant" under COBS, and that "in the premises" ER were in breach of "statutory regulatory duty". The obligations to which the pleading refers include the best interests rule and a provision of the so-called "financial promotion rules" applicable to COBS, that a firm must ensure that "a communication … is fair, clear and not misleading" (COBS 4.2.1(R)).
COBS provides this definition of a client at 3.2.1(R):
(1) A person to whom a firm provides, intends to provide or has provided:
(a) a service in the course of carrying on a regulated activity; or
(b) in the case of MiFID or equivalent third country business, an ancillary service,
is a 'client' of that firm;
(2) A 'client' includes a potential client.
(3) In relation to the financial promotion rules, a person to whom a financial promotion is or is likely to be communicated is a "client" of a firm that communicates or approves it….
(4) A client of an appointed representative or, if applicable, a tied agent is a 'client' of the firm for whom that appointed representative, or tied agent, acts or intends to act in the course of business for which that firm has accepted responsibility under the Act or MiFID …".
The original particulars of claim did not plead that ER provided services to the claimants or explain how otherwise they were "clients" of ER.
In its defence, ER denied that it owed obligations to the claimants under COBS, pleading that (i) no claimant was a client of ER, and (ii) COBS came into effect on 1 November 2007, after ER had approved the IM.
In the January draft the claimants pleaded that each of them was "at all material times" a client to ER "within the meaning of Rule 3.2.1 of [COBS] implementing in the United Kingdom the [MiFID]". It did not say anything to indicate the factual basis of this plea, and did not engage with the answer that COBS came into force after the IM had been approved. It went on to set out various provisions of COBS, including the best interests rule and COBS(R) 4.2.1, and (like the original pleadings) alleged that "in the premises" ER were in breach of "statutory regulatory duty".
In the revised draft the claimants seek to plead that each of them was "At all material times" a "client" to ER within the meaning of rule 3.2.1(R) or COBS "or its predecessor version, implementing in the United Kingdom the [MiFID]". It pleads that ER had statutory duties under "COBS [01 November 2007 version] and/or its predecessor version, rules 2.1.1 and 4.2.1 …", and was in breach of them. This is inconsistent with the position of the claimants stated in Mr Craig's witness statement of 23 October 2014 when they first sought permission to amend their pleading: that they wished to allege breach of statutory duty or breaches of the regulatory regime against the Bank in the period prior to as well as after 1 November 2007, but against ER they sought to amend to allege breaches prior to 1 November 2007.
Moreover the revised draft still does not explain the basis on which the claimants are alleged to be clients of ER. Nor does it identify the relevant provisions of the "predecessor regime". Although I was not specifically addressed about this second point (partly, no doubt, because the revised draft was produced only after Mr McQuater had addressed me on the claims of breach of the regulatory regime), I do not know what "predecessor version" implemented MiFID: my understanding is that MiFID was adopted by the EC in April 2004 and came into force in November 2007 with the aim of creating a single competitive market for investment services and ensuring harmonised protection for investors in financial instruments. In both respects the pleading is unsatisfactory: for that reason and in any event I would not permit this part of the revised draft.
In so far as this part of the claimants' case is based on the fact that ER produced the IM, to my mind it has no real chance of success. Leaving aside the fact that it was approved by ER before COBS came into force, there is no indication in the "voluntary particulars" that the IM was relied on by any claimant to whom the Bank introduced the investment, there is no evidence and it was not suggested that other claimants who have not served voluntary particulars relied on it, and Dr Keane does not indicate in his particulars that he found anything in it unclear or misleading: he states that he made his own assessment of the investment risk.
In any case I do not think that there is any real prospect of the claimants in establishing that they were clients of ER within the meaning of COBS so as to be under the obligation in the best interests rule. There is no dispute on the evidence before me that ER had no contractual relationship with any claimant, received no payment from any claimant, gave no advice to any claimant and had no contact or liaison with any claimant whereby ER could provide any service to any of them. Nor was it ever contemplated that ER should do so. The undisputed evidence is that the Bank had a commission arrangement with the Company in relation to the investment.
In the end, the contention that the claimants were ER's clients rested on their argument that the Bank dealt with clients as the agent of or on behalf of ER (an argument that is not, of course, available to Dr Keane). On the face of it, that seems to me far removed from reality, and no claimant indicates that (s)he so understood the relationship. It is difficult to reconcile with the claimants' stated position that their relationship with the Bank is governed by Irish law and that with ER governed by English law.
When asked to give further particulars of their pleading in the original particulars of claim that the Bank contacted the claimants on behalf of ER and offered them an opportunity to invest on their behalf, the claimants only replied that the Bank "acted in concert with ER (and the RBS) to promote and market the investment", but that they would need disclosure before going beyond this bald assertion. However, Mr Jones relied on a letter dated 4 October 2012 and written on behalf of the Bank to the Irish Financial Services Ombudsman. (According to the evidence of Mr Michael Reading, a solicitor of Pinsent Masons, the Bank's solicitors, nine of the claimants made a complaint to the Ombudsman: eight complaints have been dismissed, and the last is still appealing the findings.) The Ombudsman has asked the Bank to "explain its role and function" in relation to the sale of the investment, and whether it acted as a third party broker. The Bank replied as follows:
"[The investment] was distributed in Ireland by Ulster Bank Wealth on behalf of [ER]. The property investment was arranged and managed by [ER]. The role of Ulster Bank Wealth in this transaction was as distributor and under MiFID meant it had to ensure that this investment was suitable and appropriate for any client who invested. …Subsequent to the inception of the investment, Ulster Bank Wealth provided a client relationship service to investors. This involved providing investors with the annual and any ad hoc reports or communications issued by [ER]. It also included Ulster Bank Wealth Managers or Executives providing clients with progress updates either upon request or as part of an investment review meeting".
I do not think that the use in this letter of the expression "on behalf of" can bear the weight that Mr Jones sought to put on it. The IM conveyed an offer of shares by the Company, and it invited Irish investors to make an offer to the Maltese company. Nothing in the letter suggests that ER appointed the Bank as its agent to provide the claimants with advisory or any other services on its behalf. There is no apparent reason that they would have done so, and no evidence that they did so. I therefore conclude that this part of the case that the claimants seek to advance in the revised draft stands no real prospect of success, and I refuse permission to plead it
The Claim in Negligence against ER
I take a similar view about the claim in common law negligence against ER in the revised draft for similar reasons: there is no evidence that any claimants other than Dr Keane relied on the IM, Dr Keane's particulars do not identify any misrepresentation in the IM on which he relied, there were no later dealings between ER and any of the claimants, and there is no real prospect of the claimants showing that ER are vicariously liable for any breach of duty on the part of the Bank.
Conclusions
I therefore grant ER's application for summary judgment (and it is not necessary to adjudicate on their application under CPR 3.4), and I grant the application for permission to amend the claim against the Bank only to the limited and uncontroversial extent that I have indicated. The claimants will need to prepare a further draft without the proposed amendments for which I have refused permission. I shall consider directions for this purpose and case management directions generally when I hand down this judgment. |
Mr Justice Popplewell:
Introduction
The Claimant ("Molton Street") brings a claim as buyer from the Second Defendant ("Odeon") for wrongfully cancelling a contract of sale of junk bonds concluded on 16 June 2014 at a price of 22% of face value. Molton Street had sold the bonds on to Morgan Stanley & Co ("Morgan Stanley") at 35.5%, and claims damages together with an indemnity against liability to Morgan Stanley. Odeon disputes that a contract was concluded, and challenges the claim on the further alternative grounds that the transaction involved breaches of regulatory laws, or that the loss claimed is irrecoverable as being too remote or tainted with illegality.
The trade was initially negotiated by Molton Street with the First Defendant ("Shooters Hill"), which was negotiating the buy side of the transaction with City & Continental Securities LLP ("City & Continental"). Shooters Hill was replaced by Odeon following the conclusion of the negotiations, both as buyer from City & Continental and as seller to Molton Street. Molton Street initially brought a claim also against Shooters Hill, but that claim has been compromised and Shooters Hill has played no part in the trial before me.
Molton Street is a small broker dealer operating in London, which has been authorised and regulated by the Financial Conduct Authority ("the FCA") from the time it was formed in early 2013. One of its members was Mr Rajat Rohailla, through a wholly owned vehicle, Inverness Consulting Ltd. Mr Rohailla worked full time for the firm pursuant to a consultancy agreement, again through Inverness. When acting as a dealer rather than a broker, Molton Street traded on a "matched principal" basis, that is to say buying and selling securities on back to back terms save as to price.
At the relevant time Shooters Hill was also a small broker dealer in London, regulated and authorised by the FCA, whose dealings in relation to the current dispute were conducted by Mr Zeshan Ashiq. It was not sufficiently capitalised to trade as principal on the deals it negotiated. Accordingly it had an arrangement with Odeon whereby if it had negotiated a buy and sell transaction, Odeon would step into its shoes as the contracting party with the buyer and seller, in return for Shooters Hill being paid a part of the turn which Odeon made. Mr Rohailla was aware of the existence of this arrangement at the time of the negotiations for the disputed transaction.
Odeon operates as a broker dealer in the United States, conducting its business primarily from its office in New York, with some sales and trading being conducted from other offices. It has at all material times been regulated by the Securities and Exchange Commission ("the SEC") via the Financial Industry Regulation Authority ("FINRA"), of which it is a member. Its majority owner, co-founder and head trader in fixed income securities is Mr Evan Schwartzberg. Its co-founder, minority shareholder and compliance officer is Mr Van Alstyne. Mr Schwartzberg and Mr Van Alstyne are Odeon's two Principals, identified as such on its website. Mr Miron Nissim worked at the time in Odeon's back office in New York. When Odeon acted as a dealer for its own account, it usually traded, like Molton Street, as what it termed a "riskless principal", i.e. buying and selling on back to back terms save as to price.
City & Continental was another small broker dealer authorised and regulated by the FCA in London. Mr Agresta conducted negotiations on its behalf in relation to the disputed transaction.
The disputed trade was the first transaction concluded between Molton Street and Shooters Hill. There had been some prior trading directly between Molton Street and Odeon, comprising ten sales by Molton Street and one sale by Odeon. Mr Rohailla had on those occasions dealt with a trader at Odeon called Mr Ron Tesmond, who played no significant part in the disputed transaction.
The bonds which are the subject matter of the dispute were a series of residential sub-prime mortgage backed securities issued in 2007 by a special purpose entity underwritten by Bear Sterns & Co Inc, the well known Bank headquartered in New York, which failed in the financial crisis of 2008 and was sold to JP Morgan Chase. When issued they had a face value of US$10,124,000, and a Moody's rating of "Aaa". By the time of the disputed transaction the face value was US$ 8,191,333 and the rating "C (sf)". The disputed transaction was in respect of the entire tranche of the class of securities issued ("the Bonds"). In 2014 the market in the Bonds was illiquid because they were not the subject of regular trading. By reason of their illiquidity and opacity, pricing of the Bonds was a matter of subjective judgment on which views might differ considerably, as the circumstances of this case illustrate. Prices in this market are expressed as a percentage of the face value of the Bonds. Fractions of a percentage are commonly expressed as "ticks", a tick being 1/32 of 1%. A price of 54-8, for example, is a price of 54.25% of the face value of the Bonds. It was common ground that settlement for trades in this market normally takes place on the third business day after the trade is concluded in the absence of contrary agreement.
The rival arguments in outline
Molton Street claims that the contract is governed by English law and that Odeon was in breach of contract in cancelling the trade and failing to deliver the Bonds. It claims damages comprising (a) its loss of profit on the sale to Morgan Stanley, amounting to a little over US$1.1 million; alternatively damages representing the difference between the price payable to Odeon and the value of the Bonds on 19 June 2014, the settlement date; and (b) an indemnity against liability to Morgan Stanley for failure to deliver the Bonds. Because the alternative damages claim, based on value rather than lost profit on the Morgan Stanley sale, was introduced by a relatively late amendment, it was ordered that quantification of damages on this basis, if relevant and recoverable in principle, should be addressed at a subsequent hearing.
Odeon contends that the putative proper law of the contract is New York law. Its defences can be briefly summarised as follows:
(1) There was no concluded contract by reason of Odeon's disclaimer ("the Disclaimer") which provided in relevant part:
". …. Indicative prices, bids, offers are not Firm unless so indicated and trades cannot be considered 'good trades' without express consent of the Principals of the firms."
The effect of the Disclaimer is that the express consent of Mr Schwartzberg and Mr Van Alstyne as Principals was required as a condition precedent to the existence of a binding contract, and no such consent was ever given.
(2) Alternatively the contract was voidable, and has been avoided, by reason of dishonest non disclosures by Mr Rohailla which contravened the United States Securities Exchange Act 1934 ("the 1934 Act"). The non disclosures relate to what Mr Rohailla knew about potential problems with City & Continental delivering the Bonds and what he said to persuade City & Continental to confirm the trade.
(3) Alternatively the contract was validly rescinded for unilateral mistake under New York law, Odeon's mistake being (primarily) that there was no issue with City & Continental's prospects of delivering the Bonds.
(4) Alternatively the contract contained an implied term, whether governed by New York law or English law, that Odeon would be excused from performance if City & Continental failed to perform.
(5) Alternatively if the contract is governed by English law, it was subject to an implied term that Molton Street had not breached or would not breach s. 89 of the Financial Services Act 2012. Molton Street was in breach of the implied term by reason of Mr Rohailla's dishonest statements to Mr Agresta (a) that he had sold the Bonds to Morgan Stanley at 22 and (b) that Morgan Stanley had sold the Bonds on.
(6) Alternatively Molton Street's damages claim fails (a) as being too remote or (b) under the principle ex turpi causa non oritur actio, the offending conduct relied on for this aspect of the defence being a series of lies told by Mr Rohailla to Morgan Stanley to the effect that City & Continental were offering the Bonds at mid 30s or 35 whereas they were being offered to Mr Rohailla at 21 or 22.
It was common ground that:
(1) if the putative proper law of the contract is New York law, defences (1) to (4) and (6)(a) fall to be decided in accordance with New York law and defence (5) does not arise (although it was also agreed that in the absence of New York law evidence on some of the sub issues on defence (1), the Court should apply English law to those sub issues);
(2) if the putative proper law is English law, defences (1), (4), (5) and (6)(a) fall to be decided under English law; and defences (2) and (3) do not arise;
(3) whatever the putative proper law, the ex turpi causa defence (6)(b) falls to be decided in accordance with English law, both because the principle is one of judicial abstention under the lex fori, and because in any event there was no evidence of New York law (save for one aspect in relation to the indemnity claim), so that the Court proceeds on the fiction that New York law on the issue is the same as English law.
Narrative
I heard evidence from Mr Rohailla and Mr Jamal on behalf of Molton Street, and Mr Nissim, Mr Schwartzberg and Mr Van Alstyne on behalf of Odeon. Mr Rohailla was not a satisfactory witness. As my findings below illustrate, the documents demonstrate that he acted dishonestly in the course of the negotiations, and the kindest thing I can say about his evidence to the Court is that it was a misguided and unconvincing attempt to maintain an innocent explanation for his conduct. The other witnesses were all doing their best to assist the Court, and where I accept or reject their evidence it is on the basis of its cogency measured against the contemporaneous documents and inherent probabilities.
Monday/Tuesday 9/10 June 2014
In June 2014 the Bonds were held by Tilden Park Capital Management LP ("Tilden Park"), a hedge fund based in New York. On 9 June 2014 Tilden Park initiated an offer of the Bonds, alongside other securities, as part of a Bid Wanted In Competition ("BWIC"). The BWIC was sent to dozens of market participants inviting bids by 1030 New York time on Tuesday 10 June 2014, and indicating that there was a reserve applicable (whose amount was undisclosed). A copy of the BWIC was sent to Odeon. One of Odeon's traders, Mr Tesmond, circulated it to Mr Rohailla, who also received it from four other institutions. In the form passed on to Mr Rohailla, it did not give the identity of the seller, Tilden Park.
The BWIC generated "price talk" from seven large banks, that is to say indications of the levels at which bids might be expected which were circulated by the banks to selected potential clients or counterparties. The price talk was in the low to mid 40s, except for JP Morgan Securities whose price talk was mid 60s. Odeon received the price talk circulated by JP Morgan. None of the price talk was circulated to Molton Street.
The BWIC generated firm bids from 13 bidders, which ranged from 38 to 54.25, averaging in the mid 40s. One of the bids came from Mr Rhodes at Morgan Stanley in New York, who bid 40. The level of these bids was not known to Molton Street, Shooters Hill or Odeon at the time of the disputed transaction. None of the bids was accepted. On 10 June 2014 Tilden Park sent an email to the BWIC recipients confirming that the Bonds had not traded. That may have been because the bids did not reach the reserve, but that is not necessarily so. With illiquid securities, a BWIC is sometimes used to mark to market, i.e. value the securities in the books of the party holding them.
Friday 13 June 2014
All times are given in British Summer Time, which was five hours ahead of New York time.
At 0959 on 13 June 2014, Mr Ashiq of Shooters Hill received an email from Mr Agresta of City & Continental. Mr Agresta said he had an offer of the Bonds to him at 20 but said he was "not sure how genuine it is". The email included the Bloomberg generated information about the Bonds which included some indication of price spreads, but given their illiquidity and opacity, this information on Bloomberg was not generally regarded as a sound guide to pricing of the Bonds.
At 1314 Mr Ashiq emailed Mr Rohailla asking whether he had an interest in the Bonds. Following encouragement, he sent another email at 1501, saying that he had a starting indication of 20 and asking Mr Rohailla to let him know if he could get any interest. At 1513 Mr Rohailla responded asking Mr Ashiq to get a firm offer. Mr Rohailla spent about 10 minutes trying to value the Bonds but reached no concluded view.
At 1513 Mr Rohailla had a Bloomberg exchange with Mr Rhodes of Morgan Stanley in which Mr Rohailla said that the holder of the Bonds was "a legacy guy", meaning someone who had held the Bonds since before the financial crisis, and was looking to sell. Mr Rhodes asked whether the Bonds were being offered, i.e. whether this was a serious offer to sell or merely an inquiry designed to canvass opinion on price. Mr Rohailla's response at 15.13 was to ask Mr Rhodes "what's the px [i.e. price] context? he's saying h20s [i.e. high 20s]". Mr Rohailla's evidence was that what he meant was that he, Mr Rohailla, was looking to receive a bid from Mr Rhodes in the high 20s. This is not what he said, and is not a meaning the Bloomberg message can bear in the context of the exchanges before and after it. The "he" was clearly a reference to "the legacy guy". I have little doubt that what Mr Rohailla meant, and intended Mr Rhodes to understand, was that Mr Rohailla's seller was indicating a price of high 20s. This was a deliberate untruth on Mr Rohailla's part: the indication he had received from Mr Ashiq was at 20. It was a lie intended by Mr Rohailla to induce Mr Rhodes to bid a higher price than he would have done had he known the true price at which Mr Rohailla had been given an indication by his seller.
At 1514 Mr Rhodes asked Mr Rohailla to get a firm offer. At 1519 Mr Rohailla told Mr Rhodes that there was no firm offer, but that what was being asked for was an indication to get the ball rolling. At 1523 Mr Rhodes told Mr Rohailla that "I could be in h20s if that works for him". The "him" was a reference to Mr Rohailla's seller.
At 1533 Mr Ashiq told Mr Agresta that "I have a bid at 20 on the full size (STC) [i.e. subject to confirmation]." He asked Mr Agresta to check with his seller. There is no record of this reflecting an indicative bid made by Mr Rohailla to Mr Ashiq, and Mr Rohailla did not suggest it did. It may therefore have come from another source.
At 1626 Mr Agresta emailed Mr Ashiq that "apparently the price was wrong! I am trying to understand what is happening". At 1628 Mr Agresta emailed Mr Ashiq "I asked another broker, he told me it was closer to 40! Looks like the original broker messed it up. I am trying to find out, don't tell anything to the buyer yet".
At 1706 Mr Agresta sent Mr Ashiq an email offer at 20.5 "subject to a quick call". At 1713 Mr Ashiq sent the offer to Mr Rohailla in identical terms save that the price was 21, saying "not sure whether you can reach your guy now or whether we're late. Here is the offer I have (subject to a quick call as you'll see)". Mr Ashiq revealed to Mr Agresta that he had added on 0.5% when offering the Bonds on, the purpose of which was to compensate Shooters Hill and possibly also City & Continental. Mr Rohailla responded to Mr Ashiq that it would have to be left till Monday and that his buyer might be annoyed because this was not a firm offer.
It was put to Mr Nissim (on the basis of Shooters Hill's Defence in the action) that Mr Ashiq had called him that afternoon to ascertain that Molton Street had traded with Odeon in the past and was already an approved counterparty; and to tell Mr Nissim that Shooters Hill was arranging a trade in Bear Sterns sub-prime asset backed securities which Odeon would buy from City & Continental and would sell to Molton Street. Mr Nissim had no recollection of any such conversation although he accepted it was possible. It seems to me probable that Mr Ashiq would have checked with Odeon that Molton Street was a satisfactory counterparty for Odeon in relation to a potential trade of this nature before conducting detailed negotiations, and since Shooters Hill had not previously concluded a trade with Molton Street there is no reason to think Mr Ashiq already knew this. I find that a conversation to that effect did take place on the Friday.
Monday 16 June 2014
Discussions resumed on Monday morning after the weekend. At 0836 Mr Agresta sent an email to Mr Ashiq asking him to pursue the matter. Mr Agresta's message included the statement "I can't trust the broker who sent it to me". Mr Ashiq asked whether the offer was at the same price and was told by Mr Agresta at 1053 that it was now 21.
At 1122 Mr Rohailla and Mr Ashiq spoke on the phone. Mr Ashiq said that the offer was 21 and he would ask his seller to "refresh" it. During the course of the conversation, Mr Rohailla said "Usually the guy he likes to see an offer before wasting time … and we will be able to get it done around there if … I am hoping he can get to 21. I think 21 is a bit steep for this one". The "he" who Mr Rohailla was telling Mr Ashiq he hoped could get to 21 was Mr Rohailla's buyer. The premise of the conversation was that Molton Street would sell on at the same price as it paid.
It was not true that Mr Rohailla hoped to get his buyer up to 21 or that he (Mr Rohailla) thought that a price of 21 was a bit steep. On the contrary, he had been told by Mr Rhodes on the Friday that high 20s would be feasible. Moreover Mr Rohailla's evidence in his witness statement was that on the Monday morning he had done some research and calculations, as a result of which he had himself formed the view that the Bonds were worth in the low 40s. Mr Rohailla described this as slightly more than a back of the envelope calculation. I cannot draw any safe conclusions from Mr Rohailla's evidence about what sources he used, and do not feel able to accept Odeon's case that he gained access to, and relied on, the price talk circulated the previous week. However, whatever sources he used, his statement to Mr Ashiq that he thought 21 was a bit steep was not true, nor was the impression he sought to convey that his buyer was at present prepared to pay less than 21.
At 1322 Mr Ashiq told Mr Agresta that his buyer had indicated he could engage at about 21, but that he would need an offer to get things moving. At 1333 Mr Rohailla emailed Mr Ashiq asking whether he had an offer.
At 1358 Mr Agresta sent an email to Mr Ashiq again offering the Bonds at 21 "subject to a quick call" and inviting a bid. At 1406, Mr Ashiq emailed Mr Rohailla offering the Bonds at 22 subject to a quick call.
At 1408 to 1409, Mr Rohailla had Bloomberg exchanges with Mr Rhodes, during which at 1409 he said "sellers looking for a bid in the mid 30s". Mr Rohailla's evidence was that by this he meant that he, as the seller to Mr Rhodes, was looking for a bid in the mid 30s. I have little hesitation in rejecting that evidence. It is clear from the context that by using that language he meant, and would have been understood to mean, that it was his seller who was looking for a bid in the mid 30s. This was untrue: Mr Ashiq's offer, subject to a quick call, was at 22. This again was a lie told by Mr Rohailla with the intention of inducing Mr Rhodes to make a higher bid for the Bonds.
At 1455 Mr Rohailla had a telephone conversation with Mr Rhodes. That conversation, which was recorded, included the following exchanges:
(1) Mr Rhodes: "He's looking for mid 30s?"; Mr Rohailla: "that is what he is looking for yeah …"
(2) Mr Rhodes: "34 bid for that". This was said decisively, after a considered pause, indicating a firm bid. It was confirmed as a firm bid in a Bloomberg message at 1456 during the course of the call, in which the 34 price is unqualified. Mr Rohailla understood it as a firm bid because his next communication to Mr Ashiq was a firm bid (see below).
(3) Mr Rhodes: "He wants 34 or he wants mid 30s?" Mr Rohailla: "Yes, correct".
(4) After Mr Rohailla had said that he would seek to get Mr Rhodes a firm offer, Mr Rohailla went on "I just want to see where he is say[ing] they can get to on this … I'll try to save you some bucks and then you can pay me whatever you want", to which Mr Rhodes agreed.
Mr Rhodes' assent to Mr Rohailla's statement that "I'll try to save you some bucks and then you can pay me whatever you want" reflected a stated assumption that Mr Rohailla would seek to reduce as much as he could the price at which he, Mr Rohailla, bought from his seller, because he would be selling on to Mr Rhodes at the same price, subject only to what Mr Rhodes would agree to pay him on top. It is inconsistent with Mr Rohailla's evidence that Mr Rhodes envisaged and understood that Molton Street was to be entitled to make whatever turn it could on the difference between the price at which it bought and sold and that Mr Rhodes knew this. Had that been the assumption, it would have made no sense for Morgan Stanley effectively to pay twice by paying something to Molton Street in addition to its unknown profit; and nothing which Mr Rohailla would be doing with his seller up the line would be "trying to save [Mr Rhodes] some bucks."
I reject Mr Rohailla's evidence that when he twice confirmed in the conversation that "he" wanted mid 30s he was referring not to his seller but to himself, so as to convey the same as if he had said "I" want mid 30s. That was not what he said and it is clear from the language he used and from earlier references in the conversation to an offer "from a legacy guy" and what "these guys have shown me" that the "he" was a reference to his seller, not himself. He intended Mr Rhodes to understand that the seller to him up the line wanted a bid in the mid 30s. Again this was a lie told by Mr Rohailla with the intention of inducing Mr Rhodes to make a higher bid for the Bonds.
At 1501, Mr Rohailla sent to Mr Ashiq a bid at 21. This was a firm bid, as Mr Rohailla confirmed to Mr Ashiq in a phone call at 1502.
At 1504, Mr Rohailla reverted to Mr Rhodes by way of a Bloomberg message saying "So offer is /35- they some room dude. Shall I go in with a 32-00?" I reject Mr Rohailla's evidence that this was merely a reference to an offer he was himself making at 35. The context was that, so far as Mr Rhodes was given to understand from the previous exchange, Mr Rohailla was negotiating back to back prices, and the reference to "they some room" confirms that what Mr Rohailla was purporting to relay was the offer which had come from his seller. Again this was a deliberate lie on Mr Rohailla's part. "Shall I go in with a 32-00" was obviously an inquiry as to whether Mr Rohailla should bid at 32 to his seller, again on the basis that it was Mr Rhodes' decision on what the bid up the line to Mr Rohailla's seller should be, because that would determine the price at which Morgan Stanley would buy from Molton Street, subject only to any payment on top agreed between them. Mr Rohailla's evidence that 32 was a price he was suggesting Mr Rhodes should pay to him as a stand alone deal makes no sense: it would involve a seller asking a buyer who has just previously offered him 34 if he would now like to offer him 32 i.e. less.
At 1508, Mr Rhodes sent a message by Bloomberg saying "we lift ….@35-00" indicating that he was making a firm offer at 35 and "I will pay you". This was again clearly on the basis that 35 would be the offer which Molton Street would make to its seller and that Molton Street's compensation would come from whatever was agreed with Morgan Stanley as a payment on top.
Shortly thereafter during the course of a telephone conversation starting at 1509 Mr Rohailla suggested that Mr Rhodes might want to "play back and forth a little bit" rather than going straight in at 35, and persuaded Mr Rhodes to go in with a bid of 34. Mr Rhodes said "I want to make sure you make some money on this cos we've been … going back and forth". This was, again, only consistent with the premise that Mr Rohailla would sell to Mr Rhodes at the price at which he bought from his seller, subject only to such amount as would be agreed between the two of them as payment on top. It is inconsistent with Mr Rohailla being able to make a secret profit by way of turn on the deal.
At about the same time, Mr Ashiq asked Mr Rohailla at 1508 how long his firm bid was valid and Mr Rohailla responded at 1509: "Mate it's like now, I showed the offer and they have bid back". This involved further deliberate deception on Mr Rohailla's part in two respects. First Mr Rohailla had not showed his buyer "the offer" i.e. Mr Ashiq's offer at 22 subject to a quick call. Secondly his buyer had not bid back at 21, which was what Mr Rohailla meant and would have been understood as meaning when saying that "they have bid back" in the context of an inquiry of how long the firm bid at 21, which Mr Rohailla had conveyed to Mr Ashiq at 1501 and 1502, remained valid.
Mr Rohailla pressed Mr Ashiq to get a response. At 1510 Mr Rohailla phoned Mr Ashiq. Mr Rohailla said "This is the level so he says we should be able to go, let's get it done …" This was another deliberately false statement by Mr Rohailla that 21 was the level his buyer would go to, consistently with the general message to Mr Ashiq that he was faithfully relaying the offer he was getting from his buyer.
At 1514 Mr Rohailla sent Mr Ashiq an email saying "…/22 should normally mean a quick call". Mr Rohailla's evidence is that it was intended to be an increase in his firm bid from 21 to 22. This is not how it reads, and is not consistent with the content of the following conversation (see below). It is to be read as Mr Rohailla saying that if the seller has offered at 22 subject to confirmation, which is where Mr Agresta's offer rested, it should only take a quick call to turn that into a firm offer.
At 1520, Mr Rohailla phoned Mr Ashiq again. During that phone call Mr Rohailla said "The guy is around 22 … so please I need an offer". This was a reference to the bid his buyer was prepared to make, indicating that he might go to 22 if Mr Ashiq got a firm offer at that price from his seller, whose offer at 22 was still "subject to a quick call". This appears to have been another deliberate deception by Mr Rohailla intended to convey to Mr Ashiq that Mr Rohailla's buyer was only prepared to pay 21 or 22 when Mr Rohailla knew he had indicated he would pay 35. But this point was not put to Mr Rohailla in cross examination nor relied on in Odeon's submissions (presumably because Odeon's case, which I have rejected, was that a firm bid at 22 had already been made by Mr Rohailla, which formed the basis for a point put in cross examination and submissions that what Mr Rohailla said in the later conversation at 1617 was a lie). For this reason I do not treat what Mr Rohailla said in this conversation as a lie for the purposes of deciding the issues in the case.
At 1533 Mr Rohailla emailed Mr Ashiq to say "Guy just called gave me an earful. What is going on man?" At 1555, Mr Rohailla had another phone conversation with Mr Ashiq. Mr Ashiq said he still had not got any answer from his seller. During that conversation, Mr Rohailla suggested that his buyer had been saying 18 or 19 on the previous Friday when he had spoken to him as the price at which he would be interested. Mr Rohailla went on "… because it was relatively close … I was thinking there was 1, 2 or 3 points here and there". Again this was simply a lie by Mr Rohailla. His buyer had not been at 18 or 19 the previous Friday, and Mr Rohailla was concerned to give the false impression that 21 or 22 was as high as his buyer was likely to go in order to secure a purchase at that price from Shooters Hill for Molton Street's own benefit.
Between 1601 and 1650 there were some exchanges between Mr Ashiq and Mr Agresta in which Mr Ashiq was pressing for a firm offer from City & Continental. At 1617 Mr Rohailla had another conversation with Mr Ashiq, during which Mr Rohailla said "The guy well he's bid you know against that like you know at 22 …" Mr Patton cross examined Mr Rohailla on the basis that this was another lie suggesting that Mr Rhodes' bid was at 22. But at this stage Mr Rohailla had not raised his firm bid to Mr Ashiq from 21 to 22. The statement is more naturally to be read as Mr Rohailla saying that his client had bid against (i.e. in response to) Mr Ashiq's offer of 22. What was untrue about that was the implication it carried that Mr Rohailla had relayed to his buyer the offer at 22 (stc) and had been given by his buyer a bid of 21 to relay to Mr Ashiq.
At 1652, Mr Ashiq emailed Mr Rohailla to say that Mr Agresta needed 5 to 10 minutes. Mr Ashiq said, "Between you and I, I understand better now. It seems the guy did not have full control and he needs to ascertain it before giving us the firm offer". Mr Rohailla suggested that he understood this to mean that Mr Ashiq's seller lacked authority within his organisation to approve the trade. It is equally consistent with Mr Agresta's seller not himself yet having a firm offer.
At about 1708, Mr Agresta finally sent Mr Ashiq what the latter understood to be a firm offer at 21.
In an email at 1709 Mr Ashiq made a firm offer to sell the Bonds to Mr Rohailla at 22.
At 1710, Mr Rohailla sent Mr Rhodes a Bloomberg message saying that the Bonds were "offered at 35". Against the background of their previous exchanges, this was meant to convey that Mr Rohailla had received an offer at 35 from his seller. It was another deliberate lie by Mr Rohailla.
Mr Rhodes responded by a Bloomberg message at 1711 saying "Lift", meaning that he accepted that offer.
Thereupon at 1712 Mr Rohailla emailed Mr Ashiq accepting the latter's firm offer to sell the bonds at 22. At about the same time Mr Ashiq communicated to Mr Agresta acceptance of the latter's firm offer at 21.
At 1712 Mr Rohailla also sent a Bloomberg message to Mr Rhodes confirming the sale and saying "will send you the ticket now. where do i sell these to you?" Mr Rhodes responded "35-16" to which Mr Rohailla answered "nice one. thanks bro". This exchange meant and was understood to mean that Mr Rohailla had purchased from his buyer at 35 and was asking how much Mr Rhodes would agree to add to that price as the remuneration for Molton Street, with Mr Rhodes offering 0.5% and Mr Rohailla gratefully agreeing. It was a discussion and agreement as to how much on top of the price of 35 should be charged to Morgan Stanley to reflect remuneration to Molton Street, on the assumption that that constituted the entirety of Molton Street's profit. I reject Mr Rohailla's evidence that it was intended to be in addition to any profit Molton Street would make by way of the difference between the price at which it bought and the price at which it sold. Not only was the existence of any such turn inconsistent with the tenor of the prior discussions, but there would be no reason for Mr Rhodes to pay 0.5% in addition to any turn which Molton Street were to make, especially without knowing or inquiring how much that turn was.
At 1712 Mr Ashiq called Mr Nissim at Odeon and spoke to him for a little under two minutes. The timing of the call is logged but the content was not recorded, or at least no recording was in evidence. Mr Nissim, unsurprisingly, had no specific recollection of the conversation, but it is likely, as he accepted, that Mr Ashiq told him about the conclusion of the trades by firm bids and offers which had just occurred; alerted him to the fact that Odeon would need to issue trade tickets to the parties; and gave Mr Nissim the details which were necessary to enable him to do so and for Odeon to settle the trade in each direction.
At 1713 Mr Rohailla phoned Mr Ashiq and had a 30 second conversation. On the attributed timings, Mr Ashiq would still have been on the call with Mr Nissim and it is possible that he interrupted it to take the call from Mr Rohailla. Mr Ashiq confirmed to Mr Rohailla that the deal would be settled through Odeon, at which Mr Rohailla showed no surprise or dissent but simply responded "OK". Mr Ashiq said that he would get Mr Nissim to send the trade ticket. Mr Rohailla said that in any event he would send the Bloomberg trade ticket at 22 to Shooters Hill.
At 1714, Mr Rohailla sent to Mr Ashiq an email with "VCONN TRADE CONFIRMATION" in the subject field, setting out the terms of the trade in the format used on Bloomberg, confirming the purchase at a price of 22 and adding the note "thanks for the trade". Although sent to Shooters Hill, Mr Rohailla knew by this time that the trade was to be with Odeon as the counterparty.
In an email at 1718 Mr Ashiq was then alerted by Mr Agresta that there was a problem on the seller's side. Mr Agresta said "Please cancel the trade, he has done on my side yet (sic)". What was meant was obviously that the deal up the line on his side was not "done" yet.
At 1724 Mr Rohailla phoned Mr Ashiq who responded by asking Mr Rohailla to hold. When Mr Ashiq gave Mr Rohailla his attention he said "There's something crazy going on here but one second". That was a reference to this transaction. Mr Rohailla asked him to send the trade ticket for his back office and said he had to leave shortly for a doctor's appointment. Mr Ashiq asked him to hold and left him on hold for over two minutes, after which Mr Rohailla hung up.
At 1727 Mr Rohailla sent a trade ticket to Mr Rhodes confirming the sale at 35.5, in similar terms and format to the one he had sent to Mr Ashiq.
At 1729 there was a phone call between Mr Rohailla, Mr Ashiq and Mr Agresta. Near the beginning of the call Mr Agresta put them on hold, so that it continued as a conversation between Mr Rohailla and Mr Ashiq alone. Mr Ashiq explained that he had had an email from the seller's side saying wait for an email confirmation, and that was why he was trying to put them on the phone together. This may have been a reference to the "[not] done yet" email at 1718. Mr Rohailla responded "as far as I'm concerned we have traded this bond, yeah. I bought it free from you at that price and I sold it already at that price…." Mr Van Alstyne's evidence, which I accept, was that the expression "free" connotes a contemporaneous purchase and sale at a "flat" price, i.e. at the same purchase and sale price, with the broker/dealer remunerated by a payment on top. What Mr Rohailla meant and was understood to mean was that he had sold the Bonds to his buyer at the same price as he had agreed to pay to Shooters Hill. He was anxious to dissuade Mr Ashiq's seller or someone further up the chain from unravelling what he thought was a concluded trade because of the very large turn Molton Street was to make on it; in doing so he was concerned not only to say that he had sold on, which he believed to be true, but that he had done so on the terms which he had already described to Mr Ashiq, and the terms on which Mr Ashiq would understand him to have sold, namely at the same price subject only to an agreed payment on top from the buyer. That aspect was a deliberate lie.
At 1730 Mr Rhodes sent to Mr Rohailla a trade ticket confirming his purchase at 35.5 in similar format to the trade ticket Mr Rohailla had sent him at 1727.
At 1733, there was a further three way telephone conversation between Mr Rohailla, Mr Ashiq, and Mr Agresta, during which Mr Agresta said: "we have been told by the seller that the trade has not been confirmed…" He asked for Mr Rohailla's help saying that "you need to say to the guy [i.e. Mr Rohailla's buyer] that the trade has not been confirmed." Mr Rohailla's response was that as a result of a firm offer and bid, the trade with his buyer was complete and could not be undone. During the conversation Mr Agresta dropped off the line after saying "I am going to come back to do it". By this he meant that he would remedy the position and ensure that he had confirmation of the trade up the line. When speaking to Mr Ashiq thereafter, Mr Rohailla said: "The guy's actually sold his bond on to someone else". This was an assertion that Morgan Stanley had sold the Bonds on. Mr Rohailla had not been told this by Mr Rhodes or anyone else and although it was possible, he had no reason to believe it had happened. It is common ground that it was untrue: Morgan Stanley had not sold on the Bonds at that time. It was a statement made recklessly, not caring whether it was true or false.
At 1741 Mr Rohailla spoke to Mr Ashiq on the phone. Mr Ashiq told Mr Rohailla that it looked like they were getting confirmation from the seller. There was discussion about Molton Street buying from Odeon rather than Shooters Hill and the necessary Euroclear number to enable Odeon to issue the trade ticket. Mr Rohailla suggested that Odeon be paid one tick for performing this role.
At 1749 Mr Agresta sent Mr Ashiq an email confirming the sale from City & Continental at 21 in a format akin to a trade ticket. There is no record of what had enabled Mr Agresta to remedy his previous position and confirm the trade, as he had said that he would when he left the phone conversation. Nor is there any record of any prior communication to Mr Ashiq of his decision to that effect, although it seems to me likely that there would have been some, rather than Mr Agresta simply issuing a confirmation in a form akin to a trade ticket. Mr Ashiq responded at 1751 that Mr Nissim from Odeon would send City & Continental a confirming ticket.
At 1749 Mr Ashiq and Mr Nissim spoke on the phone for almost 3 minutes. It was put to Mr Nissim that Mr Ashiq told him of the problems which had been encountered with City & Continental earlier in the day, which Mr Nissim convincingly denied. There was no evidence from Mr Ashiq to that effect and the suggestion was based on little more than an inference from the length of the conversation. There is no evidence to suggest that Mr Ashiq was at this stage concerned by the earlier events of the day, or that he had any concerns that City & Continental would not stand by the deal for which it had now issued a confirmation; and had he conveyed to Mr Nissim any real concerns over City & Continental's intention to perform, it is highly improbable that Mr Nissim in the back office would have been prepared to process the transaction, at the very least without consulting Mr Schwartzberg or Mr Van Alstyne.
At 1752 Mr Ashiq phoned Mr Rohailla to tell him that the latter was going to get the ticket from Mr Nissim at Odeon now. At 1754 Mr Rohailla was still waiting for the ticket and Mr Ashiq put him on hold and rang Mr Nissim. When he resumed the conversation with Mr Rohailla he confirmed that Mr Nissim was going to send the ticket.
Before Mr Ashiq had finished his conversation with Mr Rohailla, Mr Nissim made contact with Mr Rohailla on Bloomberg at 1754. This was the first contact between Molton Street and Odeon on this transaction. The Bloomberg messaging commenced with Odeon's Disclaimer.
At 1756 Mr Nissim said to Mr Rohailla on Bloomberg that "I understand that we are selling you [the Bonds] at 22, correct?" After checking that they were talking of the same Bonds by checking the ISIN number, Mr Rohailla responded on Bloomberg at 1758 "yes correct send me the trade ticket." Mr Nissim said he would.
At 1800 Mr Nissim sent a trade ticket to Mr Agresta confirming purchase from City & Continental at 21. This trade ticket bore the Disclaimer.
At 1801 Mr Nissim sent a trade ticket to Mr Rohailla confirming the sale by Odeon to Molton Street at 22. In addition to the details of the transaction the ticket said: "Notes: Odeon sells to Molton - thanks". The trade ticket bore the Disclaimer.
At 1802 Mr Nissim confirmed to Mr Rohailla on Bloomberg that he had sent the trade ticket and at 1805 Mr Rohailla confirmed to Mr Nissim that he had received it and thanked him.
Tuesday 17 June 2014
At 1224 on 17 June Mr Agresta emailed Mr Ashiq to say that there was a problem with the previous day's trade. The problem appeared to emanate from the next but one seller up the chain from City & Continental. Mr Agresta quoted an e-mail he had had from his seller which stated:
"YES…AGREED…BUT U DO UNDERSTAND THAT THEY BACKING AWAY FROM THE TRADE AND SAYING THEY NEVER OFFERED AND ALL THEY WANTED TO DO WAS 'RE-ENGAGE' THE SELLER …COMPLETE NONSENSE … I JUST ASK THAT YOU TRY AND BREAK THE TRADE W/ YOUR BUYER … I WOULD LIKE TO THINK THEY WOULD UNDERSTAND WHAT WE ARE DEALING W/
[…]
JUST TO REITERATE, THIS IS THE WHOLE TRANCHE THAT ISNT GONNA BE DELIVERED … THERE ARE NO OTHER BONDS TO SOURCE IN THE TRANCHE TO MAKE DELIVERY … YOUR BUYER REALLY HAS NO OTHER CHOICE BUT TO BREAK THE TRADE…"
At 1310 Mr Ashiq emailed Mr Nissim asking him to call, and when Mr Nissim called back at about 1327, Mr Ashiq told him that there were problems with the trade, and that City & Continental might not be able to deliver the bonds. Mr Ashiq said that he would push both sides to make sure the bonds would be delivered.
Mr Nissim went to see Mr Schwartzberg and explained the problem. Mr Schwartzberg recognised the Bonds from the BWIC of the previous week and recalled that they had not traded. He was surprised that the price seemed to be substantially below his recollection of the price talk during the BWIC.
At about 2000 (1500 New York time) Mr Schwartzberg called Mr Chin of Tilden and asked if he had sold the Bonds. Mr Chin said he had not, and asked at what price they had traded. When Mr Schwartzberg said low twenties, Mr Chin said he would pay more. This seemed strange to Mr Schwartzberg as Mr Chin had just said that he still owned the Bonds. Mr Schwartzberg asked why he was saying he would pay more for them if he owned the whole tranche, but at that point Mr Schwartzberg terminated the call because he decided he wanted nothing more to do with it. He was concerned that the Bonds might be being sold as part of a circular daisy chain transaction, designed artificially to inflate the value of the Bonds, or as part of some other potentially manipulative scheme.
Mr Schwartzberg raised these concerns with Mr Van Alstyne but they decided to leave it overnight before taking any action.
Wednesday 18 June 2014
On 18 June 2014 at 1123, Mr Ashiq emailed Mr Nissim to say there was not much update from City & Continental: "As things stand, they believe the bond won't get delivered tomorrow."
Mr Schwartzberg and Mr Van Alstyne decided to extricate Odeon from the trade and instructed Mr Nissim to issue a notice of cancellation. At 1528 Mr Nissim emailed Mr Rohailla. The subject line was "trade cancel". The text of the message was as follows:
"Odeon has been notified that the seller will not be able to deliver the bonds and settle this transaction, therefore Odeon in its riskless principal role is cancelling both sides of this trade prior to settlement date."
At 1532 a message in similar terms was sent by Mr Nissim to Mr Agresta at City & Continental.
Shortly thereafter, Mr Nissim and Mr Van Alstyne had a call with representatives of City & Continental who claimed that the trade was a "good" one but that it would never settle by delivery.
Thursday 19 June 2014
A telephone conversation took place between Mr Rohailla, Mr Nissim and Mr Van Alstyne on 19 June 2014. Mr Rohailla said he was expecting delivery of the Bonds that day. Mr Van Alstyne reiterated that Odeon had broken the trade out of a concern that the transaction was manipulative.
There was no attempt by City & Continental to settle the trade or deliver the Bonds to Odeon that day. There was no evidence as to whether there were cancellations upstream of City & Continental following Odeon's notice of cancellation to City & Continental on 18 June 2014, nor indeed what contractual chain may have been in place above City & Continental, save for the exiguous inferences to be drawn from the email at 1224 on 17 June 2014 from Mr Agresta. Nor was there any evidence as to why City & Continental were unable or unwilling to tender the Bonds, save only that it was common ground before me that the Bonds remained in the ownership of Tilden Park throughout June 2014.
Morgan Stanley's position
Morgan Stanley has never sought to cancel or rescind the contract with Molton Street. On the contrary, in an email sent as recently as 19 October 2015 it confirmed that the trade was still open and it was waiting for delivery. It has not, however, advanced any claim against Molton Street for failure to deliver the Bonds. Mr Jamal's evidence was that Morgan Stanley had made clear to Molton Street throughout that it did not want to become part of the current litigation.
The Issues
It is convenient to consider the issues in the following order:
(1) When and how was a contract formed, ignoring for these purposes the effect if any of the Disclaimer?
(2) What was the putative proper law of the contract?
(3) Did the Disclaimer prevent a contract being concluded?
(4) Was the contract rescinded by reason of contravention of the 1934 Act (if applicable)?
(5) Was the contract validly rescinded for unilateral mistake under New York law (if applicable)?
(6) Did the contract contain an implied term that Odeon would be excused from performance if City & Continental failed to perform?
(7) Was Molton Street in breach of an implied term that it had complied or would comply with s.89 of the 2012 Act (if applicable)?
(8) Is the claim irrecoverable as being too remote?
(9) Is the claim irrecoverable by virtue of the ex turpi causa doctrine?
Issue 1: Contract formation (ignoring any effect of the Disclaimer)
Odeon accepted that but for the effect of the Disclaimer, Mr Nissim had, or would have had, authority to conclude a contract on behalf of Odeon. He had authority to conclude agreements by Bloomberg message and to issue trade tickets which in each case included the Disclaimer. It is not therefore necessary to address issues canvassed during the hearing as to whether Mr Nissim was held out as a "trader".
It was not suggested that there was any relevant difference between New York law and English law on the principles of contract formation. Accordingly this issue is not affected by the putative proper law. In New York law, as in English law, what is required is agreement by offer and acceptance on all essential terms and an intention to be bound.
On behalf of Molton Street, Mr Atrill submitted that in this market a contract was concluded by the acceptance of a firm (i.e. unconditional) bid or offer, unequivocally expressed, whether in a telephone conversation, email, Bloomberg message, or any other oral or written form. Alternatively it was concluded by the agreement of a trade ticket, which could either take the form of completion of the exchange of tickets in each direction (assuming them to be materially identical) or by express assent being given by one party to a trade ticket sent by the other. Accordingly the analysis as to contract formation in this case was either that (i) a contract was initially formed between Molton Street and Shooters Hill at 1712 by Mr Rohailla's email accepting Mr Ashiq's firm offer in his email at 1709, which was then novated to Odeon by Mr Rohailla's Bloomberg confirmation to Mr Nissim at 1758 alternatively his assent at 1805 to the terms of the trade ticket sent by Mr Nissim at 1801; alternatively (ii) that the agreement between Shooters Hill and Molton Street at 1712 gave rise to no binding contract but merely set in place terms to be confirmed by Molton Street and Odeon, with the contract between those two being concluded in the manner described in (i).
On behalf of Odeon, Mr Patton submitted that a trade ticket was an essential part of contract formation and no contract arose unless and until there was an exchange of trade tickets or express assent by one party to the other party's trade ticket. Accordingly there was never any agreement between Molton Street and Shooters Hill, but simply a contract at 1805 after assent to the trade ticket (subject to the effect of the Disclaimer).
It appears that the use of disclaimers is not uncommon in this market. There were in evidence examples of a number of disclaimers used by various participants, in differing terms, which would or might have had the express effect of postponing the moment of contract at least until exchange of trade tickets; but I am here concerned to analyse the position in the absence of any such disclaimers or express contract terms which cast light on when the parties intend to be bound. The analysis is always subject to a contrary intention appearing from the particular terms of the parties' exchanges, including any standard terms or disclaimers. In New York law, as in English law, it is for the parties to decide at which stage they intend to be bound. They are, in the memorable phrase of Lord Bingham, masters of their contractual fate.
In such circumstances there are good reasons for treating parties in this market as intending to be bound at the moment of unequivocal acceptance of a firm bid or offer, rather than only upon completion of a trade ticket, in the absence of any specific indication of a contrary intention. It is clear that prices may change within a matter of hours or perhaps minutes, and the discussions between the market participants in this case sometimes made reference to bids and offers only being open for a short time. The participants were careful to distinguish between on the one hand indications, or offers/bids which were expressed to be conditional such as "stc" (subject to confirmation), and on the other hand firm offers or bids. If the latter were intended to have the same effect as the former and to be incapable of giving rise to binding commitments without a further formal exchange of documents in the form of trade tickets, there would be no need to distinguish between firm offers/bids and stc offers/bids. The concept of a "firm bid" is referred to in the Disclaimer. Moreover it was contemplated in this market that broker dealers might well be buying or selling on back to back terms save as to price (and indeed by all of Molton Street, Shooters Hill and Odeon and that the counterparties they were dealing with up the line would be doing so) such that it was desirable to have certainty about whether a bid or offer could be irrevocably accepted for the purposes of concluding a binding trade up or down the line. If there were no intention to be bound unless and until a trade ticket were produced, the delay might allow a change of heart which would falsify the legitimate reliance the counterparty could expect to place on a firm bid or offer. The trade tickets did not contain any essential contractual terms which had not already been agreed at the time of acceptance of a firm bid or offer, but merely collected them together in a single document. The additional details comprised a formal identification of the securities and their terms, with a calculation of the accrued element of the coupon, the settlement date which had already been implicitly agreed as a matter of normal market practice, and details necessary for the mechanical process of clearance and settlement through (for example) Euroclear. The trade ticket serves a purpose both as a formal documentary record collecting the contract terms into a single document, and as a tool for the back office to process the trade, but it is not a necessary element in the conclusion of the contract.
Accordingly had Shooters Hill been acting as principals, a contract with Molton Street would have been concluded at 1712 by Mr Rohailla's email accepting Mr Ashiq's firm offer in his email at 1709. But in this case it was known to Mr Rohailla and Mr Ashiq, when they were negotiating, that Molton Street's contract would be with Odeon as its counterparty, not Shooters Hill. In October 2013 Molton Street had exchanged KYC documentation with Shooters Hill, which was required in order for it to comply with FCA regulatory requirements if they did business; on that occasion Mr Ashiq sent settlement details which explained that Shooters Hill settled trades through Odeon. Mr Rohailla's own evidence was that although he didn't recall seeing this, he had been asked by Mr Ashiq in January 2014 whether Molton Street could trade with Odeon. His evidence was that Shooters Hill cleared its trades through Odeon because it did not have the necessary FCA regulatory authority to sell the Bonds to Molton Street as principal and such settlement parties assumed the counterparty risk. He expressed no surprise or dissent when told on the phone by Mr Ashiq at 1733 that the trade would be settled through Odeon. Although it was not suggested that Shooters Hill had authority, actual or apparent, to bind Odeon to a contract, Mr Ashiq knew that Odeon would be prepared to step in because this was the arrangement which had been operated on many occasions before; as Mr Van Alstyne put it in evidence "we had already done many transactions with Shooters Hill and it had become kind of perfunctory that our back office was able to issue trades that Shooters Hill was arranging." Mr Ashiq had checked on the Friday with Mr Nissim that Odeon could conclude a transaction with Molton Street as a counterparty for these Bonds.
Accordingly the position at 1712 was that neither Mr Rohailla nor Mr Ashiq thought or intended that Shooters Hill was contractually bound. They had every reason to believe that a concluded agreement would be made with Odeon as a result of the concluded negotiations with Shooters Hill, but Mr Rohailla appreciated that this was subject to confirmation by Odeon, who would not be bound unless and until he and Odeon expressed their assent to each other. No question of novation arises.
The contract between Molton Street and Odeon was concluded (subject to the effect of the Disclaimer) at 1758 when Mr Rohailla confirmed the purchase to Mr Nissim on Bloomberg and asked him to send the trade ticket. That was the moment of formation, although it was evidenced shortly thereafter by Mr Nissim sending the trade ticket at 1801 and Mr Rohailla thanking him for it at 1805.
Issue 2: Putative Proper Law
It is common ground that the putative proper law of the contract is to be determined by reference to Article 4 of Regulation (EC) No 593/2008 of The European Parliament and of The Council of 17 June 2008 on the law applicable to contractual obligations ("the Rome I Regulation"), which provides:
"Applicable law in the absence of choice
1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3 and without prejudice to Articles 5 to 8, the law governing the contract shall be determined as follows:
(a) a contract for the sale of goods shall be governed by the law of the country where the seller has his habitual residence;
2. Where the contract is not covered by paragraph 1 or where the elements of the contract would be covered by more than one of points (a) to (h) of paragraph 1, the contract shall be governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence.
3. Where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply."
Odeon asserts that Article 4.1(a) applies. Molton Street takes issue with whether the Bonds are "goods" within the meaning of the subparagraph. Little time was devoted to this point, and it is not necessary to decide it, because Molton Street accepts that the characteristic performance of the contract is delivery of the Bonds by Odeon, whose habitual residence is in New York, such that New York law applies by application of Article 4.2 unless, as Molton Street contends, it is clear that the contract is manifestly more connected with England so as to come within Article 4.3, which is described in recital (20) of the Rome I Regulation as the "escape clause".
The Rome I Regulation replaces the Rome Convention 1980, which had introduced the innovative concept of a presumption in favour of the place of residence or business of the person effecting the performance which was characteristic of the contract (as to the source and rationale of the concept see Dicey Morris & Collins The Conflict of Laws 15th edn paragraphs 32-076, 077). Under the Rome Convention, the test in Article 4.1 (in the absence of choice of law) was the country with which the contract was most closely connected. Article 4.2 sets out presumptions expressed to be subject to Article 4.5, including the presumption in favour of the place of residence of the person effecting the performance which was characteristic of the contract. Article 4.5 provided that the presumptions should be disregarded if it appeared from the circumstances as a whole that the contract was more closely connected with another country. This was recognised as involving a balance between certainty and flexibility, which required the factors against the presumption to have a preponderance of weight which made it clear that the closest connection was with a country other than that of the residence of the person effecting characteristic performance: see e.g. Samcrete Egypt Engineers and Contractors SAE v Land Rover Exports Ltd [2002] EWCA Civ 2019 [2012] CLC 533 at paragraph [41] and Intercontainer Interfrigo SC (ICF) v Balkenede Oosthuizen BV (Case C-133/08) [2010] QB 411 at paragraphs [59]-[64].
The text and architecture of Article 4 of the Rome I Regulation is very different from that of the Rome Convention. In particular, the test is no longer expressed as one of closest connection; the test is that contained in the rules set out in Articles 4.1 and 4.2, which are no longer expressed as presumptions or as being subject to the closest connection test; and the closest connection test has become an "escape clause" to be applied only where it is clear that the connection is manifestly closer to a country other than that dictated by the tests in Articles 4.1 and 4.2 so that they are to be disregarded. The word "clear" reflects what the ECJ had already said was the effect of Article 4.5 of the Rome Convention in the Interfrigo case, but the word "manifestly" suggests a more stringent standard than before, as does the elevation of the criteria in Articles 4.1 and 4.2 to tests from mere presumptions of closest connection. The new language and structure suggests a higher threshold, which requires that the cumulative weight of the factors connecting the contract to another country must clearly and decisively outweigh the desideratum of certainty in applying the relevant test in Article 4.1 or 4.2.
Mr Atrill first submitted that if the Odeon/Molton Street contract was a novation of a contract between Molton Street and Shooters Hill, which would be governed by English law, that was a powerful factor in favour of English law. Since I have rejected the premise I do not need to consider this submission further.
On the footing that the contract with Odeon was not a novation Mr Atrill submitted that the following factors brought the contract within Article 4.3:
(1) Odeon's role was relatively insignificant, the terms having been negotiated by Shooters Hill, with Odeon's involvement being "a matter of chance" because Shooters Hill was unable to contract as principal. All the "work" in negotiating the contract was done by Shooters Hill, which is reflected in the fact that it received 90% of the mark up and Odeon only 10%.
(2) The contracts immediately up and down the chain were governed by English law because in each case the seller (City & Continental and Molton Street respectively) was based in London.
(3) The place of delivery of the Bonds would be London rather than New York.
(4) Molton Street is based in London and regulated by the FCA. It would be odd if Mr Rohailla's conduct in London, which is subject to English criminal law and English regulatory provisions, should simultaneously give rise to overlapping, but distinct, New York law civil and regulatory consequences.
I am unable to accept that these factors, singly or cumulatively, make it clear that the contract is manifestly more closely connected with England than New York so as to fulfil Article 4.3.
The starting point is that there are considerable connecting factors with New York, quite apart from that being Odeon's place of business. The Bonds themselves are closely connected with New York, and not with England. The Bonds are choses in action comprising a complicated bundle of rights set out in the prospectus, which defines how such rights are to be exercised and transferred. An analysis of those rights points to the conclusion that the Bonds are essentially New York instruments in which the primary rights they confer are against Bear Sterns Asset Backed Securities I Trust 2007 AQ ("BS Trust"), a New York common law trust, and/or The Depository Trust Company ("DTC"), a New York chartered limited purpose trust company, acting on its behalf. BS Trust is the issuing entity, which was a special purpose vehicle set up by Bear Sterns & Co Inc, a bank headquartered in New York. The rights conferred by the Bonds, as set out in the prospectus, primarily comprise (a) beneficial ownership in the pool of sub-prime mortgage loans secured by liens on residential properties which BS Trust has purchased from the original mortgagees through a chain (it is not clear whether these confer real property rights or merely personal rights against BS Trust); and (b) the rights to monthly distributions ("coupons") which are to be made by DTC on behalf of BS Trust.
On analysis it is also the case that performance of the contract between Molton Street and Odeon was to take place in New York. As to payment, the price was in US$ and was to be paid by Molton Street to Odeon through their respective settlement agents in New York for clearing purposes (ICBC and Pershing respectively).
As to delivery of the Bonds, the position is a little more complicated. The rights conferred by the Bonds are reflected in "certificates" which represent the obligations of BS Trust. There are no issued certificates in paper or electronic form which change hands. The certificates are issued to the subscribers in book entry form i.e. simply by registration, and transfers involve book entries only. At issue of the securities, subscribers may elect to hold their beneficial interests through DTC in New York, or Euroclear in Belgium (or Clearstream in Luxembourg which I can ignore for present purposes). Registrations of beneficial interests are made for those holding securities in the US by a book entry at DTC in New York. The entries are typically made by DTC in the names of participant brokerage firms, who in turn hold book entries for the beneficial owners. DTC is to record its nominee, Cede & Co as the single registered "security holder", but DTC itself records the beneficial ownership in its own books. For subscribers to the Bonds through Euroclear there is (a) registration in Euroclear's name at DTC as an omnibus entry for all Euroclear's customers holding beneficial interests (in fact indirectly via JP Morgan Chase Bank NA as the DTC participant, so that the DTC book entry is in JP Morgan's name and Euroclear has a book entry in its name at JP Morgan); and (b) registration as a book entry with Euroclear in the name of the beneficial owner (again typically in fact recorded at Euroclear in the name of a Euroclear brokerage participant which in turn records a book entry with the client's name).
The mechanism for payment and transfer of title where Bonds were sold by a DTC participant to a Euroclear participant was set out in the prospectus. So far as book entries were concerned it involved (1) the book entry at DTC being amended on the settlement date to delete the seller (if, as here, it was changing from a DTC participant to a Euroclear participant) and to enter JP Morgan Chase's name under Euroclear's omnibus arrangement; and (2) Euroclear recording the name of the buyer in its records as the new beneficial owner, typically by recording the name of the Euroclear participant which in turn recorded the name of the buyer. The prospectus recognises that this second step would or might occur the following day after settlement. Accordingly to complete a sale of the Bonds from Odeon to Molton Street, Odeon's title, reflected in a book entry at its DTC participant, and in an entry at DTC in the name of its DTC participant, would be deleted in those books and replaced at DTC with an entry in the name of JP Morgan Chase; and there would be a series of changes in book entries at JP Morgan Chase, Euroclear and the relevant Euroclear participant used by Molton Street which would result in a book entry in Molton Street's name with its Euroclear participant.
Mr Atrill contended that because a Euroclear buyer acquired no direct rights against DTC or BS Trust, but only rights against its Euroclear participant, who in turn could only enforce the rights attaching to the Bonds through a chain of requests to exercise rights via Euroclear, JP Morgan Chase and DTC, title is transferred where the Euroclear buyer acquires the book entry with its Euroclear participant; and that that is therefore the place of performance of a contract for sale of the Bonds to a client of a Euroclear participant. Accordingly, he submitted, transfer of title would occur where the entry would be made in the books of Molton Street's participant which he said was in England.
This is not a sound contention. If transfer is looked at by reference to the rights of Odeon and Molton Street against their immediate contractual counterparties, through which instructions could be given to exercise the substantive rights conferred by the Bonds, there is no single transfer between the two: Odeon would divest itself of such rights with the amendment of the entry in the books of its US participant in DTC and the deletion of that participant's name in the book entry at DTC; Molton Street would not acquire them until creation of the book entry at the Euroclear participant. If transfer of title is looked at in this sense, it involves a series of steps only one of which occurs in England if the Euroclear participant's client is English. However for the purposes of seeking to identify the place of delivery in performance of the contract of sale, it is necessary to look at the substantive rights attaching to the Bonds, not the local arrangements by which the beneficial owner of the rights may give instructions for the exercise of those rights. The substantive rights attaching to the Bonds are represented by the book entry at DTC in New York. It would be when that changed, in New York, that Odeon's interest in the substantive rights would be extinguished and there would be an effective acquisition of such rights by Molton Street, albeit that it would require JP Morgan Chase to implement their exercise through a chain of instructions via Euroclear.
I have dealt with this question in a little detail because it arises again in the context of an issue as to the extraterritorial application of the 1934 Act. What matters for the purposes of the proper law issue is that in both a legal and commercial sense this was a contract of sale of New York securities whose performance on both sides, both payment and delivery, was to take place in New York.
Turning to the four factors relied on by Mr Atrill as demonstrating closest connection with England:
(1) Odeon's role was not, as he submitted, relatively insignificant and was not a matter of chance. It was always contemplated by Molton Street and Shooters Hill when the contract was being negotiated that Odeon would be Molton Street's counterparty, and therefore it was, or at least ought to have been, contemplated that Odeon would ultimately have a discretion whether to decide to be bound, since Shooters Hill did not have authority to contract on its behalf. The role of principal contracting party is a significant one as everyone involved must have appreciated. It involves assuming counterparty risk, which is why regulatory authorities impose capital requirements, which Shooters Hill was unable to fulfil. The fact that negotiations took place between exclusively English parties carries little weight when they were conducted on the understanding that the contract would be with a US party, and against the background that it ought to have been contemplated that the US party would itself have to decide whether to give its independent assent by adopting the outcome of those negotiations.
(2) As to the upstream and downstream contracts being governed by English law, Mr Atrill referred to Haeger & Schmidt GmbH v MMA IARD [2015] QB 319 in which the European Court of Justice said at paragraph [49] "significant connecting factors to be taken into account include the presence of a close connection between the contract in question with another contract or contracts which are, as the case may be, part of the same chain of contracts, and the place of delivery of the goods." Mr Atrill also relied on cases concerned with networks of contracts involving letters of credit, insurance and reinsurance contracts and guarantees, referring compendiously to the cases identified by Blair J at paragraph [34] of his judgment in British Arab Commercial Bank Plc v Bank of Communication [2011] EWHC 281 (Comm); [2011] 1 Lloyd's Rep 664. None of those cases involved a chain of contracts of sale, which raise different considerations. Moreover they were all cases on the Rome Convention 1980 and for the reasons I have endeavoured to explain, decisions on the Rome Convention must be used with caution in view of the difference in approach and language of the Rome 1 Regulation, as the editors of Dicey Morris & Collins observe at paragraph 32-079. It would no doubt be generally conducive to commercial coherence that in a chain of contracts for purchase and sale of goods or securities on back to back terms, the same proper law should govern each contract. That may be promoted or impeded by express or implied choice of law in individual contracts. But leaving aside considerations of choice of law, there is a conceptual difficulty of where to start if the quest is to seek to achieve a single system of law governing all contracts in the chain. Contracts in the chain may have sellers resident in a number of different jurisdictions with such contracts not having even the slightest connection with countries with which other contracts in the chain have their closest connection. It would not be conducive to the general desirability that all contracts should be governed by the same law to treat the Odeon/Molton Street contract as most closely connected with England if others in the chain had no English party or connection; nor to treat it as so because City & Continental was an English seller, when the seller to City & Continental may have been based in New York or indeed any other financial centre which trades in junk bonds; and its seller might have been based in the same jurisdiction with the result that their contract overwhelmingly had its closest connection with the place of business of both parties, as it surely would if they were both based in New York. Indeed if taken to its logical conclusion, Mr Atrill's argument would involve all the contracts being governed by New York law, not English law, because that would be the proper law of the contract at the beginning of the chain, being a sale by Tilden Park whose business is in New York (assuming, which raises a further complication, that one were applying English conflicts rules). Accordingly the proper law of the contracts above and below the Odeon/Molton Street contract is not a strong connecting factor to the proper law of that contract, at least where the proper law of those other contracts is based on the location of the seller or closest connection of those contracts with England (different considerations might apply in the case of an express choice of law known to the parties).
(3) Contrary to Mr Atrill's third point, I have concluded that the place of delivery of the Bonds was New York rather than London.
(4) The fact that Molton Street is based in London, regulated by the FCA and subject to English criminal law, is neutral. Odeon is based in New York and regulated by the SEC and FINRA and subject to New York criminal law. Different conflicts of law principles apply to criminal and civil obligations, and indeed to different kinds of civil obligation. The fact that conduct of one party inducing a contract may be criminal conduct under English law has no necessary bearing on the proper law of the contract.
Accordingly the putative proper law of the contract is the law of New York. I heard expert evidence on New York law from Professor Karmel on behalf of Odeon, and Mr Gelber on behalf of Molton Street. Both were well qualified in their different ways and they covered a great deal of ground on a large number of issues in a commendably succinct manner, both in their reports and also in their oral evidence. It was not possible to explore many of the issues in depth during the hearing. Where they differed I have been guided by the cogency of their views and the underlying materials with which they were supported, recognising that the constraints of conducting the trial proportionately did not always afford them a sufficient opportunity to expound their views as fully as the issues might have deserved.
Issue 3: The Disclaimer
The critical words of the Disclaimer are "….trades cannot be considered 'good trades' without express consent of the Principals of the firms."
Mr Rohailla accepted in cross-examination that he understood from his own FINRA training that the person responsible to FINRA for supervision of a firm would have been known as a Principal. Odeon's website identified its Principals as being Mr Schwartzberg and Mr Van Alstyne.
Mr Patton submitted that the effect of the Disclaimer was to make express consent by Mr Schwartzberg and/or Mr Van Alstyne a condition precedent to a binding contract coming into existence; and since there was no such consent, there was no concluded contract. It was not necessary to decide whether approval by one of the two would suffice because neither had done so in this case.
The experts agreed in their joint memorandum that "A party may impose a condition on the circumstances under which it enters into a contract. In such cases, offer or acceptance is made subject to the fulfilment of the condition and there is understood to be a condition precedent to the formation of the contract. A condition precedent is an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises." This reflected the two different forms of condition precedent recognised by the New York Court of Appeals in Oppenheimer & Co Inc v Oppenheim, Appel, Dixon & Co 86 N.Y.2d 685, 691, one being "a condition precedent to the formation or existence of the contract itself", and the other "acts or events which must occur before a party is obliged to perform a promise made pursuant to an existing contract". The Court of Appeals held that where there is a condition precedent to the formation of a contract, no contract arises "unless and until the condition occurs"; and described words such as "if", and "unless and until" in the contract before it as "unambiguously" establishing an express condition precedent, because they had employed "the unmistakable language of condition".
Mr Atrill submitted that the Disclaimer was no bar to the conclusion of a contract for one or more of four reasons:
(1) As a matter of construction the provision was impermissibly vague and meaningless.
(2) As a matter of construction the Disclaimer only applies to Bloomberg messages and has no application to a contract concluded by trade tickets.
(3) As a matter of construction the Disclaimer required Odeon to disavow the contract within a reasonable time, which had expired before the cancellation on 18 June 2014.
(4) Odeon waived reliance on the Disclaimer.
Odeon accepted that there was at least one aspect in which the provision was not intended to take effect in accordance with its terms, namely the requirement for approval by the Principals of the firms (plural). Mr Schwartzberg accepted that non US counterparties such as Molton Street might not have readily identifiable Principals; and that in any event he would not expect consent to be required from the Principals of a large US bank. Mr Patton submitted that the provision should be read down as referring only to consent by Odeon. I inquired during the course of Mr Atrill's closing submissions whether he was relying on a point that the parties had not intended the provision to have legally binding effect, an analysis which he adopted with only moderate enthusiasm. However the point had not been pleaded or addressed as a matter of New York law in the experts' reports; it was only raised briefly by me with Mr Gelber in oral evidence in a different context, and was not raised at all with Professor Karmel. I accept Mr Patton's submission that since New York law on intention to be bound in this context had not been explored, this was not a point open to Molton Street. Accordingly Molton Street's points all arise as a matter of construction/implication, to which New York law applies, apart from the waiver argument. It was agreed between the parties that the waiver argument should be resolved applying English law.
There was relatively little dispute about the principles of construction and implication under New York law. So far as relevant they are broadly the same as those in English law subject to the following:
(1) Extrinsic evidence does not become available as an aid to construction unless the words are ambiguous; if the language of a contract is clear and unambiguous, courts will interpret the plain meaning, including any clear and unambiguous express terms, within the four corners of the document. Ambiguity exists where "a reasonably intelligent person viewing the contract objectively could interpret the language in more than one way": Two Locks Inc v Kellogg Sale Co 68 F Supp.3d 317 at [13][14][15] The determination of whether ambiguity exists involves considering the entire contract: ibid at [17]. Mr Atrill submitted that it is unclear exactly what information that "reasonably intelligent person" is assumed to have about the context for the transaction; that it makes little sense to give that hypothetical person no context – words have no meaning without context; and that evidence of market practice and background should be available for this purpose, as it would be under English law, in the absence of a clear contrary indication in the New York case law before the court. Mr Patton submitted that resort to anything outside the four corners of the document was impermissible, relying on Ashwood Capital Inc. v OTG Management Inc. (2012) 99 A.D.3d 1 at [5]: "Whether a contractual term is ambiguous must be determined by the court as a matter of law, looking solely to the plain language used by the parties within the four corners of the contract to discern its meaning and not to extrinsic sources". A District Court decision referred to in Mr Gelber's report, Deen v New School University No 05 Civ 7174 (KMW), 2007 WL 1032295 refers at paragraph *4 with apparent approval to Alexander v Alexander 136 F.3d at 86 (which was not independently cited by either expert) as "noting that contract ambiguity can arise "either from the language itself or from inferences that can be drawn from this language"". In contrast to the English law approach which favours resort to all context which would reasonably have been available to the parties as a guide to meaning, it appears that the effect of New York law is that in determining ambiguity the context cannot stray from the language of the four corners of the contract and its subject matter, together with inferences from such language, providing a bright line rule which at least excludes evidence of market practice being admitted for the purpose of this exercise. In this case ambiguity must be determined by looking at the terms of the Disclaimer, and the documents in which it is contained and incorporated (the Bloomberg exchanges and the trade ticket), in the immediate context of the subject matter of the putative contract. Beyond that it is not permissible to go when determining whether the ambiguity gateway is opened for the purposes of admitting extrinsic evidence.
(2) Admissible extrinsic evidence can include the conduct of the parties after conclusion of the contract.
(3) There was some debate about the applicability of the contra proferentem rule and whether it was a tool of construction of last resort. I conclude that it is not a rule applicable where a contract is entered into between sophisticated parties of equal bargaining power (preferring Professor Karmel's evidence on this point) so that it plays no part in this case.
(4) As under English law, a New York court will strive to avoid finding that a contractual provision is meaningless or too vague to enforce. It would only do so as a last resort where any attempt to give meaning was futile.
(5) As to the implication of terms, the task of the court in deciding whether to imply terms into a contract is to determine what the parties would have intended if they had explicitly considered the issue: Great Lakes Transit Corp. v Marceau 154 F2d 623, 628.
Ambiguity
Mr Atrill's submissions on ambiguity took as their point of departure the evidence of Odeon's witnesses, which he submitted varied as to what the disclaimer entitled it to do, and when, and on what grounds. For example, he submitted, Mr Schwartzberg seemed to regard it as a unilateral power of withdrawal which could only be exercised in a commercially reasonable manner. This is not a legitimate factor to pray in aid on the issue of ambiguity: it is the very kind of extrinsic evidence which is sought to be introduced as an aid to construction if the gateway of ambiguity opens it to admission, not an ambiguity to be found within the four corners of the contractual documentation.
Mr Atrill relied on the following factors as establishing ambiguity. First he submitted that Odeon's construction conflicted with the terms and nature of the trade ticket. There were a number of strands to the argument:
(1) It was said that Odeon's construction rendered the whole trade ticket superfluous because it was a confirmation. This is not so. If, in the absence of a contrary intention expressed in a disclaimer, contract formation takes place by acceptance of firm bids/offers, and the trade ticket is merely evidence of such fact, collecting the contract terms into a single document, there is nothing inconsistent with the nature of a trade ticket in it repeating a conditionality which was already part of what was agreed in the bid/offer acceptance process. If the transaction is subject to a condition precedent to its formation because of the inclusion of the Disclaimer at that stage, there is nothing inconsistent with the nature of the trade ticket that the condition precedent should be repeated. On the contrary, the trade ticket is fulfilling its function of recording the terms agreed, including the condition precedent to contract formation. It is for the parties to determine when they intend to be bound.
(2) It was said that Odeon's construction conflicted with the unqualified language in the trade ticket "Odeon sells to Molton - thanks". I see no such conflict. This argument proceeds on the unpromising premise that any conditionality in the language of the Disclaimer is meaningless such that the court should give up as futile an attempt to give any meaning to the relevant words; and ignores the imperative in New York law to assess ambiguity by looking at all parts of the document. A document which in one part identifies a sale and in another identifies that it is subject to Principal consent contains no ambiguity. The two parts can properly be read together, and indeed must be if the court is to look at the whole document and seek to avoid treating any part of the language as meaningless.
(3) It was said that the settlement date (implicit in the terms contained in the contractual exchanges as a matter of normal market practice in the absence of contrary agreement, and explicit in the trade ticket) can only be achieved if the agreement is binding on the date concluded. This is not apparent from the documentation itself and so is not an ambiguity which arises on the document. Nor is it necessarily so. There will be at least two days between trade and settlement within which the counterparty can secure certainty over whether Principal consent is given, following which he will still be in a position to settle if consent is given. If he chooses to conclude an unconditional matching trade without waiting for consent, he runs the risk that if consent is not forthcoming he will be unable to fulfil it. That is simply the consequence of the Disclaimer, not a basis for ambiguity.
(4) A related point was that the Disclaimer uses superfluous language which is inapplicable to at least some of the circumstances in which it is used. For example the reference to bids being indicative only is inapplicable to a trade ticket; and it appears that the Disclaimer is included in internal Odeon communications, to which its language is inapposite. This is not relevant to the issue being considered, which is whether the wording requiring consent of Principals is ambiguous when used between negotiating parties in a written bid/offer exchange or a trade ticket.
Second, Mr Atrill submitted that a condition precedent of Principal consent was inconsistent with the phrase "offers are not Firm (sic) unless so indicated", because it suggested that if an offer is stated to be a firm offer, it is capable of acceptance so as to give rise to a binding agreement. I detect no inconsistency: an offer which is not clearly designated as a firm offer is not capable of being accepted so as potentially to give rise to a contract; but any offer so made and accepted is still subject to satisfaction of the condition precedent before becoming legally binding.
Third, Mr Atrill submitted that the reference to "good trades" is inherently ambiguous in two respects, in that it might not prevent an agreement becoming binding but merely (1) confer a unilateral right of withdrawal without consequence and/or (2) confine such unilateral right of withdrawal to cases which in Mr Schwartzberg's words were not "legitimate" in a "market context". I see no ambiguity in the document itself in either of these respects. The reference to "good trades" is plainly a reference to whether Odeon is to be legally bound to fulfil the purported trade, i.e. whether it is to be legally binding. The subjectivity is to consent being given. A transaction is not a good trade "without" such consent, i.e. unless and until such consent is given. The language is not that of a condition subsequent, in which the trades would be considered good trades unless and until disavowed by notification of a refusal of consent. That would involve the proposition that they were good trades for a period of time without the consent of the Principals, contrary to the clear language of the clause. A decision of the New York Appellate Division in Azimut-Benetti SPA v Magnum Marine Corporation 55 AD 3d 483 is in point. The plaintiffs sought to enforce a preliminary contract by which the parties bound themselves to sign a final contract and execute a sale of assets within 90 days. The defendant, when signing, added by hand, "Agreed to in principal [sic] subject to approval by my attorney". The Appellate Division held that the defendant's attorney's approval of the preliminary contract was a condition precedent to the formation of a binding contract, which had never been given. In giving summary judgment, it rejected an argument by the plaintiff that the subjectivity was fulfilled because "there was never any clear indication [from the defendant's attorney] that said approval was withheld". The wording in that case (that a contract would only be entered into "subject to approval") is not materially different as a matter of plain language to the wording in the current case (that no binding contract shall exist "without …consent").
Fourth, Mr Atrill submitted that there is an ambiguity in what is meant by "express" consent, and in particular whether it is sufficient if it is expressed internally or whether it has to be expressed to the counterparty. Mr Patton contended that the word was merely used for emphasis, and all that was required was real consent, whether or not communicated to the counterparty. The word is clearly capable of meaning that consent must be expressed to the counterparty. This is indeed an ambiguity, but it is not a relevant one. The ambiguity would allow extrinsic evidence on the question of how the consent had to be expressed for the purposes of resolving such a dispute in a case in which it arose. But in this case it is common ground that no consent was given by Mr Schwartzberg or Mr Van Alstyne of any kind, internally or externally. In order to pass the gateway of ambiguity under New York law so as to admit extrinsic evidence as an aid to construction, the ambiguity must be in the aspect of meaning which is in dispute, and the aspect of meaning for which it is sought to pray in aid the extrinsic evidence as being of assistance. Accordingly an ambiguity as to the form of consent cannot open the gateway to extrinsic evidence on whether the provision is a condition precedent unless it creates ambiguity on that latter question on the face of the document, which in my view it cannot: whether consent is required as a condition precedent depends on the meaning of words other than "express", namely "not considered "good trades" without ….consent"; those other words do not change their plain meaning dependent on whether "express" connotes internal or external communication.
Fifth, Mr Atrill submitted that the wording was ambiguous as to who had to provide the consent. On Odeon's side, was it one or both of the Principals? On the counterparty side, who are the "Principals" for non US entities? Again, whilst these are ambiguities, they are not relevant ambiguities which open the gateway to extrinsic evidence on what is meant by the critical words "not considered "good trades" without express consent". If those words plainly import a condition precedent of consent from Principals, as I believe they do, it would simply be a matter for construction in a case in which it mattered as to whose consent was required. It does not matter in this case because on even the narrowest construction, the words require consent from one of Odeon's principals, which was not given in this case.
Sixth, Mr Atrill identified an ambiguity in whether there was any restriction on the grounds on which approval could be refused, whether for example it was limited to reasonable grounds. This point really depends on the earlier argument that there is an ambiguity as to whether the wording imports a condition subsequent requiring disavowal of consent. If it plainly means that consent is a condition precedent, as I believe it does, there is no room for importing any requirement for grounds of refusal. The argument would amount to implying words such as "such consent not to be unreasonably withheld" which are not there.
I conclude that applying New York law there is no ambiguity in the words, looking only at the documents in which they are contained and incorporated in their immediate context and the inferences which can be drawn from such language. They import a condition precedent of prior consent from Odeon's Principals, without which there is no binding contract. As a matter of law no extrinsic evidence is admissible as an aid to construction on this question.
Accordingly Mr Atrill's three construction points are to be rejected:
(1) The term is not impermissibly vague so as to be meaningless. It is clearly and unambiguously a condition precedent.
(2) The term is not inapplicable to a trade ticket. If, as I have held (and as Molton Street submitted) a contract would be concluded in the absence of the Disclaimer by an acceptance of a firm bid or offer prior to exchange of trade tickets, its inclusion in a trade ticket, whose primary purpose is evidential rather than contractual, is entirely appropriate to make clear that the trade ticket is not intended to supersede what is already a legally effective condition precedent to the conclusion of a contract. Its inclusion in the trade ticket fulfils the function of the trade ticket which is to evidence the terms already agreed, which were themselves subject to the condition precedent in the Disclaimer.
(3) The term does not require Odeon to disavow the contract within a reasonable time. It requires consent as a condition precedent, without which there is never a binding contract. In New York law, as in English law, where a contract does not fix a time for the performance of a contractual obligation, the law usually implies that it shall be performed within a reasonable time. However, the error in Molton Street's argument is that the Disclaimer does not purport to impose an obligation on Odeon to obtain the consent of its Principals: on the contrary, it renders the existence of a binding contract subject to such consent. There is, accordingly, no justification for implying a "reasonable time" limitation. The Disclaimer makes perfect sense without it: unless and until consent is provided, there simply is no binding contract. It is notable that, in the Azimut-Benetti case the Appellate Division did not consider that any question arose of implying a term that the defendant's attorney's approval should have been given within a reasonable time of signature of the preliminary contract.
Waiver
Molton Street relies both on a prospective waiver arising from earlier conduct, and on waiver by conduct in relation to this transaction. The species of waiver being invoked is presumably a waiver by estoppel, there being no question of an election by Odeon in this context. In Steria Ltd v Hutchison [2006] EWCA Civ 1551, [2007] ICR 445 Neuberger LJ, as he then was, said at paragraphs [93]-[94]:
"93. When it comes to estoppel by representation or promissory estoppel, it seems to me very unlikely that a claimant would be able to satisfy the test of unconscionability unless he could also satisfy the three classic requirements. They are (a) a clear representation or promise made by the defendant upon which it is reasonably foreseeable that the claimant will act, (b) an act on the part of the claimant which was reasonably taken in reliance upon the representation or promise, and (c) after the act has been taken, the claimant being able to show that he will suffer detriment if the defendant is not held to the representation or promise. Even this formulation is relatively broad brush, and it should be emphasised that there are many qualifications or refinements which can be made to it.
94. The requirement for these three features, at least in relation to estoppel by representation, was very clearly put by the Privy Council in Tai Hing Cotton Mill Ltd –v- Liu Chong Hing Bank [1986] AC 80 at 110, in the following terms: 'the essence of estoppel is a representation (express or implied) intended to induce the person to whom it is made to adopt a course of conduct which results in detriment or loss…"
As to conduct in prior transactions, Mr Atrill submitted that there was a practice of not requiring Principal approval in the previous trades between Molton Street and Odeon. However 9 of the 11 previous transactions between Mr Rohailla and Odeon preceded June 2013 which is when, on the unchallenged evidence of Mr Van Alstyne, Odeon started using the Disclaimer. Such transactions cannot, therefore, give rise to any waiver. The other two transactions, which post-dated the introduction of the Disclaimer, were negotiated, on Odeon's side, by Mr Tesmond. It is probable that Mr Schwartzberg would have been aware of those trades and given his approval before they were concluded. The absence of any external discussion of Principal approval on those two occasions cannot amount to a clear and unequivocal representation that Odeon would not seek to rely on the Disclaimer in a subsequent trade, especially where that subsequent trade took place through a different individual, Mr Nissim. There is no evidence that Mr Rohailla relied in any way upon any such representation. There is nothing in such previous dealing which would make it unconscionable for Odeon to rely on the terms of the Disclaimer in this case.
As to conduct in relation to this transaction, Mr Atrill submitted that the unqualified terms of the Bloomberg messages and/or the nature of a trade ticket impliedly represented that such approval is not required. In the light of the fact that both bore the Disclaimer this argument is untenable. The requirement of prior Principal consent is not inconsistent with the nature of a trade ticket which states that requirement on its face. Similarly unsound is Mr Atrill's alternative argument that when Odeon decided to withdraw, it elected to purport to "cancel" the trade – and thus, it is said, to waive its right to choose not to approve the transaction in the first place by choosing to take its stand on the grounds specified in the cancellation notice instead, namely that the Bonds would not be delivered. To treat a cancellation as a representation of consent to the transaction being considered a good trade seems to me a contradiction in terms, and it is in any event difficult to see how Molton Street could have relied on it so as to make Odeon's reliance on the Disclaimer unconscionable.
Last Mr Atrill relied on the issue of a confirmation of the trade by Pershing, Odeon's settlement agent. The document bears an issue date of 16 June 2014 and is addressed to ICBC, Molton Street's settlement agent in New York. There was no direct evidence as to what happened to the document, but in the normal course it would have been sent by Pershing to ICBC for the purposes of settlement. I will assume that it was issued on 16 June 2014 and sent to ICBC shortly thereafter and in any event before cancellation on the 18 June. There was no direct evidence of how the document was generated but I infer that it was the result of back office instructions from Mr Nissim, whose evidence was that it would have been issued at Odeon's request. However there is no evidence that this was ever seen by Molton Street at the time, or relied upon in any way as a representation that Odeon regarded the contract as unconditionally binding. There is no evidence that it was acted on at any time before cancellation on 18 June 2014. Nor is there any basis for holding that it would be unconscionable for Odeon to be allowed to rely on the Disclaimer by reason of the production or sending of that document. That is fatal to the argument that it involved a waiver of the Disclaimer.
In conclusion, Odeon's case on the effect of the Disclaimer succeeds. That is a complete answer to Molton Street's claim, and the remaining issues do not arise. I will nevertheless address them, assuming for such purposes that there was a concluded contract, but I can do so more briefly than I would have done had they been dispositive of the outcome.
Issue 4: Contravention of the 1934 Act
The alleged contravention
When considering this limb of Odeon's defence it is important to keep in mind throughout that it is not based on any dishonesty by Mr Rohailla in relation to what he said to Mr Rhodes or Mr Ashiq about the prices being indicated or bid and offered up or down the line. It is an allegation of a fraudulent deception practiced directly on Odeon by a non disclosure by Mr Rohailla. Specifically what is said to have been fraudulently withheld by Mr Rohailla from Odeon in breach of the 1934 Act is:
(1) The concerns expressed by Mr Agresta about City & Continental's ability to deliver the Bonds. This is a reference to the conversation with Mr Ashiq at 1729 in which Mr Ashiq explained that he had had an email from the seller's side saying wait for an email confirmation (which may have been a reference to the "[not] done yet" email at 1718 which Mr Rohailla did not see); and to the three way conversation at 1733 during which Mr Agresta said "we have been told by the seller that the trade has not been confirmed…" and asked for Mr Rohailla's help saying that "you need to say to the guy [i.e. Mr Rohailla's buyer] that the trade has not been confirmed."
(2) Mr Rohailla's reckless lie to Mr Ashiq, after Mr Agresta had dropped off the 1733 conversation, that Morgan Stanley had already sold on the Bonds, intended, so Odeon submits, to encourage City & Continental to confirm the transaction.
The provisions of the 1934 Act
Section 9(a)(4) of the 1934 Act provides:
"(a) It shall be unlawful for any person, directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national securities exchange, or for any member of a national securities exchange—
(4) If a dealer, broker, security-based swap dealer, major security-based swap participant, or other person selling or offering for sale or purchasing or offering to purchase the security, a security based swap, or security-based swap agreement with respect to such security, to make, regarding any security other than a government security, any security not so registered, any security-based swap, or any security-based swap agreement with respect to such security, for the purpose of inducing the purchase or sale of such security, such security-based swap, or such security-based swap agreement any statement which was at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, and which that person knew or had reasonable ground to believe was so false or misleading."
Section 10(b) provides that it shall be unlawful:
"To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities based swap agreement any manipulative or deceptive device or contrivance in contravention of such rules and regulations as [the SEC] may prescribe as necessary or appropriate in the public interest or for the protection of the public interest or for the protection of investors."
The relevant rule made by the SEC in the present case is Rule 10b-5, which provides:
"It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange,
(a) to employ any device, scheme, or artifice to defraud;
(b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, not misleading; or
(c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security."
Section 29(b) of the 1934 Act provides:
"Every contract made in violation of any provision of this title or of any rule or regulation thereunder, and every contract . . . heretofore or hereafter made the performance of which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of this title or any rule or regulation thereunder, shall be void (1) as regards the rights of any person who, in violation of any such provision, rule, or regulation, shall have made or engaged in the performance of any such contract, and (2) as regards the rights of any person who, not being a party to such contract, shall have acquired any right thereunder with actual knowledge of the facts by reason of which the making or performance of such contract was in violation of any such provision, rule or regulation . . ."
There was a broad measure of common ground between the experts on the meaning and effect of the relevant provisions of the 1934 Act:
(1) A violation requires at least the following elements: (a) a misstatement or omission, (b) of material fact, (c) made with a wrongful state of mind known as "scienter" and (d) in connection with, or to induce, the purchase or sale of a security.
(2) Where, as in the present case, the violation is said to consist of an omission, there must be a duty to speak. Although s. 9(a)(4) refers to making false statements, it also applies to omissions where there is a duty to speak, in a similar way to Rule 10b-5.
(3) The test for materiality is whether there was a "substantial likelihood" that its disclosure "would have been viewed by the reasonable investor as having altered the total mix of information made available": Matrixx Initiatives Inc v Siracusano 131 S.Ct 1309. As Mr Gelber emphasised, there is no duty to disclose "a mere speculative possibility" (Pennsylvania Public School Employees' Retirement System v Bank of America Corporation 874 F Supp.2d 341 341 at 351), which as Professor Karmel observed, is no more than an aspect of the requirement that the misstatement/omission must be of facts which are material facts.
(4) "Scienter" is a mental state embracing an intent to deceive, manipulate or defraud and requires at least reckless behaviour, which is defined as an extreme departure from the standards of ordinary care such that the danger is either known to the party or so obvious that he must have been aware of it. Mere negligence is insufficient.
(5) Although s. 29(b) itself suggests that a contract made in breach of the 1934 Act, or the rules made thereunder, is void ab initio, this provision has been interpreted by the courts as meaning "voidable at the option of the innocent party": Berckeley Investment Group Ltd v Colkitt 455 F 3d 195 (2006) at 205. Where a contract is induced by a misstatement or omission which involves a violation of the 1934 Act, the contract is voidable under s. 29(b) even though the contract itself could be performed perfectly lawfully.
The following issues of New York law in relation to the 1934 Act were in dispute:
(1) whether the transaction in this case falls within the territorial scope of the 1934 Act;
(2) whether Molton Street had a duty to speak; and
(3) whether, in order to obtain rescission, Odeon must prove that it reasonably relied on Molton Street's omission.
Extraterritoriality
The issue is governed by the decision of the US Supreme Court in Morrison v National Australia Bank 561 US 247 (2010), as developed by the Second Circuit in Absolute Activist Value Master Fund Ltd v Ficeto 677 F.3d 60, where the courts held that the 1934 Act would only apply to transactions on US exchanges or to "domestic transactions", i.e. (a) where the parties incurred within the US an irrevocable contractual liability to deliver or purchase the securities and/or (b) where title to the securities would pass within the US. Fulfilment of either limb is sufficient to render a transaction domestic.
I conclude that this was a domestic transaction fulfilling each of the alternative limbs of the test. Under New York law a contract concluded by electronic means is concluded at the place of receipt. The contract between Molton Street and Odeon was concluded (ignoring the effect of the Disclaimer) at 1758 when Mr Rohailla confirmed the purchase to Mr Nissim on Bloomberg and asked him to send the trade ticket. That message was received in New York. I prefer Professor Karmel's evidence, that there is a simple mechanistic test for these purposes, to that of Mr Gelber, who argued for the relevance of other factors such as the place of solicitation and negotiations. Moreover transfer of title in the Bonds would occur with the change to the book entry at DTC in New York. Although transfer of title involves a series of changes in the right to give instructions for the exercise of the substantive rights represented by the Bonds, occurring in New York for Odeon when its entry is deleted its DTC's participant's books and in DTC's books, and in Europe for Molton Street when the book entry is made at its Euroclear participant, what matters for these purposes, as for identifying the place of delivery for proper law issues, is the transfer of the substantive rights in the Bonds which occurs with the change in the book entry at DTC in New York. This was the view of Professor Karmel which I accept.
There is a further potential issue. In Parkcentral Global Hub Ltd v Porsche Automobile Holdings SE 763 F.3d 198, the Second Circuit has held that being a domestic transaction is merely a necessary, but not sufficient, condition to the territorial application of the Act. In that case the 1934 Act was held not to apply because "the claims in this case are so predominantly foreign as to be impermissibly extraterritorial". An important aspect of the reasoning was the prospect of incompatibility with foreign regulation, which was referred to in various parts of the judgment with different degrees of probability such as "inevitably" "obvious", "likely" and "potential". There was disagreement between the experts as to the scope of the Parkcentral exception, which was an extreme case on its facts and included actual regulatory overlap because there were claims pending in the German Courts and fraud investigations under way by the German authorities. The dispute about the scope of the exception, and as to whether there needed to be actual conflict between the regulatory regimes or merely the potential for conflict, narrowed somewhat in the course of evidence, in which both experts fairly and properly gave ground. My conclusion is that incompatible regulatory exposure is not a separate criterion but rather that the probability and extent of actual or potential conflict is a factor in applying the ultimate test which is whether the facts are so predominantly foreign as to make the extraterritorial application of the Act impermissible. This is against the background that the relatively straightforward domestic transaction test laid down in Morrison was intended to provide simplicity and certainty, such that derogation requires predominantly foreign connections. In Morrison Justice Scalia said that the true focus of the 1934 Act is "not upon the place where the deception originated but upon purchases and sales of securities in the United States". Parkcentral includes the following passage:
"In concluding that these complaints do not state a claim upon which relief may be granted, we do not suggest that the presence of some foreign element in a transaction necessarily means that Congress did not include it in the coverage of §10(b). To borrow Morrison's metaphor as to the effect of a minor domestic element on the nature of an overwhelmingly foreign transaction: Section 10(b) would indeed be a craven watchdog against securities fraud if it retreated to its kennel whenever a fraud involved some foreign activity. The potential for incompatibility between US and foreign law is just one form of evidence that a particular application of a statute is extraterritorial. It is neither a safe harbor nor the only relevant consideration in the extraterritoriality analysis. It predominates in this case because of the dominance of the foreign elements we have outlined above." [emphasis in original]
This case does not have predominantly non US connections so as to come within the Parkcentral exception. Odeon is a member of FINRA and subject to FINRA regulation. The securities are in substance New York instruments, denominated in US dollars, and the contract is governed by New York law. It fell to be performed, both as to payment and delivery, in New York. The fact that Mr Rohailla was based in England, and conducted negotiations with Shooters Hill here, of course raises the potential for conflicting and incompatible regulatory liability, but there were also discussions between him and Odeon, the latter in New York, which, although briefer than the negotiations with Shooters Hill, were necessary for the conclusion of a contract between those parties. Ultimately the 1934 Act is being invoked by Odeon as applying to a non disclosure to Odeon at the moment of contracting. That is conduct which has no greater geographical connection with London than New York. If the domestic transaction test were to be disapplied in this case it would be on the basis of little more than the fact that some negotiation of the contract which preceded the relevant allegedly fraudulent activity took place outside the US. That would not be not consistent with Morrison or Absolute Activist, nor justified by the facts or the reasoning in Parkcentral.
Duty to speak
Mr Gelber's evidence was that a relevant duty to speak arises only where there is a fiduciary duty owed by the silent party to the other, or where the non disclosure renders some other statement misleading. Neither is alleged by Odeon in this case. Professor Karmel, on the other hand, opined that a duty to speak may arise under the "special facts doctrine" which requires disclosure where one party's superior knowledge of essential facts renders a transaction without disclosure inherently unfair.
On this issue I prefer the evidence of Mr Gelber, which is supported by the US Supreme Court decision in Vincent F Chiarella v US (1980) 100 SCt 1108: see in particular both paragraph 15 and note 10 in the opinion of Justice Powell. Professor Karmel opined that it was a matter for New York State law, which recognised the special facts doctrine, relying on a passage in the judgment of the Court of Appeals for the Seventh Circuit in James S Jordan v Duff and Phelps Inc (1987) 815 F.2d 429 at 436: "The obligation to break silence is itself based on state law, see Dirks, Chiarella, and Barker, and so may be redefined to the extent state law permits." The passage which immediately follows, however, suggests that the reference to redefinition as permitted by state law was intended to be a reference to the ability of the parties to modify the obligation by contractual terms. The citation of Chiarella, which was itself a New York State law case, suggests that the passage relied on was not intended to suggest that New York State law can redefine the scope of the duty to speak in section 10(b) cases.
Reliance
On this issue I prefer the opinion of Professor Karmel that where the court is concerned with rescission, rather than damages, there is no need to prove reliance. It is supported by two successive decisions of the Court of Appeals for the Third Circuit in GFL Advantage Fund v Colkitt 272 F.3d 189 and Berckeley Investment Group Ltd v Colkitt 455 F.3d 195. Mr Gelber opined that there was simply a rebuttable presumption of reliance, but this is not consistent with the language used in Berckeley at 208: "A section 29(b) rescission claim based on a Section 10(b) violation, however, differs from a private damages action brought under Section 10(b). In the Section 29(b) context, a plaintiff seeking rescission does not have to establish reliance and causation"; nor with the rationale explained in GFL Advantage Fund at note 6: "Although maintaining a private right of action under Section 10(b) requires a plaintiff to prove reliance and damages (usually reflected in the stock's price movement), Section 29(b) only requires a violation of Section 10(b), not the maintenance of a private suit under Section 10(b). Therefore, looking to the statutory language of the anti-fraud provision, we note that an individual violates Section 10(b) – and therefore triggers Section 29(b) – when he or she employs manipulative or deceptive devices in connection with the purchase or sale of securities. The situation is analogous to a government prosecution under Section 10(b), in that the government is not required to meet the normal standing requirements imposed on those asserting a private remedy, inasmuch as the government need not demonstrate that the defendant's conduct induced reliance by investors or affected the price of the security."
Misstatement
My conclusion that in New York law the special facts doctrine cannot impose a duty to speak is fatal to this limb of Odeon's defence. I would not, in any event, have found that the application of such doctrine imposed a duty on Mr Rohailla to disclose the matters alleged, because they do not represent essential facts known to him which rendered the transaction inherently unfair in the absence of disclosure.
Mr Patton relied on answers given by Mr Rohailla in cross examination that when he was initially offered the Bonds at an indication of 20, he thought that it might have been a mistake because of the low price; that the possibility was reinforced when he did his own calculation of value at low 40s on the Monday morning, which caused him to wonder how genuine the indication was; and that after he had had the firm offer, the delay in Mr Ashiq providing the trade ticket and Mr Agresta's relayed comments fuelled his suspicion that "there was something wrong with the offer". However the pleaded case is that the essential facts which ought to have been disclosed to Odeon were what Mr Agresta said, and what Mr Rohailla had said to Mr Ashiq about having sold on to Morgan Stanley, not what Mr Rohailla's state of mind was about the price being offered. Moreover Mr Rohailla did not have any superior knowledge to that of Shooters Hill or Odeon about the price at which the Bonds were being bought, and could reasonably have expected them to form their own view about whether it was low enough to raise doubts about whether the seller would perform.
What Mr Agresta had said related to whether a trade had been concluded up the line, but it was followed by his parting remark saying "I am going to come back to do it", and then by Mr Ashiq telling Mr Rohailla on the phone at 1741 that it looked like they were getting confirmation from the seller, and finally by the confirmation by Mr Ashiq that Odeon would send the trade ticket, which followed the receipt of a trade ticket from Mr Agresta. In substance all that Mr Rohailla knew was that Mr Agresta had been saying that somewhere up the line the seller was saying that the buyer had jumped the gun, and that having said he was going to fix it, he had apparently done so by confirming the trade, so that Mr Rohailla had no reason to believe that the apparent problem had not been remedied. The transaction was not inherently unfair to Odeon if these matters were withheld. They would not provide substantial grounds for doubting future performance on the seller's side, and moreover had they done so, Mr Rohailla could reasonably expect Odeon to look to Shooters Hill to be made aware of them.
Although what Mr Rohailla had said to Mr Ashiq about Morgan Stanley having sold on was a reckless untruth, it was gilding the essential point which he was making, which he believed to be true, that he had concluded a contract by accepting a firm offer and had contracted with his buyer on the faith of it. It was not said to Mr Agresta, but to Mr Ashiq after Mr Agresta had left the call saying that he was going to get the deal confirmed. It amounted to the reckless addition of what turned out to be an untrue point of detail so as slightly to overegg his otherwise valid point that he had sold down the line in reliance on a firm offer from City & Continental. There is no reason to conclude that it was passed on by Mr Ashiq or that it played any part in Mr Agresta doing what he had already just promised to do, which was to get the trade confirmed. It was not something which ought to have been perceived as having any significant bearing on the prospects of City & Continental performing the contract.
Scienter
For similar reasons I find that Mr Rohailla did not have scienter at the time of entering into the Odeon contract in relation to the matters it is alleged he had a duty to disclose. His dishonesty in what he said to Mr Ashiq and Mr Rhodes during the negotiations about the price of indications and bids and offers up and down the line is not here relevant. There was no dishonesty or recklessness in failing to disclose what he knew of Mr Agresta's position or his previous reckless untruth about Morgan Stanley having sold on. An honest person in his position would not have thought it necessary to disclose such matters in order to act reasonably and fairly.
Materiality
For similar reasons I would conclude that the undisclosed facts were not material. When dealing with reliance and materiality, the evidence of Odeon's witnesses, and at times Mr Patton's submissions, mischaracterised the case as being that the Bonds could never have been delivered because they had not been sold by Tilden Park. This was not the pleaded case, nor what Mr Rohailla is alleged to have known. Nor indeed is it obviously the position on the evidence, because if no purchase from Tilden Park had occurred at the moment of the sale to Odeon, that would not necessarily preclude the Bonds being bought in thereafter to fulfil a sale.
Accordingly this defence fails.
Issue 5 Unilateral mistake
This limb of Odeon's defence relies on the same factual allegations as those relied on as 1934 Act violations. The case advanced is that Odeon was mistaken in that it did not know about what Mr Agresta had said in relation to City & Continental performing, or about Mr Rohailla's reckless untruth that Morgan Stanley had sold on the Bonds; and that Mr Rohailla knew or ought to have known of this mistake, which entitled Odeon to rescind.
This issue is governed by New York law. A good starting point is §153 of the Restatement (Second) of Contracts which was cited with approval (albeit in a dissenting judgment) in the decision of the Court of Appeals for the Second Circuit in Middle East Banking Company v State Street Bank (2012) 821 F2d 897:
"Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in §154 and
(a) the effect of the mistake is such that enforcement of the contract would be unconscionable; or
(b) the other party has reason to know of the mistake or his fault caused the mistake."
The mistake must be as to a basic assumption on which the mistaken party entered into the contract, which must have a material effect on performance. This imports a test of reasonable reliance, and a further test of materiality which is the same "total mix" test as applies to 1934 Act violations (see above).
There was a dispute between the experts as to what degree of knowledge or fault was required on the part of the person not suffering under the mistake. Professor Karmel's opinion was that the test was one of "should have known" so that negligence was sufficient; but that the two limbs were not true alternatives, and because rescission was an equitable remedy, it was always necessary for the rescinding party to show that it would be unconscionable for the other party to be allowed to take advantage of the mistake. Her view is supported by the decision of the District Court in Summit Health Inc v APS Healthcare Bethseda 993 FSupp2d 379 in which Ramos J stated that the defence is available if the other party "either knew or should have known" of the mistake; and noted at footnote 19 that whilst the courts had been inconsistent about the mental element, the Second Circuit's interpretation in Middle East Banking had treated fraud and "knew or should have known" as "alternative" tests, which "captures the general state of New York case law". Mr Gelber opined that what was necessary was fraud or some other wrongdoing, and that the "should have known" test required a degree of knowledge akin to a reckless disregard of information which ought to have been known; mere negligent failure to appreciate that the other party is mistaken is insufficient. Given Professor Karmel's acceptance that even in cases of negligence there is an additional unconscionability test, the difference between them is a narrow one and is not critical on the facts of this case.
Odeon under a mistake
It is established that Odeon did not know about the matters pleaded and to that extent was under a mistake. However the evidence of Odeon's witnesses in this context, and Mr Patton's submissions, again strayed into a mischaracterisation of the case as being that Odeon's mistake was in not knowing that the contract was impossible of performance from the outset because Tilden Park had never sold the Bonds to anyone. Again this was not the pleaded case, nor what it is alleged Mr Rohailla knew or ought to have known. The pleaded mistake is only as to the specific matters of what Mr Agresta had said about a concluded agreement and what Mr Rohailla had said to Mr Ashiq about Morgan Stanley having sold the Bonds on.
Reliance
I am not persuaded that such a mistake made any difference to Odeon entering into the agreement. Mr Nissim would still have concluded the deal if he had been told of Mr Agresta's earlier concerns about having jumped the gun once he knew that the offer had been confirmed, or if he had been told of Mr Rohailla's immaterial lie about Morgan Stanley having sold on the Bonds. The mistake was therefore not as to a basic assumption on which Odeon relied when making the contract.
Materiality
For similar reasons, and as I have endeavoured to explain in relation to the 1934 Act defence, the pleaded matters of which Odeon was unaware do not satisfy the test of materiality.
Mr Rohailla's state of mind
Again for the same reasons as I have endeavoured to explain in relation to the 1934 Act defence, it is not established that Mr Rohailla knew or ought to have known that Odeon was unaware of what Mr Agresta had said. If material, he could reasonably have expected Shooters Hill to inform Odeon. In any event if he knew or ought to have known that Odeon was unaware of what Mr Agresta had said, that fact, together with his knowledge that Odeon were unaware of his lie to Mr Ashiq that Morgan Stanley had sold on the Bonds, would not make it unconscionable for Molton Street to enforce the contract. Neither would have been perceived as material. An honest and reasonable person in Mr Rohailla's position would not have regarded either as having a significant bearing on the likelihood of City & Continental performing the contract.
Accordingly this defence fails.
Issue 6 Implied term as to performance
Odeon contends that it was an implied term of any contract that Odeon would be excused from performance if City & Continental failed to deliver the Bonds, thus preventing performance by Odeon. If the matter were governed by English law such a contention would be hopeless. Such a term is not necessary, obvious or reasonable. The reasonable observer would not understand the contract to bear that meaning (see Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988) because it is inconsistent with Odeon's express obligation to deliver the Bonds, and it is in the nature of counterparty risk in such transactions that the seller assumes the risk of his seller failing to perform. There is nothing in the fact that this agreement was negotiated initially by Shooters Hill to undermine that conclusion.
Odeon's contention is no more valid under New York law. The task of the court in deciding whether to imply terms into a contract is to determine what the parties would have intended if they had explicitly considered the issue: Great Lakes Transit Corp. v Marceau 154 F2d 623, 628. In Clarex v Natixis 2014 WL 4276481 the District Court said: "This Court declines to hold that a principal is excused from performing its obligation to deliver a security because performance has simply become more expensive or because its counterparty has failed to deliver the securities in a transaction in which such delivery is not an express condition. Given the importance of the securities industry in New York, and the ramifications of an expansion of the impossibility defense as suggested by Natixis, its argument must be validated by clear authority, which the Court has not identified." Although what was there said was in the context of a defence of commercial impracticality, rather than implied term, it illustrates that the parties are not to be taken to have intended, in the absence of express stipulation, that the seller of securities is to be excused from performance merely because the seller's counterparty has failed to deliver.
Accordingly this defence fails.
Issue 7: Implied term as to criminal conduct under English law
This defence only arises if, contrary to my earlier finding, the contract would have been governed by English law. The conduct here relied on is that of Mr Rohailla in lying to Mr Ashiq about the price at which he was selling on, and the reckless untruth about Morgan Stanley having sold on. Odeon's case is that it was an implied condition of the alleged contract that neither party had breached or would breach the prohibitions contained in Part 7 of the Financial Services Act 2012. Section 89 of the 2012 Act makes it a criminal offence for a person to make false or misleading statements, made knowingly or recklessly, with the intention of inducing another person to enter into an agreement to sell "relevant investments", which would include the Bonds. Odeon's case is that this condition is analogous to the implied term of honesty found in Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] 1 All ER (Comm) 1321 at paragraphs [134]-[137], and that commercial people transact against an assumed background of honest conduct.
The argument is for a novel form of implied term, which is not as to future conduct but relates to conduct prior to entering into the agreement. I have considerable doubts whether there is any room for the implication of such term in circumstances where it is not alleged that false statements were made to or relied on by Odeon (which would afford a remedy in deceit) and where these allegations are not said to found an ex turpi causa defence (which rests on different aspects of Mr Rohailla's conduct: see below). However in light of the fact that the issue does not arise on my earlier findings, I prefer to express no concluded view.
Damages
The primary way in which Molton Street puts its claim for loss suffered by reason of Odeon's failure to deliver the Bonds relies upon the resale to Morgan Stanley, and arises under two heads. The first is the loss of profit that it would have made, measured by the difference between its purchase price (22) and sale price (35.5). The second head is Molton Street's exposure to a claim for damages by Morgan Stanley for non delivery. In the alternative, if such damages are irrecoverable, Molton Street advances a claim for the difference between the purchase price of the Bonds and their market value. I shall refer to the claims as the loss of profit claim, the indemnity claim and the market value claim respectively.
As to the indemnity claim, Morgan Stanley has not advanced any claim against Molton Street, although it has said that the trade is still open. Mr Atrill submitted that the Court should now order an indemnity. That would be inappropriate in the absence of a formulated claim by Morgan Stanley whose merits could be assessed (see Trans Trust SPRL v Danubian Trading [1952] 2 QB 297, 303). Mr Patton submitted that there was no prospect of a claim from Morgan Stanley, and that in any event no cause of action for an indemnity arose under New York law until payment of the third party by the indemnifiee, albeit that the position was usually dealt with by third party claims in existing proceedings. I cannot, however, regard the prospect of Morgan Stanley advancing a claim as fanciful in the light of its recent email treating the trade as still open; and were it to do so, the appropriate course would be to reserve this head of claim, if it were otherwise valid, until it crystallised (cf Deeny v Gooda Walker [1995] 1 WLR 1026), which was the fall back position of both Mr Atrill and Mr Patton.
When the Particulars of Claim were amended to include a claim in damages, both in respect of the indemnity claim and the alternative market value claim, it was ordered by HH Judge Waksman QC that quantification of any damages should be dealt with, if they arose, at a subsequent hearing. I will deal with issues of principle which arise in relation to those heads of claim.
Issue 8: Remoteness
Odeon contends that the damages claimed are too remote. This issue is governed by New York Law. The test in New York law is reflected in paragraph 351 of the Restatement of the Law, Second, Contracts in the following terms:
"(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made.
(2) Loss may be foreseeable as a probable result of the breach because it follows from the breach
(a) in the ordinary course of events; or
(b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know."
The test not only requires loss of profit to be a type of loss which is reasonably foreseeable, but also that the extent of lost profit is reasonably foreseeable. As Mr Gelber put it in his first report, the "relevant inquiry is whether the onward sales price was reasonably foreseeable".
The evidence established two further potential limitations on recoverability:
(1) The Court will only award damages for consequential loss if they satisfy the "tacit agreement" test set out in the decision of the New York State Court of Appeals in Kenford v County of Erie 67 NY2d 257, 262 (1986). In that case, the County had agreed with the plaintiffs to build a stadium, which would then be subject either to a 40-year lease or, in the event of a failure to agree the lease, a 20-year management contract operated by the plaintiffs. The stadium was never built, and the plaintiffs claimed damages for the fees they would have earned during the 20-year management period. Such losses were reasonably foreseeable as flowing from the wrongful non-construction of the stadium, but the court quashed a jury verdict for such damages. Having noted that claims for consequential damages such as lost profits needed to be fairly within the contemplation of the parties at the time of the contract, the Court went onto say that there was nothing in the contract itself which suggested that the County would bear the heavy responsibility of paying damages for 20 years of lost management fees. It observed:
"In the absence of any provision for such an eventuality, the commonsense rule to apply is to consider what the parties would have concluded had they considered the subject. The evidence here fails to demonstrate that liability for loss of profits over the length of the contract would have been in the contemplation of the parties at the relevant times."
(2) A court may limit damages for foreseeable loss by excluding recovery for lost profits if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation. The principle is set out in paragraph 351(3) of the Restatement, which goes on to explain in the commentary:
"f. Other limitations on damages. It is not always in the interest of justice to require the party in breach to pay damages for all of the foreseeable loss that he has caused. There are unusual instances in which it appears from the circumstances either that the parties assumed that one of them would not bear the risk of a particular loss or that, although there was no such assumption, it would be unjust to put the risk on that party. One such circumstance is an extreme disproportion between the loss and the price charged by the party whose liability for that loss is in question. The fact that the price is relatively small suggests that it was not intended to cover the risk of such liability. Another such circumstance is an informality of dealing, including the absence of a detailed written contract, which indicates that there was no careful attempt to allocate all of the risks. The fact that the parties did not attempt to delineate with precision all of the risks justifies the court in attempting to allocate them fairly. "
It is convenient to consider the loss of profit claim, indemnity claim and market value claim separately.
The loss of profit claim
Odeon's case was that in this market, the mark-up would be expected to be a payment on top in the region of 8 to 16 ticks (i.e. 0.25-0.5% of face value), which is the extent to which Odeon could reasonably have foreseen that Molton Street would lose profit on a resale. I am persuaded that a mark up of no more that 1% would have been within the reasonable contemplation of Odeon for the following reasons:
(1) Molton Street was a small broker dealer whom it was not contemplated would be running a position by holding the Bonds. This is readily apparent from the negotiations, which were premised on prices being bid and offered up and down the line from Mr Rohailla. It was therefore objectively contemplated by Odeon, Shooters Hill and Molton Street (whatever Mr Rohailla's fraudulent intentions) that Molton Street would sell on in a matched or riskless principal transaction, both because it was a small broker dealer which only traded as a matchless principal, and because that was the stated assumption on which negotiations were conducted.
(2) It was the evidence of Mr Schwartzberg and Mr Van Alstyne that in a riskless principal transaction, a standard and usual mark up for bonds of this nature would be in the region of 0.25 to 0.5%.
(3) Mr Rohailla's evidence was that previously he had managed to get as much as a full point on a trade i.e. 1% but he did not suggest that he had ever previously made a greater turn.
(4) In a recent Complaint brought by the SEC against traders at Nomura Securities International Inc for making an illegal turn on residential mortgage asset backed securities by lying about the bid and offer prices, Nomura's standard going rate for a payment on top was said to be 8 ticks.
(5) 0.5% was the mark up which Mr Rhodes agreed Mr Rohailla should get, on the assumption that that was Mr Rohailla's entire profit from the transaction as being additional to the price which Mr Rohailla was paying his seller.
(6) On the Friday evening, Mr Ashiq added 0.5% to Mr Agresta's original indication of 20.5% before offering it on, and then disclosed to Mr Agresta that he had done so.
(7) Ultimately 1% was the mark up negotiated by Shooters Hill for Odeon (buying at 21 and selling at 22), which fell to be split as to 0.9% to Shooters Hill and 0.1% to Odeon.
Odeon's witnesses also relied on FINRA rule 2121 which requires mark ups to be fair and establishes as a guideline the principle that mark ups in excess of 5% of the broker's contemporaneous cost are presumptively excessive. I did not find this a useful piece of evidence because it appeared that the rule only applies to transactions with "customers", which is defined as excluding broker dealers.
Mr Atrill argued that even if, as I conclude, it was contemplated that Molton Street were buying to sell on, rather than take a position, nevertheless its overall loss would be just as large if it sold on at a turn of 1% or less, because of its exposure to the buyer down the line, whom it could reasonably be contemplated would be buying to hold. So assuming the foreseeable value to someone taking a position to be 50, for example, Molton Street would still suffer a loss of the difference between 22 and 50 if the Bonds were not delivered, however much its own turn; if it sold on at 22.5 its loss of profit claim would be for 0.5, but its indemnity claim would be for 27.5 (50 less 22.5); if it sold on at 35.5 its loss of profit claim would be for 13.5 but its indemnity claim 14.5 (50 less 35.5) The overall loss (28 in the example given) is no different whatever the resale price; the only difference is in the split between what is a loss of profit claim and what is an indemnity claim.
I was not attracted by the argument. If, as I conclude, it was not within the reasonable contemplation of the parties that Molton Street would take a position or sell on at more than a 1% turn, that is the limit of the reasonably foreseeable loss of profit sufferable by Molton Street. Whether an indemnity claim satisfies the remoteness test is not here in point. There might not be any indemnity claim. What matters is the foreseeability of the claim actually being advanced.
Had I reached a different conclusion on foreseeability, I would not have regarded the tacit agreement requirement as precluding recovery. If loss of profits of the amount claimed were within the contemplation of the parties, there is nothing to suggest that the parties would not have regarded them as recoverable: such would have been inherent in the allocation of risk. Nor would I have regarded this as one of the "unusual" cases in which a New York Court would have disallowed recovery of the loss as unjustly disproportionate to Odeon's turn. These were sophisticated commercial parties of equal bargaining power who accepted the contractual allocation of risk and the exposure to liability for reasonably foreseeable lost profits.
The indemnity claim
Nothing I have said about Molton Street's own profits applies to the indemnity claim. It was reasonably foreseeable that Molton Street would sell on to someone taking a position, who would suffer a loss if Odeon failed to deliver the Bonds, measured by the difference between the contract price and the market value, for which Molton Street would or might well be liable. That loss would not be too remote and would not be barred by the tacit agreement test or the exercise of a residual injustice discretion.
The market value claim
It follows from my conclusions in relation to the loss of profits claim that the market value claim was not reasonably foreseeable. It was not contemplated that Molton Street would be buying to hold a position, but only that it would sell on at a turn of no more than 1%. This would be a back to back contract with contemporaneous settlement and this was an illiquid market in which Molton Street could not have been expected to be able to buy in to enable it to perform. I am not concerned with mitigation damages which might arise from securing the Bonds for delivery thereafter. Accordingly it was only reasonably foreseeable that Molton Street would suffer a loss calculated by reference to its contemplated onsale, not a freestanding market value loss.
Issue 9: Ex turpi causa
The ex turpi causa defence is pleaded by Odeon as a ground on which both the loss of profit claim and indemnity claim is irrecoverable. The pleading does not rely on anything said by Mr Rohailla to Mr Ashiq as part of the turpitudinous conduct. The turpitudinous conduct relied on for the purpose of this defence is that of Mr Rohailla in deceiving Mr Rhodes in:
(1) the Bloomberg message at 1408 by telling Mr Rhodes that the seller was looking for a bid in the mid 30s;
(2) the telephone conversation at 1455 by again telling Mr Rhodes that the seller was looking for a bid in the mid 30s;
(3) the Bloomberg message of 1504 by telling Mr Rhodes that the offer was 35 and suggesting going in with a bid of 32; and
(4) the Bloomberg message at 1710 by telling Mr Rhodes that the Bonds were offered at 35.
As a result of three recent decisions of the Supreme Court, the law is in a state of some uncertainty. In Les Laboratoires Servier v Apotex [2015] AC 430, Lord Sumption JSC (for the majority) referred at paragraph [18] to the test laid down in Tinsley v Milligan [1994] 1 AC 340, which is that the doctrine only applies where it is necessary for the claimant to "rely on (i.e. to assert, whether by way of pleading or evidence) facts which disclose the illegality" By contrast, in Hounga v Allen [2014] 4 All ER 595, Lord Wilson JSC (also for the majority) referred at paragraphs [31]-[40] to a test, originating in tort claims, based on an "inextricable link" between the claim and the illegality; and Lord Hughes JSC (for the minority) at paragraph [55] applied a test of "sufficiently close connection." Most recently, in Jetivia SA v Bilta (UK) Ltd [2015] 2 WLR 1168, Lord Neuberger PSC (with the agreement of the majority) identified but declined to resolve the conflict, and said at paragraph [15] that the proper approach needs to addressed by the Supreme Court, conceivably with a panel of nine judges, as soon as appropriately possible. In a very recent decision, Sharma v Top Brands & others [2015] EWCA Civ 1140, the Court of Appeal declined to embark upon an analysis to resolve the conflict between Tinsley and Hounga on the grounds that it did not matter to the disposal on the facts of that case.
It is a conflict which is of potential significance in this case because Mr Rohailla's misconduct vis a vis Mr Rhodes would not fulfil the Tinsley reliance test: all Molton Street needs to plead and prove is the contract with Morgan Stanley, not any facts about how it came into existence. However if the "inextricably linked" test were to be applied I would conclude that it was fulfilled:
(1) The claim for loss of profit is for the very profit which Mr Rohailla procured by practising his deception on Mr Rhodes. The damages are based on the difference between the purchase price and the sale price to Morgan Stanley in circumstances where the latter was procured by Mr Rohailla's fraudulent conduct. Mr Atrill argued that Mr Rohailla's deception did not play any part in inflating the claimed loss: the relevant counterfactual is what would have happened if the representations had not been made, not if they had been true; and Mr Rhodes would have been prepared to bid 35.5 irrespective of Mr Rohailla's deception, as is evident from his bid at 40 in the BWIC. I would not accept that argument. The relevant counterfactual is indeed what would have happened had the misstatements not been made; but it is a fallacy to posit that in those circumstances Mr Rhodes would simply have bid blind without inquiring what Mr Rohailla was being offered by his seller; when dealing with a small broker dealer like Molton Street, Mr Rhodes would have based a bid only on what he thought was being offered up the line, which is why Mr Rohailla practised his deception about that in this case. The counterfactual is therefore that if any sale to Morgan Stanley would have been achieved at all, it would have been based on the true price being offered to Molton Street. Odeon's broad submission, that the loss of profit claim involves an attempt by Molton Street to secure the fruits of its own fraudulent conduct, is well founded.
(2) The same reasoning does not directly apply to the indemnity claim, which would fall to be quantified by reference to the difference between the price at which Morgan Stanley bought and the price at which it sold or could have sold to its customer, or market value if that is different. If Morgan Stanley was deceived into paying more than it otherwise would, that goes to diminish, not inflate, the quantum of the indemnity claim. Nevertheless the exposure to liability towards Morgan Stanley under a contract procured by fraud would in my view inextricably link the claim for an indemnity with the fraud so as to attract the operation of the ex turpi causa doctrine if the test is that identified in Hounga.
The market value claim is not affected by the ex turpi causa argument because it arises entirely independently of the Morgan Stanley contract.
In view of the fact that it is not necessary to resolve the Tinsley/Hounga conflict in order to decide this case, and the fact that the issue was not fully argued, I prefer not to embark upon any attempt to do so.
I should record two further arguments advanced by Odeon. First Mr Patton argued that the claim cannot be entertained for the additional reason that it would involve awarding the claimant the proceeds of crime; under the Proceeds of Crime Act 2002 ("POCA"), property which constitutes or represents (in whole or in part, and whether directly or indirectly) a person's benefit from criminal conduct is "criminal property" (s. 340(3)); and its possession by someone who knows or suspects its status is an offence (s. 329); criminal conduct, for the purposes of POCA, means conduct which constitutes an offence in the United Kingdom or would constitute such an offence if it occurred there: s. 340(2). A similar argument was rejected by the Chancellor in Sharma v Top Brands at paragraph [48] where he stated that the particular statutory context of POCA provided no clear steer for the scope and application of the common law ex turpi causa principle. I too would reject it.
Secondly, Mr Patton advanced a further answer to the indemnity claim by reason of the application of New York law. In the absence of an express indemnification clause, the remedy is governed by the general law of New York, under which public policy precludes indemnification for those who commit intentional torts or active negligence. This was the view of Professor Karmel, which I accept, deriving support from the fact that indemnification is treated by New York law as an equitable remedy and from the decision of the Appellate Division in Hytko v Hennessey 62 AD3d 1081, 1086 in which it was said (omitting internal citations):
"Both subrogation and implied indemnification are equitable causes of action. The purpose of these equitable remedies is to shift a debt or obligation to a party who more properly should be accountable in order to prevent unjust enrichment and an unfair result. However, equitable remedies are barred by the doctrine of unclean hands where the party seeking to assert them "has committed some unconscionable act that is 'directly related to the subject matter in litigation' and has injured the party attempting to invoke the doctrine." Additionally, public policy precludes indemnification for those who commit intentional torts or active negligence. Thus, the equitable powers of the courts should not be exerted on behalf of one who has acted fraudulently or has gained an advantage by deceit."
This submission is well founded. I conclude that Mr Rohailla's fraudulent conduct vis a vis Mr Rhodes would be treated by a New York Court as precluding the grant of the equitable remedy of an indemnity in respect of Molton Street's liability to Morgan Stanley.
Conclusion
Molton Street's claim fails and there will be judgment for Odeon. |
Mr Justice Burton :
The Claimants (whom I shall call Pearl, Dana and Crescent) and the Respondent, the Kurdistan Regional Government of Iraq ("KRG") are engaged in arbitration proceedings under the LCIA Rules, commenced in October 2013, in relation to disputes arising out of a contract ("the Heads of Agreement") dated 4 April 2007. This is an application to the Court by the Claimants, for whom Mr Gordon Pollock QC and Mr Zachary Douglas QC appear, with the permission of the Arbitrators, (Lord Hoffmann, Lord Collins and Mr John Beechey), under s.42 of the Arbitration Act 1996 ("the 1996 Act") for an order by the Court enforcing a peremptory order made against the Respondent by the Arbitrators on 17 October 2014, whereby the Respondent was ordered to pay to the Claimants the sum of US$100 million. The Respondent, for whom Graham Dunning QC and Anton Dudnikov appear, resists that application and cross-applies for a declaration pursuant to CPR Part 11 that it is immune from the jurisdiction of the court by virtue of the State Immunity Act 1978 ("the SIA").
The Respondent is a constituent region of the Federal Republic of Iraq, and as such it is common ground that it is not itself a State, but is a separate entity within the meaning of s.14 SIA (and no Order in Council has been made giving it immunity as if it were a State pursuant to s.14(5) SIA). By the Heads of Agreement between the Respondent ("duly represented by the Minister of Natural Resources and the Prime Minister of Kurdistan") and, initially, Dana (which subsequently transferred 50% of its interest in the Contract to Crescent, following which Dana and Crescent transferred their interests to Pearl, a Special Purpose Vehicle ("SPV") owned between them), the parties agreed to the exploitation by the Claimants of two gas fields known as Khor Mor and Chemchemal, which are situated in the Kurdistan Region of Iraq ("the KRI"), of which the Respondent is the Government. The term of the contract was not less than 25 years. By 2008 the Khor Mor field had been developed and was producing gas and condensate and by 2011 it was also producing LPG.
There were the following material provisions of the Heads of Agreement. The recitals included the following:
"A. The KRG has entered into a Strategic Alliance Protocol ("SAP") dated 4th April 2007 with Dana and . . . [Crescent] (. . . the "Companies") whereby the Companies will carry out optimization of the development and utilization of natural gas resources in the [KRI].
B. The KRG wishes to appoint Dana to carry out certain works in the field of Khor Mor . . . and in the field of Chemchemal . . . in the [KRI]. The work is urgently required to fulfil energy requirements in the [KRI] and in particular to provide urgent gas supplies for use at the power stations under construction at Erbil and Bazian, and thereby help to relieve the electrical power shortage affecting all the people of Iraq.
C. The KRG has endorsed a federal draft Oil and Gas Law for Iraq that requires petroleum contracts issued by federal and regional entities, including by the KRG, to meet agreed commercial criteria, in addition to other relevant provisions pursuant to the KRG and the Constitution of Iraq.
. . .
F. The KRG, desirous of rapid and optimal economic development of the petroleum gas resources of the [KRI], gas-related industries, and job creation for the benefit of the people of Iraq and the [KRI], has declared its intention to associate and contract with Dana . . . to take the lead in the development of the gas resources of the [KRI], both for domestic gas utilization as a priority, as well as for export."
The following clauses are of particular relevance:
"9. The KRG hereby grants Dana the exclusive right during the term of these HoA [minimum 25 years] . . . to develop and produce Petroleum within the Khor Mor HoA Area and the Chemchemal HoA Area.
. . .
16. For the purpose of this Article, "Dispute" shall mean any dispute, controversy or claim (of any and every kind or type . . .
If the Dispute cannot be resolved by negotiation within sixty (60) days after the date of the receipt by each party to the Dispute of the Notice of Dispute any party to the Dispute may seek settlement of the dispute by mediation in accordance with the London Court of International Arbitration (LCIA) Mediation Procedure, which Procedure shall be deemed to be incorporated by reference into this Article, and the parties to such Dispute shall submit to such mediation procedure:
(a) If the Dispute is not settled by mediation within sixty (60) days of the appointment of the mediator, or such further period as the parties to the Dispute may otherwise agree in writing, any party to the Dispute may refer the Dispute to, and seek final resolution by, arbitration under the LCIA Rules, which Rules shall be deemed to be incorporated by reference into this Article.
(b) Any arbitration shall be conducted by three (3) arbitrators.
. . .
(e) Arbitration shall take place in London, England. The language to be used in any prior negotiation, mediation and in the arbitration shall be English. During the arbitration procedure and until the arbitral decision, neither entity shall act in a manner that may affect the rights of the other Party under these HoA . . . The arbitral award may include an award of specific performance and may be enforced by any court of competent jurisdiction, including the Kurdistan Region. Any award shall be expressed in US Dollars."
There were (inter alia) the following "Key Commercial Terms" contained in Annexure 2:
"? In the event Dana is unable to export and market the LPG's [or] Condensates by any act or omission of government (including foreign neighbouring governments) and/or for political reasons beyond the control [of] Dana then the KRG shall purchase and lift (or arrange for the lifting by the domestic companies/users) and pay for the liquid petroleum products at international FOB Med market prices as quoted by Platts Oilgram Report or similar journals within 30 days from the month ends. [Identified by the parties as "Bullet 7"].
? The KRG waives on its own behalf and that of the KRG any claim to immunity for itself and assets."
The history
Disputes arose in about 2009 between the parties relating to the nature and extent of the Claimants' rights in relation to the two fields and the prices payable to the Claimants by the Respondent for condensate and LPG produced at Khor Mor and sold to the Respondent. The Claimants contended that by September 2013 the Respondent had underpaid for product produced and lifted in a sum of US$1.12 billion.
In 2013 the Claimants initiated mediation proceedings in accordance with clause 16 of the Heads of Agreement, and when the Respondent declined to participate in it, the Claimants commenced arbitration proceedings. The Respondent's response to the mediation and arbitration was that instead of continuing to make relatively regular payments to the Claimants for the product produced and lifted, albeit on the Claimants' case substantially short of what was due under the contract, the Respondent stopped making any payment, whilst continuing to require the Claimants to deliver up product. The structure of the contract was such that a quantity of gas which was produced was supplied free for the benefit of the Respondent, so that the only source of revenue from which the Claimants could recover their capital investment and their annual running costs was the revenue which they received from their produced condensate and LPG sold and lifted by the KRG, the by-products of the gas production. The sudden cessation of any payment was ascribed by the Respondent to the existence of counterclaims dating back in some cases to 2009.
On 21 March 2014 the Claimants applied to the Arbitrators for an interim measures order pursuant to Article 25 of the LCIA Rules, which provided, inter alia, for the Arbitrators to have the power on the application of any party "(c) to order on a provisional basis, subject to final determination in an award, any relief which the Arbitral Tribunal would have power to grant in an award, including a provisional order for the payment of money or the disposition of property as between any parties". The application was that the Respondent be ordered to resume payments for product lifted, pending the resolution of the parties' disputes. A major ground of this application was the serious financial damage which the Claimants alleged would be suffered by the Claimants, in the case of Dana involving potential bankruptcy, in the event that the Respondent continued with its refusal to make any payment for product which it lifted. The Claimants' case was that by the making of an order for interim measures the Tribunal should restore the status quo by which the Respondent was paying for the condensate and LPG which it was lifting. I set out relevant passages from the Claimants' application:
"2. The Claimants seek an order to compel the Respondent . . . to restore the status quo ante and prevent further escalation of the dispute during the pendency of the present arbitration, by resuming payment for on-going deliveries of condensate and liquefied petroleum gas (LPG) and releasing and/or procuring the release of funds to the Claimants which were withheld by the KRG or on the KRG's instructions following the Claimants' commencement of mediation on 24 July 2013.
3. Absent the cash flows from the sale of condensate and LPG to the Claimants until their abrupt curtailment by the KRG with effect from July 2013, Dana . . . which operates the gas processing facilities at Khor Mor jointly with Crescent on behalf of Pearl, will face a cash crisis and is expected to run out of cash by the fourth quarter of 2014. As a consequence, Dana . . . will default on its debt obligations and the company will be forced into insolvency during the pendency of the present arbitration, causing irreparable damage to [Dana's] . . . stakeholders, including its over 200,000-strong regional and international shareholder base.
4. The insolvency of Dana . . . is likely to result in the KRG's take-over of operations and the destruction of the rights under the Contract that are the subject matter of this dispute.
. . .
8. Prior to the initiation of the mediation on 24 July 2013, the KRG was making regular (albeit deficient) payments (either directly or through third parties) for condensate and LPG, which were and continue to be critical to the Contractor's ability to continue operating the gas production facilities at Khor Mor and Dana Gas's ability to service its home office costs and debt obligations.
9. In an act of retaliation to the Claimants' commencement of mediation proceedings on 24 July 2013, the KRG deliberately withheld all contractually-due payments it had previously been making on a regular basis for the supply to it of Khor Mor condensate. Moreover, and in order to 'turn off' entirely the tap of the Claimant's revenue streams from the uninterrupted production that it continues to provide, the KRG altered the terms upon which it auctions the right to lift LPG to third parties by diverting payments away from the Claimants. The basis for the KRG's retaliatory action is a set of contrived counterclaims which, despite allegedly amounting to nearly US$5 billion and being based on allegations dating back several years, had never previously been raised, let alone quantified or used as a basis for withholding payments to the Claimants.
. . .
11. In the circumstances, and in the light of recent press reports regarding the KRG's intentions to this effect, the Claimants have good reason to believe that the KRG's conduct is part of a concerted strategy to manufacture excuses for a precipitate and unlawful termination of the Contract, take-over of operations and subsequent sale of the valuable exclusive rights under the Contract to a third party, the latter having already been attempted by the KRG in the recent past. The Claimants' belief has been further reinforced by the KRG's constant attempts at obfuscation and delay, first in resisting expedited formation of the arbitral tribunal, and then in its lengthy and repetitive objections to having preliminary issues heard and challenge to the jurisdiction of the Arbitral Tribunal.
12. The KRG's recent conduct and resulting alteration of the status quo ante will lead to the collapse of Dana . . . will aggravate the present dispute and will likely result in an expropriation of the subject matter of this arbitration long before the Arbitral Tribunal will have an opportunity to render a final award. To prevent this, the Claimants require assistance from the Arbitral Tribunal in the form of the interim measures set out in Section IV below.
. . .
14. In order to address its purported concern all the KRG needs do is to continue what it has been doing in recent years, namely make and/or direct payments to the Contractor for Khor Mor condensate and LPG lifted by it or on its behalf.
. . .
50. Article 25.1 of the LCIA Rules does not set out any explicit standards for the grant of interim measures. Nonetheless, in international arbitration practice arbitral tribunals typically take into account the following factors when considering a request for interim measures:
(a) whether the applicant has a prima facie case on the merits;
(b) whether the application is likely to suffer serious harm if the measures are not granted;
(c) whether the request is urgent;
(d) whether granting the request would prejudge the merits of a case; and
(e) the harm the applicant is likely to suffer in the absence of interim measures as compared with the harm likely to result to the respondent if the measures are granted.
. . .
56. Thirdly, many international tribunals require the requesting party to demonstrate urgency, which is closely related to the requirement of serious or substantial harm. The requirement of urgency has been construed sufficiently broadly by tribunals to justify interim measures designed to avoid the aggravation of the dispute that is the subject matter of the arbitration.
[Citations of various international tribunals' decisions were set out in footnotes].
. . .
74. . . . In any event, the fact that Dana . . . is being forced irretrievably to dispose of core assets in distressed sales is sufficiently serious to warrant interim measures of protection from the Arbitral Tribunal.
. . .
76. With Dana . . . unable to fund the Contractor and the latter having run out of funds required to continue operating the Khor Mor facilities, the KRG will likely seek to step in (as it has already threatened to do), leading to the Claimants effectively losing their rights under the Contract, the very subject matter of the dispute.
77. Such a scenario, which is entirely avoidable, would not only threaten the procedural integrity of these proceedings but also cause the Claimants irretrievably to lose the benefit of Article 16(e) of the Contract which specifically (1) obliges the parties to maintain the status quo ante during the pendency of an arbitration by not "act[ing] in a manner that may affect the right of the other Party"; and (2) confers upon the parties a right to specific performance of the Contract."
The Respondent joined issue with these contentions in its Response, and at the outset stated in paragraph 5:
"5. First, the Claimants' requested interim measures would fundamentally alter the status quo . . . The Claimants' application proceeds on the premise that there was an established "payment regime" in which it was commonly agreed or understood that the Claimants would continue to receive payments indefinitely on some undefined basis. In reality, however there was no such status quo. The KRG has never accepted or agreed that any of the Claimants would be entitled to the proceeds of the condensates and LPGs that the KRG has sold."
Further:
"109. The Claimants rely on the financial position of Dana as a basis for interim measures, but, on their own case, Dana has purportedly novated all of its rights or obligations under the HoA (and thus has no existing funding obligations under the HoA). As such, there is no basis for concluding that Dana's financial status is even relevant, much less decisive, with regard to the purported inability of the Claimants to continue operations.
. . .
111. . . . there is no evidence that Pearl will run out of funds required to continue operations in the absence of KRG payments. The Claimants have adduced very little evidence on Pearl's financial condition (which, it is common ground, is the Claimants' burden to prove). Absent such evidence, it is impossible to conclude that the Claimants will be unable to continue operations under the HoA at Khor Mor.
. . .
122. . . . the Claimants argue that Dana's "risk of insolvency" constitutes "truly irreparable harm," but this is both unproven and irrelevant. As set out above the evidence submitted by the Claimants does not establish that there is a true risk of insolvency. In any event, insolvency does not prevent the Claimants from pursuing their claims in arbitration, and therefore cannot constitute harm "not adequately reparable" by damages."
In paragraphs 160 to 173 of its Response the Respondent contended that the ordering of payments and of a mandatory injunction as an interim measure would prejudicially alter the status quo, and concluded at paragraph 183 that:
"Accordingly, the Claimants' Request must be denied because it would entail pre-judgment of both the Claimants' claims and the KRG's counterclaims."
In their Reply the Claimants contended as follows:
"1. Preservation of the dynamic status quo ante
95. First, as indicated in the Claimants' Request, the KRG is contractually and legally obliged to maintain the status quo pending determination of this dispute pursuant to Article 16(e) of the Contract and Article 50(Second)(4) of the KROGL. Notwithstanding the Respondent's smokescreen, the undisputed fact remains that the Respondent was making (or authorising third parties to make) regular payments to the Claimants in respect of products delivered over a five year period, whether under the Contract, or otherwise.
96. The Claimants only seek preservation of the commercially important "dynamic status quo" which can be achieved simply by the KRG releasing (or authorising third parties to release) payments for condensate and LPG it is taking from the Claimants.
97. The fact remains that, even on the KRG's own case, nothing has changed factually since July 2013 except that the Claimants have initiated mediation and then arbitration proceedings, which have been met by pressure tactics by the Respondent. There is no singular fact which justified the sudden change in the status quo.
98. Indeed, restoring the dynamic status quo is commercially imperative in order to ensure the continuation of operations at Khor Mor and thus the supply of electricity to the residents of the Kurdistan Region, continuation of the Claimants' rights under the Contract and the continuation of Dana . . . as a solvent company. It also means protection of value for both parties including because it accelerates the Claimants' cost recovery and Remuneration Fee payments and, therefore, the point at which the Respondent will earn its 90% of the Aggregate Revenues under the Contract."
Following an oral hearing on 16 May 2014, the Tribunal issued a Ruling on Interim Measures on 10 July 2014 ("the 10 July Ruling"), whereby the Respondent was ordered to make payments as from 21 March 2014 at a rate which was designed to reflect the payments which had been made in the period prior to July 2013, which amounted to some 70% of the Claimants' invoices for condensate and LPG. The Tribunal dealt with the question of the status quo as follows:
"21. The relevance of actions which seek to alter the status quo to the advantage of a party is underlined by Article 16(e) of the HoA itself:
"During the arbitration procedure and until the arbitral decision, neither entity shall act in a manner which may affect the rights of the other party under these HoA/Service Agreements".
. . .
42. It appears to us unlikely that there will be a hearing followed by an award in this arbitration before the middle of 2015. On the evidence before us, there is an appreciable risk that Dana will become insolvent or at any rate suffer unnecessary loss through distressed sales of assets if payments are not resumed before the award.
. . .
45. It is unusual to have an application for provisional measures in which both sides do not claim to be seeking to maintain the status quo and this is no exception. In this case, however, we think that the status quo was that the KRG had for a lengthy period been buying the Claimants' LPPs and paying for them. There may have been a dispute over the price properly payable but payments were being made. By stopping paying, they have altered the status quo, just as someone who cuts off the supply of electricity and plunges the house into darkness.
. . .
47. The ultimate question for the Tribunal is: which course of action is more likely to promote justice, in the broadest sense: to grant the provisional measures or to refuse them? We think that there is a greater risk of injustice if the KRG are allowed to continue to receive the Claimants' condensates (or their proceeds) and not pay for them. The KRG claims that the Claimants are free to export and market their liquid petroleum products in accordance with the HoA. If the KRG is able to procure the necessary licences for the Claimants to be able to do so, well and good. No further action as to the future is required. But if they cannot, and continue instead to have them lifted on their behalf, then we consider that pending a final resolution of this dispute they should pay for them.
(j) Conclusion
48. The practice of the KRG before July 2013 was, we are informed by counsel for the Claimants, to pay about 70% of the invoiced prices (i.e. the international FOB Med prices) of the liquid petroleum products, which were lifted on their behalf. This is a very rough and ready figure, which can be recalculated after a full hearing. In the meanwhile, however, we consider that the KRG should, as from the date of the Claimants' application for interim measures (21 March 2014), pay the Claimants 70% of the international FOB Med prices of liquid petroleum products lifted by them or for their account. If at any time the KRG is able to procure the necessary permits and consents for the Claimants to export and market these products themselves, they may apply to discharge this order."
On it becoming immediately apparent to the Claimants that the Respondent was not intending to comply with the 10 July Ruling, on 23 July 2014 they applied to the Tribunal for a peremptory order, both as regards the payment of an immediate quantified sum and as regards future continuing payments; the Respondent then applied to discharge the Ruling.
Application and cross-application were heard at an oral hearing on 4 September 2014. The Arbitrators delivered a ruling on 17 October 2014 ("the 17 October Ruling"), dismissing the Respondent's application to discharge, and ordering, on the Claimants' application for a peremptory order, that the Respondent pay to the Claimants the sum of US$100 million within 30 days (in the terms of the order below set out). The Arbitrators stated (in material part):
"16. At the hearing on 5 September, Mr Partasides (for the Claimant) asked why the KRG did not simply reinstate the previous arrangement with PowerTrans, under which the KRG sold the products through PowerTrans, but accounted to the Claimants for what was assumed to be the price received. The KRG had similar arrangements with other international oil companies in Kurdistan. The answer of Mr Born, on behalf of the KRG, must be quoted in full:
"Finally, the claimants asked repeatedly why doesn't the KRG do what it does with other IOCs? This case is the answer for why the KRG doesn't do what it does with other lOCs. It doesn't have arbitrations for bitter disputes with other lOCs. It does have such a dispute with the claimants."
17. It should make no difference to the KRG whether the Claimants sell their products to Quaiwan for the lower price or through PowerTrans at a higher price. In neither case would the KRG be receiving the proceeds. The KRG does not deny that it could reinstate the previous PowerTrans arrangements. But it refuses to do so simply to disoblige the Claimants.
18. The Tribunal is not in a position to express any view on the merits of the "bitter disputes" between the parties. It has however expressed the view in its order for provisional measures that justice requires that provisionally and pending a full hearing, the Claimants should not be deprived of the cash flow, which they had been deriving from their products. The KRG is in a position to enable them to do so. Instead, it claims that they are, and always have been, in a position to export their products but for some irrational and quixotic reason have been unwilling to do so. The Tribunal is not persuaded that the Claimants are in practice in a position to export their products. They do not think that any rational producer, having been for over a year been in a position to export their products, would have chosen instead to apply at this stage for an order for interim measures.
. . .
23. The Tribunal accepts, first, that the preservation of the status quo requires it to have regard to the position at the time when the KRG ceased payments and that going further back into history would not ordinarily be particularly relevant. It was therefore reasonable to have regard to the position under the arrangements with PowerTrans, which were in place from March to July 2013. Secondly, the Tribunal considers that one cannot calculate the percentage of invoiced price which the Claimants were receiving without knowing the shipments to which those prices related. Invoices may have been sent during the period in question which related to earlier shipments. The calculations of Ernst & Young were not challenged in the earlier proceedings and the Tribunal therefore does not think it was misled by Mr Pollock's figure.
. . .
24. The KRG submits that recent events in Iraq have created a political and military crisis in Kurdistan that has changed the balance of convenience. The territory is defending itself against attack and finds itself responsible for the support of large numbers of refugees. It cannot afford to make payments to the Claimants. The KRG also claimed that the financial position of Dana was not as bad as it claimed because a press release of 10 September showed that it had been able to borrow $100 million to finance its UAE gas project. The Claimants replied that this was borrowing for a particular project and distinct from its general corporate debt.
25. The Tribunal is of course aware of the difficult circumstances in which the KRG finds itself in the current situation in the area and has great sympathy for the plight of its people and those who have taken refuge it its territory. But it considers that it is in no position to estimate the significance of these momentous events and that they lie altogether outside the matters to which a Tribunal can have regard in considering what is conventionally called the balance of convenience in an interlocutory application. In such a case, the Tribunal's concern is to weigh the effect of granting or refusing the order on the potential outcome for the parties if one or the other should be successful . The purpose of the interlocutory order is to enable the Tribunal's final order to do practical justice between the parties. It does not consider that the effect upon political events in Kurdistan, which the Tribunal is completely unable to calculate, can fall within the matters it can properly take into consideration.
. . .
29. The KRG says that they have not failed to comply. They have applied for the discharge of the order and while that application was pending, they were not obliged to do anything. We do not think that is right. Any discharge of the order would not have been on the ground that it should not have been made but on the ground that the KRG had enabled the Claimants to export their products and thereby obtain a revenue stream in substitution for that which had previously been paid to them by or at the direction of the KRG. There was no question of the order being discharged retrospectively. As the Tribunal said in its ruling on provisional measures: "If the KRG is able to procure the necessary licences for the Claimants to be able to do so, well and good. No further action as to the future is required." The KRG has . . . failed altogether to comply with the order for payment for liftings from 21 March 2014 to the present day. The Tribunal therefore has jurisdiction under section 41(5) to make a peremptory order.
30. The Tribunal's order for interim measures required payment of 70% of the "the international FOB Med price of liquid petroleum products" on the basis that this was the benchmark employed by the parties in the HoA and should be capable of being employed to calculate the amounts to be paid. It appears however from the submissions at the hearing of this application to discharge that there may be a dispute over what counts as the "international FOB Med price" of condensate and LPG. This dispute may at some stage have to be resolved by the Tribunal but in order to avoid further delay, the Tribunal will fix a provisional figure for payment which it considers to be the least which would give effect to its order to date.
31. The Ernst & Young report to which the Tribunal has referred in paragraph 23 above found that, in respect of the shipments they were considering, the Claimants had received 71% of the invoiced price. Whether the invoiced price had been correctly calculated or not, that was what they were receiving. That was the status quo. The evidence exhibited to the Claimants' application for a peremptory order showed that in the period 21 March to 27 July 2014 the invoiced price of condensate and LNG shipped by the Claimants was US$232,284,453. 70% of this sum is US$162,599,117. The Tribunal considers that an immediate payment of US$100,000,000 should be the subject of a peremptory order. A possible further peremptory order can be considered later. The Tribunal therefore makes an order in the following terms:
"Without prejudice to its order of 10 July 2014, the Tribunal orders that the Respondent shall within 30 days of this order pay to the Claimants US$100 million (to be set off against its liability under the order of 10 July 2014) and if the said sum shall be unpaid after 30 days, makes a peremptory order to the same effect.""
No payment was made within 30 days, and so in accordance with the terms of the 17 October Order the peremptory order took effect. The Claimants sought and obtained, against opposition from the Respondent, the Tribunal's permission pursuant to s.42(2)(b), to make the application now before me to enforce the peremptory order.
There have been developments since December 2014 while the parties have been resolving (with the assistance of the Court [2015] EWHC 68 (Comm)) defective service and then re-service, and preparing for, fixing and serving evidence for this hearing. The Respondent between September 2014 and 7 October 2015 permitted the Claimants to enter into local contracts for the sales of condensate and LPG, which thus earned them some income. However there was a Partial Final Award by the Arbitrators dated 30 June 2015, ruling on issues which they had heard between 20 and 24 April, and which reached conclusions as to certain of the rights of the parties, resulting in a finding of liability on the Respondent in respect of the claim, but no monetary award was to be made until after a further hearing, fixed for 21 September 2015, the award from which is awaited, as to whether, as against a sum of approximately US$1.9 billion in the Claimants' favour there could be set off the counterclaims upon which the Respondent relied.
The making of this Partial Final Award on 30 June resulted in a letter from the Respondent dated 26 July to the Claimants, notifying them that the Respondent would no longer permit the Claimants to proceed with their arrangements for local sales, and intended to lift the condensate and LPG itself; and, by letter dated 4 September to the Claimants, the Respondent made clear that it did not accept that the Claimants had any entitlement to payment for the condensates and LPGs which it was to lift, because of the allegation that the Claimants had caused enormous damage to the Respondent through its breaches of the Heads of Agreement, such that it was not "obliged to pay for all petroleum products it lifts". Meanwhile the Respondent confirmed, by various letters and public announcements in September 2015, that it was making and authorising payments to other international oil companies in substantial sums, because, as per an announcement by the Ministry of Natural Resources dated 7 September 2015, "regular payments will be made to allow the exporting companies to cover their ongoing expenses and plan for further investment in the oil field".
No sum has been paid to the Claimants by the Respondent pursuant to the Heads of Agreement, or at all, since 7 October 2015, when the Respondent commenced lifting of, and receiving payment for, product. By letter dated 28 September 2015 sent to the Arbitrators, of which Mr Pollock was vigorously critical, the Respondent said that it would make payment to the Claimants if the Arbitrators agreed not to make an enforceable final payment award prior to the determination of the Respondent's counterclaims:
"The KRG undertakes that, if no enforceable final payment award is made prior to the determination of its counterclaim, it will pay the Claimants for liftings of condensates and LPGs delivered to the KRG an equivalent amount per tonne as it pays other IOCs in the Kurdistan Region who currently deliver their petroleum to the KRG. These payments would be provisional and subject to any final award, but would continue until any final award is rendered."
No explanation has been given by the Respondent for this letter to the Arbitrators, save that in his second witness statement of 12 October Mr Speller of the Respondent's solicitors referred to that letter as one by which the Respondent "made clear that, going forward, it would be willing to treat the Claimants no less favourably than other [international oil companies]".
The Issues
The issues before me were as follows:
Issue 1 Was the peremptory order properly made within the jurisdiction of the Arbitrators vested in them by s.41 of the 1996 Act and Article 25 of the LCIA Rules, and therefore does the Court have jurisdiction to make an order under s.42 of the 1996 Act? There were two sub-issues:
a) Was it a requirement of the making of a peremptory order that the Respondent had failed to comply with an order to do something necessary for the proper and expeditious conduct of the arbitration, and if so was that its purpose?
b) Was the Respondent given the opportunity to show sufficient cause for non-compliance before the making of the Order?
Issue 2 Does the Respondent have immunity pursuant to the SIA? It is accepted that the burden of proof is on the Respondent to establish this. The sub-issues are:
a) Do the proceedings relate to anything done by the Respondent in the exercise of sovereign authority (s.14(2) SIA).
b) If so, was it an exercise of sovereign authority of the State (the Republic of Iraq) or of the Respondent as a separate entity see paragraph 2 above. It is common ground that the former is necessary (BCCI v Price Waterhouse (a firm) [1997] 4 All ER 108 at 112 and Pocket Kings Ltd v Safenames Ltd [2009] EWHC 2529 (Ch)).
c) If so, were the circumstances such that a State would have been immune (s.14(2)(b) SIA)? The issues are whether, as a result of s.9 SIA ("where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, a State is not immune as regards proceedings in the courts of the United Kingdom which relate to the arbitration") the Respondent is immune to these proceedings under s.42; and whether, by virtue of s.14(3) SIA, the Respondent is entitled to the protection of s.13(2)(a) SIA ("relief shall not be given against a State by way of injunction") in respect of the s.42 order:
i) Has the Respondent submitted to the jurisdiction within s.14(3) by virtue of s.9, such as to retain the benefit of s.13 SIA?
ii) Even if so, do s.42 proceedings fall within s.9 and are they covered by s.13(2)(a)?
d) Whether the Respondent has waived its immunity in respect of s.14(2) and, assuming it is entitled to such immunity, that granted by s.13(2)(a) by reference to s.13(3) SIA.
Issue 3 Whether in the exercise of the Court's discretion the order sought should be made: it is common ground that the Court does not "act as a rubber stamp on orders made by the tribunal" (Emmott v Michael Wilson & Partners Ltd [2009] EWHC 1 (Comm) at paragraph 59 per Teare J).
Issue 1: Section 42 of the 1996 Act
Mr Pollock's case is that the peremptory order was made by the Arbitrators straightforwardly upon the basis that the Respondent has failed to comply with the 10 July Interim Measures Order without good or any cause. Mr Dunning submits that a s.42 order is only appropriate where the order of an arbitrator sought to be enforced was one which was made for the proper and expeditious conduct of the arbitral proceedings.
Mr Dunning's starting point is s.39 of the 1996 Act, whereby:
"(1) The parties are free to agree that the tribunal shall have power to order on a provisional basis any relief which it would have power to grant in a final award.
(2) This includes, for instance, making –
(a) a provisional order for the payment of money or the disposition of property as between the parties . . ."
As set out in paragraph 6 above, as Mr Dunning accepts, by Article 25 of the LCIA Rules, to which the parties have agreed, the Arbitrators had power (inter alia) to make a provisional order for the payment of money. Although the heading of s.39 in the statute refers to "Power to make provisional awards", it is not in any doubt that the words of s.39 itself are what is decisive, and plainly give the Arbitrators the power to make an order for interim measures, not simply an award.
In the event of non-compliance with an arbitrator's order an arbitrator can make a peremptory order pursuant to the terms of s.41(5):
"If without showing sufficient cause a party fails to comply with any order or directions of the tribunal, the tribunal may make a peremptory order to the same effect, prescribing such time for compliance with it as the tribunal considers appropriate ".
Mr Dunning submits however that this is not a sufficient consideration of the context of the 1996 Act. He points to the "General duty" of the parties under s. 40:
"(1) The parties shall do all things necessary for the proper and expeditious conduct of the arbitral proceedings.
(2) this includes –
(a) complying without delay with any determination of the tribunal as to procedural or evidential matters, or with any order or directions of the tribunal. . ."
This rubric "necessary for the proper and expeditious conduct" of the arbitral proceedings is then expressly repeated in s.41 relating to the "powers of tribunal in case of party's default":
"(1) The parties are free to agree on the powers of the tribunal in case of a party's failure to do something necessary for the proper and expeditious conduct of the arbitration."
Such powers, Mr Dunning submits, are the only powers for the arbitral tribunal which the parties are free to agree.
Accordingly in the consequential sub-clauses of s.41 which (by virtue of s.41(2)) apply "unless otherwise agreed by the parties", powers are given to the tribunal. Consequently, although Mr Dunning did not expressly so submit, it must inevitably be that the words in s.41(5), which I have cited in paragraph 19 above, must be construed as dealing with where "a party fails to comply with any such order or directions of the tribunal" i.e. an order to do something "necessary for the proper and expeditious conduct of the arbitration".
He refers to the words in Parliament (Hansard 5th series vol 568 cols 761-764 (18 January 1996)) of Lord Fraser of Carmyllie, setting out the intention of the Bill as being to "curtail the ability of the court to intervene in the arbitral process except where the assistance of the court is clearly necessary to move the arbitration forward or where there has been a manifest injustice". He also refers to the words of the Chartered Institute of Arbitrator's Practice Guideline 14, referring to one of the purposes of the 1996 Act having been to provide that "once there has been an initial breach of a procedural order without sufficient cause the tribunal may make a 'peremptory order' to the same effect". He refers to s.41(6) of the 1996 Act, which provides for where a claimant fails to comply with a peremptory order of the Tribunal to provide security for costs and s.41(7), where the Tribunal may take various other steps where a party has failed to comply with any other kind of peremptory order. However it must be noted that such steps are expressly stated to be "without prejudice to s.42".
As for the fact that there is an express power in s.39(2) to make a provisional order for the payment of money, Mr Dunning, when pressed as to what other payment of money (other than security for costs or interim payment of costs, which are expressly otherwise dealt with in the 1996 Act) would be on his case "necessary for the proper and expeditious conduct of the arbitral proceedings", could not think of any. Nevertheless such an express proviso was in his submission required. He pointed to the words of Dyson J in Macob Civil Engineering Limited v Morrison Construction Limited [1999] CLC 739, where, in an adjudication covered by Part 2 of the Housing Grants, Construction and Re-Generation Act 1996, the Court was asked, pursuant to s.42, to enforce an adjudicator's decision for payment of money under a construction contract. Dyson J described a s.42 order in such circumstances as a "mandatory injunction to enforce an adjudicator's decision" (a description to which I shall return below) and he says (at paragraph 35) that "it would rarely be appropriate to grant injunctive relief to enforce an obligation on one contracting party to pay the other". He stated (at paragraph 37) that "s.42 apart, the usual remedy for failure to pay in accordance with an adjudicator's decision will be to issue proceedings claiming the sum due, followed by an application for summary judgment." He continued:
"38. it is not at all clear why s.42 of the Arbitration Act 1996 was incorporated into the Scheme [for Construction Contracts]".
I understand that this has subsequently been amended out of the Scheme.
He concluded:
It may be that Parliament intended that the court should be more willing to grant a mandatory injunction in cases where the adjudicator has made a peremptory order than where he has not. The court should be slow to grant a mandatory injunction to enforce a decision requiring the payment of money by one contracting party to another.
39. . . I am not persuaded that I ought to exercise my discretion in favour of granting an injunction. "
Mr Dunning submits that, adopting the approach of Dyson J, in this case also the Claimants could and should have followed the course not of applying under s.42, but by way of s.44 of the 1996 Act or s.37 of the Senior Courts Act 1981 for a mandatory injunction.
It seems to me clear that Mr Dunning's submissions go too far:
i) As Mr Pollock pointed out, Dyson J was dealing with a case where the adjudicator had concluded that a sum was due under the contract which could have been the subject of an application for summary judgment. That is not the case here. It is plain that this was not a provisional award, nor an interim payment. As was emphatically stated by Mr Pollock, the Arbitrators were not, as Mr Dunning contended, "enforcing a putative substantive obligation on an interim basis".
ii) There is no purpose in there having been an application under s.44 or s.37 for a mandatory injunction, when there had been a straightforward order made by the Arbitrators, after considering the matter in great depth and hearing detailed submissions, leading them to make an order by way of interim measures. In any event, from the point of view of enforcing compliance, a Court order under s.42 and an injunction under s.44 would have the same effect (and would lead to identical or similar remedies if not complied with).
iii) Dyson J concluded that he was exercising a discretion not to make a s.42 order, not that he had no jurisdiction to make one.
iv) As is clear from s.41(5), referred to above, it provides for the making of a peremptory order where there is a failure by a party to comply with "any order or directions of the tribunal". Mr Dunning sought to point to s.41(1) as giving context. But that ignores s.40, upon which he relies for his argument, the General duty of parties. S.40(1) requires such parties to do "all things necessary for the proper and expeditious conduct of the arbitral proceedings" but that is then explained in terms in s.40(2), namely that "this includes complying with . . . any order . . . of the tribunal" [my underlining].
I said above that Mr Dunning seemed to me to go too far. In this case the parties clothed the Arbitrators with a power to enforce their orders, if necessary by a peremptory order, and including an order for the payment of money. Although the proper and expeditious conduct of an arbitration would normally include the parties' compliance with any order which the tribunal may make, nevertheless it is clear that, although arbitrators will in fact be making orders which they consider necessary for the proper and expeditious conduct of the arbitral proceedings, not every breach of every order will lead to a peremptory order – there must clearly be room for de minimis. I do not however consider that it is a requirement for arbitrators in making every order to spell out either that the order they are making is so necessary, or, once the order is made and a party persists in not complying with it, that it is necessary for the proper and expeditious conduct of the arbitration that the party should so comply. There is neither any need for arbitrators to spell out such words, nor (as so often has been said) a need for the Court to be astute to construe detailed reasons such as were here given by the Arbitrators in a context of assuming that experienced arbitrators are in some way failing to comply with their duty.
Mr Pollock points out the detailed submissions that were made to the Tribunal prior to the 10 July Ruling by the Claimants and responded to in terms by the Respondent, some of which I have set out in paragraphs 6 to 8 above. The Arbitrators were certainly reminded of American Cyanamid principles, and Lord Hoffmann, unsurprisingly, referred to the balance of justice. However, it is entirely clear that they were being asked to make, and were considering, an interim measures order to preserve the arbitration and the subject matter of the claims. I refer in particular to paragraphs 12, 76 and 77 of the Claimants' submissions, set out in paragraph 6 above, and paragraph 122 of the Respondent's set out in paragraph 7. The Arbitrators did not spell out a reference to the "proper and expeditious conduct" of the arbitration, but they clearly concluded that it was appropriate that the status quo ante, whereby the Respondent paid for what was lifted, should be restored, and that that was necessary for Dana in particular to be able to continue with the arbitration and be in a position to obtain any relief. This was not an order on the basis of an assessment of the eventual outcome, but of a return to the status quo irrespective of the outcome. It is quite clear that clause 16(e) of the Heads of Agreement (set out in paragraph 3 above) was at the very forefront of the Arbitrators' minds (see for example paragraph 9(21) above). Their Order was neither intended to nor did prejudge the merits, as Lord Hoffmann made clear (6 May 2014 Day 1/164), but it was effectively preserving the subject matter of the arbitration, namely the rights under the 25 year contract which the parties were disputing. When that order was not complied with, it is even plainer that a further order was required for the same purpose, and that the order and compliance with it were required for the "proper and expeditious conduct" of the arbitration. Lord Hoffmann concluded (21 September 2015 at 101/103) that the Arbitrators had jurisdiction to make the order, and I similarly conclude that this Court has jurisdiction to make a s.42 order to enforce it. The Court is not, as Lord Fraser would describe it, intervening in the arbitral process, but assisting the Arbitrators to enforce compliance with their orders.
The second ground upon which Mr Dunning challenges the making of a s.42 order is by reference to the need within s.41(5) for the Respondent to have been given an opportunity to show sufficient cause in respect of non-compliance. This contention is put in two ways:
i) First that if the order is now to be interpreted as one which required the Arbitrators to have been satisfied that the making of such order was for the proper and expeditious conduct of the arbitral proceedings or that the Respondent's failure to comply with it was a failure to do all things necessary for the proper and expeditious conduct of the arbitration, that was not spelt out. If the basis for the Arbitrators' conclusion was that if the order were not made Dana could be 'driven from the judgment seat', the Respondent would, and it is suggested could, have addressed that point, or at any rate addressed it differently from the manner in which they made the submissions they did. I am however entirely satisfied that the parties before the Arbitrators knew what the issues were, and knew that the Claimants' case was that if the status quo ante of payment for the products were not restored there could be catastrophic effects, including the inability of the Claimants to proceed with the arbitration and/or the loss of the Claimants' rights under the 25 year contract. Opportunity to make representations to the contrary was fully taken up by the Respondent.
ii) The second contention is by reference to the precise wording of the 17 October Ruling at paragraph 30. It is important to appreciate that the previous order of 10 July 2014 had not been complied with, and remained in force, and what the Arbitrators were attempting to do was to put the Claimants at least in part into the position they would have been in if the earlier order had been complied with. Mr Dunning complains that the order that was made effectively turned into a peremptory order after 30 days, without giving the Respondent any further opportunity to make submissions. However, it is quite clear that what it was, however phrased, was a peremptory order that was effectively suspended for 30 days, to give the Respondent a last opportunity to make payment before it took effect. All the submissions that could possibly have been expected had been made, and the position could only be exacerbated if there had still been no payment (as in fact was the case) after another 30 days. It is quite plain that the Respondent was given the fullest opportunity to show sufficient cause.
Issue 2
I turn to the question of state immunity, to which the Respondent submits that it is entitled as a separate entity (see paragraph 2 above). It consequently denies that the Claimants are entitled to any relief against it and asserts its own entitlement to a declaration pursuant to CPR Part 11. The relevant sections of the SIA are as follows:
i) The starting point is s.14:
"(1) The immunities and privileges conferred by this Part of this Act apply to any foreign or commonwealth State other than the United Kingdom; and references to a State include references to—
(a) the sovereign or other head of that State in his public capacity;
(b) the government of that State; and
(c) any department of that government,
but not to any entity (hereafter referred to as a "separate entity") which is distinct from the executive organs of the government of the State and capable of suing or being sued.
(2) A separate entity is immune from the jurisdiction of the courts of the United Kingdom if, and only if—
(a) the proceedings relate to anything done by it in the exercise of sovereign authority; and
(b) the circumstances are such that a State (or, in the case of proceedings to which section 10 above applies, a State which is not a party to the Brussels Convention) would have been so immune.
(3) If a separate entity (not being a State's central bank or other monetary authority) submits to the jurisdiction in respect of proceedings in the case of which it is entitled to immunity by virtue of subsection (2) above, subsections (1) to (4) of section 13 above shall apply to it in respect of those proceedings as if references to a State were references to that entity.
. . .
(5) Section 12 above applies to proceedings against the constituent territories of a federal State; and Her Majesty may by Order in Council provide for the other provisions of this Part of this Act to apply to any such constituent territory specified in the Order as they apply to a State.
(6) Where the provisions of this Part of this Act do not apply to a constituent territory by virtue of any such Order subsections (2) and (3) above shall apply to it as if it were a separate entity."
ii) Arbitration is provided for by s.9:
"(1) Where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration."
iii) S.13 provides in material part as follows:
"(2) Subject to subsections (3) and (4) below—
(a) relief shall not be given against a State by way of injunction or order for specific performance or for the recovery of land or other property; and
(b) the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award or, in an action in rem, for its arrest, detention or sale.
(3) Subsection (2) above does not prevent the giving of any relief or the issue of any process with the written consent of the State concerned; and any such consent (which may be contained in a prior agreement) may be expressed so as to apply to a limited extent or generally; but a provision merely submitting to the jurisdiction of the courts is not to be regarded as a consent for the purposes of this subsection."
iv) So far as material s.2 provides:
"(1) A State is not immune as respects proceedings in respect of which it has submitted to the jurisdiction of the courts of the United Kingdom.
(2) A State may submit after the dispute giving rise to the proceedings has arisen or by a prior written agreement; but a provision in any agreement that it is to be governed by the law of the United Kingdom is not to be regarded as a submission."
The first group of questions is as follows:
i) Was the 25 year Heads of Agreement with the Claimants entered into by the KRG in the exercise of sovereign authority?
ii) Was that sovereign authority its own sovereign authority, or that of Iraq (see Issue 2(b) in paragraph 16 above).
iii) If so, pursuant s.14(2)(a) do these proceedings relate to anything done by KRG in the exercise of such sovereign authority?
I shall take the first two of these questions together.
Sovereign Authority
The locus classicus for discussion of this question, fittingly in these days in which Latin has, by virtue of the Times Latin crossword, seemingly returned to respectability, is the discussion of the difference between acts 'jure gestionis' and acts 'jure imperii', which Lord Wilberforce addressed in I Congreso del Partido [1983] 1 AC 244 at 262. He there translated them, in a way which is strangely not quite as helpful in English as in Latin, as the difference between a sovereign or public act and a private act, meaning an act of private law character such as a private citizen might have entered into. Lord Goff returned to what he called Lord Wilberforce's "authoritative statement" in Kuwait Airways Corporation v Iraqi Airways Co [1995] 1 WLR 1147 at 1158D, a case in which a plainly governmental act, being the expropriation of the Kuwait Airways fleet by the Government of Iraq, was followed by what were concluded to be commercial acts, namely the commercial running of those aircraft. Lightman J in In re Banco Nacional De Cuba [2001] 1 WLR 2039 relied upon the analysis by Lord Wilberforce and by Lord Goff, particularly at paragraph 28, where he concluded on the facts of that case:
"28. On the other hand BNC and BCC entered into what was in form a private law contract and completed it as such. There is no evidence that the sale was pursuant to any legislative or executive direction. In this respect the agreement is in a quite different position from the rest of the reorganisation which was effected by legislation. In the language of Lord Wilberforce in Congreso del Partido [1983] 1 AC 244, 263, everything was done as between vendor and purchaser: there was no exercise and no need for exercise of sovereign powers. The private law character of the transaction is not discoloured by the context in which the agreement was executed, i.e. the fact that the parties to it regarded the transfer of the shares to BCC as an obvious and necessary sequel to the statutory reorganisation. Nor is its private law character controverted by the purpose or motive behind the transaction of serving the interests of the state in bringing to fruition the completion of the reorganisation of banking in the final form which it sought. I therefore hold that BCC's entry into the completion of the agreement were commercial rather than governmental (albeit the parties to the agreement were both state-owned entities) and that accordingly BCC enjoys no immunity in respect of the transaction in question."
In Koo Golden East v Bank of Nova Scotia [2008] QB 733 Sir Anthony Clarke MR concluded at paragraphs 40-42 that the Central Bank of Mongolia was a separate entity within the meaning of the SIA and concluded that it entered into the contract with the claimant in the exercise of sovereign authority because "the purpose of the transactions included the refining of the gold and the placing of a quantity of refined gold on the unallocated account at the bank . . . for the purposes of increasing Mongolia's currency reserves". Mr Pollock criticises this judgment because neither del Partido or Kuwait Airways, nor indeed Banco Nacional De Cuba were, it seems, cited.
Mr Dunning refers inter alia to the Recitals to the Heads of Agreement, including (A), (B), (C) and (F) set out in paragraph 3 above, and above all to paragraph 9 also there set out. Mr Hamlan, the Minister of Finance of the KRI has produced a witness statement, which explains the constitutional background:
"9. The Kurdistan Region is governed by the Presidency of the Kurdistan Region and the KRG. The capital city of the Kurdistan Region, and the seat of the KRG, is Erbil. The KRG was formed in 1992 by the Kurdistan National Assembly (later the Kurdistan Parliament), the first democratically-elected parliament in Kurdistan (and in Iraq). The KRG exercises executive power according to the Kurdistan Region's laws, as enacted by the Kurdistan Parliament, and the Iraqi Federal Constitution. The Council of Ministers performs the KRG's executive functions. The Council is composed of the Prime Minister, the Deputy Prime Minister, and 22 further cabinet Ministers. The current government, led by Prime Minister Nechirvan Barzani, took office in June 2014.
10. The Iraqi Federal Constitution was negotiated in 2005. The Iraqi people ratified it by referendum on 15 October 2005 and it entered into force in 2006.
11. Iraq is a federal state. The Iraqi Federal Constitution describes a federal, de-centralized system of government. Sovereignty is shared between the federal government of Iraq, the KRG (which is recognised in Article 117 of the Iraqi Federal Constitution) and the various provinces or "governorates" of Iraq. . .
12. The Kurdistan Region and the KRG have a special status under the Iraqi Federal Constitution. Article 117, First of the Iraqi Federal Constitution provides:
"This Constitution, upon coming into force, shall recognize the region of Kurdistan, along with its existing authorities, as a federal region." . . .
13. Although the Iraqi Federal Constitution contemplates the creation of further regions as components of the federation, only the Kurdistan Region is recognised in the Iraqi Federal Constitution as a federal region exercising sovereign powers conferred under the Iraqi Federal Constitution.
14. The KRG is the lawful, democratically-elected government of the Kurdistan Region. It acts on behalf of the Kurdistan Region and has sovereign powers derived from and conferred by the Constitution. Article 121 First and Fifth of the Iraqi Federal Constitution provide:
"The regional powers shall have the right to exercise executive, legislative, and judicial powers in accordance with this Constitution, except for those authorities stipulated in the exclusive authorities of the federal government." . . .
"The regional government shall be responsible for all the administrative requirements of the region, particularly the establishment and organization of the internal security forces for the region such as police, security forces, and guards of the region." . . .
15. Further, Article 121, Second, states:
"In case of a contradiction between regional and national legislation in respect to a matter outside the exclusive authorities of the federal government, the regional power shall have the right to amend the application of the national legislation within that region." . . ."
The other relevant Articles of the Constitution, not there expressly referred to, would appear to be as follows:
"Article 111:
Oil and gas are owned by all the people of Iraq in all the regions and governorates.
Article 112:
First: The federal government, with the producing governorates and regional governments, shall undertake the management of oil and gas extracted from present fields, provided that it distributes its revenues in a fair manner in proportion to the population distribution in all parts of the country, specifying an allotment for a specified period for the damaged regions which were unjustly deprived of them by the former regime, and the regions that were damaged afterwards in a way that ensures balanced development in different areas of the country, and this shall be regulated by a law.
Second: The federal government, with the producing regional and governorate governments, shall together formulate the necessary strategic policies to develop the oil and gas wealth in a way that achieves the highest benefit to the Iraqi people using the most advanced techniques of the market principles and encouraging investment.
. . .
Article 115:
All powers not stipulated in the exclusive powers of the federal government belong to the authorities of the regions and governorates that are not organized in a region. With regard to other powers shared between the federal government and the regional government, priority shall be given to the law of the regions and governorates not organized in a region in case of dispute."
It is common ground that there has been a dispute between the Federal Government of Iraq ("FGI") and the KRG as to who is entitled to control of Kurdistan's oil and gas resources. Reza Mohtashami, of the Claimants' solicitors, described this in part, in his second witness statement:
"23. It is public knowledge that since the coming into force in May 2006 of current Iraq Constitution (approved by national referendum in 2005) there have been important disagreements between the FGI and the KRG as to the control of Iraq's oil and gas resources and how the revenues derived therefrom are to be shared. In summary, the FGI and the KRG disagree on many issues including: (a) the jurisdiction and power of the KRG to award petroleum contracts; (b) the scope of cooperation between the FG1 and the KRG in relation to the management of petroleum fields; and (c) the jurisdiction and power of the KRG to export petroleum produced in the Kurdistan Region. The dispute between the FGI and the KRG is pending before the Federal Supreme Court of Iraq and has been raised in several other legal fora in response to the KRG's attempts since 2014 to undertake petroleum exports independently of the FGI.
24. . . the FGI does not recognise the petroleum contracts granted by the KRG and considers the Federal Ministry of Oil and its subsidiary agency and marketing arm, the State Oil Marketing Organisation (SOMO), as the sole entity empowered to export petroleum produced anywhere in Iraq."
The Claimants have exhibited a letter sent to Crescent by the Iraqi Federal Minister of Oil dated 17 December 2007 asserting that all contracts recently signed with the Ministry of Energy and Natural Resources of KRG without authorisation and approval of the Government of Iraq were "in violation of the prevailing Iraqi law".
In the context of the dispute between the FGI and the KRG as to who was entitled to the oil fields, an opinion was produced by Professor James Crawford, giving his advice, which was in fact relied upon, as I understand it, by both parties before the Arbitrators. His advice includes the following paragraph:
"19. Article 112, First, regulates oil and gas "extracted from present fields". It gives the federal government management powers in relation to that oil and gas, subject to three important qualifications. First, the management is to be undertaken "with the producing governorates and regional governments", which I take to mean jointly and in cooperation with those governorates or governments or at least with their approval. Secondly, the joint management appears to be limited to oil and gas after it has been extracted, on which basis the management of the extraction and production process itself falls outside the federal joint management power. Joint federal power in respect of such oil and gas will be limited, presumably, to processing, transportation and export. Thirdly, revenues from present fields must be distributed in a fair manner, as stipulated in the Article.
20. On its ordinary interpretation, the term "present fields" means fields already under production. This is indicated by the word "extracted" and by the reference to "producing" governorates. The clear inference is that Article 112, First, covers oil and gas extracted from fields presently in production. By contrast, areas merely being explored, e.g. by seismic survey, are not "present fields"; indeed they are not fields at all but large tracts of territory, most or all of which will never produce any hydrocarbons. On this basis, fields not producing, developed or even discovered - and the oil and gas yet to be extracted from them - fall outside Article 112, First. They fall under the Constitution to be managed by the relevant regional government alone.
21. The time for determining whether a field is "present" or otherwise is the date of the entry into force of the Constitution (viz, 2006). I am instructed that at that date there were no producing fields in the present territory of the Kurdistan Region, i.e. no "present fields" in the sense indicated above. It follows that the provision for joint management under Article 112, First, has no application. On the other hand there are oil and gas contracts with the KRG entered into prior to the coming into force of the Constitution and providing for future exploration, appraisal and, potentially, production. Under Article 141 all such contracts, entered into by Kurdistan since 1992, are considered valid in accordance with their terms (save and to the extent that they contradict some express provision of the Constitution)."
His Executive Summary includes the following:
"(1) Article 112 of the Constitution of Iraq gives only a qualified right to the Federal Government to "undertake the management of oil and gas extracted from present fields". This right is to be exercised "with the producing governorates and regional governments", and is subject to a condition of fair distribution of revenue on a basis regulated by law. As to non-producing and future fields, there is under Article 112, Second, no federal right to manage, although regional management of such fields has to respect strategic policies to be formulated by the federal government "with" the KRG.
. . .
(3) The KRG is itself bound by Article 111: it is not open to it unilaterally and permanently to take over management of present (i.e. producing) fields in the absence of any arrangements for revenue sharing. As to fields other than present fields, the federal government has no unilateral rights under Article 112, Second, and in the absence of agreed strategic policies, the KRG is entitled to proceed in the exercise of its own constitutional authority and in compliance with its own constitutional duties."
I reach the following conclusions. The Heads of Agreement relate to the grant for not less than 25 years of the right to operate the gas fields. It is not simply a contract for the sale of gas by a government to a commercial party, but the assignment of rights granted to the KRG under the Constitution to a third party. Mr Pollock submitted that the contract was simply "designed to ask us, and commercial operators, to carry out drilling, which is entirely a commercial operation, to build pipelines, a commercial operation, to get the gas up and to treat it, a commercial operation". I note however that in Svenska Petroleum Exploration AB v The Government of the Republic of Lithuania [2007] QB 886, upon which both parties rely, Moore-Bick LJ, delivering the judgment of the Court considered, at paragraph 133, that although the first instance Judge (Gloster J) had pointed out that the agreement contained many of the hallmarks of a commercial transaction, "the fact that it relates to the exploitation of oil reserves within the territory of the state suggests that it involves an exercise by the state of its sovereign authority in relation to its natural resources and so falls outside the realm of activities which a private person might enter into." Certainly, as Mr Dunning points out, and as is apparent from the Constitution, the ownership and management of oil and gas is plainly vested in "the people of Iraq" and the respective Governments, this is not simply a contract for sale, but a vesting of long-term rights, and the parties themselves thought it necessary to include in the Heads of Agreement the waiver of immunity clause set out in paragraph 3 above. I am persuaded on balance that KRG entered into this agreement in the exercise of sovereign authority.
However it is quite clear that this was an exercise of the sovereign authority of the KRG itself, not of Iraq. Professor Crawford's advice creates a powerful case that it was only the "present fields", i.e. the fields already producing at the date of the entry into force of the Constitution in 2006 (which applies to neither of these two fields), which vested in the FGI, and that the KRG has consequently at all times been acting in its own right. They would say so, and, because the FGI alleges that the KRG has had no right to do what they have done, the FGI would also assert that what was done was not done by way of exercise of the sovereign authority of Iraq. Consequently, as both parties before me accept that this is a necessary requirement (see paragraph 16 (Issue 2(b)) referred to above), the Respondent, as a separate entity, does not have the protection of s.14(2) of the SIA.
If I had reached a contrary conclusion in this regard, then I would have needed to have considered whether, within s.14(2), these proceedings relate to anything done by KRG in the exercise of sovereign authority. Mr Pollock refers to NML Capital Ltd v Republic of Argentina [2011] 2 AC 495. This was a case in which the cause of action relied upon in a fresh proceeding in the English Court was an action on a foreign judgment, being a final judgment in New York, which itself arose out of a commercial transaction. The Supreme Court decided by a majority that proceedings "relating to a commercial transaction", within the meaning of s.3 of the SIA, did not extend to proceedings for the enforcement of a foreign judgment which itself related to a commercial transaction, and that the English proceedings for the enforcement of the judgment obtained by the claimant in New York related to that judgment, and not to the debt obligations upon which the New York proceedings were based. The careful logic of the majority is clear from the speech of Lord Mance at paragraphs 85-86. It is plain that he addressed the difference between a cause of action on a foreign judgment, which normally precludes reinvestigation of the facts and law thereby decided, and a claim on a cause of action, which does involve establishing the facts constituting the cause of action; and that the underlying cause of action had merged in the foreign judgment. I am satisfied however that none of that careful logic applies to this case, which is an application to enforce a peremptory order of Arbitrators who are in the process of resolving the dispute relating to the rights of the parties under the Heads of Agreement. Had I concluded that the Heads of Agreement fell within the protection of the SIA, I would have had no difficulty in concluding that the application before me now relates to it.
If there was state immunity, has it in any event been lost by virtue of s.9 SIA?
S. 9 SIA:
i) The first question is whether the s.42 application is a proceeding in the Courts of the United Kingdom which relates to the arbitration. Direct assistance can be drawn from the judgment of Moore-Bick LJ in Svenska Petroleum referred to above. The question in that case specifically referred to an application to enforce an award as a judgment:
"117. Arbitration is a consensual procedure and the principle underlying section 9 is that, if a state has agreed to submit to arbitration, it has rendered itself amenable to such process as may be necessary to render the arbitration effective . . . In our view an application . . . for leave to enforce an award as a judgment is . . . one aspect of its recognition and as such is the final stage in rendering the arbitral procedure effective. Enforcement by execution on property belonging to the state is another matter, as section 13 makes clear."
Mr Dunning refers to ETI Euro Telecom International NV v Republic of Bolivia [2009] 1 WLR 665, where an application was made pursuant to s.25 of the Civil Jurisdiction and Judgments Act 1982 for a freezing order in support of the bringing of an arbitration in New York. The Court of Appeal upheld the defendant's immunity because (per Lawrence Collins LJ):
". . . it is plain that there is nothing in section 9 which overrides the prohibition in section 13. Proceedings for a freezing order to preserve the position pending execution of an award are within section 13, and are not 'proceedings which relate to the arbitration' for the purposes of section 9."
It is plain however that, although the Court noted that there might have been, but was not, an application under s.44 of the 1996 Act, these were proceedings external to the arbitration. The proceedings in this case however, initiated with the permission of the Arbitrators and pursuant to the 1996 Act and in order to enforce an order of the Arbitrators, plainly do relate to the arbitration.
ii) Has the Respondent submitted to the Courts of the United Kingdom? This is only relevant to a sophisticated argument between the parties with regard to the effect of s.14(3). If the Respondent has submitted to the jurisdiction, as provided for by s.14(3), then though a separate entity, it is entitled to the protection of s.13. Mr Dunning submitted that it has submitted and Mr Pollock that it has not: he submitted that s.9 does not operate by virtue of any submission to the jurisdiction, but simply records a loss of immunity, as with ss. 5, 6, 7 and 8 SIA. If Mr Pollock be right, then s.14(3) does not engage, and thus, given that by virtue of s.9 SIA the Respondent has lost its immunity, and it is not a State, and so is thus not automatically entitled to s.13 protection, it would seem that as a separate entity in such circumstances it would not have the benefit of s.13. There is no direct authority on this point, and the silent assumption that s.13 would apply even where s.9 applies in, for example, Svenska Petroleum can be explained by the fact that the defendant in that case was a State, not a separate entity. However Mr Dunning draws my attention to academic authority that consent to submit to arbitration constitutes a submission to any proceedings brought in the United Kingdom Courts in relation to such an arbitration (Fox & Webb The Law of State Immunity (3rd Ed) 188 and Dickinson: State Immunity at 4.069). It seems to me clear that it cannot have been intended to exclude a separate entity agreeing to arbitration from the protection of s.13, and I have no doubt that s.14(3) should be so construed.
S.13(2) SIA
The next question is whether, if I had found that the Respondent was entitled to state immunity but for its submission within the meaning of s.9, but was entitled to the protection of s.13, it could have claimed such protection. It is common ground that the present case does not relate in any way to s.13(2)(b): this is not an application to enforce an award. The question is whether, when s.13(2)(a) provides that "relief shall not be given against a State [or, on the assumptions found above, a separate entity] by way of injunction", this application for an order of the Court under s.42 is for an injunction. It is obviously common ground that if there had been application under s.44 of the 1996 Act, that would have been for an injunction:
i) Mr Dunning relies on the words of Dyson J in Macob, which I have set out in paragraph 23 above. Dyson J described a s.42 order as a mandatory injunction in paragraph 35 and in paragraph 38 (3 times), and in paragraph 36, although he contrasted a s.42 order with an injunction granted pursuant to s.37 of the Supreme (now Senior) Courts Act 1981, he again described a s.42 order as a "mandatory injunction to enforce a payment obligation". He plainly deprecated the use of such an order in the field of building contracts adjudication, not least in carrying with it the potential for contempt proceedings and, as I have said in paragraph 23 above, I understand that a s.42 order is no longer available within the Scheme for Construction Contracts. It is not clear whether there was any argument before him based upon any distinction between a s.42 order and a mandatory injunction. None appears in the course of his judgment: all that is said in paragraph 33 is that "there was some limited discussion as to whether, s.42 apart, the appropriate procedure was by way of writ and an application for summary judgment, or by way of a claim for a mandatory injunction", so that it at least looks as though in the course of argument a s.42 order was not being equated with a mandatory injunction. However such was the decision of a Judge who was then in charge of the new Technology and Construction Court, albeit a first instance Judge.
ii) Mr Pollock however relies upon the decision of the Court of Appeal, Soleh Boneh International Limited v Government of the Republic of Uganda [1993] 2 Lloyd's Law Rep 208 CA, in which Staughton LJ gave the judgment, with which Neill and Roach LJJ agreed. The Ugandan Government complained that an order requiring them to provide security of US$5 million, in return for obtaining an adjournment of enforcement proceedings, was an injunction, and relied upon s.13(2)(a). Its Counsel had pointed out that a copy of the order was endorsed with a penal notice, directed at the High Commissioner of Uganda in the United Kingdom personally. Staughton LJ accepted at 213 the Defendant's contrary "robust" submission that the order was "plainly not an injunction". He concluded that "in the context of s.13(2)(a). . . I would not hold that a simple order for the payment of money from no specified source is an injunction". In case he was wrong, he varied the order, but his conclusion was in my judgment a binding finding of the Court of Appeal, and one directly applicable to this case.
I conclude that an application for a s.42 order is not an application for an injunction, such that s13(2)(a) would not have applied.
Waiver
The third question relates to waiver. If there was statutory immunity and if s.13(2)(a) would otherwise apply, contrary to my findings in those regards, has the Respondent waived immunity by reference to the clause set out in paragraph 3 above? I repeat it here:
"The KRG waives on its own behalf and that of the KRG any claim to immunity for itself and assets"
It seems clear that the second reference to KRG must be a reference to KRI. These words, though concise, are robust. It is common ground that a waiver must be construed strictly and sensibly, and, as is stated in s.14(3) a written consent "may be expressed so as to apply to a limited extent or generally". There is no issue between the parties that this waiver of immunity clause removes from the Respondent any adjudicative immunity, as it was referred to in the course of the hearing, nor was any issue raised at this hearing (though KRG reserved its position), because of the reference to assets, as to any immunity against execution. But what Mr Dunning submits is that it does not waive the immunity against injunctive relief (if that is, contrary to my conclusions above, what s.42 constitutes) or indeed against the other forms of relief specified in s.13(2), specific performance and recovery of land or other property. Therefore the question for me is whether the wording of the waiver in this case would exclude immunity against what one might call 's.13(2)(a) relief', including relief by way of injunction:
i) Mr Pollock refers to the decision of Saville J in A Company Ltd v Republic of X [1990] 2 Lloyds Law Rep 520. In that case there was a waiver to the effect: "The Ministry of Finance hereby waives whatever defence it may have of sovereign immunity for itself or its property (present or subsequently acquired)". A Mareva injunction was sought against the defendant, which claimed sovereign immunity. Saville J concluded that the waiver "does amount to the agreement and consent of the State that its property can be made the subject of a Mareva injunction" (at 523). Mr Pollock submits that this is directly persuasive. Mr Dunning points out: (i) that Saville J may have been affected by the fact that, as he specifically stated at 523, the contract of which this waiver formed part was "undoubtedly a commercial bargain between the parties": (ii) that a Mareva injunction does have an obvious impact upon a defendant's property, such that it could be said to fall expressly within the wording: (iii) that Saville J said (also at 523) "it is not, of course, necessary to decide whether clause 6 does amount to consent to other forms of injunction".
ii) Mr Pollock refers to Sabah Shipyard (Pakistan) v Pakistan [2002] EWCA Civ 1643. The waiver clause there provided that the defendant "waives any right of immunity which it or any of its assets . . . now has or may in the future have in any jurisdiction . . . and . . . consents generally in respect of the enforcement of any judgment against it . . . to the giving of any relief or the issue of any process in connection with such proceedings (including without limitation, the making, enforcement or execution against or in respect of any of its assets)". In that case the Court of Appeal upheld an anti-suit injunction "to maintain the status quo pending judgment" (paragraph 23). Again this was a clause contained in what Waller LJ described as "an ordinary commercial transaction"; it is plain however that the Court concluded that, albeit not specifically mentioned in the relatively long list of examples, there was waiver of immunity in respect of an anti-suit injunction. Mr Dunning refers however to Arab Banking Court v International Tin Council [1986] Int LR 1 where the Defendant was found to be immune from a Mareva injunction. There was there a very general clause submitting to the jurisdiction of the English Courts, and Article 6(1)(a) of the International Tin Council (Immunities and Privileges) Order of 1972 provided that the Council was immune from suit and legal process except to the extent that "it shall have expressly waived its immunity in a particular case". By reference to the then wording of Dicey & Morris, The Conflict of Laws (10th Ed) Vol 1 p. 176 to the effect that "waiver of immunity from jurisdiction in civil or administrative proceedings does not imply waiver of immunity in respect of execution of the judgment, for which a separate waiver is required", Steyn J concluded that what he called the "narrower construction" of the jurisdiction clause should be accepted.
There is no reported authority which suggests that which Mr Dunning was effectively submitting, namely what one might describe as 'trifurcation' of the question of immunity, by way of construing a waiver clause to see whether it covers what is now suggested to be three different matters, adjudication, s.13(2)(a) relief and execution. He referred to the passages in Fox & Webb and Dickinson, to which I have made reference above, and they all address the same point as was made by Steyn J by reference to the then edition of Dicey & Morris, namely a careful distinction between immunity from suit and immunity against execution. Plainly on any sensible construction of the waiver clause in the present case, it will be sufficient for that purpose. However Mr Dunning refers to the latest edition of Dicey, Morris & Collins: The Conflict of Laws (15th ed) at 345, which reads as follows:
"The immunity from injunctive relief and execution is distinct from immunity from suit, and applies even if one of the jurisdictional exceptions applies. Thus, even though a State is not immune as respects proceedings relating to a commercial transaction, the State cannot be enjoined from breach of the contract. But the immunity from injunctive relief and execution is subject to two important exceptions. First, such relief may be given or process may be issued with the written consent (which may be contained in a prior agreement) of the State [Footnote reference is made to the Tin Council case and to Sabah where "waiver of immunity in a contractual submission to the English jurisdiction was held to extend to an anti-suit injunction restraining proceedings in Pakistan"]. It has been held that a waiver of immunity in relation to property will allow a freezing injunction to be made against a foreign State, but that a contractual waiver of immunity from execution will not be regarded as extending to diplomatic premises." [There is a footnote reference to Saville J's judgment in A Company, with a note that on the latter (but not the former) point there was criticism by FA Mann in 1991 107 LQR 362].
I do not conclude that it is necessary for a waiver to spell out consent in respect of s.13(2)(a) relief, which, although this is not addressed by Dicey extends, as set out in paragraph 42 above, considerably wider, beyond simply injunctive relief, to other kinds of 'suit'. I conclude that if the Respondent had been otherwise entitled to state immunity (which I have, as set out above, concluded it is not) the clause here in question would have been sufficient to amount to a waiver of immunity from suit, including an injunction, if I had not reached the conclusion I did in paragraph 41 above.
Issue 3
I turn finally to the question of my discretion, which both parties accept I have (see Issue 3 at paragraph 16 above), as to whether to make the order. Mr Dunning emphasises the view of Dyson J in Macob that a s.42 order for the payment of money should be rare – certainly in the field of building construction. Mr Pollock does not suggest that such an order should be frequent, but underlines that the particular facts of this case, and what he submits to be the egregious nature of the failure by the Respondent to comply with the orders of the Arbitrators in an ongoing arbitration, makes this exceptional.
Both counsel referred to the words of Teare J in Emmott, where he gives examples, at paragraph 62, of matters which the Court may consider, when exercising its discretion as to whether to enforce the Arbitrators' order:
i) Mr Pollock submits that the Court should be supportive of the Arbitrators and not frustrate their intention. Mr Dunning, mindful of his arguments which I have addressed in Issue 1 above, submits that this should only be where the Arbitrators have acted for the purpose of the proper and expeditious conduct of the arbitration. As appears above, I am in any event satisfied that that was indeed the purpose of the Arbitrators.
ii) Both sides accept that, subject to the question of change of circumstances, the court should not re-visit the argument before the Arbitrators provided that, as I am satisfied that they did here, the Arbitrators have addressed the correct questions. Mr Pollock submits that reconsideration should only arise where there has been an error of law or a serious irregularity by the Arbitrators i.e. something analogous to where the Court could intervene by reference to ss.67 or 68 of the 1996 Act. That does not seem to me to put the point in any different way.
iii) I am entitled to consider any material change of circumstances.
I accept that other matters can be considered by the Court, such as have been canvassed before me (iv) the issue of sovereign immunity – now dealt with, (v) questions of the utility of any order, (vi) if appropriate, Act of State, (vii) comity.
I can deal shortly with (i) and (ii). I see no ground to interfere with or revisit the very carefully expressed reasoning of the Arbitrators and see no sign of any error or irregularity: I have already concluded that they addressed the correct questions.
With regard to (iii), and (vi), which I include here because it was not live before the Arbitrators:
i) It is suggested that there has been a change of circumstance by virtue of the fact that the Respondent's counterclaims have been considered to be sufficiently arguable to be the subject of debate at the 21 September hearing as to whether they amount to or constitute a set-off. It is clear however that, not least because the Arbitrators had previously concluded that the counterclaims were sufficiently arguable not to be disposed of summarily, there has been no material change in the approach of the Arbitrators in accordance with their conclusions in the 10 July Ruling and the 17 October Ruling. The question which the Arbitrators resolved was the restoration of the status quo, irrespective of the defence of set-off, i.e. the requirement that the previous arrangement of the Respondent paying for what was lifted should be restored.
ii) Mr Dunning submits that, on the evidence before me, there has been a change of circumstance in relation to the circumstances of the Claimants. I am satisfied, however, that the evidence before me does not show any improvement in the financial position of Dana (or of the SPV, Pearl). Indeed it seems clear that such financial position is more precarious because since the 17 October Ruling, as appears in paragraphs 14 and 15 above, the Respondent has shut off the source of payment to the Claimants which it had temporarily permitted.
iii) Mr Dunning also relies on the position of the Respondent. The Respondent, which appears to continue to be deprived of resources from the FGI, has a continuing, and, no doubt, increasing, responsibility for arming the Peshmerga, its military arm, and coping with an increasing flood of refugees, quite apart from a budget deficit. Mr Dunning refers to paragraph 25 of the 17 October Ruling (set out in paragraph 11 above) in which the Arbitrators, while sympathising with the plight of the KRG, considered that they were "in no position to estimate the significance of these momentous events", and that they lay outside the matters to which the Tribunal could conventionally have regard. The issue is whether, then or now, there are financial circumstances, possibly deteriorating such circumstances, which either the Arbitrators should have taken, or I should now take, into account. Mr Dunning places reliance on an Order dated 24 August 2015 by the Prime Minister of Kurdistan, which recorded a determination by the Council of Ministers that, in the light of the "strong and competing demands on the Kurdistan Region's financial resources and the limitations on the financial resources available to the KRG", the absence of a budgetary law for the two years of 2014 and 2015, the volatile national security situation and the continued budgetary dispute between the KRG and the FGI, "there are no funds available to allocate" to payment of the peremptory Order, and that "funds could not be paid to the above named companies without prejudicing the urgent demands on the KRG's financial resources and priorities". This, Mr Dunning submits, is a change of circumstance, equivalent to a subsequent Act of State, such as is referred to by Lord Hope in Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 and 5) [2002] 2 AC 883 at 1108, being a "legislative or other governmental act . . . of a recognised foreign state or government within the limits of its own territory [which] the English Courts will not adjudicate upon, or call into question". I agree however with Mr Pollock that he is not inviting me to take either of those courses. The Respondent's Council of Ministers has concluded that there "are no funds available to allocate to the Payment". The Arbitrators however plainly took notice, as do I, that in fact, had it so chosen, the Respondent could have secured payment to the Claimants without actually laying out any money themselves (see paragraphs 16 and 17 of the 17 October Ruling, set out in paragraph 11 above). The fact remains that, as set out in paragraph 14 above, since the 17 October Ruling and indeed since the Order by the Prime Minister of 24 August 2015, the Respondent has made and authorised very substantial payments to other international oil producers, but not to the Claimants. It is also noteworthy that the Respondent plainly was in a position to pay substantial monies to the Claimants in September 2015 when, as set out in paragraph 15 above, stating that it was only prepared to make payments if the Arbitrators agreed to the unorthodox step there proposed. There is no basis for any case, whether by way of change of circumstances or otherwise, for my taking a different view about the balance of justice in relation to the Respondent than was taken by the Arbitrators.
As to (v) utility, the Respondent says that it is apparent that the purpose of the Claimants is to seek to issue contempt proceedings, based upon a failure to comply with a s.42 order, if I make it, and that that would not lead anywhere because there will be no remedy available upon a committal for such contempt, and/or the individual, Dr. Hawrami, who it is suggested may be amenable to the jurisdiction of this Court, would be entitled to diplomatic immunity. In the absence of any likely available remedy on a contempt application, Mr Dunning submits that this is simply illegitimate pressure by the Claimants.
Mr Pollock however submits as follows:
i) Now is not the time to speculate as to what remedy may be available on a contempt application, if such becomes necessary.
ii) No assumption should be made at this stage that the Respondent will in fact fail to comply with an order of the Commercial Court as done in relation to the orders of Arbitrators.
iii) This is the only way to enforce the Arbitrators' orders, which will otherwise remain uncomplied with.
iv) He submits that it is more than likely that a public declaration by this Court of failure to comply and of non-payment will be of effect upon the Respondent, given its role and profile internationally.
Finally (vii) comity. Mr Dunning points to the fact that the Respondent is a friendly nation and an ally of this country, of whom, for good reason, laudatory things have been said by the House of Commons Foreign Affairs Committee. Comity is not usually used in this context: it is more usually applied in a situation in which the Court is pleased to pay deferential regard to the decisions of the Courts of other countries. It seems to me that this Court must do justice between the parties, and if a foreign State, or a foreign corporation, is friendly to this country, but is adjudicated by this Court to owe money or to have failed to comply with the order of an arbitrator or a Court, and not to have immunity, the political status of that defendant cannot stand in the way of justice.
Conclusion
For the reasons I have set out, the Respondent does not have state immunity in respect of the order sought, and I have jurisdiction to make that order, and in the exercise of my discretion I do so. |
Mr. Justice Teare :
This is an appeal from an arbitration award brought with leave pursuant to section 69 of the Arbitration Act 1996. It involves a speed and consumption claim arising out of a time charterparty. Although on such an appeal one would expect there to be a dispute as to the law, there does not appear to be any such dispute in this case. The dispute between the parties is as to how the arbitrator decided this case. Did he dismiss the charterers' claim because, as they maintain, he had an erroneous understanding of the effect in law of the owners' performance warranty or did he dismiss the claim because, as the owners maintain, the charterers had failed to prove a breach of the performance warranty on the evidence adduced before the arbitrator?
In reading the arbitrator's award in order to establish the basis on which he decided the case I bear in mind that the court must read the arbitrator's reasons in "a reasonable and commercial way expecting, as is usually the case, that there will be no substantial fault than can be found with it." The court does not approach an award "with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults in awards and with the objective of upsetting or frustrating the process of arbitration" (see Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14 per Bingham J.)
Before turning to that task I shall summarise the facts. The ship OCEAN VIRGO was chartered in December 2013 on the NYPE form for a time charter trip via North Pacific region to Singapore/Japan range carrying coal in bulk. The owners gave certain speed and performance warranties on the basis of "good weather/smooth sea, up to max BF SC 4/Douglas sea state 3, no adverse currents, no negative influence of swell". There was no dispute that good weather meant a wind speed up to a maximum of Beaufort scale force 4 (16 knots), a sea state up to a maximum of Douglas sea state 3 (maximum 1.25 metres), no adverse currents and no negative influence of swell.
Pursuant to the charterparty the vessel was delivered into the charterers' service on 14 December 2013 and performed a ballast voyage and a laden voyage. The ballast voyage was from Chang Jiang Kou to Roberts Bank BC and was commenced on 14 December. It was divided into two legs. On the first leg the master was instructed to steam at a certain speed and on the second leg the master was instructed to steam at a different speed. The laden voyage was from Roberts Bank to Donghae where the vessel arrived on 8 February 2014. The vessel was redelivered to the owners on 22 February 2014.
The charterers alleged that the vessel was not able to meet the speed and performance warranties in good weather and claimed US$263,832 in damages.
The traditional manner in which a charterer seeks to establish a breach of a speed and performance warranty is to assess the vessel's performance in good weather as defined in the charterparty, excluding any period of slow steaming at the request of the charterer. If analysis of the vessel's performance in good weather establishes a breach then the extent of the shortfall in performance should be applied to all voyages in all weather conditions but excluding any period of slow steaming at the request of the charterer; see The Didymi [1988] 2 Lloyd's Reports 108 at p.117 per Bingham LJ and The Gas Enterprise [1993] 2 Lloyd's Reports 352 at p. 366 per Lloyd LJ. It may be, as suggested in Time Charters 7th.ed. at paragraph 3.68, that breaches can be established in some other way but no other way was suggested in this particular case.
The arbitrator, Captain Paines, analysed the vessel's performance in paragraphs 64-118 of his award and reasons.
In paragraph 75 he said that for a period to be considered as being admissible "Good Weather" it must constitute a period of 24 consecutive hours running from noon to noon. In reaching this conclusion he had in mind a statement by the charterers in their submissions that "it was assumed that each good weather day is 24 hours." He agreed with that and said that traditionally a ship's day runs from noon to noon.
The arbitrator then considered (between paragraphs 76-88) whether there was "admissible" good weather during the ballast voyage. He concluded that there was not. He broke down the period of the ballast voyage in respect of which AWT (the charterers' weather analysts) had concluded there was good weather into four periods. The first period of 14 hours from departure Chang Jiang Kou at 1400 on 14 December until (local) noon (0400) on 15 December was (see paragraph 80) "inadmissible as it comprises only fourteen (14) hours whereas an admissible "Good Weather" day is to be 24 hours or alternatively the period from noon to successive noon." During the second period of 8 hours from (local) noon on 15 December (0400) until noon that day the wind was Beaufort force 5 and the height of the waves exceeded 1.25 metres and so there was no "good weather". The third period of 16 hours from noon on 15 December until (local) noon (0400) on 16 February was 16 hours and so "ineligible for analysis as the day is no longer 24 hours in duration." During the fourth and final period of 23 hours from (local) noon (0400) on 16 February until (local) noon (0300) on 17 February there was an adverse swell of up 1.8 metres in height and so the weather was inadmissible for that reason.
It thus appears that the first and third periods of 14 and 16 hours respectively were excluded from consideration because they were not of 24 hours length. The second and fourth periods of 8 and 23 hours were excluded from consideration because good weather (as defined) was not experienced.
The arbitrator went on to note in paragraph 89 that any speed and consumption analysis was a sampling exercise and that "the sample size must be sufficiently large as to be representative of the voyage in its entirety." He referred to the first and second legs of the ballast voyage. He said (in paragraph 92) that had AWT correctly identified the period of admissible good weather a good weather analysis could have been undertaken of the first leg. With regard to the second leg the period of good weather analysed by AWT was only 5.51 % of the leg "which could not be taken as being representative of the voyage in its entirety." (see paragraph 93). He therefore said (at paragraph 94) that no "satisfactory "Good Weather" analysis" could be undertaken of the second leg. He concluded (see paragraph 95) that "had the AWT report correctly identified the period of admissible "Good Weather" Charterer's claim would have been restricted to the initial, leg 1, period."
It appears to me, on a reasonable and sensible reading of the award, that whilst the arbitrator considered that the period of good weather alleged to have been experienced during the first leg of the ballast voyage was regarded as a sufficient sample, AWT were judged to be wrong in finding admissible good weather in that leg; in respect of two periods because they were not 24 hours long from noon to noon, and in respect of two further periods because the weather was not good weather as defined in the charterparty.
The arbitrator then considered the performance of the vessel on the laden voyage between paragraphs 100 and 118. At paragraphs 104-106 he observed that the period of good weather relied upon (27 hours) was 5.336% of the total voyage. He then examined the suggested good weather between paragraphs 107-114. He said that on 27 January there was an adverse swell and so for a period of 6 hours there was no good weather as defined. That left a period of less than 24 hours and so there was "no longer a period of 24 hours, or a "day", of admissible "Good Weather" ". That left a final period of three hours on 8 February which was "not a "day"." In any event it is likely there was slow steaming at that time and there might have been shallow water effects as the vessel closed the land. He therefore concluded that there were no "days" of admissible Good Weather during the laden voyage.
It appears to me, on a sensible and fair reading of the award, that the arbitrator considered in relation to the laden voyage that whilst there was a period of 18 hours of good weather the arbitrator concluded that that period was inadmissible because it was not good weather lasting a day of 24 hours. However, even if the entire 27 hours had been good weather it would not have been a sample of a sufficient size to be representative of the voyage in its entirety. The arbitrator did not state that in terms but it must have been his view having regard to what he had said about the second leg of the ballast voyage.
Having analysed the reasons why the arbitrator dismissed the charterers' claim I can return to the parties' submissions.
Miss Paruk submitted that the arbitrator had erred in law in excluding from consideration periods of good weather which did not last 24 hours. Whilst the statement attributed by the arbitrator to the charterers had been made she said that it had been taken out of context. There was no reason as a matter of the true construction of the charterparty to require the tribunal, when determining whether there has been a breach of the speed and performance warranties in good weather, to limit its enquiry to periods of 24 hours of good weather from noon to noon. She said that there were periods in the first leg of the ballast voyage (14 hours and 16 hours) which had been excluded on this account. If they were taken into account and established a breach of the speed and performance warranty then that failure should have been applied to the whole period of the charterparty to establish the resulting loss and damage.
Mr. Hatt submitted that the arbitrator had not erred in law in making his award but had searched for, and not found, reliable evidence based upon a sufficient sample. His decision was on the evidence and was not susceptible to an appeal.
In my judgment Miss Paruk has correctly identified an error of law by the arbitrator when he directed himself that an admissible period of good weather must be a period of 24 consecutive hours running from noon to noon. The charterparty merely referred to "good weather". There are no words in the charterparty which justify construing good weather as meaning good weather days of 24 hours from noon to noon. However, Mr. Hatt was right to say that the arbitrator also excluded the periods of good weather relied upon in the second leg of the ballast voyage and in the laden voyage because they were too small a sample. That is not an error of law. It is an approach to the assessment of the evidence which he was entitled to take. Thus, even if he had not made the error of law with regard to "a good weather day of 24 hours from noon to noon" he would still have held that the periods of good weather in (a) the second leg of the ballast voyage and (b) the laden voyage were too small a sample to be representative.
But that leaves the first leg of the ballast voyage. The alleged good weather in that leg was not, in the arbitrator's opinion, too small a sample. Two periods were excluded from consideration because there was no good weather as defined in the charterparty and two other periods were excluded because they were not a good weather day of 24 hours from noon to noon. The first reason discloses no error of law. The second reason does.
I therefore consider that the appeal should be allowed. The award should be remitted to the arbitrator for him to determine whether the two periods of good weather in the first leg of the ballast voyage (14 and 16 hours) are by themselves or cumulatively a sufficient sample to enable a breach to be established. They cannot be excluded from consideration on the grounds that each is less than 24 hours. If they are a sufficient sample then the arbitrator must determine whether they establish a breach of the performance warranty and, if they do, apply that breach to the whole of the charterparty, excluding any periods of slow steaming on the instructions of the charterers, in order to quantify the charterers' claim for damages.
Miss Paruk had a further point. At paragraph 116 the arbitrator said that the warranties "are inapplicable in conditions that fall, for any reason, outwith the Good Weather criteria." He concluded in paragraph 117 that no claim could therefore be "formulated" on the basis of the warranties. It was submitted by Miss Paruk that this was a further error of law in that the arbitrator was failing to give effect to what Bingham LJ and Lloyd LJ had said in the two cases to which I have referred, namely, that once a breach is established by looking at performance in good weather the consequential damages claim is assessed by having regard to the whole of the charter period whatever the weather.
The award has to be read, not with a view to finding faults, but in the expectation that there are no faults. Read by themselves paragraphs 116 and 117 could mean no more than if there are no admissible periods of Good Weather then a breach cannot be established because the evidence upon which the charterers relied to establish a breach of the speed and performance warranty did not relate to good weather. However, the award must be read as a whole and in paragraph 95 the arbitrator said that "had the AWT report correctly identified the period of admissible "Good Weather" Charterer's claim would have been restricted to the initial, leg 1, period." That comment supports Miss Paruk's submission that the arbitrator considered that even if a breach had been established by reference to the performance of the vessel in the first leg of the ballast voyage the charterers' claim would be restricted to that period and would not be applied to the whole period of the charterparty. I therefore accept that there was this further error of law.
In addition to the section 69 appeal there was also a challenge to the award based upon section 68. It was said that the arbitrator had failed to consider the question of breach. I can deal with this very shortly. My understanding of the award and reasons is that the arbitrator considered the question of breach and found that none had been established. Whilst his reasons disclose an error of law they do not reveal a serious irregularity within section 68. |
MR JUSTICE POPPLEWELL:
On 30 September 2015, Flaux J made an order that all the claims in this action be struck out and judgment be entered for the defendants by reason of the claimants' failure to comply with an unless order that they provide security for costs. The claimants now apply to set aside the order by way of relief from sanctions pursuant to CPR 3.9, which, as is well-known, provides as follows:
"(1) On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need -
(a) for litigation to be conducted efficiently and at proportionate cost; and
(b) to enforce compliance with rules, practice directions and orders…"
The first claimant, Mr Sinclair, is a New Zealand national resident in Bahrain. The second claimant, Sokol, is a company registered in Delaware of which Mr Sinclair is a director and shareholder. The first defendant, to which I will refer as "Dorsey London", is a limited liability partnership under New York law and operates as a firm of lawyers which is authorised to conduct business as solicitors in London. The third defendant, Mr Douglas-Henry, worked for Dorsey London between January 2007 and January 2008. Dorsey London is affiliated to Dorsey & Whitney LLP, which is a law firm comprising a limited liability partnership under Minnesota law, which also has an office (or did at the material time) in Denver Colorado.
The second defendant is another firm of solicitors which is, to put it loosely, the successor to two different firms, Wragge & Co and Lawrence Graham LLP, the latter being the firm to which Mr Douglas-Henry moved in January 2008 and for whom he worked as a partner until November 2009.
The claim as originally formulated in the Particulars of Claim, which remains the claim for the time being, is for professional negligence in a number of different respects, against Mr Douglas-Henry, and the two firms for which he successively worked. It includes a claim that both firms over-charged the claimants for work done. One central aspect of the claim in negligence is an allegation that the defendants failed to advise the claimants that a freezing order which had been granted by the English High Court on 21 August 2006 allowed Mr Sinclair on five days' notice to deal with shares in Max Petroleum Plc, an oil company founded by him, as a result of which he claims to have lost the opportunity to sell the shares prior to a price collapse resulting in an alleged loss of some £30 million.
The procedural history of this action is as follows. The Claim Form was issued on 30 May 2014. There had been no attempt to comply with the pre-action protocol. The Claim Form was served, without Particulars of Claim, on 29 September 2014. The Particulars of Claim were served on 27 October 2014. The first defendant's Defence, filed on 24 November 2014, took the point that the wrong defendant had been sued and that the retainer had been with Dorsey & Whitney LLP, the Minnesota limited liability partnership.
On 19 December 2014 the Defence was filed and served on behalf of the second and third defendants. They, too, pointed out that the wrong defendant had been sued and that the firm for whom Mr Douglas-Henry had been working at the relevant time was Lawrence Graham LLP. There should have been an application for a CMC in accordance with the rules by 26 December 2014, but no such application was made.
In January and February 2015, the defendants raised in correspondence requests that security for costs be provided. The claimants meanwhile suggested that a CMC should be fixed with an estimate of one to two days to deal with all matters, including applications to amend the Particulars of Claim and to substitute defendants.
On 17 April 2015, the first defendant issued an application for security for costs and on 1 May 2015, the second and third defendants issued an application for security for costs.
In evidence filed on 6 May 2015, Mr Sinclair said in his first witness statement that he was now in the final stages of securing third party funding and ATE insurance. That was an assertion which he repeated in his second witness statement on 10 June 2015. On 7 July 2015, his third witness statement said that a funding arrangement had then been entered into with Managed Legal Solutions Ltd ("MLS"); and he said that CFA arrangements with his solicitors, who were then Trowers & Hamlins LLP had been concluded.
The matter came before Flaux J on 10 July 2015 to deal amongst other things with the applications for security for costs and to consider directions in relation to the further conduct of the action. He made an order that security for costs be provided in favour of the first defendant in an amount of £100,000 in aggregate and in favour of the second and third defendants in an amount of an additional £50,000 in aggregate. Paragraphs 1, 2 and 4 of his order required that the security to be provided by paying those sums into the Court Funds Office or by providing security in some other form to the reasonable satisfaction of the first and second defendants. The order required security to be provided by 21 August 2015. That was a fairly generous time period, from 10 July to 21 August, within which to provide the security.
Flaux J also ordered, by paragraph 5 of his order, that the claimants were to provide the defendants with a copy of any ATE insurance policy as soon as reasonably practicable on obtaining it and in any event by 14 September 2015. Paragraphs 13 and 14 of his order dealt with the costs of the defendants' applications: he ordered that the claimant should pay those costs, which he summarily assessed in the total amount of £65,000 to be paid by 7 August 2015.
The claimants did not pay those sums by 7 August 2015, nor did the claimants provide security for costs by 21 August 2015. On the last day of each deadline, the claimants issued an application for an extension of time within which to comply, seeking an extension up to 18 September 2015. In support of the application for an extension of time in relation to the £65,000 costs orders, Mr Sinclair said in his fifth witness statement that the ATE policy was in the final underwriting stages.
The applications for extensions of time came before Flaux J on 11 September 2015. Late on the afternoon of the previous day, 10 September 2015, Mr Sinclair served (or there was served on his behalf) a "fifth" witness statement (although I think in fact it was his seventh). In it he explained that the ATE policy was ready to be incepted as soon as it was formally accepted by his solicitor, and he therefore sought the extensions up to 18 September 2015. At the hearing, Mr Shepherd QC, who then appeared for the claimants, and appears for the claimants before me, opened by telling Flaux J that the position had changed somewhat from the position identified in Mr Sinclair's witness statement of the previous day. He told Flaux J that Mr Sinclair and Sokol had received offers of litigation funding through MLS and that they had obtained an ATE insurance policy but that there was a matter which was holding up the entire package which was that the ATE insurance, as well as the offer of funding, had to be signed by the solicitor who would be acting for the claimants; and that Trowers & Hamlins LLP, who had previously been acting for the claimants, were about to come off the record. The reason, he said, was that the amount of funding which had been provided was not considered by Trowers & Hamlins LLP to be sufficient to allow that firm to act. That was a somewhat surprising suggestion because Mr Sinclair had explained in his third witness statement as long previously as 7 July 2015, that the funding agreement with MLS was in place and that his solicitors (that is to say Trowers & Hamlins LLP) had satisfied themselves that the amount of funding would be sufficient for the conduct of the litigation.
Mr Shepherd went on to submit to Flaux J that Mr Sinclair appreciated that he had been in the last chance saloon for a while, and that he was probably nearer the door than he was last time. He asked that the claimants be given what he described as a "last chance" until the following Friday, that is to say 18 September 2015. Mr Shepherd submitted, "He knows that that will be the last chance. If your Lordship were to make an unless order, then I could not argue against it.
In the event, Flaux J decided that he would make an unless order, but he would give an additional period of time beyond that which was being asked for, namely a period of 14 days. He expressed the view that if it were 14 days, if they could not sort it out within 14 days they were never going to be able to, and that therefore he was prepared to make an unless order for a 14 day extension. Paragraph 1 of his order provided that there was to be a final extension of time for complying with the previous orders for provision of security for costs to 4.30pm on Friday, 25 September. Paragraph 2 provided there was to be a final extension of time for complying with the previous orders in relation to payment of the £65,000 worth of costs, in that case to 4.30pm on Friday, 18 September, Paragraphs 3 and 4 of his order provided that in default of compliance, the claims should be struck out and judgment be entered in favour of the defendants without further order.
He also ordered that the claimant should pay the defendants' costs of those applications for extensions of time, which he summarily assessed in the total sum of £10,000, which he also ordered to be paid by 4.30pm on Friday, 25 September, although that was not the subject matter of an unless order.
On 25 September, 4.30 p.m. was the final deadline for the provision for security for costs. Prior to that, on 17 September 2015, the claimants had changed their solicitors and Capital Law LLP gave notice of change to come on the record. Also on that day, the claimants paid the total outstanding for costs of £75,000.
About 20 minutes before the 4.30 p.m. deadline on 25 September 2015, Capital Law LLP telephoned the first defendants, and the solicitors for the second and third defendants, requesting an extension of time for service of an ATE policy to act as the form in which security for costs was to be provided. The first defendants refused the request. Solicitors for the second and third defendants asked that the request should be put in writing so that they could take instructions. At 4.28 p.m. and 4.29 p.m. respectively, Capital Law sent letters by email to the first defendants and to the solicitors for the second and third defendants, attaching an ATE policy issued by ARAG. The covering letter asserted that the policy was sufficient to comply with the orders for provision of security for costs. It was not. The form of security required was payment into court or in some other form to the reasonable satisfaction of the defendants. There had been no attempt to seek the defendants' confirmation that they were satisfied with being provided with an ATE policy in that form and the ATE policy was not in fact in a reasonable form as an alternative to payment into court for many reasons which were explained by the defendants and their solicitors over the following days. It is now accepted on behalf of the claimants that the ATE policy in that form was not a reasonable alternative and that there was a failure to comply with the unless order on 25 September 2015.
On 28 September 2015, the first defendants sent a letter setting out a large number of objections to the form of the ATE policy which had been tendered, and on 29 September 2015 the solicitors for the second and third defendants sent a letter adopting those points and making a number of additional points. Both those letters made the anterior point that, as a result of the failure to comply with the order, the claim automatically stood as struck out in accordance with the terms of the unless order itself.
On 30 September 2015, the first defendants and the solicitors for the second and third defendants, wrote to the clerk to Flaux J explaining what had happened and asking for an order confirming the automatic effect of the failure to comply with the orders for provision of security, namely that the claim had been struck out. Flaux J made an order to that effect on the same day.
The claimants then set about trying to remedy the deficiencies in the ATE policy, as a form of security, which the defendants had pointed out. I will deal with those attempts later in this judgment, but suffice it to say at this stage that nothing that they put forward satisfied the defendants that it was appropriate that the order of Flaux J should be set aside. On 7 October 2015 the claimants issued their application notice for relief from sanctions.
The principles which fall to be applied are those which were set out in Denton v TH White Ltd [2014] EWCA Civ 906; [2014] 1 WLR 3926, following and explaining Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537; [2015] 1 WLR 795. In Michael Wilson & Partners v Sinclair [2015] EWCA Civ 774; [2015] 4 Costs LR 707, Richards LJ summarised those principles at paragraph 26 in the following terms:
"As is now well known, the court in Denton said that a judge should address an application for relief from sanctions in three stages. To summarise paras 25 to 38 of the judgment of Lord Dyson MR and Vos LJ:
i) The first stage is to determine whether the breach is significant or serious. If it is not, relief from sanction will usually be granted.
ii) The second stage is to determine whether there is good reason for the breach.
iii) As to the third stage, the judgment stated that the important misunderstanding of Mitchell was that, if there is a non-trivial (now serious or significant) breach and there is no good reason for the breach, the application for relief will automatically fail. That is not so. Rule 3.9(1) requires that in every case the court will consider "all the circumstances of the case, so as to enable it to deal justly with the application". That is the third stage. Further, the court in Mitchell described the two factors specifically mentioned in the rule, namely (a) the need for litigation to be conducted efficiently and at proportionate cost and (b) the need to enforce compliance with rules, practice directions and orders, as being of "paramount importance". This had encouraged the idea that other factors were of little weight. The judgment in Denton sought to remove that confusion by re-asserting that the two factors are of "particular importance" and should be given "particular weight" but stressing that 'it is always necessary to have regard to all the circumstances of the case'. The judgment expressed concern that a misunderstanding of Mitchell was leading to decisions which were manifestly unjust and disproportionate, whereas a more nuanced approach was required."
That case was concerned with an order that an appellant pay sums of money into court as a condition of pursing an appeal, failing which the appeal was to be stayed. Payment was made some 16 weeks later. Different considerations apply to cases where an order provides for a stay in the absence of provision of security from those which apply where the sanction for non-compliance is the striking out of a claim or defence or appeal under the terms of an unless order. At paragraph 36 of his judgment, Richards LJ expressed approval for a passage in the judgment of Leggatt J in Summit Navigation Ltd v Generali Romania Asigurare Reasigurare SA [2014] EWHC 398 (Comm); [2014] 1 WLR 3472, in which Leggatt J said this:
"31. It does not follow, however, from the fact that the stay of proceedings imposed in this case is a "sanction" that all sanctions are equal and are to be treated as equivalent to one another for the purposes of CPR r 3.9. There is, in my view, a significant difference between an order which specifies the consequence that proceedings are to be stayed if security for costs is not provided by a specified date and an order that, unless security is provided by a specified date, the claim will be struck out. Such "unless" orders are of course commonly made when security for costs is not provided but not, at any rate in the Commercial Court, before the party ordered to provide the security has first failed to do so within a specified time.
…
34. To apply the same approach to an application to lift a stay which takes effect when security is not provided on time as to an application for relief from the sanction of striking out the claim for failure to comply with an 'unless' order would collapse the important distinction between those two different kinds of order, with the different gradations of seriousness which they are generally understood to signify. … The essential difference is that a stay of proceedings if security is not provided is intended to be non-permanent, whereas an order that the claim be struck out is intended to bring the action permanently to an end absent any further order which avoids that result."
What Richards LJ said at paragraph 38 of Michael Wilson & Partners is also in point:
"In the ordinary course there is a clear distinction between the initial imposition of a sanction and the exercise to be conducted under rule 3.9 in considering whether to grant relief from sanction. I made that point, in relation to the sanction of strike-out, in my judgment in Walsham Chalet Park (t/a The Dream Lodge Group) v Tallington Lakes Ltd [2014] EWCA Civ 1607; [2014] 1 Costs LO 157, at paragraph 44:
"It must be stressed, however, that the ultimate question for the court in deciding whether to impose the sanction of strike-out is materially different from that in deciding whether to grant relief from a sanction that has already been imposed. In a strike-out application under rule 3.4 the proportionality of the sanction itself is in issue, whereas an application under rule 3.9 for relief from sanction has to proceed on the basis that the sanction was properly imposed (see Mitchell, paras 44-45). The importance of that distinction is particularly obvious where the sanction being sought is as fundamental as a strike-out…""
Likewise, it seems to me that when a court is considering an application for relief from sanction where there has been a failure to comply with an unless order which has specified that a strike out is the sanction for failure to comply, the court must proceed on the basis that the sanction of strike out contained in the unless order was properly imposed as a proportionate sanction for failure to comply. It will, therefore, be a comparatively rare case in which the applicant can persuade the court, absent a material change of circumstances, that it would now be appropriate to grant relief from the sanction as being disproportionate.
I turn, therefore, to apply the three stage approach. The first stage is to enquire whether the breach is serious or significant. I have no doubt that in this case the breach ought properly to be categorised as very serious. The starting point is that breach of an unless order will almost always be treated as serious. It is a failure to comply with a court order in the knowledge that the court has already attached sufficient importance to the need to comply with it so as to impose the sanction of strike out as the proportionate consequence of non-compliance. Secondly, the requirement in this case that the claimants provide security for costs is an important one. The first claimant is resident in the United Arab Emirates, the second claimant is a Delaware corporation. Neither has at any stage, including on the present application, given a full and frank account in a witness statement of their assets. There are very real and justifiable concerns about their ability or willingness to meet a costs order in favour of the defendants if and when one is made.
Thirdly, there has been a protracted history in relation to seeking to procure the provision of security from these claimants. As I have indicated, the matter was first raised in correspondence in January and February 2015. The order which was made gave a generous period of time in requiring security to be provided by 21 August. There has been a failure to provide security which, for reasons which I shall explain, I regard as a failure which continues up to the present day, some eight weeks after the date to which a final extension was granted.
Moreover, the claimants did not, as in my view they should have done, raise with the defendants the possibility of relying on the ATE policy as a reasonable alternative to payment into court sufficiently in advance of the deadline to enable a sensible and constructive discussion to take place as to whether the terms of the policy could properly be treated as reasonably satisfactory to the defendants. Instead, they chose to serve and rely on an ATE policy minutes before the deadline without any prior discussion. In doing so, they took the risk that that would not be treated as a reasonable alternative to payment into court, as it is now recognised it is not. The points which were in fact taken by the defendants thereafter could readily have been foreseen as objections which the defendants were likely to take as to the form of the ATE policy.
Further, even now, some eight weeks after the extended deadline, the claimants are still not offering security which is satisfactory. What the claimants still wish to do, as the primary way of providing security, is to provide an ATE policy. The claimants have secured from insurers various amendments to the proposed policy terms, but what is currently offered does not meet all the reasonable objections. In particular, what is currently being offered by way of an ATE policy as security has, to my mind, the following deficiencies.
First, it still contains exclusions which exclude the costs of the claims which it is proposed to abandon, and the costs of the substitution of Dorsey & Whitney LLP for the first defendant. Secondly, the policy terms in their current form provide that, if payment of the premium, which is a sum of approximately £160,000, is not made within 21 days, then the policy will be cancelled ab initio.
Mr Meade, on behalf of the claimants explains in his witness statement of 8 October that the litigation funders, MLS, have agreed that, if relief from sanctions are granted, then that premium will be paid by MLS within three days thereafter and such agreement is evidenced by an email which is in the bundle. Mr Shepherd described that as an undertaking, but it is, of course, no such thing; it is simply an indication of the then intention of MLS. There is no guarantee that MLS would not change its mind and there is no undertaking.
There is a related point made by Mr Parker on behalf of the first defendants ,that offering to provide the ATE policy in this way is an inappropriate attempt by the claimants to have their cake and eat it (my expression not his) because, he says, it is perfectly clear that the offer to provide security in the form of the ATE policy is conditional upon relief from sanction being granted and that, if the court were not minded to grant relief from sanction, no such ATE policy would be provided. That, Mr Parker submits, would not be appropriate because, if the defendants want to come to this court and throw themselves upon its mercy, they should be prepared to undertake unconditionally to provide the ATE policy, whether or not relief from sanctions is granted, so that at least the defendants have the security of knowing that whatever happens there will be some security for the costs which have been incurred to date. I see some force in that point.
Lastly, there is a point made by Mr Patten QC on behalf of the second and the third defendants that, even now, the ATE policy is a policy in favour of the claimants not in favour of the defendants. It confers no direct rights on the defendants which the defendants would be entitled to rely upon. Were the insurers to respond to the policy and pay such costs as the claimants are ordered to pay to the defendants, those costs would be payable not to the defendants, but to the claimants; and that provides no security to the defendants. It would only be if there were bound to be an insolvency, and there were the equivalent of the Third Party (Rights Against Insurers) Act in place in the relevant jurisdiction, that the defendants could ensure that in insolvency proceedings, they could take the full benefit of the entitlement under the policy without it having to be shared pari passu with other creditors. But there is no reason to think that, if insolvency proceedings were to take place against these claimants, they would take place in England or anywhere else which has the equivalent of the Third Party (Rights Against Insurers) Act.
For all those reasons, the form in which the ATE policy is even now being proffered would not be sufficient to fulfil the criterion of a provision of security in a reasonably satisfactory form.
Moreover, there has been, as a result of the continuing failure to provide security, a serious adverse impact on the progress of the claim. There has still been no CMC listed. Flaux J's order of 10 July 2015 ordered that it should be listed for the first available date after 1 November 2015 with an estimate of two days, but the delay in providing security and the applications in relation thereto, mean that that date has been missed and it is now unlikely that it will be possible to list the CMC before early next year if relief from sanctions were to be granted.
For all those reasons, the breach should be categorised as very serious.
Turning to the second stage which enquires: Is there good reason for the breach? The answer is unequivocally no. Mr Meade's witness statement in support of the application gives no detail as to what was happening in relation to the ATE policy, or when, so as enable the court to treat the delays as something which were beyond the reasonable control of the claimants. In paragraph 47 he refers cryptically to "third party processes", but perhaps most importantly, the whole tenor of the written statement treats the procurement of the ATE policy as if it were something which came from a standing start on or after 17 September 2015 when there was a change in solicitors. That is a false premise on which to put forward the evidence. As is apparent from the passages I have already referred to in Mr Sinclair's earlier witness statements, the funding with MLS was said to have been in place, so far as Trowers & Hamlins LLP were concerned, as long ago as last July; and Mr Sinclair was repeatedly suggesting that the ATE policy was in the final stages of underwriting. If that were true, then there is no reason to suppose, and certainly none indicated in Mr Meade's evidence, that there should have been any difficulty, with reasonable diligence, promptly to effect the transfer to new solicitors complete the new ATE policy, which would not involve any re-underwriting but only satisfaction that the new firm of solicitors were appropriate in place of the old.
Moreover, as I have indicated, there has been no frank evidence from the claimants about assets which they might themselves have available to fund a payment into court as an alternative to the provision of an ATE policy. It is now said in Mr Meade's witness statement that they would be prepared, as a fall-back to the provision of an ATE policy, to provide security for costs in cash either by paying the excluded costs so as to deal with that deficiency in the ATE policy or, if the ATE policy were not regarded as acceptable, by payment of the full £150,000 into court. There has been an assertion of impecuniosity on the part of the claimants by Mr Shepherd, but in the absence of any frank evidence about their assets, such assertions of impecuniosity carry little weight. That is especially so since the claimants have found the cash to pay the £75,000 of the costs orders on 17 September 2015 and there is no evidence as to where that money came from.
The offer to pay in the alternative the £150,000 in cash came in Mr Meade's witness statement in a form which was, at best, ambiguous as to whether the money would come from the claimants' own funds or from MLS. Mr Shepherd said that the £150,000 was something which would come from MLS. Even were I to assume that that is so, there is no reason on the evidence before me to think that that would not equally have been the position prior to 25 September 2015, such that, had the claimants wished to do so, they could have procured that MLS would pay the £150,000 into court by the deadline on 25 September 2015.
I turn then to the third stage. I am required to pay particular attention to the two factors identified in CPR 3.9. First is the need for litigation to be conducted efficiently and at proportionate cost. In this case there has been repeated failure to provide security and the effect has been the delayed progress of the proceedings. Moreover, that aspect is only one and the last in the line of a number of aspects in which the claimants have conspicuously failed to conduct the litigation efficiently and at proportionate cost. There was no compliance with the pre-action protocol. There should have been steps taken to fix the first CMC early in 2015, but there has still been no CMC 18 months after the commencement of the action. As the claimants now accept, the first defendant has wrongly been sued and the claim should have been brought in relation to Mr Douglas-Henry's conduct during that period against Dorsey & Whitney LLP.
On 9 July 2015, which was the day before the hearing on 10 July, the claimants served draft amended particulars of claim, abandoning three of the four bases of claim against the defendants and confining the claim, or seeking to confine the claim, to the claim in relation to the Max shares. But the application to make those amendments, and in particular the costs consequences, are yet to be determined. The security for costs aspects of the litigation have required three court hearings and a paper application to the judge, which is a disproportionate amount of time and cost and prejudicial to other court users.
So far as the other particular aspect which rule 3.9 requires to be given particular importance, that is to say the imperative in subparagraph (b) of enforcing compliance with rules, practice directions and orders, that is a consideration of particular weight in this case against the grant of relief from sanctions. There has been an unless order. There has been no proper excuse for failure to comply. It was accepted at the hearing on 11 September 2015 that this would be a last chance and there is a very powerful public interest in ensuring that parties recognise the importance of complying with unless orders.
In addition, all the factors I mentioned under the first heading which make this a very serious breach come into play again at the third stage. Of particular importance to my mind at the third stage, is the fact that Flaux J has already determined that the striking out of the claims is an appropriate and proportionate sanction for failure to comply with the provision of security for costs. He made that determination when considering whether to make, and in making, the unless order and in granting an additional period of 14 days. There is nothing to put this case in that rare category of cases where that value judgment should be revisited. There has been no material change in circumstances which has led to a failure to comply from what could reasonably have been contemplated and as being within Flaux J's expectation at the time that the order was made.
I also have in mind, although this is a point of more minor weight, that there was a delay which I regard as excessive in making this application to seek relief from sanctions. It was a week after Flaux J's order and almost two weeks after the deadline had expired.
Mr Shepherd has emphasised that what the court must do is consider all the circumstances of the case and seek to do justice. He submits that, if relief from sanctions is not granted in this case, then the claimants would lose a claim with a real prospect of success for an amount in excess of £30 million and that that is very severe prejudice. He says that that is disproportionate to the degree of fault and to the degree of prejudice which will be suffered by the claimants if the claim is not reinstated. The prejudice to the claimants in that way is indeed an important consideration, but it is not, in my view, sufficient to warrant the grant of relief from sanctions applying the principles which I have identified. Indeed, to allow it to do so would turn the new approach which is required by Mitchell and Denton on its head.
Accordingly, the application will be dismissed. |
INTRODUCTION
This is an application by the Defendant, AXA Corporate Solutions Assurance ("AXA") a French insurance company, disputing the jurisdiction of the English Court to hear and determine proceedings brought by the Claimant insurance company, XL Insurance Company SE ("XL"), a European insurance company domiciled here.
XL and AXA are co-insurers of a Delaware company called Connex Railroad LLC ("Connex"), an affiliate of Veolia Environment SA ("Veolia"), part of the French Veolia Group. On 12 September 2008 in Chatsworth, California, there was a serious collision between a freight train and a passenger train operated by Connex on behalf of the Southern Regional Rail Authority trading as Metrolink. 24 people died and many more were injured. Proceedings on behalf of the victims were commenced in California against Metrolink and Connex. XL had insured Metrolink pursuant to three policies of insurance dated 23 September and 13 and 22 October 2008 for the purposes of which Connex was an insured party. AXA insured Violia and its associates which also included Connex pursuant to a policy dated 1 July 2008 ("the AXA Policy")
On behalf of the victims and within the California proceedings, a Federal Interpleader Fund of
$200m was established ("the Fund"), this being the limit of the defendants' liabilities under federal law. Once it was established, the Court would allocate the Fund across the victims and their claims against Metrolink and Connex would be at an end. Metrolink's insurers (including XL) paid $146m into the Fund, of which $65m came from XL. AXA was requested to pay into the Fund also but refused on the basis that Clause 2.9.2.2 of the AXA Policy relieved it of any liability where the amount of indemnity due from "local" insurers exhausted the total liability (of $200m).
XL claims that this is a case of double insurance and seeks a contribution from its co-insurer AXA in the sum of $7.8m being the amount which it says AXA should have paid in, but which instead XL was obliged to pay, having regard to the proportions of the risk insured by each. If XL's claim is allowed to continue here, the issue of whether AXA has a defence as against its insured, will be litigated here.
Since these proceedings were commenced after 15 January 2015, questions of jurisdiction are governed by the "recast" Brussels Regulation 1215/2012. This replaced (with significant amendments in some areas), the previous Brussels Regulation 44/2001. I shall refer to the former as Brussels I Recast and the latter as Brussels I.
AXA contends that as a French – domiciled defendant, it should have been sued in France pursuant to Article 4 of Brussels I Recast. XL says that it is entitled to sue here because of the operation of Article 7 (2), alternatively Article 7 (1) thereof. It accepts that it has the burden of showing that there is a good arguable case that it is right on one or other count.
THE ISSUES
Article 4(1) of Brussels I Recast provides that
"Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State."
Article 7 provides that:
"A person domiciled in a Member State may be sued in another Member State:
(1) (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;
(b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:
in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered,
in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided;
(c) if point (b) does not apply then point (a) applies;
(2) in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur;"
Article 7 (1) and (2) reproduce in materially the same form Articles 5 (1) and (3) of Brussels I . For obvious reasons all of the cases discussed below (save Iveco SpA and Iveco Limited v Magna Electronics [2015] EWHC 2887) concerned Articles 5 (1) and (3). References to those articles are therefore in the context of Brussels I .
AXA contends that a contribution claim of the kind made here by XL is a "matter relating to a contract" within Article 7 (1), namely the underlying insurance contracts between XL and AXA and their insureds respectively but if so, the place of performance of the "obligation in question" is not England. And if not within Article 7 (1), the claim is not a matter relating to tort, delict or quasi-delict within Article 7 (2). Or if it is, on any view the place where the relevant "harmful event" occurred was not England. On any analysis therefore, the derogations from Article 4 (1) do not operate and AXA must be sued in France.
For its part, XL contends that its claim does not fall within Article 7 (1) but it does fall within Article 7 (2) as to which, the place where the harmful event occurred is England. If, contrary to that, the claim is not within Article 7 (2), then (and very much as a longstop argument) XL contends that if the claim was within Article 7 (1), the place of performance of the relevant obligation is England.
It is not necessary to delve into the facts in any more detail.
SOME GENERAL PRINCIPLES
The following general principles derive from Recitals 15 and 16, and Article 4 of Brussels I Recast and the case-law and are not controversial:
(1) The general rule is that the Defendant should be sued in its country of domicile;
(2) The exceptions to this rule as provided in Brussels I Recast (including Article 7 (1) and (2)) must be interpreted restrictively as they are derogations from that general rule;
(3) The exceptions (where they operate) are justified because there is a close connecting factor between the claim made and the court concerned which should ensure legal certainty and reasonable foreseeability on the part of the Defendant as to where it might be sued, other than in its place of domicile;
(4) The general rule in Article 4 means that, save where otherwise provided, Brussels I Recast should not be interpreted in a way which might lead to recognition of the jurisdiction of the courts of the Claimant's domicile so as to allow it to determine the competent court by reference to his domicile;
(5) But that said, if the proper application of one of the exceptions leads to the conclusion that the court which has jurisdiction is the court of the Claimant's domicile, that is no reason to preclude the Claimant from relying upon it.
At some points in her arguments, Ms Buehrlen QC for AXA appeared to suggest that apart from the relevant provisions the Court should also take into account some supervening requirement of "close connection" akin to "forum conveniens". There is no basis for that gloss, however. See the observations of Christopher Clarke LJ in AMT Futures v Marzillier [2015] 3 WLT 282 at para. 33. Either an exception (properly construed) applies or it does not. If it does, that is the end of the matter and the relevant Court has jurisdiction without more.
IS THE CLAIM WITHIN ARTICLE 7 (1)?
It is common ground that any contract that might be relevant is not one for the sale of goods or provision of services, and so only Article 7 (1) (a) is relevant. Two questions arise:
(1) Is the claim a matter relating to a contract?
(2) If so, where is the place of performance of the obligation in question?
Is the claim a matter relating to a contract?
As a matter of broad analysis, this claim "relates" to a contract, in fact two contracts because it arises out of the fact that both XL and AXA are liable (or in AXA's case allegedly liable) to Connex as their insured under the insurance polices. However there is no contract of any kind between XL and AXA. Although the right of a co-insurer's contribution in cases of double insurance has sometimes been referred to as an "equitable" right of contribution, it is probably more accurate to say that it arises by operation of law, the object being to ensure that the co- insurers are put in the position they would have been in, had the insured claimed against both of them, instead of going against only one. It arises once a co-insured has paid out more than his share, as against the other co-insured, or to put it another way, once he has "overpaid". See the judgment of Lord Mance in International Energy Group v Zurich Insurance [2010] EWHC 773 at para. 15. See also McGillivray Insurance Law 12th Ed para. 24-032 which states that:
"Where there are two or more insurances covering the same rights and interests in any risk, the principle of contribution applies as between the different insurers. Apart from any condition in the policies, any one insurer is bound to pay to the assured the full amount for which he would be liable if his policy stood alone; but, having paid, he is entitled to an equitable contribution from the other insurers on the same principle as co-sureties are bound to contribute inter se when any one is called upon by the creditor to pay."
Here it is common ground that payment into the Fund was the equivalent of payment out to the insured.
While the necessary preconditions for liability on the part of AXA to make contribution to XL include the occurrence of the insured event, the liabilities of both under their insurance policies and overpayment by XL, the legal basis for XL's claim against AXA is the right at law to contribution.
In my judgment, and as explained below, the relevant case-law supports the general proposition that for Article 7 (1) to be engaged at all, the defendant must have an obligation founded in contract to render a performance of some kind to the claimant, and the claimant must be seeking that performance or compensation for the lack of it.
The starting point is the decision of the ECJ in Handte v TMCS [1992] ECR 1-49. Here, the French claimant brought an action against, among others, the German manufacturer of allegedly defective goods which sold them to its French associate who sold on to the claimant. The Court held that the claim against the manufacturer did not fall within (the then) Article 5 (1). Having noted the need to interpret such provisions restrictively, it said in paragraph 15 that Article 5 (1) did not cover a situation where "there is no obligation freely assumed by one party to another" a formula oft-repeated in later cases. It was then said that there was no contractual relationship between the claimant and the defendant manufacturer because the latter undertook no such obligation to the former. Moreover, to interpret Article 5 (1) more widely so as to bring the claim within it would be to interpret it otherwise than so as to enable a normally well- informed defendant reasonably to predict where else he may be sued other than his domicile, since he may well not know of the identity of any sub-purchaser.
Ms Buehrlen QC accepted the need for there to be a contractual obligation assumed by one party to another but submitted that this did not have to be an obligation as between the parties to the claim in question. If that were correct, then it could be said that the instant claim did fall within Article 7 (1). However, in my judgment, it is not correct.
First, the clear sense of the decision in Handte is that the obligation concerned must be owed to the claimant. Second, this is plain from the ECJ decision in Brogsitter v FMN 13 March 2014 C-548/2012. In a preliminary ruling the Court stated at paragraph 24 that in order for a claim to be within Article 5 (1) the conduct complained of must "be considered a breach of contract". And as more particularly set out in para. 26:
"It is therefore for the referring court to determine whether the purpose of the claims brought by the applicant in the case in the main proceedings is to seek damages, the legal basis for which can reasonably be regarded as a breach of the rights and obligations set out in the contract which binds the parties in the main proceedings, which would make its taking into account indispensable in deciding the action."
In Atlas Shipping v Suisse Atlantique [1995] 2 Lloyds Rep. 188, the claimant broker sought to enforce a term of the contract between the defendant buyer and the third party seller which permitted the buyer to deduct the broker's commission from the purchase price provided it then remitted the commission directly to the broker. The defendant buyer here made the deduction but then did not pay the broker. The sellers were joined as additional defendants. Rix J (as he then was) held that the claim fell within Article 5 (1) because the buyer had a contractual obligation to pay the broker albeit that the broker was not itself a party to the contract and thus the broker could only enforce the same by means of equitable principles. He said that to suggest that the decision in Handte would prevent that outcome was to read it too narrowly. I respectfully agree. Where there is a contractual obligation upon the defendant to render a performance to the claimant, the fact that there was (or is) no privity between defendant and claimant will not matter for the purposes of Article 7 (1) provided that the basis of the defendant's liability to render the performance to the claimant is a contract. That explains why, in my view, there is no difficulty with a claimant who is an assignee of the original contracting party being able to invoke Article 7 (1) against the defendant who is the defaulting contracting party.
Equally, if the beneficiary of, but not a party to, a contract made between the defendant and a third party is able to enforce the defendant's contractual promise to render a performance to him by reason of s1 (1) of the Contracts (Rights of Third Parties) Act 1999, Article 7 (1) will be engaged. See the decision of the Court of Appeal in WPP v Benatti [2007] 1 WLR 2316 at paras. 53 and 54 of the judgment of Buxton LJ which also cites a passage from Briggs' Civil Jurisdiction and Judgments 4th Edition at para. 2.126 (see now para. 2-167 of the 6th Edition).
In such cases, therefore, there is a contractual obligation on the defendant to render a performance to the claimant which the latter wishes to enforce. The only question is the claimant's locus to do so. Where the claimant was not a party to the contract some further provision or rule of law may be required. But the case before me is not a "locus" case. AXA has no contractual obligation to make contribution to XL at all.
AXA seeks to avoid this problem by arguing that AXA did have a contractual obligation to indemnify its insured which it failed to discharge. Quite so, but XL is not suing on that obligation. Indeed, if it were all it could achieve would be an order that AXA make payment to Connex or the Fund, which is no use to it now and anyway is not being claimed. Nor does the fact that the contractual liabilities of XL and AXA to their insured are pre-requisites to XL's claim for a contribution turn it into a contractual claim for the purposes of Article 7 (1).
The difficulty with AXA's reliance on the contract of insurance as the relevant one for the purpose of Article 7 (1) is illustrated by the fact that if the obligation under that contract, which is to indemnify the insured, is the obligation in question (as AXA contends) then (obviously) the place of performance of that obligation will have no relevance to XL at all since it will be the place where the insured is to be indemnified either in France or in California. It makes no sense for the Court to decide the place of performance of an obligation which is not the obligation that the claimant seeks to enforce. It is the latter obligation which is central – see for example Shenavai v Kreischer [1987] ECR 239 at paras. 18 and 19.
It is therefore not enough for Article 7 (1) purposes to show that there is a contract with freely assumed obligations which is somewhere in the background, or even one which is a stepping stone to the ultimate liability of the defendant. It must be the basis for the obligation actually relied upon by the claimant as against the defendant. This is borne out by the ECJ decision in Verein für Konsumenteninformation v Henkel [2003] I.L.Pr. 1 where the claimant was a consumer organisation which sought an injunction against the defendant trader to prohibit him from using unfair contract terms in his contracts with his customers. Unquestionably the contracts concerned lay at the heart of the action. But nonetheless, the claimant association was not in any kind of contractual relationship with the defendant. Accordingly the Court held that the claim was not within Article 7 (1).
Following the hearing, I received a copy of the decision of Edwards-Stuart J in Iveco, handed down on 17 November 2015. I invited both sides to make further submissions in the light of it and they have done so. I am fortified in my conclusion on Article 7 (1) by that decision. It concerned contribution claims made by the claimants under the 1978 Act against the Italian manufacturer of grid relay heating systems installed in vehicles which led to them catching fire and damaging various commercial premises in England. The second claimant was the Italian manufacturer of the vehicles and the first defendant was the distributor in England. Both claimants settled the claims made against them in tort which arose out of the fires and now sought contribution against the defendant on the basis that it was a tortfeasor too. The defendant sought to strike out the claim, arguing that this Court had no jurisdiction under Brussels I Recast and it must be sued in Italy. Although there was no contract between the first claimant and the defendant it was said that the claim nonetheless fell within Article 7 (1) because of the underlying contract between the second claimant and the defendant whereby the latter sold the offending heating systems to the former. Edwards-Stuart J rejected this argument since there was no contract between the relevant parties. The fact that there was a contract "somewhere along the line" was not enough. There needed to be a contract between the claimant and the defendant or something very close to it. See paragraph 29 of his judgment.
I was also referred to a recent opinion of the Advocate General ("AG") given on 24 September 2015 in the case of Ergo Insurance v P & C Insurance Cases C-359 and 475/14. The question was whether a co-insurer's claim for contribution following payment out in full to the insured fell within Brussels I. At para. 58, the AG opined that such a claim fell within Article 5 (1) because each insurer was subject to an underlying contract with the insured and so this was a matter "relating to a contract". At para. 62 she said that the centre of gravity of the obligation to indemnify the insured is the insurer's contractual obligation and that for the purposes of applicable law, the co-insurer's claim would fall under Rome 1. However for all the reasons given above, I do not believe that this is the correct analysis of the claim to contribution so far as Article 5 (1) is concerned. Nor do I need to express any concluded view as to whether Rome 1 and 2 on the one hand, and Brussels I (or I Recast) on the other are to be construed consistently with each other so far as the "demarcation line" between claims founded in contract and those founded otherwise, are concerned.
The simple reality here is that the relevant obligation is the obligation on AXA to contribute to XL, not to indemnify the insured. Ms Buehrlen QC sensibly conceded that if I took that view, then Article 7 (1) is not engaged at all. Accordingly it is unnecessary to deal with the second question, namely the place of performance of the obligation in question save to say that had the obligation in question been the insurers' liability to indemnify the insured, then obviously the place of its performance was not England, which disposes of XL's "longstop" argument.
IS THE CLAIM WITHIN ARTICLE 7 (2)?
32. Here two questions arise:
(1) Is the claim within Article 7 (2) at all?
(2) If so, where is the place where the harmful event occurred?
It is common ground that the place where the harmful event occurred is (a) the place where the damage occurred or (b) the place of the event giving rise to it. See Bier v Mines de Potasse d'Alsace [1976] ECR 1735 at paras. 14-19. The claimant may seek to establish either in order to found jurisdiction under Article 7 (2). Here XL contends that the place where the damage occurred is England. It does not rely on the alternative limb, being the place of the event giving rise to it.
Is the claim within Article 7 (2) at all?
This questions turns fundamentally on the true scope of the words "matters relating to tort, delict or quasi-delict".
Kalfelis
The starting point is the decision of the ECJ in Kalfelis v Bankhaus Schroeder [1988] ECR 5565. The claimant, domiciled in Germany, brought a claim arising out of futures transactions made with the second defendant bank, domiciled in Luxembourg, through its German intermediary the first defendant. He said that both were liable for substantial losses arising out of those transactions. He claimed there was a breach of contractual liability to provide information, a liability in tort on the basis of a breach of the duty of good faith, and unjust enrichment on the basis that the transactions were not binding and so the monies he paid over should be returned.
The Luxembourg bank challenged the jurisdiction of the German Court. The first set of questions for a preliminary ruling concerned what was then Article 6 (1) in relation to claims against more than one defendant. But the second set of questions were as follows:
"(a) Must the term "tort" in Article 5 (3) of the EEC Convention be construed independently of the Convention or must it be construed according to the law applicable in the individual case (lex causae), which is determined by the private international law of the court applied to?
(b) Does Article 5 (3) of the EEC Convention confer, in respect of an action based on claims in tort and contract and for unjust enrichment, accessory jurisdiction on account of factual connection even in respect of the claims not based on tort?"
In answer to (a) the Court stated (unsurprisingly) in paragraph 16 that
"..the concept of matters relating to tort, delict or quasi-delict must be regarded as an autonomous concept which is to be interpreted, for the application of the Convention, principally by reference to the scheme and objectives of the Convention in order to ensure that the latter is given full effect."
But it then went on to say in paragraph 17:
"In order to ensure uniformity in all the Member States, it must be recognized that the concept of 'matters relating to tort, delict and quasi-delict' covers all actions which seek to establish the liability of a defendant and which are not related to a 'contract' within the meaning of Article 5 (1)."
In paragraph 18 it recited what it had just said in paragraph 17 as the answer to (a).
In paragraph 19 the Court went on to say that derogations from the general rule must be interpreted strictly, and so
"a court which has jurisdiction under Article 5 (3) over an action in so far as it is based on tort or delict does not have jurisdiction over that action in so far as it is not so based."
In paragraph 20 the Court recognised that this could mean that different elements of the same dispute might be litigated in different places but on the other hand the claimant could avoid that by suing the defendant in its place of domicile. In paragraph 21 the statement made in paragraph 19 became the answer to (b).
Paragraph 17 of the judgment ("paragraph 17") has been cited in numerous later cases, some of which are considered below. However it is first necessary to set out the parties' rival contentions as to what it means.
Mr Layton QC does not suggest that paragraph 17 means that Article 5 (3) is a purely residual category so that any claim of any kind which is not within Article 5 (1) falls within Article 5 (3). He could not, if only because the ECJ in Reichert v Dresdner Bank [1992] I.LPr-404 held that one particular non-contractual claim did not fall within either provision. See paragraph 55 below. Instead, he said that any claim which (if proved) entailed a liability on the part of the defendant to the claimant would engage Article 5 (3) once it was clear that it did not fall within Article 5 (1). XL's claim here for a contribution from AXA was just such a claim because AXA is liable to make the contribution in the sum of $7.8m claimed in the Claim Form.
Ms Buehrlen QC contended that something more was needed. Recognising that an autonomous interpretation had to be given to "tort, delict or quasi-delict" she argued that what was required was not just any liability but liability for some kind of "wrong". But the claim for contribution, founded as it is on a right arising by operation of law, cannot be said to involve the commission of a wrong and so the claim is outwith Article 5 (3) altogether.
Before turning to the cases I would make the following initial observations:
(1) On any view there is at least one sense in which Article 5 (3) clearly is residual: if there is a claim in tort but which also sounds in contract because of the contractual relationship between the parties (in English law terms, a claim for professional negligence might be a good example where there are concurrent liabilities) then, provided that the contract claim falls within Article 5 (1), the whole action is considered from that standpoint and jurisdiction in the courts outside the defendant's domicile will only arise if the particular conditions within Article 5 (1) are met; Article 5 (3) can only even potentially apply if the claim is outwith Article 5 (1) altogether. All of this flows from the answer to Question 2 (a) in Kalfelis. But if the claim does fall within Article 5 (3) then any other claim in the action (which by definition is somehow outside both Articles 5 (1) and 5 (3)) cannot be retained by the court which has jurisdiction under Article 5 (3); this is the answer to Question 2 (b);
(2) It has been suggested (for example by Professor Briggs in Civil Jurisdiction and Judgments 6th Edition) that the French and German words for "liability" as they appear in the version of the judgment in those languages, being "responsibilité" and "schadenshaftung" suggest a narrower notion of liability perhaps (I infer from his footnote) tending more to the need for a "wrong" – see his para. 2.187. I am not going to attempt to resolve that linguistic issue but it does seem to me that the liability requirement must be real and not merely nominal. This is reflected in the fact that for Article 5 (3) to operate at all, there has to be a "harmful event". The fact that when it comes to locating that event once Article 5 (3) is engaged, one has the choice between the place where the damage occurred and the place of the event giving rise to it (see paragraph 33 above) does not alter the need to be able to identify a harmful event at the outset;
(3) Given the potential uncertainty in the somewhat compressed statement of principle in paragraph 17, if a later ECJ case simply repeats that formula without trying (or needing) to unpack it, the problem remains, subject to anything which can be gleaned from the decision itself;
(4) Ms Buehrlen QC argued that to see Article 7 (2) as a residual category, at least where "liability" is involved, could not be right because of all the other special heads of jurisdiction listed in Article 7. On that point I disagree. The other heads are highly specific and, at least where a liability can be said to be involved, may provide a yet further place of jurisdiction to those offered by the operation of Article 7 (1) and (2). Thus Article 7 (5) refers to a dispute arising out of the operation of a branch or agency and gives jurisdiction to the place where the branch is situated. But such a claim may well fall within Article 7 (1) as well. So I do not consider that the existence of the further heads militates against the liability analysis proferred by Mr Layton QC.
I now consider the subsequent cases.
Other ECJ Cases
In Brogsitter, the German claimant alleged that the defendants were in breach of the contract between them in that they developed and sold watches which derived from development work they had agreed to undertake exclusively for the claimant. But the claim made was in tort, for damages for unfair competition. The question was therefore whether, since there was a contract between them which the claimant said had been broken, the claim should be considered by reference to Article 5 (1). The Court said it should, having found that the claim fell within Article 5 (1) properly construed (see paragraph 26, quoted in paragraph 22 above) and thus not within Article 5 (3). In paragraph 20 the Court quoted directly paragraph 17 of Kalfelis. And in paragraph 27 it reiterated that "Otherwise [ie if the claim did not fall within Article 5 (1)] …..they must be considered as falling under matters relating to 'tort, delict or quasi-delict' within ..Article 5 (3)." That might be said to exclude the need to find, additionally, some form of wrong although there clearly was a wrong alleged in that case.
In Tacconi v Wagner [2002] ECR 1-7537, a case where a breach of the duty to act in good faith in pre-contractual negotiations was alleged, the ECJ cited paragraph 18 of Kalfelis without qualification. Having held that such a claim did not fall within Article 5 (1) it said that in the circumstances of this case it was a claim for tort within Article 5 (3). So expressed, I do not consider that this case sheds any real light on the debate.
In Reunion v Spliethoff [1998] ECR 1-6511, a subrogated claim was brought by the insurers of the consignee of a cargo of pears which had been damaged in transit due to a lack of refrigeration against the issuer of the bill of lading, the actual carrier and the master of the ship. The ECJ held that the claims against the carrier and Master did not fall within Article 5 (1). It went on to say in paragraph 24:
"In those circumstances, it must be held that such an action is a matter relating to tort, delict or quasi- delict within the meaning of Article 5(3) of the Convention and that, therefore, the general principle that the courts of the State in which the defendant is domiciled are to have jurisdiction, laid down in the first paragraph of Article 2 of the Convention, is inapplicable."
Once more, there can be little doubt that in broad terms a tort was in fact alleged and so the point in issue was not tested.
In OFAB v Koot [2015] QB 21, the ECJ took a similar approach to a claim by a creditor against the directors of a company who had allowed it to trade while under-capitalised and so that it was forced into liquidation. The creditor claimed that the directors should be held personally liable for the company's debts. Having found that the claim fell outside Article 5 (1), the Court then said:
"Nevertheless it is settled case law that the term "matters relating to tort, delict and quasi-delict" within the meaning of article 5 (3) [of Brussels I] covers all actions which seek to establish the liability of a defendant and which are not related to a "contract" within the meaning of Article 5 (1) (a) thereof..."
Again, however, it could be said there was a "wrong" giving rise to that liability being the effective wrongful trading by the company brought about by the directors.
In Kolassa v Barclays Bank Plc 28 January 2015 C-375, the claimant suffered loss as a result of buying bearer bonds issued by the defendant bank and bought though an Austrian bank. He sued the bank in the Austrian Court on the basis of contractual and tortious liability and the bank challenged jurisdiction. It held that as the bank had assumed no contractual obligation to the claimant, there was no contractual claim which could fall within Article 5 (1). See paragraphs 39-41. It then had to deal with whether Article 5 (3) applied. It stated thus:
"44. The fact remains that the concept of 'matters relating to tort, delict or quasi-delict' within the meaning of Article 5(3) of Regulation No 44/2001 covers all actions which seek to establish the liability of a defendant and do not concern 'matters relating to a contract' within the meaning of Article 5(1)(a) of that regulation (see judgment in Brogsitter, C-548/12, EU:C:2014:148, paragraph 20). Thus, it must be assessed whether actions for damages brought against an issuer on the basis of the prospectus and for breaches of other legal information obligations towards investors are matters of delict or quasi-delict in as much as they are not covered by the concept of matters relating to a contract as defined at paragraph 39 of this judgment."
The same point can be made as previously given the allegations of breach of obligation.
In Reichert v Dresdner Bank [1992] I.LPr-404, the ECJ held that a claim by a creditor to set aside a transaction entered into between the debtor defendant and a third party did not fall within Article 5 (3), having first cited without qualification paragraph 17 of Kalfelis. It went on to say that the nature of the claim was such that it could succeed even where the third party beneficiary of the impugned transaction had acted in good faith. It then said:
"[19] The object of such an action is not to compel the debtor to make good the damage he has caused the creditor by his fraudulent act, but to set aside, as against the creditor, the effects of the disposition by the debtor. It is directed not only against the debtor but also against the beneficiary of the disposition, viz. a third party in relation to the debtor's obligation to the creditor, even if, where the disposition is by way of gift, the debtor does not commit a wrongful act. [20] Under these circumstances, an action like the action paulienne of French law cannot be regarded as an action which seeks to establish the liability of a defendant in the sense understood in Article 5(3)..and it is not therefore within the scope of that Article."
One can conclude therefore, that the precise scope of the "liability" requirement of paragraph 17 of Kalfelis has not really been tested in European law, other than in Reichert.
Having reviewed the ECJ case-law, I remain of the view that if it is not possible to state the relevant harmful event in respect of a particular claim, it suggests that the claim does not fall within Article 5 (3) at all. That was surely the underlying point in Reichert. Accordingly, while one need not find a tort, delict or quasi-delict strictly so-called or perhaps even a "wrong", what one needs is some event caused by the defendant which causes damage to the claimant, which may be paraphrased as "harmful event", resulting in a liability of the defendant to pay the claimant. I consider that this is what is implicit in paragraph 17 of Kalfelis.
I now turn to the relevant English cases.
The English Cases
In Santa Fe v Gates Europe and Taurus 16 January 1991, the Court of Appeal had to consider whether a contribution claim by one joint tortfeasor against another fell within Article 5 (3) and if it did, whether the "harmful event" was in England, as the claimant contended, or whether it was in Scotland being the site of the accident on an oil rig. Since the Court of Appeal held that Article 5 (3) would not assist the claimant anyway (because the harmful event was plainly in Scotland), they held that it was unnecessary for them to decide the first question which was whether the claim engaged Article 5 (3) at all. Nonetheless it is worth noting that Ralph Gibson LJ had doubts as to whether it did.
As to the harmful event, of course here the claimant was also one of the tortfeasors and thus responsible for the underlying act of negligence. The Court held that the harmful event could only be the underlying accident, not surprisingly, for at that point, both tortfeasors had a right of contribution against each other without more. The fact that it was only later, when, in England the victim of the accident obtained a judgment against the claimant, which then became the immediate cause of the contribution claim, was not relevant.
In Hewden v Wolfkran [2007] 2 Lloyd's Rep 138, the operator of a crane in Canary Wharf which fell, causing fatalities and serious injuries, sued the German company from which it had purchased the crane on the basis of the 1978 Act. The operator had previously settled the claims made against it. The defendant relied upon a jurisdiction clause in favour of Germany in the sale contract with the claimant and further argued that if the jurisdiction clause did not apply, a claim for contribution did not fall within Article 5 (3), even if the underlying negligence claim against the claimant, did. Having reviewed the authorities, Jackson J (as he then was) held that in order to decide the question of whether Article 5 (3) is engaged, it was necessary to look at the substance of the claim brought and the factual basis of the defendant's liability. He then held that the substance of the claim was the defendant's liability to the victims of the accident in negligence as a result of which it would be liable to the claimant under the 1978 Act. Since the harmful event ie the accident occurred here, Article 5 (3) conferred jurisdiction on the English Court if (as he went on to find) the jurisdiction clause did not apply.
I make three observations about that case. First, with respect to Jackson J, I think there are difficulties with seeing the harmful event in a joint tortfeasor's contribution claim as being the underlying tort, albeit that is fundamental to that claim, because it is hard to see that as causing damage to the claimant. But second, and in any event, the contribution claim here is not between tortfeasors but joint insurers. What is key here is the fact of "overpayment" by the claimant. Finally, if the event is the underlying tort, that does not assist XL here (see below).
In Iveco the Court had to consider whether Article 7 (2) vested it with jurisdiction to hear the first claimant's contribution claim, it having fallen outside Article 7 (1) (see paragraph 29 above). Edwards-Stuart J concluded that if the claim were to be categorised as a matter relating to tort etc, then the relevant harmful event was each of the fires at the premises in England. In terms of the place of the harmful event it was common ground that the event giving rise to the damage was the defendant's negligent manufacture of the systems which took place in Italy. The core issue between the parties was the place where the damage occurred. Here he held that this was England, the locus of the fires which occurred as a result of the defective systems and not, for example the place of their delivery to the second claimant or their incorporation in the manufacture of the vehicles, all of which occurred in Italy. On the assumption that Article 7 (2) was engaged, I would respectfully agree.
However, the defendant also argued that Article 7 (2) did not cover the contribution claim. Edwards-Stuart J rejected this on the basis that the contribution claims concerned the liabilities of both claimants to the underlying claimant, in tort. See his paras. 48 and 50. In that regard, he effectively followed the approach taken by Jackson J in Hewden as to which I expressed some reservation in paragraph 62 above. But as with Hewden, such a finding does not affect the outcome in this case: first, because it was concerned with joint tortfeasors who were indeed liable (in tort) for the underlying fires and not co-insurers, and second, the damage caused by the underlying tort here did not occur in England (see paragraph 77 below).
Reference was also made to the case of Dolphin v Sveriges [2009] 2 Lloyd's Rep 123 where the claimant alleged inducement to breach of contract on the part of the defendant as a result of which the claimant did not receive a payment from the other party, being insurers of a cargo lost in a ship collision. It appears that there was no issue but that the nature of the claim (a tort in English law) fell within Article 5 (3). The issue was over the place where the damage occurred. Christopher Clarke J (as he then was) held that this was in England because the damage was the fact that the English claimant did not receive here, the monies that should have been paid to it here under the contract. This case does not assist on the prior question which arises before me as to whether Article 5 (3) is engaged at all.
That leaves (on this point) the decision of the House of Lords in Kleinwort Benson v Glasgow City Council [1999] 1 AC 153. Having held (by a majority) that a claim for unjust enrichment whereby the claimant sought repayment from the defendant of sums paid to it pursuant to interest rate swap agreements later held to be void and ultra vires did not fall within Article 5(1) their Lordships then considered a much briefer argument that it fell within Article 5 (3). They said that it did not. Lord Goff said that the argument that it did was based on a misreading of Kalfelis because (it would appear) he considered that Kalfelis did in fact still require there to be some sort of tort, delict or quasi-delict, even if autonomously defined, which there was not here, nor was there any harmful event or threatened wrong. Lord Clyde said that the argument was based on an imprecise translation of paragraph 18 of the judgment in Kalfelis. Lord Hutton also said that there was a misreading of Kalfelis but his main point (like Lord Goff) was that it was inappropriate to apply the words "where the harmful event occurred" to an unjust enrichment claim. It may well be open to debate whether unjust enrichment claims fall outside Article 5 (3) (and at paragraph 2.197 Professor Briggs suggests it depends on the particular kind of unjust enrichment claim) but it is not necessary for me to engage in that debate nor the issue whether the House of Lords was taking a too narrow approach to Article 5 (3) which was itself inconsistent with ECJ authority. Where I would, with respect, concur with their Lordships, is in the view that before Article 5 (3) is engaged it is necessary to find some meaningful "harmful event" as described above.
Conclusions on the law
In the light of Kalfelis and the subsequent case-law I conclude thus:
(1) While most claims will fall within either Article 7 (1) or Article 7 (2), not all will, nor need they;
(2) The word "liability" in paragraph 17 of Kalfelis means more than the claimant simply obtaining some award or relief as against the defendant for otherwise the term, in context, is devoid of any real meaning; instead it must operate to narrow the field of claims which engage Article 7 (2) at least to some extent;
(3) The requirement for a liability should be allied to the requirement for a "harmful event";
(4) Just as, under Article 7 (1), the fact that there is a contract in the background (however important) does not necessarily bring the claim within it, so the fact that there may be a harmful event, properly so-called in the background (however important) does not itself bring a claim which is not within Article 7 (1), within Article 7 (2);
(5) Putting the two requirements together there must be some event which is caused by some act or omission on the part of the defendant which causes damage to the claimant as a result of which the defendant becomes liable to the claimant in respect of that damage. While this may be the case for many non-contractual claims it will not cover all of them; unless the parties agree that Article 7 (2) is engaged therefore, the Court will need to analyse the nature of the claim. This is a separate question from whether, if Article 7 (2) is engaged, it then operates so as to vest jurisdiction in the Court;
(6) Articles 7 (1) and (2) are mutually exclusive to this extent: If there is a claim which does or might fall within Article 7 (2) but which nonetheless falls within Article 7 (1) also, because of the presence of a relevant contract, the claim is governed by Article 7 (1) and not Article 7 (2).
Analysis
I therefore turn to consider the nature of the claim here. XL's entitlement to a contribution arises by operation of law and arises once it had "overpaid" the insured. That is therefore the "event" if any. But if so, it is very hard to characterise it as a "harmful event" as described above. It is true that AXA had previously refused to contribute to the Fund, and had it done so, XL would not have needed to overpay. But the right to contribution does not depend on a prior request and refusal. It simply depends on overpayment where there is another co-insurer. If one takes the analogous case of an insured choosing simply to claim against one of two co-insurers which is then obliged to indemnify the insured in full, it is very hard to characterise the resulting right to contribution from the other co-insurer as being founded on its liability for an event causing damage to the claimant.
Equally the fact that the co-insurer has refused to make contribution once the claim for a contribution has been made is irrelevant. The relevant event is that which is the basis for the contribution claim arising not what happens afterwards.
The fact that AXA can now be said to be "liable" to contribute to XL (assuming its underlying defence fails) is not sufficient to engage Article 7 (2).
Of course, one can find prior harmful events being the original torts committed by Metrolink and Connex. But since they were not committed by AXA they are irrelevant.
Accordingly, I do not consider that this claim falls within Article 7 (2) at all.
Where did the damage occur for the purposes of Article 7 (2)?
Since I have found that Article 7 (2) is not engaged, it is not necessary to answer this question. But in deference to the arguments on this point, and lest the matter go further I deal with it briefly on the basis that Article 7 (2) is somehow engaged.
I can well see that if the event is AXA's refusal to pay XL pursuant to its accrued right to contribute, then the damage has occurred where payment should have been made, ie here. That is consistent with Dolphin. See also the observations of Popplewell J in AMT Futures v Marzillier [2015] 2 WLR 187 at paragraph 34 (6) (not reversed on this point by the Court of Appeal [2015] 3 WLR 282).
But if the event is something else then it is necessary to refer to some of the observations of Christopher Clarke LJ (with whom Tomlinson and Laws LJJ agreed) in the Court of Appeal in AMT Futures:
"32. Third, where harm might be regarded as happening in two different states the search is not for one or more states in which damage has been suffered but, if possible, for the state in which "the harm" has occurred, sometimes referred to as the jurisdictionally significant harm. As Popplewell J put it…:
"The search will be for the element of damage which is closest in causal proximity to the harmful event. This is because it is this causal connection which justifies attribution of jurisdiction to the courts of the place where damage occurs: see the Bier case [1978] QB 708, paras 16-17 and the Dumez France case [1990] ECRI-49, para 20." …
54. .. If I ask myself (i) what is "the place where the event giving rise to the damage . . . directly produced its harmful effects upon" AMTF (the Dumez France case); or (ii) where was the "actual damage" which "elsewhere can be felt" or the "initial damage" suffered (the Marinari case); or (iii) what was the place where the damage which can be attributed to the harmful event (commencement of proceedings) by "a direct and causal link" (the Reunion Europeenne case) was sustained, the answer is, in my judgment, Germany."
If one says that the event is the overpayment by XL to the Fund in California (whether with or without AXA's refusal also to pay into the Fund) then it seems to me that the "initial damage" occurred in California, the site of the overpayment.
And if one goes back yet further and says that the event is the underlying accident (the approach taken in Hewden), then again, plainly, the damage caused by it occurred in California.
The fact that in either of these two instances, the effect of those events is felt, or suffered, by XL in its bank account here in England, is not sufficient to say that the damage occurred here.
Mr Layton QC at one point argued that all one needs to do is see where the damage occurred since XL does not contend for the place of the event giving rise to it. But unless one knows what the relevant event is, one cannot determine where the damage caused by it occurred.
CONCLUSION
Accordingly AXA's application succeeds. This Court has no jurisdiction pursuant to either Article 7 (1) or (2) and these proceedings must be dismissed. I am grateful to Counsel for their most helpful oral and written submissions. I will deal with all consequential matters following the handing-down of this judgment. |
MR. JUSTICE POPPLEWELL:
On 4th December 2015 I found that the second, third and fourth defendants (respectively "Arex", "ASD" and "Mr. Dogan") were in contempt of court for failures to comply with the disclosure provisions in a freezing order made by Flaux J on 25th June 2015. I adjourned sentence and penalties until today.
The history of the proceedings and the detail of the contempts are set out in my judgment of 4 December which was served on Mr. Dogan together with the order and notice of today's hearing.
Yesterday a woman presented herself at the Rolls Building to file a bundle of papers on behalf of Mr. Dogan. She identified herself as Ms. Çelik of Çelik Law and Consultants, who have acted as Turkish lawyers advising Mr. Dogan. The documents were in part in Turkish. They had not been provided to Reed Smith LLP, the claimant's solicitors, despite the previous history of admonishment when the same thing had happened on two previous occasions, as I described in my earlier judgment. It must have been clear to Mr. Dogan and to his Turkish advisers that such conduct was unacceptable as made clear as recently as 8 December when Reed Smith served the 4 December judgment and order and drew attention to this hearing, reiterating once again that if any material was to be relied upon at this hearing it had to be served on Reed Smith. I infer that the last-minute production of these documents, and the failure to provide them to the claimant's solicitors, was intended to derail the present sentencing hearing.
It has not been possible for me in the time available to conduct a full analysis of all the new documents, some of which are in Turkish. Some of them appear to refer to some assets in the form of bank accounts of Arex and ASD. It is, however, perfectly clear on a preliminary perusal of the documents that they fall very far short of compliance with paragraphs 11 and 12 of Flaux J's order. There is no affidavit. Mr. Dogan has not said in terms that he does not know the answers to any of the four questions posed in paragraph 12 of Flaux J's order. The material does not give, or even purport to give, a full account of the assets of Arex, ASD or Mr. Dogan at the dates required by Flaux J's order or my order of 9 October 2015, nor does it identify value, location or details of the assets.
It is clear that Mr. Dogan is well aware of this hearing and has chosen not to attend or be represented or to make any representations. It is clear that he has still not complied with paragraphs 11 and 12 of Flaux J's order and remains in contempt. The extent to which there may have been some partial compliance remains unclear as a result of the deliberately late and tactical filing of documents yesterday.
In those circumstances, I consider the appropriate course to be to proceed to pass sentence today on the basis of the contempts I found proved on 4 December 2015, without taking any account of the documents filed yesterday. I shall give liberty to the relevant defendants to apply to vary or remit my sentence on the ground that they have either wholly or in part purged their contempt, should they choose to do so. Any such application will have to be made in accordance with the Civil Procedure Rules. It will have to be issued and served on the claimant's solicitors and there will also have to be served at the same time as the application any evidence which is relied upon, whether or not that evidence has previously been supplied informally to the court. I have no doubt that Mr. Dogan, who has the benefit of advice from Turkish lawyers, will understand this requirement.
I was referred to a number of relevant authorities, including Crystal Mews Limited v Metterick & Others [2006] EWHC 3087 (Ch) at paras.8 and 13, Trafigura Pte Ltd v Emirates General Petroleum Corporation [2010] EWHC 3007 (Comm), JSC BTA Bank v Solodchenko [2011] EWHC 2908 (Ch), JSC BTA Bank v Solodchenko (No 2) [2012] 1 WLR 350 at paras.52 to 57 and 66 to 67, Templeton Insurance Limited v Thomas & Panesar [2013] EWCA (Civ) 35 at para.42, JSC VTB Bank v Skurikhin [2014] EWHC 4613 (Comm) and ADM Rice Inc v Corporacion Comercializadora de Granos Basicos SA [2015] EWHC 2448 (QB). From those authorities I derive the following principles which are applicable to the present case:
(1) In contempt cases the object of the penalty is to punish conduct in defiance of the court's order as well as serving a coercive function by holding out the threat of future punishment as a means of securing the protection which the injunction is primarily there to achieve.
(2) In all cases it is necessary to consider (a) whether committal to prison is necessary; (b) what is the shortest time necessary for such imprisonment; (c) whether a sentence of imprisonment can be suspended; and (d) that the maximum sentence which can be imposed on any one occasion is two years.
(3) A breach of a freezing order, and of the disclosure provisions which attach to a freezing order is an attack on the administration of justice which usually merits an immediate sentence of imprisonment of a not insubstantial amount.
(4) Where there is a continuing breach the court should consider imposing a long sentence, possibly even a maximum of two years, in order to encourage future cooperation by the contemnors.
(5) In the case of a continuing breach, the court may see fit to indicate (a) what portion of the sentence should be served in any event as punishment for past breaches; and (b) what portion of a sentence the court might consider remitting in the event of prompt and full compliance thereafter. Any such indication would be persuasive but not binding upon a future court. If it does so, the court will keep in mind that the shorter the punitive element of the sentence, the greater the incentive for the contemnor to comply by disclosing the information required. On the other hand, there is also a public interest in requiring contemnors to serve a proper sentence for past non-compliance with court orders, even if those contemnors are in continuing breach. The punitive element of the sentence both punishes the contemnors and deters others from disregarding court orders.
(6) The factors which may make the contempt more or less serious include those identified by Lawrence Collins J as he then was, at para.13 of the Crystal Mews case, namely:
(a) whether the claimant has been prejudiced by virtue of the contempt and whether the prejudice is capable of remedy;
(b) the extent to which the contemnor has acted under pressure;
(c) whether the breach of the order was deliberate or unintentional;
(d) the degree of culpability;
(e) whether the contemnor has been placed in breach of the order by reason of the conduct of others;
(f) whether the contemnor appreciates the seriousness of the deliberate breach;
(g) whether the contemnor has co-operated;
to which I would add:
(h) whether there has been any acceptance of responsibility, any apology, any remorse or any reasonable excuse put forward.
In this case the breaches have been deliberate and serious. Mr. Dogan has deliberately defied the Court's authority by refusing to comply with the disclosure provisions, of which he is well aware, and which I am satisfied he understands. He has had the advantage of the advice of Turkish lawyers. There is no question of his having been unable to comply by reason of the conduct of others or of acting under pressure.
Mr. Dogan can be under no doubt as to the seriousness of the breach. In my judgment of 4th December, I said at para.50:
"The contempts which I have found are serious. It is clear from my judgment, and I wish to make it clear to Mr. Dogan and to the other defendants, that the contempts I have found are so serious that there is a real likelihood of a significant term of imprisonment being imposed, which may be in excess of a year. It is, as it seems to me, desirable that Mr. Dogan should have the opportunity to reflect on that fact, to have the further opportunity to remedy his failures so as to purge his contempt, and or to put before the court any other matters of mitigation before I proceed to a sentence."
That passage was specifically drawn to Mr. Dogan's attention by the claimant's solicitors' letter of 8 December. Despite that, there has been no attempt to comply properly or fully with the requirements of Flaux J's order. On the contrary, there has been a delivery of some documents to the court in a tactical attempt to derail this hearing.
AITFF has been prejudiced by Mr. Dogan's contempt of court. It has been unable to get to the bottom of what has happened to the coal or its proceeds; and Mr. Dogan, Arex and ASD, by failing to comply, have been able to avoid the efficacy of the freezing order and to enable themselves to move their assets with impunity by concealing them.
In all the circumstances I impose a sentence of 18 months' imprisonment on Mr. Dogan. I do not propose now to identify what element of that sentence should be served in any event for past breaches should there be full and prompt compliance hereafter with Flaux J's order. I should, however, make clear that if there were now full and prompt compliance with Flaux J's order, I would expect that a significant proportion, perhaps a majority of that sentence, would be remitted.
As I have already indicated, my sentence is passed on the basis of the contempts I have found proved on 4 December 2015 without reference to the material lodged at court yesterday. It will be open to Mr. Dogan to apply to vary or remit my sentence based on that material or any other material which is said to amount to compliance with Mr. Flaux J's order. As I have indicated, should he do so the application must be issued and served in accordance with the Civil Procedure Rules and any evidence relied on served at the same time as the application on AITFF's solicitors; and that is to include any material which has already been supplied informally to the court, whether on 8 October, in early November or yesterday.
I would end by urging Mr. Dogan now to comply fully and as soon as possible with paragraphs 11 and 12 of the order of Flaux J. |
Mr Justice Andrew Smith:
Introduction
The claimant, Galaxy Aviation ("GA"), is a general partnership licensed for business in Ontario, Canada, which was founded on 22 March 2007. Its registered address is 30 Blue Spring Drive, No 509, Waterloo, Ontario (the "Waterloo address"), a residential flat belonging to Capt Jahandar Kabolinejad. The partners are Capt Kabolinejad, who has the major ...91%) interest, and Capt Ibrahim Dilli, with a smaller (9%) share. Capt Kabolinejad and Capt Dilli are both pilots, and GA is involved in leasing, chartering and maintaining aircraft. Capt Kabolinejad had connections with Iran Air, who, he said, would sometimes refer business opportunities to him. Initially GA supplied crew to Kano Air, which is based in Nigeria, and then it became involved in arranging aircraft leases.
The first defendant, Sayegh Group Aviation FZE ("SGAF"), is a company incorporated in Sharjah in the United Arab Emirates ("UAE") and licensed in the Sharjah Airport International Free Zone. It was registered on 4 July 2004. It belongs to what has been referred to in this litigation as the Sayegh Group of companies, a family business which, at the material time and until he died on 19 June 2012, was controlled by Mr Saleem F Sayegh ("SFS"), and owned by SFS and his two brothers. The group has more than 3,500 employees. It includes National Paints Factories Company Limited ("NPF"), the largest paint manufacturing company in the Middle East, and its core business is the production, distribution and export of paints. Its other interests include chemical engineering, mining, manufacturing, banking, real estate and media, and also aviation.
The second defendant, Mr Sameer Saleem Sayegh ("SSS"), is the eldest son of the late SFS, and as executor of his estate represents it in these proceedings. SSS has been involved in the Group's business for some 16 years, since the age of 18 years, and from 2005 he shared his father's office. He was given a general power of attorney over his father's affairs dated 17 October 2005. Since his father's death, SSS has become the Managing Director of NPF.
Licences issued by the Government of Sharjah describe SGAF's activity as "Aircraft Chartering & Leasing", and state that the manager was a Mr Adib Burhan Kombarji. It operates out of a building owned by NPF. SSS explained that his father's original purpose in forming SGAF had been to develop a cargo plane business in Africa, and in February 2008 he had SGAF buy five Russian Antonovs, but soon afterwards the Antonovs were banned from African airspace. SGAF leased planes to, amongst others, Sayegh Aviation Europe sro, a charter flight company incorporated in Slovakia, which traded as Samair and was owned by a Mr Anton Dafesh, who is related to the Sayegh family.
GA contends that it entered into a written agreement dated 9 November 2010 with SGAF and SFS for the lease of four aircraft, a Boeing 747-200 and three Boeing 747-300 aircraft, and also for the delivery of a Boeing 747-200 aircraft as a "stand-by" or replacement aircraft. It was signed by Capt Kabolinejad for the lessees, and by a Mr Abdullah Ramadan for, or purportedly for, the lessors. The agreement identified the aircraft by their manufacturer's serial numbers (or "MSNs"). None of the planes were delivered to GA under the agreement, and by a further agreement dated 16 July 2011 the five aircraft were sold to Mr Ramadan for $1 consideration. GA contends by an email of 8 January 2012 the lessors renounced the contract, or repudiated it by selling the aircraft, and for this and other reasons it was entitled to end the lease agreement and by a solicitor's letter dated 8 March 2012 it did so. It claims damages, and a declaration that the lease agreement was discharged with effect from 8 March 2012, if not before, because the defendants (or one of them) wrongly renounced it or made it impossible to perform or because of repudiatory breach of contract.
The Ownership of the Aircraft
It is convenient before going further to say something about the ownership of the aircraft at the time of the lease agreement. The position with regard to the Boeing 747 300s is relatively clear, and not in dispute: they were bought for a total consideration of $6 million from Qantas on 17 May 2010 by SGAF, who had issued Mr Ramadan with a power of attorney dated 7 February 2010 and signed by SSS for this purpose. It authorised Mr Ramadan to represent and act for them in relation to negotiations and in closing the acquisition of the planes. They were owned by SGAF until they were sold to Mr Ramadan in July 2012.
GA's case is that the Boeing 747 200s were owned by SFS personally, and therefore, as I understand it, that, when Mr Ramadan entered into the lease agreement, he was acting for SGAF in so far as the lease concerned the Boeing 747 300s and for SFS in so far as it concerned the Boeing 747 200s. The documentary evidence suggests that the Boeing 747 200s were owned by SGAF. A document listing equipment on board, issued by the Civil Aviation Authority of Burkina Faso and dated 24 June 2010, identifies "Compagnie Sayegh Aviation Group" as the owner ("proprietaire") of the two planes. A maintenance manual document of the authority dated 1 July 2010 gives "Sayegh Group Aviation" as the owner of them. A certificate of registration dated 7 July 2010 also names "Sayegh Group Aviation" as the owner of the leased Boeing 747 200. As I shall explain, on 25 November 2010 the authorities in Burkino Fasa cancelled the registration of planes said to belong to Sayegh Group Aviation because of non-compliance with air-worthiness procedures, including registration of the two Boeing 747 200s.
GA's case was supported by the evidence of Mr Peter Sharpe, who became the managing director of SGAF on 10 March 2014. His understanding was that the two Boeing 747 200 aircraft were acquired by SFS in 2009 and sold to SGAF only on 16 July 2011, when they were immediately sold on to Mr Ramadan. However, he had no direct knowledge about this. On the other hand SSS said that, while he did not know who did own Boeing 747 200s, SFS did not own them personally. I do not consider that the ownership of the planes is ultimately important to what I have to decide. If it matter, I find the evidence in the documents more persuasive than what Mr Sharpe said, and conclude that at the relevant time the Boeing 747 200s were owned by SGAF.
The issues
The issues between the parties are these:
i) Was GA a party to the Lease Agreement?
ii) Was one or both of SGAF and SFS party to Lease Agreement? This issue requires me to consider whether Mr Ramadan had actual or apparent authority to enter into it on their behalf.
iii) Was the lease agreement, on its true interpretation, subject to a condition precedent that it came into effect only when the requisite approvals had been obtained from civil aviation authorities? And if so, it being common ground that such approvals were not obtained, does that defeat GA's claims?
iv) It being common ground that no aircraft were delivered, were the lessors in breach of the lease agreement, and was GA entitled to terminate it?
v) If it establishes liability, to what damages is GA entitled? This requires me to consider what loss it has proved and whether it mitigated its loss.
The trial
GA called two witnesses to give evidence at the trial, Capt Kabolinejad and Capt Dilli. It also served a statement of a Mr Seyed Ali Moomchi dated 19 October 2014: I was told by Mr Simon Hunter, who represented GA, that Mr Moomchi was unable to obtain a visa to come to the country to give evidence, and he first invited me to allow his evidence to be heard by video-link. I questioned whether the evidence in the statement was important enough to require this, and Mr Hunter and Mr Philip Jones, who represented the defendants, agreed that his statement should be admitted under the Civil Evidence Act, 1995.
The defendants served five witness statements by:
i) Mr Sharpe, to whose evidence I have already referred.
ii) SSS.
iii) Mr Shadi Al Refai, who is the Human Resources Manager of NPF.
iv) Dr Ali Ismael Al Jarman, who is a lawyer authorised to practise in the UAE and the Managing Partner of Prestige Advocates and Legal Consultants, a law firm with offices in Dubai, Sharjah and Abu Dhabi who from about 2007 acted for NPF and SFS.
v) Mr Ohans Bagduyan, the IT manager of NPF.
Mr Sharpe and SSS gave oral evidence. By an order made by consent on 4 September 2015 at a pre-trial review Popplewell J permitted the defendants to adduce the evidence of Mr Al Refai, Dr Al Jarman and Mr Bagduyan by video-link. Arrangements were made for a video-link to Dubai for this purpose. However, at the start of the trial, I questioned whether their evidence was controversial in any important way. Mr Hunter and Mr Jones agreed that cross-examination of Mr Al Refai was unnecessary. There was only one minor point about which Mr Hunter wanted to ask Mr Bagduyan, and I suggested that, if Mr Bagduyan was asked about it by email overnight, it might mean that he did not need to give oral evidence. An email was send and Mr Bagudyan clarified the point of concern in his reply; and in these circumstances counsel agreed that cross-examination was not required. The statements of Mr Al Refai and Mr Bagudyan, together with Mr Bagudyan's email, were admitted under the Civil Evidence Act, 1995.
On the first day of the trial I directed that, if Dr Al Jarman was to be cross-examined by video-link, this should be done at 2.00pm on the second day, and that his evidence would, if necessary, be interposed accordingly. Mr Jones then told me that Dr Al Jarman had indicated that he might be unwilling to give oral evidence: the defendants' representatives were to seek to clarify this. In the event, Dr Al Jarman did not make himself available on the second day of trial: indeed, he was reported not to be in Dubai. The evidence was otherwise concluded during the afternoon of the second day. Mr Jones asked me to delay closing the defendants' case in the hope of learning more about Dr Al Jarman's position, and GA adopted a neutral stance about this request. I refused to delay the trial: considering remote both the prospect of Dr Al Jarman changing his declared position about giving oral evidence and the chance that my decision would depend on his oral evidence, I declined to allow the defendants more time. The defendants did not rely on his statement.
By an order made at a case management conference on 10 May 2013, the parties were given permission to call expert evidence of the law of the UAE, and each served a report of an expert witness. I understand that they were directed to the issue about whether Mr Ramadan had actual authority to enter the lease agreement on behalf of SGAF and SFS (or either of them). There was no issue between the parties that under English private international law questions about Mr Ramadan's actual authority would be governed by the law of the UAE, whereas questions about his apparent authority would be governed by English law, the law governing the putative lease agreement: see Dicey, Morris & Collins, The Conflict of Laws (15th Ed, 2012), rule 422 at para 33R-432. However, neither GA nor the defendants pleaded or alleged that the law of the UAE and English law differ in any material respect, and in those circumstances and by consent (or at least without demur) I discharged the permission to call expert evidence.
Neither party adduced evidence, either oral or by way of a statement put in evidence, from Mr Ramadan. His employment with NPF was terminated in October 2012. Capt Kabolinejad said that he had seen Mr Ramadan some two weeks before the trial and discussed whether he might give evidence. I was told that Mr Ramadan was willing to give evidence, but he was apparently unable to obtain a visa to travel from Dubai. That explains why he did not come to London to give evidence, but not why no application was made to adduce video evidence or at least to put in evidence a statement from Mr Ramadan. In some circumstances, the court will draw an adverse inference when a party does not call evidence from a witness who might be expected to have material evidence to give on an issue: Wisniewski v Central Manchester Health Authority, [1998] Lloyd's LR Medical 223. I was not invited by Mr Hunter or Mr Jones to draw an adverse inference in this case from the fact that Mr Ramadan did not give evidence, and I do not draw one either against GA or against the defendants.
The witnesses
I regard Capt Kabolinejad as an unsatisfactory witness, and I do not consider that his evidence was reliable. My reasons will become apparent in the course of this judgment, but they include, for example:
i) His evidence that before these proceedings he did not know the difference between a company and a partnership, or between a company and its shareholders: see paras 20 and 80 below.
ii) His evidence about the use of letter paper headed "Galaxy Aviation Co Ltd": see para 79.
iii) His evidence about Mr Ramadan's business card: see para 25.
iv) His evidence about Mr Ramadan walking into SFS's office without being admitting or even knocking: see para 41
Moreover, his evidence was significantly different from GA's pleaded case, and evidence given on GA's behalf on an interlocutory application: see, for example, para 51.
Capt Dilli's evidence was really relevant only to part of GA's damages claim. He was an honest witness, his evidence in cross-examination was not significantly controversial, and I accept it generally, although not in its entirety.
Mr Sharpe was, as I have said, not directly involved in the matters that are in dispute, and his evidence essentially recounted what he understood from documents that are before the court. I consider him a reliable witness, but his evidence was not very important.
I consider SSS an honest witness. Understandably his memory of what happened was, as he acknowledged, imperfect, but I regard his evidence about what he could recall as generally reliable.
The first contact between Captain Kabolinejad and Mr Ramadan
Capt Kabolinejad's evidence was that he first had dealings with what he referred to as Sayegh Group Aviation ("SGA") in early 2010 through Mr Seyed Ali Moomchi, the Iran Air Director of Maintenance in Tehran, who approached him about flying two Boeing 747 200 aircraft from Tehran to Sharjah. Capt Kabolinejad said that he understood that the aircraft were owned by a company called Sam Air, but he also said that they were leased to Iran Air by "Sayegh Group Aviation", and in cross-examination he said that Mr Moomchi told him that they belonged to SFS. Apparently because of a dispute about maintenance fees, they had been detained in Iran. Capt Kabolinejad himself flew one of the aircraft to Sharjah, and arranged for another pilot to fly the other plane. He said that he did so under an agreement between GA and Sayegh Group Aviation, but that he did not turn his mind to what legal entity he was dealing with or whether there was a company or other entity called Sayegh Group Aviation: indeed, he said that before these proceedings he was unaware "that there is a distinction between a corporate entity and the individual owner of that corporate entity". In view of his involvement in other companies, such as Infinity Asia Co Ltd ("Infinity") to which I refer below, I cannot accept that.
Capt Kabolinejad said that he first met Mr Ramadan when he was involved in arranging these flights. Before he flew to Sharjah, they had been in contact by emails or telephone, and in Sharjah he went to what he understood to be the SGA's offices. He said that Mr Ramadan paid him in cash for flying the aircraft to the UAE, but he was paid only some $12,500, about half the amount that he had expected. Although he had himself paid the second pilot and the crews, Capt Kabolinejad accepted what he was given without questioning it, in the hope that it would be the start of a business relationship. He said that payment was not important to him and that he was willing simply to help because Mr Moomchi had asked him to do so.
The events leading to the lease agreement
In about October 2010 Mr Moomchi again contacted Capt Kabolinejad about another business opportunity, which led to the lease agreement. He understood from Mr Moomchi that SGA had had aircraft lying idle for some time because they lacked the skill or contacts to exploit them. They included the two planes flown from Iran to Sharjah in 2010. Mr Moomchi described them as old ex-Qantas 747's, which would not have been fuel efficient because of their age and would have been too noisy to meet requirements for flying into Europe. According to Capt Kabolinejad, he thought that they were worth some $12 million each, and supposed that he was dealing with a substantial organisation with a wealthy owner who, having bought them, had not put the planes to immediate use. Whether or not Capt Kabolinejad really believed that this was their value, the aircraft must have been worth much less, as is clear from the price at which three of them had been bought from Qantas.
Capt Kabolinejad expressed interest in Mr Moomchi's proposition, and Mr Moomchi arranged a meeting with Mr Ramadan, whom he described as the Managing Director of SGA and who had, he said, bought the aircraft for the group. Capt Kabolinejad agreed in cross-examination that this would potentially have been a "major piece of business", but he did not conduct any searches into who SGA are: he simply understood that it was a business owned by SFS and that in substance he was dealing with SFS. He explained that he trusted Mr Moomchi, whom he described as "very important" in Iran.
Capt Kabolinejad had a meeting with Mr Ramadan in Tehran. It appears from documents that his flight was arranged by and paid for by NPF. Mr Ramadan was introduced by Mr Moomchi as the managing director of SGA. Mr Ramadan apparently already knew that Capt Kabolinejad was interested in leasing the aircraft. The meeting lasted about 30 minutes. They agreed in principle that (as he put it) Capt Kabolinejad "through GA" should lease the aircraft on terms to be agreed, but nothing was agreed about the price of hire. They were to have further discussions in Sharjah at Mr Ramadan's offices within a few weeks.
According to Capt Kabolinejad's witness statement, when they met Mr Ramadan gave him a business card on which he was described as the "Managing Director" of SGA. Capt Kabolinejad kept it, he said, and it was put "in the file". The business card of Mr Ramadan that is in evidence does not so describe him: it describes him as an "Investments Manager" with "National Paints". When cross-examined, Capt Kabolinejad initially confirmed that he thought that this was the business card that he was given. However, when the discrepancy between his statement and the card was pointed out, Capt Kabolinejad sought to back-track, and said that he thought that he was given a different card, which was not in evidence, and that he could "look it up". No other card has been disclosed or produced, and I do not accept Capt Kabolinejad's evidence about this. He might have been honestly mistaken in his statement about what was on the business card that he was given. However, in my judgment he never thought that he had another card or that he had been given a card that was not in evidence: those answers were dishonest.
Capt Kabolinejad met Mr Moomchi the next day, and Mr Moomchi said that he would prepare a lease agreement. It appears from email exchanges between Capt Kabolinejad and Capt Dilli of 26 and 27 October 2010 that Capt Kabolidinejad was confident that he would conclude an agreement to lease the aircraft: he wrote that he only had to obtain a power of attorney to represent GA and go to Sharjah. He and Mr Moomchi planned to meet with Mr Ramadan in his office there. Mr Moomchi called him on 8 November 2010 to come to a meeting that was arranged, and Capt Kabolinejad travelled to the UAE for it.
When Capt Kabolinejad arrived in Dubai, he telephoned Mr Moomchi, who arranged for a driver to bring him to what he described as "SGA's offices in Sharjah, which was located in a National Paint Factory". He was taken to Mr Ramadan's office on the second floor, which, he said, had a sign "Sayegh Aviation". He met with Mr Moomchi, Mr Ramadan, a Mr Harid, whom he described as a mechanic with SGA, and a Mr Jalil Khrosravinejad, whom he described as taking care of maintenance. He understood that the purpose was to finalise and sign a lease agreement, as was contemplated in Tehran.
However, Capt Kabolinejad said that, when he arrived at Mr Ramadan's offices, various other schemes were proposed by Mr Ramadan and Mr Moomchi, which he did not accept, and he was provided with two other documents, which are in evidence. They have some curious features.
First, there is a document headed "Mandate 09-11-2010". (Capt Kabolinejad said that he did not recall whether this document was produced at the meeting in Sharjah or had already been produced in Tehran, but the date shows that it was produced at this meeting.) It reads "We, Sayegh Group Aviation Authorize Mr Ali Moomchi to negotiate and enter into lease contract and finalise it for the lease of" the three Boeing 747 300s. The document then states, "This Mandate is valid for one moths (sic) starting of today, November 09-11-2010". It was signed by Mr Ramadan above the title "Managing Director Sayegh Group Aviation, Sharjah UAE". The stamp of SGAF was placed against his signature. Oddly, the document refers only to the Boeing 747 300 aircraft and does not mention the Boeing 747 200 aircraft. There is no apparent reason that Mr Ramadan should provide the mandate for Mr Moomchi if SFS or Mr Ramadan himself was going to sign the lease agreement.
I shall refer to the second document as the "agency agreement". It is a two page document headed "Agreement", and purports to be an agreement between "Galaxy Aviation Canada" and "Sayegh Group Aviation". There is a heading "Scope of Project", under which it is stated that "Sayegh Group Aviation appoints Galaxy Aviation Canada as its exclusive agent for leasing" the five planes (including the "stand-by" plane) mentioned in the Lease Agreement "to 3rd party". It is said that "Galaxy Aviation" would act on behalf of "Sayegh Group Aviation" "in the assistance of negotiations" and other specified matters.
Capt Kabolinejad signed the agency agreement under the name of Galaxy Aviation Canada and the title "Managing Director and CEO". His signature is not dated, but under his signature there are two company stamps. One is of "Galaxy Aviation Canada Co" and the other of "Global Investment Canada". Both include the Waterloo address. Global Investment Canada is, as Capt Kabolinejad explained, a company that he had incorporated for his investments. Mr Ramadan signed the agency agreement twice, and the stamp of SGAF was placed against each of his signatures. One of his signatures is under the name of SGA and the title "General Director".
Initially Capt Kabolinejad said that, when he arrived at Mr Ramadan's offices on 9 November 2011, this document was produced and they (presumably referring to Mr Moomchi and Mr Ramadan) wanted him to enter into an arrangement of this kind instead of a lease arrangement such as had been discussed in Tehran; and he said that he refused to sign it and so they then entered into the lease agreement instead. However, this is not right: he did sign the agency agreement, as he acknowledged when the signed document was put to him, albeit he said that he did not know when he signed it. The agency agreement stated "This agreement is signed today 24th Oct. 2010 …". Nevertheless I conclude that it was signed on 9 November 2010, the date typed at the top of the agreement: Mr Ramadan dated one of his signatures "9-11-2010". There is in evidence a version of the agency agreement that bears only this signature and SGAF's stamp: Capt Kabolinejad must have signed it, as I therefore infer, after Mr Ramadan had signed and stamped it on 9 November 2010.
The provision in the document that the agreement was signed on 24 October 2010 is one of the curious features to which I have referred. Further:
i) I cannot understand why this document was produced at all if, as Capt Kabolinejad maintains, the parties had already in Tehran agreed upon a lease arrangement, and
ii) Capt Kabolinejad was quite unable to explain why he signed this agreement, still less why it was stamped with the two stamps.
It is no less odd that the agreement, like the mandate, was printed on paper headed "Galaxy Aviation Co Ltd", which was described as "Air Charter Company". The second page of the agency agreement had at its foot the Waterloo address, which was also in the body of the document and the lease agreement and, curiously, gave as a telephone number that which was elsewhere given as the fax number for Galaxy Aviation Canada. I find this impossible to reconcile with Capt Kabolinejad's evidence that the documents represented various proposals put to him when he arrived at Mr Ramadan's offices, and that the documents had already been prepared before he arrived. He had no credible explanation about why Mr Ramadan or Mr Moomchi might have drafted them on the paper of Galaxy Aviation Co Ltd. He suggested that "they must have had no paper" of their own: that beggars belief, and in any case does not explain how they came to have this headed paper. I return below at para 79 to Capt Kabolinejad's explanation for why this headed paper was ever printed all.
I therefore cannot accept much of Capt Kabolinejad's evidence about these documents. However, it does seem to me probable that the agency agreement was signed by Capt Kabolinejad and Mr Ramadan on 9 November 2010 before they signed the lease agreement, and the lease agreement was understood to supersede the agency agreement. After all the arrangement in the agency agreement was inconsistent with that in the lease agreement, and the parties cannot have intended to be bound by both at the same time.
However that may be, at some point during their meeting Mr Moomchi handed Capt Kabolinejad a draft lease agreement. It was some four pages. There was discussion of its terms, and those about payment were agreed. The original draft, according to Capt Kabolinejad, named Mr Moomchi as the lessee, and that was changed. He had a vague recollection that one of the aircraft serial numbers might have needed to be corrected, but did not recall other changes. A revised draft was sent for typing. Capt Kabolinejad described this as a "very time-consuming" process, because the secretaries, he said, were otherwise engaged. But agreement was reached, and Capt Kabolinejad said that he then signed the lease agreement in Mr Ramadan's office. When he had done so, Mr Ramadan said they should go to SFS's office: Capt Kabolinejad understood that SFS was going to sign the agreement.
The terms of the lease agreement
I break off the narrative to set out the relevant parts of the lease agreement. I should set out the front sheet in full:
"Aircraft & Insurance Lease Agreement
Concluded
Between
Sayegh Group Aviation
Mr Saleem F Sayegh
Owner
Hereinafter referred "LESSOR"
Having its principal office at:
National Paint Building
SHARJAH UAE
TEL: +9716 534 0111
FAX: +9716 5340222
And Galaxy Aviation Canada
Mr J Kabolinejad
Managing Director
Hereinafter referred to as the "LESSEE"
Having its principal office at:
Suite No 509
30 Springs Drive Waterloo N2J 4T2
Ontario, CANADA
Tel: +1519 729 1346
Fax: +1519 880 0008
E-Mail: [email protected]"
The lease agreement was signed at the end on behalf of the lessee by Mr Kabolinejad and his signature is dated 9 November 2010. The agreement itself stated "This agreement is signed today Oct 13, 2010 in two original copies … one copy for each party, both having the same validity and authenticity as originals". (Only one copy of the agreement is in evidence.) However, neither party disputes the date of Capt Kabolinejad's signature. The agreement also bears what is agreed to be Mr Ramadan's signature under the wording:
"The "LESSOR"
Mr Saleem F Sayegh
Title: Owner"
The signature is under the word "For", which is written in manuscript by, it was agreed, Mr Ramadan. The signatories also initialled each page of the agreement. The agreement was stamped with the company stamp of SGAF under the signature purportedly given for the lessor and next to an (otherwise immaterial) manuscript amendment.
I set out these articles of the agreement:
"Subject to terms and conditions stated herein, the LESSOR agrees to Lease four aircraft with insurance (Crew & line maintenance and consumable parts up to "A" check are to be paid by the lessee) the LESSEE agrees to lease from the LESSOR, (1) One aircraft BOENG (sic) 747-200, in configuration 480 seats, MSN 21054 Registration XT-DMT and (3) Three Aircraft Boeing 747-300 in configuration 456 seats, NSN 23224, 23408, 23823 Registration XT-SAE, XT-SAF, and XT-SAG,
Both party agree one B-747-200 Registration XT-SAT MSN 21352 will be delivered in a (sic) airworthy condition and positioned at Lessee's base as standby and replacement aircraft free of charge". (Article 1)
"The lease term shall be considered for minimum of 150 (one hundred & Fifty) block hours per Month per aircraft, as from the commencement date for each aircraft will be the delivery date stated on the Exhibit "A" Aircraft Delivery form for 12 Months with the possibility of extension for another period according to a further agreement between the LESSOR and the LESSEE". (Article 2)
"The aircraft will be operated by second party with coordination with the first party.
LESSEE shall indicate the schedule to be flown prior to the execution of this agreement. The aircraft shall be operated only on the agreed routings set forth by this schedule". (Article 3)
"The financial terms and conditions between the LESSOR and the LESSEE are as follows: … Minimum guaranteed utilization of (150) block hours per Month per aircraft for 12 Months and Lessee shall conduct every 6 (six) months reconciliation of the actual Block Hours flown in the preceding 6 (six) months in excess of the Minimum Guaranteed Block Hours for six months (the "Excess Block Hours") based on the collected data from the Lessee's flight voyage reports. This Excess Block Hours shall be invoiced by the Lessor at the Wet Lease Price and paid by the Lessee within 14 (fourteen) business days following receipt of the related invoiced …". (Article 4)
"The LESSOR shall provide at his own expense the following: …The aircrafts in an airworthy condition according to the requirements of the Civil Aviation Authorities concerned … ". (Article 6)
"The LESSOR and the LESSEE warrant having sufficient title or authority to the aircraft, to enter this agreement". (Article 10)
"This agreement is subject to the laws of England and it is also subject to the approval of civil aviation authorities of the countries where it operates. Any dispute is to be settled in English Courts. All five aircraft will be delivered to Kano airport Nigeria". (Article 18)
Although the agreement provided that the lessee should indicate the schedule to be flown by the aircraft before it was executed, Capt Kabolinejad accepted that none was provided. He explained that it was understood that it had to be provided before the aircraft were delivered, but not before then.
The meeting with SFS and the signing of the lease agreement for the lessors
Capt Kabolinejad said that he and Mr Ramadan went with Mr Moomchi to SFS's office: Mr Ramadan had not signed the lease agreement, but Capt Kabolinejad had done so. According to Capt Kabolinejad, they "just walked into SFS's office without knocking": there was no security lock. This evidence is disputed by SSS: he said that the office had a lock, that only SFS and he had a key to it, and that others had to go through the secretary if they wanted to see SFS. I prefer SSS's evidence: it seems to me inherently more probable, SSS was generally a more honest and reliable witness than Capt Kabolinejad, I find it difficult to think that SSS could have been mistaken about this, and I do not think that he was lying.
Capt Kabolinejad said that SFS and SSS were in the office when he arrived with Mr Ramadan and Mr Moomchi; that SFS greeted him; and that Mr Ramadan introduced him to SSS, who gave him a business card and told him that he ran a paint factory in Ahwac, Iran. The meeting lasted for 15 to 20 minutes: Capt Kabolinejad spoke in Farsi with SSS and in English with SFS: SFS's English was said to be poor, but it was good enough for him to express himself. Capt Kabolinejad said that he told SFS that he flew aircraft.
According to Capt Kabolinejad, Mr Ramadan had brought the agreement with him and put it on a table. SFS did not sign it, and Capt Kabolinejad said that neither SFS nor SSS looked at it, although he recounted that SFS said to him, "good luck with these aircraft" (or with "those aircraft"). He also said in cross-examination that, when Mr Ramadan referred to the lease agreement, SFS and SSS "seemed to know what he was talking about", and appeared happy because "they did not know what to do with the aircraft". He was pressed about this evidence: it was suggested that SFS and SSS could not have been aware of the terms of the agreement because they had only just been agreed. Capt Kabolinejad then mentioned, for the first time, that he thought that Mr Ramadan and SSS had discussed the details of the lease in Arabic, a language which Capt Kabolinejad does not understand. I reject this evidence: if he did recall such discussions, Capt Kabolinejad would have been mentioned earlier. It seemed clear to me that Capt Kabolinejad was simply making this up when asked questions about the meeting that he found difficult to answer.
SSS had no recollection of the meeting. However, he did not think that there would have been a meeting such as Capt Kabolinejad described. He said that SFS would not have leased aircraft that had been grounded because the agreement could not have been honoured. More importantly, he said, and I accept, that SGAF had a standard aircraft lease running to some 30 pages, and if they were going to enter into a lease agreement, they would not have used a form of agreement such as the lease agreement. He also said that it was his father's practice to sign business contracts himself, and, if he had been aware of the lease agreement, he would not have left it to Mr Ramadan to sign.
Capt Kabolinejad, Mr Ramadan and Mr Moomchi returned to Mr Ramadan's office. Mr Ramadan made a manuscript correction to the lease agreement (which in itself is inconsequential for present purposes), and he signed the document against the correction and at the end under the name of SFS and the title "Owner", writing "For" above his signature. He stamped the agreement under both signatures with the stamp of SGAF: at the time Capt Kabolinejad did not appreciate that the stamp referred to SGAF rather than simply to SGA.
According to Capt Kabolinejad, he considered that he was dealing with SFS: he never considered that Mr Ramadan did not have his authority to sign the agreement and he did not "really pay much attention" to the fact that the agreement named SGA as the lessor and "certainly did not focus upon SGAF". However, when he saw Mr Ramadan write "For" above his signature, Capt Kabolinejad asked why SFS had not signed the agreement himself. Mr Ramadan, apparently annoyed, replied that he had "the power of attorney to sell the factory", or with some such expression. Capt Kabolinejad asked for a copy of the power of attorney establishing and evidencing his authority. This would not have been a surprising request: powers of attorney are commonly used in business dealings of this kind in the Middle East. Indeed Capt Kabolinejad thought that Mr Ramadan was acting under a power of attorney when he arranged to have the two planes brought from Iran in early 2010.
Mr Ramadan agreed to provide a copy, and asked a member of the office staff to deal with it. The assistant returned to say that the photocopier had broken and the office girls had gone home. Mr Ramadan promised to send Capt Kabolinejad a copy of the power of attorney later. But GA and Capt Kabolinejad never received it. Capt Kabolinejad's evidence was that they never reminded Mr Ramadan about the promise and took no further steps after the meeting to obtain a copy.
Even making allowance for Capt Kabolinejad's professed concern not to upset GA's relationship with SGA, this seems to me an improbable account, and his evidence was challenged: first, he was asked why Mr Ramadan should be annoyed when asked about his power of attorney, given that, it was suggested, such a request would have been entirely normal in business dealings between Arabs. Capt Kabolinejad denied that it was a usual request, but was then shown that in his witness statement he had said that powers of attorney are "common in Arab business dealings, where you need to show to any commercial counterparty that you have authority to enter into whatever business deal you are conducting". He sought to disown this, saying that his statement had been drafted by his former solicitors, Messrs Zaiwalla & Co., but I found the explanation unconvincing.
Secondly, the evidence was that the offices of NPF where they met were well-equipped with several photocopiers. The excuse that the power of attorney could not be copied would have been absurd, and Capt Kabolinejad would not have accepted it. Moreover, even if there were no copying facilities, Capt Kabolinejad could, and surely would, have asked to see the power of attorney. He said that he did not do so, but he had no explanation for this.
Mr Ramadan then asked Capt Kabolinejad for a cheque to guarantee the hire payments under the lease. Capt Kabolinejad agreed to provide one for $1.35 million, representing hire of the three Boeing 747-300s for one month. It was drawn on Merrill Lynch and made for the order of "Sayegh Group Aviation only". It was stated on the face of the cheque to be "for Guarantee of Contract only". Because Capt Kabolinejad was, he said, concerned that the cheque might be cashed and not only held as security, the parties entered into an agreement (the "security agreement") in these terms:
"Agreement between
The galaxy aviation Canada and Sayegh Group Aviation
This is to certify that the check No. 112 of Merrill Lynch Ready Assets Trust only for the guarantee of the contract for the (Aircraft and Insurance Lease Agreement) dated Nov. 09 2010 between the galaxy aviation Canada and Sayegh Group Aviation
Both party understand under no condition the above check should be deposit and cashed unless approved by the both witnesses signed below".
It was signed by Capt Kabolinejad for GA and by Mr Ramadan for SGA (but this time he did not stamp his signature). Unlike other agreements made between GA and SGA, the security agreement was witnessed, the witnesses being Mr Moomchi and Mr Jalil.
Capt Kabolinejad's evidence about the circumstances in which the lease agreement and the security agreement were signed is inconsistent with GA's pleaded case. It is pleaded that SFS and SSS were present when both were signed, and when Capt Kabolinejad asked SSS why Mr Ramadan was signing the lease, he was told that Mr Ramadan was an authorised signatory and a power of attorney had been executed in his favour. The pleading was signed by Zaiwalla & Co, who were then but are no longer GA's solicitors, and Capt Kabolinejad said that they had misunderstood their instructions. On the face of it this is improbable, and the more so because Mr Sarosh Zaiwalla of Zaiwalla & Co gave similar evidence in a witness statement of 23 January 2013 made in opposition to the defendants' application for security for costs.
As I see it, therefore, Capt Kabolinejad's evidence about his visit to Sharjah to sign the lease agreement was self-contradictory, inconsistent with GA's pleaded case and in some ways inherently improbable. I accept SSS's evidence to which I have referred at para 44, and this corroborates my conclusion that I cannot rely on what Capt Kabolinejad said in so far as it is controversial, and specifically, while I accept that Capt Kabolinejad met SFS and SSS on his visit, I cannot rely on anything that he told me about the meeting.
SGA's management after the lease agreement was signed
Before explaining the dealings and exchanges between Capt Kabolinejad and Mr Ramadan after 9 November 2010, it is convenient to say something of how Sayegh Group's aircraft business came to be managed in 2011. This account is based on the evidence of SSS, which I consider reliable in this regard.
SFS had wanted to start a European airline business through Samair, and SGAF was involved in trying to acquire planes for it. SSS said that in early 2011, after SGAF had bought the Boeing 747 300 and other aircraft, he became more involved with the business because his father was ill. Mr Ramadan was given a power of attorney dated 20 March 2011, expiring on 31 May 2011, to act in relation to negotiations and closing the acquisition of three Boeing 747 400 aircraft from Qantas. But SGAF engaged a consultant called Mr Zoltan Katona, to make sure, as SSS put it, that the planes were appropriate.
SSS came to learn that Mr Ramadan had involved himself with arranging the maintenance of SGAF's aircraft. He was unhappy about this, and on 2 July 2011 he wrote to Boeing to state that only Mr Katona and a Mr Viktor Hajso were authorised to deal with maintenance and engineering works for SGAF. He also wrote to Qantas that all previous authorisations issued by SGAF to act on its behalf were revoked, that all future communications should be sent to him and that only Mr Katona had authority to conclude any pending business. He was asked in cross-examination why the letters did not alert the addressees that Mr Ramadan had been misrepresenting his position or authority, but SSS responded, to my mind reasonably, that this was unnecessary: the letters were clear enough to protect the Sayegh Group in the future.
SSS said that he also became concerned about the expense being incurred in respect of the Boeing 747 200 and 747 300 aircraft: he did not know "what exactly was going on with these aircraft", and he did not want SGAF to be responsible for them. He therefore decided to transfer them to Mr Ramadan for nominal consideration. SGAF entered into an agreement with Mr Ramadan dated 16 July 2011 selling them for $1.
SGAF and the Sayegh Group did not thereby completely sever their connection with the planes, or with Mr Ramadan. Under the purchase agreement with Qantas SGAF were to maintain aviation liability insurance in respect of the Boeing 747 300s for two years, and so they did so until May 2012: I consider that unremarkable and insignificant. Mr Ramadan remained employed by NPF: SSS explained in evidence that that he would have preferred to end his employment at that time, but Mr Ramadan's father was a friend of SFS and SSS did not want to upset his father. As I have said, Mr Ramadan's employment was terminated in October 2012, after SFS had died.
Galaxy Aviation's dealings with Mr Ramadan after the lease agreement was made
In order for the aircraft to be operated for commercial purposes they required an air operator's certificate ("AOC"), an approval for the operation granted by a national aviation authority. To obtain an AOC, they needed to undergo and pass a "C-check" (or a more demanding "D-check"), an overhauling procedure which, Capt Kabolinejad said, he had expected the lessors to arrange after the lease agreement had been made in order to comply with their obligation to provide at their own expense the aircraft "in an airworthy condition according to the requirements of the Civil Aviation Authorities concerned". Once the aircraft had had their checks, he explained, they might then be delivered to Africa, or collected by him and flown there. According to Capt Kabolinejad, Mr Ramadan had indicated that the planes would be checked and delivered "in a very short time frame", a matter of days or weeks rather than months.
After the lease agreement was made, one of the aircraft – it is not clear from the evidence which of them, except that according to Capt Kabolinejad it was not the stand-by plane - was flown to Afghanistan without the proper certification. SFS learned of this, and put an end to this unlawful activity. About three weeks after the lease agreement was made, Capt Kabolinejad was told by an engineer whom he knew that one of the leased aircraft was being flown to Kabul. He asked Mr Ramadan about this, and was told that it was being flown illegally, without undergoing a C-check.
On 25 November 2010 the Civil Aviation Authority of Burkina Faso cancelled the registration of four of the five aircraft, the two Boeing 747 200s and two of the Boeing 747 300s. Their reason was stated to be "persistent non-respect of operational air-worthiness procedures". (It is odd that this decision does not cover the fifth aircraft, the serial number of which was 23408: it was registered with the Burkina Faso authority according to a certificate of 27 August 2010. There is no explanation for this, but no party suggested that this is significant.) In a letter of 26 November 2010 to, among others, SFS, the Authority referred to "late safety concerns regarding [SGA]", and confirmed that all aircraft belonging to SGA had been "deregistered". It proposed a meeting on 13 December 2010, but there is no evidence about whether the meeting took place and if so what was its outcome.
Emails sent by Capt Kabolinejad at the end of December 2010 do not indicate any impatience or concern that the aircraft had not been delivered under the lease agreement. This is perhaps not surprising: once the aircraft were delivered, GA would have to start to pay hire, and there is no credible evidence that it had any arrangements for immediate use of the aircraft: as I shall explain, the claim is based on a plan to carry pilgrims during the 2011 Hadj season, but for that purpose GA would not have required delivery of the aircraft for some months. GA also developed plans to use the aircraft in a venture through Infinity (see below), but they would not require the aircraft until about September 2011. GA had thought of using them to fly workers from Bangladesh, but there is no evidence that GA was ready so to deploy the aircraft immediately.
However, Capt Kabolinejad's evidence was that he would "chase" Mr Ramadan "every day", and he arranged to meet Mr Ramadan at his offices. (This evidence, I observe, had a markedly more urgent tone from GA's pleaded case, which was that "On dates unknown between around November 2010 and around August 2011 [GA] (through Capt Kabolinejad) made a series of requests to the Defendants (through Mr Ramadan) for delivery of the Aircraft in accordance with the Agreement".) He said that Mr Ramadan assured him that the planes would be re-registered in Gambia within a few weeks, but efforts to do so were unsuccessful. Thereafter Capt Kabolinejad visited Sharjah on "several subsequent occasions", but Mr Ramadan simply repeated his assurance that their registration was imminent.
Capt Kabolinejad said that on one occasion, a few months after the lease agreement was made (he did not remember more exactly when), he met SFS, and SSS too was present. Capt Kabolinejad said that they were waiting for the aircraft and had made preparations for their delivery. According to Capt Kabolinejad, SFS said only that they were "working on it". SSS did not recall the meeting.
No emails or other documents in evidence record or reflect any enquiries about the aircraft made by Capt Kabolinejad or GA during this period, nor the assurances that Capt Kabolinejad claimed to have been given by Mr Ramadan, nor the assurance said to have been given by SFS. Capt Kabolinejad explained that he understood that by 2011 SFS had been diagnosed with cancer, and he did not want to trouble him. However, that does not explain why Capt Kabolinejad should have put nothing in writing, either to Mr Ramadan or to SFS, by way, for example, of thanking him for "working on it". Nor was there any suggestion that Mr Kabolinejad passed on to Capt Dilli what he had been told on the visits to Sharjah.
Indeed, no emails sent between January and July 2011 or other material documents reflecting communications during this period have been disclosed. Capt Kabolinejad was unable to explain this: it is inconsistent with his account that from soon after the lease agreement was signed he was "on the phone and emailing almost every day". I do not accept his evidence that he was expecting and pressing for delivery of the aircraft throughout this period, and I do not accept that there was a meeting with SFS or SSS at which anything significant about the planes was said. Otherwise, there would have been emails and other documents. I reject this part of GA's case, and conclude that it has not established that it was looking for delivery in the first half of 2011. After all, there was no good reason that GA should press for delivery until it had arranged some profitable employment for the aircraft.
However, whether because of (actual or anticipated) difficulties in having the aircraft registered in Africa or for some other reason, Capt Kabolinejad eventually sought to arrange a Thai AOC for them. It appears that he planned to do so using the offices of Infinity, a Thai company that Capt Kabolinejad and others established in April 2011. Capt Kabolinejad had (directly or indirectly: see para 80 below) a 27% interest in the enterprise, which it was intended should operate scheduled flights between Bangkok and Tehran. Capt Kabolinejad thought that Mr Ramadan and Mr Sayegh might register through Infinity the aircraft that were the subject of the lease agreement. Apparently Capt Kabolinejad thought that Infinity might use one of the Boeings on the scheduled route when it started operations. There was also thought of using an aircraft to provide flights for Hadj pilgrims from Bangkok.
Capt Kabolinejad said that, if the aircraft were to obtain an AOC through Infinity, it would have cost $450,000 for manuals, crew training, fuel and other expenses. Mr Ramadan sent noise certificates, airworthiness certificates and aircraft licences to assist with the applications. However, for some reason that is not clear the plan to use Infinity to register the leased aircraft did not work out. According to Capt Kabolinejad, this was Mr Ramadan's fault: one of the aircraft was taken to Jakarta, Capt Kabolinejad arranged for Thai inspectors to carry out a C-check there, and Capt Kabolinejad travelled to Jakarta. But at the last minute on 26 September 2011 Mr Ramadan told him to cancel the inspector's visit because it had been decided to "put the aircraft under a different type of AOC in Gambia".
The authorities of the Republic of Gambia issued an AOC dated 18 October 2011 to Sam Air Corporation Limited, a company that had been incorporated in the Gambia on 17 October 2011 and was owned by Mr Ramadan. (The company is apparently not related in any way with Sayegh Aviation Europe sro, which traded as Samair.) However, the AOC was only for the period of the Hadj, and it expired on 18 January 2012.
On 3 December 2011 Capt Kabolinejad wrote to Mr Ramadan complaining that the AOC issued by Gambia was "restricted to Hajj and no help for us". He also wrote this about the attempts to use Infinity to register the aircraft:
" … when I was in UAE in March 2011 I offered you shares in [Infinity] that could have open[ed] the door for you to register all you 5 B-747 in Thailand but you did not show any interest. I offered you to register one aircraft in Thailand, you agreed to do so but at the last minute you changed your mind and asked me to postpone the Thai Civil Aviations personal trip to Jakarta that cost me a lot of reputation and financial expenses …"
In December 2011 Capt Kabolinejad learned that one of the aircraft had had passed a D-check, and on 8 December 2011 he wrote to Mr Ramadan that "we" would take delivery of it as soon as Mr Ramadan had obtained a valid AOC. However, on 8 January 2012 Mr Ramadan wrote that, because payment had not been received, the lease agreement was terminated and "the owner had sold [the aircraft that had passed the check] to another party and it is not under our control anymore". Capt Kabolinejad responded that he was sorry to hear that the aircraft was sold and wrote, "We always thought you were the owner because you signed the contract with Galaxy and all the aircraft's documents are in your name". He observed no advance payment was required under the lease agreement, and suggested that Mr Ramadan send "an official letter to Galaxy Aviation in Canada" to inform it of the position, adding that, having been told that none of the aircraft was ready for delivery, "they have gone through tremendous amount of preparation commitment and expenses (they have hired 75 crew to operate that aircraft) …". He said in his evidence that he wrote that he had thought that Mr Ramadan owned the aircraft because he was "upset", and that he had never believed this to be the position: I do not understand why he should make this up simply because he was upset. He also agreed that in fact GA had not entered into any contracts to hire crew.
On 9 January 2012 Capt Kabolinejad sent a letter to SGA marked for the attention of SFS and Mr Ramadan giving formal notice that "SGA" was in breach of the lease agreement. The letter was on the paper of Galaxy Aviation Co Ltd. It was said to be from "Galaxy Aviation Canada", and Capt Kabolinejad signed it above the words "Galaxy Aviation (Canada)". He wrote that "SGA" had failed to deliver the aircraft to "GAC", and that "this failure has caused GAC to incur costs and damages", threatening legal action by "GAC". I take it that "GAC" is intended to refer to Galaxy Aviation (Canada).
Was GA party to the Lease Agreement?
GA claims that Capt Kabolinejad was acting on its behalf when he concluded the lease agreement. In my judgment, he was not doing so, and in any case GA was not the lessee under the lease agreement as a matter of its true interpretation ascertained against its background in so far as it was known to Capt Kabolinejad and Mr Ramadan I take the second point first.
The lease agreement was made in the name of "Galaxy Aviation Canada", and the question is whether that name referred to the claimant, whose registered business name is "Galaxy Aviation" (or, in business names reports that are in evidence, "Galaxy Avaition"). GA contends that it does, and points to the address given for the lessee in the lease agreement, which is the Waterloo address, the claimant's registered business address. But against that Capt Kabolinejad purported to sign the lease agreement in the capacity of the lessee's managing director: that might be seen as an indication that he was acting for a company.
However, more importantly to my mind, the lease agreement must be interpreted in light of the agency agreement which had been signed by Capt Kabolinejad and Mr Ramadan earlier that day and which, as I conclude, the lease agreement was intended to replace. The agent under the agency agreement was called Galaxy Aviation Canada, and it is natural to suppose that that the lessee under the lease agreement was intended to be the same entity as the agent under the predecessor agency agreement, especially since it gives the Waterloo address as Galaxy Aviation Canada's "principal office" and gives telephone and fax numbers and email address which correspond with those of the lessee in the lease agreement.
This leads to the question which entity was the agent under agency agreement, and for whom was Capt Kabolinejad acting when he made it Given the headed paper on which it was printed, the natural interpretation is that Capt Kabolinejad was acting for, and the agent under the agreement was, a limited company called Galaxy Aviation Co Ltd; and that the name "Galaxy Aviation Canada" referred to, Galaxy Aviation Co Ltd, an air chartering company. (This is consistent with the use of a company stamp against Capt Kabolinejad's signature to the agency agreement, but this is the less significant because of the inexplicable use of the stamp of "Globe Investment Canada" as well, and so I do not base my conclusions on the use of the company stamp.)
This being so, as I understand the law, since Capt Kabolinejad purported to act on behalf of an identified principal, Galaxy Aviation Co Ltd, it would not be open to him to claim that he was acting on his own behalf and seek to take the benefit of the agreement (see Bowstead & Reynolds on Agency (19th Ed, 2010) pare 9-094), and equally it is not open to him or GA to claim that he was acting on behalf of a different principal, GA, and for GA to seek to take the benefit of the contract.
However that may be, I have in any case concluded that Capt Kabolinejad was indeed acting for a company called Galaxy Aviation Co Ltd. I did not find it easy to unravel Capt Kabolinejad's evidence about the various companies and businesses in which or with which he was involved: his answers about this in cross-examination seemed to me inconsistent. Certainly he explained that GA itself was and is a partnership that he had with Capt Dilli. It appears from the results of a search of business names that he was also involved with a business called Galaxy Aviation Canada Co, which was registered as a general partnership on 29 December 2010, but then as a sole proprietorship of the same name on 23 June 2011. (Capt Kabolinejad explained that originally he had intended to carry on this business in partnership with his daughter, but since she was a minor he was advised that he should conduct it alone.) The businesses of both this general partnership and the sole proprietorship were described as "aircraft charter, lease, maintenance", and their connection with Capt Kaledinejad is confirmed by their address being the Waterloo address.
I also find that, Capt Kabolinejad was involved with not only GA and Galaxy Aviation Canada Co, but also a limited liability company called Galaxy Aviation Co Ltd. As I understood him, Capt Kabolinejad denied this, or at least was unwilling to accept it, but the documentary evidence and Capt Kabolinejad's inadequate explanations for it justify this conclusion.
First, there is the letter paper that was used for, among other documents, the agency agreement and the mandate. Capt Kabolinejad said that it was printed for GA in 2007 and 2008, and it was headed "Galaxy Aviation Co Ltd" as a result of a printer's error. He noticed the mistake, he said, but nevertheless used the paper: Capt Kabolinejad said that he did so because he did not understand the difference between a partnership and a company with limited liability. I reject that explanation. There is in evidence an agreement dated 15 April 2010 expressed to be entered into by "Galaxy Aviation Co Ltd" with Al Mandhoom General Trading LLC ("Al Mandhoom") for the provision by Galaxy Aviation Co Ltd of maintenance crew. It was signed by Capt Kabolinejad under the words "for Galaxy Aviation Co Ltd". Initially Capt Kabolinejad told me that the agreement had been drawn up by him or someone who worked for him. However, when he was asked why it was in the name of Galaxy Aviation Co Ltd, Capt Kabolinejad changed his account: he claimed that the agreement had been drafted by Al Mandhoom; that they had typed it on paper that he had emailed to them; and that he supposed that Al Mandhoom had simply copied the name Galaxy Aviation Co Ltd from the heading of the letter paper. He had no credible explanation for sending Al Mandhoom paper on which to type the agreement. I reject his account.
There is another reason for concluding that the letter paper was indeed printed for a limited liability company, and rejecting for Capt Kabolinejad's evidence that the letter paper was printed for GA with an erroneous heading and used in ignorance of the difference between a company and a partnership. Capt Kabolinejad had a 27% share in Infinity, being one of four "partners" interested in the business. He agreed that the 27% holding was registered in the name Galaxy Aviation Co Ltd, but explained that the shares were so registered without his permission and that the registration was a mistake. I conclude that this evidence was untruthful: documents from the Thai Department of Business Development show that initially shares were issued in Capt Kabolinejad's own name and they were later transferred to Galaxy Aviation Co Ltd. Whatever the reason for the transfer, Capt Kabolinejad must have been party to it. Moreover, he signed a membership interest agreement in which the shareholding in the name of Galaxy Aviation Co Ltd is recorded: he explained that he signed it because the registration "had been done", and there was "nothing we could do about it". I do not accept that: if his shares had been registered in the name of a company that did not exist or was nothing to do with him, he would have had the registration corrected.
Further, in July 2011 Capt Kabolinejad signed another agreement in the name of Galaxy Aviation Co Ltd: it is an agreement with Global Plane Services to lease two aircraft. Capt Kabolinejad's only explanation was to repeat that he did not know the difference between a limited company and a partnership, but I do not believe that.
I conclude that GA was not party to the lease agreement and is not entitled to sue on it.
Was either SGAF or SFS party to Lease Agreement?
I come to the issues about whether SGAF and SFS were party to the lease agreement. There are two questions:
i) As a matter of interpretation of the lease agreement, who was the lessor (or were the lessors)?
ii) Did Mr Ramadan have (actual or apparent) authority to enter into the lease agreement on behalf of the lessors?
To my mind, the lease agreement contemplates that there is one lessor which is to provide all five aircraft to the lessee, and the lessor is the entity identified as "Sayegh Group Aviation". It is clear from the stamp of the lessor that that entity is SGAF. This is confirmed because SGAF's stamp had also been placed on the agency agreement, which the lease agreement, as I have concluded, superseded.
Three considerations might be identified as suggesting that SFS himself was also a party to the lease agreement:
i) First, GA contended that SFS owned the two Boeing 747 200 aircraft, and therefore is to be taken to be party to the lease agreement in which it is, after all, provided at article 10 that the lessor warranted "having sufficient title or authority to the aircraft, to enter into this agreement".
ii) SFS was named at the start of the agreement under the name "Sayegh Group Aviation".
iii) At three points in the lease agreement (articles 6, 8 and 9.2 cited above), the lessor is referred to by the masculine pronoun "his".
None of this persuades me that SFS was party to the lease agreement.
i) Even assuming that SFS did indeed own the two Boeing 747 200s (contrary to my conclusion at para 8 above), there is no evidence that Capt Kabolinejad knew this when he entered into the lease agreement, and therefore it is not a permissible aid to interpret it. In any case, the lessor does not warrant title to the aircraft, but "title or authority" to them. Moreover, the warranty was given by the lessee as well as the lessor. It is not clear quite what the warranty means, but it was not a warranty of ownership of or property in the aircraft.
ii) The fact that SFS is named at the start of the lease does not assist GA's argument. He was expressly named in his capacity as owner of the lessor, and not as lessor.
iii) I cannot attach much importance to the use of "his". The usage is not consistent throughout the agreement: at the start the lease agreement refers to the lessor having "its" principal office at NPF's premises. In any case, GA does not contend that SFS was lessor of the Boeing 747 300s, and so on GA's case the use of "his" (rather than "their") would be inaccurate.
I come therefore to consider Mr Ramadan's actual or apparent authority to enter into the lease agreement on SGAF's behalf. GA pleads that Mr Ramadan had actual authority to act for SGAF (and SFS) because a power of attorney had been executed in his favour: that Mr Ramadan in SFS's presence claimed to have a power of attorney. Capt Kabolinejad disavowed that, no evidence supports the pleaded case, and I infer that Mr Ramadan had no relevant power of attorney. If he had one, as, according to Capt Kabolinejad, he claimed on 9 November 2010, he would have produced it or a copy of it to Capt Kabolinejad. Moreover, he would not have needed the specific and limited powers of attorney which he was given in order to deal with Qantas.
In his closing submissions, Mr Hunter did not pursue the pleaded contention. He submitted instead that I should infer Mr Ramadan had actual authority from:
i) Mr Ramadan's close working relationship with SFS, and Capt Kabolinejad's evidence about the "inter-action" between SFS and Mr Ramadan, in particular, as I understand it, at the meeting on 9 November 2010.
ii) The fact that Mr Ramadan was in a position to use the seal of SGAF.
iii) The fact that an email address at SGAF was created for Mr Ramadan.
iv) The fact that he was trusted to deal with Qantas, and given two powers of attorney for this purpose.
v) The fact that Mr Ramadan was allowed to sign his name over the style "managing director".
vi) An observation in a decision of the Bureau of Industry and Security ("BIS") of the United States Dept of Commerce dated 23 April 2012.
Although this argument departs from the pleaded case, Mr Jones (realistically) did not object to it being advanced, and I shall consider it on its merits.
I am not impressed by the argument, and I do not think that (individually or collectively) the considerations that Mr Hunter identified support the inference that he invites. Mr Ramadan was first employed by NPF on 1 July 1997, and was so employed until 10 October 2012. His first employment was described in his contract of employment as "paint sales", and in 2003 he became a "sales supervisor". SSS described him as "basically a paint salesman", but acknowledged he had a closer relationship than others with SFS. When SGAF started business, Mr Ramadan sought to be involved with it, but he was never its officer or employee. Mr Sharpe described Mr Ramadan as "appointing himself" to work for SGAF, but confirmed that he had found nothing in SGAF's documents to suggest that Mr Ramadan was SGAF's officer or employed by them, and that he understood that he never held any position with SGAF.
Before I come to the six points identified by Mr Hunter, I shall refer to three other matters that might be taken to indicate that Mr Ramadan's involvement with the aircraft business of SFS and the Group was more than this suggests. First, I refer an undated document (the "Samair document"), headed "Sam Air Corp" and purportedly signed by SFS as Sam Air's Chairman, that stated that "in capacity as the Owner of Sam Air and the two Air Craft (Boeing 747) leased to Iran Air" he certified Mr Ramadan "is the only authorised person to sign and negotiate and collect any due money on behalf of Samair from others". SSS denied that it was signed by his father. Its authenticity has not been proved, and I am not persuaded that it is a genuine document. But in any case it has nothing to do with SGAF, and there is no reason to suppose that SFS did, or would have, signed a comparable document in respect of SGAF.
Next, the sale of the aircraft to Mr Ramadan in July 2011 for nominal consideration: GA submitted that SSS and SGAF would not have treated Mr Ramadan so generously if they had disapproved of what he had been doing with the Boeing planes: and that therefore it shows that they were satisfied that he had managed the planes generally and leased them to GA in particular. Undoubtedly, on its face it is strange that the planes were given to Mr Ramadan: the Boeing 747 300s had apparently proved much less valuable than the price paid to Qantas would indicate, but they must have had significant value. But I accept SSS's evidence that they were an embarrassment to SGAF, and also that he wanted with Mr Katona's assistance to assert control and to draw a line under Mr Ramadan's ambitions to manage this part of the Group's business. I accept the Mr Ramadan was given the five planes so that he could pursue his interest separately from the Group and would not interfere in its aircraft business. At all events, I decline to infer that by transferring the planes SSS was approving or condoning the lease agreement: there is no evidence that persuades me that SFS or SSS was aware of it: I accept SSS's evidence to the contrary.
Thirdly, I refer to a document, apparently emanating from Mr Ramadan, which, for no good reason, GA disclosed only on the second day of the trial. It is in manuscript and is in Arabic, it is headed Samair Corp, it purports to be signed by SFS and it is apparently stamped with the SGAF stamp. According to a translation provided by GA, it reads as follows:
"To Whom It May Concern:
I [SFS] the owner of Al Sayegh Aviation whose address is in the Sharjah Free Zone admit that it has been agreed with Mr. Abdullah Khalid Ramadan Palestinian citizen … that he would be manager for the company for a percentage of 15% and a salary of AED 25,000 plus housing and that is what we have agreed."
The translation provides no date for the document.
This document was not properly proved, and no evidence explains it. It is perhaps not surprising that the defendants were unable to provide an explanation for it (from, say, Mr Kombarji) in view of the late disclosure. But even taking it at face value, it is inconsistent with any claim by Mr Ramadan to be managing director of SGAF, and does not provide significant support, in my judgment, for the contention that he had authority to enter into the lease agreement: that would not be implicit either in appointing him as a manager of SGAF or in him having a (minority) shareholding.
I accept that these matters reflect that SFS indulged Mr Ramadan more than other employees, and that he was treated more favourably than was indicated by his position with NPF. No doubt this resulted from SGS's friendship with Mr Ramadan's father. But there is no evidence that Mr Ramadan's working relationship with SFS was such that SFS was likely to have authorised him to enter into contracts for SGAF of this kind, or to have acquiesced in him doing so, or that he was likely to have known that Mr Ramadan was claiming or assuming such authority. SSS told me, and I accept, that generally SFS signed all contracts for his businesses himself, and exerted personal control over them, except to the extent that he allowed authority to SSS or limited powers of attorney were granted to employees for specific purposes.
I come to Mr Hunter's six points. His argument emphasised the evidence of Capt Kabolinejad about Mr Ramadan walking into SFS's office without any appointment or formality, and about the conversation in Arabic between SFS and Mr Ramadan, apparently about the terms of the lease agreement that had been agreed. I have rejected those parts of Capt Kabolinejad's evidence.
I accept that on 9 November 2010 Mr Ramadan used what appeared to be SGAF's stamp. There is no evidence about whether it was a genuine stamp. The Samair document is not itself stamped, but its questionable status makes me the more cautious about accepting that the stamp used by Mr Ramadan was genuinely one of SGAF's. But even if it was, I do not infer that Mr Ramadan had actual authority to use SGAF's stamp. It seems to me inherently improbable that anyone who had no office or official position of any importance in the company would have been so authorised. The evidence did not explore who had access to a stamp of SGAF or how Mr Ramadan might have been able to use one: for example, it was not explored whether Mr Kombarji had use of one and could have given Mr Ramadan access to it. Mr Hunter simply did not establish through the cross-examination of SSS or of Mr Sharpe or otherwise the basis for the inference from the use of the seal which he invited me to draw.
Mr Sharpe said that he knew of no evidence that Mr Ramadan had an email address with SGAF, but that evidence was clarified by Mr Bagduyan. He stated, and I accept, that the email address [email protected] (the "Ramadan email address") was created for Mr Ramadan, but that it was never released or activated because management approval for it was never given. It is not clear why it was created: it could have been Mr Ramadan who arranged it. But since it was not activated, I do not see how its creation assists GA's argument. Even if it had been activated, I would see no real significance in it: most employees given emails addresses by their employers are not authorised to enter into significant contracts. It might be said that it shows that Mr Ramadan was known to be acting for SGAF in some way, but that is not controversial: SFS, as I infer, knew that he dealt with the purchase of the Qantas planes and approved of that.
The dealings with Qantas do not assist GA's contention. On the contrary, the fact that Mr Ramadan needed specific and limited powers of attorney evidences that he did not have general authority to act for SGAF.
Mr Hunter accepted, and it is clear from the evidence, that Mr Ramadan was not the managing director of SGAF. However, he signed on behalf of SGAF a side agreement dated 26 May 2010 to the contract with Qantas to buy the Boeing 747 300s (the "Qantas side-agreement"). Under his signature Mr Ramadan described himself as managing director of Sayegh Group Aviation, giving this as his title under his signature. SSS said that generally he would have expected his father soon to learn and intervene if an employee claimed authority that he did not have or claimed a position such as that of managing director that he did not have. SSS did not know of his father taking Mr Ramadan to task about the title that he assumed in the Qantas side agreement, but pointed out that SFS might well have seen no point in doing so since Mr Ramadan was entitled under the power of attorney to act as he had. However this may be, this is much too slender a basis to infer that SFS generally allowed Mr Ramadan to describe himself as managing director of SGAF, still less that he allowed him to assume authority to enter on SGAF's behalf into agreements such as the lease agreement.
Nor do I consider that the decision and ruling of BIS assists GA. By an order of 23 April 2012 BIS deprived SGAF, Mr Ramadan and others of export privileges for 180 days because of concerns about the export of the three Boeing 4747 300s to Iran. In their decision, the BIS stated:
"On April 16, 2012 [Mr Ramadan], Managing Director of both [SGAF] and [Sam Air Corporation Limited], informed BIS and provided transaction documents indicating that three 747s at issue were obtained by [SGAF] from Qantas Airlines in the United States in August 2010, sold to Sam Air in July 2011, and then sold yet again …".
This observation, as I infer, was based on what Mr Ramadan had told BIS, and it was not true: he was not the managing director of SGAF. In subsequent correspondence, SGA, through BIS's lawyers, denied that Mr Ramadan had authority to act on its behalf, the order expired in October 2012, and it was not renewed.
I therefore reject the submission that Mr Ramadan had actual authority to make the lease agreement for SGAF, and I come to the contention that he had apparent authority to do so. This requires GA to show that:
i) SGAF, by words or conduct, represented (or permitted it to be represented) that Mr Ramadan had authority to enter into agreements such as the lease agreement on its behalf, albeit (as Mr Hunter submitted, Mr Jones did not dispute and I am willing to assume for present purposes) maybe the representation can be less specific than is generally required to create an estoppel (or, if it be preferred, other forms of estoppel).
ii) Capt Kabolinejad acted on the faith of such representation. Thus, GA cannot hold SGAF liable on the lease agreement if Capt Kabolinejad did not believe that Mr Ramadan had authority to make it, or if he was not aware of the circumstances said to give rise to his apparent authority: see Bowstead & Reynolds (cit sup) at para 8-026(2).
In their pleaded case GA relied on the alleged representation:
i) SGAF held Mr Ramadan out as its managing director, and therefore as having "usual authority to conduct and/or ensure the effective performance of its business, in the course of which the lease agreement and the security agreement were made".
ii) SGAF represented that Mr Ramadan "had authority to make further representations" on their behalf, and he accordingly used it to represent to GA that his own authority to enter into the lease agreement and the security agreement.
iii) The lease agreement and the security agreement were signed by Mr Ramadan in the presence of SFS and SSS.
iv) The lease agreement was stamped with SGAF's stamp, and it is to be inferred that SFS, acting for SGAF, furnished him with it, or at least, since he was present when the lease agreement was executed, knew that Mr Ramadan was using the stamp.
v) SFS told Capt Kabolinejad that Mr Ramadan was an authorised signatory for SGAF and a power of attorney had been executed in his favour.
The evidence did not support points iii) or v), nor point iv) in so far as it relies on SFS being present when the seal was used.
I reject point i) because I do not accept that SGAF held Mr Ramadan out as its managing director. The contention was, I think, based principally on the claim in Capt Kabolinejad's witness statement that Mr Ramadan was described as managing director on his business card, but that claim was destroyed in cross-examination. In so far as it was based on the Qantas side-agreement, I have already explained why I cannot draw from that the inferences that GA invites. Specifically I do not infer that SFS held Mr Ramadan out as having authority to enter into agreements such as the lease agreement for SGAF, but in any case there is no evidence that Capt Kabolinejad knew of the Qantas side-agreement, still less that he relied on its description of Mr Ramadan as SGAF's managing director.
I see no basis for the point ii). In principle a principal can allow his agent to tell third parties that the principal had given him authority to hold himself out as their agent for purposes outside actual authority, and so be bound by apparent authority that the agent confers on himself: see Bowstead & Reynolds, loc cit, at para 8-022. In practice this is, I think, relatively unusual, and there is no evidence that SGAF put Mr Ramadan in this position.
With regard to point iv), for reasons that I have explained, I am not persuaded that SGAF permitted Mr Ramadan to use its stamp. I add only this: Mr Jones submitted that GA could not rely on the use of the stamp to support its argument because Capt Kabolinejad had already signed the lease agreement before Mr Ramadan used it, and so he did not rely on Mr Ramadan being in a position to use the stamp. I reject that argument: first, Mr Ramadan had, as I have concluded, already used the stamp on the agency agreement, and so Capt Kabolinejad knew that he had access to a stamp. Secondly, GA's case is not that he relied on a representation that Mr Ramadan had authority to make the lease agreement when he, Capt Kabolinejad, signed it. Capt Kabolinejad then thought, I infer, that SFS would sign it notwithstanding Mr Ramadan had signed the agency agreement because, whereas the agency agreement provided for Mr Ramadan to sign it on behalf of SGAF as its "General Director", the lease agreement provided for SFS to sign it as ""Owner". GA's case is that he relied on Mr Ramadan having authority later, when they returned from SFS's office with the agreement still unsigned.
As with the allegation that Mr Ramadan had actual authority to sign for SGAF, so too with apparent authority Mr Hunter again expanded the pleaded case and relied on all the matters invoked by him in relation to actual authority. Again Mr Jones did not argue that he should not be permitted to do so, but for the reasons explained when I assessed the case that Mr Ramadan had actual authority, I am not persuaded by these considerations. I conclude that SGAF did not represent that Mr Ramadan had any relevant authority.
In any case, GA has not established that Capt Kabolinejad relied on any representation or "holding out" by SGAF or SFS when he signed the lease agreement. On the contrary, he asked for a copy of Mr Ramadan's power of attorney because he was concerned about whether Mr Ramadan was authorised to make the agreement. I reject as incredible his explanation about how Mr Ramadan excused himself from giving him a copy of the power of attorney. I conclude that, by the time that the lease agreement was signed by Mr Ramadan, Capt Kabolinejad had come to believe that Mr Ramadan was acting for himself. That is why he wrote in the terms that he did on 8 January 2012: I can conceive of no other realistic explanation for the email.
There remains the contention that SGAF ratified the lease agreement. In his closing submissions Mr Hunter said that this contention really rested on the same matters as the allegation of apparent authority, and I have rejected those. In so far as it also rested on Capt Kabolinejad's evidence that at a meeting in 2011 SFS told him that SGAF were "working on" having the aircraft delivered, I simply do not accept that evidence. Ratification would require (i) an unequivocal act by SGAF adopting Mr Ramadan's conducting in making the lease agreement, with (ii) knowledge of all the material circumstances. GA has proved neither requirement.
I add that, if I had concluded that SFS was a party to the lease agreement on its proper interpretation, I would have concluded that Mr Ramadan had no authority to enter into the agreement for him either. This contention really rested on the pleaded case that the lease agreement had been signed in SFS's presence, which was never supported by the evidence. I add only that at one point in his cross-examination Capt Kabolinejad appeared to say that GA had in its possession a power of attorney, or copy of a power of attorney authorising Mr Ramadan to act for SFS. It was never produced. If I understood this evidence correctly, I reject it.
Damages
Either my conclusion about the identity of the lessee or my conclusion that the lease agreement was not binding on the defendants would be sufficient to defeat GA's claim, but I shall state my conclusions about the other issues. Although logically I would therefore next come to the impact of article 18 and whether the lessors were in breach of the agreement, it is convenient next to consider GA's claim for damages if it does establish liability. This raises questions about (i) what loss GA suffered and (ii) whether it mitigated its loss, the defendants contending that it did not do so.
GA's pleading states that expert accountancy evidence would be required in order to plead "full particulars" of the loss and damage. There is no such evidence, and GA has provided no particulars of the loss and damages claimed other than those in the original particulars of claim. They are under two heads (or, as it is pleaded, "at least" two heads).
i) The first is for loss of profit resulting from GA being unable to use the aircraft to fly pilgrims during the Hadj period in 2011, from about September to about December 2011, between Jeddah and West African countries, namely Nigeria, Chad, Mauritania, Niger, Ghana, Togo and Benin. It is pleaded that the service would have generated "15% net profit over the lease costs payable under the [lease agreement] in a year", and on this basis GA says that the loss of profit "is estimated at around £2,000,000 (being 15% net profit on annual lease payments estimated to have been around USD $21,240,000)".
ii) GA also claims wasted expenditure and costs of mitigation, a claim estimated in its pleading at "around £750,000".
The first claim rested on Capt Kabolinejad's evidence (or perhaps his bald assertion) that, if the planes had been delivered under the lease agreement, their deployment on the Hadj routes would have earned a profit of at least 15%, this being, he explained, a conservative estimate because he would have expected a profit of 25%. This was not supported by any explanation of the basis of assessment, and Capt Kabolinejad did not even explain what elements "15% net profit over lease costs" comprised: whether only hire payments had been deducted from the gross profit, or whether there had also been deducted some, and if so which, other costs of operating the planes.
No documents were disclosed in support of this claim. Capt Kabolinejad maintained that GA had no relevant documents. I find that impossible to accept: no business would have entered into an agreement of this kind without making some calculations, however rough and ready, by way of a forecast or budget. Moreover, Capt Dilli said this in his witness statement:
"I should point out that a great deal of business activity in Africa is a "cash one" – so whilst I will be able to obtain and will disclose documentation supporting as much of the expenditure as possible, I ask that the Court bear in mind that Africa is a slightly unusual business area, where "cash is King" and the use of bank accounts is not as widespread as in Europe or for that matter the Arab world, which is also very much a cash culture".
This makes clear that there was some relevant documentation, albeit limited. There is no credible explanation for it not being made available.
The inadequacy of the evidence and disclosure are enough reason, in my judgment, to reject the claim for lost profits: it simply has not been proved. But in any case the evidence does not establish either (i) that GA would have been able to deploy the aircraft if the lessors had complied with the lease agreement as GA contends they should have done, or (ii) that GA planned to deploy the aircraft as it pleads.
The first point raises the question whether, had the lessors complied with the lease agreement, GA would have had the planes in time to carry Hadj pilgrims in 2011. Capt Kabolinejad explained that pilgrims from West African countries book their transport with the Hadj Commissions there. Operators require permission for Hadj flights both from the Saudi Arabian authorities and from the Hadj Commission for the West African countries. If a Hajj Commission gives a carrier permission, he will enter into a commitment to the Commission to provide transport for a specified number of passengers, and the Commission undertakes to pay for them. The advantage to carriers of this system is that they are guaranteed that they will be paid for full planes.
When GA entered into the lease agreement, Captain Dilli was engaged in dealing with the relevant authorities about applying for permission to fly pilgrims to Mecca, using his contacts in Nigeria, Niger, Mauritania and elsewhere. He explained how a carrier might go about obtaining permission from Hadj Commissions, and specifically the Nigerian Commission of which he had particular experience. He said that the annual process starts in about March, April or May when advertisements are placed inviting applications to carry Hadj pilgrims. Applicants need to support their applications with proof that they could afford to provide and could make arrangements to provide handling facilities, catering facilities and other such services. A shortlist is interviewed The Hadj Commissions require that the aircraft be inspected, and so an applicant has to make the planes available for inspection in Nigeria or other country from which it is to operate.
Capt Dilli said that he had "countless" meetings with officials and they had reached agreement "in principle". However, there was no documentation either reflecting the meetings or recording the agreement, and, as I conclude from the disclosure, GA had prepared or collected none of the documentation that it would have needed to supply to support an application. I infer that it had decided not to take any steps to apply before it had had delivery of the aircraft, or at least until it had made more definite arrangements with the lessors about when the planes would be delivered. Admittedly Capt Dilli said in his witness statement that he had "all the relevant pilots/engineers/crew in place", but again nothing was in writing: while I accept Capt Dilli's insistent evidence that much African business is conducted orally and is not recorded, I conclude that any arrangements were of the loosest kind.
I found unsatisfactory the evidence about when GA would have required delivery of the aircraft under the lease agreement if it might feasibly have applied to Western African Hadj Commissions to carry pilgrims in 2011. Capt Dilli said at one point that sometimes applicants to a Hadj Commission are not interviewed until a month before the Hadj season begins, but I did not understand him to mean that they need not apply with supporting documents until then. He also said that there was a "lead time" of 4 or 5 months, and this would mean that GA would have had to apply by about April or May 2011. I conclude that, if there was then still uncertainty about delivery of the aircraft, it would not have been feasible for GA to have applied to Hadj Commissions to carry pilgrims in 2011, and it would not have done so.
Further, the evidence about how GA planned to use the aircraft went beyond the pleaded case and was not wholly consistent with it. According to Capt Kabolinejad, when he heard about the aircraft he conceived a plan to use them to fly pilgrims from Africa to Mecca: he thought that they could be so operated not only at full capacity for Hadj flights during the last four months of the year, but at other times for Umrah pilgrims although many fewer pilgrims go to Mecca for Umrah than for Hadj. The pleaded case does not refer to Umrah flights.
This might mean only that the pleading does not include a claim for loss of income from this source, but the evidence departed from the pleading in another, more significant, respect. First, it appears from email exchanges between Capt Kabolinejad and Capt Dilli in October 2010 that they were planning to use aircraft, or at least an aircraft, on routes to and from Bangladesh. Capt Kabolinejad explained in cross-examination that he had in mind that they might fly workers from Bangladesh to work in Dubai, but that GA would probably have discontinued the flights had it been possible to use them for the 2011 Hadj. I was not convinced of that explanation for the emails: Capt Kabolinejad had explained none of this until documents emerged showing the plans to use the aircraft on the Bangladesh routes.
Moreover, GA's pleaded case is that the costs of registering Infinity and establishing an office in Bangkok are recoverable as wasted expenditure: the implication is that at least one of the leased aircraft was to be deployed in the Infinity enterprise. Capt Kabolinejad told me that Infinity's plans included scheduled flights between Bangkok and Tehran. Initially he said that the leased aircraft would not be use for this purpose, but then accepted that one of the aircraft might be so used. The documentary evidence show that it was contemplated, if not planned, that at least one of the aircraft might be so deployed: in an email of 16 August 2011, Capt Kabolinejad wrote to Mr Ramadan, whom he addressed as "Infinity Partner" that Infinity planned to start selling tickets from 1 September 2011 for flights starting on 1 October 2011. He referred to a need to "position all aircrafts to the maintenances base" in order to have them ready on time, and then to the registration of "all 3 B473", which must be the three Boeing 747 300s that were to be leased.
Finally, Capt Kabolinejad said in cross-examination that there was a plan to carry 2,500 Hadj pilgrims from Bangkok.
An email disclosed by GA showed that by April 2011 a budget for Infinity's business had been prepared: it was sent with the disclosed email. The budget was not disclosed: it might well have given a clearer picture of the plans for Infinity than Capt Kabolinejad's evidence. As it was, I found it impossible to extract from the documents and oral evidence any clear picture about how GA thought it might to use the leased aircraft, in Infinity's operations or otherwise. However, by the end of Capt Kabolinejad's cross-examination, it was apparent that GA did not have a settled plan to deploy the leased aircraft, or at least to deploy all of them, on flights between West Africa and Mecca for the 2011 Hadj: their plans were much more fluid.
There is a further difficulty facing the claim for lost profits: at most, GA had no more than a chance of being appointed to carry pilgrims for the 2011 Hadj, and, if it had a claim of this kind, it would be for loss of that chance. I am not persuaded by Capt Dilli's vague evidence about reaching agreement in principle that, even if GA had definite plans of the kind pleaded and the aircraft had been delivered by about April 2011, an application to the Nigerian or any other Hadj Commission would definitely have succeeded. Any assessment of the chance would be almost a guess, but my impression is that it was less than 50%.
For all these reasons, I am not satisfied that GA has proved this claim.
I therefore come to the claim for wasted expenditure: of course, in an action for damages for breach of contract in principle a claimant is entitled for expenditure that he incurred in reliance on his expectation that the other party would observe the contract. GA pleads a claim in respect of the following:
a) "Ongoing salary costs in Canada, the UAE and Indonesia".
b) "The costs of recruiting, training and employing cockpit, cabin and maintenance crews and mechanics and other staff … ".
c) Licensing costs, including costs of registering Infinity and establishing an office in Bangkok to help facilitate obtaining authorisations.
d) Marketing and advertising costs.
e) Miscellaneous expenses, including travel expenses in "at least" Nigeria, Thailand, the UAE, Indonesia and Canada relating to establishing a commercial passenger service.
The claim for wasted expenditure was said to be supported by the evidence of Capt Dilli. His evidence was that costs were incurred for no return because GA's plans could not be progressed without the aircraft being delivered, and the costs to which he referred were set out in a spreadsheet, which was attached to his witness statement. The schedule is headed "Air Jupiter Ltd", which Capt Dilli explained was a Nigerian company of which he was the managing director and which incurred expenditure "on behalf of" GA. The items in the schedule are stated in Nigerian naira, and then converted into a sterling claim of £799,675 by using what was said to be a "black market" exchange rate of 123 naira to £1.
Three difficulties facing the pleaded claim are immediately apparent:
i) There was no proper basis for, or explanation of, the exchange rate.
ii) Although Capt Dilli said that the expenditure was incurred "on behalf of" GA, there was no credible evidence that GA had any liability with regard to the items in the schedule.
iii) No evidence supports the claims relating to salary costs in Canada, or Indonesia, or about the costs of registering Infinity and establishing a Bangkok office, or about travel in other countries, none of which would, I infer, have been incurred by Air Jupiter Ltd.
But there are other problems with the claim in Capt Dilli's schedule. The items in it are divided into three categories: (i) "Staff retainership", (ii) "Registration Costs, Fees and Logistics", and (iii) "Administrative Expenses". It became clear from Capt Dilli's evidence that many of the items were incurred not in order to be able to provide flights for Hadj pilgrims in 2011, but in respect of expenditure incurred in the hope of servicing the 2010 Hadj. The 2010 Hadj was well under way by the time of the lease agreement: although at one point in his cross-examination Capt Kabolinejad suggested that, if the aircraft had been delivered immediately after the lease agreement, GA might have made profits from bringing 2010 pilgrims back from Mecca, there is no claim pleaded on this basis, it seems unarguable (and it was not argued) that the lessors were in breach of the lease agreement in not providing aircraft in time for them to be so used and any such claim would be hopeless. On the basis of Capt Dilli's own evidence and accepting it uncritically, this alone defeats the whole of the claim for so-called administrative expenses and two of the four items for "registration costs, fees and logistics". This alone would reduce the claim from £799,675 to £477,427
The remaining items in Capt Dilli's schedule are these:
i) A claim for pilots' salaries between November 2010 and June 2011 of N2 million per month and so N16 million or £130,081 in total.
ii) A claim for engineers' salaries between November 2010 and June 2011 of N1,440,000 per month and so N11,520,0000 or £93,659 in total.
iii) A claim for salaries for cabin crew between November 2010 and June 2011 of N440,000 per month and so N3.2 million or £26,016 in total.
iv) A claim for salaries for "operations" staff between November 2010 and June 2011 of N1.2 million per month and so N9.6 million or £78,049 in total.
v) A claim for salaries for "traffic" staff between November 2010 and June 2011 of N480,000 per month and so N3.84 million or £31,220 in total.
vi) A claim in respect of "Staff retainership in Saudi Arabia in anticipation of the project" between November 2010 and June 2011 of N1.2 million per month and so N9.6 million or £78,049 in total.
vii) A claim of N2 million, or £16,260 for "inspection costs" in respect of "Agencies", Hadj Commissions and Civil Aviation Authorities in Nigeria, Sierra Leone, Mali, Niger and Corte de Voire.
viii) A claim for N1 million, of £8,130 for General Sales Agents fees in Saudi Arabia.
It can immediately be seen that there are curious element in the claims, which Capt Dilli did not explain. For example:
i) It is said that there were costs incurred in Nigerian Naira for expenditure relating to activities in other West African countries and in Saudi Arabia.
ii) The expenses for staff run from the same date, which supposes that all the staff were engaged from the start of November 2010, before the lease agreement was signed. This is inherently improbable.
iii) All the claims are for round sums, which is surprising given the type of expenditure to which they are said to relate.
None of the claim for wasted expenditure (like that for loss of profits) was supported by any documentation at all. Capt Dilli's only explanation was that he had asked "the office to find supporting documentation" but "it is not there". As I have said, Capt Dilli told me that cash payments are common in African business, but that is an inadequate explanation: some of the claim related to expenditure in Saudi Arabia, and, even if employees were paid in cash, it seems improbable that, for example, there would be no documentation reflecting payments to Civil Aviation Authorities. Capt Dilli accepted that a Nigerian company such as Air Jupiter Limited would have to prepare accounts, and would need records accordingly. Given its curious features, I find that without documentation no part of the claim it is proved.
There remains in respect of the damages claim the argument that GA did not take reasonable steps to mitigate its loss. The burden to prove this is upon the defendants. Their contention is that, if GA was suffering the losses that it claims because the aircraft were not delivered under the lease agreement, it could and should have leased aircraft from other sources. In view of my other conclusions, I do not propose to consider this argument at any length, and I say only this: the claim is in respect of losses in respect of GA's professed plans for use of the aircraft in 2011, and it complains that they were incurred because Mr Ramadan was constantly reassuring it until January 2012 that the aircraft would be delivered. In these circumstances, I am not persuaded that GA acted unreasonably in not hiring other aircraft. The position might have been different if GA's complaint was that, shortly after the lease agreement or in early 2011, the lessors had told it that they could not or would not deliver the aircraft: then GA might have reasonably have been expected to alternative planes. I therefore reject the defendants' mitigation argument.
Were the lessors guilty of any relevant breach, and the condition precedent?
GA pleads that by a letter from its solicitors dated 8 March 2012 it accepted the defendants' repudiation of the lease agreement and determined it. This is denied in the defence, and the letter of 8 March 2012 has not been put in evidence. However, that is not ultimately of any importance.
GA pleads that it was entitled to terminate the contract because:
i) By Mr Ramadan's email of 8 January 2012 the defendants had made clear their intention not to perform the lease agreement, by stating that the aircraft had been sold to a third party, and so renounced it.
ii) By selling the aircraft the defendants had made it impossible for them to perform the contract.
iii) The defendants had acted in repudiatory breach of the lease agreement by failing to deliver the aircraft, by failing to co-operate with GA to secure performance of the lease agreement and by making arrangements to sell, and selling, the aircraft.
If, as GA contends, the lease agreement had been concluded between it and the defendants and Mr Ramadan was authorised to act for the defendants, then the email of 8 January 2012 renounced the agreement and GA would have been entitled to determine it. However, this would not assist GA: its claim is for damages because it could not use the aircraft to carry pilgrims on the 2011 Hadj: that was not a result of the lease agreement being renounced (or repudiated) in January 2012. Nor was it a result of the aircraft being sold to a third party, Mr Ramadan, in July 2011 if I am right about when GA would have needed to put in train an application to the Hadj commissions. These allegations do not support the damages claim. In so far as GA seeks declaration that the lease agreement was discharged from 8 March 2012, I would see no purpose in granting this relief since neither defendant contends that the lease agreement is in force.
Accordingly, as I see it, GA's claim is really based on its allegations that the defendants were in breach of the lease agreement in that:
i) They did not deliver the aircraft in time to apply for the Hadj pilgrims, and
ii) They did not co-operate to secure performance of the lease agreement.
I consider that the first point depends on the effect of article 18 of the lease agreement, together with the requirement of article 3 that the lessee should indicate the schedule to be flown by the aircraft. Disregarding these provisions, the lessors would have been obliged to deliver the aircraft within a reasonable time after the agreement. Even then, I am not persuaded that the lessors were in breach because I am not persuaded that GA was asking for delivery at this time. What is the impact of article 18? It provides that "the agreement" is "subject to the approval of the civil aviation authorities of the countries where it operates", but it cannot be interpreted literally: Civil Aviation Authorities would not be expected to express approval for the terms of the lease. It must be intended to refer to them giving approval for the operation of the aircraft under the lease. I therefore would understand article 18 to provide that the performance of the lease, the provision of the aircraft and the corresponding obligation of the lessee to pay hire, did not come into force unless and until the authorisations had been obtained. This makes commercial sense in that it protects the lessee from taking delivery of aircraft, and so having to pay for aircraft, which it could not operate. But the approval of the authorities "of the countries where it operates" could not be obtained until the lessees had provided a schedule identifying those countries. GA contends that the lease agreement should not be so interpreted because (as it is pleaded) "the approval of the relevant civil aviation authorities would have been obtained prior to the operation of the aircraft", but that does not, to my mind, respect the wording of article 18. If this be so, then article 18 qualifies the lessors' obligation to deliver the aircraft: they were not obliged to deliver them until a reasonable time after the authorisations were obtained, and no air operator certificates were obtained by GA. I therefore reject the contention that the lessees were in breach of the lease agreement because they did not deliver the aircraft.
That leaves the allegation of breach in that the defendants did not "cooperate with [GA] to secure performance of the [lease agreement] in particular in taking any or any adequate steps in co-operation with [GA] to ensure that the Aircraft could be registered timeously as airworthy by a relevant civil aviation authority and/or take adequate steps to secure such registration". There was no express requirement in the lease agreement that the lessors would so co-operate. However, GA pleads that, in order "to give business efficacy to the agreement and/or to give effect to the presumed intent of the parties", the lease agreement is to be understood to provide that the lessors would take all reasonable steps to ensure that the aircraft were "certified timeously as being in an airworthy condition according to the requirements of the applicable civil aviation authority"; and that in breach of that obligation the defendants failed in particular to take "any or any adequate steps in co-operation with the Claimant to ensure that the Aircraft could be registered timeously as airworthy by a relevant civil aviation authority and/or to take any adequate steps to secure such registration".
I accept that the courts readily imply that a party to a contract that is subject to a condition precedent is obliged to do nothing to prevent the condition being fulfilled (Chitty on Contracts (31st Ed, 2012 para 13-013). Given the obligation to deliver aircraft in airworthy condition, here I would will also imply an obligation to take reasonable steps to co-operate with GA about having the aircraft in a condition in which they might be registered as airworthy. Similarly, given that the aircraft could not be operated without an AOC, I accept that there was an implied obligation to provide any necessary co-operation to this end.
Here GA pleads that it sought unsuccessfully to co-operate with the defendants in various ways:
i) First, it refers to requests made by Capt Kabolinejad for delivery "On dates unknown between around November 2010 and around August 2011", and Mr Ramadan's responses that the aircraft would be delivered "within days".
ii) Next, GA pleads that all the aircraft were "de-registered by the Burkina Faso Civil Aviation Authority with effect from 25 November 2010" because one was used "in a non-airworthy condition to carry passengers for purposes outwith and unconnected to" the lease agreement. This is said to have prevented the lessors complying with the lease agreement.
iii) Thirdly, GA pleads that it took all reasonable steps to have the aircraft registered through the Thailand Civil Aviation Authority by (a) establishing an office for Infinity in Thailand, by (b) travelling to Thailand to arrange for authorisation and delivery of the aircraft and to prepare for the Hadj flights, and then (c) by arranging for an inspection of one of the aircraft by the Thailand Department of Civil Aviation.
I have rejected GA's evidence about the first of these points..
The second point is less straightforward. I conclude that after the lease agreement was made at least one of the aircraft was indeed flown unlawfully to Afghanistan, and also that on about 25 November 2010 the Director General of the Burkina Faso authority cancelled registration of aircraft registered in the name of SGAF, including four of the aircraft that were the subject of the lease agreement. There is, however, no direct evidence that this was because an aircraft had been flown to Afghanistan, or because of anything done after the lease agreement had been concluded: the wording of the decision of the Director General, referring to "persistent" failure to respect procedures, shows that the decision was not the result of a single incident, and implies that the matters of complaint were more long-standing. Nor is there direct evidence that this was a significant reason that the aircraft were not delivered under the lease agreement.
The evidence about this point is unsatisfactory and incomplete: this might partly be because SGAF's disclosure is deficient. For example, apparently no documents have been disclosed about the meeting with the Burkino Faso Authorities proposed for 13 December 2010. However, GA put forward no reasoned argument to explain how the decision of the Burkina Faso authorities presented or hindered it obtaining authorisation in respect of the aircraft. I do not consider that it has made out a case that unlawful use of the aircraft or other conduct on the part of SGAF constituted a failure to co-operate with GA so as to amount to a breach of the lease agreement.
With regard to the third point, this complaint does not support GA's claim for damages in respect of carrying pilgrims from West Africa for the 2011 Hadj: it was, I conclude, too late for it to apply to Hadj Commissions by the time that GA went about seeking a CAO from the Thai authorities. Further, GA advanced no reasoned argument that authorisation from the Thai authorities would have enabled or assisted it to obtain authorisations in West Africa.
I conclude, therefore, that GA has not proved a breach of the lease agreement that supports the damages claim.
Conclusion
I shall therefore dismiss the claim because:
i) I conclude that GA was not party to the lease agreement.
ii) I do not accept that either defendant was bound by the lease agreement.
iii) GA has not proved breach of the lease agreement.
Had I found the defendants (or either defendant) liable, I would have awarded only nominal damages, and I would have refused the claim for declaratory relief. |
Mr Justice Knowles :
Introduction
The Defendants are Cornwall Council ("the Council"), Cornwall Partnership NHS Foundation Trust and Peninsula Community Health CIC. Together, the Defendants entered into a written Service Delivery Agreement ("the Agreement") with BT Cornwall Limited ("BTC") dated 27 March 2013. The Defendants were described as the "Public Sector Partners" and BTC as the "Strategic Partner".
The Agreement has an extensive compass. Its operation affects the transaction of services throughout Cornwall in areas including health, transport, communications, and public safety. It is potentially of long term duration. One valuation of the Agreement was at £160 million.
On 24 June 2015 the Council wrote to BTC asserting that, by reason of breaches of the Agreement by BTC, the Defendants had a right to terminate the Agreement forthwith.
Given the compass of the Agreement, it was important that everyone should know where they stand. The parties did not resolve matters by agreement. BTC sought an injunction to prevent termination of the Agreement. On 13 August 2015 Teare J ordered the trial of the following issue:
"… whether, assessed as at 20th July 2015, [BTC] was in breach of [the Agreement] such that the Defendants were entitled in all the circumstances to terminate the Agreement forthwith, and whether [BTC] should be granted an injunction to restrain such termination."
The parties made holding arrangements pending the trial of the issue, and directions were given for disclosure, witness statements and other preparation for trial. The trial commenced at the beginning of this month, and has been conducted with considerable ability by the legal teams on all sides. This is the judgment on the trial.
The Agreement
The more material provisions of the Agreement form an Appendix to this judgment.
The Commencement Date under the Agreement was 1 July 2013. BTC does not deny that there were substantial problems with its performance in 2014. A backlog of work accrued in 2014 and had still not been cleared by well into 2015.
The situation cannot have been assisted by the fact that the Agreement is, as a document, very hard to work with, including by reason of its impractical length, and the imprecision in some of its drafting. It runs to several lever arch files without that length providing clarity in return. Its oversight and governance arrangements proved inadequate for all parties when things started to go wrong. The imprecision in its drafting was well illustrated at one point in the trial when completely different ways in which "Incident Impact" levels could be interpreted by BTC on the one hand and the Defendants on the other was shown; an uncertainty that extended to critical business functions for the Defendants, where public safety and health might well be involved.
The problems with performance may not have all been one way. Mr Finlayson of BTC gave evidence that a large number of faults were caused by the Council, including as many as 1000 "no shows" by the Council's staff for equipment upgrades. The trial did not equip me with the background material, documentation and argument to evaluate that evidence closely.
In any event, concerns on all sides were such that in February 2015 BTC and the Council had established a senior level Executive Forum, in addition to the oversight arrangements provided by the Agreement itself. On 17 March 2015 Mr Healy (the Director of Technical Assurance and Rapid Response for BT Global) was describing the contract as "disastrous" and BTC's position as "precarious".
On 1 April 2015 the President of BT - Global Government and Health, Mr Dalton CBE, was prompted to write a letter to Mr Masters (Corporate Director at the Council) confirming that "BT take all of its contracts and their obligations and commitments very seriously and that this is indeed the case with the agreement with Cornwall Council and its Public Sector Partners".
Among other things, it was envisaged that a renegotiation of KPIs and what was termed "baselining" would have to take place in about June 2015. As will appear below, these matters have contributed to argument that, ahead of any formal renegotiation, the Agreement was not the only or last word on the parties' obligations to each other in the meantime, and on the question of the Defendants' entitlement to terminate.
I do not doubt that by April 2015 BTC was making considerable efforts to rectify things. As will appear further below, in a Council Report to its Resources Policy Advisory Committee the view was recorded that "BT could hardly have done more".
Witness evidence at trial
I have mentioned that the Agreement affects the transaction of services throughout Cornwall in areas of real importance to the public. It can be taken that a dispute of that nature, and one of this economic value, is of real importance to BTC and the Council.
They found they could not resolve their dispute and needed to ask the Court to decide what had happened and what the consequences were. It is therefore surprising that both BTC and Council each chose not to call as witnesses senior people who had obviously material evidence to give.
This would include Mr Richard Williams (Head of Governance and Information and Head of Legal at the Council), Mr Paul Masters (Corporate Director for Communities and Organisational Development at the Council) and Mr Andrew Kerr (who has recently left the Council as its Chief Executive to take up a post as Chief Executive of another Council). It would also include Mr Chris Leggett (BTC Chief Executive January 2014 to February 2015), Mr Ian O'Brien (BTC Transformation Programme Manager), Mr Peter Wroe (BTC Business Operations and Projects Director; Head of Commercial to July 2015) and Mr Russell Cosway (BTC ICT Service Manager to April 2015) from BTC.
I intend no criticism of any of those individuals because I do not know whether they were asked to give evidence. I cannot readily accept that if they were asked, they had higher priorities than to give evidence in a case of this nature.
Material Breach: KPIs
Schedule 13 to the Agreement was entitled "Price Performance Mechanism" and used a scheme of key performance indicators ("KPIs"). BTC's Monthly Review Reports show that between November 2014 and April 2015 service in relation to KPI 1 was below Target Service Level six times, and below the Breach Trigger five times. As for KPI 5 (Incident Impact 1), between October and December 2014 service in relation to KPI 5 (Incident Impact 1) was below Target Service Level for three consecutive months, of which one was below Breach Trigger.
What were termed "Service Credits" accrued accordingly in the manner set out in Schedule 13. In addition, subject to all the other points considered below, the level of failure just described, whether in relation to KPI 1 or KPI 5, would amount to a Material Breach under Clause 48.2.1.1 of the Agreement, allowing termination without (see Clause 48.3.2) a remedy period.
However, as regards KPI 5 (Incident Impact 1), for which the Appendix to Schedule 13 contained an entry in the column "Baselining Required", the effect of paragraph 8.3 was that before paragraph 9 (which dealt with Material Breach) would apply, the "current Actual Performance Level" for that KPI would need to be known and the Target Service Level would need to have been agreed.
It is not easy to understand why the Agreement should, by paragraph 8.3 of Schedule 13, make this type of provision, while by paragraph 8.1 leaving it to BTC to decide to exercise a right to amend its Target Service Level. The combination of provision carries a real risk of delay, and that is what happened.
The Council prepared Contract Change Notices under clause 21 of the Agreement in order to amend Target Service Levels. It did not get BTC to sign them. There was a suggestion in evidence that at the end of a meeting on 23 April 2015 Mr Finlayson of BTC had agreed to take them away and sign them, but having heard a number of witnesses on this aspect I do not consider that more was indicated than a willingness to look at them and sign them if happy with them. In the event they remain unsigned.
As regards KPI 1, the Appendix to Schedule 13 did not contain an entry in the column "Baselining Required". BTC contended that because KPI 5 was "a component" of KPI 1, KPI 1 should be treated as though there was an entry in the column "Baselining Required" in the Appendix, and thus paragraph 8.3 would also apply to postpone the application of paragraph 9.
I do not accept this contention. KPI 1 is capable of operating independently of KPI 5. The Agreement deals with them separately. The Appendix is clear on its face. There is no claim by BTC for rectification of the Appendix to insert the word "Yes" in the column "Baselining Required".
Mr McCall QC, who appeared with Mr Woods and Mr Woolgar as Counsel for BTC, argued that the figures for February, March and April 2015 in the Monthly Service Reports could not be used because KPI 1 was intended to be a measure of failure within a month by reference to a benchmark of what was achievable within that month. For these three months the figures were the subject of an express caveat to the effect that their level was due to a large backlog of failed incidents being cleared, so that (it was argued) they could not be said to represent the level of failure within a month.
I do not accept the argument. Indeed it is met by a separate overarching point that Mr McCall QC made, that the Agreement would "log a matter for breach purposes" when the matter was resolved, rather than before. Failures due to backlog were logged within these months because that is what the Agreement contemplated. That BTC fully appreciated that consequence is apparent from the actions it took to try to avoid that consequence. BTC was to argue at trial that these actions led to a "KPI Backlog Agreement", and this is considered below.
It was also argued on behalf of BTC that the KPIs would not be operative until the entire "set" of KPIs was agreed. A Review of BTC's performance dated 20 November 2014, version 0.4, prepared by Mr Gaslonde (who gave evidence for the Council) and another, contained the following paragraph, which included the word "set":
"2.1 (Key) Performance Indicators
It is accepted on both sides of the partnership that the contractual indicators were not fit for purpose particularly in regard to ICT. This is because the contract went live with a KPI set that largely represented a Health Service partner that had long since pulled out of the Joint Venture. Although there has been a lot of work done to re-specify and re-baseline these KPIs, the reporting to date, based on these KPIs is clearly flawed."
The reference to a "set" of KPIs does not alter the contractual position. In my judgment nothing in Schedule 13 of the Agreement supports the argument by BTC that the KPIs would not be operative until the entire "set" of KPIs was agreed. Paragraph 8.3 of Schedule 13 suggests quite the opposite. Even the description of the KPIs as "not fit for purpose" would still leave them operative until changed.
What was termed a Strategic Partnership Meeting of 3 February 2015 was attended by senior representatives of BTC and the Council. Those present agreed an "Action Plan". Items 2.7 and 2.8 of the Action Plan were as follows:
"2.7 Complete the baseline process for the current contract KPI performance measures.
2.8 On completion of action 2.7, commence a joint review of the contract KPI/PI performance measures and propose any amendments."
Mr McCall QC argues that these items show the KPI "set" was never baselined. In my view, confirmed by my hearing what the witnesses had to say at trial, the items show (a) that baselining work remained to be done for some of the KPI performance measures that were in the Agreement (b) that after that work had been done there would a joint review of the contract KPI/PI performance measures and (c) that amendments to the Agreement would be proposed in light of the joint review.
In the events that happened the parties did not get to stages (b) or (c) before the Council wrote to BTC on 24 June 2015 asserting that the Defendants had a right to terminate the Agreement forthwith.
There was also argument whether BTC was entitled to re-open the figures in its Monthly Service Reports, in an attempt to show that KPIs were not in fact breached. As to this argument, by paragraph 3.1 of Schedule 13 BTC was to monitor and measure its performance in respect of the Services on a monthly basis from the Commencement Date against the KPI Table in Appendix A. By Clause 17.10.1 of the Agreement BTC undertook that the process of the monthly Services Review and the content of its Monthly Review Report "shall be objective, fair and reasonable and that the assessment shall be conducted and the report shall be written in good faith". In these circumstances, assessing the matter as at 20th July 2015 as required by the formulation of the issue being tried, the starting point is that BTC's Monthly Review Reports were a sound foundation for any conclusion of Material Breach.
That is not to say that figures and calculations could not thereafter be corrected, if they were wrong, at the instigation of BTC or the Defendants. However if BTC was the one to instigate a correction it would first need to show (and in my judgment it did not do so) why the existing figures and calculations, which were its own work, were not objective, fair and reasonable or how it was that the assessment had not been conducted, and the report written, in good faith.
The Council argued, in a rejoinder, that BTC would be estopped from denying the correctness of the figures and calculations. In the result I do not need to determine that point, but I admit to material reservations about it.
Mr Pate gave evidence for BTC of work he had done on the figures in recent weeks. I was left unclear about Mr Pate's methodology and unconvinced by his approach to "sampling". As between his work and the figures derived contemporaneously from the Monthly Service Reports I preferred the latter.
Material Breach: Jobs
Under the Agreement, BTC promised the creation of numbers of new jobs for Cornwall. Although its position developed in the course of the proceedings, ultimately the Council did not contend that a failure by BTC to meet what was described as the annual jobs guarantee was itself capable of amounting to a Material Breach. Instead it contended that such a failure gave rise to an obligation to provide a remediation plan and that BTC failed to provide a compliant remediation plan and to implement it or comply with its terms.
As at the date that is material for the issue that was tried, 20 July 2015, a remediation plan would not have been due in respect of a failure by BTC to meet the annual jobs guarantee for the year to 30 June 2015 (Clause 4.1 of Part 2 of Schedule 2 (Jobs) allowing 20 business days for such a plan). Thus the focus must be on a remediation plan being required because of a failure by BTC to meet the annual jobs guarantee for the year to 30 June 2014.
For the year to 30 June 2014 a total of 83 new jobs was guaranteed, as a starting point. But paragraph 5.2 of Part 2 of Schedule 2 to the Agreement provided that that was "dependent upon [the Third Defendant] securing a new Telehealth contract" and "where a new Telehealth Contract is not secured by [the Third Defendant] with NHS Kernow … the Guaranteed New Jobs relating to Telehealth Services shall be deleted from" the table that specified 83 guaranteed new jobs.
The Council accepted, as confirmed in oral closing submissions by its Counsel Mr Ramsden (who appeared with Mr Catsambis), that the Third Defendant did not secure a "new" Telehealth Contract with NHS Kernow, whatever may have been agreed by way of extension of an existing contract. So the "Guaranteed New Jobs relating to Telehealth Services" were to be deleted from the total of 83. However the Agreement does not make clear how that deletion is to be done, and what the figure is for the year to 30 June 2014. Appendix 2 breaks down guaranteed new jobs by source, but supplies no more information than that 139 new jobs were to be in "Telehealth and TeleCare" by 30 June 2017.
Based on the evidence of Mr Finlayson and Mr Drage, BTC contend that had the Third Defendant secured a new Telehealth Contract with NHS Kernow, it would have accounted for 70 new jobs in the year to 30 June 2014. I find that a reasonable approach, based on evidence I am prepared to accept. The result is that BTC was not in breach. As BTC point out, a pro rata approach also leaves BTC not in breach.
Notwithstanding the above, in July 2014 BTC did produce a document that it described as a remediation plan. (I say "described" because the document is a poor one, and most is devoted to a description of the existing situation rather than a plan for the future.) In the document BTC deducted 27 new jobs in relation to Telehealth. The fact of the document, and the amount of the deduction made in it, do not persuade me that BTC was in breach. The plan was not contractually required. The parties in due course put it to one side as they discussed other approaches and priorities as regards jobs. And nothing binds BTC contractually to the figure of 27.
However the Council advanced an argument that BTC "knowingly removed the dependency between the Guaranteed New Jobs and [the Third Defendant] securing a new TeleHealth contract with NHS Kernow before signing the Agreement". Its argument rests on a reference in the "Jobs Plan" at Appendix D to Schedule 2 to the Agreement, and Schedule 27 of the Agreement where there is a "clarification".
In the "Jobs Plan" there is a statement that "Telehealth and Telecare jobs are modelled independently, and are based on acquiring 54,000 persons [patients] from outside the County". The clarification in Schedule 27 is in relation to a section of a Business Plan dealing with "Core Services", rather than in relation to the "Jobs Plan". In the course of giving the clarification BTC stated that it anticipated that Telehealth patient numbers would come "from Kernow CCG or a similarly sized contract".
The clarification sought, and given, was in terms in relation to provision for patients rather than jobs, and the allegation of breach levelled against BTC is not in relation to patient numbers. Attention was drawn to Clause 6A of the Agreement, but in my judgment that does not bridge the gap. I also understand the point that Mr Hughes (for the Council) made in evidence to the effect that patient referral numbers drive jobs, but that point does not result in an amendment to the wording of 5.2 of Part 2 of Schedule 2 to the Agreement, which is what would be required.
Waiver
BTC refers to paragraph 7 of Schedule 13. This gives the Defendants the right "at their sole discretion" to waive Key Performance Indicator Scores achieved due to Service Failures "if they are satisfied (acting reasonably) that a remedial plan to prevent the Service Failure being repeated is in place and being adhered to".
In some circumstances this paragraph might be difficult to analyse and operate, with its combination of provisions just referred to. In the present circumstances that difficulty does not arise.
BTC points out that the paragraph requires no particular formality. I can understand that point, but the paragraph does require the exercise of the right it confers (or a successful contention that there was an obligation to exercise the right and that that obligation was not complied with). I heard no evidence at the trial that would cause me to conclude that the right had been exercised or should have been exercised.
Mr Finlayson gave evidence that a waiver from Material Breach "was implied and everyone understood". I do not accept that as an accurate statement of or conclusion on the facts. Nor is it enough in law.
"The KPI Backlog Agreement"
BTC contends that at the Executive Forum the Council expressly agreed that BTC should clear the backlog, quickly, with the accepted consequence that the KPI results would be below breach level. Mr McCall QC develops the contention as follows: "Given that specific authorisation was given, with knowledge of the consequences, it was implied that the expected 'breach level' KPI results would not be taken into account in assessing whether BTC was in Material Breach and would not be used to justify termination. It is inconceivable that BTC would have agreed to it otherwise."
Nothing was written to record the suggested "KPI Backlog Agreement". In my view that is because there was no agreement and not because, as BTC argues, there was a general atmosphere of co-operation, and the parties were working fast to resolve problems. BTC described those problems in its closing submissions as being problems "with the Agreement". As I have touched on above, the Agreement is not an impressive document in many, many respects. But in my view the problems were more with BTC's performance than with the Agreement.
BTC urges that closing historic incidents would tend to cause two things cumulatively: a dip in KPI performance and an impact on the Service Desk's ability to respond to new incidents. But these were for BTC to deal with, applying whatever resources it took. And I also accept the evidence of Mr Gaslonde that even without the backlog, BTC's KPI 1 performance would still breach for March and April 2015.
BTC's evidence was that simply throwing more resources at the problem would not work. I accept Mr Healy's and Mr Kritikos's evidence that it typically takes one to two months for a new operative to be trained and to understand how the ICT systems in Cornwall work. But that means that, to meet its obligations, BTC should have started to prepare earlier. The cumulative dimensions of the situation were of BTC's own making.
Mr McCall QC puts matters in this way : "The point that BTC makes is that, given that a backlog had arisen, it had a choice as to how to clear it: (a) as quickly as possible consistent with avoiding hitting Breach Triggers, or (b) in "one fell swoop", in a way that would place it in Material Breach".
The answer to the point put in that way is that contractually BTC was required both to avoid hitting Breach Triggers and to avoid placing itself in Material Breach. BTC might have hoped that the Defendants would take a sympathetic line, but I was not satisfied that BTC thought the Defendants would relieve it from either.
Having heard them give evidence, I do not accept Mr Kritikos' or Mr Finlayson's evidence where it suggests that agreement was reached in the form of the asserted KPI Backlog Agreement.
There is no mention of such an agreement in contemporaneous documents where one would expect to find mention had it existed. An example is in internal email exchanges at BTC on 10 March 2015. Mr Kritikos made no mention in an email to his line manager Mr Hood of there being an agreement that would provide a shield to the consequences of breach triggers; his suggestions in evidence that his reference in an email to "on face value" was intended to refer to an agreement, and that he had later had a discussion with his line manager, were not credible suggestions and I reject them.
In oral closing submissions Mr McCall QC drew attention to the fact that the Agreement would "log a matter for breach purposes" when the matter was resolved, rather than before. Given that, he argued, it was unsurprising that BTC would seek "buy in" from the Council before committing to resolve the backlog "at one fell swoop" and it was inconceivable that BTC would have addressed the backlog in that way unless it had clarity that it would be safe from breach triggers.
The answer in my view is again that, in contract, it was already obliged to resolve the backlog. It was not entitled to protection from the consequences. On the evidence, BTC sought reassurance that clearing the backlog was "the right thing to do". It was the right thing to do, in the sense that doing it would honour BTC's obligations, albeit late. BTC was not entitled to expect or assume that it would be exempted from other consequences under the Agreement simply because it was honouring its existing obligations. BTC made clear to the Council what it proposed to do next, and the Council acknowledged that.
Mr McCall QC sought to meet the point that BTC had an existing obligation to clear the backlog by reference to a provision in the Service Specification for ICT Services, version 5.4 of which formed a further part of the Agreement. Paragraph 7.1.15.1 of that Service Specification provided that it was a responsibility of BTC's to "prepar[e] and present[] remediation plans in response to an underperforming area of [BTC]" and "ensure remediation plans are implemented and that underperformance does not re-occur". From this Mr McCall QC argued that remediation measures to address the backlog could not be required when they would put BTC in breach.
I do not, with respect, accept that argument as sound. The reference to ensuring that underperformance does not re-occur was, in this context, a reference to not incurring backlog again or increasing it. I further accept as sound in law the proposition put by Mr Ramsden for the Council to the effect that the obligation to ensure remediation plans are implemented (and thus to remedy underperformance) was an obligation to be carried out as soon as possible.
Mr Kritikos of BTC suggested in his evidence that as he and Ms Hazell of the Council were leaving the Executive Forum meeting on 9 March 2015 Ms Hazell acknowledged an observation from him that BTC had a "let", by which he meant a waiver, from the KPI requirements for March and April. His evidence continued that Ms Hazell had said Mr Hughes would have a "fit", or words to that effect. I found Mr Kritikos' evidence on these points wholly unconvincing, and a late, untrue, and therefore very regrettable elaboration. Ms Hazell denies such a conversation and I have no hesitation in accepting her evidence.
The proposition that there was a KPI Backlog Agreement as contended for by BTC is further negatived by the evidence of Mr Gaslonde of the Council, that when in or around March 2015 he was asked by Mr O'Brien of BTC if BTC could exclude back log calls from the performance report, he (Mr Gaslonde) agreed that any call logged prior to the start of the Agreement could be excluded but all others were the responsibility of BTC. I accept Mr Gaslonde's evidence, originally given in a witness statement on 11 August 2015 and confirmed in the witness box. As mentioned above, BTC did not call Mr O'Brien as a witness.
More generally, there was considerable argument over the authority of the Executive Forum (the body that came into existence after the Agreement was made) to agree a legally binding amendment to the Agreement including in the form of the KPI Backlog Agreement. The argument is ultimately not material because I am satisfied that, as a matter of fact, no such agreement material to this trial was reached at the Executive Forum. Had the facts been otherwise I would not have ruled out the possibility that there would have been authority to bind BTC or the Council respectively through their Chief Executives at a meeting of the Executive Forum attended by those Chief Executives.
Clause 21 of the Agreement contains detailed provision for how the Agreement may be changed or varied, including as regards Defendants other than the Council. That Clause may make it harder to establish on the facts that an amendment achieved by other means was intended to have legal effect, but I do not think it makes it impossible, at least as between the Council and BTC. In her evidence Ms Hazell indicated she had been anxious at the time about the potential impact arrangements for the Executive Forum could have on the clarity of governance and contractual arrangements. Her anxiety was well placed.
In submissions to which I pay particular tribute because of their measured tone and analytical rigour, Mr Chennells for the Third Defendant drew attention to the respects in which BTC and the Council did not involve the Third Defendant in the Executive Forum. That further militates against a conclusion that the Agreement was amended.
Estoppel and Affirmation
Having heard Mr Hughes and Mr Gaslonde of the Council, and considered the available documents, I find that the Council was aware by shortly after 8 April 2015 that BTC was in breach of KPI 1 for March 2015, and by shortly after 13 May 2015 that BTC was in breach of KPI 1 for April 2015.
In a report of 8 April 2015 Mr Williams of the Council recommended the option of working with BTC "to recover the performance position" rather than the option of terminating. He noted that the first option carried the risk "that the partnership is unable to recover its performance and fails to bring the necessary transformation to Cornwall" and the second option "… would need considerable planning … could have a large monetary penalty and also come with a risk of further delay in moving the organisation forward in key areas such as ICT …".
In a second report of the same day Mr Williams recommended that he provide another report to set out progress by 31 October 2015; it was here he recorded the view (mentioned above) that "BT could hardly have done more" since February "to demonstrate their commitment both to turning around contractual performance and to the Strategic Partnership as a whole". His conclusion on the "proposed way forward" (accepted as a fair summary by Mr Finlayson) was in these terms:
"… that the Council, Health Partners and BTC continue to work urgently to address all issues set out in the Executive Action Plan.
In parallel, BTC performance will be robustly monitored and enforced through the Contract."
In an internal BT and BTC email of 19 May 2015 Mr Healy wrote:
"We are in grave danger of breach on ticket performance. … Ian & Mark will be working with Stuart & Nicola to make sure that we keep as many tickets out of the system as we can. Tickets that do enter the system will be simply & quickly classified (get people off phones & fixing). For those that are in the system we need to re-categorise wherever possible; to get them out of SLA breach."
On 1 June 2015 Mr Healy wrote to Mr Pate after Mr Pate had provided current figures, indicating breach:
"Where did the new ones come from since Thursday? Need to use poetic license & [g]et the buggers out".
Mr Healy accepted in the witness box that he meant "get them out of fail". He recognised the implication from his words that he was proposing manipulation. He pointed out that the email was sent late at night, and claimed it was "a joke" "to a friend". However in the circumstances, including the email of 19 May, and having heard Mr Healy make his claim from the witness box, I conclude it was not a joke and that it reflected both a recognition that things were serious and a preparedness to take inappropriate steps to avoid that.
It was by letter dated 24 June 2015 that the Council communicated to BTC its position that it was left "with no realistic option but to invoke the termination procedure under the contract", subject to authorisation by its members and appropriate officers and discussion with the other Defendants.
BTC contends that if the facts fall short of enabling the Court to conclude that a binding agreement in the form of the KPI Backlog Agreement was reached, then the facts gave rise to an estoppel, or support BTC's case on affirmation, so as now to bar the Council from relying on breaches of KPIs in February, March and April in terminating for Material Breach.
With respect, the facts do not begin to make out a case on estoppel or affirmation for BTC. The Council was entitled to express its wish that BTC clear the backlog even if it knew that the effect of doing so would be to have an adverse impact on the monthly results. It was entitled to have the backlog cleared and to retain all its rights to insist that the monthly results meet the standards required by the Agreement.
Mr McCall QC submitted that the Council's actions were only consistent with there being a future for the Agreement. I disagree. There was consideration of the future (item 2.8 of the Action Plan is an example, and what was termed the jobs growth plan is another), but that did not mean that the consequences of current problems were put aside (item 2.7 of the Action Plan is an example, and so too was Mr Finlayson's acceptance in cross examination that as at April 2015 he believed the Council would enforce its contractual rights). The fact that the Council was prepared to engage through the Executive Forum, and to work collaboratively with BTC is not to be held against it and did not signal that it would not take action in accordance with the provisions of the Agreement.
There was no material delay on the Council's part, and certainly neither its actions nor the passage of time are to be taken as an election not to terminate for Material Breach. The word "forthwith" in Clause 48.1 addresses the point at which the Council may act, and not the period within which it must act if it is going to.
BTC argues that "the Executive Forum represented a major commitment for BTC, not only in terms of the executive input at the highest level, but also in terms of the huge resources and costs involved", which it put at £4.3 million. This is no more than a reflection of how serious it had allowed things to become; it does not advance its argument that the Council was not entitled to enforce the Agreement in accordance with its terms.
Good Faith
BTC advanced the argument that any termination for Material Breach in relation to KPIs must be made in good faith. It did so both by reference to what the Agreement stated and by an argument about what requirements should be implied into the contract.
The provision with which BTC began this argument was Clause 5.2.2. That Clause in my judgment requires good faith (and reasonable endeavours) in relation to "a continuing Partnership dialogue". It has no bearing on the exercise by one party of contractual rights, provided for elsewhere in the Agreement, where another is in breach of its obligations.
BTC's arguments that, under the common law, those rights could not be exercised unless there was good faith, and an absence of capriciousness, are most shortly answered by the fact that I am satisfied that there was good faith and an absence of capriciousness.
BTC faced problems of its own making and did not provide to the Defendants the service it had promised to the standard it had promised. The Council worked with BTC to try to resolve things but ultimately decided the position was not good enough. There is no absence of good faith or presence of capriciousness in expecting BTC to clear the backlog at once and also to take the contractual consequences if that meant KPIs would be breached again. There was (as discussed above) no KPI Backlog Agreement, waiver, estoppel or affirmation. And unless and until different KPIs were agreed there is no absence of good faith or presence of capriciousness in expecting BTC to honour the existing agreed KPIs, "fit for purpose" or not.
Conclusion
In my judgment the first part of the issue tried should be answered "yes". Assessed as at 20th July 2015, BTC was in breach of the Agreement such that the Defendants were entitled in all the circumstances to terminate the Agreement forthwith.
It follows, on the second part of the issue tried that the answer is "no". BTC should not be granted an injunction to restrain termination. I would add for completeness that even had the first part of the issue tried attracted the answer "no" it is not inevitable that an injunction would be granted, rather than BTC left to a remedy in damages.
Ultimately it is the public that is affected by this dispute, and by the shortcomings in the drafting of the Agreement and the failings in performance under the Agreement. It is very much to be hoped that all parties to the dispute will consider the position carefully, in the interests of the public, and take steps now to avoid a similar situation in the future, in Cornwall and elsewhere.
APPENDIX
By Clause 1 of the Agreement "Services" includes what are defined as the "Phase 1 Services". The "Phase 1 Services" are in turn defined as "the initial services in respect of ICT, Telehealth Services, Telecare, transactional shared services (non-customer facing) and document management (for the Council) as at [1 July 2013] and as further described in Schedule 21 (Service Specification)".
Clause 1 of the Agreement defined "Service Credit" as follows:
the credit which is attributable to failure to achieve the Service Levels or Key Performance Indicators being deductions from the Monthly Charge or credits for additional services (as applicable) calculated, in each case, in accordance with clause 29 (Price Performance Mechanism)
Clause 5 of the Agreement provides in part:
5.2 Partnership Objectives
5.2.1 [BTC] shall deliver the Services in a manner which is supportive of and in alignment with the following the [Defendants] key objectives:
5.2.1.1 to create a joint infrastructure for the [Defendants];
5.2.1.2 to create a vehicle for trading in perpetuity;
5.2.1.3 to deliver cost efficiencies; and
5.2.1.4 to create jobs in Cornwall.
5.2.2 [BTC] and the [Defendants] shall act in good faith and use reasonable endeavours to enable a continuing Partnership dialogue throughout the Term.
5.2.3 [BTC] and the [Defendants] shall use reasonable endeavours to establish the processes, relationships and culture which will promote the growth of the Partnership which will enable innovation and structured, programmed and well managed continuous improvement.
Clause 6A of the Agreement provides:
A CLARIFICATIONS
Notwithstanding any other provision of this Agreement, the relevant provisions of this Agreement shall be deemed to be amended in line with the clarifications to this Agreement set out in Schedule 27 (Clarifications). For the avoidance of doubt, this Agreement shall be read and interpreted as if such clarifications had been made to the Agreement as at the Effect Date."
Clause 17 of the Agreement provides in part:
17 [BTC'S] PLANS AND SERVICES
…
17.9 Monthly Reviews
17.9.1 [BTC] will conduct a monthly Services Review at the end of each month on the basis set out in the following provisions of this clause 17 (BTC's Plans and Services Reviews) and Schedule 17 (Reporting and Review Schedule). The objective of the Services Reviews shall be to:
17.9.1.1 assess the Services in terms of [BTC's] performance, the quality and the availability of the services provided under the Services and Service Levels;
17.9.1.2 identify any areas of poor performance and unavailability of the Services which require improvement, and to determine the remedial action to be taken by [BTC] as a result;
17.9.1.3 assist [the Defendants] with their future planning in relation to budgets; and
17.9.1.4 collect the information required for the operation of the Price Performance Mechanism and to present that information to [the Defendants] to enable [the Defendants] to verify the accuracy of the service credits calculated by [BTC] for each Month, and which are to be applied in accordance with clause 29 (Price Performance Mechanism).
17.10 Monthly Review Reports
17.10.1 [BTC] shall conduct the monthly Services Review in accordance with Schedule 17 (Reporting and review Schedule).
17.10.2 [BTC] undertakes that the process of the review and the content of its report shall be objective, fair and reasonable and that the assessment shall be conducted and the report shall be written in good faith.
17.10.3 [BTC] shall implement any action plan or recommendations set out in the report for improving the Services."
Clause 29 of the Agreement provides in part:
29. PRICE PERFORMANCE MECHANISM
29.1 Deductions
29.1.1 Subject to clauses 29.1.2 and 29.1.3, Service Credits shall be deducted from the Monthly Payment in respect of each [Defendants]' element of the Services in accordance with the provisions of the Price Performance Mechanism. On the expiry of each Month [BTC] shall collect all necessary information as to the performance of [BTC] (and any Strategic Partner Party) against the Key Performance Indicators during that Month. [BTC] shall ensure that it has collected all such information in sufficient time for it to be presented to the Public Sector Partners as part of the Services Reviews carried out pursuant to clause 17 ([BTC]'s Plans and Service Reviews), and to enable [BTC] to use the information to calculate Service Credits and make deductions from the Monthly Payment in accordance with clause 29.2 (Measurement and Calculation).
29.1.2 Subject to clause 29.1.3, Service Credits shall only be deducted from any Monthly Payment in respect of a failure by [BTC] to achieve Key Performance Indicators from the date upon which each Key Performance Indicator becomes effective, as set out in the column headed "KPI Effective Date" for each such Key Performance Indicator in Schedule 21 (Service Specifications).
29.1.3 Notwithstanding the provisions of clause 29.1.2, the [Defendants] shall be entitled to deduct Service Credits from any Monthly Payment where [BTC] fails to perform against and Key Performance Indicator(s) to at the least level achieved by the relevant Public Sector Partner(s) prior to the Commencement Date.
29.2 Measurement and Calculation
29.2.1 [BTC] shall use the information collected pursuant to clause 29.1 (Deductions) to calculate the Service Credits applicable in respect of each Month in accordance with the provisions of the Price Performance Mechanism on the following basis:
29.2.2 Service Credits shall be deducted each Month by [BTC] from the next Monthly Payment invoice submitted to the relevant Public Sector Partner in accordance with clause 28.3 (Payment Terms/Procedure).
29.2.3 …
29.2.4 The operation of the Price Performance Mechanism shall be without prejudice to any other rights and remedies that the [Defendants] may have.
…
Clause 48 of the Agreement provides in part:
48 TERMINATION AND EXPIRY
48.1 Right of Termination
48.1.1 The [Defendants] shall be entitled to terminate [this Agreement] forthwith by notice in writing to [BTC] if [BTC] is in:
48.1.1.1 Material breach of this Agreement (defined in clause 48.2 (Material Breach); or
48.1.1.2 Persistent Breach of this Agreement (defined in clause 48.4 (Persistent Breach))
and shall have failed (where a remedy period is granted pursuant to Clause 48.3) to remedy the same within the remedy period so granted.
48.1.2 The [Defendants] shall be entitled to terminate this Agreement in part (whether for Material Breach or Persistent Breach) in respect of the part of the Services or in respect of the [Defendant] which is affected by the breach of this Agreement by [BTC].
48.2 Material Breach
48.2.1 'Material Breach' shall mean any material or fundamental breach by [BTC] of this Agreement or part of this Agreement (which shall include that part of the Agreement that relates to a [Defendant]) or the occurrence of any of the following matters (without limitation):
48.2.1.1 an accrual and/or accumulation of Service Credits in the manner set out in Schedule 13 (Price Performance Mechanism Schedule) and stated in that Schedule as constituting a material breach of the Agreement (or part thereof);
48.2.1.2 …
48.2.1.3 a right to terminate has arisen in accordance with paragraph 4.[3] of Part 2 (Jobs) of Schedule 2 (Business Plan);
…
48.3 Remedy Period
48.3.1 Where a Material Breach is capable of remedy [BTC] shall be granted a remedy period of twenty (20) Business Days (or any such other period as [the Defendants] may in their absolute discretion agree) of receipt by [BTC] of a notice in writing from [the Defendants] of [sic] [a Defendant] (as applicable) specifying the breach and requiring [BTC] to remedy the breach.
48.3.2 In the circumstances referred to in clauses 48.2.1.1 to 48.2.1.6 (Material Breach) and clause 48.1 (Right of Termination), [BTC] shall not be granted any remedy period and [the Defendants] or an individual [Defendant] shall be entitled to terminate this Agreement forthwith on notice.
…
Part 2 of Schedule 2 to the Agreement (Jobs) provides in part:
3.1 [BTC] guarantees that:
3.1.1 at the end of the applicable Calculation Period the number of Retained Jobs shall be no less than 181 jobs as specified in Table 1 of Appendix 2
3.1.2 at the end of the applicable Calculation Period the number of New Jobs shall be no less than 197 at the grades specified in Table 2 of Appendix 1, unless such figure is modified as a consequence of paragraphs 5.2; and
3.1.3 at the end of each Year for the first three(3) Years the cumulative New Jobs Target (at the specified grades) shall be as set out in Table 2 of Appendix 1,
(the "Guaranteed New Jobs")
…
4.1 If [BTC] fails to achieve the cumulative New Jobs Target contained in paragraph 3.1.3 in any Year by more than 5% of the required Guaranteed New Jobs [BTC] shall within 20 (twenty) Business Days of the end of the relevant Job Guarantee Measurement Period submit to the [Defendants] a remediation plan for the [Defendants]' approval demonstrating how [BTC] will, within a reasonable timeframe as agreed between the parties, rectify the shortfall of Guaranteed New Jobs in order to achieve the relevant Job Guarantee.
…
4.3 Failure by [BTC] to:
4.3.1 provide a remediation plan pursuant to paragraph 4.1; or
4.3.2 implement and/or comply with the terms of a remediation plan provided pursuant to paragraph 4.1; and/or
4.3.3 achieve the Job Guarantee contained in paragraphs 3.1.1 and 3.1.2 by more than 5% of Guaranteed New Jobs shall give rise to a Material Breach of the Agreement;
…
5.2 The Guaranteed New Jobs set out in Table 2 of Appendix 1 stated to be relating to Telehealth Services shall be dependent upon [the Third Defendant] securing a new Telehealth contract (with the support of [BTC], where required by this Agreement) with NHS Kernow. In circumstances where a new Telehealth contract is not secured by [the Third Defendant] with NHS Kernow, to the extent [BTC] has complied with its obligations to assist [the Third Defendant] in accordance with this Agreement, the Guaranteed New Jobs relating to Telehealth Services shall be deleted from Table 2 of Appendix 1 and inserted into Table 3 of Appendix 1, whereupon they shall be treated as Committed New Jobs in accordance with the provisions of this Part 2 of Schedule 2.
Appendix 1 – Job Numbers
Table 2 (guaranteed New Jobs)
Group Year 1 Year 2 Year 3 Year 4
A 2 3 3 3
B 7 8 9 9
C 12 19 28 31
D 62 81 107 154
Total 83 111 147 197
Appendix 2
Job Descriptions
1. Guaranteed New Jobs
Job Source Job Numbers
Retained Jobs 181
Management Team 4
Programme Management Office 2
TeleHealth & TeleCare 139
Work Programme 2
Contact Centre Expansion 50
Total 378
Schedule 13 to the Agreement (Price Performance Mechanism) provides in part
1. Introduction
1.1 This Schedule [13] (Price Performance Mechanism) defines how [BTC's] delivery of the Services will be measured and reported upon.
1.2 The Price Performance Mechanism (PPM) will report on a number of KPI's and PI's that cover the range of the Services.
2. Definitions
2.1 …
2.2 Unless the context otherwise requires, the following expressions shall have the meanings set out below:
"Actual Performance Level" means the level of performance achieved for a Key Performance Indicator as measured in an Assessment Period;
"Assessment" means the process of establishing the Actual Performance Level for an Assessment Period and Assessed will be construed accordingly;
"Assessment Period" means the Assessment Period labelled as such in Appendix A to this Schedule, over which performance of a Key Performance Indicator is assessed to determine its Key Performance Indicator Score;
…
"Critical Key Performance Indicator" or "Critical KPI" means the Key Performance Indicator labelled as a Critical KPI in Appendix A to this Schedule
…
"Service Failure" means failure to meet the Target Service Level of any Key Performance Indicator within its Assessment Period as detailed in Appendix A to this Schedule"
…
"Target Service Level" means the Target Service Levels for each Key Performance Indicator as are detailed in the 'On Target' column in the Performance section of Appendix A to this Schedule.
…
3. Monitoring and Measurement
3.1 [BTC] shall monitor and measure its performance in respect of the Services on a monthly basis from the Commencement Date against the KPI Table in Appendix A. Where the Assessment Period of a KPI is "quarterly" or "annually" then that KPI shall be measured on a quarterly or annual basis in line with its Assessment Period.
3.2 A failure by [BTC] to achieve the KPIs set out in Appendix A shall constitute a Service Failure and paragraph 4 below shall apply in this regard.
4 Application of Service Credits
4.1 The total of Service Credits to be deducted from the Monthly Payment in each payment period will be the sum of the Service Credits for that payment period.
4.2 The Service Credits will be calculated by reference to [BTC]'s Actual performance Level compared to the Target Service Levels for Key Performance Indicators.
4.3 The actual monetary amount of Service Credits to be deducted is derived in the following manner:
4.3.1 Each Service Failure is allocated a number of Performance Points as detailed in Appendix A with a total of 5,000 Performance Points being available per annum.
4.3.2 Performance Points are allocated to each Workstream on the basis of a Workstream Weighting, being that Workstream's gross expenditure baseline budget as a percentage of the total Gross Expenditure baseline budget for all Workstreams.
4.3.3 Each KPI within each Workstream is weighted on a percentage basis (its KPI Weighting) to reflect the importance attached to that KPI (where the total of the KPI Weightings for each Workstream equals 100%). The weighting for each KPI is identified in the KPI Weighting column in Appendix A.
4.3.4 The number of points allocated to each KPI for each Service Failure is calculated using the following formula:
For KPI's with a monthly Assessment Period:
(Total Performance Points Available pa / 12) x Workstream Weighting % x KPI Weighting %
For KPI's with a quarterly Assessment Period:
(Total Performance Points Available pa / 4) x Workstream Weighting % x KPI weighting %
For KPI's with an annual Assessment Period:
(Total Performance Points Available pa) x Workstream Weighting % x KPI weighting %
4.3.5 The monetary value of each Performance Point is £433.
4.3.6 The total Service Credits to be deducted for each month are calculated as the sum of the Performance Points allocated to each KPI where there has been an Assessment in the month which has determined that a Service Failure has occurred, multiplied by the monetary value of each Performance Point.
4.3.7 Where a single KPI related to both Council and Health Partners, then for a Service Failure which related to one of the parties but not both, the Service Credit shall be calculated using a Workstream Weighting based on that party's share of the Workstream's gross expenditure baseline budget as a percentage of the total gross expenditure baseline budget for all Workstreams.
…
6 Assessment Period
6.1 KPIs will be measured and an Assessment carried out on a Monthly, Quarterly or Annual basis as defined for each KPI in Appendix A.
…
7 Right to Waive Key Performance Indicator Scores
Without prejudice to any other rights and remedies available to the [Defendants], [the Defendants] at their sole discretion, may waive Key Performance Indicator Scores achieved due to Service Failures if they are satisfied (acting reasonably) that a remedial plan to prevent the Service Failure being repeated is in place and being adhered to
8 Baselining of KPIs
8.1 Where the current Actual Performance Level of a KPI or PI is unknown and [BTC] has based its Target Service Level for that KPI or PI on an estimate of the current Actual Performance Level then if, when the current Actual Performance Level becomes known, its value is found to be lower than the estimate, then [BTC] shall have the right to amend its Target Service Level accordingly.
8.2 The KPI's and PI's to which this is applicable are identified in the KPI Table and PI Table in Appendix A by an entry in the column headed "Baseline Required".
8.3 Until such time that the current Actual Performance Level for a KPI becomes known and the Target Service Level is agreed then the provisions of paragraph 4 (Application of Service Credits) and paragraph 9 (Service Failures and Material Breach) shall not apply to that KPI.
9 Service Failures and Material Breach
9.1 Failing to meet the Target Service Level of any KPI within its Assessment Period constitutes a Service Failure.
9.2 The following shall also be deemed Material Breach for the purposes of clause 48.2 of the Agreement:
9.2.1 For the Critical KPI, which has a monthly Assessment Period, three (3) consecutive Service Failures of which at least one (1) is in the Performance Band 'Breach Trigger' as defined for that KPI in the KPI Table in Schedule A. The Critical KPI is:
IS KPI 005: Incident Resolution (Incident Impact 1)
Definition: Major failure affecting a critical business function impacting multiple users (20+) or affecting a configuration item that is deemed Category A. This [sic] is only liable for the target resolution for the elements of service provision under its control. Where there are existing 3rd party contracts in place the currently agreed service targets will apply. Response time: 15 minutes. Resolution time: 4 hours
9.3 For KPI's with a monthly Assessment Period, six (6) Service Failures of the same KPI in a rolling twelve-month period of which at least three (3) are within Performance Band 'Breach Trigger'"
…
In Appendix A to Schedule 13, KPIs 1 and 5 concerned "Incident Resolution". KPI 5 was subdivided into different levels of "Incident Impact". "Target Performance" for "Year 2" (2014-5) was 96% for KPI 1 and 91% for KPI 5 (Incident Impact 1). "Breach Trigger" for KPI 1 was -10% (below target) for KPI 5 (Incident Impact 1). The Appendix contained an entry in the column "Baselining Required" for KPI 5 (Incident Impact 1) but not for KPI 1. Both KPIs had monthly "Assessment Periods". |
Mr Justice Males :
Introduction
The claimant C&S Associates UK Ltd is a motor insurance claims handler based near Fareham in Hampshire. The defendant Enterprise Insurance Company Plc is an insurance company incorporated in Gibraltar which provides among other things specialist motor insurance for fleet vehicles, taxis and high value or classic cars.
With effect from 2 July 2012 C&S provided claims handling services to Enterprise pursuant to a Claims Management Delegated Authority Agreement. However, the contract between the parties was terminated in January 2014. Enterprise contends that it was entitled to terminate the contract for repudiation on one or both of two grounds: either because of C&S's refusal to send claims files to it for the purpose of an audit of open files which it was conducting or because of the seriously negligent performance by C&S of its services under the contract. C&S contends that Enterprise was not entitled to terminate the contract on either ground and that its conduct in doing so was itself a repudiatory breach, which C&S has accepted.
This is my judgment following the trial of seven preliminary issues:
Repudiation
1. whether C&S committed a repudiatory breach of the contract by refusing to deliver a further batch of 1,500 claims files off-site to Enterprise's solicitors, Ozon Solicitors Limited;
2. whether the pleaded allegations of breach of C&S's duties are sufficiently substantial (whether taken individually or in combination) to be capable of amounting to a repudiatory breach of the contract;
3. if the answer to issues (1) and/or (2) above is 'no', whether Enterprise's purported termination of the contract by Ozon's letter dated 13 January 2014 was itself repudiatory;
4. if Enterprise's purported termination of the contract amounted to a repudiatory breach of the contract, whether such repudiation was accepted by C&S;
Variation
(5) whether the contract was varied by an exchange of emails in October 2013 so as to:
a. increase the fees payable to C&S; and
b. provide that the contract should continue for a minimum term of two years from 1 October 2013;
Volume
6. whether:
(i) by agreeing to the variation of the contract Enterprise impliedly represented that it would continue to pass claims to C&S in the ordinary course of business up to 1 October 2015; and/or
(ii) the contract as varied included an implied term that Enterprise would continue to pass claims to C&S in the ordinary course of business up to 1 October 2015; and
7. whether Enterprise was entitled to:
(i) restrict the number of claims to be handled by C&S on its behalf to whatever level it saw fit;
(ii) refuse to allow C&S to handle any new claims on its behalf; and/or
(iii) withdraw from C&S claims which C&S had hitherto been handling on Enterprise's behalf.
The contract
C&S is a third party desktop motor insurance claims handler, acting mainly in relation to personal injury, property damage and credit hire claims. Its business was established by Christopher Chamberlain and Michael Smith in 1995. It provides its services to insurance companies who wish to outsource the handling of what are usually high volume and relatively low value claims.
As a Gibraltar company, Enterprise is regulated by the Gibraltar Financial Services Commission. As it writes business in the United Kingdom, it must also comply with the requirements of the Financial Conduct Authority here. Until 2010 Enterprise's main business was legal expenses insurance. From 2010 it began to write other business including motor insurance, specialising in providing fleet cover and cover for taxis and high value and classic cars. Claims handling was outsourced. The main external handlers for motor business from 2010 to July 2012 were two companies, IV Assure Limited and GAB Robins UK Limited. Claims would be reported by policyholders to FNOL ("first notification of loss") agents appointed by Enterprise who would then provide notification details to one of the claims handling companies.
The parties were introduced to each other in December 2011. C&S was told that Enterprise was dissatisfied with its existing motor claims handlers and that it was hoping to grow its business, which would lead to an increase in the volume of claims. It was therefore looking for a new claims handler with the capacity to handle its third party motor claims. Negotiations ensued which resulted in the conclusion of the Claims Management Delegated Authority Agreement. Although executed later in the month, the contract was stated to take effect from 2 July 2012.
It provided for a continuing agreement with no fixed term which could be terminated by either party at any time on giving three months notice.
The tasks to be performed by C&S were set out in clause 2 of Schedule 1:
"Following notification of a claim, C&S shall:
Check that all claim documents are correctly completed;
Ensure that the claim falls within the terms of the Enterprise policy;
Investigate liability;
Process the claim in a timely fashion;
Liaise, as necessary, with the Enterprise Customer;
Agree the validity and/or quantum of the claim;
Defend claims where the Enterprise customer is not considered liable;
Negotiate settlement;
Arrange for settlement to be made with prior authorisation of Enterprise;
Ensure and maintain a full and correct record of the claims details and amounts paid."
In addition C&S was responsible for setting reserves. Clause 3.3 of Schedule 1 provided that:
"The claim reserve rationale will be documented in the file and supported by adequate information.
There will be appropriate scope of loss details.
Reserves will be set at notification based on the information known at that time. Accurate reserves recommended will be set as soon as practical for each feature but no later than 30 days from initial claims notification.
Reserve changes will be promptly made and rationale documented if circumstances are identified to support the change."
Further provision as to reserves was contained in clause 1.3 of Schedule 3:
"Reserving: C&S will reserve all claims on a realistic basis and review the reserve when any new information comes to hand. Enterprise will be separately notified of any new claim where the overall reserve is £15,000 or more and of any claim where the existing total cost of the claim is increased by £10,000 or more. In the absence of information on which to base an accurate reserve, the following 'day one' reserves will be created until such time as further information becomes available:
- Third Party Property Damage - £1,002
- Third Part Credit Hire - £1,502
- Third Party Personal Injury - £2,500
- Third Party Legal Costs - £2,500"
The standards which C&S was required to achieve in performing these services was set out in clause 7 of the contract which included the following provisions:
"7.1 C&S warrants that it shall provide the Services using all reasonable skill and care as is consistent with C&S being specialists in this field.
7.2 C&S warrants that it shall use competent, appropriately qualified skilled and experienced personnel in the provision of the Services.
…
7.6 Enterprise is regulated by the FSC in Gibraltar and as such is required to observe and comply with the standards issued by the FSC and in so far as and to the extent that C&S is providing the Services described in this Agreement it shall observe and comply with the FSC Standards as if it were regulated by the FSC itself. In the event of any conflicts or inconsistency between (i) the FSC (ii) the provisions of this Agreement, the provisions of the FSC Standards shall prevail.
7.7 C&S will observe and comply with the Association of British Insurers Insurance Claims Code (the "ABI Code") unless the standards set out in this Agreement are greater than those set out in the ABI Code, in which case the provisions of the Agreement shall prevail."
Thus C&S held itself out as being a specialist in the field of claims handling, as indeed it was, and was required to perform accordingly.
As both parties expressly recognised at the time, the contract contained no obligation on Enterprise to refer a minimum number of claims, or indeed any claims, for handling by C&S. It was understood also that C&S would not be the only motor claims handler used by Enterprise. The contract provided, by clause 1 of Schedule 3, that "C&S will handle all claims as required by Enterprise". It was therefore for Enterprise to choose how much (if any) business to send to C&S, although it was of course expected on both sides that Enterprise would transfer to C&S the files currently being handled by IVA and GAB Robins and that it would send at least some new business to C&S.
The fees which C&S would earn for its services were set out in Schedule 2. There was to be a fee per claim, payable only once a claim was settled, which varied according to the type of claim. Clause 9.1 of the contract imposed an obligation on Enterprise to make payments in accordance with this agreed fee scale, which Clause 9.2 provided would "operate for a minimum period of one year from the Effective Date".
The effect of these provisions was that once a claim was sent to C&S to handle, C&S was under a duty to handle the claim, and to do so to a proper standard, but it also had a right to handle the claim in order to be able to earn its fee.
The contract provided for Enterprise to audit from time to time the work being done on its behalf by C&S. I examine those provisions in the context of the first preliminary issue.
It contained also clauses providing for termination in the event of breach and for the consequences of termination. These clauses are relevant to the arguments on repudiation.
Aspects of claims handling
It is convenient at this point to describe some aspects of claims handling about which the parties and their experts were agreed.
Motor insurers spend a substantial proportion of premium on claims, on average 70% according to Enterprise's expert. The sector is both highly regulated and very competitive. Effective claims handling is therefore extremely important. It can make the difference between profit and loss. To some extent this is obvious, but a few points should be noted. First, prompt handling and settlement of claims is a regulatory requirement of the FCA. To similar effect the Gibraltar FSC requires insurance companies to maintain strict control and supervision over claims handling and associated data. Second, delay in settling third party damage claims may prolong the period in which credit hire charges are incurred, resulting in increased exposure for an insurer. Third, failure to meet time limits may mean that a case falls to be excluded from the Ministry of Justice electronic claims portal where a regime of fixed costs would apply, or that there is a failure to comply with the Pre-action Protocol for Low Value Personal Injury Claims. In either case this may increase a third party's legal costs for which an insurer is liable. Fourth, once lawyers are instructed, the costs payable will tend to increase the longer the claim remains unsettled. All of this suggests that early settlement is desirable. On the other hand, proper investigation of claims is needed, in order to avoid settlements at too high a level which will eat into the insurer's profits. While efficiency is always important, in some respects there is a balance to be struck, requiring an exercise of judgment whether to settle or to investigate further, particularly but not exclusively in cases of suspected fraud.
Accurate reserving of claims is also important. When a claim is made a reserve needs to be entered on the insurer's books. This represents a potential liability. The amount of the reserve will therefore affect the insurer's compliance with regulatory solvency requirements and its ability to write new business which is limited by its capital reserves. A claim which is under reserved will mean that funds have to be provided when the claim is eventually settled for which no provision has been made. Conversely, over reservation will create an unduly adverse view of the insurer's solvency, will suggest that it is less profitable than in fact it is, and may cause it to lose the opportunity to write new business. Moreover, over-reservation followed by a settlement below the reserve may give a false impression of a claims handler's performance in achieving what appear to be favourable settlements compared with the amount of the reserve.
Typically, and as provided by the contract in this case, the initial reserve will be a standard amount according to the type of claim. This reserve then needs to be monitored as the claim proceeds, in order to ensure that it remains accurate in the light of circumstances as they develop. On the other hand, if a claim is dormant and unlikely to be pursued further, the file can be closed and the reserve removed, thus releasing the funds notionally tied up in the reserve. Some provision will need to be made for the possibility that dormant claims may be revived, but that will be a matter for the insurer and its actuaries to determine in the light of its overall claims experience.
The amount of any reserve, including adjustments to be made from time to time and the stage at which it is prudent to close a file by reason of dormancy, are further areas where an exercise of judgment is required. In many cases there will be no single right answer and a range of views may reasonably be held. An insurer using the services of a claims handler may leave these decisions to the reasonable judgment of the claims handler or may choose to give more precise instructions, for example as to the initial reserves to be entered for certain types of claim or as to the period of dormancy after which a file should be closed. The claims handler will then be expected to follow the insurer's instructions.
23. "Leakage" is a term used in the context of claims handling. It refers to overspending as a result of incompetent claims handling, or (depending on the context) a failure to accord with best practice. It encompasses not only settlements made at too great a level when compared to what a claim is worth, but also increasing the amount which an insurer has to pay because of inefficient or incompetent handling. It is not a term of art, so caution is required to ascertain the standard against which "leakage" is measured in any particular circumstance. It is important to remember also that there may be no single figure which represents the right level of settlement for any given claim and that a range of settlement figures may be reasonable. Subject to that, however, a high level of leakage or a high frequency of leakage incidents may indicate that something is going seriously wrong in the performance of its duties by a claims handling service.
An insurer which uses an external claims handler will usually wish to carry out audits from time to time in order to satisfy itself that claims are being efficiently handled, that appropriate reserves are being set, that sensible dormancy procedures are being applied (or, where instructions have been given, that they are being followed) and that leakage generally is being minimised. Such audits will involve the examination of a representative sample of claims files and are regarded as important. Any action then taken will depend on what is found but typically, where the parties' relationship is good, the result will be a dialogue with any errors being picked up and any necessary improvements being made.
Performance and termination of the contract
The evidence
There is no statement of agreed facts by reference to which the preliminary issues are to be decided and the parties' evidence ranged widely. In particular, the order for the trial of the preliminary issues provided expressly that Enterprise was not required to prove its allegations of defective performance by C&S and that the court would make no determination as to C&S's liability on Enterprise's counterclaim. Despite this both parties adduced evidence going to this issue, in particular from Michael Smith (a director and founder of C&S) and from Andrew Flowers (the CEO and a principal shareholder of Enterprise), no doubt because it is an issue which gives rise to strong and (as I accept) genuinely held feelings on both sides. Moreover C&S's expert, Mr Stephen Lewis, included a lengthy section in his report which analysed and expressed his views about the merits of the allegations made by Enterprise, although there was no permission given for such evidence to be served. I required a version of the report to be served with these paragraphs deleted. The result was that a report running to 57 pages was reduced to less than half that length.
In these circumstances I propose to make no findings about whether or to what extent C&S's performance of its claims handling duties was in accordance with the requisite standard of care. That issue will if necessary have to be determined on another occasion. In this section of my judgment I set out only those facts which, in my view, are necessary for an understanding of the circumstances in which the preliminary issues arise and for their determination. For the most part these findings do not depend on the oral evidence. I will, however, record that I found the claimant's witnesses, Mr Smith and Mr Lee Roberts, a manager at C&S, to be obviously honest and reliable witnesses, but had some reservations as to the reliability of the defendant's witnesses, Mr Flowers and Mr Myles Ellis, who was at the time Enterprise's Head of Claims (UK). Both of these witnesses had a tendency to argue Enterprise's case, both in their witness statements and in oral evidence. On the matters relevant to determination of the preliminary issues there was no material difference between Mr Lewis and Enterprise's expert Mr Christopher Wylde.
Transfer of the files to C&S
On 4 July 2012 C&S received the first batch of approximately 1,500 files previously handled by IVA and GAB Robins. Several thousand more files were transferred to C&S over the following months, with the final batch arriving in October 2012. C&S also began to handle new claims. Subsequently, in June 2013, more files were transferred to it from another claims handler, Motor Support, which had previously been engaged by Enterprise. In all C&S handled a total of 11,995 claims on Enterprise's behalf in the period between July 2012 and January 2014 when the contract was terminated, at which time about half of these claims were still live.
Many of the files transferred from IVA and GAB Robins were in poor condition and needed to be put in order. Particular concerns were that many of these claims had been under reserved, while other claims which appeared to be dormant still carried an outstanding reserve. Management information about these claims, and about Enterprise's probable liability, was poor.
The November 2012 audit
By about November 2012 C&S considered that it had managed to put the claims transferred to it in order and an audit of 154 files was conducted by Enterprise at C&S's premises in Hampshire between 13 and 16 November. The focus of this audit was C&S's approach to reserving. Based on this sample, Enterprise's conclusion from the audit was that C&S's approach to reserving was generally "accurate, rational and well-considered" and, albeit with a small number of exceptions where a tendency to over reserve was noted, "professional and efficient". These findings were discussed between the parties and a "reserving matrix" was put in place to deal with the small number of cases where there had been a tendency to over reserve. It was noted also that C&S handled cases manually and worked with paper files. From an audit perspective this was considered to be an advantage, as it made it relatively straightforward to follow the development of the file and the rationale for reserve changes.
The January 2013 audit
A second audit took place in two stages in January 2013. The first stage was an examination of 49 files. Some cases were identified where Enterprise took the view that inactive files on which reserves were still being carried could have been closed and, as a result, it decided to examine a larger sample. The second stage was a review of a further 441 files which Enterprise considered to be sufficiently representative to give it a good overall picture. Enterprise identified 97 claims which it regarded as inactive and suitable for closure, but only 11 live claims where it considered the C&S reserve too high. The auditors concluded that "on the whole C&S general approach to reserving on the live claims appears reasonable" and that "in the majority of cases the file handling by C&S was of a good standard", but that there was a need to advise C&S of "the closure strategy we wish to apply moving forward".
Dormancy instructions
This led to an email dated 19 February 2013 by which for the first time Enterprise introduced specific dormancy closure guidelines for C&S to follow:
"… we have discussed at strategic level [our] reserving policy and specifically our closure criteria going forwards on TP claims. We have agreed as a Board the following:
• On a TPPI where there has been [no] communications for a period of 9 months then clear the reserve and close the file
• On a TPPD where there has been no communications for a period of 6 months then clear the reserve and close the file
• Where there is a combination of TPPI and TPPD and there has been no communication on either aspect for 6 months then remove the TDDP reserve but leave the TPPI reserve on and keep file open until such time as the 9 month period has elapsed."
Negotiation of increased fees
By April 2013 Enterprise had decided, as part of a review of its growing UK motor business, that its ultimate objective was to bring claims handling in-house. It advised C&S of this decision but, in the meanwhile, indicated that it would transfer to C&S the fault and disputed third party claims currently being handled by another claims handler, Motor Support, although in the event this did not happen until June. As with the IVA and GAB Robins files, the Motor Support files were in some disarray.
At about the same time, in June 2013, C&S raised the prospect of increasing the fees payable by Enterprise under the contract. Enterprise agreed to discuss this and a negotiation ensued. C&S emphasised the valuable service which it claimed to be providing, while Enterprise for its part referred to "the good work you are doing on our behalf", expressed the wish "to hone and build our relationship with C&S" notwithstanding the ultimate aim of establishing its own claims handling service, and commented in an internal email that it agreed with C&S's assessment that C&S was providing value for money to Enterprise. The result was an exchange of emails in October 2013 which C&S says resulted in a binding variation of the contract including not only increased fees but the introduction of a two year minimum term.
The TransRe audit
Meanwhile in July 2013 an audit of C&S by one of Enterprise's reinsurers, TransRe, was carried out, the result of which was provided to Enterprise. The conclusion from the audit was that some improvements could be made, but there was "nothing of any significance to be concerned about" and "no major issues identified", with claims "handled to a good standard" and reserving appearing "adequate overall".
Revised dormancy instructions
On 17 October 2013 Enterprise gave revised dormancy instructions. The periods after which files should be closed were reduced to seven months for personal injury claims and five months for property damage.
The Ozon file review
On 30 October 2013 Mr Flowers of Enterprise requested what was described as an "Urgent File Review" in an email to Mr Lee Roberts at C&S. He asked for all of the open files held by C&S to be couriered to Enterprise's solicitors for review and return, starting with files from 2010, 2011 and the first half of 2012. Follow-up emails from Mr Flowers' assistant described this exercise as "business critical to us" and emphasised that Enterprise could not stress its urgency enough. Mr Flowers wrote:
"We have not had the opportunity to meet, but I am the CEO and major Shareholder of Enterprise Insurance Company. I understand that you are principally responsible for the team that manages all of the Enterprise open claims. I tried to call you a little earlier today but understand you are in a meeting. I wished to alert you to the contents of this email and to talk you through it to allay any concerns that may arise, and which would be unfounded.
We are going through an exercise with external advisors, which is placing some scrutiny on the value of our UK motor reserves, and in turn the number of outstanding cases we have currently both with you and other claims handlers. Whilst I am unable to go into the confidential nature of this exercise, we have decided that the best way of providing the comfort and certainty required is to undertake an entire file review of every single UK motor claim we currently have open. It so happens that you are the largest provider of services to us in this respect however, you will be aware that we have other providers also, and we will be writing to them in the same regard.
We are utilising a firm of solicitors with whom you maybe familiar, Ozon Law in Manchester, and we need to commence the exercise on Monday of next week. We have discussed internally how to best deal with the logistics and have decided we would like to courier all the file that you are currently holding on our behalf to Manchester for review and return.
As one of our trusted partners, we don't wish you to be inconvenienced however we do need your active participation in order that we can complete the exercise within the timescales that are essential to the business, and we are wanting to complete the review by 31st December 2013.
I have attached a spreadsheet, which hopefully is a comprehensive list of files that you hold for each underwriting year; we would like to request that you release to us the files listed for 2010, 2011 and the first half of the files for 2012 by Friday afternoon this week in order that they may be couriered to Manchester for review and return. We will in due course request the outstanding files of 2012 and 2013 to date once the review well underway. I appreciate the timescale is fairly short however I understand that the nature of your filing system should facilitate this. …"
This is an important message as it initiated the file review which eventually led to the termination of the agreement. I draw attention to the following points:
1. The tone of the email was reassuring. Mr Flowers referred to C&S as "one of our trusted partners" and expressly assured C&S that any concerns which might arise "would be unfounded". In contrast Mr Flowers' witness statement asserted that the reason for this request was that the monthly management information reports provided by C&S demonstrated an irregular upwards fluctuation in the cost of claims which Mr Flowers attributed to major faults by C&S, namely inefficient claims handling, failures to update reserves promptly and erroneous reserving. If that is true, the email was somewhat misleading. C&S would have had every reason to be concerned if it had known that this was Enterprise's view.
2. The email also reassured C&S that it had not been singled out, and that other claims handlers were being written to in similar terms. That was not true. Although Enterprise intended to conduct a similar review with other handlers, that was for the future and Enterprise did not contact them as part of the current exercise. Mr Flowers' concerns were entirely directed at C&S.
3. It is not apparent why this review should have been "business critical" to Enterprise or (as Mr Flowers later described it to his colleagues) "possibly the most important exercise I have sanctioned since I set up the business", unless (as may have been the case) it was necessary to find a way of reducing reserves because there was an issue as to Enterprise's solvency. At all events the importance of the exercise to Enterprise was made clear to C&S.
4. As C&S had only begun to handle new claims from July 2012 onwards, the files requested at this stage were files which had been transferred to C&S from the previous claims handlers, namely all the IVA and GAB Robins files and those Motor Support files which dated from before July 2012.
5. The request was limited to open files. There was no request at this stage to review files which had been closed, although Ozon did later extend the request to include settled files.
6. A request to review every open file, even in stages, was unusual. An audit would usually be, and had in the past been, conducted by reference to a representative sample of claims files.
7. The request was for physical paper files to be sent to Ozon in Manchester. As Enterprise knew, that was how C&S maintained its open claims files. There was no suggestion that C&S maintained electronic files or that it ought to have done so.
8. The e-mail recognised, correctly, that for C&S to be without these files would cause inconvenience.
9. The email promised twice that the files would be returned to C&S once the review was completed. They were to be sent "for review and return".
C&S was concerned about the disruption to its business that couriering such a large number of files to Manchester would involve, as Mr Smith explained in an email dated 30 October 2013. Nevertheless he agreed to assist. He wrote:
"… We will of course endeavour to support your requirements. There's no doubt the undertaking is challenging and will be hugely disruptive to the day to day operational activity but that aside, we will do everything we can to support your objectives. Perhaps we can speak first thing in the morning to talk thru' logistics etc. [For] example, might it be possible for ozon staff to come to the files rather than shift circa 5-6000 files to them. I only say this given the enormous volumes of post/email and telephone traffic that occurs day to day. Either way, we'll accommodate …"
At this stage the parties were not giving any thought to the question whether C&S was obliged to send the files to Ozon as distinct from permitting a review to take place at C&S's premises. Mr Smith was simply focusing on the practicalities of the exercise and the avoidance of disruption. As there were over 2,660 open files where the accident date fell on or before 30 June 2012, the review which Enterprise was proposing to conduct was a major exercise. Some of those at C&S were concerned that Ozon did not have the resources or personnel available to conduct such an exercise in any reasonable timescale.
In a telephone conversation between Mr Smith and Mr Flowers during the morning of 31 October 2013, it was agreed that C&S would courier a batch of files to Ozon, to be audited and returned before a further batch of files would be sent. On the same day Ozon assured Mr Roberts that it would aim to turn files around (i.e. to review them and return them to C&S) as quickly as possible and that the intention was to keep the disruption caused by the audit to a minimum. On 1 November 2013, therefore, C&S couriered a batch of about 700 files to Ozon. An additional 300 files were sent on 5 November 2013 and, although the original batch had not been returned, further files were requested by Ozon and were sent by C&S on 13 and 27 November 2013. In total, C&S sent more than 2,000 claims files to Ozon in November 2013.
The assurance that audited files would be returned was repeated in Ozon's email dated 3 November 2013:
"… I reiterate the intention is to prioritise the 2011/10 files and urgent matters save that it is necessary for C&S to identify such urgent matters. The urgent files will be audited and returned by DX."
Despite the initially reassuring tone of Mr Flowers' email, C&S was concerned to understand why this exercise was thought to be necessary. Its concerns were heightened by the somewhat peremptory and uncooperative approach which Ozon chose to adopt and it clearly found Mr Michael Ozon, the firm's principal, difficult to deal with. An email dated 4 November 2013 from Mr David Hiley of Enterprise (from whom a witness statement was served but who in the event was not called to give evidence) described the Enterprise management team as "mystified" by the exercise and reported that Mr Myles Ellis, the head of Enterprise's UK claims department was "gutted and livid" about it. Although Mr Ellis denied in cross examination that this was so, C&S had no reason to doubt what Mr Hiley told it.
On 6 November 2013 Mr Arif Qadri, one of those working on the file review at Ozon, provided a spreadsheet to Mr Flowers identifying what were described as "savings" on files dating from 2011 and, in a few cases, late 2010. As I understand it, those savings represented cases where Mr Qadri took the view that the reserve was too high or that the file was dormant and could be closed, thus eliminating the reserve altogether. It is unnecessary (and I do not have the material) to decide whether Mr Qadri's view was correct, although it does appear on the face of his spreadsheet that some of the reserve figures consisted of the standard initial reserve amount and had not been adjusted since the file was first opened.
It is not apparent what instructions had been given to Ozon, but it appears that by 8 November 2013 it had been reported to Mr Flowers that some 290 files had so far been reviewed and that "savings" of about £500,000 had been identified. As a result Mr Flowers decided that the files should henceforth be handled by Ozon rather than C&S, and that an urgent effort should be made by Ozon to settle as many outstanding claims as possible; that no new files should be sent to C&S; and that Enterprise's relationship with C&S should be terminated. In the event, following further internal discussion, no steps were taken to terminate the relationship with C&S at this stage, although Ozon was instructed to take over the handling of the open claims files which had been sent to it. Once again it is unnecessary (and not possible) to decide whether Mr Flowers' loss of confidence in C&S was justified, but it does appear that this was indeed his view based upon what was reported to him. For example, in an internal e-mail dated 8 November 2013, he described C&S's management of the claims as "disastrous" and the "savings we have found so far" as "mind blowing". It is at first sight strange that Ozon should reach such an adverse view of C&S's performance of its claims handling duties when previous audits had registered no such concerns and had been broadly favourable. However, this is a paradox which I do not need to resolve for the purpose of deciding the preliminary issues.
The decision that files should not be returned to C&S was made by 8 November 2013, but C&S was not informed by Enterprise of this decision at that stage. It continued to ask, in Mr Roberts' email dated 11 November 2013, when files would be returned so that it could deal with ongoing correspondence. Mr Ozon responded that he would obtain an update and confirm the number of files to be returned by DX. By this stage C&S was expressing reluctance to send a further batch of files to Ozon without a commitment that at least an equal number of files would be returned.
In an email to Ozon dated 12 November 2013 Mr Smith referred to his agreement with Mr Flowers that files would only be sent once Ozon was in a position to look at them immediately in order to avoid significant numbers of live files awaiting audit at Ozon's offices, possibly for some time. He asked again for clarification as to when files would be returned so that C&S could continue to work on them as necessary. Mr Ozon's response, rather surprisingly in the circumstances, was that "there is no reason why files should not be returned once audited". In fact Enterprise had decided by this time that open files would not be returned to C&S.
On 13 November 2013 Enterprise's dormancy instructions were revised again, this time to six months for personal injury claims and four months for property damage. It may be that Ozon had already been applying these instructions in its review. If so, it would not have been fair to criticise C&S for failing to apply instructions which had not yet been given to it, though it would have been a valid criticism if C&S was failing to apply the instructions which it had been given. C&S's own explanation when the criticism was put to it that dormant files had not been closed was that it had been following the 17 October 2013 instructions but that it was taking time to get on top of the Motor Support claims which it had inherited, which had been in a bad state.
In the event C&S sent a further batch of files to Ozon on 13 November 2013 without any files having been returned. It did so pointing out that the absence of files was starting to have a significant impact on its operations and pressing again for the return of those which had been audited. On 14 November 2013 it offered to scan the paper files at its office so that files need not be sent away to Ozon for review, but this offer was not taken up. Hitherto C&S's practice had been to scan only files which had been settled and not open files.
In the next few days some 80 files were returned to C&S with instructions that the file be closed and the reserves released. These proved to be the only files which were ever returned. C&S took the view that this rate of return was far too slow and was impeding its ability to manage the files and thereby to protect Enterprise's interests. Mr Chamberlain of C&S expressed this concern in an email to Mr Flowers dated 21 November 2013.
Mr Flowers replied on the same day, explaining why the review had been necessary and what it had shown thus far:
"The draconian action that I was forced to take several weeks ago in demanding a full file review was as a result of spiralling reserves on the case load handled by C&S. As matters presently stand, I simply fail to understand the reasons for which case reserves remain outstanding at significant levels particularly on claims arising in 2010/11 and 12. As you are aware, Ozon is now in possession of around 2,000 files and have a team of 10 people consisting in part of qualified solicitors undertaking audits. The results thus far have left me with major concerns as to the historical claims handling by C&S and have proved beyond doubt my rational for undertaking this exercise.
I do not propose to go into detail vis á vis the findings of the audit thus far, I will, however, say at this stage that substantial savings have been made in respect of the files audited. You will gather from the tone of this note that I have some very real initial concerns. I will in due course be proposing a meeting with you."
Whether or not these concerns were well founded, this message confirms the disingenuous nature of the reassurances given by Mr Flowers in his email initiating the review dated 30 October 2013. He went on to advise that Ozon was now instructed to progress live files and that "when the files are returned to you (once they are scanned), there will be no steps for C&S to take as Ozon will conduct the matters to conclusion" unless for some reason Ozon was unable to do so. Meanwhile, files remaining in C&S's possession and not yet delivered to Ozon "must be properly progressed where there is action to be taken". He concluded:
"It is too early to currently form a view as to how we will be dealing with claims going forward. I have no desire to enter into a conflict situation with C&S and in that respect we will continue to liaise with you, returning some files and requesting further files for audit over the next few weeks. We are discussing internally the ongoing findings and once a sensible conclusion has been reached, we will arrange a meeting with you. In this respect, we will of course continue to expect you to work the files you have in your possession and in turn we will clearly be paying for those services as agreed. …
In summary, given that C&S should have less files in its possession, I would hope the result in handling those files should improve. EIC does not expect C&S to provide service for no consideration and will continue to meet C&S's fees in accordance with the agreement between the parties. I must, however, reserve EIC's position as to any loss or spillage caused as a result of inadequate handling of claims.
I hope this short note brings you up to speed. I reiterate I will arrange a visit with Andrew Stone in due course. I suspect this will occur in the New Year. It goes without saying that EIC too has its reputation on the line hence the drastic action I took. I have no doubt C&S will take all necessary steps to assist EIC and comply with its instructions."
On reviewing the files which had been returned with instructions to close them, C&S took the view that some of the claims in question were unsuitable for closure because they were subject to ongoing enquiries from the third party claimant and, if closed, would inevitably have to be re-opened, while in other cases closure would be premature. When this was pointed out to him, Mr Ellis of Enterprise accepted that such files should not after all be closed. It appears to follow that at least some of the Ozon conclusions were acknowledged to be questionable. (For the avoidance of doubt, I make no finding whether Ozon's conclusions were in fact wrong, but I do find that in at least some cases Enterprise appeared to accept that they were).
C&S's study of the files which had been returned caused it to lose what little confidence it had in the way the review was being conducted. An internal email from Mr Roberts summarised his frustration in pithy terms:
"Frankly the 'quality' of Ozon review team is crap, they're missing stuff which is on file, recommending closures ahead of even the dormancy protocols of 4 and 6 months, suggesting we close files where payments need to be made or where there's clear evidence of ongoing TP claims.
No doubt Enterprise are paying for the privilege of this rubbish."
One claims handler at C&S, Mr Gerald Findon, made the suggestion that C&S should endeavour to "undermine" the Ozon audit. It is clear from the context, however, that what he meant by this was not "sabotage" but "denigrate" – that is to say, seek to persuade Enterprise that the review was being badly conducted and that it should be conducted by C&S itself, with the additional benefit that C&S could earn fees for doing so. In the event this suggestion was not pursued.
On 3 December 2013, Mr Smith wrote to Mr Andrew Stone, Enterprise's Chief Operating Officer, expressing concern that, rather than auditing the claims and returning the files to C&S for continued handling as initially agreed, Ozon was now dealing with the files sent to it. He asked for clarity as to whether this was merely happening as a temporary measure while the audit was continuing or whether Ozon was to retain the files permanently. Mr Stone's response was that the future handling of the matters to conclusion would be discussed at a meeting between the parties in the New Year.
On 6 January 2014 Mr Smith wrote again to Mr Stone. He observed that the time previously indicated for the completion of the audit (i.e. the end of 2013) had elapsed and that it had been some weeks since any meaningful volume of files had been called for. He therefore requested a date for the proposed meeting. This appears to have prompted a request the following day that "the next batch" of files should be sent to Ozon for audit. The request was for a further 1,500 files be couriered to Ozon, starting with the oldest. The request seems rather odd as it appears from Enterprise's pleaded case that Ozon had audited only 449 of the 2,000 or so claims files that it had already received.
In circumstances where the claims files previously couriered to Ozon were not being returned and a meeting to discuss the audit was in the course of being arranged, C&S was reluctant to send more files offsite until that meeting had taken place. However, by an email sent on 7 January 2014 Mr Ozon insisted that neither the return of files nor any meeting with Enterprise had any bearing on C&S's instructions, which were to send further files to Ozon. On the same day Mr Flowers confirmed these instructions and stated that he would be in touch shortly to arrange a meeting.
Mr Chamberlain responded on 10 January 2014, making it clear that although the files were available for audit at C&S's premises, the proposed meeting needed to take place before C&S could contemplate sending a further 1,500 files to Ozon:
"As you know we are keen to meet to discuss recent events, the relationship between our firms and the implications of the Ozon file review. We feel that we need to have that meeting before we can contemplate delivering a further 1500 files to Ozon and would be very grateful if we could meet as soon as possible.
Last year we sent over 2000 files off-site to Ozon Law for review. Despite repeated requests, only a small proportion of these files have been returned to C&S, which has resulted in major operational difficulties and loss of revenue. We have in addition concerns regarding the management of those files and the impact [on] our firm's reputation in the market. We recognise the importance of the audit and are happy to support it. If Ozon want to review the files here in our office they remain available.
We are conscious that you indicated in your email of [7] January, addressed to Lee Roberts, that the delivery of the next batch of documents should not wait until we have met but we feel it is important that we talk these issues through with you as soon as possible. We are available to meet at short notice and look forward to hearing from you."
In response, Mr Flowers proposed that he meet with C&S on the Friday of the following week, but said that it was "vital" that the requested files were delivered to Ozon and asked C&S to have them ready for collection by the following Tuesday at the latest. Mr Chamberlain replied that "the promise of a meeting next Friday doesn't really alter our reluctance to release further files which nonetheless are available to audit here". Mr Flowers responded that Mr Ozon would now be writing to C&S formally on Enterprise's behalf.
Mr Ozon did so in a letter which was dated 13 January but was sent on 14 January 2014. After setting out some of the contract clauses and making a point, not now pursued, that C&S had made a false representation that it handled claims electronically, the letter continued:
"3. The findings thus far give rise to serious concerns as to the manner in which you have been handling and pursuing claims on behalf of Enterprise. Your failure to progress matters has caused to Enterprise considerable loss and disadvantage particularly when dealing with the impact over the reserve levels maintained by Enterprise. It is necessary for Enterprise to conclude its audit before setting out its position as to the discharge of obligations under the Agreement. We confirm Enterprise hereby fully reserves its position accordingly.
4. On 7 January 2014 by email timed at 09:39, Ozon requested that a further 1,500 files are delivered for the purpose of its review. The request was met by a holding response which was communicated by your Mr Roberts under cover of an email timed 11:07 on 7 January 2014 stating that you have entered into "dialog" with Enterprise regarding the request. The "dialog" culminated in the exchange between Mr Flowers of Enterprise and Mr Chamberlain on your behalf.
5. By his email dated 10 January 2014 timed at 19:00, Mr Chamberlain on your behalf reaffirmed your steadfast refusal to release to Ozon the files requested. We consider that this amounts to a repudiatory breach which repudiation Enterprise hereby accepts. Further or in the alternative, insofar as no repudiation has occurred (which is denied), we hereby give notice to terminate on behalf of Enterprise pursuant to Clause 15.1 of the Agreement."
Thus the only ground of repudiation relied upon as justifying the termination of the contract was the "steadfast refusal", as Mr Chamberlain's email was characterised, to release the requested files to Ozon. Although Enterprise reserved its position as to C&S's "discharge of obligations under the Agreement", it did not at this stage rely upon C&S's defective performance of those obligations as repudiatory, although it has since done so.
After some further correspondence in which C&S protested that it had "an enforceable two year contract from 1 October 2013" which Enterprise was not entitled to terminate and which C&S wished to continue, while Ozon on behalf of Enterprise maintained that the contract had been validly terminated, on 16 January 2014 C&S's then solicitors accepted that the contract was at an end and that C&S would have to pursue its remedy in damages.
It is common ground that the contract thereby came to an end – either because C&S's conduct was repudiatory so that Enterprise was entitled to terminate the contract by Ozon's letter dated 13 January or, if Enterprise's termination was wrongful, because that was itself a repudiation which C&S was entitled to and did accept as bringing the contract to an end.
Issue 1: Did C&S commit a repudiatory breach by refusing to deliver a further batch of 1,500 claims files off-site to Enterprise's solicitors?
The issue whether C&S committed a repudiatory breach by refusing to deliver the requested batch of 1,500 claims files off-site to Ozon involves two sub-issues. The first is whether C&S's refusal was a breach at all. The second is whether, if so, it was repudiatory.
Breach
Whether C&S was obliged to deliver the files off site depends on the following provisions of the contract.
Clause 12, headed "Data and Information Technology" (although the contract also provided that headings were not to affect its interpretation), provided:
"12.1 All data held within C&S's computer systems or on paper on Enterprise claims shall at all time remain the property of Enterprise unless the Parties agree otherwise, and shall be held in trust by C&S. C&S undertakes that it shall not use the data otherwise than for a purpose contemplated by this Agreement.
12.2 C&S hereby agrees to provide unrestricted access by any or all of the following methods:
through its internet site with the ability of Enterprise to download all data fields
by the transfer electronically and/or digitally of a copy of the C&S database of Enterprise claims in a form which can be used by Enterprise to download or replicate the data."
Clause 13, headed "Audit", provided:
"13.1 Enterprise and its appointed professional advisers shall have the right to examine C&S's books and records relating to its handling and servicing of Enterprise claims which are the subject of this Agreement. Such audits may take place at C&S's premises during business hours, Enterprise having given reasonable prior notice of its intention to conduct an audit either at C&S's premises or via remote access of C&S's systems.
13.2 Enterprise and its appointed professional advisers may carry out such audits of C&S's premises and systems as frequently as they wish on the giving of reasonable notice during normal business hours (being not less than three working days). Enterprise and its professional advisers shall at their own cost have the right to take copies of any data and records relating to Enterprise claims they reasonably require and C&S shall provide all necessary facilities to do so."
Clauses 5 of Schedule 1, headed "Reporting and Inspection", provided:
"C&S shall maintain proper files of all information and documents related to each claim. Enterprise may inspect all such information and documents and make whatever further enquiries in connection with the handling of any claim as it may think fit. C&S shall provide all reasonable co-operation and assistance in connection with any such investigation."
Clauses 6 of Schedule 1, headed "Retention of Files", provided:
"All claim papers and files shall be made available to Enterprise and/or its appointed agent at any time during normal business hours upon reasonable request. Upon termination of this Agreement C&S shall, at Enterprise's discretion, deliver to Enterprise all such claim papers and files (except those that C&S is required by law to retain or requires to fulfil any other legal obligations), or retain such claim papers and files for a period of 3 years after the date of termination and then destroy, or if required return the same to Enterprise."
On behalf of C&S Mr Jawdat Khurshid submits, in summary, that:
1. The claims files constituted C&S's "books and records" referred to in clause 13 of the contract and/or "files" referred to in clauses 5 and 6 of Schedule 1.
2. For so long as the contract continued Enterprise had the right to "examine" or "inspect" these files, but only at C&S's premises or (but only to the extent that C&S maintained electronic files) by remote access.
3. In contrast, upon termination Enterprise was entitled to have the files delivered to it.
On behalf of Enterprise Mr Timothy Dutton QC submits, again in summary, that:
1. Clause 13, providing for an audit at C&S's premises, is concerned only with C&S's "books and records", that is to say with C&S's own records which do not include the claims files.
2. The relevant provision is clause 12, which applies to "all data held within C&S's computer system or on paper on Enterprise claims".
3. The claims files comprise such "data" and, therefore, "remain the property of Enterprise" which is entitled to "unrestricted access" to such data.
It was understood by both parties that C&S maintained paper rather than electronic files, although it would also create a database of claims to which Enterprise would have remote access, as in fact it did. Reading the contract as a whole it is clear that C&S was both obliged to handle claims notified to it, and to do so with the skill and care of a specialist claims handler, and also that it was entitled to do so in order to earn its fee. It could only do this efficiently if it had possession of the files. If these were removed from its premises for any length of time, disruption to the efficiency of its claims handling would inevitably follow, which would damage both parties' interests. The concerns which C&S expressed about this, and about the delay in returning files which had been sent to Ozon for review, were justified. It follows that a construction which permitted Enterprise to demand that files be sent to it away from C&S's premises would be surprising. That does not mean that such a construction is impossible, but it is a legitimate consideration.
Against that background the natural meaning of the contractual provisions set out above is that it is clause 13 rather than clause 12 which deals with access to the paper claims files themselves, that clause 12.1 is concerned with the ownership of the information (or data) contained in those files, and that clause 12.2 is concerned with access to the electronic database which C&S was to and did maintain. Thus Enterprise was to retain ownership of the information and was to have unrestricted electronic access to the database, but was only entitled to examine the paper files themselves at C&S's premises during business hours after giving reasonable notice of its wish to do so. That reading of clauses 12 and 13 is confirmed by clauses 5 and 6 of Schedule 1 which make clear the obligations on C&S to maintain proper files relating to each claim, to permit Enterprise to inspect those files during normal business hours and upon reasonable request during the currency of the contract, and to deliver the files to Enterprise if requested to do so upon termination.
Even if clause 12.1 is concerned with the ownership of the files themselves as distinct from the information or data which they contain, that does not mean that Enterprise is entitled to have the files sent to it away from C&S's premises. While the right to possession of property may be a normal incident of ownership, that is subject to contrary agreement. In the present case Enterprise has given C&S the right as well as the duty to handle claims on its behalf and for that purpose C&S is entitled to possession of the files during the currency of the contract. Moreover, even if (contrary to my view) clause 12.2 entitles Enterprise to "unrestricted access" to the paper claims files, that would not mean that it was entitled to insist that the files be sent to it away from C&S's premises. The clause would be consistent with an obligation on C&S to permit unrestricted access at C&S's premises, which makes better sense of the contract as a whole. C&S was at all times willing to provide such access. Enterprise's witnesses said that C&S did not have space at its office for a large team of auditors, but previous audits had been carried out there without difficulty or complaint. C&S's obligation under clause 5 of Schedule 1 was "to provide all reasonable co-operation and assistance" and that clause gives colour to what is meant by "unrestricted access".
Enterprise submits that in order to make its right of access meaningful, the parties must be taken to have made an assumption that the claims files would be available in digital form. However, the parties made no such assumption in fact and I see no reason why they should be deemed to have done so. The contract only requires C&S to maintain "proper" files, and assumes that these will be, or at least will include, paper files. In any event the request made by Ozon was for the delivery of a further batch of paper files. As noted above, C&S's offer to scan the files was not taken up.
Accordingly I conclude that C&S was not obliged to send files to Ozon. Enterprise's case that its refusal to do so was repudiatory falls at the first hurdle.
Repudiation
On the assumption that C&S was under such an obligation, the question arises whether its refusal to do so was repudiatory.
There was no real dispute between the parties as to the principles to be applied, which can conveniently be taken from Chitty on Contracts, 32nd edition (2015), Volume 1, para 24-041, citing among other cases Telford Homes (Creekside) Ltd v Ampurios Nu Homes Holdings Ltd [2013] EWCA Civ 577, [2013] 4 All ER 377 and Valilas v Januzaj [2014] EWCA Civ 436, [2015] 1 All ER (Comm) 1047:
"….regard must be had to the nature and consequences of the breach in order to determine whether this right has arisen. The question whether a breach of an intermediate term is sufficiently serious to entitle the innocent party to treat himself as discharged is to be determined 'by evaluating all the relevant circumstances'. In conducting this inquiry, the court is not exercising a discretion, but is engaged in a fact-sensitive inquiry which involves 'a multi-factorial assessment' and the use of various 'open-textured expressions". The bar which must be cleared before there is an entitlement in the innocent party to treat himself as discharged is therefore a 'high' one. A number of expressions have been used to describe the circumstances that warrant discharge, the most common being that the breach must 'go to the root of the contract'."
It was common ground also that in determining whether a breach is repudiatory the questions identified by Lewison LJ at [51] and [52] of his judgment in the Telford Homes case would be relevant:
"Whatever test one adopts, it seems to me that the starting point must be to consider what benefit the injured party was intended to obtain from performance of the contract. … The next thing to consider is the effect of the breach on the injured party. What financial loss has it caused? How much of the intended benefit under the contract has the injured party already received? Can the injured party be adequately compensated by an award of damages? Is the breach likely to be repeated? Will the guilty party resume compliance with his obligations? Has the breach fundamentally changed the value of future performance of the guilty party's outstanding obligations?"
Applying these tests C&S submits that its refusal to send files to Ozon was not repudiatory, while Enterprise submits that it was or, alternatively, that the cumulative effect of this refusal together with C&S's poor performance in handling the claims was at least capable of amounting to a repudiation and that the issue of repudiation ought not to be determined until all the facts relating to Enterprise's allegations of poor performance had been established.
I have no doubt that, considered on its own, C&S's refusal to send the files to Ozon was not repudiatory. The benefit which Enterprise was intended to obtain from performance of the contract was the efficient handling of claims on its behalf, applying the skill and care appropriate to a specialist in the field. The ability to carry out audits was one aspect of ensuring that this was being achieved. It was recognised to be important. A refusal to permit such audits at all would therefore have been a serious matter. It is necessary, however, to examine what C&S was actually refusing to do. Contrary to Ozon's characterisation of C&S's refusal in its letter dated 13 January, this was not an outright or "steadfast" refusal to send the files under any circumstances. Rather it was a refusal to do so before a meeting had taken place which was due to happen in only a few days in order to provide much needed clarity as to the situation. This refusal was combined with the offer of unrestricted access to the files at C&S's own premises in the meanwhile. What Enterprise lost was a delay of a few days, in circumstances where Ozon already had some 2,000 files in its possession of which it had so far reviewed less than a quarter. It had plenty, therefore, to be getting on with. If the short delay was critical, although there is no reason to suppose that it was, it would have been straightforward to send people to begin inspecting the files at C&S's premises. Any costs incurred in doing so would have been relatively trivial and could easily have been compensated in damages.
Moreover the context for C&S's refusal was a series of broken promises by Enterprise that files would be returned once reviewed, the disruption to efficient claims handling which would inevitably occur if a further 1,500 files were sent away, and the fact that at least some of the Ozon findings on the few files which had been returned with instructions to close them appeared to be questionable. These were all matters that urgently needed to be discussed. Even if (contrary to my view) the stance adopted by C&S was a breach of the contract, it was not unreasonable.
Enterprise relies on its regulatory obligation under guidance published by the Gibraltar FSC to ensure that "Appropriate and effective, systems and controls and procedures … to ensure adequate and accurate information is appropriately and promptly recorded to enable a proper assessment to be made of the ultimate cost of all claims or potential claims", submitting that review of the 1,500 files was essential to ensure compliance. There is no reason to think that this formed any part of Enterprise's thinking at the time and, to the extent that Mr Flowers suggested that it did, I do not accept his evidence. In any event, a delay of a few days would have made no difference at all, while if this had been a concern the review could have been begun at C&S's premises.
As for the further possibility raised by Enterprise that the cumulative effect of this refusal together with the defective performance of C&S's obligations may amount to a repudiation when all the facts are found, it is in theory possible that the cumulative effect of breaches which individually are not repudiatory may satisfy the test for a repudiation. However, that possibility cannot arise here in view of my conclusion that the refusal was not a breach at all. The first preliminary issue, which asks whether C&S committed a repudiatory breach by refusing to deliver this further batch of 1,500 claims files off-site, must therefore be answered in the negative.
Issue 2: Are the pleaded allegations of breach of C&S's duties sufficiently substantial (whether taken individually or in combination) to be capable of amounting to a repudiatory breach of the contract?
Enterprise's pleaded allegations of breach of duty and/or negligence by C&S are wide ranging. They include: failing to provide accurate information to Enterprise; failing to comply with prescribed dormancy procedures; maintaining reserves after claims had been settled; setting excessive reserves; failing to abide by time limits prescribed under the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents or the Pre-Action Protocol for Personal Injury Claims; incompetence in obtaining instructions from policyholders and contacting witnesses; and instructing third party contractors including its own associated company where there was no justification for doing so.
The preliminary issue is one of principle, whether such breaches if established are capable taken together of amounting to a repudiation. It has been no part of the trial of the preliminary issues to attempt to determine whether Enterprise will be able to establish any of the breaches on which it relies. For present purposes I must assume without deciding that it will be able to do so, and that the breaches which can be proved are serious and extensive. It seems to me that, if proved on a sufficient scale, the breaches alleged are undoubtedly capable of satisfying the criteria for a repudiatory breach identified above. Enterprise's case, put bluntly, is that far from receiving the services of a specialist claims handler exercising an appropriate level of skill and care, it turns out to have entrusted the handling of its third party motor claims to a company whose systems and procedures were fundamentally flawed and which repeatedly acted incompetently. If that proves to be so, it should not be difficult to conclude that the breaches had the effect of depriving Enterprise of substantially the whole benefit which it was intended to obtain from the contract and thus that they were sufficiently serious to entitle Enterprise to terminate the contract. Indeed one of Enterprise's allegations, that C&S tendered invoices on behalf of its associated company where there was no evidence of that company having carried out any work, is close to an allegation of fraud. A decision whether such breaches (if any) as are proved do in fact satisfy the criteria for repudiation must await establishment of the facts.
C&S resists this conclusion on three grounds, each of which is said to lead to the conclusion that the breaches alleged cannot justify Enterprise's termination of the contract even if they are eventually established.
The Heisler qualification
The first such ground arises out of the fact that Enterprise did not rely on C&S's defective performance of the contract as a ground for termination in Ozon's letter dated 13 January 2014 (in fact it reserved its position), but only on C&S's refusal to send the next batch of files. As a general rule, a party who refuses to perform a contract, but who gives a wrong or inadequate reason or no reason at all, may later justify his refusal if there were at the time facts in existence which would have provided a good reason for the refusal. This general rule, however, has been held not to apply "if the point taken is one which if taken could have been put right": Heisler v Anglo-Dal Ltd [1954] 1 WLR 1273 at page 1278. I refer to this as "the Heisler qualification". C&S submits that the Heisler qualification applies in this case because if Enterprise had notified C&S of the matters of which it now complains, any defects in the performance of its claims handling operations could have been put right.
The claimant seller in Heisler v Anglo-Dal Ltd had promised to provide the defendant buyer with a guarantee. The claimant provided a personal guarantee. The defendant demanded a bank or third-party guarantee and treated the claimant's refusal to provide one as an anticipatory breach which it accepted as bringing the contract to an end. The Court of Appeal held that the contract only required a personal guarantee, so that the ground of repudiation relied on at the time of termination was bad. The defendant then said that the guarantee was valueless in the absence of exchange control permission to pay the sum guaranteed, invoking the principle that a party who gives a wrong reason for termination does not thereby deprive himself of a justification which in fact existed whether or not he was aware of it. This argument failed. Somervell LJ said:
"This rule is, however, subject to a proviso. If the point not taken is one which if taken could have been put right, the principle will not apply. This has, I think, clear application here. The plaintiff was producing his document before he was under any obligation to do so. If the defendants had accepted it subject to the provision of a Treasury permission it might have been obtained; further, the plaintiff could have said that he was not bound to produce any guarantee until the defendants obtained from the bankers confirmation of the letter of credit. It is doubtful if they could ever have done so, but if they had this might itself have assisted the plaintiff in getting Treasury permission. I think, therefore, assuming the point was a good one, that it fails on the ground that it was not taken and is not one which can now be relied on."
It is apparent that this reasoning depends upon the fact that the contract was terminated for anticipatory breach by the claimant, that the contract was therefore terminated before the time for performance of the claimant's obligation to provide a guarantee had accrued, and that if the point about exchange control permission had been taken the necessary permission might have been obtained so that (assuming such permission to have been required) the claimant might never have been in breach at all.
Two further cases were cited in which the Heisler qualification was considered. In André & Cie v Cook Industries Inc [1987] 2 Lloyd's Rep 463, the claimant seller was obliged to give notice of appropriation of a shipment of soya bean meal. The notice was six days late on its face, but the buyer took no point on this at the time. It later sought to rely on the lateness of the notice to justify rejection of the shipment, but was not permitted to do so. This was because, if objection to the appropriation had been taken at the time, the seller might have been able to validate the notice by a somewhat esoteric procedure known as "proof of string" or alternatively to appropriate different goods to the contract which would have been in time. In either event the seller would not have been in breach at all. The Heisler qualification therefore applied.
In contrast Glencore Grain Rotterdam BV v Lebanese Organisation for International Commerce [1997] 4 All ER 514 was a case of an actual breach of contract, namely a buyer's failure to open a conforming letter of credit by the stipulated deadline. The seller refused to load the vessel on the ground that it had arrived late. This was held to be a bad point not justifying the refusal to load, but the seller was entitled to rely on the failure to open a letter of credit even though the point had not been taken at the time. The Heisler qualification did not apply. Once the deadline for opening the letter of credit had passed, it was too late to put it right.
C&S submits that the applicable principle is that parties should be afforded an opportunity to rescue a commercial relationship and that a contract should continue in force if such an opportunity exists. This, however, states the matter far too broadly. In my judgment it is clear that the Heisler qualification applies only to anticipatory breaches or, to the extent that this is different, to situations where if the point had been taken steps could have been taken to avoid the party being in breach altogether, either by giving it an opportunity to perform its obligation in time or by enabling it to perform in some other valid way. This is not such a case.
If Enterprise is able to make good its case, the breaches on which it relies had already occurred. Nothing could change that. For this purpose the allegations pleaded by Enterprise fall into two categories, (1) claims which as a result of C&S's breach were settled too high, or which fell out of the MOJ Portal, or where the quantum was increased by unnecessary delay leading to litigation costs or increased credit hire claims and (2) claims where reserves were set too high or were maintained after the claims should have been closed. In the former cases the damage was done and Enterprise had suffered loss. In the latter case a correction could be made by reducing or eliminating the reserve at a later date and it might be that Enterprise had suffered no loss, for example if there was no business which it had been unable to write, or if any such business would have been loss-making. Nevertheless, while the later correction would mitigate the effect of the breach, it would not mean that it had not occurred. If Enterprise is able to prove that these were failings as a result of negligence or incompetence so that C&S was in breach of its duties, and if those breaches satisfy the criteria for repudiation, the Heisler qualification will not prevent it from relying on them as justifying its termination of the contract.
In any event C&S's case as to what would be involved in remedying the breach (by which in fact it meant improving its standard of performance so that similar breaches were not committed in the future) was extremely vague. Ms Clara Benn, who dealt with the expert evidence on behalf of C&S, cross examined Enterprise's expert Mr Wylde on the basis that future performance might be improved by appropriate training or instructions given to C&S staff. No details were suggested of what might be involved and the whole concept seems rather far fetched. In any event C&S was supposed to be a specialist claims handler with skilled and experienced staff. Enterprise did not contract for the services of a bad claims handler with negligent staff who, with extensive further training after their failings had been pointed out, might possibly be brought up to scratch. Mr Flowers used the metaphor of a fire burning and said (in effect) that he had to take action to put out the fire before it burnt down the building. That may be an exaggeration, but if it proves to be an apt metaphor – that is to say, if C&S's negligence was indeed causing serious damage to Enterprise's business – it is hard to think that the law could require Enterprise to wait and see whether, with appropriate training of its staff whatever that might consist of – its performance could be improved.
In any event, even if the Heisler qualification applies where actual breaches have already been committed, whether in fact C&S was capable of improving its performance for the future would itself be a question of fact to be determined in the light of whatever findings are eventually made as to whether or to what extent it was failing in its duties. C&S submits that in applying the Heisler qualification it is enough that the matter in question "might" have been put right. Although the cases do use such language, and on the assumption that the qualification applies, in my judgment there must be at least a real prospect as distinct from a merely theoretical or fanciful possibility of the necessary correction being made. Wholesale systemic failure by C&S, if proved, might well be incapable of being improved within any reasonable timescale. Accordingly, even if the Heisler qualification were in principle available, it would not be possible to conclude at this stage that the breaches alleged are not capable of justifying Enterprise's termination of the contract. Any such conclusion would have to depend on the facts found at trial.
The termination regime
The second ground on which C&S submits that Enterprise was not entitled to hold it in repudiation for defective performance of the kind alleged is that (a) Enterprise agreed not to treat remediable breaches (however serious) as giving rise to a right of termination unless at least 30 days' written notice had been provided giving C&S an opportunity to remedy the breach within that period and (b) the breaches in question were in fact capable of being remedied. This is said to be the effect of clause 15.2 of the contract and to be supported by the decision of Ramsay J in BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC).
Clause 15 provided:
"15.1 This Agreement may be terminated at any time by either of the Parties giving at least three calendar months' notice in writing to the other.
15.2 Either party ('the Aggrieved Party') may at any time terminate the Agreement forthwith by written notice to the other Party if any of the events referred to below occur in relation to the other Party, namely:
* the other Party commits a material breach of any provision of this Agreement and (if such default is capable of remedy) it is not remedied within 30 days (or such longer notice as the Aggrieved Party may specify) after written notice shall have been given by the Aggrieved Party to the other Party requiring such remedy giving full particulars of the breach and the reasonable steps necessary to remedy it …"
The other termination events listed are all concerned with insolvency or related matters.
Clause 16 then deals with the consequences of termination:
"Upon termination of this agreement:
16.1 Enterprise shall forthwith pay to C&S all sums due to C&S (including all sums which would have been payable at some future time, the due date for which shall become the date of termination);
16.2 C&S shall forthwith pay to Enterprise all sums due to Enterprise (including all sums which would have been payable at some future time, the due date for which shall become the date of termination) and all unused amounts in the Claims Fund;
16.3 C&S shall, unless Enterprise expressly does not require it, continue to handle all existing claims until they are concluded, and all of C&S's obligations and Enterprise's obligations under this Agreement shall continue insofar as they can apply to such claims. Should C&S handle existing claims, the fee will continue to be paid on settlement of individual cases, on production of the monthly bordereaux and fee invoices.
16.4 If requested by Enterprise, C&S shall deliver all data and material belonging to Enterprise forthwith and C&S's authorised representative shall certify full compliance with this clause.
16.5 All provisions of this Agreement which are intended to have effect following any expiry or termination of this Agreement shall survive expiry or termination of this Agreement to the extent permissible by law.
16.6 C&S shall not handle any new claims after the termination date unless agreed otherwise by the Parties."
There is, therefore, an express contractual right to terminate in the case of a "material" breach which is subject, in the case of a breach which is "capable of remedy", to the giving of notice and the breach remaining unremedied after 30 days. A "material breach" here must include an actual breach of at least some degree of seriousness, but it need not be repudiatory. Conversely, any actual breach which satisfies the criteria for repudiation at common law is very likely to be a material breach within the meaning of this clause.
I do not accept that, in the case of those breaches which do satisfy those criteria, Enterprise has agreed not to exercise its common law right to treat the contract as discharged. Clause 15.2 provides an express contractual right to terminate, with the consequences set out in clause 16, which is additional to the right to terminate for repudiation at common law. Clear words would be required in order to conclude that termination for repudiation was excluded: cf. Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75, [2010] QB 27 at [23]. There are no such words here.
C&S accepts this, but submits that clause 15.2 amounts to an agreement that any material breach which was capable of being remedied would not amount to a repudiation. I do not accept that the clause should be read in this way. Termination for material breach and for repudiation are separate matters even if there is some overlap between them. The criteria for repudiation are demanding but, if they are satisfied so that the effect of a breach is to deprive Enterprise of substantially the whole benefit of the contract, there is no reason why it should not treat the contract as discharged. That is so even in the case of a breach which is capable of remedy in the sense that it is possible that C&S may be able to improve its performance in the future if given an opportunity to do so. Once again, Mr Flowers' fire metaphor may be apt: in the event of major systemic negligence causing serious damage to Enterprise's business so that it was receiving nothing like the service for which it had bargained, Enterprise would not be obliged to wait and hope that C&S's performance would improve.
Moreover the consequences of contractual termination and acceptance of repudiation are different. In the former case, the consequences are those set out in clause 16 which include an accelerated right to payment of sums which would have become due in the future and an obligation on C&S to continue to handle all existing claims if Enterprise requires it to do so. That would not be the position on acceptance of a repudiation, the result of which would be to discharge each party from any further performance of outstanding obligations and entitle the innocent party to damages.
In any event, C&S's reliance on clause 15.2 as a reason why the breaches alleged are not capable of giving rise to a right to terminate for repudiation depends upon the breaches in question being capable of being remedied. As already noted above, whether this was so is itself a question of fact to be determined in the light of whatever findings are eventually made as to whether or to what extent C&S was failing in its duties.
C&S relies on [1366] of Ramsay J's judgment in the BSkyB case as providing support for its argument. It is necessary, however, to read the relevant section of the judgment as a whole. The contract in that case contained a clause headed "Termination for Material Breach" which was very similar to clause 15.2 in the present case. It also contained a provision (which has no equivalent in the present case) that a failure to reach a contractual milestone "would not be deemed to be" (sc. would be deemed not to be) a material breach until a further period of three months had passed. Although the relevant passage from Ramsay J's judgment is lengthy, it is necessary to set it out:
"1362. The test for repudiation is commonly expressed in terms of whether the breach goes to the root of the contract or whether a party evinces an intention no longer to be bound by the terms of the contract. As Lord Simon said in Heyman v Darwins [1942] AC 356 at 361 it is where 'one party so acts or so expresses himself, as to show that he does not mean to accept and discharge the obligations of a contract any further.' Evidently, poor performance does not, of itself, amount to repudiatory conduct. Whilst the conduct must be viewed objectively, it is instructive to see how the parties treated the conduct at the time.
1363. Equally, I accept that the contractual provisions may give guidance on whether a particular breach is to be treated as repudiatory. In Lockland Builders v. Rickwood (1995) 46 Con LR 92 (CA) there was a clause of a building contract which gave the owner a right to terminate for delay or poor materials if he served a notice of breach and complied with the procedure set out in the contract. The owner did not follow this procedure but sought to terminate for repudiatory breach. The Court held that there was no repudiation. Russell LJ said at 98:
'My own view -- returning to the facts of the instant case -- is that cl 2 and the common law right to accept a repudiatory breach can exist side by side, but only in circumstances where the contractor displays a clear intention not to be bound by his contract, for example, by walking off the site long before completion (as suggested during the course of argument by Hirst LJ) or, by way of further illustration, failing to comply with plans in a very fundamental way, for example, by not building a third storey when contractually bound to do so. But such cases are far removed from the instant one.
On the facts of this case, I, for my part, would be prepared to hold that cl 2 created the only effective way in which Mr Rickwood could determine this agreement. It is difficult to understand why the clause should be there at all if that were not the true position.'
1364. Hirst LJ said at 102:
'In my judgment, this cl 2 did impliedly preclude Mr Rickwood from terminating the contract on the facts of the present case otherwise than by the exercise of his rights under cl 2 since the complaints made fell squarely within the scope of cl 2, ie complaints as to the quality of materials and workmanship. However, cl 2 would not have done so in relation to breaches outside the ambit of cl 2, eg. by Mr Ryan walking off the site when the works were still substantially incomplete.'
1365. In Amoco v BAOL (Unreported, 16 November 2001), Langley J held:
'The Contract itself contained its own scheme for compensating Amoco for reduced efficiency or performance by reduction in the operating rate for the period of the reduction in efficiency or performance (Appendix 10) and by a breakdown rate reduced to a nil rate after 48 hours. It also contained in Clause 28.1 its own provisions for termination which were effective after a breakdown of sufficient gravity to cause BAO to be unable to perform its obligations under the contract lasting 30 days or a major fault causing a suspension of operations for more than 30 days. Those provisions themselves must in my judgment form part of an appreciation of the benefit the parties were intended to derive from the contract. Thus circumstances otherwise within the scope of the termination provisions but falling short of the precise terms would in my judgment not give rise to the right to terminate at common law for the very reason that the parties agreed when and how such circumstances should have that consequence: see Lockland Builders Ltd v. Rickwood (1995) 46 Con LR 92 (CA). The provisions are ones for the benefit of both parties not just for the benefit of Amoco involving as they do time and notice constraints. For present purposes loosely expressed what I think that comes to is that to justify termination at common law something "worse" or not addressed by those provisions would be required.'
1366. I do not read those decisions as laying down any hard and fast rules. Rather, in deciding whether by its conduct a party evinces an intention not to be bound by the terms of the contract, the way in which parties agreed to treat breaches within the terms of their contract must be a factor to take into account. In particular, if a breach of a term had to reach a degree of seriousness before a contractual termination clause could be applied, it is unlikely that a breach which was less serious would, by itself, amount to a repudiatory breach. Equally, the fact that for a particular breach the contract provided that there should be a period of notice to remedy the breach would indicate that the breach without the notice would not, in itself, amount to a repudiatory breach.
1367. In this case, the fact that there was a failure to meet a Major Milestone must be viewed in the light of Clause 16.2 which provides:
'Notwithstanding Clause 16.1, if a Milestone (with the exception of the first and last Milestones) is not Accepted under Clause 8.2 on the relevant date. the parties have agreed that the Contractor shall not be deemed to be in material breach of the Agreement until three months after the relevant date and the provisions of Clause 11 or Clause 22.2 shall not apply to such delay prior to that date.'
1368. The effect of this is that until three months after the relevant milestone date there is not a material breach of the Prime Contract. In the light of that provision, I consider that there could be no question of a repudiatory breach in relation to acceptance of a Milestone until that period of three months had elapsed. In terms of material breach, then clause 22.2 of the Prime Contract provides:
'Termination for Material Breach
In the event of any material breach of this Agreement by either party, the other party may give to the party in breach notice specifying the same, requiring its remedy and stating that this Agreement may be terminated if the material breach in question is not remedied in accordance with this Clause 22.2. If the party in receipt of such notice fails to remedy the breach within 30 days of receipt of the notice the party who served the notice may by further notice, forthwith terminate this Agreement, whereupon the provisions of Clauses 22.3 and 22.4 shall apply.'
1369. That merely deals with a case where there has been a material breach and would cover breaches which could have a whole range of seriousness. I do not consider that this means that before any breach can be treated as being repudiatory it must be the subject of a notice requiring the breach to be remedied and cannot lead to termination unless there has been a failure to remedy the breach within 30 days. Take, for instance, a case where a party says that it will no longer perform the contract or acts in such a way. I do not consider that in such a case the innocent party must give notice and wait 30 days before it can terminate the contract at common law based on a repudiatory breach. In the case of less serious breaches, the failure to give any notice may well mean that the breach in itself cannot be treated as repudiatory but a failure to comply with a notice to remedy the breach may be."
In the event, Ramsay J held that the breaches relied on were not repudiatory and that, even if they had been, they were not accepted as bringing the contract to an end.
Much of Ramsay J's analysis is concerned with whether a termination for material breach clause operates to preclude termination for a repudiation consisting of an express or implied renunciation, a question which does not arise here. Subject to that, and so far as relevant for present purposes, I draw the following conclusions from this citation:
1. It is open to parties to agree that certain breaches or kinds of breach are not to be treated as repudiatory. Such clauses will be effective.
2. Although every case will depend on the particular contract in issue, examples where clauses have been held to have this effect include (a) clauses which provide that specified conduct gives rise to a right of termination but only after service of a notice or a period of time, and (b) clauses which provide compensation for certain kinds of poor performance.
3. Where a contract does provide that certain breaches or kinds of breach are not to be treated as repudiatory, that may provide guidance as to whether other kinds of breach qualify or are capable of qualifying as repudiatory. For example, breaches which are less serious are unlikely to do so.
4. However, a clause such as clause 15.2 in the present case, providing for termination in the event of a material breach but only after the giving of a notice and a failure to remedy, will not by itself prevent a sufficiently serious breach from amounting to a repudiation of the contract justifying an immediate termination. Such a clause will generally provide for a right to terminate which is in addition to a party's common law rights.
Conduct not capable of being repudiatory
Finally C&S submits that in any event Enterprise's allegations of breach cannot possibly amount to a repudiation depriving Enterprise of substantially the whole benefit of the Agreement. There are, as I understand it, two strands to this argument. The first is that the individual breaches alleged by Enterprise are not serious enough to amount to a repudiation. In principle I would accept this. The bad handling of any single individual claim is unlikely to have had sufficiently serious consequences to qualify as repudiatory and I did not understand Mr Dutton to point to the bad handling of any such individual claim as repudiatory in itself. However, that does not mean that the cumulative effect of all the breaches relied on is not such as to deprive Enterprise of substantially the whole benefit of the contract, particularly if they reveal extensive systemic failings on the part of C&S.
The second strand, focusing on the cumulative effect of Enterprise's allegations, is that however extensive C&S's failings may turn out to be, it was still providing claims handling services and, even if it is proved that some (or even many) claims were badly handled, others were not; therefore Enterprise was at worst deprived of part and not all of the benefit for which it had bargained, while if C&S had cured the alleged breaches and improved its performance for the future, its services from that point onwards would have been as valuable to Enterprise as they had ever been, and any loss suffered in the meanwhile could easily be compensated in damages.
I reject this argument for the reasons already given, in particular at [86] and [95] to [96] above. Whether, if proved, the breaches alleged by Enterprise do in fact amount to a repudiation is a matter for the trial.
Accordingly the answer to the second preliminary issue is that the breaches of C&S's duties alleged by Enterprise are capable, if proved, of amounting to a repudiatory breach.
Issue 3: Was Enterprise's purported termination of the contract by Ozon's letter dated 13 January 2014 itself repudiatory?
It is common ground that (1) if (as I have held) C&S did not commit a repudiatory breach by refusing to deliver a further batch of 1,500 claims files off-site and (2) if Enterprise's case on repudiation fails at trial, Enterprise's purported termination of the contract by Ozon's letter dated 13 January 2014 was itself repudiatory.
Issue 4: Was such repudiation accepted by C&S?
It is also common ground that the letter dated 16 January 2014 from C&S's then solicitors accepted Ozon's letter as a repudiation bringing the contract to an end.
Accordingly, if Enterprise's case on repudiation fails at trial, C&S will be entitled to damages for repudiation. The remaining preliminary issues concern the value of the contract to C&S and thus the potential quantum of any such damages.
Issue 5: was the contract varied by an exchange of emails in October 2013 so as to (a) increase the fees payable to C&S and (b) provide that the contract should continue for a minimum term of two years from 1 October 2013?
As noted above, in June 2013 C&S sought to increase the fees payable by Enterprise under the contract. Enterprise agreed to discuss this and a negotiation ensued in which C&S raised the prospect of introducing a two year minimum term for the contract which, hitherto, had been terminable by either party on three months notice at any time.
Following various negotiations which need not be set out, on 23 September 2013 Mr Ellis of Enterprise emailed the revisions to the fees which Enterprise was prepared to accept:
"Hi Mike
Yes I was in Gibraltar last week and have had the opportunity to discuss fees in detail with Andrew.
Property Damage agreed at £95 however as you are aware we are looking at utilising Nationwide's Engineering facilities in relation to TPPD later in the year which will reduce the number of TPPD claims handled by you.
Credit Hire Claims, we would like to agree a fee of £170
MOJ
MOJ >£10k agreed at £295
Fraud - Agreed at £500 with 50% success fee however no additional fraud fee to be paid for cases simply passed onto Keoghs for handling as I do not want to be paying double fees.
Fees for higher value claims charged on an hourly basis etc. to remain as per current fee structure.
I have discussed providing a minimum 2 year agreement, this is something that Andrew would be agreeable to in consideration for a discount on the above fees of say 10%.
Andrew has also spoken to our Finance Director who will be working towards putting in place a single claims fund account to ease the administrative burden that you currently undertake.
I look forward to your comments.
Kind regards
Myles Ellis LLB (Hons), FCILEx.
Head of Claims UK"
This gave C&S a choice. It could either accept the fees proposed with no minimum term or it could have a two year minimum term but with a 10% discount on the fees proposed. The discount was not attractive to C&S which indicated, in Mr Smith's email dated 24 September, that if the proposed fees could be accepted with a two year minimum contract and no discount, C&S would accept this. Mr Ellis responded on 4 October 2013:
"I am pleased to confirm that following further discussion with Keith [Newing, Enterprise's Finance Director] and Andrew [Stone, its Chief Operating Officer] we are happy to agree the fees outlined in my e-mail of the 23rd September with a 2 year agreement to take effect from 1st October 2013 with no discount.
We will in due course submit to you a revised Claims Administration Service Agreement to include the agreed terms.
Kind regards,
Myles Ellis LLB (Hons), FCILex
Head of Claims UK
Enterprise Insurance Company Plc"
Mr Smith accepted these terms, as he had said he would, by an email sent on 5 October 2013:
"Many thanks Myles, much appreciated. Mike"
No revised document was prepared by Enterprise and the possibility of such an agreement was never referred to between the parties again. However, C&S did invoice Enterprise at the new higher rates for its fees for claims settled after this date and Enterprise paid those fees without question or protest.
The parties are in dispute as to whether the exchange of emails set out above resulted in a binding variation of the contract. C&S says that it did, and that the variation included not only agreement on increased fees but also the introduction of a minimum term. Enterprise says that it did not and in particular that there was no agreement on a minimum term, though it accepts that its subsequent payment at the higher rates invoiced by C&S amounted to an agreement to pay these fees. It makes five points:
1. The email exchange did not satisfy the contractual requirement that any variation be in writing and signed on behalf of each party.
2. Mr Ellis's email dated 4 October 2013 was no more than an offer of agreement in principle, which was subject to a revised form of contract to be submitted "to include" the agreed terms.
3. Even if the exchange was capable of amounting to a binding agreement when considered objectively, in fact each party understood subjectively that it would not be binding until a formal agreement was signed.
4. The proposed revisions of the fee structure set out in Mr Ellis's mail dated 23 September 2013 were too unclear or uncertain to constitute a binding contract and, in any event, the lack of clarity and certainty demonstrated that the parties did not intend to be bound.
5. There was even greater uncertainty as to what was envisaged to be involved with a "2 year agreement".
I deal with each of these arguments in turn. In practice, however, at least as matters have turned out, the only real significance of this issue is whether an agreement on a minimum term would have the effect of committing Enterprise to continuing to provide new business to C&S and, if so, on what basis. That question is addressed under issues 6 and 7 below.
Clause 24.1
Clause 24.1 of the contract provided:
"Any variation of this Agreement shall not be effective unless made in writing and signed by or on behalf of each of the Parties to this Agreement."
This introduces a degree of formality into any variation of the contract and ensures that the parties will not be bound by oral agreements or even by informal unsigned written documents. However, it does not go so far as to insist on manuscript signatures, paper documents, or that both parties' signatures must be on the same document. I see no reason as a matter of construction of clause 24.1 why documents in electronic form, in particular an exchange of emails, signed on behalf of both parties should not satisfy the requirements of the clause, provided of course that the other requirements of contract formation and variation such as an intention to be bound are also present. In Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd [2012] EWCA Civ 265 the Court of Appeal held that a sequence of negotiating emails in which terms are agreed is capable of satisfying the requirements of the Statute of Frauds that a contract of guarantee (or some memorandum or note thereof) must be in writing and signed by or on behalf of the party to be charged. It held too that an electronic signature was likewise sufficient to satisfy the statute. In my judgment that reasoning applies equally here.
Each of the relevant emails in this case was signed, by Mr Smith on behalf of C&S and by Mr Ellis on behalf of Enterprise. Mr Ellis suggested in evidence that he did not have authority to agree a variation of the contract, but he undoubtedly had the actual authority of Enterprise's senior management to send the email of 4 October 2013 in the terms which he sent it, which included his signature as Enterprise's Head of Claims UK.
Agreement in principle subject to a revised form of contract
As I explained more fully in Air Studios Lyndhurst Ltd v Lombard North Central Plc [2012] EWHC 3162 (QB), [2013] 1 Lloyd's Rep 63 at [3] to [10], citing the decision of the Supreme Court in RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH [2010] UKSC 14, [2010] 1 WLR 753 and other cases, it is perfectly possible for parties to conclude a binding contract, even though it is understood between them that a formal document recording or even adding to the terms agreed will need to be executed subsequently. Whether they do intend to be bound in such circumstances, or only as and when the formal document is executed, is a question of construction which depends on an objective appraisal of their words and conduct.
Applying these principles it is clear in my judgment that the parties did objectively intend to be bound by their exchange of emails even though they also contemplated that their agreement would be recorded in a formal contract. They used the language of offer and acceptance; there was no expression such as "subject to contract" to negative an intention to be bound; on the contrary Mr Ellis's email used the language of contract confirmation ("We are pleased to confirm"), while Mr Smith's response "Many thanks Myles, much appreciated" suggests strongly that agreement had been concluded. The "revised Claims Administration Service Agreement" was a formality which was consistent with an immediately binding agreement and, while no doubt useful, was not particularly urgent ("in due course").
Parties' subjective understanding
It is Enterprise's case that whatever may be the result of an objective appraisal of the parties' email exchanges, both parties in fact understood that no binding agreement had been concluded and that a new formal contract was required. So far as C&S is concerned, this subjective understanding is said to be demonstrated by internal emails sent by Mr Gerald Findon which referred to having "successfully agreed an amended fee structure with Enterprise and also to [having] secured agreement in principle to put in place a contractual relationship … for a minimum of two years". This summary appears to draw a distinction so far as the binding nature of the email exchange is concerned between the amended fee structure and the minimum term, implying that the former was firmly agreed but the latter was only an agreement in principle. I accept the evidence of Mr Smith, however, that whatever Mr Findon's view may have been, Mr Smith's understanding as a director of C&S and the individual directly involved in negotiating the amendment was that the email exchange was a binding agreement and not merely an agreement in principle. I accept also that this was the understanding of his fellow director Mr Chamberlain, as is confirmed by Mr Chamberlain's internal report of the agreement to Mr Findon and others which referred to "a 2 year agreement also to take effect from 1st October" with no suggestion that it was merely an agreement in principle or otherwise subject to further discussion. It is the understanding of Mr Smith and Mr Chamberlain, not Mr Findon, which represents the understanding of C&S.
So far as Enterprise was concerned, the relevant individuals were Mr Andrew Stone and Mr Keith Newing, the Chief Operating Officer and Finance Director respectively, who authorised Mr Ellis to send his email of 4 October 2013. Neither of them gave evidence. I am not prepared to find that it was Enterprise's subjective understanding that the email exchange was not intended to result in a binding contract until a new formal contract had been signed.
In the light of these findings the question whether a binding contract is concluded in circumstances where an objective appraisal would lead to that conclusion but both parties subjectively understand (without communicating their understanding to the other and without knowledge of the other party's understanding) that this result is not intended does not arise. In written submissions filed after the hearing both parties acknowledged that subjective intentions may be relevant, citing Chitty on Contracts, 32nd edition (2015), para 2-170 for the proposition that:
"The objective test is, however, here (as elsewhere) subject to the limitation that it does not apply in favour of a party who knows the truth. … Nor could a party who did not in fact intend to be bound invoke the objective test so as to bind the other party to the contract."
On the other hand, Lewis J in Newbury v Sun Microsystems [2013] EWHC 2180 (QB) at [28] held that the parties' subjective understanding is irrelevant:
"The existence of a binding agreement needs to be determined objectively and does not depend on the subjective intent of one, or even both, parties. What the parties thought, or what it can be inferred they thought from their conduct, is, therefore, unlikely to have much, if any, significance to the question of whether, objectively, the documents demonstrate that the parties had reached a binding agreement."
If it had been necessary to decide this point, I would have wished to hear further submissions. As it is, the point does not arise and I express no view.
Proposed revisions of the fee structure too unclear or uncertain
Enterprise submits that the revised fee structure in the email exchange was too unclear or uncertain to give rise to a binding contract in a number of respects, although it accepts that its subsequent payment of C&S's invoices was sufficient to establish the required certainty so far as fees were concerned. The respects in which the email was said to be lacking clarity were that:
1. it was not clear on what basis fees were to be charged for claims which exited the Portal;
2. there was no level agreed for "higher value claims". Schedule 2 of the Agreement provided for separate fees to apply for claims falling out of the Portal and claims exceeding £10,000. It was not clear whether the £10,000 level was to be kept or increased to £25,000 in line with the higher Portal limit;
3. the dividing line for fraud cases "simply passed on to Keoghs" was unclear; and
4. it was not clear whether two fees were payable if two of the criteria applied to a single claim.
None of these points was developed orally. In circumstances where the parties intended their exchange to give rise to a binding contract I would be reluctant to conclude that the language in which they expressed their agreement was incapable of being given effect. While it may be that some of the points listed above could have raised nice questions of construction, I do not accept that they are so incapable of being answered as to negative contractual intent.
Uncertainty as to what was meant by a "2 year agreement"
Nor do I accept that agreement on a two year agreement was so lacking in clarity as to negative contractual intent. It is clear from the context that what the parties meant by this was that two years was a minimum rather than a fixed term. The original agreement was terminable by either party on giving three months notice at any time in accordance with clause 15.1. The effect of the amendment was that this right to terminate no longer applied and the contract would continue for (at least) two years from 1 October 2013, subject of course to termination for material breach or (broadly speaking) insolvency under clause 15.2 or acceptance of repudiation at common law in the meanwhile.
A separate question is whether, as C&S says, the effect of this amendment was also to impose an obligation on Enterprise as to the claims which C&S was to handle during that two year period. For the reasons given below I consider that this question is capable of being answered as a matter of construction of the amended contract and by deciding whether an appropriate term should be implied. It would be surprising if an agreement on a two year minimum term which the parties intended to bind them was struck down as being too uncertain to be given legal effect. There is no need to reach such a conclusion. The amended contract will either satisfy the demanding tests for the implication of a term as to claims being passed to it in the ordinary course of business, as contended for by C&S, including the requirements of necessity and clarity, or it will not. If it does, any argument as to the absence of contractual intention based on lack of clarity falls away. If it does not, the agreement on a two year term has merely the limited effect of varying clause 15.1 described above. That may be less than C&S had hoped to achieve, but such an agreement is not too uncertain to be given effect and had some benefit for both parties.
Accordingly my answer to issue 5 is that the contract was varied by an exchange of emails in October 2013 so as to increase the fees payable to C&S and to provide that the contract should continue for a minimum term of two years from 1 October 2013.
Issue 6: Did the contract as varied include an implied term that Enterprise would continue to pass claims to C&S in the ordinary course of business up to 1 October 2015?
The order for preliminary issues included as part of issue 6 not only whether a term should be implied but whether by agreeing to the variation of the contract Enterprise impliedly represented that it would continue to pass claims to C&S in the ordinary course of business up to 1 October 2015. However, that variant of issue 6 need not be considered as Mr Khurshid accepted that a case based on such a representation added nothing.
Despite the formulation of the issue as being concerned with the implication of a term, C&S puts its case in two ways. Its primary case is that, on a true construction of the contract as varied, Enterprise was obliged to pass claims to it in the ordinary course of business. This is said to be a corollary of the minimum term provision. Alternatively, C&S contends that it is necessary to imply a term into the contract as varied to the effect that Enterprise would continue to pass claims to it in the ordinary course of business.
The relationship between the principles of contract construction and the implication of terms was considered in the recent Supreme Court case of Marks & Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2015] UKSC 72. In a judgment with which Lord Sumption, Lord Hodge and Lord Clarke agreed, Lord Neuberger pointed out at [26] to [28] that both exercises, (i) construing the words which the parties have used in their contract and (ii) implying terms into the contract, involve determining the scope and meaning of the contract, and that both exercises involve similar factors (the words used, the surrounding circumstances known to both parties at the time of the contract, commercial common sense, and the reasonable reader or reasonable parties), but that they are nevertheless different. It is only after the process of construing the express words is complete (so that what the parties have expressly agreed is determined) that the issue whether a term should be implied falls to be considered.
The Supreme Court reaffirmed the traditional tests for the implication of a term, including that the term must be necessary for business efficacy or so obvious that it went without saying, and that it must be clear what term the parties would have agreed if they had applied their minds to the question. It approved what had been said by Lord Simon in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings [1977] UKPC 13, (1977) 52 ALJR 20 and by Sir Thomas Bingham MR in Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472, 482. Lord Simon had said:
"[F]or a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."
After quoting this statement, Sir Thomas Bingham MR had added:
"The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task of implication with the benefit of hindsight, and it is tempting for the court then to fashion a term which will reflect the merits of the situation as they then appear. Tempting, but wrong. … [I]t is not enough to show that had the parties foreseen the eventuality which in fact occurred they would have wished to make provision for it, unless it can also be shown either that there was only one contractual solution or that one of several possible solutions would without doubt have been preferred ..."
In the present case the starting point must be the contract as initially concluded. The construction or alternatively the implied term for which C&S contends is said to apply only to the contract as varied with its minimum term provision. It is common ground that the contract as initially concluded contained no obligation on Enterprise to pass claims to C&S, either in the ordinary course of business or at all, either as a matter of construction or by way of an implied term. It was free to choose which if any claims to pass to C&S for handling, but was entitled to send its business elsewhere, to establish its own in-house claims handling department, or for that matter to withdraw from the motor insurance business altogether. The parties expected that Enterprise would not only transfer to C&S the claims being handled by two of its existing claims handlers, IVA and GAB Robins, but would also ask it to handle at least some new claims. Those expectations were fulfilled but there was never any commitment to that effect by Enterprise. Any such commitment would have been difficult to reconcile with clause 1 of Schedule 3, providing that "C&S will handle all claims as required by Enterprise" and therefore that C&S would not be handling claims which Enterprise did not require it to handle. Essentially, therefore, the contract was a framework agreement which governed the parties' rights and duties to the extent that Enterprise did pass claims to C&S for handling. Even so, the parties included a termination clause which either party could invoke. Such a contract was evidently regarded by the parties as commercially worthwhile despite the uncertainty for C&S as to the volume of business which it would be handling.
The contract as varied, even with its minimum term provision, continued to include clause 1 of Schedule 3. It contained no express obligation on Enterprise to pass any claims at all to C&S. There is in my judgment no basis for saying that as a matter of construction of the amended contract, agreement on a two-year minimum term would reasonably have been understood by the parties as meaning that Enterprise was undertaking any such obligation. The language used by the parties simply meant that it was no longer open to either party to terminate the contract by giving three months notice at any time. The amendment established the framework under which the parties would operate for the next two years, including the fee rates which would apply.
Nor in my judgment can the term which C&S seeks to imply into the amended contract satisfy the demanding criteria for the implication of a term. Such a term is neither necessary nor obvious and the amended contract works perfectly well without it. Moreover, even if it is accepted that agreement on a minimum term but with no express obligation on Enterprise as to the volume of business to be provided to C&S represents a problem which the parties needed to address, it is not at all apparent that they would have alighted on an obligation to pass claims to C&S "in the ordinary course of business" if they had applied their minds to that problem. On the contrary such a term is uncertain and pregnant with potential disputes. What would happen, for example, if a competitor of C&S offered to undercut C&S's prices, or if Enterprise decided that it could handle claims more cheaply itself in-house? The proposed term is, in addition, in difficult to reconcile with the continued presence in the amended contract of clause 1 of Schedule 3.
Accordingly the contract as varied did not include an implied term that Enterprise would continue to pass claims to C&S in the ordinary course of business either up to 1 October 2015 or at all.
Issue 7: Was Enterprise entitled to (i) restrict the number of claims to be handled by C&S on its behalf to whatever level it saw fit; (ii) refuse to allow C&S to handle any new claims on its behalf; and/or (iii) withdraw from C&S claims which C&S had hitherto been handling on Enterprise's behalf?
It follows from my answer to issue 6 above that the answer to issues 7(i) and (ii) is Yes.
It is common ground that unless Enterprise was entitled to terminate the contract for repudiation by C&S, the answer to issue 7(iii) is No.
Conclusions
For the reasons which I have given, I answer the preliminary issues as follows:
1. C&S was not obliged to send files to Ozon. Even if it was under such an obligation, its refusal to do so was not repudiatory.
2. The breaches of C&S's duties alleged by Enterprise are capable, if proved, of amounting to a repudiatory breach of the contract. Whether, if proved, they do so amount is a matter to be determined at trial.
3. If Enterprise's case on repudiation fails at trial, its purported termination of the contract by Ozon's letter dated 13 January 2014 was itself repudiatory.
4. C&S's solicitors accepted Ozon's letter as a repudiation bringing the contract to an end by their letter dated 16 January 2014.
5. The contract was varied by an exchange of e-mails in October 2013 so as to (a) increase the fees payable to C&S and (b) provide that the contract should continue for a minimum term of two years from 1 October 2013.
6. The contract as varied did not include an implied term that Enterprise would continue to pass claims to C&S in the ordinary course of business either up to 1 October 2015 or at all.
7. Enterprise was entitled to restrict the number of claims to be handled by C&S on its behalf to whatever level it saw fit and to refuse to allow C&S to handle any new claims on its behalf; but unless C&S had repudiated the contract, Enterprise was not entitled to withdraw from C&S claims which C&S had hitherto been handling on Enterprise's behalf.
Bearing in mind the wide ranging nature of the allegations made by Enterprise and the number of claims being handled by C&S, the parties will need to give careful thought to the further conduct of this action in the light of this judgment. A cost effective and proportionate way of resolving the remaining issues will need to be found. |
Mr Justice Burton :
This hearing arises out of an Arbitration Award by Mr Andrew Foyle, Mr Dominic Kendrick QC and, as Chairman, Dr Georg von Segessor, dated 5 June 2014, by which the Arbitrators concluded that they had no jurisdiction over the claims brought by the First Claimant, Mr Ashot Egiazaryan ("C1"), and the Second Claimant, Mr Vitaly Gogokhiya ("C2"), against the First Respondent, OJSC OEK Finance, a Russian company based in Moscow ("R1"), and the Second Respondent, the City of Moscow ("R2"). The application before me under s.67 of the Arbitration Act 1996 ("the Act") is brought by C2; C1, who was originally a party to the application, no longer challenges the findings of no jurisdiction over his claims. C2 has been represented by Joe Smouha QC and Jeremy Brier, and both the Respondents, as they were before the Arbitrators, by Richard Millett QC, and now also by Jessica Wells. The claims by C1 and C2 are in tort, by reference to Russian law, namely Article 1064 of the Russian Civil Court, which provides that "harm caused to the personality or property of [a citizen or legal entity] shall be subject to compensation in full by the person who has caused the harm". The tortious claims were made by reference to what Mr Smouha described as "a corporate raid" (being "the redistribution of a company's ownership through a combination of legal, illegal and illegitimate means"), allegedly devised and orchestrated by R1 and R2 to oust the Claimants from a prestigious and lucrative project to redevelop the Moskva Hotel adjacent to Red Square in Moscow ("the Project").
The two Agreements containing the relevant arbitration clauses, which related to the control and management of a BVI company initially owned by C2, Konk Select Partners Inc ("Konk"), were the Konk Shareholders' Agreement the ("Konk SHA") and the Konk Share Purchase Agreement the ("Konk SPA", or "the First Konk SPA" to differentiate it from that in June 2009). C2, R1 and Konk were the parties to the Konk SHA, and they were also parties to the Konk SPA, in addition to a Cyprus company, Falmiro Trading Ltd ("Falmiro"), beneficially owned by C1 and others, being the borrower under a loan from Deutsche Bank AG, which was being acquired by Konk. Recital J of the Konk SHA recorded that the shareholders (C2 and R1) were entering into that agreement to set out the terms governing both their relationship as shareholders of Konk and the management and operations of Konk and of Tribalin Trading Ltd ("Tribalin"), CJSC Decorum ("Decorum"), OJSC DecMos ("DecMos") and what was defined as the "complex", of which DecMos was the lessee, being the plot on which the Project was being constructed. The governing law of both Agreements was English law.
Section 10.13 of the Konk SHA reads as follows:
"10.13 Arbitration of Disputes
(a) Any dispute, controversy or claim arising out of, relating to or in connection with this Agreement, including any question regarding its existence, validity or termination, or regarding a breach of this Agreement (a "Dispute"), shall be referred to, and finally settled by arbitration under and in accordance with the Rules of the LCIA then in effect (the "Rules"), which Rules are deemed to be incorporated by reference into this Section 10.13.
(b) The place of arbitration shall be London, England, and the award shall be deemed to have been made there. . .
. . .
(e) The parties agree, that all arbitration proceedings initiated under this Agreement and other Transaction Documents [defined so as to include, inter alia, the SPA] (subject to changes and amendments made from time to time thereto) may be considered simultaneously by one and the same arbitration tribunal provided that such proceedings are interdependent or proceed from the same or interdependent facts, causes or circumstances, and provided always that the tribunal considers the full or partial consolidation of such arbitration proceedings possible."
The Konk SPA contained mutatis mutandis materially the same provisions in its clause 8.
The Claimants asserted before the Arbitrators that C2 entered into the Konk SHA and Konk SPA as nominee or agent of C1, so that C1 was entitled to participate in the arbitration even though not a signatory to the Agreements. The Arbitrators concluded, after considering the evidence before them, that C2 was not C1's agent but held the Konk shares in his own right. Hence C1 was not entitled to participate in the arbitration. As set out above, C1 does not now challenge that decision.
The Claimants alleged before the Arbitrators that R2, albeit not a signatory to the Konk SHA or SPA could be joined in the arbitration by virtue of the provisions of Article 105 of the Russian Civil Code, by virtue of R2's liability in respect of the contractual obligations of its dependent company R1. Jurisdiction over the claim against R2 was rejected by the Arbitrators, but is renewed before me.
The issues before me were as follows:
i) Whether the Tort Claim, now sought to be made only by C2, falls within the arbitration clauses. The Arbitrators found that neither the claims made by C1 nor C2 fell within those clauses ("Issue 1").
ii) Whether the Tort Claim can be pursued by C2 against R2, by virtue of Article 105. The Arbitrators concluded, having heard evidence from Russian law experts, in paragraph 468 of the Award that:
"The provision makes a parent jointly and severally liable on the relevant contract as a whole. To the Arbitral Tribunal's mind, this includes liability to perform the Arbitration Agreement. The parent is as liable to arbitrate disputes as it is to perform the primary obligations under the relevant contract".
However the Arbitrators concluded that, since English law was the proper law of the Agreements, Article 105 had no effect ("Issue 2").
iii) If Issues 1 and/or 2 are resolved in favour of C2, whether the Tort Claim by C2 should be remitted to the Arbitrators in the exercise of my discretion pursuant to s.67(3) of the Act, or whether for him to pursue such a claim would be an abuse of process pursuant, or analogous, to the principles of Henderson v Henderson (1843) 3 Hare 100, or an abuse of s.1(a) of the Act. The main question is whether C2 is held to have made the Tort Claim before the Arbitrators or whether the claim now made by reference to his own beneficial entitlement to the Konk shares (as found by the Arbitrators), as compared with the case rejected by the Arbitrators that he held the shares as nominee for C1, is a new claim ("Issue 3").
The Arbitrators held an Evidentiary Hearing over a number of days in February 2013, hearing live evidence from factual and expert witnesses. There was also a large number of written statements, submissions and memorials, and the Award consisted of 629 paragraphs. They decided, after opposition by the Claimants, by a Procedural Order No. 11 of 31 August 2012, not to have a separate hearing on jurisdiction, recording that they were not convinced that any of the jurisdictional issues could be effectively isolated from questions of fact which were related to the merits. In the event they reached conclusions of fact by reference to the jurisdictional arguments, but recorded, in paragraph 566 of the Award, that, in the light of their rejection of jurisdiction over the Tort Claim, they had concluded that "there is no need for the Arbitral Tribunal to consider the arguments on the merits of the Tort Claim that were presented by the Parties".
The Claimants' Tort Claim brought in the arbitration, which C1 and C2 contended, and R1 and R2 denied, fell within the terms of the arbitration clauses, was described by the Arbitrators in paragraph 533 of the Award by reference to 21 "alleged unlawful acts", referred to by the Arbitrators as numbered bullet points. Mr Smouha before me has reconstituted the claims sought to be pursued by C2 alone in a remitted arbitration by reference to those 21 bullet points, although five of them (bullet points 1, 2, 3, 18 and 19) have been omitted, as C2 makes no claim relating to the period prior to the Konk Agreements. Mr Smouha has described the claim by reference to three main allegations, subsuming the surviving seventeen bullet points beneath them, as follows. He explains that since there is no concept of conspiracy in Russian tort law, there is simply one claim of unlawful conduct and harm contrary to Article 1064, albeit exemplified by the acts complained of:
"1. The Konk Agreements were entered into by C2 with R1 as the gateway by which the entire "corporate raid" was made possible, including whereby an employee of Mr Kerimov became installed as a director of DecMos with the ability to control the project directly.
Bullet Point 4 from Paragraph 533 of the Award: Respondents arranged the subsequent transfer of the interests in the Project leveraged by R2 through the Konk Agreements to Mr Kerimov.
2. The Corporate Raid involved C2 in numerous respects; critically one aspect of the corporate raid was the instituting of spurious criminal proceedings against [C2] when he sought to commence legal proceedings in Cyprus to prevent R2 from wielding complete control over Konk and the Project through the vehicle of R1 and the Konk Agreements. Further, between 16 and 20 June 2009, raids by special police in masks with automatic weapons were carried out at (inter alia) [C2's] home, aimed at forcing C1 to capitulate and sign over his interest in the Project (and any indebtedness owed to him) to Kerimov and his associates.
Bullet Point 5: On 22 January 2009, R2, without telling C1, in order that it would be a fait accompli, acted together with Mr Goloshchapov and Ms Pavlyuchenko to remove C1's General Director of DecMos (Mr Lapshov) and replace him with a Kerimov associate (Ms Kotandzhyan), thus giving Mr Kerimov operational control of the Project and leverage to implement further pressure and intimidation tactics, including forcing C1 to sign the Framework Agreements.
Bullet Point 6: Respondents knew, as C1 did, that in Russia an order replacing the general director is the beginning of a corporate raid.
Bullet Point 7: R2 procured a breach of R1's obligations toward Claimants under the Konk Agreements, including Claimants' first refusal rights over R1's sale of its Konk shares to Mr Kerimov.
Bullet Point 8: Respondents assisted Mr Kerimov's unlawful interference in the business relations of DecMos and Decorum from January 2009 at the latest.
Bullet Point 10: In April 2009, Ms Kotandzhyan continued the process of consolidating control over the Project by removing the DecMos offices to Mr Kerimov's building. Respondents acquiesced in this move.
Bullet Points 11-13 concern factual background to the corporate raid that may form relevant context for a C2 claim but are not particulars of the C2 Tort Claim.
Bullet Point 14: R2 made fraudulent requests on behalf of R1 to commence criminal proceedings against C1. These requests resulted in the commencement of bogus criminal proceedings on order against C2 on 1 June 2009.
Bullet Point 15: R2 commenced hopeless and vexatious legal proceedings against Claimants (and others) concerning purported breaches of the Investment Agreement.
Bullet Point 17: Respondents, together with their co-conspirator Mr Kerimov, arranged theatrical raids at Claimants' offices by masked police with automatic weapons, distressing searches at the homes of Claimants' associates (Messrs Artem Egiazaryan and Dmitry Fitisov) and intensive and baseless interrogations of Claimants' associates (Messrs Artem Egiazaryan and Dmitry Fitisov), all of which were designed to intimidate Claimants.
3. This culminated in the unlawful taking of C2's shares in Konk which held the stake in the Project. The Respondents caused harm to C2 by assisting in the seizure of the Konk Shares which culminated in C2 being forced to sign the Second Konk SPA signing away his valuable interests in Konk to Mr Rotenberg for US$2.
Bullet Point 16: Respondents knew that when they were contacted by Mr Kerimov in June 2009, there had been no negotiation and no transaction. Respondents nonetheless approved and participated in the execution of documents that were not negotiated and on which Claimants received no legal advice.
Bullet Point 20: Following consummation of the raid, Respondents acted with their co-conspirators, Messrs Kerimov, Rotenberg and Goloshchapov, to permit the transfer of ownership of the Project out of Limerick [in whose shares C1 had a substantial interest] and Konk and into new layers of off-shore companies designed to place their interests in the Project out of reach.
Bullet Point 21: Respondents have, since the consummation of the raid and all to the present, acted together with their co-conspirators to conceal evidence of the raid from this and other tribunals."
Issue 2
I shall deal first with the issue as to whether R2 was properly joined in the arbitration. There is no issue between the parties, as there is in respect of Issue 1, with regard to the approach that the Court should adopt towards a decision made by arbitrators as to their own jurisdiction. In relation to this Issue, the parties have agreed to accept the conclusions of the Arbitrators as to Russian law, after hearing the expert evidence, and neither counsel seeks to go behind those conclusions. The issue is simply whether the Arbitrators were correct to conclude that Russian law had no effect on whether a non-signatory to an English law arbitration agreement could be joined in the arbitration.
Given the conclusion of the Arbitrators as to the meaning of Article 105, it is unnecessary for me to set out that Article in this judgment. There were extreme positions taken by the two sides before the Arbitrators as to the meaning and effect of it. Insofar as the Claimants were seeking to argue that its effect was to make R2 a party to the Konk Agreements, the Arbitrators did not accept that submission. The Respondents on the other hand were contending that arbitration agreements fell outside the scope of Article 105 entirely. I set out in paragraph 6(ii) above the conclusion of the Arbitrators. It is clear, and in the end Mr Millett accepted, that what they decided was that the effect of Article 105 was that R2 was not simply a primary (and certainly not just a secondary) obligor, but was jointly and severally liable with R1 on the contract, and liable to take part in the arbitration, and thus be a party to it; except that it was not entitled to initiate arbitration proceedings or counterclaim in the arbitration. This is the clear impact of paragraph 468 of the Award.
The Arbitrators continued (in paragraphs 469-470) by considering that R2 could be made answerable for the liability of R1, and made a defendant to proceedings in Russia to establish such liability. However it is very difficult to see what the Arbitrators can have meant in that regard, since, if R2 was "as liable to arbitrate disputes as . . . to perform the primary obligations" under the Arbitration Agreement, then such joinder in proceedings in Russia would seem hardly appropriate or necessary, save perhaps for enforcement purposes. Such conclusion appears simply to be a product of their conclusion that whatever might be the effect at Russian law, that would have no impact on R2's obligation to participate in an arbitration governed by English law.
For such was indeed the conclusion of the Arbitrators, namely that there was no effect of Article 105 at English law; English law, being the proper law of the contract, governed the arbitration, and would not recognise R2 as being party to the arbitration agreements (paragraph 477 of the Award). Their conclusion was (at paragraph 478) that "Article 105 . . . is legally irrelevant to the construction of the Arbitration Agreements and forms no proper basis by which [R2] could be held to be party to an English law contract or arbitration clause. If Claimants wish to invoke rights against [R2] under Article 105, they would need to do so in judicial proceedings in Russia".
Mr Millett submits accordingly that the Arbitrators had no jurisdiction to hear a claim against R2 within the arbitration. He submits that Article 105 does not say that R2 is a party to the Arbitration Agreement (as indeed the Arbitrators found), nor that R2 is the same entity as R1, nor that R2 is a transferee from R1, and it does not address the capacity or status of R1. But in any event, whatever the impact of Article 105 at Russian law, and he was driven to accept that the Arbitrators did nevertheless find that, at Russian law, R2 was liable to participate in the arbitration, he submitted that the Arbitrators rightly applied English law to exclude R2 from the arbitration.
Mr Millett relies upon the following:
i) The well established authority that English law governs who is a party to an Arbitration Agreement. Although Rule 64 in Dicey Morris & Collins: The Conflict of Laws (15th Ed at 829) does not expressly refer to the parties to an arbitration agreement when recording that "the material, validity, scope and interpretation of an Arbitration Agreement are governed by its applicable law", nevertheless the underlying concept of consensus requires the proper law of the contract to govern who has agreed to it.
ii) He relies upon the decision of Langley J in Peterson Farms Inc v C & M Farming Ltd [2004] 1 Lloyd's Rep 603 (mentioned, without being doubted, in Dallah Real Estate & Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2011] 1 AC 763). In Peterson Farms, Langley J, in relation to an arbitration between Indian and Arkansas companies, in which the proper law of the agreement was Arkansas law, and the curial law, because of the arbitration taking place in London, was English law, concluded that there was no room for the interposition of a 'Group Companies doctrine' so as to entitle the claimant to recover in respect of what were described as "parent losses" and "grandparent losses". Langley J emphasised (at paragraph 43) that "the identification of the parties to an agreement is a question of substantive, not procedural law".
iii) Mr Millett relied on the conclusions drawn from Peterson Farms by David Joseph QC in Jurisdiction and Arbitration Agreements and their Enforcement (2nd Ed) at 7.44-45, where he said:
"Where the signatory to the agreement is one of a group of companies, and English law is the governing law of the arbitration agreement – absent the application of agency principles, rectification, the 1999 Act or piercing the corporate veil – members of the group companies will not be actual or deemed parties to the dispute resolution agreement . . . [In certain cases, examples of which, primarily by reference to civil law systems, he gives], the relevant member of the group of companies may be found to be a contracting party even though not a signatory, and may be joined either as a claimant or a respondent in arbitral proceedings . . . Where such principles are invoked, they must form part of the governing law of the arbitration agreement. The identification of the parties to the agreement is a question determined by substantive not procedural law."
The starting point for a critique of the Arbitrators' conclusion is the fact that, in their conclusory paragraphs which I have set out above, at paragraphs 477 and 478, they have expressed it in terms that Article 105 "forms no proper basis by which [R2] could be held to be party to an English law . . . arbitration clause" (my underlining). That is, as Mr Smouha points out, the fallacy, and the key to their incorrect conclusion. They themselves did not find that Article 105 rendered R2 even at Russian law a party to the arbitration clause, but that it resulted in its being liable to arbitration and to be joined in the arbitration.
Mr Smouha answers Mr Millett's submissions as follows.
First he accepts the proposition that English law (and substantive law, not procedural law) governs the question as to who is party to the Arbitration Agreement. But that is not the question. At English law there will be many occasions when parties who were not signatories of an arbitration agreement are entitled or bound to be parties to the arbitration: in circumstances such as agency (including cases of undisclosed principal and apparent authority), lifting the corporate veil, assignment, and other scenarios such as universal succession or merger, which may be applicable in other systems of law. English law is the necessary starting point, but where the question to be properly characterised (see Mance LJ in Raiffeisen Zentralbank Österreich AC v Five Star Trading LLC [2001] 1 QB 825 at para 27) is not who is or was party to the arbitration agreement but whether there is jurisdiction over a non-signatory to the arbitration agreement, then English conflicts rules will or may address another system of law. Thus he refers, as did Mr Millett, to paragraphs 105-106 of Lord Collins' speech in Dallah:
"105. One of the most controversial issues in international commercial arbitration is the effect of arbitration agreements on non-signatories . . .
106. The issue has arisen frequently in two contexts: the first is the context of groups of companies where non-signatories in the group may seek to take advantage of the arbitration agreement, or where the other party may seek to bind them to it. The second context is where a state-owned entity with separate legal personality is the signatory and it is sought to bind the state to the arbitration agreement. Arbitration is a consensual process, and in each type of case the result will depend on a combination of (a) the applicable law; (b) the legal principle which that law uses to supply the answer (which may include agency, alter ego, estoppel, third-party beneficiary); and (c) the facts of the individual case."
Like Mr Millett, Mr Smouha emphasises the word "applicable law", but he submits that that clearly does not, or not simply, mean the proper law of the agreement.
It is manifest that there will be different scenarios, such as those mentioned by Lord Collins but not limited to them, in which a non-signatory of the agreement can properly be joined in an arbitration. One such example of course occurred in this very case, in which C1 was joined to the arbitration on the basis that C2, the signatory, was his agent. The Arbitrators did not find they lacked jurisdiction to hear his case because he was not a signatory, but because they concluded that he was not the principal, and that C2 owned the shares in his own right, and was party to the Konk Agreements in his own right. Mr Smouha pointed to other examples, such as whether partners can be joined or whether a victim can be a party to an arbitration between tortfeasor and insurer. Just as the proper law of the contract would not apply to issues of agency, so too it would not apply to whether there has been, as a matter of German law, merger between an old company entitled or obliged to arbitrate and a new company (Eurosteel Ltd v Stinnes AG [2000] 1 All ER (Comm) 964). It would be the rules of that law (to which English conflicts rules would look) which would for example govern whether a party was to be added or substituted, depending upon whether the relevant law required both assignor and assignee or both undisclosed principal and undisclosed agent to be joined.
So too in relation to the question here, Mr Smouha submits that English choice of law rules would look to the law of the place of incorporation of the signatory to govern whether a parent is liable to perform an agreement entered into by its subsidiary. He refers to Dicey at Rule 175, whereby, in the context of the entering into of a legal transaction, all matters concerning the constitution of a corporation are governed by the law of the place of incorporation and (at 30-128) "the cases at least establish that the law of the place of incorporation determines . . . the extent of an individual member's liability for the debts or engagements of the corporation"; and there is reference to Johnson Matthey and & Ltd v Ahmad Alloush [1985], 135 NLJ 1012 (CA) and in particular to JH Rayner Ltd v Department of Trade [1990] 2 AC 418 where Lord Oliver cites with approval the then equivalent in Dicey of that passage.
As for Peterson Farms, Mr Smouha does not disagree with the proposition that "the identification of the parties to an agreement is a question of substantive, not procedural law" but he submits that this is irrelevant to the present question. First of all we are not here identifying a party to an agreement, but resolving who can be made a party to an arbitration. Secondly, the issue is left open as to which substantive law is to be looked to. In Peterson Farms Langley J was not given any such assistance. As he points out himself, at paragraph 50, "it was not suggested to the tribunal that the Group of Companies doctrine was recognised by Arkansas law". It would seem therefore straightforward that, since neither of the two legal systems being considered before him, that relating to the proper law of the contract and the curial law, introduced such doctrine, and it was not even suggested that the doctrine arose as a result of Indian law, being the law of incorporation of the claimant, there was no room for the adoption of such doctrine. Thus it is difficult to see how Mr Joseph could have formed any conclusion based upon it in his book at 7.45, when he says that "the correct approach . . . ought to be to determine the identity of parties to the agreement by reference to the applicable governing law and not by reference to the principles which ordinarily govern arbitrations of that nature or the lex mercatoria". That itself would seem obviously right. On the other hand, if the question is one as to whether a non-signatory of the agreement can be joined by virtue of a concept such as agency or, in this case, a principle that shareholders or parents are obliged to arbitrate on contracts entered into by the signatory, then it is not the proper law of the contract which gives the answer, but English conflicts rules would look to another law, in this case the law of incorporation of the signatory. As Mr Smouha points, out if an English company made a contract governed by Ruritanian law, and under Ruritanian company law shareholders of Ruritanian companies were deemed to be parties to all contracts made by the company, it would obviously be inappropriate for an arbitral tribunal to apply Ruritanian law to assume jurisdiction over the shareholders of the English company. Hence Joseph's conclusion set out in paragraph 14 above, certainly in considering the parties to an arbitration as opposed to parties to an arbitration agreement, is incomplete.
I am entirely satisfied, for the reasons set out above, by way of answer to Mr Millett's submissions, that R2 was properly joined in the arbitration. The Arbitrators concluded, at paragraph 468 of the Award, that Russian law, being the law of incorporation of R1, provides that R2 was liable to be a party to the arbitration. English law, as the proper law of the Arbitration Agreement, will look to that law to decide whether R2 should be joined as a party, just as it would look to the relevant law in a case involving agency, assignment or succession. The Arbitrators consequently had jurisdiction over R2, and it was not necessary for that obligation to arbitrate to be enforced in the Russian courts, as the Arbitrators suggested.
Issue 1
Unlike Issue 2, where there was agreement between the parties to accept the evidence of Russian law given before the Arbitrators, and to argue whether the Arbitrators' conclusions had been correct in the light of that evidence, there was no such agreement in respect of the major issue, namely whether the Tort Claim alleged fell within the arbitration clauses. There was no submission to the jurisdiction by R1 or R2, and the Arbitrators decided to hear substantial amounts of evidence. Although, as set out in paragraph 7 above, the Arbitrators expressly did not proceed to make decisions on the merits, they explained their process in paragraph 108 of the Award namely:
"As both the Parties' arguments on jurisdiction and their material claims place considerable emphasis on the facts, it is appropriate to first attempt a thorough analysis of the factual record that will lay the foundation for Section VII of this Award, which addresses issues of jurisdiction."
It was common ground that the hearing of a s.67 application by the Court is de
novo. As Gross J described it in Electrosteel Castings v Scan-Trans Shipping [2002] EWHC (Comm) 1993, as cited by Langley J in Peterson Farms: "The question for the Court is . . . not whether [the tribunal] was entitled to reach the decision to which [they] came but whether [they were] correct to do so": i.e. it is the correctness of the answer and not the reasons given which I must judge; and it is thus not a question of whether the Arbitrators came to a conclusion to which they were entitled to come on the evidence and reasoning before them, but whether they reached the right conclusion. This is emphasised by the Supreme Court in Dallah, although naturally Lord Mance at paragraph 31 said that a Court, even where re-hearing, will "examine, both carefully and with interest, the reasoning and conclusion of an arbitral tribunal which has undertaken a similar examination".
Where there has been substantial evidence taken below, the Court on an application under s.67 is free to rehear all such evidence, and in Azov Shipping v Baltic Shipping [1999] 1 Lloyd's Rep 68 Rix J addressed exactly such a position, concluding, at paragraph 70 that "the Court, upon a challenge under section 67, should not be placed in a worse position that the arbitrator for the purpose of determining that challenge". But that was a case in which there was a short issue of fact, resolved by the Arbitrator over 3 days, namely as to whether the claimant was party to the agreement. In this case, there was a very lengthy hearing, ranging over issues, including the agency or otherwise of C2 and the Russian law questions relating to R2, but, in the context of this Issue 1, addressing at length the jurisdictional facts, for the purpose of resolving whether the Tort Claim fell within the arbitration clauses. There has been no application by either side to rehear any evidence and (with the exception of the Russian law evidence to which I have referred) no agreement that any of the evidence should be taken as read before me, nor any agreement that any of the factual conclusions of the Arbitrators should be accepted before me.
It is understandably pointed out by Mr Millett that the fact that the evidence was taken at length arose out of the decision by the Arbitrators not to bifurcate the issues of jurisdiction and merits, and that this was on a successful application to that effect by the Claimants, although, as recorded in the Arbitrators' decision in paragraph 7(c) of Procedural Order No.11 of 31 August 2012, the Respondents themselves asserted that certain factual witnesses would probably need to testify even on jurisdiction alone. It does not seem to me, however, that this should impact upon the question as to whether the Arbitrators came to the correct conclusion.
Where there is such a lengthy evidential hearing below, even though the application before this Court is a complete rehearing, Mr Millett submitted in paragraph 11 of his skeleton that "it was open to C2 to challenge the Tribunal's findings of primary fact or factual conclusions on this application . . . but he has not done so. C2 cannot deny the facts found on this application since he is bound by them". I do not accept this submission. It is contrary to principle: the same would apply, if he be right, in respect of a party denying jurisdiction who takes part in an arbitration hearing while expressly reserving its position, and yet is then entitled to challenge jurisdiction before the court. But it is in any event contrary to the express words of Lord Saville in Dallah at paragraph 160: "The findings of fact made by the arbitrators . . . can in no sense bind the court". This is leaving aside the fact that the Arbitrators themselves made findings which would plainly be relevant to both jurisdiction and merits and yet, as set out in paragraph 566 of their Award (see paragraph 7 above) did so without having considered "the arguments on the merits of the Tort Claim that were presented by the Parties".
In any event there was discussion before me as to the impact of the Arbitrators' findings. In a similar case to Azov, where (unlike here, where there were wide-ranging questions as to the scope of the claim and of the arbitration) a dedicated issue, for example, as to whether a contract was ever made, might be decided by the arbitrators, there could be what could be described as a 'killer point': such as for example a finding by arbitrators that a claimant (Mr Smith) was in fact indubitably in Manchester when he was said to have been making the contract in London (this was dubbed in the hearing before me a 'Smith-Manchester' point). Despite considerable concentration on relevant paragraphs of the Award by Mr Millett and consequently by Mr Smouha, I was wholly unpersuaded that there were any Smith-Manchester points in this Award:
i) The conclusions in paragraphs 239 and 241 of the Award related to that part of the Tort Claim made by C1 which antedated the Konk Agreement and is not pursued before me.
ii) The Arbitrators concluded in paragraph 395 of the Award that the Claimants had not established that R1 knew that the Claimants were being coerced into entering the Cyprus Agreements (including the Second Konk SPA), as a result of which any residual interest of C2 in the Konk shares was disposed of, but I am not persuaded that the absence of such knowledge would be in any way a 'killer point'.
iii) The passage in paragraph 551 whereby "the Arbitral Tribunal has considered whether [R1] was clearly involved in the matters alleged in [the 21 bullet points] and concludes that it was not" cannot be read as meaning more than that the Arbitrators were not satisfied that R1 was "clearly involved", which particularly given their lack of conclusions on the merits (paragraph 566 of the Award) does not seem to me to qualify as a 'Smith-Manchester' point.
However, even if any of those were stronger points than I am persuaded they are, the position would still remain that (i) this was an attempted factual analysis of a wide ranging question of scope, to which I shall come below, and not a straightforward factual question as in Azov (ii) as Lord Saville makes clear, this Court is not bound by those findings, and no such evidence has been called before me.
The real question in issue both before the Arbitrators and before me seems to me that which is contended for by Mr Smouha, namely that the duty of the Arbitrators, and now the duty of the Court, is to identify the dispute between the parties and then consider that dispute against the terms of the arbitration clauses. It is not the task of either the Arbitrators or the Court to weigh the merits of the case, just as it is not when considering whether there is a 'dispute', for the purpose of considering whether it is appropriate for there to be an application for summary judgment in the courts rather than reference to an arbitration at all (see for example Hayter v Nelson [1990] 2 Lloyd's Rep 265 at 271).
Such task has been greatly ameliorated by the guidance of the House of Lords in Fiona Trust v Privalov [2007] UKHL 40 [2007] 2 CLC 553, per Lord Hoffmann at paragraphs 13-17 and Lord Hope at paragraphs 26-27. In my judgment the resolution of such an issue does not require massive consideration of factual evidence, particularly against the background where the parties are not bound by an arbitrator's decision, and there can be a complete rehearing before the court. In this case the Tort Claim which was said by the Claimants, and now, as slimmed down, is said by C2, to fall within the arbitration clauses is that which I have set out in paragraph 8 above by reference to Mr Smouha's summary. The reasons which the Arbitrators gave for concluding that the claims did not fall within the scope of the Arbitration Agreements are those now presented before me by Mr Millett, and opposed by Mr Smouha, and I shall deal with them in turn.
Tort The Arbitrators stated in paragraph 518 of the Award that "the only real claim in this arbitration is Claimants' Tort Claim. It is, in the experience of the Arbitral Tribunal, uncommon for none of the principal claims to be contract related". Mr Millett did not expressly support this proposition. It is clear from s.6(1) of the Act that an "arbitration agreement" within the Act means "an agreement to submit to arbitration present or future disputes (whether they are contractual or not)". There were contractual or quasi-contractual claims being pursued in the Award – of nullity and a breach of the Konk Agreements – but they were abandoned (with one unsuccessful attempt at resuscitation). However it seems to me that what effectively the tort constitutes is 'mal-performance' of the Konk Agreements; i.e. C2 began with a substantial interest in the Project through the Konk shares in November 2008 and allegedly by the acts of R1/R2 ended up with a worthless residual interest in June 2009, which he transferred for $2. Mr Millett emphasised the passage in Merkin: Arbitration Law (2015) at paragraph 5.71, which did not support the Arbitrators' proposition, but which emphasised the need for a Tort Claim to be "closely related" to an underlying contract or to have "necessary connection". Echoing the words of Lord Hoffmann in Fiona Trust, in which (at paragraph 13) he addressed disputes "arising out of the relationship into which [the parties] have entered", the Arbitrators in paragraph 544 directed themselves that they must decide whether the Tort Claim is a dispute that "arises out of the relationship into which the Parties entered pursuant to the Kong Agreements". By reference to the 21 bullet points, they concluded in paragraph 545 that "the claim advanced is insufficiently connected with the relationship created by the Konk Agreements to fall within the arbitration clause". It is difficult to see how that can be justified.
Other Parties In the same paragraph (518) in which the Arbitrators had commented on what they considered to be the uncommon event of a Tort Claim without a contract claim, they continued: "this unusual feature is combined with a claim for the tort of conspiracy but involves third parties as key conspirators", and "no English court case was cited with these two unusual features". In paragraph 517 of the Award the Arbitrators noted that "major participants in the Tort Claim are not parties to the Arbitration Agreements. The Arbitral Tribunal has in mind Messrs Kerimov, Rotenberg and Goloshchapov". Mr Millett supports this proposition, and refers to a statement in Merkin & Flannery: Arbitration Act 1996 (5th Ed), where, addressing the "pragmatic and praiseworthy attempt" by the Court of Appeal in Fiona Trust to ensure that all disputes are brought together under one roof, the authors opine that "most forms of . . . wording will be sufficient to ensure that the arbitration will encompass the following categories of claims", and they list contractual claims, tortious claims for misrepresentation, restitutionary claims and "related claims based on conspiracy, provided that [my underlining] all the proposed respondents are parties to the arbitration agreement". Leaving aside the fact that this tort claim is not for conspiracy, but is a tort claim brought by reference to Article 1064 by C2 against R1, for whom R2 is liable, neither counsel were able to assist me, and I certainly have no knowledge myself, as to where this proviso comes from. No authority is cited, and the suggestion really is that no conspiracy claim can be brought within an arbitration agreement, because a conspiracy always needs more than one party. It is my experience that the fact that there may be outstanding claims against other parties arising out of the same facts is not an objection to the bringing of a claim which falls within the terms of an arbitration clause.
Other Agreements In paragraph 516 of the Award, the Arbitrators identified as a feature contra-indicating the Tort Claim falling within the scope of the Arbitration Agreements that there were other agreements, some of them containing dispute resolution clauses. Of course the situation is different now that C1 is no longer a party, as a result of the Arbitrators' decision, not challenged before me, because C1 was party to a number of other agreements. There is however no other agreement to which both C2 and R1 are parties, so that the principle to which Mr Millett drew an analogy, of the 'centre of gravity' spelt out by Thomas LJ in Sebastian Holdings Inc v Deutsche Bank AG [2011] 1 Lloyd's Rep 106 at 116, does not obviously apply, as Mr Smouha pointed out, being relevant only to where there is more than one agreement involving the same or similar parties, so that there is in effect a contest as to which clause is the most relevant. The only agreement to which Mr Millett could point was the so-called Cyprus Agreement, or Second Konk SPA, between C2 and Sparklon Holdings Ltd, by which he transferred his remaining interest in the Konk shares for $2. This may have crystallised C2's loss, and may well merit its own dispute or cause of action, but does not appear to me to detract from the appropriateness of the arbitration clauses in the Konk Agreements (already wide in their own terms by the reference to "consolidation") for resolving C2's Tort Claim against R1/R2.
Strength of the case I have already indicated that I have seen no 'Smith-Manchester' point or killer point, even if that would be apt where I am deciding the matter afresh, as discussed in paragraphs 24 to 26 above. The Arbitrators considered that none of the 21 bullet points referred specifically to the actions of R1 (paragraph 536) and (paragraph 551) that, as discussed in paragraph 27(iii) above, R1 was not "clearly involved" in those matters. It also noted that the bullet points made "little mention of the Konk Agreement", identifying, so far as concerns the bullet points relevant to C2, only bullet points 4 and 7. The Arbitrators also note in paragraph 563(1) that "Claimants merely seek damages for the loss of the Limerick shares [referred to in paragraph 8(20) above], to which the Konk Agreements have no association . . . Were the Konk Agreements truly pivotal in this dispute one would have expected Claimants to seek damages for the value of their interest in Konk". As appears in paragraph 47 below, this appears to be a misunderstanding of the Claimants' case as put before them, and in any event the Arbitrators themselves appear to recognise (in paragraph 531) that there was loss in relation to the Konk shares by way of an "effect on the ultimate outcome of the actions alleged in the Tort Claim, namely Claimants' loss of their interest in the Project", albeit they described it as "restricted". However, all these understandable criticisms appear to me to go to the strength of the Claimants' case, i.e. to the merits, in respect of which the Arbitrators had not considered the arguments, but not to the non-existence of a dispute between C1 and R1/R2, by reference to the claims summarised above, falling within the scope of the Konk Agreements.
I recognise that it was necessary for the Arbitrators to hear evidence in relation to the issues with regard to C1 and R2, which they resolved. It is however regrettable that so much time was also taken in addressing 'jurisdictional facts' in relation to the question of whether the Tort Claim fell within the ambit of the arbitration clauses, particularly since at paragraph 509 they recognised that their decisions on jurisdiction were subject to 'review by English courts', in which none of their factual findings would be binding. It seems to me however that such conclusions as they reached in relation to the facts led them astray. They concluded in paragraph 564 that the "Tort Claim cannot be regarded as arising out of the Konk Agreements or the relationship created by them", by reference to the "limited scope of the Konk Agreements" and the "sweeping conspiracy on which the Tort Claim is based". I am satisfied that on the basis of the claims made, as summarised by the Arbitrators, and as explained by Mr Smouha, there is a Tort Claim by C2 against R1/R2, the nub of which is his loss of the Konk shares and his interest in the Project, which falls within the terms of the arbitration clauses in the Konk Agreements, widely construed as now encouraged by Fiona Trust.
Issue 3
Given that the Tort Claim against R1 and R2 falls within the arbitration clauses, should such claim by C2 be remitted to the Arbitrators? There are minor issues, to which I shall return in paragraph 45 below, but the real question is as to what claim C2 made before the Arbitrators? Mr Millett asserts that C2 did not make the Tort Claim before the Arbitrators, and so it should not be remitted to them, because the only claim he made was as holder of the Konk shares as nominee for C1, and if he is now to make such claim as shareholder in his own right:
i) that is not a claim which he should be permitted to make in the exercise of my discretion, and/or it would be an abuse of process:
ii) It is not a claim which was referred to the Arbitrators. Remission under s.67 revives the claim (see Hussmann (Europe) Ltd v Pharaon [2003] 1 All ER (Comm) 879 at paragraph 82) but there is nothing to revive.
The first question to address is what the claim was that was put by C2 in the Request for Arbitration and the Statement of Case in the Arbitration. They are materially identical in this regard, so I shall limit my reference to the latter:
"1. This Statement of Case is served on behalf of [C1] and [C2] (the latter in his nominal capacity as described herein) (together, "Claimants") . . .
. . .
9. At the time the Agreements were entered into, and at all other times, Respondents knew and understood that [C2] held his Konk shares as nominee for [C1].
. . .
115. On the basis of the facts set forth herein, Respondents agreed with Kerimov and others to use unlawful means with intent to injure Claimants. The Claimants are entitled to compensation for all damages flowing from Respondents' illegal acts, including the loss of [C1's] investment in the Project and moral damages for pain and suffering.
. . .
121. . . . The Claimants' claims in this proceeding fall within the scope of the arbitration provisions in the First Konk SPA and the Konk SHA.
. . .
123. Claimant [C2] is a proper party to this proceeding because he is a signatory to both the First Konk SPA and the Konk SHA . . .
. . .
133. . . . Respondents' roles in orchestrating the corporate raid and conspiring with Kerimov and others to illegally remove [C1] from the Project (including their participation in the duress, intimidation and other wrongful acts committed against the Claimants) are tortious and in breach of the Konk SHA . . .
134. Claimants seek an award:
. . .
(b) Ordering Respondents to pay to Claimants damages for the loss of [C1's] investment in the Project in an amount to be determined;
(c) Ordering Respondents to pay to Claimants moral damages in an amount to be determined for, inter alia, the anxiety and distress visited upon Claimants by Respondents' actions as described herein".
It is therefore a claim made by both Claimants in respect of the unlawful act said to constitute a tort, but on the basis that C2 was only a nominee in respect of the Konk Shares. In the Claimants' Post-Hearing Memorial, which formed the basis for the Arbitrators' summary of the 21 Bullet points in paragraph 533 of the Award (referred to in paragraph 8 above), the case was summarised as follows:
"398. For the avoidance of doubt, the core tortious act underlying this claim is the theft of [C1's] stake in the Project (i.e. his shares in Limerick and Konk) . . . Respondents have caused harm to [C1], and to [C2] as his agent and bare trustee, by assisting in the seizure of his stake in the Project. . .
399. In addition to theft, Respondents engaged in further unlawful acts which led to the consummation of the corporate raid and contributed to the harm caused to [C1], by the loss of his property, and to [C2] as his agent and bare trustee. Respondents have committed at least the following acts and omissions which, together with the acts and omissions of their co-conspirators inflicted great harm on the Claimants by, among other things, unlawfully depriving them of their interest in Konk and the Project . . . [the 21 bullet points are set out].
. . .
535. Claimants seek an award:
. . .
(d) Ordering Respondents [R1 and R2] to pay to Claimants [C1 and C2] damages for the loss of [C1's] stake in the Project in the amount of US$652.1 million;
(e) Ordering Respondents to pay to Claimants moral or exemplary damages in an amount to be determined for, inter alia, the anxiety and distress visited upon them by Respondents' actions as described herein. . . "
The Arbitrators concluded:
"435. In light of the above, the Arbitral Tribunal finds that [C1] vested the Konk Shares in [C2] absolutely. As a result, there was no bare trusteeship that rendered [C2] the agent of [C1]. If anything, [C1] was the agent of [C2]."
The Arbitrators therefore concluded they had no jurisdiction over C1. In considering their jurisdiction in respect of the Tort Claim they made the following "Introductory remarks" in paragraph 509:
"Although it has determined that neither [C1] nor [R2] is a party to the Arbitration Agreements, the Arbitral Tribunal is mindful that its decisions on jurisdiction are subject to review by English courts. Consequently, the Arbitral Tribunal will consider whether the Tort Claim is within the scope of the Arbitration Agreements assuming, for this purpose, that [C1 and R2] are Parties to the arbitration. More specifically, it will also assume that [C1] was the ultimate beneficial owner of the shares in Konk held by [C2]."
The Arbitrators found, contrary to my conclusions above, that such Tort Claim was not within the arbitration clauses. Therefore any claims which C2 had failed (including his claim for moral damages).
Mr Millett submits that, upon this basis, C2 was making only a claim for moral damages for himself, and that, although the claim in respect of the loss of the Konk shares was put as one by the Claimants jointly, it was expressly in respect of C1's stake in the Project or C1's investment, and so he was making no claim in respect of the loss of his own interest in the shares, which he cannot now be permitted to run. Apart from the straightforward case that such a claim was not a claim referred to the Arbitrators, he submits that there is a concept imported from the courts into arbitration reflecting, or by analogy with, Henderson v Henderson, which prevents afterthoughts or 'second bites of the cherry' in the interests of finality in litigation (or arbitration), so as to prevent what could have been run on a first occasion being run on a second occasion. Although he relies on no specific authority (and if necessary he would support the concept by reference to s.1(a) of the Act which requires that "the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense") he has the support of Mustill & Boyd (2nd Ed 1989) whereby:
"A party will not be permitted to raise an issue which was so clearly part of the subject matter of the earlier reference and so clearly could have been raised that it would be an abuse of process to allow the issue to be raised in fresh proceedings . . . Parties to proceedings should take care to bring forward the whole of their case and not keep parts of it back or allow part of it to go by default; otherwise it will be too late for them, after the arbitrator has made his award, to raise fresh claims or defences which ought to have been put forward earlier."
The Arbitrators expressly record at footnote 564 to paragraph 509 that "it should be noted that there is no separate tort claim made by [C2] and no separate loss asserted. His role is confined to agent or bare trustee, bringing a claim on behalf of his principal/beneficiary". On the other hand at paragraph 550 of the Award they state:
"The Tort Claim seeks damages only for the loss of shares in Limerick in which [C2] has absolutely no interest, and not for the loss of the Konk shares. But even if it did seek damage for loss of the Konk shares, it appears fairly evident that no damage could have been suffered by [C2] as a result of actions prior to the Konk Agreements . . . Any portion of the Tort Claim, to the extent that it involves [C2] and relates to events pre-Konk is, therefore, hopeless".
C2 does not, at any rate before me, make any claim in respect of the period prior to the Konk Agreements, and thus this latter conclusion does not affect the position before me.
Mr Millett submits that the Claimants could have pleaded the claim in the alternative ('If C2 is the beneficial owner of the Konk shares then in the alternative he makes the same claim in respect of the loss of the value of the Konk shares') and did not do so, no doubt for good tactical reasons, and C2 cannot now be allowed to retrace his steps.
Mr Smouha submits that in fact the Claimants were making just such a claim, and that the Respondents recognised that this was the case:
i) In the Post-Hearing Memorial the Claimants pleaded the following under the heading "Damages For The Failure to Implement Konk (in the alternative)":
"519. It is only necessary for the Tribunal to consider this section if it is determined, and it should not be, that Claimants' claims for seizure of the Limerick Shares do not fall within the arbitration provisions of the Konk agreements.
520. Respondents have submitted calculations from Deloitte of what would have happened had the Konk transaction been implemented. This has been done in a transparent attempt to escape from their obligations to compensate Claimants for the very serious harm done to them.
521. The argument will go that, because Claimants would have received most of their value via their interest in Limerick upon implementation of Konk, the Konk shares themselves are of limited value and no damages are owed in connection with their seizure. This argument is to no avail.
522. As discussed in the section on jurisdiction, Respondents cannot parse out their conduct in connection with the seizure of the Limerick Shares – the very same conduct resulting in the failure to implement Konk and the seizure of the Konk shares - and claim that this conduct must be litigated twice in two different fora. Stated differently, Respondents are liable to compensate Claimants for the loss of the Limerick Shares.
523. In any event, Respondents' acts in failing to implement the Konk transaction in good faith and to instead embark upon a brutal, and brutally illegal, corporate raid, caused the Claimants' loss. If Respondents wish to couch this loss in Konk terms, so be it. Thus, as calculated by Deloitte, had the Konk transaction been implemented, and assuming FTI's 2012 valuation, the Claimants would have received proceeds in the range of US$ 627.5 million to US$ 733.8 million, the mid-point of which is US$ 680.7 million. By wilfully failing to implement the Konk transaction and participating in the illegal corporate raid at issue herein, Claimants were damaged in this amount.
. . .
527. In addition, Deloitte ignores completely that, had Respondents complied with their contractual obligations, Claimants would have acquired Respondents' shares in Konk and all sales proceeds would have flowed to them as Konk shareholders, with none going to Respondents in the form of Special Dividends or otherwise. And in that scenario, Claimants would have gone forward in the Project holding a full 51% interest and enjoying all of the value that interest would generate. In this regard, Claimants' claims with respect to Konk are conservative."
Mr Smouha submits that this was plainly understood to mean that if, as the Respondents' experts Deloitte contended, the loss was in Limerick (and Konk had a nil loss) then C1 alone would be entitled to recover, and as his position in the arbitration was challenged (in the event successfully) that would be favourable for the Respondents, leaving the loss in Konk, to which C2 was also a Claimant, as nil. Hence the Respondents' drive to place the loss in Limerick.
ii) R1's Post-hearing Brief concluded with a prayer for relief seeking declarations that:
"158.2 Claimant [C1] is not a proper party to this Arbitration;
158.3 the Tribunal has no jurisdiction over the Claimants' claims against [R2];
158.4 all of the claims advanced by the Claimants be dismissed for failure as a matter of law and/or facts and
158.5 Claimant [C2] breached the terms of the Konk SHA and the First Konk SPA and that he pay damages for losses arising from the breach in the sum of ?490,191".
In a list of issues attached the following questions were set out as to be addressed:
"B Whether [R1] acted unlawfully, including but not limited to by abuse of rights and/or by participation in an unlawful conspiracy, during the transfer of the Claimants' interest in the Project to Mr Kerimov
. . .
V. QUANTUM
Project Equity
A Whether the Claimants' claim in respect of loss of Project equity is to be properly valued by reference to (1) a 50% interest in Konk or (2) a 25.5% interest in DecMos.
B If the former:
(i) Whether the Claimants have standing to maintain claims in respect of losses suffered by the shareholders of Limerick . . .
(ii) What value is to be placed on the Claimants' interest in Konk at the time of the June 2009 Cyprus Agreements".
iii) In paragraphs 887 to 894 of the R2's Post-Hearing Brief the following firm submissions are made in respect of why the only loss was in respect of the Limerick shares (which could not be recovered in the arbitration) and that there was no loss in the Konk shares, and thus that C2's interest in the Konk shares (the only claim which can arise (887) or subsist (889) in the arbitration) was worthless:
"VIII. QUANTUM
PROJECT EQUITY
A. Whether the Claimants' claim in respect of loss of Project equity is to be properly valued by reference to (1) a 50% interest in Konk or (2) a 25.5% interest in DecMos.
887. The claims brought in this arbitration can arise only in respect of Claimant [C2's] interest in Konk – even if one assumes in Claimants' favour in relation to each of the numerous defects in their case on the putative agency/trust relationship which is alleged to have existed in relation to Claimant [C2's] shareholding in Konk. Even on Claimants' case, Claimant [C2] was a nominal holder in relation only to the beneficial interest in the Konk shares.
888. Nevertheless, the Claimants' Reply contained a new assertion that the claims were being brought by Claimant [C2] as Claimant's [C1] "agent and bare trustee in holding the Konk and Limerick Shares and entering into the Konk Agreements and Limerick SPA on his behalf" (emphasis added). It is not clear whether Claimants seriously intend to advance this position. Any suggestion that Claimant [C2] has any standing in relation to claims in relation to the Limerick shares must surely be an error; it is plainly wrong, and is flatly contradicted by Claimants' own submissions and evidence.
889. Contrary to the Claimants' assertion at paragraph 510 of the Post-Hearing Brief, this objection does not fall away if the Tribunal determines that the Claimants' claims in respect of the Limerick shares fall within the Konk arbitration agreements. It is an issue of legal standing, as well as jurisdiction. Claims in respect of the Limerick shares would have to be brought by the Limerick shareholders, Artem Egiazaryan and Mr Fitisov. They are not claimants, and could not be, since they were not party to the Konk Agreements. The only claim that can subsist in this litigation arises from Claimant [C2's] interests in Konk
. . .
894. The issue of quantum in this case must be limited to the value of Claimants' 50% shareholding in Konk, held subject to the terms of the Konk SHA. The Claimants offer no legal theory to contradict this obvious conclusion".
Mr Millett submits that the reference in the last sentence of paragraph 889 referred to C2's interest in Konk as trustee.
iv) Mr Smouha relies upon a passage in the recorded submissions of Mr Millett on behalf of the Respondents in the arbitration on 26 July 2013 at page 174 as illustrating that the Respondents well understood that there was an issue before the Arbitrators as to what loss C2 had suffered and what interest he had in the Konk shares:
"[C1] isn't a party and shouldn't be here. That then leaves the Tribunal with having to decide on [C2's] side first of all whether he has any interest in bringing these claims. Secondly, whether he has suffered any loss, and so far as [R1] is concerned, you are going to have to analyse very carefully, no doubt with Mr Benson's further help, precisely what it is said it did wrong, and what precisely its own role in the so-called conspiracy was, leave aside how that would link back to the Konk agreements".
v) In an exchange with me during the hearing (Day 2/189) Mr Millett accepted that, since, as Mr Smouha submitted, English pleadings were not being adopted, it would have been open to the Arbitrators to find on the evidence which they had before them that they did not accept that C1 had the claim, but that C2 did: Mr Millett accepted that the Arbitrators could have done so, but that they did not. He further accepted (Day 2/193) that in the passage from the transcript which I have cited above he was inviting the Tribunal to decide whether C2 had suffered any loss.
C2 plainly did make a tort claim in respect of the moral damages which he was said to have suffered as a result of the actions of R1 and R2 (although he did not expand on that in his evidence, which I have been shown). He plainly did bring a claim in tort in respect of the Konk shares, but so far as the quantum of it is concerned he was alleging that it was C1 who had suffered the financial loss, and he was only a nominal shareholder. In fact now, in the light of the Arbitrators' findings, he asserts that the quantum of the loss he suffered was very much greater, and is to be valued by reference to the value of the Konk shares, and now that the Tort Claim itself can be pursued, as it falls within the arbitration clauses, he wishes to recover his loss, which is now to be ascribed to his beneficial, rather than nominal, shareholding. Further and in any event I am not satisfied that C2's proposal to pursue that claim now that C1's claim is ruled out is necessarily the same as or analogous to, a Henderson v Henderson situation. He is not seeking to bring a new reference to arbitration, but in front of the same Arbitrators to run his case as to quantum and entitlement on a different basis, in the light of the Arbitrators' conclusions as to C1, not having done so previously.
I am invited by Mr Millett not to remit under s.67. Mr Smouha submits that I should remit C2's Tort Claim, coming as it does, as I have now found, within the arbitration clauses, to the Arbitrators, and leave it to the Arbitrators to decide whether, pursuant to Henderson v Henderson or otherwise, C2 is not to be permitted to pursue his claim. But for my puzzlement at the apparent inconsistency between Footnote 564 and the passage in paragraph 550 of the Award (both set out in paragraph 40 above), I would have no doubt that, particularly in the light of paragraph 42(iv) and (v) above, there would be no inhibition upon C2 pursuing his claim in tort before the Arbitrators. As it is, subject to my considering the further matters below, I would remit the Tort Claim, C2's claim for moral damages, which plainly can be pursued, and the issue as to whether C2 can now pursue his claim in respect of the loss of the Konk shares pursuant to that Tort Claim, to the Arbitrators. I have the less hesitation in doing so because of the existence of C2's claim for moral damages which plainly must be arbitrated.
The other matters to which I refer in paragraph 35 above, which are also said by Mr Millett to be reasons why I should not remit, now fall to be considered. They are twofold, but inter-relate:
i) That I should be satisfied that I should not remit because the Tort Claim, and thus C2's claim if indeed he is to be permitted to pursue it, is bound to fail on the facts.
ii) That even if C2 be entitled in respect of the loss of the Konk shares, that too is bound to fail because there is no provable loss in that regard.
As to (i), my conclusions are the same as those set out in paragraph 33 above. Even if I were bound by the findings of fact by the Arbitrators, contrary to my conclusions in paragraph 26 above, I am not satisfied that there are any 'Smith-Manchester' killer points in the Arbitrators' award: and in any event, as set out in paragraph 7 above, the Arbitrators themselves said in paragraph 566 that they had not yet considered the arguments on the merits of the Tort Claim.
As to loss, it does concern me to note that the Arbitrators concluded in paragraph 550 (set out in paragraph 40 above) that the "Tort Claim seeks damages only for the loss of shares in Limerick", when it is quite clear that in their Post-Hearing Memorial the Claimants were seeking damages for the loss of the Konk shares in the alternative. Thus this does leave open the Arbitrators' view in respect of whether any loss was suffered (by C2 or otherwise), subsequent to the Konk Agreements, in respect of the Konk shares, if indeed a claim in respect of such loss was being sought; and I have already referred at paragraph 33 above to the fact that the Arbitrators were only able to opine in paragraph 531 that the alleged unlawful acts to which they were there adverting could be said to have had a "somewhat more restricted" effect on the Claimants' loss than they were alleging. In any event, Mr Millett points to the evidence of Deloitte which is referred to by the Claimants in their Post-Hearing Memorial, by reference to the addendum report of Simon Cuerden dated 21 February 2013, in which the very calculations which the Claimants adopt in paragraph 523 of the Memorial (set out in paragraph 42(i) above) as being the loss, are based upon Mr Cuerden's figures. Those figures in his report, by reference to the "revised calculation applying FTI's [the Claimants' expert] updated valuations, show a 50% equity stake in Konk as nil".
I am satisfied however that this a mismatch. Deloitte were valuing the Limerick shares (as no doubt were FTI as their primary case, though I have not seen their reports), which involved an elimination of any value of the Konk shares, as Limerick was 'upstream' from Konk. If, as the Claimants made clear in paragraph 527, also cited above, the loss had been calculated by reference to the Konk shares and not the Limerick shares, on their case a substantial loss would have been shown. I am certainly not persuaded not to remit this case to the Arbitrators by reference to a suggestion that the value of the Konk shares will be shown to be nil.
Conclusion
I accordingly conclude that C2's Tort Claim falls within the arbitration clauses and that his claim against both R1 and, for the reasons I have given, R2 should be remitted to the Arbitrators pursuant to s.67 of the Act. |
Mr Justice Walker:
A. Introduction
1
B. Events leading to the making of the order
5
C. The 14 December Fiddler order, and reasons
8
C1. The 14 December Fiddler order: general
8
C2. The content of the 14 December Fiddler order
9
C3. Reasons for the 14 December Fiddler order
20
D. Concluding observations
24
A. Introduction
Note: this judgment, released publicly on 26 February 2016, sets out unchanged what was said in the "In Private" judgment giving reasons for orders made by me on 14 December 2015.
This judgment is given in private. It is to be treated as having been handed down on 14 December 2015 at the adjourned hearing of an application ("the November 2015 application") seeking relief against the defendant in the present claim, which is to be the subject of a claim form to be issued imminently.
The defendant in the present claim is Mr Stephen Fiddler. Mr Fiddler has had no notice of the hearings before me. I stress that the account given below is based on the claimants' allegations only. That account may well be rebutted by Mr Fiddler.
The wider background to the present claim lies in an extant and public commercial claim, Orb a.r.l and others v Ruhan, CL-2012-000625 ("the main action"). The immediate background to the present claim concerns events which led to an "in private" application made by the claimants in the main action on 25 September 2015 ("the September 2015 application"), the order which I made that day ("the September 2015 order"), and subsequent events. These matters are described in detail in my "in private" judgment today in the main action, [2015] EWHC 3638 (Comm).
In section B below I deal with the course of events which led me to make an order against the defendant in this claim. The contents and reasons for that order are dealt with in section C below. In section D below I set out concluding observations.
B. Events leading to the making of the order
In this section I make reference to passages in my judgment dated 14 December 2015 concerning the restored September application. As that judgment concerns purported assistance provided by a man who described himself as "Oscar" I shall refer to that judgment as the "14 December Oscar assistance judgment". In the present judgment I adopt the short forms used in the 14 December Oscar assistance judgment.
A warning of the November 2015 application appeared in paragraph 25 of Irving 2, sworn on 26 November 2015: see the final paragraph in section E3.4 of the 14 December Oscar assistance judgment. The account that was given the following day in Irving 3, and in the 27 November skeleton argument, is set out in detail in sections E3.5 and E3.6 of that judgment. Important features of that account are that Mr Fiddler approached Ms Irving, met with her and Dr Smith, and gave an account of his role in relation to Oscar. It appeared from Irving 3 that that role, according to Mr Fiddler, led him to show Ms Irving and Dr Smith a video recording, on Mr Fiddler's mobile telephone, in which Oscar appeared to allege that he had been asked by Dr Smith to participate in a charade.
Ms Irving's account of her interaction with the police is described in section E3.7 of the 14 December Oscar assistance judgment. As is apparent from section E3.8 of that judgment, at the 27 November hearing I asked whether evidence could be provided as to police awareness of what was being sought from the court, and I suggested that certain other matters be considered. The response in that regard is described in sections E4.1 to E4.3. As explained in section E4.4 I was concerned about certain aspects of that response. The matter next came before me on 10 December 2015, when I had the benefit of Irving 5. There remained matters which in my view needed to be the subject of further consideration. Those matters were reviewed at the 10 December hearing, and were further reviewed when that hearing resumed on 14 December 2015, as set out in section E6. The final terms of the order to be made by way of interim relief in the present claim, in conjunction with an application notice which was to be issued imminently in the present claim, were identified at the hearing on 14 December 2015. I shall refer to that order as "the 14 December Fiddler order".
C. The 14 December Fiddler order, and reasons
C1. The 14 December Fiddler order: general
In section C2 below I deal with the content of the 14 December Fiddler order. In that regard I mention some of the points of detail in the order and the reasons for them. As to the 14 December 2015 Fiddler order as a whole, I describe the reasons for making that order in section C3.
C2. The content of the 14 December Fiddler order
The 14 December Fiddler order was made in private. I set out below my reasons for concluding that this was an appropriate course. The order began with a penal notice. In addition to warning of the danger of contempt of court, the penal notice advised Mr Fiddler of the privilege against self incrimination. I describe in the 14 December Oscar assistance judgment contentions to the effect that self incrimination would not arise. I express no view on whether those contentions are right. It seemed to me desirable that advice as to the privilege against self incrimination should be included so that Mr Fiddler was informed that there is such a privilege and could, if appropriate, seek legal assistance in that regard.
Paragraph 1 of the order noted, among other things, that I had accepted undertakings in schedules A and B. The undertakings in schedule A were given by Mr Robson as Independent Solicitor. Those in schedule B were given by the claimants in the present claim, namely the claimants in the main action with the addition of Pro Vinci. As explained in the claim form, Pro Vinci asserted that it had been acting in its own right as well as on behalf of the claimants in the main action in reaching an agreement with Oscar, and that it was entitled to claim against Oscar both for breach of contract and for deceit. The undertakings in schedules A and B, taken as a whole, appeared to me to give appropriate protection to Mr Fiddler.
Paragraphs 1.3 and 2 of the order recorded that I had considered section 12 of the Human Rights Act 1998 and that I had identified reasons why notice should not be given to Mr Fiddler. I deal with these matters, and the "in private" status of the order, generally below.
Provision for a further hearing on 21 December 2015 ("the Return Date") was made in paragraph 3 of the order. Paragraph 4 dealt with access to court documents: the restrictions in that paragraph are dealt with in the general discussion of the "in private" status of the order below.
The order contained injunctions in paragraphs 5 to 7 and 10 and 11. I shall refer to paragraphs 5 to 7 as "the primary injunctions". Paragraph 5 required Mr Fiddler to disclose his knowledge regarding the identity of, and all methods which might reasonably be considered to enable communication to be made with, Oscar and Oscar's father. Paragraph 6 required Mr Fiddler to retain and preserve the video recording referred to in Irving 3 ("the Video Recording"), Metadata associated with the recording ("the Metadata"), and the mobile telephone which, according to Irving 3, was used to play the Video Recording, including relevant data storage devices (collectively "the Property"). The Metadata was specified in schedule D to the order, and seemed to me to be data which could properly be required and which had been described sufficiently clearly to identify what was required. Paragraph 7 of the order required supply by Mr Fiddler to the Independent Solicitor of the Video Recording or access to it, the Metadata, and necessary information, codes and passwords in order to access the Video Recording. This would then enable the Independent Solicitor to provide this material to the claimants' solicitors.
After setting out the primary injunctions in paragraphs 5 to 7, paragraph 8 of the order provided for the Independent Solicitor to send a notification ("the Notification") stating whether paragraph 7 had been complied with in full. If the Notification stated that paragraph 7 had been complied with in full, then the additional injunctions in paragraphs 10 and 11 would not apply. However, as stated in paragraph 9 of the order, if the Notification did not state that paragraph 7 had been complied with in full, then the injunctions in paragraphs 10 and 11 (which I shall call "the secondary injunctions") would have effect, as would the authorisation contained in paragraph 12.
Under paragraph 8 of the order the Notification was to be given at 7:30pm on 17 December 2015. If it did not state that paragraph 7 had been complied with in full, then under paragraph 10, subject to paragraph 11, the defendant was required by 12:30pm on Friday 18 December 2015 to deliver to the Independent Solicitor the Property, necessary information, codes and passwords, and power supply cables and cognate devices to render the Property functional and operational. Paragraph 11 provided that, by the same deadline, if Mr Fiddler asserted that he was unable to comply with paragraphs 7 or 10, then he should email the Independent Solicitor for onward transmission to the claimants' solicitors an affidavit stating the reason(s) and identifying the steps he had taken to comply with paragraph 6 of the order.
What was permitted to happen upon receipt of the Property and other items was set out in paragraph 12 of the order. This paragraph gave authority to the Independent Solicitor to inspect the Property for the purposes only of locating on the Property the Video Recording and the Metadata, to view the Video Recording and the Metadata, to copy the Video Recording and the Metadata and to do all such things as were incidental in that regard. Paragraph 12 also contained provision enabling the Independent Solicitor to seek assistance and to appoint an Independent Forensic Computer Expert. The history of events on that aspect, and my reasons for making provision for such appointment and authorising the Independent Forensic Computer Expert to do the things which the Independent Solicitor was authorised to do, are set out in section E6 of the 14 December Oscar assistance judgment.
Obligations of confidentiality were imposed on Mr Fiddler under paragraph 13 of the order: I deal with these when discussing privacy generally below. Paragraph 14 of the order made it clear that Mr Fiddler was entitled to use the Property in the ordinary way prior to delivery up, should a failure to comply with paragraph 7 render such delivery necessary, provided that such use was consistent with the order. There is a slip in paragraph 14: it refers to "delivering [the Property] to the Claimants" when it should refer to delivery to the Independent Solicitor. This will need correction.
Paragraph 15 of the order made provision for alternative methods of service. In that regard it seemed to me that both CPR 6.15, as regards the claim form, and CPR 6.27, as regards other documents, were relevant. It appeared from Ms Irving's evidence that the only location at which documents could be physically delivered was an address of a company, and that the status of the company was unclear. In any event, it seemed to me to be important that methods of service most likely to achieve speedy communication with Mr Fiddler should be used. The order accordingly required the claimants to use such methods, while permitting them also to serve at the address of the company.
The remaining provisions concerned the time for filing an acknowledgement of service, for the ability to apply for variation or discharge, for communications with the court, for the claimants to pay the costs of the application, and liberty to apply. These were largely in standard form. Special provision was made for communications with the court to be kept private, for reasons explained in the general observations below about privacy.
C3. Reasons for the 14 December Fiddler order
The account given of the approach by Mr Fiddler, of what he said, and of what he did, appeared to me credible. In that regard I did not rely on evidence of Dr Smith: I had no such evidence. What I had was direct evidence from Ms Irving. I had been concerned that information relevant to the September 2015 application might have been deliberately withheld. However, as explained in section F2 of the 14 December Oscar assistance judgment, it seemed to me that that it would be wrong to reach that conclusion on the material now before me.
Accordingly on the material before me there is very strong evidence that Oscar has broken an express or implied agreement to supply material which would be accessible, and has knowingly made false representations as to his intention if the agreement were to be made and as to ease of accessibility of the material when the cigarette lighter and USB stick were handed over. There is also very strong evidence that Mr Fiddler has been involved in an attempt by Oscar to communicate with Dr Smith in that regard. Thus Mr Fiddler appears, wittingly or unwittingly, to have involved himself in Oscar's wrongdoing. There is a strong public interest in allowing the claimants to vindicate their legal rights. I have no information to suggest that the information could be obtained from another source. There is ground for thinking that Mr Fiddler knew or ought to have known that he was facilitating arguable wrongdoing. He may be a joint wrongdoer, but if so that strengthens the case for an order: see X Ltd v Morgan-Grampian (Publishers) Ltd [1991] 1 AC 1 at 54, per Lord Lowry. There is no reason to think that the order might reveal the names of innocent persons. As to Oscar's right to claim confidentiality as to his identity and how he can be contacted, Oscar's privacy rights under article 8 of the European Convention for the Protection of Human Rights and Fundamental Freedoms, and his rights and freedoms under the EU data protection regime, in my view they are clearly outweighed by the considerations set out above.
I had also had concerns as to whether the order proposed in the November application would have practical utility. Their origin, in part, lay in remarks of Inspector Ellwood recorded at paragraphs [7] to [10] of the attendance note set out in section E4.3 of the 14 December Oscar assistance judgment. Ms Irving's account in section IV of Irving 5, however, satisfied me that both DC Roberts and Inspector Ellwood consider that an order of the kind proposed could be beneficial. In the light of this, of what is said in section VII of Irving 5, of the express provision made in CPR 25, and of the considerations identified by Lord Kerr in Rugby Football Union, I consider that it is in the interests of justice to require that Mr Fiddler comply with the primary injunctions, and that in the circumstances described in the order it is in the interests of justice to require him to comply with the secondary injunctions.
The order was made in private and without notice to Mr Fiddler, it requires him to observe obligations of confidentiality, and it contains provisions designed to maintain privacy and confidentiality. They include restrictions on access to court documents. At the present stage, after taking full account of section 12 of the Human Rights Act 1998, I consider that these provisions are necessary until the return date. Elementary principles of justice require that Mr Fiddler be given the background to the order, and thus be informed of the September 2015 order, what led to it, and what has taken place pursuant to it. The account given by Ms Irving of communications with Mr Fiddler causes concern that prior notice of the order would give rise to a strong risk that he would both destroy evidence and make use of what he has learnt to warn Oscar and possibly others of what has happened thus far and may happen in the future. Notice to Mr Fiddler, and wider publicity, at the present stage would for that reason alone defeat the object of the order.
D. Concluding observations
This judgment, and the 14 December Oscar assistance judgment, must be provided to Mr Fiddler without delay. It remains private and confidential until 6pm on the return date. If the claimants conclude that the September order should cease to have "in private" status after 21 December 2015, then they may also consider that obligations of privacy and confidentiality under the 14 December Fiddler order should cease at the same time. If, however, the claimants consider that there may be circumstances in which this judgement, and other matters dealt with by the 14 December Fiddler order should continue to attract obligations of privacy and confidentiality, then they must issue an application notice for that purpose and serve it on Mr Fiddler in sufficient time to enable him to consider it prior to the return date. This will also be the case in relation to any other variation of the order which the claimants intend to propose on the return date. |
Mr Justice Walker:
A. Introduction 1
B. The main action 5
C. Dr Smith, Dr Cochrane, Pro Vinci and Ms Irving 9
D. The September 2015 application 13
D1. The September 2015 application: general 13
D2. September 2015 application: the allegations 14
D3. September 2015 application: some key features 18
D3.1 Features of the application: general 18
D3.2 What the applicants proposed to do 19
D3.3 Why a court order was sought 26
D3.4 Extent of knowledge about Oscar 35
D3.5 Interaction with the police 37
D3.6 Criticisms of, and allegations against, Mr Ruhan 46
D3.7 Full and frank disclosure 52
D4. September 2015 application: order & reasons 67
D4.1 The September 2015 order: general 67
D4.2 The content of the September 2015 order 68
D4.3 The broad reasons for the September 2015 order 75
E. Events after 25 September 2015 81
E1. Events after 25 September 2015: general 81
E2. The 23 October letter, Mr Oslov, and the 26 October order 82
E3. Hearing on 27 November 2015 86
E3.1 Hearing on 27 November 2015: general 86
E3.2 Proposed directions/no "useful purpose" 87
E3.3 The 18 November directions 89
E3.4 Irving 2: Dr Hunton; Mr Oslov; partial update on the police 91
E3.5 Skeleton arguments in November 2015, and Mr Fiddler 98
E3.6 Irving 3: Mr Fiddler and Oscar's video 116
E3.7 Irving 3's account of interaction with the police 131
E3.8 What happened at the 27 November hearing 139
E4. Hearing on 30 November 2015 147
E4.1 The 30 November hearing: general 147
E4.2 The 30 November skeleton argument 148
E4.3 Irving 4: further interaction with the police 159
E4.4 What happened at the 30 November hearing 162
E5. Hearing on 10 December 2015 166
E5.1 The 10 December hearing: general 166
E5.2 Irving 5 168
E5.3 The hearing on 10 December 2015 174
E6. Hearing on 14 December 2015 186
F. Analysis and conclusion 195
F1. Analysis and conclusion: general 195
F2. The stage now reached 196
F3. What lies ahead 197
F4. Conclusion 199
Annex 1: The 18 November directions Annex
A. Introduction
Note: this judgment, released publicly on 26 February 2016, sets out unchanged what was said in the "In Private" judgment giving reasons for orders made by me during the period up to and including 14 December 2015.
This judgment is given in private. It is to be treated as having been handed down on 14 December 2015 at the restored hearing of an application ("the September 2015 application") made by the claimants and granted by me on 25 September 2015. I ordered under CPR 39.2 that the hearing that day ("the 25 September hearing") should be in private. I also ordered that the material prepared for the hearing, and the order made in consequence of the hearing, should be treated accordingly. The reason for granting the status of "in private" was that the claimants asserted that publicity would defeat the object of the application. When granting the status of "in private", I added that this status was conferred "for the time being".
The defendant has had no notice of the hearings before me. I stress that the account given below is based on the claimants' allegations only. That account may well be rebutted by the defendant.
Although the September 2015 application was made in private, it was made in an extant and public commercial claim ("the main action"). I describe the main action in section B below. In section C below I record certain aspects of what has been said about the applicants and those who assist them. Section D below describes the September 2015 application, the order that I made on 25 September 2015 ("the September 2015 order"), and the reasons for that order. Section E below describes events after 25 September 2015, including hearings held in private, and attended by the claimants' side only, on 27 November, 30 November and 10 December 2015. In section F below I set out my analysis and my conclusions.
I shall give a separate judgment in relation to a different application ("the November 2015 application"). When first proposed in November 2015 it was suggested that it would be made by the same entity and individuals as constitute the claimants in the main action. The November 2015 application was the subject of a substantial part of the submissions by counsel for the claimants on 27 November, 30 November and 10 December 2015. At the hearing on 10 December 2015 counsel for the claimants stated that the November 2015 application would be the subject of a separate claim form, the parties to which would differ in certain respects from those in the main action.
B. The main action
The main action, when the claim form was issued in 2012, was registered as folio number 1414. A new registration system for commercial court claims is now in place. Under that system the claim has been renumbered as CL-2015-00625. The claimants, who are the applicants in both the September 2015 application and the November 2015 application, comprise Orb A.R.L. ("Orb", a company formed under the law of Jersey), Roger James Taylor ("Mr Taylor") and Nicholas Thomas ("Mr Thomas"). The defendant is Andrew Joseph Ruhan ("Mr Ruhan"). The solicitors currently on the record for the claimants are Stewarts Law LLP ("Stewarts Law"). For Mr Ruhan the solicitors currently on the record are Memery Crystal LLP ("Memery Crystal").
In a skeleton argument prepared by Mr James Drake QC, Mr Nicholas Gibson and Ms Sarah Martin on 25 September 2015 ("the 25 September skeleton argument") the parties and the nature of the case were described in paragraphs 5 to 9 as follows:
5. In these proceedings generally, the Claimants seek damages and other relief for breach of the terms of an agreement, concluded at a meeting on 6 May 2003, constituting a joint venture between Dr Gerald Smith…, …Mr Taylor and … Mr Ruhan … and/or in respect of Mr Ruhan's breach of his fiduciary duties owed to the Claimants in connection with the agreement.
6. The agreement related to valuable assets owned by the First Claimant. In particular, they concerned a portfolio of hotels including three hotels bordering Hyde Park which all parties recognised were likely to realise significant profits if converted into luxury apartments.
7. While the deal struck between the parties was later partially recorded and given effect by complex written commercial transactions, the key facet of their deal was agreed orally: the Claimants would share in the net financial benefits realised from the development and disposal of the assets to be sold by the First Claimant to Mr Ruhan, after making provision to reimburse monies owed by the First Claimant to another party, Izodia Plc.
8. The Claimants allege that Mr Ruhan has failed to account to the Claimants for their respective shares of those profits, placing him in breach of the agreement and in breach of his fiduciary duties to the Claimants.
9. Mr Ruhan, in turn, makes a number of counterclaims arising from the fact that, following the settlement of related proceedings in the Isle of Man between the claimants (and their associates) and certain of Mr Ruhan's former business associates, the Claimants have acquired assets which they say derive from the assets transferred to Mr Ruhan under the 6 May 2003 oral agreement. Mr Ruhan now asserts proprietary claims in respect of those assets and seeks related relief. He also makes personal claims including for dishonest assistance and unconscionable receipt. The Claimants deny any wrongdoing; it has always been their pleaded position that they will account to Mr Ruhan following trial if it transpires that they have recovered assets with a value greater than their claims.
Paragraph 10 of the 25 September skeleton argument set out recent procedural history in the main action:
10. The procedural history to this matter is complex and, for the most part, not relevant to the present application. In summary, however:
10.1 The claim was issued in October 2012 and the original pleadings closed in April 2013.
10.2 The first CMC was heard before Males J in October 2013.
10.3 Following, and as a result of, the settlement of related proceedings in the Isle of Man in March 2014, the parties each made various applications including: to amend their respective pleadings; to join additional parties; and for injunctive relief. The last of those applications was made in September 2014, and they were heard over 4 days before Cooke J in February 2015 with further hearings of related matters over 3 days in March 2015.
10.4 Meanwhile, at hearings before Dingemans and Warby JJ in December 2014 and March 2015 respectively, certain of the claimants and persons associated with them applied for and obtained Norwich Pharmacal relief in respect of [possible wrongdoing by or involving Mr Ruhan].
10.5 Between April and August 2015, the parties were engaged in without prejudice settlement negotiations which proved inconclusive.
10.6 Since then, further matters have arisen resulting in applications the listing of which is imminent and the parties understand are likely to be heard over at least 3 days in early 2016.
The applications described in paragraph 10.3 of the 25 September skeleton argument resulted in an order of Cooke J dated 11 February 2015. Pursuant to that order amended particulars of claim ("the February 2015 particulars") were served on 27 February 2015. In relation to the agreement described in paragraphs 5 to 7 of the 25 September skeleton argument, the February 2015 particulars stated in paragraph 31 that it was:
agreed between Dr Smith and Mr Taylor (acting on behalf of Orb and Mr Thomas), Mr Taylor (acting on his own behalf) and Mr Ruhan (acting on his own behalf).
C. Dr Smith, Dr Cochrane, Pro Vinci and Ms Irving
Dr Smith became the Chief Executive Officer of Orb in 2002, and held that position until he resigned in April 2006. Information about Orb, Dr Smith, and Dr Smith's former wife, Dr Gail Cochrane, is set out in paragraph 3 of the February 2015 particulars in this way:
3. ... In August 2002, following a corporate reorganisation, Orb became the ultimate holding company of a group ("the Orb Group") with interests in hotels, commercial and warehouse properties, transport and logistics businesses, and venture and private capital. As at October 2002, the gross assets of the Orb Group were valued at in excess of £1.5 billion, with net assets of approximately £387 million. The entire issued share capital of Orb is registered in the name of Primary Trust Limited. Primary Trust Limited holds the shares as the sole trustee of the Ozturk No. 2 Settlement, a trust established by Mr Ozturk who was a close family friend and business associate of Dr Gerald Smith (the chief executive officer of Orb). Dr Gail Cochrane (the former wife of Dr Smith) and their two daughters are the sole beneficiaries of that trust.
More information about Dr Smith is set out in paragraphs 16 to 21 of the February 2015 particulars. Those paragraphs concern what is described as a "problem" that arose in relation to assets of Izodia Plc ("Izodia"), a company incorporated in England and Wales. Izodia is the company referred to in paragraph 7 of the 25 September skeleton argument: see section B above. According to the February 2015 particulars, Stomp Limited ("Stomp", a direct subsidiary of Orb), held a substantial minority shareholding in Izodia. Paragraphs 16 to 21 of the February 2015 particulars stated:
16. Between August and November 2002, monies totalling approximately £35 million were transferred from Izodia's bank account to companies within the Orb Group and used for the purposes of the Orb Group. Of this sum, approximately £2.78 million was returned to Izodia, leaving a balance of £32.3 million owing to Izodia.
17. On 16 December 2002, in the course of investigating those transfers, the Serious Fraud Office ("the SFO") raided Orb's offices in London and in Jersey. Those raids, and the considerable adverse publicity that followed, had a serious adverse effect on market confidence in the Orb Group and its ability to continue financing its businesses. In particular, it appears that Morgan Stanley was concerned that there were, or were about to be, events of default under one or more of its facilities. Morgan Stanley was also concerned about the reputational risk arising out of the SFO investigations into the transfers described at paragraph 16 above.
18. A further consequence of the SFO's investigations was that Dr Smith personally faced the prospect of criminal sanctions. In addition, in early 2003, Izodia brought proceedings in Jersey against, among other defendants, Orb and Dr Smith for recovery of the sums transferred from Izodia's bank account ("the Izodia Claim"). Dr Smith therefore had a direct interest in ensuring that the disposal of the Orb Assets would provide sufficient monies for Izodia to be repaid in full.
19. In April 2006, Dr Smith pleaded guilty to a number of charges relating to the transfer of Izodia's monies and was subsequently sentenced to eight years in prison. By a consent order dated 13 November 2007, Dr Smith agreed to a confiscation and compensation order in the sum of approximately £41 million ("the Confiscation Order"), upon which interest continues to accrue.
20. On 7 April 2008, Mr Jeremy Outen and Mr Finbar O'Connell ("the Enforcement Receivers") were appointed to enforce the Confiscation Order. The Confiscation Order referred specifically to the benefit accruing to Orb from the arrangements entered into with Mr Ruhan, which form the subject matter of this claim. The Claimants understand that the Enforcement Receivers made, but subsequently withdrew, a claim against Mr Ruhan. Before withdrawing their claim, the Enforcement Receivers had corresponded with Mr Ruhan's solicitors, Bridgehouse Partners, regarding the claim. In responding, Bridgehouse Partners, the firm of which Mr McNally and Mr Cooper were partners, denied that there had been an agreement between the Claimants and Mr Ruhan in the terms described in these Particulars. The Claimants further understand that the Enforcement Receivers accept that they are only in a position to enforce claims belonging to Dr Smith personally. The claims against Mr Ruhan set out in these Amended Particulars of Claim are for Mr Ruhan's breach of his oral agreement with and his fiduciary duties owed to Orb, Mr Taylor and Mr Thomas, and not Dr. Smith.
21. The Claimants have agreed with Dr Smith that, in return for his cooperation and assistance with the proposed action, they will transfer to him 50% of the sums recovered in these proceedings (after deduction of their costs and expenses of the claim) up to the amount owing by Dr Smith under the Confiscation Order. Any such sum received by Dr Smith on this basis would be his realisable property as defined by section 71 of the Criminal Justice Act 1988, and thereby payable to Dr Smith's Enforcement Receivers to discharge wholly or in part the Confiscation Order.
The evidence in support of the September 2015 application comprised a first affidavit of Ms Sinead Irving sworn on 25 September 2015 ("Irving 1"). Ms Irving is an employee of Pro Vinci Limited ("Pro Vinci"). Her affidavit stated at paragraphs 1 and 4:
1. I am employed by Pro Vinci Limited ("Pro Vinci"), as an Executive Assistant. From 30 August 2013 to 25 September 2013 I was also Pro Vinci's director. Whilst I am no longer its director, I remain a director of Pro Vinci Asset Management Limited, one of Pro Vinci's sister companies, having been so appointed on 1 February 2015, and I am the director of various other companies managed by Pro Vinci which are not relevant to this application.
…
4. My role at Pro Vinci is to assist Ms Dawna Stickler, who is the Managing Director and sole shareholder of Pro Vinci. Pro Vinci is the provider of family office services to Dr Cochrane's family. As Dr Cochrane has explained in her earlier evidence in these proceedings:
a. she is a practising general practitioner living and working in Jersey and she has practised medicine since 1984;
b. she is also the director and sole owner of Orb a.r.l. ("Orb") which is the First Claimant in the Commercial Court proceedings described below and within which this application is made;
c. she is involved with Orb because Orb held a substantial part of the assets of her immediate family i.e. herself and her two daughters; and
d. since her medical practice is a full time role, the family office, Pro Vinci, assists with the management of her family's affairs.
I deal further with Dr Smith and Orb in subsequent sections of this judgment.
D. The September 2015 application
D1. The September 2015 application: general
Section D2 below sets out, as summarised in the 25 September skeleton argument, the factual allegations upon which the September 2015 application was based. In section D3 I identify some key features. Section D4 describes the order made on 25 September 2015 ("the September 2015 order"), and my reasons for making that order.
D2. September 2015 application: the allegations
An account of the alleged primary facts giving rise to the September 2015 application was given in the 25 September skeleton argument in eleven sub-paragraphs of paragraph 13. Before setting them out, I note that they include a reference to what is described as "tor". In this regard, Ms Irving explained in paragraph 33 of Irving 1:
I understand from web-based research that "tor" is free software for enabling anonymous communication. The name is an acronym derived from the original software project name The Onion Router. It is described as 'onion' routing because encryption is added in layers, like the layers of an onion.
The eleven sub-paragraphs of paragraph 13 of the 25 September skeleton argument stated:
13.1 On 3 September 2015, Ms Irving received a phone call on her mobile phone from an individual calling himself 'Oscar', who was a computer hacker. He wanted to speak to Dr Smith.
13.2 Later the same day, 'Oscar' called back and Ms Irving passed the phone to Dr Smith. During that call, 'Oscar' arranged to meet with Dr Smith at a branch of Starbucks in Conduit Street, London W1S 2BX, on Monday 7 September.
13.3 On 4 September, Ms Irving of Pro Vinci reported the incident relating to 'Oscar' to the London Metropolitan Police, and the matter was recorded under Police CAD number 6538724/15. She provided them with a note of the call with 'Oscar'. Ms Irving has subsequently also provided attendance notes of further contacts with 'Oscar'.
13.4 During that meeting, 'Oscar' explained to Dr Smith that he had been approached, via an anonymous agent, to do a 'file drop' of child pornography on to Pro Vinci's computer servers (essentially, to plant this material) and to make it look like the pornography had been repeatedly accessed.
13.5 At a further meeting between Dr Smith and 'Oscar' on 10 September 2015, 'Oscar' explained that he could provide Pro Vinci with evidence that the instruction to upload the pornography to Pro Vinci's servers had originated from an Internet Protocol (IP) address associated with a vessel, moored off the coast of Mallorca. He said that he would need £30,000 in order to purchase equipment to be able to trace the IP address through satellite links.
13.6 On 14 September, Sinead Irving and Dr Smith, along with Sean Upson and Adam Erusalimsky of Stewarts Law (solicitors for the Applicants), met with 'Oscar' at the Westbury Hotel in London where he again explained the nature of the approach he had received.
13.7 He explained how he could fabricate event logs, to make it look like the pornographic images were hosted by a website or accessed at certain times (namely, by copying logs from a real website and uploading them to Pro Vinci's servers).
13.8 'Oscar' also explained that he had been offered £50,000 to complete the file drop, and appeared to suggest that he was already in possession of the zip file containing the pornographic images.
13.9 Having agreed to accept 'Oscar's offer of assistance, following the meeting, Tim Power, an employee of Pro Vinci, met with Dr Smith and 'Oscar' in the corridor of the Westbury and paid 'Oscar' £30,000 in cash, which 'Oscar' had earlier identified as the amount he required for the purchase of required equipment.
13.10 During a phone call with Ms Irving on 23 September, Oscar explained that the pornographic material had been delivered to a 'tor-enabled onion-loaded server' by attaching a zipped file to a link provided by Oscar, and that he had seen some thumbnails of the material.
13.11 Later that day, in another phone conversation, Oscar explained to Ms Irving that in another brief chat room conversation with the client, he had been told that the file drop needed to take place on 19 October, and that it would be supervised. He added that that communication had not emanated from the vessel.
Paragraph 14 of the 25 September skeleton argument set out, in five sub-paragraphs, what it described as the "salient facts" pointing to the approach to Oscar in the "anonymous chat room" having emanated from "Mr Ruhan and/or his associates". Before setting out these sub-paragraphs, I note that Ms Irving in paragraph 18(a) of Irving 1 described the offer which Oscar said was made to him in late August 2015 as the "Approach". I also note that in paragraph 18(f) Ms Irving described one of the claims made by Oscar at the meeting on 14 September 2015, and added her own explanation of part of that claim:
f. he has or can obtain data which can demonstrate that the origin of the Approach can be tracked to Palma, Mallorca and then onto a particular 50 mile area which is mostly covered by sea and then onto a particular boat with a specific MMSI number associated with the boat "Babylon"; (I now understand from the Ofcom website … that MMSI is an abbreviation standing for "Maritime Mobile Service Identity" which is a number issued to vessels fitted with special communications equipment);
The five sub-paragraphs of paragraph 14 of the 25 September skeleton argument stated:
14.1 During Dr Smith's meeting at Starbucks with 'Oscar' on 7 September, 'Oscar' told him that he had tracked the origin of the instruction and "thought it was something to do with Ruhan".
14.2 Mr Andrew Ruhan has a controlling interest in the Maltese company Ainos Shipping, of which the sole asset is the vessel the mv 'Babylon', and Mr Ruhan lives on board the vessel.
14.3 As explained in paragraph 13.5 above, at a further meeting between Dr Smith and 'Oscar' on 10 September 2015, 'Oscar' explained that he could provide Pro Vinci with evidence that the instruction to upload the pornography to Pro Vinci's servers had originated from an Internet Protocol (IP) address associated with the vessel, the mv 'Babylon', moored off the coast of Mallorca.
14.4 Mr Lopez is an associate of Mr Ruhan, and the founding partner of Genii Capital. Oscar explained during the meeting on 14 September (with Stewarts Law) that a device associated with Gerard Lopez had a "continuous connection to the location where the messages to Oscar were coming from", and that he had identified a connection between Lopez and Genii Capital. The initial approach, he said, came from a man named 'Hobday', another associate of Mr Ruhan.
14.5 In a phone call with Ms Irving on 22 September, 'Oscar' said that he had discovered that the mv 'Babylon' had 4 IP addresses, and that one of them was a route IP address and that this one was linked to the conversation. He said he had been contacted through various devices – a tablet, iPhone and laptop all using the same IP from the vessel.
D3. September 2015 application: some key features
D3.1 Features of the application: general
Below I describe some key features of the September 2015 application. Section D3.2 concerns what the applicants said that they proposed to do. In section D3.3 I set out the explanation given for seeking a court order. Section D3.4 describes what was said, in relation to Oscar, about the knowledge of Mr Ruhan and others. In section D3.5 I describe what was said on 25 September 2015 about interaction with the police. In section D3.6 I note certain criticisms of Mr Ruhan, and additional allegations made by the claimants about Mr Ruhan's conduct. Section D3.7 records matters concerning each of Dr Smith and Orb which Mr Drake drew to my attention.
D3.2 What the applicants proposed to do
The 25 September skeleton argument stated at paragraph 15:
15. Notwithstanding the above facts, which provide evidence showing that the source of the approach was connected with Mr Ruhan, the Claimants need to conduct further investigations in relation to the material in order to confirm the identity of the client and obtain evidence to verify Oscar's information before they will be in a position to make a substantive application for relief in the context of these proceedings. To this end the Claimants have consulted Dr Paul Hunton, a cybercrime / hacking expert, with a view to instructing him to analyse the relevant materials once received.
At an early stage of the 25 September hearing Mr Drake added orally:
I come then to the application. It puts us in a difficult position. We have been approached by someone who, on the face of things, is credible with information that, on the face of things, implicates people involved in these proceedings, either Mr. Ruhan or his associates, and it behoves us to be very careful, plainly, to ensure that the information that is being provided to us is right and, in order to do that, we need to test the information. In order for us to test the information, we need to receive the information. …
In the course of oral submissions a question arose as to what claim on the part of the applicants would be advanced by, in the words of paragraph 15 of the 25 September skeleton argument, "further investigations in relation to the material in order to confirm the identity of the client and obtain evidence to verify Oscar's information [so that] they will be in a position to make a substantive application for relief in the context of these proceedings". In that regard, as well as a "substantive application…" in the main action, three additional potential remedies were identified in paragraph 46 of the 25 September skeleton argument:
46. Once the relevant material has been analysed and the source of the instructions to 'Oscar' can be confirmed, then the Claimants (and others), Dr Smith and/or other appropriate individuals will pursue remedies to protect themselves and their interests by seeking any one or more of the following:
46.1 an injunction, e.g. under section 3 of the Protection From Harassment Act 1997; and it is intended that such relief be sought prior to 19 October, i.e. before the person instructing 'Oscar' requires him to carry out the 'file-drop' intended to incriminate the Claimants and others in serious wrongdoing;
46.2 a private prosecution; and/or
46.3 a permanent prohibitory injunction prohibiting Oscar's client from procuring the upload of any data whatsoever to Pro Vinci's or the First to Third Applicants' servers, computers, laptops, mobile phones and other digital devices.
As to deployment of relevant information in the main action, Mr Drake stressed the potential impact on Mr Ruhan's credibility at trial:
The claim or claims that are being asserted by the various parties in these proceedings will turn on, by some measure, the credibility of the witnesses. If it transpires that this conduct - and I say "if" - if it transpires that this conduct was at the behest of Mr. Ruhan, then that will go to a matter of credibility and, thus, go to the integrity of his claim. …
After Mr Drake had taken me through the additional potential remedies in paragraph 46 of the 25 September skeleton argument, I noted that Mr Drake had not mentioned a claim for contempt of court. Mr Drake responded that contempt of court had not been mentioned only because he had not thought about it. He added:
We did consider whether it might be regarded as abusive if it comes to pass, but we were not entirely certain whether it fell under that rubric.
This fourth possible type of additional remedy was left on the basis that the applicants did not rule out the possibility that the alleged conduct of Mr Ruhan might constitute a contempt of court or an abuse.
D3.3 Why a court order was sought
Paragraph 16 of the 25 September skeleton argument stated:
16. All material and evidence provided to Stewarts Law by 'Oscar' will of course be provided to the Metropolitan police and any other relevant authorities. The Claimants and Stewarts Law are, however, understandably concerned that once they have access to the link to the tor server, and the pornographic material thereby comes into their possession, there is a risk of automatic commission of one or more criminal offences. The Claimants have identified, in particular, the following:
16.1 section 1, Protection of Children Act 1978 ("PCA");
16.2 section 160, Criminal Justice Act 1988; and
16.3 an inchoate offence under Part 2 of the Serious Crime Act 2007.
In relation to these statutory provisions, a footnote in the 25 September skeleton argument drew attention to section 1(4) of the PCA; section 160(2) of the Criminal Justice Act 1988; and section 50 of the Serious Crime Act 2007. It is convenient to set out extracts from those provisions here:
(1) Section 1(1)(c) of the PCA makes it an offence for persons, among other things, to make indecent photographs or pseudo-photographs of a child, to distribute or show them, or to have them in their possession with a view to their being distributed or shown by the person charged or others. However by section 1(4) it is a defence to prove, under section 1(4)(a):
… that [the person charged] had a legitimate reason for distributing or showing the photographs or pseudo-photographs or having them in [that person's] possession. …
(2) Under section 160 of the Criminal Justice Act 1988 it is an offence for a person to have any indecent photograph or pseudo-photograph of a child in that person's possession. However, under section 160(2)(a), it is a defence for that person to prove:
… that [the person charged] had a legitimate reason for having the photograph or pseudo-photograph in [that person's] possession. …
(3) Part 2 of the Serious Crime Act 2007 creates offences of intentionally encouraging or assisting an offence, encouraging or assisting an offence believing it will be committed, and encouraging or assisting offences believing one or more will be committed. As regards all the offences thus created section 50(1) gives a defence if those charged prove that what they did was reasonable in the circumstances known to them. Section 50(2) gives a similar defence where those charged prove that they believed certain circumstances to exist, that their belief was reasonable, and that it was reasonable for them to act as they did in the circumstances as they believed them to be. Factors which are to be considered in determining whether it was reasonable for those charged to act as they did are set out in section 50(3), and include:
(c) any authority by which [the person charged] claims to have been acting.
Paragraph 17 of the 25 September skeleton argument stated:
17. The Claimants seek the present orders in advance of taking any steps to secure the pornographic material so that the material may be obtained with the Court's sanction, and so insofar as it is necessary to establish that the Claimants had 'legitimate reason' (or the equivalent) for committing any offence, the Court orders will provide such legitimate reason.
The September 2015 application sought relief both under CPR 25.1(1)(c) and under the inherent jurisdiction of the court. As to CPR 25.1(1)(c), this provides that the court may grant an order:
(i) for the detention, custody or preservation of relevant property;
(ii) for the inspection of relevant property;
…
(iv) for the carrying out of an experiment on or with relevant property.
The words "relevant property" are defined in CPR 25.1(2) for present purposes as meaning:
Property (including land) which is the subject of a claim or as to which any question may arise on a claim.
The 25 September skeleton argument explained in paragraph 22 that it was not suggested that the property in question was the subject of a claim. The applicants' case is that the property falls within paragraph (1)(c) because it is property "as to which a question may arise on a claim by the claimants and others to be made against the perpetrators." Paragraph 23 of the 25 September skeleton argument added:
23. In the present case, the 'relevant property' is as follows:
23.1 screen shots and data showing the original chat room conversations between 'Oscar' and the client;
23.2 the pornographic images themselves, on the zip file;
23.3 the satellite data that 'Oscar' obtained, showing that the communications emanated from the mv 'Babylon'; and
23.4 data which demonstrates the connections with Lopez and Hobday.
In paragraphs 24 to 40 of the 25 September skeleton argument the applicants set out detailed submissions explaining why the order that they sought could be made pursuant to powers concerning detention, custody or preservation of relevant property under CPR 25.1(2) sub-paragraph (c)(i), inspection of relevant property under sub-paragraph (c)(ii), and carrying out of an experiment on or with relevant property, within sub-paragraph (c)(iv). It was stressed that the order was concerned with only four, relatively confined, classes of material. It was also submitted that an order protecting those acting on behalf of the claimants from criminal prosecution would be proportionate to the objective of allowing the claimants to protect themselves as the victims of civil and criminal wrongs, and all the more so in circumstances where it was clear that the claimants' conduct was unrelated to the mischief which the criminal offences were intended to proscribe, namely the sexual abuse and exploitation of children. It was urged that what was proposed was reasonably necessary in order to advance future applications and claims which turned on establishing the identity of the person who gave the instructions to plant the indecent images on Pro Vinci's server.
Questions of human rights were addressed in paragraph 37 of the 25 September skeleton argument as follows:
37. … there is no question of the human rights of the people whose information is on the device being under threat. It is submitted that the metadata relating to the identity of those who created the images either does not engage any relevant human right or, even if it did, any such right would be trumped by the Claimants' superior justification for interrogating that data, e.g. the protection of others (including children abused in creating such images). To the extent that the human rights of the children are engaged in relation to their privacy and dignity, it is submitted that inspection is justified for the same reason as just given, i.e. the public interest in prosecuting such crimes and other wrongdoing.
In relation to confidentiality, paragraph 39 of the 25 September skeleton argument stated:
39. Finally, while confidentiality as such does not arise on the facts, there would be no difficulty in the Claimants' expert, Dr Hunton, and/or any other person who is given access to the file (including, for instance, individuals at Stewarts Law) providing confidentiality undertakings in accordance with factor (f), should the Court consider it appropriate to do so.
D3.4 Extent of knowledge about Oscar
Stewarts Law's letter to the Commercial Court on 7 September 2015 described, among other things, an application which the claimants proposed to make concerning alleged intimidation or harassment by Mr Ruhan. It was said to be the claimants' intention to produce evidence in that regard by 30 September 2015. Paragraph 24 of the letter stated that the claimants had "repeatedly expressed well-founded concerns that Mr Ruhan has been orchestrating a campaign of intimidation of our clients and their associates, including their proposed witnesses in their case against Mr Ruhan and threats to Dr Cochrane's two daughters." I deal with those matters, which include allegations examined by Dingemans and Warby JJ in judgments handed down in December 2014 and March this year respectively, in section D3.6 below. Paragraph 24 said that the relevant concerns formed the basis for this particular proposed application, which had been described in a fourth letter from Stewarts Law to Memery Crystal dated 7 August 2015. Paragraph 25 of the letter noted certain features of the proposed evidence, and added that, as would be set out in the evidence to be filed in support of the application:
… the campaign of harassment of our clients is ongoing, with the latest incident of harassment occurring as recently as last week on Thursday, 3 September 2015.
The letter of 7 September was copied to Memery Crystal. Ms Irving stated at paragraph 9 of Irving 1 that the reference to "the latest incident" on 3 September 2015 was a reference to Oscar's phone conversation with Dr Smith that day. However this was not explained in the letter.
D3.5 Interaction with the police
Irving 1 stated at paragraph 10:
10. I also explain below how the Applicants have made reports of various matters to the police over the last two years. I reported the above incident [i.e. the events of 3 September 2015] to Danny Shipston of the London Metropolitan police on 4 September 2015 and it was recorded under Police CAD number 6538724/15 later that day at 16:30. Police Officers Sarah Jane Morrison and Tim Molden attended our office to obtain more information.
After describing Dr Smith's first meeting with Oscar on 7 September 2015, Irving 1 continued at paragraph 13:
13. Following the meeting with Oscar, Dr Smith asked me to telephone Oscar on Wednesday 9 September 2015 to arrange a further meeting. In the meantime I made a further report to the police, recorded under the same CAD number, and Police Officers Russell Coletti and Thomas May attended Pro Vinci's offices on 9 September 2015 to discuss the on-going incident.
Emails forming part of exhibit "SCI 1" ("the SCI 1 emails"), when taken in chronological order, began with an email dated 9 September 2015, timed at 14:36. This email was sent by Ms Irving to police officers Coletti, May, and Molden, and appears to have attached images taken from Pro Vinci's meeting room window when Dr Smith met Oscar on 7 September. Among other things it gave contact details for Mr Ruhan and Memery Crystal:
Dear Tim
Please see attached some images that I took from our meeting room window when Gerald met with the "hacker".
…
Andrew Ruhan has several addresses. He spends a lot of time on his boat, MY Babylon which is normally situated in Majorca or Ibiza.
You will probably need to call him to arrange a meeting as he moves around a lot – his mobile is [details were set out].
Alternatively, you could arrange a meeting through his solicitors who are: [details were set out]
The office that Mr Ruhan shares with Genii Capital is at [details were set out].
I look forward to hearing from Thomas or Russell regarding the forensics issue we discussed and to seeing one of them later with regard to the statement for the usb stick I handed over.
I have discussed this issue with Dawna and Gerald (and our solicitors) and we all feel that we would rather this was progressed sooner rather than later. As discussed this morning, please assign this (or certainly the interview process) to someone who is available this week or early next so that we can finally get some assistance with this ongoing harassment and eventually some peace.
Many thanks
Sinead
Continuing in chronological order, the next SCI 1 email was sent by Ms Irving at 13:39 on 10 September 2015 to officers Coletti, May, Molden and Shipston. It stated:
Dear All
Gerald has just had a further meeting with the hacker and I have managed to secure the cup he was drinking from and the cigarette butts from which he was smoking. They are in a plastic wallet but I think it is important that someone comes to collect these for forensics as soon as possible to avoid any contamination etc.
I will also be able to supply you with a report on the recent meeting once I have typed it up which I hope to do shortly.
Please can someone let me know who will be available to collect this evidence today?
Thanks
Sinead
After her description in paragraph 15 of what was said by Oscar at the second meeting with Dr Smith on Thursday 10 September 2015, Ms Irving stated at paragraph 16 of Irving 1:
16. On 11 September 2015 a further complaint was submitted to the police under the same CAD reference number via email as the officers allocated to the matter were all on courses or working night shifts. I exhibit a copy of the email chain (SCI 1 page 17-21).
The email chain referred to by Ms Irving comprised the remainder of the SCI 1 emails and consisted of 3 emails sent on 11 September 2015. As to these:
(1) The first was sent by officer Molden to Ms Irving at 08:43:
Hi Sinead,
Thank you for securing the evidence. As discussed on Wednesday my team are now on nights and start at 8pm tonight. Would 8pm be too late this evening?
Kind Regards
Tim
(2) The second was from Ms Irving to officers Molden, Coletti, May and Shipston, timed at 09:02:
Hi Tim
Thank you for your email.
I have actually arranged for the evidence to go to Dr Denise Syndercomb Court, a Reader in Forensic Science at King's College London as I thought it prudent that this was not delayed.
I will have a statement later today for you which I would like you to review. As you can imagine, this chap is now asking for a large sum of cash for information and wants to meet again on Monday.
Lesley Nott at the forensics centre has said that she would need strands of dna from everyone else who touched the cup to be able to eliminate us. However, there were probably 2 Starbucks assistants that touched it, myself, Darren and Gerald as well as Oscar. I was hoping that the forensics team could just provide you with all of the dna from the cup and that you could search your databases to produce a list of people. Anyway, I am not sure how this works as it is not my usual line of business so the lab have asked if whoever at your office is dealing with this could be put in touch with them to ascertain exactly what you want. Apparently they have worked with the police before and are very good. If you could confirm who I should make the intro to that would be good.
I am attaching some images from the meeting yesterday, a few of which are very close up of his face – I assume these will assist you but let me know what you think.
I wont be around to meet with anyone tonight as I will be on a train to Cornwall but if someone could call me after 8pm that would be fine.
Thank you.
Sinead
(3) The third and last of the emails on 11 September 2015 in exhibit "SCI 1" was from Ms Irving to the same officers, timed at 13:51. It attached a document dealing with the meeting of 10 September at 1pm, and a witness statement of Mr Darren Woodhead. The body of the email stated:
Dear All
Please see attached two statements regarding the meeting of yesterday.
I look forward to speaking with someone later tonight.
Thanks
Sinead
Irving 1 at paragraph 43 referred to paragraphs 10, 13 and 16 as cited above. It added:
43. … In fact, throughout the two-year period commencing in October 2013, the Applicants have made regular complaints to the Metropolitan police in respect of [various identified incidents of harassment prior to September 2013]. The Applicants do intend, however, to pass any material obtained to the police.
At paragraph 44 Irving 1 stated:
44. Pro Vinci particularly seek an order to secure the evidence from Oscar themselves because, given his background and his links with the Anonymous group and his reluctance even to attend at Stewarts Law's offices, it is obvious that Oscar will not voluntarily provide that information directly to the police himself. If Dr Hunton concludes that Oscar's allegations are true, the Applicants will consult with specialist lawyers to consider whether it would be appropriate with a view to commencing a private prosecution.
Consistently with these observations by Ms Irving, the 25 September skeleton argument stated at paragraph 16 (see section D3.3 above) that all material and evidence provided to Stewarts Law by Oscar would be provided to the Metropolitan Police and any other relevant authorities. In the course of oral submissions on 25 September 2015 Mr Drake raised the question whether the order to be made by the court should permit property falling within the order to be delivered to the police. Arrangements for this were the subject of submissions leading to the provision eventually made in paragraph 2 of the order. No other express reference to the police was made during the course of oral submissions on 25 September 2015.
D3.6 Criticisms of, and allegations against, Mr Ruhan
Irving 1 at paragraph 49 noted that the conduct of all the parties had been criticised by the court. Paragraph 49 gave examples of criticisms not only of Mr Ruhan but also of the claimants. Although the present section is concerned with criticisms of Mr Ruhan, it is convenient to set out the entirety of paragraph 49:
49. This litigation has been described as no holds barred litigation. The proceedings between the Applicants and Mr Ruhan are bitterly contested and no expense has been spared by any party in litigating the case. The Claimants, Mr Ruhan and their associates have also engaged in related litigation in the BVI and the Isle of Man. The conduct of all the parties, including the Claimants, has been criticised by the Court. I refer in this regard to the following examples of criticisms made in judgments:
a. Judgment of Registrar Barber dated 19 December 2014 (SCI 1 pages 151-192) in respect of Skypark Limited's unsuccessful petition heard on 29 and 30 October 2014 in the High Court in Bankruptcy to bankrupt Mr Ruhan, which was dismissed with indemnity costs and in which the Registrar described the Skypark Limited's petition as a tool of oppression against Mr Ruhan. Similarly, in a recent costs-related hearing, in relation to Mr Ruhan's claim for his costs of defending the bankruptcy petition, Master O'Hare described Mr Ruhan as having "taken an overly aggressive attitude. They [i.e Mr Ruhan or his solicitors or both] took advantage of an oversight and kept it secret until the relevant time had expired."
b. Judgment of Mr Justice Cooke dated 11 February 2015 (SCI 1 pages 193-222) in respect of the First to Third Applicants' failed application to join Mr Stevens and three companies owned/controlled by Mr Stevens as co-defendants to these proceedings and for a freezing injunction against those parties and Mr Ruhan. The Claimants were criticised for making an over-recovery through self-help; and for the failure to make disclosure of a certain settlement agreement between the Claimants and Mr Ruhan's former associates until midway through the hearing which the judge considered to show a lack of clean hands and a failure to offer appropriate full and frank disclosure. The Judge also reiterated the concerns expressed by the Registrar in the judgment just noted. The Claimants were ordered to pay Mr Stevens's costs on the indemnity basis, and to pay £1 million on account of his claim for costs of £3.1million. Mr Justice Cooke has also made further criticisms of the Claimants during a subsequent hearing on 19 and 20 March 2015 (SCI 1 pages 223-231). Mr Justice Cooke's February judgment is the subject of an appeal, permission for which has been granted and which is listed for the substantive hearing in October 2016.
c. In the same February judgment, Mr Justice Cooke also found that Mr Ruhan had repeatedly and deliberately misled the Court in the way he had stated twice in pleadings that he had no interest in the assets which form a key part of the claims brought by the Claimants against Mr Ruhan, only for him later to reverse that position completely and offer the correction that actually he, Mr Ruhan, was their ultimate beneficial owner. On this basis, the Court also ordered him to pay indemnity costs.
Paragraphs 51 to 54 of Irving 1 concerned the incidents of harassment referred to in paragraph 43 of Irving 1 (see section D3.5 above). In this context those paragraphs dealt with prior applications by the claimants and their associates (referred to together as "the Orb Parties") making allegations against Mr Ruhan. Evidence relevant to those applications was described in paragraph 51. Also in that paragraph it was said that Orb, Pro Vinci, Dr Cochrane and their associates had been the victims of a sustained campaign of intimidation and harassment, and that witnesses for the claimants in the main action were among those intimidated.
Examples of what the "campaign" had included were set out in paragraph 52 of Irving 1:
52. This campaign has included:
a. threats made against Dr Cochrane's and Dr Smith's children (in the form of anonymous phone calls stating "I know [the first names of each of the two children]";
b. key witnesses of the Claimants and employees of Pro Vinci being photographed and followed;
c. use of confidential information relating to Dr Cochrane and her family's holiday plans in evidence filed against the Orb Parties;
d. bribing Pro Vinci's employee to procure a breach of confidence; and
e. employing one of Pro Vinci's former security guards as a process server to serve Dr Cochrane at her home with papers in a deliberately intimidating way.
The fourth of these examples, summarised at paragraph 52 (d) quoted above, gave rise to legal proceedings. In that regard Ms Irving referred to judgments of Dingemans J on 17 December 2014, [2014] EWHC 4723 (QB), and of Warby J on 17 March 2015, [2015] EWHC 1073 (QB). In relation to those judgments, and the matters giving rise to them, paragraphs 53 and 54 of Irving 1 stated:
53. … In essence, in 2014 employees of Quest Global Limited ("Quest"), a company specialising in private investigations, gave Mr Darren Woodhead, who was a member of Pro Vinci's security team at the time, £2,000 in cash in an unmarked envelope to procure the Orb Parties' confidential information in breach of Mr Woodhead's contractual and common law duties of confidentiality. As a result, Dr Cochrane, Orb and Pro Vinci made an application against Quest for an order requiring, amongst other things, Quest to reveal the identity of their client. In granting that relief, Mr Justice Dingemans held that there was a good arguable case that Quest's client:
a. knew that Quest's approach to Mr Woodhead was likely to involve an inducement to act in breach of contract (i.e. a common law tort) (para 9 of his judgment (SCI 1 page 284));
b. committed an offence under s.55 of the Data Protection Act (para 10 of his judgment (SCI 1 pages 284-285)); and
c. committed a tort under s.4(4) of the Data Protection Act (para 11 of his judgment SCI 1 page 285).
54. The Affidavit ordered by Mr Justice Dingemans revealed that Quest's client (the "Client") was domiciled in an offshore jurisdiction with apparently no direct connection to the Orb Parties (and therefore no ostensible reason to be investigating them). However, upon further investigation it became clear that the Client had a link to Mr Ruhan. Consequently, Dr Cochrane, Orb and Pro Vinci made a further application for an Order permitting the use of the Affidavit in these Commercial Court proceedings. That application was heard in private by Warby J on 17 March 2015, although the judgment was rendered in public. Although Warby J denied the applicants permission to use the real name of Quest's client (whom he described in his judgment using the fictitious initials "TAW") in these Commercial Court proceedings, Warby J did nonetheless make some helpful comments in his judgment (SCI 1 pages 294-295))
Turning to the 25 September skeleton argument, as noted in section B above, paragraph 10.4 made reference to the proceedings before Dingemans and Warby JJ. The allegations of harassment generally were noted at paragraph 12, where reference was made to paragraph 9 of Irving 1 (see section D3.4 above), and to paragraphs 51 and 52 of Irving 1. Paragraph 18 of the 25 September skeleton argument recorded that Stewarts Law's letter to the court dated 7 September 2015 referred to an "ongoing" campaign of harassment of their clients.
In his oral submissions on 25 September Mr Drake referred me to paragraph 12 of the 25 September skeleton argument, and noted that the allegations of harassment were set out "in some detail" in Irving 1. Mr Drake added that he did not want to dwell on those matters:
… too heavily today, because the facts that give rise to today's application speak for themselves.
D3.7 Full and frank disclosure
Ms Irving, at paragraph 45 of Irving 1, said that the applicants considered it "prudent to proceed on the basis that they have a duty of full and frank disclosure to the court…". Paragraph 45 asserted that this duty was discharged by Ms Irving "in the paragraphs that follow".
The first item of disclosure appeared in the next paragraph of Irving 1:
46. As is demonstrated by the description I have provided of the various meetings with Oscar, Pro Vinci has relied upon the word of Dr Smith in respect of the meetings Dr Smith attended with Oscar alone. Dr Smith is a twice convicted fraudster and owes the Crown's enforcement receiver over £40 million in respect of a Confiscation Order made following his last conviction for fraud. Nonetheless, I should make clear that what Dr Smith has described in the un-recorded conversations with Oscar is corroborated by the content and style of the conversations which have been recorded, and my own contact with him.
As noted in section C above, the February 2015 particulars contain an account of Dr Smith's pleas of guilty to charges relating to the transfer of Izodia's monies. They also make reference to the consequential compensation and confiscation order.
The second item of disclosure concerned the agreement between the claimants and Dr Smith. Paragraph 47 of Irving 1 stated in that regard:
47. As pleaded in paragraph 21 of the Claimants' Amended Particular of Claim, the Claimants have agreed with Dr Smith that, in return for his cooperation and assistance with the Commercial Court proceedings, they will transfer to him 50% of the sums recovered in these proceedings (after deduction of their costs and expenses of the claim) up to the amount owing by Dr Smith under the Confiscation Order. Any such sum received by Dr Smith on this basis would be his realisable property as defined by section 71 of the Criminal Justice Act 1988, and thereby payable to Dr Smith's Enforcement Receivers to discharge wholly or in part the Confiscation Order.
The third item of disclosure was dealt with at paragraph 48, and concerned Mr Tim Power:
48. Tim Power, who is an employee of Pro Vinci, was convicted of insider trading in 2009. However, Mr Power's role in the events described in this Affidavit is limited to one brief meeting with "Oscar" at the Westbury hotel on 14 September 2015.
The fourth item of disclosure concerned criticisms by the court of the conduct of the claimants. As noted in section D3.6 above, criticisms by the court of the claimants were dealt with in paragraph 49 of Irving 1 at the same time as setting out criticisms by the court of Mr Ruhan. So far as the claimants were concerned, it will be seen from the quotation in section D3.6 above that paragraph 49(a) described findings by Registrar Barber in relation to an unsuccessful bankruptcy petition heard on 29 and 30 October 2014, and that paragraph 49(b) described criticisms of the claimants by Mr Justice Cooke in a judgment dated 11 February 2015, and in a subsequent hearing on 19 and 20 March 2015.
The fifth item of disclosure concerned two allegations by Mr Ruhan:
50. I should also draw attention to the fact that Mr Ruhan has accused the First to Third Applicants and/or their associates of illegal behaviour as follows:
a. On 16 October 2014 Mr Ruhan accused the First to Third Claimants and their associates of tipping off the Guardia Civil of Spain that he had illegal drugs on board one of his super-yachts in an attempt to incriminate Mr Ruhan. Indeed, Mr Ruhan even suggested that the Claimants had planted the relevant drugs on his vessel, which the Claimants completely deny. See the letter of Memery Crystal LLP to Stewarts Law LLP dated 16 October 2014 (SCI1 pages 232-233) and Stewarts Law LLP's response of the same date (SCI1 pages 234-236).
b. Mr Ruhan has on one occasion complained that he is being tracked and under surveillance.
Under the heading, "Conclusion", paragraph 55 of Irving 1 referred to a matter which had also been mentioned in paragraph 41. This concerned the danger that Oscar's claims of a link to Mr Ruhan might be false. Paragraph 41 pointed out that:
41. … In theory, Oscar could have picked up from internet searches that the Claimants would "react" if Mr Ruhan was said to be involved.
Paragraph 55 of Irving 1 stated:
55. I should reiterate that we at Pro Vinci are mindful of the need to exclude the possibility that, as I alluded to in paragraph 41 above, Oscar is not telling the truth, and instead acting on his own for personal financial gain, rather than for Mr Ruhan or his associates. Having spoken with him myself on several occasions now (as described above), I think it very unlikely that he is making this up, but it remains one possibility.
As to these items of disclosure, the 25 September skeleton argument dealt first with the matters giving rise to Cooke J's criticisms in the judgment dated 11 February 2015. Paragraph 9 of the 25 September skeleton argument stated:
9. Mr Ruhan, in turn, makes a number of counterclaims arising from the fact that, following the settlement of related proceedings in the Isle of Man between the claimants (and their associates) and certain of Mr Ruhan's former business associates, the Claimants have acquired assets which they say derive from the assets transferred to Mr Ruhan under the 6 May 2003 oral agreement. Mr Ruhan now asserts proprietary claims in respect of those assets and seeks related relief. He also makes personal claims including for dishonest assistance and unconscionable receipt. The Claimants deny any wrongdoing; it has always been their pleaded position that they will account to Mr Ruhan following trial if it transpires that they have recovered assets with a value greater than their claims.
Paragraphs 41 and 42 of the 25 September skeleton argument dealt with the fact that the September 2015 application was made without notice. It may be relevant to note that two reasons for this course were set out in paragraph 42 of the 25 September skeleton argument:
42.1 Without being in possession of the relevant property … , the Claimants are unable to confirm that the approach to 'Oscar' emanates from Mr Ruhan, so it would be premature to involve and – by necessity – accuse the Defendant at this stage.
42.2 Assuming that the approach to 'Oscar' does emanate from Mr Ruhan, were he to be given notice of the hearing, the Claimants would never be able to discover that it was in fact Mr Ruhan who was behind the approach, since it may be assumed that he would seek to prevent 'Oscar' from providing the Claimants with the relevant property/material which would evidence his involvement in the serious misconduct described above. For obvious and well-founded reasons, the Claimants have serious concerns that, were 'Oscar' to come to feel threatened, he would disappear easily and without trace, leaving the Claimants without the evidence they require. In these circumstances, to give notice would defeat the ends of justice.
The 25 September skeleton argument continued at paragraph 43:
43. The Claimants are mindful of their duty of full and frank disclosure: it is well-established that an applicant who applies for an interim remedy without notice to the respondent is under a duty to investigate the facts and fairly to present the evidence on which they rely. To this end, Ms Irving addresses all conceivably relevant points in paragraphs 45 to 54 of her affidavit. While it is by no means certain at this stage who the proper respondent in due course might be, the Claimants have approached their duty of full and frank disclosure on the basis that there is strong circumstantial evidence that it is Mr Ruhan, for the reasons given. Accordingly, they have explained the concerns expressed by various judges regarding the 'no-holds barred' approach taken by both sides to the original dispute between them.
In his oral submissions on 25 September, Mr Drake stated as regards the matters giving rise to criticisms by Cooke J:
… my clients were able to obtain control of a number of assets that are in dispute. It is said in relation to that that we have stolen - helped ourselves - to more than we have lost, number one, and, number two, it is said by Mr. Ruhan that those that assisted the claimants in achieving that end have breached all manner of contractual and fiduciary duties owed to him. That is the centre of the dispute in the main proceedings.
On the same topic, and more generally so as to include the criticisms of the claimants described by Ms Irving at paragraph 49(a) of Irving 1, Mr Drake stated:
It must also be said, my Lord, that these proceedings are hard fought on both sides and that both sides have been criticised for the way in which they have conducted the proceedings, us included, not only here but elsewhere.
In the course of Mr Drake's oral submissions I asked whether, in relation to the duty of disclosure, there was anything that Mr Drake needed to add to what had been said in his skeleton argument and Irving 1. In response Mr Drake stated "for the sake of abundant caution" that the particular paragraphs in Irving 1 were paragraphs 25 to 50, adding:
… one or two of these matters jump off the page, with respect to your Lordship's consideration today. They are, for example, at para.46, that Dr. Smith is a twice convicted fraudster. I raise that in particular because, in some measure, you are relying on Dr. Smith's take, albeit indirectly, of what evidence Oscar is providing, albeit that it is corroborated, but that is not my particular concern at the moment, but yes, and also Mr. Power, at para.48, who is involved in the Oscar goings on, if I can put it that way, was also convicted of insider trading in 2009. I have not taken you, my Lord, to Mr. Justice Cooke's judgment, but it is well to note starting, first, on p.21, where judicial criticisms have been made of my clients or people in my clients' camp, the first is by Registrar Barber in the BVI -- I am sorry, Registrar Barber in England and Cooke J in England; in particular Mr. Justice Cooke was very critical of the claimants in the proceedings before him for failing to disclose certain matters. Of course, in sub-para.(c) on p.22, what is good for the goose is good for the gander. I should draw to your attention as well, my Lord, what is said at para.50, where Mr. Ruhan himself has made complaints about the conduct of my clients in the respects there set out, which we deny.
My Lord, those are the particular matters that I want to draw the court's attention to in relation to what your Lordship is being asked to do today.
D4. September 2015 application: order & reasons
D4.1 The September 2015 order: general
In section D4.2 below I deal with the content of the September 2015 order. In that regard I mention some of the points of detail in the order and the reasons for them. As to the main thrust of the September 2015 order, I describe the broad reasons for making that order in section D4.3.
D4.2 The content of the September 2015 order
The recitals to the September 2015 order recorded that the applicants had given undertakings set out in schedule 1 to the order. I return to those undertakings at the end of this section.
Paragraph 1 of the September 2015 order provided that, subject to such further order as the court might make, the application was to be heard in private and court records relating to the application were to be treated by the court and all other parties accordingly. The order specified that such records included the application notice and all evidence filed in support, the skeleton argument of counsel in support and the September 2015 order itself. As noted in section A above, the underlying reason for this paragraph was that the applicants asserted that publicity would defeat the object of the application. Paragraphs 42.1 and 42.2 of the 25 September skeleton argument (see section D3.7 above) were relevant in that regard. As noted in section D3.4 above, although Mr Ruhan had been told that "the latest incident" had occurred on 3 September 2015, there had been no explanation of what that incident involved. Accordingly, if the claimants' account was accurate and Oscar himself was being truthful, nothing said by the claimants on 25 September 2015 suggested that Mr Ruhan, or anyone else other than the claimants and their advisers and the police, would be aware of Oscar's approach to Dr Smith as described by Ms Irving.
Paragraph 2 of the September 2015 order conferred authority on "Authorised Persons" to take certain actions with respect to "Relevant Property". The Authorised Persons were those named in schedule 2:
(1) the applicants;
(2) employees, members or partners of Stewarts Law; and
(3) employees or directors of Dr Hunton's company, Hunton Woods Ltd.
"Relevant Property" was defined in paragraph 4 of the order to include:
4.1 any screen shots and other data recording the chat room conversations between the individual identified as "Oscar" in the evidence supporting this application and the person or persons who have issued him with instructions to carry out the file-drop of images as described in that evidence ("the Client");
4.2 the images and all other data, including metadata, provided to Oscar by the Client;
4.3 any data evidencing and/or relating to the source of the communications emanating from the Client and/or the geographical location from where those communications were made;
4.4 any data associating Mr Ruhan, Mr Lopez and/or Mr Hobday (each of whom is identified in the evidence supporting this application) with the data described in the foregoing categories 4.1 to 4.3 above, and/or evidencing one or more of those associations.
Paragraph 3 of the September 2015 order, subject to two exceptions, limited the authority given by the order to action taken in England and Wales. It is convenient to set out at this stage the terms of paragraph 2 of the order, from which it will be seen that the exceptions related to the provision of relevant property and reports to police officers, prosecuting authorities, or courts in the United Kingdom or Jersey. The actions with respect to the Relevant Property that were authorised by paragraph 2 of the order were:
2.1 to detain, to take custody of, and/or to preserve the Relevant Property;
2.2 to transfer the Relevant Property to:
(a) any other Authorised Person; and/or
(b) any police officer, any prosecuting authority, or any court, in the United Kingdom or Jersey;
2.3 to inspect the Relevant Property;
2.4 to carry out experiments on or with (including to interrogate the data held on) the Relevant Property;
2.5 to report upon the same to:
(a) any other Authorised Person; and/or
(b) any police officer, any prosecuting authority, or any court, in the United Kingdom or Jersey; and
2.6 to do all such things as are incidental to each of the matters set out in paragraphs 2.1 to 2.5 above.
Schedule 1 contained three undertakings. The first two undertakings were, to my mind, needed because it was not possible on 25 September 2015 to fix a return date. This had the consequence that there was a question which needed to be kept under review: namely, whether a stage had been reached when the order, the reasons for it and what happened in consequence, should be notified to Mr Ruhan or any other individual or entity. For that reason, the first and second undertakings were in these terms:
1. To restore the application, without delay, should there be reason to think:
(a) that any order made by the Court in response to the application ought to be set aside, stayed, or varied; or
(b) that any person should be notified of the application, any order made by the Court in response to the application, or any other matter relating to the application.
2. To restore the application, for consideration of such further directions as the Court may deem appropriate, no later than 26 October 2015 or such other date as the Court may direct.
The third undertaking concerned a transcript of the proceedings. In the circumstances of the present case, it seemed to me that the complications of the underlying facts were such that it would be desirable to make specific provision for corrections to that transcript. The third undertaking was framed in appropriate terms for that purpose.
D4.3 The broad reasons for the September 2015 order
I gave short reasons for making the September 2015 order in a judgment given orally during the course of the hearing on 25 September 2015. In that judgment I noted that the reasons for granting the order would appear from the discussion which had taken place during the course of the hearing, as set out in the transcript which I had ordered. I now explain my reasons in more detail.
The account given of the approach by Oscar, of what he said, and of what he proposed, appeared to me credible. In that regard it did not seem to me that I could rely on uncorroborated evidence of Dr Smith. Indeed I had no direct evidence from Dr Smith. What I had was direct evidence from Ms Irving. She had met Oscar and her considered opinion was, as set out in section D3.7 above, that she thought it "very unlikely" that he was "making this up".
Ms Irving expressly stated in paragraph 45 of Irving 1 that she was proceeding on the basis of a duty of full and frank disclosure to the court, and that her affidavit discharged that duty. In the light of the information she set out in paragraphs 46 to 55, I thought it unlikely that Ms Irving had held back any relevant information.
In those circumstances there appeared to me to be substantial grounds for thinking that someone was attempting to use the services of "Oscar" in order to cause injury to Pro Vinci and the claimants and those associated with them, and to prejudice a fair trial of the main action. As to matters identified by Ms Irving as falling within the duty of full and frank disclosure, it was the information she set out in relation to Dr Smith which led me to conclude that I could not rely upon his uncorroborated account. The other matters disclosed were potentially troubling, but on the evidence before me they did not appear to indicate that what Ms Irving had stated in her affidavit would be unreliable. Accordingly I concluded that the interests of justice would be served if the claimants were able to find out whether there was indeed somebody who was attempting to make use of the services of "Oscar" in one or more of these ways, and if so who it was. The claimants were concerned about their exposure to criminal liability. It seemed to me that Mr Drake had correctly identified power to make the order sought under CPR 25 or the inherent jurisdiction of the court. It also seemed to me that Mr Drake had correctly identified:
(1) that the order was concerned with only four, relatively confined, classes of material, and
(2) that protecting those acting on behalf of the claimants from criminal prosecution would be proportionate in circumstances where the use to be made by the claimants of Relevant Property was unrelated to the mischief which the criminal offences were intended to proscribe, namely the sexual abuse and exploitation of children.
Weighing these considerations, along with all other relevant material in Irving 1, the 25 September skeleton argument, and the oral submissions at the hearing on 25 September 2015, I concluded that grant of the order would further the overriding objective.
In my oral judgment I expressed that overall conclusion in this way:
4. It will be apparent that the claimants are concerned that those who take the steps which are proposed to be taken may expose themselves to criminal liability. I make it clear that this court, when making the orders sought under CPR 25 and to the extent necessary under the inherent jurisdiction of the court, cannot and is not pronouncing upon whether any particular individual is guilty or not guilty of any particular offence. What the court is satisfied of is that, on the basis of the material put before the court today, the actions which the court authorises are actions which appear to the court to be desirable to be taken in the interests of justice and in furtherance of the overriding objective.
5. It is that overriding consideration which has led me to conclude that it is appropriate to grant the orders that are to be made. I am concerned to ensure that, if certain circumstances should arise, appropriate steps will be taken. Those circumstances will arise if there is reason to think that the orders as made by the court ought to be set aside, stayed or varied or that any person should be notified of the application, any order made by the court in response to the application or any other matter relating to the application. For that purpose there will be an undertaking by the applicants in that regard.
E. Events after 25 September 2015
E1. Events after 25 September 2015: general
I received information from the applicants about events after 25 September in four stages. Section E2 below describes the material that I received in relation to the proposed hearing that was scheduled for 26 October 2015. As explained in section E2, that hearing was postponed to 27 November 2015. Section E3 below deals with material provided for and at the postponed hearing on 27 November 2015. That hearing was adjourned part heard on the afternoon of 27 November 2015. It resumed on 30 November 2015. I deal with material provided for and at the hearing on 30 November 2015 in section E4 below. That hearing also was adjourned part heard. It resumed on 10 December 2015. In section E5 below I deal with material provided for and at the hearing on 10 December 2015. The hearing on 10 December 2015 was adjourned, and resumed on the afternoon of 14 December 2015. In section E6 below I deal with material provided for and at the hearing of 14 December 2015.
E2. The 23 October letter, Mr Oslov, and the 26 October order
On 23 October 2015 my clerk received a hand delivered letter of that date from Stewarts Law ("the 23 October letter"). The 23 October letter stated at paragraph 4 that Stewarts Law had instructed Dr Hunton to examine the "Relevant Property" as defined in paragraph 4 of the 25 September order. Paragraph 5 of the letter stated:
5. As the Court will see from paragraph 5.2 of Dr Hunton's report, 6GB of data contained within the Relevant Property was found by Dr Hunton to have been encrypted with an Advance Encryption Standard (AES) encryption algorithm with a 256bit encryption key. Dr Hunton's view is that "due to the level of encryption offered by 256bit AES it is unlikely that the data can ever be accessed without a valid password". Dr Hunton's analysis of the remaining (unencrypted) data, has proved inconclusive because of a lack of supporting data or further information (see paragraphs 4.4, 4.8, 4.9, 6.1 and 7.1 of his report). Our clients understand from Oscar that the supporting data and missing information is contained in the encrypted area of the Relevant Property.
In these circumstances Stewarts Law asked that there be a further order which would vary the 25 September order in two main respects. The first was described in paragraphs 6 and 7 of the 23 October letter:
6. For these reasons, the Claimants would like to instruct a further expert to try to decrypt the 6GB portion of the Relevant Property that is encrypted so that this new expert can then provide the decryption key to Dr Hunton; and Dr Hunton can then continue his analysis of the Relevant Property and produce a properly informed report. We are instructed that the Claimants have identified Mr Alex Oslov, whom they wish to instruct, as an expert on cryptography who may have decryption skills and access to decryption techniques and/or technology beyond those of or available to Dr Hunton.
7. The Claimants would therefore respectfully request that the Order be varied as follows: Schedule 2 to the Order (Persons Authorised by this Order) should be varied to authorise Mr Oslov as an authorised person. We suggest this variation should be effected by adding a new paragraph 4 to Schedule 2 in the terms "Mr Oslov or any of his employees acting in the course of their duties."
The second main variation sought concerned a proposal to put back the hearing scheduled for 26 October 2015 so that it would take place no later than 27 November 2015. In this regard the 23 October letter said at paragraph 9:
9. By virtue of paragraph 2 of Schedule 1 to the Order, the Claimants undertook to "restore the application, for consideration of such further directions as the Court may deem appropriate, no later than 26 October 2015 or such other date as the Court may direct." In light of the lack of progress in examining 6GB of data contained within the Relevant Property, we are of the view that it would not further the overriding objective, having regard to the Court's resources and the costs involved, to restore the application at this time. Therefore, we respectfully request that in accordance with paragraph 2 of Schedule 1 to the Order, the Court directs that the application be restored for a hearing on 27 November 2015, the proposed additional encryption expert will have been able to decrypt the Relevant Property and Dr Hunton will have been able to provide a properly informed report, allowing the Claimants to report back to the Court with more complete findings. If that is not the position by that time, the Claimants will write again to update Mr Justice Walker on the position.
The 23 October letter was accompanied by the expert report of Dr Hunton dated 18 October 2015, along with a draft order. After consideration of those documents and what was said in the 23 October letter, I concluded that the appropriate course was to make the order sought by Stewarts Law. I accordingly made that order on 26 October 2015, with the result that no hearing took place that day.
E3. Hearing on 27 November 2015
E3.1 Hearing on 27 November 2015: general
Prior to the hearing on 27 November 2015 I indicated that I proposed to give directions for that hearing. As explained in section E3.2 below, I invited proposals for such directions, but when the proposed directions were due they were not provided. Instead, Stewarts Law suggested that there would be no "useful purpose" in proceeding with the proposed hearing on 27 November 2015. Section E3.3 explains that I remained of the view that the hearing should take place on 27 November 2015, and refers to Annex 1, which sets out the directions which I gave for that purpose. Section E3.4 describes a second affidavit sworn by Ms Irving on 26 November 2015 for that hearing. Two skeleton arguments were prepared for the hearing. They are described in section E3.5. The second of those skeleton arguments concerned matters set out in a third affidavit of Ms Irving, which I describe in sections E3.6 and E3.7. I describe in section E3.8 what happened at the 27 November hearing.
E3.2 Proposed directions/no "useful purpose"
An email sent by my clerk to the claimants' legal team proposed that there should be directions for the hearing on 27 November 2015. It was suggested that those directions should, among other things, make provision for submission to an appropriate police officer of relevant material no later than noon on Wednesday 18 November 2015. The claimants' legal team were asked to provide proposed directions, along with a note from counsel, by 10am on 17 November 2015.
The directions sought were not provided on the morning of 17 November 2015. Instead, a letter of that date was emailed shortly after 10am that day ("the 17 November letter"). It stated:
… we do not consider that it would serve any purpose to restore the application on 27 November 2015. As the Court is aware from our letter dated 23 October 2015, our clients have engaged Mr Alex Oslov to provide assistance to Dr Hunton, our clients' forensic expert who was tasked with verifying the authenticity of the evidence which is said to support the allegations made by 'Oscar', as set out in Ms Irving's affidavit. In particular, Mr Oslov is seeking to assist Dr Hunton by deciphering the encryption protecting the data provided to our clients by 'Oscar'. Pursuant to the Court's order of 26 October 2015, Mr Oslov ("or any of his employees acting in the course of their duties") has been added to the list of authorised persons set out in Schedule 2 to the Court's 25 September 2015 order. However, Mr Oslov's attempts to decrypt the data are still ongoing, and we learned yesterday that it will take a further 30 days (approximately) for the supercomputer which is to be utilised for this purpose to complete the attempted decryption process.
Accordingly, at the present time the position regarding the authenticity of the evidence supplied by 'Oscar' is still inconclusive and there has been no advance in our knowledge since the 25 September 2015 order. We are also mindful of the undertakings given in Schedule 1 to the 25 September 2015 order, and we confirm that do we not have reason to think that any further variations to that order are required, that that order should be set aside or stayed, or that any person should be notified of the application, the Court's orders or any other matter relating to the application.
In these circumstances, we take the view that it would not serve any useful purpose to proceed with a hearing on 27 November 2015, and would therefore respectfully suggest that the hearing be adjourned. In light of the 30-day period advised by Mr Oslov as the approximate timeframe required for completion of his analysis, we suggest that the matter be re-listed for the last week of term … .
E3.3 The 18 November directions
After considering what was said in the 17 November letter I remained of the view that the hearing should take place on 27 November 2015. Accordingly I requested proposed directions for the 27 November hearing. Proposed directions were duly provided by Ms Martin late on 17 November 2015. Certain revisions were canvassed with the claimants' legal team. Directions ("the 18 November directions") were then given on 18 November 2015. They required, among other things, that the applicants lodge a second affidavit of Ms Irving informing the court in relation to various matters. One of those matters, at paragraph 4.3 of the directions, was, "any comments or concerns expressed by the police".
The 18 November directions were set out in an order of that date. For convenience, the contents of that order are set out in Annex 1 to this judgment.
E3.4 Irving 2: Dr Hunton; Mr Oslov; partial update on the police
A second affidavit was sworn by Ms Irving on 26 November 2015 ("Irving 2"). In accordance with the 18 November directions, the first substantive matter dealt with in Irving 2 concerned the delay in verifying the authenticity of the data provided by Oscar. Ms Irving stated at paragraphs 6 to 10 of Irving 2:
6. On 1 October 2015 I met with 'Oscar' at Pro Vinci's offices, where he provided me with:
a. a black 8 GB USB thumb drive with 'Integral USB 3.0' displayed on the side; and
b. a mock yellow cigarette lighter, which concealed a 16GB micro SD storage card,
which he said contained the relevant evidence, including the child pornography (the "Devices").
7. I was told by Oscar that in order to protect the confidentiality of the information on the 16GB micro SD storage card, he had encrypted it with an Advance Encryption Standard (AES) encryption algorithm with a 256-bit encryption key. Stewarts Law's Adam Erusalimsky, who was present at that meeting, asked Oscar to provide us with the encryption password. In response, Oscar said that "any expert worth his salt" would be able to unlock and extract the data and for that reason he did not provide me with a password or any other indication as to how to gain access to the files.
8. I arranged for the Devices to be provided to Dr Hunton, … Dr Hunton found that (as Oscar had said) 6GB of data contained on one of the Devices (the 16GB SD card concealed within a mock cigarette lighter) had been encrypted with an AES encryption algorithm with a 256-bit encryption key, but he concluded that "due to the level of encryption offered by 256bit AES it is unlikely that the data can ever be accessed without a valid password". Further, Dr Hunton found some unencrypted data, but his analysis of this proved inconclusive because of a lack of supporting data or further information (see paragraphs 4.4, 4.8, 4.9, 6.1 and 7.1 of Dr Hunton's report at SCI-2/8-10).
9. In light of Dr Hunton's view that we required a password to access the data, I tried to contact 'Oscar', but the phone was dead as if it had been disconnected. This did not surprise me, as he had told me previously that he would be getting rid of this phone and contacting me from a new number once he got that up and running. He had changed his number in this way twice before and so it did not seem unusual at that time. However, as the days went past I started to get concerned as to why he was not calling me given he had said he would contact me with his new number. It now seems that there may be another explanation for that, as I explain further below.
10. The Applicants, therefore, considered whether there were any other methods of gaining access to the data contained in the Devices. It was decided that a further expert should be instructed to try to decrypt the encrypted data, and, if successful, to provide the decryption key to Dr Hunton for Dr Hunton to continue his analysis of the data and produce a more comprehensive report.
The second substantive matter dealt with in Irving 2 concerned the assistance being provided by Mr Oslov to Dr Hunton. Paragraph 11 of Irving 2 described what had happened in relation to Mr Oslov prior to the 23 October letter in this way:
11. … on or around 12 October 2015 my colleague Darren Woodhead telephoned an agent who recommended Mr Alex Oslov as an expert in cryptology. Mr Oslov's agent informed Mr Woodhead that he may be able to recover further information from the Devices.
Paragraph 12 of Irving 2 recorded the request for, and making of, my order on 26 October 2015. What happened after my order was described in paragraphs 13 to 17:
13. … arrangements were made for Mr Oslov to attend the offices of Stewarts Law in order to review the Devices, which he did on 2 November 2015. Mr Oslov was able to retrieve a zip file, but it was password protected (though not encrypted). According to Mr Oslov, he would be able to use "brute force" methods to ascertain the password used to protect the zip file and to gain access to it, which he said requires the use of a super-computer to check every possible combination of characters until it alights upon the right password. At that meeting, Mr Oslov reported that this process would take between 30 – 45 days, which means that this will not be achieved until some point in December 2015.
14. Furthermore, Mr Oslov also considers that there is a very good chance that the password for the zip file will be the same as the password used to encrypt the rest of the encrypted part of the data. This is based on Mr Erusalimsky's understanding from the meeting with Mr Oslov that Mr Oslov believes – given the general sloppiness of Oscar's handing of the data – it is quite likely that Oscar would have used the same password to protect the password-protected (but unencrypted) zip file as he would have used to protect the password-protected and encrypted remainder of the drive.
15. In addition to Mr Oslov, I understand from Mr Erusalimsky that on 4 November 2015 he contacted a Mr Patrick Madden, who I had recommended to him as a computer forensics specialist based on previous experience of using his company. I had spoken to Mr Madden about the matter and he had some ideas for obtaining access to the encrypted data, which Mr Erusalimsky considered he should discuss with Dr Hunton. To this end, later on 4 November 2015 Mr Erusalimsky arranged a conference call between the two experts, which took place on 5 November 2015. The relevant correspondence is appended hereto, at SCI-2/49-50.
16. I understand from Mr Erusalimsky that Mr Madden asked Dr Hunton various questions during the call, which Dr Hunton answered. Later that day Mr Erusalimsky emailed Dr Hunton to request that he provide Mr Madden "with a full Encase file and folder property export showing the full properties of all the files and folders referenced on the two devices" (SCI-2/51). In addition, he asked Dr Hunton to confirm whether there were any configuration or licence files for the Rohos software, or other indications of the licence status of that software. I understand from Mr Erusalimsky that the thinking behind the latter request was that it might provide some clue as to 'Oscar's' identity.
17. Following his call with Dr Hunton, Mr Madden contacted me by phone to tell me that he thought that Dr Hunton had covered off all points and that he (i.e. Mr Madden) could not be of further assistance.
I noted earlier that my directions required that Irving 2 should deal with, among other things, comments or concerns expressed by the police. This was the third substantive matter dealt with in Irving 2. As regards such comments or concerns prior to the 18 November directions, paragraph 18 of Irving 2 said this:
18. Police Constable Danny Shipston was informed of the 'Oscar' situation on 4 September 2015. He was concerned and expressed regret that previous complaints we had made to the police had not been taken more seriously. The police took a statement from me and filed a report, with crime reference number 6538724/15, but they did not take any substantive action and just made me feel like another statistic.
At paragraphs 19 to 21 Irving 2 described material which, in accordance with the 18 November directions, had been sent to relevant officers of the Metropolitan Police and of the criminal investigations department of the State of Jersey Police. Paragraph 22 recorded that Stewarts Law had not yet received any comments from either police force in relation to the material that had been sent to them.
The fourth substantive matter dealt with in Irving 2 concerned further correspondence between Stewarts Law LLP and Dr Hunton and/or Mr Oslov after 18 October 2015. Ms Irving exhibited at "SCI 2" communications between Stewarts Law and Dr Hunton relating to a request that Dr Hunton create "thumb drives" of the relevant data to be provided to Mr Oslov. Ms Irving stated that there had been no written communications with Mr Oslov, adding:
23. … I understand from Mr Woodhead, who is the member of staff at Pro Vinci who has been responsible for liaising with Mr Oslov in relation to this matter, that all communications with him were by telephone or in person.
The final substantive matter dealt with in Irving 2 was headed "Further relief sought by the Applicants at the 27 November 2015 hearing". In that regard Ms Irving described, in paragraphs 24 and 25 of Irving 2, the position both in relation to the restored application and in relation to what she described as "further related interim relief":
24. In a letter to the Court dated 17 November 2015 (SCI-2/52-53), Stewarts Law explained that since the position regarding the authenticity of the evidence supplied by 'Oscar' was still inconclusive and our knowledge in this regard had not been advanced since Mr Justice Walker's order of 25 September 2015, the Applicants' preference was that the hearing scheduled for 27 November 2015 be adjourned.
25. While the status of the Applicants' knowledge in this regard is unchanged, and it remains the case that no relief will be sought in relation to the restored application at the forthcoming hearing, the Applicants will be seeking further related interim relief, for the reasons I shall explain in a further affidavit which will be sworn and lodged in advance of the hearing on 27 November 2015.
E3.5 Skeleton arguments in November 2015, and Mr Fiddler
Two skeleton arguments were prepared by Mr Drake and Ms Martin for the hearing on 27 November 2015. The first ("the 26 November skeleton argument") concerned the restored application. It summarised what had been said in Irving 2 and suggested that the September 2015 application be relisted for the last week of term.
The second skeleton argument, although it bore the date 26 November 2015, was received by me on 27 November 2015. I shall therefore call it the "27 November skeleton argument".
The 27 November skeleton argument was prepared under great pressure of time. It is convenient to describe it by reference to eight main sections, although they were not explicitly identified or numbered in that way. The first main section was an introduction which explained that it dealt with further related interim relief ("the 27 November proposed interim relief") sought by the claimants. It noted that the further related interim relief was the subject of a third affidavit ("Irving 3"). Irving 3 was sworn by Ms Irving on 27 November 2015.
What I have called the second main section comprised paragraphs 4 to 14 of the 27 November skeleton argument, under a heading "recent events". This section summarised events set out in Irving 3, which I deal with in section E3.6 below. For present purposes, I note that these events are described in Irving 3 as beginning with a telephone call received by Ms Irving on Sunday 22 November 2015 from an individual who introduced himself as "Steve Fiddler". The 27 November skeleton argument referred to this individual as "Mr Fiddler", and I shall do the same. Paragraphs 6 to 14 of the 27 November skeleton argument stated:
6. Mr Fiddler told Ms Irving that he knew Mr Harry Harvey (who Ms Irving knows to be a former business associate of the First Defendant, Mr Ruhan) and that he had been put in touch with Oscar by a mutual friend.
7. Ms Irving's initial impression from her telephone calls with Mr Fiddler was that he was proposing to act as an intermediary to re-establish contact between Oscar and Ms Irving and her colleagues. It later became clear that he had a sinister purpose.
8. When Ms Irving and Dr Gerald Smith met with Mr Fiddler at a London café on 24 November 2015, he showed them a video recording on his mobile telephone of Oscar reading from prompt cards (which the group continued to watch once they had relocated to Pro Vinci's offices) ("the Video Recording").
9. On the Video Recording, Oscar said that he had been contacted by Dr Smith in August and informed that Dr Smith wanted to place child pornography on to his own computer and make it look like somebody else had done it.
10. 'Steven Fiddler' is not an alias, since prior to the meeting Ms Irving had located Companies House records for a Mr Steven Richard Fiddler, with the date of birth "March 1967", director of Aodhan Limited, and a correspondence address of 3 Beech Lane, Wilmslow, Cheshire. At the meeting, Mr Fiddler confirmed that that was him.
11. When Dr Smith asked Mr Fiddler what he wanted from them, he responded that they needed to watch the rest of the Video Recording. He also said that Oscar wanted to be protected from them.
12. Later that same day, Ms Irving received a phone call from Mr Fiddler. He said that he had been told by Mr Harvey that Dr Smith had said that Mr Fiddler had threatened Dr Smith during the meeting. He said that he did not want anything further to do with Dr Smith or Ms Irving and that he would advise Oscar to refer the matter to the authorities.
13. The impact of these events is described by Ms Irving in Irving 3, paragraph 19:
I may have been engaging in wishful thinking but, notwithstanding our inability to get past the encryption, until I saw the video described above, at the back of my mind I still hoped Oscar might not have defrauded us and that there was some good reason why he had not stayed in touch with us.
14. The Applicants' loss from Oscar's suspected fraud is at least £130,000, which comprises Oscar's £100,000 fee for supplying the material to the Applicants, and £30,000 which Oscar said that he required in order to purchase specialist equipment. The Applicants have also incurred fees instructing (inter alia) forensic computer and encryption experts.
What I have called the third main section comprised paragraphs 15 to 18, headed "The Relief Sought". Paragraphs 15 and 16 gave a general description of what was said to be the applicants' "primary application". This was an application which:
… would seek to compel Mr Fiddler to disclose (at least) Oscar's identity…
This aspect of the 27 November new interim relief was described in the 27 November skeleton argument as "Norwich Pharmacal" relief, using a well known shorthand for the decision of the House of Lords in Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133. The court was asked to make an order against Mr Fiddler in that regard without notice to Mr Fiddler, this being something which it was said could be done on a "basis analogous to that in Bankers Trust Co v Shapira [1980] 1 WLR 1274". If the court were not minded to make a without notice order, then the applicants proposed to seek an early date for a hearing, on notice to Mr Fiddler, of an application for "standard Norwich Pharmacal relief".
The other aspect of the 27 November new interim relief dealt with in the third main section concerned orders which the applicants sought in any event on a without notice basis. These orders would require:
… that Mr Fiddler preserve and retain both the Video Recording and his mobile telephone containing the Video Recording, until the Applicants have obtained a copy of the former, and associated relief.
The third main section explained that these orders were sought under CPR 25.1(1)(c)(i) and CPR 25.1(1)(c)(ii). Paragraph 18 of the 27 November skeleton argument added that if the court were not minded to grant relief under CPR 25.1(1)(c), the Applicants seek an order for pre-action disclosure under ss 33-34 of the Senior Courts Act 1981, pursuant to CPR 31.16(1).
What I have called the fifth main section of the 27 November skeleton argument was headed "Norwich Pharmacal relief". Paragraphs 19 to 21 explained why the order sought in this regard should be made without notice. In addition to relying upon an analogy with Bankers Trust, it was submitted in paragraph 21 that:
… a without notice application is appropriate in circumstances where, in light of the astonishing events that have transpired, there must be a significant risk that Oscar will dissipate the Applicants' funds if advance notice were given.
Paragraphs 22 to 31 of the 27 November skeleton argument discussed the basis for seeking, on what was described as "an inter partes basis", an order that disclosure be made by Mr Fiddler. As it seems to me the analysis was equally applicable to an order made without notice. In particular, paragraphs 24 to 31 stated:
24. The Applicants intend to seek Norwich Pharmacal relief against Mr Fiddler, on an inter partes basis, to compel him to disclose Oscar's identity and address (if that is information in his possession), so that the Applicants may pursue Oscar in respect of one of more causes of action.
25. The Civil Procedure Rules do not address Norwich Pharmacal relief in terms; however CPR 31.18 provides:
Rules 31.16 and 31.17 do not limit any other power which the court may have to order –
(a) disclosure before proceedings have started; and
(b) disclosure against a person who is not a party to proceedings.
26. On the authority of Mitsui & Co, Ltd v Nexen Petroleum UK Ltd [2005] EWHC 625 (Ch); [2005] 3 All ER 511, CPR 31.18 merely preserves the Norwich Pharmacal jurisdiction and does not modify it.
27. In the same case, the Court summarised the conditions that must be satisfied in order to obtain Norwich Pharmacal relief as follows (at [21]):
(i) a wrong must have been carried out, or arguably carried out, by an ultimate wrongdoer; (ii) there must be the need for an order to enable action to be brought against the ultimate wrongdoer; and (iii) the person against whom the order is sought must: (a) be mixed up in so as to have facilitated the wrongdoing; and (b) be able or likely to be able to provide the information necessary to enable the ultimate wrongdoer to be sued.
28. The suspected ultimate wrongdoer in this is case is Oscar. In light of what the Video Recording shows, it seems likely (and certainly arguable) that he has committed a wrong against the Applicants.
29. The principle is not limited to torts and, at this juncture, as mentioned, the primary claim that the Applicants propose to bring against Oscar is one for deceit and breach of contract. The Applicants are confident that the elements of each cause of action would be established on the facts.
30. There is a clear need for the order in the present case to enable a claim to be brought against Oscar. He needs to be identified before he may be sued, and there is no alternative and more appropriate method to obtain the information sought. The Applicants have no other contacts with any connection to Oscar; if they did, they would have pursued them.
31. Finally:
31.1 there is no question that Mr Fiddler is able to provide the information necessary to enable the ultimate wrongdoer (Oscar) to be sued; and
31.2 the facilitating the wrongdoing requirement may be satisfied where there is some kind of relationship between the wrongdoer and the party from whom disclosure is sought, and this is not a situation where Mr Fiddler could be called a 'mere witness'.
What I refer to as the sixth main section of the 27 November skeleton argument concerned the second aspect of the 27 November new interim relief. The orders sought under CPR 25.1(1)(c) were set out in paragraph 32 as being that:
32.1 Mr Fiddler preserve and retain both the Video Recording and his mobile telephone containing the recording, until the Applicants have obtained a copy of the former;
32.2 Mr Fiddler deliver the relevant mobile telephone (including any relevant data storage devices contained therein) to the Applicants, via the Applicants' solicitors, Stewarts Law;
32.3 Mr Fiddler provide the Applicants will all necessary information, codes and passwords that they may require in order to access the Video Recording;
32.4 Mr Fiddler provide the Applicants with the power supply cables and cognate devices that they may require to render the relevant mobile phone functional and operational; and
32.5 if the relevant mobile phone no longer exists, or is no longer in Mr Fiddler's possession, or if the Video Recording is no longer stored on the device, Mr Fiddler take all necessary and reasonable steps to retain and preserve any additional copies of the Video Recording that Mr Fiddler has in his possession.
At paragraph 33 the 27 November skeleton argument added that consequential orders were also sought authorising the applicants:
33.1 to inspect the relevant mobile telephone for the purposes only of locating on the phone the Video Recording;
33.2 to view via the mobile telephone the Video Recording;
33.3 to take a copy of the Video Recording; and
33.4 to do all such things as are incidental to the foregoing.
Noting that CPR 25.2(2) permits an interim remedy to be granted before a claim has been made only if the matter is urgent, or it is otherwise necessary to do so in the interests of justice, paragraphs 36 and 37 of the 27 November skeleton argument stated:
36. First, the matter is urgent. A recording is easily deleted, and the Applicants are concerned that if swift relief is not obtained in the form sought, there is a significant risk that Mr Fiddler will delete the recording to thwart a potential fraud claim.
37. Second, the relief is necessary in the interests of justice, since the Video Recording would be a central piece of evidence in the prospective claim against Oscar.
The 27 November skeleton argument then turned to discuss the definition of "relevant property" in CPR 25.1(2). Paragraphs 41 to 45 stated:
41. In the present case, the 'relevant property' is the mobile telephone on which the Video Recording of Oscar is located.
42. The property in question is not, of course, yet "the subject of a claim". It is, however, property "as to which [a] question may arise on a claim", since if (as the Video Recording held on the phone appears to show) the Applicants have been subjected to a fraud at the hands of Oscar, they would have a claim against him in deceit – see above paragraph 29.
43. Furthermore, while the Applicants have – at least – a potential claim against Oscar in deceit and breach of contract, they do not rule out other possible claims against other individuals. It is still not clear at this stage whether – if there was a fraud – Oscar was acting alone, or whether he was acting at the behest of another or others.
44. The Applicants submit that the breadth of the language used in CPR 25(1)(c)(i) and CPR 25(1)(c)(ii), and the breadth of the Court's discretion generally under the CPR and its inherent powers, is amply sufficient to allow the Court to grant the orders sought.
45. While the Applicants concede that taking copies of relevant property is not expressly listed as one of the remedies in CPR 25.1(1)(c), the Applicants submit that copying the Video Recording is necessary in order to secure its preservation in this case. It is, therefore, incidental to the property's preservation and properly caught within CPR 25.1(1)(c)(i).
At paragraph 46 the 27 November skeleton argument turned to the alternative mentioned in the third main section described above:
46. In the alternative, the Court also has jurisdiction to make the order sought via CPR 31.16(1) and ss 33-34 of the Senior Courts Act 1981 for pre-action disclosure. The action here is the contemplated claim against Oscar to which: (a) the Applicants will (plainly) be a party; and (b) Mr Fiddler will likely be a party, as 'likely' is to be understood in that context: see eg Black v Sumitomo [2002] 1 WLR 1562; and Dunning v United Liverpool Hospital Board of Governors [1973] 1 WLR 586.
What I have called the seventh main section of the 27 November skeleton argument was headed, "Without Notice Application". It stated at paragraphs 48 and 49:
48. In the Applicants' submission, it is appropriate that the application for orders under CPR 25(1)(c)(i) and CPR 25(1)(c)(ii) (alternatively, under CPR 31.16) has been made ex parte because of the risk that, if given advance notice of the application, Mr Fiddler would delete the Video Recording, and therefore the evidence of the potential fraud, before any order could be made. In these circumstances, giving notice would defeat the object of the application.
49. The Applicants are mindful of their duty of full and frank disclosure: it is well-established that an applicant who applies for an interim remedy without notice to the respondent is under a duty to investigate the facts and fairly to present the evidence on which they rely. To this end, Ms Irving addresses a number of relevant points in paragraphs 45 to 50 of Irving 3.
The remainder of the 27 November skeleton argument, headed "Alternative Service" is what I have called the eighth main section. Paragraph 50 noted that the applicants had an address for the company of which Mr Fiddler is a director (see paragraph 10 as cited in my account of the second main section). However, there was a pending application to strike that company off the register. Paragraphs 51 and 52 proposed that in these circumstances an order might be made for alternative service by way of text message or voicemail message: see CPR PD 6A paragraph 9.3(2).
Under CPR 6.15(1) an order permitting service by an alternative method or at an alternative place may only be made where it appears to the court "that there is a good reason" to authorise service by a method or at a place not otherwise permitted by CPR part 6. In that regard, paragraph 52 of the 27 November skeleton argument stated:
52. The Court may make such an order where there a "good reason" to authorise service by such a method. The Applicants submit that good reason is provided here when there is uncertainty as to whether documents served on Mr Fiddler at his business address would actually come to his attention there.
E3.6 Irving 3: Mr Fiddler and Oscar's video
In this section I deal with all save one aspect of Irving 3. The aspect not dealt with in this section concerns Irving 3's account of interaction with the police: this is dealt with in section E3.7 below.
Irving 3 described the first telephone conversation with Mr Fiddler ("the 22 November mid-afternoon call") in paragraphs 5 to 8:
5. On Sunday 22 November 2015, at approximately 14:29, I received a telephone call on my mobile from somebody who introduced himself as "Steve Fiddler". I did not recognise the voice and did not know the name "Steve Fiddler".
6. Mr Fiddler introduced himself by saying that he knew Harry Harvey and wanted to speak to "Gerald [i.e. Dr Smith] about Oscar". (I know Harry Harvey to be both a close friend of Andrew Ruhan's former wife, Tania Ruhan, and a former business associate of Mr Ruhan. I also know Harry Harvey lives in Wilmslow, Cheshire, ...) Mr Fiddler said he had been contacted by "a mutual friend" who had introduced him to Oscar. He said that Oscar had divulged certain things to him "with regards to Gerald", and that he (Mr Fiddler) thought it best to discuss these personally with Dr Smith. Mr Fiddler said that it was only in the last few months that he had been introduced to Oscar, but he recognised Dr Smith's name as being the same Dr Gerald Smith who had been mentioned to him on many occasions by Harry Harvey. He went on to say that he had explained the situation to Harry Harvey and that Mr Harvey had given him a direct number for Dr Smith, but that he had tried this several times without success. (I subsequently sought confirmation of this from Harry Harvey, who denied that he had been contacted by Mr Fiddler in this regard.) Mr Fiddler said that Oscar had made attempts to contact me saying that he had called and left messages. I challenged him on this as I have no voicemail facility on my phone and Mr Fiddler then said that he meant text messages. I asked Mr Fiddler which number Oscar had tried to contact me from. He responded by telling me the last number that I had for Oscar. I confirmed that I had received no messages from Oscar on that number or at all and that in fact I had tried many times to contact Oscar on all of the numbers that I had for him, all of which were dead. Mr Fiddler then stated that this was his mistake and that perhaps it was another number. Mr Fiddler said he wanted to arrange a meeting with Dr Smith to discuss these matters.
7. Although at this stage I thought there were some strange features to Mr Fiddler's story, I had been trying unsuccessfully to contact Oscar since early October and therefore thought it was encouraging that Mr Fiddler had got in touch with us on Oscar's behalf. I hoped that this would mean that we could get some answers to the outstanding questions we had wanted to raise with Oscar after Dr Hunton had carried out his initial review in October 2015.
8. I discussed with Mr Fiddler whether a meeting would take place in London or Cheshire (where he said he was based). We agreed that I would check Dr Smith's availability over the following days and call him back.
Ms Irving's second and third telephone conversations with Mr Fiddler ("the 22 November late afternoon call" and "the 22 November evening call" respectively) took place later on Sunday 22 November 2015. They were described in paragraphs 9 and 10 of Irving 3:
9. Later that day I called Mr Fiddler back … and explained that while Dr Smith and I were keen to meet him it would be much easier if he could come to London to meet with us. I offered to pay his travel expenses. I also asked if Mr Fiddler was in a position where he could ask Oscar to contact me. He said that he would pass on the message that I wanted to speak to him, but that Oscar was away until Tuesday and that he thought it was unlikely that he would want to get in contact until he returned.
10. Mr Fiddler called me back later that evening to confirm availability for a meeting. We agreed that he would come to the Pro Vinci offices in London around lunchtime on Tuesday 24 November 2015. On that call he said that if our meeting went well he saw "no reason why Oscar should not resume contact" directly with us.
Ms Irving's fourth telephone conversation with Mr Fiddler ("the 23 November evening call") took place on the evening before the meeting. Ms Irving described it and commented upon it in paragraph 11 of Irving 3:
11. At 18:01 on Monday 23 November 2015, Mr Fiddler called me as I was leaving the office. He said that he was just calling to confirm our meeting for the following day, but then he said "as it's our first meeting, whilst I'm happy to come to London, I would prefer if we met at the coffee shop opposite your office where you met Oscar". To my mind, this confirmed that Mr Fiddler knew Oscar since, other than Pro Vinci and our solicitors, only Oscar knew that we had met at a coffee shop opposite our offices. I confirmed I was happy to meet him at 1pm on Tuesday 24 November 2015 at the (Starbucks) coffee shop across the road from our offices.
At this stage Ms Irving set out some general observations, along with a particular observation about a Companies House enquiry and the result:
12. As I have explained above, I believed that this meeting was a prelude to our resuming contact with Oscar, and that this would help us to get answers to the questions which remained unresolved following our last contact with Oscar. I should also add that I recorded each of my conversations with Mr Fiddler. In light of a number of events in and around this litigation, we at Pro Vinci have adopted a policy of recording telephone calls.
13. In the morning of 24 November 2015, prior to meeting with Mr Fiddler, I checked Companies House to see if there were any records for a Steven Fiddler as Dr Smith and I wanted to know if we could find some way of corroborating that the person who had called me was indeed called 'Steven Fiddler'. I found a record for a Mr Steven Richard Fiddler, date of birth "March 1967", Director of Aodhan Limited, company number 09048122, with a correspondence address of 3 Beech Lane, Wilmslow, Cheshire, United Kingdom, SK9 5ER. I exhibit the Companies House record at (SCI-3/1-3). Harry Harvey lives in Wilmslow, the same district of Cheshire as Mr Fiddler's company Aodhan Limited was registered.
Irving 3 explained that a meeting ("the 24 November meeting") duly took place at 1pm on 24 November between Ms Irving, Dr Smith, and Mr Fiddler. In paragraphs 16 to 18 Ms Irving described how the 24 November meeting moved from Starbucks to Pro Vinci's office, and the initial discussion at the office:
16. In Starbucks, Mr Fiddler said he had a video to show us. He took out his phone and started to show the video to us. I could see that the video was of Oscar speaking but the café was noisy and we could not hear the audio. Mr Fiddler said that it was important that we heard what Oscar was saying, so we went over to Pro Vinci's office with Mr Fiddler to watch it there.
17. At Pro Vinci's offices across the road, Dr Smith asked Mr Fiddler if he was the same person as the Steven Fiddler who is shown on Companies House as being a director of Aodhan Limited. Mr Fiddler confirmed that he was. Dr Smith asked Mr Fiddler if he was aware that there was an extant application to strike that company off the register of companies and Mr Fiddler confirmed that he was aware.
18. Mr Fiddler explained that he had been introduced to Oscar because Oscar's father had approached a mutual friend and asked Mr Fiddler to go and "resolve some issues". Mr Fiddler also explained that he had done some work which had a connection to Mr Ruhan, in particular to a piece of litigation in which he had been employed to protect a party from "some nasty people".
Paragraphs 19 to 22 of Irving 3 described the playing of part of the video at the 24 November meeting, and the remainder of that meeting:
19. Mr Fiddler took his phone out and started playing the video. The video was indeed of Oscar. He was reading from prompt cards. He said that for the purposes of this video he would refer to himself as Oscar as that is the name we knew him by. He said that he had first been contacted by Dr Smith in August. At this point both Dr Smith and I objected, simultaneously saying "that's not correct" and pointed out that we had not had any contact with Oscar before September and that it was Oscar that had contacted us. Oscar then said that he had been contacted by Dr Smith and told the camera that Dr Smith wanted to place child pornography on to his own computer and make it look like somebody else had done it. Dr Smith again objected and said there was no point in discussing this fabricated version of events and tried to stop the recording, at which point Mr Fiddler switched it off.
20. Dr Smith then said to Mr Fiddler "do you think that you and Oscar are going to get away with this?" Mr Fiddler replied "I'm only going on what I've been told by Oscar, I've only heard one side of the story, I'm not on anyone's side, I'm on my own side". Dr Smith then asked Mr Fiddler "what is it that you want from us?" Mr Fiddler responded "you need to watch the rest of the video, then it will all become clear." We repeated our question to Mr Fiddler as to what Oscar wanted. He replied that Oscar wants to be protected from us. Dr Smith and I said that we have no interest in Oscar himself. He contacted us and offered us his help. He met with our lawyers and gave them a statement. We paid him for a service, then he disappeared without doing what he said he would do because the disk he has given us is encrypted. I may have been engaging in wishful thinking but, notwithstanding our inability to get past the encryption, until I saw the video described above, at the back of my mind I still hoped Oscar might not have defrauded us and that there was some good reason why he had not stayed in touch with us.
21. I then asked Mr Fiddler what it was that Oscar had given to us on the disk. I asked him if it was child pornography. He confirmed that it was. Dr Smith explained to Mr Fiddler that "we record everything".
22. Dr Smith repeated his question to Mr Fiddler as to what he wanted from us. Mr Fiddler responded by saying "I really think you need to watch the rest of the video, then it will all become clear." The meeting was terminated shortly thereafter, having lasted in total around 20 minutes.
Paragraph 24 of Irving 3 described a telephone call to the police and an email that she sent them. At paragraphs 24 and 25 Ms Irving described a telephone call by Dr Smith to Mr Harvey ("the 24 November Smith/Harvey call") and a further telephone call that she made to Mr Harvey ("the 24 November Irving/Harvey call"):
24. Whilst I was on the phone to the police, I overheard Dr Smith making a call to Harry Harvey and ask Harry Harvey if he knew Mr Fiddler. After my call with the police, I asked Dr Smith whether Mr Harvey had confirmed that he knew Mr Fiddler and Dr Smith said that Mr Harvey had confirmed that he did.
25. I then called Harry Harvey. I called Harry Harvey to ask who Steven Fiddler was and what his background was. Mr Harvey confirmed that he was "muscle for hire". I know that Harry Harvey knows many of the 'characters' in the area and so it did not surprise me that Harry Harvey knew Mr Fiddler, as mentioned above.
Paragraph 27 of Irving 3 described a fifth telephone conversation between Ms Irving and Mr Fiddler. As will be seen, when describing that conversation Ms Irving made some additional observations:
27. Later that day, i.e. Tuesday, 24 November 2015, I received another phone call from Mr Fiddler. He said that he had met Mr Harvey and that Mr Harvey had told him that Dr Smith had told Mr Harvey that Mr Fiddler had threatened Dr Smith and me during our meeting. Mr Fiddler said that he categorically denied he had threatened us and he wanted that denial recorded. I did not wish to engage with this conversation as I disagreed with Mr Fiddler's categorisation of the earlier meeting but I did not want to get into a debate. I therefore just told him "I don't know what to say" and that I did not want to talk about it. He said that he did not want any more to do with us and that he would advise Oscar to go to the authorities. Although it was concerning to me that Mr Fiddler was calling me even after we had made it clear we did not want to speak to him, it was at least reassuring that he was corroborating at least that Dr Smith had called Harry Harvey shortly after my and Dr Smith's meeting with Mr Fiddler which confirmed to me that the man we met was indeed Steven Richard Fiddler and not somebody impersonating him.
Paragraphs 28 to 36 of Irving 3 described communications with the police. Ms Irving said that they included a telephone update at approximately 12:30pm, in which she was told that the police had spoken to Mr Fiddler but he refused to give any information to them voluntarily. Paragraph 37 of Irving 3 said that just under two hours later, at 14:29 on 26 November, she received a text from Mr Fiddler:
Gerald/Sinead
I can assure you that your attempts to intimidate me will prove fruitless. I'm fully aware of the fact that you have a close "working relationship" with the police. You may be rich and powerful but in my opinion you as well as being a convicted fraudster you are nothing but a lowlife criminal. You both belong in prison and I hope by the end of this sorry episode that is exactly where you end up. I repeat, I will not be intimidated.
Irving 3 describes further contact at this stage between Ms Irving and the police. For present purposes I need only note that paragraph 38 of Irving 3 records advice from the police:
I advise you break all communication with Mr Fiddler and ask him to remove your number from his telephone immediately.
Thereafter, at paragraph 41 of Irving 3, Ms Irving stated that she had ordered a new telephone number and had texted Mr Fiddler:
Please delete this number and do not make any contact with us again
It appears from page 16 of exhibit "SCI 3" that Ms Irving's text was sent at 17:09 on 26 November, and that at 20:36 that day Mr Fiddler replied:
I'm also aware that you've been trying to find out where I live?? Feel free to send whoever you want. Every move you make is being logged. Whether it's the police or your thugs for hire I repeat once again. I WILL NOT be intimidated.
In a section of Irving 3 headed "The Further Relief to be Sought", Ms Irving said that relief was sought which would "enable the Applicants to commence proceedings against Oscar and use the video evidence in their claim against him." She described the relief to be sought as an order for:
a. the delivery up of Mr Fiddler's mobile phone, and the video recording of Oscar in particular;
b. the provision of information as to Oscar's identity and address urgently.
The final section of Irving 3 was headed "Full and frank disclosure". In this section Ms Irving said at paragraphs 47 to 51:
47. I refer the Court to Irving 1, where I set out in detail a number of matters which I considered relevant to disclose – paragraphs 45-54. In addition to those matters, I add as follows.
48. In the video recording, Oscar accuses Dr Smith of contacting him with a view to placing child pornography on to some computers. As such, Dr Smith's credibility has been brought into question. In this regard I should mention that Dr Smith has two convictions for fraud and owes the Crown's enforcement receiver over £40 million in respect of a Confiscation Order made following his last conviction for fraud. This has been pleaded in the Applicants' Particular of Claims in the proceedings brought against Mr Ruhan.
49. Further, the Applicants have agreed with Dr Smith that, in return for his cooperation and assistance with the Commercial Court proceedings, they will transfer to him 50% of the sums recovered in these proceedings (after deduction of their costs and expenses of the claim) up to the amount owing by Dr Smith under the Confiscation Order. Any such sum received by Dr Smith on this basis would be his realisable property as defined by section 71 of the Criminal Justice Act 1988, and thereby payable to Dr Smith's Enforcement Receivers to discharge wholly or in part the Confiscation Order.
50. This litigation has been described as "no holds barred" litigation. The proceedings between the Applicants and Mr Ruhan are bitterly contested and no expense has been spared by any party in litigating the case. The Applicants, Mr Ruhan and their associates have also engaged in related litigation in the BVI and the Isle of Man. The conduct of all the parties, including the Applicants, has been criticised by the Court. I list some examples in this regard in Irving 1, paragraph 49.
51. I should also draw attention to the fact that Mr Ruhan has accused the Applicants and/or their associates of illegal behaviour as follows:
a. On 16 October 2014 Mr Ruhan accused the Applicants and their associates of tipping off the Guardia Civil of Spain that he had illegal drugs on board one of his super-yachts, in an attempt to incriminate Mr Ruhan. Indeed, Mr Ruhan even suggested that the Applicants had planted the relevant drugs on his vessel, which the Applicants completely deny.
b. Mr Ruhan has on one occasion complained that he is being tracked and under surveillance, another allegation which the Applicants completely deny.
E3.7 Irving 3's account of interaction with the police
After describing the Companies House record which she had found during the morning of 24 November 2015, Ms Irving stated at paragraph 14 of Irving 3:
14. Since the initial contact from Oscar, I have always kept the police informed on developments given the unusual nature of the matter. I therefore emailed Police Constable Molden who has been overseeing this matter prior to my meeting with Mr Fiddler, at 9:54 that day. In that email, I explained that I had "received a telephone communication from someone who has been contacted by Oscar to make contact with us. He would like to meet with me today. Please can you arrange for someone to come to my office tomorrow to take a statement from myself and Darren regarding the latest incidents? Please let me know what time works." (SCI-3/6)
It appears from page 6 of exhibit "SCI 3" that this email was copied to officers Morrison and Coletti. It also appears from that exhibit that officer Molden was not the first addressee of the email. He was the second of two addressees. The first addressee was Inspector Guy Ellwood.
After describing what happened at the 24 November meeting, Ms Irving stated at paragraph 23 of Irving 3:
23. The first call I made after the meeting with Mr Fiddler was to the police: I telephoned Police Constable Tim Molden of the Metropolitan Police force, but there was no answer. I therefore emailed the police at 14:28 (SCI-3/5) and asked them to call me urgently.
It appears from page 5 of exhibit "SCI 3" that the email she sent the police was timed at 14:28. Like the earlier email that day, it appears to have been addressed to Inspector Ellwood and officer Molden, and copied to officers Morrison and Coletti.
It also appears from page 5 of exhibit "SCI 3" that officer Molden replied at 15:42 stating that he was "just going into another meeting", and would send officer Coletti and another colleague to come and see her the following morning to take any further report. Ms Irving replied by email at 17:15 asking if it would be possible to see officer Molden the following day. He replied at 17:40 explaining that he was at a conference the following day, and asked for a time when officer Coletti and his colleague could visit. Ms Irving replied at 17:41 that "Any time would be good".
Paragraph 28 of Irving 3 recorded that the police had attended Pro Vinci's office at approximately 10:40am on 25 November, and had started by meeting Mr Woodhead, after which they took a statement from her, and that there was a later visit by the police when they collected the voice recordings that she had made of her calls with Mr Fiddler.
Ms Irving's interactions with the police on 26 November were described later in Irving 3. In paragraphs 33 to 36 Ms Irving dealt with her interactions with the police prior to receipt of Mr Fiddler's text on 26 November 2015:
33. On 26 November 2015 at 10:24 I received an email (SCI-3/11) from Inspector Guy Ellwood of the Metropolitan Police following on from my provision to the police of the recordings of the telephone calls I had had with Mr Fiddler on 25 November 2015 as described at paragraph 27 above. His email stated (SCI-3/11):
… PC Johns and PC May attended your offices yesterday for 2-3 hours taking further details. I have spoken with PC May this morning who is now in possession of the memory stick which I understand contains voice recordings between Mr Fiddler and yourselves. I have asked him to telephone Mr Fiddler and arrange a meeting to discuss events referred to in these conversations and ultimately arrange for us to speak/contact Oscar Both have a number of investigations, but I have asked them to update you later today.
34. In accordance with that email, I received an update by telephone at approximately 12:30pm. The update was to say that the police had spoken to Mr Fiddler, but he refused to give any information to them voluntarily. The police explained to me that there were, in theory, two options:
a. ask Mr Fiddler to attend a voluntary meeting with the police; or
b. arrest Mr Fiddler and interview him under caution.
35. I discussed these options with PC May, who said he would have to check with PC Molden and he would come back to me.
36. PC May then called me at 13:20 to tell me that he had spoken to Acting Inspector Guy Ellwood and that Guy Ellwood was seeking further advice from his superiors at CID and would come back to me.
After describing the text from Mr Fiddler, Irving 3 stated at paragraphs 38 to 40:
38. I forwarded this text message to the police and the response I got from Inspector Guy Ellwood was in an email timed at 14:55 (SCI-3/13) that stated:
Sinead,
At your request, PC May has spoken with Mr Fiddler about his involvement with Oscar and ongoing events this morning. He has committed no offences by sending this text and there is no power of arrest for us to interview him.
I advise you break all communication with Mr Fiddler and ask him to remove your number from his telephone immediately.
The update will be copied into the report.
Regards
Guy
39. This email made no reference to what PC May had told me about Guy Elwood making contact with CID. I therefore, sent Guy Ellwood an email at 15:21 (SCI-3/14-15) which stated the following:
Dear Guy,
To clarify, when I spoke with Thomas [i.e. PC May] earlier today, he confirmed that an officer had spoken with Mr Fiddler and that Mr Fiddler had confirmed that he would not be assisting the police in an informal situation.
He also told me that you were going to speak with CID to get some advice on the following points:
1. As Mr Fiddler has confirmed that he knows and can contact Oscar, yet is refusing to speak with you, is he not perverting the course of justice and aiding and abetting in connection with the fraud which the police have confirmed in writing they believe us to have been a victim of? As you know, this matter has been reported with Action Fraud.
2. Mr Fiddler confirmed that there was child pornography on the USB which Oscar handed to us. As Mr Fiddler is refusing to cooperate with you, there must be a crime given the very serious nature of the content? He is at the very least knowingly concerned with this matter.
I cannot see how you are unable to progress this matter given the disturbing nature of the content which has after all been confirmed by Oscar and Mr Fiddler. I cannot believe that the Metropolitan Police would fail to miss out the opportunity on this type of lead into this heinous situation.
I would be grateful for your further comments.
Sinead
40. I received no response to this email, but at 15:45 PC May telephoned me to say that "Guy Ellwood had put in a call to CID but was yet to hear back from them".
E3.8 What happened at the 27 November hearing
The 27 November hearing had been due to begin at 10:30am that day. The hearing was put back to 2pm to enable consideration of Irving 3 and the 27 November skeleton argument. At 2pm Mr Drake and Ms Martin appeared on behalf of the claimants.
In relation to the restored September 2015 hearing Mr Drake explained that Mr Oslov was still in the process of using a supercomputer in an attempt to find the password for the zip file. Mr Oslov's hope was that the same password would apply to the encrypted material. Neither he nor anyone else had suggested any other way of identifying the password for the encrypted material. As to the Metropolitan Police and the Jersey Police, no response had yet been received to the material sent to them in accordance with the 18 November directions. The course proposed in relation to the September 2015 application was that this be revisited at a hearing in the second half of December.
Turning to the new material in Irving 3, Mr Drake commented that one view was that the claimants had been the subject of a clever, perhaps sinister, sting by Oscar. Mr Drake said that against Oscar the claimants had "a palpable claim" in deceit and breach of contract, and were considering their position.
In support of the 27 November proposed interim relief, Mr Drake submitted, in broad terms, that Mr Fiddler had facilitated a communication from Oscar to the claimants which demonstrated or went to the fact that a fraud had been committed by Oscar. Mr Fiddler had conveyed a message from Oscar that Oscar was not an ally and was going to say things entirely inconsistent with the true position. Accordingly it was appropriate that Mr Fiddler provide information as to the identity of Oscar so that the claimants could take action against Oscar, and the order should be made without notice to Mr Fiddler. Mr Drake added that the case of CHC Software Care v Hopkins and Wood [1993] FSR 241, cited by Lightman J in Mitsui & Co, Ltd v Nexen Petroleum UK Ltd [2005] EWHC 625 (Ch) as showing that such an order could be made against a wrongdoer. As to the proposed order in relation to the video, I drew Mr Drake's attention to paragraph 8 of CPR practice direction 25A. Mr Drake's response was that none of the 27 November proposed interim relief fell within that paragraph.
In relation to the restored September 2015 application, I asked Mr Drake whether the claimants had reached a view that Mr Ruhan was not implicated in the activities of Oscar. Mr Drake replied that the claimants had not reached that view, and would keep the matter under review. He envisaged that it would be examined at the hearing proposed to be fixed for the second half of December.
In relation to proposed orders against Mr Fiddler, I asked whether relevant police officers were aware of what the claimants were seeking from the court. Mr Drake responded that he could not add to what was set out in Irving 3 in that regard. I suggested that the claimants should consider whether further evidence could be provided on that topic.
In addition:
(1) I suggested that the claimants consider questions concerning the privilege against self incrimination;
(2) I also suggested that if an order for delivery up was sought, then a question arose whether that delivery should be to a third party solicitor; and
(3) brief submissions were made by Mr Drake on whether proceedings against Oscar, or Oscar and Mr Fiddler, would be part of the main action or would be brought as separate proceedings.
In those circumstances I proposed that the hearing be adjourned so that the claimants could consider the points which had been discussed. After taking instructions Mr Drake stated that the claimants agreed to that course.
E4. Hearing on 30 November 2015
E4.1 The 30 November hearing: general
A further hearing ("the 30 November hearing") took place, at the claimants' request, at 2pm on 30 November 2015. A supplementary skeleton argument ("the 30 November skeleton argument") was produced by Mr Drake, Ms Martin, and Mr James Goudkamp that day and is described in section E4.2 below. A fourth affidavit ("Irving 4") sworn by Ms Irving on 30 November 2015 is described in section E4.3 below. In section E4.4 below I set out what happened at the 30 November hearing.
E4.2 The 30 November skeleton argument
In an introductory section the 30 November skeleton argument explained that a further draft application notice set out revised interim relief ("the 30 November proposed interim relief") sought by the claimants. The 30 November skeleton argument comprised six main sections. The first and sixth were, respectively, the introduction and a conclusion. In the paragraphs which follow I describe what appeared in the second, third, fourth and fifth main sections.
Previous skeleton arguments had been headed with the title of the main action. The 30 November skeleton argument, however, was headed with a title of an action for which a claim number had not been identified. It described as "Applicants/Claimants" the three parties comprising the claimants in the main action. It identified as "Respondents" a single name: "Stephen Fiddler".
In this regard, the second main section of the 30 November skeleton argument stated in paragraph 3:
3. The Applicants take the view that the preferable course is for the orders to be sought and made in separate proceedings. The matters are, at this juncture, separate and distinct from those matters in issue in the main proceedings and it would, it is be submitted, be more expedient to maintain separate proceedings. At present, there is little obvious utility in having Oscar (and/or the Respondent) as parties in the main proceedings, with all the attendant difficulties and cost consequences. If that changes, then an application may be made to consolidate the two sets of proceedings (under CPR 3.1(2)(g)).
The third main section comprised paragraphs 4 and 5. It was headed "CPR 25APD.8". Paragraph 4 noted that paragraph 8 of practice direction 25A accompanying CPR 25 states:
Delivery-up orders
8.1 The following provisions apply to orders, other than search orders, for delivery up or preservation of evidence or property where it is likely that such an order will be executed at the premises of the respondent or a third party.
8.2 In such cases the court shall consider whether to include in the order for the benefit or protection of the parties similar provisions to those specified above in relation to injunctions and search orders.
Paragraph 5 of the 30 November skeleton argument stated:
5. As to this:
5.1. The provisions apply, in terms, to delivery-up orders made by the Court under CPR 25.1(1)(e) and pursuant to the Torts (Interference with Goods) Act 1977.
5.2. The Applicants seek no such order here.
5.3. There is no execution here at the Respondent's premises.
5.4. The draft order has been significantly drawn from the pro-forma search order PD25A in order to provide for heightened protections. In particular:
5.4.1. it is expressly stated (clause 7) that the Respondent can apply to have the Order varied or discharged;
5.4.2. details regarding how the Court can be contacted have been inserted (clause 8);
5.4.3. the orders are supported by undertakings offered by Stewarts Law LLP (Schedule A) (including, in particular, that the mobile phone is to be kept confidential from all persons, including the Applicants themselves (clause 5));
5.4.4. the orders are supported by various undertakings offered by the Applicants (Schedule B), which are extensive. Detailed and comprehensive undertakings in relation to damages have been offered (clauses 2 and 3). Provision has been made (clause 4) for the Respondent to be kept fully updated regarding the present and previous hearing in relation to this application, to minimise any prejudice that he may suffer on account of its having been made without notice.
The fourth main section of the 30 November skeleton argument comprised paragraphs 6 to 26. Paragraphs 6 and 7 noted that the 30 November proposed interim relief included a reminder to Mr Fiddler of his right to assert the privilege against self incrimination. The result would be that if Mr Fiddler considered that compliance with any of the court's orders would incriminate himself, it would be open to him to assert the privilege against self incrimination.
At paragraph 8 of the 30 November skeleton argument, however, it was submitted that there was no scope for the privilege. Three contentions were made in support of this contention.
The first contention relied on the principle that the privilege will only arise if there is a "real risk" that compliance with what would otherwise be required will result in a criminal law penalty to the person seeking to exercise the privilege. Thus a far fetched, remote or fanciful risk of incurring a criminal law penalty would not suffice. In this regard paragraph 10 of the 30 November skeleton argument stated:
10. The orders sought by the Applicants would not expose the Respondent to a "real risk" of incurring criminal liability.
10.1. The Applicants seek access to the Respondent's mobile telephone for the purpose of preserving the Video Recording of Oscar that the Applicants believe is stored on it. The Video Recording itself, according to the description of it by Ms Irving in Irving 3 [1/10] at paragraph [19], does not disclose the commission of any offences by the Respondent. Neither would providing the Applicants with the mobile telephone reveal, in and of itself, that the Respondent is guilty of an offence. It is true that the mobile telephone may have stored in it incriminating material. But that possibility is of no significance for the following reasons:
10.1.1. The mere possibility that the mobile telephone might contain incriminating material is insufficient to reach the threshold of "real risk".
10.1.2. The police have shown no interest in investigating the Respondent in relation to the subject matter of this Application. As Ms Irving explains in Irving 4 [2/14], the Applicants' solicitors (Stewarts Law LLP) have been in contact with the Metropolitan Police regarding this Application (at paragraphs [4]–[8]). It is hard to see how, therefore, making the orders sought by the Applicant would create a "real risk" that the Respondent would incur a criminal law penalty if he complies with the orders sought.
10.1.3. The Applicants also seek Norwich Pharmacal relief in order to determine the identity of Oscar. Granting such relief would not expose the Respondent to criminal liability. It is difficult to see how merely being compelled to disclose Oscar's identity (or that of Oscar's father) would show that the Respondent has committed an offence. At the very least, the prospect that granting such relief would expose the Respondent to criminal liability does not reach the level of a "real risk".
The second contention was that the privilege against self incrimination arises in respect only of testimonial obligations. It is therefore inapplicable to orders of the preservation or inspection of pre-existing property under CPR 25.1. In support of this contention, paragraphs 12 to 15 of the 30 November skeleton argument relied on citations from Zuckerman on Civil Procedure (3rd, ed, 2014) at [18.6], from Hodge and Malek, Disclosure (4th ed, 2012) at [13.02], and from C plc v P.3 [2007] EWCA Civ 493; [2008] Ch 1 at [34] and [36].
The third contention was that, should it be necessary, the claimants could rely on section 13 of the Fraud Act 2006, which provides for an exception to the privilege against self incrimination:
13. (1) A person is not to be excused from—
answering any question put to him in proceedings relating to property, or
complying with any order made in proceedings relating to property,
on the ground that doing so may incriminate him or his spouse or civil partner of an offence under this Act or a related offence.
(2) But, in proceedings for an offence under this Act or a related offence, a statement or admission made by the person in—
answering such a question, or
complying with such an order,
is not admissible in evidence against him or (unless they married or became civil partners after the making of the statement or admission) his spouse or civil partner.
(3) "Proceedings relating to property" means any proceedings for—
the recovery or administration of any property,
the execution of a trust, or
an account of any property or dealings with property,
and "property" means money or other property whether real or personal (including things in action and other intangible property).
(4) "Related offence" means—
conspiracy to defraud;
any other offence involving any form of fraudulent conduct or purpose.
The fifth main section of the 30 November skeleton argument was headed "Police Investigations". This section comprised paragraphs 27 to 30 of the 30 November skeleton argument, as follows:
27. Will any order of the Court hamper investigations being conducted by the police?
28. On Friday 27 November 2015 at 5.47pm Stewarts Law LLP sent a letter by email to Inspector Ellwood of the Metropolitan Police Service (the email was copied to certain other officers and hand delivered to the Directorate of Legal Services of the Metropolitan Police), informing him of the relief sought by the Applicants and requesting him to confirm whether granting the orders desired would interfere with any investigations.
29. Stewarts Law LLP received a prompt response to that letter by way of a telephone call from Inspector Ellwood at approximately 6.15pm the same evening. Inspector Ellwood spoke to Mr Stefan Edwards and explained that, at that time, they had no inquiries in respect of the Respondent and therefore had no objection to the Court making the orders sought. He said that he hoped to provide written confirmation to that effect by Monday 30 November 2015.
30. In the event, the Inspector did respond by email yesterday (29 November 2015) with written confirmation that the Court's orders will not interfere with the Court's investigations.
E4.3 Irving 4: further interaction with the police
Irving 4 dealt with the question whether the 27 November proposed interim relief would interfere with investigations on the part of the police. Exhibit "SCI 4" to that affidavit included at pages 2 to 3 a letter from Stewarts Law to Inspector Ellwood describing the relief sought against Mr Fiddler and asking for confirmation that grant of that relief would not interfere with police investigations.
Also produced by Ms Irving was an attendance note made by Mr Stefan Edwards of Stewarts Law dated 27 November 2015. This attendance note gave an account of a telephone conversation with Inspector Ellwood shortly after receipt by Inspector Ellwood of an email attaching the letter of 27 November 2015. With paragraph numbers added in square brackets for convenience, the text of the attendance note was as follows:
[1] Call received from Inspector Guy Ellwood, Metropolitan Police.
[2] Insp Ellwood was responding to our letter received by email a few minutes ago.
[3] He said that he and his team really are trying to help Pro Vinci and Sinead. However this matter really is generating a lot of communication and taking up a lot of time.
[4] In his view this all comes back to the fact that Pro Vinci were approached by Oscar and handed over £130k to him. They shouldn't have done that. He advised them not to. For what it's worth he does think that they have been the victims of fraud. But there is just no evidence at the moment.
[5] They did have three strands of forensics enquiry, however as to those: they are unable to use the DNA analysis because the person who carried it out did not have the correct qualifications for it to be used as evidence. They lifted a fingerprint from the cup Oscar used and have run it against their database but with no matches. They have reviewed the CCTV footage but no identification has been made.
[6] We discussed Steven Fiddler. Insp Ellwood said that, again, he does not think Pro Vinci should have invited him to their office and paid him £300. I explained that my understanding was that Fiddler had contacted them to arrange the meeting and that the alternatives were either that they travel to Cheshire to meet him or that they pay his travel expenses for coming to London, which was what the £300 was.
[7] Insp Ellwood said that he had heard what happened at the meeting with Fiddler and had seen the text messages afterwards. He doesn't see that Fiddler has committed a crime. The text messages are not direct threats and as things stand they are isolated. I said that there are now a lot of instances of threats being made, people being followed, possible attempts to frame people at Pro Vinci etc and that, from their perspective, these together constitute a constellation of incidents which are very much a course of conduct and assumed to share a directing mind. Fiddler's texts and messages seek to distort the real position – he travelled to London to threaten Gerald and Sinead and is now seeking to portray the opposite.
[8] He asked what we were applying to the court for. I said that we are asking for an order that Fiddler identify Oscar and that he deliver up the phone with the video on it. He asked what use the video could be in moving things forward. I said I didn't know because no-one has seen it all the way through. We don't know what Oscar was trying to communicate. It may be an extension of the possible fraud. Or it may help in identifying Oscar or his motives.
[9] Insp Ellwood also wondered what good naming Oscar would do. I said that there appear to be two primary possibilities: either Oscar was right and someone has tried to frame Pro Vinci – in which case they want to find out who that was and if it is linked to the other incidents of intimidation – or Oscar is a fraudster who has stolen £130k of their money – in which case they would like to recover it. Either way Oscar holds the key.
[10] He said that as things stand they have no inquiries in respect of Fiddler. They called him but he refused to speak to them. They don't see that he has committed a crime, so they have at present marked the file 'no further action'. I said that in that case presumably they had no objection to the civil court making the orders we were seeking. He agreed they would have no objection; there is no investigation to prejudice.
[11] I asked if he could email a short response to our letter which we could show to the court. He will consult internally but does not think that will be a problem. He is working over the weekend so should be able to respond by Monday morning.
Irving 4 added at paragraph 8 that an email had been sent by Inspector Ellwood on 29 November 2015. It appears from page 6 of exhibit "SCI 4" that, after stating that he had read the contents of the letter from Stewarts Law, Inspector Ellwood continued:
I can confirm that at the current time we are not treating Steven Fidler as a suspect for an identified offence and your requests for the production of documents will not interfere with our investigation.
However, I am aware that Mr Fidler has sent a text to Sinead Irving on Friday when previously requested not to. While not threatening or abusive we have recorded the text being sent.
E4.4 What happened at the 30 November hearing
At an early stage at the 30 November hearing I drew attention to a passage in the attendance note of 27 November 2015 (see section 4.3 above). The passage in question was the paragraph which I have numbered "[4]". I asked Mr Drake whether it appeared from this passage that Inspector Ellwood was recorded as stating that he had advised the claimants not to hand over money to Oscar. Mr Drake confirmed that this appeared to be the case, but added that he should take instructions in that regard. I asked that he should take instructions, and that he do so before addressing me on other matters.
As to why I had made these requests, I stated:
Let me make no bones about it; on 25 September this year I was being asked to make an unprecedented order. If I had been told that the order would authorise things which the police had advised against, the task of persuading me to grant that order would have been very much more difficult.
The hearing was then adjourned for just under an hour to enable Mr Drake to take instructions. At the resumed hearing Mr Drake stated on instructions that when Ms Irving first raised the question of Oscar with the police, officer Shipston had cautioned against meeting with Oscar on the basis that it sounded like a scam. Mr Drake acknowledged that the court was not told of this because his instructing solicitors had not been aware of it. I expressed a concern because I would have expected solicitors to be asking their client about what the police had said.
Mr Drake also said that he had instructions concerning a "disbelief" expressed by the police. In the ensuing discussion I expressed a concern at what appeared to be being suggested. It seemed that I had not been told of what the police had said in certain respects. If so, then it was no answer to say that the court was not informed because Pro Vinci considered that the police were taking a wrong approach. In those circumstances I adjourned the matter so that evidence could be prepared giving a full account of interactions with the police. I asked that the evidence should also deal with passages in the attendance note suggesting that Inspector Ellwood was questioning whether an order against Mr Fiddler would serve any useful purpose.
E5. Hearing on 10 December 2015
E5.1 The 10 December hearing: general
No further communication was received from the claimants' legal team during the remainder of the week beginning 30 November 2015. On Monday 7 December 2015 I asked that I be provided with an update. An update the following day said that evidence would be sworn in time to provide it to me by 1pm on Wednesday 9 December, and would be accompanied by an appendix to the skeleton arguments provided previously. A request was made for a half day hearing to be listed. In response, my clerk advised that arrangements had been made for a hearing on Thursday 10 December with a time estimate of up to a day.
In section E5.2 below I deal with what was said in a fifth affidavit of Ms Irving sworn on 9 December 2015 ("Irving 5"). Despite what was said in the update provided on 8 December, no appendix or other skeleton argument was provided in advance of the 10 December hearing. I describe what happened at that hearing in section E5.3 below.
E5.2 Irving 5
Irving 5 comprised seven sections:
I Introduction
II Relevant events before 3 September 2015
III Relevant events from 3 September to 24 September 2015
IV Relevant events from 25 September 2015 to date
V Instructions given to Stewarts Law on 30 November 2015
VI The Attendance Note
VII Reasons for bringing the application
In section I Ms Irving noted the concerns I had expressed on 30 November 2015 about Inspector Ellwood's remarks as recorded by Mr Edwards on 27 November 2015 (see section E4.3 above). She referred to the note in which Mr Edwards recorded those remarks as "the Attendance Note".
Paragraph 12 of Irving 5 emphasised four matters:
12.1. I have handled the overwhelming majority of the communications between the Applicants and the police in connection with Oscar;
12.2. I was never advised, directly or indirectly, by any police officer that the Applicants (or anyone else) should not pay Oscar £130,000 (or, indeed, any money at all);
12.3. the police welcome the present application (or at least have no objection to the orders sought being granted) and in fact recognise the benefit of the orders. I say this because:
a) on 3 December 2015 I received a call from Detective David Roberts from CID which is described in further detail below at paragraphs 65 to 70) in which he told me that if we obtained the orders from this Court he would be able to arrest Oscar in connection with the fraud; and
b) on 4 December 2015, I received a telephone call from Inspector Ellwood, (which I describe in detail below (paragraphs 71) in which Inspector Ellwood told me that the police would be assisted if the orders sought by the Applicants were;
12.4. as I describe later (paragraphs 20–40), correspondence between the Applicants and the police during the period from 3 September 2015 (the date on which Oscar first made contact with the Applicants) and 1 October 2015 (the date of the second and final payment to Oscar) was almost entirely one way: from the Applicants to the police. On behalf of the Applicants, I persistently tried to obtain support and advice from the police but most of my enquiries went unanswered.
In support of what was said about the matters at sub-paragraphs 12.1 and 12.2, sections II, III and IV of Irving 5 set out a detailed account of events before 3 September 2015, from that date up to 24 September 2015, and from 25 September 2015 onwards. The description given by Mr Irving in those sections is of a course of events in which, among other things:
(1) The only payment to Oscar prior to the September 2015 application was the payment of £30,000 described in paragraph 13.9 of the 25 September skeleton argument (see section D2 above) and set out in more detail in Irving 1;
(2) Ms Irving paid £100,000 to Oscar on 1 October 2015 after he had given her the USB drive and cigarette lighter described in paragraph 6 of Irving 2 (see section E3.4 above); and
(3) The first occasion when the police commented on payments to Oscar was on 12 October 2015, and thus was after the payments had been made.
Section V of Irving 5 dealt with what I had been told orally on 30 November 2015 concerning advice from the police not to meet Oscar. In that section Ms Irving's account was that the advice given to her when she first told the police about Oscar was that while PC Shipston advised her not to meet Oscar, she believed that PC Shipston gave that advice simply out of an abundance of caution for her safety. She stated that she was confident that no police officer at any time had told her, directly or indirectly, not to pay Oscar prior to Pro Vinci having done so.
In support of what was said at paragraph 12.3 of Irving 5, section IV of Irving 5 described what was said to her by DC Roberts on 3 December 2015 and by Inspector Ellwood on 4 December 2015. In addition, section VII of Irving 5 set out a detailed analysis of the utility of the relief sought in the November application.
E5.3 The hearing on 10 December 2015
The hearing on 10 December 2015 was concerned both with the September 2015 application and order and with the November 2015 application. In both these respects a note from me dated 9 December 2015 identified certain matters on which I sought assistance.
As regards the September 2015 application, at the hearing on 10 December Mr Drake gave an update on the procedural position in the main action. That update confirmed what had been said in a note emailed to my clerk prior to the hearing. For present purposes it is sufficient to note that the next relevant step in the main proceedings is that applications by both parties are due to be heard in March 2016.
Mr Drake then turned to the matters which had caused me concern on 30 November 2015. As to interaction with the police, Mr Drake took me through relevant passages in Irving 5. He also referred me to further communications sent by Mr Fiddler, and to Ms Irving's analysis of the utility of the order sought against Mr Fiddler.
Submissions by Mr Drake then dealt with matters raised in my note dated 9 December 2015. Among other things, Mr Drake stated that the claimants had not yet issued the application foreshadowed in Stewarts Law's letter to the court dated 7 September 2015.
My note dated 9 December 2015 had referred to the "in private" status of the September 2015 application, evidence and order, and subsequent associated correspondence evidence and orders. It warned that I would seek assistance on whether there were respects in which the continuation of that "in private" status was necessary, and if so what they were. Mr Drake's initial oral response was that the claimants would reiterate the matters that had been relied on when making the September 2015 application. On reflection, however, Mr Drake accepted that some of those matters no longer applied. Reliance had primarily been placed on concerns arising under CPR 39.2(a). The first concern that had been expressed on 25 September was that Mr Ruhan might seek to prevent Oscar from providing the relevant property. As to that, Oscar had now provided the relevant property. The second reason given in September was that it would be premature to accuse Mr Ruhan of anything. As to that, Mr Drake accepted that informing Mr Ruhan of what had happened to date would not necessarily require the claimants to accuse him of anything. Mr Drake nevertheless maintained that the approach from Oscar may be at the behest of Mr Ruhan, and to alert Mr Ruhan to the application would be, in effect, to defeat it. Mr Drake submitted that the application had been put on the basis that it might well implicate Mr Ruhan in an important way. He might do all that he could to "cover his tracks" if he learnt of what had happened. Pressure might be brought to bear on Oscar so that his assistance, if not already, would be forever lost to the claimants.
Turning to CPR 39.2(3)(d), Mr Drake accepted that at present submissions which might be made under those heads did not add to his submission under head (a) of CPR 39.2(3). As to sub-paragraph (g) Mr Drake qualified that acceptance to this extent:
… the main proceedings are very difficult proceedings…, and they have a tendency to explode into satellite litigation. One of the reasons we have sought to proceed in the way that we have is to avoid the risk of that by prematurely raising the ire of Mr Ruhan before we know the real position.
… it takes the sting or the heat out of things for the time being until such time as we know what the true position is, and we can either make something of it or not in the main proceedings.
Various technical matters were dealt with prior to the short adjournment. When the hearing resumed Mr Drake confirmed that I had been correct to assume that the police had not made contact with Mr Ruhan in relation to Oscar.
A further question was raised by me orally:
What Oscar is recorded as telling Ms Irving is that he was to make what he called "the drop" on 19 October; would it not be right to proceed on the footing that whoever it was that made the approach to Oscar must by now have realised that something has gone wrong?
Mr Drake's reply, after the short adjournment, was:
My Lord, the last thing that you put to me was whether it was right for your Lordship to proceed on the inference that the client, if we can call them that, must surely by now know that something has gone wrong.
My Lord, we have mulled that over, over the break, we would say that it's not safe to proceed on that basis, principally because we don't really know what is going on here, and the best way I suppose to articulate that is to say that there are a number of possibilities, but we would have no way of knowing at this juncture which one is more likely than the others.
So the first possibility is that to which your Lordship alluded, which is that the client knows that something has gone wrong. Let me back up, if I may, actually. The first possibility is that the 19 October came and went without there being a drop, and the claimant -- sorry, not the claimant, the client knows that there was no drop, so the client knows that something is amiss.
The second possibility is that 19 October was not the date at all, but simply a date talked about, and that date might be 19 January, say, or 19 December.
The third possibility, which is somewhat supported by the evidence as we know it, is that Oscar has "renegotiated" the date with the client, and there is evidence to the effect that Oscar was stalling the client amidst his conversations with my clients. So that's a possibility.
Another possibility is that Oscar has demonstrated by some means that the drop took place on 19 October or some other date, and that the client is none the wiser.
MR JUSTICE WALKER: You mean that Oscar has told the client that the drop took place, but the client --
MR DRAKE: I'm sorry, yes.
MR JUSTICE WALKER: -- but in fact it has not.
MR DRAKE: But in fact it has not, and the client has been pressed to believe it by some false evidence adduced -- if the client has pressed the point, the client has been persuaded to believe it by some false evidence on the part of Oscar.
Those are possibilities, permutations that we have identified, but it rather underscores that it's, with respect, my Lord, unsafe to proceed on any given basis at all.
Submissions were made by Mr Drake on other aspects of the draft order. He then took me to the leading authority on the principles governing an order requiring others to assist by providing information. This was the decision of the Supreme Court in Rugby Football Union v Viagogo Ltd [2012] UKSC 55. In that case the Supreme Court examined the circumstances in which those wittingly or unwittingly involved in wrongdoing might be ordered to disclose information which would assist the victim of wrongdoing, in the light of developments since the decision in Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133.
In that regard I was referred to paragraph 17 of Lord Kerr's judgment in the Rugby Football Union case, identifying and discussing a number of relevant factors. It seemed to me, on consideration of those factors, that the proposal for delivery up of Mr Fiddler's mobile phone required revision. Mr Drake said in response that a revised draft order would provide for delivery up to a third party solicitor.
Arrangements were then made for the hearing to resume at 2pm on Monday 14 December 2015. As part of those arrangements the claimants were to send my clerk an update on progress on 11 December and again no later than noon on 14 December.
E6. Hearing on 14 December 2015
As arranged on 10 December 2015, an update was emailed on 11 December 2015. Attached to the email was a revised draft order. On consideration of the update and the revised draft order it seemed to me that there was a great deal of further work that needed to be done before an order in the new claim could be made. Accordingly I prepared a note dated 13 December 2015 concerning the further work that needed to be done, and made arrangements for that note to be emailed to the claimants' legal team that day. A further update was duly provided during the morning of 14 December, largely by emailing to my clerk a number of revised draft documents for the purposes of the hearing that afternoon.
At the start of the hearing on 14 December Mr Drake dealt with the fact that there had not, thus far, been written instructions to Mr Oslov. Subject to a minor revision, I approved the draft of a letter to Mr Oslov ensuring that he was aware of his responsibilities under CPR 35.
Turning to the new claim, Mr Drake took me to a draft claim form which had been prepared that morning. At previous hearings I had been concerned to understand how it was that the proposed new claim, saying that Oscar had been deceitful, could be consistent with continuation of the September 2015 order, which pre-supposed, at least, that Oscar had been truthful in the account of the approach made to him. As I understood it, an important reason why the two were compatible was that the claimants do not, at present, assert that Oscar's account of that approach, as described in Irving 1, was deceitful. In that regard, I suggested that the claimants consider including in the claim form wording which made clear this particular aspect of the claim.
The next draft document put forward for consideration was the proposed application notice. The draft supplied to me had not taken account of developments at the end of the previous week and over the weekend. Arrangements were made for appropriate revisions in this regard.
Among the draft documents supplied that morning were a draft affidavit in the new claim to be sworn by Ms Irving. This would exhibit Irving 1 to Irving 5 in the main action, and would confirm that in relation to full and frank disclosure nothing further needed to be added to what had been set out in Irving 1 to Irving 5.
It seemed to me desirable that where a witness, such as Ms Irving, had provided written evidence in both the main action and the new claim, a method should be devised to distinguish evidence in the new claim from that provided by the same witness in the main action. For this reason I directed that the new affidavit of Ms Irving should be known as "Irving (Fiddler claim) 1". The update on 11 December 2015 had proposed that Mr Malcolm Robson, a partner in Bates Wells and Braithwaite London LLP be appointed to receive delivery up of the mobile telephone. I approved the suggestion that he be designated as "Independent Solicitor" in this regard, subject to sight of a draft affidavit from him. That draft was duly produced and approved by me.
In the draft affidavit Mr Robson requested that he be given permission to appoint a computer expert to assist him. My note of 13 December had suggested that there be liberty to apply on notice for the appointment of such a person. Mr Robson explained that he would be likely to need assistance from such a person, and that this would be delayed if such a person could only be appointed after an application on notice. There appeared to be merit in Mr Robson's point, and accordingly at the hearing on 14 December I approved revisions to the draft order in that regard. Those revisions enabled the Independent Solicitor to seek assistance from one or more individuals with expertise in analysing mobile telephones. The Independent Solicitor was then given power to appoint one such individual to act as Independent Forensic Computer Expert provided certain conditions were met. Those conditions were that the Independent Solicitor should be satisfied that the relevant individual was appropriately qualified, had no conflict of interest, and had given undertakings to comply with CPR 35 and to take reasonable care not to damage the Property. A further revision was made to the draft order giving authority to the Independent Forensic Computer Expert, as so appointed, to do the things which the Independent Solicitor had been given authority to do.
Revisions were then identified to the provisions for alternative service in the draft order, and arrangements in relation to communication with the court.
The final matter of substance dealt with at the hearing on 14 December 2015 concerned an order as to the date of, and preparations for, the next hearing in the September 2015 application. A draft had been prepared which identified 21 December as the date of the next hearing in that application. Revisions were made so as to ensure that the evidence for that hearing would deal with all such matters as might be relevant to continuance in force of all or any part of the 25 September order as varied by subsequent orders.
F. Analysis and conclusion
F1. Analysis and conclusion: general
In section F2 below I deal with the stage now reached. Section F3 below, entitled "What lies ahead", looks to the future. In section F4 below I set out my conclusion.
F2. The stage now reached
On 30 November I was concerned that information relevant to the September 2015 application might have been deliberately withheld. In the light of the detailed account in Irving 5, however, it seemed to me that that it would be wrong to reach that conclusion on the material now before me. I also had concerns as to whether the order proposed in the November application would have practical utility. I deal with that aspect of the matter in my separate judgment in the new proceedings. As to the work which is continuing pursuant to the September 2015 order, and as to the continued "in private" status of matters dealt with in relation to the September 2015 application, it seemed to me that these were matters which should be examined in detail at the further hearing on 21 December, and that it would not be practicable to seek to resolve the position in that regard prior to that hearing.
F3. What lies ahead
The September 2015 application is to be restored at the hearing on 21 December 2015. It will be important to use the intervening period to ensure that careful consideration is given to whether continuation of "in private" status can be justified. Much has now happened which has been kept not only from Mr Ruhan but also from public knowledge generally. It will require strong justification for that position to continue. This judgment has been prepared in a form which is intended to enable it to be made public as soon as the "in private" status is lifted.
The hearing on 21 December will take place at a stage when there will have been developments in the new claim. Evidence for the restored September 2015 application should, so far as possible, be prepared in advance of those developments. Arrangements should be made to ensure that the police are kept informed and can be asked to comment on the desirability or otherwise of continuation of the order in the light of developments. These steps should assist in ensuring that I am informed of all relevant matters as at the time when the affidavit is sworn. If necessary, a further affidavit on relevant developments, and the claimants' stance on this matter as a whole, should be sworn on 20 December or on the morning of 21 December.
F4. Conclusion
There have been many developments in recent weeks. The hearing on 21 December will give the court an opportunity to review the position. It will be important for the claimants to identify a time when they can pause, and conduct a realistic review of the matter as a whole, before taking a final decision as to the stance that they propose to adopt at the hearing on 21 December 2015.
Annex 1: The 18 November directions
The order dated 18 November 2015 (see section E3.3 of the main judgment) stated:
1. By no later than 12:00 noon on Wednesday 18 November 2015, the Applicants' solicitors shall provide to Constable Danny Shipston and Constable Keeley Pemberton of the London Metropolitan Police and to the Chief Officer of the Jersey Police ("the Jersey Police") (collectively, "the Police"):
1.1 the Orders of Mr Justice Walker dated 25 September 2015 and 26 October 2015;
1.2 the material put before the Court by the Applicants when seeking the 25 September 2015 Order, namely:
(a) the affidavit of Ms Sinead Irving of 25 September 2015, and the exhibit thereto;
(b) the application notice issued on 25 September 2015;
(c)the draft order; and
(d)the skeleton argument for the Applicants;
1.3 the material put before the Court by the Applicants when seeking the 26 October 2015 Order, namely:
(a) the expert report of Dr Hunton dated 18 October 2015; and
(b) the draft order; and
1.4 any communications since 18 October 2015 between the Applicants' solicitors and:
(a) Dr Hunton or others at Hunton Woods Ltd; and
(b) Mr Alex Oslov or any employee or agent of Mr Oslov.
2. When providing the aforesaid material to the Police, the Applicants' solicitors shall ask the Police to revert with any concern or comment on such material as soon as possible but in any event by no later than 12:00 noon on Wednesday 25 November 2015. The Applicants' solicitors shall also upon receipt of the present order once it has been sealed provide a copy of the same to the Police.
3. In the event that Dr Hunton and/or Mr Oslov provides any report to the Applicants' solicitors after 12:00 noon on Wednesday 18 November 2015 and prior to the restored hearing, the Applicants shall forward the same to the Police as soon as practicable.
4. By no later than 25 November 2015, the Applicants shall lodge with the Court a second affidavit of Ms Sinead Irving (and accompanying exhibit(s)), which shall inform the Court in relation to the following matters:
4.1 the delay in verifying the authenticity of the data provided by 'Oscar';
4.2 the assistance being provided by Mr Alex Oslov to Dr Hunton;
4.3 any comments or concerns expressed by the Police;
4.4 any correspondence since 18 October 2015 between the Applicants' solicitors and:
(a) Dr Hunton or others at Hunton Woods Ltd; and
(b) Mr Alex Oslov or any employee or agent of Mr Oslov; and
4.5 the further relief (if any) sought by the Applicants at the 27 November 2015 hearing.
5. The Applicants shall lodge with the Court, by email, their skeleton argument and draft order for the restored hearing by no later than 12:00 noon on Thursday 26 November 2015.
6. The following additional documents shall be treated as private in accordance with paragraph 1 of the 25 September 2015 Order, and not be disclosed to the Defendant or his solicitors:
6.1 the Applicants' solicitors' letter to the Court dated 17 November 2015;
6.2 the second affidavit of Ms Sinead Irving and accompanying exhibit(s);
6.3 any communications since 18 October 2015 between the Applicants' solicitors and:
(a) Dr Hunton or others at Hunton Woods Ltd; and
(b) Mr Alex Oslov or any employee or agent of Mr Oslov; and
6.4 any further communication by way of update provided to the Applicants' solicitors by Dr Hunton and/or Mr Oslov after 12:00 noon on Wednesday 18 November 2015. |
Mr Justice Andrew Smith:
The question for determination is whether the defendants, Agrifert SA, the buyers under a FOB contract of sale, validly nominated a vessel to take delivery of a cargo of maize. They claim that they did so by nominating a substitute vessel, the m/v "Sea Way". The sellers and claimants in these proceedings dispute this, and contend that they were therefore entitled to terminate, and validly terminated, the contract of sale because the buyers failed to make a valid nomination. The First Tier GAFTA Tribunal accepted this argument, but the Board allowed the buyers' appeal. The sellers appeal under section 69 of the Arbitration Act, 1996 on these questions of law:
i) Where a Buyer of Goods FOB nominates a substitute vessel pursuant to its right under the GAFTA FOB Period of Delivery clause as appearing in GAFTA 49, is it required to comply with the terms of the contract of sale as to nomination and pre-advice in respect of the nomination of the substitute vessel?
ii) On the facts found by the GAFTA Board of Appeal and a true construction of the contract dated the 3rd July 2012 between the parties, was the Defendants' (the Buyers') nomination of the m.v. "Sea Way" valid or were they in default so that their claim fails?
The buyers contend that their nomination complied with the contract of sale, but also sought to argue that, if it did not, it was not in breach of a condition of the contract and the breach did not entitle the sellers to terminate it. The sellers submitted that it is too late to introduce this argument, and the buyers should not be permitted to do so.
By a contract dated 3 July 2012 the sellers sold maize to the buyers on terms set out in a contract confirmation that the parties signed. The contract provided for GAFTA arbitration, and the terms included these:
"Quantity
25,000 metric tonnes 5% more or less in Buyers' Option and at contract price. One full cargo.
Delivery
Between 15th March and 31st March 2013 both dates included. No extension.
Buyers to present self-trimming bulk carrier.
Loading berth(s)/pier(s) to be declared by Sellers upon nomination of a vessel.
Price
USD259.00 per metric ton, FOB Stowed/Trimmed/Fumigated. 1 safe berth 1 safe Panamax suitable port Ukraine to be declared on vessels nomination.
Pre-advice
Buyer shall serve to the Sellers (or the agent at loading) not less than 10 days pre-advice with the following information:
• ETA
• Vessel's name
• Flag
• Dimensions of the vessel (LOA/BEAM/DM)
• DWT
• AIRDRAFT
• Demurrage/despatch rate.
The Buyers or their forwarding agent, shall send to the Sellers and agents at loading the 8, 7, 6, 5, 3, 2 days and the 24 hours' precise Master's notices of the vessel's arrival at the loading port….
Demurrage/Dispatch
As per C/P rates; dispatch – half demurrage…
General Conditions
All other terms, conditions and rules not in contradiction with the above contained in Form 49 of GAFTA of which the parties admit that they have knowledge and notice, apply to this transaction and the details above given shall be taken as having been written into such form in the appropriate places."
GAFTA 49 provides:
"6. PERIOD OF DELIVERY
Delivery during ........................................................................ at Buyers' call.
Nomination of Vessel. Buyers shall serve not less than ................................................. consecutive day's [sic] notice of the name and probable readiness date of the vessel and the estimated tonnage required. The Sellers shall have the goods ready to be delivered to the Buyers at any time within the contract period of delivery.
Buyers have the right to substitute the nominated vessel, but in any event the original delivery period and any extension shall not be affected thereby. Provided the vessel is presented at the loading port in readiness to load within the delivery period, Sellers shall if necessary complete loading after the delivery period, and carrying charges shall not apply. In case of re-sales a provisional notice shall be passed on without delay, where possible, by telephone and confirmed on the same day in accordance with the Notices Clause".
On 20 March 2013 the buyers sent a message nominating the m/v "Puffin" to load the cargo, giving at estimated time of arrival ("ETA") at Nikolayev of 26/27 March 2013. (The notice was therefore given fewer than ten days before the ETA of the "Puffin": the sellers argued in the reference that therefore it was invalid, but the Board held that the timing only meant that the sellers were not obliged to load until ten days after receiving the message. That is not challenged in these proceedings.) There followed exchanges between the parties which are not relevant for present purposes: the buyers complained that the sellers delayed in nominating the load port. On 26 March 2013 the buyers sent another message nominating the m/v "Sea Way" in place of the m/v "Puffin", giving an ETA of 28 March 2013. Later that day the sellers rejected the nominations of both vessels in this message:
"We refer to your emails of earlier today substituting originally nominated m/v 'Puffin' for 'Sea Way' … OBN or SUBS due to delay of the former,
First, in light of your substitution of the performing vessel it is now clear that your initial nomination of 'Puffin' with ETA 26-27 March 2013 on 20/03/2013 contained a misleading information purported to make so-called "Mickey Mouse" nomination to comply with the requirement of timely nomination, with a hope of making a substitution subsequently. As we explained to you in our correspondence of 20th March 2013 that apart from the matter of a suitable nomination the nominated vessel should have arrived at a loading port at such time so as to enable us to ship the cargo within the shipment period.
Second, as regards your purported substitution we note that you nominated 'Sea Way' for intake of about 26,250 mts of cargo with ETA load port (i.e. Panamax suitable port Ukraine) on 28 March 2013. Apart from the matter of the validity of the substitution made both in terms of suitability and timing it is obvious that even if the vessel arrives at the loading port on 28th March which is highly unlikely, the Sellers will not be able to complete the loading within the shipment period ending 31/03/2013 12.00PM given the loading rate of 8,000 mts per weather working day SSHINC.
In the premises, your nomination of the 'Puffin' and purported substitute 'Sea Way' represent a false nomination and in turn constitutes repudiatory breaches which we accept".
The buyers replied on 27 March 2013 that they would buy a substitute cargo. They did so, and they claimed the difference in price of over $800,000.
It is convenient first to consider the procedural issue: whether the buyers should be permitted to advance a secondary argument that, if the nomination of the "Sea Way" was not in accordance with the contract, nevertheless they were not in repudiatory breach of it and the sellers were not entitled to terminate it. This question was raised, but not answered, in the judgment of Evans J at first instance in Cargill UK Ltd v Continental UK Ltd, [1989] 1 Lloyd's Rep 193, 197:
"The board's finding … that sellers are not dependent on the particular name of the carrying vessel in their preparations to deliver cargo, might provide grounds for arguing that a breach of the nomination provision in this non-essential respect does not entitle sellers to refuse to load, though they would be entitled to recover damages for any loss or expense caused by a late change of name. . . ."
Mr Karia also drew to my attention a note on Cargill written by Professor Howard Bennett, where he described this suggestion as "undoubtedly correct" as a matter of general principle: see H. N. Bennett, FOB Contracts: Substitution of Vessels, [1990] LMCLQ 446, 469. I agree with Professor Bennett.
CPR PD62 para 12.6 provides that, where a party seeks permission to appeal to the court against an arbitration award, a respondent who wishes to oppose the application for permission must file a respondent's notice which "sets out the grounds (but not the argument) on which the respondent resists the application", and "states whether the respondent wishes to contend that the award should be upheld for reasons not expressed (or not fully expressed) in the award and if so state the reasons (but not the argument)". A respondent's notice must be filed and served within 21 days after the date when he was required to acknowledge service and be accompanied by a skeleton argument, which must, inter alia, contain an estimate of how long the court is likely to need to deal with the application for leave to appeal on paper.
The buyers served a respondent's notice dated 4 June 2014, accompanied by a skeleton argument. The respondent's notice does not advance the secondary argument that the buyers now seek to make. The buyers' contend that the point was mentioned, however, in this paragraph of the skeleton argument, which explains why the reasoning of the Court of Appeal in the Cargill case [1989] 2 Ll Rep 290 is said not to apply here:
"… it should be noted that the Court of Appeal was considering a contract with an express right to terminate for breach of the nomination provisions. ("In the event of failure to give definite notice … buyer will be deemed in default and the provisions of the default clause will apply."). In the present case, the Sellers' case is that the Buyers were in repudiatory breach of the nomination and pre-advice clauses. The Board was entitled to find on all the evidence that they were not".
The buyers go on to say that this argument echoes a point that they made in the reference, and refer to their written submissions to the Board:
"… the present case is different from the Cargill case because there was an express right to terminate the contract for breach of the vessel nomination provisions in the Cargill case. The clause in the Cargill case provided: 'In the event of failure to give definite notice … buyer will be deemed in default and the provisions of the default clause will apply …' …. But there is no such provision in the Contract".
Accordingly Mr Chirag Karia QC, who represented the buyers, sought permission to amend the respondent's notice to include the secondary argument. Mr Michael Nolan QC, who represented the sellers, resisted the application: he argued that the buyers had not argued the point before the Board, that it is now too late to include it in the respondent's notice and that it is in any case an unsound argument. He also said that, if the point had been raised in the reference, the sellers could properly have adduced evidence about the consequences of the buyers' breach to support an argument that, even if the buyers were in breach of a so-called intermediate" or "innominate" term (see Chitty on Contracts (32nd Ed, 2015)), they were still entitled to terminate the contract of sale.
As I see it, the application to amend the respondent's notice and the grounds on which it was resisted misunderstand the Practice Direction. CPR PD62 para 12.6 is not concerned with a respondent's notice resisting an appeal once leave has been given, but about a respondent's notice opposing leave (or "permission"). That is clear from the wording of paragraph 12.6 itself, and put beyond doubt by the requirement that the accompanying skeleton argument provide an estimate for the time needed to deal with the application for leave. In this case, the court has granted leave, and the respondent's notice is spent. It is indeed too late to amend it, but not for the reasons that Mr Nolan argued. A respondent to an appeal under section 69 is not obliged when resisting an application for leave to set out all the grounds on which he intends to resist the appeal: he is not obliged to oppose the application for leave (and serve a respondent's notice) at all.
However, this does not resolve the buyers' difficulty. The Award does not refer to the argument that the buyers seek to raise and I conclude that this is because it was not argued in the arbitration, and certainly not distinctly argued: the paragraph of the submissions on which the buyers rely is too oblique to show that it was. More importantly, the secondary argument is not a pure point of law but a mixed question of law and fact – hence Mr Nolan properly submitted that the sellers might properly have adduced relevant evidence. The jurisdiction of the court on appeals against awards is confined to questions of law: see CTI Group Inc v Transclear SA, [2007] EWHC 2340 at para 13. This is reflected, as Hamblen J pointed out in Cottonex Anstalt v Patriot Spinning Mills Ltd, [2014] EWHC 236, in PD62 paras 12.5 and 12.15 about what material can be put before the court on the hearing of an arbitration appeal. Accordingly, he said this (loc cit at para 35):
"What … is generally impermissible is to raise a new point of law which requires consideration of factual materials and in relation to which material findings might have been sought and made had the point been raised at the arbitration. Both the appellant and the respondent are confined to the findings made in the award. The respondent can argue new points of law based on those findings. If, however, the failure to argue the point which the respondent wishes to raise has the result that not all potentially relevant findings have been made then it should not be open to it".
I conclude that it is not open to the buyers to pursue the secondary argument on this appeal.
It is generally a buyer's duty under a FOB contract to "name the vessel and give shipping instructions in time to enable the seller to send forward the goods so that they can be shipped in accordance with the instructions": Henderson & Glass v Radmore & Co, (1922) 10 Ll L R 727 per Bankes LJ. Subject to any contractual provisions to the contrary, a buyer who has nominated a vessel to load the cargo is entitled to withdraw the nomination and replace it with another, provided that the second nomination is in time to allow the vessel so nominated to fulfil the buyer's contractual obligations and is otherwise in accordance with the contract: Agricultores Federados Argentinos v Ampro SA, [1965] 2 Ll L R 157, 167. Mr Nolan does not dispute the buyers' prima facie right to change a nomination, but he contends, citing Benjamin's Sale of Goods (9th Ed, 2014) at para 20-055, that the "substitute nomination must itself be a valid one, that is to say it must be made in accordance with the requirements of the contract". He argues that this is established by the Cargill case (cit sup) and makes commercial sense.
In the Cargill case the Court of Appeal considered a contract which required the buyers to give the sellers a "provisional notice of 8 clear days of the date of the vessel's ETA at loading port ..., such notice to show vessel name, itinerary and approximate quantity to be loaded"; and to give a further (final or definite) notice of four clear days of the date of the presentation of the vessel for loading. It also provided for a notice of readiness to be given "having complied with all the requirements" of the nomination clause. The buyers gave what was accepted to be a good provisional notice for the m/v "Cobetas", but when it turned out that she would not arrive in time, they purported to change the nomination to the m/v "FinnBeaver", but did so within eight days of the ETA and four days of the presentation of the vessel. The Court of Appeal decided that the nomination of the m/v "FinnBeaver" was invalid.
Parker LJ said this (at p.294):
"If parties specifically stipulate for the vessel's name and itinerary to be given eight clear days before e.t.a and nine running days before expiry of the shipping period to be followed by a definite notice six running days before such expiry and finally a notice of readiness to be given by the vessel having complied with such requirements I find it impossible to attribute to the parties the mutual intention that buyers could nominate another vessel with a different itinerary notwithstanding that it was too late to give either a provisional or final notice in respect of her. Buyers' argument must in my view involve, if right, the further consequence that having given provisional and definite notice under the nomination clause and a valid notice of readiness in respect of vessel A they could have actually tendered for loading another vessel. This in my judgment is unacceptable".
Bingham LJ said this (at p.295):
"(1) The first sentence [of the nomination clause] requires a provisional notice of eight clear days of the vessel's estimated time of arrival at Hull. Such notice is to show the vessel's name. Notice of this length of the vessel's name need not have been required. The experienced trade arbitrators have held that the sellers did not need to know the vessel's name to prepare to deliver cargo. But there the requirement is. I do not think it can be properly circumvented. Commercial usages such as "or sub" or "TBN", however familiar in other contexts, cannot be regarded as giving notice of the name of a vessel. What is required is notice of the name of a particular vessel. If there were room for doubt about this it would be removed by the requirement to state the itinerary of the vessel. I do not see how this requirement can sensibly be applied otherwise than to a specific vessel, which is the vessel to be named.
(2) The second sentence requires a final or definite notice of four clear days of the date of presentation of the vessel for loading. There is no requirement that this notice should state the name of the vessel or its itinerary or the approximate quantity of cargo to be loaded. The reason for this omission is in my view that this information has already been given in the provisional notice and "the vessel" in the second sentence is plainly the named and identified vessel to which the provisional notice had related ….. When notice of readiness was given by Finnbeaver the buyers had not complied with all the requirements of the nomination clause in respect of that vessel. They had not complied with any. Having failed to give definite notice as required in respect of the vessel presented for loading the buyers were in default and the sellers were entitled to decline to perform."
The third member of the court, Taylor LJ, said this (at p.297):
"… I am reluctantly driven to conclude that the notice of readiness clause … does exclude freedom to substitute and is therefore fatal to the [buyers] case".
He continued:
"If one could properly construe the clause as leaving open the possibility of the vessel to be named in the notice of readiness being different from the vessel named earlier in pursuance of the nomination clause I would be disposed to find for the [buyers]. There was no express prohibition against substitution. These are the sellers' terms and the contract should be read contra proferentem. However, I find myself unable for two reasons to construe the clause in that way. First, although ungrammatical, it does, in my judgment, make clear that the vessel in respect of which notice of readiness is given must be the same vessel as that named in compliance with the nomination clause. Indeed it may have been the intention to emphasize that point which dictated the ungrammatical construction. The one word "vessel" is the identical subject of both limbs of the clause.
Secondly one must I think have regard to the elaborate requirements of notice in the nomination clause. They show that the parties here, as opposed to those in the Ampro case, attached importance to providing at very specific times the name, itinerary and e.t.a of the vessel and its date of presentation for loading. If a substitute vessel could be put in at a late stage, too late to serve fresh notices, then the detailed requirements as to notices would be unnecessary".
Mr Karia submitted that the Court of Appeal authority does not apply in this case for two principal reasons:
i) The contract in the Cargill case provided expressly that notice of readiness should be presented after all the requirements of the nomination clause had been complied with. Thus, it provided for the consequences of failure to comply exactly with the nomination clause in relation (as clearly was to be inferred) to the vessel which presented notice of readiness. There is no comparable contractual provision in this case.
ii) The contract in the Cargill case did not expressly provide for a right to substitute the nominated vessel, and the buyers there relied on their common law or implied right to do so that the Ampro case recognised. Here the contract expressly provides for and defines the right.
I am not persuaded by Mr Karia's first point. As I read their judgments Parker and Taylor LJJ found for the sellers for two distinct reasons. One was that identified by Mr Karia, and I accept that it was apparently Bingham LJ's only reason. They also considered that the buyers' interpretation defeated the purpose of the nomination clause because it would be nonsensical for it to require details of a vessel that was not used to load the cargo and not details of the vessel that was to be so used. This view of the case appears to be taken by the editors of Benjamin (cit sup): they write at para 20-055: "This substitution was ineffective since the eight days' notice required by the contract could no longer be given in relation to an arrival time of [m/v "Finn-Beaver"] within the shipment period. A fortiori, a substitution would be invalid where it was made in breach of a restriction imposed in a contract".
As I see it, if the contract in this case had not, through the GAFTA 49 wording, expressly provided for the right to substitute a nominated vessel, then the pre-advice requirements would govern the nomination of any substitute vessel, and so, if the buyers failed timeously to provide the required details of the substitute vessel, then the substitute nomination would not comply with the contract. This leads to the question raised by Mr Karia's other distinction between this case and the Cargill case: does the GAFTA wording constitute a complete code defining and limiting the right to substitution, and so dispense with any requirement for pre-notice in respect of the substituted vessel?
Mr Karia argued that this is indeed the effect of the GAFTA wording: it provides that "the original delivery period and any extension shall not be affected by the buyer exercising the right", and that is the protection that the contract provides for the sellers against their arrangements being disrupted by late substitution: there is therefore no need for, and no scope for, further protection by way of pre-notice requirements. Moreover, he submitted, this intention is indicated by the structure of the Period of Delivery provisions about Nomination of Vessel: they first provide for notice of details of the original vessel, and then make discreet provision about substitution. Thus, Mr Karia submits that the Board was right that, "As a matter of construction of [the clause], the only restriction of the Buyers' right to substitute is that the delivery period shall not be affected by the substitute nomination".
I cannot agree. To my mind, the natural interpretation of the requirement in the first provision about nomination of Vessel in the GAFTA wording is that it refers to the vessel that is to load the cargo: that is the only vessel whose name and "probable readiness date" could possibly matter. It is true that the sellers are to have the goods "ready to be delivered to the Buyers at any time within the contract period of delivery", but that does not mean that they would not be interested in receiving information about when the vessel that was to carry the cargo would probably be ready. Similar considerations apply to the pre-advice provisions in the confirmation of contract: for example, the sellers might want the dimensions and draft of the vessel to arrange a safe berth. The Board considered that the identity of the nominated vessel did not much matter to the sellers, but in response I would echo what was said in the judgments in Cargill: where contracting parties have stipulated the information to be provided, what matters is the parties' agreement, not the views of arbitrators, even those as experienced as here.
Nor I am impressed by the view expressed by the Board that it would be "bizarre" for the right to substitute to be subject to the same requirement for 10 days' pre-advice as the original nomination. As I see it, it would be more bizarre to give the contract an interpretation that requires the buyers to give detailed pre-advice information, but for information about a vessel that was never used to suffice.
The interpretation that I favour leaves a sensible commercial purpose for the substitution provisions. It makes express the implied right to substitute recognised in the Ampro case, but goes on to qualify it in a way that deals with a question identified in Benjamin (cit sup) at para 20-055: does the seller have a remedy if the buyer changes the nomination after the seller has relied on it? As the editors of Benjamin observe, it is difficult to see a precise legal basis whereby the buyer could have redress, and the GAFTA wording provides that there cannot be a valid substitute nomination in these circumstances if it will cause problems over the delivery period.
I therefore conclude that the nomination of the m/v "Sea Way" was not made in accordance with the contract. I allow the appeal, answering the questions as follows:
i) Where a Buyer of Goods FOB nominates a substitute vessel pursuant to its right under the GAFTA FOB Period of Delivery clause as appearing in GAFTA 49, he is required to comply with the terms of the contract of sale as to nomination and pre-advice in respect of the nomination of the substitute vessel?.
ii) On the facts found by the GAFTA Board of Appeal and a true construction of the contract between the parties, the Buyers' nomination of the m/v "Sea Way" was invalid, they were in default and their claim fails. |
MR JUSTICE COOKE: This is an application made by the defendant, Barclays, in respect of a claim brought by Mr Sivagnanam to whom I shall refer as the claimant. The application is to strike out the claim on the basis that there are no reasonable grounds for bringing it or for summary judgment, dismissing it on the basis that it has no realistic prospect of success. For the purpose of any strike out application, the court must assume the facts pleaded in the Particulars of Claim are correct. For the purpose of a summary judgment claim, there is no such assumption but, as is pointed out by Mr Maynard, here, there is no factual evidence adduced by Barclays, save for the witness statement of Ms Gibbons which, essentially, relates to redress given by Barclays to the Company, WHL, on a voluntary redress procedure.
The claim, as brought, which I have to examine, was brought in respect of three interest rate hedging products which were entered into not by the claimant, himself, but by WHL with Barclays between 2006 and 2008. At all material times, the claimant is and was the sole shareholder of the Company and a director of it. The Company, WHL, did not bring a claim against Barclays in relation to the sale of the products in question. Nonetheless, as appears from the witness statement of Ms Gibbons, the interest rate hedging products were entered into by the Company, WHL, on or about 22 May 2006, 17 July 2007 and 30 October 2008. On 27 July 2010, a written compromise agreement was concluded between WHL and Barclays. On 28 April 2015, there was a further review of past sales of such products pursuant to an agreement made between Barclays and the Financial Services Authority, as it then was. It was on 28 April that WHL, in a document signed by the claimant as its sole director, accepted the sum of £2,395,220.11 "in full and final settlement by the Company of all complaints, claims and causes of action, ("Claims") including for costs, expenses or damages that may be alleged to arise from or be in any way connected to the sale of the interest rate hedging products, however such Claims arise." It is, of course, plain from those terms (and it is not contended otherwise) that WHL has compromised any or all claims which it might have against Barclays in relation to the sale of the products.
The claimant, through his counsel, Mr Maynard, submits he is "a private person" within the meaning of Section 138D of the Financial Services and Markets Act. He says that he has suffered loss as a result of alleged contraventions by Barclays of the Conduct of Business Rules or rules in the Conduct of Business Sourcebook, those being the two relevant series of rules covering the period during which the products were sold to WHL. The wording of Section 138D (2) is as follows:
"The contravention by an authorised person of a rule made by the FCA is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty."
It is common ground between the parties that the definition of a private person, to which Section 138D (6) refers is to be found in the Financial Services and Markets Act (Rights of Action) Regulations 2001/2256 at paragraph 3. There, a private person is defined as meaning:
"(a) any individual, unless he suffers the loss in question in the course of carrying on (i) any regulated activity or (ii) any activity which would be a regulated activity apart from any exclusion made by Article 72 or 72(a) of the Regulated Activities Order;
(b) any person who is not an individual unless he suffers the loss in question in the course of carrying on business of any kind."
There are then further exceptions in paragraph (c) and (d), which I do not need to set out in full. Sub-paragraph 2 of paragraph 3 also refers to individuals who suffer loss in the course of effecting or carrying out contracts of insurance who are not to be taken to suffer loss in the course of carrying on a regulated activity.
It is further common ground that WHL would not have been a private person within the meaning of this regulation because WHL had carried on a business. The question arises as to whether or not the claimant can bring the claims he does. It is accepted that he is "a private person" within the meaning of Section 138 who is not, in that sense, carrying on a business. It was the company, WHL, in which he had an interest which carried on the business but which was a customer or client of Barclays. The point which arises is a fundamental point in relation to questions of statutory duty. The terms of Section 138D are such that the court must have regard to "the defences and other incidents" which apply to actions for breach of statutory duty.
A fundamental principle in relation to actions of this kind is that the person who brings the claim must be one of the persons who are intended by Parliament to be protected by the relevant legislation or rule. Mr Allen, for Barclays, referred to a number of text books and authorities but it is sufficient to quote Jackson and Powell on Professional Liability for this purpose. At paragraph 14-070, the authors state this:
"In order to establish a contravention, the nature and extent of the duty need to be determined by interpreting the relevant FSA rule. Moreover the claimant must be within the category of person which the rule, as a matter of interpretation, is intended to protect."
In that context, Mr Allen submits that the claimant was not intended to be protected by the rules of either COB or COBS which are said to have been breached by Barclays when dealing with WHL. In my judgment, that is a submission which is well founded. The point is made good simply by reference to the Particulars of Claim as they are pleaded. At paragraph 13, a number of rules in COB are set out which are all aimed specifically at the customer or the client. I need not go into any detail in respect of that but it is apparent, simply from reading the rules, that they are designed for protection of a customer or a client of a regulated firm or company. At paragraph 14, it is pleaded that WHL was a private customer of the defendant within the meaning of COB. The pleading goes onto to state that COB was superseded by COBS in the FSA's revised consolidated rules and then at paragraph 16, a series of further citations are made of those rules. Once again, I do not need to go through those in detail but they all refer to the best interests of the client, to communications to the client, to taking reasonable steps to ensure that recommendations are suitable for the client, to obtaining information from the client and to ascertaining the client's knowledge and experience. The KYC rules, as they are often referred to, speak for themselves, in as much as they are directed very specifically towards the protection of those who are clients of regulated bodies. At paragraph 17, it is pleaded that after 31 October 2007, WHL was a client of the defendant within the meaning of COBS.
At paragraph 22 of the pleading, it is asserted that the claimant is a private person with a right of action against the defendant for breach of statutory duty under Section 138D (2) of FSMA:
"A contravention by an authorised person of a rule made by the FCA is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty."
When then the allegations of breach are examined, it can be seen, from paragraphs 33, 40, 44, 45, 46, 48 and 49 that each of the relevant breaches of the rules is pleaded by reference to the position of WHL. It is, in my judgment, clear beyond argument that the rules were designed to protect the customers who constituted private persons within the meaning of Section 138D. It was not intended that the Act should apply to a different group of people who fell outside that category to whom no duty was owed and in respect of whom no breach of duty has even been pleaded. In short, the claimant is not a person whom the legislation was designed to protect. He asserts no claim at all for breach of duty to him in relation to the interest rate hedging products. The only plea which relates to the position of the claimant, as such, appears in paragraph 35 of the Particulars of Claim. There, the following appears without any allegation of breach of duty by reference to FSMA or the rules, at all:
"Amongst other things, the Defendant required the Claimant to inject a further personal money into the business and to provide further security in the form of personal guarantees and charges over property owned by him."
That is not sufficient to amount to a plea that there has been a breach of duty on the part of Barclays to him under the terms of COB, COBS or FSMA.
In this context, it is irrelevant whether or not WHL has a claim under FSMA against Barclays (it being accepted it has not) or whether the claimant, himself, had a claim at common law against Barclays in respect of any loss that he might personally have suffered. The point is reinforced by the decision of Morison J in Diamantides v JP Morgan Chase Bank & Ors [2005] EWHC 263 (Comm). A rather similar type of claim was being pursued there under earlier legislation. I am reminded by Mr Maynard that I have to construe the current legislation and not previous legislation, which may have been aimed at protecting investors and different classes of people from those referred to in the current statute. Nonetheless, the underlying point remains good by reference to that earlier legislation. The Judge held, at paragraph 27, that there was no credible case being advanced, that the Bank and the individual were in a contractual relationship of banker and customer, in circumstances where it was the company of which he was the sole shareholder and controller (much as here) which was, in fact, the customer of the Bank. As the Judge put it:
"Because Pollux is a company which carried on the business of investing for its sole shareholder's benefit, it did not have the protection afforded by the statutory scheme then in force to protect a 'private investor'. The discussion in Johnson as to reflective loss is not pertinent in my Judgment. Pollux has a cause of action against the Bank; if that claim failed because of some exclusionary clauses in the contractual documents, than that does not give Mr Diamantides a good claim against the Bank. If Pollux succeeds then Mr Diamantides' own losses will be reflective of the losses for which Pollux is making its claims; if Pollux fails, then the shareholder will bear the loss."
That was the reality of the position. He went on to say this, in paragraph 28:
"I think it was rightly submitted that this is an unprincipled attempt by an individual, who chose to invest through a corporate vehicle, to pierce the veil of his own company. That is not in law permissible – see Trustor AB v Smallbone [2001] 1 WWR 1177. The beginning and end of this case is that Pollux was the customer; Mr Diamantides was not. As Pollux's voice, the advice was given to him on behalf of Pollux and he caused Pollux to act on it. There is no commercial sense in a split between advisory and transaction activities. It is frankly meaningless and would make the regulatory regime impossible. I regard the amended pleading as a construct designed to avoid the consequence of Pollux not being a private investor..."
There was a range of arguments put forward there which are not put forward here, but the underlying thrust of what was said is, in my judgment, of application. This decision was upheld by the Court of Appeal, albeit not for entirely the same reasons. Moore-Bick LJ, with whom the other Lord Justice and Lady Justice agreed, simply said that at the end of the day, the facts set out in the consolidated Particulars of Claim were not capable of supporting the case that was sought to be made. In my judgment, that is exactly the position in the present case.
I should just say, in the context of the arguments made by Mr Maynard, who said everything that could possibly be said, that he argued that the particular terms of Section 138 did not justify any limitation to any class such as a customer but only a limitation in respect of the specific exceptions that were there set out. For the reasons I have already given, I do not accept that submission. There is a much more fundamental point which is the question as to whom it was the statute and the rules in question were intended to refer; for whose benefit was the protection being given. Once it is shown, as it is clearly in my judgment shown here, that the claimant fell outside the scope of the persons who were intended to be protected, it matters not that he is a private person and the limited exceptions to that do not assist in the argument, one way or the other.
There is a second basis for rejecting the claim as put. This point arises, essentially, out of the line of authority which is primarily set out in the decision in the House of Lords in Johnson v Gore Wood [2002] 2 Appeal Cases 1 and amplified in Gardner v Parker [2004] EWCA Civ 781. The point is, again, when ultimately reviewed, a relatively simple one. It is well established that a shareholder of a company cannot sue to recover damages for a loss which is reflective of a loss suffered by the company if the company could, itself, put forward a claim for that loss. Specific attention should be paid to what is said by Lord Millett at pages 66 and 67 in Johnson v Gore Wood and what is said by Lord Justice Neuberger, as he then was, in paragraph 33 of Gardner v Parker. I need not set out the passages in extenso but draw attention to the very useful summary at paragraph 33 in Gardner v Parker. He stated there, in sub-paragraph 3, that the irrecoverable loss (being merely reflective of the company's loss) is not confined to the individual claimant's loss of dividends on his shares or diminution in the value of his shareholding in the company but extends to all other payments which the shareholder might have obtained from the company if it had not been deprived of its funds and to other payments which the company would have made if it had the necessary funds, even if the plaintiff would have received them qua employee and not qua shareholder. He went on to say that the principle is not rooted simply in the avoidance of double recovery but extends to heads of loss which the company could have claimed but has chosen not to and, therefore, includes the case where the company has settled for less than it might. Provided the loss claimed by the shareholder is merely reflective of the company's loss and provided the defendant wrongdoer owed duties to both the company and the shareholder, it is irrelevant that the duties so owed may be different in content.
One has only to look at the way in which the claim for loss has been framed to see that it falls foul of the principle of non-recoverability of reflective loss. I have already drawn attention to the way in which the duties owed to WHL were set out and how the breaches of those duties were pleaded. When the pleading comes to the question of causation, paragraph 54 simply says:
"By reason of the matters aforesaid the Claimant has suffered loss and damage."
Thereafter, followed Particulars of Loss in the following terms:
"(i) As a result of the payments made under the miss-sold IRHPs and the breakage charges the shareholder's funds in WHL which otherwise would be available to the Claimant, have been diminished. (ii) But for the payments made under the miss-sold IRHPs and the breakage charges WHL would have been able to repay in full the director's loans and other monies advanced to it by the Claimant or paid by him on its behalf. In the premises the Claimant has lost the value of the said loans and monies."
I have already referred to paragraph 35 of the pleading, where it was said that the defendant required the claimant to inject further personal money into the business and to provide security in the form of guarantees and charges over property, but what is being pleaded here by way of loss in relation to breaches of the rules and duties owed to WHL is that shareholders' funds have been diminished and that loans and monies made by the claimant have not been repaid. What is quite clear from the way in which those matters are framed is that what is actually being said is that WHL, itself, has lost assets. It, itself, has been deprived of monies which it otherwise would have used, treating them as shareholders' funds, paying dividends or by way of repayment of loans made to the claimant as a creditor (the loans in question being made as shareholders' or directors' loans). It is beyond doubt that the loss claimed, therefore, is the loss to the Company which is then reflected in its lesser ability to pay the claimant or in the value of the claimant's stake in WHL. Mr Maynard said that this was all very well but the one thing that had not been established was that the Company, itself, WHL, could make its own claim against Barclays. It was accepted by both sides that such a claim would not run under FSMA. It was asserted by Mr Allen that there were potential realistic claims at common law simply on the basis of the pleading made. Mr Maynard said, to the contrary, that it could not be taken as read that there was any assumption of duty or any breach of a common law duty, at all. The Bank, Barclays, had failed to set out in any way exactly what the common law duty was, how it was breached and how causation and damage arose. It was not, therefore, for the court, on the basis of assumption or speculation, to reach a conclusion, for the purposes of summary judgment or striking out, that there was a valid claim which could have been made by WHL against Barclays at common law. There were a number of factors which would have to be examined in that context, particularly to see what the contract exclusions might have been and whether any duty to advise could arise in such circumstances. Because the Bank had not set out its position, the claimant could not say whether or not there was any agreement and whether there was any realistic prospect of success of such a claim.
The difficulty which that argument faces is the fact that there is, in the present case, evidence before the court that redress was paid. Of course, that redress was paid in the sum of nearly £2.4 million, not on the basis of any specific common law claim or, indeed, I imagine, any claim under FSMA. It was part of a voluntary procedure and to this extent, Mr Maynard is right, that it cannot be said that it was made on the basis of an admission of legal liability. It cannot, therefore, he says, be taken as evidence of any separate right of action, which the company could have brought. That is all very well in theory but in practice, is it perfectly clear that the parties, WHL and Barclays, have proceeded on the basis of compensation being made in respect of any advice that WHL might have had in relation to the sale of the interest rate hedging products. In such circumstances, it cannot lie in the mouth of WHL, nor its sole shareholder and director, the claimant, to say that there was no realistic prospect of success on a claim by WHL against the Bank. There are any number of claims currently being brought by customers against their banks in respect of the mis-selling of products of this kind. Hence, the very procedure which took place which resulted in the recovery on the part of WHL.
The nature of the reflective loss is demonstrated here very clearly, indeed. The sum of £2.4 million, approximately, has been received by the company and were the sole shareholder to recover, there would be, undoubtedly, an element of double recovery. One of the purposes of the rule of reflective loss is to prevent that happening. There is also, however, as has been pointed out, the question of policy because shareholders, creditors and employees all have relative priorities in respect of their claims against any company. It is important, therefore, that they should not receive any preference in bringing claims when the claims are properly to be brought on behalf of the company and then allocated according to the rules which govern priorities in insolvency or similar situations. In short, for this reason too, I am satisfied that there is no basis upon which the claimant could succeed in his claim against Barclays.
There is a third point which I need not dwell on because it was, essentially, common ground between the parties and that is a point which arises out of the Limitation Act. It is common ground that claims in respect of the mis-selling of two out of the three interest rate hedging products would be time barred and, therefore, no recovery could fall to be made in respect of them, at all. The third interest rate hedging product would not fall into that category. Quite how this would work in the context of the loss that is claimed is hard to fathom. So far as the redress that was actually given is concerned, both the first and second hedging products gave rise to a recovery of a sum just short of £20,000, whereas the vast majority of the recovery was made in respect of the third product where no time barred point arises. How the claim of the claimant in respect of his loss would fall to be characterised is another question entirely but does rather emphasise the point as to reflective loss, which I have already made.
In these circumstances, I am entirely satisfied that the Bank satisfies the requirements of CPR 24 in respect of summary judgment, that there are no realistic prospects of success on the claim, and there is no other compelling reason why this matter should go to trial. In that situation, Barclays must be entitled to summary judgment and I so order. |
Mr Justice Cooke:
Introduction
The claimant (Dr Smith) seeks a declaration in this action that the defendant (Mr Huertas) is not entitled to have the judgment of the Cour d'Appel d'Aix-en-Provence of 26th March 2013 (the APCA Judgment) recognised or enforced pursuant to the provisions of the Judgments Regulation on the grounds referred to in Article 34.1, namely that such recognition and/or enforcement would be manifestly contrary to public policy. In the same action Mr Huertas applies for summary judgment, seeking a declaration to the contrary effect on the basis that Dr Smith's claim has no realistic prospect of success.
Dr Smith recognises in his skeleton that under Article 36 of the Judgments Regulation:
"Under no circumstances may a foreign judgment be reviewed as to its substance."
It is accepted that the only basis for challenge to the APCA Judgment of 26th March 2013 is provided by Article 34(1) of the Judgments Regulation:
"A judgment shall not be recognised … if such recognition is manifestly contrary to public policy in the Member State in which recognition is sought."
Large elements of Dr Smith's witness statements and the expert evidence from French lawyers that he adduced were however directed to a particular finding in the APCA Judgment which corresponded with an earlier decision of that Court on 26th October 2006 (which was cited) that the date of insolvency or Cessation de Paiements (CDP), was 12th May 2008. The APCA Judgment contained additional reasoning of its own in this respect and went on to state in terms that the CDP date was not critical to the findings made against Dr Smith in relation to the criminal offence of which he was convicted and which gave rise to the compensatory award which is the subject of disputed recognition and enforcement here. It seemed to me at the outset on reading the skeletons, pleadings and evidence, that absent a challenge to the impartiality of the APCA, the ACPA Judgment was likely to be unchallengeable because of the terms of Article 36. Alleged failures in the fairness of the process could impact on this but might well be insufficient to justify a refusal to recognise the Judgment unless so gross as to be offensive to public policy.
The relevant part of the APCA judgment reads as follows:
"THE CHARGE
SMITH, Richard Barry is accused:
of having in VALBONNE, PARIS, from 01/04/1998 to 21/12/1998, in any event on national territory and for a time not covered by the statute of limitations, being de facto or de jure director of a private corporate entity subject to court-ordered liquidation receivership committed the offence of fraudulent bankruptcy or misappropriating or concealing all or some of the assets, in this instance by diverting funds owing to SA VALORUM to the benefit of PHARMAKOPIUS INTERNATIONAL, and by transferring without any consideration to VALORUM LTD (PHARMAKOPIUS EUROPE LTD) furniture belonging to SA VALORUM, …
With regard to the involvement of Richard SMITH:
1. with regard to the transfers of funds from the parent company to two subsidiaries of the former PHARMAKOPIUS international group
Through ruling of 26 October 2006 the Court of Appeal of Aix-en-Provence fixed at 12 May 998 the date on which FDMPHARMA was found in a situation of insolvency under the terms of the following reasoning: …
In fact the objective signs of the insolvency of the company appeared in the weeks following the capital increase: …
Thus, from the end of the first half of 1998, in spite of fund raising of 140,000,000 francs carried out three months earlier, the situation of the company, which no longer had the necessary funds to finance a restructuring that was now imperative, was irremediably compromised.
In any event, the argument according to which the transfer of funds set out in the charge in reality took place prior to the state of insolvency is not relevant to the establishment of the offence of fraudulent bankruptcy insofar as, coming from a same intention and striving for the same aim, they had the effect of affecting the content of the available assets under conditions likely to make the company unable to address the current liabilities.
The existence of a causal link between the transfers of funds set out in the charge and the state of the insolvency of the company suffices to establish the offence of fraudulent bankruptcy.
Furthermore, and contrary to what he would have us believe, Richard SMITH was fully aware of the date of the three transfers of funds that FDMPHARMA was in a state of insolvency."
Counsel for Dr Smith recognised that he needed to show a breach of Dr Smith's Article 6 rights to a fair trial or such breach of natural justice that, as a matter of public policy, this Court ought not to enforce the judgment. He submitted that recognition and enforcement "would be at variance to an unacceptable degree with the legal order of the State in which enforcement is sought, inasmuch as it would infringe a fundamental principle – a manifest breach of a rule of law regarded as essential in the legal order of the State in which enforcement was sought or the right recognised as being fundamental with that order".
The grounds of challenge
Dr Smith contends that the judgment should not be recognised and that he is entitled to the relief he seeks because:
i) The criminal proceedings against him, including the partie civile element were contrary to Article 6.1 and/or 6.3 of the European Convention on Human Rights and/or a breach of natural justice under English law; and/or
ii) The criminal courts (i.e. the Tribunal Correctionnel de Grasse (TCG)) which was the first instance court and the APCA were guilty of actual or apparent bias against Dr Smith.
Article 6.1 of the ECHR provides that:
"In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law."
Article 6.3 provides:
"Everyone charged with a criminal offence has the right[s]:
..
(e) to have the free assistance of an interpreter if he cannot understand or speak the language used in court."
It was submitted that the public policy ground may successfully be invoked even where there are on the face of it available remedies in the State of origin where, on the facts, the guarantees laid down in the legislation of the State of origin and in the ECHR itself have been insufficient to protect the party from a manifest breach of a relevant human right.
In summarising his position in his first witness statement, Dr Smith stated that it was only with an appreciation of the key background facts that the Court could see the inappropriateness of the allegations which Mr Huertas first contrived and then maintained against him, his irrational bias against himself and a co-defendant and the effect of his machinations in terms of depriving him and his French lawyers of information at key stages of the legal process and on one occasion actively misleading the French court. Only then could the injustice done to him be appreciated as a result of the procedural unfairness practised upon him in the courts in France. He maintained that it would not be fair to say that the background facts were irrelevant or seek to stigmatise or ignore them by characterising any consideration as an attempt to review factual findings of the French civil and criminal courts. He maintained that it was "the procedural unfairness I have been subjected to by French Authorities over the course of 16 years which has given rise to an exceptional matrix of facts which the Court must now recognise gave rise to a judgment in 2013 which is not only perverse, but, if enforced, would be manifestly contrary to public policy in the United Kingdom."
So it is that Dr Smith relies upon the findings against him by the French court to support his allegations of procedural unfairness and bias. This presents the obvious problem that he seeks the English court's review of the substance of the French court's judgments. In any event, as those judgments are reasoned, much more would be required to show bias, than simply the conclusions, unless those conclusions of fact and law were so obviously perverse as to constitute evidence of unfairness which they are not.
It is necessary to set out in extenso the terms of paragraphs 68 and 69 of the Particulars of Claim because they detail the complaints made by Dr Smith. Paragraph 68 is pleaded in support of the contention that the criminal proceedings as a whole, alternatively the appeal before the APCA, were unfair and contrary to Article 6(1) of the ECHR and/or in breach of natural justice, whilst paragraph 69 is pleaded in support of the allegation that the TCG and/or APCA were guilty of bias (actual or apparent) towards the claimant in the proceedings. Paragraphs 68 and 69 read as follows:
"68. The criminal (including partie civile) proceedings as a whole, alternatively the appeal before the APCA resulting in the Aix judgment were unfair contrary to Art. 6.1 of the European Convention on Human Rights and/or a breach of natural justice fur the following reasons:
a. The criminal investigation and proceedings against the Claimant lasted an inordinate and excessive period of time: the criminal investigation started on 25.8.99 and he was convicted by the TCG on 9.7.12 and APCA on 26.3.13. It was unfair that the Claimant should have been subject to investigation and to the proceedings for so long and subject to bail conditions of £300.000 during the entire criminal investigation.
b. It was unfair for the JI not to have interviewed the Claimant and to have refused his said requests for interview. The Claimant was thereby prevented from putting his side of the case at an early stage of the process against him.
c. The JI's recommendation that criminal charges be brought was irrational and/or perverse in that (in addition to sub-paragraphs a. and b. above):
i. In relation to charge 1:
1. there was no or no sufficient evidence to support the proposition that Valorum was in CDP on any date earlier than that that formally declared by Adams, namely 1.12.98; and/or,
2. the JI's conclusion that Valorum was in CDP on 12.5.98 was based solely on the 26.10.06 APCA judgment which itself was misconceived and invalid for the reasons set out in paragraphs 31 and 32 above; and/or
3. there was no investigation conducted by the JI at all into whether Valorum was in CPD on 12.5.98 or any date earlier than 1.12.98.
ii. In relation to charge 2, the interest accrued on the said £1.8m loan had in fact been repaid by way of deduction from the cash consideration paid at stage I of the completion of the purchase of the shares in P1.
iii. There was no evidence at all to support charge 3.
d. The criminal proceedings were irremediably tainted and prejudiced by the Defendant's dishonest concealment of the said repayment of £468,457 as pleaded in paragraphs 57 - 60 above since it was the Defendant who had instigated the investigation against the Claimant; who had claimed in partie civile and thus stood to benefit from them; and who allowed the TCG to convict the Claimant, and award the Defendant monies, in respect of the said repayment of £468.457. As soon as it was brought to the attention of the APCA that the TCG had convicted the Claimant and awarded the Defendant in respect of the said repaid monies in circumstances where the same was brought about entirely through the Defendant's was wholly improper and dishonest concealment of the said repayment, it ought to have dismissed the charges and the Defendant's partie civile proceedings. Unfairly it did not.
e. The criminal proceedings were also irremediably tainted and prejudiced by:
i. the Defendant's private communications with the Claimant's co-accused Adams: namely his letter dated 29.8.08. It wholly improper for the Defendant to have acted in such way and as soon as it was brought to the attention of the APCA that the Defendant had so acted, it ought to have dismissed the charges and partie civile proceedings. Unfairly, it did not; and/or
ii. the Defendants attorney, Maître Michel Montagard, having contacted Adams by telephone on a date presently unknown to the Claimant but prior to the criminal trial in the TCG with a view to obtaining Adams' help to find a work placement for his son in England. In fact, at the hearing in the TCG Maître Montagard strongly submitted to the court that the Defendant's real complaint was not against Adams. In the event, Adams was acquitted, even though he had been Valorum's CFO and Finance Director at all material times, had been the president of FDM between February and 3.4.98 and whose advice it had been to pay the said £1.8 million to FDM UK Limited. In this regard, the inference to he drawn from the foregoing is that that the judges of the TCG were improperly susceptible to the said submission made by Maître Montagard: there was no or no proper reason for the TCG to have distinguished between the Claimant and Adams. Both should have stood or fallen together in relation to the said criminal charges.
f. The conduct itself of the 23.3.13 APCA hearing was arbitrary, demeaning to the Claimant, intimidating and unfair for the following reasons:
i. Questions were put to the Claimant at the start of the hearing. The Claimant's response to the first question was inaccurately and inadequately translated and the translator was wholly unable properly to translate the Claimant's responses to the other two questions put to the Claimant. Thereafter, his counsel was afforded only very limited time, 20 minutes, to address the APCA. That was a wholly inadequate length of time in relation to the criminal proceedings against the Claimant, especially also having regard to the nature of the charges, the amounts at stake and the potential punishment (including possible loss of liberty).
ii. Moreover, the Claimant was further prejudiced in the said hearing because; (1) his evidence had to be given through an interpreter; and (2) the interpretation was inadequate; and, (3) the court repeatedly interrupted the Claimant.
iii. The interpreter, who had been provided by the court, was inadequate, which was specifically a breach of Art. 6.3 of the European Convention of Human Rights.
iv. The president of the APCA was openly hostile to the Claimant: she shouted at him when he addressed the Court and repeatedly talked over him. There was no good reason whatsoever for the president to have acted in such an inappropriate and unjudicial way.
v. Immediately prior to the start of the hearing, the president of the APCA handed the Claimant's lawyers a copy of a letter dated I7.8.12 which he had written to the French Minister of Justice (and others) in which he had raised complaints about the criminal investigation and process to which he had been subject. The letter was handed to the lawyers by the president without comment or any word. The inference to be drawn is that by her actions, the president intended, wholly improperly for a supposed impartial tribunal, to convey the following messages to the Claimant, namely that:
1. in her opinion, it was wholly wrong and improper and insulting to the French judicial process for the Claimant to have written and sent the said letter; and/or
2. there would be adverse consequences for the Claimant in the APCA by reason of his having written and sent the said letter.
g. Neither the TCG nor the APCA conducted any inquiry into the critical issue of whether Valorum was in CDP on 12.5.98 or indeed at any point in time before 1. 12.98. The TCG and the APCA fell into the same errors as those of the APCA when arriving at the APCA 26.l0.06 judgment, as pleaded in paragraphs 27 - 32 above. Further, such matters as the APCA purported in its 23.3.13 judgment to rely on in relation to the CDP date were in fact irrelevant because none of them (whether taken singly or in conjunction with others) disclosed whether as at 12.5.98 or at any point in time before 1.12.98 Valorum was able to discharge from its available assets its debts as they fell due.
h. The TCG and the APCA both ignored and failed to have any regard at all to the following matters referred to in sub-sub-paragraphs i – x below, which were not only material to the determination of the date of CDP and of which a fair and impartial tribunal would have taken account but which also would have caused any fair and impartial tribunal to have concluded that the date of CPD was not 12.5.98 or any date other than 1.12.98.
i. The fact that nothing in the Salustro report supported the conclusion or inference that Valorum was in CPD as at 12.5.98 or a date other than 1.12.98. The Claimant refers to paragraph 31 above.
ii. The fact that at the commencement of the administration on 7.12.98, Valorum was up to date with its tax and national insurance payments, did not have any debts registered against it, was not the subject of any debt recovery proceeding, injunctions or payment demands and had paid all salaries due to its employees.
iii. The fact that the only financial evidence relied on by the APCA was Valorum's accounts for the first semester of 1998 (prepared by its auditors on 13.10.98). Whilst those accounts showed a decreasing turnover and net loss of FF 83 million, they did not show or establish that Valorum was in CDP on 12.5.98 or on any date other than 1.12.98.
iv. The fact that on 29.7.98, independent international chartered accountants Moore Stephens had been engaged to review the state of Valorum's solvency and had carried out an audit of Valorum's finances but did not report that it was in CDP. They noted that according to Valorum's projections, cash would run out in September or October 1998. They also confirmed that they had been provided with all the information requested. Further, they prepared a restated balance sheet for Valorum as at 31.5.98 which showed net assets of FF 226.lm.
v. The fact that Valorum's board of directors (including the Claimant and Adams) had been provided with weekly financial reports, reviewed by Moore Stephens, which did not indicate that Valorum was in CDP.
vi. A memo dated 9.9.98 prepared by Adams for the board based on legal advice.
vii. The fact that on 20.11.98, another accountant Kevin Allen had provided the board with a memo in respect of the September 1998 accounts and Valorum's solvency. He had attached a balance sheet as at 30.9.98 together with a consolidated profit and loss account for the nine months ending on that date. He had specifically considered the question whether the Valorum group was insolvent and had concluded that if the provision for restructuring was removed because the company could not afford it), the Valorum group's assets as at 30.9.98 exceeded its liabilities by FF 15.8 million. He had also concluded that if losses continued at the same rate, liabilities would not exceed assets until some time in February 1999. Moreover, he had also prepared a company by company balance sheet as at 30.9.98 which showed that Valorum had total net assets of FF 81.9 million.
viii. On 10.11.98, Valorum's employee Duncan McDiarmid, whose job it was to prepare cash flow forecasts, had sent a forecast for the week commencing on 9.11.98 to the board. In that forecast he had concluded that Valorum would run out of cash in the following week if money was not transferred from the UK. He had stated that FF6.2 million was available in the UK on a weekly deposit account with Lloyds Bunk and a decision needed to he taken by Friday of that week as to whether FF 3 million ought to be transferred to Valorum. Based on such advice, the Claimant had procured that a total of FF 6 million was sent from FDM UK Limited to Valorum by two payments made on 12.11.98 and 19.11.98; those monies were and had been available as working capital for Valorum (as parent company) until the UK subsidiaries went into receivership on 27.11.98. In that regard, the liquidator of the English subsidiaries had and has not at any time challenged the transfers made to Valorum, and in fact he made the further repayments to the Defendant (as referred to in paragraph 57 above.
ix. The fact that in August 1998, a third party PRA Inc had confirmed in writing an offer of FF 50 million in the form of a loan for restructuring costs and moreover in November 1998 another third party Alchemy Partners (VC) also confirmed in writing terms for a loan of up to FF 55 million also for the said restructuring costs. Thus, the Claimant (and FDM's other directors) reasonably believed that recovery was viable. In the event, the restructuring proved impossible only by reason the refusal of Valorum's French employees to accept the terms of the proposed "social plan" (redundancy terms).
x. The fact that Valorum did not run out of cash until December 1998, and for that reason Adams had declared that Valorum was in CDP on 1.12.98.
i. Neither the TCG nor the APCA conducted any or any proper judicial assessment of the Defendant's claim in the partie civile proceedings and/or of the basis for the Claimant's liability to the Defendant including in the amounts claimed and in fact awarded and/or they gave no or no proper reasons for the same. In this regard, the Claimant will rely on the following as evidence of the same:
i. The fact that the TCG convicted the Claimant (and Ms. Smithdale) under charge 3 when there was no evidence whatsoever to justify such conviction or make an award to the Defendant in respect of the same.
ii. The fact that the APCA convicted the Claimant under charge 2 and made an award to the Defendant in respect of the same, notwithstanding (as pleaded in paragraph 12 above) contemporaneous evidence which showed that the said interest had been repaid by a deduction from the stage I cash payment, and (ii) a letter from FDM dated 12.6.98 confirming that "all liabilities and obligations" in respect of the said £1.8 million had been "satisfied in full".
j. Following his arrest on 1.12.99 by the French police and his detention in police custody, the Claimant's rights under Article 6 ECHR were infringed in the following ways:
i. he was not notified during his custody of his right to remain silent;
ii. he was not notified during his custody of his right not to incriminate himself;
iii. he was interviewed on 1.12.99 without having had or having the assistance of a lawyer of his choice;
iv. he was interviewed on 1.12.99 without having been advised by a lawyer of his choice regarding the content of the minutes purporting to record his police interview which he was asked to sign; and
v. he was required by a police officer on 1.12.99 and 2.12.99 to swear an oath that he would tell the truth during his police questioning and was thereby subjected to a form of improper pressure; further the threat of criminal proceedings (as provided for by Art. 434-13 of the French Criminal Code) placed him under yet further improper pressure.
69. The TCG and/or APCA was guilty of bias (actual or apparent) towards the Claimant in the criminal (including partie civile proceedings) proceedings. The Claimant relies on the following as evidence of the same and/or as matters from which the inference of bias is to be drawn:
a. The Claimant relies on the facts and matters set in sub-paragraph 68.f above.
b. The Claimant relies on the facts and matters set out in sub-paragraph 68.g above. The inference to be drawn from the fact that the APCA (i) relied on its said earlier decision notwithstanding the defects in it which had been brought to its attention and (ii) explicitly failed (as on 26.10.06) to conduct the fact-specific inquiry as to whether Valorum's available assets were as at 12.5.98 sufficient to pay its debts which were then immediately payable, is that the APCA was biased against the Claimant.
c. The Claimant relies on the facts and matters set out in sub-paragraph 68.h above. Specifically, the inference to be drawn from the failure to have had regard to such matters which were so obviously material to the determination of the issue of the date of the CDP is that the TCG and APCA were biased.
d. The Claimant relies on the facts and matters set out in sub-paragraph 0 above. Specifically, the inference to be drawn from the failure to have had regard to such matters which were so obviously material to the determination of the issue of the date of the CDP is that the TCG and APCA were biased.
e. As referred to in sub-paragraph 68.e.ii above, there was no or no proper reason for the TCG to have distinguished between the Claimant and Adams: both should have stood or fallen together. Without prejudice to sub-paragraph 68.e.ii above, the inference to be drawn from the fact that Adams was acquitted and the Claimant was not is that the TCG was biased against the Claimant. If Adams was acquitted, then the Claimant should also have been acquitted.
f. The IC convicted the Claimant (and Ms Smithdale) in relation to charge 3 even though, as the APCA itself was compelled to admit, there was no evidence whatsoever to support the charge.
g. As referred to in paragraph 64 above, the APCA increased the Claimant's sentence upon his conviction when there was no basis whatsoever for such increase especially having regard to the fact that he had been acquitted of charge 3 and that the value of the monies the subject of charge 1 had been substantially reduced on account of the said repayment of £468,457 which had been dishonestly concealed by the Defendant. The only matter relied on by the APCA as purportedly justifying such increase in sentence his "character". Moreover, the APCA convicted the Claimant under charge which the TCG had not done.
f. [sic] The APCA's rejection of an application by the Claimant for a reference to the cour de cassation on the issue whether the gross delay in bringing the criminal proceedings against the Claimant was unconstitutional (as referred to in paragraph 53 above)."
The law
Counsel for Mr Huertas, Mr Mercer QC, submitted that the correct approach in law could be summed up in the following principles:
i) Under no circumstances may a foreign judgment be reviewed as to its substance;
ii) The foundation of mutual recognition of judgments in the EU is mutual trust in the judicial systems of other Member States;
iii) The phrase "manifestly contrary to public policy" requires it to be established that there has been a flagrant breach of fundamental rights;
iv) If the person relying on fundamental rights has or had remedies in the state of origin of the judgment, he should normally be left to those remedies;
v) An English court should not normally entertain a challenge to a Convention judgment in circumstances where it would not permit a challenge to an English judgment.
By reference to recitals 2, 6 and 16-18 of the Regulation, he submitted that rapid and simple recognition and enforcement of judgments in Convention countries was regarded as essential, that the objective was the free movement of judgments in both civil and commercial matters and that such free movement was achievable only by applying the principle of mutual trust to judgments of other member states. In connection with the issue of trust and confidence, he cited the well-known dictum in Case 116-02, commonly referred to simply as Gasser:
"Second, it must be borne in mind that the Brussels Convention is necessarily based on the trust which the Contracting States accord to each other's legal systems and judicial institutions. It is that mutual trust which has enabled a compulsory system of jurisdiction to be established, which all the courts within the purview of the Convention are required to respect, and as a corollary the waiver by those States of the right to apply their internal rules on recognition and enforcement of foreign judgments in favour of a simplified mechanism for the recognition and enforcement of judgments."
I was referred to four other authorities in support of the propositions put forward on Mr Huertas' behalf. The first of these was Case 7/98 Krombach v Bamberski where the court observed at paragraph 19 that the Convention (the predecessor to the Regulation) was intended to facilitate to the greatest possible extent, the free movement of judgments, by providing for a simple and rapid enforcement procedure. At paragraph 20 the court stated that it followed from its own case law that the procedure for enforcement constituted an autonomous and complete system independent of the legal systems of the Contracting States and that the principle of legal certainty in the community legal system and the objectives of the Convention required a uniform application in all Contracting States of the Convention rules and the relevant case law of the court. In that context, the court had held that the predecessor of Article 34.1 (Article 27.1) which referred to "the public policy in the State in which recognition is sought" had to be interpreted strictly, inasmuch as it constituted an obstacle to the attainment of one of the fundamental objectives of the Convention and that recourse to that provision could only be had in exceptional cases. Whilst it was not for the European court to define the content of the public policy of a Contracting State, it was nonetheless required to review the limits within which the courts of a Contracting State might have recourse to that concept for the purpose of refusing recognition to a judgment emanating from a court in another Contracting State. Paragraphs 35-40 of the decision constitute the key paragraphs for present purposes. The court held that, by disallowing any review of a foreign judgment as to substance (the predecessors to Article 36 of the Regulation) the Convention prohibited the court of the state in which enforcement was sought from refusing to recognise or enforce that judgment solely on the ground that there was a discrepancy between the legal rule applied by the court of the state of origin and that which would have been applied by the court of the state in which enforcement was sought, had it been seised of the dispute itself. Similarly, the court of the state in which enforcement was sought could not review the accuracy of the findings of law or fact made by the court of the state of origin.
In paragraph 37 the court stated that:
"Recourse to the public policy clause … can be envisaged only where recognition or enforcement of the judgment delivered in another Contracting State would be at variance to an unacceptable degree with the legal order of the state in which enforcement is sought inasmuch as it infringes a fundamental principle. In order for the prohibition of any review of the foreign judgment as to its substance to be observed, the infringement would have to constitute a manifest breach of a rule of law regarded as essential in the legal order of the state in which enforcement is sought or of a right recognised as being fundamental within that legal order."
Given that the Regulation now provides that, for the exception to apply, enforcement or recognition must be "manifestly contrary to public policy", (with the addition of the word "manifestly" to the wording of the provision in force prior to the year 2000), it is clear that the court can only refuse recognition or enforcement in exceptional cases where it is obvious that public policy dictates refusal, whether or not Mr Mercer is correct in saying that a "flagrant" breach of a fundamental right is required.
In Case C-38/98, Renault SA v Maxicar SpA the court referred at paragraphs 29 and 30 to its prior decision in Krombach at paragraphs 36 and 37 and went on to say that an alleged error relating to rules of Community law did not alter the condition for being able to rely on the public policy exception to recognition or enforcement. At paragraph 33 the court said this:
"The court of the state in which enforcement is sought cannot, without undermining the aim of the Convention, refuse recognition of a decision emanating from another Contracting State solely on the ground that it considers that national or Community law was misapplied in that decision. On the contrary, it must be considered whether, in such cases, the system of legal remedies in each Contracting State, together with the preliminary ruling procedure provided for in Article 177 of the Treaty, affords a sufficient guarantee to individuals."
It can be seen that emphasis is there placed on the question whether the system of redress in the Contracting State in question makes adequate provision for remedying mistakes of national Community law or legal process.
In 1991, Phillips J (as he then was) considered the interrelationship between remedies in the Contracting State where the judgment had been given and the issue of recognition or enforcement in another Contracting State. In Interdesco S.A. v Nullifire Ltd [1992] ILPR 97 he held that where registration of a judgment under the 1968 Convention, the precursor to the Regulation, was challenged on the ground that the foreign court was fraudulently deceived, the enforcing court should first consider whether a remedy lay in such a case in the foreign jurisdiction in question. If it did, it would normally be appropriate to leave the defendant to pursue his remedy in that jurisdiction because it accorded with the spirit of the Convention that all issues should, so far as possible, be dealt with by the courts with original jurisdiction and such courts were likely to be more capable of assessing whether the original judgment was procured by fraud. Moreover, an English court should not normally entertain a challenge to a Convention judgment in circumstances in which it would not permit a challenge to an English judgment on the basis of res judicata or issue estoppel although principles of estoppel should be applied with care and in a flexible manner in relation to foreign proceedings.
i) At paragraph 35 Phillips J said: "In my judgment, where a foreign court has, in its judgment, ruled on precisely the matters that a defendant seeks to raise when challenging the judgment on the ground of fraud, the Convention precludes the court from reviewing the conclusions of the foreign court."
ii) At paragraphs 36-37, he grappled with the question of the approach the court should adopt where, in support of a case of judgment obtained by fraud, the defendants sought to raise a fresh case or rely on evidence which was not before the foreign court. After referring to comments in the official reports in the Convention, he went on to say that where registration of a Convention judgment was challenged on the ground that the foreign court had been fraudulently deceived, the English court should first consider whether a remedy lay in such case in the foreign jurisdiction in question, for the reasons set out above.
iii) At paragraph 38, he referred to the Henderson v Henderson principle and stated that, if this or something similar was applicable in the original court, the English court should be cautious in entertaining a challenge to the foreign judgment.
Whilst this decision specifically relates to the challenge to enforcement on the basis that the original judgment was obtained by fraud, the principles set out by the judge are self-evidently of wider application. If those principles apply in the context of an arguable case of a judgment obtained by fraud, they will apply to allegations of judicial bias and a fortiori to other arguments of a less serious nature in relation to the course which the proceedings took in the foreign jurisdiction. They must apply to arguments about procedural unfairness.
Where the factors relied on as being contrary to public policy in England are factors which the court has already considered in the foreign jurisdiction or are factors which could have been raised by way of objection in that jurisdiction, it appears to me self-evident that the foreign jurisdiction must be treated as the best place for those arguments to be raised and determined. To do otherwise would be contrary to the spirit of the Convention and, where issues of unfairness are raised which are capable of being the subject of appeal in the foreign jurisdiction, the court in the enforcing jurisdiction would be much less able to assess them than the original court which was familiar with its own forms of procedure. It is plain that an enforcing court will have much more difficulty in understanding the overall foreign system and its procedures for ensuring that justice is done than the appeal court of the original jurisdiction itself. There is moreover a highly unattractive element in a defendant not raising points which he could have raised in the original jurisdiction, by way of appeal against the judgment and only seeking to raise those matters when the judgment is exported to an enforcing jurisdiction under the Convention as matters of public policy for that court.
The final decision upon which counsel for Mr Huertas relied is that of the Court of Appeal in Maronier v Larmer [2003] QB 620. There, Lord Phillips MR, giving the judgment of the court, at paragraphs 24-27, referred to one of the fundamental objectives of the Convention as being to "facilitate, to the greatest extent possible, the free movement of judgments by providing for a simple and rapid enforcement procedure". He then stated that the objective would be frustrated if the courts of an enforcing State could be required to carry out a detailed review of whether the procedures that resulted in the judgment had complied with Article 6. Court procedures differed from one State to another and courts should apply a strong presumption that the procedures of other signatories to the Convention were compliant with Article 6. This was not an irrebuttable presumption however and, in an exceptional case, where the procedure of the court first seised had resulted in a defendant being prevented from putting his case to the court, a refusal to enforce the resultant judgment on grounds of public policy in another Contracting State could be justified.
The House of Lords in Porter v Magill [2012] 2 AC 357 made reference to apparent bias. At paragraphs 102-103, Lord Hope set out the precise test to be applied, stating that the court must first ascertain all the circumstances which have a bearing on the suggestion that the judge was biased and must then ask itself whether those circumstances would lead a fair minded and informed observer to conclude there was a real possibility, or a real danger, the two being the same, that the tribunal was biased.
Dr Smith relies on this dictum as also on the dictum in Adams v Cape Industries [1990] 1 CH 433 at p. 568-569 where it is stated that a defendant who can show that a foreign judgment has been obtained by fraud is not obliged to have used any available remedy in the foreign court with reference to that fraud if he is successfully to impeach the judgment in the English courts. The existence and failure to exercise such a right by the defendants would not however be irrelevant. It would be anomalous if the English courts were obliged wholly to disregarding the existence of a perfectly good remedy under a foreign system of procedure in considering whether the defective operation of that procedure had led to a breach of natural justice. A court must have regard to the availability of such a remedy in deciding whether in the circumstances of any particular case substantial injustice had been proved. The relevance of the existence of the remedy and the weight to be attached to it depends upon factors which include the nature of the procedural defect itself, the point in the proceedings at which it occurred and the knowledge and the means of knowledge of the defendants of the defect and the reasonableness in the circumstances of requiring or expecting that they make use of the remedy in all the particular circumstances.
These authorities must be read in the light of those which relate specifically to the Regulation itself and the enforcement of foreign judgments in this country with the limited exception provided by Article 34, in the light of the provisions of Article 36 of it.
In order therefore to succeed in resisting enforcement of the APCA Judgment on grounds of public policy in this country, Dr Smith not only has to show an exceptional case of an infringement of a fundamental principle constituting a manifest breach of a rule of law regarded as essential in the legal order in this country or of a right recognised as being fundamental within it but that the system of legal remedies in France did not afford a sufficient guarantee of his rights. Dr Smith must overcome the strong presumption that the procedures of the courts of France, another Contracting State, are compliant with Article 6. As Professor Schlosser in paragraph 192 of his Report on the Convention upon accession of the UK said in the context of the question of obtaining judgments by fraud:
"A court in the State addressed must always, ask itself, whether a breach of its public policy still exists in view of the fact that proceedings for address can be, or could have been, lodged in the courts of the State of origin against the judgment allegedly obtained by fraud."
It therefore becomes important to consider not only what the French courts have actually decided in relation to the complaints Dr Smith now makes but also what redress or remedies were available to him in respect of such complaints had he chosen to make them there. In this context the applications he did and did not make to the Cour de Cassation and the European Court of Human Rights (ECtHR) are of significance.
CPR 24.1
I need not recite the terms of this rule nor do anything other than refer to the decisions upon which Dr Smith relied for the principles which are so well known as to require no repetition. Reference was made to ED & F Mann Liquid Products Ltd v Patel [2003] AER (D) 75 [2003] EWHC Civ 342 at paragraph 9, Swain v Hillman [2001] 1 AER 91 at 92, Three Rivers v Bank of England [2003] 2 AC 1 and Royal Brompton Hospital NHS Trust v Hammond (No. 5) [2001] 76 Con LR 62. The question is whether Dr Smith has a "real prospect" of succeeding on his claim where "real" is equivalent to "realistic" and is to be contrasted with fanciful, meaning lacking in substance. The court should not embark upon a mini trial on a summary judgment application and regard must be had therefore to the question whether there exist disputes of fact which can only be resolved at trial. Consideration must also be given to the possibility that future disclosure of documents might make a significant difference.
There is only one area here where evidence at the trial could differ in any material respect from what is before the court now and where there are disputes of fact which could have a material bearing upon the court's decision. These points arise in relation to the conduct of the hearing of the APCA on 13th February 2013 where Dr Smith and Ms Smithdale's evidence is that the court was profoundly hostile to Dr Smith and did not give him a fair opportunity to present his case. Mr Mercer QC was prepared to accept that there were disputes of fact which arose in relation to that hearing but contended that it could make no difference to the issues the court has to decide because of the availability of remedies in France in respect of such complaints.
The complaints
A number of points should be stated at the outset:
i) Dr Smith was represented throughout the French proceedings by lawyers whose competence and integrity is not in question.
ii) The French system provides for appeals, and challenges or redress on each of the grounds put forward by Dr Smith in this court.
iii) Some complaints were pursued in France and failed whilst others were not pursued at all.
iv) The Cour de Cassation and the ECtHR dismissed applications to it on grounds to which I shall come.
v) The penal file which was before the APCA contained all the relevant documents showing the inter-company loan agreements - the French company's loan to the English subsidiary and its credit line agreements with other subsidiaries. The APCA had all the other relevant material before it as presented by Dr Smith's lawyers in opposition to the case being made by the Public Prosecutor and Mr Huertas as the administrator of the French company in liquidation.
vi) Dr Smith had the opportunity to give evidence in the ordinary way in which the French system operates and did so, subject to the complaint that he makes about the conduct of the proceedings on 13th February 2013.
In Dr Smith's witness statements, his focus was on the date of the CDP and the court's findings in that respect which he regards as erroneous. Not only were these findings fact findings which are beyond challenge here, but the date was not, as already set out, determinative of the issue as to whether or not he had committed the criminal offence of which he was convicted. Although he said in his second witness statement that he was "criminalised by the completely false date of Cessation de Paiements set by the Court of Appeal of Aix-en-Provence dated 26th October 2006" the reality is, as appears from the ACPA judgment of 26th March 2013, that not only did that court give its own reasoning as to the date of CDP, but it concluded that, regardless of that date, Dr Smith was guilty of the bankruptcy offence in question because of his knowledge and intention at the time of authorising the payments to the subsidiaries.
Although allegations of dishonesty and corruption have been made against Mr Huertas and lawyers representing him, the key issue to which this court must have regard is the question of unfairness and breach of Dr Smith's Article 6 rights in the APCA giving the judgment it did on 26th March 2013. Although, of course, the background and prior course of proceedings must be borne in mind, it is this judgment of that court and the process in that Court which matter, since that is the judgment which is the subject of potential recognition and enforcement.
Although the various complaints made by Dr Smith are capable of being grouped according to type, I set out each, as pleaded and recorded in paragraph 11 of this judgment in order to examine their merits and the prospects of success on each, bearing in mind, as Mr Samek QC rightly submitted, that it is necessary to look at the proceedings as whole when considering the APCA Judgment.
Paragraph 68(a) of the Particulars of Claim – the duration of the investigation and the proceedings
It is undoubtedly the case that the criminal investigation began in August 1999 and the proceedings themselves lasted from 2007 through to 26th March 2013, although Dr Smith had been convicted at first instance by the TCG on 9th July 2012. The evidence before me establishes that the French courts grappled with this point of extended duration on two occasions at the instance of Dr Smith and Ms Smithdale, on 21st February 2011 (TCG) and 26th March 2013 (APCA). They concluded that there was no unconstitutionality and no breach of Article 6.1 or 6.3 of the Convention nor of the preliminary article of the Code of Penal Procedure. The proceedings did not last an unreasonable length of time in the context of investigations in the liquidation, letters rogatory and other complexities. No suggestion is made of disadvantage to Dr Smith in the trial process by reason of delay – the only prejudice being the fact of proceedings hanging over him for such a time. The court concluded that, in any event, the excessive duration of an investigation or of the proceedings had no impact on the validity of the proceedings, only enabling a person affected to claim compensation from the French authorities.
The self-same point was taken in an application to the ECtHR and was rejected by that court on 9th October 2014 together with the point raised in paragraph 68(b) to which I shall come in a moment. Notwithstanding the fact that the ECtHR did not spell out the criteria in Articles 34 and 35 of the Convention that had not been met, when declaring the appeal "inadmissible", it is, as Mr Mercer submits, clear that the appeal could only have been dismissed because the court considered it "manifestly unfounded" or because it considered that Dr Smith had "not suffered a significant disadvantage" within the meaning of Article 35.3(a) or (b). The point has been decided against Dr Smith.
Paragraph 68(b) of the Particulars of the Claim - the failure of the juge d'instruction (JI) to interview Dr Smith and to refuse his request for interview
On 3rd December 1999 Dr Smith was formally placed under investigation. Having attended interviews with the Nice police on 1st and 2nd December 1999, the JI asked him to attend interviews in November 2001 and February 2002 but, for medical reasons, duly certified by his doctor, he was unable to attend. Dr Smith complains that he made at least two requests to be interviewed thereafter including a request in 2007 which led to a refusal on the part of the second JI appointed in her ordinance dated 6th July 2007. As recorded in the pleading, Dr Smith appealed that decision to the Chambre d'Instruction of the APCA on 13th July 2007 but the appeal was dismissed on 17th September 2007. Reasons were given for this refusal and the expert evidence of French law establishes that the order referring the matter to the criminal court by the JI "purges" possible nullities during the investigation by reason of Article 179 of the Criminal Litigation Code. Dr Smith was able to communicate both with the examining magistrate during the entire investigation through his lawyers, was able to request and obtain a hearing for a witness designated by him and was able to explain himself fully before the TCG and APCA. He had the opportunity to speak and be represented both at the first instance trial and on appeal and once again, Dr Smith petitioned the ECtHR on this ground and his appeal was declared inadmissible.
As with the first ground of complaint, it is clear that the French courts and the ECtHR have decided the very point upon which enforcement in this country is challenged. Dr Smith thus seeks to challenge the substance of those decisions.
Paragraph 68(c) of the Particulars of Claim – the JI's recommendation that criminal charges be brought was irrational and perverse
As can be seen from the POC, set out above in paragraph 11 of this judgment, the challenges raised here are all challenges to the substance of the decisions made in the French courts because the courts subsequently decided that the date of the CDP was 12th May 2008, that the French company had been deprived of interest on the £1.8 million loan and at first instance decided that there was evidence to support charge 3, although this was quashed in the APCA. The order to appear, issued by the JI, when he or she decides that sufficient evidence against the person under investigation exists, is, under the French system, capable of challenge before the criminal court to which the matter is referred. Dr Smith did contest the validity of this order before the Court of Appeal of Aix-en-Provence, without success. The date of the CDP was not only the subject of reasoned decision by the APCA but was also the subject of an appeal to the Cour de Cassation which was rejected as "non admis" by an order of that court dated 22nd January 2014 which, on the evidence of French law, means that, following a special appeal filtering procedure, it was rejected as "not founded on a serious ground" under Article 567-1-1 of the Criminal Litigation Code. The Cour de Cassation rejected the appeal on the basis that the date of the CDP was a question of fact and that it was not determinative in any event because, whether the actions taken by Dr Smith took place before or after the insolvency date, they were undertaken with the same intention and aim and their purpose or result was to affect the assets that would be available on insolvency, thus preventing the French company from paying its liabilities. Those findings of fact by APCA were not susceptible to appeal. The only point of law which was raised in front of the Cour de Cassation, was considered to have been already decided, namely that the group interest defence did not constitute an answer to a charge of misappropriation of funds in a liquidation.
As appears from the decision of the APCA, a referral for committal for trial by the JI is challengeable. Ms Smithdale made such a challenge which was rejected. Such an application was open to Dr Smith and was made by him in the TCG. It is apparent therefore that there is nothing in this ground of complaint at all and that Dr Smith could not complain of any prejudice or significant disadvantage in referral to the court on any of the charges in question, which were all examined by APCA and determined on the basis of the evidence before it. A challenge to its findings is inadmissible by reason of Article 36 of the Convention.
Paragraph 68(d) of the Particulars of Claim – tainting of the proceedings by Mr Huertas' dishonest concealment
Counsel for Dr Smith waxed eloquent on this point but it is hard to see, despite the serious allegations made against Mr Huertas, how this can assist in resisting enforcement of the judgment. The APCA knew what the position was and referred in its judgment to the faxed letter of 29th August 2008 from Mr Huertas to Mr Adams (a co-defendant who was acquitted by the TCG) in which it was stated that the French company had received the sum of £468,457 from its English subsidiary by way of distribution on the liquidation of the latter company. It is alleged that Mr Huertas concealed this from the TCG which gave judgment for a compensatory payment to be made by Dr Smith without giving credit for this sum. The fact of partial repayment was pleaded in the APCA by Dr Smith and Mr Huertas' contention that the sum paid to the French company was simply a distribution to the parent company and not therefore a repayment of the loan did not find favour with the court. The judgment of the court therefore fully took account of this payment although it did not state whether Mr Huertas had been dishonest in seeking to conceal the matter from the lower court.
The evidence of French law is that, any fraud on the part of Mr Huertas would not nullify or negate the APCA judgment. Mr Samek QC, relying on the French law expert consulted by Dr Smith, submits that the whole proceedings may have been tainted by this dishonesty with the result that the court found that Dr Smith had the necessary mens rea for the offence which it might not otherwise have done. This is not only far fetched (since the two elements have no connection) but requires review of the foreign judgment as to its substance in order to make the point good. The fact that the APCA did not, in its judgment, criticise Mr Huertas for any deliberate concealment on his part cannot be prayed in aid to show unfairness in the result it reached.
A criminal complaint has now been launched, this month, by Dr Smith against Mr Huertas in respect of the alleged deliberate concealment of the payment. Should that succeed, it is agreed between the French law experts, Dr Smith would recover damages. It is also clear on the evidence that in France there is a remedy available via the Commission de Révision if new evidence emerges to show that a judgment has been obtained by fraud but in the present case, for the reasons already given, it is clear that the APCA corrected the decision of the TCG which had failed to take account of the relevant payment.
It is now said that Mr Huertas has lied to this court in giving an explanation for Mr Adams being told of the payment in 2008 but not Dr Smith. It is also said that he has lied in relation to his failure and that of his lawyers to put the true figures before the TCG. Even if that is the case, I cannot see that this would give rise to an issue of public policy for the purpose of deciding whether or not to enforce the judgment of APCA, which was the court where the issue had first arisen about repayment.
Whilst it seems to me of no real relevance, it is highly surprising that the GTC was not aware of the payment since Mr Adams knew of it and was at that stage a defendant in the first instance proceedings. Moreover the payments by the English company were a matter of public record as could be seen from the accounts of the English subsidiaries which had been in Companies House since 2000. It is said that neither Dr Smith nor his lawyers thought to check the accuracy of the figures being put forward by Mr Huertas and that any failure on their part to do so does not excuse the latter for his concealment of the true facts from the court. It may be that, as he argued before the APCA, once the point was in the open, that he considered the payment to be irrelevant because he did not see it as a repayment of the loan. Whatever disputes of fact might arise on this however, cannot in my judgment, impact on the enforceability of the judgment where the true figures were taken into account and Dr Smith was given credit for the receipt by the French parent company of the sum in question.
Paragraph 68(e) of the Particulars of Claim – the proceedings were tainted for other reasons
Much the same applies in relation to the complaint that Mr Huertas communicated with the co-accused Mr Adams and that Mr Huertas' attorney had sought Mr Adams help to find a work placement for his son in England. The issue here is not what the lawyers did but whether the APCA judgment can be challenged on public policy grounds. The criticism made is that the APCA ought to have dismissed the charges and partie civile proceedings against Dr Smith but the French law evidence does not support that proposition and it was obviously a matter for the French court to determine what should and should not be done. There could be no unfairness to Dr Smith in taking account of the sum paid and whatever took place as between Mr Huertas' lawyer and Mr Adams who had in fact assisted Mr Huertas in the liquidation of the company, there is no basis upon which the decision of the court with regard to Dr Smith's guilt can be challenged by reason of Article 36. Even if the case against Mr Adams was not prosecuted strongly, whether as a result of any corruption or otherwise, it is not suggested that the acquittal of Mr Adams by the TCG could have resulted in an adverse judgment of the APCA in relation to Dr Smith who became president of the French company on 2nd April 1998.
Paragraph 68(f)- the conduct of 13th February 2013 APCA hearing
There are issues of fact between the parties as to what took place at the hearing which led to the APCA judgment of 26th March 2013. There is no transcript of the proceedings available. No notes of the proceedings from any of the lawyers nor from Dr Smith nor Ms Smithdale have been produced to the court. The greffier (the court clerk) produced a court log which was made available to me by the parties on the date of the application. This shows the presence of the public prosecutor, Dr Smith's two lawyers, Ms Smithdale's lawyer and Mr Huertas' two lawyers. The log records that both Mr Smith and Ms Smithdale were heard through Valérie Aymard, an English interpreter. The expected start time was 2pm with an expected duration of 2 hours. The log shows that proceedings concluded at 8.15 in the evening with arguments and pleadings filed by the lawyers for Mr Huertas with submissions from the public prosecutor and the presentation of argument and pleadings from the lawyers for Dr Smith and Ms Smithdale, who had the last word.
The evidence of Dr Smith and Ms Smithdale is essentially pleaded at paragraph 68(d) of the POC as set out in paragraph 11 of this judgment, save that there is reference to three hours being taken up by lawyers for the defendants and creditors, to time being taken by the Public Prosecutor and to one or both hearings together lasting less than 5 hours.
Although there is no evidence from the French lawyers who represented Dr Smith or Ms Smithdale at the 13th February 2013 hearing in relation to the complaints made by Dr Smith, there is evidence before the court from Maître Lopresti, the lawyer who represented Mr Huertas. He pointed out that, at any hearing in France, if any party believes that a member of the court is guilty in any way of judicial misconduct, he can raise the point at the hearing and require it to be recorded in the court log. This would apply both to inadequacy of translation or unfair treatment by the court itself.
In his witness statement, he said that Dr Smith's report of the hearing in his witness statement is inaccurate and that the Court of Appeal was respectful of the rights of the defence. He states that both Dr Smith and Ms Smithdale were able to explain everything that they thought useful, that Dr Smith was provided with the opportunity to make his arguments at every stage of the proceedings and that there was an interpreter and a transcriber at each hearing. He stated that it is a principle of criminal justice in France that no legal representative of any party can be interrupted by a judge and any legal representative can speak for as long as he or she wishes. He points to the absence of any contemporaneous complaint of the kind now raised or any request to the transcriber to make a note of any procedural failings by the court. Maître Lopresti does not accept that it was impossible for Dr Smith to communicate his defence to the court or that the judge had so much personal dislike for him that she kept talking over him and shouting at him and states that he has no recollection of the court acting in the way that Dr Smith has stated.
The evidence before this court is that if a complaint is to be made to a higher court in France about a breach of Article 6, about unfairness, apparent bias, actual bias or hostility shown by the court or incompetence of an interpreter, the point must be raised at the time and noted by the greffier in the court log. Dr Smith was represented by competent lawyers throughout who made no such complaint at the time and there is no notation, as would be required in the court log, for the point to be pursued elsewhere.
Even if the points pleaded at paragraph 68(f)(i)-(v) are taken at face value without question, there was a remedy available to Dr Smith in pursuing such matters to the Cour de Cassation. Yet the only application made to the Cour de Cassation, although raising a violation of Article 6 of the ECHR and Article 1 of Protocol 1 thereto, related to issues concerning the CDP and the state of mind of Dr Smith at the time of committing the offence of which he had been found guilty and the "group interest" defence which did raise a matter of law. As already indicated, the Cour de Cassation refused the appeal on a summary basis. Dr Smith could however have launched an appeal based on the very matters which he raises in this court as public policy grounds for refusing enforcement.
Similarly, these points could have been taken on an application to the European Court of Human Rights but were not. The points raised there, as set out earlier in this judgment, related to the duration of the investigation and the proceedings and the failure/refusal of the JI to interview Dr Smith. Article 6 was raised in this regard and, in passing, the complaint stated that "it should be noted that during the hearing Richard Smith, who speaks only English, had major problems understanding the questions put to him and the proceedings in general, despite the presence of a translator." The ECtHR dismissed the allegation as manifestly ill founded or as not giving rise to a significant disadvantage to Dr Smith.
In my judgment this is a pre-eminent example of the type of complaints that ought to have been pursued in France first and then in the ECtHR if they were of any substance. Whilst it is an area which could give rise to disputes of fact as to what actually took place, the court best able to determine whether there was unfairness or bias would undoubtedly have been the Cour de Cassation with presentations from French lawyers versed in the procedures of the French system. It is noteworthy that there is no evidence from Dr Smith's French lawyers who were present at the time as to the matters of which Dr Smith complains and differences of culture and unfamiliarity with a local court's proceedings may well give rise to feelings of unease on the part of a litigant when the procedure is, in fact, little out of the ordinary to those who are familiar with it, and not in any way unfair to the participants.
Given the well known feature of the French courts in proceeding more on documents than on oral presentation, the limited time made available on the appeal cannot be seen as evidence of bias; nor can the inference be drawn from the handing down of a copy of a letter sent by Dr Smith to the French Minister of Justice complaining about the process to which he had been subject. The handing down of such a letter is capable of giving rise to any number of inferences including the inference that the court wished Dr Smith to know that they were conscious of his grievances and the need for care in dealing with his appeal.
If Dr Smith's French lawyers made no complaint at the course of proceedings and no appeals were pursued in relation thereto, this court cannot conclude that there was such unfairness as to vitiate the judgment of the APCA.
Any such complaints of unfairness should have been pursued before the Cour de Cassation or ECtHR if they were to be pursued at all, along with the applications that were actually made. In the circumstances Dr Smith cannot properly reserve his position and seek to make those points good in this country and successfully rely on public policy grounds to challenge the APCA Judgment.
Paragraph 68(g), (h), (i)
All of these complaints as set out in the pleadings at paragraph 11 of this judgment fall foul of the terms of Article 36 and the prohibition on review of the substance of a foreign judgment when enforcement is being considered. Whether or not Mr Samek QC actually conceded the point which I understood him to do, there is simply no room for this court to examine the matters complained of.
Proposed amendments to paragraph 68(j) of the Particulars of Claim
The new grounds of complaint arise from the second report of the expert French lawyer instructed by Dr Smith and relate to the period of Dr Smith's custody on 1st and 2nd December 2008. The complaints are that Dr Smith was not notified of his right to remain silent, was not notified of his right not to incriminate himself, was denied the right to be assisted by a lawyer of his choice during the first period of police questioning and was required to swear an oath that he would tell the truth during that questioning. All these are said to be breaches of Article 6 and authority is cited in support. It is also said that six hours of police interviews produced a mere 7 pages of minutes detailing his responses.
These grounds were capable of being raised on an appeal to the Chambre d'instruction but were not pursued at all, despite Dr Smith raising the point with that court as to the refusal by the JI to interview him. Once the order of referral to the criminal court was made however any such defects in procedure were purged and the court had to proceed on the basis of the evidence put before it. There is no prejudice alleged in relation to the course of the court proceedings by reference to any of these matters. Dr Smith made no admission or concession to the police and takes no point as to anything that he did say in those interviews being held against him. The points are completely without consequence. Whatever breaches of Article 6 may have taken place in the light of decided authority, they had no impact at all and are not suggested to have done so in the context of the APCA judgment.
Paragraph 69 of the Particulars of Claim – Bias
It is contended that the GTC and/or APCA were guilty of actual or apparent bias towards Dr Smith in the criminal and partie civile proceedings. The primary ground relied on is represented by the facts and matters set out in paragraph 68(f) to which I have already referred, namely the conduct of the APCA hearing on 13th February 2013. For the reasons already given, these points should have been taken in French courts and/the ECtHR if they were of any substance. The inference of bias is not in my judgment sustainable in the context of a public policy argument against enforcement of a judgment when no such applications have been pursued in the courts where they fell appropriately to be made.
Paragraph 69(b), (c) and (d) of the Particulars of Claim
These repeat paragraphs 68(g), (h) and (i), all of which fall foul of Article 36 of the Regulation, as set out above.
Paragraph 69(e) – Mr Adams' acquittal
No proper inference of bias can be drawn from this and the complaint again falls foul of Article 36 of the Regulation.
Paragraph 69(f) – the TGC conviction on charge 3
As the APCA overturned the conviction of Dr Smith and Ms Smithdale on charge 3 relating to the furniture, with all the material available in the penal file on the point, there can be no public policy ground for refusal to enforce the APCA judgment.
Paragraph 69(g) – the increase of Dr Smith's sentence
The French law evidence establishes that an appellate court can increase the sentence of the trial court if the public prosecutor appeals as was the case with Dr Smith. Article 132-19 of the Criminal Code directs sentencing by reference to the gravity of the offence and "the personality (character) of its author". The APCA judgment specifically set out the court's view that the circumstances and character of the accused justified a more severe sentence than that imposed by the first instance judges. Any review of that would fall foul of Article 36 of the Regulation. The fact that Dr Smith was acquitted of charge 3 in the appeal court and the value of the unrecovered loan which was the subject of charge 1 had been reduced does not in any event cause any eyebrows to be raised or an increase in sentence since there was a conviction on charge 2 (deprivation of interest on the loan) and the court was entitled to reconsider the gravity of the offence and the character of the accused.
Paragraph 69(f)(f) – APCA's rejection of an application for a reference to the Cour de Cassation
The rejection of that application took place on 21st December 2011 but it was the TCG to which the application was made, not the APCA and it was that court which refused to refer the constitutional question to the cour de cassation. In reality this point differs little from the Article 6 unfairness point to which I have already referred in this judgment.
Conclusion
In truth, the only area of disputed fact relates to the events of 13th February 2013 at the APCA hearing. Elsewhere, wherever there are conflicts as between the French law experts, the differences are immaterial for anything that I need to decide. So also, as it seems to me, are any issues relating the 13th February 2013 hearing because English public policy cannot be prayed in aid in respect of matters of the kind set out in Dr Smith and Ms Smithdale's witness statements where such matters could and properly should have been pursued in France and/or the ECtHR rather than raising the point at the enforcement stage only. When regard is had to the French system as a whole, it cannot be said that its provisions were insufficient to protect the defendant from any manifest breach of his right to defend himself. The allegations concerned do not give rise to an infringement of Dr Smith's rights at variance to an unacceptable degree with the legal order of England and Wales where enforcement is sought. It cannot be said that enforcement of the APCA Judgment is manifestly contrary to public policy on the basis of the evidence adduced by Dr Smith in circumstances where he launched no appeal on the basis of his complaint and his lawyers required no notation of any such complaints in the court log on 13th February 2013.
For the reasons given earlier in this judgment, none of the other grounds even arguably raise matters where evidence at trial could differ from the evidence before me. It follows that I consider Dr Smith's prospects of success as fanciful and that there is nothing which could emerge before or at a trial which would give rise to any compelling reason why there should be such a trial. No disclosure or evidence could take Dr Smith's case any further forward than it currently is.
In consequence judgment should be entered for Mr Huertas against Dr Smith both on Dr Smith's claim and Mr Huertas' own counterclaim and a declaration made that the APCA judgment of 26th March 2013 and the supplemental judgment of 8th October 2013 (on which no particular issue arises) are recognised and enforceable in the English courts.
Costs must, it appears to me, follow the event but if there are any special circumstances of which I am unaware and/or an order cannot be agreed, I will hear further submissions. |
Mr Justice Popplewell :
This is the trial of the Claimant's claim for the deferred balance of the purchase price payable for quantities of gasoil. The goods were supplied between 21 January 2013 and 25 February 2013 on the basis of a 50 per cent payment in advance and 50 per cent payment within 90 days thereafter. This claim is a discrete part of the claims in the action. The balance of the claims and the issues arising in relation to them have been stayed at the Claimant's request.
The Claimant is an international commodities trading business. The Defendant is a limited liability company registered in Albania which is in the business of the wholesale and retail distribution of oil products.
The Defendant was initially represented in these proceedings by Brown Rudnick LLP and filed a Defence. After procuring an adjournment of the Case Management Conference by failing to participate in case management, the Defendant ceased to be represented shortly before the relisted Case Management Conference took place. The Defendant has played no part in proceedings since. At that Case Management Conference on 24 July 2015, at the Claimant's request the Court stayed the Claimant's claims pending determination of related LCIA arbitrations, save for this claim for the deferred price of goods which has proceeded to this trial. The Defendant has not complied with any of the Court's directions made at that Case Management Conference and has not responded to any correspondence since. The Defendant has also failed to respond to a Request for Further Information as to its defence. It did not appear at the trial before me. I am satisfied that all proper steps have been taken to bring to the Defendant's notice the hearing of this trial; and that the Defendant, with full knowledge that it is taking place, has simply chosen not to take part.
I have heard the evidence of Mr Djelalian, who is the Claimant's structured finance manager, and was well placed to assist the court, having negotiated and agreed the deferred payment regime with the Defendant, supervised its operation, and been involved throughout the difficulties which followed as a result of the Defendant's failure to make the required payments.
By an agreement dated 24 April 2012 ("the Sale Contract"), Trafigura Beheer BV, the Claimant's predecessor, and the Defendant agreed that the Defendant would purchase approximately 120,000 metric tons of gas oil and approximately 33,000 metric tons of gasoline per year, in lots of approximately 20,000 metric tons and 3,000 metric tons respectively, subject to seller's availability. Delivery was to be on ex-works terms into the Defendant's nominated trucks at Porto Romano in Albania. There was an option to take product on CFR terms which was not exercised. Payment was to be made in full in advance of delivery.
Following an internal re-organisation in October 2012, the Claimant took the place of Trafigura Beheer BV, and the necessary novations of the Sale Agreement and other agreements took place.
In due course, the Defendant became interested in acquiring an asset of Albpetrol, the Albanian state petroleum entity, which was designed to improve its strategic position in Albania. The Defendant enquired of the Claimant whether the Claimant would be prepared to consider a form of financing arrangement to assist the Defendant with its expansion plans. Mr Djelalian travelled to Albania to meet Mr Taci, the CEO and founder of the Defendant, and his colleague Ms Dervishi, the Defendant's Head of Finance.
The outcome of those discussions and subsequent negotiations was an agreement recorded in writing, to a deferred payment regime which allowed the Defendant the option to pay for cargo delivered by way of 50 per cent of the value of the cargo in advance with the balance being payable within 90 days thereafter. The maximum facility under those arrangements was US $5 million. I shall refer to that as the "deferred payment regime". As security for that credit line, the Defendant granted to the Claimant a second ranking mortgage over certain property. The amendments which comprised the deferred payment regime included specific provision for interest which was to be payable. It was to be payable at LIBOR plus 5 per cent within the initial 90 day period, and at LIBOR plus 8 per cent thereafter. The LIBOR rate referred to was the US dollar three month LIBOR rate as quoted by the BBA at or around 1100 hours each day on which interest fell due.
It is common ground that the Defendant gave notice that it wished to exercise its option to use the deferred payment regime. Mr Djelalian gave evidence as to how the deferred payment regime operated. In short, the Defendant on each occasion notified the Claimant that it was making a payment for goods and notified the Claimant that it wished to use the deferred payment regime to, as the Defendant put it, double the value of the release. As a result, on each occasion, and in accordance with the deferred payment regime, the Claimant released to the Defendant goods which equated to twice the value of the payment received.
The Defendant requested releases under the deferred payment regime on 11 occasions between 21 January 2013 and 25 February 2013 when the limit of US $5 million was reached. The evidence of Mr Djelalian, supported by the documentation which is in the court bundles, verifies all those releases.
Therefore, pursuant to the deferred payment regime, the balance of the purchase price, that is to say the remaining 50 per cent, was due within 90 days after the initial payment. Repayments fell between 22 April 2013 and 29 May 2013.
In advance of the first repayment falling due on 22 April 2013, on 20 April 2013 Mr Djelalian personally followed up on a summary of the repayments falling due, which had previously been sent by his colleague, in order to confirm that the Defendant had everything in place to make the repayments. The Defendant confirmed that the repayments would start. There then followed repeated exchanges during which the Defendant regularly agreed that sums were owed, apologised for the default in making payment and promised payment in short order. At no point during that correspondence did the Defendant dispute the amounts which it was obliged to pay, or the dates on which the repayments fell due.
However, despite the Defendant's many assurances, only a small sum was paid, which was sufficient to discharge the first instalment due and part of the second instalment. Those payments were made between 17 and 30 May 2013.
On 24 July 2013, the Claimant's solicitors, Ince & Co LLP, sent a formal Letter Before Action to the Defendant demanding payment of the sums due under the deferred payment regime and providing detailed calculations showing the total of US $4,430,013, inclusive of interest.
Mr Taci responded with a letter on behalf of the Defendant on 25 July 2013, admitting liability to the Claimant for the first US $3,553,831.38 of the sums due, but querying the balance. He yet again promised payment to the Claimant.
In response to the query over the remaining approximately $800,000 of the debt owing, the Claimant provided a detailed explanation of the total, in response to which the Defendant, by way of an email of 31 July 2013from its Head of Finance, Ms Dervishi, confirmed that the Claimant's figures and calculations were accurate.
However, no payment was made by 8 August 2013, as had been promised by Mr Taci, or at any time thereafter.
The Defence which was served on behalf of the Defendant raised four issues. First, it was said that in respect of repayments: "The amounts and the date due remain subject to discussion between the parties", and that there was a "degree of flexibility" agreed as to the due dates.
Secondly, it was pleaded that in that connection: "The Claimant has, contrary to the principle of cooperation and flexibility agreed between the parties, refused to engage in such good faith discussions."
Thirdly, the Defence disputed the significance of the admission by Ms Dervishi in her email of 31 July 2013 of the amounts outstanding on various grounds, including asserting that she lacked authority.
Fourthly, the Defendant put the Claimant to proof of its calculations of the sums due.
I shall address each of those four defences in turn.
Subject to discussion and flexibility.
The Defendant's case on the alleged flexibility is vague and un-particularised. The Claimant served a Request for Further Information but was not given a response. Nevertheless, it is clear from the evidence that there was no such alleged flexibility. The written terms of the Sale Contract and the deferred payment regime are clear and precise. The latter expressly provides that the balance falls due on each occasion after 90 days. Mr Djelalian's evidence, which described the negotiation of the agreement and the agreement itself, amply demonstrates that there was no such flexibility as has been alleged. The Defendant has not adduced any evidence to support the plea on this aspect of its defence. It can therefore safely be rejected
Good faith discussions.
The Defendant criticises the Claimant for failing to engage in good faith discussions "contrary to the principle of cooperation and flexibility agreed between the parties." However, there was no such principle of cooperation and flexibility agreed. As I have already said, the evidence is clear that the repayment terms were explicitly agreed in writing and the parties' contemporaneous understanding is clear from the documents and from Mr Djelalian's evidence. There is no evidence adduced by the Defendant to the contrary. There is, therefore, no good reason to imply any such principle into the agreement.
Moreover, even if the repayments had been subject to such a principle, which they were not, the Claimant would not have been in breach of it. The Claimant engaged in lengthy correspondence with the Defendant to explore the position and to agree further dates for repayment. That is clear from the correspondence and from the witness evidence of Mr Djelalian. Accordingly, there was in any event no failure to enter into good faith discussions about the debt.
The email of 31 July 2013.
The matters that are pleaded in the defence in this respect are of limited relevance. This is only one of numerous admissions, all of which serve an evidentiary purpose, and which include admissions by Mr Taci personally, who undoubtedly had authority to make those admissions.
Nevertheless, as to Ms Dervishi's authority, there is no evidence presented by the Defendant of any lack of authority. She was presented as the Defendant's Head of Finance, who, together with Mr Taci, met Mr Djelalian to discuss the possibility of a financing option and who, as Mr Djelalian's evidence has described, took a full part in the discussions. She was subsequently involved throughout the difficulties which followed the failure to repay sums due under the deferred payment regime as the primary point of contact at the Defendant.
In those circumstances, it is to be inferred that Ms Dervishi had actual authority to act for the Defendant when she sent the email of 31 July. Further or alternatively, she clearly had apparent authority, on the basis that the Defendant, in particular through Mr Taci, represented, or permitted it to be represented to the Claimant, that she had authority to act on its behalf in relation to the negotiation and operation of the deferred price regime.
In response to other points raised by the Defendant in the pleading concerning the email of 31 July 2013, there is no evidence to support the allegation that the Defendant had not received legal advice prior to the email being sent, there is no evidence that Ms Dervishi's grasp of English was inadequate and indeed Mr Djelalian's evidence, together with the fluency of Ms Dervishi's correspondence, establishes otherwise. The allegation that Ms Dervishi has no knowledge of English law or English legal procedures is unsupported by evidence and so too is the allegation that the Defendant did not have full and proper knowledge of all the facts relevant to the email at the time it was sent out. In any event, there is nothing in these allegations to undermine the evidential value of the full admission made by Ms Dervishi in that email.
Quantum.
The Defendant did not plead a positive case on the sums outstanding but rather put the Claimant to proof of the amounts due. The evidence of Mr Djelalian and the corresponding supporting documentation has proved that the amount outstanding at yesterday's date, by way of principal and interest, calculated in accordance with the deferred payment regime, is US $5,296,232.
Accordingly I will give judgment in favour of the Claimant in that sum. |
Master Rowley:
Introduction
This judgment concerns the ability of the claimant and her solicitors to fund her personal injury claim via a Conditional Fee Agreement ("CFA") and After the Event ("ATE") insurance policy without formally discontinuing her existing funding via a Community Legal Services ("CLS") Funding certificate. If the claimant is able to do this, then there is the secondary question of whether it was reasonable for her to make the change.
The defendant says that the claimant's solicitors cannot lawfully charge for their services in addition to the remuneration recoverable under the extant CLS certificate. The effect of trying to do so is an inability to recover any costs for the period during which the CFA has been used. If that submission is not accepted, the defendant says that, on the facts of this case, it was unreasonable to jettison the public funding for a CFA in any event.
The claimant says that she was entitled to change her method of funding given the costs limitation imposed by the CLS certificate which meant that the solicitors could not continue otherwise. In such circumstances, the further work was not in reality being funded by the CLS certificate and was instead properly funded by the CFA. This argument, according to the claimant, answers both the initial and secondary questions. As a fall back position, if the CLS certificate governed the funding throughout, the claimant says the only aspects that would be vulnerable to the defendant's challenge are the additional liabilities i.e. the success fee and the ATE premium.
It appeared that this case might be relevant to the outcome of similar cases where claimants have changed funding from legal aid to CFAs in or about March 2013 i.e. just before the changes in recoverability of success fees and ATE premiums came into force on 1 April 2013. However, it became clear during the course of the hearing that the arguments are very much fact specific and the reasonableness of the decision to change funding here was only coincidentally close to the change in regime.
Chronology
The claimant brought a clinical negligence claim against the defendant arising out of an event which occurred on 18 February 2008. The claim was settled by a consent order in January 2014. During the course of the claim, the claimant instructed three firms of solicitors.
On 17 March 2008 the claimant instructed Scrivenger Seabrook and parted company with them in August 2009. She then instructed Osborne Morris & Morgan on 15 October 2009 before moving to her current solicitors, Ashton KCJ on 1 April 2011. From 10 July 2008 the claimant had the benefit of a CLS Funding certificate and so was, to use the traditional term, legally aided at all three firms.
Owing to limitation, the claimant commenced proceedings in August 2011 and the letter of claim was sent at more or less the same time. The defendant originally denied liability but in July 2012 breach of duty was admitted by the defendant together with at least an element of causation. A consent order was filed on the issue of liability on 30 July 2012.
On 12 July 2012 the defendant made an offer to settle the claim in the total sum of £100,000. The defendant then made a Part 36 offer in the increased sum of £150,000 on 15 August 2012. Nine days later, the claimant responded with her own Part 36 offer of £275,000 excluding CRU.
In November 2012 the Legal Services Commission ("LSC") refused to increase the funding limitation on the claimant's certificate. Her solicitors attempted to persuade the LSC to change its decision but were unable to do so. Consequently, the claimant and her solicitors entered into a CFA on 25 March 2013 and took out an ATE policy dated the following day. Curiously, counsel's CFA is dated 15 March 2013 and as such pre-dates the solicitors' CFA.
On 29 April 2013 the defendant increased its offer to the claimant to £275,000 including CRU. The claimant replied with an offer of £500,000 excluding CRU (having withdrawn her August 2012 offer shortly before entering into the CFA).
At a joint settlement meeting in November 2013 the claimant revised her position by making an offer of £325,000 excluding CRU which the defendant accepted three days later and the terms of which eventually became the consent order referred to above in January 2014.
Proceeding without discharging the certificate
When the claimant and her solicitors decided to change funding to a CFA and ATE, it would normally follow that the solicitors would ask the LSC to discharge the certificate before an alternative funding arrangement was taken out in its place. It is common ground that no such request was made in this case. The first question I need to decide is whether it is permissible for the claimant and her solicitors to have acted in this way.
Section 10 of the Access to Justice Act 1999 states that:
"(1) An individual for whom services are funded by the Commission as part of the Community Legal Service shall not be required to make any payment in respect of the services except where regulations provide."
Section 22 of the same Act makes it clear to the legal representative that they are not to seek payment from any source under than the LSC in such circumstances. The case of Merrick v Law Society [2007] EWHC 2997 (Admin) is an example of the solicitor seeking payment privately whilst acting under a certificate. The court considered that the solicitor was guilty of conduct unbefitting the profession stating:
"...solicitors, acting for legally aided clients, are not entitled to look to that client for payment. That is not a complex matter; it is basic; it is also of the first importance to the reputation of the profession in its handling of legal aid work."
Mr Mallalieu appeared for the Claimant. Through his diligence he demonstrated that the continued existence of Regulation 64 of the Civil Legal Aid (General) Regulations 1989 (to which Merrick refers) was in some doubt. Whilst it was entirely appropriate for him to seek to put the correct position before me, I do not ultimately think it matters for the purpose of this judgment. If I conclude that the claimant's solicitors have acted in a manner akin to the Merrick case, the provisions of the primary legislation are more than sufficient justification in my view for the consequences for which the defendant contends to flow in any event.
Mr Sachdeva, for the defendant, sought to demonstrate that the claimant's solicitors were effectively in the same position as in Merrick. He referred to the matters I have set out and also to the wording of the Legal Aid Handbook which confirmed that any form of "topping up" of fees from the client is not allowed. The Handbook states that "Solicitors and counsel may, of course, charge privately for work carried out before the issue and / or after the discharge of a legal aid certificate." Mr Sachdeva's argument was that there was no discharge of the certificate here and so the claimant's solicitors had fallen foul of the legislation and the guidance.
Mr Sachdeva also referred me to the words of Ackner LJ in Littaur v Steggles Palmer [1986] 1 WLR 287 as to the purpose of (a predecessor provision of) sections 10 and 22 of the Access to Justice Act 1999 when he said that the wording was "clearly designed to prevent an abuse being made of the fact that legal aid has been granted. An abuse can take many forms." Entering into a CFA with public funding in place was just such an abuse, according to Mr Sachdeva.
I indicated in the hearing that I did not see this case as being one of "topping up." The claimant's solicitors were, at the very least, clear in their own minds that they were using public funding up to the date of the CFA but not thereafter. They would claim a success fee on the later costs if successful and not recover costs if they were unsuccessful. There was no attempt in my view to seek additional payment from the client. If the claimant's solicitors were wrong, then other consequences would flow but there was no element of deception in the manner of, for example, the Merrick case.
Mr Sachdeva accepted that a notice of discharge was not a requirement in every case to demonstrate that a client has ceased to have the benefit of legal aid, but in his submission, those exceptions were tightly constrained. There were two categories. First, was the situation where a client becomes a litigant in person, such as in Burridge v Stafford [2000] 1 WLR 927, and so the client's new status allowed the court to infer that she was no longer an assisted person and that the certificate had been discharged.
Secondly, where, as in the case of Turner v Plasplugs Ltd [1996] 2 All ER 939, the certificate had been "spent". This would occur if the scope of the work under the certificate had been completed. The case of Turner involved a certificate limited to "obtaining further evidence and thereafter Counsel's Opinion as to merits and quantum, to include settling of proceedings... if Counsel so advises." When proceedings were not only settled by counsel but actually commenced, the claimant found himself outside the scope of the certificate. The Court of Appeal concluded that the work done under the certificate had been exhausted when proceedings were settled and thereafter the claimant was not a legally aided party. The consequence for him was that he was not protected against his opponent's costs under section 17 Legal Aid Act 1988.
The defendant's case here is that the claimant does not come within either of these exceptions to the requirement of the certificate being discharged. The claimant has referred to a costs limitation under the certificate as being the driver for change but, even if correct, any such limitation did not render the certificate spent. It was granted to take proceedings against the defendant and the claimant was still well within the scope of the certificate. Stage five costs had been allowed in order to deal with quantum following the entry of judgment as to liability. The fact that the claimant's solicitors took a different view from the LSC as to how much time and expense was required to deal with quantum did not render the certificate spent. There was no suggestion that exceeding the costs limitation automatically ended the client's position as an assisted person, unlike for example the party who becomes a litigant in person. In the absence of a discharge of the certificate, it continued to provide costs protection to the claimant against an adverse costs order. If the claimant's argument was accepted, the client would not know when the costs limitation had been reached and at which point they had lost their costs protection.
Mr Mallalieu accepted that a notice of discharge was not requested in this case. Whilst no doubt it would have led to a simpler conclusion if she had done so, Mr Mallalieu's contention was that his client did not need to obtain a notice of discharge. He relied on the cases referred to above regarding certificates becoming discharged by conduct. The client who became a litigant in person was an obvious example. Furthermore, once it was accepted that the court could infer that a certificate could be discharged once it was 'spent', the court needed only to look at the circumstances of the individual case.
Mr Mallalieu did not accept that there were only two categories of exception to the need for a formal notice of discharge. He submitted that they were only examples of discharge by conduct. Other situations, such as this one could qualify. The test, according to section 10 was whether the services "are funded by the Commission". If they were not, then the position is as set out in the Legal Aid handbook quotation above, namely that there is no prohibition on a private retainer once a publicly funded retainer had come to an end.
The certificate had, as is usually the case, been the subject of a number of costs limitations during the case. By July 2012, the limitation had reached £39,400. The claimant's solicitors applied to increase this figure and in November 2012 it was increased to £43,000. According to the Replies to the Points of Dispute, the extension was sought on the basis that the sum of £39,400 "would not even be sufficient to complete the obtaining of expert reports and expert meetings, let alone provide for any profit costs or any work beyond that stage." The increased amount is said to have been "plainly insufficient even for the immediate next steps. On the 8th November 2012 the LSC was informed of this. By letter of the 20th November 2012 the LSC set out the reasons for its decision and confirmed that no further funding would be provided. This was further confirmed on the 1st February 2013."
The Replies then continue:
"On or about the 8th February 2013 KCJ undertook a review of the file and identified that the present limit on LSC funding would not be sufficient to allow for the Claimant to continue to be represented. It was identified that the work undertaken to date on the Claimant's behalf by the three firms of solicitors involved at LSC rates, was approaching the limitation on the certificate (£43,000) and that the provision of further services to the Claimant would not therefore have the benefit of such funding in light of the LSC's repeated refusal to grant any further extension to the certificate.
On or about the 13th March 2013 the Claimant was informed that no further LSC funding was available and that KCJ were unable to conclude her case within the certificate. The Claimant was advised that the alternative funding available for the continued provision of services in her case was a CFA."
In relation to these matters, Mr Sachdeva pointed out that there was no evidence before the court to demonstrate that the legal aid limit had been exhausted. Mr Mallalieu attempted to amplify the replies by reference to Part 14 of the Bill. On his calculations, the claimant solicitors were about to 'hit the buffers' if they had not already done so. His position was that his client was entitled to take a view about the adequacy of what was allowed by the LSC and unless that conclusion was manifestly wrong, the defendant could not sustain any viable argument.
Mr Sachdeva contended that allowing the legally aided party's solicitor's view about the adequacy of a costs limitation to be sufficient to trigger a change of funding absent the discharge of a certificate ran completely contrary to the admonition by the courts in cases such as Merrick of such conduct. The scope of the certificate enabled the solicitors to act on their client's behalf to the assessment of damages if required. They would be able to recover their reasonable and proportionate costs against the defendant notwithstanding the costs limitation being exceeded. Even if the court had been provided with firm evidence of the costs limitation being breached, which it had not, it would still not justify abandoning the CLS certificate.
Discussion
I have already set out why I do not think that this is a 'topping up' case where the legally aided party's solicitor seeks to recover more money than he is entitled from the public purse. This case is very much centred on whether a costs limitation in a CLS certificate can be the springboard for a finding that the certificate is spent in the same way as was decided in the cases of Burridge, Turner and Littaur. These cases were dealt with in the 1980s and mid-1990s. They predate the effect of the so-called decoupling of legal aid in 1994. This decoupling occurred when the link between the rates recoverable inter partes and the rates payable by the Legal Aid Board was severed. Consequently a legally aided party's solicitor could legitimately seek a market hourly rate if successful even though limited to lower rates payable by the Legal Aid Board if unsuccessful. This decoupling arose from an ever closer scrutiny of an assisted person's legal fees when they came to be paid out of the legal aid fund.
The relevance of this for present purposes relates to the imposition of costs limitations in legal aid certificates as well as the limitations on the scope of the work undertaken. In Boorman v Godfrey [1981] 1 WLR 1100, Donaldson LJ records the claimant's advocate as submitting that
"...a legal aid certificate can be limited in two different ways with quite different consequences. First it can be limited to part of the proceedings....Secondly, it can be limited by reference to the steps or procedures which can be undertaken by the assisted person's legal advisers."
Given the date of this decision, it is not surprising that there is no mention of the limitation of a legal aid certificate by the costs that can be incurred under it. The Boorman decision is from the same era as the case of Turner that I have described above. Similarly, in Littaur, the legal aid certificate was limited to the making of an application within proceedings. The application was in fact never made and the assisted person could not seek costs protection.
The control of spending under a legal aid certificate has continued by the limitation of the scope of the certificate before the need for an advice from counsel. More recently, this control has been strengthened by the imposition of costs limits on certificates as well. If the solicitor does not recover his fees from an opponent, he will not be able to recover fees, even at legal aid rates from the LSC (now the Legal Aid Agency), to the extent that they exceed any costs limitation. The decoupling provision means that the opponent can take no point in respect of any such limitation in the general course of things. The defendant is able to raise the challenge here because its argument does not rely on the breach of the costs limitation. It is the claimant who says that the limitation is of significance.
The determination to guard the legal aid budget by Parliament has also resulted in the prospects of a legally aided party's opponent gaining a payment from the fund steadily dimming. The reported cases such as Littaur and Turner arise from the unassisted party challenging the claim to costs protection by the assisted party. Such cases are rare now and it may well be for this reason that there appear to be no recent decisions which deal with cases where legal aid has been granted more recently. Even the case of Mohammadi v Shellpoint Trustees Ltd [2009] EWHC 1098 (Ch) to which I was referred involved certificates issued in 1990 and finally discharged in 2002. The result is that the issues raised in this case are ones for which, in my view, there is no direct authority.
The starting point, it seems to me, is to recognise that there are sound policy reasons for requiring a formal discharge of a legal aid certificate. It gives clarity to the opponent about the ending of the costs protection as well as to the assisted person himself. Should a claim be made on the fund by the solicitor, it allows for precision about the dates within which work can be claimed. The very fact that notice has to be given to the opponent reflects the importance of dealing with the unusual status of the assisted person vis à vis costs. It is not something that should be lightly disregarded.
Secondly, it seems to me to be important to recognise that the limitation of costs by the LSC, is purely intended to guard against perceived over payment from the legal aid fund and is not intended to be some form of check to costs claimed between the parties. Despite this, the approach of imposing standard figures multiplied by the number of experts, as here, to reach a seemingly immutable ceiling of costs which might be claimed against the LSC, has the effect of placing the assisted party and their solicitor in a very difficult position.
The defendant says that the claimant's solicitors should continue to represent the claimant under the terms of the certificate because its scope is wide enough to do so. This does not seem to me to be an attractive argument for the defendant to pursue. If the costs limitation is reached, the solicitor is then apparently required to act knowing that, if unsuccessful, all future work will be irrecoverable as against either the defendant or the LSC. Unlike a CFA, there would be no scope for a success fee to compensate for the risking of fees. The experts' fees would also be irrecoverable and would, it seems to me, almost inevitably fall at the door of the solicitor who instructed them. Given the risks and lack of any rewards this is an entirely unbalanced agreement in my view. It is redolent of the CFAs with no success fees used by solicitors on The Accident Group ("TAG") panel at the beginning of the century. The solicitors agreed to do so as part of a commercial arrangement with a work provider. It is an arrangement which does not appear to have been repeated elsewhere, at least in personal injury or clinical negligence claims. I do not accept that an assisted party's solicitor on an individual case should reasonably be placed in a similar position.
In this case, the solicitor tried very hard to extend the costs limitation under the certificate in order to continue to use it. This included seeking unsuccessfully to utilise an amount of funds equal to those claimed by the previous solicitors to augment the quantum stage. That approach was criticised by the defendant as demonstrating that the limitation was in fact sufficient if it had been used efficiently from the off, but it seems to me to be a point in favour of the claimant's solicitor in attempting to continue to use the public funding that was in place.
Having concluded that this was not viable, the solicitor advised the claimant of the alternative of a CFA and ATE insurance, entered into the agreements and notified the defendant of these steps. There was nothing untoward about these actions although, since they occurred shortly before 1 April 2013, no doubt they would always have raised doubts in the defendant's mind. In fact the relevant matters occurred in Autumn 2012 and I accept Mr Mallalieu's description of there being no rush to change funding arrangements in this case.
The serving of the N251 Notice of Funding upon the defendant seems to me to be just as determinative of a change in the claimant's status as a notice of change to a litigant in person would have been. In my view, if the claimant had sought to argue that she had the benefit of costs protection after 25 March 2013, she would have been unsuccessful in so doing.
In my judgment, where a party has exhausted the costs that can be claimed under a certificate so that it is 'spent', they can in principle establish a discharge by conduct in the same manner as certificates in which all of the work up to a limitation of scope has been carried out. The effect of that discharge is to end the services funded by the LSC and enable a private retainer to fund the remainder of the proceedings.
The notification of the new funding arrangement in form N251 satisfies the need for formality in notifying the opponent of the ending of costs protection. Mr Mallalieu sought to persuade me that notification was not necessary in any event but I take the view that it was required to deal with the costs protection aspect.
Was it reasonable to transfer to a CFA?
Having come to the conclusion that it is permissible to act as the claimant has done here, it is now necessary to consider whether the certificate was spent and whether the claimant made a reasonable choice in deciding to change from public funding to a CFA and ATE.
I have already set out the parties' position regarding the evidence, or lack of it, as to whether the costs limitation of £43,000 had been reached. It is perhaps not surprising that there is no definitive information on this point. The apparent oversight of discharging the certificate in the first place suggests that a relatively simple and broad brush was used to consider the adequacy of the funding available in late 2012 and early 2013.
Mr Sachdeva's submission was that I needed to find, as a matter of fact, the precise position as to the costs incurred in order to deal with this issue. I reject that submission. It seems to me that there is no reason why a broader view cannot be taken about the work done and needed to be done when compared with the costs limitation. There have been many cases where a solicitor has decided against the use of BTE funding in a serious case on the basis that its limit of indemnity could not possibly be sufficient to cover the entire case. There has never been any suggestion that the solicitor would have to exhaust that BTE cover before being able reasonably to take that view. It seems to me that the position is the same here. From the passage in the Replies set out above, the solicitor considered that the work still required to be done could not realistically be completed within the figures allowed for by the LSC in July 2012 and increased modestly in November 2012. I agree. My understanding is that the work that did take place up to and including the joint settlement meeting would all fall within stage 5 rather than stage 6 (which relates to the trial and preparation for it.) The work up to settlement can be seen in parts 15 and 16 of the bill.
The parties addressed me on the merits and demerits of entering into a CFA rather than using legal aid in accordance with the case law up to and including LXM v Mid Essex Hospital Services NHS Trust [2010] EWHC 90185 (Costs). I do not propose to set out those submissions in any detail because it was clear that the overriding consideration of the claimant and her lawyers in this case was the perceived exhaustion of the legal aid funding and the claimant's only alternative option being a CFA and ATE. The claimant's replies seek to suggest that the impending arrival of the Legal Aid Sentencing and Punishment of Offenders Act 2012 supported the decision but I do not accept that the coming into force of LASPO was relevant in this case.
Mr Sachdeva sought to persuade me that the decision to use a CFA was unreasonable given the proximity to settlement and lack of risk at the point at which it was made. I have already said that I do not consider an arrangement akin to a 'TAG' style CFA to be a realistic option for a party to expect his solicitors to use. It is no doubt the case that claims are often successfully concluded in a way which renders the overspend as against the certificate irrelevant. But I do not think this means that a claimant and her solicitor who keep an eye on the costs being incurred and so are aware of the limitation problem should be obliged to continue to use the certificate come what may. Parties are encouraged to consider their legal spend prospectively and, where it is clear that the available public funding is going to be insufficient, a decision to change to another option must be a reasonable step to take. That is the position in this case in my judgment and so I find that the claimant was entitled to transfer to a CFA and ATE arrangement from 25 March 2013.
Quantum Meruit
Given my decisions to this point, there is no need for me to determine the position in respect of parts 15 and 16 of the bill if the CFA was ineffective. But as the parties addressed me on the point, and in case I am wrong about the preceding matters I will deal with issue briefly.
Mr Sachdeva submitted that the claimant's solicitors had signed the claimant to a private retainer whilst a CLS certificate subsisted and that was contrary to the legislation and case law and so the CFA was unenforceable as a breach of public policy. In the absence of any other retainer for parts 15 and 16 of the bill, and no claim for a quantum meruit, the profit costs for these parts should be disallowed in their entirety.
Mr Mallalieu agreed that he did not seek a quantum meruit assessment if his primary position was rejected by me. The effect of deciding that the CLS certificate subsisted would inevitably lead me, on Mr Mallalieu's argument, to the conclusion that the fees were recoverable from the defendant in accordance with that certificate. The fact that no further sums could have been claimed against it did not offend the indemnity principle given the so-called 'decoupling' provisions. At most, the additional liabilities of the success fee and ATE premium might not be recoverable. Whilst he did not abandon them in such circumstances, Mr Mallalieu accepted that they would be difficult to justify.
In my judgment, the claimant's position is the correct one. If the CFA was not reasonably chosen, the corollary must be that the CLS certificate simply continued and the only matters at risk are the additional liabilities. Even on the defendant's own case, there was room within the scope of the certificate for the remaining work to be carried out and remunerated as against the defendant following a successful outcome.
Mr Sachdeva's argument sought to characterise the claimant's conduct as being unbefitting in the manner described in the Merrick case above, rather than simply unreasonable. As set out at paragraph 18 above, I do not think that the claimant's solicitors conduct in this case can be equated to the 'topping up' considered in Merrick. Absent such unprofessional conduct it seems to me to be clear that parts 15 and 16 of the bill would fall to be assessed on the basis that the work had been done under the CLS certificate.
Level of success fees
The final question to be dealt with in this judgment is the level of the success fees claimed by the solicitors and by counsel. The solicitors claim a success fee of 50% from 25 March 2013. Counsel claims 100% from 15 March 2015. There is nothing that occurred between the two dates to explain the marked difference in the risk level that the different success fees connote.
I need to consider what was known by the lawyers at the time they entered into their CFAs. Liability had been admitted and judgment entered on liability several months beforehand. The defendant had made a Part 36 Offer of £150,000 plus CRU in August 2012. That offer had been countered by the claimant on 24 August 2012 with a Part 36 Offer for £275,000 plus CRU. That offer was withdrawn on 13 March 2013, more or less immediately before the CFAs were made. Most if not all of the claimant's medical evidence had been obtained and preparations were being made to disclose it and serve the claimant's schedule of loss.
Mr Mallalieu submitted that the parties were £125,000 apart based on the Part 36 Offers that had been made. The outstanding offer of the Defendant from August 2012 increased the risk to the claimant because it was possible that no costs whatsoever would be recoverable under the CFA if the defendant's offer was not beaten. At this time the claimant had not seen the defendant's evidence and the defendant's unknown position regarding what was described as 'secondary causation' potentially had a significant impact on the loss of earnings claim which was a large part of the claimant's claim overall. In Mr Mallalieu's submission the risk posed by the outstanding Part 36 Offer should be added to the general risk in quantum only cases outlined by the Court of Appeal in C v W [2008] EWCA Civ 1459. These factors brought the solicitors' assessment of risk within the margin of appreciation required to consider a 50% success fee reasonable.
As far as counsel was concerned, Mr Mallalieu conceded nothing on behalf of his client but clearly appreciated he was on stony ground given that counsel did not take any Part 36 risk, unlike the solicitors, yet was seeking twice the success fee for the risks apparent in March 2013.
Mr Sachdeva interpreted the withdrawal of the claimant's Part 36 Offer shortly before entering into the CFA as the solicitors and counsel viewing the potential value of the claim at considerably more than £275,000. On that basis the defendant's extant offer was not one which would be considered a real risk. Mr Sachdeva had previously described the later Part 36 Offer by the claimant of £500,000 plus CRU as being unreasonably ambitious and from which point the claimant had had to climb down. Nevertheless it did seem to me that the defendant's categorisation of the state of play in March 2013 was more cogent than the claimant's.
I do not think that the claimant or her advisers were concerned by the defendant's offer of £150,000. The risk as to the recovery of costs as well as damages lay in future offers. On the ready reckoner a 50% success fee reflects a prospect of success of 67% or, to put it another way, a 2 to 1 chance of being successful. That does not seem to me to bear any relationship to the risks faced by the claimant. It seems to me that in fact there is no appreciable distinction to be drawn here from the decision in C v W and as a result the success fee should be allowed at 20%.
As far as counsel is concerned, the decision in Thornley v MOD [2010] EWHC 2584 (QB) suggests that a nil success fee would be appropriate. Equally the Court of Appeal in Callery v Gray [2001] EWCA Civ 1117 said that no case was without risk. The absence of the Part 36 risk provision in my view reduces the risk by at least half that undertaken by the solicitors. I allow a success fee of 10% in respect of counsel's fees.
Next steps
At the hearing, it was said that the defendant might wish to revise its points of dispute given what had been said during the course of the hearing. Subject to any directions required on this front, I think that the case simply needs re-listing for a detailed assessment to deal with the remaining points. If the parties are able to reach agreement on any directions and a time estimate then there is no need for parties to attend the handing down of this judgment. |
Master Campbell, Costs Judge:
This judgment is in 12 Parts namely :-
Part 1. Introduction paras 1 - 2
Part 2. The background paras 3-11
Part 3. The issues para 12
Part 4 The Law paras 13
Part 5 The terms of the retainer letters and irrevocable agreement paras 14-17
Part 6 Level 2 Success paras 18-23
Part 7 The submissions for AG paras 24 – 49
Part 8 The submissions for the Administrators paras 50 – 67
Part 9 Decision on the CBA paras 68 – 82
Part 10 Decision on section 73 paras 83 - 126
Part 11 Next steps para 127
Part 12 Formal order para 128
PART 1 - INTRODUCTION
The issues addressed in this reserved judgment are the following:-
i) Is the Claimant ("AG") entitled to an order for a payment by the Defendants ("the Administrators") in the sum of £12,663,822.95 for fees earned under a Contentious Business Agreement ("CBA") dated 26 October 2010?
ii) Is AG entitled to a declaration under Section 73 of the Solicitors Act 1974 ("the Act") that it is entitled to a charge on money held by the Administrators which have been recovered (so AG contends) through AG's instrumentality to the value of £12,663,822.95 until payment?
iii) Is AG entitled to any further order under Section 73 of the Act which might be required to give effect to any order for payment should one be made?
AG's application was issued on 21 October 2014. It has been supported by witness statements made by Mark Richard Hastings, a partner in AG, dated respectively 19 October 2014 ("Hastings I"), 8 January 2015 ("Hastings II"), 16 January 2015 ("Hastings III"), 20 January 2015 ("Hastings IV") and 27 February 2015 ("Hastings V") (after submissions had closed), together with exhibits MRH1-4. In response, on 11 December 2014, Nicholas Stewart Wood, a Licensed Insolvency Practitioner and Partner in the firm of Grant Thornton, made a witness statement in opposition ("Wood I"). No requests were made for cross-examination and I did not hear any live evidence. The hearing of the application was listed for one day, but lasted the best part of two. AG were represented by Mr Bacon QC, Mr J Briggs and Mr D Saoul, and Mr Atherton QC and Mr R Marven appeared for the Administrators. At the outset I was asked by counsel to sit in private under CPR 39 and with both sides being content that I should so order, I duly did. In advance of the hearing, the parties had helpfully lodged an agreed bundle, in addition to which I had the benefit of skeleton arguments prepared by Mr Bacon and Mr Atherton respectively. Where appropriate in this judgment, I shall identify the relevant documents in the bundle by reference to pages as follows [ ]. At the conclusion of the submissions, I reserved judgment. During the course of drafting the judgment, I raised further points upon which I required clarification. That led to both sides lodging additional written submissions and Mr Wood made a further witness statement on 12 March 2015 ("Wood II"). I have taken this further material into account in reaching my decisions. In order to preserve confidentiality, in so far as this judgment is to be made public, various figures are referred to as "the £Amount X" or "the $Amount Y" to avoid identifying the actual sums involved. Likewise, confidential extracts of original documents are referred to as "Trigger A Amount" and "Trigger B Amount" where necessary.
PART 2 - BACKGROUND
From 10 April 2014 until 26 January 2015, Mr Wood and his fellow partner in Grant Thornton, Mr Kevin John Hellard, were the Administrators of the Estate of the late Boris Abramovich Berezovsky, who died on 23 March 2013. Subsequently they have been appointed as trustees of Mr Berezovsky's insolvent estate, but I shall continue to refer to them as "Administrators".
Outside his native Russia and within legal circles in England and Wales, Mr Berezovsky is probably best known for his involvement in high profile litigation, including his failed action against Roman Abramovich before Gloster J - (Berezovsky v Abramovich [2012] EWHC 2463 (Comm)). Whilst it is common knowledge that AG acted for Mr Berezovsky as his solicitors in the Abramovich litigation, less well known is the fact that the firm was also retained in concurrent disputes, including an action brought in the Chancery Division (High Court claim No. HC08C03549) against the Estate of the late Mr Arkadi Patarkatsishvili ("AP"), various members of his family and an individual called Joseph Kay. In those proceedings, Mr Berezovsky sought, amongst other relief, a declaration of his entitlement to joint venture assets and an account of their value in which he contended for a 50% interest as between himself and Mr Patarkatsishvili. According to Hastings' I at paragraph 7, [MRH1 4], that action was known as the "Main Action" and was also described for AG's internal purposes as "Project Aintree". Concurrently, AG was retained in over 30 other matters, in particular two relatively substantial actions in the Chancery Division, the first against the Estate of Mr Patarkatsishvili, certain private investment companies called Salford and the Officers of Salford ("the Salford Action") and the second against the estate of AP, various members of his family and a Mr Vasily Anisimov ("the Metalloinvest Action") which, with "Project Aintree", were known collectively as "the Chancery Actions".
The terms upon which Mr Berezovsky retained AG need to be set out in detail (see paragraph 14 et seq. below). In so far as there is anything between the parties about whether the retainer is a CBA or a Conditional Fee Agreement ("CFA") and whether it matters, I shall deal with later in this judgment, but for convenience, I shall refer to the material document as "the CBA". For present purposes, it is enough to say that:-
i) On 15 May 2009, Mr Berezovsky signed an engagement letter relating to the Main Action, to which was annexed AG's Terms of Business ("the Original Letter") [MRH1 1-14].
ii) On 26 October 2010, Mr Berezovsky signed a further engagement letter which "amends our letter dated 15 May 2009 … which continues in force except as varied by the agreement contained in this letter from the above date" ("the October Letter") [MRH 1 15-50].
iii) The terms of the October Letter provided that Mr Berezovsky would pay for AG's services under the retainer in the following way:-
a) If the Main Action did not succeed (by way of final judgment or favourable settlement) he would pay AG for work done at a reduced hourly rate of approximately 50% of the firm's standard charges known as the "Reduced Fee".
b) If Mr Berezovsky obtained any "Benefit" (as defined) namely a favourable judgment or order or settlement from pursuing the Main Action, defined as "Level 1 Success", then he would pay AG's fees for work done at the firm's standard charging rate.
c) If Mr Berezovsky recovered "any Benefit" as a result of which he made a recovery (whether in the form of assets or money) with an aggregate value of at least the Trigger A Amount (with asset value(s) to be taken at the date of recovery) or made an aggregate recovery of at least the Trigger B Amount (or assets to that value) across the Chancery Actions, a 100% success fee would be added to AG's standard hourly charges being defined as "Level 2 Success".
(iv) On 23 October 2012, Mr Berezovsky signed an irrevocable payment instruction in AG's favour to pay the firm out of any monies currently or in future paid to AG what was due for fees and disbursements [MRH 3 4-5] ["the Irrevocable Agreement"].
The Main Action was expected to commence in November 2012 with a trial estimate of fourteen weeks. However, it was settled on confidential terms in a Settlement Agreement dated 9 September 2012 which was not before the court but according to Mr Hastings, the Administrators have seen and are aware of its contents. Under clause 4.3(b), Mr Berezovsky received a substantial amount in Euros which was paid into AG's client account on 10 September 2012 [AG's supplemental Note at 12] which the firm says (and the Administrators agree) represented a "Benefit" as defined in the CBA [Exhibit MRH 1 at 52 and transcript day 2 p 14 at 13].
On 21 September 2102, AG delivered an invoice to Mr Berezovsky for £4,674,567.25 plus VAT of £934,911.45 total £5,609,468.70 [MRH1 54] for the Level 1 Success Fee. That was an identical sum to the amount of the charges which AG had earlier submitted to Mr Berezovsky for its Reduced Fee between 18 October 2010 and 11 September 2012 [MRH1 55]. Mr Berezovsky paid the Reduced Fee and also £4,164,583.15 towards the Level 1 Success Fee leaving a balance outstanding of £1,444,885.55 [MRH 1 56]. The Euro recovery comprised part of the funds used for this purpose.
Pursuant to the settlement, on 21 March 2014, a payment of $Amount Y ("the $Amount Y") was made by Signature Litigation LLP on behalf of parties to the Settlement Agreement to Holman Fenwick Willan ("HFW") [MRH1 62] who act for the Administrators. The Administrators accept that that was a fund received in respect of settlement of the Main Action (HFW letter 12 March 2015 at paragraph 4). On 31 July 2014, AG submitted an invoice to the Administrators for the Level 2 Success Fee in the sum of £9,349,114.50 plus VAT of £1,869,822.90 total £11,218,937.40 [MRH1 57]. That sum remains unpaid.
As I have said, the terms of the Settlement Agreement are confidential but for the purposes of the background on this point, the following is what Mr Hastings has said about it in, respectively, Hastings I , Hastings III and Hastings IV :-
"21. … Suffice to say for present purposes that pursuant to that agreement, substantial sums have been paid by certain defendants to the Chancery Actions to Mr Berezovsky. Focusing again on the Main Action, which is the subject of this claim, the payments ultimately made under the agreement exceed the individual sum which qualifies as "Level 2 Success" as defined in the October letter (being the Trigger A Amount). I note for completeness that "Level 1" Success is not defined by reference to a particular sum, rather, it is triggered on the receipt of any "Benefit" (as defined in the October Letter).
22. Accordingly:
22.1 On 21 September 2012, AG invoiced Mr Berezovsky for the Level 1 Success Fees due in relation to fees incurred in the Main Action from the date of the relevant October letter, ie the difference between the relevant fees charged at the reduced hourly rate and the value of those fees calculated at AG's basic rate. The amount due and payable was £4,674,557.25 plus VAT of £934,911.45, giving a total of £5,609,468.70 (see page 27). This invoice was not challenged and indeed I can confirm that a large part of this invoice was satisfied, leaving a balance of £1,444,885.55 (excluding interest) which remains outstanding …
22.2 On 4 August 2014 (with payment having been made under the Agreement on or around 21 March 2014), AG rendered an invoice (dated 31 July 2014) to Holman Fenwick Willan, representing the Defendants, in respect of the Level 2 Success Fee payable under the October letter relating to the Main Action, being a sum of £11,281,937.40 including VAT ...
23. As matters stand, the Level 2 Success Fee invoice has not been paid, and, as mentioned above, £1,444,885.55 of the Level 1 Success Fee also remains unpaid, giving a total outstanding of £12,663,822.95, in respect of success fees payable under the October Letter …"
Hastings III – "5. At paragraphs 58-61 of the Defendants' skeleton argument, it is suggested that AG had no right to the Level 2 Success Fee until March 2014 (i.e. after Mr Berezovsky'….
6…..As is plain from this definition [of Level 2 Success], the relevant trigger occurred when Mr Berezovsky made a recovery of at least [the Trigger A Amount] ……
7….in fact, by 25 September 2012, Mr Berezovsky had recovered in excess of [the Trigger A Amount] pursuant to the terms of the AP Settlement , thus triggering Level 2 Success".
Hastings IV – "3…… taking into account a specific payment we made out of the funds we received in early September 2012 pursuant to paragraph 4.3 of the AP Settlement, a net recovery to Mr Berezovsky of in excess of US [$Amount X] arose on 12 October 2012." [This was corrected in Hastings V to £Amount X].
Pending the resolution of various disputes between Mr Berezovsky's competing creditors about entitlement to its ownership, the money received from Signature has been and remains held to the order of the Administrators (called the "Monies"). On 4 August 2014, AG notified the Administrators of its claim on this fund to the extent of its unpaid fees of £12,663,822.95. A short exchange of correspondence then followed culminating in a summary of the Administrators' view given by letter dated 23 September 2014 from HFW to AG as follows [Tab 12 36-38]:-
"You invited us to indicate whether we object to your firm's claim that their outstanding success fees be paid from the [Monies] in priority to all other claims, save for Mr Abramovich's claim to those monies. The General Administrators do object to such a claim and consider that any outstanding fees which may be due from the Estate to your firm rank, and should be paid, as an unsecured debt in the Deceased's Estate.
Even assuming the totality of the £12,822,120.95 [Note : the £158,298 difference concerns other fees claimed under a different retainer] claimed by your firm is due from the Estate, your firm presently has no proprietary or secured claim to those fees. The terms of the Settlement Deed do not grant your firm a proprietary interest in the [Monies] and a preserving lien does not provide any such right either, but merely entitles a solicitor to ask the Court for assistance to enforce the payment of their fees as against a client. In order to rank in priority to the other unsecured creditors, your firm would need to successfully apply to the Court for the granting of a charge in respect of those fees under Section 73 of the Solicitors Act 1974 (a "s.73 charge").
If such an application were to be made by your firm, it would be opposed by the General Administrators:
1. Your firm is well aware of the Protocol for future administration of the Estate of Boris Berezovsky (Deceased) … Clause 12 of that Protocol provides:
"In the interests of prudence, the Estate will be administered on the basis that there is a reasonable probability that the Estate is insolvent unless and until [the General Administrators] are satisfied that it can properly be administered on the basis that it is solvent …"
The General Administrators remain of the view that there is a reasonable probability that the Estate is insolvent and are administering the Estate on that basis. The grant of a s.73 charge in the context of an estate that is probably insolvent is quite different from the grant of a charge in the usual circumstances where a solvent client simply elects not to pay his solicitor. The effect of granting a s.73 charge in the present circumstances would be to give an unwarranted advantage to your firm in any insolvency procedure involving the Estate against the other unsecured creditors. That is not the purpose of a s.73 of the 1974 Act and a Court is unlikely to exercise its discretion to allow such priority to be granted to your firm.
2. Your firm will also be aware of the provisions of the Administration of Insolvent Estates of Deceased Persons Order 1986, in particular Article 3 and paragraph 12 of Part II of the Schedule to that Order, which provide that upon the making of an insolvency administration order, the provisions of s.284 of the Insolvency Act 1986 shall have effect as if the petition had been presented, and the insolvency administration order had been made, on the date of death. This, accordingly, in the event that an insolvency administration order is made, has the effect of rendering void any dispositions made from the Deceased's Estate from the date of his death, unless such dispositions are authorised by the Court.
The grant of a s.73 charge would, plainly, be a disposition of an asset of the deceased person for the purposes of s.284 of the 1986 Act. As such, even if the Court otherwise granted the charge, it would be rendered void by operation of s.284 of the 1986 Act in the event that an insolvency administration order were to be made. As a consequence, the General Administrators are of the view, given the probability that the Estate is insolvent, that if your firm applied for a s.73 charge, it would also have to apply for relief under s.284 of the 1986 Act. The Court would only grant such relief if it could be shown that the proposed transaction (ie the grant of a s.73 charge) would be beneficial to, or would not prejudice, the interests of the creditors of the Estate as a whole. Your firm could not satisfy that test since the effect of the proposed disposition would be fundamentally prejudicial to the creditors as a whole since it would be to grant your firm priority over the unsecured creditors.
In those circumstances the General Administrators are of the view that the Court would decline to grant a s.73 charge in favour of your firm.
3. Furthermore, the fees now claimed by your firm represent success fees under the relevant contentious business agreement. Your firm is therefore not seeking the payment of fees to compensate them for the time and resources expended by it to achieve the settlement, in part, represented by the [Monies], but instead represent a bonus in respect of the fees otherwise agreed to be paid by Mr Berezovsky to your firm for your firm's work …
We therefore invite you to agree to take no steps to enforce or otherwise claim the "Outstanding Fees" as defined in your letter (or any other fees which you say are due from the Estate) until the issue of the Estate's solvency has been determined. In the event that an insolvency administration order is made in respect of the Estate, you would be able to prove in the insolvent Estate. If the determination is that the Estate is solvent, and no insolvency administration order is made, the General Administrators would be in a position to pay your firm's outstanding fees which are properly due from the Estate as and when appropriate.
In respect of your suggestion that your firm is entitled to apply to the Senior Courts Costs Office to enforce the terms of the contentious business agreements under ss.60 and 61 of the 1974 Act, the General Administrators see little point in expending the time and incurring the expense of an application to a costs judge until it is known whether there will be any funds available in the Estate to make a distribution to the unsecured creditors. If indeed, an insolvency administration order is made in respect of the Estate – which the General Administrators continue to consider is probable – it is likely to be quicker and cheaper for your firm to simply prove in the insolvency administration, rather than invoke the Section 61 procedure."
Absent any resolution of the issues raised in HFW's letter, as I have said, on 21 October 2014, AG issued its application under CPR 8 for the orders set out in paragraph 1 of this judgment. The application was listed for directions on 3 November 2014 when a timetable was fixed for the service of evidence, the lodging of a bundle for the use of the court and skeleton arguments, with the matter to be heard on 19 January 2015.
PART 3 - THE ISSUES
Having set out the background, it can be seen that the following issues will need to be addressed in order to decide whether AG is entitled to any of the orders set out in paragraph 1 of this judgment.
i) Is the retainer a CBA in respect of which the Court can direct that it should be enforced under s.61 of the Act? In particular, in this context, was Mr Berezovsky properly advised when he signed the Original Letter, as amended by the October Letter, as to their consequences?
ii) If the retainer is a CBA and if satisfied that it should be enforced under s.61, should the Court also enquire into the hours worked to establish whether they are reasonable and/or excessive? (See Section 64(4A) and (4B) of the Act).
iii) If the retainer is a CBA, is the success fee of 100% fair and reasonable?
iv) Is AG entitled to a charge under s.73 in principle? If so when does the right to the charge arise? Is it a pre-existing right which accrued before Mr Berezovsky's death (AG's case) or does it subsist only when the charge is actually granted and until then, there is merely an inchoate right to seek the aid of the court in equity to enforce payment of the fees (the Administrators' case)?
v) If there is to be a charge under s.73, must there also be an assessment of the fees in order to ascertain the amount of that charge?
vi) Should there be a stay pursuant to the Insolvency Act 1986 or should the court make a declaration that no charge should be made pending determination of the petition for the making of an insolvency administration order as and when that is presented.
PART 4 - THE LAW
The relevant sections of the Act provide as follows:-
"59. Contentious business agreements.
(1) Subject to subsection (2), a solicitor may make an agreement in writing with his client as to his remuneration in respect of any contentious business done, or to be done, by him (in this Act referred to as a "contentious business agreement") providing that he shall be remunerated by a gross sum or by reference to an hourly rate, or by a salary, or otherwise, and whether at a higher or lower rate than that at which he would otherwise have been entitled to be remunerated.
(2) Nothing in this section or in sections 60 to 63 shall give validity to —
(a) any purchase by a solicitor of the interest, or any part of the interest, of his client in any action, suit or other contentious proceeding; or
(b) any agreement by which a solicitor retained or employed to prosecute any action, suit or other contentious proceeding, stipulates for payment only in the event of success in that action, suit or proceeding; or
(c) any disposition, contract, settlement, conveyance, delivery, dealing or transfer which under the law relating to bankruptcy is invalid against a trustee or creditor in any bankruptcy or composition.
60. Effect of contentious business agreements.
(1) Subject to the provisions of this section and to sections 61 to 63, the costs of a solicitor in any case where a contentious business agreement has been made shall not be subject to taxation or (except in the case of an agreement which provides for the solicitor to be remunerated by reference to an hourly rate) to the provisions of section 69.
(2) Subject to subsection (3), a contentious business agreement shall not affect the amount of, or any rights or remedies for the recovery of, any costs payable by the client to, or to the client by, any person other than the solicitor, and that person may, unless he has otherwise agreed, require any such costs to be taxed according to the rules for their taxation for the time being in force.
(3) A client shall not be entitled to recover from any other person under an order for the payment of any costs to which a contentious business agreement relates more than the amount payable by him to his solicitor in respect of those costs under the agreement.
(4) A contentious business agreement shall be deemed to exclude any claim by the solicitor in respect of the business to which it relates other than —
(a) a claim for the agreed costs; or
(b) a claim for such costs as are expressly excepted from the agreement …
61. Enforcement of contentious business agreements.
(1) No action shall be brought on any contentious business agreement, but on the application of any person who —
(a) is a party to the agreement or the representative of such a party; or
(b) is or is alleged to be liable to pay, or is or claims to be entitled to be paid, the costs due or alleged to be due in respect of the business to which the agreement relates,
the court may enforce or set aside the agreement and determine every question as to its validity or effect.
(2) On any application under subsection (1), the court —
(a) if it is of the opinion that the agreement is in all respects fair and reasonable, may enforce it;
(b) if it is of the opinion that the agreement is in any respect unfair or unreasonable, may set it aside and order the costs covered by it to be assessed as if it had never been made;
(c) in any case, may make such order as to the costs of the application as it thinks fit.
(3) If the business covered by a contentious business agreement (not being an agreement to which section 62 applies) is business done, or to be done, in any action, a client who is a party to the agreement may make application to a costs officer of the court for the agreement to be examined.
(4) A costs officer before whom an agreement is laid under subsection (3) shall examine it and may either allow it, or, if he is of the opinion that the agreement is unfair or unreasonable, require the opinion of the court to be taken on it, and the court may allow the agreement or reduce the amount payable under it, or set it aside and order the costs covered by it to be assessed as if it had never been made.
(4A) Subsection (4B) applies where a contentious business agreement provides for the remuneration of the solicitor to be by reference to an hourly rate.
(4B) If on the assessment of any costs the agreement is relied on by the solicitor and the client objects to the amount of the costs (but is not alleging that the agreement is unfair or unreasonable), the costs officer may enquire into —
(a) the number of hours worked by the solicitor; and
(b) whether the number of hours worked by him was excessive.
(5) Where the amount agreed under any contentious business agreement is paid by or on behalf of the client or by any person entitled to do so, the person making the payment may at any time within twelve months from the date of payment, or within such further time as appears to the court to be reasonable, apply to the court, and, if it appears to the court that the special circumstances of the case require it to be re–opened, the court may, on such terms as may be just, re–open it and order the costs covered by the agreement to be assessed and the whole or any part of the amount received by the solicitor to be repaid by him …
70. Assessment on application of party chargeable or solicitor.
(1) Where before the expiration of one month from the delivery of a solicitor's bill an application is made by the party chargeable with the bill, the High Court shall, without requiring any sum to be paid into court, order that the bill be assessed and that no action be commenced on the bill until the assessment is completed.
(2) Where no such application is made before the expiration of the period mentioned in subsection (1), then, on an application being made by the solicitor or, subject to subsections (3) and (4), by the party chargeable with the bill, the court may on such terms, if any, as it thinks fit (not being terms as to the costs of the assessment), order —
(a) that the bill be assessed ; and
(b) that no action be commenced on the bill, and that any action already commenced be stayed, until the assessment is completed.
(3) Where an application under subsection (2) is made by the party chargeable with the bill —
(a) after the expiration of 12 months from the delivery of the bill, or
(b) after a judgment has been obtained for the recovery of the costs covered by the bill, or
(c) after the bill has been paid, but before the expiration of 12 months from the payment of the bill;
no order shall be made except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the assessment as the court may think fit.
(4) The power to order assessment conferred by subsection (2) shall not be exercisable on an application made by the party chargeable with the bill after the expiration of 12 months from the payment of the bill …
73. Charging orders.
(1) Subject to subsection (2), any court in which a solicitor has been employed to prosecute or defend any suit, matter or proceedings may at any time —
(a) declare the solicitor entitled to a charge on any property recovered or preserved through his instrumentality for his assessed costs in relation to that suit, matter or proceeding; and
(b) make such orders for the assessment of those costs and for raising money to pay or for paying them out of the property recovered or preserved as the court thinks fit;
and all conveyances and acts done to defeat, or operating to defeat, that charge shall, except in the case of a conveyance to a bona fide purchaser for value without notice, be void as against the solicitor.
(2) No order shall be made under subsection (1) if the right to recover the costs is barred by any statute of limitations."
PART 5 - THE TERMS OF THE RETAINER LETTERS AND IRREVOCABLE AGREEMENT
The following are the material parts of the retainer letters to which I need to refer. The letter of 15 May 2009 provides as follows [MRH1 2-5]:-
"Dear Mr Berezovsky
Project Aintree (formerly known as Project A – Claim No: HC08C03549
We are very pleased that you have decided to instruct us in relation to Project Aintree …
You have authorised us to accept and act on instructions given jointly or individually by Michael Lindley, Michael Cotlick and Yuli Dubov on your behalf and we will rely upon their instructions unless and until you notify us in writing to the contrary.
This letter sets out the scope of our work, tells you who will be advising you and provides our current fees. A further copy of our terms of business accompanies this letter and will apply to the provision of services to you except to the extent that they may be varied in this engagement letter or in future engagement letters …
Partner Responsibility, Personnel and Fees
In accordance with our client care and quality of service programme, I will be the partner responsible to you for this work (Matter Partner).
I set out below our direct dial telephone numbers and the names and/or status and numbers of those who I propose to assist us with the work and with whom you can expect to deal. I also set out the hourly charging rates before and after 1 May 2009 (reflecting our agreed discount) on each person … Our rates are reviewed annually on 1 September. Notwithstanding this, there will be no review of the rates until 1 May 2010.
As our work progresses, it may become necessary to use the expertise of additional lawyers or staff. Should other associates be required to assist in this matter, their hourly rates will vary between £260 and £405, depending on their level of experience. I will discuss their involvement with you as the need arises.
It is our standard practise to invoice our clients monthly. All invoices will be discharged by you within fourteen days of receipt … I would be obliged if you would confirm your agreement to these terms by signing and returning the enclosed copy of this letter. If you have any questions or comments about the contents of this letter or wish to discuss further the terms of our appointment, please do not hesitate to contact me. I hope that the basis of our relationship is clear and we look forward to working with you on this case.
Yours sincerely
Michael Barnett
Partner for Addleshaw Goddard LLP
I have read the above letter and accept the terms set out therein.
Signed: [Boris Berezovsky]
15.05.2009"
On 26 October 2010, the Original Letter was amended by the October Letter [MRH1 16-22]. The material terms provide as follows:-
"Dear Mr Berezovsky
Main Action: HC09C03549
Discount Conditional Fee Agreement
This letter amends our letter dated 15 May 2009 ("Original Letter) which continues in force except as varied by the agreement contained in this letter from the above date. This letter and the Original Letter together set out the terms upon which we will act for you in respect of the Claim as defined in the Schedule. The terms of this letter will take effect from 1 August 2010.
1. Interpretation
The Schedule to this letter contains definitions. Where this letter uses words which are defined in the Schedule, those words have the meanings assigned to them in the schedule. This letter, the Original Letter and the Schedule together constitute the CBA. The CBA is a contentious business agreement within the meaning of the Solicitors Act 1974.
4. Invoicing arrangements
Under this Agreement our fees would be calculated by reference to the hourly rates set out above [these are not in dispute so I have omitted paragraph 3 of the letter]. We will bill you on account for the Reduced Fee, together with any Expenses and VAT usually on a monthly basis. You will have to pay us the Reduced Fee, the Expenses and VAT whether you are Successful or Unsuccessful.
Our invoices in respect of the Reduced Fee and Expenses will be interim invoices on account and you must pay them within 30 days.
We will invoice you any further sums due under this agreement as and when they become due.
5. What payment is due to us if you are Successful
If you achieve Level 1 Success, you will pay us the following amounts:
(a) Any amount of the Reduced Fee which has not yet been paid;
(b) The difference between the Reduced Fee and the Basic Fee;
(b) Any Expenses which have not yet been paid;
(d) VAT on the above at the applicable rates.
If you achieve Level 2 Success, you pay us:
(a) to (d) above and, in addition:
(e) The Success Fee;
(f) VAT thereon at the applicable rates …
12. Right to Apply for an Assessment
Generally the clients of solicitors have a right to have the solicitors' charges assessed by the court, subject to certain conditions. As this agreement is a contentious business Agreement, your rights to have our charges assessed by the court are limited by Sections 59 to 61 of the Solicitors Act 1974. We will advise you fully of your rights on request. You are welcome to seek advice from another law firm, but would have to pay for that advice …
If you wish to enter into a conditional fee agreement with us on these terms, please sign and return the enclosed copy of this letter.
Yours sincerely
Richard Leedham
Partner, Head of Litigation for Addleshaw Goddard LLP
I confirm that the matters set out in this letter were fully explained to me orally by an independent solicitor
Signed: [Boris Berezovsky]
26 October 2010"
The schedule sets out the relevant definitions as follows:-
"Basic Fee
Means the firm's fees calculated at the firm's standard hourly rates set out in the column headed "Hourly rate – Basic Fee" in the table in clause 3.
Benefit
Means obtaining a judgment or order or award at first instance or a settlement under which the Other Parties are liable to pay money or to give any other advantage or benefit to you including but not limited to a judgment or order for specific performance and any other order, undertaking or agreement that the Other Parties will do or refrain from doing any act or execute any document, whether or not of measurable financial value. Obtaining Costs Only relief (see clause 7) or any purely procedural advantage (such as disclosure of documents) is not a Benefit for these purposes.
For the avoidance of doubt obtaining by judgment or order or award at first instance or a settlement relief substantially in the form of any of the prayers set out in the relief section of paragraphs 1 to 21 of the Amended Particulars of Claim dated 1 April 2010 in HC08C03549 (pages 93 to 97) against the defendants or any of them shall constitute a Benefit for these purposes.
Recoverable Basic Fee
Means such part of our Basic Fee as the Other Parties (or any of them) agree or are ordered to pay.
Reduced Fee
Means the firm's fees calculated at the reduced hourly rate set out in the column headed "Hourly rate – Reduced Fee" in the table in clause 3, and payable whether or not the Claim is Successful.
Level 1 Success
Means your obtaining, in relation to any work carried out under this Agreement, (whether or not at the time in question we continue to represent you or are instrumental in procuring the outcome in question) any Benefit.
Level 2 Success
Means your obtaining (whether or not at the time in question we continue to represent you or are instrumental in procuring the outcome in question):
(a) any Benefit, where the consequence is that you make a recovery (whether in the form of assets or money) with an aggregate value of at least [the Trigger A Amount] (with asset value(s) to be taken at date of recovery); and/or
(b) a recovery (whether in the form of assets or money) with an aggregate value after any counterclaims of at least [the Trigger B Amount] (with asset value(s) to be taken at date of recovery) from any or all of the Other Parties and defendants to the Other Chancery Proceedings.
Success
Shall include success in relation to part of the Claim, notwithstanding that other parts of the Claim remain in issue, and where Success is achieved, the Basic Fee and (where it is Level 2 Success) the Success Fee will be payable in respect of all work conducted by us, and not merely in respect of work conducted in relation to that part of the Claim which was successful.
Where there is a counterclaim against you and our conduct of the defence of that counterclaim is covered by this Agreement, Success shall be assessed by reference to whether a net sum is due to you after the setting off of any sum payable by you in respect of the counterclaim, including Interest.
In determining whether any Benefit has been obtained or the level thereof no account shall be taken of costs payable by or to you.
In the event of Success being affected by any appeal, Success shall be determined by the ultimate result when all appeals have been disposed of.
Success Fee
Means a fee representing 100% of the Basic Fee. The Success Fee comprises both:
(a) the fact that if you are Successful we will not be paid the difference between the Reduced Fee and the Basic and Success Fees until the end of the case (the Financing Factor); and
(b) the following additional factors which we refer to as Risk Factors:
(i) the fact that we are taking the risk of being paid the Reduced Fee instead of the Basic Fee if you are Unsuccessful;
(ii) our assessment of the risks of your case, including:
The fact that you are the claimant in highly complex proceedings in which the Other Parties have demonstrated a willingness to fight to trial;
The fact that prior to entering into this Agreement the parties to the Proceedings have not given disclosure;
That obtaining evidence abroad, which is necessary in connection with the Claims, can be more difficult than obtaining evidence in this jurisdiction;
The fact that prior to entering this Agreement the parties to the Proceedings have not exchanged witness statements;
The fact that much depends on oral testimony at trial and the ability of witnesses to withstand cross-examination, which can be unpredictable.
The Financing Factor constitutes 1% of the Success Fee, while the Risk Factors constitute the balance of 99%.
Unsuccessful
Means that a final judgment, award or determination is made against you in respect of each issue comprised in the Claim, or you otherwise fail to achieve Level 1 Success."
The Irrevocable Agreement signed on 23 October 2012 where material said this :-
"STRICTLY PRIVATE & CONFIDENTIAL
Addleshaw Goddard LLP
Milton Gate
60 Chiswell Street
London
EC1Y 4AG
Dear Sirs
Payment Instruction
1. I refer to the settlement deed in respect of certain proceedings between myself, Inna Gudavadze (Inna) and others dated 9 September 2012 as subsequently amended (the Settlement Deed).
2. In respect of any monies currently held in, or in future paid into, your client account(s) on my behalf pursuant to the terms of the Settlement Deed together with any interest accruing on the same (the "Monies") I hereby irrevocably (i) agree that you may and (ii) authorise and instruct you to:
(a) retain the Monies and not pay any amount of the Monies to me until the amounts referred to in paragraphs 2(b) and (c) have been paid in full;
(b) without the need to obtain further consent or instruction from me, pay out of the Monies the amounts agreed by me to be paid pursuant to the terms of any Costs Agreement, such amounts to be paid in advance of the relevant payment deadline and for these purposes a "Costs Agreement" means any agreement entered into by me (or by you on my behalf) and a third party in respect of the payment by me of that third party's costs and of which you have received a copy; and
(c) without the need to obtain further consent or instruction from me, pay out of the Monies all fees, disbursements and expenses that are payable to you or that become payable to you pursuant to the terms of the retainers between you and me as and when the same are due so long as the terms of the Settlement Deed and the Costs Agreements do not prohibit their payment at that time but if they do prohibit payment at that time they shall be paid as soon as that prohibition ceases to apply.
3. If the amount of the Monies standing to the credit of your client account(s) at the relevant time is such that it will not be possible to make a payment referred to in paragraph 2(b) or (c) in full that is required to be made at that time, part payment shall be made instead with the balance to be paid from additional Monies as and when received by you into your client account(s).
….
Yours faithfully
Executed and delivered as a deed by
Boris Berezovsky"
PART 6 - LEVEL 2 SUCCESS
Before dealing with the submissions, I need to clarify a point which was the source of some confusion (at least so far as I was concerned) at the hearing, namely whether Level 2 Success (as defined in the CBA) had been achieved and if so, when. It was my understanding on reading AG's evidence that it was the firm's case that Level 2 Success had been triggered by the recovery of the $Amount Y, no mention having been made of a recovery of £Amount X in September 2012 in Hastings I. That also appeared to be the belief of the Administrators and their advisers, their view being that it had been achieved upon receipt of $Amount Y on 21 March 2014, after Mr Berezovsky's death. For that reason, Mr Atherton's skeleton argument dated 15 January 2015 had proceeded (at paragraph 60) on that basis. However, Hastings III signed the following day deposed at paragraph 7 that - "In fact by 25 September 2012, Mr Berezovsky had recovered in excess of [the Trigger A Amount] pursuant to the terms of the AP settlement, thus triggering Level 2 Success". According to HFW [letter to the court 3 March 2015], it was only at that point that the Administrators had appreciated that it was now being said that the trigger point was not March 2014 but September 2012. They then went on to submit that it was Mr Hastings' evidence that there had been no "appropriation" of the "at least [the Trigger A Amount]" to any of the specific actions, by which I assume was meant that the Administrators did not accept that the funds in question had been recovered exclusively in the Main Action and not (for example) also in the Salford Action. Mr Hastings then signed Hastings IV on 20 January 2015 in which he said that a "… net recovery to Mr Berezovsky of in excess of US[$Amount X] [sic] arose on 12 October 2012." That was then clarified in Hastings V, that for US $ should have been written £ sterling.
During the course of argument, it was still unclear to me on what date exactly it was contended by AG that the trigger arose (for candidates, see Mr Bacon's skeleton argument at paragraph 35, alternatively 25 September 2012 (Hastings III at 7) alternatively 12 October 2010 (transcript day 2 page 53 line 34)). For that reason, on 23 February 2015, I wrote a Note to the parties asking for clarification. In the light of the response thereto, I sent a further Note on 4 March 2015 which said this:- "Given the absence of any further evidence from the Administrators in rebuttal of AG's case that receipt of [£Amount X] triggered Level 2 Success on 12 October 2012, I am intending to proceed on the basis that Hastings 4 (as corrected in Hastings 5) is unchallenged and will accept for the purposes of the judgment, that it was, indeed, achieved on that date, unless the Administrators wish to file and serve evidence asserting to the contrary: for that purpose, I give leave to do so provided service is effected on AG and the Court by 4.00pm on 12 March 2015".
Mr Wood (in his capacity as Trustee) took the opportunity to reply to Hastings IV and V via Wood II. At paragraph 6, he states that "The Trustees accept that by 12 October 2012, the Deceased had recovered in excess of [the Trigger A Amount] pursuant to the terms of the Agreement." However, he continues that the Trustees' "understanding" is that the Agreement was a "global settlement", that is to say one that went beyond simply the Main Action . Accordingly it has not been possible for the Trustees to identify specifically the monies recovered by Mr Berezovsky such as "… to ascertain definitively whether Level 2 Success was achieved under part (a) of the definition of that term as contained in the CFA … Moreover, Mr Hastings does not assert that any such appropriation was undertaken in relation to the monies received on or before October 2012" (see paragraphs 8-9).
I do not find this evidence convincing. In the first place, Mr Hastings exhibited as MHR4 a witness statement he had made in action HC10C04393 on 12 June 2013 indicating that AG were entitled to their fees for Level 2 Success which had not been challenged by the Administrators at any time until Mr Atherton's skeleton argument had been prepared. Next, it was asserted by Mr Bacon and not challenged on instructions by Mr Atherton that the Administrators have seen the confidential Settlement Agreement and Mr Bacon went further in saying that the document itself gives details of the payments that were due, in respect of what and from whom. It follows, in my judgment, that it is more likely than not that it would be within the gift of the Administrators to research the terms of settlement in order to satisfy themselves that the £Amount X was (or was not) recovered in the Main Action and to lead evidence on that point if there was any doubt. Instead, what Mr Wood says is no more than surmise on his part. Contrastingly, Mr Hastings has advanced a positive case that the entirety of the £Amount X was attributable to the Main Action and that, accordingly, the question of appropriation does not arise.
My Note of 4 March 2015 gave Mr Wood the opportunity to serve evidence to the contrary by informing the court of the exact attributions of the settlement funds, if it was his case that Mr Hastings was wrong that not all of it was referable to the Main Action. He has not done so, by demonstrating, for example, that part of the money was attributable to the Salford or Metalloinvest actions. It follows that I prefer Mr Hastings' evidence on this point and accept for the purpose of the issues I have to decide, that Level 2 Success was triggered upon receipt of the £Amount X on 12 October 2012. For that reason, it is not necessary for me to address a construction argument about the meaning of the Level 2 Success Fee clause in the CBA put forward by Mr Bacon in paragraph 6 of his Supplemental Note.
For clarity and for reasons which I hope will become clear, it is my view that the trigger for Level 2 Success and the date upon which AG's right of security in the funds recovered under the terms of the settlement , are different points. Put another way, the fact that 12 October 2012 may have been the trigger for Level 2 Success does not have a bearing upon the date upon which, as a matter of law, any right to apply for a s.73 charge may have arisen in AG's favour.
PART 7 - THE SUBMISSIONS FOR AG
(a) The CBA
Mr Bacon's submissions on behalf of AG are that prior to his death, Mr Berezovsky had been involved in a number of high profile commercial actions at a time when he was experiencing "cash-flow" problems. That had created difficulties about how he could afford to fund the litigation with which he was concerned on a day-to-day basis. The CBA with AG provided him with a solution because it gave him the means whereby he could continue his litigation claims without having to meet the firm's fees on a "pay as you go" basis, but rather, on terms that only the Reduced Fee would be payable "up front". Anything further would depend upon either "Benefit" or "Success" being achieved either in the Main Action or in the Chancery Actions. It followed that the CBA was both what Mr Berezovsky wanted and what he needed if he was to pursue the multiple claims in which he was involved. To that end, Mr Berezovsky had:-
i) Agreed to the CBA, having taken independent legal advice,
ii) Scrutinised in detail and ultimately approved the work to which the outstanding fees related,
iii) Made substantial part payments,
iv) Recovered significant sums exceeding the Trigger A Amount in the Main Action, thereby triggering AG's entitlement to the Level 2 Success Fee.
Mr Bacon's submission is that, without more, these four factors render absolute AG's entitlement to their fees. In addition, he draws attention to the fact that in terms of the signing of the Original Letter and the October letter, Mr Berezovsky had been advised to obtain independent legal advice and had done so by consulting his "Client Team" consisting Michael Lindley, a partner in Streathers Solicitors LLP, Michael Cotlick, an Israeli qualified lawyer, Natalia Nosova, a woman of business, and Yuli Dobov, a business associate of Mr Berezovsky of 30 years standing.
In the Abramovich litigation, Mr Lindley had explained to the court under cross-examination, that he had been responsible for negotiating the agreement made between Mr Berezovsky and AG (see transcript day 14 pages 4-5 of MRH4). During the course of the litigation, AG had invoiced Mr Berezovsky each month at the firm's discounted rate and when doing so, had provided the Client Team with detailed billing information. The invoices had then been scrutinised and any concerns raised by the Client Team were discussed with AG. The upshot of those discussions had been the agreement to a global discount applicable to the Main Action in the sum of £93,336 via credit note 254396, with a further £10,000 reduction subsequently being given as a "gesture of goodwill" via credit note 90035430 and an additional £2,600 being deducted via credit note 90035574 in respect of a Mr Herring's time. Having applied the credit notes to the balance of the charges, the Reduced Fee had then been paid in full in Mr Berezovsky's lifetime. The only inference that could be drawn from that was that had the Reduced Fee not been agreed, there would have been no payment.
So far as the Level 1 Success Fee is concerned, Mr Bacon points out that the majority of the fees due have been paid leaving "just" £1,444,885.55 outstanding. The relevant invoice was rendered on 21 September 2012 in the sum of £5,609,468.70, being the difference between AG's fees charged at the reduced hourly rate and their value at the firm's basic rate. With much of that fee also having been paid in Mr Berezovsky's lifetime, the inevitable inference to be drawn from that too, Mr Bacon submits, is that that invoice was also agreed.
In respect of the final invoice representing the Level 2 Success Fee rendered on 4 August 2014 in the sum of £11,281,937.40, including VAT, Mr Bacon submits that this was also agreed. The evidence for that is to be found in the irrevocable instruction given in the Irrevocable Agreement which Mr Berezovsky signed (having taken advice from the Client Team) that AG's fees generally should be paid, albeit that the bill itself was not rendered until after his death. The reason why the invoice for the Level 2 Success Fee was not raised until 31 July 2014 was that AG did not wish to incur a substantial liability to pay VAT before funds sufficient to meet the bill, had been received. However, it is Mr Bacon's submission that (1) Mr Berezovsky and his advisers knew the amount of the Level 2 Success Fee (2) that Mr Berezovsky had approved it by signing the irrevocable instruction and (3) that Mr Berezovsky was aware that it would be discharged once the funds from Signature had been received. Indeed, these factors were also conclusive as a matter of law, that a contractual estoppel had arisen whereby, Mr Berezovsky having represented unequivocally that he had received legal advice, the Administrators were now precluded from denying that he had done so (see Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386). In the event, it was only Mr Berezovsky's untimely death and the appointment of the Administrators which had prevented payment being made in accordance with his instructions.
So far as the CBA itself is concerned, Mr Bacon relies on the following matters to support his submission that it is valid and should be enforced:
the agreement was sufficiently certain in order to comply with s.60 of the Act,
its terms were not unfair and/or unreasonable,
AG's risk of going unpaid as to the Level 1 and 2 Success Fees were substantial thereby justifying the 100% success fee if the financial recovery was achieved,
the Administrators have no entitlement to an examination of the hours worked under s.60(4B) of the Act.
I shall deal with each in turn.
So far as the construction of the CBA is concerned, Mr Bacon points out that s.59(1) of the Act permits a solicitor to make an agreement in writing with his client as to his remuneration in respect of any contentious business done or to be done "by reference to an hourly rate … or otherwise …". That is the position here, Mr Bacon submits, the CBA having been drafted by very senior counsel and committed to writing. It provides for hourly expense rates for AG's solicitors (about the level of which the Administrators have taken no point), whilst at clause 3, reserving the right to increase the rates annually in which case "We will discuss the rates with you". Clause 3 continues that "as work progresses it may become necessary to use expertise or additional lawyers or staff but we will discuss their involvement with you as the need arises".
Mr Bacon makes two points here in the context of certainty. First, the right to increase the rates annually is a standard clause which is used in virtually all client retainers so that the solicitor can alter hourly charges, usually in line with inflation each year. In the present case, there was no question of any "imposition" upon Mr Berezovsky: on the contrary, as the clause makes clear "We will discuss the rates with you". In any case, that had never been necessary because the rates had remained unchanged throughout the period of the retainer. Second, in high value commercial litigation such as the Main Action, clause 3 anticipated the need to bring in additional fee earners as expediency required, but specifically, following a discussion about their involvement were that requirement to arise. On that basis, Mr Bacon submits that there is no uncertainty at all.
As to the reasonableness of the terms of the CBA, these were fair and reasonable in Mr Bacon's submission. First, they had been discussed and agreed by Mr Berezovsky's Client Team who reported directly to him. Second, Section 58 Access to Justice Act 1999 entitles solicitors to charge a success fee on the totality of the basic fee, even if there is a discount in the event of a particular outcome (see Gloucestershire County Council v Evans [2008] 2 Costs LR 308). Here, the case had involved an enormous risk to AG. In the event of failure, the firm would have received only 50% of its standard charges in the Main Action and the risk of losing had increased significantly following Mr Berezovsky's defeat in the Abramovich claim, which had damaged his credibility as a witness.
So far as the Level 1 Success Fee was concerned, this was payable only if a "Benefit" as defined was achieved. As to the Level 2 Success Fee, this was not a case in which "success" meant merely the recovery of damages, but quite the reverse, since the trigger was either the Trigger A Amount in the Main Action or the Trigger B Amount across the Chancery Cases in which AG were instructed. In Mr Bacon's submission, that was support for the proposition that the CBA was not unbalanced in AG's favour. On the contrary, it had suited Mr Berezovsky to be required to pay only a substantially reduced fee immediately and for any increased sum to be deferred conditional upon a successful result. Put another way, the CFA via its differential terms met his cash-flow difficulties and the arrangement enabled Mr Berezovsky to continue to fund the complex litigation in which he was involved. As such, the CBA was neither unfair nor unreasonable. For those reasons, its terms should be enforced by an order that the Administrators pay AG the outstanding fees in full.
As to the application of s.61(4)(B), Mr Bacon's point is simple. Mr Berezovsky received the invoice for the Reduced Fee in his lifetime, he took advice about its reasonableness from his Client Team, he negotiated various reductions, he paid the fee. In these circumstances, where the client has expressly approved the charges and discharges them, s.61(4)(B) is simply not engaged. The fact that part of the Level 1 Success Fee and all of the Level 2 Success Fee remain outstanding makes no difference since they are simply the balance of fees that Mr Berezovsky had expressly approved in his lifetime and paid. In short, s.61(4)(B) has no application here.
(b) S.73 Charge
In the event that I make an order to enforce the CBA under s.61, Mr Bacon submits that AG is entitled to a charge over the funds recovered in the Main Action under s.73 of the Act pending payment of their bills, ahead of the resolution of any competing claims to the money between the creditors and beneficiaries of Mr Berezovsky's Estate. The case advanced on behalf of AG is short and to the point: funds have been recovered for Mr Berezovsky through the instrumentality of the firm and it is trite law that a client or third party should not enjoy the benefit of the solicitors' labours without paying for them. There are, in Mr Bacon's submission, a long line of authorities which all support the proposition that AG's entitlement to a charge emanates from a right over "property" as defined in s.73 (here a chose in action) which arose prior to Mr Berezovsky's death and his subsequent insolvency. In so far as the Administrators have argued that for any right to arise, it could only do so after Mr Berezovsky's death, in Mr Bacon's submission they are mistaken. It is his contention that the right to the charge is a pre-existing right which arose at the date of the settlement and not upon receipt of any funds payable under its terms, and which is exercisable over the money now held by the Administrators.
On Mr Bacon's case, the genesis of the solicitor's entitlement is to be found in Haymes v Cooper [1864] 33 BEAV.431, in which Sir John Romilly MR said this:-
"I have always understood the law to be, that a solicitor had an inherent equity to have his costs paid out of any fund recovered by his exertions; and that the court would not part with it until these costs had been paid, except by the consent of the solicitor.
It is not a question of priority, because it is an existing equity of the solicitor, which could not be divested by any assignment by the client. If a sum of £1,000 were recovered for A.B. by the exertions of his solicitor, and A.B. assigned it to C.D., who obtained a stop-order on the fund and gave notice of it to the Accountant-General, then although C.D. would have priority over other incumbrancers who had not got a stop-order, yet he could only claim that which the client could give him, namely, the fund subject to the solicitor's right. Again, it is not a question of notice, because every man who knows there is a fund in court, knows also that it is liable to the lien for costs of the solicitor, through whose exertion the fund has been obtained, and the assignee has the benefit of those exertions as well as the assignor … My opinion is that where a man knows that there is a fund in court, he knows also that it is subject to a solicitors' lien for his costs of recovering it and that he is entitled to be paid in the first instance ..."
Haymes was followed by Guy v Churchill [1887] 35.D CH 489 (at 491) when Cotton LJ said this:-
"The lien of a solicitor is grounded on the principle that it is not just that the client should get the benefit of the solicitor's labour without paying for it."
It is Mr Bacon's submission that where, as here, there has been an intervening insolvency, it makes no difference to the entitlement to or to the validity of the charge. In Guy v Churchill, the Claimant had lost at first instance and paid the Defendant £298 for costs. On appeal, the order was reversed and the £298 repaid to the client which was held to be a sum recovered by the exertions of the Claimant's solicitors. Of that amount, the solicitors sought a charge for £165, being the costs of the appeal as between the parties, together with a further sum representing the costs as between themselves and their own client. Notwithstanding the fact that between the trial of the action and the hearing of appeal, a petition in bankruptcy had been presented against the Claimant, the Court of Appeal had upheld the entitlement of the solicitor to a lien over the £298 in respect of its costs, with the surplus to be paid to the Official Receiver. It follows, Mr Bacon submits, that Guy v Churchill is authority for the proposition that the insolvency of the client has no bearing on the solicitor's entitlement to his charge under s.73 and since AG's right to the charge pre-dates any charging order, the making of such an order would not of itself comprise a disposition of property susceptible to the avoidance provisions under Section 284 Insolvency Act 1986. Mr Bacon further submits that Section 284 is of no application anyway since:-
i) No insolvency administration order has yet been made, and
ii) The charging order would be made with the consent of the Court (see his skeleton, paragraph 38.2).
The fact that such a charge might adversely affect other creditors such as residuary legatees, is, in Mr Bacon's submission, also irrelevant. He relies on Clutterbuck v Bradford [1945 ] CH 61, in which the court had been invited not to make an order under s.69 of the 1932 Act (as s.73 then was) on the ground that it would cause hardship to the residuary legatees who had already obtained a garnishee order nisi before the application had been made. At paragraph 67, Lord Greene MR had said this:-
"The next, and last, point with which I have to deal with is this. It is said that under the section a solicitor is entitled to a charging order, not as of right, but only as a matter of discretion. That, no doubt, is true, but it is, I think, right to say that prima facie a solicitor is entitled to his charging order if he satisfies the requirements of the section, and that some good reason must be shown for depriving him of it. It has been held in many cases that some conduct of the solicitor may make it unjust to give him this form of relief. In the present case it is said that to make an order in favour of the applicants will be a grave hardship on the residuary legatees … True that in the end the position of the residuary legatees, assuming they do not recover their costs, will be that their fund will have been depleted by payment of the costs now in issue, while they personally will be unable to recover from Colonel Blake their costs of the first application. That may be unfortunate, but the question we have to decide is whether their misfortune is sufficient to justify us in withholding from the solicitors the right to which prima facie they are entitled. I do not propose to assert as a matter of principle that the discretion should be exercised against the solicitor only in cases where some conduct of his own makes it unjust to give him the relief asked for. That, I think, would not be the proper course to take in view of the language of the section, but I think I am entitled to say that, in a case where no conduct of the solicitor was involved, it would require very exceptional circumstances to justify the court in refusing to the solicitor that security in respect of the fruit of his labours to which he is prima facie entitled. In the present case, hardship though it be to the residuary legatees, I do not find any such circumstances and, in my opinion, that point also fails."
Mr Bacon submits that where, as here, there has been a settlement agreement and a substantial payment made to the solicitors, the fact that hardship might be caused to other creditors of Mr Berezovsky is not a ground upon which to refuse to make the order, nor does it preclude the court from dealing with the assets in the estate. It is relevant too, that no issue arises here about AG's conduct which might give rise to any departure from the norm that the solicitor should be paid for his labours in recovering a fund on behalf of his client.
So far as the right itself to a charge is concerned, Mr Bacon contends that were such an order to be made, this would not be conferring a new right but, on the contrary, merely enforcing a pre-existing right. In these circumstances, where, as here, such a charge is in respect of an already existing right, it ranks ahead of other creditors since without the labour expended by the solicitor, there will be no property or money recovered in respect of which any other creditors to the estate can lay claim - see Scholey v Peck [1893] 1 CH 709 at 7/11 where Romer J said this:-
"I hold, therefore, that the solicitors are entitled to the charge for which they ask, not only against the Plaintiff, but also against the mortgagee, who is taking the benefit of the action, and over whose mortgage they must have priority. The charge will include their taxed costs, charges and expenses properly incurred in preserving the property …"
Mr Bacon submits that it would be odd if that were not the case since in circumstances such as these where the client has financial difficulties, the need for recognition of the solicitor's rights to a charge is even more acute.
Mr Bacon places particular emphasis on the decision on Re: Born [1900] 2 CH 433, in which, he contends, Farwell J also recognised the pre-existing right to a charge in circumstances where there had been an insolvency. At page 435 the Learned Judge said this:-
"It is also contended that, having regard to the winding up, I ought not now to give the applicants a charge under this statute. But though this application is under the statute, it is very material to consider whether, if I make a charging order, I am thereby giving the applicants a new right, or merely enabling them more cheaply and speedily to enforce a right they already possess. Now, it is plain that they have a common law lien on the company's share of the fund in court, the amount of their costs. It would be monstrous if this were not so, as the company would never have recovered the money without their exertions. It resembles the case of debenture holders who have to allow a liquidators' costs when they take the benefit of his exertions and it is clear that justice calls for such a lien. Now this common law lien has not been abrogated by the statute – Haymes v Cooper- or affected by the winding up, and all I am really asked to do is to give the statutory charge in aid of the already existing common law lien, which is prior to any right of the any official receiver or liquidator"
It follows, Mr Bacon submits, that at common law, a solicitor is entitled to a particular lien, which is capable of being actively enforced on a fund or on the fruits of a judgment recovered by his exertions, and that the common law prevails notwithstanding the bankruptcy of the client. In this context, it is immaterial whether the money is in court or in the hands of the solicitor and it matters not either that funds may have been received after the insolvency (see Hammonds v Thomas Muckle & Sons [2006] BPIR 704) in which HHJ Langan QC stated that he had "searched the cases in vain for any statement of principle to the effect that the solicitor's lien is restricted to funds received before the insolvency". Having then referred to Re: Meter Cabs Ltd [1911] 2 CH 557, the Judge had said this:-
"I hope that he [counsel] will not think me guilty of any disrespect if I do not rehearse them [the authorities] here. Most are examples of solicitors after insolvency of a client successfully enforcing a lien against funds which had been received prior to the commencement of the relevant bankruptcy or liquidation. That is, of course, the common situation. Prior to insolvency, a solicitor will often have had no reason to suppose that he was at risk of being unpaid and hence no reason to go against damages or other funds which had come into the hands of the client … Assuming in favour of Mr Marks [counsel] that the commencement of the administration is indeed the cut-off point, one should ask whether Hammond's lien was in existence at that date. That depends on whether there was some property, be it a fund of money or a chose in action, to which the lien could attach."
Here Mr Bacon asserts that the right which has arisen is a chose in action which necessarily will not be property or money in the solicitor's possession satisfying the features of a common law lien. In his submission, it makes no difference. He relies on Fairfold Properties Ltd v Exmouth Docks Co Ltd (No 2) [1993] CH 196 in which the court held that property in s.73 was to be construed widely and would encompass a chose in action including an order for costs where no taxation had taken place. In these circumstances, it is Mr Bacon's submission that it is not the receipt of the money but the making of the agreement under which the money becomes payable that is the key. Here that had all taken place long before the insolvency proceedings had been commenced and that whilst he accepts that AG's lien had not been possessory, in the sense of holding the funds, a chose in action had arisen in AG's favour when the case was settled. For that reason, AG is entitled to its charge.
For all these reasons, Mr Bacon submits that the court need not be concerned about the possibility of other proprietary claims over the settlement monies, be they good or bad, save that the fact that the estate has been declared insolvent is all the more reason for granting the charge so that other creditors do not receive the benefit of AG's labours for nothing. As regards those creditors, since AG is a secured creditor, there is no question of gaining any illegitimate advantage over unsecured creditors. AG is entitled to the protection of the charge in priority since without the firm's services, no fund would be available for distribution to anyone.
Mr Bacon further submits that there is no difficulty about the charge attaching to the Level 1 and Level 2 Success Fees. The reason for that is that they relate to work done in the Main Action. The amount, if payable, is directly referable to the work done and whether it produces an outcome that provides for a "Benefit" as defined. There is no reason whatsoever to distinguish between the Reduced Fee, the Level 1 and the Level 2 Success Fees since they are all part of the same remuneration for "work conducted" under the CBA which AG undertook on Mr Berezovsky's behalf. Each success fee is a proper and legitimate part of AG's remuneration for its work in the Main Action exceeding the Trigger A Amount and AG is entitled to protection in respect of the fruits of its labours. In this respect, Mr Bacon draws attention to the fact that the section in the Act draws no distinction between base costs and additional liabilities.
In so far as the Act refers to the solicitor's "assessed costs" it is Mr Bacon's submission that there is no need for a detailed assessment before the s.73 charge can be ordered. He relies on Fairfold Properties Ltd, where Ferris J made an order under Section 73(1)(b) for the payment of certain costs without, at that stage, requiring the amount of those costs to be fixed by assessment. For that reason it would be wrong to adopt a narrow construction to the phrase "assessed costs". Mr Bacon submits that, properly and purposefully construed, those words include determinations under s.61 where the Court holds a CBA to be fair and reasonable so that the sums due pursuant to it are payable. They do not limit the s.73 jurisdiction to bills which have been or will be subject to an assessment under s.70 of the Act.
For these reasons Mr Bacon submits that the CBA must be enforced and that AG's entitlement to their fees from the monies recovered from Signature's clients should be subject to a charge under s.73 pending payment, the fact of Mr Berezovsky's insolvency being irrelevant as the entitlement arose long before any insolvency proceedings had been commenced.
PART 8 - THE SUBMISSIONS FOR THE ADMINISTRATORS
(a) The CBA
It is the Administrators' case that there is insufficient certainty as to the terms of the retainer as set out in the Original Letter and the October Letter for it to be a CBA. In this context, Mr Atherton relies on the judgment of Lord Denning MR in Chamberlain v Boodle and King [1982] 1 WLR 1443, 1445 B-D, where he said:
"… It seems to me that an agreement in writing can be contained in letters. But the letters ought at least to be signed by the client if he is to be deprived by the agreement of his right to tax. Further, the agreement must be sufficiently specific – so as to tell the client what he is letting himself in for by way of costs … What rate is to be charged? And for what partner? Of what standard? … An hour for associates who may be involved. Which legal executives? Of what standard? Which associates? …Which is left completely uncertain by this agreement. Then there is the hourly rate. That must depend upon the skill and expertise of the individual partner or associate. A skilled partner can do the work in half the time of a slow partner. Is the client to be charged double the rate because a slow partner has been put on the case?"
Here, it is not the Administrators' case that the agreement is void for uncertainty, but it is their contention that the terms of the letters are insufficiently certain to render it capable of being characterised as a CBA. Mr Atherton relies on Wilson v Specter Partnership [2007] EWHC 133 (Ch) at paragraph 16(b), where Mann J identified the relevant issue in that case as whether the "terms as to charging" recorded in the agreement left "an element of uncertainty". Mr Atherton submits that if the remuneration terms in a retainer agreement include elements of uncertainty, then the document cannot be a CBA: that is the position here, he says, because clause 3 gives AG an entirely open ended right to increase hourly rates each year. Rather than saying "which we will agree with you", clause 3 simply states "which we will discuss". There is no indication by how much or on what basis any increase in hourly rates will be implemented. In so far as the identity of the fee earners is concerned, the criticism is two-fold. First, Clause 3 gives no indication about the partners' seniority, their skills or disciplines. Second, there is insufficient detail about the departments in AG which might be called upon for input, still less any information about the solicitors who would then become involved, their grades, rates, seniority, and so on. The combination of these factors Mr Atherton, submits, renders the retainer insufficiently certain to be a CBA.
So far as fairness and reasonableness under s.61(4) of the Act are concerned, Mr Atherton submits that the Court ought not to conclude that the retainer is, in all respects, fair and reasonable so that it should be enforced. He challenges the reasonableness of the CBA having regard to Mr Bacon's case that the risk to AG was that the firm would be paid only one half of their usual fees in the event that the criteria for Level 1 or Level 2 Success were not triggered. Mr Atherton points out that under that arrangement, Mr Berezovsky was contractually bound to meet the Reduced Fee so in reality, only the balance of 50% of the firm's basic charge was at risk. Taking that factor into account, it was necessary to have regard to "the costs at risk" when considering the reasonableness of the success fee in a retainer which provided for a discounted fee (see judgment of Dyson LJ in Gloucestershire CC paragraph 28 at E). Since, win or lose, AG would recover the Reduced Fee, it followed that at 100%, the success fee was excessive and unreasonable. Moreover, the Level 2 Success Fee, if achieved, meant that AG would recover double their ordinary charges in circumstances where Mr Berezovsky was obliged to pay 50% on basic fees whatever the result of the litigation. Mr Atherton expresses the position thus in his skeleton argument [19] "This Success Fee is twice what can be justified as reasonable, because (as already noted) only half the Basic Fee was ever at risk". For that reason, he submits that the agreement should not be enforced as a CBA.
Mr Atherton also advances the Administrators' concerns about how Mr Berezovsky's agreement to the retainer was given in the first place. The Administrators are not satisfied that AG has established that the terms were fair to Mr Berezovsky : nowhere in the material before the court, it is said, has AG adduced any evidence, correspondence or attendance notes to demonstrate that Mr Berezovsky fully understood the terms of business that he was signing. Although it is correct that he signed both the Original and October Letters, the signature clause merely contains pro forma wording that "I confirm that the matters set out in this letter were explained to me orally by an independent solicitor". It is of significance, Mr Atherton submits, that no evidence has been led to support the assertion by Mr Hastings that Mr Berezovsky received any independent advice and if he did, the quality or extent of it.
As to the hours worked, Mr Atherton draws attention to the fact that under s.61(5), even where the amount agreed under a CBA has been paid, the Court can re-open the agreement provided that special circumstances can be shown. Here he contends that the Court ought to enquire into the hours worked and whether they were excessive, they being an essential component of this particular success fee having been calculated as a multiple (100%) of the Basic Fee, which itself is defined by reference to hours worked.
In so far as it is open to the Court to make an order under s.61 at all, it is the Administrators' case that the jurisdiction to do so is limited to CBAs where the agreement provides for the solicitor to receive and for the client to pay a fixed amount under the agreement. Where, as here, the CBA does not fix the amount payable but, on the contrary, provides that the amount due is to be calculated by reference to the hours worked at an hourly rate, Mr Atherton submits that the most that the Court can do is to make an order for payment in accordance with the terms of the agreement, that is to say of a sum based upon a reasonable number of hours worked. It follows that even if the Court were to be satisfied that (i) the Original Letter and October letter are a CBA, and (ii) that it should be enforced, before doing so, there must be a determination under s.61(4A) and (4B) of the reasonable hours worked, because Mr Berezovsky's liability is not in the fixed sum of £12,663,822.95, but only for an amount reflecting those hours reasonably worked.
(b) The s.73 charge
Mr Atherton submits that the central issue is whether the making of an order for a charge under s.73 would create new rights in AG's favour or whether to do so would merely give effect to a pre-existing right. The Administrators' contention is that any charge would create a new right since AG has no security in the fund (and therefore no right of priority) until the grant of the charge itself.
Mr Atherton draws attention to the distinction between a common law lien and an equitable lien (more commonly known as a "particular" lien). In respect of the former, it is a requirement that the solicitor must hold property or money belonging to the client in respect of such a lien. The grant of a charge over such a lien has particular advantages over the mere holding of property or money, in that such a charge carries with it the right to apply for an order for sale and the ability to discharge sums owing to the solicitor from the subject matter of the lien. In the present case, no common law lien has arisen because AG has never held the fruits of the litigation (being the $Amount Y) resulting from the firm's labours. All that AG have had is a particular lien, that is to say the right of the solicitor to go to court and ask for the fund to be charged - see James Bibby Ltd v Woods & Howard [1949] 2 KB 449, 453 to 454, confirmed by Hobhouse J in Halvanon Co Ltd v Central Reinsurance Corporation [1998] 1 WLR 1122, 1129C (who also cited the earlier cases of Mercer v Graves [1872] L.R. 7 QB 499 and Mason v Mason [1933] P.199 (CA)) and explained by Christopher Nugee QC in Clifford Harris v Solland International Ltd [2005] EWHC 141 (Ch) in the following way:-
"… Although commonly referred to as a lien, the solicitor's right, whether under common law or statute, is not a true lien, which can only exist in the strict sense where a person claiming the lien has the property which he claims to be subject to the lien in his possession. Thus a solicitor also has at common law a general lien over his client's papers or other property in his possession, which is a true retaining lien; but the so-called lien over property recovered in proceedings is only a claim or right to ask for the intervention of the court for his protection …"
What follows, in Mr Atherton's submission, is that AG does not have an existing right in the settlement funds and until the grant of any charge under s.73, the firm merely has an inchoate entitlement to seek the aid of the court in equity to enforce payment of the unpaid bills against Mr Berezovsky's estate. Since AG's case is predicated upon the basis that it already holds pre-existing security over the settlement funds, that is an assumption that is erroneous because no such right will arise unless or until a charge is granted under s.73. In short, a particular lien cannot create an immediate right of security over a fund that is not in the possession of the solicitor and here the right to be paid only arose on recovery being made and received by Mr Berezovsky, that is to say by his estate in March 2014. In so far as funds were received before that date (the £Amount X for example), they were paid away to meet liabilities and at that point, there ceased to be anything upon which the lien could bite.
Mr Atherton submits that the court should not exercise its discretion to grant such a right of security. First, this is not a case where the client has tried to evade paying his solicitors as was the situation in Clifford Harris. On the contrary, here the estate is insolvent following the death of Mr Berezovsky, and in these circumstances the Administrators must abide by the applicable provisions of the Insolvency Act 1986 and of the Insolvency Rules 1986 as regards the rights of secured and unsecured creditors. Second, the grant of a charge would place AG in a better position vis a vis Mr Berezovsky's other creditors than it currently enjoys, by creating a new right as a secured creditor which would rank in priority to the rights of the general body of unsecured creditors. Mr Atherton submits that that is not, nor can it be the purpose of s.73. Third, the grant of a charge which has the effect of preferring AG over other creditors of Mr Berezovsky's estate, would be a disposition of a proportion of the settlement funds and as such, would be void under Section 284 of the Insolvency Act 1986 in the event that an insolvency administration order is made over the estate. If that happens, the date of the presentation of any petition for such an order and the making of it, would be deemed to be the date of Mr Berezovsky's death - see Article 3 in paragraph 12 of Part II of the Schedule to the Administration of Insolvent Estates of Deceased Parsons Order 1986. It follows that even if a charge were to be granted, it would simply be avoided as soon as the estate enters into formal insolvency. Fourth, any disposition of the assets of the estate can only be rendered effective if validation relief were to be sought and obtained by AG. For a validation order to be granted, AG will need to demonstrate that the transaction will be beneficial to or will not prejudice the interests of the estate's other creditors – Practice Direction : Insolvency Proceedings [2012] para [14.8.8] quoting Denney v John Hudson & Co Ltd [1992] BCC 503 (CA) and Re Fairway Graphics Ltd [1991] BCLC 468. That is not a realistic proposition. The payment of the balance of the invoiced fees will provide no benefit to the creditors of the estate and merely reduce the amount of money available to pay other proprietary claims. Fifth, where, as here, the court is aware of a petition for the making of an insolvency administration order, the court should adjourn the application pending the outcome of the hearing of the petition, alternatively, these proceedings should be stayed.
So far as the case law relied on by AG is concerned and in particular Mr Bacon's reliance on Re: Born, Mr Atherton observes that Farwell J believed that he was dealing with solicitors who had a common law lien over a fund in court for the amount of their costs. That is to be contrasted with the position here, where AG has never had a common law lien over the funds in respect of which it now seeks a charge. It follows that in Re: Born, the grant of the charge ordered by Farwell J did not create any new rights, and in so far as Mr Bacon has argued that Re: Born is authority for the proposition that a charge can be granted post-insolvency in support of a particular (as opposed to a common law) lien, the reality is that it does not do so : this is because Re: Born is limited to common law liens where pre-existing rights have already arisen. In any event, Mr Atherton submits that the case has an oddity which is that Farwell J was satisfied that there was a common law lien, even though the recovered property was in court and not within the possession of the solicitors. In these circumstances, it is Mr Atherton's case that Re: Born ought to have been decided on the basis that the court should have ordered that no money was to be paid to the client out of the funds in court, if to do so would have deprived the solicitors of their rightful fees. In other words, the court did not need to award the charge in order to give the solicitor the protection needed for his unpaid bill. That is exactly the situation which arises here, he says, where the Administrators have already indicated (by letter dated 13 October 2014) that no money will be paid out of the funds they hold without 28 days notice being given to AG. That is protection enough.
So far as Mr Bacon relies upon the decision in Re: Meter Cabs Ltd, Mr Atherton makes the observation that the lien in that case had been correctly classified as a common law lien since the recovered property was within the solicitor's possession at the relevant time. That is not the situation here since AG cannot rely upon a common law lien based upon possession of the settlement funds.
As to Hammonds v Muckle & Sons Ltd, that case concerned permission to commence an application under s.73 notwithstanding the fact that the client company had entered into administration. In other words, it was a pre-permission hearing and not the final determination of whether or not a charging order should be granted. In these circumstances, taken at its highest, it is Mr Atherton' submission that Muckle can only stand for the proposition that, at the time, the merits of the s.73 application were sufficient to justify the grant of permission for the application to be made. No determination had taken place of the substantive application for the granting of a charge.
If that be wrong and were the court to find (notwithstanding the decisions in Mason v Mason, Bibby and Halvanon) that a particular lien over a settlement fund does create an immediate security right in property that is not in the possession of a solicitor, Mr Atherton submits that the application should still be dismissed, save in so far as the balance of the Level 1 Success Fee remains unpaid. He contends that on its true construction, the definition of "Level 2 Success" means that there is no entitlement to such a fee until payment, that is to say, in the present case, payment to the Administrators of the $Amount Y in March 2014. Since that payment post-dated Mr Berezovsky's death by a year, it is Mr Atherton's submission that AG's right to the Level 2 Success Fee could not and did not arise until after the start of the insolvency process. In these circumstances, any lien arising upon payment of the settlement funds would constitute a disposition of Mr Berezovsky's property and thereby be void under Section 284 of the Insolvency Act upon the making of an insolvency administration order.
If Mr Atherton is mistaken on this point in the sense that Level 2 Success was triggered when the £Amount X was received into AG's client account on 12 October 2012, he contends that thereafter there ceased to be a fund upon which a particular lien could attach, because the money was used to meet other of Mr Berezovsky's liabilities. For that reason, the only time that the entitlement to a particular lien could arise was when the $Amount Y was received in March 2014, by which time Mr Berezovsky had died with the result that the insolvency consequences under the Insolvency Act 1986 now apply to AG's claim.
So far as Mr Bacon's submission that it is not the receipt of the money but the making of the agreement that is the critical point at which the entitlement to a charge crystallises is concerned, Mr Atherton contends that the CBA operated in a different way : his case is that under the terms of the agreement, the moment of crystallisation was postponed until the settlement funds were actually received. That was a matter to which had AG agreed, or alternatively, the firm had waived its case on crystallisation at the date of settlement. All of this is plain, he says, from the definition of Level 2 Success in the CBA which refers to the "recovery" of assets with their value to be taken at the date of that recovery. That means that the right to the success fee did not arise until receipt of the $Amount Y in March 2014, after the insolvency process had begun and thus any charge would be void. That can be contrasted with the position in Born where the common law lien pre-dated the client's winding up so the solicitor could take his charge unaffected by the insolvency.
Even if the court were minded to make a s.73 charge, Mr Atherton advances a further reason why it should not attach to the Level 2 Success Fee. He submits that it is not a reward for work completed, but, on the contrary, represents a lump sum bonus payable upon success. As such, it did not require the expenditure of labour and services over and above the work actually done nor did it form part of the work AG undertook in order to obtain the fruits of the litigation. The funds already received, even excluding the unpaid basic fee, represent proper remuneration for work the firm has concluded on behalf of Mr Berezovsky and in so far as the court is able to exercise discretion, it should not do so in AG's favour at the expense of other creditors of the estate by granting a s.73 charge in respect of a success fee that does not reflect work done by AG but is merely a bonus.
Finally, Mr Atherton submits that no charge can be granted under Section 73(1)(a) except over "assessed" costs. Here the costs have not been assessed by the court and accordingly, if and to the extent that it is AG's case that the costs claimed ought not to be subject to an assessment, then by the same token AG cannot be entitled to seek a charging order in respect of those costs which have not been assessed.
PART 9 - DECISION ON THE CBA
In paragraph 5, I mentioned that I would need to address whether the retainer between AG and Mr Berezovsky was a CBA or a CFA and whether it mattered. The Administrators' position is that this was a CFA and that, accordingly, the provisions of s.59 - s. 61 of the Act have no application. Mr Wood (Wood 1 - paragraph 15), observes that the application is to "enforce the discounted CFA" and throughout his skeleton argument, Mr Atherton refers to "the CFA" and not to " the CBA". For AG, any reference by Mr Bacon to the retainer in his skeleton argument is to "the CBA". If Mr Atherton be right, it is correct that ss.59-61 will not be engaged since they apply only to CBAs and not to CFAs, so AG's application for enforcement will fail at the first hurdle.
In my judgment, the terms of the retainer between AG and Mr Berezovsky are evidenced in a CBA which is, in principle, eligible to be enforced under s.61 of the Act. Although it is right that the October Letter is headed "Discounted Conditional Fee Agreement", the body of the letter explains to Mr Berezovsky in clear terms that although the Original Letter, the October Letter and the Schedule thereto constitute a CFA, "…this is a Contentious Business Agreement". The letter continues at paragraph 12 to explain that because the agreement is a CBA, Mr Berezovsky's rights under the Act are limited by ss.59-61. In doing so it would have been plain to Mr Berezovsky as advised by his Legal Team, that this was a different type of retainer to one in which he would have an absolute right to have the charges assessed by the court under s.70 of the Act if he wished to do so.
I consider that here would be no purpose in telling Mr Berezovsky that that was so, unless the document was just that, a CBA. The fact that, as a term of the agreement, there is a mechanism under which AG's fees are to be discounted unless "Benefit" and "Success" as defined are achieved, does not make the agreement a CFA, or expressed differently, not a CBA. Whilst I accept that it is not necessarily the case that just because a document says it is a CBA, that it must be a CBA and that regard must be had to "the substance" and not merely " the form" (see Specter paragraph 14), here I am in no doubt that the terms I have mentioned provide sufficient evidence of the former. It follows that I am satisfied that the retainer which Mr Berezovsky signed was a CBA and that in principle, the court has jurisdiction to enforce it under s.61 of the Act.
Whilst it is not part of their case that the entire retainer was defective and therefore unenforceable, the Administrators have advanced alternative challenges to its validity by reference to the manner in which the CBA was executed. They cast doubt on AG's explanation that the agreement was properly explained to Mr Berezovsky and that he took independent legal advice as to its terms in accordance with AG's recommendation to do so.
I prefer Mr Bacon's submissions on this point. As he explained, Mr Berezovsky was an experienced man of business and whilst the terms of the retainer may have been unusual and the fees significant, Mr Berezovsky had a team working for him including lawyers, whose brief included the task of providing advice about legal documents. In my judgment, the evidence of Mr Lindley is both significant and persuasive when he said this on day 14 of the Abramovich trial:-
"In 2008, November 2008, Mr Berezovsky asked me at – I think it was at his mother's birthday party – whether I would assist him in finding a firm of lawyers that would be prepared to take over the conduct of the Roman Abramovich litigation from Cadwaladers. So I spent some time looking into this and the result was the appointment of Addleshaw Goddard. I think that they were appointed in – I think it was December, early December 2008.
So with regard to their appointment, I negotiated their terms of business. Moving forward, we had discussions in terms of the personnel that were going to work on these cases. I also had some input in terms of the appointment of the senior barrister team, which resulted in the appointment of Laurence Rabinowitz and Richard Gillis. I have been involved – I would say this is one of my main roles in relation to this litigation, is to review billings, to stay on top of billings. I was responsible for negotiating a CFA which Mr Berezovsky entered into with Addleshaw Goddard. [emphasis added]
I perceive my main role in the litigation is to really focus on financial matters, focus on and use my knowledge of the business, the legal business, to deliver the legal services that have been provided at a cost which is competitive and gets the best deal for Mr Berezovsky."
That evidence could scarcely be clearer about the circumstances in which Mr Berezovsky came to enter into the retainer (as an aside, whilst Mr Lindley may have referred to the document as a CFA, I do not think this is of any significance for the reasons given –see paragraphs 69-70 above). It follows that even if I were to have any concern about Mr Berezovsky's signature merely having been put to a pro forma wording, that would be laid to rest by the involvement of the Client Team and the evidence given by Mr Lindley which I have recited above. That evidence has all the more force when it is remembered that it was provided in circumstances where the issue was not whether the documents had been properly explained to Mr Berezovsky, but rather, what role Mr Lindley had played and what responsibility lay with him as his legal adviser. In answering that question, Mr Lindley made it plain that he, as a solicitor, had been responsible for completing the terms of AG's retainer. Put another way, this was not a case where an inexperienced individual had signed a document which he had negotiated himself without the benefit of legal advice. Here it was the reverse: this was an experienced businessman who took advice before signing it. The submission casting doubt about the validity of the CBA arising from the circumstances of its execution, accordingly fails and for that reason, it is unnecessary to address Mr Bacon's case on estoppel by representation.
I reach the same conclusion about certainty of the terms of the agreement. Whilst Mr Atherton is right to rely on the decision in Chamberlain as a statement of principle, I am satisfied that the facts which concerned Lord Denning in Chamberlain and indeed Mann J in Specter are not present here. First, the agreement was made in writing, signed by the client and set out the hourly rates etc. In Chamberlain, there is no mention that Mr Chamberlain III had ever signed the letters relied on by his former solicitors as evidence of the CBA, nor that they had given him "… the least idea what he [was] letting himself in for by way of costs" [191 at c.], whilst in Specter there was no signed agreement relating to the specific piece of litigation being undertaken (see judgment paragraph 16a). Second, it is plain from Mr Lindley's evidence to Gloster J that he had been involved in discussions in terms of the personnel who were to be deployed on the case. In difficult and complex litigation such as the Main Action, the ability of AG to call upon specialist expertise when required, is not a term that is either uncertain or unreasonable in my view. Third, as Mr Bacon has emphasised, a clause which permits a solicitor to increase his hourly charging rate (for example in line with inflation) is ubiquitous in solicitors' engagement letters. Here the clause in question added the caveat that any changes would be discussed with Mr Berezovsky before implementation. Again, I see nothing uncertain or unreasonable about such a clause. The Administrators' case on uncertainty accordingly fails.
Next, the success fee. The short point here is that win or lose, AG were entitled to be paid and indeed have received, 50% of the fees they would ordinarily would have charged for the case. For that reason it is said that the entitlement to the balance of the "usual" fee for winning something, however small, was unreasonable, and an additional 100% of that fee for recovering either Trigger A Amount in the Main Action or Trigger B Amount in the Chancery Actions, was wholly unjustified. I disagree. To start with, as Mann J observed in the Main Action, "This was a very complex piece of litigation. The trial would have thrown up a myriad of points, both factual and legal. … There were freezing order applications, time summonses, search and seizure applications, disclosure disputes, privacy and redaction disputes, disputes about privilege and many other points, including disputes about what the dispute should be about …". Given these difficulties, many of which as it seems to me, were present here, the risks of AG going part-paid were high. Not only that, the sheer size of the litigation across all the actions would have tied up many of AG's fee earners for significant periods with the possibility that at the end of it all (as proved to be the case in the Abramovich action), the firm would have had to be satisfied with the Reduced Fee and nothing else. Next, it must be remembered that this was a business agreement between people whose work was business and the supply of business services, in which Mr Berezovsky did not have the financial luxury and ability of being able to meet his legal bills as and when they fell due. The commercial solution to that problem was to enter into a retainer which had elements of "give and take" on both sides. For Mr Berezovsky, the CBA gave him the ability to finance the litigation without all the fees having to be paid "up front". For AG, the firm took the risk that if the litigation failed, millions of pounds worth of work would have to be written off, but the quid pro quo for that was that if the actions succeeded, the firm would receive a bonus.
Both sides relied on Gloucestershire CC. I agree with Mr Atherton that "costs at risk" and the fact that win or lose, AG would recover the Reduced Fee, are relevant factors to take into account when considering the reasonableness of the success fee, but that is tempered by the fact that that was a case about costs between the parties. The position here is once removed, in the sense that, contrast Gloucestershire CC where it was the paying party saying that the success fee was too high, here we are addressing charges as between solicitor-and-own client under a contractual agreement which has provided for its level. It follows that in accepting Mr Bacon's submission, I am not doing so simply because agreements embodying such terms, in particular that the success fee can be 100%, have been permitted since 1999 under Section 58 Access to Justice Act 1998. On the contrary, in the circumstances as they have been explained to me, I do not consider that the success fee is either unreasonable or unfair, having been commercially negotiated by both sides in the way I have described, so the point fails.
Finally in this series of challenges, Mr Atherton submits that even if the court is persuaded to enforce the terms of the CFA, there should first be an enquiry into the number of hours worked in order to be certain that the hours charged are not excessive. In this respect, he draws a distinction between a CBA which provides for remuneration by way of a fixed sum and the case here, where the charges are worked out by reference to an hourly rate.
Mr Atherton is correct that AG have already been paid the Reduced Fee and part of the Level 1 Success Fee, in total £9,774,050.18 (including VAT) and that the further £12,663,822.95 claimed is a large sum. In other circumstances, his submission might prove irresistible, given the size of the fee and the number of hours worked (35,573.94 according to Mr Hastings [MRH1 7] paragraph 6.2). However, the position here has the following crucial distinctions. To start with, the invoice for the Reduced Fee was submitted to Mr Berezovsky in his lifetime. It was then scrutinised by his Client Team, as a result of which reductions were made and the bill was then paid. The evidence for the fact that the fees were negotiated is to be found (by way of illustration) in MRH3 at page 136 which refers to "a meeting last week" at which the AG's accounts and disbursements covering May, June and July 2011 were discussed. There is then in MRH3 at page 2, an email from Mr Cotlick to AG dated 22 October 2012 as follows:-
"Thank you very much for your email. It summarises correctly the matters discussed at our meeting on Thursday.
I am also grateful for the confirmation that you agree with the proposal in relation to the payment of the Level 1 Success Fee … Best regards. Michael"
I shall not set out the contents of the e mail to which Mr Cotlick was replying but it is clear that it was written following a meeting at partner level, being one of many such events, which he attended at AG's offices on 19 October 2012 for the specific purpose of discussing the firm's fees both incurred and going forward. Indeed, it appears that the suggestion that there should be an irrevocable authority was made by Mr Cotlick at that meeting and that the Irrevocable Agreement had been signed shortly thereafter. Mr Lindley also told Gloster J that one of his main roles had been to review billings (see paragraph 72 above).
In my judgment, those steps having been taken, the bill and by implication the hours worked, were thereby approved and, by the same token, so were the success fees. I say this because the Level 1 and Level 2 Success Fees are simply the contractual balance of charges which had already been approved by the client and paid. Not only that but Mr Cotlick's e mail dated 22 October 2012 gave express approval to the payment of invoice 307327 for the Level 1 Success Fee. To that can be added the irrevocable undertaking which Mr Berezovsky signed on 23 October 2012 which authorised AG to pay the invoices out of any money then held in, or in future to be paid into the firm's client account. The client having approved the charges, I do not think it can be validly advanced on behalf of the Administrators that this was not a case of "work done" to earn the success fee. For that reason the point fails.
That also deals with a further submission made by Mr Atherton by his reference to examples of charges that would be vulnerable to reduction upon any scrutiny being carried out by the court. Those he gave include the fact that the scope of the work under the retainer is said not to cover the conduct of any application for permission to appeal or any final or any interlocutory appeal. Nonetheless, charges were made (by way of illustration) for "drafting emails to House of Lords, drafting letter to Court of Appeal" and "discussions with Mr Kelleher in relation to appeal" which plainly fell outside the definition of the work for which AG was retained. That maybe so but the point fails for the reason I have given, namely that the bill including the charges for that type of work was scrutinised by the Client Team, negotiated down and reflected in the issue of the credit notes. It follows that that scrutiny having been carried out, no purpose would be served by involving the court in a repeat of that exercise in circumstances where Mr Berezovsky, in his lifetime, approved the charges and gave instructions to pay them via the Irrevocable Agreement when sufficient of the settlement funds were received to do so.
For all these reasons, I am satisfied that the retainer was a CBA, that its terms were not unreasonable or unfair to Mr Berezovsky and that no purpose would be served were the court to carry out an enquiry by detailed assessment into the hours worked on the case. It follows that, subject to what I have to say below about the s.73 charge, AG is entitled to an order for enforcement of the CBA for the sums claimed.
PART 10 - DECISION ON SECTION 73
The legal principles upon which AG relies to advance its claim for a charge over the funds held by the Administrators are these :-
"The lien of a solicitor is grounded on the principle that it is not just that the client should get the benefit of solicitor's labour without paying for it." (Cotton LJ at 491 in Guy v Churchill )
"It is right that they who get the benefit of the recovery of money should bear the expense of recovering it." (Lindley LJ at 492 in Guy v Churchill )
The rationale behind the principle goes back at least to Haymes v Cooper which was cited in Guy v Churchill. It is predicated on the basis that the solicitor has a right that no one else enjoys, namely to ask the court to interfere equitably in order to protect the rights of an unpaid solicitor by the grant of a charge over any property recovered or preserved through his instrumentality. It follows that in a simple case, where the solicitor takes proceedings to recover a debt for his client as a result of which a sum is paid to him and not to his client, a common law lien arises, and the solicitor has an entitlement to apply to the court for a s.73 charge over the fund until he is paid. The solicitor's right is one that is unique and which is recognised by the court and cannot be exercised by anyone who is not a solicitor.
As I have said, that is but a simple example. In practice there is unlikely to be any need for a charge in the circumstances I have described because the money in question can simply be transferred by the solicitor from his client account to his office account in order to settle the bill, as happened here with the Euro recovery. On 7 September 2012, a substantial amount in Euros had been received into AG's client account, thereby entitling the firm to exercise a common law lien and to apply for a charge if it wished to do so. Three days later, the money was transferred from client account to office account (Supplemental Note paragraph 12), so the need for a charge over the funds in question did not arise.
The position is likely to be different where the recovery is an asset rather than money. Suppose the fruits of the litigation include a property for which the solicitor holds the Land Certificate and exercises a common law lien. In that event, the solicitor will need a s.73 charge in order to sell the property and apply proceeds of sale to his bill (Barrett v Gough Thomas (1951) Ch 242 at 250). That will be the case too where the fund recovered through his exertions does not pass into the solicitor's client account, but is held by someone else. It is AG's case that that is why the firm needs the charge here in order to secure sufficient of the $Amount Y to cover the outstanding bills, which sum the firm had been due to receive but had agreed instead to it being paid to the Administrators in their then capacity as receivers following Mr Berezovsky's death.
Mr Atherton contends that without possession of the funds, there is no common law lien and in so far as AG may have held funds, any common law lien over them has been lost since the firm cannot have a right to retain property not in its possession (HFW letter 12 March 2015 at [3]). Moreover, such funds as were recovered went out of AG's account so the lien was lost. Accordingly, absent possession, there is not and has never been a lien in the true sense. If that be right, the best that AG can contend for is a particular lien over the fruits of the litigation, which, at most, amounts to an inchoate right to go to the court to apply for a charging order. Until that is done, the solicitor has no right over the fund and where, as here, the application to exercise the right was not made until October 2014, eighteen months after Mr Berezovsky's death, AG does not have any existing right in the settlement funds. Insofar as such a right is asserted now, it is subject Mr Berezovsky's insolvency and to the insolvency regime including s.284 and thus, if made, would immediately be avoided.
I do not accept these submissions. I consider that the line of authorities to which Mr Bacon took me are those in which the principles which bind this court are to be found and are to be preferred to those to which Mr Atherton drew my attention. I need to address each in turn in order to explain why I consider that the Administrators are mistaken in their case that no right in the funds recovered can arise in AG's favour unless or until a charge is granted.
The issue in a nutshell is whether the Settlement Agreement created an immediate right of security in AG's favour in a fund to be recovered as a result of its exertions, which in the court's discretion, can be enforced by the grant of a charge under s.73 (AG's case) or whether not having the fund in the firm's possession, means that no right in the $Amount Y held by the Administrators can arise in AG's favour until the grant of the charge itself and that since that will be a new right, the consequences of Mr Berezovsky's insolvency will apply (the Administrators' case).
I have already mentioned the starting point is Haymes in which it is to be observed that the Master of the Rolls drew no distinction between a common law lien and a particular lien. In that case, the fund to be charged was "a fund in Court". It was not and never had been, in the possession of the solicitor, Mr Field, whose exertions in the suit on behalf of a Mr Jenkins had resulted in the recovery of £91 paid into Court. Nonetheless, the Master of the Rolls was satisfied that Mr Field should have a first charge on the fund in priority to a Mr Cooper who had had notice of the lien. Mr Atherton says that because the case was one involving a payment into court, it is not analogous to the position here and anyway it has no insolvency context. That is true, but the value of the case is that even although at best the solicitor only had a particular lien, the court still granted the charge in priority to Mr Cooper's claim.
Would the outcome have been different had Mr Jenkins, like Mr Berezovsky, become insolvent ? I do not think it would. On this point, I was referred to two cases in which a charge was granted notwithstanding the insolvency of the client for whom the solicitor had acted in making the recovery. In neither case had the solicitor held the money in question. In Emden v Carte [1881] 19 ChD 311 (referred to in Meter Cabs), the solicitor (presumably innocently) had acted for an undischarged bankrupt without his trustee's knowledge and had secured a payment into court. On the solicitor's application for a charge, the Court held that the fund in question could be charged with the solicitor's costs up to the time of the trustee's intervention.
In Guy v Churchill, the Defendant on appeal was required to repay to the Plaintiff the sum of £298 and the Plaintiff's solicitor thus could not exercise a common law lien over the money. Nonetheless, the entitlement of the Official Receiver to those funds (the Plaintiff having gone bankrupt) was only to the surplus, the solicitor being granted a lien over both the costs taxed as between the parties and his costs taxed as between his firm and the Plaintiff. It follows that in both cases, the fact that this was not a common law lien because the solicitors did not hold the funds to be charged, did not prevent the court from granting a charge in favour of the solicitors over the funds recovered. Nor did the insolvencies defeat the applications for charges in either case.
Next in Re: Born, Farwell J also gave the solicitor a charge over a fund not in his possession but one that was in court, finding that all that he was being asked to do was "to give the statutory charge in aid of the already existing common law lien, which is prior to any right of the Official Receiver or liquidator".
Mr Atherton is critical of the decision in Born and suggests that it may have been wrongly decided (skeleton paragraph 55) because he contends that there can only be a particular lien unless the solicitor holds the property to be charged. Whilst he accepts that if the lien in that case was a common law lien (in doubt, he says, because the solicitor was not in possession of the funds, the court was), he says the grant of the charge would not have created any new rights in property. It follows that Re: Born can have no application here because AG has only (insofar as the firm has anything at all) a particular lien and an inchoate right to apply to the court for a charge.
In my judgment, it makes no difference whether Farwell J was right or wrong in so far as he considered in Re Born that the lien was a common law lien even though the money was in court. The facts in that case were that the solicitor had acted successfully for a limited company in proceedings in which money had been recovered and paid into court. The company had then closed its office and ceased to trade. Three years later, a winding up order had been made on the application of a creditor. The issue which then arose was whether the solicitor should be given a charge over the funds in court in priority to the other creditors of the company and to the costs and expenses of the petitioning creditor and Official Receiver. Farwell J was asked to decide two points : first whether the solicitor had delayed too long. He had not. Second, whether the lien existed prior to the winding up and was therefore unaffected thereby. It had and the solicitor was entitled to his charge in priority. In reaching his decision, Farwell J was referred to Haymes which, as I have said, was also a case concerning funds in court, with the Court of Appeal drawing no distinction between the two types of lien, but nonetheless granting the application for a charge. In my judgment, in having been so referred, Farwell J was doing no more than applying the law in Haymes and the fact that he may inadvertently have referred to a common law lien instead of a particular lien, is neither here nor there. The key point is that Haymes drew no distinction between the two in having granted the charge, holding that only a bona fide purchaser for value could have defeated the entitlement of the solicitor to a first charge over the fund in court.
In Mr Bacon's line of authorities, in Meter Cabs, the distinction is that the property recovered (namely £29) was in the hands of the solicitor and accordingly, a common law lien did arise. Having been referred in argument to Emden v Carte and (via Re: Born) to Haymes, Swiffen Eady J said this:
"It is clear that at common law a solicitor is entitled to a particular lien, which is capable of being actively enforced, on a fund or on the fruits of a judgment recovered by his exertions for the costs of recovery, or those immediately incidental thereto …"
At 562, the Judge, having accepted that the £29 had been recovered through the exertions of the solicitor, made the following observation:-
"It is true that in Re: Born the money was in court, while here it is in the solicitor's hands. That is perfectly immaterial. His right of lien extends to the costs of establishing the claim in the arbitration."
I infer from that that the court was not concerned about whether the solicitor had a common law lien because he held property, rather than a particular lien if he did not. As Swiffen Eady J said, it was "immaterial" to the entitlement of the solicitor to a charge over the fund recovered through his exertions. It follows that at least until Meter Cabs was decided in 1911, the court in granting a charge to protect a solicitor's entitlement to a fund being the fruits of his labour, did not appear to draw any distinction between common law liens and particular liens, notwithstanding the misnomer about nomenclature highlighted by Christopher Nugee QC in Clifford Harris.
Next is Re: Fuld [1968] Probate Division 727, in which Scarman J reinforced the point about nomenclature at page 35 at F-G that "the term "lien" is a misnomer", but on my reading of the judgment, he was not troubled by the distinction now urged on me by Mr Atherton. Scarman J's concern was about whether the solicitor should be entitled to his charge where allegations of negligence had been raised by the client. But for that it appears that he would have granted the charge but instead he protected the solicitor's position by directing that there should be no payment out of the fund without notice first being given to the solicitor. It follows that in doing so, the court was giving recognition to the lien, albeit not going so far as granting a charge owing to the allegation of negligence. At 736 at C he also said this:-
"By their application, therefore, the solicitors are claiming, at this stage, the equitable interference of the court. If they are to obtain the assistance of the court, they must first show that there is a fund in sight …"
The reference to "a fund in sight" stems from the judgment of Lord Hanworth in Mason v Mason at 214 that the lien in favour of the solicitor "…is one that prevails over a fund which is in sight..".
Next there is Muckle. Mr Atherton invites me to be cautious about Muckle since the issue before the Deputy Judge was merely whether permission to commence an application under s.73 of the Act against administrators should be granted. It was not a final determination about whether a charging order should be granted. That may be so, but Muckle is the only modern authority that draws together the issues which have been argued before me and in which the court was referred to authorities upon which Mr Atherton relies such as Bibby and Re Fuld. Moreover some of its facts are on all fours with those here.
In Muckle, the solicitor had acted for Thomas Muckle & Sons Ltd in proceedings in which judgment was obtained against a liquidator resulting in the recovery of a dividend of £73,000 odd. However, Muckle itself then went into administration and the dividend was paid to the administrators, against whom the solicitors applied for leave to bring the proceedings under s.73 for a declaration that the firm was entitled to a charge on the dividend. Points taken against the solicitors were that the firm could only exercise its lien and take proceedings under s.73 in respect of funds which the client had received prior to the insolvency. Dealing with that submission, at 14, HHJ Langan QC sitting as a Deputy Judge of the High Court said this:-
"Most [authorities] are examples of solicitors, after the insolvency of a client, successfully enforcing a lien against funds which had been received prior to the commencement of the relevant bankruptcy or liquidation. It is, of course, the common situation: prior to the insolvency, a solicitor will often have had no reason to suppose that he was at risk of being unpaid and hence no reason to go against damages or other funds which had come into the hands of the client. But I have searched the cases in vain for any statement of principle to the effect that the solicitors' lien is restricted to funds received before insolvency. Further, one of the cases cited by Mr Marks is an example of the lien being allowed in respect of a post-insolvency receipt.
15. The case to which I refer is Re: Meter Cabs …"
HHJ Langan QC also dealt with the submission that when Muckle went into administration, the solicitor had nothing in the nature of an accrued right which could be asserted against the company, but merely an inchoate and, as yet, unexercised right to apply to the court under s.73 (see again Bibby). That submission was dealt with at 17, when HHJ Langan QC said this:-
"There is, in my judgment, a fatal defect in this approach. It ignores the nature of Section 73 itself, which does no more than provide a procedure for enforcing a right which a solicitor already has a common law (see: Re: Born). Assuming in favour of Mr Marks that the commencement of the administration is indeed the cut-off point, one should ask whether Hammonds' lien was in existence at that date. That depends on whether there was some property, be it a fund of money or a chose in action, to which the lien could attach. The effect of the judgment handed down by Lloyd J on 12 March 2004 was that the company's proof of debt against AA was, as a matter of principle although not of quantification, vindicated. That seems to me to be as close an analogy as one can find to a judgment for unliquidated damages which have yet to be assessed. Such a judgment is, on authority, (The Paris (1896) P97, cited in Fairfield Properties: at 204B), property which is susceptible of being the object of a solicitor's lien. Alternatively, if one adopts the test formulated by Scarman J in Re: Fuld … and asks whether there was a "fund in sight" by the commencement of the administration, the answer must be in the affirmative as a consequence of the decision of Lloyd J. Either way, if the making of an order under Section 73 were to advance the status of Hammonds from that of unsecured to secure creditors, this would not fall foul of the decision in London Flight Centre (Stansted) Ltd v Osprey Aviation Ltd [2002] BPIR 1115. The lien here came into existence before the administration and, as Hart J expressly stated, nothing in the Insolvency Act 1986 "prevents a creditor unsecured at the date of administration order from subsequently becoming secured"."
I find Muckle is helpful here. In that case, the fact that Muckle became insolvent and the dividend was paid to the administrators, was not fatal. On the contrary, the solicitor's lien existed prior to the insolvency and could be exercised over the fund subsequently recovered. That is analogous to the position here. Whilst it is right that at the date of Mr Berezovsky's death, funds had still to be recovered in the sense of cash to be paid over, that is not determinative in my view. What matters is that from the date of the settlement, AG had a chose in action to which its lien could attach and a fund was in sight over which it could be exercised. Whilst I recognise that the decision in Muckle was given on an application for leave, in his judgment, HHJ Langan QC carried out a thorough review of the authorities which are relevant, including those relied on by Mr Atherton. Had he instead been dealing with the point other than on an application for leave, it is difficult to see how his judgment would have differed. I consider that that factor should be given more weight than the very limited persuasive value that Mr Atherton suggests that I should give to Muckle.
In the result, I accept Mr Bacon's submission that there is a safe line of authority stemming from Haymes that it is not the grant of a charge by the court that creates the right in the fund recovered. On the contrary, the authorities indicate that even if a solicitor does not have a common law lien but only a particular lien, there exists a chose in action over the property recovered or to be recovered if it is "a fund in sight" to which that lien can attach, and the right arises at that moment and not when the fruits of the litigation are received. By this means, as it seems to me, the solicitor enjoys priority ahead of the claims of the general body of creditors, which is exactly the intention of s.73 and its predecessor sections in the Solicitors Acts in force before the 1974 Act.
Mr Atherton submits that this is not and cannot be the purpose of s.73 (skeleton 47b), but in my judgment, it would be odd if it were otherwise and if anything, the opposite is true. As I have said, where the solicitor holds the recovered property in money, he is unlikely to have any use for a s.73 charge since it is open to him simply to transfer from his client account to his office account, sufficient of the recovered fund to meet his outstanding charges (see paragraph 84 above). It follows that the need for a charge is more likely to arise where property is preserved and the solicitor requires an order for sale (for example where he holds the Title Deeds) or, where, as here, a proportion of the fund recovered has never passed through the solicitor's client account but is held by someone else, such as the client, or as here, Administrators/Trustees. Where that is the case, the protection Mr Atherton urges on me as being an adequate safeguard for the solicitor, namely the agreement of the Administrators not to part with the fund without giving 28 days notice, would not meet the point. Whilst it might be a comfort against distribution, it would not make the solicitor a secured creditor. On the contrary, he would rank with the general body of creditors who would thereby benefit by enjoying the fruits of the solicitor's labours without having paid the proper price for them. That appears to be alien to the very purpose of s.73 and the intention of the courts that the claim of a solicitor to a fund which only exists through his endeavours, should not be enjoyed by a third party who has paid nothing for the solicitor's exertions in recovering it. On the contrary, Parliament has decided that it is the solicitor who is to have the first payout from the fund in question (where no bona fide purchaser for value without notice is involved). Were the case advanced by Mr Atherton to be correct, on the facts here, that simply would not happen.
In my opinion, the point is illustrated perfectly having regard to the circumstances which have arisen in this case. When AG recovered the Euros, it had a common law lien (agreed by the Administrators- see HFW letter 12 March 2012 at 3) but did not need a s.73 charge because the cash the firm held could simply be transferred from the client account into the office account. However, when the $Amount Y was recovered and paid to the Administrators, only a particular lien arose, so the firm did (and still does) need a charge, lest otherwise it will not rank in priority for its unpaid bills over other creditors, who will thereby have benefited at the firm's expense by obtaining a significant recovery at no cost. Giving effect to the authorities relied on by Mr Bacon only makes sense if the right arises when the bargain is struck and not when the recovery is made. Were it to be otherwise, s.73 would be of no use to the solicitor since even with his charge, on an insolvency, he would rank alongside the ordinary body of creditors and the operation of s. 284 would render the charge void. That is what the line of cases stemming from Haymes is directed at preventing in my view.
I see no reason why the fact that payment of the $Amount Y post-dated Mr Berezovsky's death should make any difference. Mr Atherton contends that as regards timing, no lien can attach to the £Amount X because that fund has been paid away. Accordingly, the only lien that can arise is over the $Amount Y which was not received until March 2014 and so is tainted by insolvency considerations. That is correct about the £Amount X. It has long gone, but the same is not true about the $Amount Y. In my judgment, that was a "fund in sight" since it formed part of the AP settlement and was an element of the same recovery as that of the Euros and the £Amount X, both of which had been achieved through AG's instrumentality. For that reason, it is a fund to which, in principle, AG's right to payment can attach.
In Clifford Harris, Christopher Nugee QC elaborated on what is meant by a "fund in sight". At 21(iv), he said this :-
It is not disputed that the settlement monies are "property recovered or preserved through [the] instrumentality" of CH. Nor is it disputed that CH were entitled to bring these proceedings in July 2004 even though the settlement monies had (it would appear-the actual date is not in evidence) not been paid over. The jurisdiction can be exercised as soon as there is a "fund in sight" (Re Fuld…) and this was undoubtedly the case by July 2004".
It can be seen, therefore, that even though the settlement monies had yet to be paid (in that case to new solicitors so a common law lien would not have arisen –see judgment paragraph 16), the s.73 jurisdiction could be exercised because in July 2004 there was a "fund in sight" (following Re Fuld) , even though the settlement monies were not paid until 4 October 2004 (see judgment paragraph 16). Nonetheless, had it not been for a waiver argument, the Judge "….would have had no hesitation in exercising the discretion in favour of granting them [the solicitor] a charging order" [judgment paragraph 23]. It follows, in my judgment, that Clifford Harris also supports the proposition that the right of the solicitor over the security to be charged arises when there is a "fund in sight" rather than when the fruits of the solicitor's labour are paid, the Judge in that case indicating that he would have had no qualms about granting the charge, even though Clifford Harris had only a particular lien and not a common law lien.
However, Mr Atherton submits that whether or not there was a "fund in sight" is an irrelevance here because under the terms of the CBA, AG waived or varied the moment of crystallisation until the money due had been paid. I disagree. According to the definition of Level 2 Success, the Benefit (as defined) is obtained when the settlement is achieved. The recovery of money is merely the consequence of that settlement. There is nothing to suggest (and the October Letter does not say so), that because the date(s) of payment post-dates the date of the agreement, the effect of that is that the right to a lien will not arise until the money is received. For that reason I consider there being "a fund in sight" is not only relevant, but also a crucial factor in this case.
As I have said, Mr Atherton also cited his own line of authorities in support of his arguments on pre-existing rights, (namely that there were none) which I must also deal with. He relies upon the decisions in Bibby, Mason v Mason and Halvanon and at paragraph 56 of his skeleton argument he says this:
"Even if the above submissions are not accepted and it is held that Lord Goddard CJ, Hobhouse J and the Court of Appeal in Mason v Mason were wrong, so that a particular lien over a judgment or settlement does create immediate security right in property, even though not in the possession of the solicitor, AG's application for a Section 73 charge, it is submitted, nevertheless ought to be dismissed for the vast majority of its fees claimed."
I am certainly not saying, (it would be an impertinence to do so and against binding authority), that the decisions of those eminent judges were wrong. On the contrary, I am sure that they were correct in so far as they related to the facts and issues with which they were concerned. However, as Mr Bacon points out, they are not on point here.
Mason v Mason concerned a matrimonial dispute and the ability of the solicitor to go to directly against the husband for payment of the shortfall in costs between solicitor and client. The facts in that case were that the husband's divorce petition had been dismissed with costs. Those he paid into court. An intervener then obtained an award of costs against the wife. The husband took an assignment of those costs. An order was then made for payment of the wife's costs to the wife's solicitors. The husband set the intervener's costs off against what he owed the wife in costs and paid her the balance. Her solicitors then obtained a garnishee order nisi against the husband's bank account on the basis that the firm was a judgment creditor for the amount of the set-off.
Lord Hanworth MR with whom Lawrence and Romer LJJ agreed, found that that was incorrect. The wife was not a secured creditor and her solicitors could have no larger right than hers. Since the husband was entitled to rely on the assignment of the third party's debt as a set-off against what he owed the wife, she was not to be treated as having a fund secured to her for payment of any additional amount. For that reason, there was no additional sum over which there could be a lien in favour of her solicitors and no order could be made for payment of any costs to her solicitors in the first instance. As Lord Hanworth MR expressed the position at [214] (which bears repeating) –"The nature of a solicitor's lien is pointed out in the course of that case [Mercer v Graves]….That lien is one which prevails over a fund which is in sight ; the right is one which, so to speak, cannot prevail at large. That being so, there does not appear to be any order which gives a right to the wife's solicitors to come to Court and ask for the garnishee order. The order of 10 March gives them the right to receive the amount of her costs in right of the wife, but they are really the conduit pipe to receive the money and no more".
Agreeing, Romer LJ added this at 217:-
"In my opinion, therefore, the wife's solicitors in this case were not persons who had, within the meaning of Order 65 Rule 1 obtained any judgment or order for the recovery or payment of money: it was the wife and the wife only who had obtained such a judgement or order."
In my judgment, the facts in Mason v Mason are far removed from those here. The issue there was whether there was a fund or, indeed, a fund "in sight" over which a solicitor's charge could attach. There was neither, in contrast to the position here, where it is not in dispute that a fund has been recovered through the exertions of AG and the issue is simply what entitlement (if at all) the firm has to it. With respect to Mr Atherton's careful submissions, Mason v Mason is not on point here.
The reference to Mercer v Graves is to a case about set-off and not s.73 in my view. A judgment had been obtained in Ireland against the plaintiff to which a set-off had been pleaded on the basis that his attorney had conducted an action to judgment and had an equitable interest in the proceeds for costs he was owed for his work. That set-off failed because no authority had been cited to show that the so called lien of the solicitor was equivalent to an assignment or charge on the judgment. Nor had any property been recovered or preserved. It follows that I consider the value of Mercer v Graves is limited since it was not a case about liens in the context of the arguments which arise here.
I derive limited assistance from Bibby also. In that case the property recovered or preserved was £90 paid to a judgment debtor. That being so, only a particular lien could arise but it had been the client rather than his solicitor who sought the charge over the fund on the basis that the solicitor was owed a debt. The client's attempt failed before Birkett J and in the Court of Appeal. However, the reason for that was not for want of a lien, but because the application was too late and had never formally been made by the solicitor, only by the client. Had it been pursued by the solicitor before a garnishee nisi had been made absolute, it appears that the outcome would have been otherwise. At 453 Lord Goddard CJ said this - "I will assume that, if the solicitor had in the present case applied to the appropriate court….for a charging order, he would have got one." It follows that the failure to obtain the charge in Bibby had nothing to do with whether or not there was a common law or particular lien and when it had arisen: had the solicitor made the application, he would have "got" the charge even though he had only the latter. It follows that in so far as Bibby is of assistance, if anything it supports AG's case rather than the Administrators.
As to Halvanon, I do not consider the facts bear a helpful relationship to those which arise here. In that case, the fund over which the lien was asserted had been paid into an account pursuant to court order in the joint names of the parties' solicitors. It was in issue whether or not the sums in the account were "property recovered or preserved" (1126 at D9) and the matter for decision by Hobhouse J was whether the solicitor asserting the lien could be removed from the account and replaced by a different solicitor. Hobhouse J's answer with regard to the application for the charge, was to hold that the solicitor's interest would be adequately protected by imposing a prohibition on any payment-out without the solicitors first giving their consent, save on an application to the court on notice to the solicitors for that purpose.
Whilst it is right as Mr Atherton stresses, that none of the authorities starting with Haymes were cited in Halvanon, in my opinion, that is not significant, persuasive, decisive or indeed surprising. In the first place, the facts are far removed from those here where there is no question of AG giving up being signatories to an account to which they are joint custodians. Second, whether or not property had been recovered or preserved was a matter for argument. That is not the case here where it is agreed that it has. Third, Hobhouse J considered (1131 at H) the authorities relied on by Mr Bacon including Emden v Clarke (cited in Meter Cabs) in which property had been recovered or preserved. That decision in Hobhouse J's opinion was "… clearly distinguishable from the situation which exists in the present case where the plaintiffs have yet to establish any right to any of the money which is in court" (1132 at C). It follows that I do not consider that Halvanon is on all fours with the facts here and even if I am wrong, it is plainly distinguishable for the reasons I have given.
For these reasons, I agree with Mr Bacon that the Haymes line of authorities provide a secure route which permit me to reach the conclusion that I have, namely that upon the settlement being reached, AG acquired a chose in action which crystallised upon the agreement and not upon the payment of the money. In doing so, the lien that thereby arose attached to a fund which, although not in AG's possession, was "in sight", so the firm's right to it arose before Mr Berezovsky's death and subsequent insolvency. Thus the difficulties which otherwise would have arisen on his bankruptcy are not relevant or applicable here. That being so, I consider that AG is entitled to a charge under s.73 over the fund pending payment.
Should the amount of that charge be the sum which I consider that Mr Berezovsky approved in his lifetime, or is it necessary for there first to be an assessment, as the Administrators have contended – see paragraph 65 of Mr Atherton's skeleton argument? He argues that s.73(1)(a) refers to a declaration that a solicitor is entitled to a charge for his "assessed" costs. Accordingly, it is part of the scheme under the Act that a charge can only be enforced once the court has scrutinised and assessed the costs in question.
In my judgment, that submission is in conflict with Fairfold Properties in which Ferris J decided that the court was not bound to make an order for assessment [204 at F]. His decision was followed by Jacob J in Harrods Ltd v Harrods (Buenos Aires) Ltd [2014] 6 Costs LR 975 at 22 in which he said this:-
"Going back to s.73 the language is peculiar. What the court may declare is a charge on any property recovered et cetera, "for his taxed costs". Does that mean there must be a taxation? The court plainly has an overall discretion as to whether a charging order should be made. The provision says "may at anytime (a) make the declaration: and (b) make orders for a taxation".
A number of cases show that it would be ridiculous to have a taxation and yet very sensible to have the charge. Ferris J held that "may" applies separately to (a) or (b) in Fairfold Properties…. I do not think that quite solves the problem of the language. The problem is that the court may declare the charge "for the taxed costs". Can it declare a charge for costs which are not taxed?
Mr Briggs submits that really, to make sense of this section, "taxed costs" means costs which would be granted on taxation – the proper costs. Sometimes one is driven to construe a provision in such a way that one goes beyond the literal meaning of the words used to a meaning that it is obviously intended to convey. I think this is one of these sections. I think, therefore, as did Ferris J, that there is a discretion whether or not to order a taxation. I proceed on that basis".
Given that both Ferris J and Jacob J found that an assessment was not mandatory to the grant of a charge, I decline to exercise my discretion in favour of the Administrators on this point. As I have said above (paragraphs 80 – 81), I do not consider that any purpose would be served in having an assessment. In short, I would hold that following Fairfold and Harrod's, s.73 does not demand that there be an assessment before the charge can be granted, so the point fails.
That leaves the question of a stay. The outcome of the application is that upon the grant of a charge, AG will rank as a secured creditor whose right arose before Mr Berezovsky's insolvency and accordingly is unaffected by it. Accordingly, the charge will not be avoided and no validation order will be required and it follows that I see no reason why the money should not be paid out now. The fees were hard earned on AG's part and without the firm's exertions, the creditors could usefully reflect that there would have been no fund over which they can now lay claim. Given too, that but for his death, the money would long since have been paid to AG, I consider it is only just that the firm's bills should be cleared without further delay. The application for a stay is refused.
PART 11 - NEXT STEPS
Since the application for the charge has succeeded, I consider that AG should be entitled to its costs. I have seen both sides' schedules. The sums in question are large. They are scarcely susceptible to summary assessment and in any case, the hearing lasted two days so a detailed assessment would be more appropriate. It follows that I propose that there should merely be a payment on account at this stage, in a sum to be agreed if possible, failing that, I shall decide the figure on paper. If the Administrators wish to apply for permission to appeal, I propose also to deal with that on the basis of a written submission which should be very brief. The parties need not attend when this judgment is handed down.
PART 12 - FORMAL ORDER
The application succeeds. AG is granted a charge under s.73 over the fund held to the order of the Administrators pending payment of the firm's outstanding bills.
POSTSCRIPT. This is the Official Judgment handed down for publication which contains various amended figures in order to preserve confidentiality about the terms of the Settlement Agreement. An unamended version was handed down in Private. I would like to express my gratitude to counsel and those who instruct them for their way in which they have presented these applications on behalf of those they represent. |
Master Leonard:
This is the assessment, on the standard basis, of the costs of the Claimant as payable by the Defendant under an order of 25 July 2014. The claim was for clinical negligence. The Claimant seeks to recover the cost of an ATE insurance policy in accordance with Section 58C of the Courts and Legal Services Act 1990 (as amended from 1 April 2013) and Regulation 3 of the Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (No 2) Regulations 2013 ("the 2013 Regulations").
Section 58C reads, insofar as material, as follows:
Recovery of insurance premiums by way of costs
(1) A costs order made in favour of a party to proceedings who has taken out a costs insurance policy may not include provision requiring the payment of an amount in respect of all or part of the premium of the policy, unless such provision is permitted by regulations under subsection (2).
(2) The Lord Chancellor may by regulations provide that a costs order may include provision requiring the payment of such an amount where—
(a) the order is made in favour of a party to clinical negligence proceedings of a prescribed description,
(b) the party has taken out a costs insurance policy insuring against the risk of incurring a liability to pay for one or more expert reports in respect of clinical negligence in connection with the proceedings (or against that risk and other risks),
(c) the policy is of a prescribed description,
(d) the policy states how much of the premium relates to the liability to pay for an expert report or reports in respect of clinical negligence ("the relevant part of the premium"), and
(e) the amount is to be paid in respect of the relevant part of the premium...
(5) In this section—
"clinical negligence" means breach of a duty of care or trespass to the person committed in the course of the provision of clinical or medical services (including dental or nursing services); "clinical negligence proceedings" means proceedings which include a claim for damages in respect of clinical negligence; "costs insurance policy", in relation to a party to proceedings, means a policy insuring against the risk of the party incurring a liability in those proceedings; "expert report" means a report by a person qualified to give expert advice on all or most of the matters that are the subject of the report; "proceedings" includes any sort of proceedings for resolving disputes (and not just proceedings in court), whether commenced or contemplated.
Regulation 3 of the 2013 Regulations says:
Costs order may require payment of an amount of the relevant part of the premium
(1) A costs order made in favour of a party to clinical negligence proceedings who has taken out a costs insurance policy may include provision requiring the payment of an amount in respect of all or part of the premium of that policy if—
(a) the financial value of the claim for damages in respect of clinical negligence is more than £1,000; and
(b) the costs insurance policy insures against the risk of incurring a liability to pay for an expert report or reports relating to liability or causation in respect of clinical negligence (or against that risk and other risks).
(2) The amount of the premium that may be required to be paid under the costs order shall not exceed that part of the premium which relates to the risk of incurring liability to pay for an expert report or reports relating to liability or causation in respect of clinical negligence in connection with the proceedings.
The Policy
The ATE policy is a Temple Litigation Advantage policy dated 8 November 2013. The certificate of insurance describes the premium in this way:
Premium Insurance Premium Tax (IPT) Limit of indemnity (in addition to the premium)
a £5,680.00 £340.80 £10,000.00
b 3.00% of Damages Inclusive £100,000.00
Underneath this, the certificate states "please note the above premium amounts and/or representative values are cumulative" and "a full description of the premium stages is contained in the definition of premium".
The policy terms, under the heading "The risks that you are insured against", describe the premium and includes these definitions:
"Premium (a)
(1) Against the risk of incurring a liability to pay for one or more expert reports (for liability or causation) in respect of Clinical Negligence in connection with the proceedings whether commenced or contemplated if the Insured becomes liable to pay Opponent's Costs by Order of the Court or because the Legal Action has been abandoned, discontinued or settled with the prior approval of Temple, which should not be unreasonably withheld.
Premium (b)
(1) For Opponent's Costs in the Legal Action in the event that the Insured becomes liable to pay such costs either by Order of the Court or because the Legal Action has been abandoned, discontinued or settled, subject to the prior approval of Temple, which shall not be unreasonably withheld; and
(2) For the Insured's other disbursements in the Legal Action if the Insured becomes liable to pay Opponent's Costs by Order of the Court or because the Legal Action has been abandoned, discontinued or settled with the prior approval of Temple, which shall not be unreasonably withheld.
The meaning of words used in this Insurance
Where the following words appear in this Certificate they shall mean…
Disbursements
Fees and expenses, including the Premium, that have been reasonably incurred on behalf of the Insured ..."
Definition of Premiums
The amount specified in the Schedule which is payable by the Insured at the determination of the Legal Action.
The amount specified in (a) shall be payable upon determination of the Legal Action and following recovery of costs from the Opponent and to be paid within 28 days of receipt of the Premium by the Appointed Legal Representative; the amount specified in (b) shall be payable upon determination of the Legal Action from the damages received by the Insured or the Appointed Legal Representative on their behalf and paid within 28 days of receipt of damages.
If, in any process of assessment, the Opponent is successful in any challenge to the cost of the Premium (a) then it is agreed that the Premium which was payable at the conclusion of the Legal Action shall be reduced to the amount which was approved and allowed on assessment. Any such challenge must be immediately notified by the Insured to the Insurer. It is agreed by the Insured that the Insurer shall have the right to make any representations to the Court or the Opponent as may be necessary in this matter…"
The First Issue: Recoverability
Under section 58C(2) (d) and (e), an ATE premium taken out for clinical negligence proceedings must state how much of the premium relates to the liability to pay for an expert report or reports in respect of clinical negligence. If it does, that part will be recoverable under an order for costs.
Mr Marven for the Defendant argues that in fact two separate premiums are payable under the policy, as the use of the word "premiums" in the definitions quoted above demonstrates. Premium (a), which the Claimant seeks to recover as part of her costs, does not meet section 58C(2) (d) and (e), and so is not recoverable. That is because it is self – insured: so much is evident from the fact that the limit of indemnity specified against both premiums (a) and (b) is stated to include the premium itself. It follows that the figure of £5,680.00 payable for premium (a) represents the cost not just of insuring against liability for experts' reports but also of insuring the cost of insuring premium (a).
Mr Marven argues that if, for example, the insured did not want the cover provided under (b) of the certificate, so that the limit of indemnity under (b) was zero, it would be nonsense to suppose that the Premium payable under paragraph (a) was not self-insured. Insofar as the standard wording of the policy document seems to suggest that the premium or premiums payable are all insured under paragraph (b) rather than paragraph (a) it must give way to the more specific, more pertinent wording of the certificate of insurance itself.
Mr Laughland for the Claimant argues first that the policy, when properly read, does comply with the statute. A single premium is payable under this policy and described, as the statute requires, in two parts. Part (b) expressly provides cover for all disbursements including the whole of the premium itself. The use of the word "Premiums" in a heading in the policy terms is, in the right context, of no significance: this is one premium divided into two components, one of which is recoverable and the other not.
Mr Laughland also argues that the Defendant is seeking to introduce a sanction (irrecoverability of the premium) for alleged partial or complete non-compliance with the statute or statutory instrument when that is not evident from its wording. There has been no procedural irregularity justifying disallowance of the premium as a matter of principle. He contrasts section 58 of the Courts and Legal Services Act 1990, which expressly provides for non-compliant CFAs to be unenforceable.
Conclusion on Recoverability
Though I am not sure that I entirely agree with Mr Laughland's distinction between compliance with one set of statutory requirements and another, I do accept that it would be inappropriate to regard the Claimant's policy as non-compliant with section 58C and the 2013 Regulations simply because there may be some ambiguity or imprecision in its wording. In my view the question is whether, on a proper reading by reference to established contractual principles of interpretation, the policy does or does not comply with the statutory requirements.
In the course of submissions I referred to Investors Compensation Scheme Ltd v West Bromwich BS [1997] UKHL 28 and established principles of contractual construction. Among those principles are that a contract is to be read as a whole. That would be the case even if the policy terms accompanying the certificate of insurance did not incorporate the words "this certificate", indicating that there is no distinction to be drawn between the certificate and the terms.
Taking that approach, it seems to me to be clear both that this policy is expressly designed to comply with Section 58C and the 2013 Regulations (as Mr Marven conceded, the wording of the policy tracks the statutory wording) and that it does comply.
The heading "Limit of Indemnity (in addition to the premium)" above both premiums (a) and (b) is, if read in isolation, potentially misleading in that it seems to indicate that premium (a) is self-insured. However for the reasons I have given it is wrong in principle to single out any part of the contract and read it in isolation. The wording relied on by the Defendant is no more than a heading. In contrast the detailed terms of the policy, explaining the insured risks, are clear (and I do not accept that it is right to treat the certificate of insurance as more important for the purposes of interpretation).
Premium (a) insures against the risk of liability to pay for expert reports in respect of clinical negligence, and nothing else. Premium (b) insures opponent's costs and the insured's other disbursements, expressly defined to include "the premium". As to what "the premium" is, the only definition is that quoted above under the heading "Definition of Premiums" and expressly incorporates the full amount payable by the insured; premiums (a) and (b) are distinguished only by reference to the timing of payment and the particular provisions limiting premium (a) to the amount assessed.
The words "Definition of "Premiums" are cited in support of the argument that the policy incorporates two stand-alone, self-insured premiums. I agree with Mr Laughland that it is artificial to single out that wording so as to read the policy as providing for two separate premiums. A better reading is that one premium is payable under this policy and it is, in accordance with the statutory requirements, divided into two parts to show which part of it is payable in relation to expert reports and is, in consequence, recoverable.
However I do not think that much really turns on whether one describes the policy as incorporating one premium in two parts or two premiums. It is compliant with the statutory provisions either way, because it provides the information that the statutory provisions require.
The argument that the policy incorporates two stand-alone, self-insured premiums supports Mr Marven's submission that one can strip out premium (b) and then see that premium (a), left in isolation, is self-insured. However I would not be able to accept his argument even on the basis that the policy provides for two premiums rather than (as I have concluded) two parts of one premium. I say that because, for the reasons I have given, premium (a) is not, on any proper construction of the policy, to be regarded in isolation. Premiums (a) and (b) work together as two parts of one whole policy. It would be artificial and wrong to interpret the policy by reference to what it might mean if its terms were different. That would be the case even if this were a bespoke policy rather than (as it is) a block-rated standard policy, not open to individual negotiation.
In summary, whilst it is possible to interpret the policy, by reference to some loose wording, as non-compliant with the statute, that would in my view (with respect) be an incorrect and distorted reading defeating its purpose. The policy is compliant with section 58C and the 2013 regulations. Premium (a) is, in consequence, recoverable.
The Amount of the Premium
The reasonableness and proportionality of the Premium is in dispute. In order to consider the parties' submissions, it is necessary to review the history of the underlying action.
The Claimant instructed her solicitors, Bolt Burdon Kemp, in April 2013. The Claimant's case was that the Defendant had failed adequately to address the results of blood tests taken during her pregnancy and during labour, resulting in a traumatic birth, serious health risks to the Claimant and her baby and the development by the Claimant of obsessive compulsive disorder (OCD). The level of OCD was severe, rendering the Claimant (for example) unable to entrust the care of her daughter to others and so return to work.
A letter of claim was sent on 18 November 2013. On 23 December 2013 Dr Lesley Haines, consultant psychiatrist, reported that the Claimant's OCD had been triggered by her experiences during the birth of her daughter and the immediate aftermath. Dr Haines recommended treatment by way of Cognitive Behavioural Therapy (CBT), Exposure and Response Prevention (ERP) and medication, advising that the Claimant was likely to require at least two courses of individual psychological treatment combining CBT and ERP over a period of 27 weeks.
Doctor Haines' report and the Claimant's medical records were disclosed to the Defendant in January 2014, accompanied by a Part 36 offer in the sum of £55,000. There appears to have been further disclosure by the Claimant and time for acceptance of the Part 36 offer was extended, by agreement, to 19 March 2014, the date that the Defendant's Letter of Response was due under the pre-action protocol, so enabling the Defendant to complete liability investigations.
The Defendant requested disclosure of the Claimant's medical and counselling records and instructed DAC Beachcroft, solicitors. The Claimant attended an examination appointment with the Defendant's instructed expert on 3 April 2014.
Time for the letter of response was subsequently extended to 19 May 2014, time to consider the Claimant's Part 36 offer also being extended accordingly.
On 16 May 2014 the Defendant served its letter of response and confirmed that it had obtained expert opinions from an obstetrician, an anaesthetist, midwife and psychiatrist. They confirmed that as a result of their investigations, liability was admitted. The Defendant made a Part 36 offer in the sum of £35,000.
Following the submission of evidence by the Claimant to the Defendant in support of the Claimant's loss of earnings claim, the Defendant made an increased offer in the sum of £40,000 on 30 May 2014. That offer was accepted on 4 June 2014.
The Claimant's bill of costs was formally served with a Notice of Commencement dated 4 August 2014. The Defendant served its Points of Dispute dated 16 September 2014.
Proportionality
On a standard basis assessment the costs claimed by the Claimant will be disallowed insofar as they have been unreasonably incurred or are unreasonable in amount (CPR 44.3(1)). CPR 44.3(2)(a) also provides that costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred.
It is common ground that the test for proportionality to be applied in this case is the post-1 April 2013 test set out at CPR 44.3(5):
"Costs incurred are proportionate if they bear a reasonable relationship to –
(a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party; and
(e) any wider factors involved in the proceedings, such as reputation or public importance."
In the Points of Dispute the Defendant, expressly, does not submit that the Claimant's costs as a whole are disproportionate. It takes issue with the proportionality of particular items, including the ATE premium.
With respect to the ATE premium the Points of Dispute challenge both its reasonableness and proportionality. They state that this was a relatively straightforward Clinical Negligence case which lasted a total of 5 months, liability being admitted promptly and no proceedings issued. Before the Claimant instructed solicitors, the Defendant had carried out a "root cause analysis" which identified clear failings in care, so liability and causation were "clear cut".
The Points of Dispute contend that a premium of £6,020.80 for an indemnity of £10,000 defies logic and makes no commercial sense: and that although it was not known by the Paying Party how the premium was calculated, the calculation must have been fundamentally flawed, as well as grossly disproportionate. The premium is compared to the actual costs of medical reports obtained in this case (£2,530.80) and the Defendant asks, rhetorically, "Why would any Claimant pay an ATE premium that was nearly three times the potential exposure?"
Relying upon Kelly v Black Horse [2013] EWHC B17 the Points of Dispute contend that in the absence of compelling evidence as to how the premium had been calculated, the Court should apply, as a starting point, a "burn" premium, a formula incorporating an 11% risk figure (given that the risks in the case were very low) allied to a maximum exposure of £2,530.80, the actual fees paid. The proposed calculation is (£2,530.80 x 11%) + 25%, yielding a proposed premium of £347.99 + IPT.
On provisional assessment on 7 October the costs officer allowed the ATE in full and the Claimant's costs overall at £19,228.12, plus costs associated with Provisional Assessment. The matter was referred to a costs judge for a hearing under CPR 47.15(7), the only item under review being the ATE premium.
The Claimant's Evidence
Both parties have produced witness evidence in support of their case on the ATE premium. The Claimant has produced a witness statement dated 30 January 2015 from David Pipkin, an underwriter at ATE insurers Temple Legal Protection.
This is Mr Pipkin's evidence. He points out that every ATE insurance provider may have a different underwriting model. There is no universal model, but it is in Temple's business interest to set premiums at levels which are reasonable and which will be accepted as such by the Courts.
On 1 April 2013, following changes introduced by Legal Aid, Sentencing and Punishment of Offenders Act 2012 ("LASPO") most ATE premiums became irrecoverable from litigation opponents under an order for costs and the ATE market, in consequence, changed. Mr Pipkin attests to the fact that between late 2012 and March 2013, senior underwriters at Temple, sharing many years of experience of working in and shaping the ATE insurance market, held extensive discussions and obtained "a great deal of historical information" about settlement trends, success rates and costs of clinical negligence cases before setting a clinical negligence underwriting model and premium rates for the post – LASPO era. In setting the delegated scheme premiums Temple gathered as much information about litigation costs and dynamics, and based its underwriting model on what it reasonably believed might happen, of necessity incorporating a number of assumptions.
A firm of solicitors may obtain Temple ATE Insurance for a client in one of two ways. Under a delegated scheme, solicitors issue policies on behalf of Temple's underwriters, obviating the need to ask them to individually assess risk. Otherwise a solicitor may submit an application to Temple, which will carry out an assessment of the risk and, if acceptable, offer a premium in an effort to win the business.
Temple offers a number of delegated schemes to solicitors for use in different categories of case. Under the delegated schemes, each type of litigation has its own risk criteria and terms, set according to the nature of the business being insured.
For clinical negligence matters the criteria applied for inclusion within the delegated scheme are these. The subject-matter must (with certain exceptions which may incorporate other heads of claim) be a clinical negligence claim against up to three opponents. The damages claimed must be £100,000 or less; the Client's date of knowledge (as defined under the Limitation Acts) must be less than two years prior to the date of issue of the Certificate of Insurance; the insured must have agreed to act under a Conditional Fee Agreement or other form of post - LASPO retainer that has been previously approved by Temple; the Client must have at least 51% prospects of succeeding in their claim, assuming that it is determined at a final hearing; the Certificate of Insurance must be issued before issue of proceedings; liability must not have been denied; and there must have been no Part 36 offers from any Defendant.
The delegated authority scheme permits the Solicitor, before a letter or Notice of Claim is sent, to take out Temple Insurance without the need to approach Temple. There are, says Mr Pipkin, economies of scale and other advantages to operating the scheme in this way. By stipulating that there must not have been a denial of liability or an offer Temple can avoid the increased costs and exposure that would arise where solicitors belatedly insure a case where it is already known that liability is to be disputed or where a Part 36 offer might not be beaten. If the solicitors are themselves acting under a Conditional Fee Agreement Temple can be satisfied that the solicitors consider that the claim has reasonable prospects for success. The terms of the scheme, says Mr Pipkin, create a fair "basket" of cases where the risks are spread as widely as possible.
The scheme avoids the increased costs and administrative burden entailed in assessing and setting a bespoke premium for each case. That would be time consuming for the Claimant's solicitors and expensive for Temple, as it would have to have the resources to evaluate substantial proposal forms and have an underwriter set a bespoke premium in every case. Such a bespoke system would result in higher administrative costs and higher premiums: the present system keeps premiums down and benefits paying opponents.
The level of indemnity for the costs of experts' reports relating to liability or causation is set at £10,000 for all cases within the delegated scheme. Cover is retrospective and the premiums (as the terms I have quoted illustrate) are deferred. Whilst in some cases (as here) the costs of such reports may be substantially less than £10,000 there will be others where numerous reports from experts in many disciplines will be required and the costs exposure may well be as high as £10,000. Temple settled upon providing a uniform level of indemnity as that ensures that the client and solicitors know at the outset what level of cover is provided. The alternative, creating a bespoke level of indemnity for every case, would incur additional costs. Mr Pipkin contends that a level of indemnity of £10,000 is a reasonable balance for the vast majority of cases falling within the "basket".
The ATE industry, says Mr Pipkin, remains a competitive market after 1 April 2013. The limitation on recoverability of ATE premiums in all but a few categories of case has added increased difficulty to that competition. A number of providers have left the market. Temple has done its best to create a product that is competitive and attractive to solicitors so as to meet the demand for ATE that undoubtedly remains.
During its discussions with Bolt Burdon Kemp, Temple was aware that they were seeking alternative prices and cover from a number of Temple's ATE competitors. This, says Mr Pipkin, meant that if Temple had any chance of winning their business then they had to produce a competitively priced scheme. Temple succeeded, being selected by Bolt Burdon Kemp to be their first choice ATE Insurance provider.
At the time of inception of the Claimant's policy, says Mr Pipkin, Temple's Clinical Negligence delegated authority scheme with Bolt Burdon Kemp set, for damages claimed to £25,000, a recoverable "(a)" premium (as in this case) of £2,650. For claims of £25,000 to £100,000 the "(a)" premium was £5,680. In both cases the limit of indemnity was £10,000.
One of the driving factors in the model, says Mr Pipkin, is to ensure that the loss ratio is maintained at a level where it is worthwhile for the insurer to stay in the market. Temple's Pre-LASPO loss ratio across the clinical negligence book was 81%. Underwriting profits are marginal and Temple has to wait 2-3 years to recover premiums, in the meantime paying out significant sums on claims.
The premiums set out above, he says, represent the best assessment that could at the relevant time be made by the Underwriters in order to maintain the desired loss ratio but it is too early to say whether that will be achieved. The new market is still immature and faces uncertainty from premium challenges in the courts, such as the challenge considered in this judgment. Assumptions have had to be made about the level of claims frequency and the likely average claim exposure, all of which could prove to be wrong.
When Temple rated the premiums, says Mr Pipkin, it did not know how the competitors in the new ATE market would price their premiums or what level of indemnity they would offer. Given that it is now possible to compare a number of policies he suggests that there is little difference between them. (I refer to the parties' comparable evidence below).
Temple, says Mr Pipkin, have always graduated their clinical negligence premiums by reference to the level of damages, the reasoning being that increased quantum comes with increased risk, larger claims tending to be more complex and less likely to settle early. Temple may be one of the few (or the only) ATE providers who adopt his approach. It is too early to say whether that is the correct decision. It may well be that Temple has underpriced the lower premium, but he suggest that this pricing approach is proportionate to the level of damages claimed and, given the comparable premiums referred to, the resulting premiums appear to be very competitive.
Temple's book of clinical negligence business indicates that approximately 82% of cases are likely to settle for less than £25,000 (a premium of £2,650 plus IPT) and the remaining 18% for more than £25,000 (a premium of £5,680 plus IPT). This means the average premium to be paid by opponents will be (£2,650 x 82)/100 = £2,173 for cases that settle under £25,000 with an additional (£5,680 x18)/100 = £1,022 for cases that settle over £25,000, coming to £3,195. This compares favourably with the more significant premiums charged by DAS, ARAG and LAMP.
The Defendant's Evidence
The Defendant has filed a witness statement dated 13 February 2015 from Mr Ken Corness, an experienced Costs Lawyer. Mr Corness points out that no evidence has been served by the Claimant's solicitors explaining what if any steps they took to identify the best policy or the lowest premium for the claimant; or about any advice that was given to the claimant in respect of the best policy. Assuming that the Claimant's solicitors (as counsel confirmed in the course of the hearing) were not obliged to use this Temple policy, there is no evidence of any review of the market.
Mr Corness takes issue with Mr Pipkin's statement to the effect that Temple's Pre-LASPO loss ratio across the clinical negligence book was 81%, on the basis that this statement is not explained or supported by any figures. Mr Pipkin does not, he says, explain how the quoted figure led to the premium claimed in this case; he fails to provide any evidence as to any assessments that were made as to the likely proportion of unsuccessful claims post- 1 April 2013, though such assessments must have (or ought to have) been made; and he fails to explain the assumptions made in setting up the clinical negligence model.
Mr Corness observes that Mr Pipkin also fails to give any evidence as to what (thus far) has been Temple's experience in respect of frequency and level of claims or as to what proportion of claims in his experience (either pre- or post- LASPO), liability is admitted, whether at letter of response stage or later. He asserts, based on his understanding that a very significant amount of clinical negligence claims are concluded with admissions of liability (frequently before any such insurance premium would have been taken out) that in such claims there is really no or negligible risk of a call on the policy. The Claimant, he says, has not provided any evidence that such admissions have been taken into account when the premium is calculated. Given the level of premium, Mr Corness suggests that it has not.
Mr Corness also takes issue with Mr Pipkin's statement to the effect that the Temple premium is set by reference to whether damages are up to or above £25,000. That is first because no data or calculations are given to explain the statement that greater quantum produces a higher exposure to risk or how that leads to the levels of premium set, and second because Mr Pipkin, in explaining the logic of the premium calculation, refers to levels of settlement rather than to the claim as valued at the time the policy is taken out: this he says must be wrong.
Mr Corness submits that the claimant and her advisers have failed to discharge the onus on them to show that this premium was reasonably incurred or reasonable in amount and that the level of premium when compared with the level of cover is both unreasonable and disproportionate.
Mr Corness expresses concern at the high ratio of premium (a) to cover (56.8%) compared to premium (b) (3%). He argues that if the average value of a claim to which this policy applies is taken as £50,000, a (b) premium would be £1,500 for cover of £100,000 plus premium, suggesting that premium (a) ought to be £150. He suggests that it is difficult, if not impossible to avoid the conclusion that the insurer is greatly inflating its prices where there is the prospect of inter partes recovery.
Mr Corness also submits that the level of cover of £10,000 is excessive. The 2013 Regulations (and the Claimant's policy) refer only to the cost of expert reports, not other costs such as attendance at trial. They do not include the cost of reports on quantum. The cost of the relevant expert report here was £2109.00 plus VAT: £2,530.80. Even if this matter had proceeded to trial, the Claimant was unlikely he says to have obtained more than one further report on liability, if that. On a worst case basis, Mr Corness suggests that relevant expert's reports would not have cost more than £4,000 - £5,000.
Mr Corness submits that in his experience, most clinical negligence claims worth less than £100,000 settle before proceedings are issued or shortly thereafter. He suggests that the average costs of a claimant's expert evidence in such cases would be around £2,000.00, inclusive of VAT. In this case, liability was admitted in a letter of response less than 6 months after the Defendant was provided with a letter of claim.
Mr Corness submits that at the time the policy was taken out in November 2013 it would have been evident to the Claimant that the likelihood of liability being admitted was very high, so that the level of risk was low to negligible. He refers to the "root cause analysis" carried out before the Claimant's solicitors were instructed which, he says, identified a number of failures.
Mr Corness suggests that any argument to the effect that if Temple's premium compares favourably with competitors in the ATE market, then the premium must be reasonable, is self-serving. The Claimant, he says, cannot prove the reasonableness of the premium simply by stating that other insurers are offering similar products: with any untested new insurance product, reasonableness has to be established.
The Defendant's Submissions
Mr Marven's submissions adopt the points made in the statement of Mr Corness, although I understood him, in oral submissions, to accept that the Claimant only has to show that the premium is reasonable and proportionate in amount if the Defendant has identified some real basis for arguing that it is not. I agree: I do not start with a presumption that the Claimant's ATE premium is unreasonable. This being a standard basis assessment, where some real issue does arise any doubt will be resolved in favour of the Defendant.
Mr Marven submits that this premium on the facts (a fairly typical clinical negligence claim, supported by one expert report, having settled early after an admission of liability) appears to be unreasonable and disproportionate. In such circumstances it is incumbent on the insurer to explain how the premium is calculated so as to show that it is in fact reasonable. If this case is in some way untypical the insurer should say so.
The evidence provided by Mr Pipkin fails says Mr Marven to provide any useful material, though the scheme criteria identified by Mr Pipkin suggest that the insurer is in fact limiting acceptable cases to a low level of risk. On the evidence the court cannot be satisfied that the policy was a reasonable choice. Thus the premium falls to be assessed at a low level without the benefit of any doubt going to the Defendant.
Mr Marven submits that if for example the anticipated average cost to the insurer in the event of a claim on the policy was £2,000 and the insurer only has to make payment in less than one in 10 cases, then (adopting the arithmetical approach approved by the Court of Appeal in Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134 paragraph 109) this would point to a premium in the region of £150, as contended for by Mr Corness.
One must distinguish between the level of cover offered (which the Defendant characterises as inappropriately high) and real estimated maximum exposure, which is the figure that should be used in any reasonable premium calculation. Mr Corness' evidence addresses that, and the prospects of success in this particular case: by the time the Claimant's ATE policy was taken out the information available to the Claimant was sufficient to identify the Defendant, rather than the Claimant's GP, as the prospective defendant.
Mr Marven argues that the Defendant is not asking the court to interfere with, undermine or defeat the purpose of Temple's ATE model, nor putting Temple in a position in which it must claim its premium from the insured rather than the insured's opponent. Reduction on assessment, he submits, is already built into the model because the premium payable by the Claimant is limited to any reduced amount.
As judicial experience of excessive premiums has increased, costs judges have rightly been the more willing to disallow excessive premiums, for example in Kelly v Black Horse and Redwing Construction Ltd v Wishart [2011] EWHC 19 (TCC). and so this court should not hesitate to interfere with the premium claimed. Coventry v Lawrence [2014] UKSC 46 and Marley v Rawlings [2014] UKSC 51 also he suggests point to increasing judicial concerns about excessive additional liabilities. The court ought to approach the assessment of this premium in a way which reflects those concerns.
Mr Marven suggests that premium (a), being limited in any event to the amount recovered from the Defendant, is not subject to any genuine market competition. On the evidence the overall premium in this case appears to have been divided between the (a) and (b) premiums in an unbalanced way. To the extent that the court might be persuaded by comparable evidence that ATE insurers generally are now under commercial pressure to charge large recoverable, as compared to irrecoverable, premiums this raises concerns which justify the court's intervention.
Considerations of proportionality, under the new test in CPR r 44.3(5), lead he suggests to much the same reduction as do the Defendant's arguments on reasonableness. Under the post-April 2013 proportionality test even if (which would be disputed) the Claimant argues that it was necessary to incur this expense, it does not follow that it is to be regarded as proportionate: in that respect Rogers v Merthyr Tydfil no longer applies. Only a proportionate premium should be allowed, and here only a low premium is proportionate to the risk faced by the insurer.
There is nothing, he suggests, wrong in principle in identifying an individual item or items, on a detailed assessment, as disproportionate and reducing them to a proportionate figure before, at the conclusion of the assessment, standing back and considering whether the final total is proportionate. Here, it is appropriate to treat "the amount in issue" as the amount of indemnity and to consider whether, in comparison to it, the premium is disproportionate.
The Claimant's Submissions
Mr Laughland submits that the Defendant's criticisms of the sufficiency of the Claimant's evidence are ill-founded. The purpose of assessment of costs on the standard basis (whether summary, provisional or detailed) is to consider whether the costs claimed by the Receiving Party were reasonable and proportionate, with doubts resolved in favour of the Paying Party.
With respect to an ATE premium, the question is whether the Claimant was reasonable in having incurred that premium and whether such can reasonably be recovered from the Paying Party. This should not be an exercise in second-guessing insurance underwriters or for undertaking a detailed analysis of their methodology: especially not in a new and uncertain market.
Although the economics and behaviour of the ATE market are very different after 1 April 2013, previous exhortations for Judges not to substitute their opinions for those of insurance underwriters (as in Rogers v Merthyr Tydfil, considered below) remain valid; perhaps all the more so when the market is readjusting to the changed landscape.
Mr Laughland rejects the Defendant's criticism of Mr Pipkin's evidence as inadequate: Temple's precise calculations, he points out, are commercially sensitive. Evidence (if available) as to the size of the market for the new ATE products in March 2015, or evidence concerning Temple's experience of frequency of claims and their cost as at in March 2015, will not help determine the reasonableness or proportionality of a premium charged in November 2013, just over seven months after the economics of the whole ATE market significantly changed. The Defendant is inviting the court to apply hindsight.
Mr Marven and Mr Corness have pointed out that Mr Pipkin's explanation of the overall structure of Temple's clinical negligence scheme, in particular its setting premiums at two levels by reference to damages recovered, is not consistent with the terms of the Claimant's policy. Mr Laughland explained this apparent anomaly, in oral submissions, in this way. In late 2013, after the Claimant's policy was taken out Temple added an endorsement to its policies providing for premiums to be calculated in the manner described by Mr Pipkin. His evidence on that point, and the calculation of an average premium of £3195 based on Temple's experience, is submits Mr Laughland perfectly sound.
There was no obligation upon the Claimant or her solicitors to review the market before selecting any particular ATE product. Whilst selecting an unnecessarily expensive policy might handicap recoverability of the premium incurred, the Claimant is not obliged to consider all available options before choosing a particular product. In any event, Mr Laughland submits, the product does compare favourably with the market rates.
Mr Pipkin's statement explains why a limit of indemnity is set at £10,000 for the costs of obtaining medical reports on liability and causation. For a block- rated scheme operated on a delegated authority basis it is appropriate to have a consistent level of indemnity. Block-rated policies provide consistency and it is wrong in principle to judge a block-rated premium by reference to a notional individually assessed premium. Of course the block-rated scheme, of necessity, excludes cases where matters such as denial of liability increase the risk; such cases may be insured by a bespoke policy.
Clinical negligence cases often require reports that deal separately with liability and causation and also require input from experts in more than one discipline. This case is one example: negligence in the field of obstetrics led to psychiatric harm. The Defendant's own Letter of Response confirmed that they had received the opinion of an expert obstetrician, expert anaesthetist, expert midwife and expert psychiatrist before admitting liability.
The premium is the same in all delegated scheme clinical negligence cases covered by Temple, so long as the damages are in excess of £25,000 (a lower premium is charged if the damages recovered are less than £25,000). The proportionality between premium and damages will vary from case to case depending on what amount is recovered, but the premium is self-evidently reasonable.
The Defendant seeks to link proportionality between the premium and level of indemnity for one part of the risk but this ignores the fact that the insurers' exposure between the risks covered by premiums (a) and (b) is not divisible. If the insured event arises then the maximum exposure under any of the policies is £100,000 (in addition to the premium) and all the premiums collected (comprising both elements) have to be sufficient to cover the insurer's exposure and enable the business to have a profit.
If Temple (or any other ATE insurer) is required to set premiums by reference to the anticipated expenditure on medical reports in every individual case, together with reference to the particular risks in that case, then there will have to be individual risk analysis of each case. Such would immediately substantially increase the costs burden on the insurer, and in consequence the premium.
Whilst Parliament has permitted recovery of the premium that insures against the risk of a Claimant having to pay the costs of the expert reports obtained in support of a claim for clinical negligence, it must be borne in mind that there will be many cases never seen by the Defendants or by courts on assessment of costs where proceedings were never intimated or issued because such reports proved unfavourable and the costs burden has fallen on the insurer.
That is sufficient to explain the difference in ratio between premium costs and indemnity cover in the (a) and (b) elements. Before a favourable expert's report is obtained the prospects of success must be regarded as very uncertain in the majority of cases. If the report or reports come back as negative then the indemnity will be called upon and the ATE insurer will pay for those reports, with no premium being collected as no damages were recovered or favourable costs order made.
If the expert evidence is favourable then the claim can proceed. The risk of the insurer having to pay out the risks covered by premium (b), in practice against irrecoverable disbursements and such adverse costs orders as may represent a cost to the Claimant following the introduction of Qualified One Way Costs Shifting ("QOCS"), (as for example where a Part 36 offer is not beaten) will be much lower.
The assertion in the Points of Dispute that a "burn" premium formula should be adopted, applying an 11% chance of failure in this case, is submits Mr Laughland wholly without foundation. First, it ignores the fact that Temple operates a block-rated policy.
Second, even on a "bespoke premium" basis the Defendant's analysis does not stand up. The "root cause analysis" relied upon by the Defendant has not been produced in evidence. The Defendant's current insistence that the Claimant must have been in a position to know that liability was very likely to be admitted does not sit well with the Defendant's requirement of an extension of time for serving its Letter of Response, the Defendant arranging to have the Claimant examined by an expert psychiatrist (something that can only have been to investigate causation as a possible defence) and the Defendant obtaining expert opinions in four different disciplines before admitting liability.
Comparable Policies
Mr Pipkin exhibits to his statement an advertisement indicating that in April 2013 DAS Law Assist would, at the pre-issue stage, have charged a standard premium of 200% of the actual cost of the clinical negligence liability and causation reports, which in this case would have been £5,060 plus 6% IPT. The advertisement also indicates that a much-reduced 25% premium would be payable after issue and (by inference) that recoverable premiums are not cumulative: in fact, on the evidence of actual DAS policies considered below, the indication that no further premium would be payable post-issue would not seem to be reliable.
Mr Pipkin also states that ATE insurers ARAG have quoted some lawyers £5,088 including IPT for ATE insurance, though it has not been possible to ascertain a specific level of indemnity because it appears that a single limit of indemnity was applied to include other risks covered by the policy. ARAG have not, he says, published any price rating: his information was obtained from discussions with a number of lawyers who had received quotes or pricing information from ARAG. Similarly he was advised by one lawyer that LAMP insurance offers a premium of £5,091 plus 6% IPT with a level of indemnity at in the region of £10,000.
Mr Corness compares the premium sought in this claim with premiums sought on policies before 1 April 2013. His argument is that the purpose of the Jackson reforms was to reduce the liability of the paying party for additional liabilities, but he says a simple comparison between pre and post April 2013 polices indicates that liability for ATE premiums has not been reduced at all, and may have increased.
Pre-LASPO policies provided cover over a much broader scope, typically an opponent's costs to trial, the insured's own disbursements and Counsel's fees. Mr Corness exhibits to his statement Temple ATE policies incepted prior to April 2013 providing an indemnity of £100,000 with, he says, a much lower premium, as well as examples from other providers which he says provide evidence that, generally, much cheaper cover was available before April 2013 for higher and broader indemnities and exposure.
Mr Corness relies in particular on a Temple policy taken out through Bolt Burdon Kemp on the 31 January 2013. He states that the relevant case settled at a similar point to this one, with damages of £42,500. A premium of £1,855.00 was payable, with an indemnity limit of £100,000 covering opponent's costs and own disbursements. Given the similarities, he describes the fact that in this case the Defendant is faced with a £6,028.00 premium for cover of £10,000, covering only the cost of expert's reports, as baffling and so inexplicable as to require Bolt Burdon Kemp to call the premium into question.
Mr Corness also exhibits three post- 1 April 2013 insurance premiums which he says are considerably lower than the premium claimed in this case, in particular a clinical negligence policy with LAMP providing for a premium in the sum of £1,802.00 for cover of £9,000.
Conclusions on Reasonableness
The amount of the ATE premium claimed is in issue and in that context I must address both reasonableness and proportionality. Because costs reasonably or necessarily incurred may nonetheless be disallowed as disproportionate, I shall focus first on whether the amount of ATE premium sought from the Defendant by the Claimant has been reasonably incurred.
CPR 44.4 requires that on considering both reasonableness and proportionality I have regard to all the circumstances. For that reason, even if the Defendant had not relied upon comparable market evidence to support the proposition that Temple's ATE premium is not reasonable in amount, I would be unable to accept the Defendant's contention that the Claimant cannot rely upon comparable market evidence to support the proposition that in fact it is.
It is not suggested, nor should it be, that it was unreasonable for the Claimant to arrange ATE cover at all. The reasonableness of the Claimant's choice of ATE cover must be measured by reference to what is available to her. Hence the Defendant's criticism of a lack of evidence to the effect that she and her solicitors considered alternatives. That said, the choices available to the Claimant cannot be the only determinative factor: if all available choices were by any objective standard unreasonably expensive then it might still be appropriate to disallow or reduce the actual premium chosen.
As noted above I do not start from a presumption that the ATE premium is either unreasonable in amount or disproportionate, so that (as Mr Corness suggests) the Claimant must prove that it is not. It is for the Defendant as paying party to advance some viable case to the effect that the amount of the premium is either unreasonable or disproportionate, in which event any doubt will be resolved in favour of the Defendant.
As to how that is judged, in Rogers v Merthyr Tydfil Brooke LJ, at paragraph 119, said:
"…District judges and costs judges do not, as Lord Hoffmann observed in Callery v Gray (Nos 1 and 2) [2002] 1 WLR 2000, para 44, have the expertise to judge the reasonableness of a premium except in very broad brush terms, and the viability of the ATE market will be imperilled if they regard themselves (without the assistance of expert evidence) as better qualified than the underwriter to rate the financial risk the insurer faces. Although the claimant very often does not have to pay the premium himself, this does not mean that there are no competitive or other pressures at all in the market. As the evidence before this court shows, it is not in an insurer's interest to fix a premium at a level which will attract frequent challenges."
It does not follow that a judge would never, unassisted by expert evidence, be in a position to conclude that an ATE premium is unreasonable or disproportionate. I respectfully agree with Mr Marven that matters have moved on to some extent since Rogers. It may well be appropriate, for example, to reduce an ATE premium where (all other elements of the calculation aside) it is evident that the prospects of success of a given case must have been miscalculated or misrepresented to the insurer. Kelly v Black Horse and Redwing v Wishart both furnish examples of that.
However there must be some sound basis for arguing that the ATE premium is unreasonable in amount. I have come to the conclusion that the Defendant has been unable to establish that. In my view the Defendant's case does not, on examination, yield any point of substance. I say that for these reasons.
First, the Defendant's proposed individual assessment of risk in this case is of no assistance in judging the reasonableness of a block-rated scheme such as Temple's. Mr Marven made it clear that the Defendant is not suggesting that the use of a block-rated scheme is in itself objectionable, because that would be contrary to authority. It would not in any case be a viable argument, for the reasons advanced by Mr Pipkin. That leaves the Defendant either to raise some viable argument to the effect that the premium calculated under this particular scheme is, as a block-rated premium, unreasonable in amount or to show that the Claimant's choice of that block-rated scheme was unreasonable.
In my view the Defendant has not made out a case to the effect that the premium produced by Temple's block-rated scheme is, as a block-rated premium, in some way wrong or unreasonable. It would probably take expert evidence to do that, and I do not have any such evidence. What I do have is a set of general observations about clinical negligence cases which (for reasons I will explain) I do not find helpful, inappropriate comparisons to a hypothetical individually rated premium and the Defendant's argument that premium (a) should represent the same percentage of the limit of indemnity as does premium (b) and so be limited to £150.
Mr Marven accepted that this last argument may be seen as simplistic but argued that in the face of a clearly excessive premium for which there is no proper explanation from the Claimant, it (like the alternative calculation in the points of dispute) may provide a starting point. I cannot agree, because it seems to me to be wrong in principle. For the reasons given by Mr Laughland premium (a) and premium (b) insure different kinds of risk and cannot properly be compared in the way contended for.
I also accept that it is not incumbent upon the Claimant, in explaining the genesis of Temple's clinical negligence delegated authority scheme, to produce the further detailed evidence referred to by the Defendant. My understanding of Mr Pipkin's evidence is that it is intended to (and does) show that Temple applied its experience of years in the ATE market to produce a post – 1 April 2013 policy that was intended to be viable and competitive. The outcome of that can be judged by reference to the comparable evidence considered below. Mr Pipkin's failure to explain the apparent inconsistency between his calculation of Temple's average premium and the terms of the Claimant's policy is an unfortunate omission, and I understand Mr Marven's objection to the way in which Mr Laughland attempted to fill the gap. However I have no real reason to doubt Mr Pipkin's evidence on Temple's average premium.
I have considered whether the Defendant has any real case based on the proposition that an individually assessed premium should have cost significantly less than the premium actually paid by the Claimant.
As to the first point I have the alternative ATE premium of £347.99 suggested by the Points of Dispute. This has not been produced by any ATE insurer but by the Defendant, offering its own calculation.
In my view it remains inappropriate for a Costs Judge, given the guidance offered by Brooke LJ in Rogers v Merthyr Tydfil, to simply substitute his or her judgement for that of an underwriter and substitute his or her own premium for the underwriter's. For that reason alone I would be unable to adopt the Defendant's calculation: nor (as an examination of the comparable evidence will show) does the proposed premium appear to bear much if any resemblance to what is actually available on the ATE market.
That aside, there are in my view obvious flaws in the Defendant's calculation which make it unsafe to use as a reference point. The express assumption in the Points of Dispute that the actual expenditure on expert reports in this case represents the insurer's maximum exposure, and the accompanying assertion that the (a) premium is three times the amount of exposure, is wrong on any analysis.
Mr Corness' alternative suggestion of likely maximum exposure is, like his observations on the likelihood of settlement, based on rather general observations about his experience of clinical negligence cases which – with due respect to his experience – can only have limited value as evidence. It is not supported by the sort of hard statistical evidence to which one might expect the Defendant to have access. It does not meet Mr Laughland's point about clinical negligence cases in which negative reports are received on liability so that the case ends without the prospective Defendant ever hearing about it. It cannot put me in the shoes of an ATE underwriter.
In any case the Defendant's case on maximum exposure seems to me to be based upon the proposition that insurance cover should be limited to what is expected to happen. Surely an insurance policy should rather cover what might (within reasonable limits) happen. This case itself illustrates the point: the Defendant needed the advice of experts from four different disciplines in order to concede liability. Had liability been contested the Claimant might have had to do something similar. The evidence I have seen offers no sound basis for characterising an indemnity limit of £10,000 in an individually rated policy, much less a block-rated policy, as unreasonable.
Nor do I accept the Defendant's suggested calculation of the particular risk faced by the Claimant at the time of taking out the policy. The Defendant's reliance on its "root cause analysis" (which, as Mr Laughland points out, I have not seen) seems to me to assume that establishing breach of duty is sufficient to establish causation, in particular in relation to the Claimant's OCD. That is not the same thing and the Defendant's need to consult four experts before conceding liability speaks for itself.
Mr Marven submits that the Claimant should have been very confident of recovering some damages, but on the evidence before me that is not necessarily so and it would not be the right test, given that the premium (a) covered the cost of reports addressing the Defendant's liability for OCD.
The remaining argument for the Defendant is that, by reference to alternative available cover, the amount of premium incurred by the Claimant is unreasonable. This takes me to the evidence produced on comparable policies.
Conclusions on Comparable Evidence
My conclusion is that that the comparable evidence offered by the Defendant does not offer any indication that the amount of premium incurred and claimed by the Claimant is unreasonable.
Starting with the pre-April 2013 policies, I cannot accept that it is appropriate for a Costs Judge to entertain broad comparisons of two entirely different types of policy, encompassing different risks, in order to come to a wholly uninformed conclusion that one of them should be less expensive than it is. It might be that such a proposition could be supported by evidence from an underwriting expert but if so the Defendant has not produced it.
Mr Laughland submits that the economics and dynamics of the ATE market were wholly different before and after 1 April 2013. ATE premiums were, before that date, recoverable in all personal and clinical injury cases and a claimant's potential liability to pay opponents' costs in all cases made it very much easier to sell ATE policies. The introduction of QOCS and the abolition of recoverability of success fees, together with the cap at 25% of past damages, led to a general expectation that fewer personal injury or clinical negligence claims would be made.
I accept that the models needed to set appropriate premium rates would have to be different before and after 1 April 2013. In particular recoverable premiums, for the reasons given by Mr Laughland, represent the cost of insuring a different kind of risk.
Mr Corness' comparison between a pre-April 2013 Temple policy and the Claimant's policy also employs hindsight in relation to the actual settlement upon which he relies. He makes no reference to the fact that the pre-April 2013 policy provides for further staged premiums increasing to £22,975.50. The comparison offered between pre-and post – 1 April 2013 ATE policies does not stand up.
The post-2013 policies exhibited by Mr Corness are much more to the point. However they do not support the Defendant's case.
As I have observed, Mr Pipkin has exhibited evidence of a DAS LawAssist policy which appears to charge a premium calculated at 200% of the actual cost of the liability and causation reports plus premium. Two of Mr Corness' three examples are, similarly, DAS policies dating from after 1 April 2013. The first includes a recoverable premium of £1,000 + IPT of £60: £1,060. However that is only Stage A of the premium (to the issue of proceedings) and offers a limit of indemnity of £500. The second DAS policy includes a Stage A limit of indemnity of £720 for a premium of £1,440 + IPT.
Both policies confirm Mr Pipkin's evidence that the DAS premium is calculated at 200% of cover and in both cases a further individually rated premium is payable at stage B, post-issue. Insofar as the premiums payable under those policies bear comparison to Temple's premium, they do not make it look unreasonable: quite the contrary.
Applying the DAS pre-issue formula to this case, Mr Laughland suggests that DAS would at stage A have charged the Claimant (£2,530.80 x 200%): £5,061.60 + IPT. This is little different to Temple's premium of £5,680 + IPT, and Temple's premium is not limited to stage A. Adopting Mr Corness' estimate of overall expert fees of £4,000 - £5,000 then a DAS Policy would have cost, to stage A, more than Temple's policy: something like (£4,500 x 200%): £9,000 + IPT.
The third post- 1 April 2013 policy relied upon by Mr Corness is a LAMP policy. The policy schedule shows a premium of £2,000 + IPT, of which £300 plus IPT is for "expert reports and other disbursements" but overall indemnity (including cover provided for adverse costs and own disbursements) is limited to £9,000. Compared to the Temple product, which gives £100,000 cover overall, that is described by Mr Laughland as a very unattractive product. Certainly it does not seem to bear any direct comparison to Temple's. It has not been suggested that the Claimant should have limited her total insurance cover to £9,000 and I would not have accepted any such suggestion had it been made.
In any event, as Mr Laughland submits, there is no evidence as to how the LAMP premium was calculated or whether it varies from case to case. It gives me no basis for supposing that the Temple premium might be unreasonable.
Proportionality
I am unable to accept Mr Marven's submission that I should, for the purposes of assessing the proportionality of the ATE premium, read the reference in CPR 44.3(5) to "the sums in issue in the proceedings" as referring to the amount of the ATE insurer's exposure so giving me a basis for finding the ATE premium disproportionate by reference to that exposure. That is not what the rule says.
In my view it is questionable whether it is right to single out a particular item of cost in applying the post-April 2013 proportionality test. The intention of Jackson LJ, when introducing that test, was that the proportionality of costs as a whole would be considered after costs have been assessed by reference to reasonableness, at which point to court might take the view that the remaining total is still disproportionate and reduce it to a proportionate sum. Jackson LJ has, since the new test was introduced, publicly endorsed that approach and I believe that it is generally adopted on assessment where the new test is applied. I think it may also be wrong, for the reasons advanced by Mr Laughland, to single out one part of the total premium paid by the Claimant for the purposes of judging proportionality.
However on the assumption that it is right to do both, considering (as I am required to do) all the circumstances and measuring the premium (as I am required to do) against the criteria set out in CPR 44.3(5), in particular the sums in issue and the complexity of the litigation, it seems to me that premium (a) cannot be said to be disproportionate.
Summary of Conclusions
On a proper construction the Claimant's ATE policy complies with statute and the part of the Claimant's ATE premium that relates to experts' reports on liability and causation is, in consequence, recoverable in accordance with statute.
It is for the Defendant to establish some case to the effect that the Claimant's ATE premium is unreasonable in amount. In that event, the Claimant would have to address the point. On a standard basis assessment, any doubt would be resolved in the Defendant's favour.
The Defendant has not managed to establish any real case to the effect that the (a) premium of £5,680, against cover of £10,000, is unreasonable. The Defendant relies on Kelly v Black Horse and Redwing Construction Ltd v Wishart, but those decisions concerned individually assessed premiums in which it was evident that at least one factor in the calculation of the premium (the assessment of risk, which a court is well equipped to judge) must have been wrong. There is nothing in this case to justify any such conclusion about Temple's block-rated premium. The arguments offered in support of that proposition invite me to substitute my judgment for that of Temple's underwriters on the basis of broad comparisons which have no validity, and on the basis of calculations and evidence which in my view do not stand up to analysis.
Nor does the available comparable evidence furnish any basis for the conclusion that the (a) premium is unreasonable in amount. The Claimant has, on the evidence, made a reasonable choice of ATE policy from such options as were available to her at the relevant time. I do not know whether or not she and her advisers considered the wider market before she committed to Temple's policy but there is no evidence to support any supposition that if they had, they would have found a suitable policy at less expense.
The Defendant is concerned that the recoverable ATE premium offered by Temple is not subject to real market competition and that ATE insurers are under commercial pressure to maximise recoverable premiums and minimise irrecoverable premiums.
I need more than suspicion or speculation to reduce an ATE premium. In implementing the 2013 reforms Parliament intended that that certain kinds of ATE premium should continue to be recoverable under orders for costs. For that intention to be achieved insurers must be able to offer a compliant product which is realistic and competitive. On the evidence Temple has come up with a compliant, competitive product which the Claimant has accepted.
The Defendant points out that reduction on assessment is part of the ATE insurer's "model". It does not follow that I can reduce the recoverable ATE premium, as suggested, by in the region of 95% without affecting the viability of the insurer's product. I do not find that credible.
To the extent (which is doubtful) that it is right to consider the proportionality of premium (a) in isolation it is not, by reference to the criteria set out at CPR 44.3(5), disproportionate and does not stand to be reduced on that ground.
Being neither unreasonable in amount nor disproportionate the premium is recoverable in full. |
Master Gordon-Saker :
The Claimant is entitled to his costs of a claim for damages for clinical negligence pursuant to an order of Swift J dated 13th February 2015. On the detailed assessment of those costs issues arose as to the proportionality of the costs claimed, the format of the Claimant's bill and the costs of costs budgeting. These are the reasons for the decisions that I made on those issues.
The background
On 31st March 2009 the Claimant's mother, MP, underwent a quadruple heart bypass operation at the University Hospital of Wales, which is managed by the Defendant. On 12th April 2009 MP suffered a cardio-respiratory arrest and a severe hypoxic brain injury which the Claimant attributed to failings in diagnosis, care and treatment.
On 30th September 2009 the Claimant instructed Hugh James, a firm of solicitors in Cardiff, to act on behalf of his mother. A public funding certificate was granted to MP on 21st November 2009. Sadly on 5th December 2010 MP died as the result of the effects of an infection. The Claimant attributed her death to the consequences of the brain injury.
The public funding certificate was discharged. On 4th February 2012 the Claimant entered into a conditional fee agreement with Hugh James. The agreement was expressed to have retrospective effect and to cover work done from 8th December 2010. It provided for a success fee of 100 per cent unless liability and causation were agreed or the subject of a judgment, in which case the success fee would reduce to 25 per cent.
Proceedings were issued on 24th June 2013. The Defendant denied both liability and causation. A schedule of loss was served in October 2014 seeking total damages of a little over £440,000; of which the principal claims were for general damages for pain, suffering and loss of amenity (£150,000) and gratuitous care (£147,664). Permission was given for both parties to adduce evidence from experts in cardiac surgery, nursing and intensive care. On 29th September 2014 the court approved the Claimant's budget in the sum of £218,384.25. The incurred costs were £102,695.45 giving a total of incurred and budgeted costs of £321,079.70.
The case was listed for trial over 5 days in February 2015. The claim was settled at a round table meeting on 21st January 2015 on terms that the Defendant would pay damages of £205,000 together with costs on the standard basis. The settlement was approved by the court on 13th February 2015 and the damages under the Fatal Accidents Act were apportioned between four of the five children of MP. Two of MP's children are disabled.
The total of the Claimant's bill was £586,456.73. That included a success fee for both solicitors and counsel of 100 per cent, an after the event insurance premium and value added tax. The base costs claimed were £295,269.32. The bill was divided into parts which reflected changes in the funding arrangements and changes in the rate of value added tax. It was not divided into parts to reflect the phases of the budget, work done before and after 1st April 2013 or the costs of budgeting.
In the narrative to the bill the Claimant contended that:
The base fees claimed in the bill of costs are within the budget set by the court, even allowing for the fact that the matter did not proceed to trial.
The Defendant did not challenge that. No point was taken as to the format of the bill.
Over the course of a good-humoured hearing which lasted less than 2 full days, with a very short hearing on the third day to consider the proportionality of the costs allowed for work done after 1st April 2013, I decided amongst other things:
i) That the costs claimed for work done before 1st April 2013 did not appear to be disproportionate.
ii) That the costs allowed for work done after 1st April 2013 were not disproportionate.
iii) That the bill should have been divided into parts to reflect the phases of the budget, work done before and after 1st April 2013 and the costs of budgeting.
iv) That, for the purposes of the caps prescribed by paragraph 7.2 of Practice Direction 3E, the costs of budgeting included additional liabilities but did not include value added tax.
The result of the detailed assessment was that the Claimant's costs were assessed in the sum of £339,671.89. That was less than the Defendant had paid on account. The parties agreed that the Claimant should pay the Defendant's costs of the detailed assessment proceedings in the sum of £8,750.
I was told that, of the sum allowed, the total base costs were £158,567.77, of which the base costs incurred after 1st April 2013 were £138,202.97.
Proportionality
Before 1st April 2013 CPR 44.4(2) provided:
Where the amount of costs is to be assessed on the standard basis, the court will –
a) only allow costs which are proportionate to the matters in issue; and
b) resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party.
Guidance as to the operation of CPR 44.4(2) was given by the Court of Appeal in Jefferson v National Freight Carriers plc [2001] EWCA Civ 2082 and Home Office v Lownds [2002] EWCA Civ 365.
From 1st April 2013 CPR 44.3 provides:
(2) Where the amount of costs is to be assessed on the standard basis, the court will –
a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and
b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.
…..
(5) Costs incurred are proportionate if they bear a reasonable relationship to –
a) the sums in issue in the proceedings;
b) the value of any non-monetary relief in issue in the proceedings;
c) the complexity of the litigation;
d) any additional work generated by the conduct of the paying party; and
e) any wider factors involved in the proceedings, such as reputation or public importance.
The genesis of the new rule was chapter 3 of the final report of Lord Justice Jackson's Review of Civil Litigation Costs. Lord Neuberger gave guidance as to how the new rule was to be applied in the 15th lecture in the implementation programme on 29th May 2012:
… it seems likely that, as the courts develop the law, the approach will be as Sir Rupert described it:
'. . . in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR rule 44.5(3). The court should then stand back and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction. There is already a precedent for this approach in relation to the assessment of legal aid costs in criminal proceedings: see R v Supreme Court Taxing Office ex p John Singh and Co [1997] 1 Costs LR 49.' (final report para 5.13)
CPR 44.3(2)(a) and (5) apply only to cases commenced on or after 1st April 2013 but do not apply to work done before that date: CPR 44.3(7). The present case commenced after 1st April 2013 but work was done before that date. Accordingly the "old" test of proportionality applies to the work done before 1st April 2013 and the new test applies to work done after that date.
Work done before 1st April 2013
Because the bill has not been divided appropriately, it is difficult to identify the work done before 1st April 2013. Parts 1 to 5 fell wholly before that date. Part 6 covered the period from 21st February 2012 to 29th September 2014. The total base costs in Parts 1 to 5 were £25,009.06. The total costs in Part 6 were £145,651.85 excluding value added tax. It seems to me that only a fairly modest part of that would relate to base costs incurred before 1st April 2013. For present purposes I have assumed that the total base costs claimed before 1st April 2013 were about £45,000, although the true figure may well be lower.
It is not in issue that this was a complex clinical negligence case in which both liability and causation were disputed throughout. Preparation of the claim involved close analysis of the treatment provided to MP from a number of disciplines. In this early period the medical records were obtained, cardiothoracic and ENT experts were instructed in relation to liability and a Neurologist was instructed in relation to condition and prognosis. Following MP's death work was done in relation to new claims on behalf of the estate and on behalf of the dependants. Work was done on quantum, witness statements were drafted, a letter of claim was sent to the Defendant and counsel settled the particulars of claim, advised on quantum and settled the schedule of loss. Had MP lived, the damages claimed would have been significantly greater; but after her death the claim was still of substantial value. The case was of significant importance both to MP's family and to those who treated her. In all the circumstances I cannot say that the costs claimed for work done before 1st April 2013 appear to be disproportionate to the matters in issue.
Work done after 1st April 2013
On behalf of the Defendant Mr Kiernan told me that it would not be fair to include any additional liabilities when considering the proportionality of the costs allowed for work done after 1st April 2013. He relied only on the figure of £138,202.97.
As the point was not argued, I reach no conclusion as to whether when considering under the new rule the proportionality of costs incurred after 1st April 2013 additional liabilities should be taken into account.
The work done after 1st April 2013 included the issue of proceedings, costs budgeting, instructing nursing and intensive care experts on liability and causation, further work on the witness statements, directions hearings, disclosure, updating the costs budget, amending and re-amending the claim with consequential amendment and re-amendment of the Defence, a Part 18 request, considering the statements of 14 witnesses for the Defendant, conferences with counsel and the experts, considering the evidence of the Defendant's experts, arranging the experts' meetings, considering the joint statements, updating the schedule of loss, arranging and attending the round table meeting, concluding the settlement and obtaining the court's approval. This case involved a considerable amount of lay and expert evidence (supplementary statements and reports were served by both parties). The issues on liability and causation developed significantly over the course of the case.
Having conducted an assessment of the reasonableness of the individual items, standing back, profit costs, counsel's fees, experts' fees and other disbursements of £138,202.97 are not, in my judgment, disproportionate. This was a complex clinical negligence case which settled less than 2 weeks before trial. The costs allowed bear a reasonable relationship to the sums in issue in the proceedings (a claim for £440,000 which settled for £205,000), even allowing for the costs incurred before 1st April 2013, and to the complexity of the litigation. This is not a case where additional work was generated by the conduct of the Defendant, nor were there any wider factors involved. Importantly, the costs allowed are likely to be within the amount of the budget approved by the court (although the court has not been able to comply with CPR 3.18 because of the way in which the bill was drawn). No further reduction in the costs allowed is necessary to achieve the court's goal of only allowing costs which are proportionate to the matters in issue.
The format of the bill - proportionality
Paragraph 5.8 of Practice Direction 47 provides:
Where it is necessary or convenient to do so, a bill of costs may be divided into two or more parts, each part containing sections (2), (3) and (4) above.
Sections (2), (3) and (4) refer to the conventional format of bill, namely background information, items of costs claimed under the headings set out at paragraph 5.12 and a summary showing the total costs claimed. Paragraph 5.8 goes on to identify six circumstances in which it will be necessary or convenient to divide a bill into parts. These include where there has been a change in legal representative or where part of the costs claimed relate to a period when the receiving party had legal aid. It is clear from the word "include" in paragraph 5.8 that the list of circumstances is not intended to be definitive. It has become standard practice for bills to be divided when there has been a change in funding arrangements from private retainer to conditional fee agreement, as indeed was done in the present case, yet this is not one of the circumstances listed under paragraph 5.8. Where the receiving party has received interim statute bills from his solicitor it is conventional for the between the parties bill to be divided into parts which accord with the solicitor and own client bills. Again this is not a circumstance listed under paragraph 5.8.
The approach to proportionality in respect of work done on or after 1st April 2013 is different to that in respect of work done before that date. In any case in which both approaches need to be taken it will be necessary to identify the work which falls before and after that date and to identify the sums claimed for the work done before and after that date. In my judgment where the case commenced on or after 1 April 2013, the bill covers costs for work done both before and after that date and the costs are to be assessed on the standard basis it must be both convenient and necessary for the bill to be divided into parts so as to distinguish between costs claimed for work done before 1 April 2013 and costs claimed for work done on or after 1 April 2013.
The format of the bill – budget phases
CPR 3.18 provides:
In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
a) have regard to the receiving party's last approved or agreed budget for each phase of the proceedings; and
b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so.
Accordingly on a detailed assessment the court will need to know which costs are claimed in relation to each phase and will need to know which costs claimed within each phase were incurred before the budget was agreed or approved, as those costs will have to be assessed, and which costs were incurred after. It is in respect of the latter only that the court will not depart from the figure for the phase in the approved or agreed budget (unless there is good reason to do so).
With effect from 1st October 2015 in any case in which a costs management order has been made a receiving party will be required to serve with the notice of commencement a breakdown of the costs claimed for each phase of the proceedings. But that breakdown will show only the total sums for costs incurred before and after the budget which are claimed in each phase. It will not identify the phase into which the individual items of work in the bill fall.
In order for the paying party and the court to know which items of work are claimed in relation to each phase the bill would need to be drawn in parts which reflect the phases. Although multi-part bills tend to obscure the overall picture, it seems to me that (unless a sensible alternative can be devised) in a case in which a budget has been approved or agreed and the costs are to be assessed on the standard basis it will be both necessary and convenient to draw the bill in parts which correspond with the phases of the budget.
Within each part it will also be necessary to distinguish between the costs incurred before and after the budget was agreed or approved. This could be done without further sub-division by use of italics, bold, superscript or some other formatting device.
The new format of bill, which is shortly to be the subject of a pilot in the Senior Courts Costs Office, should avoid these difficulties. Where a bill has already been drawn without being divided into phases, one possible course to avoid re-drawing the bill would be to serve schedules setting out the individual items of costs claimed in relation to each phase. I understand that a number of courts have directed this.
Because that was not done in this case the court has not been able to comply with CPR 3.18.
The format of the bill – the costs of budgeting
Paragraph 7.2 of Practice Direction 3E provides –
Save in exceptional circumstances-
a) the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the approved or agreed budget; and
b) all other recoverable costs of the budgeting and costs management process shall not exceed 2% of the approved or agreed budget.
Accordingly on detailed assessment it will be necessary to identify (a) the costs of initially completing Precedent H and (b) all other costs of the budgeting and costs management process. Where a costs management order has been made and the receiving party's budget has been agreed by the paying party or approved by the court it will be both necessary and convenient that the bill be divided so as to identify the costs of initially completing Precedent H and the other costs of the budgeting and costs management process, unless those costs can be clearly identified in some other way. In the present case it was necessary for the parties to spend time in the hearing to identify the items of work which related to the budgeting and costs management process. Had the overall result been different the Claimant may have been expected to pay the costs of that in any event.
The costs of the budgeting and costs management process
In my view the caps imposed by paragraph 7.2 of Practice Direction 3E include additional liabilities but do not include value added tax. In practice the only additional liability that will be relevant is a success fee.
Although the present, non-exhaustive, definition of costs (CPR 44.1(1)) does not expressly include additional liabilities it seems to me that any success fee claimed on work done in relation to the budgeting and costs management process must be part of the "recoverable costs" for the purposes of paragraph 7.2. For, if it is not part of the recoverable costs, what is it?
It seems to me that value added tax also falls within the expression "recoverable costs". As between the receiving party and its solicitor value added tax is tax for which the solicitor must account. As between the paying party and the receiving party it is not tax but a sum recoverable by the receiving party under the indemnity provided by the costs order (i.e. costs).
On that basis the capped "recoverable costs" would include both success fees and value added tax. However it would seem highly unlikely that the intention of the Civil Procedure Rule Committee was not to follow the only other example where a cap is imposed: CPR 47.15(5). The cap on the costs of provisional assessment is £1,500, including additional liabilities, but excluding value added tax and any court fee. |
Master Rowley:
This judgment addresses a number of preliminary issues brought in the context of detailed assessment proceedings in respect of the claimant's bill of costs. As with many detailed assessments, the issues of hourly rates, success fees and the ATE premium are important matters here and they are dealt with later in this judgment. But the central issue between the parties is whether it was reasonable for the claimant to change the funding of his case from legal aid to a conditional fee agreement ("CFA"). For reasons that will become clear, this is an issue which needs to be dealt with in relatively broad terms and as such my conclusions potentially affect cases beyond the one before me.
Background
The claimant was born on 1 December 2004. Unfortunately, he suffered serious brain damage at that time and the underlying proceedings relate to his attempt to attribute the blame for his injuries to the defendant. Liability was disputed by the defendant but this was compromised on a 70/30 apportionment in the claimant's favour shortly before the liability trial. It took a further 18 months for the parties to reach agreement as to quantum before the court's approval was sought and the case concluded. A chronology of the relevant dates for the purposes of this judgment is as follows:
9 January 2006 – legal aid certificate granted
10 February 2012 – round table meeting at which liability was agreed
21 March 2012 – court approval of agreement on liability
26 March 2012 – liability trial due to start
15 March 2013 – legal aid certificate discharged
21 March 2013 – CFA entered into between claimant and Irwin Mitchell
22 March 2013 – After the Event ("ATE") policy taken out by the claimant with Allianz
29 August 2013 – round table meeting at which quantum was agreed
4 November 2013 – court approval of damages
The claimant commenced detailed assessment proceedings on 30 January 2014. Within the total costs claimed is a success fee of £57,119.40 and an ATE premium of £50,681.78. The defendant says that the claimant's decision to change from using legal aid to a CFA and ATE arrangement in March 2013 has therefore unreasonably incurred costs of £109,968.02. The claimant accepts that this is the consequence of the decision but says that he acted reasonably given his and his solicitors' conclusions about the likely adequacy of the continued funding by the Legal Services Commission ("the Commission") (now the Legal Aid Agency). The question I am asked to determine is whether the claimant's decision to change funding arrangement was indeed a reasonable one.
The claimant relies upon the witness statement of Camilla Stanford-Tuck dated 31 July 2014 together with her letter to the Commission dated 28 February 2013 requesting the discharge of the certificate.
The defendant, as would be expected, has no direct evidence to put forward on this issue. It did provide a redacted letter between the Commission and Irwin Mitchell from a different case to illustrate one point. Similarly, the claimant relied on a redacted witness statement and other redacted correspondence from two other cases. I have not found it necessary to refer to those documents in producing this judgment and so I have not set out any details of them.
Ms Stanford-Tuck's evidence
Ms Stanford-Tuck is a solicitor at Irwin Mitchell and had conduct of this case in the early part of 2013 when the relevant events occurred. She relates that in February 2013 all "case handlers" were asked by partners in Irwin Mitchell to review their legally aided cases in light of the forthcoming changes being brought into effect by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 ("LASPO"). There was a concern that existing clients might potentially be adversely affected by the provisions of LASPO.
The specific question was asked of Ms Stanford-Tuck as to whether:
"…there was likely to be sufficient cover to fund all of my cases until conclusion, including a trial or assessment of damages hearing. If it was considered by the fee earner that there was to be any future, potential difficulty with the funding of the case until conclusion; and further if the fee earner felt the Claimant would be in a better position with a CFA with ATE funding, then the advice was that funding should be switched in advance of 1 April 2013, in order to avoid the potential adverse affects of LASPO."
Ms Stanford-Tuck says that she considered this case met "the provisions for a funding switch" and so, having taken the Litigation Friend's instructions, "and explaining the reasons for my advice" she applied to the Commission for a discharge of the certificate.
At paragraphs 8 to 15 of her statement Ms Stanford-Tuck explains the reasoning for the discharge of the certificate. Given that they are at the heart of this case, I will set them out in full:
"8. This was a complex, high value case with up to 15 experts. At the time of the funding review, liability was admitted and judgment had been entered for the Claimant. I was working to quantify the case ready for service of the final, quantum expert evidence, witness evidence and Schedule of Loss.
9. A Round Table Meeting was set for 26 July 2013 and an Assessment of Damages Hearing had been listed to commence on 28 October 2013. I had concerns that should negotiations fail at the Round Table Meeting, then there was currently no guarantee that the Legal Aid Agency would increase the reserve to a sufficient level to fund the disbursements and profit costs for an Assessment of Damages hearing. There is never any guarantee that the Legal Aid Agency will provide the cost limitations to fund the life of any case. Based on this previous experience, I was therefore unable to guarantee the client that the Legal Aid Agency would provide sufficient funding should the matter proceed to an Assessment of Damages hearing.
10. Had this concern arisen after April 2013, then I would have been left with no choice but to switch funding to a post LASPO CFA. A post LASPO CFA would result in my client recovering a lower level of damages, than had the claim been funded by a pre LASPO CFA.
11. Further, if the Legal Aid Agency had refused to increase the reserve for the Assessment of Damages hearing, and we had not switched funding to a CFA, then the client or Irwin Mitchell would have been exposed to unrecoverable disbursements and profit costs following the Assessment of Damages hearing. There was a risk to the client that there may not be sufficient funding to cover the cost of our work in the future and my client could be exposed to make up the shortfall of any costs not recovered from the Defendant.
12. There were other general considerations to take into account. Over recent years, significant cuts had already been made to Legal Aid funding and it was evident that I could not guarantee that the Legal Aid Agency would continue to provide funding for the life of the claim. Further with successful Legal Aid cases, a Claimant can find that any element of the solicitor's costs and disbursements which have not been recovered from the Defendant, may be payable and owed by them under the "statutory charge".
13. Legal Aid Agency funding does not protect a client's damages from the effects of failing to beat a Part 36 Offer. In such circumstances the client may be liable for such costs and these could be deducted from the damages, together with our own costs, incurred after the date which the opponent's offer should have been accepted. It also does not protect against the impact of any interlocutory or general adverse costs orders, which again could result in costs being deducted from the Claimant's damages. The same deductions would not be made under the terms of the CFA.
14. In order to avoid the risks stated above and avoid the effects of a post April 2013 CFA, I advised the Litigation Friend to switch funding to protect their position. The client was made aware of the changes coming into force in April 2013 and was advised of the advantages and disadvantages of switching funding to a CFA. At this stage, as there had not been a Part 36 offer we were able to offer the client a CFA on a guaranteed "no cost to you" basis which would fully fund all of the disbursements up to and including an Assessment of Damages hearing. The ATE insurance would also protect them against all of the risks in terms of exposure to costs due to Part 36 offers and interlocutory matters. This combination meant that the client would not have to make any payments for costs at the time, or out of damages recovered, and I could guarantee that there would be a sufficient funding retainer in place to cover all costs up to and including an Assessment of Damages hearing.
15. Further, due to the fact it was a "no cost, to you" CFA, I could guarantee the client that any shortfall in costs not recovered from the Defendant, would not be charged to the client, provided they comply with the conditions of the CFA, The costs would simply be written off. Therefore the risk of the "statutory charge" was eliminated."
The letter seeking to discharge the certificate
On 28 February 2013, Ms Stanford-Tuck wrote to the Commission to request a discharge of the certificate for the reasons to set out in the letter. The letter notes that in April 2012 cover for Stage 5 funding was granted, the final schedule of loss and damage would be served "within the next couple of weeks" and that a round table meeting was anticipated in or around September 2013.
The letter makes reference to "at least" 4 applications made to request additional scope and funding during the life of the certificate and the fact that these applications had not always been granted. In particular reference is made to an application during Stage 3 of the case where £84,500 had been requested but only £47,000 had been granted, "despite being in receipt of positive evidence."
The costs to date are put at £216,069.57 based on profit costs of £75,560, counsels' fees of £20,640 and other disbursements from the start of the certificate of £119,869.57. The costs limitation is said to be £103,000. Based on these figures, the letter states that "It is clear that we have exceeded the financial limit of the Certificate without completing the work allowed within the scope. We have also gone over our estimated costs as set out in our letter of 29 February 2012."
The further work set out under stage 5 included finalising the witness evidence and schedule of loss as well as reviewing the defendant's evidence on quantum once served. In relation to the costs of stage 6, the preparation for a quantum trial, Ms Stanford-Tuck estimated the future costs to be approximately £370,000. These are broken down as profit costs £180,000, counsels' fees £60,000 and other disbursements £130,000.
Having set out these figures, Ms Stanford-Tuck sets out her case for alternative funding and ended with a request for confirmation that the Commission would discharge the claimant's certificate. The four paragraphs that set out the case for alternative funding are as follows:
"Without sufficient Public Funding to cover the cost of our work, our client is exposed to make up the shortfall in any costs not recovered from the Defendant. This is clearly not in our client's best interests when there are alternative methods of funding available.
In addition, as we enter into litigation, it must be borne in mind that LSC funding does not protect a client's damages from the effects of failing to beat a Defendant's Part 36 offer. In such circumstances the client may be liable to pay the opponent's costs as these would normally have been deducted from damages, together with our own costs incurred after the date which the opponent's offer should have been accepted.
In our opinion, where there is insufficient public funding, it is in our client's best interests to have an alternative funding arrangement in place. In this case the most suitable would be a Conditional Fee Agreement with an After The Event insurance policy, which provides no risk of our client incurring costs or deductions from her compensation. We have advised our client's Litigation Friend of the same.
Our difficulty comes with the changes in the rules governing the recoverability of ATE insurance premiums from Defendants in successful claims that come in to force on 1 April 2013. If our client enters into a CFA after 1 April 2013 and her case is successful, then the ATE premium would not be recoverable from the Defendants and would leave her exposed to paying for it from her compensation. It is therefore crucial to enter into a CFA prior to 1 April 2013 in order to protect our client's funding position and to prevent her paying for the ATE premium."
Mr Hutton QC, who appeared for the defendant, highlighted the contrast in evidence between this case and others where similar matters have been considered, such as LXM v Mid Essex Hospital Services NHS Trust [2010] EWHC 90185 (Costs). In particular, the claimant had not chosen to rely on any attendance notes of the advice given to his Litigation Friend by his solicitor notwithstanding the point of dispute clearly setting out the challenge to the change in retainer.
Mr Hutton sought disclosure of such documentation via the election procedure set out at paragraph 13.13 of the Practice Direction to the current Part 47 and sometimes known as the Pamplin procedure. Mr Innes, who appeared for the claimant, resisted the application on the basis that the claimant had chosen to put in witness evidence. To the extent that such evidence did not deal with a particular argument raised by the defendant, that would become the claimant's problem. But that did not require the claimant being put to his election regarding the disclosure of documentation on which he did not rely. I declined Mr Hutton's application on the basis that I had already looked at the relevant part of the claimant's files that had been lodged with the court prior to the hearing. I indicated that the available documents did not take matters any further than the evidence that had been produced in my view. I did not expect to refer to any documents other than those disclosed when giving this judgment and as such it was not appropriate to require attendance notes, which were not being relied upon in any event, to be subject to the Pamplin procedure. As the parties will see, I have not felt the need to refer to any other documentation in this judgment.
The relevant law
As with all matters concerning "pre-commencement funding arrangements" it is necessary to look at the CPR as it was before the costs rules were recast on 1 April 2013 when the new regime commenced. References in this judgment, unless otherwise stated, refer to the "old" rules.
Many of the relevant cases refer to CPR 44.5(1) as the starting point for considering the incurrence of additional liabilities. That rule of itself simply stated that the court is to have regard to all the circumstances when deciding if costs have been reasonably and proportionately incurred and are reasonable and proportionate in amount.
The Costs Practice Direction, at paragraph 11, provided more direct guidance:
"11.7 Subject to paragraph 17.8(2), when the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement.
11.8(1) In deciding whether a percentage increase is reasonable relevant factors to be taken into account may include:--
(a) the risk that the circumstances in which the costs, fees or expenses would be payable might or might not occur;
(b) the legal representative's liability for any disbursements,
(c) what other methods of financing the costs were available to the receiving party."
Mr Hutton produced a compendious and detailed recitation of case law accruing over the last 15 years since CFAs came to the fore as a funding mechanism. Court of Appeal cases such as Sarwar v Alam [2001] EWCA Civ 1401 and High Court decisions such as Forde v Birmingham City Council [2009] EWHC 12 (QB) have given guidance on the issue of claimants choosing between alternative funding methods.
Interspersed between those decisions have been regular decisions in the Senior Courts Costs Office on the specific merits and demerits of using CFAs and legal aid. Master O'Hare gave decisions in Bowen v Bridgend County Borough Council in 2004 and in Hughes v London Borough of Newham in 2005. Master Gordon-Saker decided Howarth v Britton Merlin Limited in 2005 and LXM in 2009. More recently, Master Leonard decided AMH v The Scout Association earlier this year.
All of the cases have been attempting, on their own facts, to apply the test originally set out in Sarwar at paragraph 50:
"The overriding principle is that the claimant, assisted by his/her solicitor, should act in a manner that is reasonable."
Both parties' advocates covered the facts of these cases and the principles to be extracted from them. Mr Hutton also referred to the case of Bradley v Windsor House Group Practice, a decision of District Judge Bedford sitting in the Leeds District Registry in 2011, and which was specifically referred to in the points of dispute. I do not propose to recite the facts of the various cases covered by the parties. Where either party specifically drew support from a factor in a particular case I have referred to it as part of the submissions.
Parties' submissions
In order to demonstrate that the claimant's choice was, or was not, reasonable, the parties analysed the relative merits and demerits of legal aid funding versus CFA and ATE funding in the circumstances of the claimant's case. This analysis largely centred on the reasons given for the change of funding as set out in the evidence above. One of the main planks of the defendant's case is that Irwin Mitchell did not advise the claimant fully on the merits or otherwise of a change in funding and as such there is one additional matter that is not covered in the evidence.
I will start with the matters that are covered by the evidence. There is, as ever, a good deal of interplay between the specifics but essentially the issues fall into two groups. First, the issues of using legal aid. Secondly, matters concerning the recoverability of the claimant's own costs and, to some extent, protection against payment of the defendant's costs.
Using Legal Aid
The replies state that the "process of securing legal aid funding for every step became more complex and cumbersome, which would have impeded the progression of the Claimant's case…" This is a suprising contention given that the claimant had had the benefit of legal aid for seven years at the time of the discharge of the certificate. There is no evidence of the increasing bureaucracy although it is fair to say that it is a comment often made judging by the decisions in LXM and AMH. As is said in those decisions, such bureaucracy is a matter for the solicitor and is not a factor that is relevant for the client to consider.
In the replies to the points of dispute, it is suggested that continuing with legal aid funding would have had an effect on the quality of the evidence. This enigmatic statement is not amplified anywhere else. There is no evidence to suggest any difficulty in the claimant obtaining the expert evidence he required whilst the certificate was in place nor anything to suggest that this would not continue to be the case. I also reject this as a relevant factor to be considered.
The replies to the points of dispute say that one of the significant difficulties for the claimant stemmed from the abolition of legal aid for most clinical negligence claims. Mr Hutton was vehement on this point that it was nonsensical since the claimant already had legal aid. Mr Innes did not try to support this reply and he was right to do so. The position in respect of other cases cannot be of any relevance to the claimant in the decision he had to make. I note that the comment later in the reply on this point refers to legal aid being subject to review which is a different point.
From the phrase "Without sufficient Public Funding to cover the cost of our work" in the letter to the Commission, Mr Hutton extracted a suggestion by the claimant that there was a risk of the Commission pulling the plug on this case based on the cost / benefit analysis applied to all legal aid funding. This was something of a straw man argument because there is no suggestion to my mind that the claimant or his advisers were concerned about this happening. Mr Innes readily accepted that it was very unlikely that the Commission would do such a thing given the fact that liability was admitted and the case was of high value. The concern was, as Mr Innes was keen to point out, that the costs limitation would not be increased sufficiently to cover the costs that needed to be incurred.
The figures set out in the letter to the Commission make stark reading on the face of them. But it is clear that they are not to be taken at face value. When Mr Hutton queried why the Stage 6 figure of £370,000 was so high given the work that remained, Mr Innes explained that that was meant to be a cumulative figure for all 6 stages. But Mr Innes was unable to explain why the combined figure for disbursements and counsel's fees in the letter is said to be £140,509.57, even though the equivalent figure in the bill of costs (for parts 1 to 5) is only £74,010.58. There were some speculative exchanges between the parties regarding how this circle might be squared but it ended unsatisfactorily to my mind.
Much of the force of the letter to the Commission is dissipated by the uncertainty over the figures. Should I consider the claimant's costs to have exceeded the limitation of £103,000 already by £113,000 (to reach £216,069.57)? Or should I consider it to be a more limited excess of £43,000 based on the seemingly correct disbursement figure and the profit costs figure in the letter reaching a total of roughly £150,000?
In either eventuality, the costs limitation, unless increased, would mean that Irwin Mitchell were unlikely to receive payment of their costs from the Commission if they could not recover them from the defendant, even at Commission rates. There is no evidence before me that Irwin Mitchell sought to increase the final level of the certificate before requesting a discharge. The reference to a number of requests for additional scope and funding in the letter is not unusual and does not of itself suggest that the Commission were being particularly parsimonious. The statement that the additional funding had not always been granted must logically mean that on at least one occasion it was granted as requested.
There is no hint, in my view, that this case was unusual as far as Ms Stanford-Tuck was concerned in respect of the costs limitation and the manner in which the case was being progressed. Having obtained judgment on liability, and there being no Part 36 offer at the time, the prospect of having to seek payment of costs from the Commission was slim. In all likelihood, the costs would be paid by the defendant at the end of the case without any recourse to the legal aid fund save, perhaps, for certain modest items.
It is clear from Ms Stanford-Tuck's statement that the approach to the Commission was galvanised by the initiative of the partners at Irwin Mitchell to review cases on which legal aid certificates were in existence. The terms of the letter, which appear to me to be written in sufficiently general terms as to have been drafted in a pro-forma fashion, do not suggest that the exceeding of the costs limitation was a matter of concern in itself; merely it bolstered the case for a change in funding for the future. There is no indication in the witness statement or the letter that the costs in this case had got away from the fee earner and the situation needed to be remedied.
Recoverability of claimant's own costs
There was a good deal of discussion in the submissions regarding whether a legally aided claimant would be better off than one using a CFA and ATE insurance in circumstances where some of the claimant's costs were not recovered.
Given the claimant had already succeeded on liability here, the only prospect of a complete loss would be if the claimant decided to give up the case entirely and there was no suggestion that this was a realistic possibility. Consequently, the reduction in recovery of damages or costs would only emanate from (1) an unbeaten Part 36 offer; (2) an adverse interlocutory costs order; or (3) costs which could not be recovered between the parties in any event.
Dealing firstly with Part 36 offers, both Ms Stanford-Tuck's evidence and her letter refer to legal aid not protecting the claimant's damages from a well judged Part 36 offer. In such circumstances, the claimant might be liable for the defendant's costs to be deducted from damages as well as for his own costs.
Mr Hutton challenged this assertion on the basis that it was more likely to be the claimant's costs that would be affected than his damages. This would occur by way of a set off between the claimant and defendant's orders for costs. Mr Hutton cited Scott LJ in the case of Lockley v National Blood Transfusion Service [1992] 1 WLR 492 where he stated:
"In general, in my opinion, interlocutory costs incurred in the progress of an action to trial and ordered to be paid by a plaintiff to a defendant would in equity impeach the right of the plaintiff to recover from the defendant costs of the action ordered to be paid by the defendant. A set-off of costs against costs, when all are incurred in the prosecution or defence of the same action, seems so natural and equitable as not to need any special justification. I would expect a party objecting to the set-off to give some special reason for the objection. It is, in my opinion, less obvious that a set-off of costs against damages would always be justified."
Mr Hutton also referred to the case of R (Burkett) v London Borough of Hammersmith and Fulham [2004] EWCA Civ 1342. There, the Court of Appeal dismissed the argument run on behalf of the claimant's solicitors (and other solicitors generally) that a set off unfairly impacted on the lawyers. The Court decided that the difference between the fees calculated at between the parties' rates and at legal aid rates was a matter which must have been considered by Parliament when setting up the scheme. The fact that a set off impacted on the lawyers rather than the claimant did not prevent such an order being made.
Mr Innes raised two arguments in response to the suggestion that a failure to beat a Part 36 offer only affected the claimant's lawyers. First, the question of a set off has no impact on the costs payable by the claimant under the statutory charge. Secondly, Mr Innes did not accept that costs were always set off against costs rather than damages in any event. He referred me to several paragraphs in Burkett (quoting Scott LJ in Lockley) to show that the court had in mind the concept of costs being offset against either damages or costs depending upon the circumstances. The following is one of the propositions put forward by Scott LJ in this context:
"Set-off of costs or damages to which one party is entitled against costs or damages to which another party is entitled depends upon the application of the equitable criterion I have endeavoured to express. It was treated by May J in Currie & Co v Law Society [1977] QB 990, 1000, as a 'question for the court's discretion'. It is possible to regard all questions regarding costs as being subject to the statutory discretion conferred on the court by s51 of the [Senior Courts] Act 1981. But I would not have thought that a set-off of damages against damages could properly be described as a discretionary matter, nor that a set-off of costs against damages could be so described."
Consequently, the description by Ms Stanford-Tuck of offsetting costs against damages was a perfectly proper description of the risk. In practice, a court would have a decision to make as to who decided not to accept a Part 36 offer and so whether the damages or the costs should be affected.
The question of interlocutory costs orders largely covered the same ground as Part 36 offers. Mr Innes considered them to be a risk under legal aid funding of a payment having to be made from damages either directly or via the statutory charge. Mr Hutton accepted the point in principle but sought to minimise the issue on two bases. The first was that any such order for costs would in all likelihood be set off against the claimant's costs rather than the damages for the reasons already set out.
The second reason was that the prospect of any interlocutory costs order against the claimant was slim. The claimant's case was largely complete. Once the witness evidence and final schedule of loss were served, there were no further directions to be complied with and the onus would be on the defendant. There would then be a round table meeting and if that did not conclude matters, there would be a final hearing. The scope for interlocutory skirmishes against the claimant at this point in proceedings was modest.
Mr Hutton's submissions on this point ran alongside his submissions regarding the extent of a Part 36 risk. No offer had been made at the time of the funding switch. Therefore the costs to that point were, to all intents and purposes, secured by the claimant. The nature of negotiations in high value clinical negligence cases militated against the use of Part 36, at least until the round table meeting. Any offer thereafter would be of limited effect because the trial would have been close on its heels. Mr Innes did not accept that there would be no Part 36 offer before the round table meeting. The fact that no offer had been made up to March 2013 was no reason to think that one would not be made shortly thereafter. Any Part 36 offer made would potentially be very expensive on costs bearing in mind the forthcoming trial. Such costs might even outweigh the claimant's costs to date according to Mr Innes.
The fact that no Part 36 offer had been made enabled Irwin Mitchell, according to Ms Stanford-Tuck, to offer a "no cost to you" CFA which is generally described as a "CFA Lite" and which precludes any recovery of costs from the claimant at the end of the case if there is a shortfall. The combination of this agreement and ATE insurance, the parties were agreed, rendered the claimant virtually immune to the payment of costs.
Mr Innes was keen to emphasise the attractiveness of this position. He referred to the decision of Master Leonard in AMH in which the "crucial" advantage of an agreement was that it focused on maintaining the client's damages from deduction of unpaid costs. It guaranteed to the client that "if you enter into this arrangement you will not lose any of your damages to meet unpaid costs, whether your own or the other party's." It also appeared to Master Leonard that a de facto CFA Lite was important to Master Gordon-Saker in LXM.
Mr Hutton accepted that this was a point in the claimant's favour. But, as he pointed out, in the absence of any Part 36 offer the claimant was at no risk as at February / March 2013. For the reasons just set out, it was unlikely that any Part 36 offer would be made prior to the round table meeting. Even if that did occur, Mr Hutton suggested that the claimant was still some way away from really being at risk. The offer would not only have to be rejected on advice of the claimant's team, it would also have to be sufficient to be more than allowed on an assessment of damages hearing.
Mr Hutton's final point on the claimant's CFA Lite was that if the claimant had decided to change solicitors thereafter, as had happened in LXM, the claimant would have been liable for all the base costs incurred to that date. This did not seem to me to be Mr Hutton's best point. The claimant had instructed Irwin Mitchell for seven years and was entering the last few months on any analysis. The prospect of a change of representation was no more likely in my view than the idea that the legal aid funding would be withdrawn in its entirety and a possibility to which Mr Hutton had given short shrift. In any event, the idea that Irwin Mitchell would seek their costs to be paid before the end of the case in such circumstances had no evidential backing and flew in the face of the fact that the claimant had no money until the case was resolved. This was at best a theoretical possibility and no more.
The parties were agreed that the statutory charge would apply in this case. Indeed there is a small element of the costs claimed in the claimant's bill of costs which have been claimed against the Agency only. If, on assessment I consider some items not to be allowed between the parties, it may well be that the sums to be paid by the Agency, and recouped via the statutory charge, will be increased.
Mr Innes sought to suggest that the eventual figure for the statutory charge could have been significantly higher if the claimant had not transferred to a CFA. But that argument seemed to overlook the point that less than £2,000 had been claimed for the first 7 years' work. Mr Hutton sought to persuade me that because Irwin Mitchell had offered the claimant a CFA Lite, they would be likely to have waived any claim to legal aid only costs. That did not seem to me to be a compelling argument either. The CFA provided Irwin Mitchell with a success fee in addition to the base costs whereas the legal aid funding did not. Many solicitors' firms using CFAs have been prepared to use the success fees to meet the own client costs written off. There is nothing to suggest that Irwin Mitchell would have done the same having used legal aid funding. Indeed the decision to claim at least some of the costs from the Agency in the present bill (which was drawn prior to this argument of the defendant being raised) suggests that a claim would indeed have been made for costs if legal aid had been used throughout.
In both paragraph 11 of her witness statement and in the letter to the Commission, Ms Stanford-Tuck refers to a risk that the client might not have sufficient legal aid funding to see the case through to the end. This would potentially expose him to a requirement, according to the witness statement, to "make up the shortfall of any costs not recovered from the Defendant." Mr Hutton queried what this could mean. Costs that were not recovered from the defendant would be paid by the Agency. To the extent that there remained any shortfall, Irwin Mitchell would not be able to look to their client for payment because such "topping up" is expressly forbidden by the legal aid regime. I did not understand Mr Innes' submissions on shortfall generally to demur from Mr Hutton's point on topping up and which in any event is hardly controversial. To the extent that Ms Stanford-Tuck thought that her client was in danger of having to pay costs to his solicitor, other than by way of the statutory charge, she was wrong to do so and any advice of that nature would be flawed.
The parties were agreed that the ATE insurance purchased would protect the claimant against any adverse orders for costs, whether they were interim or final orders. The extent to which the legal aid funding protected the claimant was also largely agreed. The shield provided by section 26 LASPO would apply in principle but would be affected considerably by the size of the claim and the claimant's own order for costs. As discussed above, any adverse orders would in all probability have been set off against the claimant's damages or costs and any consequent own client costs that had to be met by the Agency would trigger the provisions of the statutory charge.
LASPO
Up to this point, the arguments set out by the parties are very similar to those put before Master Leonard in AMH. This is not surprising in that the onset of LASPO as of 1 April 2013 caused solicitors up and down the country to consider how their existing cases and future cases would be taken forward under the new regime.
Mr Innes reminded me of the febrile atmosphere in the personal injury and clinical negligence world at the time. As he said, hardly a day went by in the first three months of 2013 without a seminar or article on ATE insurance; CFAs and success fees; the further restriction on legal aid; and a whole range of matters which formed part of the interlocking reforms. In order to consider the reasonableness of the claimant and his solicitor's actions at the time, it was necessary for me to put myself back in that atmosphere.
Mr Innes suggested that the defendant's criticisms of the advice given risked a setting of unrealistic standards. This was not a case where a new client had been taken on and advice in accordance with the code of conduct was required. Here, the claimant and his solicitors had built up a relationship by this point and the solicitor was, quite properly, steering her client as she would do in respect of many matters in the claim. This was the reality of the situation. A text book setting out of all of the options with appropriate caveats and provisos might have covered the solicitor's back better but it would not necessarily have been so helpful to the client.
The issue of LASPO arriving had been raised quite properly with the client and the answer provided of changing funding to avoid risks in an uncertain environment could not properly be criticised. It might be that either option would have been a reasonable choice.
Mr Innes also suggested that the defendant was downplaying the risks that Irwin Mitchell had identified. The likelihood of a risk occurring had to be multiplied by the severity of the consequences if the risk did eventuate. Such risks could easily outweigh an obvious but limited risk. Fearing an indeterminate, but potentially significant, risk more than a known risk which could be more easily considered was a natural human reaction.
These observations were made by Mr Innes at the outset of his submissions. They were very largely aimed at dealing with Mr Hutton's trump card which was the LASPO issue that had not been mentioned in the advice given to the claimant judging by the evidence put before this court. That issue was the claimant's recovery of additional damages following the decision in Simmons v Castle [2012] EWCA Civ 1039 and 1288.
Paragraph 20 of Simmons, as amended by the second judgment, states:
"20. Accordingly, we take the opportunity to declare that, with effect from 1 April 2013, the proper level of general damages in all civil claims for (i) pain and suffering, (ii) loss of amenity, (iii) physical inconvenience and discomfort, (iv) social discredit, or (v) mental distress, will be 10% higher than previously, unless the claimant falls within section 44(6) of LASPO. It therefore follows that, if the action now under appeal had been the subject of a judgment after 1 April 2013, then (unless the claimant had entered into a CFA before that date) the proper award of general damages would be 10% higher than that agreed in this case, namely £22,000 rather than £20,000".
The rationale for the Court of Appeal's pronouncement was to put into effect recommendations 10 and 65(i) of Sir Rupert Jackson's final report. The additional damages were intended to recompense clients who were no longer able to recover the cost of their solicitor's success fee or their ATE premium from the opponent where successful.
As with many settlements, a global figure was reached here without specifying how much of the agreed damages relate to the general damages which would be susceptible to the 10% increase. Nevertheless, Mr Hutton produced in his skeleton argument a range of £23,850 to £29,700. These sums represent 10% of the Judicial College guidelines for the assessment of general damages for personal injuries in respect of cases of quadriplegia. The claimant was to receive 70% of the full liability figure and that would reduce the range to a bracket of £16,695 to £20,790.
Mr Hutton's argument was a simple one, but no less forceful for that. By entering into a CFA before 1 April 2013, the claimant denied himself up to £20,790 of Simmons damages. That was, to quote Mr Hutton's skeleton, "a lot of money to write off immediately by entering into a pre-April 2013 CFA with success fee."
It seems to me that the defendant's legal representatives were a little disbelieving that no advice regarding the Simmons damages had been given in this case. The Pamplin procedure request referred to above was an attempt to make sure that this court card, as the defendant saw it, could be played without being trumped by some contemporaneous document which showed the advice had in fact been given.
Mr Innes clearly saw that he would have to meet this challenge and that the evidence at his disposal did not assist him to do so. He relied on the dicta of Master Leonard in AMH regarding incomplete advice being no bar to a reasonable decision in appropriate circumstances.
The AMH case is very similar in that a specialist personal injury firm gave no advice on the Simmons damages issue when advising a client to change from legal aid to a CFA. Mr Wheeler in that case also did not give advice regarding the capping of the success fee in a post-LASPO CFA nor the effect of Qualified One Way Costs Shifting. Notwithstanding the failure to give that advice, Master Leonard considered that the CFA Lite arrangement overrode those failures.
Mr Hutton accepted that a case where the general damages were modest (as appeared likely from the facts of AMH) would mean that the Simmons damages would also be modest and so the failure to advise the claimant of the trading away of those damages against other benefits might be less problematic. But here the sum was considerable and it could not be argued, in Mr Hutton's submission, that the quality of advice required by the code of conduct had been given in order to advise the client and his Litigation Friend properly as to their options.
Mr Hutton disputed the bald statement by Ms Stanford-Tuck at paragraph 10 of her witness statement that damages would be lower if there was a post-LASPO CFA. It may be that some of the damages would be used to pay for the irrecoverable success fee. But the Simmons damages would only be recoverable under a post-LASPO CFA and they were a substantial sum.
Decision
In every case cited to me it appeared that there was a very slight restatement of the test which I am required to apply. The test set out above from Sarwar requires me to consider whether the claimant, assisted by his solicitor, has acted in a manner that is reasonable. The relevant action is of course the decision to change funding arrangements and so the question is whether the claimant made a reasonable choice in doing so. As Master Gordon-Saker said in LXM, the choice does not have to be the best one, but merely a reasonable one.
Mr Hutton sought to persuade me that the test is only "primarily" about whether the claimant has made a reasonable choice. Consequently, there must be secondary considerations regarding the reasonableness and proportionality of that choice. Mr Hutton referred to a passage from Sarwar which referred to "an inquiry into the availability of alternative funding arrangements which might be less expensive…" in order to establish that the costs have been incurred reasonably and proportionately.
On to this Mr Hutton grafted comments from Wraith v Sheffield Forgemasters Ltd [1998] 1 WLR 132. The passages I was taken to referred to the need for parties in each individual case to keep the costs of litigation down and to avoid luxury choices. It did not seem to me that these references were apposite. Wraith was decided before Parliament decided that additional liabilities would become recoverable. The nub of the defendant's challenge is to the additional liabilities that have been claimed at the end of the case when it appears to the defendant that this was not required. The choice of a London solicitor versus a Sheffield solicitor is not a similar comparison to CFA funding versus legal aid. The approach that CFA and ATE funding was inevitably more expensive than any other form of funding was prevalent at the time of cases such as Bowen. But as Mr Hutton himself submitted in LXM, when appearing for the claimant, such an argument is too simplistic.
Considering the reasonableness of the claimant's actions involves considering the merits and demerits of two different forms of funding. The playing field on which those two forms rest is a level one: it is not tilted in favour of a non-additional liability option. If the claimant's actions were reasonable, there are no secondary considerations in my view to bring to bear.
Paragraph 11.8(1)(c) of the Costs Practice Direction requires the court to look at "what other methods of financing the costs were available to the receiving party" when considering whether a success fee is reasonable. Since no other method of financing costs uses a "percentage increase" it cannot be that this requirement relates to the level of the success fee claimed. It can only be to the existence of the success fee in the first place.
For the reasons I have just given, I consider this to be a relatively low hurdle for the claimant to surmount. If it were not, then the playing field would not be level. The most obvious reason to change from legal aid funding to a CFA is that the costs limitation has been reached and the solicitors are understandably concerned about proceeding any further on an arrangement which allows for fees if successful but not if unsuccessful. Such fees would include disbursements and for which the solicitor would probably be liable even if the case was unsuccessful.
I have recently given a judgment on just such a case (Hyde v Milton Keynes Hospital NHS Foundation Trust). The distinguishing feature between that case and this one is the completely different approach to the relevance of the costs limitation. I have said already that in this case the limitation appeared to have been ignored and was only considered when the letter to the Commission was being prepared. The wholly unsatisfactory nature of the figures used in that letter demonstrates, in my view, that there was no concern in the claimant's solicitors' minds about the recovery of the costs that had been incurred. Judgment on liability had been entered, quantum was being calculated and the defendant would be meeting the costs at the end. This is a very different picture from the case of Hyde even though there too judgment on liability had been obtained.
The arguments in relation to the use of legal aid and the relatively cumbersome requirements of it do not assist the claimant in my view. I have largely explained why when setting out the arguments. Some of the arguments were simply irrelevant but for those that were relevant, in essence, they are the price paid by the solicitors for being able to offer legal aid funding to potential clients.
It seems to me that the claimant's strongest reasons for changing from legal aid to a CFA relate to the shortfall issues. Whether the shortfall is significant following a failure to beat a Part 36 offer, or relatively modest in relation to the statutory charge costs for corresponding with the Commission as claimed here, there is inevitably a shortfall to be paid by the claimant when using legal aid.
I tend to agree with the defendant's submissions in respect of set-off i.e. that it is usually against costs rather than damages, but it cannot be said in any case that it will be one rather than the other. Even if it is in respect of costs, that may serve simply to increase the costs claimed from the Commission and recouped via the statutory charge.
The costs protection afforded by s26 LASPO is well known to be effective for legally aided parties as a shield against a successful opponent's costs. But that is not the situation here given the size of the claimant's damages and own costs potentially available for a set off. The legal aid protection is inferior to ATE cover in these circumstances.
The use of a CFA leaves a residual liability for costs if they cannot be recovered from the opponent. That is inferior to the legal aid position because, in the latter, the own client costs would be sought at legal aid rates rather than commercial rates. Consequently, the use of a CFA Lite is, to use Master Leonard's word, "crucial" in making the CFA and ATE option comparable with legal aid funding. The solicitor takes the risk of the shortfall rather than the client and provides a better package for the client.
This begs the question of why the claimant was not offered a CFA Lite and ATE insurance at any point during the 7 years during which this claim was proceeding under a legal aid certificate. The answer presumably is that the risks of establishing breach of duty and causation are such that using legal aid is preferable where that is possible. Thereafter, if any costs limitation is honoured to some extent in the breach, the claim can be run quite easily via legal aid.
In this case, it was only the coming into force of LASPO which prompted a change of mind about this arrangement. I accept a good deal of what Mr Innes said about the advice to be given to an existing client when matters crop up. I do not see any objection to the advice being provided on the basis of a particular outcome being preferable, or "nudging" the client as Master Leonard described it. The setting out of options and then advising on a preferred course is part and parcel of a solicitor's role of adviser to her client. Indeed it would have been entirely remiss of Ms Stanford-Tuck not to raise the issue with her client.
It seems to me that there can be no criticism of a solicitor who gives cautious advice on a voyage into unchartered waters. Therefore, whilst it might seem odd to talk of giving guarantees to the client, I do not see anything wrong in principle of drawing a distinction between the guaranteed funding option of a CFA and ATE and the inevitably non-guaranteed option of public funding. I do not think too much can be made of this particular point though because the prospect of funding being withdrawn in this case was indeed fanciful and the costs limitation did not appear problematic to Irwin Mitchell.
I also accept the observations of Mr Innes regarding the atmosphere in early 2013 and the endless debate about how to fund cases pre and post the implementation of LASPO. Mr Hutton suggested that a phone call to Allianz would have been all that was required to find out how much a post LASPO policy would cost. That was disputed by Mr Innes and I agree with him. The ATE insurers were keeping their post LASPO product cards firmly to their chests. They, as with many stakeholders, were uncertain as to the most appropriate course of action. In this context, I do not see how a solicitor can be criticised for upsetting the status quo in terms of representation and advising that a pre-commencement funding agreement on CFA Lite terms should be entered into notwithstanding the long standing legal aid arrangement.
All of these comments, however, are predicated on the basis that the solicitor will set out the various options fully and properly as part of explaining why her advice is to follow a particular course.
This does not mean that every single fact and matter has to be set out before compliance has been achieved. I agree entirely with Master Leonard's conclusion in AMH that:
"I am unable to accept that a choice must be unreasonable if it is not made on the best available information. I think one has to consider…whether the choice was reasonable in all the circumstances. It is…possible to make the right choice for, here, not so much the wrong reasons as an incomplete set of reasons."
However, on the facts of this case, the failure to give advice regarding the post LASPO landscape and in particular the Simmons damages, in my view rendered the advice to be insufficient on which to found any proper or reasonable conclusion.
Mr Hutton referred to the recent Supreme Court case of Montgomery v Lanarkshire Health Board [2015] UKSC 11 on the question of informed consent being required of patients before an operation. In the leading judgment of Lord Kerr and Lord Reed the correct position is that:
"An adult person of sound mind is entitled to decide which, if any, of the available forms of treatment to undergo, and her consent must be obtained before treatment interfering with her bodily integrity is undertaken. The doctor is therefore under a duty to take reasonable care to ensure that the patient is aware of any material risks involved in any recommended treatment, and of any reasonable alternative or variant treatments. The test of materiality is whether, in the circumstances of the particular case, a reasonable person in the patient's position would be likely to attach significance to the risk, or the doctor is or should reasonably be aware that the particular patient would be likely to attach significance to it.
It seems to me that the test of materiality in this context is very similar. There is no evidence before me to indicate whether the claimant or his Litigation Friend would have considered the abandoning of up to £20,000, which was more or less guaranteed, in return for peace of mind regarding future funding. They may have decided that the system that had apparently worked for 7 years was unlikely to break down in the final stages and they would rather have the money and risk the funding issues. They may have taken the view that QOCS protected them sufficiently not to incur an ATE premium. The possibilities for speculation are endless. What is certain however, is that the Simmons damages were of significance and so should have been explained to the claimant's Litigation Friend so that informed consent to a change in funding could be given. The absence of any evidence from the Litigation Friend on this point, to my mind, speaks volumes.
In the absence of being informed of these issues it seems to me impossible to say that the claimant can have made a reasonable choice to change funding arrangements. Consequently, I find that the additional liabilities flowing from the new arrangements are unreasonably incurred and as such are not recoverable from the defendant.
Hourly Rates
The reasonable rates for the various fee earners who worked on this case need to be determined, regardless of the outcome of the other issues in this judgment.
The claimant lived in North London when Irwin Mitchell (then Alexander Harris) were first instructed. The defendant says that the Guideline Hourly Rates ("GHR") for Outer London should be the basis for the costs allowed, albeit that it accepts that some enhancement on those rates is justifiable.
Sadly, this is a case at the top end of clinical negligence cases in terms of the injury sustained to the claimant. I have no doubt that it was reasonable for the claimant to instruct a Central London firm which specialises in this work. In the absence of any Expense of Time calculation I have used the Guideline rates for Central London as a starting point.
This case runs from 2006 to 2013 and so the relevant GHR are:
Grade of fee earner GHR Rate Claimed
A 276 - 317 375 - 390
B 210 - 242 304 - 320
C 171 - 196 275 - 290
D 110 - 126 130 - 150
The table is potentially misleading in that there was no involvement from a Grade A fee earner to begin with, the Grade B fee earner was only involved in the early stages and the Grade D fee earners were charged in a bracket of £130/135 to £150 throughout. Nevertheless, the table does give some idea of how the rates claimed compare with the GHR and it was the level of enhancement on those rates which was the dispute between the parties.
I have not set out the submissions made since this is an issue which is very much a matter for the costs judge's experience and is informed by rates claimed, challenged and allowed in respect of other firms in case both similar and distinct. Whilst the use of legal aid and CFAs means that clients are less directly affected by the solicitors hourly rates than private paying clients they are still potentially affected. I recognise that virtually all specialist clinical negligence firms charge their clients rates which exceed the GHR and often substantially so.
Bearing in mind the value and complexity of this case, together with the other factors in CPR 44.4(3), I consider the following rates to be reasonable.
Grade of fee earner Rate allowed
A 2006 - 2009 = £350
2010 onwards = £375
B 2006 - 2009 = £270
C 2006 - 2009 = £220
2010 onwards = £250
D 2006 - 2009 = £120
2010 onwards = £130
Level of success fee
In case I am wrong about the central issue in this judgment, I will deal briefly with the other matters raised before me.
Both the solicitor and counsel CFAs were entered into in March 2013. The risks considered at that time resulted in a 100% success fee for the solicitor and 11% for counsel. The only appreciable difference in the risks faced between the two is that counsel did not carry the so-called "Part 36 risk" i.e. receiving no base costs if a Part 36 offer advised to be rejected is not subsequently beaten.
The leading authority on success fees where liability has already been admitted is C v W [2008] EWCA Civ 1459. In that case a 20% success fee was allowed representing essentially the Part 36 risk.
Both parties' submissions on this issue were brief. The 100% claimed here by the solicitors was described as insupportable by Mr Hutton and referred specifically to the amount allowed in C v W. Whilst not conceding any reduction to the sum claimed, Mr Innes took what I considered to be a realistic view in his skeleton argument and also mentioned the C v W decision. For my part, I can see no reason to distinguish this case from C v W and as such consider that a success fee of 20% for the solicitors CFA would have been reasonable.
With regard to counsel's success fee, the defendant's points of dispute say that the 11% claimed should be reduced to 5% but does not give an explanation of why the defendant considers the lower figure to be reasonable but not the higher. Mr Hutton did not expand on that point of dispute and Mr Innes maintained the 11% as being a measured and realistic assessment of the risk.
Paragraph 23 of C v W is often quoted on assessment of the level of the success fee. It states that the best a lawyer can do is to make a broad assessment of the risk based on their own experience. Providing the resulting success fee falls "within a reasonable bracket", the Court of Appeal would not expect the costs judge to reject that assessment of risk. Counsel has effectively halved the success fee he might have claimed if he had taken the Part 36 risk. I do not see that I could possibly conclude that the resulting success fee is outside a reasonable bracket for the remaining, modest risks. I would have allowed the success fee as claimed for counsel.
Level of ATE premium
The claimant purchased a LitigATE policy underwritten by Allianz and for which Irwin Mitchell have delegated authority. It is a block rated policy and so needs to cater for cases which have barely started as well as cases such as this one, where liability has been conceded and the risks have reduced.
Mr Hutton sought to persuade me that I should not take Rogers v Merthyr Tydfil County Borough Council [2006] EWCA Civ 1134 as a bar to considering the reasonableness of the premium. Mr Hutton relied on the decision of HHJ Holman sitting in the Manchester county court in the case of Beasley v St Thomas's Priory Golf Club (21 August 2008). It is one example of cases where the judiciary have felt themselves able to take a different view from the underwriter notwithstanding the exhortations of the Court of Appeal in Rogers (quoting Lord Hoffman in Callery v Gray [2002] UKHL 28) that costs judges should be cautious about taking any contrary view, other than in broad terms.
I have no doubt that I can take a contrary view to the underwriter if the risk assessment or the level of cover has manifestly resulted in an overly high premium being claimed. But Rogers is very clear authority that the court should be slow to adjust block rate premiums in particular. There are inevitably swings and roundabouts with such premiums and it is not appropriate in my view to be trying to deconstruct the premium here in the way that Mr Hutton sought to persuade me to do.
The only aspect which demands some scrutiny is the level of cover which is £500,000. That is considerably higher than the usual block policy in my experience. It also provides, in my view, considerably more cover than can be required in the great majority of cases. It is well known that the higher levels of cover cost little in terms of premium compared with the cover at the bottom since the higher levels are rarely called upon. It is also well known that one of the purposes of setting a higher level of cover than would be needed in most cases under a delegated scheme is in order to make it administratively simpler.
I was referred to the case of Finney v Secretary of State for Health, a case heard on 4 February 2015 in the County Court at Hull by District Judge Besford who is a regional costs judge. DJ Besford was persuaded that the level of cover was appropriate. However, he interpreted the wording of the policy to mean that only a stage 3 premium was payable which was £31,800 rather than the £50,681.78 claimed.
The circumstances of this case and the case of Finney are identical in that the policy was taken out after liability had been concluded. I do not consider that the policy wording deals with this situation. The description of the start date, in my view, only contemplates a policy being taken out at the beginning of the claim. I regret to say that I do not entirely follow why DJ Besford considered that the policy leapt straight into stage 3, nor that the premium for the earlier stages was not also recoverable.
Be that as it may, it does seem to me that the premium allowed by DJ Besford would be a reasonable and proportionate sum to allow in this case. I do not think that it was reasonable to take out a level of cover more than around £250,000 on a block rated basis. Higher levels of cover will be required by so few cases that to include such cover in every policy is not a reasonable cost in my judgment. Very few firms have delegated authority schemes above £100,000 and £250,000 is about the maximum of the policies that I have seen. |
This clinical negligence case was proceeding to a ten day split trial on liability only but liability was agreed more than a year before that trial commenced. It was listed for a two day detailed assessment before me but, by the start of the second day the costs to be allowed had been agreed. I am asked now to rule upon the Claimant’s entitlement to the costs of the assessment.
There are three key dates to note: 24 July 2015, the date of the Claimant’s solicitors letter inviting the Defendant’s solicitors to proceed to mediation; 28 September 2015, the date of the Claimant’s solicitors’ letter enclosing a Part 36 offer as to all of the costs to be assessed; and 6 October 2015, the date of the Claimant’s solicitors letter enclosing a Part 36 offer in respect of counsel’s fees, that is to say part of the costs to be assessed.
In the result the defendants failed to beat either offer and accordingly the claimant seeks remedies pursuant to Part 36.17 and also seeks further penalties having regard to the defendant’s refusal to agree to mediation.
I shall start my judgment with the order I intend to make and then explain my reasons for it. The order I intend to make is more limited than the claimant invited me to make. It is in these five points.
a. I award a sum equivalent to ten per cent of the costs assessed. That is a figure of £13,000-odd.
b. I award interest on the costs assessed at eight per cent from the day of the judgment, the day of the award for costs. That was 7 January 2015.
c. I order the Defendant to pay the Claimant’s costs of detailed assessment up to 27 July 2015 on the standard basis.
d. I order the Defendant to pay the Claimant’s costs of detailed assessment from 27 July on the indemnity basis.
e. Lastly, I want to award interest on item (i) and on the costs of assessment (items three and four) at eight per cent starting from today.
As to (i), I am making the standard order which ought to be made when a paying party fails to beat the receiving party’s offer to settle. It seems to me no good reason has been shown to me to make an exception; as to that, see Cashman v Mid Essex Hospital Services NHS Trust [2015] EWHC 1312 (QB). Whilst there are some points which might lead one to think the standard penalties are unjust in this case (the imbalance of information between the parties (the claimants know more about their bill than the defendants do) and the claimant’s failure to alter that imbalance by making replies) but those factors did not influence me to depart from the standard order. I think the defendants did have suitable information to make an assessment of the sum likely to be awarded, bearing in mind the high costs of assessment if this matter went as it did to a two-day hearing. The offer was made well before any detailed assessment was in the offing. No hearing appointment was made until several weeks after the offer was made.
But now I will say what I have not allowed. I did not think it right to order an additional percentage reward or penalty in respect of the offer of 6 October. That offer relates to counsel’s fees. The penalty on the defendants in respect of counsel’s fees has already been awarded in respect of the earlier offer. I did not think it right that a receiving party can multiply the number of ten per cent awards he obtains simply by itemising different parts of his offer and expecting the court to increase allow 10% increases in respect of all of them.
Also I think it is not right to allow any enhancement of interest either on the costs assessed or on the costs of assessment. It seems to me the ten per cent sum I have awarded is by itself a sufficient reward or penalty. I think it would be disproportionate to impose further penalties.
Next, I think it is not right for me to award interest on the ten per cent itself for any period starting earlier than today. That is a sum which is being assessed and awarded today; it is not a sum which the defendants could reasonably be expected to pay before today. Its arrival time is now. It having arrived, interest on it will run under the Judgments Act at eight per cent per annum from today, but that is not something I need state; that is the automatic effect of the Judgments Act 1838.
In respect of the defendant’s failure to mediate, I think the only sanctions available for me to impose are to award costs on the indemnity basis and to award interest on those costs from a date earlier than today, today being the normal date. I am persuaded that the defendant’s refusal to mediate in this case was unreasonable. It took them six weeks to reply to the offer and they then replied in the negative. But nevertheless I do not think I should impose the indemnity basis penalty from a date earlier than the date the defendants are likely to have received the claimant’s offer, and that is why, in item (iii) I said interest should run from 27 July, that is, some three days after the offer was sent. I do not think I have any power to award a percentage penalty as I can in respect of a Part 36 offer. In my view I do not have power to alter the rate of interest payable and I do not think it proportionate to add interest penalties on top of an award on the indemnity basis from a date earlier than today.
I want to end with a brief note of caution about sanctions imposed on parties who unreasonably refuse to mediate. Case law on this topic is largely about penalties imposed on parties who are in other respects the successful party. In Halsey v Milton Keynes NHS Trust [2004] EWCA Civ 576 and in other cases, penalties imposed upon winners. They do not involve the imposition of further penalties upon losers. One can see that throughout the judgment in Halsey. I will read out a sentence from paragraph 28:
“As we have already stated, the fundamental question is whether it has been shown by the unsuccessful party that the successful party unreasonably refused to agree to mediation.”
There are many other such references to this being a penalty against winning parties, for example, see paragraphs 13 and 34.
If the party unwilling to mediate is the losing party, the normal sanction is an order to pay the winner’s costs on the indemnity basis, and that means that they will have to pay their opponent’s costs even if those costs are not proportionate to what was at stake. This penalty is imposed because a court wants to show its disapproval of their conduct. I do disapprove of this defendant’s conduct but only as from the date they are likely to have received the July offer to mediate. |
THE MASTER: This is the issue about the costs of the detailed assessment.
A bill was originally lodged for approximately £239,000 and the basic fact is that upon a detailed assessment this was reduced to £135,486.90. The claimants claimed their costs of the detailed assessment under 47.20 in that they say that they have beaten all offers that have been made by the paying party. In addition there was a request that the parties engage in mediation made on 1 April 2015 which was rejected by the defendants, and the claimants therefore seek a sanction for the failure to agree to mediate.
The defendant's case is first of all that the bill claimed items that should not have been claimed and that they have succeeded in obtaining a considerable reduction to the bill and that the appropriate order should be no order for costs. They say they did not enter into the mediation because the parties were so far apart. The claimants were unreasonable in their offers, and the offers that were put forward by the defendants were much closer to the actual settlement than in fact were the offers made by the claimant, and these are the factors that should be taken into account.
Although Mr Blackwell for the receiving party says that there are two separate issues here (first of all the costs of the detailed assessment under 47.20, and secondly about the defendant's failure to engage in mediation), it seems to me that these are one and part of the same issue that is dealt with under 47.20 because I have to take into account all the circumstances of the case and one of the circumstances is the defendant's failure to engage in mediation.
In my judgment there are two basic principles involved here. The first principle is bills of cost should not include claims for items to which a receiving party is not entitled. The second principle is that the parties should be encouraged to enter into mediation and if one party fails to enter into a mediation and that failure is unreasonable then there should be a sanction.
Dealing with the first principle, this claim was originally against five defendants but ultimately the settlement was only against one defendant. The bill specifically makes clear in the narrative that claims in respect of items against the second and the fifth defendants should not be included in the bill. They were included. This should not have happened. To start off with detailed assessment, the notice of commencement does include and the solicitors certified that this is a reasonable bill and that this is an accurate bill and these are the only costs to which the receiving party is entitled. At the time the original bill was served the bill was not accurate. There were included significant amounts which should not have been included in the bill because they related to costs that were incurred specifically in respect of the claims against the general practitioners, which claims were eventually discontinued and formed no part of the settlement. This is wrong and in my judgment is the principle that I have to take into account when dealing with the costs of the detailed assessment.
The second major principle is that parties should be encouraged to enter into mediation, and if they fail to do so unreasonably then there should be a sanction. Despite Mr Martin's eloquence, I am not satisfied that the defendant was reasonable in failing to enter into mediation. I think it was a reasonable request made by the claimant on 1 April 2015. It took three months for them to reject and they gave no good reason other than the fact that the case had already been set down for a detailed assessment.
So my judgment is based on those two principles. Dealing with the first principle, that in 47.20 I have to have regard to all the circumstances including the conduct of all the parties, the amounts (if any) by which the bill of costs has been reduced and whether it was reasonable for a party to claim the costs of a particular item or to dispute that item. It is clear, as I have already indicated, that a fact that I have to take into account is whether it was reasonable for a party to claim the costs of a particular item which was clearly unreasonable, it should not have been done, the claimants were reasonably speedy in accepting the points of reply by making concessions and reducing some of the matters that were claimed in the bill that should not have been claimed. But it is a point of principle here that bills should not include items. There was a certificate in the bill and that certificate is wrong and it is appropriate there should be a sanction.
Furthermore, I take into account that the bill was reduced by approximately 43 per cent. That is unusual in detailed assessments. One usually accepts a reduction in bills of perhaps 33 and a third. A 33-and-a-third reduction is something that is on the high side so a reduction of 43 per cent from the original bill is a factor that I have to take into account.
In all those circumstances, whilst I think that the claimant is entitled to their costs of the detailed assessment, because of the principle that I have enunciated in my judgment they should only be entitled to 80 per cent of their costs.
We now come to the question of mediation and, as I have indicated, in principle the defendants have not given any reasonable reason why they refused to engage in mediation and I am satisfied that there should be an appropriate sanction. I find it very difficult to decide what the sanction should be because, as I indicated in argument with Mr Blackwell, the beneficiary of any sanctions will be the solicitors who have not suffered any particular loss because they are being compensated for the delay by interest at eight per cent, and of course they are receiving profits on the further work that may have been done, so they do not really lose out as a result of the failure to mediate. However, there is a point of principle involved and in my judgment there should be a sanction. I am not satisfied that the sanction should be increased interest because eight per cent interest in this day and age is already a penal rate of interest and the defendant has to bear this very high rate of interest and they are being punished already by their actions because this case could have been settled by mediation.
Nevertheless I am satisfied there should still be a sanction and I think that the correct sanction is that the claimant should receive their costs on an indemnity basis on their 80 per cent costs as a sanction for the defendant's failing to engage in mediation. |
MASTER O'HARE :
The bill in this case relates to a clinical negligence claim which ended pre-issue on the acceptance of the Defendant's offer to settle the claim by paying £3500 plus costs. The bill claimed £32,329.12 and proceeded by way of provisional assessment at which I reduced it on grounds of reasonableness by about two thirds. Most of that reduction related to the hourly rate claimed and the costs of a conference with counsel. I then made a further reduction on grounds of proportionality. The total allowed provisionally was £9879.34 including VAT plus the costs of provisional assessment (£1694.70 including VAT).
The Claimant's solicitors requested a post-provisional hearing of five hours which was held on 9 October 2015. In fact slightly more than five hours was spent at that hearing during which I re-assessed the bill on grounds of reasonableness but only heard argument as to what if any further adjustment was appropriate on grounds of proportionality.
Thus the primary purpose of this reserved judgment is to state and explain my decision as to proportionality. However, I shall first set out the basic facts of this case, then summarise the rulings I made as to hourly rates, and the conference I disallowed and then state and explain my decision as to proportionality.
Background facts of the claim
The claim related to injuries and losses suffered by the Claimant's husband, Mr Leslie Hobbs, now deceased. In February 2011 he had had a lump surgically removed from his forehead. On discovering another lump, near the ear, he returned to his General Practitioner on 22 March 2011. On that day his General Practitioner sought to make an urgent appointment for him at the Defendant hospital. However the appointment which Mr Hobbs was given (4 April 2011) was for a breast clinic and this mistake was not corrected by the Defendant, despite the Claimant's family's best efforts to do so.
Mr Hobbs attended as directed on 4 April 2011 and saw another specialist on 6 April 2011. After more pushing from the family, a follow up appointment was made for him which he attended on 20 April 2011. This led to a further appointment for tests, the earliest date for which was 4 May 2011. On receipt of the results of those tests further arrangements were made leading to radical surgery on 6 June 2011.
That operation took about ten hours to perform after which Mr Hobbs (then aged over 80) suffered confusion and delirium and spent a long time in hospital recovering. He was discharged from hospital on 13 July 2011.
Mr Hobbs and his family first contacted their solicitors in the Summer of 2011 but no retainer was made until 25 January 2012, some weeks after receipt of the Defendant's letter of response to the formal complaint which the family had made. Legal aid was applied for and was obtained on 13 March 2012. In April 2012 the solicitors wrote to the Defendant notifying them of the grant of legal aid and seeking medical records.
By mid January of the next year, 2013, the solicitors had received a report from Mr P.H. Henderson, Consultant Plastic Surgeon. He was in no doubt that the treatment Mr Hobbs had received was sub-standard, the operation having been delayed by about a month [Report, para 6.1]. He suggested that the lump may have increased in size by 50% to 100% over that period [Report, para 6.3] but subsequently suggested that the opinion of a Consultant Oncologist should be taken on this point [Letter dated 5 February 2013, final paragraph]. In his opinion the operation might have been shorter by one hour had the operation been performed earlier but he could not say whether the longer operation had worsened the post-operative confusion and delirium [Report, para 8.5]. He felt that this was a question for an Anaesthetist or Geriatrician or possibly a Neurosurgeon [Report, para 8.5].
On 9 June 2013, the solicitors received a report from Dr David Spooner, Consultant in Radiotherapy and Oncology. He felt that the relevant period of delay by the Defendant was five weeks [Report, paras 4.1 and 4.2] and agreed with Mr Henderson's view that the total volume of the lump is likely to have increased by at least 50% during the period of delay [Report, para 4.5].
Correspondence with Mr Hobbs' family at that time suggests that they felt some disappointment that the period of delay in the operation had not been found to be longer. The solicitors next made arrangements for a telephone conference with Mr Nicolas Yell of counsel attended by Mr Hobbs' son in law and by both experts.
The telephone conference took place on 17 October 2013. In a witness statement prepared for the hearing before me the solicitor, Mr Stefanovic, attributes to this conference the acceptance by Mr Henderson that the period of delay in the operation was five weeks not the one month he had suggested in his Report. Performing the operation earlier would have lessened the amount of disfiguration to Mr Hobbs head but that extra work (bone drilling) had not increased the duration of the operation by more than the hour or so he had previously suggested [Witness Statement, para 10].
Starting in November 2013 the solicitors sought the help of Dr D.M. Levy, Consultant Anaesthetist who was willing to provide advice pro bono. On 23 January 2014 the letter of claim was sent to the Defendant. This provoked some further correspondence before receipt of the Defendant's letter of response in May 2014 which admitted a two to three week delay but denied any longer delay and denied that the delay had increased the duration of the operation or the need for bone-drilling.
Mr Hobbs died on 29 April 2014, a few days before receipt of the Defendant's letter of response. There is no suggestion that his death had been accelerated by any wrongful act of the Defendant. The conduct of his claim now passed to his widow, the Claimant in these proceedings. Legal aid not being available to her, she entered into a conditional fee agreement with the solicitors. The date of entry into that CFA is such that the Claimant is not entitled to recover from the Defendant any success fee which may be payable to the solicitors.
On 13 May 2014 the Defendant made a Part 36 offer of £1500. The Claimant's solicitors advised her that this offer was too low, that she should make a counter-offer of £10,000 but should consider carefully any further offer from the Defendant of £5000 or more. Later in May 2014, the Claimant served a Part 36 offer of £10,000. The Defendant served a revised offer of £3000 on 3 September 2014 and the case finally settled on 24 September on a payment of £3500 plus costs.
Solicitor's Hourly rates
Almost all of the profit costs claimed in this bill relate to work done by Mr Stefanovic, a senior solicitor with many years experience of clinical negligence work. The bill correctly describes him as a Grade A fee earner whose office is located in the City of London. The bill claimed £300 per hour in respect of him. In the provisional assessment I selected as a starting point the Outer London rate for a mid range Grade B fee earner and did not allow any enhancement on that rate (£200 ph) except some inflation enhancement for work done after April 2014 (£210 ph).
At the hearing Mr Harrington argued for a restoration of the £300 rate on grounds of importance of the case (including public importance given that it was a claim against a public body) and on grounds of complexity. Although Mr Stefanovic's office is based in the City of London, £300 is significantly below the guideline for that area (£409) and is also below the guideline for Central London (£317). He submitted that, although the claim was not of high value, a middle range Grade B fee earner would not have had sufficient experience to conduct it. He drew attention to the fact that, for a fee earner to be accredited by the Law Society in clinical negligence work, 8 years' post-qualification experience must be proved together with actual experience of conducting a cerebral palsy claim. In the alternative he argued that, if the Outer London guideline was adopted, the starting point should be made at the top of that guideline (£267) from which an enhancement of only 12.5% was needed to bring the rate to £300. In his submission this case could not have been adequately conducted by a fee earner at Grade B save one who had substantial medical expertise prior to qualification as a solicitor. Such a fee earner he argued would easily merit an allowance at or near £300.
I did not increase the hourly rates I had allowed provisionally. Grade A rates are appropriate only for Grade A fee earners doing Grade A work. I do not accept that this case merited a Grade A fee earner at any stage. To my mind the claim had no complexity worthy of mention and no public importance. In my judgment Mr Harrington's submissions greatly over-estimated the complexity and importance of this case and substantially under-estimated the abilities of an average middle range Grade B fee earner. A fee earner at Grade B or below would have been entitled to defer to advice received from a more senior practitioner (whether solicitor or counsel) had any points of sufficient complexity arisen in this case. In my judgement the conduct of this case was not of such weight or responsibility which would make comparable the hourly rate applicable for a Grade B fee earner in Central London.
Conference in October 2013
In my provisional assessment I had disallowed, as between the parties, all profit costs and disbursements relating to the conference and stated that:
"On basis of experts' reports received, a conference is NOT a reasonable step for a Grade B fee earner to take".
That ruling would not justify a disallowance in respect of counsel's work of course and therefore I allowed a fee for counsel as against the legal aid fund. However, the solicitors have decided not to make any claim for costs payable legal aid only.
At the hearing I was referred to the witness statement I have already summarised and to a Note from Counsel dated 16 September 2015. Nevertheless I remain of the view that this conference was, at best, premature. It achieved no advantage in the conduct of the claim that had not already been achieved from perusal of the two expert reports obtained. Counsel shares a view which was also expressed by Mr Stefanovic that (in counsel's words)
"… it was necessary to pin the Surgeon down on the duration of that negligent delay …"
I do not accept that. The divergence of view between the experts on this topic was not more than one week and the conference provided no additional insight on the question whether the extra delay had had any deleterious effect on Mr Hobbs other than an increase in pain and discomfort for an extra week. To my mind counsel is not correct when he says
"The conference saved costs being incurred at a later stage of the proceedings by identifying the issues and our case on them."
These issues had already been identified in the experts' reports. I also respectfully reject, as an over-statement, counsel's assertion that
Had the advice [given at the conference] been negative, the claim would not have been pursued."
It was an indisputable fact that Mr Hobbs' treatment had been delayed for a few weeks by the mistake the hospital made which sent him to a breast clinic rather than a head and neck clinic.
At the hearing Mr Harrington also argued that, if the work of the conference was disallowed, some notional fees should be added back to replace the advantage the conference had provided, including the instruction of an Anaesthetist, Dr D.M. Levy). However, this possible line of development had already been suggested by Mr Henderson in his report (noted above).
Proportionality
Two tests of proportionality apply in this case. In respect of work done before April 2013 (Parts 1 and 2 of the bill) the test known as the Lownds test applies. However, no questions arise as to proportionality in these parts of the bill. In respect of work done on or after 1 April 2013 (Parts 3 and 4 of the bill) the test which has come to be known as the Jackson test applies. Rule 44.3(5) states:
"Costs incurred are proportionate if they bear a reasonable relationship to—
(a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party; and
(e) any wider factors involved in the proceedings, such as reputation or public importance."
Rule 44.3(2) states:
"Where the amount of costs is to be assessed on the standard basis … Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred …"
As yet there is little by way of authoritative guidance as to how this new test is to be applied. The CPR quoted above implement one of the recommendations made by Sir Rupert Jackson in his Review of Civil Litigation Costs: Final Report (December 2009).
"… in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in [what is now CPR 44.4(3)] and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction. There is already precedent for this approach in relation to the assessment of legal aid costs in criminal proceedings: see R v Supreme Court Taxing Office ex p John Singh and Co [1997] 1 Costs LR 49." (Final Report, para.37).
R v Supreme Court Taxing Office ex p John Singh and Co concerned the assessment of costs in criminal cases and gave rise to what is known there as the "Singh adjustment". This obliges the court to carry out "what might be called the audit exercise in relation to the individual items on the bill" (see judgment of Latham J., approved by Henry L.J. at p.56). Thereafter, there must be
"a sensible assessment of the consequence of aggregation in the light of the overall complexities of the case and, above all, the experience of the Determining Officer and Taxing Master".
Further persuasive guidance has been given by Lord Neuberger in a lecture delivered on May 29, 2012.
"… the obvious way of introducing proportionality is that … adopted in the [Final Report], namely by effectively reversing the approach taken in Lownds. In this way, as Sir Rupert said, disproportionate costs, whether necessarily incurred or reasonably incurred, should not be recoverable from the paying party. To put the point quite simply: necessity does not render costs proportionate. Reference to necessity can be said to be positively misleading as it suggests necessary to achieve justice on the merits: substantive justice. A fundamental tenet of both Woolf and Jackson, accepts that that aim must be tempered by the need for economy and efficiency, and, above all proportionality. On one view, once one has a proportionality requirement, necessity may add nothing; on another view, any test which incorporates necessity is one which will all too easily see necessity trump proportionality. However, it may well be that it is right to retain necessity as a requirement, provided that it is borne firmly in mind that it is one of two hurdles which have to be cleared."(Lord Neuberger MR)
In Kazakhstan Kagazy PLC v Zhunus [2015] EWHC 404 (Comm) Leggatt J gave guidance on the approach to proportionality which should be taken in hard fought litigation, with neither side showing any sense of moderation, where the sums in issue exceeded many millions of pounds.
"[13] In a case such as this where very large amounts of money are at stake, it may be entirely reasonable from the point of view of a party incurring costs to spare no expense that might possibly help to influence the result of the proceedings. It does not follow, however, that such expense should be regarded as reasonably or proportionately incurred or reasonable and proportionate in amount when it comes to determining what costs are recoverable from the other party. What is reasonable and proportionate in that context must be judged objectively. The touchstone is not the amount of costs which it was in a party's best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances. Expenditure over and above this level should be for a party's own account and not recoverable from the other party. This approach is first of all fair. It is fair to distinguish between, on the one hand, costs which are reasonably attributable to the other party's conduct in bringing or contesting the proceeding or otherwise causing costs to be incurred and, on the other hand, costs which are attributable to a party's own choice about how best to advance its interests. There are also good policy reasons for drawing this distinction, which include discouraging waste and seeking to deter the escalation of costs for the overall benefit for litigants."
In this case I provisionally assessed that it was reasonable for the Claimant to incur costs exceeding £11,000 plus VAT in order to obtain medical records and appropriate expert evidence, send a letter of claim and settle this claim pre-issue. In my view it is right to take into account Parts 1 and 2 in this calculation even though, if the total is disproportionate, it would be wrong to disallow any costs in Parts 1 and 2 on the basis of the Jackson test of proportionality.
I next considered whether the sum allowed as reasonable was also proportionate. The answer would be yes if I were to apply the test propounded by Leggatt J: I had already assessed what was the lowest amount which the Claimant could reasonably have been expected to spend in order to have this case conducted and presented proficiently, having regard to all the relevant circumstances. However, I do not think that test applies in cases such as this where the amount of reasonable costs will inevitably exceed the value of the claim. Kazakhstan Kagazy PLC was a case where the sums in issue bore no relation to the costs however high they were. However the amount of the sums in issue is one of the factors I have to take into account here and, indeed, it is the first factor listed in CPR 44.3. I provisionally ruled that the sum I had allowed as reasonable was not proportionate. In doing so I had regard to the factors listed in CPR 44.3(5) (especially (a) and (c)).
When considering what reduction to make on grounds of proportionality I decided against chopping off a slice of all of the costs I had just found to be reasonable. In my view it is better to target particular items of work which it was disproportionate to do in the particular circumstances of the case in hand. In the result I disallowed the costs of three items which now appear, with hindsight, to be inconsistent with the true value of the claim.
Costs incurred in respect of Dr D.M. Levy, Consultant Anaesthetist which I notionally valued at £600 plus VAT.
Costs incurred in respect of the Part 36 offer to settle for £10,000 which I notionally valued at £200 plus VAT.
On other profit costs in the relevant period, the difference between the Grade B rate I had allowed and £165, the appropriate rate for a Grade C fee earner: I notionally valued this discount at £400 plus VAT.
In my judgment, although it was reasonable for the Claimant's solicitors to incur these costs it is unfair to expect the Defendant to pay for these items (cf the view taken by two of the Lords Justices in Medway Primary Care Trust v Marcus [2011] PIQR Q4, a case in which the claimant reasonably sought damages exceeding £500,000, necessarily incurred at least £50,000 pre-issue but ultimately won only £2000). The rule against the use of hindsight in costs assessment (Francis v Francis and Dickerson [1955] 3 All ER 836) is a rule based upon reasonableness, which, today, is trumped by proportionality (see r.44.3(2), quoted above).
The adjustment I made on grounds of proportionality reduced the total costs provisionally allowed to a figure below £10,000 (including VAT but excluding the costs of the provisional assessment). Whilst such an expenditure is high in respect of a claim of that value which settles pre-issue, I did not think it disproportionate in all the circumstances. I did not think it right to disallow the expenditure on medical records or expert reports. Even in modest value clinical negligence claims it is necessary to incur costs on these items. I did not allow these items of costs on grounds of necessity since that is trumped by proportionality. I allowed them having regard to the fact that clinical negligence claims have more complexity and involve more work than do other claims of similar value.
In the post-provisional assessment, the costs I allowed as reasonable rose by about £800 plus VAT. However this did not cause Mr Regnauld (the advocate for the paying party) to challenge as too small the reduction I had previously made on grounds of proportionality. The only argument I must now rule upon is whether or not the reasonable costs I have allowed are disproportionate.
I did not accept the written submissions filed on behalf of the Claimant which argued that some costs (including probate costs and photocopying) should be excluded from the proportionality test nor that other costs should be excluded on the basis of their absolute necessity.
As to the oral submissions made by Mr Harrington, I did not accept his submissions that this case had public importance which I should take into account under factor (b). I accept that I should have regard to this case as a clinical negligence claim and indeed I did so. I do not accept his submission under factor (d) that the work that was done was additional work generated by the conduct of the Defendant. It is true that the claim would have been avoided if the Defendant had accepted liability and volunteered compensation either in 2011, in response to the complaint then made, or in 2012, in response to the letter from the solicitors which mentioned legal aid and sought medical records. However, the ordinary steps taken by the Defendant in these years do not, in my judgment, amount to conduct which put the solicitors to "additional" work in this case.
Mr Harrington's final submissions were that I should not take into account VAT or the costs of drawing and checking the bill. At the provisional assessment I did not take VAT into account but did take into account the costs of drawing and checking the bill. I accept Mr Harrington's submissions on these points. I should calculate the figure of reasonable costs without taking into account VAT or the costs of drawing and checking the bill. This is how proportionality is dealt with in the many cases now subject to costs management under CPR 3.12.
Suitably adjusted the reasonable costs provisionally allowed by me would have been lower by about £1100 excluding VAT. Of the £800 added at the post-provisional hearing, £200 relates to the costs of drawing the bill. Deducting £1100 but adding back £600 makes the post-provisional figure of reasonable costs lower than the provisional figure by about £500 excluding VAT.
In the result I am not persuaded that my provisional assessment that these costs are disproportionate would have been different if I had omitted the costs of drawing and checking the bill. More importantly, now the post-provisional figures are known, I remain of the view that the reasonable costs allowed in this case are disproportionate and should be reduced by £1200 plus VAT as described above.
A draft of this judgment having been sent to both sides in advance, neither side attended the hearing today. I will hear argument if necessary as to the costs of this detailed assessment on 9 November 2015 at 11.00 a.m. I direct that the time limited for appealing from this decision does not begin until today. If any written requests for permission to appeal have been made I will deal with them by letter. |
Introduction
Courtney Ellen Webb, the claimant, was born by vaginal delivery at 17.52hrs on 25 October 1999 at Liverpool Women's Hospital NHS Foundation Trust, the defendant. She was born following an induced labour. She sustained a right brachial plexus injury (BPI) during the birth process caused by shoulder dystocia. The result is that, sadly, she suffers from Erb's palsy which involves a limited range of movement in her right arm.
She contends, through her mother and litigation friend, Stacey Keira Perkins, that the defendant handled the birth process negligently and that had it not done so the injury would not have occurred. This hearing over 5 days commencing on 27 October 2014 has been a liability hearing to test that contention. If relevant, quantum will be determined on a future date.
The allegations extend to a contention that a Caesarean section was indicated at various times during labour and that the defendant was negligent in its failure to proceed to Caesarean section but instead proceed to vaginal delivery. It is accepted that if Courtney had been born by Caesarean section then she would not have suffered BPI because this injury is a possible consequence of shoulder dystocia which itself is a possible consequence of vaginal, but not Caesarean, delivery.
Furthermore it is contended that even if it was not negligent to proceed to vaginal delivery, the delivery itself was negligently mishandled because the midwives employed by the defendant failed to adopt the proper and recognised procedures, well-known at the time, to avoid such an injury.
The defendant's position is that there was no requirement at any stage that Courtney be delivered by Caesarean section before the vaginal delivery that occurred at 17.52 hours, that the shoulder dystocia was recognised promptly and managed appropriately and that the BPI could not reasonably have been prevented because it was probably caused by the propulsive forces of labour.
As one would expect in a case where such matters are in issue, each party has permission to rely upon obstetric and midwifery expert evidence. The claimant instructed Mr Michael Gillmer, Consultant Obstetrician and Gynaecologist and Mrs Sandra Tranter, midwife and the defendant instructed Dr Michael Maresh, Consultant Obstetrician and Gynaecologist and Mrs Susan Brydon, midwife.
Whilst there has been some overlap, the obstetricians have predominantly addressed the issue of whether the failure to proceed to Caesarean section at various points before delivery was negligent and the midwifery evidence deals with whether the vaginal delivery was appropriately handled taking account of the fact that it is not disputed that this delivery was afflicted by shoulder dystocia.
As a result of the joint meetings held between the parties' respective experts, Mr Sheldon, counsel for the claimant, has revised the Particulars of Claim to produce an amended version for which he sought permission on the first day of the hearing. His premise was that the proposed amendments reflected the manner in which issues had been narrowed and/or clarified at the joint meetings. Mr Martin, counsel for the defendant had had notice of the proposed amendments and took no objection to them. He very properly acknowledged that they reflect the real issues and accordingly I gave permission for the amendments to the Particulars of Claim and have incorporated that amended document into the court bundle at Bundle 1 Tab 1 page 8A.
Accordingly Mr Sheldon and Mr Martin are agreed as to the issues for determination. They are set out in paragraph 10 of Mr Sheldon's opening note and paragraph 6 of Mr Martin's skeleton argument. In short they are;
a. Was the defendant negligent in failing to proceed to Caesarean section at 13.50 hours, 15.00 hours, 15.30 hours or 16.15 hours?
b. If a decision to proceed to Caesarean section had been taken at any of those times would Courtney have been delivered by Caesarean section? If she had, it is accepted that she would not have sustained BPI. It is not suggested that Miss Perkins would have failed to consent to a Caesarean section if the defendant had told her that that was the appropriate course.
c. The decision having been taken to proceed to vaginal delivery was the shoulder dystocia that occurred during delivery negligently managed? In particular;
d. Was excessive force applied to Courtney's head and neck during delivery?
e. Were negligently inadequate efforts made to place Miss Perkins in the McRoberts position in order to attempt to free Courtney from shoulder dystocia?
f. Was fundal, rather than suprapubic pressure applied during the course of delivery in order to attempt to free Courtney from shoulder dystocia?
If the answer to any of these questions c to f is in the affirmative on balance did that cause the brachial plexus injury?
Medical definitions
I do not intend to dwell for too long on medical definitions but it is helpful to provide enough detail for this judgment to be read by a lay person and in particular Miss Perkins and perhaps in due course Courtney without too much recourse to a medical dictionary.
Shoulder Dystocia, Erb's palsy, Brachial Plexus and McRoberts
Mr Martin in paragraph 4 of his skeleton argument drew my attention to Croft v Heart of England NHS Foundation Trust [2012] EWHC 1470, in which Hickinbottom J gave a full and lucid summary of shoulder dystocia, what it is, how it occurs during childbirth, the mechanics, dynamics and possible consequences involved. His explanation has been cited with approval as recently as 16 January 2014 by Haddon-Cave J in Sardar v NHS Commissioning Board [2014] EWHC 38. For convenience therefore and with gratitude to him I cite Hickinbottom J's summary in full;
For the purposes of the delivery of a child, the female pelvis has an inlet which is usually oval-shaped, being wider in the transverse diameter (side-to-side) than the anterio-posterior (front-to-back) diameter. The pelvic outlet is also oval, but wider in the anterio-posterior diameter. The normal mechanism of labour is that the fetal head will enter the pelvis through the inlet in a transverse or lateral position (i.e. with the baby's face facing to one side or the other), with the shoulders in the anterio-posterior diameter. The shoulders remain more or less in that diameter, whilst the head, upon reaching the pelvic floor, rotates to the same diameter to facilitate its delivery of the head, reverting to the lateral once it is delivered.
Usually, the head having been delivered, during the course of the next uterine contraction, the shoulders and body are delivered. Whilst the accoucheur guides the baby's body out, he or she does not impose anything more than modest traction: the baby is spontaneously pushed out by the force of the contraction.
However, where the shoulder girdle of the baby is wide, following delivery of the head, the leading or anterior shoulder can become impacted against the symphysis pubis, preventing the shoulders from spontaneously descending as they should. To enable delivery of the baby, this obstetric emergency (known as "shoulder dystocia") requires manoeuvres other than normal downward traction and episiotemy. The condition is difficult to predict, and its severity cannot be assessed until after the head has been delivered. By its nature, the accoucheur midwife is usually the first clinician to identify the problem. It is uncommon but, understandably, the rate of occurrence rises sharply with fetal size, being perhaps over 10% for babies over 4.5kg. It requires speedy and decisive action when encountered, to prevent fetal hypoxia which may lead to brain damage or death.
Shoulder dystocia is diagnosed by (i) the retraction of the delivered baby's head into the pelvis, known as "turtling", which (said Mrs Fraser) was a sign of more than moderate shoulder dystocia; or (ii) the failure of the delivery of the baby's shoulders and body during the first uterine contraction after the delivery of his or her head. It was common ground between the experts (and agreed by Midwife Haughton) that, if there is any sign of turtling, then any traction of the head would be inappropriate and dangerous. During the first uterine contraction after delivery of the head, it is appropriate for the accoucheur to apply some modest traction to the baby's head unless and until it is apparent that resistance is being encountered. As soon as resistance is apparent, then, again, it is common ground (and, again, agreed by Midwife Haughton) that any further traction to the head would be inappropriate and dangerous.
Once shoulder dystocia is diagnosed or suspected, the first step for the midwife is to summon assistance, because the recognised steps to overcome the problem require more than one clinician. First, the mother's hips are hyperflexed onto or towards her abdomen (the McRobert's manoeuvre): this change of position effectively straightens out the exit passage for the baby. Second, supra-pubic pressure may be applied (the Rubin manoeuvre): this may assist by mechanically disimpacting and hence dislodging the shoulder. One or both of these steps usually result in prompt delivery of the baby. If they do not, then more intrusive manoeuvres are available.
The brachial plexus is a group of nerves emerging from neck region of the spine, which supply the muscles of the shoulder and forearm. When stretched, these nerves may become damaged or even torn, leading to partial or total paralysis of the arm (a condition known as "Erb's palsy"). When the nerves are torn from the spinal cord or otherwise ruptured, the condition is usually permanent. Where there is no rupture, the prognosis is good and full recovery within a short period is common.
Erb's palsy is a known complication of birth delivery, during which the head may be the subject of lateral traction away from the shoulder. Of course, the condition might be iatrogenic in cause, i.e. it might result from the application of physical force to the head by the accoucheur, particularly after the head has been delivered and prior to the delivery of the shoulders and body. Indeed, until fairly recently, it was generally thought that natural uterine propulsive forces on the baby's neck during delivery were not sufficient, or in the right directional plane, to cause damage to the brachial plexus; and the accepted medical view of causation of such injuries during delivery was that in all cases the nerve damage was caused by the application of lateral and downward traction to the fetal head while the anterior shoulder was impacted against the symphysis pubis (see, e.g., Stirrat GM and Taylor RW, Mechanisms of obstetric brachial plexus palsy: a critical analysis, Clinical Risk 2002; 8: 218-222); or, at least, the majority of such injuries were caused thus so that, when a baby was born with a brachial plexus injury, there should be an assumption that the cause was excessive traction.
It might help to say something about the rationale of the McRoberts manoeuvre (or position). It is that the hyperflexion of the maternal hips tilts the symphysis pubis relative to the fetus with the result that the anterior fetal shoulder often spontaneously passes underneath it.
Fundal Pressure and Suprapubic Pressure
Fundal pressure involves the application of manual external pressure to the upper part of the maternal abdomen whereas suprapubic pressure is the application of manual external pressure to the maternal abdomen just above the pubic bone. The object of the latter is essentially to move the orientation of the fetal shoulder relative to the symphysis pubis so that it passes underneath the symphysis thus making it possible for the shoulders and the body of the fetus to proceed down the birth canal. Fundal pressure is not appropriate because it serves only to push the fetal shoulder further into the symphysis rather than guiding the shoulder under it.
Cephalopelvic disproportion
A disproportion between the maternal pelvis through which the fetus has to pass and the size of the fetal head i.e. the head is too large for the maternal pelvis and passage of the fetus through the pelvis is therefore impeded.
Ischial Spines
Two bony prominences on the pelvis that can be felt through the vaginal wall. They are not directly concerned in the birth process but provide a useful signpost as to where the fetus is in terms of descending. On medical notes a reference to the spines preceded by a negative number usually signifies height in centimetres of the presenting part of the fetus (usually and ideally the head) above the spines and a positive number the distance below the spines. "0" indicates that the head is level with the spines and is engaged in the pelvis.
Restitution
The term used to describe the baby's head turning to realign with the shoulders
Syntocinon
A synthetic drug used to induce labour by stimulating uterine contractions and hence also cervical dilation in the same way as the naturally occurring hormone, oxytocin. It is given to the expectant mother in a saline solution via a drip. A contraction occurs when the uterus alternates between a taut state and a relaxed state. This has the effect of pushing the fetus down towards the cervix which assists in causing the cervix to dilate.
The law
The law relating to breach of duty in clinical negligence is well-established and there is no issue between the parties in that connection.
The starting point must be the observations of McNair J in the seminal case of Bolam v Friern Hospital Management Committee [1957] 1WLR 582;
the test is the standard of the ordinary skilled man exercising and professing to have that special skill. A man need not possess the highest expert skill; it is well-established law that it is sufficient if he exercises the ordinary skill of an ordinary competent man exercising that particular art… he is not guilty of negligence if he has acted in accordance with practice accepted as proper by a reasonable body of medical men skilled in that particular art…… Putting it another way round, a man is not negligent if he is acting in accordance with such practice merely because there is a body of opinion who would take a contrary view.
In Maynard v West Midlands Regional Health Authority [1984] 1WLR 634 at 639 Lord Scarman said;
A judge's preference for one body of distinguished professional opinion to another also professionally distinguished is not sufficient to establish negligence in a practitioner whose actions have received the seal of approval of those whose opinions, truthfully expressed, honestly held are not preferred.
And in Sidaway v Governors of Bethlem Royal Hospital [1985] AC 871 at 881 he said;
A doctor is not negligent if he acts in accordance with a practice accepted at the time as proper by a responsible body of medical opinion even though other doctors adopt a different approach.
In Bolitho v City and Hackney Health Authority [1998] AC 232 the House of Lords considered the Bolam test again in the context of the extent to which the court can find negligence even in the face of a body of professional opinion that supports the actions of the Doctor against whom the allegation is made where the court was unpersuaded of the logical force of that opinion.
Lord Browne-Wilkinson said
(Counsel for the claimant) submitted that the judge had wrongly treated the Bolam test as requiring him to accept the views of one truthful body of expert professional advice even if he was unpersuaded by its logical force. He submitted that the judge was wrong in law in adopting that approach and ultimately it was for the courts, not for medical opinion, to decide what was the standard of care required of a professional in the circumstances of each particular case.
My Lords, I agree with these submissions to the extent that, in my view, the court is not bound to hold that the defendant doctor escapes liability for negligent treatment or diagnosis just because he leads evidence from a number of medical experts who are genuinely of the opinion that the defendant's treatment or diagnosis accorded with sound medical practice.
In the Bolam case itself, McNair J. stated [1957] 1 W.L.R. 583, 587, that the defendant had to have acted in accordance with the practice accepted as proper by a "responsible body of medical men." Later, at p. 588, he referred to "a standard of practice recognised as proper by a competent reasonable body of opinion." Again, in the passage which I have cited from Maynard's case, Lord Scarman refers to a "respectable" body of professional opinion. The use of these adjectives -responsible, reasonable and respectable--all show that the court has to be satisfied that the exponents of the body of opinion relied upon can demonstrate that such opinion has a logical basis.
It is right to record that later in the same speech he says
I emphasise that in my view it will seldom be right for a judge to reach the conclusion that views genuinely held by a competent medical expert are unreasonable. The assessment of medical risks and benefits is a matter of clinical judgement which a judge would not normally be able to make without expert evidence. As the quotation from Lord Scarman makes clear[1], it would be wrong to allow such assessment to deteriorate into seeking to persuade the judge to prefer one of two views both of which are capable of being logically supported. It is only where a judge can be satisfied that the body of expert opinion cannot be logically supported at all that such opinion will not provide the benchmark by reference to which the defendant's conduct falls to be assessed.
Accordingly, as Mr Sheldon points out in paragraph 12 of his opening note, it is not enough for the defendant simply to adduce evidence from experts to the effect that he or she honestly holds the opinion that the treatment provided was acceptable. It is necessary for the court to be satisfied that the treatment provided had sufficient logical force to justify that opinion.
In reaching such a conclusion it is necessary to guard against substituting ones own views for those of the medical experts. In Bolitho itself the House of Lords interpreted the Judge at first instance as having formed the view, that absent medical evidence, he would have thought the steps taken (or not taken) by the defendant doctor were unjustified but the expert view to the contrary could not be dismissed as being illogical.
It is also necessary to remind myself that what is relevant here is the practice in 1999, not in 2014.
The first limb of the claimant's case is that the decision not to proceed to Caesarean section on any of the four occasions between 13.50 hours and 16.15 hours as referred to in paragraph 9 above lacked logical force and that it did so on the basis of the state of knowledge and practice in 1999.
As regards the second limb of the claim, namely that the vaginal delivery was mishandled, in distinction to the first limb allegation, there are issues of fact that require to be determined which will inform conclusions as to negligence. In short, the experts are not in significant disagreement as to what should have happened concerning the manner in which the vaginal delivery should have occurred given shoulder dystocia, the issue is about whether it did happen.
The chronology
Mr Sheldon produced a comprehensive and very helpful chronology at the outset of the trial. It is not in dispute and accordingly I propose to adopt it in its entirety and attach it to this judgment as Appendix 1.
This chronology distils information from the hospital notes and from the partogram[2] maintained during labour. A partogram is a graphical record of, amongst other things, the hourly rate of cervical dilation during the active phase of labour. The horizontal axis of the graph measures time and the vertical axis, cervical dilation. In a clinical policy document entitled Recommended Best Practice for Use of Partogram (RBP Partogram Document)[3] in use at the defendant hospital at the time it is defined as "a pictorial tool used to guide assessment of a woman's labour".
There is superimposed on the graph on the partogram in use by the defendant at the time two parallel diagonal lines the first of which is described as the "alert line" and the second of which is described as the "action line". The action line is drawn 2 hours to the right of the alert line.
There is not complete unanimity between the consultant obstetricians as to what the alert line signifies. In their joint statement[4] Mr Gillmer considered that the alert line defined "what would reasonably be defined as normal progress in the active 1st stage of labour in 1999 i.e. 1 cm per hour. In his oral evidence he amplified on this, he said it was "the mean rate of dilation of the slowest 10% of the women studied". [5]
Dr Maresh considered that
"there is a wide variation in what would be regarded as normal progress and that is the purpose of having an alert line, to be indicative of the degree of progress".
He did not accept that the
"notion that a woman should dilate at 1cm/hr was uniformly accepted and was subsequently challenged by NICE[6]"
Mr Gillmer drew attention to Turnbull on Obstetrics 1995 edition, the standard textbook at the time and which contains the following observation;
"During the active phase of labour the cervix should dilate at a rate of at least 1 cm/h and if not, then failure to progress in labour is diagnosed"
It will be seen from the chronology and the partogram that the alert line was crossed at 09.30 on 25 October. As I have said, the action line runs parallel to the alert line but 2 hours to its right[7]. The action line was crossed at about 13.30 hours. The defendant at the time had in place a clinical policy document entitled Recommended Best Practice in Respect of Dysfunctional Labour (RBP Dysfunctional Labour Document)[8]. It states:
"Labour is diagnosed as dysfunctional when the progress of cervical dilation reaches/crosses the action line"[9]
And goes on to state that
"in the case of spontaneous labour[10] once the action line is crossed sytocinon infusion should commence and the senior registrar informed"
Mr Gillmer's evidence was that at that point it became incumbent on the medical staff caring for the expectant mother to pause and consider what factors were in operation that were causing progress to be slower than expected and then to take the necessary action to correct the problem identified.
It was his evidence that the cause of slow or no progress in cervical dilation where the fetus is optimally positioned[11] is generally down to one of two causes or a combination of both. These causes are;
Inadequate uterine contractions
Cephalopelvic disproportion
Allegations of negligence
As I have said, in respect of the first limb of the claim, namely that the defendant was negligent in not proceeding to a Caesarean section, it is alleged that there were 4 opportunities when that decision should have been taken.
However, before proceeding to a consideration of the conduct of the defendant at 13.50, which was the first such occasion, it is necessary to place matters in context.
The claimant does not allege a cause of action in respect of the treatment of Miss Perkins prior to 13.50 hours but that is not to say that there is not criticism of her care. The claimant's position is that the dosage of Syntocinon throughout that morning had been excessive and unnecessary and taking account of her contraction rate and the guidance in the then current Royal College of Obstetricians and Gynaecologists (RCOG) Guideline "Induction of Labour" which specified (at paragraph 4.4 that
"the frequency of contractions with oxytocin use should not exceed 3-4 contractions in every 10 minutes"
Miss Perkins was contracting at no less than 4 per 10 minutes from 06.00 rising to 4/5 and thereafter to 6 and indeed 7 prior to 13.30 before reducing to 5/6 and then 5 from 13.30. From 05.30 to 06.00 she was contracting at the rate of 3 every 10 minutes.
So far as Mr Gillmer is concerned, Miss Perkins was suffering uterine hypercontractility (excessive contractions). The RCOG guideline specified that the solution to that was reduction in or cessation of Syntocinon[12] but that was not the course of action taken here. Mr Gillmer is of the opinion that failure to do so was actually irresponsible however it is not suggested that this led to any adverse actionable consequences either for Courtney or her mother.
I should say that Dr Maresh does not accept that the Syntocinon regime was open to criticism much less that it was irresponsible, neither does Mrs Brydon. But the argument is to some extent academic in the circumstances.
It will be seen from the chronology that Miss Perkins had been on a Syntocinon infusion since 05.30 i.e. 8 hours before the action line was crossed at 13.30. The amount of Syntocinon had been steadily increased throughout the morning from 6 ml/hr of 10 iu[13] of Syntocinon in 500 ml of Hartmanns solution at 05.30 to 96 ml/hr from 09.30 to 13.00 hours at which time it was reduced to 72 ml/hr which was the level at which it was being infused at the time the action line on the partogram was crossed.
As I mentioned, the partogram contains information over and above merely cervical dilation, it included, in tabulated form, the rate of Syntocinon infusion and the strength and frequency of uterine contractions.
I have already mentioned that in the period 05.30 hours to 13.30 hours contractions are recorded on the partogram as "moderate" in strength with their frequency steadily rising from 3 every 10 minutes to 7 every 10 minutes. As to the assessment of strength, it must not be overlooked that Miss Perkins was obese at the time. That fact has relevance in other respects but for this purpose it is right to point out that Mr Gillmer's evidence was that categorising the strength of contractions as either weak, moderate or strong is not easy but it is more difficult with obese women. He used the analogy of trying to assess how taut a bicep is by feeling it over a sponge.
It is right to say that paragraph 12 of the RBP Partogram Document required contractions to be recorded as "weak" if they lasted less than 20 seconds and "strong" if they were in excess of 45 seconds. In those circumstances strength was categorised not so much by how taut the uterus became but rather the period for which it remained taut. In so far as that is the test of strength of contractions a moderate contraction would be between 20 seconds and 45 seconds. The partogram describes contractions as moderate throughout the active phase of labour until 17.00 hours.
Mr Sheldon however pointed out that the tocograph record of contractions[14] suggests that at various times during this phase of labour contractions met the RBP Partogram Document threshold to warrant the description of "strong" in that they persisted for 45 seconds or longer. On the tocograph each column over which the graph of contractions is superimposed represents 30 seconds. The length of a contraction is the time from trough to trough on the graph. Mr Sheldon drew attention for example to the readings for 05.40 to 06.00, 06.30 to 6.50, 08.20 to 08.40 and 09.10 to 09.30 when the distance between 2 troughs exceeded 45 seconds. On each of these occasions indeed throughout active phase of labour (except at 05.30 and 09.00) frequency of contractions was at least 4 per 10 mins. At 09.30 Syntocinon was actually doubled to 96ml/hr.
Mr Sheldon made the point therefore that the uterine contractions were not uniformly moderate even by reference to their length leaving aside the rather difficult and subjective exercise of gauging strength by the extent of uterine tautness.
A vaginal examination (VE) to measure cervical dilation and the position of the fetus had been undertaken at 05.30 at which point cervical dilation was measured at 3 cm. A further VE was carried out at 09.30 and dilation was measured at 7 cm. Of course 4 cm of dilation in 4 hours was satisfactory.
A further VE was performed at 12.30 and dilation measured 8 to 9 cm, as it was at yet a further VE at 13.30. It is acknowledged that the measurement of cervical dilation is not an exact science and that there is some subjectivity about it but it seems that in fact dilation would have been no more than about 8 cm at 12.30 and at 13.30 because at 13.50 there was a further VE performed by a Dr Tanden at which dilation was measured at 8 cm. On the basis of that measurement, cervical dilation in the 4 hours and 20 minutes from 09.30 had been about 1 cm with no dilation between 12.30 and 13.50.
It will be recalled that this was against the background of Miss Perkins having been on Syntocinon since 05.30 and on the maximal dose of 96 ml/hour between 09.30 and 13.00 and a maximal or near maximal dose thereafter. The Clinical Guidelines for Induction of Labour issued by NICE in June 2001[15] stated at page 53 that when considering the induction of labour with oxytocin
"the minimum dose possible of oxytocin should be used and this should be titrated against uterine contractions aiming for a maximum of 3 to 4 contractions every 10 minutes".
This guidance is repeated verbatim in the RCOG guideline "Induction of Labour" paragraph 2.3.5.[16]
It will be remembered that Miss Perkin's contractions had consistently been 4 or more per 10 minutes since 06.00 hours.
It is right to mention that RCOG Guidelines contain a Table of "Suggested Standardised Dilutions and Dose Regimens[17] ". On the basis of that table, infusions exceeding 60 ml/hr of 10iu of Syntocinon in 500 ml of saline is in excess of the dosage licensed by the manufacturers for this purpose. Having said that however the RBP Dysfunctional Labour Document countenances a maximum infusion rate of 96ml/hr for primigravidae (first time mothers such as Miss Perkins) but that the Syntocinon should be increased to the maximum
"until there is effective uterine action ie 3-4 contractions per 10 minutes lasting 45 to 60 seconds".
There can be no doubt that Miss Perkins was contracting at that frequency and, by reference to the tocograph, that, for periods of time at least, her contractions lasted at least 45 seconds. Yet infusion remained at maximal from 09.30 until 13.00.
The basis of the claim in negligence at 13.50
The allegation arises because Dr Tanden, for whom of course the defendant is vicariously liable as her employer at that time, reviewed the progress of labour at 13.50 because the action line had been crossed. It is the claimant's case that that review should have recognised that Miss Perkins was in secondary arrest[18] which should in turn, in the circumstances of this case, have resulted in a decision to proceed to Caesarean section there and then.
I should make it clear for the avoidance of doubt that I do not overlook the full effect of paragraph 3.44 of Mr Gillmer's report. The penultimate sentence of which reads as follows;
"correct management would have been either to proceed to an emergency Caesarean section or to perform a further obstetric review and VE by no later than 14.50 or 15.00 at the latest to assess progress."
The suggestion therefore is that proceeding to Caesarean section was not the only reasonable option but that performing an obstetric review with VE by 15.00 would also have been an option. Mr Gillmer made it clear in his oral evidence that he considered that it was substandard care not to decide at 13.50 to perform a Caesarean section and that no reasonable obstetrician would not have done a Caesarean section following the 13.50 examination. He felt that the course advocated by Dr Tanden of waiting and seeing what measurements an intrauterine pressure catheter (IUP) would produce and continuing with Syntocinon was unacceptable. It unnecessarily extended an already prolonged labour and subjected the mother and fetus to hypercontractions.
It is right at this point to remind myself that hypercontraction can be a particular problem for the fetus as well as uncomfortable or painful for the mother. Each time the uterus contracts the supply of blood to the fetus is restricted. This inevitably affects the fetus. Mr Gillmer described it as the fetus having to "hold its breath" during these contractions and that can be a cause of fetal distress.
He said that what he meant at paragraph 3.44 was that if labour was allowed to continue after 13.50 (and it ought not to have been) then it was imperative that a review and VE was carried out by 15.00 by which time one would have expected the cervix to have been fully dilated in the event that, somehow, cervical dilation had spontaneously resumed at 1 cm/h. His observations at paragraph 3.44 were simply carelessly drafted.
At 13.50 Dr Tanden recorded in the hospital notes the following;
Good size baby
On Syntocinon maximum of 96 ml/hr since 09.30
Just went off partogram
P/a cephalic 1/5[19]
VE 8 cm dilated
Head at "o" with contraction[20]
Fully effaced
Rim of cx[21]
IUP[22] catheter sited
Adv[23]. Monitor pressure
Continue Syntocinon
Maintain iup 150 to 200 montevideo units[24]
The claimant contends that the action taken by Dr Tanden demonstrated that she entertained the possibility that lack of progress in dilation was due to inadequate uterine activity for which the solution was further uterine stimulation.
Mr Gillmer points out at paragraph 3.40 of his report[25] that;
"If the fetal position is occipito anterior, as in this case, and the contraction frequency is optimal (3 to 4 in every 10 minutes) and the Syntocinon infusion rate is maximal, as it had been in this case for more than 3 hours, then it is usual to diagnose relative or absolute cephalopelvic disproportion and proceed to an emergency Caesarean section"
Miss Perkins had had over 8 hours of Syntocinon infusion of which over 4 hours had been at the maximal unlicenced dosage contemplated by the RBP Dysfunctional Labour Document[26] and she was contracting at a greater frequency than the 3 to 4 contractions envisaged by NICE as the aim of a Syntocinon infusion.
His view was that any plan to seek to avoid a Caesarean section was unjustifiable and that the risks of Caesarean section, while obviously a consideration, were clearly outweighed by the risks of proceeding to a vaginal birth when cephalopelvic disproportion was indicated.
Dr Maresh however argues that prior to committing a primigravida to a Caesarean section, which, apart from the risks attendant on any operation, will automatically have implications for future pregnancies, it is appropriate to ensure that all women are given an adequate attempt at aiming for a vaginal delivery[27].
The RBP Dysfunctional Labour Document contains a section on management of dysfunctional labour. It states the following;
"If Labour is spontaneous and there are no maternal or fetal contraindications, then Syntocinon infusion should commence as soon as possible following diagnosis of dysfunctional Labour ….
maternal and fetal observations should be carried out in accordance with "Induction of Labour RBP"
If, on vaginal examination, progress continues to deviate despite the appearance of regular uterine contractions the SpR1-3 must be informed. At this point a decision has to be made to either a) insert an intrauterine catheter, or b) perform a Caesarean section
NB inserting an intrauterine catheter is the preferred management in most cases. The rationale for not choosing this option must be clearly documented".
At paragraph 3.43 of his report Mr Gillmer considers the use of the IUP catheter referred to in Dr Tanden's entry in the hospital notes. He considers whether Dr Tanden could logically have considered that, albeit that contractions were frequent, they were ineffective. First, he points out that it is well recognised that IUP catheters can be unreliable[28] but in any event uterine contractions had been effective enough to achieve a rate of cervical dilation that followed the alert line on the partogram i.e. 1 cm/h between 05.30 and 09.30 and that accordingly it was "totally illogical to conclude that her uterine contractions were ineffective". Furthermore he said in his oral evidence that IUP readings are in any event no substitute for assessing progress by VE. He referred to Turnbull's Obstetrics page 572[29]
"Although knowledge of uterine work is important the main evidence that the contractions are effective is that the cervix is progressively dilating at an appropriate rate and that there is descent of the presenting part. This fact emphasises the importance of carefully monitoring the changes in the cervix and the crucial role that the partogram has in management and labour."
As regards the extract from the RBP Dysfunctional Labour Document cited in paragraph 64 above, he pointed out that refers to spontaneous labour. That is obvious he argues not least because that is made clear from the first phrase but also because it calls for the commencement of Syntocinon infusion. His position was that management of an induced labour is different from a spontaneous labour because in an induced labour the uterus has already been artificially stimulated.
In his oral evidence he further explained why in any event the regimen advised by Dr Tanden was wholly inappropriate. He argued that uterine stimulation had been in progress from 05.30 predominantly at maximal rates so in the unlikely event that the cause of lack of dilation was ineffective contractions what could be done about it? In that case stimulation had been extensively tried and had not worked. On what logical basis he asks rhetorically could it be considered that that would suddenly change with or without further Syntocinon? The answer he came up with was that there was no logical basis.
Mr Gillmer is critical of what can be derived of the thought processes of Dr Tanden from her entry in the notes. At paragraph 3.44 he notes that she recorded a "good size baby"[30]and that the action line has been crossed but that the significance of these observations and the fact that mother's cervix had only dilated 1 cm to 8 cm between 09.30 and 13.50 appears not to have been recognised. In other words she failed to recognise that Miss Perkins had a prolonged labour with recurrent uterine hyperstimulation and secondary arrest despite a very high dosage of Syntocinon infusion since 09.30. Nor did she note that the most likely cause of the secondary arrest was a large fetus with potential cephalopelvic disproportion. There was, said Mr Gillmer, a failure to consider the 3 principles that inform the reason for slow/stalled dilation namely the 3 Ps (Passenger i.e. the size of the fetus, Passages i.e. the size of maternal pelvis, Powers i.e. the power of the uterus to expel the fetus). All that had apparently been considered is that last "P".
Dealing with the points made by Mr Gillmer at paragraph 60 above, Dr Maresh accepts that in a woman in a second labour who experiences a slowing of progress the most usual reason is cephalopelvic disproportion and that in those circumstances one would consider performing a Caesarean section. His view however, expressed at page 8 of his report,[31] is that the situation is totally different in a primigravida and the most usual reason in such circumstances is inadequate uterine contraction. Accordingly his view was that it was very important to be able to assess the contractions adequately. He has no criticism therefore of Dr Tanden in seeking to establish, with the benefit of an IUP catheter the strength of contractions particularly since in this case an external contraction monitor would not be as effective, in the light of Miss Perkins' obesity.
Indeed he says at page 319 that
"the management of putting in an IUP catheter was perfectly acceptable and a sensible approach to trying to decide whether there were adequate uterine contractions or whether this was actually a case of disproportion between the mother and fetus. Accordingly I would not criticise the management at this stage"
He goes on to indicate that
"having got the catheter in, it would then be appropriate to observe contractions, adjust the oxytocin and consider examining again about 2 hours after appropriate contractions had occurred. To increase the oxytocin to 64mu/min[32] is perfectly acceptable as long as there is careful monitoring of uterine contractions"
And at paragraph 14.2 he saw;
"nothing illogical in the use of the IUP because "progress was slower than average and despite the frequent contractions these did not appear on external monitoring to be that long lasting"
These views were repeated by him in the conclusion to his report in paragraphs 33 and 34[33]. And further he derives support for his view that insertion of the IUP was appropriate from the passage quoted at paragraph 64 above in which I set out the instructions in the RBP Dysfunctional Labour Document.
The joint report of the obstetricians is most helpful. In the context of the course that should have been taken at 13.30, it is right to record the following;
First, there is agreement[34] as to the risk indicators for shoulder dystocia and there is also agreement that all were present in Miss Perkins's case[35]. The risk factors are
Maternal body mass greater than 30kg/m2
Induced labour
Prolonged first stage labour
Secondary arrest[36]
Oxytocin augmentation
Secondly, that Mr Gillmer believed that Miss Perkins was hypercontracting when contractions exceeded 4 in 10 minutes. Dr Maresh accepted that when contracting at that rate (5 in 10 minutes had been the minimum rate of contraction since 09.30) Miss Perkins could have been considered to fulfil the formal definition of hyperstimulation but "the contractions were short lasting with adequate relaxation between"
Thirdly, that Mr Gillmer is of the view that in light of the suspected larger than average fetus[37], the prolonged maximal Syntocinon infusion and the occipto anterior position of the fetus the secondary arrest was probably primarily caused by cephalopelvic disproportion. In his oral evidence he was even less equivocal. He stated in terms that this labour went into arrest because of disproportion. Dr Maresh was only prepared to say that that was possibly the cause[38].
From paragraph 6 the experts record their discussion about the progress of dilation and how it can be best described. Mr Gillmer is consistent with earlier views in expressing the opinion that the labour slowed from 09.30 and had stalled (i.e. gone into secondary arrest) at the latest by 12.30 and that should have been recognised at the VE at 13.50. Dr Maresh agrees that the labour slowed between 09.30 and 12.30 but that whilst the rate of progress of dilation was slower than average, it was not abnormal. The experts are therefore not in disagreement about the position to 12.30 save that Mr Gillmer points out that 1 to 2cm dilation in 3 hours is abnormal in the sense that it meets the criteria for a dysfunctional labour even according to the RBP Dysfunctional Labour Document because it is at a rate that crosses the action line.[39]
The real area of dispute is that Mr Gillmer sees the absence of progress between 12.30 and 13.50 as a clear indication of secondary arrest in the late first stage of labour. Dr Maresh is not so sure bearing in mind the subjectivity of the measurement of dilation and the fact that the measurements at 12.30 and 13.50 were undertaken by different practitioners. He will go no further than agreeing that the evidence indicates that progress to 13.50 was slow but not that it indicates secondary arrest. This is of course in distinction to his acceptance of secondary arrest in paragraph 73 above.
Finally the essence of the disagreement between the experts as to the position at 13.50hrs is perhaps best summed up in their observations in paragraph 9 of the joint statement.
"MG observes that when the action line on the partogram was crossed at 13.30 hours a Syntocinon infusion at a maximal or near maximal infusion rate had been in progress for 4 hours with a recorded contraction frequency, during this time, of 6 in every 10 minutes indicating uterine hyperstimulation. In addition the fetal position was occipital anterior and the fetus had been noted to be large indicating cephalopelvic disproportion.
MG believes that as there had only been a cervical dilation of 1 cm between 09.30 hours and 13.50 hours despite effective Syntocinon induced uterine contractions it was, in his opinion, totally illogical to insert an IUP catheter at 13.50 hours and continue the Syntocinon infusion, as occurred. In accordance with the Trust Guideline quoted above[40] a decision should have been made to proceed to a Caesarean section"
MM notes that there was evidence of slow progress, dysfunctional labour with short lasting contractions and registrar involvement. He considers that trust guideline is well followed by insertion of an IUP catheter.
The experts inevitably expanded on their views in their oral evidence. I have already touched on certain areas where they did so but in so far as I have not, it is important to address that now in connection with events to 13.50. I shall come back to evidence that touches on subsequent periods at the relevant time. In the meantime however I need merely add that Mr Gillmer's oral evidence was consistent with his written evidence save to the extent that the clarification of paragraph 3.44 was inconsistent with a literal reading of what the written words actually convey.
There was some discussion in cross examination of Mr Gillmer about what would have been the situation if the defendant had worked to an action line 4 hours to the right of the alert line rather than 2 on the basis that a line 4 hours to the right is no less valid and was in fact the practice adopted by the World Health Organisation.
Mr Gillmer's position was that the RBP Dysfunctional labour document made clear that the labour was dysfunctional when the action line was crossed and that was by reference not least to the defendant's own 2 hour partogram. In addition, as a fact and based upon the standard text of Turnbull's Obstetrics the labour was dysfunctional because dilation was at less than 1cm/hr. So even though at 13.50 a 4 hour action line would not have been crossed a Caesarean section was demonstrably indicated[41].
As to the contention that the proof of the pudding was essentially in the eating because Miss Perkins had actually fully dilated by 16.39 and so the absence of progress prior to that was not inevitably due to disproportion, his point was that if one pumps enough Syntocinon into the mother the uterus will be forced to contract and the cervix dilate and that will eventually result in vaginal delivery but at the risk of for example the shoulder dystocia that occurred here.
Dr Maresh also gave oral evidence in accordance with his written evidence save for the amendment to which I have already referred at footnote 18 above. In so far as Mr Gillmer was critical of the lack of detail in Dr Tanden's note, he confirmed, and this was supported by the midwifery experts, that note writing was by no means as detailed in 1999 as it is now.
Dr Maresh believed that Dr Tanden had considered disproportion bearing in mind that progress of labour had clearly slowed because she referred to fetal size but that it was perfectly acceptable to seek to acquire further information in order to consider the adequacy or otherwise of uterine activity before subjecting the patient to a risky Caesarean section.
This is especially so where there was really inadequate information as to the strength of contractions bearing in mind the subjectivity involved in that analysis and the issue of maternal obesity. Indeed his position was that it was likely that contractions were not strong because there was good relaxation between contractions. Since strong contractions often last in excess of a minute, long relaxation periods suggest that there were short contractions within a 10 minute period. I remind myself that the RGB Dysfunctional Labour Document defines strong contractions as those lasting in excess of 45 seconds.
His view was that it was not the frequency of contractions but their strength which was the critical factor and the best way of testing that was with an IUP that could judge contraction strength empirically. The use of a catheter would mean that there would have to be an adequate period to collect readings. I must have in mind here page 572 of Turnbulls obstetrics that I cite in paragraph 65 above. Dr Maresh says that Miss Perkins had already had 7 VEs and it was wrong to subject her to further examinations until it was absolutely necessary - at about 16.15 to see if by then she was fully dilated. He argued that there was no sign of fetal or maternal distress and so no disadvantage in waiting 2 hours for a further VE. Of course there is no record that Dr Tanden had in mind a VE at 2 hours. That is not specified in her notes.
His position was that a reasonable body of obstetricians would have taken the same course as Dr Tanden, as indeed he would have done. Furthermore he contended that even if there is a suspicion of disproportion this is not always an indicator for a Caesarean section.
As I have said, it is also right to add that he did not criticise the extent to which Syntocinon was used up until this point. Primigravid women, he argued frequently need large amounts of Syntocinon to augment dilation and vaginal delivery. This is common.
Mr Sheldon tested Dr Maresh quite extensively yet entirely properly on his conclusion that Dr Tanden's decision to maintain Syntocinon, measure the strength of contractions and wait and see was indeed one that would have been adopted by any reasonable obstetrician bearing in mind that at 13.50 hrs she (Dr Tanden) was faced with a woman who had all the risk factors for dystocia because she;
Had been induced
Was in secondary arrest
Was in prolonged labour
Had been on Syntocinon augmentation since 05.30 and for the preceding 4.5 hours or so had been on maximal or near maximal Syntocinon
Was obese
And she was enduring uterine contractions of at least 6 every 10 minutes and had been for 4.5 hours
As indicated above, Dr Maresh having first conceded in the joint statement that Miss Perkins was in secondary arrest, had later only been prepared to acknowledge that there had been slow progress in labour. As it happens, his definition of secondary arrest offered from the witness box included not only "arrested" but also "slowed" dilation. He accepted that on the basis of that definition Miss Perkins was indeed in secondary arrest at 13.50 and had been for some time. This is wholly at variance with what he says at paragraph 7.3 of the joint statement wherein, after an analysis of cervical dilation, he states
"MM would consider that this was evidence of slow progress in labour, which could be due to an element of cephalo-fetal disproportion, but certainly was not evidence of labour having stalled (secondary arrest)."[42]
He accepted that Dr Tanden's notes do not say in terms that she was concerned about the adequacy of contractions; there is indeed no reference even to frequency of contractions nor indeed is there any reference to secondary arrest or a consideration of the option of Caesarean section. He emphasised that note keeping in 1999 was not as detailed as now but by reading between the lines he was confident that the adequacy of contractions was her concern, why else order an IUP?
As to the advice to continue Syntocinon, his position was that it was standard practice in induced labour in secondary arrest where the expectant mother was on maximum Syntocinon to infuse more Syntocinon but he had no literature to which he could point in support of that conclusion. It has to be said that it does not appear to be consistent with what was said by Mr Gillmer to be the practice in 1999 as reflected in the Clinical Guidelines of 2001 referred to in paragraph 48 above. I do not recall that Dr Maresh challenged the assertion that the 2001 guidelines merely reflected the existing practice as 1999.
He argued that Syntocinon influences not just frequency but power of contractions and that that is what is important. He said that everyday in practice he sees women in secondary arrest experiencing an overstimulated uterus and on maximum Syntocinon for whom the treatment is a regime of continued Syntocinon infusion.
The point is, he contends, that at 13.50 there was evidence of moderate contractions (5/6 per 10 minutes with a good relaxation (which means that contractions cannot have been long or strong) but where neither mother nor fetus are in distress it is totally appropriate to continue with labour with a view to avoiding a Caesarean section. In short it was his view that it was not at that stage appropriate simply to go straight to Caesarean section, there is a huge range of opinion as to when it is appropriate to abandon the target of vaginal delivery and go to Caesarean section.
As he said in a joint statement (paragraph 13.1)
"MM considers that it was appropriate to continue to use Syntocinon after 13.50 hours. There had been progress in labour and that with an IUP in situ to assess the strength of the contractions, which had previously not been possible with just an external pressure transducer, it was appropriate to continue with the Syntocinon infusion and adjust the rate according to the intrauterine pressure recordings"
In fact however there had, on any view, been no progress in labour since at least 12.30.
Mr Sheldon questioned Dr Maresh on how a finding of inadequate uterine activity would have been addressed bearing in mind the amount of Syntocinon to which Miss Perkins had already been exposed. His answer was that a consultant in those circumstances may have ordered an infusion of Syntocinon at a rate greater than the unlicensed maximum, i.e. in excess of 96 ml/ hour. He conceded that would have been unusual but was not unheard of. If that is to occur, he said, it was important to ensure adequate relaxation between contractions and that the mother was not exposed to fluid overload. There was also a need to have a clear management plan and the direct ongoing involvement of a consultant. He conceded that such a course would have been the only alternative to a Caesarean section.
I was not referred to any documentary evidence to support the contention that the maximum dosage of Syntocinon could be exceeded[43]. I have already referred to the table at page 7 of the 2001 Clinical Guidelines which does not envisage more than 96 ml/ hour and the fact that it also states that the recommended regimen involves
"the minimum dose possible of oxytocin….…. aiming for 3 to 4 contractions every 10 minutes"
Dr Maresh says merely that the clinical guidelines are just guidelines and that they are open to an exercise of discretion. I should say that I note that Dr Tanden herself notes that Miss Perkins is on the maximum dosage of Syntocinon. It is a strange concept that a "maximum" can be exceeded.
Mr Sheldon took Dr Maresh to the RBP Dysfunctional Labour Document on the basis that at paragraph 9 of the joint statement he asserts that guidance in that document was followed by the insertion of an IUP. It was pointed out to him that the relevant passages indicating the need to consider insertion of an IUP appear to relate to spontaneous labour where infusion of Syntocinon is envisaged after an arrest in labour not, as here, where arrest has occurred after extended Syntocinon infusion in an induced labour. His response was that if there is no separate protocol for induced labour then one should apply the guidance in this document and common sense. Whether that is so or not, it is difficult to see how that can be characterised as compliance with the trust guidelines when there appear to be no relevant trust guidelines for the management of an induced labour. In any event, as Mr Gillmer contends, there must clearly be a significant difference between an induced and spontaneous labour in the way in which lack of progress in labour is managed.
Dr Tanden
Dr Tanden has not been called to give evidence and there is no witness statement from her. Accordingly what was in her mind can only be a matter of speculation. Her evidence on the situation at 13.50 would clearly have been helpful and relevant.
Wisniewski v Central Manchester Health Authority [1998] Lloyds Reports Med 223 is authority of the proposition that adverse inferences can be drawn from the absence of a witness who might be expected to have material evidence to give on an issue. Of course that is subject to the caveat that no adverse inference should be drawn if the reason for the witness's absence is a satisfactory one and indeed that the detrimental effect of his/her absence may be reduced or modified if the reasons for absence is merely partially satisfactory.
Mr Martin argues that there is good reason for Dr Tanden's absence. First, she no longer works at the trust, secondly she is unlikely to have any material recollection of these events bearing in mind the lapse of time and thirdly, the particular importance of her evidence has only become clear as a result of the amendments to the Particulars of Claim on the first morning of the trial and in respect of which the defendant had only limited notice.
The fact that a witness no longer works for a party does not in itself strike me as being a particularly good reason for failure to produce evidence from such a witness. It may of course make it more difficult to trace such a witness and/or to secure their cooperation but I have no evidence that either of those issues was a problem.
The passage of time, while clearly a factor, has not precluded the defendant from relying on the evidence of Dr Adams and two of the midwives involved in the delivery who presumably are in no better position than Dr Tanden to recollect events of 15 years ago.
As regards the third proposition namely that it has only become clear by the recent change in the pleadings that her evidence has become particularly important, Mr Sheldon makes a point that her evidence would at least have been directly relevant to allegations at 32 (i) 32 (ii) and 32 (v) and 32 (vi) of the unamended Particulars of Claim. And that the unamended Particulars of Claim raise repeated concerns about management up until 15.30 when Dr Tanden was the sole obstetrician involved in Miss Perkins care.
That is indeed true but it is clear that the amended Particulars of Claim do accord greater importance to the position at 13.50. It is only by the amendments that it is specifically pleaded that it was at that time that a Caesarean section should have been decided upon. Prior to the amendments, the allegation at paragraph 32 (ii) was that the decision to proceed to Caesarean section should have been taken following the vaginal examinations that should have taken place at or about 14.30 and/or 15.30.
Accordingly I am not prepared to draw a wholly adverse inference from her failure to attend, it would have been useful for her to attend but her absence has at least been partially explained to the extent that, at worst, the detrimental effect has, to use the words in Wisniewski been "reduced or modified".
I note that the midwifery experts have expressed a view on the issue of proceeding to Caesarean section. Mrs Tranter defers to the view of Mr Gillmer[44], Mrs Brydon indicates at page 8 of her report[45] that in her experience there would not have been a decision to proceed to Caesarean section at any time before full dilation was reached.
Before moving on from the position at 13:50 hours I wish to say something briefly on the issue of causation. The question is, even if a decision to proceed to Caesarean section was made, whether in fact a Caesarean section would have taken place. The complication arises out of the fact that the experts are agreed that the time between a decision to proceed to Caesarean section and the point of knife to skin would be about 60 minutes with a VE of the patient about 5 minutes or so prior to incision. The purpose of the VE is to consider whether the position of the fetus has changed in the 55 minutes or so since the decision was taken to make it undesirable to proceed with the Caesarean section but rather instead revert to a vaginal delivery.
There is no dispute that a decision made at 13:50 hours to proceed to Caesarean section would have resulted in a Caesarean section. The fetus would not have descended by 14:50 hours to the point which necessitated a revision of that decision. The experts are agreed on that. At paragraph 29 of their joint statement the obstetricians state;
"we agree that if the decision had been made at 13:50 hours she (Miss Perkins) shall have been ready for a Caesarean section by just before 14:50 hours and on the balance of probabilities she would have not been favourable for a vaginal delivery and a Caesarean would have been performed"
The allegation of negligence at 15.00 hrs
What is the basis of this allegation? It arises from Mr Gillmer's proposition that if, wrongly, a Caesarean section was not put in train at 13.50 hours there should have been a review and VE at 15.00 hours at which time it would have been seen that a Caesarean section was the only realistic option available. The allegation therefore is essentially one of omission i.e. an omission to carry out a VE at 15:00 hours. I should make it clear that Mr Gillmer does not suggest that continued use of Syntocinon after 13.50 was inappropriate once the (wrong) decision had been made not to proceed to Caesarean section[46].
It will be recalled that it was at about 15:00 hours that Mr Gillmer would have expected dilation to be at or near full if, for some reason, cervical dilation had spontaneously resumed at a normal rate assuming that it was at 8 -9 cm at 12.30. Even if not fully dilated at 15.00 hours it would by then be clear whether secondary arrest was still an issue and that it was likely to be safe to proceed to a vaginal delivery.
As Mr Gillmer states in the joint statement paragraph 13.3
"MG believes that as the cervical dilation was 8 to 9 cm at 13.30 hours, full cervical dilation should have been achieved by 15.00 hours (with unexpected cervical dilation of 1 cm/h). As a vaginal examination at 15:00 hours would have shown that significant cervical dilation had not occurred and full dilation of the cervix had not been achieved, accepted labour practice and the Labour Ward Guidelines at the hospital, at the time, both indicated that a Caesarean section would have been correct management at 15.00 hrs.
MG quotes from Turnbull's Obstetrics, the standard textbook in 1999. This states that
"if the baby is considered to be particularly large than a careful evaluation of the progress of labour is required and the potential for vaginal delivery reassessed"
And
"although shoulder dystocia can be difficult to anticipate, slow progress, particularly in the late 1st stage of labour can provide an important clue. Careful evaluation of the size of the baby at this time may save more serious problems later".
He remarks that
"This reassessment did not occur. The result was a brachial plexus injury that would, on the balance of probabilities, have been avoided if a Caesarean section had been performed"
Dr Maresh considers that it was
"in accordance with accepted practice to continue with the Syntocinon infusion after 13:50 hours. Furthermore Stacy Perkins was reviewed by the registrar 1 hour after the catheter insertion and the midwife has documented that the pressures were then adequate with the oxytocin increased back to what it had been before".
Further, having decided to adopt a policy of waiting and seeing whether the issue was inadequate strength in uterine contractions, the defendant is criticised for seeking to measure that by use of an IUP catheter the use of which had been abandoned generally (and in the hospitals of both experts) at least 10 years before because it was an unsatisfactory and unreliable way of assessing strength[47].
Dr Maresh argues that the defendant hospital was using IUPs regularly and so the staff would be better able to use these catheters than staff at other hospitals because they will have been more familiar with them. He accepts however that IUP catheters were more of a research tool than a clinical tool.
In any event, Mr Gillmer argues that the readings from the IUP were inconsistent to such an extent that there were uninterpretable and of no benefit. The readings are set out in the joint statement at paragraph 15[48]. By 15.00 hrs the readings had swung from 95 mvds at 14.30 hours to 150 mvds 15 minutes later and 75 mvds 15 minutes after that. That, he argues, can only reflect malfunction in the intrauterine pressure system. He points out that at 16:15 hours Dr Adams recognised that the IUP was not working well.
He referred in his oral evidence to readings from the tocograph which demonstrated that the IUP was not working properly and that the manner in which the mvd unit readings were collated was defective. What is more he says the mvd readings were unsatisfactory in that what ought to be recorded is the total sum of the peaks in pressures in contractions in the 10 minute period. Therefore one would normally expect to see a chart giving values every 10 minutes. He contends that this trace does not show readings presented in 10 minute intervals but rather simply random recordings. In short Mr Gillmer's view was that there had been no extrapolation from the tocograph trace to produce meaningful figures in the notes. That contention was one that Dr Maresh was not asked to comment upon and so was unchallenged.
Dr Maresh considered that
"In hindsight it is relatively easy to conclude that the IUP was not functioning in a consistent manner"[49] and in paragraph 19 of the joint statement he concedes that "it is possible that it should have been appreciated earlier that the IUP was providing inconsistent information"
However he goes on to suggest that there will be natural variations between readings and one needs to allow time to assess over a period the significance of what the IUP is recording and that no meaningful information would be available from the IUP until 14.30[50].
He felt that by 14.50 the readings generally indicated that pressures were adequate and that it was appropriate to give further time for the continued Syntocinon to take effect, lead to full dilation and enable a vaginal delivery.
It is also right to say however that in so far as the justification for further time for Syntocinon to take effect was that by 14.50 readings generally indicated that pressures were adequate, the fact is that albeit that the reading at 14:45 hours was 150 mvds, at 15:00 hours it was only 75 mvds and had been only 95mvds at 14.30 hrs. I also note that in paragraph 17 of the joint statement Dr Maresh confirms that "on only one occasion did the IUP monitor suggest that the contractions were effective when the reading was 150 mvds at 14.45 when assessed by the registrar".
So in reality between 14:30 hours[51] and 15:00 hours there were two out of three readings showing inadequate uterine strength notwithstanding Syntocinon infusion at or near the maximum since 09:30 hours. That in itself does not sit comfortably with his contention that at 14.50 pressures were adequate.
The claimant contends however that even if pressures were adequate it was important to see sooner rather than later whether that was being translated into renewed progress in cervical dilation. That could only properly be recognised by a VE because VE is the only reliable manner of assessing progress in cervical dilation[52]. It was not the strength of contractions per se that was in issue here[53], what mattered was dilation. True it is that dilation is the result of the strength as well as frequency of uterine contractions but the problem about which the defendant was concerned was not whether pressure was inadequate per se but whether inadequate pressure was the reason for the failure in progress of dilation. The fact is that if uterine contractions were adequate and there was still no dilation then, bearing in mind that the fetus was optimally positioned, the diagnosis would have been cephalopelvic disproportion. In fact no VE was undertaken until 16.15 hours.
Secondly, at the end of the day even if the IUP catheter could produce reliable information that the uterine contractions were inadequate in strength, so what? How was it supposed that this problem could be addressed bearing in mind that Miss Perkins was already on maximum Syntocinon? The defendant's answer is that it would have been open to the defendant to increase Syntocinon to above the maximum albeit that that suggestion was not one that found its way into Dr Maresh's report or the joint statement and only evolved as a proposition during his cross-examination.
Mr Martin points out that there was no need for VE at 15.00, if at 13.50 dilation was at 8cm then, if the next VE should have been at the time that full dilation could be expected (assuming normal progress in dilation as result of the continued Syntocinon infusion), full dilation would not have occurred until 15:50 hours and so a decision to reassess at 16:00 hours was plainly reasonable, especially when there was no sign of fetal or maternal distress. In any event this mother had had 6 VEs since admission for inducement and they are a procedure which is uncomfortable and invasive and should not be done except when necessary. That does not however answer the question of what plan was in place to see if dilation was occurring in circumstances where contractions were thought to be adequate (as Dr Maresh did at 14.50).
Had a VE been undertaken at 15:00 hours what would it have revealed? Mr Gillmer is clear that it would have revealed very slow dilation. He reaches that conclusion because even
"at 16:15 hours the cervix had only dilated from 7 cm at 9.30 hours to an anterior cervical rim at 16:15 hours which was "pushed back". A dilation of just over 2 cm in 6 hours and 45 minutes"[54]
Paragraph 4.12 of Mr Gillmer's original report records that it is his view that, on balance, a VE at 15:00 hours would have revealed that her cervix was no more than 9 cm dilated and she would even have crossed a 4 hour action line at this time.
In paragraph 26 of the joint statement when answering a question on whether he believed there had been any progress of labour between 13:30 hours and 16:15 hours his response was that there had been cervical dilation of approximately 1 cm in 2 hours and 45 minutes between 13.30 hours and 16:50 hours
"a very slow rate that emphasises the relative cephalopelvic disproportion that was due to fetal macrosomia"[55]
Dr Maresh at paragraph 26 of the joint statement is also prepared to say
"that dilating 2 cm in 2 hours and 25 minutes was indicative of slow progress and might have been indicative of a degree of cephalopelvic disproportion"
The point essentially made by the claimant is that that could have been recognised therefore at 15.00 hrs and letting things drift between 13.30 and 16.15 was substandard care.
Causation
There is an issue to resolve about causation in the event that there is a finding that the defendant should have proceeded to Caesarean section at 15:00 hours. It is agreed by the experts that a decision to proceed to Caesarean section at 15:00 hours would have resulted in knife to skin at about 16:00 hours with a VE about 5 minutes or so before at 15.55. Indeed it is agreed that any decision to go to Caesarean section would have actually resulted in knife to skin about an hour later with a VE about 5 minutes before.
In the joint statement Mr Gillmer contends that if a decision had been made to proceed to Caesarean section at 15:00 hours this would still have proceeded because the VE immediately prior to performing the Caesarean section would have shown that the cervix was still not fully dilated[56].
Dr Maresh on the other hand thought that a VE at just before 16:00 hours would indicate that a vaginal delivery should be attempted and on balance would have been attempted.[57]
In his oral evidence Mr Gillmer was clear that he would have continued to Caesarean section. He said that Miss Perkins would have been no more than 9 cm dilated and it would not have been reasonable to give her more time to deliver vaginally. His view was that he would have undertaken the Caesarean section unless she was literally about to deliver at the point of the pre-Caesarian VE with the fetal head at the perineum and descending. Also it was important to bear in mind that she would have been consented and anaesthetised and would literally have been on the table in the operating theatre.
The difficulty with that situation is that he assumes her to be 9cm dilated at 15.00hrs. She would therefore have been only 9cm dilated at 15.55 hours if there had been a further arrest in progress. In fact there was on any view slow progress albeit according to Mr Gillmer at a rate that suggested cephalopelvic disproportion. Mr Sheldon points out that once the decision to deliver by Caesarean section has been taken she would have been taken off the Syntocinon so it is likely that dilation would have not advanced much or indeed possibly at all between 15.00 hrs and 15.55hrs.
On the other hand clearly the birth process was not so advanced as would stop Mr Gillmer proceeding to Caesarean section in any event. It is clear that at 15:55 hours Courtney was not at the perineum descending because there was not full dilation until 16.39 and at 16.15 she was only at the spines. His view indeed was that occipito anterior position at the spines was the perfect position for a Caesarean section and since there was not full dilation at 16.15 because there was, according to the notes, part of the cervical rim still visible there was nothing to preclude a Caesarean section at 16.00 hrs.
In addition, Mr Gillmer's position was that this Caesarean section was actually needed because there was cephalopelvic disproportion and so a vaginal delivery would in any event probably bring with it difficulties in the form of shoulder dystocia or possibly even worse. He drew attention to what was said in Turnbull and which I cite above at paragraph 112.
Dr Maresh takes the view that at 15:55 hours even if Miss Perkins were not fully dilated she will have been near full dilation and that this makes a Caesarean section dangerous because it would be necessary to disimpact the fetal head from the maternal pelvis which is a difficult manoeuvre which could involve distension and tearing of the uterus. His view was that the procedure is even more difficult in the case of an obese mother because fatty tissue tends to concentrate in the lower abdomen which is the area with which the surgeon would be concerned. Of course there are also the other risks associated with the procedure such as possible pulmonary embolism and the fact that the operation scars both the uterus and the abdomen.
His view was that it was obviously a consideration that the mother had been prepared for a Caesarean section, anaesthetised and consented and was expecting delivery to be by Caesarean section. However his view was that even in 1999 there will have been discussions with the mother who would be told a reassessment would be made before knife to skin and that although Caesarean section was the plan it was not inevitable that the plan would be followed through.
Allegation of negligence at 15:30 hours
The allegation here relates to the treatment provided to Miss Perkins by Dr Elisabeth Adams at 15:30 hours. She was the senior registrar on call and was the only doctor involved in the birth from whom I heard. Her witness statement is in bundle 2 tab 5 page 28. Dr Adams qualified as a doctor in 1989 and had been working in obstetrics and gynaecology since 1990.
Her involvement with Miss Perkins commenced at 15:30 hours when she was contacted by Dr Tanden because Dr Tanden was concerned about the intrauterine pressure which had by that stage reduced to 75 mvds and wished to discuss that with Dr Adams as senior registrar. Dr Adam's response, recorded in the hospital notes was to double the dose of Syntocinon and re-examine in one hour.
Unsurprisingly, after this length of time, Dr Adams has no direct recollection of her involvement in this birth. She cannot recall whether a conversation with Dr Tanden was face-to-face or over the phone.
It appears that she did not examine Miss Perkins, this is one of the grounds of criticism levelled by Mr Gillmer. Had she done so and conducted a VE Mr Gillmer believes that she would have seen a cervix not fully dilated (because even at 16:15 hours there was still a rim of cervix) and she would then have realised that a Caesarean section was indicated.
Mr Sheldon put to her that where the patient had been on Syntocinon for 10 hours and had crossed the partogram action line at least 2 hours earlier it was incumbent upon her as senior registrar to at least examine the patient and not to rely on unreliable pressure readings from an IUP. She did not agree, she pointed out that Dr Tanden was an experienced registrar in whom she had confidence albeit actually she could not recall definitively whether Dr Tanden was male or female. She felt however that it would have been inappropriate to undertake an examination on the basis that it would have undermined Dr Tanden who was looking after Miss Perkins.
Dr Adams is clear that she would have advised having looked at the medical notes and the partogram and while being in possession of all relevant information because she was confident that Dr Tanden would have supplied her with this.
Initially another criticism was that the regimen suggested by Dr Adams included doubling the already maximum dose of Syntocinon. In fact it is now clear that while Syntocinon was doubled, volume was halved so that the effect was the same. The rationale was to avoid overloading Miss Perkins with fluid. Mr Sheldon in his final submissions suggests at paragraph 60 that Mr Gillmer stated he was flabbergasted by the decision to double Syntocinon. My note suggests that he understood the rationale of ensuring that there was no fluid overload.
The claimant's point is that even so, the recommendation was to continue with Syntocinon at a very high dosage in respect of a patient who had been on Syntocinon since 05:30 hours and on maximal or near maximal Syntocinon since 09:30 hours. And if that in itself was not irrational enough, the claimant says that to do so on the basis of IUP readings which were clearly meaningless was substandard care.
Dr Adams' position was that high doses of Syntocinon over a lengthy period was not unusual. The effect could be the uterus became tired with the result that more stimulation was required in the form of more Syntocinon.
Mr Sheldon argues that the evidence of Dr Adams indicates that the culture at the defendant's hospital was to avoid Caesarean sections at all costs. Dr Adams spoke of the necessity of proving to the consultants that no progress had been made in labour notwithstanding adequate contractions before he or she would permit a Caesarean section. She indicated that the ethos of her training was to try and achieve vaginal delivery because of the increased risks involved in Caesarean section and she made reference to the risk of pulmonary embolism and scarred uterus. Her view was that it was a disservice to a patient to give her an unnecessary Caesarean section but that neither she nor the unit had a problem in undertaking Caesarean sections where they were necessary.
It is argued that it was clear that Miss Perkins was at clear risk of a complicated vaginal delivery including shoulder dystocia because all the risk factors were present. Indeed in her oral evidence Dr Adams mentioned that it crossed her mind that there may be cephalopelvic disproportion but that most commonly primigravidae fail to progress in labour because of inadequate contractions and so it was appropriate to continue with monitoring to see if this was so in this case.
Dr Adams indicated that in her view Miss Perkins was no more specifically at risk than any other primigravida of shoulder dystocia despite a recognition that the risk factors were present here. Her basis for that view was that shoulder dystocia is unpredictable and the only big risk factor that Dr Adams knew of was previous shoulder dystocia. This does not appear to be supported by the experts who accept that Courtney was at much greater risk.
I have to say I have some sympathy with Dr Adams who was giving evidence about one birth on a busy ward over 15 years previously. There is criticism that she did not see this patient at 15.30. However, on the basis of her evidence it seems to me that even if she had undertaken a VE there would have been no progression to Caesarean section in the light of the fact that she believed that there may be inadequate contractions here and indeed that was the basis upon which Dr Tanden had approached her. That also seems clear not least on the basis of the joint experts view that had Miss Perkins been examined at 15:30 hours Dr Adams would have seen that there had been some, albeit slow, progress in dilation. It also seems to me that no Caesarean section would have been ordered in view of the ethos that every mother should be given the chance of a vaginal birth and Miss Perkins had not yet exhausted that chance. I am fortified in this view by the fact that even following a VE at 16.15 there was no progression to Caesarean section.
The real issue is whether there ought to have been a decision at 15:30 hours to undertake a Caesarean section and whether in that event a Caesarean section would have taken place at 16:30 hours.
We know that Miss Perkins was fully dilated by 16:39 hours so it is likely she would have been near full dilation at 16:25 hours (there was after all only the rim of the cervix visible even at 16:15 hours). On the other hand we know that the head was not delivered until 17:50 hours and so at about 16:25 hours there was still some time before the point was reached at which Mr Gillmer would abandon commencement of a Caesarean section.
However, the fact is that Mr Gillmer's own evidence from the witness box was that by 16:25 hours some clinicians would have permitted a vaginal delivery to go ahead in the light of the state of dilation and the position of the fetus. That would, it appears, have been the decision of Dr Maresh. Mr Gillmer did not suggest that he would necessarily have been critical of the decision. It is clear to me that under those circumstances even if there was a breach of duty in failing to decide on a Caesarean section at 15:30 hours the claimant cannot on balance establish causation.
Allegation of negligence at 16:15 hours
Inevitably if the claimant cannot establish causation in respect of a decision made at 15:30 hours she cannot establish causation in respect of a decision made 45 minutes later.
In the circumstances I do not think it necessary to dwell on this allegation at all save to say that it is a criticism of Dr Adams because a VE was undertaken at this time which must have revealed dilation of 1 cm in 2 hours 25 minutes[58] . The contention is that it should have been clear in the light of the chronology that the very slow rate of progress was attributable to cephalopelvic disproportion.
The fact is that Miss Perkins did actually proceed to full dilation by 16:39 hours but of course Mr Gillmer's position is that if you pump enough Syntocinon into the mother you will eventually force the labour.
I acknowledge however that it would lack logical force to conclude that on balance a decision to proceed to Caesarean section at 16:15 hours would have resulted in a Caesarean section at 17:15 hours when I am satisfied that a Caesarean section envisaged for 16.30 following a decision at 15.30 hours justifiably may not have taken place.
Conclusions as to allegations of negligent failure to proceed to Caesarean section at 13.50 hrs
In the light of my observations in paragraphs 155 and 159 above I need to confine myself only to decisions at 13:50 hours and 15:00 hours.
I acknowledge that the credentials of both obstetric experts are very impressive as indeed are those of the expert midwives.
Mr Gillmer's are set out a commencement of his report. He has been a consultant in obstetrics at John Radcliffe Hospital, Oxford since 1979 until he retired from practice in January 2010. He was an examiner in this field until 2009 and also an international lecturer.
The CV of Dr Maresh is at page 329, towards the end of his report. He is a consultant obstetrician at St Mary's Hospital in Manchester and has held that post since 1986. He is also a lecturer and a prolific writer of learned papers published in peer reviewed journals He has particular responsibility for the delivery unit at St Mary's and he remains actively involved in intrapartum[59] care. In that respect he differs from Mr Gillmer who has retired from practice.
Mr Martin draws attention to the fact that Mr Gillmer is now retired while Dr Maresh remains in practice. At paragraph 20 of his final submissions Mr Martin suggests that Mr Gillmer is "out of touch" and that he is "now remote from obstetric practice". Dr Maresh on the other hand remains responsible for a unit delivering about 8000 babies a year.
Of course, I am concerned with practice in 1999, not 2014. In 1999 Mr Gillmer was actively involved in intrapartum care.
It may be surprising that two such eminent gentlemen cannot agree as to whether a Caesarean section was the only appropriate response to the situation that confronted Dr Tanden at 13.50 hrs but that is clearly the position. Although I accept that there is agreement between Dr Maresh and Mrs Brydon that a Caesarean section was not necessary at any time.
I remind myself that the onus is on the claimant to establish, on balance, that the defendant's failure to proceed to Caesarean section in those circumstances was negligent. Since I am presented with evidence to the effect that there is a body of medical practitioners, represented by Dr Maresh who in 1999 would not have seen it as negligent to continue with Syntocinon infusion and monitor pressure by use of an IUP in the circumstances with which I am concerned the claimant can only succeed if I am satisfied on balance that such a view lacks logical force.
Whilst I have the utmost respect for Dr Maresh and Mrs Brydon after much consideration I have come to the conclusion that it does lack logical force.
The fact is that it is agreed at least by the obstetricians, if not by Mrs Brydon that all, not some, but all, the risk factors described at paragraph 73 above for shoulder dystocia were present at 13.50 hrs. In so far as Dr Maresh may have thought at one time that secondary arrest was absent it seems clear from his oral evidence that he accepts that it was present, even if the dilation had not literally stopped.
In addition, as well as the agreed risk factors there is evidence here of a "good size baby". Dr Maresh himself interpreted that as a baby suspected of being "larger than average"[60]. Not in itself perhaps a determinative factor but clearly one of some relevance when added to all the recognised risk factors.
In addition Miss Perkins was clearly in dysfunctional labour despite having been on Syntocinon since 05.30 and at maximal or near maximal dosage since 09.30.
The obvious question therefore is what was the logical basis for believing that this dysfunctional labour even may have been caused by inadequate uterine activity rather than cephalopelvic disproportion?
Dr Maresh concedes that disproportion was a possible cause of the secondary arrest, however that is defined but would go no further than that. I do not see how it can be thought that it was not probably caused by disproportion, as Mr Gillmer contends when set against the background that I have set out in detail above and which includes not just the extensive Syntocinon infusion but that this uterus was hypercontracting according to the RCOG and NICE guidelines referred to in paragraph 48 and 49 above and had been since 09:30 hours.
Dr Maresh argues that the frequency of contractions does not assist in an assessment of their strength[61]. It is right that on the partogram, strength is noted as only "moderate". However the evidence was that it is difficult to assess manually the strength of a contraction particularly in obese women and indeed that with obese women the strength of contractions is often underestimated. Of course, if that had happened here than contractions may have been stronger than the partogram suggests.
It is also right to say that the tocograph shows some evidence that the contractions were, at times, strong in so far as strength is a function of duration, as is clearly recognised by the RBP Dysfunctional Labour Document.[62]. So it seems clear that there was at least some evidence of strength at 13.30 in any event and which suggested that strength or lack of it was not really the problem in respect of failure of progress of dilation.
Mr Martin argues that the RBPs demonstrate a practice accepted as proper by a responsible body.[63] However, as regards the suggestion that the RBP Dysfuctional Labour Document suggested that insertion of an IUP catheter was best practice, that is based on the extract from the document set out in paragraph 64 above. It seems to me to be clear that that applies to a spontaneous birth, not, as here, an induced birth. That is clear from the reference to "spontaneous birth" and the "commencement" of Syntocinon where dysfunction is indicated. In an induced birth Syntocinon infusion will have already commenced.
In any event it seems, as Mr Sheldon asserts in paragraph 21 of his final submissions, the RGB Dysfunctional Labour Document was not actually strictly complied with on the basis that the target range set by Dr Tanden for IUP pressure readings was 150 to 200 mvds but the document states that inadequate activity is indicated by less than 200mvds. In addition Syntocinon was not reduced as per the document when contractions were at 3-4 per 10 minutes even though in some periods the length of contractions evidenced by the tocograph exceeded 45 seconds.
It is difficult in those circumstances to understand the basis upon which Dr Maresh contends, at paragraph 9 of the joint statement, that
"(He) considers that trust guideline is well followed by insertion of an IUP catheter".
In any event, there is the question of the value of the IUP readings. I need not dwell on that because it is covered elsewhere save to say that Dr Maresh himself concedes that it is possible that it should have been appreciated earlier (than 16.30) that the IUP was providing inconsistent information.
However all that does not address the fundamental question of what was to be done if there was clear evidence of inadequate uterine contractions notwithstanding the amount of Syntocinon that had been infused over many hours? It will be remembered that inadequate uterine activity in itself would not exclude the possibility (or in my view, probability) of cephalopelvic disproportion because dysfunctional labour in a mother with an optimally positioned fetus can be the result of a combination of inadequate uterine activity and disproportion.
It has been noted on times almost without number that Miss Perkins had essentially been on maximum Syntocinon since 09.30[64]. How can it logically have been thought that a continuation of that regime was likely to somehow cause the uterus to spontaneously resume dilation at an acceptable rate?
The answer from Dr Maresh was that if it did not Miss Perkins could be infused with greater than the maximum dosage of Syntocinon. I have to say that that was a surprising answer in light of the fact that 96ml/hr is expressed even by Dr Tanden as the maximum and that the literature also expresses that to be the maximum unlicenced, I emphasise, unlicenced, dosage. Even Dr Adams did not appear to contemplate exceeding the maximum (or seeking a consultant's permission to do so) without taking steps with regard to the volume of Hartmanns solution which had the effect of keeping the dose equivalent to 96ml/hr.
In addition it is important to record that on Dr Maresh's own evidence, Syntocinon can affect not just strength of contractions but also frequency. Indeed, as I understand it, its primary purpose is to start and then maintain contractions. So further Syntocinon would not just possibly increase strength but also frequency in a woman who had been hypercontracting for hours. Dr Maresh did not contradict Mr Gillmer's evidence that hypercontractability can be a problem for a fetus who, metaphorically, has to hold its breath during every contraction.
Furthermore, Dr Maresh's view that the decision at 13.50 to further consider the issue of inadequate uterine contractions over a further time was premised on the basis that labour had not stalled but was progressing slowly. That was a premise that in cross examination he did not seek to maintain. In so far as that premise informed his view as to the logic of the course adopted by Dr Tanden, as it clearly did, it is inevitably undermined by the concession that Miss Perkins was indeed suffering secondary arrest.
I turn to the risks inherent in Caesarean sections and which Dr Maresh and indeed Dr Adams referred to including pulmonary embolism and scarring of the uterus and the abdomen and I remind myself that there were added risks in the case of Miss Perkins because of her obesity[65]. Clearly these must not be underestimated but neither according to Mr Gillmer should they be overestimated and they must be set against the risks of a virginal delivery where there is probably disproportion. That in my view is clearly the message from the passage in Turnbull to which Mr Gillmer referes in paragraph 112 above and I accept it.
Dr Maresh argues that every primigravida should be given the chance of vaginal delivery and of course I accept that birth by that means is very much the preferred option. Mr Sheldon suggests that the evidence of Dr Adams was that the ethos at the defendant hospital was that vaginal birth should be attempted at any cost.
Even Mr Martin points out at paragraph 39.3 of his final submissions
"it was clear that there was an underlying evidence based philosophy at Liverpool Women's Hospital that CS rates were too high, that the majority of first mothers could achieve a vaginal delivery, and should be given the chance to do so and that true cases of cephalopelvic disproportion were rare"
Having said that, I do not accept that the ethos was to carry out vaginal deliveries at any cost. When that was put to Dr Adams she disputed it and said that Caesarean sections were carried out on a regular basis when they were properly called for but it has to be said, on her evidence, there was clearly a high threshold to cross before a consultant would agree to a Caesarean section. I do not criticise the defendant for that but I recognise that Mr Gillmer's view was that he doubted that those in charge at the defendant hospital (whom he knew but from whom I did not hear) were likely to be as inflexible as Dr Adams suggested.
As for the absence of Dr Tanden, it may have been that Dr Tanden could have thrown more light on her management at 13.50 but of course I have not had the advantage of hearing from her. Even if it is inappropriate to draw adverse inferences from her absence, it is difficult to draw any positive conclusions about her treatment in the absence of any evidence from her.
Although it was not suggested by the defendant that Dr Tanden's decision was made in the agony of the moment and that it would be wrong to equate a mere judgment call with negligence, I have considered that but I have to say that I do not see this in that way.
This is the sort of issue that the staff on a busy delivery suite had to deal with on a standard basis as part of their function. Shoulder dystocia itself was seen, as Dr Adams said, as a "common emergency". It is safe I think to assume that dysfunctional labour and crossing the action line on the partogram therefore will have been even more common.
Furthermore, in this case there was no split second in which a decision had to be made to avert a crisis. This issue was, in other words, not sensitive in terms of seconds but rather in terms of minutes. That in my view takes it out of the "agony of the moment" scenario and indeed that, and the lack of logic, also takes it out of the "wrong judgment call" scenario.
I have had regard to the point raised by Mr Martin that if the defendant had worked to a 4 hour action line this would not have been crossed. Mr Gillmer does not agree but in my view the overarching consideration was that this was a dysfunctional labour on the basis of the standard definition at the time and that was how it was seen by the defendant as a result of their own protocols. In the circumstances it was incumbent on the defendant in any event to take appropriate and logical action to minimise the risk of harm.
For all these reasons and as a result of the analysis of the management set out at length earlier in the judgment, I am driven to the conclusion that the decision not to proceed to Caesarean section at 13.50 did indeed lack logical force and that accordingly negligence is established. Causation is not an issue as regards 13.50. and so does not need to be further addressed.[66]
I emphasise that I have been conscious of the risk of reaching such a view with the benefit of hindsight and the knowledge that there was indeed shoulder dystocia in this case which is an event that is very hard to predict. I am satisfied that the decision at 13.50 and the resultant failure to proceed to Caesarean section was illogical at the time, for the reasons expressed.
Conclusions as to allegation of negligence at 15.00hrs
I appreciate that having made my findings as regards the conduct of the defendant at 13.50 I need go no further. The claimant is entitled to her judgment. In the event that I am wrong however and/or because there may be arguments in respect of the costs of prosecuting and defending the other issues I go on to consider briefly the position as at 15.00 hrs and the question of whether the birth itself was mishandled. I intend to spend no further time on events at 15.30 and 16.15 in the light of my conclusions as to causation referred to in paragraphs 155 and 159 above.
Indeed I need not analyse to any significant extent whether a decision not to undertake a VE at 15.00 was negligent unless I am satisfied that a Caesarean section would have taken place if such an examination had taken place. The claimant cannot succeed on this limb of the claim even if there is a breach of duty unless she can establish that any breach caused a failure to proceed to Caesarean section.
I address the issue of causation at 15.00 from paragraphs 131 above and I need not rehearse them here.
It seems to me that an analysis of the views expressed by Dr Maresh cannot sensibly result in the conclusion that they lack logical force and that no obstetrician acting reasonably would not permit a vaginal birth if presented with the situation that pertained here at 15.55 if in 1999 they had been presented with a patient near full dilation.
I say "near full dilation" because 20 minutes later at 16.15 a VE revealed only a cervical rim mainly anterior pushed back and that the fetus was at the spines[67]. Mr Gillmer may well have proceeded to Caesarean section at any time before the fetus was in the pelvis descending and perhaps that may even be the preferred course of action but that is not the test. The test is the Bolam test and whether any contrary view expressed lacks logical force.
I accept that there is a probability here that there is disproportion which may well indicate Caesarean section in any event but on the other hand I accept that Caesarean section at or near full dilation with the fetus at the spines carries risks especially with an obese mother.
In addition Mr Gillmer's view expressed in paragraph 127 that dilation was only about 9cm at 15.55 is an assumption that may or may not be correct. There is no actual evidence of the extent of dilation at that time. All that is known for certain is that 20 minutes later Dr Adams recorded the cervical rim as mainly anterior and the mother as starting to feel pressure. Dr Adams indicated that at 16.15 she believed that all the indications were that MissPerkins was about to deliver.[68] That is obviously suggestive of dilation very much near completion. It is likely therefore that she would not have been far off at 15.55 especially since she was clearly not a speedy dilator.
I do not overlook that a decision to proceed to Caesarean section at 15.00 will have resulted in her coming off Syntocinon with the result that whatever was the state of dilation at 15.55 it will have been less than that absent the Syntocinon but the Syntocinon appears to have been working slowly in any event and so I cannot be satisfied that the situation at 15.55 would have been so different that a Caesarean section remained the only logical course of action.
Accordingly even if there is a breach of duty at 15.00 hrs I am not satisfied that causation is established because I am not satisfied that any resulting decision not to undertake a Caesarean section at 15.55 hrs would have been Bolam negligent.
Having said that I should add that I do have difficulty in understanding why no VE was undertaken at about 15.00 to establish whether the cervix was dilating. I refer to paragraphs 124 to 126 above. A decision not to undertake a VE until 15.50 or thereabouts when full dilation could have been assumed to have occurred strikes me as lacking logic where that assumption is based upon dilation of 1cm/hr from 13.50; a speed of dilation that had not been achieved since 09.30 that morning despite maximal Syntocinon infusions.
I appreciate that VEs should be undertaken sparingly but nevertheless there seems to me to have been good reason to do one at about 15.00 and there is no suggestion that Miss Perkins would have objected.
Conclusion as to allegation of negligence at 15.30hrs and 16.15hrs
See paragraphs 155 and 159 above
The Delivery
As I have said, the fact that Courtney suffered BPI following shoulder dystocia is not in dispute, the issue is whether the midwives involved in the delivery were negligent in their handling of the delivery and that BPI was the result.
It is accepted by the claimant that BPI is not inevitably the result of the application of excessive traction although that is apparently the usual cause. It can be the result of natural maternal propulsive forces sometimes where the baby's head has not restituted. It seems to me to be irrelevant that, statistically, BPI is likely to result from excessive traction. The issue I have to determine is whether, on the evidence, that is what caused it here.
The allegations of negligence are that;
a. Miss Perkins was not placed in the McRoberts position
b. Excessive force by way of traction[69] or lateral flexion[70] was applied to endeavour to dislodge Courtney's right anterior shoulder which was the shoulder whose progress into the birth canal was impeded by the maternal symphysis pubis.
c. Fundal rather than suprapubic[71] pressure was applied during delivery in an endeavour to release the anterior shoulder.
In determining these matters I have had the benefit of the oral and written evidence of Miss Perkins and her mother, Mrs Kathleen Perkins as well as Courtney's father, Mr Kenneth Webb, all of whom were present in the delivery room at the relevant time. For the defendant I have heard from 2 of the 3 midwives who conducted the delivery namely midwives Gilbertson (nee Adekoya) and Horridge (nee Charters). The third, Midwife Sword has neither provided a witness statement nor given evidence orally.
As remarked earlier, I have the expert reports of Mrs Tranter and Mrs Brydon and their joint statement and some input also from the obstetricians. In addition I have the hospital notes of the birth kindly summarised by Mr Sheldon in what has become the appendix to this judgment. Finally, there is a postnatal note at page 37 of bundle 4 which records that full delivery was achieved after delivery of the posterior arm and recording that the birth was afflicted by shoulder dystocia.
Whilst Mrs Tranter concludes from an analysis of the notes that the staff appear to have taken "all appropriate steps to achieve Courtney's delivery in this frightening obstetric emergency"[72] she has concerns that the speed with which the steps were taken indicated that an inappropriate amount of traction was applied"[73]
At page 17 of her report she develops that but essentially she notes that there are only 2 minutes between the delivery of the baby's head and her body and only 90 seconds after diagnosis of shoulder dystocia.
This period of 90 seconds is, she feels, a very short interval in which to go through the manoeuvres identified in the notes but she recognises that timings which would have been written retrospectively are approximate and that the interval between delivery of the head and the body may have been slightly longer. If they are accurate though she feels that they demonstrated a hurried approach to achieving delivery "which may have lead to excessive traction being applied"[74]
At page 21 of her report she is actually more robust. She records that it is her opinion that excessive traction was applied. She points out that the notes suggest that
"there were two midwives primarily involved in the delivery, firstly Midwife Charters (Horridge) followed by Midwife Adekoya (Gilbertson) with the delivery then achieved by Midwife Charters who is named on the delivery summary. Despite the appropriate steps being taken to resolve this emergency situation this changeover of personnel together with the speed with which the manoeuvres were apparently undertaken, in my opinion led to excessive traction being applied"
In fact the evidence of the midwives is that it was probably Midwife Gilbertson who delivered the head and Midwife Horridge the body[75].
Mrs Brydon points out that there is "no evidence in the notes of excessive traction and no evidence in the notes or the witness statements of lateral flexion of the neck"[76]. I have to say that I would have been surprised to see any recording that excessive traction had been used and the fact that there is no such recording does not really assist in determining whether there was excessive traction. I think Mrs Brydon puts the issue for determination succinctly in her paragraph 75
"If there was panic and all the midwife did was pull increasingly hard in order to deliver the baby then this is evidence of substandard care. If, as described in the records, there was recognition of delay with the shoulders due to a compound presentation, the midwife called for assistance, the maternal legs were hyperflexed and suprapubic pressure was applied then the care was appropriate"
It is therefore a question of fact.
On the question of excessive force Mrs Brydon refers in her report at paragraph 80 to an interesting article at page 207 of bundle 3 entitled "Risk Factors for Shoulder Dystocia: An Engineering Study of Clinician Applied Forces". At page 209 the authors conclude that
"a clinician's first reaction to a difficult delivery is to exert considerably larger forces than he normally would."
That would support the contention that excessive but inadvertent pressure may have been applied here.
The same conclusion can be drawn I think from paragraph 83 wherein Mrs Brydon concedes that it is often quoted that the traction needed to cause BPI is 100 Newtons or more and that
"it is very easy to apply pressure above 100 newtons if the head is out of line with the body or is moved laterally away from it"
Courtney's head was not restituted immediately after the head was delivered and so was out of line with her body.
On the other hand, she points out that a failure in restitution itself involves pressures on the baby's neck and shoulders especially in a birth involving a large woman and the addition therefore of even mild traction may well be sufficient in such circumstances to increase the risk of injury without there being negligent traction.[77]
I have of course considered the midwifery joint statement in detail. I have to say that in the context of the delivery there appears to be a tendency of both experts to analyse the factual evidence and reach conclusions as to the facts. That of course is my job but having said that, I do not blame them, to a large extent that is the natural result of the questions they have been asked to answer.
The fact is that the midwives do not appear to be at variance as to what conclusion to apply as to the standard of care based on those facts. If I find an unjustifiable failure to place Miss Perkins in McRoberts or find that excessive traction or flexion was applied or that fundal pressure was applied then there is a breach of duty. If that was a material cause of the BPI then there is causation.
I now come to the witnesses of fact whose evidence must be prefaced with the observations that they are giving evidence about events over a short period of time 15 years ago. In addition the atmosphere at the time was inevitably not so tranquil that it would have been easy to commit things to memory there and then for future forensic analysis.
As regards McRoberts, it will be recalled from the extract cited from Croft v Heart of England at paragraph 11 above that this requires the mother to be placed flat with her legs hyperflexed onto her abdomen.
The evidence of Miss Perkins, her mother and Mr Webb is that that did not happen.
Stacey Perkins
In her witness statement Stacey Perkins says that nobody tried to alter her position and she just remained on the bed while pushing. She recalls having her mother in a headlock which she suggests would not have been likely if she were flat on her back.
In her oral evidence it has to be said that she accepted that when the dystocia occurred there was a lot of action in the room and she was, understandably, panicking and her evidence has to be considered against that background but her firm recollection was that her back was at an angle in that she was neither sitting upright nor laid down. She was tilted with some pillows beneath her back.
She spoke of recalling being directed to place her feet apart on the hips of a midwife and Mr Webb and recalls another midwife pushing on her tummy but she cannot say which part of her tummy. She remembers pushing so hard on Mr Webb's hip that she thought she may injure him. She recalls that the reason she was given for placing her feet in this way and for the pushing on her tummy was to "help to get Courtney out" and that when she was in the position of her feet pushing into the hips of others she moved slightly down the bed but was still sufficiently propped up to see Mr Webb's face.
I should mention that she has a recollection of a discussion with staff at some time about a Caesarean section but nowhere does that appear in the notes.
Kathleen Perkins
At paragraph 18 of her statement she states that Stacey was half sat up in bed, propped up on some pillows. She makes no reference to Stacey's feet being on the hips of others and she suggests that a plan was considered at the time that the dystocia was identified to give Stacey a Caesarean section.[78] It has to be said that on the basis of the obstetric evidence it seems very unlikely indeed that a Caesarean section would have been undertaken at that point.
In her oral evidence she recalls the feet on hips. Her evidence was that Stacey's legs were "as far back as they could go" and were raised and that that was all part of the procedure adopted to get Courtney delivered. While she can recall that a midwife did apply abdominal pressure to Stacey she cannot say to which part of the abdomen it was applied. She too recollects being in a headlock.
Kenneth Webb
At paragraph 18 of his statement Mr Webb recalls that he was told that they needed to get Stacey "in a special position to get the baby out" and, at paragraph 19 that she was told to put her legs "right back".
In his oral evidence he indicated that the instructions about the position that Stacey needed to adopt occurred before the delivery of Courtney's head -- therefore before dystocia requiring the special position was even indicated. He too felt that when in this position Stacey had her legs back as far as they could go and her knees were bent but that the angle of her back did not change. She remained propped up on pillows.
Mr Webb is the only witness to recall excessive traction. From paragraph 21 of his witness statement he deals with what he saw. I need not reproduce what he says but the picture he paints is a disturbing one. Indeed at paragraph 21 he suggests that the traction used was so great that not one midwife but two were needed to exert it and at paragraph 23 that the baby was "yanked" out.
In his oral evidence he conceded that he was unclear when all this pulling exactly took place. It may have done so even before the delivery of the head. That however does not sit well with the chronology of his statement which clearly describes this excessive traction being applied after delivery of the head.
Ruth Horridge nee Charters
She had qualified as a midwife in 1997. Notwithstanding that shoulder dystocia is an emergency she has no recollection of events and her evidence is based on the notes.
In her witness statement (paragraph 17) she is clear that the notes indicate that an attempt was made to put Stacey Perkins in McRoberts but her habitus (size) precluded it.
She confirms however she and her colleagues "would have been able to achieve some form of abduction with her legs and hips". Clearly legs on hips, knees bent and legs back as far as they would go was "some form of abduction".
She was clear that if the notes indicate that she applied suprapubic pressure, as they do at 17.51 hours, then that will be what she did. Her evidence initially was that she did not deliver the head or shoulders, merely the body and so would not have used any traction that would have had any effect on the issues before me. In cross examination she said that she swapped places with Midwife Gilbertson after delivery of the head but she used no traction to deliver the shoulders but rather the baby was delivered spontaneously by maternal effort and suprapubic pressure. There is plainly an inconsistency there.
In her oral evidence she was asked by Mr Sheldon about the entry that she made in the postnatal notes at page 37 of bundle 4 wherein she records shoulder dystocia and that the posterior arm was delivered first. That led to a discussion about the posterior arm technique[79]. Dr Maresh opined at paragraph 37 of the joint statement that with that technique excessive traction cannot have been applied to the right side of the baby's neck. She was clear however that the technique illustrated was not attempted and her report was not intended to convey that it was. Her entry at page 37 was merely recording as a fact that the posterior arm was delivered first.
She understood that McRoberts requires the mother to be flat, she cannot recollect whether in fact Miss Perkins was flat or what the difficulties were in putting her flat if there were any. She accepted that the position described by the family members was not McRoberts but was clear that that will have been attempted, on the basis of the notes.
She understood the need for clear and comprehensive notes of the type of manoeuvre used, the time taken and the amount of force used and the outcome of each manoeuvre attempt as advised in Myles Textbook for Midwives (Bundle 3 tab2 page 276)
Ronnie Gilbertson nee Adekoya
She qualified in 1991 but she too has no recollection of this incident and her evidence is based on the notes. At paragraph 7, after dystocia was indicated, she reports unsuccessful attempts to put Miss Perkins in McRoberts and at paragraph 11, Midwife Horridge applying suprapubic pressure while she had a hand on the baby's shoulder, not to apply traction (and indeed no traction, not even gentle traction was applied) but to guide the baby out.
She was aware of the Wood Manoeuvre but there was no need to use it because the baby was fully delivered without having to resort to it. She thought that actually it was she who delivered the head and shoulders and only then did Midwife Horridge take over.
In cross examination she too accepted that McRoberts involves laying flat but postulated that Miss Perkins could not be laid flat because she had an epidural inserted. The suggestion that that would prevent a patient laying flat was not supported by the other medical witnesses to whom it was put and in any event such a reason would not justify describing a failure to achieve McRoberts on "habitus".
She was clear that she did not apply traction gentle or otherwise even though there may have been in excess of a minute between delivery of the head and the shoulders because, if she had, it would be in the notes. She accepted therefore that the strength of her evidence was dependent on the accuracy of the notes but she was clear that sometimes all it takes to overcome the dystocia is suprapubic pressure and maternal effort.
Conclusions regarding events surrounding delivery
McRoberts
It is clear that McRoberts was not achieved but that does not signify negligence if it was attempted and it simply could not be achieved.
I have no doubt it was attempted. That is clear from the notes themselves written well before there was any suggestion of the birth becoming the subject of litigation. The fact is that the notes clearly indicate that the midwives were aware of McRoberts so why would they not attempt it in the very circumstances in which it is intended to apply?
As to why they did not succeed, after this length of time other than that it was referable to habitus, it is in my view entirely understandable that they cannot recall. I do not criticise them for simply recording that their failure to achieve it was down to habitus without giving more detail. With the benefit of hindsight it would have been nice if they had but it goes without saying that absence of hindsight afflicts us all[80] .
Furthermore, it was clear, even on the evidence of the family, that an alternative was tried. It can hardly be said that the manoeuvre chosen, involving maternal feet on the hips of two people on either side of the bed with knees bent and legs as far back as they can go, is any easier than McRoberts so it is difficult to see why this manoeuvre would have been chosen over the recognised manoeuvre if the latter were possible.
I am satisfied that the claimant has fallen well short of the necessary threshold required to establish that there was a negligent failure to achieve McRoberts.
Suprapubic versus fundal pressure.
There is, to put it simply, no evidence of fundal pressure being applied. Not even the family positively assert it and it was well recognised in 1999 and had been for some years prior to that that fundal pressure should not be applied at all. The notes record the application of suprapubic pressure and there is simply no reason to doubt them
That allegation must also fail.
Excessive Traction
This issue presents somewhat greater difficulty but nevertheless I am not satisfied that it has been established that excessive traction was applied.
First it is important to repeat that it is accepted that not all BPI is caused by excessive traction but can be caused by maternal propulsion. Mrs Brydon herself recognises that it does not require the application of excessive traction to cause BPI.
The fact that statistically the great majority are caused by excessive traction cannot assist in the determination of what occurred in a specific case.
It is right to record that Midwife Gilbertson who appears to have been dealing with the delivery at the relevant time was an experienced midwife who had been qualified for 9 years.
She was aware of the dangers of traction and clearly aware of the steps to be taken to achieve delivery without it, not just McRoberts and suprapubic pressure but also the Woods Manoeuvre.
It was her clear evidence that there was no need to proceed to Woods because Courtney was delivered spontaneously with a little guiding.
I have considered carefully Mr Sheldon's points made from paragraph 86 of his final submissions that maternal effort and suprapubic pressure are unlikely to have been enough.
He contends at paragraph 87 that Courtney was born within 2 minutes of the dystocia having been indicated despite Miss Perkins having been pushing for 82 minutes prior to that. However that reference to 82 minutes is from the time that pushing commenced at 16.39. It offers no assistance on how long one might have to wait for the body to follow the head down the birth canal into the outside world.
Further the midwives did not do nothing. They used suprapubic pressure, which itself can have the effect of solving the problem and they put Miss Perkins into a position as near to McRoberts as they could. It will be recalled that even Mr Webb and Mrs Kathleen Webb agree that her legs were as far back as they could go. In addition the fact that the posterior arm was delivered first is not without relevance. That in itself can free the fetus. As the posterior arm comes forward the angle of contact between anterior shoulder and the symphysis will change so that the anterior shoulder may well spontaneously be able to slide under the symphysis. I do not accept that it is improbable that these could have worked without any further intervention.
In paragraph 88 Mr Sheldon argues that a finding that excessive traction was not used would be to suggest that midwife Gilbertson acted in a counterintuitive way based not least on the research referred to by Mrs Brydon. But the fact that something is counterintuitive does not mean that it does not happen. If that is what it meant then every child subject to dystocia would be subjected to excessive traction. It simply means that the temptation to pull too hard must be guarded against.
As to paragraph 90 of his submissions, even if traction were used, and the consensus of the experts is that gentle traction is permissible, there is no evidence of excessive traction other than the fact that there was BPI (but I have dealt with the fact that BPI can be caused by processes other than by excessive traction) and the evidence of the family, which I shall come to shortly.
I cannot find the reference at page 389 of bundle 3 that Mr Sheldon refers to in paragraph 91 of his submissions but even if there is something in the joint statement that suggests that the obstetricians find it surprising that even in as much as a minute in an emergency situation a midwife could resist the temptation to apply even some traction, even when gentle traction is permissible, I have to say that I do not see that as sufficient to make a finding against an experienced midwife that she did apply traction when her evidence is that the time was spent trying to guide the shoulder away from the obstruction to its progress- especially when the there is a note that the posterior arm was delivered first and which in itself is consistent with Midwife Gilbertson's evidence of attempting to guide the posterior shoulder rather than simply pull.
I should also add that Midwives Gilbertson and Horridge were not the only practitioners present. There was a more senior midwife present, Midwife Sword and possibly Dr Adams. It is likely that if either of them had seen Midwives Gilbertson or Horridge prepare to undertake a manoeuvre that was dangerous to the child they would have intervened.
As for paragraph 92, the fact that there was only a very short time between the occurrence of the problem and full delivery may well be the result of the steps taken. It is not a basis for finding that traction was excessive. The suggestion by Mr Sheldon that the second attempt at delivery must not have coincided with a contraction and that delivery is therefore even more likely to have been accompanied by traction depends on the timings in the notes being entirely accurate. Mrs Tranter stated that they would be made afterwards[81] so in my view in any event it would be wrong to make a finding of negligence on the basis that timings are completely accurate.
As for the evidence of Mr Webb, with respect to him I simply do not accept that there would have been yanking as he describes much less two midwives pulling on the baby in a way reminiscent of some sort of tug of war. There are clear inconsistencies in his evidence. That is hardly surprising in the light of the passage of time and the emergency prevailing in the delivery room at the time. I have no doubt that he has done his best and had no intention of seeking to mislead but in vital respects his evidence simply lacks credibility.
In all the circumstances I am not satisfied that the claimant has established that the delivery was negligently handled.
Summary
I propose to give judgment for the claimant on the basis of my finding as to events at 13.50 hrs but I am not satisfied that liability attaches to the defendant in respect of any of the other allegations.
Final Remarks
I am grateful to counsel for their very able assistance in this matter.
HHJ Saffman
Note 1 that in Maynard quoted above. [Back]
Note 2 Bundle 4 tab1 p30 [Back]
Note 3 Bundle 4 tab3 p117 [Back]
Note 4 Paragraph 8.1 [Back]
Note 5 Bundle 3 tab 5 367 (JS paragraph 8.1) [Back]
Note 6 National Institute of Clinical Excellence [Back]
Note 7 It is right to say that there is nothing particularly significant in the 2 hour gap, it could have been 3 or even 4 hours. The RBP Partogram points out that the data as to the chronological distance between the alert line and the action line was inconclusive but that local research findings concluded that women were more satisfied with a 2 hour action line. [Back]
Note 8 Bundle 4 tab3p120 [Back]
Note 9 Bundle 4 tab 4 p 121 [Back]
Note 10 this of course was an induced labour [Back]
Note 11 As it was in this case because there is an entry in the hospital records at 13.30 indicating the fetus is LOA (left occipito anterior with head -1 at the spines (ie1cm above the ischial spines). LOA is optimal positioning for the fetus. [Back]
Note 12 RCOG Guideline paragraph 4.4 bundle 3 tab1 p 104 [Back]
Note 13 international units [Back]
Note 14 Bundle 4 tab1 pp 52 to 94 [Back]
Note 15 Bundle 3 tab1 p45. It is accepted that insofar as it is relevant to this matter the guidance merely reflected the practice that had been in place since prior to 1999. [Back]
Note 16 Bundle 3 tab1 p94 [Back]
Note 17 Bundle 3 tab1 page 95 [Back]
Note 18 where cervical dilation has stopped (or, according to Dr Maresh, slowed) before full dilation of 10 cm but see Dr Maresh’s definition at paragraph 90 below [Back]
Note 19 1/5 of head palpable [Back]
Note 20 Head at level of ischial spines [Back]
Note 21 cervix [Back]
Note 22 Intrauterine pressure catheter [Back]
Note 23 Advised [Back]
Note 24 A unit of measure of uterine pressure to be measured by the IUP [Back]
Note 25 Bundle 3 tab1 p28 [Back]
Note 26 It is right to say that the dosage had exceeded the licenced dose specified by NICE by over 50% but it is not a point upon which the claimant relies because it is recognised that licenced doses can be, and are, justifiably exceeded. [Back]
Note 27 JS para 14.2 [Back]
Note 28 Mr Gillmer’s hospital and indeed Dr Maresh’s hospital had not used them for a decade and its use was more for the purpose of research on progress in labour rather than as a practitioners tool. [Back]
Note 29 Bundle 3 tab5 p400 [Back]
Note 30 In fact she was 4.87kg at birth (10lb 7oz) [Back]
Note 31 Bundle3 tab3 p319 [Back]
Note 32 This did not occur until 15.40 and so may be relevant later but I point out at this stage that 64mu/min actually looks at first blush to be double the maximum dose but in fact the solution was halved so the strength remained constant [Back]
Note 33 Bundle 3 tab 3 p327 [Back]
Note 34 JS paragraph 3 [Back]
Note 35 Mrs Brydon contends at paragraph 29 of her report that only one factor, maternal obesity, was present here but she is not supported in that by the obstetricians. [Back]
Note 36 Paragraph 3 of the report specifically confirms that Dr Maresh agrees that Miss Perkins went into secondary arrest at 8-9 cm but, as will become clear, later in the joint statement Dr Maresh disputes that there was secondary arrest here. [Back]
Note 37 It will be recalled that Dr Tanden recorded this as a “good size baby” [Back]
Note 38 The JS actually records that he agrees that cephalopelvic disproportion was the probable cause of secondary arrest but in his oral evidence in chief he took the opportunity to correct that on the basis that he had failed to spot at the time of signing that the report did not reflect his opinion. [Back]
Note 39 In fact Mr Gillmer’s position is that the cervix probably reached 8cm dilation by about 10.30 and that secondary arrest occurred then or shortly thereafter. He forms that view on the basis that dilation had occurred normally up to 09.30 and it is likely that it would have continued doing so therefore until it stopped dilating completely. It was 7cm at 09.30 and on that basis would have been 8cm by 10.30.(as it was at 13.50). His evidence was that secondary arrest at 8cm is not unusual. [Back]
Note 40 The RPB Dysfuctional Labour document [Back]
Note 41 Mr Gillmer suggests that a 4 hour action line would have been crossed at 15.30 assuming 8cm at 13.50 and a straight line dilation from that point to 9.5cm at 16.15. But that , he says, is academic in the circumstances because this was clearly a dysfunctional labour on any view and the dilation to 16.15 was as a result of Syntocinon augmentation. I should add that Mr Martin did not accept that a 4 hr line would have been crossed because she was fully dilated (10cm) at 16.39. [Back]
Note 42 It is right to record that his initial view that secondary arrest had not occurred was shared by Mrs Brydon (the midwives JS paragraphs 6 and 7) [Back]
Note 43 It is right to recount that even subsequently when another doctor, Dr Adams had occasion to consider the progress of this labour and the quantities of Syntocinon to infuse that, despite what had originally been thought at the outset of this case, she did not order infusion in excess of the maximum but altered the ratio of Syntocinon to Hartmann's solution in order to achieve an infusion at a rate equivalent to 96 ml/hour i.e. by doubling the concentration but halving the fluid load. [Back]
Note 44 MissTranter’s report page 21 (bundle 3 tab2 page 265) [Back]
Note 45 Bundle 3 tab 4 page 337 [Back]
Note 46 JS paragraph 13.2. [Back]
Note 47 indeed it is Mr Gillmer's point at paragraph 14.2 the joint statement that in any event intrauterine pressure monitoring did not in practice improve clinical management. [Back]
Note 48 bundle 3 tab 5 page 376 [Back]
Note 49 JS paragraph 15 [Back]
Note 50 JS paragraph 16 [Back]
Note 51 The time from which Dr Maresh regarded the iup readings to be meaningful (JS paragraph 16) [Back]
Note 52 See paragraph 65 above and Turnbull's Obstetrics page 572 [Back]
Note 53 In answer to a question from me Dr Maresh confirmed that delivery even with moderate contractions was possible but would simply take longer. [Back]
Note 54 JS paragraph 25 [Back]
Note 55 A large baby [Back]
Note 56 JS29 [Back]
Note 57 JS29 [Back]
Note 58 JS paragraph 26 [Back]
Note 59 Care during labour and delivery [Back]
Note 60 JS paragraph 3 [Back]
Note 61 except that frequency which allows form of relaxation is within a 10 minute timeframe suggests that contractions are not strong [Back]
Note 62 See paragraph 43 above [Back]
Note 63 Mr Martin’s final submission paragraph 40 [Back]
Note 64 I do not overlook that the midwifery experts did not believe that continued Syntocinon after 13.30 was unreasonable (midwifery JS paragraph 13.3) but that is not the issue. Indeed Mr Gillmer does not criticise the continued use of Syntocinon if (wrongly) the opportunity to carry out a Caesarean section was not taken. [Back]
Note 65 A point made by MissBrydon [Back]
Note 66 See paragraph 109 above [Back]
Note 67 A presenting part at the spines is considered to be engaged in the pelvis (Mrs Brydon report page 357) [Back]
Note 68 Dr Adams witness statement paragraph 9 [Back]
Note 69 Pulling of the baby’s head [Back]
Note 70 Moving the baby’s head from side to side [Back]
Note 71 See definitions in paragraph 12 above [Back]
Note 72 Mrs Tranter’s report page 16 (bundle 3 tab2 page 260) [Back]
Note 73 ibid [Back]
Note 74 Mrs Tranter’s report page 18 (262) [Back]
Note 75 Midwife Gilbertson statement paragraph 12 and Midwife Horridge statement paragraph 20 [Back]
Note 76 Mrs Brydon report paragraph 70 [Back]
Note 77 Mrs Brydons report paragraphs 83 and 84 [Back]
Note 78 Her witness statement Paragraph 15 [Back]
Note 79 Illustrated in bundle 3 tab 2 page 278 and called the Woods Manoeuvre. It involves placing the mother on all fours [Back]
Note 80 I note that not even Myles referred to in paragraph 144 above strictly requires one to record the reasons for failing to achieve a manoeuvre. [Back]
Note 81 Paragraph 215 above [Back] |
Mr Justice Males :
Introduction
The claimant is a former undercover police officer and the defendant is the Chief Constable of the force of which he was a member. The case concerns a claim for damages for psychiatric injury in the form of an adjustment disorder. The claimant complains that his adjustment disorder arises from a breach of the duty of care owed to him by the Chief Constable, who for the purposes of this claim has accepted vicarious liability for the acts and omissions of the collaborative police unit within which the claimant worked. The context is the claimant's deployment to another region (outside the area covered by the collaborative unit) as an undercover officer tasked with the obtaining of intelligence in relation to a serious organised criminal group.
The operation itself was validly constituted and operated in accordance with the requirements of the Regulation of Investigatory Powers Act 2000. There is no suggestion otherwise.
It is common ground that during the period of his deployment undercover on this operation the claimant misused cocaine on more than one occasion. He did not make any report at the time that he had done so. It is common ground also that this failure made it inappropriate for the claimant to continue as an undercover officer, although he would say that was an oversimplification. When this came to light the claimant was offered alternative employment within the police but there is an issue as to what he was offered and its suitability. He applied for ill-health retirement from the force. This was refused by the force, but was granted by the medical appeal board.
The claimant seeks damages for injury and consequential financial loss which he says flows from his having retired. The basis of his claim is that the defendant breached his duty of care in failing to provide the claimant with appropriate support during the period undercover. The claimant accepts that some support was given but complains as to its quality and extent. He contends this alleged breach caused his injury.
The defendant denies breach of duty and further denies that the matters complained of by the claimant (not accepted to amount to a breach) have any causative relevance. The defendant contends that any psychiatric injury which the claimant has suffered is attributable to his own misconduct in abusing cocaine and his sudden fall from grace when this was discovered. Further in this context the defendant argues that the claimant is barred by public policy from recovering damages, because the effect of success in this claim would be that the claimant would be recovering damages for the consequences of his own illegal acts and serious misconduct in abusing cocaine.
Trial in private
The parties sought an order under CPR rule 39.2 that the trial should be heard in private. I was satisfied that the lives of a significant number of witnesses, including the claimant himself, would be at risk if their involvement in undercover work became public and that this danger could not be met by anonymisation or other protective measures such as screens because the evidence in the case was likely to deal (as in the event it did) with such matters as the nature and location of the operation of which the claimant was a part. Further, the evidence was likely to touch upon (again, as it did to some extent) the methods used to infiltrate the criminal group and to reveal some of the intelligence thereby obtained. This was a highly effective undercover operation which even today remains secret and unknown to its subjects. Maintenance of that situation and integrity of the methods used (which might need to be used again) required, in my view, that the hearing should be in private. For these reasons, despite the fundamental importance of the principle of open justice, I ordered that the hearing should be in private. However, counsel agreed the terms of an explanation of what the case was about which could be and was given in open court.
This judgment
Following the conclusion of the hearing I prepared a draft judgment which I circulated to the parties, which adopted abbreviations to conceal the identities of the claimant and others involved and was deliberately vague about locations and dates. I was satisfied that to identify even the part of the country in which the events concerned took place and when they occurred would create a real risk of identification of those concerned. I intended to hand this down in public on 19 December 2014. Before doing so, however, I heard evidence from two senior police officers who persuaded me that to hand the judgment down even in this carefully anonymised form could be sufficient to reveal the identities of some of those involved and thereby to endanger their lives. I am satisfied, for the reasons which they explained, that this is a very real concern. Accordingly I have revised the judgment further in the light of this evidence and am now delivering it in two parts. This public judgment will explain the nature of the case and my conclusions in general terms. An annexe which will be confidential to the parties will set out the facts and, so far as necessary, explain my reasoning in further detail.
I continue the order made at an earlier stage of this case that there shall be no publication of any information which is likely to identify the claimant or others involved in the case.
The witnesses
For the most part the claimant gave his evidence in a straightforward way, although on occasions he became upset and argumentative. I accept that he was seeking in general to give truthful and accurate evidence. However, as I shall explain, some of the matters about which he gave evidence – in particular his taking of cocaine and the consequences to which this led – had proved disastrous for him. They led almost overnight to the loss of his status as a successful and well respected undercover officer. The claimant greatly enjoyed his work, despite its dangers. It was, as he put it, a job he loved. He was also extremely good at it. For obvious reasons those who knew what the claimant did were limited in number, but among those who did know, the role of an undercover officer carried with it a deservedly high status. The claimant was admired and respected as an outstandingly effective and successful undercover officer. His role gave him, therefore, not only personal satisfaction but a status within the police as an elite member of an elite group. Within the fairly small world of undercover policing he was described as having a national reputation. He lost that when his misconduct came to light and, in evidence, used words like "gutted" and "ashamed" to describe how he felt, accepting also that his misconduct had been at least a cause of a successful undercover operation having folded.
He would not, however, accept that he was responsible for his misuse of cocaine. He insisted that a situation had been allowed to develop whereby his invented criminal persona had effectively taken over his life. He claimed that it was this invented person and not his true self who had taken the cocaine. I consider that the claimant has persuaded himself that this is a valid explanation, perhaps as a way of dealing with what happened and seeking to recover his self respect, and therefore gave truthful evidence of the position as he saw it, but that does not mean that his account is correct. Significant parts of the claimant's evidence constituted an account of what he believes the position to be, but in my judgment were largely coloured by this reconstruction after the event in an attempt to explain away conduct for which even now he finds it hard to accept responsibility.
Much the same is true of the evidence given by the claimant's wife. Her evidence tended to blame the police for what had happened to her husband and in my view exaggerated what she regarded as his and her own isolation from potential sources of help. Thus she explained the fact that she expressed no concern to anyone about what she claimed were signs of her husband's out of character behaviour by saying that there was nobody to whom she could have turned. It is more likely, in my judgment, that the reason she said nothing to anybody about this was because there was nothing much to say. I do not doubt that the evidence she gave reflected her genuine belief some years after the event, but it was hard to reconcile with the evidence of other witnesses which I regard as more objectively reliable.
There was evidence from a large number of present and former police officers and others involved to some degree in undercover operations or in supporting those who were. Some of these were called by the claimant and some by the defendant. They were generally impressive and truthful witnesses. There were in addition contemporary records such as a log of the intelligence which the claimant was providing (which was high quality intelligence about serious criminals) and notes of various meetings once the claimant's use of cocaine came to light. These provided a reliable contemporary account.
The psychiatric evidence
It is common ground between the psychiatric experts called by the parties that the claimant suffers from what is described as a chronic adjustment disorder. An adjustment disorder (F43.2 in the International Classification of Diseases Version 10, ICD-10) is a "state of subjective distress and emotional disturbance, usually interfering with social functioning and performance, arising in the period of adaption to a significant life change or a stressful life event." Paragraph F43.2 goes on to give example of the stressors which can cause such a condition and the kind of symptoms which will be manifested (emphasis added):
"The stressor may have affected the integrity of an individual's social network (bereavement, separation, experiences) or the wider system of social supports and values (migration, refugee status), or represented a major developmental transition or crisis (going to school, becoming a parent, failure to attain a cherished personal goal, retirement). Individual predisposition or vulnerability plays an important role in the risk of occurrence and the shaping of the manifestations of adjustment disorders, but it is nevertheless assumed that the condition would not have arisen without the stressor. The manifestations vary and include depressed mood, anxiety or worry (or a mixture of these), a feeling of inability to cope, plan ahead or continue in the present situation, as well as some degree of disability in the performance of daily routine. Conduct disorders may be an associated feature, particularly in adolescents. The predominant feature may be a brief or prolonged depressive reaction, or a disturbance of other emotions and conduct."
Generally an adjustment disorder will be of short duration, while the person concerned adjusts to the new situation, but a disorder which continues for more than six months is described as a "chronic" adjustment disorder. Although the experts considered that the claimant's symptoms did not entirely fit into this classification, they agreed that it was the most appropriate diagnosis.
For the reasons given in the Confidential Annexe I conclude that there was no objective evidence of any symptoms of such a disorder before the claimant was confronted with his misconduct by more senior officers at a meeting which I shall call the "confrontation meeting". I reject the evidence called on behalf of the claimant that his psychiatric disorder arose as a result of his undercover work for an extended period, and that it was compounded by lack of appropriate support and supervision. I conclude instead that the claimant's disorder was caused by the sudden loss of status and identity which he experienced when he was confronted with his misconduct, the immediate result of which was the realisation that he would never work again as an undercover officer, a job which he enjoyed and at which he was extremely good.
Conclusion on causation
I conclude, therefore, that the chronic adjustment disorder from which the claimant suffered was caused by the fact that he was confronted with his own misconduct and that he had to face the traumatic consequences of this. There is in my judgment no evidence, and certainly none that I accept, that he was suffering from any mental disorder before that confrontation occurred, but when it did occur it was sufficient to account for and is the only explanation of the mental disorder which he then suffered.
This conclusion of fact is decisive of this case. Even if there was a failure by the defendant properly to care for the claimant's welfare or to supervise and monitor his mental health, any such breach would be causally irrelevant, since it would not be such breach that caused the psychiatric injury for which he claims damages.
Ex turpi causa
Moreover, even if the claimant could prove that the defendant was in breach of duty by failing properly to care for his welfare or to supervise and monitor his mental health, it would remain the case that the cause of his psychiatric injury was the fact that he was confronted with his own misconduct and its consequences. It was not suggested that the claimant ever lacked the capacity to decide whether to take cocaine or that he did not know it was wrong.
In these circumstances I accept the defendant's submission that the principle ex turpi causa non oritur actio would apply. In Gray v. Thames Trains Ltd [2009] UKHL 33, [2009] 1 AC 1339 the claimant suffered head injuries in the Ladbroke Grove rail crash which was caused by the defendant's negligence. Under the effect of the psychiatric disorder which resulted he stabbed to death a drunken pedestrian. He pleaded guilty to manslaughter on the ground of diminished responsibility and claimed to recover loss of earnings during the period when he was detained as a result, general damages for his detention, conviction and damage to reputation, and an indemnity against any claim brought against him by the deceased's dependants. The claim failed. Lord Hoffmann identified two rules of public policy. The narrower rule was that "the punishment inflicted by a criminal court is personal to the offender, and that the civil courts will not entertain an action by the offender to recover an indemnity against the consequences of that punishment". That narrower rule does not apply here as there was no criminal proceeding against the claimant in this case and he is not seeking an indemnity against the consequences of any such punishment. The wider rule, stated simply, was that "you cannot recover for damage which is the consequence of your own criminal act" (see [32] of Lord Hoffmann's speech and the further exposition of this wider rule at [51] to [55]).
In my judgment the claimant's case, even at its highest, falls foul of this wider rule. On the facts as I find them to be it is inescapable that the damage which the claimant suffered (his psychiatric injury) was caused by his own criminal act (his voluntary misuse of cocaine). That is so even if there were breaches of duty by the defendant in failing properly to care for his welfare.
The claimant's submissions in opening did not address this issue at all, even though the defence was pleaded. In closing Mr Terence Rigby for the claimant referred to Gray and to the later case of Hounga v Allen [2014] UKSC 47, [2014] 1 WLR 2889. That was a claim for racial discrimination against an employer by a woman who had entered this country illegally as a child by knowingly making use of false identity documents. The only claim which reached the Supreme Court was that the claimant had been unlawfully dismissed, although the real gravamen of her complaint was that she was a victim of human trafficking who had been treated violently and in effect imprisoned by the defendant and forced to work until she was evicted from the defendant's house. Other claims, for example for breach of an employment contract, had already failed on the ground that the contract was illegal.
Lord Wilson began by describing the difficulty which the law has experienced in enunciating a satisfactory test, capable of being applied objectively, for the circumstances in which illegal conduct will bar a claim as a matter of public policy. He suggested that tests such as whether a claim in tort was "inextricably linked" with the claimant's criminal conduct or whether the damage was "caused" by the claimant's criminal conduct were to some extent subjective, and could therefore lead to inconsistent decisions. He preferred instead, as the principle is one of public policy, to ask two questions: first, "what is the aspect of public policy which founds this defence?" and second, "but is there another aspect of public policy to which application of the defence would run counter?" His answer to this first question, derived from Canadian authority, was that the relevant principle of public policy was concern to preserve the integrity of the legal system. For example, a damages award in a civil suit which in effect allowed a person to profit from illegal or wrongful conduct would infringe this principle. The law cannot say at one and the same time that conduct which is criminal (and for which the claimant bears responsibility under the criminal law) can also found a claim by the criminal for compensation. Viewed in this way, the claim in Hounga for compensation for injury to feelings as a result of being dismissed on racially discriminatory grounds did not allow the claimant to profit from her wrongful conduct in entering into the contract in the first place. Nor did it compromise the integrity of the legal system to award such damages: doing so would not encourage others to enter into illegal contracts of employment, while failing to do so might encourage others to believe that they could discriminate with impunity. So far as the second question is concerned, the public policy which required protection of the integrity of the legal system had to give way to the even more important public policy against human trafficking and in favour of the protection of its victims.
Although there was some discussion of Gray in Hounga, in particular in the context of whether terminology such as "inextricably linked with" or "caused by" was the appropriate language in which to express the legal test, there is nothing in Hounga to suggest that Gray should be regarded as wrongly decided or that its essential reasoning is flawed. On the contrary, the approach in Gray and the approach in Hounga both point in my judgment to the same conclusion here. Thus, even though the claimant in the present case was never prosecuted for his use of cocaine, to allow him to bring a claim for psychiatric injury caused by (or, if relevant, inextricably linked with) such misconduct would compromise the integrity of the legal system. It would award him damages for the consequences of his own voluntary misuse of drugs. Further, and unlike the position in Hounga, there is no suggestion here of any countervailing public policy which ought to enable the claim to succeed despite this.
I conclude, therefore, that on the facts found above the claimant's claim is barred by the principle of ex turpi causa.
Breach and other matters
As I have found that the claim must fail as a matter of causation and by reason of the ex turpi causa principle regardless of any breach of duty by the defendant, it is unnecessary to say much about this topic. As the issue of breach was argued, however, and was the subject of a considerable amount of evidence, I set out below my reasoning and conclusions on this issue.
Legal principles
The principles applicable to a claim for psychiatric illness caused by stress at work were reviewed by the Court of Appeal in Sutherland v Hatton [2002] EWCA Civ 76, [2002] 2 All ER 1, where four separate appeals were heard together. One of those appeals then went to the House of Lords as Barber v Somerset County Council [2004] UKHL 13, [2004] 1 WLR 1089 where the decision of the Court of Appeal was reversed on the facts. The House of Lords held that the best statement of general principle remained that of Swanwick J in Stokes v Guest Keen & Nettlefold (Bolts & Nuts) Ltd [1968] 1 WLR 1776 ("the overall test is still the conduct of the reasonable and prudent employer taking positive thought for the safety of his workers in the light of what he knows or ought to know"), and approved the practical guidance in the application of this test given by Hale LJ in the Court of Appeal, with the proviso as always that the terms in which a judgment is expressed are not to be treated as if they had statutory force.
At [43] of her judgment Hale LJ set out 16 propositions which have become known as the Hatton principles. For present purposes, I would summarise these as follows:
(1) There are no special legal principles applicable to claims for psychiatric illness or injury arising from stress at work; the ordinary principles of employer's liability apply (proposition 1).
Foreseeability
(2) The threshold question is whether this kind of harm to this particular employee was reasonably foreseeable; if not, that is an end of the matter (proposition 2).
(3) There are various factors which may need to be considered in determining this threshold issue of foreseeability; the legal test is the same whatever the employment, but its application will depend on the facts of the particular case (propositions 3 to 6).
(4) To trigger a duty to take steps to deal with impending harm to an employee's health arising from stress at work, the indication of such impending harm must be plain enough for any reasonable employer to realise that he should do something about it; this too is an aspect of foreseeability (proposition 7).
Breach
(5) The employer is only in breach of duty if he has failed to take the steps which are reasonable in the circumstances; what is reasonable will depend upon the magnitude of the risk of harm occurring, the gravity of the harm which may occur, the costs and practicability of preventing it, and the justifications for running the risk; in these respects the duty to take steps to avert injury or illness due to stress is far from absolute; it is necessary to identify the steps which the employer could and should have taken and to show, generally by expert evidence, that such steps were likely to have done some good (propositions 8 to 13).
Causation
(6) The claimant must show that the breach of duty has caused or materially contributed to the harm suffered; it is not enough to show that occupational stress has caused the harm (proposition 14).
Foreseeability
Foreseeability of the risk of psychiatric injury is not in issue in this case. The claimant's force prepared a generic risk assessment for undercover work which expressly referred to risks such as an undercover officer experiencing a conflict of loyalties if befriended by a subject, feeling unsupported when working undercover and maintaining a covert role for a protracted period. The risk assessment identified various measures to control these risks, which I describe in the Confidential Annexe.
Mr Rigby suggested that Melville v Home Office, one of the cases dealt with in Hartman v South Essex Mental Health & Community Care NHS Trust [2005] EWCA Civ 6, [2005] ICR 782, was an illustration of circumstances where the Hatton principles do not apply, but that case decides no more than that what is foreseen cannot be regarded as unforeseeable. Here the risk was foreseen.
Breach
It follows that the defendant was under a duty to take such steps as were reasonable in the circumstances to ensure that the claimant did not suffer psychiatric injury due to the stress which he would experience as an undercover officer. Inevitably, however, this was potentially a highly stressful occupation, involving as it did the daily risk of exposure and the dire consequences to which that would lead. Undercover officers were, however, selected for their mental toughness among other qualities and were rigorously trained to deal with the physical and psychological pressures which were inherent in their job. The claimant was no exception. In my judgment the measures identified by the defendant were reasonable in all the circumstances if properly applied. At all events there was no evidence to suggest otherwise. The real question is whether these measures were properly implemented. For the reasons given in the Confidential Annexe I conclude that they were.
I conclude, therefore, that the breaches of duty on which the claimant relies are not established. Moreover, as appears from Hatton, the steps if any which an employer is obliged to take will depend to some extent on the circumstances of the particular employee. This was an employee, as appeared from his regular appraisals and from the quality of his work, who appeared at all material times to be at the very top of his game.
Quantum
I record that the parties indicated that they would expect, if necessary, to be able to agree quantum, and that the claimant's claim, on the scenario most favourable to him, was that the damages to be awarded (including interest to date) would amount to just under £160,000.
Conclusion
For the reasons given above this claim fails. The psychological injury suffered by the claimant was caused by his own misconduct. There will be judgment for the defendant.
I cannot think that it was in the claimant's best interests to bring this claim. It forced him to relive in the relentless and unforgiving scrutiny of the forensic process the humiliation which he suffered when his misconduct came to light. It was only too evident in court that this was (as it was always going to be) a painful experience for him. For much of the hearing he appeared highly distressed. As the experts agreed, the stress of this litigation is likely to have obstructed his recovery. This was a man who for many years gave valuable service to his country, at frequent risk to his own life and limb, whose work has contributed to the conviction of major criminals and who in other circumstances could rightly have held his head high amongst his peers. This should not be lost sight of despite the unhappy circumstances in which the claimant's police career came to an end. It was sad to see him in court, holding his head in his hands at the thought of what he had thrown away in a few moments of weakness. |
Mr Justice Warby :
Introduction
This is the trial of a claim by the claimants, ("Ali" and "Almaghir"), who are brothers and art and antique dealers, for an injunction pursuant to the Protection from Harassment Act 1997. The claim is brought against five defendants but, as will appear from what follows, the claims have settled against the first four defendants and the trial is effective only against the third defendant, Sameer Sabri ("Mr Sabri"). He does not appear and is not represented.
The claim arises from a dispute between the claimants and the first defendant, another antique dealer, between late 2013 and 12 March 2014. This is alleged to have involved a course of harassing conduct instigated by the first defendant which culminated on the evening of 12 March 2014 in a visit to the claimants' home in West London by the second, third, fourth and fifth defendants where it is said that, acting on behalf of the first defendant, they threatened and intimidated both the claimants causing them stress and anxiety. Some subsequent events are also relied on. The claim seeks no damages but only an injunction to prevent future harassment.
Issues arise as to the evidence that I should consider, which make it necessary to start by outlining the procedural history.
An outline of the proceedings
The claim form was issued on 3 April 2014, and on the same day an application was made without notice for an interim injunction against all five defendants. Ali and Almaghir each made a witness statement in support of the application, dated 3 April 2014. Exhibited to Ali's statement was a DVD containing video recordings from security cameras of the events of the evening of 12 March. Spencer J granted the injunction. The claimants gave the usual undertaking to serve the claim form, application notice, evidence in support and order as soon as possible.
On the return date, 11 April 2014, the matter came before Wilkie J, supported by a 2nd witness statement of Ali dated 8 April 2014. This stated, among other things, that the documents in the matter had been personally served on Mr Sabri on 4 April 2014. Mr Sabri and the first, second, and fourth defendants were represented by Counsel at the hearing and some of the defendants including Mr Sabri put in evidence. Wilkie J continued the order until after trial or further order, directing that the order be served on each of the defendants and noting that solicitors were by then on record for each of the first, second, third and fifth defendants.
In May 2014 an application was made by the first and fifth defendants to discharge the injunction. Eight witness statements were relied on in support, including Mr Sabri's earlier statement of 10 April. In response to the application the claimants filed a 3rd witness statement of Ali, a 2nd statement of Almaghir, and a statement of Salman Malik, the Duty Manager at the claimants' apartment block. The application was dismissed by HHJ Seymour QC sitting as a Deputy High Court Judge on 20 May 2014.
On 25 July 2014 the matter came before Master Yoxall for a case management conference. By this time the claimants had settled their claims against the fourth defendant, who had consented to the grant of a permanent injunction. This was subsequently put in the form of an order dated 29 July 2014. At the hearing, where only the claimant and first defendant were represented, the Master gave directions for trial and other procedural directions including the following:
"1. Any of the Second, Third or Fifth Defendants who did not file an acknowledgment of service in accordance with CPR 8.3 and wishes to defend the claim must within 14 days after service upon him of this order make and serve an application for an extension of time for filing an acknowledgment of service, in default of which he shall be debarred from taking part in the trial of this claim.
2. The parties shall give consideration to resolving this dispute by means of ADR by 30 September 2014 … Consideration should also be given to resolving this dispute by offer of undertakings …
3. If any party wishes to adduce any further evidence or witness statements he must serve on every other party such further evidence or statement by 4pm on 17 October 2014…
4. The Claimants shall serve a transcript of the video recording made of events on 12 March 2014 by 4pm on 17 October 2014.
…
7. The Claimants shall provide further particulars of the allegations made in paragraphs 33 and 34 of the First Claimant's witness statement dated 3 April 2014.
8. Claimant[s] to file and serve order by 8th August 2014."
According to the evidence before me Mr Sabri had not acknowledged service. By CPR 8.4, where a defendant has not acknowledged service and the time for doing so has expired "the defendant may attend the hearing of the claim but may not take part in the hearing unless the court gives permission". Accordingly, the effect of paragraph 1 of the Master's order was to give Mr Sabri and the other two defendants referred to, if they had not acknowledged service, a reminder and a prompt to make an appropriate application if they wished to take part in the trial.
In the event, the Master's encouragement to consider resolving the dispute seems to have worked so far as the first, second and fifth defendants are concerned. By 21 August 2014 the claimants' claims against each of those defendants had been settled, with orders for injunctions by consent being made against each of them. All that now remains for resolution, therefore, is the claim against Mr Sabri.
On 7 November 2014 the claimants served on Mr Sabri the 4th witness statement of Ali, dated 22 October 2014, and a transcript of the video recording of the events of 12 March 2014, with translation from the Arabic. The witness statement is intended to contain the further particulars of paragraphs 33 and 34 of Ali's 1st statement required by paragraph 7 of the Master's order.
This material was served 20 days after the date prescribed by the Master's Order of 25 July 2014, and the claimants accordingly by application notice dated 16 December 2014 sought an extension of time for compliance with paragraphs 3, 4 and 7 of the Order until 7 November 2014, and permission to rely on the witness statement and transcript. Evidence in support was provided by a statement of Mr Atton of the claimants' solicitors, contained within the application notice. This stated among other things that the delay in service had not prejudiced Mr Sabri as he "has not filed an acknowledgement of service in the claim and accordingly the third defendant is debarred from taking part in the trial of the claim pursuant to paragraph 1 of the order dated 25 July 2014."
Permission to adduce evidence/relief from sanctions
The claimants' application is rightly made, but neither their application notice nor their evidence of December goes far enough. When a defendant does not attend the trial it is especially appropriate for the court to take a strict approach to ensuring compliance the applicable rules and procedures.
CPR 8.6(1) provides that "No written evidence may be relied on at the hearing of the claim unless (a) it has been served in accordance with rule 8.5; or (b) the court gives permission." Rule 8.5 provides that the claimant must file any written evidence on which he intends to rely when he files his claim form, and that he must serve that evidence with the claim form; that the defendant may file evidence with his acknowledgment of service and if he does must serve it; and that the claimant may file evidence in response to any filed by the defendant and if he does must serve it. According to the evidence initially put before me about the procedural history only the 1st statements of each claimant were served with the claim form. The process thereafter which is envisaged by CPR 8.5 did not take place. The claimants' further evidence was served under different circumstances, as described above. Strictly, therefore, permission is therefore additionally required for reliance by the claimants on the 2nd and 3rd statements of Ali, the 2nd statement of Almaghir, and the statement of Mr Malik.
Secondly, the claimants require relief from sanctions in respect of all their evidence, save the claimants' 1st statements. The terms of CPR 8.6(1) which I have quoted above are the Part 8 counterpart of CPR 32.10, which applies in Part 7 claims. The differences are immaterial. CPR 32.10 was considered by the Court of Appeal in Denton v TH White Ltd [2014] EWCA Civ 906, [2014] 1 WLR 3926 to involve an "automatic sanction" requiring an application for relief under CPR 3.9: see paras [5] and [52]. I can see no reason why CPR 8.6(1) should be treated any differently.
CPR 3.9 is familiar. It provides that on an application for relief from any sanction imposed for a failure to comply with any rule or court order the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including what the Court of Appeal in Denton v TH White called "factors (a) and (b)" namely "the need (a) for litigation to be conducted efficiently and at proportionate cost; and (b) to enforce compliance with rules, practice directions and orders." The approach to be taken was clarified in Denton, and summarised in paragraph [24] of the joint judgment of Lord Dyson MR and Vos LJ:
"The first stage is to identify and assess the seriousness and significance of the failure to comply with any rule, practice direction or court order' which engages rule 3.9(1). If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages. The second stage is to consider why the default occurred. The third stage is to evaluate 'all the circumstances of the case, so as to enable [the court] to deal justly with the application including [factors (a) and (b)]'
Evidence is required: CPR 3.9(2).
There is an additional point. Whilst Mr Atton's statement asserts that the third defendant is debarred from taking part in the trial for failure to acknowledge service it does not attest to the service of the directions order of Master Yoxall, or failure to apply for an extension of time to acknowledge service, each of which was a condition precedent to the prohibition in paragraph 1 of the order.
These issues having been raised by me, the claimants by Counsel expanded the scope of their application to cover the earlier evidence, seeking relief from sanctions in respect of all the evidence since the 1st statements of both claimants. The claimants also sought to adduce further evidence from Mr Atton, who gave oral evidence. He is a partner in the claimants' solicitors and has had the conduct of the case throughout. The claimants' evidence, as supplemented in this way, was to this effect.
i) By the time of the hearing before Wilkie J, Freemans solicitors had come on the record as acting for all the defendants except the fourth. Ali's 2nd and 3rd statements and Almaghir's 2nd statement had all been served on Freemans prior to the hearing before HHJ Seymour QC. By the time of the CMC Mr Sabri had therefore received, via his solicitors, all the evidence the claimants had by then produced, as indeed the Master's order evidently assumed.
ii) By email of 30 July 2014 the order of Master Yoxall was served on Freemans (who had not come off the record) and the order was served on Mr Sabri himself under cover of a letter of 15 August 2014, sent to the address given by him in his statement of 10 April 2014. Mr Sabri made no application thereafter to extend time for acknowledgement of service.
iii) The reason why the claimants failed to comply with paragraphs 3, 4 and 7 of the directions by 17 October 2014 was that until the middle of October they were still in discussions with the third defendant with a view to settlement and avoiding a trial. The statement was not prepared until 22 October and the transcription and translation were obtained on 6 November. Both were served the day after the latter was obtained.
Against that evidential background I have granted the claimants relief from sanctions in respect of all the evidential material I have mentioned and permitted them to rely on all the statements and the transcript and translation of the video recording. So far as the evidence served in advance of the return date hearing is concerned, it is rather artificial to refer to a 'failure to comply'; at any rate, the claimants' conduct was not serious or significant; the reason for the evidence being served in this way was entirely acceptable; and there was no impact on efficiency, proportionate cost, or the matters listed in factor (b). Similarly as regards the evidence served in answer to the first and fifth defendants' application to set aside. The 'failure to comply' at that stage was purely technical and of no consequence.
The position is different when it comes to late service of the 4th statement and transcript/translation. Failure to comply with a deadline for service of witness statements is a serious and significant breach. Where the parties wish, as experience shows quite commonly they do, to avoid incurring litigation costs whilst engaging in settlement discussions the proper course is to seek an extension of time from the court, before the deadline expires. In that way the court retains control over the process and can guard against the risk that one or both of the parties may lose sight of the need to exchange or serve statements in good time before the trial or other hearing. That is what should have happened here. Nonetheless, in this case the delay was slightly less than three weeks and, more importantly, the evidence was served more than two months before the trial. Mr Sabri was by that stage debarred from taking part in the trial by virtue of paragraph 1 of the Master's Order, but could in principle have made an application for relief from that sanction. Service on 7 November 2014 gave him an opportunity to assess the totality of the evidence well in advance of trial and to make such an application if so advised. The orderly and proportionate progress of the litigation was not threatened. In my judgment it was just to relieve the claimants from sanctions.
Having allowed the claimants to rely on all the written evidence they have served Mr Jones then called each of the claimants to confirm on oath that the contents of their statements were true. They answered some short supplemental questions from Counsel and from me.
The facts
The claimants are professional antique dealers dealing in high value antiques and art. They are of Iraqi origin, as are all the defendants. Having successfully run their antiques business from Dubai since about 2002 the claimants decided in 2012 to move to the UK with their families and to set up here as well. The established themselves in an apartment building at Prince of Wales Terrace, London W8, together with a third brother and his family. Part of their premises is a ground floor flat used for both residential and business purposes. The children of the families use the flat to study, play and watch television and sometimes to sleep.
Whilst living in Dubai the claimants had dealings with the first defendant, whom they call "Khafaf", who is based in the UK. He would provide the claimants with services on an exclusive basis, searching locating and presenting to them antiques to buy. This would often involve paying Khafaf large sums up front to enable him to buy items outright or pay a substantial deposit. When items were presented to the claimants they could accept them or reject them. In the latter case Khafaf would obtain a refund of the money he had paid.
Once the claimants moved to the UK Khafaf became closer to them, providing his antique services but also helping generally. From early 2013 however the relationship became difficult. It is unnecessary for the purposes of this judgment to enter into great detail about these background matters. Suffice to say that according to the claimants' evidence, between early 2013 and June 2013 they made a series of payments to Khafaf, his brother, and his uncle in respect of items sourced or to be sourced by them for the claimants, but the items were all rejected by the claimants as fake. The claimants secured repayment of $30,000 paid to Khafaf's brother but not the other sums they had advanced. As a result of these dealings, and an advance they made to Khafaf to enable him to pay a debt, the claimants say, Khafaf owed the claimants $55,000 and £1,200 and his uncle owed them £10,000 which Khafaf had personally guaranteed.
In paragraphs 33 and 34 of his 1st statement Ali says "Since being repaid $30,000 we have been subject to threats by Khafaf regarding their claims for the aforementioned sums. Particularly, since 14 December 2013, Shamsi [the fourth defendant] has visited us regularly at our business premises (which is also our home) and has repeatedly threatened to us that this matter will get bigger if we keep on demanding our money back from Khafaf and [his uncle]." Ali's 4th statement expands on this, saying that the $30,000 was repaid in or about the beginning of December 2013; that Shamsi is a good friend of Khafaf and was, prior to 12 March 2014, a good friend of Ali and his family who did business with the claimants on occasions; for that reason he was in regular contact with them during the period of the dispute. Ali's statement then reiterates that on such occasions Shamsi warned the claimants that the matter was "going to get bigger".
According to Ali's 1st statement Shamsi attended the claimants' premises on 10 and 11 March 2014 and warned them again that the matter was going to get bigger. They had not taken any action themselves at that time, to recover the money due. During the 11 March visit Shamsi showed an interest in one of the claimants' rugs and asked them to put it aside for him saying he would be back the next day. He did return, on the evening of 12 March 2014, at around 10.30pm, but not alone. The events that followed represent the core of the claimants' case.
Shamsi asked Ali to let him in, saying he was outside alone. Ali thought he had come about the rug discussed the day before and therefore came down and let Shamsi in. However, as he did so he was surprised to see another three individuals with him. These were Mr Sabri, the second defendant and the fifth defendant. Ali knew the second defendant but not Mr Sabri or the fifth defendant (he learned their names later). Not wanting to create a scene in what is apparently a prestigious apartment block Ali let all the men in.
Ali's statement describes what happened next as follows:
"When they came into my premises Basim [the fifth defendant] told me in an aggressive manner that Khafaf had asked him to speak to me on his behalf for the return of his goods which had remained at the premises as a result of the $55,000 no being repaid. I said that the goods would be returned as long as he returns to me the $55,000 I had paid him. Basim responded aggressively by saying that 'I will not get out of here unless I collect the items'. Basim then said, in an attempt I believe to intimidate me, that he will call the police."
Ali says that on hearing this he left the room to seek help from Mr Salman Malik and they called the police, who came quickly. There were then conversations with the police in the course of which Basim accused Ali of being a liar. When that was reported to them, the police said they would not allow the situation to continue. Ali's statement says "The police asked whose flat it was and by that time my brother Almaghir (Mugheer) and my younger brother Yasin had entered the room. Mugheer said that the flat is mine and my brothers. On hearing this, the police told the 4 to leave the premises and took them outside."
Almaghir's evidence is that he knew Shamsi had called at the flat and took the children, who had been in the living room, upstairs. The implication is that he knew business was to be talked about and wanted the children out of the way. He had no concerns initially. The first that he knew of what was actually happening was when Ali came up to the 4th floor to tell him what was going on and that he (Ali) was being threatened. Shamsi followed Ali upstairs and they argued with one another. Ali was protesting that "Shamsi had brought these threatening men to our home." In his oral evidence Almaghir told me that when he went downstairs "they were shouting and threatening people".
There were then exchanges with the police, who reported to the claimants what the four men were saying to them. They were complaining that the claimants had not released goods, having agreed to share shipment with the claimants, which was disputed by Ali. Ali then showed the police the video recording of what had taken and they agreed that the men had been heavy handed. Ali and his brother explained to the officer their side of the story "about the money owed to us by Khafaf and [his uncle] and that we had been told that unless we stopped asking for the money to be returned that harm would come to us". The police went back outside, then returned with pictures of items the claimants had allegedly brought back from Dubai. Ali denied this and invited the police to check the premises for the items, which they did and confirmed the photographed items were not there. The police then said there was someone who could recognise the items, and Khafaf appeared. Ali refused him entry, upon which Khafaf said something which the police reported as being "We will deport you out from the country".
Ali's 1st statement, with which Almaghir expressly confirms his agreement, deals with the impact of these events on the claimants. Ali says that he believes that he and Almaghir have been harassed by Khafaf "which has caused us both stress and anxiety". He goes on: "Particularly, Khafaf through others has made constant verbal threats against us and on the evening of 12 March 2014 at around 10.30pm he sent 4 heavy handed individuals to my home (where my family and children live together with the family and children of my two brothers) to intimidate me and my brother."
The video recording exhibited to Ali's first statement comes from the claimants' security cameras. After some technical difficulties I was able to view this, in conjunction with the transcripts and translations (prepared by professional translators, from the Iraqi Arabic spoken between the Iraqi participants and English when the police appeared). The video quality was good. The audio was reasonable, so that during the period when English was being spoken I could distinctly make out some of what was said. There are two camera positions, one showing the entrance door and corridor to the flat and the other showing the living room. The latter matches the description in the claimants' evidence of how they use their premises at Prince of Wales Terrace, namely as a mix of business and residential uses. The room contains antiques and living room furniture.
In summary the key features of the video recording and transcript/translation are the following. The four defendants are let into the flat by Ali, who stands away from them as they enter. They then pass by him and into the flat. His body language is not welcoming but consistent with surprise at finding four men entering the flat. Ali does not at first follow the four men, who go into and remain in the living room talking amongst themselves for a couple of minutes. Mr Sabir photographs a number of items in the room with his phone, and picks up a sabre and brandishes it. Ali enters and very promptly Basim tells him they are not staying long. He gets up close to Ali adopting an aggressive body position and jabs his finger at him. He demands that Ali returns the items, saying "save the items". He is asked by Ali to sit down but demands the items again. Ali asks "Let me think about the matter. Tomorrow I will respond to you". Basim says aggressively "No, No, No, I am not leaving from here until I collect the items". When Ali says firmly he will not give them over, Basim demands to Mr Sabri "Call the police." This sequence of exchanges between Ali and Basim takes about 2 ½ minutes. None of the other three men takes any apparent step to intervene during this period.
Mr Sabri declines to call the police, and tries to calm Basim down, asking him to sit down and calm down. Ali leaves the room. Basim repeatedly demands that Mr Sabri call the police or give him the phone. Mr Sabri says, addressing Basim: "Allah save you, not in this way" and encourages Basim to talk to Ali. The men remain in the room for some twelve minutes debating what should happen next, at which point the police arrive with Ali. There is then angry shouting and whilst this is going on Almaghir enters. In his presence someone says in Arabic "liar". Ali responds angrily "liar!" and tells the police officer that someone (it seems to be Basim) has made that allegation. This is wholly consistent with Ali's statement.
Events then proceed in the way described in Ali's statement, or at least in a way that appears consistent with his account of things (the participants are often talking over one another so that some of the sense is lost). Of interest and in my judgment of importance to the decisions I have to make are the accounts of events given by Ali to the police and to third parties on the phone that are on the recording. These are just after the encounter with the four men. To the police Ali says, according to the transcript "He called me: are you here? I said: we are here. He said can I come. He said alone. When open the door I saw four of them what they attacked what immediately in." He then goes on to allege that he was threatened. After the police leave Ali calls two or more people and refers to Khafaf having "brought to me [a] gang", stating that the gang had been brought to "threaten me here" and stating that he was shaking whilst talking. My clear impression from the recordings showing Ali after the events of that evening is that he was highly excited, overwrought and agitated as a result of what had happened. He appears to me to have kept reasonable control of his emotions during the most threatening episode, in which Basim spoke aggressively "in his face" whilst jabbing his finger at Ali, but afterwards, as is often the case, he let his underlying feelings show.
Ali's 2nd statement recounts exchanges between him and someone called Sajed Al Uboodi ("Sajed"). Sajed called Ali on 4 April 2014, shortly after papers had been served on Basim and then and subsequently sought to act as an intermediary on behalf of "the defendants". Ali and Sajed spoke on the morning of Sunday 6 April when Ali returned a call from the night before. Ali's statement says he asked what Sajed wanted and that
"Sajed replied rather nervously that he was now no longer working with the Defendants and that he had been told by the Defendants that 'they will be dealing with you and your brother'. Sajed made it clear that he was speaking on behalf of everyone."
Ali makes clear how he understood this by describing it as "the threat by the defendants that I had been given through Sajed". He goes on to say that "Naturally on hearing this I felt very threatened". He recounts seeking a witness statement from Sajed who said he could not do that but repeated what he had said previously. This statement of Ali is dated 8 April 2014. It is apparent from Ali's 3rd statement that in due course, on 5 May, Sajed made a statement which took issue with this account, and that other defendants also disputed it. However, Mr Sabir made a statement dated 10 April 2014 "in response to the statement of ali Al Hamadari … dated 9th.04.2014" which can only be a mistaken reference to Ali's 2nd statement. Mr Sabri's statement does not dispute this allegation in Ali's statement.
Ali's fourth statement adds to the evidential picture so far as Mr Sabri is concerned. He states that on or around 17 July 2014, whilst Ali was at Gray's market, Mr Sabri approached his driver and asked "Why do your uncles make this case big? Why all this fuss?" (The reference to uncles is said to be due to the claimants being a lot older than their driver). The driver is said to have replied that Mr Sabri and the other individuals had threatened the claimants in their home at night. The conversation ended there. Ali's statement alleges that this was a breach of the injunction and that he remains concerned that Mr Sabri will continue to be a threat to him and his family unless restrained.
Generally, I accept the claimants' evidence about the course of events before and on 12 March 2014. Based on that evidence I find that on the balance of probabilities the visit to the claimants' flat was something organised and led by Shamsi at the instruction or request of Khafaf; and that Shamsi foresaw and intended that the group would intimidate the claimants into returning the goods claimed by Khafaf. I find that Mr Sabri knew this before he attended at the claimants' flat on the evening of 12 March 2014; he knew that Khafaf had made demands for the return by the claimants of property which he claimed was his; and that the claimants had refused to deliver the property; and that he and the others were attending the flat that evening under the leadership of Shamsi, on behalf of Khafaf, with the purpose and intention of enforcing Khafaf's demands by intimidating the claimants (no other reason for attending the flat "mob handed" having been suggested). He agreed to participate in such conduct. I find that Khafaf attended the premises at the same time and was waiting outside and that Mr Sabri and the others were aware of this.
I find that Mr Sabri set out with the knowledge and intention I have described knowing also that it was late at night, and that – at least by the time the four men arrived at the premises – he was or should have been aware that the premises were residential. He knew that he was an unknown figure to the claimants and he knew or at least should have known that this would be likely to make his presence the more intimidating. He was present at the door when Shamsi lied to Ali by saying that he was alone, and he therefore entered the flat knowing that deception had been used in gaining entry. In summary, therefore, Mr Sabri participated in a joint venture to attend as a gang of four to intimidate two men late at night in their own home as a means of enforcing the demands of an individual, Khafaf, with whose business he had no connection. He continued to participate in the venture knowing that the leading figure in it had used deception to gain entry or at least in the process of doing so.
I had noted in pre-reading of the translation Mr Sabri's attempts to calm things down once Basim had acted in the very aggressive way he did towards Ali, but Mr Jones has very fairly drawn my attention to it at as something on which Mr Sabir would no doubt rely if he was present. Mr Jones submits however, and I agree that this was conduct of a kind that Mr Sabri should reasonably have foreseen as likely to occur as part of the process of seeking to intimidate; that by the time Mr Sabri tried to calm things it was too late, the aggressive deed had been done; and that the four men's conduct was in any event intimidating and likely even without the especially aggressive speech and gestures used by Sabir.
My reservation about the evidence is that it does appear that Ali overstated the position when telling the police officer of what had happened, in that he stated there had been threats to kill. The evidence does not sustain an allegation of threats to kill or even explicit threats to cause physical harm. It is not the claimants' case that such threats were uttered on the night of 12 March 2014. It is not unreasonable, however, for Ali to have inferred an implicit threat from the way that Basim behaved. I do not, either, believe this evidence involved deliberate untruth. My conclusion is that it was exaggeration reflecting the heat and emotion of the aftermath of what was a disturbing incident for Ali. On the other hand, viewing the video recording and hearing what Ali said on the phone afterwards it is my conclusion that his written evidence understated somewhat the impact on him of the attendance of the "gang". He was clearly shaken, and in my judgment that is wholly understandable and reasonable.
I also accept Ali's account of what happened between him and Sajed, and Ali's account of the exchange between Mr Sabri and his driver. In relation to the former, I bear in mind that Ali's account of what Sajed said about what "the defendants" told him is double hearsay; that I have not heard from Sajed; and that it is apparent that Sajed and others challenged Ali's evidence on this point. But I also bear in mind that as noted above Ali's account has not been challenged by Mr Sabri. I find that Mr Sabri was party to a statement by the defendants to Sajed, which he intended to be communicated to the claimants, that the defendants would be "dealing with" the claimants. This is plainly a threatening or intimidating statement and my conclusion is that it was intended as such. This was a breach of the interim injunction, which prohibits communication with the claimants directly or indirectly, other than through their solicitors.
As to the account of the conversation with the claimants' driver, this again is hearsay but bearing that in mind I find as a fact that Mr Sabri was told by the claimants' driver that the reason the claimants were making a fuss about the case was that they had been threatened in their home at night, and that Mr Sabri did not deny this or respond in any other way. This supports my conclusion that what occurred on 12 March 2014 was indeed threatening behaviour. It is also consistent with the existence of a continuing risk of repeat conduct, in the absence of an injunction.
I do not accept Ali's suggestion that this conversation involved a breach of the interim injunction; it was not a communication with the claimants, direct or indirect. Nor do I read this exchange as in itself indicative of a threat of repetition of conduct such as occurred on 12 March. Ali's 3rd statement refers to rumours he has heard that Mr Sabri may have some form of criminal record, on which Mr Jones sought to rely in support of the injunction claim. I do not think it right to place any weight on this unattributed rumour. I note, however that Mr Sabri's statement of 10 April 2014 contains no expression of regret. Nor is there any evidence there or elsewhere that Mr Sabri has at any time apologised or given or offered any undertaking or promise that he will not in future act in such a way as to harass the claimants or cause them alarm or distress.
The applicable law
The relevant provisions of the Protection from Harassment Act 1997 (PHA), are as follows:-
"1.— Prohibition of harassment.
(1) A person must not pursue a course of conduct—
(a) which amounts to harassment of another, and
(b) which he knows or ought to know amounts to harassment of the other.
(1A) A person must not pursue a course of conduct—
(a) which involves harassment of two or more persons, and
(b) which he knows or ought to know involves harassment of those persons, and
(c) by which he intends to persuade any person (whether or not one of those mentioned above)—
(i) not to do something that he is entitled or required to do, or
(ii) to do something that he is not under any obligation to do.
(2) For the purposes of this section … the person whose course of conduct is in question ought to know that it amounts to or involves harassment of another if a reasonable person in possession of the same information would think the course of conduct amounted to or involved harassment of the other
…
3.— Civil remedy.
(1) An actual or apprehended breach of section 1(1) may be the subject of a claim in civil proceedings
…
3A Injunctions to protect persons from harassment within section 1(1A)
(1) This section applies where there is an actual or apprehended breach of section 1(1A) by any person ("the relevant person").
(2) In such a case—
(a) any person who is or may be a victim of the course of conduct in question, or
(b) any person who is or may be a person falling within section 1(1A)(c),
may apply to the High Court … for an injunction restraining the relevant person from pursuing any conduct which amounts to harassment in relation to any person or persons mentioned or described in the injunction."
7.— Interpretation of this group of sections.
….
(2) References to harassing a person include alarming the person or causing the person distress.
….
(3) A "course of conduct" must involve—
(a) in the case of conduct in relation to a single person (see section 1(1)), conduct on at least two occasions in relation to that person, or
(b) in the case of conduct in relation to two or more persons (see section 1(1A)), conduct on at least one occasion in relation to each of those persons.
(3A) A person's conduct on any occasion shall be taken, if aided, abetted, counselled or procured by another–
(a) to be conduct on that occasion of the other (as well as conduct of the person whose conduct it is); and
(b) to be conduct in relation to which the other's knowledge and purpose, and what he ought to have known, are the same as they were in relation to what was contemplated or reasonably foreseeable at the time of the aiding, abetting, counselling or procuring.
(4) "Conduct" includes speech."
A convenient summary of what must be established to make out a cause of action for damages for harassment was set out by Simon J in Dowson v Chief Constable of Northumbria Police [2010] EWHC 2612 (QB), [142]:
(1) "There must be conduct on at least two occasions,
(2) Which is targeted at the claimant,
(3) Which is calculated in an objective sense to cause alarm or distress, and
(4) Which is objectively judged to be oppressive and unacceptable.
(5) What is oppressive and unacceptable may depend on the social or working context in which the conduct occurs.
(6) A line is to be drawn between conduct which is unattractive and unreasonable, and conduct which has been described in various ways: 'torment' of the victim, 'of an order which would sustain criminal liability'."
It is clear that in principle liability for harassment may be established on the basis that the defendant is part of a joint venture (see Daniels v Metroolitan Police Commissioner [2006] EWHC 1622 (QB) [9]) but s 7(3A) assists a claimant, in a case where one defendant A aids and abets another B, by spelling out that in such a case the conduct, knowledge, and purpose of B and what he ought to have known "shall be taken" to be that of A. Aiding and abetting, counselling and procuring are terms of art in the criminal law but this subsection is not expressed to be limited in its application to criminal cases and I see no reason why it should be read as so limited. On the contrary, it is a provision about interpretation of the whole group of sections that precede it, some of which impose civil and some criminal liability.
It is obvious, but worth stating nonetheless that for the purposes of injunctive relief it is not necessary to establish that the defendant has already engaged in a course of conduct meeting the requirements of s 1(1) or 1(1A). It is sufficient to establish that he may do so unless restrained. This is spelled out in s 3A(1) in respect of an "apprehended breach" of s 1(1A), but the same must be so of an apprehended breach of s 1(1). If the defendant has already engaged in a course of conduct that would justify an award of damages that will tend to strengthen the case for an injunction.
Application of the law to the facts
The key issues in this case are, in respect of each claimant, (1) whether the conduct engaged in or attributable to Mr Sabri crosses the threshold of seriousness for harassment; and (2) whether there is a sufficient case for a permanent injunction. I bear very much in mind that the threshold is relatively high one. It is important that the Act should not become a springboard for parties to gain wide-ranging injunctions on the basis of conduct which is no more than unreasonable. I have however concluded that the evidence taken as a whole discloses a course of conduct by or attributable to Mr Sabri which satisfies the requirements of s 1(1) of the PHA so far as Ali is concerned; and a sufficient threat that in the absence of an injunction there would be harassing conduct by Mr Sabri towards each of the claimants.
I do not, for this purpose, attribute to Mr Sabri any knowledge of or involvement in the course of events up to and including 11 March 2014. There is no evidence, nor any basis for inferring, that he took any part in those. I base my conclusion on the findings of fact identified above. I have not found it necessary to consider whether s 1(1A) is engaged.
On 12 March 2014 Mr Sabri was in my judgment aiding and abetting Shamsi, the group leader. Accordingly, by virtue of s 7(3A) of the PHA Shamsi's conduct, knowledge, and purposes are to be attributed to Mr Sabri. My findings about Shamsi's conduct and state of mind are set out above. In any event, in my judgment, Mr Sabri's own conduct meets the threshold of seriousness. The conduct in which he knowingly participated, in entering the claimants' home at night, uninvited and with the use of deception, with a view to intimidation, was conduct objectively calculated to cause alarm or distress, and it certainly caused the latter in my judgment. It was markedly worse than unreasonable. A reasonable person in Mr Sabri's position would have understood the conduct of the group to be oppressive and intimidating and harassing towards the person present at whom it was directly targeted (Ali). To some extent, Mr Sabri clearly did in fact understand the group's conduct to be unacceptable; that is why he intervened to try to calm down Basim. As I have indicated, however, Basim's behaviour was reasonably foreseeable and the group's conduct was in my judgment serious enough to cross the threshold even if Basim's conduct is disregarded. I do not consider the threshold was crossed so far as Almaghir is concerned. Though Almaghir was targeted and was upset he was not a witness to the main events.
In his written submissions Mr Jones urged that the events of 14 March 2014 could if necessary be viewed as a series of occasions making up a course of conduct. That in my view is artificial. This, so far as Mr Sabri was concerned, was conduct on a single occasion and for that reason, whilst it otherwise met the Act's requirements, it would not amount to a sufficient basis for a claim for damages under the Act. But it was enough to justify a reasonable apprehension of further similar conduct which would, when taken together with the conduct on 14 March 2014 amount to harassment of Ali, and a reasonable apprehension that Almaghir would also be subject to harassment. Hence, what happened on 14 March was enough to justify, as regards Mr Sabri, the interim injunction which was initially sought and granted. The behaviour of 14 March 2014 to which Mr Sabri was party would also in my judgment have been enough, in the absence of any expression of contrition or recantation or undertaking or promise not to repeat by Mr Sabri, to justify a permanent order in respect of each claimant.
But the behaviour of 14 March does not stand alone. It was followed soon afterwards by the threatening message passed to Ali, on behalf of both claimants, by Sajed, on behalf of all the defendants including Mr Sabri. That was plainly worse than just unreasonable; it was objectively likely to cause alarm and distress and was oppressive and unacceptable. It would have justified criminal proceedings. By this point, in my judgment, Mr Sabri had been party to a course of conduct within the meaning of the Act, amounting to harassment, so far as Ali is concerned. By this stage he had a complete cause of action for damages under the Act, had he wished to pursue it. He has not pursued such a claim, but the fact that this defendant engaged in a course of conduct on two occasions amounting to harassment of Ali strengthens the case of both claimants for a permanent injunction. The nature of the second incident means that it would by itself in my judgment be sufficient to support a claim by them for an injunction, given the absence of anything to suggest that the threat has gone.
Conclusion
The claimants have made out their case for an injunction to restrain Mr Sabri from harassing them, and I grant an injunction in the terms sought by Mr Jones with one modification. It is unnecessary to set out in full the order that I am making, but its terms are almost identical to those to which the other defendants have consented, subject only to a reservation in case relations change in future and either claimant at some stage consents to a communication being made by Mr Sabri with him, otherwise than through the claimants' solicitors. |
Mr Justice Warby:
Introduction
This is a case about spam, which for present purposes is adequately defined as unwanted email sent in bulk. It can also be described as the internet version of junk mail.
The claimants are two entrepreneurs, one ("Mr Ames") an Australian citizen and the other ("Mr McGee") a citizen of the United States, who are both resident in California. Between them they set up and until about December 2013 were involved with a bulk email marketing services business, initially through a US corporation called Blackstar Media LLC, and latterly as employees of Blackstar Marketing, a subsidiary of the English company Adconion Media Group Limited, which bought Blackstar Media in April 2011.
The first defendant is an English company which represents the principal corporate entity of an international not-for-profit organisation called The Spamhaus Project which tracks and reports on sources of spam on the internet. The second defendant ("Mr Linford") is the founder of The Spamhaus Project and chief executive of the first defendant. The defendants' evidence and submissions refer generally to Spamhaus without distinguishing between the Project and the first defendant and I shall do the same.
The claimants' claim, as presently put in amended particulars of claim dated 4 December 2014, concerns publications in England and Wales via the Spamhaus website between a date in December 2013 and about 31 May 2014. The claimants were both named as spammers, and for most of this period were on the first defendant's Register of Known Spam Offenders ("the ROKSO list") and at the top of its list of the Top 10 world's worst spammers ("the Top 10 list"). Addresses relating to the claimants and a photograph of Mr McGee were also published. The claimants complain that the words used were libellous of them, and that the disclosure of their addresses was a misuse of private information. Mr McGee complains that the reproduction of the photograph was an infringement of copyright. The claimants claim damages and injunctions.
The defendants now apply for an order dismissing all of these claims on the grounds that they represent an abuse of the court's process. Alternatively, the defendants apply for summary judgment on the grounds that the claims have no real prospect of success. The factual propositions relied on in support of these applications include, though they are not limited to, contentions that the claimants have no or no significant reputation in England and Wales, that the extent of publication within this jurisdiction was minimal or insignificant, that the claimants have neither suffered nor are likely to suffer any or any substantial or serious harm as a result of the alleged wrongs, that publication has ceased, and that there is no intention to republish.
By a cross-application issued two days before the hearing the claimants seek permission to re-amend their statements of case to enlarge the claim so as to complain in addition of libel by publication in the United States. The defendants take no objection to that application being determined on short notice, but invite me to dismiss it on its merits.
Publication
Spamhaus, which was set up in 1998, uses a variety of investigative techniques to collect data about spamming activities and to identify those it believes are responsible. This information is stored and collated in a number of databases and "blocklists". Among the Spamhaus databases are the Spamhaus block list or "SBL" database and the ROKSO list. The SBL database contains IP addresses from which Spamhaus does not recommend the acceptance of electronic mail. The SBL database is used by ISPs to filter email content originating from those IP addresses and to terminate any services they are providing.
The SBL database is also used by Spamhaus as the starting point for further investigation to identify people or organisations responsible for sending spam. On the basis of such investigations the ROKSO list is drawn up and published. The Spamhaus website describes the ROKSO list in this way: "ROKSO is used by Internet Service Providers to avoiding signing up known spammers who would abuse their networks and by Law Enforcement Agencies to help target and mount prosecutions against spam and malware gangs."
On the Spamhaus website the ROKSO list has its own page at www.spamhaus.org/rokso. It is an alphabetical list of around 100 alleged spammers. The page contains explanatory text which informs the reader that "The majority of the spammers on the ROKSO list operate illegally", and that they move around to seek out ISPs with poor security or enforcement. It is said that:-
"Many of these spam operations pretend to operate 'offshore'. Those who don't hide behind anonymity pretend to be small 'ISPs' themselves, claiming to their providers that the spam is being sent out not by them but by non-existent 'customers'. When caught, almost all use the age-old tactic of lying to each ISP long enough to buy a few days or weeks more of spamming and when terminated simply move on to the next ISP already set up and waiting.
For qualified Law Enforcement Agencies Spamhaus provides a special version of this ROKSO database which gives access to records with evidence, logs and information on illegal activities of many of these gangs, too sensitive to publish here."
The list of names on the ROKSO page contains hyperlinks that allow the user to click through to a number of other pages which contain further information about the named individuals and organisations.
The Top Ten list is what its name implies, and is maintained at www.spamhaus.org/statistics/spammers with headings including "The World's Worst Spammers". A link to this page is provided on the main ROKSO list page. On the Top Ten list page it is said that
"Up to 80% of spam targeted at Internet users in North America and Europe is generated by a hard-core group of around 100 known professional spam gangs …. This TOP 10 chart of ROKSO listed spammers is based on those Spamhaus views as the highest threat, the worst of the career spammers causing the most damage on the internet currently. Spamhaus flags these gangs and individuals as a priority for Law Enforcement Agencies".
It was on a date between 4 and 21 December 2013 that information about the claimants first appeared on the Spamhaus website. The ROKSO list at that time included an entry for "Mamba Hosting/Blake Corbin". They held the position at that time of the World's Worst Spammers. Clicking through, the user would be led to pages identifying the two claimants by name as running Mamba Hosting together with Blake Corbin, and describing Mamba Hosting as a "massive snowshoe spamming operation involving dozens of fake companies using Earth Class Mail PO boxes as an address, tens of thousands of nonsense domains registered to these fake companies." A snowshoe operation, explains Mr Linford, is one that seeks to spread its email output across a large number of different addresses and internet domains.
The claimants came to know of this reference to them in late January 2014. On 31 January 2014 Mr McGee emailed Spamhaus. The evidence of Mr Ames is that this and subsequent correspondence from Mr McGee was sent on behalf of both claimants. I shall return in more detail to the correspondence. For present purposes it is enough to say that the email of 31 January said that Mr McGee and Mr Ames had been involved in business with Blake Corbin at one time but not since 2011, and that Mr McGee had a family business with two cupcake stores and Mr Ames was doing security consulting for JPMorgan.
In response Mr McGee was asked by Spamhaus to explain what RSR Interactive LLC and Blackstar Racing LLC were. On 4 February 2014 he explained that Blackstar Racing provided sports marketing and product promotion services in motorsports and cycling. RSR was a start-up company building a "sports action event marketing platform", which allowed advertisers to target their content at consumers at particular times during a race when an event of a pre-selected kind occurred. This was a second attempt to do something previously tried with a company called Splitter, said Mr McGee.
On or around 8 February 2014 Spamhaus put the claimants on the ROKSO list and at the top of its Top Ten list. On the ROKSO list there now appeared an entry "Blackstar Media/Rob McGee/Craig Ames". On the Top Ten list page, at number 1 on the list of "The 10 Worst Spammers" these words appeared:
"Blackstar Media/Rob McGee/Craig Ames – United States. A major league snowshoe operation, spamming for years, morphing constantly, falsified records, scads of domains."
The claimants' case, not disputed at this stage of the proceedings, is that "scad" is shorthand for a "scam ad" or fraudulent advertisement.
On the Main Info page to which the interested reader could click through to find out more about Blackstar Media and the claimants the words starting "A major league snowshoe operation …" appeared again, and the claimants were also described in precisely the same terms as had earlier been used for Mamba Hosting/Blake Corbin (paragraph 11 above). A list of "AKAs" appeared which included the names of Mr McGee's cupcake business, RSR Interactive and Blackstar Marketing. At the same time as adding these words Spamhaus added to its pages two addresses for Mr Ames and one for Mr McGee, and a thumbnail of a photograph of Mr McGee which it had obtained from the internet.
On 14 February 2014 Mr McGee emailed Spamhaus to complain that the claimants had been "promoted" to ownership of all the companies Blake Corbin had set up over the past few months. On 19 February Mr McGee emailed Spamhaus again, but publication continued thereafter. On 15 May 2014 Carter-Ruck solicitors wrote a letter of claim on behalf of the claimants. This asserted that the claimants had substantial reputations in this jurisdiction and complained of a libellous meaning that the claimants
"run an internet business which makes use of falsified records, fake companies, scam advertising and constantly changing identities to conceal and pursue its unlawful activities, and as such they should be a priority target for law enforcement agencies".
It was said that the publication was "plainly likely to cause serious damage to the reputation of our clients." The letter complained also of publication of the claimants' personal and private information in the form of their "home addresses".
The claims were rejected by the defendants, but publication on the website ceased as of 31 May 2014. The pages were not, however, removed fully. The content was removed but the pages still existed so that major search engines continued for some time to index the page and to reveal snippets from the words complained of and a link to the defendants' website indicating that there used to be an entry relating to them on the ROKSO list. The uncontradicted evidence is that the words complained of continue to this day to be accessible via an archive machine.
The claims are issued
Proceedings were issued on 28 July 2014. The particulars of claim allege that the claimants have substantial reputations in England and Wales and that the Spamhaus website has a substantial audience here. The particulars complain of what appeared on the ROKSO list, the Top Ten list page, and the various pages of further information on the Spamhaus website. The particulars attribute to this material the same defamatory meaning as was set out in the letter of claim. It is alleged that the publication has caused "serious damage to the claimants' reputations". In support of the claim for damages reliance is placed on republication of the sting of the allegations on two third party websites: a blog containing an article which reproduced the Top Ten list and described the claimants (and others on the list) as 'cybercriminals'; and a similar article on www.aibgb.co.uk which is said to have been online for a similar period. These are alleged to have been online from March 2014 until 31 July 2014 and 13 August 2014 respectively.
A claim for misuse of private information is made in respect of the publication of each claimant's "home residential address". A claim for infringement of copyright is made on the basis that Mr McGee was the owner, by assignments of 20 May and 18 July 2014, of the copyright and all accrued causes of action in respect of the photograph reproduced by Spamhaus. Additional damages for flagrant infringement are claimed under s 97(2) of the Copyright Designs and Patents Act 1988. Injunctions to restrain repetition are sought.
The defendants asked for Further Information about the claimants' case that they have substantial reputations in this jurisdiction and their case on damage to reputation. On 23 September 2014 Further Information was provided. This includes details of the claimants' links to this jurisdiction. These mainly consist of business contacts, some made by Mr Ames in a period up to 2008 when he was a Vice President of JPMorganChase based in New York, but principally contacts made in the process of selling Blackstar Media to Adconion, which took place in April 2011, and in working for Blackstar Marketing since then.
The Further Information also sets out matters relied on to support the allegations of damage. These include the extent of publication, including its appearance in search engine searches; the gravity of the allegations; and the importance of the claimants' reputations for probity in the eyes of those who knew them already, and in the eyes of those who read the words and were potential business partners. It is said that the damage is likely to grow because of continued or further republications on the internet; and that Spamhaus' allegations "are of interest to and likely to be viewed by and circulate within not just the direct marketing and information security industry but also the wider business community."
In support of this and the claim for damages generally the Further Information gives details of additional republication of the sting of the words in August 2014 on three further websites: those of the Irish magazine "Business World", KBC Bank Ireland plc, and Allied Irish Bank. It is alleged that searches on the claimants' names using Google and other search engines produced defamatory snippets of the words complained of until at least 7 September 2014.
The defendants' application
The defendants' application was issued the day after service of the claimants' Further Information. The application to strike out the libel claims as an abuse is made pursuant to CPR 3.4 and/or the inherent jurisdiction in reliance on the principles first established in Jameel (Yousef) v Dow Jones & Co Inc [2005] QB 946. The grounds stated in the application notice are that:
"(a) the claimants have no significant connection to this jurisdiction and do not have a substantial reputation to protect here, and therefore cannot establish a real and substantial tort within this jurisdiction …
(c) the claim in libel is otherwise an abuse of process as it does not serve the legitimate purpose of protecting the claimants' reputations and/or there is no realistic prospect of a trial yielding any tangible or legitimate advantage such as to outweigh the disadvantages for the parties in terms of expense, and the wider public in terms of court resources".
In the alternative the defendants seek summary judgment under CPR 24.2 on the grounds that "the claimants cannot satisfy section 1 of the Defamation Act 2013 as publication of the words complained of has not caused serious harm to the reputations of the claimants and/or is not likely to do so."
The application seeks an order dismissing the misuse of private information and copyright claims as a Jameel abuse on grounds which mirror the terms of paragraph (c) above, or alternatively summary judgment on the grounds that the claimants have no realistic prospect of success as the acts complained of were in the public interest.
Although this is not specifically mentioned in the application notice, the defendants' evidence in support of the application made much of the allegedly small scale of publication within this jurisdiction of the words complained of.
Legal principles
The Jameel jurisdiction
In Jameel a serious accusation, that two people were funding terrorists, appeared on a US website for some 4 days after which it was archived and later removed altogether. The claimant, who was from outside England and Wales, sued the US-based publisher for libel. The claim was in respect of publication in this jurisdiction only. It was later discovered that only five people here had ever accessed the website while it was live. Three of these were "in the claimant's camp", one being his solicitor. The defendants were able to contact the other two, neither of whom knew the claimant or could recall reading his name. The Court of Appeal held that the claim should be struck out as an abuse of process.
The court held that the principles relevant to an application to set aside permission to serve out of the jurisdiction were also relevant to the jurisdiction to strike out a claim as an abuse. The question of whether "a real and substantial tort had been committed within the jurisdiction" had been identified as a threshold criterion in the former context, but was also relevant to an application to strike a claim out as an abuse. Hence the wording of paragraph (a) of the defendants' application notice. The court identified the CPR as one development which had made the court readier to strike out a libel action as an abuse, and the Human Rights Act 1998, s 6, as the source of a duty to do so where the claim represented an unwarranted interference with the Convention right under Article 10. At [55] Lord Phillips MR said that:-
"Section 6 requires the court, as a public authority, to administer the law in a manner which is compatible with Convention rights, in so far as it is possible to do so. Keeping a proper balance between the article 10 right of freedom of expression and the protection of individual reputation must, so it seems to us, require the court to bring to a stop as an abuse of process defamation proceedings that are not serving the legitimate purpose of protecting the claimant's reputation, which includes compensating the claimant only if that reputation has been unlawfully damaged."
It is these concluding words that are the source of the first part of para (c) of the defendants' application notice.
Other relevant and well-known formulations of the test for striking out defamation proceedings as an abuse of process, cited with approval by the Court of Appeal in Jameel at [57] and Cammish v Hughes [2012] EWCA Civ 1655 at [56], are those of Eady J in Schellenberg v BBC [2000] EMLR 296. He identified the relevant questions as whether "the game was worth the candle" or whether "there is any realistic prospect of a trial yielding any tangible or legitimate advantage such as to outweigh the disadvantages for the parties in terms of expense, and the wider public in terms of court resources." The latter is the source of the wording in the second part of paragraph (c) of the defendants' application notice. At the heart of this formulation and that of the Court of Appeal in Jameel at [55] are the familiar notion of proportionality and the need to balance competing rights and interests.
To test whether the claim in Jameel was an abuse according to these criteria the Court of Appeal examined the extent to which continued pursuit of the action could be justified as a vehicle for obtaining vindication of the claimant's reputation, or on the grounds that an injunction to prevent repetition was required. Vindication is an important purpose of a libel action and the court accepted at [59] that vindication was the claimant's purpose. However, it held at [69] that it was not legitimate to use a claim in respect of publication here as a means of achieving wider vindication. The costs of obtaining such minimal vindication in respect of publication here as the claimant might achieve at a trial were out of all proportion to the value of such vindication. Permission to serve proceedings outside the jurisdiction would have been refused, and for the same reason the claim represented an abuse.
The court dealt with the injunction issue at [72]-[76]. It was common ground that the only injunction that could be sought was one prohibiting publication in this jurisdiction. The court held that where minimal publication had occurred but there was "a threat or real risk" of wider publication there might be a justification for pursuing proceedings to obtain an injunction against republication. However, the court did not see any risk that the same or similar publication would recur and found it difficult on the facts of the case to envisage how a court might formulate an injunction of value at trial.
The question of what threshold test must be satisfied in order to justify the grant of an injunction received further consideration by the Court of Appeal in Citation plc v Ellis Whittam Ltd [2013] EWCA Civ 155, where the court approved tests of good ground to fear, or good ground to infer, that unless a satisfactory undertaking was given the statements would be made again: see [18] and [30].
The Jameel jurisdiction has been exercised quite frequently in libel actions. Recent examples referred to by the parties on this application include Subotic v Knezevic [2013] EWHC 3011 (QB) and Karpov v Browder [2013] EWHC 3071 (QB), [2014] EMLR 8. The jurisdiction is however exceptional; the assessment of whether a real and substantial tort has been committed is not a "numbers game"; even publication to a single individual can be highly damaging and make a substantial and costly libel action proportionate: Haji-Ioannou v Dixon [2009] EWHC 178 (QB), [30]-[31] (Sharp J). A tweet published to 65 people can justify a substantial five figure award of damages: Cairns v Modi [2013] 1 WLR 1015, CA. Similarly, internet publication to 550 people: Times Newspapers Ltd v Flood [2014] EWCA Civ 1574.
The Jameel principles are not solely applicable to claims in libel but are of general application: see Sullivan v Bristol Film Studios Ltd [2012] EWCA Civ 570, where a claim for infringement of copyright was dismissed. Sullivan also serves as a reminder, however, of why the jurisdiction is exceptional: it is a strong thing for a court to strike out a claim on proportionality grounds if it has at least arguable merit, and the court must be alive to the risk that it might unjustifiably deprive a claimant of access to justice. The claim in Sullivan could have been allocated to the Patents County Court had its true value been recognised in time. As Lewison LJ observed at [29] and [35] (with the agreement of Etherton and Ward LJJ):-
"29. ….The mere fact that a claim is small should not automatically result in a court refusing to hear it at all. If I am entitled to recover a debt of £50 I should, in principle, have access to justice to enable me to recover it if my debtor does not pay. It would be an affront to justice if my claim were simply struck out. The real question, to my mind, is whether in any particular case there is a proportionate procedure by which the merits of a claim can be investigated. In my judgment it is only if there is no proportionate procedure by which a claim can be adjudicated that it would be right to strike it out as an abuse of process.
… When in future a judge is confronted by an application to strike out a claim on the ground that the game is not worth the candle he or she should consider carefully whether there is a means by which the claim can be adjudicated without disproportionate expenditure."
In Jameel at [70] and Sullivan at [29] two features of defamation claims were identified as making them (in Lewison LJ's words) "to some extent … a special case". One was the prospect of trial by jury. That is no longer relevant in most cases, now that s 11 of the Defamation Act 2013 has amended s 69 of the Senior Courts Act 1981 so that the presumption is that libel actions, like others, will be tried without a jury. Section 69 as so amended applies to any action begun, like this one, on or after 1 January 2014. It was not submitted that I should approach this case on the basis that a trial would be with a jury.
The second feature identified as making defamation claims special is that such they cannot be tried in the County Court. That remains the case, save by consent. The general principles stated in Sullivan apply nonetheless, and CPR r 1 imposes a duty on the court to seek to deal with cases justly and at proportionate cost. Since the decisions in Jameel and Sullivan, costs budgeting procedures have been implemented to help the court perform that duty. If a libel claimant has a real prospect of establishing a tort which is real and substantial, the court should be very reluctant to conclude that it is unable to fashion any procedure by which that claim can be adjudicated in a proportionate way, and that the only remaining way of dealing justly with the case is to dismiss it.
Connections with this jurisdiction
A foreign claimant does not have to justify suing an English company for libel in the courts of England and Wales. The domicile of a company is the primary forum for such a claim according to Article 2 of the Judgements Regulation (Council Regulation (EC) no 44/2001), whether the claim relates to publication here, or to publication abroad, or both. None of this is controversial. The issue on this application is therefore not whether these foreign claimants should bring the pleaded claims in some other, more appropriate court, abroad, but whether they should be allowed to bring those claims at all.
As Ms Page QC notes in her submissions on behalf of the claimants, the wording of paragraph (a) of the defendants' application notice implies that a claimant cannot establish that he has been the victim of a real and substantial tort within the jurisdiction in the absence of a pre-existing connection to the jurisdiction, or a pre-existing reputation here. Ms Page points out that Jameel did not so hold and submits that this is not the law. Mr Helme accepts this on behalf of the defendants, but maintains that the extent and nature of the claimants' existing connections to and reputation in this jurisdiction are highly material to his application. I agree that these are relevant factors. However, it is necessary to beware of treating foreigners differently because they are foreigners. As Ms Page points out, that could lead to unjustified discrimination in the provision of access to justice, based on nationality.
The relevant law has been modified by the Defamation Act 2013, but it is convenient to consider first the common law. At common law an individual establishes a cause of action in libel by proof that the defendant published in writing or other permanent form a statement about the claimant which bore a meaning defamatory of the claimant. A defamatory meaning is one that substantially affects in an adverse manner the attitude of other people towards the claimant, or has a tendency to do so: Thornton v Telegraph Media Group Ltd [2010] EWHC 1414 (QB), [2011] 1 WLR 1985, [96]. If a statement is defamatory by this criterion, damage is presumed. The compatibility of this aspect of the common law with the Convention was confirmed by the Court of Appeal in Jameel.
Thus, the law does not require an individual who seeks to sue for libel to "surmount a preliminary hurdle … by showing an established reputation": Multigroup Bulgaria Holding AD v Oxford Analytica Ltd [2001] EMLR 737 at [22] (Eady J). This approach was endorsed by the Court of Appeal in Jameel at [28]:
"In Multigroup Bulgaria Holding AD v Oxford Analytica Ltd … Eady J expressed the view that an article defaming an identifiable individual would give rise to a cause of action even where no one reading the article had prior knowledge of the victim. While we are unaware of any authority that supports this proposition, it seems to us that it makes sound sense. There seems no reason in principle why a newspaper should not simultaneously create and besmirch an individual's reputation."
At common law this would amount to an actionable tort worthy of some damages, however small. It might or might not amount to a "real and substantial" tort, depending on the circumstances. Suppose a local English newspaper published an allegation of criminal activity about someone from Wales who was completely unknown in the area but was about to arrive to set up as a solicitor in the town. The reputation thus created would be a very bad one, and the creation of such a bad reputation would be very significant to the claimant. It would impossible to deny that a libel claim over such publication was a claim for a real and substantial tort.
The same applies when it comes to a claimant from overseas. In Jameel at [28] the Court of Appeal discussed such a case:
"To take an extreme example, imagine that an unknown American who was about to visit an English town was erroneously described in the town's local paper as a paedophile. Manifestly the law ought to afford him a cause of action in libel.
It follows that where a statement is published to a reader that is defamatory of an identifiable individual, it will not be possible for the publisher to prove that no damage has been caused to the individual simply by showing that the reader did not know the individual."
Although the court did not say so in terms (it was dealing here with a different issue) it would plainly have regarded this example as involving a real and substantial tort.
At the other end of the scale, it is possible to conceive of a very limited domestic publication about a claimant – a foreigner or a recluse - who is not only someone previously wholly unknown to any of the readers, but also someone who is never likely to encounter them or to be affected in any way by any lack of esteem in their eyes. At common law the publication of defamatory words referring to the claimant would constitute a tort. On these hypothetical facts, however, the tort would surely not be regarded as real and substantial. The creation of a bad reputation could not matter to the claimant and it is hard to see any justification for devoting any substantial resources to testing whether the publication was true or defensible in some other way. This, however, is an improbable hypothesis and cases at this or the other extreme will be rare, if indeed they ever arise. There will be many if not infinite variations between the two extremes.
The question of what a foreign claimant needs to establish in order to show a real and substantial tort within the jurisdiction for the purpose of the Jameel jurisdiction was considered by Simon J in Karpov v Browder [2013] EWHC 3071 (QB), [2014] EMLR 8, where the Russian claimant admitted he had no substantial reputation in this jurisdiction prior to the alleged libel. The claimant complained that a bad reputation had been created for him. Having considered Multigroup Bulgaria and Jameel Simon J arrived, at [69(2)], at the following proposition:
"A claimant may be able to show a reputation sufficient to demonstrate a real and substantial tort within the jurisdiction in cases where, although he had no reputation at the time, such reputation was created and destroyed by the publication. However such cases will usually arise where he or she has some form of prior or imminent connection with the jurisdiction."
This passage sets out a general rule and not a threshold test, and as such I see no reason to disagree with it. It reflects the obvious point that a claimant suing over a publication directed at people whose opinion cannot be a matter of any real consequence to him will find it hard to show good reason for devoting substantial resources to libel litigation. However, whether a publication in this jurisdiction which creates a bad reputation for someone who is previously unknown, or little-known, to readers amounts to a real and substantial tort will depend on all the circumstances of the particular case. The nature of the statement itself, the gravity of its meaning, and the nature and extent of its publication will always be highly relevant. The graver the allegation the easier it will be to show that the alleged tort is a real and substantial one. Also of obvious relevance will be the identity of the publishees, the nature and extent of the claimant's existing connections here, and the claimant's reputation amongst those who are likely to have read the statement. But it may be hard to know the extent of a person's reputation. Moreover, the impact of defamatory statements is not often limited to the immediate publishees, or to the immediate aftermath of the publication, least of all when it comes to internet publication. A publisher is responsible for damage caused by republications which are the natural and probable or reasonably foreseeable consequence of its own publication, and it is a feature of the internet that material once published may remain accessible for a considerable time, even if removed from the original site.
These last points are illustrated by the facts of this case. The words complained of or their sting were republished on a number of third party sites and on Google. Although Spamhaus took down the words at the end of May 2014 they or their sting remained on third party sites for months afterwards, snippets were stored and remained available via search engines for a similar period, and the content is archived and remains accessible via the Internet Archive and Wayback. Such publications appear to me to be foreseeable consequences of publication by Spamhaus for which the defendants would in principle be responsible in fact and in law, if and to the extent that they resulted from and involved publication in this jurisdiction.
The above is not intended to be an exhaustive list of the factors that may be relevant to the assessment of whether there is a real and substantial tort. In short, all depends on the facts of the particular case. The court's approach must accordingly be flexible so that, for example, connections with the jurisdiction which are planned or likely but not "imminent" could suffice. It is also important to bear in mind that in a world of globalised business and swift, easy and cheap international communications a business person can more easily build up a reputation in a foreign place without visiting it, and the creation of a bad reputation in a foreign place is more likely to be of significance. Simon J's formulation in Karpov v Browder of the rule that will "usually" apply allows, as I read it, for such possibilities.
Section 1 of the Defamation Act 2013
The major part of the publication complained of by Mr Ames and Mr McGee took place on and after 1 January 2014 and is therefore subject to the requirements of s 1(1) of the Defamation Act 2013 which provides that:
"1.— Serious harm (1) A statement is not defamatory unless its publication has caused or is likely to cause serious harm to the reputation of the claimant."
This wording does not abolish the principles discussed above. It introduces an additional requirement. The use of the word "serious" obviously distinguishes the statutory test from the common law as stated in Thornton. The threshold identified in Thornton was that the statement should "substantially" affect attitudes in an adverse way, or have a tendency to do so. The Jameel test also requires a tort to be "substantial". As Bean J noted in Cooke v MGN Ltd [2014] EWHC 2831 (QB), [2014] EMLR 31 [37], examination of the Parliamentary history of the section shows that the word "serious" was chosen deliberately in place of the word "substantial". It follows that the seriousness provision raises the bar over which a claimant must jump, as compared with the position established in the two cases mentioned. These points are spelled out in the Explanatory Notes to the section:-
"The section builds on the consideration given by the courts in a series of cases to the question of what is sufficient to establish that a statement is defamatory. A recent example is Thornton v Telegraph Media Group Ltd in which a decision of the House of Lords in Sim v Stretch was identified as authority for the existence of a "threshold of seriousness" in what is defamatory. There is also currently potential for trivial cases to be struck out on the basis that they are an abuse of process because so little is at stake. In Jameel v Dow Jones & Co it was established that there needs to be a real and substantial tort. The section raises the bar for bringing a claim so that only cases involving serious harm to the claimant's reputation can be brought".
Put another way, it is no longer enough to establish a tendency to have a substantial impact and amount to a real and substantial tort; there is now no tort unless and until "serious harm to reputation" has either been caused or "is likely to" be caused by the publication.
In these circumstances it seems to me that an assessment of whether a defamation claim in respect of publication on or after 1 January 2014 should be dismissed on the grounds that the actual or likely harm to reputation is too slight to justify the claim, or grounds that include this proposition, should normally start with consideration of the "serious harm" requirements in s 1. The court should ask itself whether one of those requirements is satisfied or, as appropriate, is arguably, or has a real prospect of being, satisfied. If the answer is no, then there is no tort at all and the claim will inevitably be dismissed. If the answer is yes, it may be hard to establish that the tort alleged fails the "real and substantial tort" test.
I accept Mr Helme's submission that s 1 does not supersede Jameel. There may be defamation cases in which the pursuit, or continued pursuit, of the claim cannot be justified as a necessary and proportionate interference with freedom of expression even though the publication has caused serious harm to reputation, or such harm is likely. Lait v Evening Standard Ltd [2011] EWCA Civ 849, [2011] 1 WLR 2973 could be an example of such a case. Jameel will in any event continue to apply to other causes of action. But in a defamation case where the issues raised on an application to dismiss include whether the publication has been harmful enough to reputation to justify the pursuit of the litigation, it risks confusion to ask first whether the tort is real and substantial and only then to look at the "serious harm" requirements. The approach should be the other way around.
Parliament has not defined what "serious" means, but has left it to the judges to apply what is an ordinary word in common usage: Cooke [39]. The factors relevant to whether serious harm has been caused or is likely will be the same in my judgment as those which come into play in assessing whether a tort is real and substantial for Jameel purposes, as discussed above.
The word "likely" in s 1 is also undefined. As is well-known, this is a word capable of various meanings. Neither party identified any Parliamentary materials which could assist as to what it means in this context. The word appears in another statutory context relevant to publication cases: s 12(3) of the Human Rights Act 1998 prohibits the court from restraining the exercise of freedom of expression before trial unless it is "satisfied that the claimant is likely to establish that publication should not be allowed". In that context the ordinary meaning of "likely" is "more probable than not", though a lower standard of likelihood may be required in some circumstances, as where there is a slight risk of very serious damage: Cream Holdings v Banerjee [2005] 1 AC 253, [22].
Parliament must be taken to have known this, and it may be for that reason that in Cooke it was common ground that serious harm will, generally, be "likely" within the meaning of s 1 only if it is more probable than not, and the defendant conceded that the lower Cream threshold would apply in comparable circumstances: [33]. Bean J did not expressly decide that issue. Ms Page submits that the term should be interpreted flexibly, as setting a standard of sufficient likelihood to justify continuation of the claim. I am inclined to think that Counsel in Cooke were right but the point has not been argued fully on this application and for reasons that appear later in this judgment I do not need to decide which approach is correct.
It is of course for a claimant to prove that serious harm to reputation has been or is likely to be caused. In Cooke at [41] Bean J declined to accept that "evidence" will be required in every case. What he meant by "evidence" is clear from his recital of the submissions made by the defendants, which included the proposition that there has to be evidence of "tangible adverse consequences", such as adverse reactions to the publication expressed on social media, or other "visible republication or comment": see [42] at (a), (d), (e) and (f). Bean J rejected this, accepting that serious harm can be inferred without evidence of adverse reaction from readers. This is plainly right. There may be circumstances in which one would naturally expect to see tangible evidence that a statement had caused harm to reputation, but as practitioners in this field are well aware, it is generally impractical for a claimant to seek out witnesses to say that they read the words complained of and thought the worse of the claimant. I note from Cooke [42](f) that the defendant's submissions in that case did not go so far as to say that this could never be done; rather, it was submitted that the court should be "wary" of attempts to rely on inference.
Public interest
There is no dispute about the law relevant to this issue. A claimant in the tort of misuse of private information must prove two things: (1) that the claimant's Article 8 rights are engaged; that is, that the claimant has a reasonable expectation of privacy in relation to the information; (2) that, upon a proportionality assessment of the interference with the competing rights of privacy under Article 8 and freedom expression under Article 10 that a decision one way or another would involve, Article 8 prevails. The second requirement has been dubbed the "ultimate balancing test" and the right approach is set out by Lord Steyn in Re S (A Child)(Identification: Restirctions on Publication) [2004] UKHL 47, [2005] 1 AC 593 [17]: neither article has precedence over the other; there must be an intense focus on the comparative importance of the specific rights at issue; the justifications for interfering with each right must be taken into account, and the proportionality test applied to each. The defendants' case of public interest is that the application of the ultimate balancing test in this case is bound to result in a judgment in their favour on the claim for misuse of the claimants' addresses.
It is clear law that a defence of public interest to claims for copyright infringement of copyright exists, and may prevail "in those rare cases where [the right to freedom of expression] trumps the rights conferred by the 1988 Act": Ashdown v Telegraph Group Ltd [2002] Ch 149, [58]. It will be very rare for the public interest to justify the copying of the form of a work to which copyright attaches, though the implications of the Human Rights Act 19988 must always be considered when an injunction is sought: ibid [59]. The defendants' case is that the real interest in the photograph in this case is a privacy interest, and the harm that disclosure will (allegedly) do to that interest, and that accordingly the court should approach the claim and the question of public interest by applying the ultimate balancing test.
Procedure
In Jameel itself, and in many of the subsequent decisions applying the Jameel abuse doctrine, the issue of abuse has been raised and determined in a summary fashion on an application such as the present, pursuant to CPR 3.4. On such an application the court should not dismiss the claim as an abuse unless it is plain that the relevant criteria are satisfied. The question is, as Eady J observed in Mardas v New York Times Co [2008] EWHC 3135 (QB), [2009] EMLR 8, [15] whether there has been or arguably has been a real and substantial tort committed here.
Where CPR 24.2 is relied on the court may not grant summary judgment unless satisfied that "(a) (i) the claimants have no real prospect of succeeding on the claim … and (b) there is no other compelling reason why the case should be disposed of at a trial." A real prospect is one that is not fanciful: Swain v Hillman [2001] 1 All ER 91, 92j (Lord Woolf MR). In order to succeed on their summary judgment application in this case the defendants therefore need to satisfy me that it is fanciful to suppose the claimants might succeed at a trial in proving one or other of the serious harm requirements in s 1 and, in relation to the misuse and copyright claims, that a public interest defence as outlined above would inevitably succeed. I should not conduct a mini-trial. I shall have to bear in mind that there has been no disclosure, nor yet a Defence, and to consider whether Ms Page is right to submit that for those reasons this application is premature.
Evidence and submissions
The statement and its meaning
The meaning complained of by the claimants is self-evidently one that would tend to have a substantially adverse effect on the attitude of others towards them. In other words it is plainly a defamatory allegation at common law, and a serious one at that. Any reasonable businessman who read such allegations and took them seriously would avoid dealing with individuals against whom such things were said.
It is no part of the defendants' applications to say that the claimants cannot make good their pleaded meaning at trial, at least if one assumes the reader has viewed all the pages complained of. Mr Helme has queried whether there is any complaint of the pages individually, and whether any of them individually bears the pleaded meaning. I believe this is with a view to cutting down the potential numbers of relevant publishees. However, the defendants have not presented any more detailed analysis of this point. For their part the claimants have not sought a determination of the meaning of the offending words.
Having reviewed the individual pages complained of and the evidence that is available I consider it appropriate to proceed at this stage on the footing that the claimants have a real prospect of making good what I understand to be their pleaded case that over the 5 and a bit months between December 2013 and the end of May 2014 the defendants have published the allegation complained of to all those who read all the pages complained of. Even if that meaning as a whole would not be conveyed to those who only read the Top Ten list or ROKSO list, the claimants have a real prospect of establishing that a similar meaning imputing involvement in illegal spamming was conveyed to those readers. Ms Page points to the Top Ten list for the context in which the words complained of appeared, emphasising that the claimants head a list which includes a suspected fraudster (entry 4), someone (at position 5) who is alleged to have been "working with the worst cybercriminal botnet spammers", and (at 9) a Ukrainian gang "tied into distribution and billing for child, animal and incest-porn, pirated software and pharmaceuticals."
The nature of the publication
The purposes of the ROKSO list are identified by Mr Linford as "(i) to identify other IP addresses or domains sending out spam; (ii) to warn ISPs not to allow these individuals or companies to sign up to their networks; and (iii) to provide a deterrent effect to the person(s) responsible by naming them" on the website. The evidence makes clear that Spamhaus has gained a reputation for accuracy and reliability. The defendants' evidence describes the organisation as "one of the most widely used sources of information about known spammers worldwide … relied on by over 2,500 ISPs", "enormously respected and influential". These matters are relevant to an assessment of the likely impact of being named. So is the evidence of Mr Ames that he knows from his own experience in the industry that Spamhaus is "well known, widely used and well respected." It is of course necessary to keep in mind that I am concerned only with publication in England and Wales but these pieces of evidence tend to support the view that readers of this website trust the information which it provides, and that being named on the ROKSO or Top Ten lists is likely to have a significant impact on the minds of readers of this specialist website.
Ms Page also points to evidence that Spamhaus's information has been used and relied on by official agencies including, in the UK, the Serious Organised Crime Agency, the National Crime Agency, and the OFT and, in the US, the FBI. This comes from Spamhaus's website and from its own witness statements. Mr Linford's statement exhibits plaudits from both the NCA and FBI, attesting to their confidence in the expertise and reliability of Spamhaus. I am not inclined to give these points any weight at this stage in the proceedings. The claim at present relates to publication here, so the views of the FBI are irrelevant; there is as yet no evidence that the words complained of have in fact been published to any such agency within the jurisdiction; if they have, there could well be questions of immunity from suit and those might bear on whether there had been a real and substantial tort. I confine my attention to the impact or likely impact on the claimants' reputations among others.
The extent of publication and the identities of publishees
The evidence as to the number of readers of the website within the jurisdiction has developed over the period since the defendants' application was issued. The evidence served on 24 September 2014 was that "the total readership of the words complained was likely to be extremely limited". The defendants said that they did not have any data from which they could determine the exact number of unique visitors to the particular URLs complained of. Instead, Ms Proudler's statement attempted estimates based on figures for overall website traffic in July 2014 which included 20,417 views of the ROKSO page and 3,424 views of the Top Ten list page. Noting that there were 110 entries on the ROKSO list it was suggested that the maximum number of visits for any particular entry on that list would be 31 and that the number of unique visitors from this jurisdiction (which would tend to be lower than the number of visits or views) "is therefore likely to be extremely limited".
It turned out however that the defendants did have a means of obtaining more precise data. On 9 December 2014, two clear days before the hearing of the defendants' application, Mr Linford made a further witness statement explaining that the defendants had been able to obtain and analyse webpage access information for each of the sub-pages complained of by the claimants "in order to determine precisely the total number of views and unique visitors to each URL from the UK per month." According to this assessment, the cumulative total of the monthly unique visitors from the UK in and between December 2013 and May 2014 as set out in this statement was 176. Mr Linford suggests the real figure would be lower, as a number of visitors returned over multiple months. Of the 176 unique visitors, 13 visited in December 2013, according to Mr Linford. The publications founding the misuse of private information claim were accessed 10 and 14 times.
Although the aim of Mr Linford's exercise was to attain precision the defendants accept that it may not be entirely accurate. The claimants' legal team have been highly critical of Mr Linford's late evidence. It shows that Ms Proudler was misled, they say, as it appears that the defendants all along had "access logs" which kept a record of the IP address from which a computer terminal has accessed its website from anywhere in the world. For that reason the court should treat the evidence with reserve. No information is given as to who carried out the exercise relied on or how it was done, and the primary material has not been disclosed. The evidence is clearly not wholly accurate, the claimants submit, as some of the addresses are "false positives", resolving to addresses in Russia, Germany or Italy. It is suggested, it seems to me quite reasonably, that the reverse is likely to be true: some English addresses will have been missed. It is also said that in compiling their figures the defendants have treated visits from a single IP address as representing a single unique visitor whereas an institutional address is likely to be used by several people.
Mr Linford's evidence does not put names to the IP addresses which are listed in the print outs exhibited to his statement. The claimants' solicitors and an associate of Mr Ames have, in the short time available to them, sought to identify the names associated with those addresses. This exercise has shown that a substantial number of those addresses are attributable to ISPs. Whether that means they belong to customers of the ISPs or to the ISPs and their staff cannot be determined as yet. Other names identified from the IP addresses are a retail company, a national newspaper group, an internet entrepreneur based in Derbyshire, and Experian International Limited. Experian is one of the world's largest email advertisers. According to the evidence of the claimants' solicitor, the claimants have conducted many advertising campaigns for Experian since 2008.
A further point advanced by the claimants is that the defendants have not, as they acknowledge, looked at the figures for unique visitors to the ROKSO page or the Top Ten list page. The reason is said to be proportionality. The defendants suggest that those who viewed those pages but not the further click-through pages relating specifically to the claimants can be taken to be people who had no interest in what was said about the claimants. Ms Page takes the defendants' July 2014 view figures of 23,413 and their estimate that 2% of the Spamhaus website's traffic comes from this jurisdiction, and arrives at a cumulative total of 2,340 views of those pages from this jurisdiction over 5 months.
Republication
The defendants' figures for the number of publishees take no account of the republications complained of in the Particulars of Claim, the Further Information, and in the claimants' evidence on this application. One form of republication is via search engines. Mr Ames exhibits a Google search using "craig ames blackstar" which yielded as the third entry a snippet from the Spamhaus website including the words "ROKSO database record for spammer Blackstar Media/Rob McGee/Craig Ames". In addition there are the third party republications to which I have referred, which were not automatically generated by web crawlers but evidently resulted from a deliberate human decision to republish. Those republications are plainly of some potential significance, not least because they are evidence that publication on the Spamhaus website has had an identifiable impact of the kind said to be necessary by the defendants in Cooke.
To the five third party republications mentioned in the claimants' pleaded case the evidence of Mr Ames adds a further one: on a forum called "spamcop" which links to the Spamhaus website. A discussion using the claimants' names as "associated with distributing spam messages" was started on 4 September 2014, more than three months after the cessation of publication on the Spamhaus website, giving links to the Spamhaus site (though by this stage the claimants' names were not on that site). It is not possible to ascertain from the present evidence now how many people are likely to have viewed from within this jurisdiction these third party publications. There was some suggestion that the claimants could rely on the Internet Archive as a source of republication, but that is not pleaded and such republication seems most unlikely to flow from publication here, as I understand the archive to be run from the USA. The matters that are pleaded and put in evidence by Mr Ames were not, however, the subject of any challenge by Mr Helme.
The claimants' connections with this jurisdiction
Neither claimant claims any significant personal or family connection with this country. Mr Ames has some family members here including a number of second cousins but says no more on this score. Mr McGee claims no family connections. The defendants are justified in the submission that on the evidence the only real or substantial connections are business ones. But a claimant is entitled to sue to damage to a business reputation no less than to a personal one, provided the relevant thresholds are crossed. The defendants' position is that there is in substance no evidence of harm or likely harm to business reputation.
There is evidence that Mr Ames had business connections with this jurisdiction in his role as a Vice President at JPMorganChase, working closely with other employees of the company based in London. He also worked with employees of three other companies who, like him, worked in the field of information security. That was over a 9 year period that ended in 2008. During that time he made three one-week visits to London, the last in 2004. These connections are therefore in large part historic, though there is continuing contact with former colleagues via LinkedIn. Mr McGee has made one visit to this country but claims no business connection with this jurisdiction other than through Blackstar Media and Adconion.
The claimants' case in this respect, as set out in the Further Information and the evidence of Mr Ames, is to the following effect. Blackstar Media was founded in 2008 and been built up into a successful business. There is no suggestion that it had a business presence or reputation in this jurisdiction until Adconion showed an interest in buying the business. At that point however due diligence was undertaken by employees from the London office of PwC, a number of whom travelled to the US to interview the claimants and undertake investigations into their business. The claimants had discussions with the Adconion board, several of whom are based in London.
The claimants rely also on an announcement in May 2011 of the acquisition of Blackstar made to all the employees of Adconion. This is not a strong piece of evidence, however, as the email making the announcement did not, however, name either claimant. Moreover it told readers that "this great news is for internal use only" and that there was a high level of confidentiality attached to the deal, which was not to be discussed "with external clients and partners at this time." The claimants are now substantial shareholders in Adconion, the total value of the sale being some US$40m. References to the claimants in Adconion's annual return to the shareholdings of the claimants are relied on. It is said that there has been contact concerning voting and stock allocations between the claimants, as shareholders, and Adconion's London based in-house Counsel. Mr Helme says, with some justification, that this is thin stuff.
More significant is what is said in the Further Information and Mr Ames' statement about events since the sale of Blackstar in April 2011. The claimants continued to work for Blackstar, which involved continued contact with Adconion officers and employees based in England. This does appear on the face of it to have been full-time work at a senior level. Mr Ames says he managed the technology division and Mr McGee the daily marketing and finance. Those would appear to be significant management positions, ostensibly with some customer-facing aspect. "Since April 2011 Blackstar has, through Adconion, provided bulk email marketing services to more than a dozen UK based firms", says the Further Information. Mr Ames says "We ran email marketing campaigns for many UK companies including Sky Sports and the solicitors, Quindell Legal Services Limited."
This work evidently came to an end at the close of December 2013. After that, it appears, the claimants have concentrated on other business activities. Reliance is placed by the claimants on their involvement in a new venture, "a start-up company which we plan to launch in both the UK and the US in December 2014". Mr Ames explains that this will be an SMS based sports marketing advertising platform for advertisers to use during live events, such as sports matches. The claimants own a UK based domain name which will be used for the company's UK based website and they "plan on incorporating a London entity to manage the UK operations." It turns out from the submissions of Miss Page, though it was not spelled out in the evidence, that the "start-up" is RSR Interactive, the company mentioned by Mr McGee in his email of 4 February 2014 (paragraph 13 above). The claimants maintain that they hope and intend to continue to do business here.
The likely impact of publication
It is a striking feature of this case that in his email correspondence of January and February 2014 Mr McGee combined his requests for removal of the claimants' names from Spamhaus records with assertions that being named could not affect their current businesses. The key points are these:
i) On 31 January Mr McGee said that he and Mr Ames had been involved in business with Blake Corbin at one time but not since 2011. He said "Neither one of us has anything to do with 'Mamba Hosting' or whatever Blake Corbin is doing now" and that "we definitely don't own or have any part in Mamba Hosting or anything else Blake Corbin is doing." Mr McGee said that he had a family business with two cupcake shops and Mr Ames was doing security consulting for JPMorgan.
ii) On 4 February Mr McGee said "You have both RSR Interactive and Splitter as part of Mamba Hosting, but they don't have anything to do with Corbin or email and neither have either of us for three years." He said that having the claimants' names in Blake Corbin's records "doesn't matter in our business – we just don't want to be associated with him in any way…"
iii) On 14 February Mr McGee alleged that Mr Corbin and two others who used to work with the claimants were disgruntled ex-staff of Blackstar, and the claimants were not co-owners with them of any businesses. He said "if we were still involved [in] that business, it would be a problem. But as I told you before you promoted us to Number One Spammers in the World, we have moved on. Cupcake buyers and motorsports clients don't consult the Spamhaus lists."
iv) On 19 February Mr McGee stated that he and Mr Ames had sold Blackstar in 2011 and "We have moved on to other things and other industries that have nothing to do with that industry or your regulatory site." Of RSR Interactive he said it had nothing to do with email "and will never interface with anyone who sends email or has ever heard of Spamhaus. The same is true of cupcake stores and Splitter Interactive.
… Your listing does not and cannot affect our current businesses and frankly I cannot afford the distraction so do what you will."
Understandably, the defendants relied on these statements, both in response to the letter of claim and in their initial round of evidence in support of this application, as evidence that what they published was harmless. The claimants' case is however that these statements were "incorrect", as it is put in their skeleton argument. Their evidence, as already noted, is that they remained in the email marketing business until December 2013. They also maintain that the impact has in fact been serious. Mr Ames, speaking for both claimants, says that in January 2014 "many people from within the industry that we work in contacted me about the publication", including individuals working for advertising agencies, email service providers and computer data centres. In February, people from Adconion contacted the claimants about the Spamhaus listing. It is said by Mr Ames that the allegations go "to the very core of what we do professionally" and that "nothing could be more damaging to our business and personal reputations". The claimants point to the fact that the list of known publishees includes ISPs, and an internet entrepreneur, all of whom they suggest are or could be important to them. They express serious concern that if and when they engage in dealings which lead to due diligence being undertaken the allegations will be found in the records, as a result of the publication complained of, and damage their prospects.
The defendants' present position is that it is true that Mr McGee lied in his emails about the claimants' links with email marketing, which continued well after 2011. Indeed, the defendants go so far as to maintain that the claimants were not only engaged in the bulk email business as employees of Blackstar Marketing. Mr Linford says that contrary to what was said in Mr McGee's emails "Spamhaus has however collated further evidence which directly links a number of the companies more recently set up by the claimants to spamming operations."
The parties are at odds about whether what all agree were falsehoods were in any way justified. The defendants identify what Mr McGee said as part of a string of lies told by the claimants; I will return to this. The claimants say they quite properly chose as a tactic to give a false impression about their connection with Adconion, and about how concerned they were about the allegations against them, "in the hope that this would persuade Spamhaus to remove the allegations, and not to start making similar serious but unfounded allegations against Adconion." The claimants maintain that this was justified by the defendants' irresponsible approach to the making of serious allegations, and the way that they arbitrarily added businesses such as Mr McGee's cupcake business to the ROKSO listing. Mr McGee explains that "Spamhaus is unregulated and unaccountable". He relies on a New York Times article of 2009 exhibited by Mr Linford which records among other things that the Department of Trade and Industry was then in discussions with Spamhaus to make its blacklisting more transparent, with well-defined procedures for those who want to challenge their placement on the lists. He says Spamhaus in fact has a policy that, "once they have described someone as a spammer they publish everything they know about them which 'may be relevant to that individual's spamming activities.'"
The prospect of future publication
The Spamhaus policy referred to by Mr McGee is set out on the Spamhaus website in these terms:-
"If you resume spamming, any new information on you submitted to ROKSO (such as a spam sample or anything even remotely connected to you) automatically makes all of your 'dormant' records 'live' again for another six months, and so on."
Mr Ames, referring to third party allegations which appear to have been amongst those prompting the listing of the claimants, observes that "if, for example, Mr Corbin or the Moldovan ISP … were to make further allegations against us then it appears according to its stated policy that Spamhaus would republish the entirety of the allegations complained of."
The defendants' initial round of evidence said nothing about the claimants' claim for an injunction. Mr Linford's statement in reply does not dispute the wording of the Spamhaus policy as set out above. He disputes the claimants' characterisation of the Spamhaus position but does not explain exactly what it is. He asserts that "there is no suggestion that the [defendants] intend to republish the allegations at this time" and that "there is no intention to republish the allegations." I asked Mr Helme about the defendants' position on this front and he made clear that he could not limit their freedom of action and that they would not provide undertakings as the situation could change.
Mr Linford's second statement makes the point that the words complained of were removed from the website in May 2014. The evidence as to why the claimants' names were removed from the ROKSO list when they were is however puzzling. In an email of 27 May 2014 Mr Linford explained what was then the prospective removal of the claimants' names from the ROKSO list, by stating that this would take place on 1 June in accordance with Spamhaus's "six month policy". However, the claimants only went on the list during mid to late December 2013, less than 6 months before 1 June 2014. Further, as already noted, Mr Linford maintains that Spamhaus has evidence of more recent spamming activity by the claimants. He refers to notifications about the claimants received by Spamhaus within the previous 6 months: in January 2014 from a US-based ISP, and in April 2014 from the Moldovan ISP mentioned above. He identifies these notifications as elements of what he calls the "overwhelming" evidence supporting the listing of the claimants on ROSKO.
The claimants' concern at the risk of future publication is fuelled by their view that Spamhaus has a faulty approach to the classification of "spam". First, it is said that Spamhaus classifies email as spam even if it is sent in the USA, lawfully by the local law. That appears to be correct, and I did not understand it to be disputed. Secondly, it is said that Spamhaus has denounced the claimants as spammers even though it has not been able to produce any evidence that the claimants engage in the sending of emails that qualify as "spam" under Spamhaus' own definition. That definition denotes an electronic message as "spam" if two conditions are met: "(A) the recipient's personal identity and context are irrelevant because the message is equally applicable to many other potential recipients; and (B) the recipient has not verifiably granted deliberate, explicit, and still-revocable permission for it to be sent." The claimants' position is that not only have their bulk email activities at all times been lawful under US law, they have also always had the recipient's permission; Mr Ames say "every recipient of emails sent by us on behalf of clients has given relevant 'opt-in' consent". Thus, the claimants' emails have not met the Spamhaus condition (B).
Potential defences
The defendants do not invite the court to reach a conclusion on the merits of their potential defences to the libel claim. Indeed, they have not spelled out what those defences would be. However, as indicated above, they have put in evidence of their own operations and how it came about that the claimants were listed. Mr Linford says the purposes of the evidence are that it is relevant to the public interest of the publications complained of, and will enable the court to take account of all the circumstances in assessing whether the claims are an abuse of the court's process.
Mr Linford says that on the basis of the investigations he describes the defendants "concluded that the addition of the claimants to the ROKSO list in the circumstances complained of" was in the public interest and correct. That indicates that the intended defences would be likely to include at least a public interest defence under s 4 of the Defamation Act 2013 (and a Reynolds plea in respect of the publication in 2013). I take it that the evidence in support of those defences would be along the lines of the evidence contained in Mr Linford's first statement and its exhibits. Similarly, as regards evidence in support of the "public interest" in respect of misuse of private information and copyright infringement. It seems that the defendants would also anticipate pleading a defence of truth, as Ms Proudler's statement invites the court to take into account the potential likelihood of the defendants succeeding with a defence pursuant to sections 2 and 4 of the Defamation Act 2013.
The misuse and copyright claims
The defendants maintain that these are "add-ons" of no real consequence or value which were not pursued in the correspondence by Mr McGee but surfaced only when the claimants' lawyers got involved.
"Lies"
Mr Helme invites me to take into account against the claimants three lies which he submits they have told.
i) The statements in Mr McGee's emails that he and Mr Ames had nothing to do with the email business since 2011, when in fact they had continued involvement in the ways described in their evidence. I have described the evidential position in this respect, and the claimants' response, above.
ii) The statements in Mr McGee's emails that Messrs McGee and Ames had no connection with Mamba Hosting. These are said to be lies because Mr Ames' evidence identifies Mamba Hosting as a trading name of a subsidiary of Blackstar Media called Trabuco Media LLC which he says "was owned by me and Mr McGee". Ms Page responds that it was true when the emails were sent by Mr McGee that the claimants had no connection with Mamba Hosting, because Blackstar Media and its subsidiaries had all been sold to Adconion – which is Mr Ames' evidence - and that in any event misleading the defendants was justified for the reasons discussed above.
iii) The complaint that the addresses disclosed on the website included Mr Ames' "home address". The Particulars of Claim, verified by a statement of truth signed by the claimants' solicitors, identified the published addresses as "addresses where the claimants live with their families". This was not true of the addresses attributed to Mr Ames. The two addresses attributed to him are both former addresses of his, but he has not lived at either since February 2012. His family presently lives at one, but not he. The defendants are able to allege that this is a lie because Mr Ames' witness statement of 27 November 2014 disclosed this information, and on 4 December 2014 the claimants amended the Particulars of Claim to correct what had originally been pleaded. Mr Ames' response to the allegation of mendacity is given by Ms Page: that this error was not a lie but simply a mistake, voluntarily disclosed and put right.
The submission of Mr Helme is that I should on this application make findings that the claimants have acted dishonestly in these three respects and conclude that any vindication they might otherwise receive at trial would be "enormously reduced" accordingly. Alternatively, he submits that I should find that it is very likely that the claimants would at any trial be found dishonest and should assess now their prospects of securing valuable vindication at trial as not worth the candle.
Discussion
The libel claim
I have concluded that each of the claimants has a real prospect of establishing that publication of the words complained of within the jurisdiction during 2014 has caused serious harm to his reputation. The reasons for reaching that conclusion are these:-
i) The claimants may very well establish that the website publication bore the meaning they complain of, or a similar meaning, not only to readers of the Main Info and other sub-pages on the Spamhaus site but also to anyone who read the main ROKSO list or Top Ten list pages, and to those who read the republications of the sting of the Spamhaus allegations on third party websites.
ii) Such meanings impute unlawful conduct in the course of business and, in the case of the full pleaded meaning, seriously unlawful, deceitful conduct over a period of years. That is inherently seriously harmful to reputation, that is to say it has a tendency to cause serious harm to reputation.
iii) The communication of that meaning is likely in every sense of the word to deter the reader from dealing with or associating with the claimants, provided the reader believes the meaning conveyed to be true.
iv) On present evidence, what Spamhaus says about those on the ROKSO and Top Ten lists is very likely indeed to be taken as true and relied on by readers, except perhaps by those so close to and trusting of the claimants that they would know or believe the allegations to be untrue. It is common ground that Spamhaus is considered authoritative and reliable. The republications relied on by the claimants support that view. The defendants' own evidence makes clear that Spamhaus customers or readers rely and act on information provided by Spamhaus, when it comes to the claimants.
v) It is not possible to say at this stage that there was only insubstantial publication within the jurisdiction of these seriously harmful allegations. The extent of publication within the jurisdiction for which Spamhaus is responsible has yet to be fully established. There has been no disclosure. The defendants initially gave false evidence about their ability to identify the scale of publication. Their key evidence on this issue was served only shortly before the hearing, and involved a mass of material. It is not a satisfactory basis for concluding that the maximum number of relevant readers is, as they maintain, some 176. There are legitimate questions raised about the reliability of that figure, and there is reason to believe that an exercise less rushed than this one seems to have been would identify additional publishees.
vi) Moreover, there are those who read the claimants' names on the ROKSO or Top Ten lists but did not delve further. There may have been more than 2,300 of these. It is not fanciful to suggest that the relevant audience includes these publishees. Beyond this there are the republications complained of, made in at least some cases on apparently authoritative websites, though again the extent to which these flowed from and were made within this jurisdiction is as yet uncertain. (I leave out of account the Internet Archive).
vii) It is not possible to say, either, that publication in this jurisdiction was clearly inconsequential. I accept Mr Helme's submission that the third parties whose adverse reactions are described in Mr Ames' statement were, as a matter of inference, abroad or Mr Ames would have said otherwise. I do not accept, however, that the fact that the claimants cannot identify people who read the words here and thought the less of them leads to the conclusion that no such people exist. Mr Helme is on firmer ground with his submission that I should be suspicious of the claimants' case and evidence about the impact of the publication on their business interests here.
viii) I agree that seriously harmful allegations about a person may not cause "serious harm" to reputation if they are made to people whose opinion of the claimant is of no consequence to the claimant. I agree also that the claimants' conduct of the email correspondence raises real suspicions about the validity of their present case that the publication caused serious harm. However, though they are foreign, the claimants do have past and present business connections here that their evidence suggests may be substantial and material. I have in mind in particular their roles as managers within Blackstar Marketing for what I understand to be some 18 months (from April 2011 to December 2013), at a time when the company was conducting email marketing for UK businesses. This could turn out to lack significance but it is not obviously insubstantial.
ix) As importantly, or more so, the claimants say they wish and intend to do business here in future, and are on the verge of launching a start-up business with a UK presence. Again, the claimants have questions to answer about this new venture. It may prove that this does not in fact have the significance which it presently appears it may have. But I cannot simply reject their evidence on these issues. It is not obvious at this stage that there is a bright line between the readership of the Spamhaus website and those whose opinion of the claimants could be of real significance for their business prospects. Already, the claimants are able to identify among the publishees a number of ISPs, a newspaper publishing company, and a company with which they have previously done substantial business. They attribute significance to these publishees and are not obviously wrong to do so.
x) In my judgment, therefore, although they might fail on the issue after full disclosure and a full examination of the evidence, the claimants have a real prospect of establishing that those within the jurisdiction who read and are likely to have believed the words complained of (and the republications of their sting) include people whose opinion of the claimants is of serious consequence to them and their business prospects. Proof of that much could be sufficient to establish that serious harm to reputation has been caused, even if no such individual was called to give evidence.
Mr Helme is justified in submitting that the claimants have lied to the defendants about their connections with the email marketing business since 2011. The defendants concede as much. That may affect the court's approach to their evidence if this case comes to trial. I am however not prepared on this interim application to make findings of dishonesty against the claimants in the other two respects advanced by Mr Helme. His allegations are disputed and not obviously correct; they must in fairness be tested through cross-examination. Nor am I persuaded that the lies that I have accepted the claimants have told must inevitably reduce to vanishing point any vindication they could achieve at a trial. The principle on which that would be so was not explored, but those lies were not told to the court. The claimants' explanation of why they lied may be accepted at a trial. If the claimants succeed at trial they will have cleared their names of allegations far graver than duping an organisation which was continuing to publish serious allegations which, on this hypothesis, were false and made without a public interest justification.
Bearing in mind these conclusions, I do not consider that this claim can properly be dismissed as an abuse of the court's process. It is clear to me that, contrary to Ms Proudler's evidence, I cannot reach any reliable conclusion one way or the other about the prospects of success of defences of public interest or truth. I certainly cannot find it likely that the defendants will succeed on either. The claimants vehemently deny all that is alleged against them. Ms Page points out that the defendants' evidence does not include a single example of spam sent by the claimants; that they have put forward no evidence to support allegations that the claimants used "nonsense domains", falsified records, or scam advertising. If the claimants are able to establish that they have suffered or are likely to suffer serious harm to reputation as a result of publication in this jurisdiction, their attempt to seek vindication through these proceedings is in my judgment inherently legitimate. I do not accept that it has been shown that the time and cost required to resolve disputed issues would be out of proportion to the value of such vindication. It should not be beyond the court's ability to manage a case of this nature in such a way as to keep costs within reasonable and proportionate bounds.
I have dealt with 2014 publication without reference to the second limb of s 1(1) of the 2013 Act. I do not consider that the second limb applies here. Reputational harm is caused by publication. The defendants' publication ceased more than 7 months ago. There was republication after that, as late as September. It is possible that the harm to reputation caused by what was published up to then may in future cause other forms of harm, such as lost business opportunities. But it does not seem to me likely, in any sense of the word, that there will be further re-publication in this jurisdiction flowing from publication here by Spamhaus between 1 January and 31 May 2014.
The limited publication in December 2013 is subject to the common law and not the 2013 Act. Looked at in isolation the claim in respect of that publication might well have fallen foul of Jameel, but it would be artificial to consider it separately when I have concluded that the claim in respect of publication in 2014 survives the defendants' challenges, and the evidence does not yet identify who read the words complained of when.
A further reason for rejecting the defendants' application is that in my judgment, the claimants have demonstrated sufficient grounds to fear that unless restrained the defendants would further publish words to the same effect as those complained of, or some similar effect. The evidence that the claimants' entries on ROKSO were "retired" under a 6 month policy is questionable. It is arguable that this was just an attempt to fend off a claim by the claimants. The defendants evidently do not accept that what they published was wrong, or wrongful. Mr Linford's statements that there is "no intention" to publish further mean no more than they expressly state; they are not equivalent to an undertaking not to repeat. The defendants have not disavowed or explained away the Spamhaus policy on which the claimants rely. That policy does appear at least arguably to involve a light trigger, which Spamhaus is willing to pull at the prompting of third parties. There is some support, in my judgment, for Ms Page's submission that the Moldovan ISP which reported the claimants to the defendants did so on the basis of its receipt of the defendants' own SBL, containing the name of the claimants' business Splitter Interactive. In other words, the report was self-generated.
The existing claim would only justify an injunction to restrain publication within this jurisdiction. That could justify concern about whether an injunction so limited might be useless, if the defendants were free to publish elsewhere, or impractical. However, neither submission was made by Mr Helme, and as appears below I have concluded that the claimants should be permitted to claim in respect of publication in the US as well as this jurisdiction.
Misuse and copyright
The defendants' approach to the issue of public interest is odd. They accept that the court cannot determine the merits of a public interest defence to the libel claim but assert that public interest would inevitably prevail in respect of the claims in misuse and copyright infringement. That is to my mind an inconsistent stance; the differences between the defences are not such as to justify that position. Indeed, the public interest arguments in respect of the misuse and copyright claims must be parasitic on the defendants' argument in defence of the libel claim, that they have a public interest justification at common law and by statute for warning readers that the claimants are spammers highly deserving of attention by law enforcement officials. If that argument is made good then the disclosure of what is accepted to be information of a private nature might be held proportionate. Similarly, reproduction of what is accepted to be a photograph in which copyright subsists might be justified by the public interest. However, once it is accepted that the court cannot find that a public interest defence to libel would inevitably succeed, I do not consider that it can be said that the other claims must fail.
Those claims are clearly subsidiary to the libel claim and not of great value at best. There is much to be said for the proposition that they are makeweights. If they were all that this case was concerned with then a proper application of Jameel principles and the overriding objective would surely demand that the action be transferred for resolution by a small claims procedure. As it is, the central if not the only real issue as to liability in both these claims is one that overlaps with what is either the main issue, or a main issue in the libel action. It would be absurd to separate the claims. To try the issue of public interest not only in the libel context but also in respect of these other claims would add very little to the case in terms of time and cost.
Comments on Procedure
In my judgment it is likely in today's legal context to be preferable to address issues of serious harm or Jameel abuse by means of preliminary issues, with any disputes as to meaning being resolved at the same time. On an abuse or summary judgment application it may well be found, as I have found, that the case is not ripe for a final decision and the facts deserve further examination. At a trial of preliminary issues the court can decide the relevant issues once and for all. In Ansari v Knowles [2013] EWCA Civ 1448 the issue of whether the claim represented Jameel abuse was tried as a preliminary issue: see [9]. This approach is all the more appropriate in the light of the change in the law by s 1 of the 2013 Act. In Cooke the issue of what meaning the words bore and the question of whether the publication had caused or was likely to cause serious harm were tried together as preliminary issues. For the purposes of a preliminary issue trial disclosure can be ordered if and to the extent necessary and proportionate in the circumstances. There may be cross-examination. In Cooke there was none, and Bean J observed that it would have been inappropriate in that case: see [24]. It may not always be so, however, and this case may well be an example of one where cross-examination would be appropriate.
I would add that claims should now be pleaded in terms reflecting the wording of s 1 of the 2013 Act, making clear which limb or limbs are relied on, and should set out any facts relied on in support of an allegation of actual or likely serious harm to reputation.
The proposed Re-Amended Particulars of Claim
The proposed re-amendment would add allegations that the claimants have substantial reputations not only in England and Wales but also "throughout the world including in the United States"; and that the words complained of were published, not only here but also "throughout the world including in the United States"; and a new paragraph 11A, to follow the allegation of serious damage to reputation in paragraph 11, as follows:
"The claimants claim over publication of the words complained of above within England and Wales and in the United States. The Claimants will rely on the presumption that foreign law is the same as the law of England and Wales".
Thus, despite the reference to worldwide reputations and publication it is clear that the proposed amendment is intended to expand the claim by complaining in addition of libel in the United States only, and not in any other jurisdiction. I do not understand the draft amendment to involve any claim for misuse of private information or copyright infringement anywhere outside England and Wales. The plea in relation to foreign law is in a form conventional in libel actions over foreign publication, to which the relevant choice of law rule remains the common law "double-actionability rule".
The claimants' application was a response to the defendants' second round of evidence, and what it said about the scale of publication. The witness statement in support of the claimants' application, made by Mr Tait of their solicitors, explained the amendment in this way: "Now that the defendants have chosen to state with precision their case on the extent of publication… the Claimants wish to bring a claim over the US publications to guard against the risk that the Court considers that case is sound." The defendants do not object to this proposed claim on jurisdictional grounds. As I have already noted, there would seem to be no available basis for them to do so. Moreover, as the claimants have pointed out, according to press reports Spamhaus has in the past taken the position that a claim against it over US publication should not be brought in the US, but in the UK. Mr Helme takes three main points in opposition to the application.
First, Mr Helme submits the proposed claim is an abuse. He points to the delay in making complaint of US publication, and fastens on Mr Tait's statement suggesting it shows the application is "tactical". By this I took him to mean that it is not made in good faith with a view to obtaining vindication. That, however, is contrary to other evidence in Mr Tait's statement which maintains that the claimants' objectives are vindication and an injunction. There is no sufficient basis for me to reject that evidence on this interim application. Mr Helme also submitted that no injunction could be obtained to prevent UK publication, based on a claim in respect of US publication. That must be right, but the point does not arise given my conclusions above.
Secondly, Mr Helme submits that the claim would be bound to fail as there is no evidence of serious harm to the claimants' reputations in the USA. I am not sure that is right, as the claimants are based in California, it is a matter of obvious inference that there has been substantial publication of the offending words in the USA, and the third parties whose adverse reactions Mr Ames describes in his witness statement are likely to have been people who read the words in the USA. In any event, it is not plain and obvious that the claimants could not establish the existence of serious harm to their reputations in the USA and it would not be right to refuse permission on those grounds.
Mr Helme's third point is that it is not legitimate for the claimants to plead reliance on the presumption that foreign law is the same as English law. His submission is that it is common knowledge that US libel law differs substantially from that of England and Wales, giving greater weight to freedom of speech; the claimants should plead their case of foreign law and the facts required to establish liability under that law, and adduce evidence of the foreign law. Having failed to do that they have failed to plead a proper case or to establish its validity.
It is true that English defamation lawyers are reasonably familiar with the First Amendment and the doctrine established in New York Times v Sullivan 376 US 254 under which a "public figure" must prove malice in order to succeed in a libel claim. That is not itself a doctrine of English law. It does not necessarily follow that US law must be pleaded by a claimant. The claimants' evidence anticipated Mr Helme's point by asserting, through Mr Tait, that the English law public interest defence under s 4 of the Defamation Act 2013 is close to the Sullivan public figure defence. That may or may not be so; that is a large topic. I prefer to rest my decision on this issue on the Court of Appeal's decision in OPO v MLA [2014] EWCA Civ 1277. The court there held that despite certain doubts and reservations expressed in earlier first instance authorities the "presumption" referred to in the claimants' draft amendment, that is to say the rule that in the absence of evidence to the contrary the court will presume that foreign law is the same as English law, is a rule of the domestic law of evidence which remains valid and applicable in a claim governed by foreign law. See in particular Arden LJ at [108] - [111].
In the circumstances the claimant does not need to adduce evidence of US law unless and until it is raised as an issue. As Ms Page submitted, if the defendants wish to plead that the claimants are public figures for the purposes of United States law, or to rely on any other provision of US law, they can do so and the claimants can plead whatever they may be advised to plead in Reply. It is clear from the claimants' evidence and submissions that they are prepared if necessary to plead a case of malice, in the form of recklessness as to the truth. I cannot tell at this stage whether such an allegation could be adequately particularised, and I have not been invited to find that it could not.
For these reasons I am prepared to grant permission to re-amend the Particulars of Claim to plead a claim in libel in respect of publication in the United States. The Particulars need some slight adaptation to make it crystal clear that it is this and no other foreign publication claim that is being added by re-amendment, but otherwise I consider the draft amendment to be adequately pleaded.
Conclusion
For the reasons given above, the defendants' application fails. The claimants' application succeeds, subject to reformulation of the draft Re-Amended Particulars of Claim to meet the point mentioned above. I will hear the parties on the appropriate directions at this stage, but say now that it is clear to me that the court should take the opportunity to give directions now, including directions to ensure that this litigation is conducted in a proportionate way in the period before a costs budget is set. |
Michael Bowes QC :
Introduction
In this case Mr Abimbola Balogun ("the Claimant") claims against Boyes Sutton & Perry, a firm of solicitors ("the Defendant") for damages for professional negligence and/ or breach of contract in respect of an implied term to exercise reasonable care and skill in connection with his acquisition of a 15 year commercial lease of a unit, Unit 1, on the lower and upper ground floors of the building at 214-218 Northwood Road, London SE27.
A trial of preliminary issues relating to breach of duty, primary causation and contributory negligence took place before me from 20th – 22nd October 2014. Mr Nigel Woodhouse appeared for the Claimant and Mr Oliver Radley-Gardner appeared for the Defendant. I am grateful to both counsel and their legal teams for their clear and helpful oral and written submissions.
I heard oral evidence from the Claimant and Mr Christopher Davies ("Mr Davies"), now a retired solicitor and formerly a partner of the Defendant firm who had the conduct of the Claimant's instructions. In addition, there was evidence in the form of contemporaneous emails and other relevant documentation.
In reaching my decision, I have had regard to the totality of the evidence and the oral and written submissions of the parties. Where I have said I am satisfied on a particular issue, this means I am satisfied on the civil standard of proof, the balance of probabilities.
The issues
The Claimant's primary claim is that the Defendant failed to provide him with any or any adequate advice as to the permission he needed from the superior landlord, London & Quadrant Housing Trust Limited ("L&Q") in order to use the ventilation shaft which was essential to operate the restaurant.
The particulars of breach of contract and/ or negligence are set out in paragraph 19 of the Particulars of Claim. The particulars allege that the Defendant (through Mr Davies) failed to advise the Claimant in respect of his express instructions given at a meeting on 8 April 2011 ("the 8 April meeting") that he would be installing duct work through the ventilation shaft.
The case was put on an alternative basis in paragraph 22 of the Claimant's skeleton argument dated 13 October 2014, in which it was alleged that even if the Claimant did not expressly explain that ducting would need to be installed to Mr Davies at the 8 April meeting, then a firm of solicitors, knowing as they did that fumes were to be extracted through a ventilation shaft which ran through the demise of the freehold owner and the lessee's superior landlord should have advised the Claimant to seek consent from the freeholder. It was argued by the Claimant that the drafting of the Underlease created a "risk" in relation to which advice and drafting were required. This alternative case was not pleaded in the Particulars of Claim and there was no application to amend the Particulars of Claim.
In the course of the cross-examination of Mr Davies, the Claimant advanced two further bases of claim. First, that the Defendant failed to advise him adequately in respect of Condition 4 of the local authority's planning permission relating to the use of a flue to remove all fumes from cooking processes. Second, that the Defendant failed to advise him adequately that he was submitting inadequate plans to the under lessor Anacar Limited ("Anacar") in support of the grant of a licence from Anacar. These bases of claim were repeated in the Claimant's oral and written closing submissions but were not pleaded in the Particulars of Claim and there was no application to amend the Particulars of Claim.
The Particulars of Claim also allege that the Defendant failed to advise the Claimant that the plans registered at HM Land Registry in respect of Anacar's title did not show that the outdoor seating area fell within its title and that Anacar might not be able to demise the same to the Claimant ("the Outdoor Seating Area" point). It was pleaded that the Claimant suffered loss and damage as a result of this failure on the part of the Claimant. However, in the Claimant's written closing submissions (paragraphs 13 & 14), this is referred to as a "minor point" which may not have been as a result of negligence and did not result in any substantial loss although arose through a contractual failure to exercise due care and skill. It appears now only to be advanced as an example of shoddy work on the part of the Defendant.
The Defendant's responses to the Claimant may be summarised as follows:
i) At the meeting on 8 April the Defendant correctly advised the Claimant that the Underlease carried with it the right to vent through the ventilation shaft.
ii) The Claimant did not inform the Defendant about the need for ducting work in the ventilation shaft during the meeting on 8 April or otherwise and so no duty to advise on or secure relevant rights and consents in relation to ducting ever arose.
iii) The Claimant informed the Defendant during the 8 April meeting that there was already a ventilation shaft in place which was "good to go" and the Defendant's duty to the Claimant did not require him to enquire into the correctness of this factual instruction.
iv) L&Q only took objection to external works in the form of a proposed chimney to be attached to the top of the ventilation shaft and the Claimant accepted in cross-examination that he had never told the Defendant of the need for a chimney of any kind.
v) The alternative basis advanced in the Claimant's skeleton argument, namely that the form of the Underlease created an unusual risk for the Claimant over his right to vent, is flawed and is based on a mis-reading of the Headlease and the Underlease. The Claimant does have a right to vent (as the Defendant advised him) and no-one has argued to the contrary. L&Q's objection has been to the attachment of a chimney and not to the right to connect into and use the ventilation shaft. Further, objection is taken to this being an unpleaded basis of claim in which the Claimant has never identified a clear "risk factor".
vi) In respect of the alleged failure to advise adequately on Condition 4 in the local authority's planning consent, there was no duty to make any specific enquiries of the local authority as the Claimant had assured the Defendant that the ventilation shaft was "good to go". Further, the Claimant said he had made further enquiries himself of the local authority which did not require any further consent. Objection is also taken to this being an unpleaded allegation raised for the first time in the cross-examination of Mr Davies. The Claimant has not advanced any case on what the Defendant should have done over and above the Local Land Charges search which he carried out or on what any such additional searches would have revealed to the Defendant.
vii) In respect of the alleged inadequacy of the plans submitted to Anacar, they were only prepared for the purpose of obtaining a Licence from Anacar. In the event, Anacar did not press for more detailed plans and it was not within the scope of the Defendant's duty to require the Claimant to provide more detail than was required by Anacar. Objection is also taken to this being an unpleaded allegation raised for the first time in the cross-examination of Mr Davies, with the consequence that Mr Davies was unprepared to deal with the point.
viii) The Defendant's case is that there was no duty to advise on any of the issues which form the Claimant's case. In the alternative, the Defendant contends that there was no breach of a relevant duty and that causation cannot be established. The Defendant also contends that there was contributory negligence on the part of the Claimant.
ix) In respect of the Outdoor Seating Area, it is denied that the Defendant was negligent or in breach of contract and in any event the Claimant was copied into correspondence relating to, and did not object to, the Outdoor Seating Area being dealt with as a matter of title guarantee. The parties are agreed that no loss was occasioned by any breach of duty.
Relevant principles of law
The relevant principles of law are not in dispute and may be stated shortly.
It is accepted by the Defendant that it was under a duty to the Claimant in tort and contract in relation to the Underlease transaction.
Mr Davies' duty was to exercise the reasonable skill and care to be expected from a normally competent and careful practitioner in respect of the retainer between the Defendant and the Claimant (see Jackson & Powell on Professional Liability, 7th edition, paragraph 11-007).
The source and origin of a solicitor's duties in any particular case is the retainer between himself and the client. In the ordinary way, a solicitor is not obliged to travel outside his instructions and make investigations which are not expressly or impliedly requested by the client (Pickersgill v Riley [2004] UKPC 14).
It is for the court to decide whether the Defendant's conduct fell below the objective standard of reasonable skill and care. This principle was described clearly by Lord Reed in Healthcare at Home Ltd v The Common Services Agency [2014] UKSC 49, paragraph 3:
"The behaviour of the reasonable man is not established by the evidence of witnesses, but by the application of a legal standard by the court. The court may require to be informed by evidence of circumstances which bear on its application of the standard of the reasonable man in any case, but it is then for the court to determine the outcome, in those circumstances, of applying that impersonal standard."
The primary issue: did the Claimant give the Defendant express instructions to advise in relation to ducting work in the ventilation shaft?
The primary issue in this case is whether the Defendant had a duty to advise the Claimant or secure relevant rights and consents in relation to ducting work in the ventilation shaft, based on express instructions given to Mr Davies by the Claimant during the 8 April meeting. Whether such a duty arose depends on what was said during that meeting and this is the key area of dispute between the parties. The point is made succinctly in Mr Woodhouse's skeleton argument (paragraph 21):
"The main factual issue for the Court is whether the Claimant explained to the Defendant at the meeting on 8 April 2011 that ducting would need to be installed in the ventilation shaft."
Mr Radley-Gardener has stated correctly in his written closing submissions that the starting point is to establish what instructions were given by the Claimant to Mr Davies.
In order to determine the primary issue, it is necessary to set out some of the background to the transaction and then to examine each party's evidence in the context of the emails and other relevant documentation, both before and after completion.
Background
The Claimant
In 2011 the Claimant owned two other restaurants in London, both specialising in African cuisine and the new restaurant was also intended to specialise in this type of cuisine. He had been operating one of the restaurants since 2006 and the other since 2009. He is a qualified chartered accountant and a Fellow of the Association of Chartered Certified Accountants
I am satisfied that the Claimant has substantial experience in operating a restaurant and is commercially aware generally.
Mr Davies
Mr Davies is now a retired solicitor and was formerly a partner of the Defendant firm. He qualified in about 1976 and practised for 40 years in commercial conveyancing and private client work. He was the senior partner in the Defendant firm in 2011 and 2012 and was responsible for the day to day conduct of the retainer with the Claimant.
I am satisfied that in 2011 Mr Davies was a highly experienced solicitor with substantial experience of commercial conveyancing work.
The Underlease transaction
The Underlease relates to premises at Unit 1, on the lower and upper ground floors of the Building at 214 – 218 Norwood Road, London SE27. The Building was redeveloped following the grant of a planning permission to the original freeholder, Mizen, on 28th October 2006. The roof above Unit 1 is above the Second Floor.
There is a duct constructed into the ceiling of Unit 1 and extending up to the roof, which is described in the proceedings as the ventilation shaft. There are photographs in the trial exhibits, the first of which (showing the view from inside Unit 1) (see bundle I/53). The top of the ventilation shaft on the second floor roof of the Building, and can be seen with its plastic cap (I/56). The ventilation shaft is therefore designed into the Building, the reason being that Unit 1 (and three other commercial units on the ground floors) had permission for restaurant use (A3 under the Use Classes Order 1987), and therefore ventilation from the cooking area was a requirement. There is no dispute between the parties that the ventilation shaft was designed for that purpose.
In late 2010, the Claimant became aware that Galloways Commercial ("Galloways"), letting agents, were offering Unit 1 as a commercial letting with permitted planning use as retail (A1), office (A2) or restaurant (A3). Unit 1 was being let as a "blank canvas", that is, as a shell with capped services, ready for tenant fit out. The letting was to be effected by a company called Anacar Limited as immediate landlord, registered in the British Virgin Islands, but related to the then-freeholder and developer Mizen. The Claimant wanted to use Unit 1 as a restaurant on the upper ground floor but as a dance/nightclub on the lower ground floor. To this end, the Claimant would have required a further planning permission for change of use to A4 (which Unit 1 did not enjoy) and a relaxation of the opening hours restrictions (which he wished to extend to 05:00 Monday to Sunday, from 23:00).
On 29 December 2010, the Claimant contacted the Defendant through an internet enquiry. The point of this enquiry was to help with a bankruptcy, a will and a commercial property matter. The bankruptcy was passed along to another solicitor, but the Defendant's Mr Davies dealt with the will. Mr Davies was not in fact finally instructed in relation to the commercial property matter until February 2011.
Events before the 8 April meeting
On 9 December 2010 the Claimant sent an email to Galloways referring to his recent visit to Unit 1 and stating "I also confirm that there already exist (sic) an extractor vent as you stated you had been informed by your engineers" (I/225). The Claimant relies on this email to show that he had visited the premises and had observed the ventilation shaft in situ. The Defendant says that the use of the word "vent" supports its case that the Claimant believed the ventilation shaft was "good to go" without any more work.
It is common ground that after the Defendant's engagement, negotiations proceeded between the Defendant and Mirkwood Vincent, solicitors acting for the immediate landlord, Anacar. There are also a number of emails between the Claimant, Galloways and Anacar in which the Claimant referred to his wish to agree as much as possible with Anacar before their respective solicitors drafted the lease, in order to save on costs (see 1/226; I/233). The Defendant says that these emails demonstrates the Claimant took a "hands on" approach to the negotiation of the lease and was determined to keep his solicitors' involvement to the absolute minimum, in order to save costs. The Claimant accepted that he was involved in the negotiation of the lease and said that he had limited financial resources.
On 14 March 2011 the Claimant sent an email to Mr Davies which referred to the terms he had agreed with Anacar. His instructions were as follows (I/274):
"Kindly liaise with their solicitors so that we can proceed to an early conclusion on the basis that the site is ready."
The Defendant relies on this email as being indicative of the Claimant's belief that the site was "good to go". In evidence, the Defendant said that he was only referring to the fact that any rubbish had been removed from the site.
On 15 March 2011 Anacar's solicitors, Mirkwood Vincent, sent an email to Mr Davies which included the following (I/281):
"Official entries for the Freehold Title – the freehold is in the process of being transferred to L&Q Housing Association, the residential leasehold owners, pursuant to a pre-existing agreement".
Mr Davies' reply to Anacar, which included Anacar's email to him, was copied to the Claimant. The Defendant relied on this email (as well as others, I/319; II/338) as showing that the Claimant was made aware of the existence of a superior landlord and that it was L&Q.
On 24 March 2011 the Defendant carried out the Local Land Charges search (the London Borough of Lambeth) (I/310).
On 24 March 2011 the Claimant sent an email to Mr Davies, exhorting him to "move expeditiously on this matter, as the longer it is taking, the more expensive it is becoming for me" (I/316).
On 27 March 2011 Mr Davies sent an email to Mirkwood Vincent, attaching additional enquiries (I/322). This was copied to the Claimant. On 28 March 2011 at 07.01, the Claimant replied saying he had "reviewed and digested" the additional enquiries and raising a number of points, in particular to an extension of the permitted opening hours from 11pm to 4am. Mr Davies replied at 08.42 and attached a further copy of the local authority's planning consent (see I/216). He particularly drew the Claimant's attention to conditions numbered 3-9. In respect of condition 3, which related to the permitted opening hours, he asked whether this was a "deal breaker".
Condition 4 of the planning consent stated (so far as is relevant):
"All fumes from cooking processes associated with the A3 uses shall be extracted via a flue. Details of ventilation and filtration equipment, including details of all external plant equipment and trunking, shall be submitted to and approved in writing by the Local Planning Authority prior to the commencement of each A3 use hereby permitted. All flues, ducting and other equipment shall be installed in accordance with the details subsequently approved prior to either of the A3 uses commencing and shall be retained for the duration of the use".
The Claimant replied to the Defendant's email at 10.21 on 28 March 2011. He stated that he did not see condition 3 as a "deal breaker" and did not want the necessary licensing application to delay the signing of the lease (I/323).
Mr Davies replied to the Claimant at 15.59, suggesting he spoke to the planning officer to obtain his views on whether the restrictions might be lifted. He went on to say "Even if he is optimistic you would be taking a considerable risk going ahead without formal permission in this regard" (I/326). On 29 March 2011 the Claimant replied, saying " I have been in touch with planning and the feedback is positive" and he was prepared to move forward with the deal (I/327).
The Defendant relies on this exchange of emails for three reasons. First, to show that the Claimant apparently read and understood what he was sent by the Mr Davies. Second, to show that Mr Davies took a cautious and prudent approach to Condition 3 not being resolved before the lease was signed and third to show that Condition 4 of the planning consent was drawn specifically to the Claimant's attention.
In cross-examination, the Claimant said he had contacted the local authority (Lambeth) himself in connection with Condition 4. He said he told them about the ventilation shaft and they say they did not need anything from him. They gave him a specific form to fill out. He had done so and submitted the form. He had told Mr Davies that he had spoken to a person at the local authority, but did not tell him he had specifically discussed Condition 4.
On 5 April 2011 Mr Davies sent an email to Mirkwood Vincent referring to the need for the landlord's consent to fitting out the premises. He said "The superior landlord's consent does not appear necessary for internal non-structural alterations". This email was copied to the Claimant (II/349).
The Claimant forwarded this email to the agents for Anacar. As part of that email chain the Claimant said the plans for the draft lease were being finalised and "…given the fact that none of it would be structural in nature – merely cosmetic, I do not anticipate this as a major problem" (II/348).
On 6 April 2011 Mr Davies sent an email to Mirkwood Vincent saying he would "…ask his client to let him have details of the proposed works to fit out the premises since if these require your client's consent then it seems to me he must obtain it before exchange and completion" (II/353).
On 6 April Mr Davies sent the Claimant an email asking him to call him tomorrow in order to fix a meeting. In that email he forwarded an email from the solicitors for Anacar which referred to L&Q being the beneficial owners of the freehold and that they were about to become the legal owners of it (II/354). During his evidence, the Claimant said in answer to a question from me that he was not sure he received this email and even if he had received it, he would not have read it.
On 7 April 2011 the Claimant sent an email to Mr Davies which said (II/357):
"Please find attached with this email as promised, the plans for the proposed restaurant. I am as yet undecided which one I would use but like I said earlier, it is merely cosmetic and involves no structural alterations. Either of these or both can be forwarded to the Landlord's solicitors. PS: See you at 11.00 tomorrow, as discussed."
The plans were prepared by a design agency called Space Design Studios ("the Space plans") (II/358-8). Neither of these plans showed any works above the ceiling of Unit 1.
The 8 April meeting
The Claimant met with Mr Davies at the Defendant's offices on 8 April. Their respective versions of what took place at the meeting are summarised below.
The Claimant's version
A summary of the Claimant's version of the 8 April meeting is as follows:
i) About a week before the meeting, the Claimant told Mr Davies in a telephone conversation that he had a purpose built ventilation shaft in which he could install his duct work for the extraction of fumes and that the duct work would run from the premises to the top of the building.
ii) During the meeting the Claimant told Mr Davies that the ventilation shaft went from the premises to the roof and and this where he would install the duct work from his kitchen extractor. He said he had inspected each floor of the building through which the ventilation shaft passed and that he did not see any problems in installing the duct work. He drew a rough diagram of the ventilation shaft and duct work for Mr Davies on a piece of paper and Mr Davies told him that was fine. He showed Mr Davies where the ventilation shaft was on one of the Space Plans, where it had been marked with an "x" by the designer (II/358).
iii) Mr Davies did not advise him that the ventilation shaft went through property belonging to a third party and that he would need the consent of that third party to run ducting up the ventilation shaft.
iv) At no time prior to completion was the lease between L&Q and Anacar brought to his attention and Mr Davies did not make him aware that the upper parts of the building were owned by L&Q.
v) In cross-examination, the Claimant said he had been aware from the outset of the need for a chimney. He accepted there was no mention of the need for a chimney in his witness statement. He accepted there was no mention of a chimney or other protuberance in any of the documents and that he had not mentioned it orally to Mr Davies either at the 8 April meeting or at any other time. In relation to the plans (II/358-9) he accepted that there was nothing on them to indicate anything going above the ceiling.
The Defendant's version
A summary of the Defendant's version of the 8 April meeting is as follows:
i) Mr Davies did not make a formal attendance note of the meeting but jotted down outstanding points on a copy of an email from Mirkwood Vincent (II/360). The note included the words "ventilation shaft". It was a long meeting (probably a couple of hours) during which Mr Davies went through the terms of the lease with the Claimant item by item.
ii) The Claimant became a little impatient at this, because he felt he already had some experience in relation to commercial leases. Mr Davies told him that the consent of the superior landlord would be required for external alterations.
iii) The Claimant told him that the premises were purpose built and had a pre-existing ventilation shaft in place for use in the kitchens. Mr Davies had considered the headlease and was aware that it granted Anacar the right to connect into the conduits for the supply of services to the premises (as set out in the First Schedule). "Conduit" was defined to include "duct" in the definitions section. He formed the view that this gave Anacar the right to use the ventilation shaft.
iv) Nothing the Claimant said in relation to his intentions regarding the ventilation shaft gave him any indication that any additional work was required before the shaft could be used. He was satisfied on the Claimant's assurance that there was no structural work requiring L&Q's consent and that Anacar had sufficient rights under the headlease to demise the same to the Claimant.
v) Mr Davies told the Claimant that, in his view, the plans he had supplied were inadequate and it would be usual to supply a full schedule of works when obtaining a landlord's licence for alterations. He explained this would normally be professionally prepared. The Claimant's concern was to keep costs to a minimum and he was not inclined to incur the expense of having such a schedule prepared. He stressed the urgency to proceed without further delay and without a full schedule of works.
vi) At no stage prior to completion did the Claimant instruct Mr Davies that he intended to do anything other than simply connect to the ventilation shaft. If that was his intention, in Mr Davies' professional opinion there was no need for permission, as the property had the right to use "Conduits" exclusively servicing the property. The Claimant did say he intended to fit an extractor unit to the shaft within the property and Mr Davies did consider this would require approval from Anacar, but not from L&Q.
vii) There was nothing on the plans or in any instructions from the Claimant to suggest there was anything to be fitted inside the ventilation shaft, any ducting required, or that a chimney was required on the roof. If such works were anticipated, Mr Davies would have expected the Claimant to explain the scope of the works in detail to him in response to his enquiries and to provide elevation plans of the building and a schedule of works. No such diagrams or instructions were ever provided to him prior to completion of the lease.
viii) In cross examination Mr Davies said he had brought the headlease to the Claimant's attention. He reiterated that the Claimant had never led him to believe there was any work needing to be done on the ventilation shaft. He was not told any work was needed in relation to ducting or a chimney. If he had been told that, he would have raised those points with Mirkwood Vincent as he was concerned to obtain consent for all work needing to be done.
ix) Mr Davies said that generally the Claimant's "policy was to get on and complete, and sort out any difficulties afterwards." He told Mr Davies that he "hadn't lost a court case yet."
Events after the 8 April meeting
On 8 April 2011, following the meeting, Mr Davies sent an email to Mirkwood Vincent setting out points which had just been raised at the meeting. He said that "…the ventilation shaft provided" would be used. This email was copied to the Claimant (II/362).
On 9 April 2011, the Claimant replied to this email (II/394). He did not make any reference either to ducting or a chimney when referring to the Space Plans and work to be done.
On 13 April 2011 at 12.32 Mirkwood Vincent sent an email to the Mr Davies stating (II/399):
"Plans for the works will need to be annexed with more detail in relation to the air-conditioning/ compressor units/ extractor units and the exact position of the existing ducting/ shafts to be used".
At 14.40 on 13 April 2011 Mr Davies forwarded this email to the Claimant, which said "Please see Corinne's email below and the attachments" (II/403a). One of the attachments was a letter/ licence (unsigned) to carry out the proposed works (see I/142).
At 16.48 on 13 April 2011 Mr Davies sent an email to the Claimant which said (II/404):
"Is there anything else which is still of concern to you or can I ask Corinne to go ahead and prepare the engrossments for signature? Please confirm that the letter/licence for the works is OK. I think they are after more than just the plans. They require more detail in relation to the air-conditioning/ compressor units/ extractor units and the exact position of the existing ducting/ shafts to be used."
At 17.30 on 13 April 2011 the Claimant replied to Mr Davies and said:
"Chris, nothing else is of concern to me. As discussed at our last meeting, there is already an existing extractor shaft within the premises and that is the one which will be used."
In cross-examination, the Claimant said he had a "general browse" through the letter/ licence "but not in any great detail".
The Claimant did not provide any more detail in relation to the plans and did not produce a schedule of works to be carried out.
On 14 April 2011, Mr Davies sent an email to Mirkwood Vincent asking them to go ahead and prepare the engrossments for signature (II/404).
Also on 14 April 2011, the Claimant sent an email to Mr Davies asking whether he had received any feedback from Anacar in relation to the service charge (II/408). Mr Davies replied that the information he had was "no insurance or service charge is payable since L&Q have never demanded any". The Claimant then asked Mr Davies "By the way what does L&Q stand for?" Mr Davies replied "London and Quadrant Housing Trust who insure and presumably manage the estate".
This email exchange is relied on by the Claimant as demonstrating he was unaware of the identity of L&Q as the new owner of the freehold. It is noteworthy that the Claimant's question appears to have been in relation to the meaning of the abbreviation "L&Q" rather than L&Q's identity. On behalf of the Defendant, it is contended that the Claimant already knew the identity of L&Q from earlier emails sent to him.
Completion took place on 26 April 2011.
On 4 May 2011, the Claimant sent an email to Anacar's agents asking for access to the ventilation shafts on each floor (II/444). He asked about the fire rating in the ventilation shaft. In cross-examination, the Claimant accepted this request followed a preliminary visit by a contractor to scope out the necessary works and was not a visit to fit a sleeve.
By 26 May 2011, the Claimant had approached L&Q with his plans for the works (II/465). These were still the Space Plans, which did not show any external works. By now, there was a dispute growing between the Claimant and L&Q over the nature of the proposed works.
On 28 May 2011, the Claimant sent an email to L&Q which said (II/464): "I have spoken to my solicitors and am very much aware of my rights and obligations as a tenant, I have also read my lease agreement and was very much a party to finalising it". In cross-examination, the Claimant said this assertion was not accurate and was "…only said to bluff her".
On 1 June 2011, Anacar sent an email to the Claimant which stated its position that under the lease, he had the requisite rights to allow for the connection to and have services flow through conduits (which includes ducts); in other words, its view was that the lease gave the Claimant the right to vent (II/468b).
In July 2011 drawings in relation to a chimney were produced for the first time (II/480-481). These were produced by Wizarch Construction Limited ("Wizarch"). Although the drawings were produced by an architect, the point is made by the Defendant that Wizarch is not a mechanical and electrical services ("M&E") expert. The Wizarch plans showed vertical ducting and then a chimney over two stories high on the roof of the building. It subsequently transpired that this chimney, which undoubtedly concerned L&Q, was both unnecessarily tall and technically inadequate.
On 4 July 2011, a company called Ventopure quoted for proposed works at Unit 1 (II/482). Such a quotation had not formed part of the Claimant's proposed fit out costs and there is an absence of any contractor involvement before completion.
On 5 July 2011, Mirkwood Vincent sent an email to Mr Davies saying that it was apparent from a round table meeting held the previous week that the works in discussion differed from those for which consent had been given and that a further licence would be required from Anacar and from the superior landlord.
On 13 July 2011 Mr Davies sent an email to the Claimant which said (II/487a):
"Of course, the difficulty is whether the works now proposed are more extensive than those for which consent was given and I am certainly not qualified to advise in this respect".
The email correspondence makes it plain that in August 2011, the Claimant was still proceeding on the incorrect basis that he required a two story chimney (II/497) and it is apparent that it was these proposed external works which were of most concern to L&Q (II/498).
On 27 September 2011 the solicitors acting for L&Q wrote to Mirkwood Vincent in connection with the dispute over the extent of the works. The letter included an acceptance of the Claimant's right to vent (II/543):
"We do however accept that the tenant has a right to connect into the Conduits."
By 28 September 2011, Anacar had given the Claimant information which suggested such a tall chimney was not necessary (II/54).
In June 2012, following a third round table meeting with L&Q, a firm of M&E experts called Wilkins McKenzie were instructed by the Claimant. The documents they produced set out what was necessary for the ventilation system to be put in place.
Discussion and decision on the primary issue
The Claimant's submissions may be summarised as follows:
i) The Claimant was unaware of L&Q's ownership of the upper floors.
ii) The Claimant had visited the property on a number of occasions prior to the meeting on 8 April and had inspected the ventilation shaft on each floor. Consequently, he knew that ducting was required. In particular, he relies on the email dated 9 December 2010 which refers to confirming the existence of an extractor vent and an email dated 4 May 2011, in which he states that his "extractor guy needs access to the shafts on each floor".
iii) Mr Davies' jottings about the 8 April meeting record that "ventilation shaft" and "extractor fan" were mentioned at the meeting. In connection with the plans, these must be references to the "T" shape shown on the plans. Mr Davies' evidence that his impression was that the Claimant would only be installing an extractor fan does not accord with the T shape or common sense; even a domestic kitchen extractor fan requires ducting.
iv) The absence of any request by Mr Davies for sight of local authority planning consents point towards him being under the impression that the Claimant would be installing ducting.
v) The absence of any reference to ducting in the email sent by Mr Davies to the Claimant on 8April very shortly after the meeting does not necessarily mean that ducting was not mentioned at the meeting.
vi) It is improbable that Mr Davies would not have questioned the Claimant about the detail of the ventilation unit, if he did not understand what it comprised. Further, it is improbable that the Claimant would keep this detail from him.
vii) The evidence establishes on the balance of probabilities that the Claimant did tell Mr Davies he would be installing ducting work and in those circumstances he should have been advised as to what rights he had to install ducting in the ventilation shaft. Mr Davies' failure so to advise him was negligent.
The Defendant's submissions may be summarised as follows:
i) The Claimant's emails dated 5 April 2011 and 7 April 2011 refer specifically to the intended works being "merely cosmetic". This is reflected in the Space Plans which do not show any works above the ceiling of Unit 1.
ii) The Claimant never knew that a roof level chimney was required, which is why this never formed part of his instructions to Mr Davies.
iii) The Claimant did not raise anything about the need for ducting in his instructions to Mr Davies, either at the 8 April meeting or at any other time prior to completion.
iv) The Claimant did not know what other works might be required in relation to the ventilation shaft, because he had not sought the necessary professional assistance to find out what was necessary.
v) The Claimant knew he was obtaining an Underlease and knew that his landlords were L&Q.
vi) Mr Davies' instructions are reflected in his email dated 8 April 2011 seeking consent from Anacar and stating specifically that the "ventilation shaft provided" would be used.
vii) The Claimaint's response to a request from Anacar for further information in relation to the Space Plans and in respect of which Mr Davies sought specific instructions was "Chris, nothing else is of concern to me. As discussed with you at our last meeting, there is already and (sic) existing extractor shaft within the premises and that is the one that will be used" (14 April 2011).
viii) The scheme of works in relation to the ventilation shaft only emerged very gradually after completion on 26 April 2011.
ix) Overall the Claimant's attitude was that that matters should be deal with quickly and at minimal cost and that any problems should be dealt with after completion.
Having considered all the evidence and the arguments put forward by the parties, I find that the Claimant did not explain to Mr Davies at the 8 April meeting that ducting would need to be installed in the ventilation shaft.
In my judgment, the Claimant did not know prior to completion what works might be required in relation to the ventilation shaft and so consequently did not give Mr Davies any instructions in relation to such work. The Claimant stated in evidence that he had known of the need for a chimney all along, but admitted he had never mentioned that need to Mr Davies. I do not accept the Claimant's evidence on this point. If he had known of the need for a chimney, he would have raised it at some point prior to completion. Further, the Space Plans made no reference to the need for any works above ceiling level.
The emails relating to the period after completion make it clear that the Claimant only learned gradually about what work was needed in relation to the ventilation shaft. It is of particular note that no detailed schedule of works was produced by the Claimant prior to completion, despite Mr Davies' encouragement to him to provide more detailed plans.
I find that Mr Davies correctly advised the Claimant that the Underlease carried with it the right to vent through the ventilation shaft. The email correspondence makes it clear that this position was accepted both by Anacar and L&Q.
I am satisfied that the Claimant did know he was obtaining an Underlease and that his landlords were L&Q. The identity of L&Q was set out specifically in email correspondence (see II/354) and I do not accept the Claimant's explanation that either he did not receive the email or, if he received it he did not read it.
The evidence establishes that the Claimant wanted to obtain the lease at minimal cost and so cut corners by not obtaining the necessary professional advice in relation to the ventilation shaft prior to completion. It was for the Claimant to satisfy himself as to what his commercial and technical requirements were before giving his instructions to Mr Davies.
I have also formed the view that the Claimant tailored his evidence on occasions in order to avoid facts he felt were disadvantageous to his case. For example, in seeking to distance himself from involvement in the terms of the lease, he sought to explain away his email to L&Q in which he had said "…I have also read my lease agreement and was very much a party to finalising it" by saying he only intended the words as a bluff.
By contrast, I found Mr Davies to be an impressive witness who was self-exacting in relation to carrying out his instructions from a difficult client.
As discussed above, the scope of a solicitor's duty is limited by the terms of his retainer. I find that Mr Davies was entitled to accept the Claimant's instructions that nothing needed doing in relation to the ventilation shaft and it did not form part of his duty of care to go behind that factual instruction to investigate whether this was true or not.
The Outdoor Seating Area
In the light of the Claimant's stated position that the issue of the inclusion of the Outdoor Seating Area in the plants registered at HM Land Registry is a minor point which did not result in any substantial loss, I do not propose to make any detailed findings in respect of it. Overall, I am not satisfied that any failure to advise the Claimant that the plans did not show that Outdoor Seating Area fell within Anacar's demise was the result of any negligence or breach of duty on the part of the Defendant. I accept that the Claimant was copied into correspondence relating to the Outdoor Seating Area being dealt with as a matter of title guarantee and did not object to this course.
Decision
I find that the Claimant has failed to prove that he gave the Defendant express instructions to advise in relation to ducting work in the ventilation shaft and accordingly I find that no duty to give such advice ever arose.
The Claimant's secondary case
The Claimant's secondary case has three elements:
i) The drafting of the Underlease created a "risk" in relation to which advice and drafting were required ("the Underlease risk ground");
ii) Mr Davies failed to advise the Claimant adequately or at all in respect of Condition 4 of the local authority's planning permission ("the Condition 4 ground"); and
iii) Mr Davies failed to advise the Claimant adequately that he was submitting inadequate plans to Anacar in support of the grant of a licence from Anacar ("the inadequate plans ground").
The Underlease risk ground
In paragraph 18(ii) of the Particulars of Claim, the case being advanced was that the Claimant had no "express right to use the Ventilation Shaft (whether with the ducting or without it)". This point was not pursued in the skeleton arguments served by the Claimant or at trial.
As I stated above, this secondary basis was not pleaded in the Particulars of Claim.
The Claimant's case on "risk" is said to arise out of a qualification in the Underlease. The Claimant's arguments are as follows:
i) Clause 3.9 of the Underlease provides:
"Except as mentioned in this clause 3, neither the grant of this lease nor anything in it confers a right over the Common Parts or any neighbouring property nor is to be taken to show that the Tenant may have any right over the Common Parts or any neighbouring property and s.62 of the Law of Property does not apply to this lease."
ii) It is common ground that the ventilation shaft falls outside of the Claimant's demise and falls within L & Q's neighbouring property. The only rights that C has therefore over the shaft are the rights conferred by Clause 3.1(d) of the Underlease. This provides with added emphasis provides [p.153]
"3.1 The Landlord grants the Tenant the following rights (the Rights);
...
(d) the right to use and to connect into any Service Media at the Building that belong to the Landlord and serve [but do not form part of] the Property which are in existence at the date of this lease or are installed during the perpetuity period;
..."
iii) The Headlease defines Anacar's demise as including "conduits and plant to the extent that they are within and exclusively serve the commercial units (but no other Conduits or Plant) (see p.93 & )
It specifically excludes "all airspace above the Premises [varied by the Deed of Variation to "Commercial Premises"] and any part of the Building above the bottom of the floor slab separating the basement ground floor and upper ground floor from the upper parts of theBuilding [p.93 & p.124].
iv) Even if the court accepts that the Defendant's argument that the Underlease gave the Claimant a right to vent, L&Q does not share that view and the Defendant should have advised the Claimant as to the legal difficulties that might arise over the right to use the ventilation shaft.
v) Reliance is placed on the following cases: Herrmann v Withers LLP [2012] EWHC 1492 (Ch) [2012] PNLR 28 and Queen Elizabeth's Grammar School Blackburn Ltd v Banks Wilson [2001] EWCA Civ 1360; [2002] PNLR 14. The latter case is authority for the proposition that even if the court is satisfied that an interpretation is legally correct, if there is real scope for dispute it is negligent not to give advice to this effect.
vi) In cross-examination Mr Davies said he did not consider the "belonging to the landlord" qualification in clause 3.1(d) at the time (see items 159,161 & 206 of cross examination note) and that when pressed he accepted that in light of that wording he should have considered whether it belonged to Anacar (see items 161-163) and that if he had done so he would have advised and sought an amendment to the Underlease to make sure that there was a specific right to use the ventilation shaft (see items 207-210 of cross examination note).
The Defendant's arguments in respect of the Underlease risk are as follows:
i) Objection is taken to the Claimant advancing an unpleaded point which first emerged in the Claimant's skeleton argument dated 13 October 2014 and developed further in a supplemental skeleton argument dated 15 October 2014.
ii) The cases which the Claimant identified at the Supplemental Skeleton Argument stage are all cases in which the "risk" resulted from some peculiar and identified feature of the facts. It is clear that the cases which the Claimant adduced at a late stage are highly fact-sensitive, even on their own terms:
iii) (a) In Queen Elizabeth's Grammar School Blackburn Ltd v Banks Wilson (A Firm) [2001] EWCA Civ 1360 the Court of Appeal was faced with a restrictive covenant which was ambiguous. The covenant was drafted against the background knowledge that the vendor of the site was intending to object to works which were intended to be carried on under that covenant, which on one reading amounted to a breach. The solicitor was therefore negligent because, against the background of a threat of litigation, the advice should have been more cautious. It is clear that the fact that there was a current threat of litigation in the Queen Elizabeth Grammar School case was the deciding factor: see at [47]. That is not a feature present here. The dispute here only arose after completion, and (the Defendant says) due to the Claimant's provocative conduct. The Claimant has neither pleaded, nor proved, in this case that he would have taken cautious advice, and he certainly did not take the Defendant's advice in any other respect.
(b) In Herrmann v Withers LLP [2012] EWHC 1492 does not contain any test, but an application of Queen Elizabeth to the facts. It concerned a very little read and particularly badly drafted Act of Parliament from 1851 without any guiding authority (see at [69]). Again, there is no pleaded case from the Claimant as to why a conventional Underlease with a standard easement within it is to be treated as the same as advice on an obscure Act of Parliament.
iv) The Claimant has never identified a clear "risk" factor, and the unpleaded case was simply put to Mr Davies with no forewarning in cross-examination. The Defendant's position is that nothing in the Underlease brings it within the "risk" principle, which requires some special factor. There is nothing pleaded that shows any feature demonstrating an enhanced risk existed similar to the risk that was present in both of the authorities which the Claimant seeks to rely on at this late stage in the proceedings.
v) This new argument "misses the target" in any event:
a) The Claimant accepted in correspondence that he had been fully involved in the drafting of the Underlease II/487E;
b) The argument based on risk aims at the wrong part of the Headlease and Underlease, and is irrelevant. The provision which the Claimant fastens on as being somehow "unusual" is the definition of the demise, and the use of the word "belong". As to that:
i) The use of the word "belong" is in the Underlease. Anacar was the landlord under that. Anacar never gave the Claimant any trouble at all and in fact supported him. The risk argument on this basis does not get off the ground.
ii) The attempt to make something out of the definition of the "demise" under the Headlease and the Underlease also misses the point:
(a) In relation to the Underlease it is completely irrelevant as Anacar were no trouble.
(b) In relation both the Headlease and Underlease, the question is not what the demise means, but what the rights conferred by Schedule 1 of the Headlease and Clause 3 of the Underlease mean. There has been no suggestion that there was anything unusual about those. As Mr Davies correctly stated in evidence, the definitions and the rights were sufficiently broad to allow the Claimant to do what he needed.
(c) The "risk" argument does not therefore attach to any relevant provision in these proceedings.
vi) Further, the line of questioning of Mr Davies in cross-examination did not take into account that the drafting of the Underlease is inevitably conditioned by the definitions in the Headlease. The draftsman of the Underlease is bound to follow the scheme in the Headlease, otherwise there will be a mis-match.
vii) No-one seriously argued that there was no right to connect into and use the Ventilation Shaft at all. The debate was centred on (a) the Claimant's proposed user of Unit 1, and (b) the external works which the Claimant wished to do, being (ultimately) the installation of the chimney in the main. There was never any serious doubt that the ventilation shaft was the conduit, or counted as media. As the problem was with the chimney, and as the Claimant accepts he never referred to the need for a chimney, the Claimant cannot succeed in any event.
viii) The conferral of easements automatically includes the conferral of ancillary rights to put the easement into effect (see Gale on Easements, 1-90, first sentence, and the authorities of Platt v London Underground [2001] 2 E.G.L.R. 121 at 122 B - K; Carter v Cole [2009] E.G.L.R. 15, at paragraph [8]). It is so standard (and hence usual) in English real property law that it goes without saying-.
ix) Further, matters are expressly catered for in the Headlease (which is the document which is most relevant for these purposes), and the qualification to the easement in Schedule 1 paragraph 3 which requires that the works of connection and use of the ventilation shaft should be "subject to the regulations of any appropriate authority". Therefore, if the Council as planning authority, or as building regulations authority, required a sleeve or a chimney, the Claimant (through Anacar) was not merely empowered to comply, but positively obligated to do so.
Discussion and decision on the Underlease risk ground
It is clear from the decision of the Court of Appeal in the Queen Elizabeth's School case that in order to prove this ground the Claimant would have to show that there was "real scope for dispute" over whether the Underlease gave the Claimant the right to connect into and use the ventilation shaft in order to vent Unit 1 (see judgment, paragraph 29).
In my judgment, Mr Radley-Gardener is correct in his submission that the Claimant has never identified a clear "risk" factor of the type envisaged in the Queen Elizabeth's School case but instead relies on what he contends is "unusual" wording in the definition of the demise and the use of the word "belong". It is unsatisfactory that this point was not pleaded in the Particulars of Claim, which would have ensured that Mr Davies was properly prepared to deal with it.
Further, in my judgment Mr Radley-Gardener is correct in his legal analysis of the relevant rights conferred by Schedule 1 of the Headlease and Clause 3 of the Underlease and those definitions and rights were sufficiently broad to allow the Claimant to connect into and use the ventilation shaft in order to vent Unit 1.
Mr Radley-Gardener is correct in his submission that in focusing on the definition of the demise and the use of the work "belong", the Claimant is aiming at the wrong target.
The Claimant has sought to rely on the answers given by Mr Davies in cross-examination as supporting his case, but on analysis they do not do so for two reasons. First, perhaps as a consequence of this being an unpleaded point, Mr Davies was not given the opportunity to explain in detail the rights conferred by Schedule 1 of the Headlease and Clause 3 of the Underlease. He tried to do so in general terms at several stages during cross-examination. On two occasions he said that he understood the shaft fell within the definition of "media" (joint note of cross examination, lines 150-159). He said "I went through the Headlease and the Underlease and I thought the necessary rights were granted" (lines 172-173). Second, Mr Davies' apparent concession that he did not consider whether the ventilation shaft belonged to Anacar or L&Q, but should have done so, does not in fact advance the Claimant's case because it is clear from Schedule 1 of the Headlease and Clause 3 of the Underlease that he did have the right to connect into and use the ventilation shaft.
Even if the Claimant were correct in focusing on what are said to be the unusual words used in the definition of demise, his point would fail for two reasons. First because there is nothing in the words themselves which gives rise to "real scope for dispute" over their meaning and second, because the email correspondence makes it plain that both Anacar and L&Q accepted that the Claimant had the right to vent through the ventilation shaft. L&Q's stated objection was to the chimney and the Claimant accepts that he never told Mr Davies of the need for a chimney at any stage prior to completion.
In my judgment the relevant rights conferred by Schedule 1 of the Headlease and Clause 3 of the Underlease were sufficiently broad to allow the Claimant to connect into and use the ventilation shaft in order to vent Unit 1. Mr Davies was correct in his advice to the Claimant and in his evidence at trial that the necessary rights were granted.
There was nothing in the wording of the lease or in the attitude of L&Q in relation to the right to connect into and use the ventilation shaft (as opposed to the installation of a chimney) to create "real scope for dispute" and thus require Mr Davies to warn the Claimant of such a risk.
Accordingly I find that the Claimant has failed to prove any failure of duty on the part of the Defendant in relation to the Underlease risk ground.
The Condition 4 ground
In the course of cross-examination on the last day of the trial, the Claimant advanced an entirely new case in respect of Condition 4 of local authority's planning permission.
The Claimant's arguments in respect of the Condition 4 ground are as follows:
i) Condition 4 of the planning permission [p216] provides that:
a) all fumes from cooking processes associated with A3 uses shall be extracted via a flue;
b) details of the ventilation and filtration equipment including details of all external plant equipment and trunking shall be submitted to and approved in writing by the Local Planning Authority pior to commencement of each A3 use; and
c) all flues, ducting and other equipment shall be installed in accordance with the details subsequently approved prior to either of the A3 uses commencing and shall be retained for the duration of the use.
ii) If the Claimant was installing the "flues, ducting and other equipment" required by Condition 4 then it was obvious these would run through the parts of the building owned by L&Q. In those circumstances Mr Davies should have advised the Claimant as to what rights he had to install something in the ventilation shaft. Such advice would have revealed to the reasonably competent solicitor that it was, at the very least arguable that neither the Claimant nor Anacar had the right to install anything and would probably have lead to involvement of L&Q.
iii) If there was already a flue installed in the shaft and all that was required was for the Claimant to connect into it, it could only be assumed that such flue was satisfactory if the Local Planning Authority had approved the flue in writing in accordance with condition 4.
iv) Reliance is placed on answers given by Mr Davies in cross-examination that if he understood something had been installed in the flue, then it would have been prudent to ask for sight of the consent and that a reasonably competent solicitor should have asked for the consent (note of evidence, lines 11-115; 130-131).
v) If Mr Davies had requested the written approval, as it is submitted he should, this would have flushed out that there was no flue etc installed in the ventilation shaft and Mr Davies would have advised accordingly.
The Defendant's arguments in respect of the Condition 4 ground are as follows:
i) The Claimant's argument only arises if the court has already accepted Mr Davies' factual account in relation to his instructions, namely that the ventilation shaft was "good to go". Thereafter, the Claimant needs to establish that the Defendant had a duty to go behind that answer and undertake further searches.
ii) The Claimant has not pleaded this ground and there has been no application to amend the Particulars of Claim. The Claimant ought not to be allowed to rely on it because he has not pleaded:
a) what the Defendant should have done over and above his Local Land Charges search (which he carried out, I/310);
b) what those additional searches he says would have revealed to the Defendant; and
c) whether what the Claimant says would have been revealed ought to have put the Defendant on notice that his instructions were factually incorrect, and that he should carry out further investigations.
iii) In cross-examination, the Claimant said he had contacted the Council himself in connection with Condition 4. He said he told them about the ventilation shaft and they say they did not need anything from him. They gave him a specific form to fill out. He had done so and submitted the form. He had told Mr Davies that he had spoken to a person at the local authority, but did not tell him he had specifically discussed Condition 4.
iv) This is consistent with what the Claimant said post-completion. He confirmed to Anacar that (G/476) "the Council have already informed me that there is no need for further planning permission for the extractor as one had already been granted to you earlier prior to the building being constructed".
v) A further investigation following on from the standard searches (which were undertaken) would in fact not have yielded anything to put the Defendant on notice he might have been instructed on a false factual basis.
vi) The Claimant has failed to distinguish between what was shown on the planning register and what was physically on site. All that a further query of the Council under Condition 4 could go to is the planning status of whatever was installed. It would not have revealed whether there was anything in the ventilation shaft.
vii) In Haigh v Wright Hassall [1994] E.G. 54, Hoffmann LJ expressed the position as follows:
"The solicitor is not a business advisor; he is a lawyer. Although most good solicitors will offer business advice, and will, to some extent, try to protect clients from themselves, it would be wrong, in my judgment, to hold that there was invariably a legal duty to do so. It must of course depend upon the facts of the case. There will be situations in which it is clear to the solicitor that the client is commercially wholly inexperienced and is deluding himself. In those circumstances there way well be a duty on the part of the solicitor to probe further."
viii) The questions in relation to the ventilation shaft were factual questions within the Claimant's knowledge and expertise. The Defendant was entitled to assume that the Claimant was giving a truthful account of what he had seen at Unit 1. There was no duty on the Defendant thereafter to undertake his own independent investigations to see whether that was true. In any event, he raised further enquiries with the Claimant at the time of the Licence (F/404)
ix) There was nothing in the replies to the Local Land Charges search to raise the prospect that there might be something amiss with the Claimant's instructions as to the physical state of the ventilation shaft. This is not a "noticing a problem case". The way the Claimant's case appears to be put is that the Defendant was under a duty to go and seek out a problem which he had been instructed did not exist.
x) The Claimant in his closing arguments relied heavily on Mr Davies' statements in relation to what he regarded as his failings in this regard. Mr Davies is an honest witness. Mr Davies was facing questioning on an unpleaded allegation and was not told that he had made enquiries to the Local Council in the normal way. What is reasonable, and what a reasonably competent solicitor would have done, and whether a breach results in damage, is a matter for the Court, and not for any witness to give evidence on: Healthcare at Home Ltd v The Common Services Agency [2014] UKSC 49. As set out above, Mr Davies, while frank, was not negligent if the Claimant is allowed to rely on this new and unpleaded ground.
xi) Investigations in relation to Condition 4 were either not required by the scope of the Defendant's duty, or the failure to press them further to check whether the Claimant was correct was not a breach, or there was no loss caused as those further investigations would have revealed nothing salient.
Discussion and decision on the Condition 4 ground
Although the Condition 4 ground was not pleaded by the Claimant I have decided that the arguments on both sides can be dealt with fairly within the trial process. Accordingly, the Claimant is permitted to rely on this new ground, although he has suffered the evidential consequences of it not having been pleaded and presented as part of his case.
I am satisfied that the Claimant did tell Mr Davies that no further work was required in relation to the ventilation shaft and that he had discussed Condition 4 with the local authority, which had told him it needed nothing further from him. This position was confirmed in an email sent to Anacar following completion.
In my view it is likely that even if Mr Davies had made further enquiries of the local authority in relation to Condition 4, any answers would simply have revealed what was shown on the planning register and not what was physically on site. Consequently, even if Mr Davies did have a duty to make further enquiries, then the answers he would have received would not have put him on notice that he may have been instructed on a false factual basis.
Mr Davies' apparent concessions in cross-examination do not in fact amount to an admission of liability on the part of the Defendant. There is force in Mr Radley-Gardener's criticism that Mr Davies was facing cross-examination on an unpleaded allegation and was not reminded that he had in fact made enquiries of the local authority in the normal way.
As I stated earlier in my judgment, in my view Mr Davies was self-exacting in relation to his own performance and when faced with this unexpected line of cross-examination on a point which had never been raised before, he may have felt that perhaps he could have sought further information. If the case had been properly pleaded and developed, then Mr Davies would have been able to consider before he gave evidence whether a duty to make further enquiries really did arise and whether, if it did, any further enquiries would have revealed anything to make him doubt his instructions.
In any event, the principles set out in the Healthcare case make it clear that the behaviour of the reasonably competent solicitor is not established by the evidence of witnesses, but by the application of a legal standard by the court. Mr Davies' answers are relevant to the issue but cannot decide it one way or the other.
A further consequence of this ground not being pleaded and supported by evidence is that the Claimant has not advanced a positive case on what any additional searches would actually have revealed to the Defendant and whether such searches would in fact have been sufficient to put the Defendant on notice that his instructions were factually incorrect. Each of these points would have been a necessary evidential building block in order to construct a case against the Defendant on this ground. These evidential gaps in the Claimant's case are not filled by Mr Davies' answers in cross-examination.
In my judgment the Claimant has failed to prove that the Defendant had any duty to make any further enquiries of the Claimant in respect of Condition 4, in the light of the information he was given by the Claimant. Further, even if such a duty did arise, the Claimant has failed to prove that any further information would have revealed anything to put the Defendant on notice that the Claimant's instructions were factually incorrect.
On all the evidence relating to Condition 4, I find that the Claimant has failed to prove that Mr Davies' actions fell below the standard of a reasonably competent solicitor.
Accordingly I find that the Claimant has failed to prove any failure of duty on the part of the Defendant in relation to the Condition 4 ground.
The inadequate plans ground
The inadequate plans ground is a further unpleaded allegation which was put to Mr Davies for the first time in cross-examination. It appears to arise out of the fact that Anacar, for a time, regarded the Space Plans as inadequate for the grant of a licence.
As set out above (but reproduced below for ease of reference), the relevant chain of emails is as follows:
On 13 April 2011 at 12.32 Mirkwood Vincent sent an email to the Mr Davies stating (II/399):
"Plans for the works will need to be annexed with more detail in relation to the air-conditioning/ compressor units/ extractor units and the exact position of the existing ducting/ shafts to be used."
At 14.40 on 13 April 2011 Mr Davies forwarded this email to the Claimant, which said "Please see Corinne's email below and the attachments" (II/403a). One of the attachments was a letter/ licence (unsigned) to carry out the proposed works (see I/142).
At 16.48 on 13 April 2011 Mr Davies sent an email to the Claimant which said (II/404):
"Is there anything else which is still of concern to you or can I ask Corinne to go ahead and prepare the engrossments for signature? Please confirm that the letter/licence for the works is OK. I think they are after more than just the plans. They require more detail in relation to the air-conditioning/compressor units/ extractor units and the exact position of the existing ducting/ shafts to be used".
At 17.30 on 13 April 2011 the Claimant replied to Mr Davies and said:
"Chris, nothing else is of concern to me. As discussed at our last meeting, there is already an existing extractor shaft within the premises and that is the one which will be used."
In the event, Anacar was prepared to grant the licence in the terms sought without the provision of more detailed plans.
The Claimant's arguments in respect of the inadequate plans ground are as follows:
i) The Claimant did not have a schedule of works drawn up before completion, but should have been properly advised by Mr Davies that his plans were inadequate and a schedule of works was necessary and for his benefit. If this had been done, then the need to install ducting work in the ventilation shaft would have been revealed and Mr Davies would have (or ought to have) then advised accordingly.
ii) Reliance is placed on Mr Davies' witness statement in which he described the plans as "inadequate" and his answers in cross-examination in which he said that in his opinion the plans were not detailed enough for the purposes of a licence to carry out works (note of evidence line 52).
iii) Mr Davies should have taken greater steps to ensure that the Claimant prepared more detailed plans based on a schedule of works, even if these were not required by Anacar for the grant of the licence.
The Defendant's arguments in respect of the inadequate plans ground are as follows:
i) The email correspondence shows that the Claimant was pressed for more detail but declined to give it. As is clear also from the post-completion dealing with London & Quadrant, the Claimant was exceedingly reluctant to engage a proper professional to do a proper, thorough job on his specifications until forced to do so, because of his overall view of the transaction. Insofar as the obtaining of the Licence was within the scope of the Defendant's duty, that duty was discharged. The Defendant denies that, on the basis of the correspondence at F/404 and the other pre-action assurances, the Defendant was under a duty not to take the Claimant's "no" as an answer, and to keep probing further.
ii) At the 8 April meeting Mr Davies told the Claimant that, in his view, the plans were inadequate and it would be usual to supply a full schedule of works when obtaining a landlord's licence for alterations. The Claimant's concern was to keep costs to a minimum and he was not prepared to incur the expense of having such a schedule prepared.
iii) Ultimately, Anacar did not proceed with their complaint that the plans were inadequate and gave their consent.
iv) The questions put to Mr Davies on "adequacy" failed to distinguish two different propositions:
a) a plan and licence may be inadequate if they show all of the works to be done in a general sense, but do not show the works in sufficient detail;
b) a plan and licence may be inadequate if they simply do not show all of the works to be done.
v) The Claimant's cross examination elided these two very separate points. They must be kept separate. In light of the instructions given to Mr Davies, the plan and Licence were not inadequate in sense (b). The plans showed exactly what the Claimant had asked for. Insofar as they were "inadequate" in sense (a), it was Anacar's concern and Anacar did not press that concern.
vi) This new allegation is based on a false premise and comes to nothing.
Discussion and decision on the inadequate plans ground
The purpose of the Space Plans was to assist the Claimant in obtaining the licence he sought from Anacar. As a matter of fact, the Space Plans did show all that the Claimant was asking for in the licence. If Anacar required more detail, then it should have pressed the issue.
Mr Davies did point out to the Claimant that more detail was required by Anacar, but the Claimant declined to provide it. I accept Mr Davies' evidence that this was discussed at the 8 April meeting but the Claimant said he was not prepared to incur the costs of a revised plan and a schedule of works.
The essential point is whether Mr Davies had a duty not to take the Claimant's "no" for an answer but to press him further to provide a level of detail which Anacar no longer required for the grant of the licence.
In my judgment Mr Radley-Gardener is correct in his submission that no such duty arose and the Defendant had discharged its duty in relation to the obtaining of the licence.
Accordingly I find that the Claimant has failed to prove any failure of duty on the part of the Defendant in relation to the inadequate plans ground.
Overall conclusion
I find that the Claimant has failed to prove any breach of duty on the part of the Defendant in relation to any of the grounds alleged against it and so the claim fails in its entirety.
In view of my findings in relation to breach of duty, it is unnecessary for me to go on to consider any issues of causation or contributory negligence.
Costs
Submissions on costs should be cross-served and served on the court by 5pm on Wednesday 11 February 2015. The documents may be sent by email to me. The submissions should include a proposed timetable for any further submissions and should address whether there is a need for an oral hearing. If further time is needed to prepare submissions on costs then the parties have liberty to apply to the court by email. |
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HIS HONOUR JUDGE COLLENDER QC INTRODUCTION
This is a claim for damages for personal injuries and consequential loss arising out of an accident suffered by the Claimant on 1 December 2010. On that day, the Claimant was engaged in his business, together with some of his employees, in the pruning of a tree. He and one of his employees, Mr Milbourn, were working from the basket of a sophisticated piece of equipment called a Mobile Elevated Work Platform (MEWP) which had been hired by the Claimant from the Defendant. In the course of this judgment I will refer to that piece of equipment as "the platform".
In the course of the work the platform toppled over causing the Claimant, and Mr Milbourn, to suffer serious injuries.
In this action the Claimant asserts that the Defendant is liable to him for breach of contract and in negligence, claiming that the accident was caused, by reason of defects in the platform and/or instructions given to him by the Defendant in respect of the set up of the platform. By way of defence, the Defendant asserts that the accident was solely due to errors of the Claimant in the setting up or operation of the platform. Alternatively, he claims that the accident was due to the contributory negligence of the Claimant.
By an order of Master Kay QC, given on 3 March 2014, it was ordered that all issues of liability should be tried in advance of a trial on quantum of damages. This judgment is given solely in respect of those liability issues.
THE FACTUAL BACKGROUND
I will set out the facts that are agreed, or on the evidence before me cannot sensibly be disputed.
The Claimant is now aged 32, his date of birth being 30 August 1981. He is an arborist and his business is concerned with many aspects of the care of trees including their pruning and felling. He has been engaged in such work since he was 16, has a diploma in arboriculture and holds an IPAF (i.e. International Powered Access Federation) certificate in respect of the use of platforms similar to that involved in the material accident.
Before the accident, he had been engaged by the owners of a substantial residential property, the Old Rectory in Milborne St. Andrew, Dorset, to prune a large copper beech tree, overhanging the house. The Claimant and his employees commenced work on the job in November 2010 and worked initially by gaining access to the branches to be pruned by means of ropes and harnesses. However, the Claimant decided that he would need a platform, safely to prune the remaining branches, which were growing over the house and garden. Access to the site where the Claimant was working was limited, and the tree was close to a slope. In these circumstances, the Claimant decided that the appropriate machine for the job was a specialised type of platform known as a 'Spider' that was specifically designed for use in such situations.
Mechanised elevated work platforms have long been used for a variety of tasks such as street light maintenance, tree surgery and the like. A common kind of such a machine is a conventional lorry type vehicle with outriggers that can be lowered to stabilise the vehicle upon which is mounted a hydraulic lifting system that carries a personnel basket to provide a secure aerial working platform. These are commonly known as 'Cherry pickers'. 'Spider' platforms are mounted on tracks like a tank and have a more flexible or adjustable system for the positioning of the four outriggers of the platform than a 'Cherry picker.' The outriggers can be moved in and out, up and down and from side to side. It has a hydraulically operated system of booms that allows the basket to be raised to a variety of positions above the vehicle. This may be likened to an arm with an elbow, the shoulder joint being attached to the vehicle, the upper arm, or pantograph boom, running from the shoulder to the elbow and the forearm or telescopic boom, running from the elbow to the basket. If the outriggers are not properly positioned there is a danger that such a platform may overbalance in use. 'Spider' platforms are therefore commonly equipped with a number of inbuilt safety devices. In particular, they are equipped with sensors to detect if the basket from which operators of the platform work is overloaded, or that the pressure on the foot of an outrigger falls below a safe operating level, in which events the sensors operate to warn the users of the platform of the danger and to prevent further movement of the platform's basket outside the safe operating envelope of the platform.
The Defendant is a tree surgeon who has equipment for use in that business. In the course of his business he sometimes hires out that equipment for trade use. In 2005 the Defendant purchased from a company called Promax Access Limited an RQG 18 'Spider' platform for use in his business. The platform was suitable for working on sloping ground so long as the feet of the outriggers were properly supported on ground that was reasonably level, firm and stable.
In his marketing literature the Defendant illustrated the platform in question and noted:
"[We] specialise in mobile elevated access platform hire for narrow access situations. Our platforms are extremely versatile, fitting through openings of less than 1m. They can negotiate rough or soft terrain, and have a multi- positional outrigger set up, ideal for setting up on slopes, and narrow or uneven surfaces."
When the Defendant purchased the platform he was given two days of training in its safe and proper use by Promax. The platform was supplied and hired by the Defendant, with a detailed user manual.
The Defendant used the platform in the course of his business as a tree surgeon and also hired it out to others. Before the Claimant's accident, the platform, that was subject to routine maintenance, and six monthly statutory examinations, had been used for a total of some 2,200 hours without untoward incident.
Following an exchange of emails and telephone calls, the Claimant agreed to hire the platform from the Defendant to assist him in completing the pruning of the beech tree at the Rectory. The contract was a contract for the hire of the platform and its associated equipment alone. The Defendant offers customers the option of hiring out such equipment with an operator who would set up, and operate, the platform. However, the Claimant did not choose to hire the platform with an operator.
The only specific purpose that the Claimant made known to the Defendant by the Claimant during the negotiations was the need for the platform to travel up a slope to reach the area where it was to be operated.
The Claimant visited the Defendant's premises and met the Defendant. The Defendant instructed the Claimant in the use of the platform, including how to set it up and operate it on slopes, on uneven ground and in confined spaces. He explained to him how the safety sensors worked.
On 30 November 2010, the Defendant delivered the machine to the Rectory. He spent some time with the Claimant helping to set up the platform in the first location from which work was going to be performed by the Claimant.
Together with the platform, the Defendant supplied the Claimant with hard plastic pads, or plates, to act as a support for the feet of the outriggers of the platform. In the course of the trial, I was told that this platform was not supplied by the manufacturer with plates for the outrigger feet. This particular type of platform was withdrawn by the manufacturer in 2010, and their current equivalent model comes with plates fixed to the outrigger feet. The plates hired to the Claimant were not supplied by Promax to the Defendant when he purchased the platform but were subsequently obtained by him for use with the platform.
In accordance with instructions given by the Defendant when first setting up the platform, the Claimant and his employees dug out resting places for the plates for the outrigger feet, levelled by eye.
After the Defendant had left the site, the Claimant and his employees worked from the platform on the tree until all the branches to which access could be gained from that position of the platform, had been dealt with, following which the Claimant and his employees moved the platform to another position. Resting places for the outrigger feet and plates were again dug out, as had been done when the platform was first positioned. Further work was then performed from the platform, during the rest of the working day.
At the end of the working day, because the weather was frosty, the Claimant and his employees manoeuvred the platform so that its tracks rested on logs to prevent them freezing to the ground. The outriggers were then raised from the ground. This was done in accordance with advice given by the Defendant.
Early the following morning, the Claimant had a personal appointment and his employees, in his absence, set up the platform and commenced work. When the Claimant returned to the site at about 9.30 he, and Mr Milbourn, went up in the basket and continued pruning the beech tree. Their combined weight, together with the weight of their equipment was unlikely to have exceeded the weight limit for the basket of 200 kgs. If it had done so, the safety features of the platform already described should have prevented the platform being operated.
Having completed the work that it was possible to perform from the position they were in, the Claimant needed to change the position of the basket. It had been positioned with the booms of the platform at about their fully extended position so that the turning moment created by any lowering of the booms from a vertical or nearly vertical position towards a more horizontal position would be at, or near, its maximum potential. To re-align the position of the basket, the Claimant simultaneously commenced to shorten the telescopic boom and lower the basket. As this manoeuvre was performed, both the Claimant and Mr Milbourn felt the platform judder. It then toppled over. It is clear that in the course of the manoeuvre described, the turning moment applied to the platform was sufficient to overbalance it. Photographs taken after the accident demonstrate that the two outriggers of the platform placed closest to the Rectory lifted up from the ground, one of those outriggers catching the wall of the Rectory, causing the platform to twist as it fell.
After the accident, investigations were carried out into the cause of the accident by the Health and Safety Executive. The HSE inspector, Mr Schofield, inspected the site of the accident on 2 December 2010 and took a series of useful photographs. He numbered the outriggers and their feet, for the purposes of his report, 1 to 4. Throughout this litigation that numbering system has been adopted by all. He found the ground where the platform had been placed to be sloping. He measured the levels at the position of each outrigger plate and found them to be sloping in varying directions as follows:
Outrigger 1 – downwards 4.8º
Outrigger 2 – downwards 1.8º
Outrigger 3 – downwards 4.1º
Outrigger 4 – upwards 5.9º
In respect of outrigger 3, he reported as follows:
"Beneath the plate, compacted smooth mud, loose leaves, with a deep depression on the sloping ground edge…. Depression scuff slide witness mark, heavy across the plate leading to a narrow score to the leading edge and outrigger's final foot position."
This is well illustrated in the inspector's photographs DC/21 and DS/23. The position and nature of the "deep depression on the sloping ground edge" is strongly suggestive that it was made by the depression of that edge of the plate as the outrigger foot slid off the plate and it is relevant to note that in their joint statement the parties' experts, Mr Cotterill for the Claimant, and Mr Colquhoun for the Defendant, agreed that:
"The HSE did not measure the angles in the opposite horizontal axis (90º) to the slope and their only measurements were made after the MEWP had toppled, bringing all its weight to bear on one side of the spreader plates. The angles measured by the HSE were not necessarily representative of the initial levels at which the Claimant set the spreader plates and can only be considered indicative."
The inspector also found scuff slide marks on at least two of the three other outrigger plates.
The parties experts, further agreed:
"On the balance of probabilities, we consider that the MEWP became unstable and toppled as one or more of the outrigger feet slipped off the edge of the spreader plates into the soft ground".
In the course of the evidence I explored with the expert witnesses the possibilities that the slipping of the outrigger feet on the plates and, in particular that of outrigger 3, was a consequence of, rather than the cause of, the toppling of the platform. Whilst the experts could not wholly exclude that possibility, it was clear to me that they both thought that the probability was, as already noted, that it was the slipping that preceded the toppling rather than the other way about and I proceed on that basis of fact.
Further, the parties experts agreed that the movement of the outrigger foot on the pad would have been a gradual process rather than one continual slip. They were in agreement that if the basket was overloaded the safety systems on the platform should have sensed that, sounded an alarm and the platform's movement should have ceased systems should have ceased to operate.
Mr Colquhoun said as part of his opinion:
"the additional loading and unloading of the basket when the tree sections were cut could have resulted in "bounce" on the chassis and the movement of the outriggers across the spreader plates down the slope without activating the load sensing system."
In similar vein, Mr Cotterill gave as his opinion that:
"the concept of relying on a smooth and slippery hard plastic spreader plate onto which a metal foot will be placed and expecting it not to move when subjected to continual dynamic lateral force during normal use, is fundamentally flawed."
I note that in Research Report 123 "Use and effectiveness of mobile elevating work platforms (MEWPS) for tree work" prepared by Forest Research for the Health and Safety Executive 2003, the Executive note, in particular, the following:
"Terrain limitations …some MEWPS, specifically those fitted with outriggers, are capable of working on 30% to 40% slopes. However, considerations such as firmness of the ground and potential for slippage due to surface type and weather need to be taken into consideration.
Stability
Certain types of MEWP have manual or hydraulically operated outriggers. Some machines are fitted with safety devices that will not allow operation of the machine until the MERP is on a level base. Vehicle mounted MEWPs can be fitted with stabilisers to aid stability. Suitability of stabilisers in respect of ground firmness should be assessed. Where necessary suitable bearers will need to be placed under stabilisers to maintain stability."
In their joint statement the parties' experts agreed that:
"…in this case, had the spreader plates been secured to the MEWP feet, the MEWP could not have slid off the spreader plates and the accident would not have occurred."
It is relevant to set out the history of post accident inspection of the platform, the findings at such inspections, and events leading up to its final disposal.
The HSE inspector, and Mr Caves of Promax inspected the platform between 17 and 18 December 2010, Mr Schofield having made a direction that the platform should be left undisturbed. That direction was lifted on 6 January 2011. On 24 March 2011, solicitors acting for the Claimant wrote a letter of claim to the Defendant but made no request to inspect the platform or for an assurance that the platform would be preserved.
Thereafter, there was correspondence between the parties and the Claimant was supplied with copies of reports on the platform prepared by the HSE and Promax. In short, both those reports asserted that there were no pre-accident defects in the platform. It was not until November 2012 that the Claimant's solicitors sought from the Defendant's solicitors assurances that the platform would be preserved for the duration of the case and sought facilities for its inspection. The Defendant's solicitors replied to the Claimant's solicitors request in early December that the platform had been disposed of, it being the evidence of the Defendant that he disposed of it about the first week of September 2012. As a result, inspection of, and testing upon, the platform that might have been of assistance in determining the causes of this accident could not be carried out by either of the parties' experts.
As to the design and condition of the platform the parties' engineers agreed in their joint statement:
"It is not possible to make a machine "foolproof", but machines should have as many passive safety features (i.e. those operating without input or control from the operator) as possible such that, where possible, inadvertent errors made by operators do not have catastrophic consequences."
The HSE inspector sought to carry out tests on the platform's safety function features. He reported on these tests as follows:
"I observed that with the MEWP in the outrigged and level condition, when the on – board safety systems detected machine instability, the control panels displayed associated warning lights with an audible alarm and only permitted safe machine operating functions i.e. an outrigger leg "lifted" (simulated by tripping a foot limit switch), only telescopic boom retract or raise, pantograph boom down, slew rotation left or right functions were allowed."
However, the parties' experts, agree that the report of the HSE inspector is deficient in that not all of the relevant systems were tested by the HSE inspector. In their joint statement they noted:
"…the HSE probably tested the alarm system and restrictions to the operating envelope on the MEWP only when the alarm was triggered by an outrigger footswitch. This is a secondary system designed to sense if the ground has moved or sunk under the outrigger feet and would be unlikely to have operated until such time as the MEWP was already toppling.
In order to fully functionally test the 'moment sensing system' of the MEWP, it would be necessary to lift the boom of the MEWP and place the basket outside the safe working envelope and/or overload the basket. The boom of the MEWP was bent in the accident, which rendered this test impractical. Therefore, we agree the HSE would have been unable to simply test the functionality of the 'moment sensing system' of the MEWP.
There is no mention within the HSE report of them loading the basket with test weights or otherwise compressing the load cell in the MEWP basket and Mr Caves of Promax….says they did not test the 'load sensing system.' Therefore, due to the damage sustained by the MEWP in the accident, the HSE would not be able to simply test the 'load sensing system' and it is not known if the 'load sensing system on the MEWP worked or not.
The moment sensing system and load sensing system were the two most important systems upon which safe operation of the MEWP depended. Therefore the HSE conclusion that the MEWP systems were tested and working correctly appears to be based on incomplete information."
I will set out the essentials of the HSE inspector's conclusions from his report:
"the area chosen to position the MEWP outrigger no 3 foot bearing plate was significantly close to the downwards sloping ground and was less than the IPAF recommended safe distance to hazard…
From my recorded bearing plate surface angular measurements, the plates had been positioned on significantly sloping surfaces. Outrigger 1 & 3 bearing pad surface had slopes of -4.8 and -4.1 respectively. Safe working practice within the industry recommends that all outrigger bearing plate surfaces are flat and level. In my opinion, the bearing plate slopes were excessive and beyond a reasonably practicable and achievable safe working level e.g. a concrete floor drainage slope level of 1 in 40 or 1.4…
I am of the opinion that poor site planning and machine set up with excessive outrigger bearing pads sloping surfaces, at fully elevated and extended with operator applied cageloads, with cage on the downhill side of the slope, resulted in outrigger No.3 to move and slide off its bearing plate causing the MEWP to become unstable and tip over. The shortcomings of the machine set up and use seem indicative of poor planning and insufficient training and/or supervision."
It is relevant to note at this point that the HSE inspector was not called by either party to give evidence. Whilst I have understood that the parties accept the photographs of and measurements taken by the inspector at the scene after the accident, his findings as to the condition of the platform before the accident based on his post accident inspection and his opinion as to the causes of the accident are not agreed. In those circumstances that opinion can only be part of the history in the case.
As a result of research on the internet the Claimant made contact with another tree surgeon, Mr Lofthouse, who is a qualified engineer and who worked as an Army Royal Electrical and Mechanical Engineer's mechanic for some six years. In 2005, he purchased a RQG18 'Spider' platform for his business and some months later he was involved in a similar accident to that of the Claimant when his platform toppled over, he says, without any alarms being sounded or the platform cutting out. Mr Lofthouse carried out a series of tests on his platform after his accident.
THE RESPECTIVE CASES OF THE PARTIES
I turn to consider the respective cases of the parties.
The Claimant alleges that the accident occurred because the Defendant was in breach of the implied term of the hire agreement that the platform was of satisfactory quality and reasonably fit for the purpose for which it was hired. Alternatively, he claims that the accident was caused by the Defendant's negligence in failing properly to instruct him as to how to set up the platform. The Claimant's principal case is that the cause of the accident was the slippage of the foot of outrigger 3 because it was not fixed to its supporting plate, as it was subjected to lateral forces in the course of normal and proper use of the platform. It is accepted by the Claimant' advisers that plates of the kind provided by the Defendant for use with this platform are suitable for use on flat hard surfaces, with a more rigid type of platform than a 'Spider'. However, it is contended that for this platform, specifically designed for use on rough or soft terrain and for use on slopes and narrow or uneven surfaces the plates provided were not suitable. For the feet of the outriggers on this platform the Defendant should have supplied non-slip plates that fitted around the feet or were recessed so that when lateral pressure was applied to the outriggers their feet would not be in danger of slipping off the plates. Such are, and were, readily available and the provision of such, would have prevented this accident.
The Claimant also relies on the fact that as outrigger number 3 slid towards the edge of the plate on which it stood, the alarms and cut out, that should have been operated by the sensors installed on the platform, did not, as he asserts, operate.
Finally, the Claimant asserts that, insofar as it may be established that the accident was caused by reason of a failure of the Claimant properly to set up the platform, the Defendant was himself negligent in failing properly to instruct the Defendant in the use of the platform.
The Defendant denies that the platform was defective and denies any breach of the implied conditions as to satisfactory quality and fitness for purpose. He contends that the platform toppled over because the Claimant failed to position it on stable, level ground, contrary to instructions that the Defendant alleges he had given to the Claimant, when the platform was delivered to site, and contrary to the instructions set out in the manual provided with the platform. In moving the platform to the position from which it fell on the afternoon of 30 November the Claimant ignored clear advice from him against using the platform from that position. Further, the Claimant compounded that error by leaving his employees to set the platform back in that position, in the Claimant's absence, on the morning of the accident. Those employees had not been trained and/or assessed as competent in the operation of such platforms and their collective and individual knowledge and experience of setting up and operating this type of platform was derived only from what they had learned in the previous 24 hours.
THE LAW
The law applicable to this case is uncontroversial.
The contract of hire was an oral contract for the hire of the platform. The Defendant did not provide the Claimant with a copy of his "Model Conditions" at the time the contract was made and therefore, absent a previous course of dealing, it is accepted those standard conditions were not incorporated into the contract.
Section 9(2) of the Supply of Goods & Services Act 1982 provides that in a bailment contract such as this, there is an implied condition that goods supplied under the contract are of satisfactory quality. Goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the consideration and all the relevant circumstances.
That is the only implied term relevant to the facts of this case. Whilst the same Act implies a term of fitness for purpose, on the facts of this case, implication of such a term does not assist the Claimant, additionally to the implied term as to satisfactory quality.
The case in negligence raises no issues of law that require particular comment. While section 1 of the Law Reform (Contributory Negligence) Act 1945 does not in general apply to claims for breach of contract so as to allow a court to reduce any award of damages on the ground of contributory negligence, it does apply to claims based on the breach of a contractual obligation to take reasonable care as long as this is concurrent with liability for breach of a duty of care in tort. (See H. Parsons(Livestock)Ltd v Uttley Ingham & Co Ltd [1978] QB 791.
In the course of the case, I raised the question of the significance, if any, of the fact that the platform was destroyed by the Defendant before the Claimant had, for the purposes of this action sought inspection of the platform. I am indebted to Counsel for supplying me, following conclusion of the oral argument, with helpful written submissions on the point.
The approach to be taken by a Court to such a circumstance was considered by the Court of Appeal in Malhotra v Dhawan (C of A – 26.02.1997 EWCA Civ.1096). That case involved the destruction of files in a dispute between accountants. At first instance, Rattee J reviewed the cases in which this issue had been considered. He concluded:
"The difficulties in ascertaining the truth about items in dispute are, of course, greatly increased by the intolerable length of time it has taken for these proceedings to come to trial. They are made even greater by the fact that unfortunately the Defendant has destroyed the files kept for the purpose of his accountancy practice in respect of some of the former clients' work for whom is now in dispute in these proceedings (sic). According to the Defendant, whose evidence on this point I accept, when he moved offices in March 1984 he destroyed the files relating to the former clients for whom he no longer acted. He said he did not appreciate that they might be relevant to these proceedings then pending. It is clearly very regrettable that he did destroy these files although I am not persuaded that he did so for the deliberate purpose of destroying evidence relevant to the Plaintiff's claim. I accept the submission made by counsel for the Plaintiff that in such a situation, where one party is responsible for the unavailability of relevant evidence, the Court should not be slow to make such inferences or assumptions against that party's interests as are consistent with other available evidence."
The Court of Appeal approved Rattee J's dicta and said as follows:
"First, if it is found that the destruction of the evidence was carried out deliberately so to as hinder the proof of the Plaintiff's claim, then such finding will obviously reflect on the credibility of the destroyer. In such circumstances it would enable the Court to disregard the evidence of the destroyer in the application of the principle. But that is not this case.
Second, if the Court has difficulty in deciding which party's evidence to accept, then it would be legitimate to resolve that doubt by the application of the presumption. But, thirdly, if the judge forms a clear view, having borne in mind all the difficulties which may arise from the unavailability of material documents, as to which side is telling the truth, I do not accept that the application of the presumption can require the judge to accept evidence he does not believe or to reject evidence he finds to be truthful."
It was an unfortunate circumstance that the platform was destroyed before either of the parties' experts was able to inspect or test it and therefore were unable to give an entirely unqualified opinion on the functionality of the moment sensing system of the platform.
The Claimant's advisers assert that the Defendant and his representatives acted negligently and irresponsibly in destroying a machine which had been the subject of a letter of claim dated the 24 March 2011, in respect of which at one stage a loss adjuster had requested that the machine be not disposed of in the event that underwriters wished to have it independently examined, and in respect of which the Defendant's solicitor should have advised him that the platform should not be destroyed until any litigation in respect of which, had ended.
The Defendant accepts that it was unfortunate and regrettable that the platform was disposed of but argues that the Defendant has not and does not seek to secure any advantage from the disposal of the platform but that equally the circumstance of the disposal should not form the basis for the drawing of inferences adverse to the Defendant's case.
I consider that the Court can and should resolve the issues in this case without the need to resort to any presumption or benevolent inference regarding the issues in hand. On the facts before me, I am reluctant to attribute blame between the parties as to how that circumstance arose and even less to suggest that the Defendant's credibility is in some way to be impugned by drawing an adverse inference from the fact that he destroyed or authorised the destruction of the platform.
In this case the Claimant must, if he can, prove his case on a balance of probabilities in the usual way and I will approach my assessment of the evidence in this case without drawing any adverse inferences against the Defendant from the fact that he destroyed or authorised the destruction of the platform.
THE EVIDENCE
I turn now to consider the evidence as to the contested issues at the heart of this case.
There is no dispute but that this platform was designed to be able to be operated from ground that sloped, subject to the important proviso that each of the feet of the outriggers must be placed on plates sited on level, firm and stable ground. It was the Defendant's evidence that this requirement was spelt out to the Claimant when he visited the Defendant's yard and was repeated the next day when the Defendant delivered the platform and assisted the Claimant in setting it up. That was not contested by the Claimant.
However, there was disagreement as to the content of another aspect of the on-site discussion. It is the Defendant's case that the Claimant told him that he wanted to set the platform up close to the copper beech tree, at the position to which the Claimant moved the platform on the first day that the platform was at the Rectory. The Defendant gave very specific evidence that he advised the Claimant against setting up the platform in this position as it was his view that the ground at that position was unsuitable and difficult. He thought that due to recent ground works, including the laying of a path, the ground was likely to be unstable.
The Claimant's evidence about this was different. He said that because of the confined space at the site there were really only two possible positions for the platform. His evidence was that he explained to the Defendant that he would need to move the platform to the second of those positions to reach certain branches to which he needed access. He showed the Defendant the position to which he intended to move the platform. The Defendant looked at the location. The only advice the Defendant gave about the location was that the Claimant should cut down a shrub that would make access easier. He did not say anything to the Claimant about that positioning being dangerous. The Claimant said that he would not have set up the platform in a position against which he had been advised by the Defendant.
The Defendant denied that account. I enquired as to when the Defendant was first recorded as having asserted the discussion at the site contended for and was told that this was not a matter that was raised in pre-action correspondence. However, it was clearly referred to in the Defence as follows:
"It is admitted that, on 30 November 2010, the Defendant delivered the Spider to the site and the Claimant told him where he intended to set it up….the Defendant advised him that the position originally indicated was difficult and unsuitable, and suggested an alternative position. He advised the Claimant that it was essential that all the outrigger pads were placed on firm, level and stable ground which meant that, if the Spider was to be set up on a slope, it was necessary to dig into the slope to create a firm, level and stable footing for the outrigger pad. The Defendant satisfied himself that the Claimant understood the necessity of ensuring that all outriggers were positioned on a firm, level and stable footing before operating the Spider. It is denied that the Claimant informed the Defendant that he intended to move the Spider to a new operating position the following day. The Defendant and Claimant did discuss another possible set up position as aforesaid, but the Claimant did not inform the Defendant that he intended to set it up in the position the Defendant had indicated was unsuitable (though not unsafe had the necessary precautions been undertaken i.e. ensuring that all outriggers were positioned on firm, level and stable ground).
It was not suggested to the Defendant that this allegation was made as a result of a late and false memory about it. Interestingly, the last part of the Defendant's pleaded case on this aspect of the matter, as just quoted, is not inconsistent with the Claimant's account that the Defendant did not suggest to him that the positioning of the platform in the proposed second location would be dangerous.
The Claimant told me that he had worked on 'Cherry picker' platforms since he was 17 and had never had a safety issue before the material accident. He said that on the first day he worked from the machine without incident both in the first and second position earlier described. The only issue that he had was that the emergency stop button on the machine was over sensitive and kept operating even if a person just brushed past it and the engine of the platform would then cut out. The Claimant therefore put tape over the button sufficiently to stop it going off but not so much that the button could not be used to stop the engine.
He said that he decided where the bearing plates for the outrigger feet should be placed when the platform was set up in the second position and he was directly involved in the setting up of the machine in that position and checking that it was set up correctly. He said the ground was firm where the platform was set up.
He told me that he estimated the combined weight of himself, Mr Milbourn, and the chainsaw they were using at the time of the accident when they were in the basket was no more than 160 kilos. Having completed the pruning over the roof of the Rectory he needed to prune on the side of the tree over the slope. He had been working at or near the maximum operating height of the 'Spider'. The pantograph boom was fully extended. As he began to shorten the telescopic boom and lower the assembly he felt the platform judder and then begin to topple. It was his view, in line with that of the parties' experts that the topple was caused by the platform slipping off the bearing plates as it became unstable. He heard no warning sounded or was conscious of any cut out operating. The fact that the emergency button was taped off he considered was not relevant to the accident.
Mr Milbourn gave evidence. He said that he weighed about 12 ½ - 13 stone. He was as he put it, 'pretty sure' that in the course of the Claimant's on-site discussion with the Defendant, the whole area where the platform was going to be set up was discussed. He remembered a bush being cut down to accommodate the platform at its second location. He told me that he knew that to achieve stability, setting the platform up correctly, was important. The correct pressure had to be transmitted to the outriggers otherwise the platform would not work as it would be unsafe to use. He set the machine up on the second day with Mr Greatorex. He carried out the necessary checks on the platform including checking the ground. He said that he would not operate a machine as to the set up of which he was uncomfortable. He was not wearing ear defenders at the time of the accident and did not hear any alarm sounded on the platform before it toppled over.
I then heard from Mr Hopkinson. He told me that he also took part in setting the platform up on the second day with Mr Greatorex. He remembered checking the sensor dials on the outriggers in the course of the setting up. He thought that the second location of the platform was more level than the first. He heard no alarm preceding the topple of the platform but was wearing ear defenders at the time.
The evidence of Mr Greatorex was much in line with that of Mr Hopkinson. He confirmed that he and Mr Hopkinson set up the platform on the second day in the same position as it had been in when work finished on the preceding day. The outriggers were set up as before and he checked that the pressures on each outrigger were correct by use of the dials on the outriggers. He said that two of the outrigger plates were placed on level ground and that a level position had to be dug out for the other two plates.
I also heard from Mr Lofthouse. He told me that when his accident occurred he had not overridden any of the safety features of his platform. He had an IPAD certificate for the use of a platform such as a 'Spider.' His evidence was to the effect that he believed that he had discovered a defect in the sensor system for this 'Spider' platform possibly attributable to some kind of valve fault, that allowed the platform to be operated outside its intended safe working parameter. He drew this conclusion from a series of tests that he carried out on his platform after his accident, and which he recorded on a DVD film, that I have seen. He placed a weight in the basket and carried out manoeuvres of the platform that he knew would make his platform unstable. As he put it, 'in the vast number of such manoeuvres' the platform cut out as it was supposed to do. However, on a number of occasions, the sensors failed to identify the risk, and allowed the machine to carry out a dangerous manoeuvre. The problem seemed to occur when the boom was fully extended and the basket was brought down vertically. He asserted that his tests show that in a situation similar to that experienced by him and the Claimant the sensors on this 'Spider' could fail to operate. He clearly felt that his tests and experiments demonstrated a fault within this type of platform, not just his own. He felt so strongly about this that he contacted the HSE with a view to them investigating, but as, in his accident, no catastrophic injury had occurred they were unable to help. Mr Caves of Promax came to the site of his accident after the accident and discussed it with him; he put the accident down to operator error.
The experts commented upon Mr Lofthouse's evidence. Mr Cotterill found Mr Lofthouse's evidence "compelling" and accepted that his tests were representative of normal working conditions and that Mr. Lofthouse had complied with the advice given in the manual. Mr Colquhoun considered Mr Lofthouse's evidence as being incomplete and unverified and considered that the accuracy and validity of his findings could not be relied upon.
I accept that Mr Lofthouse's evidence has not been subject to independent and scientific verification. In these circumstances, Mr Lofthouse's evidence about his platform is little more than anecdotal. The most that I consider that can legitimately be said about Mr Lofthouse's evidence is that it possibly supports the case that the circumstances of the Claimant's accident in which this platform, on his evidence toppled over without the alarms sounding and the cut out operating, may not have been unique. With all due respect to Mr Lofthouse, his evidence does not really help me in reaching my conclusions in this case.
I heard from the Defendant himself. He told me that he had been in the tree surgery business for some 20 years. He had never had any problem with the 'Spider' before the Claimant's accident. In his experience, if a supporting plate moved when pressure was applied through the outrigger, a warning light came on and the platform stopped working. He said that fast jerky movements might cause an outrigger to judder on a plate. He said that the Claimant did not inform him that he wanted to use the platform on a slope. He explained that he bought the plates for the outriggers because he thought it was safer to use plates under the outrigger feet. He was satisfied with the competence of the Claimant on his demonstration to him.
His evidence was that he advised the Claimant not to set up the 'Spider' at the location from which it toppled because he thought the ground unsuitable and difficult because of the slope, and what he saw as recent ground works including the laying of a path which made him think the ground was likely to be unstable. It looked as though it had been recently excavated and the bank was not compacted Although he was satisfied that the Claimant and his employees set up the platform correctly in the first position when he was on site, from what he saw after the accident, he deduced that the platform had not been set up on level stable ground in its second position. He accepted in cross-examination that, with hindsight the platform should have been provided with fixed bearing plates for the feet of the outriggers.
Mr Caves of Promax gave evidence. He confirmed that the 'Spider' could be used on a slope so long as plates for the outrigger feet were used and were levelled. He told me that he helped with the setting up of the 'Spider' for the tests performed by the HSE inspector. He said that during the inspection of the platform with the HSE he was able to demonstrate that all of the sensors and safety mechanisms that they could test were working properly and all the systems were checked except the basket overload. He was certain that there was no problem or failing in the platform that could have caused the accident. He concluded from the fact that the platform toppled over that it could not have been properly set up.
Having seen the photographs of the location from which the platform fell he said that the platform was in his words 'designed to work on much more challenging terrain'. He accepted that the only logical explanation for the accident was that one of the outriggers had slipped off its bearing plate which he said could not have been laid on firm level ground. He accepted that a comparison of the extent to which the booms of the platform were extended to the boom positions of the load charts for the platform demonstrate that it was probably within its safe working envelope when it toppled over. He said that once a platform was set up, if there is a bit of settlement under a bearing plate an alarm would sound and the only movement permitted would be to bring the basket back to a safer position. However, if there was a catastrophic failure of the surface under a bearing plate there would be not time for an alarm to sound and no opportunity for the safety systems to prevent an accident. He explained Mr Lofthouse's accident as his having been a result of the operator swinging an extended boom too fast downwards, with a fully loaded basket. He thought that accident was caused by operator error and was not due to any inherent fault with the platform. He accepted that if the bearing plates were placed on the ground slightly off the horizontal the platform should still operate safely; he said it was good practice to place the plates slightly sloping into the incline.
He agreed with the conclusion of the HSE inspector that the platform appeared to be functioning correctly at the time of the accident and he was not able to identify any defects in it. A particular feature of his evidence, that was of some surprise to me, was his readiness to accept that, in ordinary use, the feet of the outriggers of a 'Spider' could move considerably on and about a bearing plate, if it was not fixed to such a plate, and that such movement could occur without the platform sensors causing it to cease to operate or for the alarms to be operated. As he put it, 'in a perfectly satisfactory set up because of the leg configuration the feet can walk about." He said that it was not possible to attach plates to the feet of the outriggers and he did not like such plates to be recessed.
I turn to the expert evidence called by the parties. Whilst there was a good deal of agreement between them as recorded in the note prepared by them after their joint meeting, they disagreed on crucial aspects of the case.
Mr Cotterill for the Claimant has since at least 1990, worked with a variety of well regarded engineering companies or organisations in which 'Spider' platforms have fallen within his areas of duty and responsibility. He disagreed with the conclusions of the HSE inspector. I will quote material passages from his report and contribution to the experts' joint statement:
'According to photographs DS/02 of the HSE report, both booms were extended but comparison of the boom positions with the available "load charts" indicates that the boom, as seen after it toppled, was probably within the safe working envelope. Mr Caves says that the MEWP was likely within its safe operating envelope. The moment "sensing system should have prevented the MEWP going outside the safe working envelope in any case. There is no evidence that the MEWP was overloaded and excessive operator cage loads should have been picked up by the "load sensing system" in any case.'
He noted:
'The spreader plates supplied probably had a reduced coefficient of friction due to operating circumstances and when placed under the steel feet of the outriggers were, in my opinion, inappropriate for this type of MEWP because the feet could not be mechanically attached to the spreader plates to prevent slippage and relied entirely on friction between the two surfaces.'
He concluded in the joint statement:
"It is Mr Cotterill's opinion that the Claimant set up the MEWP according to instructions from the Defendant and the owner's manual. The Defendant satisfied himself that the Claimant and his team were competent. Due to probable flaws in the safety system and the inadequate load charts it is possible that the Claimant could have inadvertently and unknowingly overloaded the MEWP and/or operated the MEWP outside its safe working envelope thus greatly increasing the loading and unloading of the outrigger legs, such that they moved and ultimately slipped off the spreader plates and the MEWP toppled. In Mr Cotterill's opinion, the spreader plates were not compatible with this type of MEWP. Considering the hierarchy of risk management, levelling the spreader plates would reduce the risk during normal use, but securing the feet to the spreader plates represents common sense that would eliminate the risk of slippage from a spreader plate when using any MEWP on rough terrain. This simple action is already applied with some other MEWPs and with many other types of equipment that have to operate on uneven terrain and would have prevented the accident."
In the course of his cross-examination he said that it would not have been difficult to come up with a plate that could be secured to the feet of the platform's outriders.
I turn to the evidence of Mr Colquhoun. He agreed with Mr. Schofield's analysis as to the cause of this accident and disputed Mr. Cotterill's analysis.
In his report, in answer to the question: "do you consider the absence of the means to 'chock' the outriggers to the spreading plates rendered the MEWP unsafe for use and hire?" he said:
"If the MEWP is being used for a purpose for which it is designed, the chassis of the MEWP on a level (horizontal) plane and the four spreader plates are also level then there should be no requirement for the outriggers to be attached to or chocked on the spreader plates. The MEWP is designed to operate on hard surfaces (i.e. tarmac and concrete) without the use of spreader plates providing the points of contact are level. The spreader plates are not an integral component of the |MEWP but an additional item of equipment."
In the joint statement he noted:
"... the Claimant, or one of his employees (if suitably qualified and experienced), would be expected to have completed a risk assessment on the deployment of the MEWP. If a risk assessment had highlighted any specific risk with regard to the spreader plates, then it should have been managed in such a way as to reduce the possible likelihood of an incident and the consequences. As far as Mr Colquhoun is aware, no such risk assessment was carried out by the Claimant or his employees."
He concluded in the joint statement:
"It is the opinion of Mr Colquhoun that the accident was more likely caused by the incorrect set-up of the MEWP by inexperienced employees of the Claimant and the subsequent absence of pre-use checks by the Claimant. It appears that there was no designated 'grounds man' on site to monitor the MEWP and it also appears that neither Mr Hopkinson nor Mr Greatorex were observing the operation of the MEWP. The incorrect set-up most likely resulted in the MEWP moving during operation and one or more outrigger feet slipping off the spreader plates, de-stabilising the MEWP and resulting in it eventually toppling."
I preferred the evidence of Mr Cotterill to that of Mr Colquhoun. It was clear to me from the cross-examination of Mr Colquhoun that he had considerably less experience of platforms of this kind than Mr Cotterill. In my judgment in his consideration of this case Mr Colquhoun failed to take into account the evidence that in proper use, the feet of a 'Spider' platform were liable, as attested to by Mr Caves to be subjected to lateral forces that would tend to move those feet off a bearing plate that was not fixed to the feet.
CONCLUSIONS
I was generally impressed with the Claimant. It was clear from his evidence that he was an experienced arborist who was generally careful for the safety of himself and his men. Whilst this was the first time he had hired a 'Spider' platform he was knowledgeable by his training and experience of the principles behind their operation. Likewise, I was generally impressed by his three employees who gave evidence. Whilst they did not have experience of the platform in question before the day before the accident, I accept their evidence that when they set up the machine on the day of the accident they followed the procedures used and set the machine up in essentially the same way and position as the day before.
The questions to be answered in this judgment on liability are, did the Defendant advise the Claimant against setting up the platform in the position from which it toppled, was the topple caused by reason of some unsuitability of that position as a location for the platform, and, if some unsuitability of that location was not the cause of the topple of the platform what was the cause? Was the accident caused by a lack of satisfactory quality in the equipment supplied by the Defendant? Was the cause of the accident as the result of negligence of the Defendant and, if so, was the Claimant himself contributorily negligent?
I am satisfied that the platform was not set up on the day of the accident in a position that the Defendant had advised the Claimant to be unsuitable. I accept that there was some discussion between the Claimant and the Defendant at the site about two possible locations for the platform. I am satisfied that such discussion did not amount to a prohibition by the Defendant to the Claimant against placing the platform in the second location. I note that finding is in line with the unamended final sentence of the passage from the Defendant's defence noted above.
In the context of the setting up of this platform I do not consider it helpful to define the words "suitable" and "unsuitable" in absolute terms. The suitability of a location was I consider a matter of degree, there being a point at which difficulties that might be encountered in a particular position would be such that the position would be unsafe. That the second position was not unsuitable for the positioning of a platform of suitable quality was clear on the evidence before me. I refer, in particular to the fact that upon a consideration of the photographs, Mr Caves gave evidence to the effect that the ground appeared suitable for the platform, and the evidence that the movement of the outrigger foot on plate 3 was as a result of the operation of the platform, not the collapse of the plate into soft ground as evidenced by the HSE photographs.
In my judgment, the cause of this accident was the slippage of the foot of outrigger 3 upon its bearing plate. That slippage occurred because the plate was not of suitable quality for the application for which the plate was used. I accept that the platform was supplied with properly sourced proprietary plates and that it is not uncommon for plates to be supplied separately from such platforms. I accept further that it is not unusual for outriggers of platforms to stand freely on an individual spreader plate, in the case of for example a 'Cherry picker' platform set up on level ground. I accept that the HSE Inspector made no criticisms of the plates themselves or the fact they were not attached to the platform and that he did not criticise the use of these plates for this job or identify a foreseeable risk that the outriggers might slide off the spreader plates if the platform was set up correctly and used normally. However, as already noted, the inspector's report is part of the history of the case rather than evidence in the case save where its contents are agreed.
I accept Mr Cotterill's criticism of the plates provided. Whilst such plates are of suitable quality for a 'Cherry picker' platform, they were not suitable for a 'Spider' platform. This was a platform specifically designed for use on rough or soft terrain and on slopes and narrow or uneven surfaces in which applications it was liable to be subjected to lateral forces that could cause a foot, if unrestrained by its bearing plate, to move considerably, as evidenced by Mr Caves. I consider, as it appears subsequently the manufacturer of this machine also considered, that this platform should have been provided with bearing plates which were attached to the outrigger feet or so shaped or recessed that the feet were prevented from slipping off the plate.
As the parties' experts agreed, had the spreader plates been secured to the platform it could not have slid off the spreader plates and the accident would not have occurred.
I am satisfied on the evidence that I have heard that the platform was set up correctly on the day of the accident. The day before, it was set up correctly under the supervision of the Defendant. I am satisfied that in the second location, the Claimant and his employees followed the Defendant's instructions when setting up the platform. After the accident the bearing plates for the outriggers were found by the HSE inspector not to be perfectly level. However, the degrees of deviation of the plates from being precisely level was slight, that of the most material, i.e. that under outrigger 3 sloping being but 4.8º downwards. Further it is important to note that that slope was measured by the HSE inspector after the outrigger foot had slipped down the plate, which movement could have been expected to have increased the downwards slope of the plate from that before the slippage. The evidence was that it was acceptable to level the plates by eye, a method that would be unlikely to lead to a perfect levelling of the plates.
The engineering experts have agreed that there were deficiencies in the HSE report, in particular, the failure of the HSE to test all the safety systems in the machine which goes to the issue as whether the systems, and in particular, the moment sensing system failed. Based on the evidence of the Claimant himself and that of Mr Milbourn there must have been a failure of the moment sensing system and perhaps the micro switches in the feet of the machine immediately before the topple occurred.
In my judgment the platform supplied to the Claimant by the Defendant was not of satisfactory quality by reason of the fact that it was provided with bearing plates from which in normal operation a foot or feet could stray so destabilising the platform so that it could, and did topple over. I am also satisfied that this platform toppled over without any warning device or cut out operating, whether because of a particular fault that had developed in this particular platform, or because the combination of the particular way this topple was initiated and the design of the platform resulted in the warning device and cut out not operating before the topple was initiated.
As a result of these findings the claimant's claim succeeds in contract. I am not satisfied on the evidence before me that the Defendant has a separate liability to the Claimant in negligence or that the Claimant was himself negligent in any way. In any event, no question of contributory negligence arises in the absence of any negligence in the Defendant. There will be judgment for the Claimant with the quantum of damages to be assessed. |
Mr Justice Supperstone :
Introduction
There are three appeals before the court which raise the same point of law, namely whether the fixed success fee regime in (pre- 1 April 2013) CPR Part 45 Section IV applies to claims brought by members of the armed forces in respect of injuries suffered at work. I understand that this is a novel point that despite many similar claims in the past has not previously been considered.
On 2 June 2014, in the case of Woof, Master O'Hare decided that the regime does apply because the Claimant was an employee within the meaning of Rule 45.20(1)(a). Master O'Hare reached the same conclusion on 30 July 2014 in the case of Broni; so did Deputy Master James on 28 July 2014 in the case of Barbour.
Master O'Hare granted permission to appeal in Woof and Broni; and Deputy Master James granted permission to appeal in Barbour.
Mr Robert Marven appears for all three Appellants; and Mr Mark James appears for the Respondent in all three cases. I am grateful to counsel for their admirably concise and helpful submissions.
The material facts in each case can be stated shortly. Mr Woof was a serving military policeman in the Royal Marines stationed at a military base in Norway. His underlying claim was in respect of an injury to his left ankle whilst using sports equipment at the base. Mr Broni was a Private in the Army. He developed a Non-Freezing Cold Injury ("NFCI") when on training in Kent. Mr Barbour also sustained a NFCI that arose out of military exercises during basic training undertaken in Cambridgeshire.
In each case the Appellant contends that the fixed success fee regime does not apply because he was not an "employee"; and that the costs judge was wrong to conclude to the contrary.
The Fixed Success Fee Regime
The pre- 1 April 2013 CPR Part 45 Section IV stipulates fixed success fees in certain employers' liability claims. This would include the injuries sustained in these three cases if the other criteria for the application of this regime were satisfied.
CPR Rule 45.20(1)(a) stipulates that: "this Section applies where… the dispute is between an employee and his employer…".
"Employee" is defined in Rule 45.20(3)(b):
"'Employee' has the meaning given to it by section 2(1) of the Employers Liability (Compulsory Insurance) Act 1969."
Section 2(1) of the Employers Liability (Compulsory Insurance) Act 1969 ("the 1969 Act") states:
"For the purposes of this Act the term 'employee' means an individual who has entered into or works under a contract of service or apprenticeship with an employer whether by way of manual labour, clerical work or otherwise, whether such contract is expressed or implied, oral or in writing."
The wording of CPR r.45.20(1)(a) is broadly mirrored in the wording of CPR r.45.23(1)(a) and r.45.23(1)(b), save that CPR r.45.23(1)(a) expressly applies to claims arising out of death and CPR r.45.23(1)(b) is concerned with disease claims rather than injury claims.
With the exception of mesothelioma claims, success fees in personal injury (and Fatal Accidents Act 1976) claims against an employer cannot be recovered between the parties where the conditional fee agreement ("CFA") was entered into after 31 March 2013. Mr James informed me that notwithstanding this, the point remains of importance to the Respondent as there are still a significant number of employers' liability claims where the CFA was entered into before 1 April 2013.
The Decisions of Master O'Hare and Deputy Judge James
In Woof, Master O'Hare said:
"I have to decide whether the fixed success fee regime applies to claims brought by members of the armed forces and I think it plainly does. I think there is a 'contract of service' although I am using those words in a way which is wider than the way in which they [are] used in the 1969 Act."
He continued:
"I think the common sense of the fixed success fee regime is that it should apply to armed forces as it applies to others."
In Broni Master O'Hare applied the same reasoning as he did in Woof. He said:
"In this case it is easy to describe the Claimant as an employee and the Defendant as the agents of his employer, Her Majesty, even though there is no contract of service in the strict sense but, nevertheless, there is a contract of service."
He added:
"I think this is an employers' liability case and employers' liability cases should apply. The presence or absence of contractual rights are not determinative in this or other employers' liability cases and claims can be made against the employer by way of tort as well as by contract."
In Barbour, Deputy Judge James decided that "Armed Forces personnel should be dealt with as employees", noting that Master O'Hare in Woof had reached the same conclusion.
The Parties' Submissions
The submission made by Mr Marven can be simply stated. A serving member of the armed forces does not work under a "contract of service". Accordingly such a person is not an employee for the purposes of the 1969 Act or consequently for the purposes CPR Part 45 Section IV.
Mr Marven submits that the law is clear that a serving member of the armed forces is not an employee under a "contract of service". In support of this submission he relies on the leading authority of Quinn v Ministry of Defence [1998] PIQR 387 at 396 where Lord Justice Swinton Thomas stated:
"For my part, I would have no doubt at all that when Mr Quinn enlisted in the Royal Navy pursuant to the King's Regulations neither he nor the Crown had any intention to create legal relations. Further, as a matter of public policy, following the decisions to which I have referred there is binding authority that there is no such contract. In relation to members of the Armed Forces, as with Police Officers, I can see no reason to find that those long-standing public policy considerations should be changed."
Mr Marven submits that in circumstances where CPR Part 45 Section IV defines "employee" by reference to the 1969 Act, there is no proper basis for construing the term "employee" for the purposes of Section IV any more broadly. None of the Appellants worked under a contract of service.
Mr James accepts serving members of the armed forces do not work under a contract of service (at least on the present state of the law, see O'Brien v Ministry of Justice [2013] 2 All ER 1, per Lord Hope and Lady Hale at para 31). However in response to the Appellants' argument he makes four submissions. First, he submits that acceptance of the Appellants' argument would create serious practical difficulties at detailed assessment. In every employers' liability case (other than where the parties were agreed) the court would have to investigate whether at the time the cause of action arose the Claimant had entered into, or was working under, a contract of service. By reference to the authorities Mr James observed that this is not a straight-forward enquiry. In Carmichael v National Power plc [1999] 1 WLR 2042 the House of Lords emphasised that in addition to considering the terms of the relevant documents it was necessary to look at the surrounding circumstances and the parties' true intentions, including how the contract actually worked in practice. Further Mr James observes that where the question of whether there was a contract of service or a contract for services would not have been an issue in the main proceedings, the detailed assessment before the Costs Judge is likely to involve the presentation of written, maybe oral, evidence, and the costs to the parties will be greatly increased.
Second, the Appellants' arguments are inconsistent with the purposes of CPR 45 Parts IV and V, which is to create certainty (see Patterson v Ministry of Defence [2013] 2 Costs LR 197 at para 20(1), per Males J). On the contrary they would, Mr James submits, create great uncertainty. This point follows from the first submission as to the practical difficulty that would be created if the Appellants' argument is accepted.
Third, the Appellants' argument would, Mr James submits, create a bewildering number of cases that are outside the fixed recoverable success fee regime for no evident purpose and on no principled basis. He lists eleven classes of employers' liability claims which would typically be outside the fixed success fee regime which, in addition to all servicemen in all the Armed Services, and police officers, would include, for example civil servants, doctors in private practice, and members of the judiciary. Mr James submits that carving out such exceptions to the fixed success fee regime in employers' liability type cases brought by these categories of workers would be wholly anomalous and unprincipled.
Fourth, Mr James submits that the decision in Quinn v MOD is not in point. While section 2 of the Crown Proceedings Act 1947 was engaged, he points to the fact that the Ministry of Defence was able to rely on the immunity given by section 10 of that Act. He accepts that the Appellants submitted in the alternative that there was a contract of employment between him and the Crown and that he was entitled to sue for breach of the contract between an employer and employee for, inter alia, failure to provide a safe system of work. However Mr James contends that the context in which that argument failed was wholly different to the present case; and that the plaintiff did not argue that he was an "employee" within section 2 of the 1969 Act.
Mr James submits that the court should adopt a purposive approach to the construction of the words "contract of service" in s.2(1) of the 1969 Act so that the relationship between a serving member of the armed forces and the Respondent is treated as one of employer and employee and a contract of service exists for the purposes of Rule 45.20(1). In support of this submission Mr James relies on the decision in Kilby v Gawith that Rule 45.11 had to be construed purposively by reference to its ordinary meaning in the context of section II of Part 45 and of the CPR as a whole (see Sir Anthony Clarke MR at para 17). In order to create certainty Mr James suggests that one should look at the way the claimant puts his or her case. If the claimant alleges that the defendant owes the claimant common law or statutory duties of an employer then the claimant is an "employee" and the defendant is the "employer" for the purpose of CPR Rule 45.20(1). He says that this is the way that personal injury claims by servicemen injured on duty due to the alleged fault of the Respondent are invariably put, and responded to by the Respondent. In this regard Mr James relies on the decision of the Court of Appeal in Smith v MOD [2013] 1 All ER 778 (see also Munkman on Employer's Liability (2013), 16 ed at para 10.81).
The facts of Smith are well known. Four claims were brought against the Ministry of Defence following the deaths and injury of members of the armed forces on active service in Iraq. The claims were brought in negligence and under the right to life guaranteed by ECHR Article 2. In the action for negligence the Claimants alleged that the Ministry of Defence was in breach of its duty of care as an employer to provide safe equipment and technology. (The exemption from liability of the Crown in tort under section 2 of the Crown Proceedings Act 1947 by virtue of section 10 was abolished by section 1 of the Crown Proceedings (Armed Forces) Act 1987). Moses LJ (with whom Lord Neuberger MR and Rimer LJ agreed) stated at paragraph 38:
"It is beyond dispute, and the MOD did not purport to dispute, that it owed a duty of care at common law to members of the armed forces as their employer."
Moses LJ continued at paragraph 46:
"The duty of care owed by the MOD, as employer, to the members of the armed forces, as employees, does exist and has been recognised, without demur, by the courts. It includes a duty to provide safe systems of work and safe equipment, as I have demonstrated."
(See also para 55).
Mr James submits that in the present case section 2(1) of the 1947 Act was engaged. There is nothing unjust, he submits, about saying that where a claimant seeking damages for personal injury alleges that the defendant owes him the duties of an employer then, when this claim succeeds, the claimant is an "employee" and the defendant an "employer" for the purposes of costs under CPR Rule 45.20(1). Context, Mr James suggests, is all important. A person may, for example, be self-employed for tax purposes, but an employee to whom a duty of care is owed when safety at work is at issue (see Lane v Shire Roofing Company (Oxford) Ltd [1995] IRLR 493 at para 12).
Discussion
I see some force in Mr James' submission as to the practical difficulties at detailed assessment if the Appellants' argument is accepted (see para 19 above). However I do not consider that there is a proper basis for adopting the purposive approach for which he contends. There is in my view no good reason for giving the words "contract of service" in section 2(1) of the 1969 Act a construction broader than their usual meaning. In Smith v MOD the court was not concerned with whether servicemen were employees in the true sense, that is persons operating under a contract of service. The Ministry of Defence owe a duty of care to servicemen whether they work under a contract of service or not, both at common law and under the Health & Safety at Work Act 1974 (see Moses LJ at para 38: "… Nor was it disputed that health and safety provisions contained in ss.2-4 and 6-7 of the Health & Safety Act 1974 and in regulations made under s.15 imposed statutory duties on the MOD". Persons "in the service of the Crown" are deemed to be employees for the purposes of Part 1 of the Act and its regulations, see Munkman at para 10.80).
I do not accept Mr James' submission that the decision in Quinn is not in point. The submission in that case on the Appellant's behalf that there was a contract of employment or a contract of service between the plaintiff and the Crown was rejected on the express basis that there is no contract between the Crown and members of the armed forces (see para 17 above).
In my view there is no ambiguity in CPR Rule 45.20(1)(a) and (3)(b). The Rule addresses itself to the question of what the term "employee" means. It is a person who falls within s.2(1) of the 1969 Act. There is in these circumstances no scope for giving a broad or purposive interpretation to Rule 45.20(1)(a) different from the specific meaning given to the term "employee" by s.2(1) of the 1969 Act. The words "contract of service" in s.2(1) of the 1969 Act have a single meaning which does not vary.
Conclusion
In my judgment for the reasons I have given the fixed success fee regime does not apply to these claims, and accordingly these appeals are allowed.
I direct that the issue of the assessment of the success fee be referred to Master Haworth for determination. |
Wednesday 14th January 2015
MR JUSTICE BLAKE:
This is an appeal from a decision of his Honour Judge Armitage QC sitting at the Manchester County Court delivered on 17 July 2014. On that occasion the judge declined to continue an injunction granted without notice on 4 April 2014 by his Honour Judge Platts. The injunction was sought by the Chief Constable of Greater Manchester police as applicant pursuant to his powers under the Policing and Crime Act 2009 Part 4, and in particular sections 34 to 36.
The Respondent to this application and to the appeal by the Chief Constable is Scott Calder.
The background is that on 12 January 2014 the respondent, then aged 23, was in a car with his mother outside a bingo hall in the Harputhy district of Manchester when they were both shot at by unknown assailants. Three men have subsequently been arrested and charged with attempted murder but the respondent was unable to assist the police with the identity of the assailants or the reasons why he should be targeted for such an assault.
There was other evidence before the judge;
(i) on 17 January the respondent's brother was kidnapped and assaulted and he has not cooperated with the police in the identification of his assailants;
(ii) on 26 March a man named Leonard Cook was shot in the leg by one of two masked men;
(iii) the respondent has associations with a number of men who have convictions for very serious criminal offences including violence;
(iv) the Chief Constable caused a social media website related to the respondent to be accessed and there are scenes of him performing grime music, similar to rap music, that were placed on his website on 4 January and 11 February 2014. The first such extract was before the attack and the judge accordingly focused upon the second. Having considered explanations for the words used in that website, the judge was satisfied that the reference to "man dem" was a reference to a gang; accordingly, with the benefit of some assistance in interpreting "argot" and street slang, the judge in this part of his judgment was effectively saying that the respondent was saying, "My man dem are on this," where, in this context, "this" referred to holding others in a basement and inflicting violence and serious injury on them. The judge accordingly concluded that this was possible to interpret as an express threat of gang related violence.
(v) on 5 April 2014, that is the day after the without notice application but before the order resulting from such application could be served, the respondent was arrested on suspicion of being in possession of an offensive weapon, namely a Lucozade bottle containing industrial strength ammonia;
(vi) on 6 April when he answered his bail on that charge, a knife was found concealed and he told the officers that he was carrying it for his own protection having been shot;
(vii) there was hearsay intelligence from a variety of anonymous sources that was consistent with suspicion of gang-related rivalry about drugs. Having regard to its nature and the reliability assessment, the judge did not rely on this evidence further save as the basis for reasonable suspicion to justify further investigations.
Section 34(1) of the Policing and Crime Act 2009 states that a court may grant an injunction against a respondent aged 14 or over if two conditions are met. The first condition is identified in section 34(2) and that is that the court is satisfied on the balance of probabilities that the respondent has engaged in or has encouraged or assisted gang-related violence. The second condition is that the court thinks it is necessary to grant the injunction for specified purposes.
The judge was satisfied that the three measures which had been the subject of the order of the judge on 4th April were justified as necessary and proportionate and preventative measures and met the second condition contained in section 34(3) of the Act. He, however, declined to order the continuation of that relief because he was not satisfied that whatever the respondent may have encouraged was gang-related violence within the meaning of the statute.
Section 34(5) is in the following terms;
"In this section 'gang-related violence' means violence or a threat of violence which occurs in the course of, or is otherwise related to, the activities of a group that –
(a) consists of at least three people,
(b) uses a name, emblem or colour or has any other characteristic that enables its members to be identified by others as a group, and
(c) is associated with a particular area."
The essential question at the heart of this appeal is whether there was any other characteristic that enables the members of the gang to be identified as others as a group. The judge concluded that the mere fact that police officers with access to intelligence material were able to identify links between the respondent and others, some of whom were related to him, and to enable them to conclude that they formed a gang engaged in drug related activity was not sufficient to bring the case within the statutory scheme.
He said the following at paragraphs 40 through to 43 of his judgment:
"40. In my judgment, the most significant impediment to the application is the definition of gang-related violence. The whole thrust of the legislation is the suppression of violence perpetrated by a group which can be identified by others as a group.
"41. Section 34(5)(b) provides three specific examples of identifying features: name, emblem or colour. When the legislation was promoted and passed, as DC Wrench observes, gangs tended to have some or all of those recognisable features. The applicant does not argue that any group of which the respondent is a member has any of those features. Instead, counsel for the Chief Constable argued that it had another recognisable 'characteristic' which enables its members to be identified as a group. That characteristic is that the group is a family which runs a drug dealing network.
"42. Mr Wagner, counsel for Mr Calder, argues that the evidence might show that the group is an OCG (I interpolate that means organised crime group) but that is not externally recognisable by those who do not know the family, its membership and its activities.
"43. My judgment is that whether the characteristic relied upon by the applicant is within section 34(5)(b) depends on who is included within 'others' and what steps are legitimate/required for the purpose of identification. I am not persuaded, even on the balance of probabilities, that the characteristic relied upon by the applicant would enable a member of the public, unfamiliar with the drug trafficking scene locally or more widely, to identify any of the group as a group associated with a particular area of Greater Manchester, or any area. However, if 'others' include police constables, they might be able to identify members of the group. DC Wrench would fall squarely into that category assuming without finding for present purposes that the intelligence available to him is accurate. Similarly, a locally based constable might be able to identify members on the basis of where they were seen and what they were doing. In my judgment, such specialised knowledge is not within section 34(5)(b). The whole thrust of section 34(5) is to deal with readily identifiable bodies of people who terrorise the streets. I find support for that in a sentence in paragraph 2.2 of the guidance:
'Gang injunctions are intended to be used against members of violent street gangs'."
The appellant contends that the reasoning at paragraph 43 of the judgment was an error and that the natural meaning of "others" is any two people outside the group or gang in question whether or not they are police officers and in her written and oral submissions she says that it could include police officers with the requisite knowledge of the circumstances. In developing that argument, Ms D'Cruz says that specialised knowledge might be necessary to understand the significance of a name of a gang that may not be known to members of the public generally and, therefore, the other characteristic of familial associations on which the Chief Constable relied was equally capable of being a characteristic within the statutory scheme. She further submits that the Code of Practice does not take the matter any further forward.
The terms of the 2009 Act, its policy and purpose is indicated both in its drafting history and the Code of Guidance issued pursuant to section 47 of the Act at the time it was brought into force. Together, this indicates that Parliament concluded that some form of identity known to the public or a section of it was necessary. It is not sufficient that there is a threat of violence by more than one person. Such a grouping might be loosely described as a gang if there is no common characteristic between them that enables others to identify them as such.
As to the drafting history, the court has been informed that the particular provision in section 34(5) was inserted during the passage of the Bill in response to concerns that the original definition may have been too wide. By way of postscript in terms of drafting history, Mr Wagner, appearing again for the Respondent, points out that there is now going through Parliament the Serious Crime Bill, clause 50 of which appears to be precisely being enacted for the purpose of giving a wider definition dealing with the interface between the street gang definitions contained in the 2009 Act and wider antisocial behaviour and violence by other forms of gangs and organised criminals.
The Code of Guidance issued by the Secretary of State to which local authorities and police officers must have regard when considering whether to make application for an injunction does, in my judgment, give some indication as to the purpose of the legislation as enacted in 2009 and in force today.
"2.1. What are gang injunctions?
An injunction to prevent gang-related violence is a civil tool that allows the police or a local authority to apply to a county court (or the High Court) for an injunction against an individual to prevent gang-related violence. By imposing a range of prohibitions and requirements on the respondent, a gang injunction aims:
• to prevent the respondent from engaging in, or encouraging or assisting, gang-related violence; and/or -
• to protect the respondent from gang-related violence. Over the medium and longer term, gang injunctions aim to break down violent gang culture, prevent the violent behaviour of gang members from escalating and engage gang members in positive activities to help them leave the gang.
Anyone seeking to apply for an injunction must have evidence that the respondent has engaged in, encouraged or assisted gang-related violence, and will need to be able to prove this on the balance of probabilities at court. Applicants will also need to convince the court that the gang injunction is necessary to prevent the respondent from being involved in gang-related violence and/or to protect the respondent from such violence. During the 2009 Act's passage through Parliament, it was made clear that gang injunctions are only intended to be used to prevent violence related to gangs. All applications must focus on gang-related violence rather than, for example, acts of anti-social behaviour, acquisitive crime or drug dealing involving gangs.
2.2. What is gang-related violence?
Section 34(5) of the 2009 Act defines gang-related violence as:
'Violence or a threat of violence which occurs in the course of, or is otherwise related to, the activities of a group that:
a) consists of at least 3 people;
b) uses a name, emblem or colour or has any other characteristic that enables its members to be identified by others as a group; and
c) is associated with a particular area.'
Gang injunctions are intended to be used against members of violent street gangs. However, setting out what is meant by 'gang-related violence' in legislation is a complex task. The nature and form of gang-related violence varies significantly between areas and is not easily captured by a single definition. The wording of the definition used in the 2009 Act is therefore intentionally broad and wide-ranging to ensure gang injunctions can be used effectively in response to the different violent gangs encountered in different local areas.
It is important for applicants to have a sound understanding of the gang problem in their local area. This should be informed by intelligence from the community and local partners. Applicants may find it difficult to satisfy the court that the respondent has been involved in gang-related violence, and therefore to make a successful application, if they cannot demonstrate an understanding of the local gang problem…..
2.7. How do gang injunctions fit with other measures to tackle gangs?
Gang injunctions are designed to be used in specific circumstances as part of a broader, strategic response to local gang problems. This response should include longer term measures to address the local gang problem.
7.2.3. 'Gang colours' and other identifying features: -
The 2009 Act includes in its definition of a gang the necessary condition that the group 'uses a name, emblem or colour or has any other characteristic that enables its members to be identified by others as a group'.
These identifiers can also be intimidating to others and provoke violent reactions from rival gangs. In these circumstances, applicants may wish to seek to prohibit the respondent from wearing particular colours or types of clothing that identify them as a gang member. To apply successfully for such a prohibition to be included in an injunction without disproportionately infringing the respondent's civil liberties, the applicant will need to demonstrate that the respondent is a member of a particular gang that is identifiable through a particular colour, item of clothing or other identifier, and that preventing the respondent from wearing this item will help to prevent gang-related violence."
There are other references in the Code to "street gangs" and "gang lifestyle" and the "need to wean gang members off such behaviour." As the passage already cited from the judge's judgment identifies, it was never suggested by the appellant that the respondent or his associates have a name, emblem or colour that identifies them and, therefore, reliance is placed upon the characteristic of familial association.
Where there is uncertainty as to the meaning of a statutory term and the term to be construed follows a number of other examples, the principle of statutory interpretation known as the ejusdem generis rule may apply, see R v Edmondson [1859] 28 LJMC 213 although there are more modern examples of the application of the principle of construction. The principle, therefore, suggests that other characteristics that enables its members to be identified by others as a group should share with name, emblem or colour some essential feature as a signifier or means of identification that enables others to identify the gang by reference to them.
It is, therefore, in my judgment, not sufficient that a police officer piecing together the available information is able to draw the conclusion of a link between members of the gang if indeed there is no common characteristic of the sort identified in the section that would enable others generally to be able to make that identification. This is because the Act is not directed even at violence by groups of people generally but only at specific groups who identify themselves to others that they are a gang and that identification is either the source of threat or reprisals. I accept that it is possible that a gang composed of family members might communicate to others that they have a cohesive characteristic of common family membership and they might indeed be known as a family gang but it is not sufficient if the group in question is an assortment of individuals who happen to have familial relationships if that is not an important badge of identification communicated to others and explains how others see them. The others who would normally be of relevance in applying the statutory test are those who might be intimidated by the gang in question or who might retaliate against them though "others" does not need further definition or explanation.
I further accept that the existence of a characteristic can be proved by the evidence of police officers and for that purpose they must clearly be able to give their evidence of their experience and use their local and expert knowledge. However, for reasons already explained, it is not sufficient for the police to say they have identified links if those links do not amount to a signifier or characteristic that results in others responding to this street identity.
Accordingly, the judge was right to conclude, as he did in the sections of his judgment quoted, although for myself this does not entirely depend upon the meaning of the word "others" in isolation to the rest of that section.
Ms D'Cruz, nevertheless, submitted that there was evidence to suggest that links based on family association were known to others. This evidence was apparently in the form partly of a diagram of familial association between the respondent and others composed, it seems, on the basis of the Manchester police policy guidelines and the working definition of who was an organised crime group and supported by the police assessment informed by the intelligence material that others were responding to this group by way of retribution.
The high point of this submission seems to me the judge's observations at paragraph 20 and 21 of the judgment where he said this:
"20. My conclusion is that the intelligence material is sufficient to raise a reasonable suspicion that the respondent is a member of a group of people centred on other members of his close family which, it is suspected, takes part in serious criminal activity. It is their sole identifying characteristic, a point to which I will return.
"21. The general purport of the intelligence is that the shootings and kidnappings are connected with inter-gang rivalry concerned with drugs and that the respondent is under some pressure to revenge the attack of 12th January and demonstrate that his family are not to be trifled with. Leaving aside the gang-related element of such intelligence, there is a clear inference that certain groups probably are involved in serious and organised criminal activity related to drug trafficking, resulting in street violence."
In my judgment, those observations are not the same as finding that a gang with the characteristics required by section 35 exists. I note that the organised criminal group guidance is not intended to reflect the statutory tests with particularity and familial connection short of a common identifying characteristic is too vague to meet the test. Therefore, whatever suspicions there might have been based upon the intelligence material in any event did not amount to findings of fact on the civil balance of probabilities.
The respondent by an amended respondent's notice submits that the judge should have applied in practice the criminal standard. I granted leave for the point to be argued albeit by way of a late notice but I am unpersuaded by it. The respondent does so on the basis of the decision of the House of Lords in McCann [2002] UKHL 39 per Lord Steyn at paragraph 35. In the antisocial behaviour order legislation there being considered, Parliament had not spelled out the standard of proof to be applied. Mr Wagner draws comfort from the current guidance issued by the CPS in connection with serious crime prevention orders and points out that despite the fact that that legislation refers to a civil standard, the guidance by reference to McCann suggests that a criminal standard should be adopted.
In my judgment, judges concerned with this legislation should apply the statutory test and the civil balance identified in that test as to whether the jurisdictional threshold is made out. As this very judgment indicates, there is flexibility in applying the civil standard and conclusions should not be lightly reached applying that standard on the basis of conjecture, possible inference or suspicion and particular care must be taken when assigning weight to hearsay evidence. However, if the evidence meets the civil threshold, that is sufficient as Parliament has made clear.
By way of a final observation, it is to be observed that although argument in the case of Birmingham City Council v James [2013] EWCA Civ 552, [2014] 1 WLR 23, was not precisely the same as that addressed by Mr Wagner, similar conclusions on this point seem to have been reached by the Court of Appeal at paragraphs 13 and 31. However, for the reasons given earlier in this judgment, this appeal is dismissed. |
Mr Justice Hamblen :
Introduction
On 6 June 2012 a Sikorsky S58-ET helicopter operated by a Peruvian company, HeliCusco, crashed at an altitude of some 16,026 ft above mean sea level into a mountain known as 'Mama Rosa' in the Andes mountain range in Peru. The helicopter disintegrated and caught fire, killing all 12 passengers and 2 crew on board.
One of those passengers was Mr Tomas Dusek who was an employee of the Defendant ("StormHarbour"), an independent global markets and financial advisory firm and an English limited liability partnership. Mr Dusek was in Peru for his work on a project ("the Project") known as "Nueva Esperanza" (New Hope) which concerned a proposed hydroelectric complex being built in the province of Carabaya in the region of Puno, south-east Peru. The helicopter had been chartered for the purpose of a visit to the proposed sites for the Project.
Mr Dusek's widow and children bring this claim under the Fatal Accidents Act 1976 and the Law Reform (Miscellaneous Provisions) Act 1934. It is alleged that StormHarbour was in breach of its duty as employers to provide Mr Dusek with a safe place of work, safe equipment and a safe system of working. Mr Dusek was 37 years old when he was killed and had two children then aged 8 and 5.
The trial
The present trial concerns liability only. Although the issues raised involve various different parties, this action only concerns Mr Dusek and StormHarbour and I have had no evidence or submissions from any other companies or individuals involved in the tragic events of 6 June 2012. Any findings I make must be understood with those limitations in mind.
At the trial there was factual oral evidence called on behalf of the Claimants from Mr Dusek's widow, Mrs Angela Dusek; Mr Thomas Gruber, a managing director at Credit Suisse; Mr Alex Jacques-Martin, the Chief Financial Officer ("CFO") and principal shareholder at the material time of another Peruvian helicopter company, Helinka. There was factual oral evidence called on behalf StormHarbour from Mr Terry Keeley, the Chief Operating Officer ("COO") of StormHarbour and the partner with responsibility for health and safety, and Mr Hong Hoo Moon of StormHarbour Securities (Hong Kong) Ltd ("StormHarbour Hong Kong"). There was also evidence from Mr Graham Dickinson of StormHarbour's solicitors, DWF LLP, in which he spoke to a witness summary of evidence prepared by him from an interview carried out with Mr Dusek's colleague, Mr Paul Kozary. Unfortunately, Mr Kozary died suddenly from cancer in January 2013 before he had an opportunity to consider that summary.
Both sides called experts. In relation to aviation and operation of helicopters there was evidence from Mr Connolly for the Claimants and Mr Nash for StormHarbour. In relation to corporate risk assessment and auditing of helicopter charters there was evidence from Mr Watson for the Claimants and Mr Commander for StormHarbour.
There were extensive written and closing submissions provided by both sides. I have drawn on those submissions, with appropriate adaptations and amendments, for parts of the judgment, particularly in relation to the background facts and the parties' arguments.
The issues
The principal liability issues may be summarised as follows:
(1) Did the scope of StormHarbour's duty of care as employer extend to the HeliCusco charter and helicopter flight?
(2) If there was such a duty, did StormHarbour breach it?
(3) If StormHarbour did breach its duty, did that breach cause Mr Dusek's death?
The facts
Mr Dusek
Mr Dusek was a Czech national, living with his family in England. He had a distinguished educational background, winning a scholarship to Cambridge, and obtaining an MPhil in Finance with a Distinction. He was awarded a Magdalene College Prize for Economics. Mr Dusek had previously obtained a BSc in Economics and Mathematics at Charles University in Prague. After leaving Cambridge, Mr Dusek had gone into investment banking and worked for Deutsche Bank AG, JP Morgan Chase, and Banque AIG in London, before becoming employed by StormHarbour in 2009.
His colleague, Mr Kozary, who was working with him in Peru when he was killed, described Mr Dusek in the following terms:
'What was extraordinary about Tomas was that he was the most intelligent person I have ever encountered in my life… Tomas was one of these rare people imbued with incredible intellectual intelligence and common sense. He had a photographic memory- for numbers he could see them and remember them. I have never seen such intelligence in my life work in front of me. I never saw someone absorb information like he did'.
Following Mr Dusek's death a Memoir of his life that was "put together by Tomas' colleagues from [the Defendant] StormHarbour for his children Isabelle and Max". It shows him to be a person who led a full and active life. He enjoyed mountain climbing, skiing and bungee jumping and was described as "an adrenalin junkie". It emphasised that "[a]all of Tomas' colleagues at StormHarbour were without doubt as to how important family was to Tomas", and "how Tomas was always talking about his family. He loved cycling with his kids and dancing with his wife". Mr Dusek's boss, Mr Antonio Cacorino, recorded in the Memoir, that "Tomas was very much a family man. I got the sense that family group were very close". Indeed, Mr Cacorino declared, that "Tomas' family will always be my family from now on. That will just be a reality. Through tragic events we built a link which will not disappear as long as I'm alive". Mr Dickinson explained in evidence that Mr Cacorino had said to him that whatever the outcome of the litigation he would personally make sure that Mrs Dusek was looked after, that it was a matter for him personally and that he was simply not prepared to get involved in the litigation – hence his non-appearance as a witness despite clearly having relevant evidence to give.
StormHarbour
StormHarbour is an independent global markets and financial advisory firm, specialising in the global capital markets. It was established in March 2009. It has been described as an intermediary between people who need finance and investors willing to provide it.
It was led by a group of about 7 partners, including its Managing Principal, Mr Cacorino, and its COO, Mr Keeley, who formed a governance group. Thereafter the management structure was flat with each of numerous and largely autonomous "managing directors" reporting directly to a member of the governance group.
Mr Dusek's employment with StormHarbour
Mr Dusek was employed by StormHarbour under a written contract of employment from July 2009. His employment contract was expressly governed by English law. Although Mr Dusek's duties as an employee related primarily to the UK where he habitually carried out his work, the contract made it clear that 'occasionally you may be required to travel abroad, when required by the Partnership for the proper performance of your duties' (clause 3.2).
Clause 6.1 provided that he would be reimbursed reasonable expenses incurred by him in the proper performance of his duties, including for travel by air and rail, and car rental. The employee handbook also referred to travel on the firm's business in the UK and abroad and working at client offices in accordance with need from time to time. It included travel policies and procedures. By clause 6.2 it was also a term of Mr Dusek's contract of employment that he would comply with StormHarbour's employment policies from time to time, one of which (the global expenses policy) expressly provided that it did not pay travel insurance.
Mr Dusek was employed initially as a sales and marketer, earning a minimum basic draw of £100,000 with an additional entitlement to net commission, but by the time of the crash he was a "managing director" on the same level as Mr Kozary and Mr Moon. For about two years he represented StormHarbour in Central and Eastern Europe, before progressing to be involved in infrastructure and project finance.
The evidence shows that Mr Dusek was given a degree of autonomy in relation to many matters, including organising and (subject to reimbursement) funding his own client entertainment and business trips (including travel), and whether to accept hospitality and invitations from third parties, including clients and potential investors in clients.
The Project
The Project's aim was to secure funding for the development of hydroelectric projects located in the province of Carabaya in the foothills of the Andes mountains. This was a 'run-of-river' hydro power project. In 2009, Nueva Esperanza S.A. ("Nueva Hydro") had been granted a temporary concession by the Peruvian government to construct 4 hydro projects on the river Inambari and 3 additional projects on the main tributaries (Ayapata, Limbani and Coasa).
Acres Investments S.A. ("Acres") was an investment company behind the development of the Project. In the promotional documentation seeking subsequent investment for the Project (with total Phase I costs estimated at USD994 million) Acres was described as a company which identified, structured and developed Peruvian business opportunities. It was also described as a "leading Peruvian investment company with a successful track record in developing hydro projects". Nueva Hydro was a special purpose vehicle established by Acres to hold the concession for the development of the Nueva Hydro hydroelectric projects.
In April 2011 StormHarbour was engaged by Acres as exclusive introducing broker to source and introduce to Acres and Nueva Hydro (together "the Peruvian clients") potential investors interested in investing in the Project.
By schedule A of that contract, Acres would only consider potential investors who had the capacity to purchase up to 85% of the equity in Nueva Hydro, the capacity to provide the necessary equity to support the debt required to fund the construction of at least one 610MW hydroelectric project, and who would commit to observing and fulfilling the requirements necessary to obtain a "definitive concession". StormHarbour's remuneration for the services to be provided would be USD6.5million, but it was conditional on a number of matters, including the introduction of potential investors and the subsequent sale of 85% of the equity in Nueva Hydro.
StormHarbour's 'deal team' for the Project was Mr Kozary, Mr Dusek and, initially at least, Mr Stephane Marchi. Their work on the Project appears to have begun in about May 2011, and subsequently involved investment road shows in Europe, Israel, and the Far East. The Project was anticipated as having at least two phases. Phase I, involved the sale to potential partners of the project by StormHarbour (including the preparation of a data room and investment road shows) and was intended to result in potential partners submitting a non-binding preliminary indication of interest. Phase II was where a limited number of potential partners, selected by Acres, would be able to conduct further due diligence and upon a satisfactory completion of such due diligence were expected to submit a final binding offer. It was during the second of these phases, the "due diligence period", that Mr Dusek was killed.
After extensive work by the Project team, one potential consortium emerged as a possible investor. This was a combination of two Korean companies, Samsung C&T Corporation, Engineering and Construction Group of Seoul, South Korea ('Samsung') and the Korean Water Corporation ("K-Water" – together "the Consortium"). Samsung is a global corporation involved in large scale trading, investment and construction and part of the well-known Samsung group of companies. K-Water is a state-owned Korean public entity specializing in dams, water treatment and hydroelectric power. The Consortium was introduced by Mr Moon, who is of Korean origin.
A meeting took place with Samsung and Acres on 21 December 2011. Samsung signed a confidentiality agreement and eventually a Memorandum of Understanding with Acres. A revised Memorandum of Understanding ("MOU") was negotiated by Mr Moon on behalf of the Peruvian clients and Samsung via a Mr Travis Woo, Mr Moon's main contact at Samsung, between 15-16 March 2012. It was signed on 26 March 2012 and granted Samsung a period of exclusivity in relation to the Project.
The arrangements for the visit to Peru
By 13 April 2012 Samsung was considering a visit to Peru. In an email of that date Mr Woo wrote "Expected Trip to Peru is from 13th of May for 2 weeks and draft of agenda & itinerary will be back to you as sooner" [sic].
Samsung was concerned as to how access for a site survey might be achieved. In April 2012, Samsung sent a series of questions relating to the information contained in the "Requirement for detail study of Carabaya Project Pre-Feasibility Study" (Part 1. Technical Side").
On 26 April 2012 Mr Woo asked whether there was "any access roads / site survey routes" to the Project sites. On 28 April 2012, the Mr Anto of Acres replied in a widely circulated email attaching information about the access roads to the towns near to the Project, and informed Samsung that access to the exact locations of the Project tunnels would not be possible by vehicles: "there are some dirt roads from the towns to the river (the journey takes two days- walking in the jungle)". Mr Anto therefore suggested:
"The alternative in order to make quick site survey is to go to the project area by helicopter".
By 2-3 May 2012 Mr Javier Riofrio of Acres had separately answered Samsung's earlier series of questions. In his reply he emphasised that vehicle access to the Project site was impossible: it would have to be either by helicopter or long overnight walks through the jungle. Acres stated that their previous helicopter surveys had been conducted by flying to Puerto Maldonado, taking the Interoceanic Highway to Mazuco, and then from Mazuco flying over the Project site, explaining that:
"The only current alternatives to visit the project areas are by helicopter or long overnight walks thought the jungle. By helicopter (we have done this before) it is necessary to fly to Puerto Maldonado city and then go by road (Interoceanica highway) to Mazuco district approximately three hours trip. In Mazuco the helicopter will take you to the project area."
On 4 May 2012 Mr Woo, in his email in response asked whether "you [i.e. the Project team] can deal with – helicopter boarding available persons". On the same day, Mr Jayson Cho, part of Mr Woo's team, sent a further email, asking the Project team to assist in, inter alia, "booking domestic line tickets for site survey. On 5 May 2012, Mr Riofrio replied, saying:
"We will help you have the most efficient itinerary in Peru as possible. I suggest visiting the project sites by helicopter (we need to find out how many people they can take and the cost of rental)".
In relation to the itinerary, on 26 April 2012 Mr Woo had said that Samsung would send over a draft itinerary. In an email dated 28 April 2012 and circulated widely Mr Riofrio replied saying: "I would personally like to be involved in organising your trip to Peru in order for Samsung's team to get the most out for the days you will be here. Please send to me a proposed schedule of meetings and visits you all wish to accomplish in Peru so that I can help organise accordingly. Should I suggest your itinerary please also let me know".
In his 4 May 2012 email to the Project team, Mr Woo included a "proposed itinerary (highly tentative)". As Mr Woo explained, each item of the schedule in this proposed itinerary "would be changeable on your arrangement in better way of movements except 1st day's Intro meeting." Samsung stated that it wished 3 representatives of its infrastructure development team together with 3 representatives of its technical team to visit Peru, together with 2 overseas business representatives from K-Water, as well as 5 external engineering consultants hired by Samsung, making a total of 13. In the same email, Mr Woo stated that Samsung wished to invite at least one representative from StormHarbour to attend during the visit.
On page 2 of Samsung's draft itinerary the agenda item for the morning of Tuesday 15 May 2012 was "Lima ... Carabaya region". The agenda item for the afternoon of that day and the morning of Wednesday 16 May was "project site survey". The participants in the project site survey were identified as Samsung, K-Water, Acres, SWECO and HC&A (SWECO and HC&A were engineering consulting firms appointed by Acres/Nueva Hydro).
On the same day Mr Kozary forwarded Mr Woo's email first to Mr Cacorino (copying in Mr Dusek) for the purposes of explaining why he, Mr Kozary, was proposing to extend his trip in Peru by another week, and then to Mr Keeley for the purpose of explaining why the holiday he had booked might turn out not to be all holiday, to which Mr Keeley replied "of course".
Also on the same day Mr Moon acknowledged Mr Woo's email at 13:01hrs, indicating that he realised it was a big undertaking and commitment for Samsung, that he was glad that the engineering team were on board, and that StormHarbour would co-ordinate with Acres to do its part of the preparations to make the trip as productive as possible. Mr Moon then sent an email to Acres at 13:18hrs stressing that since Mr Woo's infrastructure team had finally convinced Samsung's engineering team to visit Peru, it was important for the Acres team to make good preparations for the trip. He then sent an email to Mr Kozary and Mr Dusek, copied to Mr Cacorino, stating:
'Samsung is asking for strong support from SHR [StormHarbour] for this trip and asking at least one member of our firm to join the trip. As Paul [Kozary] will be in Peru around that time, could adjust trip schedule so that you can be with Samsung team in Peru'.
At 14:00hrs on 4 May 2012, and adding to Mr Woo's email, Mr Cho wrote to Mr Riofrio and the Acres' team by email with additional requests, including a request that Acres arrange car rentals and a guide. Mr Cho pointed out that the itinerary was highly tentative and that Samsung would like Acres to advise, reschedule, coordinate and arrange Samsung's schedule.
Later that day, and expressly picking up Samsung's reference to one representative from StormHarbour, Mr Kozary suggested in an email to Mr Moon that Mr Moon (who had originated Samsung's interest) should join the trip and thus be that representative. Mention was made about whether Samsung were offering to pay for flights and accommodation. Mr Moon replied the next day: "Our role is more to coordinate with Acres to help feed information requested by Samsung and [Mr Woo] is expecting our London team to join for that role ...... I do not think Samsung's intention is to offer to pay for travel expenses for [StormHarbour]. We are mandated by Acres, who should absorb travel costs if we are not going to". This accurately reflected StormHarbour's role as one of coordination and facilitation.
In an email on 7 May 2012 Mr Woo informed Mr Riofrio and others that Samsung would be postponing the trip to 2 June 2012 for various reasons, including to give Acres/StormHarbour time to prepare agenda, meeting venues, rent vehicle, accommodation, etc.. Mr Kozary advised Mr Riofrio on the response the next day, including to confirm that they were thenceforth looking at the 10 day period from 2 June 2012 and Mr Riofrio then sent a brief email to Mr Woo simply saying "We look forward to seeing you on June 2nd in Peru."
On 16 May 2012 Mr Cho wrote to Acres asking them to "… please comment, reschedule, and arrange our trip itinerary sent by Travis [Woo] on May 4th".
On 20 May 2012 Acres' Mr Anto informed Mr Cho that Acres were working through the itinerary which Samsung had sent.
On 21 May 2012 Mr Anto circulated a draft itinerary to the Acres' team, now including Mr Cruzatt, adding "we are still waiting for the response of the helicopter companies". The draft itinerary provided:
"6 June
07:15 Transport to heliport
08:00 Flight Cuzco – San Gaban (in two helicopters)
08:45 Visit- San Gaban Power Plant
12:30 Flight San Gaban – Cuzco
13:15 Transport
7 June
07:15 Transport to heliport
08:00 Flight Cuzco – project area (in two helicopters) - Cuzco
14:00 Transport"
On or shortly before 21 May 2012 it was decided that Mr Dusek might fly out to Peru in place of Mr Moon. An email from Mr Kozary states:
"I have discussed this at length with Tomas and he has decided to make himself available for the week. He has yet to explain to Mrs Dusek and his kids, so please say nothing when he walks in with a limp to your office.
Please Confirm authorization and payment of fare by Acres"
Acres subsequently authorised the cost of the flights for Mr Kozary and Mr Dusek. The light hearted reference to a "limp" was because Mr Dusek had been due to go on a family holiday to Bulgaria to visit his wife's family for her aunt's 60th birthday and their 10th wedding anniversary.
Late on 22 May 2012 Mr Kozary circulated a further draft itinerary amongst the Acres' team, adding that he would try to get clarity on the helicopter they required. The itinerary provided:
"5 June
07:15 Transport to heliport
08:00 Flight Cuzco – San Gaban (in two helicopters)
08:45 Visit- San Gaban Power Plant
12:30 Flight San Gaban – Cuzco
13:15 Transport
6 June
07:15 Transport to heliport
08:00 Flight Cuzco – project area (in two helicopters) - Cuzco
14:00 Transport"
Mr Kozary subsequently sent the further draft itinerary to Mr Cho. He explained that the main change was to accommodate the availability of the helicopter on 5 and 6 June 2012 which was said to have required reorganisation/acceleration of the trip to Cusco. (The flights were the same as in the initial itinerary save that they had been advanced by one day.) Mr Kozary stated that his then understanding was that the helicopter requested had the capacity to carry 12 passengers and Acres needed 4 seats. He also asked whether Samsung wanted a second helicopter to be made available, or whether Samsung did not need all 13 of their party to fly to the Project area. He added that Acres was checking with other operators about additional smaller helicopter availability.
By email on 23 May 2012 Mr Woo suggested material changes to the itinerary. In particular the planned helicopter trip on 5 June 2012 to San Gaban was scrapped, and in relation to the helicopter trip on 6 June, Mr Woo wrote "provide helicopter movement mapping and stay time (landing time) available to check Geological/Topography on each project site and also have to see access road".
On 24 May 2012 Mr Anto informed Mr Kozary and Acres' team of the responses from various helicopter companies that Acres had approached. His email stated that the best alternative was HeliCusco and from the quoted price there needed to be deducted the cost of flights to and from San Gaban which had been originally planned but subsequently ruled out by Samsung and referred to the payment per seat "(4) from Acres/ SH/ SWECO team".
Mr Anto sent a further email to Mr Kozary and others not long thereafter stressing that it was very important that Samsung clarify whether they wanted 13 people to go to the Project sites, suggesting the 12 passenger seats be split 4:8 in favour of Acres: Samsung. Mr Moon responded to Acres' Mr Anto to the effect that he had spoken with Samsung, that they needed one helicopter for 12 people and that they wanted the split to be 3:9. The email reads "3 from Acres, SWECO, (SH)". In a further email of the same date to Acres' Mr Anto, Mr Moon added that Samsung would like Acres and Samsung to share the costs of the helicopter 50/50.
On the same day Mr Moon mentioned the suggested 50/50 split to Mr Kozary who queried it given that Acres was taking fewer seats and that Samsung was a substantial company.
On 24 May 2012 Mr Dusek sent an email to Mr Keeley about the visit to Peru, mentioning that Samsung had requested StormHarbour to participate and asking Mr Keeley to approve the travel plan for him and Mr Kozary for Peru. The email stated:
"Travel Approval- Peru- June 4-15
Hi Terry
This is a request to approve travel for Paul and I to Peru on June 4-15th.
Samsung + K-Water of Korea are sending 13 persons to Peru for on-site due diligence for New Hope from 3rd June for 11 days.
This is a very important event to close the deal, with a packed schedule, including site visit to the project area and high level meetings such as with the President of Peru, the Prime Minister, etc.
Samsung has requested SH London team to participate.
Travel & accommodation costs will be reimbursed by ACRES as per previous trips.
Please let us know if you have any questions."
Mr Keeley approved the travel to Peru.
On 25 May 2012 Acres' Mr Anto circulated a revised draft itinerary. The flights to San Gaban on 5 June 2012 had been dropped. The revised draft itinerary provided:
"6 June
07:15 Transport to heliport
08:00 Flight Cusco – project area - Cusco
15:00 Transport to Monasterio Hotel"
On 29 May 2012 Mr Cho indicated that Samsung wanted 9 seats on the flight: 4 for Samsung, 1 for K-Water, 2 for KECC and 2 for Seyeonge.
On 1 June 2012 Acres' Mr Anto sent an updated draft itinerary and then the final version to Samsung.
Mr Dusek flew to Peru on Sunday 3 June 2012.
The helicopter quotations and charter
It appears that Acres approached 6 helicopter operators, namely, HeliCusco; Helinka; Inaer; Heliamerica; Heliasur and Helicopteros del Pacifico. Heliamerica did not respond to mail or telephone calls and Heliasur and Helicopteros del Pacifico did not have helicopters available for the dates.
On 7 May 2012 Mr Cruzatt sent an email to Helinka seeking a quotation and enclosing a map of the area over which they wished to fly. On 8 May 2012 Mr Cruzatt had a meeting with Ms Anne-Caroline Bonnet of Helinka to discuss the potential charter and subsequently required Helinka to sign a confidentiality agreement.
On 21 May 2012 Mr Cruzatt asked Helinka to quote for 2 flights both leaving Cusco - one on 6 June to San Gaban and back; the other on 7 June to the Project area.
On the same day, Mr Cruzatt pressed HeliCusco's Mr Schwartzmann for a quote for 6 and 7 June. Mr Schwartzmann responded with a quote for 5 and 6 June, adding "we are running out of available dates in June".
On 22 May 2012 Helinka sent to Acres a quote based upon using one Eurocopter and Mazuco as the project base "to maximise flight time operations, fuel and payload". Mr Cruzatt queried the quote and the use of Mazuco because the passengers would be in Cusco. Helinka's Ms Bonnet responded to the effect that it was crossing the Andes at very high elevation which limited the aircraft's capacity.
Inaer also provided a quotation. Their helicopter was a single engine AS 350 able to carry only 5 passengers.
In an email dated 22 May 2012, Mr Anto subsequently informed people that HeliCusco was not available for the days expected adding "we need to change our itinerary and obtain the approvals from Samsung as soon as we can (HeliCusco has a highly [sic] demand for its services)". He replied to Mr Schwartzmann asking him to wait until Friday for Acres' reply so that they could finalise a few internal details regarding their travel itinerary.
The same day Mr Dusek analysed the HeliCusco quote and relayed it, together with the itinerary, to Mr Moon at 10:02hrs. Mr Moon took and adapted Mr Dusek's email to inform Samsung's Mr Woo by email at 12:40hrs that HeliCusco's availability was limited to 5 and 6 June, that the price for the 12-person helicopter was $39,600 in total, and that as a result of earlier discussions they were not going to hire a smaller helicopter.
Three quotes were provided. HeliCusco's quote was USD39,589.60, departing from Cusco. Helinka's quote was USD31,000 not including fuel transport costs, departing from Mazuco. Inaer's quote was USD28,770 on the basis of a helicopter that could only carry 4 passengers and 3 flying days departing from Cusco.
It was decided by Acres and Samsung that the HeliCusco quote should be accepted at a reduced price to reflect the fact that there would no longer be a flight to San Gaban. The eventual revised price quoted was USD26,279.29 plus 18% tax.
On 25 May 2012 Mr Cruzatt wrote to Mr Moon recording that HeliCusco's quote had been approved and asking whether Acres or Samsung was to sign the charter. Mr Moon suggested that Acres should sign it.
On 29 May 2012 Samsung's Mr Woo asked Mr Moon to arrange for Acres to sign the charter and to pay the deposit on behalf of Samsung, and, on the same day, Mr Moon replied stating that Acres would sign the charter. Mr Cruzatt confirmed that Acres would sign the charter and pay the deposit on Samsung's behalf.
Although at one stage Samsung had suggested that the charter costs be shared 50/50 with Acres, it was eventually agreed that Samsung would pay for the charter but that Acres would pay pro-rata for the three seats it had on the flight.
The charter as originally planned comprised 6 sectors, spread over 2 days:
5 June 2012
Sector 1 – Cusco to Mazuco to position fuel.
Sector 2 – Mazuco to Cusco return to base (RTB)
6 June 2012
Sector 3 – Cusco to Mazuco with passengers.
Sector 4 – Flight around sites in Inambari Basin then RTB Mazuco for fuel.
Sector 5 – Further flight around sites then RTB Mazuco for fuel.
Sector 6 – Mazuco to Cusco
Cusco was the highest point of take-off and landing for the proposed itinerary. The airfield at Cusco was Alejandro Velasco Astete International. It is a major airport in the Andes Mountains at an elevation of 10,860 ft/3,310 m above mean sea level ("AMSL"). The airfield has an 11,000 ft tarmac runway (10/28) with full lighting, fuel and air traffic control facilities, including an air traffic information device (ATIS) which provides airfield met information every hour. However, the range over which ATIS can be received by aircraft flying in the local area is limited by the mountains to line of sight.
Mazuco was a disused airfield without lighting. It was to be used as a field landing site for this charter. It was at an altitude of 1,181 ft. Fuel, and probably ground crew, were to be positioned at Mazuco the day before to provide support for the charter.
The direct route from Cusco to Mazuco is a distance of 96 nm (nautical miles).
The planned route for the helicopter was via Paucartambo. Flying from Cusco to Mazuco via Paucartambo involves crossing the highest ground at approximately 13,500 ft located 18 nm to the North East (051 degrees) of Cusco. Thereafter, using the valley network to best effect, most of the route would have been close to around 10,000 ft.
Once at Mazuco, the altitude of the various sites to be visited in the Inambari River Basin were below 5,000 ft.
The trip to Peru and the fatal flight
A 13 strong delegation from the Consortium arrived in Peru from Korea on 3 June 2012. Mr Dusek arrived the same day. Mr Kozary was already there.
On 5 June 2012, 6 cylinders containing 351 gallons of fuel were positioned at Mazuco using the same helicopter and flying the same route from Cusco. The aircraft left Cusco at 07:10hrs.
The crew on 5 June 2012 is likely to have been the same as that on 6 June, namely Captain Lozano and Flight Officer Mora.
The 6 June 2012 accident was later investigated locally by an air accident commission and a report produced ("the Accident Report").
It would appear that the passengers on board the helicopter on 6 June 2012 were Mr Kim, Mr Woo , Mr Yoo and Mr Kupper from Samsung; Mr Kim from K-Water; Mr Jeon and Mr Lee from KECC; Mr Rim and Mr Choi from Seoyong; Mr Anto from Acres; Mr Gustafsen from SWECO and Mr Dusek from StormHarbour.
There is an email from Mr Dusek to his wife dated 6 June 2012 timed at 12:07hrs BST (11:07 GMT or 06:07 in Peru) stating "Now leaving for the famous heli trip". (From hereon, all times are given in local time.)
The charter was scheduled to depart Cusco at 06:30 for Mazuco but, due to weather concerns at Cusco, the 3rd sector (namely the first flight on 6 June) was delayed by nearly 3 hours. It is unclear from the Accident Report what information was available to the crew to prompt this decision. However, the Accident Report suggests the weather in the Cusco area was poor and that this caused the crew to delay the take-off until the weather had improved.
The helicopter departed Cusco for Mazuco at 09:09 hrs. The aircraft was restricted by the supplemental type certificate for take-offs and landings up to 12,000 ft Density Altitude. For the planned departure time of 06:30hrs the Density Altitude would have been around 11,300 ft. The delay in take-off meant that the temperature had increased and with it the Density Altitude at Cusco. For the actual departure time of 09:09 hrs the Density Altitude would have been around 12,400 ft, and therefore above its approved Density Altitude.
The delay and consequent change in temperature also meant that the aircraft then exceeded its maximum weight by 457lbs which was well in excess of any margin for error. Thus the delay in take off meant that both maximum permissible Density Altitude and maximum weight were exceeded.
The crew were able to follow the planned flight route. By interpolation of Sky connect data from the Accident Report, it appears that the helicopter did not exceed an altitude of 15,000 ft on its initial transit from Cusco to Mazuco via Paucartambo.
The flight from Cusco to Mazuco (said to have taken 1.16hrs) was successful. No technical faults were recorded.
The helicopter landed at Mazuco at 10:25hrs local time (15:25 UTC). There is an email from Mr Dusek to his wife dated 6 June 2012 timed at 10:54 (16:54hrs BST or 15:54 GMT) attaching a photograph of the helicopter and some passengers on the ground. From Mazuco the helicopter conducted two exploratory flights over the survey area but found itself in difficulties due to bad weather in the area, returning to Mazura at 16:01 local time.
The Accident Report states that:
'at the start of the flight from Mazuco to Cusco the weather conditions were good within a radius of approximately 40km'.
The decision to return to Cusco was made late in the day, probably knowing that the final part of the flight would occur during (aviation) night which would place the helicopter in breach of Visual Flight Rules ("VFR") restrictions.
Reports presented by HeliCusco to the accident investigators indicated that there was pressure from the passengers to return to Cusco on 6 June because some of them had scheduled flights to the city of Lima on the following day. This is supported by text and Blackberry messages later recovered. It is also supported by the final itinerary.
It appears that the crew and HeliCusco Ops Staff, together with a manager and a passenger from Acres/Nueva Hydro, discussed whether to complete the task the following day.
Following that discussion a flawed decision to fly back to Cusco via Paucartambo was taken by the crew which was the catalyst for the subsequent chain of events.
The aircraft departed from Mazuco at 16:46hrs. The estimated arrival time at Cusco was 17:58hrs.
The Accident Report states that this left insufficient time to reach Cusco before sunset which was at 17:27hrs. The International Civil Aviation Organisation ("ICAO") defines night flying as the hours between the end of evening civil twilight and the beginning of morning civil twilight or such other period between sunset and sunrise, as may be prescribed by the appropriate authority. Civil twilight ends in the evening when the centre of the sun's disc is 6 degrees below the horizon and begins in the morning when the centre of the sun's disc is 6 degrees below the horizon. Peruvian aeronautical regulations regard aviation night to be the period from sunset to sunrise. Thus for regulation purposes the civil twilight period of 30 minutes after sunset, which is commonly within the definitions, was excluded such that around the final 20-30 minutes of the flight would have been technically at night.
The helicopter did not fly above its operational limits during the initial stage of the return flight en-route to Paucartambo.
After about 24 minutes into the flight and at about 17:09hrs, the helicopter changed course and headed for Urcos. The crew changed direction by turning left, some 35nm from Paucartambo. They headed south west. The Accident Report states:
"one observes the presence of low cloud, which may have been the reason for the initial change in the helicopter's route: not to continue towards Paucartambo, as had been the plan, and opting to turn to the left and, taking the Interoceanic Highway as a reference, to head for Urcos"
The aircraft appears to have flown on the southern side of the valley which would have been the up-drafting side of the valley. This represents recommended mountain flying practice. It also began to follow the Interoceanic Highway. This is confirmed by the Sky Connect track plot.
Starting at around 17:14hrs, the aircraft exceeded 15,000 ft for a period of about 7-9 minutes on this final sector of its flight. This would have pushed its Density Altitude significantly above its release to service limit of 15,000 ft. This would have made the aircraft more susceptible to aerodynamic instability which could lead to loss of control.
At 17:21hrs, there was a very sharp turn to the left through approximately 100 degrees to the south. This was a defined turn away from the general track and must have been a conscious decision on behalf of the crew. This new track turned the aircraft directly towards the ridgeline of Mama Rosa mountain on which the aircraft crashed two minutes later at 17:23hrs at 16,026ft.
Although the pilots had portable GPS navigation devices, the precise height of the ridge may not have been known to them at the time. Immediately before impact the helicopter had been flying at 16,294ft AMSL.
It is not known which of the pilots was in physical control of the flying controls when the crash happened.
It appears that moments before impact the aircraft veered right but the left hand side struck the mountain.
The Accident Report states that the accident conditions resembled those of a controlled flight into terrain with the engines producing power at the time of the impact. The aviation experts agree that loss of control in flight by reason of the retreating blade stall would also fit the facts, the engines producing power but the blades being stalled - failing to produce lift - resulting in an uncontrolled fall into terrain.
The helicopter caught fire as a result of the fracturing of the fuel tanks.
As a result of the fire, all 14 people on board were killed. Although the autopsy certificate for Mr Dusek gives the cause of death as "carbonisation", the accident investigators suggest he would have died as a result of the impact.
The aviation experts agree and I find that the likely scenario leading up to the crash is as follows.
During the mobile call while the aircraft was being refuelled, Capt. Lozano was made aware that the weather at Cusco was good. He was also apprised of the extent of the cloud shown on satellite. From previous flights, he was aware of the cloud in the valleys. Later under pressure from passengers, the crew decided to give it a go by flying back on top of the cloud.
After departure from Mazuco, the crew saw the cloud ahead and gradually climbed in order to get above it.
By point 8 on the Sky Connect track plot the aircraft reached the edge of the cloud cover area and the aircraft was flying at a pressure altitude of approximately 15,000 ft. As they progressed, they were probably not technically VFR but flying under Visual Met Conditions (VMC), which are flight conditions in which flight solely by visual reference is possible but without sufficient separation from cloud. Specifically, they would have been skimming at less than 1,000ft above the cloud tops and would have been able to see the ridgeline to the South. As they progressed past point 10 on the Sky Connect plot, the cloud tops rose and the aircraft gradually climbed to try and remain VMC on top.
By point 12 on the plot, the pilots were losing control of the situation. They were flying at a Pressure Altitude of approximately 16,500 ft as shown on their cockpit instruments and were aware they were dramatically exceeding the aircraft's release to service for Density Altitude. The aircraft's handling was becoming extremely sluggish and unresponsive. Although still daylight at their altitude, it was getting dark below and they were conscious that a return to Mazuco was now a closed option since the disused airfield has no lighting. They were running out of good options. They could see the ridgeline close by to the South and a snap decision was taken to turn through 100 degrees in an attempt to cross the ridge of the Mama Rosa Mountain. As they approached the ridgeline, they were flying at high power but the rate of climb was low. Realising they were unlikely to gain enough altitude, they attempted to turn away which initiated retreating blade stall and they lost control of the aircraft.
Causes of the accident
The experts agreed and I find the following direct causes of the accident (in descending order or immediacy):
(1) Either lack of knowledge or disregard of aircraft limitations which resulted in the significant exceedance of the approved flight envelope.
(2) The extremely demanding and unforgiving environment of high mountainous terrain which reduced margin for error to a bare minimum.
(3) The deteriorating weather conditions that constrained the pilots' options and caused them to change their route while in the air from via Paucartambo.
(4) A failure to make a timely decision to abort the attempt to return to Cusco and instead return to Mazuco.
(5) The decision to leave Mazuco at a time that would inevitably result in breaching regulations by flying the aircraft under night conditions.
(6) The crew's failure to withstand client pressure to take-off and return to Cusco on 6 June.
Other agreed causal factors were:
(1) The length of the working day fatiguing the crew and impairing their decision-making abilities.
(2) Neither pilot was qualified to fly Instrument Meteorological Conditions ("IMC") (or to hold an instrument rating) and Capt. Lozano had no night currency.
(3) The helicopter was not equipped for flight in IMC and HeliCusco was not approved for night IMC/Instrument Flight Rules ("IFR") operations.
(4) The crew knew or ought to have known that they would be in breach of flying regulations on a number of counts.
The law
Employers owe a personal, non-delegable duty to their employees to take reasonable care for their physical safety. The employer's duty is "so to carry on his operations as not to subject those employed by him to unnecessary risk": Smith v Baker [1891] AC 325 at 362, per Lord Herschell. An unnecessary risk is "any risk that the employer can reasonably foresee and which he can guard against by any measures, the convenience and expense of which are not entirely disproportionate to the risk involved".: Harris v Brights Asphalt Contractors Ltd [1953] 1 WLR 341 at 344.
In many cases the employer's duty relates to the premises occupied by him and the system of work there provided. However, it may also extend to third party premises to which the employee is sent to work, although what the duty of reasonable care requires in such circumstances is likely to be very different.
In Wilson v. Tyneside Window Cleaning Co. [1958] 2 QB 110 Pearce LJ explained the position as follows at pp. 121–122:
"Now it is true that in Wilsons & Clyde Coal Co. Ltd. v. English [1938] AC 57 Lord Wright divided up the duty of a master into three main headings, for convenience of definition or argument; but all three are ultimately only manifestations of the same duty of the master to take reasonable care so to carry out his operations as not to subject those employed by him to unnecessary risk. Whether the servant is working on the premises of the master or those of a stranger, that duty is still, as it seems to me, the same; but as a matter of common sense its performance and discharge will probably be vastly different in the two cases. The master's own premises are under his control: if they are dangerously in need of repair he can and must rectify the fault at once if he is to escape the censure of negligence. But if a master sends his plumber to mend a leak in a respectable private house, no one could hold him negligent for not visiting the house himself to see if the carpet in the hall creates a trap. Between these extremes are countless possible examples in which the court may have to decide the question of fact: Did the master take reasonable care so to carry out his operations as not to subject those employed by him to unnecessary risk? Precautions dictated by reasonable care when the servant works on the master's premises may be wholly prevented or greatly circumscribed by the fact that the place of work is under the control of a stranger. Additional safeguards intended to reinforce the man's own knowledge and skill in surmounting difficulties or dangers may be reasonable in the former case but impracticable and unreasonable in the latter. So viewed, the question whether the master was in control of the premises ceases to be a matter of technicality and becomes merely one of the ingredients, albeit a very important one, in a consideration of the question of fact whether, in all the circumstances, the master took reasonable care."
In Smith v. Austin Lifts Ltd. [1959] 1 WLR 100 Lord Denning stated as follows at p. 117:
"….employers who send their workmen to work on the premises of others cannot renounce all responsibility for their safety. The employers still have an overriding duty to take reasonable care not to expose their men to unnecessary risk. They must, for instance, take reasonable care to devise a safe system of work, see General Cleaning Contractors Ltd. v. Christmas [1953] AC 180: and if they know or ought to know of a danger on the premises to which they send their men, they ought to take reasonable care to safeguard them from it. What is reasonable care depends, of course, on the circumstances, see Wilson v. Tyneside Window Cleaning Co. [1958] 2 QB 110."
Having referred to the above passages Farquharson LJ stated as follows in Cook v Square D Ltd. [1992] ICR 262 at p268:
"It is clear that in determining an employer's responsibility one has to look at all the circumstances of the case, including the place where the work is to be done, the nature of the building on the site concerned (if there is a building), the experience of the employee who is so despatched to work at such a site, the nature of the work he is required to carry out, the degree of control that the employer can reasonably exercise in the circumstances, and the employer's own knowledge of the defective state of the premises.."
Cook v Square D Ltd. concerned an employee sent to work on short term assignment abroad in Saudi Arabia. Although it was held that the employer had a duty, which could not be delegated, to take all reasonable care to ensure the safety of the employee while working abroad, the Court of Appeal decided that on the facts that there had been no breach of such duty. In reaching that conclusion it was stressed that the employer had been satisfied that the site occupiers and the general contractors were both reliable companies and aware of their responsibility for the safety of workers on site and that "the suggestion that the home-based employers have any responsibility for the daily events of a site in Saudi Arabia has an air of unreality" (at p.271F).
Just as the employer's duty may extend to third party premises abroad, so it may also extend to transport to and from such a place of work.
So, for example, in Palfrey v Ark Offshore Ltd (23 February 2001, QBD - Deputy Judge HHJ Graham Jones) the claimant was the widow of a former employee of the defendant (Ark). Her husband (P) had died from malaria after travelling twice to West Africa in order to work on an oil rig operated by a third party, (Atwood). These trips involved an overnight stay on an island where P had been bitten by mosquitoes. The claimant had claimed that when P had asked a director of the defendant employers what medical protection he would need, he was told that he would not need any as he would be based offshore. As the Court put it (at paragraph [7] of the judgment):
"The case against Ark was that, as Mr. Palfrey's employers, they ought to have had, but did not have, an effective policy for the provision of advice as to health precautions to be taken by an employee sent to the area of Cameroon in Equatorial Guinea in the course of his employment and because they had no such effective policy they failed to give Mr. Palfrey any or any appropriate and accurate advice as to such precautions, so endangering his safety. They were accordingly in breach of their duty under the contract of employment and at common law to take reasonable care for the safety of their employee, in particular to take reasonable care to see that he was reasonably safe whilst travelling to and from and at his place of work abroad where he was required to go in the course of his employment".
The evidence was to the effect that there was no need for medical precautions to be taken whilst on the rig offshore but that there was such a need whilst onshore in the course of travel to the rig. Onshore there were endemic diseases giving rise to "a high risk of serious illness".
The failure to have a practice of ensuring Ark's employees went to the GPs or took other medical advice to receive relevant inoculations was held to be a clear failure on the part of the employers to take reasonable care of P in the course of his employment, "which included travel to and from the rig". As the Judge found:
"[24] The weight of the evidence is that Ark did not implement a practice of ensuring that its employees went to their general practitioners or took other medical advice to make sure all relevant inoculations were identified and received. At best, on occasions there were references to jabs being up to date and the need for yellow fever vaccination. None of the employees who went to the Oceanic rig was told that he must consult his doctor and take advice about protection and precautions. Mr. Palfrey was in effect told there was no need to do so. There was a clear failure on the part of Ark to take reasonable care to ensure the safety of Mr. Palfrey in the course of his employment, which included travel to and from the rig."(emphasis added)
Another example of employer liability for travel and indeed transport abroad is Durnford v Western Atlas International Inc [2003] EWCA Civ 396. In that case the claimant was employed as a position systems analyst, or sea surveyor. His employer was involved in oil exploration of the coast of Nigeria. In the course of his employment, the claimant was required to travel from his home in north-east of England to Nigeria to work on a sea-going vessel, the Telco Dover. His travel involved being transferred to a coach to travel from Port Harcourt airport to the port, accompanied by armed naval personnel and the defendant's shore surveyor, a journey which should have taken about one and a half hours; but the coach broke down about ten minutes into the journey. The claimant and his colleagues then waited at the roadside for about an hour or so while alternative transport was arranged; this consisted of two camper-type mini-buses and the journey in them lasted about one hour and a quarter. Mr Durnford suffered an acute prolapse of an inter-vertebral disc which he alleged was caused by the negligence of his employer in failing to provide a suitable mode of transportation to the Nigerian port, his case being that he sustained an injury to his back as a result of the journey in the mini-bus. After the coach had broken down the defendant had provided two minibuses in its place and he had been placed in a cramped position in the minibus on a folded down seat with little padding and no armrests or back support.
The trial judge, Walton J, found for the claimant on liability in relation to the breach of the employer's duty towards his employee in relation to his travel on a mini-bus on Nigerian roads. It was found that the minibus was the most significant causal link between the journey and the injury and that it was foreseeable that there was a risk of injury to a person of ordinary physical robustness as a result of that minibus journey. Walton J. found that although there was evidence of the need to get away from the area where the coach broke down due to security risks, there was no evidence of any inquiries made regarding alternative transport and therefore the defendant had not discharged the evidential burden of satisfying the court that reasonable care was taken in providing the minibus transport for the claimant.
The Court of Appeal (Peter Gibson, L.J; Mance, L.J; Hooper J) rejected the employer's appeal. As Mance LJ commented at [29]:
"As I see it there was nothing wrong with a minibus per se, but the two minibuses provided did not in fact have enough places to offer the claimant any satisfactory form of seating on a substantial journey over not the best of roads. There was no evidence that larger minibuses could not have been provided or that a further minibus or car could not have been provided to ensure that everyone had a proper seat. That, it seems to me, was at the root of the present problem which, as a matter of causation, led to the claimant's injury".
As StormHarbour pointed out, that was a case where the defendant's shore surveyor was present and arranged for the transport. Nevertheless, it is an illustration of liability of an employer for breach of duty of care in relation to transport abroad. It also provides an illustration of the potential need to consider the safety of such transport arrangements, as borne out by the provision of an armed escort in that case.
Hopps v Mott MacDonald Ltd & the MOD [2009] EWHC 1881 (QB - Christopher Clarke J) is another case which considers an employer's duty of care in relation to transport provided abroad. In that case the claimant (H) claimed damages against his employer (M) and the MOD for personal injuries suffered in a roadside bombing in Basrah, Iraq. Following the invasion of Iraq in March 2003 an emergency infrastructure plan was implemented to provide support for essential services in order to improve the life of ordinary Iraqis. M was a consultancy which provided contract personnel for the Department for International Development and others in a wide range of services including energy and civil engineering. M entered into a contract to supply a team of consultant engineers to the Coalition Provisional Authority in control of Iraq. H was a consultant electrical engineer who volunteered to go to Iraq under contract with M. M's staff were located in a secure area of Basrah international airport, a military base, and had army protection both there and during site visits.
While travelling through Basrah in a Land Rover Discovery, escorted by another Land Rover containing soldiers, H was injured when the vehicle was struck by the exploding material from an improvised explosive device incorporating an artillery shell. The vehicle in which H was travelling was a standard production Land Rover. Of the four people in the vehicle, three were injured including H and one was killed. H claimed damages against M and the MOD on the basis that there had been a failure to take reasonable care for his safety. H contended that M should have carried out a risk assessment to assess the suitability of the proposed transport arrangements and the provision of security and in light of the security situation at the relevant time should have ensured that staff including H travelled only in an armoured vehicle or remained in the base; if he had been in an armoured vehicle, he would have suffered either no injury or significantly less injury as a result of the explosion.
There was no dispute that the duty covered the mode of transport used to transport H in Iraq. It was on the facts and not the scope of the duty of care that H's claim failed. He failed to show that the level of risk from improvised explosive devices in Basrah at the relevant time was such that his employer should only have allowed him to travel in an armoured vehicle. Before the incident the point had not been reached at which the exercise of reasonable care required the procurement of a factory produced armoured vehicle. On the evidence, the Court held that it was not unreasonable for H to have been carried around Basrah at the relevant time in an unarmoured vehicle. Christopher Clarke J approached that issue as follows:
"… In determining what is reasonable it is, firstly, necessary to consider the extent of the risks to which the claimant and others were exposed. I accept the submission of the MOD that that involves considering (a) the nature of the risk; (b) the likelihood of it eventuating; and (c) the likelihood of harm being sustained (and the extent of that harm) if it does. In deciding what steps had to be taken in order to deal with these risks it is relevant to take into consideration (i) the nature and purpose of the work that the claimant was employed to perform; (ii) the priority of the risks i.e. which were the principal and which the secondary risks; (iii) the effectiveness of various protective measures that could be taken and (iv) the consequences of taking them".
Hopps was a case in which there was an obvious need for some form of risk assessment. As Smith LJ observed in Uren v Corporate Leisure (UK) Ltd & Ministry of Defence [2011] EWCA Civ 66 at [42]"risk assessments are an important feature of the health and safety landscape". She noted that the employer (the MOD) had a statutory duty in that case to carry out a risk assessment and that this duty was also non-delegable, stating that:
"[71] It is trite law that the common law duty of an employer to an employee cannot be delegated: see Wilson's and Clyde Coal Co v English [1959] A.C. 604 . It seems to me that the duty to undertake a risk assessment is so closely related to the common law duties of the employer that it would be remarkable if the duty to undertake a risk assessment were delegable and yet the general responsibility for safety were not. In my view, the judge was clearly right to hold that the risk assessment duty is non-delegable.
[72] I do accept that what amounts to 'a suitable and sufficient' risk assessment may well vary according to circumstances. For example I can see that if an employer uses a contractor for some activity and satisfies himself that the contractor has carried out a thorough risk assessment in relation to that activity, that might well lead to the conclusion that the risk assessment carried out by the employer is suitable and sufficient even though it is not as detailed as would be otherwise required. That would be a question of fact in each individual case and it is impossible to generalise as to the standard of risk assessment which will be required of an employer. Here, on the facts, it is clear that CL did not carry out a suitable or sufficient risk assessment and it could not sensibly be argued that the MoD could properly rely on it. The two defendants did not even confer about risk assessments".
As Smith LJ further observed in the Uren case at [39]:
"It is obvious that the failure to carry out a proper risk assessment can never be the direct cause of an injury. There will, however, be some cases in which it can be shown that, on the facts, the failure to carry out a proper risk assessment has been indirectly causative of the injury. Where that is shown, liability will follow. Such a failure can only give rise to liability if a suitable and sufficient assessment would probably have resulted in a precaution being taken which would probably have avoided the injury. A decision of that kind will necessitate hypothetical consideration of what would have happened if there had been a proper assessment".
I was referred by to both parties to a large number of other authorities. I have had regard to all those authorities, including Davie v New Merton Board Mills Limited [1959] AC 602, a case upon which StormHarbour placed particular reliance. However, on the facts of this case I consider the cases referred to above to be of most relevance.
Issue 1 - Did the scope of StormHarbour's duty of care as employer extend to the HeliCusco charter and helicopter flight?
Mr Dusek went on the flight in the course of his employment for StormHarbour.
There was some debate at the hearing as to whether he was required by StormHarbour to go on the trip. In this connection the Claimants laid great stress on the notes taken of DWF's meeting with Mr Kozary which referred to the fact that "someone from StormHarbour had to be on the helicopter trip"; that "StormHarbour had 2" people on the helicopter and that "it was StormHarbour itinerary". They emphasised that none of these matters appeared in the draft witness summary which was produced at the time and then later provided for these proceedings and they criticised DWF and Mr Dickinson for this. I reject those criticisms. I am satisfied that Mr Dickinson prepared the draft witness statement in the normal way for consideration and review by Mr Kozary. Due to his sudden death that never occurred. There was no attempt to edit out points which might not be helpful to StormHarbour. Indeed Mr Dickinson had only recently been instructed and had no detailed knowledge of the case and the likely issues at the time. Later he simply exhibited what had been prepared at the time. There was no intent or attempt to mislead.
In any event I find the contemporaneous documents to be a more reliable guide to these matters than Mr Kozary's draft witness summary. These show that Samsung did require a StormHarbour representative to be on the site visit. They do not show that more than one StormHarbour representative was required, although whilst Acres had 4 places on the aircraft it was possible that there would be more than one. They show that the itinerary was determined by Samsung and Acres and that StormHarbour's role was to coordinate and to facilitate agreement on the itinerary, not to decide what it should be.
StormHarbour did not expressly order Mr Dusek to go on the helicopter trip. However, that does not alter the fact that, as found below, senior management well knew that either Mr Kozary or, as was more likely given his greater technical knowledge, Mr Dusek, would be going on the trip and would be doing so in order to further the Project which was the main task which they were employed to carry out at that time. It was Samsung who required there to be at least one StormHarbour representative present on the site visit and Mr Dusek and senior management went along with that requirement in the interests of client management. Mr Dusek went on the trip because it was considered necessary to do so to service the objectives of StormHarbour in relation to the Project and for the performance of his job. The only reason he was on the trip was because of his employment. Further, it was within StormHarbour's power and control to decide whether he should be on the trip. In all the circumstances I find that he was travelling on the helicopter because he was required to do so for the purposes of his employment.
In going on the flight Mr Dusek was acting during the course of his employment and in my judgment StormHarbour owed him a duty to take reasonable care not to subject him to unnecessary risk. As StormHarbour submitted, the performance of that duty may not have required StormHarbour to do anything, but even if that be so that does not mean that there is no duty.
In my judgment, as found in the Palfrey case, StormHarbour was on the facts of this case under a duty "to take reasonable care to see that he was reasonably safe while travelling to and from and at his place of work abroad where he was required to go in the course of his employment". In this case that place of work was the Project site.
The main matters relied upon by StormHarbour to negate any duty of care were:
(1) The flight was not part of StormHarbour's operations. StormHarbour did not require the helicopter trip.
(2) The flight was part of the operations of Acres and Samsung. StormHarbour did not specify, arrange or charter the trip. It was required principally by Samsung. It was arranged and chartered by Acres and Samsung.
(3) Acres offered one of their seats to a representative of StormHarbour. The offer was not floated before 24 May 2012. Mr Dusek was offered the opportunity of taking the seat by Mr Kozary sometime after that. Mr Dusek was not ordered or required to take any seat on the helicopter by StormHarbour. Mr Kozary and Mr Dusek were at the same level and Mr Dusek was well able to decide what to do.
(4) StormHarbour did not assume any responsibility for the trip. Neither can it be properly be said that they delegated to Acres or Samsung (or HeliCusco who they had never heard of).
(5) Mr Dusek was a high-level employee with great autonomy. There is no evidence that Mr Dusek was looking to StormHarbour to ensure his safety.
Many of these factors go to whether StormHarbour owed a duty of care in relation to either the chartering of the helicopter by Acres/Samsung or the performance of the charter by HeliCusco. I accept StormHarbour's case that it owed no such duty. It was neither required to nor did it charter the helicopter. All that it was required to do was to send one of its employees on that helicopter for the chartered trip to the Project site and it is in relation to that employment role that it owed a duty of care.
Considering the factors relied upon in that context, as to (1) and (2), whilst I accept that StormHarbour did not order Mr Dusek to go on the helicopter trip it, as already found, it did in all the circumstances require an employee to go on it. As StormHarbour knew, he (or Mr Kozary) would be going on the trip as its employee in order to further the Project and it was in a position to decide whether or not either of them should do so.
As to (3), as found below, StormHarbour knew on or by 25 May 2012 that one of its employees would be going on the helicopter site visit.
As to (4), whether or not StormHarbour assumed responsibility for the trip it had a responsibility as an employer to take reasonable care to ensure that it was reasonably safe for its employee to go on that trip. That was a duty it owed personally. It was not a question of delegation to Acres or Samsung.
As to (5), the duty of an employer to take reasonable care for its employee's safety arises regardless of whether that employee makes it clear that he is looking to it to perform that duty.
In my judgment many of the matters relied upon by StormHarbour are more relevant to the question of whether its duty of reasonable care required anything to be done than to whether such duty was owed.
StormHarbour further submitted that to find that a duty of care existed in relation to the travel of employees for work purposes would be unreasonable and undesirable and would have far reaching consequences. I do not accept that. In many cases an employer will be able to entrust performance of its duty to reputable travel agents who will address and satisfactorily deal with any safety issues which may arise. Further, as StormHarbour itself submitted, in most cases such a duty would not require anything to be done. If, for example, an employee is sent on a scheduled flight from London to New York for business purposes nobody would suggest that the employer's duty required some further steps or inquiry to be made. Such a trip would not be subjecting the employee to unnecessary risk. It might, however, be different if, for example, the employee was being required to go on a chartered internal flight in an undeveloped country on an airline with a notoriously poor safety record and/or on the EU's banned operator list. It all depends on the facts.
I accordingly conclude that in the factual circumstances of this case StormHarbour did owe a duty to take reasonable care not to subject Mr Dusek to unnecessary risk in travelling to the Project site for the purpose of his employment.
Issue (2) - If there was such a duty, did StormHarbour breach it?
In considering this issue it is necessary to consider both the risks involved in the helicopter trip and the knowledge which StormHarbour had or should have had of those risks.
The flight risks
In the light of the evidence at trial I have no doubt that this was a high risk flight and, for this helicopter, a dangerous one.
The Andes mountains are hostile terrain for helicopter flying. As StormHarbour's aviation expert, Mr Nash, said in evidence:
"Make no mistake about it, this is some of the most challenging operating terrain in the world because of the mountain ranges that you have and the temperatures as well which affect the performance of helicopters".
As Mr Nash explained in his report:
"Mountain flying is highly demanding due to rapidly changing weather conditions and turbulence. Turbulence is a particular issue for helicopter mountain ops and can disrupt the airflow around the rotor disc causing lift to be disrupted and extra stresses to be placed on the rotor blades. In addition, up and down draughts can have a dramatic impact on the flight path of the aircraft when operating at or near the edge of the performance envelope. For this reason, experienced mountain pilots never fly directly towards ridges and choose instead to make oblique crossing so that, in the event of downdraught, the aircraft can be turned away from the rock face. Therefore, the implication of operating outside of the performance envelope in these conditions is hazardous in the extreme."
The evidence of Mr Connolly was to similar effect:
"Pilots operating in the mountains should be aware of the volatility of the weather and the techniques to avoid severe updrafts, downdrafts and turbulence, as well as the need to maintain visual contact, or to fly above Safety Altitude if in IMC. Safety Altitude in the case of this sector would, in my opinion, have needed to be at least 1500 ft above the highest ground or obstacle within 10 miles of intended route, or such greater limits as may have been specified for safety in the company operation manual."
In evidence Mr Connolly described the topology of the area as:
"A. Mountainous, high mountains. The whole area really was mountainous with some valleys, with isolated valleys in the mountains, but still at relatively high altitude.
Q. By comparison with other mountain ranges you are familiar with say, for example, the Alps where you trained with the French?
A. Much more inhospitable than the Alps in terms of territory, very what one might call hostile territory, hostile terrain.
Q. Why?
A. Because the nature of the relief, the steep-sidedness of it, the cragginess, the general very high altitude which would be close to the operating limits of many helicopters, and the probable lack of many areas suitable for forced landings would make it what might be called inhospitable or hostile territory."
HeliCusco's S58ET had significant operational limitations for such mountain flying. In particular, its maximum permitted altitude was 15,000 ft Density Altitude. It was also only authorised to operate under daytime Visual Flight Rules (VFR) in Visual Meteorological Conditions (VMC). Further, under its Ops Manual HeliCusco was not to conduct operations "under Instrument Flight Rules (IFR) or under Visual Flight Rules (VFR) at night" or "over the top of clouds".
Density Altitude is a combination of pressure altitude and temperature and is defined as the height in standard atmosphere to which the actual air density at any particular point corresponds. High temperatures have a negative impact on Density Altitude. Decreased air density adversely affects helicopter performance in several important ways and in particular the power available; the power required; handling; stability and lift.
As Mr Connolly explained:
"At or near its maximum operation altitude the cleared airspeed envelope is restricted for reasons of aircraft controllability and airframe fatigue. The aircraft is less responsive than at low altitude and needs careful handling to reduce the possibility of blade stall, which can lead to loss of lift and to possible control problems. Reduced air density also degrades climb performance, so a sudden need to climb, for example to clear an obstacle, would be difficult."
VMC are meteorological conditions expressed in terms of visibility, distance from cloud and ceiling equal to or better than specified minima, namely: when above 3,000 ft or 1,000 ft above terrain, whichever is higher of 1500m horizontally and 1,000 ft vertically from cloud or flight visibility 5km below 10,000 ft and 8km above 10,000 ft: when below 3,000 ft or 1,000 ft above terrain, whichever is higher of clear of cloud and in sight of the surface or flight visibility 5km.
In this case the aircraft's Ops Manual's requirement that it was not to operate "over the top of clouds" meant that helicopter was not authorised to operate over cloud, even if 1,000 ft vertically from it. In effect it was prohibited from flying in between or above cloud.
Cusco is very high. Its airport is 10,860 ft AMSL. High temperatures could mean that this was over the required 12,000 ft Density Altitude for take off and landing. This was indeed the case when the flight took off at 09:09hrs on the morning of 6 June 2012 when its Density Altitude would have been around 12,400 ft.
The trip to Mazuco would involve going via Parucartambo and the evidence of Mr Nash was that this was the only feasible route. This meant crossing an elevation of about 13,500 ft AMSL. Depending on the temperature this could be above the 15,000 ft Density Altitude limit. Temperatures would be likely to rise during the day so that risk would increase with an afternoon return flight, as was planned. Afternoons also brought an increased risk of thunderstorms.
As Mr Nash explained in evidence:
"A. The cross-section there gives you an indication that Cusco is an extremely high airport. I think it is probably the highest airfield in the Andes Mountains and then to go up from there, the top line is obviously 15,000 feet. Go across the ridge and then drop down to Paucartambo so it followed the valley route to get over that ridge which, given where Cusco is and given that this area is, you know, very inaccessible so helicopters are one of the few ways of which you can get around this area, I would assume that Paucartambo is a standard route for people flying out of Cusco to transit across, be it in the S-58, be it the AS350B3, to get out of Cusco to get across because if you go on to the next page you can see as you come from Paucartambo you drop away off the mountains.
Q. Thank you, Mr Nash. Is it fair to say your margin of course depends upon the weather and the temperature?
A. It does, yes, because it's a density altitude calculation not a straight flight.
Q. So there's absolutely no room for any deviation from that planned, original planned route?
A. No.
Q. None at all?
A. No. ….
….
A. By exceeding the aircraft limitation ….you are stepping outside of the flight envelope of the aircraft when you start exceeding the limitations of the aircraft and by definition you are into unchartered territory. Therefore, your safety margin's reduced. The further you go away from the envelope, the further your safety margin is reduced.
Q. I think the phrase you used in your witness statement: "The implication of operating outside of the performance envelope in these conditions is hazardous in the extreme."
A. Absolutely and I stand by that statement."
As Mr Nash explained, in the event the HeliCusco planned route ran into problems of this nature from the outset because of the delayed start, which made it "more problematic" to come back over the Andes in the afternoon. With the temperature going up, "it could have been doable but I don't know".
The planned route therefore always involved a serious risk that the helicopter's operational limits would be exceeded in terms of Density Altitude, particularly in relation to the planned afternoon return flight.
There was also a serious risk of operational limits being exceeded in relation to meteorological conditions and cloud cover. There is no weather radar in Peru. As Mr Nash said in his report:
"As previously mentioned, from my research, there is no weather radar in Peru. The only detailed Met. Information available would have been able to get a general picture of where the forecast weather deterioration was in the area. There was absolutely no possibility of getting accurate data for weather along their route short of actual observation from the ground – given the total lack of habitation and localised weather in the mountains, this was not an option."
Since there was "no possibility of getting accurate data for the weather along their route" there was no way of knowing whether one could fly the route without going in between or above cloud. Further, as Mr Connolly explained:
"Cloud formation in the mountains can be unpredictable. Orographic effects of wind with updrafts and downdrafts can result in roll cloud formation. Winds are largely affected by contours and the relief, with increased wind strengths due to funnel effects, and turbulence, particularly in the lee of ridge lines, I have personal experience of unexpected roll cloud formation during night in Snowdonia, UK; and I am well acquainted with a fatal accident in the mountains of Papua New Guinea caused when a helicopter suddenly entered such rapidly forming cloud."
Whilst local pilots no doubt have good knowledge of local weather conditions they cannot know what those conditions are along the entire route without weather information. Whilst it was suggested that they could speak to other local pilots that would entirely depend upon what flights there were, where and when.
Although the aviation experts agreed that "it would have been possible for the route to be flown safely in good visual conditions, in daylight", the reality is that there was no means of being sure that visual conditions would be good throughout the route. Further, high temperatures could well mean Density Altitude being exceeded.
The factual evidence of Mr Martin of Helinka was also to the effect that the proposed route was dangerous. He described it as being "a very dangerous route" and flying out from Cusco as being "a very complicated thing". He explained in evidence that Helinka had flown five or six ferry flights, never with passengers, between 2006 and 2008 when Helinka had a couple of helicopters permanently based in Cusco. The dangers encountered involved very strong winds, scissor winds, that had resulted in two, "nearly incidents". These had been discussed in Helinka's daily meetings with their chief of operations and also discussed with the pilots. "So that's why I knew perfectly that it was a dangerous route". As a consequence, at Helinka, "we knew that we would try to avoid to do this route". Helinka flew the five or six ferry flights, but never commercially carried passengers. In doing those ferry flights, the company "… were taking all the necessary safety measures in order to make it the safest possible, especially what the weather like and also in regards to when you do it, it is a known fact in the Andes that you should never, ever fly after 1.00 or 2.00 in the afternoon". He said that for Helinka:
"it was highly recommended not to say mandatory not to fly out from Cusco going to the orient, to the east, to the Amazon, due to the fact that it's known to be an unstable weather region with a high mountains. That's why we never quoted flights going out from Cusco to the Amazon part on the east side."
As he further explained in evidence:
"….a helicopter's enemy is high and hot and in Peru we have one of the most toughest conditions on earth. It's probably one of the fourth/fifth countries most difficult to fly because we have both enemies of the helicopter together at the same time at the same place. We have high elevation, high altitude. Remember that you have to cross Andes at the height of the Mont Blanc or higher and then you have temperature which are ISO plus 20, which is a reference, just say that in Cusco you have 20/25 degrees temperature sometimes at 10.00 or 11.00 in the morning and you are at 10,800 feet. Can you imagine in Europe or in United States at 10,800 feet you are at minus 10 or minus 15, okay, degrees."
Although the Accident Report did not set out any views or conclusions as to the safety of the planned trip, on the evidence before the court I find that for this helicopter with its operational limitations it was dangerous.
StormHarbour's knowledge of the risks
In relation to StormHarbour's knowledge, senior management were well aware that the Project site was in a remote and undeveloped part of the Andes, being about 200km from the Peruvian national grid, that the site could not be reached by road and that the roads to the Project area were hazardous.
For example, on 17 January 2012 Mr Dusek had sent an email to Mr Keeley that attached the Project Overview for January 2012, which contained pictures of the mountainous terrain around the project site, a map of the local area, and a diagram of the mountainous terrain.
They were also aware by 4 May 2012 that that the proposed visit to the site would be by chartered helicopter. This was apparent from the 4 May itinerary, copies of which were sent to Mr Cacorino and Mr Keeley.
They were also aware on or by 25 May 2012 that either Mr Dusek or Mr Kozary would be going on the site visit. This was apparent from the Travel Approval sought and given by Mr Keeley on 24 May 2012. As he accepted in evidence, this "highlights that they will be making on this trip a site visit to the project area".
Further, Mr Keeley's evidence was that "one Friday night" before Mr Dusek and Mr Kozary left for Peru he saw them looking at a helicopter on their PC and heard them discussing the trip. Although Mr Keeley was not clear which Friday this was I find that it was Friday 25 May 2012.
I am also satisfied that all these details, including that the itinerary involved a chartered helicopter flight from Cusco, would have been known to Mr Cacorino. As Mr Keeley said, both Mr Dusek and Mr Kozary "had a direct line to Antonio Cacorino. They would explain their transactions to him and keep him informed of any progress". Further, there were discussions going on at this time as to whether Mr Cacorino should himself attend. As Mr Dusek said in an email to Mr Keeley of 24 May 2012:
"Thanks Terry
Both Antonio and Water are aware of the Samsung DD trip.
We've been having lengthy conversations with Antonio regarding a request for a retainer from ACRES and we've also been discussing with HH & Water the possibility that HH might attend, but it's a very long and expensive flight (more than the costs of Paul and I put together) and too long time to commit. The Korean group consists mainly of engineers, not high level managers.
In short, I think Antonio and / or Water should attend the closing, rather than sit through due diligence."
StormHarbour's senior management therefore knew on or by 25 May 2012 that at least one of their employees would be going on a chartered helicopter trip from Cusco for a site visit to a remote, inaccessible, inhospitable and mountainous area of the Andes in Peru. That visit was likely to involve attempts to land at various different Project site areas. They would also have known, as it is common knowledge, that Cusco is sited at high altitude.
I find that there were reasonably foreseeable and indeed obvious potential dangers involved in such a trip.
A reasonable and responsible employer would have realised that if their employee was to fly on a helicopter from high altitude across the challenging mountainous environment of the Andes mountains to land at and visit remote sites there was a real risk of danger to their employee; that the personal safety of their employee would be entirely dependent on the safe operation and performance of that chartered helicopter flight; that this would be dependent on the helicopter operators and/or crew acting in strict compliance with all relevant air safety/travel requirements necessary to ensure the safety of their passengers, and on the helicopter crew and/or operators being suitably qualified, equipped, trained and/or skilled to take all necessary precautions to ensure the safety of their passengers in the geographical and/or climatic conditions to be found there.
The proposed flight raised obvious and foreseeable safety risks. The essential nature of the risk was unsafe operation or performance of the helicopter flight. Further, there was a real prospect of that risk eventuating given the challenging nature of the flight. Yet further, if such risk did eventuate the likely consequence was catastrophic, namely death or at least serious personal injury.
It was not necessary for StormHarbour's employees to be exposed to that risk. StormHarbour always had the option of instructing Mr Dusek and Mr Kozary not to go on the flight. This would have involved minimal inconvenience and no expense. On StormHarbour's own case it was not necessary for them to be on the site visit. It was simply advisable as a matter of good client management given Samsung's request that a StormHarbour representative be present.
If its employees were nevertheless to be exposed to that risk I find that StormHarbour owed a duty to take reasonable care to safeguard them from the danger involved. In the factual circumstances of this case I find that that required StormHarbour to make at least some form of inquiry into the safety of the trip and carry out some form of risk assessment. For reasons set out below, such an inquiry could well have involved minimal time and little, if any, cost.
StormHarbour's case was it was not required to do anything. It submitted that on the basis of what StormHarbour knew or is deemed to have known, the risk of an accident was slight and an accident was not sufficiently likely so as to have warranted StormHarbour taking any step. In particular, it submitted that:
(1) Hindsight is to be avoided;
(2) Helicopter flying is regulated at international and national level with oversight;
(3) The statistics for helicopter flying generally do not call for employer action;
(4) There is no regulatory or general guidance calling for action in the case of helicopters generally;
(5) The FCO does not suggest that helicopter trips in Peru should be a source of concern;
(6) The aviation regulation system in Peru is efficient and even had statistics been found they would have shown that helicopter accidents in Peru are rare.
(7) It is unreal to expect StormHarbour to have been concerned or done much about a trip in Peru.
(8) HeliCusco was a licensed and local operator.
(9) Mr Dusek was a high-level employee, a very experienced traveller, a careful man who had previously been on helicopters and with great autonomy capable to determining risk and seeking assistance in the case of real risk and there is no evidence that he thought there was a material risk.
(10) No one else (in particular Acres and Samsung) appears to have considered there to be a real risk.
(11) The accident occurred not because there was a real risk with the plan but because the crew acted as they did on the day.
I accept that hindsight is to be avoided, that helicopter flying is regulated at international and national level, that Mr Dusek was a high level and responsible employee who enjoyed a degree of autonomy and that neither he nor anyone else involved in the charter had seemingly raised safety concerns. However, there were safety concerns, both apparent and real. The planned flight was high risk and dangerous for reasons already given regardless of what occurred on the day of the accident. It left no margin for error and any crew errors on the day have to be considered in the light of the hazardous nature of the planned flight. As the aviation experts agreed, the second most immediate and direct cause of the accident was "the extremely demanding and unforgiving environment of high mountainous terrain which reduced margin for error to a bare minimum".
A number of the factors relied upon would not have been known to StormHarbour (e.g. factors (3), (4), (5), (6) and (8)). Further, in so far as they relate to actual rather than perceived risk they are generic and do not relate to the specific proposed flight.
In my judgment, many of the factors relied upon by StormHarbour are more relevant to what would have been learned had some safety inquiry been made rather than to whether such an inquiry should have been made. As such, they highlight the need for some inquiry to be made. Even if that were not so, I would not regard them as justifying doing absolutely nothing.
StormHarbour further submitted that it was entitled to rely on others and it was in this connection that it placed particular reliance on the Davie case. It emphasised that:
(1) The trip was being arranged by Acres and Samsung, both reputable organisations.
(2) Acres was based in Peru; it had previous involvement with an airline and the travel business; it had previously flown to the relevant project area.
(3) Samsung were reputable.
(4) HeliCusco was a licensed and local operator which had been in business for more than 5 years with no record of previous accidents which according to the quotes had considered and planned an itinerary.
(5) StormHarbour could also rely on Mr Dusek to spot real risks.
However, StormHarbour did not know anything about HeliCusco. It did know that, as far as it was aware, no safety concerns had been raised by Acres or Samsung, both reputable companies. But, it did not know whether either of them had carried out a risk assessment or, if not, the reasons why not. It knew nothing about what, if any, safety inquiries or investigations had been made. It did not know if Acres had ever flown with the helicopter operator or from Cusco to Mazuco. There was no reason for it to suppose that Mr Dusek would have known about such matters and in any event safety was its responsibility.
In oral submissions StormHarbour accepted that if there was something to put StormHarbour on notice that there might be dangers then some inquiry was required. On my findings that is this case.
Further, Mr Keeley, who was StormHarbour's responsible officer for health and safety matters, accepted in evidence that something should have been done.
When asked about StormHarbour's duties he said:
"Q. … What are your duties as a company towards your employees in regards their health and safety?
A. To ensure that they -- where they travel is safe."
When asked whether those duties were fulfilled he said:
"Q. …I am not asking you what you would do now. I know everyone can learn lessons from the past. I am asking you as to whether you say as the person in charge of health and safety that you believe in May/June 2012 that the company fulfilled its duty of care to Tomas Dusek in relation to that helicopter flight
A. I did not know nor did the company know -- I didn't know, forget about the company, I didn't know until very late that a helicopter -- Tomas was possibly going on a helicopter.
Q. But you did know.
A. At the 11th hour, yes.
Q. And you did nothing?
A. And I did nothing, that's correct.
Q. So how did you or the company fulfil your duty of care to Mr Tomas Dusek when he got on that helicopter?
A. I did not.
Q. You didn't?
A. No, I did not.
Q. Do you believe the company did fulfil its duty?
A. No, I do not."
It is correct that Mr Keeley is not a lawyer but as the responsible officer for health and safety he should have a good idea of what his duties are. It is also correct that Mr Keeley did not specify what StormHarbour should have done, but he clearly accepted that they should have done something. I agree.
What they should have done is considered further below, but, depending on the circumstances, they could have fulfilled their duty of care by taking steps involving little time and no cost.
I accordingly conclude that StormHarbour was in breach of its duty of care in doing nothing to investigate into the safety of the proposed helicopter flight.
(3) If StormHarbour did breach its duty, did that breach cause Mr Dusek's death?
The obvious first step was to make inquiry of Acres in relation to the safety of the proposed flight. This would involve asking for details as to the flight operator, the helicopter to be used, the flight route and as to how they had satisfied themselves as to the safety of the proposed flight.
Acres' reply could have been sufficient for StormHarbour to make a sufficient risk assessment and no further inquiry would have been needed. If, for example, Acres had replied that HeliCusco was a well established helicopter operator with no recorded accidents; that it had an Air Operator's Certificate ("AOC"); that it had used the company before on many occasions including on this proposed route; that HeliCusco had been frequently audited for safety purposes, and that it had been audited by Acres or had recently been successfully audited, then that might well have been sufficient for StormHarbour to be reasonably satisfied as to the safety of the trip.
It was StormHarbour's case that if it was obliged to make any inquiry it was limited to checking whether the operator had an AOC.
In this connection StormHarbour relied upon the international system of aviation regulation. Aviation is internationally regulated by reference to international standards and recommended practices. Standards are implemented by all countries, with the option to meet recommendations. Peru has a regulatory body in the Directorate General of Civil Aviation ("the DGAC"). Before issuing an AOC, the DGAC will have reviewed an applicant's operations manual, and will have audited such areas as management and organisational competence, crew training, aircraft maintenance, aircraft loading, flight planning and fuel planning. Also, all routine decision-making is discussed in advance of commercial operation and wherever possible written into the operator's operating manual.
StormHarbour also relied on the fact that there does not appear to be any statute, statutory regulation or other form of legislation, or government or industry guidance, or any established practice whereby ordinary UK companies are mandated or encouraged to commission any sort of audit of helicopter or aeroplane charter companies that they are contemplating chartering or using for transport of their employees in a foreign company, still less where the employee is going to be invited by a third party to fly on an aircraft chartered by a local company.
StormHarbour relied in particular on the evidence of Mr Commander. It was his evidence that the flight did not warrant due diligence beyond checking that HeliCusco had an AOC and that even this was not usual for most travellers using a helicopter operator. This was strongly disputed by Mr Watson.
I prefer the evidence of Mr Watson on this issue. As Mr Watson explained, holding an AOC does not indicate the quality of the application of the regulations in the country in question nor its applicability to the particular charter proposed. As he said, "I would want to see the operation specifications of that AOC because I need to be able to see that the company is approved to do what I am asking them to do".
As Mr Commander acknowledged in cross examination, the value of an AOC depends on the regulatory authority, and an AOC tells you nothing about the safety of the proposed route that it is intended to use the helicopter on.
The Peruvian Regulation RAP 119 (which provides the minimum level of compliance needed for an AOC in Peru) is very different to the 390 page CAP 789 document produced by the CAA in the UK. Even so, that CAA document shows that an AOC holder signifies only that the holder is considered "competent to secure the safe operation" of their aircraft. It does not guarantee their compliance with statutory requirements or the "safe conduct of a particular flight" by the operator or aircraft commander.
I also consider that Mr Commander's evidence is unrealistic as a matter of fact. The safety concerns raised by the proposed helicopter trip related primarily to the route rather than the operator. In such circumstances an inquiry limited to the operator and its certification would be neither likely nor sufficient. I therefore find that StormHarbour was obliged to make a general safety inquiry along the lines indicated above and that this is what it would have done as a matter of fact if it had done something, as Mr Keeley acknowledged it should have done.
What Acres' reply would have been to such and inquiry raises a disputed issue between the parties as to whether Helinka warned Acres as to the danger of the proposed flight from Cusco.
In his witness statement Mr Martin stated as follows:
"We explained to Acres that for safety they should travel by coach from Cusco to Mazuco Airfield and Mazuco Airfield would then be the base for operations. The coach journey only takes four hours. The road has recently been completed and is in very good condition. We explained that to get from Cusco to Mazuco Airfield by helicopter you have to cross the Andes Mountains which is very high. This limits the capacity of the helicopter to carry passengers because the more passengers that a helicopter carries the lower the maximum altitude that it can be safely operated at, and furthermore because of the high altitude of Cusco you are limited in the total load that you can carry without breaching regulations for maximum takeoff weight. Given the number of passengers that Acres wanted to carry we did not feel that a helicopter could be safely operated to cross the Andes. It was a much safer option to start from Mazuco Airfield."
In oral evidence it became apparent that Mr Martin was not present at the meetings with Acres and that it was Ms Bonnet who was dealing with them directly. He nevertheless said that she was reporting to him on a daily basis and that he had reports from her as to those meetings. So, for example, he explained and I accept that, although it did not appear in the written quote, another option offered to Acres at the meeting was to fly out from Puerto Maldonado. He said that "unofficial warnings" had been given as to the safety of flying from Cusco and that he knew this from her reports to him. Further, this was company policy and one would not refuse what the customer wanted without fully explaining why.
StormHarbour challenged this evidence in cross examination, although there was no evidence from Acres. Aside from the fact that Mr Martin did not deal personally with Acres, StormHarbour stressed that when Ms Bonnet explained in an email why it was scheduled to use Mazuco rather than Cusco as the base of operations, the reason given was aircraft capacity and no mention was made of safety issues.
I find that Ms Bonnet did raise safety issues in her discussions with Acres. Although Mr Martin's evidence on this issue is hearsay, it is inherently probable that she would have done so. She was aware that Acres wanted to fly from Cusco and that offering flights from somewhere else risked losing the business. In such circumstances she was likely to give as full an explanation as possible, all the more so if that explanation would help undermine rival offers involving flying from Cusco. I find that an explanation was given along the lines set out in Mr Martin's statement.
In those circumstances the likely response of Acres to the inquiry would have been to the effect that it had not previously flown by helicopter from Cusco to Mazuco; that its previous flights to the site area had been from Puerto Maldonado/Mazuco and had been carried out without incident; that one of the helicopter companies which had quoted for the trip had raised safety concerns about flying from Cusco across the high Andes and had recommended going by coach to Mazuco and flying from there; that HeliCusco was an AOC certified operator but that Acres had not carried out any specific risk assessment or audit of it.
Such a reply would have heightened StormHarbour's safety concerns and I find that it should and would have concluded that its employees should not go on the aircraft unless and until a satisfactory audit had been carried out and so instructed them. I do not accept that it would simply have left it to Mr Dusek to make up his own mind. Even if Acres' reply had not referred to Helinka's safety concerns I find that it would not have sufficiently allayed StromHarbour's safety concerns for it to allow its employees to go on the aircraft without further inquiry being made.
Such inquiry should and would have involved consulting an aviation assessor, of which there are many. If that had been done, I accept Mr Watson's evidence that any competent aviation assessor would have advised against going on the proposed trip on the basis of a desktop review, which could have been carried out at minimal cost. This would be mainly because of the flight risks already identified but the proposed use of a S58ET would also have caused some safety concerns aside from its operational limitations. In particular, the S58ET is a derivative of the S58 which first flew in 1954. This means that its design standard is essentially pre-1954 and that lessons learnt in aircraft design and crashworthiness since then are not built into its design. This is particularly important in relation to passenger transport over hostile terrain such as the high Andes.
That advice should and would have led StormHarbour to instruct its employees not to go on the trip. If, however, it had been decided to take the review to the next stage, that would have consisted of a remote audit. This would have involved a questionnaire; a consideration of key documents and any follow up telephone calls considered necessary. The questionnaire would include questions as to the operator's AOC; its Ops structure; its safety management system; its own risk assessment of the trip; its insurance; its maintenance programme and details of its engineers; the aircraft, its OpSpecs, its operational limitations and its emergency equipment; its pilots, their qualifications, experience and flight hours; the proposed route, site maps and site briefing notes; details of weather providers and of emergency response plans and recent audits. Such an audit would have resulted in the same advice as the desktop audit, but in stronger terms. The liability insurance limit of USD250,000 per passenger would have been a cause for concern in itself. Further, the aircraft OpSpecs showed that it was not authorised to land at Mazuco without specific authorisation. The OpSpecs also showed that it had to be treated as a single engined helicopter, a further concern. Again the consequence of such advice should and would have been an instruction not to go on the trip.
In both the above scenarios the aviation consultant's advice would have been fortified by the fact that there were readily available safe alternatives, as demonstrated by the Helinka quote.
The consequence of either of these scenarios would have been that there was no need to consider or to carry out a full operational and technical audit. Such an audit would be likely to have required a site visit and, unlike the other alternatives, would have involved significant cost (around USD5,000). If that had been done it would have resulted in yet stronger advice not to go on the flight.
StormHarbour laid great stress in its submissions on the unreasonableness of the imposition of any duty of care which might require employers to carry out expensive audits. However, the duty I have found does not impose any such requirement, as the facts of the present case well illustrate. I have found that it was insufficient for StormHarbour to do nothing and I have also found that they should have made some safety inquiry so that they could carry out an appropriate risk assessment. What that would have required is very fact dependent but on the facts of this case it would not in the event have resulted in any cost to StormHarbour and it always had the option of simply instructing its employees not to go on the flight.
Further, for Peruvian helicopter operators some form of audit is the norm, as made clear by the evidence of Mr Martin. It was Mr Martin's evidence that Helinka is frequently audited and that there are a number of local auditors who are used. He said that most of the auditors know the company well as they audit it 3 to 4 times a year. Whilst this often related to projects, he explained that Helinka had been audited for single charter operations and that in his experience at the very least a questionnaire audit would be performed in such a case.
I accordingly find that if StormHarbour had made the safety inquiry which it was required to do in order to make an appropriate risk assessment the result would have been that it would have instructed Mr Dusek and Mr Kozary not to go on the flight because of safety concerns. In such circumstances I find that Mr Dusek would not have done so. Although it was suggested that he was sufficiently independent minded and keen to go on the flight that he would have done so regardless, I find that he would not have done so. Although Mr Dusek was prepared to take risks, he did so on a calculated basis. He was also a devoted family man. He would not have taken on the risk of this flight in the light of an instruction not to do so from his employer on safety grounds.
If Mr Dusek had not gone on the flight then he would not have been killed. In all the circumstances I find causation to be proved.
Conclusion
I find the Claimants' case on liability to be proved on the basis set out above. The Claimants also put their case on different and wider grounds relating to the charter of the helicopter and the carrying out of the flight on the day in question. I have not found that wider case to be made out on the evidence. StormHarbour's liability rests on what it did not do; not on what Acres or HeliCusco may or may not have done. |
Mrs Justice Andrews:
This claim arises out of a decision by the First Defendant ("HMT") and the Second Defendants ("HMRC") that the new government policy of tax-free childcare ("TFC") should be delivered by HMT and HMRC working with the Third Defendant ("NS&I"). It is not the policy itself, but the mechanism for its delivery that is the subject of challenge.
TFC is a new scheme to support working families with the costs of childcare. It was first announced by the Government on 19 March 2013, and intended to be introduced in the autumn of 2015, with HMRC the primary budget holder with overall responsibility for its successful delivery. HMRC has been allocated monies by HMT to administer TFC. Under TFC, eligible families will be able to receive 20% of their childcare costs from the Government (the equivalent of basic rate tax relief), up to a maximum of £2,000 per child per year.
TFC will be delivered through childcare accounts. Eligible parents will open a bank account called a "childcare account" into which they make payments (and from which they will also be able to make withdrawals). There will be a separate account in respect of each child, rather than for each household, and grandparents (and possibly others, such as other relatives) will also be able to pay money into the account. The intention is that the parents will use payments into the account to make up 80% of the relevant childcare costs, which will be "topped up" by a transfer by HMRC into the account of the remaining 20%. The parents can then use the total funds to make payment to the registered childcare provider or providers of their choice. Employers are not involved in the scheme. Indeed, TFC will be available to self-employed parents provided that they meet the criteria for eligibility.
The Government estimates that 1.9 million parents could be eligible for TFC, and that the take-up from that constituency is likely to be around 1.2 million over five years, with some 1.6 million separate childcare accounts being opened (because some parents will be opening more than one account).
Instead of inviting tenders for the provision of childcare accounts, which was one option that it considered in the course of an extensive consultation process, HMRC and HMT decided to keep the matter in-house and utilise NS&I, a government department and Executive Agency of the Chancellor of the Exchequer, to provide and administer childcare accounts and supporting services. The main advantage of using NS&I to deliver the services is that it already has a banking infrastructure and customer support network in place that could be utilised and built upon. NS&I is one of the largest savings organizations in the UK, with more than £105 billion invested in its products, and over 26 million customers. Its products range from Premium Bonds to savings accounts, savings certificates and ISAs. Although its customers could choose to invest elsewhere, and to that extent it competes on the open market for custom, no other bank or financial institution offers to the public its unique savings products that involve lending money to the Exchequer. Because of its experience of dealing with millions of customers NS&I is well placed to deal with the levels of support that will be needed for TFC. Moreover, the Government, through HMT, had already invested considerable sums of money in upgrading its banking infrastructure and capability with the express intention that it be used to provide payment and account services to other government departments.
Another perceived advantage of using NS&I is that parents would not have to pay fees to a commercial account provider, or shop around among a number of providers to find the best deal. Instead they would engage with NS&I as a single point of contact to register for the scheme, make payments into their account, and arrange payments to the childcare provider(s). They can also be confident that the money they pay into the account would be secure, as it would be government backed.
HMRC will be responsible for checking eligibility, working out how much money is due to parents, and ensuring that the government contribution is paid into the accounts; if the decision is implemented, NS&I would be responsible for developing the web portal through which parents access TFC, providing the childcare accounts, processing payments into and out of those accounts, and generally administering the scheme (including the provision of customer service and support for the parents through the use of its existing UK call centres). For parents who are unable to access the internet there will be alternative options (e.g. telephone banking).
The demarcation of HMRC's and NS&I's roles and respective responsibilities in this inter-departmental collaboration to deliver the TFC policy, and the flows of money between HMRC and NS&I to cover the costs accrued in NS&I (which must be met out of HMRC's Departmental Expenditure Limit) will be set out in a Memorandum of Understanding ("MOU") which is considered in more detail later in this judgment. This is normal practice when internal arrangements are made between two government departments to work together to implement a specific policy or policies. It ensures transparency and proper accountability for the use of public funds.
TFC is intended to replace the current system of government support to working parents provided through arrangements referred to as "Employer Supported Childcare" ("ESC"), which will be phased out (although it will still be available for those already using the scheme). ESC does not involve any public contract. The Government provides tax relief to employers who wish to support the costs of childcare for their employees. One of the ways in which employers may do so is by providing vouchers which the parents can redeem with nurseries or other childcare providers. The vouchers are part of the employees' remuneration packages, and since 2005 they have been free of income tax and national insurance contributions. In essence the employer gives employees money, represented by vouchers, to use to pay for childcare, funded by a tax break.
Commercial childcare voucher providers (CVPs) are not a necessary part of such a scheme, but many employers prefer to engage such a provider to administer their schemes and issue the vouchers on their behalf, instead of doing so themselves. In the vast majority of cases, this is now done online using e-vouchers. It is the employer who engages and pays for the services of the CVP and who plays a pivotal role in the operation of the voucher scheme. The employer is solely responsible for validating an employee's entitlement to claim the benefit, and for providing the money to make the payments, which it will deduct from the employees' salaries and pay to the CVP in a lump sum once a month. The role of the CVP is to receive the money from the employer, allocate the correct amount to each relevant employee, issue a voucher or vouchers in that amount to the parents, and make payments to the childcare provider(s) designated by the parents, against production of the voucher. The fees of the CVP are paid out of the savings that employers make in their national insurance contributions, generally charged as a percentage of the value of the vouchers. The fees (and thus the profits) are driven by the competition in the CVP market, which increased considerably when the tax break was introduced in 2005.
The Claimant ("Edenred") is one of the four largest CVPs in the UK; one of its competitors, Computershare, claims to be the largest, but Edenred estimates that it has a larger market share of around 33% compared to Computershare's 25%. Its ESC business, run through a subsidiary, Childcare Vouchers Ltd ("CVL"), currently has 15,600 customers (i.e. employers) and provides childcare vouchers for around 170,000 parents per month. Edenred is a founder member of the CVPA, which is a trade association set up in 2011 primarily to represent the interests of CVPs in the UK. Although the childcare voucher business is run by CVL, it is unclear on the evidence to what extent its parent company is involved. It appears that Edenred, or even its French parent, provides the supporting infrastructure (including the web platform). For ease of reference I shall continue to refer to the provider of the childcare vouchers as "Edenred" and that expression, where appropriate, shall be taken to include CVL.
When Edenred has entered into an ESC arrangement with an employer, it will provide the employer with a unique scheme ID, which can then be supplied to and used by parents to log in to Edenred's platforms. Edenred will create a designated online account in the name of the parents. The parents provide Edenred with their contact details and the name of their child, and Edenred then sends them (electronically, or in hard copy by mail) a pack. This enables the parents to create a password and log-in details to enter Edenred's computer system. The parents can then use this on-line facility to provide details to Edenred about the identity of the childcare providers they want to pay, how much they wish to pay and how often. They can direct Edenred to pay a set sum each month, in a similar fashion to making a standing order arrangement with a bank.
On receipt of payment from the employer, Edenred will either send the parents a paper voucher representing the amount deducted by the employer and passed on to Edenred, which can be given to the childcare provider and presented by them to Edenred for payment, or else (as now happens in around 97% of cases) the matter will all be dealt with online by the generation of e-vouchers. When the nominated childcare provider redeems the voucher, (which it may do online via an account opened in its name with Edenred), Edenred will cause the payment to be transferred directly into the provider's bank account.
In operational terms, there are some similarities between ESC and TFC. Both schemes involve money being "ring-fenced" for the provision of childcare services. Other than withdrawals made by (or refunds paid to) the paying party, that is the sole purpose for which money paid into a childcare account can be paid out of it. The schemes also both involve processing inbound and outbound payments, the maintenance of a record of registered childcare providers, the use of a web-based platform, and the provision of a customer support system for the participating parents. However, although (like many other online service providers) CVPs set up and administer on-line accounts for qualifying parents (and for registered child care providers), these are not bank accounts, and the CVPs are not regulated by the Financial Conduct Authority. The value of the vouchers will be seen as a credit and the payments out of the account to the childcare provider as a debit to the parents' online account. However the money only goes in one direction – from the employer, via the CVP, directly to the childcare provider.
The ESC scheme is much less complex than TFC, as well as being far smaller in scale. It makes no provision for the refunding of money or for dealing with overpayment. From the description of its operation it seems to me that overpayments are unlikely to occur, as payments only emanate from one source – the employer, who decides how much salary will be paid in the form of childcare vouchers. In any event, if the employer mistakenly overpays the CVP provider he can presumably make adjustments to the next monthly lump sum. Under TFC, however, the system must enable adjustments to be made to the accounts in order to ensure that the 80/20 ratio of parent/HMRC contribution is maintained, and that the limits set by the Government for the amount of financial assistance given per child are not breached. If a refund is due to HMRC, the system must ensure that it is repaid to HMRC and not to the parents. The system must also enable parents with more than one child to easily obtain information about all of the childcare accounts they have opened.
Delivery of the new TFC policy by the Defendants directly to parents without the necessary involvement of their employer means that there will be no similar profitable private business opportunity for Edenred or other CVPA members to act as intermediaries in the delivery of TFC. This no doubt explains why in response to the two consultations carried out jointly by HMT and HMRC on behalf of the Government on delivery of TFC, the CVPA lobbied for the continuation and extension of ESC, with the employer remaining at the heart of the system, which would have been the outcome that best protected its members' commercial interests. The CVPA made a great deal of the likely increases in the administrative, reconciliation and interface costs that the increase in the number of customers from 50,000 businesses (the total number of employers using the services of all the CVPA members) to over 1 million individual parents would cause. However, the Government was not persuaded by those arguments, and Edenred now seeks to play down those factors.
Although Edenred and other members of the CVPA were consulted extensively during the two consultation processes that the Government undertook in respect of the design and delivery of TFC, it eventually decided to go down the route of a banking/savings account and, instead of putting the provision of those services out to tender, to utilise the established infrastructure of NS&I working with the company to which it has outsourced its "back office" operations, Atos IT Services UK Ltd ("Atos") under the terms of a public services contract which commenced in April 2014 ("the Outsourcing Contract"). A significant feature of this case is that Atos was awarded that contract after a fair and transparent public procurement process complying with the Regulations, about which no complaint is, or could be, made.
That decision was initially taken on 18 March 2014 following the first consultation. Quite understandably, it was not welcomed by the CVPA. They commenced a claim for judicial review. Those proceedings were stayed (and subsequently withdrawn) when the Government decided to carry out a second consultation expressly addressing the option of delivering TFC accounts itself through a public sector provider, and to take a fresh decision as to the appropriate provider in the light of responses to that consultation. The vast majority of parents' groups who responded to the second consultation preferred a single provider and, of those, the majority preferred NS&I as that provider. After consideration of the responses to the second consultation, and carefully weighing up the various options, the decision under challenge was made. It was announced on 29 July 2014.
In parallel with these proceedings, the CVPA and Edenred again sought permission to bring judicial review. Permission was refused by Laing J on the papers on 2 October 2014, on the basis that the CVPA lacked the necessary standing, and the current claim, brought by Edenred under CPR Part 7, canvassed substantially the same issues. Following a case management hearing before Leggatt J on 6 October, the judicial review proceedings were stayed and a speedy trial was directed of certain aspects of Edenred's Part 7 claim. That trial took place before me in late November 2014.
Edenred challenges the decision under the Public Contracts Regulations 2006 ("the Regulations") and Article 56 of the Treaty on the Functioning of the European Union ("TFEU") on the grounds that these arrangements will involve the conclusion of a public services contract within the meaning of the Regulations or economic opportunity falling within Article 56 TFEU between either or both of HMT and HMRC on the one hand, and NS&I on the other; or alternatively that the arrangements will involve a material variation of an existing public services contract between NS&I and Atos, i.e. the Outsourcing Contract.
The Regulations implement Directive EU No. 2004/38 ("the Directive"). The purpose of the EU procurement regime, and therefore of the Regulations, is to:
"...develop effective competition in the field of public contracts."
(C-247/02 Sintesi [2004] ECR I-9215 at [35].) Recital (2) to the Directive notes it gives effect to:
"the principle of freedom of movement of goods, the principle of freedom of establishment and the principle of freedom to provide services and to the principles deriving therefrom, such as the principle of equal treatment, the principle of non-discrimination, the principle of mutual recognition, the principle of proportionality and the principle of transparency".
The Regulations apply to the award of "public contracts", including "public services contracts" by "contracting authorities". HMT, HMRC and NS&I are each identified as a "contracting authority" under the Regulations: reg. 3(1)(b) and Sch. 1.
A public services contract is defined as "a contract, in writing, for consideration…under which a contracting authority engages a person to provide services" (reg. 2(1)). It is common ground between the parties that a public services contract for the provision of childcare account services necessary for the operation of the TFC Scheme would be a Part A services contract under the Regulations, to which the full requirements of reg 5(1) would apply.
Regardless of the precise form of procurement procedure to be followed, reg. 5(1) requires a contracting authority to "publicise its intention to seek offers in relation to the public contract", by publication of a contract notice in the Official Journal of the European Union ("OJEU") "as soon as possible after forming the intention [to seek offers]": regs. 15(2), 16(2), 17(3) and 18(4), and see C/423/07 Commission v Spain [2010] ECR I-3429. Recital (36) to the Directive explains the significance of the contract notice as follows:
"To ensure development of effective competition in the field of public contracts, it is necessary that contract notices drawn up by the contracting authorities of Member States be advertised throughout the Community. The information contained in these notices must enable economic operators in the Community to determine whether the proposed contracts are of interest to them. For this purpose, it is appropriate to give them adequate information on the object of the contract and the conditions attached thereto…"
Pursuant to reg. 4(3) of the Regulations, a contracting authority must comply with principles of transparency and equality of treatment at every stage of a procurement procedure. This includes the formulation and publication of the contract notice, which must clearly define the work which will be performed under the contract. Hence, in C-340/02 Commission v France [2004] ECR I-9845 at [34], the CJEU emphasised that: "The principle of equal treatment of service providers, laid down in…the Directive, and the principle of transparency which flows from it…require the subject matter of each contract and the criteria governing its award to be clearly defined."
The importance of a contracting authority's duties of transparency and equality of treatment means that these obligations are strict, or "hard-edged". There is no room for any exercise of discretion by the authority, or for any deference by the court to an authority's margin of discretion: Lion Apparel Systems v Firebuy [2007] EWHC 2179 (Ch), per Morgan J at [26].
Under reg. 47A(1) and (2), the duty to comply with the Regulations and any enforceable EU law obligation is one which is owed by a contracting authority to an "economic operator". The definition of "economic operator" is contained in reg. 4(1) and includes a "services provider", i.e. any undertaking that offers services in a market and "who sought, who seeks or who would have wished to be the person to whom a public services contract is awarded" (reg. 2(1)). Edenred plainly falls within that description.
Regulation 47C provides that a breach of duty is actionable by any economic operator which "in consequence, suffers, or risks suffering, loss or damage" (emphasis added). Thus in order to establish it has the necessary status to bring a claim for breach of duty it is unnecessary for an economic operator to demonstrate that it has suffered any loss, but merely that there is a risk of it doing so. However, that does not mean that an economic operator who would have wished to have been awarded the contract in question, but who had no realistic chance of obtaining it (e.g. because it could never have met the pre-qualifying criteria) would succeed in its claim.
If either of the arguments raised by Edenred is correct, it would have been necessary to carry out an open, transparent and competitive procurement exercise as prescribed by reg 5(1) before awarding a contract to anyone to deliver TFC through the provision of childcare accounts and associated services. Edenred claims that if such a procurement exercise had been, or were to be carried out, it would be one of the leading contenders to provide childcare accounts. That is strongly disputed by the Defendants, who contend that Edenred is unable to demonstrate that the decision has caused it to suffer any loss or damage.
In exchange for obtaining directions for a speedy trial, Edenred gave the court an undertaking that if it lost on these aspects of its claim it would be confined to a remedy in damages in respect of the remaining (stayed) causes of action. However, Edenred's claim at this stage is not confined to damages; the primary relief that it seeks is a declaration that the decision or decisions under challenge were unlawful or ineffective, and orders setting it or them aside. In such event, Edenred would potentially be able to compete for the opportunity to administer childcare accounts under the TFC scheme.
In a case such as the present, where the contract (or contracts) said to offend the Regulations have not yet been entered into, regulation 47I provides that the decision to award the contract "may" be set aside. The court may also order a remedy in damages. A declaration is a discretionary remedy, as is the remedy prescribed by regulation 47I, and one of the matters that the court would have to take into account in deciding whether to grant such a remedy is whether it would achieve any useful purpose. Edenred's ability to compete and its likely prospects in such a competitive tender are obviously relevant factors.
However, as Edenred's counsel, Mr Coppel QC, pointed out, the court must also bear in mind the rationale for the discretionary remedy. The Regulations include provisions on remedy which give effect to Directive 89/665/EEC (as amended, in particular, by Directive 2007/66/EC) ("the Remedies Directive"). Recitals (13) and (14) of the amending Directive explain the rationale of the EU remedies regime in the following terms:
"(13) In order to combat the illegal direct award of contracts, which the Court of Justice has called the most serious breach of Community law in the field of public procurement on the part of a contracting authority or contracting entity, there should be provision for effective, proportionate and dissuasive sanctions. Therefore a contract resulting from an illegal direct award should in principle be considered ineffective. The ineffectiveness should not be automatic but should be ascertained by or should be the result of a decision of an independent review body.
(14) Ineffectiveness is the most effective way to restore competition and to create new business opportunities for those economic operators which have been deprived illegally of their opportunity to compete…"
Mr Coppel therefore submitted that if the Court concludes that there has been a breach of the Regulations and/or Article 56 TFEU, the (most) serious nature of these breaches should lead to the Court setting aside the decision and thereby ensuring that the unlawful direct award cannot proceed.
Had NS&I not taken the decision more than fifteen years ago to outsource its back office operations and transfer its operational support staff to a private sector service provider, it is difficult to see how this legal challenge could ever have got off the ground. However, in consequence of that decision, all operational aspects of NS&I's business are now carried out by its private sector partner. The operational delivery of TFC is therefore to be effected by NS&I working with Atos under the Outsourcing Contract.
It is common ground that in order for Atos to provide the services to NS&I that are needed to support the delivery of TFC, it is necessary for changes to be made to the Outsourcing Contract. The intention is that those changes will be implemented by way of an amendment to the Outsourcing Contract ("the Amendment Agreement") made pursuant to the change control mechanism prescribed in that contract. The key issue in this case is whether those changes amount to a "material variation" to a public contract. The CJEU has held that a material variation constitutes the award of a 'new' public contract, which requires a fresh procurement to be conducted: C-454/06 Pressetext [2008] ECR I-4401 and C-91/08 Wall AG [2010] ECR I-2815. Whether the variation is 'material' is an autonomous EU law concept which falls to be determined by comparing the contract as originally entered into, and the contract as it would exist after the amendment.
This is not, as might at first appear, simply a case of a disappointed potential bidder wishing to be given the chance to compete on an equal footing with NS&I (and others) for the award of a highly lucrative contract for services. Edenred's strategy appears to be designed to eliminate NS&I from the competition altogether: at least, that would be the likely effect of accepting its arguments. Mr Coppel candidly accepted that if there were a public tender for the provision of TFC childcare accounts, then NS&I would almost certainly be unable to compete at all, since it is completely dependent upon Atos for the delivery of its operational services. If the Outsourcing Contract cannot be lawfully varied to include the services supporting and implementing the provision of TFC childcare accounts, there would be insufficient time for a fresh public procurement process to be carried out for the provision of those additional services for and on behalf of NS&I, before any public tender took place for the provision of those services to HMRC.
Thus the upshot of a successful challenge by Edenred would be that the Government would be precluded from utilising its own established banking infrastructure and support system, which already services millions of customers, to deliver TFC merely because, in a successful attempt to modernise, drive down costs and become more efficient, instead of retaining its operational staff, NS&I has lawfully outsourced all its operational services to a private sector supplier - using a process which fully complied with the self-same Regulations. On the face of it, that does not appear to be the type of mischief against which the Regulations are aimed. Nevertheless, if the Outsourcing Contract requires a material variation in order for NS&I to be able to deliver childcare accounts, there will have been a breach.
Before considering the legal arguments, it is necessary to say a little more about the parties, the relationship between NS&I and Atos, and the background to the Outsourcing Contract.
The Defendants are all parts of the Crown, within the Executive branch of government, and "Chancellor's departments" falling under the remit of the Chancellor of the Exchequer. Although they have different functions and statutory powers, they are not separate public bodies which can be regarded as legally distinct from each other in the same way as, for example, individual local authorities, or a parent company and wholly-owned subsidiary. They are more akin to different departments of the same local authority.
Central government is organised into separate government departments, most of which are headed by a Secretary of State or other senior minister, through whom they are ultimately accountable to Parliament. Ministerial departments do not have their own separate legal personality. They are staffed by civil servants. HMT is the government's economic and finance ministry, which sets the direction of the UK's economic policy.
Non-ministerial departments (NMDs) are also government departments staffed by civil servants, but they do not have their own minister. They are accountable to Parliament through their sponsoring ministers; in the case of HMRC and NS&I, these are Treasury ministers. Their powers are generally (but not always) derived from statute. Where there is a statutory board, appointments to it are usually made by ministers.
Executive agencies are part of a government department. They are defined business units headed up by a Chief Executive, who is often supported by a management board. Executive agencies carry out executive functions, with policy set by ministers. They operate with a degree of autonomy from ministers and the "parent" department. They typically deliver a service, and may provide services or functions on behalf of other government departments and the devolved administrations. They do not have a separate legal personality. They, too, are staffed by civil servants. Ministers do not concern themselves with the day to day running of executive agencies but are directly accountable to Parliament and the public for the overall performance of the agencies and for their continued existence. Executive agencies publish their own annual report and accounts, but those accounts are consolidated into those of the parent department.
HMRC is the UK's tax authority, responsible for administering the tax system, collecting tax, and providing families and individuals with targeted financial support. It is a NMD, due to a long-standing convention that politicians should not be directly involved in the tax affairs of a person. Its day to day running is overseen by the Commissioners for Revenue and Customs, appointed by the Queen. In the exercise of their functions, the Commissioners must comply with any directions of a general nature given to them by HMT. HMRC is accountable to Parliament through the Financial Secretary to the Treasury, and ultimately through the Chancellor, as well as through one of the Commissioners for Revenue and Customs in her role as HMRC's Accounting Officer, Permanent Secretary and Chief Executive.
In broad terms, the Chancellor and other Treasury Ministers set the tax policy that HMRC then administers. However, HMT and HMRC have dual responsibility for the design and delivery of tax (and tax credit) policy through what is known as the "Policy Partnership". HMT is responsible for tax strategy and for leading tax policy development. It sets general objectives that help to define HMRC's remit. The Chancellor also instructs HMRC to take a role in the design of tax policy, working with HMT to ensure that it is designed in a way that reflects HMRC's experience of customers and their behaviour. HMRC is responsible for policy maintenance (including the identification and closure of tax avoidance strategies) and for the delivery of tax policy changes, as well as for the administration of the tax system.
Both departments support each other in their activities. Where HMT leads on an issue, HMRC provides input on technical and operational aspects of work, and helps to work up policy in detail. Where HMRC leads on an issue, HMT provides input to ensure that they take account of wider government objectives or policy. The Financial Secretary to the Treasury is involved on a day to day basis with how HMRC operates, and regularly meets HMRC officials to discuss the administration of the tax system.
NS&I is a NMD which became an Executive Agency of the Chancellor of the Exchequer on 1 July 1996. Its parent department is HMT. NS&I's primary function is to provide cost-effective financing to the Government by issuing and selling retail savings and investment products to the public, with the overall aim of helping to reduce the cost to the taxpayer of government borrowing. The revenue from the sales of those products is passed directly to the Exchequer. As the Government's retail debt financing arm, the powers governing the way in which NS&I is structured and managed are derived from specific legislation, including the National Savings Bank Act 1971 which created the office of the Director of Savings, a senior civil servant who is appointed by the Chancellor as NS&I's Chief Executive. The functions and powers of the Director of Savings are derived from statute. The Chancellor delegates the management of NS&I to the Director of Savings, who is supported in her role by the NS&I Executive Committee, its executive decision-making body.
The Chancellor bears the ultimate statutory responsibility under the National Savings Bank Act for determining the policy and financial framework within which NS&I operates, setting and monitoring its key performance targets, approving its interest rates and the terms and conditions of NS&I products, and agreeing its annual corporate plan; but he may delegate these responsibilities to another Minister within HMT. The Chancellor has delegated ministerial responsibility for NS&I to the Economic Secretary to the Treasury ("the Minister"). All strategic decisions affecting NS&I products require Ministerial consent. The Director of Savings is accountable to the Minister, and through her and the other Treasury Ministers, accountable to Parliament for the performance of NS&I.
As well as appointing the Chief Executive (i.e. the Director of Savings), the Chancellor appoints four non-executive members to the NS&I Board. There are six executive members of the Board, one of whom, Mr Dax Harkins, a member of the Executive Committee, gave evidence. Two officials from HMT also sit on the Board – the Director of Fiscal Policy and the Deputy Director for Debt and Reserves Management. The Board provides advice to the Director of Savings and the Executive Committee on issues within its remit, such as strategy and the deliverability of policies. It also has a supervisory role, in that it scrutinises reporting from NS&I on its performance, and challenges it on how well it is achieving its objectives. However, the Board has no say on policy. As the NS&I framework document of August 2009 puts it, the Board's focus is upon "getting policy translated into results." Following the strategic direction agreed upon by the Minister, with input from the Board, it is the Executive Committee that oversees and develops NS&I's business.
Each government department must have an Accounting Officer who is accountable to Parliament for the proper, effective and efficient use of public funds, and the proper custody of assets which have been publicly funded. The Director of Savings is appointed by HMT as Accounting Officer for NS&I. She is therefore accountable for the NS&I annual and product accounts, and may be required to appear before the Public Accounts Committee.
Back in 1997, NS&I invited expressions of interest from potential bidders for a contract to run all its "back office" operations – i.e. the operations required to process its product transactions and provide its customer service. One of the key reasons behind the decision to outsource to an external provider was that it was believed that operational experts within the market would be better placed to achieve the efficiencies and modernisation that NS&I wished to undertake. Following a competition, in 1999 NS&I awarded the contract to Siemens Business Services, which was then renamed Siemens IT Solutions and Services ("SIS"). NS&I transferred its existing operational staff (approximately 4,200) to SIS under a TUPE transfer with effect from 1 April 1999. SIS became responsible for delivering NS&I's transaction management, customer service, printing, accounting, IT development and management, and all other operational services. However NS&I retained (and still retains) a core body of civil servants, currently around 170 in number, who together with the Director of Savings have responsibility for strategy, branding, pricing and policy decisions (subject to Ministerial approval).
The outsourcing arrangement proved to be very successful, and resulted in substantial cost reductions (estimated at around £530 million over the life of the contract). The technical expertise acquired in consequence of the outsourcing enabled NS&I to grow and improve its services to a significant extent. In 1999 all transactions were completed on paper and there was very little automation. NS&I had no website, and online banking was in its infancy. Now, NS&I's online customer interactions are around 46 million per year, and the average time to manage a customer transaction has reduced from 9.2 days in 1999 to 3.1 days in 2014. Over the same period the value of investments with NS&I has grown from some £60 billion to over £105 billion.
The contract with SIS was for an initial period of 10 years, extendable (and extended) for a further 5 years. In 2011, Atos purchased SIS, and the staff working on the NS&I activities who had previously transferred to SIS became Atos employees under a further TUPE transfer. Thus at the time when the re-tender process for the Outsourcing Contract commenced, Atos had just become the incumbent contractor.
At the Spending Review 2010, HMT and NS&I agreed that NS&I's remit should be expanded by leveraging its operational capability and capacity to provide services (specifically, account management, payment processing, and ancillary administrative services) to other public bodies in return for remuneration. This would enable other government departments to benefit from NS&I's existing expertise in taking, holding and transferring money securely to large numbers of people, as well as from the efficiencies associated with NS&I's operational activities. It would also allow NS&I to gain a contribution towards the costs of its infrastructure, which it could offset against its Departmental Expenditure Limit. NS&I refers to these types of arrangements as business-to-business or "B2B" services, and they are delivered under the brand "NS&I Government Payment Services". The amount of income that NS&I can retain from B2B activity is set by HMT at each annual spending review.
The first B2B services NS&I delivered were the administration of the Court Funds Office (CFO) service for the Ministry of Justice, and the delivery of the Equitable Life Payment Scheme (ELPS) for HMT, which were both launched in 2011. The CFO service is a banking and administration service provided to all civil courts in England and Wales, in respect of money paid into court, including payments made on account of awards of damages in civil actions to vulnerable claimants such as children, or people who have suffered catastrophic personal injuries. NS&I's remit includes the processing of payments into and out of court, and looking after the investments made with that money. Such payments may, of course, be withdrawn by the party paying the money into court in certain circumstances, though the money may also be paid out to someone other than the person who paid it in. The ELPS scheme is a compensation scheme which involves tracing qualifying recipients, validating their identities, and making payment of compensation to them. NS&I was given the power to deliver those B2B services by specific provisions in the Financial Services Act 2010 and Equitable Life (Payments) Act 2010 respectively. MOUs have been entered into by NS&I with each of the relevant government departments to whom those services are provided.
Thereafter, in order to obviate the necessity for the enactment of primary legislation each time NS&I added a new B2B service, Section 113 of the Financial Services Act 2012 gave NS&I a broad general power to provide services to any public body. That section empowers the Director of Savings to enter into arrangements with a public body for the provision by the Director, or persons authorised by the Director, of services to that body, on such terms, including terms as to payment, as may be agreed. There is nothing in the language of s.113 to restrict the services to be provided to deposit-taking, as Edenred submitted, and it would make no sense to construe s.113 so narrowly, given the background against which it came to be enacted, especially the policy of expansion of NS&I's B2B services. In any event, clause 16 of the Childcare Payments Bill, which has since been enacted as the Childcare Payments Act 2014, puts beyond doubt the power of NS&I to deliver TFC in co-operation with HMRC.
Account functionality for NS&I was provided by SIS (and is now provided by Atos) using the Thaler Banking Engine (version 2). This is a sophisticated banking software application provided by a company called Sopra, which processes and keeps records of sales and repayments, customer account balance details and the history of transactions. It is this banking engine and its supporting functions which provide the core infrastructure that is intended to be used in the provision of B2B services. Between 2008 and 2014 NS&I expended over £53 million in upgrading the banking engine. It is therefore unsurprising that when NS&I invited bids for the current Outsourcing Contract in 2011 it required bidders to use its existing banking engine to deliver the services, rather than some other system, and to upgrade it to the latest version (version 3). Consequently Atos has entered into a sub-contract with Sopra for the delivery and servicing of the Thaler system.
The contract with SIS could not be extended beyond its 15 year term. On 11 July 2011, an industry day was held to generate interest in the re-procurement of the outsourcing contract. It specifically included support for the expansion of NS&I services, and a presentation was given which described NS&I's general B2B requirements, the current delivery of the ELPS and CFO services, and the potential for growth of B2B services across government. The HMT representative said that:
"For its part, NS&I, along with the rest of the public sector, has made efficiency savings as part of the Spending Review. For its part the Treasury agreed to give NS&I freedom. Freedom to go out and win new business from the rest of government – what NS&I calls its "business to business" agenda. We agreed that NS&I's operational capacity, its track record on delivery, its management capability to make change happen was strong. And other parts of Government could benefit from that approach. On top of that benefit, the "business to business" will also reduce the cost to the taxpayer of NS&I's operations".
80 companies (many of whom attended the industry day) expressed an interest in this opportunity via an online tool that NS&I used for all communications relating to the procurement. None was a member of the CVPA.
In compliance with reg 5(1) the notice commencing the procurement process for the Outsourcing Contract ("the OJEU Notice") was published in the OJEU on 22 November 2011. It is entitled "UK-London: banking services" and under "Section II: Object of the contract", the title attributed to the contract by the contracting authority is "outsource services" and the service category is No 7, "computer and related services". The OJEU Notice stated, inter alia, as follows:
"We pride ourselves on delivering excellent customer service and this, together with the security we can offer to customers, forms the key element of our customer proposition. NS&I outsourced its operational services in 1999 and is now seeking to retender these operational services, including all processing of customer interactions and servicing (eg sales, after sales management and payments including via telephone, internet and mail); service management; IT management and implementation; and other services (eg. complaint handling, channel management, customer management, print and document management, customer market research and analysis, campaign management, compliance, management information etc) and other related ancillary services that support the business operation of NS&I. In addition NS&I now delivers similar operational services (called B2B services) to other public sector organisations. We intend to expand this B2B service during the lifetime of the contract to deliver to other organisations, potentially resulting in significant growth of the outsourced operational services. NS&I intends to structure the contract so that it may be used by other central government departments (including their executive agencies and non-departmental public bodies) and by local authorities." (emphasis added).
The OJEU Notice indicated that the value of the contract was in a range of between £1,250,000,000 to £2,000,000,000, depending on the uptake of B2B services. As Mr Harkins explained, the intention was to provide significant headroom over the expected charge for the core retail service (£660 million) to enable the planned growth of B2B with the addition of services for other government departments. The OJEU Notice also stated that NS&I would be following a competitive dialogue process in which it would have interactive sessions with bidders so that they would be able to build their understanding of the requirements, including B2B services.
Mr Harkins, as the B2B Director of NS&I, was responsible for the procurement of the Outsourcing Contract. He was responsible for leading the overall programme and involved in its day to day detail, including engaging in detailed dialogue with bidders. In his evidence Mr Harkins explained that, given NS&I's revised strategy and broader remit within government, the provision of existing and future B2B services was a key part of the re-tender for the outsourcing arrangements. As with the SIS contract, the new Outsourcing Contract was procured on the basis that a single provider would act as prime contractor (with other economic operators as sub-contractors to the prime as necessary). The prime contractor (with any necessary assistance from sub-contractors) had to be able to support the full scope of NS&I's services, including future B2B services, and therefore not only had to be able to provide the back office functions relating to NS&I's core savings and investment business, but the necessary resources to support the roll-out of B2B services to other government departments.
The first phase of the bidding process, the Pre-Qualification Questionnaire (PQQ) identified those bidders who had the experience, financial strength and capability to deliver the required services in the way NS&I wanted. One of the pre-qualifying requirements to bid for the Outsourcing Contract was a £1 billion annual turnover. Ten organizations submitted responses to the PQQ on 23 December 2011; none of these suggested that they wanted to use partner organisations in their bid (either as part of a consortium, or as sub-contractors) to specifically support the expansion of the B2B services during the lifetime of the contract (initially 7 years). After those responses were independently evaluated and moderated by NS&I's Executive Committee to select the shortlisted candidates, three candidates, including Atos, were shortlisted and taken through to the next stage.
NS&I then conducted a competitive dialogue with the shortlisted candidates, and issued them with a full draft contract and due diligence material. B2B services were discussed over the three rounds of dialogue during the weeks commencing 1 May, 19 June and 23 October 2012. According to Mr Harkins, the focus of these sessions was on expanding NS&I's B2B services to other government departments. Following the competitive dialogue process, NS&I issued the final contract and scoring guidance to the bidders and their final offers were submitted on 1 February 2013. The offers were then evaluated and an overall preferred bidder was identified.
As Mr Harkins explained in detail in his third witness statement, the bidders were required to set out how they would run the core infrastructure (including the Thaler banking engine and supporting functions) not only for NS&I's retail services but also for delivery of B2B services. Atos received the highest score in all three evaluation components, (solution, commercial and financial) all of which included B2B services, as well as the highest score overall by a substantial margin. The recommendation that the contract be awarded to Atos was approved by the relevant minister, and the Outsourcing Contract was signed on 20 May 2013 with a service commencement date of 1 April 2014.
Mr Harkins accepted that NS&I is dependent on Atos to deliver the services that it has outsourced to them. He also accepted that they work closely together, that Atos would be involved in discussions about the strategic and operational development of the business, particularly as regards B2B, and that there is an Atos representative on the Executive Committee, but he stressed that the Director of Savings still has the ultimate control over the decisions on these matters. It is entirely understandable, given the nature of the Outsourcing Contract and the basis on which it was put out to tender, that Atos would be closely involved in such discussions; if a B2B opportunity arose, there would be little point in NS&I pursuing it without the provider of the outsourced functions being closely involved. However, the closeness of the working relationship with Atos does not mean that NS&I has ceased to be a wholly public entity. It remains a government department. It remains publicly accountable for the money it spends.
Edenred (previously known as Accor Services) is part of the multi-national Edenred Group, which was created in 2010 by a demerger from the well-known French hotel group, Accor, and has a presence in 41 countries worldwide. Edenred's French parent company is listed on the NYSE Euronext Paris, and has a market capitalisation of approximately €5.3 billion. The Edenred Group specialises in providing prepaid corporate services. It designs and manages a wide range of solutions that improve the efficiency of organizations and purchasing power to individuals. The Group's 2013 consolidated financial statements, the latest full-year results available, show total revenue of €1,030,000,000 and a net profit of €171,000,000 for the year ending 31 December 2013.
Edenred is itself the parent of a number of UK subsidiaries. Thus, for example, prior to the demerger, Edenred acquired a company which specialised in providing luncheon vouchers to private and public sector organisations for the benefit of employees. CVL is the subsidiary which, as well as providing Childcare Vouchers, provides Eye Care Vouchers and Carer Break Vouchers services to corporate organizations, local and national government agencies and the public sector.
The most recent financial statements for Edenred that were adduced in evidence are also those for the financial year ending 31 December 2013. In the profit and loss account for that period its operating income was said to be £1,062,000 and its profit £9,776,000. The balance sheet for 31 December 2013 shows net assets (including pension deficit) of £72,570,000. CVL's profit for the same period was stated as £8,332,000, but it is not known how much of that profit was derived from Childcare Vouchers and how much from the other aspects of its business.
Mr Patrick Langlois, Edenred's Managing Director, frankly accepted in cross-examination that not even the Edenred Group as a whole would have met the financial requirement of a £1 billion annual turnover in the PQQ for the Outsourcing Contract with NS&I. However he contended for the first time in his third witness statement (and maintained in his oral evidence) that if the OJEU Notice had made specific reference to TFC or childcare accounts, Edenred would have participated in the bidding process. He added that he was sure that other CVPA members would have done so as well. He said that Edenred had "banking partners" and that it would have "entertained the idea of partnering through a consortium or a joint venture".
Although I do not doubt the sincerity of Mr Langlois' beliefs, in my judgment that is no more than wishful thinking coloured by hindsight. Mr Langlois' evidence, particularly in his witness statements, was prone to hyperbole (particularly as regards the description of the impact that the decision to deliver TFC through NS&I would have on Edenred's business) which led me to approach it with a degree of caution. Of course, as the OJEU Notice made plain, the tender of the Outsourcing Contract was not a tender for NS&I's savings, investment and accounts products but for the IT and other operational support needed by NS&I to be able to carry on its business and offer B2B services to other government departments. That is why there is no reference to Premium Bonds or other products or services offered by NS&I on the face of the OJEU Notice. I accept it is possible that if childcare accounts had been specifically mentioned, Edenred might have been interested in participating in a tender, but that interest would have been restricted to delivery of the childcare accounts. It would not have been interested in providing the required services to support NS&I's core retail business or any other B2B opportunities. It has no expertise whatever in the banking sector. It could not possibly have bid for the Outsourcing Contract by itself even if it had wanted to (which it would not have done). Its best chance would have been to try and interest a potential prime contractor to include it as a sub-contractor.
There was no evidence before me that a bank, or any other company with the wherewithal (financial and administrative) or the established track record to deliver all the services required by NS&I and which met the PQQ criteria, would have entertained the idea of joining forces with Edenred simply because one of the types of B2B services to be provided would (or might) be childcare accounts. Indeed it is far more likely that such an entity would have preferred to tender in its own right and keep all the profit for itself, as commercially Edenred would have had nothing of sufficient interest to offer it in return for a share of the profits.
Although Edenred had experience of running the ESC scheme and thus of receiving money to be paid to childcare providers from employers, apportioning those sums to relevant employees and making payments out to the providers, keeping records of registered childcare providers, and dealing with queries from parents, those are all administrative and logistical tasks that business processing outsourcing companies ("BPOs") such as Experian, Liberata, Capita and Atos, as well as any bank, were well placed to carry out without assistance, input or advice from Edenred (or any other member of the CPVA). That experience in and of itself would be insufficient incentive for such an entity to bring Edenred on board even as a sub-contractor, particularly given the differences (including the vast difference in scale) between the ESC and the TFC schemes. I am reinforced in this view by the fact that none of the bidders for the Outsourcing Contract proposed bringing in an additional party to give advice in respect of the CFO or ELPS schemes, and Atos has not proposed bringing in anyone specifically to help it with the setting up and administration of childcare accounts.
Moreover, even if Edenred had wanted to bid as part of a consortium, there was no room for manoeuvre so far as a change to the existing banking engine was concerned. Mr Harkins accepted in cross-examination that, at the behest of HMRC, another instance (which he termed a "sort of duplicate version") of the existing banking engine was being created for TFC, with the same functionality that has already been developed, which could be replicated and potentially used by a different TFC account provider in the future. It was pointed out by Mr Coppel that just as Atos had sub-contracted with Sopra for the Thaler banking engine, Edenred could have gone out and done the same. Whilst of course that is theoretically possible, Edenred would not have done so. Edenred (and its competitors) had invested considerable amounts of money, (though nothing like as much as NS&I) in developing their own online platforms – Mr Langlois mentioned a figure of £10 million. It is fanciful to suppose that they would willingly write off that kind of investment in order to familiarise themselves with, utilise, and pay someone else to upgrade, develop and maintain the Thaler software or a replicated version of it, in order to deliver childcare accounts, particularly if the only part of the Outsourcing Contract in which Edenred would have been interested in delivering was that which enabled delivery of TFC by NS&I.
Even if, which I do not accept as remotely likely, Edenred had managed to interest another party or parties to join in the bidding with it, then given the nature and strength of the competitors the chances of such a consortium even getting past the first stage of the bidding process are so remote as to be described as fanciful.
The first ground of challenge – the MOU.
It is contended by Edenred that the proposed MOU between HMRC and NS&I is a "public services contract". Alternatively, if it is not, Article 56 of TFEU applies because it creates an economic opportunity in the form of a licence or exclusive right to engage in an economic activity which is of cross-border interest. On behalf of the Defendants, Mr Moser QC's response was that the arrangements made between HMRC and NS&I do not engage the Regulations or Article 56 at all, but alternatively if they do, they fall within one of the recognized exceptions exemplified by C/480/06 Commission v Germany [2009] ECR I-4747 (known as the "Hamburg Waste" exception). In my judgment, Mr Moser is right on the first point, and thus I need not consider the exceptions.
The definition of a public service contract is a matter of Community law. It must be a legally binding agreement made in writing with a "person" who has a distinct legal persona from the contracting authority. The most recent EU Directive on public procurement, Directive 2014/24/EU, which incorporates the principles developed in a considerable body of CJEU case law, states that:
"(5) It should be recalled that nothing in this Directive obliges Member States to contract out or externalise the provision of services that they wish to provide themselves or to organise by means other than public contracts within the meaning of this Directive. The provision of services based on laws, regulations or employment contracts should not be covered….
(31) … the sole fact that both parties to an agreement are themselves public authorities does not as such rule out the application of procurement rules. However the application of public procurement rules should not interfere with the freedom of public authorities to perform the public service tasks conferred on them by using their own resources, which includes the possibility of cooperation with other public authorities.
It should be ensured that any exempted public-public cooperation does not result in a distortion of competition in relation to private economic operators in so far as it places a private provider of services in a position of advantage vis-a-vis its competitors." (Emphasis added).
This reflects, in particular, the decision in C-84/03 Commission v Spain [2005] ECR I-139 in which a challenge by the Commission to the legality of Spanish legislation on public procurement was upheld. One of the grounds of challenge was that the codified law excluded from its scope all co-operation agreements concluded between public bodies. The Commission argued that in order to show the existence of a contract, it must be determined whether there has been an agreement between two separate persons. Thus in principle, inter-administrative co-operation agreements between two (different) public bodies could fall within the procurement Directive, and the blanket exclusion in the Spanish legislation was unjustified. The CJEU agreed, on the basis that it was sufficient, in principle, if the contract was concluded between a local authority and a person legally distinct from it.
However, the fact that each of HMT, NS&I and HMRC are denoted as "contracting authorities" in the Regulations does not mean that any arrangements made between them will necessarily constitute a public contract (or a contract at all). None of the cases to which I was referred dealt with a situation in which one government department had made arrangements with another government department to share or utilise the latter's resources. The definition of a "contracting authority" in the Regulations is extremely wide and embraces any minister of the Crown, any government department, each House of Parliament, and the Assembly for Wales. That is because different branches of Government may contract with private bodies in many different ways – for example if the chief executive is a statutory office holder, such contracts will normally be made in that person's name. It does not follow from this that any arrangement entered into between two government departments which involves the provision of services by one to the other over and above the minimum value set by the Regulations has to be advertised in the OJEU and made open to public tender, any more than an arrangement made between two separate departments of the same local authority.
The evidence of Christopher Hall, the Director of Complex Transactions within the Crown Commercial Service, which is an Executive Agency of the Cabinet Office, was that it is increasingly common for government departments to share common services rather than duplicate them. Thus, for example, legal services to most government departments are provided by the Treasury Solicitor's Department, rather than by each department employing its own lawyers. Likewise, if a specialist asset such as a computer system has been built to support a particular activity, it is better value for the taxpayer's money for the Government to make the widest possible use of that asset, if the activity in question is engaged in by more than one government department. Mr Hall's evidence, which I accept, is that these intra-government arrangements are not about competition with the private sector, but about government organizing itself in an efficient manner to ensure that public money is well spent.
In the light of the doctrine of Crown indivisibility I am not convinced that two government departments such as HMRC and NS&I could contract with each other, as they are both limbs of the Executive. Of course, as different personifications of the Crown, they can each contract with private parties, and with outside public bodies, but that is a different question from whether they have sufficient independent legal personality to contract with each other, or whether in truth they are all parts of the same public body. However, even if they could potentially contract with each other, (for example, as Mr Coppel contended, because the Revenue Commissioners and the Director of Savings are statutory office-holders) it would be wrong in principle to treat them as separate public bodies when considering, for the purposes of the Regulation or the Directive, whether an arrangement made between them to make use of, or to develop existing resources, is internal to government.
It is the norm for one department to "charge" the other for such services – the department procuring the services will pay the department providing them, out of its own budget. To ensure transparency and accountability of government funds, it is therefore common practice across government for the relevant departments to enter into a MOU specifying in detail the services to be provided, and the flows of money between them. These MOUs are not contracts, but set out what services those who are accountable to Parliament for the expenditure of public money can expect to receive in return for the charges levied on them by the provider of the services, and what those charges are. An MOU has to be capable of being torn up and replaced at a moment's notice with no legal repercussions, in order to respond to changes in policy.
The MOU relating to the TFC scheme is to be entered into between the Director of Savings and HMRC at the same time as the proposed amendment to the Outsourcing Contract. The introduction to the MOU states that, as NS&I and HMRC are both government departments, there is no requirement for a contractual arrangement between them. The MOU is intended to outline the requirements underpinning the TFC service and the required standards to which the service delivery must conform. The Director of Savings will provide the TFC service in accordance with these requirements and service levels via [NS&I's] Outsourcing Contract with the Provider [Atos], which underpins the MOU.
Paragraph 3.1 specifies that the MOU is not legally binding on the parties and does not contain representations on which either party may rely. It therefore contains no binding legal obligations. Paragraph 3.2 explains that it sets out how the Director and HMRC will work together in co-operation to discharge their statutory roles under the Childcare Payments Bill (when enacted) and effect the delivery of TFC via childcare accounts. The term of the arrangements runs from the effective date "and will expire at the direction of HM Treasury in accordance with its processes and governance". That means that HMT, which is not even a named party, can bring the MOU to an end immediately. A contractual arrangement cannot usually be terminated unilaterally by someone who is not even party to it (assuming, as one must for the purposes of this argument, that Edenred's contention that NS&I has a distinct legal personality from HMT is correct).
Thus even if NS&I and HMRC could contract with each other, a matter on which I need express no final view, it is clear that they have not done so. The Director of Savings (or NS&I of whom she is the Chief Executive) has no binding or enforceable obligation under the MOU to deliver the services to HMRC. HMRC has no binding or enforceable obligation to pay for them.
Edenred relies on the level of detail in the MOU (including the fact that HMRC's operational requirements are set out over some 63 pages in Schedule 2), HMRC's right to make deductions from the monthly service charges if the specified service levels are not met, the detailed charging structure set out in Schedule 5, and the provisions for interest to be paid by HMRC on any late payment of charges and for any profit from efficiency savings to be shared. There is no denying that in many respects the MOU resembles a detailed commercial contract. However, that is not what it is. It is a document that reflects the internal arrangements, including charging arrangements, made between government departments working together to deliver a policy set by HMT.
Although NS&I produced a tariff to HMRC, that reflected how much the TFC services would cost NS&I to deliver under the previously procured Outsourcing Contract with Atos (as amended by the Amendment Agreement). Ms Suzanne Newton, the Director for the TFC programme in HMRC, explained in her evidence why the original estimate of those costs increased as the detail and timetable for delivery of TFC developed. Mr Moser submitted that the tariff was not set commercially by NS&I, not only because it was dictated by the pre-existing terms of the Outsourcing Agreement, but because it had to be agreed to by its parent department, HMT, as well as by HMRC. I agree that the charging arrangements between NS&I and HMRC cannot be characterised as the equivalent to a commercial price freely fixed after an arms' length negotiation. Although NS&I is a government department, and not a public company wholly owned by the Government, nevertheless, as in C-295/05 Asemfo [2007] ECR I-2999, it was plain on the evidence that once HMT had decided with HMRC to utilise NS&I to provide childcare accounts, NS&I had no choice but to do so, and it was not entitled to fix freely the tariff for those services. HMT dictates to NS&I how much profit it can keep. As in Asemfo, NS&I can be described as an instrument of the general state administration, through which banking and payment services are provided. Members of the public cannot require NS&I to open particular types of bank account; it does so purely at the behest of the Chancellor, the Minister or HMT.
Case C/2206 Correos [2007] ECR I-12175, a case relating to the Spanish post office, relied upon by Mr Coppel, addresses a very different scenario, not least because EU law only permitted certain strictly defined types of postal service to be reserved to a monopoly provider, and the Spanish legislation that was the subject of the reference in that case attempted to reserve the provision of postal services provided to the Spanish Government to a single state-owned provider, without drawing a distinction between reserved and non-reserved services. The services in that case were undoubtedly of a contractual nature, the Directive and the Regulations were applicable, and the only potential exception to the rules (that which was recognized in C107/98 Teckal [1999] ECR I-8121) did not apply because the relevant entity did not carry out the essential part of its activities with the public authority which controlled it. Although the CJEU distinguished Asemfo, it did so on grounds which are of no relevance here. This case is not and never has been a Teckal case, and the Defendants have never sought to rely on that exception. This is not a case about a public body awarding services to a wholly-owned subsidiary. It is a case about co-operation between different departments of the same public body.
Mr Coppel submitted that the question whether a transaction is a "contract" in this context has to be resolved by looking at its substance rather than at its form; it will suffice if it has the economic consequences of a contract and there are binding legal obligations on the parties. Parties cannot conceal the award of what in substance is a public contract by structuring their arrangements in order to circumvent EU law duties: C-29/04 Commission v Austria [2005] ECR I-9705 at [42].
Mr Coppel also placed reliance on what was said by Hickinbottom J in R (Midlands Co-Operative Society Ltd) v Tesco Stores Ltd [2012] EWHC 620 (Admin) at [107]:
"… in considering whether the procurement provisions apply, one must have look at the whole of the arrangements between the contracting authority and the contractor; and, in particular, whether there is in reality a multi-stage award procedure which comprises in substance a unity which includes an obligation to perform works and is consequently subject to the procurement rules..."
However, this is neither a case of a "multi-stage award procedure" nor of a deliberate structuring of arrangements to get around the Regulations. Of course the way in which an arrangement would be treated as a matter of domestic law is not an end of the matter. One needs to look at the economic realities. However even under EU law, the arrangement has to be binding.
Edenred submitted that in substance there is a public contract here by reason of the fact that the obligations that will be contained in the Amendment Agreement to the Atos Outsourcing Contract are repeated and reflected in the Schedules to the MOU, and that in consequence of this and the fact that they are intended to be executed simultaneously, the Amendment Agreement and MOU should be treated as one economic transaction. However, I do not consider that the fact that the Amendment Agreement underpins, and is necessary to enable NS&I to deliver the operational services denoted under the MOU, and that the two arrangements will be made simultaneously, means that in reality HMRC is procuring Atos, rather than some other private entity, to deliver those services to it. I reject Edenred's suggestion that NS&I is just a front for Atos. That is not the position either legally or as a matter of fact. NS&I will not be providing Atos's services; it will be providing its own services as a bank to HMRC, using its back office functions that have already been outsourced to Atos following a legitimate public procurement process.
The fact that NS&I will be delivering the services for which it undertakes responsibility under the MOU, through human and other resources provided by Atos under the Outsourcing Contract, does not transform the MOU into a binding contract, still less does it mean that "in substance" Atos will be entering into a substantial new contract with a new customer, HMRC, with NS&I acting as a front. In substance, as well as in law, Atos delivers its operational services under the Outsourcing Contract and the proposed amendment to that Agreement to NS&I; Atos provides the operational means by which NS&I is able to fulfil its responsibilities to its B2B counterpart, in this case HMRC.
Edenred's argument based on the timing and content of the Amendment Agreement and its reflection in the MOU really begs the question whether the proposed Amendment Agreement is a material variation to the Outsourcing Contract or not. In my judgment, if it is not a material variation, then the fact that instead of using its own civil servants to deliver the services NS&I will be using staff and other resources outsourced legitimately to Atos would not engage, let alone offend, the Regulations.
Mr Coppel relied upon what, at the time of the trial, was Clause 16(2) of the Childcare Payments Bill (now the Childcare Payments Act), which provides as follows:
"16 Account providers
(1) Childcare accounts may be provided by any of the following—(a) the Commissioners for Her Majesty's Revenue and Customs, (b) a person or body with whom the Commissioners have entered into arrangements for the provision of childcare accounts, (c) if the Treasury so determine, the Director of Savings ("the Director").
(2) If the Director provides childcare accounts, the Director must in doing so act in accordance with any arrangements made between the Director and the Commissioners with respect to the provision of childcare accounts.
(3) Arrangements made between the Commissioners and a person or body within paragraph (b) or (c) of subsection (1) may include provision for the making of payments by the Commissioners to the person or body in respect of the provision of childcare accounts (and accordingly nothing in section 15(8) or (9) affects the inclusion of such provision in the arrangements)…"
Mr Coppel submitted that Clause 16(2) gave rise to a binding statutory obligation on the Director of Savings to comply with the terms of the MOU and that was good enough to transform the MOU into a "contract" for the purposes of the Regulations. I am not persuaded by that argument. Of course, a State cannot get round the public procurement rules by enacting a statute conferring monopoly rights to carry out relevant work on a private body instead of entering into a contract with that body; but that is not what was planned and it is not what has happened. I accept that regard must be had to public law obligations as well as private law obligations when determining whether an arrangement constitutes a "public contract," but in my judgment the provisions of the Childcare Payments Act take that matter no further. This is not a case where the statute is the source of mutually binding obligations.
The Childcare Payments Act does not, and does not purport to, transform the nature of the MOU or make it an enforceable agreement. Clause 16 merely sets out who may provide childcare accounts. It puts beyond doubt the capacity of NS&I to do so, though it already has such capacity under s.113 of the Financial Services Act 2012. However the Director of Savings (representing NS&I) can only provide childcare accounts if HMT (not HMRC) so determines. That is what the statute says. Assuming that HMT has so determined, Clause 16(2) directs the Director to act in accordance with any arrangements she makes with the Commissioners of HMRC (her executive counterparts within that department). Those arrangements will either have contractual force, or they will not; those statutory provisions will not transform them into mutually binding obligations, thereby superseding what is expressly stated in Clause 3 of the MOU. Clause 16(2) says nothing about HMRC electing to procure services from NS&I – on the contrary, it uses the language of mutual arrangement, consistent with the MOU being about co-operation. Clause 16 does not impose any legal obligations on HMRC or confer on it the right to enforce NS&I's obligations; at most it puts beyond argument the power of HMRC to pay the person who provides childcare accounts. Even if Clause 16(2) were to create an enforceable public law obligation on the Director, it is not enforceable at the behest of the other party to the MOU, HMRC. Nor does it transform the arrangement with HMRC reflected in the MOU. If anyone can enforce it, presumably it is HMT or the Minister – but they are already entitled to tell NS&I how to implement matters of fiscal policy. In short, if the MOU itself is not a contract, which it is not, the statute cannot and does not make it one.
The La Scala case upon which Mr Coppel relied (C0399/98, Ordine degli Architetti delle Province Di Milino and others v Comune di Milano [2001] ECR I-5409) is not authority for the proposition that for the purposes of EU law, the enforceable obligation to provide the services in question may be derived from legislation requiring only one of the parties to comply with the provisions of an arrangement which is expressly agreed by the parties to it to be non-contractual and non-binding. In that case, the relevance of the legislation, which bound both parties, was that it dictated that the contract for the works had to be entered into by the municipal authority with a specified person.
The issue in La Scala was whether the procurement Directive precluded national (and regional) legislation in Italy which provided that, when implementation of an urban development plan requires construction works in order to provide community facilities (in this case, a theatre) the developer holding the building permit is to be responsible for carrying out those works, at his own expense, in return for exemption from payment of the amount due to the municipality in respect of the building permit, (unless the municipality decides to collect the payment instead of opting for direct execution of the works), without requiring any tendering procedure for the award of the works contract. The CJEU held that the Directive did prohibit such legislation, even though under the legislation the authority was obliged to contract with that developer (and no-one else) for the carrying out of the works – and thus on the face of it no-one else could compete. The developer was not obliged to do the work himself. Therefore in order to comply with the Directive the national legislation had to make provision for the municipal authority to require the developer, under the agreements concluded with him, to put the works out to public tender.
Whilst it is true that the legislation in question obliged the developer to carry out the building works, there was an enforceable contract for the works between the developer and the municipal authority, and the contrary was not suggested. The case did not involve any issue as to whether the contract gave rise to any enforceable legal obligations, nor did it concern the question whether a statutory obligation to perform obligations to another party, which that party is unable to enforce as a matter of law, engages the Directive or the Regulations.
Given that the MOU is not a contract as a matter of domestic or EU law, or in substance, the Regulations do not apply to it. Nor does Article 56 TFEU. The TFEU imposes directly effective obligations on public authorities to advertise and carry out a transparent procurement process for "economic opportunities" which do not take the form of contracts at all but, for example, take the form of a licence or exclusive right to engage in an economic activity which is of cross-border interest: "Such an authorisation is no different from a service concession in terms of the obligation to comply with the fundamental rules of the Treaty and the principles flowing therefrom, as the exercise of that activity is liable to be of potential interest to economic operators in other Member States": C-221/12 Belgacom [2014] 2 CMLR 23 at [25-26], [33-34] and [44].
Edenred contended that the MOU has, at the very least, granted to "NS&I/Atos" a monopoly right (by way of authority or permission) to provide childcare voucher services under the TFC Scheme, even if it is not a "public contract" falling within the scope of the Regulations. The first reason why that argument must fail is that the MOU has granted no rights to Atos. Atos' rights and obligations derive from the Outsourcing Contract, as amended, and are owed to NS&I. Secondly, NS&I does not derive its authority to provide the services from the MOU – it derives it from HMT or, at least to the extent that authority includes capacity, from statute. The MOU reflects an arrangement between NS&I to co-operate with HMRC in the implementation and delivery of government policy by providing certain types of bank accounts, which is what NS&I is empowered to do by statute, especially if so directed by HMT. NS&I neither needs nor obtains "permission" from HMRC; like HMRC, it is told by HMT that this is the way in which it has decided that TFC is going to be delivered. In any event the TFEU is not aimed at, and does not apply to what are, essentially, resource-sharing arrangements made internally between two government departments, any more than the Directive does. See also AG Quidnet Hounslow LLP v Hounslow LBC [2012] EWHC 2639 (TCC), discussed in paragraphs 121-124 below.
In substance and in reality what has happened here is that the Government has decided to deliver TFC itself, internally, rather than through an external provider. The arrangements between HMRC and NS&I do not constitute a public contract and there was no "opportunity" that was required to be offered to the market. The fact that the implementation of this decision is not confined to HMRC, but involves HMRC making use of another government department, NS&I, which is part of HMT, to set up and administer the childcare accounts, does not change the character or the substance of what is planned from an essentially in-house implementation of policy into the sort of external arrangement that would attract the requirements of the procurement Regulations. Nor does the fact that NS&I had already outsourced its back-office functions to Atos – unless the delivery of the services would not fall within the ambit of the existing outsourcing arrangement but would require what is essentially an entirely fresh outsourcing contract.
If NS&I was still using a body of civil servants to run its existing banking operations it would be absurd to suggest that another government department making use of NS&I's infrastructure instead of building one from scratch itself would create the kind of unfairness at which the Regulations (and Article 56 TFEU) are aimed or offend the policy behind them. NS&I's outsourcing arrangement with Atos does not alter the essential character of the arrangement with HMRC from internal to external. In my judgment, the Regulations are only engaged if delivery of TFC would involve a material variation of the Outsourcing Contract. I therefore reject the first ground of challenge.
The second ground of challenge – material variation
EU law prevents significant new work from being added to an existing public contract by way of variation without a new tender process being held. If such variations were permitted, contracting authorities would be able to award what are in substance new contracts for services that had never been subject to proper advertisement or open, transparent competition, and economic operators could win procurements by bidding in an unrealistic fashion, and then racking up their prices once the contract was won.
A variation is material under EU law if it "…demonstrate[s] the intention of the parties to renegotiate the essential terms of that contract": Pressetext at [34]. The test is applied with regard to the object and purpose of the EU procurement regime, namely, opening up public contracts to competition and preventing the distortion of competition. Thus, a variation is material under the principles explained in Pressetext if the change:
i) introduces conditions which, had they been part of the initial award procedure, "would have allowed for the admission of tenderers other than those initially admitted or would have allowed for the acceptance of a tender other than the one initially accepted" [35]; or
ii) extends the scope of the contract considerably "to encompass services not initially covered" [36]; or
iii) "changes the economic balance of the contract in favour of the contractor in a manner which was not provided for in the terms of the initial contract" [37].
However if the change operates to the detriment of the contracting party providing the services (e.g. by driving down its profits) it will not be material.
Where amendment is envisaged and expressly permitted under the terms of the tendered contract, the amendment will not constitute a material change to the contract (Pressetext, at [40], [60] and [84]) save where the amendment to the contract is of such magnitude that it is essentially the award of a separate, second contract (Commission v France, at [36]). In the present case the procurement of the Outsourcing Contract did expressly cater for contract changes to include the provision of future B2B services, up to a financial ceiling of £2 billion, so the key issue is whether the contract changes made by the Amendment Agreement to cater for the delivery of the necessary outsourcing services supporting childcare accounts was tantamount to the award of a separate, second contract to Atos. In my judgment, given the terms and scope of the OJEU Notice, it was not. Objectively there is no intention of NS&I and Atos to renegotiate the essential terms of the Outsourcing Contract; on the contrary, the intention is to implement those terms exactly as was envisaged when the contract was made.
The first question to be determined is whether the support services to be delivered by Atos to allow NS&I to deliver childcare accounts fell within the scope of the services described in the outsourcing contract opportunity that was advertised for tender, and awarded to Atos at the end of that fair and transparent competitive process, or whether the scope of the contract is extended to encompass new and different services. The services here are not new. They plainly fall within the scope of what was advertised, and what any reasonable bidder would understand to have been advertised for tender. The subject matter of the advertised contract and the criteria governing its award was clearly defined. The OJEU Notice made express reference to B2B services and explained what they were. It made it clear that NS&I intended to expand the B2B service during the lifetime of the contract to deliver to other organisations, potentially resulting in "significant growth" of the outsourced operational services. It made it clear that the contract was to be structured in a way that would enable other central government departments to make use of the services that were being put out to tender and it made it clear that "the contracting authority is purchasing on behalf of other contracting authorities". If any bidder was in doubt about what NS&I did, and what sort of services it might be required to support if NS&I arranged to provide them to or for or with another government department, the Notice gave details of how it could access further information on-line including the PQQ and the Prospectus.
It is important to bear in mind that childcare accounts are just another type of bank account into which money is deposited and from which payments are made. They may be more complex in some respects but that does not alter their essential nature. Like NS&I's core products, they will be opened by members of the public and deposits will be made into them by members of the public. Unlike the retail savings accounts, where the deposits are essentially loans to the Government and interest is paid for and on behalf of HMT, the deposits will be topped up by payments from HMRC – but in both cases money is flowing into the accounts from the Government. Like some of NS&I's core products the accounts can only be opened for a restricted category of persons – in this case, children with parents who meet the criteria. Like the CFO accounts, payments out may be made to someone other than the person who deposited the money, though the categories of payees will be restricted. In the case of CFO the payee may be the recipient of awards of damages or costs, whereas in childcare account cases it will be a registered childcare provider. As in the ELPS scheme, NS&I will also be handling money paid by a government department, in this case HMRC, to be paid out to a restricted category of payees. However the childcare accounts appear to me to be closer in nature to the core business of NS&I than either of those pre-existing B2B services.
Under the Outsourcing Contract, Atos will be providing the staff and call centres to NS&I to run and service these new bank accounts, just as it provides staff and call centres to NS&I to run and service its other products; and it will be providing the necessary IT, and developing the necessary software which will be based on the existing banking engine, to meet the more complex requirements of accounts with the features that I have already described. The banking, financial information systems and financial transaction processing and clearing-house services that are required of Atos under the Amendment Agreement fall within the 50 different specific types of service that are listed in the OJEU Notice using common procurement vocabulary; they did not become "new and different" services because they relate to a new type of bank account or because the bank account is a B2B service being provided by NS&I to HMRC.
In reliance on Commission v France and C-423/07, Commission v Spain, Edenred contended that the childcare account services were not advertised and that the OJEU Notice was insufficiently specific. Mr Coppel pointed out that the original tender in Commission v France for the first phase of the project (the feasibility study) embraced the possibility of further clearly defined services being provided in the second phase, and yet, although there was specific reference to the nature of the particular works in the second phase, that was not good enough to avoid the need for a further procurement exercise. In the present case, he submitted that the future B2B services adverted to in the OJEU Notice were far too generic, and even less clearly defined than the specific services in Commission v France. The same was true of Commission v Spain, which related to the construction of two new links in the A-6 motorway from Madrid to La Coruna. The Commission's objections in that case were chiefly based on the fact that the successful tender included works that were not even mentioned in the specifications that the Spanish Government had advertised. Moreover the wording of the specifications was not such as to lead participants to suppose that they could propose additional works on a scale and in a location comparable to the scale and location of the additional works proposed by the successful tenderer, which already held the concession for work to a different section of the same motorway.
Mr Coppel relied in particular on paragraph 70 of the judgment:
"…it does not satisfy Directive 93/37 when, without any transparency, a public works concession contract is awarded which includes works referred to as "additional" which of themselves constitute "public works contracts" within the meaning of that directive and the value of which exceeds the threshold laid down therein".
In my judgment that is just another way of expressing the principles in Pressetext that the Regulations and Directive cannot be evaded by making a variation to an existing public contract even if variations are allowed. A public authority cannot justify awarding an existing private contractor what is in substance a new public services contract to do works that were not part of the original specification, on the basis of a provision in the first public services contract that envisages that additional works of an entirely unspecified nature might be required in the future.
However, those arguments blur the distinction between the B2B services, which are to be delivered by NS&I to other government departments, on the one hand, and the outsourced support services which are to be delivered by the successful bidder, in respect of NS&I's core business and any existing and future B2B services, on the other. The latter are the services with which this case is concerned, and they were very clearly (and in my view sufficiently) defined in the OJEU Notice. The nature of those services has not changed. They were part of the original specification. They were properly advertised. No actual or prospective bidder could have been in any doubt as to what it was required to deliver to NS&I.
In Commission v France the services to be provided at phase 2 were clearly different from those to be provided at phase 1. All that the bidder was being invited to bid for was the services encompassed in phase 1, and thus it could not be treated as also having successfully bid for the services expected to be included in phase 2. Likewise in Commission v Spain the works were to completely different parts of the same motorway. Cases of this nature are extremely fact-sensitive. The Outsourcing Contract is not of a similar nature. It does not relate to any particular phase of a development. It relates to all operational services that NS&I requires to support its business. The 50 different types of services falling within the ambit of the general description of "outsource services" are separately and independently identified, ranging from 66110000 ("banking services") to 79512000 ("call centre") to various specific types of software packages (financial analysis and accounting software package, statistical software package, Customer Relations Management software package). The situations addressed by the CJEU in Commission v France and Commission v Spain are simply not analogous.
In this case, therefore, the Amendment Agreement will not vary the services that were put out to tender by NS&I, by introducing new and different services. The nature of the operational services that Atos will be providing to support the delivery of childcare accounts, is essentially the same as the nature of the services which are supplied by it to NS&I for existing banking, accounting and payment products and which would have to be supplied for any new product delivered by NS&I, whether or not it was a new type of savings account to raise money for HMT or a bank account to be utilised by another government department – or a payment service offered to another government department akin to the ELPS.
If as part of its core services NS&I offered a new type of savings account to the public, an amendment to the Outsourcing Contract to cater for setting up and administering that new account would not have to be advertised and tendered separately. Mr Coppel accepted this, on the basis that those were NS&I's core services. However the same must be true if a future B2B service is a banking, account and/or payment service which is what NS&I's business entailed, and was known to entail, at the time of the OJEU Notice. I do not accept that in order to comply with EU law the OJEU Notice would have had to spell out in detail that the bidder might have to provide the 50 specified types of administrative service in support of the delivery by NS&I of identified and specified B2B banking, account or payment services to identified government departments. Nor do I accept that provision of those administrative services in support of such B2B services entailed additional or new works.
On reading the OJEU Notice it was plainly envisaged that the successful bidder would be required to provide all the specifically described types of "back office" services that NS&I was offering to outsource, not only to support the delivery of NS&I's core retail business, but also in order to support and enable NS&I to provide bank accounts and payment services to other government departments under existing and future B2B contracts up to the envisaged financial ceiling of £2 billion. There is no dispute that the value to Atos of the additional services under the Amendment Agreement would fall comfortably within the financial headroom allowed in the OJEU Notice. Any potential bidder knew, or had the means of finding out by registering an interest, what the existing B2B services were, and thus what future B2B services were likely to be – but they were not the subject of the tender; the operational and technical support services to enable NS&I to deliver them were.
The bidder would have known that, if successful, it would be expected to deliver "processing of customer interactions and servicing (eg payments including via telephone, internet and mail); service management; IT management and implementation; complaint handling…..customer management, print and document management and other related ancillary services that support the business operation of NS&I" in respect of any bank account or payment service that NS&I was required to provide to another government department during the future term of the Outsourcing Contract, especially if (like the core services) this involved interaction with members of the public. That was good enough. There was an open competition for the provision of these services and that competition was transparent.
If the B2B service that NS&I was going to provide was not a banking or account or payment processing service then Edenred's objections may have had some force, but any bidder for this Outsourcing Contract would have known that it was bidding for the opportunity to provide exactly the same kind of administrative support to NS&I if NS&I were to open and service bank accounts for another government department, as it would have to provide if NS&I opened new types of savings accounts to raise money for HMT. There was no necessity to spell out what sort of bank account it might be and identify each and every other government department it might be delivered to.
Edenred's argument was tantamount to a contention that the Outsourcing Contract could not lawfully be used in the manner in which it was plainly intended and flagged up in the procurement process that it should be used, in accordance with the strategy agreed in the 2010 Spending Review, namely, to enable NS&I with the support of the successful bidder to deliver bank account and payment services to other government departments, just as it had provided CFO and ELPS under the previous Outsourcing Contract for the MOJ and HMT. In other words NS&I could never offer its banking, account or payment services to another Government department without going through a fresh public procurement process for the outsourcing support necessary to enable it to do so. Mr Coppel did not shrink from adopting that proposition, though he tried to soften it by suggesting that there were other ways in which the Government might have legitimately achieved the same objective. However, I do not accept the proposition.
If a bystander had asked one of the entities that attended the industry day, or read the OJEU Notice, "suppose that in future, during the term of the advertised contract, NS&I had been tasked with providing bank accounts in the names of children that would be used by HMRC and parents to jointly fund payments for their childcare. If you were awarded this contract, would you be required to provide all the administrative services specified in the OJEU Notice to enable those accounts to be opened, operated and serviced?" the answer would plainly have been "yes, of course". The entity might well have added "that is the whole reason why, as we understand it, NS&I have said this contract could be worth up to £2 billion, because if we win, we will have the opportunity to deliver to NS&I the back office support for future B2B services of that type". Therefore, if Edenred had read the OJEU Notice or attended the industry day, it would have known enough to appreciate that if in future the Government decided to deliver childcare accounts through NS&I instead of putting them out to tender, the only way that Edenred would be able to get involved would be by making (or participating in) a bid for that contract.
If, contrary to those findings, there has even been a variation of the services to be provided from those that were advertised, the variation is not material. The Amendment Agreement meets none of the characteristics of the three examples of material variation given in Pressetext. The services are not new or different in any material respect. The Amendment Agreement does not introduce conditions into the Outsourcing Contract which, had they been part of the initial award procedure, "would have allowed for the admission of tenderers other than those initially admitted or would have allowed for the acceptance of a tender other than the one initially accepted." It is worth noting that the language used by the CJEU in Pressetext is "would have allowed for" not "might have allowed for". If the services in the Amendment Agreement to support the delivery of childcare accounts had been expressly included in the initial award procedure, would this have allowed for the admission of any other bidder, or for the acceptance of a tender by someone other than Atos, or attracted additional participants in the bidding process? In my judgment it would not, because it would not have widened the range of potential bidders beyond those who expressed an interest in the first place.
I fail to see how the express introduction of a reference to administrative services to support the delivery of childcare accounts by NS&I at the inception would have had any bearing on the tender process at all. Any other hypothetical tenderer would still have had to be able to deliver all the services required by NS&I and to meet the financial PQQ requirements. Edenred could do neither. It knew that. NS&I were advertising for a prime contractor (with any necessary specialist support to be provided by way of sub-contracting). It is wholly unrealistic to suppose that adding childcare accounts to the other types of accounts that needed to be serviced and supported would somehow have engendered new bids for the entire Outsourcing Contract from entities who were only interested in being involved in providing the childcare accounts themselves, and whose core business was not an IT or operational or technical support business.
The original bidders who could provide the remaining services (as well as the operational services needed to enable NS&I to provide childcare accounts) did not need a CVPA member on their team to be able to bid for this contract. They would not have been interested in bringing a CVPA member into a consortium or joint venture company to make a bid for services that they would obviously be better placed to deliver by themselves. If they were entitled to, and prepared to sub-contract some of the services to someone like Edenred, then they would probably do that after they had won the bid (though Atos has not) but it is unrealistic to suppose that they would have been prepared to sub-contract something they could easily do themselves. It would have been uncommercial. There is no evidence that any entity who did not bid would have leapt at the chance of bidding together with a CVPA member as part of a consortium but was dissuaded from throwing its hat in the ring because it was unaware that childcare accounts were part of the package, and the inclusion of childcare accounts would have made all the difference provided it could get a CVPA member to join in and deliver those services.
In short, if childcare accounts had been on the agenda and mentioned from the start as a potential or actual B2B service for HMRC, I am not satisfied that anyone else who could have done so would have bid for the Outsourcing Contract or would even have been attracted to make a bid. The truth is that all the original bidders were the types of entity that could provide the services required under the Amendment Agreement without calling on a childcare voucher provider. The same entities would have bid, and the same three entities would have been shortlisted.
Mr Coppel's position was that it was enough for Edenred to show that if the services in the Amendment Agreement were included from the outset, then hypothetically other bidders (not necessarily Edenred) would have been admitted or would have been allowed to have been admitted or would have wished to have been admitted. However, in my judgment the examples of material variation given by the CJEU have to be interpreted as examples of scenarios in which, in substance, a new contract has been concluded, unfairly conferring a competitive advantage on the existing contractor over someone else who would have participated in the process. There would be no such unfairness, and no distortion of competition, if no-one else would have bid or if the complainant's putative bid would never have got off the ground, which is the case here.
Mr Moser pointed out that in Pressetext itself, the CJEU held that an amendment to the basic agreement renewing, for a three year period, a waiver of the entitlement to give notice before the term of the contract expired was not material. It held that there was no economic incentive for the relevant state (Austria) to change to another service provider during the waiver period, and that the contractual partner was able reasonably to assume that in the waiver period there would be no equivalent offers under more favourable conditions such as to justify the expenditure entailed by making such a change (emphasis added). The contractor was therefore not favoured over other possible service providers, by reason of the amendment, since there was no risk of a distortion of competition. Thus if there is no risk of a distortion of competition, the change cannot be regarded as material.
Mr Moser used that example from Pressetext as the foundation for a submission that it was not good enough to meet the test of materiality for Mr Coppel to establish that, purely hypothetically, if childcare accounts had been specifically adverted to at the time of the procurement of the Outsourcing Contract, someone other than the entities who did bid might have come forward and expressed an interest in bidding for the Outsourcing Contract, either on their own or in conjunction with someone else. In support of that proposition he also relied on the decision of Coulson J in AG Quidnet Hounslow LLP v Hounslow LBC [2012] EWHC 2639 (TCC). That was a case about Article 56 TFEU, rather than the Regulations, where the issue was whether the economic opportunity, though entirely falling within the territory of one state, would have engaged cross-border interest.
At [69]-[72] the judge discerned a conflict between two strands of European authority. One strand, exemplified by C-108/98, RISAN Srl v Comune di Ischia [1999] ECR I-5219 held that the mere fact that there might be third parties in other member states who might have been affected was insufficient to engage Art 56. The rationale underpinning the other strand was that if an undertaking in another member state might be interested in bidding for the work, but it does not know about the opportunity to do so, it will be deprived of that opportunity. Yet in C-231/03 Coname [2005] ECR I-7287, the CJEU deliberately refrained from reconciling the two strands in favour of preferring the latter over the former, as the Advocate General in that case had suggested; and the subsequent case C-245/09 Omalet [2010] ECR I-13771 is authority for the proposition that the approach in RISAN Srl remains correct.
Coulson J resolved that conflict by resorting to first principles, and at [74] he found that there was no evidence that any undertaking in any other member state was in fact interested in the development of the relevant site, therefore Art 56 was not engaged. Thus it had to be shown that there was a potential tenderer in another member state who would have made a bid, and not just that it was hypothetically possible that someone in another state might have wished to tender for that project. Mr Moser submitted, by analogy, that for the purposes of the Directive it must be necessary for Edenred to satisfy the court that it, or another CVPA member, would have bid for the Outsourcing Contract if it had been made clear that the operational services specified in the Amendment Agreement supporting the delivery of childcare accounts was one of the future B2B services that NS&I might provide. In order to have bid, of course, it would have had to have satisfied the PQQ requirements.
There is much to be said for the approach taken by Coulson J of requiring evidence that someone beside the original bidders would have bid for the contract, because the EU procurement rules are designed to protect against real, not hypothetical, distortion of competition. However I do not need to decide the point, because even if one approaches the question on the basis that a hypothetical bidder has been shut out of the bidding process by the absence of reference to the subject-matter of the proposed amendment, it seems to me that in principle that must necessarily be a realistic hypothetical bidder – i.e. the evidence must demonstrate that there would be someone else who would have been ready, willing and able to bid and who would have wished to have done so if the opportunity had been made clear, but who did not do so because it was not.
I do not understand the CJEU in Pressetext to be saying that a variation is material if someone other than the original bidders might have wanted to bid for the Outsourcing Contract if childcare accounts had been mentioned, however unrealistic that person's aspirations might have been. That interpretation would lead to the highly unsatisfactory conclusion that an amendment which in fact would have made no material difference to the number of actual bidders or the outcome of the bidding process had it been included at the onset would be regarded as a material amendment necessitating a separate procurement process (which in those circumstances would be a waste of time and money).
I have already made the finding that Edenred could not have bid by itself, as it had insufficient financial resources, and that I am not satisfied that any other economic operator who could have delivered the services in which Edenred was not interested, and who would have met the PQQ financial threshold, would have joined forces with it to make a bid, or would have wanted to do so. That rules out Edenred itself as a potential bidder. So far as evidence about other potential CVPA bidders is concerned, it was Mr Langlois' view that one of Edenred's competitors would have wanted to bid because it had expended millions of pounds in 2008 in acquiring a subsidiary whose business was providing childcare vouchers: but that is pure speculation, and even if it is reasonable speculation, it tells the court nothing about that unidentified competitor's ability to make a bid, or to meet the PQQ threshold, as opposed to its desire to do so. Such a CVP would have faced exactly the same problems as Edenred in getting another economic operator to join forces with it.
The witness statement of Mr Julian Foster, the Managing Director of Computershare Voucher Services Ltd, served in the first judicial review proceedings, contains an equally bare assertion that his company would have participated in the procurement process as part of a consortium or as a sub-contractor, but there is no evidence relating to Computershare's ability to meet the financial requirements in the PQQ or to find a partner or partners who could deliver all the other services that NS&I required. Mr Foster was not a witness in the Part 7 proceedings, although his statement was treated as being in evidence. The evidence in respect of Computershare is even less satisfactory than that in respect of Edenred. There are no financial statements in respect of Computershare, and as with Edenred, there is no evidence that any third party who had the capability to bid for the remaining services under the Outsourcing Contract would have been ready, willing and able to join forces with Computershare so as to enable Computershare to deliver the childcare accounts, instead of bidding in its own right and keeping all the profit if successful. If Edenred's experience of delivering ESC would not be a sufficient incentive then neither would Computershare's.
Thus no reliable evidence was placed before the court that there was in fact any detriment to any other putative tenderer or any distortion of competition by reason of the fact that childcare accounts were not specifically mentioned when the procurement exercise for the Outsourcing Contract took place. Indeed there is no reliable evidence that there would have been any other bids for that contract if they were mentioned, and it seems to me to be inherently unlikely that mention of one further species of bank account would have made any difference to the cadre of actual or potential bidders. Therefore Atos was not being placed in a position of competitive advantage over Edenred in that regard.
The final example of material amendment given in Pressetext concerned a change to the economic balance of the contract in favour of the contractor in a manner not provided for in the original contract. The Amendment Agreement did not change the economic balance of the contract in favour of Atos, let alone in such a manner. At paragraph 70 of its skeleton argument, Edenred alleged that the charging provisions under the Amendment Agreement would differ from those under the Outsourcing Contract but at that stage, no detailed reasons were provided. At the start of the trial Edenred made an application for further disclosure relating to this issue, which I allowed. Edenred then put in a "Supplementary Note on Economic Balance" towards the end of Day 2, on which Mr Moser took some instructions overnight and to which he raised strong objection the next morning. After hearing argument I decided to admit the Note, and allow the Defendants to provide a written response to it.
Edenred's argument that Atos' profit margin was greater under the Amendment Agreement was fatally undermined when it was pointed out by the Defendants (and subsequently accepted by Edenred) that it had mistaken the calculation of mark-up for the calculation of profit margin. This led to the basic error of dividing profit by cost to calculate profit margin, instead of dividing profit by the charges. As the Defendants were able to demonstrate, the (projected) profit margin shown in the baseline financial model for the Amendment Agreement is consistent with that in the baseline financial model for the main contract.
I gave Edenred's legal team the opportunity to digest the implications of the admitted error, and put in some further written Reply Closing Submissions after the trial had ended. I also gave permission to the Defendants to respond in writing to any points raised in Edenred's Reply Closing Submissions which Mr Moser felt that he had not sufficiently addressed in oral argument, and they did so. For the reasons set out in that response, Edenred's remaining arguments on the economic balance point were just as fundamentally misconceived and equally based on factual misapprehensions.
Atos does not stand to make a significant profit under the Amendment Agreement above and beyond the profit it receives on its core services, as alleged. The contractual charging mechanism remains the same under the Amendment Agreement as it is under the original Outsourcing Contract. Without trespassing in this judgment more than is absolutely necessary into matters of commercial sensitivity which have been disclosed within a confidentiality ring, suffice it to say that the services to be provided under the Amendment Agreement will be charged on the original basis set out in Schedule 5, and not on some more advantageous "cost-plus" basis as alleged by Edenred. Thus it is simply wrong for Edenred to assert, for example, that Atos will be paid for the overheads and a 10% profit on top. Edenred has fallen into the further error of confusing Atos' cost model projections with the charges for its services. The financial model for the TFC variation forecasts projected cost and thus projected price, but it is not the basis upon which NS&I will be charged by Atos.
The basis of charge remains that set out in Schedule 5. There are three elements; (i) a fixed operational charge, (ii) a variable FTE (full time estimate) operational charge and (iii) debit card and postage charges. The charges include a fixed element, so Atos' profit cannot be guaranteed. The projected profit will only be achieved if the costs that are actually incurred are exactly in line with the calculations in the baseline financial model. Any increase in costs will be absorbed by Atos, not passed on to NS&I. Thus any changes in the cost base will directly affect Atos' profitability. If the costs rise, Atos takes the risk of the erosion of its profit margin. Under the variable FTE charge, Atos also takes the financial risk of variations in volume (e.g. if more software licenses are required than has been estimated, or if salaries rise). Atos' profit margin is susceptible to exactly the same risks under the main Outsourcing Contract and the Amendment Agreement.
The original contract and Amendment Agreement contain entirely normal provisioning for costs over-runs to deal with unforeseen items. A proportion of that contingency provisioning is attributable to a Time and Materials Contingency Budget for implementation, for which HMRC is responsible. That is provided so that HMRC can make provision in its own business case; if it is not needed, it will not be charged. The balance relates to risk provision for Atos against unforeseen items, the amount of which reflects the nature of the relevant activities and, in the case of TFC, the lack of historic evidence of volumes, speed of uptake and profile of traffic which makes it prudent to err on the side of caution. The existence of these contingency budgets does not, and cannot, confer any economic advantage on Atos under the Amendment Agreement or tilt the economic balance in favour of Atos.
In summary, Atos does not stand to gain any greater financial advantage from providing the supporting services for childcare accounts under the proposed Amendment Agreement than it does under the main Outsourcing Contract.
Edenred also sought to make a point about some payment services (known as HOPP) that Atos had already been providing for the Home Office at the time of the Outsourcing Contract, though it seemed to me that it was little more than a prejudice point which did not take it any further on the substantive issues or assist me to decide them. On the evidence of Mr Harkins, which I accept, those services (which Atos was already contractually obliged to deliver to the Home Office) were incorporated into the Outsourcing Contract as a B2B service as a short-term practical measure whilst the Home Office implements its strategy to close them, and the charging structure for them was different because it was inherited from the previous contract between Atos and the Home Office. I am not persuaded that these historic payment services have any impact on the question of material variation.
For all the above reasons, the Amendment Agreement does not amount to a material variation and I therefore reject the second ground of challenge. I find that there has been no breach of the Directive, the Regulations, or Art 56 of the TFEU. The decision that TFC should be delivered by NS&I working in co-operation with HMRC was therefore lawful despite the fact that Atos will be providing the operational services necessary to enable NS&I to deliver those aspects for which it is responsible, namely, childcare accounts and supporting services.
Causation and Loss
In the event that, contrary to my above findings, there was a breach of the Regulations or Art 56 TFEU because childcare accounts were not separately put out to public tender by HMRC (or included in the procurement of the Outsourcing Contract by NS&I) the next question is whether Edenred can establish that the breach has caused it loss. The parties were agreed that this has to be assessed as the loss of a chance, and on well-established principles that means that Edenred had to satisfy the court that there was a real, as opposed to fanciful, prospect that if it bid for a contract to deliver childcare accounts, it would have been awarded the contract. A real prospect means just that; it does not mean more than 50%, and previous cases have encompassed awards of damages where the lost chance has been evaluated as low as 17%.
After the second consultation and before the decision was taken to use NS&I to provide the accounts, a document was drawn up by senior civil servants for consideration by the Minister and further discussion on the various options for delivery of TFC. The authors were Ms Newton and Ms Elizabeth Russell, the Director of Personal Tax, Welfare and Pensions in HMT with responsibility for TFC within that department. Both gave evidence at trial.
The document, which is dated 14 July 2014, identifies five delivery options for TFC: NS&I, HMRC, a single private sector provider, a limited number of multiple private sector providers, and an open market. It highlighted the positive and negative aspects of each option and stated that there was "no unambiguously superior option". The private sector options were said to have performed well on many of the criteria, but less favourably on speed of delivery (likely to be spring 2016 at earliest) and ease of build criteria. The HMRC option had "some but not all" of the positive features of the NS&I approach, but could not be delivered until autumn 2016 as, unlike NS&I, HMRC could not leverage its current infrastructure and would instead have to build a solution from scratch. If the matter was put out to tender, the procurement process could take until late spring or summer 2015 to complete.
Existing voucher providers were described as "bullish" that they could build accounts in 3-6 months from the date of any award at the end of a procurement process, but they had provided no evidence in support of that claim. No such supporting evidence was provided by Edenred in the present case. Although Mr Langlois expressed optimism about Edenred being able to scale up its operations to meet the requirements of TFC, based upon its expertise in delivery of childcare vouchers under ESC, and on the expertise and resources of its wider corporate group, (he referred in particular to the experience of another Edenred subsidiary in handling large volumes of prepaid transaction processing services) he did not address timescale, other than to estimate that it would take around 6 months to establish the necessary interfaces between Edenred's and HMRC's systems (which is just one aspect of what would be required). There was no supporting evidence to enable the court to evaluate whether that time estimate was realistic. No evidence was even adduced from Edenred's parent company to confirm that the necessary finances would be made available.
There was a summary of the responses to the consultations: parents' groups favoured a single provider on the basis that parents were unlikely to have the time and resources to make informed decisions between account providers. Security of funds was considered very important. Their main priorities were that TFC should be simple, work well from the outset and be introduced by autumn 2015. The majority of those who responded from the childcare industry who expressed a preference also indicated a preference for a sole provider model, as it would be a significant simplification from having to deal with a large number of voucher providers. They felt this would help to overcome administrative issues (such as late payments by CVPs). CVPs, in stark contrast, favoured the open market option. That is entirely understandable.
Ms Newton said in her second witness statement that it was very unlikely that the Government would move to an open market option, even with regulation of that market, where anyone could offer TFC accounts provided that they met set criteria. This model would not meet parents' desire for simplicity because they would have to choose between a large number of providers, and it would require fees to be paid to the account providers by parents, rather than by the Government, which ministers have since decided they do not wish to happen. In addition it would make it very complicated for HMRC to organize the 20% top-up payments among different providers.
The evidence of Ms Newton and Ms Russell was that, if delivering the policy with NS&I was found to be unlawful, HMRC would have to carefully weigh up the options of delivering all of TFC within HMRC (which Mr Coppel accepted would not engage the Regulations) or tendering for one, or a very small number of suppliers (no more than 5) to provide the accounts. Ultimately the decision would be taken at Ministerial level.
I accept that there was a real, rather than a fanciful prospect that if NS&I were ruled out, the decision would have been made to go down the route of a public tender instead of using HMRC, although delivery via HMRC would not necessarily have been ruled out of the running and may still have been preferred. It was submitted by Mr Coppel that HMRC was not a viable option on timescale alone. That was a point he put in cross-examination to Ms Russell, but she did not accept it. She agreed that speed of delivery was a factor in the decision to go with NS&I but she said "I wouldn't say that the timing was the main issue". She later accepted that at the time when the decision under challenge was made, the anticipated extra year in delivery of TFC made HMRC a non-runner when compared to the timing of the other options. However, she added this:
"I think that one of the reasons that we chose the NS&I …our ministers chose the NS&I option, was some of the feedback coming out of… from parents and out of focus groups and the other consultation we did about favouring an in-house, a Government provider. So whilst at this point clearly with NS&I also on the table, that was the superior of our options, if NS&I had not been on the table, we may have looked more closely at the HMRC option".
When it was put to her that the autumn 2016 timing issue and the disadvantage of it being outside HMRC's expertise were very serious disadvantages nevertheless, Ms Russell agreed, but said that the procurement route had "not dissimilar timing" and agreed that the estimated difference was six months. Ms Newton's evidence in her second witness statement was also that "there is no presumption that Ministers would choose to tender for an account provider for TFC - it may be that HMRC deliver the accounts in-house instead." I anticipate that much would depend on whether the private sector route could be shown to be really likely to provide a significant advance on the delivery date and whether speed of delivery outweighed the other perceived advantages of keeping the matter in-house.
There is some evidence of who might have been interested in providing TFC if the matter had been put out to public tender in 2014 instead of making the decision under challenge. 15 potential suppliers, from a range of different organizations including Edenred and other CVPs, a high street bank, and BPOs attended a supplier day in response to a "prior information notice" published by HMRC in June 2014 during the second consultation. The smaller CVPs who attended the supplier day said that they would be most interested in bidding for TFC if there were 5-10 suppliers. The larger ones, including Edenred, did not say on that occasion whether they would bid (though it was assumed by the authors of the 14 July 2014 document that they would). That assumption was well founded, because in its response to the second consultation, whilst favouring an expansion or adaptation of ESC, Edenred indicated that it would be interested in bidding for the work if the decision was made to use one or more private sector suppliers to deliver TFC. Ms Russell and Ms Newton's non-evidenced expectation was that the larger CVPs would prefer a multi-provider solution of 4 providers to partition the market. Follow-up one to one interviews were offered for the following day. Four or five of the attendees followed up in one-to-one telephone conversations and a further two submitted further information in writing in response to the one-to-one questions. Edenred did not take up the offer of a one-to-one discussion.
Ms Newton's second witness statement correctly identified the alternative to an in-house option as being a tender for either one or a small number of suppliers to provide childcare accounts and she gave some evidence about who might bid in such event, but she gave no evidence about the likelihood or otherwise of ministers choosing between the single or multiple provider route. I consider, on the basis of all the evidence that I have seen and heard, including the government's published response to the second consultation, that the option of tendering for multiple providers would not have commended itself to the ministers making the decision in HMT/HMRC, for all the same reasons that led to their ruling out the open market option, which apply equally to a small number of providers. Perhaps more significantly, it would also have been contrary to the general thrust of the preferences expressed in the consultation by those who would be the ultimate consumers of the service, namely, parents and childcare providers. The decision under challenge favoured a single provider. In the light of that evidence I consider there was no realistic prospect of a multiple provider tender even though it was correctly identified as being one of the remaining options. Given the express wishes of parents and childcare providers for simplicity, and the clear preference expressed in the consultation for one single provider over a small number of multiple providers, the complexity for HMRC of delivering top-up payments to more than one provider, the recognition that single provider models would be easier to integrate into a single scheme, and the wish to deliver childcare accounts sooner rather than later, any public tender for TFC would have been for a single provider which could deliver the accounts as soon as possible in or after autumn 2015. Given that it is unrealistic to suppose that the multiple provider option would have been available, Edenred's chance of being awarded a TFC contract as one of the providers chosen as part of such a bid is negligible or non-existent.
I therefore have to evaluate whether Edenred had a real rather than fanciful prospect of being awarded the tender as the sole provider. Whilst Edenred has a substantial parent company there was no evidence adduced from that entity. There is no financial or accounting evidence to give the court any idea of how much money from its own business ventures it might be able to afford to invest in Edenred for this project, assuming that it was prepared to back it (as to which there was no evidence from the parent company either). I do not lose sight of the fact that the Claimant in this case is Edenred, not its parent, nor the group to which it belongs, nor CVL, the Edenred subsidiary that actually runs the childcare vouchers business.
Despite its track record of delivering accounts on the ESC scheme, Edenred itself has no experience of dealing with complex accounts or millions of customers. On Mr Langlois' evidence, since 2014, 220,000 parents have conducted "at least one transaction" on their account and Edenred handles 110,000 telephone calls per annum relating to childcare vouchers. Edenred would need to scale up its operations – including increasing its capacity - by a factor of 10, with all the additional increases in human and other resources that entails. At present it only employs 86 full time equivalent employees on its CV business. TFC has different operational requirements from ESC. The magnitude of the challenges facing Edenred or any CVPA member was something that the CVPA emphasized in its responses to the consultations. Ms Russell's evidence was that based on the scale of the challenge for Edenred it is far from clear that they would have even met the pre-qualification criteria for bidding, let alone been the successful bidder for a government contract that attracted the interest of 15 companies in the pre-market engagement exercise. She points to the fact that Edenred did not even engage in follow-up conversations after that event. I agree that this is hardly the behaviour of a really keen would-be bidder; but of course, Edenred was still advocating a variant of ESC as the preferred means of delivering TFC at that time.
In evaluating whether there was a real, rather than fanciful, loss of a chance here I must consider Edenred's potential rivals. A clearing bank would be the obvious type of provider that could deliver the kind of service the Government was looking to NS&I to provide, and which would have the advantage of experience of dealing with complex accounts and millions of customers. It would have the further advantage of being independently regulated, unlike the CVPs. It would be the nearest equivalent to using NS&I. The 15 entities which expressed an interest at the supplier day included a high street bank. Of course there could be no pre-disposition towards a particular type of bidder, but if a bank were to bid, its ability to deliver what the Government wanted would easily eclipse that of Edenred.
Mr Coppel submitted that the fact that Edenred is not a bank is immaterial, because TFC does not require a bank, it just needs a provider who can operate accounts. He pointed to the fact that the Government itself thought that the CVPs could deliver TFC – that is why they entered into such extensive discussions with them on that topic. In basic terms, he submitted, what was required was just a more complex (and more expensive to set up and deliver) variation on the service they were delivering already to employers under ESC – the handling of multiple online accounts and payments into and out of such accounts. I consider that this plays down the differences between ESC and TFC. Mr Coppel also made the point that even NS&I could not deliver TFC without making changes to its existing operations to cater for its greater complexities and making the significant financial outlay required, and so anyone who tendered for TFC would face the same challenges. That is true, but it would be easier for some to overcome those challenges than it would for others. Mr Langlois' oral evidence was that the financial outlay was no obstacle as Edenred could rapidly raise millions from its parent company or its shareholders, but as I have already said, there is no evidence from Edenred's parent company let alone the shareholders that they would have been willing to sink millions into such a venture and no evidence that the matter had even been put before the board of the parent company for consideration.
I agree that the delivery of TFC does not have to be by a bank. However, it by no means follows from this that Edenred would be as attractive or as viable a provider as a bank or a BPO were they to bid, and on the evidence of the types of entity displaying an interest even at a supplier day of which fairly short notice was given, it is inevitable that bids would be made by such entities.
I am not persuaded that if the tender had been for a single provider, which is the only realistic course that would have been taken if delivering TFC in-house through HMRC had been ruled out, Edenred would even have made a bid (on the assumption in its favour that it would have met the qualifying criteria for such a bid). Despite Mr Langlois' optimism, which as I have already said in the context of his evidence about bidding for the NS&I Outsourcing Contract, I treat with a degree of caution, I do not accept that it could have scaled up its operations to deliver TFC all by itself. Mr Langlois made a lot of claims in his third witness statement about Edenred's experience, its IT platform, the experience of other members of the Edenred Group in prepaid business solutions, the group's experience as working successfully as members of a consortium or joint venture but there was nothing in that evidence to convince me that Edenred had any particular expertise or other unique selling point that would make it a leading contender for the award of the TFC contract. The fact that it was experienced in making payments to childcare providers on a much smaller scale is not such a feature because all its rivals would have experience in making payments.
In terms of bidding as part of a joint venture or partnership, Edenred would have faced exactly the same kind of problems as it would have done in seeking to make a bid for the Outsourcing Contract if it tried to interest another entity in joining forces with it. There was no evidence from any of its CVP competitors that they would have done so. A BPO would not have been interested in joining forces with Edenred to deliver services that it could deliver by itself. It was the BPOs who expressed a strong interest in the single provider option after the supplier day. There was no, or no reliable evidence that anyone else would have teamed up with Edenred, despite Mr Langlois' reference to Edenred having (unidentified) "banking partners". Even if Edenred had made a bid, it would have stood no realistic chance of succeeding against a bank or against a BPO.
Edenred may well have succeeded in persuading HMRC that it could deliver childcare accounts. However, it would have faced very significant problems in scaling up to the necessary extent. There is no reliable evidence that it could have built the necessary infrastructure and been ready to deliver within 6 months of an award or that it could have done so alone. There is no evidence that any other entity would have participated in a joint venture with it, other than Mr Langlois' supposition. It is fanciful to suppose that Edenred would have persuaded HMRC that it was better placed than a bank or BPO to deliver TFC merely on the back of its successful track record of delivering ESC. It must be borne in mind that although the possibility of delivering TFC through voucher providers was something that was considered early on, NS&I was selected instead because it could build on its existing banking and service infrastructure, it had experience of dealing with millions of customers and millions of accounts already, and it had UK call centres already in place (even if it needed to provide another one). Moreover, being backed by the Government, it provided the most secure option. Realistically, therefore, Edenred bidding for a single provider award by HMRC would not have stood a chance against an independently regulated private sector organization such as a clearing bank, or even against a BPO. In the alternative scenario where Edenred would be bidding for the provision of support services to NS&I so as to enable NS&I to provide the accounts to HMRC, its chances of successfully outbidding Atos or another BPO are even more remote.
Therefore, even if there had been a breach of the Regulations or of Article 56 TFEU, Edenred has failed to discharge the burden upon it of establishing that the breach caused it to suffer any loss. In those circumstances I would not have exercised my discretion to grant declaratory relief or to set aside the decision to award the contract to NS&I under Regulation 47I. It is not the practice of the court to grant legal remedies that have no practical purpose, or to make declarations merely to express disapprobation or to act as a deterrent. I do not consider that it would accord with the underlying principles of encouraging and promoting fair and transparent competition to set aside a decision that did not, in fact, deprive the person complaining about it of any valuable economic opportunity and which, if it had to be re-made, would confer no benefit on that person.
For all the above reasons, this claim must be dismissed. I would like to conclude by expressing my thanks to both leading counsel and to the parties' legal teams for the clear, helpful and attractive manner in which this case was presented and for their co-operation in ensuring that the timetable was met. |
HIS HONOUR JUDGE SIMON BROWN:
The judgment having been handed down, the Claimant seeks five orders.
i) David Osmond be joined as a Defendant for the purpose of determining liability for costs;
ii) The Defendants pay the costs of the claim to be assessed if not agreed;
iii) The Claimant's approved costs budget be increased to £ 172,677.40;
iv) The assessment of costs be on the indemnity basis; and
v) The Defendants pay a sum on account of costs.
(1) The first one is whether or not Mr. David Osmond, a participant in the proceedings, should be joined as a defendant for the purposes of costs. I am referred to Section 51 of the Senior Courts Act in which a wide discretion is given upon that. I have also been referred to the case Deutsche Bank AG v. Sebastian Holdings In & Anor [2014] 4 Costs L.R 711 where Mr. Justice Cooke reviewed and summarised the relevant principles and authorities at paragraphs 45-52.
He also refers to, and follows, a case where the Privy Council gave guidance in the case of Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No. 2) (New Zealand) [2004] UKPC 39 where there was a consideration of non-party costs orders under the law of New Zealand - there is no difference, as they said, to the approach taken in England and New Zealand as to the exercise of the discretion. I emphasise the word "discretion".
Paragraph 25 of that judgment says:
"A number of the decided cases have sought to catalogue the main principles governing the proper exercise of this discretion and their Lordships, rather than undertake an exhaustive further survey of the many relevant cases, would seek to summarise the position as follows: although costs orders against non-parties are to be granted as exceptional, 'exceptional' in this context means no more than outside the ordinary run of cases when parties pursue or defend claims for their own benefit and at their own expense. The ultimate question is: in any such exceptional cases whether in all the circumstances it is just to make the order. It must be recognised that this inevitably to some extent a fact-specific jurisdiction and there will often be a number of different considerations in play, some militating in favour of an order, some against."
Paragraph 48 of Deutsche Bank (supra) distils this:
"The court went on to find that where a non-party funds the proceedings and also substantially controls or is to benefit from them, justice would ordinarily require that if the proceedings failed he should pay the successful party's costs."
The grounds of the application are set out in the sixth witness statement of Paul Gordon dated 9 December 2014. Based upon this, Mr Bailey, for the successful Claimants, submits that the principal factors relevant in the present case are as follows:
i) Mr Osmond has had complete control over the manner in which the Second Defendant has conducted its Defence;
ii) That Defence is inextricably bound up with the First Defendant's Defence;
iii) The Defences of both Defendants have been nothing but a tissue of lies;
iv) The principal reason for the legal costs being incurred is the advance of a false Defence;
v) Mr Osmond is the person responsible for the Second Defendant's failure to give proper disclosure;
vi) Mr Osmond stood to benefit from the successful Defence of the claim in the sense that the compensation judgment will be executed on the Second Defendant's assets and he is a 97% shareholder;
vii) It is probable that his monies and the Second Defendant's monies are one and the same thing in the sense that he has been able to determine what sums have been paid out to him (about which there has been no disclosure).
The judgment handed down supports most, if not all, of these submissions. I draw attention to some particular fact-specific issues concerning Mr. Osmond and Red Foot Technologies Ltd. and Mr. Cumberbatch.
In paragraph 15 of my judgment I made this finding of fact:
"In my judgment such clandestine meetings and discussions must have taken place between Mr. Cumberbatch and Mr. Osmond not in May but in July 2001 after Mr. Cumberbatch had been sorely jilted by the Claimant, as I found he was, as evidenced by the phone calls and texts of his company Vodafone account whilst Mr. Cumberbatch was on gardening leave and under fiduciary and contractual duties to the company which he severely breached. I am satisfied that Mr. Osmond, a corporate businessman, fully appreciated what he was doing, opportunistically inducing Mr. Cumberbatch to breach his duties with a view to their mutual personal gain behind the safety of the corporate veil of a new company, Red Foot, set up deliberately by Mr. Osmond and Mr. Cumberbatch for their joint purposes in conspiracy against the Claimants and their business interests."
Further on I found under paragraph 81:
"The facts found from piecing and cross fertilising the whole of the evidence together amount to a finding that Mr. Cumberbatch was personally and through Red Foot in breach of his contractual tortuous and alleged fiduciary duties as pleaded to the Claimant. Red Foot was a company set up by Mr. Cumberbatch and Mr. Osmond to act as a corporate veil over his illegal activities and to further them."
Mr. Osmond has also, in my judgment, been untruthful and implicitly dishonest in his evidence and dealings in this case. He has contemptuously lied in statements of truth supporting pleadings and in his witness statements. In the circumstances as a 97% shareholder in a shell company that became lucrative and active trading company within a year through the illegal activities it was involved in, he was aiming to benefit from these particular illegal activities. Whilst hiding behind this corporate shield, he has been a very live and non shadowy person in this litigation whether or not he has personally funded it – which I suspect he has- and has been heavily involved throughout as a witness and in attendance. Therefore it seems to me that this is the 'exceptional' case well outside the norm envisaged by Deutsche Bank and Dymocks Franchise (above). In the circumstances, it would only be just, fair and reasonable that he should be joined to the proceedings for the purposes of costs and therefore I accede to the application made by the Claimant as far as that is concerned.
(2) There is no issue that the Defendants, having been unsuccessful, should pay the costs of the claim. Those costs are normally to be assessed on a standard basis by way of a detailed assessment, if they cannot be agreed.
(3) There is an application by the Claimant for its agreed cost budget to be increased to £172,677.40.
The Claimant's original 'cost estimate' (13th May 2013 when the case was still in London in QB before being transferred by Master Kay) was £193,397.20. Upon transfer and for the purposes of a Summary Judgment hearing and CMC on 9th September 2013 the first Budget was £199,699.70 including provision for expert evidence but was neither agreed nor approved. Revised budgets of both parties were filed and approved on 27th January 2014 - the Claimant's budget was £146,547.40; the Defendants' was £75,292.40. Further revised costs budgets of £160,947.40 and £84,512.40 were recorded as agreed at the PTR on 8th September 2014 when the Defendants were represented by solicitors whose budget of £84,512.40 was similarly recorded as agreed (CPR 3.15 (2) (a)). Neither budget made provision for contingencies, none being foreseen at that late stage.
The basis of this application is set out in the seventh witness statement of Paul Gordon dated 5 January 2015.
i) When the Claimant's costs budget was last approved, by consent, at the PTR on 8 September 2014, it included an additional 2 days hearing time beyond the budget previously approved (the court allowing 4 days hearing time rather than 2 days). There have been 2 further days needed to conclude the evidence and submissions and deal with judgment and costs in the absence of solicitor representation of the Defendnats who have put the Claimants to proof on everything. This will pro rata to an increase in the budget – referred to as Contingent Cost A.
ii) The additional costs connected with joining Mr Osmond as a Defendant for the purpose of making a costs order against him are referred to as Contingent Cost B. Not surprisingly, Mr Osmond declined to consent to being joined and actively opposed his joinder.
iii) The costs connected with the First Defendant's IVA are referred to as Contingent Cost C. These are claimed as being the costs of associated litigation which is incidental: see Roach & another v Home Office [2010] QB 256.
As rehearsed with counsel, I cannot increase a 'budget' once the costs have already been 'incurred' (as they have been), no application for variance has been made and no contingencies have been provided for such items of increase; it is too late to do that (see Elvanite Full Circle Ltd v. AMEC Earth & Environmental (UK) Ltd [2013] 4 Costs LR 612.
However, I accept that each of these three items of costs were quite properly incurred and were not remotely foreseeable in ordinary breach of covenant litigation. It was also not practicable or viable to make applications for variance or agree them with litigants in person as the First two Defendants became shortly before trial.
What I can do upon this application, and do so, is to 'record' a note upon the 'reasonableness' and 'proportionality' of such 'additional' costs incurred for the purposes of any Detailed Assessment of them.
In my judgment, all these costs were, looking at it on a summary basis only, prima facie 'reasonably' incurred and were 'proportionate' to what was 'at 'stake' for the Claimants – an efficacious judgment with costs, the survival of the company and the livelihood of its 35 or so employees.
(4) The Claimant seeks an order that summary or detailed assessment of its costs be on the indemnity basis pursuant to CPR 44.3(1). The general proposition is that indemnity costs are appropriate where the facts of the case and/or the conduct of the parties were such as to take the situation 'out of the norm' i.e. 'exceptional' as above in Deutsche Bank but here see Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] CP Rep 67 where Waller LJ said at para 39: 'The question will always be: is there something in the conduct of the action or the circumstances of the case which takes the case out of the norm in a way which justifies an order for indemnity costs ?'
I am grateful to Mr. Self, who has provided a more recent case of Richmond Pharmacology Ltd. v. Chester Overseas Ltd. & Ors [2014] EWHC 3418 (Ch) where Stephen Jourdan, Q.C., sitting as a Deputy High Court Judge, helpfully listed in paragraph 4 of his judgment on costs and orders all the applicable guidance in this particular area of costs, having distilled it from a number of judgments which are referred to in the White Book.
It is a requirement to review the 'conduct' of the parties in the case.
Mr Bailey submits as recorded verbatim form his skeleton argument on costs and orders:
i) Deceitful case: The Defence of both Defendants (and Mr Osmond via Red Foot) is based upon a falsity in that they have prepared an elaborate plan involving an alias to conceal unlawful conduct. When they were caught out, they perpetuated the deceit and were deliberately evasive.
a) That has continued into the application for summary judgment and through the complete court process.
b) That behaviour is not merely unreasonable; it is deceitful and contemptuous of the court process which exists to determine legitimate disputes. Whilst it is, regrettably, commonplace for parties and witnesses to exaggerate their cases and to depart, on occasion, from the truth, this case does not fall within that category. Here, there has been careful consideration of a complex web of deceit both in regards to the matters which form the basis of the causes of action and in relation to the Defence of the claim.
ii) Deliberate flouting of the rules: The falsity of the Defence is compounded by the disregard of the court's rules. That has already resulted in the £62,500 being ordered to be brought into court for repeated breaches. The court, having now heard the evidence, is able to see the wholesale disregard of the obligation to give proper disclosure. The Defendants compounded that failing by disingenuously suggesting that it was an accident. It was no accident. The Defendants knew that giving disclosure properly would wholly undermine their case. They have been legally represented throughout. They can have been left in no doubt about the extent of their obligations and the consequences of their failings.
Mr Self nobly attempted to resist the application for indemnity costs not by disputing the substance of Mr Bailey's submissions based as they were on findings of facts against the Defendants but by tentatively arguing that the behaviour of the Defendants was not 'out of the norm' in hard fought civil litigation where the burden is upon the Claimant to prove its claim upon the balance of probabilities.
I cannot, and do not, agree. I accept all Mr Bailey's submissions. In my judgment the 'conduct' of the Defendants throughout of the Defendants has been reprehensible; there has effectively been a pernicious conspiracy against the Claimant that meant the Claimant had to bring these proceedings to ensure its survival and the livelihood of its employees. Indemnity costs on that ground alone are wholly appropriate.
Whilst untrue witness evidence is to be deplored, more importantly, as far as this is concerned in the question of costs, is the time consuming and expensive disclosure process where, in my judgment, the Defendants tried to cover their tracks by spoliation and/or concealment of contemporaneous electronic and paper evidence that would have positively helped the court to decide the case objectively upon its merits. Such 'contemporaneous' documentation in the digital age is now the best evidence for any fact finding court or tribunal. Standard disclosure (CPR 31.6), as ordered and by consent, includes both documents that 'adversely affect' a party's case as well as those that 'support' it. Otherwise, the court does not have all (and no more) of the 'relevant' contemporaneous documents to deal with the case 'expeditiously and fairly' in accordance with the overriding objective (CPR 1.1).
Not only was there a woeful failure by the Defendants to comply with the rules on Standard Disclosure at a time when they had solicitors quite properly acting for them, in my judgment it was deliberate and part of their deceit upon the Claimants but also upon the court itself in trying to deceive the court that there was no evidence of any relevant activity by Mr Cumberbatch during the year in question.
The consequence was that when the case came before court, the claimants with no cooperation by the Defendants were forced to place all documents that that had been disclosed in the files they had been disclosed from, making the case extremely over documented and in duplication; the Claimants had to show that they had disclosed everything, but that the Defendants had not so as to enable them to demonstrate the obvious lacunae and to submit to the court it should draw adverse inferences against the Defendants for failure to disclose highly material documents which were 'adverse' to their own case, as is the test under standard disclosure. I found that they had not disclosed what they ought to have done and duly did draw such adverse inferences against the Defendants after painstaking forensic examination, as in a fraud trial, of the documents disclosed and those obviously not. In normal civil litigation the court should not be so burdened, nor should any opposing party at their inevitable extra great cost.
Despite at the time being represented by perfectly capable and experienced straightforward solicitors, a whole file was referred to me which showed that there was numerous solicitor's correspondence, on the part of the Claimant, requesting relevant documents, and all sorts of excuses and reasons given by the Defendants solicitors - upon instructions - not to disclose those documents.
I am satisfied that there was a significant failure to engage in the process of disclosure in this case by the Defendants and that has substantially increased the Claimant's costs. It is only right, just and fair that the Defendants, having played that dangerous game in litigation, should have to bear all those costs on an indemnity basis; such conduct is 'exceptional' in civil litigation as well as reprehensible and contrary to the overriding objective. It is worth remembering that the duty of the parties under CPR 1.3 & 4 is 'to help the court to further the overriding objective' and in doing so 'cooperate with each other in the conduct of the proceedings' even though they may otherwise, of course, fiercely contest the merits of their respective cases.
It therefore means that in this particular instance, as I find the conduct of the Defendants both before and during the proceedings to be reprehensible and 'exceptional', I award indemnity costs to the successful Claimants. It will therefore be for the Defendants upon any detailed assessment to show that the costs of the Claimant which are being sought against them are 'unreasonable' and the burden of proof is upon them to prove unreasonableness rather than the Claimant having to prove 'reasonableness' and 'proportionality' of their costs (CPR 44.3).
Where costs are ordered to be assessed on a standard basis, such assessment will not depart from an agreed or approved budget 'unless satisfied that there is good reason to do so' (CPR 3.18.). Where, as here, the Claimant's costs will be assessed on an indemnity basis, the Claimant will not be so limited by the rules to the agreed costs budget but it may, in practical terms be a starting point or guide for the costs judge on any detailed assessment: see the conflicting fist instance cases of Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] 4 Costs LR 612 and Peter Kellie v. Wheatley and Lloyd Architects Ltd . [2014] EWHC 2886 (TCC).
(5) The Claimant also seeks payment on account of those costs pending any detailed assessment. Mr Bailey submits that even on the standard basis the costs awarded on account should be almost the entirety of the budget, say 80% of it but on an indemnity basis it should be 90% to reflect the different basis of assessment under CPR 44.3.
He refers me to Elvanite where an interim standard costs award of £250,000 was made against a budget of £264,708, Thomas Pink Ltd v Victoria's Secret UK Ltd [2014] EWHC 3258 where the interim costs award was calculated at 90% of the costs budget £645,000 against a budget of £678,000. In the case of Kellie (above), indemnity costs had been declined but £90,000 was ordered on account of standard costs which had been budgeted at £91,700. This was on the basis there was little argument about them and the actual costs were said to be £161,000.
As the actual costs are within budget but there are three items of 'additional' costs that may be debatable as not even a contingency in any budget (as discussed above), in my judgment 90% of the actual costs are bound to be payable upon any detailed assessment; there maybe a margin of 10% which maybe arguable as being 'unreasonable'. Accordingly and accepting, as I do, that prima facie the benchmark is that the actual costs of the Claimant are £172,677.40 pence and @ 90% basis, the costs to be paid on account in 14 days will be £155,409.66 pence.
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Mr Justice Warby:
Introduction
This is a claim for injunctions and other orders in respect of various valuable items which were until 16 December 2014 kept at 3 West Heath Avenue London NW11, the home of the second claimant, Shoshana Stern, and her husband William Stern. On that date the goods were seized and taken away by court enforcement officers acting pursuant to a Writ of Delivery sealed by the Queen's Bench Division Commercial Court.
The claimants assert that they are the owners of and entitled to possession of the goods at issue. They now seek interim mandatory orders that the items be delivered up to them. In the meantime, or in the alternative, they seek orders that the items should not be sold or disposed of pending trial. The defendant's position is that no relief should be granted because the claimants cannot show any tenable claim to the goods, or even if they can, a claim for damages would represent an adequate remedy.
The claimants' case in outline
William Stern was very successful in the property business in the 1960s and early 1970s. He and Shoshana, who married in 1957, moved into 3 West Heath Avenue in 1965. But after the banking crisis in 1973 Mr Stern became in practice insolvent from some time in 1974. In 1978 he was made bankrupt in the sum of £143 million. This was at the time notorious as the largest ever personal bankruptcy in British legal history.
When William Stern fell on hard times his father, Mr Edmond Stern, stepped in. He bought the home in which Mr Stern was living with his wife Shoshana, and the furnishings and effects contained in it. Some at least of those items were listed in an inventory and valuation of December 1974. The inventory included some pieces of antique furniture (three tables, two mirrors, and various chairs) which are among the items the subject of this claim. The sale of the house and contents was supervised and agreed by Cork Gully, insolvency practitioners. They were the court-appointed administrator of the insolvent Wilstar group of companies and in that connection were overseeing William Stern's affairs.
Mr Edmond Stern, who lived in New York, settled all this property, including the furniture, in a New York discretionary trust known as the Edmond Stern Settlement for the benefit of the six children of William and Shoshana Stern. With the agreement of the trustees and beneficiaries of the Settlement, the items remained in the couple's physical possession at 3 West Heath Avenue until they were removed on 16 December 2014 pursuant to the Writ of Delivery.
The furniture is claimed by the first claimant, David Halberstam, an attorney from New York, as a trustee of the Edmond Stern Settlement. The other trustee, Mr Willie Grangewood, is ill and unable to take an active part in this litigation. However Mr Halberstam has spoken to him, and he supports the claim which Mr Halberstam pursues on behalf of the Edmond Stern Settlement. Mr Halberstam's evidence is that in any event New York law entitles him to claim on behalf of the Settlement to protect trust property from external threat.
Mr Halberstam also lays claim on behalf of the Settlement to 3 old master oil paintings which were among the items seized in December 2014: one by Guardi, one attributed to Chardin, and one from the circle of Rembrandt. These items were not included in the inventory of December 1974, and Mr Halberstam cannot produce any documentation to confirm their acquisition by the Settlement. However, Mr Halberstam states that he distinctly recalls being informed, at the time of his appointment in 2003, by Mr Grangewood, his fellow trustee, of what the trust property comprised, and that he established at the time that these three paintings were trust property. These paintings are said by Mrs Stern to have hung on the walls of 3 West Heath Avenue since before William Stern became insolvent in 1974. There is also some documentary evidence to which I shall come which is consistent with these paintings having become trust property.
There is a fourth work of art which is the subject of this application: a painting by the 20th century artist Mane-Katz. This is claimed by Mrs Shoshana Stern, as second claimant, whose evidence is that she bought it in 1967. This painting has, she says hung in her home since then, until it was removed on 16th of December 2014.
Mrs Stern also claims in respect of a Rolex wristwatch. This was not among the items taken on 16 December 2014. It was delivered by Mr Stern to the defendant in November 2013 without, says Mrs Stern, her knowledge or authority. It has been said by the defendant however that the watch was sold in August 2014. That is said to entitle Mrs Stern to damages, but as she has no basis for quarrelling with what the defendant says about the sale, no relief has been sought on this application regarding the watch.
The defendant's side of the story
The picture I have painted so far ignores a series of transactions entered into between William Stern and the defendant company, and litigation over those transactions, which are critical to this application. For many years, it is said, the defendant, represented by Mr Jacob Plitnick, also known as Yankel Plitnick, lent money to Mr Stern. In 2013, when Mr Stern was unable to pay, Mrs Stern's brothers settled a debt to the defendant. By an agreement recorded in a Deed dated 7 February 2013 the defendant covenanted never again to advance money to Mr Stern. The Deed provided that any transaction entered into in violation of its terms would be unenforceable. The parties to the Deed included not only Mr Stern and the defendant company but also Mr Plitnick, Mrs Stern, and a company owned by her brothers.
Thus it is said that when, in May 2013, Mr Stern approached Mr Plitnick to raise funds for a business venture, both parties knew that this could not be done by means of a loan. Instead, by a series of transactions evidenced by bills of sale, the defendant bought all the furniture and paintings which are the subject of this application from Mr Stern. The items were left in Mr Stern's possession, but the defendant was entitled to delivery up upon payment of the full purchase price. Mr Stern was given an option to repurchase if he so desired.
Mr Plitnick says that the full purchase price for all the items was paid by the defendant. He did not initially request physical possession, for reasons of convenience. He had nowhere that could accommodate the items. According to Mr Plitnick, by December 2013 it had become apparent that Mr Stern was not going to repurchase the items. Hence on 3 December 2013 he sent an email requiring delivery of the items to his flat.
A dispute then arose between Mr Stern and the defendant, in which Mr Stern claimed that some of what appeared on their face to be sale transactions were in fact sham transactions, the reality being that they were loans. Hence, he said, they were in breach of the 2013 Deed, and unenforceable, meaning that he had no obligation to deliver up the goods. The parties agreed to arbitrate, and on 19 May 2014 their chosen arbitral tribunal, the Golders Green Beth Din, found against Mr Stern.
By an order of 4 June 2014 the Commercial Court granted the defendant leave to enforce the arbitral award, listed the 10 items which the Beth Din found had been sold to the defendant, and ordered Mr Stern to make those items immediately available for collection. An attempt by Mr Stern to judicially review the award relying on the Deed of 2013 was dismissed on the papers as unarguable by Hickinbottom J, and not renewed. But the goods were not delivered.
On 27 November 2014 solicitors for Mrs Stern wrote to those acting for the defendant arguing that the purported sales of the goods were sham transactions, and raising again the Deed of 2013. At about this time the Commercial Court sealed the Writ of Delivery to enforce its order of 4 June 2014. Enforcement followed on 16 December 2014. The packing of the goods for removal began in the early evening.
Claims are brought
At about 10.30pm on the evening of 16 December 2014 Counsel for Mrs Stern made an out of hours application to Popplewell J for an order for the return of the goods. It was alleged that all the goods belonged to Mrs Stern, and that her husband therefore had no title to transfer to the defendant. The application was dismissed on the grounds that it was probably too late to prevent the goods being removed, and the information then before the court did not meet the high threshold necessary to support a mandatory injunction out of hours without notice.
On 22 December 2014 the same solicitors wrote on behalf of both the first and second claimants advancing the claims of title to the goods which I have outlined above. Mrs Stern has since apologised for the mistaken representation that she owned all the items. The solicitors' letter asserted that the defendant must have known that Mr Stern did not have title to any of the goods the subject of the claim. The defendant did not respond to the letter of claim. The claim form and the application notice which is now before me were issued and served on 15 January 2015, supported by witness statements of Mr Halberstam, Mrs Stern, Mr Stern and Mr Golkorn of the claimant's solicitors. Particulars of claim were served the following day.
The claimants' evidence included, in addition to the matters outlined above, a disavowal by Mr Stern of the authenticity of the apparent sales relied on by the defendant. Mr Stern's witness statement asserted that none of the items that had been removed on 16 December 2014 were his, legally or beneficially. He stated that whilst he had put his name to "various documents with the defendant" which asserted or implied that those items were his, those statements were not correct. They were made in the context of sham documents dressed up to conceal what was in fact lending contrary to the Deed of 2013. Mr Stern's evidence is that Mr Plitnick and, through him, the defendant knew the goods were not his.
Accordingly, the claimants' case in summary was that although Mr Stern had purported to sell the goods to the defendant he had no title to any of them and, since nobody can give that which they do not have, the defendant acquired no title to any of the goods; alternatively, it was alleged, the purported sales were sham transactions entered into in breach of the 2013 Deed and hence unenforceable. The alternative basis of claim was relied on by Mrs Stern, as a party to the Deed, and was said to give rise to a claim in damages by her not only in respect of the purported sale of the Mane-Katz which she owned but also the other items.
The substance of the defendant's case emerged two days before the hearing, on Monday 26 January 2015. On the morning of that day it was made clear by Counsel for the defendant that in addition to contesting the claimants' claims to have title to the goods, two points of law would be taken. These were to the effect that even if the first claimant would otherwise claim against the defendant that claim could not succeed by virtue of s 8 of the Bills of Sale Act 1878 and/or s 24 of the Sale of Goods Act 1979.
The defendant's evidence was served later that day. It set out, in greater detail, the position I have outlined above. It made clear that whilst the Rolex had been sold, the other items were in storage with Roseberys the auctioneers. A valuation by Roseberys was exhibited. The defendant's evidence also exhibited a lower valuation by Sothebys. Sothebys' valuation letter set out proposed auction dates for the items in and after April 2015. An inference was drawn on the claimants' side that the intention was to sell in that way at that time. If so, there would have been a less pressing need for interim relief to be granted at the present hearing.
The witness statement of Mr Plitnick contained at paragraph 37 the following:
"I have offered to come to an agreement – for example that Gladstar will not sell the Paintings and Furnishings until after trial; or that I will return the items so long as Gladstar is offered proper security. I am afraid that I simply do not trust Mr Stern, though, and the order which the claimants are seeking leaves Gladstar extremely exposed, even assuming (as I fully expect) that this attack on Gladstar's purchase, like every other attack so far, will be dismissed in short order."
The claimant's advisers seized on this paragraph, and via their Counsel's skeleton argument served the following morning they said that they accepted what was described as the "primary offer" made in paragraph 37. However, shortly after midday the defendant's solicitors emailed those acting for the claimants to state that the wrong version of the statement had been signed in error by Mr Plitnick. The first sentence should have read "I considered coming to an agreement – for example that Gladstar will not sell the Paintings and Furnishings until after the trial …" etc. A revised version of the statement was served.
Issues in the application
The application, as presented by Mr Bates on behalf of the claimants in his skeleton argument, gave rise to three issues:
i) Whether, by virtue of paragraph 37 of Mr Plitnick's initial statement and the response in Counsel's skeleton argument, the parties had compromised the application form of interim relief in a way to which the court should give effect by interim relief;
ii) If not, whether the court should adjourn this hearing to enable a better prepared interim application to be made at a later date, with interim relief meanwhile;
iii) If not, whether a case was made out for interim relief until trial as sought, or any interim relief.
The offer
Mr Bates invited me to rule first on his submission that a contract had been concluded or an estoppel created by the events described in paragraphs 21 and 22 above. It was plainly appropriate to do so as it could have concluded the hearing in short order. Having heard Counsel I held that the service of the witness statement and Mr Bates' skeleton argument did not give rise to an enforceable agreement to submit to interim relief pending trial, or an estoppel. I was not persuaded that, considered objectively in its context and within the surrounding matrix of fact, what Mr Plitnick said in his witness statement amounted to an offer to submit to interim relief.
It was common ground that whilst an offer of compromise had been made, there had been no offer of either of the kinds referred to in the witness statement. The first sentence of paragraph 37 was therefore false, and known to the claimants to be false. It was, moreover, a false statement about a past fact, addressed to the court, and not cast in the form of an offer. If any such offer was to be made it would ordinarily be made by some other means. If it was to be made in a witness statement it would be spelled out plainly.
I also considered this to be a case where it was clear that there was no intention on Mr Plitnick's part to create legal relations between the claimants and the defendant, by means of a sentence in a witness statement. I was not persuaded, either, that Mr Plitnick's witness statement contained any clear or unequivocal promise on which reliance had been placed or detriment suffered so that it would be inequitable for the defendant to resile from it.
Adjournment/interim relief
Overnight before the hearing it had emerged that the inference drawn from the programme of sales proposed by Sothebys in their valuation letter was a false one. The defendant wished, unless restrained, to sell through Roseberys by private treaty, and imminently. Thus, the question of whether some and if so what relief should be granted became more urgent. The distinction between Mr Bates' second and third issues did not quite disappear, but it became much less relevant.
For each purpose he would need to establish, at least, that each claimant's claim satisfied the requirements for interim relief identified in American Cyanamid v Ethicon [1975] AC 396: that they raised a serious issue to be tried, that damages would not be an adequate remedy, and that the balance of convenience favoured the grant of interim relief. So far as the balance of convenience was concerned, relief of any kind would represent an interference with the ability of the defendant to act as it wished and dispose of the items promptly. In the event, however, it was not necessary to address all these questions.
It is convenient to consider separately the claims advanced on behalf of the Edmond Stern Settlement, and the claim of Mrs Stern.
The claim by the Settlement
The case on behalf of the Edmond Stern Settlement rested on the contention that the furniture and paintings claimed were among the contents of 3 West Heath Avenue purchased by Edmond Stern in 1974 and settled by him in favour of his grandchildren. The trust deed, dated 13 December 1974, contained no reference to these assets. The defendant produced evidence that title to the house is registered in the name of William Stern. By the time of the hearing however the claimants' evidence had been supplemented by two further statements of Mr Goldkorn, exhibiting documents from 1974 and 1975 which supported the claim that the house was sold to Mr Stern senior and acquired by the Settlement.
These documents included correspondence passing between English solicitors and a firm of New York Attorneys, said to be acting on behalf of the Settlement. The claimants' case is that title to the house was registered in William Stern's name because at one point he was the sole trustee of the Settlement. He ceased to be such in 2003 pursuant to a Deed, one counterpart of which was in evidence, by which Mr Halberstam and Mr Grangewood assumed his former role. The need to transfer title to the house was overlooked, it was suggested. A reason for that might be that the house was at the time in negative equity, a proposition supported by a passage in Mr Stern's proposal for an individual voluntary arrangement, dated 6 September 2002, to which I shall return.
So far as the acquisition of the contents of the house is concerned, no contract of sale was in evidence. The claimants were able to produce a copy of the inventory of December 1974 which I have mentioned above, and documentary evidence that another inventory had come into existence, in 1973, but no copy of the latter. The 1974 inventory did not include any art. The inference was invited that the 1973 inventory would, if it could be produced, list the paintings claimed by Mr Halberstam.
Mr Bates pointed to a paragraph in one of the letters exhibited to Mr Goldkorn's third witness statement, which referred to a "Copy Agreement in respect of the contents and Inventory". This, it was suggested, was probably the agreement, or an agreement, for the sale of the contents of 3 West Heath Avenue. The letter was written by the solicitors to the New York attorneys on 20 December 1974, at a time when, on the face of the letter, the sale of the house was completed. The letter referred to a recent payment received by the solicitors in that connection, but requested a further payment of £29,724.42. The 1974 inventory included a valuation by L S Harris & Co, in the sum of £16,636. Thus, it was suggested, the solicitors' letter supported the view that an agreement had been made to sell contents including not only the items on the 1974 inventory but also items on the 1973 inventory, valued at some £12,000, which included the paintings.
There is subsequent documentary evidence that lends further support to the case on behalf of the Settlement. By 2002 Mr Stern had again fallen into debt and was proposing an IVA to his creditors (which included the defendant). The IVA proposal document of September 2002 to which I have referred states on its second page that Mr Stern's home "plus the contents" were sold to Edmond Stern and that he "immediately following his purchase" settled the property in the Settlement. Mr Bates pointed out that this IVA proposal is likely to have been subjected to careful scrutiny by Mr Stern's creditors, especially given his history and the estimated deficiency of some £55 million. The proposal was accepted by the majority of creditors.
Criticisms of the claimants' evidential case are made on behalf of the defendant. There is no doubt that it has several gaps, not the least of these being the absence of the presumed contract of sale of the contents. There are also some odd discrepancies, such as the reference in the solicitors' letter of 20 December 1974 to an Inventory (singular) and a reference in a 2009 judgment of Akenhead J to Mr Stern being the trustee and sole beneficiary of the Edmond Stern Settlement. However, in my judgment the evidence to which I have referred, coupled with that of Mr Halberstam, is sufficient to establish a real prospect that the first claimant would be able at a trial to establish on the balance of probabilities his case that William Stern sold to his father, and his father conveyed to the Edmond Stern Settlement, the items presently claimed on behalf of the Settlement.
In reaching that conclusion I bear in mind the relative haste with which it has been necessary to assemble evidence of title in reliance on transfers made 40 years ago. There is however already a reasonable inferential case that a written agreement for the sale of the contents was in existence at the time of the solicitors' letter relied on. It is plain, in my judgment, that if the sale by William to Edmond Stern took place it would have been effected by a written agreement.
That is not, however, the end of the question of whether there is a serious issue to be tried. Mr Halberstam has to contend with the defendant's reliance on the Sale of Goods Act 1979 and the Bills of Sale Act 1878. Mr Bates embarked on submissions as to the former, but for reasons of economy and simplicity I decided to hear argument on the effect of the 1878 Act first. That is because it was placed at the forefront of Mr Scher's written submissions for the defendant and evidently had the potential, if sound, to make further argument unnecessary.
Mr Scher's argument starts with the proposition that on the claimants' own case Mr Stern was at the time of the purported sales to the defendant a seller of the disputed goods, who remained in possession of those goods. He had sold the goods to his father in 1974 but they had remained in his possession ever since. That starting point was not and could not have been disputed by Mr Bates. Mr Scher goes on to submit that a buyer of goods from someone who is in possession of those goods but has in the past sold or transferred them to a third party is protected by s 8 of the 1878 Act.
Section 8 provides as follows (I set it out as did Mr Scher, broken down into paragraphs and with emphasis, neither of which features in the original):
"8 Avoidance of unregistered bills of sale in certain cases
Every bill of sale to which this Act applies shall be duly attested and shall be registered under this Act, within seven days after the making or giving thereof, and shall set forth the consideration for which such bill of sale was given,
otherwise such bill of sale, as against all trustees or assignees of the estate of the person whose chattels, or any of them, are comprised in such bill of sale under the law relating to bankruptcy or liquidation, or under any assignment for the benefit of the creditors of such person, and also as against all sheriffs officers and other persons seizing any chattels comprised in such bill of sale, in the execution of any process of any court authorising the seizure of the chattels of the person by whom or of whose chattels such bill has been made, and also as against every person on whose behalf such process shall have been issued, shall be deemed fraudulent and void so far as regards the property in or right to the possession of any chattels comprised in such bill of sale which, at or after the time of filing the petition for bankruptcy or liquidation, or of the execution of such assignment, or of executing such process (as the case may be), and after the expiration of such seven days
are in the possession or apparent possession of the person making such bill of sale (or of any person against whom the process has issued under or in the execution of which such bill has been made or given, as the case may be)."
The argument is that the agreement of 1974 for the sale of the furniture and paintings by Mr Stern to his father on which the claim depends was a bill of sale within the ordinary meaning of that term, and within the definition in s 4 of the Act, to which I shall come later. Hence, the agreement required to be registered under the Act if it was to take effect against the categories of person protected by s 8. A search of the Bills of Sale Registry by the defendant's solicitors has established that a bill of sale was, at one stage, registered under the name of one or more of William Stern, Shoshana Stern, Edmond Stern, Alfred Stern, Halberstam, Grangewood and Edmond Sterm Trust. This might have related to the goods in question; it is not possible from the records to ascertain whether it did or not. However the registration, whatever it related to, has lapsed. Section 11 of the 1878 Act requires a registration, once made, to be renewed:
"The registration of a bill of sale, whether executed before or after the commencement of this Act, must be renewed once at least every five years, and if a period of five years elapses from the registration or renewed registration of a bill of sale without a renewal or further renewal (as the case may be), the registration shall become void."
The registered date of the only bill that appears on the certificate produced by the Registry search is 15 January 2009, which is more than 6 years ago and well over 5 years before the execution of the Writ of Delivery. The defendant's argument proceeds in this way: the High Court enforcement officers were officers seizing in the execution of the process of the court chattels comprised in the bill of sale; the defendant is a person on whose behalf such process was issued; accordingly, the bill of sale, being unregistered, is deemed fraudulent and void against the enforcement officers and the defendant so far as regards the property in or right to possession of the chattels comprised in it.
Mr Bates' first point in response was to submit that the provisions of the 1878 Act are complex and their effects to a degree uncertain. A point based on the statute was inherently unsuitable for summary resolution on an application of this kind. There is scant authority relevant to the issue raised by Mr Scher. I accept that the court should not dismiss an application for injunctive relief on the basis that there is no serious issue to be tried unless it is satisfied that the claimant's case is frivolous or vexatious or for some other reason has no real prospect of success at trial. An application should not be dismissed on the basis that there is an insuperable answer to it, unless the court is satisfied that the claimant has had a reasonable opportunity to meet the point raised, has not offered any reasonable answer to it, and has no realistic chance of doing so in future.
I was therefore hesitant to accept that Mr Scher's submissions were conclusive against the first claimant. However, Micawberism cannot prevail in this context any more than it should in the context of an application for summary judgment. If a short point of law is raised by a defendant to which, after careful consideration, the court is convinced there is and can be no reasonable or viable answer, it would be a waste of resources to leave the point over for some later date. In this instance Mr Bates has failed to persuade me that there is any basis, legal or factual, on which the first claimant could hope to overcome the defendant's reliance on the 1878 Act, or any real prospect that such a basis could be found.
The first and main answer offered to Mr Scher's submissions was that the presumed agreement to sell the chattels to Mr Stern senior was not or might not be a bill of sale within the meaning of the Act. Section 4 defines the meaning of bill of sale. Again I have emphasised key words.
"4. Interpretation of terms.
In this Act the following words and expressions shall have the meanings in this section assigned to them respectively, unless there be something in the subject or context repugnant to such construction; (that is to say), The expression "bill of sale" shall include bills of sale, assignments, transfers, declarations of trust without transfer, inventories of goods with receipt thereto attached, or receipts for purchase moneys of goods, and other assurances of personal chattels, and also powers of attorney, authorities, or licenses to take possession of personal chattels as security for any debt, and also any agreement, whether intended or not to be followed by the execution of any other instrument, by which a right in equity to any personal chattels, or to any charge or security thereon, shall be conferred, but shall not include the following documents; that is to say, assignments for the benefit of the creditors of the person making or giving the same, marriage Settlements, transfers or assignments of any ship or vessel or any share thereof, transfers of goods in the ordinary course of business of any trade or calling, bills of sale of goods in foreign parts or at sea, bills of lading, India warrants, warehouse-keepers' certificates, warrants or orders for the delivery of goods, or any other documents used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by indorsement or by delivery, the possessor of such document to transfer or receive goods thereby represented:"
Mr Bates pointed out that for s 8 to bite on the present case the court must be satisfied that the document in question fell within the inclusive definition in the first part of s 4, and outside the excluded categories in the second part. He submitted, first, that in the absence of the document effecting the sale the court could not be satisfied that it was a bill of sale within the meaning of the first part. The transaction had been overseen or checked by Cork Gully and looked at again, it was to be inferred, in 1978 when Mr Stern became bankrupt and in 2002 at the time of Mr Stern's IVA. It was therefore likely, or at least there was a real prospect, that the document had been formulated in such a way as to escape the provisions of the 1878 Act. That submission seems to me speculative and lacking in focus.
Mr Scher referred to Benjamin's Sale of Goods 9th edition, which states at para graph 1-016: "A bill of sale is, at common law, a written instrument (whether in the form of a deed or otherwise) effecting a transfer of personal property". On the face of the claimants' case and the documentary evidence this transaction was a straightforward sale and purchase, but with possession retained by Mr Stern. The fact that some document or documents clearly was or were registered, and may have been registered in the names of one or more trustees of the Settlement, is against Mr Bates' submission, as it tends to suggest that the transaction may have been recognised as involving a bill of sale that needed to be registered. That is not conclusive. But it is not apparent how, and Mr Bates did not even attempt to identify any way in which, the transaction relied on could have been formulated or structured so as to fall outside the scope of the first part of s 4.
Alternatively, it was submitted, the sale of the chattels to Mr Stern senior, at a time when William Stern was insolvent and his affairs under the supervision or oversight of Cork Gully, was an "assignment for the benefit of creditors" within the meaning of the second part of s 4. The proceeds went, in the event, to meet the claims of those creditors, said Mr Bates. The only evidence to support that submission came in the form of Mrs Stern's evidence that the transaction "converted physical assets … into cash for distribution to his creditors". That is a very slender basis for the submission. I do not however reject the submission for that reason.
In my judgment, Mr Scher was right to submit that the alleged transaction plainly does not fall within the meaning of the words of s 4 which I have emphasised above. It was a sale, not an assignment, and it was made to Mr Stern's father and not to an insolvency practitioner or trustee, or other person acting for or on behalf of Mr Stern's creditors. Mr Stern's affairs were not at that time subject to control by any insolvency practitioner. Even if he was in practice insolvent he was not formally bankrupt. It is not enough that the transaction may have been in fact for the benefit of creditors. An "assignment for the benefit of creditors" is a term of art which covers the assignment by a person to one or more others for distribution to creditors. If the claimants' interpretation were adopted it would seem to encompass any disposition by a person with debts to others, carried out with the intention of facilitating the discharge of those debts. That would be far too broad an interpretation of the statutory words, and one which Parliament cannot realistically be supposed to have contemplated.
Mr Scher referred to authorities in which the Court had considered the application of the excluded category of "assignment for the benefit of creditors". The leading case is Hadley & Son v Beedom [1895] QB 646, in which the High Court upheld the validity of a deed by which a debtor assigned all his personal property to trustees for the benefit of his creditors, notwithstanding that the deed was not registered as a bill of sale. The issue arose because the deed contained a proviso that no creditor should be entitled to any benefit under it unless he signified his assent to the deed within three months of its registration. The validity of the deed was contested by creditors who had not assented, but upheld by the court on the basis that all creditors had been equally entitled to participate in the distribution if they signified acceptance, and hence the deed was for the benefit of all.
I agree with Mr Bates that this decision, and the other cases cited which preceded it, do not of themselves foreclose the question of whether a sale such as that which Mr Stern is said to have made to his father in 1974 falls within the statutory wording. The cases do, however, indicate a class of case which Parliament may be considered to have had in mind when exempting that category of transaction from the provisions of the Act. In the end, though, my conclusion rests on the reasoning set out above: it is in my judgment impossible to argue that a sale of goods by A to B ranks as an assignment for the benefit of A's creditors merely because A has debts and A, or even A and B, intend at the time of the transaction that the proceeds will be used to discharge A's liabilities. Still less, of course, could such a transaction fall within the exclusionary words merely because that is what occurred after the event.
Mr Bates further submitted that the effect of s 8 of the 1878 Act would have been, if applicable, to vest title in the goods in an insolvency practitioner in 1978, when Mr Stern was made formally bankrupt. That is because the insolvency practitioner would be a person in the first of the protected classes identified in s 8. This of course is contrary to the first claimant's first argument, that the transaction was approved by the insolvency practitioner. Mr Scher's answer, which in my judgment is sound, is that if the Act would have made void the disposition to Mr Stern senior the claim by the Settlement against the defendant must fail.
For these reasons I have concluded that the first claimant has not established that there is a serious issue to be tried. The first claimant's application must be dismissed.
Mrs Stern's claim
So far as Mrs Stern is concerned Mr Bates was able to submit with some conviction that she has a real prospect of establishing that she is the owner and entitled to possession of the Mane-Katz painting. A press cutting from The Times of 3 May 1967 is in evidence, recording that Mrs Stern bought the painting the previous day at Sothebys for £1,300. Although Mr Stern purported on the face of the documents to be the owner of this painting when dealing with the defendant in 2013, that is not enough to undermine Mrs Stern's case altogether. Mr Stern was not a seller in possession of this painting so that the Sale of Goods Act and Bills of Sale Act arguments were inapplicable to Mrs Stern's claim.
I was however spared the need to reach a conclusion on this issue, and on whether any relief should follow, by an agreement reached between the parties after I had announced my conclusion on the first claimant's claim. The defendant undertook to deliver up the painting to Mrs Stern upon her giving an undertaking in damages and other appropriate undertakings to the court to protect the defendant's interests. |
Her Honour Judge Coe QC:
This is a claim for damages brought on behalf of the Claimant Mrs Michelle Hayes and her three sons as well as on behalf of the estate of her former husband Mr Paul Hayes. The claim is made pursuant to the Law Reform (Miscellaneous Provisions) Act 1934 (as amended) and the Fatal Accidents Act 1976 (as amended).
Mr and Mrs Hayes met in 1997 and married in 1998. They had three sons Harry, born 7th May 1999 and twins Nicholas and Anthony born 5th July 2001. In the early part of 2003 Mrs Hayes discovered that her husband had been having an affair and they separated. Her husband moved out of the house in about August or September 2003 and went to live with his mother and father. He subsequently bought his mother and father's home and continued to live there. Mr and Mrs Hayes divorced in 2004. However, they remained amicable and on friendly terms and Mr Hayes remained very much involved in the lives of his sons.
It is the Claimant's case that having always been on friendly terms she and Mr Hayes became closer from about 2006 and began to rekindle their relationship. They went out together not just for the children. They had begun to discuss their future together with an intention to live together again and remarry. They had resumed a sexual relationship in September 2008 but were taking things slowly and had not revealed their reconciliation to their families. They intended kept their sexual relationship from the children although it seems they were found out.
The claim is brought on the premise that they would have reconciled and remarried and that Mrs Hayes would have been once again a dependent of her husband for the rest of their lives.
Tragically Mr Hayes died on 28th December 2008 at the age of 41 (having been born on the 20th May 1967).
It is the Claimant's case that her former husband's death was caused by the negligence of the Defendant. All matters: breach of duty, causation and quantum are in issue.
The deceased suffered from asthma which is described as brittle asthma. In his Opening Submissions Counsel for the Claimant has helpfully set out a summary of the nature of the condition of asthma. I do not intend to repeat it in full. However Mr Hayes' brittle asthma (Type 2) meant that he suffered severe asthma attacks. In his case they were fairly infrequent but came on rapidly. In a severe asthma attack unless effective treatment is given a patient like Mr Hayes may suffer respiratory arrest preventing delivery of oxygen to the brain and causing loss of consciousness. Such a severe asthma attack can be fatal. Untreated respiratory arrest can cause cardiac arrest. Mr Hayes had on occasion required hospital admission for treatment of his asthma and once his wife had had to perform CPR.
On 28th December 2008 having been out playing golf with his brother in the daytime, the deceased returned home and went upstairs for a shower. He suffered an asthma attack. He was able to call for his mother to ring for an ambulance which she did via 999. The ambulance arrived promptly with two ambulance technicians, Rosalind Taylor and Miss Fowler. The deceased was noted to be unable to speak, was having difficulty in breathing and was in obvious distress. He was given nebulised salbutamol and oxygen. He confirmed that he felt better. The crew then embarked on getting him to the ambulance, planning to assist him down the stairs to a carrying chair and then to the ambulance so he could be taken to hospital.
As they approached the top of the stairs the deceased became unresponsive, appeared to have a seizure and suffered respiratory arrest and then cardiac arrest. Attempts were made to resuscitate him which were unsuccessful. A paramedic was summoned. CPR continued until about an hour later when resuscitation was abandoned and the deceased was declared dead.
The Particulars of Claim is in the bundle at page 3 and the defence is in the bundle at page 13. It is right to say that as this claim has progressed and in particular as the expert evidence has become available neither party's initially pleaded case fully reflects their position at trial.
On behalf of the Claimant it is contended that there were a series of failures by the ambulance crew both in their assessment of the deceased's condition and the treatment which they provided. It is alleged that they failed to undertake and record basic observations both when they arrived and after the first administration of salbutamol. It is argued that had they carried out those observations the crew would have appreciated the severity of the deceased's condition and that there had been no objective improvement in his condition before the attempt to move him downstairs. The Claimant contends that in breach of the relevant guidelines, the crew failed to administer ipratropium and further failed to consider that adrenaline might be necessary and have it ready for administration. It is alleged that more than one dose of salbutamol should have been given. It is contended that when the deceased went into respiratory arrest they failed to administer adrenaline in breach of the same guidelines and that there was a window of opportunity of about five minutes between the respiratory arrest and the cardiac arrest during which the deceased's life could have been saved by the administration of adrenaline.
The experts disagree as to whether or not the measures contended for by the Claimant would have affected the outcome.
The Defendant denies any breach of duty by the crew and says that in any event the outcome was inevitable and none of the measures either individually or in combination would have prevented the deceased's death. The Defendant contends that the Claimant's case is based on an analysis made with the benefit of hindsight and not the picture as it was presented to the crew at the time.
In terms of quantum the Defendant disputes the Claimant's contention that she and Mr Hayes would have reconciled and that that reconciliation would have been a long-term one. The Claimant contends that there is a human rights argument in the denial of a bereavement award to minor children and seeks a declaration in that regard.
It is the Claimant's case that had the deceased received all of the treatment and not just the adrenaline he would have survived. In terms of causation the Claimant says that the options open to me to find are either, firstly, that but for the breaches of duty the deceased would have survived or, secondly, that he would have died in any event or, thirdly, that it is impossible to say one way or another and that therefore following the authority of Bailey v Ministry of Defence [2009] 1 WLR 1052, the Claimant only has to establish a material contribution to the death.
I heard evidence from the Claimant Michelle Jane Hayes. Her statement is at page 114 in the bundle. She sets out the history of the deceased's brittle asthma which began when he was aged about 21, apparently following a car accident. She had taken him to hospital once because of an asthma attack and was aware that he had had about three other attacks which had required him to attend hospital. At hospital he would be put on a nebuliser and then sent home. The asthma attacks were resolved in this way. In 2001 he had such a severe attack that she had to carry out CPR until the ambulance crew arrived.
She describes her involvement on the night of Mr Hayes' death. She knew that Mr Hayes' mother had phoned for an ambulance and that she had phoned his brother David who had come round. David rang the Claimant and said that Mr Hayes' heart was not going and he was not breathing and the ambulance crew did not know what to do and he asked if she would go around. The Claimant is a midwife and trained nurse. She got her parents to look after the children and then drove around. By the time she arrived the paramedic was there as well as the ambulance technicians. She confirmed that the stairs were narrow. Mr Hayes was unconscious at the top of the stairs on the landing and was being bagged with a face mask and being given cardiac massage.
Mrs Hayes has some concerns about the technique of those who were working on Mr Hayes in terms of bagging, intubation and insertion of a cannula.
At paragraph 11 of her statement Mrs Hayes sets out the information she received from Mr Hayes' brother, David. He told her that on arrival the ambulance crew had given Mr Hayes a nebuliser. At that stage he was sitting on the bed. Mr Hayes said he felt a little bit better and the ambulance crew decided to walk him down the stairs to take him to hospital. They got him to the top of the stairs when he started banging on the wall as his asthma had come back and was so bad he could not speak or breathe. The technicians told David that they thought Mr Hayes was having a fit. He was not breathing, but the technicians appeared to say that he was "okay" and they were trying to wake him up. Some of the information from Mr Hayes' brother David given to Mrs Hayes is, it seems, inaccurate since he suggests that they got him partway down the stairs and then had to take him back up.
Mrs Hayes then sets out the details of her relationship with Mr Hayes at the time. After separation Mr Hayes was living about a mile away at his parents' home (which he had bought). He continued to live there with his mother after his father died. He saw the children regularly, taking them to football training and matches at the weekend. He drove to away matches and took them on holiday every year. He saw them regularly and paid maintenance in the sum of £151 week through the Child Support Agency. He bought the boys additional items such as new trainers and football subscriptions etc. He paid for holidays. The Claimant told me that she started to wear her wedding ring again in about October 2008 and they had begun to think about their future in terms of getting remarried. Mrs Hayes is firmly of the view that they would have got back together again on a permanent basis and that their relationship would have been a success the second time around. They planned to live together in the matrimonial home and work to retirement age (65) and then retire together. Mrs Hayes works as a midwife and Mr Hayes was a clerk at a London barristers chambers.
She was cross-examined about the relationship. She acknowledged that they were taking matters slowly and that they would not have been living together from the date of Mr Hayes' death but she thought they probably would have been from about New Year 2009. She conceded that the time spent by Mr Hayes in taking the boys to football training and matches would have been about three hours at the weekend and couple of hours during the week and that he would have continued that as long as he was needed. Her eldest son no longer plays football and the twins now play badminton instead. When she found out about the affair, Mrs Hayes said the deceased did not want to divorce her but she was determined to go through with it in particular because she had always said if he were caught out she would divorce him. She said that she regretted divorcing him, but did not know how to stop the proceedings. Mr Hayes said he wanted to come back and they decided that they would get back together but would take it slowly. Throughout the whole of this period of time she remained in touch with his family. When he was found out Mr Hayes brought the affair to an end and had not been seeing anybody else in the meanwhile.
Mrs Hayes acknowledges that she had no way of knowing if Mr Hayes would have had another affair but said that that she might have ignored if it had happened again and would not be concerned if she did not know what was happening. She expressed the view that it was up to her and Mr Hayes to decide what they would do and they had decided to make a go of it.
I heard from the Claimant's lay witness, Janina Vincent whose statement is at p.119 in the bundle. She and the Claimant have been good friends for 15 years and see each other regularly. In the months leading up to Paul Hayes' death the Claimant had spoken to Ms Vincent on a weekly basis about their reconciliation. The Claimant was excited about it and told her that they were getting on well. She was aware that they had resumed an intimate relationship. She was aware that Mr Hayes was visiting the Claimant quite regularly just to spend time together and she was present on a few of those occasions. She last saw the deceased on Christmas Eve when he came to the Claimant's house where Ms Vincent was present. They were openly displaying affection and talking about going back to having Christmas as a family as they had done before their separation. Ms Vincent was aware that they were close to revealing their reconciliation to their family and friends. She had no doubt that they were involved with each other and were building the way for a full reconciliation as a couple and a family.
She was cross-examined and said that she and the Claimant had discussed Mr Hayes' unfaithfulness at the time that it had happened and she knew that the Claimant was upset in consequence. She said the deceased was looking forward to telling friends and family about their reconciliation.
The key documents in this case as I find are the patient report form ("PRF" at p.532 in the bundle) and the full and condensed versions of the UK Ambulance Service Clinical Practice Guidelines (2006) issued by the Joint Royal Colleges Ambulance Liaison Committee("JRCALC Guidelines") at p. 356 and p.375a
I heard from the Defendant's lay witness Rosalind Taylor, the clinical team leader with the Defendant who was part of the two-person crew who attended Mr Hayes on the night he died. Her statement is at p.121 in the bundle. They arrived at the address at 21.32 and her crewmate took in the primary response bag. Ms Taylor was the driver. They were aware that they were attending a suspected asthma attack. The primary response bag contains amongst other things salbutamol, oxygen, oxygen masks, ipratropium and a peak flow meter. They found Mr Hayes sitting upright on a bed upstairs. He was unable to speak although he was conscious. He could gesticulate that he was having difficulty breathing. Ms Taylor sets out that it was standard practice to write vital signs on the back of the latex surgical glove being worn and transfer the information at a later time. She said that this was what was done in this case. Mr Hayes was in obvious distress. Ms Taylor cannot remember whether or not he was cyanosed. He was not confused. Although this was an asthma attack and he was conscious, the crew assessed his Glasgow Coma Score at 12. The reduced level relates simply to his inability to speak. Oxygen and salbutamol were administered via a nebuliser mask and Ms Taylor in her statement says that Mr Hayes' condition began to improve and "this indicated and showed that his asthma attack was not life-threatening". She says that Mr Hayes was able to talk to them. She said that he verbally confirmed that he felt better. She says he was able to breathe and speak. She cannot recall whether his breathing was still laboured. Thus she says they became satisfied that the asthma was not life-threatening and they could move him towards the stairs. The plan was for him to walk to the top of the stairs, descend the stairs on his bottom and then transfer him to the ambulance in a carry chair. Ms Taylor specifically sets out that because Mr Hayes had improved on oxygen and salbutamol alone they did not consider at that stage ipratropium was necessary. Mr Hayes walked to the top of the stairs and then collapsed and suffered a seizure leading to respiratory arrest and then cardiac arrest. She says that ipratropium was not provided at this stage because they were then concerned to stop the respiratory arrest. Life support was commenced. The defibrillator was obtained from the ambulance and paramedic assistance was called.
Ms Taylor says that adrenaline was not administered because it was not indicated because they were not dealing with "life-threatening asthma with failing ventilation and continued deterioration despite nebuliser therapy". She says that they did not complete any of the appropriate paperwork until after they finished the resuscitation attempts.
Ms Taylor began by saying that she had only had access to the PRF and her memory when she made her statement but then conceded that she must have checked the JRCALC guidelines. She said that the Green Book was their training manual. Although she began by saying that the guidelines are just guidelines she eventually conceded that they had to adhere to those guidelines. The crew knew that this was a suspected asthma attack and a "category A" call which required attendance within eight minutes. She acknowledged that a category A call would indicate an actual or potentially life-threatening situation. The crew carry the condensed JRCALC although there was initially some apparent conflict in the evidence about the access to adrenaline, Ms Taylor accepted that she was able to administer adrenaline in these circumstances and could have done so. She says that it was Miss Kelly Fowler who wrote the vital signs down on a glove but she did not know what was recorded. By reference to the PRF there is no record of whether or not Mr Hayes condition was life-threatening. There is no record of any observation of his pulse, his blood pressure or his oxygen levels. The PRF at page 532 only records one sequence of observations at 21.33. The record shows the Glasgow Coma Score and a blood sugar reading. Ms Taylor acknowledged that no other vital signs were recorded and she did not know what other vital signs were taken. It was her view that Mr Hayes' condition was not life-threatening. If she had considered it was life-threatening she would have given adrenaline and ipratropium. The guidelines indicate that if it is life-threatening then adrenaline should be given. Pursuant to the guidelines (page 373) Ms Taylor accepted that ipratropium should have been added.
Despite the absence of a second set of observations it was Ms Taylor's evidence that she believed that a second set would have been taken. That is not referred to in her statement. She said that a peak flow reading could not been done when they arrived because Mr Hayes was not capable of blowing into a tube. She said that a peak flow reading would not have helped her. Although she could not speak for Miss Fowler, had she taken any measurements she would have written them down. She said that they assessed as appearing better and he confirmed he was feeling better. He could talk. He felt able to walk and was in less distress. He said that he started to feel better. It was Ms Taylor's evidence that if the first observations and then the second observations had shown no improvement they would have continued with the treatment giving him more salbutamol and ipratropium if it had not been given earlier and then potentially given him adrenaline before moving him. It was in light of their assessment of an improvement that they had a "dynamic" plan to move him downstairs on his bottom. She said that this involved the least effort in circumstances of a larger gentleman and narrow stairs. In fact by reference to the records it is apparent that Mr Hayes was not a large gentleman, if anything he was on the smaller side of average. Ms Taylor confirmed that the treatment plan is to stabilise the patient, monitor them to ensure they stay stable and transfer them to the hospital. She said that a peak flow reading is not something that was commonly used and she would use it rarely. She was aware of the warning in the guidelines (page 360) against being lulled into a false sense of security in an asthma patient where there is an initial improvement after salbutamol nebulisation.
When Mr Hayes collapsed one crew member started basic life support and the other went to get the defibrillator which would take less than a minute. She immediately called for a paramedic. She described a very rapid series of events when Mr Hayes collapsed and then had a seizure. She said that she had not seen a patient fit before in an asthma attack although she had seen patients have seizures. She said that it was not necessarily life-threatening. Mr Hayes thus collapsed on the floor and suffered respiratory arrest and then went into cardiac arrest, but she could not say how long it was between the cardiac and respiratory arrest. She considered as per the guidelines (page 375f and 375g) it was important to get Mr Hayes to hospital as quickly as possible and that is what they were working on. At the time it was uncommon for technicians to carry portable pulse oximeters, but there would have been one as part of the 12 lead life pack in the ambulance
Miss Fowler was with Miss Taylor as the second crew member had done her basic training and was in her training year with Miss Taylor. The crew would work a 12 hour shift each doing 6 hours as the driver and 6 hours as the lead clinician at incidents. In the call to Mr Hayes, Miss Fowler was the lead clinician and Miss Taylor was the driver. Miss Fowler is no longer employed by the Defendant and has not responded to requests in relation to this litigation and so I have no evidence from her.
I heard evidence from four expert witnesses. Dr Moore on behalf on the Claimant and Dr Scott on behalf of the Defendants gave written and oral opinions on the issues of the standard of care and breach of duty. Professor Empey and Professor Barnes gave their opinions as to causation.
Dr Fiona Moore is the medical director for the London Ambulance Service NHS Trust and a consultant in emergency medicine. Her report dated 26th March 2013 is at page 129. She provided answers to some questions which are at page 144, a further report dated 20th July 2014 which is at page 149 and a joint statement with Dr Scott dated 7th October 2013 which is at page 197. Following some questions from me some further written answers were provided by Dr Moore and Dr Scott which were inserted into the bundle at page 200b and c.
Dr Moore summarises Mr Hayes' history of brittle asthma and the treatment required. She notes from the records that Mr Hayes was poorly compliant with steroid medication between the years 1992 and 2002. She sets out the history of the events immediately before his death and concludes that he suffered what sounds like a hypoxic fit at the top of the stairs. From the records she notes that there is no reading for pulse rate, respiratory rate, oxygen saturation levels or blood pressure. Oxygen was given and a salbutamol nebuliser started at 21.33. Cardiac arrest apparently began at 21.40. Paramedic assistance was sought at 21.43 and again at 21.54. The paramedic arrived at 22.06. It is noted that Mr Hayes' asthma attack had begun 10 minutes before the crew's arrival.
Dr Moore notes from the records that Mr Hayes complied with his preventive therapy from 2002 and had no further severe attacks until 28th December 2008. His deterioration on the evening of his death was very rapid. The verbal score of 2 on the Glasgow Coma Scale suggests an acute severe or possibly life-threatening asthma attack. It is difficult to differentiate because of the absence of other vital relevant observations. Dr Moore accepts that it might have been impossible to record a peak expiratory flow, but that should have been recorded, too. She refers to the guidelines which emphasise the importance of a rapid primary survey and assessment for life-threatening features. They set out the need to transport the patient rapidly to the hospital giving high flow oxygen and nebulised salbutamol en route. The section also covers the use of both ipratropium and intramuscular adrenaline in severe and life-threatening asthma. The administration of salbutamol was in Dr Moore's view appropriate management. She accepts that assisting him downstairs was reasonable although any physical activity would have increased his oxygen requirements. She concludes that Mr Hayes was in fact profoundly hypoxic as evidenced by the fact that he had a fit and then went into asystolic cardiac arrest. However because no oxygen saturation levels were recorded by the crew, they are unlikely to have appreciated that. When he went into cardiac arrest she acknowledges that the outlook was dire.
In terms of the treatment of the asthma, however, Dr Moore considers that given that Mr Hayes was unable to speak in full sentences when the crew arrived and therefore had at best acute severe asthma she would have expected the crew in accordance with the guidelines to have added ipratropium to the initial salbutamol nebuliser. Further they should have given a further nebuliser as soon as first one was finishing and should have considered the use of intramuscular adrenaline which should have been administered as soon as either it became apparent that he was not responded to the bronchodilator therapy or he showed evidence of further deterioration.
She concludes that the standard of care provided fell below acceptable standards. The crew failed to undertake and document basic observations and on a balance of probability underestimated the severity of the deceased's condition. Continuous nebulised salbutamol was not provided and ipratropium and intramuscular adrenaline were not given.
When she answered the questions from the Defendants she confirmed that she had by then seen the statement of Rosalind Taylor and that did not alter her opinion. She confirmed that it would be standard and acceptable practice to undertake and record two sets of observations and would have expected the minimum of a pulse rate, a respiratory rate, oxygen saturation and Glasgow Coma Score to have been taken on two occasions. Ideally blood pressure readings would also be available. She says that the standard of documentation is unacceptable. She confirms that the JRCALC guidelines are used in the training of ambulance technicians and are guidelines for both technicians and paramedics. She considers that the guidelines reflect the appropriate standard of care and not the guidance in the "Green Book" which was outdated by 2008. In her view Mr Hayes demonstrated evidence of acute severe/life-threatening asthma and ipratropium was indicated along with salbutamol in the management of such cases and was available to the crew. The apparent improvement in Mr Hayes' condition was not corroborated by any documentary evidence of improvement in any other vital signs.
In her letter of 20th July 2014 she considers the issue of how long it would have taken to draw up and administer adrenaline and she agrees that it is unlikely that the crew would have had any pre-drawn drugs. However she considers that they should have reassessed Mr Hayes' improvement by formally assessing objective signs and had they done so they would have realised that further treatment was required but they failed to appreciate how unwell he was. She believes that the latest that adrenaline should have been given was at the point when Mr Hayes started to seize. Had they undertaken an adequate assessment after the first nebuliser she feels that they would have appreciated the need for further treatment in the form of salbutamol and adrenaline. Identifying the adrenaline and preparing it for injection and administering it would have taken between one and two minutes to complete in her view.
By the time of the joint statement of Dr Moore and Dr Scott they had agreed that the JRCALC guidelines reflect the standard of care to be expected of the crew. They agreed that the inability to speak was indicative of the fact that Mr Hayes was suffering from a severe/life-threatening asthma attack. No basic observations were recorded. There was an improvement in the deceased's condition in that he said he felt better after the administration of the salbutamol. The doctors agreed that whilst the crew recognised that Mr Hayes was suffering from an exacerbation of his asthma they failed to understand the severity of his condition and the implications of this. They considered that the guidelines are not clear, but Dr Moore felt that adhering to the guidelines implies the use of adrenaline by technicians, subcutaneously or intramuscularly. They agreed that there was no indication for an immediate injection of adrenaline on arrival by the crew. They agreed that an injection of adrenaline should have been given as soon as there was any evidence of deterioration which would probably have been the point that the deceased collapsed and started to seize. Dr Scott felt that the drug might have taken some time to draw up and administer whereas Dr Moore felt that the crew should have anticipated deterioration and been prepared to intervene. The guidelines indicate that ipratropium should be given either with the first dose or after 5 to 10 minutes if no clinical improvement is shown and it was not administered earlier. This suggests there are two opportunities to give ipratropium. The drug protocol is clearer and suggests that it should be given concurrent with the first salbutamol nebuliser in acute severe/life-threatening asthma. Dr Scott feels that giving salbutamol alone was reasonable in the first nebuliser whereas Dr Moore feels that it would have been appropriate to add ipratropium to the first salbutamol nebuliser. They agree that the guidelines indicate that continuous nebulised salbutamol should be considered after a second dose of the same if there is no clinical improvement after 5 to 10 minutes. Given the initial improvement Dr Scott feels it was reasonable to continue to observe the patient after the first dose of salbutamol whereas Dr Moore feels that given the initial severity of his condition, continuous salbutamol is a safe and reasonable treatment decision. Dr Moore also feels, although Dr Scott disagrees, that had the crew appreciated the severity of Mr Hayes' condition a paramedic should have been summoned sooner. They agree that once Mr Hayes was in cardiac arrest the crew were in a very difficult position, but in any event the chance of survival was remote. Dr Scott feels that it was reasonable to attempt resuscitation at the scene whereas Dr Moore feels that getting Mr Hayes to hospital was his only possible chance of survival.
Following some questions from me there is a further set of written answers from Dr Moore and Dr Scott. On the assumption that an oxygen saturation level had been recorded and found to be life-threatening (i.e. below 92%) and have remained below 92% after treatment with oxygen and salbutamol, Dr Scott feels that given the clinical improvement the technicians would have moved the patient to hospital whereas Dr Moore feels that in light of the potentially life-threatening oxygen saturation level further treatment should have been administered at the scene in the form of salbutamol and ipratropium and then the oxygen level rechecked. Dr Scott feels that with levels below 92% it was reasonable to move him to hospital because the guidelines indicate that a patient with life-threatening asthma should be moved to hospital rapidly whereas Dr Moore feels that the risk of moving a patient with oxygen saturation levels indicating life-threatening asthma was significant. Therefore it would have been reasonable to have administered further treatment prior to moving the deceased and thereby potentially exacerbating his condition. Dr Scott does not feel that it was mandatory to administer further treatment at the scene whereas Dr Moore feels that further salbutamol together with ipratropium should have been given and if there were still low saturation levels adrenaline should have been given and continuous salbutamol nebulisation continued. Dr Scott feels that Mr Hayes should have been moved to hospital at the first clinical improvement whereas Dr Moore felt that he should be moved only when his oxygen saturation levels were above 92% or all available treatment had been given.
When she gave evidence Dr Moore told me that the JRCALC guidelines are created by a national group. Some is evidence-based, but in some situations there is limited evidence because it is based on information before a patient goes to hospital. It is still incorporated. The guidelines are changed on a regular basis. She gave some examples of this.
She considered that the crew should have undertaken the basic observations referred to in her report. If Mr Hayes was too breathless for a peak expiratory flow rate they could have listened to his chest. If it could not be done, that should have been recorded. She said it would be a breach of duty if none of these observations were taken. She acknowledged that it would be normal practice in 2008 to write on a glove and transfer the details later, but a failure to transcribe the details later would have been a breach of duty.
Mr Hayes was likely to have had an elevated pulse and respiratory rate or bradycardia which would be a serious sign. His pulse oximetry would have been below 92% and his peak flow below 33% if it could have been done. There would have been very little movement in his chest because he was unable to speak. The peak flow reading should have been attempted after the salbutamol was given. If it could not have been achieved then, then that would have been an indication that there had not been an improvement.
She agreed that there should have been a plan to get him to hospital, but the period of time between getting from the bed to the ambulance would be a period of potential instability. She considered that in the absence of any other objective evidence of improvement, the crew relied on the fact that he said he felt better. Allowing him to walk would have increased his oxygen consumption. She considered that it was unlikely that a repeat of any observations would have shown a significant improvement and so further treatment should have been given. If there had been no improvement after a second nebuliser then the administration of adrenaline should have been considered. It is her view that the deceased suffered an hypoxic fit because the oxygen levels in his blood dropped so he was not getting enough oxygen to his brain creating a seizure due to the additional oxygen required when walking.
She agreed that getting the patient to hospital is a priority, but emphasised that he had to get to hospital alive. Although ambulance technicians have less training than paramedics, asthma is a very common emergency condition. She remained critical of the lack of recorded information on the PRF and felt that after a patient had died, especially of asthma, there was even more reason to ensure that the document was completed properly.
Dr Moore did not feel it was clear from the evidence whether Mr Hayes was able to speak in sentences or only single words. If he could speak in sentences, it would have been an objective measurement that the respiratory rate was improving. She told me that it would be mandatory to measure the oxygen saturation levels and if it could only be done by taking the life pack in then that is what they should have done. Improvement could have been measured by the oxygen saturation levels and listening to his chest to see if he was moving more air. He could have been nebulised continuously as he was going down the stairs. She feels that on a balance of probabilities the deceased suffered an hypoxic fit. He would not have been exhausted or confused because he had not had the attack that long. Ordinarily people who have asthma attacks which require hospital treatment have been suffering from them for some time.
There is a risk of deterioration following some initial improvement and the significant risk of deterioration here occurred albeit unusually when he became unresponsive and had a seizure. She acknowledged that to progress from not being able to speak to being able to speak is an objective sign, but given the risk of deterioration, further observations should have been made.
She felt that he was unlikely to have suffered a primary cardiac event which caused him to collapse. She gave her opinion that it is quite clear from the drug protocol and the guidelines that Mr Hayes fulfilled the protocol for having adrenaline. She considered that a reasonable standard of care for a technician in these circumstances would be to administer adrenaline. She said that no reasonably competent technician would have failed to give adrenaline in this situation. The purpose of the adrenaline would be to get the lungs to work and then for the ventilation to be re-stabilised. When Mr Hayes collapsed the order of priority should have been to commence the bag valve mask, give the adrenaline and then call for help. If an asthmatic patient goes into cardiac arrest it will be asystolic she told me and therefore would need the defibrillator, but adrenaline would be higher up the list. While he was in respiratory arrest, given he had a circulation, adrenaline could have been administered and the use of adrenaline in asthma is in the technician's training.
Essentially Dr Moore did not think that the crew's assessment of improvement was based on sufficient evidence. She agreed that it was a very difficult situation, but sudden death from asthma is within the knowledge of an ambulance technician. She said that cyanosis would be a clinical sign of low oxygen. Cyanosis would suggest oxygen levels below 75%. The crew should have ensured that the oxygen saturation level was above 95% before they moved him or stopped treatment.
She confirmed that the answer to question 2 on page 197 was both her view and Dr Scott's view when they prepared the joint statement. She considered that if one of the tests for life-threatening asthma was satisfied then the asthma should be categorised as life-threatening. If Mr Hayes could not complete the peak flow test then it would have been less than 33% which would be life-threatening and he should not have been moved before there had been some real improvement. In 2008 technicians would have been expected to manage an emergency like this. She agreed that the guidelines were slightly more flexible than the protocols and that the drug protocol should be followed to the letter. She went on to say that if a technician departed from the guidelines that should be for a good reason and any such reason should be recorded in the notes.
When she was recalled about the further questions she confirmed her view that if the oxygen saturation levels were below 92% the patient should be treated before being taken to hospital even though the guidelines say "load and go".. Even though there are additional treatments available in hospital therefore Dr Moore felt it was important to realise that he had to get there safely. Mr Hayes was not out of the life-threatening category when they started to move him and that would have increased his oxygen consumption. He had to be stabilised before he could be moved. She considered that the vast majority of technicians would have thought that the risk of moving Mr Hayes with an oxygen saturation of less than 92% outweighed the risk of 10 minutes of additional treatment. She considered that it would not have been reasonable in this situation not to have followed the guidelines. His hypoxia could have been addressed. It was just not safe to move him because he was so hypoxic. She felt that moving him destabilised him critically.
The Defendant called Dr Scott who confirmed his report at page 166 and the document at page 182 as well as the joint statement with Dr Moore at page 197 and page 200a. Dr Scott was in general practice for more than 20 years and has been involved with the ambulance services for over 30 years providing pre-hospital care as an immediate care doctor with an emergency medical charity. He was clinical director of the East Anglian Ambulance NHS Trust and then of the East of England Ambulance Service NHS Trust until 2009. He is currently a clinical tutor and continues to provide some ad hoc medical cover.
He sets out a summary of the events of the evening of Mr Hayes died. He details the nature of asthma and in particular brittle asthma in which symptoms can come on suddenly and become very severe rapidly. There are over 2,000 asthma deaths in the UK with most occurring before admission to hospital. He confirms that a Category A call as in this case is regarded as actually or potentially life-threatening and the response time mandated is eight minutes.
Despite the history of no severe attack since 2002 Dr Scott sets out that Mr Hayes was admitted to hospital more frequently and his symptoms came on more quickly in the years leading up to his death. He records the history leading up to the 999 call and the arrival of the ambulance at 21.32, the asthma attack having started some 10 minutes before. The history is taken from the PRF. The patient was unable to speak. Only blood sugar and the Glasgow Coma Score are recorded on the PRF. There is no record of any other examination, in particular no chest examination. There is no record of pulse rate, respiratory rate, oximetry, PEFR or blood pressure. It is recorded that Mr Hayes started to feel better and nebulisation is described as having a good effect although no observations reported to indicate any change other than that he began to feel better and had begun to speak.
There is no recorded description of the fit that Mr Hayes had when he became unresponsive, but Dr Scott assumes it was a grand mal fit. The call to ambulance control was made at 21.43. It is recorded that CPR was commenced at 21.40.
Dr Scott sets out his conclusions by reference to the Particulars of Claim. The first criticism of the failure to dispatch a paramedic immediately is no longer pursued. He concludes that the paramedic was dispatched appropriately quickly when requested. He says that he has not seen any information to suggest that the crew did not appreciate the nature and severity of Mr Hayes condition. He would not expect them to be aware of the implications of brittle asthma. He feels it is understandable that in this situation the crew did not transfer observations to the PRF because it was a traumatic time for them. He says that just because the PRF was not completed does not mean that the observations were not undertaken. He does say that he cannot comment however on the assessment that may have taken place beyond the notes on the PRF and the statement given by Rosalind Taylor.
He does not think it was necessary to call for a paramedic sooner. This is his view because of the fact that there was positive improvement because Mr Hayes began to speak more easily.
At the time that he wrote his report he did not have the Trust's scope of practice (when he gave his evidence he told me that he had not asked for the scope of practice document) and so was not then aware as he is now that the scope of practice allows an ambulance technician to use adrenaline in certain situations. In his report therefore he had no criticism of the failure to administer adrenaline since he felt that the technicians would not have been permitted to do so.
He says that in 2008 there was no provision for a technician to provide back to back continuing nebulisation and having noted some improvement there was no indication for a further dose of salbutamol. Although ipratropium was available, Dr Scott said that it was appropriate to start with a dose of salbutamol.
Again Dr Scott refers to reliance on the Green Book rather than the JRCALC guidelines because he was not aware of the Trust's practice at the time. In his report he emphasises the need to reassess the patient after the first dose of salbutamol.
He concluded that there were insufficient clinical details to make an assessment of the severity of the asthma attack and that the lack of information does not mean that a more detailed assessment was not undertaken both before and after the first dose of salbutamol. He notes that the cause of death has been given as acute asthma and there is no mention of any other condition. It is his view that the documentation indicates that there was a significant improvement in Mr Hayes condition before he was moved to the ambulance. Thus he concludes that the two ambulance technicians have acted reasonably apart from the failure adequately to complete the PRF.
At page 182 he sets out in a letter that having noted the improvement in Mr Hayes the crew would have packed up their bags ready to go to hospital and that there would not have been any time when the seizure occurred for the ambulance crew to have opened up their response bags and to have found the adrenaline prepared it and administered it before the cardiac arrest.
I have set out above the content of the joint statement between Dr Scott and Dr Moore. Clearly by this time Dr Scott agreed that the guidelines applied. He agreed that the crew's findings were indicative of a severe/life-threatening asthma attack. He agreed that the crew recognised that the deceased was suffering from an exacerbation of his asthma but failed to understand the severity of his condition and the implications of this. This agreement at page 198 is a change of view on the part of Dr Scott from his original report.
He agreed that the guidelines for the management of life-threatening asthma in adults advise that an injection of adrenaline should only be considered where the patient does not respond to oxygen nebuliser therapy and where deterioration was continuing despite oxygen and continuous nebulised salbutamol. There was an agreement that there was no indication for the immediate injection of adrenaline but that an injection of adrenaline should have been given as soon as there was any evidence of deterioration. Again Dr Scott felt that it might have taken some time to draw up and administer adrenaline. Although the guidelines as to the use of ipratropium are imprecise the drug protocol is clearer and suggests that should be given with the first salbutamol nebuliser in acute severe/life-threatening asthma.
When he gave his evidence Dr Scott told me that he felt that the observations should have been in accordance with the primary survey that is airways, respiratory rate, pulse rate, oxygen saturation, blood pressure, radial pulse and possibly the Glasgow Coma Scale. As an initial step the administration of salbutamol and oxygen is correct and that there should then be a further assessment. The second survey would be more detailed. The reassessment would in his view have shown an improvement in the respiratory rate and the oxygen saturation because Mr Hayes had progressed from being unable to talk to being able to talk and that represents a clinical improvement. He would place a lot of emphasis on the ability to talk. It is his view that wherever possible patients should be moved to hospital rapidly. He felt that he would not have expected the technicians to anticipate an arrest and that such a sudden and acute deterioration without any signs would not have been part of their training.
He was asked about some of the sections of the guidelines. He felt that the warning at page 370 was aimed at not leaving people at home inappropriately. He felt that an interpretation of the box marked oxygen at page 375g would be to start oxygen therapy but not that there would be a target before moving him to hospital. He went on to say that the guidelines at page 375g may indicate that oxygen should be administered until a patient's oxygen saturation level is 95% or greater or it may mean that that is the aim of providing the oxygen but he did not know. He acknowledged that one could only be sure of the oxygen saturation level if it were measured.
Despite the contents of his report he felt that a pulse and respiratory rate should have been taken and that the oxygen saturation levels would be a secondary part and that many technicians would not have gone to get the life pack to do the measurement. He thought it was not unreasonable not to get it. He agreed that a failure to take a pulse and respiratory rate and to record it would be negligent he felt that the crew might not have got as far as a secondary assessment before events overtook them.
He considered that there is a distinction between life-threatening asthma and acute/severe asthma but agreed that ipratropium should have been given. He said that his report on this point had not been incorrect but given his better understanding of the situation he acknowledged that would have been better treatment to have given the ipratropium.
Although Dr Scott felt that a second set of observations should have been recorded he said that that would have been the ideal but in his view there was enough evidence here that Mr Hayes was improving because he was able to speak having not previously been able to. He agreed that the peak flow measurement was important but not essential and that it would have been "nice" if the crew had measured the oxygen saturation levels. He felt that these measurements would have been "preferable" and "ideal" and he was not aware of any good reason why the peak flow was not taken other than the crew's aim to get Mr Hayes to hospital. Dr Scott gave his opinion that getting Mr Hayes to hospital in combination with clinical observations of improvement was the better option than further treatment at home. He felt it was a balance that the crew had to decide about. The danger of giving more salbutamol and ipratropium was that there would be a delay of 10 minutes or so in getting him to hospital.
When asked about Mr Hayes' collapse Dr Scott despite the contents of his report suggested that it was not clear that the cause was a deterioration in the asthma he says it could have been some other event overtaking him and he did not know what had caused the collapse although he acknowledged that when he and Dr Moore discussed it he thought it was an hypoxic episode. At that stage the crew he said should have realised that the condition was now life-threatening and the collapse was the first point of deterioration when adrenaline could have been given.
Dr Scott accepted that when he gave his oral evidence he was expanding on his written opinion and that some of his views expressed orally were not mentioned previously.
He did agree that it would take up to 2 minutes to draw up and administer adrenaline. He went on to say that many ambulance technicians would not have given adrenaline, but would have held it back into a last resort situation and he was not convinced that there was an opportunity practically to give adrenaline in this case.
He expressed the view that it was not negligent not to recognise the severity of Mr Hayes' condition.
The Claimant's causation expert Professor Empey's report is at page 152. He was a consultant physician at Barts and the London NHS Trust for more than 20 years and was Medical Director of the Trust. He is currently an honorary consultant physician. He sets out the background of Mr Hayes' asthma noting the admissions to hospital and the possible failure to use inhalers up until 2002. Thereafter there are regular prescriptions and his asthma seems to have been well controlled and he was compliant. He had an asthma review by his GP in September 2008. There is no indication of any form of allergy. He agrees that this pattern of asthma resembles type 2 brittle asthma although he notes that it was six years between his last attack and his death. He did not fit into any of the high risk categories apart from the fact of the brittle asthma, not having had repeated attendances at emergency departments particularly in the last year. There is no evidence of poor compliance with treatment on the day he died or in the preceding days or weeks.
In his opinion the first and most important treatment for a patient with acute severe asthma is for them to be given oxygen assuming that they are still breathing and also a nebulised bronchodilator such a salbutamol. Outside hospital if the patient has a clearly life-threatening attack or is not responding well to the oxygen and the nebulised bronchodilator then the only practical immediate extra treatment available is subcutaneous or intramuscular adrenaline.
He expresses the view that because Mr Hayes was unable to speak to the ambulance crew when they arrived he was suffering a very severe, life-threatening attack which would justify the immediate administration of adrenaline and his inability to speak indicated severe lack of oxygen reaching the brain. He was given oxygen and a nebulised bronchodilator and seemed to improve but his condition worsened and it seems that the hypoxia induced a fit followed by respiratory arrest followed later by a cardiac arrest. It is Professor Empey's view that adrenaline given before his collapse would have helped and his chance of survival would have been 60%.
Adrenaline is not used in a hospital setting now because there are other intravenous agents which would be used but he describes it as invaluable in an emergency outside of hospital. Adrenaline is not a better drug than salbutamol but any nebulised drug may be less useful because of the severe airway narrowing stopping the drug getting good access to all the airways. An injected drug such as subcutaneous adrenaline overcomes the problem as it reaches the airways by blood circulation.
Professor Empey referred to some medical publications and in particular a report in 1988 from Spiteri which concluded that adrenaline given subcutaneously gave rapid and effective bronchodilation in patients with acute severe asthma. The response was rapid, occurring within three minutes. It is Professor Empey's view that this paper relates most closely to the situation which the ambulance crew were in with Mr Hayes. The subjects of the research were not given nebulised drugs. It is unlikely for ethical reasons that any such study could be repeated now.
Professor Empey also refers to the use of nebulised ipratropium. This has a slower onset and more sustained action than salbutamol and works by a completely different mechanism. It would bring an additional beneficial effect in treating a life threatened asthma patient. Although it would take a longer time to be fully effective some of its effects would begin more quickly.
Professor Empey considers that by the time the paramedic arrived Mr Hayes had been in respiratory and cardiac arrest for an estimated 15 or 20 minutes. At this stage the chance of resuscitation would have been extremely low. He concludes that had Mr Hayes being given subcutaneous adrenaline immediately as well as oxygen and salbutamol treatment on the balance of probability this would have prevented the cardiac arrest.
In response to questions from the Defendant Professor Empey says that he is not qualified in emergency medicine but that as a chest physician he is very well aware of the efficacy of adrenaline and acute severe asthma. Again he refers to the literature. He says that adrenaline will reduce swelling in the mucosal lining and so it is a valuable addition to salbutamol. In life-threatening asthma which is so severe as to cause hypoxia then severe hypoxia can cause unconsciousness. He indicates that he has estimated the chance of survival at 60% because Mr Hayes was not in a hospital situation although the Spiteri paper indicates that none of the patients died in hospital.
He considers that significant improvement was most unlikely in fact to have occurred given the lack of any observations recorded to support the assertion and Mr Hayes' subsequent collapse very shortly after starting treatment. It is his view that the cardiac arrest was the result of the severe hypoxia so an improvement in his asthma would have prevented the cardiac arrest.
In his letter of 11th November 2013 at page 162 he says that whether or not adrenaline would have been effective depends on whether it was given before or after the cardiac arrest. If before, the blood circulation will deliver the drug to the airway smooth muscle. Although the notes are lacking in detail he says it is appropriate to conclude that Mr Hayes had a fit, went into respiratory arrest and then had a full cardiac arrest. Cardiac arrest is very unusual as part of severe asthma, but may develop 3 to 10 minutes after respiratory arrest. If the adrenaline was injected before the loss of circulation it would have its bronchodilator effect within three minutes that is before the cardiac arrest would have occurred. Hence Professor Empey's assessment of the chance of survival at 60%.
Professor Barnes' report is at page 184. He reviews Mr Hayes' medical records and gives his view that he is very suspicious that before his death Mr Hayes was not taking his Symbicort inhaler regularly. He suspects that Mr Hayes was relying on short-acting relievers rather than long-term preventative treatment. He considers that Mr Hayes had a long history of documented poor compliance with preventative treatment and was a "poor perceiver" having minimal or no symptoms despite poor lung function. He concludes that the basic problem was that Mr Hayes was not taking regular treatment and had several previous episodes of life-threatening asthma and in those circumstances an asthma attack could come on very suddenly and be extremely difficult to treat.
Professor Barnes himself saw Mr Hayes in 2002 as a treating doctor when he discharged him from the clinic because his asthma was so well controlled.
He said it was his opinion that he did not think there was anything that the ambulance crew could reasonably have done to have prevented the fatal outcome. He expresses the view that the ambulance service management was defensible. He expresses the view that the failure to take Mr Hayes blood pressure could be explained by the fact that his asthma attack was so severe that the crew focused on giving him the nebuliser. He believes that the crew did recognise the severity of Mr Hayes' problems and that there was no need to give him a further salbutamol nebuliser because he had responded to the first one.
He says that ipratropium should have been given if it was available to the ambulance crew, but would have had a very small effect and would have made no difference to the outcome. He says that there is no evidence that adrenaline would have had any additional effect over and above salbutamol.
He considers that if the statement of Rosalind Taylor is correct Mr Hayes recovered well from his asthma attack when he was given the initial nebuliser such that he was able to walk and that his sudden collapse is very unlikely to be asthma. For him to go from being able to walk to collapsing immediately would be unlikely and he says that he thinks that Mr Hayes had some sort of cardiac event. He concludes that it seems likely that Mr Hayes had a very severe asthma attack improved by the nebuliser and then a sudden collapse suggestive of a cardiac cause.
In his letter of 20th February 2014 at page 191 he says that cardiac arrest as part of severe asthma is unusual and in his experience cardiac arrest can occur within a very short time of respiratory arrest or sometime later. Even had adrenaline been given he says that the chances of making any material difference are much less than 50%. He says that the bronchodilator effect of adrenaline occurring within three minutes is in someone with a normal circulation.
Professor Empey and Professor Barnes provided a joint report following a discussion on 6th October 2013 which is at page 206 and a further post discussion document which is at page 220 dated July 2014. They agreed that Mr Hayes had a history of brittle asthma with no such attacks between 2002 and 2008. Professor Barnes sets out the view that brittle asthma is strongly associated with poor adherence and there is evidence of a long history of poor compliance. Professor Empey repeats that there is no evidence that Mr Hayes was exhibiting poor adherence during 2008 and sudden severe attacks in brittle asthma can occur where asthma is apparently well controlled. The experts do not agree as to whether or not there was a pattern of poor and erratic adherence. Professor Empey says that Mr Hayes' level of compliance with his treatment is not strictly relevant to how he was treated on 28th December 2008. There is evidence that he did not take his steroid medication in the years between 1997 and 2002 but no such evidence thereafter.
Both Professors agree that the findings by the crew on arrival indicated a severe and life-threatening asthma attack. They both agree that nebulised salbutamol was appropriate treatment. Professor Barnes refers to the UK Asthma Guidelines and said that they do not recommend injected adrenaline. Intravenous bronchodilators are no more effective than nebulised bronchodilators. Professor Empey refers to the JRCALC guidelines and accepts that the Asthma Guidelines are evidence-based but there are no randomised controlled trials to provide evidence relating to the situation in which Mr Hayes was. The Asthma Guidelines do refer to injected beta-2 agonists in addition to inhaled beta-2 agonists in ventilated patients or those in extremis.
The Professors disagree about whether or not adrenaline would have helped Mr Hayes' prospects of survival. In his answer Professor Barnes said that it is not correct that intravenous drugs reach constricted airways. He says that nebulised drugs access the constricted airways via redistribution in the bronchial circulation. Professor Empey says that when the airways are very constricted nebulised drugs cannot reach all the airways effectively and injected drugs such as adrenaline can be life-saving.
Both experts agree that ipratropium should have been given. It is recommended by the UK Asthma Guidelines as well as the technicians' Guidelines. Professor Barnes however feels that it would have had no effect because of its slower onset whereas Professor Empey says that it would have had some incremental effect. Thus Professor Barnes feels that it would not have prevented Mr Hayes cardiac arrest, but Professor Empey feels that combined with salbutamol and adrenaline it would have had an incremental effect. Professor Empey goes on to say that had Mr Hayes survived the immediate crisis and then been transferred to hospital the longer acting ipratropium would have significantly helped to stabilise the situation on the journey.
Thus Professor Empey feels that the incremental effect would have come from the salbutamol the injected adrenaline and the ipratropium.
Professor Barnes is of the view that Mr Hayes had significantly improved after the first dose of salbutamol because he was able to talk and could move to the stairs. Professor Empey considers that it is most unlikely that significant improvement had occurred given the severity of Mr Hayes' condition, lack of any recorded observations to support at the reported improvement and his subsequent collapse. Professor Barnes feels that given the marked improvement he thinks occurred there was no indication for back-to-back nebulised salbutamol whereas Professor Empey defers to the emergency medicine experts. Both Professors agree that giving a larger dose of salbutamol by giving it back-to-back would have had a beneficial effect although Professor Barnes says it was not indicated. Again Professor Empey feels that in combination with the other drugs back-to-back salbutamol would have prevented Mr Hayes' cardiac arrest and death. Again the Professors disagree about this.
Professor Empey and Professor Barnes set out the difference between the basis for the UK Asthma Guidelines and the basis for the JRCALC Guidelines. There is a difference between the experts of emphasis and phraseology but essentially the UK Asthma Guidelines are strictly evidence-based and because randomised controlled trials are not always possible in emergency situations the JRCALC guidelines are evidence-based where randomised controlled trials or similar rigorous studies are available but are otherwise consensus-based to reach practical clinical best practice recommendations.
At page 223 the section of the JRCALC Guidelines referring to the use of injected adrenaline in life-threatening asthma is set out. The use of subcutaneous or intramuscular adrenaline should be considered where the patient is suffering from life-threatening asthma, ventilation is failing and deterioration continues despite oxygen and continuous nebulised salbutamol. It is said that this should not be used as a matter of routine and it should be reserved for the most serious cases. Professor Empey agrees that this recommendation was made because it is believed that adrenaline may have some beneficial effect in these circumstances and Professor Barnes "presumes that this was the authors' reasoning". Essentially Professor Barnes does not consider that there is "quality" evidence to suggest adrenaline would have a benefit whereas Professor Empey considers the guidance is based on clinical experience and is repeated in the UK Asthma Guidelines despite the limited evidence. Professor Barnes disputes that the reference in the UK Asthma Guidelines is intended to refer to adrenaline. Both Professors agree that for a patient with acute severe asthma who has been given only one dose of nebulised salbutamol injected adrenaline will achieve an additional bronchodilator effect. It is noted that of course Mr Hayes was not being given back-to-back nebulised salbutamol and so the comparison by reference to the UK Asthma Guidelines is not direct.
Professor Barnes sets out that injected adrenaline will have an effect within one circulation time or approximately 30 seconds. Professor Empey agrees and says that the maximal effect will be in three minutes.
The experts agree that cardiac arrest does not occur immediately or soon after the onset of respiratory arrest. Further they agree that Mr Hayes was young and fit apart from his asthma and had no cardiac history so that five or more minutes between respiratory arrest and the onset of cardiac arrest is a reasonable estimate.
In a further letter dated 23rd July 2014 at page 164 Professor Empey sets out that given the areas of agreement in the joint statements he would summarise that whenever adrenaline was given whether immediately, two minutes later or a few minutes after the respiratory arrest it would have produced a bronchodilator effect on the airway smooth muscle being delivered by the circulation and would in his view on the balance of probabilities have prevented Mr Hayes' death.
When he gave his evidence Professor Empey repeated that there was nothing to suggest that Mr Hayes was not taking his regular medication in 2008, but even if there had been non-compliance that would have meant that the risk of an attack was more significant, but in terms of treating the attack it would respond in the same way and therefore the issue of non-compliance was in his view not relevant to this case. He said that he and Professor Barnes agreed that this was a life-threatening condition and by reference to the JRCALC Guidelines ipratropium should have been given and had it been given from the beginning, by the time the crew were thinking of moving him it would be beginning to have an effect. Of course Rosalind Taylor acknowledged that ipratropium should have been given.
He confirmed that all the drugs the salbutamol, ipratropium and adrenaline would have been intended to open up Mr Hayes airways. He felt that without any observations it would be very hard to assess any improvement and given that he collapsed, had further observations been taken it would be difficult to say if he would have shown any improvement. He felt that the oxygen saturation levels if measured on arrival would have been well below 92% possibly 85% or less and it is very unlikely that just giving oxygen would have increased the saturation levels to 92%. It would have made a marginal difference up to say 88% but Mr Hayes would still have been in a life-threatening category. Giving him another dose of salbutamol or continuous salbutamol would have been increasing the dose in the hope of getting more through to open up his airways. He felt that continuous nebulisation would have been best. Salbutamol is a very safe drug and the more given the more likely it would be to be effective.
He reiterated his view that adrenaline has a role in life-threatening asthma and he referred to the publications he cited in support. He repeated that injected adrenaline is useful because it is carried in the circulation and transmission happens quickly because it does not have to go through the constricted airways. It would work over three minutes. He said he knew of no evidence or research papers which showed that intravenous drugs do not reach constricted airways which is what Professor Barnes appeared to be saying. An injected drug, he said, will reach the airways. He agreed that adrenaline would not be used in hospital because other drugs were available and there would be access to higher oxygen levels and the possibility of ventilation would be present.
He again agreed that the UK Asthma Guidelines are based on trials where possible but such trials are not possible in an out of hospital situation. His hypothesis was that Mr Hayes should have been given salbutamol and ipratropium and then observations should have been carried out and then he should have been given further salbutamol and adrenaline. He said that this would have had a beneficial effect and that the oxygen saturation levels would have risen. Mr Hayes would then have been unlikely to have suffered a respiratory arrest. He said that the fit that he suffered was hypoxic and not epileptic. He stood by his view that the time between the respiratory arrest and cardiac arrest would have been five or more minutes. If adrenaline had been administered within a few minutes of the collapse, it would have had a beneficial effect because it would have relieved the bronchospasm and the ventilation would have become easier and the oxygenation would have improved. Had Mr Hayes started breathing again on the balance of probabilities he would have survived. Professor Empey confirmed that this treatment would have made a material contribution to improving Mr Hayes' condition.
It was his view that without observations it would be difficult to assess the level of hypoxia and the severity of the attack although the ability to speak after not being able to speak would suggest that the respiratory rate had dropped. However without measuring oxygen saturation levels one would not know what level of improvement there had been and Mr Hayes should have been continually monitored so as to identify what was happening.
He agreed that people would react differently to hypoxia in the sense that some people would be more susceptible to fitting and he is not a neurologist. He confirmed his view that the Spiteri paper is the closest that he could get in the literature to Mr Hayes' situation. He confirmed that ipratropium on its own would not have prevented Mr Hayes' collapse and arrest but it would have had an incremental effect. The effect would have been building up.
It was his view that it was unlikely that Mr Hayes died of a primary cardiac problem. He said ultimately anyone who dies from asthma dies of a cardiac arrest eventually and an untreated patient would reach cardiac arrest due to asphyxia not due to arrhythmia.
Mr Hayes' death occurred in circumstances a consultant chest physician would not usually see.
He remained firmly of the view that had adrenaline being given then on a balance of probabilities Mr Hayes would not have suffered a cardiac arrest. He said it was difficult to assess any improvement in the absence of observations, but it was not clear to him that the salbutamol was working as effectively as the crew indicated not only because of the lack of recorded observations but also because of his subsequent very rapid collapse. The subsequent rapid collapse suggested that any improvement probably had not happened. He confirmed that the effect of walking from the bed would have increased the hypoxia. Mr Hayes had a normal blood sugar level and no history of epilepsy. He felt that ipratropium if given straightaway would have had roughly 1/2 to 2/3 of its maximal effect at 20 minutes. In short he said Mr Hayes was desperately unwell and in extremis and in such an attack he should have been given more drugs not fewer or less.
Professor Barnes repeated his view that he was concerned as to why Mr Hayes had had a convulsion which would be extraordinarily rare and he expressed the view in his oral evidence that it could not just be due to hypoxia. He cited patients with pneumonia or infections who had metabolic systemic disturbance and who can in consequence have a convulsion. He felt that there might have been a general medical problem here because he could not fully explain why Mr Hayes had a fit.
I should mention at this point that having made an earlier application to admit some additional evidence from Professor Barnes which I refused, the Defendant indicated that it was happy to proceed on the basis that there was no evidence of an alternative cause of Mr Hayes' fit other than hypoxia, although that the fact of the fit was a very rare occurrence. I refused the application because Professor Barnes had already referred to the hypoxic state and to the fact that Mr Hayes was otherwise a fit and healthy man. There is no suggestion in the medical records that he had any underlying problem. There is no suggestion from the very limited records of observations of any "metabolic disturbance". None of the experts suggested that the asthma could not have caused hypoxia leading to a fit. In light of the matters agreed in the joint statement it seemed to me to be unfair to allow the Defendant to move away from this position in circumstances where any alternative theory would be speculative after this length of time and when the preponderance of the evidence supports the theory of a lack of oxygen causing hypoxia leading to a seizure. The Defendant did not pursue any application for an adjournment. Such an adjournment would have been necessary in fairness to the Claimant had the Defendant sought to pursue this point. The Defendant chose to proceed.
Professor Barnes (who has run a clinic specifically for patients with severe and difficult asthma) confirmed his view that intravenous drugs have no better effect and no additional effect to nebulised drugs and that whilst adrenaline would have had an effect it would not have had a beneficial effect over and above the salbutamol. It was his opinion that Mr Hayes was in a very bad state and although he responded initially to salbutamol when he collapsed and had a seizure his prospects were very poor and he had a very bad outlook.
When he was cross-examined Professor Barnes confirmed that he did not feel there was any conflict in acting as the Defendant's expert despite the fact that he had been Mr Hayes' treating physician at some point. He had no memory of seeing him and it was a long time ago. He defended the fact that he had commented on breach of duty despite his remit as a causation expert on the basis that he was asked to comment on it. He said that the significant portion of his report dealing with non-compliance with medication was important to set the background because it was relevant to an understanding as to how Mr Hayes arrived at the position he was in. He agreed that the poor compliance was not relevant to the treatment and outcome on the night other than because bronchodilators tend to work well in brittle asthma. He said that the records show poor compliance over the years, but he agreed that they do not show any record of poor compliance between 2003 and 2008 and there is no record of any doctor expressing any concern about Mr Hayes' compliance. He agreed that in the circumstances suggesting that the basic problem was non-compliance in his causation report was probably badly phrased.
He agreed that when the crew arrived Mr Hayes was in a life-threatening condition. He agreed that ipratropium should have been given. He said that it would have had a small beneficial effect and agreed that sometimes drugs are given when there is little evidence to support their use, but in the hope of achieving a benefit for a patient if the drug itself is not harmful. Ipratropium would have its maximal clinical effect at 40 minutes, but he agreed that the effect gradually builds up. If Mr Hayes had been given two doses of salbutamol (taking about six minutes each) the ipratropium would by then have begun to have had some effect.
Professor Barnes said that he could be fairly certain that the oxygen saturation levels would have improved after the first nebuliser although he could not say what they were to begin with or what they were after the first nebuliser. He agreed that on the balance of probabilities they were probably less than 92% when the crew arrived. After the first dose of salbutamol with high flow oxygen and given Mr Hayes' ability to speak, Professor Barnes said he would guess that that would suggest that the level might have risen to 88, 92 or 95%. He appeared to go back to his original hypothesis by saying there was "something going on" to cause Mr Hayes to collapse. He agreed that a second dose of salbutamol before Mr Hayes was moved would have had a beneficial effect. He agreed that as per the answer to question 8 in the joint statement at page 225, adrenaline would have had a beneficial effect in those circumstances. However he said it would not have saved Mr Hayes' life. He said that the first dose of salbutamol would have had the greatest effect and the other beneficial effects would only have been small. He said he thought that there would have been some very small extra benefit.
He accepted that subcutaneous adrenaline in the circumstances set out in the Spiteri paper at page 235 would produce some bronchodilation. He disagreed with Professor Empey's view about adrenaline and said that he disagreed because there was no evidence to support it. He said "I find it difficult to understand where the JRCALC Guidelines come from because they are not evidence-based like the UK Asthma Guidelines". He said that the Asthma Guidelines referred to "beta-2 agonist" rather than naming salbutamol and terbutaline because it "would do no harm". He re-emphasised that his issue in this case is the lack of research-based evidence. He said it is not surprising that there is no study because it would be ethically difficult and almost impossible to do such a study on life-threatened patients. He said that for a drug to be recommended in the circumstances the benefit should be evidence-based and not theoretical.
Professor Barnes said that he had worded his answer at the top of page 209 badly. He said that injected drugs do reach the airways, but what he should have said was that they do not do so any better than nebulised drugs or over and above nebulised drugs. If his answer suggested that intravenous drugs do not reach restricted airways that was wrong and he apologised.
He concluded by saying that once an asthmatic had arrested the situation is very difficult. Whilst it would have done no harm to have given Mr Hayes adrenaline, Professor Barnes would have had no optimism as to that course of action having any beneficial effect. It was certainly not his view that Mr Hayes would have survived in consequence.
Having set out the evidence in some detail I will now go on to make my findings. I find that when the ambulance crew arrived Mr Hayes was in a life-threatened state. He was in considerable distress. He could not speak. He may have been cyanosed. His oxygen saturation levels would have been below 92%. He would not have been able to blow into a tube to give a peak flow reading. It was appropriate to give him salbutamol and oxygen via a nebuliser. I find that he should have been given ipratropium in accordance with the guidelines. Rosalind Taylor and the experts agree on this point. The failure to do so was negligent.
I find that a very large part of the Defendant's case hinges on the concept of a "significant improvement" following this first nebuliser. The evidence for such improvement is limited to Ms Taylor's evidence that Mr Hayes could speak and confirmed that he felt better and agreed to and/or was able initially to walk to the top of the stairs.
On the balance of probabilities I do not find that Mr Hayes had significantly improved. This assessment is made with the benefit of hindsight because it is based in large part on the fact that Mr Hayes almost immediately collapsed, had a seizure and went into respiratory arrest. I find that on the balance of probabilities because his airways were constricted he suffered from significantly reduced oxygen saturation levels, developed hypoxia and in consequence had a fit leading to respiratory arrest.
I find that Ms Taylor did not have a complete memory of the details of the events leading up to Mr Hayes's death. Her evidence was based on what would have been her practice rather than what in fact happened that night. In particular I find that the only observations recorded, namely the Glasgow Coma Score and the blood sugar reading were the only observations made. I find that there was no second set of observations. It is likely that Miss Fowler wrote these observations on her glove and later transferred to the PRF. Ms Taylor cannot recall what observations were actually taken. I can think of no explanation for Miss Fowler or Miss Taylor to have transferred only the two observations to the PRF and not any others if others were taken. On the balance of probability either all observations carried out would have been transferred or none.
Thus I conclude that either before or during or after the first dose of salbutamol and oxygen the crew did not measure Mr Hayes' pulse rate respiratory rate oxygen saturation levels or peak flow rate. They did not take his blood pressure. They did not listen to his chest. If as I find a peak flow measurement could not be taken on arrival that fact was not recorded. It is agreed that the failure to take these readings and/or carry out these examinations was negligent. It was negligent not to record them although as I find they were not taken.
Had these observations been made than in light of subsequent events I find that they would have confirmed that Mr Hayes was in a life threatening condition. In particular his oxygen saturation levels would have been well below 92%. I find that the crew should have appreciated how unwell Mr Hayes was in any event from his initial presentation or at least they should have treated him as if this was a life-threatening situation in light of the category A call and his presentation on arrival. His inability to speak, pursuant to the guidelines as I find put him in an actual or potential life-threatening situation. Even if there is a distinction between severe, acute asthma and life-threatening asthma the initial treatment and need for observations would have been the same.
In light of subsequent events and on the basis of the expert evidence I accept I find that the oxygen saturation levels should have been measured whether or not by bringing in the kit as part of the life pack from the ambulance. The PRF refers to oxygen saturation measurements and the statistical data I have seen indicates that almost all crews would have taken such a reading.
I find that these initial observations would have established how critical Mr Hayes' condition was and further I find that a second set of observations after the first nebulisation would have revealed that he remained in a life-threatened state. On the balance of probabilities I find it is highly unlikely that an assessment of Mr Hayes after the first dose of salbutamol would have shown "significant improvement". To find otherwise would be to find that he made really quite a dramatic improvement and then equally dramatically worsened in the course of a few steps.
Had the further observations been carried out and the lack of improvement revealed, the crew should have given further salbutamol either by way of a further dose or continuous nebulisation. The failure to do so was negligent.
In the absence of these observations, reliance on the ability to speak alone was negligent. The Defendant refers to the fact that Mr Hayes could walk. The plan for him to walk to the top of the stairs was made while he was still sitting on the bed. In fact he could not really walk, as evidenced by his collapse after a few steps. Proper observations would have revealed this.
The JRCALC Guidelines make it clear that a patient with life-threatened asthma with failing ventilation and who is not responding to treatment or who is deteriorating despite nebulisation should be given adrenaline. In this case assessment after further or continuous nebulisation would not as I find have shown any improvement. It is likely that Mr Hayes would have deteriorated. He should have been given adrenaline. In the actual situation in which the crew found themselves, namely, when Mr Hayes collapsed it should have been apparent to them that he was in precisely the category of patient who required adrenaline.
Whatever Professor Barnes' view, the crew were provided with adrenaline, they were authorised to give it and as I find they were instructed to give it in precisely these circumstances. The failure to do so was as I find negligent. When Mr Hayes collapsed they could have been in no doubt about the fact that his situation had deteriorated.
By the time of his collapse, therefore, I find that Mr Hayes should have had ipratropium, he should have had a further dose of salbutamol or continuous salbutamol and at the point of collapse and adrenaline should have been administered and could have been administered within two minutes.
In respect of the expert evidence on these issues I prefer the evidence of Dr Moore. I considered her evidence to be measured and balanced. It seemed to me that she had given consideration to the details of the guidelines in the context of the practicalities of the situation the crew were in. She was not relying on "best practice" but on reasonable practice. No reasonably competent crew would have failed to make and record the observations I have referred to. No reasonably competent crew would have failed to repeat them in the circumstances of such a severe/life-threatening asthma attack. No reasonably competent crew would have failed to give ipratropium, I find that on the basis of the assessment which should have been made, No reasonably competent crew would have failed to follow the JRCALC Guidelines and therefore further/continuous salbutamol should have been given and at least by the time of Mr Hayes' collapse adrenaline should have been given.
I accept the evidence that the crew failed to appreciate the severity of Mr Hayes' condition. I accept her evidence that ipratropium should have been given at the beginning and that the peak flow readings should have been taken after the first dose of salbutamol and if it could not be taken that should have been recorded. It seemed to me that her assessment of the length of time it would take to draw up and administer adrenaline was well thought through. I agree that it may be that in this situation the crew were lulled into the false sense of security referred to in the guidelines. Given the lack of recorded information and Ms Taylor's limited memory I consider it is unlikely that Mr Hayes was able to speak in full sentences and that this was, as Dr Moore felt, a significant point. Again I base this on the fact that it is unlikely that he made a significant improvement in light of his almost immediate collapse.
The difficulty with Dr Scott's evidence is that he was forced to assume either that some basic observations had been taken, but not recorded or to adopt a position whereby the taking of such readings is not mandatory but merely preferable. In his report he agreed that to take these readings was required. I find that the observations were not made. He had to interpret the guidelines quite narrowly to support the Defendant's case. I think that Dr Moore's interpretation is correct and therefore she has properly identified what the crew should have done. No reasonably competent crew would have ignored the JRCALC Guidelines.
It also seemed to me that Dr Scott sought to retract some of the points of agreement that he had reached in the joint statement with Dr Moore although there was no additional evidence to cause him to do so. I did not find his evidence to be reliable for this reason.
Thus I find that the Defendant was in breach of its duty of care to Mr Hayes.
In terms of causation I prefer the evidence of Professor Empey and I find that had the crew: administered ipratropium; taken the appropriate observations; reassessed by reference to further observations; given further salbutamol; and then adrenaline (even if only at the time that Mr Hayes collapsed) there would have been a significant beneficial effect. The difficulty with Professor Barnes' view is that it leads to the inevitable conclusion that the provision of and authorisation of the use of adrenaline to ambulance technicians in life-threatening asthma is futile. Further that the agreement by the experts Dr Moore and Dr Scott that there are situations in which adrenaline should be given is wrong. If the administration of adrenaline in a life-threatened asthma patient would have no additional beneficial effect over and above the inhaled salbutamol than it is very difficult to see why the guidelines, Dr Scott, Dr Moore and Professor Empey all support it albeit in varying circumstances.
It seems to me that the reason behind this view is that Professor Barnes focused very heavily on the contrast between these guidelines and the UK Asthma Guidelines and the latter's emphasis on evidence-based recommendation. The evidence I have heard was to the effect that in an out of hospital situation where there can be no randomised controlled trials not least for ethical reasons there could not be truly evidence-based guidelines. Professor Barnes' view would arguably lead to a situation in which since there could only be a very limited number of evidence-based guidelines for ambulance technicians they would not have a complete set of guidelines to follow. The UK Asthma Guidelines themselves refer to an injected beta-2 agonist and adrenaline is a beta-2 agonist. It is perfectly correct to say that the UK Asthma Guidelines suggest there is very limited evidence to support the benefit of such treatment. It is apparent that this is correct. However, the logic here is that like salbutamol and ipratropium the aim in such a severe asthma attack is to open up the airways. Injected adrenaline would achieve this to some degree. Professor Barnes accepted that injected adrenaline would reach the airways and would do so in 30 seconds. In his view, it would have some, albeit "very small" beneficial effect.
I had some concerns about Professor Barnes' evidence. It seemed to me that by failing to specifically point out that he had been Mr Hayes' treating doctor (indeed referring to himself in the third person), by commenting on breach of duty and by devoting so much of his opinion to the issue of compliance he gave the appearance of trying very hard to support the Defendant's case rather than assisting the Court as an independent expert should.
The question therefore is whether or not Mr Hayes would on a balance of probabilities have survived had the crew taken the steps which I have identified they should have done. Professor Empey is clear that the prospect of survival would have been 60%. On that analysis the Claimant would succeed. Professor Barnes feels that any beneficial effect of adrenaline would have been very small. He considered that any additional drugs after the initial dose of salbutamol would only have had a small effect. I find that the incremental effect of the combination of the onset of the benefit of ipratropium, additional salbutamol and an injection of adrenaline would in combination have made a significant difference to the outcome. Professor Barnes approach seemed to me to be to discount the limited effect of each component rather than look at the totality of the benefit. I accept the evidence of Professor Empey when he says that, in a patient with such severe asthma, giving the maximum available treatment with the aim of opening up Mr Hayes' airways would have altered the outcome. I am satisfied (and I do not find that there is any real dispute) that the timings here would have allowed the various drugs to have had a significant effect. Further salbutamol and the further observations would have meant that the ipratropium would have begun to have some effect. The increased dose of salbutamol would have had some effect. Even if only administered after Mr Hayes collapsed (and allowing two minutes to draw it up and inject it) the adrenaline would have reached Mr Hayes' lungs and I find would have been reaching its maximal effect before he went into cardiac arrest and the cardiac arrest would have been avoided.
I accept Professor Empey's opinion of a 60% prospect of survival.
In the circumstances the Claimant succeeds on the issues of negligence and causation and therefore liability.
I was referred to some case law on liability and causation. The principles are not in dispute. Based on my findings as set out above in accordance with the tests in Bolam v Friern Hospital Management Committee [1957] 1 WLR 583 and Bolitho v City and Hackney HA [1998] AC 232 the Defendant's crew did not act in accordance with the practice of a responsible body of ambulance technicians. Although I am critical of some aspects of the Defendant's expert evidence, my conclusion is based primarily on my findings of fact which undermine the premises upon which those opinions were based.
In respect of causation I have set out my conclusion. I find that on a balance of probabilities but for the negligent treatment Mr Hayes would not have died. I find that the combination and accumulated effect of the drugs which should have been administered would have altered the outcome. Thus I do not consider that this is a case to which Bailey (cited above) applies. However if I am wrong about that it seems to me that each failure made a material contribution to the hypoxia which led to the respiratory arrest and ultimate cardiac arrest. Further the failure to administer adrenaline at the time of or shortly after the respiratory arrest made a material contribution to the cardiac arrest.
In respect of quantum it is agreed that I should make some findings in principle in the hope that the parties can agree some figures.
In respect of the issue of whether or not Mr and Mrs Hayes would have reconciled, it is agreed that there is a two stage test (Davies v Taylor [1974] AC 207). Firstly I must decide whether or not there was a significant chance (which may be less than 50%) as opposed to merely speculative possibility that the couple would reconcile. If the first stage is passed, then I must assess the chances of reconciliation in percentage terms and adjust the award accordingly.
I accepted the evidence of Mrs Hayes that the parties had in fact begun the process of reconciliation. They had resumed an intimate relationship. They had begun to discuss the future, including remarriage. In the circumstances I find that there was a significant chance that they would reconcile. I assess the chances of a reconciliation in this case at 90%. This is based on the evidence which I accept that Mr Hayes had ended his affair when Mrs Hayes found out about it and not had any other relationship thereafter. Mrs Hayes having taken the decision in light of her discovery to divorce had clearly regretted that. They were taking matters slowly and thoughtfully. Mrs Hayes has obviously given some thought to the possibility that her husband might have had another affair and considered that this would not automatically mean the end of their relationship. Her evidence was effectively that she had gone through with a promise to her husband that if she ever caught him cheating she would divorce him. She wished she had not done so. I think that on the basis of her evidence and the steps which had already been taken it was significantly more likely than not that the parties would reconcile.
I accept that there would have to be some reduction to reflect the fact that there would be a risk that even having reconciled the relationship would have failed again. In the circumstances of this case where this couple were aware of the risks for the future and were aware of the need to take things slowly I do not consider that the risk was greater than 10%.
The total prospect of a successful reconciliation therefore was in my view 80%.
I accept that the estate is entitled to an award damages for pain and suffering and loss of amenity but that the period of suffering was very short and that the appropriate (uplifted) award is £1,100.
The funeral expenses are agreed at £2,059.
There is no claim for damages for bereavement. Mr and Mrs Hayes were divorced at the time of his death. The Fatal Accidents Act 1976 makes no provision for an award of bereavement damages to surviving minor children. The Claimant suggests that the restriction on those eligible to receive a bereavement award is arguably a breach of the Human Rights Act 1998 on the basis that an award to parents of a deceased child but not to children of deceased parents is illogical and discriminatory. The government has prepared draft legislation to reverse the situation but has not yet brought it into force. A bereavement award is a statutory award and the legislation defines the categories of those who can claim it. They are narrow. Any proposed legislation has not been made law. In circumstances where there is no general right to claim such an award it does not seem to me that the current legislation is incompatible with the Human Rights Act and I make no declaration.
The Claimant calculates financial dependency in the sum of £408,955. In light of my findings this is subject to a 20% deduction and that sum would be £327,164. There is a claim for dependence on pension in the sum of £40,483. After the appropriate deduction that sum would be £32,386.40.
I accept that on the balance of probabilities all three of the Claimant's sons will remain in education after the age of 18. I have seen their school reports.
There is a claim for dependency on services based on estimated figures for gardening and DIY and 14 hours per week of transporting three boys to football matches and training until the twins' 21st birthdays. I heard no evidence about Mr Hayes' gardening or DIY and it is not referred to in Mrs Hayes' statement. I make no award in this respect. Mrs Hayes said in her evidence that in fact Mr Hayes was spending about five hours a week transporting his sons to sporting activities and I allow that figure to the twins' 18th birthdays on the basis that after the age of 18 they will be independent or in full-time education, probably away from home.
The Claimant's schedule of loss is calculated on the basis of a dependency following reconciliation from the date of the deceased's death. The parties were not living together at the date of his death. Mrs Hayes felt that they would have begun living together in the New Year of 2009. Given the progress that they were making towards reconciliation I accept that this would have been the case and find that they would have been living together from the end of January 2009. There may need to be some minor deduction in this regard from the figures.
The £15,000 for the loss of the intangible benefits of a father is agreed in respect of the three boys.
The Claimant is entitled to interest on general damages at 2% per annum from the date of service of the proceedings to the date of trial and on the claim for funeral expenses at the full special account rates from the date of death to the date of trial. She is also entitled to interest at half the special account rate on the path to dependency from the date upon which the loss was incurred (being in this case later than the date of death) to the date of trial.
On the basis of these findings I hope that the parties can agree the figures for damages and interest.
Finally I would like to thank both Counsel for their assistance in this case. |
MR JUSTICE KNOWLES:
This is an appeal, I remind myself of that fact, and it is an appeal on a case management issue. I remind myself of the approach to an appeal of that nature as well.
I fully support the efforts of the learned Judge to address the proportionality of the programming of this case towards trial. That ultimately is in the interests of all parties particularly where the value, although disputed, is not high.
The fact was that when the matter came in front of the learned Judge the parties, pursuant to existing permissions in relation to expert engineering evidence, had proceeded to an exchange of reports and a meeting between the experts, with only the stage of allowing the court to assess comparative reliability by seeing the experts under cross-examination lying ahead. The learned Judge decided to rule that last stage out.
However, the fact is that the expert engineering evidence makes a contribution to one of the key issues in the case which involves, by looking at the state of the ladder, determining whether the ladder was in a deficient state before the accident or whether it came to be in a deficient state as a result of the accident. On that the experts differ. They have explained their reasoning in writing but the court at the moment will not have, on the face of the Judge's Order, the opportunity to see which of the experts is the more reliable in the view expressed.
I am not satisfied that, on the face of the reasoning of the learned Judge, the way in which the expert evidence can make that contribution was taken into consideration.
I also cannot see on the face of the learned Judge's reasoning the way in which the Judge approached the fact that the parties were already embarked, with permission, on a programme that would give them a right to adduce oral expert evidence.
One other feature, however, of the Judge's decision -- and it is also challenged on this appeal -- is that the Judge was anxious to control the overall time that is to be taken at trial. The Judge, having heard the parties, directed that the time estimate be two days; that was changed from earlier orders where three days had been mentioned.
The appellant challenges that and says it still should be three days. The respondent too, if there is to be expert evidence, not just on engineering but also on another discipline, not the subject of the hearing today, thinks that two days would be at risk of not being enough.
However, I on this point think that the decision of the learned Judge is to be fully supported. The criticism, with respect to the learned Judge, that can be made is that she sought to achieve that by removing the oral stage of expert evidence rather than by looking to other techniques.
The other technique that is, as it seems to me, available, and I will direct, is that the estimate stays at two days but that the parties are required within seven days to agree a trial timetable so as to enable the matter to be completed within two days of court time.
That timetable is to be specific down to the level of speeches, examination, cross-examination, re-examination, witness by witness, so as to equip the court hearing the matter, and which will ultimately have control on how long the case does take at trial, to impose those arrangements as firm time limits on the parties (with the use, obviously, of judgment and discretion throughout the process).
I do not seek to bind the Trial Judge, I make that clear, but I do seek to help the parties focus on the real potential to do this case in two days and to assist the Trial Judge with a further means to control the use of court time and of expense to the parties at the trial.
I might add in parenthesis that I would hope that that type of scheduling would ensure that the cross-examination of the engineering experts could be marshalled inside a morning or afternoon of the trial so that the costs which have been quoted to me as though their attendance would be for a full day can be further limited so that the costs of a half day are instead within the trial programme.
Mention has been made of using a concurrent evidence procedure for the experts. I fully understand the spirit of that suggestion. It may reduce time further but there are a number of considerations that come into the mix when considering concurrent evidence. Those have not been fully explored before me. They can be explored by the parties, and they can be proposed to the Trial Judge of in advance of the trial if the parties think that is necessary or desirable.
I should add that, also within the compass of the appeal today, on very narrow grounds indeed, was a need at least arguably to allow an extension of time following delay but very sensibly and commendably challenge on that footing has not been vigorously mounted by the respondent and I am entirely satisfied that the administrative reasons for the delay mean that the appeal should not turn on that point.
So I allow the appeal in relation to the expert evidence.
I refuse the appeal in relation to its challenge of the three day period.
I shall be asking for the assistance of counsel to formulate an order which gives effect to the requirements in relation to trial timetable that I have summarised. |
Mr Justice Leggatt :
Introduction
An important question which needs to be resolved in the Iraqi Civilian Litigation is whether claims have been brought in time or whether they are barred by an applicable statute of limitation. This judgment follows the trial of a short but significant set of preliminary issues to decide one aspect of that question.
The preliminary issues
I will explain and discuss the preliminary issues in this judgment and record my answers to them at the end. The issues are as follows:
"1. As a matter of Iraqi law, and in respect of those heads of claim brought pursuant to rights under Iraqi law, was the primary limitation period of three years provided for in Article 232 of the Iraqi Civil Code suspended by operation of article 435(1) of the Code as a result of the fact that CPA Order 17 rendered it impossible for the claimants to claim their rights in Iraq?
2. If so, and as a matter of English law, is article 435(1) to be disregarded in relation to such heads of claim pursuant to s.2(3) of the Foreign Limitation Periods Act 1984?
3. In any case, and as a matter of Iraqi law:
(a) on what date did CPA Order 17 cease to have effect on new causes of action arising; and
(b) if under article 435(1) the condition to suspend the limitation period is met, does it also suspend the period of 15 years provided for in Article 232?"
The litigation
The "Iraqi Civilian Litigation" is a general description for many hundreds of claims which have been brought in the English High Court by Iraqi civilians against the Ministry of Defence. The claimants are seeking damages for their allegedly unlawful detention and alleged ill-treatment by British armed forces on various dates during the period when British forces were present in Iraq.
That period began on 20 March 2003, when a coalition of armed forces led by the United States and including a large contingent from the UK invaded Iraq. On 1 May 2003, major combat operations were formally declared complete. The US and the UK became occupying powers within the meaning of article 42 of the Hague Regulations and with their coalition partners established the Coalition Provisional Authority ("CPA") in order to exercise powers of government in Iraq on a temporary basis. On 28 June 2004 sovereign authority was transferred from the CPA to a new Iraqi government, but British forces remained in Iraq as part of a Multi National Force ("MNF") established pursuant to resolutions of the United Nations Security Council to assist the Iraqi government in maintaining law and order. The UN mandate for the MNF expired on 31 December 2008 but it was not until sometime in 2009 that British forces withdrew from Iraq.
The claims in the Iraqi Civilian Litigation are made on two legal bases. One basis is the Human Rights Act 1998. The other basis is the law of tort. It is common ground that, pursuant to Part III of the Private International Law (Miscellaneous Provisions) Act 1995, the law applicable to the tort claims is the law of Iraq.
Section 1(1) of the Foreign Limitation Periods Act 1984 states:
"Subject to the following provisions of this Act, where in any action or proceedings in a court in England and Wales the law of any other country falls (in accordance with rules of private international law applicable by any such court) to be taken into account in the determination of any matter—
(a) the law of that other country relating to limitation shall apply in respect of that matter for the purposes of the action or proceedings ...; and
(b) except where that matter falls within subsection (2) below, the law of England and Wales relating to limitation shall not so apply."
Section 4 of the Act makes it clear that the law of any country "relating to limitation" includes any law relating to, and to the effect of, the "application, extension, reduction or interruption" of any limitation period.
Subject to two exceptions or potential exceptions provided for in section 2 of the Act which I will come to later, it is common ground that in accordance with these provisions the court must apply the Iraqi law relating to limitation, and not English law, in deciding whether the claims founded on the Iraqi law of tort are time-barred.
The evidence of Iraqi law
The principles to be applied when an English court has to decide the effect of a foreign statute are well established and have not been the subject of any dispute. In particular:
a) Matters of foreign law are treated in an English court as matters of fact which must generally be proved by expert evidence.
b) Where the relevant foreign law is contained in a code or other legislation, the relevant question is how a court in the foreign jurisdiction would interpret the legislation.
c) The primary evidence to be used in answering that question is evidence of the opinions of expert witnesses. As with any expert evidence, however, the court is entitled and may be bound to look at the sources on which the experts rely in order to decide what weight to give to their opinions.
At this trial, the court has had the benefit of receiving written and oral evidence from two distinguished experts on Iraqi law. The claimants adduced evidence from Mr Saleh Majid, an Iraqi advocate and attorney with more than 45 years' legal experience. The defendant's expert was Professor Haider Ala Hamoudi who is a member of faculty at the University of Pittsburgh School of Law. Although Professor Hamoudi has never studied or practised law in Iraq, there is no doubt about his scholarship.
Relevant Iraqi limitation law
Iraq has a Civil Code. It is based on the Egyptian Civil Code, which in turn is based to a large extent on the French Civil Code. The experts each gave their own translations of the relevant provisions of the Iraqi Civil Code, which naturally differed slightly from each other and from a published English translation which was included in the bundles for the hearing. I did not perceive any of the differences to be material and I will quote from the published translation.
Article 232 of the Civil Code (in this translation) states:
"A claim for damages resulting from whatever (kind) of unlawful act shall not be heard after the lapse of three years from the day on which the injured person became aware of the injury and of the person who caused it; in all cases the claim will not be heard after the lapse of 15 years from the day of occurrence of the unlawful act."
It is common ground that many of the claims in the Iraqi Civilian Litigation were not commenced until after the expiry of the three year limitation period prescribed by article 232.
The claimants argue, however, that their claims are not time-barred because this limitation period was suspended or interrupted. In particular, the claimants rely on article 435 of the Civil Code, which states:
"(1) The time limit barring the hearing of the case is suspended by a lawful excuse such as where the plaintiff is a minor or interdicted and has no guardian or is absent in a remote foreign country, or where the case is between spouses or ascendants and descendants, or if there is another impediment rendering it impossible for the plaintiff to claim his right.
(2) The period which lapses while the excuse still exists (lasts) shall not be taken into account for the running of the time limitation."
It is the claimants' case that the three year time limit which would potentially bar their claims has at all material times been suspended by a lawful excuse in the form of an impediment rendering it impossible for them to claim their rights within the meaning of article 435. The impediment is said to consist in immunity from suit in Iraq conferred on (amongst others) all British military personnel by Coalition Provisional Authority Order No 17 ("CPA Order 17"). The main purpose of the present preliminary issues is to decide whether this case is correct.
CPA Order 17
CPA Order 17 was originally issued and entered into force on 26 June 2003. A revised version of the Order was issued on 27 June 2004. Section 2 of the Order (in its revised form) states:
"(1) Unless provided otherwise herein, the MNF [and] the CPA … shall be immune from Iraqi legal process.
…
(3) All MNF [and] CPA Personnel … shall be subject to the exclusive jurisdiction of their Sending States. …"
The original Order contained similar provisions.
The following matters are common ground:
a) CPA Order 17 has never been repealed and would be regarded as a valid part of the law of Iraq by an Iraqi court.
b) The effect of section 2 of the Order is to deprive the Iraqi courts of jurisdiction which they would otherwise have over (amongst others) British forces in respect of unlawful acts allegedly committed by them in Iraq.
c) Nothing in the Order prevents claimants from bringing claims in respect of such acts in the English courts.
d) The English courts have jurisdiction over such claims.
The effective period of the Order
There is an issue about exactly when the period covered by CPA Order 17 ended. Section 20 of the Order (as revised) states:
"Effective Period
This Order shall enter into force on the date of signature. It shall remain in force for the duration of the mandate authorising the MNF under UN Security Council Resolutions 1511 and 1546 and any subsequent relevant resolutions and shall not terminate until the departure of the final element of the MNF from Iraq, unless rescinded or amended by legislation duly enacted and having the force of law."
It is common ground that the UN mandate authorising the MNF ended on 31 December 2008 and that the final US troops left Iraq on 18 December 2011. The opinion of the claimants' expert, Mr Majid, is that the Order remained in force until the latter date. The opinion of the defendant's expert, Professor Hamoudi, is that the Order terminated on the earlier date of 31 December 2008. Professor Hamoudi bases his opinion on the definition of the "MNF" in section 1(1) of the Order. This states:
"'Multi National Force' (MNF) means the force authorised under UN Security Council Resolutions 1511 and 1546, and any subsequent relevant UN Security Council Resolutions."
In Professor Hamoudi's view, there was no "MNF" as defined in the Order after 31 December 2008. Therefore, the words "until the departure of the final element of the MNF from Iraq" in section 20 do not extend the effective period of the Order beyond that date as there was no "MNF" after its UN mandate expired. In any event, any US or UK military personnel present in Iraq after 31 December 2008 were not "MNF personnel" and therefore did not fall within section 2 of the Order.
Mr Majid's response is that the words referring to the departure of "the final element of the MNF from Iraq" must have been intended to add something and in particular must have been intended to ensure that for as long as any troops from the countries which contributed to the MNF remained in Iraq they would have the protection of the Order.
I can see the force of Mr Majid's view. However, it seems to me that in circumstances where the experts are agreed that an Iraqi court would give primacy to the text of the legislation and the text includes an express definition of the "MNF" which on the facts is incapable of applying after 31 December 2008, it is difficult to interpret the Order in this way. Mr Majid also accepted in cross-examination that, if fresh US troops were sent out to Iraq after 31 December 2008, those troops could not be said to be "MNF Personnel" and would therefore not be covered by the Order. It would seem irrational to make the existence of immunity dependent on whether the soldier responsible for an allegedly unlawful act committed after 31 December 2008 was already stationed in Iraq before that date or was sent out afterwards. For these reasons, I consider the opinion of Professor Hamoudi to be the better view and conclude that the effective period of the Order ended on 31 December 2008.
I am told that this point at present has no practical significance since, so far at least, no claim has been brought which relates to any alleged act or omission of British forces after 31 December 2008. In these circumstances I do not think it necessary to address the further question on which the experts also disagree of whether, if Mr Majid's opinion about the duration of CPA Order 17 is right, the Order was in any event suspended after that date by Resolution 50 of 2008.
It might be thought from reading section 20 that after the period specified in that section had ended the Order would no longer have any legal force at all. It is common ground between the experts, however, that this is not the effect of section 20. They are agreed that, whilst the Order provides no immunity for acts occurring after its termination date (which I have found was 31 December 2008), the immunity which it affords for acts which occurred before that date is of enduring effect.
The experts are accordingly agreed that it always has been, and still is, impossible for any of the claimants in this litigation to bring their claims in the Iraqi courts.
Territorial scope of article 435
On this footing, I turn to the key question in dispute. That question is whether article 435 of the Civil Code suspends the limitation period in circumstances where it is impossible for a claimant to bring his claim in Iraq but it is nevertheless possible for him to do so in another jurisdiction, in this case England. The answer to this question depends on the territorial scope of article 435. In particular, as properly interpreted by an Iraq court, does it mean that the time limit is suspended if there is an impediment rendering it impossible for the plaintiff to claim his right in Iraq; or does it have a different or wider scope such that, for example, the time limit is suspended only if it is impossible for the claimant to claim his right in any jurisdiction in the world?
The opinion of the claimant's expert, Mr Majid, is that the former interpretation is correct. In his view, an Iraqi court would hold that article 435 is concerned exclusively with whether there is a lawful excuse/impediment which prevents the claim from being heard in Iraq. Mr Majid gave three reasons in support of his opinion:
a) As with any domestic legislation dealing with court process, it is natural to expect that article 435 would be concerned only with bringing proceedings in the forum state (i.e. Iraq), and there is nothing in the words of article 435 which suggests otherwise. Furthermore, the inference that article 435 is concerned only with proceedings in Iraq is reinforced by the reference to absence in "a remote foreign country" as an example of a lawful excuse.
b) This interpretation is further reinforced by the fact that article 435 is contained in a section of the Civil Code dealing with procedural steps in Iraqi courts.
c) An interpretation which required an Iraqi court to consider the possibility of bringing proceedings in foreign jurisdictions would involve practical difficulties in terms of complexity and expense of a type not envisaged in Iraqi civil litigation.
The defendant's expert, Professor Hamoudi, disagreed with Mr Majid's interpretation of article 435 but did not advance any clear alternative view of how an Iraqi court would interpret the language of article 435 in terms of its territorial scope.
One of the questions discussed by the experts for the purpose of identifying points of agreement and disagreement between them was the following:
"Would an Iraqi court hearing a case of an Iraqi civilian as against the United Kingdom or any of its forces present in Iraq, in respect of acts or omissions occurring during the period that CPA Order 17 was in effect, consider the possibility of bringing a claim in England or other countries when considering whether the limitation period should be suspended by reason of CPA Order 17 for the purposes of article 435?"
The experts agreed that the answer to this question is "no". It follows that it cannot be Professor Hamoudi's opinion that the impediment referred to in article 435 is one which makes it impossible for the claimant to claim his right anywhere in the world.
Nevertheless, the experts' joint statement went on to record that there were important differences between them concerning this question. In particular, Professor Hamoudi's opinion was recorded as being that the question is "entirely irrelevant", as:
"Article 435 makes no reference to narrowing the consideration of factors to those relevant to bringing a case in Iraq. Nor, Professor Hamoudi maintains, would it make sense to do so when, as here, the case is not brought in an Iraqi court. Article 435 merely initiates a suspension of a statute of limitations where there is a legitimate reason that renders it impossible for a claimant to make a claim. Any court hearing the case would assess that Iraqi law standard (as further elaborated in cases and commentaries) based on its own determination of whether it was or was not impossible to make the claim before it during any given period."
Professor Hamoudi's position was further elaborated in his supplementary expert's report.
It was understandable in the light of some of the statements made in Professor Hamoudi's reports that Mr Majid and the claimants' counsel had the impression that Professor Hamoudi was trespassing into matters of English private international law in identifying the question which he thought the English court should address. It was only in Mr Sweeting QC's closing oral submissions on behalf of the defendant that it became entirely clear that Professor Hamoudi's position, at least as understood by the defendant, is indeed based on a view about the meaning of article 435 as a matter of Iraqi law. As I understood Mr Sweeting's submissions, the interpretation for which the defendant contends is that the impediment referred to in article 435 is an impediment rendering it impossible to sue during any given period in the jurisdiction in which a claim is in fact brought. Thus, if proceedings are brought in Iraq, the Iraqi court must consider whether it was possible for the claimant to sue in Iraq, and is not concerned with the possibility of suing anywhere else. But where proceedings are brought in England, the English court must consider, and consider only, whether it was possible to sue in England during the relevant period.
My first difficulty with this contention is that I do not think that it was ever explained by Professor Hamoudi in his evidence with sufficient clarity that this is how he believes that article 435 would be interpreted by an Iraqi court. That means that there is in my view no adequate evidence to support the defendant's case as to how article 435 should be read. A further consequence is that Mr Majid did not in my view have a proper opportunity to comment on the interpretation contended for by the defendant, either in any expert report or in cross-examination.
It seems to me that some confusion may have arisen from the fact that because an Iraqi court applying article 435 of the Civil Code is, by definition, situated in Iraq, an Iraqi court would never in practice have to choose between Mr Majid's view of how article 435 should be interpreted and the defendant's interpretation. Both would lead to exactly the same result in every case. This does not mean, however, that an Iraqi court could not decide, if required to do so, which of the two interpretations is correct. As with any question of foreign law, the English court must answer the hypothetical question of what the foreign court would decide if it were to decide the particular point. There is no difficulty in principle in addressing that question.
Quite apart from the evidential problems with the defendant's case, I cannot accept that it represents how an Iraqi court would interpret article 435. That is because I found the reasons given by Mr Majid for his opinion on this issue convincing. Nor can I see merit in any of the objections to Mr Majid's view which were raised by Professor Hamoudi.
The first such objection was that article 435 does not contain any words which expressly confine its scope to bringing a claim in Iraq. While that is true, I am persuaded by Mr Majid's view that, in an Iraqi statutory provision dealing with the time for bringing proceedings, it goes without saying that the proceedings in contemplation are domestic proceedings in Iraq and not proceedings in any other jurisdiction. It would require express words to displace this natural assumption, of which there are none. For the same reason, I regard as obviously correct Mr Majid's reading of the reference in article 435 to absence in "a remote country" as a reference to absence in a country remote from Iraq. Professor Hamoudi did not put forward any reason to support his suggestion that the phrase should be taken to refer to absence from the jurisdiction in which a claim is brought, even if that jurisdiction is not Iraq. Without some supporting reasoning founded in principles of Iraqi law, I cannot accept that an Iraqi court would adopt what seems to me to be an over-elaborate interpretation of the provision.
Secondly, Professor Hamoudi objected to the statement that article 435 is procedural. Thus, he pointed out that the subsection of the Civil Code dealing with limitation which includes article 435 is part of a broader section of the Code dealing with the termination of obligations other than through their fulfilment. He said that this is not a procedural issue. I cannot see that it matters, however, whether either article 435 itself or the section of the Code in which it appears would be characterised in Iraqi law as procedural or substantive. The important point made by Mr Majid, as it seems to me, is that in the context of a provision of Iraqi law dealing with the period within which proceedings must be brought a reference to the possibility of making a claim is naturally understood as a reference to the possibility of making a claim in the Iraqi courts.
Professor Hamoudi's third objection to Mr Majid's view is that it leads to irrational results. Professor Hamoudi pointed out that, if Mr Majid's interpretation of article 435 is correct, then no matter how easy it might become to assert a claim in England, or even in a closer state such as Jordan, and no matter how many lawyers would be willing to solicit clients and press such cases abroad, there would be no limitation period of any kind attaching to such claims, so long as Iraqi courts could not hear the case themselves.
I agree that this is a very unattractive result. However, the consequences of the defendant's interpretation of the territorial scope of article 435 seem to me to be at least as irrational. Suppose that an Iraqi citizen living in Iraq has a potential claim against an English defendant which could in principle be brought either in Iraq or in England. Suppose further that there is no practical impediment to bringing the claim in Iraq but there are difficulties which for several years render it impossible within the meaning of article 435 to sue in England. The claimant does not sue the defendant in Iraq but several years after the limitation period specified in article 232 has expired he is contacted by an English lawyer who is able to arrange for him to bring proceedings in England. On the defendant's interpretation, an English court applying article 435 will be required to find that the time limit was suspended and the claim is not time-barred, even though an Iraqi court would hold that the claim was time-barred if the claimant were now to bring proceedings in Iraq and even though there was no lawful excuse for not suing in Iraq before the expiry of the limitation period. I cannot regard this result as rational.
Overall, none of the points made by Professor Hamoudi or by the defendant's English counsel persuades me that there is any legitimate reason to reject Mr Majid's straightforward reading of article 435 as concerned only with the possibility of bringing a claim in Iraq.
Can the 15 year limitation period be suspended?
A further point on which the experts disagreed is whether article 435, when it is engaged, suspends the 15 year time limit as well as the three year time limit prescribed by article 232. The experts agreed that article 435 is a general provision which, when applicable, works to suspend all types of limitation period provided for in the Iraq Civil Code. Thus, in the opinion of Professor Hamoudi, so long as a lawful excuse which satisfies the requirements of article 435 exists, all relevant limitation periods are suspended, including the limitation period which would normally expire 15 years from the date of occurrence of an unlawful act. Mr Majid agreed that this is a possible interpretation of article 435 when read with article 232. However, he also considered that there is another possible interpretation – which he was inclined to prefer – being that the 15 year period cannot be suspended because article 232 states that, "in all cases the claim will not be heard after the lapse of 15 years …" (emphasis added).
As Professor Hamoudi pointed out, it would make no sense at all to say that, uniquely among all the time limits prescribed in the Civil Code, the 15 year limit prescribed by article 232 cannot be suspended. I accept Professor Hamoudi's view that an Iraqi court would regard the words "in all cases" in article 232 as meaning only that time will expire in all cases after 15 years from the day of occurrence of the unlawful act even if the period of three years from the date of knowledge has not yet lapsed, and not as seeking to exclude the operation of article 435 where the conditions which it lays down for suspending the time limit are satisfied. I therefore find that article 435, where applicable, suspends the 15 year as well as the three year time limit.
Section 2 of the 1984 Act
Section 2 of the 1984 Act specifies certain exceptions to the general rule that where a claim is governed by a foreign system of law that law should also govern matters of limitation. Section 2 provides:
"Exceptions
(1) In any case in which the application of section 1 above would to any extent conflict (whether under subsection (2) below or otherwise) with public policy, that section shall not apply to the extent that its application would so conflict.
(2) The application of section 1 above in relation to any action or proceedings shall conflict with public policy to the extent that its application would cause undue hardship to a person who is, or might be made, a party to the action or proceedings.
(3) Where, under a law applicable by virtue of section 1(1)(a) above for the purposes of any action or proceedings, a limitation period is or may be extended or interrupted in respect of the absence of a party to the action or proceedings from any specified jurisdiction or country, so much of that law as provides for the extension or interruption shall be disregarded for those purposes."
The result of my conclusions on the questions of Iraqi law raised by the preliminary issue is that, by reason of CPA Order 17, the time limit for bringing claims governed by Iraqi law seeking compensation for unlawful acts allegedly committed by British forces in Iraq between 25 June 2003 and 31 December 2008 is suspended indefinitely. It does not follow, however, that the English courts will allow any such claim to proceed, no matter how long after the relevant events it is brought and whether or not it could have been brought sooner. The court has power under section 2(1) and (2) to prevent that result if and insofar as it conflicts with public policy.
That question is one to be addressed on another occasion. A point raised by the defendant as one of the present preliminary issues and therefore to be decided now is whether section 2(3) is applicable. In an addendum to their skeleton argument, counsel for the defendant advanced an argument that the word "jurisdiction" in section 2(3) of the 1984 Act is not used in a territorial sense but refers to the court's power or authority to try a claim. On this basis it was submitted that the immunity of the defendant from Iraqi legal process conferred by CPA Order 17 constitutes "the absence of a party to the action or proceedings from [a] specified jurisdiction or country" within the meaning of section 2(3). If this were correct, it would follow that insofar as article 435 of the Iraqi Civil Code suspends the limitation period by reason of CPA Order 17, article 435 must be disregarded.
I do not, however, consider this to be a tenable interpretation of section 2(3). The words "absence from any specified jurisdiction or country" on their plain meaning refer to physical absence from a specified place. If the intention had been to use the word "jurisdiction" to refer to the power or authority of a court, the subsection would have referred to the absence of jurisdiction over a party to the action, and not to the absence of the party from the jurisdiction. Even such a formulation would not have been sufficient because the subsection would also have had to specify that the jurisdiction in question was that of the courts of the country whose law was applicable by virtue of section 1(1)(a). Any possible doubt about the sense in which the term "jurisdiction" is used is in any event removed by its juxtaposition with the words "or country". The obvious reason for mentioning "jurisdiction" as an alternative to "country" is that some countries, for example the United Kingdom and the United States, comprise more than one jurisdiction in the territorial sense.
If it were necessary – which I do not think it is – in order to decide this point to look beyond the text of section 2(3) and to consider the mischief at which the provision is aimed, it is apparent from the Law Commission report whose recommendation section 2(3) implemented that the concern was only with laws which suspend the running of time during a person's absence from the country (or relevant part of the country): see 'Classification of Limitation in Private International Law' (LAW COM No 114, 1982), paras 4.27-4.32.
I accordingly consider that section 2(3) of the 1984 Act does not apply to suspension of the limitation period resulting from the effect of CPA Order 17.
Conclusions
For the reasons given, I conclude that the preliminary issues should be answered as follows:
(1) As a matter of Iraqi law, and in respect of those heads of claim brought pursuant to rights under Iraqi law, the primary limitation period of three years provided for in Article 232 of the Iraqi Civil Code was suspended by operation of article 435(1) of the Code as a result of the fact that CPA Order 17 rendered it impossible for the claimants to claim their rights in Iraq.
(2) As a matter of English law, article 435(1) is not to be disregarded in relation to such heads of claim by reason of section 2(3) of the Foreign Limitation Periods Act 1984.
(3) As a matter of Iraqi law:
a) The date on which CPA Order 17 ceased to have effect on new causes of action arising is 31 December 2008;
b) Where the condition to suspend the limitation period is met, article 435(1) of the Iraqi Civil Code suspends the period of 15 years, as well as the three year period, provided for in Article 232. |
Mr Justice Irwin :
Introduction
After the fall of Colonel Qadhafi in October 2011, the offices of his security services were searched and quantities of documents discovered. The Claimants are of Libyan origin, save for Claimant 5 who is the widow of a Libyan. These claims are derived from the documents discovered.
This application concerns Claimants 1 to 5, 11 and 12. Claimants 6 – 10 have been stayed pending an appeal in another related case. Claimants 1 to 5 allege unlawful detention pending deportation, and subjection to Control Orders that substantially restricted their liberty. Claimants 11 and 12 sue in respect of their nomination to the United Nations Al Qaeda and Taliban Sanctions Committee and the consequent freezing of their assets. In each case the detention, restriction of liberty or freezing of the assets arose from the link made between the Claimant and the Libyan Islamic Fighting Group ["LIFG"].
The Claimants allege that the documents discovered demonstrate, for a number of legal and factual reasons, that they should never have been detained, undergone restriction of liberty or been subject to asset-freezing orders.
Claimants 1 to 5 further allege a failure by the Defendants to give full disclosure to either the Home Secretary or to SIAC, thereby vitiating various decisions of the Home Secretary, constituting an abuse of power and founding a claim for false imprisonment and misfeasance. It is alleged that the failures of disclosure render unlawful the Control Orders obtained.
Claimants 11 and 12 have made judicial review claims challenging the decision to nominate them to the UN Sanctions Committee, and later refusals to "de-list" the Claimants. Both Claimants were, in time, removed from the sanctions lists, and their assets were unfrozen. Their public law actions seek "a full merits review" by the Administrative Court of the decisions to nominate and the refusals to seek de-listing. Claimants 11 and 12 are also parties to private law claims, seeking damages for misfeasance in public office and conspiracy to injure.
The Defendants apply to dismiss and/or strike out the claims; and in the alternative for a stay. Essentially, the Defendants submit that the statutes providing for SIAC appeals and for Control Orders circumscribe any challenge of the kind made here. They say the only proper course for Claimants 1 to 5 is to seek to appeal the relevant decisions of SIAC and the Control Orders. Even if statute does not require that course, pursuit of private law action represents an abuse of process of the Court. In relation to Claimants 11 and 12, their remedy is to pursue judicial review in the actions already commenced, not proceed by coincident private law action.
Procedural Background
There are detailed differences in the procedural history and chronologies of each action. Each side has treated the two groups – Claimants 1 to 5 and Claimants 11 and 12 – as raising questions in common.
Claimant 1 was served with a Notice of Intention to Deport on 3 October 2005 and detained. He appealed to SIAC. In December that year he was arrested and charged with terrorist offences. His SIAC appeal was stayed. In June 2007, along with Claimants 3 and 4, he pleaded guilty to terrorist offences in the Kingston-upon-Thames Crown Court and he was sentenced to 3 years 9 months' imprisonment. He completed his custodial sentence on 21 October 2007, and re-entered immigration detention. He was made the subject of a Control Order on 2 April 2008. He was, with Claimants 2 to 5, the subject of review in November 2008, wherein Mitting J found that the LIFG remained "a risk to the national security of the United Kingdom", see: SSHD v AR and Others [2008] EWHC 2789 (Admin). He was then subject to an individual review: SSHD v AU [2009] EWHC 49. His Control Order was upheld. His Control Order was renewed in April 2009 but revoked in November of that year. Claimant 1 did not attempt an appeal from the review by Mitting J. He did seek to appeal the renewal, but withdrew that appeal following the revocation.
Claimant 2 was served with a Notice of Intention to Deport on 3 October 2005, and appealed to SIAC. His case was anonymised as "DD" and was heard alongside that of Claimant 5 [as "AS"]. In the course of SIAC proceedings, the Claimant submitted that the SSHD's case on safety on return was bound to fail, since the Memorandum of Understanding ["MoU"] agreed, and the attendant arrangements for monitoring the MoU, were insufficient to protect him if he were deported to Libya. Following a hearing in October and November 2006, in April 2007 SIAC allowed Claimant 2's appeal (along with that of Claimant 5) on the ground that although he was a threat to national security, there was a real risk of breach of Article 3 of the European Convention on Human Rights if he was returned to Libya. The appeal by the Secretary of State from this decision failed; see: AS and another v SSHD [2008] EWCA Civ 289 (Admin). On 4 April 2008, Claimant 2 was also served with a Control Order. Claimant 2 was a party to the decision of Mitting J of November 2008. His Control Order was upheld by Mitting J in December 2008: SSHD v AR [2008] EWHC 3164 (Admin). He did not seek to appeal that decision. His Control Order was renewed on 31 March 2009. He appealed that decision, and his appeal has not been withdrawn. The Control Order was revoked on 22 January 2010.
In May 2004 Claimant 3 admitted offences contrary to the Forgery and Counterfeiting Act 1981, and was sentenced along with Claimant 4. Claimant 3 received 3½ years' imprisonment. He was released from prison in June 2005. On 3 November 2005 he was served with a Notice of Intention to Deport and detained. He appealed to SIAC. In December 2005, he was charged with terrorist offences and moved from immigration detention into custody. His SIAC appeal was stayed in December 2005. On 11 June 2007 he pleaded guilty to an offence contrary to s.17 of the Terrorism Act 2000 and was sentenced to 1 year 10 months' imprisonment. He completed the sentence and re-entered immigration detention, being released on bail in July 2007. A Control Order was served on him on 4 April 2008. He too was a subject of the judgment in the Control Order review of 14 November 2008, where the Court found that the LIFG remained a risk to national security. His Control Order was upheld on 20 March 2009; see SSHD v AT [2009] EWHC 512 (Admin). The Order was renewed in April 2009 and revoked in August of that year. Claimant 3 appealed against the Order upholding his Control Order and was successful on 7 February 2012, the matter being remitted to the High Court. It has not yet been heard.
Claimant 4 also admitted forgery offences on 12 May 2004 and received 3½ years' imprisonment. He too was served with Notice of Intention to Deport on 3 November 2005, and appealed to SIAC. He was made subject to immigration detention. On 12 December 2005 he was arrested and charged with terrorist offences and remanded into custody. His SIAC appeal was stayed on 15 December. On 11 June 2007 he too pleaded guilty to an offence contrary to the Terrorism Act 2000 and was sentenced to 1 year 10 months' imprisonment. On the same day he entered immigration detention, and on 2 July was released on bail by SIAC. A Control Order was served on 4 April 2008. Claimant 4 was another subject of the judgment of 14 November 2008. On 16 March 2009 a fresh Control Order was made, the first Order being quashed in a judgment of 20 March: AW v SSHD [2009] EWHC 512 (Admin). The second Control Order was revoked on 26 June 2009. Claimant 4 sued for false imprisonment in respect of the first Control Order, and his claim was settled in May 2011. The Claimant sought to challenge the second Control Order, but withdrew the challenge after the Order was revoked.
For convenience, although Faraj Al-Saadi is deceased and his widow is the Claimant, I will refer to him as Claimant 5 throughout. Claimant 5 was served with Notice of Intention to Deport on 14 December 2005 and was detained. He appealed to SIAC and his case was heard with that of Claimant 2. He was party to an application for further disclosure in October 2006. The appeal was heard in October and November 2006, leading to the judgment in April 2007 allowing the appeal on the basis of a lack of safety on return. Claimant 5 was released on bail on 17 May 2007. He was a respondent to the unsuccessful appeal by the SSHD in February and March 2008. Claimant 5 was the subject of a Control Order served on 4 April 2008, renewed on 1 April 2009. The Order was revoked by Mitting J, on the ground it was no longer necessary. Mitting J declined to quash the Control Order on the ground of non-disclosure. Claimant 5 does not seek damages for the period during which he was subject to a Control Order.
Claimant 11 was nominated for designation by the UN Sanctions Committee on 18 January 2006, and added to the asset freezing list on 7 February 2006. In August 2008 the Fourth Defendant declined to support Claimant 11's request to be removed from the list. On 19 December 2008 Claimant 11 issued judicial review proceedings to challenge the latter decision. The judicial review proceedings were amended on 10 March 2010 to include a challenge to the original decision to nominate him to the UN, rather than impose a "freezing" order under English law. The judicial review proceedings have three times been stayed pending decisions in other cases on appeal, but remain live proceedings subject to the latest stay.
Claimant 12 was nominated to the UN Sanctions Committee on 10 September 2008, and was added to the list on 21 October 2008. On 22 December 2008 Claimant 12 was designated pursuant to EU Council Regulation EC 881/2002. On 14 September 2009 Claimant 12 issued judicial review proceedings challenging the decision to nominate him to the UN and the refusal to support his application to be removed from the UN list. On 9 December 2010 Claimant 12 issued further separate judicial review proceedings challenging the EU listing. Claimant 12 was removed from the UN list on 22 December 2010 and the EU list on 18 January 2011. The second judicial review was withdrawn on 15 February 2011. His judicial review claim in relation to the UN listing, as with that of Claimant 11, has been stayed three times pending the decisions in other appeals. The claim remains extant but subject to the third stay, imposed on 16 May 2014.
Alleged failures to discharge the duty of candour
It is necessary here to set out only a summary of the Claimants' allegations on this issue.
The Claimants allege, on instruction and from publicly available material, that the Libyan authorities under Colonel Qadhafi were at all times guilty of flagrant and serious breaches of human rights when dealing with political opponents and those in detention in Libya; they also allege that picture was well known to the Defendants. Against that background the Claimants make detailed allegations as to the knowledge of the Defendants, and as to the growth of cooperation between the First and Second Defendants and the Libyan Security Agencies. It is alleged that the Defendants began discussion with the Libyan intelligence operatives from late 2001. From 2002 it is claimed that information provided to the Defendants by the Libyans fostered a view that the LIFG was connected to Al Qaeda and this represented a threat to National Security in the UK, as opposed to a merely national engagement in opposition to the Libyan regime.
It is said this view arose in part from interrogation of Libyan detainees obtained under torture. It is alleged that the growing relationship included a flow of information about Libyan dissidents from the UK to Libya, and reciprocal information about individuals, including some or all of these Claimants, to the UK. The Defendants are said to have been aware, from November 2002 if not before, that the United States was engaged in "extraordinary rendition" of Islamist suspects on a wide scale, including LIFG members. It is claimed that torture was used in interrogation following rendition and that the UK Security Services shared in the information produced by such methods.
The Defendants are said to have "conspired with the CIA and the Libyan Security Services in the unlawful rendition" of [Abdul-Hakim] Belhadj and of having been "involved" in the rendition of Sami Al-Saadi, both members of the LIFG. The UK Government compromised proceedings by Sami Al-Saadi for a large sum in December 2012.
It is alleged that by November 2003 the Fifth Defendant had concluded that "simple assurances" from Libya with regard to safety on return could not be relied on. It is alleged there were at least eight relevant cases of Libyan detainees. They were the source of false and unreliable information, given the conditions of their interrogation. It is alleged the Defendants knew of those conditions and knew or should have known that the information from detainees in Libyan hands was unreliable and provided no firm basis for a case in national security, as well as affecting the potential for safe return of any LIFG member deported.
It is alleged that in resisting bail applications by Claimants 1 to 5, and in addressing the SIAC appeals of Claimant 2 and Claimant 5 in 2006 (those two appeals being heard in effect as "lead cases") the Defendants' witnesses continued wrongly to assert that there was a close association between the LIFG and Al Qaeda. It is alleged that in those proceedings there was in fact reliance on information derived from the interrogation of Belhadj and Al-Saadi, although leading counsel was so instructed that he denied such reliance before the Commission. There is alleged to have been a key failure of disclosure, in breach of the duty of candour, on this issue.
Much of the burden of presenting the Home Secretary's case on safety on return to Libya fell to Anthony Layden, formerly HM Ambassador to Libya. He was a central witness before SIAC, giving evidence to the effect that the MoU which had been signed by the UK and Libya, provided a reliable basis for the safety of deportees. A key part of the case advanced related to the arrangements proposed for monitoring the working of the MoU over time. The Independent Monitoring Body ["IMB"] advanced was the Qadhafi Development Foundation ["QDF"], headed by Saif Al-Islam Qadhafi, son of the Libyan leader.
In the course of negotiation with Libya, it is said that the Fifth Defendant tried and failed to persuade Libya that the Libyan Bar Association should act jointly with the QDF as a monitoring body. It is further alleged that means the Defendants knew there could and would be no effective independent monitoring of the MoU, since the QDF would not be independent or effective.
The breaches of the duty of candour pleaded can be summarised as follows: a failure to disclose involvement with "rendition" to Libya, to disclose UK Security Services involvement in "direct and indirect" questioning of Libyan detainees, and a failure to disclose information which would tend to undermine the reliability of the MoU, particularly the effectiveness of the proposed arrangements for monitoring the arrangement. In addition it is said there was a failure to disclose the role of the QDF "in pressurising Libyans to return to Libya and its role as a proxy for the Libyan Security Services". It is also alleged there was a failure to disclose material "which would support a suspicion that Libyan Security Services and other security services had supplied information to the UK relating to [Claimant 2 and Claimant 5]" which was obtained as a result of torture.
The Decision of SIAC
The judgment of SIAC in respect of Claimant 2 and Claimant 5, then anonymised as DD and AS, was extremely full. Between paragraphs 415 and 427 the Commission reviewed the extent of disclosure by the SSHD, since the issue had been raised in OPEN and CLOSED. They did so, even though "in the light of the decision to which we have come, the issue is … academic".
They concluded that the exercise had been conscientiously and properly conducted. They rejected a submission that disclosure should encompass "material which had a real as opposed to a fanciful prospect of generating a line of inquiry in relation to an issue already in the case, or which related to any issue which disclosure might possibly raise". The test laid down in the Civil Procedure Rules was sufficient, requiring the SSHD to produce "what is relevant and of assistance to the Appellants and to the Commission". The SSHD applied the "cards face up approach" as approved in R v Lancashire County Council ex parte Huddleston [1986] 2 All ER 941 and consistent with the test laid down by Laws LJ in SSFCA v Quark Fishing Ltd [2002] EWCA Civ 1409. In this instance, of course, the "cards face up" were sometimes to be seen only by those privy to the CLOSED evidence. Nevertheless, the approach was explicitly approved by the Commission.
The Commission concluded that both Claimant 2/DD and Claimant 5/AS did represent a risk to the national security. Early on, SIAC considered the link between the LIFG and Al Qaeda, concluding that there were strong connections, and that Belhadj [Al Sadeq] and Sami Al-Saadi (Abu Mundhir), of whose leadership roles in the LIFG SIAC was well aware, were "more focused on Libya but not to the exclusion of the wider Islamist agenda" (paragraph 18). SIAC also concluded that "the national security of the UK was now threatened by the acts of Libyan nationals which harmed Libya" (paragraph 29), giving reasons why that was so. However the Commission went on to say that the mere fact of LIFG membership was insufficient to show an individual was necessarily a global jihadist: the focus had to be on the actions, outlook, associations and future risk of the individual (paragraph 33).
SIAC concluded that Claimant 2/DD was indeed an Islamist extremist, with an outlook "less focused on Libya", than those of Belhadj and Sami Al-Saadi. DD had links to the Taliban and Al Qaeda. His opposition to the Qadhafi regime was a "major aspect of his global jihadist outlook". Opposition to the Libyan regime was not of itself a threat to UK national security: the Appellant's overall jihadist outlook was the key consideration.
As to Claimant 5/AS, the Commission noted it was not alleged by the SSHD he was a member of the LIFG, although the Libyans had accused him of membership. The great preponderance of the OPEN evidence against him came from material supplied by the Italian authorities, not Libya. This was supplied in support of an extradition request in 2003, and concerned the Appellant's activities in and around Milan in 2001/2002. The Commission concluded that Claimant 5/AS was part of a group who raised money for Al Qaeda and obtained false identity documents to that end. The group was a "serious terrorist group" (paragraph 99 et seq). The Italian Court did not find the terrorist conspiracy proved beyond reasonable doubt, but that was not to the point. The OPEN evidence sustained the conclusion of the Commission that Claimant 5/AS was an Islamist extremist who was a threat to national security. The CLOSED evidence sustained that conclusion.
Given the nature of the current applications, it is relevant to identify some of the matters which were in the minds of the Commission members, in consequence of the disclosure which had taken place. There was a wealth of evidence that prisoners of the Libyan Security Service were routinely tortured, and SIAC accepted that (paragraphs 143 to 145, 294, 300-304). There was ample evidence that a fair trial could not be guaranteed, an aspect of the Libyan regime which reflected the power balances within the country (paragraphs 146-162, 253-261, 383-401). The Commission was aware of rapprochement between the Libyan authorities and the West, from soon after the September 11 New York attacks, including direct cooperation on security matters, focussed on Islamist terrorism: see paragraphs 201/202. That theme was continued as the relationship developed: paragraphs 203, 207, 212. Continued intelligence and counter-terrorist cooperation was part of the reason advanced by the SSHD as to why Colonel Qadhafi would honour the MoU (paragraphs 291, 296).
The largest question for SIAC was the effectiveness of the MoU. A great part of the judgment addresses this. The Commission concluded in favour of the Appellants. The arbitrary and changeable nature of Colonel Qadhafi and the personal nature of his rule was central. His inconsistency and capacity to act against his own interests was noted (paragraphs 305-331, 353/354, 371). The QDF was insufficiently independent to act as an effective monitoring body (paragraphs 325-332). In particular:
"It is clear that the ability of the QDF to perform the monitoring role derives from the position or influence which Saif [Qadhafi] enjoys … It [QDF] is no more independent of the regime than is Saif himself, and he is not independent." (paragraph 330)
In the course of considering the potential of the QDF, the Commission was aware that it had been hoped by the UK Government that the Libyan Bar Association would act as a co-monitor "for presentational reasons" (paragraph 216). However, it had been accepted by Mr Layden that the Bar Association could not in any event be regarded as an independent body. The organisation "Doctors For Human Rights" had consistently refused to assist the QDF with training, because of the QDF's "perceived lack of independence and the Libyan Government's record of torture" (paragraph 216).
It was on that basis that the Commission rejected the case of the SSHD on safety on return, and allowed the appeals.
The Approach of the Court in Reviewing the Control Orders
All the Control Order proceedings for Claimants 1 to 4 came before Mitting J, beginning with the question common to all, as to the origins and recent history of the LIFG, and the risk the organisation posed to the national security of the United Kingdom. The Court took a consistent approach in this judgment, and in the individual reviews that followed.
Addressing the LIFG, Mitting J noted the two amended OPEN statements provided, with annexes. He observed that much of the OPEN material "was being used … to place in the open arena things which the Security Services would not otherwise be able to [address publicly]", see: SSHD v AR and Others (supra) paragraph 2. In fact, the assessments of the Security Services were "founded … on far more extensive and potentially reliable closed material", paragraph 1.
Mitting J was clearly alive to the danger of reliance on "detainee reporting, a source eschewed by the Secretary of State for good pragmatic reasons (the difficulty and expense of investigating claims that detainees were tortured or ill-treated)", paragraph 1. It follows that the Court was fully alive to the risks of such treatment for those in Libyan detention, and to the doubtful reliability of information derived from detainees.
The central purpose of that hearing was to establish the nature and purpose of the LIFG. A critical part of that assessment was to consider the relationship between the LIFG and Al Qaeda. Part of an otherwise heavily criticised segment of OPEN evidence advanced by the SSHD comprised an interview with the Al Qaeda leader, Ayman Al Zawahiri. The judge noted that from the public announcement of the existence of the LIFG in October 1995 until at least March 2004, the LIFG was not regarded as a threat to British national security, see paragraph 6. Despite that, LIFG members were believed to have fought with Al Qaeda in Afghanistan and Waziristan in previous times, see paragraph 8. In September 2007 there was an announcement made jointly of a "merger" between Al Qaeda and the LIFG, which the Court concluded was "the culmination of a relationship between AQ and elements of the LIFG which went back many years", see paragraph 8.
The judge paid close regard to the wording of the announcement, which made reference to "a group of men" who "announced joining Al Qaeda". He laid emphasis on the exhortation, which accompanied the announcement, to the imprisoned leaders of the LIFG [Sadeq/Belhadj and Mundhir/Al-Saadi]: such an exhortation "would not have been made if the merger had already received their express blessing", see paragraph 8. The judge also relied on an answer from Al Zawahiri given in April 2008, stating that he had not said that the LIFG had joined Al Qaeda: it was "a delegation of distinguished members from the LIFG" who had joined, see paragraph 9. Taking those conclusive points with other circumstantial evidence, the judge concluded there had been "no full scale or complete merger between AQ and the LIFG" but rather a process which might lead to a merger, see paragraph 13. With that nuanced assessment as part of the picture, the judge concluded that "the LIFG remains as it was found by the Special Immigration Appeal Commission in March 2007 to be a risk to the national security of the United Kingdom", paragraph 13.
As would be expected, the Court proceeded to review the individual Control Orders with the specifics of each controlee in mind, but against that backdrop.
The Question of Statutory Bar: SIAC
This issue directly affects C1 to C5 although in slightly differing ways. It will be recalled that C2 and C5 were successful in their SIAC appeals, on the issue of safety on return. If the Defendants succeed, their only remedy will be to seek to reopen aged SIAC appeals in which they were successful. C1, 3 and 4 had SIAC appeals stayed in December 2005. In their cases, if this argument were to succeed, they would presumably have to ask for the stays on their SIAC appeals to be lifted so that their appeals could be pursued.
Although the question of a statutory bar is, in one sense, discrete, the statutory provisions are a relevant backdrop when considering the common law and the principles laid down in Hunter v Chief Constable of the West Midlands Police and Others [1982] AC 529.
The relevant provisions of the Special Immigration Appeals Commission Act 1997 are as follows:
" Establishment of the Commission
Section 1
(1) There shall be a commission, known as the Special Immigration Appeals Commission, for the purpose of exercising the jurisdiction conferred by this Act.
…
(3) The Commission shall be a superior court of record.
(4) A decision of the Commission shall be questioned in legal proceedings only in accordance with—
(a) section 7, or
(b) …
….
Appeals from the Commission
Section 7
(1) Where the Special Immigration Appeals Commission has made a final determination of an appeal, any party to the appeal may bring a further appeal to the appropriate appeal court on any question of law material to that determination.
(2) An appeal under this section may be brought only with the leave of the Commission or, if such leave is refused, with the leave of the appropriate appeal court.
(3) In this section "the appropriate appeal court" means—
(a) in relation to a determination made by the Commission in England and Wales, the Court of Appeal."
The Defendants submit that "to the extent that the present tortious claims seek to question the conduct of the SIAC proceedings and the decisions reached by SIAC in those proceedings" such challenge is prohibited by Section 1(4). Not only has Parliament provided for a specific statutory appeal process, but Parliament has gone on to provide expressly that a decision of the Commission may be "questioned" only in accordance with those appeal provisions.
The Defendants further rely on the limits of any challenge to SIAC determinations by means of judicial review, as laid down by Laws LJ in the Divisional Court in U v Special Immigration Appeals Commission [2009] EWHC 3052 (Admin) where, in passages subsequently approved on appeal, the Court remarked on the limited extent to which SIAC decisions might be susceptible to such challenge (see paragraphs 85 and 86).
The Defendants do not submit that the SIAC Act precludes the Claimants from bringing a false imprisonment claim in respect of their immigration detention pending deportation. The Defendants accept that the continuing legality of immigration detention is a separate question, governed by the principles laid down in R v Governor of Durham Prison ex parte Hardial Singh [1984] 1 WLR 704, as subsequently refined. Such claims were made in ID v Home Office [2006] 1 WLR 1003 and BA v Home Office [2011] EWHC 1466. The Defendants note that when the latter case came on appeal (BA v Home Office [2012] EWCA Civ 944) the Court made clear the need to raise issues of the fundamental legality of detention in any judicial review challenge to the legality of removal directions, since a failure to do so may mean that "where there is no change of circumstances, a subsequent claim for damages for detention will fail as an abuse of process".
The Claimants argue that they do not challenge "a final determination of an appeal" by SIAC. They say it is no part of the Claimants' case to "traduce" the conclusion of SIAC in favour of C2 and C5 or to seek relief inconsistent with that decision. They rely on the fact that the SIAC judgment in favour of C2 and C5 led the Secretaries of State to withdraw the decisions to refuse to revoke deportation in relation to the other Claimants, which withdrawal extinguished any right of appeal they had. Consequently, say the Claimants, there is no operative SIAC decision which Claimants 2 and 5 seek to challenge, and no decision at all in relation to C1, C3 or C4. C1 to C5 seek redress for past illegal detention, in respect of which SIAC has no statutory jurisdiction to award compensation.
The Defendants' reply to this line of argument is that it greatly underplays the challenge to the conclusions of SIAC comprised in these proceedings. The Defendants recite three key areas of challenge evident from the particulars of claim. Firstly, the Claimants allege a failure of disclosure ("the SIAC Candour Breaches") which led to the Commission being misled. The Defendants say it is relevant that SIAC determined a disclosure application during the appeal, rejecting the Appellants' contention that a too narrow approach had been taken to disclosure. This ruling, say the Defendants, must be considered in the context of the SIAC Procedure Rules, and in particular Rule 4(3), which places an obligation on the Commission to satisfy itself that it has the material available enabling the Commission properly to determine the proceedings. The Defendants conclude that it is clear that any challenge to the adequacy of disclosure in SIAC proceedings, at least where the undisclosed material would have affected the outcome, represents a challenge to the Commission's decision.
The Defendants underscore this argument by noting that the Claimants suggest SIAC's national security findings (which were adverse to C2 and C5) could not have been made, had all the relevant material been disclosed to SIAC (see paragraphs 335-340 and paragraph 362.3 of the particulars of claim). Thirdly, the Defendants rely on the Claimants' contention that SIAC would have reached different conclusions about bail had all the relevant material been disclosed during bail proceedings, as demonstrating that the Claimant's challenge is to the decisions or determinations of SIAC.
The Claimants' starting point is that the principle of legality requires clear express language or a strong necessary implication to oust common law remedies. Such remedies are part and parcel of the vindication of the rule of law or common law rights (see: Pyx Granite v Ministry of Housing [1960] AC 260, HMRC v Total Network SL [2008] AC 1174 and R(CPAG) v SSWP [2011] 2 AC 15). The Claimants say there is no language in the SIAC legislation supporting a general ouster of common law remedies. Such language as the statute contains requires to be narrowly construed.
The Claimants suggest that the Defendants' true position is that a private claim cannot be brought if any of the constituent elements upon which such a claim depends is inconsistent with the basis of an earlier SIAC decision, since such a claim amounts to a "questioning" of the decision other than by way of an appeal to the Court of Appeal. The Claimants submit this would amount to a form of statutory issue estoppel with remarkable consequences. Logically, the Claimants submit, such a position would preclude even those who were not party to the relevant determination or decision of SIAC from "questioning" that decision: precisely the position of C1, C3 and C4. The Claimants also argue that such a principle must be taken to apply "whatever the type and content of the decision of SIAC and however ancillary to SIAC's core jurisdiction".
The Claimants argue that Sections 1(4), 2(1), 3(1) and 7(1) of the SIAC Act must be read together. Section 1(4) is an attempt to oust the availability of judicial review in respect of interim or case management "decisions". Section 7 represents a mitigation of the attempted ouster by conferring a right of appeal in respect of a "final determination", thus excluding the right of appeal in relation to interlocutory or case management decisions such as questions of bail, directions and so forth. The section says nothing about whether or not private law actions may be brought, bearing in part or in whole on the same evidence as was before SIAC, or as to whether and when the reasoning of the Commission is immune from challenge. In that context the Claimants repeat the submission that any statutory ouster of common law rights must be construed strictly and narrowly, and that there is in this case no challenge to the decision of SIAC allowing the appeals of two Claimants.
The Defendants respond to these arguments by suggesting that the distinction between SIAC's "reasoning" and its "decision" is entirely false. Given that the Claimants are frank in asserting that, had all the material they say was relevant been before the Commission, a different outcome would have ensued, then the questions of evidence, reasoning and decision are inextricably linked. They argue this contention is supported by the analysis of the function and processes of SIAC contained in the judgment of Lord Phillips in RB(Algeria) v SSHD [2010] 2 AC 110. As noted in that case, the reasoning of SIAC will be of key importance in assessing whether SIAC erred in law or acted irrationally (see, for example, Lord Phillips at paragraph 126 and Lord Hope at paragraph 220).
I have concluded that the SIAC Act does not represent an absolute bar to private law action in all circumstances which might call into question some or all of the basis of conclusions of SIAC. The question is not easy. As will appear below, my conclusion on this issue does not represent a simple answer as to whether these cases can proceed.
The facts of the case must be borne in mind. Any appeal here would of necessity be by a winning SIAC Appellant, or an Appellant whose SIAC appeal was conceded. It seems unlikely Parliament had that in mind when restricting the rights of challenge. Moreover, the essence of the Claimants' case is that SIAC was prevented from reaching a proper conclusion by a withholding of material, in breach of the Defendants' duty of candour, discovered after the event. If such a breach were alleged or discovered during the currency of a SIAC appeal (or an appeal from SIAC) then the statute would almost certainly compel the Claimants, in the Court of Appeal, to raise the matter in SIAC, or potentially by way of judicial review in the face of an adverse ruling by SIAC.
However, on the unusual facts of this case, it seems to me that the language of Section 1(A) is not of sufficient clarity on its own to found a strike-out of these claims. The Claimants do not in essence "question" a "decision" taken by SIAC, much less suggest there was a "hard-edged error of law" at the time. The claim is that the outcome, favourable to the Appellants, was reached despite a then-undiscovered abuse of process, which led to conclusions by the Commission adverse to the Appellants but not determinative of their appeals. On those facts, and bearing in mind the need for strict construction when considering the abrogation of important rights and remedies at common law, I conclude this issue in the Claimants' favour.
Statutory Bar: Control Orders
I begin by drawing together the procedural threads for this group of Claimants. Claimants 1-4 make claims in respect of periods when they were subject to Control Orders. Claimant 2 has an extant appeal against the renewal of his Control Order on 31 March 2009. Claimant 3 appealed successfully against the upholding of his Control Order in March 2009, with the matter having been remitted to the High Court. That remitted hearing has not taken place. Claimant 1 did not attempt an appeal from the review of his initial Control Order. He withdrew the appeal against renewal of the order following its revocation. Claimant 4 achieved a settlement of a civil action for false imprisonment in respect of the first Control Order. He makes no claim in respect of that period. He challenged the fresh Control Order of March 2009, but withdrew the challenge after revocation and does seek a claim in respect of the fresh Control Order. Therefore Claimants 1 and 4 have no outstanding proceedings in relation to their Control Orders, whereas Claimants 2 and 3 do so.
The statutory regime under which the Control Orders were passed was laid down in the Prevention of Terrorism Act 2005 ["PTA 2005"]. For most purposes this regime was replaced by the provisions of the Terrorism Prevention and Investigation Measures Act 2011 ["TPIM Act 2011"]. However, some provisions of the PTA 2005 remain in force, including those governing reviews and appeals of Control Orders.
The relevant provisions of the PTA 2005 are as follows:
"Section 3…
(2) Where the Secretary of State makes an application for permission to make a non-derogating control order against an individual, the application must set out the order for which he seeks permission and—
(a) the function of the court is to consider whether the Secretary of State's decision that there are grounds to make that order is obviously flawed;
…
(10) On a hearing in pursuance of directions under subsection (2)(c) or (6)(b) or (c), the function of the court is to determine whether any of the following decisions of the Secretary of State was flawed—
(a) his decision that the requirements of section 2(1)(a) and (b) were satisfied for the making of the order; and
(b) his decisions on the imposition of each of the obligations imposed by the order.
(11) In determining—
(a) what constitutes a flawed decision for the purposes of subsection (2), (6) or (8), or
(b) the matters mentioned in subsection (10),
(12) If the court determines, on a hearing in pursuance of directions under subsection (2)(c) or (6)(b) or (c), that a decision of the Secretary of State was flawed, its only powers are—
(a) power to quash the order;
(b) power to quash one or more obligations imposed by the order; and
(c) power to give directions to the Secretary of State for the revocation of the order or for the modification of the obligations it imposes.
(13) In every other case the court must decide that the control order is to continue in force.
…
Section 10…
(1) Where—
(a) a non-derogating control order has been renewed, or
(b) an obligation imposed by such an order has been modified without the consent of the controlled person,
the controlled person may appeal to the court against the renewal or modification.
…
(3) Where an application is made by the controlled person to the Secretary of State for—
(a) the revocation of a non-derogating control order, or
(b) the modification of an obligation imposed by such an order,
that person may appeal to the court against any decision by the Secretary of State on the application.
(4) The function of the court on an appeal against the renewal of a non-derogating control order, or on an appeal against a decision not to revoke such an order, is to determine whether either or both of the following decisions of the Secretary of State was flawed.
…
(6) In determining the matters mentioned in subsections (4) and (5) the court must apply the principles applicable on an application for judicial review.
(7) If the court determines on an appeal under this section that a decision of the Secretary of State was flawed, its only powers are—
(a) power to quash the renewal of the order;
(b) power to quash one or more obligations imposed by the order; and
(c) power to give directions to the Secretary of State for the revocation of the order or for the modification of the obligations it imposes.
Section 11…
(1) Control order decisions and derogation matters are not to be questioned in any legal proceedings other than—
(a) proceedings in the court; or
(b) proceedings on appeal from such proceedings.
…
(3) No appeal shall lie from any determination of the court in control order proceedings, except on a question of law."
"Proceedings in the court" are defined in Section 15 of the Act as being proceedings in the High Court.
The Defendants argue that Claimants 1 and 2 may only challenge or "question" decisions of the Court in relation to the imposition or renewal of Control Orders by way of appeal to the Court of Appeal on a point of law. Challenges to the renewal of the Control Orders must be by way of appeal under Section 10(1)(a) of the PTA 2005, Claimant 2 having an extant appeal on that basis. Claimant 3, having extant Control Order proceedings and a separate extant damages claim pursuant to the PTA 2005, the Defendants again argue it is impermissible for Claimant 3 to seek to mount a further challenge to the imposition of his control order through these proceedings. Claimant 4 seeks redress in these proceedings only against the second Control Order. The Defendants argue that since he withdrew his statutory challenge to that Control Order, it is impermissible to seek to challenge the same order through these proceedings.
The Defendants emphasise the primacy and importance of the statutory appeals process in relation to Control Orders, relying on the decision of Ouseley J in BG v Secretary of State for the Home Department [2011] EWHC 1478 (Admin). In that case the Appellant, challenging the renewal of his Control Order, sought to challenge the national security conclusions which had been upheld at the time of his earlier review. The Court concluded that this was impermissible, and that in the renewal appeal the Court could only consider the question of necessity. The only potential route for challenge to the earlier national security findings was an appeal out of time to the Court of Appeal. The Defendants also rely upon the decision of the Court of Appeal in CB and BP v Secretary of State for the Home Department [2012] EWCA Civ 418, where the Court concluded that revocation of a Control Order does not affect the duty of the Court to determine whether the Order (or renewal) was flawed. Unless the controlled person requests a discontinuance, the Court must, even in those circumstances, exercise its supervisory jurisdiction and determine whether the Control Order or the renewal was flawed. Thus, revocation does not alter the need to confine matters within the statutory processes.
It will be remembered that Claimants 2 and 5 succeeded in their SIAC appeal. Any appeal by them would lead to the paradox of a challenge to the basis of a decision favourable to them. No such problem arises in the context of the Control Order regime.
In summary, therefore, the Defendants argue that where there are extant proceedings in relation to Control Orders (Claimant 2 in respect of renewal, Claimant 3 following remittal to the High Court) those avenues must be pursued. Otherwise the only other proper route is to seek to appeal and/or to seek to re-open appeals. In respect of Claimant 4, the Defendants say that since he withdrew his challenge to the second Control Order, it is in any event impermissible for him to seek to challenge that order in any proceedings.
The Defendants also rely on the decision of the Court of Appeal in Mohamed and CF v Secretary of State for the Home Department [2014] EWCA Civ 559 where the Court observed that if a Controlee wishes to contend that his Control Order was flawed by reference to a disclosure failure, that challenge should be made within the Section 3(10) review hearing. The Defendants rely on paragraphs 30-39 of the judgment of Maurice Kay LJ.
The Defendants accept that there can be claims for damages under the PTA 2005. Despite the expressly limited powers of the Court set out in Section 3(12) and Section 10(7) quoted above, the Defendants agree that Section 11(6)(i) ["Any other proceedings in the Court for questioning a Control Order decision, a derogation matter or the arrest or detention of a person under Section 5;"], must be read together with paragraph 3 of Schedule 8 of the TPIM Act 2011, which reads in part:
"3(1) The repeal of the PTA 2005 by this Act does not, … prevent or otherwise affect—
… (e) the bringing or continuation of any proceedings for an award of damages or other relief arising out of any such proceedings."
Thus it is conceded that damages claims in the High Court may be made, provided they "aris[e] out of any such proceedings". The Defendants' position is that the Claimants must exhaust all or any remedies they have within the statutory regime created by the PTA 2005 before they may initiate or continue such civil claims as these.
The Claimants' reply proceeds from the starting point that claims for damages are legitimate and contemplated by the legislation. There is nothing in the statute which requires that such separate proceedings for damages should be entirely parasitic on the Control Order proceedings proper. Such an interpretation would, say the Claimants, produce "tortuous effects". The limitations on the Courts' powers under PTA 2005 Section 3(12), in respect of a fresh Control Order, replicated in Section 10(7) in respect of an appeal of a renewal of a Control Order, must be construed narrowly as only imposing those limitations on the Court's powers at the culmination of such specific hearings. The restriction of powers cannot be wider, or damages claims could not be made at all within "Control Order proceedings", a proposition inconsistent with the definition in Section 11(6)(i) and the Schedule to the TPIM Act 2011.
Here too the Claimants submit that the statutory language of the PTA 2005 is not capable of meeting "the strong test" set out in such cases as Pyx Granite, HMRC v Total Network and R(CPAG). Only language of the strongest and most explicit character can lead to such a consequence.
The Claimants also reject the Defendants' arguments based on BG v The Secretary of State. The reasoning in that case, say the Claimants, turns on the precise statutory language of Section 10(4) of the PTA 2005, and is confined to the specific statutory review arising at the point of annual renewal of the Control Order. In paragraph 21 of his decision in BG, Ouseley J quoted extensive passages from the judgment of Sir Anthony Clarke MR in Secretary of State for the Home Department v AF(No 2) [2008] 1 WLR 2528. In that case, the Court of Appeal was concerned with the distinction between Section 3(10) hearings and Section 10(4) renewal appeals. Ouseley J went on, in paragraph 22 of his judgment to state:
"In my judgment, the contrast in language between s2(1) and s2(6) shows beyond argument that it is not part of the Court's task on a s10(4) hearing to determine whether the earlier decision under s2(1)(a) was then or is now flawed. The distinction between the two powers was regarded as important in the Court of Appeal's reasoning in AF (No.2). Evidence sought to be adduced for that purpose is not admissible. Mr Bennathan is right that that could mean in theory that where the original Control Order was shown comprehensively to be unjustified, even admitted to be unjustified, the Court dealing with its renewal could not rule against it on the ground that the original Order should never have been made. Mr Hall is right that the only remedy in respect of the original Order would be an appeal out of time to the Court of Appeal."
Mr de la Mare, for the Claimants, argues that BG was wrongly decided and should be regarded as a decision per incuriam. He notes that what he submits to be relevant authority was not cited to the judge. In particular, he relies on the case of BX v Secretary of State for the Home Department [2010] 1 WLR 2463. BX was concerned with whether the High Court's jurisdiction to entertain a claim for judicial review of a Control Order decision was, or was not, excluded by Section 11 of the PTA 2005. The Court concluded that the judicial review jurisdiction was not excluded by the statute. The Court had jurisdiction to grant interim relief in the course of an appeal from the modification of a Control Order, but that, as the headnote recites:
"where a controlled person wished to seek such interim relief on proper grounds, the appropriate route was by way of an application in appeal proceedings under section 10: and that, since that was an adequate and sufficient alternative remedy, parallel proceedings for judicial review were unnecessary and wasteful and should only be used as a last resort."
In reliance on the reasoning and conclusions of the Court of Appeal in BX, the Claimants submit that, had the case been cited before Ouseley J, his conclusions would and should have been different. However, for present purposes, even if BG were correctly decided, its application is confined to Section 10 proceedings in the strict sense. The Defendants are in error, say the Claimants, in seeking to elevate the decision in BG as authority for a complete bar on civil proceedings such as these.
In my judgment, the Claimants are correct in arguing that the provisions of the PTA 2005 and Schedule 8 to the TPIM Act 2011, taken together, do not represent an absolute bar to civil proceedings. There is, in my view, a close parallel with the subsistence of judicial review proceedings, as the Court of Appeal concluded in BX v SSHD. I reach no conclusion that BG was wrongly decided but, as the judge made clear (see paragraph 22), he was concerned with the "Court's task on a Section 10(4) hearing". The Court was not being asked to decide the question before me.
The Defendants are right to say that the judgment of the Court of Appeal in Mohammed and CF v SSHD makes it clear that material non-disclosure, whether or not amounting to an abuse of process, should properly be raised in the course of Control Order proceedings. However, in my view the passages relied on by the Defendants do not preclude private law action in circumstances such as these. Indeed, the thrust of paragraph 28 of the same judgment is to confine the effect of the statutory restriction of the Court's powers.
Mr de la Mare is also right, in my view, that the clearest possible language would be required to preclude a right of action. The better view of the restriction on the Court's powers set out in Section 3(12) and Section 10(7) is that they apply at the conclusion of the relevant statutory hearing. Since the statutory provisions contemplate the initiation and/or continuation of claims for damages, falling within the definition of "Control Order proceedings" and maintained by operation of statute after the abolition of Control Orders, I conclude that the legislation cannot have the effect for which the Defendants contend. Here too, this conclusion does not lead to a straightforward answer as to whether these claims can proceed. Here too, despite these conclusions, the legislation forms an important context when considering abuse of process.
Abuse of Process
The locus classicus of principle on this topic is to be found in the decision of the House of Lords in Hunter v Chief Constable of the West Midlands Police and others [1982] AC 529. In the central passage of his opinion, Lord Diplock stated the need for the Court to prevent abuse by way of collateral challenge to final decision as follows:
"The abuse of process which the instant case exemplifies is the initiation of proceedings in a court of justice for the purpose of mounting a collateral attack upon a final decision against the intending plaintiff which has been made by another court of competent jurisdiction in previous proceedings in which the intending plaintiff had a full opportunity of contesting the decision in the court by which it was made."
That principle has been adopted and applied in successive cases since. It does not seem to me necessary in this ruling to rehearse the range of subsequent authority. The principle is that the Court must prevent re-litigation intended to, and with the tendency to re-hear issues which have been addressed, raising the possibility of inconsistent judgments.
In what I take to be an important element in his formulation, Lord Diplock emphasised that the previous proceedings should have afforded the intending Claimant "a full opportunity of contesting the decision in the Court by which it was made". One question which arises here – and which remains unanswered – is whether that was so in these cases.
In Johnson v Gore Wood and Co. [2002] 2 AC 1, Lord Bingham considered the application of the Hunter principle and emphasised that any review of the issue must comprise:
"… a broad merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focussing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the Court by seeking to raise before it the issue which could have been raised before." (See page 31D)
As Lord Bingham's formulation makes clear, many factors are in play and there are competing considerations. In Hunter itself, and in Amin v Director General of the Security Service [2013] EWHC 1579 (QB), the claims were directed to issues which had been fully ventilated, and in respect of which considered judgments had been given. In each case there were very serious criminal convictions. The need for consistency in such a context is obviously very high. There is, too, a well-established procedure by which fresh evidence may be received in a renewed appeal. That is an important distinction from these proceedings, particularly in respect of the SIAC litigation. Here the context is of successful SIAC appeals (or withdrawal by the Secretary of State) on the one hand, and of revoked Control Orders on the other.
Although the provisions of the SIAC Act 1997 do not constitute an absolute bar to such action, there is no doubt that the intention of Parliament was severely to constrain challenges to decisions of SIAC. But it is relevant to consider the extent of any challenge. Were these claims to succeed, they would not undermine the outcome of the SIAC appeals, but there would undoubtedly be a considerable tension between the result in the civil claims and the SIAC judgment.
In the case of claims relating to periods when the Claimants were subject to Control Orders, although I have concluded that the statutory provisions do not prevent private law action, and that such action may be within the definition of "Control Order proceedings", that does not mean that private law action could not amount to an unlawful or abusive collateral challenge to the conclusions of the Court. The fact that the relevant statutory provisions contemplate private law action is not decisive on this point: such claims would normally arise after a successful challenge on appeal or review, and indeed it appears to me that would be the usual sequence which Parliament will have had in mind. Indeed, the thrust of the statutory provisions, particularly the formulation found in Section 11(1) of the PTA 2005, mean nothing unless they are designed to avoid inconsistent rulings in respect of Control Order decisions. The statutory regime is intended to ensure consistency.
I have considered carefully whether these claims seek to raise issues which were raised before. I have summarised above the matters addressed in SIAC. It seems to me that they do but the extent of overlap is not in the end clear.
One critical aspect of the way the matter is put by the Claimants is that the relevant corpus of evidence, derived from the searches in Libya following the fall of the Qadhafi regime, represents "fresh evidence", allegedly suppressed evidence. I have not been asked to consider any of the evidence that was placed before SIAC or the Courts making decisions in the Control Order proceedings. I have not seen the OPEN evidence or reviewed it, much less the CLOSED material which was presented in those proceedings. It is not clear to me whether, and if so to what extent, this material is indeed fresh, or is different in its implications from the CLOSED material which quite evidently was before the Court.
The Defendants make several salient points on this issue. It is the Defendants' case that the national security cases here were throughout presented without any reliance on detainee evidence. The Defendants submit that in respect of Claimant 2, a large element in the national security case against him before SIAC was based on a website found on a DVD at his home address in the United Kingdom, demonstrating his support for suicide operations. Material from his computer revealed links to the LIFG and demonstrated that he was involved in the production of false documentation. I am not in a position to judge whether the material now produced casts a significantly different aspect on his case or on the significance of his association with the LIFG. The CLOSED material presented to the Court may have borne a very similar interpretation as to the role of the LIFG to that said to emerge from the material discovered more recently.
In relation to Claimant 5, the Defendants submit that the OPEN evidence on national security was almost entirely based on material supplied by the Italian authorities following criminal proceedings in Italy. Again, without being able to compare the material said to constitute fresh evidence with the CLOSED material presented to the Court it is not possible for me to assess the extent to which the evidence recently obtained is truly fresh. I have concluded that that is an important consideration.
Conclusions in Relation to C1 to C5
I summarise my conclusions as follows. Firstly, the statutory provisions in the SIAC Act 1997 do not constitute an absolute statutory bar to private law action in these unusual circumstances. Secondly, the statutory provisions in the PTA 2005 and the TPIM Act 2011 also do not constitute an absolute statutory bar. However, both sets of statutory provisions are intended to confine or constrain challenges to SIAC or Control Order judgments. The legislative schemes in each case underline the need, at the very least, for the Court to be highly vigilant to prevent abuse.
I bear in mind the procedural challenges which would face the Claimants in seeking to re-open SIAC appeals which they won on other grounds. Encouraging such appeals would be undesirable. There are also procedural hurdles facing any attempts by the Claimants in seeking to revive at least some of the Control Order proceedings.
Although there are differences between the "SIAC" and "Control Order" aspects of these claims, it would seem to me highly undesirable for litigation to proceed in an incoherent fashion. Such an outcome would bring complications for all, with enhanced risks of inconsistent and unsatisfactory conclusions.
At the heart of these claims is the suggestion of a suppression of evidence which would or should have altered the conclusions of SIAC (if not the outcome of the appeals) and the outcome of the Control Order proceedings. That is a serious allegation which at least if credible, would require a potential remedy. At the moment, it is not possible for me to compare the ambit of the evidence said to be fresh, or to be clear as to the extent of duplication with the earlier proceedings. I am not able to say whether the evidence advanced is fresh, since I have not been made privy to the CLOSED evidence in either case.
The Defendants argue that it is for the Claimants to show that the evidence is fresh, in the sense that it "entirely changes the case", a requirement identified by Gibson LJ in Walpole v Partridge and Wilson [1994] QB 106, at paragraph 115E. However, I do not see how such a requirement can apply where CLOSED proceedings in the earlier litigation means a Claimant is not privy to all the evidence that was laid against him. He cannot say if it is fresh. Where there is any credible basis for considering that there may be important fresh evidence, then it must be for the Defendants, who seek to strike out the claims, to show that the evidence is not fresh, or not sufficiently material. The same problem would arise if the Claimants were to seek to re-open the SIAC appeals or the Control Order proceedings.
Such matters as these are of real potential public concern and that must weigh in the balance, at least to the extent that an effective process and remedy must be available. Here there can be no criminal appeal. If private law action is struck out, the potential remedies (attempts to re-open SIAC appeals in which the relevant Claimants succeeded, a complex pattern of procedural steps in relation to Control Order proceedings) are varied, carry different procedural and technical thresholds, would result in Hydra-headed litigation and run the risk of incoherence.
In the course of written submissions, the Defendants support their application to strike out the claims by Claimants 1 to 5 on the basis that they have no reasonable grounds, and/or no real prospects of succeeding in their claim. Little or no oral argument was advanced on this basis. I decline to so rule at this stage. If the Defendants seek to renew their application to strike out (see below) then they may renew this aspect of the application, if they see fit to do so.
The Defendants have made it clear throughout that their secondary application, in the absence of strikeout, is a stay upon the claims. In the unusual circumstances of this case I propose to grant a stay for a limited period, initially 56 days. I direct that within that period the Defendants should indicate whether they intend to renew the application to strike out by inviting the Court to look at the CLOSED material which was before SIAC and in the Control Order proceedings. In the absence of such an application, the stay will lapse without further order.
Claimants 11 and 12
Claimant 11, in his judicial review proceedings, recites a number of grounds of challenge, to his nomination by the UK in 2006 to the Sanctions Committee of the UN for designation as an individual associated with Al Qaeda; to his consequential subjection to the Al Qaeda Orders of 2002 and 2006; to his subjection to EC 881/2002. The basis of his nomination was that he was a member of an organisation associated with the LIFG. He also challenges the actions of HMG in failing, then delaying, to seek his de-listing. Following correspondence, he issued judicial review proceedings in November 2008, and was given permission in relation to de-listing in 2009. Following many twists and turns, those proceedings are still extant.
The effect of these Orders was to subject the Claimant to highly restrictive asset-freezing and other similar measures and sanctions, including a travel ban. He was eventually de-listed in June 2011.
This Claimant firstly says he is entitled to a merits-based review of his designation and of the initial decision to refuse to seek his de-listing, and of the legal basis on which those decisions were taken. Secondly, he challenges the decision to designate him to the UN, rather than to invoke an order under The Terrorism (United Nations Measures) Order 2001 and/or 2006 ["a T Order"] with somewhat less draconian impact. Thirdly, Claimant 11 suggests that the 4th Defendant failed to provide all the relevant information in the possession of the UK, exculpatory as well as inculpatory, to the UN Sanctions Committee, and that the UK caused or permitted "false" information to be relied on, a breach said to continue until de-listing.
In his private law action, Claimant 11 pursues claims for misfeasance in public office and conspiracy, again said to stem from information obtained from Libya after the fall of the Qadhafi Regime.
Claimant 12 was subject to UN Security Council designation between October 2008 and January 2011. He therefore fell within the Al Qaeda and Taliban (United Nations Measures) Order 2006, and from December 2008 was subject to the parallel European Commission regime under EC 881/2002. He was de-listed by the UN in December 2010 and the EC in January 2011.
Claimant 12 challenges five "acts" by the UK authorities: the decision to propose him for the list for designation and his inclusion on that list; the delay in seeking his removal from the list and the basis on which it was eventually sought to remove him; lastly the information provided to the UN. He too seeks a merits-based review of the grounds. His initial grounds were dated December 2011. His judicial review proceedings are extant. In his case also, his private law claim seeks damages for misfeasance in public office and conspiracy.
There is obviously no statutory regime said to prevent private law claims in this context. As the Claimants point out, the Defendants do not suggest there are grounds for striking out the private law claims on these facts or on their merits. Nor is there any conclusion of the Court in relation to either Claimant's judicial review proceedings which might lead to inconsistent outcomes.
The Defendants suggest that the private law claims arise from what are "at heart, public law matters" arising from the same facts. The new allegation arising from documents discovered in Libya in 2011, could and should have led the Claimants to reformulate their judicial review claims so that all issues could be addressed within those claims. The Administrative Court, particularly in the course of a "full merits review", is capable of determining the facts and addressing the public law issues arising. The dispute is "essentially a public law dispute". Damages can, of course, be awarded in the course of proceedings in the Administrative Court. To launch private law proceedings is a duplication, and abusive. Alternatively, the private law action should be stayed until the judicial review claims are resolved.
The Claimants respond by pointing out that, if the judicial review claims had not been issued, there could be no suggestion of abuse of process in launching these claims. There is no conclusion of the Court and no question of any collateral challenge to such. Moreover, the allegations now raised, allegedly on the basis of the material discovered in 2011, go far beyond the issues in judicial review: omission of relevant information is far short of misfeasance and conspiracy. The cases are not abusive. They should be consolidated.
I deal with these applications shortly. I find no basis for abuse of process. The principle that duplication of proceedings may be abusive is beyond doubt, and the Court must always have regard to proportionality. It is also clear that an attempt to circumvent the compressed time limits in judicial review by issuing claims in private law form, which are in truth public law challenges, can be an abuse of process, see: Carter Commercial Developments v Bedford BC [2001] EWHC (Admin) 669. However no such device is established here, in my view.
It may well be that the Defendants have valid arguments as to delay in the judicial review proceedings. If so, the arguments remain open in those proceedings. If and to the extent that the Claimants would otherwise succeed on public law grounds, they may fail on time. But the Claimants cannot be deprived of the time limits available for private law action because they issued late judicial review claims on a necessarily more restricted basis in law, and (as they allege) on facts which were then unknown to them. I reach no conclusion here, of course, as to the content or significance of the factual material discovered in 2011.
I therefore refuse the Defendants' application to strike out these claims.
There must be careful directions to consolidate, or try together, the public law and private law claims. The cases will also require careful consideration as to the possibility of CLOSED material procedures pursuant to the Justice and Security Act 2013. I invite the parties to discuss appropriate directions, if possible to be agreed. |
Mr Justice Warby:
On the afternoon of 22 January 2015 I heard an application for an injunction to restrain harassment by persons unknown of Katherine Kerner and her son Jack, aged 9, in various ways including by publication. The application was made by Mr Lawson-Cruttenden on what was described as an emergency basis following events that morning outside the home shared by Katherine and Jack Kerner in Kent.
The background to the application is a case which has received wide publicity in recent days. Mrs Kerner's husband Stuart, a teacher, was convicted on 5 December 2014 of two offences of sexual activity with a child in breach of trust. On 14 January 2015 he was sentenced to 18 months' imprisonment, suspended for 18 months. The sentence has been the subject of considerable comment. A witness statement of Mrs Kerner explained that her husband was the subject of a great deal of press interest, but she did not seek any orders on his behalf. I was told that he and she were not living together. Her application was limited to protecting herself and her son from what she describes as 'paparazzi activity'.
The application was prompted by a series of incidents starting at 6:50am on 22 January, when Mrs Kerner was preparing to leave home to take her son to Breakfast Club at his school, before going to work at a primary school where she is acting head teacher. The statement said that as she left the house Mrs Kerner noticed two cars parked opposite the house. Two men jumped out of them, rushed over to her with photographic equipment and long lenses and immediately engaged in aggressively taking photographs. She ran back into the house and asked them to go away but they did not. One remained for over an hour, continually taking photographs including taking 'intrusive photographs through the front bedroom window' and photographs of Jack.
Mrs Kerner prepared a sign with the words 'Under cl 4 of Editors' Code of Practice Cease and Desist from harassing me and my child.' After about an hour she took this outside and held it in front of her face. The man who had remained took pictures of her with the sign. Asked which publication he was working for and who he was he answered 'freelance' and said nothing further. The man photographed Jack as well. Eventually, at about 8.20am he walked across the road made a phone call and drove away.
Mrs Kerner's statement said that she and her son were "bruised and shocked" by the events they have had to cope with in connection with her husband's conviction and sentence. She described the events of the morning as a "shocking series of incidents which caused me to be harassed and caused myself and my young son anxiety, alarm and distress". She says Jack was "clearly harassed by the events to which we were both subjected". She expressed the view that there was no valid reason for paying attention to her or her son, and expressed concern that these incidents may be repeated. She said she did not know the identities of the two men, though she took some photographs and has the registration number of one of the cars.
On Mr Lawson-Cruttenden's application I permitted Mrs Kerner to act in a representative capacity on behalf of her son pursuant to CPR 19.6. After discussion Mr Lawson-Cruttenden restricted his application to seeking an injunction against the two individuals seen by Mrs Kerner outside her home that morning. I was satisfied that it was legitimate to bring proceedings against those two as persons unknown, as it had been impossible to identify them in the time available. They have been given the pseudonyms WX and YZ, and a description which specifies them as persons who were responsible for the events of the morning of 22 January.
The injunction applied for was solely based on apprehended harassment, within the meaning of the Protection from Harassment Act 1997. It had two limbs. The first, as narrowed down in the course of dialogue during the hearing, sought to restrain harassment by photography or videoing of Mrs Kerner or Jack (defined as "Protected Persons"), or any vehicle or premises belong to or occupied by either of them; or by loitering within an exclusion zone of 100m radius from their home; or by knowingly pursuing either of them.
The second limb of the injunction sought was a restraint on harassment by "publishing or procuring publication by any means whatever … any material identifying a Protected Person or to publish her personal details (including for the avoidance of doubt any names, addresses, telephone numbers, fax numbers, email addresses, car or other vehicle registration numbers or any other material serving to identify any Protected Person)." Mrs Kerner's evidence was that she did not wish any photographs or her, her son, or her property to be reproduced at all, and that any such publication would cause her anxiety, alarm and distress. She said she anticipated that publication was likely and imminent.
I considered s 12 of the Human Rights Act 1998, which was plainly engaged at least by the second limb of the application. I considered that s 12(2) was satisfied in that all practicable steps had been taken to notify the intended defendants of the application. There was no way that they could have been traced and notified in the available time. I was also satisfied that there was a real risk that in the absence of an injunction the conduct of the morning might be repeated by the intended defendants, and that it was on the material before me more likely than not that Mrs Kerner would obtain at a trial relief against harassment by them, by conduct of the kind that was the subject of the revised form of limb one of the application. I therefore granted relief to that effect.
I was not prepared to grant relief on the lines of the second limb of the order sought, or any similar relief, least of all in the absence of notice to those against whom such an order would in practice take effect, that is to say the media. This aspect of the application sought an Interim Non-Disclosure Order and was therefore subject to the Master of the Rolls' Practice Guidance [2012] 1 WLR 100 which contains, under the heading "Notice of application" the following:
"19. HRA s12(2) applies in respect of both (a) respondents to the proceedings and (b) any non-parties who are to be served with or otherwise notified of the order, because they have an existing interest in the information which is to be protected by an injunction (X & Y v Persons Unknown [2007] EMLR 290 at [10] – [12]). Both respondents and any non-parties to be served with the order are therefore entitled to advance notice of the application hearing and should be served with a copy of the Application Notice and any supporting documentation before that hearing.
20. Applicants will need to satisfy the court that all reasonable and practical steps have been taken to provide advance notice of the application. At the hearing they should inform the court of any non-party which they intend to notify of the order as the court is required to ensure that the requirements of HRA s12(2) are fulfilled in respect of each of them. A schedule to any interim non-disclosure order granted should provide details of all such non-parties.
21. Failure to provide advance notice can only be justified, on clear and cogent evidence, by compelling reasons…...
22. Where a respondent, or non-party, is a media organisation only rarely will there be compelling reasons why advance notification is or was not possible on grounds of either urgency or secrecy. …"
It was clear from the draft order that it was intended once an order was obtained to serve it on or give notice of it to "news or media publishers who may show interest in the subject-matter of this claim". None had been forewarned of the application. It was not suggested that attempts had been made to do so, or that there was any compelling reason why this should not be done. In any event, it seemed to me that although it is possible to commit harassment by publication the evidence in this case fell a long way short of establishing a likelihood that this would occur, and the form of order sought was clearly far too broad. These points having been raised by me Mr Lawson-Cruttenden did not pursue that aspect of the application.
The form of order sought was not based on the Model Order attached to the Practice Guidance. Although the injunction I granted was not one that represented an interference with the right to publish information, it was an injunction against persons unknown involved in the news media, and aspects of the Model Order were appropriate for this case. I therefore required undertakings similar to those set out in Schedule B of the Model Order, and the insertion of a paragraph in substantially the form of paragraph 5 of the Model Order. I granted relief until a Return Date and not until trial or further order as sought. |
Mr Justice Warby:
This is the return date of the injunction I granted upon the claimant's application of 22 January 2015, to restrain persons unknown from harassing her and her son. The background and reasons for granting that injunction are set out in the judgment I handed down on of 27 January 2015, [2015] EWHC 128 (QB). The claimant now applies for that injunction to be continued.
The claimant has made a further witness statement explaining the steps she has taken since the grant of the injunction, in compliance with undertakings she gave the court, to attempt to identify the defendants. She has given notice of the injunction to three newspaper groups, none of which has responded. She has contacted the DVLA in an attempt to trace the registered keeper of the car driven by one of the defendants, the registration number of which she took during the events complained of. It seems that she will have to wait up to 4 weeks for that information.
The claimant confirms that she will serve proceedings if and when she identifies a defendant but at the moment, neither defendant has been served and neither is before the court nor has either made any representations. It is far from clear that the enquiries currently under way will lead to the identification of a defendant. If they do, they may not lead to the identification of both defendants. The claimant states that if she identifies the driver she will seek to obtain from him the identity of the other defendant, but he may not co-operate.
In those circumstances I have had to consider how this case should be managed at this stage: what form of order is appropriate at this stage, and what if any steps should be required of the claimant, other than those she has already undertaken to carry out.
I am satisfied that the need for the injunctions I granted last week has not expired, and they should be continued. I have therefore made an order that they continue until trial or further order. I have however required the claimant not only to renew, in relation to this further order, her undertaking in damages and the undertaking she gave previously to keep third parties informed of the progress of the claim, but also to give an undertaking in the following terms:
"if, despite the reasonable endeavours which on 22 January 2015 the Claimant undertook to use to trace the Defendants she has been unable to do so within three months after the date of this Order she will apply to a Judge for directions as to the further conduct of this action."
The purpose of requiring this undertaking is to ensure that the interim order I make today does not by default become in effect a permanent one, because the defendants cannot be traced. There are ways of bringing to a conclusion an action against persons unknown who cannot be traced. The general issue is addressed in paragraph 41 of the Master of the Rolls' Practice Guidance [2012] 1 WLR 100 as part of a section headed "Active Case Management":
"Where an interim non-disclosure order, whether or not it contains derogations from open justice, is made, and return dates are adjourned for valid reasons on one or more occasions, or it is apparent, for whatever reason, that a trial is unlikely to take place between the parties to proceedings, the court should either dismiss the substantive action, proceed to summary judgment, enter judgment by consent, substitute or add an alternative defendant, or direct that the claim and trial proceed in the absence of a third party (XJA v News Group Newspapers [2010] EWHC 3174 (QB) at [13]; Gray v UVW [2010] EWHC 2367 (QB) at [37]; Terry at [134] – [136]). "
This guidance relates to actions involving interim non-disclosure orders which affect the Convention right to freedom of expression. Active case management in accordance with this guidance is of particular importance in cases of that kind. The injunctions in this case do not include non-disclosure provisions. However, they do relate to the activities of individuals who are involved with the news media and some at least of the principles that apply in non-disclosure cases are applicable on that account. It is in any event inconsistent with modern litigation principles for the court to allow an interim orders to remain in place with the case otherwise "going to sleep".
Active case management in such actions is only practicable if the action is brought before the court to enable such management to take place. Unless an order is made or an undertaking is given that ensures the case will be brought back, the risk exists that it will simply lie dormant.
I express no view at this stage as to what might be appropriate means of disposing of this claim if the defendants or one of them cannot be traced and served. That issue can be addressed if and when the need arises. What would not be appropriate, however, is to leave an interim order in force in perpetuity. |
MR. JUSTICE MITTING :
On 28th March 2008, a prostitute took video footage of the claimant on a concealed camera provided to her by a News of the World journalist while he was engaged in private sexual activity in a flat in Chelsea. Still images from the footage were published prominently in the News of the World newspaper on 30th March 2008, and edited footage was displayed on the News of the World website on 30th and 31st March 2008. The newspaper and website were viewed by millions of people.
After a trial in July 2008, in a judgment handed down on 24th July 2008, Eady J found that the claimant had a reasonable expectation of privacy in relation to sexual activities which had been infringed by publication of the images and footage, and awarded him £60,000 compensatory damages and a permanent injunction restraining NGN Limited, publishers of the News of the World, from republishing them. No injunction was made against persons who were not parties to the action.
The claimant hoped that the successful outcome of his litigation and the deterrent effect which it would have on persons minded to republish the images or footage would lead to a gradual loss of interest in these events. To a degree, this has happened; but persons other than NGN still maintain posts of the images on websites accessible by search engines on the internet.
Google Inc, a US corporation incorporated in Delaware, operates the most commonly used search engine in the United Kingdom and within the European Economic Area. It has a policy of blocking access to individual Uniform Resource Locators (in common parlance, precise website addresses or pages) when identified to them by the claimant and his solicitors. This has been effective in relation to each such site. But as the claimant's solicitor, Mr. Crossley, has demonstrated in paragraph 28 of his third witness statement of 12th December 2014, it is a Sisyphean task; even when a number of sites are blocked, many remain and some appear anew. It is at least arguable that this means of blocking access to the images is insufficiently effective to secure their disappearance from view.
By a claim form issued on 23rd July 2014, the claimant claimed damages and injunctive relief against Google Inc and its wholly owned UK subsidiary, Google UK. Permission to serve the claim form on Google Inc was granted by Master Fontaine on 1st August 2014. Both defendants then applied to strike out the claim and/or for judgment to be entered in their favour on the basis that it had no real prospect of success.
The claim against Google UK has been, or will shortly be, discontinued. I need, therefore, only consider that against Google Inc (which I will refer to hereafter as Google).
The claim is put in two ways:
(1) At common law, for misuse of personal information by publishing it, by the means by which Google software directs searches to website addresses displaying the images;
(2) Under sections 10 and/or 13 and 14 of the Data Protection Act 1998.
For a variety of reasons canvassed in the course of argument, the first claim is, from the point of the view of the claimant, at best deeply problematic. Both parties have sensibly accepted my suggestion that I should not determine Google's application in relation to it, but either stay this part of the claim or order the second part to be determined as a preliminary issue.
I think that the right course is to stay it. In that way, it can only proceed if, on application by the claimant, following determination of the remainder of his claim, he can persuade a court that he has a viable claim on the first basis which should proceed to trial. If he succeeds on the remainder of his claim, he is unlikely to think it sensible to revive the first basis of claim, and a court would be unlikely to permit him to do so, for it would serve no purpose. If he fails, I strongly doubt that the first basis of claim would be or become viable.
The Data Protection Act 1998 was enacted to give effect to Directive 95/46/EC of the European Parliament and of the Council of 24th October 1995, "the Data Protection Directive". Important policy considerations to which the Directive gives effect are set out in Recitals (2) and (10).
"(2) Whereas data-processing systems are designed to serve man; whereas they must, whatever the nationality or residence of natural persons, respect their fundamental rights and freedoms, notably the right to privacy, and contribute to economic and social progress, trade expansion and the well-being of individuals".
"(10) Whereas the object of the national laws on the processing of personal data is to protect fundamental rights and freedoms, notably the right to privacy, which is recognised both in Article 8 of the European Convention for the Protection of Human Rights and Fundamental Freedoms and in the general principles of Community law; whereas, for that reason, the approximation of those laws must not result in any lessening of the protection they afford but must, on the contrary, seek to ensure a high level of protection in the Community."
The first of the two principal objectives of the Directive are set out in Article 1.
"1. In accordance with this Directive, Member States shall protect the fundamental rights and freedoms of natural persons, and in particular their right to privacy with respect to the processing of personal data".
Subject to exceptions which are not relevant for present purposes, Member States are required to prohibit the processing of personal data concerning sex life (see Article 8.1).
"Processing of personal data" is defined in Article 2(b) as "any operation or set of operations which is performed upon personal data whether or not by automatic means, such as collection, recording, organisation, storage, adaptation or alteration, retrieval, consultation, use, disclosure by transmission, dissemination or otherwise making available, alignment or combination, blocking, erasure or destruction".
The Directive applies to the processing of personal data wholly or partly by automatic means (see Article 3.1). Data must be processed by someone. That person is known as a "controller", as defined by Article 2(d), "the natural or legal person, public authority, agency or any other body which alone or jointly with others determines the purposes and means of the processing of personal data".
The Data Protection Directive sets out principles which must govern data processing, and, by Article 22, requires Member States to provide a judicial remedy for any breach of the rights guaranteed by national law. With one qualification, which is the subject of a pending appeal about the transposition of Article 23.1 of the Directive into section 13 of the 1998 Act, that Act transposes the Directive into UK law in a manner which is consistent with it.
The definitions of "data", "data processing" and "data controller" in section 1 are, effectively, identical. Sensitive personal data includes information as to a person's sexual life (see section 2(f)). The principles are set out in Schedule 1.
Sections 10, 13 and 14 set out the means by which anyone concerned about the processing of his personal data, including sensitive personal data, may seek redress.
"10. Right to prevent processing likely to cause damage or distress.
(1) Subject to subsection (2), an individual is entitled at any time by notice in writing to a data controller to require the data controller at the end of such period as is reasonable in the circumstances to cease, or not to begin, processing, or processing for a specified purpose or in a specified manner, any personal data in respect of which he is the data subject, on the ground that, for specified reasons –
(a) the processing of those data or their processing for that purpose or in that manner is causing or is likely to cause substantial damage or substantial distress to him or to another, and
(b) that damage or distress is or would be unwarranted"….
"(4) If a court is satisfied, on the application of any person who has given a notice under subsection (1) which appears to the court to be justified (or to be justified to any extent) that the data controller in question has failed to comply with the notice, the court may order him to take such steps for complying with the notice (or for complying with it to that extent) as the court thinks fit. "
Subsection (3) provides for a response by the data controller.
"13. Compensation for failure to comply with certain requirements.
"(1) An individual who suffers damage by reason of any contravention by a data controller of any of the requirements of this Act is entitled to compensation from the data controller for that damage."
(2) An individual who suffers distress by reason of any contravention by a data controller of any of the requirements of this Act is entitled to compensation from the data controller for that distress if --
(a) the individual also suffers damage by reason of the contravention, or
(b) the contravention relates to the processing of personal data for the special purposes."
Those are not relevant for present purposes.
"14. Rectification, blocking, erasure and destruction.
(4) If a court is satisfied on the application of a data subject --
(a) that he has suffered damage by reason of any contravention by a data controller of any of the requirements of this Act in respect of any personal data, in circumstances entitling him to compensation under section 13, and
(b) that there is a substantial risk of further contravention in respect of those data in such circumstances, the court may order the rectification, blocking, erasure or destruction of any of those data".
By two notices served on 20th December 2011 and 18th June 2014, the claimant's solicitors required Google to cease processing the images under section 10 of the 1998 Act. Google responded that it was not a data controller and that the notices did not identify the personal data in respect of which it was given or the steps required to cease processing it.
Until 13th May 2014, when the judgment of the Grand Chamber of the Court of Justice was handed down in Google Spain SL v. Agencia Espanola de Proteccion de Datos, [2014] QB 1022, "Costeja", the general view was that an internet service provider such as Google was not a "controller" of data even though it processed it (see, for example, the opinion of the Advocate General in Costeja, at paragraph 100).
The Grand Chamber established unequivocally that it was, for the reasons which it explained in paragraphs 21, 28, 33 to 34, and 38 of its judgment. Its conclusion is set out in paragraph 41.
"It follows from all the foregoing considerations that the answer to question 2(a) and (b) is that Article 2 (b) and (d) of Directive 95/46 are to be interpreted as meaning that, first, the activity of a search engine consisting in finding information published or placed on the internet by third parties, indexing it automatically, storing it temporarily and, finally, making it available to internet users according to a particular order of preference must be classified as 'processing of personal data' within the meaning of Article 2(b) when that information contains personal data and, second, the operator of the search engine must be regarded as the 'controller', in respect of that processing, within the meaning of Article 2(d)".
Mr. White Q.C., for Google, therefore, sensibly concedes in this case that Google is the data controller for the purpose of the 1998 Act and, in particular, of section 10.
On a straightforward reading of section 10, provided that the claimant proves that he has suffered or is suffering substantial unwarranted damage or distress as a result of the processing of his personal data by Google (as he says he has) and has given written notice to Google (as he has done) and Google do not advance any reason for stating that the notice is unjustified, the claimant is entitled to ask the court to order Google to take such steps as it thinks fit to comply with the notice and the court is entitled so to order.
Apart from the reasons of principle set out below, Google does not give any reason why the notice is unjustified. The claimant's assertion that he has suffered substantial unwarranted distress is plainly capable of belief, and, if so, founding the remedy which he seeks. Subject, therefore, to Google's argument of principle, the claimant's claim for relief under section 10 is at least reasonably arguable.
His claim for monetary compensation and relief under sections 13 and 14 depends on proof of damage, as to which there is a pending appeal to the Court of Appeal in another case. I propose to stay that part of his claim until that appeal has been decided.
Google's objections of principle are founded on Directive 2000/31/EC of the European Parliament and of the Council on 8th June 2000, the E-Commerce Directive. The principal objective of this Directive is identified in Recital (2) and Article 1.1.
"(2): The development of electronic commerce within the information society offers significant employment opportunities in the Community, particularly in small and medium-sized enterprises, and will stimulate economic growth and investment in innovation by European companies, and can also enhance the competitiveness of European industry, provided that everyone has access to the Internet."
Article 1.1:
"This Directive seeks to contribute to the proper functioning of the internal market by ensuring the free movement of information society services between the Member States."
The Directive applies to, amongst others, internet service providers such as Google who facilitate the obtaining of information provided by others via the internet. It is unnecessary to set out the somewhat technical definitions which achieve that result because it is common ground that it is so.
It provides a significant degree of protection for them in section 4. Article 12 applies to internet service providers who merely provide a conduit for the flow of information. Article 14 applies to those who store information. Article 13 applies to internet service providers such as Google who operate a search engine.
To appreciate its effect it is necessary to understand how a search works. It has been helpfully explained by Mr. Barker, Google's solicitor, in section two of his first witness statement of 29th October 2014. There are about 60 trillion web pages posted onto the internet of which about 30 billion are indexed and so accessible via a search engine. Over 1.2 trillion searches a year are made. Each web page is identified by a unique string of characters known as the Uniform Resource Locater.
So, too, are images deployed on a web page. As this case only concerns images I will confine the remainder of the explanation to images. A person searching for an image will click on to a "thumbnail" of the image; a copy of the original reduced in size and definition so as to reduce the computing power required to identify and display it. The "thumbnail" is stored in a "cache". All this is done automatically.
Subject to recent steps which have been devised to block access to child sexual abuse imagery, Google exercises no control over the content of images displayed on the website and cached. When an internet user keys in search words, "thumbnails", if relevant, may be displayed. Searchers can then click on the "thumbnails" and see displayed a full-sized copy of the original image. The order in which "thumbnails", like other material, is displayed in response to a search is determined by an algorithm without human intervention.
Article 13 affords legal protection to internet service providers such as Google who "cache" information and images. Article 13:
"Caching". 1: Where an information society service is provided that consists of the transmission in a communication network of information provided by a recipient of the service, Member States shall ensure that the service provider is not liable for the automatic, intermediate and temporary storage of that information, performed for the sole purpose of making more efficient the information's onward transmission to other recipients of the service upon their request, on condition that:
(a) the provider does not modify the information;
(b) the provider complies with conditions on access to the information;
(c) the provider complies with rules regarding the updating of the information, specified in a manner widely recognised and used by industry;
(d) the provider does not interfere with the lawful use of technology, widely recognised and used by industry, to obtain data on the use of the information; and
(e) the provider acts expeditiously to remove or to disable access to the information it has stored upon obtaining actual knowledge of the fact that the information at the initial source of the transmission has been removed from the network, or access to it has been disabled, or that a court or an administrative authority has ordered such removal or disablement."
That conditional exemption is subject to a proviso set out in Article 13.2:
"This Article shall not affect the possibility for a court or an administrative authority, in accordance with Member States' legal systems, of requiring the service provider to terminate or prevent an infringement."
Member States are also prohibited from imposing a general obligation to monitor the internet by Article 15:
"No general obligation to monitor. 1. Member States shall not impose a general obligation on providers, when providing the services covered by Articles 12, 13 and 14, to monitor the information which they transmit or store, nor a general obligation actively to seek facts or circumstances indicating illegal activity."
Mr. White submits that the effect of these provisions is conditionally to exclude legal liability on an internet service provider for information and images retrieved by a user via a search engine. A decision of the Court of Appeal under Article 12, the "mere conduit" provision upholding the reasoning of Kenneth Parker J in British Telecom plc and The Culture Secretary [2011] 3 CMLR 5 at paragraph 102, supports his proposition and binds me.
Kenneth Parker J was dealing with intellectual property rights, and in that context said:
"It seems to me, particularly in the light of that legislative history, that liability 'for the information transmitted' is a carefully delineated and careful concept. As regards copyright material, this language is broadly contemplating a scenario in which a person other than the ISP has unlawfully placed the material in the public domain or has unlawfully downloaded such material, and a question then arises whether the ISP, putatively a mere conduit for the transmission of the information, also incurs a legal liability in respect of the infringement. That liability could take the form of a fine (in criminal or regulatory proceedings) or damages or other compensation payable to the copyright owner, or some form of injunctive relief."
He considered that the effect of Article 12 was to exclude such liability. The Court of Appeal upheld his reasoning at 2012 Business Law Reports 1766, at paragraph 53.
Mr. Tomlinson QC, for the claimant, submits that that reasoning does not avail Google in this case for three reasons. (1) Google has modified the images and so does not fulfil the condition in Article 13.1(a); (2) the E-Commerce Directive has no application to the processing of personal data, which is governed exclusively by the Data Protection Directive and the 1998 Act; (3) if it does, the proviso in Article 13.2 applies and either permits or requires the court to provide a remedy to a person whose data protection rights have been infringed.
Though others have expressed doubts about Mr. Tomlinson's first proposition, I have no doubt that on the evidence Google does not modify images when it reduces them to "thumbnails". All that it does is to reduce their size and definition. The image conveys precisely the same information and impression to the viewer as does the original. In my judgment, for an image to be modified the information and impression given to a viewer must be altered by, for example, the alteration of the image itself or the addition of something, including text, to it.
His second and third points are of more substance. Recital 14 of the E-Commerce Directive states:
"The protection of individuals with regard to the processing of personal data is solely governed by Directive 95/46/EC of the European Parliament and of the Council of 24th October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data....these Directives already establish a Community legal framework in the field of personal data and therefore it is not necessary to cover this issue in this Directive in order to ensure the smooth functioning of the internal market, in particular the free movement of personal data between Member States; the implementation and application of this Directive should be made in full compliance with the principles relating to the protection of personal data, in particular as regards unsolicited commercial communication and the liability of intermediaries; this Directive cannot prevent the anonymous use of open networks such as the Internet."
Effect to that policy is given by Article 1.5(b) which states:
"This Directive shall not apply to.... (b) questions relating to information society services covered by Directives 95/46/EC...."
The issue was not addressed by the Grand Chamber in Costeja but the Advocate General did refer to the E-Commerce Directive in his opinion at paragraphs 36 and 37. If, as Mr. White contends, Google could have been under no legal liability as "controller", the conclusion reached by the Grand Chamber is at least inconsistent with that contention.
Two conclusions seem to me to be possible: (1) Mr. Tomlinson's primary submission is right. The Data Protection Directive provides, subject to one final point on monitoring, a comprehensive and exclusive code governing the obligations of internet service providers; (2) the two Directives must be read in harmony and both, where possible, must be given full effect to. This was the opinion of the Italian Court of Cassation in Milan Public Prosecutor's Office v Drummond, 12th December 2013, at paragraph 7.4.
My provisional preference is for the second view. Leaving aside legal niceties, what matters is whether or not a person whose sensitive personal data has been wrongly processed by an internet service provider can ask the court to order it to take steps to cease to process that data.
Article 22 of the Data Protection Directive, section 10 of the Data Protection Act, and Article 13.2 of the E-Commerce Directive are as one in permitting it, and Article 18 of the E-Commerce Directive requires that a judicial remedy is available:
"Member States shall ensure that court actions available under national law concerning information society services' activities allow for the rapid adoption of measures, including interim measures, designed to terminate any alleged infringement and to prevent any further impairment of the interests involved."
Whichever way this interesting issue is to be decided, the claimant plainly has a legal remedy which the court may grant.
Mr. White's final submission is that on the facts Article 15 of the E-Commerce Directive prohibits the making of the orders sought because what the claimant requires amounts to general monitoring. At first blush, the prohibition on general monitoring does not apply to monitoring in a specific case. This impression is supported by Recital (47) of the E-Commerce Directive:
"Member States are prevented imposing a monitoring obligation on service providers only with respect to obligations of a general nature; this does not concern monitoring obligations in a specific case and, in particular, does not affect orders by national authorities in accordance with national legislation."
However, the jurisprudence of the Court of Justice suggests otherwise. In L'Oreal SA and eBay International AG [2012] Bus LR 1369, at paragraph 139, the court stated:
"First, it follows from article 15(1) of Directive 2000/31, in conjunction with article 2(3) of Directive 2004/48, that the measures required of the online service provider concerned cannot consist in an active monitoring of all the data of each of its customers in order to prevent any future infringement of intellectual property rights via that provider's website."
This lead the General Court to discharge an order requiring the installation of a filtering system to prevent file sharing in breach of copyright in SABAM (No.1) C-70/10, 24 November 2011, [2012] ECDR 4, because it involved active observation of all electronic communications conducted on the network.
It should be noted, however, that the Grand Chamber in L'Oreal also stated, at paragraph 144, in relation to trade mark infringement that:
"In view of the foregoing, the answer to the tenth question is that the third sentence of article 11 of Directive 2004/48, must be interpreted as requiring the member states to ensure that the national courts with jurisdiction in relation to the protection of intellectual property rights are able to order the operator of an online marketplace to take measures which contribute, not only to bringing to an end infringements of those rights by user of that marketplace, but also to preventing further infringements of that kind. Those injunctions must be effective, proportionate, dissuasive and must not create barriers to legitimate trade."
In my judgment, no lesser standard is to be expected in upholding the rights of individuals to have sensitive personal information lawfully processed. The evidence which I have is not such as to permit a judgment to be made now on whether or not the steps required by the claimant would involve monitoring in breach of Article 15(1) of the E-Commerce Directive.
Given that it is common ground that existing technology permits Google, without disproportionate effort or expense, to block access to individual images, as it can do with child sexual abuse imagery, the evidence may well satisfy a trial judge that it can be done without impermissible monitoring. Accordingly, even if monitoring is not permissible in a data protection case, as to which I express no view, the claimant has a viable case on this issue, which might well succeed.
For all of those reasons, in my judgment, the claimant's primary case on the issues which I have identified is not such that it has no real prospect of success. On the contrary, it seems to me to be a viable claim which raises questions of general public interest, which ought to proceed to trial.
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Sir David Eady :
Introduction
The Claimants seek to have the First Defendant, Mr Jay Tiernan, committed for contempt of court and they rely upon nine alleged breaches of an interim injunction, which was originally granted by Turner J on 22 August 2013, and then continued by Popplewell J in the same terms on 5 September 2013 until trial or further order. The purpose was to seek to prevent interference with a badger cull due to take place in the autumn of 2013 by way of a pilot scheme in West Gloucestershire and West Somerset. It was hoped that it might be possible thereby to reduce the incidence of bovine tuberculosis. The proposal was undoubtedly controversial, but it has been established that it was in accordance with law.
Mr Tiernan is and was at the material times a spokesman for the unincorporated association known as The Coalition of Badger Action Groups ("CBAG"), which forms a part of the movement to stop the culling.
The Protection of Badgers Act 1992 enables the Secretary of State to grant licences authorising the killing of badgers for the purpose of preventing the spread of disease: see s.10(2)(a). Licences had been granted in 2012 and it was in accordance with these that the pilot cull was to take place. There had been a challenge to the legality of the cull before the courts, but this had been rejected both at first instance and on appeal.
Each allegation has to be proved to the criminal standard and, for this purpose, Ms Michalos called each of the deponents relied upon and tendered them for cross-examination. Mr Tiernan adduced no evidence himself, although he had earlier put in an unsworn and unsigned document, described as an "affidavit", but which did not even contain a statement of truth. He had been given a number of opportunities in correspondence to seek legal advice, and was informed of the possibility of public funding for that purpose, but he chose to represent himself and took the opportunity to cross-examine some of the witnesses and to make submissions.
The order continued by Popplewell J contained the following provisions at paragraph 3, namely that:
"… the Defendants must not (whether by themselves, their agents or any person acting on their behalf) and must not procure, incite, aid, abet or encourage any other person to do any of the following inter alia:
Enter on to any privately owned land within the Cull Zone (as defined in that order [i.e. that of Turner J]) without the express or implied consent of the owner or lawful occupier of that land excluding any public rights of way.
Harass or intimidate any Protected Person (as defined in that order [i.e. that of Turner J]) by photographing or filming any such Protected Person, any vehicle used or owned by a Protected Person and/or any land, premises or house belonging to or occupied by any Protected Person.
Use, publish, communicate or disclose (whether on the internet or howsoever) any still or moving images from which any Protected Person, their vehicle, home, farm or premises can be identified whether from the image alone or in conjunction with other information.
Use, publish, communicate or disclose (whether on the internet or howsoever) to any other person (other than by way of disclosure to legal advisers instructed in relation to these proceedings for the purpose of obtaining legal advice in relation to these proceedings, or for the purpose of carrying this order into effect)
a. The residential address of any Protected Person or any images that would allow such address to be identified;
b. The telephone or fax number or numbers (including mobile telephone numbers) of any Protected Person;
c. The email address of any Protected Person;
d. The vehicle registration number or numbers of any vehicles owned or used by any Protected Person or any images that would allow such vehicles to be identified; and
e. Any information that would cause or allow any Protected Person to be identified as associated with or participating in the Cull whether alone or in combination with other information
Without the express written consent of the respective Protected Person, save that nothing in the order prohibits identification of the Individual Claimants by name alone (and occupation and representative capacity in this action) for purposes of a fair and accurate report of these proceedings
Cause, encourage or procure publication or communication of any Personal Information aforesaid of any Protected Person whether directly or indirectly by any means whatsoever including but not limited to publishing or communicating hyperlinks to websites where any such Personal information may be available or by a third party publisher.
Any acts which amount to harassment of any Protected Person."
It was further ordered that: "The Defendants are required to notify their members of the fact that the Order has been made by posting on any websites identified in this paragraph and on any other website they publish or may in future publish: (a) that a Court Order has been made prohibiting activity in the Cull Zone and (b) post a copy of the Order on the following websites (save in the case of twitter.com by posting a link to a copy of the Order) and to maintain a copy of this Order on such websites until the conclusion of trial or further order of the Court as follows:
the First Defendant on:
www.badger-killers.co.uk
www.stopthecull.net
www.facebook.com/freeda.brocks.5
www.facebook.com/stopthecull
http://www.youtube.com/channel/UC4Tnh6-evf-ZBNBLgVWPdkQ
https://plus.google.com/109049615381794069089#s/freeda%20brocks
https://twitter.com/freebrocks
and using his best endeavours to procure the posting on www.badger-killers.com."
The First Defendant was in court on 22 August 2013 when Turner J made the original interim order and was aware of its terms. Provision was also made in the order for the Claimants to have permission to serve the order, claim form and other documents by any of the alternative methods on the First Defendant, either by email transmission to [email protected] or by first class post to CBAG, c/o Kebele, 14 Robertson road, Easton, Bristol BS5 6JY. Service of the 22 August order was effected on the First Defendant by an email at 13.15 the following day and by first class post to the permitted addresses. There was a response from the First Defendant by email at 14.29 on 23 August, showing that he had in fact received the email notification.
It is now alleged by the Claimants in the Amended Particulars of Application for Committal dated 17 October 2014 that Mr Tiernan has been in breach of the order in a number of respects. I shall consider these individually, using the numbering in the schedule prepared by Ms Michalos and attached to her skeleton argument.
(1) Failing to notify members of CBAG by way of the listed websites
It was provided in both the first interim injunction (at paragraph 13) and the later continuation order (at paragraph 10) that each Defendant was to notify members of the fact that the order had been made via specified websites and social media sites. This was for the obvious reason that it can be very difficult in such circumstances for a claimant, if it becomes appropriate to commence proceedings for contempt, to establish that the relevant respondent had the necessary knowledge. It is alleged that this Defendant failed to take any steps to comply with this mandatory order so far as members of CBAG were concerned. Mr Peter Singfield, the Claimants' solicitor, confirmed that the order was never posted in accordance with that requirement. Indeed, he has pointed out that some person or persons, on the contrary, had posted comments on the Stop the Cull Facebook page on 19 August 2013 to the effect that no one should talk about any court order in case they were thereby, not only revealing their own awareness, but effectively fixing the recipients of that information with knowledge of the order:
"[T]here is one simple rule about injunctions, you don't talk about them.
If you do, then you serve them on everyone else reading the post. Don't ask questions about injunctions, if you hear about an injunction DO NOT COMMENT ABOUT IT ON FACEBOOK OR TWITTER"
This occurred between the service of the application for an injunction (16 August) and the hearing before Turner J (22 August).
The significance of this tactic, obviously, was to warn people involved in the anti-cull activities that they might be liable for criminal contempt if they were to act inconsistently with the order even if they were not parties to the litigation and/or had not been formally served. This is known as the Spycatcher principle: see e.g. Att.-Gen. v Newspaper Publishing Plc [1988] Ch 333 and Att.-Gen. v Times Newspapers Ltd [1992] 1 AC 193. It is suggested that this evidence demonstrates not merely non-compliance but positive defiance of the court and a determination to frustrate its purpose. It is consistent also with other evidence from Mr Singfield to the effect that, immediately after the injunction was granted by Turner J, Mr Tiernan was reported by the BBC as saying to journalists that it would "make absolutely no difference whatsoever". That is a challenge, of course, to the rule of law in a democratic society.
Mr Tiernan does not see it like that, and he made the point that he does not have a "disrespect for the law" – only for badger culls and also, incidentally, for the NFU. That is muddled reasoning, because the law is reflected inter alia in the 1992 statute and also in the various decisions of the court which have, after due process, both upheld the legality of the culls and taken steps to protect the Claimants' rights and interests.
Mr Tiernan did not give evidence, as I have said, but he did make submissions in this context to the effect that the Claimants had not proved their case. There is no evidence, he claims, that the terms of the order have not been publicised. While he is certainly entitled to have the case against him proved to the required standard, that burden has been discharged in this particular instance by the evidence of Mr Singfield, to which I have already referred. There is nothing to put in the scales on the other side, for example to the effect that Mr Tiernan had tried to publicise the order through the means specified but, for one reason or another, had failed despite his "best endeavours" (to which the order makes express reference in the context of www.badger-killers.com).
I am therefore satisfied in relation to the first of the allegations of contempt that the case has been proved beyond reasonable doubt.
(2) Harassing a Protected Person (Vivian Sellick) on 30 October 2013
The next four allegations of breach relate to Mr Vivian Sellick, who gave evidence before me and was cross-examined by Mr Tiernan. The incident mainly concerns what took place on 30 October 2013 at his farm in Somerset, where he has lived for the past 58 years. His land forms part of the Cull Zone and has been subject to restrictions for much of the last ten years following incidents of bovine TB. He has lost some 200 cattle over that period because of the government's policy of slaughtering those infected.
He gave evidence in particular about the events of 30 October 2013, but I was assisted also by viewing a video recording made that morning, which had been posted on the internet and was also shown in the course of the hearing.
In the course of cross-examination, Mr Tiernan asked Mr Sellick whether he had felt intimidated or alarmed by his presence on that occasion, to which he replied that he had. There is no need to go into the detail of what happened that morning. He had been called out by his contractor, who was authorised to cage, trap and despatch badgers, between 7.00 and 7.30. He asked for his assistance because he had spotted activists nearby and needed to despatch a badger which had been trapped overnight. There was also a police officer present. The police officer told him that an activist had been present, but he had now apparently left the scene. Thus reassured, Mr Sellick thought it safe to take his firearm out of the vehicle, which he did and went to despatch the badger in the cage trap. He then made the firearm safe and took the body out of the trap. He needed to take a DNA sample by taking a clipping from the ear and then to place the badger in a clear bag followed by an opaque bag. He then realised that an activist was again on the scene. He was concerned that he was still carrying his firearm and sought to expedite matters by placing the body directly into the opaque bag, to save time, so that he could leave the location as quickly as possible and not become involved with the activist. At this point a man in camouflage, later confirmed as Mr Tiernan, was filming what took place.
Later that day, the video which Mr Tiernan had made was uploaded and published on YouTube via a user called "freeda brocks". Mr Tiernan argues that the restrictions imposed by the injunction apply only to the process of culling so long as it is lawfully conducted and, in effect, that he is entitled to police the culling process to see whether it is indeed being carried out lawfully. On this occasion, Mr Sellick had breached the rules by placing the carcase into an opaque bag directly without putting it into clear bag first. This only happened, according to Mr Sellick, because an activist was present (Mr Tiernan) and he was anxious to avoid contact. This was later accepted by the relevant authorities as mitigation for the breach, which otherwise would not have happened.
In any event, none of this is relevant to the allegations of breach of a Court Order. It provides no defence to Mr Tiernan. I am satisfied that he did harass and intimidate a Protected Person by filming him and his vehicle in breach of paragraphs 3(9) and (13) of the order.
(3) Publication of a film from which Vivian Sellick and his vehicle could be identified
Since Mr Tiernan had taken the film earlier that day himself, he is clearly responsible also for the fact that it found its way, directly or indirectly, on to the internet. That was in breach of paragraphs 3(10) and 3(11)(e) of the order.
(4) Posting a film from which the registration number of Vivian Sellick's vehicle was identifiable
The number of Mr Sellick's vehicle was plainly identifiable from the film and that was a breach of paragraph 3(11)(d). I do not accept the argument that one could only identify the vehicle if one had access to the confidential records of vehicle licence numbers. That was plainly not what the Judges had in mind when making the relevant orders. No doubt local people would be able to recognise the vehicle and any activist who wished to do so could take the number down from the film for future reference.
(5) Harassing Vivian Sellick by posting the film
Again, the posting of the film would in itself clearly harass Mr Sellick in the fraught circumstances in which he found himself at that time. There was considerable anxiety among all those involved in the cull as to what reprisals or intimidation might take place if they were identified to activists. Additionally, therefore, there was a breach of paragraph 3(13) of the order. (I am conscious, of course, that there is considerable overlap between these various breaches and that will need to be borne in mind as and when it comes to considering the imposition of separate penalties.)
(6) Entering on land owned by Rupert Dod within the Cull Zone on 17 September 2014
This allegation relates to events, almost a year later, on 17 September 2014. Mr Dod gave evidence and was briefly cross-examined. He told me that he had been able to recognise his farm when shown a clip from a BBC Points West. He was shown it on 18 September 2014, the day after it had been broadcast. That demonstrated quite clearly that Mr Tiernan (whom he recognised) had entered on to his land without permission in breach of paragraph 3(1) of the order.
(7) Harassing a Protected Person (Rupert Dod) by trespassing and filming
Mr Tiernan asked Mr Dod what was the evidence of harassment, to which he replied, according to my note, "You were on my property. I am a target of activists". I can quite understand that answer. He knew that Mr Tiernan was an activist and that he had been made the subject of an injunction. It is only natural that he should feel harassed and intimidated if he should thereafter find Mr Tiernan on his land and making a filmed record. This was a breach both of paragraph 3(9) and paragraph 3(13).
(8) Making excessive noise within 25m of Rupert Dod's land within the Cull Zone
Mr Dod also gave evidence about the use of a whistle in the vicinity of his land (within 25m). This was for the purpose of disturbing badgers and/or obstructing Protected Persons and thus in breach of paragraph 3(7)(iii) of the order. He had seen this taking place at 1 min 29 seconds into the BBC film. Even if Mr Tiernan did not know exactly where the boundary of the land was at the time, he was in fact according to the evidence of Mr Dod within the prohibited area. That is what matters. It would be his responsibility to ensure that he was not within a relevant area.
(9) Demonstrating within 25m of the business premises occupied by the NFU on 17 September 2014
This allegation relates also to events in September 2014, but which took place outside the NFU premises at New Agriculture House, Blackbrook Park Avenue, Taunton TA1 2FU. The evidence is that of Ms Nina Winter, who is the Chief Legal Adviser at the NFU. She sets out her knowledge of "an incident or incidents which occurred between 4 September 2014 and 18 September 2014, in which the First Defendant appeared at an NFU Office near Taunton". She refers to accounts given by fellow employees of the NFU, who did not give evidence themselves as to what they had seen, relating specifically to the evening of 4 September. I was told that there had been difficulties in obtaining evidence from some potential witnesses who were afraid to be identified. I must always remember, however, that it is for these Claimants to prove their case to the criminal standard once they have decided to apply to the court for committal. In that context, hearsay from anonymous individuals must, at the very least, be approached with caution.
Furthermore, it is necessary to be absolutely clear and unequivocal as to what specific conduct is being relied upon as a breach or breaches of the relevant court order (in this instance in the form of a prohibition). The phrase "incident or incidents" is not, therefore, helpful in this context, especially when accompanied by the vagueness as to dates. The critical document (analogous to an indictment) is the application notice. Here, what matters is the most recent document, headed "Amended Particulars of Application for Committal", and dated 17 October 2014. The paragraph which corresponds to the ninth allegation of contempt is numbered 20 and refers to an alleged breach "on or about 17th September 2014". It plainly does not, therefore, relate to anything that happened on 4 September. I believe that I must, therefore, put that evidence to one side.
That is not the end of the matter, however, as there is other evidence relating to New Agriculture House – again from Ms Winter. She exhibits a photograph of Mr Tiernan standing outside the building and wearing a tee shirt which bears the defiant motif "FCK NFU". She says that this was posted on 18 September on the Facebook Stop the Cull web page. It was accompanied by the words, "Jay Tiernan pops round to the Taunton office (cull HQ) But no one comes out to say hello". In response to the posting, comments appeared from supporters or activists which, Ms Winter suggests, demonstrate that they at least thought that his purpose must have been to frighten the NFU and its employees based at that office. They included such observations as "I think they got the message though"; "Cowards"; "Good on you, Jay. Put the shits up the cowardly tossers"; and "They'll be hiding behind the sofa – Nice one, Jay".
Later, Ms Winter attended at the premises with a tape measure, on 29 September, and confirmed that Mr Tiernan was standing approximately 9m from the premises at the time the photograph was taken. His demonstration was, therefore, in breach of the order. As I understood Mr Tiernan's argument in relation to this incident, it was to the effect that there was no reason for him to suppose that the building was "occupied" when he attended. The use of that term in the order was purely descriptive as to the nature of the premises sought to be protected. It plainly cannot have meant that demonstrations were to be permitted within 25m at any time once the last person had left the premises. How could one possibly know for certain? Also, it was put to Ms Winter that, for all she knew, the photograph could have been taken more than a year earlier and before the injunction was first granted. She accepted that she could not say. On the other hand, I have to be realistic about this. It is entirely reasonable to infer from its posting that it was supposed to be of topical relevance (i.e. on or about 17 September 2014), rather than "for old time's sake" as being as being only by way of reminiscence. Unless there is evidence produced to the contrary, as there might have been, I believe the court is entitled to proceed on the basis of the natural inference, even in the context of the criminal standard. Juries do so every day in the Crown Court. Otherwise, I should be giving priority to what is merely theoretical possibility.
I can conclude in these circumstances that the Claimants have sufficiently proved their case by reference to the photograph and Ms Winter's evidence as to the measurements. There was thus a breach of paragraph 3(4) of the order.
Conclusion
Having found the breaches proved to the required standard, I must now hear submissions and consider any evidence the parties wish to place before the court on the issue of what penalty or penalties should be imposed. That hearing can take place either immediately, when this judgment is handed down, or at a later date if necessary. I will hear what the parties have to say about that once it has been handed down. |
MR JUSTICE KNOWLES :
Introduction
Dr Raminder Ranger is described in the evidence as the founder and chairman of one of the UK's most successful export companies. His businesses have received The Queen's Awards for Enterprise in connection with their international trade. He has received the honour of the award of MBE for his services to business and to the British Asian community. He has received many other awards.
It is not challenged that Dr Ranger has devoted substantial time and effort to the fostering of community relationships within the UK. He is or has been the Chairman of the British Sikh Association, the Chairman of the Pakistan, India and UK Friendship Forum, and a patron of a number of charitable bodies. His background is not free of politics; he was a founder member of British Asian Conservative Link.
In 2007 and in 2010 Dr Ranger put his own name forward for consideration for appointment to the House of Lords as a non-party-political life peer. He did so because he wanted to contribute more to British public life, and to do so by service in the House of Lords. On these two occasions (and on one later occasion) Dr Ranger was unsuccessful.
Dr Ranger does not challenge the outcome. However by these proceedings, brought to trial as a Part 8 claim, he seeks disclosure of two unsolicited letters sent to the House of Lords Appointments Commission ("the Commission") by a third party or third parties in relation to the consideration of his appointment. He is content that the identity of the authors of the letters not be revealed to him. He also seeks data or information produced by the Commission relating to that consideration. His claim is opposed by the Commission.
Peerages for life
The power to confer a peerage for life, with the entitlement to sit and vote in the House of Lords, is vested in Her Majesty the Queen. Her Majesty exercises the power by letters patent.
The peerage entitles the person on whom it is conferred to rank as a Baron under such style as may be appointed by the letters patent.
These and other matters are provided by section 1 of the Life Peerages Act 1958.
The Commission
The Commission is not a statutory body. It was established in 2000. It currently has seven members, four who are independent of political parties and three who are nominated by political parties.
Its responsibilities include making recommendations for appointment to the House of Lords from among the individuals nominated for what have been termed non-party-political peerages. The Commission publishes the criteria it uses to make this assessment and sets out, in the interests of openness and transparency, how the process is conducted. Ms Clare Salters, Secretary to the Commission, adds in evidence that "at times the Commission also considers whether a nominee's field of expertise would fill a recognised gap in expertise in the House of Lords, if appointed".
The Commission receives very many high quality nominations. However it is invited to make only a small number of recommendations. This was usually around six each year according to correspondence in 2010. Paragraph 23 of current guidance notes, exhibited to the witness statement of Ms Salters, states that the Prime Minister "has said that for the time being he would like the Commission to recommend no more than two individuals for appointment over the course of a year". Ms Salters says in her evidence that 63 appointments in total have resulted over the 14 years since 2000, from more than 4,881 nominations.
The Commission's recommendations are submitted to the Prime Minister. They will inform the advice that the Prime Minister gives to Her Majesty, in whom the power of appointment is vested. The guidance notes state at paragraph 4 that the Commission makes its recommendations "to Her Majesty the Queen, via the Prime Minister" and that the Prime Minister "has undertaken to pass the Commission's recommendations directly to The Queen and will only intervene in the most exceptional cases."
It would be difficult to overstate the importance of what is involved. The arrangements reflect the constitutional convention that the monarch will act on ministerial advice. In this instance the outcome of the exercise of the power affects the composition of a branch of the legislature. Even though the number of appointees is modest they bring one of the non-party-political dimensions to the composition of that branch of the legislature, and contribute to the breadth of its experience and expertise.
"Any honour or dignity"
Dr Ranger argues first that section 7 of the Data Protection Act 1998 ("the DPA") gives him the entitlement claimed.
In addressing this argument I will assume for the sake of the argument that the information he seeks is "personal data", though there is considerable room to question that as regards at least some of what he seeks, and in particular copies of the letters, (see Durant v Financial Services Authority [2004] FSR 573; [2003] EWCA Civ 1746 at [27] (per Auld LJ) and note In re Southern Pacific Personal Loans Ltd [2014] Ch 426; [2013] EWHC 2485 (Ch) at [46] (per David Richards J)).
By section 37 of the DPA, Schedule 7 of that statute has effect. Schedule 7 contains a number of exemptions. Paragraph 3 of Schedule 7 is in these terms, following amendment in 2000:
"Personal data processed for the purposes of—
(a) assessing any person's suitability for judicial office or the office of Queen's Counsel, or
(b) the conferring by the Crown of any honour or dignity,
are exempt from the subject information provisions."
As a matter of ordinary language the conferring of a life peerage would in my judgment be the conferring of "an honour or dignity". Other descriptions might be chosen or, in some contexts, preferred. In oral submissions Dr Sampson argued that a life peerage is "not simply an honour and a dignity but a public office in its own right". Even if that submission is accepted, as well it might be, the peerage is, on the face of the submission, nonetheless an honour and a dignity.
Dr Sampson makes the point that if reference to a peerage had been intended then it would have been easy for the legislation to use the term itself. In my judgment the answer to the point is simply that paragraph 3(b) is seeking to deal concisely with a number of things by using the overall description "any honour or dignity".
I do not see any different meaning is achieved by reading the language restrictively, as Dr Sampson urged, even if it was appropriate to do so. I do not regard the language as ambiguous or uncertain. However if I am wrong in that judgment, the argument would still be concluded against Dr Ranger by reference to Hansard. There can be no question that the rule in Pepper v Hart [1993] AC 593 would render Hansard admissible in the context of an ambiguity.
Hansard records that in the course of debate in the House of Lords on 24 October 2000 Lord Falconer of Thoroton, then Minister for the Cabinet Office, stated expressly that the words "or dignity" were proposed to be added to paragraph 3(b) by amendment to ensure "that the exemption applies to the granting of peerages" (HL Debs, 24 October 2000, col. 314).
An implied qualification to displace the exemption
By section 37 of the Freedom of Information Act 2000 ("the FOIA"), information relating to the conferring by the Crown of any honour or dignity is "exempt information". However by section 2 of the FOIA, for the purposes of section 2 the exemption is not one of those to be regarded as conferring absolute exemption. As a result, by section 2(2)(b), section 1(1)(b) (providing for a right to have information communicated) does not apply if in all the circumstances of the case, the public interest in maintaining the exemption outweighs the public interest in disclosing the information.
There is no similar provision qualifying the exemption provided by the DPA. Dr Sampson submits that a like qualification is to be implied so as to displace the exemption provided by the DPA where the public interest so requires. He supports the submission with the argument that it is "simply not possible to accept that it was intended that a third-party could have better rights of access to information about an applicant's application to [the Commission] under a … FOI[A] request than the data subject has under the terms of an application made under the DPA for exactly the same information".
I cannot accept this argument. Each piece of legislation must be applied as enacted. If more needed to be said on this, then Hansard (in the extract referred to above) shows amendment to the DPA being considered at the same time as the FOIA and yet the opportunity was not taken by Parliament to introduce a qualification to the exemption in the DPA.
Further arguments with reference to European law
The DPA implements the Data Protection Directive 95/46/EU ("the Directive") into UK domestic law. Article 1 of the Directive requires that, in accordance with the Directive, Member States shall protect the fundamental rights and freedoms of natural persons, and in particular their right to privacy with respect to the processing of personal data.
Dr Sampson for Dr Ranger submits that the process of implementation of the Directive into UK domestic law has broken down because (he submits) paragraph 3(b) of Schedule 7 of the DPA is not compliant with the Directive, and in particular Articles 12 and 13 of the Directive.
Article 12 requires Member States to guarantee every data subject the right to obtain from the controller, without constraint at reasonable intervals and without excessive delay or expense, communication to him in an intelligible form of the data undergoing processing and of any available information as to their source.
Among other things, Article 13 permits Member States to adopt legislative measures to restrict the rights of access provided for in Article 12 when such a restriction constitutes "a necessary measure to safeguard … (g) the protection of the … rights and freedoms of others".
It is clear on authority that the reference to necessity invokes the principle of proportionality. In an assessment of proportionality:
"… it is necessary to determine (1) whether the objective of the measure is sufficiently important to justify the limitation of a protected right, (2) whether the measure is rationally connected to the objective, (3) whether a less intrusive measure could have been used without unacceptably compromising the achievement of the objective, and (4) whether, balancing the severity of the measure's effects on the rights of the persons to whom it applies against the importance of the objective, to the extent that the measure will contribute to its achievement, the former outweighs the latter."
See Bank Mellat v HM Treasury (No 2) [2013] UKSC 39, [2014] AC 700, 791 at [74] (per Lord Reed JSC) and [20] (per Lord Sumption JSC); de Frietas v Permanent Secretary of Ministry of Agriculture, Fisheries, Lands and Housing [1999] 1 AC 69, 80 (per Lord Clyde), Huang v Secretary of State for the Home Department [2007] 2 AC 167 at [19] (per Lord Bingham of Cornhill), and R v Oakes [1986] 1 SCR 103 (per Dickson CJ).
The legislative measure at paragraph 3(b) of Schedule 7 of the DPA helps ensure the confidentiality of information provided to the Commission concerning those being considered for appointment to the House of Lords. The measure serves the objective of helping protect the rights of those who have provided the information in confidence.
More broadly, because at least some information will only be provided if its source or content is kept confidential, the measure also serves the objective of helping ensure the protection of the rights of all members of the public to have the fullest information provided, with full candour, to the Commission in its work in connection with appointments to the House of Lords. I emphasise that in this latter situation the rights are those of all members of the public, rather than the rights of the Commission (compare the Opinion of the Advocate General delivered on 12 December 2013 in YS v Minister voor Immigratie, Integratie en Asiel Joined Cases C-141/12 and C-372/12 at paragraph 84, dealing with the sixth question in Case 372/12, a question not in the event answered in the Judgment of the Court of Justice (Third Chamber) of 17 July 2014 at paragraph 49).
However Dr Sampson goes on to argue that a less intrusive measure was available. This would be a measure that, as with the approach taken by the FOIA, required an assessment in all the circumstances of the case, of the question whether the public interest in maintaining the exemption outweighed the public interest in disclosing the information. I am not persuaded this would work in the context in hand. If the fullest information is to be provided, there needs where possible to be clarity from the start about whether confidentiality will be respected or not.
The certainty offered by a "bright line" rule is proportionate. I appreciate there is not a similar bright line rule for an FOIA request concerning the conferring of an honour or dignity (save in those cases where, because of the content of the request, an absolute exemption is also engaged). However that is explicable by the fact that the purpose and compass of the two pieces of legislation are different.
In combination, paragraph 3(b) of Schedule 7 of the DPA and section 40(1) of the FOIA give clarity to all and from the start that the nominee for a peerage will not be entitled to access his or her personal data through the Commission. There, the public interest question involved has been decided rather than left to be addressed when a request for disclosure is made and on a case by case basis. The public interest question involved when the request is not a request by the nominee to access his or her personal data will be addressed when a request for disclosure is made and on a case by case basis. The balance struck by the approach taken in the legislation is at least within the margin of appreciation accorded to a Member State in these matters.
In the result I am satisfied that, in the particular respect under consideration in the present case, the Directive has been implemented in a way that is compliant and proportionate.
Dr Sampson pursued one additional line of challenge to paragraph 3(b) of Schedule 7 of the DPA. He argues that it is incompatible with Article 8 of the Charter of Fundamental Rights of the European Union (2012/C 326/02).
This argument does not in my judgment take things any further. Article 8 provides in part that everyone has the right of access to data which has been collected concerning him or her. Article 52 recognises that there may be limitations on the exercise of the rights and freedoms recognised by the Charter. Article 52 includes the sentence: "Subject to the principle of proportionality, limitations may be made only if they are necessary and genuinely meet objectives of general interest recognised by the Union or the need to protect the rights and freedoms of others."
The Charter therefore does not offer Dr Sampson an argument that is materially different to the one he advances on behalf of Dr Ranger by reference to the DPA, and which I have rejected above.
Broader points
In broadest terms Dr Ranger, through Dr Sampson, describes his claim as one for transparency. As the argument was put by Dr Sampson, the availability of access to documents, data or information that is sought would provide reassurance, to potential applicants and to the public at large, in relation to the appointments process.
Generally speaking there is of course force in the point that transparency can provide reassurance. But there is a price to be paid by that approach. As already mentioned the availability of access might inhibit frank contributions of information to the appointments process. It is very much in the public interest that decisions about membership of the legislature should be made with full information.
The reassurance to which Dr Ranger refers, whether to public or to applicant, is ultimately achieved, not through the availability of the access that he seeks, but rather by the involvement of the Commission. The public has the reassurance of a body that must act in the public interest and which does so in accordance with a process that is published. The Commission accepted by its Counsel, Mr Hooper, that its decisions are amenable to judicial review.
Where in the course of the appointments process the Commission receives contributions of information it must be trusted to deal with them appropriately and give them the weight that it judges them to merit. If, using its best judgment, they merit no weight the Commission must be trusted to give them no weight.
A further broad appeal was made by Dr Sampson to the rule of law. The importance of the rule of law is not in doubt. Its maintenance requires that the legislation is applied as enacted.
Conclusion
It is clear to me that the claim should be dismissed on all points.
I hope that Dr Ranger may now, with dignity, be able to treat the matter as at an end. I hope that his considerable energies may be devoted to showing that there are other ways in which to contribute fully to business life and public service.
Unhappily the matter has generated protracted correspondence over a number of years. Lest they be overlooked I should record two points that were recorded by the Commission in correspondence before these proceedings began, addressed to solicitors acting for Dr Ranger or his wife.
The first is that the rejection of any one nominee for appointment did not imply that the Commission believed that that individual was not a suitable candidate to become a non-party-political peer, only that it considers that there are stronger candidates. The second is that in the present case the Commission's secretariat has stated that there is "no evidence that the two unsolicited letters played any part at all in the Commission's eventual decision".
These two points are restated elsewhere in the correspondence when it is recorded that the Commission:
"…only considered the information that [Dr Ranger] personally provided. They did not seek, confidentially or otherwise, any other information about Dr Ranger (including information from his referees or from any other source). On the information provided by Dr Ranger, and taking into account the published criteria for nomination as a non-party political peer, the Commission did not think that his nomination was as strong as that of some other candidates, and was therefore unable to take his nomination any further". |
Mr Justice Nicol :
This is an application by the Claimant for an injunction to restrain the Defendant from continuing with a disciplinary hearing against him. The disciplinary hearing began on 27th January 2015. The application before me was heard on 28th January 2015. Although formally ex parte, the Defendant was notified of the application and was represented before me. Towards the end of the hearing before me, I was told that the evidence before the Disciplinary Panel had almost concluded but closing submissions had still to take place. In order that the application should not become academic, Mr Moretto on the Defendant's behalf undertook that the Trust would not make its closing submissions until further order from the Court. I also made an order that the Disciplinary Panel should not give its decision until further order from the Court. These were measures simply to hold the ring until I was in a position to give my judgment (which I reserved).
The Claimant is a consultant in general and colorectal surgery. He has been employed by the Defendant in that capacity since August 2011. Concerns about his clinical practice began to emerge in early 2012. These were considered in a desk top review of a sample of his clinical work by the Royal College of Surgeons. They expressed serious concerns. The Claimant was suspended on full pay by the Defendant on 12th October 2012 and the Defendant commissioned an investigation by Dr Julian Berlet. The Claimant was interviewed on 4 occasions. Each time he was also accompanied by a legal representative. Dr Berlet reported in July 2014.
On 30th October 2014 the Defendant provided the Claimant with a copy of Dr Berlet's report (apart from the annexes which followed on 5th November 2014). The Defendant also notified the Claimant that it considered that there was a prima facie case of gross misconduct by him and a Disciplinary Panel would be constituted. It supplied draft charges. At that stage, the Claimant was told, it was proposed the hearing before the panel would take place 3rd -5th December 2014. On 5th November 2014 Radcliffes Le Brasseur ('RLB'), the Claimant's solicitors, asked that the hearing take place on 4th, 5th and 9th December 2014. There was further correspondence between the parties as to the precise dates in December 2014 that the hearing should take place, but on 17th November 2014 RLB were told that the availability of panel members and witnesses meant that the hearing would have to be put off until 27th-29th January 2015.
The Defendant's Disciplinary Policy, Procedure and Guidance paragraph 7.10.5 provides that the employee and their representative must be provided with the 'management case' which sets out the precise nature of the allegation(s), copies of all written documentation which will be relied upon at the hearing, the date, time and venue of the hearing, the name and designation of the Panel members, the name of the Trust's representative, the name of the investigating manager who would be attending as a witness and the names of any other witnesses who would be called. The management case had to be supplied '10 working days prior to a disciplinary hearing' according to paragraph 7.2.2 of the Policy or 'at least 10 working days prior to the hearing [emphasis in the original]' according to paragraph 7.10.5. In this case the Trust provided its management case on Monday 12th January 2015. Since the hearing was due to start on 27th January 2015, this was 12 working days before the hearing was due to commence.
The charges listed in the management case were identical to the draft charges which had been served at the end of October 2014. In summary, they alleged that the Claimant had:
i) Misrepresented his qualifications, expertise and/or experience in his curriculum vitae, on-line application form for the post of consultant and at interview and did so dishonestly, improperly or with gross negligence.
ii) Posted inaccurate information on his website and again did so dishonestly, improperly or with gross negligence.
iii) Dishonestly or improperly or with gross negligence made retrospective entries in a patient records in relation to a life changing and irreversible surgical procedure.
iv) Dishonestly, improperly or with gross negligence provided misleading or inaccurate information to Dr Berlet's investigation about the same patient's treatment.
v) Dishonestly, improperly or with gross negligence provided misleading or inaccurate information about the treatment of another patient on the issue of that patient's consent to treatment.
vi) Failed to observe fundamental standards of ethical research in relation to 7 projects.
In December 2014 RLB became concerned about the Claimant's use of language. An arrangement was made for him to be assessed by Ms Arlene Wake, a specialist teacher working at the Canterbury Dyslexia Centre. In a report dated 13th January 2015 she diagnosed the Claimant as suffering from dyslexia. She made a number of recommendations for adjustments which might be made in his workplace. It seems that the Claimant dealt with Ms Wake directly. In her letter of 22nd January 2015 she says,
"Mr Sarker had explained that he was applying for a new job and that he wished to have a better understanding of the difficulties he experiences in advance of this. I had no knowledge of the disciplinary investigation by Mr Sarker's employers and/or the possible legal implications of the assessment or report."
RLB were provided with a copy of the report by the Claimant on Friday 16th January 2015. On Monday 19th January 2015 they wrote to the Defendant asking that the hearing should be adjourned. Setting aside the matters on which the Claimant no longer relies, his solicitors argued that it had taken the Trust 27 months to carry out its investigations, but the Claimant was being given only 12 working days from provision of the management case to respond. That, it was said, was insufficient. One of the reports was from an expert. It was not possible for the Claimant to instruct an expert in the time available. The Trust proposed to call only 3 witnesses, but hearsay evidence was provided by many others and the Claimant was likely to want some of them to give live evidence. The Claimant's own witness statement was not completed. The Claimant and his representatives had not had time to investigate a large quantity of unused material. RLB also provided a copy of Ms Wake's report. They argued the diagnosis of dyslexia was likely to be relevant directly to some of the charges, but also material to the adjustments which should be made in the conduct of the disciplinary proceedings.
Capsticks on behalf of the Trust replied the following day. They gave detailed reasons for opposing the request for an adjournment of the hearing. They concluded that the points made in the letter could be raised with the panel at the opening of the hearing on 27th January 2015.
On 27th January 2015 the Panel was presented with skeleton arguments on behalf of the Claimant and the Defendant on the question as to whether the hearing should be adjourned. These were supplemented by oral submissions. For understandable reasons there is not a transcript of its decision, but from the notes made by both sets of solicitors, it seems that in summary the Panel reasoned:
i) It was committed to providing a fair and reasonable process. It did not accept that the Claimant had had insufficient time to prepare. The Management Statement of Case had been provided more than 10 working days before the hearing in accordance with the Trust's Disciplinary Policy. The majority of the documentation supplied with it had been sent to the Claimant in October 2014. There had been a number of requests for witnesses which had not been actioned.
ii) The Panel acknowledged the report of Ms Wake but were still of the view that the hearing should proceed. They reserved the right at the end of the hearing to seek independent expert evidence on the impact or otherwise of the Claimant's disability on the management statement of case, his ability to prepare his defence and on the internal proceedings before making a final determination.
iii) The Panel were keen to explore the issue of reasonable adjustments and indicated they should be made during the hearing process as follows:
a) Verbal rather than written instructions to the Claimant;
b) Use of plain English;
c) Sufficient time for the Claimant to consider any information or documentation;
d) Frequent breaks;
e) Instructions to be given one at a time and communicated slowly and clearly;
f) Important information to be written down;
g) Extra time to be given for any unforeseen occurrences.
Following this decision, the Panel was invited by the Claimant to adjourn for a shorter period to allow him to apply for relief in the High Court. The Defendant opposed this request. The Panel took independent legal advice and decided that the hearing should continue. At this point the Claimant and his legal team withdrew from the process and took no further part in the proceedings.
The well known tests in American Cyanamid Co v Ethicon Ltd [1975] AC 396 are the starting point for considering how the Court should decide whether an interim injunction should be granted. The Court asks, not whether the Claimant is more likely than not to succeed at trial but considers just whether the claimant raises a serious question to be tried. If he does, the Court has to consider whether damages would be an adequate remedy for the Claimant if he were to win at trial. If they would not, the Court must ask whether the Defendant could be adequately compensated by the Claimant's undertaking as to damages if it should succeed at trial. If money could not adequately compensate either party then the Court has to consider the balance of convenience.
'A serious issue to be tried' is a modest threshold test. There is ample authority for the proposition that it is too modest if the grant of the interim injunction would effectively give the Claimant all that he seeks by the action. In his Claim Form, the Claimant seeks an injunction to prevent the disciplinary proceedings continuing until at least 2nd March 2015. Mr Barr QC on the Claimant's behalf argues that, if he was successful today, he would be granted an injunction for a shorter period. Since this is formally an ex parte application, relief would only be given until a return date in a week or so time. Mr Moretto, says that is not so. If the injunction is granted, even for a week or so, in practical terms it will be impossible for the hearing to resume before the beginning of March at the earliest. Accordingly, in substance, this application will dispose of the Claimant's claim. I should therefore apply a higher test than in American Cyanamid.
I accept Mr Moretto's submissions on this point. I will still bear in mind that the evidence is at an early stage, but, as Staughton LJ said in Lansing Linde Ltd v Kerr 1991] 1 WLR 251 at 258, there must in such circumstances be some assessment of the Claimant's prospects of success over and above the modest 'serious issue to be tried' threshold in American Cyanamid.
Mr Moretto did not dispute (at least not for the purposes of the present application) that the Defendant was under a contractual obligation to follow the terms of its Disciplinary Policy. This expressly provided that the management case should be supplied at least 10 working days prior to the hearing. There is no dispute on the Claimant's side that the management case had been provided more than 10 working days in advance of the hearing. Mr Barr argues, though, that the use of term 'at least 10 working days' in paragraph 7.10.5 shows that there may be occasions when they should be provided further in advance of the hearing. He submits that this may be necessary in order for the Panel to be fair to the employee. He points out that the first 'General Principle' identified in paragraph 2.1 of the Policy is 'Fairness'. It says 'the application of this procedure will be consistent, fair, prompt (within timescales defined in this policy), impartial, reasonable and applied without discrimination.'
Fairness, he submits, required the Trust to give the Claimant more than 10 days in this case. As RLB had noted in their letter of 19th January 2015, the Trust had taken over 27 months to carry out their investigation. This contrasted with the 4 weeks which an investigation was normally expected to take (see paragraph 7.9.3 of the Policy). This showed that the present situation was abnormal and it was unfair to give the Claimant only 2 days more than the bare minimum of notice required in standard disciplinary cases. It was right that the Claimant's advisers had had the Berlet report and its appendices since the beginning of November 2014. They had also then been given draft charges, but these were only in draft. There was a limit to how much the Claimant could prepare before he and his advisers knew precisely how the Trust was proposing to put its case. Mr Barr argued that, since the final charges and the final way in which the Trust was going to formulate its case had been disclosed so close to the hearing, fairness required the Panel to adjourn the hearing.
Fairness, he submitted, also mandated an adjournment because of the recent diagnosis of the Claimant's dyslexia. Ms Wake's report confirmed that the Claimant did suffer from this condition, but she was not able to provide evidence for the purpose of the disciplinary hearing as to how the dyslexia might have impacted on the matters which gave rise to the disciplinary charges. The Panel should have recognised that the Claimant could not have a fair opportunity to present his case to them unless he had the chance to obtain such a report and, to do that, he needed an adjournment.
Mr Barr argued that damages would not be a satisfactory alternative remedy for the Claimant. Once the disciplinary process had run its course and if the Claimant was found to have been guilty of gross misconduct, the Trust would be entitled to say that the relationship of trust and confidence had broken down and an injunction or specific performance of the employment contract would not then be ordered. The Claimant was suspended and so there was no issue of public safety. The Claimant was still on full pay, but, if at trial he was unsuccessful and should have been dismissed earlier his professional organisation (which was backing him) would be good for any reimbursement of pay that he ought not to have received. The investigation had already taken years. A few further weeks was the lesser evil than the unjustified loss of the Claimant's job and career.
Mr Moretto's response had several strands. He submitted that the Claimant had known the charges he was likely to face since the beginning of November 2014. That was ample time to prepare his response. Indeed, since his solicitor had been present at all four of the Claimant's interviews with the Berlet investigation, he had known of the areas of concern for very much longer. The final version of the charges had been in identical terms to the draft and therefore contained no surprise for the Claimant or his advisers. Furthermore, when the hearing was proposed to take place in December 2014, RLB wished to tweak the dates by a day or two for the convenience of their counsel. They had not then seen the final version of the charges nor the management case, but they did not suggest that these would be an obstacle to a December date. The Panel had been prepared to make adjustments to the hearing procedure in order to make allowance for the Claimant's dyslexia. Furthermore, they contemplated the possibility of seeking an independent expert's report on the impact of the Claimant's dyslexia if they thought that necessary. There was no reason why the Panel should not adopt that procedure.
Additionally, Mr Moretto drew attention to the provisions in the disciplinary policy for an appeal. The purpose of the appeal was to consider whether the disciplinary action was appropriate and reasonable in all the circumstances (see paragraph 7.17.1 of the Policy). The grounds of appeal could include a failure to follow procedure (see 7.17.4 1st indent) and this could include a complaint that the employee had been unfairly treated. It could also include 'new evidence which has genuinely come to light since the Disciplinary hearing'. (see 7.17.4 5th indent) and so, if the Panel did not require a further dyslexia report but one was subsequently obtained by the Claimant, that could potentially be advanced as a ground of appeal. It was right that for gross misconduct the Panel could decide that immediate dismissal was appropriate. In those circumstances, the sanction was not suspended pending any appeal, but, if an appeal was brought and was successful, the Claimant's contract of employment would be revived (see Roberts v West Coast Trains Ltd. [2005] ICR 254 at [22] – [26].
Mr Moretto also reminded me of the authorities which warned against the use of injunctive relief to micro-manage disciplinary proceedings (e.g. Kulkarni v Milton Keynes NHS Foundation Trust [2010] ICR 101 at [22]) and the desirability of allowing such proceedings to take their course since that was the procedure envisaged by the parties' contract (see for instance Makhdum v Norfolk and Suffolk NHS Foundation Trust [2012] EWHC 4015 (QB) [51] – [53] and Chakrabarty v Ipswich Hospital NHS Trust [2014] EWHC 2735 (QB) [161]).
In addition, he submitted that relief should be refused since the Claimant had delayed. The hearing was now underway. If the Claimant had thought fairness made an adjournment obligatory, he should have sought relief from the Court at an earlier stage.
With one caveat (to which I will return), I accept the submissions of Mr Moretto. By their contract, the parties have given the Disciplinary Panel the responsibility in the first place to see that the hearing before them is fair. I respectfully agree with the authorities which have been cited to me to the effect that the Court should not try to micro-manage such hearings and they should generally be left to run their course. I accept that this cannot be a universal rule. As those authorities have also recognised, there may be cases where a 'clear wrong' (in the language of Beatson J in Makkhdum at [53]) requires the Court to intervene. However, in my judgment the Claimant in this case has come nowhere near to showing that the present circumstances are such that there should be an injunction. The Disciplinary Panel showed that it was willing to make adjustments to its procedure to cater for the Claimant's dyslexia. It was not prepared to grant an immediate adjournment to allow the Claimant an opportunity to obtain a further report for deployment as evidence in the hearing, but it did not shut out the possibility that, on considering the case further, it might decide that an independent expert report would be useful. Given particularly the late stage at which dyslexia report had been produced, it seems to me that this course was well within the discretion of the Panel.
The Claimant had been concerned that not all the witnesses it would have wished the Trust to call would have been available. However, I consider that the Panel was entitled to take into account that the Claimant had been asked the previous autumn as to which witnesses he required, but had only responded very shortly before the Panel hearing. In any case, the Disciplinary Policy expressly gives the Panel the final decision as to which witnesses on behalf of the Trust need to be called (see paragraph 7.11.3 1st indent). Where witnesses are not called by the Trust it would be open to the Claimant to submit that less weight should be given to their hearsay evidence because it had not been tested by cross examination. It would, of course, be for the Panel to decide how persuasive such arguments were.
I have said that in the first place the parties' contract gives the Panel the responsibility for deciding such procedural matters. In deciding whether it is appropriate for the Court to intervene at this stage, it is also relevant that the contract makes provision for an appeal hearing. If the Panel decides that the Claimant should be dismissed for gross misconduct, that sanction may take immediate effect and not be suspended pending an appeal, but that, too, is part of the contractual structure which the parties have agreed. If the appeal is successful and it is decided that the Claimant should not have been dismissed, Roberts supports the proposition that his contract of employment will revive. It did so after considering West Midlands Co-operative v Tipton [1986] ICR 192 on which Mr Barr relied.
The issue on which I was not persuaded by Mr Moretto was that the Claimant should be denied relief because of his delay. It seems to me that his claim would have been premature if he had come to Court before seeking a direction from the Panel (rather than just the Trust's Case Manager) that the hearing should be adjourned. It may be that the Policy should be interpreted as allowing for requests for adjournments to be dealt with in advance of a hearing (and, perhaps, considered on paper). There would certainly be much to be said for this as a convenient course. But it was not part of Mr Moretto's argument that this procedure would have been available to the Claimant and there was some force in Mr Barr's point that Capsticks who refused to consent to an adjournment on behalf of the Trust said in their letter of 20th January that RLB could make representations to the Panel at the start of the hearing. Nonetheless, delay on the part of the Claimant was a discrete part of his submissions. His lack of success in that regard is not, in the end, material. I conclude that with the appropriate assessment of the merits of the Claimant's case which Lansing Linde requires me to conduct this is not a case where interim relief should be granted.
For all of these reasons this application is refused. |
Mr. Justice Edis:
This is a claim for damages for negligence and breach of statutory duty brought by the Claimant who was the Managing Director of a company called Taylor and Sons Limited ("the Company"). The Company went into Administration on 9th April 2009 and the Administrators assigned any cause of action it may have had to the Claimant who therefore brings this claim in the shoes of the Company. As will appear, the two Defendants are, effectively, the same person. The reason for this appears at paragraph 6 below.
This is the trial of 3 preliminary issues as ordered by Master Cook on 19th June 2013. The issues are defined in that Order as follows:-
• Whether the Defendants owed the Company a duty of care under statute or common law in the terms alleged in the Claimant's Particulars of Claim ("the Duty Issue").
• Whether, if so, the Defendants breached any such duty. It is now conceded that if there was any such duty, it was breached. I do not therefore have to decide this issue. I will set out the facts relating to the breach below, because they illuminate the Duty Issue.
• Whether, if so, the Defendants' breach of duty caused the Company to enter administration ("the Causation Issue").
The statutory duty of care said to have been owed by the Defendants to the Company is defined in paragraph 7 of the Particulars of Claim as follows:-
"In discharging their functions and/or maintaining the register in accordance with section 1080 of the Companies Act 2006 the 1st and/or 2nd Defendants owed a statutory duty to any company on the register, and in respect of which information was being entered or recorded, to take reasonable care and skill so as to ensure that incorrect information was not entered on the register relating to that company."
An identical duty is also said to arise at common law by paragraph 8 of the Particulars of Claim.
During the trial I allowed an application to amend the Particulars of Claim to add paragraphs 7A and 8A. I gave reasons in a separate judgment at that time. No amendment is necessary to the Preliminary Issues because they are to be read as relating to the Particulars of Claim as it now stands. The amendments are as follows:-
"7A. Further or alternatively, without prejudice to paragraph 7 above, in discharging their functions, and/or maintaining the register in accordance with section 1080 of the Companies Act 2006, and in respect of Taylor and Sons Limited (company number 00067032) ("the Company") to show that the Company had gone into liquidation, the 1st and/or 2nd Defendants owed a statutory duty to the Company in the processing of the information which it received to take reasonable skill and care not to enter and/or record on the register information relating to a different company (bearing a different name and number) and/or otherwise incorrectly.
8A. Further or alternatively, without prejudice to paragraph 8 above, in altering and/or maintaining the register in respect of the Company to show that the Company had gone into liquidation the 1st and/or 2nd Defendants owed a common law duty of care to the Company in the processing of the information which it received to take reasonable skill and care not to enter and/or record on the register information relating to a different company (bearing a different name and number) and/or otherwise incorrectly."
THE DEFENDANTS: SUMMARY
I shall set out more detail about the Defendants below, but in order to assist the understanding of this judgment at the outset this paragraph contains a brief description of their function and explains why there are two of them. The Defendants are, respectively, Companies House which is an Executive Agency of the Department for Business, Innovation and Skills ("the Department"), and the Registrar of Companies who is the Chief Executive of the First Defendant. There has been some argument about whether the First Defendant should have been sued because it is said not to have any separate legal personality from the Department. An application was made to me by the Claimant to change the name of the First Defendant to the Department. I declined to rule on it until I had heard the evidence about the relationship between the Defendants, and between them and the Department, which is relevant to whether it is fair, just and reasonable to impose any duty of care on all or any of them. In the event the application was not pursued because the Second Defendant accepts that he is properly joined and liable in the event that the claim succeeds. The Treasury Solicitor confirmed that any judgment will be met and it is unthinkable in those circumstances that the Government would seek to avoid paying the judgment on the ground that the Department had not been formally joined in the proceedings. Evidence was then given by Jo Jones, Head of Policy at Companies House, who said that the Registrar has decided to meet the claim if it succeeds out of reserves controlled by him. The Registrar has statutory duties which he discharges by the agency which is Companies House. Companies House, as its name suggests, provides the buildings. It also employs the staff and administers, through them, the recording and publication of company information. It charges fees to the companies whose information it keeps and to those who use its services. In most years it pays a dividend to the Government out of those fees. It is self funding.
THE COMPANY
The Company was incorporated in 1900, but traced its roots back to the late 18th Century. It operated as steel fabricators and founders and was part of a group of companies. The corporate structure does not greatly matter for present purposes and I shall not set it out here. I am principally concerned with the Company itself and two companies in the group, Taylor Marine Limited (TML) and Taylor and Sons (Engineering) Limited whose fortunes were closely connected to those of the Company. Similarity in the names of companies in the same group is one reason why companies with very similar names can appear on the Register. That is also a feature of "phoenix" companies which acquire the assets of a company in liquidation. Other companies have very similar names by chance. One function of the Registrar is to ensure that no two companies are registered with an identical name. Every Companies House employee who works with the Register (and everyone else whose work involves the technical side of corporate existence) knows that this is a phenomenon which requires care. This is one reason why each company on the register has not only a unique name, but also a unique number.
The Company had traded successfully for many years including supplying military equipment during both World Wars. It was a well respected and substantial business which retained its family connection to the Taylor family until just a few weeks before the Administration. It was no doubt a source of pride to many people as well as a source of income and valuable work. Its fate was big news in the engineering and steel making community in South Wales and beyond.
In 2008 the fortunes of the Company suffered a setback because of the recession and the banking crisis. Its largest customer, Corus (now Tata Steel), endured problems of its own which affected its demand for work from the Company. When problems came they exposed underlying weaknesses in the Company which required very urgent attention. A corporate strategy was evolved which was intended to reduce the dependence of the Company on Corus and to diversify its customer base. It also involved selling property to raise money, and reduce cost. Unhappily, the banking crisis rendered property unsaleable just at the critical time and the Company had a need for cash from another source. On the advice of its Bank, Lloyds, the Company retained a specialist accountant, Mr. Geoff Eades, to assist it in its financial restructuring to enable it to survive. Because of the way the preliminary issues have been drawn I do not have all the evidence necessary to decide whether (and if so for how long) it would have survived had not an error ("the error") been made by the staff of the Official Receiver and subsequently by the staff of the Defendants. Neither side has chosen to seek to adduce any expert evidence at this stage. It was to avoid incurring the cost of expert evidence if the action fails on other grounds that the preliminary issues were drawn as they were, but such evidence is clearly capable of being relevant to the third preliminary issue. I have considered carefully whether I should in fact decide that issue and have decided to do so on the evidence which the parties have decided to call. This means that I will answer the third question, but I will make no finding about the future path of the Company after 9th April 2009 had there been no error. That issue will be determined at a quantum hearing, if there is one.
The Causation Issue is a factual question. The factual context in which the Duty Issue falls to be resolved is of importance in resolving even a pure point of law on facts which are not in dispute. The authorities make it clear that any decision as to the existence or otherwise of a duty of care in a novel situation starts with a close analysis of the facts. The legal tests make it obvious that this must be so. I shall therefore set out the facts in summary but with some care. I heard a great deal of evidence and have been supplied with transcripts and extensive references to passages in the oral evidence. I have read all of the material supplied, but identify in this Judgment only those parts which are important, and then often in summary form.
THE FAILURE OF THE COMPANY
The evidence which I have about the financial state of the Company before the error is limited to oral evidence and a relatively small selection of documents. The Defendants contend that this evidence is insufficient to prove that the admitted breach of the alleged duty caused the Company to enter administration when it did. Their case is that the Company was at risk at all times, and that there may have been other causes of the decision to place the Company into administration than the error. The decision to place the Company into administration was taken by the Directors. I have heard from two of the Directors, Mr. Philip Sebry the Managing Director and Mr. Lloyd, who have told me why they took that decision. They told me that it was because the Company ran out of cash and the Bank would not lend it any more. They said that this was because its suppliers demanded to be paid up to date before supplying any further goods or services rather than allowing the usual 30 days credit which actually extends to 90 days in real life. They said that this was because of the error. The Defendants did not adduce any evidence on the issue, except by cross-examining the witnesses called by the Claimant.
THE ERROR
On the 28th of January 2009 the Chancery Division of the High Court made a winding up order under the provisions of the Insolvency Act 1986 against Taylor and Son Limited. The Order, which did not include the company number, was received by Companies House on the 12th of February 2009, on which date a bar-code confirming receipt was affixed. On 20th of February 2009 the CHIPS system (the Companies House computer system on which the information concerning registered companies is kept) was amended by the registration of the Order, not against Taylor & Son Limited, as it should have been, but against Taylor & Sons Limited, the Company. This was done by Mr. Philip Davies, who gave evidence at the trial. The error in this case was, therefore, describing a company as being in liquidation when it was not.
Mr Philip Davies is a liquidation document examiner at Companies House of some thirty three years' experience. He appreciated that the Order lacked the company number and also arrived with him unaccompanied by a Notice to Companies House ('NOTCH') form to provide to the Registrar relevant information concerning the company which may not be apparent from the terms of the order, including the company number. The Official Receiver also failed to send any covering letter with the company number on it. There are two reasons why the Official Receiver's staff might have supplied the number with the Order which they wished to register. First, the Official Receiver's staff in Manchester had themselves made the same mistake as Mr. Davies was to make later. A telephone call from the Official Receiver's office was made to Mr. Sebry on the day the Order was made telling him "he" (this is how he expressed it to me) was in liquidation and giving him instructions which would have been appropriate if that had been true. He protested that he was not in liquidation and eventually sorted that out with assistance from the Company solicitor and went on holiday with his wife having no idea that the problem would re-surface while he was away. It would not have done had those responsible for the mistake in Manchester thought to supply the company number in order to ensure that no-one else made the same mistake. They failed to do this despite the fact that they agreed to pay the Company's solicitors fees for dealing with their error. The second reason why the staff of the Official Receiver might have been expected to inform Companies House of the correct company number for the company which they were actually winding up, is that the Insolvency Service issued guidance to Insolvency Practitioners in 1995 and 1997. It is available on the Insolvency Service Website and through its publication "Dear IP", see paragraph 27 of the statement of Mr. Grant who is the liquidation section team leader and is and was in 2009 the line manager of Mr. Davies. Ms. Jones confirmed in evidence that these "Dear IP" documents were seen in Companies House and that weight would normally be attached to their contents. She also said that she agreed with this advice, at least as advice to Insolvency Practitioners. This document said:-
"It is vital for the correct company number to be quoted on all forms submitted for registration. The consequence of a document being placed on the record of another company because of the failure to provide the correct number, could, given the nature of the document, have a significant bearing upon that company's perceived standing."
It appears from the evidence that this advice was not followed and that most winding up orders arrived at Companies House in 2009 without any indication of the number of the company being wound up. This has now changed, according to the evidence of Mr. Davies which was confirmed by other more senior employees of Companies House, including Mr. Grant. It is perhaps ironic that it was Mr. Grant who produced the "Dear IP" document because it was he who was in a position to enforce it by ensuring that documents which did not bear the company number were rejected and it was he who did not do that. That document is highly relevant to the issue of foreseeability of harm from mistakes of the kind made by Mr. Davies in this case.
The relevant procedures which were theoretically in place at Companies House at the time were set out in the Trove Examination Policy for Winding Up Orders. If they had been followed, Mr Davies would have rejected the document due to the lack of the company number. That policy came into force on 19th of February 2003. It sets out a series of steps which the Document Examiner should take in deciding whether to register a Winding Up Order. It says that at a certain stage in that process this should happen:-
"2.4 Company Number
Is the company number shown on the form?
- Yes continue check
- No reject form – If the company number is shown on the attached L72.18 [the NOTCH form] or the covering letter, write the company number on the Winding Up Order and continue check."
The company number did not appear on the Order or in any covering letter, and there was no NOTCH form. Mr Davies did not follow the policy. Instead he chose to search for the company number on the CHIPS system. He, and his line manager Mr. Grant, both say that this was common practice for staff at the time to try to assist by remedying deficiencies in documentation submitted to the Registrar, rather than simply rejecting it. Mr. Davies thought that between 40% and 60% of the documents received by the liquidation section concerning compulsory winding up orders contained no company number. The document examiners in the section sought via the CHIPS system to locate the correct company number. As far as anyone who gave evidence was aware, for the period prior to the 20th of February 2009 (which was for many years) no incorrect identification of a company by name only had ever occurred. No doubt this was because the staff were all aware of the need to check a name with special care against the register because of the frequency with which companies with very similar names are encountered. For this reason the practice continued. It was considered to provide the best way of getting the information onto the Register as expeditiously as possible. Mr. Davies was asked why he did not follow the Trove Policy and he said that he had been aware of it, but that he thought it was a training document and he did not need training because he had been doing the job for over 30 years. He said that no-one had spelt out to the relevant staff when it was introduced in 2003 or at any time afterwards that it contained a policy which they were expected to follow. This evidence suggests a lack of continuous training at Companies House at the material time. Clearly someone had felt that there was a risk of a mistake such as the present being made and introduced a policy to minimise that risk. Steps to implement that policy by giving clear instructions to the staff were not taken which means that the Trove Policy existed in name only and had no impact on the practice of the document examiners in the Winding Up Section. This is a management failure which is not Mr. Davies' fault. He suggested that given the high number of Orders which arrived without a number following the policy would reduce the value of the Register. The answer to that is that it would have done until those providing information appreciated that they had to comply with the rules or their Orders would not be registered. As soon as that message gets across, the information is provided. That is what has happened at Companies House since and because of this case. The staff were not following best practice by failing to follow the Trove Policy, but no real effort seems to have been made to ensure that this did not happen by more senior management.
Mr Davies' search revealed at least two companies with very similar names. If he had looked carefully, he would have seen that the name on the Winding Up Order was that of a company which was registered called Taylor & Son Limited. This company, based in Manchester, was apparently set up by a Mr. Taylor who had only one son, whereas the Taylor who set up the Company had at least two. The two companies are quite unrelated. If he had noticed the "s" on the word "Sons" in the register for the Company, and that there was no "s" in the name of the company in the Order (which was the name of a company on the Register), Mr. Davies would then have identified the correct number. He did not. The winding up order in respect of Taylor and Son Limited was one of approximately 200 documents processed by Mr Davies that day, which means he has to process them at the rate of about 1 every 2 minutes. This, however, does not entirely explain the error, because that volume of work was common and mistakes are very rare. The identification of the Company (Taylor and Sons Limited) as the subject of the Winding Up Order against Taylor and Son Limited was a careless mistake in carrying out a simple operation as well as a breach of the Trove Policy. Mr. Davies had three possible outcomes to his task. Either he might have applied the Trove Policy and rejected the documents or he might have decided not to do that and carefully identified the correct number for Taylor & Son Limited from CHIPS (which was perfectly possible), or he might have done as he did, namely tried and failed to identify the correct number for the company which had been wound up. The error therefore has two components: first a systemic failure to ensure that policies are applied and secondly an individual act of carelessness. Neither involves any exercise of judgment.
THE RESPONSE TO THE ERROR
During the morning of Monday the 23rd of February 2009 the Company accountant and auditor, Mr. Challenger of Watts Gregory LLP discovered from online information available to his firm that the Company was showing as being in liquidation. He was monitoring this situation because of the earlier mistake made by the Official Receiver. Mr. Sebry was on holiday with his wife. Mr. Challenger contacted Mr. Eades, the specialist "turnaround" accountant and contact was then made with Mr. Philip Evans, the Company solicitor. He had sorted out the problem with the Official Receiver some three weeks earlier. At some time between 07.00 and 10.00 Mr. Evans telephoned the liquidation casework team of Companies House and told Mrs Sally Stenning (who has died since then) that the Register was mistakenly showing the Company as being in liquidation.
Mrs Stenning sought advice from senior colleagues and then removed the winding up order from the CHIPS Transaction and Contract Log, the effect of which was to return the entry concerning the Company on CHIPS to the state it was in before the registration of the winding up order on the previous Friday afternoon. I refer to the other actions she took that day below.
The effect of Mrs Stenning's action was to remove some only of the publicly available information concerning the winding up order from the Registrar's records. The assistance of the IT department was required to remove all references to the winding up order on the Registrar's online systems, and this was achieved by 14.39 the same day. The principal online systems are Webcheck and Companies House Direct which are available to any person in the world with internet access to search the Register. These are to be distinguished from the "bulk products" described below.
The correction made by Mrs. Stenning on the 23rd of February 2009 was made before the winding up order was submitted to the London Gazette for publication, in accordance with the Registrar's obligation to give public disclosure of (inter alia) winding up orders. Accordingly, there was no notice in the Gazette to the effect that the Company was in liquidation, as would be required were that to be the case. These actions corrected the Register.
The correction of the Register, however, did not correct the position. This is first and most importantly because the original information that the Company was in liquidation had come to the attention of an unknown number of people who had accessed the Register while it was showing. This information was then disseminated by word of mouth and, as the evidence in this case clearly showed, many of the creditors and suppliers of the Company acted on it without themselves ever seeing the original entry. Even those who did see it will not necessarily all have returned to check that they had read it correctly. The correction of the Register, in itself, is an incomplete method of correcting the misinformation.
Secondly, I heard evidence about the "bulk products" produced by the Defendants and sold to a small number of clients most of whom published the information to their own clients. These could not be corrected immediately in the same way as the Registrar's own online services. Information was supplied to the customers of three bulk products on Saturday 21st February 2009 (while the false information was still being published). It is not necessary to set out all the detail of the way in which this happened, but the result of the evidence which I heard from Marie Ann Flowers MBE, the Customer Relationship Manager at Companies House, and Gary Hinchey, the IT Application Support Manager at Companies House, can be summarised for present purposes quite shortly. There are three bulk products, The Daily Directory Update, the Daily Liquidation Update, and the Time Critical Daily Update. These are subscription services and their customers include well-known names such as Experian, Dunn & Bradstreet, Equifax, Jordans and others. The purpose of them is to enable information to be made available to those who need it very quickly and very widely. No alteration to this information was made at all on 23rd of February 2009. Such alterations have to be made manually and it took Mr. Hinchey some time to decide what to do. A customer who emailed on 24th of February 2009 to Companies House to point out that the Bulk Products referred to a winding up order in relation to the Company which was not available for inspection on the website. This customer received the following response:-
"There was a [compulsory winding up order] logged on 20/2/2009 which was subsequently errored off our system as it was against the wrong company. This is why there is no image for it but there were records on the daily feeds. I'll see if I can put through a record to take it out of liquidation on the daily feed."
On 26th of February 2009 an email was written by Martin Casey of Jordans who said:-
"The company 00067032 shows on our system as being in liquidation with winding up order having been filed with you, with a filing date of 12/2/2009. CHD does not show any of this information.
"Can you please let me know when and why you removed this information from your files. I hope that your reply is not going to take 10 days."
The answer was sent on 10th of March 2009, a little more than 10 days later. It said:-
"It seems an order of court to wind up was put on to this company's record in error. This was then errored off by the Liquidation team and an "N" marker sent out in the daily directory data file for run number 9754 on 10th March."
The only other evidence of actual corrections being communicated to customers comes from a further email exchange with Jordans on 19th-26th of March 2009. The customer had asked why the bulk product information posted on 21st February 2009 did not appear on the Companies House website. The answer was given on 20th of March 2009:-
"This doesn't appear on CHD (Companies House Direct) because it was errored off CHIPS on 23/2/2009. Currently there is no automatic mechanism to feed this through to the bulks."
Apart from answering these isolated emails, what Companies House did was to place a marker on one of the bulk products, the Daily Directory Update, on 10th of March 2009. This replaced the original "L" marker with an "N" marker. I will not seek to explain exactly what that means in detail because I am not required to decide whether this was a sufficiently clear way of resolving the problem so far as this bulk product was concerned. It is not alleged that the Defendants were negligent in failing to correct the error quickly or completely. The relevance of this is (1) if errors cannot be corrected in less than 17 days on a bulk product, this may be relevant to the existence of a duty to avoid making them in the first place and (2) the continued propagation of the falsehood may be relevant to causation. If the original error had been decisively and widely corrected quickly it may perhaps have had less impact, but that is not what happened.
In respect of the other two bulk products the correction was even less rapid. The Daily Liquidation Update and the Time Critical Daily Update products do not have the facility to alter information. It was only when the notice of appointment of administrators appeared on those products that anyone relying on them would realise that the Company was not in liquidation. The false information therefore remained current on those products until the end of the trading life of the Company.
On the 3rd of March 2009, ten days after the error had been identified and corrected on the Register a letter of complaint was written to Companies House by Mr. Evans, the Company solicitor. The Company and its legal adviser had believed that the problem had been rectified because nobody had told them about the bulk products, which still showed the Company as being in liquidation even at that date. The letter asked for an acknowledgement of the letter within seven days and the Registrar's "initial observations" were invited. This was criticised by Mr. Paul Rees QC, on behalf of the Registrar, as being a rather inadequate approach to securing a remedy. On analysis, this may not matter to the determination of the preliminary issues. The fact of the matter is that Companies House did know of the error on 23rd of February 2009, and it was rapidly escalated to a senior level. Mrs. Stenning told Jackie Haralambos, then Head of Registration Customer Support, and she consulted her senior manager, Gus McDonald before Mrs. Stenning was authorised to respond to the complaint made on the telephone by Mr. Evans, the Company solicitor. Two customers had pointed out the problem with the bulk products on 24th and 26th of February, see 23-25 above. Companies House did what it thought was possible and reasonable in response to these three pieces of information. It seems unlikely that any lack of assertiveness by the Company's solicitors would operate in law to break the chain of causation. In any event, Mr. Evans explained that his aim in writing the letter as he did was to try to secure an apology in writing which his client, the Company, could then use to persuade its customers, suppliers and creditors that the liquidation was just a mistake. He felt that by keeping things low-key it would be dealt with at a lower level and perhaps he would be more likely to get a less defensive and thus more useful response. He did in fact secure the apology and this seems to me to be a reasonable exercise of professional judgment.
The response to the letter of complaint, including an apology, was sent on the 13th of March 2009, the same day on which a chasing letter was sent by the Company solicitors. This was a full explanation of what had happened, although it did not alert the Company to the problem of the bulk products which had been appreciated at Companies House by that date as the emails with the users of the bulk products of 24th and 26th of February show. It appears to have been received by the Company on or about 18th March 2009 because on that day Mr. Sebry emailed Mr. Lloyd Williams the Supplies Account Manager of Corus saying:-
"Please find enclosed the letter of apology from Companies House, it's a bit academic now seeing as we have been told to leave the site as our services are no longer required by Corus."
A number of employees and advisers of the Company were asked by Mr. Rees in cross-examination about other ways in which they might have reacted to save the Company. In essence, they all said that they were placing all their efforts in trying to persuade suppliers and customers that they should carry on trading with them on normal terms. This involved a lot of work and they had a large number of suppliers, some of whom gave evidence in the trial. It was suggested that a round robin e-mail to all suppliers may have been sensible, but no employee or adviser of the Company thought that advertising the problem to people who may not have heard of it was likely to help, and no supplier thought that such an email would have made any difference to him.
THE THIRD PRELIMINARY ISSUE: THE CAUSATION ISSUE
I will deal with the Causation Issue before the Duty Issue. This is because it may be relevant to the Duty Issue. If the error caused substantial loss in this case, that may be a reason in favour of imposing a duty of care to avoid making such errors. It could not be decisive of the Duty Issue, but it is capable of being relevant.
As I have recorded above, at paragraph 9, neither side has called any expert evidence on the Causation Issue. For the Company I heard a great deal of factual evidence about the reasons why it went into administration when it did. I heard no evidence of any kind on this issue called by the Defendants. In one sense, therefore, the issue can be simply resolved. Mr. Sebry, the Managing Director of the Company, told me that the directors decided to put the Company into administration because it had run out of cash and the Bank refused to lend any more. He said that the cash shortage was caused by the rumour that the Company was in financial trouble, which was caused by the error. He explained that the Company depended on credit from its Bank, but also, crucially, from its suppliers. Once they started to refuse to supply goods and services without payment in full for all past supplies and payment up front for all present and future supplies the Company lost that essential line of credit. Further, without supplies a company of this kind cannot fulfil its contracts and cannot therefore earn income. There was an outflow of cash to try to maintain supplies and at the same time a reduction in income. This sharp and unexpected reduction in cash occurred just at the time when the Company was in any event trying to restructure with the benefit of additional finance from the Bank and was rapidly terminal. I found Mr. Sebry to be a truthful witness and nothing occurred during the trial to dislodge that impression. Further, what he said seemed to me to be inherently probable. Finally, on the question of why the directors decided to place the Company into administration I also heard from another director, Mr Stephen Lloyd. He also said that the error was the reason why the Company went into administration when it did. This was a decision to which these two witnesses were party and they must know why they took it. Mr. Lloyd, like Mr. Sebry, was an honest witness who was intimately involved in the events and knew enough to be a reliable source of evidence on this question. Nothing in the documents suggests that there was any other reason why the Company went into administration in April 2009. It appeared to me that Mr. Sebry felt very aggrieved by what had happened, in particular that Companies House had sold on (as he put it) the false information about the Company and had not corrected it or told him that this was the position. It is perhaps not surprising that he feels as he does, but there may be a natural desire to blame all his woes on the error rather than other causes for the loss of the business. That desire may be exacerbated by the contingencies of litigation. I have considered whether this should qualify the weight which can be added to his evidence but have decided that I am prepared to accept what he says because he struck me as a sensible and experienced man who expressed himself with commendable moderation in all the circumstances. His account is entirely consistent with the documents I have seen and was supported by many other witnesses.
I would have been prepared to resolve the Causation Issue in favour of the Company on this simple basis, but since so much other evidence has been called for the Company and submissions made by both sides at length it is necessary to go a little further. I do not intend to set out the submissions at length in this judgment because they were very long and detailed and because they were supplied to me in writing and a record exists for future reference if required. I mean no discourtesy to the great skill and care expended by both sides in their construction by this approach. I read them with care and found them helpful, but in the end this is quite a simple factual issue on which the evidence is all one way.
The Company was trading at a profit until the end of its last trading years and had reserves of over £5,000,000. The recession and the banking crisis caused it difficulties in 2008 which it addressed by taking a series of steps after consultation with its Bank. The Bank suggested that the Company should retain a specialist accountant to turn it around, and this resulted in the appointment of Mr. Geoff Eades who gave evidence before me. His evidence was truthful and impressive and, once again, proves the Company's case on the Causation Issue on its own. He was effectively seconded from his firm for an extended period of time to work at the premises of the Company. By the time of the error, he had become very familiar with the way the Company operated and was actually there (unlike Mr. Sebry) when the error was discovered. He saw at first hand what happened and was involved in efforts to try to save the Company. He is not entirely independent, perhaps, but he is an experienced professional man whose livelihood did not depend on the Company. His evidence is entitled to great weight in my judgment.
Mr. Eades told me that by the 20th of February 2009, when its liquidation was announced by Companies House, the Company had taken the following steps:-
• it had taken his advice and introduced more effective financial controls;
• it had made redundancies, particularly in Port Talbot, so as to deal with a loss of non-urgent business from Corus in the autumn of 2008;
• it had negotiated with its bank a £750,000 increase in its facilities which had been granted informally on 18th of February 2009 and formally on 19th of February 2009; this event is evidentially important because it means that immediately before the error the Bank was persuaded (at a time when Banks were less easy to persuade than they had been) that the Company had a viable future with this level of increased funding; the Bank said, according to Mr. Eades, that the Company should not come back for more; this is therefore strong contemporaneous evidence that at that date the Company had a future;
• since the start of 2009, the business climate had begun to improve and the Company had received an increase in orders from Corus and strong indications that it would receive 3 RNLI contracts;
• its sister company Taylor Marine was about to have a substantial increase in its business and its application for letter of credit facilities had been accepted by its bank; this promising situation paradoxically worsened the short term position of the Company because until the letter of credit facilities came on stream, the Company financed the increased level of business of its subsidiary out of its overdraft. In the end, those facilities never did become available;
• proposals were in hand for the payment of arrears of PAYE and VAT to the HMRC over an "athletic" period of 18-24 months.
The evidence which I heard in addition to Mr. Sebry and Mr. Eades came from other professionals advising the Company at the time, namely its accountant (Mr David Challenger) and its lawyer (Mr Philip Evans); its banker (Mr Matthew Pearce); employees of the Company Mr Huw Jones (its financial controller), Mr Scheeres (of Taylor Products and formerly a non-executive director of the Company), Mr Stephen Day (works manager), Karen Jones (an office administrator for the subsidiary Blastpride) and Mrs Sebry (the Claimant's wife who dealt with HMRC); suppliers including Mr Paul Boyce (of Fleet Direct), Mr Matthew Paul (of Powertek) and Dominic Waters (of Work Tool Hire); and Ian Watkins, an experienced businessman and the Managing Director of Cyrus. His evidence was of particular significance because he acquired part of the business of the Company from the Administrator and was able to explain that, provided there was enough cash to run the business, the prospects were very good. He was an undoubted beneficiary of the error which enabled him to acquire a valuable business at a very reasonable cost.
I had no reason to doubt the truthfulness of any of these witnesses, and every reason to believe them. In each case their evidence was sensibly given and in each case there was no motive to misrepresent the truth. It is fair to summarise the effect of all this evidence by one sentence: None of these witnesses, from their own standpoints, has any doubt at all that the error was a disaster for the Company. I heard graphic evidence about how the rumour spread and, particularly from the suppliers, about how their immediate reaction was to refuse further credit. They were hard times for the suppliers as well as for the Company and all businesses involved were concerned for their own survival. Their reaction was undoubtedly caused by the error because prior to it the Company's suppliers had been happily trading on ordinary 30 day credit terms, and, as the figures show, actually affording longer periods of credit than that.
The Defendants, confronted with this large body of direct evidence, advanced a case which was developed only through cross-examination. They did not identify or plead any other rival cause for the administration, but probed the evidence to try to find one. Essentially, three areas were explored:-
• The possibility that Corus might have terminated its long relationship with the Company on 10th of March 2009 for some other reason, and that if that had not happened the Company might have been able to continue to trade. This idea was really based on the apparent fact that Corus had reports from Graydon (which is a credit reference agency which takes information from ICC, a bulk product customer) showing that the Company was not in liquidation by the time it took the decision to remove the Company from its site. However, Corus (now Tata) has refused to cooperate with either party in the preparation for this trial and I have heard no evidence from it as to its motives. The documents are also very silent on the subject and Mr. Sebry had no real insight into the Corus thought process. He described the meeting at which he was told that the relationship was over, but did not know why. His thought process is best seen from the email which I have set out at paragraph 29 above. He thought that the apology and explanation from Companies House might have been useful if it had been received before the decision to terminate the relationship. This suggests that he at least thought that there was a causal relationship between the error and the termination. This is confirmed by the evidence which was adduced after a waiver of privilege by the Company about the efforts which Mr. Sebry made to try to persuade Corus to provide evidence about the reason for their decision. He was unsuccessful, but he tried hard. It seems unlikely he would have done this if he knew that there was some other reason for the decision than the error.
• There was also a suggestion that the loss of 3 RNLI contracts which had been expected had contributed to the failure of the Company. This was rejected by the witnesses on the ground that no income from the contracts was to be expected for some months after these events. On the contrary, had they been secured they would have entailed the costs of setting up the necessary work in order to fulfil them. In the short term therefore they would have caused expenses and produced income and profit only after that. In the time frame with which I am concerned they were therefore not capable of rectifying the cash shortage. The suggestion that if they had been secured they would have reassured suppliers and others about the strength of the Company seems to me to be speculative. The suppliers from whom I heard were interested in running their own businesses rather than analysing those of their customers. Their judgments about the creditworthiness of their customers were not made at leisure. In any event on the evidence of Mr. Lloyd I find that the reason for the loss of the contracts was the error by Companies House. They created an environment in which no-one wanted to deal with the Company.
• There was a suggestion that the way in which the Company responded to the publication of the liquidation might have resulted in the administration. This must involve a suggestion that the failure of the Company to protect its interests was so far from what might be expected of any reasonable company that it amounts to a break in the chain of causation between the error and the administration. This included, as I have recorded at paragraph 28 above that the Company should have complained more vigorously than it did to Companies House. It also included a suggestion that a round robin email from the Company's accountants might have been successful. The professionals involved, Mr. Evans the solicitor and Mr. Challenger the accountant, dealt with these suggestions. Mr. Challenger said he would not have been prepared to write such an email to suppliers. That seemed to me to be sensible since it would inevitably result in questions from suppliers about whether he could say that they would be paid if they restored supplies. He could not possibly answer those questions on behalf of the Company in the firestorm which was then raging around its future. Apart from his professional difficulties as auditor in writing such an email, the practical outcome seems to me to be highly questionable. I have dealt with what Mr. Evans said about the letter he wrote to Companies House at paragraph 28 above.
It would be pure speculation for me to conclude on the evidence that Corus had some other reason for its decision to terminate a very old relationship within 3 weeks of the error. The absence of evidence from Corus is a result of a decision which both parties have made not to call any witness from Corus and not to seek any third party disclosure of documents from Corus. Mr. Sebry explained why he did not take these steps and produced a letter from Corus which said that there were no documents relating to the meeting at which his Company was dismissed from the site. I do not know why the Defendants did not explore the issue as they could have done if they wished by calling witnesses under a summons or seeking documents by the same means. The result is that the evidence which I do have dictates the outcome. I conclude that on the balance of probability Corus terminated the Company's role on site because of its concerns about its future which were fuelled by rumours by that date. This is confirmed by the evidence which Mr. Sebry and others gave about the investment by Corus in harmonising IT systems very shortly before February 2009. This suggests that until the error Corus expected a long future relationship.
I have set out above a brief summary of the evidence about the bulk products, the 3 information dissemination systems operated by the Defendants which continued to publish the liquidation of the Company after the 23rd of February 2009. The result of this is that the Defendants' pleaded case that the error was promptly corrected fails on the facts. Even if it had been, the difficulty of stopping a rumour which has such an authoritative starting point as Companies House cannot be understated. The relevance of this to the question of causation is that there is no need to infer that there must have been some other cause for the administration because the publication was so short and quickly corrected. It was not short and it was not quickly corrected.
There was abundant evidence of the impact of this kind of information being on the register for even a short period of time. Mr. Eades, Mr. Huw Jones, Mr. Scheeres, Mr. Watkins, Mr. Day, Mr. Boyce, Mr. Lloyd and Mr. Challenger all spoke of this. I have no difficulty in accepting this proposition. A mistake of this kind is likely to be particularly toxic for a company like this. It was not so big as to be able to refute the rumour easily. The appearance of a winding up order on a Companies House feed in relation to a major multi-national company would probably cause little damage. It would probably not be believed and would be such major news that the truth would be on all major national media news services within minutes. Conversely a tiny company with a very low level of business may be able to speak directly to everyone who is interested in its fate very quickly. Rumours would not damage it very much because very few people will have heard of it. A company in the middle, such as the one concerned in this litigation, is probably most vulnerable. It was a well-known name in its business and in its region and so generated much interest. On the other hand it was not so big that rumours of its liquidation were thought likely to be untrue.
Mr. Sebry said that some people at Corus did not believe him when he sought to correct the error in early March 2009. The Graydon reports in the bundles indicate a correction was made in the long form report before that time. However, he said that when he spoke to Corus, in the person of Mr Lloyd Williams, he had a one page alert from Graydon. I have not seen any such document, but this does not mean that it did not exist. On the contrary, it seems likely that it did. Graydon obtained its information from ICC which was a customer for the bulk products. At some stage a short alert is bound to have existed, and once it exists in hard copy it will not cease to exist because a correction to the full report is made later. The alert may have been generated while the information was "live", between 20th and 23rd of February 2009, or from the bulk products which remained inaccurate even after an attempt to rectify the position had been made. ICC was a customer for the Daily Directory Update and the Daily Liquidation Update, one of which was not corrected until 10th March 2009 and the other was not corrected until after the Company had gone into administration. There is therefore no proper basis to reject Mr. Sebry's evidence about this.
Apart from the information supplied to the Bank in support of the Company's application for additional overdraft funding in February 2009, the principal financial material which was examined and explained in evidence is a series of Aged Creditors Analysis documents. These are relevant to the contention that the suppliers started to behave differently after and because of the error and the figures were chiefly dealt with by Mr. Huw Jones in his evidence. He has retained a great deal of documentation belonging to the Company on his personal computer (he no longer works for it, of course as after its administration it was dissolved). This is apparently the principal source of documents concerning the Company. The Analysis documents are lists of creditors showing the balances due to each and their ages. There are columns for 4 months, being the month in which the Analysis was prepared and 3 earlier months, and there is a column for "older debts". It was not the practice to enter debts during the current month, so the current month column in each case is a list of zero or negative balances (a negative balance will arise if a debt is paid before it is entered on to the system). The system then lists the debts for the following three months and those which are older than that. The documents show that the Company did not always pay its suppliers within 30 days and that significant balances were outstanding at 90 days, and that there were some debts older than that. This was described in evidence as not abnormal, and not a cause for concern, at least while the suppliers had no reason to distrust the financial strength of the Company. Once that trust went, it meant that there were substantial debts due immediately and which were then urgently sought. In summary these documents show
DATE OF ANALYSIS Balance Current Month 1 Month 2 Month 3 Older
17 December 2008 1,777,135 -263,281.14 283,508.44 786,447.45 501,360.32 469,100.08
19 January 2009 1,675,952 -107,300.71 291,085.45 576,073.21 385,438.96 530,655.20
30 January 2009 1,826,022 -18,231.82 401,178.12 713,092.97 397,667.98 332,315.49
Average of 3 above 1,759,703 -129,604.56 325,257.34 691,871.21 428,155.75 444,023.59
4 March 2009 1,017,176 -180,583.18 258,201.25 323,299.97 144,108.51 472,149.86
The above Table shows that on 4th of March 2009 the total balance of debt owed by the Company was well over half a million pounds less than it had been in any of the three earlier months and was nearly three quarters of a million pounds less than the average of those three months. This is the sharp fall in indebtedness which was said by Mr. Jones and Mr. Sebry to have resulted from the sudden demand by suppliers for payments. I was told of one incident where a manager employed by the Company needed some gloves so that its employees could work. The supplier refused to supply these fairly cheap items without immediate payment in full of all outstanding debts, whether they were current or older than 30 days. The men could not work without gloves and the debt was therefore paid.
Mr. Jones, in evidence, produced some further documents from his computer namely HJ/2 a bank statement created by the Company's Sage Accounting system, and HJ/3 a series of Customer Activity Summaries for various customer accounts from 1st of February 2009. The Bank Statements were more illuminating. They were produced by Mr. Jones over a weekend during the trial from his computer, and had not been extensively analysed before his evidence was given. I gave a ruling on Tuesday the 18th November 2014 which appears on page 22 and following of the transcript for that day. I refused the Claimant permission to rely on this recently discovered material as part of his case, but acknowledged that if the Defendants pursued the case they had been advancing in cross-examination of other witnesses, Mr. Jones would inevitably say that he did have information which could answer those questions. The Defendants had had the material for 24 hours by that time, and had an opportunity to decide whether to ask questions which would require Mr. Jones to refer to it if he were to give a truthful answer. If that resulted in unfairness to the Defendants, I would hear submissions on whether I should decline to hear the 3rd preliminary issue but should order that it be tried with the quantum issue if I found in favour of the Claimant on the Duty Issue. In the event, Mr. Rees QC did cross-examine about the loss of cash from the Company after 20th of February 2009 and the reasons for that, and Mr. Jones did use his newly produced documents. I was not asked to take any further step to address any resulting unfairness and did not do so.
Mr. Jones ran his eyes over them in the witness box and identified what he called "unplanned payments" after the 20th of February 2009 which he said showed payments to suppliers which were only made because of demands of this kind and which would not have been made if the suppliers had not been behaving as they did because of the error. At page 82 of the Transcript for the 18th November 2009 in cross-examination he said:-
"I am sure that if you do a weekly or a monthly comparison you can see that at the end of February at the beginning of March significantly more left the bank account than would normally have been the case. I would probably take a stab first three weeks after the notice was issued, three quarters of a million."
This was challenged and he was invited both by Mr. Rees and, in re-examination, by Mr. Freedman to identify the payments he had in mind. These were then totalled up by counsel for the purposes of their closing submissions and they came to a total of approximately £794,000. I have no reason at all to doubt Mr. Jones' identification of these unplanned payments and comparison of them and their dates with the Aged Debt Analysis, where possible, broadly supports his evidence on this issue. Mr. Jones also noted that the Bank Statement showed that the new facility was rapidly reached in March 2009 and that more cash was therefore required. The first unpaid cheque was on 25th of March 2009, which was about the time when the Company made its last effort to persuade the Bank to increase the facility again, which was refused, and therefore also about the time when the decision to place the Company into administration had to be taken. The Bank Statement therefore entirely supports the evidence of Mr. Sebry about the history of events after the error, which was evidence he gave when he did not know it would be produced.
It would be possible to write many pages about the evidence which I heard on the Causation Issue. Some of it was very detailed. I do not think that any further explanation is required to show why I have come to the conclusion that the Claimant succeeds on the Causation Issue and find for the reasons I have given that the Claimant has proved that the reason why the Company went into administration in April 2009 was the error made by Mr. Philip Davies. There is no evidence of any other precipitating factor, and the suggestion made by the Defendants that actions of others or of the Company in addressing the consequences of the error were new causes which break the chain of causation between the error and the administration are without foundation.
THE DUTY ISSUE
COMPANIES HOUSE AND THE REGISTRAR
Companies House dates back to 1844. I am concerned with its role in February 2009. At that time full implementation of the Companies Act 2006 was under way and that work was completed in October 2009. The status of Companies House was governed by the Government Trading Act 1990 and the Government Trading Funds Act 1973. An Order was made under those provisions in 1991, SI 1991/1795, the Companies House Trading Fund Order 1991. It has been amended since February 2009, but those amendments are immaterial to any issue before me. The effect of this was to establish a fund to finance the operations of Companies House "in the interests of improved efficiency and effectiveness of the management of those operations". The operations to be funded by this means are defined in Schedule 1 to the 1991 Order as follows:-
"SCHEDULE 1 THE FUNDED OPERATIONS
1. The following operations with respect to companies and other forms of business organisation required by law to register, or register information, with the registrar of companies:
(a)the registration and striking off the register of such entities;
(b)the regulation of the registered names of such entities;
(c)the registration or recording of information required by law to be submitted to the registrar in respect of such entities;
(d)the maintenance of records required by law to be kept by the registrar concerning such entities;
(e)the making available for inspection of those records and the provision of copies of such records or of any information contained in or based upon those records;
(f)the administration and enforcement of laws relating to such entities, including the consideration and pursuit of complaints about the breach of such laws;
(g)the provision of guidance on matters relating to the law and practice governing such entities.
2. The regulation of business names, including the administration and enforcement of laws governing the use of business names (including the consideration and pursuit of complaints about the breach of such laws) and the provision of guidance on matters relating to the law and practice governing the use of business names.
3. Without prejudice to the foregoing, the performance by the registrar of companies of any function of his imposed on him by law as at 1st October 1991 and the performance of any functions of the Secretary of State as are performed as at that date by any officer employed within Companies House.
4. Operations incidental, conducive or otherwise ancillary to the foregoing."
On 28th of March 2008 the Registrar gave evidence to the Business Enterprise and Regulatory Reform Committee as part of the process which resulted in a Report HC 456 by the Business and Enterprise Committee on 21st of November 2008. The Report contains a great deal of information and records general satisfaction with the performance of Companies House, but there was a concern felt by the Committee that Companies House could do more to ensure that users of the Register clearly understood that Companies House received and registered information from third parties and carried out very few checks on it. They felt that there was a danger that some users thought that "because Companies House is an agency of government, its data can be relied upon to be authoritative – it cannot". The Report did not identify any concern about mistakes made by staff at Companies House. It contained the following information:-
"DATA HANDLED
6. All limited companies in England, Wales and Scotland are registered at Companies House, more than 2.5 million in total. Companies House holds a huge amount of data: its database contains 315 million pages of company information. In 2005/06, 120 new companies were formed every working hour and 42 documents were processed every minute. In addition one company document was bought every 4 seconds. (See table 1)
[There is then a Table which sets out further information demonstrating the very large scale of the operation of Companies House.]
7. The information filed at Companies House is used by a variety of people and organisations for a mixture of purposes. For example, it can be used by a member of the public to check a company's details before buying its goods or services; and it can be used by businesses to find out about potential customers or suppliers and to monitor competition. Credit reference agencies, banks and law enforcement agencies also use the data."
In his evidence to the Committee, the Registrar had explained that the requirements on companies to supply information to the Register had been part of the basis on which they were granted limited liability. He said:-
"The purpose of making that information available is really the nub of what Companies House is there to do. In order to allow business access to easy and readily accessible information, and in order to allow people to assess the performance of companies and assess the track record of directors in companies, in return for that limited liability status that information is provided. That enables people to make informed decisions about who they want to do business with, who they want to work with as their clients, who they want to work with as suppliers and who indeed they believe to have good credit, for example.
……….
Oh, a vast range of people use the services of Companies House. Typically, it is companies who are determining whether or not another company is a good one to do business with. Credit reference agencies use Companies House to assess the track record of directors."
With effect from 21st of June 2008 Companies House published a Framework Document. The Parliamentary Undersecretary of State said this in the Foreword:-
"Companies House was only the second Executive Agency to be established, in 1988, and it has continued to evolve since then. Customer-facing Agencies are at the forefront of modernising public services and should be at the leading edge of technological change in Government.
……….
Trading Funds like Companies House have an important part to play in delivering Government services efficiently and effectively benefiting both companies and customers who search for company information."
The Framework Document sets out the aims and policy of Companies House as it then was. Full implementation of the Companies Act 2006 was under way and, among other things, this Act introduced the concept of the "Register". There was, at the time, a move from paper to digital filing of materials. The document says, among other things:-
"4.1 The mission for Companies House is to be the foundation of company information exchange in the UK: helping business, informing the public, benefiting the economy. The key elements of the strategy revolve around Customers – knowing its customers and recognizing their different needs."
Under "Performance Targets" the Framework Document says:-
"The targets currently cover the following areas:
Customer to provide high quality services (for example to resolved complaints within a specified time, to achieve a specified level of customer satisfaction and maintain a specified level of systems availability);"
Under "Customers" the Framework Document says:-
"6.17 Companies House has a responsibility to all its customers and endeavours to provide them with high quality services, which represent value for money and are courteously and efficiently delivered."
The Annual Report of Companies House 2008/09 and the joint statement of the Registrar (referred to as the chief executive) prepared with the chief of the steering board says:-
"Our role as an efficient mechanism for the exchange of information is especially important now – when UK businesses are experiencing difficult economic circumstances.
For customers searching the register, we recognise that there is a major benefit in having a register which is accurate and gives efficient access to information essential to confident decision-making in the business community.
Of course, companies filing information also benefit from this because the completeness of a company's record may influence its credit rating and the decisions of others thinking of doing business with it."
The Annual Report of Companies House 2008/09 contains a statement recognising:-
"….the danger of an incomplete record damaging a company's credit rating with a potential adverse effect on its ability to do business."
Companies House and the Registrar publish a "Code of Compliance" brochure which explains their aims. This is a relevant document because although it post-dates the failure of Taylor & Sons Limited in April 2009 it is not suggested that anything has changed since that date. The document explains in language which is designed to be accessible what professionals have always understood to be the function and aspiration of the Registrar. I will quote some sections.
"We are the heart of company information in the UK, recording the life events of companies for all to see. Our vision is to be a world class information exchange; accessible, easy to use and trusted."
"At heart of our work at Companies House are values which reflect our determination to be customer focused in everything we do. The values are
Doing it right
Making a difference
Working together"
"What you can expect from us
You are entitled to expect the following from Companies House
An efficient service
We will achieve this by
• Providing up to date information promptly and accurately…"
This material permits a number of findings which were canvassed with the relevant witnesses called on behalf of the Defendants, Jo Jones, Head of Policy, Marie Flowers, MBE, and Jacqueline Haralambos and accepted by them.
• The importance of Companies House is that it operates in the interest of the public generally by making information about companies available to anyone who wants it. This is an important function which enables limited liability to function fairly and therefore benefits the economy of England and Wales.
• Companies House does not seek to verify or check information which it makes available except in very limited respects. Document Examiners are employed to ensure that information provided by companies about themselves or by others providing information about companies or directors comply with the requirements of the Registrar. Their function is not to exercise any judgment about whether the contents of those documents are accurate, reliable or complete. They consider only the form of the information and not its substance.
• In carrying out this function, the Registrar and his staff understand that in addition to the benefit provided to the public generally in supporting the economy, they also provide a service to (among others) those wishing to extend credit to a company and to the company itself. The company benefits from this process because its suppliers and bankers are able to confirm details about its existence, status and assets from the material which appears on the register.
• Inaccurate information which is created by the Registrar's staff because a mistake of processing occurs is capable of causing loss to the public generally, or a large and unascertainable class of the public, to those who decide to extend credit to a company, and also to the company itself. It is therefore important that the Registrar should exercise care and skill in ensuring that such mistakes do not occur. An inaccurate register is to be avoided by all possible means. This is not to say that he owes a duty enforceable by civil action to anyone who suffers loss as a result of inaccuracy, which I shall decide later in this judgment. It simply states what is obvious.
• This is not a situation where there are competing public or private interests which the Registrar and his staff must balance. In the area of the functions of Companies House with which I am concerned, there is only one outcome which is in the public interest. Information supplied to Companies House must not be inaccurately transcribed on to the Register. The relevant public official is not in the position of a police officer deciding what action to take after a complaint has been made of domestic violence, or a social worker deciding whether to institute care proceedings in respect of children. There is not a series of options which may all be acceptable. The public official is performing an essentially mechanical function in posting information which comes from an external source in the right place on the Register.
I will now deal with the evidence of Ms. Jo Jones, the Head of Strategy and Policy at Companies House. She gave evidence over two days and made a witness statement. In summary, she said that no mistake of this kind had ever happened before as far as she was aware. Her evidence was as follows:-
"Q. are you aware of any case between 2006 and now, other than this case, when the name of a trading company was wrongly entered as having been in compulsory liquidation?
A. I am not personally aware of those cases. I know by things that have been said anecdotally in Companies House that there may have been cases, but I wouldn't be able to comment on any particular case.
Q. Well, what you did tell us was you'd not received any complaint about any such case, or any claim?
A. Not to me or my team.
Q. Or any action?
A. Not to me or my team.
Q. And you weren't aware of any you said as well?
A. Not in the course of my formal role, no.
Q. Well, you're here as the lead witness on behalf of Companies House dealing with the evidence relating to this problem. Surely in that capacity you had caused inquiries to be made as to whether there had been any similar type of case, either before or after?
A. As far as I'm aware, there have been no similar cases that have resulted in a formal complaint.
MR JUSTICE EDIS: We did that yesterday, but what Mr Freedman is asking now is basically, whatever the result of it may have been, has this ever happened before? A. Not that I'm aware.
MR FREEDMAN: So that applies to compulsory liquidation. Let's move on from that to a creditor's voluntary liquidation. You very helpfully explain what that is in your second statement.
A. Yes.
Q. Are you aware of any creditor's voluntary liquidation wrongly posted as being in a liquidation, when in fact there hadn't been a liquidation?
A. Not that I'm aware of.
Q. And that's whether before or after February 2009?
A. Yes.
Q. You helpfully explain a member's voluntary liquidation, with a declaration of solvency. Are you aware of any mistake about a member's voluntary liquidation?
A. Not that I'm aware of.
Q. Are you aware about a company being said to have entered into administration when that was false?
A. I am aware that there's been a case in the past where we had a number of fraudulently filed voluntary arrangements which were, therefore, put against the wrong company. Well, put against a company and they were fraudulently filed.
Q. So in that type of case, both the Companies Registry and the company itself were the victims of a fraud?
A. Yes.
Q. What we're not talking about is we're not talking about some mistake in processing by Companies House, whereby the Companies House receives the right information and it puts the wrong information on the register?
A. That's correct.
Q. So no information about a mistake in Companies House leading to the identification of the wrong company in administration; that's correct, isn't it?
A. It is, yes.
Q. And it's correct also about voluntary arrangements?
A. Yes."
I am confident that in the extensive investigation which must have resulted from this case any earlier examples of similar errors would have been uncovered. Given the very large number of entries which have therefore been made over many years it follows that it is not very difficult to avoid such errors. If it was difficult, there would have been more than one since records began. This is confirmed by a document at page 207-209 of Bundle D3. This is the result of sampling by Companies House designed to assess its Data Capture Accuracy Performance, which is a matter of fundamental importance to its success as an organisation. It covers the 5 years 2008/09 to 2012/13, although there are no figures for 2010/11. It shows that where information is entered having been received on paper documents 98.40% of entries were free of Policy Errors in 2008/09, 96.6% in 2009/10, 97.4% in 2011/12 and 97.5% in 2012/13. I was told that the error with which I am concerned would be described as a Policy Error for this purpose, but it is not the only kind of Policy Error which can occur. If that is wrong, then the overall accuracy result to include other kinds of error is somewhat lower and is about 95% for each of the years covered. Where documents are submitted to Companies House digitally the number of entries free of Policy Errors rises to 100% and the overall percentage of pieces of work free of any error of any kind to a little over 99%, see page 209.
Therefore, I proceed on the basis that the kind of error with which I am concerned is very rare, or unprecedented, which can only be because it is easy to avoid.
Ms. Jones dealt also with the important question of what the adverse consequences might be to the public interest, or to any competing private interest, of the imposition of a duty of care to avoid placing an entry on the Register showing that a company was in liquidation when it was not. She deals with this in paragraphs 36-39 of her witness statement. She principally says that the result would be to slow down processes in order to include more checks to eradicate mistakes, and that this would require extra funding". She says that this would "impact on the economy, as information would take longer to reach the Register". She says also that extra provision would have to be made for claims resulting from "mistakes that are inevitable in any organisation as large as this one." Perhaps surprisingly, she says two things:-
• That no detailed analysis has been carried out on the financial mechanism of the Trading Fund to ascertain how any type of potential liability of this nature could be funded and managed.
• That the Registrar would, if such a duty were held to exist, have to consider how he processed documents and what further checks would need to be in place to eradicate the risk of another claim of this sort.
The reason why this is surprising is that it might be expected that in view of this event and the subsequent claim an organisation like Companies House would undertake some contingency planning to establish a means of funding such liabilities as may be held to exist, and to undertake an exercise to eradicate errors in the future whether there is a duty or not. In fact, in the present context, the staff in the Insolvency Section have reacted to the case, as I have already said, by applying the Trove Policy and insisting that they are provided with the company number by the external provider of information. I was also told that there is an increased amount of checking of work by supervisors. It is enough to record, perhaps, that this evidence is a long way short of establishing serious adverse consequences from the imposition of a duty of care. Companies House is self-funding and charges fees. If it is under any legal liability to companies to ensure that the information recorded against them is recorded against the company referred to in the information supplied and not to another company, then it will have to adjust its fee structure and seek insurance against the risk. Ms. Jones was asked about the availability of insurance and said that she did not know, see the transcript for 19th of November 2014 and pages 140-143. Increased cost resulting from the imposition of a duty is a relevant factor in deciding whether a duty should be imposed, no doubt, but it is not a weighty one. It will be balanced by the loss to the person who has been damaged by the carelessness of the putative tortfeasor.
Ms. Jones was asked in cross-examination to expand somewhat on her written evidence about the possible adverse consequences of a duty of care. She said this:-
"Q. Have you worked out what -- if this court were to hold that there was a duty of care, what further checks would be required to eradicate the risk or to reduce the risk?
A. Firstly, I should say we don't consider that we could ever completely eradicate the risks; so we are talking about what could be done to reduce it. We have done some work on what other measures could be put in place; and that, of course, assumes that there are measures that can be put in place. Those would be the sort of things that I was referring to, before, where we entered data twice; where two people did something and we compared the results. It would be activities such as that.
Q. But you wouldn't -- it wouldn't take very much, would it, just to have some form of supervision to make sure that there wasn't wide scale disregard of policies of the Registrar?
A. And that supervision, I believe, exists now. I have said that I believe that the policies are followed. So the question would be: what else would we need to put in place, given that we accept that with human beings carrying out these activities, there will be mistakes from time to time? So it's about what we would do, to try to, as near as we could, eradicate mistakes.
Q. So you have addressed the matter by making sure that policies of the Registrar, such as the TROVE examination policy, are followed?
A. We have, in terms of following the policy. That doesn't mean that we have eliminated any potential risk"
It is fair to conclude from this evidence taken as a whole that additional supervision, checking and sampling could reduce the already very low risk still further. It could not eradicate all risk. These steps would all be possible, but might involve additional cost. This would be money spent on the principal duty of the Defendants, namely the keeping of an accurate Register, rather than on some unproductive sideline. There is no evidence that the raising of this money and the obtaining of insurance if thought necessary would adversely affect the quality of the service provided by the Defendants, nor that it would be impossible.
After I gave leave to amend the Particulars of Claim to restate the duty contended for both at common law and under the statute Ms. Jones produced a second witness statement in which she explained that the apparent narrowing of the scope of the duty in the new pleading did not in reality narrow the scope at all. The importance of the evidence coming from the defendant in a case where the existence of a duty of care arising out of the careless performance of a statutory duty was emphasised by Lord Browne-Wilkinson in X (Minors) v Bedfordshire CC [1995] 2 AC 633 at 741 B-D when he explained why such issues should be decided at trial rather than on an application to strike out the claim. The evidence which I have heard concerns the activity of the insolvency section of the Companies House operation, and the recording of winding up orders. This case concerns the making of a false statement that a company was the subject of a compulsory winding up order and was therefore insolvent. If that had been true and if it was still trading (it was) it may therefore have been doing so fraudulently. On these facts foreseeability of harm is obvious if the statement was untrue. Whether that is so in the case of other types of entry on the Register will be the subject of evidence and argument in cases concerning that type of entry and nothing in this judgment indicates in any way what the outcome of any such case may be. For example, it would not follow from the imposition of a duty in this case that harm would be foreseeable when entering the name of a company secretary in relation to the wrong company. Similarly, when I approach the issue of proximity it will be simply on the question of whether there is a sufficient relationship between the Registrar and the Company when a winding up order is entered against it. It would not follow from the imposition of a duty in this case that any duty was owed to any of the very large class of unascertainable persons who may suffer loss by learning of false information about a company as result of an error made by Companies House. Whether Ms. Jones is therefore right about the fears she expresses in her second statement is a matter of law. It is an entirely legitimate exercise for her to point out the ramifications of the duty contended for, because if they are unacceptably wide that would be a reason for holding that it was not fair, just and reasonable to impose the duty. I return to this subject later in this judgment.
The evidence from the Defendants does not establish that any discretionary decision was involved in this case. The carelessness fell into two parts namely failing to follow the Trove Policy and then misreading the document and the CHIPS system. Obviously no discretionary decision was involved in the latter careless act. It is also clear, on the evidence, that no discretionary decision was involved in the failure to implement the Trove Policy. Neither Mr. Grant nor Mr. Davies were authorised to decide whether to ignore instructions from senior management such as those in the Trove Policy. No-one is said to have deliberately decided not to train staff in the Trove Policy for some policy reason between 2003 and 2009.
THE STATUTORY FRAMEWORK OF THE REGISTRAR'S FUNCTION
Part 35 of the Companies Act 2006 establishes the Register. The Companies Act 1985 did not use that term. The provisions of the 2006 Act are not reflected in the 1985 Act and one reason for that is the vastly increased use of computerised systems which occurred between 1985 and 2006. Section 1068 of the 2006 Act provided:-
"1068 Registrar's requirements as to form, authentication and manner of delivery
(1) The registrar may impose requirements as to the form, authentication and manner of delivery of documents required or authorised to be delivered to the registrar under any enactment.
(2) As regards the form of the document, the registrar may–
(a) require the contents of the document to be in a standard form;
(b) impose requirements for the purpose of enabling the document to be scanned or copied.
(3) As regards authentication, the registrar may–
(a) require the document to be authenticated by a particular person or a person of a particular description;
(b) specify the means of authentication;
(c) require the document to contain or be accompanied by the name or registered number of the company to which it relates (or both)."
In July 2009 (with effect from October 2009) section 1068(3) was amended so that it reads:-
"(c) require the document to contain or be accompanied by the name or registered number (or both) of the company (or other body) to which it relates."
Section 1072 provides:-
"Requirements for proper delivery
(1) A document delivered to the registrar is not properly delivered unless all the following requirements are met—
(a) the requirements of the provision under which the document is to be delivered to the registrar as regards—
(i) the contents of the document, and
(ii) form, authentication and manner of delivery;
(b) any applicable requirements under—
section 1068 (registrar's requirements as to form, authentication and manner of delivery)……"
Section 1073 provides:-
"Power to accept documents not meeting requirements for proper delivery
The registrar may accept (and register) a document that does not comply with the requirements for proper delivery."
Section 1080 as it was at the relevant time provided:-
"1080 The register
(1) The registrar shall continue to keep records of–
(a) the information contained in documents delivered to the registrar under any enactment,
(b) certificates of incorporation issued by the registrar, and
(c) certificates issued by the registrar under section 869(5) or 885(4) (certificates of registration of charge).
(2) The records relating to companies are referred to collectively in the Companies Acts as "the register".
(3) Information deriving from documents subject to the Directive disclosure requirements (see section 1078) that are delivered to the registrar on or after 1st January 2007 must be kept by the registrar in electronic form.
(4) Subject to that, information contained in documents delivered to the registrar may be recorded and kept in any form the registrar thinks fit, provided it is possible to inspect it and produce a copy of it.
This is sufficient compliance with any duty of the registrar to keep, file or register the document or to record the information contained in it.
(5) The records kept by the registrar must be such that information relating to a company is associated with that company, in such manner as the registrar may determine, so as to enable all the information relating to the company to be retrieved."
FIRST PRELIMINARY ISSUE: THE LAW
This is an area of law which has been the subject of continuous development since Hedley Byrne v. Heller [1963] 2 AC 465 was decided on 28th May 1963. That case constituted a significant extension of the law of negligence and its ramifications continue to be worked out. Liability exists where a person chooses to make a statement and does so carelessly causing economic loss. Alongside that development, the law has grappled with the principles by which claims for loss attributable to careless exercise of statutory powers or duties. Public bodies have been subject to claims which have caused the higher courts to engage in a debate between generations of judges creating a principled body of law. All the while Parliament has no doubt been aware of this and there is evidence in the statute book of Parliament providing for immunity from suit in certain instances. The Companies Act 2006 was enacted at a time when this problem was well known, and had been for decades. It contains no immunity from suit for the Registrar.
The milestones of this process are well known, and I have been provided with over 1,000 pages of authority. There is little purpose in a judge at first instance attempting to improve on the account of this epic legal process given by the higher courts, repeatedly, as they have grappled with different manifestations of the problem. It is enough to say that I have read, in many cases not for the first time, the authorities which have been cited. I will identify the decisions which have been most helpful in reaching a decision in this case and thereby explain my reasoning.
Lord Browne-Wilkinson in X (Minors) v Bedfordshire CC [1995] 2 AC 633 at 731 said:-
"The principles applicable in determining whether such statutory cause of action exists are now well established, although the application of those principles in any particular case remains difficult. The basic proposition is that in the ordinary case a breach of statutory duty does not, by itself, give rise to any private law cause of action. However a private law cause of action will arise if it can be shown, as a matter of construction of the statute, that the statutory duty was imposed for the protection of a limited class of the public and that Parliament intended to confer on members of that class a private right of action for breach of the duty. There is no general rule by reference to which it can be decided whether a statute does create such a right of action but there are a number of indicators. If the statute provides no other remedy for its breach and the Parliamentary intention to protect a limited class is shown, that indicates that there may be a private right of action since otherwise there is no method of securing the protection the statute was intended to confer. If the statute does provide some other means of enforcing the duty that will normally indicate that the statutory right was intended to be enforceable by those means and not by private right of action: Cutler v. Wandsworth Stadium Ltd. [1949] A.C. 398; Lonrho Ltd. v. Shell Petroleum Co. Ltd. (No. 2) [1982] A.C. 173. However, the mere existence of some other statutory remedy is not necessarily decisive. It is still possible to show that on the true construction of the statute the protected class was intended by Parliament to have a private remedy. Thus the specific duties imposed on employers in relation to factory premises are enforceable by an action for damages, notwithstanding the imposition by the statutes of criminal penalties for any breach: see Groves v. Wimbome (Lord) [1898] 2 QB 402."
And at 734-735 he said:-
"In my judgment the correct view is that in order to found a cause of action flowing from the careless exercise of statutory powers or duties, the plaintiff has to show that the circumstances are such as to raise a duty of care at common law. The mere assertion of the careless exercise of a statutory power or duty is not sufficient."
The mechanisms for determining whether there is a common law duty of care have been extensively considered. The shift from Anns v. London Borough of Merton [1978] AC 728 to Caparo Industries v. Dickman [1990] 2 AC 605 and Murphy v. Brentwood [1991] AC 398 perhaps began with the decision of the Privy Council in Yuen Kun Yeu v. The Attorney General of Hong Kong 1988 1 AC 175. This case has some factual similarity to the present and requires some consideration. The Commissioner of Deposit-taking Companies in Hong Kong registered a company as a deposit-taking company pursuant to section 10 of the Deposit-taking Companies Ordinance. The company subsequently went into liquidation. The plaintiffs, who lost the moneys they had deposited with the company, brought an action for damages for negligence against the Attorney-General of Hong Kong, representing the commissioner, alleging that they had made the deposits in reliance upon the company's registration and that the commissioner knew or ought to have known had he taken reasonable care that the company's affairs were being conducted fraudulently, speculatively and to the detriment of its depositors, that he should have ensured the company's compliance with the Ordinance, and that he ought not to have registered the company or that he should have revoked its registration, under section 14(1) of the Ordinance before the plaintiffs made their deposits. The claim failed on two grounds, first that there was no sufficient relationship between the commissioner and the plaintiffs to give rise to a duty of care. The decision was not framed using the word "proximity" because it pre-dated Caparo but it was in emphasising that element of the kind of relationship which can create a duty that the Privy Council moved the law away from Anns. The second ground of the decision was that the commissioner had not in fact made any representation as to the status of the company on which the plaintiffs were entitled to rely. That was a case, unlike the present, where the damage was said to have been caused to the plaintiffs because they relied on what they said was a statement made by the defendant.
The most recent and comprehensive analysis by the House of Lords came in Commissioners of Customs & Excise v. Barclays Bank plc [2007] 1 AC 181. In that case the Claimant attempted to sue the Bank for damages. The Bank had been given notice of a freezing order obtained by the Claimant and carelessly allowed assets of its customer to be dissipated in breach of the order, causing economic loss to the Claimant. The claim failed because it was held that the Bank owed the Claimant no duty of care to comply with the order. That was a duty imposed by the court and punishable as a contempt, but this did not give rise to any liability in damages.
There have been broadly three approaches to the determination of the existence or otherwise of a duty of care at law. Incrementalism (essentially argument from precedent), assumption of responsibility and the "three stage Caparo test". The meaning of these concepts and their relationship with each other had been controversial, and the House of Lords in the Customs & Excise case explained where the law had reached. Lord Hoffmann said:-
"The question of whether the order can have generated a duty of care is comparable with the question of whether a statutory duty can generate a common law duty of care. The answer is that it cannot: see Gorringe v Calderdale Metropolitan Borough Council [2004] 1 WLR 1057. The statue either creates a statutory duty or it does not (that is not to say, as I have already mentioned, that conduct undertaken pursuant to a statutory duty cannot generate a duty of care in the same way as the same conduct undertaken voluntarily)."
In paragraphs 5-8 of the Opinion of Lord Bingham he made 5 "general observations". I will not set them out in full, but will summarise them. Lord Bingham suggests that the judge should start with assumption of responsibility. This should be judged objectively, and is a sufficient but not necessary condition of liability. If answered in the affirmative a duty will be found, if not, further consideration is necessary. That further consideration involves an application of the three stage Caparo test, which is not without difficulty. The incremental test has little value as a test in itself. If the facts of the present case are similar in legally significant ways to an earlier case where a duty has been found, then the two other tests will more easily be held to have been satisfied. Lord Bingham's final observation was:-
"Fifthly, it seems to me that the outcomes (or majority outcomes) of the leading cases cited above are in every or almost every instance sensible and just, irrespective of the test applied to achieve that outcome. This is not to disparage the value of and need for a test of liability in tortious negligence, which any law of tort must propound if it is not to become a morass of single instances. But it does in my opinion concentrate attention on the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole."
Lord Hoffmann suggested that the terms which describe the tests are slogans rather than helpful analytical tools and explained the phrase "assumption of responsibility" doubting its utility in some cases where others had found it helpful. He continued at paragraph 38 in an important passage in the context of the present case:-
"Even in this context, however, the notion of assumption of responsibility serves a different, weaker, but nevertheless useful purpose in drawing attention to the fact that a duty of care is ordinarily generated by something which the defendant has decided to do: giving a reference, supplying a report, managing a syndicate, making ginger beer. It does not much matter why he decided to do it; it may be that he thought it would be profitable or it may be that he was providing a service pursuant to some statutory duty, as in Phelps v Hillingdon London Borough Council [2001] 2 AC 619 and Ministry of Housing and Local Government v Sharp [1970] 2 QB 223."
Lord Walker in Customs and Excise at para 73, said:-
"But in the modern context the word "voluntary" is being used, it seems to me, with the connotation of "conscious", "considered" or "deliberate". That appears, for instance, in White v Jones [1995] 2 AC 207 , both in the speech of Lord Browne-Wilkinson, at p 274, and in the dissenting speech of Lord Mustill, at pp 286–287. That is particularly important in considering whether the defendant has undertaken responsibility for economic loss towards anyone other than the person or persons with whom he is in an obviously proximate relationship. In such cases the voluntary assumption of responsibility towards others, judged objectively, may provide the necessary proximity…"
In the same case at paragraphs 94-111, Lord Mance recognises cases where there has been found to be liability without a voluntary assumption of responsibility. He decided the case on the basis of the third limb of Caparo, namely that which was fair, just and reasonable. He then regarded as decisive the issue of an assumption of responsibility, but he echoed Lord Hoffmann remarking "Here, the bank has not been entrusted by statute or otherwise with the provision of any public service."
THE SUBMISSIONS
It is the Registrar's contention that in his originally pleaded case the Claimant asserts that the duties as alleged are owed by the Registrar to every one of the approximately three million companies on the Register at any one time, and they relate to all information "relating to" those companies on the Register. The duties for which the Claimant contends in this part of his claim are not limited to the recording of particular types of information, whether concerning liquidation or otherwise; nor has he sought to limit the scope of the duty by reference to any concept of foreseeability of damage. The Registrar says that albeit the type of document is apparently narrowed in the amended case the use of the connected phrase "processed" results in a duty which is wide.
It is the Registrar's case that when considering whether a duty of care arises of the type for which the Claimant contends, it will be appropriate for this Court to consider whether the logic underpinning such a duty in the context of the Registrar of Companies would extend to the imposition of a similar duty on other public bodies which keep registers of information in the public interest. I have referred to the evidence about this at paragraph 67 above and to the limits on the scope of the decision which I have to take. This approach to an argument based on the suggested wide scope of a proposed duty of care (sometimes referred to as the "floodgates argument") is conventional. In Spring v Guardian Assurance [1995] 2 AC 296 Lord Lowry at p.327B said:-
"It is in the tradition of the English case law method to decide this appeal on its facts and not to be deterred by reflecting on all the possible situations in which a reference might be called for."
Similarly, Lord Slynn at [p.336F-G] said:-
"Nor does it follow that if a duty of care is recognised in some situations it must exist in all situations. It seems to me that for the purposes of deciding whether the law recognises the duty as being fair, just and reasonable there may be a difference between the situation where it is an employer or ex-employer who gives a reference and the situation where a reference is given by someone who has only a social acquaintance with the person the subject of the reference. There may be difficult situations in between but these will, as is the common practice, have to be worked out in particular situations."
The Registrar relies on the discussion of Anns v. London Borough of Merton [1978] AC 728 and Murphy v. Brentwood [1991] AC 398 in Reeman v Department of Transport [1997] PNLR 618 at 633-636. In Reeman the Court of Appeal decided that no duty of care was owed to a purchaser of a vessel which had been negligently certified as seaworthy while owned by another person. The Court considered the scope of the duty contended for and applied the more restrictive approach to this exercise which originated in Murphy v. Brentwood. It is of some interest that Phillips LJ, with whom the other members of the court agreed before adding some additional reasons of their own, held only that it was "at least arguable that no duty of care is owed to the owner of a vessel in relation to the process of survey and certification" see Phillips LJ at page 629D. This illustrates that a decision that a duty is, or is not, owed to a particular Claimant does not mean that the same result follows in respect of a Claimant who is in a different position. That decision rested on the requirements of proximity and the "fair, just and reasonable" element of the Caparo test. The approach to assumption of responsibility is of interest in the present context. Peter Gibson LJ addressed that concept more fully than the other members of the court and said at 637B:-
"However, Mr Ullstein also argues that the alternative test of assumption of responsibility, which was applied in cases such as Henderson v. Merrett Syndicates Ltd [1995] 2 AC 145, was also satisfied. For my part, I have some difficulty in seeing how that can be the appropriate test in a case such as the present where there is no contract between the plaintiffs and the Department, nor a situation the equivalent of contract, particularly if the adjective 'voluntary' is applied to 'assumption' as it sometimes is, given that the Department was acting under a statutory duty imposed upon it. I have even greater difficulty in seeing how the Department could be said to have assumed responsibility to the plaintiffs by issuing the certificates when the Department in 1977 and 1986 was at the request of the owner of the vessel performing that statutory duty and could not have known who, whether corporations or individuals during the currency of the certificate, might become the successors in title to that owner. The circumstances of the present case are wholly different from those, for example, of the managing agents providing services for the identified names in the Henderson case or the solicitor drafting a will under which identified beneficiaries were intended to take in White v. Jones [1995] 2 AC 207, in which cases the defendants were found to have assumed responsibility to the plaintiffs."
Reeman is a case on which the Registrar places considerable weight. Three strands in the decision therefore need to be emphasised.
First, Phillips LJ analysed the purpose for which the statutory certification system existed, namely to promote safety at sea and not to provide a pre-purchase survey service for commercial organisations who might later decide to buy the vessel. The Claimant had used the certificate for a fundamentally different purpose from that for which it was created. In the present case the Company did not use the misstatement at all, in the sense that it did not rely on it. It suffered injury because other people relied on it. They used it for exactly the purpose for which it was intended, namely by placing in the public domain information supplied by third parties about the Company's financial position to enable the business community to decide whether to trade with the Company and, if so, on what terms.
Secondly, the class of persons who might become entitled to rely on the duty if one were owed was not ascertainable at the time of the negligent statement. This defeated the claim on the proximity element of the Caparo test. At 638A Peter Gibson LJ put the matter in this way:-
"Lord Bridge indicated what he meant when he quoted with approval the words of Denning L.J. in Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164 at pages 180-181:
"Secondly, to whom do these professional people owe this duty? I will take accountants, but the same reasoning applies to the others. They owe the duty, of course, to their employer or client and also I think to any third person to whom they themselves show the accounts, or to whom they know their employer is going to show the accounts, so as to induce him to invest money or take some other action on them. But I do not think the duty can be extended still further so as to include strangers of whom they have heard nothing and to whom their employer without their knowledge may choose to show their accounts. Once the accountants have handed their accounts to their employer they are not, as a rule, responsible for what he does with them without their knowledge or consent. ... The test of proximity in these cases is: did the accountants know that the accounts were required for submission to the plaintiff and use by him?"
In my judgment the members of the identifiable class must be capable of identification at the time of the making of the negligent statement. It is not sufficient that the plaintiffs should be members of a generic class capable of description at that time, whether as potential purchasers or successors in title of the owner who asks for the certificate. That would be to create a potential liability to an open-ended class and I observe that in Smith v. Bush [1990] 1 AC 831 at 865, Lord Griffiths, in finding that a duty of care was owed by a prospective mortgagee's valuer to the prospective mortgagor, limited to that prospective mortgagor the extent of the liability and was not prepared to extend liability to protect subsequent purchasers."
Thirdly, the Court of Appeal distinguished White v. Jones. I have set out what Peter Gibson LJ said above, and Phillips LJ said this:-
"Mr Ullstein submitted that justice required the existence of a duty of care in the present case, because no alternative avenue of redress was open to Mr and Mrs Reeman. In this, he submitted, the present case resembled White v. Jones. I do not find the comparison valid. White v. Jones involved the question of whether a solicitor who was instructed to draw up a will owed a duty of care in tort to the proposed beneficiaries under it. In such a situation, were a duty of care not owed, no alternative remedy would ever be available to the beneficiaries. In a case such as the present, however, it will always be open to a party entering into a commercial transaction in relation to a certificated vessel to take steps, such as surveying the vessel or stipulating for contractual warranties, that will provide protection against the risk that the certificate does not reflect the true condition of the vessel."
The position of the Company in the present case is in this respect, in my judgment, comparable to that of the beneficiaries under the will. They had no way of protecting themselves against the loss of a gift under a will when they were not parties to the arrangement under which it was drawn up. The Company had no way of protecting itself against harm resulting from the promulgation of a false statement that it was in liquidation. That there is a conceptual similarity between the Company and the disappointed beneficiaries is perhaps shown by the importance of the decision in Ministry of Housing and Local Government v. Sharp [1970] 2 Q.B. 223 to the decision in Ross v. Caunters [1980] Ch 297, White v. Jones' famous predecessor. Sharp is an important case in the present argument and I shall return to it later.
One insight supported by this comparison is that there is a distinction between the Company, about whom a statement is made by others, and the users of the Register at large who obtain and use the information on it. Those users know that false information appears on the Register for a wide variety of reasons, and Companies House published a disclaimer which makes it clear that it publishes information supplied to it by others and does not warrant the accuracy of it. They have ways of checking information before they act on it in a commercial environment. A company about whom a statement is made and a disappointed beneficiary have in common the fact that they are blameless and defenceless victims of an act of carelessness in which they have no role at all.
If it is right that there is some similarity between the position of the Company and the beneficiaries in White v. Jones, it is necessary to consider that decision to test the extent to which it affords any assistance to the Company. Mr. Rees QC, in his closing submissions relies on this decision as support for his case. He cites Lord Browne-Wilkinson at 274F:-
"The law of England does not impose any general duty of care to avoid negligent misstatements or to avoid causing pure economic loss even if economic damage to the plaintiff was foreseeable. However, such a duty of care will arise if there is a special relationship between the parties. Although the categories of cases in which such special relationships can be held to exist are not closed, as yet only two categories have been identified, viz. (1) where there is a fiduciary relationship; and (2) where the defendant has voluntarily answered a question or tenders skilled advice or services in circumstances where he knows or ought to know that an identified plaintiff will rely on his answers or advice. In both these categories the special relationship is created by the defendant voluntarily assuming to act in the matter by involving himself in the plaintiff's affairs or by choosing to speak."
Mr. Rees says that the actions of the Registrar in receiving information from third parties and recording it on the Register in accordance with his statutory function do not fall within either of the two categories identified in White v Jones. There is no fiduciary relationship between the Registrar and the Company and there was no tendering of advice by the Registrar, whether voluntarily or otherwise. The effect of the Claimant's claim would be, therefore, to add a further category of common law liability to those recognised by the law to date: namely "where a public body publishes information about the defendant in accordance with a statutory duty." I observe that there is a danger in relying too closely on statements in the authorities which concern cases where the damage was suffered as a result of the Claimant relying on a negligent misstatement which is not the case here. This is a point made by Lord Browne-Wilkinson when reviewing Hedley Byrne in White v. Jones at 272D:-
"Second, since this House was concerned with cases of negligent misstatement or advice, it was inevitable that any test laid down required both that the plaintiff should rely on the statement or advice and that the defendant could reasonably foresee that he would do so. In the case of claims based on negligent statements (as opposed to negligent actions) the plaintiff will have no cause of action at all unless he can show damage and he can only have suffered damage if he has relied on the negligent statement. Nor will a defendant be shown to have satisfied the requirement that he should foresee damage to the plaintiff unless he foresees such reliance by the plaintiff as to give rise to the damage. Therefore although reliance by the plaintiff is an essential ingredient in a case based on negligent misstatement or advice, it does not follow that in all cases based on negligent action or inaction by the defendant it is necessary in order to demonstrate a special relationship that the plaintiff has in fact relied on the defendant or the defendant has foreseen such reliance. If in such a case careless conduct can be foreseen as likely to cause and does in fact cause damage to the plaintiff that should be sufficient to found liability."
Further, Lord Browne-Wilkinson's dictum cited by Mr. Rees and set out above at paragraph 93 does not mean that there are only two categories of case where such a duty arises, since Lord Browne-Wilkinson went on to point out that the case before him was not in either of those categories, but to hold that there was a duty nonetheless. He said that the law is not "ossified", see 275D. It is perhaps also worth pointing out the sentence immediately prior to the passage quoted by Mr Rees reads:-
"Let me now seek to bring together these various strands so far as is necessary for the purposes of this case: I am not purporting to give any comprehensive statement of this aspect of the law."
As I have indicated above, those users of the Register who did rely on the statement are not in the same position as the Company, who did not. Some of those users will have suffered economic loss by doing so in that they cancelled profitable hire contracts (for example) when they did not need to, and, had they known the truth, they would not have done so. If any of them were to make a claim, they would face formidable difficulties of the kind which defeated the claim in Reeman. Similarly, individuals whose livelihood depended on the Company may also have suffered financial loss because of its failure. They would form part of a large class of people whose financial interest may be affected in some way by the fate of the Company. Claims by them would also face serious difficulty because that class would be unascertainable at the time of the negligence. Claims of that kind would fall foul of the decision of the Privy Council in Yuen Kun Yeu v. Attorney General of Hong Kong [1988] 1 AC 175 to which I have referred above.
Mr. Rees says about White v. Jones that it required an extension of the law. In that he is right. The majority, he submits, justified this by equating the obligation owed to an intended beneficiary to a similar status to that of a fiduciary nature which has no application to the case now before the Court. In my judgment the decision in White v. Jones cannot be restricted so narrowly. First, neither Lord Goff nor Lord Nolan mentioned the concept of fiduciary duty in their speeches. Secondly, Lord Browne-Wilkinson said at 271C:-
"In my judgment, there are three points relevant to the present case which should be gathered from Nocton's case. First, there can be special relationships between the parties which give rise to the law treating the defendant as having assumed a duty to be careful in circumstances where, apart from such relationship, no duty of care would exist. Second, a fiduciary relationship is one of those special relationships. Third, a fiduciary relationship is not the only such special relationship: other relationships may be held to give rise to the same duty."
Lord Browne-Wilkinson then embarked on an analysis of the nature of a fiduciary duty to enable a principle to be developed which would determine what other relationships may be sufficiently "special" to give rise to a duty. Naturally in the context of an extension of the solicitor's duty (which included fiduciary duties) to other parties, the nature of the duty owed to his client was the starting point. In the present case, however, the court is not concerned with extending a duty owed by the defendant to A to a duty owed also to B. The issue is whether a duty was owed at all, to anyone. Therefore the reasoning of Lord Browne-Wilkinson analysing the nature of the admitted duty to see whether it justified an extension is not necessary in this case.
Lord Nolan, the third member of the majority, expressed himself in brief and illuminating terms. First he said at 292F:-
"My Lords, I would dismiss this appeal. I would do so because, on the basis of the simple facts found by the Court of Appeal—namely that each of the respondents lost at least £9,000 in consequence of the appellants' inexcusable delay in drawing up a fresh will for Mr. Barratt—the respondents' claim appears to me to satisfy the criteria laid down by the decisions of your Lordships' House in Caparo Industries Pic. v. Dickman [1990] 2 AC 605 and Murphy v. Brentwood District Council [1991] 1 AC 398."
Later in his judgment, at 293F Lord Nolan said this (with two passages underlined by me):-
"They stem from the appellants' argument that the decision under appeal extends tortious liability into what should be the exclusive domain of contract. The force of this argument has of course been substantially diminished by the intervening decision of your Lordships' House in Henderson v. Merrett Syndicates Ltd. [1995] 2 AC 145 which shows that a contractual duty of care owed by the defendant to A may perfectly well coexist with an equivalent tortious duty of care to B. Both duties depend upon an assumption of responsibility by the defendant. In the former case the responsibility is assumed by the making of the contract and is defined by its terms. In the latter the responsibility is assumed by the defendant embarking upon a potentially harmful activity and is defined by the general law. If the defendant drives his car on the highway, he implicitly assumes a responsibility towards other road users, and they in turn implicitly rely on him to discharge that responsibility. By taking his car on to the road, he holds himself out as a reasonably careful driver.
In the same way, as it seems to me, a professional man or an artisan who undertakes to exercise his skill in a manner which, to his knowledge, may cause loss to others if carelessly performed, may thereby implicitly assume a legal responsibility towards them. The fact that he is doing so in pursuance of a contractual duty or a statutory function cannot of itself exclude that responsibility. The most that can be said is that it may be one of the circumstances to be taken into account in determining the nature and extent of the responsibility."
There is no doubt that all three members of the majority in White v. Jones concentrated firmly on the factual context of the case before them. They regarded it as obvious that in the context of a family solicitor dealing with wills where the bequests were often small but much needed a duty should be imposed if this could be done without doing violence to established legal principle. The case turned in the end on their willingness to enlarge the concept of "assumption of responsibility" to provide the solution where a relationship existed between the Claimant and the Defendant which was in some way "special" so that by undertaking a task at the request of the testator (in that case) the solicitor assumed responsibility for doing that task carefully to those whom it was intended to benefit, even though the solicitor may never have had any dealings with them at all. The reason why the tortfeasor had decided to make himself responsible for doing the task was not of much importance, at least to Lord Nolan. His reference to a statutory function underlined by me in the passage at paragraph 100 above should be read in conjunction with the statement of Lord Hoffmann in the Customs and Excise case cited at paragraph 79 above. The difficulty expressed by Peter Gibson LJ in Reeman (paragraph 86 above) in accepting that a person performing a statutory duty could be said to have assumed responsibility for the task and thus become subject to a duty of care may have been reduced had he had the benefit of Lord Hoffman's speech.
The last cases which I wish to mention at this stage are Ministry of Housing and Local Government v Sharp [1970] 2 QB 223 and St John Poulton's Trustee in Bankruptcy v Ministry of Justice [2011] Ch 1. These cases both have a real factual similarity to the present. They produced different answers. In Sharp Mr. Sharp was the local land registrar charged by statute with keeping the local registry, and where requested searching it and issuing a certificate setting forth the result. A clerk was seconded by Hemel Hempstead Rural District Council to assist Mr Sharp with this work. The clerk negligently issued an inaccurate certificate to a prospective purchaser of land, omitting any reference to a claim to reimbursement of compensation which the Ministry had against the seller. The effect was to extinguish the right which the Ministry would otherwise have had to pursue its claim against the purchaser. It was conceded that, if the clerk was liable in negligence to the Ministry, then the council was vicariously liable for its clerk. The Court of Appeal held that the clerk was so liable. Lord Denning MR, at p 268F-G, did not agree that a duty of care could only arise when there was a voluntary assumption of responsibility. Salmon LJ said, at p 279:-
"It has been argued . . . that since the council did not voluntarily make the search or prepare the certificate for their clerk's signature they did not voluntarily assume responsibility for the accuracy of the certificate and accordingly owed no duty to the minister. I do not accept that, in all cases, it necessarily depends upon a voluntary assumption of responsibility."
He added that he was anyway far from satisfied that the council did not voluntarily assume responsibility in circumstances where they had chosen to discharge this somewhat pedestrian task through their clerk, so that their registrar might be left free to carry out other far more difficult and important functions on their behalf. Cross LJ, at p 291B saw:-
"No sufficient reason why in an appropriate case the liability should not extend to cases in which the defendant is obliged to make the statement which proves to be false."
In St John Poulton's Trustee the failure of the Court to give notice of a bankruptcy order to the Land Registry could not found a cause of action in negligence because the omission in that case was based simply on a failure to act in accordance with the statute. Lloyd LJ distinguished Sharp at paragraph 95 as follows:-
"Mr Ullstein relied on Sharp's case by analogy, submitting that the employee of the council for whose fault the council was found to be vicariously liable was only doing that which was required by the Act. The difference is that the employee was carrying out a search of the register and issuing a certificate as to the result of that search. Either in the search or in recording its result, the employee was careless by not noticing or not recording the relevant local land charge. That is quite different from the fault alleged in the present case of not sending to the Chief Land Registrar a notice of the petition and a request to enter it in the register of pending actions. There might, I suppose, be a case where a fault could arise under the rule through careless performance of the statutory duty, for example, if the notice gave the wrong name for the debtor. I do not need to consider what the position would be in that case. The present case is simply that of not giving the notice at all, not of trying to do so but failing to do so properly and effectively through lack of care or attention."
I have noted Lord Hoffmann's citation of Sharp in the Customs & Excise case at paragraph 81 above and observe that although it has been a controversial case, and important in the development of the law of negligence particularly in the context of statutory duties, it has never been held to have been wrongly decided. There have been many occasions when that could have happened, had it been the case. On the contrary, Sharp was approved by Lord Slynn of Hadley in Spring v Guardian Assurance plc [1995] 2 AC 296, 332F-G, and Lord Mance in the Customs & Excise case held that Sharp had been rightly decided at paragraph 110.
THE DUTY ISSUE: DISCUSSION AND DECISION
I approach this issue on the basis that I am not satisfied that there is a cause of action for damages for breach of statutory duty against the Registrar in relation to his functions under the 2006 Act. In view of my conclusion on the common law duty of care it is not necessary for me to decide this question, but I shall assume that the answer is in favour of the Registrar. The reason for this is that the 2006 Act is a statute which regulates the keeping of the Register and imposes duties on the Registrar for that purpose. The Register publishes information which is available to the whole world, because it is available on the internet. Whereas the common law of negligence has control mechanisms designed to restrict the class of person who can claim damages for economic loss, the imposition of a statutory duty which gave rise to a claim for damages at the suit of anyone who suffered economic loss by reason of any act or omission which was a breach of the statutory duties imposed would create a very wide duty indeed. I can see nothing in the Act to justify a finding that this was the intention of Parliament.
I propose to approach the question of a common law duty of care by applying each of the three tests for the existence of a duty of care at law which are described above. The sensible order seems to me to be first to consider assumption of responsibility, then to assess the three stage Caparo test and finally to see whether any duty is sustainable by analogy with other decided cases so as to represent an incremental development of the law. This is the approach mandated by Lord Bingham in the Customs & Excise case, see paragraph 80 above.
ASSUMPTION OF RESPONSIBILITY
I have set out above extracts from the Customs & Excise case and White v. Jones and compared them with the remarks of Peter Gibson LJ in Reeman. It seems clear that the word "voluntary" sometimes used in formulations of this concept does not mean that it cannot arise where the case concerns the negligent performance of a statutory duty. The phrase of Lord Nolan in White v. Jones is the simplest and clearest expression of this. So far as the relevance of that factor is concerned, he said:-
"The fact that he is doing so in pursuance of a contractual duty or a statutory function cannot of itself exclude that responsibility. The most that can be said is that it may be one of the circumstances to be taken into account in determining the nature and extent of the responsibility"
I understand this to mean that if a person does an act which is capable of causing harm to a particular person if done carelessly he will be held to have assumed responsibility to that person in respect of that task unless (where the act is done further to a contractual duty or statutory function) the terms of the contract or the statute negate or limit that responsibility.
It is clear from the decision in White v. Jones that this concept may be adapted to meet the clear justice of the case. Necessarily, assumption of responsibility is a concept in which proximity plays a major part. In White v. Jones the question of what was fair, just and reasonable also featured. The first and second stages of my three-stage task are not, therefore, quite as distinct as they may appear. Some of my reasons for my conclusion on stage 1, assumption of responsibility, can therefore be transposed directly to the proximity and fair, just and reasonable parts of stage 2, the Caparo test. I shall not repeat them.
It appears to me that where the Registrar undertakes to alter the status of a company on the Register which it is his duty to keep, in particular by recording a winding up order against it, he does assume a responsibility to that company (but not to anyone else) to take reasonable care to ensure that the winding up order is not registered against the wrong company. This does not impose a duty to verify information supplied by a third party such as an Insolvency Practitioner, but only to ensure that the information is accurately recorded on the Register. This special relationship between the Registrar and the company arises because it is foreseeable that if a company is wrongly said on the Register to be in liquidation it will suffer serious harm. My finding on the Causation Issue shows that in this case that harm amounted to the destruction of a company which had traded for over 100 years and which owned a valuable business. The nature of the exercise also supports the finding of such a relationship. The company is not consulted before its liquidation appears and has no opportunity to protest that the entry, if made, will be a mistake. Effectively, the system places a degree of trust therefore in the Registrar's staff to ensure that it does not damage companies which have no way of defending themselves against errors. When such an exercise is performed in private and behind closed doors, those doing it have truly assumed responsibility for it: indeed no-one else is in any way involved in it. The responsibility for it is entirely placed on the Registrar and his staff. At the time of each entry, it is not the case that a duty is owed to every company on the Register. The duty only arises when the record of a company is altered in a way which will probably cause serious harm if it is done carelessly. At that point the class of persons to whom the duty is owed is confined to one company. White v. Jones makes it clear that the class can be adjusted to meet considerations of practical justice and in my judgment practical justice suggests strongly that it should contain, but be limited to, the Company whose record is being changed.
In assessing the requirements of "practical justice" for this purpose I am squarely considering what is fair, just and reasonable. The relevant factors, in my judgment, are these:-
• Unless a remedy is provided by the common law of negligence a company damaged by carelessness in these circumstances can have no remedy. In Arthur JS Hall v. Simons [2002] 1 AC 615 the House of Lords emphasised the need for any immunity to be rigorously justified as being in the public interest. In Van Colle v. Chief Constable of Hertfordshire [2009] 1 AC 225 the House of Lords held the police owed no common law duty of care to protect individuals from harm caused by criminals since such a duty would encourage defensive policing and divert manpower and resources from their primary function of suppressing crime and apprehending criminals in the interest of the community as a whole. This is an illustration of a situation where a remedy may properly be denied, but such considerations are wholly absent from the present case.
• It is not difficult for the staff of the Registrar to avoid errors of this kind. They hardly ever make them.
• Apart from the factors identified by Ms. Jones in her two witness statements there is no reason not to impose a duty. This is not a case where society requires its servants to be free to exercise a judgment without fear of litigation, or where there are any public policy reasons for denying a duty. Ms. Jones makes it clear that the only downside resulting from the imposition of a duty is that the Registrar may feel the need to spend money in ensuring the accuracy of the Register. The accuracy of the Register is obviously a societal good. No-one suggests that an inaccurate register is a desirable outcome. The funding necessary for any such increased scrutiny of changes to the Register will have to be provided by adjustments to the fees paid by companies and by users of the Register. The funding for meeting any claims for damages will have to be met in the same way or by insurance. Ms. Jones's evidence does not persuade me that these outcomes will cause any particular difficulty in an environment where proper application of the Trove Policy would have prevented this error, and where increased use of information provided to the Registrar digitally will further reduce the already very small risk of errors in reading that information and transposing it accurately on to the Register.
• There are no aspects of the statutory duty or contractual relationship between the Company and Companies House which should operate to limit the nature and extent of the responsibility. Section 1080(5) provides:-
"(5) The records kept by the registrar must be such that information relating to a company is associated with that company, in such manner as the registrar may determine, so as to enable all the information relating to the company to be retrieved."
This means that the imposition of a duty would tend to reinforce the statute by requiring Companies House to do exactly what it is already required to do by statute. The information relating to a company must be complete, accurate and easily retrievable.
• In any event balancing the harm actually done to the Company in this case against the potential adverse impact upon Companies House it is clear that the balance favours the loss falling on Companies House rather than the Company. The evidence of Ms. Jones is very general in nature and deals with risks which are unquantified. It does not establish what the actual cost of a duty is likely to be, neither does it establish that it will not be possible to arrange for the payment of that cost, whatever it is. On the other hand the effect of imposing the loss on Companies House will be that it is ultimately borne by either the business community (limited companies and users of the Register who pay fees) or by the public at large.
• Given that the system of registration is compulsory because it is designed to benefit the business community and the national economy by enhancing the benefit of limited liability, it does not seem unjust to impose liability on those who benefit from the system (ultimately the public) for harm done by its faulty operation.
• The ultimate effect of the imposition of this duty is likely to be to improve the accuracy of the Register which is plainly in the public interest. The rather leisurely approach to the correction of the bulk products which occurred in this case perhaps illustrates the kind of conduct which might be far less likely if all concerned realised that the Registrar may be held liable in damages unless rapid and effective action is taken. That would be a salutary outcome of this litigation.
For these reasons I conclude that on the facts of this case there was a relationship between the Company and Companies House, at the time when Mr. Davies entered the winding up order against it, which was a "special" one in the sense used by Lord Browne-Wilkinson in White v. Jones. It follows that there was an assumption of responsibility and that the Company is entitled to succeed on the Duty Issue.
THE THREE STAGE TEST IN CAPARO
In this case foreseeability of harm is obvious. Therefore the limbs of this test which are in play are proximity and whether it is fair, just and reasonable to impose a duty. I approach this independently of my conclusion on assumption of responsibility but not independently of my reasoning on that question. I have already set out in that context the factors which appear to me to give rise to proximity, namely that the duty was owed to one individual company whose identity was readily discoverable by Mr. Davies. To say that it was also owed to every other company on the Register is only to say that a hospital owes a duty to each patient which it treats, and may come to owe duties to many thousands of people in the course of a year. That is of course true, but not a reason for denying that the hospital ever owes any duty. Very large organisations such as hospitals who impact on the wellbeing of a very large number of people owe a very large number of duties to a very large number of people. The class is limited and its members ascertainable at the stage when treatment is given.
When considering the question of whether it is fair, just and reasonable to impose a duty, I take into account the factors which I listed above when examining the "practical justice" aspect of assumption of responsibility. For those reasons I consider that it is fair, just and reasonable to impose this duty of care. When the Court reaches this stage of the test, foreseeability and proximity have been established. The basis for the denial of a remedy in these circumstances on this third ground must be very compelling. I can find no proper ground in this case on which to conclude that it would not be fair, just and reasonable to impose a duty to avoid foreseeable harm to a sufficiently proximate victim.
ANALOGY AND INCREMENTALISM
At this point the decision in Sharp becomes highly relevant. St John Poulton's Trustee is also material because there the court distinguished Sharp on the basis that unlike Sharp the case before it involved a pure omission. The case before me does not involve an omission: it involves the entry of false information on the Register, which is a positive act of the kind done in Sharp. I do not mean to suggest that there is no distinction between the present case and Sharp's case. If that were so, it would be enough simply to say so, and that I am bound by Sharp. What I do say is that the similarity between this case and Sharp is sufficiently close so that the imposition of a duty is foreshadowed in a previously decided case which has been held to have been rightly decided at the highest level, and more than once. In such circumstances the imposition of a duty can accurately and properly be described as "incremental". The comparative authority cited, including Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) [1981] HCA 59; (1981) 150 CLR 225 (28 October 1981), Walsh & Anor -v- South Tipperary County Council [2011] IEHC 503, is also relevant to the issue of analogy from precedent. Again, there are distinctions between those cases and the present, but the fact that duties were found to exist there is relevant when considering whether the duty I am considering would, if found, be an entirely novel development.
Therefore this is a situation where each of the three posited tests for the existence of a duty of care in a novel situation provides the same answer.
CONCLUSION
For these reasons I answer the Duty Issue by holding that the Registrar owes a duty of care when entering a winding up order on the Register to take reasonable care to ensure that the Order is not registered against the wrong company. That duty is owed to any Company which is not in liquidation but which is wrongly recorded on the Register as having been wound up by order of the court. The duty extends to taking reasonable care to enter the Order on the record of the Company named in the Order, and not any other company. It does not extend to checking information supplied by third parties. It extends only to entering that information accurately on the Register. |
MR JUSTICE WARBY:
On 19 January 2015 I tried the preliminary issue of what defamatory meanings were borne by the words complained of in this action, and heard the claimant's application to strike out the plea of justification, and the defendant's cross-application for permission to amend that plea. I handed down judgment on 21 January 2015, and made an order striking out the plea of justification and refusing permission to amend. Mr Barca QC for the claimant applied for an order for costs in the sum of £24,096.20 inclusive of VAT, as set out in a statement of costs dated 16 January 2015 which had been filed with the court. Mr Wolanski submitted on behalf of the defendant that I should not award the claimant any costs at all. Alternatively, if I was against him on the question of liability for costs, he made submissions as to quantum.
Mr Wolanski did not quarrel with the proposition that the claimant was overall the successful party and for that reason would in the ordinary way be entitled to a costs order in his favour. He submitted however that no such order should be made for two reasons:
i) The claimant's approved costs budget did not include any sum in respect of the costs of the applications which I determined, and there was no good reason to depart from the budget, with the consequence that no costs at all should be allowed ("the costs budget point").
ii) The claimant had failed to serve a costs schedule on the defendant, with the consequence that no costs order should be made, if it otherwise would be. Alternatively, I should reflect this failure in my approach to what order as to costs should be made ("the costs statement point").
I ruled against Mr Wolanski's first submission and declined to disallow costs entirely on the basis of the second submission. He then took time to review the claimant's costs schedule, provided during the hearing, and to obtain instructions on it. After then hearing argument on quantum I concluded that the claimant should recover:
i) 90% of the costs which would have been approved as reasonable had the claimant submitted his budget for approval in advance of the hearing, assessed on the assumption that the Master would have taken the most parsimonious approach possible within the bounds of what is reasonable; less
ii) a deduction to reflect the fact that the claimant's failures caused the defendant to incur additional costs, beyond those it would have incurred if the claimant had sought and obtained prior approval from the Master. Those additional costs included in particular those of preparation for and attendance at court by Counsel and solicitors to argue costs at the time of hand-down, which might well have been unnecessary or much shorter, had the claimant obtained prior approval of his proposed budget for the applications.
I assessed the total sum due on this basis at £10,500 inclusive of VAT. I gave brief reasons at the time, whilst making clear that I would give fuller reasons in writing later. These are those reasons.
Liability for costs
(i) The costs budget point
This case is subject to the costs management regime set out in Section II of CPR Part 3 and PD3E. Accordingly, in readiness for the case management conference before Master Yoxall in October 2014 the parties prepared and exchanged budgets. The claimant had by then already proposed that there be a trial of the preliminary issue on meaning, and had threatened to strike out the plea of justification, but had made no formal application for that purpose. The suggestion of a preliminary issue trial was at that stage strongly opposed by the defendant, which also opposed the claimant's proposal to apply at the CMC for an order for such a trial.
The defendant's budget, dated 21 October 2014, included "Contingent Cost A" in the form of the claimant's preliminary issue application. The sum provided for was £13,060. The defendant's budget was agreed by the claimant. The claimant served a re-amended budget on 29 October 2014, the day of the CMC. This included three contingencies, the first two being mediation and specific disclosure. The third was the preliminary issue, designated as "Contingent Cost C" with a figure of £20,575. A breakdown of this figure was given in the budget. The claimant's budget was contested.
The Master declined to direct a preliminary issue, but paragraph 2 of his order envisaged there might be such an order in future:
"The Claimant's application for an order that there be a trial of a preliminary issue on meaning is refused at this stage. The Master will give trial directions at the next CMC. For the avoidance of doubt, this direction does not preclude either party from issuing an application before a Judge for a ruling on meaning."
The Master's directions on costs and costs budget recorded that "It is noted that the Defendant's costs budget is agreed and a further sum of £7200 be allowed for the further CMC." This paragraph of the order reflects the provisions of CPR 3.15(2)(b) and PD3E paragraph 7.3. Under those provisions the court only "approves" budgets or parts of budgets which are not agreed; if they are agreed to any extent, the court records the extent of the agreement. The Master's order recorded that the claimant's costs budget was "approved as shown in the Table annexed hereto".
The Table contained a list of Phases and, against all but two of those phases, a figure. Against the Phase "Contingencies" the Master wrote "N/A". The effect was that the defendant's contingent figure for the preliminary issue was agreed but not approved; the claimant's was neither agreed nor approved. The claimant's figure was not disapproved either, and Mr Wolanski did not suggest as much. Paragraph 12 of the order gave permission to restore for further directions.
The claimant's application notice seeking an order for the trial of meaning as a preliminary issue, the trial of that issue, and an order striking out the plea of justification was issued on 26 November 2014. It was accompanied by a draft order which included an order for payment by the defendant of the claimant's base costs of the application. On 5 December 2014 the defendant's solicitors served their client's draft Amended Defence, seeking consent, and wrote in response to the claimant's application. In doing so they raised a point about Master Yoxall's costs directions.
Practice Direction 3E paragraph 7.6 provides for the revision of budgets upwards or downwards "if significant developments in the litigation warrant such revisions". A revised budget should be submitted for agreement or, failing agreement, submitted to the court for approval. By letter of 9 December 2014 the claimant's solicitors served an amended budget. This was in the form of the Table used by Master Yoxall, but with the addition against "Contingency" of "Preliminary Issue: £20,575" (the same figure as provided for in the claimant's re-amended budget of 29 October). The claimant's solicitors invited comments by 12 December 2014, stating that they would then submit the amended budget to the court for approval. The defendant's solicitors did not respond by 12 December. Their reply did not come until over a month later. The claimant's solicitors did not submit the amended budget to the court.
The claimant's meaning and strike-out application was listed for hearing on Monday 19 January 2015. On 12 January 2015 the claimant's solicitors wrote with a draft index for the hearing bundle. The following day the defendant's solicitors served their client's application for permission to amend, and notified the claimant that the defendant now consented to the determination of meaning as a preliminary issue. This was done under protest however. They wrote that "The costs to be incurred on this application are wholly disproportionate, and entirely avoidable. However, you have refused to agree to have the meaning application dealt with on paper." They went on to say that they would contend that regardless of the outcome of the meaning application, the defendant should not have to pay the costs of the hearing, "which are being unnecessarily incurred and are wholly disproportionate."
It was on Wednesday 14 January 2015 that the defendant's solicitors replied to the claimant's solicitors' letters dated 9 December 2014. The letter stated that "Your client's proposed costs budget is not agreed. The proposed costs of your client's preliminary issue contingency are excessive and unjustified." The letter went on to note that it had previously been indicated that the claimant would be writing to the court regarding the budget and noted that no such correspondence had been seen, asking for confirmation of the position.
On Friday 16 January the defendant's skeleton argument was filed with the court and exchanged. In paragraph 4, there was reference to the claimant's initial costs budget for a preliminary issue of £35,500, and a footnote recorded that "Before Master Yoxall the Claimant's budget for a preliminary issue hearing was reduced to some £20,000. The Master did not order any budget for the Claimant's costs of the preliminary issue."
At the hearing on 21 January 2015 matters unfolded in the way described in paragraphs 1 and 2 above. There had been no prior notice of the point that Mr Wolanski then took.
CPR 3.18 provides:
"Assessing costs on the standard basis where a costs management order has been made
3.18 In any case where a costs management order has been made, when assessing costs on the standard basis, the court will (a) have regard to the receiving party's last approved or agreed budget for each phase of the proceedings; and
(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so."
Mr Wolanski's principal submission was the simple and straightforward one that I have already mentioned: that there was no good reason to depart from the approved budget for the claimant; and that since that budget included no provision for the preliminary issue it followed that there should be no costs order in favour of the claimant. Mr Wolanski highlighted aspects of the sequence of events that I have outlined above, and contended that here the claimant had failed without good reason to submit for approval his revised costs budget in respect of the preliminary issue application, having been expressly prompted by the defendant's solicitors. It mattered not, he submitted, that the defendant's solicitors had replied late to the claimant's amended budget proposal. The onus was on the claimant's solicitors. He invited the court to take a firm stand.
Mr Barca submitted that the defendant's stance represented rank opportunism. The defendant had failed to reply to the claimant's solicitors' letter of 9 December 2014 for over a month. They had left it until just 2 working days before the hearing, by which time it was too late for the claimant to submit its budget for approval by the Master. If the defendant's submission was upheld it would result in an unwarranted windfall for the defendant, which had fought and lost the applications. The hearing had been beneficial for the litigation as a whole, indeed beneficial for the defendant itself, potentially saving many tens of thousands of pounds compared with a full trial.
It is clear that if costs management is to work conclusions reached upon reviewing costs budgets must be adhered to, and not second-guessed at a later stage. The wording of CPR 3.18(a) focuses attention on budgets for phases of the litigation. It is clear from CPR 3.18(b) that if a figure has been agreed or approved for a particular phase of proceedings the amount recoverable by the receiving party in respect of that phase will be capped at that figure, unless there is good reason to depart upwards. (If the receiving party has incurred costs less than budgeted there will be good reason to depart downwards.) If significant developments have taken place which increase the cost of a phase, or add an element of cost, a revised figure should be discussed, and if not agreed submitted for approval, if time allows: PD3E paragraph 7.6. Time may not allow. Equally, if a party's budget for a particular phase has been reviewed and assessed at nil, there would need to be good reason to award any costs at all.
The application of the wording of CPR 3.18(b) is not so straightforward in the circumstances of this case, where (a) the receiving party has put forward a budget for this phase of the litigation but one that is not agreed or approved, or disapproved but considered inapplicable; and (b) the paying party has prepared a budget for this phase which has been agreed. I am inclined to think that the wording of CPR 3.18 was not aimed at such a situation, but rather at ensuring that once the court has reached a decision on what it is reasonable for a party to spend on a given phase that conclusion should be final in the absence of some good reason. However, that was not a point addressed in argument and I reach no conclusion on it. Assuming that I am wrong in this it seems to me that on the facts of this case there is good reason to depart from the budget approved by Master Yoxall for this phase of the litigation, by allowing recovery of some costs by the claimant.
It is true that the claimant failed to comply with PD3E paragraph 7.6 by submitting a revised budget for the court's approval prior to the hearing. However, having regard to the wording of CPR 31.18 it seems to me that what the defendant seeks, strictly speaking, is that by way of a sanction for this failure the claimant's recoverable costs of success on the applications should be assessed at nil. That is not a sanction prescribed by the Practice Direction or the rule. The order sought would in my judgment be an unjustly disproportionate sanction, not sufficiently justified by the overriding objective, the need to enforce compliance with rules, practice directions or orders, or any of the other specific aims listed in CPR 1.1(2).
It is not enough in my view for the claimant to point to the beneficial impact of the applications' outcomes on the overall cost of this litigation. In reaching my conclusion I am influenced by the following factors in particular.
i) The claimant did budget for this phase before the CMC and his final proposed figure was known from 29 October 2014 onwards.
ii) The Master did not disapprove that figure. He reached no conclusion on what it would be reasonable for the claimant to incur on this phase if, contrary to his decision, this phase took place at all. He simply and quite properly put this issue to one side as regards the claimant, on the footing that it was then inapplicable because of his decision that there should not be a preliminary issue.
iii) On the other hand the defendant's budget for this phase was agreed by the claimant, and accordingly noted by the Master in the order made at the CMC. There was therefore an imbalance between the parties from that point on as regards this phase.
iv) The claimant did submit a revised budget for agreement, albeit prompted by the defendant to do so. It did so within three weeks of issuing its application and some six weeks before the hearing.
v) The defendant's solicitors failed to respond to the letter enclosing that budget until very shortly before the hearing, when it clearly was too late to ask for prior approval. That is not a co-operative approach.
vi) The defendant never suggested, nor would the court ever have concluded, that the claimant's budget should be set at nil. Nor did any of the defendant's several combative letters on the question of costs suggest that it would be submitted that the claimant should recover no costs at all because no budget had been approved. There is therefore force in Mr Barca's windfall point.
vii) The claimant's failure to comply has had only a modest impact on the efficient dispatch of this litigation, and no appreciable impact on the efficient conduct of litigation overall. It was never likely to have any substantial impact on either.
The approach I took to the assessment of costs, as described in paragraph 3 above and further detailed later in this judgment involves a sanction for the claimant's failure to comply with the Practice Direction which is in my judgment just and proportionate in the circumstances of this case, and one which in more general terms provides a sufficient incentive to parties to comply. That approach involves an assessment which makes every assumption against the party which has failed to submit an amended budget, and properly compensates the defendant for the additional costs involved.
(ii) The costs statement point
PD44 paragraphs 9.5 and 9.6 provide:
"Duty of parties and legal representatives
9.5
(1) It is the duty of the parties and their legal representatives to assist the judge in making a summary assessment of costs in any case to which paragraph 9.2 above applies, in accordance with the following subparagraphs.
(2) Each party who intends to claim costs must prepare a written statement of those costs showing separately in the form of a schedule –
(a) the number of hours to be claimed;
(b) the hourly rate to be claimed;
(c) the grade of fee earner;
(d) the amount and nature of any disbursement to be claimed, other than counsel's fee for appearing at the hearing;
(e) the amount of legal representative's costs to be claimed for attending or appearing at the hearing;
(f) counsel's fees; and
(g) any VAT to be claimed on these amounts.
(3) The statement of costs should follow as closely as possible Form N260 and must be signed by the party or the party's legal representative. …
…..
(4) The statement of costs must be filed at court and copies of it must be served on any party against whom an order for payment of those costs is intended to be sought as soon as possible and in any event –
(a) for a fast track trial, not less than 2 days before the trial; and
(b) for all other hearings, not less than 24 hours before the time fixed for the hearing.
9.6 The failure by a party, without reasonable excuse, to comply with paragraph 9.5 will be taken into account by the court in deciding what order to make about the costs of the claim, hearing or application, and about the costs of any further hearing or detailed assessment hearing that may be necessary as a result of that failure."
The claimant prepared a statement of costs and filed it at court, but failed entirely to serve it on the defendant. Thus it was that when Mr Wolanski rose to make submissions on costs he still did not know that there was a claimant's costs schedule. He pointed out that there had been a manifest failure to comply with PD44 paragraph 9.5 for which there was no excuse (and none was offered on behalf of the claimant.) Once he had seen the costs schedule Mr Wolanski pointed out that it was not in form N260, though he did not place great weight on that point. He did submit that paragraph 9.6 indicates that it is open to the court in its discretion to decline to make any costs order, if no costs schedule is served.
I accept that this is so, and that in an appropriate case the court might conclude that a successful party which is in principle entitled to costs should not recover any, by reason of a failure to serve a costs schedule. But the Practice Direction does not prescribe such a sanction. Rather, it obliges the court to take the default into account in exercising its discretion as to costs, including its discretion whether to make any order at all. This is not a case in which the making of no order for costs would be a just and appropriate sanction for what I must assume was an oversight in failing to serve the schedule as well as filing it at court. The schedule was not in form N260 but it did not depart very significantly from that form, and it enabled a sufficiently detailed scrutiny of the sums claimed.
There is no doubt, however, that the failure to serve the statement of costs led to unnecessary delay and cost in the process of resolving the amount of costs that it would be just for the claimant to recover and for the defendant to pay. I rose for a short while to allow Mr Wolanski to review the statement and to take instructions. The result of this and the additional time spent in dealing with Mr Wolanski's first submission is that the hearing before me was prolonged, by my estimate, by at least an hour. That hearing was attended on the defendant's side by Counsel, a partner of, and an associate in the defendant's solicitors.
Amount of costs
I accepted Mr Wolanski's submission that a deduction should be made from the costs recoverable by the claimant to reflect the fact that the defendant succeeded in persuading me that references to the claimant's previous infidelity meant that it was somewhat overstating the matter to suggest that his family relationship with Ms Ward and their daughter was portrayed in the article as a 'stable' and 'secure' one. I did not accept, however, that this was a matter of as much significance as Mr Wolanski suggested, and therefore concluded that I should allow 90% of reasonable standard basis costs.
I assessed what was reasonable on the basis indicated in paragraph 3(ii) above. For this purpose Mr Wolanski invited me to have regard to the defendant's costs schedule, which was lower than the agreed budget figure, and I did. The defendant's total costs for all the applications were, according to their schedules, £15,435.60. I had reviewed the claimant's costs schedule before the hearing.
The hourly rate of the partner involved on the claimant's side was said to be high, and the time spent was criticised. I made deductions from the time claimed for attendances on the defendant and counsel, disallowed entirely attendance on 'colleagues/others', cut the time spent on documents by approximately half to 6 hours, and reduced the time spent at court to 2.5 hrs. Allowing for the 10% deduction indicated above I allowed total profit costs of £3,600 inclusive of VAT against a claim for £5,841.60.
The major reduction I made was in Counsel's fees. I accepted Mr Wolanski's submission that from the perspective of costs between the parties it was not reasonable for the claimant to instruct two counsel on applications of this kind. Although Mr Barca QC was right to say that the applications had important consequences for the action as a whole, they were not legally or factually complex and one Counsel would have sufficed. I assessed 90% of a reasonable fee for a single Counsel of appropriate experience at £6,000 plus VAT. I added disbursements of £200 to arrive at a total of £11,000.
From this sum I made a deduction to reflect the additional costs referred to in paragraph 3(ii) above. This was on the assumption that Counsel's fee included attendance at the hand-down, but bearing in mind that the hourly rates for the solicitors present at that hearing were £300 and £235 per hour, which are reasonable rates for the grade of solicitor involved. Thus I arrived at a final sum of £10,500 inclusive of VAT for all the applications. |
MR JUSTICE WARBY :
The claimant is a Premier League footballer. He sues the defendant for libel in articles published in the Daily Mirror for 16 November 2012, and on the defendant's website www.mirror.co.uk from that date onwards.
The nature of the hard copy article is indicated by the text of the taster that appears under the masthead on the front page, and the captions to the photographs either side of the taster. The text is: "EXCLUSIVE: PREM STAR'S PREGNANT GIRLFRIEND .. 'Tulisa is just a home-wrecker.. I'm devastated.'" One of the captions reads: "FAMILY Danny, partner Stephanie Ward and baby". The photograph shows the parents in a loving pose with their daughter in Ms Ward's arms. The other caption reads: "TOGETHER Tulisa at shops with Toon star Danny Simpson".
The Defence denies that the words complained of were defamatory of the claimant, and denies that they bore the meanings complained of, but pleads a defence of justification. The meaning which the defendant contends is true (the Lucas-Box meaning) is different from the meanings complained of by the claimant.
The following applications are before the court.
i) The claimant applies for an order that the court try as preliminary issues the meaning of the words complained of, and whether they are defamatory of the claimant, and for the immediate trial of those issues. The defendant has consented to that application, but disputes the claimant's meaning.
ii) If the court upon the trial of those issues upholds the defamatory meaning complained of by the claimant, the claimant seeks an order striking out of the defence of justification as disclosing no reasonable grounds for defending the claim.
iii) The defendant applies for permission to amend its Defence. The draft amendments would assert the truth of the meaning complained of by the claimant, modify the defendant's Lucas-Box meaning, and add to the particulars of justification. The claimant's case is that even with the proposed amendments the Defence would be liable to be struck out, so the amendment application should be refused.
iv) The defendant applies for permission to commence an additional claim against Stephanie Ward for a contribution pursuant to s 1(1) of the Civil Liability (Contribution) Act 1978 and CPR 20.7. This is on the basis that in publishing the article complained of the defendant relied on what it was told by Ms Ward so that, if the defendant is liable, Ms Ward is jointly liable with it. This application is not opposed, but nor is it consented to by Ms Ward.
Meaning
The words complained of
I shall focus on the hard copy publication, as neither side suggested that there was any relevant distinction between this and the online version. The words complained of include those that appeared on the front page and are set out in paragraph 2 above. They directed the reader to the following article, which appeared as a splash across two pages, taking up about a third of page 6 and the whole of page 7 (paragraph numbers are added for ease of reference):
"SHE'S TU CRUEL
Newcastle Utd star's pregnant girlfriend calls singer a 'homewrecker'
Steph says it is over and she doesn't want anything to do with him
The pregnant girlfriend of Newcastle United star Danny Simpson yesterday branded Tulisa a "homewrecker".
We exclusively revealed yesterday how the footballer, 25 and the X Factor judge were spotted having drinks, dinner and visiting a hotel.
But devastated Stephanie Ward, 24, said he was supposed to be Christmas shopping with her and their 16-month-old daughter Skye-Lorena at the time.
Tulisa and Danny were also spotted smiling as they left Tesco near his £1 million hone the next day.
And yesterday morning they emerged from his pad as he whisked her to the airport in his £130,000 Bentley.
Distraught Stephanie, who is four months pregnant with their second child, said: "He's not famous and nobody knows who he is, but Tulisa is obviously a homewrecker.
"She knows about me and the baby because when she called him to let him know the story was breaking, he told me she said to him, 'I'm just letting you know now there's a story breaking as I know you've got a baby on the way and I know you won't want your girlfriend to see it'. It's fair enough if a girl doesn't know about it, but the fact that she knows I've got a baby on the way and another child is bad."
They have been together for six years and she says she gave up her law career for him.
On Tuesday, she visited her mum in Manchester with her daughter.
She claimed Danny was supposed to visit her so they could go Christmas shopping.
But he apparently told her he could not go because he had training in Newcastle. It turned out though he was in Manchester - with Tulisa, 24.
Stephanie said the final insult came when her friend spotted Danny and the singer at Tesco near the luxury home she shares with him in Newcastle on Wednesday.
DISTRAUGHT
Last night Stephanie insisted their relationship was over after the revelations.
She said: "I don't want anything more to do with him now. He's made me feel like absolute s***."
She first heard about Danny's meeting with Tulisa when he called her on Wednesday evening.
Stephanie said: "Danny said that Tulisa had called him to tell him that a story about the two of them was going to appear in the paper, saying they'd been seen out together. He was upset and saying sorry and saying it was nothing, that he just went for food with her and his friends."
But she claimed his story began to unravel when she grilled him. "I asked if he had messaged her and if he speaks to her on the phone," she said. "He admitted he has been texting her.
"I said it's obviously more than just food with friends, and he told me they got on well.
"So I asked if he'd slept with her but he said no it was just food.
"I was hysterical. I asked him, 'Do you want to sleep or you have slept with her, are you telling me that you cheated on me?"'
As a pregnant mum, she was horrified that she found herself competing with Tulisa.
She said: "I told him I cannot compete with one of the most high-profile women in the media, but I'm loyal and I've loved you for six years and I'm the mother of your children and I've been the best girlfriend I can be.
"He kept just saying, 'I'm sorry'. I have a law degree and I gave up my career as a solicitor to have children with him."
Danny is believed to have bedded Natasha Giggs, Ryan Giggs' sister-in-law, when he played for Manchester United and has also been seen on nights out with Big Brother glamour model Imogen Thomas and Emmerdale star Roxanne Pallett.
Tulisa smiled for stunned shoppers as she left the Tesco store in Kingston Park in Newcastle on Wednesday night, with Simpson by her side.
They walked out of the store side by side, with Danny carrying two bags of shopping.
Tulisa, who has just released a new album, smiled as a number of fans spotted her and started taking pictures.
The pair were up at 6.30am the next day and emerged at 7.50am from his home in a smart area on the outskirts of Newcastle, to make a dash to the city's airport where she was due to catch a plane to London. But the flight was cancelled due to fog at Heathrow.
So the United star drove her back to his place in his Bentley, pulling her designer Louis Vuitton luggage behind him.
The pair then played a cat-and-mouse game with photographers.
When Danny left for training around 9.30am, it was thought Tulisa was with him. But she waited behind at his home before getting a taxi back to the airport for the 12.15 BA flight to London.
Before she boarded, we asked if our exclusive on her friendship had caught her by surprise.
She flashed a beaming smile and joked: "I am not going to tell you that now am I?"
She chatted with BA staff about the "nightmare" trying to get to London on the earlier flight before making her way through customs, dressed in white plimsoles, skinny blue jeans, designer sunglasses and a white hooded top.
MYSTERIOUS
Before boarding, she said: "I am not going to talk about it. I am hardly going to sell a story on myself am I?" But she added intriguingly: "I will say something when I am ready."
The article on pages 6-7 was accompanied by four photographs with captions:
i) [Caption, beneath a photograph similar to the one that appeared on the front page] FAMILY Stephanie and Danny with baby
ii) [Caption, beneath a photograph of the Claimant with Miss Contostavlos in the Claimant's car] GETAWAY Leaving Tesco in Danny's Bentley
iii) [Caption, beside a photograph of the Claimant with Miss Contostavlos] SMILING Tulisa at Tesco with Danny
iv) [Caption, beside a photograph of the Claimant with Miss Contostavlos] HOODED Pair at airport yesterday
The rival meanings
The meanings which the claimant attributes to the words complained of in each version of the article are that:
"(1) by entering a romantic relationship with the celebrity Tulisa Contostavlos, the Claimant was unfaithful to his partner Stephanie Ward, with whom he was in a stable, long-term and committed relationship, living together with her and their daughter as a family, despite Miss Ward having sacrificed her legal career to have his children, and being, as he knew, pregnant with their next child.
(2) in so doing, the Claimant callously destroyed the secure family unit that his long-term partner and infant daughter had enjoyed and which was soon to be joined by the child they were expecting."
It is convenient to set out the defendant's Lucas-Box meanings in their draft amended form. The draft Amended Defence pleads at paragraph 6 that the defendant will justify the meaning pleaded by the claimant or alternatively the following meaning:
"that by entering a romantic relationship with the celebrity Tulisa Contostavlos, the Claimant was unfaithful to his loyal and long term partner Stephanie Ward, with whom he was still in a sexual and long term relationship, who was the mother of his child and who, as she had told him, was pregnant with another child of his, thereby upsetting Stephanie Ward and bringing their relationship to an end."
The law
The natural and ordinary meaning of words for the purposes of a defamation claim is the single meaning that would be conveyed by those words to the ordinary reasonable reader. The principles that apply to the determination of that meaning are well-established. Both parties cite the well-known formulation of Sir Anthony Clarke MR in Jeynes v News Magazines Limited [2008] EWCA Civ 130, [14]:
"(1) The governing principle is reasonableness. (2) The hypothetical reasonable reader is not naïve but he is not unduly suspicious. He can read between the lines. He can read in an implication more readily than a lawyer and may indulge in a certain amount of loose thinking but he must be treated as being a man who is not avid for scandal and someone who does not, and should not, select one bad meaning where other non-defamatory meanings are available. (3) Over-elaborate analysis is best avoided. (4) The intention of the publisher is irrelevant. (5) The article must be read as a whole, and any "bane and antidote" taken together. (6) The hypothetical reader is taken to be representative of those who would read the publication in question... (8) It follows that "it is not enough to say that by some person or another the words might be understood in a defamatory sense."
As principle (3) indicates, the exercise is one of impression. As Eady J said in Gillick v Brook Advisory Centres (cited in Jeynes at [7]) "Judges should have regard to the impression the words have made on themselves in considering what impact it would have made on the hypothetical reasonable reader". Principle (6) requires the court to form a view on how the representative hypothetical reader of the particular publication concerned would be likely to understand the words, bearing in mind where in the publication the words appear; the reader's familiarity with the nature of publication in question; and any expectations created by that familiarity: see John v Guardian Newspapers Ltd [2008] EWHC 3066 (QB), [22]-[23], [32]. I would add, however, that this is an exercise which needs to be undertaken with care. The court can take judicial notice of facts which are common knowledge, but facts which are not need in principle to be admitted or proved, not assumed. The court should beware of reliance on impressionistic assessments of the characteristics of a newspaper's readership.
At common law, a meaning is defamatory if it substantially affects in an adverse manner the attitude of other people towards the claimant, or has a tendency to do so: Thornton v Telegraph Media Group Ltd [2010] EWHC 1414 (QB), [2011] 1 WLR 1985, [96]. In this case the hard copy publication and online publication up to 31 December 2013 are governed by the common law. Online publication after that is subject to s 1(1) of the Defamation Act 2013 which adds that "a statement is not defamatory unless it has caused or is likely to cause serious harm to the reputation of the claimant." But neither side suggests that this change in the law is material to my decision in this case.
Indeed, Mr Wolanski has advanced no submission that these articles are not defamatory of the claimant. There is also a good deal of common ground between the rival meanings. The contest on meaning is a relatively narrow one. The main issues are whether, as the claimant argues, the article portrayed him and Ms Ward as being, before the relationship between the claimant and Tulisa Contostavlos, "in a stable and committed relationship, living together with their daughter as a family"; and whether the words meant that the claimant's behaviour had destroyed a "secure family unit".
Submissions
Mr Barca QC submits on behalf of the claimant that the allegations just mentioned are clearly made in the articles, central to them, and critical to their defamatory sting. He draws attention to the word "homewrecker" which features prominently in both the page 1 text and the page 6 headline, and is then repeated in bold type in paragraph [1], and again in paragraph [6] on page 6. Although the allegation is directed against Ms Contostavlos, it is pointed out that she cannot be a "homewrecker" unless there is a home to wreck. Reliance is placed on the word, "FAMILY", used twice in picture captions as a description of the relationship between the claimant, Ms Ward and their child.
Mr Barca points to the fact that readers are told not only that the couple have one daughter and are expecting a second child, but also at [8] that "They have been together for six years…" and the similar message at [22]. Mr Barca relies on the statement at [12] that Ms Ward "shares" a "luxury home in Newcastle" with the claimant; and on [8] where the reader is told that Ms Ward says she gave up a career for him as a solicitor and [23], where she is quoted saying "I gave up my career as a solicitor to have children with him" (emphasis added). It is submitted that there is an imputation of breaking up a stable family which ought to be acknowledged in the single meaning the words complained of are held to bear.
For the defendant, Mr Wolanski submits that the article says nothing at all about the relationship being stable, committed or secure; the impression it gives of the relationship is quite the opposite. The claimant is not portrayed as a family man but as a serially unfaithful "lad". Mr Wolanski relies on the references to the claimant having (allegedly) "bedded" a fellow player's sister-in-law, and been "seen out" with a glamour model and a TV star, which he characterises as euphemistic suggestions of a sexual relationship. The suggestion is, he submits, that these were recent events. He points to the reference to the claimant being a "legend" and to getting "gentle ribbing" and a "bit of stick" from team mates, suggesting that the implication is that this is because of his "legendary womanising".
It is submitted that Ms Ward is depicted as a devoted and loyal girlfriend and mother to the claimant's children. She is the one who sought to create a "home" – hence her view that Ms Contostavlos is a 'home wrecker' – but she would be seen by readers as someone who did not trust the claimant, immediately doubting his explanation of his relationship with Tulisa. She is portrayed as someone for whom the latest indiscretion has come as the final straw. None of this suggests, says Mr Wolanski, that the relationship between her and Mr Simpson was stable, committed or secure.
Mr Wolanski submits, further, that the article does not suggest that the claimant, Ms Ward, and their daughter were "living together as a family". He relies on a reference in paragraph [10] to the claimant being "supposed to visit her so they could go Christmas shopping" in Manchester (emphasis added); a reference at [4] to "his £1 million home" and the description of that home at [12] as one "she shares with him in Newcastle" rather than one they live in together. These parts of the article are said to give the reader the impression that the couple are not or may not be cohabiting at all, but living separately at least some of the time and paying each other visits. That impression is bolstered, it is submitted, by references to them communicating by phone, suggesting a long-distance relationship. Mr Wolanski adds that in any event sharing a home does not connote a stable, secure or committed relationship. "Plenty of cohabitees endure unstable relationships."
Mr Barca, anticipating that points of this kind would be taken, submitted in his skeleton argument that "readers of The Daily Mirror are likely to take a more impressionistic approach, and be more ready to read in implications than, e.g., readers of broadsheets who are used to analysing long and complex articles on matters of public interest." As a result, headlines and picture captions are very important and are likely to make an important contribution to the sting of an article. Mr Wolanski for his part suggested that Mirror readers are accustomed to "love rat" stories about Premier League footballers who drive Bentleys, and would not approach this story with an assumption that the claimant was a stable family man.
Discussion and determination
I do not think I should treat Daily Mirror readers as having some special expectations or knowledge about this kind of story. Nothing is pleaded nor is there any evidence on that score. I do not think either that I should approach these articles on the basis that Mirror readers are peculiarly prone to attach importance to headlines or photo captions. It is common knowledge that the overall impression conveyed by the written word often depends very much on what points are picked out by the writer or editor for particular emphasis. This does not apply only to Daily Mirror readers, or only to newspaper readers. Most written material uses some means of signalling to the reader what are the main messages of the text. Newspapers have particular ways of emphasising points, by featuring them in a headline, sub-headline, picture caption, or section heading, or by repetition. Different papers may have different customs in this respect, and the methods used online can differ from those used in print. But the public at large are aware of the methods used, and there is nothing unusual about the ways these articles draw attention to their main messages.
I have had regard to the impression made on me when I read the article for the first time. The reader of these articles is given firm signals, and could not miss the messages that there had been infidelity by the claimant with Ms Contostavlos, and that this made her a "homewrecker" – an activity in which the claimant had clearly played his part - and that as a result Ms Ward was "devastated", and now wanted nothing more to do with the claimant. The word "home" in "homewrecker" is mainly metaphorical. It indicates that there was in existence an established family relationship between two or more people. But the word also suggests a family living together in the same dwelling. When the word "homewrecker" is used four times in an article, the clear and dominant impression conveyed is that a family unit, sharing a home, has been wrecked or broken up.
The detail in the articles supports this. The family unit clearly consists of the claimant, Ms Ward, and their daughter. Striking features are the two pictures of the three together, each with the caption FAMILY. One of those is prominently placed by the masthead on the front page. The article gives the impression that the relationship is established, continuous and committed. Ms Ward is repeatedly described as the claimant's "girlfriend", which is evidently how she is known to Ms Contostavlos (paragraph [7]). There is the word "together" and two references to a 6 year relationship, with no suggestion of any gap. In addition, I noted that the claimant is said to have been upset and to have apologised repeatedly to Ms Ward. That is consistent with the claimant acknowledging a commitment and obligation to her. The statement that the claimant and Ms Ward "share" a "home" in Newcastle naturally suggests in context that they live together there, with their daughter.
Mr Wolanksi's submissions in reliance on paragraphs [4], [10] and [12] are altogether too subtle. The reference to "his" home in Newcastle, and other similar references in other paragraphs, do not detract from the statement that the couple "share" that home. The planned "visit" by the claimant for Christmas shopping makes sense. Ms Ward had gone to Manchester to see her mother, according to paragraph [9], and the claimant was supposed to be training in Newcastle: [11]. Even the scrupulous reader would not think phone contact between the couple on the Wednesday odd, when they had been in different cities on the Tuesday, and the claimant is a professional footballer, whose job means moving around the country. I am quite satisfied that the ordinary reasonable reader would understand the relationship to be not only long-term, but an established one involving the couple living together continuously in the same home, with their daughter. The whole tenor of the article suggests this, and there is nothing of significance that tends to point in the opposite direction.
I agree with Mr Wolanski, however, that the references to the claimant's relationships with other women mean that it is overstating the matter somewhat to say that the article portrays the relationship as a "stable" or the family unit as "secure". Mr Barca suggested that the references to the three women named in paragraph [24] were not tied in to the period of the claimant's relationship with Ms Ward. They were not, in terms, but that is the impression conveyed by an article that suggests that the claimant, then aged 25, had been in a 6-year relationship with Ms Ward. The claimant would appear to the ordinary reader to be someone who had indulged in infidelity on several previous occasions. However, the reader would understand that he had remained in a committed long-term relationship, living as a family with a loyal partner and their child, which he had broken up by his latest infidelity.
In my judgment the words complained of bear the natural and ordinary defamatory meaning that
"by entering a romantic relationship with the celebrity Tulisa Contostavlos the Claimant was unfaithful to his loyal partner Stephanie Ward, with whom he was in a long-term and committed relationship, living with their daughter as a family; he did so despite Miss Ward having sacrificed her legal career to have his children, and being, as he knew, pregnant with their next child; and by doing so he callously destroyed his relationship with Ms Ward and broke up an established family unit which was soon to be joined by the child they were expecting."
This meaning differs from the claimant's meaning by omitting the words "stable" and "secure", but it includes the word "committed" and adds "loyal" and "established". The italics identify elements which are not included in the defendant's Lucas-Box meaning, either in its original form or in its proposed amended version.
The Strike-out and Amendment Applications
The claimant maintains that the existing defence of justification is not capable of being an answer to the claim, and opposes the proposed amendments on the basis that even if they were made they could not save the Defence. The defendant's position is that the particulars of justification are sufficient to meet the defamatory sting of the articles, "whether as pleaded by the claimant or defendant, or in any other formulation which the court may find."
The relevant principles are not in dispute.
i) A defendant does not have to prove the truth of every aspect of the words complained of. It is sufficient for the defence to prove the substantial truth of the defamatory sting of the words.
ii) The defence must however meet the whole defamatory sting. If the words contain a defamatory imputation of substance which is not covered by the plea of justification the defence cannot succeed.
iii) At the present stage, the question for the court is whether a trial judge could conclude that the pleaded case of justification, if established, proves the substantial truth of the words complained of.
The above is subject to modification in cases to which s 5 of the Defamation Act 1952 or s 2(3) of the Defamation Act 2013 apply, but those sections are not relied on or relevant here.
It is convenient to start by considering the parties' submissions about the rival meanings, to the extent that those submissions remain relevant now that I have reached a conclusion on meaning. Mr Barca submits that there are significant qualitative differences between the gravamen of the parties' meanings, the most important aspect being the way in which the parties' relationship is treated. There is a "world of difference", he says, between individuals who conduct a sexual relationship, even a "long term" one in which one of the participants is "loyal", and two individuals whose commitment involves settling down together, sharing a home, and living in a family unit in which, together, they raise their children. "Infidelity which imperils or destroys a home and family is particularly disreputable."
Mr Barca refers in this context to a decision on meaning of Tugendhat J in Contostavlos and Simpson v News Group Newspapers Ltd [2014] EWHC 1339 (QB). That is a libel action brought by the claimant and Ms Contostavlos over an article published in The Sun on 16 November 2012 which referred to their relationship. Mr Barca relies on the judgment for paragraphs [19]-[21] in which, he submits, the judge treated an imputation of infidelity by the claimant as being made materially different and worse because, according to the article in that case, Ms Ward was the claimant's domestic partner, with whom he had already had one child, with whom he was living in a family home, and he knew she was pregnant. (I add that Mr Barca rightly did not suggest that the Judge's decision on the actual meaning conveyed by The Sun article would help me in this case and, since that is an action over a different article, I have deliberately avoided reading the words complained of in that case in the course of forming my judgment on meaning). Mr Barca adds that the allegation that Ms Ward gave up her legal career to have children with the claimant adds materially to the defamatory sting, as it conveys a high degree of commitment by her, placing a correspondingly heavy duty of fidelity on the claimant.
Mr Wolanski submits that the real sting of the article lies in the imputation of infidelity; the allegation is that the claimant's infidelity involved the betrayal and letting down by him of a woman who has shown loyalty to him over a period of years and striven to do her best for him; if there is an imputation that the couple were living together as a family with their daughter then that, he submits, is mere "ballast" that does not add anything of significance to the defamatory meaning of the words. Mr Wolanski submits that the defendant's draft amended Lucas-Box meaning encompasses all the major defamatory components of the article: infidelity to Ms Ward, when she had been loyal and the relationship was sexual and long-term, and she was pregnant with the claimant's child; and upsetting her and bringing the relationship to an end.
I do not accept these submissions. It is obvious that the imputation of infidelity forms a substantial element of the defamatory sting of the article. But it is not the whole picture. I have agreed with Mr Barca that the articles suggest that what was "wrecked" by the claimant's infidelity with Ms Contostavlos was not just a long-term relationship with Ms Ward but a committed relationship and an established family unit consisting of the claimant, Ms Ward, and their daughter, living together, which was to be added to when their second child was born. I do not consider that this aspect of the meaning can be dismissed as "ballast" or of no significance. To break up an established family unit, living together, which includes one young child and another on the way is behaviour significantly different from bringing an end to a relationship between a couple who are not living together in an established family unit. The impact on the family members, and in particular the child and unborn, is likely to be very different.
I also accept that the element of the defamatory meaning which refers to Ms Ward having given up a legal career to have children with the claimant, which the defendant does not seek to justify, adds to the defamatory sting by making the claimant's breach of faith with the mother of his children appear graver. I remind myself that I am not here trying the issue of justification but carrying out a filtering exercise of the nature identified above, based on the pleaded cases. But for the reasons I have given, in my judgment no reasonable tribunal of fact could conclude that the defendant's meaning meets in full the true defamatory sting of the words complained of.
Nor do I accept that the defendant's draft amended particulars of justification are capable if proved of establishing the substantial truth of the meaning that I have found the article to bear. It is unnecessary to recite the detail of those particulars. Suffice to say that the picture they present is to the following effect. The couple met in 2006 and had an intermittent relationship for the next 4 years, during which she obtained a law degree and worked at a solicitors' firm. They began a committed relationship in June 2010, and Ms Ward "did not continue with her legal career". They lived together in a house in Newcastle from late 2010 until the birth of their daughter in July 2011 and thereafter - with a break from the end of 2011 into early 2012 – until about April 2012. At that time, Ms Ward moved with their daughter into a house in Manchester owned by the claimant, whilst he lived in Newcastle. The family is not said to have lived together at any time between April 2012 and the publication of the article seven months later.
It is said that during that period there were frequent visits by Ms Ward to Newcastle and two holidays together, one with their daughter. It is alleged that they had a continuing though evidently intermittent sexual relationship, including a night together on 4 November 2012, and that Ms Ward was sexually faithful to the claimant, and thus loyal. The defendant's case is that the couple eventually resumed their relationship in July 2013 and moved back in together in January 2014. This is all well after publication, but is relied on as an indication of the committed and long-term nature of the relationship generally. Although the Defence does not seek to justify the epithet "callous" I do not see that as a difference that would necessarily be held material at a trial.
At this stage of the case I have to make allowance for the fact that I am addressing a pleaded case and not evidence. Even so, the account of events contained in the draft amended particulars remains in my judgment clearly and significantly different from that which emerges from the article. It is conspicuously not alleged that Ms Ward gave up her legal career for the sake of having children with the claimant, let alone that the claimant knew this. More importantly, the particulars of justification nowhere allege, nor could the facts there set out support findings, that the claimant and Ms Ward were living together as a family with their daughter at the time the claimant began his relationship with Ms Contostavlos; or that the claimant's infidelity broke up an established family unit. On the contrary, it is clear from the particulars that this is not said to be the case.
There are therefore components of the defamatory meaning of the article which in my judgment would inevitably be held to contribute significantly to their defamatory sting, the truth of which could not be established by proof of the defendant's particulars or proposed amended particulars.
For these reasons I refuse permission to amend the Defence and uphold the claimant's application to strike out the existing plea of justification. This does not mean that none of the facts relied on by the defendant will be taken into account by the court in assessing what damages should be paid by the defendant. It has been well-established since the decision of the Court of Appeal in Burstein v Times Newspapers Ltd [2001] 1 WLR 579 that a defendant may rely in mitigation of damages on facts which do not suffice to prove the truth of what was published, but form directly relevant background context to the publication complained of.
Burstein represented a relaxation of the law as previously understood, which was held to encourage overly optimistic pleas of justification placed on the record with an eye to reducing damages. Here, the Defence already pleads reliance on the particulars of justification by way of mitigation. This is not said in the Reply to be an illegitimate plea, and Mr Barca accepts that in principle there could be Burstein mitigation here. So the particulars of justification, or at least some of them, may well re-enter the case as particulars of mitigation by amendment. However, no such application is before me.
Permission to join Ms Ward as Part 20 Defendant
Permission to make such a claim is required because it comes after service of the Defence: CPR 20.7(3). The defendant's application is accompanied by a draft Part 20 claim form and a statement of case entitled Particulars of Defendant's Claim against Third Party. Those particulars assert that on 14 November 2012 Ms Ward telephoned Damien Fletcher, one of the article's co-authors, seeking to provide information for publication. It is alleged that in the course of the conversation that followed Ms Ward conveyed information about the relationship intending or foreseeing that the defendant would publish it, in the manner that it did, and that the defendant published relying on Ms Ward's veracity. It is alleged that if and in so far as the defendant is held liable to the claimant Ms Ward is jointly liable for any damages awarded, and a contribution is sought under the Act of 1978 as indicated at the outset of this judgment.
The application is supported by the evidence of the defendant's solicitor, Mr Charalambous, which explains that Ms Ward "volunteered the information for publication and subsequently provided further relevant information which was the basis for the plea of justification". After the relationship resumed, however, she "became antagonistic towards the Defendant" and indicated that she would support the claimant in his claim. She maintains this stance. Mr Charalambous says however that the defendant will call Ms Ward as a witness, if necessary by compulsion. The facts he states would tend to suggest that she may give evidence for the claimant. At any rate, Mr Charalambous asserts that it would be just and equitable for Ms Ward to be made to contribute to damages if the court finds the defendant liable on the grounds that the information she provided was untrue.
The defendant's application was served on 12 January 2015. By letter of 13 January solicitors for Ms Ward replied. Their letter concluded that Ms Ward would not oppose the application for permission but would defend the threatened proceedings vigorously if issued. However, it also asserted that the claim had "no prospect whatsoever of success" and, in addition to maintaining that the claim was unprecedented to their knowledge, made seven specific points.
I am not sure it is unprecedented but it is certainly unusual for a newspaper to seek a contribution from a source. That, however, is no doubt for understandable commercial reasons. There seems to be no reason of principle why, in appropriate circumstances, a source may not be held liable to contribute to damages payable by a publisher to whom the source has provided a story for publication. Whether a court would conclude that Ms Ward should contribute to damages is not for me to decide at this stage. In my judgment the defendant's draft claim form and Particulars disclose a reasonable basis for a claim against Ms Ward for a contribution, and it is convenient for that claim to be brought within the existing proceedings, rather than separately. Ms Ward's solicitors have not suggested otherwise. The points that they do make do not in my opinion provide a basis on which I could accept their assertion that the claim has no real prospect of success.
The first point made by the solicitors' letter is that Ms Ward owed the defendant no duty of care. That may very well be right, but none is alleged by the defendant. Points 2-5 and 7 all raise issues of fact concerning Ms Ward's role in and responsibility for causing or authorising publication. These points are not supported by evidence and cannot be resolved on this application. Point 6 is that Ms Ward was not provided with any form of remuneration. That again is a point of fact, and I cannot at present see how it would provide an answer to the proposed claim.
For these reasons I concluded that permission should be granted and gave permission at the hearing. |
Mr Justice Warby :
This is an action for libel in which the claimant complains that the defendant libelled him in four publications: a blog post written by her on the website of the Moscow-based radio station Echo Moscow, two articles quoting her that appeared on the website of the Russian online newspaper gazeta.ru, and a contribution to a phone-in programme broadcast on Radio Liberty. The blog post and the articles all first appeared on 15 November 2011. The broadcast was on 15 March 2012. All three articles and a transcript of the radio programme are said to have remained available online since the date of first publication or broadcast. The claimant also complains of what are said to have been republications of the defendant's allegations on other websites in and since November and December 2011.
The proceedings were issued on 9 December 2012. Permission to serve them on the defendant in Moscow was granted by Master Yoxall on 13 December 2012. Difficulties in effecting service led to time being extended in May 2013 until 14 February 2015. According to the claimant, proceedings were served in July 2014. On 5 September 2014, however, iLaw Legal Services (iLaw), solicitors for the defendant, issued an application on her behalf seeking declarations that the English court has no jurisdiction to try the claim, or will not exercise any jurisdiction it may have; an order setting aside the Master's grant of permission to serve outside the jurisdiction; a declaration that in any event the proceedings had not been validly served on the defendant; and an order that the claim form and particulars be set aside.
The application was supported by a witness statement and exhibits of the defendant dated 5 September 2014. It is not necessary to describe the contents of that statement except to say that the points made included assertions that the proceedings had been sent by post by a private individual to the defendant's husband, Alexei Kozlov, at the couple's Moscow address; and that this was not a method of service permitted by Russian law, where the proceedings originate from a Convention country such as England and Wales, and hence not valid service pursuant to the Hague Service Convention.
The defendant's application was listed for hearing today, 21 January 2015. However, on Monday 19 January 2015 I made an order that the hearing be vacated and the case listed for directions only unless the defendant lodged papers by 4pm that day, which she did not. Today I have given directions. I have ordered that the defendant's application be re-listed for hearing on 27 February 2015 and given directions setting a timetable for the service of further evidence, a hearing bundle and skeleton arguments. I did so at a hearing attended by Ms Page QC on behalf of the claimant but in the absence of the defendant, who no longer has the benefit of legal representation, and did not herself appear at the hearing. For those reasons I am setting out in writing in this short judgment my reasons for taking the course I did.
On 8 January 2015, less than 2 weeks before the hearing date, Hamlins LLP came on the record as solicitors for the claimant in place of the Hill Dickinson, following what I was told by Ms Page was a breakdown in the solicitor-client relationship. Hamlins wrote to iLaw the following day to enclose a Notice of Change by way of service. The response came on 13 January 2015. It said that iLaw were no longer instructed by the defendant and served Notice of Change dated the pervious day. iLaw also wrote to the court on 13 January 2015, setting out, at the defendant's request, her stance in respect of her application.
The defendant has since then been acting in person. Her address for service, stated in the Notice of Change, is the office address of iLaw. On 14 January Hamlins wrote to the defendant c/o iLaw proposing that her application be adjourned, in view of the fact that they had only recently been instructed, had yet to receive papers from Hill Dickinson, and intended to serve expert evidence. They noted that a date could be found towards the end of February and that an adjournment would accordingly not cause the defendant prejudice.
The Queen's Bench Guide requires a hearing bundle for a fixed date hearing to be lodged by the applicant three clear days before the hearing. The bundle should be properly paginated in date order and contain all the relevant documents. In this case the date for lodging such a bundle was Thursday 15 January 2015. No bundle was lodged. On Friday 16 January, having had no reply from the defendant or iLaw to their letter of 14th, Hamlins wrote to the court, with a copy to the defendant c/o Hamlins, seeking an adjournment. The matter was put before me. I was not prepared to grant an adjournment without further efforts to get a response from the defendant so I suggested the court staff seek a means of ensuring the application was communicated to her. There was no communication from the defendant on the Friday.
On the morning of Monday 19 January 2015 the papers were returned to me by Listing with the information that there had been no development, the court had no contact details for the defendant, and a bundle still had not been lodged. The hearing was by then 2 days away. Skeleton arguments were due the following morning. There had, as it then seemed, been silence from the defendant. It appeared that she might well not be engaging with the proceedings. I did not know whether she intended to obtain alternative legal representation, or to appear in person, or not to appear at all.
Against that background, it seemed to me undesirable that the matter should be left in a state of uncertainty, with the possibility that substantial costs would be incurred in preparation for a hearing which in the event did not go ahead. I had in mind the defendant's own best interests, among other factors. I therefore made the order to which I have referred. That order having been made without a hearing, it provided that the defendant could apply at any time before 4pm on Tuesday 20 January to set aside or vary it. The claimant was directed to bring the order to the defendant's attention as soon as possible. No application was made by her.
It turns out that during Monday morning and before I made my order the defendant had responded, via iLaw, to Hamlins' correspondence, objecting to an adjournment. That first came to the attention of the solicitor at Hamlins on Monday evening, after my order, as he had been in meetings meanwhile. It first came to the attention of Queen's Bench Listing on Tuesday morning, when they saw an email sent by Hamlins after 7pm the previous evening. By then it was too late to alter the course that had been set by previous events. My order will not have reached the defendant until some time on 20 January, it seems, if indeed it reached her then.
This morning, Ms Page submitted a short note outlining the current position and sought directions that the defendant's application be re-listed towards the end of the period which is available, namely the weeks commencing 16 and 23 February, a timetable for service of evidence and other steps, and an order that each party be granted permission to rely on the evidence of 1 expert on the requirements for valid service in Russia of process from England and Wales, and whether those requirements were met in this case.
I set the hearing date as noted above, and a timetable for evidence, the hearing bundle and skeleton arguments. The defendant being now a litigant in person I directed the claimant to prepare the bundle. I did not grant permission to adduce expert evidence, but directed that any application for permission should be issued and served by no later than 4pm next Monday 26 January 2015, with the defendant to have an opportunity to submit representations in opposition by 4pm on Monday 2 February, and a decision to be made without a hearing as soon as possible after that, by me if available.
I took this course for two main reasons. First, the claimant had given the defendant only informal notice of an intention to adduce expert evidence, without detail or supporting evidence. Secondly, the claimant had not complied with the mandatory requirement of CPR 35.4(2), that an applicant for permission to adduce expert evidence "must provide an estimate of the costs of the proposed expert evidence". Without that estimate I was in no position to consider whether and if so how to exercise the court's power under CPR 35.4(4) to "limit the amount of a party's expert's fees and expenses that may be recovered from any other party". I also directed that no evidence other than evidence served in accordance with my order would be considered at the hearing of the application unless the court gives permission.
I ordered the claimant to pay the costs of the hearing today and any costs of, caused by, or thrown away by the vacation of the hearing date. Although in my judgment the defendant acted unreasonably in that she failed to lodge a bundle as required by the Queen's Bench Guide, did not respond in a timely way to Hamlins' correspondence, and did not address any correspondence to the court, the claimant's share of the responsibility for the hearing being ineffective was considerably greater. He failed to prepare evidence, or to make any application for permission to adduce expert evidence, in good time. He would have sought an adjournment to allow his new solicitors to do those things, regardless of the defendant's conduct. I have reviewed the correspondence between the parties' previous solicitors relating to the preparation of evidence and having done so I cannot see any real justification for the claimant's failures. In any event they are not the fault of the defendant, who should not be out of pocket as a result. |
Mr. Justice Globe :
Introduction
The claimants are each employed by one of seven individual bargaining units (agencies) for which the defendant is responsible:
First claimant – Department for Transport (Centre) (DfT(C))
Second claimant – Driving Standards Agency (DSA)
Third claimant – Driving and Vehicle Licensing Agency (DVLA)
Fourth claimant – Highways Agency (HA)
Fifth claimant – Maritime and Coastguard Agency (MCA)
Sixth claimant – Vehicle Certification Agency (VCA)
Seventh claimant – Vehicle and Operator Services Agency (VOSA)
The "Departmental Staff Handbook" for each agency contains written provisions concerning attendance management. The claimants apply pursuant to CPR Part 8 for a declaration in relation to their terms of employment arising out of the introduction of a new policy for attendance management introduced by the defendant in July 2012. The proceedings are intended to be representative proceedings and are backed by the recognised unions, namely, the PCS, Prospect and the FDA.
It is common ground that the case raises three questions:
First, prior to July 2012, were the relevant attendance management provisions of each "Departmental Staff Handbook" terms of each claimant's contract of employment?
Secondly, if so, was the defendant entitled to vary those terms unilaterally in July 2012?
Thirdly, if not, should the court grant a declaration in the circumstances of the case?
First question - were the attendance management provisions terms of the contract of employment?
Chapter 1 of the "Departmental Staff Handbook" for each agency provided as follows
"1.1 Contract of employment
1.1.1 You are a Crown employee working within the Department for Transport (DfT). Your terms and conditions of employment include those set out in
(1) ………..
(2) the DfT Departmental Staff Handbook which contains terms and conditions and procedures and guidance applying specifically to you as a Crown employee (there are variations between different bargaining units – see Annex A [my commentary: ie Annex A of Chapter 1])
(3)……….
1.2 The Departmental Staff Handbook
1.2.1 The Departmental Staff Handbook, as applying to you, sets out many of your terms and conditions. It is the intention of the recognised trade unions……and of the Crown that all of the provisions of the Departmental Staff Handbook which apply to you and are apt for incorporation should be incorporated into your contract of employment.
1.2.2 The Departmental Staff Handbook is in two parts:
Part A contains terms and conditions. Without prejudice to the generality of paragraph 1.2.1 above, all of Part A and all annexes of Part A which apply to you and which are apt for incorporation, will be incorporated into your contract of employment; and
Part B contains procedures and guidance relevant to your employment relationship with the Crown. Those procedures and guidance can be relevant to the operation of your contractual terms and conditions set out in Part A, but in the event of inconsistency between Part A and Part B it is Part A which prevails.
Annex A [my commentary: i.e. Annex A of Chapter 1] - Variations between bargaining units
The Department's individual bargaining units are required to adopt the Departmental Staff Handbook, but have discretion to:
adopt different, local terms and conditions in respect of the following areas if it is demonstrably necessary for them to do so:
…….
leave and attendance (including working hours, absence monitoring and FWH provisions)
discipline (poor performance, poor attendance and misconduct…..)
……."
The seven agencies exercised their discretion under Annex A of Chapter 1. Each adopted its own local terms and conditions in respect of attendance management. There were marginal differences between the individual terms and conditions, but they were all broadly similar provisions. It is common ground that, notwithstanding the marginal differences, the resolution of the three issues will be the same for each claimant. Thus, by agreement between the parties in the course of the hearing and subject to there being a successful application to amend the details of the particulars of claim in relation to the first claimant, the principal focus has been on the provisions of the DfT(C).
The DfT(C)'s provisions
The provisions applicable to the first claimant were as follows.
Chapter 10 Part A of the DfT(C) Departmental Staff Handbook provided as follows
"Chapter A10: Ill Health
This chapter
sets out your terms and conditions of employment relating to sick leave;
sets out your terms and conditions of employment relating to the management of poor attendance….
A10.1 Sick Leave
10.1.1 Paragraphs 10.1.2 to 10.1.23 inclusive set out your terms and conditions of employment relating to sick leave. In addition:
a. Annex A: Maintaining satisfactory standards of attendance……sets out the procedures that can be invoked whenever your line managers believe that your attendance is unsatisfactory.
b……….
c. Chapter A10.3 …….sets out guidance and procedures for helping you and your line managers to address sickness absence.
Cumulative short absences
10.1.18 Where in any 12 month period you have taken a number of short-term absences as sick leave which together exceed 21 working days, your line manager will discuss your attendance record with you. Only if you have exceeded these 'trigger points' and, consequently, your line manager perceives a problem with your attendance will he or she take the matter forward in accordance [with] the procedures set out in Annex A, Maintaining satisfactory standards of attendance." [my commentary: ie Annex A of Chapter 10]
At some unspecified date prior to July 2012,"Chapter A10 Annex A, Maintaining satisfactory standards of attendance" was replaced by "Chapter A10 Annex A, Disciplinary Procedures", which contained a disciplinary procedure dealing with conduct, performance and attendance issues. Pursuant to paragraph 10.1.18, the procedure in relation to cumulative short absences only applied where there had been "trigger points" of over 21 working days absence as sick leave in any 12 month period. If the procedure applied, it provided first of all for an "informal stage" involving a quiet word and a copy of any notes taken during the course of the discussion being handed to the employee. If there were any continuing attendance issues, there was provision for "formal stages". Stage one could lead to a formal written warning. Stage two could lead to a final written warning. Stage three could lead to dismissal.
The local terms and conditions relied upon as being applicable to the first claimant are pleaded in paragraphs 9-12 of the particulars of claim dated 18 July 2013. Mr Purchase, for the claimants, applies to amend those paragraphs. It is a late amendment. It is opposed by Mr Tolley QC, for the defendant, on the basis of the defence having concentrated upon the original drafting in order to defend the claim and generally because of its lateness and current practice that the court should be less ready than in former times to grant a late application to amend a pleading.
I am mindful of cases such as Swain-Mason and others v Mills & Reeve LLP [2011] 1 WLR 2735. They confirm the principle that a court should be less ready to grant late applications to amend pleadings. In deciding whether to grant a late application to amend, the court should pay particular regard to the overriding objective of enabling the court to deal with cases justly and at proportionate cost in the sense defined by all the circumstances listed in CPR rule 1.1(2). In considering the overriding objective, I am also mindful of the principles emanating from Mitchell v News Group Newspapers Limited [2013] EWCA Civ 1537 and Denton v TH White Limited [2014] EWCA Civ 906 in relation to the approach to be taken to a party seeking relief from sanctions under CPR rule 3.9.
In the narrow context of the first claimant's case, the amendment is significant. It involves the substitution of the provisions within Chapter 10.1 for the pleaded provisions of Chapter 10.3. Mr Purchase now concedes that the particulars within chapter 10.3 merely provided guidance and procedures and could not have been incorporated as terms of the first claimant's contract of employment.
In the wider context of all seven claimants and the action as a whole, the significance of the amendment is substantially diminished. It merely replicates the general substance of the pleaded cases of the other claimants. In particular, it replicates very similar provisions of the MCA in relation to the fifth claimant and the VCA in relation to the sixth claimant. The amendment therefore makes little or no difference to the substance of the declaration being sought under CPR Part 8. The application to amend is late because there has been recent discovery of a full copy of the staff handbook for the DfT(C). The provision of documentation has not been an easy exercise due to the overwriting of computerised material and the difficulty of finding hard copies of documents. For these reasons, the effect of the amendment and any default in its lateness can properly be regarded as trivial. Furthermore, no underlying prejudice to the defence arises from granting the application. There may have been some wasted preparation time concentrating on defending the first claimant's pleaded case. However, it was also necessary to concentrate on the case as pleaded in relation to the other claimants. There has therefore been no delay and Mr Tolley has been able to address the issues without making any application for an adjournment. In my judgment, it would be just to allow the amendment. I grant leave for it to be made.
Having granted the application to amend, I concentrate, as agreed, upon the amended particulars of the first claimant. For the avoidance of doubt, even if the amendment had been refused, I would have concentrated upon the like particulars of the other claimants and particularly the almost identical particulars of the sixth claimant in relation to the VCA in order to answer the three questions referred to above in paragraph 3.
The provisions applicable to the other claimants
For completeness, I briefly refer to the provisions applicable to the other claimants. The processes adopted by all were similar to those of the first claimant. All bar the DSA had provisions in very similar terms to paragraph 10.1.18 above and the DSA provisions were not significantly different. Overall, there were minor variations between the agencies in relation to their trigger points and the details of the procedure that was triggered. However, in circumstances where it is agreed there is no material difference between the processes for the purpose of resolving the issue of whether or not the individual provisions were terms of the contracts of employment, there is no need to descend into a detailed analysis of all seven processes. It is sufficient to provide a summary of what was the position prior to July 2012.
In each case, informal, followed by formal, procedures were triggered by sickness absence for a specific number of working days or a number of occasions over a 12 month period.
DfT(C), MCA and VCA – 21 days absent
DSA and DVLA – 8 days absent or 4 occasions absent
HA – 14 days absent or 7 occasions absent
VOSA – 8 days absent
Discussion
Paragraph 1.1.1 of Chapter 1 of the handbook stated the Departmental Staff Handbook contained terms and conditions which should be incorporated into an employee's contract of employment. It is well established that an employer's handbook can be incorporated into an employee's contract of employment. In the words of Potter LJ at paragraphs 14 and 28 of Briscoe v Lubrizol Limited [2002] EWCA Civ 508
"14. …..It is of course frequently the case that details of an employee's contract and the benefit to which he is entitled by virtue of his employment are largely to be found in a handbook of the kind supplied to the claimant.……… Again, it is frequently the case that, in the employment context, the language of a handbook, while couched in terms of information and explanation, will be construed as giving rise to binding legal obligations as between employer and employee…. "
"18. In the instant case, as it seems to me, it was the clear contractual intention of the parties to bestow upon the claimant as an employee the benefits provided for in the claimant disability scheme."
Paragraph 1.2.1 of Chapter 1 stated that it was the intention of the trade unions and the Crown that all of the provisions of the handbook that applied to an employee and were apt for incorporation should be incorporated into the employee's contract of employment. The generality of paragraph 1.2.1 was qualified by paragraph 1.2.2, in that it separated out Parts A and B of the handbook. All of Part A and all annexes of Part A that applied to the employee and which were apt for incorporation were to be incorporated. By way of distinction, Part B merely contained procedures and guidance relevant to the operation of the contractual terms and conditions. Annex A of Chapter 1 gave the DfT(C) discretion to adopt its own terms and conditions for attendance management. Chapter 10 Part A contained the key provisions. Paragraph 10.1.18 is one of those provisions.
Mr Purchase submits that paragraph 10.1.18 applied to the first claimant and the terms and conditions within it were apt for and were thereby incorporated into her contract of employment. Mr Tolley accepts the paragraph applied to the first claimant but submits the terms and conditions were not apt for incorporation and were not so incorporated.
There is no clear evidence as to when the handbook was first implemented. I have seen no complete handbook, either in its original form or in its most recent pre-July 2012 hard copy form. The files of exhibited documents include extracts from the handbook and its separate constituent elements for each agency. They are undated and the precise origin of each is not entirely certain. Part of the confusion about the documentation relates to the understandable decision by the defendant and its separate agencies in about the year 2000 to stop producing hard copies of the handbook and instead to produce electronic versions of it. Any subsequent changes to a handbook involved an exercise in overwriting a previous version. There is a lack of archive material to trace back to earlier copies or versions.
When the defendant and its agencies produced the handbook in electronic form, a decision was taken to produce it with some of the text highlighted in yellow. The text so highlighted was referred to as "contractual highlighting". I have seen a copy of a 2009 print-out of the DfT(C)'s handbook. It contains "contractual highlighting". It is an unsatisfactory document. It is common ground that the highlighting in the copy that has been produced is incomplete. That is nobody's fault. It is the product of an unsatisfactory technical and/or printing process. The highlighting is clear in parts and much less clear in other parts. In parts, it fades away in the middle of a sentence or a paragraph such that it becomes almost meaningless. By way of example in relation to Chapter 10 Part A, paragraph 10.1.1 does not appear to be highlighted and it is unclear as to whether all of paragraphs 10.1.2 to 10.1.23 are highlighted, although all of paragraph 10.1.18 does appear to be highlighted. The highlighting I have seen is therefore confusing and the presence or absence of highlighting is unreliable.
My conclusion that the highlighting is confusing is supported by a bulletin posted by the defendant on its Transnet network website on 25 July 2012. In a news article headed "New HR Policies", the defendant included the following statement:
"…….you will notice a change to the way the staff handbook looks as we'll be removing the contractual highlighting from Part A. In response to feedback that the highlighting can be confusing and makes the handbook less user-friendly, we've decided to remove it. This means that the whole of Part A of the handbook will be contractual, not just the highlighted parts."
The intention that it was the whole of Part A that was to be contractual is further supported by the defendant's response on 10 July 2014 to a Freedom of Information Request as to the contractual effect of the highlighted provisions. It included the following passages:
"The removal of the contractual highlighting took effect from 13 August 2012…… The HR rationale for its removal was due to the confusion it was creating in relation to the text in Part A of the staff handbook. Part A was intended to have contractual effect. There was therefore lack of clarity on the effect of the non-highlighted text contained in Part A. The bulletin article which informed staff about the removal of the contractual highlighting from Part A of the staff handbook was contained in the bulletin dated 25 July 2012……. The Department's position is that all of Part A of the staff handbook is apt for incorporation."
A study of all of the provisions of Part A demonstrates that it could never have been the situation that the whole of it was contractual or that all of it was apt for incorporation. By way of example, it is obvious that certain parts of paragraph 10.2 in relation to sick pay that appear to be highlighted were never meant to be contractual. The same applies to the provisions of 10.3. Some of its 85 paragraphs are highlighted in whole or in part. It is now accepted, though, by virtue of the application to amend the particulars of claim, the provisions were all concerned with guidance and procedures that were inapt for incorporation and were not contractual. At its highest, therefore, the contractual highlighting merely supports the contention that the defendant did intend that at least some of Chapter 10 Part A should be incorporated into the contracts of employment of its employees. However, it is necessary to look beyond the contents of the bulletin and the Response to the Freedom of Information Act Request and to examine the contents of paragraph 10.1.18 itself to ascertain if that provision was so incorporated.
In this regard, assistance is gleaned from the case of Keeley v Fosroc International Limited [2006] EWCA Civ 1277 where the Court of Appeal was considering whether the redundancy section of a staff handbook had been incorporated into an employee's contract of employment. In the course of giving judgment, Auld LJ said as follows:
"31. On the question of construction, as Mr Brennan acknowledged, where a contract of employment expressly incorporates an instrument such as a collective agreement or staff handbook, it does not necessarily follow that all the provisions in that instrument or document are apt to be terms of the contract. For example, some provisions, read in their context, may be declarations of an aspiration or policy falling short of a contractual undertaking see e.g. Alexander and others v Standard Telephones and Cables Limited (No.2) [1991] IRLR 286 per Hobhouse J, as he then was, at paragraph 31; and Kaur v MG Rover Group Limited [2005] IRLR 40 CA per Keene LJ with whom Brooke and Jonathan Parker LJJ agreed……It is necessary to consider in their respective contexts the incorporating words and the provision in question incorporated by them."
Alexander and Kaur were both concerned with the possible incorporation of a collective agreement rather than a staff handbook, but the principles remain the same.
In Alexander, Hobhouse J summarised the principles as follows:
"31. …… The relevant contract is that between the individual employee and his employer; it is the contractual intention of those two parties which must be ascertained. In so far as that intention is to be found in a written document, that document must be construed on ordinary contractual principles. In so far as there is no such document or that document is not complete or conclusive, their contractual intention has to be ascertained by inference from the other available material including collective agreements. The fact that another document is not contractual does not prevent it from being incorporated into the contract if that intention is shown as between the employer and the individual employee. Where a document is expressly incorporated by general words it is still necessary to consider, in conjunction with the words of incorporation, whether any particular part of that document is apt to be a term of the contract; if it is inapt, the correct construction of the contract may be that it is not a term of the contract. Where it is not a case of express incorporation, but a matter of inferring the contractual intent, the character of the document and the relevant part of it and whether it is apt to form part of the individual contract is crucial to the decision whether or not the inference should be drawn."
In Kaur, Keen LJ succinctly described the task in the following way:
"10. ………One must therefore look at the content and the character of the relevant parts of the collective agreement to determine whether they are apt to be a term of the individual contract of employment."
In looking at the content and character of paragraph 10.1.18, the case of Wandsworth London Borough Council [1988] IRLR 193 is relevant for the proposition that sickness management provisions are normally unsuitable to be contractual terms. Wandsworth is a case where the Court of Appeal had to consider an analogous situation of the Council's unilateral decision to alter its code of practice in relation to the trigger points for procedures to be taken following absences due to staff sickness. The staff objected, maintaining that the code formed part of their contractual terms and conditions of employment and the employers were not entitled to make unilateral changes. In giving judgment and in deciding on the facts of the case that the provisions were not contractual, Lord Woolf approved the observations of the industrial tribunal in saying as follows:
"24. In relation to this code the industrial tribunal spoke good sense when they stated a general approach to codes of this sort in these terms: 'It is, we believe, from our industrial experience eminently desirable that an employer's approach to dealing with ill-health absence should not run the risk of being viewed by management and staff in the same manner as misconduct disciplinary procedures. It is very much an area which we as a tribunal would wish to see covered by negotiated codes and policy statements and staff agreements with that kind of spirit and effect than being treated as a part of the contractually binding obligations of the employer and employee. As a matter of good industrial practice, we believe that ill-health absence should be treated with much more flexibility, compassion and common sense than many other aspects of the employment relationship. There is a case for saying that a young man who takes one day off allegedly for a cold but is seen shopping in the town centre should be treated much more severely than, say, someone with long-term asthma difficulties and a number of days' absence.'"
The result in Wandsworth is relied upon by Mr Tolley as support for the proposition that the provisions of paragraph 10.1.18 were not apt for incorporation. I accept that, in terms of principles to be applied, the observations of Lord Woolf in Wandsworth are of assistance. However, in terms of result, it remains a fact specific decision. It was dealing with a code of practice on staff sickness. There was no mention in the code of it containing terms and conditions. To the contrary, it was described as a framework in respect of which flexibility was required. There were no trigger points. There were prompts for absences to be reviewed and the details of when the prompts should occur were imprecise. It was in this context that the court concluded that the language of the provisions was not an appropriate foundation upon which to base contractual rights. The code was doing no more than providing guidance for the supervisors and employees as to what was expected to happen. The decision was therefore reached upon different facts to those under consideration here.
In terms of principle, Lord Woolf stated in paragraph 22 that the outcome of the appeal turned on the following question:
"22. ………..whether, on the proper interpretation of the code, the relevant paragraphs are to be construed as conferring rights on the employee or as setting out no more than good practice which the council's officers were intended to follow."
Lord Woolf referred to the observations of Hobhouse J, already referred to above, and added the following at paragraph 25:
"25. …..Those views of Hobhouse J do provide a valuable guide as to the solution of this issue on appeal. They can however be supplemented in this context by asking a question………That question is whether the code should properly be regarded as conferring a right on the employee not to have the short or long-term procedures contained in the code invoked without the triggering event having happened."
In concluding that the appeal in Wandsworth should be allowed, Lord Woolf made the following observations at paragraph 29:
"29. ……..If the language of the provisions to be amended are examined in the context of the scheme as a whole, they are not an appropriate foundation upon which to base contractual rights. If what was being triggered was a disciplinary or an appeal procedure, the position would probably be different. Both in the case of the short-term and long-term absentees, the code is doing no more than providing guidance for both the supervisors and the employees as to what is expected to happen. The code does not set out what is contractually required to happen. The whole process in the initial stages is sensibly designed to be flexible and informal in a way which is inconsistent with contractual rights being created. At later stages of the process proposed the employee's arguments would have much more force."
The content and character of paragraph 10.1.18 therefore needs to be tested against its surrounding context and the question needs to be asked as to whether it is to be construed as providing a right on the employee not to have the procedures in Annex A invoked without the triggering events having happened. The stage of the process is also of importance.
Paragraph 10.1.1 stated that "Paragraphs 10.1.2 to 10.1.23 inclusive set out your terms and conditions of employment relating to sick leave".
A number of the provisions within paragraph 10.1 were inapt for incorporation.
Paragraph 10.1.2 required an employee to inform a line manager of absence through illness with paragraph 10.3 applying if, without good reason, there was a failure to comply with the requirement. Paragraph 10.3.28 required the employee to ring by 10 am. It would have been inapt for there to have been a term of the contract with breach of it occurring, for example, if a call was not made until a few minutes after 10 am.
Paragraphs 10.1.5, 10.1.6 and 10.1.8 related to detailed provisions as to the provision of self certification or medicate certificates within set periods of time. It would have been inapt for there to have been a term of the contract with breach of it occurring, for example, if a certificate was produced a day late or on an incorrect form.
Paragraphs 10.1.4 and 10.1.7 required a line manager to keep confidential any information about illnesses or medical condition of staff and to forward immediately any sickness certificates to Human Resources. It would have been inapt for such guidance provisions for line managers to be terms of the contract.
Paragraph 10.1.14 required an employee to inform a line manger immediately if there had been contact with someone who had contracted a notifiable infectious disease or rubella. The employee would then have been entitled to a period of paid leave. It would have been inapt for there to have been a term of the contract with breach of it occurring, for example, if an employee's son had had rubella and the line manager was not notified immediately.
Paragraph 10.1.22 set out the provisions as to obtaining occupational medical advice from an external medical adviser and the entitlement of the employee to see a copy of any report. It would have been inapt for the description of such a procedure to have become a term of the contract.
However, paragraph 10.1 was within Part A of Chapter 10. It had to be read together with the provisions of Chapter 1. The effect of paragraphs 1.2.1 and 1.2.2 was that it was only those aspects of Part A that were apt for incorporation that would have been incorporated into the contract of employment. The fact that some of the provisions within paragraph 10.1 were inapt for incorporation did not mean the provisions within paragraph 10.1.18 were not apt for incorporation.
In this regard, the observations of Auld LJ at paragraph 35 in Keeley are relevant:
"35. Equally, if not more important, is the wording of a provision under question in an incorporated document containing contractual terms. If put in clear terms of entitlement, it may have a life of its own, not to be snubbed out by context immediate or distant in the document of which it forms part. Where the wording of the provision, read on its own, is clearly of a contractual nature and not contradicted by any other provision in the documentary material constituting the contract, context is not all. "
Mr Tolley submits that, when 10.1.18 is read on its own, there are a number of reasons why it was not apt for incorporation. When the first sentence is considered alone, it only required a return to work discussion to take place with the line manager, made no mention of when that discussion should take place or what should happen in circumstances where no discussion was needed. Hence, the first sentence is more suggestive of being guidance only. When the second sentence is considered alone, it refers to a line manager "consequently" perceiving a problem after exceeding the trigger points. That may not have been the case, for example, with a known cancer problem. The word "consequently" is further evidence of guidance only. When the provision is considered as a whole, it only dealt with cumulative short-term absences and did not cover any single long-term absence. The long-term position for anything more than 21 days absence in any one absence was covered in paragraph 10.3.9. However, that provision is now not relied upon as being contractual. Mr Tolley submits that all such matters militate against paragraph 10.1.18 having a life of its own.
The above matters need to be contrasted with the fact that paragraph 10.1.18 was intended to be contractual if its contents were apt for incorporation. The contents of paragraph 10.1.18 were clearly and precisely set out. Simply stated, an employee had the right not to have the procedures in Annex A implemented until there had been more than 21 days in short-term absences as sick leave in any 12 month period. The procedures in Annex A that would then be triggered had originally been called "Maintaining satisfactory standards of attendance". The defendant had changed the title of the Annex to "Disciplinary Procedures". Whichever title was used (and the name of the Annex varies between the agencies) the potential consequences of the procedures were serious. They were capable of leading to formal processes that could have resulted in written warnings and dismissal. In the words of Lord Woolf in Wandsworth "what was being triggered was a disciplinary…..procedure".
In Wandsworth terms, the terminology of the handbook was not couched in framework terms or solely mere guidance, nor was it dealing with initial stages. It was dealing with processes at a later stage of the process than that. Chapter 1 expressly stated that the handbook contained terms and conditions which would be incorporated into an employee's contract of employment if they were apt to be so incorporated. The trigger points in paragraph 10.1.18 were precise and Annex A set out what was proposed to happen if it applied.
In Keeley terms, read on its own, it read as if it was contractual. Notwithstanding many of the provisions surrounding it were not apt for incorporation, paragraph 10.1.18 was capable of having a life of its own.
In my judgment, paragraph 10.1.18 did have a life of its own. It was apt to be incorporated. The answer to the first question is yes.
Second question - was the defendant entitled unilaterally to vary the terms of employment as to attendance management?
Chapter 1 paragraph 1.3.1 of the agencies' handbooks stated:
"1.3.1 Your contract of employment cannot be changed detrimentally without your agreement. Consequently, the Department will not change any of your terms and conditions of contract without your consent or that of a recognised Trade Union (see paragraph 1.3.2). Any proposals affecting staff will be the subject of consultation through the Whitley system, with a view to reaching agreement, with the recognised Trade Unions."
By a letter dated 6 July 2012, following unsuccessful negotiations, the defendant informed the claimants' trade unions that it would be imposing a new attendance management procedure across the agencies as from 9 July 2012. The new procedures, as subsequently revised in November 2013, have set new standardised 'trigger points' for 'cumulative short absences'. Under the 'first trigger point', an "informal review meeting" should be held after 5 working days absence or 3 occasions of absence in a rolling 12 month period. At that meeting, the employee should be advised of the potential for formal disciplinary action if there is further absence and the 'second trigger point' is breached; and an outcome letter confirming the advice should be sent to the employee. Under the 'second trigger point', formal action should always be considered. A "formal review meeting" at which a sanction may be imposed must be held after 8 working days absence or 4 occasions of absence in a rolling 12 months period. Further absence could ultimately lead to dismissal.
Two sub-issues arise: was the defendant entitled unilaterally to vary the terms at all and was the defendant entitled unilaterally to vary the terms to the extent that they were varied?
Was the defendant entitled unilaterally to vary the terms at all?
The answer to the question depends upon the contractual interpretation of paragraph 1.3.1.
In June 1997, Lord Hoffman summarised the well-known modern principles of contractual interpretation in the House of Lords case of Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 at 912F-913E.
"(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background…….includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent…….
(4) The meaning which a document……would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean…….
(5) The 'rule' that the words should be given their 'natural and ordinary meaning' reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had….. "
In December 1997, in Wandsworth, Lord Woolf referred to the issue of variation of contract in an employment context in paragraph 31 of his judgment.
"31. The general position is that contracts of employment can only be varied by agreement. However, in the employment field an employer or for that matter an employee can reserve the ability to change a particular aspect of the contract unilaterally by notifying the other party as part of the contract that this is the situation. However, clear language is required to reserve to one party an unusual power of that sort."
Two cases demonstrate the essence of construction of a contract and what language is required to reserve a power of unilateral variation.
In Securities and Facilities Division v Hayes and others [2001] IRLR 81, the claimants' contracts of employment provided for payment of a subsistence allowance if an employee was absent from home overnight. The employers sought agreement from the unions for a reduction of the rate of allowance. When no agreement was reached, the employers unilaterally reduced the allowance. There was no express term permitting unilateral variation. The employers argued there was an implied contractual term permitting unilateral variation. In holding that the employers were in breach of contract, Peter Gibson LJ stated as follows in paragraphs 44 and 46:
"44. It is a strong thing to imply a term into a contract of employment when that term allows the unilateral variation of the contract. That is all the more so when there are established means for reaching consensual variations to the contract through the Whitley Council procedures………..
46. ……..Had the parties intended a provision allowing the unilateral variation of the rate of allowances, in my judgment the contractual terms would have had to provide unambiguously for that."
In Bateman and others v Asda Stores [2010] IRLR 370, the claimants' contracts of employment included conditions of employment within sections of Asda's "Colleague Handbook". One of the provisions of the contract stated "The company reserves the right to review, revise, amend or replace the content of this handbook and introduce new policies from time to time to reflect the changing needs of the business and to comply with new legislation…". After a consultation process failed to produce widespread agreement, Asda unilaterally imposed changes to sections of the handbook. The Employment Appeal Tribunal held that, upon construction of the terms of the contract, the employer had expressly reserved the right unilaterally to alter the terms of employment.
Paragraph 1.3.1 contains three sentences. The interpretation of whether the defendant reserved to itself the positive right unilaterally to amend the contracts of its employees is complicated by its drafting in negative rather than positive terms. Further, literally and separately, the first and second sentences conflict with each other. The first sentence is qualified by the word "detrimentally", whereas the second sentence provides an unqualified right to the employee not have any change of the contract without consent. Nonetheless, in my judgment, the meaning that paragraph 1.3.1 as a whole would have conveyed to a reasonable person is that any proposals affecting a change in an employee's terms and conditions should first of all have been the subject of consultation through the Whitley Council system with a view to reaching agreement. In the absence of agreement, unilateral changes could then have been made, but only if they were not detrimental to the employee. Such a meaning could have been more clearly set out in the paragraph. However, I regard the language of the paragraph as a whole as being sufficiently clear, unambiguous and certain as to be interpreted as amounting to the reservation by the defendant of the right to impose unilateral changes to terms and conditions that were not detrimental to an employee.
Was the defendant entitled unilaterally to vary the terms to the extent that they were varied?
It is common ground that no agreement was reached through consultation and the defendant unilaterally varied the terms. Was the variation detrimental to the claimants?
The Oxford English Dictionary defines 'detrimental' as 'causing loss or damage, prejudicial, harmful'.
Albeit within the ambit of discrimination legislation, Lord Hope of Craighead gave consideration to whether something is to an employee's 'detriment' in the House of Lords case of Shamoon v Chief Constable of the Royal Ulster Constabulary [2003] ICR 337
"35. …….one must take all the circumstances into account. This is a test of materiality. Is the treatment of such a kind that a reasonable worker might take the view that in all the circumstances it was to his detriment? An unjustified sense of grievance cannot amount to 'detriment'……….But,……it is not necessary to demonstrate some physical or economic consequence."
Mr Tolley submits that the changes introduced are not detrimental. To the contrary, they are beneficial. They enable both management and an employee to deal at the earliest opportunity with any issues arising from sickness absence and to attempt to address such issues so as to enable the employee to provide effective service. The aim is to ensure that an employee's absence is supportively managed to enable there to be a return to work at the earliest appropriate point. Mr Tolley places reliance on the fact that there has been no recorded case of any employee who it is said has suffered any actual detriment as a result of the implementation of the new policy.
I am prepared to accept that the reasons for the changes may be well motivated on sound principles. Nonetheless, the changes that have been introduced are fundamentally different to the previous processes. An "informal review meeting" is mandatory after the first trigger point of only 5 working days absence or 3 occasions in a rolling 12 month period. The employee is obliged to go to such a meeting whether or not the employee wants to go to the meeting. The outcome of that meeting refers to the employee's absence being "a cause for concern" and states "formal action would be considered if your absence continues to remains at an unsatisfactory level; reaching 8 days or 4 periods or more in a rolling 12 month period. Your attendance will therefore be closely monitored in accordance with these procedures". A "formal review meeting" is mandatory after the second trigger point of 8 working days or 4 occasions in a rolling 12 month period. A formal written warning is a possible outcome. This is in contrast to the processes under Annex A of the old procedure only being able to be instigated after sick leave had exceeded 21 days in any 12 month period. Thus, the trigger points initiating the implementation of disciplinary procedures that could lead to formal sanctions have been brought forward. This is particularly acute for the first, fifth and sixth claimants. It is less acute, but still apposite, for the other claimants.
In my judgment, there are material differences between the two sets of processes and any reasonable worker would take the view that the new provisions were to his or her detriment, both in the sense of its dictionary definition or as explained in Shamoon. I come to that conclusion notwithstanding the point that, as yet, there has been no identifiable case recorded of any specific aspect of detriment being established. Circumstances may not yet have arisen to demonstrate the detriment in a clearly identifiable manner. However, I am in no doubt the potential exists. Additionally, and as stated in the Shamoon case, "it is not necessary to demonstrate some physical or economic consequence". In any event, there is some evidence that employees are fearful of being caught by the low triggers of the policy and are acting in what may be a dangerous way. In an email dated 27 March 2013, reference was made to two examples. In one example, a DSA employee continued to work despite having being struck on the head by a defective door handle and being knocked unconscious for a short while. In the other example, a DVLA employee made a decision to come to work with his nine month old child when his wife was ill and he could not contact either set of grandparents to assist with child-care responsibilities.
In my judgment, therefore, the answer to the second question is no.
Third question – should the court grant a declaration in the circumstances of the case?
In accordance with the provisions of CPR 40.20 there is power to grant a binding declaration whether or not any other remedy is claimed.
The principles as to whether a declaration should be granted are summarised in paragraph 120 of Rolls-Royce plc v Unite the Union [2010] 1 WLR 318. The power of the court is discretionary. There should be a real and present dispute between the parties. However, a claimant does not need to have a present cause of action against a defendant. Each party must be affected by the court's determination of the issues. The court will be prepared to give declaratory relief in respect of a "friendly action" or where there is an "academic question" if all parties wish. This may particularly be so in a "test case" or where it may affect a significant number of other cases and it is in the public interest to decide the issue. Assuming all the other tests are satisfied, the court should ask the question "is this the most effective way of resolving the issues raised?"
In the case of Financial Service Authority v Rourke [2002] CP Rep 14 Neuberger J stated that, in deciding whether it was appropriate to grant a declaration, consideration should be given to
"justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and whether there are any other special reasons why or why not the court should grant the declaration."
Mr Tolley submits this is a not a suitable case for declaratory relief given the lack of any actual detriment and the lack of any specific case by which the court can test the issue. For the reasons already touched upon in relation to answering the second question, I am satisfied that these objections are insufficient to preclude the making of a declaration if there is a useful purpose in granting a declaration. Mr Tolley submits that there is no useful purpose. That submission has to be balanced against the fact that lack of clarification is to no one's benefit.
Mr Tolley also raises the issue of delay, not only in terms of how long it has taken to commence proceedings but also in terms of it being disruptive and an inefficient and ineffective management of the defendant's sickness policy to have to abandon it and revert to the various policies previously in existence.
In relation to how long it has taken to commence proceedings, the proceedings were not commenced until July 2013, which was twelve months after the change in policy. I have had the opportunity of reviewing the correspondence between the parties. Without descending into its detailed particulars, I am satisfied that genuine, albeit ultimately unsuccessful, attempts were being made to resolve the issue. There is evidence that, as late as mid February 2013, there was a real possibility of there being resolution without court proceedings. In any event, the claim is well within any limitation period. I do not regard delay as a sufficiently powerful reason not to make a declaration.
In relation to the wider point of the consequences of having to change the policy, the disruption that might be caused has to be set against the importance of the issue to all of the defendant's employees in relation to changing their terms of employment such that they could potentially become subject to disciplinary proceedings at a much earlier stage than previously. It is a real and present issue. The defendant has known about the objection to the process from its inception, but has continued to operate the new policy. It has done so at its own risk.
In my judgment, given the importance of the issue and taking into account justice on both sides, a declaration would serve a useful purpose and there is insufficient reason not to grant a declaration. The answer to the third question is yes.
I turn therefore to the terms of the declaration. There are four declarations sought in the amended particulars of claim:
(1) The terms of the claimants' contracts of employment are as set out above.
(2) The new procedures are not effective to implement any variation to those terms and are not contractually binding on them.
(3) In imposing the new procedures, the defendant and/or the agencies have committed an anticipatory breach of contract.
(4) Absent any material change in circumstances, if the new procedures are applied in an individual case, the defendant and/or the agencies will commit a breach of contract.
Mr Tolley submits that, even if a declaration is made, it should be limited to (1) and (2) only. There is a lack of specificity in relation to (3) and (4). There is no evidence of any individual case in which the new procedure has been applied. Declaring an anticipatory breach serves no useful purpose unless one also considers issues of repudiation, discharge of the contract and/or damages. That cannot be done on the information presently before me.
Mr Purchase submits that all four declarations should be made. The lack of any individual case is irrelevant. The claimants are not seeking a declaration for an actual, as opposed to an anticipatory, breach of contract. The new procedure has not yet been applied because no one has been sufficiently sick to reach the new trigger points. Nonetheless, the defendant is insisting it will apply the new procedure if anyone is absent from work and the application of the new procedure is justified. The issue potentially affects a very large number of employees across all of the agencies. It is in the interests of all of them, not just the claimants. Further, unless an employee is actually dismissed, there is unlikely to be any financial loss that might lead an employee to bring a claim after the event. A declaration in all four of the terms sought serves a useful purpose and is the only sensible remedy.
I find merit in and prefer the submissions made on behalf of the claimants. I therefore grant all four declarations.
I add the following. In terms of drawing up the order, consideration will need to be given to the precise wording of declaration (1). The order cannot be drawn up simply stating "……as set out above". The terms of the contracts of employment or a sufficient description of them will need to be reproduced from the body of the amended particulars of claim so to avoid any uncertainty as to what is the subject matter of the declaration. |
Mrs Justice Swift DBE :
INTRODUCTION
This is a clinical negligence claim by the Claimant, a child and Protected Party, who acts by his mother and Litigation Friend, KT. The claim concerns events which occurred at the Defendant's Pembury Hospital, Tunbridge Wells, during the period between 24 and 27 November 2004, when the Claimant was two and a half years old. He is now aged 12 years.
The Claimant suffers from at least one, and probably two, congenital haematological conditions. As a result, he was, from an early age, prone to become anaemic. The level of haemoglobin (Hb) in his blood tended to be low and required careful monitoring. Over the first two and a half years of his life, he required a number of blood transfusions when his Hb level dropped.
On the evening of 24 November 2004, the Claimant was unwell and was taken to hospital where blood samples were taken. The ensuing blood tests showed that his Hb level was very low. Nevertheless, he was not given a blood transfusion that night. Instead, transfusion began at 11.20hrs the following day.
The Defendant has admitted that, by failing to admit the Claimant to hospital on the evening of 24 November and by delaying performance of the blood transfusion until mid-morning the following day, it was negligent. The Claimant alleges that the Defendant was also negligent in that its medical staff (a) failed promptly to administer intravenous (IV) fluids when the Claimant became dehydrated and (b) gave the Claimant a diuretic drug, Frusemide (now known as "Furosemide"), during the transfusion on 25 November 2004 and also during a second transfusion which was carried out on 26 November 2004. The Defendant denies negligence in those two respects.
On 27 November 2004, the Claimant suffered seizures. He was found to have had a series of strokes, as a result of which he suffered brain damage and has been left with severe and permanent disability.
I have heard the trial of the issues of breach of duty and causation. The primary issue is that of causation, i.e. whether there was a causal connection between the admitted delay in transfusing the Claimant (together with the other breaches of duty, if proved) and the development of his strokes and consequent brain damage.
The trial necessarily focussed primarily on the detailed investigation of a number of very complex medical issues. No one involved in it could forget, however, that the events of November 2004, whatever their cause, were a tragedy for the Claimant and for his family.
THE TRIAL
Representation
During the trial hearing, the Claimant was represented by Mr Andrew Post QC and junior counsel, Ms Jane Tracy-Forster. The Defendant was represented by Mr Angus Moon QC. Counsel displayed a most impressive knowledge of the relevant medical issues and I was greatly assisted by them.
Lay evidence
Witness statements from the Claimant's parents, both his grandmothers and a great aunt were admitted in evidence. The witnesses were not called to give oral evidence since the Defendant had indicated it did not wish to cross-examine them. Their evidence related primarily to the Claimant's condition from the time when he became unwell prior to 24 November 2004 until the occurrence of his strokes.
The medical evidence
The oral evidence was from seven medical expert witnesses, who came from four areas of expertise.
Dr Martin Becker, Consultant Paediatrician, was called by the Defendant. Between 1984 and 2011, he practised at the Hinchingbrooke Hospital, in Huntingdon, Cambridgeshire. He retired in 2011, since when he has continued to act intermittently as a part-time Locum Consultant Paediatrician for the Cambridgeshire Community Services NHS Trust. He has also worked as a Clinical Teacher in Paediatrics and Child Health at Cambridge University. He has considerable experience of working with children in the context of a large District Hospital.
Evidence about the computerised tomography (CT) scans and magnetic resonance imaging (MRI) of the Claimant's brain that have been undertaken was given by two Neuroradiologists. Dr 'Kling' Chong gave evidence for the Claimant. He is a Consultant in Paediatric Neuroradiology at Great Ormond Street Hospital for Children, London, and has in the past also worked in Neuroradiology in Toronto and Philadelphia. His area of clinical expertise is the interpretation of MRI and CT scans of the paediatric central nervous system. The Defendant called Dr Wellesley St. Clair Forbes who, until his retirement from NHS practice in May 2009, worked as a Consultant Neuroradiologist at Salford Royal Hospitals NHS Foundation Trust and Manchester University Children's Hospital NHS Trust. In addition, he was a part-time Lecturer in the Department of Diagnostic Radiology at the University of Manchester. He has a particular interest in paediatric neuroradiology.
Evidence about the haematological issues was given, for the Claimant, by Dr Paul Telfer. He is an Honorary Consultant in Haematology at St Bartholomew's and the Royal London Hospital NHS Trust Hospital and Senior Lecturer in Haematology at Queen Mary, University of London. He has a specialist interest in inherited red blood cell disorders affecting children and adults, notably the congenital disorders from which the Claimant suffers. He has published widely on such disorders, in particular the congenital blood disorder, sickle cell disease (SCD), and is a member of a number of influential organisations within the field of haematology. The Defendant's witness in this field was Dr Paula Bolton-Maggs. She is a Consultant Haematologist who spent 16 years practising at the Royal Liverpool Children's Hospital, then the Manchester Royal Infirmary. Since October 2011, she has been employed as Medical Director of the UK National Haemovigilance Programme known as "Serious Hazards of Transfusion (SHOT)". SHOT is an independent body which provides data to many NHS bodies. Dr Bolton-Maggs is also an Honorary Senior Lecturer at the University of Manchester. She has a specialist interest in blood coagulation (clotting) and transfusion and has published very extensively on these subjects. She was lead author on the British Committee for Standards in Haematology Guidelines on the Diagnosis and Management of Hereditary Spherocytosis (HS), which is one of the congenital disorders from which the Claimant suffers.
Two Consultants in the field of Paediatric Neurology were also called to give evidence. The Claimant relied on Professor Fenella Kirkham, who has been a Consultant Paediatric Neurologist since 1990. From 1990 until 1999, she was Senior Lecturer in Paediatric Neurology at the Institute of Child Health, with an honorary contract at Great Ormond Street Hospital. She currently works part-time as a Consultant Paediatric Neurologist at Southampton General Hospital and also as a Reader at the University of London Institute of Child Health and the University of Southampton. She has published widely in the field of ischaemic brain damage and stroke in childhood. The Defendant's witness was Dr Finbar O'Callaghan, who is a Reader and Honorary Consultant in Paediatric Neurology based at the Institute of Child Health, with a clinical practice at Great Ormond Street Hospital. He has a research and clinical interest in paediatric cerebrovascular disease, including strokes. Both Professor Kirkham and Dr O'Callaghan are involved in work for the International Paediatric Stroke Study (IPSS).
The two Neuroradiologists had a telephone discussion ("the Joint Discussion") in February 2014, at which they addressed an Agenda of Questions agreed by the parties. Their responses to those Questions were detailed in a signed document. The other five medical experts also held discussions (which I shall refer to as "the Joint Meeting") in April 2014 and also recorded in writing their responses to the Agenda of Questions put to them. I have referred to that document as their "Joint Statement".
There can be no doubt that the medical experts have a collective wealth of knowledge and experience in what are very complex and specialist areas of medical expertise. It is common ground between them that it is impossible to know for certain precisely what happened to the Claimant's blood vessels between 25 and 27 November 2004. There is no obvious or easy answer. What the experts - in particular the Haematologists and Paediatric Neurologists - have sought to do is to form their own view as to what caused the serious brain damage to the Claimant. In reaching my conclusions as to what was the probable cause, I have had to make decisions as to which evidence I prefer on a range of relevant issues. In doing so, it is inevitable that I have to decide on occasion that the evidence of one expert is more reliable than that of another. I shall make clear when I am doing that as I deal with the various issues later in this judgment. For the present, however, there are a number of observations I should make in relation to some of the witnesses.
I found the Claimant's Neuroradiologist, Dr Chong, to be a fair, balanced and impressive witness. At the experts' Joint Discussion, the Defendant's expert, Dr Forbes, had to concede that he had previously misinterpreted the CT and MR imaging and had mistakenly concluded that there was some abnormality of the anterior circulation of the Claimant's brain, whereas in fact the impression of such abnormality had been caused by artefactual issues. Interpreting radiological images must be a very difficult task, particularly where, as here, the imaging quality is not very good. However, the error causes me to be cautious about accepting Dr Forbes' evidence relating to the detail of the abnormalities evident on the radiological imaging.
Dr Becker was plainly a very experienced clinician. However, he relied on the 1992 edition (rather than the most recent 2011 edition) of an authoritative Textbook which was of some importance to the case (see paragraphs 59-60 and 70 of this judgment). His Report did not make clear the fact that there had been a failure to administer IV fluids which had been ordered for the Claimant (see paragraph 37). Those and other aspects of his evidence to which I shall refer later in this judgment meant that I was not able to place total reliance on him as a witness.
As to the Consultant Haematologists, Dr Telfer's evidence was in some respects unsatisfactory. In particular, he had a change of mind between the experts' Joint Meeting and the trial on the subject of the Claimant's haematocrit levels and the consequent likelihood of his having dehydration sufficient to cause increased blood viscosity: see paragraphs 127-128. Of course, a change of mind by an expert after a Joint Meeting does not necessarily suggest unreliability; it may result from mature reflection or reconsideration of the relevant literature. However, on this occasion, the change appeared to be based on a misunderstanding of the relevant data. On the topic of hypocapnia, Dr Telfer did not comment at the Joint Meeting, saying that he "did not know". In oral evidence, however, he supported Professor Kirkham's views on the topic. Once again, these and other aspects of his evidence, meant that, in relation to some issues, I did not feel able to rely on that evidence. By contrast, I found Dr Bolton-Maggs a measured, straightforward and impressive witness, who plainly has considerable knowledge of HS, the condition from which the Claimant suffers.
Moving to the Paediatric Neurologists, Professor Kirkham's evidence appeared to be based very largely on her own clinical experience and her own impressions and beliefs, rather than on objective evidence and epidemiological material. It sometimes appeared to be founded on her experience of SCD, which is a condition very different from the HS from which the Claimant was suffering. Her answers to questions were lengthy and, at times, appeared to stray beyond the point. On a number of occasions, I got the impression that she was struggling to explain an absence of positive evidence in support of a view she held. Her references to medical literature were at times inaccurate, in that the document relied upon did not support the assertion for which she was seeking to use it: see e.g. paragraphs 130 and 164. These aspects had an adverse effect on my assessment of the general reliability of her evidence, particularly when the assertion she was making appeared somewhat speculative.
Dr O'Callaghan had a very different style. Both his Report and his replies in oral evidence were concise and addressed to the relevant issues. His approach to the epidemiological material was careful, accurate and well-researched and he was careful also not to step outside his area of expertise. He was criticised by the Claimant's counsel, Mr Post, for not explaining his preferred mechanism for the strokes and its location in greater detail in his Report and at the Joint Meeting. Dr O'Callaghan's response was that he believed that his meaning would have been clear to the other experts reading his Report or taking part in the Joint Meeting; he said that he had not included further detail because he did not regard it as necessary. In cross-examination, he was asked why his answer at the Joint Meeting to the Question, "Was this (i.e. the occlusion of the basilar artery) caused by emboli or focal arteriopathy?", was not "both", rather than merely "focal cerebral arteriopathy". The point being made was that, since he was now saying that the focal cerebral arteriopathy had led to embolisation, he must either have changed his mind or must have been deliberately choosing not to set out his theory fully in the Joint Statement. He responded that it was an artificial distinction to say that arteriopathy and embolism are mutually exclusive and, so far as he had been concerned, it had been obvious that, if arteriopathy had occurred in the Claimant's case, embolisation must have followed and resulted in his injuries. I found those answers entirely convincing and, indeed, the approach he had taken in his Report was consistent with his manner of giving his oral evidence. The impression I formed was that he was doing his best to give a fair and balanced view. That is not to say that I accept his evidence on every point, but I can see no basis in the criticisms made of him. Nor do I accept, as was suggested by Mr Post, that he was wholly mistaken about the radiological evidence.
THE CLAIMANT'S CONGENITAL CONDITION
Early in the Claimant's life, he was found to be severely anaemic. As a result, he received a number of blood transfusions and was referred to King's College Hospital, London (King's) for investigation. At King's, he was under the care of Dr David Rees, Senior Lecturer in Haematology. Eventually, he was diagnosed as suffering from a form of congenital hereditary spherocytosis (HS). HS is one of a wider group of inherited disorders of the blood cells, known as congenital haemolytic anaemia (CHA) and is probably the commonest type of inherited CHA in the North European population. In this condition, a genetic mutation affects one or more of the proteins which maintain the integrity of the red blood cell membrane, causing loss of the membrane and a decrease in the surface area of the red cell. In unusually severe cases of HS, regular blood transfusions are required to maintain an adequate Hb level. In most cases, however, transfusions are needed only during episodes of sudden worsening of the anaemia. Such worsening can often be caused by infection. Anaemia in HS can be improved by splenectomy (removal of the spleen). This is usually done in severe cases and then only after the age of five or six years, when the child is not so susceptible to bacterial infection.
The Claimant is also considered to suffer from another type of CHA, namely congenital pyruvate kinase deficiency (PK deficiency). That condition results in deficiency of an enzyme in the red cells of the blood. The combination of HS and PK deficiency in the same individual is very rare.
THE CLAIMANT'S HEALTH UP TO NOVEMBER 2004
In his infancy, the Claimant had several episodes of infection. Between the time of his birth on 16 April 2002 and the end of that year, he underwent three blood transfusions when he was found to have a low Hb level. The lowest level recorded in that year was 4.8, on 10 December 2002. Four more transfusions were carried out in 2003. On 22 April 2003, his Hb level was 4.2 and, on 17 August 2003, 4.5. The Hb level for a normal child of two years is 11-11.5.
In October 2003, Dr Rees wrote to the Claimant's GP, reporting on his progress. He described the Claimant as "doing well" overall, with height and weight close to the 50th centile. Dr Rees indicated that the current plan was to give the Claimant blood transfusions when he became symptomatic and also if his Hb level fell below the level of 5.
The medical records show that, on 2 June 2004, the Claimant's Hb level was 5.7 and he had a non-specific illness. He was transfused. On 7 August 2004, his weight was measured at 13.7 kgs. On that day, he was described as "tired" with a cough and wheeze. His Hb level was 6.2 and he was again transfused.
In a further letter to the Claimant's GP, dated 22 November 2004, Dr Rees reported a recent telephone conversation between himself and the Claimant's mother. He indicated that the Claimant's Hb level had been "fairly stable" at 5-6 since June and that he seemed to keep "reasonably well" at that level. He said:
"His mother knows that should he deteriorate in any way then he should have an urgent blood count and may need a blood transfusion."
He considered it likely that the Claimant would "manage" with his low Hb and the "occasional transfusion" until he was 5 or 6, when a splenectomy was likely to be beneficial.
In her witness statement, the Claimant's mother describes how, before November 2004, the Claimant was generally "a normal, happy little boy" who was "walking and talking, and riding a quad bike". The Claimant's father describes how, when the Claimant's Hb levels fell, he would look pale and become jaundiced (i.e. his skin would look yellow). Once he had been transfused, however, he would quickly pick up within an hour or so and be "his old self" again. The statements of the other lay witnesses paint a similar picture.
THE DAYS BEFORE 24 NOVEMBER 2004
The lay witnesses describe how the Claimant became unwell a few days before 24 November 2004. His mother describes him as having a cough and cold. His father says that he became tired, lost his appetite and "started to become noticeably jaundiced".
THE PERIOD FROM 24 TO 27 NOVEMBER 2004
24 November
On 24 November, the Claimant's mother had intended to take him out for the day. However, he was "really poorly", with noticeable signs of jaundice, tiredness and complaints of pain. He would not eat, although he was drinking. He did not go out and, in the early evening, his mother and grandmother took him to Pembury Hospital. A clinical record, timed at 20.00hrs and written by Dr Gika, Specialist Paediatric Registrar, stated:
"Cough, cold, lethargy …
Unwell for 1/52 (i.e. 1 week) [with] cough/cold.
Got more miserable today [with] reduced activity although drinking OK. Lethargic since this p.m. Looks more pale and yellow than usually …PU (passing urine) …
[no] vomiting; [no] diarrhoea.
Temp (temperature) 38° (i.e. above normal level)
Very quiet but awake and cooperative.
Looks very pale and jaundiced …
Tachycardia (abnormally rapid heart rate) (HR 160/min) (normal rate 70-100)…
RR (respiratory rate) – 24/min
No resp (respiratory) distress
Diagnosis ..? viral infection causing deterioration of haemolytic anaemia …
FBC (i.e. a blood count was to be performed), cross match …
R/v (review) (with) FBC result"
The evidence of the Claimant's mother is that, after examining the Claimant, Dr Gika told her that she could take the Claimant home and that the blood count result would be reported by telephone. She was present at a conversation between Dr Gika and a nurse, in which Dr Gika suggested that the Claimant might be brought back if the Hb result was "really low", but the nurse replied that it was not the practice at Pembury to transfuse after 22.00hrs unless the case involved an emergency such as a road traffic accident. According to the Claimant's mother, Dr Gika pointed out that, if his Hb level was really low, that would be an emergency, but the nurse repeated that the hospital did not transfuse after 22.00hrs.
A further clinical note, signed by Dr Resko-Zachera, Paediatric Registrar, and timed at 22.00hrs, recorded:
"The result of the blood sample … Hb 3.3
I called the Haem Lab – blood for the [illegible] has been ordered"
A further untimed note signed by the same doctor reads:
"I called to mum and informed to come to the ward for the transfusion tomorrow in the morning.
But if she thinks baby's getting worse – she will come as soon as possible."
That Hb level was of course extremely low when compared with the normal limit of 11-11.5 for a child of the Claimant's age. It was significantly lower than any of the Claimant's previous readings.
The evidence of the Claimant's parents is that his father attempted to persuade Dr Resko-Zachera that, because the Claimant looked poorly - worse than he usually did when his Hb level was low - they should take him to the hospital for the transfusion immediately. The doctor refused to agree and told them that they should bring the Claimant into Pembury the following day at 11.00hrs.
25 November
The Claimant's mother's evidence was that his condition became worse overnight. She describes how he vomited several times. Early in the morning of 25 November, she contacted her mother, who telephoned Pembury and spoke to a nurse. The nurse told her that the blood for the transfusion would not be ready before 11.00hrs. The Claimant's grandmother told the nurse that the Claimant would be brought into hospital immediately in any event. They arrived there at about 08.00hrs. By that time, the Claimant was, according to his mother, "extremely lethargic" and "not at all well". When asked whether the transfusion could be done immediately, a nurse replied that the blood was not yet ready. Meanwhile, the Claimant was vomiting and "lying quite lifeless" on the bed. He was not interested in drinking, was running a temperature and Paracetamol was prescribed.
A nursing assessment form completed at 09.15hrs records the Claimant's colour as "pale", his respirations as "normal", his consciousness as "drowsy", and his behaviour as "calm". He was reported to have "slight" pain, described as "tummy ache". His temperature was 36º and his weight at that time was 14kgs. He was recorded as "apyrexial" (absence of fever) and it was noted he had vomited three times that morning.
At 09.30hrs, the blood test results, including the Hb level of 3.3, and a very high bilirubin level at 337 micromol/l, were noted by Dr Gika, who was by then back on duty. The high bilirubin level suggested that the Claimant was very jaundiced. Dr Gika also noted that blood for the transfusion had been ordered and would be ready at approximately 11.30hrs. She undertook a review of the Claimant and recorded:
"Looks a lot worse this a.m
Sat 02 (i.e. oxygen saturation): 100%
Tachycardia (HR-150).
Tachypnoeic (rapid breathing) (RR-40)
Very quiet but awake and responsive
Dry lips.
Has been vomiting all night according to mum.
Plan: Blood Tx (Transfusion Service) called re: getting blood earlier - will be ready at 11.30hrs unless we want it uncrossmatched …
Transfer to HDU (High Dependency Unit) and give 02. To d/w (discuss with) Dr Robards (a senior colleague) re: uncrossmatched blood. Otherwise to give fluids"
The meaning of the word "Otherwise" in that note has been a source of argument to which I shall return later.
An untimed document recording the IV fluids ordered for and administered to the Claimant during his time at Pembury shows that, on 25 November 2004, an order was given by Dr Gika for him to have 1200mls of IV fluids, with 50mls to be given each hour. That order is crossed out and, unlike every other entry on the page, there is no record of the 'time started' or the person who administered the IV fluids. It seems clear that they were never given.
The records make clear that, at 11.20hrs, the transfusion started. It lasted just over an hour with 210mls of blood being given, and a further 65mls at about 12.20hrs. The rate of transfusion was abnormally rapid, the reason being the severity of the Claimant's anaemia. A note timed at 12.00hrs records that 7mgs of Frusemide were given intravenously "half way through" the transfusion. A further note timed at 12.10hrs was made by Dr Gika, who recorded that it was "written retrospectively". It stated that, half way through the transfusion, the Claimant was "looking already a lot better".
At 15.30hrs, Dr Gika recorded:
"A lot better since he's had the Tx (transfusion)
Sitting on bed. Drinking OK. Has had 280ml blood".
Her plan was to have another blood count done at 17.00hrs and then make a decision as to whether to perform a second transfusion. A nursing note written in the afternoon/early evening recorded that the Claimant was "feeling brighter this evening, managing to eat small amount", although his temperature was still raised at 38°. The evidence of the Claimant's mother was that he did not recover as well from the transfusion as he usually did. Unusually, he did not want to eat his favourite food. A nursing note recorded that, at 22.30hrs on 25 November, the Claimant's Hb level was 7.4, so that he had not needed another blood transfusion that night.
26 November
At 06.30hrs on 26 November, it was recorded that the Claimant had taken a while to settle but appeared to have had a reasonable night's sleep. A further, untimed, note stated:
"Had been sick twice this morning – no bile or blood. Floppy this morning.
Yest (yesterday) was alert, had eaten and drank well."
Further blood and other tests were to be carried out. By 11.18hrs, the Claimant's Hb level had reduced to 6.1 and his bilirubin level was up at 378. Another note made during the morning of 26 November 2004 (the time illegible) records that the Claimant:
"remains very sleepy and lethargic.
Vomited 1 x green bile stained vomit
Tolerating small amount of fluid
Observations satisfactory. Very - yellow coloured - in appearance."
On the afternoon of 26 November, the Claimant underwent a further blood transfusion. The precise time is not clear, but it seems likely to have been shortly after 13.15hrs. Over a period of approximately four hours, he was given a total of 250mls of blood. The transfusion was, therefore, far less rapid than on the previous occasion. It was noted that 7mgs of Frusemide were given "half way through transfusion". At 17.30hrs, for the first time since his admission at Pembury, he began to receive IV fluids at a rate of 50mls per hour.
A clinical note made by Dr Gika, timed at 13.30hrs but stated to have been "written retrospectively" recorded:
"In view of condition deteriorating again today and abrupt fall of Hb (from 7.4 yesterday evening to 6.1 this a.m.) – blood Tx given again today."
Dr Gika noted that her impression was that there was a "continuing haemolytic crisis". She discussed the position with Dr Robards, who agreed with her. It was decided that Dr Gika would telephone King's and seek the advice of Dr Rees.
A note made at 14.00hrs recorded that the Claimant's urine contained "++blood". At 16.00hrs, Dr Gika noted that she had spoken to Dr Rees who was happy with the Claimant's management so far and had made some suggestions for further investigations of his condition. Those investigations were put in train. At 20.00hrs, a clinical note stated that the Claimant continued to be:
"… very sleepy c/o pain, mainly in his tummy. ? has UTI (urinary tract infection). Colour remains very yellow. … Urine very concentrated and drinking only sips so IV fluids ... commenced at 50mls per hour. Observations in normal limits."
27 November
A nursing note timed at 06.00hrs on 27 November recorded that the Claimant had had a "fair night", sleeping well until about 02.30hrs, when he awoke complaining of "tummy" pain and was given Paracetamol. After a while, he settled but woke up at 04.30hrs, again complaining of tummy pain. The administration of IV fluids was continuing, although the device for administering the fluids had to be re-sited as a result of which no IV fluids were given for some time.
The Claimant was examined at about 10.00hrs by Dr Kisat, Paediatric Cardiological Specialist Registrar, in the course of a ward round. Two notes of the observations on the ward round exist. The first is signed by Dr Gika and the second by Dr Kisat. Dr Gika recorded that urine analysis had showed that the Claimant had "blood++" in his urine. Her impression was that the Claimant appeared to have haemoglobinuria (i.e. abnormally high levels of Hb in the urine). She noted that the Claimant was:
"Drowsy again this a.m.
Crying in pain according to mum
Not eating/drinking
Not vomiting this a.m."
At the time of the ward round, the Claimant was asleep, but easily aroused and irritable and crying when awake. Dr Gika noted the results of the examination of the Claimant's abdomen and chest. She described his chest as "clear" and recorded her impression (or possibly the impression of Dr Kisat, who was in charge of the ward round) that the Claimant was suffering from a "haemolytic crisis, probably due to viral infection." She arranged for further tests, including an abdominal ultrasound, to be performed the following Monday.
Dr Kisat's note of the same ward round was made retrospectively and recorded, inter alia, that the Claimant was:
"Sleepy as before but in some pain and c/o pain in left knee & leg since morning."
On assessment, he found the Claimant:
"Sleepy but arousable & resisting examinations & crying most of the time when examined
Still pale and jaundiced
Normal limb movements
Irritable …".
The plan was to continue IV fluids, check the Claimant's blood and administer Phenobarbitone in an attempt to bring his bilirubin levels down.
A nursing note recorded the morning's activities:
"No improvement this morning, continues to be in pain Observations remained stable until 12 midday when mum observed (the Claimant) rolling his eyes and slight leg stiffness. Drs. informed ? cerebral irritation … Nil by mouth."
At about 13.00hrs, Dr Gika saw the Claimant and noted:
"High pitched cry. Increased tone of lower limbs. Head persistently looking to the left. Eyes also to the left. Pupils dilated, reacting very slowly. Brisk tendon reflexes both legs …
Imp : Encephalopathy ? infection …"
Dr Gika consulted Dr Kisat and made enquiries of King's Liver Unit about the possibility of liver infection. Meanwhile, the Claimant's vital signs were described as "stable throughout" and he was maintaining his airway. He was transferred to the Pembury High Dependency Unit. Staff at Guy's Hospital Retrieval Team were asked for advice and recommended an urgent CT scan of the brain and for the IV fluids to be changed.
At about 15.00hrs, the Claimant had two episodes of bradycardia (slow heart rate), with a high-pitched cry and increased muscle tone of the lower limbs. It was decided that a CT scan of the Claimant's brain should be undertaken. Dr Kisat was consulted and directed that the Claimant also needed intubation (administration of fluids by tube). The attempt to arrange for the CT scan to be performed at Pembury proved unsuccessful since the scanner was broken. It was decided to transfer the Claimant to King's for the CT scan and the Guy's Retrieval Team were asked to make the transfer. Meanwhile, the Claimant was sedated and ventilated. At 17.30hrs, it was recorded on the Paediatric Unit Fluid Chart, "Catheter : No urine".
At some time in the late afternoon, Dr Kisat spoke to the Claimant's parents. This note records that he:
"… told them possibility of haemolytic crisis secondary to probably viral infection. This has probably resulted in encephalitis (inflammation of the brain)."
The Retrieval Team took some time to arrive and eventually collected the Claimant at 19.30hrs. He was taken to King's, where he was treated until 18 January 2005, when he was transferred back to Pembury.
THE ALLEGATIONS OF BREACH OF DUTY
The primary allegations of breach of duty relate to the failure on the part of the clinical staff at Pembury to advise the Claimant's parents to bring him back to hospital at 22.00hrs on 24 November, when the Hb results were known, together with the failure to start the transfusion by 02.00hrs on 25 November at the latest. The Defendant admits those breaches and admits also that the transfusion should have started by 02.00hrs and should have been completed no later than 06.00hrs on 25 November. It is agreed that, had the transfusion taken place promptly, it would have been done over a period of four hours, rather than rapidly over one hour as was the case. In fact the transfusion was commenced at 11.20hrs on 25 November. There was therefore a delay of almost 9½ hours in circumstances where the Claimant was suffering from severe anaemia.
The Particulars of Claim also alleged, at paragraph 28(c), that:
"if the Claimant became dehydrated (which would have been avoided by timely transfusions), IV fluids including dextrose and saline should have been administered at the same time as or before the transfusions".
It is now acknowledged that it would not have been appropriate to administer IV fluids during the transfusions. The only complaint is that they were not given before and after each transfusion. In its original Defence, the Defendant alleged that the Claimant had not become dehydrated at all. In its Amended Defence, however, it admitted that he had become dehydrated, but averred that the dehydration was not severe.
At paragraph 28(d) of the Particulars of Claim, the Claimant alleged that the clinical staff were also in breach of duty in not giving the Claimant his first transfusion slowly (i.e. over a period of about four hours) and in giving him the diuretic, Frusemide, during both the transfusions. In its Defence, the Defendant responded that, even if the first transfusion was given too fast, the speed caused no injury. In the event, the allegation relating to speed of transfusion was not pursued. The Defendant also averred that a competent body of practitioners would have given Frusemide at the time of transfusions, and that, in any event, the administration of Frusemide caused no injury.
In its Amended Defence, the Defendant also contended that the injuries alleged in the Particulars of Claim (namely the strokes suffered by the Claimant) were not within the scope of the duty of care owed by the Defendant to the Claimant. I shall deal with that issue of law later in this judgment.
THE ISSUES RELATING TO BREACH OF DUTY
The issues relating to breach of duty are therefore:
a) To what extent, if at all, was the Claimant dehydrated between the evening of 24 November and 27 November and, if he was dehydrated, was the Defendant in breach of its duty by not administering IV fluids earlier?
b) Was it in breach of duty to administer Frusemide during one or both of the transfusions?
I shall consider these issues separately.
Dehydration
Dehydration means a reduction in body water to below normal levels. It upsets the balance of minerals in the body which can affect the way the body functions. Additional adaptive mechanisms come into play, e.g. the kidneys conserve water so that urine is more concentrated and the volume of urine is reduced. When blood plasma volume is reduced as a result of dehydration, the pulse rate increases and blood pressure (BP) decreases. Net loss of water occurs if fluid losses are greater than fluid intake. Fluid losses occur with sweating (e.g. with fever), passing of urine, vomiting and diarrhoea. Dehydration in a child who is ill is not uncommon. It is treated by trying to induce the child to drink more fluids. However, IV fluid replacement may become necessary if oral fluid intake becomes insufficient.
In the course of the evidence, I was referred to a passage in the well known publication, Nelson Textbook of Paediatrics (19th edition 2011) (Nelson). It states:
"Dehydration, most often due to gastroenteritis, is a common problem in children. Most cases can be managed with oral rehydration. Even children with mild to moderate hyponatremic or hypernatremic dehydration can be managed with oral rehydration."
Table 54-1 sets out criteria for the clinical evaluation of dehydration:
"Mild dehydration (: Normal or increased pulse; decreased urine output; thirsty; normal physical findings
Moderate dehydration (5-10% in an infant; 3-6% in an older child or adult) Tachycardia; little or no urine output; irritable/lethargic; sunken eyes and fontanel; decreased tears; dry mucous membranes; mild delay in elasticity (skin turgor); delayed capillary refill (>1.5 sec); cool and pale
Severe dehydration (>10% in an infant; >6% in an older child or adult); Peripheral pulses either rapid and weak or absent; decreased blood pressure; no urine output; very sunken eyes and fontanel; no tears; parched mucous membranes; delayed elasticity (poor skin turgor); very delayed capillary refill (>3 sec); cold and mottled; limp, depressed consciousness"
The experts agreed that this Table was a useful aid to evaluating the degree of dehydration suffered by a patient. The percentages refer to the proportion of weight loss suffered by the patient as a result of dehydration. Nelson continues:
"The first step in caring for the child with dehydration is to assess the degree of dehydration (Table 54-1), which dictates both the urgency of the situation and the volume of fluid needed for rehydration. The infant with mild dehydration (3-5% of body weight dehydrated) has few clinical signs or symptoms. The infant may be thirsty; the alert parent may notice a decline in urine output. The history is most helpful. The infant with moderate dehydration is evident from an increased heart rate and reduced urine output. This patient needs fairly prompt intervention. The infant with severe dehydration is gravely ill. The decrease in blood pressure indicates that vital organs may be receiving inadequate perfusion. Immediate and aggressive intervention is necessary. If possible, the child with severe dehydration should initially receive intravenous therapy. "
Nelson goes on to give detailed advice as to the management of dehydration, in particular the need for careful monitoring of the patient's fluid intake and output.
The experts agreed that there was no evidence that the Claimant was dehydrated on the evening of 24 November. At that stage, he was not reported to have vomited and was said to be "drinking OK". The only possible indicator of dehydration at that time was his high heart rate (160/min), but that may have had other causes.
By the following morning, it is clear that the Claimant's condition had deteriorated. His Hb level at that time is not known, but the experts agreed that it is likely to have been lower than on the previous evening, making him even more severely anaemic. He was reported to have been vomiting overnight and had dry lips. The Claimant's Haematologist, Dr Telfer, took the view that he was significantly dehydrated at that time. In reaching that conclusion, he relied at least partly on his interpretation of the note (timed at 09.30hrs) made by Dr Gika:
"Plan: Blood Tx called re getting blood earlier. Will be ready at 11.30hrs unless we want it uncrossmatched …
To d/w Dr Robards re: uncrossmatched blood. Otherwise to give fluids."
As I have already said, it is clear that the IV fluids were not administered.
Dr Telfer's interpretation was that Dr Gika had intended that, if uncrossmatched blood (which would have been available earlier than crossmatched blood) were not to be requested, then IV fluids should be given pending the arrival of the crossmatched blood at 11.30hrs, i.e. that the matter was urgent because of the signs that the Claimant was becoming dehydrated and IV fluids should not be delayed until 11.30hrs. In the event, it appears that a decision was taken to wait for the crossmatched blood. Despite that decision, the IV fluids were not given.
Dr Becker's reading of the note was that Dr Gika had meant that IV fluids should be given only if the blood for the transfusion (whether crossmatched or not) arrived later than 11.30hrs. In his original Report, he had not mentioned the fact that the IV fluids order was never administered. Given the importance of dehydration in this case, that was an unfortunate omission. In oral evidence, he indicated that he assumed that the order for IV fluids had not been administered because the blood became available before 11.30hrs and no IV fluids were therefore necessary.
Dr Becker's evidence was that he did not consider that, as at 25 November, there were any indications from which one could draw the conclusion that the Claimant was moderately, as opposed to mildly, dehydrated. In particular, there was no record of sunken eyes, dry mucous membranes, delay in elasticity of the skin or coldness. He did not accept that the "dry lips" referred to in the note made at 09.30hrs would indicate dry mucous membranes; they could, he said, have resulted from a respiratory infection. He attributed the Claimant's increased pulse rate and rapid breathing to his severe anaemia and pointed out that, once he had undergone the transfusion, his pulse rate had reduced. He suggested that the Claimant's reported lethargy, and possible irritability, could be explained by his anaemia.
Dr Becker compared the Claimant's weight, as recorded on 24 November (14kgs), with that recorded on 7 August 2004 (13.7kgs). In his original Report, he calculated that, when the Claimant was admitted to Pembury on 24 November, his weight was only 1-2% less than would be expected, applying the percentiles of weight gain that could reasonably be assumed over the period from August to October. In a subsequent letter, written after receiving Dr Telfer's Report, he amended that percentage of expected weight loss to 5-6% and observed that, whilst he accepted that there was a degree of dehydration on 25 November, he classified it as "mild/moderate" and not such as to make it necessary to give IV fluids. He considered that it was reasonable to expect the Claimant to be able to drink, saying that IV fluids replacement were indicated only if a child cannot drink or if there is excessive fluid loss (e.g. as a result of vomiting and/or diarrhoea). A few months later, in an Addendum to his Report, Dr Becker calculated the Claimant's weight loss at 2.8%. His evidence on this point was, therefore, very inconsistent.
It does not seem to me that, on the limited data available, it is possible to assess the Claimant's true weight loss with any accuracy. Only two measurements of his weight were recorded over a three month period and it must, in my view, be possible that the "14kgs" recorded on 25 November was not exact and in fact omitted some decimal points above or below the "14". Dr Becker acknowledged that that might be the case. If the record were not entirely accurate, that would have a significant effect on the calculation of expected weight loss.
Some time was spent at trial looking at the records of the Claimant's fluid input and output on 25 and 26 November. However, no detailed fluid charts were kept and, whilst it was possible to gather together some entries contained in the existing nursing and clinical records, it does not appear to me that they can be regarded as complete or as giving an accurate picture of his total input and output of fluids during the relevant period. References to him taking "only sips" and "tolerating small amounts of fluid" do not enable one to calculate his precise intake; the same applies to his urinary output. The failure to keep full and accurate fluid input/output records may have occurred because, as Professor Bolton-Maggs suggested, the staff did not regard dehydration as a key issue at the time, or it may have been an unfortunate oversight. Whatever the cause, it makes the assessment of the true level of the Claimant's dehydration much more difficult. Another feature which causes difficulty is that his serum urea, which Dr Telfer and Dr Becker agreed was the most helpful measure of dehydration, was not tested.
Following transfusion on 25 November, the Claimant's condition improved, although not, according to his relatives, to the extent that was usual for him after transfusions. The medical records refer to him "drinking OK" during the afternoon and overnight. His pulse rate had reduced to normal and his Hb, at 7.4, was within normal limits for him, although not for a child without HS. However, he was still vomiting on the morning of 26 November and, by 18.11hrs, his Hb level had reduced to 6.1. The decision was taken to give him another blood transfusion.
In assessing whether the Claimant was dehydrated on 26 November, Dr Becker placed some reliance on the urine specific gravity (USG) level of 10.10 as measured from a urine sample taken that day. In his letter of 21 February 2014, he stated that the reading of 10.10 suggested that the Claimant's hydration was at that time within the normal range. In previous editions of Nelson, emphasis had been placed on the role of measurement of USG in the assessment of the presence/extent of dehydration. In the most recent, i.e. the 19th, edition (2011), however, the reference to the role of measurement of USG was omitted. From that, I infer that the authors of this authoritative Textbook did not consider that such great reliance should be placed on the USG reading as had previously been thought. Dr Becker (who had referred in his Report only to the 17th (1992) edition of Nelson, which included the reference to USG), considered that USG was still a factor to be taken into account. He said that, as a clinician, the Claimant's USG level would have told him that he was not severely dehydrated.
Moving to the late afternoon of 26 November, Dr Becker's evidence was that there were still no clinical signs of dehydration and it was clear that the Claimant was able to take oral fluids. He acknowledged that the records suggested that his fluid input was less than would be appropriate for his body weight, but observed that it was difficult to be certain because of the lack of records. He considered that the Claimant was given IV fluids on 26 November, not because he was believed to have significant dehydration, but for prophylactic reasons, to avoid him becoming dehydrated and because of the difficulty of measuring fluid input and output accurately.
The IV infusion continued for the remainder of 26 November and into 27 November, save for two periods when it appears that the device used to administer the IV fluids "tissued" and was removed. By that time, the Claimant was not eating or drinking. By 17.30hrs on 27 November, he had been catheterised and a note recorded, "Catheter – No urine". Dr Becker did not consider that the absence of urine necessarily meant that the Claimant must have been suffering from very severe dehydration. He said that, since the IV fluids had been prescribed for 'maintenance' purposes, one would not have expected a large output of urine. In any event, the Claimant had passed urine only a short time later. He pointed out that, as from mid-afternoon, the IV fluids were reduced to counterbalance the effect of the neuro-complications that were then evident.
Dr Telfer believed that the history of vomiting on the night of 24 November and the morning of 25 November meant that the Claimant had lost fluid. He considered that he was moderately dehydrated and that it was because of this that IV fluids were prescribed on the morning of 25 November. He did not consider that his dehydration had been properly managed. His view was that the fact that no urine was found in the bladder after catheterisation on 27 November was significant. It was suggested by the Defendant's counsel, Mr Moon that, in expressing views about the clinical signs of dehydration, Dr Telfer was stepping out of his area of expertise. I do not accept that contention. As part of a team working with Paediatricians on the management of patients, I have no doubt that he has regularly to consider issues such as dehydration, particularly involving children, and is therefore familiar with the clinical and other signs of the condition. He emphasised that dehydration is an important issue. He said that, if the Claimant had been in the care of his team, with severe anaemia, a transfusion to be done, and a history of vomiting overnight and general sickness, he would not have been confident that the child would take sufficient fluids by mouth and would have been likely strongly to advise IV fluids immediately on admission.
I do not consider that Dr Becker's interpretation of the note of Dr Gika timed at 09.30hrs on 25 November is correct. It seems to me far more likely that it was intended to mean that, in the event that it was decided not to use uncrossmatched blood (and therefore not to perform the transfusion earlier than about 11.30hrs), IV fluids should be given. Since it was indeed decided not to use uncrossmatched blood, it is difficult to know why the fluids were not in fact administered. It might have been an oversight or a misunderstanding by someone as to what was meant by the note. Alternatively, it might have been a conscious decision made by Dr Gika and/or Dr Robards in the light of the Claimant's condition. If that had been the explanation, however, one would have expected the change of mind to be recorded in the notes. There was no evidence from Dr Gika, Dr Robards or any other witness who might have been able to assist on this point.
I consider that, when she wrote the note, Dr Gika must have been aware that the Claimant was showing some signs of dehydration and that, if the transfusion were delayed for a further couple of hours, those signs might well increase. She was well aware that the transfusion had already been delayed overnight and that the Claimant's condition had deteriorated. I accept that some of the signs of moderate dehydration listed in the Nelson Table were not described by the clinicians, the nurses or members of the Claimant's family. Nevertheless, the repeated vomiting, dry lips, tachycardia, lethargy and severe anaemia were, I consider, indicators that the Claimant was probably at the middle-lower end of moderate dehydration (as defined in Nelson) at that time. Given the fact that the decision to give IV fluids in certain circumstances was taken and that, despite the fact that those circumstances did in fact arise, they were not administered, I consider that the failure to do so amounted to a breach of duty. There was no evidence of a formal change of plan, nor of the reason for such a change.
As to the Claimant's condition thereafter, there was a temporary improvement after the first transfusion, when he was said to be "drinking OK" and his heart and pulse rate had returned to normal. However, thereafter, his condition worsened, he began to vomit again regularly and he was drinking only small amounts. It is most regrettable that his fluid input and output were not better monitored during the period of his admission. That should plainly have been done. As it is, those records which do exist suggest that, during 25 and 26 November and, to a lesser extent, even after IV fluids were started in the late afternoon of 26 November, his fluid input was less than it should have been. The finding at 17.30hrs on 27 November (after 24 hours of IV fluids), that there was no urine in his bladder indicates in my view that, by that time, he was at the high end of moderate dehydration, although his dehydration could not be classified as "severe" within the Nelson definition. Indeed, none of the experts suggested that it had been. I consider that, had the transfusion not been delayed as it was, the Claimant would not have become significantly dehydrated overnight on 24/25 November. Thereafter, had the dehydration been adequately managed, with the administration of IV fluids when necessary, it would certainly not have risen to the level it did.
Frusemide
The Claimant's case is that the administration of Frusemide, during each of the two transfusions, was in breach of duty. Diuretic drugs act on the kidney to enhance urine production and it is common to administer them during a large volume red cell transfusion, in order to avoid fluid overload. However, Dr Telfer's evidence was that, in the situation of a dehydrated and anaemic child like the Claimant, rapid transfusion of a large volume of blood, together with Frusemide, could be potentially harmful. Dr Telfer said that he would have advised not to give Frusemide unless there was evidence of fluid overload, which there was not in the Claimant's case. It is relevant to note here that an Addendum to the Guideline on the Administration of Blood Components, issued by the British Committee for Standards in Haematology, advises that a careful assessment of factors that might give rise to a risk of transfusion-associated circulatory overload should be undertaken before deciding on the volume and rate of a blood transfusion and in deciding whether diuretics should be prescribed.
Dr Becker made no reference in his Report to the administration of Frusemide; he had not been asked by the Defendant's solicitors specifically to do so. However, in his letter dated 21 February 2014, written after he had received Dr Telfer's Report, he indicated that he agreed with Dr Telfer that the Claimant had a degree of dehydration and that there was no good reason to give Frusemide during the transfusions. However, in a later Addendum dated 15 September 2014, Dr Becker appeared to change his stance. He gave his opinion that he personally would not have prescribed diuretics in the Claimant's case, unless he had become concerned during transfusion about the possibility of circulatory overload. He did not consider that it was negligent to give Frusemide to the Claimant at the time of the first transfusion, given that his severe anaemia carried the risk of him developing heart failure and also that it was planned to give the transfusion more rapidly than usual. In oral evidence, he conceded that there was no reason to give Frusemide at the time of the second transfusion, as that was done over a period of four hours, rather than only one.
On this issue, I prefer the evidence of Dr Telfer to that of Dr Becker. There is no evidence to suggest that there was a significant risk of fluid overload at the time of the first transfusion or that any assessment of the risk was conducted. The fact that no such assessment was undertaken is to some extent supported by the giving of Frusemide at the time of the second transfusion, when there was not the additional risk factor that the transfusion was to be given rapidly. It appears that it may have been the practice at Pembury to give a diuretic during transfusion. However, given the fact that Frusemide would tend to increase dehydration and that the administration of IV fluids had been planned earlier but not executed, I consider that any competent practitioner would have concluded that to administer Frusemide at the time of both the first and the second transfusion would not be good medical practice. I therefore find that the giving of Frusemide on both occasions constituted a breach of duty.
There is no evidence that, taken on its own, the giving of Frusemide would have had a direct effect on the Claimant. The experts were agreed that there was insufficient scientific literature to determine whether its use during the transfusions would have contributed to increased viscosity of the blood. However, it would have made some contribution to the dehydration from which I have found the Claimant was already suffering.
THE PARTIES' CASES ON CAUSATION
The pleaded cases
The Claimant's case on causation was set out in paragraphs 29 and 30 of the Particulars of Claim which stated:
"The Claimant's haemolytic crisis resulted in hypoxia and concurrent hypocapnia and consequently to dehydration due to vomiting and reduced fluid oral intake. If he had been transfused by 06.00 on 25 November 2004 without diuresis, his anaemia would have been corrected before his compensatory mechanisms for maintaining oxygenation reached their limits. He would have recovered sufficiently to maintain a reasonable oral fluid intake and would not have suffered vomiting and consequent dehydration, the latter being exaggerated by the use of Frusemide.
The hypoxia, hypocapnia and consequent dehydration were, on the balance of probabilities the cause of endothelial dysfunction and thus of the formation of thrombus in the heart or in the cerebral arteries or systemic veins with paradoxical embolism into the cerebral arteries. This thrombus produced multiple embolisations to the basilar artery and its distribution. These caused multiple strokes in the posterior circulation (as demonstrated on the CT scan). "
By way of clarification, I should explain that an "endothelial dysfunction" is a systemic pathological state of the endothelium, i.e. the thin layer of cells that lines the interior surface of blood vessels. Such dysfunction can give rise to the development of thrombus. A "thrombus" is a clot in the cardiovascular system formed from constituents of the blood. As it passes through the blood system, a thrombus may decrease blood flow in a vessel; it may completely cut off (occlude or obstruct) the vessel, resulting in "thrombosis". The thrombus may be attracted to the vessel or heart wall without occluding the lumen (inside space) or it may occlude the lumen. A thrombus may result in emboli passing through the system. An "embolus" is a transported mass (solid, liquid, or gaseous) carried through the circulation, which may cause the occlusion of a vessel. If an embolus or emboli cause complete blockage of the blood flow, such occlusion is known as an "embolism". A "paradoxical embolism" is an embolism of a thrombus of venous origin through a lateral opening in the heart. "Stroke" occurs when the supply of blood to the brain is interrupted or completely cut off, often as a result of thrombus and/or emboli.
In its Defence, the Defendant denied the cause asserted by the Claimant and instead alleged at paragraph 18 that:
"The strokes from which the Claimant suffered were the result of the viral infection from which the Claimant had been suffering. The viral infection caused both a transient cerebral arteriopathy and a haemolytic crisis. The cerebral arteriopathy was the most likely underlying cause of the Claimant's multiple strokes. The Claimant's anaemia was not the cause of his strokes. On 24 November 2004 the Claimant had a one week history of cough, cold and lethargy, symptoms suggestive of an ongoing upper respiratory tract infection. The Claimant developed arteriopathy secondary to preceding infection and had multiple strokes secondary to that arteriopathy.
An "arteriopathy" is a disease of an artery; a "cerebral arteriopathy" is an arteriopathy which occurs in the cerebral circulation. When the arteriopathy occurs in a specific area, it is termed "focal". "Arteriopathy" is one of a number of conditions which falls within the wider term of "vasculopathy", i.e. a disorder of blood vessels.
In response to the Defendant's contentions on causation, at paragraph 32 of the Amended Particulars of Claim, the Claimant stated:
"In the event of a finding at trial that focal arteriopathy was the primary cause of perturbation of the blood vessel wall, the Claimant will assert that the following factors caused or made a material contribution to the occlusion of the artery and the consequent ischaemic neurological injury:
a) dehydration;
b) acute-on-chronic haemolysis;
c) severe anaemia;
d) the use of diuretics."
At paragraph 19(ii) of its Amended Defence, the Defendant responded:
"The Claimant's injuries were indeed caused by a focal cerebral arteriopathy secondary to viral infection. If this was the causative mechanism whereby the Claimant sustained his injuries (as the Defendant contends and the Claimant implicitly accepts as a possibility by the proposed amendment to paragraph 32 of the Particulars of Claim) the factors identified in paragraph 32 of the Particulars of Claim made no material contribution to the occlusion of the artery or the consequent ischaemic neurological injury. "
Explanation of the Claimant's case
The Claimant's primary case at trial was therefore that, as a result of the breaches of duty, the severe anaemia and haemolysis from which the Claimant was suffering on 24 November worsened and led also to the development of hypoxia/hypoxaemia, hypocapnia and dehydration. The Claimant relied on criteria set out in the well known Virchoff's Triad, which identifies the three types of "perturbation", i.e. disturbance which can combine to cause a thrombus. These are (i) perturbation of the blood itself; (ii) perturbation of the blood vessel wall, which can occur as a result of direct vessel trauma or damage to the endothelium; and/or (iii) perturbation of blood flow which, if it becomes sluggish, can lead to the formation of a thrombus.
The Claimant's case was that the effect of the hypoxia/hypoxaemia, hypocapnia and dehydration said to have been suffered by him as a result of the Defendant's breaches of duty was to cause the types of perturbation identified in the Triad to occur, and to trigger endothelial dysfunction, which in turn caused the formation of thrombus with multiple emboli which went through the blood system, causing occlusion of the basilar artery, multiple infarcts (tissue death due to lack of O2) and damage to the brain, most particularly to the brainstem which is likely to have caused the severe brain damage from which the Claimant suffers. In particular, it was said that hypoxia and hypocapnia would have had the effect of reducing the O2 level in the Claimant's blood and decreasing blood flow, whilst dehydration would have rendered the blood more viscous (i.e. thick) and would also have reduced flow.
Before considering the evidence relating to those conditions, it is necessary to examine the neuroradiological imaging.
THE NEURORADIOLOGICAL IMAGING
There are no images of the Claimant's brain available from the period before his strokes occurred. The only information available to the Neuroradiologists, therefore, consisted of the imaging from a CT scan and an MRI scan performed at King's on 28 November 2004. The CT scan was done at about 00.30hrs, shortly after the Claimant's transfer from Pembury. The MRI scan was performed about 13 hours later, at about 13.50hrs. There was also an MRI scan performed at King's on 22 April 2005.
The evidence of the Neuroradiologists related primarily to the area known as the vertebro-basilar territory (also known as the posterior circulation) which supplies blood to the posterior part of the area known as the Circle of Willis and from there to the brain. The two vertebral arteries branch upwards from the subclavian arteries and merge to form the single basilar artery. The basilar artery provides the main blood supply to the brainstem. The two posterior cerebral arteries rise from the basilar artery and supply oxygenated blood to the posterior aspect of the brain (the occipital lobe).
The brain imaging on 28 November 2004
There was a good deal of agreement between the two Neuroradiological experts. They agreed that the CT scan showed a focal abnormality in the arterial territory of the left posterior cerebral artery with a more subtle abnormality in the adjacent right parietal lobe. They considered that these abnormalities were consistent with ischaemic infarcts (strokes caused by blockages in the blood vessels in the brain) in the vertebro-basilar circulation. They noted that, at the time of the CT scan, the distal (upper) part of the basilar artery seemed to be flowing normally.
The Neuroradiologists agreed that the MRI scan confirmed the abnormalities visible on the CT scan. There were many lesions within the vertebro-basilar territory, suggesting that there were several separate blockages in the smaller cerebral vessels branching from this area. Both experts referred in their Reports to some focal signal abnormality in the upper pons, i.e. within the brainstem. The experts agreed that the MRI scan showed poor blood flow through the basilar artery and reduced flow in the left vertebral and left posterior cerebral arteries. However, they noted that the image quality of the basilar, vertebral and left posterior cerebral arteries was limited.
On 22 April 2005
The Claimant underwent further MR imaging at King's five months later, on 22 April 2005. By this time, some of the previously noted abnormalities had matured to show a pattern of atrophy. Others had resolved either completely or partially. The images showed areas of established infarction in the left cerebellar hemispheres and in the right and left occipital lobes, being more extensive on the left. Dr Chong noted that there was a mature lesion in the upper pons of the brainstem, more conspicuous than in the previous images. He also described a "notable restoration of blood flow" in the left vertebral artery and most of the basilar artery, although there was a persisting minor abnormality of flow in the upper basilar artery. Dr Forbes observed that the 2005 MRI scan was of better quality than the earlier MRI scan, as a result of which the basilar artery was now visible. His interpretation of the images was that there were irregularities at the distal end of the basilar artery and in the left posterior cerebral artery which, in his view, were consistent with a vasculopathy.
The neuroradiological evidence was consistent with the effects of thrombus which had embolised in the vertebro-basilar circulation, causing occlusion (including occlusion to the basilar artery), ischaemic infarction and brain damage. I shall discuss other aspects of the neuroradiological evidence later in this judgment.
The conditions from which it is said that the Claimant had been suffering prior to his strokes
The Claimant's case was based on what were said to be the effects of his severe anaemia, acute-on-chronic haemolysis, hypoxia/hypoxaemia, hypocapnia and dehydration. It is necessary to examine separately the evidence relating to each of those conditions and their possible causative effects.
Severe anaemia and acute-on-chronic haemolysis
The Claimant's congenital condition caused him to suffer from time to time from anaemia. Prior to 24 November 2004, he had had periodic admissions to hospital with anaemia. However, his Hb level on 24 November (3.3) was significantly lower than it had been on any previous occasion. There is no doubt that, at the time of his admission to hospital on 25 November, the Claimant was severely anaemic. As the experts agreed, in all probability he was more anaemic than he had been about 12 hours previously.
Chronic severe anaemia can be associated with intravascular haemolysis, i.e. a breakdown of red blood cells within the circulation. Acute-on-chronic haemolysis occurs when a patient has chronic haemolysis (as in the Claimant's congenital condition, HS) and then has an acute exacerbation. Such an exacerbation can often be caused by infection which can have the effect of increasing the rate of haemolysis and/or reducing the bone marrow output of red cells. The Claimant had been suffering from an infection for a week before his admission to Pembury in November 2004 and it was accepted by the experts that, on 25 November, he was suffering from acute-on-chronic haemolysis. In the experts' Joint Statement, it was agreed that the severity of his anaemia and of his haemolysis could have been prevented by earlier transfusion, proper management of his dehydration and avoidance of the use of Frusemide.
At their Joint Meeting, the experts discussed the effects of anaemia generally and, in particular, the possible effects of the increased level of anaemia caused by the delay in transfusion. They agreed that there is no medical literature suggesting that severe anaemia and/or acute-on-chronic haemolysis caused by HS is a risk factor for thrombus and emboli. Nevertheless, Professor Kirkham's view was that that was the case. Dr O'Callaghan and Dr Bolton-Maggs disagreed. They pointed out that patients with HS have protective mechanisms which mean that they have lower cholesterol and Hb levels and higher bilirubin levels than normal, making them less likely to suffer thrombus and emboli than a patient without HS.
Professor Kirkham and Dr O'Callaghan agreed that there is medical literature suggesting that some forms of anaemia, in particular SCD and iron deficiency, may have a causative role in stroke. The condition of SCD is, however, very different from HS; in a patient with SCD, the blood clots more easily than in normal patients and the protective mechanisms present in patients with HS do not exist. As a result, the risk of a patient with SCD suffering a stroke is 200 times greater than that of a normal member of the population. Dr Bolton-Maggs observed that, whilst anaemia suffered by children with severe iron deficiency is known to be linked with stroke, this is not the case with HS.
At their Joint Meeting, the experts agreed that, on 26 November, when blood was found in his urine, the Claimant was probably suffering from haemoglobinuria. This suggested that his haemolysis was intravascular, and was not just affecting the spleen. Since involvement of the spleen is the usual pattern in an HS patient, the experts agreed that it suggested that an additional factor, other than the anaemia, was contributing to his haemolysis. A number of possible alternative factors were suggested; the only one which might possibly apply to the Claimant was infection. The experts stated in their Joint Statement agreed that:
"Increased intravascular haemolysis in the context of infection could have been a factor although this is speculative as the data are mainly laboratory-based."
In his Report. Dr Telfer explained that, although chronic severe anaemia with intravascular haemolysis had been recorded as predisposing children to cerebrovascular damage, this has only been commonly reported in children with SCD. But, in a letter written after the Joint Meeting, he appeared to change his view. He wrote:
"I think there is a plausible mechanism whereby severe anaemia and intravascular haemolysis may have caused damage to the endothelium and hence prompted thrombus formation."
He pointed out that the Claimant's case was unusual for a patient with HS and said that he considered it likely that a pro-thrombotic state may arise, even though such an event was not recognised in the literature. A pro-thrombotic state is a condition which makes it more likely that a thrombus (and, therefore, embolism and stroke) will arise.
Dr Bolton-Maggs did not consider that haemolysis, even intravascular haemolysis, was a factor which would cause thrombosis or embolism unless the haemolysis was "massive". She pointed out that, although HS is not an uncommon disease and frequently gives rise to chronic haemolysis which can often be rendered acute by infection, increased haemolysis in such circumstances has never been reported to give rise to thrombotic events. She dismissed Dr Telfer's theory as "speculative".
Conclusions in relation to severe anaemia and acute-on-chronic haemolysis
Whilst severe anaemia and acute-on-chronic haemolysis give rise to certain risks, I have not been shown any convincing evidence that, in general, they give rise to the risk of thrombus or emboli in the case of a patient with HS. Patients with SCD are plainly in a very different category and, although there is also a known risk in cases of iron deficiency, it was not suggested that there were any features of that condition similar to those in HS. In particular, there are not the protective mechanisms which HS patients have. There are many patients who suffer from anaemia and acute-on-chronic haemolysis. If either or both of those conditions were liable to give rise to the risk of thrombus, emboli or stroke, it would be surprising if the fact had not been documented in the medical literature.
Dr Telfer's view related solely to a suggested mechanism which he thought was "plausible" and which, in his view, "may have" promoted thrombus formation. I agree with Dr Bolton-Maggs that his view appears somewhat speculative. He certainly did not express it in his Report or at the experts' Joint Meeting. So far as Professor Kirkham is concerned, I have already mentioned my reservations about relying on her evidence where it is unsupported by the literature. On this point, I felt that she was heavily influenced by her experience of SCD in which the risk of thrombus, emboli and stroke is much higher.
Hypoxia/hypoxaemia and hypocapnia
The issues of whether the Claimant was suffering from hypoxia/hypoxaemia and/or hypocapnia and, if so, the effects of those condition(s), are related, so it is convenient to deal with them together.
Hypoxia occurs when the tissues of the body (including blood) lack O2. Hypoxaemia indicates oxygen deficiency in arterial blood. In her original Report, Professor Kirkham referred to the Claimant as suffering from hypoxia (and, by inference, hypoxaemia), although she did not cite any clinical or laboratory evidence in support of her assertion that he was hypoxic. There was no specific discussion in the experts' Joint Statement about the existence of any evidence that the Claimant had been suffering from hypoxia. However, Dr O'Callaghan did state his view that there was no such evidence.
Professor Kirkham and Dr O'Callaghan agreed that the 'gold standard' for assessing the presence of hypoxia/hypoxaemia in a patient is to measure his/her blood gas (PO2) levels. The Claimant's PO2 level was measured only once during his admission at Pembury, on the morning of 25 November. That measurement was within normal limits. Professor Kirkham accepted that the reading was normal but did not consider that it excluded the possibility that the Claimant was hypoxic.
Another, less accurate, means of identifying hypoxia/hypoxaemia is by measuring O2 saturation in the blood. The Claimant's O2 saturation was measured with reasonable frequency during his admission at Pembury. The relevant records show the following:
"25 November
09.00hrs 100%
10.00hrs 99%
11.30hrs 100% (receiving O2 during transfusion)
12.30hrs 99%
16.00hrs 95%
18.00hrs 96%
26 November
06.00hrs 97%
09.00hrs 99%
13.10hrs 99%
13.20hrs 98%
13.35hrs 100% (not entirely clear)
14.00hrs 98%
18.00hrs 99%
21.00hrs 99%
27 November
02.00hrs uncertain (could be 90%; observation "Cool to Touch")
Untimed 95%
10.00hrs 97%
12.00hrs 98%
The experts did not agree as to the percentage of O2 saturation which is normal for a child. Dr O'Callaghan said that the normal limits are usually considered to be between 92% and 100%. Dr Telfer put the limits at between 94% and 100%. Professor Kirkham disagreed with both of them. Her view was that there are no reliable normal daytime limits for O2 saturation levels. She suggested that, even if O2 saturation level in a child was as high as 97%, most doctors would be concerned. She said that the test has on occasion been shown to be unreliable and suggested that the measurements were of little value. She considered that, whatever they showed, the Claimant was in a "hypoxic situation" as a result of the severity of his anaemia, caused by the delay in transfusing.
Dr O'Callaghan did not consider that there was any evidence that the Claimant had been hypoxic. He relied on the normal result of the Claimant's blood gas test on 25 November. So far as the Claimant's O2 saturation levels were concerned, he considered that, with one possible exception, they were all within normal limits. That exception (at 02.00hrs on 27 November) was difficult to decipher but might have been 90%, in which case it might have indicated the presence of hypoxia/hypoxaemia. However, the three results after that time were again all within what he regarded as normal limits.
Hypoxia gives rise to an increase in lactic acid in the blood (acidosis). Another indicator for the presence of hypoxia/hypoxaemia is the patient's pH level. The pH levels measured on 25, 26 and 27 November were all within the normal limits (7.35-7.45 for a child of the Claimant's age) and therefore did not suggest the presence of acidosis. Indeed, on 25 November, the pH level of 7.508 was in excess of the normal rate and, if anything, was alkalotic, not acidotic. The opinion of Dr Becker and Dr O'Callaghan was that, given these findings, there was no basis for reaching the view that the Claimant had suffered from hypoxia or hypoxaemia. Professor Kirkham disagreed.
In the experts' Joint Statement, Professor Kirkham pointed out that, on the morning of 25 November, despite the fact that the Claimant was maintaining his O2 saturation at 100% and his PO2 at a normal level, he had low carbon dioxide (CO2) tension in the blood, i.e. he was suffering from hypocapnia. In their Joint Statement, the experts agreed that the Claimant's levels of CO2 were consistently low between the morning of 25 November and the late afternoon of 27 November, meaning that he was hypocapnic.
Professor Kirkham and Dr O'Callaghan agreed that the Claimant's hypocapnia was probably attributable to the fact that he had been hyperventilating. Dr O'Callaghan considered that the hyperventilation had resulted partially from the Claimant's severe anaemia which had caused him to breathe rapidly in order to increase his uptake of O2. However, he expressed the view that other factors had also probably contributed to the hyperventilation, one factor being the URTI from which the Claimant was suffering and also possibly some degree of anxiety and pain. He considered that it was likely that, even had the transfusion not been delayed, a degree of hypocapnia would have occurred because of the Claimant's anaemia and viral infection.
Professor Kirkham accepted that hyperventilation can plausibly be related to viral illness but considered that most Paediatricians would say that the illness would have to compromise the chest significantly (e.g. as in pneumonia or asthma) for a significant level of hyperventilation to occur. She did not believe that the Claimant's infection was sufficiently serious to cause him to hyperventilate. Nor did she consider that there was any evidence that the Claimant had been anxious at the relevant time. She considered that the hypocapnia was due solely to compensatory hyperventilation, i.e. hyperventilating in order to maintain his pO2 saturation level. This, she said, would have the effect of reducing his CO2 tension.
Professor Kirkham explained how she believed that the Claimant's body had been compensating for its "hypoxic situation" by hyperventilating. She drew an analogy with mountaineers at high altitudes who may be exposed to a decrease in O2 to which they react by hyperventilating, and pointed out the incidence of hypoxia and strokes in such cases. She expressed her view that, if the transfusion had been performed when it should have been, that would have corrected the Claimant's anaemia before he "reached the edge" of his compensatory mechanism of oxygenation. In oral evidence, she explained her conclusion thus:
"Was he hypoxic or not?
Yes, he had a compensated hypoxia. Anaemia causes hypoxia which is compensated by hyperventilation.
I suggest you are redefining [the] meaning of hypoxia – that it exists without acidosis?
- No, this is a hypoxic environment, he is anaemic and he is compensating with hyperventilation to maintain sats."
Dr O'Callaghan did not accept that the Claimant had "reached the edge" of his compensatory mechanism for oxygenation on 25 November. He said that "compensated hypoxia" is not a term he recognises as being in normal use. He suggested that it was difficult to see how one could say that the Claimant was "on the verge" of hypoxia/hypoxaemia when there was no objective evidence that his blood gases were falling.
Dr Telfer agreed with Professor Kirkham that he did not consider that the O2 saturation levels provided a reliable picture of whether the Claimant was in fact hypoxic/hypoxaemic. He took the view that the Claimant's low Hb had caused him to be at the very limit of his ability to maintain O2 in his tissues. He suggested that, since the Claimant's Hb levels were low, the amount of O2 in the blood was bound to be reduced.
The Paediatric Neurologists agreed that hypocapnia can cause vasoconstriction (narrowing of the blood vessels) and slower blood flow. Professor Kirkham's evidence was that hypocapnia therefore "favours" the propagation of thrombus. Dr Telfer had not mentioned hypocapnia in his Report and had declined to comment on it in the Joint Meeting. In oral evidence, however, he said that he considered that hypocapnia could have an adverse effect on blood flow. Dr O'Callaghan did not accept that hypocapnia necessarily gives rise to an increased risk of thrombus formation. He said that a child with low CO2 levels may get some narrowing of vessels in the cerebral circulation, but will also get dilation of the pulmonary vessels. On 25 November, the Claimant had an increased heart rate (at 150 beats per min) which would, he said, have increased cerebral blood flow and blood velocity, and would thereby have compensated for the effects of hypocapnia.
Professor Kirkham did not agree. Her contention was that the blood flow to the brain was auto-regulated so that, even if the heart rate was increased, the blood flow to the brain would not change. The effect of increased heart rate would, she said, be different to the CO2 effect, so that cardiac output and heart rate was unlikely to affect cerebral blood flow. Dr O'Callaghan's response to that was that, since the whole aim of auto-regulation is to maintain as much blood flow as possible, it was most unlikely that the body would auto-regulate so as to reduce the blood flow to the brain if vasoconstriction occurred.
Conclusions on hypoxia/hypoxaemia and hypocapnia
There is no positive evidence (save, possibly, for the O2 saturation reading at 02.00hrs on 27 November) that the Claimant had hypoxia or hypoxaemia at any stage prior to his strokes. As to that reading, I am by no means certain that it was "90%". It could equally well have been "95%" or "98%", both of which would have been far more consistent with every other O2 saturation result during his time at Pembury. In any event, leaving that reading aside, the evidence appears to suggest that the Claimant was probably not suffering from hypoxia or hypoxaemia. The test accepted by both the Paediatric Neurologists as the "gold standard" indicated that he was not. Furthermore, although the O2 saturation test is plainly not considered to be as accurate, the results did provide some support for the suggestion that he was not hypoxic.
Professor Kirkham's explanation of the Claimant's "hypoxic situation" and its effects, which was to some extent supported by Dr Telfer, may be correct, but I did not find it wholly convincing. There was no reference to it in Professor Kirkham's Report or the Joint Statement, merely a bold assertion in her Report of the fact that the Claimant was suffering from hypoxia. Furthermore, the mechanism explained by Professor Kirkham was not supported by any authoritative literature. She did produce a Paper dealing with the effects of stroke at high altitude but, since it concerned adults aged between 22 and 48 years who had had a long term stay at high altitude - a situation rather different from that of the Claimant in November 2004 - I did not find it very helpful. I preferred the evidence of Dr O'Callaghan, which was based wholly on the available test results and on the conventional meaning of the term "hypoxia". I do not consider, on a balance of probabilities, that the Claimant was at any stage suffering from hypoxia or hypoxaemia.
There is no doubt, however, that the Claimant was hypocapnic throughout his time at Pembury and that this was because he was hyperventilating. It is accepted that one cause for his hyperventilating was his severe anaemia which was likely to have been made worse by the delay in carrying out his transfusion on 24 November. However, I do not accept Professor Kirkham's evidence that the Claimant's hyperventilation was caused solely by the effects of his "hypoxic situation". I regard it as probable that, as Dr O'Callaghan suggested, the URTI from which he was suffering made a contribution to his hyperventilation and therefore to his hypocapnia. I have no doubt also that, given the Claimant's age and the fact that he was very unwell and in hospital, he must have been suffering from a degree of anxiety which contributed to his hyperventilation. On the morning of 25 November, he was also complaining of a degree of pain, "tummy ache". Whether Dr O'Callaghan is correct that the Claimant would not have avoided hypocapnia even had the delay in transfusing not occurred, I am not sure. However, it seems to me that his infection, anxiety and discomfort must have played a significant part in his hyperventilation on the morning of 25 November and thereafter.
As to the effects of his hypocapnia, I prefer the evidence of Dr O'Callaghan to that of Professor Kirkham. Whilst it is the case that hypocapnia is known to be capable of causing vasoconstriction and slower blood flow, I found Dr O'Callaghan's explanation of how the protective mechanisms in HS patients can guard against the formation of thrombus and emboli wholly convincing. Professor Kirkham's explanation of how the protection was unlikely to have any effect was somewhat surprising. Dr O'Callaghan's response to the effect that her explanation was inconsistent with the principle of the body's auto-regulation mechanisms seemed to me to make far more sense. I note also the absence of any medical literature showing that hypocapnia or hyperventilation following severe anaemia and acute-on-chronic haemolysis is known to be a cause of thrombus, emboli or stroke in a child suffering from HS.
In short, I can find no convincing evidence that the effect of hypocapnia for a child in the Claimant's position was to cause vasoconstriction and/or slow blood flow such as to give rise to the risk of thrombus or emboli.
Dehydration.
I have already dealt with what I consider to be the extent of the Claimant's dehydration. In the experts' Joint Statement, it was agreed that his dehydration could have been prevented by earlier transfusion, proper management of his fluid input and output and avoidance of the use of Frusemide.
As to the effects of the Claimant's dehydration, Dr Telfer's evidence was that dehydration would have reduced the liquid component of his blood, caused concentration of solutes in the blood, reduced plasma volume, resulted in an increased haematocrit (i.e. volume percentage proportion of red blood cells to plasma in the blood) and would, therefore, have resulted in an increase of blood viscosity. It could thus lead to the formation of a thrombus. In oral evidence, Dr Telfer acknowledged that there existed no medical literature to support his view that dehydration was likely to have increased the risk of thrombo-embolism, but said that, in his view, most clinicians would consider that the fact was "self-evident".
Dr Telfer had pointed out, in the experts' Joint Statement, that the data concerning increased viscosity came from patients with abnormally high haematocrit whereas, during his time at Pembury, the Claimant's haematocrit had risen, but was not abnormally high. This obviously militated against dehydration having had that effect in his case. In oral evidence, however, Dr Telfer's view appeared to change. He observed that, by reason of his congenital conditions, the state of the Claimant's blood was never 'normal' in the usual sense but was "very unviscous with a haematocrit of 0.18-0.2". He said that, for that reason, the "normal" limits did not apply and the Claimant's haematocrit - contrary to what he had said previously - was abnormally high. He suggested that, as the Claimant became dehydrated, his haematocrit became higher than usual, rising to 0.21 on 25 November.
When the Claimant's previous haematocrit levels were examined, however, that statement did not appear to be correct. Of the 11 available readings which could be found from the period between April 2002 and March 2004, four were within the normal limits of 0.36-0.44. The three lowest readings were taken in February 2003 (0.21), December 2003 (0.26) and March 2004 (0.26). During his time in Pembury, the Claimant's haematocrit levels were:
24 November : 20.00hrs 0.10
25 November : 22.30hrs 0.21
26 November : 11.18hrs 0.19
27 November : 14.00hrs 0.28
Thus, there was no support for Dr Telfer's contention that the Claimant's haematocrit levels whilst in hospital were "abnormally high". In fact, they were for the most part lower than usual, meaning that his blood was likely to have been less, rather than more, viscous. As Dr Telfer observed in his evidence, low viscosity will "optimise the circulation".
In the experts' Joint Statement, Dr Bolton-Maggs had accepted that there is a link between dehydration and increased blood viscosity and indicated that, if the Claimant's stroke had been caused by thrombus or emboli, she was unable to exclude the possibility that dehydration was a factor. In an Amended Opinion, however, she expressed the view that, whilst dehydration may contribute to thrombosis, that would only be when the dehydration was severe, not when it was mild or moderate. She referred to her personal experience of a neonate with severe dehydration who had suffered an aortic thrombus, and to a published Paper involving one other neonate, also with severe dehydration. She was able to provide no other epidemiological evidence to support her assertion. However, like Dr Telfer, she considered that increased blood viscosity might be a risk factor where the haematocrit was very high (50-60). She correctly noted that the Claimant's was not.
Professor Kirkham agreed with Dr Telfer. In her Report, she relied on literature which demonstrated that dehydration was likely to be a risk factor, although only in the venous (as opposed to arterial) system. She asserted that it was also a risk factor in the arterial system but produced no literature in support of that assertion. In oral evidence, she relied on a Paper, Arterial Ischaemic Stroke Risk Factors by Mackay et al (2011). The Paper reported part of a Study which had been undertaken by the IPSS, of which she herself is a member. The purpose of the Study was to describe presumptive risk factors for childhood arterial ischaemic stroke (AIS) and cerebral venous sinus thrombosis and to explore their possible causative relationship with those conditions. A "presumptive risk factor" is a factor that it is believed might be causative of a condition, not a factor that is known to have a causative effect. One of the many presumptive risk factors used in the Study was dehydration. It was present in only a small number of cases (36 out of 658) and the authors of the Paper reached no conclusion as to whether there was likely to be any causative relationship between dehydration and AIS. The Paper therefore provided no support for Professor Kirkham's assertion that dehydration could be a risk factor in the arterial, as well as the venous, system.
Dr O'Callaghan acknowledged that there is good evidence that dehydration may have a rôle in venous sinus thrombosis affecting the brain, but said there was no such evidence for arterial ischaemic stroke. He explained that, since the Mackay Study had examined presumptive risk factors for venous sinus thrombosis, as well as for AIS, the inclusion of dehydration as one of the presumptive risk factors was because of its documented association with the venous, not the arterial, system.
Professor Kirkham did not accept that only severe dehydration could lead to stroke. She considered that, when dehydration is an ongoing process, it has a continuing, not a threshold, effect. She said that dehydration on a continuum will "favour" thrombosis. Dr O'Callaghan disagreed. He did not consider that there was any authoritative evidence that the level of dehydration suffered by the Claimant would have caused a stroke. He pointed out that mild/moderate dehydration is very common in children. He considered that, if it were connected with thrombus and stroke, one would expect to see many cases in hospitals and to find the fact documented in the medical literature.
Conclusions on dehydration
Dr Telfer and Dr Bolton-Maggs agreed that the data concerning increased viscosity and the risk of thrombus came from patients with abnormally high haematocrit levels and, at the Joint Meeting, Dr Telfer suggested that the Claimant's haematocrit had been lower than the levels seen in the literature. His later change of mind; his belated assertion that, far from not having abnormally high haematocrit, the Claimant did have abnormally high haematocrit; together with the fact that his assertion did not appear to be correct are matters which make it impossible for me to rely on his evidence about this issue. In contrast, Professor Bolton-Maggs pointed out correctly that the Claimant's haematocrit levels were not high and gave no indication that the blood was more than usually viscous.
Professor Kirkham sought to rely on the Mackay Study as support for the proposition that dehydration is a risk factor for thrombus and emboli in the arterial system. On a proper analysis, however, the Study provided no such support and there is no epidemiological evidence that dehydration is liable to cause thrombus or emboli or in the arterial system.
As to Professor Kirkham's thesis that dehydration is an ongoing process which has a continuing, not a threshold, effect on the blood vessels, I can see that it has its attractions. If it be right that dehydration at a severe level leads to increased blood viscosity and renders thrombus and emboli more likely, I can see that it is plausible that a significant (although not severe) level of dehydration continuing over a period might be a risk factor for causing ongoing slow flow, causing thrombus and emboli. However, a major problem with that thesis was identified by Dr O'Callaghan, who pointed out that, given the large number of children who suffer from mild/moderate dehydration, if increased blood viscosity and slow blood flow, with the attendant risks of thrombus, emboli and stroke, were potential outcomes, it would be very surprising if that fact had not been documented in the medical literature. As it is, the thesis is not supported by any epidemiological evidence.
The position in which I am left, therefore, is that there is no objective evidence which links dehydration at the level which the Claimant had during his stay in hospital with the development of thrombus, emboli or stroke and no evidence that there is a link between dehydration and thrombus and emboli in the arterial, as opposed to venous, system. Since, for reasons I shall explain, I consider that the arterial, not the venous, system was involved in the Claimant's case, that is an important factor. Moreover, the laboratory evidence tends to show that, far from being abnormally viscous, the Claimant's blood was actually un-viscous.
The Claimant's answer is that dehydration will always be working with other factors. Therefore, it is said, it is not surprising that there is no relevant medical literature or other objective evidence. I shall return to that point later in this judgment. However, I do not consider that, on a balance of probabilities, moderate dehydration taken on its own had the effect contended for by the Claimant.
THE CLAIMANT'S CASE ON THE LOCATION OF THE EVENT THAT TRIGGERED HIS STROKES
As I have already indicated, the Claimant's primary case is that the nature of the event which triggered the occurrence of his strokes was endothelial dysfunction leading to the formation of thrombus and emboli in one of three areas, all below the basilar artery. The emboli would then have been carried further up through the circulation before causing the occlusion to the basilar artery and the damage in the posterior circulation and the brainstem.
In her Report, Professor Kirkham suggested that the likely source of the event which triggered the occurrence of the strokes was a thrombus arising (i) from a dissection (i.e. a tear within the wall of a blood vessel) of one of the vertebral arteries; (ii) from the heart; or (iii) from somewhere in the venous circulation, e.g. in the pelvis or one of the Claimant's legs. By the time of the trial, however, her preferred source was (iii), i.e. a deep vein thrombosis (DVT) in the left leg. Failing that, she suggested that the thrombus must have formed in the heart or in one of the vertebral arteries somewhere below the basilar artery.
It is necessary to consider the evidence relating to each of those contentions.
DVT in the left leg
In support of her first choice of source, Professor Kirkham relied primarily on the clinical note written by Dr Kisat and timed at 15.30hrs on 27 November, which recorded that the Claimant had been complaining of "pain in left knee and leg" since the morning. Professor Kirkham was insistent that, if she had received such a complaint of pain, she would have immediately arranged a Doppler scan to ascertain whether there was a DVT. Her evidence was that thrombi in the deep veins of the legs are common in both adults and children who are not moving much; given that the Claimant was in bed, therefore, it was plausible that he might develop a DVT. She pointed out that no other reason for the leg pain had been identified.
Dr O'Callaghan's evidence was that DVT in a child is very rare. In any event, the location of a DVT was likely to be the calf or thigh, not the knee, which was the area specifically referred to in Dr Kisat's note. He also pointed out that the usual clinical signs of DVT, i.e. swelling and redness, did not appear to have been present at the time of the examination on 27 November by Dr Kisat. Dr Kisat had noted that, when examined, the Claimant had "normal limb movements" which did not suggest that he had noticed anything untoward. Dr O'Callaghan pointed out that the Claimant's family also did not appear to have noticed any signs of swelling or redness.
In addition, Dr O'Callaghan pointed out that, in order to pass into the vertebro-basilar artery from the leg, the thrombus would have had to travel from the venous into the arterial circulation. From the right hand side of the heart, it would have had to pass into the left hand side of the heart. In order to be able to go across the heart, two factors would have had to be present. First, the Claimant would have had to have a patent foramen ovale (PFO). Every foetus has a PFO in order to obtain blood from the placenta and, usually, it closes after birth. However, research at post-mortem has revealed that 25%-35% of adults still have a PFO. The presence of a PFO can be ascertained by means of a transthoracic echocardiogram (TTE) or an alternative method which involves general anaesthetic. A TTE of the Claimant's heart was done at King's on 3 December 2004, after which a Senior Paediatric Registrar reported that it revealed that there was no PFO. There was no reason for the technique involving general anaesthetic to be used in the Claimant's case.
Professor Kirkham insisted that the TTE did not exclude the existence of a PFO. She was adamant that, on the balance of probabilities, there must have been a PFO, which would have been evident if a more sophisticated TTE (using agitated saline contrast) had been undertaken. Although there was no indication in the note of the King's TTE as to whether saline contrast had been used, she professed to be sure it had not been used because it was not noted. Dr O'Callaghan's view was that, given the percentage of adults known to have PFOs and the fact that the TTE showed no PFO, it must be probable that the Claimant did not have one.
Dr O'Callaghan also emphasised the need, if a thrombus is to pass from the right to the left of the heart, for there to be higher pressure on the right side than on the left, so that a reverse pressure gradient ('shunt') would be necessary. He said that there was no evidence of the presence of a shunt and, indeed, the fact that the Claimant was hypocapnic meant that he would have had less pulmonary artery pressure which made it even less likely that there would be one. Professor Kirkham disagreed and postulated that, although it was "hard to know", it was likely that there was higher pressure on the right side of the Claimant's heart. She explained the lack of any sign of the shunt on the TTE by saying that it was difficult to test for a right-to-left shunt in a two year old child.
I found Professor Kirkham's evidence supporting the likelihood of a DVT unconvincing. It rested primarily on one note of pain in the "left knee and leg". Although it is possible that "leg" might have referred to the thigh or calf, the reference to "knee" does not immediately suggest, as one would have expected, that the pain was in those areas. The Claimant's parents do not report specific pain in the leg on 27 November, nor have they described noticing the swelling or redness that would have been typical of a DVT. It appears clear from Dr Kisat's note that he did not observe any such signs. Nor was I told that any signs had become evident after the Claimant's transfer to King's. It is true that no alternative explanation has been given for the pain but it seems unlikely, given the other problems being suffered by the Claimant at the time, that such an explanation would have been actively sought. Furthermore, having regard to the condition of the Claimant on 27 November, it would perhaps not be surprising if he had suffered pain in various parts of his body, including his leg.
If the Claimant did not have a PFO, a thrombus could not have travelled from the leg, through his heart and into the vertebro-basilar circulation. I accept that it has been shown that a significant minority of people still have a PFO, even in adulthood, so it may be that the Claimant's PFO was still patent. However, the great majority of adults do not have a PFO and the King's TTE was reported as showing that no PFO was present in the Claimant's case. I find it difficult to see how, on the basis of that evidence, Professor Kirkham could say that the Claimant "probably" had a PFO. On the contrary, the probability is that he did not. Similarly, her view about the presence of a shunt was not supported by the evidence. The King's TTE showed no signs of a shunt and her explanation for the view that the TTE had given an incorrect impression was once again speculative.
I note also that Dr Telfer did not support Professor Kirkham's thesis, saying that DVT was not his "preferred mechanism", whilst, at the experts' Joint Meeting, Dr Bolton-Maggs agreed with Dr O'Callaghan, saying that the idea of thrombosis from the systemic circulation was "speculative" since that mechanism of stroke is "vanishingly rare" in children. Professor Kirkham acknowledged that DVT in children "is not thought to occur", but said "it does happen but people do not look for it." Her basis for making that assertion was not clear. I note also that, in her original Report, Professor Kirkham did not indicate that she considered that a DVT in the leg was the most likely source of the thrombus, merely identifying it as the third of three possibilities. The impression I received was that, having at some stage reached the clear conclusion that the source was a DVT, she was struggling to explain the evidence which militated against that explanation.
The heart
Although Professor Kirkham advanced as her second possibility the fact that a thrombus may have formed in the heart, neither she nor Dr O'Callaghan favoured that explanation. Dr O'Callaghan pointed out that, if that were the case, one would have expected some structural abnormality of the heart to be evident on the King's TTE. However, no such abnormality was seen. Nor was there any evidence of the Claimant having a predisposing factor for forming a clot in the heart. I do not consider that there is any reason to conclude that the heart was the source of the thrombus. The evidence which does exist tends to point the other way.
The vertebral arteries
Professor Kirkham's third suggestion was that a thrombus may have originated in one of the vertebral arteries below the basilar artery. She said that it was not possible to be sure, because there was inadequate imaging of the vertebral arteries, but the possibility could not be excluded. As to location, this was consistent with Dr O'Callaghan's opinion, which was that the original source of the arteriopathy which he considered had triggered the strokes was in the vertebro-basilar system, probably the vertebral artery. It was not of course consistent with his view as to the mechanism by which the strokes occurred or the cause thereof.
I have rejected the first two suggestions put forward by Professor Kirkham. Were I to accept that the strokes were caused by endothelial dysfunction, I would regard it as probable that the dysfunction occurred in the one of the vertebral arteries.
THE DEFENDANT'S CASE ON CAUSATION
In its Defence, the Defendant stated that the underlying cause of the Claimant's strokes was a cerebral arteriopathy caused by a viral infection. At the experts' Joint Meeting, Dr O'Callaghan expressed the view that the infection had been caused by inflammation or dissection of the vertebro-basilar vessels. In oral evidence, he explained that he believed that thrombus had then broken off and embolised upwards, causing occlusion of the basilar artery and the abnormalities of the posterior cerebral artery seen on the radiological imaging. It is to be noted that the involvement of dissection, thrombus and emboli is common to the cases of both parties, although that does not appear to have been appreciated, certainly on the Claimant's side, until Dr O'Callaghan's evidence was given at trial.
The relationship between focal cerebral arteriopathy and infection
Dr O'Callaghan's evidence was that viral infection, in particular URTI, is a major risk factor both for the development of focal cerebral arteriopathy and for stroke in childhood. In support of this assertion, he referred in particular to two pieces of medical literature. The first of these was Predictors of Cerebral Arteriopathy in Children with Arterial Ischaemic Stroke, Results of the International Paediatric Stroke Study, by Amlie-Lefond et al (2009), a Study which examined data relating to 525 children who had suffered arterial ischaemic stroke (AIS) and who had known vascular imaging results. The Study sought to test a number of predictive risk factors for childhood stroke. It found that the only significant predictor of focal cerebral arteriopathy as a cause of stroke was a recent URTI. The number of children who had focal cerebral arteriopathy was a relatively small proportion of the total cohort of the Study but, in the cases where there was focal cerebral arteriopathy, URTI appeared to be a significant factor.
The Conclusions in the Abstract state:
"Arteriopathy is prevalent among children with arterial ischemic stroke, particularly those presenting in early school age, and those with a history of sickle cell disease. Recent upper respiratory infection predicted cerebral arteriopathy and FCA (focal cerebral arteriopathy) in particular, suggesting a possible role for infection in the pathogenesis of these lesions."
The Study contains this analysis:
"Infection could contribute to stroke by promoting systemic procoagulant effects and local inflammation (or even direct pathogen invasion) of cervical or cerebral blood vessels. The pathogenesis of stroke in the setting of sepsis may be related primarily to the systemic procoagulant mechanism, which would explain the lack of association between sepsis and arteriopathy in our study. In children with recent URI (upper respiratory infection), on the other hand vascular injury mechanism also may be at play …
In the adult atherosclerosis literature, the concept of an infectious burden has been proposed whereby the cumulative inflammatory effects of multiple infections over time lead to vascular injury. This concept is a compelling potential explanation for arteriopathy in children, who suffer frequent minor infections yet rarely suffer strokes. Elevated inflammatory markers (C-reactive protein and erythrocyte sedimentation rate) and recent infection have been associated with vascular pathology in children, lending indirect support to this hypothesis."
The Study concludes that:
"Arteriopathy is common in children with AIS and is associated with early school age, sickle cell disease, and recent URI. Although it may represent the end point of a variety of pathogenetic mechanisms, FCA is the most common type of arteriopathy observed and is associated with recent URI. Further studies are needed to explore this relationship between infection and arteriopathy in children, including questions regarding timing, specific infectious agents, inflammatory mediators, and cumulative effects or infections over time. Because recent data suggest that arteriopathy is the strongest predictor of recurrent childhood stroke, a better understanding of the infectious and inflammatory mediators of the vascular injury pathway is critical for the development of rational strategies for secondary stroke prevention in children."
Dr O'Callaghan said that this Study supported his view that even a minor infection was capable of causing arteriopathy and consequent stroke.
The second Paper relied on by Dr O'Callaghan was Recent Trauma and Acute Infection as Risk Factors for Childhood Arterial Ischemic Stroke, by Hills et al (2012), a Study published by the American Neurological Association. In explaining their objective, the authors of the Study stated that: "Trauma and acute infection have been associated with stroke in adults, and are prevalent exposures in children." The Hills Study was intended to explore whether those two factors (i.e. trauma and acute infection) were independently associated with childhood AIS. It was reported as showing that:
"A medical encounter for a minor acute infection (prior 4 weeks) was … an independent risk factor …No single infection type predominated."
The Hills Study found that an out-patient medical encounter for a minor acute infection increased a child's risk of AIS more than fourfold. Even taking into account the fact that the parents of children with some chronic diseases associated with AIS might have a lower threshold for seeking medical care for a minor infection than the parents of normal children, the risk was still just less than fourfold. The most common infectious diagnosis among the cases was URTI (33%). The type of infection involved was described thus:
"Recent minor infection was defined as a documented outpatient medical encounter for infectious illness within 4 weeks preceding the stroke/index date; time windows for infectious exposure in adult stroke studies have varied from 1 week to 20 months, but most were within 4 weeks. Minor infectious illnesses included acute fever attributed to infection by the treating physician, upper respiratory tract infection, pneumonia, acute otitis media, pharyngitis, urinary tract infection, and acute gastroenteritis."
Dr O'Callaghan considered that the increased risk of around fourfold was highly significant and that it demonstrated that there was a "robust relationship" between URTI and FCA.
In oral evidence, Professor Kirkham contended that the only virus for which there is any scientific support that it can cause focal cerebral arteriopathy is chickenpox. However, she accepted that there was clear epidemiological evidence showing that infection, in particular URTI, is a risk factor for childhood stroke. In his Report, Dr Telfer said that viral infection is a recognised, but rare, cause of vasculopathy and stroke, but only in the case of specific types of infection and more than a month after clinical presentation of the infection. Those assertions do not appear consistent with the literature to which I have referred. In his oral evidence, Dr Telfer acknowledged that infection would be a pro-thrombotic factor and that, if infection caused inflammation to a vessel wall, it would increase the risk of thrombosis. However, he did not consider that, without other pro-thrombotic factors, it would cause stroke.
Involvement of the posterior, rather than the anterior, circulation
During their Joint Discussion, the two Neuroradiologists were asked to consider whether vasculopathy caused to the cerebral arterial vessels by a viral infection (i.e. the Defendant's case) or emboli travelling from some other part of the circulation (the Claimant's case) was the most probable cause of the abnormalities seen on the radiological imaging. They made clear that the imaging could not differentiate between the two possibilities and said that they would defer to clinical opinion as to whether the cause of the abnormalities was more likely to be one or the other. However, they did observe that involvement of the vertebro-basilar (i.e. posterior) circulation was unusual for a vasculopathy, which more commonly affects the anterior circulation.
Dr Chong accepted that the imaging to some extent supported the theory that the underlying process causing the strokes was infection giving rise to focal cerebral arteriopathy. However, he considered that the involvement of the posterior, rather than the anterior, circulation was a factor which militated against that explanation.
Dr O'Callaghan's evidence was that arteriopathy is known to occur in the posterior, as well as the anterior, circulation, In support of his assertion, he relied again on the Amlie-Lefond Study. A Table of Baseline Characteristics of the 277 children included in the Study who had arteriopathy and for whom there was vascular imaging showed that, in 73% of cases, the anterior circulation was involved. The posterior circulation was involved in 20% of cases. Seven per cent of cases had involvement of both areas. On the face of it, therefore, the Study appears to suggest that, although a substantial majority of cases involve the anterior circulation, a significant minority involve the posterior area.
Dr Chong's evidence was that the Amlie-Lefond Study had used a wide definition of "arteriopathy" and this had 'muddied' a proper understanding of the results. He pointed out that the definition used included cases of dissection, often dissection caused by trauma. He said that, in cases of dissection, involvement of the posterior cerebral circulation is more common. Also included in the definition used in the Study were inherited disorders, including SCD. That, he suggested, also accounted for the relatively high incidence of involvement of the posterior circulation.
Dr O'Callaghan relied also on an article, Basilar Artery Stroke in Children, by Simonetti et al (2012) published in Developmental Medicine for Child Neurology. The opening paragraph of the article states:
"Only 10 to 30% of paediatric arterial ischaemic strokes … occur in the posterior circulation. Arteriopathies are the most frequent cause of posterior circulation stroke in children."
That was a Study of only 97 children, but again suggested that a significant minority of childhood arteriopathy occurs in the posterior circulation.
In her Report, Professor Kirkham relied on a Study, The Course and Outcome of Unilateral Intracranial Arteriopathy in 79 Children with Ischaemic Stroke, by Braun et al (2009) in support of her contention that :
"Transient or focal cerebral arteriopathy, which may follow on upper respiratory tract infection … typically affects the distal internal carotid and proximal middle anterior cerebral arteries (Braun et al 2009), not the vertebro-basilar circulation."
Professor Kirkham failed to make clear that the Braun Study had excluded patients who had suffered injury to the vertebro-basilar circulation and thus did not provide any support at all for her statement. I accept that, as she explained when cross-examined, she had not intended deliberately to mislead, but it was an unfortunate error and did not inspire confidence. In the experts' Joint Statement, Professor Kirkham said that she had not been able to find any well-documented cases of viral vasculopathy in the posterior circulation and she had no experience of it herself.
I consider that the literature clearly shows that arteriopathy occurs in the posterior circulation, albeit in only a significant minority of cases. I do not find Professor Kirkham's insistence that she does not herself know of any case of focal cerebral arteriopathy occurring in the posterior circulation compelling. Even the Braun Study did not say that focal cerebral arteriopathy never occurred in the posterior circulation; it merely said that it "typically" affected other areas. As to Dr Chong's reservations about the definition of "arteriopathy" used in the Amlie-Lefond Study, I note that the Defendant's case is that the arteriopathy in the Claimant's case probably caused dissection which, according to Dr Chong, more commonly involves the posterior circulation.
Period of time between infection and stroke
The Neuroradiologists agreed that arterial ischaemic infarcts caused by viral infection tend to occur late, rather than early, in the natural history of the illness. Dr Chong believed that this was another factor which militated against the suggestion that infection had caused the Claimant's strokes. Dr Telfer agreed with Dr Chong. His evidence was that focal cerebral arteriopathy is usually a late complication of viral infection (most commonly chickenpox), developing many weeks or months after such infection.
Dr O'Callaghan relied once again on the Hills Study, which stated:
"In our cohort, a medical encounter for a minor acute infection was the most frequently observed childhood AIS risk factor, present in 33% of cases. Because our definition of recent infection required a documented medical encounter, the true prevalence of this risk factor is higher, as many minor infections do not result in a medical visit. However, hospital series and an international prospective registry study have reported preceding minor infections (by parental report) in 24 to 34% of cases. The strength of the association between recent infection and AIS observed in our study (adjusted OR, 3.9) was similar to that reported in the adult studies, ranging from 2.9 (95% CI, 1.6-5.3) for an infection in the prior 2 months to 4.5 (95% CI, 2.1-9.7) for an infection in the prior week."
He pointed out that, whilst the Hills Study showed that a child who had had a minor acute infection within the previous four weeks had more than a fourfold risk of suffering an AIS, the authors considered that this risk factor was, in reality, higher because many minor infections do not result in a medical visit and such cases would not, therefore, have been included in the Study. Dr O'Callaghan said that the Hills Study supported his view that a minor infection of only recent onset was capable of causing arteriopathy.
Conclusions on the relationship between focal cerebral arteriopathy and infection
I consider that the literature relied upon by Dr O'Callaghan provides clear objective evidence about the risks associated with infection, even a minor infection which has been present for only a short period before arteriopathy occurs. The fact that a child suffering from a minor acute infection has more than a fourfold risk of an AIS is, as Dr O'Callaghan observed, a highly significant finding.
The site of the focal cerebral arteriopathy, if it occurred
The neuroradiological evidence
In his Report, Dr Forbes expressed the view that the extensive abnormalities of the vertebro-basilar circulation which he said were evident on the MR imaging of 28 November were consistent with an underlying occlusive arterial disorder, i.e. a vasculopathy. He also expressed the view that the April 2005 MR imaging, which was of better quality than the 28 November 2004 MRI scan, confirmed the abnormalities previously seen and, because the basilar artery was now visible, showed irregularities, in particular irregularities of the lumen, at the distal end of the basilar artery and in the posterior cerebral artery. He considered that the MR images were again consistent with a vasculopathy which was probably caused by or was a manifestation of some unspecified infective or immunological process.
In oral evidence, Dr Forbes advanced his theory further, expressing the view that the thrombus had formed initially in the terminal part of the vertebral artery and extended into the basilar artery. He considered that, although the basilar artery was still open at the time of the CT scan, both the basilar and the vertebral arteries may have been affected in some way at that stage. He attributed the irregularities which he had identified in the April 2005 MRI images to the historic result of the end stages of the process which had occurred in November 2004, when the underlying arteriopathy had caused thrombus to form and to embolise in the vertebro-basilar circulation.
Dr Chong considered that there were no irregularities of the lumen; he pointed out that the MRI scan looked only at the flow of blood. Therefore, he said, it was not possible necessarily to conclude that poor flow meant the lumen had become narrowed. He acknowledged that the imaging did show a disturbance of flow and that one reason might be narrowing of the lumen, but he said that there were many other possible reasons. He accepted that, if the abnormality was not caused by flow, but by damage to the lumen, one could conclude that there had been arteriopathy. He conceded that such arteriopathy could have been caused by infection, although he said that there could also be a number of other possible causes. Dr Forbes considered that the MR images suggested irregularity of the lumen, rather than poor flow, because, if there was poor flow, it would have had a more regular appearance. He accepted that there was no definitive evidence of damage to the lumen but he did not regard the appearances of the images as inconsistent with his view.
I accept the evidence of Dr Chong on this point. As I have previously indicated, Dr Forbers' misinterpretation of the images of the anterior circulation makes me cautious about preferring his evidence relating to the abnormalities evident in the distal basilar artery and the posterior cerebral artery to that of Dr Chong. I therefore accept the latter's evidence that what was evident on the imaging was blood flow, rather than irregularities of the lumen.
At the stage of final submissions, Mr Post suggested that there were significant weaknesses and inconsistencies in the Defendant's approach to the neuroradiological evidence. As I have already observed, he criticised Dr O'Callaghan for not being more specific about what he believed was the precise position of the arteriopathy which he was saying had caused the Claimant's strokes. He emphasised that there was no radiological evidence of arteriopathy in the vertebral arteries and that Dr Chong had been cross-examined only in respect of the abnormalities in the distal basilar artery and the left posterior cerebral artery. He pointed out that, in his evidence, Dr Forbes had also focussed on those areas and had said that he had not seen irregularity in any vessels other than the basilar and posterior cerebral arteries.
The problem with that approach was that the CT and MRI scans did not show the whole picture. Dr Chong observed that the MR image quality of the left vertebral, basilar and left posterior cerebral arteries was limited in the 28 November 2004 MRI scan, whilst Professor Kirkham said in oral evidence that "we are hampered by the lack of imaging" and "We don't have good images anyway of the whole of the vertebral". Thus, it was not possible for Dr O'Callaghan to be certain of the site of the arteriopathy, if it occurred. In particular, it was not possible for him or anyone else to state positively that the arteriopathy (on the Defendant's case) or the endothelial dysfunction (on the Claimant's case) occurred in one of the vertebral arteries or elsewhere in the system.
Mr Post also criticised Dr O'Callaghan for claiming in his oral evidence that the Claimant's viral infection had caused the arteriopathy "as seen on the imaging" and for saying that the interpretation of the radiologists was that there was "abnormality of the vertebral and basilar arteries". In cross-examination, Dr O'Callaghan explained that he had been referring to the multiple infarcts and radiological abnormalities in the vertebro-basilar arteries which he considered would be consistent both with arteriopathy (the Defendant's case) or endothelial dysfunction (the Claimant's case) and thrombus. He made clear that he had not been referring to findings in specific locations. I do not consider that the criticisms of Dr O'Callaghan were justified. He at no time claimed to know precisely where the event which triggered the Claimant's strokes occurred. He merely expressed his view as to where he considered most likely.
The Neuroradiologists at no time suggested that the site of the abnormalities which they had seen on the MR imaging was determinative of the causation issue. The evidence of each of them was that the radiological picture was consistent with his preferred option, although neither contended that it was inconsistent with the opposing view. Dr Chong accepted that the imaging to some extent supported the suggestion that there had been vasculopathy caused by infection. However, he raised the reservations about the involvement of the posterior circulation and the timing of the infection to which I have already referred. He also expressed his view that stroke tends to be caused by multiple factors acting synergistically, rather than by one factor such as infection. I will return to that issue in due course. He did not, however, suggest in evidence that the abnormalities seen in the imaging meant that there could not have been an arteriopathy in the vertebral artery. Dr Forbes also accepted that the radiological evidence would support the Claimant's case although he expressed reservations about the suggestion that there had been a DVT.
The site within the vertebro-basilar circulation
It appeared to be common ground that, if focal cerebral arteriopathy caused by infection occurred, it would have originated in the posterior cerebral artery, the basilar artery or the vertebral artery.
In their Joint Discussion, the Neuroradiologists were asked to consider whether there was any evidence to suggest that occlusion of vessels had occurred between the time of the CT scan and the first MRI scan. They agreed that, at the time of the CT scan, there was enhancement of (and therefore blood flow in) the upper part of the basilar artery, but that there was apparent absence of flow in that area on the later MRI scan. The experts agreed that this may represent an evolving occlusion. It certainly appears to suggest that the site of the event which triggered the strokes, whether arteriopathy or endothelial dysfunction, occurred below the basilar artery.
Neither Professor Kirkham nor Dr O'Callaghan considered that the event occurred in the posterior cerebral artery. There is no doubt that the basilar artery became occluded and, since it is below the posterior cerebral artery, it is difficult to see how this could have happened had the posterior cerebral artery been the source of the original event.
As to the basilar artery, Professor Kirkham's view was that, if there had been arteriopathy there, it was difficult, because of the large size of the basilar artery, to see how the artery could have been occluded completely and for so long as to cause the degree of damage suffered by the Claimant. Furthermore, the absence of flow in the upper part of the basilar artery visible in the 28 November 2004 MRI scan meant that the source must have been lower down. Dr O'Callaghan also did not consider that the source was in the upper part of the basilar artery. He considered that the most likely place was the vertebral artery or the vertebral artery extending into the basilar artery.
Professor Kirkham's evidence was that, if the term, "focal cerebral arteriopathy" was taken to include "dissection", it was possible to have focal cerebral arteriopathy causing multiple emboli from a nidus (i.e. focus of infection) in the vertebral artery. She was reluctant to accept that such arteriopathy could be caused by URTI. However, she did acknowledge that a vertebral dissection with thrombus formation was "one reasonable alternative" explanation for the Claimant's injuries. She accepted also that the suggestion could not be excluded because of the lack of good quality imaging and agreed also that dissection could occur but not be capable of detection on CT and MRI imaging. Despite her acceptance of this possibility, however, Professor Kirkham's evidence was that the mechanism was unlikely because of the extensive nature of the Claimant's brain damage. I will deal with that issue in due course.
As to the issue with which I am currently concerned, if a focal cerebral arteriopathy did occur, I consider it probable that it was in one of the vertebral arteries. It may or may not have resulted in abnormalities visible on good quality MR imaging. As it is, because of the poor quality of the available images, it is impossible to be sure. However, I accept Dr O'Callaghan's evidence on this point and note that Professor Kirkham conceded that it was possible, albeit expressing reservations because of the extent of damage caused. It is notable that the site which was originally Professor Kirkham's first choice for the occurrence of endothelial dysfunction was also Dr O'Callaghan's preferred site for arteriopathy.
The extent of the damage
Professor Kirkham considered that, if the focal cerebral arteriopathy had involved one of the vertebral arteries, the blood flow would have been maintained by the other vertebral artery and it would not have resulted in multiple infarcts. She did not consider that arteriopathy secondary to infection could have caused such a large thrombosis to so many arteries without the additional factors of dehydration and anaemia. She said that, in her clinical experience, cases where focal cerebral arteriopathy occurring in the vertebral artery had led to the propagation of thrombus, embolisation of the basilar artery and infarction in the posterior cerebral artery had been very rare. Usually, whilst a stroke might occur, the arteriopathy will not produce so many emboli or cause such seriously disabling consequences. In her experience, there is usually less extensive damage, with a more favourable prognosis. She attributed the damage to the Claimant's brainstem and his severe disability to the effects of the basilar occlusion which had occurred; she said that extent and kind of occlusion is very unusual in children.
Dr O'Callaghan did not consider that the extent of the damage or the level of the Claimant's disability was determinative of the question of whether his stroke was likely to have been caused by focal cerebral arteriopathy, rather than endothelial dysfunction. He accepted that, if the strokes had been cerebellar, the Claimant would probably have recovered well. However, he said that, given that the basilar artery was occluded and damage was caused to the brainstem, severe disability was to be expected.
I accept Dr O'Callaghan's evidence on this issue. It does not seem to me that the extent of the damage to the Claimant can be regarded as determinative of the cause of that damage. The Neuroradiologists did not suggest that was the case. Moreover, one of Professor Kirkham's suggested sites of endothelial dysfunction was one of the vertebral arteries. If it be right that the dysfunction could occur there and cause the injuries suffered by the Claimant, I do not see how, if arteriopathy occurred at the same site, the same could not be true.
ISSUES OF LAW
Before proceeding to deal with my conclusions, there are two issues of law to be addressed. The first relates to the scope of the duty of care owed to the Claimant by the Defendant. The second relates to the Claimant's secondary case, namely that, even if the effects of the delay in transfusion and the other breaches of duty did not constitute the sole cause of his strokes, they made a material contribution thereto.
The scope of the duty of care
The Defendant argued that, even if I were to find that the Claimant's strokes and consequent brain damage had been caused or materially contributed to by the Defendant's breach of duty, the damage would be too remote from that breach of duty to be within its scope and not reasonably foreseeable.
In making that submission, the Defendant relied on the decision of the Court of Appeal in the case of Brown v Lewisham and North Southwark Health Authority [1999] Lloyds LR 110. In that case, the Claimant (described as "plaintiff") had undergone quadruple coronary artery bypass surgery at a London hospital. The surgery had gone well but he had been given prophylactic anti-coagulant treatment with heparin and had developed a DVT in his left leg which had not been detected. He was discharged from the hospital to travel by taxi and train to another hospital in Blackpool. At the time of his transfer, he was suffering from a chest infection and, for that reason, it was accepted that his discharge had been negligent. Once in Blackpool, the DVT was diagnosed and the Claimant was again treated with heparin. He developed an adverse reaction to the heparin and, as a result, suffered a worsening of his DVT which ultimately resulted in the loss of his leg.
The judge at first instance found against the Claimant on the issue of causation on the ground that, even if he had not been discharged from the London hospital, the DVT would have continued to develop and he would have been treated with heparin as in fact occurred. The Court of Appeal dismissed the Claimant's appeal against that decision. In giving judgment, Beldam LJ raised a significant point obiter:
"[Counsel for the Plaintiff's] argument assumed that, as the first defendant had admitted a breach of duty, it remained only for the plaintiff to prove a causal connection with the damage he had suffered. In the light of my view that no such connection has been shown, it is unnecessary to say whether this assumption is correct but I would certainly question it. It was said that, if a defendant is in breach of duty, it is no defence that the plaintiff suffers damage in an unforeseeable way; the defendant has to take the plaintiff as he finds him provided that the damage is of the same type, i.e. personal injury. The paradigm example is the plaintiff with the eggshell skull. So [Counsel] argued, the first Defendant had to take [the plaintiff] with his undetected DVT and his rare but not unforeseeable reaction to heparin. The doctor's duty was to take care for the health of his patient. If he is in breach of that duty it does not matter that injury to health occurs in an unforeseeable way.
For the purpose of analysis it may sometimes be important to be more precise in the definition of duty. A doctor is obliged to exercise the care and skill of a competent doctor. He must take care in the examination, diagnosis and treatment of his patient's condition to prevent injury to his health from risks which a competent practitioner would foresee as likely to result from his failure to do so. He is not a clairvoyant nor if he tells his patient that he can find nothing wrong is he liable if his patient has a condition which was not discoverable by competent examination. The public policy of limiting the liability of tortfeasors by the control mechanism of foreseeability seems to me as necessary in cases of medical as in any other type of negligence. I do not see on what policy ground it would be fair or just to hold a doctor to be in breach of duty who failed to diagnose an asymptomatic and undetectable illness merely because he was at fault in the management of a correctly diagnosed but unrelated condition. In short it must be shown that the injury suffered by the patient is within the risk from which it was the doctor's duty to protect him. If it is not, the breach is not a relevant breach of duty."
Mr Moon argued that Beldam LJ's observations were apposite in this case. He pointed out that there is no medical literature which suggests an association between delay in performing a blood transfusion, and/or the other breaches of duty which I have found, and stroke. Thus, he submitted, the occurrence of the strokes and the brain damage resulting therefrom are too remote from the breaches of duty to be within their scope. These were, he suggested, not injuries within the risk from which it was the Defendant's duty to protect the Claimant.
Mr Post argued that it was not necessary that the Defendant must have foreseen the particular mechanism of injury. He relied on the evidence of Dr Becker, who was asked in cross-examination about the risks which a Paediatrician would have anticipated in the event that the Claimant's transfusion was not performed promptly. He said that, if a small child like the Claimant with very low haemoglobin becomes unwell, a wide variety of complications can occur. Those complications would include cardiac problems, with the resultant possibility of brain damage. His evidence was that the range of complications a Paediatrician would be seeking to avoid by carrying out a transfusion would be very wide.
Mr Post relied also on the case of Stephen Loraine v Wirral University Teaching Hospital NHS Foundation Trust [2008] EWHC (QB). In that case, the Defendant had negligently failed to admit the Claimant's mother to hospital prior to the birth of the Claimant despite the fact that she had a fibroid in her uterine wall and the foetus was in the 'footling' position. The Claimant's mother then suffered a profound placental abruption which resulted in the Claimant suffering foetal asphyxia, with consequent severe disability. The Defendant argued that it was not liable because the Claimant's injuries were caused by a mechanism which was not reasonably within the contemplation of those caring for his mother at the time when she should have been admitted to hospital. If she had been admitted to hospital, it would have been because there was a foreseeable risk of cord prolapse. It could not have been contemplated that she would suffer a placental abruption.
In Loraine, Plender J reviewed the authorities and referred in particular to the well known case of Hughes v Lord Advocate [1963] AC 837. In that case, employees of the Post Office, in breach of their duty, had left a manhole uncovered but placed paraffin lamps around it. In those circumstances, it was foreseeable that a child might suffer burns; the Claimant did suffer burns, although the mechanism by which he did so was entirely unforeseeable. He climbed down the manhole and, on ascending, knocked over a paraffin lamp which caused an explosion. The first instance Court found against the Claimant. The House of Lords reversed that decision. At 849, Lord Reid stated:
"The appellant's injuries were mainly caused by burns and it cannot be said that injuries from burns were unforeseeable … No doubt it was not to be expected that the injuries would be as serious as those which the appellant in fact sustained. But a defender is liable although the damage may be a good deal greater in the extent than was foreseeable. He can only escape liability if the damage can be regarded as differing in kind from what was foreseeable."
Plender J applied that principle to the facts of Loraine. He said at paragraph 64 of his judgment:
"In the present case, the damage suffered by the Claimant does not differ in kind from what was foreseeable. The damage foreseeable in the event of a cord prolapse is precisely the same in kind as the damage suffered by reason of the placental abruption. That damage is cerebral palsy in consequence of foetal asphyxia."
I consider that this case falls squarely within the decisions in Hughes and Loraine. It differs from Brown, where the existence of the Claimant's DVT and of the damage that might result from it was unknown to the doctors who discharged him from hospital. The condition which meant he should not have been discharged, i.e. infection, was wholly different from the DVT and heparin intolerance which caused the loss of his leg. In this case, it is clear from Dr Becker's evidence that a competent Paediatrician should have foreseen that a failure to transfuse promptly would give rise to a risk, albeit a small risk, of cardiac problems leading to brain injury. The Claimant's case is that, as a result of the delay in transfusing, he suffered brain injury caused by strokes. The damage would be the same in kind as that which should have been foreseen, although the route by which he suffered the damage would not have been the same as the route that was to be foreseen at the time of the breaches. In the circumstances, therefore, I am satisfied that the Claimant's claim should not fail on that ground.
Material Contribution
The second issue is, I believe, uncontroversial. In the event that the Claimant does not succeed in establishing his primary case, he relies on the principle in Bailey v Ministry of Defence et al. [2008] EWCA Civ 883. In that case, the Claimant was admitted to a hospital managed by the First Defendant for treatment of a gall stone. Following surgery, she became weak and developed pancreatitis. She was sent to an intensive care unit and subsequently to the renal ward at another hospital managed by the Second Defendant. There, she was given a drink, vomited and was unable to clear her throat. She aspirated the vomit, causing a cardiac arrest which led her to suffer hypoxic brain damage. She claimed damages in negligence against both Defendants, contending, inter alia, that a lack of care by the First Defendant during her admission to its hospital had materially contributed to the cardiac arrest and consequent brain damage.
The judge at first instance found that the cardiac arrest had been caused by the Claimant's weakness on the date of her transfer to the Second Defendant's hospital. That weakness had, he found, two cumulative causes, i.e. the First Defendant's negligent lack of care during her admission at its hospital and her pancreatitis, for which it was not responsible. He held that, since the negligent lack of care had contributed materially to the Claimant's overall weakness, causation had been established and he accordingly found the First Defendant liable and dismissed the claim against the Second Defendant.
The Court of Appeal dismissed the First Defendant's appeal. Giving the judgment of the Court, Waller LJ set out the principle at paragraph 46:
"In my view one cannot draw a distinction between medical negligence cases and others. I would summarise the position in relation to cumulative cause cases as follows. If the evidence demonstrates on a balance of probabilities that the injury would have occurred as a result of the non-tortious cause or causes in any event, the claimant will have failed to establish that the tortuous cause contributed. Hotson's case exemplifies such a situation. If the evidence demonstrates that "but for" the contribution of the tortuous cause the injury would probably not have occurred, the claimant will (obviously) have discharged the burden. In a case where medical science cannot establish the probability that "but for" an act of negligence the injury would not have happened but can establish that the contribution of the negligent cause was more than negligible, the "but for" test is modified, and the claimant will succeed."
That is the principle which I shall apply in the event when I consider the issue of material contribution in this case.
CONCLUSIONS
The Claimant's Primary Case
This case involves a large number of complex and uncertain medical issues. I have to consider carefully whether, on the evidence available to me, the Claimant has succeeded in establishing to the required standard that his injuries occurred in the manner set out at paragraph 30 of the Amended Particulars of Claim (see paragraph 81 of this judgment) and were therefore caused by the Defendant's breaches of duty.
I have already set out the evidence relating to hypoxia, hypocapnia and dehydration. That must be set against the background of the severe anaemia and haemolysis from which the Claimant was undoubtedly suffering during his time at Pembury. I have found that there is no convincing evidence that, in general, anaemia and haemolysis give rise to the risk of thrombus, emboli or stroke in the case of a patient who, like the Claimant, suffers from HS. I note also that Dr Bolton-Maggs, who in her work with SHOT, has daily experience of the problems arising from blood transfusion, observed that she was aware of no case in which a delayed transfusion had been identified as causing a stroke. As to hypoxia, I have found that there is no evidence that the Claimant was hypoxic at the material time; indeed the evidence points the other way. He was undoubtedly hypocapnic, but I have found that the protective mechanisms available to patients with HS are likely to have protected him from the vasoconstriction that can result from hypocapnia in a normal patient. As to dehydration, the Claimant's dehydration did not fall within the "severe" category and his haematocrit levels were low, suggesting that his blood was not unusually viscous. There is no authoritative evidence that patients with the Claimant's level of dehydration or with his haematocrit levels are prone to thrombus, emboli or stroke. Moreover, I have concluded that the endothelial dysfunction, if it occurred, was in one of the vertebral arteries, not the venous system, and there is no epidemiological evidence linking dehydration with the development of thrombus and emboli in the arterial system.
The Defendant has relied heavily on the absence of epidemiological evidence to support the Claimant's case. The point is made on behalf of the Claimant that his case is highly unusual. His congenital conditions, coupled with the severity of his anaemia on 24 November and the worsening of his condition caused by the delay in transfusion and his dehydration, has, it is suggested, produced a situation which is unlikely to be replicated in medical research. Of course, I recognise the force of that argument but, nevertheless, it is the case that many people suffer a combination of some or all of these conditions without suffering from strokes. It was also suggested that I should focus to a greater extent on the personal clinical experience of the Claimant's expert witnesses, rather than merely on the epidemiological evidence. However, whilst I do of course understand the importance of clinical experience, any decision I make must be founded on objective evidence (including authoritative medical literature, laboratory findings and clinical observations), rather than merely on personal opinions. I might of course accept the opinion of an expert on a particular issue. Before doing so, however, I must be satisfied that it is reliable and well-founded. I am afraid that, in the case of the Claimant's haematological and paediatric neurological experts, I could not always be satisfied that that was so.
It was said on behalf of the Claimant that the combination of conditions from which he suffered combined, first to create a "pro-thrombotic state" and then, by the perturbation mechanisms set out in Virchow's Triad, to cause the endothelial dysfunction which triggered his strokes. I appreciate that there is a possibility that the various factors might have combined and acted cumulatively or synergistically to produce such an outcome. However, my attention was not drawn to any authoritative medical literature which confirmed the existence of such a cumulative or synergistic effect and, insofar as this explanation was advanced by the expert witnesses, I cannot be satisfied on the evidence that it is well-founded. I cannot merely assume that these factors operated to cause the Claimant's strokes. It follows, therefore, that the Claimant has not succeeded in establishing his primary case.
The Defendant's case and the Claimant's secondary case
For the Claimant, Mr Post argued that the Defendant's case, i.e. that the Claimant suffered arteriopathy as a result of infection, is purely speculative. He submitted that there was no evidence as to the precise nature of the infection from which the Claimant was suffering and how it came to cause his strokes. There had been no laboratory investigations into the infection at Pembury or at King's. Furthermore, there was no indication in the medical records that he was suffering from anything but an ordinary minor infection and there was no positive radiological evidence of the site of the arteriopathy.
In oral evidence, Dr O'Callaghan acknowledged that, assuming that infection had caused arteriopathy, the reason why it did so remained a mystery. He suggested that one possible explanation was that the Claimant had suffered the cumulative effects of his past infections in addition to the infection from which he was suffering on his admission to Pembury in November 2004.
As I have already said, there is clear evidence in the medical literature showing that a minor acute infection, in particular URTI, is a significant risk factor for arteriopathy and AIS. It is true that such an arteriopathy will usually affect the anterior, rather than the posterior, circulation, but it is nevertheless clear that there are a significant number of cases in which the posterior circulation is involved. It is also clear that it can occur even where an infection is very recent.
There is little doubt that, when he was first taken to Pembury on 24 November, the Claimant had a URTI from which he had been suffering for about a week. On that day, his condition had worsened and he had an increased temperature at 38°. He was described as looking poorly, worse than he usually did when his Hb level was low. I note that the diagnosis made by Dr Gika at the time of the Claimant's admission was "?viral infection causing deterioration of haemolytic anaemia". In other words, she considered the infection sufficiently significant to have caused his anaemia. What she did not know at that stage was that his Hb level had fallen to 3.3, i.e. the lowest it had ever been, by a considerable margin. The previous lowest level had been 4.2 in April 2003. The last incidence of infection previously recorded (which was described as "non-specific" and had caused the Claimant to "cough and wheeze") had been in August 2004 when his Hb was 6.2. Even after the first transfusion on 25 November, when he was somewhat improved, the Claimant's temperature remained raised, presumably as a result of his URTI.
I do not consider that the fact that no specific virus was positively identified as a cause of the Claimant's strokes is significant. It seems to me that the overwhelming likelihood, if the Claimant developed an arteriopathy due to infection, is that the infection concerned was the URTI from which he was known to be suffering. Given the severity of the Claimant's condition during his last hours at Pembury and subsequently at King's, it seems unlikely that an investigation to discover the nature of that infection and/or to find out whether he had some other infection would have been regarded as a first priority. It certainly does not appear from the King's Discharge Summary that the existence of any other infection became evident during his stay there.
I am satisfied, on a balance of probabilities, that the primary cause of the Claimant's strokes was a focal cerebral arteriopathy which was in turn caused by the URTI from which he was suffering. Such an infection is a clearly established risk factor for arteriopathy and strokes in children, even when it is "minor", as it apparently was in the Claimant's case. I note that, at the Joint Meeting, the experts agreed that "such (i.e. such as his URTI) non-specific infections can be associated with stroke in children". As I have previously indicated, I do not regard the fact that an arteriopathy of the vertebral artery was not visible on the radiological imaging prevents such a conclusion. The same site was identified by Professor Kirkham for an endothelial dysfunction, the imaging of the vertebral arteries was not of good quality and, in any event, Professor Kirkham conceded that dissection could occur without being detected on imaging.
As to why the infection should have caused the arteriopathy, that is not clear. However, I note that the Amelie-Lefond Study (see paragraph 155) refers to the "concept" of an "infectious burden", whereby the inflammatory effects of multiple infections over time lead to vascular injury in adults. The Study suggests that it is a "compelling potential explanation for arteriopathy in children, who suffer frequent minor infections yet rarely suffer strokes". Although the cumulative effect is only said to be a "potential explanation", the view is expressed in an authoritative IPSS Study. The Claimant was very young, he had suffered a number of previous infections (one only three months before) and it appears from his Hb level on 24 November that this infection had had a particularly serious effect on his anaemia and his general wellbeing. The cumulative effect suggested by Dr O'Callaghan appears to be a very plausible explanation. Alternatively, it may be that the nature of the infection, although apparently everyday, was somehow different from those he had had before.
I come now to the question of material contribution. At paragraph 32 of the Amended Particulars of Claim, the Claimant contended that, in the event of a finding that focal arteriopathy was the primary cause of perturbation of the blood vessel wall, it would be asserted that his dehydration, acute-on-chronic haemolysis, severe anaemia and the use of diuretics (the effect of which relates to his dehydration) caused, or made a contribution to, the occlusion of the basilar artery and the consequent strokes.
Professor Kirkham considered that, if there had been focal cerebral arteriopathy, other factors must have been at play which resulted in the serious damage. Her evidence was that strokes in adults and children almost always have multiple risk factors interacting. She had come across cases where there was a single cause of stroke only very rarely. She said that, in a case of stroke, she would always be looking for other risk factors. Dr Telfer's view was similar. He said that the cause of strokes is frequently multi-factorial, and is accepted as such by all Haematologists. Dr Bolton-Maggs accepted that, on occasion, strokes may be caused by different contributing factors, although she did not consider that the factors present in this case had a contributing effect.
Dr O'Callaghan's evidence was that there are few proven risk factors for stroke in children. SCD is one, as is viral infection. He did not accept that there is any proof that stroke is multi-factorial. He accepted that, when one looks at large cohorts of childhood strokes, it is possible to identify a number of presumptive risk factors in about half of cases. However, as I have previously noted, presumptive risk factors are factors that it is believed might be causative, not factors where there is any positive evidence of a causative effect. When asked whether the Claimant's strokes were likely to have been multi-factorial, Dr O'Callaghan acknowledged that there may have been other factors, e.g. genetic factors, at play although that was plainly speculative. He acknowledged also that there is some evidence that having more than one pro-thrombotic risk factor has an additive effect. However, he did not accept that dehydration, acute-on-chronic haemolysis and severe anaemia were pro-thrombotic factors or had played a part in causing the Claimant's strokes.
Mr Post pointed out that the Claimant had suffered a number of previous episodes of infection in the presence of anaemia, without suffering a stroke. He suggested that there was, therefore, no reason to believe that he would have done so in November 2004 without some additional factor. He suggested that the only plausible candidate for such an additional factor was the pro-thrombotic state likely to have been caused by the Claimant's dehydration, acute-on-chronic haemolysis and severe anaemia. He argued that, on a balance of probabilities, even if infection did cause arteriopathy as I have found, those conditions must at least have made a material contribution in causing his strokes.
Professor Kirkham's view that strokes in adults and children almost always have multiple risk factors interacting appeared to be based, not on the medical literature, but on her own assessment of causation in the (no doubt very many) stroke cases she has seen. Her evidence that, in a case of stroke, she "would always be looking for other risk factors" is not the same as positive evidence that there is always more than one cause. Similarly, Dr Telfer's assertion was not supported by any relevant literature. If it is right that all Haematologists accept that strokes are frequently multi-factorial, with some of those factors being conditions as common as anaemia and dehydration, one might expect to see that reflected in the textbooks and in other literature.
It may well be that a significant number of strokes occur as a result of a combination of factors, rather than a single cause. However, that fact alone does not assist me in determining whether the specific conditions from which the Claimant was suffering and which were caused by the Defendant's breaches of duty (in particular, the delay in transfusing him) made a material contribution to his injuries. I have to examine the evidence relating to those conditions and ascertain whether it establishes to the required standard that they had a contributory role.
In relation to that exercise, the Claimant faces similar problems to those which I referred to when dealing with his primary case. Once again, I accept that there is a possibility that the various conditions, or some of them, may have combined cumulatively or synergistically with the arteriopathy to cause his strokes. However, there is no objective and reliable evidence that the Claimant's dehydration, acute-on-chronic haemolysis and/or severe anaemia, whether together or separately, contributed with the arteriopathy to cause his strokes. That being the case, I cannot reach the conclusion that it was so and the Claimant's secondary case must fail.
I recognise that my decision will be a great disappointment to the Claimant's family. The only consolation they can take from this litigation is the fact that they have done as much as they reasonably could in an attempt to secure his financial future. |
THE HONOURABLE MRS JUSTICE ELISABETH LAING
Introduction
This is a claim for damages for serious brain injuries which the Claimant ("Eva") suffered during her delivery at King's College Hospital on 4 October 2007. The Defendant ("the Trust") has accepted liability for those injuries. Eva and the Trust have also agreed some heads of damage. This is my decision, after a three-day hearing, on the remaining disputes about damages. I was also asked to approve the parties' agreement to settle 20 various heads of damages. I have read and considered the advice by the Claimant's counsel about this. I record my approval of that settlement in this judgment, having announced it in open court in the course of the hearing.
The facts
Given the Trust's concession on liability, I do not need to say anything about Eva's delivery. The relevant facts for my purposes are the facts about Eva's current condition and prognosis, in so far as these have a bearing on the appropriate compensation for her injuries.
Eva suffered a grade 2 hypoxic ischaemic injury at birth. Initially the prognosis was unclear. Although a full developmental assessment in February 2008 suggested that everything was normal, it became clear that Eva was having problems with her posture and muscle tone. By June 2008, she was showing signs of cerebral palsy. Eva is now 7 years old. She is generally healthy, and weighs about 16kg. She lacks muscle strength and dexterity in her hands and arms. She finds it hard to control the position and movement of her head. It is hard for her to sit, or to get around, without help. She cannot walk without help. She has a manual wheelchair which she cannot propel, a walker, in which she can walk, and a TomKat tricycle which she can pedal.
She no longer suffers from seizures, perhaps because these are controlled by sodium valproate. But she has a startle response to loud noises. She is on medication to control this, to control her dribbling and to help her with movement. At the date of her parents' first witness statement, she was continent during the day, but not at night; her parents were working on this, and said that when she was continent at night, she would need someone to help her on and off the toilet at night. She is now continent at night. She generally sleeps well, although she wakes up at least once, needing a drink of water. As she gets older, it is likely that she will need someone to be with her all the time.
She goes to a mainstream primary school, with one-to-one support. She started there in September 2012. Before that she went to nursery part-time. She needs help to get any benefit from the curriculum. It is already harder for her to do this than it was in the reception class, partly because, as a result of her physical disabilities, it takes her so long to do each task. Her parents are concerned that she needs, and will need, much more help than is being provided at school at the moment to enable her to achieve her full potential.
I watched the "Day in the life of" DVD. It is very moving. Eva is a beautiful, engaging child. Her eyes shine. She is determined, and concentrates hard on any given activity. She clearly enjoys the company of her family, and there seems to be a touching bond between her and her younger sister. She is generous both in giving, and receiving, affection. She loves hugs and cuddles. She has an evidently strong need for human contact. It is clear that she very much wants to be able to speak to other people. The physical difficulties she faces in articulating what she wants to say are formidable. Nonetheless, as was clear, for example, from the session with the speech and language therapist, and from the scenes with her family, and at school, she is determined to try and try. She wanted to explain her feelings about thunder, and it seemed clear to me that she did not enjoy it because it is loud. In their witness statement, her parents say that she has a big vocabulary, and they can understand much of what she says, but that there is a significant gap between what she can understand and what she can say, which is as much a source of frustration for them as for her. Regular speech and language therapy have helped a good deal.
She does many physical activities with apparent enthusiasm and enjoyment, such as riding her adapted trike. Mr Totham described in his evidence how greatly she enjoys hippotherapy. But there is no denying that everything she does is a hard struggle, for example, when she was using the posting box. She clearly wants to succeed at everything she tries. But it is clear that she cannot do, and will not be able to do, without a good deal of help, any of the things that able-bodied people carelessly take for granted, such as getting out of bed, moving around, feeding herself, or dressing herself. That is confirmed by her parents' evidence.
I had a strong sense of an energetic, inquisitive mind trapped in a body that will not do what Eva would wish it could do. She is clearly a very determined girl. Although there were but a few signs of this in the DVD, her parents say that she already gets very frustrated by her limitations, which is upsetting for the whole family. She suffers from "dramatic mood swings which she seems unable to control". When she is in this frame of mind she refuses to co-operate. This affects her learning and disrupts family life. Mrs Totham described this in her oral evidence. She explained that part of Eva's brain injury involves the basal ganglia, which regulate emotion. This is supported by an MRI scan referred to at paragraph 8.1 of Mr Reid's report. Eva suffers from what Mrs Totham described as a "double whammy" of frustration and lack of control of her mood.
In some ways, the DVD paints a somewhat artificial picture of daily life, in the sense that Eva clearly knew that she was, and very much enjoyed being, the centre of attention. I could see that she was aware of the camera. Mrs Totham explained in her oral evidence that Eva's mood fluctuations mean that despite her evidently engaging personality, the family are very much "on a knife edge" as things can suddenly fall apart. If she is not getting full attention, or if something is not quite right, for example a strap is in the wrong place, she can "react in a very extreme way". This is compounded by the fact that she cannot always express her needs clearly. If a parent leaves the room momentarily, to put the kettle on, or go to the toilet, she gets very agitated. Sometimes her parents know what the issue is and sometimes they do not.
I am satisfied, on the balance of probabilities, that Eva is beginning to be aware of the limitations which her injuries now impose, and will always impose, on the scope of her life, and that that realisation will be an increasing source of frustration and perhaps unhappiness. In other words, she has a dawning insight into her condition, and that insight may well increase as she matures.
It is clear that her family love her. They are caring for her with humour, affection, and devotion. But the physical and emotional strain which this must cause should not be under-estimated. As she grows older, and becomes bigger and heavier, those strains will inevitably increase, as will the logistical difficulties of providing that care. I have read the joint witness statements of Eva's parents. They are both well qualified and have professional jobs. I was impressed by the matter-of-fact and good-humoured way in which her parents gave evidence at the hearing. They did not ask for sympathy or exaggerate the practical difficulties of looking after Eva. I was also very impressed by the sensible way in which they are getting on with things and doing what they can to make life for their family as ordinary and as fulfilling as possible.
The correct approach
The parties agree what my general approach should be (see paragraph 26 of the Trust's skeleton argument). There are two fundamental points. The first is that the purpose of an award of damages in these circumstances is, so far as is possible, to put Eva in the position she would have been in had the Trust not negligently injured her. Eva is "entitled to be compensated as nearly as possible in full for all pecuniary losses.....Subject to the obvious qualification that perfection in the assessment of future compensation is unattainable, the 100% principle is well established and based on high authority": see per Lord Steyn in Wells v Wells [1999] AC 345 at 382-3. The application of this principle to past losses is relatively straightforward. Past losses are ascertainable with some accuracy. Its application in practice to future pecuniary losses is necessarily more difficult.
The second fundamental point is that deciding whether a head of loss is recoverable, and, if so, its amount, involves an assessment of the reasonableness both of the claimed head of loss and of its amount: Sowden v Lodge [2004] EWCA Civ 1370. This principle was explained in two ways by Stephenson LJ in Rialis v Mitchell (1984) The Times 17 July, at pages 24-26 of the transcript. First, the duty to mitigate loss is a duty to take reasonable steps; and second, it is a foreseeable consequence of a defendant's negligence that a claimant will take reasonable steps to mitigate the loss caused by that negligence. The touchstone of reasonableness means that there will often be a range of potentially reasonable options for a claimant to choose from when mitigating her loss. Provided her choice is within that range, the defendant cannot reduce his liability by arguing that Eva should have chosen a cheaper option from that range. "The defendant is answerable for what is reasonable human conduct and if their [sc Eva's parents'] choice is reasonable he is no less answerable for it if he is able to point to cheaper treatment which is also reasonable".
So a claimant has, and those acting on her behalf have, a duty to take reasonable steps to mitigate her loss. Any loss which is caused by a failure to take such steps is not recoverable. Provided a claimant acts reasonably to mitigate her loss, she can recover for any loss which she incurs in doing so, even if the resulting damage is greater than it would have been had she taken no such steps. She can recover for reasonable steps taken to avoid loss. Where a claimant successfully mitigates her loss, a defendant is entitled to the benefit of such steps (McGregor on Damages, 19th edition, paragraphs 9-002-9-006).
A third point, which I have already mentioned, is that there is an obvious distinction between quantifying losses and expenses which Eva has already incurred and future losses. Subject to any points about mitigation, if I am satisfied on the balance of probabilities that a loss has been incurred, and if it was reasonably incurred, then subject to quantification, it is recoverable. The assessment of future losses, on the other hand, involves an assessment of the chances of future events, and that assessment of those chances, whether they are more or less than even, must be reflected in the amount of damages.
The outstanding issues
There are ten substantive issues which are still more, or less, in dispute. There are two further issues about interest. Their resolution depends on the resolution of the substantive issues. The ten issues are:
(1) general damages for pain and suffering and loss of amenity
(2) past gratuitous care and case management
(3) past professional case management
(4) past holidays and leisure
(5) future loss of earnings and benefits and lost years
(6) future care (lump sum) in respect of childcare
(7) future treatment and therapies
(8) future orthotics
(9) future transport.
(1) General damages for pain and suffering and loss of amenity
I have found this is a difficult issue. I am not the first to say that its intrinsic difficulty is the difficulty of assigning any sum of money to represent the combination of losses which I must value under this head. I have been helped by the Judicial College ("JC") guidelines, and the cases to which I have been referred. No two cases are alike. Moreover, the constellation of factors which is relevant to this head means that any assessment is inevitably impressionistic. Mr Hutton QC submitted that the right award was £265,000 (including a Simmons v Castle uplift), and Mr Latimer-Sayer, £290,000-£300,000.
I accept Mr Hutton QC's overall submission that Eva's injuries are not at the very top end of the JC bracket, and are not at the same level as those of Luke Warren and Robert Annable in Heil v Rankin [2001] QB 272. I reject Mr Latimer-Sayer's submission that in Heil v Rankin the Court of Appeal was setting guidelines other than by indicating the general level of uplift that was appropriate for broad classes of case. I have carefully considered the passages he referred to in his email of 15 December 2014. What they show, in my judgment, is that the hearing was prompted by the Law Commission's view that the general level of damages for pain suffering and loss of amenity was too low, and that by choosing a range of different cases, the Court of Appeal aimed to show how its view, that the general level was too low, should be put into practice. I do not think that the Court of Appeal considered that it was setting binding precedents for the actual level of damages in cases that were similar to the cases it decided in those appeals. The passage from Lord Diplock's speech in Wright v British Railways Board [1982] 2 AC 773 which is cited at paragraph 43 of the judgment of the Court makes this clear.
In my judgment, Eva's level of functioning is higher than that described in this section of the JC Guidelines. She is continent at night and in the day. She sleeps well. According to Albert Reid's evidence, her functioning on verbal tasks is in the range between borderline learning difficulties and low average, though her functioning on performance tasks which do not involve fine motor skills is in the range between severe and moderate learning difficulties. This means she has, and will have, insight into her condition. She is at a mainstream school. She can communicate with help, although her dysarthria means that it is hard for those who do not know her well to understand what she says.
She can, and apparently does, enjoy aspects of her life, though she does have unpredictable and extreme mood swings. She had seizures as a baby but her epilepsy is controlled, though she does have a pronounced startle response. Her physical disability is great. She has very little function in her upper limbs. She cannot sit unsupported. She needs help with transfers. But she can roll, she can ride her trike, and walk with help, albeit that she is propelled by her spasms; she has almost continual involuntary choreoathetoid movements. She is not fed with a tube, though she cannot feed herself. Her life expectancy is 47 years.
The JC Guidelines say that the level of damages is influenced by 3 factors: level of insight, life expectancy and physical limitations. The higher each of these is, the higher the damages will be. I am not persuaded by Mr Latimer-Sayer's submission that the first of these factors takes precedence in any assessment. It seems to me, rather, that the influence of the factors will vary from case to case and that they necessarily interact with one another to produce an overall result.
I was referred to a number of decided cases and approved settlements. As I have said, every case is different, and in each the balance of competing factors is slightly different. Doing the best I can, I consider that the appropriate award, taking into account the Simmons v Castle uplift, and increase in RPI is £275,000.
(2) Past gratuitous care
The hours and rates are agreed. The cases make clear that parents are to be recompensed for care they have provided. On the face of it, their loss equates to any remunerative employment which they have given up in order to care for an injured relation. But the cases also show that compensation is capped at the commercial cost of that care. That is known as the ceiling principle.
It is common for experts to arrive at the commercial cost of care by using the National Joint Council ("NJC") rates. The basic rate is used when care is provided during working hours, and the higher, aggregate, rate, when care is provided twenty four hours a day and at weekends, or is rather more than basic unskilled care. The parties agree that the aggregate rate is appropriate, because care was provided at all hours.
The only issue is whether there should be a discount from the agreed total of £80,000 to reflect the fact that this was gratuitous care provided by Eva's parents. The cases also recognise, it seems in practice, rather than as a matter of law, that other than in exceptional circumstances, a discount of between 25 and 30% should be made from the commercial cost of care to reflect the fact that care is being provided at home, and to reflect the likely incidence of tax and NIC.
Mr Latimer-Sayer argued that Mrs Totham gave up a highly-paid job, and then went back to working part-time in order to care for Eva, and to organise and co-ordinate the complex arrangements for her care. These factors, he submitted, meant that the rate which should be attributed to this head of claim should be the aggregate NJC rate. They also meant that there should be no discount, in part because the very high earnings which Mrs Totham had foregone made this an exceptional case, and in part because even the aggregate NJC rate did not reflect the actual cost of care in London, which was higher than the aggregate NJC rate.
Mr Hutton QC pointed out that a similar argument had been rejected by Swift J at paragraph 143 of Whiten v St Georges Healthcare NHS Trust [2011] EWHC 2066 (QB); [2012] Med LR 1. That, too, was a London case. I accept Mr Hutton QC's submission. In my judgment the factors relied on by Mr Latimer-Sayer do not mean that this case is so unusual as to mean that there should be no discount. It seems to me that his submission is an attempt to circumvent his side's agreement with the Trust that the appropriate rate is the aggregate NJC rate. If he considered that the aggregate NJC rate was not the commercial rate in London, it should not have been agreed. His reliance on the highly paid employment which Mrs Totham gave up is inconsistent with the ceiling principle.
My conclusion is that there should be a discount. Mr Hutton QC's initial pitch was for a 30% discount, but it seems to me that 25% is more in keeping with the tenor of the recent authorities, so that is, in my judgment, the appropriate discount here.
(3) Past gratuitous case management
The hours are now agreed. There are two issues: whether
(1) the appropriate rate is the NJC basic, or aggregate, rate, and
(2) there should be a discount from the total sum awarded.
Mr Latimer-Sayer argued that this case management was not carried out only during the working week, but, in part, at least, fitted round Mrs Totham's working hours, and so involved, for example, her sending emails outside working hours and at weekends. These factors, he submitted, meant that the rate which should be attributed to this head of claim should be the aggregate NJC rate. He also argued that the total hours claimed were so low that if they were added up, they would not be enough to incur a liability to tax, as the total was less than the annual personal allowance. That, and the very high earnings which Mrs Totham had foregone, made this an exceptional case and meant that there should be no discount.
I am narrowly persuaded by Mr Latimer-Sayer's argument that the aggregate, rather than the basic, NJC rate is appropriate. I was initially attracted by part of his argument on the discount, but on reflection, do not consider that it is right. The small number of hours reflects the fact that this service was provided, at least for some of the time, in tandem with paid, taxable, employment. It seems to me that the recompense for that would be liable to tax and NIC also. I reject the argument based on Mrs Totham's highly paid employment for the same reasons as I rejected it in connection with past gratuitous care. So the appropriate rate is the aggregate rate, and there should be a discount of 25%.
(3) Past professional case management
The starting point is that these sums have actually been spent. The case for the Trust is that the Totham family did not get value from the money they paid to ILS. Mr Hutton QC submitted that there is an overall principle of proportionality which means that the Trust should not have to pay for a service the charges for which were "grossly unreasonable". He pointed, by comparison, to Mrs Sargent's two estimates which were considerably less than that amounts spent, and to Miss Cotterell's estimate. The amounts are more than is being paid to the current case manager. He reminded me of Mrs Totham's rhetorical question, "Why should we have to pay for being taken advantage of?" He fairly made clear that he did not criticise Mr and Mrs Totham, and that he accepted that they had been in a very difficult position.
His point was the Trust, which is publicly funded, should not have to pay for costs which were "grossly excessive and unreasonable". He suggested that the conduct of the professional deputy (a partner in a firm of solicitors, appointed by the Court of Protection) should also be considered. He said that it was surprising that the deputy had not questioned the charges, but had endorsed them as normal. He pointed me to cases in which, albeit without much explanation, judges had discounted costs which they thought were excessive. He submitted that it would not be right for the court to endorse the payment of wholly unreasonable sums by the defendant.
He accepted that the relationship between this principle of proportionality and the rules about mitigation of loss was "hazy". He said that if there was evidence to explain an overspend, the principles of mitigation might help a claimant and accepted that there was a burden on a defendant, if sums had been actually spent, to show that they were unreasonable. He submitted that if a claimant had not got value for money, then there should be no recovery.
Mrs Totham explained in her evidence the care which she took over the appointment of a professional case manager. She and her legal team devised a recruitment process. They interviewed 5 case managers from different companies, and were not comfortable with any of them. I bear in mind that Mrs Totham is a highly experienced human relations professional and it seems to me probable in the light of that that the interviews were systematic and probing, and that that they revealed real shortcomings with those companies. The Tothams relied on their legal team for advice. They then found Anita Reals and ILS; and they appointed ILS.
All this was completely new to the Tothams. They relied on their legal team and then on ILS and Ms Reals. After 12 months, Mrs Totham was very frustrated. In short, ILS were completely reactive, and nothing happened unless Mrs Totham initiated it and then chased it up. She told ILS, who suggested they switch to a different case manager. They did so. Kerry Green said that she understood, and that it would be different. They worked for the next 6 months, but it was still very frustrating. Mrs Totham raised concerns with Eva's deputy because she felt she was not getting value for money. He said that the amounts were normal and that she should not be concerned. She relied on his advice absolutely.
She felt she had done all she could to deal with her concerns. She was very open and vocal with ILS but that did no good, and she had no benchmark. She thought her expectations were too high and that the case management industry just could not live up to those. Once the new case manager was recruited, she began to understand what a proper case manager could do. She was much more pro-active, experienced and imaginative. ILS had sent an email and left a voicemail saying that they could not work with her any more, with immediate effect. They were not prepared to continue.
She does not know what else she could have done. ILS are a big, reputable company. They do not have a bad reputation. The Tothams were unlucky with the case managers they had. Those managers did not realise how complex the case was. The Tothams are not unreasonable, but they wanted the best and only got the bare minimum. They have not paid some outstanding invoices which they consider are unreasonable.
I accept Mrs Totham's evidence on this aspect of the case. In my judgment the question is whether she acted reasonably in appointing ILS in the first place, and in continuing to employ, and pay, them until they walked off the job. I have no hesitation in deciding that she did so, on both counts. I take into account all the sensible steps she took in appointing ILS and in trying to manage them, and in checking with her professional and experienced deputy whether their charges were out of line. I also take into account that during this period she and her husband had many other challenges to cope with, many of those as a direct or indirect result of the negligence which the Trust has now admitted.
I allow this part of the claim in full.
(5) Past holidays and leisure
There is one outstanding issue under this head. This is the cost of the economy flight to South Africa in 2011. It is agreed that the correct measure of damage, as the Tothams would have flown to South Africa economy class in any event, is the difference between the cost of those flights, and the business class fares. The Defendant points out that the cost for the economy flights that year, £2,265, is about £1,000 less than it is in the later years. Mr Totham gave evidence about this. He did not keep independent documentary proof of the cost in that year, but said that he had put the figure into a spreadsheet. He said that some years the prices were discounted. He was asked if he had made a mistake, and the true figure was £1,000 more. He said, "I can't see that I would have". It is, of course, possible that Mr Totham put an incorrect figure into his spreadsheet. But he is an IT professional, and I consider that it is unlikely that he in fact did so. I am therefore satisfied on the balance of probabilities that the figure he has provided is the right one.
(6) Future loss of earnings and benefits and lost years
The Claimant also claims a lump sum in respect of lost earnings between the ages of 16 and 21, and periodical payments in respect of lost earnings between the ages of 21 and 47. She also makes a claim for the "lost years". I deal with that first.
Eva claims damages for her loss of earnings and pension between the ages of 47 and 93.6 years. She accepts that such a claim is prevented by the decision of the Court of Appeal in Croke v Wiseman [1982] 1 WLR 71. In Croke the plaintiff was injured at the age of 21 months. His life expectancy was reduced to 40 years. The Court of Appeal held that he could make a claim for loss of earnings during the period for which he was then expected to live, but not in respect of the "lost years".
Griffiths LJ (as he then was) explained the social policy on which this approach was based. First, compensation for the "lost years" was intended to form a fund which would be available to support a plaintiff's actual or likely dependants. In the case of a catastrophically injured child, "...the court should refuse to speculate as to whether in future there might have been dependants for the purpose of providing a fund of money for persons who will in fact never exist". Second, if the gravely injured child was going to live for many years into adult life, "very different considerations apply. There are compelling social reasons why a sum of money should be awarded for his future loss of earnings. The money will be required to care for him."
In Iqbal v Whipps Cross University Hospital NHS Trust [2007] EWCA Civ 1190 the Court of Appeal held that the first instance judge in that case had been bound, and that it was bound, by Croke, but that Croke (and, in particular the reasoning I have just referred to) was inconsistent with two decisions of the House of Lords, Pickett v BREL [1980] AC 136 and Gammell v Wilson [1982] AC 227. The Court of Appeal granted permission to appeal to the House of Lords but the appeal was then settled.
I must follow Croke. In the light of the views of the Court of Appeal in Iqbal, I make two points only. First, I consider that the decision in Croke is inconsistent with the principle of full compensation which I have already mentioned. Second, I respectfully agree with Rimer LJ in Iqbal that the policy justifications referred to in Croke (see above) are inconsistent with Pickett and Gammell.
In short, the Trust's negligence means that Eva will live for a shorter time than she would have lived had the Trust not negligently injured her. It also means that she will not earn the salary and pension, which, had she not been injured she would, on the balance of probabilities, have earned. The Trust's negligence has deprived her of those earnings (net of living expenses) during the "lost years". She should in principle be compensated for that loss. There is no rational basis for allowing such claims by adults, but refusing to allow them when made by children. Consistently with my approach below, I assess those losses as £32,694.51 a year until the age 70, when, on current trends, I consider it likely that Eva would have retired, and at £12,000 a year after that. I do not consider it likely that Eva would have benefitted from a final salary pension scheme, as those are becoming increasingly rare.
Other things being equal, this is a point which should be resolved by the Supreme Court. It would save the parties time and costs if Eva were able to appeal directly to the Supreme Court, rather than having to appeal first to the Court of Appeal, which would again be bound to dismiss the appeal, as it did in Iqbal. No such appeal is possible in this case as the Trust will not consent to it. If those advising Eva wish to pursue it, they will have to appeal to the Court of Appeal first.
The Claimant also claims a lump sum for loss of earnings between the ages of 16 and 21 based on assumed earnings of £3,000 a year. It is argued that her parents live in an area of London in which it is relatively easy for young people to get holiday and weekend jobs, and where such jobs are likely to be paid above the appropriate minimum wage, and that her parents would very much have encouraged her to do that. Mrs Totham described in her evidence the variety of holiday and weekend jobs which she had done as a teenager and while at university. The Trust contends that £2,000 would be a reasonable amount. I accept that Eva's parents would have encouraged her to get holiday and weekend jobs, that she would be likely to have got such jobs, paid above the minimum wage, and that her living expenses, and expenses in getting to work would have been likely to be low, if not non-existent during this period, as she would have been living at home. Doing the best I can, I consider that the Claimant should recover £3,000 a year under this head.
The Claimant claims a periodical payment in respect of loss of earnings after the age of 21. The parties agree that Eva would have gone to university and have become professionally qualified. They therefore agree that the calculation should be based on the average salary for professional women of £36,735.40 net. If a 0.89 discount factor for contingencies is applied to this amount, it becomes £32,694.51. In his skeleton argument, Mr Hutton QC contended that a deduction for expenses related to work should be made from this amount, and a discount to reflect the likelihood that Eva's earning capacity would have been affected by having children.
On the former point, I was referred to a passage in Eagle v Chambers [2004] EWCA Civ 1033 [2004] 1 WLR 3081 (at paragraphs 66-68) in which Waller LJ said that there was no rule of law about this. A broad assessment should be made; inordinate time should not be spent on it. In my judgment the likelihood is that, perhaps in her mid-twenties, Eva would have left home, and, given the cost of accommodation in central London, would have moved further from the centre than East Dulwich, and would be incurring significant travel costs. In my judgment the earnings figure should be discounted by to reflect this. The current cost of an annual travel card for zones 1-9 is about £2,000. If current trends continue, that is likely to have increased by the time Eva is in her mid-twenties. Doing the best I can, I consider that the appropriate discount is £2,000. However, I accept Mr Latimer-Sayer's submission that the likelihood is that she would have received some benefits in kind on top of her salary, and that it would be reasonable to offset the one against the other. I think it unlikely that these would have included membership of a final salary pension scheme.
On the latter point, Mr Latimer-Sayer's riposte (skeleton argument paragraph 69) was that paragraph 40 of the Ogden Tables (Table B of which is the source of the discount factor) makes it clear that the factors allow for just this possibility. Mr Hutton QC accepted this in his oral argument.
(8) Future care (lump sum) in respect of childcare
The first question is whether, on the current evidence, there is a more than fanciful or speculative chance (Mr Latimer-Sayer submitted, a 14% chance or more) that Eva will have children. It is not for me to decide whether she should do so. That will be a decision at the relevant time, either for her, if she has capacity, or, if she does not, for those who make decisions for her at that stage.
The two care experts essentially agreed about the position at that stage. Mrs Sargent, Eva's expert, said that she had experience of young women with Eva's level of physical disability having children, but only in cases where they had no cognitive disability, so that they could parent, love the children as a mother, even though they needed physical help to do this. Mrs Cotterell echoed this. Mrs Sargent has been the case manager in two such cases, and has been involved in other such cases. Eva would have to be able to parent, to have the intellectual level to make decisions as a parent, which can't be left to carers. That is too hard on the children, who need a mother. A person functioning at the level of a child can't be the parent of a child. Many people who function at the low end of average are successful parents, and those with mild learning difficulties can also be parents. A further point, which Mrs Cotterell touched on in her evidence, is that although the opportunities for people with disabilities to socialise and form relationships have improved a good deal, Eva's physical difficulties and the unknowns about her emotional development may make it hard for her to have an intimate relationship.
This issue arose at the last minute, as a result of a supplementary written question which Mr Reid was asked shortly before the hearing. There was no evidence from any medical expert about it.
That means that the question at this stage is whether there is a more than fanciful chance that Eva will have the capacity to be a parent when she is old enough to be a parent. That turns on whether there is such a chance that she will have the cognitive ability to be a parent, for if she does not, the care experts seem to agree, it would not be either in her best interests or those of any child, for her to have a child, or children.
The relevant expert evidence on that is a report from Dr Essex, Eva's expert neuro-developmental paediatrician, and a report and supplementary letters from Albert Reid, the joint educational psychologist. Dr Essex wrote his report in February 2013. He reviewed her paediatric records and examined her in 2009, when she was 1 year and 9 months old, and again on 8 February 2013, when she was 5 years and 4 months old. He did not give her any psychometric tests. He was not cross examined at the hearing. Mr Reid saw Eva at school, on 4 April 2014. He gave her some tests, but did not do a full Wechsler test. Mr Reid was asked questions by both counsel.
Dr Essex was instructed to comment on Eva's condition and prognosis. In summary, he described Eva as having a "severe physical handicap and probably moderate [possibly severe] learning difficulties". He said, "I believe that on the balance of probabilities Eva has a significant degree of learning difficulties. This is because her head growth has slowed. Head growth is a surrogate indicator of growth of the underlying brain." He made some observations about her head circumference. That had been between the 25th and 50th centile when she was 8 weeks old, but that had fallen over time, and was then on the 0.4th centile, suggesting poor growth of the underlying brain.
He went on to say that she would never have a partner because of her degree of disability. He did not believe that she would have capacity to make decisions about her life affairs, including litigation, treatment and care. She would be able to express preferences if given a choice she was familiar with. She would need someone to interpret her communication. She would always be a person who lacked capacity under the Mental Capacity Act 2005 ("the MCA").
Mr Reid was asked to comment, among other things, on the extent of Eva's learning disabilities (and to describe them), on her future academic capabilities, on her capacity and whether she would be able to manage her affairs as an adult. She was 6½ years old at the date of his assessment. In his summary he said he noted the report of Dr Essex and the evidence of microcephaly. He said that Eva's functioning on verbal tasks was within the range of borderline mild learning difficulties to low average. Her functioning on those performance tasks which did not involve fine motor skills was within the severe to moderate learning difficulties range. Her functioning on performance tasks is "very significantly below expectations for her age", even when her physical difficulties are taken into account (report paragraph 9.1). In his evidence he said that paragraph 9.1 could be criticised for not being explicit but that it was a refutation of the views of Dr Essex. I do not see any refutation of those views in paragraph 9.1, or elsewhere in the report.
He referred to a gap between Eva's vocabulary and her ability to process words. He said that it was too early to comment on Eva's future academic achievements. He went on to say that she would be likely to stay in a mainstream school with support. He also said it was difficult to comment on what education she could "access" after 16. He anticipated that she was likely to show "an increasing gap in terms of her attainments when compared with her peers". She would be unlikely to achieve average results at GCSE, and might get modest results. He again made the caveat that it was difficult to comment on Eva's "likely intellectual trajectory". He said that in his experience, "even children who show relatively good functioning at the age of 6 tend to plateau in adolescence and she may well reach a "glass ceiling" even earlier in terms of abstract conceptualisation. It is likely that cognitive assessment will confirm lower levels of functioning as she gets older - I note Dr Essex's comments in relation to Eva's microcephaly and would agree that this is often associated with cognitive impairment".
When asked about this in evidence he said that he was not saying that it was probable that Eva would reach a plateau but that it was a possibility. He disagreed with the suggestion that the tenor of this passage was that it was likely that Eva's cognitive function would plateau and that, in comparison with her peers', her cognition would get worse. I was not persuaded by this answer. He also said that he discounted microcephaly in Eva's case because of her test scores, not that he discounted it in general. It was suggested that he had not said this in his report. His answer was not a convincing one. If she were to reach a plateau, he said, that would put her in the mild learning difficulties range, and that would not preclude parenting skills.
Cognitive skills would decline (I think comparatively) as Eva got older, but he thought that it would not have an impact on her parenting capacity. 16% of the population have her level of cognitive skills and can be parents. He said that she would never have severe learning difficulties. He had expressed caution in his report because he had wanted a further assessment. With her level of cognitive ability, Eva would want to have children, a normal relationship and family life.
At paragraph 6 he again stressed caution "about being definitive in terms of future cognitive functioning. I am of the view that this is an issue that should be addressed in adolescence when one has a better idea of Eva's likely cognitive ability and also whether she would have shown evidence of executive dysfunction, which will have a significant impact on capacity." I asked Mr Reid what he meant by "executive dysfunction". He told me that it is a global term: it covers memory, attention span, distractability, the ability to sift relevant from irrelevant information, and to order actions. It is easier to assess both cognitive ability, and whether there is executive dysfunction, in a teenager than in a younger child. He gave the practical example of a person who is in the middle of cooking when the 'phone rings, and in the course of answering the 'phone, forgets that she was cooking.
As I have already indicated, as I read Mr Reid's report, he was not dissenting from the views which Dr Essex expressed about Eva's likely capacity and the significance of her microcephaly. Although Mr Reid was expressly instructed to consider capacity, he only did so obliquely, at the end of his report, and in terms which show that he did not feel able to express a clear view, because Eva was too young. He refers twice to the report of Dr Essex, and does not either in those references, or elsewhere, say that he disagrees with the opinion of Dr Essex either about capacity, or about the level of Eva's learning difficulties.
In a letter dated 17 November 2014, he said that he thought "it likely that Eva is likely to form a relationship, and, subject to medical advice, I think that she would want to have children and likely that she would be able to. Patently she will not be able to look after children physically...and I anticipate that further care would be required...".
In his oral evidence he said that his report showed that Eva had good innate cognitive ability. He thought that she had a baseline level of functioning. Her verbal ability is in the average range, and that is used to predict performance in the long run. He referred to her frustration with communication and said that if technology improved, this would help. He said that on balance of probabilities, in her twenties, she would have capacity (in MCA terms) to be a parent. I think by this he meant that she would have the capacity to decide to become a parent. When referred to the view of Dr Essex, based on Eva's microcephaly, he said that he had known a highly intelligent microcephalic person. Cognitively, he said, she would be able to make decisions.
He said that he had not commented on capacity in his report because he thought that it was too early to do that. He said that Dr Essex had been wrong to say that Eva would lack capacity and that he would modify that view if he had a psychological report. To the extent it was calculable (and this was based on verbal aspects only) her IQ was 89-90. He accepted that he had not said in his report that he disagreed with Dr Essex. He repeated that there was a need for caution and that it was better to wait. He had reserved his position in his report but "when pressed" had said what he said in the November letter. All that had changed between his report and the letter was that he had been pressed to give a view. It was suggested to him that he had been asked a question, not pressed: "I was asked to be more definitive because the case was nearing completion, and I said on the balance of probabilities she would do".
He said that it was implicit in his report that Eva would have capacity because his view was that she would be in a mainstream school. He reserved his position in the report because ideally he would have liked to do a further assessment to see what progress she had made. He seemed to accept that Eva would have lower levels of functioning as she got older.
I have considered the two reports and Mr Reid's oral evidence. My conclusion is that, in his report, Mr Reid was rightly circumspect about expressing a view about Eva's likely future capacity. He took account of, expressly referred to, and not only did not dissent from, but appeared to endorse, some of the report of Dr Essex. For some reason which he did not explain, when asked, in October, a specific question about Eva's likely future ability to be a parent, he abandoned that cautious approach. I did not understand the explanation he gave for abandoning it. Nothing in the underlying facts changed between the date of his report and the November letter. Nor am I satisfied, on the balance of probabilities, that he has good grounds for changing his mind.
I conclude on the evidence as it now is, that I am not satisfied that there is a more than fanciful chance that Eva will have children. I take into account the reservations expressed by both care experts about the impact of cognitive deficits on a person's ability to be a parent. It seems to me, on the current evidence, that it is not probable that a case manager and deputy will decide that it is in the best interests of Eva or of a prospective child, for her to have children. I must stress that this decision is based on the evidence I have read and heard. It does not foreclose that possibility in the future, should there be evidence, on the basis of Eva's cognitive abilities at a later date, that that would be in the best interests of both. If I am wrong about this, I would have valued this aspect of the claim in accordance with the Trust's expert's calculations, and have awarded a lump sum in respect of it, discounted by 60%.
(9) Future treatment and therapies
There are two disputed items under this head: the cost of future hippotherapy (£1,000 pa) and the additional cost of sporting activities (£600 pa). The Trust agrees the hippotherapy claim in principle, but argues that it is "fraught with uncertainties" and should therefore be discounted by 50%. The Trust does not agree that Eva should recover any damages for extra costs of sporting activities; it is argued that there would have been significant costs in any event, as Eva's parents are very active, and would encourage their children to take part in a wider range of sports.
Mr Totham's evidence showed clearly that Eva very much enjoys hippotherapy at the moment, and that she gains a great deal from it. While I accept that children do often lose interest in physical activities (sometimes temporarily and sometimes permanently) when they become teenagers, I consider it likely, taking into account Eva's evident delight in riding, so lucidly conveyed in Mr Totham's evidence, that, even if she wavers a bit in her teens, it is more probable than not that she will enjoy it, and want to continue it for the foreseeable future. As Mr Latimer-Sayer pointed out in his oral submissions, Eva will not have a paid job as an adult, and that, it seems to me, is a further reason why it is likely that she will continue with it. I therefore allow the full claim for hippotherapy.
The second item is based on the recommendation of the jointly instructed expert, Eileen Kinley. I have considered the relevant parts of her report. It seems to me that her recommendation includes hippotherapy, at least to some extent (see section 6 of the report). The costs in Appendix 2 are not broken down in any way. I accept Mr Hutton QC's submission that an award of £600 under this head, when I have already made an award for hippotherapy, would involve double recovery. Eileen Kinley makes the apparently valid point that costs for swimming in hydrotherapy pools are greater than the costs of swimming in a conventional pool. She also appears to be factoring in the likelihood that had Eva not been injured, her parents would have incurred costs in relation to sports in any event. Doing the best I can, I consider that the right award under this head is £300 pa.
(10) Future orthotics
The dispute under this head is the result of a degree of uncertainty about whether Eva will use orthotics in the future, and, if so, what those will be. The joint orthopaedic expert recommends orthotics (ankle foot orthoses - "AFOs" - , in this case). It was clear from Mr Totham's evidence that he is very keen to do all he reasonably can to encourage Eva to get used to, to tolerate, and to use, these. She is not using them at the moment. In an email dated 24 November 2014, Eileen Kinley noted that Eva had used AFOs in the past, but did not tolerate them well, and it was not certain whether they were helpful. Eva's physiotherapist considers that they should be tried again. Eileen Kinley's experience is that children with Eva's type of cerebral palsy do not tolerate these well. Costs vary; she gives one estimate; £459.44 per pair, plus assessment. They would be worn for some hours every day until Eva stops growing, at say, 16. If they are tolerated, they should be replaced every 9 months. Eva's case manager got an estimate, which was £1,300 every 9 months to the age of 18 and £1,300 every 18 months after that. The Trust argues that this claim is not properly quantified, and is, in any event, too speculative.
I consider that it is likely that Eva will use AFOs in the future. Her orthopaedic specialist and her physiotherapist both recommend them, and I am confident that her parents will do all they can to encourage her to use them. As I read her report (although it is somewhat ambiguous on this point), Eileen Kinley does not recommend them beyond the age of 16, when it is likely that Eva will stop growing. In my judgment, £800 per year until the age of 16 would be a reasonable award under this head.
(11) Future transport
This head reflects the increased costs of travel which the Claimant will have. She will need a vehicle which is accessible to a wheelchair, and it is claimed that she will have increased mileage. The claim is in two parts. First, up to the age of 21, Eva claims the cost of converted vehicle, a Volkswagen Caravelle. The main disputes concern the initial cost of the Caravelle, and the proper rate of depreciation. I heard evidence from the parties' experts (Miss Harris for Eva and Mrs Sharland for the Trust) about this. The difference in cost of the vehicle is associated with various extras such as parking sensors, electronic side doors, and privacy glass, which, Mrs Sharland asserted, were not "disability-related".
Where the experts differed, I preferred the evidence of Miss Harris. Mrs Sharland was, in my view, too dogmatic on some questions: for example, her initial view that side wheelchair access was a "personal preference" which did not stand up to scrutiny in the context of London, where parking is notoriously difficult, and it makes obvious practical, and safe, sense, to move a wheelchair in and out of a vehicle from the side, rather than from the back. Even so, her acknowledgement of this obvious point was grudging. It was clear from her cross examination that she had applied the wrong test, in any event, asking whether a feature was "absolutely essential" rather than whether it was reasonably necessary. In my judgment Miss Harris explained convincingly that having electronically operated doors would make an important difference in speeding up access to the vehicle in the rain, and I was satisfied that even now, the patchy provision of lavatories that are accessible to wheelchairs means that privacy glass is reasonably necessary. Mrs Sharland, as I understood her evidence in cross examination, conceded in the end that parking sensors were reasonably necessary as the size of the Caravelle coupled with their absence might well restrict the pool of applicants who would apply to be Eva's carer. I also accept that the price of adapted vehicles fluctuates, as they are adapted abroad, and the price may vary with differences from time to time in exchange rates and transport costs. For these reasons, I allow the cost of the adapted vehicle as claimed.
There is a dispute about the correct rate of depreciation, and the re-sale value for which credit should be given. It is argued for Eva that the Trust's figures do not accurately reflect the fact that adapted vehicles have a lower re-sale value than conventional vehicles, because although there is a market for them, it is a smaller market than that for unadapted vehicles. In the calculations, as I understand it, the Claimant has given credit for depreciation on the base costs, but not on the costs of the adaptations. This approach was adopted in A v Powys Health Board [2007] EWHC 2996 (QB) (paragraph 143). I am satisfied that that is the right approach in this case. I allow this part of the claim as pleaded in the up-dated schedule.
After the age of 21, the Claimant claims on a similar basis, with the difference that she gives credit for a vehicle costing £13,000 from that age. This is said to be a reasonable concession given her loss of earnings claim. The Trust argues that she would be likely to have had a more expensive vehicle throughout, costing £20,000 rather than £13,000. I consider that it is unlikely she would have had a car at all in between the ages of 21 and 30, but that, after that, given her earnings, she would have been likely to have a car costing more than £13,000 after that. Given that the multiplier is 13.63, I am satisfied that the claim as pleaded in the updated schedule under this head is reasonable.
A claim is also made for additional running costs. The claim in the updated schedule is based on extra mileage of 5,200 miles per year. This is too great, as the evidence of Eva's parents in their witness statement is that they did 1,150 extra miles per year as a result of Eva's disability and that this went down over time. There are two parts to this.
The first is running costs to the age of 21. The new mileage figure reduces the annual loss to the difference between the cost of 1,150 miles per year at 37.05 p and 1,150 miles per year at 30.04 p. Although Mr Hutton QC accepted a higher figure in his up-dated counter-schedule, I do not think that it would be right to hold him to this in the light of the evidence on this point. I therefore accept the calculation in his note dated 4 December 2014. That gives a figure under this head of £8,211.
Different considerations apply, in my judgment, after the age of 21. First, it is agreed that Eva should give credit for the running costs of a smaller car (23.30 p per mile). The dispute concerns the amount of disability-related mileage. The Trust contends that the figure should still be 1,150 miles of disability-related driving. I reject that submission. It seems to me that, as Mr Latimer-Sayer submits, as Eva gets older, there is likely to be an increase in the extra driving that is related to her disability. Had she not been injured, I am satisfied that, as a young adult in London with her family background, she would have done most, if not all, her travelling on foot, by bike, or by public transport, rather than by car. As an adult, she will not be able to use any of those methods of transport, but will no doubt have an increasing desire to get out and about. But I do not accept that it will be as much as 5,200 miles per year. I consider, doing the best I can, that the loss under this head is the difference in running costs between the Caravelle and the smaller car in respect of 3,500 miles of disability-related driving.
There is now no dispute about additional insurance and vehicle recovery. The remaining dispute is about the costs of a rental car pending the purchase of the Caravelle. The Claimant claims for 4 months and the Trust would allow for 3. Mr Latimer-Sayer explained in his submissions the reasons why rental for 4 months had been claimed: there had to be time for judgment to be handed down, and for the money to be paid, and the Caravelle had to be ordered and adapted. Although he indicated that the Claimant would be willing to split the difference, I consider that it would be prudent to allow for the full four months.
Conclusion
For the reasons I have given, I allow the claims on the disputed items to the extent that I have indicated in this judgment. I am very grateful to both counsel for drawing up, and agreeing, a schedule of the agreed and disputed items, which is annexed to this judgment.
AGREED ITEMS (approved by the court)
Lump sums (£)
1. Past paid care
2. Past treatment & therapies
3. Past aids & equipment
4. Past orthotics
5. Past accommodation
6. Past travel & transport
7. Past IT
8. Past deputyship
9. Past miscellaneous
10. Future care to 14.12.14
11. Future aids & equipment
12. Future education
13. Future accommodation
14. Future IT
15. Future holidays
16. Future deputyship
17. Future miscellaneous 48,055
50,484
8,826
8,428
149,768
6,670
1,075
32,118
7,500
1,000
455,000
45,205
1,500,000
500,000
475,000
275,784
60,000
Subtotal: 3,624,913
Periodical payments
18. Annual care and case management from 7 to 12
19. Annual care and case management from 12 to 19
20. Annual care and case management from age 19 96,200
157,000
250,000
Subtotal capitalised: 5,107,642
Total capitalised: 8,732,555
DISPUTED ITEMS (court awards)
Lump sums (£)
21. General damages
22. Interest on general damages
23. Past gratuitous care
24. Past gratuitous case management
25. Past professional case management
26. Past holidays & leisure
27. Interest on past losses
28. Loss of earnings to age 21
29. Lost years
30. Future loss of benefits
31. Future childcare
32. Future treatment & therapies
33. Future orthotics
34. Future travel & transport 275,000
23,430
60,000
12,987
47,625
41,067
11,177
9,210
0
0
0
244,616
6,352
225,859
Subtotal: 957,323
Periodical payments
35. Loss of earnings from age 21 32,695
Subtotal capitalised: 445,633
Total disputed items (capitalised): 1,402,956
GRAND TOTAL: 10,135,511
DISPUTED ITEMS (court awards)
Lump sums (£)
21. General damages
22. Interest on general damages
23. Past gratuitous care
24. Past gratuitous case management
25. Past professional case management
26. Past holidays & leisure
27. Interest on past losses
28. Loss of earnings to age 21
29. Lost years
30. Future loss of benefits
31. Future childcare
32. Future treatment & therapies
33. Future orthotics
34. Future travel & transport 275,000
23,430
60,000
12,987
47,625
41,067
11,177
9,210
0
0
0
244,616
6,352
225,859
Subtotal: 957,323
Periodical payments
35. Loss of earnings from age 21 32,695
Subtotal capitalised: 445,633
Total disputed items (capitalised): 1,402,956
GRAND TOTAL: 10,135,511 |
INTRODUCTION
This is a claim for damages for personal injuries and consequential loss brought by Mr Graeme Wake, the father and litigation friend of the Claimant, Ethan, who is a young child.
On the evening of 1 January 2010, Ethan, then being unwell, was taken by his parents to the Defendant, Dr Johnson, a General Practitioner on duty at an out of hours service, for a consultation. At the conclusion of the consultation, Ethan was not referred by Dr Johnson to hospital for specialist attention, but went home with his parents.
During the evening of 2 January 2010, Ethan was taken by his parents to the Newcastle General Hospital where, in the course of the night he was diagnosed as suffering from pneumococcal meningitis. Tragically, this disease has caused him to suffer very severe neurological damage as a result of which he is now very severely, and permanently, disabled.
In this action it is claimed that Dr Johnson was negligent in his treatment of Ethan. At the consultation he failed to respond appropriately to Ethan's history, presenting signs and symptoms. The only proper response of a competent General Practitioner would have been immediate referral of Ethan to hospital for specialist attention. In this action it is asserted that such a referral would have avoided Ethan's injuries consequent upon his development of meningitis.
Dr Johnson denies that he was negligent in his treatment of Ethan. He denies that referral to hospital by him would have avoided Ethan's injuries.
By an order in this action of Master Cook given on 29 January 2014, it was ordered that a preliminary issue should be tried as to whether or not Dr Johnson is liable to Ethan by reason of the matters alleged in the Particulars of Claim and, if so, whether or not any of the injuries pleaded were caused thereby; if any such injuries were so caused, the extent of the same. This judgment is given solely in respect of those issues.
THE FACTUAL BACKGROUND
In this action, heard over 9 days, I heard evidence from Ethan's parents, Mr Wake and Ms Heather Hastie, from his maternal grandmother Mrs Anne Hastie, from his paternal aunt, Sandra Brooks, and from family friends, Karen and Greta Jones (who are sisters) and David Hood. I heard evidence from Dr Johnson and from medical experts as follows:
(i) For Ethan, Dr Rogers (general practice), Dr Conway (paediatric), and Professor Eykyn (micro-biology);
(ii) For Dr Johnson, Dr Cameron (general practice), Dr Thomson, (paediatric), and Professor Cartwright (micro – biology).
I will set out the facts that are not, or on the evidence before me cannot sensibly be, disputed.
Ethan is now nine years old, his date of birth being 7 November 2005.
Shortly after his birth, it was discovered that Ethan was suffering from truncus arteriosus, a rare form of congenital heart anomaly. He was treated for the condition by means of a surgical repair carried out at the Freeman Hospital, in Newcastle on 9 December 2005. Thereafter, he was regularly reviewed and treated, as required, for his heart condition at the Freeman Hospital.
On 2 December 2009, Ethan was taken to his GP Practice by his mother, Ms Hastie, because he had been suffering from earache and vomiting. The Claimant was seen by Dr McNulty, whose clinical notes recorded:
'E: Lower resp tract infection
S: ok this am – acutely unwell at midday and crying
with right earache – not himself
O: miserable – and vomited as well
ears occluded by wax and aural temp reading normal
some crackles left chest I thought (audible and
indeed palpable – sr 90 reg – added HS as
previous)
no neck stiffness, no rash
P: for erythromycin and rv sos'
On 9 December 2009, Ethan attended a planned appointment at the Freeman Hospital where he was noted to be well, although it was also noted that he had been suffering from occasional chest infections.
Those symptoms did not fully resolve and by 18 December 2009 he was suffering from a chesty cough, runny nose, earache, poor appetite, and vomiting and therefore on that date Ms Hastie took Ethan back to the GP Practice, where he was seen by Dr Victoria Cliff.
Dr Cliff noted:
'E: Lower resp tract infection
S: still has cough feels unwell chesty, runny nose
Vomiting, c/o ear ache, off food.
O: chest clear no dyspoea (sic) recession or tug loud
murmur form (sic) cardiac surgery, temp 39.2, well and
chatty
Rx: Erythromycin Ethyl Succinate Sugar-Free
Suspension 250 mg / 5ml 100ml. 5ml qds
Paracetamol Sugar Free Suspension 120 mgs / 5ml 200
ml. 5mls qds
P: ?bacterial ?swine flu treat incase (sic) either esp in
view of underlying health problems
advsied (sic) seek attention asap if worse'."
From this note it seems clear that Dr Cliff was not sure whether Ethan was suffering from swine flu or a bacterial infection and decided to treat Ethan for both. A course of Erythromycin was completed first, following which Ethan started to take Tamiflu on 28 December 2009.
Although Ethan's symptoms did not fully resolve, he was able to enjoy Christmas day and open his presents as was evidenced in a short, but very touching film taken by his parents, that was shown to me in the course of the trial.
Between Monday 28 December 2009 and 31 December 2009, Ms Hastie considered that Ethan was well enough for her to return to work, during which time Ethan was looked after by Mrs Anne Hastie.
However, Ethan remained or became unwell so that on 1 January 2010, Ms Hastie rang NHS Direct at 17:17. She was put through to an organisation called Gateshead Doctors or GatDoc for short. The telephonist's record of that call was as follows:
'Symptoms:finishing a course of Tamiflu today,temp 38.5, headache, vomiting'
As a result of the call, Dr Sidhu rang Ms Hastie at 17:23 and spoke to her about Ethan's condition. Following that call he made notes as follows:
'4 yr old boy flu sxs for two wks. on tamiflu for 5 days.
still vomiting also c/o headache for two days temp 38.5
not eating very much though drinking
breathing is bit quicker than normal. normal color
passing water stools ok
vomited calpol'
Dr Sidhu advised Ms Hastie to take Ethan to an out of hours walk-in centre at Bensham Hospital, in Gateshead. Ethan was taken by both his parents to that hospital where they arrived at 18:00 and were seen by Dr Johnson at 18:09.
Dr Johnson's note of the consultation was as follows:
'History
Unwell 2w initial improvement up to Boxing Day then
intermittent fever
Mild coryza at outset little cough
No d/v
Concern today with high temperature and c/o headache few
days
Congenital truncus repaired
39.4 No rash no meningism warm / dry / pink
Ears / / no dehydration
AE =AE clear
Throat nad
Abdo nad
Unable to provide urine
Completing course of tamiflu
PUO – no evidence of bacterial illness
Temperature control and review mane if not resolved with
urine – earlier prn'
An attempt to obtain urine from Ethan failed. The consultation was completed at 18:45 so took about 36 minutes. It was, in part, of that length because of the attempts taken to get Ethan to pass urine.
Dr Johnson clearly thought that Ethan was suffering from an infection of unknown origin and he so advised Ethan's parents. He prescribed Calpol and Nurofen for Ethan that was obtained from the hospital pharmacy. Ethan's parents were advised that Ethan was well enough to go home but were told by Dr Johnson that they should return the next day with a urine sample if his condition did not improve.
Ethan's condition worsened during the afternoon of 2 January 2010 and Mr Wake took him back to the Bensham Hospital walk-in centre. They arrived at about 16:50 and Ethan's details were entered on the system at 16:55. The receptionist recorded:
'Symptoms: Was seen yesterday by GATDOC was told to return today if no better'
There was delay at the centre and at a certain moment Mr Wake decided to take Ethan straight to the Emergency Department at the Queen Elizabeth Hospital, in Gateshead.
The hospital records show that Ethan arrived at the hospital at 17:24 hours and was seen by the triage nurse at 17:30, who described Ethan as being very agitated and moaning. He was seen by a doctor in the Accident and Emergency Department, also called Dr Johnson, who noted:
'Truncus arteriosus – open division aged 6 months
Recent stenting 6/52 ago
PC 2/52 Hx flu like illness. Generally unwell.
Pyrexia. Cough + cold.
2 courses of Abx + Tamiflu
Getting worse last 24 hours - ↑ listless, not eating
Not keeping down fluids – vomiting straight away
Urine has been dark + only p/u once all day today
O/E – Alert, appears distressed
RR 30, HS I + II + systolic murmur
Abdo soft, BS ...
Ears NAD, Unable to examine throat.
Tongue coated + mouth slightly dry
Imp mild dehydration, 2° to unknown illness likely viral in origin
P D/w Paeds SHO – will kindly review on Ward 20'
Ethan was assessed on the paediatric ward by Dr Poole, a Paediatrician, at 19:00 who noted:
'ATSP – re vacant
PC Listless "in pain"
Wet self PU – incontinence
Crying / agitated, clench arms
A v PU → settles to sleep
A maintaining
B RR 28 clear, nil added….
C warm, well perfused centrally, pink tone, flushed…
36.5°C…
D agitated, not respond to questions.
Vacant…
Rash blanch spots to cheeks
to buttocks
no rigors
intermittent eye rolls up, to side.
Vacant in past 3 – 4 hours, deteriorated since lunchtime
Drowsy + sleepy, intermittent agitations
Temp, reg Calpol in recent days…
Headaches 3/7 → top of head, frontal
→ no photophobia
→ no neck stiff
Dad reports 24 hrs groin put at….
Imp concern re vacant / irritable in child normally developmentally well
? encephalitis / meningitis
? infection source – urine'
The next note is of Dr Caskie, a paediatric specialist registrar, written in retrospect and timed at 20.50. She noted:
' 'Reviewed with Dr Poole
Last completely well [about] 2/52 [two weeks] ago
Unwell [with] temperatures, aches + pains. No real cough or coryza.
Did have episode of green secretions beginning Dec 09.
Still attending nursery + generally ok in himself
S/B GP – given antibiotics and Tamiflu.
Mum called by nursery 1/52 before Christmas
Ethan "not right", "not talking"
When picked up, was quiet, not wanting to talk eg. about Christmas
Seemed to pick up
Last 5/7
c/o headache. Worse in last 2-3 days.
Crying + holding front of heat
Not sleeping as getting v distressed.
Has been pulling at groin for 1/7
Now incontinent of urine (usually dry)
Temp 38.5 last night. Parents don't think he has ingested anything unusual
Parents not noticed any rash.
Drinking well today but vomiting most fluids back.
No diarrhoea
Since mid-afternoon today
acute deterioration
more agitated, crying and shouting
no understandable words
not clearly responding – drowsy
episodes of irritability + agitation
O/E Agitated + irritable
Crying
No understandable speech
GCS – 10 (E3, V3, M4)
No clear response to stimulation or change in agitation
A – patent
B – RR 20 when asleep, [with] no resp distress
C – Warm peripheries
HS 1+II + loud systolic murmur, radiating to back
HR 108 bpm reg
Good pulses (. Femorals (...
D – Neurological status as above
Afebrile
Cluster of petechiae R inner thigh [about] 1.5 cm diameter
No other rash
Neurology difficult to assess
V. irritable and agitated on handling.
Hypertonic limbs at times when agitated
Pupils dilated but reactive
(R more dilated)
Fundi not well visualised
Abdo soft
Moaning on examination
No obvious masses
Imp ? meningitis
? herpes encephalitis
Plan..'→ …
Bloods..'
The history continues in notes from Dr Bosman, a Paediatric Consultant and an anaesthetist:
'Meningo-encephalitis
↓ GCS
→ needs intubation
→ see letter as notes
Anaesthetist:
Called to see 23.15
... Unwell 1/7
Agitated
↓ GCS 12 on arrival
↓10 ?'
Dr Bosman wrote to the Consultant at the Paediatric Intensive Care Unit at Newcastle General Hospital as follows:
'Dear Kai / PICU Team
Problem – suspected Meningo-encephalitis
Thank you for taking over further management of this 4 year old boy who has become more confused / agitated over the course of today.
Background of Truncus with follow up at Freeman (recently in Nov) – Rx Aspirin 40 mg/day
In November + December had a course of Erythromycin for intercurrent infection (low threshold for antibiotics in light of cardiac background + is
allergic to Penicillin). Also just completed course of Tamiflu.
Essentially not usual self over last 2/52 or so
Problem of temperatures, Body aches + pains although no significant coryza / nasal discharge or cough – Some loose stools [because] had recent course of erythromycin + just finished Tamiflu.
More recently, especially last 3/7 complaining of headaches, crying + asking to have frontal part of head rubbed.
Was seen + examined at walk-in centre last night – found to have ↑ Temp, but nothing else of note allowed home with no further Rx.
This morning, got up + was able to indicate needs + drinks, but some vomiting.
Since mid-afternoon – seemed to get worse – crying + moaning + not really able to communicate. Drowsy / irritable / agitated
Prior to this, developing Nly and able to keep up with peers.
O/E: Agitated + irritable.
If left alone – quiet
If disturbed – moaning / agitated
Initially GCS [Glasgow coma scale] 10-11 (E3-4, V2, M4)
But subsequently 7 (E2, V2, M3)
T: 37.5 P: 87/m BP 112/ RR: 30/m
No M.C. [meningococcal] rash but a few petechiae over inner aspect Rt thigh.
Lips dry + cracked No obvious herpes vesicle
Ears: Wax'
Bloods were taken at 20:30 and subsequently showed Ethan's C – Reactive protein level (a measure of acute inflammation) to be grossly elevated.
Ethan was transferred to the care of the Paediatric Intensive Care Unit (PICU) of the Newcastle General Hospital at 02:30 on 3 January 2010. Further relevant medical notes made at that time were as follows:
Neurosurgery Registrar on call:
'Had been unwell for 2/52
Treated with erythromycin, Tamiflu
3/7 Hx of H/A
Became lethargic yesterday
Looking blank
Not recognising parents
Agitated'
Dr Clark, a Paediatric Infectious Diseases Registrar took a fresh history on 4 January 2010 as follows:
"' 31/12/09: Temp @ home – 38
Walk in centre
eating small amounts, drinking well
headache started
1/1/10: GP
Paracetomol/ibuprofen + temp settled
Vomited few times, keeping fluids down.
2/1/10: "vacant looking"
Vomiting – after everything
Walk in centre but not seen – QE'
I will not fully detail the treatment that Ethan received thereafter. Suffice it to say that he was intubated as he needed ventilating due to his falling level of consciousness. An MRI scan performed on 5 of January 2010 showed widespread cerebral inflammation. On 7 January 2010 Ethan developed seizures which were treated with anticonvulsant therapy. He was extubated on 9 January 2010 and was discharged from the PICU on 15 January 2010, remaining in the Paediatric Ward of the hospital until 5 September 2010. He has survived with significant neurological dysfunction including severe visual impairment, problems with communication and problems with motor skills. He has required gastrostomy feeding and is quadriplegic.
The process of infection in pneumococcal meningitis is not controversial and is described by Professor Eykyn, as follows:
'The pneumococcus would have come from Ethan's own upper respiratory tract flora where it is a normal commensal. It would have invaded the bloodstream causing bacteraemia (pneumococcaemia) and then entered the CSF causing meningitis. Such invasion can occur within hours. In most cases of community-acquired pneumococcal meningitis in children there is no focus of infection although occasionally there may be associated otitis media and this is the likely source in Ethan. He did not have pneumonia on admission; a chest x-ray showed clear lung fields.
Viral upper respiratory tract infections are thought to predispose to, and to precede, pneumococcaemia and hence pneumococcal meningitis..'
She explained that Ethan's blood test result from the sample taken on 2 January 2010 at 20:30 was:
'grossly abnormal with a low haemoglobin, high white blood cell count with raised neutrophils, low platelets, low albumin and a high CRP. The blood culture later grew pneumococcus.'
Finally, on the factual background I should deal with the content of Guideline 47 produced by the National Institute for Clinical Excellence (NICE) entitled: "Feverish illness in children – Assessment and initial management in children younger than 5 years." . This was produced by NICE in 2007 and recommends a "traffic light" warning system for healthcare professionals to assist in predicting the risk of serious illness once symptoms and signs have been elicited from the history and examination of a patient. It is agreed by the parties, and in particular by their experts, that the noted guideline is that relevant to Dr Johnson's care of Ethan. However, there is a difference of opinion between the experts as to the relevance and significance of the guideline in judging the issue of whether the care given by Dr Johnson was, in law, proper.
Relevant parts of the Guideline read as follows:
The preamble:
'This guidance is written in the following context
This guidance represents the view of the Institute, which was arrived at after careful consideration of the evidence available. Healthcare professionals are expected to take it into account when exercising their clinical judgment. The guidance does not, however, override the individual responsibility of healthcare professionals to make decisions appropriate to the circumstances of the individual patient, in consultation with the patient and/or guardian or carer.'
The introduction to the Guideline contains the following passage:
'Feverish illness in young children usually indicates an underlying infection and is a cause of concern for parents and carers. Feverish illness is very common in young children, with between 20 and 40% of parents reporting such an illness each year. As a result, fever is probably the commonest reason for a child to be taken to the doctor. Feverish illness is also the second most common reason for a child being admitted to hospital. Despite advances in healthcare, infections remain the leading cause of death in children under the age of 5 years.
Fever in young children can be a diagnostic challenge for healthcare professionals because it is often difficult to identify the cause. In most cases, the illness is due to a self limiting viral infection. However, fever may also be the presenting feature of serious bacterial infections such as meningitis or pneumonia. A significant number of children have no obvious cause of fever despite careful assessment. These children with fever without apparent source are of particular concern to healthcare professionals because it is especially difficult to distinguish between simple viral illnesses and life-threatening bacterial infections in this group…
This guideline is designed to assist healthcare professionals in the initial assessment and immediate treatment of young children with fever presenting to primary or secondary care…This guideline offers best practice advice on the care of children with feverish illness.'
Under the heading "Traffic light system for identifying risk of serious illness" the following guidance is given:
'Children with symptoms and signs in the green column and none in the amber or red column are at low risk. The management of children with fever should be directed by the level of risk.'
As to the management of such children, they:
'… can be managed at home with appropriate advice for parents and carers, including advice on when to seek further attention from the healthcare services.'
Finally, on the Guideline I note that it further provides:
'Children who have been referred to a paediatric specialist with fever without apparent source and who have no features of serious illness(this is, the green group), should have urine tested for urinary tract infection and be assessed for symptoms and signs of pneumonia….
Routine blood tests and chest X-rays should not be performed on children with fever who have no features of serious illness (that is, the green group).'
THE RESPECTIVE CASES OF THE PARTIES AND THE ISSUES FOR DETERMINATION
The Claimant's claim in negligence is directed solely against the care given by Dr Johnson in the course of, and following, his assessment of Ethan's condition at the consultation on the evening of 1 January 2010. It is claimed on Ethan's behalf that Dr Johnson failed to give any, or any adequate, consideration to the possibility that Ethan's presenting signs and symptoms were the result of a serious condition such as meningitis, that required immediate referral to a hospital for specialist paediatric care. It was wrong for him to have limited his diagnosis to infection of unknown origin. In particular, such a diagnosis did not explain the symptoms of vomiting, headache and fever. This 'triad' of symptoms, it is contended, are a well recognised indicator that a patient may be exhibiting the early manifestations of meningitis. Dr Johnson's proper response to Ethan's presentation should have been to have referred him immediately to a specialist hospital paediatric treatment unit.
It is contended on behalf of Dr Johnson that upon the presentation of Ethan at the consultation he was not negligent in not referring Ethan to a specialist paediatric hospital unit. Further, it is denied by Dr Johnson that any such referral would have lead to a different outcome in this case.
Mr McCullough QC has helpfully, and I consider accurately, submitted to me that the following issues require to be determined by the court:
(i) What occurred at the consultation with Dr Johnson on the evening of 1 January 2010?
(ii) If the account of Ethan's parents is preferred, what would the outcome for Ethan have been?
(iii) If Dr Johnson's account is preferred, was it acceptable for him to have sent Ethan home, with the advice he gave to his parents?
(iv) On the basis of Dr Johnson's account, and on the balance of probabilities, if Ethan had been referred to hospital on the evening of the 1 January 2010, what would have occurred?
It is agreed by Dr Rogers and Dr Cameron that if the account of the family is accepted as to Ethan's presentation and the history given at the consultation on 1 January 2010, it was mandatory for Dr Johnson to refer Ethan for paediatric assessment in hospital, and that a failure to have done so would demonstrate that in his care of Ethan, Dr Johnson fell below the standard of care required of him. It is my understanding that it is agreed between the parties that had Ethan been referred to hospital he would have had blood tests which would have been abnormal, and received intravenous antibiotics later that night. Professor Eykyn was reluctant to express any specific opinion on the likely neurological disability if the parents' account were to be accepted, save that there would have been 'some'. On this point, Professor Cartwright considered it is likely that Ethan would still have suffered major, albeit lesser, brain damage than he in fact suffered.
It follows that if the court accepts as proved the account as to Ethan's state described by his parents since 30/31 December 2009 and through the day on 1 January 2010 the Claimant would be entitled to judgment. The only remaining issue would be the extent of the neurological damage attributable to the delay in Ethan being referred for specialist paediatric care and that would be an issue to be addressed as part of an enquiry into the assessment of damage.
THE LAW
The test, that has now stood the test of time, to be applied in respect of breach of duty in respect of clinical negligence is well known. It was set out in a jury direction by Mcnair J in Bolam v Friern Hospital Management Committee [1957] 1 WLR 583 at 587 as follows:
"I myself would prefer to put it this way, that [a medical practitioner] is not guilty of negligence if he has acted in accordance with a practice accepted as proper by a responsible body of medical men skilled in that particular art. ... Putting it the other way round, a man is not negligent, if he is acting in accordance with such a practice, merely because there is a body of opinion who would take a contrary view."
Importantly, in Maynard v West Midlands RHA [1984] 1 WLR 634 at 638E, Lord Scarman stated:
"Differences of opinion and practice exist and will always exist in the medical and other professions. There is seldom only one answer exclusive of all others to problems of professional judgement. A Court may prefer one body of opinion to the other, but that is no basis for a conclusion of negligence."
In his speech in Bolitho v City and Hackney Health Authority [1998] A C 232 Lord Browne-Wilkinson commented on the Bolam test as follows at 241F-242B:
"in my view, the court is not bound to hold that a defendant doctor escapes liability for negligent treatment or diagnosis just because he leads evidence from a number of medical experts who are genuinely of opinion that the defendant's treatment or diagnosis accorded with sound medical practice. In the Bolam case itself, McNair J. stated [1957] 1 W.L.R. 583, 587, that the defendant had to have acted in accordance with the practice accepted as proper by a "responsible body of medical men." Later, at p. 588, he referred to "a standard of practice recognised as proper by a competent reasonable body of opinion." Again, in the passage which I have cited from Maynard's case, Lord Scarman refers to a "respectable" body of professional opinion. The use of these adjectives -responsible, reasonable and respectable--all show that the court has to be satisfied that the exponents of the body of opinion relied upon can demonstrate that such opinion has a logical basis. In particular in cases involving, as they so often do, the weighing of risks against benefits, the judge before accepting a body of opinion as being responsible, reasonable or respectable, will need to be satisfied that, in forming their views, the experts have directed their minds to the question of comparative risks and benefits and have reached a defensible conclusion on the matter."
At page 243 A-D after reference to authorities, he said:
"These decisions demonstrate that in cases of diagnosis and treatment there are cases where, despite a body of professional opinion sanctioning the defendant's conduct, the defendant can properly be held liable for negligence (I am not here considering questions of disclosure of risk). In my judgment that is because, in some cases, it cannot be demonstrated to the judge's satisfaction that the body of opinion relied upon is reasonable or responsible. In the vast majority of cases the fact that distinguished experts in the field are of a particular opinion will demonstrate the reasonableness of that opinion. In particular, where there are questions of assessment of the relative risks and benefits of adopting a particular medical practice, a reasonable view necessarily presupposes that the relative risks and benefits have been weighed by the experts in forming their opinions. But if, in a rare case, it can be demonstrated that the professional opinion is not capable of withstanding logical analysis, the judge is entitled to hold that the body of opinion is not reasonable or responsible.
I emphasise that in my view it will very seldom be right for a judge to reach the conclusion that views genuinely held by a competent medical expert are unreasonable. The assessment of medical risks and benefits is a matter of clinical judgment which a judge would not normally be able to make without expert evidence. As the quotation from Lord Scarman makes clear, it would be wrong to allow such assessment to deteriorate into seeking to persuade the judge to prefer one of two views both of which are capable of being logically supported. It is only where a judge can be satisfied that the body of expert opinion cannot be logically supported at all that such opinion will not provide the bench mark by reference to which the defendant's conduct falls to be assessed."
In the recent case of C v. North Cumbria University Hospitals NHS Trust [2014] EWHC 61A Green J set out the principles to be applied in the assessment of medical expert evidence and, of particular relevance to part of the expert dispute in this case, he addressed the question of the extent to which a defendant professional may still be found negligent if he or she has followed relevant guidelines in force at the material time upon the particular issue in dispute. In those circumstances I will cite extensively from paragraphs 25 and 84 of Green J's judgment:
25.
"i) Where a body of appropriate expert opinion considers that an act or omission alleged to be negligent is reasonable a Court will attach substantial weight to that opinion.
ii) This is so even if there is another body of appropriate opinion which condemns the same act or omission as negligent.
iii) The Court in making this assessment must not however delegate the task of deciding the issue to the expert. It is ultimately an issue that the Court, taking account of that expert evidence, must decide for itself.
iv) In making an assessment of whether to accept an expert's opinion the Court should take account of a variety of factors including (but not limited to): whether the evidence is tendered in good faith; whether the expert is "responsible", "competent" and/or "respectable"; and whether the opinion is reasonable and logical.
v) Good faith: A sine qua non for treating an expert's opinion as valid and relevant is that it is tendered in good faith. However, the mere fact that one or more expert opinions are tendered in good faith is not per se sufficient for a conclusion that a defendant's conduct, endorsed by expert opinion tendered in good faith, necessarily accords with sound medical practice.
vi) Responsible/competent/respectable: In Bolitho Lord Browne-Wilkinson cited each of these three adjectives as relevant to the exercise of assessment of an expert opinion. The judge appeared to treat these as relevant to whether the opinion was "logical". It seems to me that whilst they may be relevant to whether an opinion is "logical" they may not be determinative of that issue. A highly responsible and competent expert of the highest degree of respectability may, nonetheless, proffer a conclusion that a Court does not accept, ultimately, as "logical". Nonetheless these are material considerations. In the course of my discussions with Counsel, both of whom are hugely experienced in matters of clinical negligence, I queried the sorts of matters that might fall within these headings. The following are illustrations which arose from that discussion. "Competence" is a matter which flows from qualifications and experience. In the context of allegations of clinical negligence in an NHS setting particular weight may be accorded to an expert with a lengthy experience in the NHS. Such a person expressing an opinion about normal clinical conditions will be doing so with first-hand knowledge of the environment that medical professionals work under within the NHS and with a broad range of experience of the issue in dispute. This does not mean to say that an expert with a lesser level of NHS experience necessarily lacks the same degree of competence; but I do accept that lengthy experience within the NHS is a matter of significance. By the same token an expert who retired 10 years ago and whose retirement is spent expressing expert opinions may turn out to be far removed from the fray and much more likely to form an opinion divorced from current practical reality. "Respectability" is also a matter to be taken into account. Its absence might be a rare occurrence, but many judges and litigators have come across so called experts who can "talk the talk" but who veer towards the eccentric or unacceptable end of the spectrum. Regrettably there are, in many fields of law, individuals who profess expertise but who, on true analysis, must be categorised as "fringe". A "responsible" expert is one who does not adapt an extreme position, who will make the necessary concessions and who adheres to the spirit as well as the words of his professional declaration (see CPR35 and the PD and Protocol).
vii) Logic/reasonableness: By far and away the most important consideration is the logic of the expert opinion tendered. A Judge should not simply accept an expert opinion; it should be tested both against the other evidence tendered during the course of a trial, and, against its internal consistency. For example, a judge will consider whether the expert opinion accords with the inferences properly to be drawn from the Clinical Notes or the CTG. A judge will ask whether the expert has addressed all the relevant considerations which applied at the time of the alleged negligent act or omission. If there are manufacturer's or clinical guidelines, a Court will consider whether the expert has addressed these and placed the defendant's conduct in their context. There are 2 other points which arise in this case which I would mention. First, a matter of some importance is whether the expert opinion reflects the evidence that has emerged in the course of the trial. Far too often in cases of all sorts experts prepare their evidence in advance of trial making a variety of evidential assumptions and then fail or omit to address themselves to the question of whether these assumptions, and the inferences and opinions drawn therefrom, remain current at the time they come to tender their evidence in the trial. An expert's report will lack logic if, at the point in which it is tendered, it is out of date and not reflective of the evidence in the case as it has unfolded. Secondly, a further issue arising in the present case emerges from the trenchant criticisms that Mr Spencer QC, for the Claimant, made of the Defendant's two experts due to the incomplete and sometimes inaccurate nature of the summaries of the relevant facts (and in particular the Clinical Notes) that were contained within their reports. It seems to me that it is good practice for experts to ensure that when they are reciting critical matters, such as Clinical Notes, they do so with precision. These notes represent short documents (in the present case two sides only) but form the basis for an important part of the analytical task of the Court. If an expert is giving a précis then that should be expressly stated in the body of the opinion and, ideally, the Notes should be annexed and accurately cross-referred to by the expert. If, however, the account from within the body of the expert opinion is intended to constitute the bedrock for the subsequent opinion then accuracy is a virtue. Having said this, the task of the Court is to see beyond stylistic blemishes and to concentrate upon the pith and substance of the expert opinion and to then evaluate its content against the evidence as a whole and thereby to assess its logic. If on analysis of the report as a whole the opinion conveyed is from a person of real experience, exhibiting competence and respectability, and it is consistent with the surrounding evidence, and of course internally logical, this is an opinion which a judge should attach considerable weight to."
84.
"iii. When the guidance as to timing and state of labour are combined then the guidelines, by indicating that a second dose 6-8 hours post first dose absent established labour is permitted, translate risk into practical guidance. A midwife who is within the guidelines should, prima facie, not be acting unreasonably.
iv. I use the expression "prima facie" in (iii) above because it is important to observe that both of the Defendant's experts accepted that even if labour was not established it was still not necessarily always reasonable to administer a second dose of Prostin and that the midwife (or other medical professional) had to take account of all of the other circumstances which might indicate that second dose should not be administered even if labour was not yet established. This is important since on one view it is hard to see why a professional whose actions accord with the approved guidelines should be held to be negligent when the consequences later turn out to be adverse. But in this case there was consensus that the guidelines were not complete or comprehensive…
v. In conclusion my view is that prima facie a midwife who acts in accordance with the guidelines should be safe from a charge of negligence. However, in the present case since it is common ground that in some regards the guidelines are not satisfactory I do not decide this case upon the basis that adhering to guidelines is sufficient. I consider that the fact that Midwife Bragg acted in accordance with the guidelines is a factor militating against negligence but I also assess Midwife Bragg's conduct against the benchmark of the other surrounding facts and circumstances."
THE EVIDENCE AND COURT'S FINDINGS UPON THAT EVIDENCE
The evidential issue at the heart of this case may be stated as follows: has the account given by Ethan's parents of how Ethan appeared and what was said at the consultation on 1 January 2010 been proved, or substantially proved?
Mr Wake and Ms Hastie gave evidence before me, both by means of substantial witness statements and orally, their evidence inevitably being subjected to searching but proper cross-examination. Additionally to their served witness statements, in the course of the trial, draft statements, prepared for them by solicitors instructed before those currently instructed, were disclosed as a result of those statements having been referred to by an expert instructed for Ethan.
Mr Wake said that he told Dr Johnson that Ethan had a high temperature, that he was suffering from severe headaches, that he had aches and pains around his body, was vomiting bile and had not eaten for over 24 hours, was not drinking much, had no energy, was more sleepy than usual, was vacant and lethargic. His, and Ms Hastie's, anxiety must have been obvious to Dr Johnson and they made it clear that they had never before seen Ethan like this. Mr Wake said Ethan had been 'crying like an injured animal.' Ms Hastie's evidence was that they told Dr Johnson that Ethan had not eaten anything since the morning of 31 December, he was breathing very quickly, he had been vomiting his Calpol and had been vomiting bile. He had just been taking sips of water. She said that Ethan 'had been crying and screaming – it was a noise she had never heard before.' Mr Wake said that he would never forget Ethan's scream – it frightened him.
Both Mr Wake and Ms Hastie accepted that Dr Johnson told them to bring Ethan back or call back the next day if he did not get better but they both denied that he told them to do so in the morning or give a time, he just specified in the course of the following day.
A very detailed account of the combined evidence of Ethan's parents as to what happened at the consultation with Dr Johnson was pleaded in the Particulars of Claim at paragraph 20 as follows:
(a) The Claimant was very upset and was screaming. Save for his screaming, the Claimant was uncommunicative;
(b) The Claimant's mother informed the Defendant of the Claimant's symptoms. She specifically told the Defendant that:
i. The Claimant's parents had taken the Claimant's temperature shortly before taking him to the walk-in centre and his temperature was high;
ii. The Claimant was complaining of severe headaches, which had become progressively worse over the past couple of days. The Claimant had not suffered these headaches before;
iii. The Claimant complained of aches and pains all over his body;
iv. The Claimant had not eaten anything for over 24 hours and he was now only taking small amounts of fluids;
v. The Claimant had been vomiting bile and vomiting his Calpol;
vi. The Claimant's breathing appeared quick;
vii. The Claimant seemed to have significantly deteriorated over the last 24 hours;
viii. The Claimant's parents had taken the Claimant to his own GP practice on two occasions in December and he had been prescribed two courses of antibiotics and Tamiflu. However, although the Claimant had been poorly throughout December, he now appeared significantly unwell and his parents had never seen the Claimant so ill, with such a sudden deterioration. The Claimant's parents expressed anxiety over the Claimant's condition;
ix. The Claimant had a pre-existing congenital heart condition;
(c) The Defendant started to examine the Claimant and asked the Claimant's mother to put him on the examination couch. However, when the Claimant's parents attempted to put him on the examination couch, he cried and screamed so vociferously that the Defendant decided to examine him whilst he was sat on his mother's knee;
(d) The Defendant struggled to examine the Claimant because the Claimant was so distressed and listless. The examination was limited to the upper half of the Claimant's body above his waist. As such, a full examination was not completed and, in particular, the Defendant did not examine the Claimant's groin;
(e) The Defendant requested a urine sample from the Claimant. The Claimant's mother advised the Defendant that the Claimant had been drinking very little and his urine had been dark. The Claimant's mother then spent some time in the lavatory with the Claimant, trying to obtain a sample. However, the Claimant was unable to pass urine. During this period, the Claimant's father remained in the consultation room with the Defendant;
(f) The Claimant and his mother then returned from the lavatory, without a urine sample, explaining that she thought the Claimant was unable to provide a sample because he had been drinking very little and had been vomiting bile;
(g) The Defendant asked whether the Claimant's parents had given him any other medications. The Claimant's parents reported that he had been given Calpol, which he had been vomiting and it hadn't seemed to help much because his temperature remained high.
The general point is made in respect of the evidence of Ethan's parents as to the consultation, that their recollection, unlike that of Dr Johnson, is not supported by contemporaneous notes. However, Ethan's illness and the events surrounding it were momentous events in the lives of his parents and they would have good reason for those events to be etched in their minds.
It is suggested that their evidence may be affected by their knowledge of the outcome in Ethan's case and that the events surrounding Ethan's development of meningitis will have been much discussed before and after the commencement of litigation.
What is certain on the evidence before me is the fact that the accounts given by Mr Wake and Ms Hastie have not been consistent. Mr Wake's original letter of complaint dated 31 March 2010 to GatDoc noted that he and Ethan's mother had explained their concerns to Dr Johnson about Ethan as follows:
'Ethan had a high temperature, was suffering from severe headaches (progressively worse over five days), had a fever, some aches and pains around the body, was vomiting and not eating much, no energy and a lot more sleepy than usual'.
Mr Wake's further letter of 16 April 2010 in reply to a letter from GatDoc sought to correct aspects of GatDoc's letter and repeated the above list of symptoms, but did not add to the list, nor did his letter of 15 April 2010, replying to a letter from Gateshead Primary Care Trust.
Elements have been added to the account of Ethan's state when seen by Dr Johnson and what Dr Johnson was told; paleness, vomiting bile, unresponsiveness, not eating anything at all since a small amount of Weetabix on the morning of 31 December 2009, vomiting even sips of water, screaming at the examination. Some but not all of these further features were referred to in the letter before action dated 30 May 2012.
The original draft statements appear to have been produced in August 2011 at a time when claims against Drs McNulty and Cliff were contemplated, as I was told by Mr Spencer QC on the second day of trial, although Ms Hastie said in evidence that she know nothing of this. The draft statements contain more dramatic descriptions of how Ethan appeared at the consultations with Drs McNulty and Cliff on 2 and 18 December 2009. They give an account of a single continuing and worsening illness from early December 2009 until 2 January 2010, and in those statements, there was no description of Ethan struggling, crying, or screaming during Dr Johnson's examination. It was in the served witness statements that all these features appeared together. Initially, Ms Hastie said in her oral evidence that she had told Dr Johnson about the unusual screaming in the consultation on 1 January 2010 but when it was pointed out to her that that this had not been mentioned in her witness statement, she told me that she could have been mistaken about the screaming and later she said to me that she could not recall telling Dr Johnson about screaming.
Neither Mr Wake nor Ms Hastie had any explanation why key passages are omitted from earlier written accounts. Clearly there were considerable difficulties in making out a claim against Drs Cliff and McNulty on the basis of the aetiology of pneumococcal meningitis, as the earlier report of Dr Conway noted, as it was unlikely that a disease, generally characterised by a rapid onset, had, in Ethan's case, been causing symptoms since early December 2009.
It is important to note that the draft statements of Mr Wake and Ms Hastie were not signed. However, I cannot accept Mr Wake and Ms Hastie's assertion that they had not seen those documents before the trial and that they were produced by the previous solicitor's consideration of the medical records and Mr Wake's complaints correspondence, supplemented by a short consultation with them. A consideration of those draft statements, and concessions made in the course of cross-examination, demonstrates that those statements must have been prepared on the basis of very detailed instructions taken at lengthy meeting or meetings that were presumably used for the purposes of settling the Particulars of Claim. The history of the varying accounts given by Ethan's parents of the consultation with Dr Johnson casts doubt on the accuracy of their final account.
Family members and friends gave evidence as to the condition of Ethan at, and before, the consultation with Dr Johnson, and their individual knowledge of, and concerns for, his health, they being Anne Hastie, Sandra Brooks, Ethan's paternal aunt, Karen and Greta Jones, and David Hood.
Their evidence can only assist tangentially in respect of the central factual issue between the parties; what transpired in the course of the consultation with Dr Johnson on 1 January 2010. There were a number of difficulties with the evidence of these witnesses. I accept that after the life changing event of Ethan's illness family members and friends would inevitably discuss their respective recollections of the surrounding events. However, apart from Anne Hastie, who accepted that the descriptions of Ethan's condition in her statement could have been influenced by discussions with Mr Wake and Ms Hastie rather than emanating entirely from her own memory, the supporting family members and friends denied that there was any collaboration, indirectly or directly, in the production of the witness statements. However, there is considerable similarity between the terms of much of the evidence of Ethan's parents and the supporting family and friends.
Mr McCullough QC has prepared a comparison in tabular form that sets out these similarities and I reproduce that in this judgment.
David Hood
recall of what he overheard MsHastie telling the out of hours service Ms Hastie recall of what she told Greta Jones Greta Jones recall of symptoms relayed by Ms Hastie Karen Jones recall of what Greta Jones told her Ms Hastie had said
1 "lethargy" - "being listless" Listless
2 "high temperature" "high temperature" "high temperature" "high temperature"
3 "history of severe headaches" "severe headache for two days" "intense headache for two days" "intense headache for two days"
4 "crying and screaming" "crying and screaming" "crying and screaming" "crying and screaming"
5 "being off his food" "being off his food"
"and the last solid food he had had was on the morning of 31st December when he had a small amount of Weetabix" "not eating" "not eating"
6 "unable to drink very much" "unable to drink" "not … drinking" "not … drinking"
7 "vomiting bile" "vomiting Calpol and bile" "vomiting bile" "vomiting bile"
8 "pale" "pale looking" "pale looking" "pale looking"
9 "not being himself" "not being himself" "not being himself" "not being himself"
A difficulty with much of the corroborative evidence is that the substance of those similarities relate to symptoms not recorded (e.g. bile) or not recorded in the same terms (eating) in the contemporaneous medical records. Mrs Brooks mentioned bile for the first time in her oral evidence. She had been the only one of the seven witnesses not to mention bile in their witness statements. There is no mention in any contemporaneous record of Ethan vomiting bile nor was it mentioned by Mr Wake in his original or reiterated letters of complaints, to which reference has already been made.
A further problem with Mrs Brooks' evidence emerged on disclosure of Ms Hastie's draft statements, after Mrs Brooks gave evidence. On Mrs Brooks' account she had not seen Ethan between Christmas Day and New Year's Eve. She said in her written statement that Ethan had "suddenly deteriorated since I last saw him on Christmas Day." On that evidence it was not clear as to how Mrs Brooks knew the deterioration was sudden. However, in her first draft statement Ms Hastie describes taking him to Mrs Brooks' house on 29 December 2009 at 17:00, and collecting him at about 20:00, with an associated concerning description of his state at that time, subsequently omitted from the later versions of her statement. Mrs Brooks and Mrs Hastie both said in their statements that what Ms Hastie and Mr Wake said was correct although in their evidence to me they said that they had not had sight of their witness statements when they signed their own.
In my judgment the reliability of the evidence of the corroborative witnesses is highly questionable; the circumstances strongly suggest to me that there has been an unsatisfactory degree of liaison between these witnesses.
I turn to the evidence of Dr Johnson. He did not purport to have a clear recollection of the consultation but depended heavily upon his clinical note of the consultation, and his standard practice. As a contemporaneous record that Dr Johnson was duty bound to make, that record is obviously worthy of careful consideration. However, that record must be judged alongside the other evidence in the action. The circumstances in which it was created do not of themselves prevent it being established by other evidence that that record is in fact inaccurate.
I was impressed by the evidence of Dr Johnson. I found him to be a careful and reliable witness and he came across to me as being a generally caring and responsible GP. The evidence before me was that he has an unblemished professional record. He made an appropriate concession when challenged in relation to the likelihood that he was given a history of vomiting, a history which he must have been aware of from the triage notes. He said he had a low threshold for hospital referral if he suspected that a patient was suffering from meningitis, in particular because he himself suffered from it when he was aged 21. Ethan's parents described their recollection of Dr Johnson's manner at the consultation as 'empathetic' and 'confident', and said that he 'listened to everything we said'.
I find it hard to accept that Dr Johnson would not have responded to a child in the state described by Ethan's parents by making an immediate referral to hospital. In his oral evidence Dr Johnson said in respect of this:
'If Ethan had come through the door looking as poorly as some of the descriptions given now, he would have had a 5 minute consultation whilst waiting for an ambulance.'
I turn now to consider the accounts given by Mr Wake, Ms Hastie and the corroborative witnesses of the condition of Ethan both during and after the consultation with Dr Johnson, alongside what appears from the contemporaneous medical records.
Dr Sidhu made the contemporaneous note set out above of what he had been told by Ms Hastie less than an hour before the appointment with Dr Johnson. It is not easy to reconcile that account with what Ms Hastie asserted was the position at that time, namely:
'Ethan hadn't eaten anything since some Weetabix on morning of 31 December and since then only sips of water, unable to drink, pale vomiting Calpol and bile, unusual scream that had been likened to that of 'an injured animal,' not interacting with anyone at all, other than asking for his head to be rubbed'
Similarly, there are obvious discrepancies between the accounts of Ethan's parents and the records set out above of Dr Johnson, Dr Poole, Dr Caskie, Dr Bosman, the neurosurgery specialist registrar on call at Newcastle General Hospital, and Dr Clark.
Sandra Brooks was present at the hospital on 2 January 2010 and did not dispute that the notes of Drs Johnson, Poole, Caskie and Bosman were all an accurate reflection of what she recalls Mr Wake and Ms Hastie told them, the only exception being Dr Johnson who described Ethan as 'alert'. It is to be noted that Dr Johnson qualified that with the word 'distressed.' I cannot determine whether, as the Defence suggest, use of the word 'alert' by Dr Johnson was a specialised reference to the AVPU scale (an acronym from alert, voice, pain, unresponsive) system by which a medical professional or medical professionals measure and record a patient's responsiveness, indicating their level of consciousness rather than its use in the ordinary sense of the word.
Apart from that possibly ambiguous record, the combination of the medical records of the histories given, and signs and symptoms recorded in respect of Ethan when seen by those recording doctors, gives a generally consistent picture, that is materially different to the picture given by Ethan's parents as that given to Dr Johnson on 1 January 2010. If the picture now painted by Ethan's parents' is the correct one, then a substantial cadre of the medical profession have independently recorded the same, or a similarly inaccurate, picture.
The known natural history of pneumococcal meningitis is hard to reconcile with the Claimant's witnesses' account of the onset and progression of Ethan's condition, and much more consistent with Dr Johnson's account. Typically, pneumococcal meningitis is a disease characterised by rapid onset and swift deterioration. This is a point made by both microbiology experts at answer 4(b) of their joint statement.
'… the Claimant's symptoms as described by his grandmother and mother were consistent with, indeed typical of symptomatic pneumococcal meningitis. However, had this been the case, on the balance of probabilities the Claimant's condition would have become materially worse much faster than was in fact the case.'
Professor Eykyn, who impressed me as a fair and dispassionate expert witness, had difficulty in fitting the description given by Ethan's family of his condition in the course of the consultation to other evidence, in particular her knowledge of the symptomatology and progression of pneumococcal meningitis. In her oral evidence before me she repeatedly expressed her incredulity that the Claimant's witnesses' account could be correct, commenting that it was "difficult to explain rationally," and that she thought any reasonable microbiologist would have a hard time accepting that the parents' account was correct. Dr Thomson made a similar point by reference to the CSF results taken at 03:00 on 3 January 2010.
Dr Conway appeared to recognise the general proposition when he said in his report:
'although pneumococcal meningitis may present insidiously, it is much more likely to present acutely and with significant deterioration over several hours'.
In his oral evidence his position was that the accounts of Mr Wake and Miss Hastie could be reconciled with an atypical presentation of pneumococcal meningitis, but intrinsic to that position was the fact that, being atypical, such a presentation was at least relatively unlikely.
Some of the most dramatic signs or symptoms reported by Ethan's family and friends cannot be fitted with the usual timescale of meningitis signs and symptoms. In particular, Dr Rogers explained his understanding that the 'shrill, high-pitched cry' reported by several family members on 1 January 2010 is a very late sign of meningitis, which usually means the child is dying. He was sceptical that this could have been heard on 1 January 2010 given the later events. The scream is not mentioned in any contemporaneous record, it was not asserted to have been mentioned to any doctor, apart from Ms Hastie's briefly held assertion of such in her oral evidence as noted above. It was not mentioned in the account of events in the complaints correspondence from Mr Wake. In the witness statements, the unusual quality of the scream is primarily remarked upon by those other than parents and close family members – in particular Mr Hood and Mrs Greta Jones, who had not heard Ethan screaming before. Only in their oral evidence did the parents seem inclined to characterise the scream as being striking.
Results of tests on Ethan's blood taken at 20:30 on 2 January 2010, in particular the normal urea and creatinine readings, on the evidence of both Dr Thomson and Professor Cartwright, indicated that Ethan was not then dehydrated. Dr Conway and Professor Eykyn gave no view on this, Professor Eykyn noting that this was outwith her expertise. A lack of dehydration in Ethan at that time is inconsistent with Ethan's parents' account of the degree of vomiting before they saw Dr Johnson, with the account of him not eating at all since the morning of 31 December 2010 and drinking only sips of water since that time.
In cross examination Dr Johnson expressed his surprise when he discovered the outcome of Ethan's illness as follows:
'I can only say that when I got the consultation record again in March 2010 I was really shocked as to what had happened. I always work every Friday 6-12pm, and invariably give the same advice. My first thought was 'why didn't they bring him back in the morning?'
I deal now with the content and import and consequence of the advice given by Dr Johnson to Ethan's parents as to the need for them to bring Ethan back to the walk – in centre if he did not improve. Ethan's parents accept that some advice on these lines was given; they dispute that they were told to return at a specific time i.e. 9:00 or in the morning of 2 January 2015. They rely on the fact that they did not return in the morning as evidencing the fact that such specific advice was not given.
Mr Spencer QC suggested in cross-examination that there were three possibilities about this:
(i) the advice to come back in the morning if Ethan was not better, or earlier if he was worse, was not given;
(ii) the advice was given, but not understood by Ethan's parents;
(iii) the advice was given, but not acted upon.
I reject the first possibility on the evidence that I have heard, in particular from Dr Johnson. The advice is contemporaneously noted, albeit briefly and in medical Latin, and such advice reflected what was Dr Johnson's routine practice.
I also reject the second possibility. Having heard Dr Johnson's evidence I have no reason to doubt his ability properly to communicate with patients or their family. Ethan's parents impressed me as capable, articulate and were, perforce, because of Ethan's congenital heart anomaly familiar with dealing with medical professionals.
As to the third of Mr Spencer QC's possibilities, a number of comments must be made. On the evidence before me it seems that Ethan's parents sought medical advice on 1 January 2010 at the prompting of Mrs Hastie and Mrs Brooks on 31 December 2009 and Mr Hood and both Misses Jones on 1 January 2010. I do not suggest that the fact that they needed that prompting is a reflection of any lack of responsible parental care on their part but rather of the fact that Ethan's condition at the time was not, in truth, as they now describe it to me. He was ill, with a high temperature and vomiting, as well as a headache but as Dr Sidhu recorded as being told by Ms Hastie, Ethan was of "normal color, " he was "drinking," he was eating, even if "not eating very much".
Vomiting and high temperature were features that Ethan's parents had encountered on previous occasions. The headache was a new feature but does not seem to have caused any particular alarm. It had been present for two days (per Dr Sidhu) or a "few days" (per Dr Johnson) before causing Ethan to be brought to see a doctor, and then only after a telephone triage with Dr Sidhu.
Ms Hastie explained that she and Mr Wake had not taken Ethan back to a doctor before 1 January 2010 despite his apparent deterioration over the few days before that date because it was Ms Hastie's understanding that Dr Cliff had advised her that she could not go back to see a doctor until the Tamiflu course of medication had been completed. I find that explanation very hard to accept, both because it goes against common sense, and in the light of Dr Cliff's note of the advice given at the time of that prescription:
'advised seek attention asap if worse'
I consider that the likely explanation was that at that time Ms Hastie and Mr Wake were not unduly alarmed by Ethan's condition. Support for that may be found in the history noted on 4 January 2010 by Dr Clark in respect of the events after the consultation with Dr Johnson and in particular the note "temperature settled" which would be consistent with the treatment given by Dr Johnson. Dr Cameron gave some material evidence about this in the course of Mr Spencer QC's cross-examination as follows:
'39.4°C in a child of Ethan's age is not a significantly high temperature (over 40° is concerning), but it is high. I wanted to see what Dr Johnson did about it. He gave paracetamol suspension and ibuprofen and non-pharmacological advice. Less than 1% of children with temperature under 40° will get a serious infection. Goes up to over 5% above 40°….Not comfortable with temperature of 39.4 in a four year old, but the risk of coming to serious harm from that temperature is negligible'
Further evidence that Ethan's parents had no particular reason to be concerned with Ethan's condition on the morning of 2 January 2010, appears from the other notes of the history recorded from the parents following arrival at hospital the following evening and from Ms Hastie's draft witness statement, that notes:
'Ethan slept in until about 11.30am… I went to work on 2nd January a little after 11.45. Ethan was being looked after by Graeme whilst I was working.'
Ms Hastie told me that she was not planning to work that day but worked between about 12:00 and 14:00 to do a favour. She left Ethan asleep when she went to work. She took longer to get home from work than normal and in the meantime Mr Wake had taken Ethan back to the walk- in centre.
In his oral evidence Mr Wake confirmed that Ethan had slept in that morning. All this provides explanation as to why Ethan was not taken back to the walk-in centre until the afternoon of that day.
It is material to look at the terms of Mr Wake's initial letter of complaint of 31 March 2010 as to what happened on 2 January 2015.
'Ethan was sleepy and his temperature was high throughout the morning. In the afternoon, Ethan appeared to be getting worse so I took him back to the Walk-In-Centre as instructed by Dr Johnson.
I arrived at the Walk-In-Centre at 16:50, Ethan now began to deteriorate whilst I was at Reception.'
Following a description of Ethan's condition the letter goes on:
'By now, I was extremely frightened by Ethan's condition..'
The letter concludes with the assertion that at that time:
'Ethan was displaying sufficient red flag symptoms that would most certainly have prompted any GP to initiate treatment for meningitis.'
In the circumstances of subsequent events, it would be wholly understandable if Ethan's parents have reformulated, albeit unconsciously, the advice that had been given to them by Dr Johnson on 1 January 2010 as well as Ethan's state that night.
I am not satisfied on the evidence that I have heard, for the reasons given, that it has been proved on the balance of probabilities that the account given by Ethan's family of the consultation with Dr Johnson on the evening of 2 January 2010, where it diverges from the account of Dr Johnson is, or is substantially, correct. I find that Dr Johnson's account, based on his contemporaneous note, is to be preferred.
That finding deals with the first of the issues for determination in this hearing. In the light of that finding the second issue becomes academic.
It was the evidence of Dr Rogers, Ethan's GP expert, that, even accepting Dr Johnson's account of the consultation on 2 January 2010, as Ethan had presented to Dr Johnson with the 'triad' of symptoms of fever, headache and vomiting, Dr Johnson's care still falls to be judged as being below the standard required of him. It was his opinion that a child with those signs or symptoms and no obvious focus of infection should always be referred for paediatric assessment. Whilst Dr Rogers accepted that Dr Johnson's care on the basis of Dr Johnson's account fell within the NICE guidelines, it was his view that that circumstance did not absolve Dr Johnson from the responsibility to refer Ethan to hospital. If the Guidelines advise admission to hospital, that should clearly be done. However, it does not follow that if the Guidelines do not advise admission to hospital, the converse is true i.e. a healthcare professional is automatically absolved from referring a patient to hospital where the Guideline triggers for hospital admission have not operated. That point is effectively made by the Guidelines themselves in the passage from their Preamble already referred to in this judgment.
The Defence case is that the Guideline is intended to provide an evidence – based means of assessing risk which is intended to be widely if not universally accepted by the medical profession. Categorisation of a case as green is 'low risk', not 'no risk'. Such a categorisation does not exclude bacterial infection in a case so categorised, but it provides a recommendation for management of such a case. For Dr Johnson to have managed Ethan's case in accordance with the Guideline cannot fall outside the range of responsible GP practice.
Dr Cameron considered that Dr Johnson having carried out a proper and thorough assessment of Ethan was entitled to send him home with appropriate 'safety-netting' instructions, i.e. the requirement to Ethan's parents to bring him back the next morning if he had not improved overnight. His evidence was that if he had been advising in Dr Johnson's place he would have treated Ethan as Dr Johnson did. It was his opinion that best practice was as set out in the NICE Guideline 47.
I must judge between these opposing views. In reaching my conclusion I bear in mind a number of facts and matters.
As a preliminary, I note two obvious facts that I consider it important to have in mind when considering this aspect of the case. Perforce, the experts advise without having been present at the material consultation and with the benefit of hindsight. I must recognise the potential danger of experts in those circumstances unconsciously imposing too high a standard of care upon the professional whose conduct is being judged than the law prescribes.
The evidence was clear that Dr Cameron's experience in general practice at the relevant time and since is substantially greater than that of Dr Rogers. Dr Cameron is a full time GP Principal and a GP trainer. Dr Rogers, by contrast, was last a GP Principal in 1996. He has not been in full-time GP practice since 1996 and retired from clinical practice entirely in 2010, having been winding down his workload for several years preceding that.
I was unimpressed by the fact that Dr Rogers was ready to make new criticisms of Dr Johnson's record-keeping for the first time in cross-examination, which did not appear in his report, or in the joint statement with Dr Cameron, or even in examination-in-chief. These were that Dr Johnson failed to record the 'amount of drinking' and that he failed to record the severity of the headaches. He also criticised Dr Johnson's safety-netting advice for the first time in cross-examination. Mr McCullough QC submits to me that this approach suggests that Dr Rogers was seeking to improve the Claimant's case rather than take an independent view or had failed to consider the case with sufficient care when advising initially. In any event he contends that those new criticisms of Dr Johnson were not realistic and do not reflect the general standard of GP practice. In support of that submission he observed that his criticisms of Dr Johnson's record-keeping, if valid, would equally apply to the notes of Dr McNulty, Dr Cliff and Dr Graham at earlier consultations in 2009. So Dr Graham did not record history of temperature nor any measurement of respiratory rate despite recording "rapid breathing," Dr McNulty did not record respiratory rate despite crackles in the chest and Dr Cliff did not record the history of temperature despite it being high at 39.2°C. It is inherently unlikely that all those GPs were deficient in their record-keeping and that this should be taken as an indication that Dr Rogers' opinion does not provide a reliable indication of reasonable standards in General Practice.
In his oral evidence, on several occasions Dr Rogers demonstrated that he was influenced by the family's account, even when apparently considering Dr Johnson's actions on the basis of Dr Johnson's account of the consultation being accepted. So, criticism of Dr Johnson not recording Ethan's respiratory rate was influenced by the family's account that Ethan had had difficulty breathing. Dr Rogers conceded that this criticism would fall away when it was pointed out to him that, on Dr Johnson's account, there was no sign of raised respiratory rate when he examined Ethan; a matter clear from Dr Johnson's witness statement.
Dr Rogers commented in his evidence that he had:
'got the impression Dr Johnson would only have sent this child up if he found neck stiffness, and that is too late. I got the impression Dr Johnson would only send up to hospital if a child collapsed.'
I have already given my general impression of Dr Johnson; specifically, my impression on this specific aspect of Dr Johnson's evidence did not follow that of Dr Rogers.
The thrust of the case advanced on Ethan's behalf and supported by Dr Rogers, and to a degree Dr Conway, on this aspect of the case was that in allowing Ethan home on the evening of 1 January 2010, Dr Johnson took an unjustifiable risk. Being unable to exclude a bacterial infection bacterial infection and septicaemia, he was duty bound to seek a paediatric opinion.
An important part of the case advanced by Dr Rogers for Ethan is the assertion that where a young child presents with what Ethan's advisers have called the 'triad' of fever, vomiting and headaches, the patient must be referred for a specialist paediatric opinion notwithstanding a low risk categorisation applying the NICE Guideline.
It is significant that the 'triad' does not appear in the NICE Guidelines. Each of the elements of the 'triad' have been specifically considered in the development of the NICE Guideline. Extracts dealing with the evidence in relation to headache and vomiting were produced to the Court demonstrating that even in 2013 these features were not concluded to be useful discriminating features. Height of fever and duration of fever also appear there, and can be seen to be regarded as reliable indicators only in children under 6 months (height of fever – "red sign") or where a fever has been present for 5 days or more (duration of fever – "amber sign").
Dr Conway suggested that the reason for the exclusion was that the NICE Guideline only looked at individual features, not combinations of features and he asserted that it was the elements of the 'triad' in combination that made them significant. I find it little short of incredible that the NICE Guidelines have been drawn up on such a basis, ignoring a combination of symptoms which it is asserted by Dr Conway are a well known indicator of the risk of a patient developing meningitis.
Despite being given opportunities in the course of this lengthy trial to produce them, Dr Rogers or Dr Conway were not able to produce any literature to support the assertion that the 'triad' of symptoms was notorious as an indicator of meningitis before any signs of meningeal irritation are apparent. This was notwithstanding that they suggested that the concept of the 'triad' was elementary and had been recognised for decades. Dr Conway's own textbook chapter on pneumococcal meningitis only mentioned vomiting, headache and fever as part of a much longer list of possible symptoms and signs in adults, not as a specific triad. In relation to children, there is no reference to this triad of features. I cannot accept Dr Conway's explanation as to why the triad would not be identified in such a text book.
Dr Thomson was on the panel which devised the NICE Guideline 102 on 'Bacterial meningitis and meningococcal septicaemia in children and young people younger than 16 years in primary and secondary care' (issued June 2010, modified September 2010). He did not recognise the 'triad' as of any accepted or suggested significance in the context of distinguishing meningitis (or other serious bacterial infection) from self-limiting viral illness. He told me that he had not heard vomiting, fever and headaches described as a 'triad' at any stage of his career.
Guideline 102 does not identify the 'triad' as being an important discriminator, or suggest that if present it would require immediate hospital referral. The Guideline expressly assumes management in accordance with Guideline 47. Each of the three features is listed, but in a much longer list of non-specific signs and symptoms. Specifically it is stated, with no mention of headache:
'1.1.4 Be aware that children and young people with bacterial meningitis commonly present with non-specific symptoms and signs, including fever, vomiting, irritability, and upper respiratory tract symptoms. Some children with bacterial meningitis present with seizures.'
Dr Rogers produced during the trial in support of the clinical significance of the 'triad' a printout from the Meningitis Research Foundation. This document is clearly aimed not at healthcare professionals but parents. Even then this document showed that 'fever and/or vomiting' and 'severe headache' were not symptoms meriting a 'red tick' to indicate they are more specific to meningitis and septicaemia and less common in milder illnesses. They were part of a longer list of specific and non-specific features. Furthermore, at their highest, these were identified features that may merit assessment by a doctor, and provide no indication as to what significance that doctor should attach to them.
Dr Cameron was clear that the NICE Guideline reflected good and proper practice. Whilst accepting that GPs should not stick 'slavishly' to the Guidelines but should exercise clinical judgment and should have a very low threshold for referring feverish children with no obvious focus of infection for further review, it was Dr Cameron's clear view that Dr Johnson's care of Ethan did not fail the Bolam test.
Mr Spencer QC observed in his final submissions that when Dr Johnson sent Ethan home, it meant that an opportunity for Ethan to be treated and for the tragic outcome to be avoided was missed. As a statement of fact that may well be correct, but it does not answer the question whether or not Dr Johnson's care was within or without the Bolam test.
Sadly, exercising care as defined by the Bolam test, and without the benefit of hindsight, a doctor cannot guarantee always to give the care that it turns out would have been the most appropriate for a patient. Meningitis is a particularly cruel disease. In particular, pneumoccocal meningitis is characterised by being very rare, most usually of sudden and rapid onset with early signs and symptoms that are common to other much more commonly encountered medical conditions. Absent distinguishing symptoms, meningitis is very difficult to diagnose and without fault of treating clinicians, there is frequently a delay between the appearance of signs and symptoms that can in retrospect be attributed to the condition, and actual diagnosis. Distinguishing features such as rash, photophobia and neck stiffness are frequently absent in young children. In short, the condition frequently presents a treating clinician, at whatever professional level, with no advance warning of its presence or development, in distinction from other medical conditions very frequently encountered.
There was evidence of its rarity and the difficulties of diagnosis from Dr Johnson and the experts for both parties. Dr Johnson had never encountered a confirmed case of meningitis, although he had referred 5 or 6 cases with suspected meningitis where it transpired not to be present. Dr Rogers had, in his career, only encountered one case of meningitis, in which case in distinction to Ethan's case there was a rash to aid the diagnosis.
In his evidence, Professor Cartwright commented that it was:
'hundreds of times more likely that the signs Dr Johnson recorded were of a viral infection than of bacterial meningitis'
He produced a paper suggesting that, even pre-vaccine availability, there were only about 480 cases of pneumococcal meningitis a year in the whole of England. He said that the condition can develop within a few hours or a few days; the majority of cases develop between the two extremes.
Professor Eykyn stated that in her 30-year career as a microbiologist at St Thomas' Hospital she had come across around 30 cases in children under 5. The majority of those cases were before the use of vaccine; the rarity of the condition had increased since 2006. She gave as her opinion that 'until there is neurological deficit' bacterial meningitis is a 'very, very difficult diagnosis'. It is 'very, very rare'.
The microbiologists agreed that the clinical features of bacteraemia, initial asymptomatic meningeal invasion and early-stage meningitis (before neurological signs began to appear) were all virtually indistinguishable from one another, and from a viral illness.
In the light of my comments above I will now consider the third issue, namely was it acceptable for Dr Johnson to have sent Ethan home with the treatment and advice he gave rather than to refer him for specialist hospital advice.
Dr Johnson's management followed the NICE Guideline. It was expressly supported by Dr Cameron not just by reference to what constituted a reasonable body of medical opinion, but also as being what Dr Cameron himself would have done. I consider that by his evidence, Dr Rogers set as the trigger for hospital referral a test, the 'triad' that is not evidence based, that is impracticable and unrealistic and the setting of which has been influenced by hindsight. On all the evidence that I have heard on this issue and applying the Bolam test, I determine that Dr Johnson's management of Ethan was not outside the range of acceptable GP practice and do not characterise Dr Johnson as having been negligent in his treatment of Ethan.
Although, in the light of my determination on issues one and three, the fourth issue becomes academic, for completeness I will now consider that issue, namely on the basis of Dr Johnson's account, if Ethan had been referred to hospital on the evening of the 1 January 2010, what would have occurred at hospital on the balance of probabilities?
Determination of this issue rests upon the evidence of Dr Conway and Dr Thomson and a resolution of the differences between them on this question.
Dr Thomson's view, in line with the NICE Guideline, is that Ethan would have had a urine test and then been sent home with safety-netting advice.
Dr Conway agreed that the Guideline represented best practice but nevertheless thought that it was likely a paediatrician would have undertaken a blood test. He supported this assertion by reference to the presence in Ethan's signs and symptoms of the 'triad', an argument the strength of which I have already discussed and adjudged. I accept that the NICE Guideline must be the most reliable indicator of whether or not blood tests would have been taken on referral. The clear advice is that they should not be, for those in the 'green group'. Whilst I cannot rule out the possibility that a paediatrician might have advised a blood test, against the advice of the Guideline, in judging probabilities I consider, supported by the evidence of Dr Thomson, it more likely that the guidance representing best evidence-based practice would have been observed.
In the light of the evidence before me and in particular the evidence of Dr Thomson and the NICE Guidelines, in my judgment, on the balance of probabilities, assuming a proper level of care from the specialist hospital medical team, Ethan would have been reviewed, examined, and sent home without blood tests with similar advice to that given by Dr Johnson; the course of events would materially have been the same.
CONCLUSION
It follows from the foregoing that on the preliminary issue as to whether or not the Defendant is liable to the Claimant by reason of the matters alleged in the Particulars of Claim and, if so, whether or not any of the injuries pleaded were caused thereby, it is my judgment that the Defendant is not liable to the Claimant by reason of the matters alleged in the Particulars of Claim and there must therefore be judgment in this action for the Defendant.
HHJ A R Collender QC
15 January 2015 |
Judge Mackie QC :
This fire insurance claim by the Claimant is resisted by the Defendant on the grounds that the assured had no insurable interest and that there was misrepresentation and non disclosure. The Defendant also claims that if the Claimant does have a valid claim it should not have a Declaration that it is entitled to be indemnified for the cost of reinstatement. The claim follows a fire on 24th July 2012 which destroyed buildings (which I will together call "the Property") in Central Walsall including a listed local landmark, the Boak Building.
The Claimant is a company which is owned mainly by Mr Chinderpal Singh. The company secretary is Mr Singh's wife, Mrs Kaur, who plays an active role in the administration of the Claimant. The Claimant exists to hold and manage Mr Singh's property portfolio. Some properties, such as those which are the subject of this claim, are owned by Mr Singh personally, others by the Claimant. The Defendant is an insurance company and a subsidiary of Munich Re.
The Trial
At the trial thirty one bundles of documents were before the court. I heard evidence from five fact witnesses for the Claimant. These were Mr Singh, his son Mr Sandeep ("Sunny") Singh, Mr Philip Jones, a former tenant of the Boak, Mr Altin Gjura, owner of a car wash operated at the Property and Mr Michael Bird, a Walsall Councillor and a former Leader of the Council and Mayor of the Borough. There were four fact witnesses for the Defendant, Mr David Chubb who carried out a survey of the property, Mr John Firminger a director of Cunningham Lindsay, loss adjusters, Ms Lorraine Sheehan formerly director of UK underwriting at Kay International PLC and Mr Mark Fearn, Project Lead at Walsall Council who has formidable knowledge and experience of commercial rating in the area. I found all these witnesses to be straightforward and truthful. Disagreement about the facts involved not a clash of competing recollections but the question of whether what the Claimant's witnesses said was correct given the material deployed and the questions asked by the Defendant. I will accordingly set out the facts in narrative form dealing with disputed matters as they arise.
There was also expert evidence. In the area of underwriting the Claimant called Mr Jamie Lye and the Defendant Mr Trevor Clegg. On valuation the Claimant called Mr Robert Taylor and the Defendant Mr Peter Clarke. On quantity surveying the Claimant called Mr Simon Janes and the Defendant Mr George Taft.
Background facts- Insurable interest and misrepresentation.
Mr Singh has been a very successful investor in property, mainly of a modest commercial kind. Thus the Defendant says that by 2003 Mr Singh already had a large property portfolio, including the Gill and Russell Business Park in Walsall (which he owned with his elder son Mr Sunny Singh), a block of office premises in central Birmingham (Swan House, Beacon House and Gothic House), a valuable retail and warehousing complex in Wednesbury let for £45,000 per quarter, and the Hampstead Business Park in Walsall producing rent of at least £100,000 p.a. which he owned with Mrs Kaur. He has apparently many other properties as well.
Mr Singh came to this country with his family as a child in 1963 and started a business from his father's shop dealing in and later making garments before moving into property. Mr Singh retains frugal ways and an informal and traditional small business structure. Despite his success Mr Singh is modest and unassuming, commendable characteristics which may have led to misunderstandings when the fire was investigated. Mr Singh has two sons, the elder being Mr Sunny Singh. I will, to avoid confusion, refer to Mr Singh and his elder son Sunny as "Mr Singh" and "Sunny". Sunny runs a property business, Property Link (Midlands) Limited ("Property Link"), which operates from the same building as the Claimant with which it shares facilities. The Singh family is close knit.
The Property comprises two neighbouring buildings which were destroyed or damaged by the fire which gives rise to the claim and the Claimant says that it let and managed them both. The first was 1 – 7 Station Street, Walsall known as the Boak Building. This was an historic listed building, built as a factory at the start of the twentieth century. It stood close to the railway leading into Walsall and was a local landmark. The second was 8 Station Street. The upper floors of 8 Station Street have a separate entrance from the road and are sometimes known as 8A Station Street. Mr Singh also owned the properties at 9 – 13 Station Street. All but one of the other neighbouring properties in Station Street were owned by a Mr Parkes.
Mr Singh acquired the Boak building in 2003 buying out his brother's interest. The property had been in the family since the early 1980s (and, as Mr Singh emphasised, had been insured against fire for over thirty years). He continued its use for manufacturing clothing, but that ended in the late 1990s. After that it was used for storage. Prior to 2006 the utilities to the building (water, sanitation, gas and electricity) were disconnected, and it was stripped back to a shell, ready for redevelopment. It followed that any commercial use of the Property would be limited to basic rough storage. Both parties do or should recognise that the nature of the occupation and tenancy of insured buildings without services was going to be limited. In evidence both Mr Singh and Sunny showed nostalgia for a building which had been a feature of family life for so long.
The Boak building was 'U' shaped. The centre of the U contained a single storey unit, and openings into that area had been blocked up. Mr Singh and Sunny explained and Mr Jones confirmed that the ground floor of the Boak Building had been converted into offices and a show room with suspended ceilings. The ground floor had modern aluminium windows with a large pane of glass and grills over them. The Defendant says that the ground floor was nothing more than a shell.
Letting and occupation
That and related disputes arise because the Defendant said, at least until the start of the trial, that the Property had been empty and unused since 2001 at the latest. The Defendant says that the Property could not be used for storage (or anything else) because since at least 2001 Mr Singh (or Sunny on his behalf) had been claiming an empty rates exemption for both the Boak and No. 8. In the case of the Boak, this was on the basis that the property was an unoccupied listed building, and in the case of No. 8 and 8a, on the grounds that the premises were empty and awaiting demolition. If the premises had been let, business rates of about £14,000 p.a. would have become payable. This, the Defendant says, was more than could have been obtained for them by way of rent.
Relevance of letting and occupation. These matters are relevant as the Defendant contends that the Claimant had no insurable interest because it did not own or have a tenancy over the premises, and had no interest in their preservation, or exposure to prejudice in the event of their loss. The Defendant says that the Claimant's sole interest was in the insurance contract, which could not of itself give rise to an insurable interest in the property insured. The insurance contract "was one of naked speculation (i.e. in substance no more than a disinterested wager on whether or not the Boak would burn down)."
Alleged letting to the Claimant. The terms upon which the Claimant let and managed the properties which were owned by Mr Singh were not documented. The Claimant contends that it had the right to sub-let the properties and to receive and enjoy the rent received from the sub-tenants. The Claimant says that, in return, it was responsible for and paid for the upkeep and maintenance of the buildings, for arranging insurance for the properties, and for the outgoings on the properties. In his oral evidence Mr Singh explained that this arrangement applied to the Boak building. The Claimant paid all its outgoings, and has a responsibility to replace the Boak building. As part of this, Mr Singh arranged for the Claimant to pay him rent. The amount of rent was not calculated by reference to the total rents collected by the Claimant, but reflected what Mr Singh thought was a reasonable charge and was what the Claimant could afford to pay. The rent paid by the Claimant to Mr Singh was recorded in its accounts and financial statements. Similarly, the rent received by Mr Singh from the Claimant was declared in Mr Singh's personal accounts and in his tax returns. The rent was recorded as a credit in Mr Singh's director's loan account with the Claimant. The Claimant's accountant and auditor, Wright & Co, has confirmed that rent was paid by sub-tenants to the Claimant, and then by the Claimant to Mr Singh, as described above. Wright & Co confirmed in writing on 31st October 2012 that the arrangements were quite normal for owner managed properties, had been adopted in the Claimant's accounts for many years and accepted by HMRC without question, and were entirely acceptable to them as auditors. The report of Mr Lye, the Claimant's underwriting expert confirms that his experience in insurance since the 1970s is that the structure adopted here was very common and any potential concerns of underwriters would be allayed by the presence of the owner of the properties on the board of directors.
I accept Mr Singh's account of the Claimant's activities. The Claimant appears to play the role described by Mr Singh. This is consistent with the documents. Further the Claimant granted leases of the properties owned by Mr Singh and also took responsibility for rates liability (albeit without paying any rates for the Property for substantial periods) and, most obviously, insurance for which it obtained cover and paid premium over many years. The commercial structure is a familiar one to this court.
The Defendant denies that Mr Singh ever let the Premises to the Claimant. The Defendant also denies that the Claimant managed the Premises or sub-let them to tenants. The Defendant says that money paid by the Claimant to Mr Singh and that paid to the Claimant by Property Link was not rent. It says that Mr Singh and Sunny routed some of the large income from their properties through the Claimant, for fiscal reasons, but that fact did not make the Claimant their tenant. Further the Boak and No. 8 were not part of such scheme, since as with other property owned by Mr Singh, neither premises (the Defendant says) generated any rent, at least during the period when insurers were on cover. This business model, which the Defendant says is obviously fiscally driven, demonstrates that the rent paid by the Claimant to Mr Singh is referable to its right to receive rents from properties owned by him. The Claimant may have had an insurable interest in the income producing properties to the extent of the rents derived (assuming, as Insurers do, that the business model described was lawful) but not in the properties held by Mr Singh for other purposes, which did not produce any rent.
The Defendant points out that the Claimant's annual accounts as originally disclosed to Insurers included clean audit reports. It subsequently transpired that the versions of the same accounts submitted to Companies House contained audit reports stating that because the auditors had not received the information and explanations they required, they (could) not express an opinion on the financial statements. There appear to be qualified and unqualified auditors reports for two successive years. It is not clear why. The Defendant complains that the accountants are not being called to give evidence, notwithstanding that Insurers have squarely challenged the accounts and accountancy treatments adopted.
The Claimant was remiss in not disclosing the full version of the accounts as filed at Companies House but that does not invalidate the entries or the views of the position given to the Claimant by its auditors. Reservations expressed by the accountants about aspects of their clients' accounts do not undermine the truth or accuracy of what they write in their letter about the conventional way in which businesses such as that of the Singh family are organised. It would be remarkable for a firm of Chartered Accountants to write untruths about such matters and there has been no suggestion of evidence or other material from the Defendant that might falsify what those accountants write. The Defendant has a better point about the reliability of the Claimant's own view of the figures but the central picture remains unchanged. There was no reason to call the accountants as witnesses. There was no formal challenge to the accounts or request for expert evidence on this topic.
Occupation of the Property from 2006 until the fire
After 2006 the Claimant began to look into developing the Boak Building for residential use. However, until that occurred the Boak building and 8 Station Street were available for rent. The Defendant says that from some point the Premises were unoccupied or at least not occupied as claimed by the Claimant when it obtained the policy.
8 Station Street. In November 2006 the Claimant entered into a lease of 8 Station Street with Fellows and Hayward who traded as "Fastline Gate & Fencing Fabrications." They remained in occupation until February 2008 and paid rent to the Claimant throughout. The Claimant then let 8 Station Street to a Mr Worthington who traded as "CAM Fabrications" under a lease dated 19th February 2008. The rent was paid in cash. Mr Worthington left in February 2009. The Claimant says that it then leased the property to a company run by Sunny, namely Property Link (Midlands) Limited ("Property Link"). There is a lease between these parties dated 23rd February 2009 with initial rent payable of £12,000 per annum. Property Link says that it used 8 Station Street for storing furniture. Mr Singh and Sunny both gave evidence of that and there is no doubt that the lease was entered into on its date.
The Boak. In October 2007 the Claimant entered into a lease of the ground floor of the Boak Building with Mr Jones, whose company imported Asian handicrafts and exotic furniture. Rent was paid throughout. Mr Jones gave evidence and said that the L-shaped section of the ground floor he rented was more like a showroom than an industrial unit. It had carpet on the floors, panelled walls and a suspended ceiling. Mr Jones left in early May 2010. At that point the Claimant entered into a lease dated 21st May 2010 of the ground floor of the Boak building with Property Link at a rent of £13,000 per annum. Property Link claims that it used the Boak building for storing office equipment and furniture.
From 2009 the Claimant allowed the yard area behind the Boak building to be used by a manual car wash operation run by Mr Gjura. The car wash had started at 9 Station Street in 2007. It operated 7 days a week from 8am to 6pm. No rent was paid by Mr Gjura to the Claimant beyond the rent he paid for 9 Station Street. Mr Singh informed Mr Chubb in June 2011 that this was "mainly at weekends."
The leases of the Boak building and 8 Station Street conventionally imposed an obligation on the tenant to pay any business rates or other charges due in relation to the rented property. Mr Jones said that he did not pay any rates, and did not think any would be payable because the Boak building had no utilities.
The Claimant says that because of the close family links it allowed Property Link to remain in occupation for some time before requiring it to pay the rent due. The Claimant says that a time came when it did require a substantial payment of rent. On 28th December 2011 Property Link made a lump sum payment of £50,000. The receipt of that sum from Property Link appears in the Claimant's bank statement and it was also recorded as rent received from Property Link in the Claimant's accounts for the year to 30th June 2012.
The Defendant complains that the case that Property Link paid rent with a credit entry in the Claimant's bank account for 28 December 2011 and an entry in its Rent and Rates Journal prepared by the Claimant's accountants in the course of putting together the 2011/2012 accounts, is not supported by evidence from Property Link to corroborate this. A single payment of £50,000 in December 2011 bears no apparent relation to any rent or combination of rents accrued at that time. It is admitted by Mr Singh that the payment of £50,000 coincided with a payment of the same amount due to Shoosmiths in connection with a property purchase.
The Defendant's legal team has conducted a detailed and very skilful analysis of the financing of this transaction showing that the £50,000 was used to help pay for the purchase of WestPoint Business Park in Aldridge on 21 December 2011. The Defendant says that this was not for rent, but was instead a contribution towards the purchase of the Business Park. The Claimant accepts that Western Trading Limited did apply the rent monies received from Property Link towards the purchase of the Westpoint Business Park, but says that the £50,000 was not a contribution to Property Link's share of the purchase price. It was a sum for unpaid rent which the Claimant collected in order that the Claimant could use it to pay part of its share of the purchase price. (It seems that it was only in the Defendant's trial skeleton that the suggested link between the £50,000 and the purchase of Westpoint Business Park was raised.)
The Defendant's claims that the Property was empty after 2001 do not survive the evidence. There is no reason to doubt the validity of the leases taken by those outside the Singh family, at least, or that the Property was used as the tenants described. Indeed Mr Moxon-Browne QC for the Defendant relies on the occupation by Fastline Fencing Fabrications of Number 8 for a period between 2006 and 2007, and by Mr Jones/Java Furniture of the Boak between 2008 and 2010 to show what he says was the true level for a commercial rent, a maximum of £16,900.
Similarly there is no reason to doubt that the leases were entered into when they were or otherwise than in good faith. The parties to the leases were free to agree whatever financial terms they wished. Even if one were to assume that the leases were entered into on particularly advantageous terms to one party, they remain valid unless they offend some statutory or other requirement most obviously one relating to fraud, tax or perhaps prejudice to a creditor or minority shareholder. Moreover there is nothing in the least surprising or uncommon about related family businesses charging each other uncommercial sums or forgoing payments until they need them. I do not see that the allegedly uncommercial terms are relevant to anything other than an argument that the leases are in some way a sham and not genuine. But that is not and could not on the evidence be the Defendant's case.
I will assume this. Rent was due but one family company chose not to require another family company mainly belonging to Sunny to pay until there was a perceived need for cash in connection with another deal. Rent was then paid in a sum that did not correspond precisely with what was due but met the need for cash. If this was a case brought by aggrieved creditors or minority shareholders the transactions would be usefully examined closely and with the skill demonstrated by Mr Moxon-Browne and his team. But the issue is whether the Claimant, as opposed to someone else within the Singh family businesses (and there must be someone), has the insurable interest when one of its properties burns down.
While it would have been preferable for arrangements between Mr Singh and the Claimant to have been recorded in writing there seems no doubt from the accounting transactions and the plausibility of the evidence of Mr Singh that these were as claimed. There is no obvious reason why Mr Singh would seek to conceal some other basis and prefer to insure, for years, in the name of the Claimant. The Claimant leased both properties to Property Link as the contemporaneous leases, whose authenticity was not disputed, establish. Suggestions not pleaded but put in cross examination to Sunny, and rejected by him, that this was not a commercial arrangement were unhelpful. Mr Singh wanted Sunny to make his own way in business but to give him a hand along the way and have his help in the family firms. While the origins of this relationship between father and son may, as Sunny suggested, lie in the Singh family cultural tradition, they are in a classic Midland mould that George Eliot would have recognised. It is entirely credible and proper that the Claimant would go easy on the rent until a need for cash arose and that what was actually paid was an approximate figure or even perhaps one that was linked to some other family transaction. This examination, it needs to be remembered, is being conducted only for the purpose of establishing an insurable interest. When the position as put forward by the Claimant is convincing, involves appropriate compliance with tax and accounting requirements and as regards its own letting is evidenced by formal leases it seems extraordinary that insurers should require it to satisfy some examination of its "business model" or show that arrangements are not "fiscally driven". The landlord says there is a lease and so does the tenant. Rent is paid. The surrounding evidence shows the Claimant acting on the basis described by Mr Singh.
Occupation-the Rates. The outgoings included the rates. Mr Fern confirmed that in about 1992 the Council had been informed that the Claimant was responsible for the rates, and agreed that from 1991 to 2003 the Claimant had paid about £100,000 in rates in relation to the Boak building. He said that the Council had also been told that the Claimant was responsible for the rates on 8 Station Street.
From October 2002 the Boak building was exempt from rates because it was an empty industrial building. Mr Fern explained that the Boak building was listed in May 2005 from which point both the empty industrial building exemption, and the listed building exemption applied. In 2007 the Council, of its own initiative, switched the Boak building from the former to the latter of those exemptions. From 2008 onwards the bills sent by the Council to Western Trading stated: "Exemption - listed building". Those bills stated that nothing was payable. The bills made no reference to the exemption being applicable because the Boak building was empty. The Claimant asserts that its understanding was that, insofar as the Boak building was unoccupied, then no rates were payable, because it was a listed building.
Mr Fern agreed that, if at any time a tenant got in touch with the Council and stated that they were responsible for the rates, then the Council would change its records and send the bills to the tenant. Mr Elkington QC for the Claimant says that it was therefore reasonable for the Claimant to proceed on the basis that any rates which were payable were being paid by its sub-tenants.
8 Station Street was treated as 2 rateable properties- 8 and 8A. Mr Fern did not produce any documents relating to 8A. The bills sent to the Claimant from 2005 - 2008 onwards stated that no rates were payable due to an "empty industrial exemption". In 2008 the Council changed its records to record that a Mr Vowles was liable for the rates. From then on the Council issued its bills for both 8 and 8A to Mr Vowles and no bills were sent to the Claimant. For the years 2009/10 and 2010/11 no rates were payable because 8 Station Street was below the threshold applicable for each of those years. Mr Vowles failed to pay the rates due for the 2008/09 period, which prompted the Council to write to the Claimant in January 2013. The Claimant responded by confirming who had been in occupation of both 8 and 8A Station Street during the 2008/09 period, and enclosing copies of the relevant leases for that period. Unsurprisingly, Mr Fern had experience of tenants disowning knowledge of properties when they were actually there.
In his statement Mr Fearn referred to the fact that in April 2012 Units 8 and 8A were given a zero rateable value effective from 1 April 2010. It is unclear how that came about. The Claimant was apparently aware that in April 2012 Units 8 and 8A had been zero rated.
The Claimant says that it is understandable that it should have shown no interest in the rates payable because it was apparently not liable for them. When the properties were unoccupied no rates were payable, and when they were occupied the rates were payable by the tenants.
If, as the Defendant contends, the Claimant claimed to the Court that the Property was let and occupied for a period for which, to avoid paying rates, it was telling the local authority that they were empty the Claimant's position would be very unattractive. This would be powerful evidence that the claims about letting were wrong. It might also be reasonable to require the Claimant to live with the consequences of what it had claimed to the local authority. The position is not however as simple as the Defendant contends. The Claimant had paid the rates in the past. After 2005 the Claimant had no liability to pay rates on the Boak Building and the picture on reporting is confused. On Station Street it appears that rates were either due from Mr Vowles, when he was in occupation, or for the later period, not due because of an exemption. There is no evidence about 8A Station Street. The overall picture remains confused. I accept that Mr Singh would not knowingly allow rates to go unpaid or misrepresent the position to the authority but the Claimant's records about all this are unsatisfactory. They do not however show the double dealing alleged by the Defendant or undermine the evidence as a whole about letting and occupation. In view of Mr Singh's expressed wish to regularise any shortcomings over the payment of rates and the discretionary nature of declaratory relief I am minded to make it a condition of the Declaration I propose to grant that the Claimant first ensures, to the reasonable satisfaction of the local authority, that all rates that may have fallen due on the Property are paid. Alternatively I will impose some other requirement that achieves the same result.
Occupation-Property Link
The Defendant asserts that Property Link did not occupy the Property.
Sunny said in evidence that Property Link rented 8 Station Street, and then the Boak building, in order to store quantities of office furniture from sites vacated by various tenants with whom his company had dealings.
Google Earth images for 2006, 2007, 2010 and 2012 show the site being tidied up, occupied and a cherry-picker, which Sunny claims belonged to him in the yard. The Defendant says that this item could belong to anybody. That is correct but I accept the evidence of Sunny and of Mr Gjura backed by probability that it did belong to Sunny.
Mr Jones, the tenant, stated that when he was still in the Boak, Sunny Singh moved into 8 Station Street. He also stated that the yard was used by the car wash. After Mr Jones moved out of the ground floor of the Boak in May 2010 he went back to collect some items he had left behind. He noticed that "it was now occupied with office furniture, such as desks, chairs and tables, and other building items." That evidence was not challenged.
When Mr Chubb, the surveyor appointed by the Defendant, visited the site on 3rd and 9th June 2011 he had the policy schedule with him, which stated that the occupancy of the premises was: "Furniture Storage, Carwash, Metal Products Storage, Partially Unoccupied". During his inspection on 9th June, Mr Chubb referred to a checklist, the second item of which was "Occupancy". Mr Chubb confirmed in evidence that one of the issues he was focusing on was occupancy. In his report Mr Chubb described the occupancy status of the property as "fair."
Mr Chubb. Mr Chubb's report relates to other issues in this case so I also at this point mention what it said in substance. The property was owned by Mr Singh and was listed and awaiting redevelopment. The ground floor of the Boak building and 8 Station Street were occupied on short leases. The uses comprised storage and use of the yard as a hand car wash. "On inspection the use of the premises for storage was minimal, with the exception of some building equipment" …"there was little evidence of any intense use of the occupied areas". The heating, mains electricity, gas and all water had all been disconnected. There was no "fire protection whatsoever" within either of the buildings, and no automatic fire detection system. There was no security alarm connected within the Property. The overall physical protection of the Property was generally good. All the lower ground floor windows were secured by fixed metal grills and all secondary entrances were secured by metal secure roller shutters that could be individually locked. The main entrances were all secured. Mr Chubb proposed three risk improvements to be completed by 14th July. There is no issue about those improvements.
In his oral evidence Mr Chubb confirmed that if he had thought the description of occupancy in the policy schedule was wrong, then he would have said so. He also confirmed that he did not think the property was vacant when he did his survey (but he could see that storage use of the premises was minimal) and that if he had thought the property was vacant he would have described occupancy as "poor" in his survey report. He said that he reached that view having independently appraised the risk, rather than taking what he was told "as gospel." Mr Chubb saw construction equipment and pallets, storage in the ground floor, and activity on site. Some of that is captured in the photographs he took. There is uncertainty over whether Mr Chubb went into the ground floor of the Boak Building which was occupied by Mr Jones and then Property Link. Mr Singh recalled that he did not go into that part of the ground floor but Mr Chubb thought that he did. After all this time neither recollection of this mundane detail will be reliable. Mr Chubb did not take any photographs of the ground floor or refer to it in detail.
The Defendant says that some of Mr Chubb's report is unreliable because it is based on inaccurate information supplied by Mr Singh. Mr Moxon-Browne QC for the Defendant submits that Mr Chubb was "thoroughly misled". There was no sign that Mr Chubb, a strikingly conscientious and detached witness, thought he was misled and one would not have expected someone the Defendant described as a "very experienced chartered surveyor appointed by insurers" to be taken in by someone with whom he had got off to a bad start, through Mr Singh's fault, and whom he had categorised in his report as a "moral hazard". This was a routine insurance visit to one of numerous properties owned by Mr Singh which had been insured without difficulty for many years. There was no reason for Mr Singh to be on guard or not to tell the truth. As I see it Mr Chubb's report means exactly what it says and is a record of the conclusions of a skilled professional who knew his job.
Mr Gjura confirmed that from 2009 onwards he regularly used the yard to park cars and to finish off valeting. He also said that shortly after he started using the yard to 8 Station Street (in early 2009) Property Link started using 8 Station Street for storage, and he often saw Sunny Singh there. Mr Gjura also explained that Sunny Singh moved his cherry picker into the yard and had furniture and "office stuff" put in. That evidence was not challenged.
Councillor Bird said in his statement that in early 2012 he looked into the Boak building and saw "a number of items of furniture stored in the ground floor of the building."
Cunningham Lindsey investigated the fire on behalf of insurers and considered the issue of occupancy. Mr Singh told them from the outset (before any concern about occupancy had been raised) that Property Link used the ground floor of both the Boak Building and 8 Station Street for storage of office furniture. The Claimant relies on this consistency.
The Claimant points to the absence of evidence from the Defendant, for example from local residents, about the occupation question.
The ground floor of the Boak was photographed by what the Defendant, an insurance company, describes with unexpected charity, as an "urban explorer" (ie a trespasser who breaks in not to steal but because he takes an interest in building heritage). The explorer (who was not called as a witness) posted pictures on the Urbex website on 6th July 2010 three months after Property Link is alleged to have gone into occupation. The Defendant says that these pictures show that the premises were then empty apart from some rubbish and it cannot be that Property Link was renting them for £25,000 p.a. However Mr Singh, Sunny Singh and Mr Jones confirmed that the photographs were not of the ground floor of the Boak. The fact that the photographs show light streaming in through multi-pane and unimpeded windows appears to confirm that they are not photographs of the ground floor.
It is common ground that the upper floors of the Boak were unoccupied. Mr Sunny Singh's recollection had particular conviction as he recalled being required to spend much of his school holidays inside the Boak building, and thus inevitably getting to know all of it very well. For obvious reasons I prefer on this point the live testimony of three witnesses who knew the building well to the internet postings of an unidentified trespasser who did not give evidence.
The Defendant relies on periodic inspections made on behalf of the Council for rating purposes. However, Mr Fern confirmed that the inspections were external only and accepted that if the Premises were only used for storage an inspector might well record the unit as being unoccupied.
The Property comprised old buildings with no services used for storage. Its value as storage was enhanced because it was in the town centre and tenants could store items close to their shops and other retail outlets. Storage as an activity is passive and does not generate many signs of life, particularly when there are no services like power and water. One would not expect to see many signs of business activity. It is common ground that much of the Property above the first floor was empty. Visibility from outside into the ground floor was very limited as the photographs show. Mr Jones and Mr Gjura supported the picture given by the Singhs. The live evidence, particularly that of Sunny, about the use of the ground floor is preferable to inference from the pictures taken by the trespasser. The evidence of Mr Chubb is equivocal about the ground floor but is otherwise consistent with the occupation claimed by the Claimant. I reject claims that Mr Chubb was a victim of misrepresentations by Mr Singh. He relied on his own observations and, cautiously and only to a limited extent, on what he was told.
The Defence of lack of insurable interest
At this point I have set out sufficient of the evidence to decide the defence of lack of insurable interest.
There has been no disagreement between the parties about the law and I take the following brief summary from Mr Elkingtons's skeleton argument. (I have also been greatly helped by the discussion of the issue in the judgment of Waller LJ in Feasey-v-Sun Life of Canada 2002 Lloyd's Rep IR131):
"In the Law of Insurance Contracts, Professor Clarke states as follows at (4-1D):
To make an insurance claim the insured does not have to prove his or her interest. Lack of interest may be raised as a defence by the insurer, but that is a defence that insurers are slow to raise, because it is bad for the image of the industry to take what is widely perceived as a technical defence, and courts are ill disposed to companies that take premium and then cry "no contract".
The proper approach of the Court when faced with such an argument was set out by Brett MR in Stock v Inglis [1884] 1 QBD 564 as follows (at 571):
"[i]t is the duty of a Court always to lean in favour of an insurable interest, if possible, for it seems to me that after underwriters have received the premium, the objection that there was no insurable interest is often a technical objection, and one which has no real merit, certainly not as between the insured and the insurer"
The circumstances in which an insurable interest exists are described by the authors of Colinvaux as follows (at 4-013):
"[I]t might be said that an insurable interest exists if: the assured has legal or equitable title to the subject matter; or if the assured is in possession of the subject matter; or if the assured is not in possession of the subject matter but may be either responsible for, or suffer loss in the event of, any damage to the subject matter"."
Professor Clarke also says this at 4-1C:
"A person may have an insurable interest and something to lose even though its extent is hard to quantify. If the insurer has an interest, the extent of that interest, the amount recoverable from his insurer and that part of the sum which can be retained are related but sometimes different amounts. However, it should be underlined from the start that a person may insure the property for an amount that exceeds the value of that person's interest and recover that amount. In that case, the excess must be held on trust for third parties whose loss it represents. This is because property insurance is a contract for indemnity. A person must not recover and keep more than has been lost. Further, it should be underlined that more than one person may have an insurable interest in the same subject matter; indeed the aggregate value of their interest may exceed the value of the subject matter in itself."
The Defendant, to some extent, applies to insurable interest the notion of privity of contract to submit that the Claimant cannot recover a loss sustained by Mr Singh. It is therefore useful to bear in mind the following extract from the judgment of the then Deputy High Court Judge Mr Sumption QC in Lonsdale & Thompson-v-Black Arrow [1993] 3 All ER 648 at 653:
"If the assured has only a limited interest in the property, being, for example, a tenant or reversioner, a trustee, a mortgagee or a bailee, the value of his own interest may have diminished by much less than the value of the property or the cost of its reinstatement. But it does not necessarily follow that if the assured recovers the whole diminution in the value of the property or the whole cost of reinstatement he will be getting more than an indemnity. That must depend on what his legal obligations are as to the use of the insurance proceeds when he has got them. If he is accountable for the proceeds to the owners of the other interests, then he will not be receiving more than an indemnity if the insurer pays the full amount for which the property was insured. This will be so, whether the assured is accountable to the owners of the other interests as a trustee of the proceeds of the insurance or simply on the basis that he owes them a contractual obligation to pay those proceeds over to them or to employ them in reinstatement. None of this means that a party with a limited interest who insures the entire interest in the property is insuring on behalf of the others as well as for himself. All that it means is that his obligations as to the use of the insurance moneys once they have been paid are relevant in determining whether he will recover more than an indemnity by getting the measure of loss provided for in that policy."
Mr Moxon-Browne puts his case in summary as follows. In non-marine cases, insurable interest merges with the indemnity principle. The Insured must have something to insure and cannot recover an indemnity unless it has suffered some loss. In most cases where the Insured is not the owner of the Insured property, it is easy to infer that the insurance is taken out by the insured as agent for the owner, and/or the insured holds the proceeds of insurance on trust for the owner. In this case, all of Mr Singh's property insured by the Claimant is (presumably) insured as a source of rental income to which the Claimant is contractually entitled. It is essential to the Claimant's business model that it and Mr Singh are kept separate, and that the Claimant's right to receive the rents as the result of a contract with Mr Singh is carefully respected. If the Claimant and Mr Singh are regarded as simple alter egos, the fiscal model fails. Mr Moxon Browne then applies to the argument his contention that the money paid by the Claimant to Mr Singh (and to Mrs Kaur) was not rent but a contractual consideration for the right to receive a specific rent roll. Since at least 2010, the insured premises were outside this model. The Claimant was not contractually liable for the preservation of the premises, derived no benefit from them, had no prospect of any benefit from them, and hence had no interest in their continuing preservation. The absence of any such interest is the hallmark of a contract of speculation.
Mr Elkington responds as follows. The Claimant was in possession of the Property and was entitled to and did sub-let it on its own behalf, and to take the benefit of any rent received from any sub-tenants. The Claimant was responsible for managing the Property, for carrying out any necessary repairs to the Property, for insuring the Property and for paying all rates due on the Property. Now that the Property has been destroyed, the Claimant is obliged to reinstate it. Under cross-examination Mr Singh maintained that the Claimant had a responsibility to replace the building. As he explained, given that the Claimant had received substantial benefits from renting out Mr Singh's properties, the Claimant could not then walk away from its obligations.
The rationale for the requirement that an insured must have an insurable interest is to preclude the possibility of gambling by the assured. That rationale has no application in this case.
Decision. The Claimant is an integral part of the Singh family business and has been so for many years. The framework of the business is lawful and consistent with the practice of similar businesses. The companies and the individuals within the framework pay their taxes. The Claimant pays rent to Mr Singh and, as it has done for years, manages the Property most obviously by dealing with insurance and rates and granting leases to sub tenants. The Claimant must account to Mr Singh for the Property. The Claimant is at the heart of the business. It seems to me obvious that the Claimant has an insurable interest. If it did not no doubt some other entity within the family business would have assumed the role of insured. There is no suggestion that this business has obtained some advantage by procuring the insurance in the name of one company rather than another. The structure does not have to face examination of its underlying fiscal or business model. That aspect is, as I see it, none of the Defendant's business.
It has in the past been unusual for insurers to raise questions of insurable interest except in the context of fraud. This is an issue which, judging by the materials generated when taking the risk, the Defendant neither took an interest in (nor alerted the Singhs to the perceived importance of) until the claim came in. There is nothing in the proposal forms or other correspondence to alert a broker or potential customer of Munich Re and its subsidiaries that it should consider the issue closely, and perhaps take legal and accountancy advice, before entering into a policy with them.
The defence of lack of insurable interest fails.
Misrepresentation
The law. As the underwriting facts are complex I start by summarising briefly the relevant legal principles which are common ground, taking them from the Claimant's closing submissions. An insurer can avoid a policy for misrepresentation made, in effect, to the insurer during the negotiations and before the contract is made (section 20(1) Marine Insurance Act 1906 ("the Act")). The burden is on the insurer to prove that a representation was made, that it was false, and that it induced it to enter into the policy. So with each representation relied upon by the Defendant, the Court must consider (a) was the representation made (b) if so, was it untrue, (c) if so, would the difference between what was represented and what was actually correct be considered material by a prudent underwriter writing the risk in April 2012, and (d) if so, was the Defendant induced to write the risk by any such material misrepresentation? The insurer must prove that the misrepresentation induced the making of the contract. (see MacGillivray at 16-047 and 17-029). The parties refer also to the judgment of Flaux J. in Synergy Health (UK) Ltd v CGU [2011] Lloyd's Rep IR 500 (at paras 185 – 7):
"Even where there has been material non-disclosure or misrepresentation, the insurers will only be entitled to avoid or rescind the contract if they show that the underwriters who wrote the risk, here Mr Smith and Mr Garbutt, were induced to do so by the facts misrepresented or not disclosed. .. Thus, although, as Rix LJ put it in WISE v Grupo Nacional , the test of inducement is not a heavy one, the Court should approach with care and caution the evidence of the underwriters as to whether they were induced…"
As the Defendant points out, where an insured corrects a misrepresentation or discloses a material fact before an insurer makes or renews a contract, the insurer is not entitled to avoid the contract. However the correction has to be fairly made to the insurer, such that the corrected picture is fairly presented to the insurer, and comes to his knowledge.
Were there misrepresentations?
The Defendant says that the Proposal Form misrepresented that:
i) the property was in use for commercial purposes. The Claimant responds that it did not represent in the Proposal Form that the Property "was in use for commercial purposes". The Claimant also says that the Property was used for commercial purposes, and was not unoccupied. I have found that to be correct.
ii) the property was regularly occupied by tenants for furniture storage, a car wash and storage of metal products. The Claimant responds that it did not so represent and that the Property was regularly occupied and used for storage of furniture and metal products. Further, the yard behind the Boak building was regularly used by the car wash based at 9 Station Street. I have already found that alleged representation to be largely true.
iii) the tenants had their own alarm. The Claimant accepts that the Proposal Form stated that the tenants had their own alarm but relies on the later Survey Report which recorded that that there was no alarm connected within the Property.
iv) the insured rent loss of £50,000 per annum was properly required. The Claimant says it only indicated that it wanted the benefit of insurance for the loss of rent with a sum insured of £50,000, an annual rent reasonably achievable. In any event, the properties were rented out for £29,500 per annum, and about 20,000 sq ft remained available for rent. (This is as I see it a complete answer.)
v) (on 28 April 2011 and 30 April 2012) that there had been no change in occupancy since the previous year's proposal. The Claimant responds that Ms Sheehan confirmed that all that was being represented to her was that there had been no change in occupancy since the proposal was submitted, i.e. none of the parts of the building which had been occupied had become unoccupied, or vice versa. Mr Clegg, the Defendant's underwriting expert, agreed that there was no representation that there had been no change in the tenants. The statement was true or at least substantially correct. The Proposal Form was submitted in July 2010 and there had been no change in the occupancy of the Property since then. The Property continued to be partially occupied for use as storage and operation of a car wash.
vi) (through Mr Singh to Mr Chubb on 3 June 2011) that the ground floors were let on short leases for storage and that there was a car wash at the property mostly at weekends. The Claimant accepts that during the survey on 9th June 2011 Mr Singh informed Mr Chubb that the ground floors of the Boak Building and 8 Station Street were let on short leases for the purpose of storage. It says that those statements were true.
The Defendant also says in its pleading that there was non disclosure by the Claimant in not volunteering the truth about:
- the alleged misrepresentations
-the fact that any rental arrangements between Mr Singh and the Claimant were fictions adopted on the advice of accountants
-the fact that he had no immediate plans to develop the Premises because it would be uneconomical to do so in accordance with the planning consents obtained.
The Defendant accepted at the start of the trial that the allegations of non disclosure would stand or fall with those of misrepresentation. So I do not consider this further.
By the time of the trial these allegations had been refined following the disclosures in the pre trial process, as is clear from Mr Moxon Browne's opening skeleton which he also adopted as his closing submissions on this issue. He submits that the proposal form contained a clear representation that there were three occupational tenancies, relating to furniture storage, car washing and storage of metal products. These representations were confirmed at each renewal, including the renewal for the period 2012/13 when the fire occurred. Mr Singh did not confirm this information expressly to Mr Chubb on the occasion of the survey. However he referred to "lets" in the plural, to the car wash facility (which he explained operated "mostly at weekends") and was "vague" about other uses. Mr Chubb saw some signs of storage, but described this as "minimal". The Defendant says that it is plain from Mr Chubb's statement that his perception of the significance of what he saw was coloured by the information he was given.
The Defendant says that it will have a complete misrepresentation defence if it can demonstrate that the premises were either unoccupied and were not let to Property Link, or that the level of occupancy was significantly less than was represented to Insurers. For reasons that I have given I do not consider that the Defendant can demonstrate that the Property was unoccupied or not let to Property Link but there remains an issue about the level of occupancy.
Misrepresentation-reliance and how the insurance was placed.
As the Claimant submits that there is no evidence that the Defendant relied on any of the alleged misrepresentations when writing the risk, I next summarise the convoluted arrangements by which the insurance was placed. There is a very detailed and helpful description of these events in the Claimant's closing submissions. The factual parts are not disputed so I will in this judgment simply highlight certain features.
The Claimant arranged insurance for the 2010 / 11 year for the Boak building and 8 Station Street through its broker, Alan Boswell Insurance Brokers Ltd. On 22nd April 2010 Alan Boswell sought a property owner's quote from Kay International Plc, an underwriting agency and thus not itself an insurer. In 2010 Kay had a binder with Catlin, not with the Defendant. An indicative quotation was given "subject to full details of the tenants on the ground floor". Without receiving these details Kay International agreed to reduce the premium and that quote was accepted. Kay required the Claimant to complete a proposal form, which was subsequently completed and returned. Ms Sheehan's evidence was that it was not her role to look at proposals if a policy was written subject to proposal, and that the proposal was not brought to her attention. She described the passages in her witness statement (which incorrectly stated that she considered the proposal) as "probably a bit misleading."
In October 2010 Kay International entered into a coverholder agreement with JRP Underwriting Limited. On 7th March 2011, prior to the expiry of the 2010/11 Policy, Kay informed Alan Boswell that it had a new partner, the Defendant and that there would be changes in the policy wording at renewal. The quote for the 2011/12 year stated, under the heading "Warranties" that: "Cover is suspended if any part of the building is unoccupied for a period exceeding 30 days." On 28th April, Alan Boswell spoke to Kay International about the proposed warranty. Ms Sheehan explained that:
"this only applies going forward if any other unit becomes unoccupied cover for that unit is suspended unless they are told of the unoccupancy."
Alan Boswell passed this on to Mrs Kaur by e-mail:
"they have explained that they accept that 60% of the building is currently unoccupied and cover applies in full and survey will be carried out shortly in which they will note the occupancy. However, if any more units subsequently become unoccupied, we must tell insurers otherwise cover in respect of those units will be suspended."
Alan Boswell sent an e-mail to Ms Sheehan stating that "there has been no change in occupancy since the proposal was submitted last year". In her evidence Ms Sheehan confirmed that what she understood from this was that none of the units which were occupied at the start of the 2010/11 policy had become unoccupied. The Claimant says that that confirmation was true, since the ground floor of the Boak building and 8 Station Street continued to be occupied, and the yard behind the Boak building continued to be used by the car wash.
The terms were different to those that applied to the 2010/11 policy and there was a new insurer. The Schedule to the Policy recorded the Occupancy of the Premises as follows: "Furniture Storage, Carwash, Metal Products Storage, Partially Unoccupied." The Policy contained endorsements including a Survey Clause by which cover was subject to receipt by Underwriters of a satisfactory survey report.
Kay instructed Simply Risk Control to carry out a survey. The survey was carried out by Mr Chubb on 9th June, who met Mr Singh at the Property. I referred earlier to the substance of the report.
On 17th June Mr Chubb submitted his survey and photographic reports and his proposed risk improvements to Kay and JRP. On 21st June JRP Underwriting sent an e-mail to Sarah Shakeri of Kay International stating as follows:
"Sarah, the risk doesn't survey too well, and will only be acceptable upon completion of the risk improvements within the timescales specified. RI 1 forms part of the unoccupancy conditions anyway."
On 12th July Kay International sent an e-mail to the broker stating "Underwriters will only accept this risk subject to confirmation that all Risk Improvements have been complied with by 14th July 2011".The Defendant does not contend that the risk improvements were not complied with.
On 28th March 2012 Kay wrote to Alan Boswell inviting renewal of the Policy, subject to an update on occupancy, the Schedule on this point being unchanged. Kay confirmed that no further survey was required. On 30th April Alan Boswell confirmed that there had been no change in occupancy from that advised in the previous year, and accepted the renewal terms. The Claimant says that that confirmation was again true, because the ground floor of the Boak building and 8 Station Street continued to be occupied, and the yard behind the Boak building to be used by the car wash. Thus the Claimant obtained a second year of insurance cover with the Defendant for the period 30th April 2012 – 29th April 2013 with the policy schedule again recording the occupancy: "Furniture Storage, Carwash, Metal Products Storage, Partially Unoccupied".
The materiality evidence for the Claimant came from Mr Lye, who has very extensive underwriting experience having worked in that area mainly for what is now Aviva. He was an excellent expert witness. Mr Clegg for the Defendant also has very extensive insurance experience although primarily in claims. He too was an excellent witness. The differences between the experts were not significant and Mr Elkington made his submissions on this subject relying mainly on what Mr Clegg, the Defendant's expert said in cross examination.
Mr Clegg described the risk as "a substandard risk in the first instance, for which an appropriate premium has been charged." Mr Clegg considered that (apart from the issue of the alarm) Mr Chubb's survey did not reveal any material discrepancies with the proposal form-"the survey report was consistent with what a prudent underwriter would have thought of the risk, having read the proposal form, save for the issue of the alarm." It did not conflict "with what a prudent underwriter would have understood about the risk, having read the proposal."
Mr Elkington submits that the following issues should therefore have come as no surprise to, and should have been anticipated by, a prudent underwriter who underwrote the risk on the basis of the proposal form:
i) The buildings had no fire protection whatsoever.
ii) The property was owned by Mr Singh.
iii) On occasion the storage at the property was minimal.
iv) The property had no heating, no electrics, no sanitation, and no taps.
v) The car wash was a hand car wash where the water was obtained from somewhere else.
The underwriting experts agreed that the representation that the premises were regularly occupied for the purposes of furniture storage, a car wash and for the storage of metal products was material, because it indicated a measure of human activity at the premises. If there were in fact no tenants in occupation, there was a material misrepresentation by the Claimant.
Until the hearing there was disagreement about whether the fact that there may have been fewer tenants than were represented would be material. Mr Clegg (but not Mr Lye) indicated initially that such a reduction would be material as this would mean that the level of activity would be less. The Defendant relies on that, but it was clear from Mr Clegg's cross examination that on reflection, once he had considered the implications of the lettings being limited to storage, his view was much closer to that of Mr Lye.
Mr Clegg's view was that a prudent underwriter could not infer from the proposal that there would be people coming and going on a daily basis. The tenants referred to might be sole traders using the buildings for long term storage, in which case there might be only a limited number of persons or visits. So far as the number of tenants was concerned, Mr Clegg agreed that the material issue was the level of activity and occupation. He also said that if the trade or occupation is the same "the identity of the tenant does not matter." The Claimant says that it follows that, provided there was no difference in the level or nature of activity and occupation, it is immaterial whether there were one, two or three tenants.
Mr Clegg's evidence was that a prudent underwriter would rely on the contents of the survey report rather than the contents of an earlier proposal.
As a result I conclude that the aspect of misrepresentation on which Mr Moxon Browne places his most emphasis, the claim that there were three tenants, was not material in the legal sense. There were not three separate tenants but only two but for the reasons accepted by the experts this was not material.
Misrepresentation-Reliance and the Proposal Form
Mr Elkington says that the Defendant was not entitled to avoid the Policy by reason of any false representation in the Proposal Form. The Proposal Form was submitted in relation to the 2010/11 Policy, which was not underwritten by the Defendant. Any representation made by the Claimant in the Proposal Form was not made to the Defendant during the negotiations for the 2012/13 Policy. Therefore, pursuant to section 20(1) of the Marine Insurance Act 1906, the Defendant is not entitled to rely on any such misrepresentation to avoid the 2012/13 Policy. Further the Claimant did not confirm the accuracy of the Proposal Form prior to the inception of either the 2011/12 Policy or the 2012/13 Policy. The Claimant says that the Proposal Form was scarcely relied on in the first place, it was not addressed to this insurer and was in effect superseded in its relevant parts by the survey report and the decision to write the risk notwithstanding what it disclosed. That submission appears to me to be correct given the undisputed events by which the Defendant came on risk and what emerges from the evidence of Ms Sheehan.
Misrepresentation- Inducement
Ms Sheehan was the director of underwriting at Kay. Unfortunately her evidence in chief did not disclose that she no longer works for Kay but is now doing temporary banking work in Hampshire. This fact should have been disclosed in a supplemental witness statement or at least when she started giving evidence.
Mr Clegg considered that Ms Sheehan did not act as a prudent underwriter would have done in a number of respects. For example having written the 2010/11 policy "subject to a satisfactory proposal" she did not review the proposal when it was subsequently submitted. She was not influenced by the reference in the proposal to "tenants have own alarm" when a prudent underwriter would have been. Having expressly written the 2010/11 policy "subject to survey" she never commissioned a survey. Her evidence was that the "risk as surveyed was not as expected", whereas Mr Clegg's view was that it surveyed as a reasonably prudent underwriter should have expected. Having been informed by the survey report about the proposed development, she failed at renewal in 2012 to enquire about the state of the development plans. In addition to this Mr Elkington points to Ms Sheehan having in 2010 given an indication "subject to full details of the tenants on ground floor" without then having obtained those before going on risk. He submits that as Ms Sheehan acted imprudently in so many respects, the Court cannot safely assume that she would (in different circumstances) have proceeded as a prudent underwriter would have done.
Ms Sheehan accepted that the terms offered in 2011/12 could be offered only with JRP's approval and that JRP did not see the proposal form.
When the survey report was received Ms Sheehan formed the view that the risk had not surveyed as expected, because the state of repair was worse than she expected, and the occupancy was not as frequent as she had expected. She considered the risk afresh and decided to remain on cover on the existing terms, subject to the requirement that the risk improvements were carried out. Ms Sheehan confirmed that, given the concurrence of JRP, there was no reason for her to "rock the boat". The Claimant points out that Mr Clegg's view was that this was "an entirely reasonable and prudent approach". If the risk improvements were complied with then: "the building would at that point in time have been corrected to a state that was acceptable for that type of risk."
For the 2012/13 year the quoted premium was calculated by applying the same rates as had applied in 2011/12 against the sum insured (uplifted for inflation). The 2012/13 policy also contained a survey clause, which Ms Sheehan explained was meant to act as a reminder to the insured to comply with the survey requirements from the previous year. She confirmed that, as long as those risk improvements were complied with, she was content that the insurer was on risk.
Evidence about inducement is contained in paragraphs 60 – 63 of Ms Sheehan's statement but it did not survive cross examination. Ms Sheehan frankly stated: "I don't remember exactly what I was thinking when I did this risk". She said that her evidence of what decision making she might have carried out in different circumstances was very hypothetical. She considered about 2,500 risks a year when she was with Kay.
The Defence alleges at 19(7) that the Defendant was induced to write the cover by the alleged misrepresentations. This claim was unsupported by Ms Sheehan, the Defendant's only witness on inducement. She said that she had no involvement in the defence, had never seen it and disassociated herself from key assertions within it.
Q "But you would disassociate yourself with the suggestion that you were induced to write this risk by any reference to ...
A Yes, I would.
Q You would disassociate yourself from the suggestion that you were induced to write this risk by what was in the proposal form because you had not seen it when the risk was first written ---
A I hadn't seen it in 2010. It was used when I made my assessment of renewal in 2011.
Q But by 2012 you had got the survey, had you not?
A Sorry, for 2012 it was the survey and the proposal form and the confirmation from the broker of whatever we asked for at that point."
The statement of truth on the Defence was signed by "Nicholas Howells, Claims Manager." Ms Sheehan did not know who this was and had never spoken to him. The Defendant prepared a draft statement in the name of Ms Sheehan which contained crucial passages relating to her reliance on the proposal form which she accepted were "a bit misleading." It must follow that the experts' comments on those parts of Ms Sheehan's statement are of limited value.
Ms Sheehan may have had shortcomings as an underwriter on this transaction but she was clearly a completely honest and candid witness. With the wisdom of hindsight it seems that both she and the Defendant's solicitors should have spent more time on completing and testing her statement. The result is that I do not place any reliance on the paragraphs in her statement which are not merely factual as it is clear that they did not receive the careful attention they should have done. Moreover most of what she does say on the question of inducement is refuted in detail and with justification in the Claimant's closing submissions.
Ms Sheehan's evidence is in any event of limited assistance as it was JRP which had the last and the deciding word. She accepted that JRP was happy to write the risk subject to the risk improvements being complied with, and that she would have required JRP's approval to do anything other than that. There was no evidence from JRP.
In Paragraph 63 Ms Sheehan sets out what appears to be her main concern with the risk, and states that: "Had I known the extent to which Western Trading had failed to comply with the Risk Improvement requirements, I probably would have cancelled the policy on the basis of the Survey Warranty, or declined the renewal." Ms Sheehan confirmed that she did not know that it forms no part of the Defendant's case that the risk improvements were not complied with.
There is no evidence that Ms Sheehan or JRP, which was the ultimate decider, relied on any of the alleged misrepresentations when writing the risk. The survey was in truth the only matter relied on.
Decision. The defence of misrepresentation fails because to the limited extent to which anything was misrepresented it was neither material nor relied on.
Breach of warranty and the Proposal Form
The Defendant pleads that the Proposal Form was the basis of the 2012/13 Policy, with the result that, to the extent that the Proposal Form contained misstatements, the Claimant was thereby in breach of warranty (Defence para 21(1)). Relevant facts warranted were that the premises were "regularly occupied", that there were three tenants, and that the tenants' trades were, respectively:
"1. Storage of furniture
2. Car wash
3. Storage of metal products".
The Defendant says that these statements were untrue, there were no tenants at all, and the premises were unoccupied. There was thus a breach of warranty, as a result of which the policy was voidable. It is not necessary to prove that the breaches were material to the risk, although on the Defendant's case they were.
The 2012-13 cover was subject to a number of other warranties, including an unoccupancy warranty, providing "It is a condition precedent to Underwriters' liability that Underwriters are informed if the premises will be partially or fully unoccupied for a period of more than 30 days …". The Defendant accepts that if it is wrong and there was a tenancy in favour of Property Link, there would be no breach. As that is the case this aspect of the defence falls away.
The Claimant responds essentially that there was no breach because the Proposal Form was not the basis of the Policy. The Form was submitted to different insurers, in a different policy year, and in relation to a different policy. Further, the declaration in the Proposal Form was only that, to the best of the knowledge and belief of the signatory, the information provided to the answers in the Proposal Form was true. It was not a declaration that the information provided in the Proposal Form was true. The Claimant also invokes estoppel and waiver to claim that it would escape any liability in respect of the burglar alarm because the Defendant was well aware of the actual position after June 2011 when it received Mr Chubb's survey report.
The Proposal Form correctly recorded the tenants' trades but was wrong to state that there were three tenants. The short answer to the claim of breach of warranty is that the Proposal Form did not form the basis for the policy under which the claim is brought for the reasons I have already given. There was no breach of warranty.
Claim for relief-factual background
Before turning to the question of relief it is necessary to set out some of the planning and development history so that the competing submissions can be understood.
In 2007 the Claimant and Mr Parkes looked into the possibility of developing Station Street into a residential development. By June 2007 they had appointed Turner Woolford Sharp Architects Ltd to act on their joint behalf. The Claimant and Mr Parkes paid about £100,000 on a 50/50 basis.
Various consultants were appointed. One of these was a firm of structural engineers (Latter Ramsay Consultants) who prepared a due diligence report. In their report they stated:
"Boak Mill: Preliminary structural assessment.
The basic structural integrity of the existing Mill appears satisfactory and an assessment of the existing floor loading capacity indicates that without strengthening, the existing timber joisted floors are capable of residential loadings, including new partitions and sound proofing.
It can be confirmed that the building is capable of the proposed change of use, without major demolitions or structural alteration."
Various meetings with the Walsall Regeneration Company and the Walsall Metropolitan Borough Council were held. At those meetings the importance of the Boak building to the proposed scheme was emphasised. For example, at a meeting in October 2007 the architects stated:
"The conversion of the Boak – this grade II listed building can become the focal point / landmark of the site, special attention to be paid in terms of scale / mass of any new buildings that adjoin the Boak."
Mr Singh was advised by a firm of quantity surveyors, Janes Lathwood, in November 2008 that an attempt to convert the building and then sell the flats would probably incur a loss of £2.2m. The main problem was that the requirement to retain the listed Boak structure severely limited the number of flats which such a conversion would yield. Janes Lathwood's advice was endorsed by an independent report to Walsall Council from their District Valuer Mr Solomon, dated 22nd December 2008. This Report was copied to the Claimant.
(The Claimant's expert valuer Mr Taylor suggested that Mr Solomon may have colluded with Walsall Council to produce an artificially pessimistic conclusion. The poor judgment behind the making of this irresponsible suggestion, based on no evidence, made me cautious about accepting other aspects of his evidence.)
The planning process took some time. In January 2009 listed building consent was granted for the conversion of the Boak building into 31 residential units. However, by that time the housing market in Walsall had stalled and a decision was made to mothball the development of the Boak building until the market improved.
Mr Singh told Mr Chubb that he intended to commence development of the building in the near future. However, no contractors had been appointed and "it is uncertain in the current economic climate whether redevelopment of the building in its location is viable". In evidence Mr Singh confirmed that the Boak building was insured on a reinstatement basis because, in the event that it was damaged or destroyed, he would want to reinstate. He also confirmed that his intention has always been that the Claimant will develop the Boak building. I refer below to how I see the Claimant's expressed intention to reinstate but do so briefly because, if a Declaration is granted, the issue does not matter. Similarly there is late but extensive evidence about the Claimant's experience of development by itself, or the lack of it and, for the same reasons I find it unnecessary to make a finding on the issue. Either the Claimant can and will reinstate or it will not.
The reasons why the intention to reinstate and develop the Boak building is said to be reasonable are these. First Mr Singh has an historic link with the building. He has owned it for 33 years, and his children have grown up in it. That of itself is a convincing reason. Secondly the Boak building is said to represent a profitable development opportunity for Western Trading, which can then either sell the flats or rent them out. Mr Singh anticipates that if the Boak building were developed into 31 apartments, then a return of about £300,000 pa would be generated. Mr Clarke, the Defendant's valuation expert, did not quibble with that assessment although he had not had an opportunity to study it. He described it as "probably not an unreasonable figure." These economic considerations are more difficult to evaluate than the personal ones but do not undermine the evidence that the Claimant's intentions are genuine.
The Defendant contends that given the advice of Mr Taylor, the Claimant's own expert, its suggested plan to reinstate the Boak using modern materials and architecture appears commercially absurd. It would effectively blight the site. Mr Moxon Browne points out that Mr Singh has not yet discussed his alleged intentions with Walsall's planning officers, and it appears improbable that such a scheme could proceed, even if Mr Singh's expressed intention was genuine (which the Defendant does not accept is the case).
The Defendant submits that it is much more probable that Mr Singh will now dispose of the site, probably by way of letting it on a long lease to a design-and-build developer, with a view to whatever seems the most profitable way to exploit its potential (along with adjacent land, also owned by Mr Singh, where demolition of existing buildings is about to take place).
This proposal has been raised with Walsall Council by Mr Sunny Singh on his father's behalf, albeit not pursued pending the result of this litigation. His e-mail to Walsall Council dated 25th January 2013 certainly suggests a future for the site closer to the Defendant's perception than that of the Claimant.
Claim for relief –expert evidence
There was extensive expert evidence on the cost and economics of redeveloping the site both before and after the fire. I consider it only briefly because, as I see the case, it is largely irrelevant.
Mr Clarke considered that the pre-fire scheme for 31 flats would not have been economically viable but that a post-fire scheme for 48 flats would be. As a result a pre-fire site worth about £75,000 is now worth about £500,000. Mr Taylor valued the site pre-fire at £554,420. He valued the site with a 41 flat scheme post–fire at between £543,000 and £623,000. Costings for both pre and post fire schemes were prepared and examined by the quantity surveyor experts Mr Taft and Mr Janes (except for the costings for the 41 flat post-fire scheme which Mr Taylor estimated). The differences between them seemed to me to be within the range of legitimate professional disagreement in hypothetical situations.
Given the assumptions made by the Defendant I accept their expert evidence as to value and prefer the assessment of Mr Clarke to that of Mr Taylor. I do not accept Mr Taylor's evidence that today the cleared site has no potential and that any attempt to develop it would result in a substantial loss. Indeed that would appear to cast doubt on the feasibility of the Claimant's plans. That opinion assumes, unrealistically in the light of what Councillor Bird said, what the Council have indicated and of what common sense suggests that the only form of development which would be permitted on the site would be the reinstatement of a structure the same size and in the same form as what was there before. I do not doubt the view expressed in the Supplementary Report of Mr Clarke that the site now has valuable potential.
I generally preferred Mr Clarke's evidence to that of Mr Taylor. His considerable experience as an expert was evident. His views were carefully expressed and based on evidence. He seemed to me to be objective and fair minded and did not hesitate when appropriate to accept a proposition that assisted the Claimant's case. He had confidence without a trace of arrogance. In contrast Mr Taylor adopted a traditional approach to valuation. A local valuer on the spot who knows the immediate area very well may often have greater expertise than an expert who is more experienced and has up to date research methods but a less down to earth feel for the immediate vicinity. That was not the case here and I have mentioned a doubt I had about the quality of Mr Taylor's judgment arising not from an absence of integrity but from inexperience of this type of litigation.
There are however issues about the assumptions made by the Defendant.
A practical as opposed to conceptual reason why market value of the site might be irrelevant is that the Property was, and is, not for sale. The Claimant proposes to develop it into flats, perhaps for renting out. The experts did not have a full opportunity to evaluate that proposed development although Mr Clarke made some helpful and objective comments.
The Boak building is intended by the Claimant to be the focal point of the development of Station Street both on the Property and on other land Mr Singh owns. The value of the Boak building to the Claimant is said to go beyond the value of the Property.
The Defendant's valuations of 1 – 8 Station Street are said to be flawed in that they assume that any developer who buys the site will be able to persuade someone to sell them land locally to provide car parking spaces, at a cost which does not exceed the price at which the developer can sell those car parking spaces to purchasers of flats in the Boak building.
The Defendant's residual valuations are a calculation of what a third party developer would pay for 1 – 8 Station Street. Mr Clarke had not been asked to consider what 1 – 8 Station Street would be worth to someone who already owned it and intended to develop it (either before or after the fire). Mr Clarke described those as "two very separate exercises."
Claim for relief-no reinstatement yet carried out.
The right to reinstate damaged property under the policy is dependent upon actual reinstatement-see 5c) of the policy Special Provisions. 5a) requires reinstatement to be carried out "with reasonable despatch otherwise no payment". The Defendant points out that Insurance reinstatement clauses are almost invariably made subject to actual expenditure by the insured on prompt reinstatement. The Defendant says that as the Claimant has failed to reinstate with reasonable despatch that is an end of the matter.
The Claimant says that where (as here) the insurer has wrongly denied liability and repudiated the Policy, it cannot rely on the proviso to the reinstatement clause that the costs of reinstatement will only be paid once they have been incurred and there cannot have been an absence of "reasonable despatch". He refers to the view of the authors of MacGillivray who state as follows (at 20-022):
"[I]t is rather hard that an insured, who needs the money with which to repair his property, should be expected to incur the cost of reinstatement from his own funds. This is particularly so if the insurers in breach of contract deny liability under the policy or assert that the insured should be compensated on a basis other than reinstatement. It is therefore submitted that the requirement that the insured should commence and carry out the work of reinstatement with reasonable dispatch should only operate if the insurers, in accordance with their contractual obligations, accept that reinstatement is the appropriate measure of indemnity".
Decision. I respectfully agree with MacGillivray. The requirement on the assured to reinstate cannot be read to arise until the insurer has confirmed that it will indemnify. Neither will there be an absence of reasonable despatch before the insurer's obligation is accepted or established. That seems obvious where the assured cannot afford to pay for the reinstatement without the benefit of the indemnity which the insurer withholds. As I see it, nowadays the same considerations apply even to a successful business. The assured cannot reasonably be expected to take a decision about whether to spend what may be millions of pounds until it knows the fundamental financial ramifications of committing to reinstate. Even a profitable business will reasonably defer a decision whether or not to reinstate until it knows whether the funding will come from insurers or will have to be diverted from elsewhere to the detriment of some other business activity. So I prefer the Claimant's approach.
Claim for relief- Declaration
The Claimant seeks a declaration "that it is entitled to be indemnified by the Defendant under the terms of the policy in respect of the losses it has suffered (and is continuing to suffer) as a result of the fire, up to the limits of indemnity contained within the Policy". It is common ground that the limit is £2,121,800. Only if that remedy is unavailable does the Claimant seek damages, the cost of reinstatement. There is also a claim for damages for loss of rent which I deal with separately. It is striking that, but for the fact that the Defendant claims that a declaration is unavailable, it would be unnecessary to consider whether or not the Claimant genuinely intends to reinstate. If the Claimant does not reinstate then the Defendant is spared the consequences of the declaration. On this point one might have expected the Defendant to have, in its own interests, taken a different position.
The reinstatement clause conferred a benefit on the insured, the right to be indemnified for the cost of reinstating the lost or damaged property:
"4) It is hereby agreed that in the event of the property insured under item 1 of this Section of the Certificate being lost, destroyed or damaged by any peril insured hereunder the basis upon which the amount payable under each of the said Items of the Certificate is to be calculated shall be the reinstatement of the property lost, destroyed or damaged subject to the following special provisions and subject also to the terms and conditions of the Certificate except in so far as the same may be varied. For the purpose of the insurance under this Memorandum 'reinstatement' shall mean:
a) The carrying out of the following work, namely,
i) Where property is lost or destroyed, the building of the property, if a building… in a condition equal to but not better or more extensive than its condition when new.
5) a) The work of reinstatement (which may be carried out upon another site and in any matter suitable to the requirements of the Assured subject to the liability of the Underwriters not being thereby increased)…
c) No payment beyond the amount which would have been payable under the Policy if this memorandum had not been incorporated therein shall be made until the cost of reinstatement shall have been actually incurred."
The clause contrasts with familiar provisions in insurance policies which grant the insurer the option to either (i) pay the insured the value of the property lost or damaged, or (ii) reinstate the property. Such a clause was present in (for example) Leppard v Excess Insurance [1979] 1 WLR 512; McLean v Ecclesiastical Insurance [1986] 2 Lloyds LR 417 and Pleasurama v Sun Alliance [1979] 1 Lloyd's LR 389. As I see it this difference undermines the force of the submissions made by Mr Moxon Browne about Leppard and McLean which I mention below.
Declaration- Defendant's submissions. Mr Moxon Browne says that Insurers have avoided the policy. If that was a breach of contract, the Claimant's remedy is in damages, calculated by reference to the amount of money the Claimant might have received if the policy had responded. It makes no difference to the remedy whether the breach of contract is wrongful avoidance (sometimes called repudiation) or a wrongful refusal to provide an indemnity under a valid policy. He says that this principle was established in Leppard v. Excess Insurance Co Ltd (1979) 2 Ll Rep 91, a decision of the Court of Appeal which, he says, remains the leading authority on the appropriate remedy in cases where the insured property is held for sale or investment purposes. He cites Megaw LJ:
"The learned (trial) Judge (held) "this is an action for specific performance, for a declaration that the plaintiff is entitled to the full reinstatement cost of actual reinstatement …" … I respectfully disagree with the learned Judge's analysis. This is a claim for damages for breach of contract".
At this point I observe first that "repudiation" would be irrelevant absent an acceptance and the concept does not seem relevant to the discussion. Secondly the citation is not apt. The case involved a clause giving the insurer not the insured the option to indemnify by payment, reinstatement and repair. The insurer had no enforceable obligation to reinstate and the action was not even stated to be for specific performance. The judge was obviously wrong. It was a claim for the "full value", the meaning of which expression was the central issue. The judgment does not at any point suggest that a declaration is generally not available in these cases.
Mr Elkington makes additional points about this case. There was nothing in the wording of the policy which provided that the loss to be indemnified was the cost of reinstatement. The insurer elected not to reinstate, so the question was what loss the insured had suffered. The insured had never occupied the property, and at the time of the loss, the property was on the market for sale, and the insured was ready and willing to sell it for £4,500. The insured's loss was calculated by reference to the price at which he was willing to sell the property.
The Defendant says that even if a declaration were technically available here, it would be inappropriate for several reasons.
First Mr Singh has shown no signs of making reinstatement. The evidence indicates that all along he (or Mr Sunny Singh) was planning to dispose of the site and adjacent land, and in June 2007 engaged selling agents to tender for giving marketing advice and agency services so as to achieve this. Neither Mr Singh nor Sunny have any experience of residential development. They have however had some experience of selling long leases of their property to parties prepared to enter into building obligations, and it seems likely that this is what will now happen. Even if Mr Singh were to reinstate the premises, there is no evidence that this would benefit the Claimant, or indeed affect its position in any way.
As I have pointed out the grant of a declaration would remove from the Defendant the concern about whether there was a genuine intention to reinstate or indeed that reinstatement would take place. The issue is no reason not to grant a declaration.
Secondly the Defendant says that there is no room for a declaration to the effect that the Claimant might hereafter become entitled to damages if he follows a course of action which might (or might not) fairly be described as reinstatement. There are difficulties inherent in construing what reinstatement means in the context of a non-standard building. Counsel refers to three differing views of the Court of Appeal Judges in Beaumont v Humberts [1990] 49 EG 46. Staughton LJ said that reinstatement does not mean as nearly as practicable an exact copy, but rather a sensible reconstruction in the same style and general shape. For Dillon LJ reinstatement meant reinstatement of what was there before the fire with appropriate economies in the use of materials. Taylor LJ recognised the difference in the approaches of Staughton LJ and Dillon LJ, and favoured a middle ground. The fact that judges may disagree about the approach in one context does not mean that the matter cannot be resolved in another. Indeed Mr Moxon Browne at the same time submits that the concept of reinstatement is accurately reflected by Mr Janes' costings for the reinstatement of the Boak in either heritage materials or their modern equivalents and that for the purposes of this case, no further refinement of the definition of the word, or consideration of the cases, is necessary. This illustrates that in the real world many of the alleged practical difficulties invariably invoked by parties opposing the grant of declaratory relief fall away.
Thirdly the Defendant says that there is also uncertainty about who might carry out any proposed reinstatement, and for whose benefit, other than Mr Singh.It says that it is wrong in principle to make a declaration relating to rights in an hypothetical, uncertain or undefined future event (recently described by the Court of Appeal as "the legal equivalent of shouting in an empty room"- see Pumfrey LJ in Nokia Corpn v. Interdigital Technology Corp (2007) EWHC 3077).
This is another way of putting the issue of practical feasibility. There is nothing hypothetical or uncertain or undefined in devising a reinstatement plan, with the assistance of professional experts, and applying the approach in Tonkin to which I refer next. Issues about the detail can be resolved by agreement, some informal or formal ADR or if necessary by the court. Further the grant of a declaration will remove the Defendant's concern about the Claimant's intentions.
Mr Elkington cites the consideration of the rights conferred on an insured by a clause very similar to the one in this case by the then HHJ Peter Coulson QC in Tonkin v UK Insurance Ltd [2006] EWHC 1120 (TCC). The Judge identified that an insured with the benefit of such a reinstatement clause has three options (see paragraphs 153 – 160):
i) First, to reinstate the property to a lay-out and condition that, as closely as possible, mirrors what was there before.
ii) Second, to reinstate the building, but, at the same time, to take advantage of its destruction to make certain minor changes so as to improve what was there before.
iii) Third, so long as it makes it clear to the insurer what it is doing, to make significant changes to improve what was there before.
He submits that whichever of those options is pursued, the insurer's liability is limited to the cost of reinstating the original property (up to the sum insured). In this case, there is no dispute that the cost of reinstating the Boak building is more than the sum insured. Therefore, whichever of the three options set out above the Claimant ultimately chooses, it will be entitled to recover from the Defendant no more (or less) than the sum insured (£2,121,800).
As I see it there is every reason to accept the statements of principle about implementation of reinstatement set out by a very experienced specialist judge in the field of construction. Mr Moxon Browne has not sought to question the judge's approach or reasoning.
Genuine intention to reinstate. Mr Moxon Browne cited Reynolds v Phoenix [1978] 2 Lloyd's Rep 440, a decision of Forbes J which he says shows that the Claimant must prove a genuine intention to reinstate, which is not mere eccentricity. He says that Mr Singh's pleaded intention to reinstate the Boak using modern materials/architecture is eccentric because such a building would have no aesthetic or sentimental value and would serve no commercial purpose. The case is cited by Mr Elkington for another purpose. In Reynolds the plaintiffs purchased some old maltings for £16,000. The plaintiffs purchased insurance with a sum insured of £550,000, representing the cost of reinstating the maltings. The value of a modern equivalent building was £55,000. Following a loss the insurer argued that (i) the plaintiffs were only entitled to recover their loss, which was £5,000, (ii) the loss should be measured by the value of the building (being its market value or the cost of a modern replacement), and (iii) no commercial man in his senses would spend £250,000 in rebuilding an obsolete building if he could buy a modern one for a fraction of the price. The policy in Reynolds did not (as here) entitle the insured to the cost of reinstating. Therefore the Court considered the extent of the indemnity to which the plaintiff was entitled. The Judge rejected the argument that the relevant test was what the insured using their own money would have done. The relevant test was what the insured would do if given the insurance monies. On the facts the judge was satisfied that the plaintiff's wish to reinstate was genuine and not eccentric.
In this case the Claimant has a contractual right to reinstatement. I do not see that "eccentricity" comes into it. If it did there would, for the reasons Mr Elkington gives, be nothing eccentric about reinstating a building with which Mr Singh's family has had long and close connections. It may even be that Mr Singh's displeasure with the attitude adopted by insurers has strengthened that intention. The wish to reinstate must be genuine. The test of that is what the Claimant does if and when it has the benefit of a declaration.
Mr Moxon Browne also relies on McClean Enterprises Limited v Ecclesiastical Insurance [1986] 2 Lloyd's Rep 416. Mr Moxon Browne is not correct to suggest that Staughton J was considering a reinstatement clause identical to that in the present case. At 426 the judge found that the plaintiffs could not recover on a reinstatement basis because they could not prove an intention to reinstate the property if they had had the resources to do so or if the insurers had paid the claim promptly. This appears to be the application of an established principle to particular facts, albeit by a very distinguished judge in this field.
Declaration –Decision.
It is very common for declarations to be granted in insurance cases. Mr Elkington refers to liability insurance cases, when an insurer purports to avoid a policy before any judgment has been entered against the insured in favour of a third party. He points to confirmation of this in MacGillivray at 10-100 and Colinvaux at 9-053. Every day experience in this court also confirms that. For example insurers often start actions for a declaration of non liability.
The Claimant has an express right to be indemnified for reinstating the Property. That right is different from that on which most of the cases turn. I see no reason in principle why a declaration should not be granted and as I have explained it seems to me to be a particularly suitable remedy in this case as it should protect the interests of the Defendant as well as the Claimant. Any disputes about what is or is not reinstatement can be resolved, or at least substantially narrowed on the basis of the approach in Tonkin, when it is known precisely what form any reinstatement project will take.
Claim for relief- Damages
As I have decided to grant a declaration the question of damages falls away unless it is later decided that I was wrong to grant that relief. In that event the Claimant claims damages. Although this question is not necessary for my decision I will briefly address it and say something about the relevant evidence.
Alternatively, for damages in the amount of the cost of reinstatement up to the limit of indemnity in the Policy. The Claimant's expert has assessed the cost of reinstating the Property as exceeding the limit of indemnity (£2,121,800). The Defendant's expert has not done that exercise but it seems that Cunningham Lindsey believed, after they had investigated the fire, the limit would be exceeded. The Claimant claims there is an alternative claim for damages under the insuring clause of the Material Damage section of the Policy by which the Defendant is obliged "to indemnify the Assured against loss of or damage to the property."
The Claimant says that the prima facie rule is that the assured's loss in the event of damage to buildings is the cost of reinstatement (Colinvaux (2013 supplement) at 10-014). That prima facie rule should apply in this case.
The Defendant says that the policy provides for payment of the reinstatement value of the premises, if they are in fact reinstated with reasonable dispatch. Otherwise the insured is entitled to its actual loss, which in this case means any loss to the Claimant by diminution in the value of the premises as a result of the fire. The correct measure of damages is loss of market value.
The Defendant submits that, as a result, no damages are payable. Before the fire, Mr Singh's intention was to sell the Boak site with the benefit of a planning permission for its conversion to flats. He invited tenders from selling agents with a view to doing this. He then discovered that the site could not be sold, because the presence of a listed building on it precluded profitable development. The Boak then burnt down. The site is now empty, and ripe for sale, or letting on a building lease, to a developer, and is hence valuable. However the site is disposed of, the value will accrue to Mr Singh. Mr Singh has lost nothing by the fire, which has benefited him financially. Nor has the Claimant lost anything, because its interests were not affected in any way.
Mr Moxon Browne argues that the concept that property may gain value as a result of the destruction of the buildings which stand on it is entirely familiar to the law, as is the process of assessing diminution in value or increases in value by reference to the development potential of the site, rather than the intrinsic worth of the buildings on it. Mr Moxon-Browne cites mainly Taylor v. Hepworths Ltd (1977) 1 WLR 659 but that was a tort claim by a Plaintiff against its next door neighbour which had negligently allowed fire to spread, not a claim under a reinstatement clause in an insurance policy.
The Defendant thus says that the Claimant has not suffered any loss, first because it did not own the premises or otherwise benefit from them and secondly because the site is in any event now much more valuable than it was before the fire. The first ground is misconceived essentially because, as explained in Lonsdale, issues between the parties with an insurable interest in the Property are to be resolved between them. The second issue only arises if the questions of site value are relevant. As I see it they are not.
Decision. If I had had to decide this issue my conclusions would have been as follows. The Defendant owes a contractual duty to indemnify the Claimant against the cost of reinstatement. If the Claimant reinstates then the Defendant has to pay the cost up to the limit of cover. If the Defendant fails to pay then it is liable for that cost. The issue involves an explicit contractual commitment not simply the application of the law dealing with the assessment of damages on fire claims. The value of the site before and after the fire seem to me to be irrelevant unless this differential leads the Claimant to a decision not to reinstate. If there is to be no reinstatement then there is no obligation on the insurer to pay because the assured has not invoked the relevant contractual commitment.
The Defendant seems to present its obligation as being to meet the loss as assessed in a conventional fire claim but one where special considerations, similar to the examples given in the supplement to Colinvaux referred to above, require departure from the prima facie rule. I do not consider the Defendant's approach to be correct or, on the facts, that there are any special features to take the case away from the prima facie rule. It is of interest (but not a point I mentioned at the trial) that when an insurer elects to reinstate the contract ceases to be one of indemnity and becomes one to reinstate, in effect a building or repairing contract – see for example MacGillivray 22-006. The position is presumably similar when the reinstatement right belongs to the assured not the insurer. In any event the obligation to indemnify for reinstatement is explicit and clear, the loss following breach almost obvious.
The only circumstance in which the Defendant would not have to pay the full cost would be if there were no reinstatement (a risk which the Declaration will protect it against). I have accepted Mr Singh's evidence that he wishes to reinstate. Why else would his preferred remedy depend on reinstatement? The other evidence suggests that his previous scheme was uneconomic and that what he had in mind until the fire may well have been development of the site by others. There is however no reason to doubt the Claimant's sincerity in the situation following the fire where he already owns the site and sees value in a scheme of reinstatement which will produce income and which, unlike some quite different project, will to a degree be paid for by insurers. Mr Singh is a very successful property investor and has no doubt often seen opportunities which others have failed to spot.
If the Declaration were unavailable then a solution might be to award damages conditional and payable upon reinstatement taking place.
It is only if I am wrong to grant a declaration and also wrong in my approach to damages that the expert evidence about site value becomes relevant. It is unnecessary to decide it and would be unhelpful to do so at this stage. I will not therefore decide it. Some of the expert evidence was prepared quite late and other matters will soon be out of date. If the issue ever has to be decided there will be a need for further or at least updated expert evidence involving, for example, more about the cost and practicalities of the Claimant's reinstatement scheme.
Relief– Loss of Rent.
At the time of the fire the rent payable to the Claimant by Property Link was £16,500 per annum in relation to 8 Station Street and £13,000 per annum in relation to the ground floor of the Boak Building. Both leases provided that the rent was no longer payable in the event that Property Link could not occupy the property due to fire damage. By the terms of the Policy the Claimant was entitled to be indemnified for loss of rent. The indemnity period was 12 months, and the sum insured was £50,000. The Claimant therefore claims £29,500.
The Defendant's response is that no rent was paid or payable. I have found that to be incorrect. In principle the Claimant's claim is a clear one but I should bear in mind the irregularity with which rent was sought and paid and the strong likelihood that for the period in question that pattern would have continued. There is a fair chance that in reality the rent would have been neither demanded nor paid in part or in whole and for that reason I will reduce the sum by fifty per cent.
"The Wisniewski principle"
Mr Moxon Browne invokes what he calls "The Wisniewski principle" which he draws from the decision of the Court of Appeal in Wisniewski v Manchester Central Health Authority [1998] PIQR 324. In short the principle is that although cases are decided on evidence, the Court is entitled to draw adverse inferences from the unexplained absence of evidence from witnesses, or in the form of documents, which it would be reasonable to expect might be before the Court. It is always useful to be reminded of the principled base behind the daily task of deciding facts and of doing so not just on the evidence but bearing in mind what further evidence a party might reasonably have been expected to produce. I apply those considerations in this case as in any other. I bear in mind Mr Moxon Browne's observations about particular points. For example he criticises the absence of Mrs Kaur. She filled out the proposal form but did not identify Property Link as the tenant of the insured premises. He says that in the absence of contrary evidence from her, the Court can infer that the reason for this is that in fact Property Link was not the tenant. But this overlooks the other evidence and the consideration that the court has seen and heard both the landlord, Mr Singh on behalf of the Claimant and the tenant, Sunny who is the governing mind of Property Link. This perceived principle is invoked by both sides. Thus Mr Elkington invites me to draw inferences from the absence of anyone from JRP who took the decision whether or not to cover the risk. As in any case I bear all these factors in mind but do not extend an already overlong judgment by explicitly addressing every aspect.
Conclusion
The Claim succeeds and the Claimant will receive a Declaration, subject to a condition as to payment of any unpaid rates (or to some other requirement that achieves that result), and damages for loss of rent amounting to half the sum claimed.
I am most grateful to Counsel and solicitors on both sides for the admirable way in which the trial was prepared and presented. |
Mr. Justice Cranston
Introduction
This is an application for leave to appeal against the judgment of Recorder Jack ("the judge") sitting in the Derby County Court on 1 July 2014, in which he dismissed the claim by Afzal Ahmed ("the appellant") arising out of a road traffic accident. The second respondent opposes the application. In effect the judge held that the claim was fraudulent.
The claim arose out of a road traffic accident, said to have occurred on 19 July 2012, when the appellant was driving a Seat Leon motor vehicle ("the present accident" or "index accident"). At the time the appellant was 21 years old. The appellant alleged that he had three passengers in his vehicle, his brother Wajahar Altaf, his sister Gulshan Altaf and his mother, Bushra Altaf. The other vehicle said to be involved in the accident was a Peugeot 306 motor vehicle, driven by the first respondent, Ivan Lalik, who has taken no part in the proceedings. The second respondent is the Road Traffic Act insurer in respect of the Peugeot. At trial, the appellant relied upon his own evidence and the oral and witness evidence of his sister, Gulshan Altaf. He did not serve witness statements or call evidence from his mother, brother, or two friends who he revealed, in the course of his cross-examination, had attended the scene of the accident.
The previous accident
The appellant claims to have been involved in two previous road traffic accidents, one in 2009 and one that was said to have occurred on 12 November 2011 ("the previous accident"). In the previous accident he had been driving the same Seat he was driving at the time of the accident giving rise to the present appeal. Regarding the previous accident, the judge had the appellant's medical records. Included were his GP's notes dated 18 November 2011, six days after the previous accident.
"S: Pain was more on the back of neck and now in the back as well. Has been to WiC on the same day. No sphincter sx. Played football yesterday.
O: Well. Walked in fine. Apyrexial. No local tenderness. F.R.O.M of both shoulders. No motor loss.
P: Detailed advice re local heat, mobilisation. Generally assured."
There was also a medical report by Dr T Malik dated 2 February 2012, for the purposes of the previous claim. The report stated that at 11 weeks after the previous accident the appellant had injuries to his neck and back "which have all been severe since the accident". The pain and the limitations it placed on him (e.g. not being able to sit for more than 5-10 minutes at a time due to his back, thus affecting his studies) "have made him anxious".
"The pain to his neck, back and right shoulder injuries is worse when getting up in the mornings. He has difficulty washing and dressing himself in the mornings as it involves turning, bending, twisting and reaching. The patient finds household chores such as washing, cleaning and putting things away, very difficult, especially if they involve bending down and lifting, reaching or standing in one place."
Dr Malik also noted that the appellant informed him that "there is no history of injuries relevant to this current accident". Apparently Dr Malik did not have the appellant's medical records when preparing his report.
There was also a short report on the appellant's vehicle dated 21 November 2011 by HTV Assessors, "Motor assessors/consultant engineers". It noted that the main impact was on the offside rear ("O/S/R") and offside front ("O/S/F"). The vehicle was roadworthy. The repair costs were anticipated as £1,071.60. The new components needed were: O/S/R door moulding. Component repair was: "[re]furbish O/S/R alloy wheel, rear bumper, O/S/R door, O/S/R wheel arch, front bumper".
The previous accident gave rise to a claim, which was settled by payment to the appellant. The appellant chose not to have his vehicle repaired when he received a cheque for the sum of £1,071.60 in relation to damage to the vehicle.
The present accident
Following the present accident on 19 July 2012, Robert Titley, of RG Investigators, was instructed by the second respondent's solicitors. He found difficulty in locating the first respondent, Mr Lalik, but finally interviewed him on 25 September 2012. He was from Slovakia and had poor English. Of the accident, Mr Lalik said that he had turned into Field Lane, Derby, was travelling at about 10-15 mph and intended to slow down to take the turn. His right boot slipped off the brake pedal and pressed the accelerator instead. That caused him to go a little faster and he hit the appellant's vehicle along the driver's door and rear panel.
There was an accident report by Laird Assessors, accident investigators. It seems that they were not told about the previous accident or that the vehicle was not repaired. Their report stated that the repair cost was £2,519.80 and that the vehicle was a total loss and was unroadworthy. The repair cost "is greater than the pre-accident value rendering the vehicle an uneconomical total loss". The main new parts required included a rear bumper, O/S/R door, O/S/F door and O/S/F door moulding. Photographs of the vehicle in the report showed the damage.
The particulars of claim and defence
Particulars of claim were issued in relation to the present accident in November 2012. The appellant signed a statement of truth. The particulars alleged that on 19 July 2012, at about 5pm, the appellant was stationary at the give way lines at the top of Field Lane, waiting to pull out, when the first respondent, Mr Lalik, turned left into Field Lane from the main road, lost control of his vehicle and collided with the appellant's vehicle. The appellant was aged 21 years at the time and sustained a whiplash injury and soft tissue injuries to the back and leg, full details being in a medical report of Mr Freij, dated 6 September 2012. The particulars of claim alleged that he had suffered these injuries as a result of the first respondent's negligence, as well as damage to the vehicle.
The second respondent's defence was dated 22 March 2013. It put the appellant to strict proof, inter alia, that the accident had occurred and that there were no links between the appellant and the first respondent. The defence stated that the second respondent averred that the claim was vitiated for lack of bona fides. In accordance it said with the guidance in Kearsley v Klarfeld [2005] EWCA Civ 1510; [2006] 2 All ER 303, it set out the matters that gave rise to its allegation of a suspected lack of good faith and the facts upon which it would invite the court to draw a negative inference. First, the defence said, there were the difficulties that the second appellant's enquiry agents had in making initial contact with the first respondent, Mr Lalik. The defence invited Mr Lalik to attend the trial and be subject to vigorous cross-examination. Secondly, the defence stated that it had been presented with two further claims, by the appellant's mother and brother, who were allegedly passengers in the appellant's vehicle, but in spite of their being represented by the same solicitors, their claims had not been litigated. The defence invited them to litigate their claims. Thirdly, the defence stated that the second respondent had repeatedly made the appellant aware of its concerns about his knowledge of the first respondent, but there had been no response.
Fourthly, the defence stated that the second respondent was aware that the vehicle was allegedly involved in the previous accident in November 2011, while driven by the appellant, where it sustained damage to the O/S/R and O/S/F. The second respondent noted that these were the same impact areas as in the present incident. The second respondent had requested access to the appellant's vehicle for the purpose of preparing a damage consistency report on numerous occasions, but had been refused. Fifthly, the second respondent invited the appellant to call potential witnesses/intimated parties/occupants of respective vehicles as witnesses, summonsing them if necessary, failing which it would invite the court to draw adverse inferences. Finally, the defence put the appellant to proof that injury was sustained and that it was caused as a result of the accident. The medical report, the defence said, was predicated on the credibility of the appellant and that credibility is an issue.
"(i) There were no objective signs of injury and that the report was based primarily upon the anecdotal evidence of the appellant which was in question.
(ii) The appellant advised the medical expert that he had only been involved in one previous road traffic accident in September 2011 from which he had recovered prior to the index accident. His GP records however suggested that he was involved in another road traffic accident on the 12 November 2011 where he suffered injuries to the back and neck.
(iii) That accident had been described thus, "Mr Ahmed was involved in a road traffic accident. He was driving. A relative did not stop at a give-way sign. He was hit on the side." The second respondent found it incredible given the concerns it had raised in relation to the suspected pre-existing connection between the appellant and first respondent, that he should be involved in a road traffic accident only seven months earlier in which he knew the driver of the other vehicle. The defence invited the court to draw adverse inferences from this."
The hearing and judgment below
There was a fast track trial on 1 July 2014. The appellant gave evidence. In cross-examining him for the second respondent, Ms Zoe Thompson elicited information that he had telephoned a school friend from the scene of the accident, whose surname he did not know, but who drove all the family home. As to the car, another friend, whose surname he also did not know, drove it home. Ms Thompson asked why they did not give evidence, to which the appellant replied that they did not see the accident.
The appellant was also asked about the damage caused by the previous accident in November 2011. He described that damage. In particular he was asked about photographs of the damage. He replied that he did not have photographs, but those who processed the case must have photographs. When questioned about the damage and that it was in the same area in both accidents, the appellant replied that that was not the case since the previous accident damaged the back alloy wheels and a tiny bit on the panel around where the back door shut. He stated that he did not know that the second respondent requested inspection of the vehicle and therefore did not know why the request was refused.
As to the medical evidence, the appellant was cross-examined about Dr Malik's medical report after the previous accident. He conceded that he had not seen the GP three times, as stated in the report. Ms Thompson then questioned him about playing football.
"Q. And do you still play football when you have severe pain in your neck and your back?
A. As far as I know, it makes it better because you are moving."
It was put to him that he had exaggerated his injuries from the November 2011 accident. He disagreed. His injuries had resolved earlier than expected. However, he agreed that he had not informed Dr Malik about the injuries from the 2009 accident. He also confirmed that that personal injury claim from the previous accident was resolved by way of settlement, but he could not remember the total amount.
The appellant's sister also gave evidence. The second respondent called no evidence.
Ms Thompson then made submissions, including that there was reason to believe that the appellant and Mr Lalik knew each other prior to the accident. The judge said that the better course was to hear from Mr Jenkins about the overall credibility of the appellant. He then invited specific submissions on what he perceived to be problems with the appellant's case: (i) the absence of the appellant's brother and mother, (ii) the veracity of a previous claim brought by the appellant, (iii) the damage caused to the appellant's vehicle in the index accident and (iv) the response made to the respondent's Part 35 questions.
In the course of submissions the judge commented that, although Ms Thompson did not like him to put it that way, effectively the second respondent's case was one of fraud. It would be normal in that situation for an appellant to call all his witnesses to show that the accident did actually happen. Mr Jenkins then took instructions that the appellant's mother was in Pakistan because she was undergoing medical treatment, which required relatives to provide around the clock care. The younger brother had returned to Pakistan as well.
Mr Jenkins then said that he was happy to give general submissions on the state of the evidence as a whole. The judge replied that that would be unnecessary and proceeded to give judgment. Shortly after, Mr Jenkins interrupted to observe that "in fairness to my learned friend and myself, you've not invited my learned friend's submissions on credibility of the claimant as a whole". The judge said that he did not need to do so, since he did not accept Ms Thompson's case on a conspiracy between the appellant and the first respondent, Mr Lalik.
After outlining details of the present accident and claim, the judge began his judgment by rejecting the second respondent's case of a link between the appellant and the first respondent, Mr Lalik. The judge said that the evidence did not support a link and added:
"If a positive case of fraud is to be an advanced, then it must be pleaded and proved. It is quite wrong in my judgment, as the second respondent seeks to do, merely to imply fraud."
The judge turned to the previous accident. After noticing the difference between the GP records and Dr Malik's report, the judge said:
"It is obvious that the appellant was grossly exaggerating his symptoms to the forensic examiner because, if he had been able to play football on 17 November 2011, that was completely inconsistent with the severity of the injuries reported in the report of 12 February 2012."
As regards the absence of evidence from the mother and brother, the judge noted the explanations for their absence but said that these did not account for the mother's failure to give a witness statement. There seemed no reason why the brother could not have given evidence if he had wished to. Both the mother and brother had intimated that they would seek to bring whiplash claims arising from the accident, although no proceedings had yet been issued. Similarly, no explanation had been given for the absence of the two friends.
"Given the nature of the allegations made by the second respondent, I am entitled to and do draw inferences from the absence of at least the brother and the two friends."
The judge concluded:
"The appellant's evidence was, in my judgment, even less satisfactory. It is clear, as I have said, that the 2011 personal injury claim was a fraud. As I have said, the report of the 12 February 2012 was grossly exaggerated as the GP's note of the 18 November 2011 demonstrates. The appellant had been a law student and after his experience of the 2009 accident he knew how to manipulate the system of claiming personal injuries. There is no engineering evidence that any damage was caused in 2012 rather than 2011. I am entitled to draw inferences from that under the doctrine Omnia praesumuntur contra spoliatorem. I draw the inference from the refusal to allow an inspection that, had an inspection been carried out, it would have revealed that there was no or possibly negligible damage from the 2012 accident."
The appeal
In cogent submissions on the appellant's behalf, Mr Jenkins sought to appeal the judge's order on the basis that the judge made a serious procedural error, errors of law and unsustainable findings of fact.
In advancing his submission, Mr Jenkins urged me to have regard to Hussain v. Amin, Charters Insurance Ltd [2012] EWCA Civ 1456, an unsuccessful appeal on costs where the judge had found in favour of the claimant and had thus rejected the suggestion that the accident was staged. This was a case where the second defendant's insurer put the claimant to proof and expressed "a number of significant concerns in relation to the parties and the claim intimated". The defence was conducted on the basis that the accident had been staged in order to generate an insurance claim. In giving the lead judgment (with which Treacy LJ agreed), Lord Dyson MR said that although the concerns raised by the second defendant did not amount to an allegation, they came close to it. Lord Dyson MR commented that "although the terms of the pleaded defence are not relevant to the issues that have been raised in this appeal, I am bound to register my concern with the way in which what in substance is an allegation of fraud was pleaded": [2]. Davis LJ agreed that the costs appeal should be dismissed and added that possibly the second defendant's pleaded defence could have raised its significant concerns about whether this was a staged accident as an initial holding defence, but it was a case pleaded on insinuation, not allegation.
"[18] … If the second defendant considered that it had sufficient material to justify a plea that the claim was based on a collision which was a sham or fraud, it behoved it properly and in ample time before trial so to plead in clear and unequivocal terms and with proper particulars. Thereafter the burden of proof would of course have been on the second defendant to establish such a defence.
[19] In the event, as I see it, the claimant was faced with a hybrid, he in effect being required at trial to deal with an insinuation of fraud without any express allegation to that effect pleaded. Realistically, the trial judge dealt with the matter in the round, concluding that the claim was not fabricated or fraudulent and that the accident had not been staged. But this sort of pleading should not be sanctioned."
Unfortunately, we do not know the state of the pleadings in Hussain. However, the concern expressed by Lord Dyson MR and the obiter remarks of Davis LJ in that case should not, in my view, be read as casting doubt on well-established authorities such as Kearsley v. Klarfeld [2005] EWCA Civ 1510; [2006] 2 All ER 303, [45], [47]-[49] and Francis v. Wells [2007] EWCA Civ 1350; [2008] RTR 13, [3], which establish that in this type of case (minor road vehicle accidents) it is not necessary for the defence to make a substantive allegation of fraud or fabrication, but it is sufficient to set out the detailed facts from which the court would be invited to draw the inference that the claimant has not, in fact, suffered the injuries or damage alleged. These authorities recognise the procedural and ethical inhibitions on advocates alleging fraud and the realities in this type of case for defendant insurance companies unearthing evidence of it.
In this case the second respondent's insurance company set out, in detail, the facts on which it would invite the court to draw adverse inferences: see paragraphs [10]-[11] above. Fraud was not alleged, and the judge was clear, in rejecting the second respondent's suggestion of links between the appellant and the first respondent, Mr Lalik, that it was not good enough for the second respondent merely to imply fraud without pleading and proving it. Rather, as it was entitled to, the second respondent put the appellant's credibility in issue and invited the court to draw adverse inferences through a range of pleaded facts. I can see no error in the way in which the judge approached the defence.
(a) Serious procedural error
Mr Jenkins contended that the judge made a serious procedural error in failing to allow him to make general submissions on the case as a whole. He had raised the fact that the judge had not invited general submissions from either counsel at the start of the judgment, but the judge proceeded regardless. The upshot was that the judge did not, therefore, hear submissions from him in relation to the evidence and issues in the case generally, including the facts of the accident, credibility, causation and quantum. One point, which Mr Jenkins would have raised, was the consistency in the appellant's account of the accident and the support given to it by Mr Lalik's statement to Mr Titley, the investigator employed by the second respondent, in late September 2012. Submissions on such ground matters could well have made the difference. It is a basic and essential element of all civil trials that each party must have the opportunity to comment upon the evidence and to put forward submissions at the conclusion of the trial. Mr Jenkins submitted that this is particularly true in a case such as the present, where no oral evidence was called by the respondents and where the appellant therefore had no opportunity to advance its case in cross-examination.
In my view, this ground does Mr Jenkins a disservice. As I commented in argument, Mr Jenkins should have been more robust at the hearing if he thought he was being deprived the opportunity of advancing the appellant's case. As the hearing proceeded, it became clear to me that Mr Jenkins is sharp and more than capable of making his case before difficult judges. I am not suggesting that the judge conducting this trial is one. In fact, there was no complaint that Mr Jenkins was not given an adequate opportunity to make submissions on credibility as a whole; the complaint was that Ms Thompson did not have that chance. Mr Jenkins was clearly invited to make submissions on each of the matters troubling the judge about the appellant's case, including the failure to call witnesses, the exaggeration of the appellant's previous accident in November 2011, as well as what, if any, damage could have been sustained to the Seat motor vehicle as a result of the alleged index accident. In short, the judge gave Mr Jenkins the chance to answer each of the issues on which he ultimately found against him. The point about Mr Lalik's interview with the investigator goes nowhere since, in the absence of Mr Lalik at the hearing, it was likely to be given little weight. This was a fast track trial and, consistently with the overriding objection, the judge did nothing more than limit the submissions on each side to the points where he was against them. There was nothing wrong in doing this; indeed, it was the commendable course to take.
(b) Appellant's previous claim
Mr Jenkins next submitted that the judge made an error of law in incorrectly drawing an adverse inference from the fact that not all of the passengers in the appellant's vehicle were present to give evidence at trial. This was in the context where he had effectively misdirected himself by referring to the case as effectively one of fraud. That was erroneous since the defence had not alleged fraud. Mr Jenkins submitted that the remit of the judge was to decide whether the appellant had satisfied the burden on him on the basis of the evidence he provided. There is no provision that allowed the judge to draw inferences from the absence of evidence, whether witness evidence or otherwise. The judge was therefore not entitled to draw them. In doing so, he made an error in law and his decision is therefore unsafe. To allow this course would be to reverse the onus of proof. It would open the door for insurance companies in any personal injury case to invite the court to draw adverse inferences to defeat claims by making scatter gun allegations without (to mix metaphors) pinning their colours to the mast.
I do not share Mr Jenkins's apoplectic vision so long as the circumstances in which adverse inferences can be drawn are limited. In the context of an appellant's failure to call particular witnesses, the Court of Appeal in Benham Limited v. Kythira Investments Limited [2003] EWCA Civ 1794, [26] approved the four principles set out in judgment of Brooks LJ in Wisniewski v. Central Manchester Health Authorities [1987] PIQR P 324:
a) in certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action;
b) they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness;
c) in other words, there must be a case to answer on that issue;
d) if, on the other hand there is some credible explanation, even if it is not wholly satisfactory, the potentially detrimental effect of his or her absence or silence may be reduced or nullified.
In accordance with these principles, it was open to the judge to find that in respect of three particular witnesses – the brother and the two friends – there was no credible explanation for their absences and a failure to at least provide a witness statement. It was obvious from the second respondent's defence that the appellant's credibility was very much in issue. The defence invited the mother and brother to litigate their inchoate claims. There was then the appellant's evidence in cross-examination about the two friends, whose surnames he did not know, attending the scene of the accident to drive the family home and to collect the vehicle. There was a case for the appellant to answer in respect of those matters, yet he offered no proper explanation as to why the two friends did not give evidence and the only explanation provided for his brother not giving evidence was that he was in Pakistan. In these circumstances, the judge was perfectly entitled to draw inferences.
(c) Previous accident
Mr Jenkins's third point was that the judge made an unsustainable finding of fact in concluding that the appellant had grossly exaggerated a previous personal injury claim. That was not a matter before him, and the second respondent had made no positive pleading in relation to it. Alternatively, the appellant was not cross-examined as to how long he had played football or the extent to which his injury allowed him to play. There was also no medical evidence before the court as to whether the appellant playing football was consistent with the injuries that he alleged that he had sustained. Further, there was no evidence as to the amount of money that the appellant received as a result of his claim, or the circumstances in which he received that money. The judge's finding of fact was unsustainable in the absence of such evidence, and his use of this finding in assessing the credibility of the appellant rendered his decision unsafe.
These submissions have to be considered against the backdrop of the realities. The judge did not decide that the present accident did not happen, that it was staged or that the appellant was not injured. It was a limited finding about the previous accident. In the report from the previous accident, it will be recalled that the appellant told Dr Malik that he went to see his GP three times following the previous accident on 12 November 2011; he purported to have severe restrictions at the date of the examination in January 2012 and referred to the difficulty with washing and dressing himself as well as household chores; he informed Dr Malik that he had not had any relevant injuries in the past; and, based on that information, Dr Malik suggested that the appellant's symptoms would fully recover after a period of 10 to 12 months. In fact the appellant had only been to his GP on one occasion following the previous accident; he had been playing football the day before his attendance at the GP surgery on 18 November 2011; he had had another road traffic accident in 2009 which had caused him injuries but he did not inform Dr Malik and he told Dr Freij who examined him in respect of the injuries sustained in the index accident that he had fully recovered from symptoms relating to the 2011 accident, prior to the index accident in July 2012 (and that therefore the 10 to 12 month prognosis given by Dr Malik was incorrect). During cross-examination, he accepted that he had been playing football after the November 2011 accident, but rather unbelievably suggested that he was doing that because it made him better.
Given all this it was, in my view, open for the judge to conclude that the appellant had misled Dr Malik and that the report of 12 February 2012 was "materially false". There was other information, not before Dr Malik but brought out in cross-examination, which the judge could use to conclude that the appellant had grossly exaggerated his injuries when the medical report was compared with his medical records. I accept Ms McKinlay's submission that this was a matter relevant to the appellant's overall credibility and a finding which the judge could make, not least since that claim had been settled without a trial. The judge's point was that the appellant had misled the medical expert in respect of that previous claim and the claim had been settled for an unknown amount on the basis of that report. Even if I were inclined to disagree with the judge's conclusion, it is not open for me on an appeal to interfere: Assicurazioni Generali v. ARIG [2003] 1 All ER (Comm) 140.
(d) Damage to the appellant's vehicle
The appellant's final ground is that the judge made an unsustainable finding of fact that little additional damage had been caused to the appellant's vehicle in the index accident. The judge drew an inference from the failure to make the vehicle available for inspection, yet the appellant's evidence was that he did not know about this. Notwithstanding the judge's description of his determination as an adverse inference, Mr Jenkins submitted that the judge actually made a finding of fact that little or no additional damage was caused to the appellant's vehicle in the index accident. Yet the appellant received a cheque for only £1,071.60 for the damage to his vehicle after the accident on 12 November 2011, while the damage caused to his vehicle in the index accident was sufficient for the vehicle to be written off. Even if the judge chose not to accept the appellant's evidence as to the damage caused to his vehicle in the respective accidents, Mr Jenkins submitted that there was clear documentary evidence that notable further damage was caused in the index accident. The judge's finding of fact was therefore unsustainable. In any event, there is no provision allowing the judge to draw this type of inference and he made an error in law in doing so.
The evidence before the judge from HTV assessors was that the main impact of the previous accident of November 2011 was the O/S/R and O/S/F. In cross-examination the appellant said that photographs may have been taken at the time of that inspection. The report from Laird Assessors after the index accident seems to have been prepared without their being told that there was a previous accident involving the vehicle in November 2011 or that the appellant had not had his vehicle repaired following it. That report recorded damage to the O/S/R and the O/S/F door, in other words, on its face similar to the damage identified in the 2011 report. The second respondent raised, in its defence, that it was the same impact area in the two accidents. Further, the defence set out in some detail the chronology of attempts to inspect the Seat, as well as exhibiting documentation in respect of that. The appellant's explanation was that he did not know his solicitors were refusing inspection. Against the background, it was open to the judge to find that the appellant had not proved that the damage evidenced in the Laird Assessors' report was occasioned as a result of the index accident. He was entitled to draw the inference – it was not a finding of fact, as he made clear – from the refusal to allow inspection and the engineering evidence that the damage suffered in the 2011 accident was very similar to the damage suffered in the 2012 accident, and that there was no or possibly negligible damage from the 2012 accident. There is no way I can interfere with the judge's finding that the appellant had failed to prove his case on this particular issue.
Conclusion
For the reasons given I refuse the application. |
MRS JUSTICE ELISABETH LAING
Introduction
This is a claim by Mr Talib Al-Mishlab ("the Claimant") for breach of contract against his employer, Milton Keynes Hospital NHS Foundation Trust ("the Trust"). The Claimant has been employed as a consultant since 2002 and has held a substantive consultant post with the Trust since 2004. He is a colorectal, laparoscopic and general surgeon.
He asks for a declaration that he has been excluded from his employment in breach of contract and an injunction requiring the Trust to permit him to return to clinical practice. He has been excluded from all clinical work since 3 March 2011. Before that, he had practised subject to restrictions, from July 2010. He also claims damages because as a result of his exclusion by the Trust he has been unable to practise privately and has lost his income from that work. He has been paid his salary throughout that period.
He has therefore been subject to restrictions on the work he could do, or excluded completely from doing any work, for over 4 years. Although the burden of proof is on the Claimant, I have to consider the length of this period very carefully against the relevant policy and contractual background; a document entitled "Maintaining High Professional Standards in the Modern NHS" ("MHPS"). The express purposes of MHPS include that NHS employers should only use exclusion in the most exceptional circumstances, when it is strictly necessary, for the shortest possible period, and that alternatives to exclusion must be considered. Under paragraph 35 of MHPS, there should normally be "a maximum limit of 6 months' exclusion, except for those cases involving criminal investigations of the practitioner concerned".
The Claimant was represented by Mr Sheldon, and the Trust by Mr Cooper. I am grateful to both counsel for their able and helpful submissions, and to both legal teams for the way in which they marshalled the many documents which have been generated by this case. Both counsel summarised the relevant facts by reference to what Mr Sheldon referred to as the significant milestones in the case, and I have relied heavily on their summaries for what I say about the facts in the next section of this judgment.
1. The facts
2 July 2010: the initial restrictions
At the relevant time, Dr Lanzon-Miller was the Trust's Medical Director. In a letter dated 2 July 2010 he raised concerns about the Claimant's surgical practice in the performance of "major colorectal surgery". He did not express concerns about any other aspect of his surgical practice. He identified a general concern about "behaviours" and, in particular, a "perceived reluctance to take advice."
Restrictions were then placed on the Claimant's practice pending investigation. The concerns expressed by Dr Lanzon-Miller were reflected in the restrictions placed on the Claimant's practice pending investigation. He was prohibited from doing "major" colorectal surgery. He was allowed to continue "less major surgery, outpatients, administrative work, teaching…..". Further details of the procedures the Claimant was still allowed to do were given in an e-mail dated 14 July 2010.
When the concerns were raised about his practice in June 2010, the Claimant supported an external review. In cross examination, the Claimant accepted that he did not have any objections to the Royal College of Surgeons (the "RCS") being the relevant external body. Dr Lanzon-Miller, Professor Wetherill and Dr Mehdi of the Trust explained in their evidence that the RCS, as the body ultimately responsible for training surgeons, provided the definitive standard on surgical practice. The purpose of bringing in the RCS was to get independent expert evidence about the Claimant's practice.
Mr Wetherill's first report
Professor Wetherill is the Trust's current Medical Director. At the relevant time, Mr Wetherill (as he then was) was a Clinical Director in the Trust. On 16 July 2010 Dr Lanzon-Miller appointed Mr Wetherill to investigate the case. The scope of the investigation was described to the Claimant by Mr Wetherill in the following terms:
"1. Your Laparoscopic Colorectal Surgery and its complication rates.
2. Your perceived attitude problems in terms of accepting advice."
On 15 October 2010 Mr Wetherill wrote to the RCS. He indicated briefly the "factors emerging" from his investigation. There were two strands: "Talib Al-Mishlab is regarded as an extremely pleasant and approachable Colorectal Surgeon" and "Concerns have been expressed by a number of clinical colleagues (both medical and para-medical) about his reluctance to accept that his patients have complications, as a result of which there appears to be a reluctance to further investigate/treat those complications in a timely manner".
Mr Wetherill completed his investigation report on 14 December 2010. A copy was sent to the Claimant for his comments. The report is thorough and detailed. It was based on a review of the available documents, and on interviews with 29 of the Claimant's clinical colleagues. The Claimant himself was not interviewed. It is the most extensive survey of the opinions held by clinical staff at Milton Keynes Hospital about the Claimant's behaviour and personality. In the course of their assessment in early 2013, by contrast, the performance assessors from the General Medical Council ("the GMC") interviewed 8 members of clinical staff at Milton Keynes Hospital. 26 of Mr Wetherill's interviews were recorded and transcribed.
Mr Wetherill could not reach any conclusion about the Claimant's comparative complication rates. The views he expressed in his report reflected the two strands he described to the RCS. A number of interviewees questioned the Claimant's attitude to complications from major colorectal surgery. But Mr Wetherill stated:
"Universally, all who have had contact with Mr Talib Al-Mishlab found him to be a pleasant, approachable Consultant......Nobody that I interviewed had anything but praise for Mr Talib Al-Mishlab's approachability. I have not found any evidence to suggest that his conduct in general is anything but professional."
The report nonetheless reflected concerns, expressed by some interviewees, that the Claimant was reluctant to take advice, and slow to admit that he might have made a mistake.
In his 20 January 2011 response to Professor Wetherill's preliminary report, the Claimant denied that many of those who had worked with him found him reluctant to accept that his patients had complications and to take advice about complications. He also denied that there had been delays in investigating patients with complications.
Despite saying in cross examination that he had not seen the evidence supporting the allegations, the Claimant accepted that he had, by that point, seen all of the transcripts of the interviews concluded by Professor Wetherill. He therefore knew what the allegations were.
3 March 2011: the exclusion
At the invitation of Mr Wetherill, a team of reviewers from the RCS visited the Trust from 2 March - 3 March 2011. Their terms of reference were: (i) to review complication rates for colorectal surgery; and (ii) to review the Claimant's "perceived attitude" towards these complications.
An urgent meeting was called by the RCS reviewers on 3 March 2011. No minutes of the discussion were taken. But Dr Lanzon-Miller, who attended on behalf of the Trust, recalls that they said that the Claimant's practice was "dangerous". The Trust's reaction to this meeting was immediate. The Claimant was prohibited from carrying out all forms of surgery, and was prohibited from entering "all clinical areas" of the Trust. This included his office because it contained "clinical notes and other information".
The RCS team told the Claimant at the end of their review that they had recommended that he should be suspended immediately, and that he should be referred to the GMC. The reason was two concerns: probity and clinical matters. There were two probity concerns: the funding arrangements of a trip to Italy and an allegation that he had vetted information at Grand Rounds. These concerns about probity were later investigated and found to be without foundation. There were four clinical issues: inappropriate case selection, failure to recognise complications, failure to take on board advice, and lack of insight.
Dr Lanzon-Miller telephoned the Claimant on 3 March 2011. In this conversation, the Claimant told Dr Lanzon-Miller that he knew what the 'phone call was about. While the Claimant said that he was shocked, he did not suggest that Dr Lanzon-Miller had any other realistic option than following the RCS's recommendation. In cross examination, the Claimant accepted that that Trust had to proceed on the basis that the allegations in the RCS's review might be true.
In cross examination, the Claimant also accepted that the RCS knew that he had been conducting minor operations before its review. In the light of this, Dr Lanzon-Miller said he had no option other than to exclude immediately under MHPS - it would have been irresponsible to do anything else, as he explained in his oral evidence.
Dr Lanzon-Miller considered alternatives. He addressed the Claimant's access to his own office and clinical areas in his witness statement and in his oral evidence. He referred to a letter headed "Immediate Exclusion", dated 9 March 2011, in which he explained that the Claimant was excluded from clinical areas and his office because clinical notes and other information were kept there. He was allowed to visit other areas of the Trust, including the library. That letter also dealt with other work. I say more about this below.
The RCS confirmed their recommendation in a letter dated 14 March 2011. On 18 March there was a meeting at which the Claimant was formally excluded. The Trust wrote on 28 March 2011 to him confirm this. The grounds for the formal exclusion were that things remained unchanged.
4 July 2011: the RCS Report
The reviewers decided that the available data were "inadequate" to assess the Claimant's complication rates for colorectal surgery. They focussed instead on the Claimant's attitude to such complications. The reviewers examined the notes of 9 patients, who were selected from a cohort of 15 patients who had had complications after colorectal surgery (the other 6 patients had been treated by other surgeons). Two sets of records were described as regarded as "inadequate for review purposes". So 7 cases were analysed. The reviewers discussed 2 of these 7 cases with the Claimant.
The report concluded that the overwhelming impression was of a surgeon who was professionally arrogant, dismissive of others, overconfident in his abilities and fundamentally lacking in insight. The report emphasised that no surgery is free from risk and that because of his lack of insight, the Claimant posed a risk to patients. The Trust submits, and I accept, that as the RCS already knew that the Claimant was still doing minor surgery, they were drawing a conclusion about the general risks from lack of insight. I also accept the submission that the Claimant's criticism of the Trust's response to the RCS report, based on the fact that the RCS had not specifically examined his performance of minor surgery, misses the point. The point is that any surgery creates risks and a surgeon with the characteristics described by the RCS is a potential risk to patients whether he is doing minor, or major, surgery.
At a meeting on 8 August 2011 the Medical Protection Society ("the MPS"), representing the Claimant, asked for the Claimant to be allowed to do audit work and go to meetings. This request was discussed in the meeting and Dr Mehdi considered it in a letter dated 26 August 2011. Dr Mehdi explained in that letter (and in his evidence) that audits involved the exercise of clinical judgment.
The 26 August letter also explained that the purpose of morbidity and mortality ("M&M") meetings was freely to discuss issues of judgment, so that it would be inappropriate to have someone present in the capacity of an observer. There was a clear concern that the Claimant's presence might inhibit the discussion and so have an adverse effect on patient treatment. That concern is reflected in the contemporaneous documents and was referred to in Dr Mehdi's evidence. Dr Mehdi also explained that the situation had changed since the Claimant's exclusion, as the Claimant had been given copies of the interview transcripts with the Wetherill report. It is submitted, and I accept this, that the Trust's concern that the Claimant's colleagues might feel intimidated and inhibited in their discussions was a proper concern.
The Claimant was allowed to take part in Continuing Professional Development ("CPD") and to use the library. Dr Lanzon-Miller's evidence was that the Claimant was only excluded from clinical areas. He was free to use the doctors' mess, which Dr Lanzon-Miller described as the focal point of the hospital.
An external placement was also later arranged for the Claimant at UCLH to enable him to have contact with clinical meetings, without the risks arising from the poor relations within the Trust. The Trust was keeping under review what the Claimant could be permitted to do and making judgments to facilitate the Claimant's contact with clinical settings while minimising the risks.
On 15 August 2011 the Claimant responded to the RCS report. He stated his commitment to "remediate" (or remedy) any deficiencies in his practice and /or behaviour. He warned of the dangers of "de-skilling" if his exclusion was maintained. He repeatedly stated his desire to work hard in improving his communication with his colleagues. He explained that he had gained insight from reading the report.
The Trust did not lift the exclusion in response to the report or when it received the Claimant's response to it. NCAS gave the Trust clear advice that it had to consider alternatives to exclusion.
7 October 2011: Professor Winslet's reports
In early October 2011 the Claimant provided the Trust with 7 reports prepared by Professor Winslet, Professor of Surgery and Head of Department at the Royal Free Hospital, which considered the treatment the Claimant had provided in the 7 cases analysed by the RCS reviewers. Professor Winslet's instructions set out the background and asked him to give his "general views on the standard of care" provided by the Claimant, by reference to a list of issues such as patient selection, consent, and surgical technique. Professor Winslet was asked to divide his report into various sections, one of which was his opinion as to the treatment provided by the Claimant to each of 7 patients, and one of which was "a separate section addressing the concerns raised by the Trust and the RCS". When Mr Wetherill came to write his final report, he had not seen Professor Winslet's instructions. He inferred from the form and contents of Professor Winslet's reports that Professor Winslet had been asked to given an opinion on professional negligence. That meant that Professor Winslet's conclusions and those of the reports of the RCS, and those of Professor Carlson were not directly comparable. I have read the instructions, and they do not expressly ask for an opinion on professional negligence. But it seems to me both that in the light, for example, of section 3 of the report, Mr Wetherill's conclusion was a reasonable one for him to make, and that it is likely that that may well have been the way in which Professor Winslet interpreted his instructions.
The Claimant submits that these reports broadly supported his management of the 7 cases. They did contain criticisms of some aspects of the Claimant's management of these difficult cases. The Claimant also submits that they showed that the criticisms made in the RCS report, which are said to have been based on a much less thorough analysis of the 7 cases in question, had been overstated.
The Trust submits (and I accept) that because Professor Winslet's reports conflicted with the RCS report the Claimant made clear by submitting them that he did not agree with the findings of the RCS report. In evidence, the Claimant agreed that Professor Wetherill would need to have his own expert to reconcile the two reports. I also accept that the provision of the Winslet reports did not change the position about exclusion because the extent of Claimant's deficiencies was still unclear and the concerns of his colleagues had not changed.
The Winslet reports did not lead to lifting of the exclusion. Their receipt was acknowledged by Mr Wetherill on 18 November 2011. He said that he would "go through" them. Advice continued to be given by NCAS that alternatives to exclusion should be considered. Representations to that effect were made on the Claimant's behalf, to the extent that the Claimant should be permitted to do audit and go to meetings. The Trust continued to refuse any relaxation of the exclusion, even to this limited extent.
11 April 2012: Professor Carlson's report
On 30 November 2011 Professor Carlson, a member of the ACPGBI disciplinary panel, was commissioned by Mr Wetherill to "comment upon a series of issues relating to [the Claimant's] colorectal surgical practice".
On 11 April 2012 Professor Carlson produced a report. He considered 5 of the 7 cases considered by the RCS reviewers in detail. Professor Carlson did not agree with all of the RCS conclusions, preferring in some instances the opinions of Professor Winslet and/ or of the Claimant.
Professor Carlson identified failures in communication and team-working from his review of the documents. The evidence about one particular case indicated "a failure of communication and professional courtesy" in the unit; the Claimant had been "completely bypassed" in that case and there was a "remarkable failure of team working". Professor Carlson noted that the Claimant had, in his response to the RCS report, expressed a desire to learn the lessons of the investigation by improving his communication with colleagues and patients, and then said this:
"In my opinion, this case actually raises as many questions about the department that TAM works in and the interpersonal and professional communications of those involved, as it does about TAM himself. Communication requires at least two protagonists."
Professor Carlson said that it was not possible to decide about complication rates without an accurate, risk-adjusted audit, and that the Trust was trying to address this "urgently". Almost 2 years after Mr Wetherill's appointment in part to investigate complication rates, such audit had yet to have been done.
July 2012: Mr Wetherill's final report
On 18 May 2012 the Claimant was sent a draft copy of Mr Wetherill's report and was invited to comment on it. He responded. He accepted his share of responsibility for improving communication in the team. He explained what steps he had taken to develop his communication skills, including many CPD courses. He said he was willing to have behavioural coaching. He suggested that mediation would be useful in rebuilding professional relationships with his colleagues.
The final report is dated July 2012. In the section headed "Methodology" the report says that its main concern was the 7 colorectal complication cases considered by the RCS review. The terms of reference were said to be the same as those in the initial letter of instruction; that is, to investigate:
"1.Concerns regarding major colorectal surgery including the nature, ration and management of complications arising from this.
2. Aspects of Mr Al Mishlab's behaviours, including a perceived reluctance to take advice from his surgical clinical and nursing colleagues."
So although it had taken him two years to complete, the scope of Mr Wetherill's investigation had not changed. It was still about the Claimant's performance of major colorectal surgery. That is confirmed in the report of the Case Manager Dr Mehdi dated 2 August 2012. Although there would appear to have been some extension of the terms of reference agreed at a meeting on 29 September 2011 the additional matters did not expressly address the Claimant's competence to carry out other forms of surgery. Professor Wetherill accepted in cross examination that he had rather taken his eye off the ball in relation to the question of complication rates.
Professor Wetherill decided that communication by the Claimant with members of staff had been criticised throughout the investigation, across all those reporting on the Claimant's clinical activities. The Claimant accepted in evidence that this was a fair conclusion and that communications are important to patient safety. He also accepted that many who worked with him said that he was reluctant to take advice and that this led to further patient safety issues.
Professor Wetherill concluded that while the investigation was a snapshot of the Claimant's practice, it revealed evidence of poor communication, technical errors in judgment and surgery, and poor note keeping, leading to concerns over patient care and safety. Some of the criticisms made by the specialists were "very serious criticisms". The case manager should review the findings and their implications, and take note of the "poor and at times very poor interpersonal relationships" between staff and the Claimant and consider whether these were "rectifiable and recoverable". The case manager should also take note of the Claimant's indication of the lessons he had learnt and of the CPD courses he had been on.
The Claimant accepted in his evidence that his reintroduction would need careful handling and that a hasty reintroduction would not be sensible and would be counterproductive. He also accepted that serious concerns had been raised about relations with colleagues, which would need to be rebuilt carefully.
August 2012: Dr Mehdi's report
Until Dr Mehdi had the Claimant's comments on the final report, he could not take a final decision on the appropriate way to manage reintegration. This was delayed because of personal circumstances and eventually provided on 25 June 2012.
Dr Mehdi's report concluded that resolving the matter routinely through management was not possible, as there was no more senior laparoscopic colorectal surgeon who could assess, supervise and support the Claimant's practice. He therefore recommended an NCAS assessment with prior refresher training at an external Trust. Dr Mehdi also observed that the investigation had raised issues "relating to the organisation more widely and not just to TAM". These included colorectal MDT meetings, colorectal audits and "post operative care as a whole".
Before his exclusion, the Claimant had been a senior member of the colorectal team. The idea that he should be supervised by one of his juniors was problematic in the context of concerns that the Claimant had not properly taken on board criticism. The Defendant submits, and I accept, that the Claimant's reliance on his demonstration of successful communication in his UCLH placement is misplaced. That placement involved no clinical work. It was therefore not possible for the Claimant to show by this that he could accept he had made mistakes. At a meeting on 13 August 2012, the Claimant himself agreed that an assessment process would be best undertaken at UCLH.
28 September 2012: the MPTS hearing
The Claimant's case was considered by the Interim Orders Panel ("the IOP") of the Medical Practitioners Tribunal Service ("the MPTS") on 28 September 2012. The purpose of the IOP is to consider what, if any, restrictions should be placed by the GMC on a doctor's registration while concerns about his practice are investigated. The essential objective of the IOP is the protection of patient safety.
The Claimant's representatives submitted to the IOP that the concerns were limited to his colorectal practice and there was no reason at all why he should not be permitted to perform other types of surgery. The IOP appears to have accepted that submission. It imposed a condition which required the Claimant to be "closely supervised" by a consultant while performing colorectal surgery, but otherwise left him free to carry out all other types of surgery without restriction.
The Claimant's representatives urged the Trust to adopt that approach. Those submissions were rejected. The Trust maintained the position that exclusion was justified.
8 January 2013: the NCAS meeting
On 8 January 2013 there was a meeting between the Claimant, the Defendant, and a representative of NCAS. It was agreed (in principle) that the Claimant should be permitted to return to clinical practice, subject to the limited restrictions imposed by the IOP on his colorectal practice. A "refresher placement" was considered necessary in the light of the fact that the Claimant had now been excluded from all clinical practice for almost 2 years.
A detailed action plan was drawn up to help the Claimant return to clinical practice. The premise of the plan was that, on its completion, the Claimant would return to work as a consultant colorectal surgeon at the Trust. It was envisaged that the plan would take 6 months to complete. The Claimant would do the full range of clinical duties, subject to a structured reduction in supervision, with the objective of seeking a review of the restrictions imposed by the GMC "that will allow him to work towards unsupervised practice".
There was correspondence between the Trust and UCLH, aimed at securing agreement for remediation. The formal exclusion was lifted and converted into a restriction in order to facilitate the UCLH placement.
The "restrictions on practice"
On 1 March 2013 the case manager, Dr Mehdi, wrote to the Claimant replacing his exclusion with a "restriction of practice". He said:
"You are not to work clinically at Milton Keynes Hospital nor attend or take part in clinically related activities, such as MDT meetings, morbidity & mortality meetings or audit meetings where direct clinical care issues are being discussed. You may attend on the premises including your office, training areas and the library, but not in clinical areas. You may attend educational events, as part of the audience or as an attendee on the event."
In an email dated 19 March 2013 Mr Wetherill asked the Claimant to be moved to a different office in case he should find himself in the same room as a set of patient records "or other patient related data." Shortly after this the Claimant was told that he would need to make an appointment to visit his own office, for a "pre-planned and agreed" reason. This seems to have been the result of the Claimant's return to his office a few days before, which I describe below.
On 5 April 2013 Mr Wetherill wrote to the MPS explaining that the Claimant could not share an office with a locum consultant because there would be "clinical material around the office and possibly on the computer screen." There were also practical reasons for this, as the locum was working from what had been the Claimant's office, and it was a small office.
September 2012 to April 2013: the UCLH placement
Initially, it seemed that refresher training would take place at UCLH. Despite some problems getting in touch with Mr Cohen, the Claimant's supervisor at UCLH, the Claimant accepted in his evidence that Dr Mehdi was doing his best.
The Claimant drafted a programme of return to work, subject to further consideration and discussion between the parties and ultimate agreement with any host Trust.
Unfortunately, after a departmental meeting in April 2013, UCLH decided that it was unable to provide the placement. Within a fortnight, Professor Wetherill wrote to five neighbouring Trusts to ask if they could help.
13 May 2013: the GMC performance assessment
Between 16 February 2013 and 1 March 2013 a GMC performance assessment team did a detailed assessment of the Claimant's fitness to practise. It had three main elements: a "peer review" consisting of discussions with the Claimant and several of his clinical colleagues, a review of 40 sets of patient records, and "tests of competence", consisting of a surgical applied knowledge test and a clinical examination. The Claimant's practice was assessed on a scale of acceptable/ cause for concern/ unacceptable.
Despite having been excluded from all clinical activity for about 2 years by the time of the assessment the Claimant's performance was assessed as acceptable in the following areas: (i) assessment of patient's condition; (ii) providing or arranging investigations; (iii) providing or arranging treatment; (iv) other good clinical care; and (v) relationships with patients (including consent). In the applied knowledge tests the Claimant scored 92.43%, against a standard set score of 67%. The report notes that "in comparative terms 100% of the surgeons in the reference group would have scored below Mr Al-Mishlab." In the competence tests the Claimant achieved "acceptable" scores in the majority of the 12 stations and fell below the 25th centile in "basic life support, cancelled operation, thrombprophylaxis and erectile dysfunction".
Two areas were identified as a "cause for concern". The first was record keeping. The concerns were "mostly" related "to the structure and organisation of the medical records". The second was working with colleagues. The assessors described "a mixed picture". A large number of instances of "acceptable" practice were identified in the records, case-based discussions (CBD), and third party interviews. However, there were also some indications of "unacceptable" performance in this area, drawn primarily from third party interviews.
"Reflective practice" was described as unacceptable. This was assessed under the general heading of "maintaining good medical practice". The assessment was based on the "consistent views" expressed by the Claimant's colleagues during third party interviews that he did not reflect on his practice and denied making mistakes. The assessors gained a different impression from the Claimant during the course of the assessment and explained their reasoning in support of their conclusion of "unacceptable" thus:
"Our conclusion therefore was that with respect to reflective practice his performance in the past had been unacceptable but by the time of the assessment he appeared to have gained insight and had resolved to change his approach. However, we cannot be certain that his insight would be maintained in practice. We therefore judge his performance in this area to be unacceptable."
The assessors concluded that he should return to clinical work as a laparoscopic colorectal surgeon, subject initially to supervision. However, the assessors concluded that, based on their discussions with the colorectal surgeons and other staff at Milton Keynes, a return to Milton Keynes was not a realistic option. The Claimant then gave undertakings to the GMC, in which he accepted that he would need to be supervised.
Luton & Dunstable
In June 2013 the Claimant was told by the Trust that Luton & Dunstable Hospital had said it was willing to provide him with a placement. The Claimant had a positive meeting at Luton on 21 June 2013. That offer was later put on hold when a second GMC investigation was announced. It was withdrawn when conditions were imposed on the Claimant's registration (including the requirement for a chaperone) as a result of allegations based on hearsay made by two nurses in interviews with the GMC. Those allegations were later dismissed by both the GMC and the Trust. Neither needed to interview the Claimant in order to do this.
This news was clearly frustrating to Professor Wetherill, as the Claimant accepted in his evidence. In the light of it, Professor Wetherill then contacted the Claimant's colleagues in the Trust, to ask them to consider supervising him. He made several such approaches. Their responses were not positive.
Mediation
There were attempts to convene a workplace mediation this year. The Claimant sought to exclude two senior members of the team, Mr O'Hara and Professor McWhinnie, from this. This was not a sensible approach, and it slowed down the arrangements for the mediation. There were negotiations about the format of the mediation. A mediation agreement was signed in September 2014. After making faltering progress, the mediation failed when, in November this year, Mr O'Hara refused to take any further part in it.
Alternatives to exclusion
Throughout, the Trust was given clear and repeated advice that it must manage this case in accordance with Part II of MHPS, and it must fully consider alternatives to exclusion. This advice has come from two sources, NCAS and the Claimant's representatives. Almost immediately after the decision to exclude the Claimant the Trust received advice from NCAS of the need to consider alternatives to exclusion. That advice was consistently repeated; including the need to consider specific alternatives such as supervised working, or non-clinical work.
2. The relevant provisions of the contract of employment
I was sent copies of the 2007 and 2009 versions of "Terms and Conditions – Consultants (England) 2003 ("the TCCE") after the hearing. I say a little more about that below. Both sides agree that Maintaining High Professional Standards in the NHS ("MHPS") is incorporated in the Claimant's contract of employment and that the relevant provisions of MHPS have contractual force. These provisions, which deal with exclusions, among other things, were introduced "to combat a perceived suspension culture in which doctors charged with incompetence are too readily suspended pending the outcome of investigations and then remain suspended for long periods, to the detriment of their own wellbeing and professional development and to the disadvantage also of the NHS itself" (per Underhill J, as he then was, in Mezey v South West London and St George's Mental Health NHS Trust [2006] EWHC 3473 (QB); [2007] IRLR 237 at paragraph 15).
The section headed "Restriction of practice and exclusion from work" starts by reminding employers of the Restriction of Practice and Exclusion from Work Directions 2003, issued by the Secretary of State for Health. These provide, among other things, that "NHS bodies must ensure that exclusion from work is only used as an interim measure whilst action to resolve a problem is being considered", and that where a practitioner is excluded it must be for the minimum period of time, which can be up to, but no more than, 4 weeks at a time.
Paragraph 4 provides that where serious concerns are raised about a practitioner, the employer must urgently consider whether it is "necessary" to place temporary restrictions on his or her practice. Paragraph 5 says that exclusion from the workplace is a temporary expedient. It is a precautionary not a disciplinary measure and "should be reserved for only the most exceptional circumstances." One of the purposes of exclusion is to protect the interests of patients or staff. It is "imperative" that exclusion is not misused or seen as the only course of action which could be taken. The degree of action must depend on the nature and seriousness of the concerns and on the need to protect patients (paragraph 6).
Alternatives to exclusion are listed at paragraph 7. They include supervision, restrictions to some types of clinical duties or restricting duties to administrative, research/audit, teaching and other educational duties. With mutual agreement the latter can include training or "re-skilling". Where capability is at issue, an action plan should be considered (paragraph 8). The NCAA (now NCAS) can advise.
Paragraph 9 provides that the justification for exclusion must be regularly reviewed and before any further 4-week period of suspension is imposed. The employer is responsible for ensuring that the process is carried out fairly and quickly, kept under review and that the total period is not prolonged. Paragraph 14 deals with immediate exclusion. This may be "necessary" for the purposes identified in paragraph 6 if there is a critical incident when serious allegations have been made. Such an exclusion "will allow a more measured consideration...". The period of such an exclusion should be used for preliminary analysis, to contact NCAS and convene a case conference. A meeting must be held with the practitioner within 14 days. The manager making the exclusion must explain the decision to exclude in broad terms.
Paragraph 15 provides that formal exclusion "may only take place after the case manager has first considered whether there is a case to answer and then considered, at a case conference, whether there is "reasonable and proper cause to exclude". NCAS must be consulted.
If a case investigator has been appointed, he must produce a preliminary report as soon as possible for the case conference. That report is advisory, to enable the case manager to decide on the next steps. It is tolerably clear from this that the person who must take the decision formally to exclude is the case manager. The preliminary report should provide sufficient information to enable decisions to be made on various questions, such as whether the allegation is unfounded, whether there is a concern about the practitioner's capability and whether the complexity of the case warrants further investigation before advice can be given on "the way forward and what needs to be inquired into" (paragraph 16).
Formal exclusion "must only be used where there is a need to protect the interests of patients and staff pending the outcome of a full investigation of allegations of misconduct, concerns about serious dysfunctions in the operation of a clinical service, concerns about lack of capability or poor performance of sufficient seriousness that it is warranted to protect patients or the presence of the practitioner in the workplace is likely to hinder the investigation" (paragraph 17).
"Full consideration must be given to whether the practitioner could continue or return to work in a limited capacity or in an alternative, possibly non-clinical role pending the determination of the case" (paragraph 18). It is clear from paragraph 19 that exclusion must be "regarded as the only way to deal with the case".
The practitioner should usually be allowed to return to work (with or without restrictions) as soon as the original reasons for exclusion no longer apply (paragraph 21). A further obligation is imposed by paragraph 23, which provides that if, at any time after an exclusion, investigation reveals that the allegations are without foundation, or further investigation can continue with the practitioner working normally or subject to restrictions, "the case manager must lift the exclusion, inform the SHA and make arrangements for the practitioner to return to work with any appropriate support as soon as possible".
Paragraph 24 is headed "Exclusion from premises". It provides that practitioners "should not automatically be barred from premises" when excluded from work. "Case managers should always consider whether a bar from the premises "is absolutely necessary". Exclusion from the premises will be necessary, for example, if there is a risk that the practitioner will tamper with evidence, or where the practitioner is "a serious danger to patients or staff". But, "In other circumstances...., there may be no reason to exclude the practitioner from the premises. The practitioner will wish to retain contact with colleagues, take part in clinical audit, and to remain up to date with developments in their field of practice or to undertake research or training".
A section of MHPS is headed "Keeping in contact and availability for work". When a practitioner has been excluded, the case manager should "make arrangements to ensure that the practitioner can keep in contact with colleagues on professional developments, and take part in continuing professional development (CPD) and clinical audit activities with the same level of support as other doctors....in their employment." A mentor should be appointed for this purpose "if a colleague is willing to undertake this role" (paragraph 26).
The next section is headed "Keeping Exclusions Under Review". It imposes rigorous requirements on a trust board to monitor exclusions generally and each exclusion specifically. Paragraph 35 provides that "Normally there should be a maximum limit of 6 months exclusion, except for those cases involving criminal investigations of the practitioner...The employer and the NCAA should actively review those cases every 6 months.
The next section is headed "Return To Work". If it is decided to end the exclusion, "...there must be formal arrangements for the return to work of the practitioner" (paragraph 43).
3. How is MHPS to be interpreted?
Part II of MHPS is a mixture of provisions. It confers powers and imposes duties. It is a mixture of substance and procedure. Some of its language is plainly contractual, and some is much vaguer. Some of the questions to which it gives rise are hard-edged questions of fact, and some are questions of assessment or judgment. It is important not to lose sight of the fact that, while one of its purposes is to combat the "suspension culture", the power to exclude practitioners which it confers is, in some circumstances, essential to patient safety. To the extent that a balance is ever required to be made between the interests of patients, and those of a practitioner, the former must always take precedence. Moreover, if there is any doubt about where the balance lies, that must be resolved in favour of the safety of patients.
It is also important to bear in mind, in line with the recent cases to which Mr Cooper, for the Trust, referred me, that in an employment procedure such as MHPS, the employer is not engaging in an adjudicative process, but is managing its employees and its business (McMillan v Airedale Foundation Trust [2014] EWCA Civ 1031; [2014] IRLR 803 at paragraphs 51 and 52 per Floyd LJ, citing Christou v Haringey London Borough Council [2013] EWCA Civ; [2014] QB 131 and Mattu v University Hospitals Coventry and Warwickshire NHS Trust [2012] EWCA Civ 64; [2013] ICR 270.
In Mezey Underhill J (as he then was) granted an interim injunction preventing an NHS Trust from implementing a decision totally to suspend the claimant on disciplinary grounds. He described the policy behind MHPS as "that suspension should be restricted to cases where it is strictly necessary, that it should last for as short a period as possible, and that limited or partial suspension should always be considered where possible", relying in particular on paragraphs 4-7 and 17-18 of Part II of MHPS. In that case there was no breakdown in relationships, and the order made by Underhill J did not require the claimant to be permitted to do clinical duties. Underhill J recognised (judgment, paragraph 28) that the discretion to suspend was a broad discretion that "may require a balancing of a number of different factors". If "cogent reasons" had been put forward for a blanket suspension, Underhill J would have been "slow to second-guess" them.
In Hussain v Surrey and Sussex Healthcare NHS Trust [2011] EWHC 1670 (QB) Andrew Smith J carefully analysed the defendant Trust's disciplinary procedure (which mirrored MHPS) in order to decide which of the provisions at issue in that case were contractually binding as opposed to merely hortatory. He set out some of the relevant factors at paragraph 168 of his judgment. They are the importance of the provision to the contractual relationship as a whole, how detailed the provision is (the court should not micro-manage the procedure), how certain are the requirements of a provision, whether the provision is set in other provisions which are contractual, or among provisions which are guidance only, and whether, if the term were given contractual effect, it would be unworkable. The language of the provision is also relevant (judgment, paragraph 169). There appeared in this context, however, to be no helpful distinction between the use of the words "should" and "must".
This analysis led him to conclude that paragraphs 2.6, 2.17 and 2.18 were contractual in effect. Those provisions correspond to paragraphs 6, 17 and 18 of Part II of MHPS. When Dr Hussain was first excluded, as the Judge found, the Trust had concerns about her capability, but had considered that she had acted in good faith. It did not have the serious concerns about her probity which it later formulated against her. Contrary to paragraph 9 of MHPS, the exclusion was not kept under review (judgment, paragraph 83). The Trust would not consider any modification to the exclusion because it was following "standard NHS practice" of not relaxing an exclusion to any extent (judgment, paragraph 85). He could see "no justification" for a decision to restrict the Claimant's non-clinical work, or to restrict her from doing any clinical work" (judgment, paragraph 89). He rejected the Trust's evidence that alternatives to exclusion had been discussed, and dismissed, when the decisions to exclude her had been made (judgment, paragraph 90). In any event, he was not persuaded, even after it was alleged that Dr Hussain had been tampering with patient records, that it was necessary or reasonable to exclude her entirely from Trust premises or from having access to colleagues (judgment, paragraph 91). I infer from (for example, paragraph 93 of the judgment) that the Trust's evidence on some of these questions was insufficient.
I have been referred to various cases about the test which a court should apply when deciding whether or not a discretion conferred by a contract of employment has been exercised lawfully or not. If a contract confers an apparently unfettered discretion, then that discretion must not be exercised capriciously or unreasonably. There is no breach of contract unless the employer's exercise of discretion was outside the range of reasonable responses. If, by contrast, a contract confers a discretion which is only exercisable if conditions laid down by the contract are met, then the court will decide, as a matter of fact, whether those conditions were met.
I accept the Trust's submission that the MHPS gives a Trust a discretionary power to exclude a practitioner. That discretion is subject to a number of contractual fetters (it must be necessary, it must be used only in the most exceptional circumstances, alternatives must be considered, various procedural safeguards must be observed, and so on). I also accept the Trust's submission that the standard of reviewing of the exercise of the discretion is the Wednesbury test.
Further, I accept the submission that in considering the application of the contractual conditions for the exercise of that discretion, I must bear in mind the employment context. It seems to me that many (but not all) of the contractual fetters in MHPS necessarily depend on the exercise of a judgment by the employer to be made in the context of a particular workplace, the relationships in that workplace, the conduct of a particular individual, and the reality that no risks can be taken with the safety of patients. Even if, as a matter of analysis, the fulfilment or otherwise of the contractual conditions for the exercise of the discretion to exclude is for the court to decide, as a matter of fact, the practical reality is that I am not in a position, other than by means of a Wednesbury review, to second guess decisions by the Trust about the necessity of exclusion, whether there are alternatives to exclusion or restrictions, and other similar issues. I have limited and superficial knowledge of this workplace, and of the balance of the different factors to which Underhill J referred in Mezey.
It is not clear to me that Andrew Smith J was, in substance, applying a different test to the question whether the Trust breached Dr Hussain's contract of employment in excluding her and in failing to consider alternatives to exclusion. But if he was, it seems to me that that approach was contrary to the weight of authority, and I do not follow it.
That approach, of course, does not apply to the provisions of MHPS which give rise to hard-edged questions of fact. I can also readily see that if a Trust fails to adduce evidence, or satisfactory evidence, on the evaluative questions which are posed by some of the provisions of MHPS, a court may (as did Andrew Smith J in Hussain) decide that it has not complied with MHPS in excluding a practitioner.
That approach is consistent, in my judgment, with the overall purpose of Part II of MHPS in a case like this. That has two aspects. The first is to enable Trusts to exclude practitioners where they judge that that is necessary for patient safety. The second, which is not likely to have been intended to be inconsistent with the first, is that a practitioner should not be excluded unless a Trust judges that threshold tests are, and continue to be, met, and that exclusion should be subject to procedural safeguards, such as regular reviews. In that context, it would be surprising if the drafters of MHPS had intended that the court should be the primary arbiter of such issues as the need for exclusion, and the availability of alternatives to exclusion.
It also seems to me that I must be careful not to confuse substance with form in this context. The Trust has not always followed MHPS. Dr Mehdi, the case manager, should have made the decision to exclude, but it was in fact made by Dr Lanzon-Miller, the Medical Director. It is doubtful, from his evidence in cross examination, whether Dr Mehdi, who was the case manager for a long time, applied the right test when reviewing the exclusion: he considered whether "there had been a material change in circumstances to warrant a change in the exclusion". He did not read the RCS report for some time after it was sent to the Trust. It was initially sent to the medical director, and he acted on what he was told about its contents by him, rather than reading it himself. It is also clear from the evidence that no investigations were made about whether there was alternative, non-clinical work for the Claimant to do in the Trust. As Dr Mehdi said, "I made no inquiries. If the Claimant was excluded from seeing patients, I know as a consultant that there is no work for him to do. Professor Wetherill's evidence was to similar effect. I say more about this issue below.
Although the Claimant's exclusion or restriction continues, I am being asked to consider a long period, during which, from time to time, the Trust has failed to follow MHPS. Those breaches were not the subject of proceedings at, or shortly after, the time when they occurred. If he had asked to Court to restrain an anticipated breach of one of those procedural provisions, the Claimant might well have been granted relief. And he might well be entitled to an award of damages if he could show that those breaches had caused him loss.
For me, reviewing the history of the exclusion, the real question about those breaches is whether they caused the central loss of which he complains, that is, his exclusion and restriction. For the reasons which I explain below, I do not consider that these breaches did cause his exclusion. My approach has been to ask, not whether the Trust observed MHPS to the letter (it did not always do so), but to ask whether, despite its failures to follow MHPS, the initial exclusion and its continuation were, in substance, a breach of MHPS, because they did not meet the criteria of MHPS.
If that if that is not the right approach, a Trust could be required to reinstate a practitioner, if it has broken what seem to me to be (in the context of this dispute) adjectival provisions of MHPS, but its underlying decisions (to exclude a practitioner and to maintain that exclusion or restrictions on his practice) were within the range of reasonable responses. I do not consider that, in the context of clinical practice, and the necessary focus on the safety of patients, that can be the right approach. I recognise that this cautious approach may lead to a sense of unfairness on the part of practitioners, such as the Claimant, who have been excluded for a very long time, and who know that their employers have, in various respects, failed to follow the procedures in MHPS, the purpose of which is to protect their interests. But the analysis of this case is not the same as the analysis which would apply if this were an application for judicial review of a decision governed by public law. The Claimant, I think, accepts that this is so, as I explain in the next paragraph.
4. The dispute
There is no challenge to the Trust's decision to place restrictions on the Claimant's practice in 2010. There are various respects in which the Trust has failed to comply with the letter of MHPS to the letter. Some of these are admitted. But the Claimant's challenge is to the substance of the decision to exclude, and to the fact that it has been maintained, in substance, if not in name, from March 2011 until now. For that reason, and for the reasons given above, I have therefore ignored what, for these purposes, I regard as inconsequential breaches of MHPS by the Trust. That is not to say that they are unimportant, or that I condone them. They are not and I do not. That is to say that they have no bearing either, on the essential lawfulness of the exclusion, or, as I shall explain (in case I am wrong about that) on the relief to which the Claimant is entitled.
(1) The initial restrictions
The Claimant accepted a number of points in his evidence. All members of a multi-disciplinary team need to be able to work together. A surgeon's relationship with his colleagues is vital. He agreed that a practitioner must be able to listen. A surgeon must reflect regularly on his practice, and work collaboratively with his colleagues. Multi-disciplinary team meetings are part of that, as many patients have cancer or other illnesses. No surgeon is infallible, and no surgeon works in isolation. Nurses and junior doctors can spot things a surgeon misses, and if there is not an open atmosphere between colleagues, that can harm patient safety. Nurses make an important contribution. Failure to listen is a patient safety issue. The presence of a person in a multi-disciplinary team with whom colleagues cannot be open and collaborative is also a patient safety issue as it affects the functioning of that team.
He was asked in cross examination about the "trigger incident" on 18 June 2010. He agreed that to exteriorise the wrong end of a stoma should be a very rare occurrence. He accepted in his evidence "100%" that he had got this operation wrong. He was less willing to accept that he had ignored the concerns of his registrar; he had, rather, asked him to explain his concern and, because the registrar could give no reason for it, had not acted on it. On reflection, he now realises, he should have explored the concern further. He denied telling Dr Lanzon-Miller that it was not his work at all but that of the registrar. The registrar mobilised the stoma, but the Claimant had closed the ends. He did not prevent the registrar from extracting more intestine to check. If the registrar had asked to do this, he would have done so. He denied blaming the registrar for not expressing his views strongly enough. He said that the RCS had only been willing to listen to one side of the story.
But he did not deal satisfactorily with all Mr Cooper's questions about why the nurse had by-passed him and gone to Mr O'Hara about patient MP. At first he could not apparently understand why she had done that, in breach of the normal professional courtesies. It seems probable to me that she did so either because she had raised her concerns with him and he had not listened, or, because of previous experiences of his not having listened, she felt no confidence that he would listen on that occasion. As Professor Carlson observed, "... "communication" seems to be less of an issue than "attitude" and "interpersonal skills"...." (report, paragraph S1.20). The Claimant said that this incident was "a clear example of [the nurse] failing to communicate with me". Later, however, he did accept that the nurse and Mr O'Hara had bypassed him because of a perception that he would not listen, and that that was a reasonable assumption, because he did not listen. He accepted that this episode showed dsyfunction in the team. He also accepted, but very grudgingly, that paragraph 38 of his witness statement, in which he asserted that Mr Wetherill's initial investigatory report had described him as having "good working relationships with colleagues" was not accurate. He accepted that even if his colleagues' perception was completely unreasonable, the Trust could not ignore it. He agreed that in the past they had been right to have that perception. They would have to see a change in order to accept it. The question of when and how he was to be reintroduced involved a careful balance of factors. It was a question about which reasonable people might disagree. He would not accept that a placement in an outside NHS trust would be a good starting point.
The Claimant did not initially respond in a concessive way to the Trust's concerns. At the meeting on 28 June 2010 when restrictions were put on his practice, his response, as he accepted in cross examination, was that there were some people in the Trust, that is, anaesthetic colleagues, who always seemed to be out to look at his complications, but not colleagues'. That had been his view at the time. In his written response to Mr Wetherill's report he "refuted" the suggestion that he was unwilling to accept that there were complications, and did not accept that he had delayed treating patients. He took this attitude because "there was no evidence before me".
As I have said, the Claimant does not challenge the decision to put restrictions on his practice on 2 July 2010. The effect of these was to stop him doing major colorectal surgery and on-call duties, but he was allowed to do more minor procedures. He accepted at a meeting on 28 June 2010 that the Trust's concerns would have to be investigated and supported the involvement of outside colorectal specialists in that investigation.
(2) The challenges to the exclusion
The Claimant has four basic arguments.
(1) Since the remit of the RCS was only to investigate his major colorectal surgery, and since there had been no problems with the minor procedures he had been carrying out, the Trust should not have excluded him from all surgery in response to the RCS investigation.
(2) The Trust failed to consider alternatives to exclusion.
(3) The Trust should not have maintained the exclusion (or restrictions on his practice) during the period for which they were maintained.
(4) He should now be permitted to return to work at the Trust.
(a) The exclusion from all surgery
Dr Lanzon-Miller was cross examined about his decisions initially and then formally to exclude the Claimant. There were two strands to this; first whether he should have made further inquiries, rather than relying on the RCS report, and second, whether he had considered, and whether there in fact were, alternatives to exclusion. I bear in mind that the RCS assessors were so concerned with what they had found that they hauled Mr Wetherill out of a private clinic in order to communicate their concerns to him.
On the first topic, I accept Dr Lanzon-Miller's evidence that it would have been foolish of him to "inquire into the inquiry" done by the RCS in order to see whether the Trust should follow the recommendations of the RCS, conveyed initially orally in March 2012, and then, some 4 months later, in its report. It was his duty as Medical Director with responsibility for patient safety to take it into account. He did not need independently to satisfy himself that the advice of the RCS was sound. It is the highest expert body in the country, and its expert advice had been sought because Mr Wetherill did not have the expertise to investigate the concerns about the Claimant's practice without expert help.
The RCS had known that the Claimant was working subject to restrictions and had been doing less major operations. The RCS did not review his record for less major procedures. But any operation is risky and a surgeon's technical ability is only one part of being a doctor: a technically able surgeon can be a bad doctor. I accept Dr Lanzon-Miller's evidence about that.
The Claimant's suggestion in cross examination that Dr Lanzon-Miller should not have decided to exclude him from all surgery is unrealistic. The Claimant had to accept in cross examination that complications occur in all surgery and that clinical judgment is essential for all surgery. But he could not see that the concerns expressed by the RCS about his major colorectal surgery were concerns which, any reasonable employer would be entitled to conclude, would make him unfit to do any surgery. The concerns are not so much about technical ability (for if they were, he might safely be able to do minor procedures) but about clinical practice. But there were technical concerns as well.
For all these reasons, I reject the submission that the exclusion of the Claimant from all surgery (and not just colorectal surgery) was outside the range of reasonable responses which an NHS Trust might have to the circumstances which faced Dr Lanzon-Miller in March 2011. But if necessary, I would go further. In my judgment, the Trust had no option but to exclude the Claimant from all surgery.
(b) Were there alternatives to exclusion?
I have dealt above with the alternative of permitting the Claimant to continue doing more minor procedures. Both Dr Lanzon-Miller and Dr Mehdi were asked about alternatives in cross examination. I am satisfied, although there is nothing in his file note about this, that Dr Lanzon-Miller did consider in March 2011 whether there were alternatives to exclusion and decided that there were none. I also find that, with his knowledge of Milton Keynes Hospital (he was its Medical Director at the time) he was able to form a view about this without detailed investigation. As he explained, teaching, for a consultant, is primarily done on the job. The Claimant could not teach more junior doctors as he would not be in theatre, or doing ward rounds. There were some lectures, but these were in accordance with a timetable which had been set in advance, and the Claimant did not have an academic background. He had co-written one paper and written some case notes (one, as it happens, with Dr Lanzon-Miller). For the consultants at Milton Keynes Hospital, there was little if any administration other than administrative work relating to their patients. This evidence was supported by that of Dr Mehdi, who said, in effect, that he knows, as a consultant, that if he has no patients, he has no administrative work; there are no letters to write, and no reports to review.
It was suggested that the Claimant could have attended meetings, such as M&M meetings, or could have been found work to do in clinical audit work, or "up-dating protocols". It was suggested to the Claimant in cross examination that his presence in meetings before he had been rehabilitated might in fact be counter-productive. The Claimant agreed generally that his colleagues had to see he had changed in the clinical context, but did not see how this would be a problem if he had participated in meetings before rehabilitation had taken place. I accept the Trust's evidence that, given his colleagues' concerns about his attitude (his failure to listen and to accept he had made mistakes) it was open to those dealing with his case to think that his presence at M&M meetings would inhibit the free and frank discussion at such meetings which is so essential to the safety of patients. It would not therefore be feasible for him to attend such meetings as an observer. Mr Cooper further submits (and I accept) that while the Trust's investigation continued, there was an additional reason why the Trust was reasonable in concluding that the Claimant should not go to such meetings, as Dr Mehdi explained. Once the Claimant knew what his colleagues had said in their interviews to Mr Wetherill and to the RCS, and for so long as there was a possibility that they might be re-interviewed, the situation was sensitive, because it is difficult (and unusual) for any colleague, and especially more junior colleagues, to criticise a consultant.
I also accept the Trust's evidence that clinical audit work involves the exercise of clinical judgment. It was therefore open to those dealing with his case to conclude that the concerns about that aspect of his practice meant that it was not appropriate for him to do that, either. If it was reasonable of the Trust to decide that the Claimant should do no clinical work, it seems to me to follow that it was necessary for the Trust to ensure that he did not have access to clinical information, such as patients' notes. If a person is not doing clinical work, there is no reason for him to have access to patients' notes, and if there is no reason for a person to see patients' records, there are good reasons (such as patient confidentiality) for ensuring that he does not casually encounter them.
(c) The continuation of the exclusion
The Claimant accepted in cross examination he had commissioned reports which differed from the views of the RCS (from Professor Winslet, dated 7 October 2011). He also accepted that the differences between Professor Winslet and the RCS meant that Mr Wetherill needed further expert help to guide him. In the end, for reasons which were outside Mr Wetherill's control, this took a long time, and Professor Carlson's report was not finished until April 2012. Mr Wetherill's final report was finished in July 2012. He had interviewed the Claimant on 8 and 9 March 2012. I have described Mr Wetherill's conclusions above, at paragraph 42.
While Dr Mehdi applied the wrong test in considering whether to continue the exclusion at successive reviews, I do not consider that it would have made any difference if he had applied the right test. It was open to a responsible Trust, once these serious questions about the Claimant's practice had surfaced, to investigate them with expert help, and to involve the RCS. Further, once the Claimant had taken issue with the RCS's conclusions, it was reasonable to seek further expert help. It was then reasonable of Dr Mehdi to see what the case investigator, Mr Wetherill, made of this material before he could consider lifting or modifying the exclusion. The Claimant suggested that as soon as Dr Mehdi received Mr Wetherill's final report, he should have lifted the exclusion. I disagree. It was sensible and right for Dr Mehdi to wait until he had received the Claimant's comments, which were provided on 25 June 2012.
Dr Mehdi's report was dated 2 August. He recognised that the issues raised by Mr Wetherill could not be dealt with by management action, because the Claimant was the lead colorectal surgeon practising laparoscopic techniques, and so no-one more senior at the Trust could support his practice. He therefore recommended, reasonably in the circumstances, a reference to NCAS for assessment. A period of re-skilling would be needed before this could take place, and that the Trust would seek to facilitate this at another Trust. He also noted that there were wider organisational problems and that they should be addressed by the Medical Director of the Trust separately. This, too, was a reasonable conclusion.
I consider that it was rational for the Trust to try and find a placement for the Claimant in another Trust, given the state of internal relationships revealed, among other things, by the RCS report (and repeated in the GMC report). The Trust went to considerable, and reasonable, efforts to do this, which took time. Two such efforts came relatively close to success. In my judgment the fact that the Trust has continued with these efforts suggests that, far from acting precipitately or unfairly towards the Claimant, it has tried hard to help him, in so far as (in its reasonable view) it is able to do, without jeopardising the stability of its team, and thus, the safety of patients.
(d) Should the Claimant now be permitted to return to work at the Trust?
There are two linked aspects of this question. They are the breakdown in relationships in the team, and the need to find a suitable clinical supervisor for the Claimant.
(i) Relationships
The Claimant's point of view
The Claimant said in cross examination that he accepted the premise of the undertakings he has given to the GMC, which is that there are deficiencies to be remedied in the areas identified by the GMC in its report. He accepted the findings of the GMC report, he said. He accepted that if he returns to work a suitable consultant would have to be identified to supervise him. He accepted the reasons given by the GMC (and by the Trust) for saying that it was not appropriate for a locum consultant to do that. He accepted that any such consultant would need the confidence of the Trust and ideally should have considerable experience of training, and be approved as a trainer by the local deanery. He agreed that such supervision would require a lot of time and effort and would not work if the person concerned felt, in Mr Cooper's words, "put upon" or forced to do it. The supervisor would need to be able to work closely with the Claimant, and he also agreed that it would not work if he and his supervisor fell out, as that could be damaging and dangerous for patients.
He was repeatedly asked whether he understood the apparent hostility, and reluctance of his colleagues to work with him again. He said he could not understand it, as they had worked well in the past and his deficiencies in listening to others and in not recognising mistakes had not been drawn to his attention before. He expected them to give him the benefit of the doubt to see if he had changed. He did not accept the GMC findings that his relationship with some of his colleagues had broken down, or that his supervision of junior colleagues had been unacceptable.
In re-examination the Claimant was shown a transcript of Mr O'Hara's interviews with Professor Wetherill in 2010 and with the GMC in February 2013. There is a difference in tone and content between the two. In October 2010, Mr O'Hara was saying to Professor Wetherill that personally he got on well with the Claimant, and had much respect for him. He went on to say that he had never heard the Claimant admit that he was wrong, and that he was less open to his colleagues' opinions than others. He made clear that it was not possible to say whether the Claimant had more complications than his colleagues without peer review. When asked at the end of the interview whether there was anything else "aberrant in terms of" the Claimant's "behaviour towards the unit", Mr O'Hara said, "We work in different ways, whatever that means". He also raised specific concerns about two cases. By February 2013, Mr O'Hara was saying that the Claimant had destroyed the department, that he did not want the Claimant to set foot in the hospital again, that if he returned, he and others would leave.
Mr Cooper suggested that the Trust was concerned about the Claimant's lack of insight into the extent to which relationships had been affected by the Claimant's attitude, and how difficult it would be to re-build them. The Claimant's response was that he had harmonious relationships with colleagues despite not listening to their views, which persuaded me that he did still lack insight into the extent of the problem. He also sought to minimise the importance of the fact that some of his close colleagues (whether or not they are a minority) have reservations about his returning to work. He often referred to his colleagues' "perception" of him, which suggested to me that he was minimising the extent to which the "perception" accorded with reality. I find that the perception did accord with the reality.
I accept that the Claimant has a sincere desire to work on this and to improve relationships by listening to criticism, reflecting on his own practice and admitting mistakes. He did not understand the hostility now because he and his colleagues had worked well together in the past, and he expected his colleagues to give him the benefit of the doubt, to see if he had changed. He mentioned more than once that he had been suspended for a long time and had been taught a lesson by that experience. If there was goodwill, it should be possible to get round any problems. His prolonged suspension meant that he had had no opportunity to show his colleagues that he had changed. It should be possible for there to be a fresh start and for people to put their trust in each other again.
Nonetheless I accept, for the reasons given in detail by Mr Cooper in his closing note, his submissions that
(1) the Claimant's acknowledgement of the deficiencies in his practice has been inconsistent and equivocal, both in the course of the Trust's investigation, and in his evidence at the hearing; and
(2) the breakdown in relationships between the Claimant and other members of his team had occurred by the time he was excluded and was largely the result of his attitude and behaviour towards them.
Mr Anjum's point of view
Mr Anjum was called to give evidence for the Claimant. He is a consultant urological surgeon. He has been employed by the Trust for nearly 18 years. He was a forthright and compelling witness. I am satisfied by his evidence that he had a reasonably close working relationship with the Claimant and a closer one than he does with the other colorectal surgeons, because the emphasis in the Claimant's work on keyhole surgery involved more need to protect the urethra than in the work of the other consultants. He has operated with the Claimant and has also had many interactions with him (as with other colorectal surgeons) when it has been necessary to discuss patients who present with abdominal pain of unknown origin.
I accept his evidence that, as far as he can tell, the Claimant was generally well liked at the hospital. I also accept his evidence that some members of staff are afraid to discuss the Claimant's case. They are willing to supervise and to support him, but are afraid to speak out. He has no reason to think that this is anything other than "fear of the unknown", but as he put it, "Adults are trembling", and they feel insecure and shaky. His evidence was that there was little information about the reasons for the Claimant's suspension. There had been a suggestion that it was high rates of complication, but the rates had not apparently gone down after his suspension, and then it was said he had been suspended for other reasons. He had then heard that the Claimant had been suspended because he had shown photographs on his 'phone to a nurse. As a senior clinician, he had not been told anything.
He felt frustrated. The Trust was in financial difficulties. He had not had a working 'phone in his office for 8 months, but much money was being spent on this case, on paying the Claimant and on paying a locum. He said that his heart was breaking for the Trust, as this could be speeded up and resolved. A minority of staff did have issues with the Claimant, but relationships could be built with work and with love. People had a duty to patch things up. He was talking about highly sophisticated, well educated people. The Claimant has accepted the GMC restrictions, and it should be possible to build bridges. He felt that Miss Singh would work with the Claimant but did not want, effectively, to rock the boat by going against her colleagues.
This was about rehabilitation. Rehabilitation was possible in other walks of life. The Claimant is a highly trained surgeon. He had fallen from grace, but his deficiencies are correctable and where there is a will there is a way. The Claimant's abilities could be used to run out-patient clinics and colonoscopy. He gave an example of another colleague who had been rehabilitated and had become a very productive and useful member of the team. A process had been set up for his rehabilitation a while ago but it had not happened. Three plans had fallen through, one over payment arrangements. It wasn't right to exclude him and waste money, all in the name of keeping the peace. "Life is too short", he said. His view was that if the Claimant complied with his restrictions, he could see no reason why it would not work. The main gaps which caused Mr Anjum concern were between the Claimant and Richard O'Hara and between the Claimant and Mr McWhinnie. The Claimant needed their love and affection. I have given weight to this evidence.
Mr O'Hara's point of view
But I have not given as much weight to Mr Anjum's evidence as I have given to the evidence of Mr O'Hara. I accept Mr O'Hara's evidence that Mr Anjum does not work in the same department, and knows less about what goes on in Mr O'Hara's department than he does about his own, which has its own issues, including a recent review. As Mr Anjum accepted in his evidence, he knew very little about the reasons for the Claimant's suspension. In my judgment Mr O'Hara is in a better position to judge the temper of his own department than is Mr Anjum.
Mr O'Hara would be the Claimant's senior colleague if he returned to work. Mr O'Hara had first raised concerns about the Claimant's practice in a letter dated 4 June 2010 to Mr McWhinnie. He thought then that the Claimant was increasingly isolated, and was failing to engage with his colleagues.
Mr O'Hara seems initially to have got on well with the Claimant. He made efforts to support him, by keeping in contact with him over Christmas 2012. Mr O'Hara was visibly nervous when giving his evidence. He explained that he felt nervous. At times he was defensive, particularly when asked about his decision not to take part in the mediation. In my judgment Mr O'Hara has, understandably, become, and knows that he has become, upset by the deterioration in his relationship with the Claimant. It seems to me that this knowledge has led him at times to try, as much as he can, to be objective, and generous in his assessments of the Claimant, but it is also clear to me that, at times, he has not been able to keep the necessary distance from his feelings.
Mr Sheldon, for the Claimant, submitted that there is a marked and surprising contrast between Mr O'Hara's evidence to Mr Wetherill in October 2010, and his evidence to the GMC assessors in February 2013. The views he expressed then were extreme. It is difficult to explain, Mr Sheldon submitted, because nothing happened between the two events and the Claimant was excluded throughout the period between them.
Mr O'Hara was asked about his evidence about the Claimant to Mr Wetherill. He said that it had been too sugar-coated. He should have stood up to be counted. What he meant by this, it seems to me, is that at the stage when he was interviewed by Mr Wetherill, he had already begun to realise that all was not well, but that, out of friendship to the Claimant, he had pulled his punches in his interview with Mr Wetherill. In my judgment there were already significant problems in their professional relationship when Mr O'Hara was interviewed by Mr Wetherill, but Mr O'Hara did not state their full extent then because of a sense of loyalty to the Claimant. Once the Claimant was no longer on site, he seems to have felt able to express his views much more forthrightly. This goes some way to explaining the change in content and tone between what he said in October 2010 and his evidence to the GMC some two years later.
Mr O'Hara was in court for the Claimant's evidence. He was asked if he was reassured by that evidence that the Claimant had full insight into his deficiencies, that he could take on board criticism, and had changed. He said, "unfortunately" that he was not. Both Mr Anjum and Dr Lanzon-Miller had given evidence, which I accept, that they felt that if the Claimant could show that he had learnt lessons, and if those at the Trust approached things in a mature way, there could be a successful resolution. Mr O'Hara was asked about this. His reply was that nothing he had heard in court showed that the Claimant had changed.
The Claimant's complaint to the Nursing and Midwifery Council
The Claimant was asked about a complaint he made to the Nursing and Midwifery Council ("the NMC") about two senior nurses, Teresa Williams and Vanessa Cook, who had made complaints about him which led to the second GMC investigation. On 27 March 2014, the GMC decided, without interviewing the Claimant, not to take the complaints any further. The Trust made a similar decision, 13 months after the complaints were made. The Claimant made the complaints on 31 March and 1 April 2014, respectively. He described Ms Williams's allegations as "prejudiced, inaccurate and malicious...motivated by personal and racial prejudice". He said he "had reasons to believe that she was encouraged to do so by two surgeons who made a concerted effort to remove me from my position". The Claimant agreed in cross examination that the two surgeons are Mr O'Hara and Mr McWhinnie. His reason for saying that the efforts were concerted was that there were similarities between the words of the various witness statements. He alleged a breach of the obligation to be "trustworthy open and honest, acting with integrity and upholding the reputation of the nursing profession". He complained in similar terms against Ms Cook.
I have no doubt that the Claimant genuinely believes the allegations he made against these two nurses. In cross examination he said that he stood by his suggestion that they had lied deliberately. I have no doubt, also, that the GMC and the Trust were right not to take any action in relation to the new allegations as they were unspecific, and to a large extent, based on hearsay. I do not doubt the Claimant's explanations about the facts underlying the allegations in so far as they relate to his actions. I do not, however, consider that it was wise of him to make these complaints. The Claimant was asked twice whether he realised what distress a complaint to a regulatory body would cause. He replied that he did; in his case it had led to the Luton and Dunstable offer falling through. He was asked whether these allegations were as serious as it gets, and, if proved, could lead to the nurses being struck off. His reply was, "They made serious allegations about me". His attempt to explain why he said that the complaints were racist was unpersuasive. His explanation for making the complaints was that he wanted an independent body to look into this. When asked whether he knew that the complaints would be sent to the nurses he said that it was the only way he could give the nurses "feedback" about their behaviour.
It was suggested that he was not "letting bygones be bygones". His response was that people needed to be objective. He was asked why when proposals for mediation had recently been made, he had dropped the bomb of a referral to the NMC, if he was interested in mending fences. His reply was that they needed to know that they had made unfounded allegations and that they should be objective in the future. "They have got their feedback, then I will forgive and forget".
Although the Claimant denied it, I find that, in part, these complaints were motivated by an ill-judged desire to get his own back on these nurses. Whether or not he thought there was anything in their allegations (and I have found, on the evidence I have heard, that he was right to think that there was nothing in them) he should not, if he really wanted to rebuild relationships with the whole team, have made these complaints in the intemperate terms in which he did, or have implicated two consultant colleagues in the complaints. The fact that he thought that it was appropriate to do so, and in the terms in which he did so, casts serious doubt on his judgment and insight.
I base the conclusion about the Claimant's judgment and insight in part on the evidence of Mr O'Hara about the effect of this complaint, which I describe in paragraphs 144 and 145, below.
The Claimant's return to the consultants' corridor in March 2013
In March 2013, the Claimant returned briefly to the consultants' corridor. Professor Wetherill accepted that the Trust had not handled this return well. The Claimant's colleagues were either not told about it at all, or not told enough. There is a dispute about how the Claimant behaved. The Claimant's evidence was that the doors to all offices, except two, were open, and that he had given everyone to whom he spoke an accurate account of the status quo.
In his witness statement Mr O'Hara said that the Claimant had spent a lot of time talking to lots of people and giving the impression that he felt he had been cleared of all concerns, and that everything was resolved. Mr O'Hara's evidence in cross examination was that he had been told that the Claimant might return and they had met accidentally. He and the Claimant had said "Hello" to each other. Mr O'Hara described this as "The perfect opportunity to build bridges". The Claimant had then asked him how he was, and he had replied, "Surviving". The Claimant had then said, "It's survival of the fittest" and had walked off. This account was not put to the Claimant, so he had no opportunity to comment on it.
This meeting seems to have led Mr O'Hara to send a letter on 18 March 2013 to Mr Pete Thomas. He said he had bumped into the Claimant on the corridor and since then had been "extremely distressed" about the situation. He continued, "I basically believe this is intimidation of witnesses and should not be allowed to occur". On the same day his secretary also wrote to Mr Thomas, to say that as she had "been privy" to letters and correspondence about the Claimant's suspension she felt "very uncomfortable and intimidated" by his presence on the corridor. She had asked him if the matter was resolved and he had said that he had access to all non-clinical areas. She went on to say that while the matter was not resolved and the Claimant "was going up and down the corridor telling everyone that it was, she did not feel she could do her job properly, "on top of feeling very uncomfortable and intimidated".
In a letter dated 13 March 2013, Mr McWhinnie (the Divisional Director of Surgery, and a consultant) told Mr Thomas that there were several problems with the Claimant going to his office (as he was "perfectly entitled" to do). The Claimant's attitude was not what he expected; he had been "chatting to almost everybody in the corridor and saying categorically that he has been completely exonerated". He was "appalled to see" that all the corridor doors were closed in response to the Claimant's presence, which was inhibiting "open and transparent networking". His presence was "uncontrollable". Several secretaries had told him that they felt uncomfortable and intimidated by the Claimant's presence. On the same day, Mr McWhinnie's secretary wrote to Mr Thomas. She, too, found his presence "quite intimidating" to the extent that she would check before opening to door to go for a comfort break. These letters, and the letters of 18 March, are in a similar format and all seem to have been composed using the same typeface.
Apart from Mr O'Hara, none of the letter writers gave evidence. In his witness statement, Mr O'Hara explained that he found the Claimant's behaviour intimidating as he had been quite brave in speaking out about the Claimant, and the Claimant was now telling everyone he had been exonerated, which, Mr O'Hara felt, was calculated to intimidate him and others who had spoken out, by suggesting that their concerns had been rejected. Apart from this, I have been given no explanation for the sense of intimidation which all the authors of these letters claim to have felt. It is difficult for me see how, by itself, his meeting with the Claimant was quite as upsetting as Mr O'Hara, claimed, in the light of his evidence about it, which he was keen to give. I accept that, perhaps unintentionally, the Claimant gave people the impression that he thought that he had been exonerated. I doubt whether he was behaving in a way which would justify the description "intimidating" to any person of normal firmness. I am also left with the impression that the letters of 13 and 18 March were a co-ordinated effort to persuade the Trust that the Claimant should not be allowed free access to his office by exaggerating the effects of his presence in the consultants' corridor. This effort succeeded. It does not seem that the Trust investigated these claims. Nonetheless, I also accept that, whether or not their reaction to the Claimant's return was rational, or justified, Mr O'Hara and others did find his presence disconcerting and upsetting.
The failed mediation
Mr O'Hara said that when he made his witness statement in August 2014 he did have an open mind about mediation, and about whether the Claimant could develop humility. He could not remember when he first made clear that he had changed his mind, and did not think he had said so before his 6 November 2014 email. But lots of issues in the department had made him reflect on the mediation process. He wanted the Claimant to accept some responsibility and to engage with the department. He wanted to produce a fair response.
When he became CSU lead he had to think about the broader team. He could not believe to this day that, if the Claimant wanted to be part of the team, and engage in mediation, he could report the two most important people in the team to the NMC and question their professional integrity. He did not believe that the Claimant could work with the team after all that had happened this year. He was not made aware of the complaints to the NMC for a very long time. He probably found out in August and wanted time to reflect on this. He did not dive into decisions.
He did not believe that a person could come back to the department if he reported nurses to the NMC. That took a total lack of insight, and suggested that the Claimant did not want to come back. Mr O'Hara had nurses threatening to leave, crying and saying they would take early retirement. He had persuaded them to stay. If the Claimant really wanted to come back, he would not have said in his evidence in court that Mr O'Hara had fabricated evidence: which was not true. He did not accept the suggestion that he had used the NMC complaint as an excuse, and had no intention of engaging properly in the Claimant's return to work. He said that it was not about him and the Claimant. He did not have a veto about the Claimant's return to work. The department was a lot bigger than he was.
The significance of Mr O'Hara's evidence
Mr O'Hara's evidence is crucial to the question whether the Claimant can return to work with the Trust, and thus to the question whether, under MHPS, the Claimant is entitled to insist on returning. On the evidence I have heard, I do not consider that Mr O'Hara's reaction (or that of the other March 2013 letter writers) to the Claimant's return to his office in March 2013 was rational or justified. But I have decided that this does not matter. I do accept that his current feelings, and his reporting of the feelings of his team, are facts. I also accept that they are based on his, and the team's, experiences of working with the Claimant and on their reactions to the NMC complaint; both of which are rational and justified. It also seems to me that the Trust is entitled to regard them as facts. They are facts which mean that the Claimant's continued exclusion from the colorectal team at Milton Keynes Hospital is necessary and, a fortiori, a reasonable employer could conclude that his exclusion is necessary.
(ii) Supervision
The other crucial issue about any return of the Claimant to work at the Trust is the issue of close supervision, which is required by the undertakings which the Claimant gave to the GMC, and by the draft action plan. I accept the evidence of Professor Wetherill that first, trust and, second, experience are essential conditions for the effective and safe supervision of a more junior doctor by a consultant. A fortiori, they are essential if a consultant is to be supervised by a fellow consultant. These factors have a bearing on the question of who could, or would, supervise the Claimant if he were to return to Milton Keynes Hospital.
First, a supervising consultant always "carries the can" for his supervisee; in other words, he accepts responsibility for his supervisee's mistakes. In order to be willing to do this, he has to have a relationship of complete trust with the supervisee. Professor Wetherill referred to a case where because the supervising consultant did not trust the junior doctor he was supervising, the junior doctor had to be moved. The other side of that coin, it seems to me, is that the supervising consultant needs to be sure that his supervisee will accept his guidance. Second, there will be occasions in theatre when the supervising consultant will have to get his supervisee out of trouble. It is essential for patient safety that the supervising consultant has enough experience to know how to spot and correct mistakes quickly, and the coolness to do so without flapping, and without endangering the patient. He must be able to get out of difficulties calmly, safely and appropriately.
Professor Wetherill did, and does, have a strong objection to a locum consultant supervising a fellow consultant. As I have mentioned, that approach is shared by the GMC. His view is that in order to supervise a more junior doctor, a consultant should have 5 years' experience in a substantive post, have experience of teaching and be a registered trainer. He did not believe that Mr Canna had the skills to supervise the Claimant. The RCS and the GMC had both said that it was not appropriate for a locum consultant to supervise the Claimant. Mr Canna had been asked if he was willing to supervise the Claimant not by the Trust, but by the Claimant or his representatives. He was not familiar with Mr Canna's work, but had spoken to the theatre manager about this. She had said that he is competent doing what he is asked to do, but becomes anxious if he is asked to do work which is outside his comfort zone. If the Claimant's remediation succeeded, Mr Canna, who was looking for a substantive consultant post, would be redundant. It was difficult to tell how long remediation might take. Some aspects might take 6 months, some, longer.
I accept Professor Wetherill's evidence about that, and I therefore accept that it was open to the Trust reasonably to conclude that Mr Canna would not be an appropriate supervisor for the Claimant.
Moreover, the "remediation" of the Claimant would require the "buy-in" of the other consultants and clinicians at Milton Keynes Hospital. There might be times when the Claimant was required to do emergency work when the supervisor was not on call, or his training might need to focus on an area which was outside the expertise of the supervisor. When a trainee works in CSU, he has to interact with a range of different consultants. There was a lack of trust which had to be repaired. Professor Wetherill did not underestimate how difficult that could be.
Mr Canna is the only doctor working at Milton Keynes Hospital who has said he is willing to supervise the Claimant. All the other consultants whose area of expertise might make them an appropriate supervisor for the Claimant have been approached, more than once. They have all expressed different reservations about supervising the Claimant. I asked Professor Wetherill whether the Trust could insist that an unwilling consultant supervise the Claimant. He said that it would be very difficult if not impossible. That is reinforced by the relevant terms of the TCEE. If the breach of trust had not been repaired, any supervising consultant might feel that for him or her to supervise the Claimant would compromise the safety of patients. I accept that evidence, also.
It follows, in my judgment, that it was open to the Trust to take the view there was no suitable consultant at Milton Keynes Hospital who could supervise the Claimant in accordance with his GMC undertakings.
(3) Conclusion on the dispute
The Trust has not breached the terms of MHPS either in initially excluding the Claimant, or in maintaining that exclusion, latterly described as a restriction, to date. The Claimant's own representative suggested in September 2011, in a meeting to discuss his exclusion, that it would be preferable for the Claimant to return to supervised practice at another Trust, although he recognised that it would be premature to develop this before the internal investigation had finished. It is submitted, and I accept, that this supports the Trust's view that before it understood the nature of the problems, the Claimant could not return to clinical practice, and that any return should at any rate be started elsewhere. Given the history, and given the current position, which, as I find, is that (a) the relationship between the Claimant and key members of the multi-disciplinary team has broken down, and (b) there is no suitable and willing consultant at Milton Keynes Hospital to supervise his work, his exclusion or the restriction was, and is, necessary, and the Trust was reasonably entitled, under the terms of MHPS, to see it as necessary.
5. Remedy
Even if I had decided that the Claimant's initial, and/or continued, exclusion or restriction had been a breach of MHPS, I would not have ordered the Trust to take him back to work. I would make a declaration only, and (as the parties agreed that I do not have enough information to conduct one immediately) ordered an assessment of damages.
I hope that I do not underestimate the impact of this long exclusion, quite apart from its significant cost to the taxpayer. The exclusion has had a great human cost, which has been borne by the Claimant. Its effects include isolation from colleagues, loss of a highly congenial occupation, humiliation, loss of skills, waste of expertise and training, frustration, and a strong sense of injustice. I must therefore explain my decision that I would, nonetheless, have refused to grant an injunction.
It is clear from the authorities cited by Mr Cooper that the court will not specifically enforce the performance of obligations when the underlying human relationships have broken down, or where an order is likely to require the court to manage such a relationship in the future. I have found that the underlying relationships have broken down. It would not be reasonable or sensible for the court to order the Trust to require Mr O'Hara, or the two senior stoma nurses, to work with the Claimant, or to force Miss Singh (or someone else) to supervise him. There are many further issues which would be generated by an injunction and which, far from being solved, and would need further working out. They include the details of the Claimant's "remediation", and of his supervision. If they could not be agreed, the parties would have to return to court. The court is simply not equipped to manage the Claimant's future employment in that way.
Conclusion
I dismiss this claim. |
HHJ Brian C Forster QC:
The claim
By a claim dated 28 September 2012 the Claimant claims damages for pain, injury, loss and damage arising out of his medical treatment at the Medway Maritime Hospital, Gillingham, Kent.
The Claimant was born on 9 June 1958 and is now 56 years of age.
He suffers from the unusual congenital condition, hypophosphatasia. As a result he has deficient bone mineralization and alkaline phosphatase activity.
The Claimant is a very pleasant man who before the relevant matters worked as the manager of an equipment hire depot. Despite his difficulties he has over the years been able to carry out an active lifestyle.
He has had various hospital admissions because of problems arising from his condition.
In October 2009 the Claimant suffered significant pain. On 6 October 2009 he was admitted into hospital. He came under the care of Mr Ahmed, a locum consultant orthopaedic specialist. He was discharged home on 19 October 2009. There were then further outpatient appointments which are detailed later.
On 22 November 2009 the Claimant was admitted as an emergency. His condition was very serious. An MRI scan showed L5/S1 discitis with abscess formation. There was surgical intervention. A further MRI scan demonstrated infarction of the lower thoracic spinal cord resulting in paraplegia at the level of T7.
Amendment of the claim
On the first day of the trial the Claimant sought leave to amend the claim and in particular paragraph 40(a) and paragraph 40(m).
I had previously considered the opening note and skeleton provided by each side. In particular I carefully considered the issues described as the main and live issues in the defence skeleton.
The Defendant objected to the amendments on the basis that they introduced a new alternative case on both breach of duty and causation and that they were not supported by the evidence.
I allowed the application because in my judgment the amendments were sufficiently founded upon the medical evidence and the consideration of the case at the two joint meetings of medical experts.
I was firmly of the view that the issues could reasonably be dealt with during the trial process. In particular I considered that the amendments emphasised and clothed the initial allegations which had been made.
The Claimant made no application for any adjournment for further evidence. The amendments would not have been allowed if any such application had been made because the case demanded trial.
Taking everything into account, I considered that there was no real prejudice to the Defendant by allowing the application. The Defendant had been able to see the way in which the case was being put from their own consideration of the medical evidence.
In so far as it was suggested that there was no evidence to support the amendments, I took the view that I would be able to properly assess all of the evidence in the trial at its conclusion.
Following my judgment there was no application on behalf of the Defendant for any adjournment.
The evidence
The court heard oral evidence from:
The Claimant;
Mr Saif Uddin Ahmed, a locum consultant orthopaedic surgeon;
Mr Ahmed Latif, who was a senior house officer at the relevant time;
The Claimant's experts:
Mr James Wilson-MacDonald, a consultant orthopaedic surgeon;
Dr Guy Sawle, a consultant neurologist;
Professor Peter R Wilson, a professor of microbiology;
The Defendant's experts:
Mr P H P Dyson, a consultant orthopaedic and trauma surgeon;
Professor G L French, a professor of microbiology;
Dr Fahwid Ul-Haque Chowdhury, consultant in radiology and nuclear medicine.
I considered the further evidence available in the trial bundles and in particular the note of the agreement following the meetings of experts.
The issues
Although many issues and factual situations have been considered during the course of the trial, the main issues are identified as follows:
i) Was it negligent not to take blood cultures on 6 or 7 October before antibiotics were commenced?
ii) Was it negligent to stop the antibiotics on 12 October and, if so, did the decision demand ongoing monitoring?
iii) Were sufficient steps taken to identify the cause of the very high CRP?
iv) Would blood cultures at admission have identified the underlying infection?
The submissions
The full submissions are set out in the written skeleton provided by each side. The Claimants submissions cover many issues.
In the summary the Claimant submits:
i) Blood cultures should have been taken before the antibiotics were commenced on 6 or 7 October.
ii) Such blood cultures would have revealed the underlying infection.
iii) A decision to stop the antibiotics could only be reasonable if steps were taken to monitor the inflammatory markers.
iv) If the inflammatory markers had continued to be high, further tests would have been indicated, leading to the identification of the cause of the raised markers.
v) A microbiologist should have been consulted to contribute to the development of the treatment plan.
vi) The identification of the cause of the infection would have resulted in appropriate treatment.
The Defendant submits that:
i) The decision made by Mr Ahmed to stop the antibiotics was reasonable.
ii) There was no need to continue to monitor the inflammatory markers. They would probably still have been raised, as they were during earlier episodes of illness, and this would not have altered management.
iii) The fact that a microbiologist was not consulted does not amount to negligent treatment. Mr Wilson-MacDonald considered that it would be best practice, but such a view cannot found an allegation of negligence.
iv) All experts agree that the treatment given by Mr Latif on 9 November was appropriate.
v) Blood cultures taken in October, before the antibiotics were commenced, or later, would not have identified the infection.
Chronology
A full and extensive chronology has been provided. In the circumstances of this case it is necessary to set out some of that chronology so as to understand the analysis of the evidence. There is no dispute over the essential chronology.
On 1 April 2008 the Claimant suffered a fracture of the base of the fifth metatarsal. This was a stress fracture. That is the type of fracture from which he suffered from time to time as a result of his congenital condition.
On 12 September 2008 the Claimant was admitted with painful swollen ankles and right elbow, with a two-week history of fever and sweats. He was in hospital until 29 September 2008. There was an initial diagnosis of suspected septic arthritis or reactive arthritis following a genitourinary infection. The final diagnosis appears to have been one of reactive arthritis. He was prescribed steroids.
He was again admitted to hospital between 12 and 30 March 2009. The Claimant was admitted with a history of pain in his left thigh. As part of the treatment of his condition a nail had previously been inserted into each thigh. X-ray examination confirmed a stress fracture at the level of the locking screw on the left femoral nail. The left femoral nail was replaced at operation.
Following his discharge on 30 March 2009 the Claimant was seen in outpatient clinics by Mr Ahmed, the locum consultant orthopaedic surgeon and Dr Williams, his consultant rheumatologist.
On 2 October 2009 the Claimant suffered the onset of pain and consulted his family doctor.
On 6 October 2009 the Claimant was seen in the Accident and Emergency Department. There was no X-ray evidence of a femoral fracture. The plan was to discharge him if his blood results were normal. Bloods taken showed a high CRP of 371.2 and he was noted to be febrile at 38° C. A working diagnosis of osteomyelitis of the left femur was made. Intravenous antibiotics were later commenced.
On 7 October at about 08.45 the Claimant was seen on a ward round by Mr Singh, a consultant orthopaedic surgeon who ordered a bone scan.
On the 11th October Mr Ahmed came across the Claimant when visiting another patient. He carried out an examination and made an assessment. No note was made by him of his findings or plan.
On 12 October 2009 a locum senior house officer discussed the case with Mr Ahmed. He was told to stop the antibiotics and to chase the bone scan result.
On 14 October 2009 the bone scan report confirmed active osteoarthritis. The report continued: "The possibility of an underlying osteomyelitis is not excluded. Indium white cell scan will be arranged." Mr Ahmed noted that if the white cell scan was going to be a long time, the Claimant could go home and come back. He was to refer the case to King's College Hospital.
On 19 October the Claimant was discharged home.
On 28 October 2009 the white cell scan was carried out. The scan report showed:
"The findings are in keeping with an inflammatory process, suspicious for infection, in the left knee. There is no evidence of osteomyelitis within the distal left femur."
On 9 November the Claimant was seen in an outpatient clinic by Mr Latif. Blood tests were carried out which showed a CRP of 97.5.
On 19 November the Claimant was seen by Dr Williams, the rheumatologist. He considered that the reactive arthritis had run its course. He left management to the orthopaedic team.
On 22 November 2009 the Claimant was admitted as an emergency. His CRP was 519. There was significant concern and a working diagnosis of osteomyelitis of the left greater trochanter was considered.
On 23 November the Claimant was complaining of pain in the lumbar spine, abdomen and loin. An urgent MRI scan of the abdomen and lower spine revealed acute spondylodiscitis at L5/S1 level, complicating intervertebral disc abscess, a small epidural abscess, and likely paraspinal abscess.
On 24 November surgical decompression of the abscesses was carried out. A post-operative MRI scan showed infarcts of the spinal cord. The Claimant now has T7 paraplegia.
The final situation can be summarised as follows. The Claimant developed lumbar spondylodiscitis with epidural paraspinal and psoas abscesses due to methicillin-sensitive staphylococcus aureus. This resulted in spinal cord infarction resulting in permanent paraplegia.
Discussion of the evidence and findings
In considering the issues I have kept in mind the dangers of hindsight and that everyone is agreed that the Claimant presented as a complex medical case. The experts further agree that the diagnosis of a spinal infection is notoriously difficult.
The initial complaint
The Claimant told me that when he attended hospital on 6 October 2009, and during that admission, he complained of pain in both buttocks. His wife confirms in her statement that this was the complaint that he made at home.
Mr Ahmed described that the Claimant was complaining of pain in his left thigh in the vicinity of the earlier operation site. Furthermore, the Claimant was experiencing difficulty and in particular pain when sitting on the edge of the bed.
In such circumstances it is helpful to look at the medical notes to see what is recorded. Mr Singh, who initially saw the complainant, made a note that the Claimant was complaining of pain at the back of his left thigh.
The Claimant himself sent an email on 6 October 2009 to the secretary to Dr Williams. In that email he described his condition. He said that the heel pain about which he had earlier complained had now improved. Of relevance, he stated:
"On arising on Saturday morning my left femur was in a great deal of pain.…The pain is entirely between the hip and the knee ….I'm becoming resigned to the possibility that I may have sustained another stress fracture."
In my judgment the Claimant was complaining of pain deep in his left leg in the vicinity of the earlier fracture. I believe the Claimant to be mistaken in his suggestion that he complained of pain in both buttocks. I have taken into account the fact that in an email dated 30 September 2009 the Claimant mentioned pain in his hips, but this was in the context of his complaint of heel pain and difficulty with weight-bearing. In my judgment he did not complain of pain in his hips and both buttocks on his admission in October.
The failure to submit blood for cultures before the prescription of antibiotics
The experts are agreed that the obtaining of blood cultures before the prescription of antibiotics is a basic and essential step. For an unknown reason that action was not taken.
Mr Bishop QC on behalf of the Defendant does not concede that this failure constitutes a breach of duty. I find that there was a breach of duty. The need was basic. It was essential to attempt to identify any infection. The risk of not doing so was that an opportunity to identify infection was missed. The procedure was simple and could have been carried out.
The decision to stop the antibiotics and the need to check inflammatory markers
On 12 October the antibiotics were stopped. Mr Ahmed stated that at the time he made the decision the Claimant had been taking the antibiotics for a few days. His condition had become more settled and his temperature was at a normal level. He would not have taken that step if there had been any cause for concern, such as any spikes of temperature.
Mr Ahmed explained that the Claimant's presentation was consistent. He had a local deep pain in the back of the thigh. He said that he did consider the need for the monitoring of inflammatory markers. He did not consider that such monitoring was necessary. Firstly he considered that the raised markers were consistent with a sequentially failing fracture. He believed that the raised markers were related to the Claimant's ongoing pain. At the time he did not have a definite diagnosis. It was necessary to exclude infection in the femur. Taking all things into account, he considered the appropriate action was to proceed with the white cell scan as recommended. The result of the scan would assist in determining whether he was dealing with a failing fracture or whether there was osteomyelitis in the leg.
In their joint statement the orthopaedic experts stated:
"It was agreed that it was reasonable for Mr Ahmed to discontinue the antibiotics on 12/10/09. Mr Wilson-MacDonald considers that this should have been followed by a thorough assessment of the inflammatory markers, and that an attempt should have been made to find the cause of the raised inflammatory markers."
For his part Mr Dyson considered that serial measurement of inflammatory markers was undertaken at reasonable intervals.
In evidence Mr Wilson-MacDonald told me that it was very rare to see such a high CRP result where there is no infection. He considered that a fracture or micro-fracture of the type being suffered by the Claimant would not in itself result in such a high CRP.
Mr Wilson-MacDonald considered that when the antibiotics were stopped it was essential to monitor the inflammatory markers. This should have been carried out on two occasions during the first week and thereafter on a weekly basis. In cross-examination he maintained that not to repeat testing of CRP at any stage was below the level of reasonable competence. He considered that the suggested testing of inflammatory markers would have led to a CT scan or an MRI scan. Mr Wilson-MacDonald was invited to consider the history of high CRP readings. There was agreement that the CRP would have been about 200 at the time of discharge and that the CRP was 97.3 when tested on 9 November.
Mr Wilson-MacDonald maintained that there was no explanation of the acute initial presentation and that necessary monitoring and investigation was essential. Mr Dyson stressed that the Claimant's clinical condition had settled. In his opinion there was no necessity for the Claimant to remain in hospital. The Claimant was not being discharged from care. An appropriate appointment for the white blood cell scan had been arranged. He would then be seen in the outpatient clinic. The Claimant was also subject to review by his rheumatologist.
Mr Dyson considered that the high CRP could have been contributed to by acute reactive arthritis, the unstable fracture and underlying infection. He accepted that the possibility of an underlying infection had to be clearly kept in mind but the clinical position had improved to the position the Claimant had been in for several months.
He conceded that the high CRP should have been followed up. The inflammatory markers should have been repeated.
Professor Wilson confirmed his view that the CRP had been very high and would not be explained by the fracture. He considered that even if the CRP had dropped to be in the region of 200, it was important to keep in mind that the white count was high at 13.2. In such circumstances any discharge of the Claimant to his home should have involved monitoring.
Professor French considered the case to be more complex than he had initially realised. He confirmed that the CRP of 371 was very high. At the time there was no clear explanation for the high result. Even now, he considered the reading to be in a sense unexplained. This was in part because, even if there had been an infection of the spine, it would not have given rise in itself to such a high result. In his opinion several things must have been going on, some of which we do not know.
The professor described how he thought it was reasonable to stop the antibiotics, but close management of both the CRP and white cell count was required.
Taking all matters into account, I find that it was reasonable to stop the antibiotics, but that a doctor with full knowledge of the Claimant's background, acting reasonably and prudently, would have arranged for close monitoring of the CRP and white cell findings.
Should a microbiologist have been consulted?
Mr Ahmed stated that he did not consult a microbiologist because at the time he did not have a diagnosis. If a diagnosis had been made and there had been a specific reason to seek advice, he would have then consulted with a microbiologist.
In the joint statement following the meeting of the microbiologists it is recorded:
"Professor French is of the opinion that microbiology advice would have been helpful but not mandatory. Professor Wilson believed microbiology advice was required in view of the presentation."
It is accepted that the need to involve a microbiologist is a matter for orthopaedic opinion. The orthopaedic specialists expressed the following views at the joint meeting:
"Mr Wilson-MacDonald is of the view that best practice would have been to consult a microbiologist before discharge from hospital.
Mr Dyson agrees that this might have been helpful but that there was no imperative for this."
Although it may have been hoped that a microbiologist would be consulted, or that it would have been good practice to consult a microbiologist, the evidence available does not support an allegation of breach of duty by failing to do so.
Would blood cultures have been positive?
There are two issues. Whether there was then an infection in the spine or blood to be identified and whether it would have been identified.
The microbiologists expressed different opinions as to whether there was a spinal infection at that time and as to whether there would have been positive blood cultures. Professor French considered that there would have been a silent spinal infection. In view of the absence of typical symptoms he believes that the Claimant comes within the group who would not produce positive cultures. Professor Wilson believes that the Claimant comes within the majority group identified in the research literature where a positive result would be obtained.
Professor Wilson also considers that a staphylococcal bacteremia present during October could have resulted in the spinal abscess developing in November.
I note that in his own report at page 31 Professor Wilson stated "There was no unequivocal evidence of infection before mid November 2009. The fever, leg pain and raised WBC in October 2009 would have been consistent with infection or repeated stress fractures due to hypophosphatasia….a staphylococcal bacteremia during October could have resulted in the epidural abscess developing."
Both the microbiologists stated that the case is difficult and it is clear to me that this is an area of considerable uncertainty. I can find no evidential base established to the required standard. This is an unusual situation in which there is a lack of actual evidence to help with a determination of the conflicting opinions. In such circumstances whilst I found the evidence of Professor French the most likely I have not been able to make findings concerning the onset and progression of the infection to the relevant standard of proof.
I have carefully assessed the evidence and find that the Claimant has not established on the balance of probabilities where the infection was present or that blood cultures would have been positive. It is also only a possibility that a bacteremia was present at the time the blood cultures should have been taken.
What would have been the effect of monitoring after the Claimant was allowed to go home?
If there had been regular CRP testing the results for the period to 9 November would have shown a falling CRP level.
Professor Wilson accepted that by 19 October the CRP was probably down to 150. It is a fact that following testing at the outpatient appointment on 9 November, it had reduced to 97.
In my judgment the CRP level and the result of the white cell scan would have been considered as showing an improving picture. I can find no reasonable basis to suggest that there would have been any significant change in patient management before the result of the white cell scan was known. The scan report stated that the findings were in keeping with an inflammatory process, suspicious for infection, in the left knee. There was no evidence of osteomyelitis within the distal left femur.
Mr Wilson McDonald suggested that monitoring would probably have led eventually to a MRI scan of the spine being carried out. I must keep in mind that Dr Chowdhury considered that such a scan would not have been performed unless there was a specific clinical reason to justify it. Both Mr Dyson and Dr Sawle stress there was no obvious neurological involvement to justify such a scan.
It has not been established on the balance of probabilities that an MRI scan should have been performed or that monitoring would have led to such a scan of the spine.
The need for a CT scan of the chest and pelvis was also raised in evidence. I find that this was no more than a possible investigation. In any event there is no clear evidence as to when the scan should have been carried out or as to what would have then been revealed.
What would have been the effect of recommencing antibiotics on 9 November?
I consider this in part to underline the difference in opinion between the microbiologists.
Professor French states that, in order to have produced signs and symptoms of cord compression, the spinal infection that led to an abscess must have started before the 15 October. If antibiotics had been recommenced on 9 November, given the period without antibiotic treatment there would have been infarction regardless of the restarting of antibiotic treatment on 9 November.
Professor Wilson considers that the abscess could have started as late as 10 to 21 days before 15 November. That would be from 25 October to 5 November. Accordingly he considers that the giving of intravenous antibiotics from 9 November with surgical intervention would on balance have been sufficient to avoid infarction.
Each expert considered this to be a complex and difficult case. Professor Wilson accepted that it was impossible to have all of the answers and, as stated above, Professor French was of the opinion that even now it was impossible to understand everything that had happened.
Taking all matters into account, it has not been established to the required standard that the infarction would have been avoided if antibiotics had been recommenced on the 9 November.
Summary
It is agreed that blood cultures should have been taken on admission prior to the giving of antibiotics.
If blood cultures had been taken at that time it has not been proven on the balance of probabilities that there would have been positive cultures.
The decision to stop antibiotics was reasonable, but having regard to the high CRP there should have been close monitoring of the Claimant.
The involvement of a microbiologist would have been good practice but the failure to involve one is not a breach of duty.
The microbiologists express very different opinions as to when the spinal infection must have commenced and accordingly as to the latest date at which further antibiotic treatment would have prevented infarction.
It has not been established on a balance of probabilities that the proven failures which are breaches of duty caused the consequences alleged.
Spinal infection remains a difficult diagnosis to make particularly when there are co-pathologies.
I feel compelled to mention that in many respects the treatment received and practices followed were poor. Blood cultures were not taken. Mr Ahmed accepted his own failure to make a note. Laboratory notification that a blood sample submitted could not be tested because it was haemolysed did not result in a new sample being submitted. The discharge letters did not provide meaningful information. If any referral letter was prepared by Mr Ahmed it has never been produced.
I have carefully considered all aspects of the case because of its importance to the Claimant. On the evidence there must be judgment on the claim for the Defendant. |
Mr Justice Warby:
This is the pre-trial review of this action for libel, and the hearing of applications for the defendants by which they seek to cut down the issues for trial by means of orders striking out allegations and/or granting judgment on certain issues, and providing for the trial of preliminary issues.
BACKGROUND
The claimant and the defendants are in the business of environmental microbiology. Between about 2004 and 2007 the claimant, via a company named Achor Limited, had business dealings with the defendants. The claimant was subsequently involved with other Achor companies, including Achor Anaerobic LLC ("Achor LLC"). The claimant now sues the defendants in respect of two e-mails written by the first defendant and published by her on behalf of the second defendant company on 12 October 2011 and 18 January 2012.
The first email was sent to the generic "info@" email address of a business named Living-PlanIt. It contained the subject line "Ref. Christopher Barry Achor Anaerobic LLC" and words stating that the defendants were "motivated by our desire to prevent any further innocent parties from being defrauded". The second email was addressed to a Rupert Fraser and stated that the claimant had been "arrested and charged with theft of a patent, fraudulent trading, obtaining by deception and money laundering". Both emails are said to have been published to directors and/or managers and/or employees of Living-PlanIt, two of whom are identified by name.
General damages, including aggravated damages, are claimed. Matters in aggravation of general damages are alleged in particulars set out in paragraphs 21 to 25 of the Particulars of Claim. Very substantial special damages are also claimed. In a "Special Damages Schedule" attached to the particulars of claim it was alleged that the two e-mails had caused the claimant financial losses amounting to $8,675,000. An "Updated Special Damages Schedule" was served on 2 May 2014, revising this figure to $4,337,500 plus €431,000.
The Defence asserts that the emails were published abroad so the claim needs to, but fails to, satisfy the requirement of double-actionability. In addition, substantive defences are pleaded of qualified privilege and justification. These defences overlap, in as much as the particulars of qualified privilege are also relied on in support of the plea of justification. These particulars contain allegations of fraudulent conduct by the claimant in and between 2004 and 2010. The Defence denies that the claimant or his businesses have suffered the alleged or any special damage. A Counter-Schedule of Loss has been served, denying that the claim is adequately pleaded or sustainable.
The Reply denies that the first email was published on an occasion of qualified privilege but does not expressly address the particulars alleging privilege in respect of the email of January 2012. Paragraphs 43 and 44 of the Reply allege, further and alternatively, that in publishing the words complained of the defendants acted maliciously.
The claimant is represented by solicitors acting under a conditional fee agreement, and has instructed Counsel, Ms Lintner. There is no after-the-event insurance cover. The defendants are not represented by solicitors. They are however represented on this application by Mr Munden of Counsel, who is instructed directly under the Bar's public access rules.
The action is fixed for trial commencing two weeks from today, on 9 March 2015, with a time estimate of eight days. This PTR ought to have taken place over a month ago but the claimant has failed to take the steps necessary to bring it on. It is the defendants who have taken the initiative to bring this matter before the court today.
THE DEFENDANTS' APPLICATION NOTICE
By an application notice issued on Friday 13 February 2015, and supported by a witness statement of the first defendant dated the same day, the defendants seek the following orders:
i) that the plea of malice be struck out;
ii) that judgment be entered for the defendants in respect of the e-mail of 18 January 2012;
iii) that unless within seven days the claimant discloses documents evidencing his claim for special damages, that claim be struck out.
A number of other case management issues need to be considered, but I will first address those raised by the defendants' application notice.
Malice
A defence of qualified privilege can only be defeated by proof of malice. The law on what amounts to malice for this purpose is well established. The following propositions emerge from the seminal decision of the House of Lords in Horrocks v Lowe [1975] AC 135, HL, 149-153 and from the decision of the Court of Appeal Telnikoff v Matusevitch [1991] 1 QB 102:
i) To destroy privilege, the desire to injure must be the dominant motive for the defamatory publication.
ii) If it is proved that the person publishing defamatory matter did not believe that it was true, that is generally conclusive evidence of express malice.
iii) If a person publishes untrue defamatory matter recklessly, without considering or caring whether it is true or not, he is treated as if he knew it to be false.
iv) But indifference to the truth of the publication is not to be equated with carelessness, impulsiveness or irrationality. A defendant who honestly believes in the truth of what was published is not to be found guilty of malice merely because his belief was unreasonable or was arrived at after inadequate research or investigation.
v) Judges and juries should be very slow to draw the inference that a defendant was so far actuated by improper motive as to deprive him of the protection of privilege, unless they are satisfied that he did not believe that what he said or wrote was true or that he was indifferent to its truth or falsity.
vi) Where the only evidence of improper motive is the content of the defamatory material itself or the steps taken by the defendant to verify its accuracy, the plaintiff must show affirmatively that the defendant did not believe it to be true or was indifferent to its truth or falsity. This burden is not lightly satisfied.
The principles which apply to the pleading and proof of malice are also clear. An allegation of malice is an allegation of dishonesty, and hence is subject to the general principles which apply to such allegations. As Lord Hobhouse stated in Three Rivers DC v Bank of England (No.3) [2003] 2 AC 1 at [161] those principles include the following:
"Dishonesty is not to be inferred from evidence which is equally consistent with mere negligence. At the pleading stage the party making the allegation of dishonesty has to be prepared to particularise it and, if he is unable to do so, his allegation will be struck out. The allegation must be made upon the basis of evidence which will be admissible at the trial."
The right approach to the pleading and proof of malice was summarised in this way by Eady J in Henderson v London Borough of Hackney [2010] EWHC 1651 (QB):
"33. It has been confirmed by the Court of Appeal in Telnikoff v Matusevitch [1991] 1 QB 102 and in Alexander v Arts Council of Wales [2001] 1 WLR 1840 that, in order for a claimant to succeed in proving malice, it is necessary both to plead and prove facts which are more consistent with the presence of malice than with its absence. This is one of the reasons why, in practice, findings of malice are extremely rare.
34. It is thus reasonably clear, as a matter of pleading practice, that allegations of malice must go beyond that which is equivocal or merely neutral. There must be something from which a jury, ultimately, could rationally infer malice; in the sense that the relevant person was either dishonest in making the defamatory communication or had a dominant motive to injure the claimant. Mere assertion will not do. A claimant may not proceed simply in the hope that something will turn up if the defendant chooses to go into the witness box, or that he will make an admission in cross-examination: see Duncan and Neill on Defamation at para 18.21.
35. It is not appropriate merely to plead (say) absence of honest belief, recklessness or a dominant motive on the defendant's part to injure the claimant. Unsupported by relevant factual averments, those are merely formulaic assertions. It is certainly not right that a judge should presume such assertions to be provable at trial. Otherwise, every plea of malice, however vague or optimistic, would survive to trial. It would be plainly inappropriate to move towards such an unbalanced regime, since it would tend to undermine the rights of defendants protected under Article 10 of the European Convention on Human Rights.
…
40. … As has been said on numerous occasions, such a plea is tantamount to one of fraud or dishonesty and must be pleaded with scrupulous care and specificity. As I have already noted, it is quite inappropriate to proceed on the basis that something may turn up (whether on disclosure of documents or at trial)…"
As I noted in Yeo v Times Newspapers Ltd [2015] EWHC (QB) 209 at [33] it follows from these principles that a plea of malice must focus upon what the defendant did or said or knew, and must allege specific facts from which it is alleged the inference of dishonesty is to be drawn.
Malice is pleaded in the claimant's Reply in the following form:
"43. Further and in the alternative the Claimant avers that in publishing the words complained of, the Defendants acted maliciously, in that:
(a) The Defendants acted with the improper dominant purpose of injuring the Claimant in publishing the words complained of; and
(b) The Defendants did not have an honest belief that the words complained of were true at the time of publication because they knew that words complained or were not true or were reckless as to the same.
44. In establishing the plea of malice at trial the Claimant will rely on the matters set out at paragraphs 21 to 25 of the Particulars of Claim."
Paragraph 43 amounts to no more than an assertion that the requirements of a plea of malice are satisfied. It plainly cannot amount of itself to a sufficient plea of malice. As paragraph 44 implicitly acknowledges, the plea requires particularisation. The pleader has sought to particularise the malice plea by incorporating by reference allegations already made elsewhere in the statements of case: the particulars in aggravation of damages. This method of pleading has the merit of avoiding repetition, but it can have pitfalls.
One of these is that, as in Yeo, it may be unclear exactly what is to be incorporated. That is not an issue in the present case. Another is that allegations made for a different purpose may be brought in which are on analysis irrelevant or insufficient for the purpose of pleading malice. To avoid such pitfalls it will often, if not usually, be best to plead bespoke particulars of malice. The pleading method is not, however, in itself any reason to strike out. I must examine the incorporated material and assess whether it amounts to a sufficient pleading of malice in accordance with the principles I have identified.
When I examine paragraphs 21 to 25 of the Particulars of Claim I find that they do not comply with those principles. They fall well short of pleading specific facts, about what the defendants did or said or knew, which are more consistent with the presence of malice than its absence.
Paragraph 21 contains the following allegations:
"The First Defendant intentionally published the defamatory words to email addresses associated with two companies with whom the Claimant was conducting business and did so with the intention and/or purpose of destroying and/or undermining the Claimant's business relationship in his personal capacity or in his capacity as director and majority shareholder of Achor Anaerobic LLC with Living PlanIt and Homeland Renewable Energy. The Claimant believes the First Defendant was motivated to publish the defamatory statements as a result of the breakdown of the Claimant's business relationship with the Second Defendant."
The acts attributed to the first defendant in this paragraph are equivocal. They are not more consistent with malice than its absence. They are consistent with an honest belief that the breakdown of the business relationship resulted from fraud on the part of the claimant, and that those with whom the claimant was doing business needed to know what the defendants had to say about the matter. Moreover the allegations of intention, motive, and purpose are bare assertions, of a formulaic character. No facts, other than the breakdown of the business relationship, are stated in support of those allegations.
Paragraph 22 states as follows:
"In addressing the email of 12 October 2011 to "Whom It May Concern" and sending it to at general "info@" email address, the First Defendant intended that the words contained therein should be read by any number of unspecified people, not limited to a specific/identified recipient;…"
An email to a generic email address is by definition not aimed at a specific or identified recipient. It is fair to say that sending such an email will – at least normally – lead to it be read by one or more individuals whose identities are unknown to the sender. But that is not the same thing as distributing the email to "any number of" people. Moreover, sending an email to such an address is not in itself conduct more consistent with malice than its absence. It is consistent with a desire to convey information to an appropriate person at the company, without knowing who that person may be. That is a conclusion I had arrived at before reading the defendant's account, that this is why in fact she chose to address the email in this way.
At paragraphs 23 and 24 of the Reply it is pleaded as follows:
"23. The First Defendant made no attempt to contact the Claimant to verify the truth of the allegations prior to publication;…
24. The defamatory statements made by the First Defendant are serious allegations of criminal "behaviour and criminal offences attracting lengthy custodial sentences. Despite this the First Defendant took no steps to verify the truth of these alleged charges before publishing them to persons who had a business relationship with the Claimant;…"
A failure to contact the claimant or to take other steps to verify the truth of a statement might well support a case of irresponsible or careless publication but it does not raise a probability of malice.
Paragraph 25 contains the following allegation:
"Further, since at least two of the alleged offences referred to no longer exist under the law of the United Kingdom, the First Defendant did not and could not have reasonably believed in the accuracy of the statements."
The first defendant is not alleged to be a lawyer, or to have any other source of knowledge of the criminal law. Accordingly, this averment involves a non sequitur; it simply does not follow from the fact that some of the offences alleged do not exist that the first defendant did not, or could not reasonably have believed what she said was accurate. In any event, the highest this paragraph seems to puts the case against the first defendant is that she lacked a reasonable belief in the accuracy of her allegations of criminal offences. That is an allegation of negligence, which is not equivalent to malice.
For these reasons, the particulars of malice do not, individually or collectively, raise a probability of malice and the plea of malice falls to be struck out pursuant to CPR 3.4(2), as disclosing no reasonable basis for a claim.
The application for judgment
The argument advanced in Mr Munden's skeleton argument is simple: judgment should be entered in respect of the claim relating to the second email because qualified privilege is not denied in respect of that publication. I cannot accept that argument. In so far as the argument proceeds on the footing that the Reply impliedly admits the validity of the privilege defence it is mistaken. It has long been the rule that a matter alleged in the Defence which is not specifically dealt with in the Reply is taken to be in issue. That rule is given effect today by CPR 16.7(2) which provides that "A claimant who (a) files a reply to a defence; but (b) fails to deal with a matter raised in the defence shall be taken to require that matter to be proved."
In fact, although the claimant's Reply does omit to deal specifically with the paragraphs of the Defence that plead privilege in respect of the second email it does not omit to deal with them at all. The Reply begins, as is common, with a general joinder of issue: "Save as where expressly indicated, no admissions are made as to any of the matters set out in the Joint Amended Defence." Ms Lintner's skeleton argument, filed on the morning of the application, also makes clear that the defendants' case on privilege is disputed.
In principle, the defendants could have sought summary judgment on the defence of privilege. However, although the defendants' application notice refers to Part 24, it does so in relation to the plea of malice. It does not ask for summary judgment on the defence of qualified privilege, as Mr Munden accepted in oral argument. As he also accepted, the requirements of Part 24 have not been complied with. Most significantly, the minimum period of notice of 14 days prescribed by CPR 24.4(3) has not been given. The application is made on only 9 days notice. In addition, the application notice and evidence fail to comply with PD24 2(3) and 2(5). For those reasons I could not properly grant summary judgment.
I would in any event have been hesitant to conclude that it was appropriate to grant summary judgment on one of two qualified privilege defences, just a fortnight before the trial date. If one of the privilege defences is to be tried it seems clearly appropriate that the other should as well. Further, it does appear to me that, as Ms Lintner submits on behalf of the claimant, the court ought to examine the circumstances with care before concluding that the publications were privileged.
The special damages claim
The substance of this claim is pleaded in the Updated Schedule of Loss. Excluding the title of the action and the signature page, the Schedule amounts to a page and a half of figures, with relatively little explanation. From the Updated Schedule of Loss it is possible to deduce the following about the claimant's case.
i) It is alleged that there was an "HRe project" which the claimant lost "following the defamation". The "HRe project" involved dealings between HRe and Achor LLC and had two elements: the "Northern Wisconsin project" and the "Fresno project".
ii) The Northern Wisconsin project was an existing project under an agreement, monthly payments under which had begun to be made to Achor LLC. It is alleged that the defamation caused these payments to cease; that this caused Achor LLC to suffer lost profit over 5 years of $3.775m; and that the claimant would personally have received 50% of this, that is $1.8875m.
iii) The Fresno Project was a "future project", under which Achor LLC would have received a $1m "development fee" and monthly payments yielding a total profit of $4.9m over 5 years, of which the claimant would personally have received 50%, that is $2.45m.
iv) The claimant also alleges that there was or would have been a "LivingPlanIt agreement" which would have yielded gains to him denominated in Euros in the form of shares, share options, and consultancy fees amounting to €431,000, and that "following the defamation" he has lost this agreement and this amount.
The Particulars of Claim and Reply contain some further relevant allegations. In paragraph 1 of the Particulars of Claim it is alleged that the claimant "is a founder and shareholder in… [Achor LLC] (a registered company in the State of Missouri, USA)". In paragraph 4 of the Reply it is alleged that Achor LLC was "set up in 2010" and "registered by Mr Andrew Whiteside…" and that "The claimant was neither a shareholder nor a Director of this company. He was engaged as a Biotechnology Consultant".
The claimant gave disclosure by list on 3 October 2013. The list contained only eight items said to be in the claimant's control. The emails complained of, the statements of case, and the correspondence between the parties to the action accounted for four of those items. The other four items were documents relating to the claimant's arrest and bail in January 2012. The only documents listed as having previously been in the claimant's control were the "originals of correspondence sent by way of post" to the defendants, their insurers, "and/or any third party". No documents were disclosed relating in any way to the matters the subject of the special damages claim. The Disclosure Statement said that the claimant had not searched for documents pre-dating October 2011.
On 24 January 2014 Master Eastman ordered the parties to give standard disclosure by 14 February 2014. No further list of documents was served by the claimant. In correspondence with the claimant's solicitors the defendants have pressed repeatedly from May 2014 onwards for the disclosure of documents relating to the special damages claim, but until very recently the only response they received was, on two occasions, that the solicitors were taking instructions.
Against this background the submission made in Mr Munden's skeleton argument was that the claimant was plainly in breach of the Master's order for disclosure. The defendants pointed out that the pleaded case of loss involves five apparently separate agreements or projects, each of which would, they say, necessarily involve documentation. The defendants' application notice therefore sought an unless order for disclosure of the documents on which the claimant relies in support of his damages claim, within 7 days.
It is in my judgment plain and obvious that the claimant's approach to disclosure up to and beyond the time the defendants' application was made did not begin to approach compliance. The defendants were justified in the view that they evidently took, that it is inconceivable, if the allegations in the Updated Schedule of Loss are true, that the claimant has never had any documents in his control that relate to the matters pleaded in that Schedule; and that it is highly unlikely that he does not have any such documents in his control now.
Late on the afternoon of Friday 20 February 2015, the last working day before the hearing of the defendants' applications, the claimant provided further disclosure by way of an "updated" disclosure list. This included at least 16 documents that had not been disclosed before. Some of these were, or at least appear to be, documents referred to in the Updated Schedule of Loss. It appears that the claimant has now disclosed a HBe/Achor LLC agreement as mentioned in that Schedule and the Living-PlanIt agreement referred to. It is not at all clear that all the agreements and documents the existence of which is indicated by the Updated Schedule have been disclosed.
Ms Lintner, who was instructed only on Friday afternoon and appeared without attendance from her instructing solicitor, was understandably unable to assist greatly on the questions which clearly arose from this belated disclosure, which was apparently provided without prior warning. Those questions included whether the claimant's disclosure was now complete, or whether he might have or have had other documents relevant to the special damages claim which he had not yet disclosed. (The list provided did not include a statement of what, if any, documents had been in his control but were no longer in his control.)
I conclude that it is clearly appropriate to make an unless order for disclosure, but one that is in somewhat different in its terms from that applied for. The order will be for the claimant to carry out a search for documents falling within the scope of CPR 31.6, which relate to the issues raised by the claim for special damages; to disclose any documents identified as a result of that search as being or having been in his control; and to give the defendants inspection of all such documents as are in his control by providing copies, simultaneously with their disclosure. Unless this order is complied with the special damages claim will be struck out, with costs to be assessed if not agreed.
The order will require compliance by Friday 27 February 2015. That is not because it is my view that the case on special damages can reasonably be prepared in time for the trial if that is done. Rather, it is because it is right that the claimant should be required to state whether or not he has complied with the rules and orders of the court and, if he has not complied, to do so now, at the risk of having at least the relevant part of his claim dismissed. Whether it is reasonable to expect the defendants to meet the special damages claim at a trial in two weeks time, even if the claimant does now comply with his disclosure duties is a matter to which I shall return.
THE DEFENDANTS' DISCLOSURE
Ms Lintner has observed in the course of her submissions that the defendants' disclosure is also deficient, in that the list of March 2014 also did not involve a search for documents ante-dating October 2011, and is very short indeed. Mr Munden tells me that this omission is remedied at least in large part by the provision of copy documents as exhibits to the witness statements served on behalf of the defendants. That may be so but I have concluded that the defendants' disclosure should be verified by a witness statement to be served by the same deadline as the one that I have required the claimant to meet. The statement must say whether the defendants have or have had any documents falling within the scope of standard disclosure other than those listed in their disclosure list and the exhibits to the witness statements they have served for trial and, if so, to identify the documents and provide copies of those which are in the defendants' control.
OTHER MATTERS
The defendants raise three further matters:
i) Application is made for an order that qualified privilege be tried as a preliminary issue.
ii) The defendants express concern at what are said to be repeated failures by the claimant's solicitors to comply with orders made by the Master and practice directions, and invites me to take action to ensure that this is not persisted in.
iii) Permission is sought pursuant to CPR 32.12 to disclose the witness statements exchanged in this claim, and documents recently disclosed.
Trial of preliminary issue(s)
The submission advanced on behalf of the defendants is that the court should try qualified privilege, and not justification, or damages in any form. The arguments in favour of doing so are straightforward. They start, in reality, with the aim of limiting the costs risks to which the defendants are exposed. The defendants submit that the qualified privilege defence (or, as it will be in the light of my conclusions above, defences) raise short issues which are potentially conclusive of the claims, and could be tried within a day if malice is excluded, as I have concluded it must be. A trial which includes the issue of justification would be long and expensive, it is submitted. It would expose the defendants to a larger costs risk, faced as they are by a claimant who may not have the funds to meet an order for costs, and has no ATE insurance. In addition, it is submitted that the recent disclosure makes it unfair to have a trial on all the issues.
Limiting costs is an important aspect of the overriding objective and, as the Queen's Bench Guide states at 7.3.1: "Costs can sometimes be saved by identifying decisive issues, or potentially decisive issues, and by the court ordering that they be tried first… In such a case, the trial of a preliminary issue may be appropriate." The PTR is one stage of an action at which the Guide recognises (at 7.3.2) that this issue will be considered.
When considering whether preliminary issues should be tried, the court must be alive to the fact that the trial of preliminary issues can result in additional cost and complexity. Particular points to be borne in mind include the need to ensure that the issues for trial are clearly separate and distinct from others that are not being tried, and the need for the trial to be one that may result in a final judgment one way or the other.
Here, I am very much open to the suggestion that the claim for special damages should be excluded from the ambit of the trial that starts in two weeks time. The disclosure given last Friday is so late and its completeness, on its face, so questionable that it seems to me entirely reasonable for the defendants to submit that they should not be compelled to address that disclosure and deal with it at trial within a mere 10 working days of its production. The position can only get worse, if the claimant gives additional disclosure when complying with my order for specific disclosure. In view of his evident disclosure failures the claimant could have no legitimate complaint if his entitlement to recover the very large sums claimed is not tested in March 2015, if at all.
In reaching the conclusion that the special damages claim should be eliminated from the trial I recognise that it is sometimes the case that cross-examination as to credit may arise from special damages issues. That does not, however, seem to me to be a good reason to confront the defendants with a trial based on documentation disclosed only 10 working days beforehand.
I approach with more caution the notion of a trial which covers only some of the issues as to liability and excludes general damages. Given my conclusion on the defendants' application for judgment the trial would need to cover qualified privilege in respect of each of the emails complained of. It seems to me that it would clearly be convenient also to determine what defamatory meanings were borne by the words complained of. Although privilege does not depend on meaning, meaning is a short issue and its resolution would no doubt assist if the privilege defences are rejected and it became necessary to try the issue of justification.
The next question is whether it would be just and convenient to confine the trial to the issues of meaning and privilege, and to exclude justification and general damages. In this regard the situation has been altered by the fresh disclosure given on Friday afternoon. Mr Munden and his clients have had only a short while to review and assess this material, but Mr Munden submits that it encompasses documents relating to the plea of justification, and that the disclosed documents suggest that an application for further specific disclosure may well be made. There may also, it is submitted, be additional witnesses to be proofed and possibly called. These circumstances are relied on as lending weight to the submission that it would be unfair to the defendants for the trial to include the issue of justification.
I was initially reluctant to reach the conclusion that the issues of justification and damages should be excluded from the trial, for two reasons. First, their exclusion will create a risk that the issue of liability cannot be determined at the trial. If the privilege pleas fail the issue of justification will remain to be tried. Secondly, the pleaded cases of privilege and justification overlap, as I have mentioned above. However, Mr Munden has persuaded me that despite the way the defence of privilege is pleaded in respect of the first email it will be possible to confine the factual investigation much more narrowly than that, and to try the issue principally if not exclusively on the basis of the admitted facts and the evidence of the first defendant. The precise ambit of the issues will need to be worked out, but that is not beyond the parties it is suggested. Mr Munden has added that his clients are without legal representation, which makes the case of unfairness the stronger. Further, Ms Lintner is really unable, on the basis of such instructions as she has been provided with, to gainsay Mr Munden's complaints of unfairness, and she has frankly accepted that in all the circumstances a trial on the issue of meaning and privilege might be a reasonable course of action.
It is for these reasons that my conclusion is that the trial due to start on 9 March 2015 should be confined to the issues of meaning and qualified privilege. Directions as to the remaining issues, if any, can be given as required after those issues have been tried.
Compliance
The defendants, through Mr Munden, have expressed concern at the claimant's conduct of this litigation and invited me to warn him that there will be consequences in the event of any further procedural failings, and in particular any failure to prepare, file and serve the trial bundles in accordance with the Master's order. The defendants list a series of failures of compliance by the claimant. These are not limited to disclosure defaults but extend to failures to fix the PTR, failure to prepare and provide a chronology and case summary as directed by the Master and, now, a failure to instruct Counsel until shortly before this hearing with the result that Counsel's Skeleton Argument did not reach me until after the hearing had begun.
Again, Ms Lintner was unable to offer any answer to these complaints. It is unacceptable for a party to fail in these ways to comply with the court's orders. I have made it clear that a very serious view will be taken of any further failures on the claimant's side. In particular, the trial bundle must be prepared and filed in accordance with the Master's order by no later than Tuesday 3 March 2015. I also attach considerable importance to compliance with the Master's order for the service of trial skeleton arguments.
Disclosure of witness statements and documents
CPR 32.12(1) provides that "a witness statement may be used only for the purpose of the proceedings in which it is served." Rule 32.12(2) provides that paragraph (1) does not apply if and to the extent that "(a) the witness gives consent in writing to some other use of it; (b) the court gives permission for some other use; or (c) the witness statement has been put in evidence at a hearing held in public".
The defendants seek permission to make disclosure to third parties of the witness statements served by the claimant and his wife, as well as their own witness statements. Mr Munden states in his skeleton argument that the CPS investigation into the claimant following the arrest referred to in the second email continues, and that the CPS have shown interest in the witness statements exchanged in this claim. Permission is therefore sought to disclose the statements to East Anglia CPS. To this application the defendants added at the hearing an application for permission pursuant to CPR 31.22 to provide copies of the recently disclosed documents.
Witness statements
I do not understand r 31.12 to place any restriction on the use which a party may make of witness statements prepared by that party itself. Other rules may sometimes have the incidental effect of restricting a party's freedom in that respect. This would be so if, for instance, the document contained further information subject to a restrictive order under CPR 18.2, or if it exhibited or otherwise used documents disclosed by another party whilst the restrictions on collateral use imposed by CPR 31.22(1) still applied. Absent such an incidental restriction, however, a party does not require the court's permission to provide a non-party with the same information it provides to its opponent and the court. In any event, as the defendants accepted, they can obtain the consent of the witnesses to the disclosure of those statements.
The position is different when it comes to the claimant's witness statements in this action. They will remain subject to the restriction on collateral use in r 32.12(1) until they are put in evidence at the trial, in two weeks' time, unless I make an order granting permission now. As Ms Lintner pointed out, there is no evidence in support of the defendants' application, which is not the subject of any formal application notice. All that she and the court have to go on is what is said in Mr Munden's skeleton argument about the interest shown by the CPS in the statements in this action.
This is a frail and insubstantial basis on which to seek an order for the disclosure to third parties of witness statements, the purpose of which is to facilitate the fair disposal of civil litigation. It is not even said that the documents are necessary for the investigation, as opposed to merely being of interest. Besides the short notice on which this application has been made I do not consider that any adequate case has been made out to justify a departure from the general regime, by which statements are protected against collateral use until they are put in evidence.
If the trial proceeds in two weeks time, then it seems that the witness statements in question will cease to be subject to restrictions, at least to some extent. I would not rule out the prospect of the court entertaining a fresh application, if made on proper notice and supported by evidence. But the evidence and information presently available are not sufficient in my view.
Disclosure
The position is similar in my judgment when it comes to the claimant's recent disclosure. The application is on even shorter notice, made orally without supporting evidence. No sufficient grounds are shown for granting dispensation from the ordinary regime at the present time. |
His Honour Judge McKenna Introduction
This is the hearing of an appeal against the order of District Judge Shorthose dated 13th October 2014 striking out the Appellants' claim for damages against the Defendant, the Secretary of State for Justice ("Secretary of State") under the Human Rights Act 1998 ("HRA 1998") in respect of the Secretary of State's alleged failure to comply with his obligations under article 6 of the European Convention on Human Rights to provide the Appellants with an impartial tribunal, permission to appeal having been granted by the District Judge at the conclusion of the hearing.
The Appellants assert that this Appeal raises a point of public importance, namely the scope and applicability of the doctrine of judicial immunity under section 9 (3) HRA 1998; and whether, in this case, that statutory immunity bars the Appellants' cause of action against the Secretary of State in respect of the consequences of a meeting between the police and two members of the judiciary at which information was imparted by the police which ultimately led to the collapse of a long running trial in the Employment Tribunal.
Put shortly, the issue at the heart of this case is whether that meeting constituted a "judicial act".
Factual Background
The Appellants brought a claim in the Employment Tribunal against theiremployers, a firm of solicitors, alleging discrimination of different kinds. The case was heard by an Employment Judge sitting with two non legal members in Birmingham on various dates between August 2011 and January 2013. Approximately 30 days worth of evidence was heard in total.
On 19th October 2012 two police officers asked to see the Employment Judge and she together with the Acting Regional Employment Judge duly met the police officers concerned. The Employment Judge informed representatives of the parties of the police visit a week later on 26th October 2012.
On 31st January 2013 the respondents to the claim applied for the recusal of the Tribunal. The Appellants opposed that application but on 5th February 2013 the Tribunal recused itself holding that the test for apparent bias had been met.
The Appellants appealed to the Employment Appeal Tribunal ("EAT") who rejected their appeal on 17th June 2014. See Begraj v Heer Manak Solicitors (2014) ICR 1020.
The Appellants then issued proceedings against the Secretary of State on 28th October 2013 in essence alleging that their rights under article 6 of the European Convention on Human Rights had been infringed and therefore section 6 of HRA 1998 had been breached by virtue of the Employment Judge's failure to provide an impartial tribunal which failure arose from her conduct in meeting the police officers on 19th October 2012. The Appellants sought damages from the Secretary of State in respect of the wasted costs incurred by them.
The Secretary of State defended the claim arguing that (1) there had been no breach of article 6; (2) he was immune under section 2(5) of the Crown Proceedings Act 1947 ("CPA 1947"); (3) he was immune under Section 9 (3) of HRA 1998; (4) the claim was an abuse of process as the issues had already been determined by the EAT when upholding the Tribunal's decision to recuse itself.
By an application notice dated 6th March 2014 the Secretary of State applied to have the claim struck out under CPR Rule 3.4 (2) (a) and/or (b) which was heard by District Judge Shorthose on 15th September 2014. He decided that: (1) The complaint concerned a judicial act and was therefore caught by section 2(5) of CPA 1947 and section 9 (3) of HRA 1998; (2) the alleged infringement of article 6 rights had already been considered by the EAT and the claim was an impermissible collateral attack on that decision;(3) the claim should be struck out under CPR 3.4 on the grounds that the statement of case disclosed no reasonable grounds for bringing the claim and was an abuse of the court's process.
The Legal Framework
Article 6 (1) of the European Convention of Human Rights is in these terms:
"in the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. Judgment shall be pronounced publicly but the press and the public may be excluded from all or part of the trial in the interests of morals, public order or national security in a democratic society, where the interests of juveniles or the protection of the private life of the parties so require, or to the extent strictly necessary in the opinion of the court in special circumstances where publicity would prejudice the interests of justice."
Article 47 of the Charter of Fundamental Rights of the European Union is in these terms:
"1. everyone whose rights and freedoms guaranteed by the law of the Union are violated has the right to an effective remedy before a tribunal in compliance with the conditions laid down in this Article.
2. everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal previously established by law. Everyone shall have the possibility of being advised, defended and represented."
Section 6 (1) of the HRA 1998 provides as follows:
"it is unlawful for a public authority to act in a way which is incompatible with a Convention right".
Section 9 of the HRA 1998 is in these terms
(1) Proceedings under section 7 (1) (a) in respect of a judicial act maybe brought only-
(a) by exercising a right of appeal;
(b) on an application (in Scotland a petition) for judicial review or;
(c) in such other forum as may be prescribed by law.
(2) That does not affect any rule of law which prevents a court from being the subject of judicial review.
(3) In proceedings under this Act in respect of a judicial act done in good faith, damages may not be awarded otherwise than to compensate a person to the extent required by Article 5 (5) of the Convention.
(5) In this section -
"judicial act" means a judicial act of a court and includes an act done on the instructions, or on behalf, of a judge;"
Issues
The Appellants put forward 4 grounds of appeal which raise the following issues:-
(1) Whether the District Judge was wrong to strike out a case raising what is said to be "a complex and novel point of law"
(2) The scope of the immunity provided by section 2 (5) of CPA 1947 and Section 9 (3) of HRA 1998 which it is said must be interpreted as and applied consistently with the United Kingdom's obligations under the European Convention on Human Rights and should not be read so as to prevent a party from obtaining an effective remedy for breach of their convention Rights. In this regard, I should add that the Secretary of State has acknowledged that section 2 (5) CPA 1947 is only applicable to claims in tort against the State and on that basis the Secretary of State confines his argument to submitting that the District Judge was right to strike out the claim as being impermissible under section 9 HRA 1998 (and not section 2 (5) CPA 1947.)
(3) The District Judge was wrong to conclude that the claim was in respect of a judicial act in all the circumstances. The claim, it is said, involved a complaint about the conduct of the Employment Judge who was not part of a Tribunal or engaged in Tribunal proceedings. Furthermore, the Employment Judge's conduct was not capable of being challenged by way of appeal.
(4) The District Judge was wrong to conclude that the claim was a collateral attack on the judgment of the EAT since it was concerned with the question of balancing the rights of both parties before the Tribunal (and maintaining the integrity of the judiciary) after the Employment Judge's meeting with the police had come to light. It did not decide whether or not the Appellants had suffered an interference with their article 6 rights which was not remedied by the recusal of the Tribunal and further it had no power to make an award of damages to the Appellants had it been asked to find that they had suffered an irremediable breach of their human rights.
Ground One
What is said on behalf of the Appellants relying on such cases as Farah v British Airways (The Times 26.01.00) and Richards (t/a Colin Richards & Co) v Hughes [2004] PNLR 35 is that the District Judge was wrong to strike out the case since it raised a complex and novel point of law.
As will be apparent from what follows, I do not accept that submission. Contrary to how the Appellants would have me see it, the law relating to immunity for judicial acts set out in section 9 (3) HRA 1998 is plain and is of broad application and this case essentially concerns the application of that law to a straight forward albeit novel set of facts. The Appellants seek to argue for a narrower interpretation of judicial act, an interpretation for which there is no authority. Moreover, there is no conflict of fact. In the circumstances the District Judge was plainly entitled to consider striking out the claim.
Grounds Two and Three
It is convenient to deal with these two grounds together. What is said on behalf of the Appellants is that this case is not about a judicial decision but rather the responsibility of the State to provide access to justice and that section 9 of HRA 1998 must be interpreted and applied consistently with the United Kingdom's obligations under the European Convention on Human Rights and the Charter of Fundamental Rights and the section should not be read so as to prevent the Appellants from obtaining an adequate and effective remedy. The concept of judicial immunity stands in the way of that effective remedy. Moreover the concept is not clearly defined but fact sensitive and it must be applied to suit the particular factual circumstances. It is capable of being read consistently with the United Kingdom's obligations under the Convention and the Charter. Thus it is said that in a different context the European Court of Human Rights has found that a blanket immunity from suit is unlawful - Osman v UK [2000] 29 EHRR 245 and Z v UK [2002] 34 EHRR 3.
If the conduct complained of can be the subject of an appeal then that is the appropriate remedy and indeed the only remedy but, submit the Appellants, where, as here, the act complained of cannot be addressed by an appeal then the remedy must be provided by other means -and that other means is compensation in a civil claim. Thus where, as here, the wrong complained of is not the decision to recuse which, it is conceded, was a judicial act but the earlier decision made by the Employment Judge to agree to meet the police officers and to receive information from them the concept of judicial act should be interpreted effectively so as to be compatible. This can be done it is said by limiting the definition of the term "judicial act" to acts or decisions which can be the subject of an appeal or judicial review. Such an interpretation would give effect, it is said, to the Convention, to the intention of Parliament in enacting the HRA 1998 and does no violence to the language. To the extent that it cannot be so interpreted I am urged to disapply the provisions of section 9 (3) HRA 1998.
I do not accept those submissions. As it seems to me, the scope of the immunity under section 9 (3) HRA 1998 and the concept of judicial act in particular must, in the light of the authorities, be given a broad definition. As counsel for the Secretary of State submitted, under section 2 (1) CPA 1947 the State's liability in tort to the actions of its servants only arises where it would be possible to hold the officer personally liable for that tort and as the purpose of section 9 (3) HRA 1998 is to preserve the section 2(5) CPA 1947 position in the context of human rights damages claims, it must be the case that where a judge would benefit from judicial immunity in respect of a particular act the State cannot be liable under s.9(3) of HRA 1998.
Sirros v Moore [1975] 1 QB 118 is the leading authority on the personal immunity of judges. In that case, it was held that judges have complete immunity for any act that is within their jurisdiction or which they honestly believe to be within their jurisdiction. It is plain that a very wide interpretation of what are protected acts was given. As Lord Denning MR put it at page 132D:
"Ever since the year 1613, if not before, it has been accepted in our law that no action is maintainable against a judge for anything said or done by him in the exercise of a jurisdiction which belongs to him. The words which he speaks are protected by an absolute privilege. The orders which he gives, and the sentences which he imposes, cannot be made the subject of civil proceedings against him. No matter that the judge was under some gross error of ignorance, or was actuated by envy, hatred and malice, and or uncharitableness, he is not liable to an action. The remedy of the party aggrieved is to appeal to a court of appeal or to apply for habeas corpus, or a writ of error or certiorari, or take some such step to reverse the ruling. Of course, if the judge has accepted bribes or been in the least degree corrupt, or has perverted the course of justice, he can be punished in the criminal courts. That apart, however, a judge is not liable to an action for damages. The reason is not because the judge has any privilege to make mistakes or to do wrong. It is so that he should be able to do his duty with complete independence and free from fear."
He continued as follows at page 135C:-
"What is the test upon which the judges of the superior court are immune from liability for damages even though they are acting without jurisdiction? Several expressions are to be found. A judge of the superior court is not liable for anything done by him while "he is acting as a judge" or "doing a judicial act" or "acting judicially" or "in the execution of his office" or "quatenus a judge". What do all these mean? They are much wider than the expression "when he is acting within his jurisdiction". I think that each of the expressions means that a judge of the superior court is protected when he is acting in the bona fide exercise of his office and under the belief that he has jurisdiction, or he may be mistaken in that belief and may not in truth have any jurisdiction. No matter that his mistake is not one of fact but of law (as in Bushell's (Case 1671) Vaughan 125) nevertheless he is protected if he in good faith believes that his jurisdiction to do what he does."
Had parliament intended that the phrase "judicial act" should only apply to judicial actions which were appealable or subject to judicial review as contended for by counsel for the Appellants, in my judgment it would have said so expressly. It did not. On the contrary the section includes within the definition of "judicial acts" acts done on the instruction or on behalf of a judge which is plainly inconsistent with the interpretation contended for by the Appellants. The language is plain.
Moreover there is no obligation on this court to interpret section 9 (3) HRA 1998 so as to give the Appellants an effective remedy assuming there was a breach of Convention Rights. Article 13 was specifically omitted from incorporation into English law (see section 1 (1) (a) of the HRA 1998.)Even if I am wrong about that, what is proposed by way of interpretation of section 9 (3) HRA 1998 goes far beyond what is permissible interpretation into, in my judgment, impermissible amendment.
In any event, as it seems to me there has been no breach of article 6 in this case since the civil rights and obligations of the Appellants which fall for determination in the employment claim have yet to be determined. The Employment Judge recused herself in order that those rights and obligations could be determined by a Tribunal which was impartial.
In this regard, considerable assistance is to be found from the decision of the Court of Appeal In Re Medicaments and related Classes of goods (No.4) [2002] 1WLR 269. In that case, as the Court of Appeal had previously nullified the potential "breach" of Article 6 which arose from the appearance of impartiality on the part of the Tribunal in question by ordering a fresh trial of the matter it was held that there was no breach of Article 6 and consequently no entitlement to damages. The judgment of the Court was handed down by Brooke LJ and included the following passages:
22. Mr Sales's second preliminary point was that in the events that had occurred there had been no violation of anyone's Article 6 rights. He said that this point could be put in a number of ways. It might be said that this court did not find a breach of Article 6: it merely averted a breach which might have occurred in the future. Alternatively, he said that there was no breach of Article 6, since the Appellants did obtain a fair hearing before the reconstituted first instance court which represented an independent and impartial tribunal. His third way of putting the matter was that any breach of Article 6 was remedied by this court and/or by the retrial before the Restrictive Practices Court.
23. It is trite Convention law that an appeal court can remedy defects in first instance decisions where the appeal is in the nature of a full rehearing or otherwise involves a careful review of the merits (see, for example Edwards v United Kingdom (1992) 15 EHRR 417 and Twalib v Greece (Appln 41/1997/826/1032, judgment of 9 June 1998). In giving the judgment of the Divisional Court in R (on the application of Shields) v The Crown Court at Liverpool (at para 34) Brooke LJ said of two cases (De Cubber v Belgium (1985) 7 EHRR 236 paras 32-33 and Findlay v United Kingdom ...1997) 24 EHRR 221) which had been cited to contrary effect:
"These cases do not establish that an appeal court cannot remedy defects in first instance decisions by holding those decisions to be invalid. Indeed that is one way in which an effective remedy for breaches of Convention rights can be secured, as required by Article 13 of the Convention. In such cases the appeal court is not saving the decision notwithstanding the blemishes at first instance, rather it is invalidating the decision because of the blemishes at first instance. The court is then ruling on a criminal case that the original verdict cannot be allowed to stand, and that if there is to be a conviction, it can only be after a fresh trial in which the Convention rights are respected. It is simply upholding Convention rights."
If that court had had the benefit of Mr Sales's argument in the present case, the second sentence of this passage might well have been phrased in a different way.
24. The case of Kingsley v UK (Appln No 35605/97, judgment of 17 November 2000) provides a good illustration of the point Mr Sales was making to us. The European Court of Human Rights ("ECtHR") held (at para 50) that a panel of the Gaming Board had not presented the necessary appearance of impartiality to constitute a tribunal which complied with Article 6(1). It went on to say, however, in para 52:
"However, even where an adjudicatory body determining disputes over 'civil rights and obligations' does not comply with Article 6(1), there is no breach of the Article if the proceedings before that body are 'subject to subsequent control by a judicial body that has full jurisdiction and does provide the guarantees of Article 6(1)'. The issue in the present case is whether the High Court and the Court of Appeal satisfied the requirements of Article 6(1) as far as the scope of jurisdiction of those courts was concerned."
25. The unusual feature of that case was that the courts on judicial review had no power to remit the case to any tribunal other than the one whose impartiality had been successfully impugned. This was the reason why the applicant was successful on the facts of that case (see para 59). More importantly, however, in the present context, the ECtHR made it quite clear (at para 58) that if the reviewing court had had the power to quash the impugned decision and either to make the relevant decision afresh or to remit the case for a new decision by an impartial body, then there would have been no breach of Article 6(1).
26. Despite this powerful recent authority to contrary effect, Miss Otton- Goulder maintained that the hearing before the re-constituted Restrictive Practices Court was not in itself sufficient to give effect to the requirements of Article 6, and that her clients must have compensation for their wasted costs as well. Unless they were granted this relief, she argued that there would be no restitutio in integrum and the breach of Article 6 would remain uncured.
By analogy, as it seems to me, in the present case, the potential breach of Article 6 was remedied by the Employment Tribunal itself. There is therefore no breach and therefore no entitlement to damages.
Ground Four
In the light of my conclusions in respect of grounds 1-3, I can deal with ground 4 very shortly. It is plain from a consideration of the Judgment of Langstaff J in Begraj and another v Heer Manak Solicitors and others [2014] ICR 1020 that the EAT gave careful consideration to Article 6. Indeed, ground two of the Grounds of Appeal before the EAT was to the effect that the Employment Tribunal's recusal failed to take proper account of the right to a fair hearing guaranteed by Article 6 of the European Convention on Human Rights and Fundamental Freedoms because the cost of re-litigating the case was said to be beyond the means of the Appellants (see paragraph 30 of the judgment of Langstaff J). Before the EAT the Appellants lost and they are now seeking a second bite of the cherry. In my judgment that does squarely constitute a collateral attack on the EAT's decision since in these proceedings the Court will necessarily have to look at the recusal decision and decide whether the Appellants should be compensated which might involve ruling in a way contrary to that which the EAT had done.
CONCLUSION
In all the circumstances, the District Judge was correct to strike out the Appellants' claims notwithstanding the error in holding that Section 2 (5) CPA 1947 applied, an error which had no material effect on his findings and I would dismiss this appeal.
I trust that the parties will be able to agree the terms of an Order which reflects the substance of this Judgment.
Finally I would like to take this opportunity to thank both Counsel for their very helpful Skeleton Arguments and oral submissions. |
Mr Justice William Davis:
This is a claim for damages for breach of contract; alternatively restitution of benefit received. I shall set out the detail of the claim and the history of the proceedings hereafter. The case is listed for a five-day trial. It was due to commence yesterday (18th February 2015). It did not do so because the Defendant has made an application to strike out the Claimant's statement of case pursuant to Part 3.4 of the CPR and/or to give summary judgment against the Claimant pursuant to Part 24.2 of the CPR. This is my judgment on that application.
The Claimant provides care and residential accommodation to adults with autistic disorders ("service users") in Cornwall and other parts of the West Country. The Defendant (and its predecessor) has a statutory duty to provide care and accommodation for disabled people within the county of Cornwall. That duty extends to those with autistic disorders. The Claimant is one of many suppliers in Cornwall used by the Defendant to fulfil its duty. The Defendant pays a fee to any supplier of such care and accommodation by reference to the needs of and care provided to each individual service user.
This claim concerns the alleged underfunding by the Defendant of services provided by the Claimant to eight named service users. The underfunding is alleged to have occurred at least from 2006 onwards. The Claimant's case appears to be that there was underfunding prior to that date but, since proceedings were not commenced until 2012, that any earlier shortfall is statute barred. The underfunding is said to have occurred in this way. Each service user was the subject of a contractual arrangement between the Claimant and the Defendant whereby the Claimant agreed to provide the necessary care and accommodation. The agreement did not stipulate the amount of money to be paid in respect of such provision. Thus, the Claimant was entitled to be paid a reasonable price for the services provided. In fact, the Defendant did not pay a reasonable price but some lesser figure.
The proceedings were issued in July 2012. Particulars of Claim were served in November 2012. The claim at that point had three strands. First, there was a claim in respect of underfunding the eight named service users in respect of the period from 2006 to 2008 in the sum of £319,626.36. Second, there was a like claim for the period from 2008 onwards in the sum of £1,549,107.74. Third, there was a claim for underpayment in relation to a quite separate group of service users in the sum of £216,867.11. A Defence was served but the Defendant also applied to strike out the claim under Part 3.4(2) of the CPR. On the 17th December 2013 this application came before Senior Master Leslie. The application was adjourned on the basis that the Claimant would serve Amended Particulars of Claim by the end of January 2014. The Defendant was given seven days from the date of service of the amended pleading to notify the Claimant whether it consented to the amendment. The order of Senior Master Leslie stipulated that the amended pleading had to identify each relevant service user, the dates and nature of the service provided by the Claimant in each case, the alleged need of the service user in each case, the amount claimed and the basis of the liability alleged.
The Amended Particulars of Claim were duly served. Although they were not wholly dissimilar to the original pleading, the amended pleading was drafted so as to replace the original pleading in its entirety. Whatever the similarity in terms of the alleged cause of action, the amended pleading was very different in terms of the amounts claimed. The claim in relation to the separate group of service users was not pursued at all. In relation to the eight named service users the sum claimed in relation to the period up to 2008 was reduced to £231,855.80 and in relation to the period from 2008 onwards the sum was very substantially reduced. Rather than a figure in excess of £1.5 million, the sum claimed was £549,850.10. The Defendant consented to the amendment and an Amended Defence was served. However, there were requests for further information followed by a further hearing on the 1st August 2014 before Senior Master Leslie. The Defendant contended that the amended pleading did not meet the requirements of particularity previously specified by Senior Master Leslie. At that hearing an order (paragraph 4) was made requiring the Claimant to file and serve particulars of its case (in relation to one of the service users – PB1) in the categories then agreed by the parties. Those categories were set out in a schedule to the order. The particulars related to the weekly shortfall as alleged and five types of particulars were set out in tabular form. These were: the additional services provided by the Claimant to PB1 including references to evidence in support; the cost to the Claimant of providing those additional services with references to supporting evidence; the cost to the Claimant of providing existing services to PB1 with references to supporting evidence; what assessed needs of PB1 were met by the additional services with references to supporting evidence; the date on which those additional services were provided.
The need for those particulars arose in part from the way in which the case was pleaded, namely that the needs of the service users had been reassessed in 2008 which meant that the shortfall in funding became much more substantial from that point onwards. In any event the particulars requested would have provided the Defendant with a clear understanding of the Claimant's case of alleged underfunding prior to 2008. The particulars in relation to PB1 were ordered to be served by the 17 October 2014. In relation to the other service users the order (paragraph 6) was: "Any schedule of particulars relied on by the Claimant (other than for PB1) is to be filed and served by 19 December 2014". This part of the order did not refer specifically to the schedule to the order which set out the five types of particulars to be addressed.
The timetable was extended by consent on the 13 November 2014. When the particulars in relation to PB1 were served by the Claimant is not clear on the material I have. However, they were served and the Defendant (as had been required by the order of Senior Master Leslie) responded with a counter schedule. The material set out in the particulars as served by the Claimant did not, according the Defendant, deal fully with the matters required by the order of the court. That was set out in the counter-schedule. However, the material did appear to be consistent with the financial claim as put in the Amended Particulars of Claim.
On the 12 December 2014 the parties were due by reference to the order of Senior Master Leslie (as extended) to serve witness statements. The Claimant did not do so. As a result the Defendant made an application for an order that the Claimant should not be permitted to rely on any witness evidence. The Claimant in turn applied for relief from sanctions, for additional time to prepare and serve witness statements and for an adjournment of the trial. The applications were heard on the 16 January 2015 by Mr Justice Green. In due course he handed down a judgment with particular reference to the Claimant's applications: see [2015] EWHC 129 (QB). I do not propose to set out any part of that judgment herein. However, it forms an important part of the backdrop to the application under consideration now. In particular, I adopt the analysis of Mr Justice Green at paragraph 21 et seq of his judgment in relation to the relevance and impact of a change in legal representation in respect of relief from sanctions. As is clear from that judgment, those who now represent the Claimant have done so only since about the middle of December 2014.
Mr Justice Green refused the application to adjourn the trial; rather he fixed the trial for the 18 February 2015. He required service of the Claimant's witness statements by the close of business on the 2 February 2015 failing which the Claimant was to be debarred from relying on witness evidence at trial. He made an order in relation to particulars other than those already served in relation to PB1. It was in these terms: "The Claimant do provide the particulars it relies upon (other than for PB1) by filing and serving schedules containing such particulars by 4 p.m. on 2 February 2015".
Witness statements and schedules were served on the 2 February 2015. The witness statements did not descend to any particularity in the body of the statements as to the cost of additional services or existing services or as to how the need for any such services arose. The schedules as produced by Neil Harris, by now the Claimant's finance manager, were not in the same form as the schedule produced previously in relation to PB1. They did not set out the particulars as specified in the schedule to the order of Senior Master Leslie. They referred to sums far in excess of the pleaded case. Indeed, the sums set out in the schedules were close to those pleaded in the original Particulars of Claim. The Defendant considered the served materials. On the 6 February 2015 the Defendant wrote to the Claimant's solicitors. The Defendant argued as follows: the schedules did not comply with the order made by Mr Justice Green and/or the earlier orders of Senior Master Leslie; the schedules in any event were not validated by any witness evidence, Mr Harris's evidence being simply a rehearsal of the retrieval of the documents supposedly supporting the schedules; the evidence and the schedules asserted a claim some two-and-half times the value of the claim pleaded and no proposed re-amended pleading had been served. Other matters were put forward which are of no relevance to my consideration of this application. The Defendant invited the Claimant to discontinue the claim.
The Defendant received no response to that letter. Mr Justice Green had ordered an exchange of skeleton arguments by the 13 February 2015. No skeleton argument from the Claimant was forthcoming at this point. Rather, it was served during the day on the 16 February 2015. In it the intention to apply for permission to re-amend the Particulars of Claim was flagged and the reasons why such permission should be given were set out. The proposed Re-Amended Particulars of Claim were served on the afternoon of the 17 February 2015. The re-amendment principally concerned the sum claimed in respect of services provided from 2008 onwards. In relation to the period 2006 to 2008 the figure was just over £1,000 more than that claimed in the January 2014 pleading. However, what had been £549,850.10 for the period from 2008 onwards was now £1,697,517.86.
So it was that on the morning of the trial I was asked to give leave to re-amend the Particulars of Claim. Having heard substantial submissions from both sides I refused to give such leave. In the course of argument in relation to this application Mr Pepperall Q.C. on behalf of the Claimant realistically accepted that he had faced an uphill task in making the application to re-amend and that I had been entitled to take the view I did. In part because of that concession I shall not repeat in any detail my reasons. In essence they were threefold. First, the argument for the Claimant was that there had been some kind of error in the arithmetic when the pleading had been amended in January 2014. I had no evidence of how or why such an error had arisen if that was the explanation. As Mr Justice Green had said in his judgment (albeit in a different context) if the explanation for some default lay with the previous legal representatives, there was a feasible process by which the explanation could be placed before the court. Second, the reasoning behind the amended pleading as served in January 2014 had been set out in clear terms in the Reply to the Amended Defence. The Reply made clear that there had been a deliberate and considered decision to reduce the claim from that originally pleaded. This assertion was said to be true by the CEO of the Claimant. She signed the statement of truth appended to the Reply. Yet she is a witness whose statement was served on the 2 February 2015 apparently to support the hugely inflated figure. Third, the state of the evidence as a whole was such that it was impossible to show the strength of the new case i.e. the sums now put forward as the supposed loss.
It is against that background that I turn to consider the Defendant's application. Mr Ramsden on behalf of the Defendant submits as follows:
All three sub-paragraphs of Part 3.4(2) of the CPR apply.
The statement of case discloses no reasonable grounds for bringing the claim because the particulars provided (which form part of the statement of case) do not constitute a coherent set of facts.
The evidence served does not support the pleaded case since it was served with a view to supporting the proposed re-amended pleading.
The failure to comply with the order to provide particulars is both an abuse of the process and amounts to a failure to comply with a court order.
Given the state of the evidence the Claimant has no real prospect of succeeding in its claim in which event there should be summary judgment entered for the Defendant.
Mr Pepperall Q.C. on behalf of the Claimant argues as follows:
The failure of the application to re-amend the pleaded case cannot prevent the Claimant from proving the sums which were set out in the proposed Re-Amended Particulars of Claim. The cause of action is the same in either event and, if the evidence shows that a sum greater than that claimed in fact is due, the only effect will be that the Claimant's recovery will be capped at the level of claim as pleaded in January 2014.
For the same reason there would be no abuse involved in the Claimant putting forward the case set out in the witness statements.
There was no breach of the order in relation to provision of particulars. The order in relation to service users other than PB1 did not require the same particulars as required in his case and the schedules served did what was required on its face by the order.
It is wrong in principle to consider an application for summary judgment on the day of trial. The proper course is for the evidence to be called and, if the Defendant seeks to argue that it is insufficient at the close of the Claimant's case, it can be put to its election.
Mr Pepperall Q.C. cited the following authorities to support a series of propositions: Royal Brompton Hospital NHS Trust v Hammond and others [2001] EWCA Civ 550; National Westminster Bank v Rabobank Nederland [2006] EWHC 2959 (Comm Ct); Whittaker v Soper [2001] EWCA Civ 1462; Miller v Cawley [2002] EWCA Civ 1100; Richards v Hughes [2004] EWCA Civ 266; Reckitt Benkiser v Home Pairfum [2004] EWHC 302 (Pat); Asiansky Television v Bayer-Rosin [2001] EWCA Civ 1792.
The propositions he put forward were as follows:
As a general rule summary disposal of a case should occur only well in advance of the trial. Cases where summary disposal at the trial will be appropriate will be very rare: Royal Brompton Hospital.
The CPR do not contemplate a form of trial on the balance of probabilities at the outset without allowing a trial to take place: Royal Brompton Hospital.
Whilst a court can strike out a claim after the start of a trial, the occasion to exercise such a jurisdiction will be very rare: National Westminster Bank.
A judge considering debarring a party on the day of trial must consider whether that step is proportionate given the consequences of such a step: Whittaker.
Where there was an application to strike out under Part 3.4(2) in a case where there were significant disputes of fact in relation to the existence and scope of the alleged legal duty on which the claim was based, the court should not strike out the claim unless it was certain that the claim was bound to fail: Richards.
Even in cases of apparent abuse of process, the striking out of a valid claim should be the final option with some less draconian course being adopted if it can be: Reckitt Benkiser.
In every case the court must concentrate on the intrinsic justice of that particular case in the light of the overriding objective: Asiansky Television.
None of these propositions is controversial. Equally, the context in which they arose in the case in question must be borne in mind. None of the cases cited bears any ready comparison to the facts in this case. For instance, in Royal Brompton Hospital the case had been opened when the judge, after a break in the case when he had been reading the papers, of his own motion reached a view about the evidence which on proper analysis was misconceived. It is doubtful whether there ever could be summary disposal where there is conflicting factual and expert evidence – yet the judge in that case considered such a disposal possible in just those circumstances. The second proposition from that case as identified by Mr Pepperall forms the basis of his submission that I should not be beguiled into assessing the evidence as part of a balancing exercise. Clearly I should not be so beguiled and I shall not fall into the trap of conducting a trial on the papers i.e. deciding whether the Claimant on balance will fail.
As a general proposition it is very unusual for an application for summary disposal to be made at the commencement of a trial. As Mr Justice Turner drily put it in a case where just such a course had been ordered as part of pre-trial case management: "I pause merely to remark upon the novelty of the timing of a summary judgment application listed to be heard on the morning of the first day of trial": Bijlani v Unum [2014] EWHC 27(QB). However, I am quite satisfied that the very unusual circumstances of this case mean that the Defendant's application should not be rejected simply because of its timing.
I am not satisfied that it would be appropriate to strike out the claim on the basis that the statement of case discloses no reasonable grounds for bringing the claim. The Defendant's argument is that the particulars required by the various orders of Senior Master Leslie and Mr Justice Green form part of the statement of case. Since the schedules provided in relation to all but one of the service users are inadequate, it is proper to conclude that there is no coherent statement of facts. That argument has force. It is not sufficient to say as Mr Pepperall Q.C. does that the pleaded case must disclose reasonable grounds for bringing the claim since no suggestion to the contrary has been made since the service of the Amended Particulars of Claim. However, I am just persuaded that the pleaded case is sufficient to satisfy the requirement of bare coherence.
The same does not apply to the Defendant's submissions in relation to Part 3.4(2)(b) and (c). There is no doubt that the particulars provided by the Claimant on the 2nd February 2015 by way of schedules do not comply with the requirements of the order of Senior Master Leslie as made initially on the 1st August 2014 i.e. the matters set out in the schedule to that order. Mr Pepperall Q.C. argues that the order in relation to all service users other than PB1 did not refer to the schedule to the order. Therefore, there was no need to provide particulars of the same kind in respect of the seven other service users. He submits that the schedules now served are sufficient to meet any order of Senior Master Leslie. I reject that argument without hesitation. First, the order made by Senior Master Leslie on the 17th December 2013 as to what had to be particularised in the proposed amended claim is not met by the schedules now served. Those schedules do not provide details of the nature of the service provided by the Claimant to the service user and they do not set out the alleged need of the service user. Second, the greater particularity required by the order of the 1st August 2014 (and the schedule to that order) was not restricted to PB1. It is inconceivable that it should have been so restricted. The purpose of the order was to enable the Defendant and the court properly to understand the Claimant's case in relation to underfunding. That could be achieved only by provision of the particulars within the schedule to the order. For the Claimant to be required to provide sufficient particulars in relation to only one out of eight service users would be a nonsense. Implicit in paragraph 6 of the order of the 1st August 2014 was a requirement that the schedules would set out the particulars as specified in the schedule to the order. Third, the scheme of the order is clear. The Claimant was required to provide particulars in relation to one service user with the Defendant to respond thereto. That process would enable the Claimant to adjust the particulars provided in relation to the other service users to take account of any legitimate general objection raised by the Defendant.
Mr Pepperall Q.C. argues in the alternative that the order of Senior Master Leslie was substituted by the order of Mr Justice Green. That order is free standing and should not be read in conjunction with the orders of Senior Master Leslie. I disagree. The orders of Senior Master Leslie formed the backdrop to the proceedings before Mr Justice Green. Mr Justice Green plainly had them clearly in mind since the relevant part of his order is in almost identical terms to the order made on the 1st August 2014 by Senior Master Leslie. No sensible or reasonable litigant would have concluded that Mr Justice Green did not intend that the Claimant's case should not be properly particularised – which is the logical consequence of the submission made by Mr Pepperall Q.C.
It follows that the Claimant has failed to comply with a court order – or to be precise three successive court orders. In addition I consider that the statement of the Claimant's case – the particulars as provided by way of schedules – is an abuse of the court's process or is otherwise likely to obstruct the just disposal of the proceedings. Clearly the circumstances of this case are not comparable to the extreme cases of abuse such as Raja v Hoogstraten [2006] EWHC 1315 (Ch). However, the categories of abuse are many and are not closed. In this case the schedules served simply set out a bald statement of four alleged heads of cost for each week and each service user: accommodation; activity log; hours delivered; contingency and reinvestment. A column headed "justification for work undertaken" has only occasional entries. Where they do appear the entry is simply a reference to a document without any explanation as to which part of the document is relied on or is relevant. The essence of the Claimant's case is quantum meruit i.e. the contract by which the Defendant contracted out its duty to provide care and accommodation to service users did not specify a price and the Claimant is entitled to a reasonable price for the services provided. To expect the Defendant to meet this case – still less to expect the court to try the case fairly – on the basis of the particulars provided is an abuse of the court's process. It renders just disposal of the proceedings highly problematic.
Mr Pepperall Q.C. submits that striking out a claim under Part 3.4(2)(b) and/or (c) should be an order of last resort. He argues that I must consider what the just course in all of the circumstances is and that I should try to identify a sanction short of the draconian step of striking out the claim. I accept both of those arguments. The problem with identifying some step short of striking out is that this case has had a sorry litigation history as outlined in his judgment by Mr Justice Green. He considered the possibility of adjourning the trial. He rejected that possibility in unequivocal terms. Insofar as he gave the Claimant one last chance to get its house in order, the Claimant has had that last chance. I also have in mind the state of the evidence generally (to which I shall come in a moment in my consideration of the application for summary judgment). I am driven to the conclusion that the only proper step I can take is to strike out the Claimant's statement of case for the reasons set out above.
I turn to the application for summary judgment. As Mr Pepperall Q.C. notes in his written submission this requires a focus on the evidence rather than the pleadings. In that written submission he noted that the Defendant did not give the requisite notice of the application and he submitted that time should not be abridged. He did not raise that issue in the course of his oral submissions. He was right not to do so. The basis for the application really only became apparent when on the 2nd February 2015 the Claimant served its witness evidence and the schedules. The application was lodged on the 11th February 2015. I am quite satisfied that it is appropriate to abridge time to permit the application to be heard.
I have to consider whether the Claimant has no real prospect of success on its claim. I also must consider whether there is any other compelling reason why the case should not be disposed of at a trial. The burden is on the Defendant to persuade me of both matters. The issue here is whether the Claimant has no real prospect of success. It is not for me to conduct a mini-trial (as it was described in Swain v Hillman [2001] 1 All ER 91). The proper approach is as set out in the speech of Lord Hope in Three Rivers DC v Bank of England (No 3) [2001] 2 All ER 513:
"89. CPR rule 24.2 provides:
"The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if -
(a) it considers that -
(i) that claimant has no real prospect of succeeding on the claim or issue; or
(ii) that defendant has no real prospect of successfully defending the claim or issue; and
(b) there is no other reason why the case or issue should be disposed of at a trial."
90. The test which Clarke J applied, when he was considering whether the claim should be struck out under RSC Ord 18, r 19, was whether it was bound to fail: see p 171 of the third judgment. Mr Stadlen submitted that the court had a wider power to dispose summarily of issues under CPR Part 24 than it did under RSC Ord 18, r 19, and that critical issue was now whether, in terms of CPR rule 24.2(a)(i), the claimants had a real prospect of succeeding on the claim. As to what these words mean, in Swain v Hillman [2001] 1 All ER 91, 92, Lord Woolf MR said:
"Under r 24.2, the court now has a very salutary power, both to be exercised in a claimant's favour or, where appropriate, in a defendant's favour. It enables the court to dispose summarily of both claims or defences which have no real prospect of being successful. The words 'no real prospect of being successful or succeeding' do not need any amplification, they speak for themselves. The word 'real' distinguishes fanciful prospects of success or, as Mr Bidder QC submits, they direct the court to the need to see whether there is a 'realistic' as opposed to a 'fanciful' prospect of success."
91. The difference between a test which asks the question "is the claim bound to fail?" and one which asks "does the claim have a real prospect of success?" is not easy to determine. In Swain v Hillman at p 4 Lord Woolf explained that the reason for the contrast in language between rule 3.4 and rule 24.2 is that under rule 3.4, unlike rule 24.2, the court generally is only concerned with the statement of case which it is alleged discloses no reasonable grounds for bringing or defending the claim. In Monsanto plc v Tilly, The Times, 30 November 1999; Court of Appeal (Civil Division) Transcript No 1924 of 1999; Stuart Smith LJ said that rule 24.2 gives somewhat wider scope for dismissing an action or defence. In Taylor v Midland Bank Trust Co Ltd he said that, particularly in the light of the CPR, the court should look to see what will happen at the trial and that, if the case is so weak that it had no reasonable prospect of success, it should be stopped before great expense is incurred.
92. The overriding objective of the CPR is to enable the court to deal with cases justly: rule 1.1. To adopt the language of article 6.1 of the European Convention for the Protection of Human Rights and Fundamental Freedoms with which this aim is consistent, the court must ensure that there is a fair trial. It must seek to give effect to the overriding objective when it exercises any power given to it by the Rules or interprets any rule: rule 1.2. While the difference between the two tests is elusive, in many cases the practical effect will be the same. In more difficult and complex cases such as this one, attention to the overriding objective of dealing with the case justly is likely to be more important than a search for the precise meaning of the rule. As May LJ said in Purdy v Cambran (unreported) 17 December 1999: Court of Appeal (Civil Division) Transcript No 2290 of 1999:
"The court has to seek to give effect to the overriding objective when it exercises any powers given to it by the rules. This applies to applications to strike out a claim. When the court is considering, in a case to be decided under the Civil Procedure Rules, whether or not it is just in accordance with the overriding objective to strike out a claim, it is not necessary to analyse that question by reference to the rigid and overloaded structure which a large body of decisions under the former rules had constructed."
93. In Swain v. Hillman Lord Woolf gave this further guidance at pp 94 and 95:
"It is important that a judge in appropriate cases should make use of the powers contained in Part 24. In doing so he or she gives effect to the overriding objectives contained in Part 1. It saves expense; it achieves expedition; it avoids the court's resources being used up on cases where this serves no purpose, and, I would add, generally, that it is in the interests of justice. If a claimant has a case which is bound to fail, then it is in the claimant's interests to know as soon as possible that that is the position. Likewise, if a claim is bound to succeed, a claimant should know this as soon as possible….
"Useful though the power is under Part 24, it is important that it is kept to its proper role. It is not meant to dispense with the need for a trial where there are issues which should be investigated at the trial. As Mr Bidder put it in his submissions, the proper disposal of an issue under Part 24 does not involve the judge conducting a mini trial, that is not the object of the provisions; it is to enable cases, where there is no real prospect of success either way, to be disposed of summarily."
The relevant evidence served by the Claimant comes from two witnesses; Mary Simpson and Neil Harris. I can dispose of the other evidence briefly. The witnesses Sharon Groves and Darren Moyle set out the general condition of the service users who are the subject of the proceedings. Their evidence gives no basis on which to found a particular level of care needed, still less the cost of such care. The witness Thomas Tripp sets out the way in which the Claimant accounts for each service user in its care. He does not descend to any detail relating to the service users in issue. The witness Michael Faulds gives no substantive evidence of any consequence; his witness statement consists largely of comment upon the witness evidence served by the Defendant.
Mary Simpson's evidence seeks to establish that there was a contract by which the Claimant supplied services to the Defendant for which the Claimant was entitled to reasonable recompense and that the Defendant was in breach of that contract. In relation to the period up to 2008 she produces correspondence exhibited as MS6 dating from 2004. That correspondence plainly shows that the Claimant had service users in its care for which the Defendant was responsible. However, the correspondence equally plainly shows on its face that the fees for particular service users were the subject of concluded negotiation. That correspondence provides no evidence to show that the Claimant was not being provided with reasonable recompense, rather the reverse. Mary Simpson goes on to say this in relation to the pre-2008 period: "The Council well knew that from Spectrum's long standing provision of residential care services to such individuals as Spectrum reasonably assessed their needs, subject to any guidance or direction given by the Council and that in return the Spectrum would expect the Council to pay Spectrum an amount that covered its reasonable cost of the provision of those residential care services." Whatever this assertion might be taken to mean, it does not provide any evidence that the Defendant was not meeting its contractual liability. The evidence of Mary Simpson read as a whole (and in conjunction with the documents she produces) provides no real prospect of showing that the Defendant failed in its obligations in the period up to 2008. For the period from 2008 onwards Mary Simpson produces an exhibit (MS1) which consists of a lever arch file containing nearly 350 pages of documents. Most of these documents are irrelevant to the issue of the contractual liability of the Defendant. However, there are a number of documents – correspondence, e-mails, notes of meetings – which are relevant to the issue of fees. These documents are to be found at the following tabs of MS1: 13 to 18; 20; 36; 43; 46; 53; 62; 63. It is quite clear from that material that the issue of fees was considered on a regular basis over the period from the middle of 2008. From time to time the Claimant put forward proposals in relation to particular items of expenditure and the Defendant would consider those proposals. At no point was there any agreement that the Defendant was failing to fund services or care which reasonably were being provided or that the Claimant should provide services additional to those previously agreed. By the middle of 2009 the discussion between the parties was in relation to promptness of payment rather than the amount of the payments. In 2011 there was a meeting between the parties in which it was noted that "the total amount paid to Spectrum would not increase". Despite the evidence exhibited by Mary Simpson she then repeats word for word the passage set out above asserting that the Defendant knew what assessment the Claimant had made of the needs of service users and that the Defendant could be expected to meet the costs incurred. As with the period up to 2008 there is no realistic prospect of this evidence demonstrating that the Defendant failed in any obligation it owed to the Claimant.
The high water mark of the evidence of Mary Simpson could be said to be the content of paragraph 6 of her witness statement which is headed Basis of Claim. This asserts that the eight named service users were treated differently to other service users because they were long term residents. It states that the fees payable in respect of the majority of the service users in 2012 were increased "to what is required". Mary Simpson asks "why wasn't this done years ago?" These bald assertions provide no evidential basis for the claim notwithstanding the heading to the relevant paragraph.
Neil Harris is the finance manager of the Claimant. He only has been in that position since March 2013 so he has no personal knowledge of the subject matter of these proceedings. After an introductory passage setting out his responsibilities with the Claimant (which have no bearing on this case) he sets out what he did in order to prepare the schedules served on the 2nd February 2015. His task was clearly very substantial and involved tracking down a huge amount of documentary material. However, he does not explain the needs of the service users and how they are reflected in the schedule – which is hardly surprising given the nature of his occupation. His role was and is simply to produce the schedules without any detailed explanation or validation. The schedules are not made satisfactory by his evidence.
One matter on which Neil Harris is qualified to speak is the invoicing practice of the Claimant. One of the issues he was required to address by reference to a disclosure order made by Mr Justice Green was invoicing for alleged additional provision of services to service users. Mr Harris's evidence on that topic is as follows:
"We never raised invoices for additional provision of services because all the funding was being supplied by Spectrum. There was no point in invoicing the defendant Council because all they were paying for was the basic expenses. It made no sense to keep invoicing a Council who were refusing to pay…..there was no point in raising invoices when we knew that we were never or likely to get paid for them."
How this passage is to be reconciled with the passage already quoted from the statement of Mary Simpson is not explained. The mere fact that two witnesses give evidence that is apparently inconsistent is not sufficient to render the prospects of success of the party calling those witnesses so slight as to justify summary judgment against that party. That would be to undertake the exercise deprecated in Swain v Hillman (supra). But the evidence of Mr Harris of itself appears fatally to undermine the basis of the Claimant's case. It certainly renders the proposition put forward by Mary Simpson entirely fanciful.
Given the witness evidence and the accompanying documents served by the Claimant I am quite satisfied that the prospects of success for this claim are illusory. Although it is very late in the day for the court to reach that conclusion, I am sure that it is a proper use of the court's power to exercise its summary jurisdiction even at this late stage. It follows that, irrespective of the striking out of the statement of case, I would give summary judgment against the Claimant. |
Mr Justice Dove :
Introduction
This case concerns the arrangements made for the recovery of vehicles in the defendant's police area. There are two actions before me. The first action relates to the termination of a contract between the claimant and the defendant for the recovery of vehicles on the defendant's behalf. The second action is concerned with the removal of the claimant from a tender competition, related to placing further contracts for the recovery of vehicles, by the defendant. The factual justification for both the termination of the contract by the defendant and also the defendant's decision to remove the claimant from the tender process were the same. The decisions related to the discovery, at the claimant's premises, of a Land Rover Discovery vehicle ("the S-LR") which had been recovered by the claimant and reported to the defendant as having been sent to be crushed, bearing the number plates and one of the Vehicle Identification Number ("VIN") plates belonging to an older Land Rover Discovery which had been part of the defendant's fleet of recovery vehicles ("the L-LR"). The full details of how that came about are one of the important issues in the case.
I am not required in the course of this judgment to deal with all of the issues in relation to quantum at stake in this case. I am in effect dealing with the issues in relation to liability, and most of the factual issues associated with the question of quantum.
Prior to embarking upon the main subject matter of this judgment I wish to place on record my gratitude to the lawyers on both sides involved in this case. As might be imagined in a trial of this kind, there were several twists and turns during the course of the hearing. These issues affected both sides in the presentation of their cases. Over the course of the trial a spirit of cooperation evolved between the parties which enabled it to proceed in an effective and timely manner and assisted me in my task of seeking to reach conclusions in relation to the questions raised in the case. I am very grateful for all of the lawyers' various contributions to assisting me in my task.
The structure of this judgment reflects a number of factual themes which were pursued during the course of the trial. I appreciate that in structuring the judgment in this way, there are overlapping strands of the narrative which appear to be explored separately. I would, however, wish to confirm that in reaching the factual conclusions which I have had to reach, I have had regard, holistically, to the whole of the narrative skein made up of the various strands in the judgment set out below, in order to come to my conclusions.
In my approach to the factual findings in this case I have, of course, started from the proposition that it is for the claimant to prove its case and that it needs to be proved upon the balance of probabilities. So much is obvious and well known. I have sought to explain below the reasons why I have reached the factual conclusions, weighing up both the evidence from the witnesses from whom I heard, and the extensive documentation which is available in the case. There is, however, a further legal issue bearing on the fact-finding exercise, which I need to record that I have also borne carefully in mind. This issue is that there are, in this case, serious allegations of dishonesty being made and also allegations of corruption and conspiracy. In considering these issues I have applied the approach to be derived from In Re B [2009] 1 ACC 11 in which Lord Hoffmann set out the approach as follows:
"13. … I think that the time has come to say, once and for all, that there is only one civil standard of proof and that is proof that the facts in issue more probably occurred than not. I do not intend to disapprove any of the cases in what I have called the first category, but I agree with the observation of Lord Steyn in McCann's case, at p 812, that clarity would be greatly enhanced if the courts said simply that although the proceedings were civil, the nature of the particular issue involved made it appropriate to apply the criminal standard.
14. Finally, I should say something about the notion of inherent probabilities. Lord Nicholls said, in the passage I have already quoted, that – 'the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability.'
15. I wish to lay some stress upon the words I have italicised. Lord Nicholls was not laying down any rule of law. There is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not. Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities. If a child alleges sexual abuse by a parent, it is common sense to start with the assumption that most parents do not abuse their children. But this assumption may be swiftly dispelled by other compelling evidence of the relationship between parent and child or parent and other children. It would be absurd to suggest that the tribunal must in all cases assume that serious conduct is unlikely to have occurred. In many cases, the other evidence will show that it was all too likely. If, for example, it is clear that a child was assaulted by one or other of two people, it would make no sense to start one's reasoning by saying that assaulting children is a serious matter and therefore neither of them is likely to have done so. The fact is that one of them did and the question for the tribunal is simply whether it is more probable that one rather than the other was the perpetrator."
Returning to the structure of the judgment, having examined the factual issues in the case, I shall then set out the legal issues, both agreed and in dispute, and make the conclusions necessary in that respect. Finally, I propose to set out the conclusions which I have reached in relation to the question of liability in both of the actions.
The 2006 Contract
The defendants, in common with other police authorities, have to take responsibility for vehicles which have been recovered in a number of circumstances. They may be vehicles which have been abandoned. They may be vehicles which have been stopped and it has been discovered are not insured. They may be vehicles which have been involved in serious road accidents involving death, in which case the vehicles themselves may become pieces of evidence in a criminal investigation. The vehicles may be ones which have been directly involved in criminal activity and which need to be recovered and secured so as to enable detailed forensic examination of them as part of a criminal investigation.
It appears that for some time prior to 2006, the activity of recovering vehicles, when it was the responsibility of the defendant, had been outsourced to other contractors. In or about the summer of 2005, Mrs Angela Kemp was appointed to be the defendant's Vehicle Recovery Manager. Part of her instruction in that new post was to undertake a reassessment and restructuring of the way in which the Vehicle Recovery Unit was operating. In her new role she set about reordering its internal administration. A part of this exercise was to re-examine the contractual arrangements that were in place in relation to the recovery of vehicles. The defendant concluded that it would be appropriate to reform the contractual arrangements so that, instead of them being undertaken at a cost to the police, arrangements should be put in place so that they would be undertaken at no cost to them. This involved reordering the way in which the charging for the service occurred so that instead of looking to the police for payment, the appointed contractors would seek to recover their costs, including the costs of storage of vehicles, from the vehicle's insurers in some, but by no means all, of the cases I have set out above. The details of those charging arrangements are not central to the issues before me. I shall however, in due course, turn to the way in which other parts of the contract were operated and documented.
In order to place this new contract, it was necessary for Mrs Kemp to investigate with the various elements of the defendant (such as the Scenes of Crime Officers and Traffic Investigations Unit) how they wished to specify the requirements of the contract. She also examined how other police forces administered their vehicle recovery service so as to see whether there were any lessons which could be learnt from practice elsewhere.
All of this material was used by Mrs Kemp, in effect as the representative of the client in a procurement exercise, which was managed and supervised by Mrs Karen King, who was employed as a procurement manager by the defendant. In her role as the client representative Mrs Kemp was involved in the composition of the contract specification, the evaluation of the Pre-Qualification Questionnaires ("the PQQ") and also the Invitation To Tender ("the ITT") returns as well as coordinating site visits to the tenderers as necessary. It seems that the PQQs had been sent out prior to Mrs Kemp's appointment in May 2005. It was not until 9th December 2005 that the successful and unsuccessful bidders were advised, and those who had been successful at the PQQ stage were invited to submit tenders by 26th January 2006. Those tenders were then evaluated and, in the case of the claimant, the award of a contract was notified on 3rd March 2006.
Prior to turning to the detail of the contract award, it is perhaps logical at this stage to allude to an investigation which occurred into the 2006 procurement process. It seems that after the procurement process had been completed, there were a number of complaints raised in relation to it. These are set out in a report which was prepared by DS Angie Garrard. Her report is undated. Within the report she records the nature of the complaints which had been received as being as follows. It was alleged that the process had not been conducted fairly and had not been resourced by properly qualified staff. It was contended that, in relation to one of the competitors (Boyton Cross) they had been unfairly let back into the process after having apparently failed at the PQQ stage, and had then been successful in the tender process, notwithstanding that they did not have either the correct facilities or the necessary trained staff. In relation to a contractor called OnTime, a complaint was raised that they had previously been struck off an earlier contract on several occasions, but that had not been taken into account in the tender process. There were complaints that the process had been predetermined and that certain companies who were successful had in fact already been selected prior to any process being put in place. Allegations of corrupt practice were suggested and overall the process was considered to have been flawed.
In the report of her independent investigation, DS Garrard concluded that the documentary record keeping in relation to the process certainly left a great deal to be desired. There were gaps in the documentation and inconsistencies which rendered it difficult to explain clearly how the decision making process had been reasoned and conclusions had been reached. In particular, in relation to matters which will become germane in the present case, she was concerned as to the approach taken to the inclusion of parties in the process and the scoring of parties who at the point of tender completion did not have the necessary equipment, facilities or staff but who were intending to provide them in the event that their bid was successful. Having investigated the allegations made, she was able to conclude, and was satisfied, that there had been no corruption involved in the procurement process. However, she recorded in her report what Mrs King referred to during the course of her evidence as "learning points". These related to the need for rigorous documentation to enable auditing of the process and clarity about the evaluation criteria, in particular in relation to elements which were promised for the future, rather than being evidenced at the time of the tender process.
Returning to the participation by the claimant in the procurement exercise, as set out above, they were a successful bidder and won a contract to provide services in the areas of Basildon, Brentwood, Chelmsford and the M25 West from Junction 28. The contract was awarded for five years from 1st April 2006, with an option to extend for one year. The way in which the contract was structured required the provision of services set out in a specification annexed to the contract. I shall turn to that specification shortly. Condition F5.2 of the contract was under the heading "Remedies in the Event of Inadequate Performance" and provided as follows:
"F5.2 – in the event that the Authority is of the opinion that there has been a material breach of this Contract by the Contractor, or the Contractor's performance of its duties under the Contract has failed to meet the requirements, then the Authority may, without prejudice to its rights under Condition H2 of the Contract do any of the following:
a) make such deduction from the payment to be made to the Contractor as the Authority shall reasonably determine to reflect sums paid or sums which would otherwise be payable in respect of such of the Services as the Contractor shall have failed to provide;
b) without terminating the Contract, itself provide or procure the provision of part of the Services until such time that the Contractor shall have demonstrated to the reasonable satisfaction of the Authority that the Contractor will once more be able to perform such part of the Services in accordance with the Contract;
c) without terminating the whole of the Contract, terminate the Contract in respect of part of the Services only (whereupon a corresponding reduction in the Contract Price shall be made) and thereafter itself provide or procure a third party to provide such part of the Services; and / or
d) terminate in accordance with Condition H2, the whole of the Contract"
The contract also addressed issues in relation to liabilities. Under condition G1.4 the following was provided:
"G1.4 subject always to Clause G1.1, in no event shall either Party be liable to the other for:
a) loss of profits, business, revenue, goodwill or anticipated savings; and / or
b) indirect or consequential loss or damage."
In relation to termination, and as foreshadowed by the quotation from condition F5.2 above, condition H2.1 addressed the entitlement of the defendant to terminate the contract. That element of the contract provided as follows:
"H2.1 The Authority may terminate the Contract, or terminate the provision of any part of the Contract by written notice to the Contractor or the Contractor's Representative with immediate effect if the Contractor commits a Default and if:
a) the Contractor has not remedied the Default to the satisfaction of the Authority within 30 days, or such other period as may be specified by the Authority, after issue of a written notice specifying the Default and requesting it to be remedied; or
b) the Default is not capable of remedy; or
c) the Default is a fundamental breach of the Contract."
Turning to the specification of the services to be provided, the specification made it necessary for the contractor to have attained and sustained PAS43 accreditation. This is a quality assurance award which is relevant to operating a vehicle recovery contract. Under the specification, the defendant retained the rights to vet those staff who were going to be engaged in the work under the contract through a security clearance process, in particular where they were involved in the handling, recording and storage of property. There was a requirement for rolling notification of new employees. The specification covered the quality and quantity of the storage space and forensic vehicle examination facilities together with prescribing security requirements for the premises, the requirements in relation to light / medium recovery vehicles and heavy recovery vehicles. Specific details were provided governing the procedure to be adopted for examining and recording recovered vehicles and any property within them, together with the storage and release of recovered vehicles and any property they might contain. In particular, the contract as originally configured contained the following in the specification at paragraph 5.8 in relation to disposal:
"5.8 Disposal
5.8.1 No recovered property may be disposed of to a Recovery Operator, their employees or relatives of employees, or agent or servant acting on their behalf, or any member or employee of the Police."
Section 21 of the specification dealt with "Disposal of Vehicles by Crushing". The section applied specifically to vehicles where an order under the Police (Property) Act 1897, or any other relevant legislation, had been made directing the vehicle to be crushed. It also applied to vehicles that were in a condition which the officer in the case concluded constituted a public or environmental hazard such that their immediate removal was appropriate. The specification required the crushing of such vehicles so as to ensure that no identifiable part could ever be used on another motor vehicle. The crushing had to be undertaken by an approved and suitably accredited salvage operator.
In the course of the proceedings, the defendant sought to raise a large number of alleged breaches of performance to augment their case in relation to the fundamental breach of contract upon which they relied. Attached to this judgment, at Annex 1, is the schedule of the breaches which was compiled and upon which the defendant initially relied. The production of that schedule gave rise to a great deal of investigatory work on the part of the claimant and the submission of substantial tracts of evidence to refute and contextualise those matters. As a result of the claimant's endeavours, a very small number of the matters ultimately amounted to events which they admitted were breaches of terms of the contract and its included specification. The purpose of annexing the schedule to this judgment is to avoid the need to rehearse each of those matters in detail, in particular, in the light of matters to which I am about to turn. As is made clear in Annex 1, it is only those limited number of items which are in bold text that were accepted as being breaches by the claimant. Suffice to say that whatever the detailed aspects of these individual disputes in relation to performance might have been, none of them were treated at the time, or subsequently, as being major issues which, so far as the defendant was concerned, justified bringing the contract to an end.
Shortly prior to the trial of this matter commencing, the defendant abandoned its case in relation to all of the matters on the schedule which were not the subject of admission. By that I take them to concede that whatever their complaint may have been, either at the time of the breach or at the time of producing the schedule, those complaints are not in the light of the evidence produced by the claimant regarded now as being well-founded. In relation to the very limited number of complaints which were admitted to be a breach of contract by the claimant, they were relied upon by the defendant solely as potentially additional or cumulative justification for terminating the contract in circumstances to which I shall turn.
The consideration of Annex 1 does not however end at this point. That is because the claimant relies upon the schedule and its production as illustrative of the defendant's bad faith in dealing with them. It is, the claimant says, symptomatic of the vindictive way in which the defendant has treated them (including in due course terminating the contract and removing them from the tender process) that they sought to raise a constellation of largely bogus allegations of breach of contract in the course of the litigation which were misconceived in the first place and then abandoned after the claimant has spent considerable time and energy refuting them. The force of that contention falls to be considered later in this judgment. However, the nature and extent of the schedule remains before me for that purpose, namely to show that even raising these matters is further evidence from the claimant's perspective of the defendant's bad faith.
It is sufficient to observe at this stage that at the very least it appears to me that the production of the schedule of breaches, and reliance upon them, generated far more heat than light in the conduct of this litigation. In my view, so far as the defendant's case is concerned, they add little or nothing to the merit of the defendant's case. For reasons which will become apparent when I turn to the facts leading up to the termination, it is clear to me that whatever may have been the position in relation to all of the complaints raised in the schedule, and even if all of them had been admitted, it did not form any significant or material role in the decision making by the defendant to terminate the contract. In my view, their inclusion within the litigation was as unwelcome as it was disproportionate.
Returning to the nature of the contract, and in particular the contract documentation, various forms and procedures were devised in order to facilitate the provision of instructions from the defendant to the claimant in respect of recovered vehicles and also to enable a documentary record to be created of the transactions occurring as the contract was worked upon. For the purposes of my decision, a very limited range of that documentation is pertinent. Firstly, upon the recovery of a vehicle, after the claimant had been instructed by the defendant to attend, a VR1 form was created by the claimant and sent to the defendant recording the identity of the vehicle and the defendant's reference number, together with other information about the nature of the recovery. Secondly, at the foot of the VR1 form was a form VR2. The purpose of the VR2 form was for the claimant (and other recovery contractors) to record what had happened to the vehicle after it had been recovered. It would document whether the vehicle had been sent to be crushed or had been returned to the owner. A further form, VR3, was also created which contained within it basic details about the vehicle and the circumstances in which the call out to that vehicle had occurred.
Once the vehicle had been recovered there were various options as to the instructions which the defendant might give in relation to it. The key point is that any vehicle was held to the instructions of the defendant and that the claimant was not authorised to deal with the vehicle without those instructions. The various alternatives which might arise included the following. It may have been that it was appropriate to return the vehicle to its owner. Alternatively, the contract provided that if a vehicle was likely to be worth more than £2,000 it could be sent for auction. Finally, if the vehicle was uninsured or of little value, the instruction which the defendant would give would be for it to be crushed.
There were a variety of reasons for issuing a crush instruction from the defendant's perspective. Amongst them was the concern that if the vehicle was not crushed but for instance broken up for parts then parts which were subject to patent defect might find their way onto the market and be traceable back to the defendant. There was also a concern that vehicles recovered from uninsured drivers were being returned, sometimes via circuitous routes, to the same uninsured drivers and being recovered again. Thus for issues of safety and law enforcement, crushing was often the appropriate outcome for a recovered vehicle.
During 2007 two events occurred concerning the recovery of vehicles which featured significantly in the conduct of the trial. The first related to a vehicle belonging to a Mr Coffey. It appears that on 26th January 2006 a Y registration Vauxhall Astra was seized by the defendant on the basis that it was uninsured and it transpired that it was alleged to have been involved in a burglary. It further appears that Mr Coffey was informed on 19th January 2007 that his vehicle had been crushed. Through solicitors, he claimed recovery of the value of the vehicle and stated that the documents in relation to its title were contained within the glove box, and therefore that they had been seized along with the vehicle. On 2nd March 2007, solicitors acting on behalf of Mr Coffey wrote to the defendant, with his authority, raising his claim for damages in relation to the loss of the vehicle.
On 28th September 2007, Mrs Kemp raised inquiries with the officer in the case in relation to issues such as the power used to recover the vehicle and the source of the authorisation that it should be disposed of. In his response, the officer was unable to assist as no further action had been taken in relation to the investigation and he was no longer able to recall what power had been used to recover the vehicle, or who may have authorised the disposal of the vehicle, although he accepted that as he was the officer in charge it might have been him. From the documentation the dispute appears to have grumbled on for some time after this exchange, with Mrs Kemp trying to obtain access to the interview record in relation to the investigation without success whilst seeking advice from one of the defendant's civil claims handlers as to how to take the matter forward. It appears that, in the end, some compensation payment may well have been paid to Mr Coffey.
The reason why this incident had a higher profile in the case than other matters was that in her witness statement Mrs Kemp had stated that the defendant had been advised by the claimant that the vehicle had been returned to its owner, but had then discovered that it had in fact subsequently been registered in the claimant's name and sold by them. In a witness statement responding to Mrs Kemp, Mr Harding the managing director of the claimant throughout the time with which these proceedings are concerned, stated that they had been authorised to sell the vehicle by the defendant and that the vehicle had never been registered in the claimant's name. The issue thus emerged as a means of testing both witnesses' credibility as to what they stated in their witness statements.
In relation to Mrs Kemp, she was pressed by Mr Platford, counsel for the claimant, to justify her contention that the claimant had told the defendant that they had returned the vehicle to the owner and to explain why this assertion was not the subject of any documentation. Mr Platford also pressed Mrs Kemp in relation to her contention that the vehicle had been registered in the claimant's name and put to her, positively, that it never had. This induced the defendant to produce late evidence from the records of the DVLA that in fact the vehicle had been registered to the claimant, no doubt for the purpose of facilitating its sale, as described by Mr Harding in his witness statement.
On the evidence before me, I am unable to say conclusively whether or not the claimant had authority to sell this vehicle, but I am satisfied that they did do so, and that they registered the vehicle in their name. I am, furthermore, satisfied that Mr Harding was at the very least mistaken in his firm contention that the vehicle had never been registered to the claimant. Equally, however, I am not satisfied that Mrs Kemp is correct when she suggests that the claimant had told the defendant that the vehicle had been returned to its owner. That seems to me to be a contention contrary to the overwhelming preponderance of the evidence. I am also unpersuaded, as suggested in Mrs Kemp's evidence, that this incident was a prime mover in the variation to the contract which I am about to describe. Similarly, for reasons which I shall explain below, I am equally unpersuaded that the second incident related to the exportation of commercial vehicles principally precipitated the variation in the contract. It seems to me far more plausible that the wide-ranging variations which I am about to describe were part of the overall ironing out of contractual issues in relation to the operation of the contract on a variety of fronts. In any event, little turns in my view on what actually caused the variation to occur. The fact is that it happened and in the following circumstances.
On 18th July 2007, the defendant wrote to the claimant expressing their desire to vary the contract, in particular by their varying a number of aspects of the specification which I have described above. The variations touched upon issues such as storage space and the quality of the forensic and vehicle examination facilities, storage of stolen vehicles and undertaking roadside repairs to vehicles. In addition to these matters, of particular pertinence to the matters before me was the variation to Section 21 of the specification which as set out above related to the "Disposal of Vehicles by Crushing". In Section 21 additional inserts were proposed. Firstly the categories of vehicle that were to be the subject of the requirements of disposal by crushing were enlarged to include those which would be uneconomical to auction. Of particular relevance to this case the following was added into this part of the specification:
"21.5 No recovered vehicle or property may be disposed of directly to a Recovery Operator, their employees or relatives of employees or agents or servants acting on their behalf, or any member or employee of Essex Police or their immediate family."
This variation was accepted by Mr Jennings, a director of the claimant, on behalf of the claimant on 25th July 2007.
The second incident which achieved prominence in the course of the trial related to the exportation of lorries and the authorisation of that form of disposal in the following particular circumstances. On 9th May 2007, Mr Jennings wrote to Mr James Cook, one of the defendant's employees, who was Mrs Kemp's manager. Mr Jennings requested authority to export four commercial vehicles which had been recovered because they were uninsured. The sale of these vehicles for export would have enabled the claimant to recover some revenue for the expense and time involved in recovering the commercial vehicles. In his response to this request, Mr Cook supported the suggestion in principle and asked Mrs Kemp to look into it. She in her turn said she would consider authorising the export of the four identified commercial vehicles, subject to full documentation and full details being provided.
A little while later, on 7th June 2007, Mrs Kemp chased a response in relation to the request that had been made from Mr Cook, and the following day he confirmed that he was happy, in principle, for the export to proceed. He stated that he had already approved this idea more than once. It is important to note at this stage that the list of registration numbers of the commercial vehicles concerned did not include an Iveco lorry registration number A724 WEV ("The A Reg").
It appears from the documentation that the A Reg had been recovered on 2nd May 2007. Shortly thereafter, on 8th May 2007, it seems that personnel in the defendant's Vehicle Recovery Unit were fielding enquiries from a Mr Cooper, who was acting as an agent in relation to seeking the return of the vehicle. Mr Cooper had a seizure notice and was concerned to secure possession of the A Reg. Mr Cooper persisted with his enquiries and on 21st May 2007 Mrs Kemp raised the issues as to why or by whom the release of the vehicle was being prevented, no doubt in order to provide him with a coherent response to his enquiries. It had become clear by this stage, if it was not before, that Mr Cooper was a trader assisting the owner of the vehicle to obtain its release. Having received no response in relation to that enquiry from within the defendant's personnel, Mrs Kemp emailed her colleague Mrs Lynne Harvey identifying concerns about what documents might exist in relation to this recovery, and reinforcing that the defendant should only be dealing with the vehicle's owner.
On 14th June 2007 Mr Jennings forwarded an email with a list of four vehicles seeking authority for them to be exported. The email had originated with one of the claimant's staff responsible for handling the contract with the defendant Mrs Louise Carley. The four vehicles which were identified were not the original four referred to above but were three of those original four together with addition of the A Reg. Mrs Carley's email went on to identify an additional vehicle. That additional vehicle was in fact one of the ones originally identified in Mr Jennings's email of 9th May 2007. In truth the additional vehicle was the A Reg. On 15th June 2007 Mrs Harvey replied to this email agreeing to the export of the original four that had been identified in the email of 9th May 2007 but stating in relation to the A Reg (albeit with a typo as to the first letter calling it an "X") that the vehicle "must be kept as it is in dispute, review date is 20/06/07".
On 9th July 2007 the claimants were sent the defendant's instruction in relation to the A Reg. The instruction appeared at the top of a long list of vehicles and the instruction was for it to be crushed. However, unlike the other references within the instruction sheet referring to crushing, the instruction in the case of the A Reg was expressed as: "this must be crushed". In fact that instruction was never actioned. The papers show that a sales invoice was generated by the claimant documenting the sale of the A Reg for export to a Mr Olanrewaju on 4th August 2007.
This documentation seems to have come to the defendant's attention in the following way. Mr Cooper persisted in chasing the issue on a very regular basis with the defendant seeking the return of this vehicle. On 7th August 2007 Mrs Harvey was pursuing the documentation with the claimant. It is not altogether clear but I suspect the likelihood is that this was in order to address Mr Cooper's complaints. On 8th August 2007 documents relating to the sale of the A Reg came to light when they were faxed across in response to requests by Mrs Kemp and were thereby brought to her attention. That evening Mrs Kemp emailed Mrs King expressing her concern about what had occurred and the potential embarrassment that this could cause to the defendant, on the basis that her email discloses that Mr Cooper had purchased the vehicle from Mr Olanrewaju and therefore, the defendant would have some explaining to do as to how it could be that Mr Cooper's client's vehicle had not been returned to him, the instruction to crush it had not been carried out and indeed it had apparently been sold for reward by one of the defendant's contractors to a third party. Such was Mrs Kemp's concern about the situation that she canvassed with Mrs King in the email the prospect of suspending the claimant for failure to carry out the defendant's instructions.
On 9th August 2007 Mrs Kemp raised her complaint in relation to the failure to carry out the defendant's instructions with Mr Jennings and asked for an explanation of what had occurred and answers to specific questions about what had taken place. On 10th August 2007 Mr Jennings replied contending that he thought it had been agreed that uninsured commercial vehicles could be exported. On 11th August 2007 Mrs Kemp replied drawing attention to the correspondence and the specific instruction in relation to the A Reg. On 13th August 2007 Mr Jennings replied saying that he had taken it, from his conversation with Mrs Kemp and Mr Cook and subsequent emails, that all commercial vehicles could now be exported and that the crush instruction allowed for an export option.
This did not allay Mrs Kemp's concern and she called a meeting with the claimant on 20th September 2007 in order to seek an explanation as to why the instructions in relation to the A Reg had not been carried out and whether or not there were any other vehicles that had been incorrectly disposed of in a similar way. The notes of that meeting record the claimant confirming that the failure to crush the A Reg was an error on their behalf, they having understood that commercial vehicles could be exported irrespective of the instruction in relation to the A Reg vehicle and they advised that they were going to review their internal procedures.
The matter did not end there because on 3rd October 2007 at the Quarterly Contract Review Meeting, amongst a wider variety of other matters, the matter of crushing was raised. The purpose of this meeting was to bring together all of the contractors working for the defendant in recovering vehicles and for issues pertaining to the contract to be aired. The contractors themselves were entitled to raise matters of concern to them as to how the contract was operating. One of the matters raised by Mrs Kemp at the meeting related to crushing. The minutes of the meeting record as follows:
"Crushing
AK [Mrs Kemp] advised that all garages used for crushing vehicles must be registered with the Environment Agency as approved 'end of life' disposal agents. VROs to provide evidence from each of their end of life disposal agents. All VRO to action. AK advised instructions from Essex Police to crush a vehicle must be complied with and Crushing means the vehicle must be crushed in totality."
In her witness statement, and indeed in her evidence before me, Mrs Kemp relied upon this incident to emphasise the importance placed by the defendant upon following instructions and in particular the instruction to crush. Initially, she maintained in her earlier witness statement that Mr Cook had not given permission for the four vehicles to be exported. That was clearly incorrect and having reread the emails in preparation for the hearing she retracted that suggestion in a witness statement made after the trial had commenced. She nonetheless maintained the main thrust of her concern in relation to this episode, in that the export of the A Reg had not been authorised. In fact the claimant had been told to crush that vehicle.
Mr Harding, in a witness statement, maintained that Mr Cook had authorised the export of all of the vehicles. In his oral evidence he accepted that at the meeting of 20th September 2007 the claimant had conceded that the sale of the A Reg was a mistake but he continued to assert that they had been entitled to sell it. He contended that this was a commercial decision and that in their discussions with the defendant, Mr Cook had told them to ignore what Mrs Kemp said.
Having considered this evidence I am unable to accept that the claimant had authority to do what they did with the A Reg vehicle. It is important to remember that the defendant does not allege that this incident reflects dishonest behaviour by the claimant but rather, as set out above, that it is context for their emphasis on the importance of following instructions particularly where they pertained to the crushing of vehicles. In my view the contemporaneous documentation is absolutely clear. The emails, to which I have referred, and also the instruction sheet relating to this vehicle make clear that the vehicle was to be crushed. Any reasonable reading of that documentation leads in my view, inevitably, to the conclusion that there was no authority to sell the vehicle. Whilst Mr Harding has made assertions about what Mr Cook may have said, I find it surprising that he would suggest that Mrs Kemp's day to day instructions should be ignored in this or any other respect. I can see no sensible basis for him wishing to undermine her authority in running the contract from day-to-day in that respect, nor why it would be a responsible action of her manager to do so. Furthermore, and in any event, the note of the meeting of 20th September 2007 is in my view perfectly clear and includes the acceptance that it was the claimant's error that led to the vehicle being sold rather than any countermanding of Mrs Kemp's instruction.
In my view this incident provides very important context for the significance to the defendant of the claimant following the instructions they were given and sheds some light on the potential embarrassment which could be caused to the defendant by instructions not being followed. Mr Cooper and the owner of the vehicle would have had justifiable cause for complaint, and indeed the ability to cause a considerable degree of bad publicity for the defendant by exposing the fact that a vehicle, which had been recovered and taken into the custody of the police, had been irresponsibly sold on to a third party without proper attention being given to the need to dispose of the vehicle correctly. The proper handling of the public's property, notwithstanding the fact it was properly recovered using appropriate powers, is a matter which obviously required accurate and accountable systems to be in place.
A further, somewhat peripheral issue also emerged in the course of the litigation between the parties in relation to the position of Ontime, another of the defendant's recovery contractors, at the end of 2007. There is no dispute but that they were suspended from the contract in relation to their operation based at Childerditch on 5th October 2007. This was as a result of an incident involving a vehicle which they had recovered. The vehicle had contained controlled drugs at the time it was recovered. At some point after that the drugs went missing. The loss of the drugs after the vehicle had been recovered was regarded, understandably, as a serious matter by the defendant and they suspended Ontime. The claimant's case was that they remained suspended, and the claimant was required to take part in covering for them, up until Ontime decided to withdraw from the contract (a matter dealt with below). The defendant's case was that Ontime were reinstated after the investigation into the incident was unable to conclude that they had been involved in any wrong-doing and it could not be ruled out that some unknown third party had been responsible for the removal of the drugs.
In support of the claimant's contention, Mr Platford points to the fact that there is no documentation at all to directly support the reinstatement of Ontime to the contract. He contrasts this with the extensive documentation produced by the defendant in relation to other matters, such as the contingency plans put in place at the time that the claimant was to be suspended. Mr Lawrence QC, who appears on behalf of the defendant, accepted this but drew attention to the correspondence between the defendant and Ontime in January 2008 when Ontime were confirming their intention to withdraw from the contract which he submitted was clearly predicated on the basis that they were at that time operating the contracts which they had with the defendant (they had as a result of the 2006 tender exercise more than one).
This question is, in my view, far from being one of the central issues in the case. Nonetheless, it played a role in the claimant's attack on the credibility of the defendant's witnesses. In my view, whilst the observations about the absence of contemporaneous documentation supporting the reinstatement of Ontime is fair, I am not satisfied that the claimant has proved that they were still suspended at the time when they indicated they wished to bring the contract to an end. My reasons are as follows.
The correspondence which is contemporaneous with Ontime's decision to end the contract does not contain any suggestion that they remained suspended. In addition it is clear from an email dated 24th October 2007 from one of the defendant's officers, DI Prophet, that he was not able to prove who had removed the drugs from the vehicle and that from his perspective there was no reason to continue the suspension. There is some support in evidence from Mrs Kemp's records about the number of recoveries that Ontime were undertaking month by month to show that they were suspended only in October. The schedule which she produced from her records shows that the Ontime recoveries slumped in October 2007 to 29 from previous months when they had recovered well over 100. By November 2007 the figures show that they were recovering over 100 vehicles per month and that this continued into 2008. On this basis I am satisfied that probably before the end of 2007 Ontime had been reinstated to work on the contract which they operated from their Childerditch premises.
It is important at this stage, and prior to dealing with the incident with the S-LR, to deal with the contention raised by Mr Harding and Mrs Carley in relation to the attitude of Mrs Kemp. Their contention was that by around October 2007 her attitude towards them had changed to being one of wishing to engineer their removal from the contract, by exploiting her position with the defendant, in order to manipulate matters and secure their dismissal from the contract. This contention obviously evolves into allegations of bad faith and manipulation of the process after the end of July 2008 in the run up to the termination of the contract and the dismissal of the claimant from the procurement exercise. I shall have to deal with that separately in submissions made about events occurring after the discovery of the S-LR at the claimant's premises, but I should state at this stage of my consideration of the facts, that I am not at all satisfied that the claimant has established, on the evidence available, prior to the discovery of the S-LR at the claimant's premises that there was evidence of Mrs Kemp displaying a hostile animus towards them redolent of her wishing to "stitch them up" and have them removed from the contract.
My reasons for reaching that conclusion are as follows. Firstly, it is a serious allegation which contains a significant ingredient of bad faith alleged against Mrs Kemp. In my view there is no clear or cogent evidence to support that allegation and indeed there is, in my view, significant evidence to the contrary. My conclusion is not simply based upon the impression which I formed of Mrs Kemp as a witness in the course of her oral evidence, which was that she was a straightforward witness and an extremely conscientious employee who took her role with the defendant extremely seriously. I accept that, as set out above, there were many complaints pursued by Mrs Kemp which are particularised in the schedule and which have not been pursued any further by the defendant. Mr Harding and Mrs Carley are entitled to draw attention to those many complaints which have not been pursued to a conclusion in these proceedings, and indeed conceded by the defendant, as potential evidence of an antagonistic attitude towards the claimant. Nonetheless, my analysis of them does not support that conclusion. I do not consider that the extent of these unsubstantiated complaint allegations translates into a finding of bad faith against Mrs Kemp. It is clear from the documentation that many complaints were raised, not by her, but by other employees of the defendant who were dissatisfied with the claimant's performance or premises. Mrs Kemp would have been failing in her duty if these had not been put to the defendant or explored; she was, in raising them and pursuing them, simply doing her job. If her zeal in doing so was misinterpreted by Mr Harding and Mrs Carley, that is insufficient to amount to a basis for a finding of bad faith against her. In my view, these complaints which were raised and answered were part and parcel of the rough and tumble of the continuing contractual relationship between the claimant and defendant and nothing more nor less than that.
There are further reasons on which to base my conclusion in this respect. It is clear that, even as late as 9th June 2008, in an email in which Mrs Kemp was dealing with a complaint by one of the defendant's officers about the tardy attendance of the defendant, that she sought to defend them by pointing out to the officer concerned that even if his complaint was correct, that was only one matter in an area where they were undertaking over 100 recoveries a month and therefore "not too bad". This defence of the claimant is obviously inconsistent with the allegation.
Finally, when I put this matter specifically to Mr Jennings, he said that he had never had any reasons to suspect Mrs Kemp of doing anything untoward. He accepted that they had had disagreements but he described them as "good disagreements" and that whilst she would point out where the claimant was going wrong, if he indicated to her that she needed to listen to the claimant's point of view, she would listen to it. All of these matters, taken together with the fact that this contention has arisen late in the course of the litigation, and certainly was not raised in the first witness statements of Mr Harding and Mrs Carley, all lead me to the conclusion that certainly there is no evidence to suggest to me in the period prior to the discovery of the S-LR that Mrs Kemp was engaged in a conspiracy to stitch up the defendants.
The Project
At the heart of the dispute between the parties in this case, and indeed the catalyst for the breakdown in relations between them, was what happened to the S-LR between October 2007 and July 2008. As will become apparent from what follows, the events in relation to the S-LR at that time still remain, to some considerable extent, shrouded in mystery. There is a lack of continuity in both the evidence of witnesses and the documentary material which is available. The best that can be done is to seek to piece together what was likely to have occurred in order to reach the conclusions which are necessary to resolve the issues which arise in this part of the case and which bear upon questions related to the liability of the defendant, both under the contract and for their actions in removing the claimant from the tender process in 2008.
On 5th October 2007 one of the defendant's officers recovered the S-LR as an uninsured vehicle. It seems, from the evidence which was obtained at the time that the vehicle was in a rather poor state. In particular, its brakes were not functioning correctly. Having been recovered, it was then necessary in light of all of the available information, for the defendant, in accordance with the documentary system which has been set out above, to reach a conclusion as to the future for the vehicle. The outcome was that on 24th October 2007 the S-LR was included on a list of vehicles provided to the claimant with the instruction that it should be crushed.
In his first witness statement Mr Harding stated that other employees at the claimant identified that the recovery of the S-LR presented an opportunity for training apprentices. The suggestion was that they should be instructed to undertake a body swap between the S-LR which had been recovered and the L-LR which was one of the claimant's fleet vehicles. The L-LR being L registered was an older vehicle and at some points in the evidence it was described as being, in effect, at the end of its useful life. The idea was that they would obtain experience of undertaking the work of a body swap and that it would therefore provide them with material for their apprenticeship portfolio.
Prior to anything occurring in relation to that idea it appears, from the documentation, that on 15th October 2007, Mr Bennett who was at that time an apprentice at the claimant, undertook an inspection of the L-LR as part of the routine inspections of the claimant's fleet of operational vehicles. That it was the L-LR he inspected can be determined by noting the mileage which was noted by him on the relevant documentation. The purpose of the inspection was to check whether or not the L-LR was roadworthy.
Having undertaken the inspection, Mr Bennett identified that there was some work which was required, including repairing the rear lights of the vehicle and replacing its brake pads. He undertook that work. The job sheet which he completed is signed "OK SB". The evidence which I heard made clear that the SB concerned was Mr Steve Bewerss. At that time Mr Bewerss was the parts manager in the mechanical workshop where Mr Bennett worked along with other apprentices. The person in charge of the mechanical workshop at that time was Mr Gibson.
It is important to observe that in all the many thousands of pages of documentation provided in relation to this case, that there is no documentation generated in either of the claimant's workshops bearing upon the body swap, whether in relation to the instruction as to when and by whom it was to be carried out or as to when it had been attempted or completed. Mr Bennett gave evidence to me describing how he was instructed, along with another apprentice, to remove the bodies from the chassis of each of the L-LR and the S-LR and to swap them over in the mechanical workshop. In this work he was overseen by Mr Melville who was a supervisor in the mechanical workshop. I also heard from Mr Melville. Both he and Mr Bennett described the removal of the body from the chassis of each vehicle. It seems, from their evidence that this task took some considerable time, since it was undertaken around other more pressing commercial work.
They both described how, when the bodies had been removed from the chassis, it became clear that they could not be swapped. This was because the detail of the model of the vehicle had changed in between the time of manufacture of the L-LR and that of the S-LR, such that each of the bodies would have required significant modification in order to be fitted onto the other chassis. It was concluded that because of the extent of the work that would have been involved, it was a waste of time and resources to complete the task. The project was therefore aborted and they both described how the bodies were replaced on the correct chassis of each vehicle and then put outside the mechanical workshop.
Mr Melville explains in his evidence that ordinarily, when a body swap of this kind is undertaken, the under bonnet VIN would be removed, along with the number plate, and placed in the body of the chassis onto which it was to be swapped. There would, of course, be an existing VIN number stamped onto the chassis of each vehicle, as well as one behind the front windscreen. In their evidence both Mr Melville and Mr Bennett pointed out that when the vehicles were put out in the yard, with the correct body on the correct chassis, the correct under bonnet VIN plate and number plate was placed inside each vehicle.
The evidence from these witnesses therefore takes us as far as an attempt at a body swap which ceased, leaving each vehicle with the correct body and chassis and the correct under bonnet VIN plate and number plate with it. The evidence does not therefore explain what Mr Godard was to find later at the claimant's premises and which is described in greater detail below. Both witnesses, understandably at this remove of time, were prone in their evidence to clear and undoubted errors. By way of example, Mr Melville said when he gave evidence that he had been told about the discovery of the ringed vehicle when it occurred in July 2008 by Mr Gibson. That cannot be correct, because as is set out below, it is beyond doubt that Mr Gibson in fact left the claimant's employment in January. Mr Bennett in his statement indicated that, hard on the heels of the unsuccessful attempt at the body swap, he undertook wheel bearing work on the S-LR. However, that is almost certain to be incorrect in the light of the fact that there is documentary evidence that the wheel bearing work was undertaken on the S-LR but not until May 2008 as I shall turn to below.
I do not for one moment consider that either Mr Bennett or Mr Melville were lying or telling a story which had been made up or which they had been instructed by others to give as their evidence. They both struck me as witnesses who were trying their best to assist the court, but who were obviously and inevitably hampered by the fact that their memories were necessarily vague and patchy bearing in mind that they were seeking to call to mind events which had occurred many years previously. Indeed it transpired that in both cases they had not been asked for the first time by anyone about the events concerning the S-LR until many months after the events with which we are concerned.
I am content to accept the broad thrust of their evidence albeit that in the light of the discrepancies and inconsistencies between some of their evidence, and other well-established facts I am not able to fully accept all the details of which they told me. In particular, I am satisfied on the basis of their evidence on the balance of probabilities that they were instructed by managerial staff in the workshop (who had in their turn been instructed by Mr Harding or other more senior managerial staff) to swap the bodies of the L-LR and the S-LR. The purpose of the instruction to do so is not clear. The attempt that they undertook was unsuccessful.
However, that does not bring the matter to a close because it is quite plain that, albeit Mr Bennett's attempt at a body swap was unsuccessful, nevertheless work was undertaken to each of the vehicles leaving them in a condition where, albeit the bodies had not been swapped, the under bonnet VIN plates had certainly been swapped and the S-LR had been equipped with a number plate bearing the registration number of the L-LR. I am unable, on the evidence, to conclude precisely who did that. What I am, however, satisfied of is, firstly, that it was undertaken by staff of the claimant and secondly that those staff did that work as part and parcel of the instruction given by Mr Harding and other senior managerial staff, albeit that it may have been undertaking the work in a manner in which they had, strictly speaking, not been directly instructed.
As will become apparent from what follows, it appears that from Mr Harding's initial instruction and notwithstanding, or perhaps as a result of his and other managerial staff's intervention or lack of intervention, the initiative which he commenced (and did not terminate) led to an identity swap between the two vehicles. During the course of the trial what happened to the S-LR became termed, as it is known colloquially, as the "ringing" or the "full ringing" of the S-LR. It is this process of the disguised identity swap to which reference is made below when the term "ringing" or similar is used. The chronology continues as follows.
On 23rd November 2007 the vehicle with the L-LR number plates was, in accordance with the claimant's documentation, having a winch fitted and its brakes repaired. I am entirely satisfied that this was, in truth, the S-LR by some means in the guise of the L-LR. The L-LR would not have required a winch to be fitted whereas the S-LR did. This is another document countersigned by Mr Bewerss with "OK SB". By now, the S-LR was bearing the fleet number of the L-LR, namely D57, and it was under this identity that the work was being undertaken. It is clear that by this stage work must have been undertaken to re-fix the S-LR body to its own chassis.
As a result of enquiries made by the defendant, which will be described later, DS Maleary (as he then was) came to take a statement from the paint shop manager at that time, Mr Burt. It seems that in early 2008 Mr Gibson brought the S-LR to the paint shop and instructed that it be sprayed white on Mr Harding's instructions, including spraying white where the under bonnet or slam-panel VIN plate would be attached. Mr Burt caused work to be undertaken in the paint shop respraying the S-LR white. In his statement to the police, he indicated that this work took from January 2008 to March 2008 because, again, it had to be fitted in and around other jobs which were earning the claimant money. It seems to me, however, that it is doubtful that the work took this long in light of matters to which I shall turn below, showing that mechanical work was being undertaken on the vehicle prior to March 2008. I am however entirely satisfied that the S-LR was taken to the body shop on Mr Harding's instruction by Mr Gibson for it to be re-sprayed.
This aspect of matters is to some extent reinforced by the evidence of Mr Jennings. He described how he had an office over the paint shop and therefore he was able to keep a close eye on work which being undertaken within it. When he saw the blue S-LR in the paint shop for the purpose of being re-sprayed he took this up with Mr Harding as it seemed to him to be a waste of time and money. When he did so Mr Harding indicated that he had instructed the re-spray of the vehicle to occur as it was part of a training project.
On 18th January 2008 Mr Gibson left the claimant's employment. He went, in accordance with an arrangement which had been reached prior to his departure, to go to work for one of the claimant's rival firms namely BJG. It was a firm which at that time had been relatively recently established as will become evident from matters which are discussed below. I heard evidence from Dr Parry, who is employed by the claimant in a variety of roles on a part time basis. Those roles are managerial in nature and involve overseeing recruitment, training and development. He described how, a couple of days before Mr Gibson left the claimant's employment, he was assaulted by Mr Gibson. He explained that he went to find Mr Gibson in the mechanical workshop because the keys to the Forensic Bay were not hanging where they should have been. When he asked Mr Gibson where they were, Mr Gibson confessed that they were in his pocket and he reminded him that they should be in the designated place. Mr Gibson threw the keys down to Dr Parry who left the workshop but Mr Gibson pursued him and then confronted him about undermining him in front of his staff and pushed him in the chest. Dr Parry kept him at bay and Mr Gibson walked off. Dr Parry indicated that this incident was very out of character and reflecting upon it afterwards he was drawn to the conclusion that Mr Gibson was seeking to engineer a situation which would provide a justification for him leaving his job. This was reinforced when he in fact left the claimant's employment to take up a prearranged new position.
Shortly after leaving the claimant's employment, Mr Gibson returned to the claimant's premises and sought out Dr Parry and apologised for his behaviour. During the course of that meeting he complained bitterly about Mr Harding and Dr Parry was left under no illusion that Mr Gibson had negative feelings towards Mr Harding. This incident was relied upon by the claimant to seek to demonstrate an animus on the part of Mr Gibson to justify the allegations which they make in relation to the ringing of the vehicle having been orchestrated by Mr Gibson in order to sabotage the claimant and promote the interests of his new employers BJG.
Returning to the project, on 23rd January 2008, Mrs Thorn (now Mrs Page) sent an email to Benfleet Scrap notifying them that a vehicle was on its way to them. That vehicle was identified as bearing the S-LR number plate. In the email Mrs Thorn also provided the vehicle's VIN number, although she mistyped it into the email. It is clear from the documentation that, having printed the email, Benfleet Scrap then checked the information when the vehicle arrived with them. On their print of the email they have, in manuscript, corrected the VIN number.
Since in my view the overwhelming likelihood is that this was the L-LR, they probably checked the under bonnet VIN to get the number which they wrote onto the printed email. This suggests two things: firstly, that they did not check the VIN number which had been stamped into the chassis of the vehicle and could not be changed, and secondly, that somebody at the claimant's premises had fixed the S-LR under bonnet VIN plate to the L-LR vehicle. Furthermore, it is likely that the vehicle would have been bearing the S-LR number plate. In short, the L-LR had been prepared for scrapping, as if it were the S-LR. Having been sent to be scrapped, the form VR2 was then completed in the claimant's office, confirming that Benfleet Scrap had destroyed the vehicle. The DVLA were also advised of its destruction.
On 26th January 2008 it appears, from an internal invoice, that some 14 hours' work were undertaken on the S-LR, albeit bearing the identity of the L-LR in terms of the registration number and claimant's fleet number.
This is followed by a job sheet, dated 9th February 2008, completed by a Mr Tolliday, and showing that he had undertaken a full service of the vehicle together with work including the replacement of shock absorbers, bushes and front wheel bearings. The documentation also records him fitting wiring for beacons and LEDs and a radio aerial. In particular the fitting of the wiring for the beacons is pertinent because that work would be relevant for the use of the vehicle as part of the claimant's fleet.
This work is also reflected in an internal invoice dated 13th March 2008. That document suggests that the work described, which is essentially identical to that on 9th February 2008 job sheet, was undertaken on 1st March 2008. Be that as it may, there is a lengthy list of parts purchased for the purposes of undertaking the work, and those parts included new number plates to be fitted to the vehicle.
By the time that this work was done in February or March 2008, the evidence suggests that it is highly likely that Mr Bewerss had become in charge of the mechanical workshop. For instance, Mr Melville confirmed the evidence of others, that after Mr Gibson's departure, Mr Bewerss was promoted into his post, albeit that it was indicated that there had been a brief interregnum probably for training purposes. It appears to me, however, that certainly by around the time that this work and the subsequent work was undertaken on the vehicle, Mr Bewerss was the person in charge of the mechanical workshop.
Mr Elvy, from whom I heard, is a sign writer and designer who at that time regularly undertook work for the claimant's body shop. Within the documentation there is an invoice from him, dated 28th March 2008, relating to three jobs which he had undertaken for the claimants. One of those jobs was the placing of the claimant's livery on the S-LR and putting in tinted windows for the rear of the vehicle. Mr Elvy stated that Mr Bewerss had instructed him to undertake this work to the vehicle. Although the invoices are dated late March, there is no date for the work and it seems to me very likely, particularly bearing in mind it was invoiced with other work, that this placing of the livery onto the re-sprayed S-LR must have happened a little while prior to the invoice.
This conclusion would be consistent with a further piece of documentation disclosed by the claimant in relation to an event on 6th March 2008. It appears that on that date the claimant was called out to an incident involving a substantial load which had fallen from a lorry. The claimant's computer records of that incident record that the fleet vehicle D57 (the fleet number denoting the L-LR which was by now in fact the S-LR) was called out to the scene in order to inspect the event and advise in respect of the appropriate action that needed to be taken. Mr Harding, in his evidence, accepted that this record of the S-LR being used as part of the claimant's fleet was accurate, although when he was subsequently interviewed by the police he denied that the vehicle had in fact ever been used on the road by the claimant. Mr Jennings denied that this record was accurate on the basis that the call centre would, not uncommonly, fail to complete the records correctly. He surmised therefore that this had happened on this occasion and the document could not be relied upon as demonstrating that the S-LR was called to that incident.
I am unprepared to accept Mr Jennings' evidence on this point, in particular since Mr Harding does not share his scepticism. I see no reason to go behind the evidence of the document itself and I am entirely satisfied that the vehicle did indeed attend, as part of the claimant's fleet, an incident on 6th March 2008.
The claimant's documentation, in the form of similar computer records, shows that on 14th May 2008 the vehicle was used again. On this occasion it was called out as part of a group of five vehicles attending an incident involving a JCB. Indeed, on this occasion the computer records show that vehicle D57 was being driven by Mr Harding. Again, he did not deny the accuracy of the computer record in terms of D57 having been involved in the incident. He did however deny that he was the driver and asserted that this was incorrect. Similar to the incident on 6th March 2008 Mr Jennings denied, again, that vehicle D57 would have been involved in the incident. He contended that this was another example of the claimant's call centre inaccurately completing the computer records making them misleading. Once more, I find Mr Jennings' evidence difficult to accept. I am satisfied that it's likely that the S-LR did attend on that occasion and indeed that Mr Harding was driving it, as indicated in the records.
By this stage, therefore, it appears that the S-LR, bearing the L-LR's number plate and its fleet number, had been absorbed into the claimant's fleet as an operational vehicle.
Further consistent with this is the record of Mr Tolliday completing an MOT for the vehicle on 16th May 2008. Moreover, on 20th May 2008, Mr Bennett did further work on the vehicle according to a job sheet produced by the claimant (see above). The work which the job sheet he completed described as being done is work to the offside rear wheel bearing and tracks as well as the offside rear light lens. I consider that it is likely that this was the work which he remembered when he was completing his original witness statement, albeit that he has placed it inaccurately in terms of the chronology. It is clear that the work which he did to the wheel bearing was not hard on the heels of the unsuccessful body swap but was in fact work which he did to a vehicle which was apparently part and parcel of the claimant's operational fleet some several months later. The job sheet is supported by an internal invoice, albeit that someone has written on in manuscript that this invoice relates to work which was done following a failure of the MOT. In the light of the fact that the vehicle is documented to have passed its MOT on 16th May, I do not place any reliance on that annotation. Nevertheless the documentation certainly establishes that on 20th May 2008, further work was done to the S-LR.
The position therefore is reached in relation to this aspect of the case that by the end of May 2008 the S-LR had been transformed from a blue Land Rover Discovery vehicle with significant mechanical defects, into a fully functioning vehicle bearing both the claimant's livery and the necessary accoutrements of a recovery vehicle in its fleet, including items such a winch and beacon lights. It is clear that by the end of May it was functioning as an operational vehicle within the claimant's fleet, participating on occasions in their recovery work.
Furthermore, it is clear from the evidence that between its MOT on 16th May 2008 and the end of July 2008, it was driven for around 90 miles (this figure having been derived from the mileage recorded at the stage of the MOT and that recorded when the vehicle was seized). I am unable to accept the explanation provided by Mr Harding and Mr Jennings that this mileage was accrued as a result of road testing the vehicle. It is far more than would have been occasioned by road testing, following on from mechanical work being done to it. It is further evidence of the absorption of the S-LR into the claimant's fleet of operational vehicles.
Wider questions from this outcome are raised by the parties, both in relation to Mr Harding's involvement in this, Mr Gibson's role within what happened and the wider engagement of other of the defendant's employees in how this may have come about. It is necessary to examine the subsequent events before reaching fully-formed conclusions in relation to those questions.
Discovery of the S-LR and the Subsequent Investigations and Decisions
On 25th July 2008 Mr David Godard, who was employed by the defendant as a vehicle examiner, came into possession of an anonymous letter. The letter, so far as relevant, was in the following terms:
"I would like to bring your attention to the following information. A vehicle that was recovered on behalf of Essex Police under the vehicle recovery scheme by your contractor D&G Cars at Warley should have been disposed of under the terms of the contract. The Scrap dealer issued a destruction certificate for the vehicle, however this vehicle was not destroyed.
Instead the vehicle's identity was stolen, the number plates and VIN plate from the bulkhead were removed and replaced by that of another vehicle. The vehicle in question was a vehicle owned by the recovery operator D&G Cars. The vehicle owned by D&G Cars is an old shape Land Rover Discovery, the seized vehicle, a new shaped discovery was then repainted in D&G Cars own livery. This vehicle is now conspicuous as it is the wrong shape for the year suggested by the Number Plates that are on it. No other attempts to change the identity have been made so the car still bears the original stamped chassis numbers etc. The engine and gearbox will also show the identity of the vehicle that should have been scrapped.
The vehicle is a Land Rover Discovery, Van type 3 door chassis. It is in D&G Car's livery, I do not have the other vehicles details, however an inspection of the vehicle will clearly show the original identity from the VIN and the engine numbers etc. The vehicle is currently being operated from the Warley depot and is used as an incident response vehicle. The vehicle has the number plate of L89 THP on it at this time, this is not the true identity of the vehicle.
I would suspect it must be illegal to alter the identity of the vehicle, it must also be illegal to falsely claim that vehicle has been destroyed, in addition it is strictly forbidden for any police contractor to keep any property seized by the police.
In addition to this there are at least 3 other discovery chassis in the yard that are awaiting the "ringing process", they are without the original bodies and just sitting in the yard in plain sight. These vehicles have also been "scrapped" and have the relevant destruction certificates!!
I would think that the above would also indicate that the company dealing with the end of life vehicle process must have some difficult questions to answer. (Benfleet Scrap, Manor Trading Estate, Benfleet)."
The 25th July 2008 was a Friday and Mr Godard and Mrs Kemp decided that Mr Godard should investigate the matter the following Monday. As a result, on 28th July 2008, Mr Godard visited the claimant's premises. He was a regular visitor at those premises in the light of his role with the defendant. On arrival he spoke to Mr Harding and explained that he needed to examine a Land Rover bearing the registration number L89 THP. Mr Godard states that, without prompting, Mr Harding told him that the body of that vehicle had been swapped with one which was due to be scrapped and that that had been undertaken as a training exercise. Prior to attending at the claimant's premises Mr Godard had taken a print-out from the Police National Computer in relation to the L-LR, so that he was equipped, for instance, with a record of that vehicle's VIN number.
Having been shown to the vehicle bearing the number plate L89 THP, Mr Godard examined it and recorded all of the VIN numbers that the vehicle was displaying. From this he established that the vehicle which he was examining was in truth the S-LR. The VIN which was stamped into the chassis, and also the windscreen VIN, were those of the S-LR. The slam panel VIN, located under the bonnet and pop riveted to the body of the vehicle, was that of the L-LR.
Mr Godard stated in his evidence that he recorded all of these numbers in his notebook at the time when he undertook the examination. In the written evidence before the court, and in particular in the witness statements of Mr Harding, there was lengthy speculation based on the assertion that Mr Godard did not and could not have examined the chassis VIN number on the occasion of his visit to the claimant's premises but rather that that was a number which he obtained after the vehicle had been recovered to the defendant's premises and whilst it was in their custody. It was stated, and put to Mr Godard, that the chassis VIN could not have been read since it would have been obscured by dirt and/or corrosion and therefore illegible without some prior treatment.
I have no hesitation in rejecting that contention and indeed the attack which it represents on the reliability of Mr Godard as a witness in respect of the relatively small part which he played in the narrative of this case. As these matters were being put to Mr Godard, and impromptu, he produced whilst in the witness box his contemporaneous notes which were then introduced as documents into the trial. This documentation proved to me, beyond doubt, that he had indeed examined and noted the chassis VIN at the time when he undertook his examination at the claimant's premises. This contemporaneous documentation is also consistent with photographs which he took at the time and which showed that the chassis VIN was clearly legible. I am also satisfied therefore that Mr Godard told Mr Harding what he had found in relation to the vehicle following his examination, and whilst still at the claimant's premises on 28th July 2008. He informed Mr Harding at that time that the vehicle had been ringed. This evidence is of some significance in the light of what subsequently occurred, and in particular in relation to an email which, as is set out below, was sent to the defendant the following day.
Following his examination, Mr Godard caused the vehicle to be taken into police custody and contacted Mrs Kemp to advise her of what he had found. Mrs Kemp in turn contacted Mrs King and also Chief Superintendent Thwaites who was, at that time, a Divisional Commander on the defendant's staff, responsible for traffic policing. They all subsequently met that day at the defendant's headquarters.
Following the discussions at that meeting, a decision was taken to suspend the claimants from the contract and at 14.31 on 28th July 2008 that decision was communicated to other relevant people in the defendant's organisation.
This decision to suspend the claimants proved controversial in this litigation in a number of ways. Firstly, it was suggested, on behalf of the claimant, that the suspension was unfair, and indeed that that unfairness and the singling out of the claimant for this treatment was evidence of, in particular, the prejudice of Mrs Kemp and Mrs King against them and was part of the wider plan to secure the removal of the claimant from the contract and their replacement by their competitors. The allegation of unfairness was supported by seeking comparison with how other contractors had been dealt with. The evidence pertaining to those other contractors was as follows.
In October 2006 another of the defendant's contractors known as Albert Road had recovered a vehicle on the basis that it was being driven without insurance. After checks had been undertaken the crushing of the vehicle was authorised by the defendant, and indeed instructions were given that the vehicle must be crushed. Following this, Albert Road sent to the defendant a VR2 stating that the vehicle had been crushed at a firm called Outens and the fact of the crushing of the vehicle was registered with the DVLA. It subsequently transpired that the vehicle had in fact been sold by Outens after it had come into their possession. Once this all came to light arrangements had to be made to enable the vehicle to be returned to its owner and by this means the matter was brought to a close.
The second incident used by way of comparison to seek to establish the allegation of unfairness was an episode investigated at the start of August 2008 relating to the theft of light clusters from vehicles which had been recovered by Boyton Cross. Complaints had been raised with Mrs Kemp and she sought the assistance of officers in investigating incidents involving vehicles which had been recovered by Boyton Cross, when there was good evidence that when they had been recovered they had been fitted with intact light clusters, but nevertheless at the point of their return to their owners they had been found to have had the light clusters removed. The removal of the light clusters, it was concluded in the investigation of the matter, would have had to have been undertaken with tools. Mrs Kemp was unable to shed any light in her evidence as to what had occurred in response to her raising these thefts from vehicles whilst they had been in the custody of Boyton Cross.
The challenge put to Mrs Kemp was why the claimant had been suspended when neither Albert Road nor Boyton Cross had been when the incidents described above had come to light. Why, it was asked, had the claimant been singled out to be suspended whereas the other contractors had not? Mrs Kemp explained that in so far as Albert Road was concerned, on analysis, they had in fact done nothing wrong. The true culprit in relation to what had occurred were Outens who had sold the vehicle which Albert Road had given to them to be crushed without authority to do so and who had then advised that the vehicle had been crushed, when in reality it had been sold. That did not, in Mrs Kemp's view, involve any culpability on the part of Albert Road. By contrast, she observed, the claimant had apparently appropriated a vehicle to their own use when they had been instructed to crush it, and had indeed told the defendant that it had been crushed.
So far as Boyton Cross was concerned, again she contended that the issue was at a wholly different scale involving potentially theft by an employee, but not the ringing of an entire vehicle which had purportedly been crushed.
For my part, I entirely accept the explanations provided by Mrs Kemp as to why the knowledge of the defendant as to what had occurred at the claimant's premises warranted suspension, whereas the incidents relating to Albert Road and Boyton Cross did not. I am unable to detect any unfairness of treatment when the three separate cases are put alongside each other. The allegation which lay at the door of the claimant was far more serious, involving as it did the appropriation of the entire vehicle and its representation both as a matter of its identity and also in terms of its appearance and branding as one of the claimant's vehicles when in truth it was a vehicle which the claimant had been instructed to crush and which they had led to the defendant to believe (through the documentation) had indeed been crushed. I do not consider, therefore, that there is any substance in the contentions in relation to unfairness relied upon by the claimant.
The second way in which this decision to suspend became controversial was because there was a dispute as to who, on behalf of the defendant, had authorised the suspension. The claimant, consistent with the concern as to the animus of Mrs Kemp against them, contended that it had, in effect, been authorised by her. This was supported by the witness statement of Chief Superintendent Thwaites (as he then was, he having since retired from the defendant's employment) in which he described receiving an email from Mrs Kemp, advising him that the claimant had already been suspended. Furthermore, in that witness statement he indicated unequivocally that his role in the suspension was one of oversight and not decision making.
When Mr Thwaites came to give his evidence he changed this aspect of his account and became adamant that, notwithstanding that he did not have a strong or positive recollection of the events, he was nonetheless convinced he was the person who took the decision to suspend. He expressed this view on the basis that because of his seniority in the defendant's organisation it was inevitable that he would have been the person to whom others would have deferred, and that he was the individual who would have made the relevant decision.
I am unable to accept this aspect of Mr Thwaite's evidence. I am, in particular, impressed by the contemporaneous documentation and in particular a note which was compiled the following day by Mrs Kemp, and recorded in an email to Mr Thwaites as a file note to reflect what had occurred on 28th July 2008. In that note, she recorded as follows:
"I attended MSD Boreham and met with Dave and Mick Thwaites and we agreed that D&G would be suspended. Dave advised DS Paul Maleary had been given this to investigate."
Although this file note was relied upon by Mr Thwaites in support of his contention in the witness box that he was the person, and he alone, who took the decision, the note in fact supports what in my view is far more likely to have been the case, namely that there was a collective sharing of views as to what should occur and a consensus from that meeting in which all shared that the claimant should be suspended. Whilst undoubtedly, if the decision had become internally contentious and had required defending, I have no doubt that Mr Thwaites in his capacity at the time would have been the person who would have been called to account for that decision. In my view, the way in which the decision was arrived at is accurately reflected in Mrs Kemp's contemporaneous note as being one which was reached collectively by those present at the meeting. I am equally satisfied that Mrs Kemp did not make the decision to suspend the claimant alone.
On 29th July 2008, Mr Jennings wrote on behalf of the claimant to Mrs Kemp to seek to explain the claimant's view of matters in the light of discovery which had been made by Mr Godard on the previous day. In that email he stated as follows:
"We have an apprentice in workshop and an apprentice in body shop, we supplied them with a Renault Clio ex courtesy car to do a total colour change as project
We also gave them our old L89 THP Land Rover as this has a separate body to chassis, project was to change body / chassis from old to new and repaint, moving parts from old to new and visa [sic] versa
We requested from our compound that when next Land Rover came up for disposal, to send it over for project, which was done as requested, project was started VIN numbers and parts were changed over, donor vehicle was then sent to scrap with donor original VIN and the body chassis from L89 THP
L89 THP with its new parts was then repainted as final part of this apprentice project, refitted and looking new then serviced by same apprentices
The vehicle is of very low value and the oldest vehicle in our colours, the cost of the project in labour alone came to over £6,000 plus paint materials; put this project nearer £9,000 for an L Reg Land Rover
The project was a high profile job, with all members of staff and visitors, including police officers, taking a daily interest in the job, which took about 3 months to complete
Once vehicle was complete, it was then parked up in the corner like our Mack and Chevy show trucks, vehicle has never been used on the road it was our show project
Since car squad have visited and we have been suspended following an anonymous letter from either an ex member of staff or another operator who is also tendering for Essex Police recovery who knows about the vehicle and project in question, but have twisted the story to suit
We called a meeting yesterday amongst the directors, as we were most upset about being suspended immediately
On looking at the evidence from Essex Police point of view, we can totally understand why D&G Cars have been suspended 1. we should have checked where donor vehicle originated from 2. we should have requested permission before proceeding 3. we should have informed yourselves of the extent of changes we were doing
D&G Cars have not done this project for self gain as the project outweighed value of L Reg Land Rover, the vehicle is not used
we have not tried to cover anything as the project was done for 3 months in front of all and sundry. We have not changed chassis number on chassis, we have not covered up chassis number on windscreen / windows to try and hide the identity as suggested by Concerned Motorist
This has caused great embarrassment to our company and yourselves, which we apologise for"
It will be apparent in the light of what has already been set out in this judgment that there are a number of significant errors in this email which was sent by Mr Jennings. What is described in the email does not reflect what in reality happened in respect of the S-LR and what was probably sent to scrap. It was not the L-LR which was repainted as part of the project, but rather the S-LR which was the subject of the re-spray and re-branding as one of the claimant's fleet. The vehicle was used on the road. The errors in the email cannot be explained in my view by a failure on the part of Mr Godard to explain what he had found on his examination. As I have set out above, I am entirely satisfied that Mr Godard explained that what he had found was, in effect, a ringed vehicle.
The defendant relies upon this email and its contents (and indeed cross examined both Mr Harding and Mr Jennings at length in relation to it) as evidence of dishonesty on the part of Mr Harding and Mr Jennings in relation to what had happened to the S-LR. The resolution of this allegation in relation to dishonesty is set out below but, at the very least, the email demonstrates that the claimant was not remotely on top of the issues in relation to their treatment of the S-LR, nor had they undertaken any competent investigation at this stage of what had happened.
At the time of the claimant's suspension from the contract, Mr Thwaites had sought the involvement of Mr Adam Hunt who is a solicitor and in-house lawyer with the defendant. A meeting was convened, on 1st August 2008, in order to review the situation and seek to determine the way forward. In addition to Mr Hunt, the meeting was attended by Mr Thwaites, Mrs Kemp, Mrs King, Mr Godard and DS Maleary. Notes were taken of the meeting. Mr Maleary was in attendance because by then, as will be evident from the file note set out above, he had been appointed to undertake an investigation of the matter.
Various matters relating to the discoveries made by Mr Godard at the claimant's premises and related issues are recorded in the notes but they acquired an importance in the trial as a result of one particular point which was raised at the meeting in relation to the behaviour of the claimant in performing the contract. It was recorded as follows:
"An incident had occurred previously whereby a vehicle had been found on a forecourt in London, which should have been crushed by D&G. This vehicle was brought to HQ and a decision made to return to the original owner. Justin Smith, who is now the Inspector at Central RPU will have full knowledge of this incident. No proof could be found as to who was specifically responsible and no charges were brought."
The note of the meeting does not make clear who made this observation. What is absolutely clear is that what the meeting was told was certainly wrong. D&G were not involved in this incident which was in fact the incident involving Albert Road which I have set out above. In my view it is most probable that these observations which have been minuted came from Mrs Kemp since she is the person who is most likely to have been aware of this incident, and indeed she was the person who later reported to Mr Hunt about it. The documentation shows that Mrs Kemp was passed a copy of the minutes and afforded the opportunity to comment upon them. When she did so, she did not correct this misleading information. As a result, and understandably, this issue is relied upon by the claimant as evidence of Mrs Kemp actively spreading prejudice against the claimant in the process which was leading to the termination of their contract with the defendant. It is a matter to which I have had regard in reaching my overall conclusions on this allegation.
At around this time Mr Hunt had, in seeking to form conclusions about the defendant's position, become concerned as to whether or not there was power in the contract to enable them to suspend it. Because of his concern, Mr Hunt eventually sought external advice because it seems that he was not convinced that the defendant was entitled to suspend their contract with the claimant in the manner in which they have purported to do so.
It is clear that from the point in time when Mrs Kemp became aware that Mr Maleary had been appointed to undertake the investigation of any criminal offence, she began to communicate with him regularly. On 29th July 2008 she enquired as to whether or not an arrest was imminent in relation to the matter. She subsequently commenced passing to Mr Maleary large quantities of documentation which she had retrieved from her own records relating to the contractual arrangements and events which had transpired between the defendant and the claimant during the operation of the contract. These communications were deployed by the claimant to seek to contend that this was evidence of Mrs Kemp manipulating the process and also demonstrated an unhealthy familiarity between Mrs Kemp and Mr Maleary, further bolstering the allegation that she and Mr Maleary were in league to seek to prejudice the relationship between the claimant and the defendant.
I am unable to accept that there is anything untoward or malign in the communications which the documentation discloses between Mrs Kemp and Mr Maleary. I have no doubt that once Mr Maleary was instructed to conduct the investigation, Mrs Kemp was equally instructed to assist him in any way in which she was able to do so. That would have involved passing to him any pertinent document which she had as part of her records. Furthermore, I see nothing inappropriate in Mrs Kemp enquiring of Mr Maleary as to whether or not any arrest was imminent since, at the time of making her enquiry, she was actively involved in managing the issues associated with the defendant's contract with the claimant and the impact upon that of the discovery of the ringed vehicle and the investigations that were being undertaken in that respect. I do not, therefore, regard the evidence in respect of the contact between Mrs Kemp and Mr Maleary as being of any weight at all in assessing the claimant's allegations in relation to the suggestion that the contract was terminated through bad faith, to which I shall turn in due course.
On 5th August 2008, in the course of his investigations, Mr Maleary requested that Mr Harding attend Brentwood Police Station where he was then interviewed under caution. During the course of the interview Mr Harding made the following statements. Firstly, he contended that the L-LR was, at the time of the project, redundant and did not work. Secondly, he stated that he had authorised the body swap as an apprentice project but accepted that he had been "a fool" and "wrong" not to ask the defendant for permission to undertake it. Thirdly, he said that once the project had been completed (and it had taken a little time to complete) he had not taken any further notice of it and hadn't looked at the vehicle further. Fourthly, he contended that the result of the project was not intended for use and had not in fact been used on the road. Fifthly, whilst he accepted that as the managing director of the company he was ultimately responsible for what had happened, nevertheless, he was not aware how it had come about that the S-LR had ended up, in effect, posing as the L-LR. Sixthly, he told Mr Maleary that, as far as he was aware, the L-LR body shell had been sent for crushing. Seventhly, he stated that the instructions to undertake the project had been given to Mr Burt who was in charge of the body shop and an apprentice who had subsequently emigrated to South Africa.
After the interview had been completed Mr Maleary reported back to Mr Hunt on what had happened. In an email on the evening of 5th August 2008 he advised as follows:
"I arrested and interviewed HARDING he has accepted responsibility and has stated he had no dishonesty. I do not agree with this, my view is that the conversion of the vehicle from one identity to another is dishonest behaviour the problem we have is his ultimate knowledge. He says he was fully aware but failed to notify Essex Police. I did point out that he had never undertaken such an action before."
During the course of cross-examination Mr Maleary was criticised for the terms of this email, which it was suggested misled Mr Thwaites and Mr Hunt as to the truth of the position. It was contended that what Mr Harding had been describing in his interview was the body swap exercise which he had authorised which was far from accepting responsibility for the ringing of the vehicle. I do not consider that the criticisms raised by the claimant of this email are well founded. It needs to be borne in mind that Mr Maleary was providing a necessarily succinct note to brief Mr Thwaites and Mr Hunt as to the state of his investigation. It will be clear from what I have set out above, in relation to the principal points to be gleaned from the interview, that Mr Harding was not in substance disputing the fact that the S-LR had, in reality, been ringed whilst in the custody of the claimants. As the brief email correctly identifies, the real issue between Mr Maleary and Mr Harding was the question of dishonesty. It should also be borne in mind when reading the email, as I have no doubt that Mr Thwaites and Mr Hunt did, that it was being written by an investigating officer necessarily and understandably bringing a degree of scepticism to bear upon the assertions which were being put to him by a suspect who was being investigated. I do not, therefore, consider that there is any substance in the complaint raised by the claimant as to this email.
From 6th August 2008 to 8th August 2008 Mr Hunt sought further information from his colleagues, and in particular Mrs Kemp, in relation to the performance of the claimant during the contract. Mrs Kemp reported back to him that there had been day-to-day breaches, but none that had been sufficiently serious as to justify the suspension of the contract. Furthermore, she reported back the incident relating to the A Reg and the sale of vehicles for exports to Nigeria. Again it was suggested by the claimant, in my view unconvincingly, that the comments made by Mrs Kemp in these emails were prejudicial and seeking to poison the mind of Mr Hunt and those who would be making decisions about the contract. I am unable to detect any reality in that allegation. In truth, the responses provided by Mrs Kemp accurately reflected what had gone on in relation to the administration of the contract, albeit from her perspective, and I do not regard her responses as evidencing any animus against the claimant so as to form an ingredient in their allegation of bad faith.
On 12th August 2008 Mr Hunt wrote to Mr Jennings setting out the defendant's understanding of the facts pertaining to the discovery of the S-LR and what had happened in respect of that vehicle. He provided the claimant until 15th August 2008 to make a response in relation to these contentions. In fact the substance of this communication was overtaken by discussions which occurred between Mr Hunt and the claimant's solicitors which led to the deadlines being extended. In the meantime a further meeting in relation to the contract was convened between those working for the defendant on 19th August 2008 to discuss the issues.
Before that meeting happened, on 18th August 2008 as part of the tendering process, Mrs Kemp was engaged at a site visit at one of the claimant's competitors, BJG, during the course of which she learnt that Mr Gibson had left the claimant's employment in about January 2008. She made a note of this at the time because, no doubt, it had struck her as of interest. In my view the significance of this is that it is good evidence that she was unaware of his departure from the claimant prior to this site visit. This evidence further undermines, in my view, the overall contentions of the claimant that Mrs Kemp was somehow working with Mr Gibson to secure the removal of the claimant from the contract with the defendant and its award to BJG, the competitor for whom Mr Gibson went to work.
At the meeting of 19th August 2008 Mr Kenneth Cocksedge was present along with, amongst others, Mrs King, Mrs Kemp and Mr Hunt. Mr Cocksedge was, at that time, the defendant's director of finance and he was going to be the person taking any decision in relation to the future of the contract between the claimant and the defendant. The purpose of the meeting was to receive advice from Mr Hunt together with the views of the other employees present and for discussion to occur to enable Mr Cocksedge to reach his decision.
The following emerged from the discussion as recorded in the contemporaneous notes of the meeting. Firstly, Mr Cocksedge was satisfied that there had been a breach of the contract as a result of the matters which had come to light, and in particular that there had been a lack of integrity on the part of the claimant demonstrated by what had emerged. Secondly, Mrs Kemp expressed her firm view that there had been a fundamental breach of contract by the claimant. Thirdly, Mr Hunt explained that he had been advised by the claimant's solicitor that they would be likely to rely on other incidents which had occurred in order to diminish the significance of the incident involving the S-LR so as to undermine any claim that the defendant was entitled to treat that incident as a fundamental breach. This was taken to be a reference to the A Reg incident involving the sale for Nigerian export, the facts of which Mrs Kemp explained in greater detail to the meeting. Fourthly, Mr Cocksedge concluded, having received the advice from Mr Hunt and heard the debate at the meeting, that he was satisfied that there had been a fundamental breach of the contract and, furthermore, that the claimant's suggestion that there should be a consensual suspension of the contract was one which was not acceptable. He concluded that the claimant should be given until 26th August 2008 in order to offer a final written explanation as to their side of the question, following which a final decision would be reached on whether or not to terminate the contract. Finally, it was recognised that if the decision which emerged was that the contract was to be terminated for fundamental breach then that would inevitably result in the need to remove the claimant from the ongoing tender process, in which they were participating and which is described below.
On 22nd August 2008 Mr Hunt asked Mrs Kemp for further information about what became known as the "forecourt incident". This incident is the one which is set out above and which involved Albert Road recovering a vehicle and passing it to Outens to be crushed, following which Outens sold on the vehicle and it was discovered on a forecourt for sale. It is also the incident described above which was said to found an allegation of unfairness in that Albert Road were not suspended from the contract when this incident came to light and the vehicle had to be returned to its original owner, having not been crushed as instructed.
Mrs Kemp's email in response to Mr Hunt's request which set out the factual detail of this incident, was relied upon by the claimant in the cross-examination of her as to the fairness of the claimant's suspension. Mrs Kemp was also criticised because it emerged (as a result of the late disclosure of documentation by the defendant) that in fact shortly prior to providing the account of this incident to Mr Hunt, she had stated in an informal exchange with a claims handler employed by the defendant with whom she was very friendly, that she was about to "write a little story on a vehicle for Adam". The claimant made play of this remark suggesting that it betrayed the fact that Mrs Kemp was providing "little stories" for Mr Hunt in order to prejudice him against the claimant and further her campaign of seeking to have the claimant removed from the contract.
I am unable to accept that suggestion. It is clear, from the context of the email that this remark was nothing more than a light-hearted, jocular or off-the-cuff observation to a work colleague, with whom she was close, and does not found any suggestion that she was misleading Mr Hunt or providing him with inaccurate or inappropriate information. What the email exchange with Mr Hunt of 22nd August 2008 certainly does disclose is that by that time any misleading impression which had been created by the observations at the meeting on 1st August 2008 and in the notes of it had been dispelled and corrected, at least as far as Mr Hunt was concerned. This email exchange made clear to Mr Hunt that the forecourt incident was not an allegation involving the claimant. This further undermines the claimant's case that the misleading note of the forecourt incident in the meeting notes of 1st August 2008 was evidence of Mrs Kemp campaigning against the claimant's interests.
On 26th August 2008, in response to the defendant's invitation, the claimant's solicitors wrote a letter setting out their position in relation to the incident involving the S-LR and its implications for the future of the contract. In the course of that letter it was accepted that an instruction was given for the body swap following which, it was stated, the resultant vehicle was instructed to be put "into good repair". It was asserted in the letter that Mr Harding's instruction had not been properly carried out, leading to the S-LR bearing the identity of the L-LR. It was further suggested that the vehicle which was the result of the project had not been used on the road. The letter culminated with the following statement of the claimant's position:
"In the circumstances, transference of an identification plate and the number plates is irrelevant, and in any event not something for which the company is responsible. What is relevant is simply an omission by the company to seek the consent of Essex Police to the use of the vehicle for the purpose to which it was eventually put. That does not constitute a fundamental breach of the Contract so as to give Essex Police the right to terminate it before the fifth anniversary in 2011. If Essex Police should purport to terminate the Contract before its natural end, they will have to pay the company damages for lost revenue less savings in expenditure. The company estimates that at £12,000 per week, i.e. around £1.5 million to the end of the Contract.
Furthermore, the Contract does not provide for suspension. Essex Police could accept fundamental breach and determine the Contract or continue as before. Essex Police are in breach of Contract by not providing the company with work as before the suspension.
The company requires Essex Police to end the suspension forthwith. If that is done immediately then the company is prepared to waive its claim for damages. If not, the company requires the payment of damages for the whole period from the start of the suspension to the term date of 31st March 2011 in a sum presently estimated at £1 million (i.e. the total loss of revenue less saved expenses), but discounted to £900,000 to take account of early payment and the avoidance of court proceedings."
Having considered the contents of this letter, on 28th August 2008 the defendant advised the claimant that it had reached the decision that there had been a fundamental breach of contract and that the contract was being terminated. On 2nd September 2008 the claimant was advised that they had been removed from the tender process which was then on foot. In fact a formal notice terminating the contract was not sent until December 2008 bringing the contract to an end in March 2009.
Whilst the letter of 2nd September 2008 advertised the end of the contractual relations between the claimant and the defendant, and also ceased their involvement in the tender process, Mr Maleary's criminal investigation continued. On 21st August 2008 the CPS provided him with advice in relation to charging. The advice suggested that, in particular, evidence was needed in relation to the use of the vehicle and also in respect of proof as to whether or not a vehicle had indeed been crushed. It was also advised, in particular, that any witnesses who had been involved in working on the project would be crucial in seeking to establish that Mr Harding and Mr Jennings had behaved dishonestly.
Following receipt of this advice, on 17th October 2008, Mr Maleary interviewed Mr Jennings and he then re-interviewed Mr Harding on 23rd October 2008. Issues pertaining to the use of the vehicle on the road were put to both of them in their interviews. This is an issue which I have dealt with above, and in my view nothing further turns on the answers which they gave at this stage.
On 11th December 2008 a statement was obtained from Mr Burt. It had taken Mr Maleary some time to locate Mr Burt for the purposes of obtaining a statement from him since the body shop at the claimant's premises had been closed in the spring of 2008 and prior to the discovery of the S-LR. Mr Burt had therefore left the claimant's employment and indeed the disbandment of the body shop it seems led to certain documentation about the jobs which had been done in the body shop probably being destroyed. During the course of his statement Mr Burt mentioned Mr Gibson. This was the first reference to Mr Gibson in the investigation of the case. On 28th January 2009 Mr Maleary reported the fruits of his investigation to the CPS.
Following this on 4th February 2009, Mr Harding and Mr Jennings were both charged. It transpired that whilst the advice which had been received by the CPS, and which had led to Mr Harding's and Mr Jennings's being charged, was initially favourable in respect of there being a reasonable prospect of securing their conviction, ultimately it was concluded by other CPS lawyers that they would not be able to prove that either of them had been dishonest to the criminal standard in what had occurred to the S-LR. As a result of this, in a decision which Mr Maleary still profoundly disagrees with, charges were discontinued against both Mr Harding and Mr Jennings in May 2009 and the criminal proceedings against them were brought to a close.
During the course of his evidence, and in particular in cross-examination, Mr Maleary was heavily criticised and his credibility was attacked as a consequence of his inclusion within his first witness statement of reference to the forecourt incident as being a matter which was the responsibility of the claimant. Mr Maleary was criticised, in particular as someone who was experienced in giving evidence, for having included within his statement a matter which was intended to be highly prejudicial and which was, on the evidence, clearly wrong. When challenged about this material as a result of an interlocutory order in the case, and when a further witness statement was produced, Mr Maleary could, at best, only point to the misleading reference in the meeting of 1st August 2008 as being the source for the information which he had provided. This led to the further criticism that, therefore, the material on which he had relied was at best hearsay.
In my view these were all cogent criticisms of Mr Maleary's written evidence and his decision to include the allegation in relation to the forecourt incident without properly sourcing or validating it in a statement which carried with it an affirmation as to its truth and reliability is a matter which I have incorporated into my assessment of his evidence and the ultimate conclusions which I reach below. It was, at best, careless and clearly impacts adversely upon my assessment of the reliability of his evidence.
He was also criticised for not having pursued and obtained evidence from Mr Gibson. This aspect was particularly emphasised by the claimant, bearing in mind the nature of the claimant's case that Mr Gibson was at the heart of orchestrating the ringing of the S-LR. In his oral evidence Mr Maleary suggested that he had a belief that he may well have attempted to locate Mr Gibson after he was referred to by Mr Burt in the witness statement which he obtained from him. Whether or not that is the case (and it is appropriate to point out that there is no documentary material at all to substantiate any suggestion that Mr Maleary did indeed seek to locate Mr Gibson) in my view the criticism of Mr Maleary in this respect is very overstated. It needs to be borne in mind that it was not until December 2008 in Mr Burt's statement that Mr Gibson was identified. Certainly neither Mr Harding nor Mr Jennings had mentioned Mr Gibson in their description of the work that was undertaken to the S-LR, let alone blamed him for the ringing of that vehicle. In those circumstances it does not appear to me to be a particularly fair criticism of Mr Maleary that he failed to identify Mr Gibson as the culprit for the ringing of the S-LR and pursue him to obtain further evidence.
As set out above these are all matters which I have borne in mind in reaching my ultimate conclusions in relation to the factual issues which arise in this part of the case.
The 2008 Tender Process
On 8th January 2008 Ontime, who, it would be recalled, were one of the contractors who had successfully bid for the defendant's vehicle recovery contracts in the 2006 tender process, wrote to the defendant following a meeting with Mrs Kemp indicating that they had taken a commercial decision to terminate their contract with the defendant with effect from 31st March 2008. They reconfirmed that this was their intention on 30th January 2008 in a further letter. I have referred to this correspondence above in relation to my conclusions about the length of their suspension from one of the contracts.
As a result of the 2006 tender process they operated contracts for three of the defendant's areas and therefore there were three lots which needed to be re-let. Those lots were as follows. Lot 1 was Epping Forest District; lot 2 was Castle Point / Rochford and South End and lot 3 was related to the M11 North and Southbound from Junction 8 to the Metropolitan border. As an interim measure these areas were covered by the defendant's existing contractors until they were re-let, including work being undertaken by the claimant. The contracts were to be re-let for the remaining time of the contract period, namely up until the end of 2011, with an option for a one year renewal at the election of the defendant thereafter.
In March 2008 the contracts were advertised. The adverts were placed in several publications including the Official Journal of the European Union. The overall scope of the contract was described as follows:
"The Vehicle Recovery Operators will have the necessary expertise, be accredited to PAS 43 standard and be able to
(a) Carry out both light vehicle and heavy vehicle recovery to specified requirements
(b) Provide appropriate, secure storage facilities
(c) Recover, store and preserve vehicles in a suitable undercover environment to enable forensic examination
(d) Recover vehicles where Essex Police exercise statutory powers of removal and collect any charges arising from this activity
(e) Provide a dedicated single contact number to provide a 24- hour service, for every day of every year.
The Contract for each Lot shall be for the remaining period of approximately two years which it is anticipated will commence in January 2009 plus an option for Essex Police to extend the duration for a further one year."
The information provided about each of the lots made clear that the contract was for a similar specification in relation to the requirements which have been set out above. Each of the lots was described geographically in the advertisement.
Before embarking on an examination of what in fact occurred during the tender process it is, in my view, important to set out and understand the points that are raised in this part of the case. It will be recalled that the issues in relation to the tender process form a separate action which is being tried at the same time as the action in relation to the termination of the contract. The first issue in relation to that action based on the tender process relates to whether or not the claimant should have been removed from the tender process. That issue in itself depends upon an examination of matters which have already been set out above relating to the discovery of the S-LR at the claimant's premises and the outcome of the subsequent investigations. I will return to these issues in my conclusions.
The principal purpose of this section of the judgment is to examine the secondary questions which arise if it is to be concluded that the claimant ought to have remained within the tender process. If the claimant ought not to have been disqualified for the reasons relied upon by the defendant then it is necessary to examine what their prospects would have been in the subsequent tender competition.
The key issues which are raised by the claimant in respect of the 2008 tender competition are as follows. Firstly, other competitors in that competition, and in particular, Boyton Cross and BJG, ought to have been disqualified from the competition. Secondly, the claimant contends that the tender evaluation process was unsatisfactory and flawed. Thirdly, it is contended that had the tender competition been run correctly then all three lots would have been awarded to the claimant. It is with those key issues in mind that I turn to examine the history of the tender process and the issues which emerge from it.
The need to undertake a re-tender process as a result of Ontime terminating their contracts had not been planned for by the defendant. It was therefore thought appropriate for them to obtain some assistance with the conduct of the procurement exercise. To that end in May 2008 Mr Guilhem Lavabre was recruited in order to assist the defendant. Ten operators expressed an interest in participating in the tender process and they were each sent PQQ documentation.
The PQQ forms required information from the potential tenderers on a variety of matters and with respect to a number of capabilities. Some of these requirements were characterised as mandatory. In particular at Section D4 it was a mandatory requirement for the respondents to "confirm that you are currently accredited to PAS43:2002"; at Section D5 it was also a mandatory requirement for the respondents to "confirm that from 1st January 2009 you will have the capability to recover both light and heavy vehicles". Finally, for these purposes at Section D6 the respondents needed to indicate "how many vehicles in total you will be able to store."
One of the contractors, Redcorn, was rejected at the PQQ stage on 16th May 2008. This was because they did not have a current PAS43 certificate. They responded to this decision on 17th May 2008 advising that they would be in possession of a PAS43 accreditation in a month's time (and thus in good time to commence work on the contract) and therefore asked for their interest to be accepted. That suggestion was rejected by Mr Lavabre on behalf of the defendant in the following terms:
"the reason is that the process cannot be dependant on the awarding at a point in the future of a qualification which is absolutely needed for the provision of the services. On that matter, the parallel you are drawing with the level of insurance cover is not totally appropriate. Also, this principle is a basic consideration of the Procurement procedure."
Applying what it suggests is a similar logic, the claimant contends that both BJG and Boyton Cross should also have been disqualified at this stage. BJG were a relatively new company which had been set up and commenced trading not long prior to the procurement process and which employed some of the people who had previously been employed by Ontime prior to them withdrawing from the defendant's area. One of the examples of the former employees who they had engaged was Mr Darren Donoghue who was responsible for compiling the tender documentation on behalf of BJG. BJG were bidding solely for lot 2. Boyton Cross were already operating a contract with the defendant and they were bidding in the 2008 tender process for lots 1 and 3.
In relation to BJG, the claimant draws attention to the fact that the address provided by that company on the PQQ documentation is one at Bentalls Business Park in Basildon. By contrast, in the Experian report undertaken in relation to their financial circumstances, the registered office of the company is identified as being at Abacus House, Romford. The address which is provided on the PAS43 certificate, furnished with the PQQ documentation, was at 14 Dolphin Point, Purfleet. The claimant's point in the light of this variety of addresses attributed to BJG is that they should have been disqualified on the basis of failing the requirement in relation to having current PAS43 accreditation. The proof of PAS43 accreditation was a mandatory requirement and further the premises from and within which the accredited operations occur is contended to be an integral part of the process which is being accredited. The claimant contends that it should have been clear to the defendant from the proliferation of addresses that BJG simply did not have a PAS43 certificate for the premises which they were proposing to deploy in order to service the contract for lot 2. As such they failed a mandatory requirement and should have been disqualified at this stage.
So far as Boyton Cross were concerned, they produced with their PQQ documentation PAS43 certificates for premises in Braintree, Bishop Stortford and Chelmsford. They did not, however, produce a PAS43 certificate for their premises at Waltham Cross which were the premises which they proposed to use for the operations in order to service the contracts for lots 1 and 3 for which they were bidding. Thus, again, it is contended by the claimant that at this stage the Boyton Cross interest should have been disqualified on the basis that they failed a mandatory requirement in respect of possession of a current PAS43 certificate.
The defendant's answer to this through the evidence of Mrs King and Mr Lavabre is that the mandatory requirement contained in the PQQ documentation was to have PAS43 accreditation for a vehicle recovery operation undertaken by the economic entity bidding so as to show that they were capable of achieving the necessary standard of performance required to secure the award of that accreditation. It was not necessary, or a mandatory requirement, to have a PAS43 certificate for the actual premises which were offered for the contract. This contention is, to some extent, at odds with what I shall allude to below in relation to Mr Lavabre's continuing investigation with Boyton Cross as to the existence of PAS43 accreditation for the Waltham Cross premises. On balance, however, it is an explanation which in my view is coherent.
Firstly, it is not inconsistent with the PQQ documentation itself which does not require PAS43 certification for particular premises. Furthermore, it is not inconsistent with the promotion of competition, which is one of the purposes of the exercise. If any person not holding a PAS certificate for premises which they propose to use to service the contract were to be disqualified, notwithstanding that they operated a PAS43 certificated process from other premises, then that could have excluded from the process a significant number of potential tenderers. It would, for example, have excluded an operator from a different region who wished to open new premises in the defendant's area and who already had a successful and PAS43 accredited operation in another region, from bidding and using the defendant's contract as a means of expanding their business within the defendant's area. Thus I am satisfied that the decision not to disqualify BJG and Boyton Cross at this stage was legitimate.
It was also contended by the claimant that both BJG and Boyton Cross should have been excluded at the PQQ stage because they were not suitable companies. In relation to Boyton Cross, I do not consider that that is a tenable proposition on the basis that Boyton Cross were already undertaking a contract for the defendants in any event.
So far as BJG were concerned it is right to observe, as I have set out above, that it was a young business which had been recently established and which did not have extensive premises or operations at the time when the tender process was being undertaken. It is also correct to observe, and indeed the PQQ made no secret of the fact, that BJG was employing personnel who had been employed by Ontime at the time when they had been suspended from the defendant's contract. Furthermore, it is true that BJG had a limited financial track record and this was plain from the Experian report to which I have referred above. Nevertheless in my view, the fact that it was a smaller and younger company than other potential other tenders, was not of itself a legitimate and sustainable reason to exclude them from bidding and further participating in the tender process at this stage. In my view disqualification from even tendering would have been a decision which it would have been exceedingly difficult for the defendant to justify had they taken it.
Having completed the PQQ stage of the process, it was necessary to proceed to the ITT stage. A deadline for the provision of ITT documentation was set for 16th July 2008. One of the companies tendering, Midway, was disqualified at this stage. They had submitted a tender but had not complied with the necessary procedure in that they had failed to apply a blue label to the envelope containing the tender documentation. Whilst this may seem a small matter, and indeed the claimant sought to make something of the disqualification of Midway for this apparently inconsequential and bureaucratic failing, as Mrs King explained it is a necessary, albeit apparently trivial, step for tenderers to apply the appropriate blue label to the envelope containing their bid so that all bids are opened simultaneously and as part of a transparent process. In fact what had happened as a result of the failure to provide the blue label was that the Midway tender envelope had been opened as being a part of the defendant's ordinary post. The fact that this happened sheds some light on why the provision of a label to ensure that the tender envelope is set to one side to be opened alongside all of the others is a mandatory part of the process.
Following the elimination of Midway the other tenders were opened at the same time on 18th July 2008. There were four tenderers who had submitted completed documentation for consideration. Those tenders proceeded to evaluation. Prior to the tender opening session there had been thought given, by Mr Lavabre, to an evaluation tool to enable a consistent procedure to be applied to each of the tenderers. An email exchange occurred between him and Mrs Higgins following which it was clarified that, in relation to compliance with the specification and the proposed terms and conditions of the contract, a pass / fail approach should be taken. Whilst passing would only lead to a proportionate contribution towards the final overall score, plainly it was intended that failing mandatory criteria would lead to the consequence of the tender being disqualified. This approach makes obvious sense since compliance with the specification and the defendant's terms and conditions had to be regarded as a non negotiable, and to that extent inflexible, requirement of winning the contract. It is against this background that the claimant complains that in the light of the available evidence, both BJG and Boyton Cross should have been disqualified from the tender process. I now set out the detail of the matters which give rise to these contentions.
After he had had an opportunity to peruse the tender documentation, Mr Lavabre wrote to all of the tenderers seeking further information. In particular, he wrote to Boyton Cross seeking clarification of a number of matters on 22nd July 2008. Boyton Cross responded on 24th July 2008 and the issues which were raised and responded to were as follows.
As set out above, Mr Lavabre continued to seek a PAS certificate for Boyton Cross's premises at Waltham Cross. It was explained to him in Boyton Cross's response that the certificate for the Waltham Cross premises would be available in November 2008 when, at the regular PAS43 accreditation review of all of their operations, these premises would be brought into consideration. It was emphasised by Boyton Cross, in particular as the exchange evolved, that they had no reason to believe that the premises would not be included within their PAS43 accreditation and that accreditation could only be withheld if there had been a diminution in the quality of the operation which they ran, which they did not believe was conceivable.
Secondly, on 22nd July 2008 Mr Lavabre sought training certificates for the staff who Boyton Cross had identified in their tender documentation. In the response of 24th July 2008, a further schedule was promised to him. When this further schedule was sent through on 31st July 2008 it in fact showed materially different information from that which had been in the tender document. Fewer employees were identified in the revised schedule and fewer training accomplishments were recorded against the names of those who were identified.
The claimant contrasted this situation, which did not lead to Boyton Cross being disqualified, to the way in which the claimant had been treated in respect of training requirements. They had also been asked, on 22nd July 2008, for documentation to prove the staff training which was described in the tender documents. Unbeknown to Mr Lavabre these had been hand delivered to Mrs King on 29th July 2008. As he was unaware of this Mr Lavabre had strongly recommended to the defendant that the claimant should be disqualified as they had not provided a compliant tender owing to the absence of the staff training documentation.
In fact, as will be obvious, this issue was overtaken by the discovery of the S-LR at the claimant's premises at around this time. Mrs King's clear view was that the claimant would not have been disqualified on this basis and that Mr Lavabre was erroneously recommending their disqualification because he was not aware that in fact the gap in the documentation had been plugged. Nonetheless his approach is relied upon by the claimant in support of their contention that Boyton Cross should have been disqualified because the original tender documentation they had produced was, by their own admission, inaccurate and unreliable. Furthermore, the claimant complains that in effect what Boyton Cross were doing at this stage of the tender process was, after the tenders had been closed, providing a whole raft of new information tantamount to a new tender in the form of the provision of this further information.
Turning to the tender provided by BJG, a number of issues are raised by the claimant as fundamental defects in the BJG tender. Again, on 22nd July 2008, further information was sought by Mr Lavabre to clarify BJG's tender. They also replied on 24th July 2008 dealing in particular with the questions which were raised by Mr Lavabre about premises and training.
In relation to staff training again documentation was requested and in response BJG placed reliance upon the provision of future training for staff which they had booked and paid for. They provided evidence of the schedule for this future training and also of the payment that they had made for it. The claimant complains, again, that this is the defendant placing illegitimate reliance upon requirements which are not currently evidenced in the tenderer's documentation, but which are to be provided at some point in the future. The claimant contends that that approach is not legitimate on the basis that the tender requires demonstration and proof of these issues at the point at which the tender is furnished.
Turning to premises, the claimant again contends in relation to BJG's tender that this was a further example of illegitimate reliance being placed by the defendant on plans and proposals for future provision, rather than evaluating the tender upon the basis of what the tenderer actually had at the time of submitting the tender documentation.
The PQQ documentation from BJG had indicated that further premises were required by them in order to provide the necessary storage capacity required by the contract. In their response to Mr Lavabre's request on 24th July 2008, Mr Donoghue drew attention to the fact that their current landlord was prepared to make a 14,000 square foot building available to them which was opposite their current premises and which had planning permission and adequate space to provide the necessary storage for the contract. It was indicated that the building was available and that the necessary legal procedures to make it available to BJG could be completed within 4-6 weeks of the confirmation of success in the tender process. Mr Lavabre responded to Mr Donoghue on 25th July 2008 as in response to this information as follows:
"I am forwarding it to Essex Police for their perusal, as far as I am concerned, this is satisfactory. I think that if you have a plan of sorts (e.g. top level project plan) to show how you could be up and running in due course (i.e. 1st January 2009) with all the equipment fitted in this quite impressive building, it would do no harm. My experience with the force, no different than from any Public Sector organisation, is that they are quite risk averse, and the more documentation can be used to evidence that a due diligence has been undertaken, the better they feel. There is no doubt as to neither your experience, abilities nor your motivation, it's just the usual public sector normal search for reassurances. If you are ok to provide such a high level plan, please assume a formal contract awarding on September 30th."
It is necessary to pause to observe that the last sentence quoted above was relied upon by Mr Platford on behalf of the claimant in suggesting to Mr Lavabre that he had in fact been instructed that BJG were to be awarded the contract and that this was an indication that in effect the tender process was a charade given that the award of lot 2 to BJG was a fait accompli. Mr Lavabre vigorously denied that suggestion, and indeed made clear that the disqualification of the claimant came completely out of the blue to him. I also reject that suggestion. It is plain that the sense of what Mr Lavabre was telling Mr Donoghue was that in producing a project plan, which no doubt would have needed to set out each of the steps necessary to procure and then fit out the building, he should assume that he would have from 30th September until 1st January in order to accomplish all of those steps.
In response to this email on 29th July 2008 Mr Donoghue sent through what was described by him as an "Action Plan". It did not contain a chronology as to how, step by step, within the time available the premises were to be secured and fitted out. It provided photographs of the proposed building together with a letter from the owner of the building indicating a willingness to let it to BJG and to complete the legal arrangements within 6 to 8 weeks of instruction.
On 30th July 2008 Mr Lavabre passed this documentation onto Mrs Kemp who was at that time due to be involved in a site visit to evaluate BJG's premises. In doing so, he expressed his dissatisfaction that the documentation did not truthfully amount to a robust plan of action for securing operational premises. Apart from these shortcomings of this document it is apparent that it led to issues in relation to how the site visit was to be conducted. Mrs Kemp wrote to Mr Lavabre on 18th August 2008 expressing her concern as to how the site visit evaluation was to proceed on the basis that BJG were, as she put it, a "blank canvas". Mr Lavabre provided some advice as to how the site visit evaluation should be conducted indicating that the proposed premises should be marked as if they were under the control and being operated by BJG and that the panel should proceed to ask only open rather than closed questions about the new premises so that the questions posed did not suggest answers which, presumably, they would then not be able to verify for themselves since the premises had yet to be fitted out and appointed for the purposes of the contract.
The extent to which this advice was acted upon or absorbed by the evaluation panel is unclear. Certainly one of the site visit evaluators was led to score the BJG premises on the proforma against which all of the tenderers' sites were evaluated as in respect of most categories "TBC" ("to be confirmed"). This was presumably on the basis that he was not able physically to visit or evaluate operational premises being proposed by BJG. Thus this element of the BJG tender gives rise to complaints from the claimant, that the defendant was reliant not only on premises which were not under BJG's control or operational at the time but were rather the future promise of potential premises. In addition it is complained that they were allowed, through the Action Plan, to furnish new information which was not contained within the tender documentation itself. Furthermore, the claimant pursued through cross-examination the incoherence of the evaluation process when it sought to address itself to the qualities of premises which had yet to be under the tenderer's control or to be operated as a vehicle recovery facility. The point pursued was that the evaluation process did not contain any means to evaluate contingent proposals of this kind or account for the inherent uncertainty in their delivery.
In addition to the future provision of premises, the BJG tender also proceeded upon the need for the future provision of vehicles. One of the matters required to be specified within the ITT documentation, and in particular in Schedule 12, was the identification of the vehicles which would be deployed in order to service the contract. In their tender documentation, BJG relied upon the proposed acquisition of a significant number of vehicles, which they did not presently own, in order to provide the specified service under the contract. Again, the criticism raised by the claimant is that the defendant was relying upon the future provision of necessary vehicles, rather than the demonstration of the capability to provide the vehicles at the time of the submission of the tender.
Finally, in this respect, reliance is placed upon the requirement under paragraph 3.5.3 of the tender specification "for heavy goods vehicles a rolling road for brake testing and a 20 metre level concrete track for tachograph calibration purposes." BJG did not have a rolling road either at their current premises or as part of their proposed premises. In September 2008, shortly prior to the awarding of the contract and after the only other competitor for lot 2, the claimant, had been disqualified, there was an internal exchange of email correspondence between Mrs King and others working for the defendant in relation to this rolling road requirement. On behalf of the Traffic Investigation Unit it was indicated that from their perspective only access to a rolling road was really required because it was not frequently necessary to test vehicles on a rolling road. In the light of this indication and the suggestion that in any future redrafting of the contract specification only access to a rolling road, rather than possession of a rolling road, would be required, it was agreed that the contract could be awarded to BJG notwithstanding the fact that they did not have their own rolling road.
Having set out the issues raised by the claimant in relation to the tender information provided by BJG and Boyton Cross, I turn to the evaluation tool itself. In the claimant's written evidence there were a number of detailed criticisms raised of the evaluation tool devised by Mr Lavabre and the way in which it had scored and evaluated the information received from the various tenderers. This was in the light of the contention raised by the defendant that they had instructed Mr Lavabre to re-score the tender process after the claimant had been removed but including the information from them, and that his evaluation tool had nevertheless reached the conclusion that even if the claimant had not been disqualified they would not have scored higher marks than BJG who were awarded the contract for lot 2 or Boyton Cross who were awarded the contracts for lots 1 and 3. This argument, supported by material in Mr Lavabre's written evidence, was strongly opposed by the claimant.
In fact, as matters turned out, shortly before Mr Lavabre was called to give evidence this element of the defendant's case was completely abandoned. It was explained, by Mr Lawrence, that upon a re-examination of this element of the defendant's evidence the conclusions in Mr Lavabre's witness statement that the claimant would have scored less than those awarded the contract could no longer be sustained. Indeed it was stated that the scores which he set out in his material could not be explained. Furthermore it was said on behalf of the defendant that no alternative calculation was to be proffered and the defendant retreated to a position of simply putting the claimant to proof in relation to its prospects of succeeding in the tender process.
In my view this late concession completely curtails any necessity to examine the detailed criticisms of the evaluation tool raised by the claimant since it is not a scoring process which, in substance, the defendant has been able to sustain and defend. It is an obvious requirement of any evaluation tool or matrix that whilst it will inevitably involve judgement and pragmatic or arithmetical weighting it must, to be fit for purpose, be transparent and readily capable of replication. These qualities are obviously a necessary part of a procedure which needs to be consistently applied to each tender and then, potentially, explained to any disappointed competitor or, if necessary, made subject to sensitivity analysis. An evaluation tool which is opaque and incapable of subsequent replication fails the requirement to have these qualities. This has implications for my approach to the evaluation of the claimant's chance of securing the tender had they not been disqualified.
I shall turn in due course to the implications of these points for my conclusions in relation to this aspect of the case having set out the relevant legal principles to guide my judgment on the criticisms of the process raised by the claimant.
The Law
Not every breach of a contract will give rise to an entitlement on behalf of the injured party to treat the breach as one which is fundamental and bringing the contract to an end. The position was definitively explained by Lord Denning MR in his judgment in Cehave NV v Bremer Handels GmbH (The Hansa Nord) [1976] 1 QB 44 at page 60 D to G as follows:
"In 1962 in the Hong Kong Fir Shipping Co ltd v Kawasaki Kisen Kaisha ltd [1962] 2 QB 26 the Court of Appeal drew attention to this vast body of case law. They showed that, besides conditions and warranties, strictly so called, there are many stipulations of which the effect depends on this: if the breach goes to the root of the contract, the other party is entitled to treat himself as discharged: but if it does not go to the root, he is not. In my opinion, the principle embodied in these cases applies to contracts for the sale of goods just as to all other contracts.
The task of the court can be stated simply in the way in which Upjohn LJ stated it at p64. First, see whether the stipulation, on its true construction, is a condition strictly so called, that is, a stipulation such that, for any breach of it, the other party is entitled to treat himself as discharged. Second, if it is not such a condition, then look to the extent of the actual breach which has taken place. If it is such as to go to the root of the contract, the other party is entitled to treat himself as discharged: but, otherwise, not. To this may be added an anticipatory breach. If the one party, before the day on which he is due to perform his part, shows by his words or conduct that he will not perform it in a vital respect when the day comes, the other party is entitled to treat himself as discharged."
In this case there are, in essence, two key terms of the contract and breaches of those terms relied upon in the contractual action. The first condition is the express condition in the contract relating to the disposal of vehicles both requiring the defendant's instructions to be actioned and also precluding the disposal of a vehicle into the hands of the claimant. The second condition relied upon is an implied condition that both parties to the contract would conduct themselves acting in good faith, or as frequently and properly expressed in the course of the proceedings, with honesty and integrity in undertaking the duties and observing the requirements of the contract.
The question of whether or not a breach of a term of a contract in the second category identified by Lord Denning is such as a to amount to a repudiatorary breach is to be judged objectively in relation to all of the circumstances as viewed from the perspective of a reasonable person in the position of the party aggrieved by the breach. The assessment is one which is highly fact sensitive. In the case of Eminence Property Developments ltd v Heaney [2010] EWCA Civ 1168 Etherton LJ (as he then was) in giving a judgment with which all of the court agreed observed as follows:
"61. I would make the following general observations on all those cases. First, in this area of the law, as in many others, there is a danger in attempts to clarify the application of a legal principle by a series of propositions derived from cases decided on their own particular facts. Instead of concentrating on the application of the principle to the facts of the case in hand, argument tends to revolve around the application of those propositions, which, if stated by the Court in an attempt to assist in future cases, often become regarded as prescriptive. So far as concerns repudiatory conduct, the legal test is simply stated, or, as Lord Wilberforce put it, 'perspicuous'. It is whether, looking at all the circumstances objectively, that is from the perspective of a reasonable person in the position of the innocent party, the contract breaker has clearly shown an intention to abandon and altogether refuse to perform the contract.
62. Secondly, whether or not there has been a repudiatorary breach is highly fact sensitive. That is why comparison with other cases is of limited value. The innocent and obvious mistake of Mr Jones in the present case has no comparison whatever with, for example, the cynical and manipulative conduct of the ship owners in The Nanfri.
63. Thirdly, all the circumstances must be taken into account insofar as they bear on an objective assessment of the intention of the contract breaker. This means that motive, while irrelevant if relied upon solely to show the subjective intention of the contract breaker, may be relevant if it is something or it reflects something of which the innocent party was, or a reasonable person in his or her position would have been, aware and throws light on the way the alleged repudiatory act would be viewed by such a reasonable person. So, Lord Wilberforce in Woodar (at page 281 D) expressed himself in qualified terms on motive, not by saying it will always be irrelevant, but that it is not, of itself, decisive.
64. Fourthly, although the test is simply stated, its application to the facts of a particular case may not always be easy to apply, as is well illustrated by the division of view among the members of the Appellate Committee in Woodar itself."
The existence in this case of an implied term to act with honesty and integrity as set out above is accepted by both parties. It seems to me however that it would be appropriate to set out for the avoidance of doubt what in my view is the proper legal basis for the implication of that term into this contract.
The approach to the potential implication into a contract of a term of this type was recently considered in the case of Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111. Leggatt J analysed the position as follows:
"131. Under English law a duty of good faith is implied by law as an incident of certain categories of contract, for example contracts of employment and contracts between partners or others whose relationship is characterised as a fiduciary one. I doubt that English law has reached the stage, however where it is ready to recognise a requirement of good faith as a duty implied by law, even as a default rule, into all commercial contracts. Nevertheless, there seems to me to be no difficulty, following the established methodology of English law for the implication of terms in fact, in implying such a duty in any ordinary commercial contract based on the presumed intention of the parties.
132. Traditionally, the two principle criteria used to identify terms implied in fact are that the term is so obvious that it goes without saying and that term is necessary to give business efficacy to the Contract. More recently, in Attorney General for Belize v Belize Telecom Ltd [2009] 1 WLR 1988 at 1993-5, the process of implication has been analysed as an exercise in the construction of the contract as a whole. In giving the judgment of the Privy Council in that case, Lord Hoffmann characterised the traditional criteria, not as a series of independent tests, but rather as different ways of approaching what is ultimately always a question of construction: what would the contract, read as a whole against the relevant background, reasonably be understood to mean?
133. The modern case law on the construction of contracts has emphasised that contracts, like all human communications, are made against a background of unstated shared understandings which inform their meaning. The breadth of the relevant background and the fact that it has no conceptual limits have also been stressed, particularly in the famous speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at pp. 912 – 3, as further explained in BCCI v ALI [2002] 1 AC 251 at p. 269.
134. Importantly for present purposes, the relevant background against which contracts are made includes not only matters of fact known to the parties but also shared values and norms of behaviour. Some of these are norms that command general social acceptance; others may be specific to a particular trade or commercial activity; others may be specific still, arising from features of the particular contractual relationship. Many such norms are naturally taken for granted by the parties when making any contract without being spelt out in the document recording their agreement.
135. A paradigm example of a general norm which underlies almost all contractual relationships is an expectation of honesty. That expectation is essential to commerce, which depends critically on trust. Yet it is seldom, if ever, made the subject of an express contractual obligation. Indeed if a party in negotiating the terms of a contract were to seek to include a provision which expressly required the other party to act honestly, the very fact of doing so might well damage the parties' relationship by the lack of trust which this would signify.
136. The fact that commerce takes place against a background expectation of honesty has been recognised by the House of Lords in HIH Casualty v Chase Manhattan Bank [2003] 1 CLC 358. In that case a contract of insurance contained a clause which stated that the insured should have 'no liability of any nature to the insurers for any information provided'. A question arose as to whether these words meant that the insured had no liability even for deceit where the insured's agent had dishonestly provided information known to be false. The House of Lords affirmed the decision of the courts below that, even though the clause read literally would cover liability for deceit, it was not reasonably to be understood as having that meaning. As Lord Bingham put it at [15] : 'Parties entering into a commercial Contract…will assume the honesty and good faith of the other; absence such an assumption they would not deal.' To similar effect Lord Hoffmann observed at [68] that parties 'contract with one another in the expectation of honest dealing,' and that: '…in the absence of words which expressly refer to dishonesty, it goes without saying that underlying the contractual arrangements of the parties there will be a common assumption that the persons involved will behave honestly.'
137. As a matter of construction, it is hard to envisage any contract which would not reasonably be understood as requiring honesty in its performance. The same conclusion is reached if the traditional tests for the implication of a term are used. In particular the requirement that parties will behave honestly is so obvious that it goes without saying. Such a requirement is also necessary to give business efficacy to commercial transactions.
138. In addition to honesty, there are other standards of commercial dealing which are so generally accepted that the contracting parties would reasonably be understood to take them as read without explicitly stating them in their contractual document. A key aspect of good faith, as I see it, is the observance of such standards. Put the other way round, not all bad faith conduct would necessarily be described as dishonest. Other epithets which might be used to describe such conduct include 'improper', 'commercially unacceptable' or 'unconscionable'.
139. Another aspect of good faith which overlaps with the first is what may be described as fidelity to the parties' bargain. The central idea here is that contracts can never be complete in the sense of expressly providing for every event that may happen. To apply a contract to circumstances not specifically provided for, the language must accordingly be given a reasonable construction which promotes the values and purposes expressed or implicit in the contract…
141. What good faith requires is sensitive to context. That includes the core value of honesty. In any situation it is dishonest to deceive another person by making a statement of fact intending that other person to rely on it while knowing the statement to be untrue. Frequently, however, the requirements of honesty go further. For example, if A gives information to B knowing that B is likely to rely on the information and A believes the information to be true at the time it is given but afterwards discovers that the information was, or has since become, false, it may be dishonest for A to keep silent and not to disclose the true position to B. Another example of conduct falling short of a lie which may, depending on the context, be dishonest is deliberately avoiding giving an answer, or giving an answer which is evasive, in response to a request for information.
142. In some contractual contexts the relevant background expectations may extend further to an expectation that the parties will share information relevant to the performance of the contract such that a deliberate omission to disclose such information may amount to bad faith. English law has traditionally drawn a sharp distinction between certain relationships – such as partnership, trusteeship and other fiduciary relationships – on the one hand, in which the parties owe onerous obligations of disclosure to each other, and other contractual relationships in which no duty of disclosure is supposed to operate. Arguably at least, that dichotomy is too simplistic. While it seems unlikely that any duty to disclose information in performance of the contract would be implied where the contract requires a simple exchange, many contracts do not fit this model and involve a longer term relationship between the parties which they make a substantial commitment. Such 'relational' contracts, as they are sometimes called, may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties understanding and necessary to give business efficiency to the arrangements. Examples of such relational contracts might include some joint venture agreements, franchise agreements and long term distributorship agreements."
It will be clear from what has been set out above that both the existence and the content of an implied condition in relation to honesty and integrity is highly sensitive to the context of the contract itself. By the use of the term 'integrity', rather as Leggatt J uses the term 'good faith', the intention is to capture the requirements of fair dealing and transparency which are no doubt required (and would, to the parties, go without saying) in a contract which creates a long-standing relationship between the parties lasting some years and which has the qualities and features to which I shall turn shortly. There may well be acts which breach the requirement of undertaking the contract with integrity which it would be difficult to characterise definitively as dishonest. Such acts would compromise the mutual trust and confidence between the parties in this long-term relationship without necessarily amounting to the telling of lies, stealing or other definitive examples of dishonest behaviour. They would amount to behaviour which the parties would, had they been asked, have identified as obvious acts which were inconsistent with the maintenance of their intended long-term relationship of fair and open dealing and therefore would amount to a breach of their contract.
As noted above, there are particular features of this contract which warrant the inclusion of this implied term. Firstly, as already noted, the contract created a relatively lengthy period of contractual relationship between the parties, during which there were going to be a very large number of individual transactions undertaken under the auspices of the contract. It was, in my view, a 'relational' contract par excellence. Secondly, the substance of the contract involved dealing with the recovered property of members of the public acting on behalf of a law enforcement agency. This required that the recovered property was itself treated with both honesty and integrity whilst it was being dealt with by the claimant and they were exercising the requirements of the contract. Thirdly, and related to the second point, the property which was recovered and being handled by the claimant might, in some instances, require return to the public and therefore its treatment whilst in the hands of the claimant was of the upmost importance. Fourthly, some of the vehicles which were recovered under the specification of the contract would themselves form part of the evidence for criminal investigations and potential prosecutions in which they might become exhibits. This aspect is reinforced by the specification within the contract, not simply for storage space but also for the facilities for forensic examination and investigation of the vehicles whilst being held on the claimant's premises. All of these features of this particular contract make it clear in my view that there was an implied term that, as set out above, the parties would act with honesty and integrity in operating the contract.
A further legal issue arises because the claimant contends that it cannot be held liable unless the controlling mind and will of the company, namely Mr Harding or Mr Jennings, were responsible for the dishonesty or lack of integrity which might be found in respect of the treatment of the S-LR. This is associated with the contention that if there was any dishonesty or lack of integrity involved in the treatment of the S-LR that was the responsibility of Mr Gibson.
This argument engages the question of the attribution of acts to a corporate entity. This issue was addressed by the Privy Council in the case of Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 in particular in the judgment of the Judicial Committee given by Lord Hoffmann which provides at page 511 as follows:
"Once it is appreciated that the question is one of construction rather than metaphysics, the answer in this case seems to their Lordships to be as straight forward as it did to Heron J. The policy of section 20 of The Securities Amendment Act 1988 is to compel in fast moving markets, the immediate disclosure of the identity of persons who become substantial security holders in public issuers. Notice must be given as soon as that person knows that he has become a substantial security holder. In the case of Corporate Security Holder, what rule should be applied as the person whose knowledge for this purpose is to count as the knowledge of the company? Surely the person who, with the authority of the company, acquired the relevant interest. Otherwise the policy of the act would be defeated. Companies would be able to allow employees to acquire interests on their behalf which made them substantial security holders but would not have to report them until the board or someone else in senior management got to know about it. This would put a premium on the board paying as little attention as possible to what its investment managers were doing. Their Lordships would therefore hold that upon the true construction of s20(4)(e), the company knows that it has become a substantial security holder when it is known to the person who had the authority to do the deal. It is then obliged to give notice under s20(3). The fact that Koo did the deal for a corrupt purpose and did not give such notice because he did not want his employers to find out cannot in their Lordship's view affect the attribution of knowledge and the consequent duty to notify.
It was therefore not necessary in this case to inquire into whether Koo could have been described in some more general sense as the 'directing mind and will' of the company. But their Lordships would wish to guard themselves against being understood to mean that whenever a servant of a company has authority to do an act on its behalf, knowledge of that act will for all purposes be attributed to the company. It is a question of construction in each case as to whether the particular rule requires that the knowledge that an act has been done, or the state of mind with which it was done, should be attributed to the company. Sometimes, as in re supply of Ready Mixed Concrete (No 2) [1995] 1 A.C. 456 and this case, it will be appropriate. Likewise in a case in which a company was required to make a return for revenue purposes and the stature made it an offence to make a false return with intent to deceive, the Divisional Court held that the mens rea of the servant authorised to discharge the duty to make the return should be attributed to the company: see Moore v I. Bresler Ltd [1994] 2 All ER 515. On the other hand, the fact that a company's employee is authorised to drive a lorry does not in itself lead to the conclusion that if he kills someone by reckless driving, the company will be guilty of manslaughter. There is no inconsistency. Each is an example of an attribution rule for a particular purpose, tailored as it always must be to the terms and policies of the substantive rule."
It follows from the principles which are set out in the Meridian Global Funds case that the question of attribution, and whether it properly extends beyond the two directors of the claimant Mr Harding and Mr Jennings, is one which has to be assessed against the context of the implied term of the contract set out above, being the instrument giving rise to the liability. As Lord Hoffmann explains, the question will not simply be resolved on the basis of whether or not an employee of the company had authority to undertake the act giving rise to the breach of contract. The issue is whether, on analysis, the purpose of the provision of the contract properly required the restriction of attribution to the directors only or to a wider category of the claimant's employees.
In my view the pertinent factual context for the conclusions in relation to this issue are similar to those which I have set out above justifying the inclusion of the implied terms in the first place. Looking at the purposes of the contract and its specification, they included the safe, secure, and accountable recovery of vehicles so as to enable either their undamaged retention to enable either their return intact to their owners, or their safe disposal so as to ensure amongst other things that elements of the vehicles did not appear in the market either in whole or in part, or the safeguarding of the vehicles as evidence in criminal investigations.
Measured against the importance of these issues to, in particular, the defendant and the reliance which the defendant had to place in the light of these matters on the trust and integrity of the claimant, I am satisfied that it is not sensible and does not properly give effect to the purpose of the term within the factual context of the contract to limit the question of attribution solely to Mr Harding and Mr Jennings. In my view, bearing in mind the purpose of including the implied term and the factual basis for doing so, the actions of other of the claimant's employees, in particular their managerial and supervisory staff, should properly be regarded as capable of giving rise to a breach of the implied term.
In the course of argument the requirement under the contract for the defendant to vet the claimant's staff who were working on the contract was relied upon as bolstering the argument that attribution should be restricted solely to the two directors. That vetting was not, however, in my view designed as a proxy for compliance with the implied term, nor is it properly to be regarded as appropriate to restrict attribution so as to meet the purposes of the contract.
On a day-to-day basis the actions of the claimant's staff in discharging the requirements of the specification of the contract rested with the instruction and supervision provided by their managerial and supervisory staff. Compliance with the implied term clearly, in my view, depended upon the actions of the managerial and supervisory staff so as to ensure that the conduct of the contract respected the requirements of, for example, having the custodianship of property which might ultimately feature as controversial evidence in a criminal trial.
It follows that in my view the question of attribution of the claimant's actions in relation to the implied term are not restricted simply to the acts or defaults of Mr Harding or Mr Jennings but properly understood ranged wider to the acts and omissions of the claimant's managerial and supervisory staff. That wider definition would certainly embrace the staff managing and issuing instructions in the mechanical workshop (Mr Gibson and Mr Bewerss) and in the body shop (Mr Burt).
It is now necessary to turn to the legal propositions involved in the action relating to the tender process. The defendant contends that it was entitled to remove the claimant from that process based on the provisions of the Public Contracts Regulations 2006 which governed the tender process. The claimant was an economic operator for the purposes of the 2006 regulations. The process which was being deployed under the 2006 regulations was the 'restricted procedure'.
Regulation 23 of the 2006 regulations provides criteria for the rejection of economic operators. In particular regulation 23 provides as follows:
"23(4) A contracting authority may treat an economic operator as ineligible or decide not to select an economic operator in accordance with these Regulations on one or more of the following grounds, namely that the economic operator - … (e) has committed an act of grave misconduct in the course of his business or profession;"
There is no further definition within the Regulations of the term "grave misconduct". There is, further, no assistance to be derived from any case law. That said, in my view there is little difficulty in accepting that if there has been a breach of an implied term related to honesty and integrity which is sufficiently serious as to be properly regarded as a repudiatory breach of a pre-existing contract with the public body conducting the tender process then that would fall within the definition of "grave misconduct" for the purposes of the Regulations. Repudiatory breaches of other terms would fall to be considered on their own facts but it would not be correct to assume that every repudiatory breach would amount to "grave misconduct". It is the fact that it is repudiatory breach of a term related to honesty and integrity which founds its characterisation as "grave misconduct".
The legal principles governing a tendering exercise of this kind were set out by Morgan J in Lion Apparel Systems Limited v Firebuy Limited [2007] EWHC 2179 as follows:
"27. The principally relevant enforceable Community obligations are obligations on the part of the Authority to treat bidders equally and in a non-discriminatory way and to act in a transparent way.
28. The purpose of the Directive and the Regulations is to ensure that the Authority is guided only by economic considerations.
29. The criteria used by the Authority must be transparent, objective and related to the proposed contract.
30. When the Authority publishes its criteria, which conform to the above requirements, it must then apply those criteria. The published criteria may contain express provision for their amendment. If those provisions are complied with, then the criteria may be amended and the Authority may, and must, then comply with the amended criteria.
31. If relation to equality of treatment, speaking generally, this involves treating equal cases equally and different cases differently.
32. Council Directive 89/655/EEC (the remedies directive) requires Member States to take measures necessary to ensure that decisions taken by an Authority in this context may be reviewed effectively and as rapidly as possible on the grounds that such a decision may have infringed Community law in the field of public procurement or national rules implementing that law.
33. Regulation 32 of the 1993 Regulations (which I consider below) gives effect to the remedies directive.
34. When the court is asked to review a decision taken, or a step taken, in a procurement process, it will apply the above principles.
35. The court must carry out its review with the appropriate degree of scrutiny to ensure that the above principles for public procurement have been complied with, that the facts relied upon by the Authority are correct and that there is no manifest error of assessment or misuse of power.
36. If the Authority has not complied with its obligations as to equality, transparency or objectivity, then there is no scope for the Authority to have a 'margin of appreciation' as to the extent to which it will, or will not, comply with its obligations.
37. In relation to matters of judgment, or assessment, the Authority does have a margin of appreciation so that the court should only disturb the Authority's decision where it has committed a 'manifest error'
38. When referring to 'manifest' error, the word 'manifest' does not require any exaggerated description of obviousness. A case of 'manifest error' is a case where an error has clearly been made."
Embedded within these principles, and further explained in the cases of SIAC Construction Limited v Council of the County of Mayo C-19/00 and EVN AG, Wienstrom GmbH v Austria and ors Case C-448/01, is the requirement that the documentation (namely the notice, the PQQ, ITT and contractual documentation) must clearly formulate the requirements which are to be tendered to and those requirements must be consistently applied. This principle is of particular application to the claimant's contentions in relation to the inclusion of future requirements within the tender evaluation process. Once the tenders have been received, they cannot thereafter be altered, but it is permissible for them to be clarified if appropriate: see R (Harrow Solicitors and Advocates) v LSC [2011] EWHC 1087. The fact that the defined criteria sent out in the tender process could only be met by a limited number of economic operators does not in itself constitute a breach of the requirement for equal treatment: see Concordia Bus Finland v Helsingin kaupunki, HKL-Bussiliikenne Case C-513/99.
Conclusions
During the course of the trial, and at my invitation, a list of the key factual and legal questions which needed to be answered as an outcome of the trial process was agreed between the parties. That agreed list is annexed to this judgment as Annex 2. As will be noted, it covers legal and factual issues as well as the key questions determining liability. It assisted in structuring the presentation of final submissions by both parties. It has also guided my deliberations and these conclusions.
What will be clear, in particular to the parties, is that the list of questions does not range across the very many factual issues which were raised in the case although some of these more peripheral issues are part of the context of answering the factual questions or relate to the reasons given for answering some of the questions in a particular way. In fashioning both my examination of the facts and also these conclusions I have, albeit not question by question, answered all of the questions identified in the agreed document. I have also addressed many, but by no means all, of the additional facts and issues which were raised during the course of the evidence. Those which I have addressed are those that were in my opinion directly relevant to the central questions which needed to be answered.
Turning to the main factual questions raised I am satisfied that Mr Harding did give instructions for a body swap between the L-LR and the S-LR as a training exercise for the claimant's apprentices. He probably gave the instructions to those who were in charge of the mechanical workshop, Mr Gibson in the first instance and via Mr Gibson to both Mr Bewerss and, in terms of the body shop, Mr Burt. It is clear from the evidence in my view that when the S-LR found its way to the body shop to be re-sprayed the instruction which had been given by Mr Harding was questioned by Mr Jennings who was concerned as to the waste of expenditure in re-spraying an older vehicle. When it was questioned I am satisfied that Mr Harding reconfirmed the instruction. It may well be that the way in which that instruction was ultimately carried out bore little relation to the instruction which had been originally given. However, the original instruction came from Mr Harding and was acted upon by the staff managing the mechanical workshop and the body shop (Mr Gibson followed by Mr Bewers and Mr Burt) and it was as a result of the combination of these instructions that the vehicle found by Mr Godard on 28th July 2008 came to present to him as it did.
I am not at all convinced that anyone on behalf of the claimant ever intended to get permission from the defendant for either the body swap training exercise or indeed for any work to be undertaken to the S-LR. Even were I wrong about that it is clear from the evidence that any thought that permission might be asked of Mrs Kemp was no more than half hearted and, most importantly, never in fact acted upon. It is, in my view, beyond argument that consent should have been sought for anything other than disposal by crushing of the S-LR.
I am, equally, not convinced that Mrs Kemp would have given permission for any work on the S-LR even if she had been asked for it. The basis for my conclusion is firstly that she said in evidence herself, and I regarded her as a straightforward, honest and truthful witness, that she probably would not have given permission even for the training project body swap originally envisaged by Mr Harding. In relation to this issue, the claimant relies upon other occasions when they were permitted by Mrs Kemp to retain vehicles for other purposes. Examples of this included where the vehicles were provided in order to facilitate mechanical training in local schools or where they were given over to the defendant for covert police operations or target practice for their armed officers.
It is accepted on all sides that these occasions happened but they were in my view very different from that which was proposed in this case, namely a body swap with the potential confusion as to the identities of the vehicles which would result. Certainly, they did not provide any precedent for the activity originally envisaged, nor any excuse for not seeking permission even for the project envisaged by Mr Harding's original instruction. Even if Mrs Kemp had been persuaded to give permission, it is clear to me that it would have been conditional upon both the vehicles being crushed immediately after the project had been completed. However, I am unconvinced that any permission would in fact have been forthcoming. In any event, even if Mr Harding had asked for permission for the apprentice training exercise of the body swap as is set out above, that is not in fact what happened or what this case is actually about.
I have set out above detailed conclusions in relation to what works were done to the L-LR and S-LR between the time when the S-LR was recovered as an uninsured vehicle and the time when it was discovered by Mr Godard having been ringed and posing as the L-LR. To summarise what in fact happened whilst the vehicle was in the claimant's custody, I am satisfied that after an abortive attempt at the body swap training exercise further work was done on the S-LR in order to create the vehicle which was found by Mr Godard on 28th July 2008. In short, that work amounted to not simply the re-joining of the S-LR's body to its chassis, but its equipping as a recovery vehicle (including for instance fitting a winch and beacon lights), its re-spraying and works to seek to identify it as the L-LR (fixing the L-LR's VIN plate onto its slam panel and giving it new number plates) followed by it being covered in the claimant's livery and then its absorption into, and use as part of, the claimant's fleet in recovery work.
The key question which this gives rise to is as to whether, in the light of these findings, the claimant breached the implied term of honesty and integrity. An alternative analysis would be to ask whether this was such a grave and serious breach of the express terms in relation to following instructions to dispose by crushing, and not disposing of vehicles to the claimant or those associated with it as to amount to a repudiatory breach. It truth whichever route is taken the question amounts to the same one. Did the facts which emerged on 28th July 2008, and in the investigation thereafter, amount to such a serious breach of either term of the contract so as to justify its repudiation?
I have no doubt that what amounted in effect to the appropriation of the S-LR and its ringing, leading to it becoming in effect part of the claimant's fleet without taking any steps to ask permission was a combination of acts which clearly breached the implied term in relation to integrity, the content which I have set out above. Furthermore, I have no doubt that the overall combination of those actions was known to the managerial and supervisory staff of the claimant. I am satisfied that both Mr Harding and Mr Jennings, after about the beginning of March 2008, would have been aware of the S-LR being present at the claimant's premises and presenting superficially as the L-LR, a vehicle which was part of their fleet. A moment's reflection on their part would have made clear to them that what had occurred was quite plainly wrong and involved a betrayal of the defendant's trust and confidence in them and amounted to action which entirely lacked the integrity necessary in the conduct of a contract of the kind which they had with the defendant.
It is to be observed that Mr Harding knew very quickly at Mr Godard's visit on 28th July 2008 the vehicle which was the focus of his inquiries and that it had been involved in a body swap exercise. He also knew, immediately, that he ought to have asked for permission. In my view what occurred and what was known or ought to have been known by Mr Harding is more than adequate to demonstrate a lack of integrity on the part of the claimant, even if attribution were to be limited to him alone. However, for the reasons which I have set out above, the question of attribution needs to go wider in this case. On the correct approach to attribution which incorporates the actions and omissions of Mr Gibson, Mr Bewers and Mr Burt (as those managing and supervising the day to day work on the S-LR) the position is, again, that the implied condition was clearly breached and what occurred clearly demonstrated the lack of the integrity required by the contract.
The breach of the condition which I have identified is further reinforced, or at least not alleviated, by an examination of events which occurred after the discovery on 28th July 2008. Firstly, it is apparent in my view that no adequate investigation seems to have been undertaken by either Mr Harding or Mr Jennings into how it could be that a vehicle they had recovered on behalf of the defendant had been ringed and transformed into a vehicle posing as one of their own fleet. It was clear during the course of the evidence that some employees who had been obviously involved in working on the vehicles, for example Mr Bennett, were not asked until many months afterwards (or, it seems, at all in the case of Mr Bewers) what in fact had gone on to lead the state of affairs discovered by Mr Godard. Documents, some of which emerged during the course of the trial, were not sought out in order to thoroughly investigate how the situation discovered by Mr Godard had come about. The lackadaisical nature of the investigation into what was a very serious allegation is heavily suggestive of Mr Harding and Mr Jennings either knowing, or strongly suspecting, that something had gone badly wrong in relation to the treatment of the S-LR which further reinforces my conclusion in relation to the lack of integrity in what had occurred.
Secondly, the email which was sent by Mr Jennings on 29th July 2008 was, as examined above, riddled with errors and potentially misleading information. In reality there is no sensible explanation for the problems with the contents of the email and it only serves to reinforce the concerns in relation to the claimant's lack of integrity in dealing with the defendants on this occasion.
Thirdly, when Mr Harding came to be interviewed by Mr Maleary, he did not assist his cause. Far from providing Mr Maleary with a clear documentary history or a document trail explaining what had happened to the S-LR after it had been recovered, Mr Harding produced nothing to assist Mr Malerary's investigation. In fact in the answers which he provided he gave erroneous information to him, for example in relation to whether or not the vehicle had been used on the road. He gave unhelpful answers for instance in relation to who had in fact worked on the project. As set out above, it was Mr Harding's answers in his first interview with Mr Maleary that suggested that Mr Burt was the person who had been engaged in directing the work on the vehicle and that an apprentice who had emigrated to South Africa had been involved in it. Again, none of this alleviates the concerns in relation to the lack of integrity shown by the claimant in dealing with the S-LR.
Having said this, I am not satisfied that either Mr Harding or Mr Jennings were dishonest in the sense that they set out to ring or dishonestly appropriate a recovered vehicle for their own use. The seriousness of such an allegation would require clear and conclusive evidence and I am unconvinced that such evidence exists in this case. I have no doubt that this was an extremely difficult time for Mr Harding as he sought to support his wife who was at the time terminally ill. That, as explained by himself and other witnesses, meant that he was not at the claimant's premises frequently, nor was he concentrating on the claimant's business with the focus and attention to detail that he would otherwise have brought to bear. I have little difficulty in accepting that he would have been distracted at the time with far more important and immediate concerns in his private life than the day-to-day detail of the claimant's business.
Nevertheless, whilst not dishonest, for the reasons I have set out above, had he been fully focused on the claimant's day-to-day business what happened would, I have no doubt, immediately have struck him as wanting integrity and wholly unacceptable. There was a chance to review, examine or investigate what was in fact happening as a consequence of his instruction at the time when Mr Jennings raised the query with him when the vehicle was admitted to the body shop, but Mr Harding did not seize it. He, and certainly Mr Jennings may complain that the initial instruction was taken far further and to an ultimate outcome which was never intended by Mr Harding, but the reality is that no one in a managerial or supervisory capacity stopped the ringing of the S-LR or enquired as to what had happened when the vehicle was assimilated into the claimant's fleet. They could and should have done so. Indeed as I have set out above, individuals who were part of the managerial and supervisory staff (Mr Gibson, Mr Bewers and Mr Burt) were in my view most likely to have been involved in issuing the instructions which escalated the apprentice project into the ringing of the vehicle. Those instructions were not adequately themselves supervised, overseen or investigated by the company's directors bearing in mind the S-LR was at all times on the claimant's premises during the course of its transformation and then operation as part of their fleet.
Having concluded in summary that there was a clear and serious breach of both the implied term of honesty and integrity (in particular the requirement to deal with integrity), and the express terms in relation to disposing on the instructions of the defendant and not taking possession of recovered vehicles, I turn to the question raised by the claimant as to whether or not firstly, what occurred was as a result of the malign actions of Mr Gibson seeking to discredit the claimant and secondly, orchestrated by Mrs Kemp, Mr Maleary and Mrs King so as to disadvantage the claimant and lead to them losing the contract and being removed from the tender process.
I have no difficulty in accepting that, in relation to works on the L-LR and S-LR prior to him leaving the claimant's employment, Mr Gibson would have been involved in giving instructions. Any instructions which he gave to those working under him in the mechanical workshop would have been the fruit of the instructions originally given by Mr Harding as set out above. The issue of the detail of Mr Gibson's instructions is not absolutely clear from the evidence but in my view it is likely that he instructed the re-assembly of the S-LR and also its transfer to the body shop for re-spraying after the abortive body swap described by Mr Bennett and Mr Melville. However, it needs to be recalled when assessing the claimant's allegation that Mr Gibson had left the claimant's employment before the re-spray was finished and also prior to further mechanical work being undertaken in order to fit out the S-LR and identify it (in particular by the provision of the number plates) as the L-LR.
Some, at least, of this further work after Mr Gibson had left must have been undertaken when Mr Bewers was in charge of the mechanical workshop. It is at the very least disturbing, if not in reality sinister as claimed by the defendant, that Mr Bewers has not been called by the claimant to give evidence, albeit documents were produced in which he had initialled his approval in relation to work undertaken and that he was in charge of the mechanical workshop when some of the work on the S-LR was done.
His absence from the trial was explained by Mr Harding and Mr Jennings on the basis that he was not a person in any authority. However, I am unconvinced that that contention is fully borne out by the evidence which, as I have set out, includes the undisputed evidence that he was, following a short hiatus after the departure of Mr Gibson, in charge of the mechanical workshop and had endorsed (by initialling them) documents relating to work on the vehicle. It was said that his endorsement of some of the documentation was to do with his role in relation to ordering and providing parts for work to be undertaken, but that still does not justify him not being called in relation to work carried out on the vehicle after Mr Gibson left and which was directly relevant to its emerging role as part of the claimant's fleet. The short point is that it renders it impossible in my view to conclude that the entire project leading to what was found by Mr Godard was orchestrated by Mr Gibson in an effort to discredit the claimant, when some of the important work to enable the vehicle to present as part of the claimant's fleet was undertaken after Mr Gibson had left and upon the instruction of others.
Furthermore, the reality is that there is little if any evidence to implicate Mr Gibson in such a scheme in circumstances where the seriousness of the allegation would call for clear and convincing evidence that he had been guilty of seeking to sabotage the claimant. In substance, the only evidence which can be relied upon is that it is likely he issued some of the instructions associated with ringing the vehicle, that he had a row with Dr Parry shortly before his departure which I have addressed above and that he left the claimant's employment to go to work for a competitor. This material does not, in my view, come close to substantiating the allegation made against him. I am therefore wholly unconvinced by this element of the claimant's case. My views are further reinforced by the evidence given by Mr Jennings that he had no reason to suspect that Mr Gibson was involved in any such skulduggery.
I am equally unconvinced by the allegations of, in effect, bad faith against Mrs Kemp, Mr Maleary and Mrs King. It is contended on behalf of the claimant that some or all of these witnesses were in league to discredit the claimant and ensure that the claimant lost the contract and also the tender process to their competitors. In my view there was, in this part of the claimant's case, a good deal of chasing of shadows and little of any substance. I have earlier set out that, so far as Mrs Kemp was concerned, I am satisfied that she was a reliable witness and have already concluded that there is little evidence to suggest that she was prejudiced against the claimant prior to Mr Godard's discovery.
Having reviewed the evidence as to what happened after the discovery, I am equally not satisfied that there is any significant evidence which supports the contention that she was seeking to use Mr Godard's discovery as a means of poisoning the minds of the decision makers in the defendant's management against the claimant or manipulating matters to ensure that they were removed from the contract and the tender process so that it could be awarded to others. There is no doubt that Mrs Kemp was, following the discovery, a vocal advocate for the removal of the claimant from the contract and the tender process. For the reasons which I have set out above, that was a view that she was entirely entitled to hold. I have examined in the course of my review of the facts the detail of the claimant's allegations and the limited number of documents to which they have referred in an endeavour to demonstrate Mrs Kemp's prejudice. I am, for the reasons for which I have given above, unconvinced by these allegations.
I am equally unconvinced by the contentions made against Mr Maleary in his investigation of the alleged criminal offence involved in what Mr Godard discovered. Again, I have dealt in detail with allegations which were made against Mr Maleary in my review of the facts above and provided conclusions as to why I do not consider that the claimant's complaints demonstrate any bad faith on Mr Maleary's behalf. In truth, as I have identified above, there are some matters which occurred during the course of his investigation and the preparation of his evidence for this case which can be legitimately criticised. For instance, the error in attribution of the forecourt incident to the claimant when it was in fact the responsibility of Albert Road in the note of the meeting of 1st August 2008 and, in my view more importantly, the subsequent reliance upon that episode by Mr Maleary in his witness statement. Whilst those matters were properly the subject of censure by Mr Platford in the course of the evidence they are not errors which, in my view, betray a sinister effort on behalf of Mr Maleary to do the claimant down. This evidence was careless and ill-considered, particularly from someone whose stock in trade is the establishment of the truth, but I am not satisfied that it betrays a deliberate attempt to mislead the court nor that it is redolent of his earlier involvement in a conspiracy to cause serious commercial harm to the claimant.
Viewed overall, the evidence and the documents in particular show in my view a fair and proportionate investigation of the incident and a proper and generally accurate response to the enquiries raised, in particular, with Mrs Kemp by other colleagues within the defendant's organisation. In reality there is no evidence of any bad faith on the part of Mrs King unless reliance is being placed on the flaws in the procurement process. However, that evidence did not come close to establishing bad faith on her behalf, even on the findings which I have made about those procedural flaws.
I have borne in mind that the claimant also relies in this respect upon the multiplicity of allegations which were raised at an earlier stage in the litigation as demonstrating, additionally, bad faith of the part of the defendant. This is on the basis that the overwhelming majority of the allegations were misconceived and can only have been raised in order not simply to put the claimant to expense as to the proof of their falsity, but also in the making of them they showed a wholly unjustifiable prejudice against the claimant.
In my view, whilst it is undoubted that the change of tack by the defendant to seek to rely upon a blizzard of relatively unimportant and ultimately inaccurate suggestions of breach of contract was a serious tactical misstep on their part, taken both individually and also alongside all of the other available material, I am still un-persuaded that the claimant has established that there was bad faith on the part of the defendant relating either to the termination of the contract or the claimant's removal from the tender process. The inclusion of these allegations in the litigation was misconceived, but it was not malign.
To conclude on the facts which have emerged and which I have found, it is plain that there was a serious breach both of the implied term of honesty and in particular integrity, and also the express terms in relation to following the defendant's instructions for disposal and not retaining vehicles for the claimant's own use. That breach arose as a result of the claimant through, in particular, the actions of its supervisory and managerial staff in either directing or failing to prevent the ringing of the S-LR and its assimilation into the claimant's fleet when they had purported to have disposed of it and crushed it.
Following the discovery of what had occurred, the failure to adequately investigate or indeed explain what had happened reinforced rather than alleviated the legitimate concern of the defendant that what had happened betrayed their trust and confidence in the claimant and demonstrated a course of conduct which was wholly lacking in integrity even if not definitively dishonest. I am entirely satisfied that the reasonable person in the defendant's position, and in possession of the facts which the defendant had, would have done precisely what the defendant did and treat that which was discovered as a repudiatory breach and also grave misconduct so as to lead to the termination of the contract and the removal of the claimant from the tender process.
The claimant has wholly failed to make out any of its allegations that this state of affairs came about as a result of bad faith, either on the part of Mr Gibson or on the part of employees of the defendant.
It follows from these conclusions that the claimant's claims in the contract action and the tender process action both fail and that (albeit quantum is not fully agreed) the defendant's counterclaim must succeed. I have nevertheless and in deference to the extensive evidence heard and the arguments deployed, gone on to consider what the position would have been if the claimant had not been disqualified from the tender process.
It will be recalled that the claimant criticised the failure to disqualify others from the tender competition. I have already set out my conclusions in relation to the questions arising at the PQQ stage above. The balance of my conclusions are set out below. The second complaint related to the allegation that the tender evaluation process was flawed and unsatisfactory. Again, some preliminary points have been already set out in relation, for instance, to the evaluation tool devised by Mr Lavabre. My findings and overall conclusions on this point are set out below. Finally the claimant contends that they would have won the tender competition if it had been conducted properly. I turn below to consider my evaluation of their prospects of success had they remained in the competition.
I propose to deal first with my conclusions in relation to the criticisms raised by the claimant of the details provided in the tender documentation from Boyton Cross and BJG.
Firstly, in my view there was nothing wrong or impermissible in the defendant, through Mr Lavabre, seeking further information about the tender documentation from the tenderers after the ITT documentation had been received. Indeed, it is to be anticipated that some clarification or further detailed information may regularly be required after tender documentation has been received in order to undertake a comprehensive comparative evaluation of the material received from the various parties. Obviously care needs to be taken to ensure that in providing this further information the discipline of having a deadline for the ITT documentation as a complete tender for the contract is not bypassed by the provision of new and significantly different material.
This leads me to the second issue namely the extent to which through the provision of this material that line was crossed and what was in effect a new tender materialised. Having reflected upon the points raised by the claimant, I am not satisfied that this occurred. It is right to observe, as I have set out above, that the material provided by Boyton Cross in relation to staff training was in significant respects different from that which had been provided with the ITT documents. It included different staff and different training achievements. However, it was not in effect a new tender so far as those staff and their qualifications were concerned, and whilst the initial tender documentation can be properly characterised as inaccurate, the correction of that information (in substance to the disadvantage of the tenderer, although that is by no means decisive) leads me to the conclusion that the defendant was correct in not disqualifying the tender at that stage as a result of the provision of that new information. It did not change the content of the tender information to the point where, in effect, it was a new tender. I am satisfied that the material provided was simply more accurate details in relation to the relevant staff and their training.
Again having examined the premises Action Plan which was furnished by BJG that, in truth, offered very little more information to that which had already been provided either as part of the tender documentation or through the provision of the information on 24th July 2008 indicating that the building was available with planning permission and that the landlord was willing to let it to BJG. Even if the kind of detailed project plan clearly contemplated by Mr Lavabre had been provided by BJG setting out details with the milestones relating to the acquisition and fitting out of the building I would not have been persuaded that that should have led to them being disqualified from the process. In effect the provision of such information would simply have been further detail in respect of the proposal which was already fully before the defendant for the servicing of the contract from newly acquired and appointed premises.
I turn now to consider the complaint raised in relation to the reliance by the defendant upon information in respect of the future provision of requirements of the specification which could not, at the time of submission of the tender, be demonstrated by the tenderer. As a matter of principle in my view there is no difficulty in accepting a tender based upon specification requirements which the tenderer does not currently enjoy but which they have a plan or proposal to acquire.
Dealing with the particular requirements of this tender exercise as specified in the documentation which was provided both at the stage of the advertisement and in the PQQ and ITT I am not satisfied that it precluded reliance on premises, trained staff and equipment which were not under the control or in the employment or possession of the tenderer at the time of the tender but which would be in time to deliver the services required by the contract. There is a distinction to be made in relation to the requirement for PAS43 accreditation which was, as set out above, specified as the need for "current" accreditation. The requirements in relation to premises, trained staff and equipment were not expressly required to be current or presently available to the tenderer. Indeed some of the requirements were expressed in the future tense. For instance, in addition to the overall anticipation that the contract "will commence in January 2009", tenderers were asked to confirm in relation to training that their personnel "shall be trained" in the relevant services. No doubt in the light of the criticisms set out above related to the 2006 tender process the documentation could have been more crisply and precisely expressed in relation to this aspect of the tender information. I do not, however, consider that the claimant has made out a case that on the basis of the tender documentation it was illegitimate for the defendant to rely upon future planned provision of operational premises, trained staff and necessary equipment.
There is in my view in any event a reason grounded in the purposes of the exercise which reinforces this, even if in and of itself it would not be decisive. Returning to the observation made above about the need to promote competition and not foreclose the opportunity for an existing successful contractor to open a new outlet in a new operational area if such an operator were precluded from doing so on the basis that they did not currently have the necessary premises that would impede rather than promote the interests of competition which are an important purpose of the tendering process.
Whilst therefore I have no difficulty for the reasons set out above in accepting that a bid based upon such future provision should not be disqualified, nevertheless the necessarily contingent nature of such a tender with the accompanying uncertainty of provision needed in my view to be reflected in the evaluation process in order to be fair to those tenderers who were already equipped with the requirements of the specification and could therefore demonstrate with certainty that the specification would be met. The evaluation tool deployed by the defendant failed either to reflect the contingent nature of bids based upon future provision and thereby give consideration to the possibility that matters might not be secured or provide adequate guidance as to how that contingency was to be reflected in the evaluation where there were, for instance, no premises to be in fact evaluated.
How those issues were to be actually reflected in an evaluation process is not a matter about which I need to decide, but I am satisfied that in order to treat all of the tenderers fairly it would have been appropriate to make some adjustment to the evaluation of tenders which were dependant upon the future acquisition of resources to fulfil the requirements of the specification. Whilst therefore I am not satisfied that reliance on future provision was a basis for disqualifying either Boyton Cross or BJG, it was a matter which should have been reflected in the evaluation of their tenders. In this respect in my view the claimant has legitimate grounds for complaint.
Turning to the question of the absence of the rolling road from BJG's premises, I am unconvinced by the response provided in particular by Mr Lavabre on this issue that because it was an expensive piece of equipment, a pragmatic decision was taken that having access to it would suffice to meet the tender requirements. The specification is in this respect, to my mind, clear and unequivocal. If therefore a bid did not meet this requirement of the specification then the consequence in terms of the evaluation process was that it should fail in accordance with the discussion which had occurred in respect of the evaluation methodology. Thus, unless BJG were proposing to provide, as part of their new premises, a rolling road (in which case as set out above that future provision would itself need to be reflected in the evaluation) then their failure to provide this required element of the specification should have led to their disqualification.
The final element of the analysis is to examine what the consequence of these conclusions are in relation to the claimant's prospects in the tender process if they had not been disqualified from it.
In the light of what I have set out above, I have little difficulty in concluding that the claimant would have won the tender for lot 2. Even if BJG had not been disqualified for failing to have a rolling road, any comparison between the two bids would have been undertaken between a tenderer who had all of the necessary elements of the specification already as against a tenderer who was going to be required to provide large elements of the necessary specification. In my view it was inevitable that an evaluation process would have led to the award of lot 2 to the claimant.
The position in relation to lots 1 and 3 is more balanced. I accept the submission made by Mr Platford in relation to the third bidder, Boleyn Castle, that Mr Harding's evidence (which was not in this respect the subject of any significant dispute) demonstrates that they were not likely to be a strong competitor to the claimant in the process. Boyton Cross were, however, a well-established operator with the requirements of the specification in place. For the reasons I have set out above no assistance can be afforded to me from the evaluation tool that was in fact used by the defendant. Doing the best that I can as a broad brush assessment in my view the claimant would have had at least an even chance of securing the contracts for lots 1 and 3 dependant upon factors, such as the commercial rates to be inputted into the evaluation and other matters which have not and could not have been further or more fully explored in the evidence before me. I would rate the prospects of succeeding therefore in the tender processes for lots 1 and 3 as at least 50%.
Two further loose ends remain. The first is that notwithstanding that it was not included in the key issues document agreed by the parties, at the end of the trial the defendant continued to pursue a point pleaded in relation to the provisions of the Unfair Contract Terms Act 1977. Mr Platford on behalf of the claimant resisted the reliance on this point, not simply because it appeared to have been abandoned in the list of issues document, but also that the claimant had clearly pleaded the contention that clause G1.4 (the exclusion clause relied upon) was not a fair and reasonable term and no adequate and pleaded response had been provided to that and that if such a response had been provided, evidence would be likely to have been called on the issue as to whether or not it was a fair and reasonable term.
In my view Mr Platford's points in this respect are entirely justified. Although there may be cases where it is not necessary for a person relying on an exclusion clause to plead the particulars as to why it was a fair and reasonable term to include in the contract, the circumstances of this case in my view warranted a properly particularised response to the claimant's contentions. In the light of the main findings which I have reached, this point has become academic but if I had reached the opposite conclusion I would, as a matter of case management, have precluded the defendant from relying on clause G1.4 in the light not simply of the fact that there was no pleaded response but, more pertinently, that the absence of any pleaded response had prejudiced the claimant in that evidence had not been provided or called in relation to that particular issue.
The final loose end relates to the period for which damages might have been awarded to the claimant had I been satisfied that they should succeed in the contract claim. In my view the answer to this question is relatively straightforward. Whilst the contract provided for a three month notice period, the factual position was, as set out by Mr Platford, that although the defendant repudiated the contract, the claimant did not accept that repudiation and thus the contract did not come to an end at that point. In fact, as set out above, the defendant ultimately served a notice terminating the contract in December 2008 which expired in March 2009 and therefore applying the principle in Golden Strait Corp v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] 2 AC 353 in the events as they turned out the contract was not brought to an end until March 2009 and thus the claimant, if it had been successful in the contract action, would have been entitled to damages up to March 2009.
In the final result the Claimant's claims in both actions must be dismissed. The defendant's counterclaim in the contract action succeeds. I invite the parties to submit their proposals for an order giving effect to these principal conclusions and their submissions in relation to any ancillary matters.
Appendix 1 – Scott Schedule
Bold text signifies allegation admitted
No Date Complainant Incident / complaint
Further details re incident / complaint
Result
Paragraph in re-amended defence
Document / evidence relied upon
Claimant's comments
Defendant's reply
APPENDIX 3
1 19/01/2006 Steve Ditchburn
Overcharged
Complainant was overcharged significantly by the Claimant
Angela Kemp had a meeting with Dennis Harding and Mick Jennings to discuss charging complaints on 29 March 2007
23(3)(b)
Paragraphs 23 - 25 of Angela Kemp's witness statement dated 3 February 2010
Before start of contract
2 14/03/2006 Lucy Rachel Overcharged The Defendant received a letter of complaint for overcharges. Angela Kemp wrote to the complainant. 23(3)(b) Paragraphs 23 - 25 of Angela Kemp's witness statement dated 3 February 2010 Before start of contract
3 13/04/2006 Jason Dearsley Late The Claimant gave an initial ETA of 30 minutes. 30 minutes later they then called to say that the vehicle was not in their area. They then changed their mind again and eventually arrived at the scene 1 hour late. Claimant made aware of this incident. 23(3)(f)(i) Tab 7 of Appendix 3 of the Defendant's list of documents. 10 minutes late because no hard shoulder clearance
4 12/04/2006 Rennie Chivers Facilities Claimant incorrectly stored a stolen lorry outside in their yard for 4 days when it should have been stored inside, under cover. Letter written to Claimant to address this problem. 23(3)(f)(vi) Tabs 8 and 9 of Appendix 3 of the Defendant's list of documents. Kent Police recovery
5 16/04/2006 Unknown Vehicle & Other One of the tyres on the Claimant's truck was bare. The tyre was sent back to the manufacturer. 23(3)(d) and 23(3)(f)(ii) None. Latent defect in tyre
6 18/04/2006 Matthew Belcher Late & Vehicle Complaint of long delay and Claimant arriving with the wrong vehicle for the recovery. Unknown 23(3)(f)(i) and 23(3)(d) Paragraphs 33 - 36 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely to be EP's failings
7 19/04/2006 Mick Green Late, Vehicle and Unprofessional/Inexperienced Complaint of several long delays, with Claimant not complying with the 30 minute ETA, arriving with wrong vehicle and taking an hour to lift the vehicle. Unknown 23(3)(f)(i) & (v) and 23(3)(d) Tab 12 of Appendix 3 of the Defendant's list of documents. EP's mistake
8 09/04/2006 Clive Swift Late & Vehicle Delay occurred because Claimant arrived at the scene with the wrong vehicle. Angela Kemp liaised with the Claimant. 23(3)(f)(i) and 23(3)(d) Tab 14 of Appendix 3 of the Defendant's list of documents. Insufficient detail for answer, but likely to be EP's failings
9 08/05/2006 Sabrina Goodchild Late & Vehicle Claimant attended the recovery with the wrong vehicle which caused a huge delay Unknown 23(3)(f)(i) and 23(3)(d) Paragraphs 33 - 36 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely to be EP's failings
10 09/05/2006 S.Chambers Overcharged Complaint of charges for a stolen vehicle Issue resolved 23(3)(b) Paragraphs 23 - 27 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail to know whose fault, but resolved.
11 13/05/2006 Mark Jones Facilities Claimant stores too many vehicles in its facility, doesn't allow room for forensic examinations, poor lighting, does not answer its phone. Letter written to the Claimant. 23(3)(f)(vii) & (xiii) Paragraph 37 of Angela Kemp's witness statement dated 3 February 2010. Facilities were as inspected and agreed but EP overloaded them by delaying inspections unduly.
12 13/05/2006 PC Winfield Late Claimant did not meet its 30 minute ETA Unknown 23(3)(f)(i) Tab 19 of Appendix 3 of the Defendant's list of documents. Not an Essex Police matter
13 22/05/2006 Mick Jennings Security Vehicle stolen by its owner from Claimant's compound Letter sent to the Claimant and CCTV system updated. 23(3)(f)(viii) Tab 21 of Appendix 3 of the Defendant's list of documents. No breach of contract - security as inspected and agreed was breached.
14 25/05/2006 Roger Brown Security Vehicle left in lorry park with door open and keys in ignition. Unknown 23(3)(f)(ix) None. An Albert Road matter, not D&G Cars
15 08/06/2006 Mark Jones Late & Vehicle Claimant arriving at scene with unsuitable vehicle - implied by Claimant's staff that this vehicle was sent out simply to meet the Defendant's ETA times. Correct vehicle later sent. Angela Kemp sent an email sent to the Claimant. 23(3)(f)(i) and 23(3)(d) Tab 25 of Appendix 3 of the Defendant's list of documents. EP's mistake
16 21/06/2006 Angela Kemp Late Claimant did not meet its 30 minute ETA Letter sent to the Claimant. 23(3)(f)(i) Paragraph 33 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely to be EP's failings
17 17/07/2006 Dave Richards Vehicle Vehicle not properly maintained or safe. Angela Kemp sent an email sent to the Claimant. 23(3)(d) Tab 27 of Appendix 3 of the Defendant's list of documents. Latent defect in tyre
18 21/07/2006 Angela Kemp Late & Vehicle Claimant's staff asking wrong questions of type of recovery vehicle needed which is causing delays Inspector Keith Whiting visited the Claimant and discussed the issue with Mick Jennings 23(3)(f)(i) & (xiii) and 23(3)(d) Paragraphs 33 - 36 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely to be EP's failings
19 22/07/2006 Gary Winfield Other Claimant's staff using mobile phones whilst driving on two separate occasions Angela Kemp wrote to Mick Jennings 23(3)(f)(iii) Tab 27 of Appendix 3 of the Defendant's list of documents. Vehicles were properly equipped and drivers fully instructed
20 25/07/2006 Paul Howard Overcharged Complaint of charging for a crime recovery Letter sent to Claimant 23(3)(b) Paragraphs 23 - 27 of Angela Kemp's witness statement dated 3 February 2010 Not an Essex Police matter
21 26/08/2009 Angela Kemp Other Complaint of D&G disposing of vehicles without authorisation from police Angela Kemp emailed the Claimant to make them aware of the problem 23(3)(f)(x) Tab 34 of Appendix 3 of the Defendant's list of documents. Not a complaint but EP internal procedures and advice
22 13/09/2006 Angela Kemp Paperwork Complaint of inefficient paperwork Unknown. 23(3)(a) Tab 35 of Appendix 3 of the Defendant's list of documents EP's mistake
23 25/09/2006 Angela Kemp SOCO Initially refused to go to Forest Gate to pick up a vehicle that was used in a crime in Brentwood until costs were agreed Angela Kemp refused to pay Claimant's invoice as crime recovery is not chargeable under the contract 23(3)(f)(xii) Tab 36 of Appendix 3 of the Defendant's list of documents. Out of D&G's area so no ground for complaint
24 29/09/2006 PC Holmes Overcharged Client was not charged the correct statutory fees Angela Kemp wrote to Claimant. Payment refunded 23(3)(b) Tab 37 of Appendix 3 of the Defendant's list of documents. D&G's mistake
25 19/10/2006 Laura Wood Overcharged Complaint of significant overcharge Angela Kemp wrote to Claimant. 23(3)(b) Tab 41 of Appendix 3 of the Defendant's list of documents. Met Police recovery
26 20/10/2006 Laura Wood Overcharged Incorrectly charged an extra days storage Charges were altered. 23(3)(b) Tab 42 of Appendix 3 of the Defendant's list of documents. Correct charge made
27 02/11/2006 Angela Kemp Overcharged Complaint of a victim of crime being charged Angela Kemp wrote to Claimant. Charge refunded 23(3)(b) Tab 43 of Appendix 3 of the Defendant's list of documents. Correct charge made
28 08/11/2006 David Rees Late Late arrival by D&G Unknown 23(3)(f)(i) Tab 44 of Appendix 3 to the Defendant's list of documents EP's failings after timely recovery, not D&G's
29 21/11/2006 David Rees SOCO Fax notifications not arriving at SOCO from D&G Angela Kemp wrote to Claimant 23(3)(a) Tab 47 to Appendix 3 of the Defendant's list of documents. EP's failings after timely recovery, not D&G's
30 27/11/2006 Gary Winfield Overcharged & Unprofessional Unprofessional attitude to charging disabled woman for a late night recovery Unknown 23(3)(b) and 23(3)(f)(xiv) Tab 48 of Appendix 3 to the Defendant's list of documents No breach or failing by D&G
31 28/11/2006 Inspector Jelley Security Theft of stereo from vehicle recovered by Claimant Crime recorded. Papers sent to PSD 23(3)(f)(ix) Tab 49 of Appendix 3 to the Defendant's list of documents No theft, no failing by D&G
32 11/12/2006 Dave Griffiths Vehicle Claimant attended recovery with the wrong vehicle Unknown 23(3)(d) Tab 51 of Appendix 3 to the Defendant's list of documents EP's mistake
33 19/11/2006 Judith Stevens Facilities & Damage Claimant garage overflowing and vehicle damaged when being moved for examination Judith Stevens wrote to Paul Spooner 23(3)(c) & 23(3)(f)(vii) Tab 52 of Appendix 3 to the Defendant's list of documents EP's failure to examine and release cars timeously
34 19/01/2007 Steve Allum Overcharged Received complaint from a member of the public of a £300 charge that should not have been made Unknown 23(3)(b) Paragraphs 23 - 27 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer
35 25/01/2007 Lynne Harvey Late Claimant took 1 hour 10 minutes to respond to a car on a live lane Email sent to Claimant 23(3)(f)(i) Tab 54 to Appendix 3 of the Defendant's list of documents Delay because EP refused hard shoulder clearance
36 08/02/200 Gary Myers Damage Claimant damaged a vehicle in its possession. Issues with retention and continuity of evidence once a vehicle examination has been completed Angela Kemp wrote to the Claimant 23(3)(c) Tab 55 of Appendix 3 to the Defendant's list of documents Damage after car released by EP for unprotected storage
37 14/02/2007 Judith Stevens Facilities Unacceptable conditions for police to examine vehicles at Claimant's garage Angela Kemp wrote to Claimant 23(3)(f)(vii) Tab 56 of Appendix 3 to the Defendant's list of documents A space heater failed unexpectedly
38 24/02/2007 Suzanne Hacon Facilities Recurring problem with heating at Claimant's garage Angela Kemp held a meeting with the Claimants 23(3)(f)(vii) Tab 56 of Appendix 3 to the Defendant's list of documents and paragraph 37 of Angela Kemp's witness statement dated 3 February 2010 The only problems were caused by EP – see 33
39 04/03/2007 Owner Overcharged Storage charges 25 days in excess Unknown 23(3)(b) Paragraphs 23 - 25 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer
40 07/03/2007 Mr Helal Matiz Overcharged Charged for recovery when it was a police request Unknown 23(3)(b) Paragraphs 23 - 25 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer
41 08/03/2007 Lynne Harvey Overcharged Charged in excess for storage Lyne Harvey wrote to the Claimant authorising a refund of charges 23(3)(b) Tab 60 of Appendix 3 to the Defendant's list of documents. EP's mistake
42 08/03/2007 Lynne Harvey Overcharged Charged in excess for storage Lyne Harvey wrote to the Claimant authorising a refund of charges 23(3)(b) Tab 61 of Appendix 3 to the Defendant's list of documents Proper invoice but owner elected
to allow the car to be scrapped
43 12/03/2007 Mr Moody Overcharged Complaint of charges as police requested the vehicle to be recovered and owner could have recovered the vehicle himself Owner refunded charges 23(3)(b) Tab 62 to Appendix 3 of the Defendant's list of Documents. EP's mistake
44 14/07/2007 Martin Late Claimant took over an hour to arrive at a recovery Unknown 23(3)(f)(i) Tab 63 of Appendix 3 of the Defendant's list of documents D&G were late because of multiple jobs
45 05/09/2007 Mark Hammond Late Claimant took nearly an hour to arrive at a recovery Unknown 23(3)(f)(i) Paragraph 33 of Angela Kemp's witness statement dated 3 February 2010 Unjustified complaint
46 14/07/2007 Owner Late Claimant took one hour ten minutes to arrive at a recovery Unknown 23(3)(f)(i) Paragraph 33 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely
to be EP's failings
47 Unknown Unknown Rude & Overcharged Told incorrect date of vehicle release and incorrect charges applied Unknown 23(3)(b) and 23(3)(f)(xiv) Paragraphs 23 - 25 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely
to be EP's failings
48 Unknown VRU Overcharged Invoice checking - 12 owners/insurers overcharged Claimant written to and attended meeting 23(3)(b) Paragraphs 23 - 25 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely
to be EP's failings
APPENDIX 4
49 18/04/2007 Angela Kemp Overcharged Overcharged for police vehicle Dealt with internally 23(3)(b) Paragraphs 23 - 25 of Angela Kemp's witness statement dated 3 February 2010 No overcharge – charge agreed by EP
50 18/04/2007 RO Overcharged Overcharged in respect of storage - in excess of statutory charges Angela Kemp emailed the Claimant 23(3)(b) Paragraphs 23 - 25 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely
to be EP's failings
51 20/04/2007 Angela Kemp Overcharged Overcharged for police vehicle Dealt with internally 23(3)(b) Paragraphs 23 - 25 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely
to be EP's failings
52 23/04/2007 Suzanne Hacon Overcharged & SOCO Car incorrectly recovered from MET Police jurisdiction Suzanne Hacon wrote to the Claimant 23(3)(b) Tab 11 of Appendix 4 to the Defendant's list of documents Proper charge – SOCO mistake
53 01/05/2007 Chris Tsngariees Late Claimant gave ETA of 30 mins but took 1 hour 25 to respond Lynne Haevey wrote to Claimant 23(3)(f)(i) Tab 15 of Appendix 4 to the Defendant's list of documents. Proper charge for private arrangement
54 14/05/2007 Dennis Saunders Late & Vehicle Claimant was late and brought wrong equipment. Another contractor had to be called to recovery. Angela Kemp wrote to the Claimant 23(3)(f)(i) & 23(3)(f)(d) Tab 17 of Appendix 4 to the Defendant's list of documents. Delay because D&G vehicle gearbox failed
55 03/06/2007 Dennis Saunders Other Claimant released a vehicle to its owner with no number plates. Angela Kemp wrote to the Claimant 23(3)(f)(xi) Tab 19 of Appendix 4 to the Defendant's list of documents. D&G have no right to deny release if no plates
56 06/06/2007 CD Hammond Unprofessional & Overcharged Claimant was rude and arrogant when questioned over charges agreed with the Defendant Angela Kemp spoke to the Claimant about the incident 23(3)(b) & 23(3)(f)(xiv) Paragraph 32 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely
to be EP's failings
57 09/06/2007 Chris Rowland Security Theft from vehicle in Claimant's yard Theft investigated. Claimant's fence to be upgraded 23(3)(f)(ix) Tab 21 of Appendix 4 of the Defendant's list of documents No breach of contract – complaint not justified
58 10/06/2007 PC1662 Damage & Unprofessional Claimant's employee dragged a vehicle down an embankment, the vehicle collided with the recovery truck and leaked coolant onto the road, vehicle then slid off the back of the recovery truck on to the road Angela Kemp requested a report of the incident from Claimant 23(3)(c) and 23(3)(f)(iv) & (xc) Tab 22 of Appendix 4 to the Defendant's list of documents Not a failure to maintain reasonable standards
59 12/06/2007 Michelle Taylor/Paul Spooner Security Property stolen from a car whilst at Claimant's garage Claimant agreed to reimburse the owner and to install better security 23(3)(f)(ix) Paragraph 32 of Angela Kemp's witness statement dated 3 February 2010 Either as 57 or insufficient detail for answer,
but likely to be EP's failings
60 12/06/2007 Tony Stevens Vehicle Claimant arrived with the wrong vehicle on two occasions Dealt with internally 23(3)(d) Paragraphs 34 - 36 of Angela Kemp's witness statement dated 3 February 2011 Complaint not justified – delay because EP
refused hared shoulder clearance
61 13/06/2007 Angela Kemp Overcharged Overcharged for crime recovery Angela Kemp wrote to the Claimant 23(3)(b) Paragraphs 23 - 27 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely to
be EP's failings
62 28/06/2008 Abdul Helal Overcharged Overcharged for storage Claimant overcharged for storage and refunded 23(3)(b) Tab 31 of Appendix 4 of the Defendant's list of documents
D&G's mistake
63 02/07/2007 Gareth Smith Overcharged Overcharge of 18 days storage Unknown 23(3)(b) Tab 32 of Appendix 4 to the Defendant's list of documents
D&G's mistake
64 05/07/2007 Johnathon Harman Late & Unprofessional Claimant took over an hour to get to the scene and bad communication Unknown 23(3)(f)(i), (xiii) & (xiv) Tab 33 of Appendix 4 to the Defendant's list of documents. Complaint unjustified – EP's mistakes
65 09/07/2007 Johnathon Harman Late Claimant was late and when re-contacted stated they could not come straight away Unknown 23(3)(f)(i) Tab 34 of Appendix 4 to the Defendant's list of documents D&G might have been 4 minutes late on one
recovery but average response for 9 recoveries
was 24.4 minutes
66 14/07/2007 Stuart Gason Late Claimant 5 minutes late and when arrived it became clear that they had no cover for the Maldon area and were running recoveries out of Upminster Unknown 23(3)(f)(i) Tab 36 of Appendix 4 to the Defendant's list of documents Complaint unjustified – EP's mistakes
67 25/07/2007 Unknown Vehicle Claimant attended recovery with wrong vehicle Unknown 23(3)(d) Paragraphs 34 - 36 of Angela Kemp's witness statement dated 3 February 2011 Insufficient detail for answer, but likely to
be EP's failings
68 27/08/2007 Consulate General of the Republic of Poland Overcharged Overcharged by £564 Angela Kemp instructed the Claimant to refund the charges 23(3)(b) Tab 41 of Appendix 4 of the Defendant's list of documents
D&G's mistake
69 14/09/2007 Richard Raker Late Recovery was delayed Daniel Short wrote to the Claimant 23(3)(f)(i) Tab 42 of Appendix 4 to the Defendant's list of documents Not a D&G recovery
70 25/09/2007 Stuart Gason Late Claimant was 1 hour 7 minutes late to a recovery Explanation sought from Claimant. 23(3)(f)(i) Paragraph 33 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely to
be EP's failings
71 01/10/2007 Mick Jennings Vehicle Another contractor was called for a recovery in the Claimant's area as the Claimant had arrived with the wrong vehicle Unknown 23(3)(d) Paragraphs 34 - 36 of Angela Kemp's witness statement dated 3 February 2011 Insufficient detail for answer, but likely to
be EP's failings
72 02/10/2007 Fay Robson Late Complaint against an employee of Claimant Unknown 23(3)(f)(i) Tab 47 to Appendix 4 of the Defendant's list of documents. Complaint about D&G employee was not justified.
73 19/11/2007 Suzanne Hacon & Paul Spooner Facilities Claimant's garage full of gas because heater did not ignite over night. Impossible to work in. Heating fixed on 18/01/2008 23(3)(f)(vii) Tab 48 of Appendix 4 to the Defendant's list of documents
No breach - a space heater failed.
74 24/11/2007 Gary Winfield Overcharged Claimant gave owner wrong information about charges. Angela Kemp passed on to Paul Hemmingway to audit during site visit 23(3)(b) Paragraphs 23 - 25 of Angela Kemp's witness statement dated 3 February 2010
Insufficient detail for answer, but likely to
be EP's failings
75 26/11/2007 Mick Late Claimant was 30 minutes late Lynne wrote to Claimant 23(3)(f)(i) Paragraph 33 of Angela Kemp's witness statement dated 3 February 2010 Complaint unjustified – EP's mistakes
76 03/12/2007 Dennis Saunders Late Claimant was 25 minutes late Angela Kemp wrote to the Claimant 23(3)(f)(i) Tab 54 of Appendix 4 to the Defendant's list of documents Delay because of road closure.
77 11/12/2007 Roy Levett Overcharged Invoice sent to family of deceased for payment of £253.80 for recovery and storage which was a TIU recovery on behalf of Essex police Defendant liaised with the Claimant and the Claimant cancelled the invoice and sent letter of apology 23(3)(b) Tab 55 of Appendix 4 to the Defendant's list of documents No breach of contract
78 21/12/2007 John Hallworth Late Claimant was 25 minutes late Angela Kemp wrote to the Claimant 23(3)(f)(i) Paragraph 33 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely to
be EP's failings
79 21/12/2007 Richard March Vehicle On two occasions the Claimant turned up with the wrong vehicle Angela Kemp wrote to the Claimant 23(3)(d) Paragraphs 34 - 36 of Angela Kemp's witness statement dated 3 February 2011 Insufficient detail for answer, but likely to
be EP's failings
80 11/01/2008 Angela Kemp & Dennis Saunders Late & Vehicle Claimant was late and brought wrong equipment. Another contractor had to be called to recovery. Angela Kemp wrote to the Claimant 23(3)(d) and 23(3)(f)(i) Tab 59 of Appendix 4 to the Defendant's list of documents Complaint unjustified
81 28/01/2008 Dawn Senior Late, Vehicle, Damage & Unprofessional/Inexperienced Claimant's driver brought the wrong truck to the recovery, damaged the vehicle, spilt oil on the road and gave up after 1 hour because he could not recover the vehicle due to his inexperience Unknown 23(3)(c), 23(3)(d) and 23(3)(f)(i), (iv) & (v) Tab 63 of Appendix 4 to the Defendant's list of documents Complaint unjustified
82 29/01/2008 Gary Winfield Late & Vehicle Claimant was 40 minutes late and arrived with wrong vehicle. Another contractor had to be called to the recovery. Unknown 23(3)(d) and 23(3)(f)(i) Tab 64 of Appendix 4 to the Defendant's list of documents Complaint unjustified
83 29/01/2008 Steve Burton Late Claimant was 38 minutes late Unknown 23(3)(f)(i) Tab 65 of Appendix 4 to the Defendant's list of documents Complaint unjustified – a private
arrangement, not with EP
65 09/07/2007 Johnathon Harman Late Claimant was late and when re-contacted stated they could not come straight away Unknown 23(3)(f)(i) Tab 34 of Appendix 4 to the Defendant's list of documents D&G might have been 4 minutes late on one
recovery but average response for 9 recoveries
was 24.4 minutes
66 14/07/2007 Stuart Gason Late Claimant 5 minutes late and when arrived it became clear that they had no cover for the Maldon area and were running recoveries out of Upminster Unknown 23(3)(f)(i) Tab 36 of Appendix 4 to the Defendant's list of documents Complaint unjustified – EP's mistakes
67 25/07/2007 Unknown Vehicle Claimant attended recovery with wrong vehicle Unknown 23(3)(d) Paragraphs 34 - 36 of Angela Kemp's witness statement dated 3 February 2011 Insufficient detail for answer, but likely to
be EP's failings
68 27/08/2007 Consulate General of the Republic of Poland Overcharged Overcharged by £564 Angela Kemp instructed the Claimant to refund the charges 23(3)(b) Tab 41 of Appendix 4 of the Defendant's list of documents
D&G's mistake
69 14/09/2007 Richard Raker Late Recovery was delayed Daniel Short wrote to the Claimant 23(3)(f)(i) Tab 42 of Appendix 4 to the Defendant's list of documents Not a D&G recovery
70 25/09/2007 Stuart Gason Late Claimant was 1 hour 7 minutes late to a recovery Explanation sought from Claimant. 23(3)(f)(i) Paragraph 33 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely to
be EP's failings
71 01/10/2007 Mick Jennings Vehicle Another contractor was called for a recovery in the Claimant's area as the Claimant had arrived with the wrong vehicle Unknown 23(3)(d) Paragraphs 34 - 36 of Angela Kemp's witness statement dated 3 February 2011 Insufficient detail for answer, but likely to
be EP's failings
72 02/10/2007 Fay Robson Late Complaint against an employee of Claimant Unknown 23(3)(f)(i) Tab 47 to Appendix 4 of the Defendant's list of documents. Complaint about D&G employee was not justified.
73 19/11/2007 Suzanne Hacon & Paul Spooner Facilities Claimant's garage full of gas because heater did not ignite over night. Impossible to work in. Heating fixed on 18/01/2008 23(3)(f)(vii) Tab 48 of Appendix 4 to the Defendant's list of documents
No breach - a space heater failed.
74 24/11/2007 Gary Winfield Overcharged Claimant gave owner wrong information about charges. Angela Kemp passed on to Paul Hemmingway to audit during site visit 23(3)(b) Paragraphs 23 - 25 of Angela Kemp's witness statement dated 3 February 2010
Insufficient detail for answer, but likely to
be EP's failings
75 26/11/2007 Mick Late Claimant was 30 minutes late Lynne wrote to Claimant 23(3)(f)(i) Paragraph 33 of Angela Kemp's witness statement dated 3 February 2010 Complaint unjustified – EP's mistakes
76 03/12/2007 Dennis Saunders Late Claimant was 25 minutes late Angela Kemp wrote to the Claimant 23(3)(f)(i) Tab 54 of Appendix 4 to the Defendant's list of documents Delay because of road closure.
77 11/12/2007 Roy Levett Overcharged Invoice sent to family of deceased for payment of £253.80 for recovery and storage which was a TIU recovery on behalf of Essex police Defendant liaised with the Claimant and the Claimant cancelled the invoice and sent letter of apology 23(3)(b) Tab 55 of Appendix 4 to the Defendant's list of documents No breach of contract
78 21/12/2007 John Hallworth Late Claimant was 25 minutes late Angela Kemp wrote to the Claimant 23(3)(f)(i) Paragraph 33 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely to
be EP's failings
79 21/12/2007 Richard March Vehicle On two occasions the Claimant turned up with the wrong vehicle Angela Kemp wrote to the Claimant 23(3)(d) Paragraphs 34 - 36 of Angela Kemp's witness statement dated 3 February 2011 Insufficient detail for answer, but likely to
be EP's failings
80 11/01/2008 Angela Kemp & Dennis Saunders Late & Vehicle Claimant was late and brought wrong equipment. Another contractor had to be called to recovery. Angela Kemp wrote to the Claimant 23(3)(d) and 23(3)(f)(i) Tab 59 of Appendix 4 to the Defendant's list of documents Complaint unjustified
81 28/01/2008 Dawn Senior Late, Vehicle, Damage & Unprofessional/Inexperienced Claimant's driver brought the wrong truck to the recovery, damaged the vehicle, spilt oil on the road and gave up after 1 hour because he could not recover the vehicle due to his inexperience Unknown 23(3)(c), 23(3)(d) and 23(3)(f)(i), (iv) & (v) Tab 63 of Appendix 4 to the Defendant's list of documents Complaint unjustified
82 29/01/2008 Gary Winfield Late & Vehicle Claimant was 40 minutes late and arrived with wrong vehicle. Another contractor had to be called to the recovery. Unknown 23(3)(d) and 23(3)(f)(i) Tab 64 of Appendix 4 to the Defendant's list of documents Complaint unjustified
83 29/01/2008 Steve Burton Late Claimant was 38 minutes late Unknown 23(3)(f)(i) Tab 65 of Appendix 4 to the Defendant's list of documents Complaint unjustified – a private
arrangement, not with EP
84 29/01/2008 TIU/Clive Fry Damage Claimant caused damage to a TIU vehicle causing evidence to be lost Unknown 23(3)(c) Tab 66 of Appendix 4 to the Defendant's list of documents D&G caused minor damage but
without relevant consequences
85 04/03/2008 Suzanne Hacon Damage Claimant caused damage to a TIU vehicle causing evidence to be lost Unknown 23(3)(c) Paragraph 38 of Angela Kemp's witness statement dated 3 February 2010 Minor damage resulting from EP
overloading D&G and EP's mistake
APPENDIX 5
86 17/05/2008 PS 402 Ammon Late & Vehicle Claimant was 90 minutes late and truck had a defective f/o/s headlamp and no side light Apologies sent to Angela Kemp 23(3)(d) and 23(3)(f)(i) Tabs 4 and 5 of Appendix 5 to the Defendant's list of documents Unavoidable delay because of heavy traffic.
A technical but excusable defect in the vehicle
87 19/05/2008 PS 402 Ammon Late Claimant was 90 minutes late Apologies sent to Angela Kemp 23(3)(f)(i) Tab 6 of Appendix 5 to the Defendant's list of documents Complaint unjustified
88 27/05/2008 Jenny Hillyard Damage Vehicle damaged by Claimant during recovery. Complaint forwarded to the Defendant's legal department 23(3)(c) and 23(3)(f)(iv) Tab 9 of Appendix 5 to the Defendant's list of documents Complaint unjustified
89 03/06/2008 Martine Auger Damage Vehicle damaged by Claimant during the recovery. Unknown 23(3)(c) and 23(3)(f)(iv) Paragraph 38 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely to
be EP's failings
90 20/05/2008 Keith Whitting Late Claimant was 20 minutes late Angela Kemp wrote to the Claimant 23(3)(f)(i) Paragraph 33 of Angela Kemp's witness statement dated 3 February 2010 Insufficient detail for answer, but likely to
be EP's failings
91 25/05/2008 Patrick McCann Late & Inexperienced Claimant caused delays as original recovery driver was unable to operate the recovery vehicle equipment as he had not been properly trained. Another contractor had to be called to the scene. Angela Kemp wrote to the Claimant 23(3)(f)(i) & (v) Tab 10 of Appendix 5 to the Defendant's list of documents Complaint unjustified and mistakes by EP
92 19/08/2008 Suzanne Hacon Unprofessional Vehicle locked, no storm reference and form incorrectly completed Ongoing discussion between Angela Kemp and Paul Spooner 23(3)(f)(xiv) None Insufficient detail for answer, but likely to
be EP's failings
93 28/05/2008 Duncan Ward Vehicle & Late Delays caused by the Claimant arriving at the scene with only one recovery vehicle when two were required Angela Kemp/Lynne Harvey spoke to the Claimant about the incident 23(3)(d) and 23(3)(f)(i) Tab 11 of Appendix 5 to the Defendant's list of documents Complaint unjustified – EP's mistakes
94 30/05/2008 Mark Phillips Late Claimant arrived 54 minutes late Angela Kemp wrote to the Claimant 23(3)(f)(i) Tab 12 of Appendix 5 of the Defendant's list of documents Complaint not justified – not D&G's area
95 02/06/2008 Storm 0369 Late Claimant arrived late Angela Kemp wrote to the Claimant 23(3)(f)(i) Tab 13 of Appendix 5 to the Defendant's list of documents Complaint not justified – not D&G's area
96 21/07/2008 Adrian Sam Overcharged Not charged at the statutory rates and also charged excess storage Refunded charges 23(3)(b) Tab 14 of Appendix 5 to the Defendant's list of documents Complaint not justified – proper charges made.
Appendix 2 – Agreed List of Issues
D&G CARS V ESSEX POLICE
Main Factual Questions
1. What instructions did Mr Harding give in connection with the L and S LRs; when and to whom did he give those instructions?
2. If Mr Harding instructed a body swap of the S and L LR as a training exercise, did he intend to seek D's permission for that work to be done and did he reasonably believe that such permission would be given?
3. Did Mr Harding's instructions involve dishonesty and/or a want of integrity on his, and therefore C's, part?
4. What work was done to the L and S LRs between October 2007 and July 2007; when and by whom was that work done?
5. When and where on C's premises were the L LR registration plates and slam-panel VIN affixed to the S LR?
6. Was the S LR used on the public highway, and, if so, when and by whom?
7. Did C's actions in connection with the LRs involve dishonesty and/or a want of integrity, and if so on whose part and in what respects?
8. What did Mr Harding and/or Mr Jennings know about the matters set out in MFQ 4 to 6 before 28 July 2008?
9. Were any or all of:
a. the works done to the S LR;
b. the re-spraying of the S LR;
c. the placing of C's livery on the S LR; and/or
d. the affixing of the L LR registration plates and slam-panel VIN to the S LR
carried out by, or on the instruction of, Mr Gibson?
10. If the answer to MFQ 9 is "yes", did Mr Gibson intend to use information as to the changing of the identity of the S LR to discredit C?
11. If the answer to MFQ 10 is "yes", did Ms Kemp and/or Ms King and/or DS Maleary know that?
12. Were Ms Kemp and/or Ms King and/or DS Maleary improperly motivated by a wish to advantage C's competitors and/or to disadvantage C?
13. Following 28 July 2008, what steps (if any) did Mr Harding and/or Mr Jennings take to ascertain what had happened to the LRs, and with what result?
14. Did C provide D with accurate information concerning the LRs in the period between 28 July and 28 August 2008; if not, in what respects was the information which was provided inaccurate?
15. Did D treat all tenderers alike in the 2008 procurement process, in particular in relation to potential disqualification?
16. What were the chances of C succeeding in the 2008 procurement process (in the light of events which have in fact happened) if they had not been disqualified?
Main Legal Issues
1. Can C breach a contractual obligation owed to D by the actions of its employees, who are not the directing mind and will of C?
2. What relevance does the knowledge, honesty, and integrity, or otherwise, of the directing mind and will of C have in the question as to whether a breach of contract established in the above circumstances is repudiatory?
3. If the issue as to whether a breach is repudiatory depends on dishonesty and/or lack of integrity, is it necessary for actual dishonesty or lack of integrity to be established, or is it sufficient for there to be an appearance of dishonesty and/or lack of integrity, viewed from the perspective of the reasonable person in D's position?
4. Is any proven bad faith and/or improper motive of D in terminating the contract relevant to the question of whether a breach of contract is repudiatory?
5. Does "grave misconduct" within the meaning of the 2006 Regulations by an employee but unknown to the directing mind and will of C nonetheless entitle D to disqualify C from the procurement process?
It is agreed that the question of whether there was a repudiatory breach is to be judged objectively against all the circumstances viewed from the perspective of the reasonable person in D's position.
It is further agreed that in undertaking the tender process, and in particular in relation to the disqualification of C, D had "to treat bidders equally and in a non-discriminatory way and to act in a transparent way" in accordance with the principles in Lion Apparel Systems Ltd.
Main Contract Issues
1. Did C breach the implied term of the contract as to integrity?
2. Was D entitled to treat the contract as having been repudiated, in the light of the answers to the MFQs and having resolved the MLIs above?
3. If D was not entitled to treat the contract as terminated, is C entitled to damages for the losses occurring in the 3 months from 28th August 2008, as D maintains, or losses occurring in the period 28th July 2008 to 20th March 2009, as C maintains?
Main Tender Issues
1. Was D entitled to disqualify C from the procurement process for "grave misconduct" in the light of the answers to the MFQs and MLIs above?
2. In disqualifying C from the procurement process was D guilty of treating them unequally or in a discriminatory way?
3. If the answer to 1. is "no", the answer to 2. is "yes", what were the chances of C succeeding in the 2008 tender?
4. If C had a significant chance of success in the 2008 tender, what is the period of loss for which C is entitled to damages? |
Mr Justice Jeremy Baker:
This case concerns a claim for damages arising out of a fatal road traffic accident by which the claimant, who is the widow of the deceased Kenan Dursan, brings an action against the defendant on behalf of his estate and dependants.
The accident occurred at about 17.39 on the 23rd of December 2011 on one of the north bound carriageways of the A1010 known as Fore Street, Edmonton, London. As the deceased was crossing the road from west to east, an LGV, being driven by Paul Lucas in the course of his employment with the defendant, collided with him causing injuries from which the deceased was certified dead at 18.14.
At the location where the accident occurred Fore Street has two northbound lanes. The inside lane is designated for buses, cycles and taxis, whilst the outside lane is designated for normal traffic. The width of the inside lane including the white unbroken dividing line is 3.1 metres, whilst that of the outside lane is 2.8 metres. There is a bus stop situated on the inside lane, and a pedestrian controlled crossing situated about 17.75 metres north of the end of the bus stop.
At the material time there was a stationary double-decker PSV in the area of the bus stop in the inside lane, whilst the LGV was stationary in the outside lane in the vicinity of the rear of the PSV. The collision occurred when the deceased alighted from the west side pavement, walked across the rear of the PSV and had started to walk across the front of the LGV. At this point the LGV was driven forward and into collision with the deceased.
The prevailing traffic conditions were those of a congested stop/start variety, with queues of traffic in the north and south bound lanes, whilst the weather conditions were those of light but persistent rain; sufficient for some of the pedestrians to be using umbrellas and the LGV to be using its intermittent windscreen wipers. The accident occurred in the hours of darkness, although illumination was provided by vehicular, street and shop lighting.
A subsequent police investigation revealed the presence of cleaning marks to the front of the LGV situated about 1 metre from the nearside corner which PC Andrews thought may been caused by the first contact between the deceased and the LGV. Thereafter the evidence suggests that the deceased fell and was pushed along the road surface by the front offside tyres.
In the course of that investigation CCTV footage was retrieved from a camera situated to the south of the accident location, which provides a view along Fore Street in a northerly direction. This footage shows a series of timings, which have been interpreted in the following manner by the parties' respective experts:
Claimant's expert – Mr Wilson-Law
i. 17.39.04 – the PSV comes to a halt in the area of the bus stop in the inside lane;
ii. 17.39.07 – passengers alight from the PSV;
iii. 17.39.12 – the LGV, having moved forward, comes to a halt in the outside lane;
iv. 17.39.14 – a figure, assumed to be the deceased, begins to move from the edge of the nearside kerb and into the inside lane;
v. 17.39.15 – the figure momentarily obscures the nearside light cluster of the PSV;
vi. 17.39.17 – the figure momentarily obscures the offside light cluster of the PSV and then passes out of view;
vii. 17.39.19 – the LGV begins to move forward;
viii. 17.39.25 – the LGV comes to an abrupt stop.
Defendant's expert – Mr Jennings
i. 17.39.04 – the PSV stops;
ii. 17.39.06 – the LGV moves forward;
iii. 17.39.07 – PSV passengers start to alight;
iv. 17.39.12 – the LGV stops;
v. 17.39.12-14 – a figure, assumed to be the deceased, is standing on the nearside footway in the vicinity of the rear of the PSV;
vi. 17.39.15 – the figure crosses the kerb edge and then obscures the nearside light cluster of the PSV;
vii. 17.39.17 – the figure obscures the offside light cluster of the PSV and then is situated at the nearside corner of the LGV when its rear brake lights are extinguished;
viii. 17.39.18 approximately – the LGV starts forward.
In their joint report the two experts observe that, with one exception, their interpretations are very similar; the exception being the timing of the commencement of the forward movement of the LGV immediately prior to the collision. In this regard they are one second apart, such that Mr Wilson-Law has the LGV stationary for 6 seconds, whilst Mr Jennings has it stationary for 7 seconds. Neither suggests that this difference is material. Moreover, it is likely that the matter is resolved by the evidence gained from the examination of the Tachograph from the LGV, which showed that prior to the forward movement, during which the collision took place, the LGV had been stationary for a period of about 6.5 seconds. It then moved forward for about 12.43 metres, during which time it reached a peak speed of just under 7 mph.
The two experts have also provided their assessment of the time it would have taken for the deceased to have walked from the kerb to the point on the road which coincided with the position of the cleaning marks on the LGV. Mr Wilson-Law's assessment being 3.4 seconds, whilst Mr Jennings' assessment being 3.6 seconds. Once again neither suggests that this difference is material.
At the time of the accident the LGV was fitted with mirrors which complied with the current EU Directive, namely the European Union (EU) implemented EC Directive 2003/97/EC. These comprised the following:
i. A Class II mirror situated on the nearside corner of the cab, which is a plain rear view mirror affording a view along the nearside of the vehicle;
ii. A Class IV mirror situated on the nearside corner of the cab, which is a convex rear view mirror affording a wider angled view along the nearside of the vehicle;
iii. A Class V mirror situated on the nearside corner of the cab, which is a convex mirror affording a view of the blind spot area immediately adjacent to the nearside cab door;
iv. A Class VI mirror situated on the nearside corner of the cab, which is a convex mirror affording a view of the blind spot area immediately in front of the vehicle;
v. A Class II mirror situated on the offside corner of the cab, which is a plain rear view mirror, affording a view along the offside of the vehicle;
vi. A Class IV mirror situated on the offside corner of the cab, which is a convex rear view mirror affording a wider angled view along the offside of the vehicle.
In their joint report the two experts agree that research indicates that on average a driver takes about 1 second to look in a vehicle's mirror, and under ½ second for a driver to look between such mirrors. Albeit that because four of the mirrors on this LGV are clustered around the nearside edge of the cab, the time it would have taken Mr Lucas to check all six of these mirrors may well have been less. In this regard, whilst Mr Wilson-Law suggests a period of about 4 – 6 seconds, Mr Jennings suggests a period of about 3 seconds.
The outer clothing worn by the deceased at the time of the collision comprised a pair of blue jeans and a black coat. In their joint report both experts agree that this would have provided little contrast with the asphalt road surface and would have made the deceased less visible when viewed through the mirrors of the LGV. Moreover, whilst the deceased may have been silhouetted by ambient lighting when he was on the pavement, this would diminish once he was on the road due to the shadowing effect of the PSV and the LGV. Once the deceased reached the front of the LGV part of his legs would have been illuminated by the vehicle's headlights. Albeit this would only have been visible to Mr Lucas in the Class VI mirror and Mr Jennings pointed out the minimal area which would be visible due to the deceased being viewed from almost directly overhead.
Unfortunately there is no witness evidence of the collision itself. The only witness, beside Mr Lucas, was a passenger on the PSV, Dominique Crooks. Her evidence is uncontroversial having only seen the collision immediately after it had taken place. However it is notable that after having alighted from the PSV, it was her intention to use the pedestrian controlled crossing in order to cross over Fore Street.
Mr Lucas was interviewed under caution by the police on the same day as the accident. He told the police that he had been a professional driver between 1995 and 2000. He had then done accountancy work. However after having been made redundant, he had resumed professional driving in April 2011. He stated that he required contact lenses for driving and was wearing them at the time of the accident. Moreover on the previous night he had had a good night's sleep, retiring at 10.30pm and rising at 6.30am. He stated that at the time of the collision he was driving from one supermarket store to another, there was a constant queue of traffic and prior to the collision he had brought his vehicle to a halt. Thereafter pedestrians started to cross the road from all directions, despite the presence of the pedestrian controlled crossing ahead of him.
The police officer who attended the scene of the accident noted that at that time Mr Lucas appeared to suggest that he had checked all of his nearside mirrors including his Class VI one prior to moving forward. This sequence being echoed when he was first asked about it in his subsequent interview with the police. However at a later stage of that interview he was asked about the usual sequence of events prior to moving forward and he indicated that this would include a subsequent check of his offside mirrors prior to moving forward, which he indicated was what he did on this occasion. This latter sequence of events was later provided by him during the course of the deceased's inquest on 23rd August 2012. It was also the sequence which he described as taking place in his written witness statement in these proceedings dated 18th March 2014 and in his oral evidence in the trial.
In his witness statement Mr Lucas also confirmed that he had passed his normal driving test in 1987 and his LGV licence in 1995. Moreover that he has no criminal convictions and has not been involved in any previous road traffic accidents.
In his evidence at trial Mr Lucas stated that because he was an agency driver it was necessary for him to adjust the mirrors on the various vehicles he drove in order to accommodate his height. He said that he had done so in this case prior to driving the LGV and had taken the opportunity to ensure that the mirrors were clean and clear. He accepted that because of the road and weather conditions which pertained that evening, it was necessary for him to be particularly vigilant for the presence of pedestrians on the road, and that he had done so by taking particular care when making his observations both through the cab windows and exterior mirrors, before he had moved forward in the LGV.
He accepted that if a driver is about to perform a turn in a road, then the last mirrors which are checked are the ones on the side of the direction of travel as this would be the area of highest risk. However he said that when he intends to drive forward from a stationary position, he would normally check the nearside then offside mirrors before looking through the windscreen to check the traffic ahead. He said that this is what he did in this case and was something which had been part of his training. It was suggested to him in cross examination that in such a situation he ought to make a final check in the Class VI mirror as this covered the area of highest risk. However, he said that although this maybe the area of highest risk, in such a situation there were serious risks from all of the various locations covered by the mirrors. In these circumstances he considered the sequence he used to be the safest one, and there had been nothing which he had seen on Fore Street which had alerted him to the need to re-check any of his mirrors. Moreover if one does start to re-check one's mirrors, then the information from previous checks swiftly becomes outdated; the safer course being to carry out one thorough check and then, if appropriate, move forward.
It is apparent that one of the matters which the evidence available to the experts has not been able to determine with certainty, is the relative positions of the PSV and the LGV at the time when the deceased began to cross Fore Street. In so far as the PSV is concerned it is clear that post-collision investigation has shown that such vehicles halt at various positions relative to the bus stop. Moreover the matter cannot be determined by viewing the vehicles on the available CCTV footage.
Mr Wilson-Law is of the opinion that because of the evidence of the timings provided by the CCTV footage, and taking account of average walking speeds, it may be that as the deceased began to cross the road, the front of the LGV was positioned slightly ahead of the rear of the PSV. Hence the deceased would have had to dog-leg around from the rear of the PSV to the front of the LGV. If this was what occurred then it is apparent that the deceased would not have been in Mr Lucas' direct line of vision at any time. His only view being afforded through the Class V and VI mirrors. Mr Wilson-Law was of the opinion that the only other explanations for these timings, if the front of the LGV was positioned behind the rear of the PSV, were that the deceased had at some point slowed his walking speed, paused or travelled a further distance along the front of the LGV. However when this last explanation was explored with him at trial, he considered that the cleaning mark which PC Andrews observed on the front of the LGV was likely to show the point of first impact with the deceased, because if that point had been further along towards the offside of the vehicle, then he would have expected to have seen further cleaning marks, and none had been detected during the course of the police investigation.
On the other hand Mr Jennings is of the opinion that Mr Wilson-Law's dog-leg scenario is incompatible with a lack of change of rate in the lateral movement of the deceased which he perceived on the CCTV footage. Hence he favoured the front of the LGV being positioned behind the rear of the PSV prior to its final forward movement, in which case the deceased's head and shoulders would have been in Mr Lucas' direct line of vision whilst he stood on the pavement. Thereafter his only view being afforded through the Class V and VI mirrors.
It is apparent from both experts' reports that whatever the relative positions of the two vehicles at the material time, once the deceased had commenced to cross the road, the only view which Mr Lucas would have had of him, would have been indirectly through either his nearside Class V or VI mirrors. In evidence at trial Mr Wilson-Law accepted, contrary to the appearance of one of the computer-generated images which he had provided, that if the dog-leg scenario pertained, then the deceased would only have been visible in these mirrors to Mr Lucas for half the time which he would otherwise be visible if the front of the LGV had been positioned behind the rear of the PSV.
In their joint report the matter was left in this way by the experts. If it is accepted that Mr Lucas did not see the deceased prior to the collision, but did complete the sequence of looking into the vehicle's nearside then offside mirrors prior to moving forward in the LGV, then it may be that his observations had ceased at a time prior to the deceased having entered into the field of vision afforded by the Class V and VI mirrors. In which case it will be necessary to determine, inter alia, the sufficiency of this sequence. In this regard both experts agree that although the Driving Standards Agency guide to "Driving Goods Vehicles" states,
"You should ensure that you're constantly aware of what's happening around you…..you should check for pedestrians, cyclists or motorcyclists who may be directly in front of the vehicle but out of your normal field of vision, especially at pedestrian crossings…in slow moving traffic",
there is no single recommended order in which mirrors should be checked or the time required to undertake those checks.
In so far as the Highway Code is concerned the relevant provisions include,
"Rules for Pedestrians
Rule 3
Help other road users to see you. Wear or carry something light-coloured, bright or fluorescent in poor daylight conditions. When it is dark, use reflective materials (e.g. armbands, sashes, waistcoats, jackets, footwear), which can be seen by drivers using headlights up to three times as far away as non-reflective materials.
Rule 7
A. First find a safe place to cross and where there is space to reach the pavement on the other side. Where there is a crossing nearby, use it. It is safer to cross using a subway, a footbridge, an island, a zebra, pelican, toucan or puffin crossing.
Rule 14
Parked vehicles. If you have to cross between parked vehicles, use the outside edges of the vehicles as if they were the kerb. Stop there and make sure you can see all around and that the traffic can see you. Never cross the road in front of, or behind any vehicle with its engine running, especially a large vehicle, as the driver may not be able to see you.
Rule 17
At night. Wear something reflective to make it easier for others to see you (Rule 3). If there is no pedestrian crossing nearby, cross the road near a street light so that traffic can see you more easily.
General Rules for drivers
Rule 152
Driving in built-up areas – Residential streets. You should drive slowly and carefully on streets where there are likely to be pedestrians, cyclists and parked cars. In some areas a 20 mph maximum speed limit may be in force. Look out for
Vehicles emerging from junctions or driveways
Vehicles moving off
Car doors opening
Pedestrians
Children running out from between parked cars
Cyclists and motorcyclists
Rule 159
Before moving off you should
Use all mirrors to check the road is clear
Look all round to check the blind spots (the areas you are unable to see in the mirrors)
Signal if necessary before moving out
Look round for a final check
Move off only when it is safe to do so."
In his evidence at trial Mr Wilson-Law maintained his opinion that it was for the court rather than the experts to decide whether the precautions taken by Mr Lucas on Fore Street that evening were sufficient. In particular the adequacy of the procedure which Mr Lucas used to visually check for potential hazards in the area around his vehicle. He accepted that despite the provision of mirrors on the nearside of the LGV, there were potentially relevant blind areas as shown in some of his computer diagrams. Indeed one of these may have included the position of the deceased whilst he was standing on the kerb edge prior to alighting onto the road surface. He also accepted that even if Mr Lucas had seen the deceased standing in that position, the circumstances were such that he may have assumed that the deceased was not going to alight onto the road, but would take a different route along the pavement. He confirmed that given the length of time which it was likely to have taken for the deceased to walk to the point of impact, it is possible that even if Mr Lucas had properly carried out his sequence of visual checks, the deceased would not have been in those fields of vision at the material time.
Mr Wilson-Law said that the convex nature of the Class V and VI mirrors makes it more difficult to discern objects within their field, as they are reduced in size. Moreover, because such objects are being viewed from above, he agreed that the ability to discern objects is made more difficult, as it foreshortens the image. There would also have been no assistance gained from any silhouetting effect within the field of vision of the Class VI mirror, albeit that if the deceased had been moving, this may have enhanced his visibility. However, he said that in his opinion the deceased had taken no precautions to make himself conspicuous that evening, and that given the nature and colour of the deceased's clothing, although it would not have been impossible, it would have been difficult even for an alert driver to have seen the deceased in these circumstances whilst he was in the field of vision of the Class V and VI mirrors immediately prior to the collision. Moreover the length of time which the deceased would have been within their combined field of vision would have been no more than 1 – 2 seconds.
In his evidence at trial, Mr Jennings confirmed that there was no authoritative guidance as to the sequence in which visual checks should be made by those driving LGVs. He said that this was because it all depended upon the particular circumstances being faced by the driver concerned at the relevant time. He said that the analogy, which those representing the claimant had sought to make with a driver who is contemplating making a turn in the road, was potentially misleading as such a person would be likely to maintain their view through only one mirror, because the potential sources of danger were more limited. In contrast where, as here, there were potential dangers from a variety of sources, the driver has to make an assessment as to where he perceives likely dangers to originate; such that if, having carried out his sequence of checks, the driver did not consider that there was a sufficient danger from the front of the cab, as opposed to other locations, then he would not consider it necessary for the driver to make a final visual check in the Class VI mirror. He agreed that there was no apparent urgency for the LGV to move forward that evening, over and above the normal situation which arises in a traffic queue. However he said that in his opinion, if the relative positions of the two vehicles that evening was that the front of the LGV was ahead of the rear of the PSV when the deceased embarked upon his journey, then he did not consider that it would have been necessary for Mr Lucas to have made a final check in the Class VI mirror, prior to moving forward in the LGV.
My assessment of Mr Lucas is that not only is he a conscientious and careful LGV driver, but he is also a witness of truth. The former being supported by his driving record, and the latter by his clear and measured response to cross-examination. This being so, I have no doubt that on the evening in question, there being no suggestion that he was under any pressure of time, Mr Lucas carefully carried out the sequence of visual checks which he described in his evidence at trial but which failed to disclose the deceased's presence on the road prior to driving his LGV forward along Fore Street. Indeed as the evidence unfolded, Mr Hillier on behalf of the deceased, whilst not conceding that Mr Lucas had carried out those visual checks with sufficient care, sought to concentrate his criticism on the sequence of visual checks which Mr Lucas had chosen to carry out. In this regard he submitted that Mr Lucas' negligence lay in failing to carry out a final visual check of his Class VI mirror.
In the forensic context of the courtroom this submission has some attraction. However, in my judgement it requires to be considered against the circumstances that pertained on Fore Street that evening, the results of Mr Lucas' observations and such assistance that can be gained from the expert evidence.
It is apparent from the CCTV footage that there came a time when, after the PSV had come to a halt in the inside lane, Mr Lucas drove his vehicle forward before bringing it to a halt again in the outside lane in the vicinity of the rear of the PSV. As to the relative positions of the two vehicles at that point, I consider that, for the reasons provided by Mr Wilson-Law, the front of the LGV was ahead of the rear of the PSV. In this regard the timings on the CCTV footage support this view and, having viewed the footage, although it is possible that the deceased could have paused or slowed down after he had moved across the front of the LGV and therefore out of view of the camera, there is no suggestion of any loss of pace as the deceased moved between the nearside and offside rear lights of the PSV, and I do not consider that he is likely to have done so thereafter. Rather, the impression is given of a pedestrian who is moving at a regular pace across the road. Moreover, it seems to me that the footage of the remainder of the deceased's journey between the two vehicles is insufficiently clear to bear the interpretation which Mr Jennings placed on it, and I note that this was not a matter which persuaded Mr Wilson-Law to alter his opinion in relation to the existence of an overlap between the two vehicles.
As to the further alternative explanation raised by Mr Hillier with Mr Wilson-Law, namely the possibility of the deceased having reached a point further along the front of the LGV prior to the moment of impact, for the reasons provided by Mr Wilson-Law, it is not one which I consider is likely to have occurred. I too am satisfied that in the absence of other cleaning marks on the front of the LGV, the ones located by PC Andrews during the course of his examination are likely to have been caused by the initial impact with the deceased.
In these circumstances it is the opinion of both experts which I accept that at the point when Mr Lucas commenced his sequence of visual checks in order to ascertain that it was safe for him to move the LGV forward again, he would have had no opportunity of seeing the deceased through the nearside window as he stood on the pavement prior to alighting onto the road. Thereafter the deceased would only have been visible indirectly through the Class V and VI mirrors, and as Mr Wilson-Law conceded only for about half the amount of time which he would have been visible if the vehicles had been otherwise positioned, due to the obstruction caused by the rear of the PSV.
There being, as both experts acknowledge, no prescribed or recommended sequence of visual checks, it is clearly a matter for the driver of an LGV to select the most appropriate one in the particular circumstances in which he finds himself. Subject, of course, to the type of considerations described in the guidance provided in both the Highway Code and the DSA handbook. In this regard although Mr Lucas acknowledged that he had not been provided with a copy of the latter handbook, he was aware of those considerations and I accept took them into account. As I have already mentioned, I am satisfied that Mr Lucas carried out the sequence of checks which he described in evidence. Indeed much of the force of Mr Hillier's criticism would disappear had the sequence been the one which Mr Lucas initially appeared to describe to the police. In this regard I consider that this apparent difference in his account was, as Mr Lucas said, likely to have been due to shock and confusion on his part following the occurrence of the accident. Had it been otherwise, a less honest individual may well have chosen to maintain his initial account. I am also satisfied that in carrying out this sequence of visual checks, Mr Lucas did so in a conscientious and careful manner and did not see the deceased in the course of the checks which he made in either his Class V or VI mirrors, not because of any lack of care on his part, but because the deceased was not in the relevant field of vision at the material time.
It is in this context that it falls to be determined whether the sequence of visual checks carried out by Mr Lucas was the appropriate one, and in particular whether his omission to carry out a second and final check of his Class VI mirror immediately before moving the LGV forward amounted to a lack of reasonable care by him. As to the choice of sequence, it seems to me that there can be no justifiable criticism of his decision to check his nearside window and mirrors, including his Class VI, prior to checking his offside views. Indeed this is not at the heart of the criticism, it being acknowledged that a start has to be made on one side or another. The question is whether at the conclusion of that sequence, he should have re-checked his Class VI mirror.
I accept the evidence of Mr Lucas that when he carried out this sequence of visual checks, there was nothing which came to his attention which alerted him to the possible presence of pedestrians in close proximity to the front of the LGV. As I have already mentioned this does not imply any lack of care in making those observations. As both experts acknowledged, even if the relative positions of the two vehicles provided a more favourable view of the deceased to Mr Lucas, given the timings involved it may still have been that Mr Lucas' observations through the Class V and VI mirrors had ceased at a time prior to the deceased having entered into those fields of vision, which is what I have found occurred in this case.
In these circumstances, and having completed that sequence of visual checks, I have reached the conclusion that there can be no justifiable criticism of Mr Lucas in not re-checking his Class VI mirror prior to moving his LGV forward along Fore Street that evening. In this regard it is likely, given the proximity of the nearside mirrors to each other that the whole sequence of visual checks, from start to finish, took no more than 3 or 4 seconds to complete, with the view through the Class VI mirror taking place at least midway through this period. Therefore given the timings involved, it is likely that Mr Lucas ceased his view through his Class VI mirror only a second or so prior to moving forward in the LGV, and that it was in this same brief period that the deceased first entered into the field of vision of that mirror. In these circumstances I consider that it would be unreasonable to expect Mr Lucas to have anticipated the possible presence of anyone entering into the field of vision of the Class VI mirror in this intervening period. Mr Lucas had only just checked his view through the Class VI mirror when there had been nothing to be seen, and in my judgement there was no other sufficient reason which ought to have alerted Mr Lucas to the possible presence of the deceased in front of his LGV within such a short interval of time.
In this regard I accept the opinion of Mr Jennings that this was not an analogous situation to a vehicle turning across a road, rather this was one with multiple sources of potential danger, and note that there was no contrary opinion expressed by Mr Wilson-Law on this point. Moreover, I agree with Mr Jennings, that given the relative positions of the vehicles at the time, he wouldn't have expected a driver to have re-checked his Class VI mirror. The possibility that an individual would walk across the front of the LGV after having walked across the rear and down the side of the PSV, was not one that ought to have been within Mr Lucas' reasonable contemplation.
However, in my view the evidence goes beyond this conclusion, in that given Mr Wilson-Law's opinion as to the lack of conspicuity of the deceased and other factors affecting Mr Lucas' view through the Class VI mirror, even if Mr Lucas had carefully re-checked this mirror prior to moving the LGV forward, I do not consider that the claimant would be in a position to establish that Mr Lucas would thereby have been enabled to notice the presence of the deceased in his field of vision immediately prior to the collision. The fact that it may not have been "impossible" for Mr Lucas to have seen the deceased in these circumstances would not in my judgement have been sufficient, given the evidence of Mr Wilson-Law, which I accept, that it would have been difficult for even an alert driver to do so.
In reaching these conclusions I of course bear in mind that, as Mr Lucas properly acknowledged, his awareness of the presence of pedestrians on Fore Street within the hours of darkness that evening demanded a significant degree of vigilance to be exercised by him prior to moving what on any view was a substantial and potentially lethal vehicle. However in my judgement, for the reasons which I have provided, the claimant has failed to establish any lack of reasonable care on the part of Mr Lucas, necessary to establish liability. Regrettably, I am of the view that given the circumstances which pertained on Fore Street that evening, the failure of the deceased to take any precautions for his own safety, whether by using the available pedestrian controlled crossing, wearing more conspicuous materials, choosing a less hazardous path or otherwise has resulted in him being the author of this tragic incident. |
Mr Justice Warby:
INTRODUCTION
The claimant, Ayla Ellison, was born at Furness General Hospital, Barrow, Cumbria on 11 April 2007. As a result of a severe feto-maternal haemorrhage before her delivery she suffered hypoxic ischaemic injury. This has led to severe quadriplegic spastic cerebral palsy, with profound physical and cognitive impairments.
Ayla's injuries and their consequences result from the negligence of staff employed by the defendant NHS Trust. That was admitted in September 2012, in the defendant's formal letter of response to this claim. A letter of apology was sent in October 2012. Judgment on liability was entered by consent on 4 December 2012. It follows that since the latter part of 2012, the issues outstanding between the parties have related to the amount of damages that should be paid to compensate Ayla for her injuries, and for past and future losses and costs.
The claims advanced on behalf of Ayla, by her mother Carla as her litigation friend, are set out in an Updated Schedule of Loss of 10 December 2014. The defendant's position is stated in a Counter Schedule, the most recent amended version of which was served on 28 January 2015, shortly before this trial began. By the time the trial started agreement had been reached between the parties, subject to the approval of the court, on a substantial number of the items in the Schedule and Counter Schedule.
The most important points of agreement concern the cost of future care and case management. It is agreed that the defendant should make periodical payments for care and case management, initially at the rate of £125,000 a year from trial to 14 December 2015, then at £225,000 a year to December 2025 (when Ayla will be 18 years and 8 months old), and at £290,000 a year thereafter for life. Indexation is agreed by reference to the 80th centile of the Average Earnings Index (ASHE) 6115. A life expectancy to the age of 29.75 years is also agreed and, based on that and Ogden Table 28, a multiplier of 16.93.
The principal heads of agreement, other than those already mentioned, are as follows:
Special Damages
Including payment for gratuitous care £500,000
Interest on special damages £13,273
Future Losses:
Earnings (from December 2028) £21,805 pa
• if awarded as a lump sum £108,153
Physiotherapy
• to age 19 £5,500 pa
• from age 19 £4,000 pa
• equipment £14,540
Occupational Therapy
• to age 19 £2,340 pa
• from age 19 £780 pa
• for house move £1,931
Speech and Language Therapy £750 pa
• additional capital items £2,872
Podiatry £2,798
Assistive Technology £24,784
Aids & Equipment £160,000
Court of Protection/Deputy £10,500 pa
• additional capital items £22,235
ISSUES
The issues that need to be dealt with in this judgment fall under these five headings:
i) General damages;
ii) Future accommodation costs;
iii) Hydrotherapy pool;
iv) Future holiday costs;
v) Future transport costs;
Under some of these heads a measure of agreement has been arrived at during the trial, but each still involves some dispute. There is an additional issue, which I cannot resolve in this judgment. This is whether compensation for loss of earnings, the costs of therapy, and annual Deputy costs, should take the form of a lump sum or, as the defendant contends, periodical payments. The claimant's case is that periodical payments should be limited to care and case management because of the inevitable shortfall created by the Roberts v Johnstone approach to the claim for accommodation costs (by which the damages awarded are the cost of providing the necessary capital over the claimant's life, at 2.5% per annum), and the need for a significant capital reserve for contingencies.
It is because of this aspect of the dispute that the agreed heads of loss listed above include annual figures. Those figures can serve either as the basis for a periodical payments order, or as multiplicands for a lump sum. The resolution of this issue will however depend on my findings on some of the disputed issues, and subsequent input from an independent financial adviser. In the absence of agreement after that, the question of which approach should be adopted will need to be the subject of further evidence and argument after this judgment has been handed down.
PRINCIPLES
The overall aim of compensatory damages for tort is to place the claimant, so far as money can achieve this, in the same position as she would have been in if she had not suffered the wrong for which she is now being compensated: Livingston v Rawyards Coal Co (1880) 5 App Cas 25, 39 (Lord Blackburn) . As Lord Woolf MR observed in Heil v Rankin [2001] 2 QB 272 [22]-[23], the principle is that 'full compensation' should be provided, for both financial and non-financial losses.
The pain, suffering and loss of amenity suffered by an injured person are inherently incapable of being accurately measured in money terms. The task of converting the one into the other to arrive at an award of general damages is necessarily artificial, and involves a value judgment. One important goal is consistency. This supports the objectives of predictability, and fairness as between different claimants and defendants. That is why the court relies on the Guidelines for the Assessment of General Damages in Personal Injury Cases produced by the Judicial College. The assessment will have regard to these guidelines, whilst always being tailored to the specific facts of the individual case.
Another important goal in assessing general damages is to arrive at a figure which is regarded as reasonable by society as a whole. It was to meet that objective that in Heil v Rankin the Court of Appeal prescribed an increase in the then customary levels of general damages for personal injury including, for catastrophic injuries such as tetraplegia, an increase of approximately a third. That increase is reflected in the current Judicial College guidelines. So is a further 10% uplift in general damages for pain, suffering and loss of amenity provided for by the decision in Simmons v Castle [2012] EWCA Civ 1039, [2013] 1 WLR 1239 for most personal injury cases tried after 1 April 2013, following changes in the recoverability of costs introduced by the Legal Aid Sentencing and Punishment of Offenders Act 2012. It is agreed that this uplift applies in the present case.
When it comes to compensation for future costs, a claimant is entitled to damages sufficient to meet her reasonable needs arising from her injuries. In considering what is reasonable for this purpose the court should have regard to all the relevant circumstances. For these uncontroversial propositions Ms Vaughan Jones QC for the defendant cited Whiten v St George's Healthcare NHS Trust [2011] EWHC 2066 (QB), [2012] Med L R 1 [5] (Swift J).
Ms Vaughan Jones also relied on a proposition in the same paragraph of Swift J's judgment, that the relevant circumstances include "the requirement for proportionality as between the cost to the defendant of any individual item and the extent of the benefit which would be derived by the claimant from that item". I accept, and I did not understand it to be disputed, that proportionality is a relevant factor to this extent: in determining whether a claimant's reasonable needs require that a given item of expenditure should be incurred, the court must consider whether the same or a substantially similar result could be achieved by other, less expensive, means. That, I strongly suspect, is what Swift J had in mind in the passage relied upon.
The defendant's submissions went beyond this, however. They included the more general proposition that a claimant should not recover compensation for the cost of a particular item which would achieve a result that other methods could not, if the cost of that item was disproportionately large by comparison with the benefit achieved. I do not regard Whiten as support for any such general principle, and Ms Vaughan Jones did not suggest that Swift J had applied any such principle to the facts of that case. She did suggest that her submission found some support in paragraph [27] of Heil v Rankin, where Lord Woolf MR observed that the level of compensation "must also not result in injustice to the defendant, and it must not be out of accord with what society would perceive as being reasonable."
Those observations do not in my judgment embody a proportionality principle of the kind for which the defendant contends, and were in any event made with reference to levels of general damages for non-pecuniary loss. Ms Vaughan Jones cited no other authority in support of the proportionality principle relied on. I agree with the submission of Mr Machell QC for the claimant, that the application to the quantification of damages for future costs of a general requirement of proportionality of the kind advocated by Ms Vaughan Jones would be at odds with the basic rules as to compensation for tort identified above.
The defendant relies on three qualifications to the compensatory principle. The first is the principle that a defendant is not bound to compensate the claimant for loss or expense incurred as a result of the tort which the claimant should, acting reasonably, have avoided; the claimant should take reasonable steps to mitigate loss. The second is that a claim cannot be made for items that would not assist in putting her back in the position she would have occupied. The third is that a claimant is not entitled to be put in a better position than she would have been in if there had been no tort. All these principles are said to be relevant to the claimant's claim for future accommodation costs. The third principle is also said to extend to prohibiting compensation for a claimant which places her family in a better financial position than they would otherwise have enjoyed. I shall consider those arguments when I address the claim for accommodation expenses.
EVIDENCE
At the start of the evidence I saw video footage of Ayla. This consisted of, in date order, a clip taken by her mother at the family home in Ulverston, Cumbria, in May 2013; footage taken at the Sandgate Hydrotherapy Pool in Kendal in July 2013 by the claimant's physiotherapy expert Susan Filson; a professionally produced "Day in the Life" film made on 3 January 2014; and a further clip filmed by Carla Ellison on her phone on 22 January 2014, showing Ayla with her arms in spasm. I have taken the opportunity to re-view this footage after the hearing.
Ayla's parents, Daniel and Carla Ellison, both made witness statements and both gave oral evidence and were cross-examined on the first day of the trial. I have further factual evidence in the form of written statements from Mrs Ellison's mother, Lesley Godwin, Mr Ellison's mother Gill, and his late father, Phil. I have also read statements from the manager of the Sandgate Pool, a physiotherapist who has observed Ayla there; her case manager; the head of school at Sandside Lodge School, which she currently attends; and the community paediatric nurse with responsibility for Ayla. The accommodation issue was the subject of a statement by Adrian Foster, a property search consultant, which was read by agreement. On the transport issues I had the benefit of a written statement from William Kiely, a transport consultant, who also gave oral evidence.
Written expert reports as to Ayla's present condition and needs provided by Dr David Johnson, a Chartered Psychologist and Clinical Psychologist, were agreed evidence. In addition, I have had both written and oral expert opinion evidence from the paediatric neurologists instructed by the parties, Professor Malcolm Levene, and Dr Keith Pohl; the physiotherapy experts, Susan Filson and Mary Clegg; the occupational therapy experts, Julia Ho and Hazel Tuckfield; and the parties' accommodation experts, Michael F Valentine and Paul Vipond, both of whom are Chartered Architects.
I have no doubt that all the witnesses who gave live evidence were doing so in good faith with a view to helping the court resolve the disputed issues. I should comment at this point, however, on Ayla's father and mother. I found each of them to be a compelling witness. Ms Vaughan Jones very fairly, and rightly, paid tribute in her closing submissions to their dignity and fortitude. I would add that not only have both shown great strength of character in confronting the exceptional difficulties to which Ayla's injuries have given rise, each gave their evidence with complete conviction.
Daniel Ellison impressed me as someone who is thoughtful, but purposeful and determined. I am confident that he has the intellect to formulate a well-judged life plan, and the will to execute it. Carla Ellison struck me as an intelligent, spirited, and highly capable individual who shows strength and defiance in the face of adversity. Both were present in court throughout the trial, so that I also had the opportunity to observe them whilst others were giving evidence. The couple's maturity, loyalty and commitment to one another were clearly apparent.
THE CLAIMANT'S CONDITION AND PROGNOSIS
Summary
In summary, Ayla is totally immobile, with virtually no spontaneous ability to use her hands and arms. She has severe microcephaly, severe cortical visual impairment such that she is effectively blind, and profound learning impairment. She underwent a gastrostomy at 18 months, and is entirely dependent on a gastrostomy tube for feeding. Prior to that operation she was at risk of aspiration and chest infection, the incidence of which has reduced since but has not been eliminated. She has suffered a number of orthopaedic problems, most seriously bilateral hip dislocation resulting in surgery in 2011. She is osteoporotic and hence at risk of spontaneous fracture. She suffers from epilepsy.
She is doubly incontinent and wears nappies at all times. Due to her brain damage she is unable to control her body temperature, so that she is at risk of hypothermia if environmental conditions are not maintained suitably to protect her. Her cognitive and intellectual abilities are extremely limited. This is clearly a case at the extreme end of the cerebral palsy spectrum. Given these features of her condition it goes without saying that Ayla is wholly dependent on others, and will never be employable. Notable features of her condition are painful spasms, and prolonged screaming or crying, as well as a serious sleeping disorder, such that she often sleeps during the day at school, but wakes frequently at night. None of these features of Ayla's condition was disputed.
The medical experts
Dr Johnson saw Ayla in January 2013, when she was aged 5 years 9 months, and reported in March 2014. In the first of his agreed reports he states that Ayla presented with profound mental and physical impairment secondary to very extensive damage to her brain at cortical and sub-cortical levels, sustained at birth. A substantial loss of brain tissue and failure of brain growth have compounded the primary effects of brain damage, creating a markedly reduced biological capacity for remaining development and learning. Recovery has been extremely limited, and there is no prospect of any further recovery. Development to date has also been extremely limited and will remain so, reports Dr Johnson. He found no evidence that she had developed any useful or purposeful motor function. I add that two years after Dr Johnson saw her, now approaching the age of 8, Ayla remains substantially immobile, with some ability to hold her head up and to move it, but no ability to move her upper or lower limbs spontaneously.
Returning to Dr Johnson's report, from a neuropsychological perspective there is no evidence, he states, that Ayla has any functional language in either receptive or expressive domains. There is no prospect that she will ever develop any cognitive aspects of language, or literacy, or numeracy. The available evidence on cognitive function, says Dr Johnson, is that there appears to be little beyond basic orienting, recognition of, and responding to familiar stimuli. He states: "I consider that Ayla's cognitive and intellectual abilities are probably so low as to be immeasurable in any meaningful way." The prognosis is for complete dependency in all domains, with no foreseeable prospect of any significant improvement in her condition.
However, there is evidence "that Ayla can respond favourably to direct verbal and physical interaction", and there is the potential "to improve the quality of her interaction, contentment and quality of life generally by providing an appropriate physical environment and levels of care tailored to her specific needs." I interpose that the film taken by Mrs Ellison in May 2013 shows Ayla responding with evident pleasure to playful touching and tickling. Dr Johnson notes Ayla's difficulty in regulating her sleep-wake cycle. Doubting that this problem can be managed pharmacologically, he identifies the most effective solution as a more appropriate physical environment at home, and increased use of hydrotherapy to comfort and relax her.
Prof Levene and Dr Pohl each saw Ayla on 29 May 2012, when she was just over 6 years old. Prof Levene initially reported in June 2013, Dr Pohl in June 2014. These experts' joint report is dated 4 August 2014. They agree on the essential characteristics of Ayla's condition, recorded in the first paragraph of this judgment, and that she has a very severe motor disorder which will not improve, and visual impairment due to brain injury. They agree that the prognosis is for no further improvement in her condition. The experts agree that Ayla's poor sleep hygiene is due to her cognitive impairment, the need for regular care, spasms, nocturnal fits, and the need for repositioning. As these factors are not likely to change, her sleep hygiene is unlikely to improve as she gets older.
As to spasms, Prof Levene's report of June 2013 noted that Ayla "appears to suffer significant pain as a result of her unpredictable spasms." Dr Pohl's report did not address the issue of pain. The two experts agree that Ayla's spasms are a manifestation of her fluctuating dystonia, often triggered by stimulation or discomfort. They are considered likely to remain a persisting problem. They identify methods of managing these problems symptomatically, including careful management and handling, and hydrotherapy.
The mother's evidence
The spasms suffered by Ayla, and the associated pain and screaming, are clearly a significant feature of this case. Carla Ellison's first witness statement, made in January 2014, describes her own observations, as a full-time carer, of these aspects of Ayla's condition. She describes her child suffering with tightness and spasms in her muscles, which she filmed on 22 January 2014. The film shows Ayla's arm muscles tightened, her hands in a claw-like posture, moving up and down in what the family has called "strumming" motion. She is in evident discomfort, grimacing, crying and moving her head from side to side.
Mrs Ellison states that Ayla often screams for hours on end "and we understand that this is because she is in pain". Ayla's sleep was poor as a baby, according to Mrs Ellison's statement. By January 2014 the position was that she "hardly sleeps at all and she is usually awake for most of the night", waking up and needing attention about 10 times a night on average. She became uncomfortable in the night, states Mrs Ellison, "due to her involuntary movements and spasms which cause her to scream so she needs to be repositioned".
Mrs Ellison states that Ayla's crying was, in January 2014, worse than ever. "She screams inconsolably at the top of her voice for hours on end… when her muscles go into spasm she screams and this causes her to become even more stressed out and upset." Mrs Ellison's statement says that "We have tried everything to try and stop Ayla from screaming as it is distressing to see Ayla so upset and to be unable to console her." The only thing that helps, according to the statement, is putting her in warm water, which relaxes her muscles and calms her down. At the time of the statement she had limited access to a hydrotherapy pool and the parents were making do with a bath at home. Mrs Ellison's supplemental statement of December 2014 elaborated, making clear that her daughter does not respond to pain relieving medication such as paracetomol or Nurofen, though this has been tried, and that only full immersion in the hydrotherapy pool seemed to settle her and relax her muscle spasms.
The frequency of Ayla's spasms, and of the consequent pain and screaming, were in issue between the parties. Mrs Ellison's first witness statement exhibited two diaries she had prepared to illustrate the level of care provided to Ayla. One was a 4 day diary from March 2013 ("CLE1") and the other a two week diary of night care between 29 March and 11 April 2013 ("CLE2"). Notable features of CLE1 are that:-
i) On day 1 Ayla had four separate episodes of crying, two in the night and two in the day. The first daytime episode began at 4pm. Mrs Ellison recorded that Ayla "cries nearly every afternoon when she gets in from school". She was still screaming 30 minutes later "her limbs very stiff and very angry". A further crying episode began at 7.15 and lasted 45 minutes.
ii) At 3.30am on day 2 Ayla woke up crying, for 30 minutes. On her return from school 12 hours later she was "screaming, stiff, shaking" and she was still very tense "with spasms in limbs" 20 minutes later. Mrs Ellison then drove the 25 miles to the Kendal hydrotherapy pool with Ayla screaming in the back, and the carer, a journey of 50 minutes. Upon being lowered into the water at 5.25pm her "whole body became relaxed and she stopped screaming as soon as she got into the water."
iii) On day 3, a Saturday, Ayla woke up crying at 2.30am. At 3pm she was screaming with "very stiff limbs" and this appears to have continued for 90 minutes. She is recorded as "screaming again and very stiff" at 5.35pm, still screaming at 6.30pm when she received a bolus feed, and "still screaming and shaking" at 8.30. Various methods had been used to try to calm her including cuddling, changing her nappy.
iv) At 8.30pm on day 4 Mrs Ellison recorded "Ayla still crying since 1.30pm". During this period she had been fed twice, cuddled by Mrs Ellison and the carer, but apparently continued screaming for most of the time.
v) After the entry for day 4 the diary records that these entries are typical. "Ayla does scream most days and this is very stressful as she has had numerous tests to find out why but with no answer it becomes very frustrating. The only thing that can calm Ayla down is the hydrotherapy pool. There is a massive difference in her behaviour and body after being in the warm pool."
CLE2, the night diary, supports Mrs Ellison's evidence that Ayla wakes every night, and that she is often crying. On 31 March 2013 she is recorded as awake, screaming and shaking and in spasm at 10.35pm, just over an hour after being put to bed. She was cuddled to try to stop this, for 60 minutes. She woke again at 2.35am when Mrs Ellison sat in her room to stop her crying. On 2 April 2013 Ayla was put to bed at 9.30pm but woke at 11.30pm "crying, stiff, fuming and very unsettled". She cried most of the night, and although Mrs Ellison sat in her room would not go back to sleep. On 8 April Ayla was put to bed early, at 8.30pm, having cried "from the minute she got up til bed time". She woke at 10pm "screaming, shaking, limbs in spasm". Mrs Ellison sat with her, cuddling her and stretching her legs to try to stop the spasms, until 3 hours later when she went back to sleep.
Mrs Ellison made a second witness statement dated 15 December 2014 for the purposes of commenting on the defendant's expert evidence, and to bring matters up to date. In it she stated that "Ayla's condition is much the same as it was at the time of my last statement". She exhibited a further night diary which she had completed, covering the period from 28 July to 3 August 2014, when two people were needed to attend to Ayla's needs. Some summaries of extracts will illustrate the picture.
i) On day 1 Carla Ellison was on duty with her mother. Ayla screamed during her bed time routine at 9pm, with stiff arms. She fell asleep by 10pm but was awake by 11.20pm and "was starting to get upset and her arms were in spasm". She was still awake at 1am and starting to get upset again, so her position was changed. At 4.40am she was crying again, with pain in her arms. She was cuddled by Mrs Godwin and her arms were stretched and rubbed by Mrs Ellison.
ii) On day 3, Ayla was put to bed at 8pm. At 10pm she was still awake and already crying. Her position was changed and she fell asleep. At 2am she woke up screaming. Mrs Ellison thought she had spasms in her legs "as her legs were in a tight position and I couldn't straighten them". "Mum had been massaging them but Ayla was still really upset." Massage by Mrs Ellison and cuddling by Mrs Godwin for 30 minutes relaxed her
iii) On day 5 Ayla was again put to bed at 8pm, by Mr and Mrs Ellison. At 10pm she was "screaming already and never went to sleep after her medicine tonight". Mr Ellison cuddled her. She was still screaming at 11pm. At 2am "Ayla was still very upset and in pain". She was taken out of bed, put in her wheelchair and taken to the living room to sit with her parents. She fell asleep on Mrs Ellison's knee at 4.50am, until 7am.
The issue of frequency of spasms, and related issues, were explored in Mrs Ellison's oral evidence. She said that Ayla has spasms every day. Although she was not always screaming, "She will always have spasms every day, that has just become Ayla. These spasms, you have got to be constantly moving her, trying to change -- people don't realise the whole time that Ayla is sat with me, I'm constantly doing stuff on her to try and stop her from getting to that …"
The accounts given in Mrs Ellison's diary entries were not challenged, but she was cross-examined by reference to daily record sheets or logs prepared by carers in October to December 2014. Ms Vaughan Jones focused on a period between 1 and 9 December 2014 and took Mrs Ellison carefully through the handwritten records, suggesting to her that these showed that there was bad crying on days two and three of the period but that for much of the rest of the time Ayla was fairly settled. Mrs Ellison's response was that the true picture was not as the records suggested.
Challenged with the fact that the logs contained no record of inconsolable crying Mrs Ellison replied: "No, but I am the one who is consistently there and I know that she is having spasms. If she screams when she wakes up, she is having spasms and it goes on all day and all night." She continued: "… like, records aren't consistent. People write stuff and like the last few weeks people -- she has been screaming literally every single night for the last six weeks." Explaining further why she did not consider the records shown to her were representative of the true picture Mrs Ellison said:
"I'm there 24 hours a day. I spend all of my minutes of the day helping -- I am the second carer all the time, which I don't want to be. I'm the one who is there, constantly, and I am telling you that my daughter is in agony, and she has been, and she has been like that since she has been a newborn baby, and she needs some help. But it's not fair. There is nothing that they have tried, other than hydrotherapy, that can make a difference with her, and that's why I'm willing to take -- I don't want to go off for three hours on a Friday night when I have got three other children, not being able to make their tea, not being able to put them to bed. I'm willing to go all the way to Kendal to take her, even though I don't want to, because I know the benefit it has for her and I know that that night she is not in pain."
It was put to Mrs Ellison that what the records show generally is that, on two perhaps three days a week on average, when she hasn't got a chest infection or one of those provoking problems, Ayla will have periods of uninterrupted screaming, but on about half the week she doesn't. She answered: "Yes, I would say that, yes, but that doesn't like – the other day she is still -- it's not continual screaming but probably half the week is when she wakes up in the morning and she is already starting and it tends to be worse of a weekend as well. That's the two days that she seems to be at her worst with the spasms."
Carers and others
The issues of spasms and pain are also dealt with in the evidence of other witnesses. One of these is Carla Ellison's mother, Lesley Godwin. Mrs Godwin states in her unchallenged witness statement of 20 January 2014 that she has helped to care for Ayla since she was born. She says that "Most days Ayla cries for a lot of the time and she can become quite agitated. She is also very stiff and in pain with her muscle spasms causing her to scream for hours on end." She describes Ayla screaming non-stop all day as something which "happens frequently". Mrs Godwin states that she does some night shifts helping to look after Ayla while Carla tries to get some much-needed sleep. She says: "Ayla often cries in pain with her muscle spasms during the night so I rub her legs and try to settle her but this can take a long time and I end up having to cuddle her for hours at a time." Mrs Godwin remained a carer for Ayla during 2014, and is one of the carers whose records cover the eight day period examined in Mrs Ellison's oral evidence.
Another of Ayla's carers was her paternal grandmother, Gill Ellison. She has also, with her late husband, helped care for Ayla since she was born. She was been a paid carer from November 2013 until a time in 2014, when her husband Phil developed terminal skin cancer. At that time, as Carla Ellison's second statement explains, Gill Ellison's focus understandably shifted to her husband. In January 2014, when she made her witness statement, Gill Ellison was carrying out the night shift on Sunday, Wednesday and Thursday nights, but also providing unpaid care for considerably more time than that. She describes Ayla screaming all the time as a baby. Now (in January 2014), she says that when she sits by her bed at night, "Ayla might nod off for an hour and then she will wake up crying".
Mrs Gill Ellison describes attempts to go out for lunch as a family at weekends when, she says, "most of the time Ayla starts screaming uncontrollably …" and there is nothing they can do to stop this. Mrs Gill Ellison speaks also of the "remarkable" change in Ayla when she is in the hydrotherapy pool, describing it as changing her mood, relaxing her and seeming "to ease the pain she suffers with from her muscle spasms." This evidence from Gill Ellison is unchallenged, as is the statement of the late Phil Ellison which records that Ayla often gets very distressed and cries a great deal, with the "only thing" that seems to relax her being hydrotherapy. Pauline Bateman, a physiotherapist who has seen Ayla at the Sandgate hydrotherapy pool states that she has seen that Ayla is often crying before she gets into the pool, and has severe spasms with her body very stiff and her joints quite tight. When in the pool Ayla seems to get "respite from this pain".
Conclusions on spasms and pain
It is a fair observation that the logs for the eight-day period in December 2014 that were scrutinised in cross-examination do not record symptoms of the same frequency or severity as Mrs Ellison's diaries. However, Mrs Ellison is the one person who has been a constant carer for Ayla for the best part of 8 years. She is plainly in the best position to speak of her daughter's condition, and the frequency with which Ayla experiences spasms and pain evidently cause her considerable pain. Mrs Ellison conceded that there are two or three days a week when Ayla is continuously screaming, but that she does not do this every day. However, I do not consider that her evidence amounted to a concession that Ayla was not crying from pain on the other days of the week. Quite clearly, she did not concede as much. Rather, her evidence, taken overall, was to the effect that the symptoms were worse on two or three days of the week, when there was prolonged screaming for hours. There can be no doubt that Mrs Ellison's evidence was sincere. Her evidence was given with feeling, but also with authority. I recognise the risk that the enormous strain that Mrs Ellison's constant caring responsibilities must inevitably have put her under could lead her, in all sincerity, to overstate the true position. In my judgment, however, she has not done so, or not to any significant extent.
I accept the diaries at CLE1 and CLE2 as faithful and accurate records of the daily events at the periods of time in 2013 which they cover, and as typical of Ayla's daily routine at around that time. Not only is it hard to envisage these records being significantly inaccurate, they are consistent with and supported by the statements of Mrs Ellison's mother and her mother-in-law. Those statements of January 2014 support the diary entries and Carla Ellison's evidence that Ayla's condition continued to involve frequent spasm and pain until January 2014.
I do not consider that Ayla's condition and symptoms have materially altered for the better since January 2014. I accept the evidence given by Carla Ellison on that question, in her second witness statement and its exhibit, and in the witness box. If anything, the pain experienced by Ayla seems to have got worse in recent times. The recent six week period described by Carla Ellison certainly appears to have involved worse pain and screaming than the period covered by the March-April 2013 diaries, and the subsequent period described in the written statements of January 2014.
It may be that for some reason the eight day period looked at via the logs of December 2014 was unusual. Since that period ended only just over a week before Mrs Ellison's second witness statement was made it is more likely, in my judgment, that screaming, spasm, and pain occurred according to the previous pattern or to a similar extent, but for some reason went unrecorded. I note that the format of the logs invites the carer to record information under specific headings, and that these does not specifically encourage carers to record pain or screaming, as opposed to seizures, which are specifically mentioned. Carers may have developed a familiarity which led to these symptoms being omitted from the records.
Whatever the reason for the possible omissions in the logs, I find that typically over recent years Ayla has suffered spasm, with resulting pain, on most if not all the days of the week; and that for two or three days a week on average this has involved continuous pain and prolonged and uninterrupted screaming, for periods upwards of 60 minutes and up to several hours. I find that this is most common after school, and at the weekends, but that its incidence is otherwise generally unpredictable.
I also find that the spasms occur not only by day but also at night, and that prolonged pain and consequent screaming for an hour or more happens quite frequently – once or possibly twice a week - during the night time. On the basis of the expert evidence, I conclude that these conditions are caused by her injuries and likely to persist according to broadly the same pattern unless and except to the extent that the pain is relieved by one or other of the methods identified as having some effect, most prominent of these being hydrotherapy.
GENERAL DAMAGES
The current, 12th edition of the Judicial College Guidelines contains figures adjusted to reflect not only the Simmons v Castle uplift but also inflation to the end of April 2013. Since then, the RPI index has risen by some 3.2%. The suggested range for tetraplegia, at section 2 of the Guidelines, is between £262,350 and £326,700 (uprated for RPI, £270,745 - 337,154). The guideline states:
"The typical case of tetraplegia attracting an award in the mid-range of this bracket is appropriate for cases in which the injured person is not in physical pain, has full awareness of their disability, has an expectation of life of 25 years or more, has retained powers of speech, sight and hearing but needs help with bodily functions."
The figure at the mid-point of the stated range is £294,525 (£303,500). The guideline goes on:
"At the top end of the bracket will be cases where physical pain is present or where there is a significant effect on senses or ability to communicate. Such cases often involve significant brain damage where degree of insight is a relevant factor: see 3(A)(a). Lack of awareness/significantly reduced life expectancy will justify a below average award. Other factors bearing on the award include age, the extent of any residual movement, the degree of independence (if any) whether through the provision of aids/equipment or otherwise, the presence of respiratory issues and depression."
The reference to 3(A)(a) is to the guideline for Very Serious Brain Injury, the bracket for which, with the Simmons v Castle uplift, is £227,975 to £326,700 (£235,270 - 337,154). The guideline states, so far as relevant:
"In cases at the top of this bracket the injured person will have a degree of insight. There may be some ability to follow basic commands, recovery of eye opening and return of sleep and waking patterns and postural reflex movement. There will be little, if any, evidence of meaningful response to environment, little or no language function, double incontinence and the need for full-time nursing care.
The level of the award within the bracket will be affected by:
i) The degree of insight
ii) Life expectancy
iii) The extent of physical limitations
The top of the bracket will be appropriate only where there is significant effect on the senses and severe physical limitation …"
On Ayla's behalf it is submitted that the appropriate figure is £300,000. Mr Machell submits that this is a "modest and conservative" figure given the global impact of her condition and in particular the exacerbating feature of painful spasms. The defendant does not dispute the extent of the brain injury, but submits that the appropriate figure is £280,000. Ms Vaughan Jones QC relies on two particular matters highlighted in the guidelines as having a significant bearing on quantum: the claimant's lack of insight, and her life expectancy - now assumed by agreement to be to the age of 29 and 9 months. Mr Machell counters that this is not by any means a "short" lifespan.
Ayla's condition clearly does not match the "typical" case referred to in section 2 of the Guidelines. It includes several features characteristic of the upper end of the brackets for Tetraplegia and for Very Serious Brain Injury. There is a very significant effect on senses: there is no language function, and an inability to communicate meaningfully in any other way; her sight is gravely impaired; there is relatively little sign of response to environment (other than her propensity to get cold). Her physical limitations are very severe indeed, and she is wholly dependent on others; she is in need of full time care. Importantly, in my judgment, she suffers continual pain. It is likely that her present condition will persist throughout her life, that is, for a further 22 years. A lifetime of nearly 30 years, though short by comparison with average lifespans, is a considerable period over which to suffer frequent and evidently significant pain. It is not, in my judgment, a short lifespan for the purposes of the tetraplegia guidelines. It is within the band identified in the tetraplegia guidelines as a feature of the "typical" mid-range case.
Against those factors I must take account the mitigating impact of the pain relief likely to be achieved by hydrotherapy, and my findings on that issue, which are set out later in this judgment. I must also, importantly, bring into the calculation Ayla's intellectual impairment and consequent lack of insight into her condition. Dr Johnson's evidence, agreed as it is, is clear. It is, rightly, reflected in the case stated on her behalf in the Schedule of Loss, which asserts that "her cognitive and intellectual abilities are so low as to be immeasurable." I recognise that Mrs Ellison has, in her second witness statement, reported an improvement in Ayla's responsiveness since she was seen by the experts, but I have no evidence that this reflects an ability to understand her own condition. This is an important factor in the assessment of the nature and degree of Ayla's suffering, and necessarily reduces what would otherwise be the appropriate award.
It does not, however, reduce the appropriate figure as low as the defendant's £280,000. That is very much towards the bottom end of the suggested bracket, and inapt in my view for a case involving almost total loss of physical amenity and almost 30 years of frequent physical pain and suffering. The sum claimed is, when inflation is taken into account, already below the mid-range for tetraplegia. Taking all these matters into account, I have concluded that the sum of £295,000 represents an appropriate award of general damages for this claimant.
It is agreed that the 2% interest to be awarded on general damages from the date of service of proceedings amounts in aggregate to 4.34% to the date of trial. My award will therefore attract interest of £12,803.
THE FAMILY: PAST, PRESENT, AND FUTURE
It is necessary, in order to evaluate the competing cases on the accommodation issues, to consider the family background, the course events have taken in the Ellison family's life so far, and the futures which the family might have had and will now have. The majority of what follows was unchallenged evidence. To the extent that it was challenged, I accept the claimant's evidence – for the most part, that of Daniel and Carla Ellison.
Daniel Ellison was born on 30 November 1983, Carla on 11 July 1984. They are both from Ulverston, and have been together since they were at school together there – 16 years in all. Daniel's father Phil worked in the oil industry for some 40 years. From 1973, while his two sons were growing up, he was mostly working on rotation, spending four weeks abroad and four weeks at home so, as he put it in his statement, "I missed 50% of their lives including a lot of special occasions such as Christmas and birthdays". Two of Daniel's uncles worked in the oil industry, and his brother Stuart now works in that industry also.
Daniel and Carla both went to university in the Manchester area, she to Salford to study midwifery, and he to Manchester University where he obtained a Masters degree in Engineering, Manufacture and Management, graduating with a first-class honours degree in 2006. Carla completed her midwifery degree at the same time. On leaving university Daniel obtained a job with Chevron UK Ltd as a Completions Engineer. He told me that he had chosen Chevron over other job opportunities available to him, including BP, because of the company's international reach, and the opportunity to work in a number of foreign countries as an expatriate. His starting salary was £27,600. In addition, he had an excellent benefits package including a final salary pension, private healthcare, share incentive scheme, life and disability cover, vacation scheme, an annual bonus, and an offshore allowance.
But the time Daniel started work for Chevron in September 2006 Carla was pregnant with Ayla, and as a result she did not start work as a midwife, as planned. The couple rented a flat in Aberdeen while Daniel worked, largely on oil rigs in the North Sea. Carla came home to Ulverston for Ayla's birth to ensure she was among family. The couple continued living in Aberdeen for a while, with Daniel working on the rigs and Carla at home with Ayla. During this period they bought the flat they had been renting. In 2008, Daniel obtained a position with Chevron in Angola. It was unusual for someone so junior to be offered a position abroad, but he had been placed on Chevron's High Potential List, meaning he was considered capable of being a future senior manager. Only 10% of Chevron staff were on this list.
From April 2008 Daniel worked in Angola on a 28/28 day rotation, similar to that which his father had undertaken. At this time Carla and Ayla moved back to Ulverston, so that they could be near their relatives whilst he was away. Carla rented a home there. The Aberdeen flat was rented out, and had been rented out ever since. The rent covers the mortgage payments and other outgoings but no more. The couple married in December 2008. At the same time they bought the house in Ulverston which they presently occupy.
Daniel's salary rose with his years with Chevron and his seniority. He was promoted twice whilst working in Angola. This, coupled with a 40% uplift on his salary, the tax on which was paid by Chevron, meant his salary was around £66,000 in 2009, rising to £80,000 by 2011. A performance management form for 2009 recorded his supervisor's opinion that "Dan is certainly destined to become one of the clear leaders of our company". He states that he was on target to reach a salary in 2012 in excess of £100,000.
Mr Ellison enjoyed working in Angola, and had what he describes as an "excellent standard of living". Chevron had created a purpose-built community for employees, who lived in large houses with swimming pools, with maids, and full-time drivers to take whatever they want to go. Challenged in cross-examination with the suggestion that life on the compound was a "bubble", and that Angola was a very expensive and potentially dangerous place to live, Mr Ellison described expatriates in Angola working for Chevron as enjoying a "fantastic lifestyle" which he thought would be right for his family. His evidence, and that of Carla Ellison, is that they had planned together to relocate with Chevron and to lead their lives as a family abroad, as expatriates. Mr Ellison said in his oral evidence that his intention was to remain with Chevron for his whole career, and to work abroad for that whole period and take the family with him, relocating to various countries. His father had not had that opportunity, he said, because he was not a graduate.
The practice at Chevron was for employees such as Daniel Ellison to spend spells of three years in one country at a time, moving on to another at the end of that period, to gain a broad range of experience. The couple's plan, according to Mr Ellison, was to follow this work pattern until such time as their children were at secondary school age. At that point, they would seek to relocate to a country with a high quality secondary education system. Countries given as examples for this purpose were the USA, Australia, and Singapore, though others were said to be candidates. In his witness statement Mr Ellison said: "I do not believe we would have moved back to the UK until I reached retirement age and possibly not even then if we were happy where we were."
For employees working in locations such as Angola, Kazakhstan, Nigeria, Thailand and Indonesia the benefits package provided by Chevron included meeting all housing costs, according to Daniel Ellison. A document detailing the benefits available in Angola was produced which confirmed that the company provided "Company-assigned furnished housing" and "utilities and management". In countries such as America or Australia, where it was possible for the employee to select accommodation in the open market, the company made available an allowance. The employee would source of their own location using that allowance. Mr Ellison was cross-examined by reference to website extracts setting out the benefits afforded by Chevron to employees in Angola and other countries, which did not include those he had described. He responded, and I accept, that the benefits packages described in these documents were for local staff and not expatriates.
As matters have turned out, it was impossible for the family to maintain a situation in which Mr Ellison was away for four week spells, leaving Carla as a sole parent in charge of Ayla. Mr Ellison concluded that he must end his career with Chevron in August 2011. He could not continue to work abroad, and the company's only UK location is Aberdeen, too far from Ulverston to commute. This resignation meant the sacrifice of further accruals to his final salary pension, and the other associated benefits provided by Chevron. Instead, he took up consultancy work in London, the only available location in England for work in his speciality. For the past 3 ½ years he has commuted from Ulverston for that purpose, getting up at 4.10am on a Monday, and leaving home at 4.35am to travel to London, and returning home late on Fridays.
Mr Ellison initially worked for Tullow Oil, who are based in Chiswick, and rented a flat in Kew. From March 2013 he has used a hotel in Victoria during the week. He is working now for Premier Oil in offices near the hotel. His work as a consultant involves fairly frequent trips abroad, for about a week at a time, every six weeks or so. His services are provided through a limited company at a daily rate which started at £650, rising to £1,100 a day from March 2013. From the resulting income he has of course accommodation, travel, and other costs to meet. His rent in Victoria is £500 a week. The terms of engagement are a 12 month contract with a 30 day notice period. It is very likely in my judgment that self-employment under these conditions falls well short of what he would have achieved with Chevron, not only in terms of job security but also in terms of the value of the overall remuneration package.
In the same period that Mr Ellison has been a self-employed weekly commuter the couple have had three further children: Amber (born 8 February 2012) and twins, Charlie and George (born 11 March 2014). The case for the claimant is that it is unlikely that the parents would have chosen to have more than two children otherwise. The evidence of Daniel and Carla Ellison is that the weekly commute which Daniel has been undertaking has put a huge strain on both of them. Daniel states that it is "exhausting and very stressful". Carla states that the present situation is putting an "immense strain" on their relationship. The period when he was in Angola was also hard, as she was left without his support for 4 weeks at a time. They both say that they wish to move to the London so that the family can be together. Carla Ellison states "I believe that it is vital that we all live together as a family and we need to move to London as soon as possible."
The chosen area of London is the Richmond/Kew area. It was selected as it is familiar to Mr Ellison, straightforward for his commute to the locations at which work is likely to be available to him at present (Chiswick or Victoria, or possibly BP at Sunbury-on-Thames), and Heathrow airport is reasonably accessible. In addition, and importantly, the couple have identified a suitable school for Ayla: the Strathmore School. The school has a hydrotherapy pool. It is due to be merged and redeveloped, and will move location, in 2016. However, the new secondary school to be created as part of the merger and redevelopment scheme will have a new pool, accessible to primary and secondary school pupils.
ACCOMMODATION
This aspect of the case gives rise to six main issues:-
i) Cumbria or London? It is accepted that Ayla's condition means the family must move. They cannot reasonably stay where they are. At the start of the trial it was part of the defendant's case that a move to London would represent an unreasonable failure to mitigate loss. That has not been persisted in. The defendant's case now is simply this: that in reality they will move within Cumbria rather than undertake a hugely expensive and disruptive move to London. I therefore have to decide whether I accept the claimant's case that the London move is both intended and likely.
ii) Hydrotherapy pool or not? The claimant seeks to recover the costs of building and running a hydrotherapy pool in the new home. The defendant denies this is reasonably required.
iii) A reasonable purchase price for the new home, in the light of the answers to (i) and (ii).
iv) Lift or no lift? By progressive steps the dispute over adaptation costs has now come down to the single issue of whether, if the family are to move to London, Ayla's needs reasonably require the installation of a lift.
v) Deductions for saved accommodation costs. It is common ground that credit must be given for costs that Ayla would in any event have incurred. There is dispute over whether the parents will in fact save on accommodation costs or otherwise gain by living free of charge in Ayla's new home and, if so, whether that saving or gain should be credited in calculating damages.
vi) Deductions for saved running/living costs. The position is similar to that under (v) above.
(i) A move to London?
I have no hesitation in accepting that the stated intention of Carla and Daniel Ellison to move to London to build a new family life there is a sincere, genuine and heartfelt one. I am also satisfied that their intention is likely to be carried out if Ayla is given the means to bring it about. The written evidence of Daniel and Carla Ellison was only given added force by their oral evidence at the trial, which included courteous but probing cross-examination.
The thrust of the case that was put to Daniel Ellison is that both families are very close, live in Ulverston, and are firmly attached to Ulverston. A life in London would deprive the couple of the support of their network of family and friends. It would still involve Mr Ellison being abroad for periods of time, leaving Carla as sole parent for a week at a time every 6 weeks or so. When at home, he would be off to work early and home fairly late, seeing relatively little of the children.
Mr Ellison accepted that the couples' families were close, but not that the support of the family and the couple's network of friends was of such importance as to divert the couple from a move to London, so that the family could be together. He considered that on balance Carla would prefer professional paid carers. He believed he would see the children before leaving for work, as they wake at 6am and he would leave around 7. He would see them in the evenings.
He accepted that the weekends in Ulverston were better now that (since mid-2014) they have had paid carers, but said "it's still very difficult family time" due to his exhaustion on returning from a long week in London. He did not consider that the support Mrs Ellison gets is equivalent to having her husband around to support her. He rejected the suggestion that the current situation is "manageable". He described the situation as one in which they had to try "to sustain a marriage based on a few stolen hours at the weekends which are not quality time anyway". He characterised this as "not manageable or sustainable and it's something that we need to change as a matter of urgency." This was said with emphasis, and obvious feeling.
Carla Ellison's evidence on this topic was still more direct and emphatic, and she was unable to maintain her composure when explaining the situation and her intentions. Asked by Mr Machell whether she would stay in Cumbria at the end of the case she said firmly, "No." She explained "Because I want to do – me and my husband have been together for 16 years and for the last 7 years we have been forced to live apart. It's hard - …" She then broke down in tears. In cross-examination she accepted that in London it would be "quite hard" not having her mum or sisters or friends to hand to help and support. However, She said, convincingly, that "actually, having family caring and being around all the time actually isn't as good as what people think it would be – and I think it's – having now paid carers that haven't been family is actually a better thing for me." She was confident that on moving to London she would assemble a team of carers with whom she would make friends, as she had in Ulverston.
Asked whether the reason she had not looked at London properties so far was that there is doubt about whether they are actually going to move, she explained, with conviction, that "We have been wanting to go to London since Daniel first moved there … but its not been possible" due to not having care in place. She also made the obvious point that before it is known what can be afforded there is little point in seriously looking. There are difficulties, as both she and her husband explained, in raising a mortgage in the couple's present situation. Mrs Ellison stated "We have been told we can't get a mortgage anyway…"
I am satisfied that these were authentic voices, speaking the truth about intentions which this couple are likely to ensure are realised. The couple cannot now live abroad. Mr Ellison cannot deploy his skills in the UK other than in London or Aberdeen. Both cities are, on the evidence, too far for any reasonable commute from Ulverston. Aberdeen would be worse than London from that point of view, was Daniel Ellison's unchallenged evidence. The commute has imposed great strain already, and I accept that it is unsustainable if the family are to stay together. The addition of paid carers ameliorates but will not resolve that problem. My clear conclusion is that maintaining the cohesion of the marriage and family unit require the move, and that it will take place.
It is clear that the couple do not have it all worked out, as to how exactly they will manage a life in London. It is both rational and understandable from a human perspective that they should not try to plan in detail, when they do not have key planning tools such as knowledge of the sums that will be available. I do not see the fact that they have yet to visit London properties as an indication of a lack of commitment. They have planned some key elements, such as the region of London to which they wish to move, and the availability of a suitable school for Ayla. They clearly have explored the financial aspects, including the availability of a mortgage. It is very likely that there are aspects of moving the family to London from Ulverston that will take the couple by surprise to some extent. However, the strength of character they have already shown makes me confident that they will cope with that.
(ii) A hydrotherapy pool?
The issues
I am asked to rule on the issue of principle. I am not asked at this stage to determine what would be the reasonable costs of providing, maintaining, and replacing such a facility. There is agreement on the size of pool that would be required, if any is. The parties consider that they are likely to be able to agree the figures if I find in favour of the claimant. However, the defendant relies in support of its case on this issue on the overall scale of expense that the provision of an in-home pool would involve. The costs, which I will come to, are undoubtedly high, and the claim is not advanced lightly, says Mr Machell, but he submits that the evidence is as strong in this case as it is ever likely to be.
For the defendant it is submitted that the court will only award the costs of installing and maintaining a hydrotherapy pool in the home when three conditions are satisfied: (i) it is necessary as part of the therapeutic treatment of the claimant: Cassell v Hammersmith & Fulham Health Authority [1992] PIQR Q168, Q190 (Purchas LJ); (ii) there are no other reasonable alternatives available: Whiten at [262-263]; (iii) the costs are proportionate to the benefit to be obtained: Whiten at [5]. Ms Vaughan Jones put the third point this way in closing: it is for the court to weigh up whether the additional symptomatic relief which a pool at home would provide is sufficient to justify the very high cost, and the answer taking all relevant factors into account is no.
The observations of Purchas LJ were made in passing and were not part of the ratio of Cassell, but I would accept the point, on the footing that "therapeutic treatment" is not given too narrow a meaning. I have already indicated my views on the proportionality point: I accept Ms Vaughan Jones' second criterion but not, in full, her third point. It seems to me that the issue I have to decide in the present case is best stated in this way: whether the provision of a hydrotherapy pool within the new house is required in order to place Ayla in the same position that she would have been in if she had not been injured, so far as money can do so. If there is a reasonable alternative which would achieve the same or substantially similar benefits at lower cost, the answer to that question will be no. But if there is significant harm that cannot be made good otherwise, the mere fact that the making good will be expensive is not an answer to the claim.
There is a terminological point that it is as well to get out of the way. Strictly speaking, I am not concerned with hydrotherapy, but with water-based activity. It is accepted on behalf of the claimant that immersion in water confers no medical benefit on Ayla, in the sense that it will not in any way improve her condition. Prof Levene's evidence to me was that for that reason the use of the term "therapy" is somewhat clumsy. He identified the benefit as symptomatic relief, putting it this way in his oral evidence:
"Medically, as a doctor, we can treat and cure some conditions but we obviously recognise that we can't treat and cure all of them and, sadly, Ayla has been so badly damaged by her original brain injury that there is very little that we can do in order to improve her outcome, but an important part of the medical management, simply on a humanitarian basis, is to reduce symptoms and one of her symptoms is clearly discomfort and that's evidenced by this incessant crying that she had and I think we heard that on the video and that is reduced quite markedly when she is put into the hydrotherapy pool. So as a method of symptom relief, that is why I'm recommending head-out-of-water immersion, not for the benefit of physiotherapy or improving outcome later on, it's simply to try and improve and reduce the uncomfortable nature of the spasms that she has."
For convenience, I shall continue to refer to hydrotherapy, for convenience, subject to the reservation I have noted.
It is not disputed by the defendant that hydrotherapy affords some benefits. Indeed the proposition that it affords some symptomatic relief is common ground between the medical experts. The physiotherapy experts agree that hydrotherapy is reasonably required as part of Ayla's regime. What the defendant does not accept is that the benefits can only be made available by making a hydrotherapy pool accessible to Ayla at her home. The defendant's case is that provided other methods of avoiding and dealing with spasms and associated pain are properly deployed, access to external hydrotherapy pools twice a week would be sufficient, if supplemented by bathing at home in a Jacuzzi-style bath.
The factual evidence
I have already referred to some of the evidence of Carla Ellison on this issue, as well as that of others, when dealing with the issue of the frequency of Ayla's spasms. My findings on that issue are of course important for the issue that I am now addressing. The essence of Carla Ellison's evidence as to the need for and benefits of hydrotherapy can perhaps be best conveyed by the following passages from her witness statement and oral evidence.
In her first statement she explained that "the only thing that calms [Ayla] down is hydrotherapy. As soon as Ayla is immersed in the hydrotherapy pool, the change in her behaviour and facial expression is instant and she calms down straight away. ... Hydrotherapy is a massive form of pain relief for her and no other form of pain relief, including medication works for her." She explained that the journey to and from the Sandgate pool was around 2 hours and often undermined the benefits of the pool session. In her second statement Mrs Ellison stated that in her view Ayla "would benefit enormously from having a hydrotherapy pool available at home as this would be used whenever needed to help relieve her muscle spasms or when she is screaming." She responded in this way to the observation made by Mrs Clegg (to whose report I shall come) that there is no scientific literature to support the effectiveness of water immersion for the relief of pain: "in Ayla's specific case it is self-evident that it does help her with her painful muscle spasms and helps to relieve her crying."
In evidence in chief Mrs Ellison said:
"She is constantly in pain. Every now and again she might -- her arms might just relax a little bit but then she is back into spasm again. She is constantly uncomfortable and there is nothing we can do that we have tried can make any difference to Ayla in terms of pain relief, massage, exercise, like, stretching. The only thing that we found that makes any difference with it at all is hydrotherapy. "
In cross-examination she insisted: "there is nothing you can do to stop -- once she has started her spasms, there is nothing you can do to stop them other than literally putting her into hot water. There is nothing you can do, physically, to stop them from happening." She spoke of the round trip to take Ayla to the Kendal pool on a Friday: "I don't want to have to travel that far every week but I know the benefits that it gives to Ayla and that -- … so I'm willing to take her there, knowing the benefit the water gives to her every week because that's the only thing that she gets any pleasure out of, one of the only things that she gets pleasure out of and it has so much effect on the pain relief for her, nothing else that I have tried has worked with her."
The video recordings certainly provide support for the view that upon immersion in the pool at Kendal, Ayla is calm and serene. She clearly smiles, with apparent pleasure, during her lengthy immersion as shown in the "Day in the Life" film. She does not seize up, or cry, or show any sign of distress. She appears to be calm, also, as she is removed from the pool by hoist.
Ms Vaughan Jones put to Mrs Ellison a series of measures that can be adopted, and a series of aids that may be used, in order to prevent the onset of spasms and pain, or to deal with those symptoms once they appear. Mrs Ellison's evidence was that stroking and repositioning the child would delay but not prevent the screaming. The same was true, said Mrs Ellison, of cuddling or other sensory feedback, such as making noises. When she was screaming all the time, "You can try as much as you want, there is nothing you can do to settle her". Hydrotherapy was the one thing that had made a difference. It made her a lot more relaxed afterwards and she slept better at night time.
Mrs Ellison rejected the suggestion that a bath was as good a measure as hydrotherapy in a pool:
"We tried to put her into a bath, that makes no difference because literally on the pictures that we have provided last night was a bath was full up to the rim and only literally her bum was in the water, her knee joints were out the water, her arms were out the water, the entire top half of her body was out the water and that's literally with the bath full to the rim."
The reference to pictures is to photographs produced by Mrs Ellison showing Ayla on a bath seat which provided support for her neck but as a consequence left a substantial part of her body out of the water. Cross-examined about references in the logs to Ayla enjoying a bath, Mrs Ellison accepted that this was of some benefit to Ayla's legs but not to her arms which "are the main issue and they can't go under the water."
The expert evidence
In his initial report, Prof Levene referred to the pain that Ayla appears to suffer as a result of her unpredictable spasms and stated, "Her parents have found that virtually the only pleasurable activity for her which causes her to smile is immersion in water during hydrotherapy." He identified another benefit as assisting in physiotherapy. He concluded that "although there is no proven long-term benefit of hydrotherapy it is likely that Ayla in particular will benefit more generally from having access to regular hydrotherapy including reduction in painful spasms, enhancement of physiotherapy and reduction in risk of spontaneous fracture."
In February 2014 Prof Levene provided a further report, having seen the claimant's witness statements, the "Day in the Life" video, and the clips taken by Mrs Ellison. He recorded that it was clear from the video that Ayla was "a generally irritable child who cries excessively." However, "On immersion in water in a hydrotherapy pool there is a transformation in her appearance and she rapidly settles and becomes placid. Her previously stiff tone relaxes and her four limb posture is maintained in a much more normal position." Prof Levene found that the video supported the observation that her irritability is "at least in part due to painful spasms rather than temperament". He considered it clear that when Ayla was removed from the pool she was more relaxed for some time afterwards. His opinion was that hydrotherapy "has the positive effect of providing enjoyment and pleasure for Ayla during the therapy session and she remains more relaxed for some time afterwards. This is likely to be a therapeutic effect."
Dr Johnson's initial report of March 2014 concluded that hydrotherapy is of benefit to Ayla. He had delayed submitting his report until that date, to await further evidence on Ayla's functioning. Having seen the "Day in the life" video and Mrs Ellison's recordings, he noted that the change in the child's behaviour when she is in the hydrotherapy pool was "remarkable", describing her as "remarkably at ease" when in the pool. His opinion was that from a neuropsychological perspective, if Ayla can be helped to relax in warm water, then "any appropriate provision would be reasonable".
Dr Johnson recommended provision of water-based activity "as shown, on a frequent and regular basis". He considers that this is clearly a benefit and may help to stabilise the abnormal sleep-wake cycle. He recognises the disadvantages of changing, hoisting, and travel and advises that "it would be most advantageous to have direct and ready access to a pool on a frequent basis, not only for therapy and exercise, but when distressed at other times and/or social interaction with others, especially her siblings ..."
The claimant's physiotherapy expert, Mrs Filson, also reported in March 2014. She had been to the Sandgate pool with Ayla and her parents in July 2013. She reported that immediately Ayla was in the water she opened her eyes and looked very relaxed. She continued to smile when turned on her tummy, and appeared far more alert. She described the video clips she took as clearly demonstrating how Ayla benefited from being in the warm pool. She noted that the overall body stimulation provided by being immersed in a warm pool totally relaxed Ayla, who smiled and was more alert. A warm bath had a good effect, but she could not be totally immersed and could not relax fully. In contrast to immersion the effect of a bath lasted only for so long as she was in the bath. Mrs Filson concluded that the benefits clearly demonstrated, and the fact that Ayla was reported to often be in pain and distress, meant it would be beneficial to her to have a pool installed in her home, large enough for two carers to support her in the water. Having seen Mrs Filson's report, Prof Levene wrote a further short report of April 2014 supporting her recommendation.
The defendant's physiotherapy expert Mrs Clegg wrote a report in June 2014, expressing the view that Ayla should have access to water immersion "to gain an additional experience and to encourage some voluntary movement if possible". She recommended a large home bath with an adjustable Jacuzzi current running through it which would assist circulation and give her some good sensory input. At this time she had viewed Mrs Filson's film clips, but not the "Day in the life" film, or Mrs Ellison's recordings. She reported that she was unaware of any scientific literature to support the effectiveness of water immersion for the relief of pain or modification of the abnormal muscle tone in cases of cerebral palsy. She remained of the view that Ayla would gain sufficient exercise by weekly admission to a suitable warm water pool such as the Sandgate pool, combined with immersion in a large bath at home.
Dr Pohl reported later in June 2014. He had reviewed the medical records, the letter of claim, the claimant's experts' reports, and those of the defendant's other experts. His report does not record that he had viewed any of the video material. As I have already noted, Dr Pohl's report did not address the issue of pain. He stated: "With respect to hydrotherapy, clearly AE obtains pleasure and enjoyment from this activity, she has little enjoyment from other activities. It is reported that it facilitates the physiotherapy. However I know of no long-term benefit of water-based therapy over land based therapy and therefore, although I do not deny she enjoys it, on medical grounds, I cannot recommend that it is required."
The joint report of the paediatric neurologists dated 4 August 2014 was more positive. The material reviewed for this purpose included the "Day in the life" film. The experts agreed that "The video recordings of her daily activity indicate some symptomatic relief at the time of her water-based therapy." Prof Levene added: "She settles in a water bath rapidly and the frequency of spasms are reduced and there is probably a reduction in spasms for some time after being removed from the pool". Prof Levene also expressed the opinion that water-based therapy "appears to be an important adjunct to her comfort and relief from spasms and as such is required on a daily basis".
On 10 August 2014 Dr Johnson provided a supplementary report, having read the expert reports disclosed by the defendant, and the joint statement of Prof Levene and Dr Pohl. He stated that water-based activity had "clear psychological benefits for Ayla's mood and behaviour", and the potential to improve sleep and hence her daytime routine. "If she is relaxed, then she is less stressed, a state of considerable physiological and psychological benefit to her." He identified the evidence of need and benefit in this case as being "Ayla's obviously relaxed state when in the pool, and the absence of any other activity, in any sphere, that achieves the same effect. It is a behavioural observation, supported by evidence from this the parents." Dr Johnson rejected Mrs Clegg's then opinion, that once-weekly visits to a pool would suffice. He considered that "if it is to benefit Ayla, it needs to be at least daily and at times when she needs it, not when the pool happens to be available."
When the physiotherapy experts came to prepare their joint report, they agreed that "Ayla reasonably requires water based therapy in a warm accessible pool as part of her therapeutic regime", but disagreed about the frequency of the need. Mrs Filson noted Ayla's muscle spasms, muscle rigidity, and pain "on a very regular basis, throughout the day and night" and her resultant crying. She advised that if Ayla had the opportunity for Head out of Water Immersion ("HOWI") she would benefit from the physiological properties of such immersion, leading to relaxation, reduction of pain, and some enjoyment. A bath or Jacuzzi were neither long enough, deep enough, or wide enough to utilise the principles underlying this view. Mrs Clegg, who had by now viewed the "Day in the Life" film, had adjusted her opinion, now considering that Ayla would benefit from accessing a warm vessel/pool for water based physiotherapy/water exercise on a twice weekly basis.
Giving oral evidence Prof Levene made clear his view that although there was no evidence in the literature that water-based activity would improve functional outcome, immersion can sometimes have additional benefits in terms of symptomatic relief. In Ayla's case he observed that "anyone looking at the video will see a transformation". He did not suggest that water-based immersion is the primary, first treatment to be given to Ayla when she is irritable, but "as a last resort the hydrotherapy water-based immersion works". Putting Ayla in a car to travel to a pool and then to go through the process of undressing, and reversing the process after immersion was apt to undo the benefits. He went on:-
"So to have that available when she requires it is useful, I would say, is essential in terms of relieving her symptoms, and on the basis of the unpredictable but relatively frequent need for it I think that to have it available and to put her in the pool on a regular basis, on a daily basis, is enjoyable for her and offers her significant symptom relief and I think there are very few other things that soothes her as much as the water-based immersion does."
Cross-examined, Prof Levene agreed that Ayla's spasms are different from those of an athlete with pains: they originate centrally, and probably in damage to the basal ganglia. There is a variety of means that can and should be used to avoid provoking the spasms: these include careful handling and the avoidance of any startling activities, bustle or movement. There are also methods other than immersion that could be used to deal with spasms if and when they arose. He had no medical opinion to offer on the vessel that should be used to give water-based immersion, except that partial immersion could risk hypothermia, given Ayla's poor temperature control mechanisms. He agreed also that there was some risk that the handling required to get Ayla into and out of a pool could stimulate spasm. His overall conclusions were, however, that from the medical perspective, whatever the causal mechanisms might be, immersion in the pool was demonstrated to relieve Ayla's symptoms, and that its benefits outweighed its disadvantages.
Dr Pohl emphasised that the mainstay of controlling tone is good posture and handling. This reduces background abnormality of tone, and reduces the chances of symptoms being provoked. Referred to the passage in his report that dealt with hydrotherapy he stated that he worked closely with physiotherapists and would defer to "the people on the ground who are actually actively doing this and the therapists who have the skill in this area" He would not "feel strongly on medical grounds that this has got to happen." Cross-examined, he accepted that the photographs of Ayla in the bath showed that it was not possible for her to be fully immersed or to achieve buoyancy. He said:
"I can see from the video and from some of the testimony that there is some benefit from periods of being immersed in water. I think that that cannot be denied but I'm not so sure that I can say that I know that's (a) the only way in which she can obtain relief, or is always the right thing for her, because we have heard that there are many circumstances in which it's not the right thing for her in terms of when she has got a chest infection or she is ill, and therefore I think I have to temper when I say strongly. I cannot advise strongly that she needs it on medical grounds."
Mrs Filson in her oral evidence spoke of special training she had received in water-based therapy (after her evidence was concluded she made it known that this was not a qualification, but rather continuing professional development). She staunchly maintained that hydrotherapy in the form of HOWI has physiological benefits obtained through buoyancy, and the ability to carry out movements called "seaweeding" in which the body is swung from side to side in the water. She said that "seaweeding relaxes the spasm out". A water bed does not serve a similar purpose as it is in contact with only part of the body. A bath would not provide the same long lasting effect, and could not be used for any lengthy period. It was put to her that the effect of immersion was relaxation for the period when Ayla was in the water, which is sustained for some while afterwards. She agreed. Mrs Filson did not accept that total immersion could be achieved in Ayla's case using employing a different kind of bath support – a Burnett bath support.
Mrs Clegg has lengthy experience, and has worked with many children similar to Ayla over the years. She was in charge of a hydrotherapy tank in Dudley for 14 years. However, she ceased practice some 7 or 8 years ago, though she still sees people she has dealt with, and gives advice. In her oral evidence she explained that in her view a waterbed could be used to deal with Ayla's spasm, that positioning is very important when dealing with spasm, and a therapy ball can be of value. Mrs Clegg saw immersion as "an adjunct to other physiotherapy techniques and the use of postural equipment and the frequency would be adjusted according to the child's condition and mood…" She explained that watching the video had shown her that Ayla "was enjoying it very much in the water" and that she thought it would be "nice" for her to be able to go out of the house and access a pool. In cross-examination she was initially reluctant to accept that what Ayla obtained from immersion was "symptomatic relief", but accepted this when it was pointed out that the medical experts agreed on it.
She accepted that her views had changed in two respects: first, that she now recommended use of a pool twice weekly, and secondly that she now recommended daily immersion, in a bath if not a pool. She agreed that in the photographs of Ayla in the bath she was only partially immersed. Pressed with Mrs Ellison's evidence she was prepared to accept that it was "probable" that hydrotherapy at Kendal was the main source of pleasure, enjoyment, relaxation and symptomatic relief for Ayla. She agreed that it would be much better if this were available on an "as and when needed" basis.
Cost
The costs associated with acquiring, installing and using a hydrotherapy pool in the home are presented by Ms Vaughan Jones as follows: installation £212,705 (an agreed figure); running costs of some £5,000 per annum; replacement of the tub, hoist and dehumidifier, £78,000 over Ayla's lifetime. The total has been reckoned at £373,985. On top of this, points out Ms Vaughan Jones, there is the additional cost of buying the larger property required in order to accommodate the necessary pool extension or pool building.
This additional cost is between £100,000, on the claimant's case, and £250,000, on the defendant's case. Ms Vaughan Jones, adopting her own client's figure, calculates the annual cost of that difference on a Roberts v Johnstone basis as £6,250 per annum and hence an additional £100,000. That brings the total sum in damages that an award under this head would yield to more than £473,000 - not far short of £0.5 million, as she puts it.
Discussion
It is helpful to start by focussing on some basic points about Ayla's case, few of which are seriously disputed. If Ayla had not been injured the probability is she would have led a life free of pain, other than the ordinary shocks and pains that are incidental to everyday life. In the event, it is clear that due to her injuries she suffers discomfort amounting to pain at a frequency and to a degree which is well beyond the normal. That pain can fairly be described as continual; that is to say, it occurs not all the time but frequently. When it occurs, it is often prolonged and involves what Mrs Ellison has – in my judgment, fairly - described as "agony". To put Ayla in anything like the position she would have been in if not injured, relief from this agony is necessary.
The question then is what means are available to relieve that pain? Medical science nowadays has many and varied methods of alleviating pain. In Ayla's case however, most unusually, all attempts at pain relief have been unsuccessful, save for hydrotherapy. Nobody in this case has suggested any pharmacological treatment, many such having been tried without success according to Mrs Ellison. Looking at the evidence overall, I would accept that a number of techniques other than water-based methods have been used to soothe Ayla, with some success. These include repositioning, patting, cuddling, and making noises. The use of aids as suggested by Mrs Clegg could also assist – a water bed, therapy ball – as well as physiotherapy outside water. However, I accept that all methods attempted so far have succeeded only in delaying the onset of pain and screaming. The overwhelming effect of the factual evidence is that hydrotherapy is, in contrast, an effective means of relieving Ayla's pain and discomfort, and that it is effective both during and for a significant period after it is undertaken.
There appears to be no scientific literature affirming or confirming the effectiveness of hydrotherapy in the relief of pain. The precise mechanism by which it works in Ayla's case is not known. It appears probable that it involves relaxation of the muscles to "relax out the spasm", as Mrs Filson put it. But I do not accept the defendant's original case, which was put in cross-examination, that the relief obtained by Ayla through hydrotherapy is in substance relaxation, and nothing more. The evidence of Mrs Ellison and others who have witnessed Ayla's behaviour over the years, including her behaviour in the hydrotherapy pool, is consistent in affirming that the experience relieves symptoms in the form of pain. The effect of Prof Levene's evidence, and the medical experts' joint report, is that the symptomatic relief obtained is relief from pain; and this is what was ultimately accepted by Mrs Clegg.
One striking feature of the way the medical and other expert evidence in this case has developed from its origins in 2013 through to the trial in February 2015 is the impact on all the experts of viewing the video recordings. I have traced through the experts' evidence chronologically so as to highlight this. All have moved after viewing the "Day in the Life" video towards acceptance of the view that hydrotherapy has the benefit of pain relief. My own viewing of the video evidence had a similar impact on me. Having started from a position which I will admit was one of some scepticism I found that the video demonstrated first of all evidence of painful spams which supported that of Mrs Ellison but also, and still more strikingly, clear evidence of a quite dramatic change in Ayla's behaviour on immersion. The words "remarkable", used by Dr Johnson and "transformation", by Prof Levene, are in my judgment entirely apt descriptions of the evident effect. Nobody has cast any doubt on the validity of that video evidence, which seems to me highly important to this aspect of the case.
I turn to the question of whether an at-home pool is required or, put another way, whether there is on the evidence any reasonable alternative means of affording Ayla the pain relief necessary to place her in something like the position she would have occupied if not injured. The appropriate starting point for addressing this question is in my judgment the frequency and timing of the spasms that cause Ayla such pain. I have considered this in detail when addressing the issue of general damages. There is some regularity in Ayla's most painful spasms. They occur after school and at weekends more often than otherwise. However, there is also an unpredictable element to her pains, which may start in the morning without warning, and occurs quite often at night.
Ayla would, in London, have access to a hydrotherapy pool at school, twice a week. This was the evidence of Mrs Ellison. There is also a pool at Teddington to which access can be gained by appointment. Access to the school pool and the Teddington pool has to be pre-arranged, however. The evidence as to the availability of pools outside the home, if the family are settled in London, does not correspond with the pattern or frequency of Ayla's symptoms of pain and screaming. Her pain is experienced more frequently than she would be able to have pre-arranged access to a pool at school or the Teddington pool, and its unpredictable element means that reliance on external pools would mean she would often experience pain when a booking had not been made. At night, such access would of course be impossible. It is clear, therefore, that she could not have access to a hydrotherapy pool as and when she experiences pain from spasms, if she were dependent on the facilities at school and in Teddington.
Does this matter? Or would the non-water-based measures and, or the use of a Jacuzzi bath as recommended by Mrs Clegg be enough to cope adequately with Ayla's spasms and pain, at times when access to a pool could not be obtained? In my judgment the evidence does not support the view that the alternatives are equal in the symptomatic relief they afford to immersion in a pool which allows the whole body to be beneath the water. I do not consider that the evidence supports the view that the alternatives are substantially similar in their effect, either. Indeed, the evidence strongly suggests that none of the alternatives comes close in its effect. It seems to me that the key to this issue lies not so much in the expert opinion evidence as in the evidence of fact as to the degree of pain experienced by Ayla and the impact on that pain of water-based therapy and the alternatives.
The degree of pain I have dealt with. Measures to avoid or alleviate it which are not based on water appear to me to have only temporary and delaying effect, as Mrs Ellison said. As to bathing, this cannot achieve immersion, nor will it be possible to achieve immersion in future using an alternative bath support. I accept the evidence of Mrs Filson that immersion assists in physiotherapy. I accept that a warm bath does provide some symptomatic relief. I conclude, however, on the basis of the factual evidence, with the support of Prof Levene and Mrs Filson, that it is full immersion that makes the difference. I also conclude that the difference which immersion makes is very considerable. Mrs Ellison's evidence of fact is central to this finding. She is not in my judgment a woman who was exaggerating, consciously or otherwise, to achieve an objective. Nor do I believe that she is misleading herself. Making all due allowances for the strain that she has been under I find her evidence reliable on this as on other issues. In reaching this conclusion I bear in mind also the corroborative factual evidence, to which I have already referred, of Mrs Ellison's mother, Mr Ellison's parents, Pauline Bateman, Mrs Filson and, of course, the video recordings.
It is suggested on behalf of the defendant that it is unrealistic to suppose that a hydrotherapy pool would in fact be used at night, to soothe Ayla if she wakes in pain. I do not consider that this is so. She will need and have professional night carers who have to remain awake, due to her tendency to wake frequently and in pain. If I am right to conclude that caring for Ayla in those circumstances would best be done by immersion in a home pool, then that is what her carers would be duty bound to do. Moreover, it would not only be of benefit to Ayla, it would make also make the carers' lives easier.
It is also suggested that the use of a pool at night would be liable to be counter-productive, given the importance, stressed by Dr Pohl, of good sleep hygiene and the desirability of moving towards a more normal sleep-wake pattern. The weight of the evidence is however that Ayla is most unlikely to improve her sleep pattern, and it seems to me that her waking symptoms are so severe that relief of the pain they involve is much more likely to be of more benefit to Ayla than attempts, in all probability futile, to make her sleep patterns more regular.
For these reasons I have ultimately concluded that, in what I strongly suspect are the exceptional circumstances of this case, the cost of a hydrotherapy pool in the home is a cost that is reasonably required in order to provide the pain relief that will place Ayla, as far as possible, in the position she would have been in if she had not suffered the injuries that lead to this claim. There is in my view no reasonable alternative; no other means would provide the same or any substantially similar relief from the "agony" which Ayla suffers.
I would add that in my assessment the nature, frequency and degree of pain involved mean that the difference between the effects that provision of in-home hydrotherapy would have, and the alternatives, make the cost – though very substantial – proportionate to the need. As already noted above, I have taken account in arriving at my award of general damages of the relief from pain that the provision of an in-home hydrotherapy pool will in my judgment afford the claimant.
(iii) Reasonable house purchase price
The ideal property would be a bungalow, for obvious reasons. However, in London these are few, far between, and very expensive. The experts and the parties have therefore focused on two storey houses. They have agreed a reasonable figure for the purchase of a London home capable of adaptation to include a hydrotherapy pool at £1.6 million. To that figure must be added £135,000, to reflect the betterment that will result from the adaptation works to be carried out: see paragraph [133] below. The result is that the Roberts v Johnstone calculation falls to be carried out by reference to a capital sum of £1,735,000. The appropriate figure will be arrived at and agreed between the parties, or determined by me after the handing down of this judgment.
Given these findings, it is not necessary for me to reach a conclusion on the issue on which the parties are at odds, namely how much would reasonably be required to buy a home suitable for adaptation to Ayla's needs, but without space to build a pool. However, my conclusion on the need for a hydrotherapy pool may be challenged, and since the issue has been the subject of full evidence and argument, I will address the question.
It is accepted by the claimant that the sum required would be lower than £1.6m. By the end of the evidence the rival figures were £1.5m (the lower end of Mr Valentine's range, according to the joint report of the accommodation experts) and £1.35m (the upper end of the range put forward by Mr Vipond in the joint report). This difference is likely to be larger than it might appear, as Mr Valentine's figures are based on a property search carried out by Mr Foster in January 2014, and Mr Vipond's on his own research in June 2014. Between those dates, the experts agree, there was house price inflation of some 10%. On the other hand, Mr Foster's search was specifically directed at properties that could accommodate a pool. He did not search for properties that could not.
In reaching a conclusion on this issue I have derived considerable help from a table prepared by Ms Vaughan Jones and Ms Hughes, listing 16 properties that might be suitable for the family, if no pool was required in the house. Two of these were derived from Mr Foster's research, the rest from the research of Mr Vipond. Mr Vipond had based his views on examination of agents' details. I accept the point forcefully made by Mr Valentine and, on the basis of his evidence, by Mr Machell, that Mr Vipond did not disclose this in his report. He gave only "thumbnails" of the properties in question, from which it was not possible to assess with any confidence whether they would or might be suitable for extension as required. That was a flaw, and to an extent unfair to the claimant. However, the evidence contained hyperlinks which could have been followed up. And Mr Valentine did a good job in assessing what he was provided with.
I accept also that Mr Vipond's research covered an area well beyond that which would provide ready access to the only school identified as suitable for Ayla. Access to the school was not a criterion he adopted in selecting his area. In the end, however, I do place some weight on Mr Vipond's research. I do so to the extent of accepting that it indicates that Mr Valentine's figures for the cost of a property capable of extension to meet Ayla's needs other than a pool are too high, and that today (allowing for some inflation in the past 6-8 months) an appropriate figure for the purchase of a suitable home in Kew or Richmond area which was adaptable to meet Ayla's needs, not including a pool, would be £1.4 million.
(iv) Lift or no lift?
At the start of the trial there was a gulf between the parties' experts as to the reasonable cost of carrying out adaptations to meet Ayla's needs, the claimant contending for £413,000 and the defendant for £297,000. By the end of the trial this gap had narrowed very considerably. There was agreement that the costs of carrying out appropriate adaptations would amount to at least £345,000. The remaining issue is one that arises only if, as I have found, damages should be assessed on the basis that the family will move to London: should there be an additional award to reflect the cost of installing a lift to give wheelchair access to the first floor?
The costs of doing so have been calculated in detail by Mr Valentine. After discussion a figure of £51,468 was agreed, subject to a dispute about the need for Karndean hardwearing floor covering. Mr Valentine did not press this hard when cross-examined, and Mr Machell eventually conceded the point, leaving a cost of £41,145. A lift is the only way that Ayla could have access to the first floor. The question is whether that access is something to which she is entitled, applying the principles I have identified earlier in this judgment.
On behalf of the claimant it is submitted that in order to put her in as good a position as she would have been in had she not been injured, it is necessary to afford Ayla the facility to access all parts of her property. She would have that access if it had been possible for the family to live in a bungalow. It would not be equitable, says Mr Machell, if she did not because circumstances dictate the need for a two storey property. Mrs Ellison put it rather differently in her oral evidence, asking rhetorically why her daughter could not come upstairs as part of a family, to listen to a story if they were reading one at bedtime, for instance?
Ms Vaughan Jones submits that the issue is not whether Ayla has a right to participation in family life, but rather whether there is a reasonable need for her to have access to an upper floor for that purpose, and whether the cost is proportionate to the need. The case put to Mrs Ellison and relied on in closing is in substance that all Ayla's reasonable needs can and would be fully catered for at ground floor level - which will have been adapted at great expense to fulfil those needs - with the assistance of her carers. Ayla spends and will continue to spend her time either in the family living spaces at ground floor, or in her own bedroom or therapy room. Family activity such as reading a story could as well take place downstairs as upstairs. Ms Vaughan Jones submits that the sad reality is that there is no question of Ayla feeling left out or isolated, as she does not have that level of awareness. Mr Machell counters by relying on the evidence of Mrs Ellison that Ayla's responsiveness is massively increased over recent months.
The installation of a lift would be costly but in this context, as in others, it is not in my judgment a question of eliminating a head of damages simply because it is expensive, or even very expensive, to compensate the claimant for some aspect of what she has lost. The relevance of proportionality is in my judgment to the question of whether an identified reasonable need can be adequately catered for in another, less costly way which affords the claimant the same or a substantially similar benefit. The assessment of reasonable need must be sensitive to the facts of the case. It is in my opinion overly simplistic to talk of affording the claimant such access as the claimant would have had, without taking account of what benefits that access would have brought with it, and whether providing it now would afford the claimant the same or substantially similar benefits.
In this case, it is plain that the claimant's cognitive impairment means that no amount of money could give her an enjoyment of family life comparable to that which she would have had if uninjured. Mrs Vaughan Jones is entitled to submit that Ayla will not be conscious of whether she is upstairs or downstairs. What can be done to meet the need for a family life is to ensure a reasonable level of physical participation in family activity, and interaction with other family members. She is capable of some response to such interaction. This means that there must be adequate facilities for such activities and interactions to take place.
I do not consider that access to the first floor of the future London home is reasonably required in order to achieve that objective for this claimant. In my judgment the vast majority of such activities and interaction would inevitably take place at ground floor level, during the daytime and the early part of the evening, in any event. Those few interactions which might take place upstairs, if Ayla had lived, uninjured, in a two-storey home, can be adapted to downstairs without significantly compromising their quality for her. The normal bed times of the other children will only coincide with Ayla's for relatively short periods of their lives. Even when they do, family activities such as story reading together can reasonably take place in Ayla's rooms or elsewhere at ground floor level. For these reasons I do not make any award in respect of the claim for the cost of a lift and associated first floor adaptations. I conclude that the reasonable costs of adaptation are limited to the agreed figure of £345,000.
The adaptations for which that sum provides will increase the value of the house to an extent. That increase in value, or betterment, needs to be deducted from the cost of the adaptation works, but added to the purchase costs for the purposes of the Roberts v Johnstone calculation: see Almond v Leeds Western Health Authority [1990] 1 Med LR 370, 373. As already noted, the betterment element is agreed at £135,000. That is a figure that does not depend on my findings about the lift. Those findings mean the agreed figure of £345,000 for adaptations stands. That and the agreed figure for betterment mean that my total award in respect of the cost of adaptations is £210,000.
(v) Deductions for accommodation costs saved.
A claimant who is compensated for a head of loss must give credit for expenses of the same kind that would have been but will not now be incurred. This clearly requires that some deduction be made for the accommodation costs an uninjured Ayla would have incurred. That is uncontroversial. I shall return to the figures. What is controversial is the defendant's contention that there should be a deduction from the capital sum that forms the basis of the Roberts v Johnstone calculation, to reflect the fact that Mr and Mrs Ellison will be living in Ayla's new home.
Benefits to the parents
It is suggested that by living in a London home during Ayla's lifetime at the expense of the defendant the parents will save accommodation costs which they would otherwise have incurred, or make gains they would otherwise not have made. These, it is suggested, should be credited in the damages calculation. This issue has been variously labelled by the parties, and presented in several different ways. On analysis, however, it has two aspects.
i) One is whether as a matter of fact it would be a gain to the parents if they were to live rent-free in the London home for that period. The main thrust of the parents' case will be clear from my summary of their evidence, above: they would have lived as expatriates and had their accommodation costs met, by Daniel's employer, throughout what will now be Ayla's lifetime; rent-free accommodation in her home will therefore represent no gain to them.
ii) The other aspect of the issue is a question of principle. Assuming the parents' case on the facts is not accepted, should any savings they may make be brought into account so as to reduce the damages recoverable by their daughter? On this aspect there is agreement on the way that the issue should be approached, if any such savings should be taken into account at all: I should assess the chances of savings being made, and when that would occur; an appropriate discount would then be made - probably by discounting the multiplier. The parties are at odds, however, on whether, even if they would be made, any savings ought to reduce Ayla's damages.
I take the issue of principle first, and before turning to authority I address it as a matter of principle. The purpose of damages in a clinical negligence or other personal injury action is as stated above: to provide full compensation to the victim, restoring her to the position she would have occupied. Others may, however, benefit from the compensation provided, and the items or facilities which this makes available to the claimant. In an action brought by a child those who gain in this way may include not only the parents, but also siblings, or other relatives, such as grandparents. For simplicity, I shall concentrate on parents. They may benefit in the form of different and less expensive or better accommodation, or free transport in a vehicle provided out of damages, or in other ways. However if, in an action brought by a child claimant, parents gain such a benefit, the benefit will normally be necessarily, and merely, incidental to the compensation of the claimant.
Moreover, the gain to the parents will not normally be reflected in any reduction in the needs or losses of the claimant. To reduce the damages awarded to the child, on account of the parents' gain, would lead to under-compensation, unless there is a principled basis on which the parents can reasonably be expected to make up the difference, and to place the child in the same position as she would occupy if compensated by the defendant for the full cost of the given item or facility.
There could be such a principled basis, if the circumstances were such that it was reasonable to expect the child - through her representatives - and the parents to strike a bargain, by which the child's losses would be mitigated by means of payment in cash or in kind from the parents, in return for any incidental benefit they obtain. Failure to mitigate loss was the basis on which this aspect of the defendant's case was initially advanced, as I understood it. The court cannot force parties to enter into rental or similar arrangements, however. If a hypothetical rent was deducted from damages but the parents chose not to pay rent, the child would be under-compensated. It is possible to envisage other mechanisms by which this problem could be avoided. One would be to set off the value of the incidental benefit to the parents of rent-free accommodation against the child's liability to pay for the gratuitous care they have provided. But that would only be available where a gratuitous care payment was to be made, which is not always the case. And it may be that it is only one parent is due such a payment, though both get the free accommodation.
Further, and in any event, the circumstances in which it will be reasonable to expect any bargain of the kind I have outlined are likely to be very rarely encountered in practice. The child's injuries will usually have had a severely harmful impact on the lives of its parents. This is likely to outweigh any incidental benefit gained by them from the child's compensation. For reasons of policy the parents, as secondary victims, cannot claim compensation for the impact on them. It does not seem to me to follow that the impact must be left out of account when considering whether it would be reasonable to expect them to agree to pay for incidental advantages that accrue to them from compensation paid to the child.
I turn to the authorities, which in my judgment are, with the possible exception of one first instance decision, consistent with the approach I have indicated. The starting point is the basic principles set out by Orr LJ in George v Pinnock [1973] 1 WLR 118, 124-5. The claimant cannot recover the capital cost of acquiring new premises, because the claimant still has the capital in the form of the new premises. It is the additional annual cost during the claimant's lifetime that is recoverable. The court held that "… the plaintiff has been involved in greater annual expenses of accommodation than she would have incurred if the accident had not happened. … The plaintiff is … entitled to be compensated to the extent that [the] loss of income [from the capital spent on the new home] or notional outlay by way of mortgage interest exceeds what the cost of her accommodation would have been but for the accident." Ms Vaughan Jones emphasises that it is only in respect of additional costs that a claimant can recover compensation. Also to be noted, however, is that the comparison which Orr LJ draws is between the expenses and costs to the plaintiff.
In Roberts v Johnstone the child plaintiff's adoptive parents had lived in a cottage quite unsuitable for the needs of the child. The injuries to the child meant they all had to move to a bungalow, suitably converted. The claim made on behalf of the child at trial was for £68,500 representing the purchase price of a new bungalow and the cost of the necessary conversions, less the value of the old cottage. The judge awarded £28,800 for "increased charges", relying on George v Pinnock. On appeal, the plaintiff sought to recover interest for the plaintiff's lifetime on the difference between the purchase price of the new home and the sale price of the cottage. The interest claimed was 7% per annum, being a notional mortgage interest rate. Since the appropriate multiplier was 16, the resulting sum would be more than the capital required to bridge the difference.
The main issue for the Court of Appeal was whether that was justifiable. The court held that it was wrong for the plaintiff to recover more than the difference in capital costs, and wrong in principle to apply a mortgage interest rate. The appropriate rate was held to be 2% being, at that time, a reasonable tax-free yield on a risk-free investment (the current discount rate is 2.5%). The court also addressed, at 893, the issue of betterment. What the court did not address was whether in principle it had been rightly conceded on the plaintiff's behalf that credit had to be given for the proceeds of sale of the parents' cottage. Although, as Ms Vaughan Jones points out, the award arrived at by the Court of Appeal in substitution for that of the judge involved such credit, this had been conceded throughout by the plaintiff and was not in issue before either court. Nor did the Court of Appeal make any observations on the topic. I do not consider that Roberts v Johnstone represents authority in support of the defendant's case.
The issue has been addressed in four first instance authorities that were cited to me. In three, the court has concluded that the claimant should not have to give credit for any savings or gains that will accrue to the claimant's parents as a result of the court's decision; in one, it has been held that credit should be given. That one case is a decision of HHJ MacDuff, as he then was, in Lewis v Royal Shrewsbury Hospital NHS Trust (29 January 2007, unreported). The most recent decision is that of Swift J in Whiten, in which she considered Lewis and the other two cases, namely M (A Child) v Leeds Health Authority [2002] PIQR Q4 (Sullivan J), and Iqbal v Whipps Cross University Hospital NHS Trust [2006] EWHC 3111 (QB) (Sir Rodger Bell). It is convenient to review the cases in chronological order.
In M's case, the claimant, her parents and her brother had lived in a detached house before the negligence. They all moved into an adapted bungalow afterwards. The defendant advanced the same argument as the defendant in the present case, seeking a deduction from damages equal to the value during the claimant's lifetime of the accommodation afforded to the parents. The argument was rejected by Sullivan J, who founded his decision on "the basic proposition, which is that this is a compensation claim made on behalf of M": [47].
In Iqbal the previous accommodation was rented, with the rent paid by Housing Benefit because the father was unemployed. The family moved into a new, adapted bungalow purchased from the claimant's damages. The defendant submitted that the claimant should give credit for rent which her parents could and should pay to her, noting that they would receive Housing Benefit if they did. I gratefully adopt the summary of the decision set out in Whiten at [463].
"The judge in Iqbal, Sir Rodger Bell, considered that the defendant's argument failed for practical reasons in the particular circumstances of that case. The claimant's parents were not actually paying rent. The arrangement suggested by the defendant's counsel would be cumbersome and would merely result in money being transferred from one public body to another. The claim was that of the claimant himself so that the deduction of notional rent could be justified only by finding that the failure by the claimant (through his receiver or the Court of Protection) to demand rent from his parents constituted an unreasonable failure to take steps to mitigate his loss. It could not be characterised as such. He went on to make a wider point:
"More generally, it is not just to deprive parents of the incidental benefit of living rent free, when there are so many sacrifices on their part, most obviously the detriment to their quality of life, which must go uncompensated under our laws of tort, however high the award in their child's favour"".
This decision therefore included two points that feature in my analysis above. It identified the issue as being whether a failure to demand rent from the parents could be characterised as a failure by the claimant to mitigate; and it involved the more general question of whether it would be just to the parents to require them to pay rent. It will be apparent that I see these two points as closely linked. As I see it, if the parents have sustained uncompensatable losses that will be a reason why it will not be possible to characterise their child's failure to demand that they pay her rent as unreasonable.
In Lewis the parents had moved to the specially adapted accommodation purchased by the claimant. They intended to rent out their previous home. The claimant initially conceded that this rent should be brought into account in the Roberts v Johnstone calculation, but had switched tack by the time of trial, maintaining this was wrong in principle. HHJ MacDuff dealt with the issue at [167]-[171]. He appears to have considered that Roberts v Johnstone was binding authority in support of giving credit. At [169], having referred to the in support of giving credit. At [169], having referred to the Roberts v Johnstone formula he said "A part of that formula is the recognition that the sale of the previous family home has to be brought into account. … Here of course, there is a saving in respect of the former home at the Hawthorns and, at first blush, if the Roberts v Johnstone principles are applied, credit must be given for the value of the former home …"
Counsel for the claimant had submitted "with diffidence and no great enthusiasm, albeit with confidence" that this was wrong, because the benefit accrued to the parents and not the child. The Judge concluded that the correct answer was to be found in Kemp & Kemp on damages, the current edition of which observed that "Where the parents rent out their old home it could be argued that some allowance should be made for the benefit of the income they receive. If on the facts this was considered appropriate then perhaps the best way to reflect this would be by adjusting the amount recovered for gratuitous care." HHJ MacDuff concluded that since the parents now lived in the daughter's new home and received rent for the old one it was right that this should in effect be taken as part payment for the care and attendance they had provided. He regarded this as "like for like", stating that "Putting that another way, the parents should take the value of their accommodation as part payment for their 'work' as carers. The value of their accommodation should be assessed as being equal to the rent they receive from the Hawthorns."
In Whiten Swift J regarded Lewis as a case decided on its facts: see [460]. Bearing in mind the wording of the citation from Kemp & Kemp, I am inclined to think that is a correct analysis. I note, however, that the Judge's starting point was that Roberts v Johnstone principles required a deduction. Both Sullivan J in M, and Sir Rodger Bell in Iqbal had considered Roberts v Johnstone. Neither considered himself bound by that decision to allow credit against damages of the kind sought by the defendants in the cases before them. Sir Rodger Bell observed that the defendant's point was not argued in Roberts v Johnstone. In Whiten Swift J took the same view. She observed at [465] that "it appears that the claimant's advisers in that case had invited the court to make the deduction, so that the issue was not argued before the lower court or the Court of Appeal. The fact that neither court queried the concession made by the claimant does not necessarily imply that they 'approved' it." I agree with that analysis. I note also that whilst M was cited to HHJ MacDuff, Iqbal is not referred to, and the Judge does not appear to have analysed the situation in terms of mitigation of the claimant's loss. Nor is there any indication that it was argued that the parents had suffered uncompensated losses which ought to be brought into account.
In Whiten the factual situation was again that the parents would be moving into a new property, this being purchased outright by the claimant using his damages. It was argued for the defendant that during the period for which the claimant, if uninjured, could have been expected to live at home with his parents, there should be deducted from the capital value of the new property a sum representing the value of the property that the family would have had in any event. Otherwise, the parents and brothers would be living free of charge in the claimant's home at the expense of the defendant. Having considered Roberts v Johnstone, M, Iqbal and Lewis, Swift J rejected this submission. Her reasoning appears between [465] and [469], and repays full reading. The following are what seem to me to be the key features.
"465. …… I agree with the judges in the cases of M and Iqbal that the problem with that solution is that the claim is brought on behalf of the claimant, not his parents. I consider that it is wrong in principle for the value of a property that would have been owned by the claimant's parents to be deducted from the value of the new property to be owned by him. To make such a deduction would also be unfair to the claimant. It would inevitably result in him being inadequately compensated for the loss of investment income on the capital value of the new property. It is not the claimant who has been relieved of the expense of purchasing a home; it is his parents. Yet the loss would fall on him. ….
466. One way of achieving fairness for both claimants and defendants might be to require parents to pay a claimant an appropriate rent for occupying the accommodation and for the sum paid by way of rent to be deducted from the claim for his annual loss of investment income on the capital value of the new property. In many cases, the parents would be able to afford to pay some rent, even if it fell short of the market rent for the property. However, this would not be possible in all cases since some parents (like those in Iqbal) would lack the financial resources to pay rent. There would moreover be a risk that the parents' ability to pay rent might change over time. In that event, a claimant would end up out of pocket if, at trial, a deduction had been made from the annual claim for investment income on the capital value of his new property in order to take account of rent which was not in fact paid.
467 … As the judge in Iqbal observed, if there is no agreement that rent should be paid, the only way that a court can make a deduction of the notional amount of the rent from the claimant's damages is to characterise the failure on the part of the claimant to demand rent as a failure to mitigate his loss. The ordinary principles of mitigation of loss require the defendant to prove the failure by establishing that the claimant has unreasonably failed to take certain mitigating steps."
Swift J went on at 468 and 469 to identify factors that existed in Whiten itself that affected the parents. Their life choices would be restricted, they would find it hard or impossible to move again. "In these and many other ways, their quality of life in the future will be adversely affected." The judge considered that these factors would be present in the vast majority if not all cases of this kind, where the family has to move to alternative, disability-related accommodation. She concluded:
"The context and circumstances of those cases will not, in my view, be appropriate for a finding of a failure to mitigate loss to be made. The view expressed by the judge in Iqbal - to the effect that it is not just to deprive parents of the incidental benefit of living rent free having regard to the uncompensated effects of the defendant's negligence on them - can perhaps be regarded as another way of expressing the same conclusion."
I should only depart from Swift J's decision if I am persuaded that it is wrong. I am not so persuaded. On the contrary, I agree with Swift J's conclusions, and her reasoning is entirely consistent with my own. It involves a recognition that it is just to look holistically at the comparative situations of the parents, as they are and as they would have been, bringing into the reckoning what they have lost as well as what they may gain. In some cases, some of what the parents lose may be capable of calculation. The present case may in principle be such a case, given the striking difference between the financial consequences of the futures the family would have had, and will now have. Swift J focused, however, on losses that are not easy to measure in money. I share her view that this does not mean that they ought not to be acknowledged.
I turn to the issue of fact. I am wholly convinced by the evidence of Mr and Mrs Ellison that they planned to move abroad with Chevron. I am also persuaded that they would have done so in 2008, when Ayla was 1 year old, and that they would inevitably have stayed abroad for as long as they had a child in primary education. Mr Ellison clearly relished the idea of the lifestyle available, which he had seen at first hand. Mrs Ellison fairly acknowledged that she could not say whether she would have found life abroad in a company compound suited her, and that she might not have liked it. She also said, however, that she would have followed her husband "to a desert island" if necessary, as he is the most important person in her life.
Mrs Ellison is loyal, and she is not a quitter. I am convinced she would have stuck to life in the 3 year rotation followed by Chevron for at least 12 years. The chances of the family returning to the UK before that seem to me negligible. Whilst abroad there is in my judgment a 60% chance that Mrs Ellison would have chosen to work and would have been able to work as a midwife. She told me, and I accept, that there is strong demand for midwifery in the countries that are candidates for places this family would have lived.
I do not see any real prospect that the family would have abandoned the 3 year rotation in potentially challenging foreign countries before their youngest child was at secondary age. They probably would have had a second child sooner than they did, if Ayla had not been injured. So it is a reasonable assumption that their second child would have reached 11 in or about 2020. At that point, with children of 13 and 11, they would have faced a key decision on future education. One option would have been to stay with Chevron and move to the USA, Australia or one of the other countries discussed above, with high quality secondary education. Another would have been a return to the UK. That would have meant working in Aberdeen and living nearby, if Mr Ellison was to stay with Chevron, or a company move.
It is possible that the couple would have chosen a return to the UK at that time, but I think this would only have appeared to them to make sense if it had involved a move to a new company offering a significant promotion compared with what could be achieved with Chevron, and benefits at least the equal. The circumstances of the couple's parents and other UK-based relatives might well have played a part, at this stage. On balance, however, I regard a move back to the UK as improbable. In my judgment, the chances are about 80% that the couple would have chosen to continue an expatriate lifestyle, educating their children abroad throughout secondary and into tertiary education. There is a 20% chance that they would have returned to the UK in or around 2020. If they had not moved back then, the chances are high that they would have remained abroad until retirement, as Mr Ellison said they would. There is a 20% chance that they would have returned when or soon after their youngest child left university, which would have been in about 2030.
Pending a move back to the UK, there is a real chance the couple would during Ayla's lifetime have purchased UK property, to hedge against property price inflation ahead of a possible return at retirement or sooner. But that would have been a form of investment, probably rented out meanwhile. It would not represent alternative accommodation which should fall into the damages calculation, on any view.
I would accept the defendant's case that if the couple had returned to live in the UK during what will now be Ayla's lifetime, they would have purchased accommodation worth on average over £350,000. If that is what would have happened, then being accommodated in Ayla's house instead without being charged for it will represent, in financial terms, a saving. However, my other findings mean that, as a matter of fact, the chances that living rent-free in Ayla's home for her lifetime would financially benefit the parents are slender, there would be no benefit before 2020 at the earliest. The value to the parents would not be large. I next ask myself whether it would be reasonable to expect Ayla and her parents to enter into an agreement by which they, to the extent of this value, compensated her for the provision to them of rent-free accommodation, thereby reducing the damages payable by the defendant. I do not believe that would be reasonable.
There is in this case a mechanism by which set-off could be achieved: there is agreement to compensate for gratuitous care, the sum conceded in the Counter-Schedule being just short of £131,000. However, given my findings of fact about what would have happened if Ayla had not been injured, the uncompensated sacrifices this couple have made and will continue to make are clearly very substantial indeed. They are not by any means limited to, but they do include in my judgment a considerable financial loss. This seems clear, if the position they would have occupied as expatriates with Mr Ellison as a Chevron employee is compared with their present position, and the position that is likely to obtain over the next 22 years. The lost value of the Chevron final salary pension, if nothing else, can easily be recognised as very substantial. The sum for which the defendant claims credit is equivalent at 2.5% to approximately £9,000 per annum. It is not necessary in my judgment to calculate the losses to the parents. It is sufficient to conclude as I do that their value comfortably exceeds the value to the parents of free accommodation in Ayla's London home during such part of her lifetime as they might otherwise have been spending on a home of their own.
Costs saved by Ayla
Returning to Ayla herself, nobody suggests that she would have been in a position to buy a property in her 20s. The average age of a first-time buyer is now about 31, according to Mr Vipond's report. The defendant maintains, however, that it is reasonable to assume that from the age of 22 she would have been living independently of her parents, in rented accommodation, paying £5,000 a year. Mr Machell accepts this, and I am sure he is right to do so.
We are here envisaging a 22 year-old Ayla who has been brought up largely or entirely abroad, as the child of expatriates in the oil business in comfortable accommodation paid for by the employing company, and who is earning a net salary of £21,805 per annum. I am confident Mr Machell was right to submit that she would share, to save costs. However, even sharing it is highly improbable she would have found accommodation suiting both her means and expectations at less than £5,000 a year. The appropriate multiplier is said by the defendant to be in the region of 4.96 but is not yet agreed. I am asked to give the parties an opportunity to agree it, failing which I shall rule on the issue.
(vi) Additional running costs
The total annual running costs of a London house adapted to meet Ayla's needs have been agreed at £12,389, excluding the costs of running a hydrotherapy pool. Ayla is entitled only to the additional costs incurred as a result of her injuries. Hence, the defendant seeks a deduction to reflect living costs, including heating, electricity, water, council tax, and insurance, that would have been incurred in any event.
A deduction is sought to reflect the costs the parents would have incurred in running the home which they would have occupied if their child had not been injured. My factual findings above lead to the conclusion that there might have been some such costs, though the chances are relatively slender and the period some way off and relatively short. As a matter of principle, however, although there seems to be no authority on the issue, it must follow from my conclusions on the deductibility of accommodation costs that the issue is whether it would be unreasonable for Ayla not to mitigate by demanding a contribution from her parents.
The annual costs the parents would have incurred if they had bought and occupied a home in the UK are put by the defendant at £5,600, using with appropriate adjustments Mr Valentine's figures for the costs of a three-bed roomed house in Kew/Richmond worth £500,000. I accept that is a reasonable estimate. However, I do not consider that on the facts of the present case it would be right to treat a failure by Ayla to require such a contribution from the parents as an unreasonable failure to mitigate loss.
Ms Vaughan Jones' alternative submission is that there should be a deduction to reflect the costs that Ayla would have incurred as a flat-sharer in her 20s. This was not contested, and I agree this is an appropriate deduction. I conclude that a figure can properly be arrived at by taking Mr Valentine's figures for the costs of sharing a two-bedroom dwelling in Kew or Richmond, excluding the costs of relocation and maintenance. Those costs are £2,127 a year, which will be subject to the same multiplier as the figure for Ayla's assumed annual rent.
Agreed figures
I will make the following additional awards in sums which have been agreed as not depending on my conclusions on the disputed issues, and which I approve:
i) Housing equipment: £65,000 for the cost of replacement of items of housing equipment.
ii) Relocation: £9,336 plus stamp duty, the latter being a matter of applying current rates to the figure I have arrived at for the reasonable cost of appropriate new accommodation.
iii) Furnishing: £1,963.
HYDROTHERAPY POOL
As noted above, the reasonable costs of acquiring, installing, maintaining and replacing such a pool are expected to be the subject of agreement, failing which I shall have to assess them after this judgment has been handed down.
FUTURE HOLIDAY COSTS
Inevitably, there are substantial additional costs involved in taking Ayla on holiday, compared to those that would have been incurred if she were not disabled. It is agreed that there should be an award to reflect the additional costs of taking her on holiday with the rest of the family, using special accommodation, and accompanied by three carers, up to the age of 19. The appropriate annual figure for those costs has been agreed at £10,000. The area of dispute is whether my award should include provision to compensate for continuing additional annual holiday costs after Ayla reaches 19. The claimant's case is that Ayla is part of the family and will always accompany them, so long as she lives. The defendant's case is that she would derive no meaningful benefit from doing so.
Mrs Ellison's first witness statement says "We would still like to be able to go abroad as a family with Ayla as she loves the sunshine and the warm weather relaxes her muscles." She acknowledges in that statement, however, the considerable difficulties involved in taking Ayla on holiday. She recounts what, in oral evidence, clearly emerged as a disastrous attempt to holiday with Ayla in Paris. Ayla was screaming on the train, and for a lot of the time that the family was in Paris. The result was that a great deal of the time had to be spent in the hotel. Mrs Ellison's statement accepts also that plane travel would be very difficult given Ayla's size, the consequent difficulties of handling, and the limitations of aircraft seating.
In oral evidence Mrs Ellison acknowledged that whilst the family had taken Ayla with them a few times when she was young, they had not done so since she got bigger, requiring a team of carers. Winter holidays would be out of the question, due to her vulnerability to cold. Nonetheless, she was "sure" that Ayla would be taken on holiday with the rest of the family if the funds and support were available. It was put to her that holidays don't really work for Ayla: they are complicated and stressful, because of the inevitable disruption involved in travel, and prolonged inactivity en route. Mrs Ellison responded that "we would rather lift her than leave her behind" and said that Ayla enjoys the sunshine. She made clear that she and her husband intended to take Ayla with the family.
My focus must be on Ayla's losses, and what is required fairly and justly to compensate for those. I ask myself what Ayla's position would have been at and after the age of 19 had she not been injured, so far as holidays are concerned. The overwhelming likelihood is that she would have holidayed independently of her parents and sibling(s), alone or more likely with friends or with a partner. For the early years of this period she would probably have done so at her parents' expense, lacking independent means. She would have derived benefits for which there can be no substitute, such as the companionship of friends, and learning about previously unknown places and cultures, whether in the UK or abroad. She may have gained health benefits from sunshine and outdoor life. These things would have brought happiness. What can and should be done to compensate for the loss of those benefits of adulthood, given her present condition?
I accept the sincerity of Mrs Ellison's evidence, but as with the issue of the lift I do not believe that the requirement to put Ayla in the position she would have been in should be taken too literally, as enabling her to travel to such places as she would have gone uninjured. It is necessary to examine more closely the substance of the actual losses, and whether the suggested expenditure would truly compensate for those losses.
Holidays with the family in her actual condition would not afford Ayla any substitute for the intellectual experiences she would have had as an adult holidaying independently. Nor would the change of location have any material impact on her emotional well-being. Mrs Ellison said: "I don't think it matters that much to Ayla, like, where she is. If she is at home with the right people that know how to deal with her, then she is happy, but then like, if we take her abroad with the right people that knows what to do with her, then she is happy." Mrs Ellison's point was that Ayla could be as happy on holiday as at home, if suitably cared for; but the opposite is also true.
This leaves the physical enjoyment Ayla derives from experiencing the sunshine. That is not disputed, but there is no medical evidence to support a reasonable need for sunshine specifically as a means of giving Ayla pleasure and enjoyment. It is in my judgment something that can be substituted for in other ways, a principal means being hydrotherapy. Further, there is a real risk that travel would exacerbate unhappiness in some respects and for some of the time. Whilst I am quite satisfied that the family and carers would do their utmost to moderate any discomfort that Ayla would encounter in the course of travel I do consider that additional moving and handling, are inevitable and that consequent distress could not be avoided either.
For these reasons I do not consider that compensation for the cost of holidays after the age of 19 is a head of damages to which Ayla is entitled. The fair and just compensation for the loss of the benefits that Ayla would have obtained from holidays in adulthood is, it seems to me, to be found in the award of general damages for loss of amenity, and the damages I am awarding to afford her the facility of a hydrotherapy pool in her home.
FUTURE TRANSPORT COSTS
That Ayla requires and will continue to require a wheelchair accessible vehicle is beyond doubt. On the advice of the transport consultant William Kiely the family bought, in June 2013, a VW Caravelle Executive 180ps 2.0L BiTDi DSG, suitably adapted. The purchase price of the Caravelle, as adapted and with various optional extras, was £51,543.89, including £39,344.33 for the vehicle and £11,504 for adaptations. Those incurred capital costs have been reflected in the agreed special damages figure.
However, such a vehicle costs more to run than others. The additional cost that will be incurred in future has been agreed at £2,500 a year. Further, the Caravelle will of course need replacement, as will its successors over Ayla's lifetime. Ayla is entitled to compensation for the reasonable costs of continuing to have a wheelchair accessible vehicle available to her for life. The reasonable costs of replacement are in dispute.
It is agreed that the Caravelle is a suitable vehicle. The costs of replacement depend on three factors: the frequency of replacement, the residual value of the vehicle being replaced, and the cost of buying and adapting the replacement. It has been agreed that the appropriate replacement interval is 5 years, leading to a multiplier of 3.09. It is also agreed that the residual value of each vehicle at the time of replacement should be taken as 33% of its initial cost, with the cost of adaptation being entirely written off. The sole issue is as to the costs of the vehicle and conversion.
The Schedule of Loss claims £38,658 but even based on the purchase cost in June 2013 the figure should be lower, points out Ms Vaughan Jones. Allowing for 67% of the vehicle cost and the whole of the costs of conversion the sum should be £37,891. The defendant's case is however that the price paid via Mr Keily is "top whack". Its case in support of a lower figure relies essentially on evidence from its occupational therapy expert Mrs Tuckfield that a vehicle can be acquired for £31,000 and converted for £9,000, and a concession made in cross-examination by the claimant's expert Ms Ho.
Mrs Tuckfield's written report implied that her figures were based on what Ms Ho had previously said in other reports in other cases. She said in oral evidence, however, that she had based them on information gained from GM Coachwork, a vehicle converter and from case managers in her firm, who had obtained quotes for other clients. This took Mr Machell by surprise. In cross-examination he tested whether Ms Tuckfield could identify any items listed on the invoice of June 2013 which were unreasonable. In substance her answer was no, except for the leather seats; the basis for saying the cost was excessive was her knowledge that others charged less. Mr Machell fairly pointed out in his closing submissions that figures produced on this basis without supporting material did not allow any proper scrutiny or testing.
Mrs Ho's evidence was that she advised clients on purchasing vehicles and this would often be a Caravelle. She disputed that the cost with a tail lift would usually be in the order of £42,000. She said "They would be in the higher 40s, probably about £46[000] but on this particular occasion there was a transport expert … and I left it to him." This was a reference to Mr Keily, a witness of fact. In his oral evidence he accepted that it was possible to buy a Caravelle for £31,000 and to adapt it for £9,000 but said "it's like buying a house and then furnishing it. So the starting price is different for different models, and it certainly is far too low for the specification that's required for Ayla." He would not accept that the appropriate conversions, including a tail lift – by far the most expensive adaptation, at nearly £9,000 in itself – could be fitted for £9,000.
I can see no basis on which to question the reasonableness of the sum actually spent on adaptation of this vehicle. There was some cross-examination of Mrs Ellison about optional extras but her answers were generally persuasive. Apart from the leather seating I see nothing that is not reasonably required for Ayla (Mrs Tuckfield pointed out that Ayla would be in her wheelchair, not using the seats; the cost is £1,625). However, Mr Keily's evidence did not explain the choice of an Executive fuel injected model and in view of the evidence of Mrs Tuckfield and, more significantly, Mrs Ho, I consider it likely that less expensive models are commonly purchased for adaptation in similar circumstances and that, from the perspective of Ayla's needs, that could reasonably have been done in this case.
Bearing in mind the totality of the evidence on this issue I consider that future replacement costs should be assessed on the basis of a vehicle purchase price of £35,000, to which the adaptation costs of £11,504 should be added. It is conceded on behalf of Ayla that there must be credit for the cost she would have incurred in any event as an adult, in buying a suitable car or cars. The agreed capital deduction is £8,505.
SUMMARY
In summary, my conclusions on the disputed issues are as follows:
i) I award the sum of £295,000 in general damages for pain, suffering and loss of amenity;
ii) I find that the family intend to and probably will move to London, and that Ayla should be compensated for the costs of acquiring a suitable property there, rather than in Cumbria as submitted by the defendant.
iii) I find that in the unusual and probably exceptional circumstances of this case a hydrotherapy pool in the home is reasonably required in order to provide the claimant with relief from the considerable and frequent pain that she suffers as a result of her injuries. The reasonable costs of installation, running, maintenance and replacement are to be agreed or assessed.
iv) As agreed, the sum reasonably required to acquire a suitable house in London, of a size sufficient for the installation of a hydrotherapy pool, is £1,600,000, to which must be added, for the purposes of the Roberts v Johnstone calculation, £135,000 to represent the betterment that will be achieved by the adaptations required to meet the claimant's needs.
v) I conclude that no deduction falls to be made from this figure to account for any benefit or saving to the parents of living in Ayla's house during her lifetime. I do not consider that such a deduction would be right in principle. As a matter of fact, the chances of the parents making any saving is slender, and would only apply from 2020 at the earliest, to the end of Ayla's life.
vi) I have also assessed the reasonable cost of purchasing a London property on the assumption that, contrary to my conclusion, a hydrotherapy pool is not reasonably required. The figure is £1.4 million. The betterment achieved by the expenditure of the agreed adaptation costs would be added to this. For the reasons given, there would be no deduction on account of any benefits or savings to the parents of living in the London house.
vii) The reasonable cost of adaptations, after allowing for the element of betterment, is £210,000. The cost of a lift and associated adaptations is not an expense which is reasonably required and I make no award in respect of that head of claim.
viii) I make no award in respect of future holiday costs from the age of 19, for the same reason.
ix) I find that the reasonable cost of replacing the VW Caravelle should be assessed on the basis of a replacement vehicle cost of £35,000 and adaptation costs of £11,504. The calculation of the resulting award under this head will be carried out by the parties, allowing a deduction in the agreed sum of £8,505 for car purchase costs which would in any event have been incurred by Ayla. |
Mr Justice Hickinbottom:
Introduction
Following a five-day hearing, on 18 February 2014 in the Crown Court at Cardiff, prior to arraignment, I dismissed the single charge of conspiracy to defraud on which the Serious Fraud Office ("the SFO") sought to try the six Applicants (now reported as R v Evans and Others [2014] EW Misc 5 (Crown C), [2014] 1 WLR 2817). I generally adjourned issues relating to costs. In this judgment, where I refer to "the Dismissal Application", "the Dismissal Hearing" and "the Dismissal Ruling", those are references to the Crown Court proceedings.
Following a seven-day hearing, on 14 November 2014 Fulford LJ sitting as a Judge of the Queen's Bench Division, refused the SFO's application for a voluntary bill of indictment containing two counts, one in identical terms to that which I dismissed and a second count, also of conspiracy to defraud, but with different particulars (now reported as Evans & Others v Serious Fraud Office [2014] EWHC 3803 (QB)). Fulford LJ remitted consequential matters, including costs, to me. In this judgment, where I refer to "the VB Application", "the VB Hearing" and "the VB Judgment", those are references to the High Court voluntary bill proceedings.
Each of the Applicants, except Ms Bodman, now applies for two costs orders against the SFO, namely:
i) in respect of the Dismissal Application, an order under section 19 of the Prosecution of Offences Act 1985 ("the 1985 Act"); and
ii) in respect of the VB Application, an order that the SFO pays his costs on the indemnity basis.
These applications give rise to two specific issues, namely:
i) whether the statutory precondition for the exercise of the court's jurisdiction under section 19 of the 1985 Act (i.e. that the SFO as prosecutor was responsible for an "unnecessary or improper act or omission" that caused the Applicant to incur costs) is satisfied; and
ii) whether the Applicant's costs of the VB application (which the SFO concedes it should pay) should be assessed on the standard or indemnity basis.
At the hearing on 14-16 January 2015, I heard submissions on those issues; and this is the reserved judgment from that hearing.
It was sensibly agreed by the parties that submissions on quantum should await this judgment, on the basis that the costs of the VB application should in any event be the subject of a detailed assessment and, if it were in due course necessary summarily to assess the costs of the Dismissal Application, that assessment could almost certainly be dealt with on written submissions alone.
However, to put the applications into context, the Applicants have submitted statements of the aggregate costs for both applications, in the following approximate sums: Mr Evans £1,200,000, Mr Whiteley £900,000, Mr Davies £890,000, Mr Walters £1,210,000, and Mr Humphreys £2,610,000. Those figures are, I stress, wholly untested – the SFO has strongly indicated that it does not accept that anything like those amounts would be reasonable and, if and when appropriate, it will contend that very much smaller sums should be awarded – but the total costs in issue are in the region of £7m. Nothing I say in this judgment should be taken as any indication, one way or other, as to the amounts that might be properly due if and when a costs order is made.
The Charge
It will be helpful to set out the charges at the outset. The proposed counts in the VB Application before Fulford LJ were as follows:
"Count 1
STATEMENT OF OFFENCE
CONSPIRACY TO DEFRAUD contrary to Common Law.
PARTICULARS OF OFFENCE
ERIC EVANS, DAVID ALAN WHITELEY, FRANCES BODMAN, STEPHEN DAVIES, RICHARD WALTERS, LEIGHTON HUMPHREYS, between the 1st of January 2010 and the 31st of December 2010, conspired together to defraud Neath Port Talbot County Borough Council, Bridgend County Borough Council and Powys County Council ('the Mineral Planning Authorities') and the Coal Authority by deliberately and dishonestly prejudicing their ability effectively to enforce restoration obligations relating to open cast coal mining at sites known as East Pit, Nant Helen (Nant Gyrlais), Selar and Margam (Park Slip West and Kenfig) situated in South Wales by:
i) establishing companies registered in the British Virgin Islands, in the ultimate beneficial ownership of Eric Evans and David Alan Whiteley; and
ii) transferring the freehold title in the land containing and surrounding the opencast coal mining sites known as East Pit, Nant Helen (Nant Gyrlais), Selar and Margam (Park Slip West and Kenfig) situated in South Wales from Celtic Energy Ltd to those companies registered in the British Virgin Islands;
thereby intending that the financial liability to restore those open cast coal mining sites to open countryside and/or agricultural use would pass from Celtic Energy Ltd to those companies in the British Virgin Islands, thereby releasing some of the money set aside in Celtic Energy Ltd's annual accounts to restore those open cast coal mining sites, and allowing some of that money to benefit the Defendants personally.
Count 2
STATEMENT OF OFFENCE
CONSPIRACY TO DEFRAUD contrary to Common Law.
PARTICULARS OF OFFENCE
ERIC EVANS, DAVID ALAN WHITELEY, FRANCES BODMAN, STEPHEN DAVIES, RICHARD WALTERS, LEIGHTON HUMPHREYS, between the 1st of January 2010 and the 31st December 2010, conspired together to defraud Neath Port Talbot County Borough Council, Bridgend County Borough Council and Powys County Council ('the MPAs') and the Coal Authority by deliberately and dishonestly prejudicing their ability effectively to enforce restoration obligations relating to open cast mining at sites known as East Pit, Nant Helen (Nant Gyrlais), Selar and Margam (Park Slip West and Kenfig) situated in South Wales ('the sites') by dishonestly agreeing:
i) to establish and control shell companies registered in the British Virgin Islands ('the BVI companies'), and
ii) to cause one or more than one of the BVI companies to act against its/their financial interests by entering into a transaction at an undervalue, by which it/they acquired the freehold title of the sites from Celtic Energy Ltd ('Celtic'), and assumed liability to undertake substantial restoration works in respect of the sites and/or to indemnify Celtic in respect of any liabilities it might have in respect of the sites, without receiving adequate consideration in return and in the knowledge that Oak would be unable to meet those legal obligations, and
iii) to conceal from, and/or misrepresent to, the MPAs and other relevant parties the true nature of the transaction as set out at 1 and 2 intending thereby that:
(a) the MPAs and/or Coal Authority and other relevant parties would accept that substantially all of the financial liabilities to restore the sites to open countryside and/or agricultural use had passed from Celtic to the BVI companies;
(b) the BVI companies would be unable to, and would not, meet any such liability;
(c) the MPAs and/or the Coal Authority would be unable, during any investigation they conducted, to discover the true nature of the transactions as set out at 1 and 2 above and the MPAs would thereby be inhibited or deflected from carrying out their duty to consider how best to secure compliance with the relevant planning conditions;
(d) the MPAs would be deterred from exercising their planning enforcement rights (including pursuant [sic] section 178 Town & Country Planning Act 1990) against the BVI companies;
(e) provisions in Celtic's accounts in respect of the liability to restore the sites would be significantly reduced;
(f) Celtic monies would be paid to the benefit of some or all of the conspirators personally."
As I have explained, Count 1 was in the same terms as the charge in the proposed indictment in the Dismissal Application before me; Count 2 was new.
In respect of Count 1, it is noteworthy that the charge was based upon the following three premises:
i) the victims of the fraud were the three Mineral Planning Authorities ("MPAs") and/or the Coal Authority – and only those public authorities;
ii) the conduct relied upon as the means to effect the fraud was (a) the establishment of the British Virgin Islands ("BVI") company to which the freeholds of the sites was to be transferred, and (b) the transfer of the sites to that company – and only that conduct; and
iii) the conspirators intended the transfer of the freeholds to effect a transfer of the obligations to restore the sites to the BVI company.
Factual Background
The factual background to this matter is set out in the Dismissal Ruling (at [5]-[27]) and in the VB Judgment (at [4]-[23]). I can deal with it relatively briefly here, relying heavily upon Fulford LJ's succinct and helpful summary.
Richard Walters is the Managing Director, and Leighton Humphreys is the Finance Director, of Celtic Energy Limited ("Celtic"). On 31 December 1994, as part of the reprivatisation of the coal industry, a number of sites in South Wales were transferred to Celtic for about £100m. These included four mines known as East Pit, Nant Helen, Selar and Margam. Although Celtic became the freehold owner of these sites, mining took place under various leases and licences that were issued by the Coal Authority (the freehold owner of the coal under the reprivatisation arrangements) and under grants of planning permission by the relevant local authorities acting as the MPAs. The leases, licences and grants of planning permission imposed various obligations upon Celtic to restore the sites once mining of them was complete. The estimated cost of restoring the sites was, to an extent, secured by monies that were required to be paid into escrow accounts.
However, the gap between the amounts in the escrow accounts (albeit fully paid-up) and the total required to restore the sites was substantial. For example, by 2010, for East Pit, with estimated restoration costs of approximately £115m, only £2-2.5m had been deposited in the escrow account. For Margam, with restoration costs of approximately £57m, only £5.5m had been deposited.
Celtic investigated various potential solutions to this shortfall, such as obtaining an extension on the right to mine, deep mining and landfill. However, by early 2010, the financial position of Celtic had become markedly uncertain. In the year ending March 2010, it made a loss of £7.3m on a turnover of £67.6m; it had insufficient funds to effect restoration; and it had failed to gain approval for other uses for the sites.
Celtic retained M & A Solicitors to advise them. David Whiteley was the Senior Partner of the firm; Eric Evans was the partner mainly responsible for looking after Celtic's affairs; and Frances Bodman was an assistant solicitor, who worked for Mr Evans. Mr Evans came up with a possible solution to Celtic's problem. On the assumption that most or all of the restoration obligations went with the freeholds, he suggested that, whilst retaining control of the sites and the coal mining activities on them, it should transfer the freeholds to a third party, so that the obligations to restore would automatically pass with them. This would redound to the personal advantage of those involved, because it would enable Celtic to release and distribute significant sums of money, whilst not impacting on Celtic's ability to mine the sites.
However, without a vast reverse premium from Celtic, no commercial buyer would take on the liabilities for the sites. It was therefore proposed that various BVI companies, owned and controlled by Messrs Evans and Whiteley (and ultimately, the prosecution alleged, by Celtic), and with no funds other than those they chose to put into it), should buy the freeholds. There was substantial evidence that considerable steps were taken to ensure that the outside world, and most particularly the MPAs and the Coal Authority, should view this arrangement as a conventional arms-length commercial sale to an unconnected entities.
A BVI company called Oak Regeneration Inc was consequently incorporated, together with various subsidiaries (which I shall refer to collectively as "Oak") in order to put this plan into effect. It was ultimately owned by Messrs Evans and Whiteley; although the prosecution case was that they were trustees for Messrs Walters and Humphreys who ran Oak, and that all the Applicants were aware of the significant steps that were being taken to hide the true nature of the relationship between Celtic and Oak.
It was the prosecution case that Celtic's auditors needed reassurance as to whether the sale of the freeholds transferred the restoration obligations to the purchasers before they would agree to certify the accounts on a basis that recognised the reduction in the future restoration obligations. Without this step, monies could not be released for distribution.
So, Stephen Davies QC was asked to advise on the scheme. He provided two written advices. The first, dated 24 June 2010, concluded that, whilst the freehold titles in the sites could be transferred to Oak, apart from the restoration requirements under the Town and Country Planning Act 1990, Celtic would remain liable under the leases to fulfil all of its covenants including those relating to restoration of the sites. He therefore advised that the underlying objective of the scheme was unachievable.
However, Mr Davies was asked almost immediately to reconsider the issue and in his second opinion of 30 August 2010, in which he did not refer to his earlier advice, he concluded that, following the transfer of the freeholds to Oak, Celtic would not be left with any substantial restoration obligations. His fee for that second advice was £250,000.
Shortly after that second advice, the freeholds of the sites were transferred to Oak for £1 each, with a reverse premium of £1.2m. In due course, Celtic's auditors agreed that the provision for restoration obligations in Celtic's 2011 accounts could be reduced by over £72m to £63.8m. There was evidence that Messrs Walters and Humphreys were rewarded by covert seven-figure payments for the introduction of Oak to Celtic, through another company that they wholly owned; and Mr Evans, Mr Whiteley and Ms Bodman were also rewarded by somewhat smaller – but nevertheless substantial, six-figure – payments through subsidiaries of Oak.
Therefore, in pursuit of this scheme, the Applicants had various roles in setting up and using Oak, a BVI company without substantial funds, to unburden Celtic of the freeholds of the four mines and, more particularly, the obligation to restore the sites valued at over £150m. Overall, they benefited personally by way of over £15m from the release of the financial provision that had been set aside for the purpose of restoration, and Celtic's financial position improved by over £120m.
The Prosecutor
The Crown Prosecution Service ("the CPS") was established by section 1 of the 1985 Act, as an independent national public prosecution service comprising Crown Prosecutors headed by the Director of Public Prosecutions ("the DPP"). Section 2 imposes a broad duty on the DPP to institute criminal prosecutions where the investigation has been conducted by (e.g.) the police.
Section 10 requires the DPP to issue a Code for Crown Prosecutors, to give guidance to prosecutors on the general principles to be applied when making decisions about prosecutions. The current Code was issued in January 2013. The general principles themselves are set out in Chapter 2:
"2.1 The decision to prosecute… is a serious step that affects suspects, victims, witnesses and the public at large and must be undertaken with the utmost care.
2.2 It is the duty of prosecutors to make sure that the right person is prosecuted for the right offence and to bring offenders to justice wherever possible. Casework decisions taken fairly, impartially and with integrity help to secure justice for victims, witnesses, defendants and the public.
…
2.4 Prosecutors must be fair, independent and objective…. Neither must prosecutors be affected by improper or undue pressure from any source. Prosecutors must always act in the interests of justice and not solely for the purpose of obtaining a conviction.
…
3.5 Prosecutors should not start or continue a prosecution which would be regarded by the courts as oppressive or unfair and an abuse of the court's process.
3.6 Prosecutors review every case they receive from the police or other investigators. Review is a continuing process and prosecutors must take account of any change in circumstances that occurs as the case develops, including what becomes known of the defence case."
Those principles are also reflected in the DPP's Statement of Ethical Principles for Public Prosecution, which states that a prosecutor must "strive to be, and be seen to be, consistent, independent, fair and impartial" (paragraph 3.1) and "must take decisions based upon an impartial and professional assessment of the available evidence, independently and with objectivity within the framework laid down by the law, the Code, all departmental policies currently in force and all guidance issued by or on behalf of the Attorney General…" (paragraph 3.2).
This guidance reflects the well-established common law principle, to the effect that prosecutors "are to regard themselves as ministers of justice, and not to struggle for a conviction…" (R v Puddick (1865) 4 F & F 497 at page 499 per Crompton J, approved in R v Banks [1916] 2 KB 621 at page 623).
The CPS is responsible for most prosecutions. However, as a result of concerns about the investigation of a number of frauds in the 1970s and early 1980s, the Government set up the Frauds Trial Committee under the chairmanship of Lord Roskill, to report on the investigation and prosecution of serious or complex frauds with a view to a more coordinated approach being adopted. As a result of the recommendations of the Roskill Report, published in 1986, section 1(1) of the Criminal Justice Act 1987 established the SFO, with responsibility for both the investigation and prosecution of serious or complex frauds.
The SFO has particular statutory powers. For example, under section 2 of the 1987 Act, it is given special powers of investigation and search, including the power to require individuals to give disclosure and answer questions. By section 51B of the Crime and Disorder Act 1998 (inserted by section 41 of and schedule 3 to the Criminal Justice Act 2003), the Director of the SFO (as a "designated authority") may serve a notice on the relevant magistrates' court that he is of the opinion that the evidence of the offence charged is sufficient for the person charged to be put on trial for the offence and reveals a case of fraud of sufficient seriousness or complexity that its management should without delay be taken over by the Crown Court, which requires the case to be transferred to the Crown Court immediately.
The SFO has adopted the DPP's Code for Crown Prosecutors and the DPP's Statement of Ethical Principles for Public Prosecution. Given its dual role, it has a particular responsibility to ensure that, as prosecutor, the general principles of that Code and Statement are followed.
The courts have long made clear – and recently emphasised – that, although decisions to prosecute are susceptible to judicial review, the discretion given to the CPS, SFO and other public prosecutors, which have been identified by Parliament as the appropriate independent prosecutorial decision-makers, is very wide and must be recognised and respected; and the grounds on which they may be challenged are very narrow. Leaving aside cases where the prosecutor's own policy is unlawful (or, if lawful, he has failed to act in accordance with that policy), a decision to prosecute or continue a prosecution is only amenable to challenge if it is perverse in the sense that no reasonable prosecutor could have made that decision (see, e.g., R v Director of Public Prosecutions ex parte C [1995] 1 Cr App R 136 ("ex parte C") at pages 140-1 per Kennedy LJ, and R (L) v Director of Public Prosecutions [2013] EWHC 1752 (Admin) ("L") a case heard by a Divisional Court comprising Sir John Thomas PQBD (as he then was) and Simon J). The cases where challenge is appropriate will arise only in "very rare" or "exceptionally rare circumstances", and, where the prosecutor has conducted a further review of the decision, "the likelihood of success in such cases will be very very small, given the constitutional position of the CPS" or other public prosecutor (L at [5], [7] and [17] per Sir John Thomas).
The Instruction of Ian Winter QC as Lead Prosecuting Counsel
M & A Solicitors had five equity partners, of whom Mr Whiteley (46.05%) and Mr Evans (8.64%) were two. The other three partners were Stephen Berry (23.03%), Jonathan Geen (8.64%) and Rachelle Sellek (8.64%) ("the three partners"). A further solicitor was not a party to the partnership deed, but was remunerated with 5% of the partnership profits on the basis that she would become a partner in 2011. Mr Evans retired from the partnership in November 2010 at the age of 65, as he had planned to do; and his share was redistributed in a manner immaterial to these applications. Mr Whiteley retained just under half the equity.
In late 2010, the three partners learned of the proposed scheme as set out above; and, on 6 December 2010, they instructed Mr Ian Winter QC to advise them on a number of matters arising. The instructions:
i) asked for advice as to whether any offences had been committed under the Fraud Act or by way of conspiracy to defraud;
ii) asked for advice on whether the matter required notification to the Serious Organised Crime Agency ("SOCA");
iii) asked for advice on their rights as partners as against Mr Whiteley and Mr Evans: the three partners made clear that, upon the basis of the advice, they would consider action against Mr Whiteley and Mr Evans, including expulsion from the partnership; and
iv) emphasised the three partners' concerns about the reputation of the firm, and how to maintain it: they asked for advice as to how to minimise any adverse consequences of the scheme for the firm.
On 9 December 2010, the three partners had a conference with Mr Winter, at which he advised (according to Mr Geen's handwritten note): "Essentially strong PF [prima facie] case of conspiracy to defraud."
The following day (10 December 2010), the three partners formally notified SOCA. The reference indicated that the advice of Leading Counsel had been taken, and it was to the effect that the transactions amounted to a conspiracy to defraud.
Following the conference, Mr Winter produced a draft written advice on 13 December 2010. Mr Berry asked him to remove a paragraph concerning possible reputational damage, which suggested (amongst other things) that the firm consider engaging a PR consultant and that the three partners themselves break the story to ensure that the coverage was favourable to the firm. Mr Berry made clear that it was likely that the advice would be shortly disclosed to SOCA/the SFO (if it accepted responsibility for investigating the case). It was apparently thought that, from this paragraph, the three partners might be seen as attempting to benefit reputationally from the events that had occurred, which Mr Berry thought might be unwise.
Mr Winter produced his final advice on 15 December 2010, omitting the paragraph to which Mr Berry had referred. In the advice, he:
i) said that, in his opinion, there was at that stage no evidence of any offence of fraud contrary to the Fraud Act 2006; but that "there is good prima facie evidence of a conspiracy to defraud" (paragraph 72), on the basis that the Coal Authority and MPAs possessed rights enforceable against Celtic, namely "planning rights, the s106 contractual rights and the lease rights to enforce the restoration obligations"; the transfer transaction to Oak was a sham; and the authorities' rights were prejudiced "because [the transfer] at least risked the money not being available for the [restoration] work" (paragraphs 66-69);
ii) gave some limited advice as to publicity and public relations (paragraph 78); and
iii) advised that the three partners "plainly have the ability to remove the suspected partners from the [partnership] agreement": he advised immediate suspension of Mr Whiteley, giving him time to make representations before a decision was finally made as to his expulsion (paragraph 79).
Mr Winter's advice makes clear that he was fully aware that the partners were likely to make his instructions and advice available to SOCA and other relevant authorities if they wished to see them; and, Mr Winter said (paragraph 76):
"Those documents plus the annexures to the brief will place the authorities in the full position to make a decision as to what action should be taken."
The SFO contacted the three partners on 21 December 2010. The instructions to and advice of Mr Winter were provided to the SFO, together with copies of documents. On 15 January 2011, the SFO formally accepted the case for investigation, on the basis that there was "clear indication that criminal offences had been committed"; and Mr Davies was included in the list of possible suspects.
On 16 March 2011, all of the Applicants save for Mr Davies were arrested. Mr Whiteley was immediately suspended from the M & A Solicitors practice, and was called to a partnership disciplinary meeting on 21 March; at which he was offered the choice of completing the disciplinary process, or waiving all claims against the firm and resigning. He chose the latter course, and signed a prepared letter of resignation at the meeting.
The SFO investigation proceeded. By late 2011, the SFO was looking to identify Lead Counsel for the case. Mr Winter was quickly made the first choice.
Several disadvantages of appointing him were identified, notably (i) he was not on the SFO panel, (ii) his usual hourly rate was far higher than the SFO threshold, and (iii) potential difficulties arising out of his role in previously advising the three partners, e.g. the three partners might have to be called and examined at trial and Mr Winter was a potential witness at least in any civil trial, about which the SFO Case Controller (Mr Ray Chitham) appears to have had particular concern when he joined the SFO in January 2013. It is important to note that these potential difficulties were recognised by the SFO from an early stage.
However, benefits of appointing him were considered to include (i) Mr Winter had already provided a detailed advice "which concluded that the transaction under investigation was prima facie a serious fraud" in the form of a conspiracy to defraud (see paragraph 35(i) above); (ii) Mr Winter's "prior knowledge of the papers in the case" would represent a saving in reading-in time of perhaps 70 hours, recorded as being "a significant cost saving", and would mean he could advise more quickly; (iii) his clerk was prepared to agree an all-in fee of £250,000 through to trial, which offered a significant reduction from his usual hourly fee and a level of certainty; and (iv) Mr Winter advised that he did not see there was any conflict, and did not consider his advice to the three partners was disclosable in the criminal proceedings.
On 29 March 2012, the SFO confirmed to Mr Winter that he was retained as the SFO Lead Counsel in respect of the case; and the SFO, by instructions dated 26 March 2012 but sent out that day, instructed him to advise on (i) the position of Mr Davies, and in particular whether he should be considered a suspect or a witness, (ii) whether each of the suspects had committed any criminal offences and, if so, what, and (iii) the potential charges against each defendant and the strength of the evidence against each. He was formally asked to consider any actual or potential conflicts of interest.
Mr Winter gave a detailed advice, and a conference took place in April or May 2012, at which he advised the SFO whether:
"… the first clients [i.e. the three partners], witnesses of fact for the prosecution, should waive privilege. It was decided after careful consideration that they would not do so." (Mr Winter's Advice to the SFO dated 24 April 2013, paragraph 8).
Statements were taken from each of the three partners – Mr Geen on 3 September 2012, Mr Berry on 21 December 2012 and Ms Sellek on 9 January 2013. Each referred to the fact that they had obtained advice from Leading Counsel, and broadly the scope of that advice; although the statements did not identify who that Counsel had been.
Mr Winter was fully involved in the case for the SFO, including drafting the charge. He maintained that Fraud Act offences had not been committed; and, when the issue was later raised, he advised that "the Insolvency Act has got nothing to do with the case…" (Email to Mr Chitham dated 28 May 2013). Therefore, possible statutory offences were considered, but rejected. On 21 January 2013, the Director of the SFO authorised the decision to charge all six Applicants with conspiracy to defraud.
Prior to Mr Davies in fact being charged, the website of Mr Winter's chambers indicated that he was involved in the prosecution of this case, with Celtic itself included as a defendant. That resulted in those representing Mr Humphreys writing to the SFO complaining about what they regarded as premature publicity.
Mr Chitham's concerns about Mr Winter's earlier role in advising the three partners remained. On 1 February 2013, at a time when none of the defendant Applicants had any idea that Mr Winter had had any previous role advising the three partners, Mr Chitham wrote to Mr Winter as follows:
"… [F]ollowing a discussion here with senior management about your role in providing an advice to the partners of M & A and any potential issue that the defence may make of this in the future, it was agreed that we would try and flush out the defence and ask them to articulate their concerns in this regard. I have given them until next Friday… to provide us with a response. We will then probably arrange a con to discuss next steps once you are back."
Letters to the Applicants were indeed sent. The only response from those representing the Applicants – unsurprisingly, given their ignorance as to Mr Winter's earlier role – was from those representing Mr Humphreys, to the effect that they were concerned about the premature publicity on Mr Winter's website, which was removed. They asked for enlightenment as to why the SFO had raised the matter.
On 6 February 2013, Mr Chitham responded by revealing, for the first time, "the involvement of Mr Winter QC in providing advice in December 2010 to the other partners of M & A Solicitors, who are potential witnesses". That letter did not disclose the scope or nature of that advice. It did not disclose that the advice given to the three partners was in respect of the matters being investigated by the SFO.
The response from the Applicants was perhaps predictable. The solicitors for Ms Bodman wrote to the SFO on that day (6 February 2013) saying that they were "fairly astonished that this matter is even being ventilated", that it must be professionally inappropriate for Leading Counsel to be involved with a criminal case in which there were witnesses to whom he had given professional advice, and they considered "Mr Winter too close to the case to impartially and fairly prosecute it". The solicitors for Mr Davies pressed for disclosure of relevant documents.
The matter was considered in a conference on 14 February 2013 involving the SFO and Mr Winter, who said the advice he had given the three partners and the SFO was the same, and he did not think there was a problem. The handwritten note of the conference says: "don't want to [illegible] Bar Council (their [or, possibly, 'then'] views are opposing)".
The scope and nature of the advice Mr Winter had given to the three partners had still not been disclosed. However, on 29 March 2013, the SFO served the first tranche of evidence pursuant to section 51 of the Crime and Disorder Act 1998, including the statements of the three partners which said that they had instructed a senior silk to advise as to their position in relation to the transaction now in issue in the criminal proceedings; and, at the preliminary hearing before Wyn Williams J on 4 April 2013, it was disclosed that that Queen's Counsel was Mr Winter.
The SFO sought a written advice from Mr Winter, who advised on 24 April 2013 as follows:
"9. In early 2013 witness statements were obtained from the first clients by the SFO. The witness statements go considerably further than they needed to in order to adduce the factual evidence and to produce the documentation. In particular the witness statements purport to give expert evidence to the effect that the activities of the three M & A solicitors (now defendants) were fraudulent. In the course of giving those opinions the first clients detailed the fact that they had sought advice from me and summarised the advice they had received.
10. I am of the view that in doing so the first clients have waived privilege. I have not, however,… been instructed that this is the case.
11. As a result of the witness statements having been taken in that fashion (and leaving aside for present purposes whether the purported expert opinion is admissible) those defending necessarily would become aware of the fact that the first clients had instructed and obtained advice from me….
12. I am of the clear opinion that not only am I not conflicted, the cab rank rule in the Bar Standards Board Code of Conflict [sic]… requires me to accept the instructions to prosecute the case….
13. The first clients are prosecution witnesses. Their position as a matter of fact is identical to the position taken by the SFO. They themselves have volunteered the information as to the fact that they had instructed me and the nature of the advice I gave them. The summary of that advice in their witness statements makes it clear that my position has been consistent throughout. I was given the same documentation (now augmented by the SFO's investigation) to advise the first clients and have taken the same view then as I do now…".
By May 2013, the SFO investigation had been on-going for about two years, and each Applicant had set out in writing his or her case, albeit in different forms, but essentially saying (amongst many other things) that the arrangements between Celtic and Oak were not unlawful. Those responses to the investigation were substantial.
Mr Winter prepared a Prosecution Case Statement dated 30 May 2013 ("the Case Statement"). In the statement and in line with his view that no statutory offences had been committed, he concluded that there was a proper evidential basis for the prosecution for conspiracy to defraud, and it was in the public interest to proceed against the six Applicants on a charge with particulars substantially the same as those set out in Count 1 above (see paragraph 8). I shall return to the prosecution case as set out in the Case Statement in due course (see paragraph 67 and following below).
The SFO also responded to correspondence written on behalf of the Applicants with regard to Mr Winter's role. For example, on 31 May 2013, the SFO wrote to the solicitors for Mr Davies:
"There is no conflict of interest in Mr Winter QC acting for the SFO having previously advised M & A Solicitors. Even if there were it would be a matter for Mr Winter QC and the Bar Standards Board. Since it is not accepted that Mr Winter QC is not independent then his involvement in the drafting of the Prosecution Case Statement and in the detailed review of the case against your client does not vitiate the quality of that review."
The SFO remained relatively coy about disclosing documents relating to Mr Winter's instruction by, and advice to, the three partners; but his essential advice to them was disclosed.
An application was issued on behalf of Mr Davies that the criminal proceedings should be stayed as an abuse of process, on the basis that the SFO had instructed Mr Winter who had earlier advised the three partners in respect of the same subject matter, an application replicated or supported by all of the other Applicants. The basis of the application is conveniently set out in the skeleton argument of Counsel for Mr Davies dated 1 August 2013 in support of the application:
"1. This application is for an order of stay of the… proceedings on the ground that it is impossible for the Applicant to have a fair trial and/or on the ground that a stay is necessary to protect the integrity of the criminal justice system…
2. The basis of the application is that the prosecution, and the decisions taken in connection therewith, lack independence, objectivity and fairness and/or are reasonably perceived to do so. These qualities are unarguably fundamental to the fairness of the criminal process and are supported universally by judicial dicta, prosecutorial Codes of Conduct, and the Bar Code of Conduct. In this case, however, the SFO chose to instruct leading counsel (Ian Winter QC) ('IW') knowing that he had prior to advising received instructions in writing and in conference from them, that he had expressed in writing the opinion to those clients inter alia that there was 'a clear prima facie case of fraud' and conspiracy to defraud, that 'there is sufficient evidence of dishonesty', that the scheme in question 'amounted to a sham'. That there was 'a number of unsatisfactory features' about the [Mr Davies'] written Opinion in this matter; and that [Mr Davies] must have known that it was a sham. IW's Opinion to his clients concluded (at paragraph 76) by stating '… that a copy of my instructions and a copy of this Opinion will be available to the police or the [SFO] should they desire to see them. Those documents plus the annexures to the brief will place the authorities in the full position to make a decision as to what action should be taken.'… The action that the SFO took was to instruct IW as its prosecution counsel. In doing so the SFO breached its Code and that of the Crown Prosecution Service. In accepting instructions IW contravened paragraph 603(d), (e) and (f) of the Bar Code of Conduct of England and Wales.
3. … The SFO has… been in possession of his Opinion to his clients dated 15 December 2010 since about the end of 2010 which it is to be presumed has informed or coloured this investigation.
4. … It is to be inferred that the SFO instructed IW after receipt of a copy of IW's Opinion and on the basis of the conclusions therein….
5. It is the submission of [Mr Davies] that the decisions, or the principal decision, taken to date in this prosecution are vitiated by a lack of independence, objectivity and fairness and that a stay should be ordered of these proceedings.
6. The principal problems are as follows.
(a) that the three private clients of IW are the complainants in relation to these events to SOCA and the SFO and are now prosecution witnesses
(b) that IW received lengthy written and oral instructions from them prior to writing his Opinion. The oral instructions and discussion are not known
(c) that on the basis of those instructions and material given to him by the private clients IW has expressed his Opinion in writing as to whether or not a fraud occurred and on [Mr Davies'] role
(d) that he had already reached conclusions and given firm advice prior to being instructed as prosecuting counsel
(e) that the SFO instructed him inferentially because of his existing involvement in the case and his conclusions
(f) that IW and his clients have, or are perceived to have, an interest in seeing their construction of events supported by a successful prosecution
(g) that the three private clients in fact would be likely to benefit from the 54.7% of the equity in M & A Solicitors belonging to Eric Evans and Alan Whiteley… if they had participated in a fraud with [Mr Davies]
(h) that the perception of IW going on to represent the prosecution agency to whom a copy of his Opinion and conclusions had been sent for the express purpose of triggering an investigation undermines the integrity of the criminal justice system
(i) that whether or not his private instructions concluded with the provision of his Opinion, IW owes a continuing professional duty to his clients to protect their best interests (Code paragraph 303)… and not to use confidential information received from them to their detriment (Code paragraph 702)
(j) that IW should not have been offered and/or accepted instructions by the SFO because it would be difficult for him 'to maintain professional independence' and/or 'the administration of justice might be or appear to be prejudiced' (Code paragraph 603)
(k) that a conflict, or the risk of conflict, clearly exists."
The references in that document were to paragraphs of the Bar Code of Conduct for England and Wales (8th Edition) which, so far as relevant, provided:
"Paragraph 303
A barrister:
(a) must promote and protect fearlessly and by all proper and lawful means the lay client's best interests and do so without regard to his own interests or to any consequences to himself or to any other person (including any colleague, professional client or other intermediary or another barrister, the barrister's employer or any Authorised Body of which the barrister may be an owner or manager);
(b) owes his primary duty as between the lay client and any other person to the lay client and must not permit any other person to limit his discretion as to how the interests of the lay client can best be served…"
"Paragraph 307
A barrister must not:
(a) permit his absolute independence, integrity and freedom from external pressures to be compromised;
(b) do anything (for example accept a present) in such circumstances as may lead to any interference that his independence may be compromised."
"Paragraph 603
A barrister must not accept any instructions if to do so would cause him to be professionally embarrassed and for this purpose a barrister will be professionally embarrassed
…
(d) if the matter is one in which he has reason to believe that he is likely to be a witness or in which whether by reason of any connection with the client or with the Court or a member of it or otherwise it will be difficult for him to maintain professional independence or the administration of justice might be or appear to be prejudiced;
(e) if there appears to be a conflict or risk of conflict either between the interests of the barrister and some other person or between the interests of any one or more clients (unless all relevant persons consent to the barrister accepting the instructions)."
"Paragraph 702
Whether or not the relation of counsel and client continues a barrister must preserve the confidentiality of the lay client's affairs and must not without prior consent of the lay client or as permitted by law lend or reveal the contents of the papers in any instructions to or communicate to any third person (other than another barrister, a pupil… or any other person who needs to know it for the performance of their duties) information which has been entrusted to him in confidence or use such information to the lay client's detriment or to his own or another's advantage."
Following receipt of the application to stay and further internal discussions, the SFO wrote to Mr Winter on 8 August 2013, saying that "it is no longer appropriate" for him to continue as Counsel in the case, for reasons which were set out to him thus:
"Even after winning the abuse argument (which we confidently expect to do) there remains the fact that the defence will undoubtedly continue to use their best efforts to bring your involvement with the prosecution witnesses into evidence. This could preclude you from examining certain witnesses. There is even a risk that you could become a witness of fact. As I am sure you will understand, we cannot afford to see the focus of any trial drawn away from the evidence to peripheral and unnecessary arguments to do with you. Quite apart from being an unfortunate distraction from the real matters in issue, we feel that it has the potential to place both the SFO and yourself in an embarrassing position".
Mr Parroy thereafter took on the role of prosecution Lead Counsel. The application for a stay on the basis of the instruction of Mr Winter was adjourned, pending the outcome of the Dismissal Application; and it was thus never determined.
The History of the Dismissal Application
The Director of the SFO authorised the decision to charge the Applicants with conspiracy to defraud on 21 January 2013. At the first hearing before Wyn Williams J on 4 April 2013, Leading Counsel for Mr Davies (then Ian Glen QC) indicated that a dismissal application would be made in due course. The SFO Case Statement was served on 30 May 2013, or very shortly thereafter. On 20 June 2013, solicitors for Mr Davies formally notified the court that he intended to apply for dismissal, and they would seek a dismissal hearing in due course. A copy of that letter was sent to the SFO.
A plea and case management hearing was fixed for 23 September 2013, before Saunders J. For that hearing, those representing Mr Davies lodged a note, confirming that a dismissal application would be made. It complained that Mr Davies had been charged without first seeking any explanation from him in respect of what was now, after service of the Case Summary (see paragraph 67 below), central to the conspiracy, namely the allegation that his opinion of 31 August 2010 – that the restoration obligations were transferred with the freeholds – was not only incorrect as a matter of law but, when he gave it, he knew it to be wrong. It contended that that opinion was in fact correct as a matter of law, and the allegation that Mr Davies gave it knowing it was wrong was not seriously arguable; and it set out the basis upon which that contention was made.
At the 23 September 2013 hearing, Mr Parroy (who had by then taken over as prosecuting Lead Counsel) undertook to review the case; and, in his written review of 9 October 2013, he confirmed that the Case Statement provided a proper and accurate reflection of the prosecution case; and, in particular, that the second opinion of Mr Davies was plainly incorrect, unsustainable and indeed bogus – and that opinion lay at the heart of the prosecution case.
Because of the dismissal application, Saunders J could not take any plea at the 23 September 2013 hearing. However, he gave directions for the resolution of the dismissal application and the abuse application that was also threatened. At that time, it was thought that the dismissal application should be heard only after the abuse application; but, at a further directions hearing before Saunders J on 21 October 2013, after Mr Parroy's review, it was agreed and ordered that the dismissal application should be dealt with first.
It was thus that the dismissal hearing was set down before me for hearing in December 2013.
The Development of the Prosecution Case
The prosecution case against the Applicants has been put in distinctly different ways over time, the various formulations and developments being set out and discussed in both the Dismissal Ruling (at [93] and following) and the VB Judgment (at [24] and following).
The First Iteration
The first iteration was the case as set out in Mr Winter's Case Statement dated 30 May 2013 (see paragraphs 55 and 62 above). The case against the Applicants was, in brief, as follows. None (or, at most, few) of the restoration obligations were transferred from Celtic to Oak, because either (i) the transfer of the freeholds was sham and therefore liable to be set aside, or (ii) the sale of the freeholds only transferred the liability to restore the surface and the obligation to restore the void caused by the mining remained with Celtic. The second opinion of Mr Davies – to the effect that all of the restoration obligations were transferred – was not only wrong in law but bogus in the sense that Mr Davies knew it to be wrong in law, being provided by him only because of the large fee he received to change his initial opinion. That dishonest and bogus second opinion was at the heart of the conspiracy – because Celtic's auditors were deceived by it, and consequently agreed that the provision in the accounts for future restoration costs could be very significantly reduced. That in its turn allowed for the large distribution to be made by the company, from which the Applicants benefited.
That case did not match the particulars of the offence – because those alleged that the conspirators intended that the financial liability to restore the sites would pass to Oak (see paragraph 9(iii) above) – but, as Fulford LJ remarked (at [27] of the VB Judgment), whilst that was a substantial discrepancy, it was clear that the case relied upon by the prosecution was that described by Mr Winter in the Case Statement.
As I have indicated, Mr Parroy's review of 9 October 2013, confirmed that the case would proceed on the basis of the Case Statement; and in particular that the prosecution case would be based upon the proposition that the second opinion of Mr Davies was plainly incorrect, unsustainable and indeed bogus.
The Second Iteration
The Applicants' defence was many limbed, but each submitted that, far from being plainly wrong and bogus, Mr Davies' second opinion was correct in law – and, for the purposes of the Dismissal Application, they instructed specialist Chancery and commercial counsel to make submissions on that issue. It was their case that the restoration obligations were transferred from Celtic to Oak with the freehold title; and the two elements of conduct relied upon as the means to effect the fraud as set out in the charge – the establishment of Oak in the beneficial ownership of the conspirators, and the transfer of the freehold title in the sites to Oak (see paragraph 9(ii) above) – were also both lawful.
The prosecution case remained on the basis of Mr Winter's Case Statement until the Dismissal Hearing. Mr Parroy's skeleton argument for that hearing dated 9 December 2013 suggested that the SFO intended to put its case somewhat differently; and, during the course of the hearing, he set out what the new case was. The focus moved away from the obligations left with Celtic following the scheme, to those that were transferred. It was now accepted by the SFO that significant restoration obligations (including, at least, those in respect of the surface down to the first seam of coal) passed to Oak as a result of the transfer of the freeholds. As a result, the rights of the MPAs and the Coal Authority to recover the costs of restoring the sites were "commercially and practically" prejudiced, should they ever choose to exercise their statutory power to carry out restoration works themselves and thereafter seek to recover the costs: prior to the transfer, the authorities had recourse to a domestic company with substantial assets whilst, after the transfer, the only recourse was to a BVI company worth neither powder nor shot.
The SFO suggested that this was not a substantial change in the prosecution case; but, as both Fulford LJ (at [31] of the VB Judgment) and I (at [117]-[124] of the Dismissal Ruling) found, it was a very substantial change, and patently so – the first iteration had been completely abandoned, in favour of a new case founded upon an entirely different legal analysis and being directed at the consequences of successful transfer of obligations to Oak rather than those that were retained by Celtic. This was a quite extraordinary volte face, apparently resulting from the SFO's realisation that there was no realistic prospect of showing that Mr Davies' second opinion was bogus, a crucial premise in the first iteration. The Applicants thereafter faced an entirely new case.
As Fulford LJ rightly remarked (at [31]), this change of direction meant that one of the main areas addressed by the defence – the question of ownership of various parts of the sites following the transfer of the freeholds – became irrelevant. The work that had been done on those issues – and the legal costs expended by the Applicants – had proved unnecessary, given the case that they now faced.
In the second iteration, the SFO always conceded that the transfer of the relevant restoration obligations – the object of the conspiracy – was lawfully effected by the scheme. As I have indicated (paragraph 9(ii) above), the only conduct or means relied upon in the particulars of charge were the establishment of Oak and the transfer of the freehold titles to Oak. Those were apparently lawful – and, indeed, during the course of the hearing, Mr Parroy conceded that both were lawful. On the basis of those concessions, the prosecution and defence were agreed: the arrangements between Celtic and Oak involved a lawful object to be attained by lawful means. On the basis of conventional jurisprudence, such arrangements could not amount to a conspiracy to defraud.
As a result, after the December 2013 hearing, I reconvened the court on 10 February 2014 to consider whether a conspiracy to defraud can comprise an agreement to achieve a lawful result by lawful means. The SFO, through Mr Parroy, contended it could. In the Dismissal Ruling, I held that, as a matter of law, it could not. The point was not revived on the VB Application.
The Third Iteration
At the reconvened hearing in February 2014, in addition to contending that a conspiracy to defraud could comprise lawful means to a lawful end, the SFO submitted that the establishment of Oak in the beneficial ownership of the conspirators and the transfer of the freeholds to Oak necessarily involved the conspirators committing offences under the Fraud Act 2006 (notably section 4, which concerns fraud by abuse of position), the victims of which were Oak and Celtic; and obtaining secret profits at the expense of Celtic. It was not alleged that any of the MPAs or the Coal Authority were a victim. Accordingly, it was posited that there was a conspiracy to defraud various public authorities, in which the "illegality" relied on was (i) conduct amounting to statutory offences under the Fraud Act perpetrated against two private companies, both owned and controlled by the conspirators, and/or (ii) taking of secret profits at the expense of one such company.
This yet further new case was not raised until the reconvened Dismissal Hearing in February 2014, and the Applicants had not had any opportunity properly to respond to it. In all the circumstances, I refused to allow the SFO to proceed on what was yet again (adopting Fulford LJ's term for it: see [93] of the VB Judgment) "a fundamentally changed case", not reflected in the particulars of charge – a ruling with which Fulford LJ summarily agreed (see [166]-[167] of the Dismissal Ruling, and [89]-[93] of the VB Judgment).
The Fourth Iteration
As part of the VB Application, in addition to Fraud Act offences, the SFO relied upon unlawfulness based on two other statutory provisions. Fulford LJ set out this new case as follows ([56]-[57] of the VB Judgment).
First, it was said that, under section 418 of the Companies Act 2006, the directors of Celtic were under a duty to reveal in the company's published accounts that the sale to Oak was a related-party transaction. If that information had been included, the MPAs would have had notice of the true nature of the transaction. Whenever the statement by the directors in their report is false as regards the relevant audit information, any director who knew it to be false, or was reckless as to whether it was false, and failed to take reasonable steps to prevent the report from being approved, commits a criminal offence. The Report of the Directors of Celtic and the Financial Statement for the year ending 31 March 2011 contained a declaration that there had not been a breach of section 418 of the 2006 Act, and that there were no transactions requiring disclosure in the current or the future year. It was the SFO's case that an offence contrary to section 418 was committed following the conspirators' agreement to hide the true nature of the related party transaction.
Second, it was argued that there was unlawfulness based upon section 423 of the Insolvency Act 1986. The SFO suggested that the transaction between Oak and Celtic was susceptible to challenge on the basis that it was a transaction that defrauded creditors, i.e. it was a transaction at significant undervalue with the purpose of putting assets beyond the reach of, or prejudicing the interest of, a person with an actual or a potential claim. It was submitted that the MPAs should be considered as potential "victims" of these transactions, if it could be established that they were capable of being prejudiced by them. A substantial purpose of the transaction was to prejudice Oak, which (the SFO argued) was the "debtor" within the meaning of section 423(5) of the 1986 Act, because it would never have the financial means to perform the restoration works. As a result, the interests of the MPAs were prejudiced, because they might wish to bring an action requiring the freeholder to make good the sites. Therefore, the MPAs, using section 423, could challenge the transfer of the freeholds and the restoration obligations; and the court would be able to reverse the transaction in its entirety, thereby requiring Celtic to pay Oak any sums that the court directs.
In the VB Application, the SFO employed specialist Counsel to deal with the issues that arose from these new bases of charge; and the substance of these arguments – which had never been deployed in the course of the Dismissal Application – were met by further specialist Counsel instructed on behalf of the Applicants.
In the event, Fulford LJ did not deal with the substance of the new bases of claim. He did not have to do so. After reviewing the law with regard to voluntary bill applications, he said of them (at [95]):
"This has not involved a simple and understandable change of heart by the prosecution. Instead, it reveals, as Hickinbottom J mildly expressed the position, that the SFO has not approached this case with 'particular analytical precision' ([paragraph 130 of the Dismissal Ruling]). I am unpersuaded that it would be in the interests of justice to permit the prosecution to use this exceptional procedure to reformulate the legal basis of the charge or charges when the case should have been presented on the current proposed legal foundations at the time the case was sent for trial. I am reinforced in that conclusion by the repeated shifts in the prosecution's stance in this regard, which have operated to the real prejudice of the accused. One of the consequences of seeking a voluntary bill of indictment is that nearly a year after the submissions of the Dismissal Application concluded, the court is being asked to decide whether the prosecution can conduct a trial against the accused on a wholly new legal basis…. This would constitute a misuse of this exceptional procedure: the trial process should not be used, deliberately or otherwise, to explore in repeat proceedings – from a range of profoundly different options – the most sustainable legal basis for prosecuting alleged criminals."
Costs: Legal Background
Although the court in its discretion may make a different order, the general rule for costs in civil proceedings is that the unsuccessful party will be ordered to pay the costs of the successful party (CPR Rule 44.2(2)). The costs of the VB Application are the subject of civil costs rules, and the SFO concedes – quite properly – that it must pay the costs of the unsuccessful VB Application. The only issue between the parties in relation to those costs is whether their assessment should be on the indemnity basis (as the Applicants contend) or the standard basis (as the SFO contends). I deal with that issue below (see paragraphs 185-194).
The Dismissal Application is, on the other hand, the subject of the criminal costs scheme.
In criminal proceedings, the principle that a successful party will normally recover his costs was, until recently, reflected in section 16 of the 1985 Act, which provides that:
"(1) Where –
(a) an information laid before a justice of the peace for any area, charging any person with an offence, is not proceeded with;
(b) a magistrates' court inquiring into an indictable offence as examining justices determine not to commit the accused for trial;
(c) a magistrates' court dealing summarily with an offence dismisses the information;
that court or, in a case falling within paragraph (a) above, a magistrates' court for that area, may make an order in favour of the accused for a payment to be made out of central funds in respect of his costs ('a defendant's costs order').
(2) Where –
(a) any person is not tried for an offence for which he has been indicted or sent for trial; or
(aa) a notice is given under a relevant transfer provision but a person in relation to whose case it is given is not tried on any charge to which it relates; or
(b) any person is tried on indictment and acquitted on any count in the indictment;
the Crown Court may make a defendant's costs order in favour of the accused.
…
(6) A defendant's costs order shall, subject to the following provisions of this section, be for the payment out of central funds, to the person in whose favour the order is made, of such amount as the court considers reasonably sufficient to compensate him for any expenses properly incurred by him in the proceedings.
…".
In short, where a defendant was charged and he successfully defended that charge, as a general rule he would have been entitled to his costs of defending the charge from central funds. Given that the prosecutor would normally be the State, costs being paid to a successful defendant of central funds was usually broadly equivalent to the "loser" paying the costs of the "winner".
However, that changed from 1 October 2012, when paragraph 2(2) of Schedule 10 to the Legal Aid, Sentencing and Punishment of Offenders Act 2012 came into effect. That inserted a section 16A(1) into the 1985 Act, which provides that, subject to exceptions not presently relevant:
"A defendant's costs order may not require the payment out of central funds of an amount that includes an amount in respect of the accused's legal costs…".
That reverses the general rule so far as criminal legal costs were concerned. Since October 2012, a successful defendant in criminal proceedings has generally not been able to recover the legal costs of defending himself: the only costs that he is now able to recover under section 16 are out-of-pocket expenses, such as fares to court.
However, the 1985 Act provides for a number of special costs orders for cases which fall outside the usual, namely:
i) Section 19 (and regulations made under that section) provides that a court may make an order that one party pay the costs of another party to criminal proceedings, where it is satisfied that the receiving party has incurred costs as a result of an "unnecessary or improper act or omission by or on behalf of" the paying party. Such an order can only be made against a party, but that includes a prosecutor such as the CPS or the SFO. Because a successful defendant does not usually mind by whom his legal costs are paid (as long as he does not have to pay them himself), before the 2012 changes to section 16, orders under section 19 were generally confined to situations where it was not deemed appropriate for costs to be paid out of central funds, e.g. where there was a private prosecutor.
ii) Section 19A gives the court the power to make a costs order against a legal representative where costs have been incurred as a result of an "improper, unreasonable or negligent act or omission" of that representative or his employee. Such an order can only be made against an individual legal representative (whether a natural or non-natural person), and not against a party.
iii) Section 19B empowers the court to make a costs order against any third party, where he has been guilty of "serious misconduct".
Before me, the Applicants' main applications in respect of the costs of the Dismissal Hearing are made under section 19. No application under section 19A for costs against any legal representative is made; although Mr Parroy contends that section 19A is relevant to the proper construction of section 19, and therefore I consider it immediately below (paragraph 89 and following). Section 19B plays no part in these applications, and I need say nothing further about it.
Wasted Costs Orders under Section 19A of the 1985 Act
The history of the courts' power to make costs orders against legal representatives is helpfully set out in the judgment of the Court of Appeal, delivered by Sir Thomas Bingham MR, in Ridehalgh v Horsefield [1994] Ch 205 ("Ridehalgh"). The court heard a composite group of six test appeals, in which the Bar and the Law Society were represented by Leading Counsel and, at the invitation of the court, the Attorney General nominated two Counsel to represent the general public interest. The court therefore had the benefit of full argument from a substantial number of eminent members of the Bar over six days in consolidated appeals specifically brought on to enable the court to consider all relevant principles and authorities, and give authoritative guidance.
The now-statutory jurisdiction derives from the inherent jurisdiction of the court over solicitors as officers of the court, "being founded on breach of the duty owed by the solicitor to the court to perform his duty as an officer of the court in promoting within his own sphere the cause of justice". Under that jurisdiction, the making of a costs order did not require a finding of dishonesty, criminal conduct or behaviour that would (e.g.) warrant striking a solicitor off the roll (Ridehalgh at page 227C-D, summarising the effect of the House of Lords decision in Myers v Ellman [1940] AC 282):
"While mere mistake or error of judgment would not justify an order, misconduct, default or even negligence is enough if the negligence is serious or gross." (Ridehalgh at page 227E).
As Sir Thomas Bingham explained in Ridehalgh (at page 224F-225F), the power of the court to order a legal representative to compensate a party to litigation for costs incurred as a result of his acts or omissions is an important safeguard to ensure that the adversarial litigation process, involving an essentially antagonistic relationship between the parties, functions fairly and effectively in the interests of the parties to litigation and of the public at large.
The jurisdiction was preserved by the Solicitors Act 1957 and, from 1960, regulated by the Rules of the Supreme Court. RSC Ord 62 rule 8(1) provided a threshold for the exercise of the discretionary jurisdiction, namely:
"… where in any proceedings costs are incurred improperly or without reasonable cause or are wasted by undue delay or any other misconduct or default…".
Ridehalgh makes clear that, the expressions "improperly", "without reasonable cause" and "misconduct" were there to be understood in the sense given to them by the House of Lords in Myers v Ellman (Ridehalgh at page 228B).
In 1986, the Rules of the Supreme Court were amended, RSC Ord 62 r 8 becoming Ord 62 r 11, but with some rewording, so that an order could be made:
"… where it appears to the court that costs have been incurred unreasonably or improperly in any proceedings or have been wasted by failure to conduct proceedings with reasonable competence and expedition…"
Thus, the implication that the relevant conduct must amount to professional misconduct was removed; and the reference to "reasonable competence" introduced, suggesting the ordinary standard of negligence and not a higher standard requiring proof of gross neglect or serious dereliction of duty (Ridehalgh at page 229H). That was, therefore, a relaxation of the criteria, making it easier to obtain a costs order against a solicitor, in respect of whom the jurisdiction was then unique.
The jurisdiction was placed on a statutory footing by the Courts and Legal Services Act 1990, which, from 1 May 1991, so far as civil proceedings were concerned, substituted a new section 51 into the Supreme Court Act 1981 (now the Senior Courts Act 1981), at the same time substantively replicated for criminal proceedings by the insertion of a new section 19A into the 1985 Act. Section 19A of the 1985 Act provides (so far as relevant):
"(1) In any criminal proceedings [the court] may… order the legal or other representative concerned to meet the whole of any wasted costs or such part of them as may be determined in accordance with regulations.
(2) …
(3) In this section…
'wasted costs' means any costs incurred by a party –
(a) as a result of any improper, unreasonable or negligent act or omission on the part of any representative or any employee of any representative…".
Therefore, as a result of that statutory intervention:
i) The jurisdiction was extended to all representatives, including barristers.
ii) "Wasted costs" is a term of art, defined for the purposes of criminal proceedings in section 19A(3) of the 1985 Act (and, for civil proceedings, in identical terms, in section 51(7) of the Senior Courts Act 1981). Although sections 19 and 19B deal with costs that may be rendered unnecessary (and thus "wasted" in a lay sense), "wasted costs applications" is a term properly restricted to applications made under section 19A and its civil equivalent.
The meaning of "improper, unreasonable or negligent" as applied to acts and omissions for the purposes of the threshold criteria for a wasted costs order was considered "not open to serious doubt" by the Court of Appeal in Ridehalgh. Sir Thomas Bingham said (at page 232):
" 'Improper' means what it has been understood to mean in this context for at least half a century. The adjective covers, but is not confined to, conduct which would ordinarily be held to justify disbarment, striking off, suspension from practice or other serious professional penalty. It covers any significant breach of a substantial duty imposed by a relevant code of professional conduct. But it is not in our judgment limited to that. Conduct which would be regarded as improper according to the consensus of professional (including judicial) opinion can be fairly stigmatised as such whether or not it violates the letter of a professional code.
'Unreasonable' also means what it has been understood to mean in this context for at least half a century. The expression aptly describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case, and it makes no difference that the conduct is the product of excessive zeal and not improper motive. But conduct cannot be described as unreasonable simply because it leads in the event to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test is whether the conduct permits of a reasonable explanation. If so, the course adopted may be regarded as optimistic and as reflecting on a practitioner's judgment, but it is not unreasonable.
The term 'negligent' was the most controversial of the three. It was argued that the 1990 Act, in this context as in others, used 'negligent' as a term of art involving the well-known ingredients of duty, breach, causation and damage. Therefore, it was said, conduct cannot be regarded as negligent unless it involves an actionable breach of the legal representative's duty to his own client, to whom alone a duty is owed. We reject this approach. (1) As already noted, the predecessor of the present Order 62 rule 11 made reference to 'reasonable competence'. That expression does not invoke technical concepts of the law of negligence. It seems to us inconceivable that by changing the language Parliament intended to make it harder, rather than easier, for courts to make orders. (2) Since the applicant's right to a wasted costs order against a legal representative depends on showing that the latter is in breach of his duty to the court it makes no sense to superimpose a requirement under this head (but not in the case of impropriety or unreasonableness) that he is also in breach of his duty to his client.
We cannot regard this as, in practical terms, a very live issue, since it requires some ingenuity to postulate a situation in which a legal representative causes the other side to incur unnecessary costs without at the same time running up unnecessary costs for his own side and so breaching the ordinary duty owed by a legal representative to his client. But for whatever importance it may have, we are clear that 'negligent' should be understood in an untechnical way to denote failure to act with the competence reasonably to be expected of ordinary members of the profession.
In adopting an untechnical approach to the meaning of negligence in this context, we would however wish firmly to discountenance any suggestion that an applicant for a wasted costs order under this head need prove anything less than he would have to prove in an action for negligence : 'advice, acts or omissions in the course of their professional work which no member of the profession who was reasonably well-informed and competent would have given or done or omitted to do'; an error 'such as no reasonably well-informed and competent member of that profession could have made' (Saif Ali v Sydney Mitchell & Co, at pages 218D, 220D, per Lord Diplock).
We were invited to give the three adjectives (improper, unreasonable and negligent) specific, self-contained meanings, so as to avoid overlap between the three. We do not read these very familiar expressions in that way. Conduct which is unreasonable may also be improper, and conduct which is negligent will very frequently be (if it is not by definition) unreasonable. We do not think any sharp differentiation between these expressions is useful or necessary or intended."
I shall return to this passage in due course; but the following are worthy of immediate note:
i) Judgment in Ridehalgh was given in January 1994, after the section 19 jurisdiction had been established and indeed three years after the meaning of "improper" in the context of section 19 was considered in Director of Public Prosecutions v Denning (1992) 94 Cr App R 272 ("Denning") (see paragraphs 104 and following below). However, the judgment in Ridehalgh did not refer to section 19 or Denning or the post-Denning section 19 cases referred to below; nor was section 19 or any of those cases even referred to in argument in Ridehalgh.
ii) The court considered each of the terms "improper", "unreasonable" and "negligent" to be familiar expressions, the meaning of which was to be considered in a non-technical way, not as hard-edged highly particular terms of art. In particular, the court deliberately declined to give "improper" – or the other terms – a "specific, self-contained meaning", instead preferring to construe them as part of the phrase in which they appeared in a broader, non-technical way – although with a meaning informed by the specific context of conduct during the provision of legal services. Given the derivation of the jurisdiction, it is unsurprising that the meaning of these terms was considered driven by this specific context.
iii) The court were specifically considering the civil wasted costs jurisdiction; but, at page 239G-H, Sir Thomas Bingham said this, under the heading "Crime":
"Since the six cases before the Court are all civil cases, our attention has naturally been directed towards the exercise of the wasted costs jurisdiction in the civil field. Attention has, however, been drawn in authorities… to the undesirability of any divergence in the practice of the civil and criminal courts in this field, and Parliament has acted so as substantially (but not completely) to assimilate the practice in the two. We therefore hope that this judgment may give guidance which will be of value to criminal courts as to civil, but we fully appreciate that the conduct of criminal cases will often raise different questions and depend on different circumstances. The relevant discretions are vested in, and only in, the court conducting the relevant hearing. Our purpose is to guide, but not restrict, the exercise of these discretions."
I shall return to that passage, which is relied upon by Mr Parroy (see paragraph 140(iii) below).
Ridehalgh was endorsed by the House of Lords in Medcalf v Weatherill [2002] UKHL 27 (see [13] and [50]); and, in respect of wasted costs orders against representatives, the scope of "improper, unreasonable or negligent" as set out in Ridehalgh has never been seriously questioned and is now well-established, having been settled for 20 years. Further citation of authority is therefore not necessary; although I should say that Mr Parroy referred me to Persaud v Persaud [2003] EWCA Civ 394, in which Peter Gibson LJ (giving the judgment of the court) followed Ridehalgh, saying that, for conduct to fall within "improper", "… the necessary impropriety must be a very serious one" (see [23]). That is a gloss on Ridehalgh; but it is fair to say that, looking at the authorities as a whole, they generally appear to require a relatively high threshold for the conduct of the relevant legal representative to be "improper" in the context of wasted costs. It is also to be noted that, as in Ridehalgh itself, Peter Gibson LJ in Persaud focused on the context of wasted costs applications and emphasised the need for a breach of the advocate's duty to the court (see [22]).
As I have said, there was no reference in Ridehalgh to section 19 or Denning. Further, the diligent researches of Counsel before me have failed to find any case concerning a wasted costs application in which the section 19 jurisdiction has been considered or any section 19 cases raised (with the exception of R v Walker [2010] EWCA Crim 63 ("Walker") to which I refer below: see paragraph 132).
Costs Orders under Section 19 of the 1985 Act
Section 19 of the 1985 Act provides :
"The Lord Chancellor may by regulations make provision empowering magistrates' courts, the Crown Court and the Court of Appeal, in any case where the court is satisfied that one party to criminal proceedings has incurred costs as a result of an unnecessary or improper act or omission by, or on behalf of, another party to the proceedings, to make an order as to the payment of those costs."
The relevant regulations are the Costs in Criminal Cases (General) Regulations 1986 (SI 1996 No 1335) ("the 1986 Regulations"), which came into effect on 1 October 1986 (regulation 1(1)). Regulation 3(1) provides (so far as relevant):
"… [W]here at any time during criminal proceedings [the court] is satisfied that costs have been incurred in respect of the proceedings by one of the parties as a result of an unnecessary or improper act or omission by, or on behalf of, another party to the proceedings, the court may, after hearing the parties, order that all or part of the costs so incurred by that party shall be paid to him by the other party."
If the court makes an order under section 19, it must specify the amount of costs to be paid (regulation 3(3)).
That regulation is complemented by CrimPR rule 76, which sets out the relevant procedure; and the accompanying Practice Direction (Costs in Criminal Proceedings). Rule 76.2(4)(b) provides that, if the court makes any costs order, it must identify the legislation under which the order is made. In respect of section 19 applications, rule 76.8(4)(c) requires an applicant to specify (amongst other things) the party by whom costs should be paid, the relevant act or omission, the reasons why that act or omission meets the criteria for making an order, and the amount claimed. Paragraph 4.1 of the Practice Direction (reflecting the analysis of Lord Woolf CJ in R (HM Commissioners of Customs and Excise) v Leicester Crown Court [2001] EWHC 33 (Admin) ("the Leicester case") at [12]), states:
"The court may find it helpful to adopt a three-stage approach (a) Has there been an unnecessary or improper act or omission? (b) As a result have any costs been incurred by another party? (c) If the answers to (a) and (b) are 'yes', should the court exercise its discretion to order the party responsible to meet the whole or any part of the relevant costs, and if so what specific sum is involved?".
Certainly, if the court embarks upon an exercise considering potential liability under section 19, it must consider and determine whether there has been an "unnecessary or improper act or omission" by a party (which, as I have indicated, includes the prosecution) during the course of the criminal procedure. Before me, there was a significant dispute as to the correct meaning of "unnecessary or improper" in this context, to which I now turn.
"Unnecessary or Improper Act or Omission"
The meaning of "improper" in the context of section 19 and regulation 3(1) of the 1986 Regulations was considered by the Divisional Court in Denning. The defendants were charged with contravening section 40(5) of the Road Traffic Act 1972 by using or permitting the use of an overloaded goods vehicle on a road. The proceedings were discontinued when it became apparent that the summons had referred to the wrong axle. The magistrates ordered the prosecution to pay the defendants' costs under section 19, on the basis of the prosecution's failure properly to review the file on receipt and at various times during the course of the proceedings. The prosecution appealed.
In dismissing the appeal, Nolan LJ (with whom Roch J agreed) said this (at page 280):
"… [I]t seems to me impossible to maintain that there were no grounds upon which the justices could reasonably conclude that there had been an improper omission on the part of the prosecutor. I would add in this connection that the word 'improper' in this context does not necessarily connote some grave impropriety. Used, as it is, in conjunction with the word 'unnecessary', it is in my judgment intended to cover an act or omission which would not have occurred if the party concerned had conducted his case properly… ."
On its face, that was a clear and unsurprising comment. An act or omission of a party is "improper" if it would not have occurred if the party concerned had conducted his case properly; in other words, if it results from, or is part of, the improper conduct of the case, no more and no less. The focus is therefore on the conduct of a party as a party.
Thereafter, for 20 years, that definition of "improper" in the context of section 19 was approved and applied consistently in the Administrative Court, both before single judges (e.g. R (Oddy) v Bugbugs Limited [2003] EWHC 2865 (Admin) (Pitchford J, as he then was) ("Oddy")) and before Divisional Courts (e.g. Suffolk County Council v Rexmore Wholesale Services Limited (1994) 159 JP 390 ("Rexmore"), Bentley-Thomas v Winkfield Parish Council [2013] EWHC 356 (Admin) ("Bentley-Thomas") at [17]-[18] and R (Singh) v Ealing Magistrates' Court [2014] EWHC 1443 (Admin) ("Singh") at [7]) including at least one Divisional Court over which the Lord Chief Justice Lord Woolf presided (the Leicester case, cited at paragraph 102 above, at [12]). Importantly, it was also approved and applied by the Court of Appeal (Criminal Division) in R v Choudhery [2005] EWCA Crim 2598 ("Choudhery") at [2]). In none of these cases was section 19A raised or considered, nor was Ridehalgh, nor were any of the wasted costs cases that followed Ridehalgh.
Thus, for more than two decades until March 2014 the wasted costs jurisdiction and the section 19 costs jurisdiction followed parallel courses, based upon different threshold criteria.
On 13 March 2014, Simon J sitting in the Crown Court at Bristol determined an application under section 19 for costs against the CPS arising out of a prosecution for gross negligence manslaughter and an offence under health and safety legislation (R v Counsell (Unreported, 13 March 2014) ("Counsell")). On 4 November 2011, Mr Counsell had conducted a firework display at Taunton Rugby Club which (the prosecution said) caused a series of multiple collisions on the nearby M5 motorway in which seven people died and many more were injured. At a late stage, the counts of manslaughter were discontinued; and the defendant was later held by Simon J as the trial judge not to have a case to answer on the health and safety count. The defendant sought a section 19 order against the CPS on the basis that they failed to carry out fully-informed, complete and reasonable reviews of the available evidence and the applicable law before authorising the charges and following receipt of the Defence Statement.
Simon J considered both Denning and Ridehalgh. He said that the wasted costs jurisdiction "should be a simple and summary process for the determination of the issue, without the formalities of disclosure and/or interrogation of the respondent"; and such applications "should not be allowed to become a wasteful form of parasitic litigation" to be used only "where there is a clear picture which indicates that a professional adviser has been negligent etc" (at [16](1) and (2), quoting Lord Woolf MR in Wall v Lefever [1998] 1 FCR 905). He also stressed the width of discretion in prosecutors when it came to decisions to charge or continue criminal proceedings (see paragraph 29 above). He said (at [16](4)):
"Where the application relates to a decision to prosecute, the Court should be careful to avoid being drawn into carrying out a close analysis either of a decision to prosecute or of a later review of such decision to see whether it was reasonable. There are a number of reasons for this. First, impropriety and not unreasonableness is the relevant test. Second, one of the principles underlying the wasted costs jurisdiction is summary disposal. In most cases where a wasted costs order is made, the conduct which is said to be improper will be clear, obvious and egregious. Thirdly, it is only in limited and confined circumstances that the Court will review charging decisions made by the CPS. The Court recognises that such decisions may be difficult and sensitive, see for example the decision of the Court of Appeal (Criminal Division) R v P [2011] EWCA Crim 1130 ['R v P']."
He then quoted from R v P (to which I shall return); and Sir John Thomas in L (referred to in paragraph 29 above) in which the President emphasised the important constitutional position of the CPS as an independent decision-maker assigned by Parliament to make decisions on charging suspects with criminal offences; the very strict self-denying ordinance of the courts in relation to challenges to charging decisions by them; the limited grounds upon which such decisions can be challenged; and the exceptional rarity of the amenability of such decisions to challenge. Simon J was of course in the constitution of the Divisional Court in L.
Following this review, Simon J continued (at [38]-[39]):
"38. In my judgment the test for impropriety is the rigorous test set out in Ridehalgh and for the reasons I have set out above: namely 'conduct which would be regarded as improper conduct according to the consensus of professional (including judicial) opinion'. If that is right, then the conduct of the CPS does not come close to satisfying the test; but even if the word 'improper' is to be construed to mean 'an act or omission which would not have occurred if the party concerned had conducted his case properly' (see [Denning]), I am not persuaded that Mr Counsell has proved such conduct…. Whether and how to charge were difficult and sensitive decisions; and the conclusion that charges of manslaughter should be brought was neither perverse nor made in disregard of CPS policy. The HSWA count proceeded to trial and, although the court ruled that there was no case to answer, that fact alone does not establish conduct which should be met with a wasted costs order….
39. Litigation (whether civil or criminal) is inherently subject to uncertainty and contingency; and any advice is likely to highlight these risks: witnesses who do not come up to proof, new materials which may lead to experts changing or modifying their opinion and unanticipated flaws in the evidential basis of the charge. The Court cannot approach a wasted costs application with the vision of hindsight. It must take a robust but not over-analytical view of what occurred, and unless the impropriety is clear and egregious, it should not countenance a detailed forensic examination of what occurred with a view [to] making a wasted costs order."
Simon J thus refused the section 19 application.
Mr Parroy relies upon Counsell; and also upon a Divisional Court case in which Simon J's approach was expressly approved, namely R (Director of Public Prosecutions) v Sheffield Crown Court [2014] EWHC 2014 (Admin) ("the Sheffield case"), in which there was a formidable constitution: Lord Thomas of Cwmgiedd CJ, Elias LJ and Mitting J. The Lord Chief Justice gave the judgment of the court.
In June 2011, three vehicles were involved in a road traffic accident, which resulted in a pedestrian being killed. The DPP decided that only one driver should be prosecuted for causing death by careless driving. He was tried and acquitted. After the acquittal, the trial judge determined that the failure to prosecute either of the other drivers involved was an improper act or omission, and he made a costs order against the DPP under section 19. There is no right of appeal against such an order. The DPP sought to challenge it by way of judicial review.
The Divisional Court held that the judge had no jurisdiction to use section 19 at the end of a trial to impugn the prosecutorial discretion to prosecute by imposing a section 19 order: a challenge to a decision to prosecute can only be made on the well-established grounds described in paragraph 29 above, and it is "a highly exceptional remedy" (the Sheffield case at [15]). The judicial review was consequently allowed on the ground that the judge had no jurisdiction to make the order he did make. That was all that was necessary to determine the case (see [17]).
However, Lord Thomas went on to say this (at [28]-[30]):
"28. As we have set out in the judgment given by the judge in this case he relied upon the definition of 'improper' set out in the decision of the Divisional Court in [Denning]. Although we have determined that the order must be quashed as the judge had no jurisdiction to make it, it is important to draw attention to the later decision of the Court of Appeal in [Ridehalgh]…. [The Lord Chief Justice then quoted the passage concerning the definition of 'improper' from Sir Thomas Bingham MR in Ridehalgh, quoted above at paragraph 96].
29. It is clear from a further passage in the judgment of the court at page 239 that this was meant to apply to criminal as well as civil cases. Sir Thomas Bingham said at page 239:
'We therefore hope that this judgment may give guidance which will be of value to criminal courts as to civil, but we fully appreciate that the conduct of criminal cases will often raise different questions and depend on different circumstances.'
30. We therefore wish to express our agreement with the view recently expressed by Simon J in his ruling in [Counsell] when he made clear that the test for impropriety is the rigorous test as set out in Ridehalgh and not the test set out in Denning."
Mr Parroy submitted that the Sheffield case is clear and direct authority for the proposition that, in respect of the meaning of "improper", rather than the test in Denning (i.e. simply a failure to conduct one's case "properly"), the more stringent Ridehalgh test with its higher threshold of impropriety should be applied in the current applications. Those appearing for the Applicants, ably led by Mr Beloff, submitted that the courts in Counsell and the Sheffield case unfortunately fell into error and, in the context of section 19 applications, the test in Denning is not only correct in principle, but I am bound by authority to follow it.
I accept that the passage in the Sheffield case upon which Mr Parroy relies was clear in its import – and, of course, the constitution of the Divisional Court in that case was of particular eminence. However, with regret, for the reasons set out below, I am unable to agree with the legal analysis relied upon in the Sheffield case; although, as will become apparent, I do not consider that the issue turns upon a simple choice between Denning and Ridehalgh, as portrayed in those cases and, to a large extent, in the submissions before me.
Conduct is "proper" if it conforms to prevailing standards of behaviour. However, what amounts to an appropriate standard of behaviour is necessarily a context-specific question: different standards are imposed on individuals depending upon the role in which they are acting. This is not – or not merely – a matter of the rigour of the standard, or how rigorously it is applied. For example, whilst the conduct of an individual in the context of his everyday affairs is subject to standards of behaviour that the general public would consider appropriate – in respect of which there is usually a very broad band of appreciation, in other words there is a wide range of different legitimate views – whether the conduct of a professional person in the conduct of his work is proper is a matter of judgment necessarily dependent upon his professional obligations and code of conduct, both formal and as generally expected of him by any regulators, fellow professionals and other informed individuals.
Legal representatives are the subject of all sorts of obligations that do not apply – or do not apply in the same way – to parties: obligations to the court, obligations imposed by the relevant regulators and codes of conduct and, of course, obligations to their clients including the professional duty of putting their client's case forcefully and fearlessly, a duty specifically identified in Ridehalgh as an important matter of public interest (see page 226A-C). Furthermore, unlike a party, a finding by a court that a professional lawyer has, in the course of his work, acted "improperly" might have serious professional consequences for that individual. Therefore, parties to litigation are in a very different position from that of professional lawyers representing parties in the conduct of litigation; and, as a matter of principle, one would expect different standards of behaviour to apply, reflecting those differences.
It should also be said that:
i) parties who enter litigation are not in the same position as general members of the public because, e.g., they do owe some duties to the court; and therefore the standard of their behaviour has to gauged against their position as litigants; and
ii) public prosecutors, who have a particular and unique role in criminal litigation (see paragraph 29 above) have a very different role and different obligations from a party to a civil claim or a criminal defendant who has no choice about his involvement; and so different factors apply to mould the standards of behaviour expected of them. As I have explained (see paragraph 22-29 above), different prosecutors have different roles, powers and obligations, and so what is expected of each may vary.
Thus, the behaviour of a civil litigant, a criminal defendant and a public prosecutor are all subject to different factors that make comparisons between them, so far as proper and improper conduct is concerned, difficult and potentially dangerous.
The fact that "improper" can have different meanings in different contexts was considered by a Divisional Court in Davenport v Walsall Metropolitan Borough Council [1997] Env LR 24 ("Davenport"), which, albeit obiter, considered the meaning of the word in sections 19A and 19 of the 1985 Act respectively. The case concerned a charge of statutory nuisance under the Environmental Protection Act 1990. By section 82(12) of that Act, where a nuisance is proved, then the court is required to "order the defendant… to pay the person bringing the proceedings such amount as the court considers reasonably sufficient to compensate him for any expenses properly incurred by him in the proceedings". In respect of the issue as to what expenses were "properly" incurred, the parties respectively relied upon Ridehalgh and Denning. Keene J, with whom Pill LJ agreed, said this:
"Neither party has been able to discover any judicial authority directly dealing with the interpretation of section 82(12) of the Environmental Protection Act 1990. I emphasise that, because words such as 'proper' or 'improper' may be used differently in different statutes. In particular, I do not find that much assistance is obtained from the decision about wasted costs orders in [Ridehalgh]. When what is being contemplated is the making of an order that the legal representatives of a party do personally meet the costs of proceedings, one would expect to find that the failings on the part of the representatives have to be shown to be somewhat more serious in order to be considered improper conduct than would necessarily be the case in other contexts. The comment by Nolan LJ in Denning is to my mind somewhat closer to the situation with which this court has to deal, although even then it is to be noted that in Denning the court was dealing with the phrase 'an unnecessary or improper act or omission'. Nolan LJ was, as is clear from his statement, influenced by the presence of the word 'unnecessary' in that phrase, a word which does not appear in section 82(12) of the 1990 Act. Nevertheless, that is a decision which was dealing with the question of costs in criminal proceedings before a magistrates' court and to that extent at least it may be thought to have some bearing on the present problem."
That case, in which the meanings in Ridehalgh and Denning were expressly considered, is thus in my view powerful support for the related propositions that (i) "improper" may have different meanings in different contexts; (ii) the contexts of section 19 and 19A are different; and (iii) the meaning of the word in those contexts is different. Keene J also provided sensible justification for such a difference. Until Counsell, this distinction was consistently recognised by the courts for over twenty years.
As I have mentioned, there was no reference to Denning in Ridehalgh, either in the judgment or in argument. Mr Parroy submitted that Denning was a highly relevant case on the meaning of "improper" in wasted costs applications, and ought to have been raised and dealt with in Ridehalgh: it was an error on the part of the court, and Counsel, for not doing so. However, I am wholly unconvinced that, if Denning were relevant as Mr Parroy submits, the ranks of more than able advocates in Ridehalgh would have failed to mention it and/or the Master of the Rolls or other members of the court would themselves have failed to raise it. It was, very clearly, not regarded by anyone in that case as a relevant line of authority in the context of wasted costs applications. That applies to those wasted costs cases which have followed and applied Ridehalgh without any reference to Denning (with the exception of Walker to which I refer below: see paragraph 132); and, equally, to all of the cases that have followed and applied Denning without reference to Ridehalgh or those wasted costs cases which have applied Ridehalgh. The parallel lines of authority have consistently regarded sections 19 and 19A as entirely discrete jurisdictions, with well-established and different threshold criteria.
If Mr Parroy's submission were right, it would not just be in Ridehalgh that the court erred: a whole generation of courts, and advocates before them, would have been blindly wrong in failing to appreciate that the two jurisdictions are, in this regard, the same and in developing each jurisdiction in parallel without reference to the other line.
However, comfortingly, I do not consider that we have all been wrong in the way Mr Parroy suggests. Mr Beloff submitted – and I accept – that there was no cross-reference because the two lines of authority developed in respect of two entirely discrete powers that did not require or warrant cross-reference. As I have already explained, the derivation of the provisions is entirely different, section 19A was born out of the inherent jurisdiction of the court over solicitors, and it is concerned with, not the acts and omissions of a party itself, but with those of professional lawyers as legal representatives of a party in litigation which result in wasted costs. Although different from the disciplinary jurisdiction of the court over representatives, it is closely associated with that jurisdiction. The focus of it is upon the duty owed by individual legal representatives, as professional lawyers, to the court: an order can only be made against a specific legal representative. On the other hand, section 19 derives purely from the 1985 Act, and is concerned with costs resulting from the acts and omissions of a party: a representative cannot be liable for costs under section 19, because he is not a party to the proceedings.
Indeed, this distinction was, in my view, recognised or reflected in Ridehalgh and Denning themselves. As I have indicated (paragraphs 96 and 97(ii) above), in Ridehalgh, Sir Thomas Bingham said that "improper" in section 19A has to be construed as part of the phrase "improper, unreasonable or negligent"; and, in construing that phrase, he emphasised that the focus is very much upon the specific context of the provision of legal services. Indeed, in the comments on each of the three adjectives employed in section 19A, he stressed that context. Nolan LJ made clear in Denning that "improper" in section 19 should be construed as part of the phrase "unnecessary or improper"; and, in construing that phrase, the focus is on the fact that an order can only be made against a party to the case in relation to his conduct in that case. In my view, the two cases can be explained and rationalised as applying the same principle, namely that, in determining what might be "improper", the context is a vital circumstance. Certainly, the distinction with regard to context explains the fact that the two lines of authority developed happily in parallel for twenty years, without any cross-referencing of statutory provisions or authorities.
R v P – a case upon which all of the parties before me relied, albeit for different propositions – is relevant in this context. It was another case where the defendant was acquitted by the jury. He had been charged with rape, and the issue was consent. Following acquittal, the trial judge made an order that the CPS pay the costs of the defendant on the basis that the judge disagreed with the decision to mount and continue the prosecution. The order did not identify the power the judge was exercising but, upon a telephone enquiry by the Court of Appeal (Criminal Division), the Crown Court apparently confirmed that it was section 19 of the 1985 Act. The Vice President (Hughes LJ, as he then was) summarised the three different jurisdictions under sections 19, 19A and 19B of the 1985 Act, and indicated the importance of the court identifying the power under which it acts. It is important because the conditions for making each such order vary, as does the person against whom it can be made; and the rights of challenge are different, a section 19A order being appealable, and a section 19 order being subject to challenge only by judicial review.
Hughes LJ, in comments reflecting those in ex parte C (see paragraph 29 above) and later reflected in L (again, referred to in paragraph 29 above) and the Sheffield case, said:
"… [T]he question in this case was not whether the decision to prosecute was right or wrong. It is simply not the judge's function to sit on appeal from a decision of the Crown Prosecutor. There may be very rare cases where the decision is wholly unreasonable. [Oddy] was a different case altogether. That prosecution was brought by a private interest group in pursuit of a commercial objective. The point at issue was one of pure law. It had been decided previously against the prosecution. There could have been a challenge to the ruling by way of appeal to the High Court but there had been none. Unlike that case, in most cases such as the present, there will be room for a legitimate difference of opinion. It is important that the making of that decision should not be overshadowed by the fear that if a prosecution is continued and fails there may be an order for the payment of costs. An acquitted defendant will normally receive his costs from central funds unless there is a good reason why he should not. We do not say that there will never be a case where a decision to prosecute is so unreasonable that a costs order is appropriate, but we are satisfied that this case was not arguably such. Here, the complainant's evidence might have been assessed as likely to be accepted. The flatmate's evidence might have been assessed as capable of disbelief. There was, we note, some material which perhaps suggested possible partiality. There were, it was said, some possible injuries to the complainant. We want to make it clear that we simply do not know whether the decision to prosecute was right or wrong. It is clear that it was made in good faith. Supposing, however, that it was a wrong judgment on a difficult issue, that is not enough to justify an order for costs and it would not have been even if the relevant powers had been properly considered. The judge's pejorative reference to political correctness was ill-conceived and inappropriate. There was no basis for his conclusion that no thought had been given to this case."
Mr Parroy prayed in aid that passage, because it stressed the wide discretion given to prosecutors and the "very rareness" of cases in which such a decision might be such as to warrant a section 19 costs order against the prosecutor. I shall return to that point. However, Hughes LJ clearly emphasised the need for the court to identify the power under which it is proposing or purporting to act: as I have indicated (see paragraph 102 above), for good reason, it is a requirement of the CrimPR (rule 76.8(4)(c)) that any order for costs identifies the power under which it is made.
Walker (to which I refer above: see paragraphs 99 and 125) was an appeal against a wasted costs order under section 19A. It was a non-counsel application, and so it may be presumed that the Court of Appeal (Criminal Division) did not obtain as much assistance as they might otherwise have done. In allowing the appeal and setting aside the wasted costs order, the court apparently applied the threshold test in regulation 3 of the 1986 Regulations ("unnecessary or improper act or omission") and thus in Denning (see [5]). Regulation 3 of course does not apply to wasted costs applications, only to applications under section 19. Although that analysis clearly did not affect the result – because, on the overtly stricter Ridehalgh test, the wasted costs order would inevitably have been set aside in any event – the case is a further illustration of the importance of identifying the power under which the court is acting, and the relevant criteria in exercising that power. In my respectful view, it is no stronger authority for the proposition that the Denning test is applicable to wasted costs applications, than Counsell and the Sheffield case are for the proposition that the Ridehalgh test is applicable to section 19 applications.
Mr Beloff submitted that, unfortunately, in Counsell, Simon J did not focus on the particular power under which he was acting. From the outset, he elided the court's powers under sections 19 and 19A, referring to "the wasted costs application" before him and treating Ridehalgh and other cases under section 19A as if they were applications under section 19.
Simon J clearly did not have all (or indeed many) of the relevant authorities placed before him as I have; nor did he have the benefit of the submissions I have had on the issue. With regret, I am driven to the conclusion that, in eliding the two powers as he did and thus transposing the threshold test set out by Sir Thomas Bingham in Ridehalgh in relation to the civil equivalent of section 19A as if it were directly applicable to section 19, Simon J did err in his legal analysis. I am confident that, had he had before him all of the relevant authorities (as I have), his conclusion would have been otherwise.
With reluctance, I am also driven to conclude that the Divisional Court in the Sheffield case – again without all relevant authorities before it, and without any debate – were also wrongly persuaded that the transposition made by Simon J in Counsell was appropriate.
Mr Parroy made a number of submissions as to the precedential weight to be given to Ridehalgh and Denning respectively.
First, he submitted that, until Counsell, Ridehalgh had never been considered in the context of a section 19 case, with the result that Denning had been applied without consideration or debate, such that, in some way, the Denning line of authorities may be less than binding on me. However, I do not agree. I have explained why there was no reference to Ridehalgh in these cases. Denning on its face is clear; until Counsell, it had been consistently applied in section 19 cases and, during that lengthy time, it was approved and applied regularly by the Divisional Court and at least once by the Court of Appeal in Choudhery. Denning is binding on me.
Second, Mr Parroy submitted that the Sheffield case was binding on me, or alternatively it was of such persuasive force as to be tantamount to binding. However, as Lord Thomas himself made clear, the passage in the Sheffield case upon which Mr Parroy relies was obiter, the court determining the application before it on the basis that the Crown Court judge had no jurisdiction to make the order he purported to make. It is therefore not technically binding on me as a matter of precedent. I appreciate the comments made were clear, and by a particularly distinguished court. But, the court's comments were made without the benefit of adversarial debate – only the DPP was represented before the court, coincidentally by Counsel who appeared in Counsell – and without any reference to or consideration of Denning or the post-Denning section 19 cases to which I have been referred (which show that Denning has been consistently applied without demur for over two decades), or cases such as Davenport and R v P which emphasise the difference between the criteria in the various costs regimes. Of particular importance, Choudhery (a Court of Appeal authority, which approved and applied Denning) was not cited to the court. It is also noteworthy that a Divisional Court has approved and applied Denning after the Sheffield case, in Singh (although apparently without any reference to the Sheffield case).
Therefore, in my respectful view, I am bound to follow Denning; and, insofar as there is difference in approach between Denning and Ridehalgh, I am bound to decline to follow the Sheffield case.
Finally, on this issue, there are four miscellaneous points raised before me with which I should briefly deal.
i) Mr Parroy relied upon the canon of construction that a word has the same meaning within the same instrument (see, e.g., Bennion on Statutory Interpretation (6th Edition), Section 355). However, that presumption is necessarily not as strong where, as here, statutory provisions within the same instrument have different well-established sources which have been consolidated into one instrument. Given the different derivations of the two relevant provisions, the presumption here is extremely weak. In any event, if (contrary to my strong view) there had to be a single meaning of the word, then there would be a compelling argument that the meaning is as the word was construed in Denning, which was first in time (judgment being handed down on 7 March 1991) and, albeit after the 1990 Act had been passed, prior to section 19A of the 1985 Act coming into effect on 1 May 1991. Section 19A was the later statutory provision, and the established meaning of section 19 could not have been altered by the subsequent change to the statute incorporating section 19A. In this case, the presumption within this tenet of construction does not offer any significant assistance to Mr Parroy.
ii) As I have indicated, Nolan LJ in Denning and Sir Thomas Bingham in Ridehalgh each made clear that the word "improper" should not be construed in isolation, but as part of the phrase into which it fits, i.e. for section 19, "unnecessary or improper act of omission" and, for section 19A, "improper, unreasonable or negligent act or omission". Each judge said that it was unnecessary to have discrete and isolated definitions of each of the adjectives, preferring a broader consideration of the relevant phrase. Thus, Nolan LJ in Denning did not seek to define "unnecessary"; but held that that word coloured the meaning of "improper" so that the phrase covered acts and omissions that would not have occurred had the matter been properly conducted by the relevant party. Similarly, whilst, on its own, "unnecessary" (which appears to date to have escaped judicial consideration and comment) has the import of something which could have been avoided, it too has to be read in the light of its juxtaposition with "improper".
iii) Despite the reliance on the passage in the Sheffield case, where Sir Thomas Bingham in Ridehalgh referred to "the undesirability of any divergence in the practice of the civil and criminal courts in this field" (emphasis added) and the action of Parliament to assimilate the practice of the two, he was expressly referring to the respective "wasted costs jurisdictions", and not to section 19 to which, as I have emphasised, the court was not referred in that case. That passage (quoted at paragraph 97(iii) above) is of no assistance to Mr Parroy.
iv) For the sake of completeness, I should say that the academic writers to which I was referred also acknowledge the difference in meaning of "improper" between the jurisdictions, as identified in Ridehalgh and Denning (see, e.g., Hurst on Criminal Costs (2007), paragraphs 7.04 and 7.23 and following).
Therefore, for the reasons I have given, in my judgment, on principle and on authority binding on me, in these section 19 applications I am bound to follow Denning.
However, that is not the end of the matter, because that does not shed a great deal of light on what is meant by "conducting the case properly" where the relevant party is the prosecutor. As I have indicated, what is proper in these circumstances has to be considered in the light of all the circumstances, including the role and obligations of a public prosecutor.
We learn from cases such as ex parte C, R v P and L that the prosecutor has a very wide discretion in relation to prosecutorial decisions such as the decision to charge or (after review) to proceed with a prosecution. Nothing I say in this judgment should be taken as in any way detracting from what those cases say about the very limited grounds on which a prosecutorial decision by a public prosecutor can be challenged, or the rarity of the amenability of such decisions to challenge; or as any indication that I disagree with the forceful comments in respect of those matters in those cases. Indeed, not only are those cases binding on me, I strongly agree with what is said in them on this subject. Furthermore, if I might respectfully say so, I strongly agree with the Lord Chief Justice's comments in the Sheffield case about the inappropriateness of section 19 applications being used collaterally to challenge prosecutorial decisions.
Therefore, it is clear that simply because a prosecution fails – even if it is discontinued or the defendant is found to have no case to answer – that in itself will not be sufficient to overcome the threshold criteria for a section 19 costs order. For example, where there is a change of circumstances during the course of a case (e.g. where a witness does not come up to proof) that does not necessarily render improper an earlier decision to charge or proceed. As Hughes LJ indicated in R v P, where the evidential position does not change and a case fails as a matter of law, then the prosecutor may be more open to a claim that the charge was improper; but, as Simon J properly remarked in Counsell, the test is one of impropriety, and not merely unreasonableness. Again, where a claim fails because of an adverse ruling on a question of law, that does not necessarily mean that the decision to charge was improper: no one has a monopoly of legal wisdom, and many legal points are properly arguable.
Something else is needed. Bad faith will of course almost always suffice. But otherwise, each case will necessarily be fact-dependent. For example, where a claim fails as a matter of law in circumstances in which the evidential position has not materially changed, then the prosecution may have acted improperly if (e.g) it has patently failed to give the case the appropriate degree of legal analysis that has led to a charge being brought and pursued which, as a matter of law, cannot succeed. Even in those circumstances, I stress that it is important that section 19 applications are not used to attack decisions to prosecute by way of a collateral challenge; and the courts must be ever vigilant to avoid any temptation to impose too high a burden or standard on a public prosecuting authority in respect of prosecutorial decisions. It is also important to bear in mind that the section 19 jurisdiction is summary in nature, and so, to form the basis of an application under section 19, the conduct of the prosecution must be starkly improper such that no great investigation into the facts or decision-making process is necessary to establish it.
Therefore, respectfully reflecting the comments of Hughes LJ in R v P and Lord Thomas in the Sheffield case, I consider that cases in which it will be appropriate to make (let alone grant) a section 19 application against a public prosecutor will be very rare, and restricted to those exceptional cases where the prosecution has made a clear and stark error as a result of which a defendant has incurred costs for which it is appropriate to compensate him. For example, where it is alleged that the decision to prosecute or a similar prosecutorial decision is the improper act upon which a section 19 application is founded, it is difficult to conceive of circumstances in which it could succeed unless the decision was shown to be unlawful in a public law sense, i.e. leaving aside decisions unlawful because made in pursuance of an unlawful policy of the prosecutor (or made other than in accordance with the prosecutor's own lawful policy), if the decision was one which no reasonable prosecutor could have made. If it is a decision that a reasonable prosecutor could have made, then generally a section 19 costs order will not be appropriate.
Consequently, although, for the reasons I have given, the threshold tests under section 19 and 19A respectively are conceptually different and not properly comparable, looking at matters more broadly, I do not consider that the hurdle under section 19 should be perceived as greatly "lower" than that under section 19A. In most cases – as the authorities illustrate – the result of applying either would be the same.
Summary of the Principles
It would be helpful to summarise the propositions I have derived from the statutory provisions, the authorities and principle, so far as section 19 applications for costs against public prosecutors are concerned.
i) When any court is considering a potential costs order against any party to criminal proceedings, it must clearly identify the statutory power(s) upon which it is proposing to act; and thus the relevant threshold and discretionary criteria that will be applicable.
ii) In respect of an application under section 19 of the 1985 Act, a threshold criterion is that there must be "an unnecessary or improper act or omission" on the part of the paying party, i.e. an act or omission which would not have occurred if the party concerned had conducted his case properly or which could otherwise have been properly avoided.
iii) In assessing whether this test is met, the court must take a broad view as to whether, in all the circumstances, the acts of the relevant party were unnecessary or improper.
iv) Recourse to cases concerning wasted costs applications under section 19A or its civil equivalent, such as Ridehalgh, will not be helpful. Similarly, in wasted costs applications under section 19A, recourse to cases under section 19 will not be helpful.
v) The section 19 procedure is essentially summary; and so a detailed investigation into (e.g.) the decision-making process of the prosecution will generally be inappropriate.
vi) Each case will be fact-dependent; but cases in which a section 19 application against a public prosecutor will be appropriate will be very rare, and generally restricted to those exceptional cases where the prosecution has acted in bad faith or made a clear and stark error as a result of which a defendant has incurred costs for which it is appropriate to compensate him. The court will be slow to find that such an error has occurred. Generally, a decision to prosecute or similar prosecutorial decision will only be an improper act by the prosecution for these purposes if, in all the circumstances, no reasonable prosecutor could have come to that decision.
Application of the Principles to this Case
In the application of the relevant principles to the facts of this case, at the outset, I should make two matters very clear.
First, as Fulford LJ emphasised (at [96] of the VB Judgment), in the Dismissal Ruling and the VB Judgment, he and I were only concerned with the case as formulated by the SFO against the Applicants from time-to-time; and nothing said in either should be taken as any kind of broader comment in respect of the criminality of the Applicants. I reiterate that caveat in relation to this judgment.
Second, it is important to emphasise that this is an application for a section 19 costs order against the SFO. No application has been made for a costs order against any specific legal representative. Generally, the Applicants have been properly careful to aim their criticism at the SFO, rather than at any specific legal representative(s)); and no individual legal representative has had any opportunity to make submissions in respect of his own conduct. It would therefore be inappropriate and unfair to level criticism at any of them. This judgment is focused on the conduct of the SFO, and nothing in it should be taken as any comment, one way or the other, in relation to the conduct of any specific legal representative.
Each Applicant stressed different aspects of the way in which the SFO investigated and prosecuted the alleged fraud against him. However, the focus of all were on two matters, namely, in short:
i) The fact that, despite several fundamental changes in the way the case was put and an acceptance by the Applicants for the purposes of the relevant applications that each had been dishonest, the SFO never formulated even a legally coherent and arguable case against any of the Applicants (or Ms Bodman), such that each iteration of the case was inevitably either abandoned or summarily dismissed.
ii) The SFO appointed Mr Winter as prosecution Lead Counsel, in circumstances in which he had already advised several prosecution witness (i.e. the three partners) in respect of the same matters, so that the independence and impartiality of the prosecution review and pursuit of the case was compromised, in fact and/or reasonable perception.
I have very much in mind that section 19 is essentially a summary procedure, and, as I have indicated, it requires an act or omission on the part of the prosecution that was a stark error. It is not appropriate to entertain a substantial fact-finding exercise: if I am to make an order, the basis of it must be relatively simple and straightforward, and be essentially apparent from the findings made in the Dismissal Ruling. That was generally accepted by those appearing for the Applicants; but they submitted that it was clear from the Dismissal Ruling (as confirmed in the VB Judgment) that the SFO committed a series of such errors.
The following is clear from that Ruling:
i) The charge as set out in Count 1 in paragraph 8 above was certified by the Director of the SFO (and thus sent by the Magistrates' Court to the Crown Court) on the basis of the prosecution case as set out in the Case Statement settled by Mr Winter on 30 May 2013.
ii) There was an inconsistency between the charge and the Case Statement. In short, the Case Statement was based on the proposition that the financial liability to restore the site did not pass to Oak, the fraud being focused on the second (and allegedly dishonest, bogus and crucial) opinion of Mr Davies to the effect that it did. The charge alleged that the conspirators intended that the financial liability to restore the sites would pass to Oak. Nevertheless, as the Applicants understood, the prosecution case was clearly that set out in the Case Statement.
iii) However, there was at least one fundamental problem with the prosecution case. It was dependent upon Mr Davies' opinion that the restoration obligations did pass to Oak being, not only wrong, but bogus in the sense that it was so patently wrong in law that he must have appreciated (and he did in fact appreciate) that it was wrong, only giving that opinion because he was being paid a large sum of money to do so. Of course, no one is infallible in the law – but the allegation that a Leading Counsel had prepared an opinion that was bogus imposed a particularly high hurdle for the prosecution. In the event, it was the Applicant defendants' case that Mr Davies' second opinion was, not only not bogus, but correct in law.
iv) As I have described (paragraphs 61-65 above), that was intimated at the first hearing before Wyn Williams J on 4 April 2013; and the essential basis of the Applicant defendants' case in respect of dismissal was set out in the note prepared and served on behalf of Mr Davies for the 23 September 2013 hearing. At that hearing – and until the Dismissal Hearing itself in December 2013 – the SFO insisted on pursuing a case on the basis that the opinion was bogus.
v) However, whilst the SFO have consistently refused to accept Mr Davies' legal analysis, during the Dismissal Hearing, it abandoned the case as Mr Winter had put it, in favour of a case based upon the premise that the restoration obligations were, to a very large extent, in fact transferred as Mr Davies had opined. From a case based on the premise that the obligations had not been transferred, it changed to a case based on the premise that they had. Mr Parroy's submission that Mr Davies may have come to a conclusion that the prosecution came to accept, but on a wrong legal basis, is not to the point: the first iteration was grounded on the conclusion of Mr Davies' opinion, not the legal analysis by which he formed it. Nothing had occurred to warrant the whole of the SFO's case being changed, except a belated appreciation that there was no realistic prospect of that case succeeding. That appreciation appears to have dawned upon the SFO at some stage between 9 October 2013 (when Mr Parroy reviewed the case, and confirmed it would proceed on the basis of the Case Statement with its dependence upon the opinion being bogus), and the Dismissal Hearing in December 2013 during which that iteration was unceremoniously abandoned.
vi) In the meantime, most of the Applicants had prepared the Dismissal Application on the basis of the first iteration; and, in response to the separate prosecution specialist legal team, had instructed their own specialist legal teams including Leading Counsel who had fully prepared to argue the merits of the issues raised in the first iteration. Amongst other things, as Fulford LJ emphasised in the VB Judgment (at [31]), all of the expenditure of costs by the Applicants upon the issue were entirely wasted, in the sense that the issues to which the costs went did not arise in the case after the first iteration had been abandoned.
vii) Following the abandonment of the case as set out in the Case Statement at the Dismissal Hearing, the SFO developed the second iteration. It contended that this did not amount to a substantial change in its case; but, clearly, it was fundamental. As I have indicated, the object of this conspiracy was the actual transfer of the relevant restoration obligations, by the means of the establishment of Oak and the transfer of the freehold titles to Oak. However, during the course of the Dismissal Hearing, the SFO conceded – if I might say so, entirely properly – that both the object of the conspiracy and the means were lawful. As a result, on conventional jurisprudence, the charge was bound to fail. I raised the issue of whether it was alleged that a criminal conspiracy could comprise lawful means to a lawful end; and, although Mr Parroy ran with that hare and put the arguments for it as well as they could have been put, I held that such a concept was unknown to the common law; and, in the VB Application, it was not suggested that that was wrong as a matter of law.
viii) The third and last iteration of the prosecution case that was raised in the Dismissal Hearing was clearly designed to find some illegality upon which to hang the conspiracy. At the reconvened hearing in February 2014, the SFO suggested for the first time that the establishment of Oak in the beneficial ownership of the conspirators and the transfer of the freeholds to Oak necessarily involved the conspirators committing offences under the Fraud Act 2006 and obtaining secret profits at the expense of Celtic.
ix) This new case was fraught with difficulties. As I have noted, Mr Winter had opined that there were no statutory offences here. In any event, as I commented in the Dismissal Ruling (at [167]), a charge of conspiracy to defraud various public authorities and only them, reliant for its illegality only on conduct amounting to statutory offences against two private companies (i.e. Oak and Celtic), would be a strange creature that, whilst conceptually possible, is hitherto unknown to, or at least undiscovered by, the common law.
x) But, in the event, I did not determine the merits of this new case – I did not have to – finding that, in all the circumstances, the prosecution should not be allowed to bring forward such a fundamentally changed case at that stage. That was a decision with which Fulford LJ agreed (see VB Judgment at [93]).
Those were the only iterations of the prosecution case prior to the Dismissal Ruling. They comprised an original basis of case which was abandoned at the Dismissal Hearing, and two later cases raised at or after the start of the Dismissal Hearing itself that were either abandoned or found by me to be bound to fail as a matter of law.
Of course, as I have said, a prosecutor does not act improperly merely because he brings a case that changes or fails, even if that failure occurs as an abandonment or summary dismissal. As a case proceeds, the strength of a case may change, because (e.g.) new evidence comes to light or witnesses do not come up to proof. A genuinely moot point of law might be decided in favour of a defendant.
However, in this case, there was no change in the evidential matrix. As Mr Parroy properly accepted at the costs hearing, other than the SFO's legal analysis of the case, nothing materially changed in the evidence or otherwise from the time the charge was brought to the VB Hearing. The SFO's legal analysis, as I have described, was subject to regular, cataclysmic change, each successive change being fundamental. By way of example only, the first iteration was dependent upon the opinion of Mr Davies that the restoration obligations were substantially transferred to Oak with the freehold of the sites being not only wrong but patently and bogusly wrong: the second iteration not only abandoned that premise, but was wholly dependent upon the restoration obligations having been transferred with the freeholds. The first iteration resulted from a view that no statutory offences had been committed: the third iteration was entirely dependent upon such offences having been committed.
Each of these iterations was either abandoned – presumably because the SFO accepted that there was no realistic prospect of a conviction on that basis – or it was summarily dismissed on the basis that, as a matter of law, it could not succeed. Each lacked legal merit and was without any realistic prospect of success. Each was, from the outset, doomed to fail.
Rexmore and Bentley-Thomas (cited at paragraph 106 above) suggest that, where a prosecution never stood any realistic prospect of success, that may form the basis for a section 19 costs order against the prosecuting authority (see Bentley-Thomas at [24] and [26] per Fulford J). I agree; but, even in those cases, an order does not automatically flow. All relevant circumstances have to be considered; and I accept that where, as in this matter, the prosecution case was the subject of a number of fundamental changes, with each case being destined to fail in any event, that would not of itself necessarily be sufficient to amount to an unnecessary or improper act or omission by the SFO. There may have been good or understandable reasons for such an unhappy state of affairs.
The SFO's difficulty in these costs applications is that both I and, in his turn, Fulford LJ were clear as to why this succession of doomed cases was put forward in the way that they were: the SFO never approached this case with the requisite degree of legal analytical care or precision. As Fulford LJ put it (at [93]):
"I fear the SFO in this case failed at the outset to identify the proper legal underpinnings of the charges, and instead it varied its case in law against the accused as the arguments unfolded and in response to the restrained but penetrating enquiries on the part of Hickinbottom J."
It is incumbent upon any prosecutor to mount a charge upon a clear basis, to which the defendant can respond. That obligation lies particularly heavily upon the SFO because (i) it is concerned with serious and complex crimes, and (ii) it is concerned with both the investigation and prosecution of crimes. In respect of such crimes, the SFO is bound to conduct its analysis of the case, both evidential and legal, with some real precision and care. As Fulford LJ said (at [95] of the VB Judgment), that analysis is required before the case is sent for trial: it is important that the legal basis is crystallised and subject to proper scrutiny before the matter is sent for trial. As the case develops thereafter, the analysis of course has to be kept under review.
As is clear from the Dismissal Ruling and the VB Judgment, in this case, the legal analysis by the SFO throughout this case was inadequate. Fulford LJ found (and I agree) that this failure was from the outset. He said (and, again, I respectfully agree) that, as the result of the failure to analyse the case properly, the case presented to the Applicants changed with the wind, most iterations in turn collapsing under the slightest breeze, to the real prejudice of the Applicants. It is simply not acceptable for the SFO to pursue a substantial prosecution without having properly tested the legal basis upon which that prosecution is brought, and to maintain that prosecution through a number of fundamental changes still without performing such an analysis.
The Applicants submit that, on that basis, I should find that the SFO acted improperly in launching any investigation against the Applicants into these matters, or alternatively in charging them; and there then followed an improper course of conduct, in which they pursued the case through the various iterations I have outlined.
Given the circumstances of the relevant transactions (and the fact that all of the Applicants, save for Mr Davies, conceded for the purposes of the Dismissal Application that, in their case, there was prima facie evidence of dishonesty), I do not consider it is arguable that the SFO's decision to investigate was improper within the meaning of section 19.
The contention that the decision to charge them was an improper act – because the decision was taken without an appropriate degree of legal analysis – has more force. As has been submitted on behalf of each Applicant, they had all responded to the investigation in some real detail and had all emphasised that the relevant arrangements were lawful.
However, given the relatively high threshold for impropriety even in section 19, the wide discretion in the SFO in respect of charging decisions, the fact that they had an opinion from Leading Counsel that such a charge was good and the existence of sufficient evidence upon which reasonably to conclude that at least five of the six Applicants had acted dishonestly, whilst the judgment is a fine one, I have concluded that the decision to charge was not improper. Whilst some of the Applicants had a stronger case than others – Mr Davies, for example – that is my conclusion in respect of all Applicants.
However, once the Applicants had brought forward their application to dismiss and set out fully the basis of it (i.e. 23 September 2013: see paragraph 62 above), I accept the Applicants' contention that the SFO thereafter acted improperly in contesting that application in the manner that they did. I appreciate that (i) the Applicants say that the case against them was not made clear until the Case Statement was served, so that they did not have an opportunity of responding to the case as put before, e.g. in their interviews, and (ii) prior to the 23 September hearing, each Applicant defendant had set out his/her case in some detail; and I accept that the SFO's conduct of the case might have been less than rigorous or even reasonable before the Dismissal Application was brought on. However, I do not consider their conduct to have included improper (or unnecessary) acts or omissions prior to the Applicants setting out their dismissal case for the purposes of the 23 September 2013 hearing. In my judgment, the SFO acted improperly in defending the dismissal application thereafter.
It was clear from the application that the case as put forward in the first iteration had no realistic prospect of success, as the SFO belatedly accepted. The other iterations were attempts to save a fatally-holed ship, that presented as a sequence of different cases that stood no real prospect of success or were in essence too late. Having accepted that the case as it had been sent to the Crown Court was unarguable, the SFO continued to fail to analyse the legal case against the Applicants with appropriate rigour, casting round for some means of saving the case and grasping at a succession of straws in the form of cases with, if anything, decreasing rather than increasing legal coherence and merit.
In my judgment, this is a quite exceptional case. This was not simply an error of judgment: once the dismissal application had been formally notified and its essential basis set out, no reasonable prosecutor in the shoes of the SFO would have contested that application in the manner that the SFO in fact did.
Consequently, in my judgment, the section 19 threshold is satisfied, on the basis of the Denning test. However, even if the Ridehalgh test were appropriate and applicable, and insofar as it applies a higher threshold, the manner in which the SFO conducted this prosecution after the Dismissal Application had been issued was in my view clearly conduct that would not be regarded as proper according to the consensus of professional (including judicial) opinion, such as to satisfy the Ridehalgh test. This is one of the cases in which the threshold test, no matter how formulated, is satisfied.
The identified failure by the SFO clearly resulted in the parties incurring costs. Some of the costs incurred can be seen as particularly starkly caused by the failure – e.g. the costs of the specialist counsel employed by the Applicants at the Dismissal Hearing to deal with and counter the case as set out in the Case Statement concerning the effects of the transfer of the freehold of the sites to Oak – but the omission led to the continuance of the prosecution against each of the Applicants on a variety of bases that could never succeed as a matter of law.
The costs resulting from the SFO's improper acts as I have found them are, on the face of it, the costs of each Applicant from the 23 September 2013 hearing before Saunders J, including the hearing itself. Subject of course to appropriate assessment, all of those costs causally flow from that SFO failure.
In the light of that finding, I need not deal in great detail with the alternative ground relied upon by the Applicants, namely the instruction of Mr Winter. In any event, in substance, this was generally not portrayed as a separate ground, the Applicants simply contending that the instruction of Mr Winter explains why the SFO became locked into a case that could never succeed. Furthermore, as I have stressed, the applications before me are focused on the conduct of the SFO and not individual legal representatives, who have not had the opportunity of being heard. I therefore deliberately restrict my comments in relation to Mr Winter being instructed by the SFO. I re-emphasise that nothing I say should be taken as endorsing any suggestion that Mr Winter acted improperly or in breach of his professional duty in accepting instructions to prosecute when he was already acting for the three partners, or as commenting at all upon his conduct.
However, focusing on the SFO's conduct, it is only right that I say this.
Paragraph 603 of the Bar Code of Conduct (quoted at paragraph 58 above) at the material time provided that a barrister must not accept instructions where to do so could cause him to be professionally embarrassed, and he will be professionally embarrassed if:
"… the matter is one in which he has reason to believe that he is likely to be a witness or in which whether by reason of any connection with the client or with the Court or a member of it or otherwise it will be difficult for him to maintain professional independence or the administration of justice might be or appear to be prejudiced".
That is now reflected in Guidance Note gC73 of the Bar Standards Board Handbook.
It is well-established – and, in any event, common sense – that this might apply where a barrister accepts instruction to prosecute in circumstances in which he is already acting in civil proceedings for the complainant (see, e.g., R v Leominster Magistrates' Court ex parte Hereford and Worcester County Council (Unreported, 19 December 1996)) and/or where he is already acting for potential prosecution witnesses.
In this case, the SFO identified from the outset the potential difficulties there would be if Mr Winter was instructed to prosecute, having already advised the three partners, including the possibility of him being a witness in at least a civil claim in respect of the same subject matter (see paragraph 40 above). However, the primary reasons for instructing him were that he had already advised the three partners and thus would need less reading-in time (thus potentially saving costs); and he had already advised them that the relevant transaction was prima facie a serious fraud (see paragraph 41 above). In my view, there was from the outset a real chance that his future review of the prosecution case would be coloured by that earlier advice – or there could be a reasonable perception of such colouring – and that he would advise that there was a conspiracy to defraud because he had already advised to that effect and that was one reason why he was instructed to prosecute or that there could be a reasonable perception of such entrenchment. I stress that, even if there were no conscious influence – and I do not suggest that there was any such – then there was a real risk that the past advice to the three partners might subconsciously influence a prosecuting Counsel in the circumstances of Mr Winter and/or there might be a reasonable perception of such influence.
It is no answer for the SFO to say that Mr Winter himself said to them that he did not consider there was a potential conflict. Mr Winter may not have been the best person from whom to seek advice as to whether he was in a potential conflict. The SFO was required to consider the matter for itself.
Nor is it an answer that Mr Winter had given the three partners and the SFO identical advice – if that is what he did – because the three partners would clearly obtain a potential benefit from the successful prosecution of Messrs Whiteley and Evans, particularly as they would or might benefit directly from the expulsion of those two men from the M & A Solicitors partnership.
The manner in which this matter was apparently raised with the Applicants is also the subject for some reasonable concern. As I have described (see paragraph 47 above and following), before the Applicants were aware of any earlier involvement of Mr Winter with the matter, the SFO determined to "flush out" what the Applicants knew of it – which was in the event, nothing. It was only when Mr Chitham disclosed that Mr Winter had earlier been retained on some unspecified matter – and, later, the statements of the three partners were disclosed – that his role was revealed. Later requests for disclosure of the relevant documents were also met with a coy, and belated, response.
These are only examples of why the Applicants contend the instruction of Mr Winter by the SFO was unwise. All of these matters were clearly appreciated by the SFO Case Controller Mr Chitham from January 2013, and he was concerned by them. In my view, his concern – and that of the Applicants – was fully justified. It is simply impossible to see why it was thought by the SFO that, given his earlier role in advising the three partners (of which the SFO were fully aware), instructing Mr Winter to advise and prosecute this case was a good idea.
However, given that this is a summary procedure and on the evidence I have before me, I am unpersuaded that it would be appropriate for me to make a section 19 order against the SFO on the basis that it instructed or continued to instruct Mr Winter. On what I have before me, whatever the reasonable perception might have been, I am not persuaded that Mr Winter was in fact, in giving his opinion to the SFO, influenced by the fact that he was instructed by the three partners and gave them the advice he did give them. In the circumstances of this application, although it may well have been unwise and unreasonable, I am not prepared to find that, in instructing Mr Winter, the SFO acted improperly in conducting the case; or that there was any relevant unnecessary or improper act or omission by the SFO in respect of this aspect of the case. In these applications, it would not be appropriate to make such findings on the evidence I have before me.
Costs of the Dismissal Application: Conclusion
For those reasons, I consider it is appropriate to make an order under section 19 of the 1985 Act. I consider the costs caused by the relevant acts of the SFO are the five Applicants' costs of the criminal proceedings from (and including) the 23 September 2013 hearing before Saunders J.
Under the section 19 scheme, I must make that order in a specific sum; and, having determined the issue of liability, I propose giving directions for the assessment of the costs due, which will be the subject of a separate exercise if those costs cannot be agreed.
Costs of the VB Application
Subject to exceptions not relevant to this case, the costs of an application in the High Court are governed by the CPR, even where arising from a criminal case (CPR rule 2.1(1)).
The relevant principles are uncontroversial. The general rule is that costs follow the event (CPR rule 44.2(2)(a)); and, in the case of the VB Application, the SFO accept that there are no circumstances here that would warrant any different order.
However, the Applicants seek an order for the assessment of those costs on the indemnity basis, rather than the standard basis. The differences in practice are:
i) Proportionality has no place in indemnity costs. On the standard basis, claimed costs are recoverable only if they are reasonable and proportionate; on the indemnity basis, costs are recoverable if they are simply reasonable. Given the serious nature of the issues in this case, the room for costs that were reasonably but disproportionately incurred might be – indeed, should be – less than in some other cases.
ii) The burden of proof. On the standard basis, the burden of proof of showing the claimed costs are reasonable and proportionate lies on the receiving party; on the indemnity basis, the burden of showing the claimed costs are not reasonable generally falls upon the paying party.
The Court of Appeal has consistently declined to give guidance as to when an order for costs might be appropriate, on the basis that there is an infinite variety of situations that might justify an order and CPR Part 44 gives judges a very wide discretion (see the commentary in Civil Procedure (The White Book), paragraph 44x.4.3).
In the exercise of that discretion, the court must take into account all relevant factors, but particularly the conduct of the paying party. The courts have emphasised that the making of a costs order on the indemnity basis is only appropriate where the conduct of the relevant party is such as to take the situation out of the norm (Excelsior Commercial and Industrial Holdings Limited v Salisbury Ham Johnson [2002] EWCA Civ 879 at [12] per Lord Woolf MR commenting on CPR rule 44.3). The cases show that, short of deliberate misconduct or dishonesty, unreasonable conduct to a high degree will suffice. To take a case materially outside the norm, there needs to be a significant level of unreasonable or otherwise inappropriate conduct in the wider sense (R (Rawlinson and Hunter Trustees) v Central Criminal Court [2012] EWHC 3218 (Admin) at [6](c) per Silber J, approving the commentary then appearing in the White Book). Although indemnity costs may be ordered where there is no abuse of process or other conduct deserving of moral condemnation (Reid Minty v Taylor [2001] EWCA Civ 1723), in most cases such an award explicitly or implicitly marks an expression of disapproval by the court of the way in which the litigation has been conducted. Inappropriate conduct is used in the widest sense, to include the party's pre-litigation dealings with the receiving party (National Westminster Bank plc v Rabobank Nederland [2007] EWHC 1742 (Comm)).
Examples of cases to which I was referred, illustrate the circumstances in which an indemnity costs order might be appropriate, e.g.:
i) where a party maintains a claim or application which it knew or ought to have known was doomed to fail on its facts and on the law (Wates Construction Limited v HGP Greentree Allchurch Evans Limited [2005] EWHC 2174 (TCC) and Noorani v Calver [2009] EWHC 592 (QB));
ii) where a party changes its case making it more difficult for another party to understand and respond to it (see Select Healthcare (UK) Cromptons Health Care Limited [2010] EWHC 3055 (Pat) at [13]-[14] per Mann J: in which the judge noted that the case changed "with decreasing rather than increasing clarity"); and
iii) where a party casts its case disproportionately widely and requires an opponent to meet such a claim (Digicel (St Lucia) v Cable and Wireless Plc [2010] EWHC 888 (Ch) at [47]).
The VB Application was refused by Fulford LJ on the following primary bases:
i) For the purposes of the VB Application, the SFO accepted that a conspiracy to defraud must incorporate some unlawfulness, either in its object or its means. They had conceded at the Dismissal Hearing that both object and means relied upon were lawful.
ii) In relation to the third iteration – based on the premise that the conspiracy did involve unlawful means because the conspirators had committed Fraud Act offences – Fulford LJ found that that the application was based upon a misunderstanding of my Dismissal Ruling, which was that I declined to rule on that fundamentally new case.
iii) With regard to the "new case", Fulford LJ found – in two succinct paragraphs – that it was not in the interests of justice (and would be a misuse of the voluntary bill procedure) to permit the SFO fundamentally to reformulate its case when, if the SFO had wished to pursue such a case, it could and should have been formulated at the time the case was sent for trial. He said he was reinforced in that view by "the repeated shifts in the prosecution's stance in this regard, which have operated to the real prejudice of the [Applicants]" (VB Judgment at [95]).
It is submitted on behalf of the Applicants that the conduct of the SFO up to the date of the Dismissal Ruling was (as I have found) "improper"; and its conduct thereafter was no better. The consequences of its failure properly to analyse the case continued, with the result that a VB Application was brought that itself stood no realistic prospect of success, given the high hurdle that such an application has to surmount. Although there was substantial argument before Fulford LJ – in particular on the merits of the new case, which he dismissed on the ground that it was not in the interests of justice to allow the case to be changed as that new case demanded – the judge dismissed each of the grounds upon which the application was sought in summary fashion. The failure of the SFO to show that any aspect of the application had any merit should (it is submitted) be visited in costs on an indemnity basis.
I have considered the circumstances in which the VB Application was brought and contested by the SFO, having particularly in mind that I was not the judge who heard the application. Having done so, I am persuaded that an order should be made on the indemnity basis. In coming to that conclusion, I have taken into account all of the relevant circumstances, but particularly the following:
i) The application sought to bring a voluntary bill against the Applicants following a Dismissal Application during which, as I have found, the SFO's conduct of the case was "improper" within the meaning of that word in section 19 of the 1985 Act, in that, even after the deficiencies in the prosecution case had been presented to it, the SFO failed adequately to analyse the legal case against the Applicants with the result that it pursued against them a number of iterations of case, each of which as formulated had, from its advent, no realistic chance of success. That pre-VB Application conduct is a relevant factor in relation to this issue. The failure legally to analyse the case against the Applicants – and the consequences of earlier failure so to do – continued through the VB Application.
ii) The application was brought without proper cognisance of the high hurdle a prosecutor has to overcome in relation to a voluntary bill. The application in respect of the charge brought before me was summarily dismissed by Fulford LJ. The application in respect of the iteration based on Fraud Act illegality was (Fulford LJ found) founded on a misunderstanding of the way in which I dealt with that issue in the Dismissal Hearing: if I might say so, I do not see how that (mis)understanding could have reasonably been formed, given what I said in the Dismissal Ruling. Fulford LJ ruled that the other, new iteration was simply too late, and that it would be a misuse of the voluntary bill procedure to allow the SFO to try and proceed on that basis. He found that there was no merit in any ground.
iii) In respect of the new iteration, that was the subject of full argument over several days, involving specialist Counsel. As with the specialist Chancery and commercial Counsel before me, the costs of those issues were in any event wasteful, because the basis of charge was disposed of by Fulford LJ summarily. On any view, the SFO tried to widen the scope of the claim beyond its proper limits.
This application was, on any view, outside the norm. In my view, the conduct of the SFO took it there; and, despite the very high hurdle, I am satisfied that that conduct is worthy of being marked by this court with costs on the indemnity basis. |
Introduction
This is the review of a minimum term imposed on a person convicted of murder who was under 18 at the time of the offence and who was sentenced to detention during Her Majesty's pleasure. The House of Lords in R (Smith) v Secretary of State for the Home Department [2005] UKHL 51; [2006] 1 AC 159 [16], held that the tariff for a person sentenced to detention during her Majesty's Pleasure may be reduced on reconsideration if there is clear evidence of exceptional and unforeseen progress.
Background
The applicant in this case is Lewis Samuel Faulds, who was convicted of the murder of Bradley Whitfield in the Crown Court at Nottingham in November 2008. On 28 November 2008, Mrs Justice Dobbs ordered that he be detained at Her Majesty's pleasure. She specified nine years, less 31 days spent on remand as the minimum term to be spent in custody. At the time of his conviction Lewis Faulds was 16 years old, having been born on 6 January 1992. His three co-defendants were also convicted. His step father, Darren Carr, was convicted of murder and sentenced to life imprisonment with a minimum term of 16 years, less the 329 days spent on remand. Lewis Faulds's mother, Nicola Faulds, was convicted of manslaughter, and a sentence of 8 years, less the 329 days spent on remand, was imposed. Lewis Faulds's girlfriend, Chelsea Faxon, was also convicted of manslaughter and was sentenced to 5 years imprisonment, less the 31 days spent on remand.
The background to these convictions was set out in the sentencing remarks of Dobbs J.
"In the early hours of New Year's Day 2008 sixteen year old Bradley Whitfield and his friends were wending their way home when they came across the four defendants in this case. Minutes later, Bradley Whitfield was dead from a wound to his neck caused by a broken bottle wielded by Darren Carr. Whether the incident was sparked by comments by Bradley Whitfield's group or the defendants' group, what is clear is that it was the defendants who, although not necessarily all at the same time, went towards Bradley Whitfield's group and launched an attack which led to the death of this young man. That there was a sustained, albeit short attack, on Bradley Whitfield is apparent from injuries suffered, namely abrasions and bruises to the face, shoulders and parts of the legs, bruising to the back, cuts to the neck and upper chest, cuts to the face and neck, including the fatal wound to the left mid-neck which severed the carotid artery and internal jugular vein, a wound which was 6 centimetres deep and which reached to the back of the throat and from which a piece of glass was recovered. The left cheek bone suffered a serious fracture, an injury consistent with severe force. No defence injuries were found or injuries to suggest that Bradley Whitfield had thrown a punch himself or wielded a bottle. These injuries were, in the expert's uncontradicted opinion, consistent with multiple blows.
The only eyewitness, Jordan Tighe, described the assault as started by a female with a pole, Nicola Faulds, with the others joining in hitting Bradley Whitfield, followed by the younger male grabbing hold and dragging Bradley Whitfield whilst the older man hit him with a bottle on the head and, when Bradley Whitfield was on the ground, clearly in a bad way, the older man kicked him in the head as if he were kicking a football.
Following that assault you all then ran off, hid from the police and, as is shown by the jury's verdict, concocted a story about self-defence which was roundly rejected by the jury."
Dobbs J then dealt with each of the defendants. About Nicola Faulds she said that she had clearly condoned the heavy intake of alcohol, if not drugs, by her son and his girlfriend, and it was not surprising that concerns were raised about her parenting. As to Chelsea Faxon, she would appear to have been the first person to go over to the group, which included Bradley Whitfield. Had she not done so, the incident may not have happened. She now has facial scars from what happened for the rest of her life. Dobbs then set out the particular role that Lewis Faulds played in Bradley Whitfield's death:
"I sentence you… on the basis that you did not actually wield a bottle but, nevertheless, there is evidence from the prosecution witness, as I have already set out, namely that the younger male was grabbing hold of Bradley and dragging him in the road when the older man was using a bottle on him. That and the other evidence justifies the jury's verdict in your case. If there was any doubt as to your state of mind one only has to look at the evidence of Karen Ingram who described the angry youth with a cap hitting the stick against the fence. Although the evidence was that you were not wearing a cap, the evidence clearly connected the young man to the group of females who ran away. Also, there was the evidence David Birkett at the hospital, which indicated that you told him that you had got one of the group and you held two fists up as you told him. David Bannister, also at the hospital, was told by you that you had left one of the group in a bad way. There was also evidence from the police officers at the hospital of your agitated and angry state, no doubt much of it due to the injury to your girlfriend, but also indicative of your generally aggressive state of mind.
The aggravating features, as I have already set out before, are that this was a group attack on one unarmed man, weapons were used and although you did not strike the fatal blow and use the bottle, you were holding down the victim at the time when he was being struck with the fatal weapon.
In terms of mitigation you too have no credit for a plea of guilty. You apologised in the witness box for the death of Bradley Whitfield but it's clear from the pre-sentence report that you accept no responsibility for the offence. You were drunk and under the influence of drugs but I treat that as neutral although it is concerning to read in the pre-sentence report of your binge drinking and use of drugs since an early age. I take into account that the offence was not premeditated and that there was no intent to kill. You are to be treated as a youth of good character and I also take into account your youth at the time of the offence."
On 16 April 2010 the Court of Appeal, Criminal Division, refused Lewis Faulds's appeal against conviction and sentence, although it reduced Chelsea Faxon's sentence by one year [2010] EWCA Crim 871.
Exceptional progress
Lewis Faulds's case is that his tariff should be reduced on the basis of his behaviour in prison and the exceptional progress he has made while there. Indicative of exceptional progress is if a person demonstrates an exemplary work and disciplinary record in prison; displays genuine remorse and accepts an appropriate level of responsibility for the part played in the offence; shows the ability to build and maintain successful relationships with fellow prisoners and prison staff; and successfully engages in work (including offending behaviour/offence-related courses) with a resulting substantial reduction in areas of risk. All of these should, ideally, have been sustained over a lengthy period and in more than one prison. The presence of one or all of these factors is not conclusive of exceptional progress having been made in any individual case. To reach the threshold of exceptional progress there needs to be some extra element to show that the detainee has assumed responsibility in showing himself to be trustworthy when given such responsibility. Such characteristics may well be demonstrated by the detainee having done good work for the benefit of others. Again, ideally, there would need to be evidence of sustained involvement in at least two prisons over a lengthy period.
Evidence of Lewis Faulds's progress
As the judge said in the second passage quoted earlier in the judgment, she had received a pre-sentence report. It was a thorough report and had been prepared by a probation officer, dated 19 November 2008. The report described that Lewis Faulds's only involvement with the criminal justice system prior to the murder was a reprimand in 2005 for criminal damage. In the months between January and the trial, Lewis Faulds had been on bail, and the report noted that his involvement with the Youth Offender Service and foster carers during this time had been excellent. No issues or concerns were raised about his behaviour or attitude. Prior to the offending, however, he had been in trouble at school. He had been binge drinking from the age of 14 and was also smoking cannabis. The report comments:
"…Lewis was exposed to inconsistent parenting and supervision from [his mother] when this offence was committed. I am of the opinion that his somewhat lenient approach to parenting styles has ultimately impacted on Lewis's thinking and behaviour in the year or so leading up to this offence."
In a post-sentence report dated 21 January 2009, the same probation officer reiterated the concerns he had expressed in the pre-sentence report about Lewis Faulds's parenting, adding that "being introduced to positive role models certainly appears to have enabled him to make positive changes to his life, which he appears to have sustained." The report contained important passages on the victim's family.
The Sentencing, Planning and Review notes for Lewis Faulds, from mid-2013, record that he remained on enhanced regime in prison because of his sustained good conduct and engagement, and all areas reported highly of his attitude and conduct. His only adjudication, in June 2009, was for the possession of tobacco when he was in the juvenile estate. He had recently been re-categorised to category C due to his exemplary engagement and behaviour. He had just completed the CARATS course (a drug treatment course), having previously completed alcohol and drug awareness courses. He had recently begun a GCSE in business studies. In addition, he had won a Koestler award with a Braille story for children (the Koestler Trust is a prison arts charity). The Braille instructor had spoken very highly of his commitment to the Storytime project, which enabled fathers in custody to record stories for their children. He had been a "listener" for 2 years for other prisoners. The notes include his risk factors as the excessive consumption of drink and drugs and peer group influence, counterbalanced by the support of his father. His OASys score showed a low risk of reoffending, but a risk to the public.
Tariff assessment reports for Lewis Faulds were prepared in mid-2014. The offender manager he had had from April 2010 noted that he presented as a mature young person. He had tried for some time to gain access to accredited programmes, but due to his limited prior offending, was deemed to be ineligible. However, he had demonstrated his motivation by undertaking a 6 week distance learning programme. He had engaged with all sentence plan objectives and interventions available to him. His report following the RESOLVE programme (a moderate intensity cognitive-behavioural intervention) was very positive and he was described as fully engaged in it. He had been a wing representative and diversity representative when at his previous prison (HMP Moorlands) and had maintained these positions at HMP Lindholme. There were no adjudications since the one in 2009, and reports from wing and prison staff were positive.
Lewis Faulds's offender supervisor reiterated what his offender manager said: that Lewis Faulds had maintained a mature outlook throughout his sentence, that he had engaged in all sentence plan objectives and that his behaviour remained exemplary. The offender supervisor's report added that he had "maintained victim empathy throughout his sentence and to this day regrets his actions and the hurt that has been caused to both families". There was no problem with Lewis Faulds's continued detention. As to progress in custody beyond what is expected of all life sentence prisoners, the report said this:
"Lewis has shown outstanding progress throughout his time in custody."
The report added this under the heading "other information".
"Lewis's case notes are exemplary. I have spoken to Lewis's wing staff and he is highly regarded on the wing. He has a good rapport with all staff and prisoners on the wing and is always one of the first to volunteer his services should a prisoner require any assistance."
Views of Bradley Whitfield's mother and sister
Bradley Whitfield's mother and sister describe the impact of his death on their lives and are strongly opposed to a reduction in tariff. His mother makes the point that the family will never have an early release from her son's death and adds that the family will never forget. His sister, who is still a young teenager, describes the impact of losing her best friend and not having him around anymore. She asks, rhetorically, why Lewis Faulds should be able to move on or forget.
Lewis Faulds's case
In submissions on Lewis Faulds's behalf, Cale Solicitors contend that he has made the notable, significant and exceptional progress necessary for a reduction in tariff. He accepts his part in the offending and has shown remorse. He has also acknowledged the impact on the victim's family and the local community, given that both he and the victim were known in the local community. He had been assessed as not needing to undertake the Thinking Skills and PASRO programmes (PASRO is a substance abuse programme). In addition to the RESOLVE and CARAT programmes, he had completed a Victim Awareness programme and online course on criminal behaviour. No further courses needed to be undertaken. There were also a number of education courses to his credit. There was the Koestler award, of which he was extremely proud. His behaviour in custody had been of an excellent standard. He had gained various trusted positions, including being a gym instructor, diversity representative and a "listener". He had received numerous references from prison staff through his role as a mentor. There were no reports of any abuse of these trusted positions. There was no OASys assessment from 2014, but Cale Solicitors understood that he posed a medium risk to members of the public. Given the index offence, they comment that this would not change much with time. His progress had been sustained and met the criteria for a reduction of tariff.
I agree with these submissions. As his offender supervisor has stated in the passage quoted earlier in the judgment, Lewis Faulds has shown outstanding progress throughout his time in custody. His case notes are exemplary, and apart from an early adjudication his disciplinary record in prison has been excellent. He accepts responsibility for his part in the victim's death and is aware of the impact that this has had. He has shown the ability to build and maintain successful relationships with prison staff and fellow prisoners. He has successfully engaged in a variety of offending and educational courses. All of this has been sustained over the 6 year period he has been incarcerated and in more than one young offender institution and/or prison. As I have explained, the presence of all of these factors as in his case is not necessarily conclusive of exceptional progress having been made. In this case, however, an extra element demonstrating that he has reached the threshold of exceptional progress is the Koestler award I mentioned earlier in this judgment. There are, as well, the various positions of trust he has held, without difficulty, which mean that he has shown himself to be trustworthy in then manner required.
Conclusion
On the basis of Lewis Faulds's behaviour in prison and the exceptional progress he has made I would reduce the minimum term Dobbs J set for his life sentence by 1 year. |
Mr. Justice Edis:
This claim arises out of an incident which occurred on the 15th August 2010 at around 0145 outside McDonalds on the corner of Kentish Town Road and Holmes Road, London. As a result of the incident, the claimant sustained very serious injuries. This is the trial of liability only and it is not necessary to describe those injuries in detail because I accept the submission of the defendants that they do not assist in deciding any relevant issue on liability. The claimant sustained serious head injuries when he was thrown from the bonnet of a moving car. The extent of those injuries does not, on the evidence, assist in deciding how fast the car was moving or any other relevant issue.
On the 19th February 2015 I announced that there would be judgment for the claimant and that I would hand down a written judgment giving reasons. These are my reasons.
The first defendant is an actor and in August 2010 was in a relationship with Kaya Scodelario, an actor from the television series Skins. The first defendant is an actor best known for the television series Shameless. Immediately before the incident occurred, the claimant was a pedestrian and the first defendant was in his car, a BMW Z4. Ms. Scodelario was in or about to enter McDonalds. The first defendant had parked outside McDonalds, having stopped so that she could get out and go in. The first defendant's car was not insured at the time of the incident, which is why the MIB is a party to the proceedings. I am not asked to resolve any issue between the defendants, who have essentially advanced the same case.
The circumstances of the incident are disputed. The claimant's case is that he had been out with his friends and family at a bowling alley. At one point he became separated from the group. His mobile telephone had run out battery. He had his SIM card which would work in other phones using the same network if they were charged, and he wanted to ring his cousin so he could go to his address which he had forgotten. He therefore sought to borrow a telephone from several people. He went into McDonalds and recognised Miss Scodelario and there was an encounter between them. He had no luck in McDonalds and so approached the first defendant, sitting in his car outside McDonalds, and asked if he could use his mobile telephone. The first defendant refused in aggressive terms. The claimant then walked away. After a further unsuccessful attempt to borrow a telephone elsewhere, the claimant returned and asked the first defendant again. The first defendant again refused, swearing at the claimant. The claimant responded by swearing back and slamming his hand on the car bonnet. The first defendant then drove forward towards the claimant. This caused him to hit the claimant with the front of his car, forcing the claimant onto the bonnet. He then reversed, and drove forward again. The claimant alleges that the first defendant continued to drive forward whilst shaking the wheel to throw him off the bonnet, and succeeded in throwing him violently and heavily onto the ground. The first defendant then fled the scene.
The first defendant's case by contrast is that he was out with his then girlfriend. He parked outside McDonalds and waited in the car whilst Ms Scodelario went inside. The claimant approached him in an aggressive manner. The first defendant ignored him, pulling down his hat and avoiding eye contact. The claimant walked away and then turned back and walked in front of the vehicle. The claimant aggressively challenged the first defendant to get out of the car. The first defendant gestured for him to move. The claimant continued to shout and punched the vehicle bonnet. Among other things, he shouted "get out of the fucking car". He also spread his arms wide. The first defendant reversed at which point the claimant advanced and again punched the bonnet again. At times when he was approaching the car, the claimant put his hand down the front of his trousers causing the first defendant to believe that he had a knife. The first defendant edged forward without making contact with the claimant. This movement was intended to shepherd the claimant out of the way. The claimant then leant forward and climbed onto the bonnet and began punching the windscreen whilst holding onto the lip of the bonnet. He was screaming abuse and pulling at the windscreen wiper. The first defendant says that he thought the claimant was trying to get through the windscreen and that he was in fear that he would be killed. The first defendant then reversed before driving forwards in first gear and turning the wheel slightly from side to side to dislodge the claimant. The first defendant did not want to stop at the scene in case the claimant attacked him. He therefore agrees that he left the scene, albeit doing a u-turn briefly to pass by again. He voluntarily attended Holloway Police Station at 0312 the same morning. The first defendant relies on the fact that the claimant, who suffers from attention deficit hyperactivity disorder (ADHD), has a history of aggressive behaviour and had been drinking.
The claimant's case is that, in law, the first defendant's conduct amounted to an unlawful trespass or trespasses to the person, and that the impact with the claimant which caused him to go on to the bonnet of the car was deliberate or at least reckless. It is agreed that the action of the first defendant in driving away and using the steering wheel to cause the claimant to fall from the car was deliberate. The first defendant's response is that on the facts as he alleges them to be he was entitled to use some force to remove the claimant from the bonnet of his car, which is the only act directed towards the claimant which occurred. He says he acted in genuine and reasonable fear and panic. He further relies on two defences usually expressed by latin tags: "volenti non fit iniuria" and "ex turpi causa non oritur actio". These, in different ways, also rely on the conduct of the claimant as a bar to his claim. The second defendant has served a defence in identical terms.
The claimant also puts his case in his Skeleton Argument on an alternative basis. He relies on the agreement that the claimant was, at one point, being carried some distance on the bonnet of the first defendant's car when the first defendant manoeuvred it to cause him to fall on to the road. He did fall on to the road and it was this fall which caused his injuries. The claimant contends that this use of force was a battery, which was disproportionate to any threat which the claimant might have posed to the driver of the car. In other words he claims to be entitled to succeed even if the first defendant is right about the circumstances which led to him being on the bonnet of the car.
A case of this kind may often be resolved by the outcome of criminal proceedings. In this case the only criminal charge brought was an allegation against the first defendant of driving without insurance. He was fined £750 and 6 penalty points were imposed. He says that he thought that he was insured and did not realise that his policy had expired on the anniversary of its last renewal, rather than of the date during its currency when he acquired the BMW. He had informed his insurers of that acquisition and they charged him an additional premium which he thought was for a new 12 month term rather than an extra premium for the original term of his policy. That explanation is not, legally or morally, an excuse for the offence, because drivers are supposed to take care to ensure that they understand their policies and ask questions if they do not. It is their responsibility to make certain that they are insured. However, the basis of conviction means that the first defendant did not deliberately decide to drive while uninsured and this conviction does not assist me in resolving the factual issues which arise and I shall ignore it. The police and the Crown Prosecution Service did consider prosecuting the first defendant for attempted murder, grievous bodily harm and dangerous driving. The Crown Prosecution Service decided not to bring any charge of violence against him because they considered, on their analysis of the evidence, that there was insufficient evidence to rebut a defence of self-defence. For the same reason, no charge of dangerous driving could be sustained because there was insufficient evidence to rebut a defence of duress of circumstances. Of course, in a criminal trial a conviction could only follow if the prosecution proved to the criminal standard that these defences did not apply. I have read the Review Notes which are in the Bundle which record this decision. In the end, it is my evaluation of the evidence which will determine the outcome of this action, and not that of the CPS considering the papers only and applying the criminal law.
THE EVIDENCE
Investigations into CCTV in the vicinity were carried out by the police but were inconclusive. Therefore, in resolving the factual issues between the protagonists in this incident, it is necessary to look at the independent witness evidence, and the inherent probability or otherwise of the rival accounts and any inconsistencies or other reasons to prefer one account to the other. Three independent eye witnesses were identified and spoken to by the police. One of them is out of the country and I read his statement. I have regard to the fact that he has not given oral evidence and been cross-examined in assessing the weight his evidence should be given. He was the driver of a car in which two witnesses from whom I heard oral evidence, Abraham Akhi and Alomgir Miah were passengers. Mr. Akhi was in the rear seat and Mr. Miah in the front seat. Their car turned left into Kentish Town Road from Holmes Road, and thus passed the BMW which was parked outside McDonalds which is on the junction of Holmes Road and Kentish Town Road. The witnesses' car was intending to turn right from Kentish Town Road into Islip Street. They therefore passed the BMW which was to their left and moved into the centre of the road to make that right turn. This meant that when the BMW moved forward with the Claimant on the bonnet, it passed them on their nearside and at very close quarters. Some of the incident occurred after they had passed the BMW and thus Mr. Akhi would be the closest to it. They were entirely independent witnesses and the passengers went at once to the aid of the Claimant and summoned help for him. I also accept that the driver tried to follow the first defendant and that he did get his registration number. This exemplary conduct means that there is no reason to disregard the written evidence of the driver, Mr. Hasnath Tarafder, which was quite obviously given in a genuine attempt to assist the police in their enquiry. Where a trial happens 4½ years after an incident, as here, the contemporary written statements are extremely valuable evidence. The three occupants of this car were on their way back from the Mosque during Ramadan and were not in any way affected by alcohol. In these circumstances I accord substantial weight to the written police statement of Mr. Tarafder. The two passengers in his car who gave oral evidence both made the obvious point that the incident happened a long time ago and that it was fresher in their minds when they made their statements to the police. They essentially stuck to their accounts, but each sensibly accepted that other accounts may possibly be right. In view of submissions by the defendants as to the impact of that concession, it is important to record that it occurred when they were asked to consider a different account, and said (in summary) that it is possible that the other account is right but that is not how they saw the matter. No doubt Mr. Tarafder, if cross-examined, would have said something similar which would not have greatly affected the weight to be given to what he said in his original statement.
Abrahim Akhi gave evidence before me. He saw the entire incident from when the time when the claimant stuck the car bonnet with his hand. His initial account at the scene (recorded by the police who attended) was:
"I saw a male thumping his fist on the bonet (sic). The vehicle drove forwards towards HIGHGATE ROAD ['The male got on the bonet (sic)' crossed through, continuation says 'and took the male on the front of the bonnet with him']... and the vehicle reversed. The vehicle drove towards HIGHGATE ROAD at speed. The male fell of (sic) the bonet (sic) and onto the pavement."
Mr Akhi made a more detailed statement to the police on the same day. His statement for these proceedings is in very similar terms. The police statement says:
"The male appeared angry … he may have been shouting … I saw the male bang his fists down on the bonnet of the car... then I saw the car lurch forward almost instantly about 2 or 3 feet at least, the male appeared to jump onto the bonnet to avoid being run over. The male grabbed hold to (sic) the front of the bonnet in the area where the window wipers are situated. At this point our car was now past the BMW and was travelling up Kentish Town Road towards Islip Street. I was now looking out of the rear windscreen. Almost as soon as the male was on the bonnet of the car the BMV (sic) reversed at speed approximately 20 feet back down Kentish Town Road... The BMW came to a sudden stop and then immediately forward. The male was clinging onto the bonnet of the car. When the car went forward it accelerated very quickly, he floored it, he did not slow down the car then swerved to the right and then to the left. .. as the BMW was level with our car the male could no longer hold onto the bonnet and fell onto the road … the BMW continued up Kentish Town Road still accelerating … Approximately 30 seconds later I saw the same car come back down Kentish Town Road ... travelling at high speed … I found the incident quite merciless, the driver did not slow down at any time to give the male a chance to get off the bonnet of the car."
Mr Akhi thus, whilst confirming the claimant's aggression in striking the bonnet, gives a vivid and compelling account of violent driving on the first defendant's part. In his oral evidence, he told me that the claimant had been angry and threatening although he could not hear anything being said. He said that he saw him hit the car at least once while he was standing up but denied that he had struck the car at all while he was on the bonnet. His evidence about that was very vivid. He described the claimant clutching on, and losing his grip with one hand and trying to recover it. He said that he looked terrified. He said that the first forward movement of the car was what caused the claimant to dive or lean on to it to avoid getting his legs broken. After that everything moved so fast that the claimant had no opportunity to get off the car. That was because the car was only stationary before and after the reversing movement for a very brief time. He said that when the BMW finally moved forward it did so at speed, he explained that it was a very powerful sports car and the driver had, he said, floored the accelerator. In view of the first defendant's evidence about his movements after the incident it is important to record that Mr. Akhi said that he and Mr. Miah got out of the car at once which stopped so that they could do so before moving off. They went straight to help the claimant and must therefore have been there when the first defendant, as he did, did a U-turn further up the road and drove back past the scene before turning left into Caversham Road. The first defendant told me that when he drove past he saw the Claimant lying on the side of the road, not moving, but said that he did not see anyone else. This was the first time the first defendant had ever said this, having suggested previously that when he left the scene he still feared that the claimant (who may have been armed) represented a threat of serious violence to him and Ms. Scodelario. If, as was plainly the case, he had in fact seen the claimant immobile on the pavement being helped by passers by that earlier account of his state of mind when he finally left the scene was untrue.
Hasnath Trafadar was driving the vehicle in which Mr Akhi was a passenger. His first account was to this effect:
"The victim using both his hands & thumping the bonnet. the suspect then drove at the victim striking him, the suspect then reversed about 20 yards and drove directly at the victim hitting him and & launching him through the air where he landed O/S ICELAND"
"I saw a male get hit by vehicle with speed the male was on top of the bonnet. Male fell on pavement."
His more detailed statement to the police given the same date expands on this as follows:
"He was in front of the bonnet and on the drivers (sic) side ... [he] looked as if he was talking to the driver... I went a little passed (sic) the car... when I heard a very loud bang, that shocked me. I stopped my car immediately where I was and looked round. I then saw the grey sports car reversing with the white tall man still stood in the middle of the road. The grey sports car was only about a metre away from the back of my car, I had a very good view of the other car ... I saw the car reverse about 15 feet and then within seconds he had driven forward, I believe driven at the white tall man who was still standing in the road, the driver of the sports car drove very quickly straight at the man in the road and hit him. The white tall man went straight onto the bonnet of the grey sports car and was carried on the car about 20-25 feet where the driver then did an 'emergency' brake and the white tall man fell off the car and onto the pavement just before Iceland. As the driver drove with the man on the car he was driving very roughly from side to side … I followed him to try and get his number plate …he tried to reverse into my car as he performed a u turn. I was scared at this point, I thought he was going to hit me."
Mr Trafadar's evidence is therefore also clear in its description of the First Defendant's aggressive and dangerous driving. There are differences in the accounts given by all three occupants of his car and Mr. Miah told me that they discussed this that same night and realised that they all had different recollections of what had happened. This is not surprising. It was a fast moving incident and none of them had expected to see anything of the kind.
Alomgir Miah was the front seat passenger in the car. His initial account was as follows:
"I heard a commotion and turned round and saw the victim hit the bonnet of a BMW with his hand then the victim jumped onto the bonnet and then the BMW drove forward with the victim on the car then the BMW did a manouevre (sic) and the victim fell off the car. The BMW drove off."
In his statement to the police on 27 August 2010 he said:
"… I heard a loud bang; I turned around in my seat ... I could see the same white male banging his hands down onto the bonnet of the BMW... The next thing that I saw is this BMW reverse and in my opinion it looked like the driver was trying to get away from the white male but then the white male jumped onto the bonnet of the BMW and held on... His face was up close to the windscreen of the car and he was looking right at the driver. The BMW then shuddered forward a very short distance but the white male still did not get off the car and continued to hang on. The BMW then drove forward and passed our car; I saw it turn sharply to the left and right and then I saw the white male fall from the bonnet of the car … I would estimate that the BMW was travelling at 20mph when the male fell off the car."
It might be said that Mr Miah's account is more supportive of the first defendant's than that of either other occupant of that car. The claimant suggests that the first defendant's account has been tailored to adopt as far as possible Mr Miah's. It is at this point that the "No Comment" interview which the first defendant first gave becomes important to the claimant's submission. The point is made that by the time the first defendant's account was first given to the police, Mr Miah's account had been disclosed to him. I shall return to this when I analyse his evidence.
However, whilst Mr Miah is the independent witness most favourable to the first defendant, there are limits to the assistance which he can derive from his evidence. Mr Miah contradicts the first defendant's contentions that he drove forward in first gear at no more than 10mph and only moved the steering slightly to dislodge the claimant. He describes it turning sharply to the left and right while travelling at 20 miles per hour. Importantly, none of the three occupants of the car saw the man on the bonnet punching the windscreen at any time. Mr. Miah's expression in his statement is that he "continued to hang on".
I approach all these witnesses as witnesses who were genuinely trying to help and the differences between them simply mean that the court must be careful in trying to reconstruct every moment of the very short incident which this case involves. Mr. Akhi and Mr. Miah both struck me as obviously truthful and sensible witnesses when they gave their evidence in the witness box.
I cannot say the same about either the claimant or the first defendant. I do not believe that the claimant has told me the truth about how this incident started. His account is that he went into McDonalds and saw Ms. Scodelario and called out "Effy", which is the name of the character she plays in Skins. He said that he had intended to ask her if he could use her phone but because she ignored him he did not do this, thinking that she thought that she was better than him because she was famous. In his witness statement for these proceedings he said that he did ask her for her phone, but he changed that at the time when he said that it was otherwise true at the start of his evidence. She recalls an incident in McDonalds when he was behaving boorishly, and seemed drunk. I accept her account, which I shall return to. He then went outside and asked the first defendant who told him to "fuck off", because he did not have time to lend him his phone. He went off to ask other people and then returned to the first defendant who was still there. He said that he obviously did have time to lend him his phone because he was still there, and asked him again to do so. The claimant denied that he was drunk and annoyed and said that he was civil throughout. This is the part which I do not accept. I find he was annoyed by Ms. Scodelario (he came near to accepting this) and went out to accost her partner whose car she had just got out of. I find that he was drunk. He has a conviction for possession of an offensive weapon and for drunk and disorderly, and a medical history of anger and violence within the home and at school. I accept his evidence that he has grown up a lot since then, but I think that his evening had not turned out as he had wanted it to, and he was becoming annoyed by the refusal or inability of people to help him by letting him use their phones. He did not know his cousin's number and the only way of making a call was to use his own SIM card. He had forgotten his cousin's address and he could not go where he had decided to go without making that call. Although generally he has indeed grown up into a more balanced young man this series of events, at the age of 18, was enough to trigger an outburst of anger towards Mr. Tittensor when he would not do as he was asked. This is why he banged his fist on the bonnet of the car, at least once, and I am also sure that he was shouting and swearing at him. Therefore, I find, on the civil standard, that when this incident started the claimant was committing the criminal offences of being drunk and disorderly in a public place and criminal damage to the car. He was also committing an offence under the Public Order Act, but probably not one as serious as affray. He was thus behaving in such a way that Mr. Tittensor might reasonably have believed that he posed a threat of some physical harm to him, at least if he got out of his car. To his credit the claimant has accepted banging the car with his fist, but not the whole truth of his conduct. There are some discrepancies between what the claimant says now and what he has said to doctors for the purposes of this litigation. These reinforce my rejection of his evidence of the events which caused him to be on the bonnet of the car, but my findings about what happened after he struck the bonnet are not based on his evidence, but that of independent eye witnesses.
The evidence of the first defendant is even less satisfactory. I reject his account, except where it is supported by the other evidence in the case. I found his repeated self-justification when asked simple factual questions unimpressive and that he deliberately, perhaps even dramatically, overstated the effect on him of the claimant's behaviour and tried to hide the truth of his own response to it. It is obvious that at the moment when he decided to drive forwards at speed with the claimant clinging to his bonnet and to swerve so that he would be thrown off the claimant was in much more danger than he was. He told me that at that time he was not thinking of the claimant's safety at all, because he was so frightened for his own. I have referred already to his evidence that after the incident he drove away, up the road, and then turned round and drove past the claimant who was lying on the pavement, not moving. It is inevitable in the circumstances that he would take a close interest in what had happened. This explains his remarks to Ms. Scodelario later when he said that he thought he had killed someone. After a brief discussion on the phone with Paige Holliday (see below), this was his first account of what had happened and was given within 1 hour of the event. She recorded it in a witness statement dated the 15th August 2010, on the same day. She also said that he told her that he had seen the claimant harassing her in McDonalds which he now says is not true. He says that he did not say these things and she has therefore misunderstood his account to her. At one point he suggested that Londoners often have trouble understanding him because of his Mancunian accent. I regret to say that I find this evidence absurd. He is perfectly intelligible. I shall deal with what she said about this conversation in oral evidence below, but her witness statement could not be clearer. Plainly, in that first account he was accepting that he knew at the time of the incident that the man had been seriously injured, which means that his subsequent movements are not explicable by any continuing fear of a threat either to him or to Ms. Scodelario from the claimant. He says, despite this, that after driving past the claimant he turned into Caversham Road and chose a place to park where he could see McDonalds (to find Ms. Scodelario) but not be seen from the place further up to the road where the claimant and those attending him were. This piece of evidence means that at this time he was thinking clearly and that he was not worried about any threat to her from the claimant. Otherwise he would have wanted to keep the claimant in his sight and would, on his own account, have rung the police to ensure her safety. He told me that he thought the claimant had a knife. She was not to be seen, so he left. He then rang her friend Paige Holliday to ask her to find Ms. Scodelario. He did not tell her that he thought she was in any danger, which is very strange if, as he now says, that was his state of mind. Having spoken to Ms. Scodelario first at the flat, they then made contact with Paige Holliday and her mother, who drove them all to the police station. He there gave an account to a police officer (SPCSO Leanne Gumm) which she wrote down in a statement she made on the same day. This is also different in important respects from his evidence to me, which again he attributes to the failure by the officer to understand what he was saying and to write it down accurately. His evidence therefore involves the assertion that within a couple of hours of the incident he was misunderstood in important respects by two different people on two different occasions. Yet each of them has accurately remembered the substance of what he was saying, namely that the claimant had punched his car causing him fear and panic and that he acted in self-defence. He told the police officer that while the claimant was on his bonnet, punching the windscreen, he had:
"looked for his mobile phone to call his girlfriend, but his mobile phone no longer had any battery left to call anyone and he also noticed his girlfriend's mobile was also in the vehicle, so in a panic he reversed the vehicle with the male still lying on the front bonnet. Elliott stated that the male fell of the vehicle and because he was in shock Elliott drove off from the scene immediately."
He now denies that he looked for any mobile during the incident. He does, however, accept that his own phone had run out of power and Ms. Scodelario had left hers in the car. PC Gumm has not, therefore, invented this conversation. He also denies that the claimant fell off his car while it was reversing, and now accepts driving forward and deliberately dislodging him. These were, I find, deliberate attempts at self-justification before he had seen the independent evidence. He has jettisoned his suggestion that while under ferocious and life threatening attack he looked for his mobile phone to call his girlfriend. He has realised that it undermines his evidence about the nature of the attack and its effect on him. It sounds rather unlikely, so it has disappeared from his account.
When interviewed under caution on the day of the incident he produced a prepared statement which raised self defence but gave no detail of the incident. He was interviewed on a second occasion, after disclosure, on the 14th September when he did give an account of what had happened. Because he was cautioned before the first interview and because of the accounts which he gave to Ms. Scodelario and PC Gumm I infer that he did change his account after the 15th August 2010. This is a legitimate inference from the no comment interview itself, but is reinforced by the direct evidence from those two sources, which I accept, that he was saying things that night which are not the same as what he has said since. He told me that he gave his prepared statement and answered "No Comment" because he did not have the advice of the lawyer of his choice. He said in evidence that he thought perhaps that his lawyer at the time, a duty solicitor, may have advised to say "No Comment" until the new lawyer was instructed. There has been no waiver of privilege in the original solicitor's file. I doubt very much if any competent solicitor would have advised the first defendant to say "No Comment" so that could he could give his account at some later stage. He could not know that the police would be able or willing to conduct a second interview, as they agreed to do in this case. If CCTV evidence had been found which suggested he was guilty of a crime he might have been charged on that day, and no further chance to give his account would have been available. At all events, having given myself the direction usually given to juries about inferences under section 34 of the Criminal Justice and Public Order Act 1994 I think it fair to hold that the account given in the second interview was tailored to fit the disclosed evidence. This conclusion adversely affects his credibility generally, and the cogency of his assertion that he thought that the Claimant may have had a weapon because of the way he was fiddling with his trousers in particular.
The evidence of Ms. Scodelario is important. Broadly, I accept what she says and found her to be an impressive and clear thinking witness. This is of particular importance in two respects. The first is the original incident between her and the claimant. She describes him shouting at her in a drunken and intimidating way outside McDonalds and then following her in. The first defendant told me that he parked his car so that he could see into McDonalds to make sure she was safe. I accept her evidence as to this part of the episode. This means that the claimant did not ask her if he could borrow her phone, as he has previously said, and as he now, belatedly accepts. There is evidence from other witnesses that he did want a phone to make contact with his cousin, and I am sure that is true. However, the incident between him and the first defendant did not happen because he wanted to borrow a phone from either of them. The second aspect of her evidence which is important is her account of what he said to her at their flat when they first met after the incident. This is related because the witness statement she made, as I record above, says that he told her that he had seen the incident between her and the claimant outside McDonalds. In her oral evidence she sought to suggest that although she had said that he said this, and also that he said that he thought he had killed the claimant, in fact she did not think that he did. This case has been on her mind for many years and I am sure that she has rationalised her recollection in this respect. She remains close to the first defendant although their relationship is over. She speaks very highly of him as a person and I think she genuinely believes that he is entirely blameless in relation to this incident. However, she is, as I have said, a clear thinking person and she made her statement on the day of the incident while she was trying to set out her account knowing that Mr. Tittensor had been arrested for attempted murder. I am sure that she was extremely keen to ensure that it was accurate and that she therefore accurately set out the conversation. She actually confirmed in evidence that her police statement was true, subject to an unimportant correction, and said that she had read it recently when doing so. It was only when cross-examined by Mr. Roy that she gave this evidence about the conversation which is adverse to his case. In these circumstances I proceed on the basis that her witness statement is true. I also accept her account of the subsequent meetings with the claimant on which he relies to show that she knows him to have been an entirely innocent victim because otherwise she would not talk to him. She made it clear that she was very worried about talking to him and threatened him with the police if he attacked her. It seems that the claimant has a difficulty in seeing himself as others see him. For these reasons, I find that the incident between him and Ms. Scodelario happened outside McDonalds in the way that she said it did. I also find that Mr. Tittensor did tell her that he had seen it. It was a very noisy incident, according to her, and it happened outside the restaurant a few feet from his car. He told me he was watching after her. I find that he did see it because I do not see how he could have missed it. Both the claimant and the first defendant have therefore lied about the start of their confrontation. No-one else knows how or why it started and I find that it was in some way a result of the claimant's behaviour towards Ms. Scodelario. He had been aggressive and confrontational with her. Both the claimant and the first defendant behaved badly, which is why they have both tried to hide the truth of what happened.
FINDINGS OF FACT
In summary therefore, I find that Mr. Tittensor reacted aggressively to Mr. Flint's aggressive and confrontational behaviour directed first at Ms. Scodelario and then at him. He had, as he told her, been aware of the incident with Ms. Scodelario outside McDonalds and this had annoyed him. What followed was, I believe, a loutish shouting match in a public street between two young men who were behaving badly. The evidence for this comes from the claimant who, while denying his own part in starting it, does accept, as he puts it in his statement, that they "exchanged insults". This seems wholly probable to me, except that his choice of language in the statement sanitises this stage of the affair. They were probably jointly involved in an offence under the Public Order Act or at least a breach of the peace. The claimant then struck and damaged the first defendant's expensive new car. This was a criminal offence of criminal damage. This caused the first defendant to drive forward deliberately towards the claimant who went forward on to the bonnet because otherwise he would have been struck and injured by the car, which was being used as a weapon. I accept the evidence of Mr. Akhi about this and am not surprised that he gave the clearest evidence about this moment which he was able to observe from the back seat of the car through the rear windscreen (see his statement set out at paragraph 11 above). It is true that he accepted that it was possible that the claimant had jumped on the car to attack it, but he quite clearly said that this was not what he thought had happened. Like any sensible witness he was simply accepting the possibility that he might have made a mistake. He certainly did not think that he had done so. He made this clear in re-examination. The first defendant then reversed quickly to try to throw the claimant off, before rapidly changing direction and moving forwards at considerable speed steering sharply, still trying to throw him from the car. At no time during this was the claimant attacking the car or doing anything other than trying to hold on to the moving car to avoid injury. Again, the evidence of the witnesses in the other car, especially Mr. Akhi, justifies this finding. None of them speaks of seeing the claimant attacking the car while he was on the bonnet. It also coincides with the probabilities. It is hard to see how he could have managed to stay on the bonnet as long as he did if he was attacking the car, as opposed to grabbing on to it to try to stay on. The incident started outside McDonalds, the first defendant then reversed a significant distance with the claimant on the bonnet and accelerated quite hard and travelled forward a significant distance before the claimant fell off beside Iceland not very far before the junction with Islip Street. It must have been obvious that when swerving to eject the claimant the car was travelling so fast that serious injury to him was likely when he fell. Its precise speed does not matter, but I accept the evidence of Mr. Akhi and Mr. Miah that the car accelerated hard when it set off forwards, carrying the claimant. I find that this was a use of force which was primarily motivated by anger and a desire to come off best in the altercation. I accept Ms. Scodelario's evidence that he was in real fear by the time he spoke to her, shaking and crying. As she explained to me his real concern was that the claimant was seriously hurt, or dead. He was frightened at that stage of the consequences for him of what he had done. In that frame of mind he was already telling everyone who would listen that he had acted in self-defence. He did not tell anyone on that day that he had suspected that the claimant was armed with a weapon. He would certainly have done so had that thought actually been in his mind as he now says. Although many people would worry that a young man in a street behaving like the claimant might have a knife, this thought did not in fact occur to Mr. Tittensor. If it had, he would have told Paige Holliday, Ms. Scodelario, PC Gumm and the police in his prepared statement about it. It would have been at the forefront of his mind. If the claimant had had a knife, it would almost certainly have been discovered at the hospital. I find he did not. If there was no knife, his evidence that he saw the claimant reaching into his trousers as if to take hold of it is untrue. I find that the first defendant invented that belief between the first and the second interview when it was mentioned for the first time, one month later. He also told me on more than one occasion that he was in fear for his life while the claimant was on the bonnet of the car. He said he thought he was going to die. That is a very specific statement about a thought which he says was in his mind. I find it very strange that it was not mentioned in terms to the police in the second interview. He told them that he was very scared, that he thought the claimant might have a weapon, and that he might "injure" him, see page 12E of the transcript of the second interview. A belief that one is about to be injured is not the same as a belief that one is about to be killed. I also find it hard to see why he thought he might be killed. When one man is driving a car and the other is being carried on the bonnet, both may be at some risk, but only one of them is in grave and immediate danger of being killed (if no weapons are involved). It is not the driver. The first defendant could see the claimant's hands and that he did not have a weapon in hand at that stage. In the result, I find that the first defendant has deliberately exaggerated the threat posed by the claimant in order to minimise his responsibility for what happened.
Therefore, the claimant has proved, on my findings, that he was injured by the first defendant's deliberate acts in first driving a very short distance towards him and causing him to "end up on the bonnet", then secondly carrying him on the bonnet backwards and forwards and finally steering the car causing him to be thrown off the bonnet. The claimant had started the confrontation by his deliberately aggressive conduct and had deliberately and unlawfully damaged the first defendant's car. He had not, however, behaved in a way which caused the first defendant to fear for his life, or that he was in danger of suffering really serious harm. I shall explain how these findings are decisive of the legal issues as I deal with them.
THE LAW
The legal issues were helpfully summarised by Mr. Horlock QC who appears for the MIB. They were as follows:-
i) Has the claimant proved a case in trespass? On this question, the issue is intention and the requirement in this tort for "hostility".
ii) Has the first defendant shown that his actions were lawful in that they were in reasonable self-defence?
iii) If the first defendant fails to establish that his conduct was lawful, is the claimant's claim nevertheless barred because of his own illegal conduct? This is the rule of public policy which is usually described by the Latin maxim ex turpi causa non oritur actio.
There was a tension between the submissions of Mr. Norris QC, who appeared for the first defendant, and those of Mr. Horlock in relation to consent. This is raised on the pleadings as volenti non fit iniuria, but I think it is common ground that that is a defence in law to a claim based on breach of duty. Battery is not such a cause of action. Consent in battery does, of course, have a role in defining the tort. It arises in cases where an act has been done in the course of medical treatment which would be unlawful in the absence of consent. It also renders lawful acts of touching in a sporting or sexual context. However, what is involved there is actual consent to what was done. Consent in that sense does not arise on the facts of this case because the claimant did not consent to being driven at in such a way as to cause him to be on the bonnet and, once on the bonnet, did not consent to being thrown off it at speed. The way in which his conduct finds legal expression is in the defences of self-defence and illegality, rather than in a legal fiction which finds consent where there was none. I therefore agree with Mr. Horlock that the role of "consent", in this case, is a way of expressing the relevance of the consequences of the claimant's conduct under the third issue, illegality.
ISSUE 1: BATTERY
On my findings of fact the elements of the tort of battery are clearly made out. Driving towards the claimant so as to cause him to end up on the bonnet was a deliberate act aimed at him. Having caused him to be on the bonnet, the first defendant accepts that he drove the car at some speed in such a way as to cause him to fall off it. While doing so, he says, he gave no thought at all to what effect that might have on the safety of the claimant. In Wilson v. Pringle [1987] QB 237 the Court of Appeal said:-
"It is the act and not the injury which must be intentional. An intention to injure is not essential to an action for trespass to the person. "
I do not find that the first defendant was so paralysed by fear that he had no control over himself or his car. He deliberately decided to perform the three manoeuvres of which Mr. Akhi spoke, namely lurching towards the claimant suddenly, reversing with him now on the bonnet and then driving forward at speed. In this way he subjected the claimant to force which constitutes the tort of battery unless he can justify it as being lawful and in self defence. Technically, no doubt, it is open to a litigant to contend both that his use of force was unintentional and not hostile, and also that it was justified as a reasonable response to a belief which he reasonably held that it was necessary to protect himself by inflicting force on an assailant, but the two contentions are actually quite inconsistent with each other and it would be very difficult to succeed on both.
The element of hostility is generally required to distinguish uninvited physical touching which is acceptable in law from uninvited physical touching which is not. In Wilson v. Pringle the Court of Appeal held that it was a question of fact and observed:
"Hostility cannot be equated with ill-will or malevolence. It cannot be governed by the obvious intention shown in acts like punching, stabbing or shooting. It cannot be solely governed by an expressed intention, although that may be strong evidence. But the element of hostility, in the sense in which it is now to be considered, must be a question of fact for the tribunal of fact. It may be imported from the circumstances. Take the example of the police officer in Collins v. Wilcock [1984] 1 W.L.R. 1172. She touched the woman deliberately, but without an intention to do more than restrain her temporarily. Nevertheless, she was acting unlawfully and in that way was acting with hostility. She was acting contrary to the woman's legal right not to be physically restrained. We see no more difficulty in establishing what she intended by means of question and answer, or by inference from the surrounding circumstances, than there is in establishing whether an apparently playful blow was struck in anger. The rules of law governing the legality of arrest may require strict application to the facts of appropriate cases, but in the ordinary give and take of everyday life the tribunal of fact should find no difficulty in answering the question "was this, or was it not, a battery?"
I find that there is no difficulty in answering that question in this case. The deliberate application of potentially lethal force to this claimant was a battery, unless justified as reasonable self-defence and thus lawful.
ISSUE 2: SELF-DEFENCE
It is common ground that for this defence to succeed the first defendant must prove it on the balance of probabilities. As I shall explain below, it is unnecessary to have recourse to the burden of proof to decide this case. I find the relevant facts to be true on the balance of probabilities wherever the burden lies.
I have rejected much of the first defendant's evidence and the issue is to be addressed on my findings of fact and not on his version of events. Since he was in a car at all times, with the engine running and the doors locked, he was able to evade the claimant without difficulty by reversing away from him and, if necessary, driving around him. Even on his own account it would be difficult to justify driving towards him. In his second interview he described that he did do this in these terms (page 5G-H and 6B-D):
"He sort of moved when I sort of tried to usher, like sort of shepherd him back and say for him to move back, he sort of, he sort of just, this sounds really weird but like from how he's leant on the car, he just sort of, he didn't end up on the bonnet…..
"He was sort of leant over the car and I tried to shepherd him out of the way, which obviously brought him closer to where the windscreen was then where he, where he grabbed the windscreen and started to punch the windscreen."
He described therefore seeking to use his car to usher him out of the way. Although he said he drove it very slowly, and had no intention of touching him, he also said that the claimant was very close to the car when this manoeuvre was performed. I have found that in fact he lurched suddenly forward at him as described by Mr. Akhi which caused him to fall on the bonnet. Whether this fall was because of contact or because he deliberately leant on to the bonnet in order to avoid the contact with his legs which was otherwise inevitable does not matter. It was the movement of the car which caused him to be on the bonnet, and it was not a deliberate and criminal movement by the claimant jumping on to the bonnet in order to attack the car and its occupant.
The first defendant was not able to explain why he had not simply reversed away from the claimant instead of driving towards him, except by panic. He has exaggerated the conduct of the claimant and that panic it induced. I have found that he did simply drive away from the claimant after he damaged the car, as he could have done, because he was angry with the claimant (understandably) and wanted to get the better of him. I do not believe that driving towards the claimant was a defensive action at all, because the first defendant was not in any physical danger, sitting in a fast car and involved in an altercation with an unarmed pedestrian. If I had found that he did believe that it was necessary to defend himself in order to protect himself from injury, then it would be necessary to decide whether that belief was reasonably held, see Ashley v. Chief Constable of Sussex Police [2008] 1 AC 962. Finally it would be necessary to decide whether the response by the first defendant was reasonable (or proportionate) in all the circumstances. I will answer those questions, although in view of my finding that the force used was not defensive but retaliatory they do not arise.
I apply the well-established approach which juries are routinely enjoined to take and which is set out with great clarity in the decision of the Court of Appeal Criminal Division in R v. Keane [2010] EWCA Crim 2514. I remind myself as required by paragraph 5 of the judgment of the court that:
"in a confrontation there is no opportunity for the kind of hindsight or debate which can take place months [or years] afterwards in court. The defendant must act on the instant at any rate in a large number of cases. If he does so, and does no more than seems honestly and instinctively to be necessary, that is itself strong evidence that it was reasonable. It is strong evidence, not conclusive evidence."
I do not believe that it was reasonable for the first defendant to believe, if he did, that it was necessary for him to use force to defend himself. This is for the same reason that led me to conclude that he did not in fact have that belief, namely that it was obviously not necessary to use force to defend himself. The sensible course was to use the car to withdraw to a safe distance and call the police to deal with the criminal damage and, if necessary, to ensure the safety of Ms. Scodelario. His case on the need to use the car to exert force is really based on his evidence that he feared that his assailant might have a knife. I have rejected that evidence. In the absence of that fear, and in the absence of any physical violence towards him (as opposed to the car) at that stage, the decision to use the car in the way he did escalated the conflict. In these circumstances viewing the matter objectively, but making allowances for decisions taken in the agony of the moment, the use of the car was not a reasonable or proportionate act.
The rest of what followed was caused by the decision to drive forwards towards the claimant causing him to be on the bonnet, which was unlawful. In any event, even if he was not on the bonnet because of the unlawful act of the first defendant, the driving of the car so as to accelerate sharply and then cause the claimant to be thrown violently to the ground was not a proportionate response to the threat posed by the claimant. I have rejected the evidence of the first defendant that the claimant was trying to get through the windscreen to kill him. I have accepted the evidence of Mr. Akhi that he was actually hanging on with difficulty trying to avoid being thrown off the car. On the basis that the claimant did end up on the bonnet without any unlawful force by the first defendant, it is necessary to be more sympathetic to the use of some force to persuade him to get off the car. Reversing away would not, in itself, be unlawful. However, the first defendant did not simply do this. When this failed to remove the claimant, he stopped for a very short time which did not allow the claimant to get off the car, before driving forwards at some speed and swerving as I have described above. This was done with the deliberate intention of causing him to fall from a rapidly accelerating motor car, and it succeeded in its aim. This is not reasonable or proportionate. Accordingly, if I had found that the act which resulted in the claimant being on the bonnet was not unlawful battery by the first defendant, I would have held that causing him to be thrown off was.
In these circumstances, the defence of self-defence fails.
ISSUE 3: PUBLIC POLICY OR EX TURPI CAUSA
What the claimant did wrong was to behave towards Ms. Scodelario and Mr. Tittensor in a way which was threatening and intimidating. I accept the evidence of both of those witnesses about the start of the incident. This means that he then shouted at the first defendant, and told him "get out of the fucking car". This was because he appreciated, as did the first defendant, that he could not easily do him any real harm while he was sitting in his car with the doors locked and the engine running. He was drunk and angry with the first defendant and contemplated a violent incident, but he was not armed. He stood in front of the BMW in order to prevent it from leaving so that he could prolong the altercation. When the first defendant showed no sign of getting out, he hit the car at least once and caused it minor damage in the form of a dent. This is the kind of relatively minor criminality which is not uncommon late at night in our cities. It is deplorable and alarming, and can sometimes escalate into more serious violence. In categorising it as I have, I am not condoning it. It is a fact of life which many people unfortunately have to deal with from time to time. A person who behaves in this way may, if there are relevant previous convictions, expect a short custodial sentence.
The first defendant, on my findings in these proceedings, was guilty of serious criminal offences. On conviction, even with no previous convictions, a substantial prison sentence would be imposed. This is not really a consequence of the burden of proving self-defence in a civil claim for battery, because I have expressed my primary findings of fact as ones on which I am satisfied on the balance of probabilities. The evaluation of the objective elements of the defence of self-defence is governed by those findings of primary fact. I am not therefore dealing with a case where it is clear that no crime could ever be proved in the criminal court against the first defendant, but where his defence fails in the civil court because of the different burden of proof. I would have found against him on the civil standard wherever the burden of proof had rested. In these circumstances it is appropriate to decide the public policy defence on the facts as I have found them to be. It is not necessary for a party to have been convicted of a crime in a criminal court before the civil court acts on the basis that that party was in fact guilty of that crime. I have read the reasoning of the Crown Prosecution Service in deciding not to prosecute Mr. Tittensor for anything other than driving without insurance. They, of course, approached the issue on the basis that the burden or proving guilt on the criminal standard was on the prosecution throughout. Mr. Tittensor was perhaps fortunate that he had been permitted to give an account of his actions in a second interview after first declining to do so, and the Crown Prosecution Service decided that it would be unable to disprove that account. It therefore considered the case on a very different factual basis from the one I have found to be the case.
Vellino v. Chief Constable of the Greater Manchester Police [2002] 1 WLR 218 was a claim by a man who had been negligently allowed to escape from police custody by jumping out of a high window in the presence of the officers who had arrested him. This constituted the common law offence of escape, and his fall caused the injuries for which he sought damages. His claim failed in its entirety because of the application of the rule expressed by the maxim ex turpi causa non oritur actio. Sedley LJ, dissenting in the Court of Appeal, noted the irreconcilable state of the authorities and held that this permitted the court to allow Mr. Vellino to succeed in his claim in negligence but to reduce the damages for contributory negligence. He said that the concluding passage in Sir Murray Stuart-Smith's judgment in the case (with which Schiemann LJ agreed) was the nearest one can come to a consistent account of the state of the law. That passage reads:
"70 From these authorities I derive the following propositions.
(1) The operation of the principle arises where the claimant's claim is founded upon his own criminal or immoral act. The facts which give rise to the claim must be inextricably linked with the criminal activity. It is not sufficient if the criminal activity merely gives occasion for tortious conduct of the defendant.
(2) The principle is one of public policy; it is not for the benefit of the defendant. Since if the principle applies, the cause of action does not arise, the defendant's conduct is irrelevant. There is no question of proportionality between the conduct of the claimant and defendant.
(3) In the case of criminal conduct this has to be sufficiently serious to merit the application of the principle. Generally speaking a crime punishable with imprisonment could be expected to qualify. If the offence is criminal but relatively trivial, it is in any event difficult to see how it could be integral to the claim.
(4) The Law Reform (Contributory Negligence) Act 1945 is not applicable where the claimant's action amounts to a common law crime which does not give rise to liability in tort."
The approach which commended itself to Sedley LJ is not available in this case which is not an action in negligence but one for battery, see Co-operative Group (CWS) Limited v. Pritchard [2012] QB 320. This claimant must therefore succeed in full or fail entirely.
The inconsistent state of the older authorities was addressed by the House of Lords in Gray v. Thames Trains Limited [2009] 1 AC 1339 in which Lord Hoffmann identified the principle which is to be applied in such cases as the present. He called it the "wider principle" to distinguish it from a narrower rule which prevents recovery of damages for losses sustained as a result of a penalty inflicted by a court for criminal offending. His speech contains the following passages which are helpful in the present context:
[In paragraph 51] "It differs from the narrower version in at least two respects: first, it cannot, as it seems to me, be justified on the grounds of inconsistency in the same way as the narrower rule. Instead, the wider rule has to be justified on the ground that it is offensive to public notions of the fair distribution of resources that a claimant should be compensated (usually out of public funds) for the consequences of his own criminal conduct. Secondly, the wider rule may raise problems of causation which cannot arise in connection with the narrower rule. The sentence of the court is plainly a consequence of the criminality for which the claimant was responsible. But other forms of damage may give rise to questions about whether they can properly be said to have been caused by his criminal conduct.
……….
"54 This distinction, between causing something and merely providing the occasion for someone else to cause something, is one with which we are very familiar in the law of torts. It is the same principle by which the law normally holds that even though damage would not have occurred but for a tortious act, the defendant is not liable if the immediate cause was the deliberate act of another individual. Examples of cases falling on one side of the line or the other are given in the judgment of Judge LJ in Cross v Kirkby [2000] CA Transcript No 321. It was Judge LJ, at para 103, who formulated the test of "inextricably linked" which was afterwards adopted by Sir Murray Stuart-Smith in Vellino v Chief Constable of the Greater Manchester Police [2002] 1 WLR 218. Other expressions which he approved, at paras 100 and 104, were "an integral part or a necessarily direct consequence" of the unlawful act (Rougier J: see Revill v Newbery [1996] QB 567, 571) and "arises directly ex turpi causa": Bingham LJ in Saunders v Edwards [1987] 1 WLR 1116, 1134. It might be better to avoid metaphors like "inextricably linked" or "integral part" and to treat the question as simply one of causation. Can one say that, although the damage would not have happened but for the tortious conduct of the defendant, it was caused by the criminal act of the claimant? (Vellino v Chief Constable of the Greater Manchester Police [2002] 1 WLR 218). Or is the position that although the damage would not have happened without the criminal act of the claimant, it was caused by the tortious act of the defendant? (Revill v Newbery [1996] QB 567).
This builds on the decisions cited in approaching the application of the public policy defence as a matter of causation. For the purposes of this rule, the test is not the "but for" test, but a search for the real operative cause of the injuries sustained. Was it the crime of the claimant or was it something else? Lord Hoffmann did not need to address the issue in this case, which is: Where the crime of the claimant has provoked, and thereby in one sense caused, a criminal response as a result of which he sustains injury, what test is to be applied?
There is some assistance to be derived from a recent decision of the Court of Appeal which considered the application of the new approach to cases where the injury was caused by the criminal act of a partner-in-crime of the claimant in pursuit of a criminal joint enterprise. This is not the same situation as the present, although there is some parallel. In R v. Keane [2010] EWCA Crim 2514 there is a discussion of the legal consequences for the law of self-defence of an event where all concerned are behaving in a criminal way by fighting with each other, see paragraphs 17-19. It is possible to regard this as a criminal joint enterprise, see the discussion in R v. Gnango [2012] 1 AC 827, but this is a rather strained description of a fight. At all events, the applicability of the causation rule in cases of joint enterprise is instructive in the present case. One possibility is that the court may regard the first defendant and the claimant as being involved in an unlawful confrontation and that neither can recover against the other for the foreseeable consequences of the unlawful acts. In other words, the unlawful confrontation in which they were jointly involved would operate in the same way for present purposes as a more conventional kind of joint enterprise.
In Joyce v. O'Brien [2014] 1 WLR 70 the Court of Appeal considered a case where the claimant was injured by the dangerous driving of his partner in crime. He was driving dangerously so that they could both escape with some ladders which they had stolen from the place from which they were escaping. The fast driving was part of the joint criminal enterprise, although not something which the claimant had himself directly caused. Elias LJ, giving the judgment of the court:
"28. In my judgment, in the application of the causation principle developed in Gray v Thames Trains Ltd [2009] AC 1339, the courts should recognise the wider public policy considerations which have led them to deny liability in joint enterprise cases. This is compatible with the Lord Hoffmann's approach. The earlier authorities provide valuable assistance in answering the question when the claimant's injury will be treated as having been caused by his own conduct notwithstanding that the immediate cause was the act of a partner in crime. They reject what seems to me to be the underlying policy even if the rationale for denying liability must now be cast in terms of causation rather than duty. In my view the injury will be caused by, rather than occasioned by, the criminal activity of the claimant where the joint criminal illegality affects the standard of care which the claimant is reasonably entitled to expect from his partner in crime. This is consistent with the result in Ashton v Turner [1981] QB 157 and Pitts v Hunt [1991] 1 QB 24, but it focuses on causation rather than duty.
"29. I would formulate the principle as follows: where the character of the joint criminal enterprise is such that it is foreseeable that a party or parties may be subject to unusual or increased risks of harm as a consequence of the activities of the parties in pursuance of their criminal objectives, and the risk materialises, the injury can properly be said to be caused by the criminal act of the claimant even if it results from the negligent or intentional act of another party to the illegal enterprise. I do not suggest that this necessarily exhausts situations where the ex turpi principle applies in joint enterprise cases, but I would expect it to cater for the overwhelming majority of cases."
The defendants in this case rely on this passage to argue that the claimant had created a situation where it was obviously foreseeable that he might suffer some harm and he should therefore be taken to have caused the harm which he suffered.
I have held for the purposes of self-defence that the response of the first defendant was not reasonable or proportionate as a response to what the claimant did wrong. It was different in kind from what might have been foreseen by the claimant when he acted as he did. In murder cases the law of joint enterprise, sometimes called parasitic accessory liability, holds all participants guilty of a murder committed in a way which they foresaw might happen, but not if the killer uses a weapon of some fundamentally different kind from that which was the subject of the joint enterprise: see R v. Powell & English [1999] 1 AC 1. Therefore, the criminal law exonerates an accessory of liability where the crime was not foreseeably part of the joint enterprise. Where a person responds to provocation in a way which far exceeds what is reasonable and is a serious crime for that reason, does public policy operate to absolve him from liability for what he has done? It appears to me that any rule of law which operates to excuse serious and unlawful violence to any extent is not one which is obviously justified by public policy.
I have cited above Sir Murray Stuart-Smith's second principle which holds that there is no question of proportionality between the conduct of the claimant and defendant. This has recently been applied by Kenneth Parker J in Beaumont & O'Neill v. Ferrer [2014] EWHC 2398 (QB), [2015] P.I.Q.R. P2. He said this:
"38 I have also considered the issue of "proportionality". There is considerable doubt whether the Court should seek to weigh the degree and culpability of the claimant's criminality against the conduct of the defendant, and to allow a remedy if the Court concluded that the defendant's conduct was by far the more culpable. Clerk and Lindsell on Torts (20th edn. 2010) at 3–37 sets out powerful objections to the incorporation of "proportionality" in the relevant sense in the public policy underpinned by ex turpi causa , and it appears to me that the recent case of Joyce v O'Brien [2012] EWHC 1324 (QB); [20131 EWCA Civ 546 tends to support the proposition that 'proportionality' has ordinarily no role to play. In any event, and for the avoidance of doubt, the Claimants' criminality in this case overwhelmed any fault on the part of the Defendant, and for reasons already stated it would not be disproportionate in the relevant sense to deny compensation."
None of this means, in my judgment, that the court can avoid examining what the claimant did wrong, and what it caused the defendant to do in response. It is necessary to do this in order to decide whether, for the purposes of the causation rule applicable to this public policy defence, the one caused the other. The cases about "proportionality" being irrelevant are not cases which concern two people using unlawful force against each other, but about persons injured in the course of committing crime by the negligence of others.
In this case, the law allowed the first defendant a wide margin of latitude in using force to defend himself against unlawful violence. Where his conduct was so far beyond what is acceptable as a response to what the claimant did to him that this defence fails, it would require a very clear justification to dismiss the claim against him on other grounds. It is instructive to ask whether a police officer who dealt with the claimant in the way that Mr. Tittensor did should have a complete defence to the claim for damages. The scope of a general principle which denied claims where the injuries were caused by the criminal and violent conduct of the defendant would require careful consideration to avoid it becoming a contributor to anarchy.
The proper approach to causation is in essence to determine whether the injuries were caused by the criminal conduct of the claimant himself, or that of a partner in crime acting within the foreseeable scope of the joint enterprise. He is to be taken to have caused the consequences of his own acts, or those of accomplices who are doing things which he has agreed should be done. In joint crimes of violence where the two parties are by agreement fighting each other unlawfully, the foreseeable consequences of that activity cannot found a claim. A claimant cannot recover for injuries caused by the lawful conduct of others responding to him with violence or using reasonable force to arrest him: they have a defence of self-defence. He cannot recover either for the consequences which are foreseeable in the course of the kind of unlawful confrontation which he has agreed to take part in. That is the public policy defence. However, I hold that where he sustains injuries not in that way, but because a third party voluntarily commits a different kind of serious crime against him, his conduct does not in law cause that injury for the purpose of the particular rule of causation applicable to this defence. If Mr. Tittensor had pulled out a knife and stabbed Mr. Flint for damaging his car, this would, for the purposes of this causation rule, break the chain of causation between the damage to the car and the injuries to Mr. Flint. Using the car as I have found he did is comparable, for causation purposes, to the use of a knife. To hold otherwise would be go to behind another important principle of the law which is that those who commit crime are responsible for their own actions. The conduct of others may mitigate the penalty which flows from that responsibility but does not diminish the responsibility itself.
CONCLUSION
For these reasons there will be judgment for the claimant against the first defendant. I have not been asked to resolve any issues between the first defendant and the MIB and there is no order between defendants.
I have asked the parties to agree and draw up an order which reflects this decision, including the appropriate order for costs (which is not disputed) and a direction for a Case Management Conference. I also directed that any application for permission to appeal shall be made in writing, on notice to the other parties. That should be done within 14 days of the handing down of this judgment. |
Mr Justice Hickinbottom :
Introduction
On 16 February 2015, I handed down judgment on liability in this claim, finding both Defendants liable to the Claimant in the following proportions as between themselves: the First Defendant Dr Mills 30%, and the Second Defendant the Football Club 70%. The parties asked for time to make submissions on consequential matters, which I heard on 18 February 2015, when I refused the application of the Football Club and Third Parties (Dr Cowie and Dr Curtin, doctors who were employed by the Football Club at the relevant time) for permission to appeal against the apportionment. I also heard submissions with regard to costs, in respect of which I reserved judgment. This is the reserved costs judgment.
It will be helpful to set out the relevant dramatis personae. The Claimant is a young man who, whilst playing professional football for the Football Club at a match in Belgium on 4 August 2006, suffered a cardiac arrest and consequent severe brain damage. Dr Mills is a cardiologist, who had screened the Claimant at the behest of the Football Club. He is a member of the Medical Defence Union ("the MDU") which, whilst not an insurer as such, supports him in this claim by way of an indemnity against damages etc. Dr Cowie and Dr Curtin were specialist sports physicians employed by the Football Club. The Football Club is vicariously liable for their conduct during the course of working at the Club; but they are also each a member of the Medical Protection Society ("the MPS"), another defence organisation, which supports them in this claim. The arrangements are such that the MPS has indemnified the Football Club in respect of any negligence found against Dr Cowie or Dr Curtin, including costs; and. within these proceedings, the Football Club has brought a Part 20 claim against them to pass on any liability to the Claimant that might find against it as a result of the acts and omissions of either of those two doctors. Therefore, on the basis of my judgment, the MDU will pick up 30% of the liability I found as against Dr Mills; and the MPS the 70% I found as against Dr Cowie and Dr Curtin. Two other employees of the Football Club feature: Dr Nick Krasner (another sports physician), and Rory Brown (a physiotherapist)
Costs: The Common Ground
In respect of costs, as between the Claimant and the Defendants, the position is largely agreed. The Claimant succeeded against both Defendants, and the usual rule generally applies: he is entitled to his costs from each.
Those would normally be on the standard basis, but, on 26 November 2014, the Claimant made a Part 36 offer to Dr Mills that he would accept 95% of his damages. That offer was open for acceptance until 17 December 2014. The offer was not accepted by Dr Mills, nor was it beaten at trial: indeed, on the third day of the trial (5 February 2015), Dr Mills conceded full liability – although keeping open a claim as against the Football Club for a proportion of it. Therefore, from 18 December 2014, the Claimant is entitled to his costs against Dr Mills on an indemnity basis. Mr Westcott QC for Dr Mills does not suggest otherwise.
Generally, the liability of the Defendants for the Claimant's costs will be in the substantive liability proportions I have determined, i.e. Dr Mills 30% and the Football Club 70% .
It would be wrong to impose costs on the Football Club from 18 December 2014 on an indemnity basis in circumstances in which that basis applies only because of Dr Mills' failure to accept a Part 36 offer directed only at him. From 18 December 2014 to 5 February 2015, in respect of the 70% of costs for which the Football Club is otherwise liable, the difference in the Claimant's costs on a standard and indemnity basis should be paid by Dr Mills.
So much is agreed. However, there are three areas of dispute between the parties.
Costs Issue I
During the course of the proceedings, the Claimant made four claims against the Football Club that involved allegations in respect of conduct by employees of the Club other than Dr Cowie and Dr Curtin, claims which the Claimant did not ultimately pursue.
The factual background to these claims is, briefly, as follows.
i) There was no defibrillator at the football match at which the Claimant had the cardiac arrest. From the outset, the Claimant claimed that the Football Club was negligent in this respect. The allegations of negligence were pleaded thus in paragraph 8 of the original Particulars of Claim, dated 13 September 2012:
"C6. Failing to ensure that a defibrillator was available for immediate use at the football match on 4 August 2006.
C7. Failing to ascertain, prior to the commencement of that football match, whether a defibrillator was available for immediate use and, upon establishing that a defibrillator was not available for immediate use, causing or permitting the match to commence or the Claimant to participate in the match."
The allegation in paragraph C6 was abandoned on 6 June 2014. The costs of that amendment to the Claimant's case were expressly made costs in the case (see paragraphs 19 and 20 of the Order of 6 June 2014). The allegation in paragraph C7 was abandoned on 25 November 2014, paragraph 5 of the Order of that day providing that there was to be no order for costs on the withdrawal of that allegation.
ii) As a result of allegations first made by Dr Mills, on 3 February 2014 the Claimant obtained permission to amend his claim to include allegations concerning the conduct of Rory Brown at the 4 August 2006 football match, by the addition of paragraphs 8A and 8B to the Particulars of Claim. However, those allegations were not in the event pursued by Dr Mills, and had been abandoned by both Dr Mills and the Claimant by 6 June 2014. Again, the costs of the amendments to include and then abandon the claim were expressly made costs in the case (see paragraph 10 of the Order of 3 February 2014, and paragraph 20 of the Order of 6 June 2014).
iii) The Claimant alleged that Dr Krasner had been negligent in completing an assessment form for the Claimant in November 2005 which indicated that he had had a cardiac clinical review, either because Dr Krasner did not ascertain that such a review had been carried out or because he erroneously believed that it had. That allegation was made in an amendment to the Particulars of Claim to insert a paragraph C9 on 4 February 2014, and abandoned on 25 November 2014. Paragraph 4 of the Order of 25 November 2014 provided that that there was to be no order for costs on the withdrawal of the allegations.
iv) Finally, the allegation of negligence in paragraph C1 – essentially focused on the failure to arrange a clinical review – was amended on 4 February 2014 expressly to make clear that "this allegation is not confirmed to acts/omissions of the [Football Club's] servant or agent [Dr Cowie]". That was not formally abandoned until 25 January 2015, when the Claimant confirmed that he restricted his claim to allegation concerning the conduct of Dr Cowie and Dr Curtin.
Save for (iv), the costs of the various amendments (including those abandoning the claims) were therefore dealt with by the court when dealing with the case management of the claim; so it is superficially surprising that the costs of those pleading changes have been raised again now. However, the Football Club contend, not that it should have an order that the Claimant and/or Dr Mills pay its costs of dealing with those abandoned claims, but that the court should order the whole of the Football Club's costs in the claim be paid by the Claimant and/or Dr Mills – because, but for those claims involving the conduct of individuals other than Drs Cowie and Curtin, the Club would not have had to play any part in the proceedings at all. It could have handed the conduct of its defence over to the MPS which is behind Drs Cowie and Curtin.
I am unpersuaded by that submission. As can be seen from the above, the various Masters who dealt with the case management of this claim considered and made orders in respect of the costs of the relevant amendments, including amendments to add claims and to remove them. Claim (iv) above, in which no express order for costs has been made, does not significantly add weight to Mr de Navarro's argument; because, once (i), (ii) and (iii) had gone, there was no substantial claim against the Football Club that was reliant upon anything other than the conduct of Dr Cowie and Dr Curtin. Dr Cowie, as Head of the Medical Service Department, accepted that she was generally responsible for what went on in the department, including its systems.
Mr de Navarro submitted that this application is concerned, not with the costs thrown away (that were covered by those orders), but with the consequences of the Claimant maintaining any claim against the Club that involved the conduct of any of its employees other than Dr Cowie and Dr Curtin. Those consequences (he said) were that separate teams had to be maintained to conduct the litigation for the Football Club and the Third Party doctors respectively. Although there was no conflict of interest in respect of the claims that were made on the basis of their conduct, whilst there were any claims against the Club that were made on a different basis, there was scope for a conflict.
However, I have considered the Third Party pleadings with care and, having done so, I accept the submission of Mr Featherby, that such scope was always more hypothetical than real. The court having previously made the costs orders that it did in relation to these matters, I am quite sure that it would be neither just nor appropriate for either the Claimant or Dr Mills to bear any of the Football Club's costs. In relation to the specific claims, I consider the costs orders already made are sufficient to deal with those; and, in the circumstances of this case, in my view the other parties cannot properly be made liable for costs which, in essence, result from the (rather unusual) arrangements between the Football Club and its own employees. In considering the costs orders as a whole, I consider it is just and appropriate simply to make no further orders for costs in respect of these claims.
Otherwise, in the usual way, the Football Club must bear its own costs.
Costs Issue II
With respect to liability for the Claimant's costs as between the Defendants, the usual rule would be that they would bear these in the proportions they bear liability, i.e. 30%/70%. However, following a round table meeting on 21 November 2015, the Claimant served his Part 36 offer letter on the First Defendant, and Dr Mills changed Counsel to Mr Westcott QC. Following advice from him, Dr Mills through solicitors sent two letters to the Football Club's solicitors, both marked "Without Prejudice save as to Costs", although not Part 36 offers in form or automatic consequences. However, they were offer which I can, and should, take into account in considering where costs should lie (see CPR Part 44.4(3)(a), and French v Groupama Insurance Company Limited [2011] EWCA Civ 1119).
The first letter read as follows:
"In the event that both Defendants in this matter are found to be liable, our client offers to accept a 50/50 split on apportionment with your client in respect of the Claimant's damages and costs. Please let us know if this offer is agreed.
We reserve the right to refer to this letter on the issue of costs in due course."
The second letter read as follows:
"We refer to our letter of today concerning contribution from your client. We consider it sensible in the interests of saving costs that the Defendants should advise the Claimant that, although each blames the other, one way or another there ought to have been discussions involving a Cardiologist, the Club, the Claimant and his family regarding the cardiac investigations which had been undertaken and our client's comments on these from July, August and September 2005. We do not see how this proposition can be sensibly be denied."
Mr Westcott submitted that the Football Club acted unreasonably in not accepting these offers. Although there is no specific evidence filed with regard to what would have happened had the Football Club accepted the offers, on instructions, Mr Westcott said this. Had the offers been accepted, Dr Mills would himself have accepted the Claimant's Part 36 offer on the basis that the Claimant agreed to compensation being paid in the form of a lump sum. Given that Dr Mills could not evidence a proper ability to secure periodical payments, the Claimant would have been bound to have done so. In those circumstances, Dr Mills would have played no further part in the proceedings, and the litigation would have continued only to determine whether the Football Club was liable to the Claimant at all. If it had been found liable, then the 50%/50% agreement between the Defendants would have come into play: but, without such a compromise, Dr Mills would have had to have remained in the litigation to protect his position on apportionment, and one main purpose of these offers was to avoid the costs of Dr Mills playing any further substantive part in the litigation. If the Football Club had not been found liable to the Claimant at all, then Dr Mills would have been 100% liable for the sums due to the Claimant, i.e. pursuant to the Part 36 offer and acceptance, 95% of the Claimant's damages (although, in the light of the Football Club's concession by accepting the offer in the second letter, Mr Westcott considered a finding of some liability on the part of the Football Club would have been inevitable). Therefore, Mr Westcott seeks an order that the Football Club should pay Dr Mills' costs of the claim from 7 January 2015, on the standard basis if not agreed.
Those submissions have some force. On the basis of the findings in my judgment, the Club was unreasonable in not accepting the offers put to it, if not by 6 January, by, say, 13 January 2015. However, had the Football Club done so, the amount of costs that would have been saved is highly speculative. As I have described, on instructions, Mr Westcott said that the Claimant's Part 36 offer would have been accepted by Dr Mills, and all of his costs from that acceptance would have been saved; but, in fact, he continued to contest that he even owed a duty of care to the Claimant until after he had given evidence in the trial itself. It is possible – although, I accept, unlikely – that, in the event, no costs would have been saved.
As I have emphasised, the offers by Dr Mills to the Football Club were not Part 36 offers; but nevertheless I have to take the Football Club's (unreasonable) failure to accept them into account when considering costs orders. Having done so – and not without anxious consideration – I have concluded that, in the context of all the circumstances of the case (including the uncertainties to which I have referred) and the costs orders looked at as a whole, the just and appropriate course would be not to reflect the Football Club's failure to accept the offers in any adverse costs order.
Costs Issue III
Mr Westcott submitted that any liability of Dr Mills for the Claimant's costs should end as at 11am on 5 February 2015, when he announced in open court that Dr Mills conceded liability. Mr Featherby accepted that in principle, so long as the costs of that day incurred before 11am (e.g. Counsel's refresher fees, fees to experts) would be fall the right side of that watershed. Costs such as solicitors' hourly fees for time spent after 11 am that day, he accepts, would fall, for him, the wrong side.
By the end of the costs hearing, there was nothing of substance in dispute here. I shall order that Dr Mills' liability for the Claimant's costs shall cease as at 11am on 5 February 2015, but, for the avoidance of doubt, that costs of that day incurred prior to that time (e.g. Counsel's refresher fees and expert fees for that day) will fall on the side of the line that means Dr Mills is liable for them.
Conclusion
For the above reasons, I shall make the following Order in relation to the 16 February 2015 judgment and consequential matters. In respect of costs, in my judgment, these orders do justice as between the various parties in this claim.
1. There be judgment for the Claimant against the First Defendant and the Second Defendants for damages to be assessed.
2. The Claimant's damages, interest and costs be apportioned as between the Defendants (and without prejudice to the Claimant's right to enforce the totality of the judgment against either Defendant or both Defendants) so that, as between them, the First Defendant contribute 30% and the Second Defendants contribute 70% of the judgment sum.
3. The action be listed before a Master for a case management conference on the first open date with a time estimate of one and a half hours.
4. The Defendants are to make an interim payment of £50,000 to the Claimant on account of his damages (to be paid to the Claimant's solicitors) within 28 days.
5. With regard to costs the following orders will apply.
6. In respect of the costs of the Claimant's claims against the conduct of Dr Krasner and Rory Brown, and in respect of the non-availability of a defibrillator at the football match on 4 August 2006, there shall be no further orders as to costs.
7. The Defendants shall pay the Claimant's costs of liability issues to 11am on Thursday 5 February 2015, to be subject, if not agreed, to a detailed assessment on the standard basis save, in relation to the Claimant's costs against the First Defendant since 17 December 2014, such costs be assessed on the indemnity basis. Such costs shall include costs for 5 February 2015 incurred by the Claimant prior to 11am, such as Counsel's refresher fees and experts' fees for that day.
8. With regard to the costs in paragraph 7, as between the Defendants:
8.1 The First Defendant shall pay (i) 30% of the costs that may be awarded to the Claimant against the Defendants in respect of the whole period and (ii) of the remaining 70% of those costs, the difference between the costs payable by the Second Defendant under paragraph 8.2(ii) below and indemnity costs for the period from 18 December 2014 to 11am on 5 February 2015.
8.2 The Second Defendant shall pay (i) 70% of the costs that may be awarded to the Claimant against the Defendants in respect of the whole period and (ii) 70% of the costs that would have been awarded against the Defendants on the standard basis for the period from 18 December 2014 to 11am on 5 February 2015, and, for that purpose, so far as required, it is directed that there be a detailed assessment of those costs on the standard basis.
9. The Second Defendants shall pay the Claimant's and the First Defendant's costs of the issue of liability after 11 am on 5 February 2015 to be assessed on the standard basis, if not agreed. For the avoidance of doubt, the First Defendant shall have no liability for the Claimant's costs of the issue of liability after 11am on 5 February 2015.
10. The Third Parties shall pay the Second Defendant's costs of defending the main action and of the Part 20 proceedings, to be assessed on the standard basis if not agreed.
11. Other than as provided in this order and previous court orders, the First Defendant and the Third Parties shall each bear their own costs.
12. The Defendants shall make an interim payment of £200,000 to the Claimant's solicitors on account of his costs within 28 days.
13. As between the Defendants, the interim payments referred to in paragraphs 4 and 11 will be paid 30% by the First Defendant and 70% by the Second Defendant.
14. The Third Parties shall indemnify the Second Defendant in respect of such damages and interest and costs that the Second Defendant is ordered to pay to the Claimant and/or any other party under this order and/or in respect of the assessment of damages.
15. The application by the Second Defendant and Third Parties for permission to appeal the order in respect of apportionment of liability between the Defendants be refused. |
Mr Justice Hickinbottom :
Introduction
On 1 August 2006, the Claimant Radwan Hamed, then aged 17, signed on professional terms with the Second Defendant, Tottenham Hotspur Football Club ("the Club"). He was an extremely gifted and dedicated footballer, who had been associated with the Club since the age of 11. It was hoped – and, by many, expected – that he would become a successful professional footballer. However, three days later, whilst playing for the Club's youth team in Belgium, he suffered a cardiac arrest which resulted in catastrophic brain damage. On any view, this was tragedy writ large.
In this action, through his father as his litigation friend, the Claimant claims that the cardiac arrest and consequent brain damage resulted from the negligence of the First Defendant (Dr Peter Mills, a cardiologist who screened the Claimant in circumstances to which I shall shortly come); and of the Club through the First and Second Third Parties, Dr Charlotte Cowie and Dr Mark Curtin, who were specialist sports physicians employed by the Club. The Club is vicariously liable for their acts and omissions; although, by virtue of a Consent Order dated 4 February 2015, the Third Parties have agreed to indemnify the Club in respect of any damages etc it might be ordered to pay the Claimant.
The court directed that issues of liability (including causation) be tried first. At the start of that trial, it is no exaggeration to say that virtually everything was in dispute: Dr Mills challenged the proposition that he owed the Claimant any duty of care, both Defendants disputed breach of duty and causation, and there was at least the potential for issues between the Club and the Third Parties whom they employed. However, by the end of the trial, Dr Mills had accepted liability, the claims against the Club were restricted to those alleging negligence by the Third Parties (so that Michael de Navarro QC took over the Club's defence of the claim from Neil Block QC who left the trial), and the Club had accepted the Claimant's claim with regard to causation subject only to him proving a breach of duty against them. The Club had always accepted that they owed a duty of care to the Claimant as a result of both the doctor/patient and employer/employee relationships that existed between them. As I have indicated, by the end of the trial, in the CPR Part 20 proceedings between them, the Third Parties had agreed to indemnify the Club for any damages etc found due from the Club to the Claimant.
The only issues outstanding were consequently as to whether the Club breached the duty of care they owed to the Claimant; and, if so, the appropriate apportionment of liability between the Club and Dr Mills.
On these issues, in addition to the Claimant's family, and Dr Mills, Dr Cowie and Dr Curtin, I heard evidence from two expert sports physicians, Dr Mark Gillett (instructed on behalf of Dr Mills) and Dr Eric Widdowson (instructed on behalf of Dr Cowie and Dr Curtin). Further, although not called to give oral evidence, I had the benefit of evidence from three expert cardiologists (Dr David Wright, Professor William McKenna and Dr John Walsh), in the form of a joint statement dated 26 November 2014.
The Medical Background
Some young athletes are prone to suffer from cardiac fibrillation (i.e. irregular and uncoordinated contractions of the heart muscles) which, unless treated very promptly, is usually fatal inducing what is known as sudden cardiac death ("SCD"). Even if not fatal, there is a serious risk of brain damage because, during the fibrillation, the brain is starved of oxygen because the heart does not pump oxygenated blood round the circulatory system.
Such fibrillations have a variety of causes. The most common in young athletes is a disorder known as hypertrophic cardiomyopathy ("HCM"); but there are other, rarer cardiac diseases which may cause fibrillation and consequent sudden death within that constituency. HCM, and most of the other diseases, have a genetic cause.
There are a number of markers for such heart diseases, two of which are relevant in this case:
i) Abnormalities in the electrical activity of the heart, as recorded by an electrocardiogram ("ECG"). The heart beats as a result of small pulses of electricity. Each pulse causes contraction of, first, the atrial muscles (drawing blood into the heart), and then the ventricular muscles (to pump the blood out of the heart). The pulse then dissipates, repolarising the heart for the next beat. Each of those phases is recorded on an ECG, the last (repolarisation) in a part of the trace known as the T-wave. In a normal, healthy heart, the T-waves project above the axis. A marker of an abnormal heart is an ECG in which the T-waves dip below the axis (i.e. so-called "inverted" or "negative" T-waves).
ii) Thickening of part of the muscle of the heart (the myocardium), notably the left ventricle ("left ventricular hypertrophy", or "LVH"). This morphological abnormality may be detected on an ultrasound-based echocardiogram ("ECHO") or a cardiac magnetic resonance image ("MRI") which show the structure of the heart.
HCM and these other heart diseases usually manifest themselves in a young athlete by the thickening of the left ventricle during the mid-teens to mid-twenties; and, although in most cases of actual cardiac arrest, the LVH is severe, it may be minimal[1]. Indeed, there are genetic mutations which have only mild LVH but have a high risk of death[2]; and there are cases reported in which a patient within the HCM spectrum has died without any left ventricular thickening at all[3]. The expert cardiologists in this case were in agreement that "changes seen on electrocardiogram may precede detectable morphological changes" (joint statement, paragraph 10(a)-(c)). Thus, a failure to detect structural abnormalities on imaging does not exclude T-wave inversion due to disease of the heart muscle, which may ultimately be associated with an adverse cardiac event[4].
However, in determining whether a young athlete suffers from one of these pathological conditions, there is another complication. The heart is a muscle. Intense training by a young athlete works that muscle and so may result in an enlarged heart and, in particular, thickening of the left ventricle. Far from being pathological, this phenomenon (known as "athlete's heart") is a healthy physiological condition; but it may result in similar abnormalities in an ECG, namely inverted T-waves.
Differential diagnosis between potential cardiac pathologies such as HCM, and the physiological consequences of intense training, is obviously crucial – particularly as the pathologies are life-threatening[5]. Where there is an abnormal ECG, disease may be distinguished from a benign condition in a number of ways. First, an ECHO or MRI scan may reveal sinister morphological changes in the heart. Whilst imaging alone can never rule out cardiac disease all together – because, as I have described, some diseases may not immediately manifest themselves in such changes – they may confirm a particular pathology. Second, the individual may cease training (i.e. "detrain"). If the enlargement of the heart is due to intense training, it is likely that the abnormalities reflected in the ECG will cease after a period of (say) three months without training, as the heart enlargement wanes; but they are likely to continue despite cessation of training if they result from disease.
Genetic heart disease which may lead to sudden cardiac arrest and death in young athletes has been recognised for some years, fatalities including David Longhurst (who died whilst playing for York City in 1990), Daniel Yorath (Leeds United 1992), John Marshall (Everton 1995), and Ian Bell (Hartlepool United 2001). Marc-Vivien Foé, a Manchester City player, had a cardiac arrest and died whilst playing for Cameroon against Colombia in the semi-final of the 2003 FIFA Confederation Cup at the Stade de Gerland, Lyons. More recently, in March 2012, Fabrice Muamba had a cardiac arrest whilst playing for Bolton Wanderers against Tottenham Hotspur in an FA Cup tie at Tottenham, with the result that his heart stopped for a considerable time. Remarkably and happily, he appears to have suffered no serious long term sequelae; although, after taking medical advice, he never played professional football again.
Organisations responsible for young athletes – including the Football Association ("the FA"), which is responsible for football in England – are well aware of this risk, and they promote and usually require procedures to be in place to screen for conditions which might give rise to an adverse cardiac event. The FA's protocol in 2005 was "Football Academies – Medical Screening Programme – Cardiological Screening – Policy on Entry" (April 2000), which required all new entrants to any football academy to be referred to a Regional Consultant Cardiologist familiar with the programme. The expert cardiologists in this case agreed – indeed, it is entirely uncontroversial – that "the purpose of the FA cardiological screening programme is to identify those who are or may be at risk or potential risk of SCD" (joint statement, paragraph 1(a)).
The protocol required the relevant football club to send a standard screening advisory letter to the player (or parents, if the player was under 16) together with a family history medical questionnaire for completion and sending on to the cardiologist. The screening comprised an ECG and ECHO performed by a technician, the results of which were then assessed by the cardiologist who completed a standard form, which included a section for "Recommendations for further investigation". The form was sent to both the FA Medical Centre, and copied to the football club doctor. It is uncontroversial that, if recommendations were made, then it was for the football club to take matters forward. The cardiologist could not do so off his own bat: the club were responsible for the follow-up, although of course they might request the cardiologist who has assessed the ECG and ECHO to play a part in any further investigations. An FA panel of cardiologists was made available to support football clubs' medical staff, although access to that panel was usually on the recommendation of the cardiologist involved with the scan and any follow-up.
The Factual Background
In 2005, both Dr Cowie and Dr Curtin were specialist sports physicians employed by the Club.
Dr Curtin was the sole doctor at the Club for some years until 2004. However, he wished to return to general practice; and so, in January 2004, Dr Cowie joined the Club as Head of Medical Services, a new role which included responsibility for the existing medical and sports science team ("the Medical Services Department"). She was an experienced sports physician, having previously been the club doctor at Millwall Football Club and Fulham Football Club, and with the England Women's Football Squad. In that role at the Club, she readily accepted that she was responsible for what went on in the Medical Services Department: in her phrase, the buck stopped with her.
When she first joined the Club, Dr Cowie did so on a part-time basis, because of child care obligations; and so Dr Curtin agreed to stay on for a while, also part time, amounting to perhaps a half a day per week together with matchdays (when he looked after the first team) and tours. His duties included some responsibility for the Club's Academy players, i.e. the players aged 16-18 years of age. Dr Cowie also recruited Dr Nick Krasner as Academy Doctor; and Henna Horth (with whom she had worked at Fulham) as a physiotherapist with special responsibility for the youths up to the age of 16. As was apparently common in football clubs, as a full-time employed physiotherapist, although the Medical Services Department had an administrator, Ms Horth also performed some administrative tasks, e.g. fixing up medical and screening appointments for the players. As we shall see, Ms Horth played an important part in the events relevant to this claim; but she has subsequently moved to Australia and, unfortunately, she did not give evidence at the trial.
The Claimant was born on 19 December 1988. As a boy, his focus was more on sport than on his academic studies. He was always talented at football. At the age of 11, he was scouted by and signed for the Club as a youth; and, after his GCSEs, in March 2005 he joined the Club's Youth Training Scheme and Football Academy as an apprentice. This was full-time, involving attendance at the Club from 9am to 4pm, five days per week, with competitive matches on Saturdays and occasional light training on Sundays.
As I have indicated, under the FA protocol, new entrants to any football academy had to be the subject of cardiac screening. At the Club, this took place in close season, when the new players were sent together to have an ECG and ECHO performed by a technician, the results of which were then referred to an FA Regional Cardiologist. In 2005, Dr Mills was the FA Regional Cardiologist for South East England.
The Claimant went for his ECG and ECHO on 21 July 2005. He was asymptomatic; but the ECG trace showed inverted T-waves. The expert cardiologists agree that the ECG was "unequivocally abnormal", and "well beyond an athlete's heart expected in a 16 years old" such that "a diagnosis of athlete's heart was unlikely", the ECG being "indicative of the Claimant suffering from an underlying heart muscle disease" (joint statement, paragraphs 5(d), 15(a) and 16). With regard to the ECHO, they agree that "the image quality was inadequate for accurate measurement or diagnosis" and "the findings of the [ECHO] do not explain the abnormalities on the [ECG]" (paragraphs 12 and 14(a)). So, the ECG was abnormal and, at that stage, there was no unequivocal benign explanation for the abnormality. Indeed, it was more likely than not that it resulted from heart disease.
The ECG and ECHO were forwarded to Dr Mills for consideration. The Club did not complete the questionnaire as they ought to have done, and so Dr Mills did not have the benefit of that. But he considered the scans, and completed the FA form, indicating that the ECG was "Abnormal" and setting out the T-wave abnormalities. In terms of "LV [i.e. left ventricle] function", he marked that as "Abnormal", specifying "Marked LVH? apical HCM". In terms of "Diagnosis based on ECG and Echo study", that too he marked "Abnormal", specifying: "LVH vs apical HCM". In terms of recommendations, he commented: "Suggest Cardiac MR scan & clinical review". Despite the use of the word "suggest", he intended those recommendations to be carried out – and Dr Cowie and Dr Curtin said that they took those recommendations to be, in effect, mandated requirements. Neither they nor Dr Mills knew of a case in which a football club had not followed such a "suggestion" of a cardiologist, in these circumstances. That is in line with the agreed expert cardiologists' evidence, that the ECG trace mandated both further investigation and clinical review (joint statement, paragraph 20(h).
There was also common ground between the parties as to what a clinical review by a cardiologist in this context would entail. First, given that HCM and some of the other myopathies are genetic, the cardiologist would take a family medical history. Second, he would explain to the Claimant and his parents the level and nature of the risk involved, particularly to enable them to take an informed decision as to whether that risk should be borne. Such a full explanation would only have been sensible once the MRI scan was available, because, although that scan could not have ruled out all sinister pathologies, it might have shown that the Claimant was at a greater or lesser degree of risk.
Dr Mills sent the completed form to the FA, with a copy to the Club, as required by the protocol. However, the FA also sent a copy on to the club, with a covering letter dated 28 July 2005 and addressed to "Club Doctor", which drew attention to "the findings/comments/recommendations on the form", and saying:
"As Club Doctor you may wish to discuss the findings and recommendations with the Regional Cardiologist".
The letter was seen by Dr Curtin, who endorsed it:
"Arranged Cardiac MR + review Dr Mills".
In his evidence – which I accept – Dr Curtin said that he saw Dr Mills' recommendations, and instructed Ms Horth, "in line with previous cases", to arrange for Dr Mills to see the Claimant (with his parents) for a clinical review; and, before that took place, to arrange through Dr Mills for an MRI scan of the Claimant. This was the first case in which either Dr Curtin or Dr Cowie had been involved in which a cardiologist had recommended an MRI scan in these circumstances. Dr Curtin endorsed the letter as he did, to confirm that he had actioned both recommendations. He expected that, in line with his instructions, the Claimant would be subject to both an MRI scan and a clinical review by Dr Mills.
There is a gap in the evidence here. As I have said, Ms Horth did not give evidence. Dr Mills was not personally involved in making appointments: his secretary did that, but neither did she give evidence. Nevertheless, it seems clear that Ms Horth did contact Dr Mills' secretary with a request for Dr Mills to arrange an MRI scan; that was Dr Mills's recollection, and the MRI scan was in fact arranged by his office. However, there is no evidence at all that Ms Horth arranged – or sought to arrange – a clinical review between Dr Mills on the one hand and the Claimant and his parents on the other. Certainly, no such review took place or was arranged. As (i) it was for the Club to arrange such a review, (ii) Dr Curtin instructed Ms Horth to arrange a review, (iii) there is no evidence that Ms Horth attempted to arrange a review, (iv) there is no evidence that Dr Mills would not have been available to conduct such a review (he said, clearly, that he would have been available), (v) Dr Mills said that, had his secretary been asked to arrange a clinical review, she would have done so as a matter of routine, and (vi) Dr Curtin carried forward the understanding that a clinical review had been arranged and had in fact been performed by Dr Mills, I find that, despite the requirement of Dr Mills and the instructions given to her by Dr Curtin, Ms Horth simply failed to arrange or attempt to arrange for a clinical review to take place.
In the meantime, Dr Cowie had both spoken to the Claimant himself and also telephoned the Claimant's father. Mr Hamed said that Dr Cowie told him that his son had an enlarged heart, but this was common in athletes and nothing to worry about. She told him that they were arranging a scan "to make sure there is nothing more than that".
The MRI scan was performed on 12 August 2005 by Dr Raad Mohiaddin, a Consultant in Cardiovascular Imaging at the London Imaging Centre. Mr Hamed drove his son to the appointment and was told, at the end of it, that "it was OK and that the doctor at the Club would talk to [the Claimant and him] about it".
In a letter of 15 August 2005, Dr Mohiaddin sent Dr Mills the relevant images and a report which concluded:
"1. Mild concentric LVH with normal LV volumes and good systolic function. Absolute and normalized LV volumes and mass are provided on a separate sheet to this report.
2. No obvious imaging features of HCM but this can't be completely excluded from imaging alone.
3. No significant LVOTO or aortic valve stenosis.
4. No obvious myocardial fibrosis or previous myocardial infarction.
5. The overall findings are in keeping with an athlete's heart."
In other words, the MRI image did not disclose any positive structural features of the heart muscle which suggested HCM, and indeed, the morphological findings were consistent with a healthy athlete's heart; but, as Dr Mohiaddin emphasised, a cardiac pathology could not be excluded by images alone.
Dr Mills had one query about this report. The report said that the Claimant's left ventricular mass was 204g, but it was unclear as to whether this was within the normal range. He therefore wrote to Dr Mohiaddin to clarify that issue.
In the meantime, on 17 August 2005 he wrote to the Club – in fact, addressed to Dr Curtin, to whom he was used to writing. He did not include a copy of Dr Mohiaddin's letter, but rather wrote as follows:
"I now have the MR scan on the sixteen year old. This confirms the presence of mild concentric ventricular hypertrophy.
The absolute values of his septal thickness of posterior left ventricular wall thickness on the [ECHO] are not unduly great at 11 and 10 mm respectively. The worrying feature is his [ECG] which shows T wave inversion in the 2, 3 and AVF and V3-V6. I have written back to [Dr Mohiaddin] to ask [him] to clarify [his] report which gives an absolute value for Radwan's left ventricular mass but doesn't provide us with a range of normal for that measurement and once I have that information I will write to you again. Basically there are no features of [HCM]. "
That noted Dr Mills' only query with Dr Mohiaddin: was the Claimant's left ventricular mass within normal limits? The letter made clear that, despite the otherwise normal MRI scan, Dr Mills was still "worried" about the abnormal ECG. Given that imaging cannot exclude disease, and the ECG abnormality remained unexplained, that was understandable.
Dr Mills explained in his evidence that when he said he still considered the ECG trace as "worrying", that was as an escalation in concern from "abnormal". The MRI scan results had not assuaged his concern. Given the ECG trace, Dr Mills still did not consider athlete's heart was likely; but, after the MRI scan, he did not believe that the Claimant had HCM either. He said he considered that there was still a risk of a cardiac event and, as a result, a risk that the Claimant might die. That risk was, he said, "very low" – but not zero.
Dr Curtin saw that letter from Dr Mills, and endorsed it:
"Await further letter – then need to copy in FA."
Dr Mohiaddin's response to the query, dated 22 August 2005, was to the effect that the published normal range for left ventricle mass index is for subject at least 20 years of age. Whilst the Claimant's left ventricular mass was within normal limits on that basis, Dr Mohiaddin said that, with adjustments he considered appropriate for the Claimant's age based on the trend of the mass index graph, "this patient's [left ventricular] mass index is above what is expected for his age…". Dr Mills wrote to Dr Mohiaddin on 2 September 2005 to confirm that he understood that the MRI scan and left ventricle mass index chart together suggested that the Claimant did have a degree of LVH. He also wrote to the Club on 2 September indicating that the Claimant's left valve mass appeared to be larger than expected at his age; but, in the meantime, there was an important telephone conversation with which I must deal, before I continue dealing with the correspondence.
Dr Cowie explained that the Medical Services Department was transferring from written to computerised medical records. In the event, there are virtually no written records in respect of the Claimant relevant to the matters in this case, except the letters and endorsements on those letters. There is only one such computerised record, dated 24 August 2005, and written by Dr Cowie. Dr Curtin faintly suggested that, at some stage, there may have been more records; but there is no evidence that other records, computerised or manual, had been made and lost. Insofar as Dr Curtin suggested otherwise, I do not accept that evidence.
Dr Cowie said that she wrote the single electronic record after a discussion between Dr Curtin, Ms Horth and her, following a telephone conversation on or about that day (24 August 2005) between Ms Horth and Dr Mills' secretary. The record reads:
Subjective Asymptomatic
Objective Routine cardiac screening showed some local thickening of R ventricle. Reviewed by Dr Mills after cardiac MRI. He does not believe that this is HCM and is happy for Rad to continue training as before
Analysis No current risk, able to continue training and playing
Rx Await further confirmation in writing from Dr Mills
Plan No further action required
The circumstances of the telephone conversation that gave rise to this note are unclear – neither Ms Horth or Dr Mills' secretary gave evidence, and Dr Mills knew nothing of it. However, I accept that there must have been some telephone conversation during which Dr Mills' secretary gave Ms Horth some information about the Claimant's case. The note suggests that the section headed "Objective" was largely the content of the call. Perhaps unsurprisingly (given anything Dr Mills may have said had been communicated through his secretary and Ms Horth, neither of whom were doctors), it contains a number of mistakes. The routine screening had shown some generalised (not local) thickening of the left (not the right) ventricle; and, insofar as the note suggests that Dr Mills had clinically reviewed the Claimant (which, on its face, it does suggest), it would be again wrong. But the substance of the message as received and understood by Dr Cowie was that Dr Mills did not believe that the Claimant had HCM, and was "happy" for him to continue training and playing football.
Following consideration of the MRI scan results, Dr Mills did indeed consider that the Claimant did not have HCM; but he was still "worried" about the abnormal ECG, and understood that there was still a risk that the Claimant had some heart disease albeit without yet any detected morphological signs. However, although "happy" is perhaps not the right word, balancing the very small risk of an adverse event and the potential benefits for this young man of continuing his footballing career, in his judgment as a cardiologist he considered that it would be reasonable for the Claimant to continue training and playing.
Subject to checking the Claimant's family medical history, that professional judgment was generally in line with international recommendations. The recognised consensus for athletes with "isolated abnormal ECGs" such as the Claimant was as follows[6]:
"Special attention should be paid to athletes with ECG abnormalities (such as… diffuse T wave inversion…) suggestive for HCM, in the absence of familial incidence of HCM and in the absence of LV hypertrophy. Evaluation of these athletes should include complete family screening, personal history, echocardiography, and 24h Holster ECG monitoring. When SCD or HCM in the family are excluded, and in the absence of symptoms, arrhythmias and LV hypertrophy, and with normal diastolic filling/relaxation, there is no reason for restricting athletes from competitive sports, but periodical and diagnostic follow up is recommended."
However, from the third-hand telephone message, Dr Cowie said she drew a conclusion – crucial, in the event – that the Claimant would be at no risk of an adverse cardiac event if he continued to train and play football. I use the term "drew a conclusion" (rather than "made an assumption") advisedly, because, as I understood her evidence, she said that she positively considered the matter. I accept that she did so. It is vital to note that "No current risk" was Dr Cowie's assessment on the basis of what she had been told, not an assessment by Dr Mills.
Dr Cowie's analysis was as follows. Dr Mills appeared satisfied that the Claimant did not suffer from HCM; and she considered HCM and LVH (which she assumed referred to only the benign form of athlete's heart) were differential diagnoses, binary in the sense that they covered all possibilities. Therefore, by eliminating HCM, the only explanation left for the abnormal ECG was athlete's heart. That was a healthy condition, not a pathology. Hence, her conclusion that there was no risk. That, she thought, explained why Dr Mills was "happy" for the Claimant to continue to exert himself. It of course explains why, subject to getting confirmation of the telephone message, she considered "No further action required".
The entry in the computerised record of 24 August 2005 is crucial in this claim, and Dr Cowie made clear that she regarded it as such – because, although Dr Cowie awaited confirmation of the message she had received from Dr Mills through Dr Mills' secretary and Ms Horth, her conclusion that there was no risk in the Claimant continuing to train and play was thereafter maintained. It was an important conclusion, because Dr Cowie readily accepted that, if she had considered that the Claimant was at some – any – cardiac risk, she would have arranged for him (and his parents) to be told of it, so that they could have made an informed decision as to whether to take that risk or not. That would have been done through a clinical review by a cardiologist, almost certainly Dr Mills. He said that, at such a review, he would have given the Claimant and his parents all of the clinical results and the correspondence in relation to them, including Dr Mills's own letter indicating that he was still "worried" by the ECG trace; so that, despite the risk of an adverse event being very small and (as a cardiologist) he would have advised it was reasonable for the Claimant to have borne that risk and carried on playing, Radwan and his parents could have made an informed decision as to whether to do so. There is nothing surprising in any of that: it is standard medical practice.
Dr Cowie accepted that any such discussion would have taken place in the context of a clinical review meeting between Dr Mills and the Claimant and his parents, Dr Mills being best able to explain what the various scan results showed and the nature and extent of the risk they disclosed. She said that no such discussion took place because, until 24 August 2005, she considered that investigations were proceeding and she did not wish to concern the Claimant and his parents in the meantime, as the eventual results may have disclosed that the Claimant's heart was normal and there was nothing to worry about; and, after 24 August, she considered there to have been no cardiac risk, and so there was nothing for Dr Mills and the Claimant to discuss. It was on that basis that, shortly after 24 August, Dr Cowie spoke to the Claimant's father and told him it was fine for the Claimant to continue training but that "they would keep an eye on him". Although there was evidence that this conversation took place shortly after 24 August, the reference to "keeping an eye on him" suggests it may have been after Dr Cowie had seen Dr Mills' letter of 2 September (see paragraph 44 below). The precise date of the conversation is of no matter.
Of course, the conclusion that Dr Cowie drew – that the Claimant faced no cardiac risk – reflects, at least, a quite shocking failure of communication; because, as I have explained (see paragraph 37 above), Dr Mills considered the Claimant did still bear a risk of an adverse cardiac event which would be potentially fatal; and, if Dr Cowie had understood that to have been the case, she would have ensured that the Claimant and his parents were aware of it by way of a clinical review. Dr Cowie said in evidence that she was well aware that the Claimant had not had a clinical review, but considered that the 24 August message overrode that earlier requirement – because there was now, she thought, no risk.
As I have indicated, Dr Mills wrote to the Club on 2 September 2005, enclosing a copy of Dr Mohiaddin's latest letter, and saying:
"As you see Radwan's ventricular mass is increased taking into account his body weight. I imagine there is no other comparable data for males of his age. Given his abnormal [ECG] I think we should keep a closer eye on him than usual. I would suggest that he is screened on an annual basis."
That did not suggest that the MRI scan was in any way sinisterly abnormal; and the expert cardiologists are agreed that it was not abnormal, showing no diagnostic or early features of HCM or any other cardiomyopathy (joint statement, paragraph 19(b)).
However, that letter was not sufficient confirmation for Dr Cowie, who telephoned Dr Mills' office and spoke to his secretary who made a short note of that conversation, for Dr Mills, as follows:
"Dr Cowie rang – they need a letter from you confirming that you are happy for Radwan to continue training. They've had it verbally but need it documented."
There is then a reference to Dr Krasner, but that seems to have no relevance. This note reflects the 24 August 2005 record, and fits in with Dr Cowie's version of events, i.e. from Dr Mills telephone message that he did not consider the Claimant to suffer from HCM and was "happy" for his to continue training, she concluded that the Claimant faced no cardiac risk, and she simply wanted those premises, upon which her conclusion was based, confirmed.
Dr Mills wrote on 9 September 2005:
"Further to my recent letters about Radwan Hamed's MR scan I think it would be reasonable for him to continue to train as a professional footballer but I would suggest that he has an annual review with an ECG and an [ECHO]."
Dr Cowie took this as the confirmation she sought. That letter was filed. No further action was taken on it. However, Dr Cowie gave a copy of the 9 September letter to the Claimant to take home to his parents, which he did. For them, it effectively confirmed the conversation that they had had with Dr Cowie earlier. They thought that that the Claimant had been given a "green light" to carry on as a professional footballer, on the basis that he had been shown to have no cardiac risk in doing so. That understanding was unsurprising, as that was what Dr Cowie believed.
There is no further relevant medical activity before August 2006; except, oddly, on 18 November 2005, Dr Krasner completed a medical screening questionnaire for the Claimant. It is not known whether Dr Krasner saw the Claimant in order to do so. The form contains nothing of substantive interest, although it contains some errors, e.g. it suggests that the Claimant performed an exercise ECG in 2005 (he did not) and that he "saw cardiologist Dr Mills 17th August 05 re hypertrophy". The Claimant of course never saw Dr Mills: the only source of that misunderstanding (which could not have come from the Claimant himself, even if Dr Krasner did see him) appears to be the computerised record of 24 August 2005 which suggests that Dr Mills did conduct a clinical review with the Claimant (see paragraphs 35-36 above).
Although Dr Mills recommended an annual review in his letter of 9 September 2005, by August 2006 no ECG or ECHO had been arranged.
On 4 August 2006, whilst playing in Belgium for the Club's youth team against Cercle Brugge Football Club, the Claimant collapsed. Bystanders could not resuscitate him. After about a quarter of an hour an ambulance arrived with a defibrillator, and he was taken to hospital where he was diagnosed as having suffered brain damage as a result of anoxia. Another Club physiotherapist (Rory Brown, who was responsible for the 17-18 year olds) was at the match, and he telephoned Dr Cowie who met the Claimant's parents at the Club from where they all drove immediately to Belgium.
On 30 August 2006, before the Claimant's return to London, there was a meeting attended by, at least, Dr Cowie, Dr Mills, John McDermott (the Manager of the Club's Academy) and the Claimant's parents. Handwritten notes of the meeting are available. It is not known who prepared them, but none of the witnesses who gave evidence suggested that they were in any way materially wrong as a record.
It is clear from these notes that the issue of "balancing career against risks" was discussed; and that Mr Hamed was concerned that the Claimant and his parents had been kept out of the information about the risk to which the medics had been privy – and had been denied the opportunity to decide whether the Claimant should take that risk. The notes say, close to the reference to the risk-benefit balance: "Missing link is not communicated to parents". It is also clear from the notes that Mr Hamed was concerned that his son had not been treated properly, as a patient, by the medics.
Dr Mills said that, at the meeting, Dr Cowie appeared to have been under the misapprehension that a clinical review had taken place. In her evidence, Dr Cowie said that Dr Mills had blamed the Club for not having arranged a clinical review, as he had recommended in July 2005. Mr Hamed's evidence as to this – which I accept – was that he (Mr Hamed) specifically asked Dr Mills why he had given his son "the all clear", and Dr Mills said he had recommended to the Club that the Claimant be seen by a cardiologist. At this point, Mr Hamed said, Dr Cowie intervened and said:
"Dr Mills you did not ask for Radwan to be reviewed clinically. There is not a single shred of evidence to support that. We did not get any further letters from you."
That suggests that Dr Mills had never recommended a clinical review – which, of course, he had, in the form he completed in July 2005 after the ECG and ECHO. In her evidence, Dr Cowie conceded that she was mistaken in that regard, but, she said, she had not looked at the Claimant's medical records before attending that meeting. But in any event, it seems to me that what Dr Cowie said is compelling evidence that, rather than thinking that a clinical review had taken place, she was aware that it had not – and wished to make clear her view as to why it had not.
Dr Mills thereafter performed tests on the Claimant's family. When Mrs Hamed attended him for that purpose, she said he asked him why he had not advised about the risk that the Claimant might have a cardiac condition, to which he replied:
"I couldn't take away a young boy's dream"
Dr Mills accepted that he might have responded thus; but it was in the context of a risk-benefit balance that he understood he was being asked to opine upon as a cardiologist.
Breach of Duty: Introduction
During the course of the trial, Dr Mills conceded – on the evidence, in my view, quite properly – that, when writing his letters on 2 and 9 September 2005, he owed a duty of care to the Claimant which he breached, by failing to make specific reference to the clinical review which he had recommended on 21 July 2005.
The Club accept that they owed a duty of care to the Claimant, as a result of both their doctor/patient relationship and their employer/employee relationship. The scope of each duty is well-established. In respect of the former, a doctor is only negligent is he fails to act to the standard of any contemporaneous responsible body of medical opinion (Bolam v Friern Hospital Management Committee [1957] 1 WLR 582). On the other hand, an employer owes an employee a duty to take all reasonable steps to safeguard him from all reasonably foreseeable risk of injury during the course of his employment (see, e.g., Wilsons and Clyde Coal Co v English [1938] AC 57 and Harris v Brights Asphalt Contractors [1953] 1 QB 617). An employer must thus take all reasonable steps to ensure that his employee is fit to do the work for which he is employed without reasonably foreseeable injury. Of course, in assessing what is reasonable, the more serious the potential injury, the greater the burden upon the employer to respond proportionately to it. If the risk is of death or a catastrophic injury, then the employer must take commensurately meticulous steps.
Although the Club accept they owed a duty of care to the Claimant as both doctor and employer, they deny any breach. The Claimant's claim against the Club is now restricted to allegations of negligence by Dr Cowie and/or Dr Curtin (for whom the Club are vicariously liable); but, as Dr Cowie was the Head of the Medical Services Department at the Club, they accept that she – and therefore, vicariously, the Club – are liable for, not only her own individual acts of negligence, but any systemic failure that amounts to negligence.
Mr Featherby put the Claimant's case on breach as against the Club on a number of bases. However, his primary focus was set out in paragraph C1 of the allegations of negligence, within paragraph 8 of the Amended Particulars of Claim:
"Failing to arrange for the Claimant to be clinically reviewed by [Dr Mills] (or another Consultant Cardiologist) as suggested by [Dr Mills] and/or subsequently failing to ascertain/check that the Claimant had undergone a clinical review and having ascertained that the Claimant had not been clinically reviewed by [Dr Mills] (or another Consultant Cardiologist) failing to ensure that the Claimant was clinically reviewed…".
Following the evidence, his focus was even more specific; because, on the basis of Dr Cowie's evidence, it seemed that a clinical review was not arranged because of her conclusion on 24 August 2005 (and maintained thereafter) that the Claimant was at no risk of an adverse cardiac event. The primary issue was therefore whether Dr Cowie was negligent in drawing that conclusion.
Breach of Duty: The Primary Breach alleged against the Football Club
The expert cardiologists agreed the following, which is again uncontroversial as between the parties.
i) The Claimant's ECG of 21 July 2005 was unequivocally abnormal and well beyond an athlete's heart changes expected in a 16 year old. It was suggestive of HCM or other heart muscle disease.
ii) The ECHO image quality was inadequate for the purposes of measurement or firm diagnosis. The later cardiac MRI scan showed a morphologically normal heart. However, whilst a normal MRI excludes manifest HCM, it cannot exclude the possibility that the subject (a) is suffering from some other myocardial abnormality such as inherited arrhythmia, or (b) has a gene mutation which makes him prone to HCM which, although not yet manifest, may become manifest in the future.
iii) Thus, even after the MRI scan, the Claimant was left with an abnormal ECG but without any firm diagnosis as to its cause. It was likely that it was benign, but there was a risk that it was not. That risk was very small; but, if the Claimant were suffering from a pathology, it would be a very small risk of death or catastrophic injury.
It is also uncontroversial that, if there were a cardiac risk in the Claimant continuing to train and play:
i) it would be mandatory to communicate this to the Claimant and his family, usually through the cardiologist (see expert cardiologists' expert report, paragraph 31(a));
ii) it would be for the Claimant (or, as he was a minor, his parents) to make an informed decision as to whether he should continue or not; but
iii) if they decided that they wished him to continue, the Club would then effectively have a veto: the Club would have to take an informed decision of their own as to whether they wished to employ a player who bore a risk of death or serious injury if he continued to play.
Dr Mills was aware of the above. He was aware of the very small risk; but, if asked whether the Club was justified in allowing the Claimant to continue to train and play, considered that, balancing that risk against the benefits to the Claimant and Club of him continuing to play, it would be reasonable for the Club to allow him to continue. That is what he meant by saying, in his letter of 9 September 2005 to the Club, that it was "reasonable" for him to continue. "Reasonable" implies that a judgment has been made by balancing various factors.
In her evidence, Dr Cowie accepted that, at the relevant time, she was aware that, although HCM was the most common cardiac disease in young athletes manifesting in LVH, there were other pathologies. She also accepted that, had she considered the Claimant to have been at risk from an adverse cardiac event, then, once the 2005 investigations were complete, she would have ensured that he (and his parents) were aware of that risk, and were enabled to take an informed decision as to whether to take such a risk by continuing to train and play football. One would not expect any doctor to have taken a different view. In conceding the Claimant's case on causation, the Club accept (as does Dr Mills) that, if the Claimant and his parents had been aware of the cardiac risk borne by the Claimant, they would have decided that the Claimant would not continue as a professional footballer.
Mr de Navarro submitted that, in concluding on 24 August 2005 that the Claimant was at no risk of an adverse cardiac event, Dr Cowie acted reasonably; and, in any event, it would be entirely inappropriate to find her and thus the Club negligent on such a basis.
That submission was boldly made; but it is unmaintainable. Dr Widdowson (the expert sports physician instructed on behalf of Dr Cowie) conceded that Dr Cowie's conclusion on 24 August 2005 that the Claimant was at no cardiac risk was not a conclusion she, as a sports physician, could properly draw. That was said in the context of a series of question about what a reasonably competent sports practitioner might do. Dr Widdowson's view (which mirrored that of Dr Gillett) was, clearly, that no reasonably competent sports practitioner would have come to the conclusion that there was no cardiac risk in the circumstances and on the basis of the information that Dr Cowie had at hand then. He made that concession on the basis that any reasonably competent sports physician would know that:
i) Cardiac screening of young athletes is designed to detect all cardiomyopathies including, but not restricted to, HCM.
ii) LVH may be a manifestation of a physiologically healthy athlete's heart; but it can be caused by potentially inherited cardiomyopathies including, but not restricted to, HCM.
iii) The gene mutation which causes HCM when fully expressed, may be present before it is full or indeed any manifestation in the form of heart wall thickening.
Dr Cowie accepted that she was in fact aware of, at least, (i) and (ii).
Mr de Navarro's contention requires me to disagree with the experts, including the expert that he called, in the absence of any evidence that they might be wrong. But, in fact, the experts are clearly right. The ECG showed an abnormality which suggested that the Claimant had a risk from a cardiomyopathy. In suggesting a differential diagnosis of HCM or LVH, Dr Mills was not suggesting that, if the condition were not HCM, then it was necessarily benign: a reasonably competent sports physician would know (and Dr Cowie in fact knew) that there was a small chance of the Claimant suffering from some other pathology. The MRI scan was capable of confirming, one way or the other, whether the Claimant suffered from manifest HCM; but it could not exclude other pathologies. By stating that he did not believe the Claimant was suffering from HCM, Dr Mills did not mean (and could not have been understood by any reasonably competent sports physician to have meant) that he was excluding all other pathologies.
Therefore, whilst I accept that the form of communication on 24 August 2005, and his letters of 2 and 9 September 2005, might have been made clearer by Dr Mills, I am driven to conclude (as her own expert clearly conceded) that Dr Cowie's conclusion made on 24 August 2005 and maintained thereafter until the catastrophic event on 4 August 2006, was not a conclusion to which any reasonably competent sport physician could have come.
In coming to that conclusion, Dr Cowie was thus negligent, whether as the Claimant's employer or under the stricter Bolam test. Indeed, following Dr Widdowson's concession, the contrary ceased to be arguable.
Had Dr Cowie appreciated, as she ought to have done, that the Claimant bore this risk, she understandably accepted that she would have ensured that he (and his parents) were made aware of the risk. That in practice would have been done by a clinical review being arranged with a cardiologist – almost certainly Dr Mills. Dr Mills said – and I accept – that, at such a review, he would have made clear the risk faced, including sharing with the Claimant and his parents the various scan results he had received and his correspondence including the latter he sent to the Club after the MRI scan was available to the effect that he was still "worried" about the ECG scan. In any event, both he and the Club accept that, had the Claimant and his parents been properly informed of the risk, the Claimant would have stopped training and playing football – and the catastrophic event on 4 August 2006 would not have occurred.
Breach of Duty: Other Breaches alleged against the Football Club
I can deal very shortly with the other breaches of duty alleged against the Club.
Of the other specific allegations of negligence set out in paragraph 8 of the Amended Particulars of Claim extant at the end of the trial, I need only deal with the following.
i) Two of the allegations (that the Club failed to discuss the findings and recommendations with Dr Mills (paragraph C3); and, on 24 August 2005, failing to ascertain whether the Claimant had been clinically reviewed and/or erroneously believing he had been clinically reviewed (paragraph C8)) in the event add nothing of substance to the claim.
ii) It is alleged that the Club were negligent in failing to make a referral to the FA cardiologist panel (see paragraph 14 above). However, although it was open to the Club to make a reference, the evidence was that in practice referrals were only made on the recommendation of the Regional Cardiologist. In any event, in this case, there was no need for any second opinion, and the analysis of the various scans etc by Dr Mills is not now questioned. There was thus, in my view, no need to make a reference; and the Club were not negligent in failing to make one.
iii) It is alleged that the Club failed to ensure that, in line with Dr Mills' recommendation (i.e. mandated requirement) in his letter of 2 September 2005, the Claimant was screened on an annual basis. It is said that the screening considered by Dr Mills was performed on 21 July 2005, and so he should have been the subject of further scans by about 21 July 2006 and in any event before 4 August 2006. Whilst I understand the concerns of the Claimants' parents about the fact that, prior to 4 August 2006, no steps were taken by the Club to arrange for the Claimant to be screened again, (a) each of the sports physician experts accepted that it was implicit that the Club had some leeway in fixing the date for an annual review (their joint statement, paragraph 6), (b) 4 August 2006 was only 54 weeks after the 2005 scans, (c) Dr Cowie gave evidence that, whilst the new intake players were screened together in the close season, annual follow-up screening of players did not, (d) she said that appointments could be and were made at short notice, and (e) there is evidence that the follow-up screening for another player was not arranged until 1 September 2006 when it was fixed for 4 September. I am not persuaded that the Claimant's annual review had simply been forgotten; nor am I persuaded that the Club were in breach by failing to organise his follow-up screening by 4 August 2006.
There is no specific allegation that the Club breached its duty of care to the Claimant by failing to keep proper medical records for him; but the suggestion was made and, as it may affect apportionment, I should deal with it.
It is of course important not to expect too much of medical practitioners in terms of record taking and keeping – particularly where, as here, they must be judged by standards applicable some years ago – but Dr Cowie properly accepted that it was important for a patient's medical records to set out his medical history sufficiently to enable other medical practitioners who might become involved with his care to be able to make properly informed decisions. Again, one would not expect any different a view from a doctor.
In this case, as I have explained (see paragraph 34 above), the only medical records kept by the Medical Department at the Club concerning the Claimant's cardiac investigations were a single entry in their computerised system, and the correspondence to which I have referred including the notes endorsed on the letters by, mainly, Dr Curtin. It is important in this context to note that, from January 2004, Dr Curtin was not the only doctor employed at the Club, and the chances of more than one medic being involved in the treatment of a player/patient greatly increased. Indeed, as in this case, it was very likely that that more than one medic would be involved with any medical issue.
With regard to the clinical review, it is true that, had such a review taken place, one would have expected to have seen in the records a letter from the cardiologist who had performed it reporting back. There is no such letter in respect of the Claimant.
Neverthless, it is clear that many within the Club (including doctors within the Medical Services Department) understood that there had been such a review. Dr Curtin (who had been quite closely involved in this matter) confirmed in his oral evidence that that was his understanding. On 26 August 2006, Mr McDermott wrote a paper for the Club with a recommendation as to how to proceed with regard to the Claimant and his family – no doubt in preparation for the 30 August meeting with them – in which he indicated that Dr Mills had met the Claimant and his father, with a "recommendation" that he continue to play football. I have already mentioned Dr Krasner's note on the questionnaire he completed on 18 November 2005 (see paragraph 47 above).
Mr Featherby and, particularly, Mr Westcott submitted that, on all the evidence, I should find that Dr Cowie was under the misapprehension herself that a clinical review had taken place, the contemporary evidence overwhelmingly suggesting that Dr Cowie was told by Ms Horth that it had. Mr Westcott particularly relied upon the following:
i) Dr Cowie said that she and Ms Horth had discussions about the Claimant's case (one such being recorded in the 24 August 2005 note);
ii) the 24 August 2005 note, made by Dr Cowie, strongly suggests that a review had taken place:
iii) on 5 August 2006, the day after the Claimant's cardiac arrest, Dr Cowie emailed a number of people (including Mr McDermott) suggesting that the Claimant had seen Dr Mills during the 2005 investigation;
iv) Dr Cowie accepted that Mr McDermott would likely have obtained the necessary medical input for his 26 August 2006 report from her; and
v) it was inherently unlikely (Mr Westcott submitted) that Dr Cowie and Dr Curtin would have different understandings on this important matter;
That was a forceful submission; but, after careful consideration, I am not satisfied that, in August 2005 through to August 2006 and beyond, Dr Cowie was under the misapprehension that the Claimant had been clinically reviewed by a cardiologist. On this issue, I find the evidence of the Claimant's parents as to the 30 August 2006 meeting (see paragraphs 51-52 above) particularly compelling. At that meeting, Dr Mills said that he had recommended to the Club that the Claimant be seen in a clinical review; and Dr Cowie immediately responded, not that such a review had been carried out, but that Dr Mills did not recommend such a review. Whilst of course her understanding might have changed, she said that (somewhat oddly) she had not looked at the Claimant's medical records in preparation for that meeting – that I accept, as it accounts for her mistake in saying that Dr Mills had not requested a clinical review. Indeed, in the evidence, there is no suggested prompt for such a change of apprehension. I find that, as she said in evidence, Dr Cowie was at all relevant times aware that the Claimant had not been clinically reviewed; and I accept her evidence that a review was not pursued because she had concluded on 24 August 2005 (in the event, both wrongly and unreasonably) that the Claimant was at no cardiac risk.
In my view, the fact that many people within the Club considered the Claimant had had the benefit of a clinical review was not a result of a misapprehension by Dr Cowie, but the result of the very poor state of the Claimant's medical records. The only relevant records were (i) Dr Mills original recommendation of 21 July 2005 that there should be a review, and (ii) the computerised record of 24 August 2005 which suggested that there had been a review. This was in respect of a case which, both Dr Cowie and Dr Curtin said, was the first at the Club where a cardiologist having considered the ECG and ECHO had recommended an MRI scan. It appears to me to speak volumes about the expectation of medical records in the Medical Services Department of the Club at that time that those thin documents appear to have persuaded the doctors who referred to them that there had been a review, even in the absence of a clinical review report from a cardiologist. It is no answer to say, as Dr Cowie suggested, that the medics discussed individual players on a regular basis and therefore they each knew what was going on; because, in this case, whereas Dr Cowie correctly understood that there had been no clinical review, others within the team (including Dr Curtin) had the opposite understanding.
The records were quite evidently not adequate for their purpose. Had they been reasonably adequate, it would have been apparent from them that there had been no such clinical review; and a high likelihood that another medic within the department – Dr Curtin or Dr Krasner, for example – would have concluded from them that such a review was necessary and sought to have arranged it. It is unlikely that anyone reviewing the records would have fallen into the same error as that committed by Dr Cowie in considering there was no cardiac risk for the Claimant; and they would have seen that that risk had not been conveyed to the Claimant and his parents. As it was, the evidence of Dr Curtin was simply that he understood that Dr Cowie was dealing with the matter of the Claimant's cardiac issue; but that understanding did not come from the medical records.
Breach of Duty: Conclusion
For the reasons I have given, both Dr Mills and the Club are in breach of their respective duties to the Claimant.
Apportionment
Causation has been conceded by each Defendant. I therefore have to proceed to apportion liability between them.
Again, the relevant principles are well-established: as between defendants inter se, the proportions of liability have to be just and equitable taking into account blameworthiness and causative potency (see, e.g., Downs v Chappell [1997] 1 WLR 426 at page 445).
Mr Westcott submitted that, in all the circumstances, the Club should bear the major proportion of the liability. I agree. In coming to that conclusion, I have taken into account all of the matters to which I have referred above in relation to the claims against each of them, but of particular note are the following.
i) I do not accept that Dr Cowie (or the Club through any of their other employees) treated the Claimant as simply an "asset" of the Club, rather than a patient, as Mr Westcott contended and Mr Hamed clearly thought might have been the case. I do not consider that Dr Cowie in any way deliberately shut her eyes to the risk. In concluding that the Claimant bore no risk of an adverse cardiac event, Dr Cowie made a simple negligent error of judgment.
ii) But it was serious error of judgment. The Club owed a duty of care to the Claimant as a result of both the doctor/patient and employer/employee relationship. With regard to the former, the Club doctors were not only in effect the Claimant's general practitioners, but specialist sports physicians who were (or should have been) well-acquainted with the cardiac risk faced by young athletes. In addition to the usual obligations of a doctor to a patient, the FA protocol placed an obligation upon them to ensure that the Claimant and his parents were made aware of any risk that the Claimant faced. It was their responsibility, as specialist physicians and employers, to ensure that relevant risks were identified and communicated to the Claimant and his parents to enable them to make an informed decision as to whether to bear them. In this, they singularly failed.
iii) Following Dr Mills' report in July 2005, it was the Club's job to organise the follow-up (including the clinical review). The FA made clear – and Dr Cowie well-understood – that cardiologists had been instructed not to carry out any investigations unless requested by a football club's medical team to do so. In this case, despite the July 2005 recommendation by Dr Mills and the understanding of Dr Curtin that a review was required, the Club never requested any such review of Dr Mills or any other cardiologist.
iv) Whilst Dr Cowie said that she did not wish unduly to concern the Claimant's parents before the investigations were complete, she was the Claimant's medical practitioner; and she unfortunately but unreasonably gave them false assurance that the Claimant's heart was normal (on any view, it was not) and there was nothing to worry about (when, even after the MRI scan, the cardiologist had specifically indicated to the Club that he was worried by the ECG). Whilst my firm finding is that the conclusion upon which that assurance was given was one which she could not properly have made, had there been any ambiguity then the proper course would have been for her to have contacted Dr Mills himself for clarification. Although she said he was sometimes busy and difficult to get hold of, given that she was dealing with a risk of a potentially fatal condition, in the event of any doubt she was obliged to obtain any necessary clarification from him.
v) As a result of Dr Cowie wrongly concluding that the Claimant was at no cardiac risk, she did not consider it necessary to pursue a clinical review. Had she considered that he was at such a risk, as she ought to have done, she would have ensured that he had been clinically reviewed by a cardiologist, almost certainly Dr Mills. At such a review, a family history would have been taken (which we now know would have been negative) and, vitally, the level and nature of the risk explained to the Claimant and his parents. In those circumstances, the Claimant would have ceased playing professional football, and he would have avoided the cardiac arrest from which he suffered on 4 August 2006.
vi) Furthermore, the record keeping at the Club's Medical Services Department fell far short of the acceptable. Had it been adequate, then it is likely that a member of the department would have spotted that there had not been a clinical review circumstances in which there ought to have been a review.
vii) On the other hand, I accept Mr Westcott's submission that, until at least 24 August 2005, Dr Mills had complied with all of his obligations: he had properly construed and reported upon the various scans that had been performed and done all that had been required of him. His professional judgment that it would be reasonable for the Claimant to continue as a professional footballer was, subject to the taking of a family medical history, generally in accordance with recognised recommendations. It was accepted by Dr Widdowson that, when Dr Mills wrote his September 2005 letters, he was reasonably entitled to assume that the Claimant and his family had been apprised of the thrust of his concerns about the Claimant's cardiac function. Although Dr Mills owed the Claimant a duty of care, he was not in a doctor/patient relationship with him. He had not been asked to clinically review the Claimant. Had he been asked, he would have done so. His only breach of duty to the Claimant was in failing to make clear to the Club from (at the earliest) 24 August 2005, and notably through his September 2005 letters, that it was still a mandated requirement for there to be a clinical review conducted by a cardiologist. Dr Mills' letters of 2 and 9 September 2005 used language that was, at best, very loose. I accept that, had he made that continuing requirement clear, the Club would in all likelihood have arranged such a review, at which a family history (which we now know would have been negative) would have been taken and, vitally, the level and nature of the risk explained to them. In those circumstances too, for the reasons I have set out above, the Claimant would have ceased being a professional footballer and his adverse cardiac event on 4 August 2006 would not have happened.
In all of the circumstances, I consider the appropriate apportionment as between the defendants to be the First Defendant Dr Mills 30%, the Second Defendant the Football Club 70%.
Note 1 McKenna et al. The natural history of left ventricular hypertrophy. Circulation 1982; 66; 1233-1240. [Back]
Note 2 Prasad K et al. Echocardiographic pitfalls in the diagnosis of hypertrophic cardiomyopathy. Heart 1999; III8-III15. [Back]
Note 3 Ibid; and Marron BJ, Cecchi F, McKenna WJ. Risk factors and stratification for sudden cardiac death in patients with hypertrphioc cardiomyopathy. Br Heart J 1994; 72: S13-S18. [Back]
Note 4 See Corrado D et al. 12-lead ECG in the athlete: physiological versus pathological abnormalities. Br J Sports Med 2009; 43: 669-676 at page 1390. [Back]
Note 5 Maron et al. Cardiac Disease in Young Trained Athletes. Am Heart Assoc Current Perspectives; 1995: 91; 1596-1601 at page 1598. [Back]
Note 6 Pellicia A et al. Recommendations for competitive sports participation in athletes with cardiovascular disease: A consensus document from the Study Group of Sports Cardiology of the Working Group od Cardiac Rehabilitation and Exercise Physiology and the Working Group of Myocardial and Pericardial Diseases of the European Society of Cardiology. Eur Heart J 2005; 26: 1422-45. The expert cardiologists agreed that these were appropriate recommendations: joint statement, paragraph 30. [Back] |
Mr Justice Hickinbottom :
Introduction
The Claimant Peter Hogg was born at the London Hospital, Whitechapel, on 18 February 1986.
He has been diagnosed with septo-optic dysplasia ("SOD") with structural brain abnormalities, visual defects, anterior and posterior pituitary deficiencies with resultant diabetes insipidus, adipsia (an inability to perceive thirst), sleep apnoea and severe learning disabilities. In these proceedings, he claims that his condition was caused by the negligent performance of an amniocentesis on his mother when pregnant with him, at the London Hospital on 14 August 1985, such that the amniocentesis needle punctured his head and damaged his brain. The procedure was performed by Dr Gillian Robinson and a sonographer, for whom the Defendant is vicariously responsible.
The trial, at which the Claimant was represented by Philip Havers QC and Jeremy Hyam and the Defendant by Margaret Bowron QC, was restricted to issues of liability. In addition to the Claimant's mother and father (who was also present at the procedure) and Dr Robinson, I heard oral evidence from two other medics who worked at the London Hospital at the relevant time, Dr Nigel Armstrong and Dr Roger Harris. I also had the benefit of written and oral expert evidence from a number of experts. The following were instructed on behalf of the Claimant:
i) Mr Myles Taylor (Consultant Obstetrician and Gynaecologist at the Centre for Women's Health, Royal Devon & Exeter Hospital)
ii) Dr Waney Squier (Consultant Neuropathologist at the John Radcliffe Hospital, Oxford)
iii) Dr Amanda Ogilvy-Stuart (Consultant Neonatologist and Endocrinologist at the Rosie Hospital, Cambridge)
iv) Dr Willie Reardon (Consultant Clinical Geneticist at Our Lady's Hospital for Sick Children, Dublin)
v) Dr Brian Kendall (Consultant Paediatric Neuroradiologist at HCA Wellington Hospital, London)
vi) Professor Alistair Fielder (Professor Emeritus of Ophthalmology at City University, London, and formerly Consultant Ophthalmologist at Hillingdon Hospitals, London) and
vii) Dr Lewis Rosenbloom (Consultant Paediatric Neurologist with Alder Hey Children's Hospital, Liverpool).
The following were instructed on behalf of the Defendant:
i) Mr Gerald Mason (Consultant in Feto Maternal Medicine)
ii) Dr Tom Jacques (Consultant Paediatric Neuropathologist at the UCL Institute of Child Health and Great Ormond Street Hospital for Children)
iii) Dr John Reckless (Consultant Physician and Endocrinologist with the Royal United Hospital, Bath)
iv) Professor Michael Patton (Professor Emeritus of Medical Genetics and Consultant Clinical Geneticist at St George's Hospital Medical School and Portland Hospital, London)
v) Dr Kling Chong (Consultant Paediatric Neuroradiologist at Great Ormond Street Hospital for Children)
vi) Mr John Elston (Consultant Ophthalmic Surgeon at the John Radcliffe Hospital, Oxford) and
vii) Dr Gayatri Vadlamani (Consultant Paediatric Neurologist at Leeds Royal Infirmary).
At the outset, I thank Counsel and all of the experts for their assistance which has been considerable and much appreciated.
Medical Background
Tests upon the fluid that surrounds a developing fetus in the amniotic sac within the womb have been devised which can pre-natally detect chromosomal and other fetal abnormalities, such as Down's Syndrome. These require the extraction of samples of the fluid for testing, usually by a procedure known as amniocentesis, by which a needle in inserted through the mother's abdominal and uterine walls into the amniotic sac, followed by the attachment of a line and syringe so that fluid can be aspirated. The procedure carries with it a small but significant risk of miscarriage (about 1:200), and so it is generally reserved for situations where there is an unusually high risk of fetal abnormality, e.g. because of the mother's age.
A number of steps are taken to ensure that the sample is aspirated from free fluid, so that a sample is obtained sufficiently large to produce a reliable test result. First, the procedure is not usually performed until 16 weeks after conception, because the amount of amniotic fluid greatly increases – almost doubling – from weeks 13-16. Second, ultrasonography is used to identify an area within the womb where there is a free pool of fluid. These steps also reduce the risk of the needle puncturing the fetus; although such risk is very small, with (as I understand it) only seven possible cases of damage to the fetal head being reported by 2000[1].
The procedure has developed over time. In its early days, the ultrasonographer would perform a scan in the radiology department of the hospital, and physically mark the mother's body where the insertion should be made, before returning the patient to the doctor who then performed the insertion of the needle "blind", going through the various anatomical layers by "feel". To reduce the risks of (e.g.) the fetus moving between the time of an earlier scan and the needle insertion, some hospitals moved to a procedure where the sonographer still marked the mother's body, but the doctor performed the amniocentesis immediately, in the Radiology Department, albeit blind. However, from the mid- to late 1980s, the procedure was adapted such that an ultrasound scan and insertion of the needle were performed at the same time, which meant that the doctor had the advantage of seeing the scan on screen in real-time, during the procedure. Some hospitals had a stage where the sonographer did the live scanning whilst a doctor inserted the needle; but the procedure evolved in the 1990s to one in which the doctor performed the procedure without assistance, two-handed, doing the live scan with one hand and inserting the amniocentesis needle with the other. As I understand it, that is how such procedures are performed today.
The fluid is aspirated into a syringe. The aspiration is known as a "tap", which would usually comprise about 15ml of fluid in a fetus of 16 weeks gestational age. A "dry tap" is where no fluid is aspirated, e.g. because the needle fails to puncture the amniotic sac. A "bloody tap" is where fluid is aspirated, but it is contaminated with blood, which may be maternal or fetal. Where fetal blood appears in the tap, it may be the result of the needle puncturing the fetal body itself, or the umbilical cord or the placenta, each of which have fetal rather than maternal blood.
The Case History
The Claimant's mother is Cherryl Hogg, who was born on 15 March 1948. She married Peter Hogg, and they ran a public house in London. By 1985, they had two healthy children, born in 1970 and 1972.
In early 1985, Mrs Hogg was having problems with her contraceptive coil device, and was advised to have a replacement fitted. On 18 April 1985, her old coil was removed, which caused her some discomfort and some bleeding. As a result, she did not have a new device fitted immediately. However, before the replacement was fitted, she fell pregnant.
On 4 July 1985, she attended the Midwives Clinic at the London Hospital. Her weight (110kg, i.e. something over 17st) was recorded. Her notes were marked that her last menstrual period was on 18 April 1985 "certain", and therefore her estimated date of delivery was calculated to be 25 January 1986. Because of her age – 37 years – an amniocentesis was discussed, and the procedure was agreed and arranged at a further appointment on 12 July. The procedure was booked for 14 August 1985 at the London Hospital.
The precise procedure that took place is very much in dispute; but there is some common recollection. Mrs Hogg was accompanied by Mr Hogg. During her oral evidence, Mrs Hogg said – and Dr Robinson later confirmed – that the procedure was conducted in the Radiology Department by Dr Robinson, who was a Registrar in Obstetrics and Gynaecology at the hospital at the time. The sonographer was a Ms Beverley Nicholls. All four were present throughout the procedure. Mr & Mrs Hogg and Dr Robinson gave evidence before me; Ms Nicholls did not.
Mrs Hogg gave confident and vivid evidence. She said she and her husband were shown to the Radiology Department, where she met two medics, a tall young woman with blonde hair, long and straight, with a white name badge with her name (Dr Robinson) and, underneath, "Houseman"; and a second woman, the sonographer, whose description she could not remember, but who was clearly Ms Nicholls.
She lay on a bed, with her husband at her left side; and she could see an ultrasound screen, quite high up, near the foot of the bed. Ms Nicholls was on the same side of the bed as Mr Hogg. Dr Robinson was on the other side. Dr Robinson put some jelly on Mrs Hogg's stomach, and Ms Nicholls put a scanner probe over the stomach and the scan came up, live, on the screen. Mrs Hogg remembered the sonographer doing some initial observations and clicking the controls which, she thought were to do with measuring the fetus.
Mrs Hogg said Dr Robinson then explained that she would feel pressure when the needle was inserted; and then the doctor "froze" a small area of the stomach and inserted the needle. Throughout the procedure, the sonographer was scanning the stomach with the probe, and Mrs Hogg could see on the screen the needle moving from the top right. She could see the baby's head upwards, with his back to the right of the screen. As the needle moved in, the baby's head rotated backwards, and his head appeared to move towards the needle so that the tip of the needle could no longer be seen. Both Mrs Hogg and her husband said, "Mind the baby's head!" – and Dr Robinson assured them that, although it looked as if the needle was touching the head, it had in fact gone behind it.
Dr Robinson then aspirated some fluid, but it was dark red with blood; and she said that she would have to take another sample. The Particulars of Claim (at paragraph 10) say that the needle was passed a second time, and that was the basis of the Claimant's case at the start of the trial (see paragraphs 13 and 37 of Mr Havers' skeleton argument); but, in her oral evidence, Mrs Hogg could not remember whether Dr Robinson used a second needle, or only a second syringe. In any event, she said a second sample was taken, with the ultrasound image still on the screen; although Mrs Hogg was by now largely looking at Dr Robinson. The second sample was also blood-stained, but not as much as the first. Dr Robinson said she hoped she had enough amniotic fluid to give an accurate test result. She said that the blood might have come from the placenta.
Mr Hogg gave evidence essentially to the same effect as that of Mrs Hogg, but perhaps with less confidence and clarity.
After all this time, Dr Robinson could not recall performing this particular procedure on Mrs Hogg. However, she said that, in 1985, she was a Registrar with no ultrasonography experience. She relied upon the sonographer to calculate the gestational age and confirm that it was at least 16 weeks, and identify and confirm that there was a sufficient pool of free fluid. Dr Robinson said – and I accept – that she would only continue if she received these confirmations. If she had been told that the gestational age was less than 16 weeks, she would not have performed the procedure, but would rather have postponed it. I am satisfied that Ms Nicholls told her that the Claimant's gestational age was at least 16 weeks.
Dr Robinson made a contemporaneous note in the medical records: "14/8/85 AMNIOCENTESIS 1 tap (bloody) 4mls blood stained fluid…". Ms Nicholls' note indicates: "5ml bloody tap". As I have indicated, although the Particulars of Claim refer to two needle passes, Mrs Hogg was unsure whether there were two passes, or whether there was one needle but two syringes to take two samples. The records do not refer to a second pass. They do however refer to two samples. They show that one sample of 3mls of the fluid, described as "heavily bloodstained" and "very bloodstained" was sent to the North East Thames Regional Cytogenetics Service and was subject to a normal array examination. The provisional karyotype report on the sample was reported as 46XY, i.e. a chromosomally normal male; and a post-natal karyotype undertaken on 24 April 1986 confirmed a normal array. 1ml of the fluid, described as "slightly bloodstained", was sent to St Bartholemew's Hospital, where a Kleihauer test on the sample showed unequivocally that it was fetal blood. Dr Robinson said that it was standard practice then to use separate syringes to take the two samples needed to send off for tests. She said that, had there been more than a single needle pass, she would have recorded that in the medical notes. On the evidence, I find that there was only one needle pass, but two fluid samples were taken using separate syringes.
The Claimant was born on 18 February 1986, and initially all appeared well. However, shortly after the birth, his mother noticed a small lump on the Claimant's head, described in the medical records as a "blue hairy nevus on Rt parietal area", to which I shall return (see paragraphs 59(iii) and 72(ii) below). Worryingly, within a month, his parents considered there was something seriously wrong. The Claimant was admitted to the London Hospital for jitteriness, vomiting and concerns that his eyes were not fixing. Investigation showed an absence of septum pellucidum, some distortion of the third ventricle and dilation of the anterior part of the third ventricle. A radiological diagnosis of SOD was suggested. That diagnosis has since been confirmed.
Mr & Mrs Hogg have subsequently had a fourth, healthy child.
The Relevant Anatomy
It will assist briefly to describe the parts of the brain implicated in this case.
Within the brain is a system of interconnected cavities or ventricles, which produce the cerebrospinal fluid in which the brain and spinal cord float. Three ventricles lie within the brain: two lateral ventricles (left and right), and the third ventricle tucked underneath in a narrow cavity between the thalamus and hypothalamus. Each lateral ventricle consists of a body and a number of "horns", including, at the front, the anterior horn. They are connected to the third ventricle by channels known as the interventricular foramina or the foramina of Monro.
The lateral ventricles lie within the two cerebral hemispheres (left and right), which form the major part of the brain. The surface of the hemispheres is folded into a series of gyri (ridges) and sulci (furrows) which have the effect of greatly increasing its surface area.
Each hemisphere consists of an outer cortex of grey matter and an inner mass of white matter. The germinal matrix is a part of the central brain forming a layer in the lateral ventricle, where cells form and from which they then migrate to their final position in the brain. As I understand it, there are a variety of mechanisms by which this migration can occur. Relevant to this case is radial migration of grey matter neurons from the germinal matrix outwards through the white matter towards the cortex of the frontal lobes where they form the outer cortex.
Blood is supplied to the frontal lobe and medial surface of each hemisphere by the anterior cerebral arteries.
The dura lines the skull. Between the hemispheres is the cerebral falx, a fold in the dura which descends vertically in the longitudinal fissure which separates the hemispheres, within which many of the main structures that control the majority of the body's activities lie.
The corpus callosum or callosal commissure is found in the depths of this fissure. It is a thick, flat band formed from nerve fibres or axons which are projected from each hemisphere during the development of the brain, and which facilitate interhemispheric communication. Where there is agenesis of the corpus callosum (i.e. it does not form), these fibres remain in the hemispheres, and are known as the bundles of Probst. The genu is the most anterior part of the corpus callosum, which curves downwards so that the end is under the main body and posterior facing. The rostrum is the end part of the genu.
Immediately above the corpus collosum is the cingulate gyrus (which connects the limbic system with the cerebral cortex), which is itself below the cingulate sulcus, which curves round the front of the head following the line of the corpus callosum and genu.
The septum pellucidum is developed as a pair of thin, triangular membrane running vertically from and below the corpus callosum, separating the left and right anterior horns of the lateral ventricles. They merge into a single membrane in adulthood.
The lower edge of the septum pellucidum is attached to the upper face of the fornix, a bundle of fibres that forms part of the limbic system. These are C-shaped, starting from the hippocampus as two pillars or crura (left and right), joining mid-brain, before separating again to form the anterior pillars or columns. The fornix relays signals from the hippocampus to the thalamus, via the mammillary bodies, a pair of small round bodies that lie on the undersurface of the brain at the ends of each anterior fornix arch. In axial cross section, the corpus callosum runs across the top of the lateral ventricles, which, on each side, spread out laterally to form a cornu or horn. The septum joins the corpus callosum at the mid-line, forming a T-junction; or, more accurately, a Y-shaped junction.
The thalamus comprises two egg-shaped masses of grey matter or nerve cells lying each side of the mid-line, deep within the brain. The hypothalamus lies below it, separated by a shallow groove (the hypothalamic sulcus). The hypothalamus is the main link between the central nervous system and the endocrine system, controlling the function of the pituitary gland: the anterior and posterior lobes of the pituitary gland are just under the hypothalamus, and regulated by it. They have different functions. The anterior pituitary lobe secretes substances which influence the thyroid and adrenal glands, and produces growth factors. The posterior lobe produces hormones that (e.g.) increase blood pressure and decrease urine production.
The hypothalamus is just behind the optic chiasm, which is the point where the optic nerves cross over as they travel from the eyes to the back of the brain where the visual area of the brain lies. Beyond the chiasm, this bundle of nerves is known as the optic tract.
The Claimant's Brain Abnomalities
Based on an MRI scan on 5 November 2009 (which the expert neuroradiologists agreed is the best in quality, and shows the abnormalities disclosed on other neuroimaging), the Claimant has the following abnormalities of the brain.
i) The septum pellucidum is completely absent.
ii) The posterior part of the corpus callosum is well-formed; but the anterior part of the genu is asymmetrically defective, being more marked to the left of the mid-line. The rostrum is absent.
iii) The frontal horns of the lateral ventricle are abnormally configured; the anterior half of the third ventricle and foramen of Munro are very wide; and there is an abnormality in the lateral wall of the third ventricle and in the anterior part of the left ventricle in the radiological form of a mild "scoop" out of the side of that ventricle.
iv) Posterior to the abnormalities in the left thalamus, there is a cystic abnormality to the right thalamus.
v) The posterior parts of the fornix appear to be normal; but the anterior columns and mammillary bodies are small.
vi) There is an abnormality, left of mid-line, between the left frontal horn and the overlying frontal cortex lobe. This appears as an ectopic pocket of grey cells, within the deep white matter, falling short of a complete cleft (i.e. schizencephaly), and appears to result from an abnormality in neuronal migration. Furthermore, there is thickening of the grey matter of the medial surfaces of the frontal lobes immediately anterior to the lateral ventricles.
vii) The pituitary is hypoplastic (i.e. poorly developed). The Claimant has suffered complex pituitary failure, reflecting a primary hypothalamic (rather than discretely pituitary) abnormality. At 6 years of age, he showed precocious puberty (accelerated growth rate, pubic hair, testicular enlargement), which was controlled by hormone agonist analogues until age 10 when puberty was allowed to proceed. At 12, he developed diabetes inspidus. At 13, he developed central hypothyroidism. At 19, he was found to have growth hormone and cortisol deficiency.
viii) The optic nerves on both sides and the optic chiasm are small.
Septo-Optic Dysplasia
In 1956, a report was published of a study by de Morsier involving 30 patients who had an absence of the septum pellucidum, nine of whom had an underdeveloped optic nerve (i.e. optic nerve hypoplasia)[2]. He termed it SOD. In 1970, Hoyt et al reported a high prevalence of hypothalamic-pituitary dysfunction in SOD[3], a finding subsequently verified in a number of other studies[4].
A diagnosis of SOD is now dependent upon the patient exhibiting at least two of three morphological abnormalities: (i) absence of the septum pellucidum, (ii) optic nerve hypoplasia and (iii) pituitary hypoplasia with consequent hypopituitarism (i.e. abnormally diminished production of anterior pituitary hormones). About one-third of those diagnosed with SOD, which is estimated to occur in 1 in 10,000 live births, have all three elements. The diagnosis is based entirely on the presence of these anatomical abnormalities, and is not in itself suggestive of any particular aetiology. Where an individual has more pathology than the triad – as in the Claimant's case – it is described as SOD plus; but that diagnosis is no more suggestive of cause.
SOD is "not well understood"[5] and its incidence sporadic. It is clear that the cases of SOD which have been studied are "clinically, radiologically and pathologically highly diverse" (Dr Squier's Report, paragraph 20), exhibiting a "wide variation in the severity of the clinical features found, and in their association with other diagnoses, which follows no clear pattern"[6]. The clinical expressions and radiological presentation of SOD are highly variable.
With regard to causes of SOD generally, paragraph 5 of the joint statement of the expert neurologists indicates that Dr Rosenbloom and Dr Vadlamani agree that "the exact pathogenesis of SOD is unclear and that multiple aetiological factors including genetic and environmental factors have been suggested". None of the other experts casts any doubt on that proposition, which is supported by the medical literature to which I was referred. In respect of environmental factors, SOD has been associated with younger primigravidae, and with consumption by the mother of alcohol and drugs during pregnancy[7]. Dr Squier said that she had seen cases of SOD following trauma to the mother, although there is no reported case of SOD being caused traumatically by an amniocentesis needle or, as I understand it, any other direct trauma to the fetus (as opposed to the mother). In respect of inherent factors, mutations of genes HESX1, SIX2, SOX3 and OTX4 have been reported; but, on the basis of published data, in no more than 5-10% of cases of clinically diagnosed SOD and related midline disorders[8]. The genetics experts before me were agreed that the published data suggest a proportion of fewer than 5% (joint statement, paragraph 3). The genetic causes include both chromosomal abnormalities and mutations in homeobox genes, i.e. underlying developmental genes such as HESX2 that "control" other genes.
It has been suggested that the aetiology of SOD is likely to be multifactorial, involving a combination of genetic and environmental factors[9]; and, elsewhere, that it may be the result of some form of genetic or extrinsic vascular disruption[10],[11]. However, on current medical knowledge, for the vast majority of patients diagnosed with SOD, the aetiology remains unknown.
The Issues
By the end of the trial, the case gave rise to the following issues:
i) Issue 1: Were the hospital staff negligent in estimating the Claimant's gestational age to be at least 16 weeks?
ii) Issue 2: Was the amniocentesis performed with the benefit of real-time ultrasound scan? If not, was Dr Robinson negligent in not having a re-scan to check the position of the needle before the second aspiration?
iii) Issue 3: Are the Claimant's brain abnormalities the result of the amniocentesis needle penetrating his skull?
I will deal with those in turn.
Issue 1: Gestational Age
By the end of the trial, it was common ground that, as the date of the amniocentesis, the Claimant's gestational age was 14 weeks 6 days. As I have indicated (paragraph 18 above), having taken the appropriate fetal measurements, Ms Nicholls told Dr Robinson that it was at least 16 weeks. Had she been told that it was less than 16 weeks, she would have postponed the procedure. Thus, the first question I have to consider is whether Ms Nicholls was negligent in assessing the age as she did.
The gestational age on the basis of last period appears to have been dubious; because the bleeding on 18 April 1985 (see paragraph 10 above) considered to be menstrual could equally have resulted from irritation from the contraceptive coil. However, the obstetric experts agreed that it was reasonable to fix an appointment for the amniocentesis of the basis of that date, subject to a check being carried out on by reference to fetal measurements taken from an ultrasound scan on the day (joint statement, paragraph 4).
Ms Nicholls unfortunately did not give evidence – she was not available to do so – but she did make and sign a contemporaneous note, which read as follows:
"BPD [biparietal diameter] = 34mm
Gestation [there is then written 15 and 16, one superimposed on the other] weeks -/+ [there is then written 1 and 3, again one superimposed on the other]
FL [femur length] 17mm
Posterior placenta. FHM [fetal heart motion] seen. Spine not well seen but NAD [no abnormality detected]
Amniocentesis Dr Robinson. 5ml bloody tap"
The biparietal diameter ("BPD") is the transverse diameter of the head. From the available copy document itself, it is not possible to say whether the 15 was superimposed on the 16, or vice versa; similarly, the 1 and 3.
Dr Robinson said that Ms Nicholls simply confirmed to her that the gestational age was at least 16 weeks, and she did not know how that calculation was made; but, she said, there was a chart on the wall of the radiology room in which the procedure was performed. She could not recall the substance or even form of this chart; but she produced a table from a standard text book that she had, namely the second edition of Chudleigh & Pearce[12], which suggests that a 34mm BPD corresponds to a gestational age of 16 weeks 1 day. Although the book was not published until 1992, the data from which the table was complied came from a paper published in 1982[13], i.e. before the procedure was performed on the Claimant's mother in 1985.
However:
i) In addition to the table, the second edition of the work includes a chart derived from the same source showing BPD set against gestational age in the form of a graph, saying[14] that gestational age should be estimated from that chart and only by the table "if it is outside the normal range for postmenstrual age" (which, in the Claimant's case, it was not). Using the median line from that chart, a 34mm BPD equates to a gestational age of less than 16 weeks.
ii) The second edition of Chudleigh & Pearce was published in 1992. Even the first edition was published after the relevant events[15]; but that edition did not have the table in it at all. Instead, it reproduced, as Figure 5.6, "the most widely used cephalometry chart [in the United Kingdom]", in the same form as, but from a different source from that in, the later edition[16]. Using the median line from that chart, again a BPD of 34mm equates to a gestational age of something clearly less than 16 weeks.
iii) Furthermore, the second edition of the work – the one produced by Dr Robinson – says that "estimation of gestational age should not be made from a single parameter"[17]. Mr Mason said that, whatever best practice might have been, it was common practice to rely only on BPD; but we know, from her contemporaneous note, that Ms Nicholls did in fact measure the femur length. Her only purpose for doing so would have been to estimate the gestational age from it. On the basis of a femur length of 17mm, the charts and tables in both first and second editions of Chudleigh & Pearce assess the gestational age, again, at clearly less than 16 weeks.
On the basis of the evidence before me, it is unclear from where Ms Nicholls might have concluded that the Claimant's gestational age was at least 16 weeks. None of the experts was able to produce any chart or table from 1985 from which such a gestational age might have been calculated on the basis of a BPD of 34mm. The only table produced is from a 1992 work, and is in any event apparently not applicable to the Claimant's case. The relevant chart in that work assesses the gestational age based on BPD as less than 16 weeks. The relevant chart in the earlier edition of that work gives the same assessment. In any event, the age based on femur length – by which Ms Nicholls appears to have cross-checked – was below 16 weeks. Furthermore, it seems clear that the initial age written down by Ms Nicholls was 16 weeks, later changed to 15 weeks: the 16 weeks must sensibly have been written down first, as that is the age given by her to Dr Robinson. It is not certain when or by whom the correction was made; but it is likely that it was made on the basis of the measurements Ms Nicholls had made and recorded, rather than (e.g.) being based upon later measurements which confirmed that the date of conception was later than Ms Nicholls' calculation suggested (e.g. those made on 3 October 1985).
As I have recorded, it is unfortunate that Ms Nicholls was not available to give her explanation of why she informed Dr Robinson that the gestational age was at least 16 weeks. However, on the basis of all the evidence that was before me, I am satisfied that that she had no proper basis for doing so on the measurements that she had taken; and thus she was negligent in estimating the Claimant's gestational age to be at least 16 weeks. Although Dr Robinson was not negligent in this regard, the Defendant is of course vicariously liable for the negligence of Ms Nicholls as well as any negligence on the part of the doctor.
Dr Robinson accepted that, had she been told that the gestational age was less than 16 weeks (as, I have found, she ought to have been), she would not have proceeded with the amniocentesis.
Issue 2: The Ultrasound Scan
With regard to the amniocentesis procedure, there is a stark factual dispute between the parties. The Claimant says that the procedure was done with the benefit of a real-time ultrasound scan by Ms Nicholls at the same time as Dr Robinson performed the amniocentesis procedure. If that were so, the experts are agreed that it would have been negligent for Dr Robinson to have pierced the Claimant's skull during the procedure. The Defendant contends that the scanning was discrete: it was done first, and the scanner removed before Dr Robinson performed the procedure blind. If that were so, then there is a further issue between the parties as to whether Dr Robinson was negligent in not having a further scan between the first and second aspirations, to check where the needle was.
Mrs Hogg said that she had seen the needle and her son's head on the screen during the procedure, as I have described; and, she said, it was not something that she would forget. Although the relevant events were nearly 30 years ago, Mr Havers suggested that, even prior to knowing the Claimant's medical condition after his birth, having an amniocentesis was not something a mother is likely to forget.
He also submitted, with some force, that Mrs Hogg gave her evidence confidently and with some detail, such that I could and should accept it. For example, she recalled in her oral evidence that the procedure had taken place in the Radiology Department of the hospital, which Dr Robinson confirmed in her oral evidence was indeed the case: that had not been evidence before trial. Mrs Hogg also recalled – correctly – that the procedure was carried out in a room with Dr Robinson, Ms Nicholls, her husband and she all present, and it was room in which real-time ultrasound equipment was available. She also recalled that there were two samples taken, which Dr Robinson again confirmed.
Furthermore, the description of Mrs Hogg, of the fetal head moving and thus obscuring or coalescing with the needle tip, was consistent with (i) her account of the immediate conversation she and her husband had with Dr Robinson, and (ii) with the brain abnormalities actually suffered by the Claimant (see the section on Causation below).
In all the circumstances, Mr Havers submitted that Mrs Hogg's evidence had the ring of truth about it; and the details she gave were convincing in evidencing that she correctly recalled seeing the real-time scan during the procedure.
Furthermore:
i) Although his evidence did not come over as robust as that of Mrs Hogg, Mr Hogg's evidence supported his wife's in the essential details. For example, his evidence as to the conversation they had with Dr Robinson when they saw the needle coalesce with the fetal head was identical to hers.
ii) Miss Bowron suggested that, when recalling seeing a real-time scan, Mrs Hogg and her husband might have been mistakenly recalling the amniocentesis undertaken in respect of their fourth child. However, Mrs Hogg said – and I accept – that that later procedure was performed on a ward, not in the Radiology Department; and Mr Hogg was not present at all. They were essentially different.
iii) Mr Taylor explained that ultrasound would have picked up both the fetal head and the needle because they are echogenic structures, and so (he said) it would be unsurprising if Mr & Mrs Hogg had seen what they claim.
In all the circumstances, Mr Havers submitted that I could be confident that Mrs Hogg's account was essentially correct.
I accept that Mrs Hogg's evidence was forcefully given; and that she, and her husband, are now both firmly convinced that the amniocentesis was conducted with real-time ultrasound. However, after anxious consideration of all the evidence, I have concluded that their recollection, whilst sincerely held, is unfortunately incorrect. In coming to that conclusion, I have particularly taken into account the factors in relation to Mrs Hogg's evidence set out above, but also the following.
Dr Robinson gave thoughtful and considered evidence. She accepted that she did not recall Mrs Hogg's particular procedure; nor did she suggest that she recalled the exact details of the procedure for performing amniocentesis in 1985. However, she believed that the Hoggs were mistaken when they said that the procedure was performed with real-time ultrasonography. She said she was "very confident" of this, because she recalled being "taught the practice of performing amniocentesis with a continuous visualisation of the needle tip with an ultrasonographer being present at the Mayday Hospital" about 6 years later – she was there from April 1992 for about 18 months – some time before she moved on to doing the procedure alone, two-handed at the St George's Hospital, for which she was also then trained.
Mr Havers submitted that Dr Robinson's recollection was likely to be inaccurate, because she did not perform any amniocenteses between February 1986 (when she left the London Hospital) and, at the earliest, September 1991 or probably April 1992 when she went to St George's Hospital. Prior to August 1985, she accepted that she had done few amniocenteses. Mr Havers submitted that she therefore had no established practice in performing the procedure prior to 1985, and no period of consolidation in the years following. Furthermore, the obstetric experts agreed that there was no standard form of training in 1985, and many medical procedures were performed on the principle, "See one, do one, teach one" (joint statement, paragraph 3). Mr Mason said that, although in a different hospital in Manchester, he witnessed a number of amniocenteses, was supervised in one and then allowed to perform them unsupervised. It was quite possible – and, Mr Havers submitted, probable – that, in 1985, whilst Dr Robinson did not have had any formal training in performing amniocenteses with real-time ultrasound by a sonographer, she had witnessed and/or been supervised on such a procedure and was thereafter allowed to perform them unsupervised.
However:
i) Although Mrs Hogg's recollection was patently correct with regard to some details (e.g. as to where the procedure took place, and who were there), it was not correct in all particulars. Her description of Dr Robinson was, save for the hair colour, generally inaccurate: Dr Robinson is not tall, she did not have long hair at the time and she was not a "Houseman" but a Registrar. Dr Robinson said – and I accept – that it was not her practice to use freezing or anaesthetic gel, as Mrs Hogg recollected she used on her. Insofar as Mrs Hogg said that there were two needle passes – and that is set out in the pleading – Dr Robinson did not do so.
ii) Furthermore, although I accept that both a fetal head and a needle are echogenic, scanning equipment in 1985 had its limitations; and the pictures from contemporaneous literature to which I was referred[18] suggest that they may not have been as clear as Mrs Hogg and her husband suggest and identifying what was occurring may not have been as straightforward as they suggest. The quality of the image would have been adversely affected as a result of both Mrs Hogg's BMI (she was 17st at the time) and the fact that her abdomen was scarred from previous operations. Mr Mason (who was in obstetric practice at the relevant time) said that the quality of imaging in 1985 made it improbable that they could have seen what they assert they saw. That evidence was convincing.
iii) It is noteworthy that the first intimation of a claim based on there being an ultrasound-guided procedure, with Mr & Mrs Hogg witnessing the needle near and then coalescing with the fetal head, was in the letter of claim dated 23 February 2012. It was not mentioned previously, e.g. in the earlier solicitor's letter of 30 July 1996. There is some force in Miss Bowron's contention that, had this important matter been recollected earlier by Mr & Mrs Hogg, it is surprising that it was not deployed sooner. Mr Havers submitted, correctly, that the main purpose of the July 1996 letter was to obtain the Claimant's own medical records; but it is noteworthy that it mentions both the blood in the samples and the hairy naevus which Mr & Mrs Hogg then appear to have thought supported their case.
iv) I accept that Mr Armstrong's evidence was generally undermined by his recollection that, in 1985, the scanning and amniocenteses were done in different parts of the London Hospital, when they were clearly not; but he too said that the procedure was performed blind at that time.
v) Importantly, Mr Taylor (the Claimant's obstetric expert) said in his report (at paragraph 47) that:
"The acceptable standard of performing amniocentesis in 1985 was to have had at least ultrasound prior to procedure, but not necessarily during it."
In their joint statement (paragraph 1(a)), the obstetric experts agreed:
"In 1985 a typical amniocentesis involved the ultrasonographer identifying a pool of liquor and then marking the maternal abdomen over this spot. The ultrasound probe was then removed and the obstetrician would feel their way through the various layers into the uterine cavity…. In the mid to late 80s a few fetal medicine centres started to use real-time ultrasound during the procedure and in 1985 this would only have been available in a very limited number of fetal centres in the United Kingdom…".
In 1985, whilst the London Hospital was a teaching hospital, Mr Mason (who was practicing in obstetrics at the time) said, Dr Robinson confirmed and I accept that it was not a recognised fetal centre. Mr Mason said that, when he joined a teaching hospital in Leeds in 1993, they were still doing amniocenteses blind.
vi) Although Mr Havers questioned why it did not appear in her first statement – it was set out in a second statement dated 7 January 2015 – Dr Robinson's evidence that she was not "taught the practice of performing amniocentesis with a continuous visualisation…" (in whatever form that teaching might have taken place) until she was at the Mayday Hospital was compelling. She took particular care in considering when she began performing amniocenteses with real-time ultrasound and, even taking account of the evidence as to how medical procedures were taught in 1985, her recollection of when being taught to do so was, in my view, compelling evidence and highly supportive of the proposition that, in 1985, she did not perform the procedure in that way.
For those reasons, whilst I do not for a moment question Mr & Mrs Hogg's sincerity, in my view their recollection is mistaken. I find that the procedure in August 1985 was performed blind, and without real-time ultrasound.
In those circumstances, Mr Havers submitted that Dr Robinson was negligent in failing to re-scan after the first and before the second aspiration. Aspirating 3mls of heavily blood-stained fluid strongly suggested that the end of the amniocentesis needle was in the wrong place, and the sonographer had recorded a posterior placenta. There was therefore at least a possibility that, at the time of the first aspiration, the needle was in the fetal body; and undertaking a second aspiration with it in that same place might damage or further damage that body. In the circumstances, he submitted, Dr Robinson was negligent in not requiring a re-scan before proceeding to the second aspiration. The procedure was, of course, taking place in the Radiology Department, with a sonographer present; and so there would have been no difficulties in re-scanning.
This was a late-running plea, for which Mr Havers sought permission to amend only during the trial itself. I am unpersuaded by it.
In 1985, bloody taps were common. I was referred to a 1983 paper which suggested the incidence was 8-40%[19]. That is reflected in the evidence of Mr Mason, who, in paragraph 18 of his report, said that the incidence in the "old literature" suggested an incidence of "up to 25%"[20]. It was Mr Mason's evidence that in 1985, when a first sample of fluid was bloody, it was usual and acceptable practice simply to proceed to aspirate a second sample. I accept that evidence over the evidence of Mr Taylor that Dr Robinson should not, even in 1985, simply have ploughed ahead; noting that, unlike Mr Mason, Mr Taylor was not in obstetrics practice at that time. Dr Robinson said that this is what she did: she simply proceeded to take the second sample. There is no substantial evidence that to have proceeded in that way was not in accordance with a responsible body of medical opinion in 1985.
Issue 3: Causation
The Issue Identified
However, I have found that the Defendant was negligent in the assessment of the Claimant's gestational age at the time of the amniocentesis. I thus turn to the question of causation; and, first, medical causation. In this case, that issue is particularly difficult.
Two possible broad aetiologies were canvassed before me, which each attempted to explain the abnormalities to parts of the brain which (i) are apparently disparate (including both sides of the mid-line) and (ii) develop at different times during gestation.
Mr Havers submitted that, on the evidence, it was probable that the abnormalities were caused by the amniocentesis needle traumatically damaging the brain, through one or more of three mechanisms, namely:
i) Direct trauma. The needle caused direct trauma damage to the septum pellucidum, corpus callosum including the genu and rostrum, the right thalamus (now exhibiting a cyst), and probably the germinal matrix.
ii) Vascular disruption. A contusion to the left thalamus was caused by the needle pathway; and probably some form of vascular disruption was caused by damage to the anterior cerebral artery, which supplies blood to the relevant involved structures such that disruption to that blood flow is capable of causing hypoplasia in those structures.
iii) Neuronal migration damage, as a result of the damage to the germinal matrix.
Miss Bowron submitted that I cannot be satisfied on the balance of probabilities that the abnormalities were caused by the needle; and, on the evidence, it is more probable that the abnormalities result from an intrinsic cause unconnected with the needle, and likely gene based.
It is clear from the evidence that no aetiological hypothesis can elegantly explain all of the abnormalities in this case without some challenges. There is no silver bullet: none of the experts said that there was a specific factor or combination of factors in this case that excluded either needlestick damage or an intrinsic cause. All said that, whilst there were difficulties for any hypothesis, the abnormalities were all consistent with either cause. Thus, each expert expressed a view on causation on what was, in his or her view, the most likely on the basis of the evidence and his or her expertise. Of the twelve causation experts, six consider it more likely that the abnormalities are the consequence of traumatic brain damage, whilst six consider an intrinsic cause the more likely.
Discussion
The decks can be cleared to some extent.
i) Whilst environmental factors have been associated with SOD, in this case there is no evidence of such factors being present in this case. Mrs Hogg, despite being a publican at the relevant time, is teetotal. There is no evidence that she drank, or took any relevant drugs, during pregnancy. Nor was she a young primagravida. There is no evidence of any relevant family genetic history. There is, in short, no evidence that the Claimant's SOD resulted from any environmental insult or trauma other than from the amniocentesis needle.
ii) Neither Mr Havers nor Miss Bowron suggested that the ophthalmic expert evidence was likely to assist me greatly; and I did not find that evidence helpful on the issue of causation. The experts agreed on much; in particular, they agreed that the Claimant suffers from optic nerve hypoplasia, i.e. from a failure of the optic nerves and chiasm to develop properly, one of the triad of diagnostic morphologies. That has resulted in each of the Claimant's eyes having a very restricted visual field – less than 10 degrees – so that his peripheral vision is very poor. In addition, Professor Fielder considered that he also has right homonymous hemianopia, i.e. a loss of the right side of each field caused by an insult to the optic tract beyond the chiasm. This exhibited itself (he said) in the form of a vertical line in the right field on the Goldman perimetry chart obtained for the purposes of his report. Mr Elston did not agree with this additional diagnosis, because (a) the defect is not visible in the left field as it ought to be: he did not consider that the fact that the blue inner field in respect of the left field in that test represented such a defect, and (b) the defect was not replicated in a later test in 2014: he did not consider the "notch" on the right hand side of the field represented such a defect. In all the circumstances, I agree with Mr Elston: the ophthalmologic evidence does not assist in determining the cause of the Claimant's SOD: although I note – and accept – Mr Elston's evidence that the results of the Claimant's sight tests are typical of an individual diagnosed with optic nerve hypoplasia as an element of SOD.
Some of the Claimant's experts – notably Dr Kendall, but generally supported by Dr Rosenbloom – considered that the brain abnormalities are the result of direct trauma, by virtue of deep penetration of the brain by the amniocentesis needle. This was the Claimant's primary case at the start of the trial, set out in paragraph 3 of Mr Havers' skeleton argument. "Deep" here is, of course relative. The fetal BPD was only 34mm, and so the depth of penetration they considered occurred was in the region of, perhaps, 15-17mm.
Dr Kendall suggested a line of such trauma, running through the front of the head (but avoiding the eyes themselves: in oral evidence, he said the head would have been penetrated just above the left eye), then running transversally at a slight gradient downwards and axially almost down midline running an course from 1 o'clock to 7 o'clock on the usual axial cross-section, through the site of the septum pellucidum, genu and rostrum, and then through the left ventricle (affecting the germinal matrix) and finally to the position now occupied by the cyst in the right ventricle. He considered that the septum is entirely absent, because the genu and rostrum to which it relates had been primarily/traumatically damaged. He explained the damage to the left thalamus as occurring, not by direct trauma, but by bruising/bleeding which, he envisaged, would have affected a 5mm radius around the needle's course. Dr Rosenbloom also generally favoured this mechanism of damage, although he also considered that some of the damage was caused by vascular disturbance etc, secondary to the primary trauma.
However, I have considerable difficulties in accepting that the abnormalities were caused as Dr Kendall suggested.
i) Dr Kendall accepted that his hypothesis could not explain all of the Claimant's abnormalities, e.g. it could not explain the abnormality in the optic nerve which is not on the suggested line of trauma. Indeed, as Dr Kendall's fellow expert neuroradiologist, Dr Chong, stressed, the Claimant's abnormalities are anatomically separate, involving disparate parts of the brain, not readily open to explanation by a single axis of trauma. Dr Chong has two decades of recent experience in paediatric neuroradiology at Great Ormond Street Hospital; and he was a particularly impressive witness.
ii) Although the relevant experts were agreed that such trauma might occur without leaving a skin lesion, Dr Chong said he would have expected to see such a lesion where the needle penetrated the skull on the axis of trauma. The genetics experts were agreed that the pigmented hairy naevus noticed by the Claimant's parents (see paragraph 20 above) – and thought by them to mark an entry point, because it was specifically referred to in the July 1996 claim letter – has no likely significance (joint statement, paragraph 9). All of the five cases in Squier et al 2000 had an apparent skin lesion at the apparent point of needle entry; although Dr Squier said in her oral evidence that such a lesion might not be seen if (e.g.) it were in the scalp. Dr Kendall's axis of trauma suggests that it entered through the Claimant's face. On balance, the evidence was that such an entry would at least usually have left some mark.
iii) There is no marked linear track within the Claimant's brain. The expert pathologists were agreed that that does not in itself exclude a needlestick injury and, in their joint statement (at paragraph 4), they said that it was not possible to draw any inferences on causation from this absence because of a dearth of data. However, Dr Squier said in her report (paragraph 11) that the absence of a unilateral linear or tract-like pattern of damage argues against a needle injury; and, in her oral evidence, she was clear that she would have expected much more damage if there had been deep penetration of the brain by the needle, even if the penetration had been more or less midline and thus to an extent between the hemispheres. Such penetration would have caused, she said, "massive damage". Squier et al 2000 was accepted by Dr Jacques as the principal study in the pathological literature. Case 1 in that paper concerned an amniocentesis, undertaken at 18 wks 6 days, known to have penetrated the fetal skull (because there was evidence of relevant tissue, including the germinal matrix, in the amniotic fluid). The fetus was aborted at 20 weeks. On pathological examination, the brain showed clear severe haemorrhaging in the deep periventricular tissue, with a tract leading to a large area of haemorrhaging and necrosis in the white matter of the brain. With regard to the degree of damage that might be expected from a deep penetration of the brain, Dr Jacques agreed (see his report at pages 6-7); as did Dr Chong, who also said that, although healing may occur over time, the needlestick theory does not readily explain the apparent normality of the Claimant's brain between the two thalamic lesions.
iv) Thus, whilst accepting that the brain could recover from trauma and it is possible that the track of a needle penetrating the brain might disappear over time, in the absence of a firm linear track of damage, neither expert pathologist considered it likely that there had been deep needlestick penetration of the brain in this case. It must be acknowledged that there are few recorded instances of pathological investigation in cases where the fetal brain has, or might have been, penetrated. However, with regard to this issue, I consider the paediatric neuropatholgists' evidence generally – and Dr Squier's evidence that it is unlikely that there was deep penetration of the brain by the amniocentesis needle in this case, in particular – especially compelling.
v) Although Dr Squier said that she would only expect microcephaly where (unlike this case) there was substantial tissue loss, and the evidence was that blood within the amniotic fluid may disperse over time, there is in fact no evidence of reduction in head growth, or any signs of bleeding or pooling blood on the later scans, which, if present, may have supported the contentions of those experts who favoured the direct trauma mechanism. As it is, the absence of microcephaly in this case does not assist on the issue of causation, one way or the other.
Nevertheless, Dr Squier did not consider the abnormalities to be genetic. Even if there was not deep penetration by the needle, that did not (she considered) exclude damage by the needle caused in some more subtle way.
In her view, the abnormalities were caused, not by deep penetration of the brain, but by the needle penetrating the head and damaging surface structures of the brain including the anterior cerebral artery. Such damage could cause bleeding and/or inflammation which could compromise the blood flow to the disadvantage of tissues at some distance from the initial traumatic injury. Bleeding at the surface of the brain might lead to the pooling of blood elsewhere in the brain, which might itself interfere with blood flow. Furthermore, while fetal blood vessels are not fully muscularised at that stage, she said that leptomeningeal arteries may have an identifiable layer of muscle by 16 weeks gestational age[21]; and so such vessels could suffer from vasospasm, if there is interference with the blood flow.
However, I accept the evidence of Dr Jacques that such a theory is, at best, improbable and speculative. He said he was unaware of any literature that suggested the pooling of blood in the circumstances of this case was likely, because of the effects of amniotic fluid, the inevitable movements of the fetus and the limited effects of gravity on the fetus in utero. Although the evidence was that such pooling might disperse, it is certainly not noted on later scans performed on Mrs Hogg. Dr Rosenbloom, the Claimant's expert neurologist, gave firm and compelling evidence – which I accept – that the musculature of the branches of the anterior cerebral artery is not present at 15 weeks. He also seemed unpersuaded by Dr Squier's reliance upon the leptomeningeal collateral circulation system. He consequently ruled out the possibility of vasospasm, and felt unable to accept Dr Squier's hypothesis as to primary mechanism at work. For those reasons, I too consider the mechanism inherently unlikely.
However, I accept that the Defendant's case that the abnormalities were caused by some intrinsic (probably genetic) cause is also not without its difficulties.
The diagnostic chromosomal testing was normal. Higher resolution microarrays testing for mutations of genes HESX1, SIX2, SOX3 and OTX4 which have been reported as being associated with SOD was never done. Professor Patton suggested further testing in the conclusion of his report (paragraph 9.2). The reason for the failure to perform further tests is something of a mystery: I do not accept the suggestion made by Professor Patton that the Claimant (or, rather, his parents) had in some way refused to allow such a test. They clearly did no such thing. However, as I have indicated (see paragraph 38 above), the chance of one of those genes being implicated in SOD is in any event less than 5%. Dr Ogilvy-Stuart gave evidence to the effect that there is no known case of one of those genes being implicated where diabetes inspidus or any other defect in the posterior pituitary has been reported. Dr Reckless fairly accepted that that made it less likely that the Claimant's diabetes inspidus or other abnormalities/conditions were caused by a mutation of one of those genes. I am satisfied on the balance of probabilities that the genes which to date have been associated with SOD are not implicated in the Claimant's case.
Furthermore, Professor Patton (the Defendant's genetics expert) was less than an impressive witness. In his report (paragraph 6), he gave four reasons for his opinion that the Claimant's brain malformations are likely to be genetic, as follows.
i) Testing power has greatly increased since the general chromosome test was performed on the 1985. Further tests might reveal a genetic change associated with SOD. However, there is no evidence that the Claimant has any relevant gene mutation that would now be identified by further tests; and I have found that he does not (see paragraph 77 above).
ii) The pattern of pituitary failure would be typical of genetically induced SOD. However, (a) endocrinology is outside Professor Patton's expertise, and (b) for that proposition, he relied upon Webb & Dattani which, in cross-examination, he accepted did not support the proposition.
iii) Professor Patton relied upon the fact that a relative of the Claimant had a brain malformation. However, he accepted in the joint statement of experts (paragraph 8) that that was not relevant.
iv) He considered that more genetic mutations would be found to explain other cases of SOD; but, in the meantime, he accepted that there was less than a 50% chance that the Claimant's abnormalities resulted from known genetic mutations. In fact, as I have indicated, general data and the joint statement of the genetics experts suggest the figure is less than 5%; and, for the reasons I have given, I do not consider that cause operative in this case.
The Defendant's case was therefore not greatly advanced by Professor Patton.
Furthermore:
i) The Claimant's experts (particularly, Dr Squier) were impressed by the fact that, although the abnormalities generally affect the mid-line structures, they are asymmetrical, focal and partial. For example, the corpus callosum appears to have formed properly, although the anterior part now has abnormalities. Further, some anterior midline structures (e.g. the sagittal sinus and falx) appear unaffected. Dr Kendall noted that the cingulate sulcus and cingulate gyrus are marked, and appear normal. The Claimant's experts considered that, if the defect were genetically based, the abnormalities would more likely have been symmetrical and would have affected all (or more) of the anterior midline structures.
ii) Dr Squier said that, if the problem had had a genetic origin, she would have expected to have seen other characteristic features (e.g. brain calcification, cystic cavities in the brain and heart malformations), not seen in this case.
iii) The abnormalities affect parts of the brain which develop at different times. Dr Ogilvy-Stewart said (I believe, uncontentiously) that the hypothalamus develops at 4-6 weeks, and is fully formed at 14 weeks. Dr Kendall said that the thalami develop at (say) week 5, long before the corpus callosum. More controversially, reliant upon older papers[22], Dr Squier said that the corpus callosum develops between 11 and 17-18 weeks: although, as she accepted in her oral evidence, more recent data suggest that the lower margin of the septum is in place by week 10 and the corpus callosum is complete and easily recognisable by week 14 or 15[23]. Dr Kendall said that he found it difficult to envisage a gene that could cause a developmental abnormality to the thalamus in week 5, but then "go to sleep" and re-operate when the corpus callosum and septum were developing in, say, weeks 14-15. If, as Dr Chong suggested, the genetic defect operated in the hemispheres at the time the bundles of Probst were developing, that would be a third distinct operative time. Dr Kendall said that a gene mutation that caused different developmental abnormalities at different times, whilst possible, was very unlikely.
iv) The obstetric experts were agreed that the umbilical cord would be so fine at 15 weeks, that it is unlikely that the blood in the samples would have come from it. Ms Nicholls noted "posterior placenta". This makes it unlikely (they said) that the fetal blood would have come from the placenta, because it would mean the needle crossing more or less the entire diameter of the amniotic sac
Nevertheless, the expert witnesses (including both Professor Patton and Dr Reardon) all considered that other gene mutations associated with/causative of SOD will in due course be found, in explanation of some of the large proportion of SOD cases which, at present, have no known aetiology; and none considered the abnormalities in the Claimant's case to be inconsistent with a genetic cause.
As I have already indicated, this issue is far from easy. However, upon particularly careful reflection, I have concluded that the Claimant has failed to prove that his abnormalities were caused by the amniocentesis procedure. In coming to that conclusion, I have taken into account all of the matters raised before me, including the above. I have particularly taken into account the following.
i) Whilst it is for the Claimant to prove on the balance of probabilities that his injuries were caused by the amniocentesis, he does not have to prove a particular mechanism. I have indicated above some of the difficulties faced in proving that any of the mechanisms he has put forward was operative; but his task is simply to prove that any mechanism triggered by the amniocentesis, individually or in combination, caused the abnormalities. That is how I have approached the matter.
ii) I have found that none of the four genes which have been associated with SOD is implicated in this case – and so any genetic cause is, as yet, scientifically unidentified. Furthermore, I accept that cases of SOD are rare (1 in 10,000 live births) and cases of any fetal damage caused by an amniocentesis needle are also rare (so that a case of fetal damage causing SOD must, as a matter of statistics, be of compound rarity); but no case of SOD caused by a needle has been reported anywhere in the literature. Whilst technically possible – because of the diagnostic criteria to which I have referred – it is inherently very unlikely indeed.
iii) Any theory must explain abnormalities to diverse parts of the brain, which develop at different times; and so any theory is dependent upon a mechanism that operates over time. Dr Squier suggested some form of vascular disturbance; but that may have an extrinsic or intrinsic cause.
iv) Whilst uncommon – indeed, very rare – on the basis of current scientific knowledge, genetic mutations may affect development in an idiosyncratic way and even intermittently over a period of time. For example, homeobox genes act as "commanders", and control other genes.
v) Whilst the abnormalities in this case could result from (or be consequent upon) traumatic damage, in my view the more likely explanation is that they have an inherent cause. Whilst not symmetrical, they generally affect midline structures. The literature shows that SOD may generally exhibit in less than a wholly symmetrical form; and Dr Chong said that asymmetric gene-driven abnormalities within the thalami are not unknown, with at least one (I accept, unrelated) genetic disorder of the brain (porencephaly) being asymmetric. It is being slowly discovered that genetics might be capable of identifying connections between apparently unrelated things. On the other hand, some lesions which are apparently classic encephaloclastic in form (i.e. appear to have a destructive cause) have been found to have a genetic basis (Dr Jacques report, paragraph 1).
vi) As I have indicated, Dr Chong's evidence – which I accept – was to the effect that where the septum pellucidum attaches to the fornix, that usually forms a Y-shape; and that shape is maintained even where the septum is later destroyed, because it is an inherent part of the morphology of that part of the brain. Furthermore, in the Claimant's case, the septum is entirely absent: despite the septum having formed (or started to form) by week 14-15, there is no vestige present. Dr Kendall accepted that, by that time, the septum would have started to form; but, after more than twenty years, he said you would not expect necessarily to see any remnant. However, I find the evidence of Dr Chong on this point compelling in evidencing that the septum never formed.
vii) No bundles of Probst are present. Dr Kendall said that that is indicative of the corpus callosum having formed and being later damaged – because, if it did not form, then those bundles should still be found in the hemispheres. However, Dr Chong said – and I accept – that that might be so if there was complete agenesis of the corpus callosum (i.e. if it did not form at all); but, in the Claimant's case, it did form, but only partially developed. In those circumstances, he said, it is more likely that the "missing" bundles were never formed. Again, in my view, this points to abnormality of the corpus callosum, despite its asymmetry, being the result of an inherent developmental problem.
viii) SOD does not appear as a single homogenous entity. It has been said that "There is a wide variation in the severity of the clinical features found, and in their association with other diagnoses, which follows no clear pattern"[24]. Dr Chong said that "the abnormalities are a mixture of missing parts, cavities, disorders of neuronal migration and disorders of neuronal organisation which relate to different times in brain development" (joint statement, paragraph 11) – and, when the abnormalities are looked at as a whole, there is more likely to have been an inherent cause. I found that evidence convincing.
Mr Havers submitted that the circumstances of the amniocentesis procedure themselves point to a traumatic cause. However, I do not agree. He relied upon the following matters:
i) He referred to the presence of fetal blood – in high concentration – in the samples (which also originally drove Mr & Mrs Hogg to the conclusion that the abnormalities were caused by the amniocentesis): but (a) as I have indicated, 25% of amniocenteses at that time resulted in bloody taps, and (b) no fetal tissue was found in the samples. Mr Mason says that the most likely source of blood was not the fetus, but the placenta (a highly vascular body), citing his own experience of (in very different circumstances) deliberately perforating a fetus and there not being significant amounts of blood. Although consistent with penetrating the fetus and damaging the fetal circulatory system, the source of the fetal blood in the samples is more likely to have been the placenta.
ii) Mr Havers referred to the low volume of aspirated fluid, which suggests that the needle was not in a pool of free fluid. However, neither sample was a dry tap; so that the needle was, at some stage, in free fluid. The better explanation is that the needle perforated the placenta, resulting in a bleed into the fluid which was then aspirated. The needle appears to have moved during the second tap, to have been eventually outside the amniotic sac, resulting in a very small sample.
iii) Mr Havers referred to the reference in Ms Nicholls' note that the placenta was "posterior"; but Mr Mason said that that does not rule out the placenta extending laterally round the side wall of the sac. The notes often record only where the majority of the placenta lies. Indeed, although not relied upon by Mr Mason (nor is it relied upon now by me), it is noteworthy that on the 10 December 1985 scan of Mrs Hogg there was noted: "Posterior placenta onto rt lat wall".
In my view, on all the evidence, it is likely that the amniocentesis needle perforated the placenta at the lateral side of the amniotic sac, and Dr Robinson aspirated fluid with blood from the placenta in both samples, withdrawing the needle during the second aspiration so that it exited the sac before completion.
For those reasons, Mr Havers – who could not have put the Claimant's case more forcefully or effectively – has failed to persuade me that it is more likely than not that the Claimant's abnormalities of the brain were caused by the amniocentesis.
Conclusion
I have every sympathy with the Claimant, and his parents who have contested this claim moderately and with fortitude over many years. As I hope I have already emphasised, I am in no doubt that Mrs Hogg has brought the claim on her son's behalf with sincerity of purpose. However, for the reasons I have given, despite those efforts, she has failed to persuade me that the condition from which her son suffers was caused by the amniocentesis at the focus of this action.
Consequently, I must dismiss the claim.
Note 1 Squier et al. Five cases of brain injury following amniocentesis in mid-term pregnancy. Dev Med & Child Neur 2000; 42: 554-600 (“Squier et al 2000”). The article reviews five cases of injury to the fetal brain following mid-trimester amniocentesis. [Back]
Note 2 De Morsier G. Etudes sur les dysraphies cranio-encephaliques. III. Agensie du septum lucidum avec malformation du tractus optique: la dysplasie septo-optique. Schweiz Arch Neurol Psychatr 1956; 77: 267-292. [Back]
Note 3 Hoyt WF, Kaplan SL, Grumbach MM, Glaser JS. Septo-optic dysplasia and pituitary dwarfism (letter). Lancet 1970; 1: 893-894. [Back]
Note 4 See Barkovich A, Fram EK, Norman D. Septo-Optic Dysplasia: MR Imaging. Radiology 1989; 171: 189-192. [Back]
Note 5 Raybaud C. The corpus callosum, the other great forebrain commissures, and the septum pellucidum: anatomy, development, and malformation. Neurology 2010; 52: 447-477 (“Raybaud 2010”). [Back]
Note 6 Webb EA and Dattani MT. Septo-optic dysplasia. Eur J of Hum Gen 2010; 18: 393-397 (“Webb & Dattani”). [Back]
Note 7 Patel H, Tze WJ, Crichton JU, McCormick AQ, Robinson GC, Dolman CL. Optic nerve hypoplasia with hypopituitarism. Septo-optic dysplasia with hypopituitarism. Am J Dis Child 1975; 129(2): 175-180. [Back]
Note 8 McCabe MJ et al. Variations in PROKR2, but not PROK2, are associated with hypopituitarism and septo-optic dysplasia. J Clin Endocrinol Metab 2013; 98(3); E547-557. [Back]
Note 9 Kelberman D and Dattani MT. Septo-Optic Dysplasia – Novel Insights into the Aetiology. Horm Res 2008; 69: 257-265 at page 258. [Back]
Note 10 Lubinsky MS. Hypothesis: Septo-optic dysplasia is a vascular sisruption sequence. Am J of Med Gen 1997; 69: 235-236 (“Lubinsky”). [Back]
Note 11 Stevens CA and Dobyns WB. Septo-optic dysplasia and amniotic bands: Further evidence for a vascular pathogenesis. Am J of Med Gen 2004; 125A: 12-16 (“Stevens & Dobyns”). [Back]
Note 12 Chudleigh P, Pearce JM. Obsetric Ultasound: How, why and when. Churchill Livingstone. 2nd Edition; 1992. [Back]
Note 13 Hadlock FP, Deter RL, Harrist RB, Park SK. Fetal biparietal diameter: a critical re-evaluation of the relationship to menstrual age by means of real-time ultrasound. Jour of Ultras in Med 1982; 1: 97-104. [Back]
Note 14 At page 84. [Back]
Note 15 Chudleigh P, Pearce JM. Obsetric Ultasound: How, why and when. Churchill Livingstone. 1st Edition; 1986. [Back]
Note 16 Namely Campbell S and Newsman GB. Br J Obstet Gynaecol 1971; 78: 513. [Back]
Note 17 Also at page 84. [Back]
Note 18 E.g. Benacerraf BR and Frigoletto FD. Amniocentesis under Continuous Ultrasound Guidance: a Series of 232 Cases. Obs & Gynae 1983; 62: 760-763. [Back]
Note 19 Bencerraf BR and Frigoletto FD. Amniocentesis under continuous ultrasound guidance. Obs & Gynae. 1983; 62(6): 760-763. [Back]
Note 20 That is apparently derived from Squier et al 2000 (cited at footnote 1 above), to which I was referred, which relies upon data found in earlier papers, namely (i) Ron M et al. The clinical significance of blood-contaminated mid-trimester amniocentesis. Acta Obsterics and Gynaecologoy Scandinavia. 1983; 61: 41-43. and (ii) Williamson RA, Varner MW, Grant SS. Reduction in amniocentesis risks using a real-time needle guide procedure. Obs & Gynaec. 1985; 65: 751-755. [Back]
Note 21 For this proposition, Dr Squier relied on Gilles FH and Nelson MD. The Developing Human Brain: Growth and Adversities. Clinics in Developmental Medicine No 193 2012 at page 186, which states that “By midgestation [i.e. 13-20 weeks], many leptomenigeal vessel walls have developed sufficient muscularis or collagenous adventitia to be recognisable as arteries or veins.” [Back]
Note 22 Notably Rakic P and Yakolev PI. Development of the Corpus Callosum and Cavum Septi in Man. J Comp Neur 1968; 132: 45-72 [Back]
Note 23 Raybaud C. The corpus callosum, the other great forebrain commissures, and the septum pellucidum: anatomy, development, and malformation. Neuroradiology 2010; 52: 447-477 at pages 456-457. [Back]
Note 24 Webb& Dattani at page 393. [Back] |
Sweeney J:
Introduction
In October 2013 the Claimant/Respondent (hereafter "the Respondent"), a social housing provider with charitable status, began a possession claim in the Chelmsford County Court against the Defendant/Appellant (hereafter "the Appellant") who is one of its tenants. On 28 April 2014 the Respondent failed to attend a Directions Hearing before HHJ Lochrane, who thus dismissed its claim with costs. On 9 June 2014 the judge granted the Respondent relief from those sanctions pursuant to CPR 3.9, including re-instating the claim. This is an appeal against that decision. Permission was granted, out of time, by Spencer J on 10 October 2014. In consequence the trial, which was otherwise due to commence 27 October 2014, has been adjourned pending the outcome of the appeal.
At the hearing below on 9 June 2014 the leading authority in relation to the then relatively recently amended provisions of CPR 3.9 was correctly recognised to be Mitchell v News Group Newspapers [2013] EWCA Civ 1537 ("Mitchell"). It is, nevertheless, common ground that the appeal must be decided in accordance with the subsequent clarification and amplification of Mitchell in the conjoined appeals in Denton v TH White Ltd [2014] EWCA Civ 906 ("Denton, Decadent & Utilise").
CPR 3.9 provides that:
"(1) On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need –
(a) for litigation to be conducted efficiently and at proportionate cost; and
(b) to enforce compliance with rules, practice directions and orders.
(2) An application for relief must be supported by evidence."
There are two, overlapping, Grounds of Appeal - namely that the judge:
(1) Misdirected himself by failing to properly apply CPR 3.9.
(2) Took into account irrelevant considerations.
During the course of the hearing I was also referred to a number of other authorities in which the approach to relief from sanctions after the implementation of the Jackson reforms (including the amendment of CPR 3.9) was considered. They included, in chronological order: Murray & Stokes v Neil Dowlman Architecture Ltd [2013] 3 Costs LR 460 ("Murray"); Durrant v Chief Constable of Avon & Somerset Constabulary [2013 EWCA Civ 1624 ("Durrant"); R (Royal Free London NHS Foundation Trust) v Secretary of State for the Home Department [2013] EWHC 4101 (Admin) ("Royal Free"); Associated Electrical Industries Ltd v Alstom UK [2014] 3 Costs LR 415 ("Associated Electrical"); Chartwell Estate Agents Ltd v Fergies Properties SA [2014] 3 Costs LR 588 ("Chartwell"); and Yeo v Times Newspapers Ltd [2014] EWHC 2853 (QB) ("Yeo").
Whilst I have considered all the authorities, I bear in mind that at [24] of the judgment in Denton, Decadent & Utilise, the Court of Appeal expressed the hope that the guidance that it went on to give as to the three stages by which a judge should address an application for relief from sanctions would avoid the need in future to resort to earlier authorities.
In granting permission to appeal, Spencer J observed that the permission was not lightly given in relation to what was a case management decision but that, even applying the more nuanced approach required by Denton, Decadent & Utilise, it was arguable that, at the second stage, there was no good reason for what was a serious or significant breach, and that it was also arguable that the judge's approach, at the third stage, to "all the circumstances of the case" was impermissibly broad.
Outline facts
In November 2002 the Appellant was granted a tenancy of 17 Ploughman's Lane, Great Notley, Braintree, Essex by the Respondent.
In October 2011, following alleged incidents of an anti-social nature, the Respondent applied for an injunction against the Appellant. On 9 November 2011 the Appellant formally undertook not to cause any further nuisance or annoyance to her neighbours. That undertaking was later extended to 31 December 2012.
The Respondent asserts that, nevertheless, incidents of anti-social behaviour continued. In particular, in May 2013 the Appellant was arrested for a racially aggravated public order offence against a neighbour, and was convicted of that offence on 9 August 2013. In addition, in September 2013 the Appellant was arrested for another public order offence – to which she pleaded guilty on 16 October 2013.
In the meanwhile, on 23 August 2013, the Respondent had served a Notice of Seeking Possession on the Appellant. As already touched on, possession proceedings were commenced in October 2013. Directions up to the listing questionnaires stage were made without a hearing on 30 December 2013, and a Defence was filed by the solicitors then representing the Appellant on 31 January 2014.
By an Order dated 12 February 2014 (which HHJ Lochrane made of his own motion after perusing the file) the possession claim was listed for directions "on the same day as the Children Act 1989 proceedings CM13P01378 on 28 April 2014…" (emphasis as in the order itself). The Children Act proceedings, which related to two of the Appellant's children who were living with her, had been brought by their father, and also involved the local authority. Those proceedings had been triggered, to some extent, by the allegations made by the Appellant's neighbours. The judge's purpose in ordering that both cases be listed on the same day was so that the hearings in them could take place one after the other, and that each could be managed so as to ensure that they could be dealt with at "more or less the same time in the hope that it would render the matter somewhat less complex" – with the eventual result of the possession claim being known prior to the determination of the Children Act proceedings. That purpose was not, however, made clear in the Order. Nevertheless, the Order did make clear that it was made of the court's own motion, and that either party could, within seven days, apply to vary it or set it aside. Neither did.
However, the Respondent's in-house solicitor, who was conscious of the Respondent's limited means, could see no purpose in a Directions Hearing on 28 April. Accordingly, on 14 February 2014 the Respondent wrote to the Appellant's then solicitors indicating that it considered that there was no need for the hearing on 28 April, and that (if the Appellant's then solicitors were happy for it to do so) it proposed to write to the court to say so, and to indicate that it would wait for the case to be listed for trial after 28 March 2014. The Appellant's then solicitors replied that same day to the effect they did not want to write to the court to seek to vacate the hearing on 28 April until it was clear how long the trial would need to be listed for, that it would be better to wait a little over a month until the evidence was in before formally agreeing the time estimate, and that there was plenty of time before 28 April to agree an Order.
On 27 March 2014 the Respondent sent a Listing Questionnaire to the court indicating that the possession claim was ready for trial, and that the Respondent did not believe that any further directions were necessary. The Respondent also paid all requisite court fees. The Appellant failed to file a Listing Questionnaire, as required, on 28 March 2014, which was just prior to her then solicitors ceasing to act for her. Neither party complied with the court's direction for witness statements to be served on 14 March 2014.
On 16 April 2014, the Respondent wrote to the court noting that the matter had been listed for directions on 28 April 2014. The letter stated that "….We are uncertain why this matter has been listed for directions when both parties have already complied with directions given in December 2013…..", and asked for urgent confirmation that the parties did not need to attend the hearing and that the case would urgently be listed for trial. On three occasions thereafter the Respondent telephoned the court for a response, but all without success.
In the week of 21 April 2014 the Appellant's now solicitors (who had taken over her case on 28 March 2014) were informed that the Appellant's public funding certificate had been transferred to them. On Thursday 24 April 2014 they wrote to the Respondent indicating that they had just been instructed, and that the fee-earner dealing with the matter was on annual leave, and requested the Respondent's consent for the Directions Hearing to be adjourned. The Respondent replied that same day indicating that it did not believe that any further directions were required before trial, attaching its letter to the court of 16 April 2014 in relation to the proposed Directions Hearing, and stating that the court had just telephoned to say that the file was being sent to the judge that same day. Later that day the Appellant's now solicitors wrote urgently to the court stating they had been informed by the Respondent of the Respondent's letter of 16 April asking for the hearing on 28 April to be vacated, and of the fact that the file was being considered by a judge. The Appellant's solicitors indicated that the case papers had only just been received and stated that, given that the relevant fee earner was away until 28 April 2014, that it agreed with the request that the Directions Hearing be vacated (although it did not agree that the only direction required was for a trial date) and asked that it be adjourned to the first open date after 14 days in order to allow the Appellant to apply for an extension of time to file a Listing Questionnaire, and for the parties to agree such directions as may be needed to save time and expense for the court and the parties. The Appellant's solicitors copied the letter to the Respondent.
On Friday 25 April 2014 the Respondent telephoned the court again and was "again informed that no further action had been taken" – i.e. that the Directions Hearing was still going to be listed on 28 April. The Respondent's solicitor nevertheless genuinely believed that the matter would not be dealt with on that date (due to the fact that the court had been informed that no directions were required, and that the Appellant's new solicitors had also written to the court asking for the hearing to be vacated) and so decided not to attend and not to instruct anyone else to do so. She did not inform either the court or the Appellant that no-one would be attending on behalf of the Respondent.
The Appellant also contacted the court on Friday 25 April to try to establish whether the court required the parties to attend on 28 April. No response was obtained other than an indication that the file was before the judge and that the case was still in the list for 28 April. In those circumstances those representing the Appellant instructed counsel to attend the hearing.
As a result of the Respondent's non-attendance at the hearing before HHJ Lochrane on Monday 28 April 2014 he was not able to manage the Children Act proceedings and the possession claim in the way that he had intended. During the hearing in relation to the possession claim he made reference to having read the file and to being aware that both sides had tried to avoid the hearing. In the result, he dismissed the claim with costs – but with permission to apply to vary or set aside within seven days from the date of service of the Order. Hence, by a written application dated 6 May 2014 (which was within the time limit) the Respondent applied for the claim to be reinstated.
The hearing on 9 June 2014
As already indicated, Mitchell was correctly recognised to be the leading authority, and argument was advanced on both sides in relation to it – albeit that other authorities were also cited.
In his judgment HHJ Lochrane set out the background, including the lack of clarity as to the reason for the Order that he made on 12 February; the measure of sympathy that he had for the Respondent in consequence; and the fact that the result had accrued to the Appellant's advantage in that the Children Act proceedings were now going to be concluded prior to the possession claim and would thus involve the assumption that the Appellant would continue to live at 17 Ploughman's Lane and that, if the Children Act proceedings were resolved in her favour, then she would be able to rely in the possession claim on the fact that the children were living with her. The judge then continued:
"12. So the claimant seeks relief from sanctions and I remind myself, as Ms Blackmore for the defendant has helpfully reminded me and provided a bundle containing materials, that the overriding objective now requires that in applying the rules I must attempt to deal with cases justly and at proportionate cost, in the context also of saving expense and, importantly, allotting appropriate share of the court's resources and enforcing compliance with the rules, practice directions and orders. And Part 3.9 - as now amended following the reforms initiated by Jackson LJ – requires me in respect of any application for relief from sanctions imposed for failure to comply with any rule, practice direction or court order to consider all the circumstances of the case so as to enable the court to deal justly with the application, including the need for litigation to be conducted efficiently and at proportionate cost and to enforce compliance with the rules practice directions and orders. I am well aware of the authorities which make it plain that those two specific requirements are to be seen as the primary focus of the court before consideration of the rest of the circumstances of the case.
13. Ms Blackmore submits to me it is correct that this cannot be described as a "trivial" breach; the order was specifically disobeyed and disobeyed in the context of the claimant simply assuming that that the court would go along with its suggestion, which it turns out has cost it dear. I suspect that it is not a mistake that the Claimant (or its employees) will take (sic) again. The lack of resources too is not an issue, it seems to me, as the authorities make plain. The inability of the Claimant to marshal its resources sufficiently to deal appropriately and efficiently with its cases is not an excuse that will assist it.
14. Nevertheless, it does seem to me that there is some merit in considering this application for relief from sanctions. The bottom line of course remains that these cases need to be dealt with justly and the reality is that if this action remains dismissed there is nothing to stop Home Group re-issuing and, indeed, if it were doing its duty to its other residents it would seem to me that it is imperative that it re-issues to have these matters litigated.
15. The impact of the continuing dismissal of this claim does not necessarily impact against the claimant itself. The force of failure to address the possession issues really falls on a collection of thoroughly innocent parties, theoretically, those neighbours who are, at least allegedly, significantly inconvenienced (if found proven) by Ms Matrejek's relatively appalling behaviour. So consideration of the justice of the case, it seems to me, needs to look very carefully at what can be achieved for the real victims of this process if the allegations are found proven – that is the neighbours and not the claimant.
16. Further expense and delay would clearly be involved in the re-issue of the proceedings and, as Ms Brazier for the claimant rightly points out, would also impact on the public purse in the sense that Ms Matrejek would not need to go through the process of obtaining Legal Aid covering her defence in that way. So it seems to me that for the purposes of justice there is some considerable force in thinking carefully about allowing relief from sanction and that applies too in the context of ensuring that that as far as possible, given what has occurred already, the litigation should be conducted efficiently and at proportionate cost. It would be thoroughly inefficient, it seems to me, to put the claimant in a position of having to re-issue and attract yet further additional costs in the protection of the interests of the other occupants of its properties.
17. The importance of course is that the claimant has failed to comply with an order of the court somewhat deliberately and the mitigation, it seems to me, that can arise in respect of that is limited to the perhaps explicable misunderstanding of the court's purpose and the fact that the order was made without greater elaboration of the court's purpose and in the absence of the parties themselves at the time, Nonetheless one cannot ignore of course that no query was raised and it seems to me that without too much effort it should have been relatively clear to the educated observer that the court had some particular interest in mind.
18. Anyway, it seems to me on balance, applying the various provisions, it is appropriate in the circumstances to allow relief from this sanction and to reinstate the possession claim with a view to having (it) heard over three days before me at the end of October. So the matter will be reinstated. The order for costs of 28 April will be varied to the extent that the claimant will pay the defendant's costs of that hearing and the claimant will pay the defendant's costs of this application and this hearing. Those will be the subject of assessment if not agreed."
The judge refused the Appellant's immediate application for permission to appeal – stating that there must be appropriate occasions for relief from sanctions, and that he had applied the terms of the rules and taken into account the authorities. In his brief written reasons he said:
"Applicant's default was a misguided attempt to save costs based upon an apparent misunderstanding of an earlier court order which was, on one reading, potentially partially valid. The Applicant's default had affected the course of the litigation but that was to the significant advantage of the Respondent in the circumstances. The otherwise innocent neighbours allegedly adversely affected by the Respondent's behaviour would be deprived of a hearing within a reasonable time if the Applicant was required to start again. While the fault was not trivial, there was just about a reasonable excuse and the justice of the case required the reinstatement of the claim. The Respondent had no realistic prospect of succeeding in any appeal against a case management decision in the court's discretion".
In the result the judge also ordered that the case be fixed for trial on 27 October 2014, and gave the parties permission to rely on evidence filed to date.
The Appellant's arguments
Ms Blackmore pointed out that significant changes to the CPR had come into effect on 1 April 2013. In particular:
(1) CPR 1.1 was amended to include reference to the need for matters to be dealt with "at proportionate cost" (CPR 1.1(1)).
(2) CPR 1.1(2) was amended to include specific reference to the need to enforce compliance with court orders rules and practice directions.
(3) CPR 3.9 was amended so that the nine particular circumstances that a court was required to consider when deciding whether to grant relief from sanctions were removed and concentration placed instead on the need for the court to consider all the circumstances of the case so as to enable it to deal justly with the application, including the need (a) for litigation to be dealt with justly and at proportionate cost and (b) the need to enforce compliance with rules practice directions and orders.
Ms Blackmore submitted that the effect of the judgment in Denton, Decadent & Utilise is as follows:
(1) The guidance in Mitchell at [40] & [41] (that relief would be granted if the default is trivial provided that an application is made promptly, or if there is good reason for failure to comply) remains substantially sound [24].
(2) A judge should address an application for relief from sanctions in three stages:
(i) To identify and assess the seriousness and significance of the "failure to comply with any rule, practice direction or court order" which engages rule 3.9(1).
(ii) To consider why the default occurred.
(iii) To evaluate "all the circumstances of the case so as to enable [the court] to deal justly with the application including [factors (a) and (b)] [24].
(3) The focus of the court's enquiry should be upon whether the breach has been "serious or significant" rather than trivial [26].
(4) It is not the case that if there is a serious or significant breach and there is no good reason for that breach, the application for relief from sanction will automatically fail [31].
(5) The court must consider the effect of the breach in every case. If the breach has prevented the court or the parties from conducting the litigation, or other litigation, efficiently and at proportionate cost, that will be a factor weighing in favour of refusing relief [34].
(6) The court must always bear in mind the need for compliance with rules practice directions and orders, because the old lax culture of non-compliance is no longer tolerated [34].
(7) The more serious or significant the breach, the less likely it is that relief will be granted unless there is a good reason for it [35].
(8) It is always necessary to have regard to all the circumstances of the case [36].
(9) Factor (a) and factor (b) in CPR 3.9 must always be given particular weight because anything less will inevitably lead to the court slipping back to the old culture of non-compliance [38].
(10) It is unacceptable for a party to try to take advantage of a minor inadvertent error, as it is for rules, orders and practice directions to be breached in the first place [43].
(11) Judges must ensure that directions that they give are realistic and achievable [44].
(12) The practice of giving pre-eminence to the need to decide the claim on the merits should have disappeared following the Woolf reforms, and there is certainly no room for it in the post Jackson era [81].
Ms Blackmore further pointed out that in the first of the three conjoined appeals in Denton, Decadent & Utilise the court had made clear that whilst the breach was serious, and there was no good reason for it, it was still necessary for the judge to undertake the third stage and to consider all the circumstances of the case – but giving particular weight to factors (a) and (b) in CPR 3.9 in the process. In that case the court decided, significantly asserted Ms Blackmore, that the judge had fallen into error by giving pre-eminence to the need to decide the claim on the merits.
Ms Blackmore also drew particular attention, in chronological order, to:
(1) Durrant in which, at [44], the Court of Appeal concluded that the judge had placed too much weight on the potential effect on the careers and reputations of individuals and the police force if the officers concerned were unable to give evidence, and on the public interest in scrutinising the actions of police officers which, the court decided, were considerations that did not carry much weight in determining whether to grant relief from the sanction for non-compliance.
(2) Associated Electrical in which at [47] Andrew Smith J held that although, as between the parties, it was disproportionate to strike out a claim for late service of particulars, the emphasis in Mitchell on enforcement of the CPR to encourage procedural discipline led to the conclusion that the claim should be struck out and the extension of time refused.
(3) Yeo in which Warby J concluded that, though relief should not be granted lightly, it would be in that case because the breach was the result of an error, rather than a deliberate decision, and (once noticed) it had been promptly rectified, and its impact had been negligible.
Ms Blackmore also pointed out that, prior to the amendment of CPR 3.9, a finding that a failure to comply with a rule, practice direction or order was intentional was a significant factor which made the granting of relief from sanctions less likely – see e.g. Tam Insurance Services Ltd v Kirby [2009] EWCA Civ 19.
As to the general merits of the appeal, Ms Blackmore submitted that:
(1) Having failed to obtain authorisation not to attend the hearing on 28 April 2014, the Respondent decided, unilaterally, not to attend the hearing in any event. It did not inform the court, or the Appellant's solicitors; it simply did not turn up – whereas all other parties in the two proceedings did attend. Albeit that the Respondent is a charity and short of funds, the breach was thus a deliberate flouting of the court's order and the judge found (in the language of Mitchell) that it was "not trivial". In the language of Denton, Decadent & Utilise, it was clearly a serious and significant breach, and there was no good reason to excuse it.
(2) The judge's comments, variously in argument and in his judgment on 9 June 2014, to the effect that the Respondent had "decided" not to attend; that the breach had been committed in "the tenuous hope" that all would be well; that the order had been "specifically disobeyed"; that the Respondent had failed to comply "somewhat deliberately"; that the Respondent's mitigation was "limited"; and that "without too much effort it should have been relatively clear to the educated observer that the court had some particular interest in mind", all had to be contrasted with judge's written statement of reasons for refusing permission to appeal in which he said that the Respondent had "just about a reasonable excuse".
(3) Moreover the Respondent had not asserted that it had misunderstood the purpose of the order of 12 February 2014 – it had clearly understood that it was supposed to attend – why else all the efforts to seek excusal from attendance?
(4) The Respondent's failure to attend on 28 April 2014 had had significant effects for the administration of justice and the other litigants – the court was unable to case manage as it had wanted to and its purpose in that regard was entirely frustrated; the trial date was almost certainly delayed; and other court users were inconvenienced.
As to Ground 1 (failing to properly apply CPR 3.9), Ms Blackmore submitted that:
(1) The judge decided that the breach was not trivial, and that the Respondent had no good reason for it. Following Denton, Decadent and Utilise it was appropriate for him to consider all the circumstances of the case, but he had to do so in a proper way – not one involving a review of the correctness of his decision to impose the sanction in the first place.
(2) The correct starting point was that the sanction was properly imposed (Mitchell [45]) – were it otherwise the judge should have considered the application under CPR 3.1(7), which he declined to do (thus confirming that he considered that his sanction had been properly imposed), and the Respondent had not sought to appeal against that decision.
(3) When the judge imposed the sanction on 28 April 2014 he was well aware of the circumstances of the case, and thus the likely impact of the sanction on the neighbours should have been considered by him as part of the determination of the appropriate sanction, as should the possibility of the Respondent seeking to re-issue proceedings (see Durrant at [44]). Hence those matters should have been given little if any weight in the consideration of all the circumstances of the case, yet they were key in the decision to grant relief – which thus involved an impermissible review of his decision to dismiss the claim or the taking into account of irrelevant considerations.
(4) The judge clearly gave inappropriate pre-eminence to the need to decide the claim on the merits – thereby adopting the approach that was criticised in Denton, and contrary to the decision in Associated Electrical that once there had been a breach and a sanction imposed proportionality between the parties was not a primary issue.
(5) The judge failed properly to consider the need for litigation to be conducted efficiently and at proportionate cost. It was irrational for him, as part of his consideration of factor (a), to consider the fact that the Respondent might bring fresh proceedings - which was not asserted by the Respondent, and which (in light of Janov v Morris [1981] 1 WLR 1389) could readily be argued to be an abuse of process. It was similarly irrational to take into account both that the neighbours' expectations would be disappointed and that the Respondent would incur further costs by bringing new proceedings. Equally, in considering factor (a), the judge failed to take into account, properly or at all, that court time had been wasted, that the conduct of the litigation had been significantly disrupted, that the proceedings would be protracted if they were reinstated, and that the conduct of the Children Act proceedings had also been disrupted. Alternatively, when considering factor (a) he had regard to irrelevant considerations and failed to have regard to relevant considerations.
(6) The judge failed to give particular importance to or particular weight to factor (b) which, given the need to give particular importance to it (Denton, Decadent & Utilise at [38]) and the fact that the Respondent's breach was deliberate and very serious was startling and indicated that he had not considered factor (b) properly or at all.
(7) Given that a lack of prejudice is no longer a reason to grant relief in respect of a failure to comply with a valid order (see Royal Free and Murray at [19]) it was wrong for the judge to take into account that the Appellant might benefit from the delay and inconvenience resulting from the Respondent's deliberate breach. In any event there was no certainty that the appellant would, in fact, benefit at all – and thus it was either irrational to take it into account or irrelevant.
(8) The judge was also wrong to consider fairness as between the parties- whether because it was irrelevant or because he gave it too much weight.
(9) The appeal was broadly analogous with the first appeal in Denton, Decadent & Utilise. Faced with a serious and significant breach and no good reason for it, the judge should have been alive to the likelihood that relief ought to be refused, albeit that he still needed to carry out the third stage of his determination. Factor (a) militated heavily in favour of refusing relief, and factor (b) should also have strongly militated in favour of refusal. The only matters that the judge found to balance on the other side were matters that he should not have taken into account (Durrant at [44]). Relief ought to have been refused.
As to Ground 2 (taking into account irrelevant considerations) Ms Blackmore submitted that:
(1) The judge should not have given much, if any, weight to any difficulty or inconvenience to the neighbours.
(2) There was no evidence, and the Respondent did not assert, that it had not properly understood the order of 12 February 2014. The purpose of the order was perfectly clear on its face – namely for the parties in both the possession claim and the Children Act proceedings to attend on the same day for directions – that was all that the parties needed to know. It was perfectly plain that the Respondent understood that – otherwise it would not have sought the court's permission not to attend. Whilst it was not entirely clear as to the extent to which this issue affected the judge's decision, save in relation to whether the Respondent had a good reason for not attending, he mentioned lack of proper understanding a number of times and plainly considered it to be important.
Ms Blackmore also pointed out that the Respondent had failed to comply with the requirement in Spencer J's order of 10 October 2014 that it serve its skeleton argument by 4pm on Tuesday 21 October 2014.
The Respondent's arguments
Miss Brazier pointed out that, in the preponderance of the cases cited above, the court was concerned with an Unless Order, or with a sanction automatically applied by the Rules, and that in only two of the cases - Associated Electrical (in which the action was in its early stages) and Decadent (in which the appeal was allowed) – was the net result the end of the case. Having drawn my attention to [58] and [59] of the judgment in Chartwell, and to various aspects of the partially dissenting judgment of Jackson LJ in Denton, Decadent & Utilise, Miss Brazier submitted that although HHJ Lochrane did not have the benefit of the latter judgment at the time that he made his decision he had, in effect, applied the three stage process given that:
(1) He identified and assessed the seriousness / significance of the failure to attend the Directions Hearing – concluding that, as a result, the court had been unable to manage the possession claim and the Children Act matter in the sequence that he had envisaged and within "any short space of time". As part of that assessment he had been entitled to conclude that there had been no prejudice to the Appellant in consequence – indeed that the outcome appeared to be to the Appellant's advantage.
(2) He identified that the failure to attend had occurred because the court's rationale for listing the two matters was not "terribly" or "entirely" clear on the face of the Order - which had been made in the absence of the parties; and because the Respondent had not understood the purpose of the linked directions – which misunderstanding was "perhaps explicable". He concluded that the Respondent had attempted to alert the court and had obtained the agreement of the other side to vacate the hearing with a view to saving costs, and that no response had been received by the Respondent from the court.
(3) He had properly considered all the circumstances of the case – including factors (a) and (b).
Miss Brazier further submitted that the Grounds of Appeal were, as a whole, misconceived. In particular:
(1) The judge had, in fact, adopted the correct approach.
(2) He had declined to review, under CPR 3.1(7), the legitimacy of his decision to dismiss the claim.
(3) He was entitled to consider as part of "all the circumstances of the case", the Appellant's neighbours (whose position was significantly different to that of the police officers in Durrant, and who the judge was entitled to conclude were at risk of further anti-social behaviour).
(4) In any event, the transcript showed that he had had CPR 3.9(a) and (b) at the forefront of his mind - including the consequences of the issue of fresh proceedings, which included the likelihood of the Appellant raising the issue of abuse of process and the consequent time and expense involved in what would amount to further satellite litigation.
(5) By reference to [62] of the judgment in Chartwell, the judge's conclusion that relief from sanctions could properly be granted was within the ambit of his discretion (which was a wide one given that the sanction was not pre-prescribed) and there is no rule, even in cases involving serious or significant breach lacking good reason, that relief from sanction must be refused.
(6) Whilst lack of prejudice to the other party alone is insufficient to justify the granting of relief from sanctions, the judge was entitled to take it into account not only at the first stage but also as part of all the circumstances of the case at the third stage of his considerations.
(7) No trial date was lost or moved in consequence of the Respondent's failure – whereas the appeal had further delayed the case proceeding to trial.
Miss Brazier also pointed out that the application for relief from sanctions had been made in good time on 6 May 2014.
During the course of her submissions Miss Brazier apologised for the late service of the Respondent's skeleton argument (which lateness, as indicated above, the Appellant had relied upon in argument). It transpired that, albeit that the ultimate responsibility to ensure service in time was the Respondent's, a significant part of the cause was an emergency in Miss Brazier's personal life. I did not seek details during the hearing, and nor did the Appellant. The late service had no effect on the conduct of the proceedings. In any event, I do not hold it against the Respondent.
The Appellant's reply
Ms Blackmore underlined, amongst other things, that:
(1) Whilst Associated Electrical and Decadent were argued to be the only cases at first instance to result in the end of the claim, that would have been the practical effect of the sanction in Chartwell too – and in that case the refusal of the appeal against the grant of relief was based on its particular facts (both sides had been at fault) and, even then, the outcome was said by Laws LJ at [66] to be an unusual one.
(2) Whilst Decadent was relied upon by the Respondent, the circumstances of that case were very different.
(3) In this case the judge specifically found (see his written reasons for refusing permission to appeal) that the default was "not trivial", there was no appeal by the Respondent against that finding, and the Respondent had clearly failed in its duty under CPR1.3 to help the court below.
(4) Durrant had not been overruled or distinguished in Denton, Decadent & Utilise, and it was clear that factor (a) required consideration of other court users but not third parties like the neighbours – whose position should have been considered prior to the imposition of the sanction in the first place.
(5) In any event, the Appellant was not aware of any allegations made by neighbours since the start of 2014.
(6) The Respondent's predicament was entirely the result of its own actions and whilst it may have been a harsh or tough decision to dismiss the claim it had not, given the nature of the breach, been outwith the judge's discretion.
The merits
This case provides a reminder of the advantage of the purpose of court orders (particularly those made in the absence of the parties) being made clear, of the need for parties to comply with court orders (however much they may have misgivings about them) whilst they still apply, and for all the known circumstances to be considered with care when imposing sanctions.
The starting point is that the application for relief was made in good time.
The hearing below on 9 June 2014 took place at a time when Mitchell was recognised to be the leading authority. It is clear from [3] & [38] of the judgment in Denton, Decadent & Utilise that Mitchell was misunderstood and misapplied by some courts, that some judges were approaching applications for relief upon the incorrect basis that, unless a default could be characterised as trivial or there was a good reason for it, they were bound to refuse relief and that was leading to decisions that were manifestly unjust and disproportionate. The purpose of the judgment in Denton, Decadent & Utilise was to provide clarification and amplification in certain respects, and thus a more nuanced approach to relief from sanctions.
Whilst HHJ Lochrane did not have the benefit of the judgment in Denton, Decadent & Utilise, I accept that I must apply it when considering his decision.
The judge clearly proceeded upon the requisite basis that the sanctions had been properly imposed and had complied with the overriding objective. It equally seems to me that he did, in effect, carry out the three stage approach required by Denton, Decadent & Utilise.
As to the first stage, and albeit against the background that the Respondent believed that all that was left to do in the possession claim was to fix the trial date, the Respondent decided not to attend the Directions Hearing on 28 April when it was required to attend, failed to warn the Appellant or the court that it was not going to do so, and did not attend as required. As he made clear in his written reasons for refusing permission to appeal the judge found that the default was "not trivial". The Respondent does not appeal against that finding. Whilst there was no prejudice to the Appellant, whose own case was in some disarray at that time (and who wanted an adjournment), I nevertheless proceed upon the basis that, in the terms of Denton, Decadent & Utilise, this was a serious or significant default – albeit one which was plainly not, because of its particular circumstances, at the top end of the scale.
As to the second stage, during the course of his judgment the judge carefully examined why the default had come about. He accepted that the Directions Order which provided for the linked directions hearings had not necessarily explained "terribly clearly" the court's thinking (albeit that it should have been reasonably clear that there was at least some intention to link the two matters for some reason), and underlined that there had been no application made to vary that order (albeit, I would add, that that was against the background the parties had identified a possible way ahead without the need for such an application). He found that it was apparent that the Respondent did not understand the purpose of the linked directions process, and had attempted to alert the court and to obtain the Appellant's agreement to vacate the hearing with a view to saving costs – which was laudable. He noted that the Appellant did not understand the purpose of the linked directions hearing either, and had some interest in the matter not going ahead on 28 April 2014. The direct cause of the default had been the Respondent's decision, having written to and contacted the court without response, not to send representation "in the somewhat tenuous hope" that all would be well. It was therefore, he concluded, a failure to comply with an order of the court "somewhat deliberately", with the mitigation being limited to the "perhaps explicable misunderstanding of the court's purpose and the fact that the order was made without greater elaboration of the court's purpose and in the absence of the parties themselves at the time". Summarising the position in his written reasons for refusing permission to appeal the judge recorded that the Respondent's default was "a misguided attempt to save costs upon an apparent misunderstanding of an earlier court order which was, on one reading, potentially partially valid" and that "…..there was just about a reasonable excuse…".
The judge was in the best possible position to assess the nature and effect of the Order that he had made of his own motion on 12 February 2014. He was also entitled to conclude that the Respondent did not understand the purpose of the linked directions (albeit that it plainly understood that it was required to attend). Equally, see [29](2) above, I see no necessary inconsistency between the judge's comments in argument and in his ruling, and his ultimate conclusion that the Respondent had "just about a reasonable excuse". It seems to me that that was a conclusion that he was entitled to reach.
Against the background of the judge's finding, in effect, that the failure was serious and significant (albeit plainly not, in my view, at the top end of the scale), and that there was just about a reasonable excuse, the third stage required an evaluation of "all the circumstances of the case so as to enable [the court] to deal justly with the application". It is clear from [12] of his judgment that he did give particular weight to factors (a) and (b) in CPR 3.9. However he was also entitled to take into account all the other circumstances – including the overall position in relation to the Appellant's case, the lack of prejudice to the Appellant, the rights of the alleged victims, and the limited extent to which court time had been lost.
I reject Miss Blackmore's arguments that the judge erred in various respects in his approach to factors (a) and (b), that he gave too much or too little weight to other circumstances, and that he took into account irrelevant considerations.
Whilst it is clear that, unlike factors (a) and (b) none of the other circumstances carried particular weight, it seems to me that, against the background of my findings in relation to stages 1 & 2, and albeit that the judge was aware of a number of the other circumstances when he imposed the sanction in the first place, on the particular facts of this case the combination of all the circumstances was capable of carrying sufficient weight to justify the judge's conclusion, in the exercise of his discretion, that the just outcome of the application was to grant relief on the terms that he did. It must, of course, be remembered that this was the exercise of discretion in the context of a case management decision and that such decisions are not lightly to be interfered with – see e.g. Mannion v Ginty [2012] EWCA Civ 1667 (quoted at [52] in Mitchell).
In the result, and although the balance was a fine one, it seems to me that the judge was entitled, in the exercise of his discretion, to come to the conclusion that he did.
Conclusion
For the reasons set out above, this appeal is dismissed. I will deal with any consequential applications administratively. |
JUDGE RICHARD SEYMOUR QC:
Introduction
This action arises out of another action ("the Original Action") which proceeded in the Cardiff District Registry of this court with the claim number 0CF90132. In the Original Action the claimant was a company called Consortium Hotels & Inns Business Services Ltd. ("Consortium"). There were four defendants. The first two were Mr. Nick Lipczynski and Mr. Mark Satchell, sued as the partners in a firm called, in the Original Action, Independent Healthcare, but actually called IHC. That partnership ("the Partnership") is the first claimant in this action. The third defendant in the Original Action is the second claimant in this action, a company called IHC Ltd. Both the Partnership and IHC Ltd. carried on business as insurance brokers. The fourth defendant in the Original Action was a company called General & Medical Finance Plc ("GMF"), which undertook an insurance business.
The defendant in this action, Amtrust Europe Ltd. ("Amtrust"), carries on business as a provider of after the event insurance ("ATE insurance"). It operates through a managed general agency, Temple Legal Protection Ltd. ("Temple"). Amtrust is the sole principal of Temple, so for practical purposes it is not really necessary to differentiate between Amtrust and Temple.
Amtrust provided ATE insurance to Consortium in the Original Action. Before the trial in the Original Action summary judgment was entered on 4 July 2011 in favour of the Partnership and IHC Ltd. in respect of two alternative claims advanced on behalf of Consortium to which it is convenient to refer in this judgment as "the Secret Commission Claims". It will be necessary to return to the Secret Commission Claims later in this judgment. Also prior to the trial in the Original Action, in fact in about January 2012, Consortium discontinued its claims against GMF. The action continued, however, as between Consortium, the Partnership and IHC Ltd. At the trial in about August 2012 before His Honour Judge Seys Llewellyn Q.C., sitting as a judge of this court in Cardiff, all of the surviving claims of Consortium failed and the action was dismissed as against the Partnership and IHC Ltd. with costs by an order dated 6 December 2012. On 27 February 2013 a default costs certificate was issued in favour of the Partnership and IHC Ltd. that Consortium pay by way of costs the sum of £361,399.98. On 4 March 2013 a winding-up order was made against Consortium. Consortium went into liquidation without paying any part of the costs the subject of the costs certificate dated 27 February 2013.
In this action the Partnership and IHC Ltd. claimed against Amtrust, pursuant to the provisions of Third Parties (Rights Against Insurers) Act 1930 s.1, payment of the amount unexpended of the total amount of cover provided to Consortium under the ATE insurance, a sum of £180,000. The total amount of the cover eventually provided was £190,000, but £10,000 had already been paid to the Partnership and IHC Ltd. in circumstances to which I shall come.
Third Parties (Rights Against Insurers) Act 1930 s.1(1), as amended, is in these terms:-
"Where under any contract of insurance a person (hereinafter referred to as the insured) is insured against liabilities to third parties which he may incur, then -
(a) in the event of the insured becoming bankrupt or making a composition or arrangement with his creditors; or
(b) in the case of the insured being a company, in the event of a winding-up order being made, or a resolution for a voluntary winding-up being passed, with respect to the company, or of a receiver or manager of the company's business or undertaking being duly appointed, or of possession being taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property comprised in or subject to the charge or of a voluntary arrangement proposed for the purposes of Part 1 of the Insolvency Act 1986 being approved under that Part;
if, either before or after that event, any such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything in any Act or rule of law to the contrary, be transferred to and vest in the third party to whom the liability was so incurred."
The effect of the provisions of Third Parties (Rights Against Insurers) Act 1930 s.1(1) is to substitute for the original insured as contracting party with the insurer the party in respect of whom liability covered by the contract of insurance was incurred. That is important. The entitlement of the third party under the Act is to enforce, as a matter of contract against the insurer, the contractual rights of the original insured. The third party does not acquire some sort of statutory right against the insurer independent of the contract of insurance. Consequently it is open to an insurer said to be liable to a third party pursuant to the provisions of Third Parties (Rights Against Insurers) Act 1930 s.1(1) to raise by way of defence any ground which would have been a good ground for refusing indemnity to the original insured.
In the circumstances of the present case it was common ground at the trial before me that in fact Amtrust had been entitled to repudiate the contract of insurance made between itself and Consortium by reason of a serious fraudulent misrepresentation, which also amounted to a breach of the duty of the utmost good faith to disclose material facts, failure to comply with a condition precedent to the liability of Amtrust, breach of condition 3 of the policy of insurance in question and/or a breach of warranty. However, it was contended on behalf of the Partnership and IHC Ltd. that Amtrust was estopped from relying upon that right by reason of matters to which I shall come.
There was no dispute between Mr. Carl Troman, who appeared on behalf of the Partnership and IHC Ltd. at the trial before me, and Mr. Miles Harris, who appeared on behalf of Amtrust, as to the law applicable to the issue of estoppel in relation to waiver by estoppel by an insurer. Again, the basic facts relevant to the question whether Amtrust was estopped from repudiating liability under the contract of insurance with Consortium were not in dispute. In the result it is convenient next to consider the law which needs to be applied in order to reach a conclusion in this action, and then to turn to the facts to which that law should be applied.
The law
In HIH Casualty and General Insurance Ltd. v. Axa Corporate Solutions [2003] Lloyd's Rep IR 1 the only substantive judgment in the Court of Appeal was that of Tuckey LJ. At pages 7 and 8 of the report he said this:-
"19. It is common ground that in order to establish waiver by estoppel HIH had to show:
(a) a clear and unequivocal representation by Axa that it would not insist on its right to treat the reinsurance cover as discharged because of the reduction in the number of films which were made; and
(b) such reliance by HIH on this representation as to make it inequitable for Axa to go back on it.
HIH also had to establish that it had similarly waived the breach of warranty by its insured, but the Judge did not make any express finding about this and although this point is the subject of a Respondents [sic] notice, I do not think it is necessary to consider it further for the purpose of deciding this appeal.
20. Mr. Flaux submits that the Judge effectively held that you could not have an estoppel of this kind unless the representor knew, not only the relevant facts, but also what his legal rights arising from those facts were. This, he submits, led the Judge wrongly to conclude that Axa had not made the required representation because it had not made a representation that it was prepared to forego its legal rights and that HIH's reliance was not of the kind required because it had not relied on any such representation. Knowledge by Axa or HIH that the reduction in the number of films was a breach of warranty was not required. Axa's representation was to be implied from their conduct in continuing to act as if they were on risk after they knew of the reduction in the number of films. The only right which this reduction gave Axa was to treat the cover as discharged. By continuing to treat it as on foot without protest or reservation of rights Axa acted inconsistently with this right, alternatively any right which it might have had as a result of the reduction. In these circumstances the representation made by Axa was clear and unequivocal and was not derived only from silence or failure to take the point because Axa continued to be actively involved in this cover after they knew of the reduction.
21. There is no dispute between the parties about the relevance of knowledge to waiver by estoppel and there was apparently no such dispute before the Judge. Mr. Hamblen QC for Axa does not and did not submit that the representor has to have knowledge of the legal right upon which he will not insist. This is clear from the passages in The Kanchenjunga and Superhulls cited by the Judge. Mr. Hamblen submits however that the representation must carry with it some apparent awareness of the right upon which the representor will not insist. Mr. Flaux did not dispute this and I do not think he could have done so because otherwise the representation would lack the necessary character to found the estoppel. As the Judge put it "the essence of the plea must go to the willingness of the representor to forego its rights". Unless the representation carries with it some apparent awareness of rights it goes nowhere: the representee will not understand the representation to mean that the representor is not going to insist upon his rights because he has said or done nothing to suggest that he has any.
22. What I have said illustrates the difficulty in establishing this type of estoppel when neither party is aware of the right which is to be foregone. A representor who is unaware that he has rights is unlikely to make a representation which carries with it some apparent awareness that he has rights. Conversely a representee who is not aware that the representor has a particular right as [sic] unlikely to understand the representation to mean that the representor is not going to insist on that right or abandon any rights he might have unless he expressly says so.
23. It follows I think that knowledge, or rather lack of it in this case is important when one comes to consider whether the estoppel has been established. Nothing in the authorities or the texts to which we have been referred casts doubt on this conclusion."
In the later case of Kosmar Villa Holidays Plc v. Trustees of Syndicate 1243 [2008] Lloyd's Rep IR 489 the only substantive judgment in the Court of Appeal was that of Rix LJ. At paragraph 38 of his judgment, page 499 of the report, he said:-
"In sum, therefore, election is the exercise of a right to choose between inconsistent remedies. It generally requires knowledge of the facts giving rise to the choice on the part of the party electing, and knowledge of the choice having been made on the part of the other party. Those are the conditions which make the doctrine mutually fair. It typically arises where the parties to a contract have to know where they stand. Thus the choice has either to be communicated unequivocally by the party electing to the other party or else the objective circumstances have to be such that the effluxion of time by itself constitutes that communication. Since the election is the choice of the party electing, it is his conduct which is decisive. Once made the election is final and irrevocable. Estoppel, however, is a promise, supported not by consideration but by reliance. It is a promise not to rely upon a defence … or a right…. It requires a representation, in words or conduct, which must be unequivocal and must have been relied upon in circumstances where it would be inequitable for the promise to be withdrawn. The need for such unfairness probably means that the reliance of the representee has to constitute a detriment, but even the detriment has, I would think, to be such as to make it inequitable for the promise to be withdrawn. For these reasons, the estoppel may not be irrevocable, but may be suspensory only. An unequivocal representation without the necessary reliance, and reliance without the necessary unequivocal representation, are each insufficient. It follows that, as concepts each in their own way designed to hold parties to fair dealings with one another, waiver by estoppel is the more flexible doctrine."
At paragraph 12-024 the authors of Snell's Equity, 33rd edition, express these views about estoppel, which it was common ground before me are correct:-
"The promise, or encouragement must be "clear and unequivocal" in the sense that, objectively understood, it makes apparent to B that A's right will not be enforced. If A's conduct is instead capable of a number of different reasonable interpretations, at least one of which is inconsistent with A's right not being enforced, no promissory estoppel may arise. If, for example, B's claim is that he or she was encouraged to believe that a right would be suspended, there must be certainty as to the specific right of A's in question and as to the period of the supposed suspension. A must have encouraged B to believe that A's right would not be enforced: if A's conduct can instead be reasonably understood as involving only advice, a suggestion or even a threat that A may act in a particular way, there are no grounds for a promissory estoppel.
As the effect of a promissory estoppel is to prevent A's enjoying the full benefit of a particular right, and as such an estoppel can arise without any contractual consideration's [sic] being provided by B, a court will naturally be cautious in ascertaining whether A did give the required clear and unequivocal encouragement to B. So, whilst it is clear that a promissory estoppel may arise even in the absence of an express statement by A, a court will require clear evidence before finding that A impliedly encouraged B. If, for example, it would not have objectively appeared to B that A was even aware of the right in question, encouragement is likely to be implied from A's course of conduct only if A created the impression that A was willing to "abandon any rights that he might enjoy which were inconsistent with [A's] course of conduct…."
What I think one can distil from these passages is that, although the relevant representation giving rise to a waiver by estoppel may be either in words or conduct, it must result in a clear and unequivocal message from the insurer to the insured that the insurer will not exercise the relevant rights under the contract of insurance, and the insured must rely on that message in a manner making it inequitable for the insurer to go back on it. The insurer must know the facts giving rise to the relevant right or rights under the contract of insurance, but need not necessarily know that those facts give rise to the relevant rights. Nonetheless, to be effective the relevant message must show an awareness of the relevant rights and an intention not to rely upon them. This, as Tuckey LJ pointed out, is a good trick, for it is not to be expected that an insurer who is unaware of his rights will give a sufficiently clear and unequivocal indication of awareness of his rights and his intention not to rely upon them to found an estoppel. Equally, it is improbable that an insured, who is unaware of the right of the insurer said to have been the subject of a waiver, will act in reliance upon the supposed waiver. Yet the concept of a representation which "must carry with it some apparent awareness of the right upon which the representor will not insist" is only relevant in a case in which the representor did not actually appreciate that he had a particular right. If he actually appreciated that he had such right, the issue is not "apparent awareness" but rather whether what was said or done amounted to an election to affirm the contract of insurance or to waive a breach.
As it seems to me, it is impossible to found a waiver by estoppel without each of the insurer and the insured being aware, at very least, of the facts which give rise to some relevant right of the insurer. There can be no estoppel unless both parties share at least that level of knowledge. No doubt the communications between the parties and their conduct towards each other need to be considered in the context of what each side knew the other knew, but the essence of the estoppel is a communication between the parties. Without a communication there can be no estoppel.
If there is a communication, as I have said, it is necessary to consider it in the context of what each side knew the other knew. However, the search is for actual knowledge, not for information or assessments which might have been made had one or other of the parties been more diligent in undertaking research, or more rigorous in evaluating information in his possession. One is not concerned with what a reasonable person in the position of one or other of the parties would have known, or might have discovered, or what such a person might have concluded from the information available to him.
The undisputed facts
The application to Amtrust for ATE insurance was made by Consortium on about 28 June 2010 by submission to Temple of a proposal form ("the Proposal"). The Original Action had actually been commenced by a claim form issued on 11 March 2010. Prior to the commencement of the Original Action Consortium had obtained an Advice ("the Advice") of Counsel, Mr. Ben Harding, dated 5 March 2010. A copy of the Advice was submitted to Temple along with the Proposal. The Advice included these observations of Mr. Harding:-
"25. There followed further correspondence between the Claimant [that is, Consortium], GMF and IHC. Of note in that correspondence were the following points:
a. In a letter from the Claimant to IHC dated 14th February 2006, Keith Hardwicke of the Claimant informs IHC that "No separate introducer or commission arrangement has been set up". According to my instructions the Claimant will say it did not know that IHC had been paid a commission until it received GMF's letter dated 22nd February 2006, but the reference to "commission arrangement" in this letter at least raises a question whether the Claimant was aware that IHC might be paid a commission. …
105. The Claimant will say in this case that it did not know a commission would be paid until after the event, in February 2006. I see no reason to doubt that, subject only to a few points:
a. I have raised above whether reference by the Claimant in its letter dated 14th February 2006 to a "commission arrangement" suggests that it might have been aware of such an arrangement in place in respect of IHC. This should be clarified.
b. I do not know whether the Claimant paid IHC some form of retainer for its services. If it did not, it would be arguable that it was unrealistic for the Claimant to suppose that IHC would not be paid for its services by commission.
c. I also do not know if a commission was paid to IHC by other insurers, and if so whether the Claimant knew this. If it did, it would again arguably be unrealistic for the Claimant to suppose that the same would not be the case again.
d. In this regard, I note that the Court of Appeal in Hurstanger held that it would be relevant whether there was a usage or custom of a particular market (para. 36, citing Bowstead & Reynolds on Agency 18th Edition). IHC may seek to argue that it was commonplace in the healthcare insurance market, and if so it will be necessary to adduce evidence to the contrary."
On the face of the Advice, at any rate, the instructions of Mr. Harding were clear that Consortium had not been aware that IHC (which in the Advice meant the Partnership) was to be paid a commission by GMF in relation to insurance written through the Partnership with GMF on behalf of Consortium.
Particulars of Claim in the Original Action were served on 1 July 2010. However, a copy of the Particulars of Claim was not provided to Temple, for the benefit of Amtrust, until 12 August 2011. The Particulars of Claim included these allegations:-
"45. GMF in a letter dated 22nd February 2006 notified CHIBS [that is, Consortium] that it had paid IHC [meaning the Partnership] a total of £45,571.71 between 1st April 2004 and 31st December 2005 by way of commission on the monthly premiums paid by CHIBS.
46. CHIBS did not know until it received the said letter that GMF had paid or IHC had received a commission in relation to the GMF Policy.
47. IHC were in breach of the fiduciary duty set out above by receiving commission payments from GMF without disclosing to CHIBS that it would be paid commission.
48. In the circumstances CHIBS is entitled to the commission received by IHC, in the sum of £45,571.71."
Those allegations were the first of the alternative Secret Commission Claims. They depended critically upon the proposition that Consortium was unaware until it received the letter dated 22 February 2006 that the Partnership was to be paid commission by GMF in respect of the policy written by GMF through the agency of the Partnership. However, there was a claim alternative to the first of the Secret Commission Claims in paragraph 51 of the Particulars of Claim:-
"If in the alternative it is held that CHIBS did have notice that a commission would be paid, CHIBS avers that IHC failed adequately to disclose the amount of the commission so as to enable CHIBS to give its genuine and informed consent to IHC receiving a commission when to do so was prima facie in breach of the fiduciary duty owed to CHIBS."
The Proposal included this declaration ("the Declaration"), signed on behalf of Consortium by Mr. Keith Hardwicke on 2 July 2010:-
"I declare that the information submitted in this form and accompanying enclosures is true to the best of my knowledge and belief. I agree that this proposal will form the basis of the contract between the insured and [insurer]"
It was common ground that the effect of the Declaration was that Consortium asserted to Amtrust that the instructions which Mr. Harding recorded at paragraphs 25 and 105 of the Advice were correct.
In a Defence in the Original Action served on behalf of the Partnership and IHC Ltd., but of which a copy was not supplied to Temple or to Amtrust until 1 August 2011, the answers of the Partnership and IHC Ltd. to the allegations set out in paragraphs 45 to 48 inclusive, and in paragraph 51, of the Particulars of Claim were pleaded as follows:-
"59. Save that it is admitted that IHC received commission, the Claimant is required to prove Paragraph 45.
60. Paragraphs 46 and 47 denied. Paragraphs 9 and 31a above are repeated. Further, the Claimant will be required to prove how it thought IHC was being remunerated for acting as its broker. At no stage did the Claimant pay any fees to IHC in respect of the policies complained about. The Claimant had a separate and personal fee arrangement with Mr. Kelly in respect of services that he carried out personally. The Claimant cannot seriously have thought that IHC was acting as its broker for no remuneration.
61. As to Paragraphs 48 to 50 and 52, it is denied that the Claimant is entitled to commission, equitable interest, or any other interest. The Claimant was well aware that IHC earned commission.
62. As to Paragraph 51:
a. It is admitted that IHC did not inform the Claimant the amount of the commission that it earned. The Claimant was aware that commission was earned but never requested to know the amount;
b. It is denied that IHC was under an obligation to disclose the amount;
c. It is denied that IHC has acted in breach of fiduciary duty and/or owes any duty to repay commission."
The only plea in paragraph 9 of the Defence, incorporated by reference in paragraph 60, which was relevant for present purposes was, "However the Claimant was well aware that under the Norwich Union and GMF Schemes IHC earned a commission". At paragraph 27 of the Particulars of Claim there was reference to a document called "a "Guide to your Health Scheme" ("the Guide")". It was pleaded in the same paragraph that, "CHIBS received the same in May 2004". The document in question was mentioned, with the same nomenclature, in paragraph 31a of the Defence:-
"The Guide and/or SLA also contained the following provisions:
a. "This Guide contains details you may need as a member of a General & Medical Healthcare Scheme. We recommend that you read through and satisfy yourself that you understand the terms of your chosen cover";
b. "The terms and conditions of your membership may be changed from time to time";
c. "The Introducer will usually receive a commission payment from us for your introduction"."
The answers pleaded in the Defence to the Secret Commission Claims were, consequently: first, that it was obvious to Consortium that the Partnership would receive commission in respect of the policy written by GMF, because otherwise how else would the Partnership be remunerated for its services in arranging the policy; and, second, because there was a reference in the Guide received in May 2004 that the introducer of a policy, "will usually receive a commission payment from us for your introduction", Consortium had been told that a commission was likely to have been paid.
On 2 July 2010 Temple, on behalf of Amtrust, issued a document described as a "certificate of insurance" in favour of Consortium, but which in fact seems to have been intended as the policy governing the ATE insurance which Amtrust agreed to provide. The limit of indemnity was £75,000. The document, to which it is convenient to refer in this judgment as "the Policy", included as condition 3:-
"Duties of the Insured and the Appointed Legal Representative
The Insured and the Appointed Legal Representative must conduct the Legal Action in a reasonable manner in order to minimise costs.
The Insured agrees:
a) to give full and prompt co-operation to the Appointed Legal Representative;
b) to provide to the Appointed Legal Representative all material information relating to the Legal Action, including a full and truthful account of the Insured's affairs and all relevant documentary or other evidence in the Insured's possession;
c) to provide obtain or execute all documents and attend meetings, medical examinations, conferences or hearings as requested by the Appointed Legal Representative or by Temple;
d) to act in accordance with the advice of the Appointed Legal Representative;
e) to comply with any order made by the Court;
f) that the Legal Action will not be settled or discontinued in circumstances which could give rise to a Claim under this Certificate without the prior written consent of Temple."
By an application dated 8 April 2011, but issued on 11 April 2011, in the Original Action the Partnership and IHC Ltd. sought summary judgment against Consortium in relation to the Secret Commission Claims. Amtrust was not told about the application until after it had been heard. Temple was told merely of the fact of the making of the application and that it was expected to be defeated. The application was heard on 4 July 2011 by District Judge Carson sitting in the Cardiff District Registry of this court. The application succeeded. A copy of an unapproved version of the judgment of District Judge Carson was put before me, but no copy was provided to either Temple or Amtrust in 2011. The judgment included these observations:-
"15. It is a matter where the particulars of claim, paragraphs 31 and 32, make it clear that it is the claimant's case that there were two separate contracts. I say that because there seems to be suggestion that it was one continuous contract policy from 1st April 2005, but on the claimant's own case that would make it clear otherwise. It is therefore on the claimant's own case that the claimant knew of commission being paid prior to the inception of the second contract even if, of course, the amount was not known and even if it is a matter of dispute as to whether it was known that commission was paid prior to the inception of the first policy, first contract, of 1st April 2005. But on any view of the matter on the claimant's own case the position was known during a very large part of the material time, that material time being April 2005 for a two-year period from 1st April of that year.
…
24. Is there anything which has been put before the court to indicate these defendants owed a special obligation to this claimant to disclose the amount of commission? It is a matter of agreement that the third defendant did not tell the claimant of the amount of commission. That is a matter ultimately they found out from the fourth defendant. However, the position then in being with the GISC Commercial Code Insurance Conduct of Business Rules did not require disclosure of the amounts unless a request was made reflecting the common law position. Here there is no evidence of any request being made. The claimant knew, I am satisfied, on the basis of that which I have said, including the previous dealings, including sharing, that the third defendant would earn commission. The reality of the matter is that this commercial defendant was not going to work free of charge for the claimant. There would be payment for the work done. That would be from commission.
25. There is on that basis, therefore, I am satisfied, a clearly established position that this claimant in reality would know or have known that insurance brokers/intermediaries obtain commission from policies which they are ultimately able to arrange and place business upon.
…
30. In so far therefore as that is concerned, the matters which have been put before me and which I have referred to at some length in this judgment are such that I am quite satisfied that this is a part of the claimant's claim within paragraphs 45 to 52 inclusive of the particulars of claim where the claimant has no real prospect of succeeding on the issue within those and I can find no other compelling reason why that issue should be disposed of at trial."
Following that decision the solicitors acting on behalf of Consortium in the Original Action, Eversheds LLP, wrote a letter dated 8 July 2011 to Temple enclosing a claim form ("the Claim Form") seeking a payment of an amount of £10,000 to enable the payment on account of costs which District Judge Carson had ordered Consortium to make to be made. The Claim Form was completed by Eversheds LLP. It referred to an "attached attendance note of the Summary Judgment hearing dated 4 July 2011", but it was accepted before me that the evidence put before me did not justify the conclusion that a copy of the relevant attendance note had been attached. What was attached to, or possibly more accurately described as incorporated in, the Claim Form was a document entitled "Answer to Question Six" ("the Attachment"). After setting out what was question 6 in the Claim Form the Attachment went on:-
"The Claimant is pursuing a claim for breach of contract, negligence and breach of fiduciary duty for receipt of a secret commission against the First to Third Defendants. The Claimant is also pursuing a claim for breach of contract and breach of fiduciary duty for payment of a secret commission against the Fourth Defendant.
The First to Third Defendants made an application for Summary Judgment against the Claimant in relation to its claim for breach of fiduciary duty i.e. receipt of a Secret Commission. This application related to the Claimant's claim that the Fourth Defendant paid to the First to Third Defendants commission during the lifetime of the Claimant's PHI scheme with the Fourth Defendant, without notifying the Claimant of the fact or amount of commission.
The Claimant pursued this claim on the basis of Counsel's advice which has been previously provided to Temple Legal Protection Limited. The enclosed email from Ben Harding to Trish D'Souza of Eversheds LLP dated 14 April 2011 [in fact 2010] indicates that Counsel considered that the secret commission claim against either IHC (the First to Third Defendants) or GMF (the Fourth Defendant) had very good prospects of success at 65%.
In its application for Summary Judgment dated 8 April 2011, the First to Third Defendants argued that notice of the fact that commission would be received by them under the Fourth Defendant's PHI scheme was provided upon the Claimant's receipt of the Guide to the PHI scheme. The First to Third Defendants also argued that they were under no obligation to reveal the amount of commission received and that the only case law in this area related to retail customers and not commercial customers.
The Judgment hearing in relation to the First to Third Defendants' application for summary judgment was heard on 4 July 2011.
In their submissions the First to Third Defendants relied on inter alia that fact that the Claimant was a company that had been involved in the provision of insurance to its members for 3 years before the policy complained of; that the Claimant's director had been involved in providing similar schemes since 1996; that the Claimant was aware or should have been aware that commission would be paid to the First to Third Defendants; and that although it was conceded that the Claimant didn't know about the amount of the commission, this was not relevant as the leading case (Wilson & another v Hurstanger [2007] EWCA Civ 299 )) does not apply to commercial customers.
The Court heard counsel for both parties and concluded that neither the factual dispute nor the law was sufficiently complex to prevent an order for summary judgment in favour of the 1st to 3rd Defendants. Crucially, it concluded that the existing case law was distinguished as it related to retail customers and not commercial customers.
Accordingly the Court made the following orders at the Judgment hearing on 4 July 2011:
1. The Claimant's claim for secret commission has no real prospect of success and there is no compelling reason why its claim for secret commission, set out at paragraphs 45 to 52 in the particulars of claim, should be disposed of at trial.
2. The First to Third Defendants' application for summary judgment dated 8 April 2011 was granted.
3. That costs of the application be subject to detailed assessment (i.e. costs before 8 April 2011 on the fiduciary duty claim).
4. That the costs relating to the claim upon which judgment had been given, are to be determined, by way of detailed assessment, at the conclusion of the trial or by further order of the Court.
5. The Claimant to pay to the First to Third Defendants the sum of £10,000 on account of such costs by way of an interim payment within 21 days. Such payment is due on or before 25 July 2011.
Those instructing have conferred with counsel about the merits of an appeal. Counsel has verbally advised against an appeal on the basis that, while there are factual inaccuracies in the judgment, the core basis of the decision (i.e. that the duty to obtain informed consent of the Claimant to a commission payment was a claim in equity available to retail and not "sophisticated" commercial customers) does not stand a good prospect of success - not in excess of 50% and given the value of this aspect of the claim (£45,000) it is not considered commercially viable to pursue an appeal and face the prospect of for [sic] their costs when the chances are not above 50%.
No evidence emerged that was not disclosed previously in accordance with the directions given by the Court. There was an e-mail between the first and third defendants that had a positive impact on the case overall from the Claimant's perspective. The decision focussed on whether a broker has the same duties to disclose commission details to a commercial customer as it does to a retail customer. No evidence was misstated or suppressed, the application was by case stated. No witness evidence was given. The insured was advised to oppose the application and took proper advice, in our opinion.
The Claimant is not prevented, as a result of the Court's decision on 4 July 2011 from pursuing its claim for breach of contract and negligence against the First to Third Defendants, or its claim for breach of contract against the Fourth Defendant. The Claimant intends to pursue the above claims to trial which has currently been listed for the first available date after 12 August 2011.
We would be grateful for confirmation that the Insured's claim under Certificate number:Temple/Ever/102009/4/JXR/WYD/PD-2 for £10,000 to be paid the First to Third Defendants on or before 25 July 2011 has been approved and notification of when payment has been made."
In response to the Claim Form Temple wrote a letter dated 13 July 2011 to Mr. Wayne Davies of Eversheds LLP in which it said:-
"Thank you for your letter of 8 July 2011 enclosing claim correspondence.
We enclose herewith our cheque in the sum of £10,000 made payable to Browne Jacobson LLP [solicitors acting for the Partnership and IHC Ltd. in the Original Action] as requested as an interim payment of your opponents [sic] costs.
In the event the claim is successful there is a set off clause which is applied to all monies recovered in the action, ie if you are successful, we must be repaid any interim outlay."
Not long after the hearing of the summary judgment application the question arose of whether Consortium should give security for the costs of the Partnership and IHC Ltd. in the Original Action. In that context Amtrust was asked to increase the limit of indemnity in the Policy from £75,000. In response to that request Mr. Steve Ruffle of Temple sent an e-mail to Mr. Davies of Eversheds LLP dated 18 August 2011 in which he said:-
"Further to your previous correspondence with Michael Lent we write to confirm that we are prepared to increase the Limit of Indemnity provided by
Certificate Number Temple/Ever/102009/4/JXR/WYD/PD-2 to £190,000. To increase your client's cover to this amount the premiums would be increased to the following:-
[The increases were then set out]
This offer of an increase will be open for the next 14 days. If the terms are acceptable to your client, please could you confirm by responding to this email whereupon we will issue an endorsement to put the increase into place."
The offer was accepted by Mr. Davies on behalf of Consortium in an e-mail sent to Mr. Ruffle on 31 August 2011. The necessary endorsement to the Policy was forwarded to Mr. Davies by Mr. Lent of Temple under cover of a letter dated 6 September 2011, in which Mr. Lent wrote:-
"Further to our recent correspondence, I now enclose an endorsement to increase the Limit of Indemnity provided by Certificate Number: Temple/Ever/102009/4/JXR/WYD/PD 2 to £190,000.00. You will note that the premiums have also been increased as agreed.
Please keep us advised of any further developments in accordance with the terms of the policy.
We look forward to hearing from you in due course."
As I have already noted, the Original Action went to trial before His Honour Judge Seys Llewellyn Q.C. in 2012. The learned judge handed down a judgment dated 9 August 2012. It appears that, at the trial, Mr. Hardwicke of Consortium was cross-examined as to credit in relation to the facts underlying the Secret Commission Claims, for in the course of his judgment the learned judge dealt with the credibility of Mr. Hardwicke, and said this, at paragraph 35(v):-
"In these proceedings, the Claimant brought a claim against the Defendant alleging that it did not know that there were commission payments or the amount of the commission. The Statement of Case was that the Claimant did not know until it received a letter dated 22nd February 2006 that GMF had paid or the Defendant had received a commission. On Day 1, in cross examination, Mr. Hardwicke admitted explicitly that he thought that the Defendants were being paid by the introduced insurance company, "being paid commission", and that this is what he thought. Later he first tried to qualify that ("I didn't know they were being paid a commission. It could have been a fee, it could have been anything"); and he then he [sic] tried to resile further. The truth is that on 18th January 2006 the new brokers recorded on a form that IHC received commission; Mr. Hardwicke was constrained to admit in cross-examination that this information must have come from him. He was shown a 2002 statement from the Defendant expressly recording, "Commission payable …. 25%" (Bundle page 40). After significant pauses, and initial denial that he would see what was placed on file, he conceded that a sharing arrangement was set up by Simon Kelly, and that he was aware a fee was being paid "in which we participated". In contrast to the pleaded case (that neither Mr. Hardwicke nor anyone else was aware of the commission arrangement), he then sought to blame his legal advisers for bringing a claim in respect of secret commission, or not knowing the amount of the commission. On 4th July 2011 District Judge Carson gave Summary Judgment against the Claimant dismissing its commission claim. Having seen and observed Mr. Hardwicke I am satisfied that he was pursuing a claim which was inconsistent with what he knew to be the truth and which he must have known was unsustainable."
Having been made aware of those findings, on 15 November 2012 Amtrust communicated its decision not to hold covered Consortium in respect of the costs of the Original Action.
The case for the claimants in this action
A convenient summary of the case for the Partnership and IHC Ltd. in this action was set out in the written skeleton argument of Mr. Troman:-
"15. The Defendant made two clear and unequivocal representations that it would not refuse to indemnify Consortium against its liability for the Claimants' costs. The first was when it paid £10,000 pursuant to the Policy towards the costs order made in the Underlying Proceedings [what I have called the Original Action] against Consortium in favour of the Claimants. … The second was when it increased the limit of indemnity under the Policy to £190,000. … Those acts were both fundamentally inconsistent with the Defendant exercising any right to decline to provide an indemnity under the Policy
16. Those representations also carried with them some awareness on the part of the Defendant of its rights. That apparent awareness stemmed from what the Defendant knew by the time it made those representations. In particular:
a. The Defendant knew from Consortium's insurance proposal and the particulars of its claim against the Claimants that Consortium's case was that it was entitled to claim from the Claimants the commission received by the Claimants on the basis that, as a matter of fact, Consortium (through Mr. Hardwicke) did not know the Claimants had received commission until February 2006 …
b. The Defendant knew from the Claimants' defence in the Underlying Proceedings that the Claimants expressly denied that, as a matter of fact, Consortium did not know the Claimants had received commission until February 2006 … Indeed, the Defendant could see from that defence that the Claimants made the powerful points that:
i. Consortium paid the Claimants nothing so must have known the Claimants were receiving commission in consideration of their services …
ii. Consortium had received documents indicating the Claimants were receiving a commission …
c. The Defendant knew from Evershed's report to it that Consortium's claim for secret commission had been summarily dismissed … Thus the Defendant knew that a Court had concluded that Consortium had no real prospect of establishing that it did not know the Claimants had received commission until February 2006. That was not a matter about which Mr. Hardwicke could have been mistaken. He either knew commission was being received by the Claimants or he did not. Thus the Defendant knew from the summary failure of the secret commission claim that Consortium (through Mr. Hardwicke) had pursued a claim against the Claimants for commission which was inconsistent with what it knew to be the truth and which it knew was unsustainable.
Reliance
17. There were positive acts of reliance showing some significance was attached to the Defendant's representations and they were acted upon such that it would be inequitable for the Defendant to now resile from them. In particular:
a. Consortium pursued the remainder of its claim against the Claimants to trial exposing itself to the risk that, if those remaining claims failed, it would be ordered to pay the costs and disbursements of the Claimants, on the basis that it would be indemnified by the Defendant.
b. The Claimants did not pursue to a hearing their application for security for their costs and Consortium agreed to pay the Claimants' costs of that application, on the basis that they would be indemnified by the Defendant…."
Witness evidence
No witness evidence of any sort was adduced at the trial before me on behalf of the Partnership or IHC Ltd. I did not hear any evidence from Mr. Hardwicke or from anyone else associated with Consortium in the period 2010 to 2012.
On behalf of Amtrust Mr. George Beevor, claims manager of Temple, was called to give evidence and was cross-examined. In addition, I was asked to consider a witness statement prepared by Mr. Michael Lent, who was not called to give live evidence, and so was not cross-examined. With all respect to these gentlemen, it has to be said that all one learned from their evidence which was relevant to any issue in this action was that neither Temple nor Amtrust actually appreciated, at the time of the making of the interim payment in July 2011, or later at the time of the increase in the limit of indemnity under the Policy, that Amtrust was entitled to avoid cover under the Policy as a result of the matters recorded in paragraph 35(v) of the judgment of His Honour Judge Seys Llewellyn Q.C., or for any other reason.
Consideration and conclusions
I have to say that the case for the Partnership and IHC Ltd. in this action seemed to me to be pure Alice in Wonderland.
The case seemed to rely simply upon the fact of making an interim payment, rather than upon anything said at the time that was done, and similarly upon the fact of increasing the limit of indemnity, rather than anything said at that time. Everything depended not upon anything actually said, but, so Mr. Troman submitted, upon what each of the acts identified, treated as a representation, carried with it as "some apparent awareness of the right upon which the representor will not insist". In my judgment the necessary "apparent awareness" must appear within what is said to be the representation. However, the submissions of Mr. Troman seemed to come very close to contending that the "apparent awareness" could be found in background circumstances from which the representor ought to have drawn conclusions, without being implicit in what was alleged to be the representation. The argument was along these lines. It was obvious from the making of the interim payment and from the increase in the limit of indemnity that Amtrust was, on each of those occasions, treating the Policy as in force and giving rights to Consortium. That I accept. However, Mr. Troman went on, in the light of the Attachment Amtrust knew, at the time of making the interim payment, and at the time of agreeing to increase the limit of indemnity, that the Secret Commission Claims had been dismissed on the application for summary judgment. That I also accept. Mr. Troman then submitted that it must have been apparent to Amtrust that the giving of summary judgment was on the basis that there was no reasonable prospect of success in the Secret Commission Claims and there was no other compelling reason for a trial on those claims. I accept that also, because it was explained in the Attachment. Had that not been explained in the Attachment I am not sure that it should be assumed that an insurer, rather than a lawyer, should be aware of the conditions laid down in Civil Procedure Rules Part 24.2 as needing to be satisfied before summary judgment could be given. Where Mr. Troman's submissions seemed to depart from reality was at the next stage, for he contended that anyone who knew, as Amtrust and Temple did, that Consortium's case in relation to the Secret Commission Claims, was based on the contention that it had not known before receipt of the letter dated 22 February 2006 that the Partnership and/or IHC Ltd. was receiving a commission from GMF, must have concluded from the grant of summary judgment that Mr. Hardwicke had lied when saying in the Declaration that what were recorded in the Advice as his instructions was true. That does not follow at all. The case for the Partnership and IHC Ltd. in the Original Action was put no higher than that, as an experienced commercial party, it must have been obvious to Consortium that the Partnership and/or IHC Ltd. would be remunerated by a commission from GMF for arranging the insurance between Consortium and GMF, and that in fact an indication that that was the position had been given in the Guide (actually at page 39 of a document which was no doubt a riveting read for an insomniac). It was enough to defeat the Secret Commission Claims that Consortium had been given information indicating that a commission would be paid, whether or not it read that information, or, if it had read it, whether or not it remembered that it had been given that information. It by no means followed from the success of the summary judgment application that Mr. Hardwicke had lied. If it had been suggested at the hearing of the summary judgment application that Mr. Hardwicke had simply lied on the point, that exposed the applicant Partnership and IHC Ltd. to the risk that District Judge Carson might have concluded that such assault upon the veracity and reputation of Mr. Hardwicke provided a compelling reason why there should be a trial of the Secret Commission Claims. Consequently not only do I accept the evidence adduced on behalf of Amtrust that in fact it did not realise that the giving of summary judgment on the Secret Commission Claims meant that Mr. Hardwicke must have lied, but the mere fact of the giving of summary judgment did not, in my judgment, justify any such conclusion.
It is important to recognise that, at the date of the agreement to the making of the interim payment of £10,000, neither Temple nor Amtrust had been provided with either the Particulars of Claim or the Defence in the Original Action. They were thus not in a position to evaluate the allegations in those statements of case. The statements of case were provided before the decision to increase the limit of indemnity in the Policy, but, by the time they were provided, the allegations concerning the Secret Commission Claims were only of academic interest, as summary judgment had been given on those claims. Anyone who, nonetheless, did look at the relevant allegations and answers must have noticed that, while it was plainly alleged on behalf of Consortium that it lacked knowledge at the material time of the commissions, there were two separate points raised in answer, only one of which asserted that the information had been provided in a written document, and that, in respect of that point, it was not asserted that actually Consortium knew perfectly well what the document said, merely that the document had been provided.
However, the issue whether Amtrust did realise, or should have realised, in the light of the success of the summary judgment application, that it had good grounds for avoiding the Policy on the grounds of fraudulent misrepresentation, was but a step on the way to considering whether, by making the interim payment and/or agreeing to the increase in the limit of indemnity, Amtrust clearly and unequivocally made a representation "which carried with it some apparent awareness of the right upon which the representor will not insist", namely a right to avoid the Policy. It was plain, in my judgment, that neither representation carried with it any such "apparent awareness". Each actual representation was made in ignorance of the untruthfulness of Mr. Hardwicke and it was not implicit in either that Amtrust did not care whether Consortium had been truthful or not in completing the Proposal and providing information concerning the Original Action.
It must follow that Consortium did not rely upon the alleged representations, simply because the representations in question did not "carry with it some apparent awareness of the right upon which the representor will not insist".
Mr. Harris submitted, rightly in my judgment, that it was, in any event, incumbent upon the Partnership and/or IHC Ltd. in this action to satisfy me by evidence that Consortium did rely upon what were said to be the indications of "apparent awareness of the right upon which the representor will not insist" said to have been manifested on the part of Amtrust. There was no evidence of actual reliance before me. Mr. Troman accepted that. However, Mr. Troman urged me to conclude that Consortium must have relied upon the representations in deciding to pursue the Original Action. However, that certainly does not follow simply from the fact that Consortium did pursue the Original Action as against the Partnership and IHC Ltd. Having commenced the Original Action Consortium could not simply walk away from it and pretend that it had never been started. Consortium was bound either to pursue the litigation or to take the consequences of discontinuing it, usually paying the costs of the opposite parties. There was simply no evidence that Consortium placed any reliance upon the alleged representations said to carry with them the "apparent awareness" that Amtrust would not seek to avoid the Policy by doing anything which it would not otherwise have done or was not already committed to doing.
In fact, of course, Consortium knew the true position, namely that determined by His Honour Judge Seys Llewellyn Q.C. at paragraph 35(v) of his judgment. Thus Consortium knew that any "apparent awareness of the right upon which the representor will not insist" could not be an actual awareness, and had to have been based upon Consortium successfully duping Amtrust. Consequently it cannot have relied upon any "apparent awareness of the right upon which the representor will not insist" carried with any representation, but only upon the continuing success of the initial fraudulent misrepresentation.
If I had reached the conclusion that there had been, on the part of Amtrust, a representation which carried with it "some apparent awareness of the right upon which the representor will not insist", and that Consortium had relied upon such indication, it would nonetheless still have been necessary for me to consider whether the reliance made it inequitable for Amtrust to go back on the representation. To reach that conclusion I should have had to have broken new ground. So far as I am aware, never in the field of equity has assistance been lent to a crook to the disadvantage of an innocent party defrauded by the crook. It could not possibly be equitable to allow a party who knew the true position to say that it was entitled to rely upon some indication of "apparent awareness of the right upon which the representor will not insist" as against the deluded opposite party.
For the reasons which I have given this action fails and is dismissed. |
Para
Introduction 1
Law
Bias 13
The Claimant's case on bias 22
The causes of action 24
British Coal Respiratory Disease Litigation (BCRDL) 42
Scheme costs 50
Thompsons 66
The investigation of Raleys by the Law Society 75
The Sunday Times article of 16 January 2005 and Sir Michael Turner's request for information 82
The 23 March 2005 letter from Mr Lumsden (on behalf of NUM), the subsequent letter from Sir Michael Turner and the issue of private correspondence 107
Greene Wood and McLean 127
The summer of 2005 135
Templeton Insurance Limited 153
The autumn of 2005 176
24 October 186
25 October 195
26 October 198
27 October 209
The transfer of the GLO application from Master Turner to Sir Michael Turner on 11 November 2005 215
The withdrawal of Templeton's ATE cover on 15 November and its reinstatement on 23 November 2005 224
The press and political campaign in late 2005 and early 2006 242
December 2005: further hearings before Sir Michael Turner and the Templeton ATE policy 250
The events of 27 February 2006 261
The case against Thompsons 265
The case against Lord Prescott 286
The GLO hearing before Sir Michael Turner on 3-5 April 2006 311
The Judgment of 18 May 2006 and subsequent events 325
Decision on liability 340
Decision on quantum 354
Conclusion 400
Mr Justice Simon:
Introduction
The Claimant is the assignee of claims from the liquidator of a firm of solicitors, Greene Wood and McLean LLP ('GWM'). The claims concern the failure of an application for a Group Litigation Order ('the GLO') brought on behalf of a group of coal miners. The object of the GLO was the recovery of sums which had been deducted from compensation awards in their favour (or in favour of their dependents) from the Coal Health Compensation Schemes in respect of personal injuries suffered in the course of their employment with the British Coal Corporation. The Coal Health Compensation Schemes covered two types of disease or injury: Chronic Obstructive Pulmonary Disease ('COPD') and Vibration White Finger ('VWF'). The Judge in charge of the COPD litigation from 1995 was Turner J. He retired from the High Court Bench in 2002 but continued to act as the Supervising Judge until 2006.
The GLO was brought against a number of respondents and was vigorously opposed. In a judgment on 18 May 2006 Sir Michael dismissed the GLO application with costs, made an interim costs order against GWM's clients in the sum of £600,000 and refused permission to appeal. He also invited the respondents to consider an application for a wasted costs order against GWM.
The GLO application had been backed by an After the Event ('ATE') insurance policy issued by an Isle of Man insurer, Templeton Insurance Limited ('Templeton'), whose managing-director was Ralph Brunswick. The Templeton policy insured GWM's clients against the risk of an order for adverse costs and liability for their own disbursements in connection with an action brought against the Union of Democratic Miners ('the UDM'), its claims handling company, Vendside Ltd and five firms of solicitors who had acted for the claimant miners. These were the seven respondents to the GLO application.
On 25 May 2006, a week after Sir Michael Turner's judgment dismissing the GLO application, Templeton purported to avoid the ATE insurance policy. It is the Claimant's case that the combination of the GLO decision and the subsequent avoidance of the ATE cover, effectively destroyed GWM's business.
In the present claim the Claimant seeks to recover a principal sum of the order of £71 million as damages for conspiracy and other torts against the 1st Defendant, a firm of solicitors. There are also claims against various named present or former partners of the firm, the 2nd-9th Defendants and the 11th Defendant (whom I shall refer to as Lord Prescott, although he was a Member of the House of Commons at the material time). Templeton, formerly the 10th Defendant, was released from the proceedings by a Consent Order dated 29 February 2012.
As the case progressed the Claimant dropped allegations against some of the Defendant partners and focussed his case against the firm, one of its partners: Geoff Shears (the 6th Defendant) and Lawrence Lumsden (the 9th Defendant), a partner in the separate firm of Thompsons Scotland. The case against Lord Prescott also became considerably narrowed.
In short summary, the Claimant's case contained three central allegations occurring in three material periods.
First, it is said that the 1st-9th Defendants ('the Thompsons Defendants') unlawfully interfered with the operation of the ATE cover provided by Templeton to GWM's clients. The effect of this included causing Templeton temporarily to withdraw its cover in November 2005, thereby giving rise to doubts about its sufficiency and enforceability when it came to be considered at the hearing of the GLO application in April 2006. Secondly, it is alleged that Thompsons took steps to ensure that Sir Michael Turner would hear the GLO application knowing or believing that he was biased against the application, and with the specific intention that the GLO application would be dismissed. Thirdly, it is said that in the course of concerted efforts on behalf of their union clients, the Durham Miners Association (the 'DMA') and the Durham Colliery Mechanics' Trust (the 'DCMT') Thompsons committed further unlawful acts against GWM (actionable breach of confidence and deceit); although by the conclusion of the trial this third aspect of the claim was relied on more by way of background than as a separate and independent route to judgment.
The first material period of enquiry is February and March 2005, when Sir Michael Turner sought and received a report from Mr Lumsden about the practice of solicitors making deductions from miners' compensation in favour of trade unions. It is the Claimant's case that in private correspondence the Judge revealed a predisposition in favour of Thompsons's position and adverse to what was to become GWM's position. This predisposition remained unknown to GWM throughout the period when the GLO was being advanced and up until the time of the GLO judgment.
The second period of enquiry is late October and early November 2005, when it is alleged that there was further private correspondence to and from Sir Michael Turner which excluded GWM, and during which some of the Thompsons Defendants took active steps to ensure that he would be the Judge hearing the GLO application. It was also during this period and, the Claimant says, not coincidentally that Templeton (in a letter dated 15 November 2005) withdrew its agreement to provide the ATE insurance cover for the GLO application, although it subsequently restored it on 23 November 2005.
The third material period is late February 2006, at a time when Thompsons became aware that Templeton had reinstated the ATE cover for the GLO application. The Claimant contends that illegitimate pressure was brought to bear on Templeton which was intended to stop its continued support of the GLO application. This pressure is said to have been applied during a number of telephone calls, and at a meeting at Thompsons's offices on 27 February 2006. Among those calls was one from Lord Prescott to Mr Brunswick at about 18.30 on 27 February when Mr Brunswick was at London City Airport.
The Defendants submit that, before one gets into the detail of the claim, there are a number of material matters which make the Claimant's factual case improbable. First, although there were five solicitors who were respondents to the GLO application, Thompsons was not one of them. They had no direct interest in the result. Secondly, Sir Michael Turner had taken a judicial oath which still bound him to 'do right to all manner of people ... without fear or favour, affection or ill-will.' Whatever the merits of the argument about appearances, the suggestion that he was actually biased against GWM and their clients and was known to be, is inherently unlikely. Thirdly, the suggestion made to Sir Michael Turner that he should hear the GLO application, came not from Thompsons, but in a letter from the Claimants' Group (the 'CG'), who acted (as their name suggests) in the interests of all BCRDL claimants and which included solicitors who had never made any deductions, had no direct interest in the result of the GLO application although they had a clear interest in avoiding anything which might cause delay to the just and efficient determination of BCRDL claims.
Bias
It is convenient at this stage to consider what is meant by bias.
While the law on what constitutes apparent bias is well-settled the position with regard to actual bias is less so. There are potentially two types of case. The first is where the decision-maker has a direct pecuniary, proprietary or personal interest in the outcome of the case. The second is where the decision-maker is shown to have been directly influenced by a fixed predisposition or predilection. In the case of a fixed predisposition or predilection it will be for reasons unconnected with the merits of the case, and involves a closed mind, which is not susceptible to any reasonable persuasion, see for example, R v. Inner West London Coroner, ex parte Dallaglio [1994] 4 All ER 139, Simon Brown LJ at 151 and Flaherty v. National Greyhound Racing Club Ltd [2005] EWCA Civ 1117 at [28].
It is a human characteristic that people have predilections, beliefs and sympathies, and judges and tribunals are no exception. The fact that a Judge or Tribunal may hold certain pre-conceived views does not by itself constitute actual bias unless it is such as to render them immune to contrary argument. The crucial distinction is between a predisposition towards a particular outcome and a predetermination of the outcome.
The former is consistent with a preparedness to consider and weigh factors in reaching the final decision; the latter involved a mind that is closed to the consideration and weighing of relevant factors;
see National Assembly for Wales v. Condron [2006] EWCA Civ 1573, Richards L.J at [43], (with whom Ward and Wall L.JJ agreed) and De Smith's Judicial Review, 7th Ed (2013). §10-058.
The courts have shown themselves reluctant to investigate allegations of actual bias and there is authority to the effect that submissions of actual bias should not be made, see for example R. v. Gough [1993] AC 646, see Lord Goff at 659D-H and Lord Woolf at 672G-673B. There are three reasons why the courts have seldom embarked on such inquiries. First, there are obvious difficulties in exploring the actual state of mind of a judge (for example, a judge is not compellable as a witness in relation to his own decision). Secondly, bias can operate in an insidious way so that the person alleged to be biased may be unconscious of it. Thirdly, it may be very difficult to establish. For an interesting discussion of the reasons for judicial diffidence in investigating actual bias, see Civil Justice Quarterly 2008: 'Facing Up to Actual Bias', by James Goudkamp. Nevertheless, and despite these difficulties, when an allegation of actual bias is made the court cannot avoid adjudicating on it and is bound to undertake, what has been described in a different context, as the 'duty of decision', see R v. Derek William Bentley (deceased) [2001] 1 Cr App R p.307 at [68].
It is to avoid some of these difficulties that the Courts have developed the test of apparent bias, which avoids the difficulties of proof, is easier to demonstrate and will usually be sufficient, see for example R v. Liverpool Justices, ex p. Topping [1993] (DC) 1 WLR 119 at 122G-123D.
When considering the question of apparent bias the court's approach is, first, to ascertain all the circumstances which have a bearing on the suggestion that the judge or tribunal was biased, and secondly, to ask itself whether in those circumstances a fair-minded and informed observer would conclude that there was a real possibility that the tribunal was biased, see for example Porter v.Magill [2002] 2 AC 357, Lord Hope at [103]. In Re Medicaments and Related Classes Goods (No.2) [2001] 1 WLR 700 at [83] Lord Phillips of Worth Matravers described the principles.
(1) If a judge is shown to have been influenced by actual bias, his decision must be set aside ... (2) Where actual bias has not been established the personal impartiality of the judge is to be presumed. (3) The court then has to decide whether, on an objective appraisal, the material facts give rise to a legitimate fear that the judge may not have been impartial. (4) The material facts are not limited to those which were apparent to the applicant. They are those which are ascertained on investigation by the court. (5) An important consideration in making an objective appraisal of the facts is the desirability that the public should remain confident in the administration of justice.
It may be that a further stipulation needs to be added: although the material facts are not limited to those which were apparent at the time, if there are no new facts, the principles associated with finality of judgments are likely to weigh heavily, if not dispositively, against the grant of relief.
In Locabail (UK) Ltd. v. Bayfield Properties Ltd. [2000] QB 451 (the judgment of the Court consisting of Lord Bingham of Cornhill CJ, Lord Woolf MR and Sir Richard Scott V-C) at p.480 F-G, the Court of Appeal drew a distinction between (a) real grounds for doubting the ability of a judge to ignore extraneous considerations, prejudices and predilections so as to bring an objective judgment to bear on the issues before him, which would ground an argument of apparent bias, and (b) a different situation:
The mere fact that a judge, earlier in the same case or in a previous case, had commented adversely on a party or witness, or found the evidence of a party or witness unreliable, would not without more found a sustainable objection.
I would add that the significance of a judge previously expressing views about a case or an issue must be viewed in the light of the circumstances. For example, if the judge has expressed the view at a 'without notice' hearing that a claimant has a good arguable case, it cannot preclude him from hearing the case or determining that issue when both parties attend. Similarly, where a judge is case managing complex civil litigation, the expression of a view at a time when directions are being discussed cannot be taken as a predetermined view of the matter or an inability to bring an objective judgment to bear on the ultimate issue. Case management of large scale litigation would otherwise be impossible. As the Court went on to say in Locabail the question of apparent bias is likely to depend on the facts and circumstances of the case.
Bias: the Claimant's case
In the present case Mr Green QC advanced the Claimant's case on actual bias on the basis that the Judge had lost his objectivity. In other words, he was so involved in the effective management of the BCRDL scheme that he was unable to view the GLO application other than as a threat to it and consequently failed to deal with it on the merits. It seems to me that this way of characterising the complaint is not significantly different to an allegation that the decision-maker had, for a particular reason, a closed mind which was not susceptible to persuasion.
In support of his 'lack of objectivity' test, the Claimant relied on the decision of the Court of Appeal in Co-operative Group (CWS) Ltd. v. ICL [2003] EWCA Civ 1955 at [82-84]. These passages do not greatly assist. In [82] and [83] reference was made to the unusual conduct of the judge during the course of the trial in that case, and [84] sets out the statement of principle from the Locabail case (see above) that a Judge ought not to lose or give the appearance of losing the ability to try a claim with an objective judicial mind. The complaint which was upheld in the Co-operative Group case was not that the judge had come to the trial with any preconceived prejudice or predilection or bias: but that during the course of the trial he had shown 'an inability to grapple objectively with the issues of fact and law present to him, so that in the end the trial was unfair'. It is to be noted in the present case that there is no criticism of Sir Michael Turner's conduct of the hearing of the GLO application.
Causes of action
The Claimant makes an overarching submission that the facts of what occurred speak for themselves and that 'the law will not stand by and leave the Claimant without remedy,' particularly 'in the light of the special weight which the common law (and Article 6 of the European Convention on Human Rights) give to the citizen's free and fair right of access to courts, to which the Defendant's conduct is an affront.'
By the conclusion of the evidence the Claimant had narrowed the causes of action to: (1) an abuse of process tort, encompassing: (a) procuring a breach of Article 6 of the ECHR, (b) procuring a breach of the common law right to a fair trial, (c) interference with the administration of justice and (d) the tort of abuse of process; (2) causing loss by unlawful means and an unlawful means conspiracy; (3) procuring a breach of contract; (4) deceit; (5) actionable non-disclosure; and (6) harassment contrary to s.3 of the Protection from Harassment Act 1997.
Since there was little dispute as to the legal tests to be applied, I can summarise the law relatively briefly.
The Abuse of Process tort
This was put in a number of ways but each would depend on establishing that the judge was actually biased. Mr Green QC submitted that it involved the bringing about of the breach of a legal right. He referred to a passage in Clerk & Lindsell on Torts 21st Ed. at 24-27.
The civil liability bequeathed by Lumley v. Gye (1853) 2 E & B 216 is not restricted to procuring a breach of contract. As Lord Nicholls recognised in OBG Ltd v. Allan [2008] 1 AC p.1, the majority view in Lumley v. Gye was that knowingly and intentionally procuring the violation of a right was a cause of action \lum p.1, the majoity OBF Ltd v Allanf contract. egal right zen'______________________________________________________in all instances where the violation was an actionable wrong, as in violations of a right to property, whether personal or real, or to personal security. The requirements as to knowledge and intention are parallel to those determining liability for procuring breach of contract.
His submission was that the law will allow a claim for damages where a defendant with knowledge of the issues (or likely issues) in a trial, and with the intention to subvert the fair determination of those issues, deliberately does an act whose direct effect is to bring about a trial which is unfair. Although there may be difficulties with the precise formulation of the test, I am prepared to assume that where a defendant has deliberately and knowingly brought about the appointment of an actually biased tribunal or judge, so that in effect there is no real trial at all, the law may provide a remedy which goes beyond the conventional relief of setting aside an award or allowing an appeal.
The first stage of Mr Green QC's argument was the submission that a party to litigation should not communicate privately with a judge hearing a case. In general this is plainly correct. The second stage is that, having elicited that he held views favourable to their position, the Thompsons Defendants arranged for Sir Michael Turner to hear the GLO application and then implicitly represented to GWM that there was no reason why he should not hear the case. Each stage of the argument calls for a careful consideration of the facts.
Causing loss by Unlawful Means and Unlawful Means Conspiracy
The matters which a claimant must prove in order to establish the tort of causing loss by unlawful means are: (a) interference with the actions of a third party in which the claimant has an interest; (b) the use of unlawful means; (c) an intention to injure and (d) consequential loss and damage to the claimant, see for example OBG Ltd and another v. Allan and others (above) at [45]-[47]
The matters which the claimant needs to prove in order to establish liability for an unlawful means conspiracy are: (a) a combination or agreement between two or more persons; (b) either to take actions which are unlawful or use means which are unlawful; (c) with the intention of injuring the claimant by the use of those unlawful actions or means; and (d) the use of those unlawful actions or means caused damage to the claimant which is more than incidental, see for example Kuwait Oil Tanker v. Al Bader [2000] 2 All ER (Comm) 271 at 311 and Clerk & Lindsell §24-93 and following. Where a defendant seeks to advance his own interests by pursuing a course which he knows will necessarily injure the claimant, the intention is established, see OBG Ltd v. Allan (above) at [164]-[166].
Similar facts are relied on in relation to these causes of action as in relation to the abuse of process tort, although some further background is relied on to establish the necessary intent.
Procuring a breach of contract
In order to sustain this cause of action a claimant must prove: (a) the procurement or persuasion (advice is not sufficient) of a third party; (b) the defendant's knowledge of the existence of the contract and that it is procuring a breach of contract; (c) an intention to cause the breach of contract; (d) a breach of contract; and (e) damage as a result of the intended breach, see OBG Ltd v. Allan (above) at [39]-[44] and Clerk & Lindsell at 24-14 and following.
The Claimant contends that Thompsons communicated with Templeton in November 2005 and that it tortiously procured Templeton to withdraw the ATE insurance cover for the GLO application on 15 November 2005. He also relies on the communications in February 2006 between Thompsons (and Lord Prescott) and Mr Brunswick of Templeton. Reliance is placed both as a free-standing cause of action and (particularly in relation to the February 2006 communications) as constituting the required unlawful means for the purposes of the conspiracies.
It will be necessary to consider these matters in the light of the facts as I find them to be.
Deceit
This requires proof that: (a) the defendant made a representation of fact to the claimant; (b) the representation was false; (b) the defendant knew it was untrue or was reckless as to whether it was true or not; (c) the defendant intended that the claimant act in reliance on it; (d) the claimant did in fact rely on it and thereby suffered loss, see for example Clerk & Lindsell at 18-01 and following.
As to requirement (a), the representation may be made once but nonetheless amount to a continuing representation, it may be made by silence or conduct and it may carry with it the implied representation that the defendant did not know of any matter which might falsify the assurance, see for example, Mellor and others v. Partridge and another [2013] EWCA Civ 477 at [17].
The Claimant relies first on the written report made by Mr Lumsden to Sir Michael Turner on 23 March 2005, for which Thompsons are liable; and secondly on the procurement of Sir Michael Turner as the judge hearing the GLO application. Again, these matters are also relied on as constituting the required unlawful means for the purposes of the conspiracies.
Actionable non-disclosure
This cause of action depends on there being a duty to disclose known material facts to the Court.
In this context it is necessary to distinguish two types of duty to disclose. First, where a party may be under a legal duty to disclose material facts to a contractual counterparty, for example, an assured's obligation to disclose to an insurer facts which are material to the risk. Secondly, the obligation of a party to litigation to make full and frank disclosure to a court in particular circumstances, for example on a 'without notice' application. The Claimant's case is the latter type. However, no authority was cited in support of the proposition that a duty is owed by a non-party or that a breach of such an obligation can give rise to a free-standing tort, rather than a potential obligation to compensate under the cross-undertaking in damages. While I do not rule out the possibility of such a free-standing tort, it is unnecessary to say anything more about it, since, if the facts relied on do not give rise to a claim under the Abuse of Process torts or the Conspiracy claims, they are very unlikely to give rise to a claim for damages under this heading.
Harassment contrary to s.3 of the Protection from Harassment Act 1997
This requires: (a) conduct which occurs on at least two occasions, (b) which is calculated in an objective sense to cause alarm and distress; (c) which is objectively judged to be oppressive and unacceptable; and (d) which causes loss. Two further points may be noted: (1) what is oppressive and unacceptable may depend on the social or working context in which the conduct occurs; and (2) a line is to be drawn between conduct which is unattractive and even unreasonable, and conduct which can be described as a 'torment' of the victim 'of an order that would sustain criminal liability', see for example Clerk & Lindsell at 15-21. Mr Green QC acknowledged that, since this claim relates to telephone calls made to Mr Brunswick on 27 February 2006, only he could have brought this claim. For this reason he did not rely on it as a free-standing cause of action, but as constituting the unlawful means for the conspiracies.
The British Coal Respiratory Disease Litigation
In a memorandum prepared for the Trade and Industry Select Committee which reported in February 2005, the Department of Trade and Industry ('DTI') set out the background and history of the British Coal Health Compensation Schemes ('BCHCS') which arose from claims in respect of lung disease (COPD) and hand injuries (VWF). British Coal, whose liabilities had been taken over by the DTI, had been found liable for both COPD and VWF.
Following these judgments the DTI set up compensation schemes to deal with the anticipated claims. One of these was the British Coal Respiratory Disease Litigation ('BCRDL') scheme.
The DTI entered into detailed Claims Handling Agreements ('CHAs') with the Claimants' Solicitors Group ('CSG'), following full and lengthy negotiations. Its purpose was that the BCRDL claims could be settled without recourse to the Court, save where issues of principle arose. The CSG was itself represented by a much smaller group of solicitors known as the Coordinating Group ('CG'). The CHA provided that the members of the CG were six firms of solicitors: Irwin Mitchell, Hugh James, Towells, Nelson and Co, Ross & Co and Thompsons, Scotland. In practice most of the work of the CG was carried out by five individuals from those firms: Andrew Tucker (Irwin Mitchell), Roger Maddocks (at the material time with Irwin Mitchell), Lawrence Lumsden (Thompsons, Scotland), Gareth Morgan and Peter Evans (Hugh James). Membership of the CG was individual rather than as a representative of the firm.
The DTI memorandum described the operation of the CHAs:
The courts oversee the CHAs' operation aiming to avoid further court action. The Judges resolve points of law and the CG reports back to them regularly (3-4 times a year) on progress in settling the claims.
Nearly 770,000 claims were registered under the two schemes, with costs then estimated to be of the order of £7.5 billion.
The terms of CHAs were approved by the High Court Judges who managed each of the schemes.
The role of the supervising judges in relation to the CHAs was reviewed by the Court of Appeal in AB and others v. British Coal Corporation [2006] EWCA Civ 1357. The case concerned two issues which had arisen under the VWF scheme: a general issue as to the power of the Supervising Judge and a narrower issue on the power to award interest. In relation to the general issue, Pill LJ at [24] described some of the features of the scheme: including the necessary powers of the Supervising Judges to ensure that individual claims were processed fairly and efficiently, and to ensure the just disposal of those cases. Pill LJ noted the close involvement of the Supervising Judges, the importance of cooperation between the parties and the need for active case management by the Judges, including the making of substantive and procedural rulings.
Members of the CG would meet regularly with representatives of the DTI to discuss and, where possible, resolve disputes in relation to the application of the CHAs. As the Judge in charge of the BCRDL, Sir Michael Turner held three or four review hearings each year, in the course of which the operation of the CHAs would be reviewed and points in issue would be determined. The CG would instruct counsel, draft reports for the Court and generally represent the interests of claimants under the scheme. Mr Tucker, as coordinator of the CG, would send and receive emails on its behalf. Generally, correspondence between the CG and Nabarro LLP (who acted for the DTI) was not copied to the Judge, but there were occasions when it was and there were occasions when the Judge corresponded with the parties, for example, when a question from a Member of Parliament called for a response.
BCRDL costs
Under the CHAs the fees of the solicitors in successful qualifying claims were met by the DTI on a scale set out in the CHAs; and there was a common understanding that solicitors would not recover costs in unsuccessful cases; it being understood that the costs of unsuccessful claims would be borne by the solicitors acting in those cases.
The work undertaken by the claimants' solicitors under the schemes was highly profitable; and the DTI came to be criticised for agreeing to pay rates that were too high.
An issue which emerged towards the end of 2004 was the practice of making contractually agreed deductions from awards of damages payable to claimants. There were of two types of deduction. The first were deductions for the use and benefit of solicitors and claims companies, in circumstances where no additional service was provided beyond those covered by the CHAs. The second were deductions from compensation made under agreements between a claimant and the supporting trades union. Under this second type of agreement the client (either a miner or a dependent) agreed that, if the claim were successful, a sum would be deducted from the compensation and paid over to the union. There was uncontroverted evidence that this way of funding union legal expenses by Members Return Contributions ('MRCs') by some unions as a way of meeting the collective cost of the union's legal service had operated over many decades.
It was also clear from the evidence that there was no consensus within the trades union movement that their deductions from the awards of damages was an appropriate way of funding trades union legal services. Some unions did not adopt the practice and even within individual unions which made deductions, some officials had principled objections to deductions from what was intended to be full compensation for injury or loss.
The National Union of Mineworkers ('NUM') is a federated association of interdependent miners' unions. Each of the NUM areas, South Wales, Yorkshire and (in Durham) the DMA, operated independently, with local officials instructing solicitors on behalf of their members. In Yorkshire Messrs Raleys were the solicitors instructed by the NUM; and in the Durham area Thompsons was instructed by the DMA and DCMT. Both the Yorkshire NUM and the DMA and DCMT adopted the practice of deducting MRCs.
Mr Shears gave evidence that after the end of the miners' strike in 1985 and the closure of coal pits, the Durham unions suffered from reduced membership and income. By the time the last pits closed in the early 1990s, there were no longer any working members of the unions and virtually no income.
Yet there remained a vast and adverse legacy of injury and illness amongst the members and former members, compounded by poverty, social problems in what was left of the mining communities, and a large backlog of outstanding benefit claims. It was in this context that the union was forced to review its financial options in relation to the operation of its legal service, in the event by requiring contributions from damages in successful personal injury cases ...
This passage highlights a potential tension which Thompsons and its individual partners came to recognise. On the one hand, the social cohesion represented by strong and financially viable unions, and the historical importance of the collectivist principle by which members of unions paid out during their working lives and received benefits into retirement; and, on the other hand, the rights of individual union members (and those with derivative claims) to receive full compensation for injury and loss.
As criticism of deductions from miners' compensation increased during the course of 2005, Thompsons and other union law firms sought to highlight the distinction between deductions from damages for the benefit of unions and deductions for the personal benefit of solicitors and claims handling firms, such as Vendside Limited (a claims-handling firm set up by the Union of Democratic Miners). The position of Thompsons was also summarised in Mr Shears's evidence.
Our position, and the union position, was that there was a factual and qualitative distinction between trade union arrangements for contributions from damages in successful cases and those of claims handling companies and some non-union law firms which were quite properly the subject of criticism because of the amounts they deducted, the results they achieved, and the poor quality of the service delivered. No real service was offered by those companies in return for those deductions, and neither was there any commitment to the funding of test cases and the wider extensive legal and other services offered by trade unions.
There were a number of potential difficulties with this approach.
First, as already noted, the costs regime under the CHAs was generous and the scale of deductions that were being made from damages bore no relationship to the costs of providing union assistance for the claims.
Secondly, the Law Society had begun to take an interest in deductions made by firms of Solicitors and, particularly, whether appropriate advice had been given before clients entered into MRC agreements. As set out below, one of its early enquiries was into the conduct and practices of Raleys.
Thirdly, union solicitors needed to make good their case that the deductions were being used for beneficial purposes. It was for this reason that emphasis was placed on union support for claimants appearing before pension and disability pension tribunals, and union support for a test case in what was known as the Miners' Knee Litigation.
Fourthly, the deductions in the NUM areas were not uniform. The South Wales area of the NUM did not make MRC deductions. It charged a flat fee of £60. Mr Antoniw explained that, in retrospect, he thought this had been a mistake since it placed a very heavy burden on the volunteers who provided support for the compensation claims, and may even have had an adverse effect on the levels of recovery. In the Yorkshire area Raleys deducted 3% from damages, capped at £750; while Thompsons made deductions of 7.5% on behalf of the DMA and DCMT, capped at £1,000.
Fifthly, by 2004 the way that individual personal injury cases were funded had changed. Unions no longer paid the legal costs on behalf of their members. Claims were now conducted by solicitors under Conditional Fee Agreements ('CFAs'). Nor were unions at risk of paying the other side's costs if the claims were unsuccessful, since these costs were insured under ATE policies. Additionally, neither Thompsons nor their union clients bore the cost of obtaining medical reports. In unsuccessful cases these costs were effectively cross-subsidised by the recovery in successful cases; and Thompsons had established a system for obtaining medical reports under which they were only charged for the provision of the reports if the claim were successful, and then only at the conclusion of the case, at which point the cost could be recovered from the paying party as a disbursement.
Finally, although in the period up to February 2005 the DTI accepted that there was a distinction to be drawn between deductions for the personal benefit of claims handlers and solicitors on the one hand, and MRCs for the benefit of unions on the other, there was a growing political consensus in Government and among Labour Party politicians in Parliament that the distinction was not justified, and that no deduction from damages should be made without clear advice as to the possibility of alternative means of bringing claims which did not involve MRCs. These views were increasingly articulated in early 2005 and were particularly directed to deductions in favour of the UDM (a union which, for historical reasons, was regarded with disfavour by most Labour politicians and supporters), Vendside (its claims handler) and Beresfords (its solicitors).
The presentational issue was in drawing a logical and legally coherent distinction between these two forms of deductions.
Thompsons
Throughout its history Thompsons has based itself on support for and representation of trades unions and their members. The firm was started in 1921 by WH Thompson, split into two firms in 1974 (led by Robin and Brian Thompson), which merged (save for the Scottish partnership) to create the new firm of Thompsons in 1996.
There has always been a strong political dimension to its work. Individual partners have close contact with different trades union clients and the firm only represents claimants, never defendants or insurers. It regards itself as a firm of union solicitors with a deep and historic understanding and appreciation of the social and political principles which trades unionism represents.
Thompsons's involvement in the political aspects of their work was primarily carried out by one of their partners, Tom Jones. He was active on the party political front, and particularly in lobbying politicians in the Labour Party which Thompsons publicly supported as the political party most likely to advance the cause of those they acted for. Mr Jones's work on the political and parliamentary front, as Thompsons's Head of Policy and Public affairs, came under scrutiny during the course of the trial. On any view of the matter, the firm's political affiliations and its contact with Labour politicians and senior union officials meant that it was inclined and able to respond to perceived political threats to the interests of its union clients on a broader front than most firms of solicitors would have been able to do.
In about 2000, Thompsons had established a new structure, with Mr Shears as the Chief Executive Officer (CEO), Phil Smith as Chief Operating Officer (COO), the 2nd Defendant (Stephen Cavalier) as Client Director and Caoilionn Hurley, as Chief Financial Officer (CFO).
These four formed the Executive Board and were also (non-voting) members of the firm's Supervisory Board, chaired by Lord (Tom) Sawyer.
At the material time the other Defendants (apart from the 9th Defendant and Lord Prescott) were all partners of Thompsons. The 3rd Defendant (Mick Antoniw) worked in the Cardiff Office and was responsible for the case-load from the NUM (South-Wales area). The 4th Defendant (Phil King) was Director of Client Care. The 5th Defendant (Anthony Patterson), was the National Coordinator for Coal Litigation within the firm, based in Newcastle. The 7th Defendant (Rob Wood) was Branch Manager at the firm's North East branch, also based in Newcastle. The 8th Defendant (Doug Christie) had a number of trades union clients but these did not include any NUM area clients. So far as the present claim is concerned Mr Christie was involved in arrangements for litigation funding, which included insurance and self-insurance.
The 9th Defendant (Lawrence Lumsden) was a partner in the separate firm of Thompsons Scotland until 31 October 2005. While he was at Thompsons Scotland he was responsible for the firm's case-load of work from the NUM (Scotland area). As already noted he was also a member of the CG. After his retirement from Thompsons Scotland he continued as a consultant for Thompsons Scotland for 3 days a week and was employed by Thompsons (the 1st Defendant) as a consultant for 2 days a week.
One feature of the changing forensic landscape at the time was the potential rewards from ATE insurance business. Thompsons had secured ATE cover from Templeton for a significant proportion of its union cases and, under an agreement with Templeton, the unions were entitled to a profit share on premiums earned on insurance contracts placed with Templeton. This was payable to Thompsons's union clients. Not all unions insured claims in this way but the DMA and DCMT did. The financial consequence was that at any given time Templeton might hold substantial funds which, if profits, were available to the order of Thompsons's union clients.
The Claimant was entitled to characterise the position in 2004 as being one in which personal injury litigation had ceased to be a cost to some unions and had become a potential source of revenue.
The investigation of Raleys by the Law Society
In January and February 2004 the Law Society had issued a document entitled 'Compliance Board - Policy Statement. Miners' Compensation Claims.'
Paragraph 3 of the document was in the following terms:
The Compliance Board considers that the making of an additional charge to the client is likely to give rise to:
(i) a finding of inadequate services, and
(ii) if there is also evidence of taking unfair advantage of the client by overcharging, a finding of misconduct,
unless full information was given to the client at the start of the matter, and the additional charge involved was itself reasonable.
Paragraph 6 of the Policy Statement made clear that the Law Society's complaints process had been changed so that complainants were no longer required to raise their complaint with their solicitors.
The CG circulated the Compliance Board Policy Statement with its Bulletin of 2 February 2004, making it clear that:
The Co-ordinating Group have always been of the clear view that in the current costs regime the tariff offered by the DTI should be sufficient reimbursement for solicitors and there should be no need for additional charges to be raised for Claimants even though the DTI (unreasonably) refuse to pay success fees on CFAs and therefore costs incurred in unsuccessful cases are written off. For some time new firms joining the solicitor's Group have been asked to confirm that they accept this costs model.
At some point in 2004, the Law Society had begun an investigation into Raleys in relation to deductions from miners' compensation. Information about this investigation is sparse, but it appears that there was a finding against Raleys of inadequate professional service in two Adjudicators' decisions, in that they failed to advise clients that other firms did not make MRC deductions. Raleys were directed to pay compensation to various clients and costs to the Law Society. The firm appealed those decisions without success.
Mr Smith followed these investigations and attended hearings in November 2004 on behalf of Thompsons. His evidence was that he immediately realised the significance of the adjudications:
It seemed to me at that time that if you'd made deductions in breach of the Solicitors' Practice Rules, then the [Solicitors Regulatory Authority] would use their regulatory powers under the Solicitors' Practice Rules to ensure that deductions were repaid.
The financial implications were potentially serious for Thompsons not least because the levels of deduction in favour of the DMA and DCMT were larger than the deductions made by Raleys in favour of the Yorkshire NUM.
The Sunday Times article of 16 January 2005 and Sir Michael Turner's request for information
On 16 January 2005 The Sunday Times published the first of a number of articles about deductions made from damages awarded to claimants under the BCRDL scheme. The article, headed 'Scargill's Union gets £10m cut of miners' sick pay' was directed at the NUM (and, in particular, the Yorkshire area of the NUM) and Raleys. The article drew attention to the substantial fees earned by solicitors acting for claimants and contrasted the position of Raleys with firms which did not make deductions.
Some of the issues raised in this article had been previously aired by Labour Members of Parliament of whom one of the most active and vocal was John Mann MP.
The key charge made by the newspaper against the solicitors can be seen from one short extract:
The NUM, of which [Arthur] Scargill is honorary president, linked with Raleys, the union's lawyers in its home base of Barnsley, South Yorkshire, to help victims. The scheme had provided the union with a steady income as former miners who took cases with the firm paid subscription fees to the NUM during the case and an 'administration fee of up to £750.
Many had left the union and so were asked to rejoin. They claim, however, that they were not told other legal firms would take their case for free.
Among other points picked up in the article was the Law Society's interest in the regulatory issues.
The allegation has now been backed by the Law Society in two cases where it ruled that Raleys had not properly advised the miners of their 'liability' to the NUM.
Thompsons was quick to recognise that the practice of deducting MRCs from damages would face a number of challenges: on the political front from Members of Parliament representing the interests of individual constituents, from the DTI, from the Press and from the Law Society.
On 19 January a draft note was circulated internally within Thompsons which was intended to be used by the DMA.
It is a matter of record that we deduct 7.5% to a maximum of £1,000 from compensation paid to miners and their families. You only need to look at all the things we do as an organisation to understand why this is done. Unlike the deductions made by some solicitors and compensation claim firms, the money goes entirely into funding the advice and other support services that we provide for our members and their families. These include a free legal advice line and advice sessions in miners clubs, welfare and community centres and GP surgeries across the North East.
...
It is also important for any organisation with membership and duties that we have to build up assets for the future. If we were to rely on volunteers in a fragmenting community such as the former mining communities of the NE are then there would come a point when we'd simply run out of volunteers and resources and that, frankly, is where our services would end ...
The note raised the issue which would become the subject of debate within Thompsons over the following months: how to demonstrate what the firm believed were the real advantages to the local community of MRC funding to the DMA and the DCMT. The debate focussed on the back-up provided by the Durham unions and what was said to be the consequently higher than average settlements secured for its clients.
On 21 January 2005, Mr Wood emailed a draft letter to Mr King stating:
The NUM Durham have now agreed to the mail shot. I enclose a revised draft letter which I'd be grateful if you could consider. I believe this should satisfy Law Society requirements.
At a BCRDL hearing towards the end of January 2005 Sir Michael Turner expressed his concern about the contents of The Sunday Times article and the potential impact on the operation of the scheme. He asked counsel for the CG (Mr David Allan QC and Mr Ivan Bowley) to provide a response to the article. Although it seems that the request was not made in open court and there is no recording of its terms, Gareth Watkins of Nabarros (the DTI solicitor) recalled being told of the request by his counsel.
Mr Lumsden's evidence was that he was waiting outside court and was told that the Judge was concerned about the article, and wanted a report on the practice of union deductions which had been the subject of the press criticism. As far as he was aware, whatever the precise nature of the request, it had been communicated in the presence of counsel for the DTI, and the DTI was aware of it. In his evidence he said that he was told that a report should be prepared that dealt with the charging practices in the NUM Yorkshire area.
Since Raleys had been named in the article, it was decided that they would take the lead in providing the response. In a letter of 4 February, Ian Firth of Raleys highlighted the points which would need to be made in order to justify the deductions: for example, free representation before DSS Tribunals, free second medical reports where appropriate, the extension of the retainer to other scheme claims, providing indemnities against defence costs in litigated cases, as well as the achievement of higher success rates and better than average level of damages by union solicitors where deductions were made.
The report which eventually went to Sir Michael Turner was the subject of extensive consultation with the NUM area clients, discussion among the lawyers (including counsel), and went through a number of drafts.
On 3 February, Mr Lumsden wrote to members of the CG and others:
I have spoken to Ian Firth at Raleys, who is preparing a draft response to the judge. This will go to him from the CG after [revision].
As the [Sunday Times] article relates to Raleys and the practice in Yorkshire, it is not necessary to refer in detail to the practice in other areas in order to give the judge the explanation sought.
On the next day, Mr Firth wrote to Mr Patterson:
After discussion with David [Allan QC] and Lawrence Lumsden we have preliminarily agreed that it will be unwise to provide the court with details of the different NUM area funding arrangements.
...
The focus of the article was on the union's receipts so we need to concentrate - indeed the Judge specifically indicated he wanted information about 'where the money was going' i.e. what use will it be put to?
On 8 February, Mr Lumsden wrote to various solicitors instructed by the NUM ('the NUM solicitors'), the CG, Mr Allan QC and Mr Bowley, and others attaching a (first) draft report which he had prepared.
I have put together a draft report to the court concerning the contents of the Sunday Times piece of 16th January for your comments. David Allan is happy that we use this as a basis for our deliberations as to the response to be made.
On 15 February, Mr Lumsden circulated a further (second) draft to the NUM solicitors for consideration at a meeting of NUM areas and the national union in Barnsley on 17 February 2005.
On 18 February, Mr Lumsden circulated a (third) draft of the report to the NUM solicitors and to Mr Allan QC. This incorporated various points discussed at the meeting in Barnsley the previous day:
It would be helpful to have David Allan's input into the final version and on the issues surrounding release (mostly timing) if it is acceptable to the Union.
On 21 February, Mr Lumsden emailed the NUM solicitors, the CG and David Allan QC:
David Allan has rung to discuss the third draft report to the judge. There are a few changes to make and he is otherwise satisfied with it. We'd like to add a sentence to the effect that the Union is no longer in a position of receiving substantial sums in dues from its active membership, given the decline in numbers employed in the coalfield in recent years … The [DTI] may ask for sight of the report once it is given to the judge. It may not be possible then to avoid its release to the department and the Union should be aware of that.
On 22 February, Mr Lumsden circulated a (fourth) draft of the report to the NUM solicitors and to David Allan QC.
In the meantime, at some time in early to mid-February, the DTI announced a change of approach in relation to union deductions. In a Departmental publication entitled, 'Compensation for Miners' (Newsletter No.10), there was a highlighted message of advice.
If your solicitor is making deductions from your compensation via an additional fee or a union fee and did not advise you that other representatives are processing claims without making any deductions, you should contact the Law Society to make a complaint [a telephone contact was provided] or you may wish to speak to your MP.
This apparent encouragement of claimants to get in touch with the Law Society or their local MP was regarded with considerable concern by some of those within Thompsons. In their view a failure to distinguish between (a) solicitors making deductions for the benefit of unions, and (b) claims firms who made deductions for their own benefit, was politically naive. This reaction is illustrated by a short extract of an email sent by Mr Lumsden to Mr Jones on 16 February. After referring to the DTI's previous position which distinguished between levies made on behalf of trades unions and deductions made by others, Mr Lumsden added:
The impression given that union schemes are effectively to be regarded in the same way as claims' company schemes and that any deduction in any circumstances ... is to be attacked if the solicitor did not give his client notice that he might receive the same service for nothing, is damaging to unions and their arrangement for assisting members and retired members to gain benefits and compensation across a wide range of matters.
However, the email also recorded that the DTI advice had been agreed with the Law Society after the two complaints had been upheld against Raleys.
During the course of 2004-2005, Thompsons had itself been the subject of three complaints made to the Law Society by clients: Mr Bell, Mr Reay and Mrs Natrass. It was apparent that there was an issue about the adequacy of the information provided to their clients and this was appreciated, in particular, by Mr King.
In relation to the complaint by Mr Bell, the Law Society's Consumer Complaint Service made a finding on 12 November 2004 that Thompsons had provided insufficient general client care and costs information in accordance with the requirements of the Guide to the Professional Conduct of Solicitors, 7th edition. The recommendation (which Thompsons accepted) was that the deduction of £536 which had been paid to the DMA should be repaid with compensation of £250.
This was the first of the three adverse findings against Thompsons and led the firm (at least by the beginning of 2006 and, in the case of many of the partners, earlier) to conclude that their practice of making contractual deductions in favour of their union clients was open to regulatory challenge on the basis of a failure to advise clients that they could be represented in their claims under the CHAs by solicitors who would not make deductions from damages recovered under the scheme.
In addition to dealing with Sir Michael Turner's request, Thompsons were also active in lobbying for support in the House of Commons and in Government, and Lord Prescott was identified as one of a number of potential political allies who might be approached by Mr Hopper of the DMA.
The 23 March 2005 letter from Mr Lumsden (on behalf of NUM), the subsequent letter from Sir Michael Turner and the issue of private correspondence
On 23 March, Mr Lumsden wrote to Sir Michael Turner enclosing the report on The Sunday Times article which Mr Allan QC had agreed would be provided. The covering letter appears to have been sent on the headed notepaper of Thompsons (Scotland); and Mr Lumsden's evidence was that, at least at this time, he was not acting for the English firm of Thompsons.
After referring to the Judge's concerns which had been raised with counsel for the CG, the letter concluded.
The union [the NUM] has willingly responded to the requests made of it for information and understands that the report is for your consideration. It has not authorised us to copy it to other parties in the litigation and so we have not done so. If you are minded that copies should be made available to those parties, we should be grateful for the opportunity to make representations to you if that is thought appropriate, before disclosure.
The Report set out the main features in the Article and then made a number of points.
First, in relation to the deductions (§7):
It is understood that the financial terms of the legal support extended to retired miners for COPD and VWF compensation claims by Yorkshire NUM are as follows. Claimants subscribe to receive the Union's assistance to pursue a claim on a no win, no pay basis. Former members are required to bring themselves into a form of membership called 'limited membership' for the period of the claim up to a maximum duration of three years. The provision of assistance to non-members is prohibited. Limited members pay half the dues of full members, the dues being collected only upon successful conclusion of the claim and not otherwise. An administration fee is charged only in the event that the claim succeeds, amounting to 3% deduction from damages, capped at a maximum of £750. The total sum deducted from damages including the amount of subscriptions and administration charge shall not exceed 15% of the damages' award. Deductions made by the solicitor are not used to augment the solicitor's fee, but are mandated in accordance with the claimant's authority to the union as a condition of its support for the claim.
The report cited a decision in the County Court which approved this form of authority (§8), while drawing attention to the two complaints upheld by the Law Society that claimants had not been properly advised about their liability to the union, which were being contested by Raleys (§6). It described the range of benefits offered by the union in consideration of the payment of the deductions (§§9-10, 12). There was also reference to the history of deductions from damages over many years (§13). The report concluded with two final points.
First, it contrasted the practice of the Yorkshire NUM solicitors with that of other organisations which made deductions from damages (§15).
In offering their service within mining communities, unions have to contend with different organisations and in particular, claims' handling companies whose activities have previously been the subject of adverse comment both by the court and the community representatives. Many claimants who might otherwise have ended up with such companies have gone to their union and so offered their support to a non-profit making representative body.
Secondly, it made a broader point (§16).
Large numbers of miners and their families up and down the country authorise deductions from damages in favour of their union or former union because they support its activities and recognise that it has provided and continues to provide important services within their communities. The NUM area unions are governed by rules which require funds raised by subscription and deductions from damages to be used for the benefit of members and not for the purpose of making a profit. A wide variety of benefits and services are extended to members and former members, although it is recognised that the latter do not pay dues as active members due. The ST article allows little credit for such service provision.
On 24 March Sir Michael Turner replied under the heading 'National Union of Mineworkers. Allegations in the 'Sunday Times' - 16 January 2005. Miners COPD.'
Thank you for your letter dated 23 March and the report which accompanied it. As so often happens, a full investigation has shown a balanced picture which is, sadly, not always the case with a poorly researched article. Your report explains the well understood relationship of any trades union to its members where they may have suffered personal injury in the course of their employment. It would not appear that the (locally based) NUM and the individual claimant is any different in principle from that which obtains in other fields. There is nothing in the article which, in the light of your thorough report, requires either to be considered by me or referred to the Law Society. If the Audit Office has decided to undertake its own investigation, it would be surprising if it came to conclusions other than your own.
From my point of view, the issue having been raised, I can see no objection to the release of your report to other members of the CG. It might serve to allay doubts which may have arisen as regard to the conduct of the NUM, which as I have said, appear to be groundless.
As noted above, the Claimant's case is that the private correspondence 'was enough to establish both apparent bias and ... actual bias (in the sense of loss of the necessary objectivity)'. Mr Green QC submitted that, by responding as he did, Sir Michael Turner acted improperly in (a) engaging in private correspondence with one party to litigation and (b) implicitly agreeing that information coming to him should not go to the other side (the DTI).
On the face of it, the direct communication between the Judge and a member of the CG appears odd. However, it seems that although he was responsible for the management of highly complex litigation he did not have any clerical assistance through whom he could pass on communications.
The failure to inform the DTI about the contents of the CG report was (at least in retrospect) a mistake, because it suggested that one party was telling the Judge something that it did not want the other side in the litigation to know. Even private communications which are thought to be essential in the overall interests of justice have their dangers in terms of perception: a matter which is well understood in the criminal and public law fields.
On the other hand, I am quite clear that the Claimant has overstated the complaint. Sir Michael Turner was in an unusual position. He depended on both the professionalism of the lawyers who appeared before him and their cooperation. It is clear that he was uneasy about the contents of the report not being made available at least to the CG (as in due course it was); and the exchange illustrates some of the dangers of unrecorded hearings in private. However, it is important to bear in mind that neither Mr Allan QC nor his junior, Mr Bowley, regarded either the request or the response as being objectionable in the context of the scheme hearings. The Sunday Times report had not raised any issue which was relevant to be determined between the CG and the DTI.
Furthermore, Mr Allan QC, who was closely involved in the drafting of the report, was aware of the sensitivities of disclosure. His evidence, that he was concerned to ensure that it was a clear and accurate response to the Judge's expressed concerns, was not the subject of any criticism by the Claimant. In addition, it is quite clear that the DTI knew about the request and Mr Lumsden was aware that the response might have to be disclosed to it. In the event the DTI never showed any curiosity about its contents.
The Claimant also criticises the report as being incomplete and lacking in candour. It was said to be incomplete because it was limited to the practices of the NUM Yorkshire area, and was said to be lacking in candour because it did not point out that Thompsons were themselves being investigated by the Law Society, believed that the investigation was in relation to deductions, did not disclose the Law Society's view in the Bell case and had sent out letters to clients whose cases had not yet concluded in order to 'satisfy Law Society requirements.'
In my view these criticisms are ill-founded. The analogy with the principles of disclosure on a 'without notice' application is inapposite. The request and response were not concerned directly with issues which had arisen in the scheme litigation. The report was designed specifically to meet the Judge's concerns about matters raised in the 16 January article. It was not intended nor expected to provide a running commentary on other issues.
Nevertheless, it is clear that there were those in Thompsons who were pleased by the Judge's letter of response, and that the Judge had been presented with a picture which would become inaccurate. This is a matter to which I will return below.
In §136 of his closing submissions Mr Green QC advanced the case on bias on the following basis:
The rule as to private communication (excluding another party to the proceedings) is so elementary that Sir Michael Turner's conduct calls for an explanation, an explanation found in his loss of objectivity, such that he was no longer acting in accordance with the norms of judicial impartiality and objectivity. In short, he had lost his judicial compass, or its indications were distorted by his sense of proprietorship over the Scheme, such that he strayed from well-established and well-understood principle, and unwisely committed himself to the above views in private correspondence with Mr Lumsden (and, through him, the CG).
In my view these submissions are extravagant and unrealistic. The original request was not regarded as objectionable by any of the experienced lawyers present at the time it was made, including those representing the DTI. All that the Judge was indicating in his letter of 24 March was that the report confirmed his prior understanding that deductions in favour of unions were not objectionable: a view of the matter that was apparently shared by the DTI until shortly before his letter was written. In due course the Judge came to see that there was more to the issue than he had appreciated (particularly in relation to the regulatory implications), and changed his mind about it. This correspondence does not (at least by itself) advance the Claimant's case based on bias.
In §138 of the closing submissions the Claimant's argument was developed further:
This private correspondence was enough to establish both apparent bias and ... actual bias (in the sense of loss of the necessary objectivity). It was not appropriate for him to have the GLO transferred to him, a fortiori without disclosing the fact and content of the correspondence to all relevant parties ...
For the reasons already stated, I do not accept the first part of this submission. I will return to the second part later in this judgment, when dealing with the transfer of the GLO.
Greene Wood and McLean.
GWM was incorporated as a limited liability partnership on 8 October 2004, and started to operate as a firm in November 2004 with three equity partners, Wynne Edwards, Edward Friend and Simon Evans. The firm occupied serviced offices at 10 Old Bailey on a 15 months lease expiring on 31 October 2006.
Mr Edwards had qualified as an attorney in South Africa in 1976. He had worked for a firm in Pretoria, in which he became a partner and the head of its insurance department. He acted for large insurance companies and his work covered group claims.
In 1999, on the basis of his experience of class actions in South Africa, he was invited to join the London-based firm, Class Law, which specialised in group actions. In 2003 he moved to another firm, St David's, from which he resigned in 2004 in order to set up GWM with Mr Friend, a former property partner at Class Law and Mr Evans who had also been at Class Law.
Mr Friend had qualified as a solicitor with Nabarro Nathanson in 1989 where he worked until 1993. From 1994 to 1998 he was an assistant solicitor at Paisner & Co, from where he moved to Chethams and thence to Paul Joseph & Co, where he subsequently became a partner. He joined Class Law as a partner in or about 1998, where he met Mr Edwards. He left Class Law to join St David's as a partner in 2003, and subsequently became one of the three founding partners of GWM. He specialised in property related matters, and his role in GWM was to run the property practice and to assist in managing the firm.
Mr Evans did not give evidence. At least in relation to the GLO application, he seems to have assisted Mr Edwards, for example in liaising with counsel who were instructed.
Mr Edwards first became aware of a potential claim on behalf of the miners for the recovery of union deductions at a time when he was a partner of St. Davids, in the spring or early summer of 2004. In early 2005 he was asked by John Mann MP if he could assist the miners in their claim for the recovery of deductions. At this stage it was made clear to him that the claims could only be made on the basis that claimants should not be exposed to any cost or financial risk.
By June 2005, GWM had approximately 19 employees in what was intended to be a broadly based commercial practice with an emphasis on class actions. Mr Edwards envisaged that the firm would scale up quickly by recruiting temporary staff if the firm thrived. As he explained in evidence.
Our intention was that the firm should expand rapidly off the back of the miners' group litigation as a 'once in a career' opportunity and we intended to exploit it to the maximum.
This vision for the long-term prosperity of the firm was imperilled by the short to medium financial difficulties it faced for some time before May 2006.
The summer of July 2005
By at least the beginning of May 2005 Thompsons was aware that they were being investigated by the Law Society, although the precise nature of the investigations remained unclear until February 2006. A letter had been received by Mr Shears in April 2005, notifying him of the investigation; and it was following this that Mr Smith attended a conference with John Foy QC to discuss the regulatory issues in the light of the findings against Raleys. Although the Law Society had not indicated the nature of its investigations, it was assumed that it was a response to the deductions issue; and the firm began to marshal the material which could be used to answer the regulatory case.
On 28 June 2005 The Times published another article. This time the focus was on the UDM, its claims handling company, Vendside Limited, and what was said to be the preferential treatment of the UDM by the Government.
On the same day, Mr Jones circulated an internal document proposing the line to be adopted in relation to the Law Society investigation. This included:
Thompsons want to:
Reach a satisfactory conclusion with the Law Society
Inform and protect our clients
Reinforce the importance of union legal services with relevant MPs
Seek positive support from the Government for union legal services (something recently supported by the Lord Chancellor).
Mr King replied:
I have given some thought to some matters.
If the Law Society take the view that we failed to advise our clients about alternative methods of funding, then:
1 They could refer us to the SDT;
2 Order us to repay the amounts our clients paid to the union;
3 Order us to pay the costs of the Law Society investigation
4 " CCS investigation into each individual case.
On 29 June Mr Smith wrote to Mr Patterson:
We need to put some detail on the statements we have made about the quality of our service and how it differentiates from that provided by, in particular, the UDM, Vendside and its solicitors. Here we need actual, hard, raw data, preferably using the DTI figures where possible, which show: a) that we have recovered higher average damages for each head on [COPD] and VWF; and b) the reason for that in respect of the work which we have done.
On the same date a further article was published in The Times. This was critical of Beresfords, the solicitors instructed by the UDM, the profits made by that firm and the extravagant lifestyle of its partners.
On 30 June, in response to these articles and the reports that there was a police investigation into allegations of fraud by individuals connected with the UDM and Vendside, Sir Michael Turner called an Extraordinary Review Hearing in the Royal Courts of Justice on 5 July 2005. His email sent to members of the CG made clear that the hearing would consider:
... the situation in the light of the events recently reported in the press concerning the actions of the UDM, Vendside and Beresfords. The objective is to enable the Court to be satisfied, so far as it can, what steps have been and are being taken to safeguard the claims handling under the CHA generally and the security of claims which have been made under it.
One of the issues to be considered will be what can and should be done to protect the cases being handled by UDM, Beresfords and Vendside in the event that the investigations now being undertaken by the police make it impracticable for any of those organisations to continue to act on behalf of claimants. The Law Society has therefore beeen invited to attend and make representations.
It is of the utmost importance that:
1. no undue delay to the progress of the scheme is introduced;
2. there is re-assurance forthcoming that the problems which currently exist are limited to the named organisations;
3. if there are to be problems about representation, these should be overcome at the earliest possible moment
4. the hearing is convened as soon as possible and that its purpose is made widely known.
It is clear from this email that the Judge's concern at this stage was about the possible effect of the police investigation on the claims of individual claimants and the proper representation of those claimants.
At the hearing on 5 July the Law Society was represented, as well as the CG, the DTI and other interested parties. Among those who attended were Messrs Patterson, Smith and Lumsden.
Before the hearing began the Judge made a statement which included the following.
There is another area of potential dispute which concerns claims which have been advanced through the auspices of the mining unions. From time immemorial it has been part of the contract between a member and his union that the union will support claims made by the member against his employer. It is common place, if not universal, for the union to deduct a percentage of the sum recovered in order to cover the costs of other members whose claims may not be successful. It is undoubtedly the fact here that many claims are being brought under union auspices, although it should be said that there is no obvious financial benefit to the member to bring his claim in this way. All claims, with the possible exception of some brought on behalf of UDM members, which are successful already enjoy the benefit of the costs revision written into the CHA. I understand that in some cases quite substantial proportions of awards have been taken in this way for the benefit of the union. It is a matter for the individual union to consider whether the arrangements intended for a risk situation are compatible with what exists in the present case, that is an exemption from liability for costs in the unsuccessful claim, and a guaranteed sum of costs in the event that the claims succeed.
Although expressed in terms of being a matter for individual unions, this passage shows that Sir Michael Turner was doubtful as to whether the deductions were justifiable in the light of the way in which the schemes operated. To this extent the views he had expressed on 24 March had changed.
In a position paper, the Law Society informed the Court that it had,
... either carried out or will have shortly carried out investigations into over 30 firms of solicitors involved in VWF and [COPD] cases.
Mr Dutton QC, for the Law Society told the Judge that the Law Society had been investigating solicitors in relation to the handling of VWF and COPD cases and that this was the largest group investigation that it had carried out. Its aims were the protection of the public interest and those affected by the scheme, and to protect the reputation of the profession. Since its sources were confidential the Law Society felt constrained as to what could be put in the public domain. It was concerned by the damage done to the solicitors profession in relation to rule breaches and inadequate professional services but, in its view, the Schemes were capable of being continued. Some solicitors appeared to have charged or permitted charges in breach of Regulations 1, 8 or 9 of the Solicitors Practice Rules and in breach of Introduction and Referral Codes.
There was discussion at the hearing as to the 'serious nature' of the Law Society's concerns; and this was addressed in an exchange between Sir Michael Turner and Mr Allan QC, on behalf of the CG.
Mr Allan: ... your Lordship has been the supervising judge in this litigation since 1995 and you have been able to observe the manner in which this litigation has been conducted. And you will recall in your judgment you paid tribute to the way in which the litigation had been conducted by those who represented the claimants involved in that litigation.
Sir Michael Turner: Subject to the matters about which we are in discussion today, that remains my view.
Mr Allan: And it has been made clear that the lead solicitors are not involved in those investigations.
The Claimant makes the point, confirmed in his oral evidence, that Mr Allan QC was unaware of any alleged regulatory breaches by any CG firm on whose behalf he was appearing. In fact, as already outlined, Thompsons were aware that the Law Society were investigating them, although they did not know the nature of those enquiries.
However, to the extent that Mr Allan was hoping for the Judge's unconditional endorsement of the solicitors he represented, it is clear that he did not get it.
Sir Michael Turner concluded the hearing by confirming that he saw no need to make any special order in light of the statements made and information provided to him, and noted that:
It would in my judgment be in the highest degree mischievous for any interruption to the claims' process to be inflicted unless the court could be satisfied that irreparable harm would be done to the interests of justice, the claimants and the public - please note the word 'irreparable.'
The transcripts of the hearing demonstrate the Judge's approach to the issues as they appeared to him at the time. He clearly felt a responsibility for the operation of the BCRDL scheme which had come under attack, but that does not mean he was motivated by, what Mr Green QC characterised as, 'proprietorship,' to the extent that he would permit the operation of the scheme to operate contrary to the overall interests of justice. Rather the contrary. As I read his remarks, he was saying that, although he considered the proper operation of the scheme was in the overall interests of justice, the interests of justice might nevertheless require its interruption. However, before reaching such a conclusion, the orderly implementation of the scheme (with all its benefits to the individual claimants) would weigh heavily in the balance. His view, which took into account both the potential importance of regulatory breaches and the public interest in the continuation of the Scheme, at least to some extent, replicated the views of the Law Society. Importantly in the context of the present claim the Judge did not exhibit a fixed predisposition.
Templeton Insurance Limited.
At some point Mr Edwards had been introduced to Mr Anthony Fresson (a business associate of Mr Ridgway). Mr Fresson was an insurance broker who, at this point in his career, acted as a consultant to Templeton. Although he acted as a conduit between GWM and Templeton, Mr Fresson was not directly involved in the obtaining of the GLO ATE.
Templeton was an insurance company incorporated and based in the Isle of Man. In addition to being the managing director Mr Brunswick was executive chairman, and Phil Maule was the underwriting and claims manager. Templeton had previously agreed to provide ATE insurance to clients of GWM in two of its group litigation cases (the British Biotech and Claims Direct claims). These two claims were conducted by GWM on the basis of CFAs supported by ATE insurance. Neither were GLO claims.
In a telephone conversation between Mr Edwards and Mr Brunswick, which took place shortly before the end of June 2005, Mr Brunswick agreed to instruct Mr Maule to provide ATE cover for the miners' claims at an agreed level of cover of £1m.
According to Mr Edwards's witness statement:
The position adopted by Templeton was very different to the two previous cases which we had obtained insurance from them, the Claims Direct and British Biotech cases. In those cases, we had been obliged to work hard to persuade Templeton of the merits of insuring the cases, including obtaining counsel's opinion. For the miners' GLO, Mr Brunswick told me, 'I know all about it, I have read all about it, it's a good case, let's do it', or words to that effect and Templeton agreed to cover it immediately.
Mr Brunswick's agreement to underwrite was made without having neither underwriting information or counsel's advice. Furthermore he had plainly not considered the broader commercial implications of insuring the claim. As matters turned out his commitment to the insurance of the GLO was to prove highly unreliable.
On 28 June Mr Edwards emailed a draft press release to Mr Maule describing how GWM had been instructed to issue legal proceedings against solicitors and certain claims management companies. The draft included quotations from the February DTI newsletter (no.10) and referred to Templeton's involvement as the insurer. In his reply Mr Maule suggested that Mr Edwards add the information that the premium (45%) was agreed to be deferred as well as insured and that Templeton was a specialist ATE insurer.
As already noted, a problem which Mr Brunswick had not foreseen was how Templeton's support for the miners' deduction claims would impact on its commercial relationship with Thompsons. This relationship went back to 2002, when Templeton had begun to provide ATE insurance for the claims of Thompsons' clients. This amounted to approximately 50% of the ATE business placed by Thompsons. Although Thompsons decided at the end of November 2005 that there would be a 40% reduction in this business, the business relationship between Thompsons and Templeton continued throughout the material time.
This relationship between Templeton and Thompsons was unusual, but consistent with the relationship between Thompsons and its union clients. Templeton received an advance premium of £50 when issuing a certificate of insurance. Thompsons was liable to top up the premium fund if it proved insufficient to pay claims. Any profit in the accounts of Templeton was treated as held on behalf of the unions.
Mr Booth had been the Chief Financial Officer of Thompsons between 2000 and 2002, and thereafter was paid a retainer of £7,000 per month for consultancy work. From 31 July 2005 to March 2006, he continued to be paid by Thompsons for consultancy services as and when requested.
Between 2002 and 2007 Mr Booth (either in a personal capacity or through his company VISP Ltd) assisted Templeton in obtaining ATE legal expense insurance business from various solicitors, including Thompsons. For each case placed by Thompsons with Templeton he was paid a commission of £20. This was a secret commission paid to Mr Booth, unknown to his principal, Thompsons. Significantly in the present context, it placed Mr Booth in a position of conflict between his interest and his duty (such as it was) to Thompsons.
The Claimant has characterised Mr Booth's position as follows:
[His] relationship with Templeton was such that he was uniquely placed to act on Thompson's behalf in directing, persuading or pressurising Templeton with regard to its provision of ATE insurance to GWM's miner clients.
If the suggestion is that Mr Booth acted on behalf of Thompsons to bring pressure on Templeton, I reject it. Mr Booth was acting at all material times in his own interest. If it happened also to be in Thompsons's interest, it was not because he was acting on their behalf but because it was in Mr Booth's concealed financial interest.
On 30 June an article in The Times referred to GWM's involvement in potential claims on behalf of miners who had signed agreements consenting to deductions being made from damages.
On 29 June GWM wrote a letter to Vendside Ltd notifying the company of a claim and informing it that an application would be made to court for a GLO on 1 July. In its reply of 7 July, Vendside Ltd's solicitors, Brooke North, commented on 'the brevity and generality' of the letter and drew attention to the Practice Direction to the Pre-Action Protocol. Inadequate preparation followed by inexplicable delay was to prove characteristic of GWM's conduct of the litigation.
At a meeting on 7 July in the Isle of Man, attended by Mr Edwards, Mr Fresson, Mr Brunswick and Mr Maule, the outline of the ATE cover was agreed. The broad terms would be the same as those agreed for the British Biotech and Claims Direct ATE insurance: cover of £1m at a premium of 45%, to be deferred but never to be paid by the claimant miners. One point which arose was the position of Thompsons. Templeton indicated that it could not insure against Thompsons because they were 'a big client of Templeton.' There may have been some further discussion about this because Mr Edwards also noted:
Offer Thompsons a solution - ADR - Mediation etc and if they refuse [Templeton] will insure.
It is striking that, although Templeton had agreed to provide ATE cover in the British Biotech and Claims Direct claim, it had still not issued any policies in respect of these risks over 4 months later. This casual and uncontractual approach to its legal obligations was a feature of Templeton's and Mr Brunswick's way of conducting business. The GLO policy wording was not provided until April 2006 and the British Biotech and Claims Direct policies seem never to have been produced.
Significantly for present purposes, it was agreed by Mr Edwards that neither Thompsons nor its NUM client would be intended defendants under the terms (such as they were) of Templeton's ATE insurance cover.
Following this meeting, Mr Edwards drafted documentation to be used in connection with the miners' deduction claim. The documents consisted of (1) a Conditional Fee Agreement between the client miner and GWM, (2) an insurance proposal form, (3) an insurance wording drafted by Mr Edwards on the basis of previous ATE insurance provided by Templeton, and (4) a document headed,
Mineworkers' Group Action. The GWM Guarantee to Clients. No win, no fee, no risk, no cost.
On 4 August 2005 Mr Powles QC and Mr Oliver Campbell gave a written advice to GWM about the impact of the Law Society investigations on the proposed GLO application.
It was recognised that the GLO had the potential to disrupt the ongoing Law Society investigation, that there would be difficulties in pursuing the claim against the UDM and Vendside without joining the solicitors, and that a GLO would provide a means for appropriate case management of the claim. Additionally, and by reference to the transcript of the 5 July hearing, it was noted that the Law Society had suggested that the validity of the Vendside agreement might be resolved in civil litigation, and that the proposed proceedings would probably lead to a stay of the Law Society proceedings.
In a letter dated 4 August, GWM wrote to Sir Michael Turner, under the heading, DTI 'Coal Health Compensation Scheme,' notifying him of their,
... intention to apply in the very near future for a [GLO] on behalf of any miners who have been charged unnecessary fees by their unions, and/or solicitors or claims handling organisation ...
In the light of the above our firm would consider itself to be an interested party in respect of the issues which we understand were discussed at the Hearing before you at the High Court on 5th July 2005.
We also understand that at a Hearing the issue of the lawfulness or otherwise of the DTI's CHA with the [UDM] and its subsidiary Vendside Ltd was debated. Clearly the lawfulness of this Agreement is significant to our clients in respect of their proposed claims.
It is striking that, having considered the transcripts of the 5 July hearing, GWM considered that an appropriate forum for debating the issues which were likely to arise on the GLO application was a BCRDL scheme hearing before Sir Michael Turner. It is also striking that the Judge did not share that view.
On 7 August, he replied.
I have to acknowledge your letter dated 4 August in regard to the above compensation scheme. It is not immediately clear to me why you should be writing to me, except perhaps as a matter of courtesy. The issue of the legality, or otherwise of the agreements made between UDM, Vendside and any other claims handling organisation is not a matter which is of interest in the litigation of which I am the Managing Judge. If you were present at the meeting which was held on 5 July, you would appreciate that the enforceability of agreements between the named organisations and the individual miners is something which the Law Society was to investigate, and possibly litigate, with interested solicitors. It was not the intention or expectation that the BCRDL would be concerned directly with that issue.
I would be grateful to receive your assurance that you will send a copy of your letter to me to the Chief Executive of the Law Society.
If you should wish to be present and make representations to, the Court in relation to any matters of true mutual interest, you should notify Nabarro Nathanson (DTI) and Irwin Mitchell (CG) of your intention so to do at the earliest reasonable opportunity, identifying the issue(s) which you wish to ventilate. I have taken the liberty of copying your letter, to them so that they will already be aware of your potential involvement.
The autumn of 2005
The legal case for recovery of MRC deductions proceeded in tandem with a political and press campaign centred on an organisation named Action Group for Miners (AGM), under the chairmanship of a retired police officer and Labour politician with connections to the North-East of England, Lord Mackenzie. Although the legal proceedings conducted by GWM and the broader campaign conducted by AGM were intended to be separate their activities overlapped in a way which was to cause difficulties to GWM.
It is convenient to pick up the narrative at the beginning of October 2005. By this stage Thompsons had discovered that Templeton was insuring the miners claim for wrongful deduction of MRCs. On 5 October Mr Shears challenged Mr Booth about this at a meeting between them. Mr Booth's note to Mr Edwards (copied to Templeton) reads:
As agreed I am reporting back on my meeting with Geoff Shears (CEO) yesterday.
It is obvious that someone has let the cat out of the bag as his first words were 'I understand that Templeton are insuring a firm looking to sue lawyers involved in scheme cases'. He appears to be unsure of the firm involved ... This opening gambit put me somewhat on the back foot & I had to reassess my tactics accordingly.
Consequently I countered by saying that Ralph [Brunswick] had approached me & said that, because of his long relationship with the firm, he was hopeful an agreement could be reached with Thompsons to, at best, take Thompsons out of the picture or, alternately, reach a mediated settlement which enabled them to restrict the cost to the firm & allow them to handle the spin on the settlement.
On 11 October 2005 GWM sent claim letters to various prospective defendants in the group litigation. The letters were in similar form. Former clients of the proposed defendants who were now GWM clients were identified; the amount of the deduction was specified; the basis of the claim was set out, with references to breaches of the Solicitors' Costs Information, Client Care Code 1999 and alleged fiduciary obligations; demand for repayment was made; information about other clients for whom the recipients of the letter acted was requested; and the intention to apply for a GLO forthwith was stated (subject to any reply).
On Friday 21 October GWM sent a claim letter to Thompsons on behalf of its client, Barbara Hardy. It differed to the claim letters sent on 11 October. Mr Shears was the named addressee and the letter contained the following:
We have been instructed to issue proceedings against your firm and are going to issue an application for a Group Litigation Order ('GLO') next week. If that application is granted and a GLO is made all miners who assert a claim against the defendants will be encouraged to participate in the action.
We have desisted from including your firm as a Respondent/Defendant in those proceedings because it appears to us that agreement is capable of being reached with your firm in relation to the reimbursement of clients that will obviate the need for your firm to be sued and we are prepared to engage in a discussion with you in this regard to attempt to resolve the issue and reach a settlement for clients who are entitled to reimbursement. If we and our clients are persuaded that your firm has no liability then we will advise our clients not to pursue claims against your firm but, if you are wrong, we would expect you to adopt a policy whereby clients who are entitled to reimbursement are paid.
As GWM well knew, the real reason why it had 'desisted' from including Thompson as a defendant was that Templeton had made clear that it would not insure claims against Thompsons unless attempts at mediation failed.
The letter continued,
In relation to the basis for its claim against your firm we refer to the case of Mrs Barbara Hardy handled by your Newcastle firm ...
The letter then set out in detail the union funding agreement under which a deduction of £845.47 had been made from the damages awarded to Mrs Hardy, and referred to the regulatory infractions upon which the claim for repayment was advanced: rule 9(1) of the Solicitors' Practice Rules 1990, s.2(3) of the Solicitors Introduction and Referral Code 1990 and the Solicitors' Costs Information and Client Care Code 1999. The letter made a number of requests for information, and continued.
In our view the matters we have identified above amount, either individually or collectively, to a clear breach of your fiduciary duty to Mrs Hardy and also of your duty of care towards her. There are a considerable number of other prospective claimants in the same position as Mrs Hardy.
…
We suggest that we now agree that we will attempt to resolve the issue of your liability to reimburse clients by Alternative Dispute Resolution and that a structured mediation is the appropriate form of ADR.
Mediation is confidential, is not costly, is quick and could result in an outcome that is positively reported and received.
It is of course crucial for the interests of all your clients to be represented at any mediation and we would suggest agreeing the terms of a letter that you could write to each client who we believe would be entitled to participate in a GLO [if your firm were cited as a Defendant].
That way we can ensure that if a settlement is reached, the settlement is inclusive and final. We would suggest too that the mediation be held under the terms of a set of Rules agreed by your firm and ours, and that the clients form a committee which will represent them at the mediation.
We believe that we can avoid having to sue your firm and that by the process that we have suggested: -
- all of those clients who are entitled to be reimbursed are reimbursed; and
- those who are not entitled to be reimbursed are content that they had been properly charged and have no claim against you.
We hope that this letter will be well received in the spirit that it is written and look forward to your written and urgent response.
There are a number of strange features of this letter. First, although GWM commended the confidentiality of mediation, it appeared to envisage the publication of the outcome. It is unclear in whose interest this would have been other than GWM, for the purpose of publicising its successful efforts. Secondly, it appeared to require that Thompsons give all its clients the opportunity to instruct GWM in respect of deductions, and be represented by GWM in the mediation. Thirdly, for no stated reason it called for an urgent reply.
The letter could not have been seriously intended to elicit a positive response. It was plainly written so as to satisfy what GWM understood to be a condition precedent to Templeton's agreement to provide cover for any claim against Thompsons, and was framed to achieve more than could have been achieved under a GLO order.
GWM's letter was passed on to Mr Smith who dealt with the response.
Also on 21 October 2005 a press release was released on behalf of AGM, confirming that the GLO application was to be issued at the High Court on 26 October by GWM. The press release stated that there were 'estimated to be up to 500,000 miners' who had not received the full compensation in respect of their scheme claims, and quoted Lord Mackenzie calling on miners with outstanding claims and miners who had been over-charged in concluded cases to seek assistance from AGM.
Lord Mackenzie, President, Action Group for Miners, commented, 'Miners wishing to make a compensation claim will be best off with AGM. AGM has been set up to ensure that miners get all the compensation owing to them so we have assembled an expert team to represent them. Those miners seeking compensation should not have to pay any third party for managing their claim. The DTI has put in place a direct payment structure, therefore miners should not have to stand any legal or other costs of bringing their claim. Excessive charging has gone on in the past and is unacceptable and miners who want to report those who have acted improperly to the Law Society will be assisted by us in this regard.
The press release was seen by Thompsons and by the CG.
Monday 24 October
On 24 October, Mr Smith spoke to John Foy QC by telephone and then began to draft a response to GWM's letter of 21 October.
On the same day Mr Lumsden wrote to Sir Michael Turner:
Earlier this year you asked the CG to prepare a report for you about allegations made in an article appearing in The Sunday Times on 16th January 2005, concerning deductions from damages operated by the National Union of Mineworkers.
I conferred with all of the main firms representing NUM Areas who are part of the BCRDL before reporting to you.
At the Court Hearing in July this year, the Law Society reported that it has been discussing deductions from damages with a number of firms who do so under client authority. The Society will be meeting my colleagues in Thompsons England and Wales very soon.
My colleagues are anxious that all of the material that might be relevant to a full and proper consideration of matters should be available to the Society, including the CG Report and your letter of 24th March which responds to it. I have attached the letter to this e-mail for your convenience.
Although your response was not designated a confidential item, you may recall that the report itself was submitted to you as a document which the NUM proposed should remain confidential, unless you were minded that it should be available to other parties, in which event the Union asked for the opportunity to be heard by the Court. As it transpired, this was not necessary.
Thompsons would now like to present the report and your letter of response to it as part of the paperwork that the Law Society will review and have asked me to write to you in case you have any difficulty with that. I have discussed the matter with Mr. Tucker and although neither of us believe that there should be a fundamental difficulty, we both think it right to seek your approval.
Thompsons are separately approaching the NUM to obtain their formal permission to disclose the report, which is unlikely to be withheld given the circumstances.
The Claimant contends that the purpose of this letter was to remind Sir Michael Turner of the views which he had expressed in March in favour of union deductions as part of the conspiracy to ensure that a biased Judge heard the GLO application. His pleaded case (at §90A of the Re-amended Particulars of Claim) is as follows:
On 24 October 2005, three days after Thompsons' receipt of GWM's letter before action, Mr Lumsden reminded Sir Michael Turner of his considered or concluded views, formulated as a result of his receipt of the Report and set out in the letter of 24 March 2005.
The letter may have had the effect of reminding the Judge of the views he had expressed in the March letter. However, for the reasons already set out above, I am clear that the Judge did not have fixed and predetermined views, and that his mind was not closed to contrary persuasion. It remains to consider what Mr Lumsden's purpose was in writing as he did.
In his witness statement at §6.23 he gave his explanation.
At this point I understood that Thompsons were considering their response to matters raised during the investigation by the Law Society into deductions. Mr Shears ... contacted me and asked me if Thompsons could present the report together with Sir Michael's letter responding to it to the Law Society. It seemed to me that this shouldn't be done without the permission of the Judge and so I wrote to him.
In cross-examination Mr Lumsden responded to the allegation that the letter to the Judge was a response to GWM's letter written on behalf of Mrs Hardy.
There wasn't any prompt, not made known to me. I received a request from Mr Shears … to send the Judge's letter and the report as part of the Law Society paperwork the firm wanted the Law Society to review, and there wasn't any connection between that and the Hardy letter or other things that were going on, not that I was aware of.
Mr Shears's witness statement also dealt with Mr Lumsden's letter to Sir Michael.
I cannot actually remember asking Lawrence Lumsden to write the letter of 24 October 2005 … but on reflection I believe it is probable I did ask him to do so. I remember discussing and agreeing with Lawrence Lumsden that it was a good thing to get this correspondence with the Judge into an arena with the Law Society and any other arena that would help. I don't remember ever having seen the letter.
He too was asked whether it was a coincidence that the letter of claim arrived on 21 October and Mr Lumsden sent his letter on 24 October. He said that it was.
Although I can see why the Claimant views the sequence of correspondence with suspicion, having heard the evidence of Mr Lumsden and Mr Shears, I have concluded that their evidence should be accepted. Although the letter on behalf of Mrs Hardy had been received by Thompsons, it did not raise the immediate prospect of litigation and was a matter that was being handled by Mr Smith. I see no sufficient reason not to treat Mr Lumsden's letter of 24 October at face value: as a wish to put before the Law Society the views expressed by Sir Michael Turner in March 2005. Whether it would have carried very much weight in view of the regulatory issues the Law Society was considering is another matter.
Tuesday 25 October
At 11.15 on 25 October Sir Michael Turner replied to Mr Lumsden's request, saying that he was content that his letter of 24 March should be released to the Law Society.
In an internal email timed at 16.50 Mr Lumsden forwarded Sir Michael Turner's email consent to Mr Shears and Mr Smith.
Approval for disclosure has been given by the judge - see enclosed.
I have read the fax from Phil [Smith] and the material from [GWM].
I think the Rule 9 point was covered with Hugh James and the letter copied to Phil earlier this year.
Phil's note of conference with Counsel does not I think cover Rule 9 - was this dealt with at an earlier meeting or by separate Note from Counsel?
I suggest that Counsel should be appraised of the recent [GWM] letter and its threat.
The judge has indicated very recently, that he wants progress on the enforceability point (the UDM / Vendside contracts) which the Law Society agreed in July, could be determined by him but which has been forgotten since then.
See also enclosed press release from Action for Miners, a front for [GWM] and perhaps others.
Does anyone know who Lord Mackenzie is?
….
PS Have received Phil [Smith]'s draft letter to [GWM].
It is clear, at least at this point, that Mr Lumsden and Mr Shears were dealing with a number of different but overlapping issues: the GWM claim on behalf of Mrs Hardy, the Law Society and the regulatory issues, the involvement of AGM and Lord Mackenzie, and the ambit of future hearings before Sir Michael Turner, in particular, the possibility of a determination of the issues raised by the UDM/Vendside contracts.
Wednesday 26 October
On 26 October 2005 GWM emailed Irwin Mitchell with a copy of the GLO application and supporting documents. These appear to have been either in draft or incomplete, because GWM wrote on the following day with a copy of the application and supporting documents which had been issued on 27 October.
During the course of 26 October, Thompsons sent a reply to GWM's letter of 21 October in which it responded to and rejected the allegations of breach of the regulations which GWM had relied on.
An earlier draft was in the following form:
We are satisfied that the legal advice and assistance agreement is lawful as between our client and the union. It reflects the well-understood basis of union legal advice and assistance schemes and the role which they have played for decades in establishing rights to compensation for personal injuries suffered.
This became:
We are satisfied that the legal advice and assistance agreement is lawful as between our client and the union. It reflects the basis well-understood by the courts, of union legal advice and assistance schemes and the role which they have played for decades in establishing rights to compensation for personal injuries suffered (emphasis added).
In my view the Claimant is right to identify the change as an allusion to the views which Sir Michael Turner had expressed in his letter of 24 March 2005.
AGM's 21 October press release was the subject of a letter from Mr Tucker to Sir Michael Turner on behalf of the CG.
I write following consultation with my colleagues and Counsel to provide you with a copy of a press release issued by an organisation called [AGM]. It seems appropriate to draw this press release to your attention because this organisation, by its press release, is critical of the operation of the scheme and invites Claimants to transfer their instructions to AGM who in turn will put them in touch with 'one of the team of leading solicitors firms'. In our view, the claims made by AGM, are inaccurate and misleading. Any significant transfer of claims from existing advisers to this organisation would cause dislocation to the scheme.
One firm of solicitors who are named in the press release, [GWM], have recently joined the CSG having informed us that they are acting for a number of former mine workers pursuing claims following the transfer of instructions. We have asked Greene Wood & McLean to provide us with a copy of the Group Action application that it is said is being lodged with the High Court today.
It is, in our view, objectionable that Claimants who have no complaint with regard to the service provided by their current legal adviser are being induced to transfer instructions elsewhere. There is, of course, no objection if Claimants wish to transfer because they are dissatisfied with the service and/or because they may be concerned about charges that have been raised of them.
It seems to us that the activities of AGM as framed in this press release cross the line between the regulatory rules that affect solicitors that may be on their panel (there is no regulation of AGM) and potentially fall within the jurisdiction of the Court in view of the criticism made of the operation of the scheme. It is for this reason that we consider it appropriate to draw the press release to your attention. We will consider the position further as and when we receive a response from [GWM] and we have had an opportunity to consider that which may be published in the media as a consequence of the press release and the offer to provide interviews.
I have copied this letter to the DTI.
A number of points arise from this letter. First, it was written by Mr Tucker (who had never acted for union clients) on behalf of the CG and not on behalf of any of the solicitors who were facing claims in the GLO application. Secondly, it drew attention to AGM's criticism of the administration of the BCRDL scheme and the potential dislocation to the scheme if there were significant transfers from current legal advisors. Thirdly, there was a reference to GWM's intention to apply for a GLO.
Although Mr Lumsden accepted that he liaised with Mr Tucker in relation to the drafting of the letter, it was plainly written on behalf of the CG and expressed the concerns of CG and its Counsel about the activities of the AGM and the potential for wholesale disruption of scheme's operation.
At 19.09 Sir Michael Turner responded by email copied to the DTI and the Law Society.
To all interested parties;
Please find attached my letter to Andrew Tucker of the CG which is also of immediate interest to you.
It was not sent to GWM.
The attached letter was in the following terms:
Your letter by e-mail came as no surprise to me. As it happened, I heard an interview on radio 4 this morning in the course of which the purpose and activities [AGM] was the subject of discussion. Again it comes as no surprise to me that [GWM] are involved, since they had threatened some months back that they were minded to seek a group litigation order for the very purpose which has been adopted by [AGM]. They had sought my permission to appear at the review hearings as 'persons interested'. I informed them that if they wanted to appear at the Review Hearings they would need to make the appropriate application. I heard nothing more from, or of, them until this morning.
These are matters of great concern to me as the developments are calculated, if not intended, to destabilise the scheme as it is running at present for what appear to be spurious reasons. One possible view of [AGM] is that this is a thinly veiled attempt to circumvent Solicitors' Practice Rules through the front of a company which claims to be a charity. Of course, I am unable to say that this is the case, but it is a matter in which the Law Society should interest itself as a matter of extreme urgency. You will be aware that I recently wrote to that organisation expressing my concern about the lack of overt action to challenge the legality and enforceability of deductions made by UDM/Vendside from miners' awards. It is this area which the AGM seek to exploit.
To the extent that [AGM] claim that they are able to short circuit 'bureaucracy and excessive charging', this is almost certainly both misleading and mischievous.
What action the CG should take, is not at this stage for me to dictate. Suffice it that I would be sympathetic to any application to reconvene a further Extraordinary Review Hearing provided that a substantive basis for such an application can be found.
For reasons which will be self-evident, this letter is being copied to Nabarro Nathanson and the Law Society (Russell Wallman).
The Claimant submits that the contents of this letter illustrate Sir Michael Turner's hostility to GWM and its clients. I disagree. GWM is mentioned in the first paragraph in terms which are neither hostile nor untrue. The second paragraph deals primarily with AGM and the claims it made in the press release. The Judge's concern was that AGM were attempting to get around the Solicitors' Practice Rules and that this was a matter of legitimate concern to the Law Society. The Judge also referred to his concern, first expressed at the 5 July hearing, in relation to the legality and enforcement of the UDM/Vendside deductions. His views about AGM's claims to be able to short circuit bureaucracy were not unreasonable.
Although the word 'calculated' might have been better expressed as 'have the potential to', I do not read the letter as constituting either a complaint about GWM nor a threat to report GWM to the Law Society. Nor do I consider that it demonstrates a fixed predisposition against GWM and its clients. It is important to note that the letter was sent to the DTI which did not consider that the letter gave rise to any reason for the Judge not to be involved in the GLO application, and to note that the GLO did not concern transfer cases, only deductions in settled cases.
Thursday 27 October
At 10.55 on 27 October Mr Lumsden wrote to Messrs Shears, Smith and Thompson:
The judge is now interested in the AGM move - not unhelpfully - there may be another extraordinary hearing.
More to follow.
This was clearly a reference to the contents of Sir Michael Turner's letter of 26 October 2005.
GWM's GLO application was brought against (1) Ashton Morton Slack solicitors; (2) Moss solicitors; (3) Beresfords solicitors, (4) Wake Smith solicitors, (5) Raleys solicitors, (6) the UDM (Nottingham section) and (7) Vendside Limited. The 1st to 4th Respondents were on the UDM/Vendside panel of solicitors. Only Raleys was instructed by the NUM.
At 12.32 Mr Lumsden forwarded GWM's application and the supporting documents to Mr Shears and Mr Smith. Included as an 'untitled attachment' to the email was a message, which read as follows:
See enclosed - a large bundle, I suggest you have someone print off one copy and take further copies for whoever needs them.
I also suggest that you defer sending your response to Greene Wood McLean until you have considered their GLO.
…
Lord MacKenzie an ex-copper who wrote about problems in policing the miners' strike - can Jennie dig up as much as possible about him and who is in AGM? A man with scores to settle apparently.
Our thinking is to ask judge to convene special hearing, citing damage to scheme, flush out opportunistic approach masquerading as outrage over miners, get the judge to deal with Vendside contract issue and stay GLO or refer to our judge, pending Vendside issue being determined.
Flush out too, what their case is supposed to be in law - other than failures of various professional kinds that are for the Law Society and not the courts to deal with - probably at bottom, an argument that union services being extended and level of deduction applied, under false pretences and solicitor complicit in this.
Also to seek to get [DTI] to support as 'scandal' not good for them nor generally.
If Vendside contract argument loses in court however, further problems over NUM deductions likely to follow even though different ...
This email, which the Claimant characterized as 'the strategy email', plainly covers a number of issues. Among these were: first, the response to GWM's claim letter of 21 October and to the GLO application; secondly, the broader political issues arising out of the involvement of AGM in the deduction claims; thirdly, how it might be a good idea to persuade Sir Michael Turner to deal with the Vendside issue and either stay the GLO or deal with it himself, pending the determination of the Vendside issue; and fourthly the importance of bringing into account, as the justification for the deductions, support for miners knee litigation.
It will be necessary to consider the 'strategy email' in the context of the claim as a whole. However the suggestion that Sir Michael Turner should be invited to convene a special hearing to review the state of play does not strike me as inherently objectionable. It was in any event a request to him which came from the CG.
The transfer of the GLO application from Master Turner to Sir Michael Turner on 11 November 2005.
On 10 November 2005, Mr Tucker wrote to Sir Michael Turner on behalf of the CG.
We write to notify the Court of applications the Claimants propose to pursue arising as a consequence of events that have taken place since June of this year culminating recently in a press release issued by an organisation called [AGM] to coincide with the lodging of an application for a Group Litigation Order by [GWM] on behalf of a number of Claimants.
The CG, on behalf of the CSG, plainly have responsibility for pursuing the best interests of Claimants who seek to recover damages from British Coal Corporation/the DTI for respiratory diseases. However, we believe that our role extends further and that we have a responsibility as custodians of the scheme (together with the Court and the DTI). It is this feature of our role that gives rise to the applications we propose to bring before the Court which, in outline, are as follows:-
1. That the Court should order that the GLO application is listed before you and stayed on terms that interested parties appear before the Court so that directions may be given for the determination of the validity of the various Vendside agreements entered into between individual Claimants and Vendside.
2. That the Court gives directions as to the terms upon which Claimants may transfer instructions from one legal adviser to another.
The factors that we have taken into account in arriving at the decision that application should be made to the Court to make Orders in the above terms are as follows:-
1. The question of the legality of the various forms of the Vendside agreement is a running issue which may be the cause of continuing damage to the integrity of the scheme generally. Although there are regulatory and other enquiries underway which are not a matter for the Court we submit that the integrity of the scheme is a matter for the Court. It seems to us that resolution of the validity of the said agreements will have a positive effect and, as the Law Society have indicated, may speed up the regulatory enquiries. More importantly the Claimants concerned will have certainty where presently they face uncertainty. Further, it appears to us from consideration of the GLO application that the outcome may determine whether or not the GLO is susceptible of proceeding further. The CG accept that a question may be raised as to locus in relation to this application. We seek no more than the direction indicated above. If the Court sees fit to order the relevant parties to formulate an issue for determination the CG would expect to have no part to play in subsequent hearings.
2. The AGM press release criticises the operation of the scheme generally and appears to be designed to encourage Claimants to transfer instructions to a panel of six firms of solicitors whom, it is alleged, will be able to handle claims more expeditiously than present advisers. We do not believe there is any foundation in fact for this assertion. Any transfer of claims from one solicitor to another, on a spurious basis, will achieve no more than delay for the individual Claimants concerned and dislocation of the scheme generally. Claimants who have a genuine grievance with their solicitor should be entitled to transfer instructions but those who do not should be encouraged to remain with their legal adviser.
We have copied this letter to the DTI and invite them to inform the Court as to whether or not, in their role as custodians of the scheme, they support the proposed applications. We have also copied this letter to The Law Society, to GWM and to the solicitors named in the GLO application.
We should be grateful if you would confirm whether or not the Court is prepared to hear the proposed applications by reconvening the Extraordinary Review Hearing or otherwise on the hearing listed for 1 and 2 December 2005.
The Claimant is critical of this letter. Mr Green QC points out that the criticism of 'transfers … on a spurious basis' mirrored part of the Judge's letter of 26 October (which was not sent to GWM) in which he had referred to destabilizing of the scheme 'on what appear to be spurious reasons.' However, in so far as it is a valid criticism, I do not accept that it advances the claim against the 1st to 9th Defendants. While I accept that the letter reflected Mr Lumsden's views and that he saw it in draft, it came from Mr Tucker on behalf of the CG and raised issues of justifiable concern to the CG. There is nothing to suggest that Mr Tucker and the CG were simply the mouthpiece of Thompsons and Mr Lumsden, and good reason to conclude that they were not. In any event I reject as entirely artificial the assertion that the letter constituted a misrepresentation by omission by Thompsons and/or Mr Lumsden. There was no representation, no failure to disclose what should have been disclosed and no conspiracy.
One proposal was that Sir Michael Turner should consider the validity of the 'Vendside agreement' and the terms on which claimants should be permitted to transfer their instructions. This was plainly sensible. It had been the UDM/Vendside agreement which had generated much of the adverse publicity since it appeared to lead to the enrichment of individuals. The issue had been raised as a suitable preliminary issue in the summer; and if the Court was in a position to determine issues of principle, it would have speeded up the Law Society investigations and lessened the potential disruption to the operation of the scheme from the transfer of instructions.
On the following day 11 November 2005, Senior Master Turner wrote to the respondents to the GLO application, to GWM and to Irwin Mitchell.
Sir Michael Turner has now directed that this application for a GLO is to be made to him.
The conversations which some of you may have had with my P.A ... concerning dates of availability and any correspondence you have sent in with dates to avoid are now non valid as this case is being dealt with by Sir Michael Turner.
It is unclear how the GLO application came to be transferred from the Senior Master (Master Turner), before whom such applications were usually made. Although a search for the Court File was carried out at my request, it seems to be no longer available. In the course of argument during the GLO application hearing on 4 April 2006, Sir Michael Turner informed counsel for the GLO claimants.
The Senior Master consulted me and he agreed to refer the application to me.
It is apparent that at this point GWM was concerned about Sir Michael Turner hearing the GLO application, and a draft letter was prepared opposing the transfer. This was never sent. Among the points made in the draft was the argument that the lawfulness of the Vendside agreements was only one of the many issues that arose and that the claims were private law claims brought against parties most of whom were not parties to the BCRDL scheme. The draft letter resisted the making of a direction as to the terms on which transfers might be made and offered the firm's reassurance that it had not encouraged (and would not encourage) clients to transfer instructions unless the clients had a genuine grievance with their existing solicitors and had been independently advised that it was in their interest to do so.
I will deal later with my overall conclusions about the Claimant's claims. At this stage it is sufficient to state that, although it is clear that Mr Lumsden and Thompsons played their part in supporting the CG request that Sir Michael Turner should hear the GLO application and, like the CG were aware of his earlier views about union deductions, their actions were not tortious.
In his unchallenged evidence at trial Mr Allan QC expressed his own view of the matter.
Given his experience of dealing with the BCRDL since 1995, Sir Michael Turner had an obvious advantage over any other judge in understanding the background to the application
The correspondence highlights a potential issue on which I should express my very clear view. Those involved in litigation should not seek to influence a decision as to the identity of the judge who will hear their case. Information about the case (which is agreed between the parties) may be helpful to Court Listing Officers. Suggestions by parties as to the identity of the judge who should hear their case should not be made, and are likely to be treated as unwelcome.
The withdrawal of Templeton's ATE cover on 15 November and its reinstatement on 23 November 2005
On 2 November there was a meeting between Mr Booth and Mr Shears. Mr Shears plainly did not know (and had no reason to believe) that what he said would be reported by Mr Booth to Mr Edwards. Part of Mr Shears's memorandum (dated 4 November) recording the meeting included:
[Mr Booth] also wanted to discuss the possibility of settlement, which issue he had raised with me before we received the initial letter of claim ...
He remained of the view that it may be possible to achieve a finite settlement which could be attractive in the context of any uncertainty. I said we did not accept that there was any risk to our union clients on any of these likely claims, and there seemed to me to be little vulnerability on the part of Thompsons save, perhaps, politically in relation to the next of kin cases, on which we remained confident as to the strength of the legal arguments.
Both Mr Shears's and Mr Booth's notes record Mr Booth suggesting that he be authorised to approach GWM on the basis that, although confident that there was no liability, Thompsons were interested in exploring a finite settlement on satisfactory terms. Mr Shears's note records that he refused to authorise Mr Booth to make such an approach to GWM.
On 14 November GWM replied to Thompsons' 26 October letter and repeated its offer to settle the dispute by a structured mediation with a timetable which would result in a mediation on 23 December 2005. Neither the prescriptive proposal for an unseasonal mediation nor the timetable were realistic. The proposal was bound, if not intended, to be rejected. The letter contained the implicit threat:
Arrangements are currently being made in relation to the hearing of the application for a Group Litigation Order, and if there is to be any prospect of settling with your firm rather than joining it into the proceedings, urgent attention will have to be given to the matter.
Although this was the second time GWM had insisted on a speedy response, it continued to show very little urgency itself.
Mr Brunswick's evidence was that he came under pressure from Mr Shears of Thompsons. According to his witness statement:
41. Mr Booth telephoned me in the early evening of 14 November. He explained that Thompsons had reacted extremely badly to the letter from GWM, and that he felt that the letter also undermined the role of intermediary that he had agreed to undertake. Mr Booth asked me to cancel the agreement to provide ATE cover for GWM. I refused to do so.
42. Later that evening I was telephoned by Geoff Shears of Thompsons. He was very angry about the letter from GWM and blamed Templeton for allowing the situation to arise. He explained that Thompsons did not want a mediation: an internal review had revealed that Thompsons had been making deductions from compensation awards for miners from the Durham area and paying those to the Durham Miners Association branch of the NUM. The Durham Miners Association was now almost broke, so he was worried that Thompsons might end up having to foot the bill for the deductions that might have to be repaid to miners.
…
Mr Shears wanted me to cancel the insurance and was very persuasive in suggesting I should do so and how I might best proceed to manage the risk to Templeton. Eventually I agreed, under pressure and against my better judgment.
43. On 15 November I instructed Mr Maule that he should write to GWM revoking the insurance cover. The grounds given were that Templeton was conflicted from providing cover because of its prior relationship with Thompsons.
44. The same day Mr Booth called me. He did not know what had been agreed the previous evening so I told him that I had agreed to cancel the insurance cover. He asked if he could get confirmation and I told him he should speak to Mr Maule.
Mr Booth's first account of what occurred was made in a statement made to the Claimant pursuant to s.236 of the Insolvency Act 1986 on 29 October 2010.
29. On 14 November 2005 GWM wrote to Thompsons warning that they would be joined in the proposed litigation. Thompsons' reaction was dramatic. Geoff Shears and Lawrence Lumsden both telephoned me that evening to express their anger at the situation. To the best of my recollection, Geoff Shears asked me to speak to Ralph Brunswick and intimated that I should use my best endeavours to get Templeton to withdraw ATE cover for the GLO.
30. I did speak to Ralph Brunswick as requested, but I was unable to persuade him to cancel the insurance cover Templeton had already agreed with GWM. I telephoned Geoff Shears to inform him of my conversation with Ralph Brunswick and I advised him that he should himself speak to Ralph Brunswick.
31. I understand that later that evening Geoff Shears and/or Lawrence Lumsden telephoned Ralph Brunswick who agreed that he would cancel the GWM ATE cover.
Mr Booth was cross-examined about this account and the more detailed account he had given in his witness statement for the trial (dated 26 February 2014).
In his evidence, Mr Shears denied speaking to either Mr Brunswick or Mr Booth during the evening of 14 November 2005, and denied ever having spoken to Mr Brunswick.
Mr Lumsden also emphatically denied speaking to Mr Brunswick and Mr Booth, and in his closing speech Mr Green drew back from contending that Mr Lumsden had spoken to them notwithstanding Mr Booth's evidence that he had.
Having heard the witnesses give evidence, I have concluded that Mr Brunswick and Mr Booth were both mistaken in their evidence. It seems to me unlikely that either Mr Shears or Mr Lumsden would have engaged in anything as clumsy as a direct attempt to get Templeton to break its contract with GWM and withdraw the ATE cover. It is not just that as solicitors they would have been aware of the dangers of acting in such a way, nor that the suggestion must be that they conducted themselves in a singularly (and, in my view, uncharacteristically) unsubtle way, nor that similar accusations of interference and harassment would later be made by Mr Brunswick during telephone calls on 27 and 28 February 2006, nor even that Mr Brunswick was an inherently unreliable witness (a matter which I will come to later in this judgment). It is that I was (subject to one point) persuaded by the evidence of Mr Shears and Mr Lumsden, and unpersuaded by the evidence of Mr Brunswick and Mr Booth.
The most likely explanation for what occurred was that Mr Booth saw GWM's letter to Thompsons which was sent to him under cover of an email (timed at 14.33) in which Mr Edwards wrote:
For information
A mediation by the end of the year will be pushing it but we have to rush this otherwise the opportunity will pass.
Having read the letter Mr Booth felt that GWM had broken a clear understanding and, at 17.28 on 14 November, he emailed Mr Edwards with a copy to Mr Brunswick.
When we met last Tuesday it was agreed that you would write to me setting out the mediation methodology & how you felt this would address the concerns of Templeton. Once Ralph [Brunswick] & I had this information, & had ensured that we were happy with it, we would jointly decide how best to move it forward both tactically & strategically. I discussed this approach and he agreed.
We now find that you have short-circuited this arrangement by going straight on the offensive with Thompsons without any discussion with either Ralph or me. Why – as this totally contradicts our agreement.
It was Mr Booth who was agitated by GWM's letter. He realised that the careful arrangement by which Templeton would not have to insure against Thompsons had been jeopardised. Mr Brunswick would have been aware that Mr Booth had his own interests to protect and that he would not necessarily be making requests on behalf of Thompsons.
There is one point on which I find that Mr Shears was mistaken in his recollection. I have concluded that it is likely he spoke to Mr Booth at some time on 14 November and expressed his displeasure at receiving the GWM letter. However, it was Mr Booth's fear that his secret commission on the premium paid to Templeton in respect of the insurance provided to Thompsons' union clients which generated his email to GWM, and led him to put pressure on Templeton to resile from its promise to insure GWM's case.
In any event, on 15 November Mr Maule of Templeton wrote to GWM cancelling the ATE cover for the GLO.
I write with reference to your e-mail addressed to Ralph Brunswick attaching a copy of your letter to Thompsons, the contents of which are duly noted.
I regret to advise that Templeton's position is compromised by virtue of a conflict of interest. Consequently, we can have no further involvement or participation in this risk. It does not appear from my records that insurance cover had in fact incepted, although for the avoidance of doubt, I confirm no such legal expenses insurance is in place.
Templeton's decision was not maintained for long. As soon as he received the letter Mr Edwards got in touch with Mr Fresson, and on 23 November Mr Fresson was able to reassure him that Mr Brunswick had told him that the 15 November letter 'could be ignored as if it was not sent,' so long as Thompsons were specifically excluded from the claim pursued by GWM.
The Claimant's case that the terms on which the cover was reinstated departed from the prior agreement in so far as it excluded Thompsons is incorrect. As both Mr Edwards and Mr Fresson accepted in evidence, claims against Thompsons were excluded in both the original and in the reinstated cover. It follows that when cover was reinstated on 23 November in terms which exclude Thompsons, it was not due to pressure from Thompsons, it was because the cover had always excluded Thompsons.
Since the insurance was reinstated the main relevance of this part of the evidence is that the temporary suspension of the insurance was to emerge later as a feature at the GLO hearing before Sir Michael Turner.
The press and political campaign in late 2005 and early 2006.
The issue of the GLO application on 27 October was followed by a considerable amount of publicity in the media which was generated by AGM, and to activity by Thompsons (and in particular, Mr Jones) about which Mr Green QC was highly critical. Thompsons was concerned to answer the political argument on deductions and draw the distinction between those which were made in favour of the unions and those which were diverted to solicitors or claims managers.
One of the difficulties faced by Mr Edwards, which he fairly acknowledged in evidence, was the confusion about the objects of AGM and, in particular, its relationship with GWM.
Some of AGM's publicity fed into the press. On 18 January 2006, The Times published an article stating that John Prescott (the Deputy Prime Minister) had thrown his 'support' behind AGM's campaign. Other Members of Parliament were also mentioned as supporters of AGM. Each of these subsequently disavowed support for AGM, to some extent as a result of Mr Jones's activities. Nevertheless it is clear that there was still significant support for AGM and its aims among certain Labour MPs. This political battle for support is relied on by the Claimant as the context for the later events in February 2006.
As Thompsons's Head of Policy and Public Affairs Mr Jones was engaged in liaising with Government and Members of Parliament. During the period with which this case is concerned it is clear that Thompsons considered that the deduction issue needed to be addressed on the political front. The firm plainly thought that the unions' natural political allies were not giving their union clients the support that they should have given.
Although much of the evidence was not of direct relevance to the present case, I was concerned by some of what I heard. It appeared that Mr Jones and private investigators whom he employed to assist him engaged in activities which were open to objection. I accept that most of the information acquired by questionable means (for example about Lord McKenzie and AGM) was intended to be deployed on the political front and in associated media campaigns, rather than in the litigation, and that the deployment of such material is not the proper focus of this trial. On the other hand, Thompsons also showed itself closely interested in Mr Edwards's political background in South Africa and carried out research into it.
On 16 February 2006 Mr Jones emailed various of his contacts, directing them to GWM's website.
FYI. The website of the firm that he is part of.
They are trying to screw the UK NUM. Any dirt gratefully received. If you think a Private Eye would get more on the bloke or his/their links give me a ring and it may be worth some investment from us on our clients' behalf.
I have little doubt that if they had found something to discredit Mr Edwards it would have been deployed in some way. In fact, they found nothing damaging about him, since the information which emerged was only to his credit. One of the features of this case has been the close scrutiny of the internal email correspondence within Thompsons. This has revealed how the firm operated and how individuals within the firm reacted to information. The information was confidential and never intended to be seen by third parties, and was certainly not intended to be read out in open court. I bear this in mind. Nevertheless I find it surprising that it was thought either necessary or desirable to carry out this sort of research into a solicitor acting for the other side.
Mr Pooles QC sought to justify this as being, 'unfamiliar to those not involved, in much the same way that marketing would seem unfamiliar to legal practitioners of previous generations.' His submission seemed to be that the Court should simply accept that this is the way in which litigation is conducted nowadays, and that to view this approach adversely is to be old-fashioned and out of touch. I reject that submission. While it has only a marginal bearing on the issues in the case, I am not prepared simply to treat this with the forensic equivalent of a sigh of regret at the way in which things have changed. While I accept that research on the experience of professional opponents is legitimate, trying to 'dig up dirt' on them, with the intention of leaking it to the press is not. To the extent that this conduct was encouraged or condoned within Thompsons it does not reflect credit on the firm.
December 2005: further hearings before Sir M Turner and the Templeton ATE policy.
There was a directions hearing in the GLO application on 7 and 8 December 2005. The hearing was attended by the legal representatives of the GLO applicants (represented by GWM and counsel), the seven Respondents (four of which shared two counsel), the DTI, the Law Society and the CG. Sir Michael Turner expressed concerns about the cost to benefit return of a GLO in the light of GWM's apparent concession that only 69 clients had signed up and only 398 potential applicants had contacted GWM. Given the potential costs and the number of potential individual claims Sir Michael Turner's warning that there was 'a hill to climb' was not surprising. The warning to GWM had already come from their counsel.
The Judge's order of 9 December (among other matters) directed disclosure by the respondents of relevant documents including details of deductions made. The Order also provided that (a) the applicants should state by 16 December whether they were prepared to disclose the ATE insurance policy; (b) the applicants should serve generic Particulars of Claim identifying the common issues of law and fact; (c) both applicants and respondents should serve a summary of costs incurred to date and up to the conclusion of the GLO hearing; (d) the applicants should serve a summary of costs up to the conclusion of the litigation, (i) on all the issues in the proposed group litigation and (ii) on issues restricted to pursuing the non-solicitor respondents and their appointed agents; (e) the respondents should set out in writing their full objections to the GLO; (f) the applicants should state whether they intend to claim against any Trade Union other than the UDM and, if so, to amend the application; (g) the applicants should state any basis for opposing issues affecting non-solicitor questions being tried separately (h) the case to be listed for hearing before Sir Michael Turner in a 2-3 day period in April-May 2006.
I have set out the order in some detail because they indicate some of the issues which were likely to arise, the way in which the Judge dealt with the parties and the likelihood that the application would be hard fought over a period measured in days and not hours. It is important to note that no objection has been, or could be, taken as to the form of the order and there is no criticism of how the Judge conducted himself at the hearing. Nor is it submitted that he exhibited a closed mind or any predisposition in relation to the application during the hearing.
On 17 December Mr Shears met with his union clients. At this meeting Thompsons offered to underwrite any liability of the unions to repay deductions. So far as Mr Shears was concerned, despite the financial commitment, it removed any potential conflict of interest between the firm and its union clients. His evidence was:
... once I'd had a meeting with the Durham miners' leader, I was a very happy man, because I knew that we had a solution to the problem ... in our hands, and it could be delivered.
As already noted, Mr King had already formed the view that the firm would be liable for deductions.
A decision was made by the Executive Board of Thompsons to provide for the liability to repay union deductions in the firm's accounts from January 2006. Ms Hurley's evidence on this point was emphatic: the provision made in Thompsons's year-end accounts reflected a recognised liability of Thompsons to make refunds to clients and the motivation for making the provision and offering repayment was the regulatory issue raised as a result of the Law Society investigations. Ms Hurley's evidence (which I accept) was that the GLO application (to which Thompsons was not a party) was not the primary concern of those managing Thompsons's finances.
Later, in 2007-8, Thompsons initiated a voluntary repayment of the deductions which had been made and then paid over to the unions, and contacted all former clients of the firm. All those who requested a refund of deductions were paid out in full. This involved payments totalling £3,640,443 in respect of 6,304 claims.
Turning back to the position in December 2006, although Templeton had appeared to have insured GWM on terms which had been agreed in the summer, it had still failed to furnish a policy. This meant that, despite GWM's wish to disclose the ATE policy as envisaged by the 9 December Order, it was unable to do so. Although Mr Fresson made increasingly urgent enquiries, he received no satisfactory response. A summary of the cover was sent by Mr Maule on 22 December and was passed on to the GLO respondents on 23 December.
On 16 January Brooke North (acting on behalf of the UDM and Vendside Ltd) wrote to GWM requesting a full copy of the ATE policy and, on 30 January, GWM informed Templeton that it was coming under increasing pressure to produce the policy.
On 6 February Mr Maule sent a draft ATE policy to GWM adding, 'This should give you the general gist!' This document showed track-change amendments and comprised mainly formatting changes. Mr Edwards's evidence was that he considered the wording unacceptable, but he does not appear to have responded to Mr Maule's email.
On 23 February Weightmans (acting for the 3rd respondents, Beresfords) issued an application for disclosure of the ATE policy. On 28 February a consent order was signed in which GWM agreed to disclose the policy by 10 March. It is clear that, as a result of Templeton's delays the GLO respondents had now become interested in the existence and terms of any ATE cover.
As already noted, GWM's difficulties in obtaining a policy from Templeton in relation to the GLO ATE cover was matched by Templeton's inefficiency in issuing the British Biotech and Claims Direct policies. These had been outstanding even longer by this stage. Mr Fresson described the reason for the delay in producing the GLO ATE policy as 'sheer inefficiency.' I agree. Mr Maule's glib response to what had become an urgent issue demonstrates at the very least a high degree of casual indifference to GWM's position. Mr Brunswick could offer no explanation for the delay and said that, when made aware of it, he had gone to see Mr Maule whom he described as 'dragging his feet.' This part of the history reinforces the general impression of a thoroughly discreditable approach by Templeton to its contractual obligations. It was an approach which was to cause some of the difficulties that GWM and its clients faced at the hearing in April.
The events of 27 February 2006
The Claimant's case has changed in the course of the case to accord with Mr Brunswick's altered recollection.
The pleaded case (at §140 of the Re-Amended Particulars of Claim) was that Mr Brunswick (1) received 12-15 telephone calls from various Thompsons partners and/or Stephen Booth on behalf (and at the request) of Thompsons; (2) was required to attend a meeting at Thompsons' office in Congress House; (3) was informed that since Thompsons had become aware that Templeton was insuring the claims brought by GWM on behalf of miners, they had been placing its business elsewhere; (4) was shown that over £300,000 worth of business which would have been placed with Templeton had been diverted to other insurers since October 2005; (5) was told that if Templeton issued an insurance certificate which included Thompsons they would remove their business from Templeton altogether; and (6) was concerned about the degree of pressure he was being put under.
In his s.236 statement to the Claimant which formed the basis for this part of the claim, he described what happened after he informed Mr Booth that he was providing ATE cover for the GLO.
53. Mr Booth must have informed Thompsons immediately because over the next day or so I was called by several Thompson partners, all very angry and calling me all the names under the sun. They were clearly not content that the ATE cover existed at all, notwithstanding that Thompsons was not a defendant and angry in that they had understood that Templeton had already withdrawn cover.
54. On 28 February 2006 I attended a meeting with Thompsons at their office at Congress House. The meeting had been arranged to discuss several routine matters. I first met with a number of partners to discuss PI LEI insurance; they all knew by then that I had agreed to provide ATE insurance for the GWM GLO and I was extensively criticised.
The statement continues [at §55] with an account of how he was invited into Ms Hurley's office to discuss GWM's GLO where they were joined by Mr Shears, and where he was told about the political fall-out and asked to cancel the cover.
The case against Thompsons
The case against Thompsons was based on the application of illegitimate pressure and harassment as part of the continuing conspiracy whose purpose was to get Templeton to withdraw its ATE cover for the GLO.
The documents show that Mr Lumsden emailed Mr Booth on 23 February asking whether there was any word on the insurance issue yet, and expressing his concern that the Court should not be misled into believing that there was cover whilst Thompson's understanding was that the GLO ATE cover had been cancelled in November 2005. On Monday 27 February 2006 (at 15.16) Mr Booth emailed Mr Lumsden (with a copy to Mr Shears) informing him that Templeton had reinstated the GLO cover. Mr Lumsden acknowledged receipt of the information at 17.37.
It follows that the telephone calls which are said to have been made to Mr Brunswick must have taken place after 15.16 on 27 February 2006 when Thompsons were first informed of the 'reinstatement' of the cover by Mr Booth.
Who made the telephone calls to Mr Brunswick?
Having not previously identified the individuals whom he said made the calls on 27 and/or 28 February, in his evidence at trial Mr Brunswick initially said that he spoke to Mr Christie, Mr Shears and a partner from Thompsons Newcastle office. Later, he corrected himself and said that it was not Mr Shears who called but Mr Lumsden, although he was not sure of this. In any event, his evidence was that he received the calls in his office in the Isle of Man. He described the calls in various ways:
Multiple phone calls from at least several individuals.
Some phone calls from some partners of Thompsons.
Multiple phone calls from multiple partners.
They might have been people impersonating partners, but I believe they were partners.
Mr Shears denied emphatically that he had ever spoken to or met Mr Brunswick. Mr Christie also denied speaking to Mr Brunswick about the ATE cover at this time. Mr Lumsden said that he was asked by Mr Booth to speak to Templeton and spoke to a man whom he later realised was Mr Brunswick on Monday 27 February at some time after 17.37 (when he had acknowledged receipt of Mr Booth's email timed at 15.16). He told Mr Booth that there was an inherent conflict between insuring union-backed claims and insuring a claim which involved a challenge to union deductions.
I am satisfied that Mr Lumsden was the only one of the 2nd to 9th Defendants, and the only person who might have been authorised to speak on Thompsons's behalf, who spoke to Mr Brunswick on 27 February.
Where did Mr Brunswick receive the call?
It is now common ground that Mr Brunswick was in London on Monday 27 February 2006. His evidence was that the calls he described were received in the Isle of Man at his office. This means that they were either received on the Sunday (which was before Thompsons knew of Templeton's change of position) or on 28 February when he had returned to the Isle of Man. It is likely that Mr Lumsden called Mr Brunswick on his mobile phone on 27 February at some time after 17.37.
What was said?
Mr Brunswick's evidence at trial was that he was looking for guidance from Thompsons as to what he should do about having agreed to insure the GLO. He wanted a way out and he wanted Thompsons to give him that way out. He agreed that the pressure came from his having placed himself in an awkward commercial position. In his cross-examination Mr Pooles QC explored Mr Brunswick's complaint.
Q: There was no threat?
A: No threat
Q: No instruction?
A: No.
Q: No pressure?
A: Well, no threats, no instruction. There was certainly pressure.
Q: The pressure is on you because you are acting in circumstances where you can poison the commercial relationship?
A: And I'm asking for guidance and they won't give it to me.
Much of the Claimant's case at trial on this part of the case was conducted on the basis that there had been a meeting between Ms Hurley and Mr Brunswick at Thompson's office on 28 February. An internal email from Ms Hurley timed at 19.25 on 28 February recorded a conversation between them earlier on the same day (i.e. 28 February).
He said that yesterday was a difficult day and he had received a number of phonecalls telling him 'he should not do this as you do not understand the consequences' these phone calls had been from [Mr Booth]. He said he did not know the ramifications, it was good money for him and a good case and so he backed it. However, if it was going to cripple our friends he would listen. Lawrence [Lumsden] was explaining the potential fallout, but was being very guarded in what he was saying ... He offered to kick them [GWM] in the teeth and void the policy if that was what we wanted, we just had to ask. [Mr Brunswick] said he was exasperated yesterday, he was preparing for a trial, he was stressed out and [Mr Booth] was on the phone saying you cannot do this – do something now. He said if it was a big deal, let me know, I will try and arrange an elegant exit ... He said he had started a minor argument with them to create the conditions to exit if we asked him to. They might find it strange but he would pull the cover, he had gone over the file at 10.20 pm last night given the pressure from [Mr Booth] and we would do whatever he asked.
I said that we had been advised by him that he had removed cover when we last met, it would have been helpful if he had updated us when he issued another policy, only because we may have acted on out of date information which might have been embarrassing for us. We also had received calls yesterday, and had been advised that he was keen to talk to us. As far as I was concerned we just wanted clarification of the position, we were happy to let matters stand.
I accept that the contents of the email gave an accurate and reliable account of a telephone conversation between Ms Hurley and Mr Brunswick on 28 February in relation to what Mr Brunswick said had happened on 27 February.
Mr Christie's evidence, which I accept, was that Templeton's insurance of the GLO was 'a small, peripheral issue' for him. His reaction was that it was a bit stupid for Templeton to be insuring against the unions and putting at risk their own business. He was not angry, it was more 'a raised eyebrow.'
In my judgement, five points are clear from the evidence.
First, the telephone calls on 27 February which Mr Brunswick was saying had put him under pressure were from Mr Booth who was surprised to hear that Templeton was still insuring GWM and was concerned that Thompsons might withdraw its business from Templeton, thereby jeopardising his commission. In his oral evidence Mr Brunswick described Mr Booth as 'angry'. He was, however, neither conveying Thompsons's views, nor acting on their behalf, nor to be regarded in law as acting on their behalf.
Secondly, Mr Brunswick did not receive phone calls from Thompsons or its partners putting him under pressure or telling him what to do, and made no complaint to Ms Hurley that he had.
Thirdly, in the telephone call from Mr Lumsden about the potential fallout from Templeton's agreement to insure the GLO action, Mr Lumsden was 'very guarded'. This is apparent from both Ms Hurley's email note and Mr Lumsden's evidence. This is inconsistent with Mr Lumsden pressurising Mr Brunswick to break Templeton's contract with GWM.
Fourthly, Mr Brunswick said he was more than willing to break Templeton's contractual obligations with GWM if he received any encouragement from Thompsons. He did not receive any such encouragement, and did not avoid the policy until after the judgment of Sir Michael Turner in May.
Fifthly, Ms Hurley expressed Thompsons's reaction to the discovery of the continuing existence of Templeton's ATE policy as embarrassment that the firm may have been acting on out of date information. The content of Ms Hurley's internal email is emphatically not the language of interference in third party contractual rights, harassment or the application of unlawful means.
None of this was inconsistent with the evidence which Mr Brunswick gave at trial.
Q: Again, there was no suggestion in that statement on your part that Thompsons were placing you under pressure ...?
A: Previously - on a previous question, you have asked me if they threatened me, and I've said no. You've asked me if they told me what to do, and I said no. And you asked me if they'd put me under pressure and to that one I can't answer it clearly. I was certainly under pressure. They knew it. They didn't - they - were fully aware of their commercial position vis-à-vis me. I was seeking guidance from them in the meeting with Carolyn, and she did not give it to me and she did not threaten me, but she certainly maintained the pressure on me.
Q: How?
A: By not - by not helping me.
The difficulty Mr Brunswick faced was the consequence of his own commercial decisions to insure GWM without considering the potential consequences for his other business. His complaint was not that he had been subjected to threats or instruction, but that Thompsons had not helped him find a way out of a difficulty which he had created for himself. He wanted someone else to make a decision for Templeton or to be able to say he had been forced into reneging on Templeton's obligations to GWM.
It is clear that the Claimant's case against Thompsons and the Defendant partners on this part of the case is inconsistent with (1) such contemporary written accounts as there are, (2) the inherent commercial likelihood, and (3) the evidence from Mr Shears, Mr Lumsden, Mr Christie and Ms Hurley (all of whose evidence I accept). It is also fatally undermined by Mr Brunswick's own oral evidence, inconsistent as it was with his earlier s.236 Statement. I have concluded that Mr Brunswick, encouraged by Mr Booth (for his own reasons) was looking for an excuse to repudiate his contractual obligations to GWM; and that Thompsons did nothing to help him out of his predicament. In any event, he continued to insure GWM.
I have concluded that Mr Brunswick's evidence on this part of the claim is untrue; and this informs my view of his credibility on other issues.
The case against Lord Prescott
The pleaded claim against Lord Prescott was set out in §140.6-8 of the Re-amended Particulars of Claim: (1) Mr Brunswick was told that Thompsons had arranged for him to receive a phone call which 'might encourage' him not to be involved in the insurance of miner's claims; (2) thereafter he received a telephone call from Lord Prescott (acting in concert or combination with Thompsons and/or at the direct or indirect request of Thompsons), in which he was told that if Templeton continued to support the claim he would ensure that the FSA (the Financial Services Authority) would make a full enquiry into Templeton; and (3) Mr Brunswick was concerned about the degree of pressure he was being put under by this call.
The source of these allegations was not Mr Brunswick, but Mr Fresson who, in a telephone conversation with Mr Edwards on 1 March 2005, reported what he had been told by Mr Brunswick. Mr Fresson added that the purpose of a FSA enquiry appeared to be to make sure that Templeton could not do business in the UK, and gave his own endorsement of Mr Brunswick's account by describing him as 'a straightforward man'. As will be apparent, this is not a view of Mr Brunswick which I share. Mr Edwards suggested telling Sir Michael Turner what had happened or going to the newspapers with the story, but was dissuaded by Mr Fresson, who said that Mr Brunswick would not agree to this since he had spoken to Mr Fresson about this in confidence. Following this conversation Mr Fresson got in touch with Mr Ridgway; and Mr Ridgway and Mr Barry Cavie (a business associate of Mr Ridgway) travelled to the Isle of Man to hear Mr Brunswick's account of the reported conversation with Lord Prescott. Mr Fresson repeated to them what he had been told by Mr Brunswick, who agreed with what they were told.
Although the Particulars of Claim against the Thompsons Defendants were based on the statement made by Mr Brunswick to the Claimant on 16 November 2010 under s.236 of the Insolvency Act 1986 and his 1st witness statement dated 29 July 2013, neither of these statements made any reference to the involvement of Lord Prescott. At that stage the Claimant's case against Lord Prescott was based on the evidence of what Mr Brunswick told Mr Fresson.
Mr Brunswick's 16 November 2010 statement was expressly stated to represent 'a full disclosure of [his] knowledge of and involvement in these matters.' To the extent that he had been told by someone at Thompsons to expect a call which might discourage him from being involved in insuring the miners' claims and to the extent that this was followed by a call from Lord Prescott, that statement was untrue since no mention was made of these matters.
After the trial began the Claimant was given leave to rely on an affidavit made by Mr Brunswick on 3 October 2014. In this affidavit he set out (for the first time) his account of the phone call from Lord Prescott.
5. The context of the call was that I had been receiving phone calls around the time of the meeting with Thompsons around 28 February 2006 from Stephen Booth on behalf of Thompsons and several Thompson partners, all very angry that Templeton's ATE cover for the miner's GLO had been reinstated.
6. I received the call from John Prescott on or around 28 February 2006 on my mobile phone ... after my meeting with Thompsons at Congress House. I was in the check-in area at London City Airport. The flight was leaving for the Isle of Man at about 7 pm; the call was received at about 6.30 pm. The caller said he was John Prescott. I understood him to be John Prescott MP, who was then Deputy Prime Minister.
7. It was completely unexpected and out of the ordinary for me to be speaking to the Deputy Prime Minister. I had never spoken to him previously, nor any other senior politician. Nothing like it has occurred in my life, before or since. Nonetheless, I had no doubt at the time of the call - and have no doubt now - that the call was from John Prescott MP. The way he spoke, his accent and the tone of his voice were all consistent with the person I had seen and heard on TV and radio.
8. Mr Prescott said that the GLO on behalf of the miners was of great concern to the trades unions. I understood this to be a reference to the practice of making deductions from union members' damages and paying them to their unions. The miners' GLO would have been an attack on that practice. I had not appreciated the wider implications of the case at the outset.
9. Mr Prescott said to me that Templeton were involved in some very serious issues and asked me if I understood what I was involved with. He did not ask me to take any specific step, nor can I recall him making any specific threat, but I can clearly remember the terror I felt during and after this call. The threat felt real, even though it was unspoken.
10. It was clear to me from the coincidence of (a) Mr Prescott's call, (b) my earlier meeting with Thompsons, and (c) the numerous angry phone calls from Stephen Booth and the Thompson partners, that I was being pressurised by Mr Prescott to cancel Templeton's insurance so that the miners' GLO would be unable to continue.
At §9 his affidavit specifically draws back from the allegation of a threat that, if Templeton continued to support the claim, Lord Prescott would make sure that there would be a full FSA enquiry into Templeton. Furthermore, despite what he told Mr Fresson and (implicitly) others, his evidence in court was that there had been no overt threat during the course of the conversation with Lord Prescott.
Having initially said that the conversation took place on 28 February, it emerged late in the trial, on the basis of the records of Mr Brunswick's travel arrangements, that the call (if it occurred) must have been made on 27 February in the early evening, since that was when Mr Brunswick was at City Airport in the course of returning to the Isle of Man.
In view of this information, on Day 19 of the trial, Mr Green QC clarified that his client's case was now that the call to Mr Brunswick was made by Lord Prescott between two votes in the House of Commons on the evening of 27 February, at a time when Mr Jones was in the bar of the House of Commons.
Somewhat surprisingly (not least in view of the vigorous cross-examination of Mr Jones) when it came to the cross-examination of Lord Prescott (on Day 20), it was not suggested that Mr Jones was involved in the telephone call. It was suggested instead that Lord Prescott had been passed Mr Brunswick's mobile phone number between 17:52 and 19:13 (the times of the two votes) in the Lobby of the House of Commons by one of his 'parliamentary colleagues'. It will be recalled that Mr Brunswick said that he had been rung at 18.30 while at City Airport.
While I recognise that the Claimant would have difficulty in identifying what precisely happened, the difficulties are largely as a consequence of relying on Mr Brunswick's account.
The Claimant's case focussed on three points: first, Thompsons's anxiety about the deduction issue and the GLO application and Mr Jones's political role; secondly, the unlikelihood of Mr Brunswick inventing such a call; and thirdly, that it would have been possible for Lord Prescott to have made a call at 18.30 between the two votes.
The first point assumes (contrary to my earlier findings) that Mr Brunswick was correct in describing Thompsons as 'very angry that Templeton's ATE cover for the miner's GLO had been reinstated'. If the insurance of the GLO was not a matter of such urgent critical concern to Thompsons they had no good or sufficient reason to call on such an important political favour as a personal intervention from the Deputy Prime Minister. Although I accept that, if he had been able to procure the political intervention of Lord Prescott in favour of the NUM and against AGM, Mr Jones would have done so, I am very doubtful whether he was ever in such a position. He was (in political terms) a relatively peripheral figure and appears to have been at a reception in Portcullis House between 17.00 and 19.00. This may have been why the Claimant's case was put (perhaps 'floated' is a better way of expressing it) on the basis that Lord Prescott 'may well have discussed the issue with Dick Caborn and Alan Meale, and possibly Dennis Skinner.' There is, however, very little basis for concluding that any of these MPs were sufficiently interested in the GLO application to have involved themselves in persuading Lord Prescott to make such a call.
The second point depends on my view of Mr Brunswick.
The Claimant's strongest point is that the known timings mean that it was possible for Lord Prescott to have made a call from the House of Commons to Mr Brunswick at City Airport at about 18.30 on 27 February.
There are, however, a number of difficulties with the Claimant's case before one gets to the credibility of Mr Brunswick upon whom the entire case against Lord Prescott depends.
First, Mr Fresson's evidence was that he was not sure if he believed Mr Brunswick's account of the telephone conversation.
Secondly, Mr Lumsden was first notified that Templeton were still insuring the GLO in the conversation with Mr Booth after 15.16 and, according to Mr Brunswick, this was followed by a number of calls from Thompsons. It follows that Thompsons would have had very little time to persuade Lord Prescott to make a call at 18.30, even assuming that he would have been willing to do so.
Thirdly, although Carolyn Hurley's internal email note of 28 February records Mr Brunswick's complaints about telephone calls from Thompsons on 27 February, there was no mention of a phone call from Lord Prescott or even the slightest of hints that he had been put under pressure from such a powerful source. The whole tone of his recorded complaints to Ms Hurley is inconsistent with Lord Prescott's intervention.
Fourthly, it is part of the Claimant's case that Mr Brunswick was told that Thompsons had arranged for him to receive a phone call which might encourage him not to be involved. In this context I accept Mr Shears's evidence that as CEO if anyone had got in touch with Lord Prescott he would know about it, and he did not.
Fifthly, Thompsons have given extensive disclosure of internal email exchanges which the Claimant's legal team has studied assiduously. As already noted, although these exchanges do not always show the firm in the best light, they demonstrate that Thompsons was not averse to noting its successes. Yet there is no reference to, nor the slightest intimation of, any call made by Lord Prescott at the firm's request.
Sixthly, although Lord Prescott's oral evidence was not always clear, on the central part of the case against him he was emphatic: he had never met Mr Brunswick, had never heard of Templeton Insurance, had not been given Mr Brunswick's mobile phone number, had never made the call and had not spoken to him. His evidence was, and always has been, that no such conversation between them ever took place and that as a senior Minister he would never have become involved in such an issue.
It is implicit from the Claimant's case against him that Lord Prescott misconducted himself as a Minister of the Crown and conspired with Thompsons to harass Templeton into withdrawing its insurance of the GLO. In these circumstances is seems to me that Mr Pooles QC is correct in saying that, although the standard remains the civil standard of a balance of proof, the Court is entitled to have regard to the inherent probabilities, see In Re B (Children) [2009] 1AC Lord Hoffmann at [15].
Finally, there are a number of Court findings where Mr Brunswick's honesty has been in issue. He was found to have acted dishonestly in two cases: in Markel International Insurance Co. Ltd v. Surety Guarantee Consultants [2008] EWHC 1135 (Comm), by Teare J, and in Templeton v. Brunswick [2012] EWHC 1522 (Ch), by HHJ Simon Barker QC. He has also been banned for life by the FCA and disqualified as a director by the FSC in the Isle of Man for 13 years, 6 months. This record of adverse findings does not mean that he is incapable of telling the truth, but would have led me to treat his evidence with considerable caution even if I had not been able to form my own view of his credibility.
Taking all these matters into account (and one further matter to which I refer later in this judgment), I have concluded that the Claimant has failed to prove that Lord Prescott made a call to Mr Brunswick in the terms that they now assert and has failed to make good the allegation of conspiracy or harassment against him.
Although it is unnecessary to form a concluded view about the matter, I suspect that Mr Brunswick's account of this phone call was another attempt to shift responsibility for making a decision about insuring the GLO.
The GLO hearing before Sir Michael Turner
The hearing took place over 3 days (3-5 April 2006); and it is a central plank of the Claimant's case that in reaching his decision to dismiss GWM's application for a GLO Sir Michael Turner was actually biased. The case against Thompsons, Mr Shears and Mr Lumsden is that they deliberately procured the hearing of the GLO application by a Judge whom they knew was biased.
In his Judgment on the GLO application given on 18 May 2006, Hobson and others v. Ashton Morton Slack, solicitors and others [2006] EWHC 1134 (QB), at [71] Sir Michael Turner summarised the seven reasons why the GLO application failed and would be dismissed. At the risk of abbreviating what was a summary, these were that: (1) no sufficient thought had been given to alternative ways of adjudicating the underlying claims; (2) no group litigation issue had been sufficiently or precisely identified; (3) the claims against Raleys had no natural affinity with the claims against the UDM and Vendside, and their instructed solicitors; (4) there were other unions and independent sections of those unions who ought to have been joined; (5) there was a gross imbalance between the costs incurred and to be incurred and the sums to be recovered; (6) the validity and enforceability of the contract between the claimants and the UDM, and the recoverable damages were fact sensitive, and (7) there was a lack of certainty about the sufficiency and enforceability of the ATE cover.
There are three broad strands to the Claimant's case on actual bias. First, reliance is placed on the background to Sir Michael Turner's involvement from March 2005, to which I have already referred, and which does not in my view demonstrate actual bias or, to the extent that it is material, either 'a loss of objectivity' or 'a complete loss of objectivity.'
Secondly, the Claimant relies on an exchange which took place on 16 May 2006 at the start of a Review hearing which led Mr Watkins of Nabarro Nathanson (on behalf of the DTI) to be concerned that the material:
... might give rise to the perception that Sir Michael had a closed mind on the issue of the criticism of the CHA such as to make it difficult for him to take an even handed approach to the GLO application.
The exchange occurred at a scheme hearing and related to another report in The Times to which the CG took objection and the DTI did not. Having read the exchange I am doubtful that it assists the Claimant beyond establishing that Sir Michael and the CG were sensitive to criticism that the CHAs were not being managed as effectively as they might. The DTI seems to have taken a more relaxed view, at least at this stage.
Thirdly, the reliance is placed on the conclusions of Cooke J in Greene Wood McLean LLP (in administration) v. Templeton Insurance Limited [2010] EWHC 2679 (Comm) at [165]-[193] and, in particular, [179] of the Judgment.
It may be noted that Sir Michael appears there and elsewhere in the course of the proceedings to have been protective of the CHAs schemes and those involved, optimistically thinking, perhaps, that the Vendside fee was justifiable and that solicitors would not be capable of the actions to which the Solicitors Disciplinary Tribunals have referred.
Cooke J's analysis of Sir Michael Turner's judgment was in the context of an argument advanced on behalf of Templeton that GWM (and the Counsel they had instructed) had been negligent in advising that a GLO application should be made. It was therefore necessary to consider the reasons given by Sir Michael Turner for dismissing the GLO application, since they were relied on by Templeton to demonstrate that the lawyers had acted negligently. Cooke J decided that they had not been negligent, and it was therefore unnecessary for him to form a concluded view as to whether the Judge was right or wrong in his decision and, to the extent that he was critical of Sir Michael Turner's reasoning, it is of limited assistance to the Claimant.
The general observation that Sir Michael Turner was sensitive to criticisms of the BCRDL scheme and the lawyers that had appeared before him seems to be justified. Doubtless he had formed the view that without their expertise and cooperation the schemes would have been unworkable. However, this does not significantly advance the Claimant's case. The CHAs had been successful in resolving a multitude of claims and the many issues that had arisen; and applications whose effect was likely to cause disruption to the operation of the schemes was bound to be looked at critically by whoever heard it.
Like Cooke J, I am not directly concerned with whether Sir Michael Turner's decision was right or wrong. Quite apart from the difficulties of one court deciding such matters in relation to a court of equal jurisdiction, I have not listened to the arguments or had to consider the very large amount of evidence and other material that was deployed at the hearing.
At §482 of his closing written submissions the Claimant made the following point:
The transcripts of this hearing speak for themselves, but include the judge adjourning the hearing of the GLO application to hold a CG meeting, inviting those involved in the GLO application to have a cup of tea. Even by the standards of the events in this case, this was surprising.
This submission demonstrates the lack of any real material to support the plea of actual bias at the hearing. There was nothing surprising in adjourning the application which was overrunning while the Judge dealt with another unrelated case management hearing which had already been fixed.
The suggestion that the transcripts speak for themselves is plainly correct; and I have accepted the Claimant's invitation to consider them. However, it is striking that, although the hearing took 3 days and GWM was closely involved throughout, not one single passage in the transcript has been relied on by the Claimant in support of the assertion of actual bias.
In a case where actual bias is alleged one would expect to see the bias demonstrated in the course of a 3 day hearing: either by the Judge exhibiting concluded views, or by his hostility to one side or favour to another. The transcript of the hearing shows a characteristically terse and even abrupt manner; but that is a matter of style and not substance. More importantly the transcripts show that he listened attentively to the submissions and tested the arguments of both sides. He put points to Counsel for the respondents which had been made on behalf of the applicants (see for example day1. pp.83, 86 and 90; and day 2. pp.49, 52, 80), and other points which could properly be taken against them (see for example day 2. pp.3, 5, 23, 31, 33, 44, 50, 82, 87; and day 3 pp.68, 75, 86, 87). He allowed the applicants to put in a late statement from Mr Edwards during the course of day 2, extended the time in which questions were to be answered by Mr Edwards in the applicants' favour, declined to accede to an application summarily to strike out the GLO application under Part 24 (day 3 p.23) and extended time to deal with further coverage issues which had not been adequately dealt with in GWM's evidence (day 3. p.26). The Judge also emphasised the importance of trying to produce a solution where justice could be achieved between all parties (day 2. p.56; and day 3. p.71). What is clear is that the application faced formidable difficulties due to the uncertainty of Templeton's insurance policy (delay in providing the terms and ambiguities as to the extent of the cover). These were highlighted by the respondents and were recognised by Counsel for the applicants (day 3. p.6). The application also faced extensively argued opposition from each of the respondents.
Having considered the transcripts of the hearing I have found no support for the claim of actual bias in the place where one would most expect to find it.
The judgment of 18 May 2006 and subsequent events
Following the handing down of the adverse judgment on 18 May 2006, GWM wrote to Templeton on 22 May enclosing a copy of the order.
As you will see, regrettably, the application was dismissed with costs ordered against the Applicants on an indemnity basis. We have, however, been advised by Counsel that the prospects of success on an appeal are good. Accordingly we intend, with your permission, to appeal to the Court of Appeal forthwith ...
On 25 May Templeton wrote to Brooke North (who acted on behalf of the UDM and Vendside) purporting to give notice of an entitlement to avoid the GWM policy on a number of grounds. It was characteristic of Templeton's failure to understand the most elementary of its contractual obligations that the letter was not sent to its assured, GWM. Templeton relied on a number of grounds for avoiding the policy deriving from its interpretation of the 18 May judgment, including reference to [71(7)] and the lack of certainty as to the sufficiency and enforceability of the policy. It is unnecessary to spend much time on Templeton's grounds for repudiating the policy, since it is clear that it was not entitled to do so. The relevant debate before Cooke J in Greene Wood McLean LLP (in administration) v. Templeton (see above) was about the ambit of the indemnity.
Mr Edwards's evidence was that the failure of the GLO application had very serious consequences for GWM. Apart from the adverse order for costs on an indemnity basis, an application for a wasted costs order was made by the respondents and, on the advice of GWM's Professional Indemnity insurers, was conceded, with GWM becoming potentially liable for sums said to be over £1 million. There was also adverse publicity, not least as a result of UDM/Vendside pursuing a campaign against the individual applicant miners, which included obtaining interim charging orders against the homes of 27 of the individual GLO applicants. The outcome of the GLO application and the consequences to its clients destroyed GWM's relationship with them. It also damaged its reputation and its prospects of attracting clients who wished to bring group claims. GWM were also liable for the fees of counsel whom it had instructed in the GLO application. Templeton's refusal to meet its liabilities under the policy (which included own side disbursements) meant, not only that GWM was unable to pay these fees, but that Counsel pursued GWM and obtained judgment for the debt, all of which affected GWM's ability to instruct other counsel.
Mr Edwards also described the effect on GWM's relationship with its bankers. The firm had a £240,000 credit facility with Barclays Bank. The relationship prior to this had been good because GWM had been able to reassure the Bank about the prospects of recovering fees for work in progress. The unexpected costs and delay in the GLO application affected GWM's cash flow and its failure made it impossible to repay the overdraft. It was this that led to Barclays appointing BDO Stoy Hayward to review GWM's trading position.
According to Mr Edwards's evidence, there were yet further consequences of the judgment, with GWM having to deal with the press, their political supporters and the Law Society. It was necessary to make a claim under GWM's own Professional Indemnity policy, which meant that its freedom of action was severely curtailed.
A Law Society investigation and SRA proceedings against Mr Edwards and Mr Evans in relation to account irregularities concerning the retention of disbursement monies in the office account, the costs 'guarantee', the costs information given by GWM to its miner clients, and the referral fees paid by GWM's personal injury department, finally concluded in September 2011 with a Regulatory Settlement Agreement with the SRA.
GWM was due to renew its PI cover from November 2006, but had difficulty in obtaining competitive quotes because of the insurers risk assessment of GWM; and the firm was finally forced to obtain cover in the Assigned Risks Pool at a cost of over £100,000 per annum.
There was also the effect on staff morale resulting from the bad publicity and the deterioration of GWM's ability to attract business. Within a matter of months, several good fee earners left the firm and others had to be made redundant. Losing fee earners further undermined the firm's ability to win and deliver work, setting off a spiral of decline.
Mr Edwards described a further consequence of the judgment: its adverse effect on the Claims Direct and British Biotech claims.
GWM represented 12 shareholders in the Claims Direct case with claims of approximately £850,000 (excluding exemplary damages, costs and interest) against Investec Bank (UK) Limited and others (the former directors of Claims Direct). By June 2006, Particulars of Claim had been served on behalf of 3 claimants. There were two other claimant groups representing a number of other claimants. Leading Counsel had advised on behalf of the GWM claimants that the prospects of success were about 65%. By June 2006, negotiations with the defendants had been proceeding for some months and a mediation had been fixed for 27 and 28 July 2006. According to Mr Edwards's evidence, the failure of the GLO application and the avoidance by Templeton of the miners' ATE policy undermined the confidence of GWM's Claims Direct clients in their own ATE policy, which was also underwritten by Templeton; and GWM was obliged to advise its Claims Direct clients that their ATE policy could not be relied on. Aware of GWM's difficulties the defendants delayed, thereby applying pressure to GWM which was effectively funding the case. GWM obtained alternative ATE cover from Elite Insurance, but the terms were unsatisfactory and the clients' confidence had been undermined to the extent that they had little faith in the validity of the new policy. In March 2007, the clients agreed a settlement with Investec Bank and its insurers. Under the terms of the settlement, GWM recovered fees of £575,000 (excluding VAT) against the value of its work in progress, uplift under the CFA and disbursements of more than £2 million. It was unclear whether the other defendants (former directors of Claims Direct) could meet the remainder of the claim, but the matter was never tested since, in September 2007, GWM ceased business.
GWM represented 11 shareholder claimants with claims against Vernalis (formerly British Biotech), valued at approximately £850,000 (excluding exemplary damages, costs and interest). In March 2004, Leading Counsel had advised the claimants that the prospects of success were 70%. If no settlement was reached, it was intended that there would be a trial on a preliminary limitation issue in respect of a particular group of claimants. Leading Counsel had advised that their prospects of success on the preliminary issue were 60%. A mediation which did not resolve the case was held in May 2006, after which negotiations continued. As with the Claims Direct case, there was serious doubt as to whether Templeton's ATE cover for the British Biotech claimants would be honoured. The British Biotech claimants instructed GWM to withdraw from the litigation to avoid potential liability for costs. To achieve a settlement, GWM was obliged to sacrifice the majority of fees it was owed and a substantial part of its disbursements. It was entitled to fees of nearly £300,000 plus a success fee uplift, which increased the sums due to over £530,000. In addition, there were recoverable disbursements of about £170,000. GWM's actual recovery under the settlement was about £223,000, which included about £105,000 towards disbursements. Without consideration of any discount GWM might have agreed, its total loss on this case was in excess of £480,000.
On 29 September 2009 the Claimant entered into a CFA with the administrators of GWM to act on their behalf in order to realise for GWM 'the fullest possible potential for recoveries under claims against Templeton and Thompsons.'
On 21 January 2010 the Claimant interviewed Mr Brunswick and heard his account of how Lord Prescott had telephoned him in February 2006. As already noted this account did not figure in Mr Brunswick's s.236 statement. The Claimant's evidence, which I accept, was that Mr Brunswick refused to allow him to refer to it. After unsuccessful attempts to meet Lord Prescott to discuss what he had been told about the phone call, the Claimant sent an email to Lord Prescott's secretary on 12 April 2010. Although the email described the Claimant as authorised to act on behalf of the liquidator of GWM and described GWM's failed application for a GLO in respect of unlawful deductions, it did not say anything about a call from Lord Prescott to Mr Brunswick.
I understand that [Lord] Prescott may have had some involvement at the time with Templeton Insurance. Could you please arrange for [Lord] Prescott to meet me within the next week.
When this elicited no response the Claimant tried to make contact through Lord Prescott's constituency office. It was as a result of this contact that Lord Prescott, who had retired from the House of Commons and was then engaged in campaigning in the General Election, telephoned the Claimant. It is plain that Lord Prescott had the Claimant's email in front of him. However, although the Claimant tried to make a note of the conversation, it is not easy to reconstruct the conversation from these notes. The Claimant thought Lord Prescott was being evasive, but I am not prepared to draw that conclusion on the basis of the Claimant's view of the matter. When the Claimant told him that he was concerned with events around 28 February 2006, Lord Prescott said. 'No, I'd be a Minister then.' There was no clear denial that he had made a call to Mr Brunswick, but there had been no allegation that he had. I have, nevertheless, taken this conversation into account in my overall consideration of whether Lord Prescott made the alleged telephone call to Mr Brunswick, four years earlier, on 27 February 2006.
On 8 June 2011 the Liquidator assigned GWM's causes of action to the Claimant, and on 10 June the Claim Form was issued.
Decision on liability
The main part of the Claimant's case is founded on a causative link between the conduct of the Defendants and Templeton's avoidance of cover, which is said to have resulted in all of GWM's subsequent difficulties and its ultimate liquidation. The Claimant sought to establish a causative link on the basis that (1) Templeton's decision to avoid the policy was based on Sir Michael Turner's judgment, (2) Sir Michael Turner was not simply wrong, but was actually biased, and (3) the Thompsons Defendants had procured that he should hear the GLO application.
The first difficulty with the Claimant's claim is that it has not been made clear (a) which causes of action are properly those of GWM's clients rather than those of GWM; and (b) why claims have been brought against the Thompsons Defendants rather than the many others who on the Claimant's case must have been party to any conspiracy or other tort.
Another difficulty is that, although much of the argument and evidence was devoted to investigating the contacts between the Defendants and Mr Brunswick in November 2005 and February 2006, whatever may have been said or done did not have any lasting effect on Mr Brunswick. As already noted, the ATE policy (such as it was) was in place and in evidence at the time of the GLO hearing; and it was Mr Maule (with whom the Thompsons Defendants had no contact) who made the decision to avoid it after the judgment was handed down, and he did so in breach of contract.
It was for this reason that, by the end of the trial, the Claimant's case was directed to three particular allegations.
The first allegation is that Thompsons (and Mr Shears) procured Templeton to write its letter of 15 November 2005 withdrawing cover from GWM and/or conspired with or through Mr Booth to procure the breach of Templeton's insurance contract, which amounted to an unlawful act conspiracy, and this letter 'affected' the Judge's view as to the certainty, sufficiency and enforceability of the ATE cover, see [66.2 & 3] and [71.7] of the 16 May 2006 Judgment.
For reasons already outlined I have rejected the factual premise of this allegation. Neither the letter of 15 November nor Templeton's subsequent vacillation and inefficiency in producing a policy compliant with its agreement to insure, nor GWM's inability to secure a contractual policy was due to any act of the Thompsons Defendants or anyone acting on their behalf.
The second allegation is that Thompsons procured a breach of contract in February 2006. This argument is summarised in §510 of the Claimant's closing submissions on liability.
It is plain that Thompsons took a keen, indeed anxious, interest in the existence of insurance for the GLO. Furthermore, they had previously procured (through or with Mr Booth) its withdrawal in November 2005. These matters inform the proper analysis in law of what took place, even on the Defendants' evidence, in February 2006. Thompsons clearly expected to be provided with confidential information by Templeton about the GLO insurance arrangements, when Thompsons and their union clients were not parties. This was inconsistent with Templeton's obligations to the insured and (with the other matters set out above) colours the analysis of conduct which the Defendants otherwise contend was anodyne.
This seems to alight on procuring a breach of a duty of confidence which is neither made out on the facts nor is such as to have caused recoverable loss or damage. In any event it did not affect Sir Michael Turner's judgment in the GLO application.
The third allegation was, and remains, the most substantial and serious. The case is put on the basis that Thompsons, acting through Mr Lumsden and with the knowledge of Mr Shears, procured the appointment of Sir Michael Turner to hear the GLO application as part of an agreed strategy, which was achieved through the letter from the CG of 10 November 2005, see §500 of the Claimant's closing submissions on liability.
Mr Lumsden had well in mind the judge's favourable disposition (knowing of the private correspondence, recently revisited) and his adverse views of AGM and GWM, not least from the tenor of his letter of 26 October 2005. In that context, seeking the appointment of Sir Michael Turner to deal with the GLO application amounted to procuring a breach of the article 6 rights of GWM and/or their miner clients, an unlawful act (for the purposes of unlawful means conspiracy and causing loss by unlawful means) by reason of the fact that neither the private correspondence of March and October 2006 between Mr Lumsden and Sir Michael Turner, nor the correspondence copied to the DTI (and by Sir Michael Turner to the Law Society) was then or subsequently disclosed to GWM.
This way of looking at the case is inconsistent with the facts as I have found them to be; but in any event, it does not advance the Claimant's case unless it can be shown that the Judge was actually biased, which is a submission that I have rejected. In particular, it was recognised on the Claimant's behalf that in order to recover the bulk of his very substantial damages he would have to prove that (a) it was the Thompsons Defendants who procured that Sir Michael Turner heard the GWM application, (b) that they did so knowing and intending that he would be actually biased, and (c) he was actually biased. For the reasons set out above, I have concluded that they have failed to prove each of these matters. Furthermore, as set out above, the Claimant's analysis fails to take into account what I have found to be the real cause of GWM's collapse: not the Judgment but Templeton's breach of contract.
As an alternative route to damages, Mr Green QC submitted that the Thompsons Defendants procured the appointment of a Judge who was apparently biased, in the sense that a fair minded and informed observer having considered the facts would conclude that there was a real possibility that he was biased, see Porter v. Magill [2002] 2 AC 357 at [103] and the other cases referred to above.
The first difficulty with this argument is a factual difficulty in the light of the findings I have made. The second difficulty is in identifying how, if correct, it would give rise to a claim for damages. A judge who is apparently biased may not in fact be biased: it is the appearance not the substance which leads to a conclusion that the judge or tribunal should not hear the case or that the decision is vitiated.
The Claimant seeks to avoid this difficulty by submitting that the apparent bias of the Judge, if it had been known to GWM, would have led either to reasonable objection to his hearing the GLO application or give rise to a solid ground of appeal. However, looking at the matter now, I am very far from satisfied that the Claimant's case on apparent bias is made out. Such views as the Judge had expressed earlier on the basis of his current understanding were no more than that, see for example the passage from the Locabail case (referred to above). He did not exhibit fixed views and predilections such as to give rise to a legitimate concern that he might not be impartial in his hearing of the GLO application. Furthermore, even if a party to litigation is under a duty to another party to litigation to inform it of all matters relevant to the apparent bias of the tribunal, it is difficult to see how a non-party not acting tortiously is under such a duty. There is also the further difficulty of assessing damages where a party might have been in a position to argue apparent bias, but where (as I find) the same result is likely to have occurred whoever had heard the application: the same costs order would be made.
For the above reasons I have concluded that the Claimant's claim fails against all the Defendants in relation to all of its causes of action.
Decision on quantum
In the light of this conclusion, I can deal with the issue of damages more shortly.
The damages potentially fall into two categories: losses which can be ascertained on the balance of probabilities to have been caused by tortious acts; and losses resulting from tortious acts which are implicitly uncertain since they depend on the occurrence of future events. In some cases a Judge will be able to predict what would occur on the balance of probabilities, but in others he may not. Some uncertainties may be due to the contingency of a third party acting in a particular way, see Allied Maples Group Ltd v. Simmons & Simmons [1995] 1 WLR 1602. Other uncertainties may involve an assessment of the loss of a chance, and in these cases the quantification does not involve the application of a balance of probabilities as it would to the proof of past or ascertainable facts. As Lord Reid expressed it in Davies v. Taylor [1974] AC 207 at 213 (referred to in Allied Maples at 1613 H)
You can prove that a past event happened, but you cannot prove that a future event will happen and I do not think that the law is so foolish to suppose that you can. All that you can do is to evaluate the chance. Sometimes it is virtually 100 per cent: sometimes it is virtually nil. But often it is somewhere in between.
As Toulson LJ expressed it in Parabola Investments Ltd v. Browallia Cal Ltd [2011] QB, at [23]:
The ... task is to quantify the loss. Where that involves a hypothetical exercise, the court does not apply the same balance of probability as it would to the proof of past facts. Rather, it estimates the loss by making the best attempt it can to evaluate the chances great or small (unless those chances are no more than remote speculation), taking significant factors into account.
See also, Vasiliou v. Hajigeorgiou [2010] EWCA Civ 1475 Patten LJ at [21] and [25] and Wellesley Partners LLP v. Withers LLP [2014] EWHC 556 (Ch), Nugee J at [188(2)-(3)].
The primary way of putting the claim for damages is advanced on the basis that (a) the GLO application would have succeeded in the light of the analysis of Cooke J in Greene Wood McLean LLP (in administration) v. Templeton (see above); (b) as a result of the subsequent decisions of the Solicitors Disciplinary Tribunal and the Regulatory Settlement Agreement, there is a sound basis for concluding that the GLO proceedings would have been a success; and (c) with the benefit of available funding, GWM would have taken a large number of profitable GLO cases and traded successfully in a number of areas of law over the following years.
An initial problem with this argument is that (as already noted) Cooke J was not deciding whether the GLO application would or should have succeeded, but whether it was negligent to advise that the application be made and then pursued. The second problem is that Solicitors Disciplinary Tribunal determinations and RSAs were likely to undermine the GLO as potential source of revenue. The probability is not that large number of claimants would have joined the GLO and received repayment of deductions by way of damages, but that they would have opted for repayment and compensation under regulatory supervision.
The Claimant has calculated GWM's loss under nine heads of claim ('HOC').
(1) The profit that GWM would have earned from the GLO at its conclusion: £2,645,000 (HOC.1).
(2) The profit GWM would have earned from the GLO proceedings following the conclusion of a trial (85,000 client claimants): £51,902,000 (HOC.2).
(3) The loss of Scheme claims that would have transferred to GWM (1,000 cases): £400,000 (HOC.3).
(4) The loss of its general litigation and class action practice over a period of 3-4 years: £21,546,000 (HOC.4).
(5) The loss of profits from its personal injury practice: £9,606,000 (HOC.5).
(6) Losses due to the disadvantageous settlement of the Claims Direct litigation: £795,000 (HOC.6).
(7) Losses due to the disadvantageous settlement of the British Biotech litigation: £323,000 (HOC.7).
(8) Loss in relation to GWM's property work: £4,787,000 (HOC.8).
(9) Increased costs of PII cover from November 2006 to September 2007, plus run-off cover: £178,000 (HOC.9).
Less overheads: (£12,735,000).
Total claim: £79,447,000, plus interest
The total principal sum of £79,447,000 was reduced to a figure of £71,650,000 in the concluding summary schedule of loss, but the heads of claim remained the same.
In my judgment there are very significant flaws in this calculation and they derive partly from an overoptimistic view of the prospects of GWM and its business, and partly from some wholly unrealistic assumptions which underlie the particular calculations.
The viability of GWM and its inherent profitability was hotly in issue.
Mr Edwards and Mr Friend were both clearly affected by the financial failure of GWM. The former was an impressive witness in terms of his professional and personal qualities, which have come under close scrutiny in the course of this and other litigation. However, his vision for the firm appears not to have been matched by practical steps to achieve it; and he did not strike me as having brought sufficient focus to bear on either the management issues which would arise in the establishment of a new firm of solicitors, nor in dealing with the problems raised by the GLO litigation. In the context of the present litigation, his failure to secure the policies of insurance from Templeton which he had negotiated was particularly damaging. Mr Friend was a frank and engaging witness, whose experience as a lawyer was limited to property business.
The evidence suggests very strongly that none of the three partners were experienced in, or particularly capable of, financial management. For financial expertise and support they depended on Mr McHale and Mr Ridgway. Mr McHale was an experienced businessman, as well as being qualified as a barrister and an accountant. He took a close personal interest in GWM, made loans to the firm and worked as a consultant, having considerable knowledge and experience in leasehold enfranchisement. Mr Ridgway was also experienced in business, made loans to the firm and took an interest in its work. The loans made by Mr McHale and Mr Ridgway reflected their view of the inherent risks involved.
Mr Edwards's vision for the long-term prosperity of the firm was imperilled by the short to medium term financial difficulties that it faced for some time before May 2006.
In October 2005 Mr McHale assisted in the preparation of a cash-flow forecast for the 14 months to December 2006 for the purpose of raising funds for the firm. He used information provided to him by Mr Edwards which estimated that 5,000 CHA cases would be transferred from their current solicitors as a result of the success of the GLO and that the profit for the period covered by the forecast would be just under £6m.
On 6 December 2005, the manager of Barclays Business Support, Birmingham, wrote to the Partners of GWM describing, in the language of modern business, 'Our Shared Concerns'. These included, among other matters:
The existing overdraft facility is expired
Excesses on the bank account
There is an element of borrowing within the overall facility that is not currently fundable from trading income
The Partners' recent request for additional working capital facilities that have been declined as they are outside of our normal lending criteria
The ability of the Partnership to meet its liabilities as they fall due.
Mr Edwards fairly accepted that the listed items indicated that GWM had exceeded the agreed overdraft limit, that it had requested and been refused further loans, and that the Bank was concerned that GWM might be trading whilst insolvent.
In a draft report commissioned by GWM's bankers dated 15 September 2006, BDO Stoy Hayward set out its independent accounting review of the firm. The report raised a number of issues: (1) the overall reliability of the management information; (2) the small amount of actual fee billings for the 18 months to June 2006: £0.5m; (3) the unbilled work in progress of £1.8m, which had been financed by loans from Mr McHale, Mr Ridgway (in respect of which no documentation was available), the Barclays overdraft, and, as to £135,000, by another lender, Defender; and (4) although a profit and loss account and balance sheet had been provided by GWM, the accountants had,
concerns over the reliability of information, and have not been provided with supporting documentation behind significant balances, including loan documentation, WIP balance and accruals.
The summary of the review findings included:
The practice is suffering from very poor working capital management, and the Partners have run out of available finance to continue funding the practice.
We have found the quality of management information to be weak, and do not place any reliance upon the balance sheet and profit and loss account provided.
In particular, we have received no support for the £1.8m of WIP that is currently held, or any documentation to support the various loans made from private individuals.
So far as the Bank was concerned the draft report concluded.
Given the lack of proper management information that has been made available to us we have no certainty over the viability of the practice going forwards.
In the summer of 2005 GWM had purchased a book of files from another firm of solicitors, Easthams. Half of these files had proved to be, in the words of Mr Edwards, 'a complete disaster'. The purchase had been funded by a £200,000 loan from Mr McHale and had plainly failed to provide the intended cash-flow.
It is apparent that the financial position of the firm was insecure and its attempts to relieve the short to medium term cash-flow needs had proved problematic.
It is necessary to view the claim for damages against this background. In order for GWM to have achieved anything like the profitability on which the claim calculations are based, it would have needed a secure capital base, a successful track record in the areas of intended practice and good management. I am not persuaded that GWM would have acquired any of these, let alone all of them.
The capital available to the firm was insufficient even before the May 2006 Judgment, the terms on which their loans would have been extended by Mr McHale and Mr Ridgway were unlikely to be favourable and the possibility of obtaining further capital was problematic in the short to medium term. GWM's first accounting period ran from 31 October 2004 to 31 March 2005. The abbreviated accounts for that period show a balance sheet deficit of £516,556. Much of GWM's future depended on securing funding. The Claimant called Ms Jane Jones to give evidence about the availability of funding. Her qualifications to give expert evidence on this issue were confined by the nature of her experience. Although she had worked for a risk consultancy company specialising in advice to funders in the period 2006-8, she had no direct knowledge of the basis on which funders made loans to solicitors, and some of her assumptions were either wrong or based on material which was controversial (for example, the assumption that there would have been approximately 85,000 claimants in the GLO). Having considered her evidence I have concluded that GWM would not have been able to obtain practice funding in view of the state of their accounts, at least in the short to medium term. I do not accept that further funding for the firm could have been raised in 2006-2007, although it is probable that some funding would have been available in the period from mid 2008. The further funding for the claim would also have been problematic without some short term success in the GLO or other ongoing litigation.
As Mr Edwards and Mr Friend agreed in their evidence, GWM's ambitions considerably exceeded its cash flow. It also greatly exceeded its capacity to deal with the intended business. Its ambitions can be seen from the view expressed by Mr Edwards in a contemporary document in which he envisaged 100,000 claimants transferring to GWM with fees of £1,800 per claimant. This would have produced overall fees of £180 million. This was neither realistic nor a case load that GWM could ever have managed; and it is no answer to say that GWM could have expanded to deal with the work or sub-contracted it. GWM's lack of capacity for managing its business is illustrated by its acquisition of the personal injury files from Easthams. This was intended to ease the cash flow of the firm, but the price paid was far too high for the value of what was acquired. A proper management system would have carried out a due diligence exercise before the acquisition. GWM did not seem to learn from its mistake.
Although I have identified Templeton's repeated failures to produce a Policy in the terms of its agreement, Mr Edwards allowed this situation to continue until a time it damaged the prospects of success for the GLO, with further evidence having to be lodged during the course of the hearing.
The largest Heads of Claim (HOC.2, HOC.4 and HOC.5) are based on predictions that a firm like GWM would be expected to have become increasingly profitable. The preparation of each Head of Claim was carried out by the Claimant. He is by qualification an accountant and by experience a management consultant and businessman. The preparation and promotion of the claim had plainly involved a significant investment of his time and effort. However, as he agreed in evidence, he had no personal knowledge of the economics of a firm of solicitors, and his research was confined to information which was largely in the public domain.
He took Stewarts Law as his model for the heads of claim, basing his figures on that firm because it showed how a firm of solicitors could grow 'extremely fast'. The model was, in my view, unrealistic. Stewarts Law is a leading firm in a specialist litigation field, with 20 or so partners and which has been in business for a number of years. In contrast GWM had only been in business for 18 months, had only 3 partners, was neither well-managed nor well-funded, and had no track-record in what was a competitive market of lawyers specialising in large-scale and group litigation. The proposition that if the GLO application had been successful it would have led to abundant profits for GWM is very far from being self-evident.
Although each side called expert evidence in the field of accounting and costs to deal with the detail of the damages calculation, in my judgment the claim for damages can only be addressed realistically on the basis of a broad approximation.
HOC.2 (£51,902,000), The premise is that 85,000 claimants would have applied to be joined after the successful conclusion of the GLO application, and that GWM's profits for each union deduction case would have been £610, taking into account all associated overheads and disbursements. Although the individual figures which make up the profit figure were debated by the experts, it is necessary to stand back for a moment and look at the matter realistically. The likelihood of a Court permitting a firm of solicitors to recover profits of £610 per claim on a mass of what were mostly relatively straightforward small claims is as likely as 85,000 claimants joining the group when they were likely to be offered compensation through the professional regulatory regime. In my view the sums claimed under this heading are fanciful. The deduction issue had run in tandem with accusations in Parliament and the Press that solicitors had been grossly over-rewarded under the compensation schemes. I am clear that the chances of making the sorts of profits envisaged by this head of claim in relation to a mass of small claims, was negligible.
HOC.4 (£21,546,000) the premises for this head of claim is described as follows:
GWM's role in the GLO, over the next 3-4 years, would have ensured considerable positive publicity and a high profile in the legal profession. [Mr Edwards] was a charismatic and commercial leader, who would have attracted clients and staff. Beginning in June 2006 with the RBS claim, GWM would have picked up increasing volumes of cases, and would by now have a steady and successful litigation business.
The calculation is based on the assumption that GWM would have acquired roughly 29 new cases between 2006 and 2012, each of which would have produced profits of the order of £765,539. The assumption that so many profitable cases were available in the relevant period would require an analysis of what cases were being litigated, rather than an extrapolation based on the Stewart Law's success, and I can see no proper basis for any calculation based on a single figure of lost profits per case.
But there is also a more fundamental problem with this head of claim. Although I have identified Mr Edwards's positive qualities, they would not have been enough to have ensured the success of GWM. There would always have been the very serious problem in trying to match his ambitions with the realities which faced the firm before the May 2006 Judgment.
HOC.5 (9,606,000) loss of personal injury practice. This claim is based on what is said to be GWM's established and successful personal injury practice which would have been built up into a department with a sustainable business with at least 10 fee earners, each with an average case-load of 200 cases per year, and with average fees of between £1,850 and £2,500 per case. On this basis the calculation was of lost profits from £1,210,000 in 2009 to £2,112,000 in 2013.
Again there is simply no proper foundation for the claim. The history of the short period during which GWM operated does not suggest any inherent ability to manage and successfully develop a personal injury practice. The Easthams experience suggests the contrary. No doubt there were fees to be generated by personal injury claims, but it would require experience, ability, funding and an understanding of the economics of the business to have made the sort of profits that are claimed.
So far as the other heads of claim are concerned, I have reached the following conclusions.
HOC.1 (£2,645,000) This is profit which it is said GWM would have earned at the conclusion of the trial of the GLO proceedings. It is claimed that it would have taken 3-4 years for the core liability issues to have been determined with appeals, first on intermediate issues and later against the final judgment, and that 'GWM would have earned very substantial fees, which would then have been uplifted by 80% under the terms of the CFA.'
This scenario, with intermediate issues and unsuccessful appeals, again assumes that the litigation would have been managed in a way which would confer the most favourable financial rewards for GWM. In my view any Court would have been astute to manage the issues in a way which was consonant with the overriding objective (see CPR Part 1.2(c)), and have exercised its case management powers to control the costs (see CPR Part 1.4(2).
HOC.3 (£400,000) is based on the loss of BCRDL scheme claims which would have transferred to GWM. It is said that the AGM was encouraging miners to transfer their claims in order to avoid future deductions. The claim is based on 1,000 claims being transferred at £400 per claim. In its draft letter to Sir Michael Turner in November 2005 GWM had recognised that there were a number of obstacles to transfers being made. For the reasons already outlined, in relation to HOC.2, I consider this to be unrealistic.
HOC.6 (£795,000) Claims Direct and HOC.7 (£323,000) British Biotech. In each of these class actions it is said that GWM successfully represented their clients and obtained a settlement for them. However, in each case, GWM 'was forced to advise its clients of the risks' of insuring with Templeton as a result of Templeton's avoidance of the GLO ATE cover. As a result the claimants 'decided to accept a much lower settlement than would have been achievable,' and GWM failed to recover the majority of its profit costs.
I was not persuaded by the evidence of Mr Edwards either that his clients were rendered so vulnerable by the uncontractual act of Templeton in another case in different circumstances, that the settlement was unrealistic, or that (even if a loss could be reliably identified) it can be said to be attributable in law to the Thompson Defendants tortious acts (which are to be assumed for this purpose).
HOC.8 (£4,787,000) losses in relation to GWM's property department. On an annualised basis the property department had not earned more than £70,000, and Mr Friend frankly accepted in evidence that there had been no investment in the property side of GWM's practice by May 2006 due to cash-flow difficulties. He fairly acknowledged that there were no contemporaneous documents which supported this head of claim.
HOC.9 (£178,000) is the increased Professional Indemnity insurance costs which GWM incurred 'following the failure of the GLO and by virtue of the claim on QBE [GWM's PI insurers],' and the additional cost of PI insurance through the assigned risks pool with increased annual costs from November 2006 until the firm folded on 30 September 2007. In my view this head of claim fails on both causation and remoteness grounds.
In summary, I have concluded that some heads of claim are irrecoverable and in respect of others the losses claimed have been grossly exaggerated. In either case the schedule of loss forms neither a proper basis for predicting the future of the firm on the balance of probabilities nor a proper basis for the awarding of damages.
The alternative basis of the claim is for the loss of an opportunity.
Where the claimant is asserting not the loss of an opportunity of acquiring a specific benefit which is dependent on the actions of a third party, but the loss of an opportunity to trade generally and thereby to make profits, the Court must first decide whether the claimant would have traded successfully and, if so, it must make the best attempt it can to quantify the loss of profits, taking into account the various contingencies which affect this, see for example Wellesley Partners LLP v. Withers LLP (see above).
On a fine balance I have concluded that the GWM would have traded profitably without being particularly profitable, for the reasons set out above.
Once one eliminates most of the extravagant and unrealistic assumptions underlying the heads of claim there is not very much to go on and the calculation of damages is necessarily based on a broad view. I have however, concluded that the best estimate of the value of the lost opportunity over the period of the claim if the GLO had not failed (net of overheads) can properly be assessed as follows:
HCO.1-3: £750,000
HCO.4: £1,000,000
HCO.5: £750,000
HCO.6-7: nil
HCO.8: £750,000
HCO.9: nil
Total: £3,250,000
Conclusion
However, for the reasons set out above the claim fails and must be dismissed. |
MR JUSTICE SIMON: The defendants' solicitors seek relief against sanctions in relation to an obligation that arises under CPR 44.15(2) in these terms:
"A party who seeks to recover an additional liability must provide information about the funding arrangements to the court and to other parties as required by the rules, practice directions or court order."
Paragraph 19.2 of the costs practice direction provides:
"(1) In this paragraph 'claim form' includes a petition and application notice, and the notice of funding to be filed or served is a notice containing the information set out in form N251 ...
(3) A defendant who has entered into a funding arrangement before filing any document -
(a) must provide information to the court by filing notice with his first document. A 'first document' may be an acknowledgement of service or defence, or any other document such as an application to set aside a default judgment
(b) must provide information to every party by serving notice. If he serves his first document himself, he must serve notice with that document. If the court is to serve his first document, the court will also serve the notice if the defendant provides with it sufficient copies for service.
(4) In all other circumstances, a party must file and serve notice within seven days of entering into the funding arrangements concerned."
Paragraph 19.4 of the costs practice direction provides:
"(2) Where the funding arrangement is a conditional fee agreement the party must state the date of the agreement and identify the claim or claims to which it relates including part 20."
The defendants' solicitors entered into a CFA with Lord Prescott on 28 February 2012. It is common ground that a notice of the CFA in form 251 should have been given to the claimant at least by the time of the notice of acknowledgement of service, 11 April 2012. The claimant argues that it should, in fact, have been given on 6 March. In any event, it was served either three or seven weeks or so late on 3 May 2012, although a prior indication of the likelihood of a CFA had been given in correspondence on 5 December 2011.
The claimant has taken the point, more recently, that no notice of a CFA was or has ever been given between Lord Prescott and either leading or junior counsel although it was referred to in correspondence. In a letter of 28 June 2012, in respect of junior counsel:
"By a letter of 3 May 2012, I have notified you that this firm is acting under a conditional fee agreement. We write to inform you that this firm has also entered into a conditional fee agreement with counsel. That conditional fee agreement provides for a success fee within the meaning of section 58.2 of the Courts and Legal Services Act 1990 (as amended)."
There was no date or, alternatively, only the date was missing depending on which way you look at it.
A further letter was written on 9 October 2012:
"As is clearly set out in Lord Prescott's estimate of costs, there will be a success fee payable on top of the base cost for both solicitors' and counsels' fees. Notice of funding was served on 3 May 2012 and our letter of 28 June 2012 advised that counsel, Andrew Moran, had also entered a conditional fee agreement. Please note that this firm is also in the process of entering into a conditional fee agreement with Michael Pooles, QC, who shall provide for a success fee within the meaning of section 58.2 of the Courts and Legal Services Act 1990 (as amended)."
The claimant points out not only is there no date but they have not been told when the agreement was made.
On 5 February 2015, after the defendants had seen a draft of the judgment, Lord Prescott's solicitors, Messrs Reynolds Colman Bradley, issued an application notice seeking relief from the consequences of filing their N251 form late. It did not cover any deficiency in relation to the notification of the CFA in respect of leading or junior counsel.
The argument between the parties has revolved around how the court should approach the application of CPR part 3.9: ' relief from sanctions':
"(1) on an application for relief from any sanction imposed for a failure to comply with any rule, practice, direction or court order, the court will consider all the circumstances of the case so as to enable to deal justly with the application including the need -
(a) for litigation to be conducted efficiently and at proportionate cost, and
(b) to enforce compliance with rules, practice directions and orders.
(2) An application for relief must be supported by evidence."
The evidence in this case is a witness statement from Ms Caird of the defendants' solicitors.
The decision of the Court of Appeal in Denton & Ors v TH White Limited & Ors [2014] EWCA Civ 906 now provides revised guidance on the application of CPR part 3.9, softening, if that is the right word, the stricter approach set out by the Court in Mitchell v News Groups Newspapers Limited [2014] 1 WLR 795. It is common ground that a three-stage consideration of the facts is required.
The first stage is to identify and assess the seriousness and significance of the failure to comply with any rules, practice direction or court order which engages rule 3.9(1). The second stage is to consider why the default occurred. This is essentially an inquiry into whether the applicant can show a good reason for the default. The third stage is to evaluate all the circumstances in the case so as to enable the court to deal justly with the application including factors (a) and (b) in CPR 3.9(1). The promptness of the application is a relevant circumstance as are other past or current breaches of the rules, practice directions and court orders.
So far as the first stage of the inquiry is concerned, Mr Green QC submitted that a breach of the requirements as to the service of notice of funding is serious as the rules provide for an automatic sanction, in the event of breach, the irrecoverability of any success fees. In this case, the breaches are serious. They are repeated in the sense that it is not just one omission, there are apparently three CFAs and they are entered into on different dates and the requisite information has only been provided in respect of one and then late.
Secondly, in substance, they persist today. The requisite information in respect of two of the three CFAs, namely their dates, have still not been provided to this day. I should say in relation to that point that those representing the 11th defendant have been taken somewhat by surprise since no notification that it was going to be taken was given prior to the service of a skeleton argument very shortly before this hearing.
Thirdly, Mr Green submits that in this case the breaches are significant as the 11th defendant's advisors well knew that the claimant had taken out ATE insurance for the defendant's costs. He had served his own notices timeously.
Against this, Mr Pooles QC pointed out that after such notice as was given, the claimant would have been in a position to respond to the extent that he was aware that a CFA was in existence.
I am troubled in relation to the lack of detail, even now, about the CFAs entered into with counsel and I shall deal with that separately. However, I am not persuaded that the delay in relation to the proper notification of the CFA in relation to the solicitors is either serious or significant. The non-compliance had no effect on the conduct of the case nor has it impacted on other court users. Indeed, the claimant raised no objection to the notice, when it was sent, and has since done nothing to indicate that he was prejudiced by any delay.
It will impact on the claimant if relief is granted but I am concerned about the seriousness and significance of the breach and not the seriousness of the consequences to the claimant. (See, for example, the judgment of Hilliard J in Antonio Caliendo & Ors v Mishcon de Reya (a firm) & Ors [2014] EWHC 3414 (Ch) at [39]). In any event, the claimant had not been able to point to any material prejudice from the delay which, for these purposes, I assume to be a period of seven weeks.
I turn then to the third-stage inquiry since no good reason for the default is advanced other than oversight. Mr Green emphasised the importance of compliance with rules, practice directions and orders. He points out that the 11th defendant took a conscious decision by his solicitors not to make the present application promptly be it at the pre-trial review or at any earlier time. There was, thus, on the 11th defendant's case a conscious decision not to comply with practice direction 23A and, in any event, the well known need to apply promptly.
It seems to me that this point can be overstated. Once notice had been given it was not inevitable that a point would be taken as to the non-compliance with the rules. It is at least one view of the matter that costs would be saved by addressing the matter when the issues of costs directly arose.
Mr Green also argued that if a prompt application had been made, the harsher principles as described in Mitchell would have applied and there would have been no prospect at all of succeeding on the application, not least since it would not have deprived Lord Prescott of recovery of his base costs. The deliberate decision to ignore the rules and wait to make the application now should not improve the position of his solicitors.
It seems to me that there are problems with this submission, first theoretical and second practical. The first is that the law is presumed always to have been as stated by the most recent authoritative decision. The second problem is that in giving the judgment of the majority in Denton, Lord Dyson, MR specifically said that the decision in Mitchell had been misunderstood.
Looking at the matter broadly and considering all the matters that I must consider under CPR 3.9(1), issues of proportionality and compliance, but also dealing with the application justly, I have concluded that there should be relief against sanctions so far as the solicitors are concerned.
That leaves the position of the CFAs with counsel. The position is that notice was given that a CFA agreement had been entered into which provided for a success fee in relation to junior counsel and that in relation to leading counsel that it was intended to enter into a CFA with him which would provide for a success fee. That did not result in any response from solicitors acting for the claimant and that, in my view, is a material matter.
Asking myself the similar questions that I have asked in relation to the solicitors, I identify the similarity of the seriousness and significance of the failure to comply with the rules but, added to that, there is still a failure to comply with the details required in relation to the date of the CFA. For this reason, I would require in any event an undertaking that further information is provided by way of witness statement in relation to those matters.
The issues have, however, as I have already noted, arise, arisen very late and not apparently before the service of the skeleton argument dated either today or yesterday, notwithstanding that the material events took place at least in October 2012 and probably before.
So far as the third stage is concerned, the questions are again similar. I have to ask myself whether issues of proportionality and compliance, but also dealing with the application justly, lead to the conclusion that relief against sanctions is appropriate. By a relatively fine measure, I have concluded in favour of granting the relief against sanctions in relation to both those CFAs, not least because these were matters that were not thought to give rise to any issue at all until very shortly before this hearing. I do not regard the opposition to the 11th Defendant's application as opportunism, but I do regard it as something which reasonably might not have been foreseen and requiring prompt action.
For those reasons, I have come to the conclusion that relief should be granted. |
MR JUSTICE BAKER:
This costs appeal arises out of personal injury litigation conducted by the respondent claimant against the appellant defendant. The respondent was employed by the appellant for a period of over 30 years between 1977 and 2011. At the commencement of this period she was employed as a secretary whilst by the end of it she was one of its regional directors.
On 9 February 2012 the respondent commenced proceedings against the appellant in the High Court claiming damages for personal injuries arising out of her employment. The basis of the claim was that for a significant period of years the appellant had failed to provide her with a safe place of work and/or safe working conditions, as a result of which she had suffered personal injuries involving spinal and upper limb disorders.
The claim was couched in terms of alleged breaches of various statutory health and safety regulations and/or negligence. The proceedings were defended by the appellant. Liability was denied as was causation and a limitation issue was pleaded. In the course of the proceedings medical reports were provided by both parties and although the claim form had originally sought damages limited to £150,000, which was subsequently amended to £300,000 on 31 May 2012, the claimant's eventual schedule of loss and damage sought a total of £433,000.
At a later stage the appellant served an amended defence which disclosed that the respondent had been under surveillance, it being claimed by the appellant that such was the level of activity exhibited by the respondent during the course of the surveillance that she had either not suffered any personal injuries or not to the extent claimed by her in the course of the proceedings.
On 18 November 2013, following negotiations between the parties, the proceedings were stayed by Master Fontaine on the basis of an agreed Tomlin Order, the relevant terms of which provided for the appellant to pay to the respondent £50,000 in full and final settlement of her claim, and the appellant agreed to pay the respondent's costs of the action to be the subject of detailed assessment on the standard basis if not agreed. Thereafter the respondent's solicitors served a schedule of costs in the total sum of £263,152.70.
The parties were not able to reach agreement as to the appropriate amount of costs which were to be payable by the appellant to the respondent, and so the matter came before Master Campbell sitting in the Senior Court Costs Office for a hearing on 27 August 2014. Although originally a two day hearing had been set aside, the parties had requested a preliminary issue to be decided, namely the reasonable hourly rate upon which any agreement or order as to costs should be based.
It is apparent from the skeleton arguments and the transcript of the hearing that the main issue between the parties centred upon the appropriate starting point for consideration of the various fee earners' hourly charging rate. The respondent had instructed the City firm of Leigh Day. On behalf of the respondent it was argued that this was a reasonable decision by her and that accordingly the respondent was entitled to recover costs on their hourly rates of: £450 for grade A; £320 for grade B; £250 for grade C; and £160 for a grade D earner.
On behalf of the appellant it was argued that, bearing in mind the nature and extent of the respondent's claim, it was unreasonable for her to have instructed a City firm of solicitors, and that the appropriate starting point for the assessment of the reasonable hourly rate for the fee earners was that for a national one firm of solicitors the guideline rates for which provided for an hourly rate of: £217 for a grade A; £192 for a grade B; £161 for a grade C; and £118 for a grade D earner.
In the course of the hearing Master Campbell was referred to the factors to be taken into account in deciding the amount of costs under CPR 44.43 and, inter alia, Wraith v. Sheffield Forgemasters Limited; Truscott v. Truscott [1998] WLR 132.
In his judgment provided on 27 August 2014 Master Campbell stated:
"In reaching my decision I remind myself that the test is whether it was objectively reasonable for the claimant to instruct the particular solicitors retained..."
Thereafter, he determined that:
"In my judgment it was not objectively reasonable for this client to instruct a City of London firm. I reach this conclusion for the following reasons: firstly, this case, as Mr Moriarty for the defendant has pointed out, is an employers' liability claim. There is no international element which would require a round the clock service by a team of solicitors working across international time zones. There are no linguistic difficulties and accordingly, I am not persuaded that this case justified the retaining of a firm of solicitors on the grounds that the level of expertise required could only be found in the city. In my view, the case could have been effectively and completely run by a firm that offered expertise outside the city.
So far as the Truscott factors are concerned, it is common ground that the matter was important to the claimant and that there was no well founded dissatisfaction with other solicitors that she had instructed, they (Davies Arnold Cooper) were simply dealing with the redundancy aspect. As to advice that had been sought about who to consult, that seems to me link in also with what, if anything, the claimant might reasonably have expected to know about the fees likely to be charged by Leigh Day as compared with the fees of other solicitors who she might reasonably be expected to have considered. Here, the claimant was the national sales manager. She lives in Oxted. She earned £120,000 a year. This, as Mr Moriarty submits, was a sophisticated client and in my judgment, it could reasonably be expected of her that she would know that instructing a firm in the City of London would be much more expensive than retaining solicitors in Croydon or indeed in the central London area. It follows for the reasons I have given that I consider the instructing of Leigh Day was objectively unreasonable."
Master Campbell continued:
"The issue I have to decide next is which firm would it have been objectively reasonable for the claimant to have instructed?"
He answered that question in the following manner:
"The claimant is not required to approach the cheapest solicitor. The test is, as I have said, one of objective reasonableness. In my judgment, it would have been objectively reasonable for the claimant to have approached a central London firm."
Master Campbell proceeded to identify that the guideline rates for such firms of solicitors as being: £317 for a grade A; £242 for a grade B; £196 for a grade C and £126 for a grade D earner. He considered that the guideline rates were of assistance to him as a starting point in determining the appropriate reasonable hourly rate. He noted, however, that there were a number of factors, which in his judgment, determined that there ought to be a measure of uplift in those rates including: this was a multitrack case; there was some degree of complexity, namely a limitation point being taken; the denial of liability by the respondent; the stage at which settlement was reached; and the instruction by the appellant of surveillance techniques. Master Campbell determined that taking these factors into account there should be a 20 per cent uplift in the rates applicable to a central London firm and determined the reasonable hourly rates as follows: £380 an hour for a grade A; £290 for a grade B; £235 for a grade C; and £140 for a grade D fee earner.
The appellant seeks to appeal against the order made by Master Campbell. It is submitted that whilst the Master was correct to conclude that it was unreasonable for the respondent to instruct a City firm, Master Campbell fell into error when he determined that the appropriate starting point for the assessment of the hourly rate was that applicable to a central London firm. It was submitted in its skeleton argument that the Master erred in his reasoning in that he was not entitled to select the rates applicable to a central London firm as a starting point, as opposed to a national one firm of solicitors, and that in doing so he had wrongly used a top down approach to the selection of the appropriate starting point, rather than looking at the overall reasonableness of selecting a national one firm of solicitors.
In his oral submissions Mr McDonald of counsel argued that the Master had in fact asked himself the wrong question on this issue and in any event failed to provide the reasons for reaching his conclusion upon it. Further and in the alternative, having selected a central London firm he was not thereafter entitled to uplift the guided hourly rates to take into account the factors which he had identified.
On behalf of the respondent it was submitted in its skeleton argument that the judgment provided by Master Campbell disclosed no error of law or reasoning and should be maintained. In particular there were a number of factors which justified the judge's conclusion, including, inter alia, the importance of these proceedings to the respondent, their complex nature, advice which she had received that specialist solicitors were required to conduct the proceedings and the proximity of central London to her home in Oxted and her place of work, namely Croydon.
It is pointed out that although the claim ultimately settled for £50,000 it had been litigated on the basis of a far higher claim in excess of £400,000. In his oral submissions Mr Astor of counsel submitted that the Master had asked himself the correct question, and if there was any lack of expression of reasons provided by him for reaching his conclusion upon it, these were implicit from the remainder of his judgment.
I remind myself that this is an appeal by way of a review rather than a rehearing, therefore, this court may only allow an appeal against Master Campbell's order on well known principles: it being plainly wrong; there is a defect in reasoning, the Master either having taken into account a matter which was irrelevant or that he failed to take into account a matter which was relevant to his determination; a failure to provide reasons; or that serious procedural or other irregularity in the proceedings rendered it unjust. Moreover, I also remind myself that the Master had a wide discretion as to costs in this case, provided he properly took into account those factors under CPR 44.43, such that I should be astute not to substitute my own opinion for his judgment on the matter.
It is apparent from the judgment of Master Campbell that he gave very careful consideration to the issue of whether or not it was objectively reasonable for the respondent to have instructed Leigh Day. As I have set out in the course of this judgment, he provided clear and cogent reason as to why he considered it was objectively unreasonable for the claimant to have instructed Leigh Day. Indeed, it is notable that the respondent has not sought to cross-appeal this aspect of his decision.
In my judgment there can be no criticism of the Master's observation that the respondent was not required to approach the cheapest solicitor. Moreover, I do not accept the submission which has been made on behalf of the appellant, that the Master was faced with a binary choice of either selecting the rates relevant to a City firm of solicitors, or those rates applicable to a national one firm of solicitors, as the appropriate starting point for considering reasonable hourly rates in this case. As I have observed the Master had a wide discretion and was, of course, well qualified and experienced in reaching a conclusion as to the appropriate hourly rate.
Although I am concerned that in posing the question in the manner in which he did, namely to ask himself, "...which firm would it have been objectively reasonable for the claimant to have instructed" the Master may have fallen into error, in that the Court of Appeal specifically endorsed the approach which Potter J, as he then was, had expressed in the Wraith case, namely "...the question of 'reasonable amounts' will fall to be assessed on the notional basis of the costs reasonably to be allowed in respect of a solicitor or counsel of the status or type which should have been retained" (my underlining), if this had been the only criticism which could have been made of the decision, then it may be that given the experience of this senior costs judge I would have been minded to have considered it to be merely a lack of felicity on his part.
However, the difficulty which compounds the matter is that not only did Master Campbell fail to provide any reasons as to why he had selected the rates applicable to a central London firm of solicitors, but given the way that the matter had been presented to him by the parties, it was, in my judgment, incumbent upon him to provide his reasons for why he was rejecting the primary submission made on behalf of the appellant, namely that the appropriate starting point if not the end point, was the rate applicable to national one solicitors. In my judgment, the absence of reasons on these important aspects of his determination has resulted in this court being unable to be satisfied either that he asked himself the correct question, namely that when determining the reasonable amount, what was the category of solicitors which should have been retained, or indeed to be satisfied as to the reasons why he may have reached his conclusion as to the reasonableness of instructing central London solicitors. In this regard I do not, with respect, consider that the reasons can be divined from the remainder of the decision.
In the course of the hearing of the appeal I raised with counsel as to what course they wished me to follow if I reached this conclusion, whether to remit the matter to Master Campbell for him to provide his reasons, or in the alternative for me, assisted as I am with the expertise of Master Haworth as an assessor, to reach my own determination. The parties have sought to persuade me to the latter course; one which I consider proportionate in terms of the overriding objective in CPR 1.1 and will proceed to follow.
In any event, even if the correct question had been posed, in my judgment, the ultimate conclusion which the Master reached in relation to the issue of the reasonable hourly rate was not one which it was properly open to him to reach on the material before him. In that even if he had been entitled to conclude that the type of solicitors which the respondent should have instructed was a central London one, a conclusion which as will become apparent I do not consider he was entitled to have reached, he thereafter uplifted their guideline rates to such an extent that in reality, there was little difference between the reasonable hourly charging rates which he allowed in respect of the grade B – D fee earners, and those which had originally been claimed by the respondent as applicable to the City firm of Leigh Day. Those being rates which he considered it was unreasonable for the respondent to recover.
In making my determination it is necessary for me to have regard to the relevant factors under CPR 44.43 together with the guidance provided by Kennedy LJ in the Wraith case. Those factors which may be of relevance in this case will include: firstly, the importance of the matter to the respondent; secondly, the legal and factual complexities insofar as the respondent might reasonably have been expected to understand them; thirdly, the location of the respondent's home, her place of work and the location of the court in which the proceedings were to have commenced; fourthly, any dissatisfaction which the respondent may have had with her previous solicitors; fifthly, any advice which she may have sought as to which firm to consult; sixthly, the location of the prospective solicitors; and seventh, what, if anything, the respondent might reasonably be expected to know of the fees likely to be charged by prospective solicitors.
I have no doubt that the proceedings which the respondent was contemplating taking against the appellant were of considerable importance to her. She had worked for the appellant for a considerable period of time, reached a senior position and was now concerned that she had, as a result, suffered some ongoing personal injuries and loss. Moreover, it would appear that the respondent did receive some advice from solicitors which she had been using in respect of a prospective redundancy claim, namely to seek advice from more specialist solicitors. However, in my judgment, although there were aspects of complexity in relation to her case, to which I will return, this was in reality a relatively straightforward claim for personal injuries against her employer. Although appropriately commenced in the High Court, I do not consider that the nature of the issues in relation to liability, causation or quantum required any particular specialisation, over and above that with which a solicitor who is experienced in handling such claims would be expected to be equipped.
Insofar as the geography is concerned, the respondent's home was in Oxted, her base of employment was Croydon and with respect, I see no sufficient reason as to why the respondent would have been justified in seeking to instruct a central London firm of solicitors, as opposed to an appropriate national one firm of solicitors in one of those localities. In this regard it is of note that throughout the course of the litigation counsel was appropriately instructed, both to advise and draft the necessary pleadings. Moreover, as an intelligent and experienced professional woman the respondent would have been aware that solicitors in various locations in and out of London would charge differing hourly rates.
In these circumstances I do not consider it was reasonable for the respondent to have instructed a firm of solicitors either within the City or central London. In my judgment, the category of solicitors which the respondent should have retained was within national band one. Therefore, when considering the issue of a reasonable hourly charging rate to which the respondent is entitled to recover from the appellant, the starting point are those rates applicable to this category of solicitors.
However, it should be made clear that although that is the appropriate starting point, it is necessary for me to reach a judgment upon the issue of the reasonable hourly charging rates that should form the basis of the assessment of the recoverable costs in this case. The rates set out in the guidelines are precisely that, only a guide. Although they may be a starting point, I have to determine what the reasonable hourly rates are in this case.
In this regard, as I previously observed there were some aspects of complexity in the course of the litigation. In my judgment, this factor would have merited some measure of enhancement to the hourly charging rates to which the main fee earners would have been entitled. Those aspects of complexity, over and above the norm which would occur in any litigation of this nature, included, consideration of the limitation point raised by the appellant, the extent of the prospective damages and the consideration of the results of the surveillance evidence.
Furthermore, although some degree of uplift may be appropriate for the main decision taker, which is normally the grade A fee earner, a matter which is reflected in paragraph 43 of the Guide to the Summary Assessment of Costs, 2005 edition, set out at paragraph 48GP33 of the White Book, 2014 edition, this is less likely to apply the further down the pecking order of fee grades.
In my judgment, having regard to the relevant factors in this case and in order for the litigation to have been appropriately and expeditiously handled by the solicitors, it would have been reasonable for them to have selected from within its ranks, fee earners who would have been entitled to charge the following rates: £295 for a grade A fee earner; £230 for a grade B fee earner; £175 for a grade C fee earner and £120 for a grade D fee earner.
This issue being the only one raised with the court below and on appeal, the parties will now be enabled to seek to reach an appropriate agreement as to the overall costs which are to be recovered by the respondent from the appellant in accordance with the terms of the costs order set out in the Tomlin Order, or in the absence of agreement, I will order its remission back to the Senior Court Costs Office.
It only leaves me to observe that although I have been responsible for deciding this appeal, in reaching my decision as to the reasonable charging rates on which the assessment of recoverable costs should be based, I have had the immeasurable assistance of Master Haworth who has kindly permitted me to disclose that he agrees with all aspects of the judgment in this case.
______________________ |
MR SIMON PICKEN QC:
Introduction
This dispute arises out of a property development which did not achieve what had been hoped for it. That much is common ground between the parties, although not much else is. On the contrary, this is a case in which there are a substantial number of hotly contested issues, not least whether the Defendant ("Mr Nijhar") committed the tort of deceit, as alleged by the Claimants.
The First Claimant ("Dr Khambay"), who is a dentist but who is also somebody who has a certain amount of experience in developing properties, alleges that Mr Nijhar, whose main experience is in the housing association sector, presented himself (to Dr Khambay) as an experienced and very well-connected property professional and induced him (Dr Khambay) to purchase the former site of the Duncan Edwards Public House, Priory Road, Dudley DY1 4EH (the "Site") by representing that he (Mr Nijhar) had received assurances from (i) local planning officers in Dudley that planning permission would be granted quickly for mixed retail and residential use with a supermarket development of at least medium size, and (ii) from housing associations and retailers that they would purchase the Site. Dr Khambay also alleges that Mr Nijhar guaranteed Dr Khambay that a profit of at least £500,000 would be achieved if the Site was purchased and planning permission obtained.
It is Dr Khambay's case, and the case of the Second Claimant ("Clubhire"), a company owned by Dr Khambay, that these representations were false, and that Mr Nijhar is liable in the tort of deceit or on the basis that there is actionable negligent misrepresentation/misstatement or for breach of an alleged collateral contract. Dr Khambay and Clubhire say that they were induced by what Mr Nijhar said to purchase the Site for £875,000 on 10 August 2006 – the purchase being through Clubhire rather than by Dr Khambay in his personal capacity. They contend that Mr Nijhar wanted the Site to be purchased in order that he would be appointed to oversee its development and onward sale either for a profit share or for a lump sum payment of £129,500.
Mr Nijhar was, indeed, appointed – or, more accurately, his newly incorporated company, Gravitas Consultancy Limited ("Gravitas") was appointed – by Dr Khambay as 'project manager'. In that capacity Mr Nijhar and Gravitas earned substantial sums of money. In particular, and this is the other aspect of Dr Khambay's and Clubhire's case, despite planning permission not being obtained and the Site not being sold, the allegation is that, having omitted to tell Dr Khambay/Clubhire that a planning scheme submitted in early 2007 had been rejected by Dudley Metropolitan Borough Council (the "Council"), Mr Nijhar made certain misrepresentations on 14 August 2007 which caused Dr Khambay to authorise an additional payment to Gravitas in the sum of £34,042.55 (exclusive of VAT) on 17 August 2007. The Claimants' case is that these representations were also made deceitfully and that Mr Nijhar is liable accordingly.
Mr Nijhar denies each of the Claimants' allegations. His case is straightforward. It is, essentially, to deny that he made the statements which he is alleged to have made, and to maintain that as regards what he did say there was no falsity as alleged. Mr Nijhar denies also that he guaranteed a profit of £500,000 at any time. Again, he says that this was discussed merely as a possibility. He adds that, in any event, in the economic circumstances which prevailed in 2006, two years ahead of the global economic downturn, it was a reasonable opinion to hold – indeed, it was an opinion which (as appears below) was shared by an experienced property developer, Mr Amar Mehli. Further, Mr Mason submitted on Mr Nijhar's behalf, nobody in Dr Khambay's position, with experience in property development, would have understood him to be giving the guarantee now alleged. As a result, the case on inducement cannot hope to succeed. The more so, Mr Nijhar contends, given that Dr Khambay (and Clubhire) relied not on him, or not exclusively on him, but on various other professionals in the form of Mr Mehli (who brought the opportunity to Dr Khambay in the first place and who is an experienced property professional), Mr Surbit Khurll (the director of a company providing commercial property sales and agency services) and Mr Vinay Lakhani (who was Dr Khambay's long-term accountant) throughout the negotiations and subsequent project management.
Mr Nijhar's position is that, as he puts it, "the real difficulty" in the present case resulted from the unexpected economic downturn in 2008 and the "dramatic" effect which that downturn had on the property market. He maintains that, throughout the relevant period, he continued to pursue the possibilities for the Site with "all proper diligence and competence", spending more than the 110 days originally planned on the project. In this context, he firmly rejects the allegation that the £34,042.55 (exclusive of VAT) payment made on 17 August 2007 was made only because he had misrepresented to Dr Khambay and Clubhire the progress which had been made by Gravitas in relation to the Site.
The witnesses
It will be apparent from the nature of the issues which arise in this case that determination of those issues depends very largely, perhaps even exclusively, on my assessment of the witnesses who gave evidence before me. Put shortly, I have to decide whether representations were made; if they were, whether they were made deceitfully or negligently; and if that is the case, whether the Claimants' case on inducement has been made out. Each of these matters will turn on the quality of the evidence given by the witnesses, and that depends, in turn, on the witnesses' credibility – primarily that of the main protagonists, Dr Khambay and Mr Nijhar, neither of whom I found impressive as witnesses.
Dr Khambay
I start with Dr Khambay. He is, as I have already mentioned, a professional man, a dentist. He is also, it would appear, a successful businessman, not only as the owner of apparently busy dental practices but additionally as the developer of certain commercial ventures, namely pubs and clubs, and as the owner of property on the Continent, in particular in Turkey. It would, in such circumstances, be wrong to regard him as inexperienced in property matters, and I do not do this. I accept nonetheless that it would equally be wrong to approach him, and the evidence which he gave, on the basis that he was experienced in developing property similar in size or scale to the Site. I accept his evidence that this was his first venture into the type of development represented by the Site. I accept also that Dr Khambay's practice is to obtain advice from property professionals whenever he was dealing with property development projects. This was what Dr Khambay himself said in evidence. It is also what Mr Khurll had to say based on his experience of working with Dr Khambay on various property deals. It is further borne out by what happened in the present case, with Mr Mehli and Mr Nijhar both involved in the Site at the beginning and then, after Mr Mehli dropped out, Mr Nijhar, or his company, Gravitas, employed as a property consultant.
Dr Khambay's abilities were evident to me when he gave evidence; he is undoubtedly an able man. Unfortunately, however, it was also apparent to me that he was astute to the need to ensure that the evidence which he gave did not harm the case which he and Clubhire were advancing against Mr Nijhar. I am also clear that, whilst he was not setting out to mislead in the evidence which he gave, nonetheless he did engage in what has been termed in the past as 'litigation wishful thinking' (see Tamlura NV v. CMS Cameron McKenna [2009] EWHC 538, [2009] Lloyd's Rep PN 71 per Mann J at [174]). Dr Khambay, in other words, has convinced himself, especially given the passage of time which there has been since the relevant events, that his recollection is in all respects the truth, when that is not the case. He was also grudging in quite a few of his answers to perfectly reasonable questions. This was accentuated by his seeming unwillingness to speak up when giving his evidence, despite several requests that he do so because of the difficulty I sometimes had in hearing what he was saying. In these circumstances, I approach Dr Khambay's evidence with some degree of care and ideally looking for independent support for what he had to say, whether from other witnesses or in the contemporaneous documents. However, I do not consider it appropriate to adopt the course suggested by Mr Mason, which was to place no trust in the evidence given by Dr Khambay. On the contrary, I felt that, in broad terms at least, Dr Khambay was striving to give evidence which was truthful and reliable. Nonetheless, it does not follow that I should uncritically accept everything he told me since I am conscious that, like the other witnesses, he was relating events which took place a long time ago (mainly about 8 years ago). I also am alive, as I say, to the likelihood that, in giving his evidence, Dr Khambay was at pains to ensure that he said nothing which might damage his (and Clubhire's) case.
I should make it clear that I reject, in particular, Mr Mason's invitation, put forward on the instructions of Mr Nijhar, that Dr Khambay's (admitted) severe alcoholism should lead me to conclude that his evidence was unreliable, whether as a result of misrecollection brought about by the alcoholism or because, as I understood the suggestion, Dr Khambay's alcoholism somehow makes it likely that he will give evidence which is deliberately untruthful. I am quite satisfied that Dr Khambay's condition did not affect the quality of the evidence which he gave. I also reject the suggestion, again made on instructions, that (as it was put in Mr Mason's written Closing Submissions) "there is more to [Dr Khambay's] activities and character than meets the eye". This was a submission which was said to be justified by reference to a number of matters, none of which I consider warrants the conclusion which I was asked to draw. I do not accept, in particular, that Dr Khambay and his solicitors have adopted an overly aggressive approach to the bringing of this claim. I was taken to various correspondence said to demonstrate such an approach. However, in none of it did I detect any inappropriate conduct. Nor do I accept that Dr Khambay is to be criticised for the Court only learning about his alcoholism (and it was suggested, quite wrongly as far as I could tell given that Dr Khambay confirmed in evidence that he only ever took prescription drugs, a "drug addict") earlier this year in the context of an adjournment application made by Dr Khambay. I do not consider that there was any obligation on Dr Khambay to reveal his medical difficulties other than in the context of that adjournment application – an application which was based on the fact that he was suffering that condition.
Similarly, the so-called Due Diligence Report, which had been produced in the context of certain bankruptcy proceedings relating not to Dr Khambay but to a former business associate, a Mr Raghbir Brar, does not seem to me to take matters any further. As Dr Khambay explained when he was asked about it, this was a report which Mr Brar obtained in support of his opposition to a bankruptcy petition which had been brought by Dr Khambay because Mr Brar had refused to pay outstanding rent. It was a report which had been prepared in order to discredit Dr Khambay and appears largely to be based on unattributed hearsay and speculation. I place no weight on it in these circumstances. Nor do I place any reliance on a draft witness statement in the name of a Sergeant Charlton, which was made in opposition to an application to extend the operating hours of the Whispers Nightclub, an establishment owned by Dr Khambay but which had previously been managed by people whom he described in his evidence as "gangsters". I agree with Mr Goodkin, counsel for Dr Khambay, that Dr Khambay cannot sensibly be blamed for the conduct of third parties as described in the draft witness statement. I acknowledge that the draft witness statement also refers to certain complaints about Dr Khambay's behaviour whilst he had been drinking. However, I must take account of the fact that, whatever the truth of those matters, Dr Khambay faced no proceedings over them and received no caution; he has a clean criminal record. In any event, it is not clear to me how this behaviour can have any bearing on the matters which I must decide.
This leaves, lastly, Mr Mason's (and Mr Nijhar's) reliance on what was said to be Dr Khambay's "ruthless and determined" behaviour in relation to certain proceedings in Turkey relating to a property development in that country in which both Dr Khambay and Mr Nijhar (and Mr Lakhani and Mr Nijhar's wife) were involved. This behaviour was said by Mr Mason (and Mr Nijhar) to have involved "asset stripping", an allegation also made in relation to a property in this country. Again, I am not prepared to find that Dr Khambay's conduct is to be criticised, and anyway that it is relevant to the matters which I must decide in the present proceedings. My knowledge of the detail of the Turkish proceedings is necessarily limited, but I am satisfied that when Dr Khambay told me that he had merely taken lawful steps, based on legal advice received in Turkey, to protect the project's assets, he was telling me the truth.
I should make it clear that, in the same way as I am not prepared to draw adverse inferences against Dr Khambay based on what I know about the Turkish proceedings, so I am not prepared to make adverse findings against Mr Nijhar despite Mr Goodkin's invitation by reference to an expert's report produced in those proceedings which suggests that the construction works carried out by the joint venture company totalled only £431,172 when Dr Khambay had been asked by Mr Nijhar, and had paid pursuant to those requests, over £720,000 to cover such costs. It seems to me, again, that I am in no position to determine the rights and wrongs of the parties' respective positions in Turkey, and that it would be unwise for me to attempt to do so.
Mr Nijhar
Like Dr Khambay, Mr Nijhar is an intelligent man. He is well-educated with a postgraduate degree in Housing and Public Administration from the London School of Economics. He has a long and apparently successful track record in the housing association sector, having served on the board of Inside Housing Magazine (part of the Chartered Institute of Housing) and having established and served on the board of Inquilab Housing Association in West London ("Inquilab"), an association which he explained has a market value of over £140 million today. He has also been Director of Policy and New Initiatives at Centrepoint, the national youth homeless charity, and has experience as well in the private sector working for Hall & Tawse Partnership Limited and for Capita Consulting Limited working on public sector projects. He has additionally worked in central government, and was from 1994 to 2006 a councillor in the London Borough of Ealing, serving on a number of council committees including as chairman of the Housing Committee, the Perivale Area Committee and the Public Health and Consumer Protection Committee. It is clear that not only does he have considerable experience in the housing association sector and the public sector generally, but also that to his credit he has a long record of public service. It is less clear to what extent he has (or back in 2006 had) experience in the private property sector. This is one of the issues which I must address and I, therefore, say no more about it at this stage.
Regrettably, despite all the good things which Mr Nijhar has done in his career, I did not find him to be a satisfactory witness. Time and again Mr Nijhar would not answer straightforward questions clearly. I recognise that there may have been difficulties, on occasion, in Mr Nijhar reading the documents to which he was taken, owing to certain difficulties which Mr Nijhar has with his eyesight. However, I was careful to ensure that everything that could be done was done to accommodate those difficulties, with extra lighting provided and breaks taken during Mr Nijhar's evidence. I am confident, therefore, and this was acknowledged by Mr Nijhar, that he was able to follow the questions he was asked about the documents. It follows that Mr Nijhar's poor eyesight was not the reason why he sometimes failed to answer questions properly. I concluded that Mr Nijhar was deliberately trying not to answer questions which he did not like. His evidence was given in a manner which suggested a marked reluctance to be open, with his main concern being to ensure that his case was not prejudiced by the answers which he gave to Mr Goodkin's questions. More than this, it was perfectly clear to me that, in a number of respects, Mr Nijhar manufactured answers which he knew were not true, in particular in relation to evidence which he gave concerning a flash drive of documents which he had only very belatedly produced. All in all, I formed the clear conclusion that I should adopt a very cautious approach to the evidence that Mr Nijhar gave. It does not follow from this that I should necessarily reject everything which Mr Nijhar said in his evidence, and prefer that given by Dr Khambay or the other witnesses. That would involve too sweeping an approach and is not, therefore, an approach which I would regard as being appropriate. However, I consider that I should only accept his evidence if satisfied that what he said was inherently likely to be right, or if there was support for his evidence from the documents or from other credible evidence. In adopting this approach, I bear in mind that the issues which I have to decide fall within a fairly narrow, and certainly very specific, compass. It is possible that, despite being an unsatisfactory witness overall, on the issues which matter for the purposes of Dr Khambay/Clubhire's claims the evidence which Mr Nijhar gave was nonetheless true. Equally, I must, of course, assess the totality of the evidence before me and decide whether the evidence adduced by Dr Khambay/Clubhire is sufficient to establish the allegations which they advance. Unless I conclude that the allegations are made out, the claims must fail. It is for Dr Khambay/Clubhire to prove their case. This will be the position even if I were to find evidence given by Mr Nijhar on particular issues was unreliable.
I have mentioned the flash drive of documents. I should say something more about this since Mr Nijhar's conduct in relation to the flash drive serves to demonstrate the unsatisfactory quality of the evidence which he gave before me. As long ago as 6 October 2009, Dr Khambay's then solicitors asked Mr Nijhar to let them have all documents relating to Mr Nijhar's (or Gravitas's) project management of the Site development, to which Mr Nijhar's response (through solicitors) was to question what contractual entitlement Dr Khambay had to the documents sought. On 4 November 2009, Dr Khambay's solicitors responded, repeating their request. A week later, Mr Nijhar then provided a lever arch file of documents, which was described as representing "all documents and recorded information available". It was explained at the same time that "a search of our electronic storage for all potential data" had been undertaken and confirmation was given that "the results of that search are included". Mr Nijhar's solicitors also wrote: "As you [sic] client is aware our client lost information stored on a laptop that was damaged, the information contained within proved to be unrecoverable despite our client's best efforts to do so. Clearly there can be no disclosure of information thereon". Mr Nijhar's evidence was that he had previously informed Dr Khambay of this hard-drive failure, although there is no document to corroborate this and Dr Khambay's (and Mr Goodkin's) position is that Dr Khambay was not told anything of the sort. Mr Nijhar subsequently served a disclosure statement in which he made no attempt to list or identify the documents which he had located through his searches.
This, then, was the context in which Mr Nijhar came to give his oral evidence – something which he started doing on Monday 10 November 2014, the trial having started the previous Wednesday. At the beginning of his cross-examination, he was asked about a document which had been disclosed by him that very morning. This was a letter dated 13 December 2006, dealing with certain demolition work carried out at the Site, which was an issue that had been the subject of certain evidence given by Mr Lakhani the week before in the context of a Gravitas invoice dated 15 December 2006 in the sum of £7,953.54 for "post completion work related" to the Site. Mr Nijhar's position was that the 13 December 2006 letter, which was from the Building Control Manager at the Council and which referred to Gravitas having that day given notice to demolish, demonstrated that Gravitas carried out relevant work which was the subject of the invoice. He was asked, not unreasonably, why it was that the letter had not been disclosed earlier. His answer was that he "did not have it in my possession until this weekend", explaining that he "scoured around for documents" and he found this and certain other documents disclosed that (Monday) morning. He said that he found it on a flash drive in his office at home. He said that he was able to access it and that it contained back-up emails. He said that he had previously searched the flash drive but that he had "overlooked it at the time". He went on to explain that he had had what he described as great difficulty since July 2010 in putting together the documents concerning his involvement with the Site, having lost a major part of his back-up electronic documents through the hard drive failure. He added, when pressed, that he had not backed up everything on the flash drive which he had unearthed over the weekend. He suggested that it was just a small flash drive (2GB), which backed up email only from the 2006/2007 period "or thereabouts", and which had photographs of his Turkey visits on it which took up a lot of space. He suggested also that it did not back-up all emails as he was using AOL, and the relevant AOL account no longer exists. He then suggested that he used other servers to communicate with people and so the flash drive would not cover everything in any event. This, notwithstanding that the 13 December 2006 message which prompted this line of questioning by Mr Goodkin was itself an email which was sent from Mr Nijhar's AOL account. Mr Nijhar then went on to explain that he also did not go about backing up in a systematic way, and that he could not remember which of his various email accounts he did not back up.
This was decidedly unimpressive evidence, which was delivered in a wholly evasive manner. I formed the clear impression that Mr Nijhar was trying to justify his failure to disclose what he should have disclosed. Whether that failure was innocent or deliberate, I do not know. What was clear to me, however, was that Mr Nijhar was not being straightforward in the explanations he was giving to the Court, in answer to Mr Goodkin's questions, as to why relevant documents on the flash drive had not been disclosed before. My suspicion that this was the case became more than mere suspicion when Mr Nijhar then went on to contradict his earlier evidence that he had previously searched the flash drive but had "overlooked" the 13 December 2006 document by saying that, before the weekend which had just gone, he had not known that the flash drive was in the office where it was. He explained that he had thought that the "information", as he put it, on the flash drive had, again as he put it, "long gone", and that he only found it on the weekend because he had been looking for some photographs for a colleague and he had stumbled across the 13 December 2006 document on the flash drive whilst he was in the process of doing that. This was an explanation which was hard to square with his earlier evidence that he had spent the weekend "scouring" for relevant documents. It was equally difficult to understand how, as he went on to explain, he could have been "scouring" for documents which had "already been disclosed", since if documents had already been disclosed there would be no need to have searched a second time for them. Pressed still further, Mr Nijhar then gave contradictory answers in quick succession: first, that when giving disclosure he "would have looked at this drive" but that he "did not think it was relevant"; and then, that he could not remember if he did this and that he "was under enormous pressure from [Dr Khambay's] lawyers to submit a Defence". That latter explanation was not a good one, however, since, as was pointed out to him by Mr Goodkin, the Defence was served on 23 March 2011, and standard disclosure was given three months later on 20 June 2011.
All in all, what Mr Nijhar had to say on this topic was unimpressive, to put it mildly. It caused me to doubt that he was really setting out in his evidence to be open, and this impression was reinforced by other aspects of the evidence which he gave. The fact that this was evidence which he gave at the very start of his cross-examination seemed to me to underline his less than candid approach to the giving of his evidence. I agree also with Mr Goodkin that the fact that Mr Nijhar gave this contradictory evidence in so confident and assured a tone as he did, with little hesitation or apparent uncertainty, suggests that he felt under little inhibition to give evidence which was untrue and knowingly so.
The evidence given by Mr Nijhar concerning the flash drive was not the only evidence which caused me to doubt Mr Nijhar's credibility. Specifically, Mr Nijhar was asked in detail by Mr Goodkin about a business card and, more particularly still, a marketing flyer-type document which Mr Nijhar gave either to Dr Khambay or Mr Lakhani at some point, Mr Nijhar explaining that he had 250 copies of the flyer printed, relatively shortly before he met Dr Khambay. The flyer is headed "Gravitas Consulting, Inderjeet Nijhar" and goes on to list a number of activities under the heading "Professional Support to Maximise Value", namely: "Planning – PR – Regeneration – Policy – Acquisitions - Asset disposals – Funding – Management - EU/Asia/Africa Networks". Asked about this list, Mr Nijhar stated that, whilst he was saying in the flyer that "we can provide these services", he himself "could not possibly provide all the services personally". He explained that he, as he put it, "brings in skillsets" and the areas listed in the flyer were "elements of my experience". He went on to explain that the flyer was, again as he put it, "a precursor to see what the market was looking for and seeing what I could do with people around me"; it was, he said, "a market research type flyer". In fairness, when pressed, Mr Nijhar accepted that, given what was stated in the flyer, there was a risk that it was misleading in the sense that the reader would not know which skills Mr Nijhar was saying that he himself possessed and which skills he would bring in from elsewhere. However, he insisted that the flyer was only a market research tool and nothing more than that, when it was clear to me that that cannot have been the case at all. It was quite obvious to me that Mr Nijhar produced the flyer in order to try to obtain work, and not merely as part of some sort of research exercise. In my view, in giving the evidence which he did concerning the flyer being a market research tool, Mr Nijhar was trying to explain away the fact that this was a document in which he was telling the reader that he had skills which he manifestly did not have – skills which, in evidence, he knew he would have to accept (as he did, indeed, accept) he did not possess.
Nor was I impressed by Mr Nijhar's insistence, in cross-examination, that he was not overly bothered whether Dr Khambay purchased the Site or not. Leaving aside whether he had the motivation to make misleading statements to Dr Khambay in order to ensure that Dr Khambay (or Clubhire) made the purchase, something which Mr Goodkin submitted was the case and which Mr Nijhar disputed, it was nonetheless striking that Mr Nijhar was not prepared to acknowledge the obvious: that he stood to make considerable sums of money from Dr Khambay purchasing the Site and employing him (or Gravitas) to assist in its development, and that these sums would substantially exceed his current income. Mr Nijhar (or Gravitas) expected to earn at least £150,000 from Dr Khambay's purchase of the Site, with Mr Nijhar estimating that he would work 110 days on the project. On the basis that this equates to about a third of a year, the £150,000 which Mr Nijhar expected to achieve for 110 days of work amounted to a yearly salary equivalent of £450,000. This is a substantial sum and compares particularly favourably with what Mr Nijhar was then earning whilst working at the Cabinet Office, which he stated in evidence was about £60,000 to £70,000 "depending on the time I put in". I found Mr Nijhar's insistence that he did not view matters in this way, that £150,000 was "not a lot of money" and that he is not "a money-motivated person" wholly unconvincing. In the circumstances, I do not accept that Mr Nijhar can have been quite as phlegmatic about Dr Khambay buying the Site as he suggested in his evidence. Indeed, it is instructive that, when pressed about his attitude to Dr Khambay not proceeding with the Site, Dr Khambay's response was to say that the Site was "not the only project". This was a reference to Dr Khambay purchasing a site in Feltham instead of the Site and to Mr Nijhar being part of that alternative project. It seems to me to underline Mr Goodkin's point that Mr Nijhar was very much interested in making money from Dr Khambay making a purchase, whether that be of the Site or of the Feltham property.
Another example of Mr Nijhar's evasive approach was his insistence that the primary, or at least a significant, source of the instructions which he received in relation to the Site, over the period when Gravitas was acting on behalf of Dr Khambay/Clubhire, was a Mr Gerry Dolan rather than Dr Khambay. I found this insistence unfathomable since Mr Dolan appears nowhere in any of the contemporaneous documents, whether as a sender of any message or as the recipient or as a party who was copied in or as somebody who was at any meeting or at all. This is not altogether surprising since Mr Dolan's role at the time appears to have been, exclusively, as somebody who cared for Dr Khambay's wellbeing from a health (rather than a business) perspective; Mr Dolan is a nurse. Despite this, Mr Nijhar maintained his insistence that Mr Dolan performed the different role which he described. I am quite clear that the reason why he did so is not because he was telling the truth about Mr Dolan's role in the project, but because he appreciated that making out that Mr Dolan was involved allowed him to make assertions about what happened as the project unfolded which Dr Khambay was not in a position himself to gainsay. I consider that Mr Nijhar also probably calculated that, by stating that Mr Dolan was involved as opposed to Dr Khambay, this enabled him to maintain his case that Dr Khambay was often incapacitated through his alcoholism, and that that was the reason why Mr Dolan had to be involved. This was much to Mr Nijhar's discredit and increases my disquiet at how Mr Nijhar approached the task of giving evidence in this case.
This last example and the other matters to which I have referred are, however, but illustrations of the unsatisfactory nature of the evidence given by Mr Nijhar. In the circumstances, I do not propose setting out other such instances. I do not, in particular, make findings concerning Mr Nijhar's conduct as regards various charges levied by Mr Nijhar/Gravitas in respect of work carried out for Dr Khambay or his companies in relation to the obtaining of a licence for the Whispers Nightclub (£22,090.07 charged to Nice People Limited which ultimately led to a rather more modest payment of just £4,000) and in relation to 'notice to cease' building work issues concerning the Glassy Junction public house (£17,419.01 subsequently reduced to £6,000). Mr Goodkin submitted that I should conclude that this showed that Mr Nijhar was willing to charge for services in respect of which he had no expertise, and that he was unscrupulous in his approach to billing. However, besides noting Mr Nijhar's willingness to accept substantially smaller amounts than he invoiced, it is not clear to me that I am in a position to make the further findings which Mr Goodkin invites me to make. Nor, despite Mr Goodkin's invitation, am I prepared to conclude that Mr Nijhar fraudulently inflated his invoice dated 15 December 2006 concerning work he claimed was carried out in relation to demolition at the Site. Although it is not entirely clear what exactly Mr Nijhar (or Gravitas) did in this regard, nonetheless I do not feel able to conclude that he acted fraudulently without having more knowledge of what was involved and who did what.
I now come on to deal with the other witnesses. I should, first, however, make it clear that, in arriving at the views which I have in relation to Mr Nijhar, I have proceeded on the basis that he was not responsible for, nor aware of, certain letters which were sent anonymously to each of Dr Khambay's witnesses in the immediate lead-up to the trial. These letters consisted of posters bearing Dr Khambay's photograph and various other images, together with descriptions of Dr Khambay which I do not repeat here but which were highly derogatory. Attached to the posters was the draft witness statement from Sergeant Charlton to which I have previously referred. It was put to Mr Nijhar by Mr Goodkin that he was responsible for the sending of these letters. His answer was that it was "outrageous" for it to be suggested that he created the posters. He suggested that it was not in his nature to discredit anybody, a point he repeated shortly afterwards when, in a different context, he stated that he was "not in the business of discrediting anybody". Although I am sceptical that Mr Nijhar had nothing to do with these letters, since plainly they must have been sent by somebody with access to Sergeant Charlton's draft witness statement, a document which Mr Nijhar said he had obtained 3 or 4 weeks earlier and which he had disclosed only the week before the trial started, nonetheless I cannot be sufficiently confident that Mr Nijhar was involved in order to find that he was. It is for this reason that I have proceeded on the basis that he lacked responsibility and awareness. My assessment of Mr Nijhar's evidence is, accordingly, arrived at on the basis that he was not involved in, nor aware of, the letters which were sent to the Claimants' witnesses.
Mr Mehli
I can deal with the other witnesses rather more briefly, not least because I considered them to be witnesses who, without exception, gave evidence which was both honest and straightforward. They all were quite clearly doing their best to assist the Court, and they were doing this with an independence which was very evident to me and which was to their considerable credit. The extent to which their evidence matters as regards the issues which I must determine nonetheless varies somewhat. The witness whose evidence I regarded as having the greatest bearing on those matters was Mr Mehli, and I start with my assessment of him.
Mr Mehli was the person who first brought the Site to Dr Khambay's attention. He had previously worked with Dr Khambay in relation to the purchase of Osterley Sports Club and is somebody with considerable experience in property development and, certainly, property purchases. He described himself in his witness statement as a property consultant, and described how in about May 2006 a friend of his introduced him to the Site. He inspected it and concluded that it represented a good investment opportunity. He was particularly attracted by the fact that the Site had a lot of road frontage because, he explained, that provided a lot of options for residential and commercial development. He was sufficiently interested to make an offer, through his company, to purchase it for £600,000. That offer was rejected shortly afterwards, but in the meantime he had discussed the Site with Dr Khambay and a couple of other potential purchasers. He stated that he showed Dr Khambay the Site on Google Earth and asked him whether he would be interested in the Site at £600,000, the amount which he told him his own company had offered. Dr Khambay said that he would, indeed, be interested. Mr Mehli added how he had explained to Dr Khambay in that initial approach that the Site could, he considered, be used for redevelopment, with the buildings being demolished and the land (an acre or so) then being used for mixed commercial and residential development.
A few days later, Mr Mehli's company's £600,000 offer having been rejected, Mr Mehli (again through his company) made an increased offer in the sum of £700,000. That offer was also rejected a short while later. About a week after that, Mr Mehli not having spoken to Dr Khambay in the meantime, Mr Mehli learned that Punch Taverns, which owned the Site, had agreed a sale price of £1 million with another party. Punch Taverns asked Mr Mehli whether his company wanted to match that price. It did not, but Mr Mehli spoke again to Dr Khambay and asked whether he would be interested in purchasing the Site at that price. Dr Khambay's answer was that he was not interested. A month or so later, however, in late May or early June 2006, Mr Mehli learned that Punch Taverns had been unable to sell to the other party owing to certain problems with the roof of the building as well as concerns over title. Mr Mehli was asked whether he was interested in purchasing at a discount, and he then made a further offer again in the sum of £600,000. That offer was rejected and so Mr Mehli then made an offer of £700,000. That offer was also turned down, and so Mr Mehli (or perhaps his company) offered £800,000 – an offer which was again declined.
Mr Mehli at that stage made contact with Dr Khambay again, explaining about the other party's interest having ceased and why that was the case. Dr Khambay indicated that he would be interested at the right price. Mr Mehli was then told that Punch Taverns had received an offer of £875,000, and that an offer matching this would be required if the Site were to be secured. Mr Mehli told Dr Khambay about this, and he told him that he would get back to him. It was in this context, as I shall explain later, that ultimately Dr Khambay (or Clubhire) came to make a revised offer, have that offer accepted, exchange contracts with Punch Taverns and become the Site's owner. It was in this context also that Mr Mehli was introduced to Mr Nijhar and Mr Nijhar became involved in the purchase of the Site in place of Mr Mehli. Again, these are matters which I must address in some detail later. What is important for present purposes is that it was Mr Mehli mainly, and to some (rather lesser) extent Mr Lakhani, who was able to give evidence concerning Dr Khambay's dealings with Mr Nijhar in the lead-up to the Site's purchase by Dr Khambay/Clubhire. It was Mr Mehli who, therefore, gave evidence concerning a meeting he had with Mr Nijhar and Dr Khambay (but not Mr Lakhani) at Dr Khambay's house in "about June 2006", a dinner at a restaurant called Laguna on 28 June 2006 attended by Mr Mehli, Mr Nijhar and Mr Lakhani (but not Dr Khambay), a meeting on 12 July 2006 at Dr Khambay's house attended by Mr Mehli, Mr Nijhar and Dr Khambay (but not Mr Lakhani) and a further meeting, again at Dr Khambay's house, on 19 July 2006 attended again by Mr Mehli, Dr Khambay and Mr Nijhar (but not Mr Lakhani).
As these are the critical meetings (strictly not the Laguna restaurant meeting because Dr Khambay did not attend this) when it is alleged by Dr Khambay (and Clubhire) that Mr Nijhar made the various representations which are central to the present claim, it will be appreciated that Mr Mehli's evidence in relation to these various meetings is of critical importance. Besides Dr Khambay and Mr Nijhar themselves, Mr Mehli is the only witness who was able to give direct (as opposed to hearsay) evidence in relation to the misrepresentations which Dr Khambay has alleged. Unlike Dr Khambay and Mr Nijhar, Mr Mehli was an independent witness. He had nothing to gain from giving evidence which favoured either side. He was, as he told me in no uncertain terms, only concerned "to speak the truth", and I am quite satisfied that this is precisely what he did when he gave his evidence. As he explained, he would have been willing to make a witness statement at Mr Nijhar's request had it not been for the fact that he had already agreed to provide a witness statement in response to Dr Khambay's (or his solicitors') request that he do so. He denied that he had been threatened by Dr Khambay to give evidence on his behalf, and that he had told Mr Nijhar during 2011 that he had been so threatened. He was clear that he had merely told Mr Nijhar that he had been asked by Dr Khambay to provide a witness statement and that his position was that he "would only tell the truth whoever it helps". That, I am sure, is precisely what he did. Indeed, as will appear, Mr Mehli's evidence did not wholly support Dr Khambay's version of events, not merely in relation to minor detail but in relation to important aspects.
Mr Mehli's impartiality was also borne out by the fact that he explained in cross-examination that he tried to mediate between Mr Nijhar and Dr Khambay in relation to their dispute. It is further underlined by evidence which he gave during re-examination to the effect that, in the same way as he had had previous dealings with Dr Khambay (as regards the Osterley Rugby Club), so he had had subsequent dealings with Mr Nijhar after Mr Mehli had dropped out of the proposed purchase of the Site, which he did (as will appear) after the meeting which took place at Dr Khambay's house on 19 July 2006. Mr Mehli explained that he and Mr Nijhar were both involved in a project in Enfield, Mr Mehli arranging for Mr Nijhar to be paid for preparation of a report concerned with certain planning issues. This was in addition to a project in Bedford in which, again, Mr Nijhar became involved through Mr Mehli, Mr Nijhar receiving payment for certain lobbying-type services which he provided. Clearly Mr Mehli, businessman that he is, was keen to continue on good terms with Mr Nijhar. In these circumstances, I reject any suggestion that, in giving his evidence, Mr Mehli in any way favoured Dr Khambay over Mr Nijhar. On the contrary, as I say, I consider that Mr Mehli was a scrupulously fair and independent witness. I reject the specific suggestion made by Mr Mason that his evidence was lacking in independence because he had been shown the Particulars of Claim. That Mr Mehli was shown the Particulars of Claim is not something which I find remotely surprising. In any event, I regard the criticism as particularly lacking in substance once it is appreciated that, not only was Mr Mehli shown the Particulars of Claim, but he was also asked to comment, in detail, on Mr Nijhar's Defence and in certain respects he agreed with what Mr Nijhar there alleged. Again, this seems to me to underline Mr Mehli's independence.
Mr Lakhani
As for Mr Lakhani, I regarded him also as somebody who was doing his best to assist the Court. I do not accept that Mr Mason's characterisation of his evidence as "vague, muddled and evasive" is fair. Nor do I consider that his close relationship with Dr Khambay, as his long-term accountant and through the fact that his wife works for Dr Khambay three days a week (as well as being secretary in certain of Dr Khambay's businesses), justifies a conclusion that Mr Lakhani's evidence is to be mistrusted. Mr Lakhani was, in fact, a careful witness and clearly a careful professional. He gave his evidence with clarity and in a level of detail which was impressive, especially bearing in mind the length of time which has passed since the events in question. It was to his considerable credit that he managed to do this in circumstances where Mr Nijhar had made complaints which had led to Mr Lakhani being the subject of two disciplinary inquiries by his professional body, the Association of Chartered Certified Accountants, as a result of Mr Lakhani providing accountancy services for Mr Nijhar (or his company, Gravitas). Those complaints were each dismissed, the second as recently as October last year, just a few weeks before the trial. It is clear that they were complaints which were not regarded by Mr Lakhani's professional body as justified. They must, however, have caused Mr Lakhani considerable upset, and it might have been understandable if a certain amount of animosity had been apparent during his cross-examination by Mr Mason on Mr Nijhar's behalf, particularly when he was asked (as he was) about the matters which were the subject of Mr Nijhar's (unwarranted) complaints. Mr Lakhani, however, remained composed and gave his evidence in a dignified manner. This was, as I say, to his considerable credit. It also, to my mind, demonstrated that Mr Lakhani was a witness of truth, even though in one respect (concerning a meeting which took place on 7 August 2006), as I shall come on to explain, it does seem to me that he was mistaken.
Mr Khurll
The other two witnesses called on Dr Khambay's behalf were Mr Khurll and Mr David Prichard. Like Mr Mehli and Mr Lakhani, I regarded Mr Khurll and Mr Prichard as good witnesses who gave their evidence in an honest and open way. As for Mr Khurll, he is somebody who has been involved in property transactions in the Southall area of West London for around 20 years. He is currently a director of Monarch Commercial Limited, a company which provides commercial property sales and agency services. I am not aware of any justification for Mr Nijhar's suggestion, when he gave evidence, that Mr Khurll was not regarded in the Southall community as being trustworthy. He explained in his witness statement that he had known Dr Khambay for a number of years and that he had, as he put it, been involved in property transactions with Dr Khambay on several occasions. He explained, and repeated in cross-examination, that he and Dr Khambay spoke regularly, perhaps up to seven times a week. His evidence was that he met Mr Nijhar in the middle of 2006, having been invited by Dr Khambay to his house in order that the possibility of Mr Khurll working alongside Mr Nijhar on projects for Dr Khambay could be explored. He stated that the meeting was concerned with a site in Southall called the Glassy Junction and a site in Dudley (the Site). Mr Khurll was already involved in relation to the former, but not the latter and, indeed, Mr Khurll never became involved with the Site. He explained how Mr Nijhar was, as he put it, "driving the meeting", and how Mr Nijhar "seemed keen to get involved" in the Glassy Junction project as well as the Site. To this end, Mr Khurll's evidence was that Mr Nijhar talked about his experience in housing associations and his experience also of local planning authorities. As far as Mr Khurll was concerned, Mr Nijhar "was clearly trying to sell himself" to Dr Khambay. In particular, according to Mr Khurll, Mr Nijhar "spoke in some detail about his contacts in the housing associations and local authorities in both Southall and Dudley". Mr Khurll found Mr Nijhar to be "a very engaging character". Although I do not doubt that what Mr Khurll had to say as to these matters is correct, it should be acknowledged, however, that he was not at the meetings in which Dr Khambay alleges that the misrepresentations now relied upon by Dr Khambay/Clubhire were made. His evidence was very generalised and unspecific. I am not greatly assisted by it as a result, other than in finding it broadly instructive in gaining an understanding of the dynamic between Mr Nijhar and Dr Khambay when they first became involved together in relation to the Site. I agree with Mr Mason, therefore, that Mr Khurll's evidence is only of limited value to me in determining the issues which arise in these proceedings.
Mr Prichard
This leaves, so far as Dr Khambay's and Clubhire's witnesses are concerned, Mr Prichard. He was an impressive witness. He is a planning consultant of considerable experience, who gave evidence not in relation to any pre-contractual events but in relation to a much later stage, post-February 2010, after he had been instructed by Dr Khambay in order to obtain planning permission. Mr Prichard also, in his witness statement, commented on the earlier efforts made by Mr Nijhar/Gravitas to obtain planning permission. He was very critical of those efforts, describing in his oral evidence "serious shortcomings" which included an absence of "proper architectural drawings" and a "failure to understand fundamentals of development". As far as he was concerned, again as he put it orally, "the scheme cannot work", referring to what had been presented to the planning officers at the Council, as will appear, in February 2007. He was adamant that there were a number of serious issues which needed to be resolved before the planning officers were approached, and that these issues (including a car park access issue) had been "completely ignored" in the drawings which had been submitted. What was submitted was, as he put it in re-examination, of "no value at all"; it had been a "pointless exercise" which would have seriously undermined the project's credibility in the eyes of the planning officers. These were powerful criticisms. Mr Prichard was, as I say, an impressive witness.
Mr Brar
I turn now to Mr Nijhar's witnesses: Mr Richard Holmes, Mr Duncan McCallum, and Mr Brar. I deal first with Mr Brar, who was not required by Mr Goodkin to attend to be cross-examined. In his witness statement, which was made on 5 August 2014 but which was only sought to be relied upon by Mr Nijhar during the course of the trial, Mr Brar explained that the Due Diligence Report to which I have previously referred was a report which had been commissioned by him. He stated that he was content for Mr Nijhar to make full use of the report in the present proceedings. He then requested that he be permitted to "appear in person to provide the Trial a firsthand experience of the dealings and affairs of Dr A.S. Khambay, as covered in the report and subsequently from June 2010 onwards" (the time when the report had been prepared). In the event, Mr Mason did not press this last request and was content that Mr Brar should not attend to give live evidence in view of Mr Goodkin indicating that he had no objection to the witness statement being admitted late and did not require to cross-examine Mr Brar. I have previously addressed the Due Diligence Report and the attack made on Dr Khambay by Mr Mason, on Mr Nijhar's behalf. I do not repeat what I have had to say about this.
Mr Holmes
As for Mr Holmes, he is a chartered surveyor who runs his own consultancy, Richard Holmes Property Consultants Limited. He was, however, previously Group General Manager, Property Professional Services for the Mid-Counties Co-operative Society Limited ("Mid-Counties Co-Op"), a position he had held since 1990. The significance of Mid-Counties Co-Op will be addressed later, but what matters for present purposes is that Mr Holmes explained in his witness statement how, in late 2007, he was approached by Mr Nijhar concerning the Site and how Mid-Counties Co-Op had expressed an interest in the Site but that that interest had ceased "after the beginning of 2010". He then set out a certain amount of chronology, albeit without the benefit (as he readily acknowledged) of having himself retained the relevant documents. In cross-examination, he (again very fairly and to his credit) agreed that the plans which he had been shown by Mr Nijhar were, as he put it, "schematic" and "not developed to the level you would expect for planning consent". He further confirmed that he had not been told by Mr Nijhar that the Council had, as will appear later, very firmly rejected the plans which Mr Nijhar was showing him. It was apparent to me that, in the circumstances, and through no fault of Mr Holmes, the value of what he had to say was limited. Mr Holmes was clearly a straightforward witness. There is no doubt that he was doing his best to assist the Court. It is simply that what he had to say was not of much (if any) value.
Mr McCallum
The same unfortunately applies to the evidence which was given by Mr Nijhar's other live witness, Mr McCallum. Like Mr Holmes, Mr McCallum is a property professional of considerable experience, a chartered town planner who in 2009 was a director of DPDS Regional Limited, a town planning consultancy based in Bristol. He explained in his witness statement how he was approached by Mr Holmes to examine the planning prospects for a mixed development with retail use at the Site. He explained how he had worked with the Co-Op (by which I took him to mean Mid-Counties Co-Op) on a number of planning projects since 1995. He explained how he visited the Site, how he then submitted a fee proposal to Gravitas, and how (although the proposal had yet to be accepted) he then attended a meeting with the Council planning officers to assess the likely response to a planning application "prior to the go ahead for work on the project being given". This took place on 1 December 2009, and he stated that the officers expressed concern that the proposed development might have an adverse effect on Dudley town centre. Subsequently he heard nothing more, although he stated that he "formed the impression that the project was being handled in a professional way". In cross-examination, however, Mr McCallum (like Mr Holmes) acknowledged that he had not seen any of Mr Nijhar's correspondence with the Council and that, therefore, the extent of his knowledge of what had gone on before was limited. He agreed also that his reference in his witness statement to his having formed the impression that "the project was being handled in a professional way" was based solely on two meetings which he had had with Mr Nijhar and he was not expressing any view about Mr Nijhar's handling of the project more generally. Therefore, although (as with Mr Holmes) I do not doubt Mr McCallum's willingness to give evidence which is straightforward, I nonetheless do not find Mr McCallum's evidence particularly helpful.
The Claimants' primary case
As I have explained, there are two aspects to the case advanced by Dr Khambay/Clubhire in these proceedings. The first aspect relates to the period prior to Dr Khambay/Clubhire's purchase of the Site, specifically the allegations that Mr Nijhar made representations (i) that he had received assurances from local planning officers in Dudley that planning permission would be granted quickly for mixed retail and residential use with a supermarket development of at least medium size, (ii) that housing associations and retailers had told him that they were interested in the Site, and (iii) that Dr Khambay was guaranteed to make a profit of at least £500,000 if the Site was purchased and planning permission obtained. The second aspect concerns the allegation that Mr Nijhar made certain specific representations on 14 August 2007, and that on the faith of these further representations Gravitas was paid certain monies. In what follows, I deal with these two aspects separately, starting obviously with the case which focuses on the pre-purchase period.
Initial meeting between Dr Khambay and Mr Nijhar
Apart possibly from briefly coming across each other at a charity event long before, something recalled by Mr Nijhar but not apparently by Dr Khambay, Mr Nijhar and Dr Khambay first met in about the middle of 2006. They were introduced by Dr Khambay's brother, Vinny. Mr Khambay is an electrical engineer, although Mr Nijhar appears to have thought that he was an architect as that is what was stated in the Defence. Mr Goodkin suggests that this was a deliberate attempt by Mr Nijhar to support his argument that Dr Khambay was surrounded by people with property expertise. In my view, that is unlikely to be the position. It is rather more likely that Mr Nijhar simply made a mistake. I accept, therefore, that Mr Nijhar did, indeed, think that Mr Khambay was an architect. Be that as it may, Mr Nijhar's evidence was that Mr Khambay asked him to see Dr Khambay because Dr Khambay was "facing some difficulties" and he (Mr Khambay) thought that Mr Nijhar "had the right qualities to help him". He explained that these difficulties related to certain projects in which Dr Khambay was involved and in relation to which there were problems with builders.
He said that Mr Khambay had not been very specific in making the request to him. Mr Nijhar was adamant that, although he knew that Dr Khambay was a dentist, he had not known that he was wealthy. He added that, in meeting Dr Khambay, he did not intend to persuade him to do business with him; nor did he hope that Dr Khambay would engage him as a property development manager. I consider this unlikely, however. Whilst I accept that Mr Nijhar is unlikely to have had any specific project in mind when he first met Dr Khambay, given that Mr Nijhar would not have known what projects Dr Khambay was, or was intended to be, involved in, nonetheless there is no dispute that, when they met in 2006, Mr Nijhar told Dr Khambay about his background, experience and qualifications. In these circumstances, I struggle to see that Mr Nijhar would not have been trying to coax Dr Khambay into engaging him or working with him on projects, whether then or in the future. If that was not the case, it is not clear why Mr Nijhar would have told him what he did about himself, specifically, as Mr Nijhar admitted in evidence: that he was well connected to a number of housing associations across the country; that he had started Inquilab and this was very successful, had 900 dwellings and was expanding rapidly; that he had been in the housing industry for twenty years; that he had worked for a number of charities; that he had been a Labour councillor for 12 years for the Perivale ward; that he knew a lot of local councillors personally; that he knew several members of the House of Lords and they were personal friends of his; that he had a degree in economics from the London School of Economics; and that he had known HRH The Princess of Wales, was involved with the Princes' Trust and was organising a gala with Princess Diana.
These are not things which Mr Nijhar would have told Dr Khambay unless he was trying to impress Dr Khambay, and he can only have been trying to do this because of the possibility that the two of them might work together. This seems to me to be obvious. It makes no difference that Mr Nijhar denied making other statements alleged by Dr Khambay, including that he knew a large number of planning officers throughout the country, that he had worked for then Chancellor of the Exchequer Gordon Brown's monetary policy unit, that he knew a lot of MPs and that he also knew a lot of people at the Department for the Environment. The simple fact is that what he admitted telling Dr Khambay represented a list of achievements and a description of his experience, and he can have imparted such information only because he was trying to impress Dr Khambay in the hope that work might result. My conclusion in this regard is, furthermore, borne out by what Dr Khambay explained, in his witness statement, happened after this first meeting between Dr Khambay and Mr Nijhar, which was that Mr Nijhar tried to persuade Dr Khambay to become involved in various projects, including the acquisition of a property in Southall which was owned by Inquilab. Although Mr Nijhar denied the allegation put to him by Mr Goodkin that he had offered this property to Dr Khambay for £200,000 less than its real value, he nonetheless admitted that he did bring the property to Dr Khambay's attention and suggest that he buy it. Mr Nijhar, therefore, clearly was interested in doing business with Dr Khambay, and he was also quite obviously aware both of Dr Khambay's interest in buying properties and of his financial ability to purchase. On that basis, I consider it more likely than not that, contrary to the evidence given by Mr Nijhar, he was, indeed, wanting at this time to work with Dr Khambay and was aware that that business was likely to entail property development.
Mr Goodkin suggested that the point goes still further, in that Mr Nijhar's showing of the Inquilab property to Dr Khambay, and specifically his suggestion that Dr Khambay might purchase it at an undervalue, demonstrates also that Mr Nijhar is a dishonest individual. I decline, however, to find that Mr Nijhar made such a suggestion. I am satisfied that that is not something which Mr Nijhar is likely to have done since, as he explained when the point was put to him in cross-examination, he had set up Inquilab, it was, as he put it, "like my own child", and he had sat on its board for some twenty-five years. In these circumstances, I regard it as unlikely that Mr Nijhar would have been prepared to see the Inquilab property sold at an undervalue. It may be that Mr Nijhar suggested that £700,000, the price he suggested that Dr Khambay could purchase the property for, was a good price and that he might be able to make a £200,000 profit were he to buy. That is not, however, the same thing as saying that a property with an actual value of £900,000 could be purchased at just £700,000.
The lead-up to the purchase of the Site
As I have previously mentioned, it was Mr Mehli who introduced Dr Khambay to the possibility of purchasing the Site. He did this shortly after Punch Taverns had rejected an offer which he had himself made to purchase the Site, having had the Site brought to his attention by a friend in about May 2006. It was in the context of Mr Mehli's discussions with Dr Khambay concerning the Site that Dr Khambay introduced Mr Mehli to Mr Nijhar, and the meeting at Dr Khambay's house in "about June 2006" took place. This was a meeting attended only by Dr Khambay, Mr Mehli and Mr Nijhar. It was a meeting which was preceded by Dr Khambay making contact with Mr Nijhar, as it is alleged in paragraph 6 of the Particulars of Claim and as admitted in paragraph 8 of the Defence, "in order to discuss what if any development potential the Site had and whether it would be advisable for the Claimant to purchase it". Dr Khambay's evidence, which I accept notwithstanding Mr Nijhar's denial, was that, when he contacted Mr Nijhar, he made it clear that he would not be interested in purchasing the Site unless there was significant potential there and it could be "turned around quickly". I rather doubt that Dr Khambay repeated this to Mr Nijhar "every time we met", as he alleged, but I am confident that nonetheless Mr Nijhar would have clearly understood that Dr Khambay was interested in buying the Site only if there was the significant potential and ability for quick turnaround which was mentioned when Dr Khambay first made contact with Mr Nijhar.
It follows that the first of the meetings between Dr Khambay, Mr Nijhar and Mr Mehli took place after Mr Mehli had brought the Site opportunity to Dr Khambay in May 2006, and after Dr Khambay had the same month asked Mr Nijhar to get involved with the Site. The meeting took place, it seems, a matter of a few weeks later, and so in June 2006. I say this based on Mr Mehli's evidence, whose evidence was that, although he did not recall precisely when the first meeting took place, "it was about June 2006", and not on the evidence given by Dr Khambay whose evidence was that he could not recall when the first meeting took place but that he estimated that it was "in about early July 2006". It is fair to say that Dr Khambay's evidence as to when meetings between Mr Mehli, Mr Nijhar and him took place was vague. He admitted, indeed, that he did not remember the dates, merely recalling that "there were about 4 or 5 meetings" and that they took place "about once per week". As for Mr Nijhar, in his witness statement he did not deal with the meetings with any precision at all. In the circumstances, it seems to me that Mr Mehli's evidence is the best evidence available on the matter of when the meetings took place. Indeed, as will appear, I consider that the evidence given by Mr Mehli provided the most reliable evidence as to these meetings generally, and in relatively broad terms at least as to what happened at them.
As I say, the first meeting, "in about June 2006" at Dr Khambay's house, was the meeting at which Dr Khambay introduced Mr Mehli to Mr Nijhar. Mr Mehli's evidence was that the meeting lasted about 45 minutes to 1 hour, and that Dr Khambay told him about Mr Nijhar's "history", explaining that Mr Nijhar was working in the property sector "for a lot of companies and on a lot of schemes". Mr Mehli explained that the three of them also talked in general terms about what he was doing in business terms. According to Mr Mehli, the main purpose of this meeting was to see whether he and Mr Nijhar got on. He said that he was very impressed by Mr Nijhar, and that Mr Nijhar seemed to Mr Mehli to "know what he was doing" and also "to know all of the right people". I am clear that what Mr Mehli had to say about this was the case. I am also clear that at the same meeting, as Mr Mehli explained, the Site was discussed and Mr Nijhar said that he could see great potential in it. Mr Mehli's evidence was that his impression was that Mr Nijhar and Dr Khambay were "a strong unit" and they wanted him to work with them.
Mr Mehli added that, in discussing how the development of the Site would proceed, the plan appeared to be that Mr Nijhar would (as he put it) "run the Site and deliver the project to generate profit". Mr Mehli suggested to Dr Khambay that the three of them should all work together as Dr Khambay and he had not undertaken any projects together recently. Mr Mehli, therefore, suggested that he should (again as he put it) "join the company", with Dr Khambay providing the finance and Mr Mehli and Mr Nijhar working together "to deliver the Site" in return for Mr Mehli and Mr Nijhar each receiving 25% of the profit. Again, I am clear that this is, indeed, what happened. Mr Mehli went on to say that Mr Nijhar said that Dr Khambay wanted him (Mr Nijhar) to drive the scheme forward. Again, I am satisfied that Mr Nijhar said something along these lines.
Mr Mehli also gave evidence that Mr Nijhar said that he knew Dudley very well, that he knew the council there well, and that he personally knew planning officers at the Council very well, which would enable him to maximise planning and achieve the maximum density of developments. According to Mr Mehli, Mr Nijhar said in this context that "planning was not a problem". These are matters to which I shall return later, when also considering Mr Mehli's further evidence that, Mr Mehli having mentioned that it was an option to "do a turnkey with a housing association", Mr Nijhar's response was to say that "he knew people at housing associations" and that "he was going to talk to them".
Mr Mehli summarised the meeting by saying that he had the impression that throughout Mr Nijhar was making out that, whatever Mr Mehli could do, he (Mr Nijhar) could do better. I am clear that that is probably right. Indeed, Mr Mehli himself very frankly accepted that "there was a degree of competition" between Mr Nijhar and him as to "who would be the driving force of the project", and that, therefore, both of them were, in effect, trying to sell themselves to Dr Khambay. I am quite sure that this is, indeed, what both Mr Mehli and Mr Nijhar were doing, and understandably enough as it seems to me. What Mr Nijhar had to say during this sales process is, however, a different matter, and is something to which, as I say, I must return.
Mr Mehli's evidence was that, at the first meeting, there was no discussion of what profit would be generated. According to him, the meeting ended with everybody agreeing that matters would be explored further, Mr Mehli making it clear that he had no problem with working with Mr Nijhar as long as they could agree an appropriate profit share. It was with this in mind that, a few days after the meeting, Mr Mehli telephoned Mr Nijhar to discuss how to take matters forward and, specifically, an appropriate profit share. Mr Mehli's evidence (which again I accept) was that he told Mr Nijhar that he was happy to work with Mr Nijhar on the basis that they each received a 25% share of the profit. Mr Nijhar agreed with this, the two of them deciding that Mr Mehli should be the person to negotiate with Dr Khambay on their joint behalf. I accept also Mr Mehli's evidence that, during this conversation, Mr Nijhar told Mr Mehli that "he would sort out the planning" as he had "good contacts and knew good architects".
Mr Mehli went on to explain that, a couple of days later, he telephoned Dr Khambay, and Dr Khambay told him to make contact with Mr Lakhani so that he could make arrangements to set up a company. This must be right because it explains why subsequently, on 28 June 2006, Mr Lakhani went to a dinner at the Laguna Restaurant along with Mr Mehli and Mr Nijhar (but not Dr Khambay). Mr Mehli's evidence is that the dinner lasted between 1½ and 2 hours. Its primary purpose was to discuss arrangements for setting up the company. However, there was also some discussion about the Site project, specifically various schemes which could be pursued. Mr Mehli's evidence was that Mr Nijhar said that "we would have no problems getting planning", and that "we could do a housing scheme, with high density flats or apartments at the back and shops and flats at the front". According to Mr Mehli, Mr Nijhar "also had ideas about a commercial development", with planning permission being obtained for a supermarket and a pharmacy, for example. Again, these are aspects to which I shall return later and so I say no more about them at this stage. I am clear, however, that Mr Mehli was right when he added that, in these discussions, he and Mr Nijhar were aiming to achieve something in the order of £1.2 million to £1.3 million, and that the various schemes they were talking about had that type of target in mind.
The next meeting took place on 12 July 2006, when Mr Mehli met up with Dr Khambay and Mr Nijhar again at Dr Khambay's house. Mr Mehli's evidence was that he only attended this meeting for about half an hour, and that the discussion focused on "figures" and various different schemes. Although Mr Mehli was not able to recall the detail, his evidence (which I accept) was that "the worst case scenario schemes led to profit of about £200,000 to £250,000, which was based on £800,000 for the residential development and £400,000 for the commercial component", and that the "best case schemes" would result in a profit of £700,000 to £1,000,000. Mr Mehli went on to explain (as again I accept) that the "middle ranking schemes were looking at about 25 residential units" which, together with some kind of commercial development, "would lead to a sale price of about £1.5 million or £1.6 million and a profit of about £500,000 or £600,000". According to Mr Mehli, Dr Khambay said that he would be happy if he made a return of about 20% on his investment in the Site or about £200,000. Mr Mehli added that Mr Nijhar said at this meeting that he would be able to remove a particular covenant concerning the Site and that this would give Dr Khambay "carte blanche to develop the Site however he wanted". Again, I accept that evidence. By the end of this meeting, Mr Mehli explained, the three of them had not yet finally agreed that "we would all be partners". This was apparently a matter which would need to be taken further forward with Mr Lakhani's input.
The 12 July 2006 meeting was followed, a week later, on 19 July 2006, by a further meeting. This, again, took place at Dr Khambay's house and, as before, was attended by Mr Mehli, Mr Nijhar and, obviously, Dr Khambay himself. This meeting lasted about 30 minutes. It started with Mr Mehli talking about the 25% profit share which he and Mr Nijhar were wanting Dr Khambay to agree to their each receiving. Initially, Dr Khambay seemed agreeable to this. However, Mr Mehli explained (and again I accept) that, by the end of the meeting, Dr Khambay had changed his mind, taking him to one side and telling him that he preferred instead to pay Mr Mehli an agent's fee. Mr Mehli said that, on this basis, he wanted to be paid £30,000, and Dr Khambay agreed to this. It followed that Mr Mehli was no longer going to receive a profit share. Mr Mehli's evidence was that he felt somewhat aggrieved that Dr Khambay had changed his mind in this way.
As far as Mr Mehli was concerned, that was the end of his close involvement in the project, but he told Dr Khambay that he would still help with the Site if he could. Indeed, subsequently, in the immediate lead-up to the purchase of the Site, Mr Mehli was asked by Dr Khambay to ask Punch Taverns to agree to a short delay on the exchange date, and Mr Mehli was able to achieve this. Also, Mr Mehli stated that Dr Khambay called him "a couple of times", as did Dr Khambay's solicitor, Mr Julian Bloom, and Mr Nijhar also, asking him to use his influence at Punch Taverns to secure agreement to an extension to the date for completion. Dr Khambay simply said that he was not ready to exchange. Mr Nijhar asked Mr Mehli to try to delay the completion since, Mr Nijhar told Mr Mehli, that would help in submitting a planning application in respect of the Site.
In addition to these various discussions, in meetings and on the telephone, there was also a certain amount of correspondence in this period, up until the time when the Consultancy Contract was entered into and the Site purchased. This started, as far as I can tell, with an email from Mr Nijhar to Mr Lakhani on 12 July 2006. In that email, Mr Nijhar referred to a meeting which he had had with Dr Khambay that day and also to a meeting the previous Thursday which, it seems from what Mr Nijhar wrote, was attended by Mr Nijhar, Mr Lakhani and (although only in part) by Dr Khambay. The email proceeded to refer to a letter which Mr Nijhar said he had drafted to be sent in relation to "the Feltham site", before going on to state that "the Dudley site is now actively being pursued by me and Amar's [Mr Mehli's] cousin is completely out of the picture giving us a clear run". Mr Goodkin submitted that this demonstrates that Mr Nijhar was taking the lead in "actively pursuing" the purchase of the Site, and that this was difficult to reconcile with Mr Nijhar's evidence in cross-examination that Mr Mehli was the driving force in relation to the Site rather than him. I agree with Mr Goodkin about this. It seems to me that Mr Nijhar was quite obviously regarding himself, and portraying himself to Mr Lakhani, in this email as being in charge of the proposed Dudley project. Mr Nijhar's insistence that what the email had to say did not accurately reflect the reality is not credible. It is also undermined by the fact that Mr Nijhar apparently chose not to copy Mr Mehli into this email. I am quite clear that what Mr Nijhar wrote in the email reflected his thinking and intentions at the time.
This conclusion is also supported by the fact that on 17 July 2006, a week after Mr Nijhar's email to Mr Lakhani, the Council sent Mr Nijhar (not Mr Mehli) a letter in which reference was made to "our earlier conversations regarding the affordable housing elements of any future s 106 agreement". The author of this letter was Mr Andrew Leigh, who described himself as the "Acting Head of Strategy & Development". He went on to say that the Council (he used the word "We" actually) "would be keen to support flats on the site ... as this would help to address the lack of variety in the area both in terms of size of property and tenure", as well as to make certain other observations concerning the type of development which might be undertaken at the Site. When asked about this letter in cross-examination, Mr Nijhar was reluctant to acknowledge that it showed that he had been carrying out investigations. Somewhat oddly, his response was that he had merely been "investigating for the SPV", a reference to the company which it was at that stage contemplated would be set up to develop the Site. I was clear that this was another example of Mr Nijhar striving to give evidence which he thought would assist his defence, rather than simply giving an answer which reflected the truth. Mr Nijhar plainly had in mind that, if he could demonstrate that he was acting for a company which, in the event, was not incorporated, then he could avoid liability in these proceedings. It would, however, have been better if Mr Nijhar had instead simply agreed with Mr Goodkin that the Council's letter demonstrates that he had been carrying out investigations. Aside from anything else, it seems to me that the fact that the letter was written by Mr Leigh supports Mr Nijhar's case that the only mention he made of discussions with the Council when speaking to Dr Khambay at about this time was of conversations which he had had with the Housing Strategy team, and not the Council's planning officers.
Mr Goodkin relied also on a letter which Mr Nijhar sent to Mr Lakhani on 28 July 2006. In this letter, under a heading saying "The Site", Mr Nijhar stated that the "site and property has been inspected by both Amar [Mr Mehli] and I on separate occasions". He then went on, in the next sentence, to ask whether "a formal valuation of the site" was needed, apparently suggesting that this was a matter for Dr Khambay to decide. The letter then went on to refer to various issues, including a point concerning the existing betting shop on the Site, a restrictive covenant, and "searches and Reports". Mr Nijhar ended, under a heading saying "Purchase Price and VAT", by saying that "The purchase price is right" and then making a point concerning VAT and another point relating to "the completion date" which he stated should be "set three/four months from exchange (Amar [Mr Mehli] to confirm)". Mr Goodkin put to Mr Nijhar that this letter demonstrates not only that he had carried out investigations but, furthermore, that he was holding himself out to Mr Lakhani (and so to Dr Khambay) as a property professional. Again, Mr Nijhar's response was unimpressive, insisting that he "was not a property development expert" and, moreover, that the property "expertise within the planned SPV" rested not with him but with Dr Khambay, whom he described as having "done a number of planned investments". Again, this was unimpressive evidence. It is quite clear to me that Mr Nijhar was purporting to offer a professional opinion in this letter and that the letter also shows, conclusively and consistent with what had been decided by Dr Khambay at the 19 July 2006 meeting, that it was Mr Nijhar who had done the bulk of the work in relation to the Site up to this point.
This is further illustrated by an email which Mr Lakhani sent Mr Nijhar the next day, 29 July 2006. In this email, Mr Lakhani addressed a number of matters, including (at point 2) what he described as the "costs of site feasibility and associated work to date of £13,500" which he proposed should "be paid from the profit share in due course" and in relation to which Mr Lakhani asked Mr Nijhar to provide "a detailed breakdown ... with supporting documentation for my files". Mr Lakhani then went on (at point 3) to propose that Mr Nijhar's profit share (the words he used were "Your profit share") "should be 20%, and not 25%". Mr Lakhani concluded by reminding Mr Nijhar "that you are to let me have a letter on Gravitas Consulting letterhead confirming your services as a project manager, and detailing the work involved". Asked about what Mr Lakhani had written at point 2, Mr Nijhar again gave unsatisfactory evidence, suggesting that the £13,500 related partly to his work and partly "to other people involved with me at the time". It was not clear what Mr Nijhar meant by this since he was not apparently suggesting that these fees covered work undertaken by Mr Mehli, something which clearly cannot have been the case, and it is wholly unclear who else (besides Mr Nijhar and Mr Mehli) had carried out any "site feasibility and associated work to date". What is nonetheless certainly clear, as Mr Goodkin submitted, is that Mr Nijhar was seeking to charge in respect of professional consultancy services which he (not Gravitas, the company which he later incorporated) had provided to Dr Khambay in advance of the Site's purchase. It follows that Mr Nijhar's insistence that he had not provided such services prior to the purchase (after which Gravitas, rather than Mr Nijhar personally, provided services going forwards) is difficult to follow. It seems that the explanation is that, to Mr Nijhar's way of thinking, at the time when the plan was that a company would be incorporated (a single purpose vehicle), any services provided by him were (as he put it) "informal". That may be right. However, after this ceased to be the plan, and as confirmed by the fact that Mr Nijhar was seeking payment in respect of apparently all the work which he had carried out in relation to the Site (both before and after the plan had changed), it must follow that Mr Goodkin was right when he put it to Mr Nijhar that he had performed professional services for which he was asking to be paid by Dr Khambay. Mr Nijhar's reluctance to accept this was not to his credit.
Two days after Mr Lakhani's 29 July 2006 email, Mr Nijhar drafted a letter to be sent to Dr Khambay at Clubhire. The letter was also copied to Mr Lakhani, as it bears a 'received' stamp showing that it was received (probably by Mr Lakhani rather than Dr Khambay) on 2 August 2006. The letter was written on a "Gravitas Consulting" letterhead. By this, I mean not the letterhead of Gravitas, the company, but the letterhead of what was a trading name for Mr Nijhar. This is clear not only from the fact that nowhere is there any mention in the letter of "Gravitas Consulting" being a company, but also from the fact that at the foot of the page the words "Inderjeet Nijhar t/a Gravitas Consulting" appear. As to the contents of the letter, it began by stating: "The project management consultancy support that we will provide to Club Hire Ltd. from pre-acquisition stage to completion of the proposed development over the period over the next few months is detailed below". I agree with Mr Goodkin that this shows that Mr Nijhar, who was writing the letter on his own behalf (and not on behalf of a company which was not mentioned in the letter and which had not yet been brought into being), was taking the position that he had already provided professional consultancy services and would continue to do so in the period both before acquisition (by which he must, in my view, mean exchange of contracts) and after acquisition.
The letter then went on, after listing the various services which it was proposed would be provided, to state that the "scheme design will need to achieve 35 dwellings or above with consideration of retail space within the scheme". Mr Goodkin submitted that this demonstrates not only that Mr Nijhar was providing professional services, but that he was advising on precisely what planning permission needed to be obtained. Again, it seems to me that this is probably right. It does not follow, however, that Mr Nijhar had previously made the various representations which Dr Khambay/Clubhire seek to establish in these proceedings. These are matters which I come on to consider later.
Between sending his 31 July 2006 letter and its being received, assuming that the letter was sent on the date it bears, Mr Nijhar emailed Mr Lakhani on 1 August 2006. He did so in response to Mr Lakhani's email sent on 29 July 2006, as demonstrated by the fact that Mr Nijhar addressed each of the points which had been made in Mr Lakhani's email. In relation to point 4, Mr Nijhar took issue with the suggestion that the "profit share" should be reduced from 25% to 20%, making the point that 25% had previously been agreed and suggesting that 25% had itself represented a reduction from the 30% which "was initially suggested at the table".
Having received Mr Nijhar's email, Mr Lakhani explained in his witness statement that he then asked Dr Khambay's solicitor, Mr Bloom, to draft a formal written agreement which recorded that Mr Nijhar's remuneration would be a 25% share of the profits. In fact, however, the draft agreement dated 2 August 2006 did not refer to a percentage, but instead left a space for what was described as a "fee", and in the version which was before me Mr Lakhani (as he confirmed in his oral evidence) had written in the figure "£42,500" and then also added "plus disbursements". Mr Lakhani explained that he discussed this draft with Mr Nijhar, probably on 7 August 2006, when Mr Nijhar's position was that there was no need to set out in a contract "all the things he would do" (not that, I am bound to observe, Mr Bloom's draft made any such reference), and that this was covered by the letter which he had sent dated 31 July 2006. Although it was suggested to Mr Lakhani in cross-examination that Mr Nijhar was not shown the draft contract, I am satisfied that it was, indeed, shown to him on 7 August 2006, although it does not seem that it had been sent to him in advance of that meeting and Mr Lakhani was unable to recall that he did send it in advance. Mr Lakhani explained that, when he spoke to Dr Khambay about this, he was told by Dr Khambay that he was happy to proceed on this basis, as long as Mr Nijhar provided a breakdown of his fees.
In the meantime, Mr Nijhar - or, more accurately, Gravitas (this time, the company rather than a trading name for Mr Nijhar) – had sent Dr Khambay/Clubhire a letter dated 4 August 2006, with a copy to Mr Lakhani. This letter was not signed, but I am quite clear, despite Mr Nijhar's denials, that it was sent as an attachment to an email which Mr Nijhar sent to Mr Lakhani and Dr Khambay on 7 August 2006 ahead of the meeting that same day. There is nothing to suggest that it had been sent before that date, other than the fact that it is dated 4 August 2006. I do not consider, however, that this is sufficient to prove that it was actually sent before 7 August 2006. Indeed, since Gravitas was only incorporated on 9 August 2006, it makes it unlikely that the letter can have been sent five days previously. That said, even if it was sent on 7 August 2006, as I have concluded it was, that still means that it was sent ahead of incorporation.
The letter started by referring to "our recent meeting and discussions" and then set out "the terms of our appointment, together with the details of the costs involved in relation to the acquisition and development" of the Site. Those terms included, on the second page, reference to an estimate (described as being "Our estimate") "that the project will take approximately 110 days of our time" and then to an "offer" on the basis that there should be remuneration comprising a "Discounted daily rate of £1,177 plus VAT, which would produce a total fee of approximately £129,250 plus VAT" (with agreement on stage payments). The proposal was also for a "performance bonus to be determined at the consideration of achieving an added value for the project of increased value of the scheme and contractual turnkey solution to the disposal of the development to an agreed RSL, or third party" (it may be that there were typing errors in this formulation, and that "of" should read "or" before "increased value" and before "the development"). The bonus percentage was to be "5% of potential sale value". In other words, other than the "performance bonus", the suggested remuneration was on a fixed fee basis.
Mr Lakhani's evidence, however, was that all discussions with Mr Nijhar (and, ultimately, Gravitas through Mr Nijhar) were on the basis that a profit share would be paid, and nothing else. I accept that evidence because, as I have previously made clear, I regarded Mr Lakhani as a truthful witness. It does mean, however, that the discussion on 7 August 2006 cannot have been a very focused discussion, at least as regards the basis on which Mr Nijhar (or, more accurately, given that the letter was on Gravitas's letterhead, Gravitas) would be providing consultancy services. In this regard, although in his witness statement Mr Lakhani referred to the meeting on 7 August 2006 as being a meeting attended by both Mr Nijhar and Mr Mehli, and as being a meeting at which there was discussion "in very broad terms" about the price of the Site and at which there was agreement "in principle" that Mr Nijhar would be paid a 25% profit share, I struggle to see how this can be right. Not only were these matters which had already been the subject of discussion, even if not final agreement, before 7 August 2006, but in addition Mr Lakhani accepted in cross-examination that, whilst he and Dr Khambay regarded themselves as "dealing with" Mr Nijhar, they nonetheless knew and understood that as at 7 August 2006 (but not, I accept, before) Mr Nijhar was proposing that Gravitas (the company) should act as project manager. That is why, in the event, Gravitas sent out invoices and received payment for work done. It is also why, after the meeting on 7 August 2006, Gravitas sent a letter to Dr Khambay/Clubhire in terms which replicated those of the 4 August 2006 letter. This letter, which was dated 9 August 2006, was again copied to Mr Lakhani and was stamped as having been received the following day. In fairness to Mr Lakhani, he acknowledged during his cross-examination that possibly he was getting confused over the meeting, albeit when dealing with Mr Mason's suggestion that there had been a meeting the previous week, as I understand it, in addition to a meeting on 7 August 2006. It seems to me that what he had to say about the meeting on 7 August 2006 is, accordingly, not wholly reliable. I decline, however, to go further and decide that, since I have accepted Mr Lakhani's evidence that all discussions with Mr Nijhar were on the basis that a profit share would be paid, so it must follow that Mr Nijhar must have been lying in his evidence when he stated that that was not the case. It seems to me that all that Mr Nijhar was really doing, in saying what he said, was pointing to the terms of his letters dated 4 and 9 August 2006, which refer to a daily fee together with a performance bonus. He was entitled to rely on what these letters had to say. In any event, in view of Mr Goodkin's acceptance, in his written closing submissions, that this is a matter which only goes to credibility and the conclusions which I have previously stated concerning Mr Nijhar's credibility, I am quite clear that there is notthing to be gained from my acceding to Mr Goodkin's invitation to make findings as to Mr Nijhar's credibility on this issue.
Three days after the meeting on 7 August 2006, on 10 August 2006, contracts were exchanged for Clubhire's purchase of the Site for the sum of £875,000, with Mr Bloom acting on Clubhire's behalf. It was suggested by Dr Khambay that he was wavering as to whether to go ahead right up until the last minute, and that Mr Nijhar called him repeatedly urging him to proceed. Mr Nijhar disputed this. Ultimately, I do not consider it really matters whether Mr Nijhar did as Dr Khambay suggests. All that really matters is that the purchase happened. There is no claim based on Dr Khambay being urged to go ahead by Mr Nijhar on 10 August 2006. I find that Mr Nijhar did telephone Dr Khambay and did encourage him to proceed with the purchase. Whether he did so repeatedly, however, I somewhat doubt. Be that as it may, it was agreed, on exchange of contracts, that completion would be on 8 December 2006. The same day, Gravitas sent a letter to Dr Khambay at Clubhire which stated:
"We are pleased that you have chosen to appoint Gravitas Consultancy Ltd to act as your Project Managers for the acquisition and development of the above site.
We will now work to secure the first phase of the project and will keep you informed of progress on a regular basis.
In line with the letter of appointment, we are enclosing our first invoice for the initial phase of the project.
We should be grateful for your early consideration of the same. We look forward to working with you."
The invoice referred to in this letter stated as follows:
"Invoice for first phase of the Project Management of the above development: Total Fee at £129,250 +VAT
First phase fees@ 35% of the total (£129,250) £45,237.50 (VAT will be billed separately in due course on the above amount."
Bank details were then provided which revealed that payment was to be made to a business account in the name of "lnderjeet Nijhar T/A Gravitas Consulting". Mr Nijhar explained in his evidence that this was because at this point Gravitas did not have its own bank account. This invoice was paid on 17 August 2006.
The statements alleged to have been made by Mr Nijhar
Dr Khambay, in his witness statement, acknowledged, expressly, that he is "unable to remember precisely what was said during any particular meeting or telephone call". The evidence he then went on to give concerning the representations alleged to have been made to him by Mr Nijhar, the representations which form the basis of the pre-exchange representation case advanced in these proceedings, was described as an account of what Mr Nijhar and Dr Khambay "said to each other at some or all of the meetings and during some or all of the phone calls prior to exchange". In short, there was no precision as to what is alleged to have been represented by Mr Nijhar on any particular occasion, whether that be a meeting or a telephone conversation. That remained the case even after Dr Khambay had completed his oral evidence. Although this does not mean that what Dr Khambay has to say should be discounted altogether, it does make it difficult to place great reliance on evidence which is so lacking in detail. It also means that Mr Mehli's evidence as to what was discussed at the various meetings which he attended is especially important in making appropriate factual findings in this case. I say this notwithstanding that, as explained previously, there came a time prior to Dr Khambay/Clubhire's purchase of the Site when Mr Mehli had largely dropped out of the picture. In circumstances where Dr Khambay is unable to explain with any precision when particular statements are alleged to have been made by Mr Nijhar to him, specifically that any particular statements were made at meetings or in telephone conversations not involving Mr Mehli, I am reluctant to assume in Dr Khambay's favour that statements were made which were not also made to Mr Mehli. To do so would entail my making findings that Mr Nijhar misled Dr Khambay on the basis of evidence which is somewhat less than compelling, and it needs to be remembered that the findings which Mr Goodkin invites me to make involve findings of deceit. In any event, it seems to me most unlikely that, to take the example of the allegation that Mr Nijhar told Dr Khambay that he had spoken to supermarkets and they were interested in the Site (as will appear, the allegation in paragraph 12 h) of the Particulars of Claim), Mr Mehli would not have known that such a statement had been made by Mr Nijhar to Dr Khambay at a meeting or during a telephone conversation not involving him prior to purchase of the Site by Dr Khambay/Clubhire when, as Mr Mehli explained in paragraph 73 of his witness statement, Mr Nijhar told Dr Khambay and Mr Mehli "probably just after exchange" that he was "talking to the Co-Op and … they were interested". I find it inconceivable that, if he had previously told Dr Khambay about this or any other discussions he had had with supermarkets, Mr Nijhar would not have said so when he later told Dr Khambay and Mr Mehli about his contact with the Co-Op.
Notwithstanding my concern about the vagueness of Dr Khambay's evidence, I should nonetheless record the evidence which he gave. In view of the fact that Dr Khambay's evidence is not specific to any particular meeting or telephone conversation, and given also the importance of the evidence in relation to the case which is now advanced, I set out the relevant passages from Dr Khambay's witness statement in extenso:
"44 I am a cautious man and I did not want to speculate with the Site. However, [Mr Nijhar] told me that if I purchased the Site, he would act as project manager and do everything necessary to obtain planning permission.
45 [Mr Nijhar] told me that he knew the relevant planners intimately and that he would get me planning permission for the Site before Easter 2007. He specifically said that he had spoken to the planners and to various housing associations and that there was a lot of interest in the Site. He convinced me that he would be able to flip it around.
46 In every meeting I said that I was reluctant to purchase the Site. However, [Mr Mehli] was keen for me to purchase the Site. [Mr Nijhar] was also very convincing when he said that he could obtain planning permission. He said that it would be a purely paper exercise and would go through easily.
47 [Mr Nijhar] said that as soon as I exchanged contracts, he would get the ball rolling with the planning application as he had already made the necessary enquiries and arrangements. [Mr Nijhar] said that if I could complete the purchase of the Site before Christmas of 2006, then he would get planning permission before Easter of 2007. I was surprised at the tight timescale and queried this, but he assured me that it was a formality. He said that the profit would be £500,000, of which he wanted a 30% share plus his expenses.
48 [Mr Nijhar] said that he knew the senior planning officers in the council and that he was on first name terms with them. [Mr Nijhar] said that he had already spoken with the senior planning officers and that he could get permission for retail and residential use.
49 [Mr Nijhar] also said that had spoken to several housing associations and that he would be getting in touch with supermarkets as well. [Mr Nijhar] was trying everything to convince me to buy the Site.
50 [Mr Nijhar] said that the proposed sale price of £875,000 was reasonable and indeed that it was below the market rate. I did not have the property valued because [Mr Nijhar] was guaranteeing a quick turnaround and guaranteeing that we would earn £500,000 of profit. In my opinion there was no point in having the property valued in those circumstances.
51 [Mr Nijhar] did not go into specifics about what planning permission would be obtained. He did not, for example, say how many houses we would be able to build on the Site or what total retail area would be permitted. What he kept emphasising was that he would get a profit of £500,000 and that he wanted a 30% share of any profits, which was later negotiated down to 25% by [Mr Lakhani]."
These passages in Dr Khambay's witness statement echo, although not in all respects as I shall explain, how the case was put in the Particulars of Claim, paragraph 12 of which alleged that Mr Nijhar made the following statements to Dr Khambay/Clubhire:
"a) That the Defendant personally knew and was on first name terms with the senior planning officers of the Dudley Metropolitan Borough Council (the 'Council'), which had responsibility for the grant or refusal of planning permission for the Site.
b) That the Defendant had personally spoken with planning officers at the Council in relation to the Site;
c) That the said planning officers had told the Defendant that planning permission would be granted for the Site for mixed retail and residential use;
d) That the Defendant would be able to obtain planning permission for the Claimants for the Site for mixed retail and residential use;
e) That the retail element of the planning permission to be granted for the Site would or could include supermarket development of at least medium size;
f) That such planning permission as aforesaid would be obtained before Easter of 2007 for the Site if the First and/or Second Claimant purchased the Site before Christmas 2006;
g) That the Defendant had spoken with several housing associations and that those housing associations were interested in carrying out a residential development of the Site or part of it;
h) That the Defendant had spoken with a number of major supermarket retailers about the Site and the Tescos and the Co-Op were interested in carrying out a retail development at the Site for a medium sized supermarket;
i) That if the First and/or Second Claimant purchased the Site, the Defendant would generate a profit of at least £500,000 and that such profit was 'guaranteed' from the development of the Site."
The alleged housing association and supermarket representations
The reason why I say that Dr Khambay's witness statement does not in all respects echo what was alleged in the Particulars of Claim is that, although the witness statement is consistent with what is alleged in paragraphs 12 a) to f) and i), it is not supportive of what was alleged in paragraphs 12 g) and h). Specifically, in relation to paragraph 12 g), the allegation that Mr Nijhar stated that he had spoken with several housing associations and those housing associations were interested in carrying out a residential development of the Site or part of it, it is significant that, in paragraphs 45 and 49 of his witness statement, Dr Khambay's evidence was merely that Mr Nijhar told him that he had spoken to several housing associations and "there was a lot of interest in the Site". This does not seem to me to go quite as far as Mr Nijhar saying, as alleged in paragraph 12 g), that the housing associations contacted by him were interested in carrying out a residential development of the Site or part of it. This may be thought to be a subtle distinction. The more so, perhaps, given that, when asked in cross-examination about the paragraph 12 g) allegation, Dr Khambay was insistent that Mr Nijhar had told him that he had spoken to several housing associations and they had told him that they were interested in being involved in the development of the Site. However, I must bear in mind also that, as I come on to explain, Mr Mehli's evidence, as contained in paragraph 72 of his witness statement, was that Mr Nijhar had merely said to Dr Khambay (and to Mr Mehli) that "he would speak to housing associations and that he was very confident about getting them onboard" and that he does not recall Mr Nijhar saying prior to exchange that he had already spoken to housing associations. That said, in the Defence, Mr Nijhar's position, stated in paragraph 11(g), was that he told Dr Khambay prior to purchase that he had spoken "to one or two Housing Associations but did not at that stage say that those Housing Associations were interested in carrying out a residential development". This was repeated by Mr Nijhar when he was cross-examined by Mr Goodkin. Therefore, Mr Nijhar accepts doing more than Mr Mehli says but denies going as far as Dr Khambay alleges in paragraph 12 g). It is, of course, open to me, notwithstanding Mr Nijhar's evidence, to prefer Mr Mehli's evidence. However, I do not consider that appropriate in the present case. I have concluded, instead, that Mr Mehli's recollection is mistaken, in that mention was made of housing associations having been contacted by Mr Nijhar and of those housing associations having expressed an interest in the Site but not of them being interested in developing the Site. It seems to me that mistake, or a misrecollection after all these years, is the explanation for Mr Mehli saying what he says. As I see it, the alternative explanation is that Mr Mehli was simply not involved in any discussion with Mr Nijhar prior to purchase where housing associations were mentioned as having already been contacted by Mr Nijhar, but that he had been involved in a (necessarily earlier) discussion when Mr Nijhar had told Dr Khambay that he would be speaking to housing associations and was confident that they would come on board. I am confident that Dr Khambay was not told by Mr Nijhar, in Mr Mehli's presence, that housing associations to which he had spoken were interested in developing the Site; and if that is what Dr Khambay was told by Mr Nijhar when Mr Mehli was not present, I am confident that Mr Mehli would have been told by Dr Khambay that this is what Mr Nijhar had said since, even though Mr Mehli was no longer so involved after 19 July 2006 as he had been before that date, he was nonetheless still in contact with Dr Khambay and it seems to me very likely that Dr Khambay would have shared this information with him. Had he done that, it is most unlikely that Mr Mehli would have given the evidence which he did, namely that Mr Nijhar had merely said that he would be speaking to housing associations.
As to the other respect in which Dr Khambay's witness statement does not support what was alleged in the Particulars of Claim, namely paragraph 12 h) and the allegation that Mr Nijhar had spoken to a number of major supermarket retailers about the Site and Tesco and the Co-Op were interested in carrying out a retail development at the Site for a medium sized supermarket, the position is less nuanced as far as Dr Khambay's own evidence is concerned. This is because Dr Khambay himself says that Mr Nijhar told him merely "that he would be getting in touch with supermarkets". This is not consistent with the allegation that Mr Nijhar said that he had already made such contact and that that contact had led to Tesco and the Co-Op expressing an interest in the Site. It is right to acknowledge that, when during cross-examination he was asked about what Mr Nijhar had told him about his contacts with supermarkets, Dr Khambay's evidence was that Mr Nijhar had mentioned "many names" and that it was the Co-Op which "he was going on about", telling Dr Khambay that he had personal contacts with the Co-Op to whom he had spoken and "they were on board". Although this was evidence given in relation to a paragraph in the Particulars of Claim which, like the rest of paragraph 12, referred to statements alleged to have been made prior to Dr Khambay/Clubhire's purchase of the Site, nonetheless it is not clear to me that what Dr Khambay had to say on this topic did, in fact, relate to the pre-purchase period. If it did, then, I find it inconceivable that, in his witness statement, Dr Khambay would have stated only that Mr Nijhar told him that he would be making contact with supermarkets, and not that he had already made such contact. The more so, in circumstances where Mr Nijhar had denied, in paragraph 11(h) of the Defence, that he had said anything about supermarkets in the pre-purchase period, explaining that he did not approach Tesco, Sainsbury's or the Co-Op until after the purchase of the site by Dr Khambay/Clubhire (the position he maintained in cross-examination). I also regard it as significant that it was Mr Mehli's evidence, in paragraph 73 of his witness statement, that Mr Nijhar had only mentioned the Co-Op "probably just after exchange" rather than in the pre-purchase (or exchange) meetings during which it is alleged, in the Particulars of Claim, that Mr Nijhar made the representation about his having spoken to a number of supermarkets and Tesco and the Co-Op being interested in the Site. This seems to me to confirm that no such representation was made prior to the purchase of the Site. I might add that Mr Lakhani made no mention in his witness statement of Mr Nijhar having stated prior to purchase that supermarkets had been contacted and were interested. He did say, when being cross-examined, that Mr Nijhar "had been talking from day one about a supermarket being interested". However, I find it remarkable, if that really was the case, that Mr Lakhani did not say so in his witness statement. Accordingly, I do not accord any weight to this piece of evidence given by Mr Lakhani.
My conclusion, therefore, in relation to the allegations contained in paragraphs 12 g) and h) is that the evidence adduced by Dr Khambay and Clubhire does not support the case which is advanced by them in these proceedings. That is plainly the position in relation to the allegation concerning Mr Nijhar's contact with supermarkets (paragraph 12 h)) since neither Dr Khambay nor Mr Mehli gives evidence which supports the allegation. The evidence of Mr Mehli in particular, which was given in an open and straightforward way and which was independent, leads me to conclude that this aspect of the case is not made out. It is also the position, in my judgment, in relation to the allegation concerning Mr Nijhar's contact with housing associations (paragraph 12 g)), even though, for reasons which I have explained, the position concerning Mr Mehli's evidence on this matter is less straightforward. It follows that Dr Khambay/Clubhire's case based on the statements alleged in paragraphs 12 g) and h) of the Particulars of Claim must fail. That is the position in respect of each of the different ways in which the case based on those statements is put – whether on the basis of deceit, negligent misrepresentation/misstatement or breach of collateral contract.
The alleged guarantee that a minimum £500,000 profit would be made
It seems to me that the case that Mr Nijhar guaranteed Dr Khambay/Clubhire a profit of at least £500,000 must also fail. It does so for different reasons which I now explore. I start by noting that, in paragraph 11(i) of the Defence, Mr Nijhar denied the allegation, in paragraph 12 i) of the Particulars of Claim, that he had given the guarantee to which I have referred. He did so by making the point that there were "a number of discussions about the level of profit that might be achieved on the Site and the First Claimant expressed the desire to generate a profit of £500,000", before adding that the "possibility of even higher figures was discussed by the parties but no guarantee was ever given or asserted by the Defendant as to the generation of profit". In his witness statement, at paragraph 19, Mr Nijhar went on to explain that Dr Khambay had, as he put it, "a figure of £500,000 in his head as a minimum profit target" and that that had "evolved out of the many discussions held" at Dr Khambay's house with Mr Mehli. Mr Nijhar then stated that Dr Khambay and Mr Mehli "talked about profits being generated in excess of £1 million on the sites" (by which he meant the Site and the separate proposed Feltham project) but that he (Mr Nijhar) "urged caution as the figures seemed unreal" to him. Mr Nijhar explained that he "could not fault their lower end projections", however insisting that, in any event, he "made no promises". This was evidence which Mr Nijhar repeated during his cross-examination, insisting that he regarded £500,000 as "a reasonable profit that could be delivered" but that he had not guaranteed that there would be a profit at this level. Dr Khambay, in contrast, stated, in paragraph 50 of his witness statement, that Mr Nijhar guaranteed "that we would earn £500,000 of profit". In cross-examination, Dr Khambay maintained that that is what Mr Nijhar had told him, confirming that Mr Nijhar had actually used the language of "guarantee" when saying that there would be a minimum £500,000 profit.
It follows that there is a direct conflict of evidence between Dr Khambay and Mr Nijhar which must be resolved. Again, Mr Mehli's evidence is, therefore, important. What he stated in his witness statement, in a section dealing with the Defence, was focused not on paragraph 11(i) (the direct response to the allegation in paragraph 12 i) of the Particulars of Claim that Mr Nijhar had guaranteed that a minimum profit of £500,000 would be made), but was instead in response to a later paragraph of the Defence (paragraph 14), in which Mr Nijhar had stated that Dr Khambay was "very aggressive in his approach to profit figures and even mentioned a profit of £1 million" but that he (Mr Nijhar) "urged caution and realism in relation to such figures". Mr Mehli stated that he disagreed with this, in that: Mr Nijhar influenced Dr Khambay "a lot in relation to the purchase of the Site"; Dr Khambay did not mention making a profit of £1 million in front of Mr Mehli; Dr Khambay told him that he would be happy with a £200,000 profit; Mr Nijhar "always said his target figure for the profit was £500,000"; and Mr Nijhar "never urged caution about the likely profit" and "never disagreed with the figures being discussed". Earlier, in paragraph 46 of his witness statement, Mr Mehli had stated that Mr Nijhar "always said that £500,000 was the target profit figure" and that he "said that it 'would' be and that it 'will' be achieved". This is the nearest that Mr Mehli got to suggesting that any guarantee in this regard was given by Mr Nijhar to Dr Khambay. In my judgment, it is not far enough.
This evidence was repeated in cross-examination, when he accepted that, whilst Dr Khambay had said that he would be happy if he made £200,000 "on a quick sale or a 20% return if it took longer", Dr Khambay was "keen to target higher, and so £500,000". He added, importantly as it seems to me, that both he (Mr Mehli) and Mr Nijhar "worked out that we could achieve £500,000 but were quietly confident that we could achieve a lot more". He added that that was, as he put it, "the way it was expressed", a reference to how matters were put by Mr Nijhar and him to Dr Khambay: "a realistic target of £500,000 but we could possibly get more". This was evidence which Mr Mehli gave in relation to the meeting which took place between Dr Khambay, Mr Nijhar and Mr Mehli on 12 July 2006, a meeting at Dr Khambay's home. Mr Mehli went on, however, when asked specifically about paragraph 14 of his witness statement, to say that they (that is, Dr Khambay, Mr Nijhar and Mr Mehli) had discussed a £1 million profit and how "everyone gets bamboozled by numbers", but that he was in agreement with the view that there was a potential for a profit of between £400,000 and £500,000. He added, during his re-examination, that a £500,000 profit was "the target" which Mr Nijhar had said he was confident could be achieved, and that he (Mr Mehli) "also told Dr Khambay that those numbers were right and certainly £500,000 was a very reasonable target" albeit that he could not (and did not) guarantee that planning permission would be obtained.
I have no hesitation in accepting what Mr Mehli had to say on this topic. It seems to me that it is inherently unlikely that somebody in Mr Nijhar's position, however keen he was for Dr Khambay to purchase the Site, would offer a guarantee that a profit at a particular minimum level would be achieved. I am quite clear that, consistent with what Mr Mehli described in his evidence, Mr Nijhar did no such thing. I am sure that Mr Nijhar expressed his optimism and expectation that at least a £500,000 profit would be achieved. That is not the same, however, as guaranteeing such a level of profit. Had Mr Nijhar given a guarantee as Dr Khambay has alleged, then I am confident that Mr Mehli would remember him doing so, yet he did not suggest that a guarantee was given. On the contrary, Mr Mehli's evidence was entirely consistent not with a guarantee being given by either Mr Nijhar or him, but with both Mr Nijhar and Mr Mehli expressing their view that a minimum £500,000 profit would be made. It is clear also that Mr Mehli was involved in such discussions over potential profits as took place between Dr Khambay and Mr Nijhar. There was no suggestion in Dr Khambay's evidence that there were such discussions not involving Mr Mehli. Even if there were such discussions, the evidence in relation to them is so imprecise as to be unable to support a finding that a guarantee was given. In any event, I find it inconceivable that, had a guarantee been given by Mr Nijhar to Dr Khambay as alleged in these proceedings, Mr Mehli would not have been told about it by Dr Khambay at the time. There is no suggestion in the evidence that this is what happened. Nor was it suggested by Mr Mehli, either in his witness statement or when he gave his oral evidence. Indeed, when shown the Defence and the denial of paragraph 12 i), it is telling that Mr Mehli made no specific comment, instead focusing not on the denial of the allegation that a guarantee was given by Mr Nijhar to Dr Khambay, but on Mr Nijhar's attempt to suggest that he was the cautious one of the three (Dr Khambay, Mr Mehli and Mr Nijhar) when, I am quite satisfied, as Mr Mehli explained, that Mr Nijhar actually had the same level of optimism as Mr Mehli had.
It follows from this that the Claimants' collateral contract case founded on paragraph 12 i) of the Particulars of Claim must fail. The guarantee was not given, and so there can be no question of Mr Nijhar having warranted that a minimum £500,000 profit would be made. The same applies to the related case in deceit. That case, like the collateral contract case, was put forward - at least primarily - on the basis that a guarantee was given. As no guarantee was given, so the deceit case - at least in its primary form - cannot succeed. It was not - at least primarily - alleged that Mr Nijhar expressed the opinion that a minimum £500,000 profit would be made when he did not, in fact, hold that opinion or did not know of facts which reasonably justified the opinion he expressed: see on this Clerk & Lindsell on Torts (21st Ed., 2014) at paras. 18-13 to 18-14; Deceit, The Lie of the Law, MacDonald Eggers (2009) at paras. 3.14 and 3.15; and Brown v Raphael [1958] Ch 636. In the circumstances, that alternative case in deceit must also fail. This is because, as confirmed by Mr Mehli's evidence, Mr Nijhar plainly did hold the relevant belief, and there were reasonable grounds for that belief since Mr Mehli, an experienced property professional, himself shared the self-same opinion. In such circumstances, it is equally impossible to see how the Claimants' case in negligent misrepresentation/misstatement can succeed. Assuming that Mr Nijhar owed Dr Khambay/Clubhire any duty (a matter to which I shall return later), I am clear that, in saying what he did about a minimum £500,000 profit being made (I repeat that I do not accept that any guarantee was given in this regard), Mr Nijhar exercised all appropriate care and skill, and that as such there can be no liability on Mr Nijhar's part to Dr Khambay/Clubhire on this alternative basis. Mr Mehli and Mr Nijhar were both agreed that this was the level of profit which, in the then market conditions, was reasonably to be expected. I accept Mr Mehli's evidence in this regard that actually he and Mr Nijhar thought that a £500,000 minimum profit was very likely to be bettered. In view of this evidence, I consider it impossible to conclude that Mr Nijhar is under the liability alleged by Mr Goodkin on Dr Khambay/Clubhire's behalf. The claims in relation to paragraph 12 i) of the Particulars of Claim, accordingly, all fail.
The alleged representation that planning permission would be obtained
This brings me to the alleged statements covered by paragraphs 12 a) to f) of the Particulars of Claim. These form part of the case which was summarised by Mr Goodkin as entailing a representation by Mr Nijhar that he had received assurances from local planning officers in Dudley that planning permission would be granted quickly (namely by Easter the following year) for mixed retail and residential use with a supermarket development of at least medium size. Here again I must resolve a stark conflict between the witnesses. Dr Khambay's evidence in his witness statement was as I have recorded it previously. It was that Mr Nijhar told him that he knew "the relevant planners intimately and that he would get me planning permission for the Site before Easter 2007" (paragraph 45), and that Mr Nijhar said that "it would be a purely paper exercise and would go through easily" (paragraph 46) as he had "already made the necessary enquiries and arrangements" and if Dr Khambay were to complete the purchase of the Site before Christmas 2006, "he would get planning permission before Easter of 2007" (paragraph 47). Dr Khambay's evidence was that Mr Nijhar told him that "he knew the senior planning officers in the council", "that he was on first name terms with them", and that he "had already spoken with the senior planning officers and that he could get permission for retail and residential use" (paragraph 48). In his oral evidence, under cross-examination, Dr Khambay maintained this evidence. He explained that Mr Nijhar told him that he knew the planning officers from his time as a councillor in West London, explaining that they were friends who had "moved around the country" and that that is how he came to know them even though they were working in Dudley rather than West London. He stated that Mr Nijhar told him that planning "was a done deal" and merely a "paper exercise", and that Mr Nijhar told him that he "had done all the due diligence". Pressed on this, Dr Khambay then stated that Mr Nijhar had guaranteed that planning permission was merely a "paper exercise", emphasising that Mr Nijhar had used that very phrase and had also used the language of guarantee. He was adamant that it was not simply a case of Mr Nijhar being confident, and that what Mr Nijhar told him was that "he would get it for me".
Mr Nijhar, who did not address the issue in his witness statement (it seems probably because at the time when he prepared that witness statement he no longer had solicitors acting for him and had yet to instruct Mr Mason on a direct access basis), disputed Dr Khambay's version of events. In paragraphs 11(a) to (d) of the Defence (a document which had been prepared at a time when Mr Nijhar had both solicitors and counsel acting for him), Mr Nijhar explained that he had informed Dr Khambay only that he had been in contact with two senior members of the Council's Housing Strategy team, people with whom, he explained to Dr Khambay, he was on first name terms. According to him, he had given Dr Khambay the names of these Housing Strategy team members, Mr Leigh and Dr Ron Sims. He denied that he had told Dr Khambay that he knew planning officers as opposed to Housing Strategy team members. His position was that he told Dr Khambay that the Housing Strategy team would support an application for a scheme which included affordable housing. Otherwise, he said that he merely informed Dr Khambay at the same time that the Site already "incorporated an element of established retail use", not that the planning officers had told him that planning would be obtained for a mixed retail and residential use scheme. He accepted, however, that he did tell Dr Khambay that planning permission would be obtainable for mixed retail and residential use. He maintained that that was his opinion at the time, and that it was an opinion which he genuinely and reasonably held. It was only because of the economic downturn which unexpectedly occurred that things changed and planning permission could not be obtained. That is not something which he envisaged at the time that he said what he said to Dr Khambay.
In his oral evidence, Mr Nijhar denied that he told Dr Khambay that he was on first name terms with the planning officers at the Council. He accepted that he did tell Dr Khambay that he knew senior planning officers around the country. However, he insisted that he did not say anything about knowing planning officers in Dudley. He did tell Dr Khambay that he knew people in the Housing Strategy team, Mr Leigh and Dr Sims, although his recollection (arguably at odds with what was stated in the Defence) was that he did not give Dr Khambay their names. Indeed, it is to be noted that the letter from the Council to Mr Nijhar dated 17 July 2006, to which I have previously referred and which began by referring to "earlier conversations", was a letter which was written by Mr Leigh. His position was that Dr Khambay would have understood that there is a difference between people working as planning officers and members of the Housing Strategy team. I did not understand him, however, to suggest that he himself drew that distinction to Dr Khambay's attention. It seems that Mr Nijhar simply took it that Dr Khambay understood the distinction. In any event, as far as Mr Nijhar was concerned, he did not tell Dr Khambay that he had been told by planning officers that planning permission would be a mere "paper exercise". Mr Nijhar also disputed that he told Dr Khambay that the planning officers had told him that permission would be obtained for a mixed use scheme, and that he told him that permission would be granted by the following Easter.
In view of the conflicting evidence given by Dr Khambay and Mr Nijhar, and in circumstances where no other witnesses gave evidence on the issue, Mr Mehli's evidence again assumes a particular importance. In his witness statement, Mr Mehli stated that at the first meeting between Dr Khambay, Mr Nijhar and him, at Dr Khambay's house, Mr Nijhar "mentioned that he personally knew planning officers at Dudley Council very well, which would enable him to maximise planning and achieve the maximum density of developments" (paragraph 29). He added that he remembered Mr Nijhar saying that "planning was not a problem" (paragraph 30). Later on, referring to the meeting at the Laguna Restaurant which took place on 28 June 2006, Mr Mehli's evidence was that Mr Nijhar "said that we would have no problems getting planning" (paragraph 41). He then referred to Mr Nijhar saying at another meeting, which he could not identify, that "an application for planning permission would be submitted within three months and the decision would be obtained three months later, so the whole process would take six months" (paragraph 57). Then, in the part of his witness statement in which he commented on what had been stated in the Defence, Mr Mehli stated that he disagreed that Mr Nijhar referred only to his knowing members of the Housing Strategy team at the Council. Mr Mehli's evidence was that Mr Nijhar said that he knew senior planning officers (paragraph 67). In relation to paragraph 11(b) of the Defence (Mr Nijhar's denial of the allegation in paragraph 12 b) of the Particulars of Claim that Mr Nijhar told Dr Khambay that he had personally spoken to planning officers at the Council in relation to the Site), Mr Mehli said that he was unable to comment (paragraph 68). However, somewhat inconsistently, Mr Mehli went on to say that he disagreed with Mr Nijhar's denial of the allegation, in paragraph 12 c) of the Particulars of Claim, that he told Dr Khambay that the planning officers at the Council had told him that planning permission would be granted for the Site for mixed residential and retail use. Mr Mehli stated that Mr Nijhar "did say that planning officers" (by which I took him to mean planning officers at the Council) "had told him that planning permission would be granted for mixed retail and residential use" (paragraph 69). He added that Mr Nijhar stated that planning permission would be obtained by April 2007 (paragraph 71).
Asked during cross-examination about what Mr Nijhar told Dr Khambay (and Mr Mehli) on this topic, and specifically when it was put to him by Mr Mason that Mr Nijhar had not said to Dr Khambay that he knew planning officers but that he knew people in the Housing Strategy team at the Council, Mr Mehli's answer was that Mr Nijhar told Dr Khambay that "he knew people in the departments and that there would be no real issues in achieving planning and doing the scheme". His reference to "the departments" in the plural might have been an acknowledgment by Mr Mehli that Mr Nijhar might have mentioned the Housing Strategy team (or department) as well as the planning department. Equally, it may be that Mr Mehli did not have a clear recollection of who it was that Mr Nijhar was telling Dr Khambay (and Mr Mehli) he knew and contacted. In my assessment, the latter was the case, as underlined by the fact that Mr Mehli went on to say that Mr Nijhar told Dr Khambay that "he knew people in that particular borough and he had discussed [the Site] with them". This is consistent with Mr Nijhar not telling Dr Khambay (and Mr Mehli) that he had spoken specifically to the planning officers at the Council, but that he had spoken to unidentified people in an unidentified department or departments. As such, Mr Mehli's evidence in cross-examination does not support Dr Khambay's case that Mr Nijhar told him that he had spoken to the planning officers at the Council, not people in the Housing Strategy team. It should be acknowledged that in his witness statement Mr Mehli had been more specific, in stating in particular in paragraph 69 that Mr Nijhar had stated that planning officers had told him that planning permission would be granted. I consider, however, that this evidence needs to be viewed in the light of the evidence which Mr Mehli gave orally. As I have previously explained, Mr Mehli was a straightforward witness, and I am quite satisfied that what he was doing in cross-examination was giving straightforward and truthful evidence. It is that evidence, given when the detail of what Mr Nijhar had to say to Dr Khambay (and Mr Mehli) was being closely examined, which I am clear should be treated as the most reliable evidence as to what Mr Nijhar stated to Dr Khambay (and Mr Mehli).
Even if this is wrong, however, and Mr Nijhar did speak to Dr Khambay (and Mr Mehli) not about what members of the Housing Strategy team had told him (whether giving Mr Leigh's and Dr Sims's names or not) but about what planning officers at the Council had told him, I find nonetheless that Mr Nijhar did not tell Dr Khambay (and Mr Mehli) that he had been told by the planning officers that planning permission would be obtained for a mixed retail and residential scheme, nor specifically that planning permission would be merely a "paper exercise". I have reached this conclusion because, aside from what he had to say in paragraph 69 of his witness statement when dealing with paragraph 11(c) of the Defence, Mr Mehli's evidence was that Mr Nijhar had merely said that "planning was not a problem" (paragraph 30) and that "we would have no problems getting planning" (paragraph 41). This is not the same thing as Mr Nijhar saying that planning permission would be nothing more than a "paper exercise". It is, furthermore, significant in this context that, in cross-examination, Mr Mehli described Mr Nijhar as simply saying, having spoken to the planning officers, that "there would be no real issues in achieving planning" and, as Mr Mehli went on to put it, that "there were issues [with planning] but they would be resolved". This evidence is difficult to square with Dr Khambay's insistence that Mr Nijhar told him that the planning officers at the Council had told him that planning permission would, in effect, be just a formality. In these circumstances, I am satisfied that, even if (contrary to my primary finding) Mr Nijhar did refer to his having spoken to the planning officers at the Council (not members of the Housing Strategy team), nonetheless he did not make the representation which is alleged by Dr Khambay/Clubhire and which lies at the heart of case advanced against Mr Nijhar in paragraphs 12 a) to f) of the Particulars of Claim. I am quite clear that the position is that Mr Nijhar told Dr Khambay (and Mr Mehli) that he expected planning permission to be obtained for a mixed residential and retail use scheme. I do not accept, however, that he told Dr Khambay (and Mr Mehli) that this is what the planning officers at the Council, or for that matter members of the Housing Strategy team (not that this was alleged), told him. I am also satisfied that, whilst Mr Nijhar did say that he expected that planning permission would be obtained by Easter 2007, whether this was something which Dr Khambay himself considered or not, this did not entail Mr Nijhar reporting to Dr Khambay what the planning officers (or the Housing Strategy team) at the Council had told him, but was simply expressing his genuinely held belief. It follows that Dr Khambay/Clubhire's case in these respects must also be dismissed. Again, this applies to each of the different ways in which that case is put: whether on the basis of deceit, negligent misrepresentation/misstatement or breach of collateral contract.
Whether, if representations were made, they were made deceitfully
As with the other alleged representations, since I have concluded that what Dr Khambay and Clubhire have alleged has not been made out on the evidence, there is no need for me to reach conclusions in relation to what are really sub-issues. I have in mind specifically whether Dr Khambay/Clubhire can make good their case that the various statements which are alleged were made without belief in their truth or in circumstances where it was known that reasonable grounds did not exist which justified the making of the statements. As to this, if the statements were made, it seems to me to follow that they were made in such a way as to attract liability in deceit, in that they must have been made in the knowledge that they were false (which, there is no dispute, they would have been) or recklessly and, in the case of the statements entailing expressions of opinion, in the knowledge that, or reckless as to whether, there were no reasonable grounds for the opinion stated. I am clear also that, if the representations were made, it would have been intended by Mr Nijhar that Dr Khambay/Clubhire should rely upon them. As it was put by Lord Herschell in Derry v Peek (1889) 14 App Cas 337 at page 365, the representor must have intended that the representee "shall be led to act upon it [the representation] as if it were the truth". As observed in Deceit, The Lie of the Law at para. 5.28, in Arnison v Smith (1889) 41 Ch D 348 at page 368 Lord Halsbury LC equated the intention that the representation be relied upon with an intention to deceive – in other words, dishonesty. If the representations were made, it seems to me to be inevitable that they must have been made with such an intention. It is difficult to see how the position could be otherwise. Although it is clear that a representor's motive is irrelevant (see Deceit, The Lie of the Law at paras. 5.32 to 5.46), I might add that I nonetheless agree that, as Mr Goodkin submitted, Mr Nijhar's motivation in the present case was clear: he wanted Dr Khambay/Clubhire to enter into the Consultancy Contract, thereby earning for Gravitas, his company, substantial fees; he wanted Dr Khambay/Clubhire to purchase the Site, and so allow fees to be generated through the Consultancy Contract; and he wanted to ensure that he, rather than Mr Mehli, worked with Dr Khambay/Clubhire in relation to the Site, and so again allow fees to be generated through the Consultancy Contract.
Reliance
Other aspects which do not, on my primary findings, arise are whether Dr Khambay/Clubhire have made good their case on reliance, and the question of whether, in all the circumstances of this case, Mr Nijhar is properly to be regarded as having assumed a duty of care to Dr Khambay/Clubhire. In view of this, I propose saying relatively little about these matters.
As to reliance, Dr Khambay/Clubhire's case is that they (strictly Clubhire, Dr Khambay's corporate vehicle for present purposes) were induced by Mr Nijhar's various statements to purchase the Site, and this resulted in substantial losses sustained in pursuing its development with singular lack of success. Alternatively, or additionally, Dr Khambay/Clubhire say that they were induced to enter into the Consultancy Contract with Gravitas (again strictly it was Clubhire which did this), and this resulted in further losses comprising the payments made to Mr Nijhar or, more accurately, Gravitas, Mr Nijhar's company and the party to the Consultancy Contract.
In these respects, Mr Goodkin relies on the following passages in Clerk & Lindsell, which set out the relevant principles:
"18-34 The claimant must have been influenced by the misrepresentation To entitle a claimant to succeed in an action in deceit, he must show that he acted in reliance on the defendant's misrepresentation. If he would have done the same thing even in the absence of it, he will fail. What is relevant here is what the claimant would have done had no representation at all been made. In particular, if the making of the representation in fact influenced the claimant, it is not open to the defendant to argue that the latter might have acted in the same way had the representation been true. … .
18-35 Joint inducement suffices Although the claimant must show that he was induced to act as he did by the misrepresentation, it need not have been the sole cause. Provided it substantially contributed to deceiving him, that will be enough. If the claimant's mind was partly influenced by the defendant's misstatements the defendant will not be any the less liable because the claimant was also partly influenced by a mistake of his own. In such cases, moreover, the claimant has the benefit of a presumption that he was influenced at least to some extent by the deceptive statement."
Also relevant in this context are the following further passages:
"18-37 Carelessness of claimant in not discovering the untruth no defence A person to whom a misrepresentation is made is not deceived if he actually knows the truth. But it is no answer to an action for deceit that the claimant might have discovered the falsity by the exercise of ordinary care: it does not lie in the mouth of a liar to argue that the claimant was foolish to take him at his word. Thus, where a vendor of a public-house was sued in deceit for misrepresenting the takings of the business, it was held to be no defence that the vendor's books were in the house at the time and would have disclosed the truth had the claimant chosen to look at them. Nor can the representor escape liability on the ground that knowledge of the truth must be imputed to the representee; as, for example where the representee's agent knew the true facts.
18-38 Reliance and materiality Since the reasonableness of the claimant's reliance is not relevant to liability in deceit, it is submitted that it equally follows that the materiality or otherwise of the defendant's statement is out of account. All that is required is reliance: once this is shown the fraudulent defendant should not be permitted to argue that what he said would not have induced a reasonable person to so act."
Mr Mason did not dispute that these passages accurately state the law. Nor did he take issue with Mr Goodkin's submission that it is not necessary that the misrepresentation should be the sole cause which induced the representee to make the contract, and that it is sufficient if it can be shown to have been one of the inducing causes. That this is the position was famously confirmed by Denman J and the Court of Appeal in Edgington v Fitzmaurice (1885) 29 Ch D 459, a case in which the plaintiff had advanced funds on the faith of a prospectus, which was materially false as to the intentions for the funds being raised by the issue of debentures, but also on the basis of the plaintiff's own mistaken belief as to how the debentures were to be secured. Bowen LJ, at page 482, held that the fraudulent misrepresentation must have been "either the sole cause of the plaintiff's act, or materially contributed to his so acting", so indicating that the fraudulent misrepresentation need not be the only causative element. Cotton LJ held the same, namely that it "is not necessary to show that the misstatement was the sole cause of his acting as he did" (see page 481). Similarly, there was also no issue between the parties as to the following proposition stated in Chitty on Contracts (31st Ed., 2012) at paragraph 6-039 ("Material misrepresentation and a presumption of inducement"):
"Once it is proved that a false statement was made which is 'material' in the sense that it was likely to induce the contract, and that the representee entered the contract, it is a fair inference of fact (though not an inference of law) that he was influenced by the statement, and the inference is particularly strong where the misrepresentation was fraudulent. …".
Mr Mason submitted that, notwithstanding this presumption, the evidence demonstrates that, in the present case, Dr Khambay/Clubhire were relying not on anything stated by Mr Nijhar but on their own experience in the property sector or on the experience of Mr Mehli and (possibly) also Mr Khurll and Mr Dolan, or a combination of this experience. I say straightaway that I reject the submission that Dr Khambay/Clubhire relied, in any material respect, on Mr Khurll or Mr Dolan in relation to the Site. It was perfectly clear from the evidence given by Mr Kurrl that his involvement with the Site (such as it was) was very slight and that Dr Khambay was not basing himself on what he was told by Mr Khurll. Clearly, as far Dr Khambay was concerned, the people he was working with in relation to the Site were Mr Nijhar and Mr Mehli. As between Mr Nijhar and Mr Mehli, however, it is clear that it was ultimately Mr Nijhar to whom Dr Khambay looked, Mr Mehli ceasing to be anything like as involved as he had previously been after the meeting on 19 July 2006 when it was decided by Dr Khambay that Mr Mehli would no longer be part of the single purpose vehicle arrangements which had until then been contemplated. As for Mr Dolan, as I have previously pointed out, nowhere is there any mention of him in any of the contemporaneous documents. I am quite sure, in the circumstances, that he had no involvement in relation to the Site and that he was not somebody upon whom Dr Khambay placed any reliance in relation to the Site. There is no evidence that he has any property experience at all.
In any event, what matters for present purposes is what reliance was placed on the statements which Dr Khambay/Clubhire have alleged were made by Mr Nijhar. I have to decide whether in relation to those statements, or any of them (assuming of course that they were made at all, which I have concluded they were not), Dr Khambay/Clubhire relied on what Mr Nijhar told him, or whether he instead relied either on his own experience or that of Mr Mehli. If Dr Khambay/Clubhire relied both on what Mr Nijhar told him and on his own experience or that of Mr Mehli, reliance is established. It is only if I were to conclude that Dr Khambay/Clubhire placed no reliance on the statements alleged to have been made by Mr Nijhar that reliance would not be made out. My focus, therefore, is on the statements which Mr Nijhar is alleged to have made, and not on matters which are really to be regarded as no more than generality. I must ask myself whether Dr Khambay/Clubhire relied on those alleged statements. If they would have done what they did regardless of the alleged statements, namely proceed with the purchase of the Site and enter into the Consultancy Contract with Gravitas, then inducement is not made out. Consistent with the correct approach as a matter of law, I must leave out of account the question of whether Dr Khambay/Clubhire acted reasonably in relying on Mr Nijhar's alleged statements.
Applying this approach and considering the alleged statements in the order which I have done above, had I found that the housing association and supermarket representations which Mr Nijhar is alleged to have made in paragraphs 12 g) and h) of the Particulars of Claim had actually been made, nonetheless I would have decided that inducement had not been established. It might be thought that this is the obvious conclusion in circumstances where, my having concluded that those representations were not made, nonetheless Dr Khambay/Clubhire went ahead and purchased the Site, and also entered into the Consultancy Contract. That, in my judgment, represents too simplistic an approach, however, since it might legitimately be observed that, if the representations had been made, Dr Khambay/Clubhire would have been bound to have relied on them to some degree. Nonetheless I do not consider that, on analysis, this is right. I am satisfied that Dr Khambay/Clubhire would have proceeded as they did even if the representations had not been made or if it had been explained that what had been represented was actually untrue (I need not, in the circumstances, decide which is the right test to apply in this context: see Deceit, The Lie of the Law at paras. 7.33 to 7.41), and what Mr Nijhar had instead told Dr Khambay was simply that he had spoken to housing associations and they were interested in a general sense (as Mr Nijhar admitted and as I have found was what he did tell Dr Khambay). As to the supermarkets, I have found that no mention was made by Mr Nijhar of his having spoken to them prior to the Site's purchase. Even had some mention been made, however, but not in the terms alleged by Dr Khambay/Clubhire and instead in the more general way that housing associations were mentioned, I consider that Dr Khambay/Clubhire would, in any event, have acted in the same way as they, in fact, did. In my view, that also would have been the position even if no mention of supermarkets had been made at all, since I consider that Dr Khambay/Clubhire are likely, even in those circumstances, to have gone ahead on the basis that, in all probability, supermarkets would be interested in a location such as the Site. Mr Mehli had, after all, told Dr Khambay at the very outset that he considered that the Site could be used for mixed commercial and residential development.
As to the allegation that Mr Nijhar guaranteed that a minimum £500,000 profit would be made since, even if this was what Mr Nijhar did, in view of what Mr Mehli described as his own view that there would be a £500,000 minimum profit, I consider that, in all probability, Dr Khambay/Clubhire would have gone ahead with the purchase of the Site and entered into the Consultancy Contract with Gravitas, in any event, and so regardless of whether Mr Nijhar gave the guarantee alleged. I accept that Dr Khambay only wanted to purchase the Site if satisfied that it had significant potential to make a profit for him. To that extent, therefore, I accept also that he was reluctant to proceed with the purchase. However, I am satisfied that that reluctance went away not because Mr Nijhar made him any guarantee that a minimum £500,000 profit would be made (assuming that he did), but because Mr Nijhar and Mr Mehli were agreed that that was the minimum level of profit which they expected to be made. In other words, even without the guarantee allegedly given by Mr Nijhar, Dr Khambay/Clubhire would anyway have done what they did.
This leaves the statements alleged to have been made in paragraphs 12 a) to f) of the Particulars of Claim concerning Mr Nijhar saying that he had received assurances from the Council's planning officers that planning permission would be granted for mixed retail and residential use and, in view of this, that this would be achieved by the following Easter. Again, these are representations which I have concluded were not, in fact, made. Assuming that they were, however, made, the question, as before, is then whether Dr Khambay/Clubhire relied on them. In my view, they did not. Even though Dr Khambay's experience had been to date in West London and in smaller properties than the Site, Dr Khambay nonetheless had not insignificant experience in the property business. Specifically, as his curriculum vitae demonstrated, Dr Khambay had experience in relation to the obtaining of planning permission. I recognise that that experience probably entailed Dr Khambay employing others with more property experience to take care of the planning permission process. However, it would be unreal to regard him as naive in property matters and in relation to planning permission in particular. In view of this, I consider that the suggestion that Dr Khambay/Clubhire relied on the representations with which I am now dealing should be viewed with some scepticism. I emphasise that I am not approaching matters on the basis that there is a requirement that Dr Khambay/Clubhire should have acted reasonably in relying on the representations, since I acknowledge that there is no such requirement in addition to the requirement that it be established, on the evidence, that Dr Khambay/Clubhire relied on the representations. I do, however, consider that it is relevant to ask whether, given the experience which Dr Khambay had in relation to property matters and in relation to planning permission specifically, there can really have been the inducement which is now alleged. As it is put in Deceit, The Lie of the Law at para. 7.42:
"Once the fraudulent misrepresentation has been established as having induced the resulting loss-causing conduct, it seems just that the credulity or stupidity of the representee in relying on the representation should not enter into the equation of determining the causative influence or effect of the representation. Fraudsters prey on the gullibility and naivety of their victims. There is no good reason why the mere fact that the representee was 'taken in' by the misrepresentation, no matter how silly the representee's faith or error, should relieve the representor of liability. That is not to say that the more unreasonable the representee has been in relying on the misrepresentation should be ignored in coming to a conclusion on whether there has been an inducement at all or in rebutting any applicable presumption of inducement. If, however, it is proved that the representee was induced, irrespective of how foolishly, the representee should have a cause of action in deceit assuming all of its requirements are satisfied."
It seems to me that, adopting this approach, I am entitled to conclude that Dr Khambay/Clubhire cannot have been induced in the manner suggested by the representations set out in paragraphs 12 a) to f) of the Particulars of Claim. That is the conclusion which I have reached. It seems to me that, in view of the experience which Dr Khambay had in relation to property and planning permission in particular, he cannot have placed any reliance on what he says Mr Nijhar told him about what the planning officers at the Council had said. Dr Khambay must have known that no planning officer would commit to granting planning permission on the basis of what, on any view, was only brief contact with somebody in Mr Nijhar's position. The suggestion, in such circumstances, that Dr Khambay/Clubhire relied on Mr Nijhar's statement, as it is put in paragraph 12 c), that "the said planning officers had told the Defendant that planning permission would be granted for the Site for mixed retail and residential use" is, in my view, unrealistic. Dr Khambay would have been bound to have known that the planning permission process would follow a set course, and that without that course being followed there could be no assurance that planning permission would be granted. He would have known that the process takes several months. That, indeed, is what Mr Nijhar made clear to Dr Khambay. The reason why the process takes several months is precisely because applications have to be made in a proper way, and before applications are made, a pre-application process is followed which is meant to ascertain what is likely to be achievable and what is not from a planning perspective. I consider that, with this type of knowledge, Dr Khambay cannot have relied on what Mr Nijhar is alleged to have told him in paragraph 12 c), nor what is alleged in paragraphs 12 d) to f), since those paragraphs essentially follow on from paragraph 12 c) and entail the allegation that Mr Nijhar was telling Dr Khambay that the matters set out in paragraphs 12 d to f) were what he had himself been told by the Council's planning officers (and not merely what Mr Nijhar himself thought) or, at least, were what followed from what the planning officers had told Mr Nijhar. Further, in view of what I have decided in relation to paragraph 12 c), it seems to me that the representations alleged in paragraphs 12 a) and b) (that Mr Nijhar knew senior planning officers at the Council, indeed, that he was on first name terms with them, and that he had spoken to planning officers at the Council) are also representations on which Dr Khambay/Clubhire cannot have relied. I am clear that, since Dr Khambay would have known, as I have decided, that there could be no assurance that planning permission would be obtained, the fact that he was being told by Mr Nijhar (if he was being told) that he knew senior planning officers at the Council and had spoken to planning officers there is not something which he would have relied upon when deciding to proceed with the purchase of the Site and to enter into the Consultancy Contract.
Breach of duty and negligent misrepresentation/misstatement
There remains the case based on breach of duty. In the light of my findings as to what Mr Nijhar told Dr Khambay/Clubhire in advance of the Site's purchase, this is a case which cannot succeed. I should nonetheless deal with the question of whether Mr Nijhar owed Dr Khambay/Clubhire a duty of care, in case the matter were to go further, in circumstances where I have, of course, heard a considerable quantity of evidence which is relevant to the duty of care issue. I shall endeavour, however, to set out my views as briefly as I can – a task aided by the fact that there was no dispute between Mr Goodkin and Mr Mason as to the applicable legal principles.
In support of his argument that a duty of care was owed by Mr Nijhar to Dr Khambay/Clubhire, Mr Goodkin's essential submission was that there is, as he put it in his written closing submissions, "good evidence" to show that Mr Nijhar assumed a duty of care in relation to the opinions and advice he expressed, and to show also that it was reasonable for Dr Khambay to rely upon the opinions and advice that Mr Nijhar provided. Mr Goodkin submitted that this follows from the fact that Mr Nijhar purported to have special skill and specialist knowledge of the residential and retail developments generally as well as, importantly, specialist knowledge of the planning and profit potential of the Site. In this regard, Mr Goodkin relied on Hedley Byrne v Heller [1964] AC 465 per Lord Morris at pages 502-503, and on Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 per Lord Goff at page 180. Mr Goodkin submitted, as he described it in the further or alternative, that: Mr Nijhar voluntarily assumed responsibility for the advice which he gave to Dr Khambay/Clubhire (see Hedley Byrne v Heller per Lord Devlin at page 529, and Clerk & Lindsell at para. 8-95), pointing out that the test of assumption of responsibility is applied objectively (Henderson v Merrett Syndicates Ltd per Lord Goff at page 181); and/or that a special relationship arose out of the fact that Mr Nijhar was seeking to persuade Dr Khambay/Clubhire to enter into the Consultancy Contract with Gravitas and to purchase the Site (Hedley Byrne v Heller per Lord Reid at page 483 and per Lord Morris at page 502, and Clerk & Lindsell at para. 8-94); and/or that Mr Nijhar knew, or ought to have known, that Dr Khambay/Clubhire were relying upon his advice given the experience and particular knowledge which Mr Nijhar claimed to possess and their comparative lack of expertise; and/or that it would be fair just and reasonable to hold that Mr Nijhar was subject to a duty of care when he tendered the advice to Dr Khambay/Clubhire (Caparo Industries v Dickman [1990] 2 AC 605, and Clerk & Lindsell at para. 8-97).
In these respects, it seems to me that it is helpful to have in mind the following passage from the speech of Lord Bingham in Commissioners of Customs & Excise v. Barclays Bank plc [2006] UKHL 28, [2007] 1 AC 181, the leading authority to which reference is made in the extracts from Clerk & Lindsell relied upon by Mr Goodkin.
"4. ... the authorities disclose three tests which have been used in deciding whether a defendant sued as causing pure economic loss to a claimant owed him a duty of care in tort. The first is whether the defendant assumed responsibility for what he said and did vis-à-vis the claimant, or is to be treated by the law as having done so. The second is commonly known as the threefold test: whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; whether the relationship between the parties was one of sufficient proximity; and whether in all the circumstances it is fair, just and reasonable to impose a duty of care on the defendant towards the claimant ...".
After reviewing a number of authorities concerned with the application of these various tests, Lord Bingham went on to say this:
"8. ... it seems to me that the outcomes (or majority outcomes) of the leading cases cited above are in every or almost every instance sensible and just, irrespective of the test applied to achieve that outcome. This is not to disparage the value of and need for a test of liability in tortious negligence, which any law of tort must propound if it is not to become a morass of single instances. But it does in my opinion concentrate attention on the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole."
The same point was made by Lord Hoffmann:
"35. There is a tendency, which has been remarked upon by many judges, for phrases like 'proximate', 'fair, just and reasonable' and 'assumption of responsibility' to be used as slogans rather than practical guides to whether a duty should exist or not. These phrases are often illuminating but discrimination is needed to identify the factual situations in which they provide useful guidance."
In support of his arguments in this context, Mr Goodkin relied on the following evidence in particular: the fact that Mr Nijhar purported to charge, in an email sent on 29 July 2006, £13,500 for professional consultancy services which he provided prior to purchase of the Site by Dr Khambay/Clubhire; the fact that in his 31 July 2006 letter, as well as in further letters dated 4 and 9 August 2006, Mr Nijhar referred to his "project management consultancy support" running "from pre-acquisition stage"; the fact that Mr Nijhar admitted in the Defence that Dr Khambay contacted him "in order to discuss what if any development potential the Site had and whether it would be advisable for the Claimants to purchase it"; the fact that Mr Nijhar accepted in cross-examination that he was instructed by Dr Khambay to carry out an appraisal of the Site; the fact that Mr Nijhar wrote on 12 July 2006 that he was "actively pursuing the Site", with Mr Mehli's cousin being "out of the picture"; the fact that Mr Nijhar accepted, again during cross-examination, that he began investigating the planning potential of the Site and advising Dr Khambay in relation to it prior to purchase of the Site; and the fact that on 28 July 2006 Mr Nijhar advised that he had inspected the Site and told Dr Khambay that the purchase price was "right" in view of his inspection.
Taken together, Mr Goodkin submitted that Mr Nijhar should be regarded as having owed Dr Khambay/Clubhire a common law duty of care to ensure that the statements of both fact and opinion made by him were true. Mr Mason did not accept this. His position was uncomplicated: that the relationship between Mr Nijhar and Dr Khambay/Clubhire was, as he put it in his written closing submissions, "of an arms length business nature and not such as to give rise to a duty of care"; and, in any event, that Mr Nijhar professed no specialist knowledge of the planning and profit potential of the Site, so that there was no assumption of any duty of care by him. It seems to me, although I reiterate that ultimately nothing turns on this aspect of my decision, that Mr Goodkin's submissions are right. Adopting the approach described by both Lord Bingham and Lord Hoffman in Commissioners of Customs & Excise v. Barclays Bank plc, I am satisfied that this is a case in which it is appropriate to conclude that a duty of care was owed. It seems to me that, for the reasons given by Mr Goodkin and specifically based on the evidence to which he referred, the particular relationship of Mr Nijhar towards Dr Khambay/Clubhire in the lead-up to the entry into the Consultancy Contract (with Gravitas, not Mr Nijhar) and prior to purchase of the Site was one which gave rise to a duty of care. It is no answer for Mr Mason to say that, after the Consultancy Contract was entered into, duties were only owed by Gravitas, since the focus of Mr Goodkin's submission is on the earlier period and a time when not only did the Consultancy Contract not yet exist (other than in draft) but, in addition, Gravitas had still to be incorporated and so brought into existence.
As I have made clear, however, my conclusion that a duty of care was owed by Mr Nijhar is wholly academic in view of the conclusions which I have reached both as to whether the statements alleged by Dr Khambay/Clubhire were made at all (I have decided that they were not) and as to whether, if the statements were made, they were relied upon by Dr Khambay/Clubhire (I have, again, decided that they were not).
The Claimants' additional case
I come on now to address Dr Khambay/Clubhire's additional case. This is the allegation that, having omitted to tell Dr Khambay/Clubhire that a planning scheme submitted in early 2007 had been rejected by the Council, Mr Nijhar made certain misrepresentations on 14 August 2007 which caused Dr Khambay to authorise an additional payment to Gravitas. It is a very modestly valued claim: if successful, Dr Khambay/Clubhire stand to recover £34,042.55 (exclusive of VAT), the amount which Gravitas was paid on 17 August 2007. Despite its modest value, a large part of the trial was taken up with it. Mr Nijhar was cross-examined at length over post-purchase events, starting in August 2006 and stretching not only over the following year (up to August 2007, when the payment was made), but also beyond on the basis, as Mr Goodkin explained it in his written closing submissions, that events in the later period "related to factual disputes arising earlier in time, or collateral issues of Mr Nijhar's honesty and credibility". In addition, the evidence given by Mr Prichard, Mr Holmes and Mr McCallum all related to post-August 2007 events: in the case of Mr Prichard, his evidence was concerned with things which happened after February 2010; Mr Holmes gave evidence concerning his involvement starting in late 2007; and Mr McCallum did not become involved with the Site until 2009.
I have to say that I regard it as unfortunate that so much time and effort should have been devoted to such matters. It is right to acknowledge that Mr Nijhar had in the Defence put Dr Khambay/Clubhire to proof in respect of steps taken by them in mitigation of their (alleged) loss. I appreciate, therefore, that evidence had to be gathered in order to address this issue, and that in this context disclosure had to be given also. However, at some point (I am not clear when) Mr Nijhar ceased to take a failure to mitigate point, and so it is open to considerable doubt whether, in the event, all the evidence which was put forward (admittedly on both sides) really was necessary. In the circumstances, I do not intend making this judgment even longer than it already is by making findings concerning events after August 2007. Mr Goodkin, in his written closing submissions, himself expressly acknowledged that it "is not necessary to make specific findings of fact in relation to the period after the second payment [the August 2007 payment] was made to Mr Nijhar". I agree, and I decline to do so. I bear in mind, in this context, that inasmuch as Mr Goodkin relies on such events as impacting on Mr Nijhar's credibility, I have already essentially accepted Mr Goodkin's submissions in relation to that matter. In my view, to take up time exploring in any detail events which substantially post-date the representations relied upon by Dr Khambay/Clubhire in relation to this additional claim is quite unnecessary.
It follows that I focus in this part of my judgment on events leading up to the August 2007 payment. This requires me, in effect, to consider what happened in the calendar year immediately after purchase of the Site by Clubhire in August 2006 as background to the case advanced by Dr Khambay/Clubhire, namely that Mr Nijhar made certain representations on a specific day (14 August 2007). In doing so, I remind myself that the only case which, as I understand it, is advanced is a claim in deceit. There is no alternative claim in negligent misrepresentation/misstatement or in breach of collateral contract. In paragraphs 45 to 47 of the Particulars of Claim, the following is alleged:
"45 Further or alternatively, on 14 August 2007, the Defendant made express and/or implied representations that:
a) there was a reasonable prospect of a deal being entered into with the Co-Op whereby a supermarket would be established on the Site; and/or
b) as at 14 August 2007, it was possible to obtain planning permission for a substantial retail element in the development of the Site.
46 The representations set out at paragraph 45 above were false. At the time the said representations were made, the Defendant had been informed and was aware that no retail development in excess of 200 square metres would be permitted. …
47 The First and/or Second Claimant reasonably relied upon and was induced by the representations set out at paragraph 45 above to make a payment of £34,042.55 (exclusive of VAT) to the Defendant on 17 August 2007. … ."
This is a claim in deceit, and it is this claim which I must now consider, doing so by reference to what has been specifically alleged rather than by reference to anything more general. In a case where deceit is the case advanced, it seems to me that it is very important to be specific. That is what I intend, therefore, to be. I shall concentrate on the matters on which Mr Goodkin placed particular emphasis.
Whether Mr Nijhar can be personally liable
Before embarking on an examination of the relevant events, I should first, however, address a point which emerged during the course of oral closing submissions and which was the subject of further written submissions from Mr Goodkin on 12 December 2014 and from Mr Mason a week after that. The issue is whether it is open to Dr Khambay/Clubhire to advance a claim in deceit against Mr Nijhar personally, as opposed to Gravitas, Mr Nijhar's company and the party which entered into the Consultancy Contract.
It was Mr Goodkin's position that Mr Nijhar can be held personally liable, notwithstanding the fact that it was Gravitas (not Mr Nijhar) which was a party to the Consultancy Contract and Mr Nijhar's role after this agreement had been entered into was, as he accepted was the case, to act as Gravitas's agent in dealings with Dr Khambay/Clubhire. Mr Goodkin relied in this regard on the following observation by Lord Scarman in Stanley Yeung Kai Yung & Another v Hong Kong and Shanghai Banking Corp [1981] AC 787 at page 795D:
"It is not the law that, if a principal is liable, his agent cannot be. The true principle of the law is that a person is liable for his engagements (as for his torts) even though he is acting for another, unless he can show that by the law of agency he is to be held to have expressly or impliedly negatived his personal liability."
Mr Goodkin submitted, therefore, that, unless Mr Nijhar can establish that he expressly or impliedly negatived his personal liability to Dr Khambay/Clubhire, he will be liable in the tort of deceit in the same way as he would be so liable had he not acted as Gravitas's agent. As Mr Goodkin put it, the starting point is that an individual will always be liable for his or her torts unless he or she has negatived his or her personal liability. In the present case, Mr Goodkin submitted, Mr Nijhar did nothing to negative his personal liability, nor did he give any indication even that he was not regarding himself as assuming personal liability for torts which he might commit (including the tort of deceit).
Mr Mason's position was that this is not a situation such as that contemplated by Lord Scarman in Stanley Yeung Kai Yung & Another v Hong Kong and Shanghai Banking Corp. That was a case, he submitted, involving a principal and an agent, as demonstrated by Lord Scarman's reference at page 795 C-D to "a person" being "liable for his engagements (as for his torts) even though he is acting for another", the "person" in that case being the agent which was a separate legal entity from the principal. Mr Mason suggested that Mr Nijhar's situation is not the same because what he did in his dealings with Dr Khambay/Clubhire after August 2006 was not to act as Gravitas's agent, but to act as Gravitas itself. Accordingly, so Mr Mason submitted, applying the approach enshri6`ned in Saloman v Saloman & Co. Ltd (1897) AC 22, Mr Nijhar cannot be liable in his own (as opposed to in Gravitas's) right.
Mr Mason highlighted in this context that Saloman v Saloman & Co. Ltd was a case in which the decision at first instance that the defendant company was acting as an agent for a company member was rejected by the House of Lords, with Lord Herschell saying this at page 43:
"In a popular sense, a company may in every case be said to carry on business for and behalf of its shareholders: but this certainly does not in point of law constitute the relation of principal and agent between them or render the shareholders liable to indemnify the company against the debts which it incurs."
Mr Mason also relied on what Lord MacNaghten had to say at page 51:
"The company is at law a different person altogether from the subscribers to the memorandum; and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by the Act. That is, I think, the declared intention of the enactment."
Mr Mason's submission was that it follows from these statements of principle that Mr Nijhar is not to be regarded as having been acting on anything other than Gravitas's behalf. He added, in support of this proposition, that Dr Khambay/Clubhire knew that Gravitas had been incorporated by Mr Nijhar and knew also that this was the entity which entered into the Consultancy Contract. It was Gravitas which provided the services under that agreement and which invoiced for those services. In such circumstances, Mr Mason submitted, Mr Nijhar cannot have been doing or saying anything other than as Gravitas; he was not acting on Gravitas's behalf, and so was not in any sense an agent of that company.
I cannot accept Mr Mason's submissions. It is quite clear to me that Mr Nijhar was acting as the agent of Gravitas. Gravitas, like any company, will typically act through agents. Those agents may themselves be other companies. In the present case, no other company was involved; Gravitas acted through Mr Nijhar. Mr Nijhar was, therefore, Gravitas's agent. As such, he is himself liable, personally liable, for his actions and statements. As it is put in Deceit, The Lie of the Law at para. 6.22:
"In cases where the agent has been fraudulent, whether or not the fraud is answerable by the principal, the agent remains liable for the fraud in an action for deceit brought by the third party. This is so, because the liability in deceit is not dependent on any particular or special relationship between the third party and the agent. The agent's fraudulent misrepresentation is made in contravention of the so-called universal obligation of honesty. Accordingly, if the principal was vicariously liable for the agent's fraud, the fact that the agent's conduct has been attributed to the responsibility of the principal does not through some alchemical process deprive the agent of his own responsibility for such conduct."
Saloman v Saloman & Co. Ltd does not assist Mr Mason's argument. This is because that was a case in which the issue was not the present issue. On the contrary, it was a case in which the issue was whether a company is to be regarded as one and the same as its members (or shareholders). The House of Lords decided that that is, indeed, how a company is to be regarded. As such, a company is not, in law, an agent of its members, but is a legal entity which is distinct from its members. It cannot conceivably follow from this that the law is that a company cannot act through agents (including agents who are its members). This is a quite different issue. Indeed, far from supporting Mr Mason's submission, it is clear to me that Saloman v Saloman & Co. Ltd actually supports Mr Goodkin's submission because the principle of separate corporate personality serves more than amply to confirm that a company is a separate legal entity from its members, and so when it acts through its members the company is engaged in a principal/agent relationship with its members. Mr Mason's submission that Mr Nijhar is Gravitas represents a denial of the principle of separate corporate personality, and is simply wrong. It follows that I reject Mr Mason's submissions on this preliminary point of principle.
I might add that, although Mr Goodkin's submission was that it would have been open to Mr Nijhar to have negatived (expressly or impliedly) his personal liability, it is not clear to me that this would be the position in relation to what is, after all, a case in which deceit is alleged. I did not hear argument on this issue, which anyway does not arise in circumstances where Mr Mason was unable to point to any evidence demonstrating that Mr Nijhar negatived his personal liability. However, the usual position is that a party cannot contract out of liability for fraud: see Deceit, The Lie of the Law, MacDonald Eggers (2009) at para. 8.95. Therefore, had Mr Nijhar purported to negative his personal liability, I am doubtful that this would have achieved what he had intended. As I say, however, on the evidence before me, the point does not arise.
Post-purchase events
Although no claim has been brought in relation to Mr Nijhar's or Gravitas's management of the project, Mr Goodkin strongly questioned Mr Nijhar's competence. He did so in reliance on Mr Prichard's evidence in particular, and his clear view that the first step, when seeking to obtain planning permission, is determining what development a site can accommodate because there is no point seeking planning permission for a scheme that is physically impossible to build. In this case, Mr Prichard was absolutely clear that a highway consultant was required to determine what development could be accommodated. He was also clear that it was vitally important for a commercial retail development to have an architect and a planning consultant. Despite this, Mr Nijhar (and Gravitas) took no steps to engage a highway consultant or a planning consultant. Mr Nijhar sought to justify this by saying that he had been told not to incur any additional expenses because the idea was that money would come from the local authority rather than from Clubhire (and Dr Khambay). However, when pressed about who he was saying had told him this, Mr Nijhar unconvincingly said that it was Mr Dolan, somebody who clearly had no involvement in relation to the Site at all. I am quite clear that the reason why such consultants were not engaged was simply that Mr Nijhar did not give thought to the need to engage this type of expertise. I am also quite clear that this was because Mr Nijhar lacked experience in property development and specifically planning permission issues. Indeed, it is instructive that, when pressed still further, Mr Nijhar gave a different reason why a highway consultant and a planning consultant had not been engaged. This was that he did not consider that they were required at the pre-application stage. Why Mr Nijhar should give contradictory evidence in this way is not clear. It was again much to his discredit. However, I consider that this alternative (and inconsistent) explanation is more likely to reflect the truth than the explanation which involved Mr Dolan. It is an explanation which, I am quite satisfied, serves to underline Mr Nijhar's lack of relevant experience. This lack of experience is also illustrated by Mr Nijhar's choice of architect, a company called Homestyle Projects Limited ("Homestyle"), which proved unable to produce a viable scheme, with Mr Prichard describing the quality of their work as appalling.
I remind myself, however, that the claims in these proceedings are not claims against Gravitas in respect of its mismanagement of the Site development. The fact that, as matters stand, planning permission has still to be obtained and no buyer has been found for the Site is, of course, highly relevant to Dr Khambay/Clubhire's damages claims – as is the fact that it appears, based on the evidence before me, that the Site is worth substantially less than the £870,000 which Clubhire paid for it. However, whether this is the position because of mismanagement of the development is not the issue which I must determine. I must instead decide whether Dr Khambay/Clubhire were deceived into making a single payment in August 2007 by what Mr Nijhar told them. I acknowledge that this requires me to explore, at least to some extent, the background. However, it does not require me to determine a project mismanagement case which has not been advanced in these proceedings and which, in any event, would in all probability be a case which, were it to be put forward, would need to be advanced not against Mr Nijhar in his personal capacity but against Gravitas, a non-party to these proceedings and the company which entered into the Consultancy Contract.
A few weeks after Clubhire's purchase of the Site (by which I mean exchange of contracts rather than completion), Gravitas prepared what was described as a "Development Progress Report" in which it was stated that the "Purpose of the Report" was to "inform the client, Clubhire Limited, of the progress on the plans to develop the site". This report was dated 1 September 2006 and purported to report in relation to the period from 9 August to 1 September 2006. It began by stating that Gravitas "have initiated and held several meetings with potential clients for the site over this period", referring to "Four separate client meetings ... held in and around the Midlands area including Nottingham". It went on to refer to Gravitas having "agreed for two Registered Social Landlords to undertake feasibility of the site based on their housing need research for the area" and added that "We have indicated to them that we should like to take forward the design of any outline scheme to the planners by October with a view to securing a detailed planning consent by Easter 2007". Mr Goodkin submitted that this is consistent with Mr Nijhar having represented, prior to the purchase, that planning permission would be obtained by Easter 2007 at the latest. I agree. However, it is not the same thing as saying that the reason why planning permission would be obtained in this timescale was that Mr Nijhar knew the planning officers at the Council and they had told him that planning permission would be just a "paper exercise".
This is, of course, a matter in relation to which I have already stated my conclusions. I do not, therefore, take up further time with it in this context. I should, however, record that Mr Goodkin made powerful criticisms of the evidence given by Mr Nijhar when asked about the 1 September 2006 report. He pointed out that, when it was suggested by Mr Goodkin that the reference to Easter 2007 suggests that he told Dr Khambay/Clubhire, in advance of purchase of the Site, that planning permission would be obtained by that time, Mr Nijhar's initial answer was that he had learned that two or three housing associations were likely to go forward given the market and local authority approval, and it was this which led him to believe that planning permission could be obtained by Easter 2007. Mr Goodkin highlighted the fact that Mr Nijhar agreed with Mr Goodkin that these had been discussions which had taken place prior to the purchase or at least that he had discussions with one or two housing associations at that stage, but then Mr Nijhar went on to state that he had learned, importantly since the Site's purchase, that the Council would (as he put it) "offer" a partner, specifically the Bromford Housing Group, and that the Council would provide a grant. Mr Goodkin submitted that this was all evidence which Mr Nijhar had made up in the witness box. I am not so sure about this, however, because four days after the 1 September 2006 report, on 5 September 2006, Jephson Homes (a housing association) sent Mr Nijhar a fax which attached what was described as a "Maximised Scheme Layout" in respect of the Site. The writer, somebody by the name of Paul, continued by referring to a discussion (presumably with Mr Nijhar), stating that "the land value is working out at around £25k per plot and £1100 m2 build", and giving a "Land" value of £1 million and a "Build" value of £2.9 million. It is apparent from the scheme document that, consistent with what had been stated in the Gravitas letter dated 9 August 2006, the intended scheme was for 38 dwellings. The fax ended by stating that "This assumes Housing Corp Grant of £1.3m". Shortly after this, on 7 September 2006, the Bromford Housing Group emailed Mr Nijhar (Gravitas), offering £25,000 per flat and £35,000 per house. Mr Lance Gurney, who sent the email, made it clear that these figures assumed "grant input". Accordingly, although I agree with Mr Goodkin that the manner in which Mr Nijhar gave his evidence in relation to the 1 September 2006 report gave the impression that the evidence was untruthful, I do not feel in a position to conclude, taking into account these contemporaneous references to grant availability (including in an email from the Bromford Housing Group), that what Mr Nijhar had to say was made up.
That said, it is instructive that Gravitas's first progress report was followed by another at the end of the same month, on 30 September 2006, and that in this report, under the heading "Dudley Council", it was stated merely that "the ongoing negotiations with both Dudley Borough Council and local residents are beginning to warm up to the idea for a local residential development on the site". This is an oddity, but I do not consider that it means that I should conclude that what Mr Nijhar had to say in evidence concerning grant availability was untrue. Again, I remind myself also that the allegation which I am now considering, Dr Khambay/Clubhire's additional claim, is a very specific allegation concerning something which is alleged to have happened almost a year later.
Returning, therefore, to the chronology, it is clear from Mr Nijhar's own handwritten notes that there was only limited activity in relation to the Site on his, or Gravitas's part, during October and November 2006. On 7 December 2006, however, an offer was made on behalf of Mid-Counties Co-Op, through a Mr Gerard Thompson, to lease retail premises on the Site for £48,000 a year. This was expressed in terms that there should be a "headline rent of £12.00 per square foot", so indicating that the intended lease would be in respect of a 4,000 ft2 retail space. The offer letter began by referring to "our recent conversations", reflecting the fact that Mr Nijhar had had discussions with Mr Thompson. Although I do not consider it greatly matters, these were discussions which, I am satisfied, were instigated not by Mr Nijhar, as he was apparently inclined to suggest in his witness statement, but by Mr Thompson.
Gravitas then produced a third progress report. This was dated 15 December 2006 and coincided, as Mr Goodkin pointed out, with three invoices which were sent to Dr Khambay/Clubhire seeking payment in relation to various matters. The report referred to various matters, in particular to a "painstaking exercise with numerous meetings and furnishing information for the supermarkets and their respective appointed agents". It also stated, just before this, that a number of the supermarkets "have been in discussions with us to date". Included in the list which was then set out, at the end, was "Mid Counties Co-Op Ltd". The report then went on to refer, in terms, to Mid-Counties Co-Op's 7 December 2006 offer, and to state how this had been discussed with Dr Khambay and it had been "agreed with you to pursue the offer and have proceeded to appoint an architectural practice to facilitate a mixed tenure scheme, forthwith". It added: "We are endeavouring to have an outline planning application ready for submission by February 2007. This will incorporate the design brief received from the operator and with close liaison with the Co-Op".
As contemplated by the end of year report, Gravitas submitted a pre-planning enquiry to the Council in early February 2007, probably on 7 February 2007 judging from the Council's responsive letter dated 27 March 2007. This entailed the submission of drawings prepared by Homestyle. The proposal was a development with 860 m2 of retail space and 63 housing units. This scheme corresponded both with Mid-Counties Co-Op's requirements in relation to the retail requirements, and with the 63 units which Mr Nijhar had worked out (as demonstrated by certain handwritten notes on the email from Mr Gurney at the Bromford Housing Group sent on 7 September 2006) were required in relation to the offer which had been made by the Bromford Housing Group. The proposals did not, however, meet with approval from the Council. On the contrary, they met with considerable, and strongly expressed, disapproval in the form of the Council's letter dated 27 March 2007. This letter contained a summary at the end in the following trenchant terms:
"The scheme represents a gross overdevelopment of the site and is poorly designed. This is demonstrated through an excessive density, large scale and bulk and massing of buildings that appear to have little regard to the context of the site and the existing form, nature and pattern of development within the area. The intensity and mixed use nature of the proposed development is likely to raise concerns in terms of noise impacts to prospective occupiers of the properties.
It is unlikely that a large retail development in excess of 200 square metres could be supported in this out of town location. ... The proposals fail to meet nature conservation objective as set out within Adopted Dudley Unitary Development Plan and would fail to integrate and retain the existing mature trees in the site within the new proposals to the detriment of the character of the area. The scheme would not be supported by the highway authority due to concerns regarding poor visibility, deficient loading area and lack [of] off-street parking for the scale of the proposals ... ."
This summary followed four pages of detailed consideration of the proposals, in which a number of matters were raised. These included the following observations:
(1) "The site is situated in an out-of centre location. Due to this it is very unlikely that the Local Planning Authority would support the development of such a large retail scheme within this location since it would be contrary to Policy CR9 (Edge-Of-Centre and Out-Of-Centre Development) of the Adopted Dudley Unitary Development Plan and to PPS6:Planning for Town Centres."
(2) "The Council may support the development of small scale retail on this site of no more than 200 square metres to support the adjoining residential development and the new development."
(3) The Site was a major bat corridor of international significance, which the development would not allow to continue.
(4) The Council had recently adopted guidance that defined appropriate densities for of new housing developments. Town centre schemes were "likely to have densities in the region of 50-60 dwellings per hectare with suburban locations characterised by semi-detached properties being 30 dwellings per hectare … The density of the proposed residential development would be 197 dwellings per hectare (63/0.32). This is excessive and fails to have regard to the character of the area in terms of the scale, form and massing of the existing development. The residential development is extremely cramped on the site with a lack of private amenity space and what appears to be a lack of parking provision for the occupiers of the proposed residential development".
(5) The scheme did not take account of the noise impact from delivery vehicles.
(6) The Group Engineer would reject the plan for a variety of highway issues relating to parking, visibility, and the supermarket loading area.
Despite the clear terms of the Council's response, Mr Nijhar insisted during his evidence, including in answer to a question from me, that he did not see what the Council had said as a rejection of the proposed scheme. This was very curious evidence indeed, since the Council had quite clearly formed a very dim view of what had been submitted. There can be no doubt, to my mind, that the Council had rejected the proposed scheme, and in strong terms. I do not see how Mr Nijhar could fail to see this, whether when giving evidence and being shown the letter in that context, or when reading the letter after it had been sent to him in 2007. I am quite clear that, whatever Mr Nijhar may have suggested when giving evidence over seven years after the event, at the time he knew that the Council had rejected the scheme and, furthermore, that that was not something which he expected would happen. This is confirmed by Mr Nijhar's own contemporaneous notes, in which he stated that the Council's response was "not as expected". I reject his evidence, when taken to this comment by Mr Goodkin, that he was referring not to the Council's rejection of the scheme, but to the fact that the Council's response had been briefer than he had expected. This is not something he had ever said previously. Nor is there any evidence that, having received the letter dated 27 March 2007, Mr Nijhar contacted the Council to ask for a more detailed response. I am quite clear, in short, that Mr Nijhar was simply trying to explain away the obvious, which is that he had expected the Council to indicate approval for the scheme and not to reject it in the manner set out in the letter.
As Mr Goodkin put it in his written closing submissions, the "next and essential question" is whether Mr Nijhar informed Dr Khambay of the Council's rejection of the proposed scheme. Mr Goodkin submitted that, if Mr Nijhar did not do this, then it constitutes "a material misrepresentation that induced the August 2007 payment", as well as "strong evidence of Mr Nijhar's dishonesty". If by this Mr Goodkin meant to suggest that a failure to tell Dr Khambay/Clubhire about the Council's decision would itself, and without more, entitle Dr Khambay/Clubhire to succeed with their additional claim, then, I do not agree. As made very clear in paragraph 45 of the Particulars of Claim, as set out above, the allegation which is made in these proceedings, and the only allegation, therefore, which it is open to Dr Khambay/Clubhire to pursue, is that Mr Nijhar made an express and/or implied representation on 14 August 2007. It is no part of Dr Khambay/Clubhire's pleaded case that Mr Nijhar made an earlier misrepresentation.
I do nonetheless acknowledge that whether Mr Nijhar told Dr Khambay/Clubhire about the Council's decision is relevant context to what Dr Khambay/Clubhire allege was represented by Mr Nijhar on 14 August 2007. I am quite clear that Mr Nijhar did not inform Dr Khambay/Clubhire. Dr Khambay's evidence was that Mr Nijhar did not tell him. Indeed, Mr Nijhar himself did not say, when asked in cross-examination, that he told Dr Khambay. His evidence was that he "did not tell Dr Khambay personally", but that he told Mr Dolan. He insisted that Mr Dolan was, as he described him in this context, "Dr Khambay's property manager". Mr Nijhar went on to say that it was his "remit from Dr Khambay" to speak to Mr Dolan. He added that the reference in his handwritten notes to the "Pre-App" having been "discussed with client" (following on immediately, in the same phrase, from the words "not as expected") was intended by him to be a reference not to Dr Khambay, but to Mr Dolan. I have concluded that what Mr Nijhar had to say in relation to this was not true. As I have previously pointed out, Mr Dolan had no apparent involvement in relation to the Site. He is not mentioned in any of the very many documents which were produced for the purposes of the trial. Neither Mr Lakhani nor Dr Khambay suggested that he had any involvement. Nor did Mr Mehli, whose name is also mentioned in the handwritten note prepared by Mr Nijhar as having been told about the Council's decision. It is perfectly clear that Mr Dolan had no involvement. It follows that Mr Nijhar's evidence that he told Mr Dolan about the Council's rejection of the scheme cannot be accepted. In the circumstances, I am unable to afford any significance to the reference in Mr Nijhar's handwritten note to his having "discussed with client" the unexpected response of the Council to the proposed scheme. As Mr Nijhar himself acknowledged that the reference to "client" is not a reference to Dr Khambay/Clubhire, I struggle to see why it would be appropriate to conclude that it was, in fact, such a reference. I decline to do so. It is clear to me also that Mr Nijhar did not inform Mr Lakhani, not that it was Mr Nijhar's position that he did. Specifically, under cover of an email sent by Mr Lakhani to Mr Nijhar on 26 April 2007, after he had apparently returned from a vacation which had started on 2 April 2007, Mr Lakhani provided Mr Nijhar with minutes of a meeting he had had with Mr Nijhar on 23 March 2007, four days before the Council's letter dated 27 March 2007. The minutes indicate that that meeting was concerned with a number of matters, including Gravitas's fees (mention was made of an agreed 25% profit share). They also record Mr Lakhani asking Mr Nijhar for "a copy of the drawings", with Mr Nijhar responding "that these have been revised recently" but that he would let Mr Lakhani have a copy as soon as possible. Nowhere is there any mention of a pre-planning application having already been made to the Council, or of the drawings which Mr Lakhani had requested having already been provided to the Council with a decision by the Council in relation to those drawings awaited. This suggests to me that Mr Lakhani was unaware that an application had been made in early February 2007. I am clear also that, if Mr Lakhani was unaware of this having happened, Dr Khambay would have shared Mr Lakhani's ignorance. Mr Lakhani was somebody in whom Dr Khambay placed a great deal of trust. It is inconceivable that Dr Khambay would have not kept Mr Lakhani in the loop as regards any application which had been made. I am not dissuaded from this conclusion by the fact that, in an email sent by Mr Nijhar to Mr Lakhani on 26 April 2007, in which Mr Nijhar took issue with the accuracy of Mr Lakhani's minutes (albeit not saying on what basis), Mr Nijhar began by stating that he had "given a verbal update personally to Amarjit [Dr Khambay] at he [sic] beginning of this month and he is fully aware of the progress". As I have pointed out, Mr Nijhar's evidence was not that he had told Dr Khambay anything at this time, but that he told Mr Dolan – and then, as I understood him, not until the middle of the following month (May 2007). I am satisfied that neither Dr Khambay (and Clubhire) nor Mr Lakhani knew about the Council's rejection of the proposed scheme. Indeed, I am clear that they did not even know that a proposed scheme had been submitted in February 2007, and that this unawareness on their part is the reason why nowhere in the documents is there anything showing that Mr Lakhani, Dr Khambay or Clubhire were chasing Mr Nijhar (and Gravitas) to be told what the Council had decided. Mr Lakhani's request for sight of the drawings at the meeting on 23 March 2007 demonstrates that they had not been shown to him previously, yet he would have been bound to have asked to see any drawings which he was aware had already been submitted to the Council. The fact that, having failed to obtain the drawings from Mr Nijhar, Mr Lakhani then wrote directly to Homestyle to request them, which he did on 30 April 2007 and again (by email) on 17 May 2007, establishes that he did not already have them and was not aware that a proposal had already been submitted to, and rejected by, the Council.
I shall come on very shortly to address the meeting which took place between Mr Nijhar and Dr Khambay on 14 August 2007. I need first, however, briefly to mention that, on 4 June 2007, a different Co-Op entity, Midlands Co-operative Society Limited ("Midlands Co-Op"), emailed Mr Lakhani "to express an interest" in the Site. This was a contact which was made directly between Mr Nick Riches, a Business Development Negotiator at the Midlands Co-Op, and Mr Lakhani. A few weeks later, on 21 June 2007, Mr Riches wrote to Mr Nijhar, repeating the expression of interest and asking to arrange a meeting with Mr Nijhar. It is not entirely clear to me whether a meeting between Mr Nijhar and Mr Riches did take place, and if it did, when that was. What is clear, however, is that subsequently, on 4 July 2007, Mid-Counties Co-Op (not Midlands Co-Op) made an offer to lease retail premises at the Site "to establish a store of 4500 sq ft gross trading from 3000 sq ft with a minimum of 12 car parking spaces" for an annual rent of £54,000.
The 14 August 2007 meeting
This, then, was the immediate backdrop to the meeting which took place on 14 August 2007. This meeting, like those which took place in the lead-up to Clubhire's purchase of the Site, took place at Dr Khambay's house. It is Dr Khambay/Clubhire's case that, at this meeting, Mr Nijhar persuaded Dr Khambay to make the further payment of £34,042.55 (exclusive of VAT) or £40,000 (inclusive of VAT), and that he did so by representing that, firstly, there was a reasonable prospect of "a deal being entered into with the Co-Op whereby a supermarket would be established on the Site", and, secondly, that, as matters stood at the date of the meeting "it was possible to obtain planning permission for a substantial retail element in the development of the Site". In view of these being the allegations which are levelled at Mr Nijhar, it might have been expected that, in his witness statement, Dr Khambay would deal with the 14 August 2007 meeting, and indeed do so in some detail. Surprisingly, however, he did not do so. In fact, he made absolutely no mention of the meeting. The most that he did was to say this in paragraphs 65 and 66, although even then it is not clear to me that he was meaning to refer to a meeting on 14 August 2007 specifically:
"65 [Mr Nijhar] told me that he had been in discussions with the Co-Op and that they were interested in purchasing the Site. I asked him many times for confirmation of that but he did not produce it.
66 Our regular meetings continued throughout 2006 and 2007. Throughout the whole time, [Mr Nijhar] continued to tell me that he was dealing with senior people at the Co-Op. He claimed this had been happening since about Christmas 2006. He repeated this again and again, at most meetings that we had. I would ask him for meeting minutes or confirmation emails, something in writing on the Co-Op letterhead. He would say that he would get this for me and that it was no problem. He said that the Co-Op would write to him and that he would forward a copy of the letter to me. I would ask him at every meeting for minutes and documents from the Co-Op. [Mr Nijhar] never provided them. Likewise I asked repeatedly for minutes from the housing associations and the Council. He did not provide me those documents. He would give me the same reassurances and the same answers every time."
When he came to give oral evidence, he was cross-examined by Mr Mason, but understandably only very lightly on the topic of the 14 August 2007 meeting. His evidence, in answer to such questioning, was that Mr Nijhar had told him at the meeting that he required payment because "he had to pay another consultant", adding that he told him that "there were two consulting firms who could expedite planning permission". Dr Khambay explained that he told Mr Nijhar that he would pay "if I have receipts". He was then shown Mr Nijhar's email later the same day to Dr Khambay, in which Mr Nijhar stated as follows:
"It was good to meet you this morning and I wanted to confirm the actions we have agreed.
I will now ask the architect working for us on the Dudley project to redraw the scheme in line with the information received from Matrix Partnership and Accord Housing in Birmingham. This will involve substituting the flats for the houses on a 70:30 split basis on the lines of their requirement. The Co-Op we will finalise the deal with once we have the scheme agreed in principle and the freehold and leasehold are drawn up by our lawyers (who would you want to use for this?).
You will release on account for the project on the lines of last years [sic] figures. I shall send in the invoice for the last period to cover the meetings etc.
... ."
Dr Khambay's response was that he "was relying on Mr Nijhar assuring me, not the correspondence". It was suggested to him by Mr Mason that the payment had nothing to do with contractors needing to be paid, to which Dr Khambay responded by saying that it was as Mr Nijhar told him that "he had already paid contractors" and it was on the basis of this that he (Dr Khambay) agreed to pay.
It seems to me that this evidence from Dr Khambay presents Dr Khambay/Clubhire's case in relation to the additional claim with very real difficulties, both in relation to their need to prove that what is alleged in paragraph 45 of the Particulars of Claim was actually represented to Dr Khambay by Mr Nijhar at the 14 August 2007 meeting, and as regards the need to prove reliance. As to the former, I might add that I do not really understand how the implied representation case can work, other than in relation to the allegation that whatever Mr Nijhar expressly stated concerning "the Co-Op" and the obtaining of planning permission with a substantial retail element carried with it an implied representation that Mr Nijhar knew that there were reasonable grounds for what he was saying. It seems to me that Dr Khambay/Clubhire must, in other words, make good their case that Mr Nijhar did actually say something about these matters, and that it is not open to them to succeed with a case which is exclusively based on an alleged implied representation. In view of this, the lack of evidence from Dr Khambay is striking. Dr Khambay was not accompanied by anybody else at the meeting with Mr Nijhar. Mr Lakhani's evidence is, therefore, not of any assistance as to what was or was not said by Mr Nijhar.
I have to decide whether, notwithstanding Dr Khambay's evidence (or the lack of it) in relation to the 14 August 2007 meeting, the additional claim can nonetheless succeed because of what Mr Nijhar's email had to say concerning the agreement said by him to have been reached at the meeting, and taking account also of Mr Nijhar's evidence as to what happened at the meeting. I bear in mind, in this context, that paragraph 45 of the Particulars of Claim refers back to paragraph 27, in which the 14 August 2007 email is quoted, and that paragraph 28 then states that Mr Nijhar "thus assured" Dr Khambay/Clubhire "and represented that the development was feasible with both the Matrix Partnership and the Co-Op, in contradiction of the previously clearly expressed views of the Council". It seems, therefore, that the deceit case put forward in paragraph 45 includes an allegation that Mr Nijhar misrepresented the position in his email as well as at the meeting itself. That said, as I shall come on to explain, the only deceit allegation in paragraph 45 concerns a representation by Mr Nijhar as to the Co-Op, not also the Matrix Partnership.
As to Mr Nijhar's evidence, he said this in paragraph 56 of his witness statement:
"I met [Dr Khambay] on 14th August 2007 at his residence for a meeting and provided all the latest information and [Dr Khambay] as part of the meeting agreed to release part of the outstanding second tranche of fees. Information from Matrix Partnership and Accord Housing were discussed and action agreed ... ."
In cross-examination, it was put to Mr Nijhar by Mr Goodkin that at the meeting he told Dr Khambay that "Matrix and the Co-Op were goers" yet that was not the case. His answer was that this was "incorrect" since "Matrix and the Co-Op were real prospects".
The position on the evidence is, therefore, odd. Dr Khambay's evidence does not support the case which is advanced. Mr Nijhar's evidence, however, does provide some degree of support for that case, in that it is to the effect that there was a discussion concerning "Matrix and the Co-Op". This is also supported by what Mr Nijhar had to say in his email sent after the meeting had taken place and reporting on what had been agreed. I have to ask myself, however, whether Mr Nijhar's evidence (both in his witness statement and during cross-examination) and the contents of the email are sufficient to make me satisfied that, as alleged in paragraph 45 of the Particulars of Claim, Mr Nijhar represented that there was a reasonable prospect of "a deal being entered into with the Co-Op whereby a supermarket would be established on the Site", and that "it was possible to obtain planning permission for a substantial retail element in the development of the Site".
It seems to me that Mr Nijhar's telling Dr Khambay that "Matrix and the Co-Op were real prospects" (as he put it in cross-examination) did equate to a representation (as far as the Co-Op was concerned) that there was a reasonable prospect of "a deal being entered into with the Co-Op whereby a supermarket would be established on the Site". I do not consider, however, that it follows that Mr Nijhar's evidence in this regard supports the additional allegation that "it was possible to obtain planning permission for a substantial retail element in the development of the Site", since for that to be the case Mr Nijhar would have had to tell Dr Khambay rather more about what Mid-Counties Co-Op had offered. There is no evidence that he did so, other than the very vague evidence, in paragraph 56 of Mr Nijhar's witness statement, that he "provided all the latest information" to Dr Khambay during the meeting. I cannot know what this "latest information" comprised, and I am not prepared simply to assume that it included the full details of the offer which had been made by Mid-Counties Co-Op (including the fact that it contemplated a 4,500 ft2 retail unit). Nor, it seems to me, does Mr Nijhar's email reporting on the meeting constitute such evidence.
Assuming that the first of the alleged representations concerning the Co-Op (by which Dr Khambay/Clubhire must mean Mid-Counties Co-Op, rather than Midlands Co-Op) was, indeed, made, and assuming also for present purposes that it was made deceitfully, given that Mr Nijhar would have known that the Mid-Counties Co-Op's offer concerned a retail unit which was larger than the Council had indicated would be permissible, nonetheless I consider that Dr Khambay/Clubhire have not made out their case on inducement. Dr Khambay's evidence was silent on the issue; indeed, his oral evidence was inconsistent with inducement by either of the representations alleged to have been made by Mr Nijhar at the meeting on 14 August 2007. Nor did Mr Lakhani assist in the evidence which he gave because, after referring to Mr Nijhar's email sent after the meeting, Mr Lakhani went on in his witness statement to explain that he said to Dr Khambay that he "had not seen any progress and did not think that any further payment should be made", but Dr Khambay told him to go ahead and pay in any event (which he did). This seems to me to make it very difficult for Dr Khambay/Clubhire's reliance case to succeed.
It follows that, in my view, Dr Khambay/Clubhire's additional claim must fail. I would only add that I do not regard it as open to Dr Khambay/Clubhire to advance a case based on anything which Mr Nijhar may have said concerning the Matrix Partnership and Accord Housing. Such a case is not advanced in paragraph 45 of the Particulars of Claim, the paragraph in which the deceit case is set out. The fact that there is reference to the Matrix Partnership and Accord Housing in Mr Nijhar's 14 August 2007 email is, accordingly, irrelevant. Nor, I note, is it a case which was put forward in Mr Goodkin's written opening submissions (see paragraph 61). In these circumstances, I propose to say nothing more about it.
Conclusion
In conclusion, therefore, despite my considerable misgivings over much of the evidence given by Mr Nijhar, I have reached the clear conclusion that the allegations made against Mr Nijhar by Dr Khambay/Clubhire have not been made out on the evidence adduced before me. It follows that Dr Khambay/Clubhire's claims, both the primary claim and the additional claim, must be dismissed. |
His Honour Judge Bidder QC :
This is the hearing of liability in an action for damages for personal injury arising out of an accident on the 2nd April 2009 when the Claimant, born on the 10th October 1969 and so 39 at the accident and now 45, fell from a wall at the Defendant's North Ealing Hospital. He fell some 30 feet and sustained very serious spinal injuries.
His claim is under the Occupiers' Liability Act 1957 or, alternatively, if, which is not admitted, he was a trespasser at the time of the fall, under the Occupiers' Liability Act 1984. It is accepted that no greater duty of care is owed by the Defendants in negligence and I need not consider that. The Defendants deny breach of duty under either Act and, alternatively, allege contributory negligence extinguishing or reducing any primary liability they may be found to have for the accident.
Briefly, the circumstances of the accident were that the Claimant, who is Polish and whose English is not good, had been working as a labourer on the day of the accident in East London. At the end of the day he and 3 colleagues drove to Acton and drank vodka during the course of the drive. There is a live issue as to how much the Claimant had to drink and his state of intoxication as at the accident.
At Acton, the Claimant was dropped off and he intended to take a bus home. At the bus stop, he alleges he was assaulted and robbed and was rendered unconscious. He was taken to the North Ealing Hospital's accident and emergency department. He was not suffering from serious injuries and was briefly assessed by a triage nurse and asked to wait.
His case is that he felt unwell and at about 9.45 pm he went outside. There is a ramp which leads up to the A and E up which ambulances drive to wait outside the department. Ambulances can then drive down another ramp to leave the area. The roadway outside the department is some 30 feet above ground level. There was a concrete wall edging the roadway. Beneath the roadway is the lowest floor of the 10 storey hospital building, in what is an undercroft. The walls on either side of both ramps have been measured and vary between 890 mm high (3 ft 2 ½ inches) and 1020 or, possibly, 1080 mm (3 ft 4 inches/3 ft 6 ½ inches).
The Claimant has no recollection of the accident. He was seen to climb on to the wall by an ambulance technician called Mark Willoughby. He is the only eye witness to the accident. His witness statement is at page C63 in the trial bundle ("TB"). In his statement he describes first seeing the Claimant with his leg cocked over the wall or one leg either side of the wall near the entrance to A and E. He called out to him something like "What are you doing". The Claimant continued to try to climb over the wall and by the time Mr Willoughby got to him he was hanging on to the wall. Mr Willoughby tried to grab his hand but he fell.
It became very obvious early in the Claimant's cross examination by Mr Norris QC that he can remember nothing of any significance about the events of the night of his accident and that any positive statements in his witness statement about what happened on that night are purely as a result of what he has been told, what he has read or what he has speculated upon.
He is, first, quite unable to say how much he had to drink on the evening in question. This is particularly problematical because of roughly contemporaneous accounts that he gave of his movements that night.
In his witness statement in these proceedings he said he left his place of work on the day of the accident at 6 pm but in his statement to the police on 6 May 2009, when he clearly did have a recollection of leaving work, he told a police officer who interviewed him in hospital that he had left at about 5:30 pm-see TB 1,C 41. He remembered his wife calling him at about that time.
He had been working in Walthamstow. Again, from the police CRIS log, contemporaneously recorded and computerised from information given at the time by police officers, he must have been assaulted (if he is correct in his recollection of being assaulted) at just before 2052 that evening, probably at about 8:45 pm.
I am satisfied that those times can be relied upon.
What happened in between is less certain because of the limited recollection of the Claimant, but he recalls that he travelled with two Polish work colleagues from Walthamstow to Acton in a van and was dropped off there. He said that they had shared between them a 700 cl bottle of vodka at his estimate of the number of drinks that he had had varied between one and three. He was not driving, and on the balance of probabilities he did not consume less than one third of the bottle. He says he was not drunk.
He accepted that the journey from Walthamstow could be one hour or longer depending on traffic. Even allowing one and a half hours that would mean that he was dropped off at Acton by his colleagues, who he was adamant were not those who assaulted him, by about 7 pm. He had no recollection of what he was doing after that for 1 ¾ hours until he was assaulted.
There is, however, some assistance to be gleaned from contemporaneous records. He was actually found by the police - injured to his face, with a bleeding nose, and injury to the eye, a swollen cheekbone and bruising to his fingers - in Montague Road, Ealing, which is over 2 miles from Acton, where he had been dropped off. That information comes from Detective Constable Louise Evans, the police officer who found him.
She gave oral evidence to me. At the time of the incident she was just out of her probationary period as a police officer. She was an impressive, careful and intelligent witness. Her statement is at page 87 of TB 1. When she met the Claimant she judged that he was highly intoxicated. He smelt of alcohol and his eyes were glazed. Even with the help of a person at the scene who could speak Polish she found it very difficult to obtain coherent information from the Claimant, who was walking up and down and was agitated.
She agreed with Mr Levene that many symptoms of drunkenness could be identical with those of a head injury. In the Claimant's application for compensation to the Criminal Injuries Compensation Authority it is said he had lost consciousness. The officer was very well aware of the danger of confusing drunkenness with the symptoms of head injury but she still made the judgment that the Claimant was highly intoxicated. I bear in mind that in the hospital records made after the Claimant's serious accident there is no mention of drunkenness although there is an assessment (rather difficult to understand without expert assistance) of his Glasgow coma score. The next day a note by a doctor at the hospital to which he was transferred refers to him as being "Ethanolic". It is true to say that there is nothing in the notes to indicate where the doctor obtained that information from.
The Claimant was quite unable to say how or why he got from Acton to Ealing.
He agreed that the people who attacked him were a second group of Polish people and that they robbed him of his mobile phone, his jacket and his travel card. He said that he had not had a drink with those people but it was quite obvious that he really had no recollection of the period between being dropped off in Acton and being found in Ealing.
Again, some better indication of what may have happened comes from roughly contemporaneous documents. The nearest such record is, again, the CRIS log at D 173. At 20. 56. 03 the log reads (and it must be what was reported by a police officer who was at the scene of the robbery): "The male is Polish and there is another male translating." At 20. 56. 04: "Victim is called Mr Kolsa". At 20.56.27: "Male is stating that the suspects gave him alcohol, took him to LCN (location) and beat him up."
When that was put to the Claimant he denied that. However, I know that the Claimant had started drinking something up to a third of a bottle of vodka with his work colleagues. He was dropped off probably about one and three-quarter hours before he was attacked over 2 miles distant from where he was dropped off. DC Evans concluded he was highly intoxicated.
On balance, on all that evidence, I accept the conclusion of the officer, which fits with the CRI S log at D 173 and I conclude on a balance of probabilities that the Claimant had met another group of Polish people, had continued drinking with them and had got drunk. What precisely led up to the attack on him will probably never be known.
He was taken by ambulance to the Ealing Hospital and went into A&E. There is no triage note. The Claimant does not remember arriving at the hospital although he had a vague recollection of someone being around him and helping him. In his statement at C 12 he says he thinks paramedics sat him on a chair outside the waiting room.
Why he left the waiting room is completely unclear.
He was next seen by an ambulance technician Mark Willoughby who was replacing a trolley bed in the back of an ambulance on the Road area outside the entrance to the A&E department of the Ealing Hospital to which area access and egress for ambulances is gained by two ramps. The photographs in the trial bundles showed various views of the area including some very recent photographs taken in the early evening. They were taken by the Claimant's solicitor and were available light photographs. With respect to him, they are rather amateurish. The Claimant has not adduced oral evidence as to the standard of the lighting on the roadway outside the A&E department save that his witness Mr Krajewski agreed under cross examination that the area was well lit. That accords with the evidence of DC Evans. I therefore find as a fact that the photographs in the bundle do not adequately represent the quality of the lighting outside the A&E department and that in fact that area was well lit.
Mr Willoughby's statement is at 63. In paragraph 12 he says:
"I recall that my attention was drawn to an individual who I now know to be the Claimant who had when I first saw him his leg cocked over the wall or one leg either side with his body on the wall itself. I called out to him words to the effect of "What are you doing" and moved towards him. The Claimant continued to try to climb over the wall and by the time that I got to him he was hanging on to the wall. I tried to grab his hand but he was just gone."
In his evidence in chief to me is said that the patient report at C 73 was completed by his colleague Mr Giles and contained what he, Mr Willoughby, had told him, but he had not read or sign that report. It says "patient jumped from A&E ramp onto grass verge".
When asked in chief to remember the incident he said he had seen the gentleman lying on the wall on his stomach, an account which is consistent with his statement. He shouted at him, ran over to him, but he had fallen to the floor beneath.
There is no other eyewitness account of the accident. The Claimant has no recollection of what happened. There is really no explanation of what the Claimant was trying to achieve. I am satisfied that this was not a suicide attempt but, equally, it is plain that Mr Willoughby describes a deliberate effort by the Claimant to climb over the wall, which he identified on photo 79 D as the area of wall edging the access road to the A&E and roughly 2 windows up from the A&E canopy, between the two pillars beneath the ramp, between which pillars can be seen a yellow bin. There was a drop of about 30 feet there and in the fall the Claimant suffered a very serious spinal cord contusion causing paralysis of his legs.
I therefore find on a balance of probabilities that in a very drunken state, as a result of voluntary consumption of alcohol from about 5:30 PM that evening onwards, the Claimant deliberately left the A&E waiting area, where he had been placed by ambulance staff who had brought him from Ealing and he then walked outside and deliberately climbed over the retaining wall and, probably, deliberately let go and dropped to the floor. He disregarded Mr Willoughby's shout of warning. Mr Willoughby was only an ambulance length away and the Claimant could not have failed to hear the warning.
The height of the wall which edged the access road to the A&E varied. According to measurements which can be seen in the photographs taken by the Claimant's solicitor Mr Singh at D 79p, q and t, it was between about 3 feet high and 3'2" high. However there is always some difficulty about estimating from photographs of tape measures. More accurate measurements can be found in the Safetymark safety consultants' report of the 29th April 2009, to which report I shall return, at D67 and succeeding pages. That report recorded the height of the walls on either side of both ramps, varying between 890mm (3 feet 2 ½ inches) and 1020 or 1080 mm(3 feet 4 inches to 6 ½ in). The fall was measured at 4.5 metres to the next level.
On 18 April 2009, that is, 16 days after the Claimant's accident, a Mr Talbot, a patient at St Bernard's Hospital, which contains patients suffering from mental illness, and which shares a campus with Ealing Hospital, was reported as trying to get up onto the wall (see D 70, the Safetymark, safety consultants' report commissioned by the Defendant after Mr. Talbot's accident). The investigation by Safetymark revealed that Mr Talbot made two or three attempts to get up on the wall but then fell.
I have heard no eyewitness accounts of what happened in that accident. There are some records of the investigation in the second trial bundles- see D 269 and following pages. Mr Talbot may have "hopped" onto the wall in a sitting position and then fallen. He was killed as a result of the accident. It was not a reportable accident under RIDDOR and was not therefore investigated by the HSE but the Defendant did instruct his safety consultants as a result. Acting on that report Mr Rankine, then assistant director of estates, told the HSE that the trust were going to install a handrail to the perimeter walls to deter people from sitting on the walls. In fact, it appears that Mr Talbot fell at a point around the corner from the A&E, closer to the main entrance near where there is a Costa coffee outlet outside which people tended to congregate for recreational purposes.
The work of installing handrails to the perimeter walls on the first floor, not only to the area near Mr Talbot's fall but also outside A&E was completed in the summer of 2009 with further railings installed later, in 2013, on the perimeter walls of the descending ramps to the roads outside A&E. Those handrails were, I am satisfied, installed as a result of the Trust taking stock and reacting to the death of Mr Talbot and not to the accident to Mr Kolasa. An inquest on the death of Mr Talbot recorded "accidental death". Suicide was also rejected by Safetymark who concluded that there was some evidence of people climbing on to that wall and sitting on it for relaxation purposes. It recommended a deterrent to people sitting on the wall, namely a metal hand rail. Obviously that handrail would not prevent people who were determined to climb over the wall. The handrail can be seen in many of the photos in the bundle.
There is, I accept, no evidence prior to Mr Kolasa's fall to suggest any history of accidents or of dangerous occurrences relating to the perimeter wall at first floor level and, in particular, to that wall in the area of the A&E where the Claimant fell. On the 8th September 2007 (see D266) there is a record of a suicidal patient "threatening" to jump off the wall. On the evidence before me that is the only record available to the Defendant which has any relevance to Mr Kolasa's accident and, of itself, would not in my judgment have persuaded a reasonable occupier to make any structural changes to the perimeter wall.
Mr Krajewski, a security guard at the hospital between 2008 and January 2012 was called on behalf of the Claimant. He told me that he, on several occasions, had told people not to sit on the walls outside the A&E because it was, as he puts it in his statement, "clearly dangerous". I accept that the area outside A&E is not a recreational area like the area in front of the Costa Coffee outlet. Mr. Krajewski was cross examined persistently by Mr Norris QC on this issue, it being suggested to him that he was, rather, concerned about their smoking or about their vicinity to the ambulances, but he stood firm and I accept his evidence that he did warn people about sitting on the wall. To the left of the entrance door to A&E was the office of the 6 security guards that patrolled the whole campus and so I accept if people did sit on the walls outside the A&E it is likely that he and his colleagues would see that. Although he was employed by a sub contractor and not directly by the Defendant, other employees of the Defendant within A&E must also have been aware of the practice.
Mr. Krajewski also says in his witness statement (para 11 page C56) that at some date he cannot remember he was told by his colleagues that during the day a lady had jumped or fallen from the wall next to the main entrance. This was before the erection of railings. When asked if he had been told she had fallen or if she had threatened to jump, he initially said he could not remember then said he was told it was a fall but he was very uncertain about this and in any event this is second or third hand hearsay. On balance of probabilities, in the absence of any record of a fall, I find that that report related to the threatened jumping in September 2007 that I have referred to above.
I agree with Mr. Krajewski's expressed view that the fact that there is a substantial drop on the other side of the wall is very obvious. That, I am satisfied, is true whether by day or night.
PC Evans in her statement at C89 describes the area outside A&E as well lit. It is obvious that there are ramps up to a raised road outside A&E. There are lights under and above the canopy outside A&E. As I have already indicated, Mr Krajewski accepted the area of the ramp outside A&E was well lit. Even if someone had come for the first time to the hospital in an ambulance, who may not have appreciated that the A&E was on the first floor, he or she would have been bound to see, if looking towards the perimeter wall at night, even away from the canopy, the lights in the car park beneath and those of the Uxbridge Road which runs parallel with the front of A&E. No one could fail to notice that the road was elevated.
That there was a substantial drop beyond the perimeter wall was a patently obvious risk, by day or night and no warning of it was necessary (though in fact some warning signs have been placed on the wall after the accident – those warning signs are entirely redundant and, of course, could not have been read by the Claimant, who does not read English).
I also agree with the submission of Mr Norris QC that the installation of handrails would not have prevented someone determined to climb over the wall, as the Claimant was, I find, for reasons best known to him, doing on the night of the accident. The recommendation of the Safetymark report for the installation of railings was for a feature to be added to prevent people sitting on the wall (D72 – para 6.11)
Before I turn to the legal principles which govern this case and the submissions of learned counsel I should indicate that in this case I am not considering any duty of care which might be argued to have been owed to the Claimant by the Defendant as a patient brought to the hospital in an ambulance. He had voluntarily discharged himself from A&E and, rightly, Particulars of Negligence and/or Breach of Statutory Duty (g) to (j) inclusive were struck out of the Particulars of Claim, leaving this a claim purely under the Occupiers' Liability Acts, to which duties the pleading of negligence adds nothing.
I also make the finding of fact that, although when the Claimant was brought to the hospital and was put to wait in A&E he was a visitor to the hospital and was owed the common duty of care under section 2(2) of the 1957 Act, his act of climbing over the wall was not an act covered by his general permission to be on the site as a patient nor was it part of the permission given by the Defendant to patients leaving the site after, or even without, treatment. He was, therefore, no longer an invitee or visitor but a trespasser.
To use the famous example of Lord Justice Scrutton in The Calgarth [1927] P 93 at page 110:
"When you invite a person into your house to use the staircase, you do not invite him to slide down the banisters – you invite him to use the staircase in the ordinary way in which it is used."
Mr. Norris' primary submission to me is that the protection extended both to visitors and to trespassers under the 1957 and 1984 Acts respectively is from danger caused by the state of the premises, an "occupancy duty" rather than a more general obligation to protect the visitor/trespasser from danger he may face while on the premises. That is clear from the discussion of the law at paragraph 12-04 of the current edition of Clerk and Lindsell on Torts. I accept that submission.
The most helpful authority which has been cited to me is the Court of Appeal decision in Keown v Coventry Healthcare NHS Trust [2006] 1 WLR 953. That case establishes or re-establishes the principle I have just referred to. The Claimant in that case was an 11 year old child who climbed the underside of an external metal fire escape of an accommodation block and day clinic in the grounds of a hospital owned by the Defendant trust and fell from a height of about 30 feet severely injuring himself. There was evidence in that case that the hospital grounds were known as a place where children liked to play. The claim was brought under the 1984 Act on the basis that the fire escape constituted a material danger and allurement to children. The Claimant accepted he appreciated that climbing the underside of the fire escape was dangerous and that he should not be doing it. The first instance judge found the occupier Defendant one third to blame for the accident as they were aware that children might come on to the staircase. The headnote sufficiently summarises the ratio of the case:
"Held, allowing the appeal, that the threshold requirement posed by section 1(1)(a) of the Occupiers' Liability Act 1984 was not whether there was a risk of suffering injury by reason of the state of the premises, but whether there was a risk of injury by reason of any danger due to the state of the premises; that a fire escape was not inherently dangerous, so that, if a person chose to create danger by climbing it improperly knowing that it was dangerous to do so, any danger was due to such person's activity and not the state of the premises; that, in general, the age of the trespasser was not relevant, but it was a question of fact and degree whether premises which were not dangerous from the point of view of an adult could be dangerous for a child; that the Claimant had been aware not only that there was a risk of falling but also that his actions were dangerous and he should not have been climbing the exterior of the fire escape; and that, accordingly, no risk arose out of the state of the fire escape there being no element of disrepair or structural deficiency"
While every case turns on its own facts, the Claimant's case here is actually far weaker than that of the Claimant in Keown. In my judgment, there was nothing dangerous about the state of the premises where the Claimant fell. The wall was of an adequate, safe height. It was no lower than walls at the sides of bridges or piers. The provision of an additional rail after Mr Talbot's accident was the reaction of a risk averse Defendant to the circumstances of his particular accident, which involved someone sitting on a part of the first floor perimeter wall in an area known to be used for recreational purposes, and, thus, falling to his death. The Defendant acted on the specific recommendation of the Safetymark report that the additional railing would deter people sitting on the wall. In my judgment, they could not have been criticised for not erecting the rail. The risk of falling when sitting on the wall was very obvious, whether by day or night. Neither rail nor warning signs were necessary to alert adults or even children to the risk. The report does not evidence that the wall and drop should have been protected or that they were unsafe. They were not. What was unsafe was the activity of sitting on the wall, an activity that Mr Krajewski had sensibly warned several people about prior to Mr Kolasa's accident.
However, that warning or even the knowledge which I find it can be inferred that the Defendant had of people sitting on the wall, does not evidence that the wall and drop represented an inherent danger either visitors or trespassers. It was not a hidden trap. It was easily visible and the danger of the drop obvious by day or night. It was not in a position in which it presented a danger. It was not in a defective state. It did not need guarding.
In any event, the railing which the Defendant erected after Mr Talbot's accident, and because of that accident and the report's recommendations, was erected to deter sitting on the wall and not climbing over the wall. The railing would not have prevented what the Claimant did, namely to climb over the wall. What was dangerous was not the state of the premises but what the Claimant, an adult, who had voluntarily consumed far too much alcohol and who was drunk, actually did. In truth, this accident was nothing to do with the state of the premises and was, instead, the entire fault of the Claimant, sad though it is to say that, given his very serious injuries.
In many ways that decides the case against the Claimant, but in deference to the arguments of both counsel I should consider other legal issues.
In the absence of a supervisory duty to the Claimant, as a person who had been attending the hospital for treatment but had discharged himself before he could be seen, and having regard to the deletion of particulars based on a supervisory duty, it matters not that the Defendant could have expected that people who might be drunk and even those who might be in a shocked or upset state due to injury, might be present in or around A&E. The Defendant had not accepted, nor was it under, any duty to take particular care of a drunken adult. There is no satisfactory evidence that the Claimant was in fact suffering from the continuing effects of a head injury, even though there is some very slight evidence he had been concussed.
It should be noted that, if the Claimant had been a visitor, section 2 (2) of the 1957 Act imposed on the Defendant a duty to take such care as in all the circumstances of the case was reasonable to see that he would be reasonably safe for the purposes for which he was invited or permitted by the occupier to be there. Those purposes did not include climbing over the wall and I am wholly satisfied that the Defendant did discharge that duty if the Claimant was a visitor.
However, as I have found above, he was not a visitor at the time of the accident, he was a trespasser because he had gone further than his implied invitation and had tried to climb the wall. Thus I have to consider the 1984 Act. The relevant provisions of the Act are as follows:
"(1) The rules enacted by this section shall have effect, in place of the rules of the common law, to determine—
(a) whether any duty is owed by a person as occupier of premises to persons other than his visitors in respect of any risk of their suffering injury on the premises by reason of any danger due to the state of the premises or to things done or omitted to be done on them; and
(b) if so, what that duty is…………….
(3) An occupier of premises owes a duty to another (not being his visitor) in respect of any such risk as is referred to in subsection (1) above if—
(a) he is aware of the danger or has reasonable grounds to believe that it exists;
(b) he knows or has reasonable grounds to believe that the other is in the vicinity of the danger concerned or that he may come into the vicinity of the danger (in either case, whether the other has lawful authority for being in that vicinity or not); and
(c) the risk is one against which, in all the circumstances of the case, he may reasonably be expected to offer the other some protection.
(4) Where, by virtue of this section, an occupier of premises owes a duty to another in respect of such a risk, the duty is to take such care as is reasonable in all the circumstances of the case to see that he does not suffer injury on the premises by reason of the danger concerned.
(5) Any duty owed by virtue of this section in respect of a risk may, in an appropriate case, be discharged by taking such steps as are reasonable in all the circumstances of the case to give warning of the danger concerned or to discourage persons from incurring the risk.
(6) No duty is owed by virtue of this section to any person in respect of risks willingly accepted as his by that person (the question whether a risk was so accepted to be decided on the same principles as in other cases in which one person owes a duty of care to another)."
Applying those provisions sequentially, as I have already determined, there was no danger due to the state of the premises and there was nothing done or omitted to be done in relation to the wall that made it dangerous.
Although the Defendant was aware of people climbing on to the perimeter wall and sitting on it, that was not the risk presented in this accident. Mr Levene submitted that I should not be too "nit picking" in relation to the designation or description of the "risk" presented and known to the Defendant, but the risk of someone climbing over the wall was of an entirely different nature and the Defendant was not and had no reason to be aware of the existence of that risk.
That remains the case, in my judgment, despite the fact that subsequent to the Claimant's accident the Defendant erected the metal rails. In Tomlinson v Congleton Borough Council and another [2002] EWCA Civ 309, the Defendant was aware of an increased risk of an accident from the unauthorised use of the lake and had begun work on a plan to landscape the shores and plant over the beaches from which people swam. That action did not evidence that the premises were not reasonably safe under the 1984 or 1957 Acts before the work was started.
In any event, if climbing over the wall and/or falling from it were the risks concerned and there had been evidence that the Defendant either was aware of them (which it was not) or had reasonable grounds to believe that they existed (which they did not), then they were not risks against which, in all the circumstances of the case, it might reasonably be expected to offer the Claimant some additional protection. I accept Mr Levene's submission that A&E departments do have drunken people attending them and people with head injuries, but in all the circumstances no further protection than the wall itself, which was of an adequate height, needed to be provided. It was entirely reasonable for the Defendant to have concentrated on the risk actually known to them when it was brought to their attention, namely, the sitting on the wall by certain visitors.
Thus, in my judgment, the Claimant has not established that the Defendant owed him a duty of care under the 1984 Act in relation to the risk of his climbing over the wall and falling to the area below. If he had established that they did then I would have concluded that they had taken such care as was reasonable in all the circumstances to see he did not suffer injury on the premises by reason of the danger presented by wall and drop. It would have been going further than was reasonable to raise the height of the wall or put a rail or some other deterrent on top of the wall and it would not have been effective in this case.
There was no need to give a warning because the risk was obvious.
Finally, although the Claimant was drunk and had sustained some head or facial injury that evening, I am satisfied he willingly accepted the risk of climbing over the wall, though of course it was something he would not have done had he been sober. Thus by reason of section 1 (6) no duty would be owed by the Defendant to him.
It seems to me to be quite obvious that, at the time of the accident, the Claimant was a trespasser or, phrasing it alternatively, was no longer a visitor acting within the scope of his permission but, if I were wrong about that, then I am entirely satisfied that the Defendant had discharged the common duty of care to the Claimant under section 2(2) of the 1957 Act by building and maintaining a perimeter wall of sufficient height and adequately lighting the area around the A&E.
Mr Norris also argues that the deliberate actions of the Claimant were the entire cause of the accident. As I have already indicated, I consider that is entirely correct and the Claimant would fail on that basis as well. That seems to me a more appropriate way of putting the matter than to say that this is a case where the Claimant is 100% contributorily negligent.
For the reasons I have given, therefore, I dismiss the Claimant's claim.
I indicated to learned counsel at trial that, if they were able to agree an order in relation to costs and any ancillary matters I would excuse attendance by anyone when I hand down this judgment. If there are matters which need argument I offer to deal with them on the basis of written submissions but if oral argument is thought necessary I will fix a date and place for those submissions which is convenient to counsel. |
The Hon Mr Justice Turner:
Judgment on Costs
INTRODUCTION
In this case, the claimants lost for reasons set out in the judgment to be found at Laporte and another v The Commissioner of the Police of the Metropolis [2014] EWHC 3574 (QB). They assert, however, that there should be no order for costs because the defendant refused to engage in ADR. In response, the defendant not only seeks an award of costs against the claimants but contends that they should be assessed on an indemnity basis and that a payment on account of £100,000 should be made.
In resolving these issues I am, once again, grateful to the industry of counsel who have served detailed and lengthy skeleton arguments setting out both the legal framework and the factual background to their respective contentions.
THE LEGAL FRAMEWORK
The general rules about costs are to be found in CPR Part 44.
CPR 44.2(1) provides that decisions relating to costs are in the discretion of the court:
(1) The court has discretion as to –
(a) whether costs are payable by one party to another;
(b) the amount of those costs; and
(c) when they are to be paid.
CPR 44.2(2) establishes the general rule that costs will follow the event:
(2) If the court decides to make an order about costs –
(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but
(b) the court may make a different order.
CPR 44.2(3) provides for exceptions to the general rule which do not apply to this case.
CPR 44.2(4) identifies the circumstances to which the court is to have regard when exercising its discretion in making decisions about costs:
(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including –
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and
(c) any admissible offer to settle made by a party which is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply.
The burden of persuasion therefore rests on the claimants with respect to their contention that there should be no order for costs and upon the defendant on his claim that costs should be assessed in his favour on the indemnity basis.
ALTERNATIVE DISPUTE RESOLUTION
The term "alternative dispute resolution" ("ADR") is defined in the glossary to the CPR as a "collective description of methods of resolving disputes otherwise than through the normal trial process". One such process is, of course, mediation.
In Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002 the Court of Appeal acknowledged the potential benefits of ADR whilst recognising that, ultimately, the court has no power to order parties to engage in it. Robust encouragement may well be appropriate. Compulsion is not.
The central issue in Halsey was how the successful litigant previously recalcitrant on the issue of ADR should fare on the issue of costs. Dyson L.J. held at para 13:
"In deciding whether to deprive a successful party of some or all of his costs on the grounds that he has refused to agree to ADR, it must be borne in mind that such an order is an exception to the general rule that costs should follow the event. In our view, the burden is on the unsuccessful party to show why there should be a departure from the general rule. The fundamental principle is that such departure is not justified unless it is shown (the burden being on the unsuccessful party) that the successful party acted unreasonably in refusing to agree to ADR."
The Court went on to identify some of the factors which fall to be considered when addressing the issue as to whether or not a refusal to agree to ADR is to be regarded as having been unreasonable and held at para 16:
"The question whether a party has acted unreasonably in refusing ADR must be determined having regard to all the circumstances of the particular case. We accept the submission of the Law Society that factors which may be relevant to the question whether a party has unreasonably refused ADR will include (but are not limited to) the following: (a) the nature of the dispute; (b) the merits of the case; (c) the extent to which other settlement methods have been attempted; (d) whether the costs of the ADR would be disproportionately high; (e) whether any delay in setting up and attending the ADR would have been prejudicial; and (f) whether the ADR had a reasonable prospect of success. We shall consider these in turn. We wish to emphasise that in many cases no single factor will be decisive, and that these factors should not be regarded as an exhaustive check-list."
In PGF II SA v OMFS Co 1 Ltd [2014] 1 WLR 1386, the Court of Appeal revisited Halsey and, in particular gave guidance as to the proper approach to the issue of costs in cases in which the winning side had failed adequately to articulate its earlier failure to engage in ADR. Briggs L.J. concluded at para 30 that the advice given in the ADR Handbook (2013) was sound:
"The ADR Handbook , first published in 2013, after the period relevant to these proceedings, sets out at length in para 11.56 the steps which a party faced with a request to engage in ADR, but which believes that it has reasonable grounds for refusing to participate at that stage, should consider in order to avoid a costs sanction. The advice includes: (a) not ignoring an offer to engage in ADR; (b) responding promptly in writing, giving clear and full reasons why ADR is not appropriate at the stage, based if possible on the Halsey guidelines; (c) raising with the opposing party any shortage of information or evidence believed to be an obstacle to successful ADR, together with consideration of how that shortage might be overcome; (d) not closing off ADR of any kind, and for all time, in case some other method than that proposed, or ADR at some later date, might prove to be worth pursuing. That advice may fairly be summarised as calling for constructive engagement in ADR rather than flat rejection, or silence."
And at para 34:
"In my judgment, the time has now come for this court firmly to endorse the advice given in para 11.56 of the ADR Handbook , that silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by the identification of reasonable grounds. I put this forward as a general rather than invariable rule because it is possible that there may be rare cases where ADR is so obviously inappropriate that to characterise silence as unreasonable would be pure formalism. There may also be cases where the failure to respond at all was a result of some mistake in the office, leading to a failure to appreciate that the invitation had been made, but in such cases the onus would lie squarely on the recipient of the invitation to make that explanation good."
The Court went on to emphasise at para 51 that a failure to engage with ADR did not mechanistically disentitle the successful party to claim all of its costs:
"… a finding of unreasonable conduct constituted by a refusal to accept an invitation to participate in ADR or, which is more serious in my view, a refusal even to engage in discussion about ADR, produces no automatic results in terms of a costs penalty. It is simply an aspect of the parties' conduct which needs to be addressed in a wider balancing exercise. It is plain both from the Halsey case [2004] 1 WLR 3002 , itself and from Arden LJ's reference to the wide discretion arising from such conduct in SG v Hewitt [2013] 1 All ER 1118 , that the proper response in any particular case may range between the disallowing of the whole, or only a modest part of, the otherwise successful party's costs.
52 There appears no recognition in the Halsey case that the court might go further, and order the otherwise successful party to pay all or part of the unsuccessful party's costs. While in principle the court must have that power, it seems to me that a sanction that draconian should be reserved for only the most serious and flagrant failures to engage with ADR, for example where the court had taken it on itself to encourage the parties to do so, and its encouragement had been ignored. In the present case the court did not address the issue at all. I therefore have no hesitation in rejecting Mr Seitler's submission that the judge did not go far enough in penalising the defendant's refusal to engage with ADR."
OTHER ISSUES
In addition to the defendant's approach to ADR, the claimants rely upon the defendant's failure to reply to the letter of claim and upon errors in its schedule of costs.
THE FACTUAL BACKGROUND
ADR
It was Mr Dutta on behalf of the claimants and Ms Fowler, an employed barrister working in the defendant's Directorate of Legal Services on behalf of the defendant, who were responsible for the progress of the procedural stages on behalf of their respective clients.
The claimants sent their letter of claim on 19 June 2012. The defendant agreed to provide a substantive reply by 10 October 2012. By letter dated 25 October 2012, Ms Fowler indicated that she had been on sick leave for most of August and September and asked for more time to respond to the letter of claim. Further extensions were requested and granted in December 2012. By email dated 5 February 2013, Ms Fowler said that due to workload pressures she had only just been able to sit down and read into the matter thoroughly. She said that thereafter she would be able to form a view as to whether to advise her client to settle or defend the claim. She requested a further period of four weeks in which to respond to the letter of claim. This request was refused and proceedings were commenced. Thus no response to the letter before action was ever sent.
On 13 May 2013, the defendant filed his allocation questionnaire. Under section A relating to settlement, the defendant declined the opportunity to attempt to settle at that stage stating: "There are many factual areas in dispute in this case which are not capable of compromise at this stage. The defendant retains an open mind and is always open to discussion with the claimants on appropriate matters. Once witness statements have been taken and exchanged the case will be reviewed again." Ms Fowler states that there had been a short telephone conversation between Mr Dutta and herself in which he appeared to agree that this was a sensible course of action.
A covering letter stated that a costs schedule would be provided "in the next few days" but it was not.
The claimants made a formal offer of mediation on 26 September 2013. According to Ms Fowler this was at a time when, as Mr Dutta was aware, she was on a holiday from which she was not due to return until 10 October.
On 3 October 2013 the Defendant was ordered by Master Kay QC to respond to the claimants' formal offer of mediation by 4pm on 1 November 2011. No response was received by this date. Ms Fowler states that she was distracted by the priority of preparing witness statements. In an email dated 31 January 2014 the defendant offered to meet with the claimants in a mediation hearing in an attempt to narrow the issues for trial.
On 7 February 2014 Mr Dutta telephoned Ms Fowler to discuss, amongst other things, ADR and they agreed to meet on an "open minds" basis on a date to be confirmed. Ms Fowler was left with the impression that Mr Dutta considered that ADR would only be worthwhile if there was going to be an offer of monetary compensation.
On 28 February 2014 Mr Dutta wrote to Ms Fowler proposing dates for ADR. In that letter he summarised the position of the parties following the telephone conversation between them on 7 February 2014. He set out the claimants' position as follows:
"a. We wish to cooperate with you on behalf of our clients in order to focus and/or narrow the issues to be tried in this claim in the absence of settlement. We are open to suggestions as to how this can best be achieved…
b. The Order dated 13 October 2013 required you to respond to the claimants on a different matter, namely our offer of mediation dated 26 September 2013…If you have instructions to make a meaningful offer our clients would be pleased to attend mediation in order to explore ADR…If you do not have instructions to make a meaningful offer we are concerned that a mediation where your client simply offers to 'drop hands' would not constitute a proportionate use of funds and our time might be better spent on preparing for trial. We are in your client's hands as to whether he is willing to enter into mediation with an open mind to achieving a meaningful settlement.
c. In view of the fact that the Court asked the parties to address ADR as long ago as November last year, we ask that this issue is resolved one way or another in the short term. We should therefore be grateful to hear from you on the basis of full instructions by 7 March 2014…"
On 5 March 2014 Ms Fowler responded to Mr Dutta agreeing that both parties should approach mediation with an open mind and stating that although it was unlikely that the defendant would make a financial offer this could not be ruled out. The letter went on to express the fear that Mr Dutta was making it a pre-condition to any mediation that there would be money on the table.
On 7 May 2014 Mr Dutta wrote to Ms Fowler for a second time, suggesting dates for ADR, stating:
"In view of the costs that will be incurred in preparing for a PTR and a three week jury trial, it is incumbent on both parties to make a serious attempt to achieve ADR without further delay…
In accordance with their duties under the CPR, our clients will approach this process in a frank and constructive manner. Their view remains that a payment of compensation will be necessary to compromise this claim; however they are of course willing to listen to what your client has to say in that regard and vice versa in the spirit of ADR."
Mr Dutta also confirmed that the claimants would not object to a meeting between solicitors and/or clients in the absence of counsel if that meant that it would be easier to find an appropriate date.
During May 2014 attempts were made by both sides to arrange for a round table meeting on dates upon which all intended participants would be available. On 23 May 2014 a PTR hearing took place at which the defendant was ordered to provide specific disclosure relating to similar fact evidence concerning three of his TSG officers. Allegations of impropriety were made against the inspector and other officers. Following this hearing a conversation took place between Mr Dutta and Ms Fowler concerning ADR. Ms Fowler again got the impression that Mr Dutta saw a money offer as a prerequisite to compromise but that he accepted that the claimants would come to ADR with an open mind.
On 28 May 2014, Mr Dutta emailed Ms Fowler asking for confirmation as to who would attend ADR on behalf of the defendant and for a list of issues to discuss. A colleague of Ms Fowler responded to the email pointing out that Ms Fowler was on annual leave and would be back on 2 June whereupon she would answer the questions which had been raised. On 2 June, clerk to the claimants' counsel emailed Ms Fowler suggesting an ADR meeting on 16 June at counsel's chambers. In the absence of a response, a chasing email was sent on 3 June. Ms Fowler emailed Mr Dutta on 4 June but made no reference to ADR. Mr Dutta responded immediately to ask again about ADR.
Later that afternoon, Ms Fowler emailed Mr Dutta saying:
"I will be sending a letter re ADR. For reasons which I will explain in the letter I no longer think an ADR meeting is an appropriate use of resources for either party given what was said by you and your Counsel at and just following the hearing on 23 May."
On the same date the claimants wrote to the defendant seeking an explanation for the refusal to meet for ADR. The claimants' representative stated:
"I am surprised by your client's decision, at this stage, to refuse to engage in ADR and your reference to "what was said by [me] and [Counsel] at and just following the hearing on 23 May. There was nothing more said on my clients' behalf than what has already been said in correspondence and you will recall that it was on the basis of our previous exchange of correspondence that an ADR meeting had been agreed.
I would take this opportunity to remind you that the costs to be incurred in the three-week trial of this claim are likely to be very significant and therefore my clients are mindful of the need to ensure that any opportunity to resolve this claim without the need for trial is utilised. To that end, it had been hoped that your client would accept my clients' 26 September 2013 invitation to enter into ADR with an open mind, as my clients would intend to. It is regrettable that your client has refused to engage. I should be grateful if the content of this email could be brought to your client's attention and I look forward to hearing from you with confirmation that it has been, together with your client's reasons for refusing to engage in ADR…"
The claimants never received a written response to this email nor did they ever receive the letter of explanation promised by Ms Fowler on behalf of the defendant in her email of 4 June 2014. Ms Fowler explained that she never sent the letter because she was too busy preparing for trial. She does say, however, that she had a telephone conversation with Mr Dutta in which she identified his apparent determination to receive monetary compensation as the obstacle to further attempts at ADR. This conversation is undocumented and Mr Dutta has no recollection of it. She suggests that Mr Dutta's written responses were "all tactical, to avoid any cost consequences for his clients, rather than written with any genuine attempt to engage in a mediation process without any pre-mediation meeting undertaking…to make a financial offer."
On 6 June 2014 the claimants made Part 36 offers to the defendant. No response to the Part 36 offers was ever received.
On the same date the claimants wrote to the defendant to formally record their unhappiness at the defendant's refusal of their longstanding and repeated offer of ADR. The claimants informed the defendant that in light of this refusal they would be relying on PGF II SA and the Practice Direction on Pre-Action Conduct in order to invite the court not to award costs in favour of the defendant if he succeeded at trial. The letter concluded by stating:
"To be clear, the Claimants' door remains open to ADR, as it has done so throughout these proceedings, in the remaining three weeks before trial."
No response to this letter was ever received.
The Pre-Action Protocol
The claimants point out that the defendant never provided a practice direction response to the letter of claim of 19 June 2012, in spite of its express agreement to do so on 20 June 2012 and again on 25 October 2012 and two chasing letters from the claimants' representatives. When no response was received by the agreed second extended deadline of 10 December 2012, the claimants sought a response by 17 December 2012. No response was received on this date or on any date thereafter. The claim was therefore pleaded by the claimants.
Costs Schedules
On 9 June 2014, for the first time in the proceedings according to the claimants, the defendant served a costs schedule on the claimants. It is to be noted, however, that Ms Fowler completed a costs estimate in 2013 which she believed she had served by letter dated 13 June 2013. The claimants queried the accuracy of the later schedule on a number of bases, including that it sought costs for Ms Fowler's time for 23 hours per day between 16 June 2014 and 27 June 2014 (in preparation for trial). The claimants sent a chasing email to the defendant seeking an amended, accurate costs schedule on 20 June 2014. On the same date Ms Fowler confirmed by email that there had been a mistake in the costs schedule giving rise to approximately £25,000 being claimed erroneously.
Mr Dutta responded to this email immediately indicating that this revised figure still did not cure the schedule of its inaccuracies. He asserted that Ms Fowler's revised calculations meant that she was still claiming that she would spend 15.45 hours per day on the case between 16 June and 27 June 2014, in addition to a Grade B fee earner spending 12 hours per day on the case in the same period, and a Grade C fee earner spending 7.5 hours per day on the case. The claimants repeated their request for an accurate costs schedule, endorsed by the defendant's representative's signature.
By email dated 25 June 2014 the claimants wrote to the defendant again reiterating that in the absence of any accurate and signed costs schedule, the defendant was being put on notice that the claimants did not consider it reasonable for the defendant, in the event of his success at trial, to seek costs beyond £200,000 and that the claimants had not therefore obtained a further insurance premium. This email was sent at 11:50am, the defendant having failed to provide an accurate, signed costs schedule by 09:30am, contrary to what had been agreed. The claimants' representative asked the defendant to revert to him in the event that the content of this email was disputed. No response was ever received from the defendant, nor say the claimants did the defendant ever provide an accurate and/or signed costs schedule.
THE HALSEY LIST
In the light of the above it is now appropriate to address each of the six factors listed for consideration in Halsey remembering, of course, that this is not to be approached as a mechanistic exercise and that these factors are not to be regarded as being exhaustive in any given case.
THE NATURE OF THE DISPUTE
The Court of Appeal in Halsey at para 17 had the following to say about this factor:
"Even the most ardent supporters of ADR acknowledge that the subject-matter of some disputes renders them intrinsically unsuitable for ADR. The Commercial Court Working Party on ADR stated in 1999:
"The Working Party believes that there are many cases within the range of Commercial Court work which do not lend themselves to ADR procedures. The most obvious kind is where the parties wish the court to determine issues of law or construction which may be essential to the future trading relations of the parties, as under an on-going long term contract, or where the issues are generally important for those participating in a particular trade or market. There may also be issues which involve allegations of fraud or other commercially disreputable conduct against an individual or group which most probably could not be successfully mediated."
Other examples falling within this category are cases where a party wants the court to resolve a point of law which arises from time to time, and it is considered that a binding precedent would be useful; or cases where injunctive or other relief is essential to protect the position of a party. But in our view, most cases are not by their very nature unsuitable for ADR."
The defendant seeks to argue that this is a case in which the nature of the dispute made the case unsuitable for ADR. He contends that the claimants were seeking to litigate a point of legal principle concerning the scope of police powers and were alleging that a police inspector had fabricated his account of the scenario giving rise to those powers.
In truth, both sides now want their cake and ha'penny on this issue. For the purpose of obtaining permission to appeal, the claimants emphasise the need for "an authoritative determination at an appellant level of the nature and scope of the self help power" but must deal, at the same time, with the risk that the need to determine generally important issues of law is a factor militating against the use of ADR. The defendant, in contrast, points to the matters of legal principle in the context to the value of ADR but at peril of strengthening the claimants' prospects of obtaining permission to appeal.
Since the skeleton arguments were filed and served, I have refused permission to appeal.
In my view, this was not a case in which the nature of the dispute made it unsuitable for mediation. The claimants could have succeeded in obtaining some level of damages even if they had lost on the law and even if, in addition, the actions of the inspector had been vindicated. There were issues of pure fact to be resolved about what happened on the staircase upon which both sides ran the risk of adverse findings. There was no continuing commercial relationship between the parties and it is unrealistic to suggest that a settlement by way of ADR would have been inappropriate for this type of dispute.
THE MERITS OF THE CASE
This factor was dealt with in Halsey at paras 18 and 19:
"18 The fact that a party reasonably believes that he has a strong case is relevant to the question whether he has acted reasonably in refusing ADR. If the position were otherwise, there would be considerable scope for a claimant to use the threat of costs sanctions to extract a settlement from the defendant even where the claim is without merit. Courts should be particularly astute to this danger. Large organisations, especially public bodies, are vulnerable to pressure from claimants who, having weak cases, invite mediation as a tactical ploy. They calculate that such a defendant may at least make a nuisance-value offer to buy off the cost of a mediation and the risk of being penalised in costs for refusing a mediation even if ultimately successful.
19 Some cases are clear-cut. A good example is where a party would have succeeded in an application for summary judgment pursuant to CPR r 24.2 , but for some reason he did not make such an application. Other cases are more borderline. In truly borderline cases, the fact that a party refused to agree to ADR because he thought that he would win should be given little or no weight by the court when considering whether the refusal to agree to ADR was reasonable. Borderline cases are likely to be suitable for ADR unless there are significant countervailing factors which tip the scales the other way. In Hurst v Leeming [2003] 1 Lloyd's Rep 379 , 381 Lightman J said: "The fact that a party believes that he has a watertight case again is no justification for refusing mediation. That is the frame of mind of so many litigants." In our judgment, this statement should be qualified. The fact that a party unreasonably believes that his case is watertight is no justification for refusing mediation. But the fact that a party reasonably believes that he has a watertight case may well be sufficient justification for a refusal to mediate."
The defendant accepts in his skeleton argument that he was "prepared to mediate up to the point that it was apparent that there was no scope for narrowing the issues". I take this to be a concession that the merits of the defence were not perceived to be so strong in themselves to have justified a refusal to engage in ADR. Indeed my express criticisms of the defence witnesses in a number of areas demonstrate how there was material which, without the benefit of hindsight, would have given the defendant food for thought in predicting his chances of success.
HAVE OTHER SETTLEMENT METHODS BEEN ATTEMPTED?
The Court of Appeal said in Halsey at para 20:
"20 The fact that settlement offers have already been made, but rejected, is a relevant factor. It may show that one party is making efforts to settle, and that the other party has unrealistic views of the merits of the case. But it is also right to point out that mediation often succeeds where previous attempts to settle have failed. Although the fact that settlement offers have already been made is potentially relevant to the question whether a refusal to mediate is unreasonable, on analysis it is in truth no more than an aspect of factor (f)."
The defendant had made no offers to settle the case before ADR was suggested. It cannot therefore be heard to say that it had exhausted other opportunities of resolving the case which would have obviated the need to go to court.
THE COST OF MEDIATION WOULD BE DISPROPORTIONATELY HIGH
At para 19 of Halsey the Court held:
"This is a factor of particular importance where, on a realistic assessment, the sums at stake in the litigation are comparatively small. A mediation can sometimes be at least as expensive as a day in court. The parties will often have legal representation before the mediator, and the mediator's fees will usually be borne equally by the parties regardless of the outcome (although the costs of a mediation may be the subject of a costs order by the court after a trial). Since the prospects of a successful mediation cannot be predicted with confidence… the possibility of the ultimately successful party being required to incur the costs of an abortive mediation is a relevant factor that may be taken into account in deciding whether the successful party acted unreasonably in refusing to agree to ADR ."
The defendant concedes that the costs of mediation would not have been disproportionately high but contends that an offer to settle would have had to include a large costs liability to the claimants. For my own part, I do not consider that this point is material to the issue which the Court of Appeal was addressing under this heading. It is, however, potentially relevant in determining whether mediation had a reasonable prospect of success.
DELAY
On the topic of delay, the Court in Halsey had this to say:
"If mediation is suggested late in the day, acceptance of it may have the effect of delaying the trial of the action. This is a factor which it may be relevant to take into account in deciding whether a refusal to agree to ADR was unreasonable.
There was no reason why mediation in this case would have had the effect of delaying the trial of the action. The first offer of ADR was made in September 2013, long before the date upon which the hearing was likely to take place.
WHETHER THE MEDIATION HAD A REASONABLE PROSPECT OF SUCCESS
The Court of Appeal in Halsey spent more time on this factor than the others holding:
"23 In Hurst v Leeming [2003] 1 Lloyd's Rep 379 , Lightman J said that he considered that the "critical factor" in that case was whether "objectively viewed" a mediation had any real prospect of success. He continued, at p 381:
"If mediation can have no real prospect of success, a party may, with impunity, refuse to proceed to mediation on this ground. But refusal is a high risk course to take, for if the court finds that there was a real prospect, the party refusing to proceed to mediation may, as I have said, be severely penalized. Further, the hurdle in the way of a party refusing to proceed to mediation on this ground is high, for in making this objective assessment of the prospects of mediation, the starting point must surely be the fact that the mediation process itself can and often does bring about a more sensible and more conciliatory attitude on the part of the parties than might otherwise be expected to prevail before the mediation, and may produce a recognition of the strengths and weaknesses by each party of his own case and of that of his opponent, and a willingness to accept the give and take essential to a successful mediation. What appears to be incapable of mediation before the mediation process begins often proves capable of satisfactory resolution later."
24 Consistently with the view expressed in this passage, Lightman J said that on the facts of that case he was persuaded that "quite exceptionally" the successful party was justified in taking the view that mediation was not appropriate because it had no realistic prospects of success.
25 In our view, the question whether the mediation had a reasonable prospect of success will often be relevant to the reasonableness of A's refusal to accept B's invitation to agree to it. But it is not necessarily determinative of the fundamental question, which is whether the successful party acted unreasonably in refusing to agree to mediation. This can be illustrated by a consideration of two cases. In a situation where B has adopted a position of intransigence, A may reasonably take the view that a mediation has no reasonable prospect of success because B is most unlikely to accept a reasonable compromise. That would be a proper basis for concluding that a mediation would have no reasonable prospect of success, and that for this reason A's refusal to mediate was reasonable.
26 On the other hand, if A has been unreasonably obdurate, the court might well decide, on that account, that a mediation would have had no reasonable prospect of success. But obviously this would not be a proper reason for concluding that A's refusal to mediate was reasonable. A successful party cannot rely on his own unreasonableness in such circumstances. We do not, therefore, accept that, as suggested by Lightman J, it is appropriate for the court to confine itself to a consideration of whether, viewed objectively, a mediation would have had a reasonable prospect of success. That is an unduly narrow approach: it focuses on the nature of the dispute, and leaves out of account the parties' willingness to compromise and the reasonableness of their attitudes.
27 Nor should it be overlooked that the potential success of a mediation may not only depend on the willingness of the parties to compromise. Some disputes are inherently more intractable than others. Some mediators are more skilled than others. It may therefore sometimes be difficult for the court to decide whether the mediation would have had a reasonable prospect of success.
28 The burden should not be on the refusing party to satisfy the court that mediation had no reasonable prospect of success. As we have already stated, the fundamental question is whether it has been shown by the unsuccessful party that the successful party unreasonably refused to agree to mediation. The question whether there was a reasonable prospect that a mediation would have been successful is but one of a number of potentially relevant factors which may need to be considered in determining the answer to that fundamental question. Since the burden of proving an unreasonable refusal is on the unsuccessful party, we see no reason why the burden of proof should lie on the successful party to show that mediation did not have any reasonable prospect of success. In most cases it would not be possible for the successful party to prove that a mediation had no reasonable prospect of success. In our judgment, it would not be right to stigmatise as unreasonable a refusal by the successful party to agree to a mediation unless he showed that a mediation had no reasonable prospect of success. That would be to tip the scales too heavily against the right of a successful party to refuse a mediation and insist on an adjudication of the dispute by the court. It seems to us that a fairer balance is struck if the burden is placed on the unsuccessful party to show that there was a reasonable prospect that mediation would have been successful. This is not an unduly onerous burden to discharge: he does not have to prove that a mediation would in fact have succeeded. It is significantly easier for the unsuccessful party to prove that there was a reasonable prospect that a mediation would have succeeded than for the successful party to prove the contrary.
29 So far we have been considering the question whether a successful party's refusal of ADR was unreasonable without regard to the impact of any encouragement that the court may have given in the particular case. Where a successful party refuses to agree to ADR despite the court's encouragement, that is a factor which the court will take into account when deciding whether his refusal was unreasonable. The court's encouragement may take different forms. The stronger the encouragement, the easier it will be for the unsuccessful party to discharge the burden of showing that the successful party's refusal was unreasonable.
30 An ADR order made in the Admiralty and Commercial Court in the form set out in Appendix 7 to the Guide is the strongest form of encouragement. It requires the parties to exchange lists of neutral individuals who are available to conduct " ADR procedures", to endeavour in good faith to agree a neutral individual or panel and to take "such serious steps as they may be advised to resolve their disputes by ADR procedures before the neutral individual or panel so chosen". The order also provides that if the case is not settled, "the parties shall inform the court … what steps towards ADR have been taken and (without prejudice to matters of privilege) why such steps have failed". It is to be noted, however, that this form of order stops short of actually compelling the parties to undertake an ADR .
31 Nevertheless, a party who, despite such an order, simply refuses to embark on the ADR process at all would run the risk that for that reason alone his refusal to agree to ADR would be held to have been unreasonable, and that he should therefore be penalised in costs. It is to be assumed that the court would not make such an order unless it was of the opinion that the dispute was suitable for ADR .
32 A less strong form of encouragement is mentioned in the other court guides to which we have referred at para 6 above. A particularly valuable example is the standard form of order now widely used in clinical negligence cases, and which was devised by Master Ungley. The material parts of this order provide:
"The parties shall … consider whether the case is capable of resolution by ADR . If any party considers that the case is unsuitable for resolution by ADR , that party shall be prepared to justify that decision at the conclusion of the trial, should the trial judge consider that such means of resolution were appropriate, when he is considering the appropriate costs order to make. The party considering the case unsuitable for ADR shall, not less than 28 days before the commencement of the trial, file with the court a witness statement without prejudice save as to costs, giving the reasons upon which they rely for saying that the case was unsuitable."
33 This form of order has the merit that (a) it recognises the importance of encouraging the parties to consider whether the case is suitable for ADR , and (b) it is calculated to bring home to them that, if they refuse even to consider that question, they may be at risk on costs even if they are ultimately held by the court to be the successful party. We can see no reason why such an order should not also routinely be made at least in general personal injury litigation, and perhaps in other litigation too. A party who refuses even to consider whether a case is suitable for ADR is always at risk of an adverse finding at the costs stage of litigation, and particularly so where the court has made an order requiring the parties to consider ADR."
The central point relied upon by the defendant is that Ms Fowler came incrementally to the view that the claimants would only accept a financial offer and that the defendant was unlikely to make one and so ADR was not appropriate.
I would make the following observations:
i) At no time had the defendant excluded the possibility of making a money offer;
ii) At no time had the claimants insisted that the making of a money offer would be a formal precondition of engaging in ADR;
iii) It is always likely that those representing any given party to a dispute will seek to lower the expectations of the other side in preparation for ADR. Simply because one side makes a prediction of what it might take to reach a settlement does not entitle the other side to treat such a prediction, without more, as a formal pre-condition. Tactical positioning should not too readily be labelled as intransigence.
iv) I do not agree that Ms Fowler was entitled to take the view that Mr Dutta's approach to ADR was purely tactical. It had been on the claimants' agenda from the outset and was pursued with appropriate vigour throughout.
v) It is difficult to escape the conclusion that Ms Fowler was repeatedly on the procedural back foot in the months leading up to the hearing as a result of which the pursuance of ADR was deprioritised to help her to meet the demands of preparing the case for trial.
On the evidence before me I am satisfied that there was a reasonable chance that ADR would have been successful in whole or in part. The defendant was not justified in coming to a contrary conclusion.
FURTHER MATTERS
The defendant seeks to rely upon further matters in support of its approach to ADR and points to the case of Daniels v Commissioner of Police of the Metropolis [2005] EWCA 1321 in which the Court of Appeal held that it may be reasonable for a defendant who routinely faces wholly unfounded claims to take a stand even where the costs of so doing are likely to be disproportionate to the alleged value of the claim in any given case. I do not consider that this case assists the defendant.
Those representing the defendant never categorised this case as one which was so self-evidently unfounded that it should be fought regardless of the risk of incurring disproportionately high costs. They never ruled out the chance that some money offer might be made.
Furthermore, there was no real risk here of any settlement having a potential impact on police powers or policing tactics. A mediation or joint settlement meeting does not involve an adjudication on the issues in the case. Since the claimants' case involved different types of claim against different officers there would be no necessary inference from the terms of any compromise that it was based upon one interpretation or another either of the factual evidence or the legal background.
CONCLUSION ON ADR
Having considered each of the factors listed in Halsey and having regard to other circumstances and arguments raised in addition thereto, I have formed the view that the defendant failed, without adequate (or adequately articulated) justification to engage in ADR which had a reasonable prospect of success. This will, therefore, impact on the exercise of my discretion as to costs. However, I must look at this matter in the round as a result of which I have to consider the separate issues arising from the criticisms raised of the defendant's failure to respond to the letter before action and of the flaws in the costs schedules.
PRE-ACTION PROTOCOL
The defendant undoubtedly ought to have responded to the letter before action more timeously and it is unsurprising that the claimants eventually lost patience and proceeded to plead their case formally. Had this been the only valid criticism of the procedural failings of the defendant I may well have concluded that it did not justify any substantive costs consequences. However, I have reached the view that the failure to respond in time was to prove to have been symptomatic of a sustained inability to prioritise the progress of this case thereafter and, in particular, to allocate sufficient time, attention and/or resources to dealing with ADR in parallel to substantive preparation. This lends further corroboration to my view that the defendant stumbled past ADR on the way to the hearing rather than engaging with it with proportionate commitment and focus. To this limited extent only, therefore, do I take the non-compliance with the pre-action protocol into account.
COSTS SCHEDULES
I have recorded the criticisms made by the claimants about the timing and accuracy of the defendant's costs schedules. I do not, however, consider that an adjudication on the rights and wrongs of this particular aspect of the case would influence the exercise of my broader discretion on the issue of costs.
INDEMNITY COSTS
The defendant seeks an award of indemnity costs pointing to the width of the discretion alluded to in the case of Excelsior Commercial & Industrial Holdings v Salisbury Hamer Aspden Johnson (Costs) [2002] EWCA Civ 879.
The following points are made in his skeleton argument:
"a) It is a consequence of the Judge's finding that the Claimants' arrests and subsequent prosecutions were in large part a consequence of their own actions on 24th February 2011;
b) Notwithstanding that the arrests were in large part a consequence of the Claimants' own actions, they elected to bring civil proceedings. This was not a case where the necessity to secure an effective remedy left the Claimants with no option but to issue proceedings (such as, for example, in some housing cases or a personal injury involving substantial care needs);
c) The Claimants sought to challenge every aspect of the policing operation. They have lost on every issue raised;
d) On any objective viewing of the video footage, the overall policing decision to remove protestors from the third floor corridor and stairwell (whether on the grounds of a breach of the peace, removing trespassers or preventing disorder at a public meeting) was patently reasonable. It has been demonstrated to be lawful. There never were any reasonable grounds for including this in the claim;
e) The Court has found that both Claimants:
i) were acting in a disruptive manner which was directly threatening the viability of the Council meeting, and were participating in a breach of the peace (para 92);
ii) struggled not to see things through the distorting lens of their own firm convictions (para 94 and 114);
iii) gave evidence that was more of an ex post facto rationalisation of their conduct than an accurate recollection (para 96 and 114).
It is therefore open to the Court to determine that, in bringing and/or conducting these proceedings, the Claimants have not acted reasonably.
f) It was the Claimants who, while ostensibly seeking mediation, sought to place preconditions on the mediation that rendered it futile. The reality is that the only mediation that was ever going to be acceptable to the Claimants was one that resulted in them being paid damages and costs."
The defendant further contends that there is a risk that the costs incurred may be seen to have been disproportionate to the potential damages as a result of which the defendant would be substantially out of pocket if costs were to be awarded on the standard basis.
CONCLUSIONS
Taking into account all of the factors listed in Halsey and all other relevant matters to which I have referred in this judgment I am satisfied that the defendant's failure fully and adequately to engage in the ADR process should be reflected in the costs order I make. Regardless of this aspect of the case I would not have been minded to have made an order for indemnity costs in his favour. My adverse findings on the conduct of some of the police officers involved and the reasonable way in which the claim was presented on behalf of the claimants procedurally would militate against that. Further, I am not satisfied that public bodies should normally have a stronger claim to indemnity costs than other litigants.
I do not consider that the scale of the defendant's shortcomings in the context of his failure to engage with ADR was such as to justify disentitling him from claiming any of his costs. He did ultimately win on every substantive issue and, although ADR made settlement a sufficiently likely possibility, it would have been by no means certain. Exercising the broad discretion afforded to me by the rules, I award the defendant two thirds of his costs against the claimants to be assessed on the standard basis.
I further order that the claimants must pay the sum of £50,000 on account of costs under CPR 44.2(8).
I extend the time within which either party may file an appellant's notice with the Court of Appeal in respect of this and the substantive judgment to 12 March 2015. |
MR SALTER QC:
Introduction
This is an application to continue an injunction, originally granted by Patterson J on 2 January 2015, to enforce certain of the post-termination restrictive covenants and covenants relating to confidential information in what is alleged by the claimant ("Harpur") to be the contract of employment which subsisted between Harpur and the first defendant ("Mr Potter"). The principal issue in the action is whether Mr Potter signed or otherwise agreed to be bound by the written contract dated 16 October 2013 ("the Alleged Contract") on which Harpur relies. If (contrary to his primary case) Mr Potter is held to be bound by the Alleged Contract, subsidiary issues may include whether Mr Potter was constructively dismissed, whether the relevant covenants in the Alleged Contract are enforceable, and whether Mr Potter has already broken, or intends to break, any of them.
On this application Ms Meech, who appears for Mr Potter, argues that I should not apply the threshold test for the grant of an interim injunction laid down in Cyanamid[1]- of whether there is a serious question or issue to be tried - but should instead reject this application in limine unless I am satisfied that it is more likely than not that Harpur will succeed at trial[2]. She submits that, on the evidence before me, I should not be so satisfied in relation to any of the relevant issues (other than that of constructive dismissal, which she does not invite me to consider at this stage). Alternatively, she argues that I ought - at the least - to take the merits (or lack of them) of Harpur's case into account when exercising my discretion. She also submits that damages would, on the facts of the present case, be an adequate remedy for Harpur, and that the balance of convenience is, in any event, in favour of the injunction being refused.
Background
Harpur
The background to this dispute, as it appears from the first witness statement of Harpur's Finance Officer, Mr Day, is as follows. The claimant company, Le Puy Limited, trades as Harpur Recruitment. Harpur is a recruitment agency whose business is the supply of temporary workers to warehousing, construction and logistics-based businesses. Its offices are in Milton Keynes. Mr Day established the business in 1994 as a sole trader. It was incorporated in 2008 and, in 2011, Mr Day's "life partner", Ms Nichols, became the sole shareholder and director.
Mr Potter's role
Mr Potter joined Harpur in June 2012. He was made a director in October 2012, and was given a 30% shareholding in December 2012. A further 5% shareholding was allocated to him in September 2013.
Mr Day and Mr Potter divided the business between them. Mr Day worked mostly from home, dealing with accountants, invoicing, payroll and other financial matters. Mr Potter, by contrast, dealt with the customers - both the temporary staff, and the businesses to which Harpur supplied them. He would make weekly site visits to each of Harpur's customers, where he would have face-to-face meetings with supervisory staff, management staff and (occasionally) with directors who had the authority to decide which recruitment agency to use. He would also have regular conversations with Harpur's temporary workers, as most of them would come to Harpur's office at the end of each week, or telephone Mr Potter seeking work. In Mr Day's words, Mr Potter was "in effect the face of Harpur".
Harpur's business
Ordinarily, Harpur would place approximately 150 to 350 staff per week (although that figure could vary widely from time to time throughout the year). In the year ending May 2014, it had an annual turnover of approximately £4 million. At the end of 2014, Harpur had a staff of seven people, including Mr Day. Harpur has a relatively small customer base. Approximately 95% of its revenue comes from just four customers. One customer - Hobbycraft Trading Ltd ("Hobbycraft") - accounts for 40% of turnover. The other three major customers of Harpur are Greetings International UK Ltd ("Anker"), Clipper Logistics plc ("Clipper"), and UK Mail Ltd ("UK Mail").
The market in which Harpur operates is very sales driven, with probably about 200 recruitment agencies operating in the Milton Keynes area. Competition is fierce, long-term supply agreements with recruitment agencies are rare (although Harpur has a 12 month contract with Hobbycraft, which was due for renewal in January 2015), and (in Mr Day's words) "there is a great deal of value placed by customers .. in the relationships they have with individual sales persons with whom they deal, the relationships often having developed and solidified over many years .. [P]ersonal connections are of paramount importance".
Mr Potter's resignation
The second defendant ("Abstract") was incorporated on 14 October 2014. On Sunday, 16 November 2014, Mr Potter emailed Mr Day, informing him that he was resigning from Harpur with immediate effect. That email stated
I have been reflecting on my current position, both with Le Puy and in my personal life and have concluded that I am unable to continue working as I am, and will not be returning to work next week.
My health is my biggest consideration and as you are aware I have a cardiac condition which gives me cause for concern each and every day. I know my own limits, and I'm no longer prepared to sacrifice my health for any prize. You know I have not been sleeping for months now, but I am constantly "on-call" as I have been telling you, I can no longer cope with the pressure of working at Le Puy ..
.. I hope you can see it from my point of view and that we can part on good terms.
I spent time with Hayley on Friday, she has all client details and client expectations for bookings. I am unable to assist with any client contact as I feel on the verge of a breakdown, I am an emotional wreck and need time out. I cannot even face talking to anyone, be it at work or at home ..
In the days following Mr Potter's resignation, Mr Day contacted Hobbycraft, Clipper, Anker, UK Mail and a number of other customers. It is Mr Day's evidence that, in the course of these contacts, he learned that Mr Potter was now working for Abstract (despite the suggestion in Mr Potter's 16 November 2014 resignation email that he was too unwell to work), and that Abstract was a competing business which was supplying (or attempting to supply) temporary workers to Harpur's customers. Mr Day also learned that Kim Johnson, who had been Contracts Coordinator at Harpur until her resignation on 25 October 2014, was now working with Mr Potter at Abstract. Ms Johnson had given as one of her reasons for leaving Harpur that she could no longer work with Mr Potter.
The solicitors' correspondence
On 28 November 2014 Harpur's solicitors wrote to Mr Potter, referring to Mr Potter's duties as a director and to the restrictive and confidential information covenants in the Alleged Contract. That letter asked Mr Potter to give undertakings, and recommended that he should take legal advice. Mr Potter responded by email sent on 2 December 2014, asking for further time to respond (which was granted). On 5 December 2014 Mr Potter sent a further email, rejecting the notion that he owed duties as a director, and saying "as regards to the documents that I signed as an employee, please send me a signed copy".
On 16 December 2014, Harpur solicitors sent a letter before action to Mr Potter's solicitors. Mr Potter's solicitors' response, by email sent on 17 December 2014, repeated the request for "a signed copy of the contract of employment you allege Mr Potter entered into". This action was begun by Claim Form issued on 22 December 2014. On the same date an Application Notice seeking injunctive relief was issued, supported (inter alia) by Mr Day's first witness statement.
The Alleged Contract
Mr Day's first witness statement describes how Mr Potter and he had both signed employment contracts on the same day, 16 October 2013. It also gives an explanation of why Harpur was unable to produce a signed copy of the Alleged Contract:
.. Mr Potter's contract was signed at our then offices at Bletchley Park, with each of us retaining a copy. At that time, I operated out of my own office space and stored all company documents in a four-tier filing cabinet. I place the signed contracts in sealed brown envelopes with their contents marked on the front of the envelopes. When the offices were moved to Central Milton Keynes in February 2014, I began to work from home and the filing cabinet was stored in the company offices due to space constraints at home.
When the offices were moved again in September 2014 to what are now our current premises .. the filing cabinet was positioned next to Mr Potter's desk. At that time, the contracts would still have been located in this Cabinet.
However I cannot find the signed copy of Mr Potter's or my own contract there now.
Mr Potter had the key to the cabinet. He ordinarily kept this in his drawer, however the key was left in the cabinet following his departure which leads me to believe that he had accessed the cabinet shortly before his departure.
Knowing what I now know about Mr Potter's conduct surrounding his departure from Harpur .. I believe that he has taken the signed copies in an attempt to frustrate Harpur's attempts to hold him to the terms of his contract
Mr Potter made a witness statement dated 31 December 2014 in opposition to Harpur's application. In that witness statement, he categorically denied Mr Day's account:
.. A draft shareholder Agreement and Director Service Agreement were produced on 19 November 2012 but these were never entered into ..
I have draft copies of Director Agreement and Shareholder Agreements, but these were never signed off or agreed. I was never issued with either agreement. I did not sign an employment contract at any time during my employment with [Harpur]. .. I did not sign or accept the terms of any written contract of employment with [Harpur] ..
I note that Mr Day is accusing me of having signed a contract of employment and subsequently removed this from [Harpur]'s filing cabinets. I absolutely deny this accusation. I did not sign an employment contract nor do I know of the contents of anything that was kept in the filing cabinet Mr Day refers to, or in fact which filing cabinet he is referring to. All cabinets were moved each time we moved offices. I have no idea what key Mr Day is referring to either.
Mr Potter amplified this account in his second witness statement, made on 16 January 2015, in which he said:
I have reviewed the contract of employment that has been produced by the claimant, in its claim that I signed and/or accepted its terms. Had this contract been put in front of me to sign, I would have refused to sign it until elements of it were clarified or corrected I would never have signed or agreed to a contract that in my opinion was not in my interest
That witness statement also drew attention to a number of provisions in the Alleged Contract that were either inapposite to Mr Potter's position and status with Harpur in October 2013, or were terms that it would have been contrary to Mr Potter's interests to agree. These matters, Mr Potter asserted, showed how unlikely it was that he had signed the Alleged Contact, and supported his case that he had not done so.
Shortly before this application came on for hearing, Mr Day made and served a further (third) witness statement dated 20th January 2015. This stated that:
Mr Potter's original contract of employment with Harpur, signed by him on 16 October 2013 has [now] been discovered ..
I learnt of the location of Mr Potter's signed contract on 15 January 2015, when my accountant, Sean Craven, at Anthistle Craven, called me that day to tell me he had found it in his filing cabinet
Mr Craven has also made a witness statement. In it, he describes how Mr Day had asked him to look for any copy of Mr Potter's contract, and how he had checked his firm's document management system before calling Mr Day back to confirm that he could not find one. Mr Craven then goes on to describe how, in investigating a later query from Mr Day about Mr Potter's salary, Mr Craven had at that point:
.. Checked the hardcopy payroll file .. [and] .. discovered an envelope containing the signed employment contracts for Mr Potter and Mr Day.
As the envelope was located in the 2013/14 payroll file, I presumed it had been there for some time. We would not normally hold employment contracts in payroll files hence why I had not looked there initially.
.. I can only assume therefore that the contract came into the office with a bundle of bookkeeping papers, possibly in error, and that one of my assistants must simply have filed them on the payroll file for safekeeping, not realising that we would typically scan such documents into the document management system ..
In assessing this latest evidence from Mr Day and Mr Craven, I bear in mind that it was served on Mr Potter too late to afford him any effective opportunity to investigate what is now said or to respond with further evidence of his own.
The covenants
By this application, Harpur seeks to enforce only certain of the post-termination restrictive covenants and confidential information obligations contained in the Alleged Contract. The relevant covenants are those contained in clauses 16.5.1, 16.5.2 and 18, which provide as follows:
16.5 during the period of 12 months following the date of termination of your employment you will not directly or indirectly whether on your own account or jointly or as an employee agent consultant manager shareholder direct or otherwise:
16.5.1 canvas or solicit the custom of any person firm or company;
16.5.1.1 who is then; or
16.5.1.2 who you know or ought to know was at any time during the period of one year prior to the date of termination aforesaid
a customer or client of any branch office of [Harpur] from which you were actively employed at any time during the one year preceding the termination of your employment for the supply of services
16.5.1.3 which are competitive to those then supplied: and
16.5.1.4 which belong to the same generic class of those supplied at any time during the period of one year prior to the date of termination aforesaid in each case by [Harpur] or
16.5.2 deal with such a customer for the supply of such services as each case are described in clause 16.5.1
18.2 you undertake at all times after the termination of your employment to keep secret and not to use any information obtained by you during the course of your employment which is of a confidential nature and of value to [Harpur] including without limitation:
18.2.1 secret business methods of [Harpur] and confidential lists, and particulars of
18.2.2 persons registered with [Harpur] at the date of termination of your employment for the purposes of obtaining temporary or permanent work who have worked for [Harpur] or been introduced by [Harpur] to a permanent employment position within the six months prior to termination of your employment.
18.2.3 any person firm or company to whom within the six months prior to the date of termination of your employment [Harpur] has supplied or on whose behalf at the date of termination of your employment [Harpur] is recruiting temporary and/or permanent staff
whether or not in the case of documents they are, or were, marked "Confidential".
The test
Against the background which I have briefly summarised above, I now turn to consider Ms Meech's submission that I should not apply the threshold test for the grant of an interim injunction laid down in Cyanamid, but should instead reject this application in limine unless I am satisfied that it is more likely than not that Harpur will succeed at trial.
As Lord Diplock observed in NWL v Woods[3], the Cyanamid approach "was not dealing with a case in which the grant or refusal of an injunction at that stage would, in effect, dispose of the action finally in favour of whichever party was successful on the application, because there would be nothing left on which it was in the unsuccessful party's interest to proceed to trial". As Staughton LJ explained in Lansing Linde v Kerr[4]:
If it will not be possible to hold the trial before the period for which the plaintiff claims to be entitled to an injunction has expired, or substantially expired .. Justice requires some consideration as to whether the plaintiff would be likely to succeed at trial. In those circumstances is it is not enough to decide merely that there is a serious issue to be tried ..
In the present case, however, the only covenants which Harpur is asking the Court to enforce are expressed to last for 12 months from the termination of Mr Potter's employment. On the assumption that Harpur accepted Mr Potter's resignation on 16 November 2014 as immediately effective, those covenants (assuming them to be binding) will expire in mid-November 2015. It appears to be common ground that there could and should be a speedy trial of the issues relating to liability in this action in April 2015, which will probably result in a judgment in April or May 2015. That will leave some five (or perhaps six) months of these 12-month covenants still to run.
In my judgment, that sort of timetable does not make the Cyanamid approach inapplicable. My decision on this application will not "in effect dispose of the action finally". Nor will the relevant covenants, by the time of judgment after trial, have "substantially expired". The preliminary question that I must ask myself therefore remains whether there is a serious question to be tried.
Even so, it seems to me that Ms Meech is right in her alternative submission, at least to this extent: that the fact that Mr Potter vehemently contests the fundamental basis of Harpur's claim to enforce these covenants, and that any interim order that I might make will (unless discharged in the interim) have the effect of enforcing that hotly contested claim for approximately half of the covenant period, is a consideration which I ought to, and will, bear in mind when I come to consider the balance of convenience.
A serious question to be tried
The Alleged Contract
Ms Meech in any event submits that the evidence presently before the Court fails to establish that there is a serious question to be tried in relation to the Alleged Contract. She submits that Harpur's initial inability to produce a signed copy, the inconsistencies and improbabilities in the account given by Mr Day and Mr Craven of the belated discovery of what is now alleged to be a signed copy, the inconsistency between the signature on that alleged signed copy and Mr Potter's signature on his witness statements and other documents before the Court, the many inapposite provisions in the terms of the Alleged Contract, the overall probabilities as set out in Mr Potter's second witness statement, and all the circumstances of the case, clearly show that Harpur's case on this point is likely to fail.
I have given each of these points careful consideration: but I am nevertheless satisfied that, on this question, there is a serious question to be tried. In those circumstances, it is right that should I say no more about Ms Meech's points than is strictly necessary to explain the basis of my decision.
In my judgment, the evidence of Mr Day and of his accountant, Mr Craven - even taking all of Ms Meech's criticisms into account, individually and collectively - is not so obviously incredible that I can reject it at this stage. It establishes a sufficiently good arguable case to satisfy the Cyanamid threshold test. Beyond that, I cannot – and need not – go. Unless and until disclosure takes place, and Mr Day, Mr Craven and Mr Potter are all cross-examined, it is simply not possible for the Court to form any concluded view as to where the truth on this issue may lie. There may perhaps be explanations for any inconsistencies in Mr Day's and Mr Craven's accounts (and the fallibility of human memory[5] means that it is not unknown for wholly honest witnesses to give evidence that is inconsistent with that of other honest witnesses, or even with other parts of their own testimony). There is material, even in the evidence presently before the Court, which might perhaps be used to test Mr Potter's own credibility. There may perhaps be explanations (including simple mistake or inadvertence) for the inclusion in the Alleged Contract of apparently inapposite and/or disadvantageous provisions. There may perhaps be reasons, not yet explored (or fully explored) in evidence, for one or other of the witnesses not to tell the truth. It would be wrong for me, at this stage, to speculate further. As for the suggested inconsistency in the signature on the recently produced copy of the Alleged Contract, it is not so immediately obvious as to permit me – who am not an expert in the examination of questioned documents – to form any useful view, one way or another. These are all matters for trial, not for this interim application. As Lord Diplock stated in Cyanamid[6]
.. It is no part of the court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial ..
The enforceability of the restrictive covenants
Assuming, therefore, that the Alleged Contract binds Mr Potter, I now turn to the issue of the enforceability of the restrictive covenants contained within it, and to consider Ms Meech's submission that Harpur has failed to establish, even to the required preliminary standard, that the covenants which it wishes the Court to enforce are not void as unlawful restraints of trade.
There was no dispute between Ms Meech and Mr Delehanty (who appeared for Harpur) as to the relevant law on this point. As is stated in Chitty on Contracts[7], all covenants in restraint of trade are prima facie unenforceable at common law, and are enforceable only if they are reasonable with reference to the interests of the parties concerned and of the public. Unless the unreasonable part can be severed by the removal of either part or the whole of the covenant in question, its inclusion renders the covenant or the entire contract unenforceable. The doctrine of restraint of trade is probably one of the oldest applications of the doctrine of public policy.
Both sides agreed that the basic principles of law that I should apply in deciding whether these particular sub-clauses in this particular contract were "reasonable with reference to the interests of the parties concerned and of the public" were accurately stated by Sir Bernard Rix in his judgment in Coppage v Safety Net Security Ltd[8] as follows:
"(1) Post-termination restraints are enforceable, if reasonable, but covenants in employment contracts are viewed more jealously than in other more commercial contracts, such as those between a seller and a buyer.
(2) It is for the employer to show that a restraint is reasonable in the interests of the parties and in particular that it is designed for the protection of some proprietary interest of the employer for which the restraint is reasonably necessary.
(3) Customer lists and other such information about customers fall within such proprietary interests.
(4) Non-solicitation clauses are therefore more favourably looked upon than non-competition clauses, for an employer is not entitled to protect himself against mere competition on the part of a former employee.
(5) The question of reasonableness has to be asked as of the outset of the contract, looking forwards, as a matter of the covenant's meaning, and not in the light of matters that have subsequently taken place (save to the extent that those throw any general light on what might have been fairly contemplated on a reasonable view of the clause's meaning).
(6) In that context, the validity of a clause is not to be tested by hypothetical matters which could fall within the clause's meaning as a matter of language, if such matters would be improbable or fall outside the parties' contemplation.
(7) Because of the difficulties of testing in the case of each customer, past or current, whether such a customer is likely to do business with the employer in the future, a clause which is reasonable in terms of space or time will be likely to be enforced. Moreover, it has been said that it is the customer whose future custom is uncertain that is 'the very class of case against which the covenant is designed to give protection . . . the Plaintiff does not need protection against customers who are faithful to him' (John Michael Design plc v Cooke [1987] 2 All ER 332, 334).
(8) On the whole, cases in this area turn so much on their own facts that the citation of precedent is not of assistance."
According to Mr Day, the proprietary interest which these covenants were designed to protect was Harpur's trade connection with its customers: the personal connection built up by Mr Potter with Harpur's customers while Mr Potter was working for Harpur.
In my judgment, the evidence presently before the Court establishes the existence of that proprietary interest, at least to the required preliminary standard of a serious question to be tried. In addition to Mr Day's account (which I have summarised above) Mr Potter's own account of his role in his first witness statement seems to me to be particularly telling:
.. Mr Day would not employ any other consultants, so it fell to me to build and maintain the relationships we had with clients .. In addition to attending weekly client meetings, I was available 24 hours a day and would often take calls from clients who needed last minute bookings for staff filled .. I had a very good relationship with my clients and it was understood that I was the reason they most of them would use [Harpur]'s services ..
I therefore turn to the issue of whether Harpur has made out a sufficient case that these covenants are no wider than was reasonably thought necessary, at the time of the Alleged Contract, to protect that proprietary interest.
In relation to clause 16.5.1[9], which prohibits Mr Potter from canvassing or soliciting customers, Ms Meech submits that it is unnecessarily wide, because it applies to the whole operation of those customers, including branches or depots in far-flung part of the UK which have never dealt with Harpur. Ms Meech submits that, in this sector of industry, each branch is responsible for hiring its own temporary staff. In her submission, therefore, even if Harpur has a connection with branch A of a particular company that it may be entitled to protect, it can have no such connection with branch B of that company, unless it (through Mr Potter) has also dealt specifically with branch B.
This aspect of the matter is not fully explored in the evidence[10]. However, even assuming the factual basis of this submission to be correct, the answer to it would seem to me to lie (at least for present purposes) in the terms of sub-clause 16.5.1.3. That limits the restriction to "the supply of services which are competitive to those then supplied". It seems to me to be well-arguable that the "then" in this sub-cause refers back to the period of "one year preceding the termination of your employment" in the immediately preceding part of the clause: and that sub-clause 16.5.1.4, which follows, indicates that sub-clause 16.5.1.3 is not referring merely to the type of services, but is adding in the filter of competition with the particular services supplied during that earlier period. If that be right, it is well-arguable that, properly interpreted, clause 16.5.1 will only prohibit the supply of services to branches with which Harpur had dealt in the 12 months prior to termination.
I do not need to, and do not attempt to, decide this point of interpretation finally now. It is sufficient for me to say that I am satisfied that, on this point, there is a serious question to be tried.
In relation to clause 16.5.2[11], which prohibits "dealing", Ms Meech submits that this is unnecessarily wide, because it effectively stops customers from making even an unsolicited choice to deal with Mr Potter – an agent that they like and have dealt with for a number of years - rather than with Harpur. The expression "deal with" is in any event too vague and wide to be enforceable.
Again, I do not need to, and do not attempt to, decide this point finally now. It is sufficient for me to say that I am satisfied that, on this point also, there is a serious question to be tried. The expression "deal with" appears in the restrictive covenants considered in a large number of reported cases, and I am not aware of any previous suggestion that it, of itself, produces too wide a restriction, if the class of persons with whom such dealing is prohibited is properly limited. After all, it is the customer whose future custom is uncertain that is the very class of customer against which the covenant is designed to give protection.
For completeness I should add that, although I have only dealt in this brief judgment with the points specifically argued by Ms Meech, I have also considered in this connection the other aspects of these covenants that bear on the issue of whether Harpur has established to the necessary preliminary standard that they are no wider than was reasonably thought necessary, at the time of the Alleged Contract, to protect Harpur's proprietary interest. Those include: the temporal limit on the customers covered; the limitation to customers of the offices at which Mr Potter was actively employed; the limitation to actual customers; the definition of the business covered; and the limitation of the covenants to 12 months.
The enforceability of the confidential information provisions
Clause 18 of the Alleged Contract[12] includes within the definition of "Confidential Information":
.. particulars of
18.2.2 persons registered with [Harpur] at the date of termination of your employment for the purposes of obtaining temporary or permanent work who have worked for [Harpur] or been introduced by [Harpur] to a permanent employment position within the six months prior to termination of your employment.
18.2.3 any person firm or company to whom within the six months prior to the date of termination of your employment [Harpur] has supplied or on whose behalf at the date of termination of your employment [Harpur] is recruiting temporary and/or permanent staff
Ms Meech submits that the contact details of customers and employees cannot, as a matter of law, amount to confidential information. In support of that submission, she invites my attention to the following passage from the judgment of Neil LJ in the well-known case of Faccenda Chicken v Fowler[13]:
In our judgment the information will only be protected if it can properly be classed as a trade secret or as material which, while not properly to be described as a trade secret, is in all the circumstances of such a highly confidential nature as to require the same protection as a trade secret eo nomine. The restrictive covenant cases demonstrate that a covenant will not be upheld on the basis of the status of the information which might be disclosed by the former employee if he is not restrained, unless it can be regarded as a trade secret or the equivalent of a trade secret: see, for example, Herbert Morris Ltd. v. Saxelby [1916] 1 AC 688, 710 per Lord Parker of Waddington, and Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472, 1484 per Megaw L.J.
We must therefore express our respectful disagreement with the passage in Goulding J.'s judgment .. where he suggested that an employer can protect the use of information in his second category[14], even though it does not include either a trade secret or its equivalent, by means of a restrictive covenant. As Lord Parker of Waddington made clear in Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 709 .. a restrictive covenant will not be enforced unless the protection sought is reasonably necessary to protect a trade secret or to prevent some personal influence over customers being abused in order to entice them away.
In our view the circumstances in which a restrictive covenant would be appropriate and could be successfully invoked emerge very clearly from the words used by Cross J. in Printers & Finishers Ltd v Holloway [1965] 1 WLR 1, 6 ..
"If the managing director is right in thinking that there are features in the plaintiffs' process which can fairly be regarded as trade secrets and which their employees will inevitably carry away with them in their heads, then the proper way for the plaintiffs to protect themselves would be by exacting covenants from their employees restricting their field of activity after they have left their employment, not by asking the court to extend the general equitable doctrine to prevent breaking confidence beyond all reasonable bounds."
Mr Delehanty, in response, relied upon the later Court of Appeal decision in Lansing Linde v Kerr[15] and, in particular, upon the following passage from the judgment of Staughton LJ (with whom Butler-Sloss LJ agreed)[16], which sheds light on what the Court of Appeal really meant in Faccenda:
It appears to me that the problem is one of definition: what are trade secrets, and how do they differ (if at all) from confidential information? Mr. Poulton suggested that a trade secret is information which, if disclosed to a competitor, would be liable to cause real (or significant) harm to the owner of the secret. I would add first, that it must be information used in a trade or business, and secondly that the owner must limit the dissemination of it or at least not encourage or permit widespread publication.
That is my preferred view of the meaning of trade secret in this context. It can thus include not only secret formulae for the manufacture of products but also, in an appropriate case, the names of customers and the goods which they buy. But some may say that not all such information is a trade secret in ordinary parlance. If that view be adopted, the class of information which can justify a restriction is wider, and extends to some confidential information which would not ordinarily be called a trade secret.
By way of riposte, Ms Meech submitted that, on the fact of this case, the contact details of Harpur's customers could not be confidential, since the main switchboard number of each of them was readily and publicly available, and simply calling that publicly available main number and asking to speak to the person responsible for hiring temporary staff would result in being put through to the correct person, without the need for any knowledge of who that person was or how they could be contacted directly.
Again, this aspect of the matter is not fully explored in the evidence: and I am not clear that the factual basis of Ms Meech's submission is properly made out. However, even if Ms Meech's factual propositions were correct, it would not necessarily follow that details of the correct person to speak to for particular types of temporary worker and/or details of how to contact that person directly would not be of sufficient value to Harpur (and, thus, to a competitor of Harpur) to fall within Staughton LJ's expanded definition of the kind of "trade secret" that it is possible in law to protect. It seems to be to be well-arguable that there is value to a recruitment agency in knowing, in advance of making contact, the name of the particular person that they should be speaking to and how to make contact with that person directly. If recruitment agencies saw no value in this information, why would they collect it?
On the facts of this case, Mr Day's evidence is that Mr Potter used his own personal mobile telephone for Harpur's business (an allegation supported by the reference in Mr Potter's 16 November 2014 resignation email to the "Company Blackberry (which doesn't work)"). According to Mr Day, this personal mobile telephone (which Mr Potter, as he was entitled to, kept after his resignation) contained as stored contacts the details of Harpur's customers and of the temporary workers with whom Mr Potter dealt on Harpur's behalf. Mr Day also asserts (though this is strongly disputed by Mr Potter) that Mr Potter also took away with him a number of registration packs, containing details of new temporary staff seeking placements through Harpur.
In the circumstances of this case, it seems to me to be well arguable that the matters covered by these covenants satisfy each of the three limbs of Staughton LJ's definition. In particular, it seems to me to be well arguable that they would be liable to cause real (or significant) harm to Harpur, if disclosed to a competitor, by giving that competitor a real practical advantage in its attempts to compete with Harpur, by comparison with the position that the competitor would have been in but for the disclosure. I do not need to, and do not attempt to, decide the point finally now. It is sufficient for me to say that I am satisfied that, on this point as well, there is a serious question to be tried.
Summary
For these reasons, I am satisfied that Harpur has shown a sufficiently arguable case on each of the matters which it has to establish in order to make out its case against Mr Potter to establish that there is, on each of those matters, a serious question to be tried.
It follows that I must now go on to consider whether an injunction is justified, and whether damages, rather than an injunction, would be an adequate remedy for Harpur, and thereafter to consider in the round the balance of convenience.
Is any injunction required?
Mr Potter, in his evidence, admits that, on about 5 November 2014 (and therefore while he was still a director of and employed by Harpur), he passed to Abstract some work from Clipper that ought to have gone through Harpur. Otherwise, he denies the factual basis of all of the breaches of covenant alleged against him, stating that:
I have not carried out any work for any clients of [Harpur] following my resignation, nor has [Abstract]. I wholly disagree with [Harpur]'s allegations that I have solicited these clients, or that I have solicited business away from it.
Ms Meech submits that Mr Day has been prone, in his evidence, always to put the worst possible construction on the limited information that he has about Mr Potter's activities; that Mr Day's evidence is therefore insufficient for me to be satisfied (in the face of Mr Potter's denials) that any actual breaches have occurred after the termination of Mr Potter's employment; and that, in those circumstances, Harpur has not made out (in the face of Mr Potter's disavowal of any intention to act wrongfully) a sufficient case that any injunctive relief is required.
I do not accept that submission. Quite apart from Mr Day's evidence (which, in my judgment, itself establishes a sufficient prima facie case), it seems to me that I can I any event infer from the undisputed circumstances of the case that Mr Potter sufficiently "threatens and intends" to do things which an injunction in the terms sought would forbid, to justify the grant of such an injunction. Those circumstances include: (i) the fact that he diverted work to Abstract while still employed by Harpur; (ii) the fact that, on leaving Harpur, he immediately went to work for a newly set-up competing business; (iii) the fact that he did not tell Mr Day about what he was going to do, but instead sent the 16 November 2014 email, which gave the misleading impression that he was too ill to work; and (though this is of less significance, given Mr Potter's denial that he is bound by the Alleged Contract) (iv) the fact that has refused to offer any undertaking not to solicit Harpur's clients, though invited to do so.
Would damages be an adequate remedy?
In Sunrise Brokers v Rogers[17] (also a case involving the enforcement of post-termination restrictive covenants, though in a very different industry), Underhill LJ pointed out that:
.. In a case of this kind there are evident and grave difficulties in assessing the loss which an employer may suffer from the employee taking work with a competitor: even where it is possible to identify clients who have transferred their business (which will not always be straightforward ..) there may be real issues about causation and the related question of the length of the period for which the loss of the business could be said to be attributable to the employee's breach. If the sums potentially lost are large they will not be realistically recoverable from the employee in any event ... There may be other intangible but real losses to the employer's reputation.
Most of those considerations seem to me to be applicable to the facts of the present case. Ms Meech submitted that the present case was distinguishable from Sunrise Brokers, because the small number of Harpur's principal customers meant that it would be straightforward for Harpur to calculate its losses; those losses would not be large; and (unlike the position in Sunrise Brokers) there is a claim against Abstract as well as against Mr Potter, both of whom are within the jurisdiction. However, in my judgment, that analysis over-simplifies the position. Harpur has only a small number of principal customers: but the evidence suggests that its overall number of customers is larger. In the case of any given customer that takes its business away from Harpur, or reduces the volume of business that it puts through Harpur, it may be difficult or impossible for Harpur to establish whether that is attributable to any given breach of covenant by Mr Potter, or is just an unrelated fact of business life. In the words of Underhill LJ, there may be real issues about causation and the related question of the length of the period for which the loss of the business could be said to be attributable to the Mr Potter's breach. There may also be other intangible but real losses to Harpur's reputation.
I am therefore satisfied that damages would not be an adequate remedy for Harpur.
The balance of convenience
Finally, I come to the balance of convenience. That is a shorthand expression to describe a wide-ranging concept. The underlying principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other[18]. As Lord Diplock stated in Cyanamid[19]
.. It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them. These will vary from case to case.
Where other factors appear to be evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo. If the defendant is enjoined temporarily from doing something that he has not done before, the only effect of the interlocutory injunction in the event of his succeeding at the trial is to postpone the date at which he is able to embark upon a course of action which he has not previously found it necessary to undertake; whereas to interrupt him in the conduct of an established enterprise would cause much greater inconvenience to him since he would have to start again to establish it in the event of his succeeding at the trial.
Mr Potter is not shown as a director of, or shareholder in, Abstract. Mr Potter's evidence (which Mr Day does not accept) is that he is simply an employee. However, even if Abstract is (as Mr Potter says) an independent third party, it seems to me that it would be right also to take the effect of the injunction on Abstract into account as part of this exercise.
The Court is therefore required to balance the effect of any injunction on Mr Potter's ability (both during the injunction and afterwards) to earn his living, and on Abstract's business, set up in October 2014 (both during and after the period of the injunction), against the effect on Harpur's business (set up in 2008) of the refusal of an injunction. In both cases, the decision may have reputational consequences, and may indirectly affect others not party to this action, including the employees of the two companies (other than Mr Day and Mr Potter), and the customers and temporary workers who deal with either or both of these competing companies.
My decision to grant or refuse the injunction sought will inevitably cause some irremediable prejudice to one or other side. As indicated in paragraph 23 above, I take fully into account the fact that Mr Potter vehemently contests the fundamental basis of Harpur's claim, and that any interim order that I might make will (unless discharged in the interim) have the effect of enforcing that hotly contested claim for approximately half of the covenant period.
However, on balance, it seems to me that the harm to Harpur from refusing the injunction would be likely to be greater than the harm to Mr Potter and to Abstract from granting it over until a speedy trial in April. Harpur has the established and subsisting relationship with its customers. If injunctive relief is refused, and Mr Potter is allowed wrongly to take those customers away to Abstract (if he can), it would be hugely disruptive and perhaps impossible for those relationships to be re-established by Harpur, were Harpur later found to be in the right. The customers would be quite likely, at that point, to resent Harpur for causing them the inconvenience of being obliged to cease to deal with Mr Potter and Abstract, and might well not be prepared to return to Harpur. By contrast, Mr Potter's venture with Abstract is a new one. The effect of the injunction will simply be to delay for a short time its efforts to acquire Harpur's customers for itself. That, of course, may also cause some loss to Mr Potter and to Abstract: but, in the nature of things Abstract cannot yet be as dependent as Harpur upon Harpur's customers.
Subject to the points dealt with below concerning the form and scope of my Order, I therefore propose to grant the injunction sought by Harpur, and to give directions designed to lead to a speedy trial in April 2015 on all issues other than those relating to causation and quantum of loss.
The undertaking in damages
For the reasons already given, it seems to me that Harpur's undertaking in damages should extend (as it presently does) to cover any losses that Abstract (or any other person) may suffer. It must, of course, cover any losses suffered by Mr Potter himself.
Ms Meech submits that I should require Mr Day to give a personal guarantee to reinforce Harpur's undertaking. However, Harpur's audited annual accounts and latest management accounts show it to be a solvent company, with a turnover in the year to May 2014 in excess of £4 million, and net assets as at 31 December 2014 of over £270,000. It is difficult to assess Mr Potter's and Abstract's likely losses from the grant of the injunction. Mr Potter does not deal with this issue in his evidence. However, doing the best that I can, I am satisfied that those losses are unlikely to exceed Harpur's ability to pay. After all, as Mr Delehanty submitted, Abtract's losses are in the nature of things likely to be mirrored (albeit inexactly) in Harpur's profits.
I therefore decline to require Harpur to reinforce its undertaking at this stage.
Provision of information
The draft Order filed and served by Harpur for the purposes of this hearing seeks, in paragraphs 6 to 12, orders requiring Mr Potter (in summary) to deliver up any documents containing "Confidential Information", and to swear Affidavits explaining the use to which he has put any such information.
The foundation of the jurisdiction to grant such a disclosure order, and the considerations which a Court should take into account in deciding whether to grant such an order, were helpfully discussed by Mackay J in Aon Ltd v JLT Reinsurance Brokers[20], and by Slade J in Landmark Brickwork Ltd v Sutcliffe[21]. It appears from those cases that a Claimant, such as Harpur, is entitled to the Court's assistance in order to obtain "information which is required either to assist in giving effect to the injunctory relief, or to assist them in undoing the harm which has been unlawfully done"[22]. However, it is also clear that the Court must be careful not:
.. to subvert the normal accusatorial basis of our litigation, where the horse precedes the cart, into an inquisitorial one starting from an assumption that guilt has been proved, and saying to the defendants, 'Tell us everything you and others have done which was wrong.' [when] all that has been shown to date is a good arguable case, no more and no less. ..[23]
In my judgment, the orders sought in paragraphs 6(a) and (b) of the draft (which are limited to documents) are justified, on the facts of this case, on the basis described in paragraph 63 above. The order sought in paragraph 6(c), to the extent that it is limited to Abstract and to First Call Contract Services Limited (a company whose involvement in the story is already described in the evidence), and the further orders sought in paragraphs 8 to 12 are all, in my judgment, also justified on that basis. I am therefore prepared to make orders in the terms sought in those paragraphs, suitably amended to limit paragraph 6(c).
Beyond that, however, the orders sought in paragraphs 6 and 7 of the draft seem to me to infringe the principle quoted above, and I therefore decline to make them.
Conclusion
For these reasons, I will make orders in the terms of the draft filed and served by Harpur for the purposes of this hearing, suitably amended to accord with the terms of this judgment.
I am grateful to both counsel for their submissions. I invite them to agree a Minute of Order giving effect to this judgment, and including directions for a speedy trial in April 2015 of all issues except those relating to causation and quantum of loss.
My provisional view is that, given the centrality of the dispute as to the signing of the Alleged Contract, the costs of this application should be reserved to the judge who hears the trial in April and who will decide that issue. However, that is only a provisional view, and I will hear submissions on the terms of the Order and/or on the incidence of costs, if any of those matters cannot be agreed.
Note 1 American Cyanamid Co v Ethicon Limited [1975] AC 396 [Back]
Note 2 NWL v Woods [1979] 1 WLR 1294. [Back]
Note 3 [1979] 1 WLR 1294 [Back]
Note 4 [1991] IRLR 80 at 83. See also Lawrence David Ltd v Ashton [1989] ICR 123 at 135, per Balcombe LJ; and CEF Holdings Ltd v Mundey [2012] EWHC 1524, [2012] IRLR 912. [Back]
Note 5 See Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm) at [15] to [22], per Leggatt J. [Back]
Note 6 American Cyanamid Co v Ethicon Limited [1975] AC 396 at 403H. [Back]
Note 7 (31st ed) para 16-076. [Back]
Note 8 [2013] EWCA Civ 1176, [2013] IRLR 970 at [15]. [Back]
Note 9 Set out in paragraph 18 above. [Back]
Note 10 As Ms Meech correctly points out, paragraph 14 of Mr Day’s first witness statement identifies the particular sites from which Harpur’s customers operate, and paragraph 42 of Mr Potter’s witness statement explains that he wishes to contract with Clipper “though not at any site to which the Claimant has to my knowledge ever supplied staff”. There is also a reference to “Clipper Milton Keynes” in an email dated 18 November 2014, and an email dated 20 November 2014 signed by the “Milton Keynes Site Manager” of UK Mail. These references all suggest that at least some of Harpur’s customers have branches in different locations, and are not inconsistent with Ms Meech’s submission that each branch is responsible for its own hiring. However, these isolated references fall short of a full discussion of the issue, and are insufficient for me to form any firm view on the point.. [Back]
Note 11 Set out in paragraph 18 above. [Back]
Note 12 Set out in paragraph 18 above. [Back]
Note 13 [1987] 1 Ch 117 at 137F. [Back]
Note 14 Goulding J. at first instance had defined three classes of information: (i) information which, because of its trivial character or its easy accessibility from public sources of information, cannot be regarded by reasonable persons or by the law as confidential at all; (ii) information which the servant must treat as confidential … but which once learned necessarily remains in the servant's head and becomes part of his skill and knowledge; (iii) specific trade secrets so confidential that, even though they may necessarily have been learned by heart and even though the servant may have left the service, they cannot lawfully be used for anyone's benefit but the master's. [Back]
Note 15 [1991] 1 WLR 251. [Back]
Note 16 [1991] 1 WLR 251 at 259-260 (emphasis added). [Back]
Note 17 [2014] EWCA Civ 1373 at [53]. [Back]
Note 18 See eg R v Secretary of State for Transport, Ex p Factortame Ltd (No 2) (Case C-213/89) [1991] 1 AC 603 at 682–683, per Lord Jauncey; cited and applied in National Commercial Bank Jamaica Ltd v Olint Corpn Ltd [2009] UKPC 16, [2009] 1 WLR 1405 at [19], per Lord Hoffmann. [Back]
Note 19 American Cyanamid Co v Ethicon Limited [1975] AC 396 at 408F-H. [Back]
Note 20 [2009] EWHC 3448 (QB); [2010] IRLR 600. [Back]
Note 21 [2011] EWHC 1239 (QB); [2011] IRLR 976. [Back]
Note 22 See Aon at [22] and Landmark at [63]. [Back]
Note 23 Aon at [26]. [Back] |
HHJ Richard Parkes QC :
On 28 January 2015 I struck out the Claimant's claim on the application of the First and Third Defendants, with costs. These are my reasons for making that order.
The application was made by the UK trading arm of the retailer Primark, Primark Stores Limited ('Primark'), which is the first defendant, and by Primark (UK) Limited ('Primark UK'), the third defendant, which is a non-trading company and has been dormant since 1998. Both companies are part of the Associated British Foods plc group. The claimant, Liberty Fashion Wears Ltd ('Liberty'), was informed of Primark UK's dormant status in August 2014, but the claim was nonetheless served on it. However, no claim was advanced against Primark UK in the Particulars of Claim. Invitations to discontinue the claim against Primark UK have not been productive.
Appearances notwithstanding, the second defendant has no connection with the Primark group, and was not represented on the hearing of the application. No claim was advanced against it in the Particulars of Claim, and no notice of discontinuance has been filed.
The application is for an order that the claim be struck out and judgment entered for Primark and Primark UK on the basis that the claimant's claim for libel is an abuse of process, and on the basis that no cause of action is disclosed as against Primark UK.
There is an alternative application for security for costs. I need say no more about that.
Liberty is a Bangladeshi company. Until 2013, it was a supplier of garments to a number of major Western retailers, including Primark. It is not clear whether or not it is still a going concern. There was a suggestion in the letter of claim that as at July 2014 it had ceased production.
THE BACKGROUND
I take this account of the background to the litigation from the first witness statement of Neil Blake, a senior associate solicitor with Herbert Smith Freehills LLP ('HSF'). No evidence has been put in by Liberty. I am conscious that some of Mr Blake's evidence might have been in dispute had Liberty put in evidence of its own, but most of his account is amply supported by documentary evidence.
The starting point is the disastrous collapse in April 2013 of a factory building in Bangladesh called the Rana Plaza. Over a thousand people were killed.
In response to that disaster, Primark and a number of other retailers with manufacturing links to Bangladesh formed the Accord on Fire and Building Safety in Bangladesh ('the Accord'), which provided for a regime of inspections and (if necessary) remedial works with a view to ensuring the safety of factory buildings in the Bangladeshi garment industry. The Accord obliged its signatories to cease doing business with suppliers who refused to co-operate with the regime.
Given that it was bound to take some time for the Accord to become fully operational, some of the signatories immediately launched into a series of factory inspections. One of them, Tesco, appointed a company called Medway Consultancy services (MCS) for that purpose. One of the factories that MCS inspected belonged to Liberty. Following two inspections, on 4 June 2013 MCS produced a preliminary report which concluded that one of Liberty's factory buildings, Building 2, was only just able to support its own weight, and that in certain respects it was more than 80% above its safe loading capacity. In short, it was potentially very unsafe.
Tesco shared the report with Primark and the conclusions of the report were notified to Liberty. On 8 June 2013 Primark demanded that Building 2 be evacuated immediately, given the potential dangers to workers. According to Mr Blake, Liberty refused. It arranged instead for its own inspection to take place. This was carried out by the Bangladesh Garment Manufacturers and Exporters Association ('BGMEA'), which reported on 10 June that it had inspected a Liberty building (it is unclear which building is referred to, but it appears from the context to have been Building 2), had observed no structural distress, and reported that from a visual inspection the building was safe. However, it did not appear that any calculations of the building's load bearing capacity had been carried out, or that MCS' calculations were challenged.
Primark did not consider that the BGMEA survey was sufficient to dispel the concerns raised by MCS, and on 10 June repeated its insistence that Building 2 be evacuated.
On the same day, Mr Mozammel Huq, Liberty's chairman and managing director, wrote to Tesco to say that he accepted the advice of MCS and would undertake the recommended remedial work. Yet according to Mr Blake's evidence, on the following day, 11 June, Mr Huq refused to agree to a plan for remedying the defects in the building put to him during a meeting attended by representatives of Primark, Tesco and MCS. In particular, he would not agree to the provision in the plan for the immediate evacuation of Liberty employees, at least without assurances of financial support from those present, notwithstanding that Primark and Tesco undertook to assist Liberty in relocating work from Building 2 to other buildings to ensure continuity of production. Mr Huq's stance was unacceptable to Primark.
So it was that on 12 June 2013 Primark wrote to Liberty cancelling all outstanding contracts and making clear that it would not conduct business with Liberty while workers were working in a building that was unsafe. Tesco did the same.
On 17 June 2013 Primark issued a press release which outlined its position. The press release was posted on its website, and is the first publication complained of in these proceedings. It read as follows:
"Statement on Liberty Fashions
Following the Rana Plaza disaster, Primark announced on 5 June it had begun its own inspections of buildings housing its suppliers in Bangladesh. This programme is in advance of the company's intention to implement the Accord on Building and Fire Safety.
As part of this programme, Primark has been advised that Liberty Fashion Wear Ltd (sewing unit) is housed in an unsafe building. Primark immediately asked the owners of Liberty Fashion to evacuate the building, and offered support on this basis. To date, Liberty has failed to evacuate the premises and is refusing to do so.
Following further discussions with Liberty, trade unions, the ILO and the BGMEA, Primark was left with no alternative but to terminate its relationship with this supplier with immediate effect. The company bought a relatively small amount of clothing from this supplier, but termination is a step that the company is always reluctant to take, preferring to support suppliers willing to make improvements to working conditions.
The company has informed the Ethical Trading Initiative in London of its decision.
The company remains extremely concerned about the safety of workers in this building."
No objection was made by Liberty to the press release until 28 July 2014.
On about 21 June 2013 Liberty evacuated its workers from Building 2. At about the same time, it commissioned a report on the structural soundness of the building from the Bangladesh University of Engineering and Technology ('BUET'), which in its report dated 29 June concluded that parts of the structure of Building 2 were inadequate and that appropriate strengthening and retrofitting measures were required to make it safe. The report recommended that loadings should be reduced until the necessary remedial measures were taken, and that the building should only be used 'cautiously' for current operations.
Tesco and Primark were unable to accept the 'cautious' use of Building 2, given the risk that structural failure might occur without warning.
Even though Primark had ceased to do business with Liberty, it seems that it (and other customers of Liberty) continued to take steps to assist Liberty with a variety of proposals designed to ensure that it remained operational, including appointing and paying for specialist consultants and providing contingency funding, on condition that Liberty engaged with the process of making the building safe. Mr Blake's evidence is that Liberty was largely uncooperative, and that there were indications that it was in a precarious financial position. That information was derived from a draft report dated 13 September 2013 by Robin Grant FCA, who was engaged on behalf of a number of Liberty customers. It showed not only that, as would have been expected, the closure of Building 2 had caused a fall in production, with consequent cash flow difficulties, but also that Liberty had debts of nearly $21 million, monthly interest charges of $150,000 and serious issues of corporate governance, financial controls and accounting practices to be addressed.
Primark and other companies which had dealt with Liberty had requested that it provide a full remedial plan for Building 2 by 15 September 2013. It did produce a plan on or around 16 September but, to Primark's alarm, suggested that the building was safe to use even though the repairs had not been completed. At about the same time, Liberty was both asking for the help of Accord members to pay workers' wages, and warning of likely employee unrest, and publishing an advertisement in the 23 September issue of the Bangladeshi Daily Star newspaper which attacked Tesco and MCS, the building surveyors, and demanded huge compensation for the losses caused by being forced to close Building 2.
In response to those attacks, on 2 October 2013 the Accord published a statement in the New Nation newspaper in Bangladesh. On 14 October 2013 the same statement was uploaded to the Accord website. The publication of the statement on the Accord website is the second publication complained of. It reads as follows:
"Liberty Fashion Wears Ltd
The Accord on Fire and Building Safety was set up to ensure real and sustainable improvements to working conditions in the Bangladesh garment industry are implemented effectively. As part of the programme, we are inspecting factories covered by The Accord in order to identify safety and fire hazards that pose immediate risks to workers.
At Liberty Fashion Wears Ltd, Tesco, Debenhams, Primark and Li & Fung reacted following a structural inspection of the factory and found that Unit 2 (the main sewing unit) was in danger of collapse and workers were in grave danger. The factory agreed to close Unit 2 on 9th June 2013 and brands mentioned along with K-Mart (Australia), Target (Australia) and Carrefour gave substantial financial support to Liberty Fashion Wears Ltd to ensure workers were paid for July and EID bonuses. By 20th September 2013, work on Unit 2 had not yet been undertaken suggesting that the Company is unwilling to take any steps or present any plan to repair the building, despite several months of encouragement.
The Accord fully supports its members in their dealings with the factory and believes that they have acted responsibly throughout this case, prioritising the safety of workers and offering financial and expert support to factory management to help them address the issues. It is regrettable that factory management have not been willing to address the issues they face despite the support. We believe it would be dangerous to allow workers to return to work in Unit 2. The Accord will be working with the brands involved, relevant authorities including the BGMEA and local trade unions to ensure the best possible outcome for the workers in the factory, including the payment of all outstanding wages, overtime payments, benefits and severance pay.
Signatory companies shall make reasonable efforts to ensure that any workers whose employment is terminated as a result of any loss of orders at a factory are offered employment with safe suppliers, if necessary by actively working with other suppliers to provide hiring preferences to those workers."
Liberty did not complain of publication of the Accord statement in the New Nation newspaper. No complaint was made to Primark about the Accord website publication until 28 July 2014.
According to Mr Blake, no further progress was made by Liberty with plans to make the building safe, and in early November 2013, the Accord recommended a full withdrawal and cessation of business by Accord retailer signatories.
THE PROCEEDINGS
On 28 July 2014 solicitors acting for Liberty sent Primark UK a lengthy letter before action, enclosing a copy claim form issued on 13 June 2014.
The letter complained of the Primark press release of 17 June 2013, and of the publication of the Accord statement on the Accord website (but not in the New Nation newspaper in Bangladesh). It also complained of a number of allegedly defamatory statements said to have been published by Primark and republished in newspapers or on newspaper websites. It did not attempt to set out the defamatory meanings of which Liberty complained.
The claim advanced in the letter before action consisted of a claim for special damages of just under £13 million, together with what were described as exemplary and punitive damages. The special damage claim was remarkably unparticularised, but it consisted of seven categories, each of which stated a figure for loss in Bangladesh Taka (BDT), said to have been caused 'as a result of Primark's defamatory statements and breaches':
(1) Losses for cancellation of orders: 175,957,923 BDT
(2) Losses for preventing production in Building 2: 142,209,510 BDT
(3) Expenses for emergency production reorganisation: 10,148,510 BDT
(4) Interest accruing on liabilities: 121,378,401 BDT
(5) Wages and Salary, Utility Bills and Maintenance Expenses: 160,625,996 BDT
(6) Losses in recovery of full production capacity: 1,139,213,674 BDT
(7) Reorganisation expenses for Building 2: 3,517,400BDT.
Given that (as explained below) no special damage claim was pleaded in the particulars of claim, and none has been forthcoming since, it is unnecessary to consider it further, but Mr Blake's suggestion in evidence that any financial loss was caused not by the words complained of but by Liberty's own actions, has some cogency. It is not immediately obvious how, for instance, losses caused by the cessation of production in Building 2, or the cost of wages and maintenance, could be said to have been caused by the words complained of, as opposed to legitimate, and non-actionable, pressure on Liberty to take steps to protect its workers.
No claim was made in the letter before action for general damages or for an injunction.
On 19 September 2014 Primark responded in detail through their solicitors, HSF. The response was a firm and carefully reasoned rejection of the Liberty claim.
On 13 October 2014, four months from issue of the claim form, the claimant served particulars of claim, relying on publication of the 17 June press release on Primark's website (primark.com) and on the publication by the Accord of its statement, for which Primark was said to have been responsible, and on what appeared at least arguably to be an allegation of liability for republication by third parties of the words complained of. The meanings pleaded were (as far as the Primark press release was concerned) that Liberty had in flagrant disregard for the safety of its workers refused to evacuate them from a building which it knew to be unsafe and where they were in mortal danger, and (in the case of the Accord statement) that in flagrant disregard for the safety of its workers Liberty first put them in grave peril by placing them in a factory unit in danger of collapse and then, despite being given substantial financial support, proved itself unwilling to take any steps or present any plan to repair the building, even though it would be dangerous to allow workers to return to it.
There was now no special damage claim, the prayer seeking only general damages and an injunction, neither of which had been sought in the letter before action.
However, by an application notice dated 13 October, Liberty sought an extension of time for filing and serving particulars of its claim to special damages. The witness statement in support of the application candidly revealed that documentary evidence in support of Liberty's alleged right to special damages had been sought from Liberty but had not yet been provided. In the light of the focus on special damage in the letter before action, that was surprising.
Liberty's application was compromised on terms that it would have until 27 October 2014 to file and serve particulars of its claim to special damages. It was also agreed that the deadline for filing and serving the defence would be extended until 24 November 2014, so that Primark would be able to provide a consolidated pleading dealing both with the existing particulars of claim and with any further particulars of special damage.
In the event, no further particulars were filed or served by Liberty on 27 October. No explanation was given for that failure, nor did Liberty seek any retrospective extension of the deadline. It appears that Liberty has done nothing further to suggest any intention of serving particulars of claim to special damage.
Indeed, on 3 December 2014 Liberty's solicitors informed Primark that they had ceased to act in the proceedings. No new legal advisers have been appointed by Liberty, which has not provided Primark with a new address for service. It has, to Primark's knowledge, no place of business or residence within this jurisdiction.
The present application was issued on 21 November 2014, and was served together with a draft order and Mr Blake's first statement on Liberty's then solicitors. It is reasonable to assume that the solicitors will have informed the claimant of the nature of the application, because at that stage they were still on the record. The date of the application was fixed on 4 December by Primark's counsel's clerk, but no representative of Liberty attended. Nonetheless Primark has, in my judgment, done everything possible, by all means available to it, to inform Liberty of the hearing date. One of the means employed, using what Mr Blake in his second witness statement refers to as the 'third email address', seems likely to have been successful in informing Liberty of the date and timing of the hearing.
On 27 January 2015 HSF received an email from Mr Mozammel Huq, the chairman and managing director of Liberty, in which Mr Huq said that the decision had been made to withdraw the claim against Primark. He stated that in the absence of his solicitor it was not possible for him to continue the claim in the United Kingdom, and that after the closure of his business he had become unwell and had been unable to come to this country to prosecute the claim. He went on to explain that he had no funds to continue the claim, and asked HSF 'to direct us the procedure to withdraw the claim earliest possible'. Mr Blake responded by informing Mr Huq that in view of the pending hearing, the proposal was to place his email and Mr Blake's reply before the court, and to invite the court to strike out the claim and enter judgment for Mr Blake's clients.
THE APPLICATION
Liberty's claim is limited to publication within the jurisdiction. Liberty is, as I have said, a Bangladeshi corporation, engaged in the manufacture of garments in Bangladesh. There is no suggestion in the particulars of claim or elsewhere that it has any, or any substantial, reputation in this jurisdiction, although it has had customers in this country, including Tesco and Debenhams, as well as Primark.
The particulars of claim allege 'enormous' publication of the words complained of in this jurisdiction. Among the matters relied upon by the claimant is the fact that the 17 June press release is available on Primark's website, primark.com, and that the Accord statement is available on the Accord website, bangladeshaccord.org.
Mr Blake addresses these claims for very substantial publication in his first witness statement, and makes a number of points.
Firstly, he says, the statements complained of are stored amongst numerous other press releases, in reverse chronological order. He plausibly suggests that in all the circumstances it is highly unlikely that they are the subject of any continuing substantial publication.
More importantly, there has been technical analysis of the extent of publication of the 17 June press release. Two Google Analytics reports were obtained, covering the period 13 June 2013 to 11 November 2014.
According to Mr Blake, the first report comprises data on the number of page views of the webpage URL which (as pleaded at paragraph 4 of the Particulars of Claim) displayed the 17 June press release. The press release was not in fact displayed on that URL until about 6 May 2014, and indeed the Primark website which now hosts the press release, Primark.com, was not set up at all until October 2013. However, the report shows a total number of 151 page views of the relevant web page. The report does not show the number of page views within England and Wales, although it is a reasonable inference that there will have been considerably fewer than 151. Moreover, it appears that there were no page views at all until an unspecified date between some point after April and July 2014, after which there was a surge of activity up to and after October 2014. The lack of activity until after April 2014 appears to confirm that the press release was not in fact displayed on the pleaded web page until a date on or around 6 May 2014.
According to Mr Blake's evidence, the second report provides data on the number of page views of a webpage URL for a separate website, the Primark-Bangladesh.com website, within the period 13 June 2013 to 11 November 2014. The press release was hosted on this URL before it was put up on the Primark.com website to which I have already referred. The second report shows a total number of 70 page views of the web page hosting the 17 June press release, only 21 of which appeared to have been views from users within this jurisdiction. That said, there is no pleaded complaint in respect of publication via this URL. In the case of this web page, there was no activity until September/October 2013, when there was a spike of activity, after which there was a more substantial surge of renewed activity in the period March/April to October 2014.
Mr Blake makes the point that it is apparent from the data analysis in both reports that a substantial proportion of the page views coincides with the preparation of the claim form and its issue on 13 June 2014, with the letter of claim dated 28 July 2014, with the Primark response of 19 September 2014, and with the present application. Mr Blake invites the inference, which in my judgment is compelling, that a significant number of the page views were made by the parties themselves and their lawyers in connection with these proceedings. Indeed, given that the publication of the 17 June press release via the Primark.com URL, that being the only publication in respect of which there is a pleaded complaint, cannot have occurred until approximately 6 May 2014 or thereafter, it appears that there may have been no substantial publication to anyone other than the parties and their lawyers via that URL.
As regards the extent of publication of the Accord statement, a Google Analytics report has been obtained for the period 14 October 2013 to 12 November 2014. This report contains page view data relating to the webpage URL hosting the text of the Accord statement, which in turn contains a link to the URL containing an embedded PDF of the statement in respect of which Liberty complains at paragraph 7 of the particulars of claim. It appears that page views of the PDF of the statement were not tracked. Given that the route to the PDF lies through the URL hosting the text of the statement, it would be reasonable to suppose that few readers would have accessed the PDF separately, although Mr Blake concedes that it might be possible for a web user to find the PDF by a web search. Be that as it may, the report shows a total number of 749 page views of the URL which hosts the text of the statement, 152 of which appear to amount to publication within this jurisdiction.
Mr Blake notes that given that the words comprising the Accord statement were first published in the Bangladeshi newspaper the New Nation on 2 October 2013, it is a reasonable inference that any publication in this jurisdiction of the same words on the Accord website is likely to have been very substantially less than publication in Bangladesh, where Liberty is based and presumably has a reputation to defend. As I have said, no complaint was made by Liberty in connection with the publication in New Nation.
It should be noted that the particulars of claim refer, in support of the contention that publication was 'enormous', to a number of other media publications which are said to have reported the 'stance' taken by Primark and the Accord. It is unclear whether the intention is to allege that the publications (referred to at paragraphs 5.4 and 8.4 of the particulars of claim) amounted to re-publications of or were in some other way caused by the publication of the 17 June press release and the Accord statement.
If so, there are serious difficulties with that contention. One is that the 17 June press release was not available at the URL complained of at paragraph 4 of the particulars of claim until about 6 May 2014, so could not have caused the publications pleaded at paragraph 5.4, which predate May 2014. The same difficulty arises with an article pleaded at paragraph 8.4.1 of the particulars of claim, which was published before the date of online publication of the Accord statement. There is a further objection to the case on re-publication, if that is what it is. It appears from the evidence of Mr Blake, who exhibits the relevant publications, that they do not in fact repeat the words complained of. It seems to me that Mr Blake is right to characterise them as part of broader news coverage of events in Bangladesh following the Rana Plaza disaster, the creation of the Accord, and the steps taken by members of the Accord to improve workers' safety in the garment industry.
DISCUSSION
The jurisdiction invoked by Primark is now well established. The two developments which had made the courts readier to entertain submissions that pursuit of a libel action might be an abuse of process were explained by the Court of Appeal in Jameel v Dow Jones Inc [2005] EWCA Civ 75, [2005] QB 946 at [55]:
"The first is the introduction of the new Civil Procedure Rules. Pursuit of the overriding objective requires an approach by the court to litigation that is both more flexible and more proactive. The second is the coming into effect of the Human Rights Act 1998. Section 6 requires the court, as a public authority, to administer the law in a manner which is compatible with Convention rights, in so far as it is possible to do so. Keeping a proper balance between the article 10 right of freedom of expression and the protection of individual reputation must, so it seems to us, require the court to bring to a stop as an abuse of process defamation proceedings that are not serving the legitimate purpose of protecting the claimant's reputation, which includes compensating the claimant only if that reputation has been unlawfully damaged."
The Court of Appeal explained the jurisdiction in these terms in Tamiz v Google Inc [2013] EWCA Civ 68, [2013] 1 WLR 2151 at [49], referring to Jameel v Dow Jones Inc:
"In the Jameel (Yousef) case the Court of Appeal upheld an application to strike out as an abuse of process defamation proceedings against the publisher of a US newspaper in respect of an article posted on an Internet website in the USA which was available to subscribers in England but had been the subject of minimal publication within this jurisdiction. The court considered that the principles relevant to a strikeout application overlapped with those relevant to an application to set aside permission to serve out of the jurisdiction. It was in the latter context that the question whether "a real and substantial tort has been committed within the jurisdiction" had been developed, but the court considered that the question whether a substantial tort had been committed in the jurisdiction was also relevant to an application to strike out as abuse of process. It held that keeping a proper balance between the article 10 right of freedom of expression and the protection of individual reputation required the court to bring to a stop, as an abuse of process, defamation proceedings that were not serving the legitimate purpose of protecting the claimant's reputation, which included compensating the claimant only if that reputation had been unlawfully damaged. The court went on to consider whether, on the facts of the case before it, vindication of the claimant's reputation justified the continuance of the action. It concluded [2005] QB 946, paras 69–70:
69. If the claimant succeeds in this action and is awarded a small amount of damages, it can perhaps be said that he will have achieved vindication for the damage done to his reputation in this country, but both the damage and the vindication will be minimal. The costs of the exercise will have been out of all proportion to what has been achieved. The game will not merely not have been worth the candle, it will not have been worth the wick.
70. If we were considering an application to set aside permission to serve these proceedings out of the jurisdiction we would allow that application on the basis that the five publications that had taken place in this jurisdiction did not, individually or collectively, amount to a real and substantial tort. Jurisdiction is no longer in issue, but, subject to the effect of the claim for an injunction that we have yet to consider, we consider for precisely the same reason that it would not be right to permit this action to proceed. It would be an abuse of the process to continue to commit the resources of the English court, including substantial judge and possibly jury time, to an action where so little is now seen to be at stake."
In Cammish v Hughes [2012] EWCA Civ 1655, [2013] EMLR 13, the court described as 'illuminating and convenient' Eady J's formulation in the ground-breaking decision of Schellenberg v BBC [2000] EMLR 296. Eady J had held that, in deciding whether defamation proceedings should be struck out as an abuse of the process of the court, the relevant question was whether 'the game was worth the candle', and could not accept 'that there (was) any realistic prospect of a trial yielding any tangible or legitimate advantage such as to outweigh the disadvantages for the parties in terms of expense, and the wider public in terms of court resources'.
There is no doubt that the jurisdiction should only be exercised in clear cases.
The following factors are particularly relevant in this case to the exercise of the jurisdiction.
(1) Publication within the jurisdiction of the words complained of in the Primark press release was small. There were 151 page views worldwide of the press release, of which it is likely that a smaller number were published within the jurisdiction, together with 21 (unpleaded) page views on a different website. The 151 page views all seem to have taken place after 6 May 2014, 11 months after the press release was first posted on a different website. The fact that this activity took place at the very time that Liberty was preparing proceedings against Primark, issuing those proceedings and corresponding with HSF, and at the time when HSF was responding to the claim, gives rise to a very strong inference that most, if not all, of the page views on the website complained of were published to the parties and their lawyers, and not to third parties whose opinion of Liberty might have been affected by what they read.
(2) Publication of the Accord statement was also small. There were 152 page views of the Accord statement within the jurisdiction, and possibly a few more. After an initial surge of interest when the statement was first made available, usage at a low level continued fairly consistently up to the end of the period covered by the report (November 2014). No doubt a substantial number of those page views, but by no means all, can reasonably be attributed to usage by the parties and their advisers.
(3) Liberty has not suggested that it knows of any individual within the jurisdiction who read the words complained of.
(4) Liberty made no complaint of publication of the Accord statement in the New Nation newspaper in Bangladesh, where its reputation must chiefly have resided.
(5) Liberty made no complaint about either the Primark press release or the publication of the Accord statement on the Accord website until 13 months and 10 months respectively after they were first made available, despite the fact that for the first few months, at least, the parties were in constant contact. It is trite that a claimant who is genuinely concerned about the publication of defamatory words will wish to move swiftly to vindicate his good name. If the claimant chooses to wait many months before making a complaint, and then fails to explain why the complaint has not been made sooner, there must be a question mark over the genuineness of the claimant's desire for vindication.
(6) The vindication which Liberty is to be presumed to have sought by the issue of these proceedings could only be a vindication of its trading reputation in England and Wales. But its particulars of claim do not assert any trading reputation within the jurisdiction. Presumably any such reputation would have been limited to the UK garment importers with which it did business. Its solicitors admitted in correspondence that it ceased trading by 28 July 2014, a state of affairs which (absent a special damage claim) cannot be said to have been caused by publication of the words complained of.
(7) The costs of litigating the issues concerning the state of Liberty's buildings and the history of the exchanges between Liberty, Primark and other Accord members would be very substantial. Primark incurred some £103,000 in legal costs in dealing with and responding to Liberty's claim (without taking into account the costs of this application). That is not an altogether surprising amount given the very detailed and thorough responses sent by HSF to Liberty's solicitors in answer to the claim. It is plain that a very substantial amount of work was required – Mr Blake explains that some 1250 documents were reviewed in preparing the response - and I have no doubt that litigating Liberty's claim, even if it is confined (as at present it is) to a claim for general damages, would be a lengthy and expensive business. It is implicit (although not, I think, stated in terms) in Mr Blake's evidence that there would be a defence of justification, which would plainly involve a very substantial disclosure exercise. Mr Blake envisages also a substantial amount of witness evidence from those with direct involvement in dealing with Liberty. He states that Primark considers that its legal costs of defending the claim could foreseeably reach £1 million.
(8) Whether or not that is over-pessimistic, there is no doubt that Primark's costs will vastly exceed any sum which Liberty, as a foreign company with no reputation of substance to protect in this jurisdiction, might expect if successful to receive by way of general damages.
There is, in short, a huge disproportion between the likely time and cost of litigating this claim, and the likely outcome in terms of the damages which Liberty would, if successful, be awarded. In my judgment the court is entitled to take into account also the fact that Liberty first advanced what on the face of it was a greatly inflated and implausible special damage claim, and then abandoned that claim without explanation, replacing it instead with a claim for general damages and an injunction, neither of which remedy had been sought or even referred to in the letter before action. It is difficult, in the circumstances, to place much weight on the claim for an injunction, even though the words complained of remain (albeit far from prominently) on the respective websites. To borrow Eady J's words, I cannot see that there is any realistic prospect of a trial yielding any tangible or legitimate advantage such as to outweigh the disadvantages for the parties in terms of expense, and the wider public in terms of court resources.
Recent developments support that conclusion. Mr Blake's third witness statement exhibits an email to HSF dated 27 January 2015 from Mr Mozammel Huq, the chairman and managing director of Liberty. In that email, Mr Huq says this:
"Because we have decided to withdraw the claim against your client. In the absence of our solicitor it is not possible for me to continue the claim in UK. After closure of our business I became very sick and unable to come UK to continue the claim as well as we have no fund to continue the claim in UK. In this regard you are requested to direct us the procedure to withdraw the claim earliest possible."
Mr Blake responded that in his clients' view the quickest and most cost-efficient way to bring the proceedings to an end was to strike them out, and that with that in view he would put the correspondence before the court. That was done, and Mr Helme submitted that in the circumstances, even if Liberty's proceedings had not been an abuse before, 'the process of the court should not be used in a case where the need has gone away' (Cammish v Hughes at [56]). I agree.
As far as Primark UK is concerned, there is no pleaded case against it in the particulars of claim. Liberty appears to accept that, as Mr Blake's evidence shows, it is a dormant company which played no part in the publication of the words complained of. On any view, the claim against it must be struck out. |
Sir Robert Nelson :
On 27 April 2009 the Claimant, then aged 57, suffered a stroke. This was caused by the condition of infective endocarditis from which the Claimant had been suffering, and which had remained undiagnosed. She claims that had the three Defendants, General Practitioners at the West Street Surgery, Chipping Norton, not acted negligently they would have considered infective endocarditis as a possible cause of her presentation, and would have investigated her appropriately and/or referred her to hospital immediately for investigation and treatment. Had this been done and the condition discovered, the Claimant contends that the stroke would have been avoided.
The essence of the Claimant's case is that each Defendant failed to heed what he or she was told about the symptoms which should have been suggestive of infective endocarditis, or alternatively, that each failed to ask the appropriate questions to elicit such symptoms. The Defendants contend that no such symptoms were reported to them by the Claimant, nor were any such symptoms reasonably apparent, and no duty to ask any further questions than those that they asked, arose. There is a considerable factual dispute as to what account of her symptoms the Claimant gave to each of the Defendants and what symptoms she was suffering from, or was likely to have been suffering from on the occasion of each consultation.
I am asked to deal with the issues of liability and causation, damages having been agreed between the parties.
The background facts
The Claimant is a married woman, the mother of four grown up children, and lives with her husband in Chipping Norton. She is a woman of great energy and determination. Prior to her health problems she worked as a teaching assistant, dinner lady, caretaker and cleaner at a school in Chipping Norton for 26 hours a week, and also did private cleaning work in the evenings. She was a member of a local running club and regularly used to run ten miles on a Sunday, 4 – 6 miles on a Tuesday and 3 – 4 miles on a Thursday. She took part in the London Marathon. She was also a keen swimmer and gave swimming lessons, and played badminton. She was also a committee member of the local League of Friends.
However in 2005 she was diagnosed as suffering from aortic valve disease and referred to the John Radcliffe Hospital. Her condition was managed until 11 August 2008 when her aortic valve was replaced with a biological tissue valve. Apart from the fact that the replacement valve started to narrow, the operation was successful and the Claimant was told that it would take her about 12 months to recover fully from the operation. She was able to return to work after about 6 months, though did not continue with the private cleaning or the swimming lessons. She returned to jogging in January 2009 when she felt she was recovering. She managed up to about 2 miles or so jogging and walking and kept this up even though she did not feel she was really improving.
From February through until her stroke on 27 April 2009 however the Claimant describes her condition as deteriorating. Her running stamina suddenly disappeared in February when she had to stop after running about 150 yards. Her muscles were pulling and felt as if they would just not work. She was forced to join the walkers in the running group rather than the runners. Her walking speed slowed, she experienced pain in her legs, particularly the left. She suffered hot flushes even though her menopause had ended some 8 years earlier and had to strip off her clothes to cool down. She sweated both day and night and her running partner, and friend, Catherine Sole said that she had told her that her night sweats caused her to change her pyjamas two or three times a night. The Claimant's husband, Robert McCabe, said that she suffered severe sweats at night; they were very apparent and occasionally she had to change her night clothes.
The Claimant's GP at the West Street Surgery was Dr Jane Pargeter who was a fellow member of the same running club as the Claimant and in whom the Claimant had confidence. She saw Dr Pargeter on 10 February 2009 and 3 March 2009. She did not know whether her difficulties with running had commenced before the February consultation but they had by 3 March 2009 and she thinks she would have raised this with Dr Pargeter. She accepts that she did not mention sweats or night sweats at that time. Dr Pargeter's note refers to the Claimant wanting to lose a bit more weight and get fitter. The Claimant accepts that she would have told Dr Pargeter if anything was troubling her.
The Claimant's evidence is that her condition worsened in March and her family and friends persuaded her that she could not wait for Dr Pargeter's return from Australia.
By the end of March the Claimant said that she was suffering from leg pain, difficulty in walking, sweats as if she had the menopause, flu like symptoms and was feeling progressively unwell, a pattern which continued and worsened until the time of her stroke.
The Claimant's account of the deterioration in her health was supported, subject to some inconsistencies, by her husband Robert McCabe, her daughter Philippa McCabe, her sister Doreen Wilson, and her friend Catherine Sole. The witnesses' recollections as to when the Claimant's health started to deteriorate and which problem emerged first were not identical, but all were clear that they started after Christmas 2008. Philippa McCabe noticed deterioration in her mother with inability to walk any distance, flu like symptoms and her complaining of hot flushes in January 2009 whereas the other witnesses thought the problems commenced in February 2009, as the Claimant herself said in evidence. Some thought that the leg pains came first, others that the sweats and hot flushes came first. Mr McCabe accepted that he was not clear as to the precise timing of the onset of symptoms though he thought it was about February 2009, the sweats being in early February before the leg pains. Doreen Wilson thought that the symptoms started in February and had noted that this was the time that the Claimant had become unwell in her diary. She thought that the sweats started a few weeks before the leg pain but both started by the end of February.
What these witnesses were clear about was the extent to which the Claimant became unwell and the progressive nature of the deterioration. Mr McCabe described his wife as someone who was always a "busy bee"; she was enormously involved in so many things. After her symptoms commenced she became weaker and lost enthusiasm for other activities. Indeed she became distressed by any form of physical activity. Initially he had thought that the leg pain was a reaction to starting to run again prematurely. He thought that the sweats were obviously the menopause but his wife told him that she had ceased the menopause many years before. He wondered about the heart valve but felt reassured by the visit to Dr Moore; they had done what had to be done by the visit to the doctors and Mrs McCabe had to soldier on. When she saw Dr Fisher and kidney stones were talked about Mr McCabe thought that they were home and dry. "You've got what they say" he thought with relief. He described his wife as very stubborn and obstinate and if she didn't feel that something was life threatening she would try to continue as normal. Thus she carried on with her work, albeit with the help of her sister and using the car or being driven because of her difficulties in walking. Mr McCabe was so concerned about her health that he thought they were going to lose her.
Philippa McCabe described her mother's condition of leg pain, sweats, flushes and general tiredness as being the complete opposite of what was normally the case. Furthermore her mother complained of leg pain which was unusual as she was normally completely stoic. Her leg pain became worse, her walking deteriorated and she became lethargic. Philippa McCabe felt that something was taking over her body. She said that by 6 April her mother was increasingly worse. She had never seen her look poorly before; she was very tired and walking was an issue. It was, Philippa McCabe said, obvious that something very drastic was going on.
Catherine Sole described the Claimant's health deteriorating across April. The Claimant's walking tolerance reduced to 20 yards before the pain in both legs became intolerable. Her family and friends persuaded her to go to see the GP which she did at the end of March. Catherine Sole also noted that the Claimant's memory had become poor after the stroke so that she accompanied her to see doctors as she couldn't always remember what the doctors had told her.
Doreen Wilson described the Claimant as struggling to walk. They belonged to a shared Thursday Club but the Claimant had lost her exercise tolerance and could not keep up. She continued to suffer menopause like symptoms and sweats. Her condition was worse across April when she appeared to be "just fading away". She phoned Dr Pargeter on 28 April 2009 to describe to her the weeks of deterioration that the Claimant had suffered. She regarded all of the Claimant's symptoms as being very worrying.
The Credibility of the Claimant
The Defendants obtained surveillance evidence on the Claimant. It demonstrated, the Defendants contended that the Claimant was able to do more in her daily life after the stroke than she had been telling the examining doctors. The total claim put forward on her behalf amounted to about £1M in total. After the Defendants surveillance video evidence was served quantum was agreed in the sum of £150,000. The Defendants, in their written opening, sought to put the video evidence before the court on the basis that it was relevant to the issue of credibility, and hence liability, as well as on the issue of quantum. At the commencement of the trial I indicated that I considered such evidence was in principle relevant to the issue of credibility and could and should be viewed by the Judge if the Defendants decided to adduce it.
Jane Mishcon, counsel for the Defendants cross-examined the Claimant on the contents of the surveillance video without showing it to her or the court with the consent of the Claimant's counsel. The Claimant explained that her ability to deal with daily life had indeed improved more than expected but this was because of the content of one of the medical reports which spelled out what her life would be like at 65, 70 and 80 on the then prognosis. When she read what it said would happen to her at 70 she said that she was not prepared to accept that, and didn't want it, so she tried to get her confidence back. It was her courage which had made her improve, increase her confidence and, together with her painkillers, increased her mobility.
After hearing the Claimant give evidence the Defendants' counsel decided not to request the court to view the video or put it to the Claimant. In her closing submissions, both written and oral Ms Mishcon abandoned any attack on the Claimant's credibility and indicated that they were a very nice family doing their best to recollect when the symptoms began. Their recollection that severe and significant symptoms began in February 2009 was incorrect but it was not submitted that it was untruthful.
Having heard the Claimant and her family and friend give evidence I am entirely satisfied that the Defendants were correct to abandon any attack on the Claimant's credibility or that of her witnesses. I formed the clear view that they were decent honest people seeking to give the court as accurate an account of what had happened as their recollections would permit.
The Consultations
Dr Moore – 30 March 2009
The Claimant was not a regular patient of Dr Moore; she had seen him before as a patient but not for a long time. They did know each other however because Mrs McCabe was a committee member of the League of Friends Committee at the Community Hospital in Chipping Norton and Dr Moore was a Medical Member of that Committee.
The Claimant's recollection is that they spent some time talking about the League of Friends. She was feeling very ill by the end of March and recalls telling him that she found it difficult to walk and to run and had pain in her legs. She told him that she was having sweats as if it was the menopause again and also had flu like symptoms. Dr Moore knew that she was a runner and asked about the pain. She tried to explain that it was not a running pain nor a running injury.
Dr Moore's notes read as follows:
"30.3.2009
West St. Surgery
Dr Jonathan Moore First
E: Leg Pain
S: Odd pain which started as shooting pain in L thigh down to foot and is now a more localised soreness over shin, no clear cause and lasted only 24 hours.
Rx: Naproxen Tablets 250 mg
P: Trial of NSAIDs, W & S, review INB"
Dr Moore's evidence was that the Claimant made no complaint to him of any symptoms other than those relating to her leg. He said that he did not recall her making any reference to the menopause and did not know where in such a consultation she would have brought in such a reference. As far as he could recollect in the flow of conversation it did not happen. Had such symptoms been mentioned he would have had to have asked a lot more questions to clarify what she was saying as he was aware of the fact that sweating was a sign of infective endocarditis in someone with an artificial valve. His memory however was that she talked merely about leg pain. As far as he could hear the Claimant was able to mount the steps to his room without difficulty.
Mr McCabe said that he spoke to his wife after her visit to Dr Moore and quizzed her about what had happened. She said that she had mentioned night sweats to Dr Moore and her legs and that Dr Moore had told her it was to do with her running and that she was probably over doing the exercise. Philippa McCabe however said that her mother told her that all she told Dr Moore about was her leg pain as did Catherine Sole.
In his witness statement and in his evidence Dr Moore said that he considered that the Claimant's leg pain, in so far as the shooting pain down to the foot was concerned, was sciatica, although he had made no reference to this in his note. It is also inconsistent with his description of the pain being "odd" and having "no clear cause" though he explained that in evidence as relating solely to the localised soreness over the shin. Dr Barraclough, the Defendant's GP expert said that he too thought that the shooting pain was sciatic but did not state that in his report. Dr McCarthy the Claimant's GP expert, said that the entry in the notes was not consistent with sciatica.
On 18 August 2009 a Significant Event Meeting took place at the Defendant's surgery. Dr Pargeter, Dr Moore and Dr Hall were amongst those present. Such meetings are held every six to eight weeks at the practice to discuss particular patients. Mrs McCabe's case was discussed. Her leg pains were described as "peculiar" and it was felt in retrospect, i.e. with hindsight, that many of her symptoms from January had been embolic phenomena. The action point was for doctors to consider diagnosis of sub acute bacterial endocarditis in any patients with valve replacements.
Dr Fisher – 6 April 2009
The Claimant was shopping with Catherine Sole in Cheltenham on 6 April 2009 when she experienced a sudden and severe pain. The shopping trip had to be abandoned and the Claimant went home. Catherine Sole telephoned Philippa McCabe and said that she felt that her mother needed a visit from the GP. Philippa McCabe therefore called the reception at West Street Surgery. Dr Fisher was as a consequence given a message to ring Mrs McCabe which he did. His note of that telephone conversation is as follows:-
"6.4.2009
West St. Surgery
Dr Neil Fisher First
E: Telephone encounter
S: Pt has hx of renal stones. Since today onset of R flank pain. No dysuria / haematuria. No diarrhoea
Vomited once this afternoon – no blood. Able to keep small amounts of water down. Unable to make it in to be seen.
P: I will go and see ……."
Dr Fisher said in evidence that Mrs McCabe had told him that she had felt a sudden onset of pain in her flank and had vomited once due to the pain. She had volunteered that she had a past history of renal stones and informed him that her symptoms felt like the previous episodes of renal colic. He asked her questions about her kidney and bladder symptoms and noted there was no dysuria and no haematuria, nor was there blood in the vomit. Because Mrs McCabe was in too much pain to come to the surgery Dr Fisher went to see her at her home at about 6.30pm. His notes of that visit on the evening of 6 April 2009, which had to be drawn up later, are as follows:-
"8.4.2009
West St. Surgery
Dr Neil Fisher
First
E: Home visit
S: Further to above written in retrospect. When visited on evening of 6.4.9 pt now able to eat and drink with no further vomiting, pain had settled largely. Able to pass urine, no haematuria/ Dysuria. Note has naproxen for OA. No GI/ chest SX
O: Apyrexial, p 76/min, abdo SNT, no masses felt. Well hydrated, chest clear
Rx: Ciproflaxcin Tablets 500mg
P: Urine dip – tr leu and blood. Daughter to drop MSU into practice tomorrow. Imp - ?? renal stone therefore to continue naproxen and add in 10/7 Cipro, likely need urol review as second episode Will d-w snrs. Explained red light sx 2 pt and she will call if further concerns"
The evidence of Philippa McCabe and Doreen Wilson, who were present at the house when Dr Fisher made his home visit indicate that the Claimant was very unwell that day. In evidence the Claimant said that she was able to remember nothing about the consultation at her home as she was in too much pain. She was too ill to say what she told Dr Fisher she was not able to recall the conversation - "not a word". When referred to paragraph 15 of her witness statement she said she did remember telling the GP about her sweats and legs but she thought she had got appendicitis or a kidney stone. Neither Philippa McCabe, nor Doreen Wilson heard the Claimant tell Dr Fisher about leg pain. Philippa McCabe did recall her mother referring to having flushes, but not night sweats, being tired and feeling poorly whereas Doreen Wilson did not recall either night sweats or menopausal symptoms being mentioned.
Dr Fisher said that the Claimant did not tell him about having hot flushes or flu like symptoms nor about leg pains. The complaint was about a very sudden onset of pain in the flank. Had he however been given a history of feeling flushed or hot flushes he would have been concerned. He would have asked about the duration of the flushes. If he had been told they had lasted for months his response would have depended upon how she was in herself; if she was very well he would have ordered blood tests because endocarditis would have been high on the list. If however she was unwell he would have ordered an acute medical admission. If told that there had been flushes and that they had lasted a long time, he would have asked further questions.
The Claimant had in fact suffered from renal colic in October 2005 and on 12 August 2009 it was noted in the Urology Department at the John Radcliffe Hospital that a 2 mm stone was found in her bladder which was thought to represent a recently passed stone. It is not clear whether the Claimant's symptoms on 6 April were due to her renal colic or were embolic phenomena related to her endocarditis.
Mr McCabe describes the Claimant as being very ill on the night of 6 April 2009. She was having hot flushes and severe sweats with a great deal of leg pain – real pain in her legs.
Dr Hall – 14 April 2009
By this date the Claimant states that she was suffering severe pain and difficulty with both her legs and sweats and was feeling unwell. Mr McCabe describes an enormous rise in body temperature with sweating while in bed together with severe leg pain. She told Dr Hall about the pain in her legs, that the medication was not doing her any good and that she seemed to be getting more pain. She said she was suffering sweats throughout the day and night and they were just like menopausal symptoms although she had gone through her menopause years ago. In her evidence the Claimant said that she did not think that she had mentioned hot flushes but was sure that she had said sweats. After Dr Hall had examined her she spoke about her night sweats and menopausal symptoms with a sort of slight laugh. She did mention that she had gone through the menopause years ago. When it was put to her in cross-examination that she did not mention that she was unwell or that she had flu like symptoms she said she was there because she was unwell.
Dr Hall had seen the Claimant before as a patient on two occasions. On 9 February 2002 she had attended with a thigh sprain on the left side while she was training for the London Marathon.
Dr Hall said that she was told by Mrs McCabe on 14 April 2009 that her loin pain was settling but that she had pain in her left leg. She was advised to stop taking the Ciproflaxcin. Dr Hall examined her. She found that the Claimant had a slightly unusual pain but she could not elicit any serious features on examination. She felt that she was probably suffering from a muscular problem or localised inflammatory reaction. Her notes of the consultation are as follows:-
"14.4.2009
West St. Surgery
Dr Wendy Hall Review
E: Leg pain
S: OK to stop abx as no growth on MSU. Haven't been taking Naproxin because of interactions but pain lt calf continues was getting heartburn
O: V localised to top of lt calf but no swelling/erythema. Does have veins but no worse than usual
Rx: Omeprazole Capsules (Gastro – Resistant) 20mg
P: Cx Naproxin with PPI Review if worse/no better"
Although there is no reference to this in the notes Dr Hall said that she recalled that as Mrs McCabe was sitting up to get off the couch after her examination she made the comment "I don't know when these hot flushes are going to end". She made no complaint, Dr Hall said, that she was finding them particularly intrusive, nor did she imply that this was a recurrence of sweating. She understood from this that her menopausal symptoms had not yet settled which is not unusual for women in their fifties. At no point did Mrs McCabe say that she was feeling systemically unwell.
In evidence Dr Hall said that the Claimant's reference to hot flushes to her was a "throwaway remark" at the end of the consultation. Night sweats and flu like symptoms were not mentioned to her.
Dr Hall said that she might have said to the Claimant that it was not unusual for menopausal symptoms to carry on for several years, and that would have given the Claimant the opportunity to say that in her case they had stopped many years ago. Dr Hall said she did not enquire how long she had had the hot flushes for, as she had a systemically well person in front of her. She agreed in cross-examination that she did not clarify the term "hot flushes" used by the Claimant though she accepted that those could include profuse sweating. If she had been told that she had sweated every night since February she would have checked her temperature and her blood pressure but would not have regarded this as a red flag by itself, only if other signs also existed. If it was just sweats she would have arranged a blood test in a couple of days as she believed that night sweats even with an aortic value replacement was not a red flag in itself but only as a combination with other symptoms. She agreed that there was an index of suspicion of endocarditis but not that high if it was only sweats, as it could be the menopause. She did not feel that the Claimant looked like an ill patient and accepted that she was not in fact thinking of endocarditis at the time of the consultation nor when the Claimant raised "hot flushes". She took that to be the menopause lasting on for a number of years.
After her consultation with Dr Hall the Claimant said that she lost faith in the GPs and could see no point in going back to them. She did not do so even though her condition continued to get worse from day to day. Her sister made an appointment for her to see her GP again but the Claimant cancelled it. She felt they would do nothing to help her.
27 April 2009 – The Claimant's Stroke
The Claimant continued to go to work in spite of the fact that she continued to sweat profusely, had severe leg pains, difficulties with walking and felt weak and lethargic. On 27 April 2009 she collapsed at work. She felt as if she had suffered a bang on her hand, sat down and felt unable to get up. Her vision was affected and she could not read the numbers on her mobile phone but managed to phone her sister and asked her to pick her up. When Doreen Wilson arrived she found the Claimant on the floor unable to get up, with defective vision and a headache. The ambulance was called and she was taken to the A & E at Horton Hospital. The ambulance notes record what the Claimant described as having happened to her and noted the past medical history as aortic value replacement, hypotension, previous kidney stones, ongoing leg problems, bladder repair. She is recorded as saying that her GP's were investigating ongoing leg problems which caused her legs to feel heavy and her to have no control over them. It was noted on the journey her tunnel vision had slightly improved.
At the hospital it was noted that she still felt awful on admission and that her vision seemed strange. Her presenting complaint is noted as:-
"P/C
Unwell plus Palpitations
Dizzy/unsteady
Pins and needles L Arm
NO SOB, sweating, nausea, vomiting, chest pain, no headache."
Her account is noted as follows:-
"Pt at work went to put rubbish in bin, while doing so, started
to feel unwell, unsteady plus pins and needles L arm.
Denies any chest pain, nausea, vomiting, sub. Pt says
felt unable to stand unsteady with blurring of vision.
Episode lasted x 60 minutes
and still see blurred. Wear glasses for reading only.
Denies any cough/cold, dysuria or diarrhoea. "
Her Glasgow coma score was recorded as 15/15 i.e. fully conscious. The fact that she had suffered a stroke, as was later appreciated, was not diagnosed and she was sent home with a presumed urinary infection.
In spite of the fact that she had suffered a stroke and was feeling very unwell she nevertheless went to the urology appointment the following day on 28 April 2009 which Dr Fisher had arranged for her. It was found that there were still traces of blood in her urine. It was noted at the Urology Department that the Claimant had experienced colic pain, right, two weeks ago, with "No fever". Her sister, Doreen Wilson who had taken her to the urological appointment was very concerned about her condition and called Dr Pargeter. Dr Pargeter's note records that Doreen Wilson had said that she was very worried that the Claimant had ongoing pain in her legs and had collapsed last night and had been taken to Horton General Hospital where it was said that she had an infection. Her vision had gone overnight in her eyes and she was not seeing properly in either eye and had a pounding head. Dr Pargeter concluded that she needed to see her and the Claimant went to the surgery the following day.
On 29 April 2009 Dr Pargeter found that the Claimant was suffering from visual field defects, that she had felt faint and light headed at work and when she bent over she had noticed visual disturbance, tunnel like and possibly also double vision at times. She had a pounding head, and still on 29 April 2009 had a muzzy head and ongoing loss of visual field on the left. Dr Pargeter referred the Claimant to the Medical Assessment Unit at the John Radcliffe Hospital.
The admission notes record that the Claimant had been complaining of left leg pain in both calves for one month and visual problems for two days after feeling dizzy and having a funny turn. The likely diagnosis was ? stroke. Blood tests carried out the following day on 30 April 2009, showed a white blood cell count at 7.3 (normal) haemoglobin 10.0 (lower limit of normal 12) d-dimer test greater than 20,000 (upper limit of normal 500) and CRP of 30 (upper limit of normal 8).
The Claimant returned home on 30 April 2009 and was re-admitted on 2 May 2009 after a diagnosis of a further transient ischaemic attack was made. She was re-admitted for an echocardiogram on 13 May 2009 when the possibility of vegetations on the valves and a possible diagnosis of infective endocarditis was made. The trans-oesophageal echocardiogram was performed the following day on 14 May 2009.
The notes of 13 May 2009 at the John Radcliffe Medical Assessment Unit are as follows:
"PC: Nil acute, but Pt has been feeling constitutionally
unwell for in excess of one month.
HPC: night sweats on most nights since February.
Two nights ago Pt had to change five times
(Pt has completed menopause)
Denies rigors, but feels cold sometimes
Lethargy….
5 – 6 weeks Hx bilateral leg weakness"
On 14 May 2009 it was noted that the Claimant had possible splinter haemorrhages with an absent left radial pulse. The following day however it was noted that her radial pulse was easily palpable. The trans-oesophageal echocardiogram showed a very abnormal aortic valve appearance with vegetations and an abscess of the aortic route. On that day her haemoglobin was 9.6, the white blood counts 7.0, the CRP 36 and the ESR 16.
A cocktail of antibiotics was commenced on 15 May 2009. On 19 May 2009 the blood cultures demonstrated that the organism causing the infection was corynobacterium propinquum. This organism is an unusual cause of infective endocarditis and it is both unaggressive yet associated with poor outcomes.
The Onset and Progression of Infective Endocarditis
It was agreed by the microbiologists, Dr Gant on behalf of the Claimant and Professor Masterson on behalf of the Defendants, that the endocarditis would have started by 30 March 2009 at the latest.
The organism which caused the infection in this particular case was unusual. It was indolent or as described by both Dr Gant and Professor Masterson, "weedy" i.e. non-aggressive and almost incapable of causing damage except in a slow gradual way. Because the organism is so unusual precisely how it reacts is not known and it is therefore difficult to draw inferences by comparison with an ordinary organism, as to the expected progression of symptoms. Dr Gant did not agree with the proposition put to him in cross-examination that terrible leg pain, feeling unwell and night sweats from February did not fit with damage being caused in the slow and smouldering manner. A distinction must be made he said between the destruction of the organism and the body's response to that. There were many examples of organisms producing completely different responses in different patients and the Claimant's response of sweating was simply her response, even though the organism itself may have been progressing slowly.
The difficulty of drawing inferences in comparison with normal organisms is clearly demonstrated by the evidence of Dr Brecker, the Defendant's cardiologist, who said that he would have expected to see a significantly raised CPR (inflammatory marker) if endocarditis had continued for such a length of time. That is the typical response. In the Claimant's particular case however her CPR was 36 i.e. still only marginally abnormal at a time when it is beyond dispute that significant vegetations had developed together with an abscess, and that endocarditis was therefore well established. I do not consider that any safe inferences as to the Claimant's condition in February 2009 can be drawn from the inflammatory markers.
Professor Masterson said that the haemoglobin reading of 10 taken on 27 April 2009 (30 April 2009) demonstrated chronicity of infection, and expressed the view that that could mean that the condition of endocarditis had been going on for a month, from late March or longer than that. He accepted in cross-examination that the haemoglobin reading could fit with sweats having occurred from around February. He said it could do, yes.
Dr Coltart rejected the proposition that the low blood tests were not compatible with the history, stating that there is a graduation of response and it was not possible to say that it would not give rise to such a response.
There is no doubt that the endocarditis in the Claimant's case caused very substantial vegetation and an abscess. Dr Brecker and Dr Coltart agreed that the abscess, which was present takes about 4 to 6 weeks to develop, would have been present at about the first week of April. Both Dr Coltart and Dr Brecker agreed that by 14 April a trans-oesophageal echocardiogram would have been abnormal in that it would have shown the vegetation and abscess. Dr Brecker considered that it would have been just probably abnormal on 6 April though that is a grey area. Dr Coltart expressed the view that the trans-thoracic echocardiogram which is normally conducted in outpatients before any trans-oesophageal echocardiogram takes place after admission, would, with this history, have shown abnormalities. Dr Brecker thought that there was a 20% – 40% chance of a trans-thoracic cardiogram picking up the vegetation, but that a trans-oesophageal echocardiogram would be needed. You would not do the trans-oesophageal the same day, but it would be done within one day and, Dr Coltart said the results would be back the same day.
It is to be noted that the size of the vegetation and abscess in this case was significant. Furthermore the notes of the Medical Assessment Unit of the John Radcliffe dated 13 May 2009 raised the question of vegetation on the valves before the trans-oesophageal echocardiogram was carried out the following day, and a possible diagnosis of infective endocarditis is noted the day before the trans-oesophageal cardiogram confirmed that. Both cardiologists indicated in evidence that the preference would be to confirm the diagnosis before commencing antibiotics but the course of action to be taken would depend upon the firmness of the diagnosis. You will not, Dr Brecker said, wish to delay unnecessarily and if vegetations were found on the valve that would be a definite diagnosis. Blood cultures would then be taken and the doctor would be compelled to start antibiotics, adjusted later if necessary to allow for what the results of the blood cultures revealed.
The Issues
(1) When did the Claimant's symptoms commence and what was the Claimant's condition at the time of the various consultations with the Defendants?
The Claimant's account that leg pain, reduction in exercise tolerance, night sweats, and flu-like symptoms began in February 2009 is strongly challenged by the Defendants. It is submitted by Jane Mishcon on their behalf that had the Claimant experienced significant and severe symptoms from February 2009 she would have mentioned those to Dr Pargeter, on 3 March, but she did not do so, and, on the basis of the contemporaneous notes made by the three Defendants, did not tell them either. Her account is internally inconsistent as are her eye witnesses' accounts and inconsistent with each other. The account is also inconsistent, it is submitted, with other accounts of her condition given by the Claimant to medical practitioners and recorded in various hospital or other notes. Miss Mishcon also submits that the expert microbiology evidence describing the expected pattern of development of the organism to be a very slow gradual increase in the severity of the symptoms is inconsistent with the Claimant's account.
I will deal firstly with the issue raised upon the expert evidence before turning to an analysis of the other evidence. I am satisfied on the basis of the evidence of Dr Gant and Professor Masterton, and indeed the expert evidence generally, that the account of the symptoms commencing in February is not inconsistent with the low virulence C. propinquum infection which the Claimant had. This is a particularly unusual and rare organism the effect of which upon patients is not known. Patients respond differently and I accept Dr Gant's evidence that he has experienced cases where some patients have a fever with no night sweats some have night sweats and no fever and some have both symptoms. The response is not predictable, particularly in the case of this unusual organism. Night sweats could well be this patient's response to the effect of the organism upon her. At the end of his evidence, as stated above, Professor Masterton accepted that sweats from around February could fit, given the apparent chronicity of the infection.
I accept Dr Gant's evidence on this issue, whether or not supported by Professor Masterton, and conclude that the Claimant's account is not inconsistent with the potential development of the infection and its effect upon her. The expert evidence does not provide any basis for disbelieving or nullifying the Claimant's account. Nevertheless the unusual nature of this organism requires the court, together with the other inconsistencies relied upon, to examine the Claimant's account and that of her witnesses with care.
The issue is one of timing. The development of significant vegetation on the Claimant's aortic valve and the abscess make it clear beyond doubt that the developing endocarditis would have produced symptoms of that condition; the question is when. The Defendant submits that as none of the three Defendants, nor Dr Pargeter on 3 March 2009 recorded in their notes any complaints of reduction in exercise tolerance, night sweats, leg pain or weakness or flu-like symptoms, nor have any recollection of being told of these complaints, either they had not arisen at the time of any of those consultations, or were not sufficiently serious for the Claimant to have reported them.
It is correct, as Miss Mishcon submits, that Mr McCabe accepted that he could be mistaken about the timing of events though his recollection was that the sweats and leg pain commenced about February 2009. It is also right that Catherine Sole is mistaken in thinking that the Claimant still had a rash (a potential sign of endocarditis) in April when in fact it had disappeared on Dr Pargeter's notes by early February. But Mrs Sole is a close friend and running partner of the Claimant and saw her weekly on a very regular basis; she was clear in her evidence that the Claimant's problems with running started in February.
Doreen Wilson, the Claimant's sister, also saw her on a regular basis and was able to ascribe the commencement of her symptoms to February when, it appeared, she had noted in her diary that the Claimant was unwell. Again, Mrs Wilson was able to see and compare the Claimant's condition on a regular basis.
Philippa McCabe thought that the symptoms had started in January 2009 i.e. in the month before the other witnesses had stated that they had begun. She did have however a particular reason for recalling that they commenced early in the year by reason of the fact that she could relate it to the time when she actually left her parents home and moved in with her boyfriend, which was on Valentine's Day February 2009.
When the Claimant saw Dr Pargeter on 10 February 2009 and 3 March 2009 she did not mention night sweats, painful legs or flu-like symptoms although on the occasion of the first visit she said that maybe her symptoms had not commenced. The Claimant said in evidence that she did tell Dr Pargeter about her difficulties with running on 3 March 2009 although Dr Pargeter's note merely records, "still wants to lose a bit more weight and get fitter". Dr Pargeter was not called to give evidence. Whilst I accept that the Claimant may have raised the issue of problems with her running with Dr Pargeter, it appears that this was in the context of her general fitness rather than the emphasising of a particular complaint. I am satisfied on the evidence that had the Claimant felt at that time really concerned about any symptoms she was experiencing, she would have reported that to Dr Pargeter in whom she had great confidence. Taken together however I do not regard the Claimant's account and Dr Pargeter's note as being inconsistent with the Claimant experiencing early symptoms of a feeling of a lack of fitness and inability to run as well as she thought she ought to be able to do, by the beginning of March.
The Claimant continued work save for a few days off when she was feeling "a little bit unwell" until her stroke. She was able to do this she told me because of help from her sister and also with great difficulty in carrying on. The Defendants rely upon the fact that she continued at work as being evidence which supported the proposition that she was unlikely to be correct in saying that her symptoms started in February 2009. I am satisfied however that the Claimant, as she described to me in evidence, had to struggle to remain at work. It became increasingly difficult for her to do so and she was only able to do so with the use of a car to get there without having to walk, and with the help of her sister. The evidence clearly established that the Claimant is a stoic. The fact that she would carry on when she was at all able to do so and in general did not complain, could not be better exemplified by the fact that the day after she had her stroke she attended an appointment with the consultant urologist because it had already been arranged. It is the Claimant's nature which explains her ability to continue working rather than the fact that her evidence that she was feeling unwell is incorrect.
Both parties rely upon the medical records as assisting in determining the onset of symptoms. The Defendants rely upon the admission note of 29 April 2009 which records one month of pain in the left leg and both calves (D546) and a medical note made on the same day recording the same information (D549). This, the Defendants submit, is consistent with pain in the left leg commencing at the end of March 2009; as it contains no other complaint it fits exactly with the consultation with Dr Moore on 30 March. They also rely upon the hospital entry made on 13 May describing 5 - 6 weeks history of bilateral leg weakness (D477) indicating that the leg pain commenced at about the beginning of April. The fact that the Claimant complained on 13 May of having felt constitutionally unwell for more than one month indicates, the Defendants submit, that she began to feel unwell in or about early to mid April.
Mr Richard Partridge on behalf of the Claimant places considerable reliance upon the hospital notes of 13 May 2009 (D476, D477). They demonstrate, he submits, from the history taken from the Claimant and her family, that she had been feeling constitutionally unwell for at least one month; that she had experienced night sweats on most nights since February, having had to change 5 times two nights ago; that she had completed the menopause; that she denied fever but felt cold sometimes; that she suffered from lethargy; that she had had regular headaches since the stoke; that she had 5-6 weeks of bilateral leg weakness; that she had a renal stone one month ago which she passed; that she had had persistent haematuria.
Mr Partridge submits that this history taken on 13 May 2009 is contemporaneous, and made without any motive other than one to assist the medical management of the Claimant's condition. There is therefore, he submits, no reason to doubt that she had had night sweats since February, had been feeling constitutionally unwell for over a month, felt cold sometimes, suffered lethargy and had had bilateral leg weakness even though he submitted that it started earlier than 5-6 weeks before 13 May 2009.
In so far as the Claimant still relies upon the notes taken by the ambulance crew on 27 April 2009, and the urological notes of 28 April 2009 (though these are not emphasised in closing speeches as they were in evidence) I am satisfied that none of them assist me. I accept the submissions on this issue made by Mr Partridge in his closing written submissions paragraphs 21 – 22. Any history taken on these occasions was in respect of an entirely different presenting complaint, one of collapse and visual disturbance, wrongly diagnosed at the hospital as urinary tract infection when in fact it was a stroke. The hospital notes are also contradictory as Mr Partridge submits. The urological notes were taken for the purpose of the urological examination only as is clear from their face. The notes make no mention of the fact that a previous day the Claimant had suffered severe visual loss together with pounding headaches. I place no reliance upon them.
Catherine Sole said in evidence that she was able to identify specific dates of the period between 25 January 2009 and 29 March 2009 because she knew that during that period she was accompanying the Claimant to the Cardiac Rehabilitation Centre in Whitley. The Defendants submit that had the Claimant's exercise tolerance suddenly reduced as she said in evidence that it did, this would have been noticed by the cardiac nurse who would have supervised her rehabilitation. It must therefore be assumed, it is submitted, that the Claimant did not tell the cardiac nurse about her reduction in exercise tolerance and painful legs, as no action was taken which it surely would have been, the Defendants submit, had such symptoms been reported. There is a report from the Rehabilitation Centre dated 12 December 2008 (C389,390) which records that the only problem noted was slightly raised blood pressure. There is however no report with the papers for 2009 and the 2008 report indicates that the rehabilitation started on 1 October 2008 and was completed on 3 December 2008. If there was a further formal rehabilitation course it is surprising that there is no report about that course nor any assessment at its conclusion. Nor is it known whether any rehabilitation the Claimant attended at Whitley in 2009 was subject to monitoring or assessment by a cardiac nurse. It is difficult in the circumstances for any substantial reliance to be placed upon this submission, save insofar as it may throw doubt on Mrs Sole's recollection.
The Claimant and her witnesses describe her leg problem starting in February. The Claimant describes returning to jogging in January 2009 and managing two miles or so jogging and walking. She did not however feel that she was improving but she kept going. In February she describes her running stamina as suddenly disappearing and she had to stop after running about 150 yards when her legs were simply not working. Thereafter although she tried to run she had to join the walking group rather than the running group. The Defendants submit that a sudden reduction in running stamina is inconsistent with the indolent infection which it turned out the Claimant had. The Claimant and all her witnesses must be wrong about the leg problem starting in February, the Defendants submit, because the hospital notes support a later commencement at about the very end of March to early April 2009, and because no complaint was made to Dr Pargeter on 3 March. Catherine Sole's description of the Claimant's left leg becoming so painful that she could hardly walk 20 yards before the pain was unbearable by the end of March 2009 was not, the Defendants submit, consistent with the hospital notes or the GP's notes.
The flu-like symptoms also cannot have commenced as early as the Claimant said in evidence, the Defendants submit, because the hospital note of 13 May records the Claimant had been feeling constitutionally unwell for more than a month which only takes one back to early to mid April. Furthermore Catherine Sole does not recall flu-like symptoms in themselves. It has to be noted however that flu-like symptoms are variously described by the Claimant or her husband as her feeling "very unwell", and "weak and hot", and "hot and bothered", and" distressed with any form of physical activity". The changes in temperature and feeling unwell therefore were associated with flu-like symptoms and all the witnesses speak as to these problems.
It is also the Defendants case that the Claimant cannot have been suffering from night sweats (qualified as drenching night sweats). Miss Mishcon submits that the description of having to remove clothes when going outside to inside is more typical of hot flushes than sweats and states that neither the Claimant nor Mr McCabe said in their witness statement that the night sweats were such as to cause the Claimant to change her night clothes. It was only Catherine Sole who referred to this in her statement. When Mr McCabe did refer to the Claimant having to change her night clothes he said that that happened occasionally and was not sure about dates. The hospital note of 13 May does not, Miss Mishcon submits, record the changing of clothes as having been of a continuing problem only a reference to what had occurred two nights previously. This reference may however be no more than the most recent example of the problem. Nor did the Claimant mention night sweats to Dr Pargeter or to the cardiac nurse.
I have considered the evidence of the Claimant and her witnesses, and of the Defendants, the hospital and GP's notes and the Claimant's and the Defendant's submissions, both written and oral, with care. I have borne in mind the risk of the Claimant and her witnesses giving evidence with hindsight, now knowing what they think must have been the case, also the risk that they may simply be mistakenly believing that symptoms started much earlier than they did. Having done so I have come to the clear conclusion that the account of the Claimant and her witnesses as to the onset of the symptoms is in general correct. I am satisfied that the Claimant started jogging and walking again in January 2009 and kept going at it even though she didn't feel she was really improving. Sometime in February it did seem to her that her running stamina suddenly disappeared and she felt as though her legs were just not working. Leg pain developed in the left leg first, and sometime later, by the end of March or early April, was affecting both her legs. I am satisfied that the sweats, day and night, commenced at around the same time in February 2009 and that there after the Claimant became gradually more unwell. By the end of March when she saw Dr Moore she was no longer the energetic dynamo that she had spent most of her life being. I am satisfied from the evidence as a whole that during the period from 30 March 2009 to her stroke on 27 April 2009 she became progressively unwell. This is consistent with her account and that of her witnesses and the likely progression of the organism and its effect upon her.
I am satisfied that the Claimant experienced night sweats and that when these were bad they necessitated the change of her night clothes, several times a night. I accept the evidence of the Claimant, her husband, and Catherine Sole on this issue even though the Claimant's witness statement does not refer to having to change her night clothes. The worsening and progression of the condition is clear from the evidence of the Claimant and her witnesses and is also supported by the expert evidence. The changes in haemoglobin indicated, as Professor Masterton said, the chronicity of the condition since February or March, and the growing of the abscess from about the end of March 2009 and the progressive growth of significant vegetation on the aortic valve from the end of March or early April is consistent with progressive deterioration in the Claimant's condition. I am satisfied that her condition was worsening between 30 March and 14 April 2009, hence the need for three consultations with the GPs. I have no doubt that the Claimant's condition continued to worsen as the vegetations and abscess continued to develop after 14 April, but I am satisfied that by that date it had reached a point where the Claimant was very concerned about her health and would, had she been asked questions, have revealed all that concerned her.
I accept that throughout the period 30 March to 14 April the Claimant was becoming weaker and lethargic and feeling progressively unwell. The evidence of Mr McCabe, Doreen Wilson and Philippa McCabe satisfied me entirely that by 14 April 2009 the family were extremely worried about her condition. This was of course in contrast to her normally very fit and energetic self, but I have no doubt that she was increasingly unwell during this period.
By 6 April 2009 she was clearly unwell, though on this date her underlying condition was masked by what appeared to be a further episode of renal colic. I accept the evidence of Mr McCabe that it was with great relief when it appeared to him and his wife that this was the cause of the problem. The measure of relief was not just because the problem was thought to be colic but because of the extent to which she had been and was then unwell, and the belief that an explanation had been found for that state.
For the Claimant to see a GP again, a third time within 14 days is in itself, given her pre-valve replacement condition and attitude towards life, an indication of how she felt. I am satisfied that when she saw Dr Hall on 14 April 2009 she was suffering from leg pains, day and night sweats, feeling unwell, weak and lethargic, flu like symptoms and on occasions feeling cold. I accept the evidence of the Claimant and her witnesses as to her condition, having taken into account any effects which the stroke may have had upon her memory. I found them to be honest and convincing and their account to be essentially consistent with the expert evidence and the medical notes. In particular the notes of 13 May 2009, which are inherently likely to be recording entirely genuine complaints by the Claimant and her family at that time, support her account. Philippa McCabe had good reason to know her mother's condition in mid February, being able to pinpoint it by reference to her leaving home and going to share a house with her boyfriend. The Claimant's sister and Catherine Sole saw her regularly and had detailed knowledge of her condition. I am satisfied they are reliable witnesses with good reason to know the subject they were describing, and to be able to distinguish between early in the year and Spring.
(2) What did the Claimant tell each doctor of her condition?
(i) Dr Moore - 30 March 2009
There is substantial dispute on this issue between Dr Moore and the Claimant. The Claimant went to see Dr Moore rather than wait for Dr Pargeter's return because, I am satisfied on the evidence, she felt unwell. She was suffering from pain of the left leg by that time and clearly complained of that to Dr Moore. Her recollection is that she told Dr Moore that it was difficult to walk, that she was having sweats as if she had the menopause again even though it had finished years ago, and that she was having flu-like symptoms. She was trying to explain that it was not a running pain or a running injury. Dr Moore however recollected only the left leg being mentioned, he did not recall sweats being mentioned or the menopause. He said that as far as he could recollect in the flow of conversation it did not happen, and he did not know where in such a consultation she could bring in a reference to the menopause. Had sweats been mentioned however he would have to have asked a lot more questions to clarify what she was saying. He knew that sweats were a sign of infective endocarditis in someone with an artificial valve.
I have found this a difficult issue to resolve. Dr Moore's evidence upon it was somewhat diffident in parts but his memory was that they talked just about leg pain and his notes revealed nothing else. They certainly talked about the League of Friends as well. It is probable that there was discussion about whether the pain was related to running and it may be that the leg pain and its cause was the centre of the complaint. Furthermore the Claimant's condition was progressively worsening with the abscess on the aorta developing at about that time, and I am not satisfied on the balance of probabilities that the Claimant, a stoical person, would necessarily have voiced all her complaints then rather than at a later stage as they were worsening. What is clear is that the 30 March was about the time when the infective endocarditis was beginning to develop significantly with the growth of an abscess and a considerable number of vegetations growing on the valve.
Having considered the relevant evidence I am not satisfied on the balance of probabilities that on this occasion the Claimant brought to Dr Moore's attention any matter other than her difficulties with her left leg and the relationship of that problem to her running.
(ii) Dr Fisher – 6 April 2009
The Claimant herself said in evidence that she could remember "not a word" of her conversation with Dr Fisher as she was at the time feeling so unwell. She had told Dr Fisher at the outset about her history of renal colic and clearly felt that her condition was similar to the renal colic she had experienced before and therefore relevant to that. Neither Philippa McCabe nor Doreen Wilson recalls sweating or leg pain being directly reported to Dr Fisher and Dr Fisher's own recollection is that the matters he was informed of were accurately recorded in his notes and that no mention was made of night sweats, flu-like symptoms or any other symptoms consistent with infective endocarditis. If however Dr Fisher had been told that sweats and flushed feelings had been going for some months he would, if the patient was unwell have required acute medical admission. If she was very well he would have instigated blood tests, as endocarditis would have been high on his list.
I am satisfied that the Claimant's consultation with Dr Fisher both on the phone and in person dealt with complaints which were consistent with renal colic (whether it was in fact that or emboli) and nothing else. I am clear in the conclusion that no complaints were made by the Claimant of any symptoms such as sweating or flu-like symptoms which were potentially referable to endocarditis. Indeed both the Claimant and her husband were hopeful that renal colic was in fact the answer to the problems she was experiencing.
(iii) Dr Hall – 14 April 2009
This was the third occasion in 14 days that the Claimant had attended the Defendant's practice. I'm entirely satisfied that by 14 April 2009 she was suffering from severe pain and difficulty with both of her legs, and was suffering from day and night sweats which had commenced in February and which as far as the night sweats were concerned, caused profuse sweating on occasions sufficient for her to have to change her night clothes several times during the night. She felt weak, had lost energy and was feeling unwell. She could no longer walk far and had to drive instead. The changes in temperature, feeling of weakness and lethargy gave her 'flu like symptoms. She was not aware of having fevers but she certainly suffered from acute temperature changes and reported one month later on 13 May 2009, having felt cold sometimes, which is consistent with having a temperature. As Mr Partridge submits it is not known what the Claimants' temperature was during the time she was experiencing night sweats.
The family's hopes that the problem might have been solved because it all turned out to be renal colic, rapidly proved to be incorrect thereby necessitating the further visit to the surgery on 14 April. By that time the Claimant's family were extremely concerned about her wellbeing because of the deterioration in her health. It was against that background that the Claimant made her visit on 14 April.
The Claimant said in evidence that she told Dr Hall about her legs, about how she felt in herself, that she was suffering day and night sweats even though she had finished the menopause many years ago, before she was 50, as doing marathons had got rid of it. By this time I am satisfied that the Claimant was feeling sufficiently unwell to feel the need to explain this, in her own rather diffident stoical style, to the GPs.
Dr. Hall said in evidence that the Claimant's complaint related to her left leg. She advised Mrs McCabe that she could cease taking the Ciprofloxacin as the urine sample had revealed no growth, and Mrs McCabe herself told Dr Hall that she had stopped taking the Naproxen. Dr Hall examined the Claimant and concluded that although her leg pain was slightly unusual, she could not elicit any serious features on examination and concluded that it was a muscular problem or localised inflammatory reaction. She did not however ask how the leg pain had arisen.
There was nothing remarkable with Mrs McCabe's stance or gait when she walked into the surgery, Dr Hall said, and she did not appear to be in any pain to Dr. Hall. Although it does not appear in the notes, Dr Hall said she would have asked her how she was in herself. As Mrs McCabe was sitting up to get off the couch, Dr Hall said that she said "I don't know when these hot flushes are going to end". Dr Hall understood her to mean that her menopausal symptoms had not finished. She did not seek to clarify the statement, nor enquire how long she'd had the hot flushes or indeed ask any other questions. Dr Hall said in evidence that she might have said to the Claimant that it was not unusual for menopause symptoms to carry on for several years and that would have been the opportunity for the Claimant to say 'no, they have stopped many years ago'. In fact, of course, that is precisely what the Claimant said she had told Dr. Hall i.e sweats day and night just like the menopause, even though her menopause had finished many years ago.
Dr Hall said that even if sweats had been mentioned, unless there were other symptoms such as fatigue, weight loss or unusual rashes, she would not contact the hospital cardiology department, but would have arranged blood tests. Dr. Coltart and Dr. Brecker, the consultant cardiologists for the Claimant and the Defendant respectively, both stated however that night sweats were indeed a red flag, whereas Dr Hall said that they were only a red flag with other signs. The Claimant did not look like an ill patient and Dr Hall was not thinking of endocarditis at that time but if the Claimant had lacked stamina as well as night sweats, that would have caused her to contact the on-call cardiology team. In fact, as I have found, the Claimant did suffer from lack of stamina at that time.
I am satisfied on the basis of the evidence, and having regard to the submissions of both parties, that the Claimant did inform Dr. Hall that she had not merely hot flushes, but sweats day and night. By the time of this consultation on 14 April the Claimant's level of concern about the night sweats which had been continuing since February, had risen to a point where she felt the need to raise it. Not just "hot flushes" but night sweats in particular. The Claimant may, as diffident patients sometimes do, raise the matter with a slight laugh of embarrassment, but raise it, I'm satisfied she did. I prefer her evidence to that of Dr. Hall upon those factual issues. I also conclude that the Claimant did say that her menopause had stopped many years ago and Dr Hall's evidence conceded that in effect that she might have done.
I'm also clear in my conclusion on the evidence that the Claimant told Dr Hall that she had problems with both her legs and that by then she did not feel well herself, even if she did not look seriously unwell.
3) What should each doctor have elicited further from the Claimant, if anything, or observed about her state of health
Firstly, a general comment on the expert evidence. There was considerable agreement on important issues between both the cardiologists and the microbiologists but less between the GP experts on liability. Each party sought to contend that there were sound reasons for rejecting the whole of the opposing GP experts evidence. I did not however find that a useful approach. Both Dr. McCarthy on behalf of the Claimant and Dr. Barraclough on behalf of the Defendants gave valuable and coherent evidence based on many years of experience of general practice. I concluded that in some respects Dr. McCarthy was correct in his emphasis as in others Dr. Barraclough was, as can be seen from the following parts of the Judgment.
(i) Dr Moore
I have found that the consultation with Dr Moore referred solely to the Claimant's leg and her ability to run and did not involve the Claimant revealing or discussing her other symptoms. Nor did Dr Moore ask any questions which might have revealed the further symptoms which were then present but which had not progressed to the stage they had reached some two weeks later on 14 April.
Dr McCarthy expressed the view in evidence that as Dr Moore did not reach a clear diagnosis on the leg pain, he was faced with an unexplained illness together with a patient that had an artificial heart valve who was therefore a risk. He should therefore, at the very least, have asked her how she was feeling. If she was not feeling well he should have asked her to return to see him in a week and in the meantime have ordered blood tests. Dr Moore should, Dr McCarthy said, have appreciated that the differential diagnosis was an inflammatory cause or mechanical cause and if it might be the former, that, with an artificial valve would have raised risks, hence the need to seek to make a diagnosis and if unable to do so, carry out blood tests.
Dr Moore said in his witness statement and in evidence that he considered that the leg pain of which the Claimant complained was probably sciatic in nature, as far as the shooting pain down the side of the foot was concerned even though he had not recorded this in his notes. He said in evidence that although he hadn't recorded it, he was pretty certain of his diagnosis, "to some degree". Dr. Barraclough said in evidence that he thought that the shooting pain down the leg was probably sciatic in nature and that this would have been his interpretation. He did not refer to the pain as being sciatic in his medical reports. Dr Moore's notes do not refer to sciatic pain but describe the pain as "odd" and state that there was "no clear cause". Furthermore at the significant events meeting in August with his fellow GPs, the description of the leg pain was "peculiar" rather than sciatic.
Dr. Barraclough could think of no general inflammatory condition which could cause such leg symptoms plausibly. The presence of leg pain, an extremely common feature presenting to any GP, would not require the GP to ask other more general questions about a patient's health, even where there had been aortic valve replacements. There are many patients with heart conditions, stents or similar surgical interventions and it would not be realistic to expect any such patient who presented with a leg pain to be asked questions either relevant to endocarditis or generally. Some GPs may consider general malaise even where the only complaint was of leg pain. But others would not and Dr. Barraclough expressed the view it was not mandatory for them to do so in such circumstances. There had to be something more than the complaint of leg pain which Mrs McCabe made before there would be any duty upon the GP to ask further questions.
Dr. Moore did not ask questions relating to anything other than the leg complaint, the worst part of the pain of which had resolved within 24 hours on his understanding. His approach was "wait and see" and review the Claimant later.
Whilst I understand Dr McCarthy's approach, and consider that it is arguable, I prefer Dr Barraclough's evidence upon this issue. The leg pain as recorded in the notes had apparently substantially resolved and in the absence of any other complaints his approach of waiting and seeing and reviewing was appropriate without further questions being asked of the patient. Had such questions been asked further information would indeed have been revealed as to sweats and 'flu like symptoms. Nevertheless on the basis of the leg pain which I have found was the only complaint made on this occasion, I do not think it was incumbent on Dr Moore to ask the Claimant additional questions. Whilst some GPs might have asked about general malaise where there was leg pain only being complained of, I do not think that it was mandatory for a GP to do so in such circumstances. To wait and see and review was an appropriate course of action.
The question also arises as to the appearance of the Claimant on that day and whether this should have alerted Dr. Moore to anything more suspicious about her general condition. Dr. Moore said in his evidence that he could hear that the Claimant did not struggle up the steep stairs to his consulting room and that she did not appear to be very unwell or sweating. The Claimant did not disagree that she was able to mount the stairs, though hearing a patient do so without tripping or falling or going very slowly is a somewhat blunt instrument for determining whether such a patient's walking ability had become restricted.
There is however no evidence that the Claimant looked or appeared very unwell on that date, such as to require Dr. Moore to probe into her health further.
ii) Dr Fisher
The consultation with Dr. Fisher centred on renal colic and as I have found, he was not informed of the Claimant's leg pains or sweats or any other symptoms consistent with endocarditis. Neither Dr. McCarthy nor Dr. Barraclough suggest that he should in the circumstances of what he was presented with have asked any further questions. Nor is it suggested that the Claimant's general condition would have raised to him issues other than those concerned with renal colic. He was therefore under no obligation to ask any further questions.
iii) Dr Hall
I have found that the Claimant told Dr. Hall that she was experiencing day and night sweats like the menopause but that that had finished many years ago, and that she felt unwell, in addition to complaining of pain in both legs. In the joint statement, Dr. McCarthy and Dr. Barraclough agreed that had such facts been placed before the GP it was mandatory for her to consider infective endocarditis. It follows that further questions should then have been asked which would have revealed that the sweats had lasted since February, that they included night sweats, that these sometimes required the Claimant to change her nightclothes more than once a night, that she felt weak, lethargic and generally unwell. Once night sweats, many years post menopause, weakness and lethargy and feeling unwell were raised, the extent of these problems had to be explored and elaborated. Night sweats in themselves are regarded by both Dr Coltart and Dr Brecker as raising "red flag" signs.
Even if the Claimant had not volunteered that she had been experiencing night sweats but had only referred to "hot flushes", I would have remained of the view that that information needed to be further explored and elaborated. I am satisfied in any event on the evidence of the Claimant and Dr. Hall that the Claimant did inform the doctor that her menopause had in fact ceased many years ago. The combination of these two pieces of information, namely hot flushes and the cessation of the menopause many years ago, rendered it essential that further questions were asked. The reference to night sweats alone should cause the doctor to think of endocarditis, Dr Barraclough said, and the addition of the information that that could not be or was unlikely to be due to the menopause as it had ceased many years ago, would necessitate further questions. It was not sufficient for Dr. Hall to fail to clarify those statements. When did the menopause stop? How often did the night sweats occur? Did they involve and if so how often the necessity to change nightclothes once or more during the night? How did the Claimant feel? Once the risk of endocarditis in a patient was raised, as it would have been by the Claimant's reference to the hot flushes and the cessation of the menopause, the matter needed to be explored. Once the Claimant had volunteered the fact that her menopause had ceased many years ago and at the age of about 48, and that she had not had sweats before February of that year, the thought in the doctor's mind that many women continue to suffer from sweating after the menopause had apparently ceased would be of little weight. The GP would be left with unexplained night sweats, the menopause having ceased many years ago, and a patient with an aortic valve replacement with the risk of endocarditis.
In any event as Dr. Barraclough said in evidence it would be incumbent on the doctor to ask further questions, if the patient was anxious about the matter. It seems probable that the Claimant raised the matter, albeit in a diffident and somewhat embarrassed way with a slight laugh, because she was anxious about it. The fact that she added that her menopause had ceased, demonstrated more clearly her anxiety because it showed that she had thought about the menopause but considered that it might not be relevant because it had stopped. The fact that the patient had volunteered the matter, and did so at a time apparently unconnected with any other part of the examination or consultation, would it seems to me in itself give rise to an inference that the patient may be anxious or concerned about the matter. I find it a fact the Claimant did raise it because she was concerned.
Dr. Barraclough expressed the opinion that the volunteering of information as to hot flushes would be important information whenever it was made in the consultation and needed careful consideration, particularly in a patient with a replacement valve. The term "hot flushes" could mean sweats, whether day or night, but even so he said that only some doctors would ask further questions in such circumstances. In fact Miss Mishcon relied not merely on Dr. Barracloughs evidence on this issue but also that of Dr. Brecker, the Defendant's cardiologist. In the course of his evidence, in answer to questions from the court, Dr. Brecker volunteered the view that as a cardiologist he wouldn't ask further questions if told that a patient had hot flushes, as it is such a common symptom. He would however ask about HRT and similar questions.
Dr. Brecker was expressing this opinion as a cardiologist not as an expert GP on the issue of liability. Furthermore as Mr Partridge points out when he sees a patient it is usually the case that a preliminary diagnosis will have already been made. Dr. Brecker's situation as a cardiologist is quite different to that of the GP facing a patient with an aortic valve replacement who was visiting for the third time in 14 days with unexplained or unusual leg pains and an anxiety about hot flushes, and feeling weak lethargic and unwell. I find the evidence of Dr. McCarthy and Dr. Barraclough to be more important on this topic.
Furthermore I have found that the Claimant raised the issue of night sweats specifically and the fact that her menopause had ceased. This was not the situation being envisaged by Dr. Brecker. It is to be noted that in any event Dr. Brecker would have asked the patient questions about HRT which would probably on the facts of this case have resulted in him learning that the menopause had in fact ceased many years ago.
I conclude that once the Claimant had mentioned night sweats and the cessation of the menopause, as I find that she did, further questions should have been asked to ascertain the seriousness of the problem in a patient who had had an artificial valve replacement. I accept Dr. McCarthy's evidence on this issue that even if the words "hot flushes" had been used, those words themselves implied a continuing problem, especially as from Dr. Hall's account the Claimant added "when are they going to end?" Even on the basis of that information, further questions should have been asked and they too would have lead to the information that the Claimant was unwell. On the basis of my findings of fact therefore, I am clear in the conclusion that Dr. Hall was under a duty to ask further questions of the Claimant in order to ascertain what the problem was that she was referring to, and that even on the basis of Dr. Hall's own account, further questions should have been asked.
By 14 April 2014 I am satisfied that the Claimant felt genuinely unwell. Dr. Hall considered that the Claimant did not look unwell, but patients present themselves in a very different manner according to their personalities and we know that the Claimant was a very stoical uncomplaining woman. I do not find that there was anything about the Claimant's appearance in itself at the time which should have driven Dr. Hall to ask further questions, but I am equally satisfied that her appearance should not in any way have prevented the questions which arose and should have been asked, from being asked.
4) What action should have been taken on the information which was or should have been before the doctors?
Dr Moore
Upon my findings of fact, there is no further action which Dr Moore should have taken after his consultation other than that which he did, namely wait and see and review.
Dr Fisher
Dr Fisher was under no duty to take any further step upon my findings of fact. The Claimant does not pursue a case against him, if I find, as I have, that the Claimant did not report to him any symptoms of night sweating or any symptoms requiring further questions or actions to be taken.
Dr Hall
Once the Claimant had volunteered that she was having day and night sweats and that her menopause had ceased years ago the questions which it was then incumbent on Dr Hall to ask would have revealed all the issues which were causing the Claimant serious concern at that time. These were her severe pain in both legs her difficulties in walking any distance, night sweats since February which when serious caused her to have to change her night clothes two or three times a night, weakness and lethargy and feeling cold sometimes. She would, I am satisfied, have told Dr Hall, if asked the appropriate questions, that she felt that her symptoms were flu like, that she was unwell and had been for some time.
It is agreed between Dr McCarthy and Dr Barraclough that if such information had been given, it was mandatory for a GP to consider infective endocarditis, perform basic blood tests, and refer the Claimant to hospital. In answer to the further question under the joint statement, Dr Barraclough said that if the Claimant had been febrile with weight loss as well as night sweats and flu like symptoms and a new heart murmur then he considered a General Practitioner would have admitted her to hospital that day. In this answer Dr Barraclough was adding additional qualifications such as fever, weight loss and heart murmur which he had not raised before but which Dr Brecker had raised in his evidence.
It became clear however during the course of the evidence that the view of both the cardiologists and the GP experts was that the key was whether the Claimant was constitutionally well or not. Dr Brecker said that if she had no fever, no rash and was well he wouldn't send her into hospital that afternoon but if she was unwell with significant night sweats "we would want to see her within 24 hours" he said. Dr Coltart said that if the GP had phoned him up and said that he had an unwell patient with an artificial valve who had had night sweats since February but had finished her menopause, had no rigors, but persistent hematuria he would have been extremely bothered and would have admitted her to hospital that Friday or even on the Sunday. Dr Barraclough said that if the Claimant gave a history as set out in the hospital notes of 13.5.2009 (D476), which I have found on the facts that she did, that would be significant. He would examine her to see if she had a heart murmur, send her urine for analysis and if she seemed well would have her blood tested for inflammatory markers, but if she was unwell he would admit her to hospital.
Miss Mishcon accepts in paragraph 104 of her final written submissions that it was common ground that if the Court should find that the Claimant had told Dr Hall that she was suffering from night sweats, reduced exercise tolerance, flu like symptoms and was systematically unwell, immediate referral to hospital was mandatory. The same concession must apply if that information should have been and would have been elicited, which I have found is the case.
I am satisfied that the evidence does indeed support such a conclusion. I conclude that Dr Hall, on hearing the information volunteered by the Claimant as to night sweats and the cessation of her menopause and asked the necessary questions and obtained the answers, was under a duty to refer the Claimant to hospital immediately either later that same day on 14 April or the following morning of 15 April.
(5) Has a breach of duty been established?
The duty of the doctor is to act with the ordinary skill of an ordinary competent medical practitioner carrying out the consultation in question. A doctor is not negligent if he acts in accordance with a practice accepted at the time as proper by a responsible body of medical opinion even though other doctors adopt a different practice. (Bolam v Friern Hospital management Committee (1957) 1 WLR 582 and Sidaway v Governors of Bethlem Royal Hospital (1985) AC 871.)
No breach of duty has been established upon my findings by either Dr Moore or Dr Fisher.
I am satisfied on the evidence that Mrs McCabe told Dr Hall that she had been experiencing day and night sweats, that she specifically used the words "sweats" not merely "hot flushes" as these were a very real concern to her at that time. Furthermore they had been continuing since February and her condition had been worsening during April hence her third visit to the doctors in 14 days. I am also satisfied, not simply on the evidence of the Claimant herself, but also on the evidence of Dr Hall, that the Claimant told Dr Hall that her menopause had finished many years ago. Dr Hall understood the Claimant to be saying that her symptoms had not finished, though accepted that she might have said to the Claimant that it was not unusual to carry on with the menopause for several years which would have given the Claimant the opportunity to say her menopause had stopped many years ago. Dr Hall therefore misunderstood what the Claimant had told her, asked no questions about it and in no way sought to clarify it. She accepted in evidence that she had not been considering endocarditis as when she thought the Claimant had raised them as "hot flushes" she took them to be the menopause lasting on for a number of years.
The statement which I find the Claimant in fact made to her, namely that she had been suffering from day and night sweats but her menopause had finished many years ago, showed that the Claimant was anxious about this matter even if she raised it with embarrassed diffidence. Her concern appeared to be from what she said that she could not understand, which was why she was still experiencing day and night sweats when her menopause had in fact finished. The statement which the Claimant made to Dr Hall could not on any basis have properly reassured Dr Hall that the Claimant was still experiencing menopausal symptoms. That very issue was questioned rather than confirmed by what the Claimant was saying.
The information which the Claimant gave to Dr Hall was of particular importance in a patient with an artificial valve replacement. The Oxford Handbook of General Practice states in its section on infective endocarditis that the presentation, which may be over days or weeks, includes fever, weight loss, night sweats, malaise, lethargy and anaemia. Under Management it is stated "have a high index of suspicion for patients at ... risk i.e. with valve lesions or prosthetic valves. Admit as an emergency if suspected."
It is accepted by the experts that the Oxford Handbook sets out what a GP should understand. It is further agreed between the expert cardiologists that night sweats themselves amount to a "red flag".
Once Dr Hall was aware of the existence of night sweats and that the menopause had ceased many years earlier she should have been aware of the risk of an endocarditis in a patient with an artificial valve, and asked further questions and elaborated what Mrs McCabe said to her. She was in breach of duty in failing to do so. She was not entitled to assume that the Claimant was referring to continuing symptoms of the menopause, when the Claimant had thrown doubt upon that by stating that her menopause had ceased many years before.
I emphasise that there is no duty upon a GP in such circumstances to know of or recognise the rare organism which in fact the Claimant had, nor the precise mechanism or timing of the endocarditis; what a GP should have been aware of was the risk factors relevant to endocarditis in a patient with an artificial valve. Once the further information about the Claimant's condition which was available on 14 April had been obtained the suspicion of endocarditis would have been seriously raised and, as is agreed between the parties there should have been an admission to hospital.
I therefore find that the Third Defendant was in breach of duty in failing to appreciate the significance of what the Claimant had in fact told her, that it raised a red flag in a patient with an artificial valve, and required elaboration. That elaboration should have resulted in admission to hospital because of the Claimant's condition at that time. The failure to elaborate and admit were therefore equally breaches of duty.
Even if the Claimant had referred to "hot flushes" rather than "day and night sweats" I would still have found the breach of duty because of the fact that in addition I am satisfied that the Claimant did say to Dr Hall that her menopause had ceased many years ago. The assumption which Dr Barraclough, and indeed Dr Brecker, thought permissible, i.e. that the complaint was due to a condition common in women of that age, namely the menopause continuing, was not open to the GP. The very information which the Claimant had given made it unlikely or at least doubtful that the complaint was attributable to the continuing menopause. As "hot flushes" can, as Dr Hall said in evidence, include profuse sweating, and as the GP experts said, can include both day and night sweats, further elaboration of what the Claimant said was required and the failure in the circumstances of an artificial valve to ask such an elaboration was a breach of duty.
(6) Causation
I am satisfied on the evidence of Dr Coltart and Dr Brecker that if a cardiologist had been contacted by the GP and informed that there was a patient with an artificial heart valve who suffered from persistent night sweats which when severe caused night clothes to be changed several times a night, that the menopause had finished many years ago, that there was weakness, lethargy, reduced walking, flu like symptoms, that she felt constitutionally unwell and had persistent hematuria, that patient would have been admitted to hospital within 24 hours. As both Dr Brecker and Dr Coltart said in evidence the key was whether the Claimant was unwell. I note that Dr Fisher said in evidence that if a patient with these symptoms was unwell he would have arranged an acute medical admission. Both Dr McCarthy and Dr Barraclough accepted that in such circumstances the Claimant should have been referred to hospital immediately i.e. not later than 24 hours. It is probable therefore that had the correct information been elicited the Claimant would have been referred to hospital on 14 April or 15 April 2009.
Once admitted with these symptoms I am satisfied on the evidence of the cardiologists that investigations would have been started as soon as possible. These would have included blood tests if not already done before the Claimant left the GP's surgery, blood cultures and echocardiography. Given the results of the blood tests on 27 April 2009 which were marginally abnormal, tests on 14 April or 15 April 2009 may well have been less so. They would on the evidence of Dr Gant and Professor Masterton however have been abnormal with the haemoglobin lower than it should have been and the CRP raised. As Professor Masterton said these would have been markers of ongoing infection.
After the blood cultures had been taken a trans-thoracic echocardiogram would have been performed. Dr Coltart considers that by 14 April a trans- thoracic echocardiogram, which is mandatory with a replacement aortic valve, would have revealed the abscess and infection of the valve on the balance of probabilities. Dr Brecker thought that there was a 20-40% chance of the trans-thoracic echocardiogram picking up the vegetation on the valve. Both are agreed that a trans-oesophageal echocardiogram would have been performed either the same day on Dr Coltart's evidence or within one day on Dr Brecker's evidence, with an admitted patient with these symptoms.
Both Dr Coltart and Dr Brecker expect that the trans-oesophageal echocardiogram would have shown the infected valve because of the size of the vegetations which were significant and the development of the abscess. They are both clear that these would have been developed and apparent by 14 April 2009.
Ideally, the cardiologists would wait until the results of the blood cultures before commencing antibiotics but much would depend upon whether the diagnosis of infective endocarditis was definite. On the evidence of Dr Brecker and Dr Coltart I am satisfied that a trans oesophageal echocardiogram on 15 or 16 April 2009 would have shown the existence of infective endocarditis and therefore raised the need for it to be treated. As Dr Brecker said in evidence, you would not wish to delay unnecessarily and if in fact you found vegetations on the valve then the diagnosis would be definite and on taking blood cultures one would be compelled to start antibiotics. This view was shared by Dr Coltart. Provided blood cultures were taken before antibiotics were started it would, according to both cardiologists be possible to adjust the antibiotics as necessary when the results of the blood cultures came back.
I am satisfied on the expert evidence of both the microbiologists, Dr Gant and Professor Masterton, and the cardiologists, Dr Coltart and Dr Brecker, that suitable antibiotics would have been commenced before 20 April 2009. This would have been sufficient to halt the infective process until the blood cultures revealed whether the antibiotics needed to be adjusted when the specific organism could have been targeted. The giving of a general antibiotic before 20 April would, on the basis of the expert evidence, have prevented the stroke. The Claimant has therefore established the issue of causation.
Conclusions
The Claimant succeeds in her claim against the Third Defendant on the issue of liability and quantum but fails against both the First and Second Defendants.
On 14 April 2009 I am satisfied that the Claimant informed Dr Hall that she was suffering from pain in both legs, and from day and night sweats but that her menopause had ceased many years ago. This information, in the case of a patient with an artificial aortic valve, should have raised a red flag in Dr Hall's mind. It did not however, as it should have done, raise the possibility of infective endocarditis, and she therefore asked no questions but made the assumption that the complaint was a throw away remark and related to the continuing menopause. In fact what the Claimant had said to Dr Hall should have alerted her that it did not appear to be due to continuing menopause as this had ceased many years ago and that necessitated, in a patient with an aortic valve replacement, further questions. Such questions would have revealed the Claimant's condition at that time which would have resulted in her immediate admission to hospital. Dr Hall's failure to appreciate what the Claimant was saying to her and her failure to elaborate what was said amounts in the circumstances to a breach of duty. The Claimant has also succeeded on the issue of causation and her claim therefore succeeds.
There will accordingly judgment for the Claimant against the Third Defendant for damages and her claim against the First and Second Defendants will be dismissed. |
Mr Justice Green :
Index
A. The issue 1
B. Introduction 2-9
C. The claim 10-14
D. The relevant facts 15-30
(1) The onset of symptoms 15-16
(2) 11th January 2010: The first visit to A&E 17-
(i) The ambulance call out 17-19
(ii) The ambulance records 20-22
(iii) Triage by nurse Hunt 23-27
(iv) The streaming to a GP in SDTC and the discharge of Mr Mulholland 28-30
(3) 12th January 2010: The second visit to A&E 31-48
(i) The ambulance call out 31-32
(ii) The ambulance records 33
(iii) Triage 34-35
(iv) The streaming to the specialist stroke team 36-37
(v) The assessment by Dr Chong 38-48
(4) Events subsequent to 12th January 2010 leading up to admission 49-65
(5) 15th and 16th August 2010: Admission and diagnosis of the tumour 66-69
E. Observations on the evidence 70-78
F. Relevant law 79-83
G. Breach of duty I: The triage nurse (Mr Hunt) 84-91
(i) Introduction 84-85
(ii) The allegation that the nurse failed to perform a full diagnosis 86-87
(iii) The allegation that the nurse erred in failing to refer to the stroke team 88
(iv) The implications of the fact that there is no challenge to the decision of the GP in SDTC 89
(v) The significance of context 90-91
H. Breach of duty II: The assessment of Dr Chong 92-116
(i) The decision making chain in A&E: the extent to which an A&E doctor can rely upon the decisions of others ("the barn door" error point) 94-100
(ii) The A&E environment and time constraints: the extent to which the process of diagnosis involves a counsel of perfection 101
(iii) An analysis of the assessment of symptoms and signs 102-108
(iv) A&E and illicit drug taking: What level of inquiry and knowledge is to be expected of an A&E doctor? 109-114
(v) Diagnosis: Provisional or definitive? 115-116
I. Other matters: Causation and quantum 117-120
J. Conclusion 121-122
A. The Issue
The issue in this case concerns the standard of care owed by a doctor operating in a busy A&E Department. The issues arising raise a number of factors of relevance beyond the narrow confines of the facts of this case. In particular the case concerns: the extent to which such a doctor is entitled to have regard to, and rely upon, the conclusions of other professionals (such as in-hospital GPs, and, stroke specialists) within the hospital; the circumstances when it can properly be said that the doctor should ignore or question the advice and conclusions of those professionals; and, the extent to which an A&E doctor should be required to delve into the details of a patient's illicit drug taking, including as to the details of that patient's drug supply arrangements.
B. Introduction
At some point prior to 2010, and possibly a considerable period before, Mr Anthony Mulholland, the Claimant, developed a brain tumour. From around late 2009 Mr Mulholland began to experience a range of unpleasant and disquieting symptoms. At one point his right arm involuntarily stuck out at right angles, and he could not relax it. These symptoms developed and worsened over time. We now know that Mr Mulholland was in fact suffering from an anaplastic oligodendroglioma (grade III), a malignant and aggressive brain tumour and that the symptoms were caused by the tumour. Mr Mulholland attended the Accident and Emergency ("A&E") of the Medway Maritime Hospital ("the Hospital") on 11th January 2010 and then again, the next day, on 12th January 2010. Mr Mulholland believed at the time that he had suffered, and was continuing to suffer from, a stroke. He was assessed variously over the course of these two days by two ambulance teams, two triage nurses, a GP versed in emergency medicine located within the Hospital, a specialist stroke team also located within the Hospital, and then a doctor in A&E who spoke to her Registrar about the case. The outcome however was that no one assessed him as warranting an immediate CT scan until mid August 2010, some 7 months after he first presented.
For January 2010 onwards, Mr Mulholland's symptoms gradually exacerbated. He went regularly to see his GP and raised a variety of disorders which included complaints that he felt he was experiencing a stroke. I have no doubt that mentally and physically Mr Mulholland was in fact deteriorating and that the varied symptoms he was experiencing were genuine.
In July/August 2010 the symptoms reached a "crescendo". The experts in the case explained that it is not uncommon in brain tumour cases for symptoms to intensify quite suddenly to a "crescendo", even in the case of a slow progressive growth tumour such as that which Mr Mulholland was suffering from. It is possible that the significantly increased symptoms which he experienced at that time were due to the fact that the cyst which surrounded the solid core of the tumour had swelled and was now impacting more forcibly upon the brain. Finally, in mid-August 2010 he was referred for a CT scan. The circumstances in which this came about are not relevant to the issues which I must determine in this case. However, upon the evidence that was placed before the Court, I am of the view that it was at least in some measure down to the persistence and loyalty of the Claimant's wife, Linda Mulholland, that he was finally sent for the CT scan which then revealed his tumour. The revelation of the tumour led to emergency surgery for its decompression and debulking.
In his oral evidence Mr Mulholland complained that the medical profession did not believe him until August 2010 and that he suffered unnecessarily by the delay in diagnosis and treatment. On the other hand, and it is right that I should record this, he was also at pains to explain to me that he wished to praise the Hospital for "more than 100% effort", for "being very kind" and for "saving his life".
This case raises what turns out to be a relatively narrow point which is whether the delay in diagnosis was negligent and caused unnecessary pain and suffering and other damage for which Mr Mulholland is entitled to be compensated. Standing back from the minutia of the case the issues raised have a broader significance. They concern the standard of care that must be demanded from nurses and doctors operating in the highly pressurised environment of a busy A&E department. There are 2 features of this that are especially significant to the analysis. First, time is often of the essence in A&E and the medical professionals have a limited amount of that time in which to take a patient's history, to record symptoms and then to assess a patient leading to a diagnosis and a determination on future treatment. Secondly, the nurses and doctors acting within such an A&E department operate collectively and they, perforce, must rely upon each other to act in a professional manner.
The simple fact that Mr Mulholland has been proven to be correct in that he was, all along, suffering from a serious neurological condition does not, inevitably, mean that a delay in the making of a correct diagnosis is negligent. The position is complex and, as the facts of this case amply demonstrate, the process of diagnosis may be as much an art form requiring sophisticated judgment, and about which reasonable professionals might disagree, as it is one of precise medical science.
In this scenario there is considerable common ground. It is accepted:
i) That it was not negligent to fail to diagnose the tumour;
ii) that had the Claimant, however, been diagnosed as at risk of having a transient ischemic attack (TIA) or a cerebral vascular accident (CVA) he would have been sent to a specialist stroke clinic and that he at least might and possibly would thereafter have been referred for a CT scan;
iii) that had this occurred the tumour would have been identified and the tumour diagnosed;
iv) that in such circumstances it would have been treated;
v) that the earliest the surgical procedure would have been carried out would have been mid-May 2010 and therefore the maximum period of delay caused by the failure to make a correct diagnosis would have been circa 3-4 months (i.e. the difference between May and August 2010);
vi) that even if the tumour had been identified earlier the long-term prognosis would not have changed;
A feature of the present case is that the Particulars of Claim have identified only Medway NHS Foundation Trust as a Defendant. However, during the period between January and August 2010 the Claimant was seen and treated by a variety of other professionals (including GPs located at the Hospital to whom patients triaged in A&E were sent, and stroke specialists), employed by Medway Community Healthcare NHS Trust, a separate body which has not been included as a Defendant to these proceedings. It accordingly becomes necessary, from amongst the professionals providing medical services to Mr Mulholland, to identify those who were employed by the Defendant and those who were not; and then to assess the respective roles of each professional in the context of advice and treatment provided by others. In the section on the relevant facts (below) I have therefore differentiated between the different roles of the medical professionals involved relative to each other.
C. The Claim
The Particulars of Claim focused upon the conduct of 2 professionals employed by the Defendant: Mr Nathan Hunt (the triage nurse who streamed Mr Mulholland on his arrival in the Hospital on 11th January 2010); and, Dr Wei Li Chong ("Dr Chong") who assessed Mr Mulholland in A&E on 12th January 2010 and who devised a care path for him. Upon the conclusion of evidence, and shortly prior to commencement of closing submissions, Mr Grundy, for the Claimant, informed me that the claim against the Defendant based upon Mr Hunt's conduct was not pursued and that the Claimant's case therefore rested solely upon the conduct of Dr Chong. Mr Grundy did however say that the events of 11th January 2010 remained relevant by way of context to the events of 12th January 2010.
In this judgment I have concentrated upon the allegations against Dr Chong. However, at paras [84] – [91] below I summarise the reasons for the conclusion that I reached relatively early on in the trial that the claim against the triage nurse was misconceived. It seems to me that, notwithstanding the abandonment of the claim in respect of Mr Hunt, there is utility in my setting out the conclusions I arrived at about the standard of care to be expected of a triage nurse – such as Mr Hunt - in an A&E Department.
In relation to Dr Chong, in his closing submissions, Mr Grundy took me back to his pleaded Particulars of Claim in which he specified the acts and omissions said to reflect failings amounting to a breach of duty. I set the relevant part of the pleading out below. It will be seen that, in broad terms, the allegations encompass claims that Dr Chong failed adequately to extract relevant parts of Mr Mulholland's history, failed to exclude drugs as a possible attribution for the presented symptoms and signs, and failed to adopt a sufficiently cautious approach to choice of care path. The pleaded particulars of breach were as follows:
"a. Failed to carry out an adequate examination
b. Failed to take any or any adequate history of his presenting complaint, including the history set out in paragraphs 2 and 3 above
c. Failed to interrogate the Claimant as to whether he, as a long-term user of cannabis, had experienced such symptoms in the past when using cannabis: if he had been so interrogated he would have been emphatic in denying any such past experience
d. Placed undue emphasis on the complaint of hallucinations e.g. advised GP follow-up if his hallucinations recurred when follow-up was manifestly more important for the focal, specific and sustained neurological symptoms if they remained or recurred
e. Inappropriately diagnosed cannabis-induced symptoms when his main presenting complaint of unilateral limb weakness did not fit into such a diagnosis
f. Inappropriately attributed the Claimant's symptoms and signs to long-term cannabis use when a recent neurological cause for those signs and symptoms had not been excluded
g. Failed to act appropriately on his/her own neurological assessment and the specific, focal and sustained neurological signs obtained
h. Failed to take any or any appropriate steps to exclude TIA/CVA; it was especially important to do so given his re-presentation with further neurological symptoms
i. Failed to admit him for review by the physicians
j. Failed, in the alternative, to advise his GP that he should be referred to the hospital's TIA/CVA clinic for follow-up
k. Failed to refer him directly to the TIA clinic for the said follow-up
l. Discharged him when it was inappropriate to do so".
By the time the case reached the point of closing submissions the pleaded case had boiled down to some more limited and specific allegations about Dr Chong's decision making. It is these specific allegations that I have focused upon.
I turn now to set out the relevant factual background.
D. Relevant facts
(1) The onset of symptoms
The Claimant, Anthony Daniel Mulholland, was born on 16th December 1971. He is now married to Linda Mulholland who was born on 18th November 1969. Together they have four children born between 1992 and 2009. The Claimant works in the construction industry. In his witness statement, at paragraphs 4 and 5, Mr Mulholland stated:
"4. On 20th November 2009 police officers attended my house and I was arrested on suspicion of growing cannabis. This was completely unfounded and no charges were brought. However, when I was being taken into the back of the police car I was effectively bent double and one of the police officers held their knee into my back. I felt at the time that I couldn't breathe and had an almost blackout sensation.
5. It was around the time of this incident that my behaviour started becoming very aggressive. I would snap at Linda for no reason and start arguments with her over nothing. I have always been a loud, in-your-face type character, however towards the end of 2009 my behaviour started to change and I started becoming more aggressive around Linda and the children which at the point was not normal for me".
Expert evidence was to the effect that a tumour will exist for some time before the onset of symptoms and, further, that typically a patient may experience symptoms for some time before they become evident to family and loved ones. The Claimant traces the onset of symptoms to this event involving the police. In fact the experts gave evidence that medically an incident such as this could not trigger a tumour. But, on the evidence before me, I accept that it was at about this time that Mr Mulholland began to experience symptoms caused by the tumour. This suggests that the tumour pre-existed this point in time by some margin. According to Mr Mulholland's evidence in January 2010 he was working laying drains in Eden Park School, Bromley, a job which had commenced in December 2009. He was a few weeks into the job when there was an incident when he was down a hole and he was unable to pull himself out which he should have been able to do easily. A ladder was provided for him to exit the hole. The foreman told him that he had to go home to sort himself out because he was limping and not acting safely. There were cranes on the site and, apparently, the foreman was concerned. The foreman stated that there would always be a job for him provided he got better but he could not let Mr Mulholland work in the condition that he was in.
(2) 11th January 2010: First visit to A&E
(i) The ambulance call out
There is a conflict of evidence between the Claimant and the Defendant as to Mr Mulholland's condition and symptoms on 11th January 2010. I should state that Mr and Mrs Mulholland gave evidence in Court. Both did so with total candour and with dignity. Mr Mulholland accepted that his recollection of events was confused and he could not now be certain as to when precise symptoms came and went. Mrs Mulholland also gave evidence and she was able to corroborate some of her husband's evidence. But, quite understandably, she also could not be exact or certain about when symptoms came or went. It seems to me that there is no reason to doubt either Mr Mulholland's evidence or the medical notes prepared by the medical professionals. It is entirely possible that they are both accurate and the differences between them reflect the occurrence of symptoms which were transient and came and went at different times.
Mr Mulholland's evidence was that on the morning of 11th January 2010 he had what he described as a "mild seizure". He said he felt light headed as though he was going to pass out and he had lost control entirely of his right arm. He said that it was sticking out involuntarily and he thought he might be having a stroke. He explained that the feelings that he was experiencing were quite unlike anything that he had ever experienced before. His wife called an ambulance which took him to the A&E at the Hospital. He says that he told staff that he was concerned that he had had a stroke.
Not all of the medical professionals who were working in A&E at the Hospital, and who saw Mr Mulholland, have a specific recollection of treating him. However, there is a detailed record of the treatment set out in contemporaneous medical records. In the text below I describe what happened by reference to the clinical notes which, where appropriate, I supplement with the oral and written evidence given in Court.
(ii) The ambulance records
The ambulance arrived at A&E at 11.50am. The first contemporaneous record relating to Mr Mulholland are the ambulance records.
These show that the ambulance staff conducted a "FAST" test. This is a validated tool to screen for the diagnosis of a TIA or stroke. "F" refers to facial weakness (Can the person smile? Has the eye or mouth drooped?); "A" stands for arm weakness (Can the person raise both arms?); "S" stands for speech problems (Can the person speak clearly and understand what is said to them?); and "T" stands for test (i.e. test all three symptoms): See NICE, "Stroke Diagnosis and Initial Management of Acute Stroke and Transient Ischemic Attack (TIA)" (July 2008), Appendix D.
The ambulance records are in the following terms:
"C/O numbness L side
O/E FAST checks clear
Pt fully mobile
[Increased] resp rate – anxiety
H/O No FH
Episode occurred following sexual activity
Smoked cannabis last night
? induced by hyperventilation
Plan Pt adamant to be seen @ A/E".
(iii) Triage
Upon arrival at A&E Mr Mulholland was first seen by Mr Nathan Hunt. Mr Hunt is a Registered Nurse who qualified in 2008 having obtained a BSc Honours Degree in Nursing Studies from Canterbury Christ Church University. He began working as a newly qualified nurse at the A&E Department in the Hospital. Following qualification he completed a course in the Manchester Triage System. Mr Hunt did not have any personal recollection of having assessed Mr Mulholland. However he reviewed a copy of the medical records relating to his assessment of the Claimant and he produced a Witness Statement and gave oral evidence, based upon these records. At the time he saw the Claimant he had been practising as a registered nurse in the A&E Department of the Hospital for 18 months so that he had considerable experience of triaging patients in A&E. On average during a normal shift the Department would assess up to 200 patients. He gave evidence to the effect that he had extensive experience of assessing patients who were complaining of altered sensation or who could potentially have suffered a stroke. He recorded the following note in the records:
"TRIAGE TREATMENTS:
TRIAGED COMMENTS
PT developed numbness to left side passed FAST TEST. No facial droop or slurred speech no limb weakness, no chest pain or sob, no nausea or vomiting. Pt c/o pins and needles in left arm. Pt says this followed an episode of sexual activity. Insisted on coming to A&E for assessment. Pt clearly anxious concerned for health of his heart and family hx of epilepsy.
Sdtc 12.03.
Time: 12:03".
The clinical note also records that Mr Hunt took Mr Mulholland's pulse which was 70, and he recorded his respiratory rate which was 18 and his blood pressure at 131/79. His O2 saturations were 99%. The records note that he came into the Department by ambulance and was unaccompanied.
Mr Hunt gave evidence as to the standard triage practise that he says, and I accept, would have been carried out. Mr Hunt would also have had a copy of the ambulance notes. These, as set out above, indicated that the ambulance crew performed a FAST test and found this to be negative, i.e. not indicative of a TIA/CVA. Mr Hunt would have assessed the Claimant's gait. If there had been any evidence that the patient was incapable of walking in a straight line, or was slouching, or that his gait was abnormal in any way, he would have recorded that. Mr Hunt would also have taken a history from the patient. He noted that Mr Mulholland was complaining of pins and needles in his left arm commencing following an episode of sexual activity. Mr Mulholland informed Mr Hunt that there was a family history of epilepsy. Mr Hunt would have examined to see whether there was any facial droop or slurring of speech. The notes record that there was no such presentation. Mr Hunt would have asked the patient whether he had any chest pains or shortness of breath and whether there was any history of nausea or vomiting, which there was not. Mr Hunt would then have conducted a neurological examination which would have taken the form of looking at the patient's pupils and checking whether they were equal and reactive to light. If there had been any abnormality this would have been recorded. Mr Hunt deduces from the records that the results of the examination were normal. According to normal procedure Mr Hunt would also have checked for signs of limb weakness and he would have asked Mr Mulholland to squeeze his hand with both hands in order to check whether there was any weakness in his left or right hands. He would then have placed his palms outwards towards the patient and he would have asked the patient to push his hands away. Patients who are suffering from a stroke often suffer from weakness in the arms and the test discloses whether there is any weakness in the patient's upper limbs. He would then have asked the patient to hold his arms out straight in the air to check whether there was any sign of weakness or deficit in movement. Again, had there been any abnormality this would have been recorded. Mr Hunt, once again, deduced from his records that this test proved normal. If the patient had been on a trolley it would have been his normal practise to check legs strength but Mr Mulholland walked into the cubicle before taking a seat and there was no evidence from his walking that he had leg weakness. Mr Hunt would also have checked for any history of involuntary abduction in the patient's arms and had there been any problem this would have been recorded. Again, Mr Hunt deduced from the absence of any such record that there was no such problem.
In his witness statement Mr Hunt stated as follows (and there was no challenge to this):
"14. I am certain that I conducted a comprehensive neurological examination because I specifically recorded that the patient had passed the FAST test (which is an acronym for a test comprising of assessment of the patient's Face, Arms, Speech and the final part of the acronym relates to Treatment).
15. Although I would not strictly record in my Triage notes I would also have assessed the patient's Glasgow Coma Score when assessing the patient, to check whether they potentially have had a stroke. A patient who is walking and talking without difficulty would usually be assessed as having a Glasgow Coma Score of 15".
An important issue lies in the limitations under which a staff nurse, in the position of Mr Hunt, would have been working under. Mr Hunt explained, and I accept, that he did not have authority to discharge a patient. Once he had completed a triage he had a limited number of options open to him. These were, first, to ask one of the doctors in the A&E Department to assess the patient; secondly, if he concluded that there were clinical signs that the patient had suffered or was suffering from a stroke he could refer the patient immediately to the stroke team; or thirdly, where appropriately he could refer the patient for further assessment to a GP in the Hospital at the Same Day Treatment Centre ("SDTC").
(iv) The streaming to a GP in SDTC
The concluded view of Mr Hunt was that the Claimant's neurological assessment was normal and that all his vital signs were normal. In these circumstances he considered it appropriate to refer Mr Mulholland to the SDTC for assessment by one of the centre's GPs.
There is no challenge brought by the Claimant to the assessment then made by the GP in the SDTC. In closing submissions, Mr Grundy, for the Claimant, accepted that, on balance, he could not submit that the GP's assessment was negligent. It is plain from the records of the assessment made by the GP that the GP in question (Dr Boachie) did not come to the conclusion that Mr Mulholland was suffering from a neurological condition but, rather, that his symptoms suggested anxiety or were cannabis related ("strong weed"). Dr Boachie's records are in the following terms:
"History: pt developed numbness to Lt side passed FAST TEST – no facial droop or slurred speech no limb weakness no chest pain or [shortness of breath] no nausea or vomiting [patient complaining of] pins and needles in Lt arm – pt says this followed an episode of sexual activity – insisted on coming to a&e for assessment pt clearly anxious and concerned for the health of his heart and family [history] of epilepsy.
[history] as above, patient says took 'strong weed' last night, and wondering if that could be the cause of how he is feeling, very worried about stroke,
Examination: looks well but very anxious, no hallucinations or thought disorder, good rapport, no suicidal ideations, bp – 131/79, 18/min, CNS-tone power reflexes, normal
Diagnosis: anxiety/effects of drugs
Treatment: tried to reassure not stroke, not heart attack, diazepam [to] help relaxation and sleep
Prescription items: diazepam tablets 5mg (14) tablet(s) 1 twice daily as required".
The Claimant was discharged by Dr Boachie with a prescription for diazepam.
(3) 12th January 2010: The second visit to A&E
(i) The ambulance call out
I turn now to the events of 12th January 2010 which is the day upon which the Claimant was examined by Dr Wong.
On the morning of 12th January 2010 Mr Mulholland explained that he experienced a second seizure. Mrs Mulholland called an ambulance and he was brought back to the Hospital. He arrived at about 09.17am. Mr Mulholland says that at this time he was feeling light headed and experiencing dizziness and blurred vision. He says he was disorientated and gazing through people, not engaging and finding it difficult to concentrate. It was his evidence that he could not control his right arm and leg and that his right arm would go "straight out and to the right at shoulder height" which he said was an embarrassment and a problem. He said that he was also walking with difficulty as his right leg was weak. He says he remembers feeling upset because he believed that nobody considered that anything was seriously wrong with him. Mrs Mulholland explained that, so far as she can recall, she followed on behind the ambulance.
(ii) The ambulance records
The ambulance notes record that a FAST test was performed and that the Claimant failed, i.e. that on this occasion Mr Mulholland showed signs of a TIA. The notes record a right side weakness. The record made by the ambulance staff reads:
"P/C 38 yrs male generalised headache
R arm R leg weakness 999
Symptoms onset 11am yesterday
HPC – admit yest by amb – told possible anxiety attack. Discharged 1500
O/A male on scene quite anxious.
Family on scene
O/E GCS 15 Fast Test reveals R arm R leg weakness
Seen at A&E yest a/m same symptoms. Baseline
obs ok. Well perfused. Very worried that he is having
a CVA. 5/10 frontal lobe headache. ?anxiety ?TIA.
PMH smoked skunk last time 48 hours ago.
Head injury 4 years ago.
Meds Diazepam prescribed by MMH.
SHx Lives with wife and family
Allergies nkn Meal 2/7 ago".
(iii) Triage
Upon arrival at A&E he was triaged. The triage notes record:
"[Patient] states is having a stroke, pt attended with same issues yesterday and was discharged with anxiety, pt is known cannabis user, pt states had a joint last night".
At 09.30am the nursing records state:
"[Patient brought in by ambulance] … [complaining of] weakness and dizzy spells. Neuro observations taken and recorded. GCS 15/15 MMEWS 0".
(iv) The streaming to the specialist stroke team
Mrs Mulholland gave evidence that she attended A&E with her husband and she was insistent that her husband be seen by stroke specialists. Although this is not recorded in medical notes I have no reason to disbelieve her evidence. Assuming the triage nurse knew what the conclusions of the ambulance team were in relation to the FAST test he would have been streamed to stroke services anyway. At 09.40am the Claimant was seen by the Stroke Services team. This is a nurse led specialist unit. This team is not part of the Defendant. The Claimant was seen by Ms Gill Willard. I assume that she was a nurse but there was no direct evidence before me to this effect and it is possible that she was a doctor. The distinction however is not relevant to my conclusions. The records prepared by Ms Willard contain the following:
"[History of] headaches x [two days].
Yesterday morning felt light headed and thought he was going to pass out, [?] loss of control over right upper limb. Came to A&E [diagnosed with] anxiety – prescribed diazepam + discharged. – symptoms still present today. Therefore called ambulance + came back to A&E.
[Examination] – Appears anxious. Still [complaining of] light headedness.
No family history of stroke – father has epilepsy
Regular cannabis user
[No] alcohol
Concentration decreased + patient tearful
Full power all 4 limbs
Slight [decrease] coordination [right] upper limb
[No] visual disturbances. [No] speech disturbance
Impression: symptoms + history not suggestive of TIA / CVA
Plan: refer back to A&E team".
There is no record which indicates whether the stroke team saw the ambulance records which, as set out above, record that the Claimant failed the FAST test. However, since Mr Mulholland was triaged to stroke specialists it is likely that the ambulance records played a part in that triage decision and that the stroke services would have been aware of the earlier FAST test outcome. As the note records the specialist stroke team however concluded that the symptoms and history were not indicative of a TIA or CVA. The clinical notes indicate that the stroke team conducted a full neurological assessment for TIA or stroke.
(v) The assessment by Dr Chong
Following having been assessed by the stroke team, the Claimant was referred back to A&E where he was then assessed by Dr Chong. The premise underlying this decision on the part of Ms Willard was that the signs and symptoms were something other than a TIA or stroke and that therefore Mr Mulholland should be assessed by an A&E doctor.
It is necessary to dwell upon the assessment made by Dr Chong because her decision lies at the heart of the Claimant's case of alleged breach of duty. Dr Chong gave evidence during the trial. She qualified with MBChB from the University of Edinburgh in 2007. Upon obtaining her degree she completed the usual course of foundation training in Edinburgh. She commenced employment as a FY1 in the Acute Receiving Unit at Western General Hospital in Edinburgh between 1st August 2007 and 4th December 2007. Subsequently she worked as FY1 in the Colorectal Unit at Western General Hospital between December 2007 and April 2008 before completion of a period of four months training in palliative care at the Victoria Hospice in Kirkcaldy between April and August 2008. Thereafter she gained relatively extensive experience in emergency medicine, including at the Hospital. She has been studying for a Masters degree in Health Economics Policy and Management at the LSC since 2012 and became a member of the Royal College of Physicians in 2010. She completed the primary MCQ for the Royal College of Anaesthetists in 2011.
Dr Chong, in readiness for this trial, viewed the medical records of the Claimant, including those prepared by her at the time. She explained that following this review she recollected the consultation with Mr Mulholland on 12th January 2010 and hence her evidence was a combination of her records and her own personal recollection. Dr Chong saw Mr Mulholland at 10.50am and she took a full contemporaneous note of her assessment. In oral evidence she explained that whilst she considered her note to be full she did not, nor would as a matter of normal practice, record every single detail of the assessment of Mr Mulholland. The record was in the following form, which seeks accurately to reflect the form in which it was recorded by Dr Chong:
38(M) PC: same complaint as yesterday
C/O inability to control R arm plus leg. R arm/
Shoulder spasm and R leg weakness.
Feels light headed and dizzy. Blurred vision.
Denies any head trauma. Smokes marijuana x3 at
night.
HI of CO yesterday had marijuana @ 7am then
had sex. Immediately had pain in testicles. C/O ↑ volume
of urine. Then ↑ panicky + agitated and could (not) [SIC] feel
arm/leg. Couldn't walk. Collapsed and brought in.
Given diazepam by GP and that relieved spasm.
Smoked marijuana for 15 years.
Anorexia for past 2/7, hallucinations yesterday
PMH MED NKDA
Head injury 3 years ago. Diazepam 5mg
# skull R temporal area. C x 3 doses
° smokes cigarettes L R
° ETOH CNS: opthal N ↓
BP126/64 V2: ↓ N
O/E obs stable HR 61 V3: ↓
98% RA RR 16 Chest
Neuro. CN II – XII → no nystagmus clear
nil
added
Denies Pupils C=R= perla3. HS I+II+0
any Pulse 7
testicular LUL RUL LLL RLL gait
pain Tone _______________ N _______________ Abdo
now Power 4/5 4/5 4/5 4/5 SNT
Reflexes + + + + BS present
equivocal
Sensation N ↓ N ↓
Coordination N N N N
Proprioception N N
IMP: ? marijuana induced
Symptoms
P urinalysis → trace proteins other N
Bloods D/W for → for 2/7 off
Home diazepam Chong.
For ease of reference I set out below the "translation" of the substantive conclusions in Dr Chong's notes by Ms Johnson, counsel for the Defendant:
"[patient complaint]: same complaint as yesterday
[complaining of] inability to control [right] arm + leg. [right] arm / shoulder spasm and [right] leg weakness
Feels lightheaded and dizzy. Blurred vision.
Denies any head trauma. Smokes marijuana x 3 at night.
[history] yesterday had marijuana at 7am then had sex. Immediately had pain in testicles. [complaining of increased] volume of urine. Then [increased] panicky + agitated and could [not] feel arm/leg. Couldn't walk. Collapsed and brought in. Given diazepam by GP and that relieved spasm.
"Smoked marijuana for 15 years"
Anorexia for past 2/7, hallucinations yesterday
PMH
Head injury 3 years ago
[fractured] skull R temporal area
Meds NKDA
Diazepam 5mg
C x3 doses".
The Claimant's blood pressure was 126/64mm Hg. His heart rate was 61 beats per minute. His heart sounds were normal and his chest was clear. His abdomen was soft and not tender with bowel sounds present. With regard to the transgeminal nerve there was some decrease in sensation in V2 and V3 on the left and the ophthalmic branch on the right. The cranial nerves II-XII were otherwise normal. The pupils were equal and both were reactive to light. Power was 4/5 in all limbs. There was, however, some reduced sensation in the right upper and lower limbs but coordination and proprioception were normal and equal.
Dr Chong explained in evidence that when she conducted her assessment of the Claimant she noted that he had already been seen by the Stroke team at 09.40am that morning (i.e. just over an hour earlier) and she would have looked at the notes prepared by them. She also had access to the notes relating to the presentation on the previous day. She felt that she had taken a full history from Mr Mulholland. She recollected that she conducted a neurological examination testing the power in all four of his limbs by first asking him to push her hands away using his hands. She explained also that she laid him on the couch and asked him to raise his legs and resist when she tried to push his legs down. She also tested the strength in his feet by asking him to push her hands away with his feet. She recollected that he was a young man and that he did not make much effort in terms of demonstration of strength when she was testing for power in his limbs. It was for this reason that she only gave him 4 out of 5 when assessing power. She was cross-examined about this and said that she would have given him 5/5 but for her conclusion that the Claimant was not making a full effort. She also gave evidence that she tested for tone by moving his hand up and down to ascertain whether there was any resistance in his joints but noted that the tone was normal throughout. She explained further that she tested his reflexes with a tendon hammer and the results were also normal. She tested for sensation by running her fingers along his arms and legs and noticed that sensation was reduced over the right upper and right lower limbs but was normal in the left upper and left lower limbs. She tested his coordination by asking him to move his finger from the tip of his nose to the tip of her finger with both hands and then to run his left foot down his right shin and vice-versa. Coordination was normal in all four limbs. The test for proprioception was also normal. Her analysis of his pupils was that they were equal and reactive to light; there was no nystagmus (involuntary eye movement) present. In relation to the Claimant's cranial nerves there was left sided reduced sensation over the left cheek bone and jaw area with reduced sensation over the right forehead. In her witness statement Dr Chong articulated her conclusion in the following way:
"24. Taking into account the history of marijuana use, I conclude that Mr Mulholland's symptoms were likely to have been induced by marijuana usage. I would also have considered alternative diagnosis such as the possibility of the onset of Multiple Sclerosis but my findings on examination of reduced sensation over the left side of the face and over the right side of the rest of his body was confusing because he also admitted to hallucinations and there was a history of taking cannabis. Neither did these results of examinations, together with the history I took from Mr Mulholland fit with a history of TIA/CVA".
Dr Chong discussed the case with the Registrar on duty. Although she cannot be certain which Registrar it was she suspects it was Dr Verlyn Tolat. She explained to the Registrar that her management plan was to perform a urine analysis and to obtain blood tests but that her principal conclusion was that the Claimant's symptoms were likely to be due to marijuana usage. She explained in evidence that the Registrar agreed with her management plan and in addition advised the prescribing of further diazepam, bearing in mind that Mr Mulholland had been prescribed this drug by his GP the previous day and that this had assisted in relieving the muscle spasms which Mr Mulholland had been complaining of. She explained the logic behind this: She suspected a cannabis attribution but could not be certain. If he ceased taking cannabis any symptoms due to drug use would cease within that period so that if they in fact persisted they could then be attributed to a non-drug cause. This assessment could be made by the Claimant's GP.
Following her discussion with the Registrar Dr Chong recalls advising Mr Mulholland that he should cease smoking cannabis and that her diagnosis was that the symptoms were likely to be related to his drug use. She says that she would also have advised him that if the symptoms were not due to cannabis usage then this would not become clear until he ceased smoking the drug. The urine analysis results were returned and showed trace proteins but were otherwise normal and his blood test was normal. Dr Chong explained that given that the neurological examination did not disclose any problems with his mobility, strength or coordination and that otherwise his test results were normal it was appropriate for him to be discharged. She explained that in reaching this decision she had conducted a fuller examination than would be normal practice in A&E and also that she took account of the fact that the stroke team had also taken a history from him when they assessed him at 09.40am that same morning. She took into consideration that the results of the stroke team analysis did not suggest TIA or CVA.
In relation to the clash of evidence between the Claimant and Dr Chong as to whether Mr Mulholland presented with a complaint of unilateral limb weakness, Dr Chong disputed this evidence. As I have already observed I do not need to resolve this dispute. I do not doubt that Mr Mulholland did experience these symptoms. The strong probability is that this was at a different moment in time and not therefore during the medical assessments themselves. Dr Chong gave evidence that Mr Mulholland complained of right arm and shoulder spasm with there only being weakness in the right leg. In her witness statement she stated:
"29. The finding of reduced sensation of the right V1 distribution, and in the left V2 and the left V3 distribution and the finding of reduced sensation over the right side of the body and the history of hallucinations did not fit the diagnosis of stroke. It is important to note that cannabis can have neurological effects. The history which I was given by Mr Mulholland was discordant because the history which he gave on 11 January was of pins and needles in his left arm whereas the complaint on 12 January was of inability to control his right arm and leg and of the presence of right arm shoulder spasm and right leg weakness. Again this history did not fit with the history of TIA/CVA".
In relation to the suggestion that Dr Chong should have admitted the Claimant she explained that as a CT1 doctor in training she did not have admitting rights. But in any event she had discussed the Claimant's case with her Registrar who did not consider it necessary or appropriate to admit Mr Mulholland or to perform a CT scan. She explained that it would not be usual to admit a patient who was complaining of loss of sensation but who was otherwise well or to perform a CT scan. In the circumstances Dr Chong considered that it was reasonable to discharge Mr Mulholland with advice that he should see his GP if symptoms persisted once he had ceased taking cannabis for a few days. And to provide him with a prescription for two days worth of diazepam, as recommended by the Registrar.
A written referral document was sent by the Hospital to the Claimant's GP very shortly afterwards and appears to have been received by the practice on 15th January 2010. This records the diagnosis of Dr Chong as "Simple intoxication of cannabisoids. Excludes poisoning T407, Site: O Side: Right". The document however records that Mr Mulholland "Presented with: numbness to Left Side". Under the heading treatment it is stated: "1. GP for follow up, Verbal advice". Under "Patient Diagnose" it simply states: "Referred to GP". The reference to "verbal advice" is a reference to the fact that Mr Mulholland had been given oral advice in A&E (as to which see para [45] above).
(4) Events subsequent to 12th January 2010
Subsequent to the Claimant being discharged from the Hospital, he made a number of visits to his GP. On 13th January 2010 he telephoned his GP to report the symptoms he was suffering. A record of the telephone conversation was made by Dr Christine Huxham and is in the following terms:
"Telephone encounter pt on phone, angry at hospital, government, our system, asking someone give him a call in the morning to make him a pt, explained policy of practice, more agitated, convinced had mild stroke, smoking weed and claims had heart failure but not happy how treated a Medway hospital and discharged without tests etc, hung up".
On 15th January 2010 the Claimant saw Dr Sophie Bagley. It is his evidence that he explained to her that he had suffered a stroke but that he was advised there was no evidence of stroke and that his symptoms were likely to be due to drugs. He says he requested a brain scan but this was refused. The note of the consultation made by Dr Bagley is in the following terms and suggests that a FAST test was performed:
"Patient reviewed insistent that has had a stroke, felt [right] side went numb and right arm shaking. Admits to heavy use of drugs cocaine, cannabis etc – but says has stopped. o/e CN intact PERLA, no facial droop PN tone power sens[ation] reflex intact. Advised that no evidence of stroke, symptoms likely to be due to drugs, advised of help with drug problems".
On 2nd February 2010 the Claimant again attended his GP. The record made by Dr Huxham is in the following terms:
"[History] Assault alleged by police. Happened before Christmas in drugs [raid]. Now convinced having stroke although has been diagnosed with panic attacks. Feels light headed. Says was given whiplash by 17 stone officer on back".
Mr Mulholland gave evidence that by about March 2010 his aggression had increased and he would fly into rages at trivial matters and he became verbally abusive to friends and family. He says that his sleeping pattern changed and he was unable to sleep more than a few hours at a time and became anxious in crowds. The Defendant points out that during this period the Claimant was seen upon (at least) three occasions by his GP for other complaints when these alleged symptoms were not reported. It appears that on 21st January 2010 he complained of muscle strain in his upper back; on 23rd February 2010 he complained of a lump following on from a vasectomy and a concern about prostate cancer; and that on 26th February 2010 he complained of urinary symptoms.
The Claimant returned to his GP on 26th March 2010 to consult with Dr Huxham. The note of the consultation records:
"Had chat to patient really poor sleeping pattern. Wants help. No depression. Advised re addictive nature. Can have short course use very small prn".
He was prescribed with Zopiclone (an insomnia medication). The note makes no reference to the Claimant's hospital visits and there is no suggestion within the record that the diagnosis of Dr Huxham was based upon other than the presenting history and discussion.
It is the Claimant's evidence that during this consultation he was advised to take exercise and accordingly commenced attending a gym and swimming. However, he said he felt unsafe to swim because of his right arm symptoms.
He was seen by an out of hours doctor on 19th June 2010. The history reported was "not feeling well – very anxious – not able to straighten his leg properly – asking for app". On examination the GP recorded:
"Not anxious but poor eye contact and fears he has brain damage. Was able to answer all my questions and no associated slurry speech. Saying unable to straighten leg, no bruises and no pain or swelling. Patient very concerned about the way he was treated by the police in November and he felt his head was pushed in between his legs and has caused him to be hypoxic. Tried to reassure and advised if very concerned to return to GP for review".
The diagnosis was "?? Anxiety of health".
On 22nd June 2010 the Claimant was seen by Dr Maddoc. She agreed to refer him to a specialist. Her record of the consultation reads as follows:
"Anxiousness pt says he is anxious and doesn't want medication and he got leg problem and a small cyst on forehead. [on examination] good eye contact. The leg – rt – movements full no pain ? functional. Asking for a referral to physiotherapy – also asking for the cyst removal. o/e ? small infected skin lesion – on forehead. Pt disagrees with any examination. Raises voice and started to be difficult. Kept going on no end. Refused medications prescribed – agreed to refer the pt to specialist. Still not happy has been told that I am going to call the police and he started getting worried and started requesting not to call. On the whole this was a warning from surgery for such behaviour".
Mr Mulholland explained – and this was confirmed by Mrs Mulholland - that in about June 2010 Mrs Mulholland asked him to move out of the family home because of the considerable psychological distress he was causing and because of safety issues relating to the children. He said that as time went on his symptoms deteriorated: his right arm had curled up into his body; he had commenced shuffling when walking; his concentration and memory deteriorated and he began to lose his balance, falling over on several occasions; his coordination deteriorated such that he could no longer write his own name or use a knife and fork; and he felt suicidal. Mrs Mulholland gave evidence about a series of incidents (in which Mr Mulholland acted in a dangerously forgetful manner, such as leaving the gas on and the front door open when he went out) which left her very concerned about her husband's mental health. My conclusion is that all these events were caused by the growth of the tumour which was now impacting more forcibly upon the brain and reaching a crescendo in its effects.
On 5th July 2010 Mr Mulholland saw his GP and he expressed concern about his continuing and deteriorating symptoms. The GP records states:
"…was apparently assaulted in back of Police car in November…since then daily headaches and R sided weakness, worse since Jan, getting v anxious, not sleeping as worrying something wrong with his brain…o/e [on examination] tremor and weakness settle with distraction. Imp [impression] psychosomatic symp. Will refer to neurol as not responding to my reassurance".
A neurology appointment was offered for 25th September 2010.
On 14th July 2010 the Claimant attended A&E at the Hospital. The full note of triage, which recorded a negative FAST (i.e. no indication of a TIA or CVA) was:
"pt went to gym, c/o that he cannot move R arm/leg, thinks he is having stroke, no facial problems, pt was attacked by police in November and thinks this has caused this, diagnosed with whiplash, neurological app in Sept. pt would like to see brain surg, pt abrupt and rude in triage, FAST neg".
On 19th July 2010 the Claimant attended his GP and requested an MRI of his head and spine. However no investigations were ordered. On 26th July 2010 the GP records document that the Claimant was once again reviewed reporting symptoms of uncontrolled shaking.
On 2nd August 2010 the Claimant says he suffered a fall at home and on 4th August 2010 he attended A&E at the Hospital where a soft tissue injury to the chest was identified and documented.
On 12th August 2010 the Claimant says he suffered another seizure and that Mrs Mulholland telephoned the GP practice reporting that he was not sleeping. She asked that the neurology appointment be expedited. The GP agreed to write to the neurologist to see if the appointment could be brought forward. But Mrs Mulholland was not satisfied with this so that same day she took him to A&E at the Hospital. He was referred to the SDTC but the Claimant decided not to wait and sought assistance elsewhere. The Claimant saw the out of hours doctor later that afternoon. That doctor was aware that the Claimant's GP had promised to contact the neurologist to bring forward his appointment.
(5) 15th and 16th August 2010: Admission and diagnosis of the tumour
On 15th August 2010 Mr Mulholland once again attended A&E at the Hospital with his wife. The front sheet of the notes indicate that the complaint was "a mental health problem" and recorded that the Claimant was very down and tearful, had weakness in his left side and was awaiting a neurology review. Mrs Mulholland was very concerned that his memory was going and that he kept wandering off, was not engaging in conversation and was having serious problems with sleep. He was assessed by a specialist Registrar who noted the presenting complaint as depression. The history was recorded in the following way:
"Had an accident. House was raided by police in November 2009 and physically [illegible]. Two weeks later right sided weakness then went to the GP. Diagnosis psychological. Recently deteriorating, fidgety and wandering, down and depressed. Awaiting neurology OPD. On examination right sided weakness old, v down, diagnosis depression. Mild suicidal intent. Refer MASTT tt medically fit for discharge".
The Hospital's MASTT team (the mental health team) assessed the Claimant and recorded that he did not have a psychological problem but that he needed to be re-assessed by the medical team. Ultimately it was agreed that he would be admitted and kept overnight. On 16th August 2010 he was assessed on a medical ward as presenting with right-sided weakness and altered mood and behaviour. An organic underlying cause was to be excluded by "CT head".
A CT head scan was subsequently performed and revealed a large mass in the left frontal lobe measuring 6.3 x 5.3cm. Thereafter cranial MR imaging was performed and this recorded that the mass was suggestive of an astrosytoma. It turned out that Mr Mulholland had a large tumour comprising a cyst (containing plasma which was approximately 90% of the total mass) and a solid core (the other 10%).
On 21st August 2010 the Claimant was referred to Kings College Hospital where he underwent emergency surgery. His diagnosis was confirmed following surgery as anaplastic oligodendroglioma (grade III).
E. Observations on the evidence
In the course of this trial I received oral evidence from the Claimant and his wife (Linda Mulholland); and from Mr Nathan Hunt and Dr Chong.
I now set out my observation on the evidence of the non-experts.
First, as to the Claimant, Mr Mulholland: He gave evidence with dignity and integrity. It was plain to me that he had suffered significantly over the period to August 2010. He described to me the symptoms that he experienced. He explained, with candour, that because his short term memory had been adversely affected (not least because of the effects of a return of the tumour in 2013 which was addressed with chemotherapy), he could not recall the minutiae of his treatment history or when symptoms came and went. But in broad terms he was clear, first, that his symptoms were transient and varied; and, secondly, that they became increasingly worse reaching a crescendo in July/August 2010.
Secondly, as to Mrs Mulholland: She also gave evidence in an honest and fair way. She explained how her husband's symptoms impacted adversely upon her and the family. She corroborated Mr Mulholland's evidence. I have no basis for disbelieving the basic thrust of her evidence.
Thirdly, Mr Nathan Hunt, the nurse who triaged Mr Mulholland on 11th January 2010. Mr Hunt gave concise and to the point answers to questions which I found to be fair and convincing.
Fourthly, as to Dr Chong, she gave full and candid answers in response to vigourous cross-examination by Mr Grundy. Her evidence was thoughtful and balanced. In her evidence she painted a picture of the pressures that an A&E doctor confronted on a daily basis. She gave a comprehensive account of how she had dealt with Mr Mulholland and her reasons for her conclusions. There is one matter of substance in relation to her evidence that I address now. In her witness statement she said, in relatively unqualified terms, that her diagnosis was that Mr Mulholland's symptoms were due to drug usage. In her oral evidence her explanation was fuller and more nuanced. She explained that she did not make a definitive diagnosis of drug taking as the cause of the symptoms. Rather, that this was, in effect, a provisional diagnosis or impression and it was for this reason that she decided that the care pathway was that Mr Mulholland should cease drug taking for a few days in order for any cannabis toxicity to be eradicated from the body and then visit his GP. If symptoms persisted a drug attribution could be excluded. I accept this evidence because it is consistent with the clinical notes prepared at the time and the inherent logic of the care path actually adopted. It is also consistent with other parts of her witness statement which were in not quite so emphatic terms (see e.g. at para [24] above and the reference to "likely" in para [42] of the witness statement).
I also heard evidence from experts in three disciplines. In relation to Emergency Medicine I heard evidence from Ms Longstaff (Claimant) and Dr Campbell-Hewson (Defendant). In relation to neuro-surgery I heard evidence from Professor Pickard (Claimant) and Mr Jellinek (Defendant). In relation to neuro-oncology I heard evidence from Dr Rees (Claimant) and Professor Price (Defendant). In the event in this judgment I have concentrated upon the evidence and conclusion of Ms Longstaff and Dr Campbell-Hewson since it was their evidence that went most directly to the issue of breach of duty.
I have set out below (at paras [79ff]) the law in relation to experts. I can summarise my conclusions about the professionalism of the experts briefly. As a group they were impressive. They all had enormous experience in their respective fields. They exhibited true depth of knowledge. They made appropriate concessions and worked well together to produce helpful joint statements which they developed in the course of the trial as thoughts evolved and as various new pieces of evidence came to light.
Finally, in relation to the evidence I should record that the cross-examinations conducted by Ms Johnson (for the Defendant) and Mr Grundy (for the Claimant) were concise, courteous and effective. Their professionalism throughout eased my task in evaluating some complex, technical, evidence.
F. Relevant law
I turn now to the law. There is no significant dispute as to the relevant law to be applied to the facts of this case. It is common ground that the Defendant owed a duty of care to the Claimant. The standard of care is contained within the articulation of principle known as the "Bolam" test which derives from a direction given to a jury by McNair J recorded in Bolam v Friern Hospital Management Committee [1957] 1 WLR 583 at 586, 587, where the Judge stated:
"The test is the standard of the ordinary skilled man exercising and professing to have that special skill. A man need not possess the highest expert skill; it is well established law that it is sufficient if he exercises the ordinary skill of an ordinary competent man exercising that particular art…
I myself would prefer to put it this way, that he is not guilty of negligence if he has acted in accordance with a practice accepted as proper by a responsible body of medical men skilled in that particular art… Putting it the other way round, a man is not negligent, if he is acting in accordance with such a practice, merely because there is a body of opinion who would take a contrary view".
Re-formulating the Bolam test the question in this case is whether no reasonable doctor acting and exercising judgment in the way that Dr Chong did would have failed either to refer Mr Mulholland to a specialist neurological clinic for further assessment, or, direct a CT scan of the Claimant at or about the time of his presentation to A&E on 12th January 2010.
The task of the courts in cases such as this is invariably assisted by expert evidence. In C v North Cumbria University Hospitals NHS Trust [2014] EWHC 61 (QB) at paragraphs [22] – [25], in the context of an allegation that a nurse had been negligent in the administration of the second dose of a particular drug used in labour, I set out a summary of the principles which applied to the assessment of an allegation of breach of duty made by competing experts:
"22. It is therefore insufficient for a Claimant to demonstrate only that there exists a body of competent expert opinion which disagrees with the judgment which was taken upon the facts of the present case. This is no more than a recognition of the fact that in an area where professionals exercise a high degree of technical and medical expertise that there may be a range of different views all of which might quite legitimately be held about the same matter. Accordingly, if there exists a body of competent professional expert opinion which supports the decision as reasonable in the circumstances it matters not that other experts might disagree. Lord Scarman in Maynard v West Midlands RHA [1984] 1 WLR 634 at 638E stated:
"Differences of opinion and practice exist and will always exist in the medical and other professions. There is seldom only one answer exclusive of all others to problems of professional judgement. A Court may prefer one body of opinion to the other, but that is no basis for a conclusion of negligence".
23. The test was subjected to analysis in Bolitho v City and Hackney Health Authority [1997] UKHL 46; [1998] AC 232. An issue was whether a Court was required to accept the views of one truthful body of expert professional advice even though the Court was unpersuaded of its logical force. It was submitted that to adopt such an approach was "wrong in law" because it was ultimately for the Court, not for medical opinion, to decide what was the standard of care required of a professional in the circumstances of a particular case. Lord Brown Wilkinson stated as follows:
"My Lords, I agree with the submissions to the extent that, in my view, the Court is not bound to hold that a defendant doctor escapes liability for negligent treatment or diagnosis just because he leads evidence from a number of medical experts who are genuinely of opinion that the defendant's treatment or diagnosis accorded with sound medical practice. In the Bolam case itself, McNair J stated…that the defendant had to have acted in accordance with the practice accepted as proper by a "responsible body of medical men".
Later, he referred to "a standard practice recognised as proper by a competent reasonable body of opinion". Again, in the passage which I have cited from Maynard's cases, Lord Scarman refers to a "respectable" body of professional opinion. The use of these adjectives – responsible, reasonable and respectable – all show that the Court has to be satisfied that the exponents of the body of opinion relied upon can demonstrate that such opinion has a logical basis. In particular, in cases involving, as they so often do, the weighing of risks against benefits, the judge before accepting a body of opinion as being responsible, reasonable or respectable, will need to be satisfied that, in forming their views, the experts directed their minds to the question of comparative risks and benefit and have reached a defensible conclusion on the matter".
24. Later, having cited various authorities, Lord Brown Wilkinson stated:
"These decisions demonstrate that in cases of diagnosis and treatment there are cases where, despite a body of professional opinion sanctioning the defendant's conduct, the defendant can properly be held liable for negligence (I am not here considering questions of disclosure or risk). In my judgment that is because, in some cases, it cannot be demonstrated to the judge's satisfaction that the body of opinion relied upon is reasonable or responsible. In the vast majority of cases the fact that distinguished experts in the field are of a particular opinion will demonstrate the reasonableness of that opinion. In particular, where there are questions of assessment of the relative risks and benefits of adopting a particular medical practice, a reasonable view necessarily pre-supposes that the relative risks and benefits have been weighed by the experts in forming their opinions. But if, in a rare case, it can be demonstrated that the professional opinion is not capable of withstanding logical analysis, the judge is entitled to hold that the body of opinion is not reasonable or responsible.
I emphasise that in my view it will seldom be right for a judge to reach the conclusion that views genuinely held by a competent medical expert are unreasonable. The assessment of medical risks and benefits is a matter of clinical judgment which a judge would not normally be able to make without expert evidence. As the quotation from Lord Scarman makes clear, it would be wrong to allow such assessment to deteriorate into seeking to persuade the judge to prefer one of two views both of which are capable of being logically supported. It is only where a judge can be satisfied that the body of expert opinion cannot be logically supported at all that such opinion will not provide the benchmark by reference to which the defendant's conduct falls to be assessed".
25. In the present case I have received evidence from 4 experts, 2 on each side. It seems to me that in the light of the case law the following principles and considerations apply to the assessment of such expert evidence in a case such as the present:
i) Where a body of appropriate expert opinion considers that an act or omission alleged to be negligent is reasonable a Court will attach substantial weight to that opinion.
ii) This is so even if there is another body of appropriate opinion which condemns the same act or omission as negligent.
iii) The Court in making this assessment must not however delegate the task of deciding the issue to the expert. It is ultimately an issue that the Court, taking account of that expert evidence, must decide for itself.
iv) In making an assessment of whether to accept an expert's opinion the Court should take account of a variety of factors including (but not limited to): whether the evidence is tendered in good faith; whether the expert is "responsible", "competent" and/or "respectable"; and whether the opinion is reasonable and logical.
v) Good faith: A sine qua non for treating an expert's opinion as valid and relevant is that it is tendered in good faith. However, the mere fact that one or more expert opinions are tendered in good faith is not per se sufficient for a conclusion that a defendant's conduct, endorsed by expert opinion tendered in good faith, necessarily accords with sound medical practice.
vi) Responsible/competent/respectable: In Bolitho Lord Brown Wilkinson cited each of these three adjectives as relevant to the exercise of assessment of an expert opinion. The judge appeared to treat these as relevant to whether the opinion was "logical". It seems to me that whilst they may be relevant to whether an opinion is "logical" they may not be determinative of that issue. A highly responsible and competent expert of the highest degree of respectability may, nonetheless, proffer a conclusion that a Court does not accept, ultimately, as "logical". Nonetheless these are material considerations. In the course of my discussions with Counsel, both of whom are hugely experienced in matters of clinical negligence, I queried the sorts of matters that might fall within these headings. The following are illustrations which arose from that discussion. "Competence" is a matter which flows from qualifications and experience. In the context of allegations of clinical negligence in an NHS setting particular weight may be accorded to an expert with a lengthy experience in the NHS. Such a person expressing an opinion about normal clinical conditions will be doing so with first hand knowledge of the environment that medical professionals work under within the NHS and with a broad range of experience of the issue in dispute. This does not mean to say that an expert with a lesser level of NHS experience necessarily lacks the same degree of competence; but I do accept that lengthy experience within the NHS is a matter of significance. By the same token an expert who retired 10 years ago and whose retirement is spent expressing expert opinions may turn out to be far removed from the fray and much more likely to form an opinion divorced from current practical reality. "Respectability" is also a matter to be taken into account. Its absence might be a rare occurrence, but many judges and litigators have come across so called experts who can "talk the talk" but who veer towards the eccentric or unacceptable end of the spectrum. Regrettably there are, in many fields of law, individuals who profess expertise but who, on true analysis, must be categorised as "fringe". A "responsible" expert is one who does not adapt an extreme position, who will make the necessary concessions and who adheres to the spirit as well as the words of his professional declaration (see CPR35 and the PD and Protocol).
vii) Logic/reasonableness: By far and away the most important consideration is the logic of the expert opinion tendered. A Judge should not simply accept an expert opinion; it should be tested both against the other evidence tendered during the course of a trial, and, against its internal consistency. For example, a judge will consider whether the expert opinion accords with the inferences properly to be drawn from the Clinical Notes or the CTG. A judge will ask whether the expert has addressed all the relevant considerations which applied at the time of the alleged negligent act or omission. If there are manufacturer's or clinical guidelines, a Court will consider whether the expert has addressed these and placed the defendant's conduct in their context. There are 2 other points which arise in this case which I would mention. First, a matter of some importance is whether the expert opinion reflects the evidence that has emerged in the course of the trial. Far too often in cases of all sorts experts prepare their evidence in advance of trial making a variety of evidential assumptions and then fail or omit to address themselves to the question of whether these assumptions, and the inferences and opinions drawn therefrom, remain current at the time they come to tender their evidence in the trial. An expert's report will lack logic if, at the point in which it is tendered, it is out of date and not reflective of the evidence in the case as it has unfolded. Secondly, a further issue arising in the present case emerges from the trenchant criticisms that Mr Spencer QC, for the Claimant, made of the Defendant's two experts due to the incomplete and sometimes inaccurate nature of the summaries of the relevant facts (and in particular the Clinical Notes) that were contained within their reports. It seems to me that it is good practice for experts to ensure that when they are reciting critical matters, such as Clinical Notes, they do so with precision. These notes represent short documents (in the present case two sides only) but form the basis for an important part of the analytical task of the Court. If an expert is giving a précis then that should be expressly stated in the body of the opinion and, ideally, the Notes should be annexed and accurately cross-referred to by the expert. If, however, the account from within the body of the expert opinion is intended to constitute the bedrock for the subsequent opinion then accuracy is a virtue. Having said this, the task of the Court is to see beyond stylistic blemishes and to concentrate upon the pith and substance of the expert opinion and to then evaluate its content against the evidence as a whole and thereby to assess its logic. If on analysis of the report as a whole the opinion conveyed is from a person of real experience, exhibiting competence and respectability, and it is consistent with the surrounding evidence, and of course internally logical, this is an opinion which a judge should attach considerable weight to".
Counsel in the present case agreed that this fairly encapsulated the principles relevant to the assessment of expert evidence in the context of the Bolam test. In this case Ms Longstaff expressed the opinion that Dr Chong's assessment and decision fell outside of the realms of decision making of the reasonable A&E doctor. Dr Campbell-Hewson expressed the opinion that whilst some doctors might have referred Mr Mulholland to a specialist or directed a CT scan, the decision that Dr Chong took was in his view still four square within the bounds of the decision which a reasonable A&E doctor would take. Indeed, he commended her upon taking a note (set out at para [40] above) which he considered was in the upper bounds of that which he would expect from an A&E doctor.
The present case also involves a dispute as to causation. There is no material dispute between the parties as to test to be applied. The Defendant brought to my attention a passage from Clerk & Lindsell on Torts (21st Edition) at paragraph 2-46 which encapsulates the relevant principles. This was uncontentious and was in the following terms:
"37. The exercise required to establish causation in a clinical negligence case of this sort is summarised in Clerk & Lindsell on Torts 21st edition at 2-46:
"There must be some evidence to link the defendant's breach of duty to the claimant's harm, other than the simple assertion that it increased the general risk of harm, before an inference that it must have made a material contribution can be drawn. In Tahir v Haringey HA,157 the claimant alleged that the delay in providing medical treatment rendered his condition worse than it would otherwise have been, on the basis that, in general terms, delay in operating in his type of case increases the neurological deficit and impairs the prospect of recovery. The Court of Appeal held that where there has been negligence resulting in delayed medical treatment it was not sufficient for the claimant to show that there was a material increase in the risk or that delay can cause damage. He has to go further and prove that damage was actually caused by the delay. In the absence of findings of fact that identify or quantify the additional harm, it was not appropriate for a judge to adopt a proportionate approach by quantifying the total disability and then asking what proportion of that disability is attributable to the delay"".
G. Breach of duty I: The triage nurse (Mr Hunt)
(i) Introduction
I turn now to consider the question whether the Defendant was in breach of duty in consequence of the acts or omissions of Dr Chong. I have already explained (see paras [10] and [11] above) that the Claimant abandoned the allegations initially made against Mr Hunt but that I consider it desirable (and due to Mr Hunt whose professional reputation was fully in issue until the 11th hour of the trial) that I should set out my conclusions on the position of Mr Hunt. I therefore address the issue of breach in two stages: (i) the decisions taken by the triage nurse, Mr Hunt, on 11th January 2010; and (ii), the decisions taken by the A&E doctor, Dr Chong, on 12th January 2010.
I have come to the clear conclusion that the Defendant cannot be made liable for any decisions taken on 11th January 2010. For the following reasons I conclude that the actions of Mr Hunt upon this day did not give rise to a breach of duty.
(ii) The allegation that the nurse failed to perform a full diagnosis
Mr Hunt gave evidence that A&E was busy and that the Department would routinely see up to 200 patients per day. He stated that sometimes they had the ambulance records but this was by no means inevitable. It was not his job to diagnose a patient. His job was to record symptoms and to take a history and then to direct the patient in one of 3 directions. The options available to him were: to refer a patient to a doctor in A&E; to refer a patient to the specialist stroke team; or to refer the patient to a GP within SDTC. He explained that he streamed Mr Mulholland to a GP in SDTC. This was because it was the triage practice within the Hospital to send patients to A&E only if they had acute, immediate, life-threatening symptoms (which Mr Mulholland did not) or to the specialist stroke unit if a FAST test showed negative signs (which it had not). He elaborated upon the limits of the diagnosis he would form. It was for the specialist, subsequently, to conduct a full assessment and form a diagnosis. To the extent therefore that any diagnosis could be said to be made by him it was by its very nature limited and served only to inform the decision as to which professional should, thereafter, assume responsibility for a patient. There is no challenge to the correctness of this evidence and I accept it. It is, in my judgment, not open to the Claimant to challenge Mr Hunt for failing to conduct a full assessment or failing to form anything other than the minimum evaluation required to determine how to stream the patient. In my judgment no reasonable triage nurse can be expected to do more than perform the limited assessment which Mr Hunt, upon this occasion, conducted.
In this connection, the experts in emergency medicine both analysed Mr Hunt's (alleged) diagnosis and the Claimant's expert, Ms Longstaff, was critical of it. Ms Johnson, for the Defendant, challenged in cross-examination, Ms Longstaff on her competence to give expert evidence on the conduct of a triage nurse. Ms Longstaff accepted that she was not qualified to give expert evidence on this topic and she accepted that her evidence on this should, in effect, be struck through. In my mind, this highlighted a significant point which is that the typical (reasonable) triage nurse does not, in the conventional sense, conduct a diagnosis when confronted with a patient presenting with a significant complaint. It is true that the nurse may very well receive evidence from an ambulance team, and may be experienced in emergency nursing, and may also take a history and record symptoms. But what is inescapable is that the purpose of this is not to determine a care path. On the contrary, it is to do no more than to stream the patient appropriately to a professional, down the line, whose task it is then to conduct a substantive assessment and diagnosis. In my judgment, it is hence nothing to the point for an expert to criticise the triage nurse upon the basis that he/she failed to perform a full (and accurate) diagnosis of the sort that would be conducted by the professional to whom the patient is streamed.
(iii) The allegation that the nurse erred in failing to refer to the stroke team
I reject the suggestion that following the performance of the negative FAST test (i.e. one not suggesting TIA or stroke) it was unreasonable to do anything other than refer to the stroke team. On the contrary, the logical course was to stream the patient away from the stroke team. Indeed, given that it is clear that the GP in SDTC (Dr Boachie) could also refer the patient to the stroke team and/or for a scan it is very hard to see how or why a reference to the SDTC would be negligent even where a TIA or CVA was a possibility. In any event, the Claimant's claim as particularised was against the Defendant for conduct occurring over the course of two days. On 12th January 2010 the triage nurse did refer Mr Mulholland to the stroke services. Accordingly, when the conduct of the Defendant's employees is examined over the course of the two days the triage nurses did precisely what it is said they should have done.
(iv) Implications of the fact that there is no challenge to the decision of the GP in SDTC
It is relevant also that the Claimant does not challenge the conclusion of Dr Boachie in SDTC which was that Mr Mulholland was not having a stroke and that he could simply be discharged. The Claimant's position therefore was that Mr Hunt was negligent in streaming Mr Mulholland to a GP, who was competent to assess Mr Mulholland, who was more experienced in forming a diagnosis than was Mr Hunt, who could have referred-on Mr Mulholland to stroke specialists had it been considered necessary, and whose diagnosis is not challenged. Framed thus, the artificiality of the claim becomes evident.
(v) The significance of context
In forming a conclusion about the conduct of a practitioner working within triage within an A&E Department context cannot be ignored. The assessment of breach of duty is not an abstract exercise but one formed within a context – which here is that of a busy A&E where the task of the triaging nurse is to make a quick judgment call as to where next to send the patient. The A&E department was busy seeing up to 200 patients per day. There is no opportunity for a triage nurse to devote a great deal of time to the taking of a detailed history or the performance of an extensive diagnosis. Such an exercise would be beyond the minimum necessary to enable that nurse to form a decision as to how to stream the patient. The reasonable nurse is one who operates in a busy A&E which has a procedure which the nurse will follow for streaming and which does not contemplate an exhaustive diagnosis being formed.
For all these reasons Mr Hunt acted reasonably and professionally. He was not negligent. The Claimant was correct to abandon the claim against Mr Hunt.
H. Breach of duty II: The assessment of Dr Chong
I turn now to consider the decisions of Dr Chong made on 12th January 2010. This lies at the heart of the Claimant's case.
I have come to the conclusion that none of the decisions taken by Dr Chong are capable of giving rise to a breach of duty. In the text below I have set out my conclusions under [5] headings:
i) The decision making chain in A&E: The extent to which an A&E doctor can rely upon the decisions of others (the "barn door" error point).
ii) The A&E environment and time constraints: The extent to which the process of diagnosis involves a counsel of perfection.
iii) An analysis of the assessment of symptoms and signs.
iv) A&E and illicit drug taking: What level of inquiry and knowledge is to be expected of an A&E doctor?
v) Diagnosis: Provisional or definitive?
(i) The decision making chain in A&E: The extent to which an A&E doctor can rely upon the decisions of others (the "barn door" error point)
The first issue concerns the extent to which Dr Chong was entitled to rely upon the views and conclusions of the other medical professionals who saw Mr Mulholland. In my judgment Dr Chong cannot be criticised for relying upon the previous conclusions of Dr Boachie, and, the stroke team. Nor can she be criticised for seeking the advice of her Registrar, or for placing faith in the ability of the Claimant's GP to perform future assessments. In my view her conduct was entirely reasonable.
First, I start with the basic proposition that an A&E doctor is entitled to rely upon the assessments and conclusions of others. Dr Chong was operating within the A&E department of a busy hospital and her decision making must be seen as one part or component of the chain of decision making which routinely operates within such departments. In the present case it is relevant to take account of: (i) the decisions taken by Dr Boachie the previous day; (ii) the assessment made by the specialist stroke team on 12th January 2010; (iii) Dr Chong's own assessment; (iv) the decision of Dr Chong to seek approval for her chosen care pathway from the on-duty Registrar; and (v), the decision of Dr Chong (and the Registrar), that a further assessment of Mr Mulholland by his GP be made within a few days. The decision made by Dr Chong cannot be assessed in isolation; the relevant context is both the past assessments and conclusions, and, the prospect of future assessments to be made by GPs in the community. Dr Chong was aware of Dr Boachie's conclusions and the assessment of the stroke team. She noted that the specialist stroke team had performed a full neurological assessment which had not revealed symptoms consistent with a TIA or CVA. And she relied upon this assessment and did not re-perform a FAST test though did conduct some tests which could reveal neurological signs. She did take a history and record symptoms and she stated in evidence that these showed positive signs (e.g. tingling, hallucinations, anxiety) and not the negative signs associated with a stroke.
Secondly, there is a related question, which is: Even if an A&E doctor is entitled to rely upon the views and conclusions of other professionals, are there exceptions to this, and if so when do they arise? The experts agreed that a negative FAST test (i.e. one indicating no TIA/CVA) did not rule out altogether the possibility that a patient was indeed suffering from a TIA or stroke; but it does make it materially less likely. However, no one was able, with any degree of precision, to say exactly how much less likely. But there was consensus that the FAST test is generally reliable as an indicator. In the present it appears from the stroke team notes that a more extensive neurological assessment than a FAST test was carried out and this was evident to Dr Chong and this suggests that the conclusions of the stroke team could be taken, at least prima facie, to be reliable. In my judgment Dr Chong got it right: She accepted when she gave evidence that the mere fact that the specialist stroke services had found no stroke was not conclusive and that if the patient then presented with obvious symptoms of a stroke that a doctor in A&E should form his or her own view and conduct a new neurological test, and then act accordingly. However, she was of the view that, more generally speaking, a doctor in A&E was entitled to rely upon the specialist advice of the stroke team and indeed that an A&E Department could not function sensibly without mutual reliance on the professionalism of others involved in the overall A&E process of assessing a patient. Dr Chong was asked to describe the sort of case where in her view an A&E doctor should second-guess the conclusions of a specialist stroke team. She said: when the error was "barn door"; by which she self-evidently meant something big and obvious. I agree with this analysis. An A&E doctor can prima facie accept the conclusions of prior professionals. But this does not extend to blind or slavish subservience. When that prior decision looks obviously wrong (the "barn door") the A&E doctor might fall below the requisite standard of care if he/she proceeds to accept the conclusion without taking steps to verify it and, if needs be, correct it. But it is likely that this will be very much the exception and not the rule. After all, the raison d'être for the locating of a specialist stroke team in or proximate to A&E is to inject specialism into the assessment process and to enable other professionals, such as a hard pressed A&E doctor (who may not be a specialist in strokes or other neurological conditions), to rely upon that specialist assessment. Indeed, it would defeat the purpose of having specialist services located within A&E if their conclusions were not routinely to be relied upon. I also accept the expert evidence of Dr Campbell-Hewson, which was to the same effect.
Thirdly, in my view on the evidence before the Court this was not a "barn door" case. As I explain below (see paras [102] - [106]) the experts agree that the signs and symptoms were "confusing" and not "text-book" and that cannabis use can mask symptoms. The facts of this case do not, in my judgment, come close to being such as to deny Dr Chong the right to rely upon the conclusion of the specialist stroke team that Mr Mulholland was not suffering from a stroke; and it cannot be overlooked that the bottom line of the Claimant's complaint is that Dr Chong was negligent in failing to reject a correct assessment by the stroke team because we know (now) that Mr Mulholland was indeed not suffering from a TIA or CVA.
Fourthly, it is relevant that it is no part of the Claimant's formal case that the assessment of the stroke team was in fact negligent; which might not be thought to be surprising since their assessment was correct. Ms Peta Longstaff in her expert report for the Claimant was however critical of the stroke team's decision. The burden of her report was that these specialist services formed a negligent decision, i.e. that they fell below a reasonable standard by, in effect, not forming an incorrect diagnosis of TIA or CVA. She said as follows in her report:
"The following day [Mr Mulholland] was referred to the stroke team on arrival, they were of the opinion that symptoms he was complaining of were not typical of a TIA despite his description of neurological symptoms and a finding of reduced coordination in Mr Mulholland's right arm. It is my opinion that these two facts should have led to further investigation of Mr Mulholland neurologically.
According to the 2008 NICE Stroke Guidelines Mr Mulholland should have been scored according to the ABCD system…. He would have scored less than 4 and he would therefore not have been eligible for immediate scan but he should, according to the guidelines, have been seen by a specialist within 1 week of presenting.
Mr Mulholland, of course, did not have a stroke but he described neurological symptoms in respect of his right side that could have fitted with the diagnosis of a TIA. Had he been assessed within a week in a TIA clinic, by a neurologist, and had this lack of coordination persisted and been picked up on examination, on the balance of probabilities he would have been scanned and the tumour would have been apparent on that scan.
As it was he was told that he had symptoms associated with cannabis use. I have not personally been able to access evidence that indicates cannabis smoking causes unilateral neurological signs, and I think this diagnosis was unacceptable. He had already been assessed by the stroke team however which probably resulted in the Emergency Department doctor having a false sense of security with regards to Mr Mulholland's neurological symptoms and the reduced coordination in his right hand".
There is a gloss to this analysis which arises from the fact that during the course of the trial the ambulance notes for the 12th January 2010 became available (set out at paragraph [33] above) and these suggested that upon the performance of a FAST test upon Mr Mulholland by the ambulance staff he exhibited signs of a TIA. This information was not available to Ms Longstaff when she prepared her expert report but, she explained in oral evidence, that it reinforced her conclusion that the analysis of the stroke team was incorrect. As I have already explained when pressed by me to clarify his position vis-à-vis the stroke team Mr Grundy submitted that the stroke team's conclusions were not negligent. I agree: I do not see how the stroke team can be negligent for correctly concluding that Mr Mulholland was not suffering from a TIA or CVA, especially in circumstances when it is not said that anyone was negligent in failing to diagnose the tumour. In short, Dr Chong's decision was consistent with that of the stroke team and (rightly) their decision was not criticised as negligent. This assists in benchmarking Dr Chong's decision and supports my conclusion that she was not negligent.
Finally, there is an inconsistency in the Claimant's logic. In relation to Mr Hunt it was said initially that he should have streamed Mr Mulholland to the specialist stroke services for the simple fact that they were specialists and they would have identified a TIA or CVA and directed a CT scan. But on 12th January 2010 Mr Mulholland was streamed to the self-same stroke services and they did perform a neurological assessment and they recorded no stroke symptoms and sent him back to A&E. Yet in relation to Dr Chong it is now, however, said that no reliance should be placed upon the conclusions of the specialist stroke services. There was hence an element of "cake and eat it" about the analysis.
In all of these circumstances Dr Chong acted perfectly reasonably in relying upon the conclusion of the stroke services team formed very shortly before she saw Mr Mulholland. Again, I do not see how Dr Chong can be said to be negligent in relying upon the conclusion of a specialist team that, when forensic push comes to shove, must be accepted as reasonable.
(ii) The A&E environment and time constraints: The extent to which the process of diagnosis involves a counsel of perfection.
I turn now to consider the relevance of the fact that a typical A&E doctor must form a judgment under time constraints. The Claimant argues that, upon analysis, various neurological diagnoses should have been considered by Dr Chong as real and distinct possibilities and the failure by Dr Chong to treat these symptoms as sufficiently serious as to warrant immediate action was negligent. An example (from amongst others) put to Dr Chong in cross-examination was that of a Jacksonian seizure. This arises where a simple focal seizure spreads from the distal part of the limb towards the ipsilateral face. This leads to a progression or spread of the motor presentation of the symptoms. It was put to Dr Chong that Mr Mulholland's symptoms could be attributed to a Jacksonian seizure. Dr Chong accepted that she had heard of Jacksonian seizures but she also accepted that she had not identified it as a possibility. In my judgment this criticism was unwarranted and is based upon a false premise as to what can reasonably be expected from a doctor in a pressurised A&E environment. The idea that Mr Mulholland might have experienced a Jacksonian seizure was a possibility postulated by the Claimant's legal and expert team after mature consideration of the evidence in the course of preparation for trial. But doctors in A&E do not have the luxury of long and mature consideration. They take decisions at short notice in a pressurised environment. They cannot (ordinarily) consult the country's leading experts at the drop of a hat having given those experts months or even years to prepare their expert opinions. If Dr Chong had been given the week off in order to research Mr Mulholland's case she might, just possibly, have listed a Jacksonian seizure on her list of possible causes. But in my judgment the standard of care owed by an A&E doctor must be calibrated in a manner reflecting reality. It was not, in the circumstances confronting her, negligent of Dr Chong to omit this sort of specialised neurological condition from her assessment.
(iii) An analysis of the assessment of symptoms and signs.
The next issue concerns the extent to which the signs and symptoms presenting on 12th January 2010 were such that a reasonable A&E doctor should have appreciated that the patient was or might be suffering from a serious neurological condition of such seriousness as to warrant immediate action including reference to neurological specialists and/or referral for a CT scan. The Claimant submits that the symptoms and signs were sufficiently clear and unequivocal to give rise to the very real possibility of a neurological condition and that as such Dr Chong was negligent in failing: (a) to rule out a drug (cannabis) attribution; and (b), to diagnose a neurological condition. The issue, put more colloquially, is whether the presenting signs and symptoms amounted to a "barn door" (see para [96] above).
In closing submission both counsel identified the symptoms and signs emanating from Dr Chong's assessment which it was variously submitted were/were not so clear as to, in substance, place Dr Chong on notice that immediate, urgent, neurological treatment was called for. I have set out below the analysis of each party as set out in their written closings:
(a) Claimant:-
Symptoms = what patient reports
Signs = what medic observes/elicits from examination
Symptoms
i) inability to control right arm+leg - focal symptoms
ii) right arm/shoulder spasm – more in keeping with a seizure
iii) right leg weakness – focal symptom
iv) light headed and dizzy – non-specific
v) blurred vision – non-specific (would require more questions)
vi) panicky and agitated – anxiety (probably due to his physical symptoms)
vii) Could not feel arm/leg, couldn't walk, collapsed…. - focal symptoms
Signs
i) Trigeminal nerve. V1 right reduced. V2/V3 left reduced – neurological – confusing presentation because of the right/left differential.
ii) Reduced power 4/5 bilaterally all four limbs – neurological sign – would be unusual for a stroke/TIA because four limbs
iii) Reduced sensation right arm and leg – neurological sign particularly for TIA/stroke
(b) Defendant:-
Symptoms Stroke / TIA sign? Why?
Inability to control right arm and right leg Atypical / very unlikely for stroke / TIA
Apparently positive symptom, stroke/TIA almost invariably presents with weakness or loss of power. 'Loss of control' implies arm is active independently of patient's intentions rather than weakness. The description of the right shoulder in fixed abduction would be regarded as inconsistent with a stroke.
Right arm / shoulder spasm Atypical / very unlikely for stroke / TIA
Positive symptom involving very localised lesion. Atypical for stroke which would almost always present with loss of power.
Right leg weakness Possible but unlikely Dr C-H: very localised manifestation of brain ischaemia, usually a much large motor area would be affected.
Lightheaded dizzy Neutral / Unlikely Global symptom, not consistent with focal localised area of brain ischaemia. Not a recognised symptom indicative of stroke / TIA.
Pain in testicles
No No apparent connection to stroke / TIA.
Increased volume of urine
No No apparent connection to stroke / TIA
Panicky No No apparent connection to stroke / TIA. Positive symptom, common in drug usage.
Collapse Possible Does not add anything to more specific limb symptoms reported (see above). Dr C-H: regarded as making TIA unlikely (too diffuse brain involvement).
Anorexia Unlikely Appears to predate the 'neurological' symptoms. Global symptom typical in anxiety
Hallucination No Not a recognised sign of stroke / TIA.
Signs
Stroke / TIA sign?
Why?
Decreased sensation V1 right side Yes (in isolation) Consistent with left sided brain lesion / stroke but very unusual because so localised
Decreased sensation V2, V3 left Yes (in isolation) Consistent with right sided brain lesion / stroke but very unusual because so localised
Combined facial sensation findings No The finding of bilateral altered sensation on the face would be very unusual in stroke / TIA as it would require simultaneous, very localised events, affecting similar parts of the brain on both sides, not explicable by a blood clot or thrombus obstructing a single vessel
Power 4/5 all 4 limbs No This would require simultaneous, symmetrical, well localised, mild obstruction of arteries on opposite sides of the brain. This would be incredibly unlikely.
Decreased sensation right arm and right leg
Possible but unlikely Sensory symptoms are not identified by anybody as a clear sign of stroke / TIA.
Equivocal plantars No Common finding, little significance, stroke / TIA would be expected to produce unilateral plantar reflex abnormalities.
Normal coordination in right upper limb No The stroke team recorded a slight decrease in coordination on the right but this was not present on Dr C's examination.
The first point to note is that neither party says that the signs and symptoms all pointed one way one only; indeed the signs and symptoms were a long way from being specific, or clear or unequivocal. To the contrary Ms Longstaff and Dr Campbell-Hewson agreed in their joint statement that there were "confusing" bilateral signs. Ms Longstaff also agreed that the symptoms were not "text book". And these conclusions must be placed in the context of the fact that the specialist stroke team had already ruled out a TIA or CVA which was, otherwise, the most likely neurological explanation for some of those symptoms. Dr Chong was hence confronted with confusing, non text-book signs and symptoms which (she was entitled to conclude) were not caused by a TIA or CVA. But since there is also no suggestion that Dr Chong should have diagnosed a brain tumour the context to the assessment is one where Dr Chong was confronted with, confused, non text-book signs and symptoms which did not signify a TIA, CVA or tumour.
Secondly, some of the symptoms could reasonably be linked to regular cannabis use. Medical literature, of recent vintage, shows that there is evidence that long term marijuana use can lead users to present with a variety of symptoms which include (inter alia): anxiety and depression; schizophrenia and psychosis, inflammation of the large airways, bronchitis, vascular conditions increasing the risk of myocardial infarction, stroke or TIA: See, e.g., "Adverse Health Effects of Marijuana Use", Volkow, Baler, Compton and Weiss, The New England Journal of Medicine (5 June 2014). Much of the work on the medical effects of cannabis use has followed in the wake of increased legalisation of usage. The position was not as well researched, and hence known, in 2010 when Dr Chong assessed the Claimant. However, in evidence, Dr Chong explained that she did understand cannabis use to be causative of some of the symptoms which Mr Mulholland exhibited. As such her conclusion not to rule out drugs as a possible attribution was one which a reasonable A&E doctor was entitled to form.
Thirdly, the experts agreed that drug use was capable of masking other symptoms and signs. This also puts into context (and supports) Dr Chong's conclusion that drugs might have been causative and that therefore a care pathway that sought to exclude drugs as a cause was sensible.
Fourthly, it is relevant that no one else, including Dr Boachie and the stroke specialists, formed a view inconsistent with that of Dr Chong and the Claimant accepts that those other professionals acted reasonably when they also excluded TIA/CVA and concluded that illicit drugs might be the (or at least "a") problem based upon this mix of signs and symptoms. Quite apart from the question of the reasonableness of Dr Chong's reliance upon the views of those individuals the simple fact that other equally competent professionals acting reasonably came to the same conclusion on the same body of signs and symptoms is strongly indicative that a body of reasonable professionals might form the same conclusion as Dr Chong. I am reinforced in this view by the (after the fact) evidence of the GPs who saw Mr Mulholland after 12th January 2010 who for a long period also formed the view that the symptoms were drug related. Mr Grundy submitted that the views of GPs should not be given weight because they were contaminated by the enduring "stigma" that was attached to Mr Mulholland after being diagnosed in A&E as a habitual drug user. But I do not think this is fair since it is assumes that a series of different GPS all declined to exercise independent judgment and there is no evidence to support this.
In these circumstances it is my judgment that Dr Chong's assessment of this mix of symptoms and signs was reasonable.
(iv) A&E and illicit drug taking: What level of knowledge is to be expected of an A&E doctor?
I turn now to consider a further central component of the Claimant's case. It concerns the question – what is the nature and extent of the enquiries that a doctor in A&E should perform concerning a patient's drug history (a) generally and (b) specifically in a case where drugs might mask symptoms and signs?
Mr Grundy, in his written closing submissions, which were elaborated upon orally, submitted as follows:
"9. Dr Chong, as an A&E doctor, would be better placed than most medical disciplines to understand the issues surrounding drug supply, strength of the cannabis and potential symptoms. A diagnosis related to cannabis use should be one of exclusion; namely other more serious conditions should be considered initially including stroke/TIA and other neurological problems before the possibility of cannabis. Once cannabis is the only remaining possibility/option then appropriate and careful questioning would be undertaken by any reasonable A&E doctor before attribution.
10. The Claimant's discharge from hospital with advice to attend his GP should not have happened as no reasonable A&E doctor could have attributed the neurological symptoms/signs to drugs. It was not and could never be viewed as a "safety net". In fact because of the drugs "stigma" the Claimant's GP simply repeated the attribution of his symptoms/signs to drugs whilst assuring him that he had not had a stroke. The GP was falsely reassured by Dr Chong's negligence despite continuing neurological symptoms. Any subsequent abnormal behaviour pattern or symptoms were not given proper consideration because of the cannabis diagnosis".
In oral submission (following a line of cross examination) Mr Grundy submitted that Dr Chong was negligent in not delving deeper into Mr Mulholland's drug taking and as to the details of "supply" to him. He submitted that had she done so she would have come to the conclusion that Mr Mulholland was a long term user who was habituated to cannabis and would not, as such, exhibit adverse symptoms. He submitted that had a full "drugs history" been taken Dr Chong should have been able to exclude drugs as a possible attribution and this would then have forced her to consider other – neurological – explanations. I do not accept this analysis. This is for the following reasons.
First, it is apparent that Dr Chong was aware of a number of facts and matters concerning Mr Mulholland's drug usage which related to: habituation, frequency of use, strength, and most recent usage. She was aware that he smoked "strong weed", that he regularly smoked three joints in an evening, that he was a long term user, and that he had smoked cannabis within the previous 24-36 hours. Every professional who assessed Mr Mulholland considered these facts to be relevant. No one considered that more information, including as to "supply", was necessary or that the fact that Mr Mulholland was habituated meant that drug attribution could or should be excluded.
Secondly, I reject the suggestion, reflected in paragraph 9 of the Claimant's written submissions (supra) that "as an A&E doctor" she would be "better placed than most medical disciplines to understand the issues surrounding drug supply". This, in my view, is unrealistic. There was no evidence adduced in the course of the trial as to Dr Chong's personal knowledge relating to drug "supply", or as to the training that is given to A&E doctors as to local drug supply conditions and no suggestion that in actual fact Dr Chong had been trained in such matters or even that she should have been. Furthermore (as any QBD judge sitting in crime knows) the characteristics of different drug supply chains (even for the same drug and in the same town) can vary enormously. The composition, purity and strength of drugs supplied can vary over time, as can the identity of the supplier. A&E doctors are not trained in the (murky) world of drug distribution and supply. And there was no evidence before me to suggest that an A&E doctor would be "better placed" than other medical professionals to understand issues surrounding such drug supply. Indeed, frequently, the purchasers of drugs themselves will not know, at least with any accuracy, the details of those who are supplying them for the obvious reason that suppliers are rarely (if ever) inclined to disclose such details to their customers. In any event, suppliers are well known to misrepresent the purity and/or strength of the drugs being supplied and information, therefore, communicated from a supplier to a purchaser which would then (on the Claimant's hypothesis) be relayed to an A&E doctor may very well be misleading and inaccurate.
In conclusion, I do not accept that an A&E doctor is required to investigate drug or drug supply issues to any greater degree than did Dr Chong in order to justify a conclusion that the symptoms and signs as presented might be drug attributed. Dr Chong was aware in general terms of the facts and matters referred to in paragraph [112] above. In my judgment that was ample to enable her to form a view of possible causes, certainly in the time available to her. I would view any requirement over and above this as imposing a near-impossible task and not one which should be required of a reasonable doctor within an A&E environment.
(v) Diagnosis: Provisional or definitive?
Finally, I turn to the criticism that Dr Chong failed immediately to either refer the Claimant to a specialist neurological clinic or immediately to direct a CT scan. I do not accept this criticism. The diagnosis that Dr Chong arrived at was, in substance, a provisional diagnosis. She was of the "impression" that the signs and symptoms might be cannabis related. But she did not definitively arrive at this conclusion. She adopted a course of action which she considered was capable of excluding a drug attribution and which was endorsed by the Registrar. This was that Mr Mulholland should stay off cannabis for three days and then see his GP. If the symptoms persisted beyond the three days (when the effects of cannabis should, ordinarily, have worn off) an attribution to cannabis or drug use could be ruled out and this would then assist in narrowing down the causes to something else including, possibly, a neurological condition. For this decision to be so unreasonable as to amount to a breach of duty it seems to me that the facts would have to have been very different indeed from those which actually pertained. The evidence would have to be very strong indeed that the cause of the symptoms (a) were clearly not illicit drug related; and (b) were clearly neurological; and (c) were such that the patient required urgent treatment which could not await a GP referral made even a few days hence. If these circumstances had all existed then there would be greater force in the submission that an immediate and urgent referral to address a possible neurological condition might have been required. But these conditions did not exist:
a) Clearly not drugs – Dr Chong highlighted anxiety, hallucinations and spasms as symptoms and signs possibly caused by drug use. The literature indicates that these may flow from frequent cannabis use. It is common ground that the signs and symptoms were "confusing" and not "text book" and that illicit drug use can mask symptoms. The signs and symptoms as a whole were thus mixed and confusing and Dr Chong acted reasonably in not clearly excluding drug use as a possible cause.
b) Clearly was neurological – I have already addressed the question of the assessment formed by the specialist stroke services. They conduct a full neurological assessment going beyond a FAST test and did not diagnose TIA or CVA. And no one suggests that Dr Chong should have diagnosed the actual tumour. Dr Chong accepted that it was fair to describe some of Mr Mulholland's signs and symptoms as "neurological" and that they were present before her when she assessed Mr Mulholland. However, she said that when all signs and symptoms were taken into account, and bearing in mind the prior conclusions of the specialist stroke services, she was not of the "impression" the cause was neurological. The symptoms were simply not specific enough. In my view Dr Chong acted reasonably in not concluding that the signs were clearly neurological.
c) No time to await a possible GP referral for a CT scan in the near future / urgency – It is important that the course of action adopted by Dr Chong did not rule out a non-drug (neurological) attribution. She adopted a course of conduct which could, if drugs were ruled out, have led to a diagnosis of a neurological condition within a reasonably short period of time. As such the decision contemplated the possibility of a CT scan for Mr Mulholland but in the future and not by a reference from a doctor in A&E. Dr Campbell-Hewson made the point in his oral evidence that referrals for CT scans were normally made by GPs or specialist stroke services, and not by A&E doctors. He accepted that a doctor within A&E could refer a patient for a CT scan but it was his view that, normally, this would arise, as observed, from a specialist stroke unit or from a GP. Ms Longstaff accepted that it was reasonable not to make an immediate reference for a CT scan but, instead, to make a reference to a specialist stroke clinic for an assessment and a (possible) scan within 7 days (see para [98] above). But this is not that far from what Dr Chong actually did, i.e. refer on with the possibility of a future CT scan. In all such circumstances, I cannot conclude that the case as presented was so extremely urgent that an immediate or near immediate referral to specialist neurologists or for a CT scan was called for and that anything less was negligent.
In short, Dr Chong's provisional conclusion linked to a solution designed to exclude cannabis as a cause was in my judgment a reasonable one to adopt.
I. Other matters: Causation and quantum
For all the above reasons Dr Chong was not negligent. Given my conclusion on breach of duty it is not strictly necessary to proceed to consider causation and/or quantum. However, I heard evidence and submissions on these matters and in the circumstances I will set out shortly my principal conclusions relating to these issues.
First, I address the submission that had Mr Mulholland been diagnosed with a brain tumour in January 2010 he would have been saved the stress, anxiety and uncertainty of not knowing what was wrong with him and that therefore he is entitled to some compensation from January 2010 onwards to reflect this. As to this I have real difficulty when comparing what actually happened with what the Claimant says should have happened. I cannot, at least upon the evidence before me, identify anything tangible to compensate Mr Mulholland for. Had he known of the true diagnosis in January 2010 he would have substituted uncertainty as to whether he had any condition at all for a certainty that he had a brain tumour. If I were to compensate for this I would have had to be satisfied that knowing, in such circumstances, was better than not knowing. This is far from evident. There may be more comfort in uncertainty than there is in the dread of knowing; not knowing might be a distinct blessing in disguise and ignorance might, quite possibly, be bliss. In the absence of some clear evidence on this I am not able to say which is the lesser of the two evils and, in consequence, to conclude that there is anything to compensate for.
Secondly, in relation to the benefits of having been operated upon in May 2010 rather than in August 2010, upon the evidence before me, had I found breach I would have concluded that there was some medical advantage or benefit lost to Mr Mulholland attributable to the breach for which compensation should be paid. I would not have awarded damages for the full amount sought by the Claimant but, equally, I would not have awarded the near nominal sums being suggested by the Defendant as appropriate.
Thirdly, in relation to the alleged post-surgery memory deficits and other adverse symptoms said to be attributable to the delay in surgery had I found breach I would not have found that any such symptoms and effects following surgery were in fact due to the delay in treatment. The documentary evidence recording Mr Mulholland's symptoms over the period from August 2010 onwards reflects the normal post-operative symptoms that would be expected to flow from the operation itself, from the thirty sessions of radiotherapy which ensued, and from the anti-convulsant drugs. There is no real evidence to suggest that there is any difference, in this specific regard, between being operated upon in August 2010 as opposed to May 2010.
J. Conclusion
At a personal level I have real sympathy for the Claimant and for his wife. I have accepted as a matter of evidence that Mr Mulholland experienced real and distressing symptoms for a lengthy period of time. I also have accepted that this impacted adversely upon him, his wife and his family. It goes without saying that the Court wishes him and his family the very best in the future.
However, I am required to decide this case upon the law and upon the facts and I am quite clear that applying that law Dr Chong did not act unreasonably in all the circumstances. Accordingly, the claim necessarily must fail. |
RICHARD PARKES QC :
INTRODUCTION
In this libel action, the claimant is Mr Akbar Singh Rai, a man of 61 and a practising adherent of the Sikh religion, who is married with three children and six grandchildren. He came to the UK in 1966 from the Punjab, and since arriving here has been a member of the congregation of the Sikh temple, or gurdwara, in Southall.
The defendants are Mr Jaskaran Bholowasia, a man of 54, and Pardes Weekly (UK) Ltd, which appears to be a company limited by guarantee. Its only director is Mr Bholowasia's wife, and it is the publisher of a newspaper which, as I understood it, is distributed free to shops and other outlets, I presume primarily in the Southall area. According to Mr Bholowasia, who edits the newspaper, some 8000 copies are distributed, but its readership is approximately ten times that. There is – or was at the relevant time - also an online edition, but no figures were available for the readership of that edition. The newspaper is printed in three sections - English, Hindi and Punjabi. Mr Bholowasia told me that each section generally contains the same material. That is clearly not always the case, as is apparent from the articles complained of in this action, one of which (the first) seems to have been published only in English, while later articles appeared in Punjabi and not English.
Mr Bholowasia represented himself and the second defendant at trial. He has been represented by solicitors during most of the proceedings, and was represented on 15 January when, through his solicitor, he applied for the adjournment of the trial on medical grounds and also on the basis that he wished to put in further evidence, for which he needed time. I dismissed the application for a number of reasons, one of which was that there was no reason to suppose that his medical condition was likely to improve if an adjournment was granted, and that it appeared that his condition could be accommodated if he was given frequent breaks as required. In the event, every request by Mr Bholowasia for a break or for an early adjournment of the day's proceedings was immediately granted, which inevitably meant that the trial overran its 3-5 day estimate. Although his movements appeared to a degree constrained, he was attended every day by two helpers and appeared both physically and intellectually capable of conducting his defence and of robustly challenging the claimants' witnesses. I wish to pay tribute to his unfailing politeness, moderation and courtesy in his conduct of the defence.
The backdrop of this trial has been the Sikh gurdwara, or temple, in Southall, or to give it its proper name, the Gurdwara Sri Guru Singh Sabha. The gurdwara has at least three separate premises, two temples (at Park Avenue and Havelock Road) and a school at Norwood Hall. It is run by an elected committee, assisted by many volunteers who give their time and energies to the common good; and it also has a number of paid staff. Many thousands of people will attend the gurdwara every week, contributing very large sums of money by way of donations and offerings. It is the handling and counting of those offerings that have been at the centre of this trial.
THE PUBLICATIONS COMPLAINED OF
Article 1
The first article was published on 11 May 2013, apparently only in English. It reads as follows:
"BROTHER-IN-LAW OF SRI GURU SINGH SABHA SOUTHALL'S PRESIDENT FOUND RED-HANDED STEALING GOLAK'S MONEY
Serious assault on brave Navpreet Singh and life threats given to him & his family
Majority of committee members trying to cover up the matter – CCTV off
Southall (Pardes Bureau): With great disappointment we have to report that those chosen devoted people on whom we repose our trust and confidence as gatekeepers of our faith have today deceived us with their insatiable thirst for greed and ravenousness. They have chosen to become poachers while we thought them are to be gatekeepers of our places of worship. When the congregation puts trust in people and hands over the keys of the Gurdwara and the same trusted people fill their own pockets with the Golak money, then what worse could we ever expect in life? Today we are facing a crisis of deceit from people whom we trusted not only with our devotion but also with God's money.
Whilst this has been going on for a long time but last week when Gurdwara donation money box (Golak) was being counted than Navpreet Singh, an employee appointed by the current committee, saw this he could not ignore it. This Gursikh took courage and held Onkar Singh's (brother-in-law of Sri Guru Singh Sabha Southall's president) wrist while putting money in his pocket and handed him over to Bahadur Singh Keila (Acting Treasurer whose wife is the Treasurer of the Sabha). To hide the fact from other people over there Bahadur Singh took Onkar Singh to the office on the first floor and got the money out of Onkar's pocket. After this Onkar Singh disappeared from there but when some honest people in the committee raised this matter then the keys were taken from Onkar Singh and since then he is hardly seen around.
According to the information received Onkar Singh did not let the matter end here, he conspired with his brother-in-law and others and came up with a plan and in accordance with this plan sent four thugs to teach Navpreet Singh a lesson. Three of these thugs had covered their faces except for a tall young man. These four thugs waited outside 11 Beaconsfield Road and as soon as Navpreet Singh came out from his residence at about 4:45 am to go to join his duties at Park Avenue Gurdwara they attacked him causing severe injuries to his head, arm and legs. Ambulance and police had to be called. Soon after Dr Parvinder Singh Garcha, the Sabha's General Secretary with a number of his confidants. They followed the ambulance and reached Ealing Hospital.
At the hospital Dr Garcha took used advantage of being a doctor, impressed upon the nurses and brought Navpreet Singh with him before he could have received full treatment. He was threatened by various people that he would lose his life and even told him that they would do that even in India. After these threats Navpreet whereabouts became unknown. When "Pardes Weekly" received a heart touching letter from a friend of Navpreet Singh's friend, "Pardes Weekly" immediately contacted Met Police Commissioner to ensure Navpreet Singh's safety and security. Police informed "Pardes Weekly" that they have two reports and are in contact with Navpreet Singh. The thugs have threatened Navpreet Singh so much that he is too scared to fully brief the police about his own as well as his family's safety. Ealing Police Spokeswoman said that "We can confirm police were called by London Ambulance Service at approximately 0510 hours on Saturday 27 April to reports of an assault in Southall, UB1. The victim, a 26 year old man, walking along Park Avenue, when he was set upon by around for unknown of Asian males. He was treated at the scene for non-life-threatening injuries. He was taken to a West London hospital and has since been discharged. There have been no arrests and enquiries continue." Anyone with information is asked to call police on 101.
When "Pardes Weekly" contacted Himmat Singh Sohi, the Sabha's President, to make enquiries he stated that there is no evidence and the CCTV was also off. It is worth observation and very obvious that when everything from Gurdwara keys to Golak keys (money box) and even from CCTV footages to offenders themselves – are hand in gloves with each other - then could we expect for any form of evidence to emerge?
When Bahadur Singh was contacted about this, he made an excuse stating he was very busy so we should contact Dr Garcha, the General Secretary.
It is not surprising that Himmat Singh Sohi's brother-in-law Onkar Singh was caught stealing red-handed but amazingly surprised to note that so-called volunteers are shamelessly trying to cover up the matter.
"Pardes Weekly" also contacted the Trustees and they said that whilst they have received information about this but they can only comment after making enquiries. You must remember that "Pardes Weekly" is the only paper which fearlessly reports thuggery and dishonesty at Gurdwaras to safeguard the Gurdwara interests and will continue to do so."
Article 1 is illustrated with three photographs. One is that of HS Sohi; one is of Dr Garcha; and the other is a photograph of the claimant, captioned 'Thief: Onkar Singh'.
The claimant was wrongly named as Onkar Singh throughout the article. His true name is Abkar Singh Rai. It is pleaded, and admitted in the professionally pleaded Defence, that Article 1 was understood to refer to the claimant, given his photograph and the fact that the claimant is (as 'Onkar Singh' was said to be) the brother-in-law of the President of the gurwara, Mr HS Sohi. It is also pleaded, although not admitted, that the claimant was identified by a large but unquantifiable number of readers as the person referred to, and that three particular individuals did so – Tajinderpal Singh Johal, Harjit Singh Rai, and Daljit Singh Hayer. All three gave unchallenged evidence that they read the article and identified the claimant as the person referred to. I have no doubt that he will indeed have been identified by very many readers as the person erroneously referred to as Onkar Singh.
The pleaded natural and ordinary meanings of Article 1 (Particulars of Claim, para 6) are that the claimant was one of the worst kind of thieves, and a criminal, by reason of the fact that
i) he was caught 'red-handed' stealing money whilst in a position of immense trust and duty to his faith and his community; a position which demanded utter integrity, but in breach of which he stole money from the holy donation box;
ii) he conspired with others to arrange for four 'thugs' to carry out a serious assault, causing severe injuries to the head, arms and legs, to the man who had seen and reported the claimant for the theft from the donation box;
iii) he was involved in and/or partly responsible for threats to kill the man and his family, who had seen and reported the claimant for the theft, which caused this man (Navpreet Singh) to be too scared to fully 'brief' the police for fear of his own and his family's safety.
Those meanings are admitted in the Defence, on the seemingly mistaken basis that they represent what the defendants intended to say. I do not think that matters. In my judgment there could have been no serious argument about the true meanings of Article 1, which are sufficiently well stated at sub-paragraphs 6(1)-(3) of the Particulars of Claim, set out above.
There is technically an issue on the pleadings as to whether the words of Article 1 are defamatory of the claimant. They unarguably are. The same is true of each of the other articles complained of.
There is also a legal innuendo meaning, namely that the claimant was completely devoid of any social, moral, or religious values or principles. The particulars of innuendo are that a substantial but unquantifiable number of unidentifiable readers would have known that the 'golak' was the Temple donation box, to be treated with utter reverence and respect, and that any act of stealing from it, especially by someone trusted to count the money as a volunteer, was deeply sacrilegious and disrespectful and offensive to the Sikh community.
The innuendo meaning is admitted, except that the defendants did not admit the level of readership. In other words, the adjective 'substantial' is not admitted. It seems to me inescapable that any reader who attended the gurdwara or was familiar with its institutions, which would no doubt have been a very substantial number, would have known the facts pleaded as giving rise to the innuendo.
Although of course the innuendo meaning technically represents a separate cause of action, I doubt, given the clear terms of Article 1, which explain the significance of the golak and the gravity of any theft from it, that it adds much if anything to the natural and ordinary meanings.
Articles 2 and 3
The second and third articles complained of were published on 18 May 2013. They are a re-print of Article 1. Mr Bholowasia told me that he re-printed the original article because he had information that copies of the newspaper containing the first article had been removed from shops by people apparently acting on behalf of the gurdwara.
The difference between Article 2 and Article 3 is a factor of the different languages used. Article 3 is a simple re-print, in English, of Article 1. Article 2 is a Punjabi version, and the claimant has perfectly properly pleaded an English translation which may (I do not know) be literally correct (its correctness as a translation is not formally in dispute on the pleadings), but is not rendered in good contemporary English. By way of one of many examples, Navpreet Singh is referred to in a strapline as 'Youngman', as if that were a surname. Unfortunately, the result is that there are two different versions of what is in fact the same article, one version in English and the other in Punjabi but translated into English. However, it does not matter very much, because the translated article is not so different from the English version as to affect the meanings.
Article 2
The words complained of are as follows:
"BROTHER-IN-LAW OF SRI GURU SINGH SABHA'S SOUTHALL PRESIDENT FOUND RED HANDED STEALING CHARITY CASH BOX (GOLAK)
Serious assault and life threat to a person who disclosed the incidence
Sufferer Youngman is in police contact
Majority of committee members are trying to cover up the matter
According to the president, there is no proof
With great regret I have to write that when the guards start to rob then only God is the saviour. When Sangat (congregation) trusted devotees and placed their confidence in them and handed over the keys to the charity cash box to look after it, if those people put the donated money in their own pockets then who will be the vanguard.
According to the information this activity has being going on for a long time. This time their own employee Navpreet Singh saw this happening. He could not help it, he took courage and got hold of Onkar Singh in front of the persons who are counting money. He handed over him to Bahadur Singh Keila, husband of the treasurer of the committee. To hide the fact from other people, Bahadur Singh took Onkar Singh to the office on the first floor and got the money out of his pocket. After this Onkar Singh disappeared from the scene. When other honest persons who were there raised their voice, then keys of the charity box were taken from Onkar Singh Rai. He felt ashamed and has never shown his face in the Sangat.
According to the information Onkar Singh did not stop here. He made a plan in collaboration with his brother-in-law Himmat Singh Sohi to teach a lesson to Navpreet Singh. So according to the plan they sent four musclemen, among these four, three of them covered their faces but the fourth tall person did not cover his face. These four persons were waiting for him in front of No.11 Beaconsfield Road Southall in morning. When Navpreet Singh at 0445 left the house to take up his duties, they attacked him and he was seriously injured, his head, arm and hip was badly hurt. Ambulance and police were called. By the time the general secretary Parvinder Singh Garcha arrived there were some men and followed the ambulance and reached at Ealing Hospital. Arriving at hospital Mr Garcha took undue advantage of his GP status. He pursued the nursing staff and took Navpreet Singh back with him. He did not even received proper treatment. He was so much threatened, that he will lose everything here and in India. After receiving these threats Navpreet disappeared.
When a friend of Navpreet wrote this tragic story to the Pardes Weekly then considering the safety and security of Navpreet, Pardes Weekly contacted the Met police. In response, police revealed that they have two reports concerning Navpreet and Navpreet is also in touch with the police. The police also told that they have been already informed by the ambulance. They disclosed that the investigation is going on regarding this matter but there is no arrest. Police also announced to the people, if anyone got any information about this case, the person should immediately inform the police by dialling 101. On the other side Navpreet is so much frightened and in view of his and his family's security, he is not telling the story explicitly.
When Pardes Weekly asked the president, Himmat Singh Sohi, about this matter, he replied "There is no proof of it, and CCTV was also not on". It is worth mentioning that they own CCTV, charity cash box, keys also with them and thief also belongs to them then how the proof can be traced. When Bahadur Singh was asked about this, he made an excuse that he is too busy, so general secretary Mr Garcha can be contacted.
It is not surprising that Himmat Singh Sohi's brother-in-law Onkar Singh was caught stealing, astonishing thing is that in the garb of a perfect sikh, these so-called Gursikh volunteers are covering the matter. Pardes Weekly has also talked to the trustees but their reply was that they can only say something after the enquiry. We have some information about his. Remember that Pardes Weekly is the only paper which in the interest of the gurdwara dauntlessly reports about dishonesty and hooliganism to the Sangat and will continue to do so."
Article 2 was illustrated with the same three photographs as Article 1, including a photograph of the claimant with the caption 'Thief – Onkar Singh'.
The same case on reference, natural and ordinary and innuendo meaning is made as in the case of Article 1, In my judgment, the meanings borne by the translation (again, they are admitted) are the same as those borne by Article 1, and my conclusion on reference is the same. Plainly, the article is defamatory of the claimant.
Article 3
Article 3 was identical to Article 1. My conclusions on meaning and reference are the same.
Article 4
The next article complained of was also published in the 18 May edition of Pardes Weekly. According to Mr Bholowasia, it was an advertisement, placed by the Lion Group, the then opposition party in the gurdwara, which took power in October 2014. That, of course, has no bearing on the defendants' liability for publishing it, if the conditions for liability are otherwise satisfied. It was printed only in Punjabi, and again there is an English translation.
The parts of the article which are complained of are as follows:
"DEAR CONGREGATION
[There follows a Sikh greeting which is not translated]
Theft of Gurdwara's charity box cash box (Golak) news came to light through last week's Pardes Weekly. This unfortunate incident must be condemned as much as possible….
…. We the Lion Group demand an independent enquiry committee of theft of charity cash box and also advise that Sohi group and all members to resign on ethical grounds. If they do not resign then we request trustees that they should use their powers to dismiss the committee. Until the new election and report of the theft enquiry committee comes out. Till that time independent receiver should be appointed. We are, Lion Group."
No natural and ordinary meaning is pleaded for article 4. An innuendo is pleaded, namely that the claimant had committed an act which should be condemned as much as possible, namely the theft of the golak's cash box, which was so serious that the whole committee should resign or be dismissed. The particulars of innuendo, which are admitted except for the number of readers, assert that a substantial number of readers would have read Articles 1, 2 and 3, which identified the claimant as the thief. It is also said (and not admitted) that the claimant was identified as the individual referred to in Article 4.
I do not doubt that he would have been identified as the person referred to, but it does not seem to me that Article 4 adds anything of substance to Articles 2 and 3, which were published in the same edition of the newspaper. To identify the claimant as the target of Article 4, a reader would have had to read the other articles, which in terms of defamatory content are considerably more serious.
Article 5
This also was published in the 18 May 2013 edition of Pardes Weekly, but only in Punjabi.
The words complained of, as set out in an English translation which is far from colloquial but not in dispute, are as follows:
"SRI GURU SINGH SABHA'S THIEVES HAVE STOLEN THE PARDES WEEKLY PAPER FROM THE SHOPS
Pardes Weekly Chief Editor's life was threatened
It is so sorry to write that last week Sri Guru Singh Sabha's committee sent the hired gangsters to take away Pardes Weekly paper. This misdeed revealed their real face. This proves that is not only President's brother-in-law is a thief but this is a gang of thieves.
They have stolen the paper from all the shops by saying that they need this paper for Gurdwara. They tried every way to snatch paper from people and took away papers from the van as well.
Due to their activities and on demand of readers we are repeating the news again. These disgusting activities at some places are captured by the CCTV and it has been reported to the police.
They have become so mean, that they are threatening to kill Jaskaran from Pakistan on telephone.
Scotland Yard is taking this matter seriously and will soon find out the facts so that Pakistani links can be brought to light."
Only a legal innuendo meaning is pleaded. It is that the claimant was a thief and was involved in gangster activity and threats to kill, including threats to kill the first defendant, by telephone calls made from Pakistan which Scotland Yard were taking seriously.
The particulars of innuendo are that a substantial number of readers would have read the articles reporting the theft and criminal activity by the defendant referred to in the first three articles, in which his photograph and the fact that he was the president's brother-in-law were given. No explanation is given as to how the readers would have realised that 'Jaskaran' was the first defendant, but that probably does not matter.
The meaning and the particulars of innuendo are admitted, apart from the number of readers who would have understood the meaning and the reference. The meaning is, in my judgment, broadly correct, even if others might have pleaded it differently. I do not doubt that a substantial number of readers would have made the necessary connections.
Article 6
Article 6 was published in the edition of Pardes Weekly for 15 June 2013. It was published in Punjabi only, which I have no doubt a substantial number of readers could understand, and the English translation relied upon (again very poor but not in dispute) is as follows:
"THE TALE OF SRI GURU SINGH SABHA GOLAK THEFT
Have I told an untruth, no I have not, no I have not
Pardes Weekly, in the last few days Sri Guru Singh Sabha golak theft stories have been published. Once again this has caused uproar. Those who are against us in exposing this have used various methods to disguise the truth.
Since the theft was caught it is from that day they have organised a cover-up by publishing in other Southall papers. They have published leaflets of this and distributed them within the gurdwaras. They cross the limits when they sent these leaflets to all members homes. To cover their tracks they have spent an enormous amount of sangat's Golak monies. To top it all they have collected Pardes Weekly papers in order to stop this distribution of news. They have published in other papers advertisement in order to justify their claims of being truthful.
They have written in other papers that Pardes Weekly spreads untruths. Dear loving readers please note we only write the truth and will only ever write the truth.
Their untruthfulness came to light when Pardes Weekly office received a CD of their misdeeds. The contents of this CD of 27 April is a recording of the conversation of Dr Garcha and the victim which separates the water from the milk. In this CD the general secretary of Sir Guru Singh Sabha admits whatever happened should not have taken place and by his own admission accepts responsibility and we are ashamed. In gurdwaras no such incidences should take place and he also asked the boy not to give anyone a statement.
He also accepted that he has two cameras CCTV footage and the thief has been removed from his duty at the gurdwara, however the truth is that the keys of the gurdwara are still with the brother-in-law of Himmat Singh, Onkar Singh aka Upkar Singh aka Abkar Singh.
In this CD, Deepa of Norwood Green Hall's making a scheme is identified. The police have come to Pardes Weekly and collected this CD.
Pardes Weekly has received many threats regarding this matter because Pardes Weekly has brought to light of the sangat the theft and thuggery going on at the gurdwara, but they are using all means legal and illegal to cover up this matter.
Dear loving readers you all know that we always support the truth and will continue to do so. We are always willing to stand up for the truth and respond to tit for tat.
Golak theft exposing CD has arrived at Pardes Weekly office."
The natural and ordinary meaning pleaded is that the claimant was a thief, by reason of the facts that
i) there is a CD of a recording of 27th of April between a Dr Garcha, the General Secretary of the Temple, in which he admits to a victim that the thief has been removed from his duty at the Temple but that the keys to the Temple are still with him (ie the claimant is named as being the key holder and therefore the thief);
ii) the claimant is involved in or implicated in the threats being made to the defendant's staff following the revelation of a theft by the claimant and revelation of the thuggery going on at the Temple.
That meaning is admitted. It is not, in my judgment, well pleaded. For instance, it is plainly not right, or at least not necessary, to plead that the claimant is a thief by reason of the fact that he was said to be (if he was said to be) involved in the making of threats. The allegation that he is a thief, or the thief, is made in express terms, and does not depend on any involvement in threatening behaviour. However, it seems to me that the pleaded meaning that the claimant was a thief – or rather, the thief of the money stolen from the gurdwara - sufficiently states the sting of the words for it not to be necessary for me to re-formulate the meaning when there is no issue between the parties.
There is also an innuendo meaning, namely that the claimant was a thief and was involved in or implicated in the threats being made to the defendants' staff following the revelation of theft by the claimant and revelation of the thuggery going on at the Temple. The particulars of innuendo are that a substantial number of readers would have read the articles which reported the theft and 'criminal activity' by the claimant, in some of which the claimant's photograph and the fact that he was the president's brother-in-law were prominently published. The pleader plainly means to refer to Articles 1 to 3. It is pleaded that the claimant was identified by a large but unquantifiable number of readers of the words complained of as the individual referred to in Article 6. The meaning and the particulars are admitted, except that the number of readers ('substantial' and 'large') is not admitted.
I do not doubt that a large number of readers would have been aware of the facts relied on. The article plainly means that the claimant is a thief, and no innuendo is needed for that, but in my judgment the allegation of involvement in the threats to the defendants is sustainable as a legal innuendo by reason of the allegations in Articles 1-3 that the claimant was part of a conspiracy to arrange an assault on Navpreet Singh and was involved in threats to kill him.
DEFENCES
The causes of action accrued before the commencement of the relevant sections of the Defamation Act 2013, so the old common law defences continue to apply in this case.
The defences pleaded are justification (defence paragraph 30) and Reynolds qualified privilege (paragraph 33). There is also a brief passing reference to honest comment, and a suggestion of a traditional duty-interest privilege.
Justification
It appears that the intended Lucas-Box meanings, that is to say the meanings in which the defendants intended to justify the words complained of, are that money was taken from the Golak, that the claimant was the thief, and that he was involved in a conspiracy to harm Navpreet Singh and to remove copies of the defendants' newspapers.
Unfortunately, the defence pleads the evidence by which the facts relied upon are to be proved, rather than the facts themselves. The material on which the defendants are said to rely is as follows:
i) The defendants' receipt of a letter from a person who described himself as Navpreet Singh's friend, which confirmed the danger facing Navpreet, a worker at the gurdwara who witnessed the claimant take money from the Golak;
ii) A witness statement (not served) from an un-named person who worked alongside Navpreet and provided 'compelling evidence' confirming the claimant's 'repeated thefts' from gurdwara funds;
iii) Reports made to the police, apparently by the first defendant;
iv) The contents of a CD containing recordings of Navpreet Singh in various conversations with senior executive members of the gurdwara and a friend; and
v) The theft of the newspapers on 11 and 12 May 2013 from a Hindu temple in Southall and a shop on King Street, Southall, and witness evidence of those who observed the theft.
The pleaded defence of justification is fundamentally flawed. However, as far as I am aware no application was made to strike it out, possibly because at least one witness statement was eventually served which was capable of supporting the case that the claimant did indeed steal the money.
Privilege
At paragraph 33 of the defence there is what appears to be a plea of Reynolds privilege. It is pleaded that the words complained of were published on an occasion of qualified privilege and made pursuant to the defendants' journalistic duties, and the particulars given are as follows:
i) The words published related to matters of public and/or general concern, particularly in the community to which the words were published;
ii) The steps taken to publish were fair and reasonable;
iii) By the time they were published, extensive research had been undertaken into the matters alleged;
iv) On receipt of the information, the allegations were corroborated as far as possible and attempts made to put the allegations to the claimant and obtain a response;
v) When published, the matters remained of current concern to the readership and the defendants had a moral or social duty to publish the words complained of and the public had a corresponding legal interest in receiving the information.
I should also refer to paragraphs 31 and 32 of the defence, the significance of which is not altogether clear.
At paragraph 31, it is pleaded that the defendants published the articles complained of only after having exhausted attempts to verify the facts with the claimant and with the gurdwara committee, and that the defendants between 6 and 10 May 2013 sought to speak with the claimant and/or the committee to seek comments on the proposed publication. It is said that the defendants were told throughout that the matters complained of – whatever is meant by that - would be raised with the committee. It is pleaded by way of further information that the first defendant telephoned Mr Sohi, the president, Mr Bahadur Singh, and Dr Garcha (the general secretary). Mr Sohi denied that any thefts had taken place, Mr Bahadur Singh refused to comment, asking for the matter to be referred to Dr Garcha, and Dr Garcha 'did not provide any sort of reply'.
I regard that paragraph as supporting the plea of Reynolds privilege. That, as I understood him, was the way in which it was deployed by the first defendant at trial.
Paragraph 32 pleads as follows:
"… that even if the attempts to speak to those individuals had not been made, the defendants were still justified in making the publications on grounds of the extremely serious nature of the disclosures. The publications were justified as they related to the conduct of individuals in a public office, or closely related to individuals in a public office. They were fair comment in that they related to matters of a compelling public interest and the defendants believed that to be the case at the time of publication."
Notwithstanding the references to the defendants being 'justified', I do not understand this paragraph as going to justification. I regard the first two sentences as going to the plea of privilege.
There is a degree of confusion in the plea of privilege, as to whether it is simply a plea of Reynolds privilege, or whether it is also intended to be a plea of traditional duty-interest qualified privilege, and with a view to covering that possibility there is a brief plea of malice which appears to be founded on recklessness. I will return to the question of malice later.
Honest comment
The final sentence of paragraph 32 of the defence appears to be an embryonic plea of honest comment. It should have been explored by way of request for further information, or have been made the subject of an application to strike out, because as it stands it is hopeless, failing as it does even to identify the comment relied upon. The first defendant made the bare assertion in his skeleton argument that the articles were honest comment, but this contention was not developed during the trial. I did not encourage him to do so, because it did not appear to me to be a defence with any prospect of success. It seems to me that I can deal with this very shortly. The central allegations made in articles 1-3, namely that the claimant stole the money from the Golak, and that he was party to a conspiracy to assault Navpreet Singh and involved in the making of threats to kill the man, are indisputably allegations of fact. Those articles contain the most serious allegations against the claimant. Nor can I identify any passages in articles 4-6, defamatory of the claimant, which are even arguably comment.
THE EVIDENCE: JUSTIFICATION
The witness statements stood as evidence in chief, although I allowed both parties some leeway in asking additional questions. In Mr Bholowasia's case, I allowed him to amplify his witness statement at very considerable length.
The first and most important witness for the claimant was the claimant himself, Mr Akbar Singh Rai. He had the interpreter beside him, but rarely needed his services, for he spoke good English. He seemed to me to be a mild and patient man. He made no attempt to gild his evidence or to exaggerate. I found him a reliable and patently honest witness.
Mr Rai came to the United Kingdom in 1966 from the Punjab, as I have said, to join his father, and ever since has been a member of the congregation, or sangat, of the Gurdwara Sri Guru Singh Sabha in Southall. His father was one of the founders of the gurdwara, and held a number of posts on the executive committee. Mr Rai worked as a senior supervisor in a machine shop until 1982, when he bought and ran a newsagent's shop. Over many years, he invested in a buy-to-let property portfolio, and in 2000 bought a small hotel. His sons now run and manage the hotel, and he has been fortunate enough to be able to retire from full time work.
Mr Rai is, of course, a practising member of the Sikh religion. It is one of the tenets of the Sikh faith that its adherents should engage in selfless voluntary service. He gave unchallenged evidence that he and his family have volunteered at the gurdwara and made substantial financial donations to it over very many years. When he retired in 2000, he gave all his time to carry out volunteer work at the gurdwara seven days a week. In 2002, he was elected to the management committee, on which he served for two further consecutive terms from 2004 and 2006. His voluntary work appears to have involved a very substantial commitment. He volunteered full-time at the gurdwara from 5:30 am to 6 pm seven days a week until March 2008. At that point, a new committee was elected, and he was informed that he would not be required to carry out his duties any longer, but in March 2011 the previous committee was re-elected, and he returned to his duties once again.
His work would include opening the office, giving the priests their daily programme; giving staff the daily list of bookings; doing the fresh vegetable shopping or the cash-and-carry shopping; looking after repairs and maintenance of kitchen equipment; keeping an eye on the cleaning staff and other volunteer workers; taking material from one gurdwara to the other; and dealing with many other issues in the kitchen, washrooms, and car parks at both gurdwaras and at Norwood Hall, the gurdwara school. Once a year, his family cooks and provides food for the school camp which takes place in August. That involves feeding 500 children and 100 helpers. His family also cooks and provides food once a week for the homeless shelter in Slough.
Mr Rai held keys to the office and the office safe, where there could be £4000 at any one time. In cross-examination, he explained that he held the keys for the counting room, the grocery store and three rooms upstairs in the Park Avenue gurdwara, one of which, I take it, was the office. When his duties required him to make purchases on behalf of the gurdwara, he would obtain cash from the secretary, purchase the goods, and account for all that he had spent, providing a receipt for all his purchases.
The gurdwara received very substantial amounts of money by way of donations from the sangat, or congregation. Mr Rai's duties extended to the counting room, where the receipts were counted on Mondays and Tuesdays. On Mondays, he would collect the money received at Havelock Road and at Norwood Hall, and take it to Park Avenue, where the money would be counted. He would then take the money to the bank.
On Tuesdays, the donation money placed by the congregation at both gurdwaras in the golak, the large collection box in the main prayer hall, was brought to Park Avenue, counted and taken to the bank. Mr Rai was always involved in the process of counting the golak money. In the counting room, off the main hall of the Park Avenue gurdwara, there were a number of machines, one of which sorted the coins into the different values, and the others of which counted the coins and put them into bags for the bank. Mr Rai's job was to operate the machine which sorted the coins. After the money had been counted, the relevant paperwork was done and the money was taken to the bank.
23 April 2013: the alleged theft
This case concerns Tuesday 23 April 2013. On that day, Mr Rai's duty was, as usual, to put the coins in the sorting machine which would then separate the coins into their different values. His evidence was that he remembered six other people being in the counting room that day. They were Narinderpal Singh Johal, Ajit Singh Ojla, Bahadur Singh Keila, Gurdev Singh Jandor, Darshan Singh Dokal and Sohan Singh Shahdara. All were volunteers, as opposed to paid employees of the gurdwara. His evidence was that there was nothing unusual about that morning's counting until after the job was done.
Navpreet Singh had not been in the counting room, and Mr Rai did not even see him outside the room when he had finished counting. But he knew Navpreet: their relationship had in the past been good. Navpreet had volunteered at the gurdwara on a part-time basis, and Mr Rai himself had put Navpreet's name forward to the committee as a suitable candidate for an employed position.
Mr Rai said that once the counting had finished on 23 April, he left the counting room to go upstairs to the office where he kept his shoes, so that he could take the money that had been counted to the bank. As he was on his way up the stairs, he heard his name being called. He looked round and saw Bahadur Singh Keila and Navpreet Singh behind him. He stopped and waited for them on the landing. He recalled Mr Keila saying that someone – he did not hear Mr Keila say who - had accused him of taking a bag of £2 coins from the golak. He was very shocked and surprised. He went into the kitchen with Mr Keila and emptied out his pockets. He had some loose change and a set of keys. He had no £2 coins, and no bag of coins, in his possession. He recalled that Mr Keila apologised to him and turned to Navpreet Singh, to whom he said something. He then realised that it must have been Navpreet Singh who had made the allegation. Navpreet Singh left and Mr Rai did not see him again that day. Mr Rai continued with his duties, even going to the bank to deposit the money that had been counted.
In short, Mr Rai's evidence was that he did not steal the money and that he was not a thief. He regarded the allegations in the articles complained of that he had stolen from the golak, and then arranged for Navpreet Singh to be beaten up, making threats to kill him and his family, as totally outrageous.
Asked why Navpreet Singh should have made a false allegation against him, he speculated that it might have been prompted by anger at Mr Rai's reluctance or inability to help him to extend his visa, which Navpreet had asked him to do several times. He said that Navpreet's work had not been good at the time, and he had been obliged to pull him up on many occasions, so their relationship was not as good as it had been. He also speculated about a political motive.
The court also heard the evidence of four other volunteers who were working in the counting room that day.
Darshan Singh Dokal, a mild-mannered Sikh, gave evidence that he had read the articles complained of in their Punjabi versions, and was able to identify the person named 'Onkar Singh' as being the claimant, Mr Abkar Singh Rai. Mr Dokal had known the claimant as a sevdar, or volunteer, at the gurdwara for over 15 years, and said that the claimant worked seven days a week and had always carried out his duties in an honest and respectful manner. Mr Dokal was vice-president of the gurdwara as at 23 April 2013. He was a member of the committee, and had been treasurer for 10-12 years.
He told the court that he was in the counting room on 23 April 2013, and said that nothing suspicious occurred. He went to the gurdwara every day at around 0830, or earlier if he was counting, and afterwards would go to his shop. It was put to him that he had not been present that day, but he insisted that he had been: he was there every day.
Mr Dokal was asked to show by reference to a plan where everyone had been working, and he said that the claimant had been on the sorting machine, as he always was. On his left had been Gurdev Singh Jandor and Sohar Singh Shahdara; beyond them had been Bahadur Singh Keila and Ajit Singh, working together on counting the notes; and he and Narinderpal Singh Johal had been on another counting machine at the bottom right on the plan.
He saw nothing suspicious happen, and as far as he was concerned no incident occurred. Neither Navpreet Singh nor Prem Randhawa were in the room. He had seen Navpreet there on occasions, because he would bring money from the golak, but he was not there that day. Similarly, Prem Randhawa would occasionally bring money to the counting room, although his duty was looking after the shoes of the members of the congregation. After counting the money, several of them would take it to the Bank of Baroda in a van to save the cost of employing security staff.
Narinderpal Singh Johal required the assistance of an interpreter. He had read the articles complained of in Punjabi, and was able to identify 'Onkar Singh' as the claimant. He was in the counting room on 23 April 2013. He had never been on the committee of the gurdwara, but he had counted the money for 5 or 6 years. That day, the others present were the claimant, Sohan Singh Shahdara, Ajit Singh, Bahadur Singh Keila, Gurdev Singh Jandor and Darshan Singh Dokal. Asked to state by reference to the plan of the room where everyone had been, he placed everyone where Mr Dokal had, except that he said he and Mr Dokal had been on a machine between the two men counting the notes and Mr Jandor and Mr Shahdara, not (as Mr Dokal had said) at the bottom right of the plan. He had never seen Navpreet Singh or Prem Singh Randhawa in the counting room, although they might have brought the money on occasions; but they did not stay. The room was too small and there was nowhere to stand. He saw nothing suspicious take place.
Gurdev Singh Jandor was an elderly gentleman who also needed the help of the interpreter. He also had read the articles complained of in Punjabi and had recognised the claimant as the person accused. He had been in the counting room on 23 April 2013. He agreed with Mr Johal (and the claimant) about the men who had been in the room that day and where they had worked. He did not see Mr Rai take any money. He had not seen Navpreet Singh or Prem Singh Randhawa in the room, although he said he had seen Prem help with bagging the money sometimes during the counting. He had not seen Navpreet do so. He went home after counting the money.
The statement of Ajit Singh Ojla was introduced as hearsay evidence without objection, Mr Ojla being unwell. His statement said that he also had read the articles complained of in Punjabi and had been able to identify Mr Rai as the person being accused. He had been in the counting room that day counting the money. He saw nothing suspicious; nor did he see Navpreet Singh or Prem Randhawa in the room.
Next the court heard the important evidence of Bahadur Singh Keila, a driving instructor by occupation. He spoke excellent English, he was plainly very intelligent, and he gave his evidence with a cheerful candour. I found him a very impressive witness.
Mr Keila generally does voluntary work at the gurdwara until 12 noon on Tuesdays, and goes on other occasions as a member of the congregation. He had been involved with the gurdwara since he came to the UK in 1960. He was assistant treasurer for 13 years from 1994, and took over the treasurer's duties for the last year. In 2013, his wife was the treasurer.
Mr Keila explained that he was present in the counting room on the morning of 23 April 2013 between about 0800 and about 1050. The claimant had been operating the coin sorting machine, which Mr Keila called the Jet Sorter. Mr Keila explained that the coins are routed into bags, and then tipped into buckets before being put into the counting machines. He did not really recall, he said, who was there, except that he himself was working on the notes with Ajit Singh. He did not recall that either Navpreet Singh or Prem Randhawa were in the room. Asked whether Navpreet helped with the counting, he said that he generally helped by bringing the money from the golak into the counting room. The room, he said, is small, and ought to be bigger. There is a camera which shows the end of the room where the claimant works, and the images are shown on a TV screen so that he can see what is happening at the far end of the room. In other words, while he was working he could see the claimant. The screen was working that day, so he supposed that the camera must have been working also.
When the counting was nearly finished, Mr Keila had to go to the door because someone wanted some change. Navpreet Singh came up to him and said that he wanted to speak to him. Mr Keila said that he would see him in about 10 minutes when the counting was finished. When Mr Keila came out, Navpreet Singh told him that he had seen the claimant putting what he thought was a bag of £2 coins into his pocket. Mr Keila was shocked and saw the claimant walking ahead of him, so said to Navpreet Singh, "Let's find out".
He approached the claimant on the upstairs landing and said that someone had accused him of putting money in his pocket. He suggested that they should go into the kitchen, and once in the kitchen he said that he would have to ask the claimant to empty his pockets. He did so, and Mr Keila could see only some loose change and keys. Navpreet Singh was with him. Mr Keila asked him: "Where is the bag of £2 coins?" Mr Keila said that he turned pale, and walked away.
Mr Keila apologised to the claimant but explained that Navpreet had accused him of stealing money. He said it was okay. Both of them, Mr Keila said, were shocked, and stood there for a few minutes. Mr Keila was reflecting, he said, on the fact that the claimant was someone he knew so well, who was a dedicated volunteer, a man who, when asked by him to go to buy something for the summer camp, would always bring the right change and a receipt, and who with his family had every year for 1-2 days donated the food and drink for 500-600 people at the summer camp, at a cost which Mr Keila estimated at £1500-£2000.
He was asked why, if the claimant was so honest, he approached him on the say so of a worker such as Navpreet. His answer was that it was charity money for which he was responsible. He would have asked his own wife to empty her pockets in the same circumstances.
After he had finished with the claimant, Mr Keila did not recall where he went. He never did the banking: he filled in the slip which gave the total sum, and others took the money to the bank. He would normally have gone upstairs with the foreign currency. At that point, he thought that they still used Lloyds Bank although the gurdwara later switched to the Bank of Baroda. It matters little, but he was plainly right about that, for Mr Bholowasia produced a Lloyds Bank statement which showed that £31,115 had been paid in to the gurdwara's account on 23 April.
Mr Keila said that he reported the incident. He spoke to the president, Himmat Singh Sohi, when he had a gap between driving lessons, and told him that the claimant had been accused of stealing. Mr Sohi said that he would inform the committee. He also met Daljit Singh Hayer, a member of the committee, whom he knew to be a member of the committee set up to investigate the incident, and told him what had happened. He also told the investigation committee as a whole at a meeting in Norwood Hall. Mr Bholowasia referred him to the minutes of the meeting of the investigation committee, which met on 15 May 2013. The minutes recorded his evidence, which accorded with the evidence which he gave to this court. I note that a member of the committee asked him the pertinent question, How could Navpreet Singh make his allegation if he was not, as Mr Keila said he was not, in the counting room? Mr Keila replied to the committee that Navpreet had made an allegation, and it was better to clear everything there and then. Had he not asked the claimant to empty his pockets, Navpreet would have said that he was protecting him. Mr Keila said that he trusted the claimant and knew he would not mind, and that Navpreet would be proved wrong, as turned out to be the case. The claimant, he added, was never out of his sight after he left the counting room.
The investigation committee was chaired by Daljit Singh Hayer, a young man whom I found a very open and straightforward witness. I accepted his evidence without reservation. He told the court that he was asked by Dr Garcha to chair the investigation, and he did so. He asked Mr Dhillon to take on the task of speaking individually to the men who had been in the counting room and asking them for their version of events. Mr Dhillon did so, and reported to Mr Hayer. Mr Hayer, with two members of staff, watched the CCTV of the counting. The CCTV was functioning in that it had recorded footage of the morning's counting, although there was a technical problem which meant that the footage could not be copied onto a CD. He watched the footage for 3 to 4 hours, with stopping and pausing. The footage showed seven or eight men involved in the count. He concentrated on the claimant, and saw no wrongdoing whatever and nothing to give rise to suspicion. He did not see Navpreet Singh in the counting room. He did not know Prem Singh Randhawa, a witness called by the defence as to what took place in the counting room, so was unable to say whether he had been in the room. He produced the minutes of the meeting of the investigation committee on 15 May 2013, and told the court that for him the evidence of Bahadur Singh Keila (to the same effect, as I have said, as his evidence to the court) had been conclusive, and that the unanimous conclusion of the committee had been that the allegations were unfounded and mischievous, and that the motivation behind the making of the allegations was likely to have been political, 'given Akbar Singh Rai's familial association with the President, as there have been many failed attempts to implicate the President in wrongdoing in the past'. It should be noted that, contrary to Mr Bholowasia's assertion in his closing speech that the committee chose not to invite Navpreet to give evidence (an assertion for which there was not a shred of evidence), Mr Hayer's evidence, which I accept, was that the committee did invite Navpreet to give evidence, but that he did not turn up at the hearing.
Prem Singh Randawa was the last witness able to help the court on the issue of what happened in the counting room on 23 April 2013. He was called by Mr Bholowasia. He was a Sikh man who looked much older than his 55 years. He could not speak English so had the services of the interpreter.
His witness statement stated that he had been a paid employee of the gurdwara between 2007 and 21 July 2013. His main duty was to look after the shoes of the visitors, but he was also asked to do other work from time to time. Among those duties was assisting on Tuesdays in the counting of the donation money collected from the golak. He claimed that he was involved in the counting every Tuesday, even on his days off, when he came in specially to carry out this duty. When he was helping in the counting of the donation money, he would often see the claimant put donation money in his pocket, and go outside to put the money in his van, which was usually parked in the gurdwara car park. On every single Tuesday that he and the claimant took part in the counting of the donation money, he saw the claimant put money from the donation box into his pocket. He did not tell anybody about it because he was afraid of losing his job, and he was afraid of the people who were them members of the committee of the gurdwara.
According to his witness statement, on 23 April 2013 he was counting the donation money as usual. The claimant and Navpreet Singh were also there. He said that he and Navpreet Singh saw the claimant take money from the donation box while it was being counted, but that he did not say anything. However, Navpreet Singh decided to speak out: when the claimant walked out of the room, Navpreet Singh grabbed the claimant's hand and said to Mr Keila, who was in charge of counting the money that day, 'Uncle ji, search him, he has stolen money and is going'. After that, he said, Mr Keila and Navpreet Singh took the claimant out of the room. He said that he felt ashamed for not having spoken up earlier. He said that he spoke to Navpreet Singh later that morning, and that Navpreet told him that when Mr Keila searched the claimant, he found lots of £1 and £2 coins in his pocket. Navpreet also said, according to Mr Randhawa's witness statement, that Mr Keila had told him to keep the matter quiet, and that he would inform the committee of what had happened.
Later, Mr Randhawa explained in his witness statement, after he saw the articles about the claimant in Pardes Weekly, he decided that he should go to tell Mr Bholowasia what he had seen.
I allowed Mr Bholowasia to ask some supplementary questions in chief. Mr Randhawa said that he was a priest at the gurdwara. There had been no reference to that role in his witness statement, where he had said that his chief responsibility was looking after visitors' shoes. His duties as a priest, he said, included doing anything that the committee asked him to do. He was not acting as a priest on 23 April.
He told the court that those present in the counting room on 23 April, apart from himself. had been the claimant, Gurdev Singh Jandor, Bahadur Singh Keila, Navpreet Singh, and two men whose names had not been mentioned before, Amendeep Singh and Santokh Singh. There were other people also, whose names he did not know, but as for Darshan Singh Dokal, Sohan Singh Shahdara, Najinderpal Singh Johal and Ajit Singh Ojla, none of them had been present. He claimed to have been working with Santokh Singh on the first machine on right on entering the room, helping him to bag the money. As for the others, he maintained that Amandeep Singh was on the machine at which the claimant's witnesses had unanimously placed Narinderpal Singh Johal and Darshan Singh Dokal (neither of whom, on Prem's evidence, was there at all); Gurdev Singh Jandor was working on the middle machine with Navpreet (not, as all the claimant's witnesses had said, with Sohan Singh Shahdara); and a man called Shera was present helping the claimant by putting coins into the sorting machine that the claimant was operating.
He asserted that he saw the claimant take money out of his machine and put it in his pocket: he was able to see the claimant from where he was standing. He maintained that everyone could see what he saw, but no-one would say anything, and all the witnesses had been lying. He insisted that Navpreet seized the claimant's hand while it was in his pocket, and while they were both inside the room. He had seen the claimant take money on every occasion when he was counting. He accepted that it was his duty as a priest to report such behaviour, but he was afraid of losing his job.
He was asked about the form which is signed after the money has been counted. The form signed on 23 April was shown to him, and he was asked where his name appeared. He said that it did not, because employees do not sign. But he was acting as a volunteer that day, he was reminded, not as an employee. Nonetheless, he said, he was in fact an employee. For the same reason, he said, Navpreet Singh's name was not on the form. It was pointed out to him that on his account Shera, Santokh and Amandeep had been in the room that day; they were volunteers; yet their names did not appear. That, he said, was because the committee did not ask them to sign. He knew that, he said, because people who live in the gurdwara do not sign. But, it was pointed out, Santokh did not live in the gurdwara: why did he not sign? Because he left before the signing, the witness said. Then he said that Santokh did not sign because he was 'illegal' and was not asked to sign.
The form bears the names of Narinderpal Singh Johal and Ajit Singh. Mr Johal had not been asked how it was that his name appeared on the form if, as the defence contended, he had not been present. However, Sohan Singh Shahdara was recalled to be asked if his signature appeared on the form, and he confirmed that it did: he signed in his usual manner as Sadrha SS. (Plainly there are difficulties of transliteration of names as between Punjabi and English).
Prem Singh Randhawa was asked about his second witness statement, made on 11 January 2015 in support of Mr Bholowasia's application for an adjournment. In his statement, he said that he had new evidence that would support the defence case, which he wished to collate and bring to the attention of the court. He had not explained what that evidence was, which was one of the reasons for the refusal of the adjournment. He was asked about the evidence which he had wished to put before the court, and eventually, after a number of unsatisfactory answers which suggested that he was stalling or, at best, was being very obtuse, told the court that it concerned ordinary people, to whom he had spoken on the phone from India and who had told him that the claimant's family were 'beating too much', by which I took it that he meant that they were using violence. Asked what he meant by collating the evidence, he said that he could have done it on his return from India but could not get it. He returned from India on 25 December 2014.
I am sorry to say that I found Prem Singh Randhawa a less than impressive witness. He sat looking down throughout his evidence, his eyes almost closed, and never looked at the person questioning him. He repeatedly answered questions with remarkable obtuseness: for example, he would be asked whether he was able to help the court with a particular matter, and would simply answer 'yes', so that on each occasion he would then have to be prompted to give the answer. I found his explanations for the absence of the signatures of the three volunteers who he claimed had been present at the counting very unconvincing, and I was concerned that there seemed to have been little if any substance in the claim that he made in his witness statement that he had new evidence supporting the defence case. But even if I put those considerations on one side, I have no hesitation whatever in preferring the evidence of the claimant and Mr Keila, in particular, and that of the other men – Narinderpal Singh Johan, Gurdev Singh Jandor, Darshan Singh Dokal and Sohan Singh Shahdara – who gave evidence as to who was and was not in the room that day, and whose signatures appeared on the form which recorded the total sum counted.
I should mention that Mr Bholowasia belatedly (after the claimant's witnesses had given their evidence) produced a selection of receipt forms for other days when the money had been counted. He suggested that they showed that an unusual number of people had signed the form on 23 April, thus proving that they had added their names to buttress the claimant's case. I was not impressed by that argument. The numbers of signatories varied, and there seemed to me to be nothing particularly unusual about 23 April.
My conclusion is that neither Navpreet Singh nor Prem Singh Randhawa was in the counting room on 23 April 2013, and that for whatever reason, Navpreet Singh made an unfounded accusation of theft against the claimant. I accept without hesitation the evidence of the claimant that he did not take anything, and the evidence of Mr Keila that he asked the claimant to turn out his pockets and found no stolen money there. The suggestion is that a man wealthy enough to be able to take early retirement and to devote all his time and energies to the gurdwara which his own father had helped to found, and a man who, with his family, gave very substantial sums each year to the gurdwara and particularly to its summer youth camp, should at the same time have been pilfering from its collection box. The suggestion is also that each of the claimant's witnesses, all of them long-standing volunteers dedicated to the gurdwara, has lied about who was present and what took place in the counting room. Strong evidence would have been necessary to make such a case, and it was wholly lacking.
The assault on Navpreet Singh and threats made against him
What evidence was there that the claimant had anything to do with the assault on Navpreet Singh? It was the claimant's evidence that the accusation, which he denied, was totally outrageous.
Mr Bholowasia relied on a CD which, according to him, had been produced by a friend of Navpreet who took a surreptitious recording of a meeting between Navpreet and Dr Garcha. The status of the CD and its transcript was unclear: it had been disclosed by the defendants on their list of documents, but the claimant's solicitors had served notice requiring the defendants to prove its authenticity at trial. That notice was not complied with. The CD was simply produced by Mr Bholowasia as if it proved itself. However, Ms Kumar did not take any point on it, and there was no issue as to the transcript or the translation, so I treated the translated transcript as being an accurate account of what was said at a meeting between (at least) Dr Garcha, the general secretary of the gurdwara, and the head priest, Balwinder Singh Patti. They were the only two voices that Mr Bholowasia was able to identify. The person who made the transcript seems to have concluded that the other voices included a committee member named Baljinder Singh Dhillon, Navpreet Singh and his friend, who may be the person who made the recording. I should say that the claimant was asked whose voices he had heard when he listened to the CD, and maintained that he did not recognise any of them. There was no admissible evidence before me as to the identities of the others present. But the context suggests that the person said to be Navpreet had been attacked, so I shall proceed for present purposes on the assumption that the words are correctly attributed to him, and that Mr Dhillon and Navpreet's friend are also correctly identified. I should add that I had great difficulty in making sense of the translation, which was extremely poor.
Mr Bholowasia took me to a number of passages in the transcript. At page 3, Navpreet is recorded as saying that he does not know who assaulted him. At pp3-4, he is recorded as saying that a 'small disrespect in the presence of the Holy Guru Granth Sahib happened, which I have tried to explain you … but the result is I was to be punished with that I will be beaten'. That, Mr Bholowasia said, was a reference to the theft. Mr Bholowasia placed great emphasis on a passage at page 6 in which Navpreet is recorded as saying 'In the morning they were beating up and saying, you are alleging us of theft? Alleging us of theft? They were speaking loudly that you are alleging us of theft?' As I understood him, he regarded that as evidence that the attackers had been sent by the claimant. At page 8, Dr Garcha is recorded as saying that a five member committee would investigate the allegation, because he could not say what had happened or not happened, but whatever happened he felt ashamed that it happened in God's house; and at the bottom of that page, Navpreet's friend is recorded as referring to the fact that 'he' (Mr Bholowasia says this is a reference to the claimant) is the president's relative, and that there is too close a relationship, but then concedes that the decision of a five member committee would be acceptable. At page 9, Dr Garcha is recorded as saying that an apology might be acceptable. At page 10, Navpreet's friend is recorded as saying that the president's older brother in law had been caught. At page 11, Mr Dhillon is recorded as urging 'Navpreet' to give evidence to the investigating committee, which Navpreet is said to have agreed to do. At p16, Mr Patti appears to encourage Navpreet to run away to escape the people whom he called bandits.
What emerges from the transcript of the CD is that the person said to be Navpreet is standing by his allegation that the claimant was the thief. Dr Garcha's view is that the allegation must be properly investigated, The person assumed to be Mr Dhillon wants Navpreet to give evidence, and Dr Garcha suggests that it might be enough for the person identified as the culprit to apologise. The closest that anyone comes to suggesting that the claimant was behind the attack on Navpreet is Navpreet's statement that his attackers suggested that he was being beaten up because he had accused 'them' of theft. What that does not amount to, of course, is evidence that the claimant ordered them to act as they did, or had any knowledge of what they intended to do.
It was clear to me in the course of the evidence that there are different factions that compete for control of the gurdwara, and that there is a very distinct and very political character to the management of the gurdwara and the elections to it. For instance, the claimant was on the committee from six years from 2002 to 2008, when there was an election and he was informed that the new committee would not require him to carry out further duties. He resumed his voluntary work in 2011, when a new committee was elected. Similarly, he again stopped volunteering in October 2014, when a new committee was elected which had used the Pardes Weekly articles in the course of their campaign. He speculated that Navpreet might have made a false allegation against him for political reasons. Similarly, the gurdwara committee that investigated the allegation of theft concluded that the allegations might have been made for political reasons. Plainly, there was very strong feeling among different factions at the gurdwara, so strong that a tireless volunteer who gave substantial amounts of time and money to the gurdwara was asked to stand down when a new committee took over.
It seems to me that the likely explanation for the words attributed by Navpreet to his attackers is that young hotheads who supported the then current committee took it upon themselves to punish Navpreet for making such an accusation against one of their faction.
Whether or not I am right about that, it certainly is not evidence that the claimant had anything to do with the attack, and I accept his evidence that he did not. Similarly, there is no evidence at all that the claimant was involved in making any threats against Navpreet.
I ought to refer briefly to Mr Bholowasia's closing submission that on 23 April 2013 and until the CD was released, which must have been on or after 27 April, only three people knew of the alleged theft – the claimant, Navpreet and Mr Keila. That, he says, means that the claimant must have arranged the attack, and of course only he, says Mr Bholowasia, had a motive for doing so. That submission, I am afraid to say, is arrant nonsense. It was Mr Bholowasia's own evidence that there were people outside the golak room on 23 April who saw what happened, and that the news spread like fire; and that at least one person heard the claimant say that he would teach Navpreet a lesson. Moreover, he said that he himself learned of the alleged theft on 24 April when four or five people from the sangat, or congregation, called him to say that the president's brother in law had been caught stealing money. Afterwards he had more calls, and he spoke to the president about it on 26 April, when the president told him that there had been no theft. Plainly, the president knew (indeed, the first three articles assert that he was in a conspiracy with the claimant to assault Navpreet), and if Mr Bholowasia was rung by several people with the news on 24 April, it is a fair assumption that many others knew who did not call him.
For the sake of completeness, I should mention that in his closing submissions, Mr Bholowasia asserted that it was significant that the claimant had said in evidence that he had been told about the attack on Navpreet by telephone an hour after it happened, that is to say at 0600, but that he could not remember who had called him. That was not the effect of my note or Ms Kumar's. Mine read that Mr Bholowasia asked him if he heard about Navpreet being beaten up, and the claimant replied that he had asked someone where Navpreet was that morning and he had been told that Navpreet had been beaten up. I therefore listened to the tape, which was not very clear, but I was able to transcribe it as follows:
Question: When did you hear of the beating to Mr Navpreet Singh?
Answer: When I asked one [inaudible] at the Park Avenue gurdwara where was Navpreet this morning, he told me he's got beaten up in the morning – that's when I heard.
Question: On 27th?
Answer: I don't know (inaudible] exactly what day, the day that he was beaten up, that morning. It was half past six, or something [inaudible]. I asked somebody where is Navpreet, he said he was beaten up.
Unfortunately, the words after 'half past six' are not clear, but the context suggests that the claimant was saying that half past six was the time when Navpreet was beaten up, not the time he was told; but in any event, he learned of it when he asked someone at the gurdwara, at a time when he had noticed that Navpreet was not there. It was not a question of him being telephoned. In the circumstances, it did not seem to me that Mr Bholowasia's submission had any force.
Removal of copies of Pardes Weekly
A witness statement of Kewal Singh Randhawa was put in as hearsay by Mr Bholowasia without objection by Ms Kumar, the witness being unable to attend court. He is a shopkeeper. He said that on 11 May, two people got out of a white van, entered his shop and took away all the copies of Pardes Weekly. He asked them why they were doing this, and they replied that they had been sent by the gurdwara to collect them, because there was news in the newspaper which the committee did not like, and their instructions were to collect as many copies as possible.
Similarly, Mr Bholowasia himself told the court that copies of his newspaper were taken from shops, Hindu temples and Sikh gurdwaras to which they had been distributed.
That evidence suggests underhand behaviour by some elements at the gurdwara, but there is no evidence whatever which implicates the claimant in what was done. Indeed, Mr Bholowasia himself eventually accepted in cross-examination that this was so.
Threats to defendants
There was no evidence whatever that the claimant had been involved in making or causing any threats to Mr Bholowasia or the staff of Pardes Weekly.
Police investigations
It is worth noting that, as the claimant's unchallenged evidence made clear, he was never even approached by the police about any of these matters, let alone questioned by them.
Conclusion on justification
For those reasons, the plea of justification fails.
REYNOLDS PRIVILEGE
The evidence
Mr Bholowasia's evidence was that he learned of the alleged theft – or the theft, as he always referred to it – on 24 April, when members of the congregation, or sangat, called him. They did not give their names, but said that someone had caught the president's brother-in-law stealing money. Most curiously, he did not ask them the name of the president's brother-in-law.
He carried out his own investigations into the matter. In his witness statement, he says that he is aware of his responsibilities as a journalist, and made sure through his own investigations what had occurred at the gurdwara before he wrote any articles. However, most of the people that he spoke to did not want to give their names, claiming that they were afraid of the claimant, who was a powerful man. One of his contacts told him that it was the claimant's thugs who had attacked Navpreet Singh. He also learned that the gurdwara committee had not let the police investigate the theft but instead had appointed its own colleagues to form a sub-committee to investigate the matter. He found that an astonishing and biased way to proceed.
He contacted the president, Himmat Singh Sohi, on 26 April. He spoke to him for 3 minutes and 26 seconds. In the course of their conversation, the president told him that no theft had taken place, and there had had been no CCTV working. He claimed that he put Mr Sohi's comments in the first article. That was a reference to the sentence in the third column of the article where it was said that Mr Sohi 'stated that there is no evidence and the CCTV was also off'. Mr Bholowasia regarded the published statement that there was no evidence as meaning that there had been no theft.
Between 23 April and 7 May 2013 he went to the Park Avenue gurdwara to make enquiries. Many members of the congregation and some volunteers told him that the theft had taken place and that because of it, Navpreet had been beaten up. None of them had first-hand knowledge, Mr Bholowasia conceded. The news had, as he put it, spread like fire.
In late April 2013, according to Mr Bholowasia's witness statement, many copies of the CD recording of the conversation between Dr Garcha, Navpreet Singh and others were distributed by what he called 'well-wishers' of the gurdwara, to expose the theft and the attack on Navpreet Singh. He said that people rang him and told him to listen to the CD, which as I understood him was played to him down the phone, at least in part. He did not get hold of a copy until about 6 June. He had been trying to, but had not succeeded. It is not clear why, given the thousands of copies which he said were in in circulation, and the calls that he received from people with copies, he had been unable to obtain one earlier. In his view, the CD shows that it was acknowledged that the theft of the donation monies had occurred. As I have already explained, I do not think that is right.
Mr Bholowasia gave evidence that a letter was put through his letter box on 6 May 2013. In translation, the letter, which gave the author's telephone number and address, read as follows:
"To the chief editor: I feel hurted while writing these words as I am a worker of gurdwara and being an employee of gurdwara I am trying to do my duty. "
On 23rd of April 2013, at the time of counting charity box money, Onkar Singh, brother-in-law of President Himmat Singh Sohi, picked money and put in his pocket. This was going on for a long time but this time Navpreet Singh, friend of mine who is an employee of gurdwara, could not bear it. He held Onkar Singh's wrist. Bahadur Singh who is a husband of the treasurer took him to the office and made him to take the money out his pocket and tried to close the chapter then and there. Navpreet Singh was threatened that if he disclosed this news outside, he will be sacked from his job and threatened that he could lose his life. His visa is going to finish soon and he will not be spared in India as well.
On 27th of April 2013, when Navpreet as usual left his house for workplace at 5:00 AM, five gangsters attacked him and bashed him badly and threatened that if he uttered his name again, they will kill him. I am writing this, because this sort of scandalous behaviour and theft of charity box should not prevail. Please keep it as secret.
Your obedient
Gursewak Singh
11, Beaconsfield Road, Southall."
11 Beaconsfield Road was the address where Navpreet had lived, and it seems to have been a kind of hostel for gurdwara employees.
Mr Bholowasia said that he was shocked by the letter and at once contacted the local police. Not content with that, he also decided that the matter was fit for the attention of the Metropolitan Police Commissioner. In fact, he did not contact the police at once: he did so on 9 May, when he asked for comments from the police with a view to publication on 11 May.
He claimed in evidence that he called Gursewak Singh on the day he received the letter, but he did not answer, and later the phone went dead. He did not visit 11 Beaconsfield Road to make contact with this important source. Asked why not, he said that he did not know.
In his witness statement, Mr Bholowasia said that on 8 May 2013 he contacted Bahadur Singh Keila for comments, but that Mr Keila had replied that he had no comment to make, and that he should speak to Dr Garcha, the general secretary. Mr Keila gave evidence about this conversation. He said that Mr Bholowasia called him when he was teaching a pupil, and asked him if there had been a theft. His response had been, "No, there was no theft, but you should talk to the management committee". Mr Bholowasia had wanted to carry on talking but Mr Keila had to apologise and say that he did not have time. I have no doubt that Mr Keila did tell him that there was no theft. I have already explained that I found Mr Keila a most impressive witness. He had been upset by the injustice of the allegation against the claimant, given in particular the service that the claimant had given to the gurdwara, and I am confident that he would have wanted to make it quite clear to a journalist that no theft had taken place. I believe that Mr Bholowasia is mistaken in his recollection of that exchange. There is considerable significance in the point, because Mr Keila's denial of theft was not reported in the published articles. It is regrettable that Mr Bholowasia did not take notes, as I assume he did not, given that his list of documents does not include any reference to journalistic notes as being or having been in his control.
When he did call Dr Garcha, whom he knew personally, he says that Dr Garcha made no comment. In any event, he said in cross-examination, he had to think of his phone bills, and it was enough to have spoken to the president.
Mr Bholowasia says in his witness statement that he also called the president, Himmat Singh Sohi, but that he made no comment either. That was plainly not correct, for in his oral evidence he said that he spoke to Mr Sohi for 7½ minutes on 7 May, and asked him where Navpreet was and whether he was safe, to which Mr Sohi said he did not know. He asked for Navpreet's number, and Mr Sohi said that he did not have it. He asked again about the theft and Nr Sohi said that there was no evidence of theft, which – if true – was rather different from his answer on 26 April, namely that there had been no theft. Mr Bholowasia explained that his reference in his witness statement to obtaining no comment from Mr Sohi had been to the occasion after he had spoken to Mr Keila.
Cross-examined, Mr Bholowasia accepted that he was an experienced journalist. To him, responsible journalism meant that when people pass him information, he always double checks it and makes sure that the contents are correct. He wrote articles which had particular interest to the Sikh and Hindi speaking communities.
He accepted, as he had to, that he had got the claimant's name wrong, despite having spoken to his brother-in-law, Mr Sohi, about the matter during several telephone conversations. He said that the correct name of the person who took the money was not his main concern: his main concern was the safety of Navpreet. He believed that Onkar Singh was the person's name. It is unclear, and not at all easy to understand, how he managed to have conversations with Mr Sohi about the claimant without it becoming crystal clear that he had got his name wrong.
He was asked why he did not call the claimant to ask for his comments. His answer was that he asked Mr Sohi to get the claimant to call, but did not hear from him. That, he said, was the best he could do.
Asked about the steps that he took to contact Navpreet Singh, he said that he tried to contact Gursewak. He did not have Navpreet's number. He asked the police to find out his number but they could not give it out. He went to the gurdwara to ask people but was told that his whereabouts were unknown. He claimed to have tried to contact Navpreet in Amritsar, India, and, as he put it, 'sent some people' to his address, but he had disappeared. However, he did not go to 11 Beaconsfield Road, where Navpreet had lived and Gursewak Singh still resided.
He was asked what evidence he had, when he published the first three articles, that the claimant was involved in the assault on Navpreet Singh. He replied that his evidence was mainly the CD recording of the meeting with Navpreet (which, as I have already observed, did not show that the claimant had ordered the attack). In addition, 'various people' told him that the attack might (my emphasis) have been planned by the claimant. He was asked why when he heard the CD he did not call Dr Garcha to ask him whether it was genuine, and he said that he thought he tried to do so and left messages for him to call, without success.
When he was asked further about his sources and what they had told him, his evidence seemed to have firmed up: he said that various sangat people – worshippers attending the gurdwara – and workers told him that the claimant had (my emphasis) organised the attack. He did not ask them how they knew that he had done so. Then he said that the claimant had been upset by the allegation of theft and 'might' harm Navpreet. He added that his sources had spoken to Navpreet, and he had told them. But how, he was asked, would Navpreet know? The answer was – the CD: in other words, the evidence relied on came back to the words said by Navpreet, if it was his voice on the CD, to have been spoken by the attackers.
Further questioned to the effect that he did not, when he first published, have good evidence that the claimant was involved in the theft, or in the assault on Navpreet Singh, his answer was that as far as he was concerned there was good evidence: his newspapers were stolen and he got threatening telephone calls, so 'it was the claimant or his associates'. That answer may be very important. It is understandable that he should believe that others of the same party as the claimant should have been behind the theft of the newspapers and threatening telephone calls, and for that matter (given what Navpreet apparently said about what his attackers said to him) the assault on Navpreet. But it simply does not follow that the claimant had any inkling of what was being done.
The question of what Mr Bholowasia learned from people at the gurdwara was explored further. I asked him why he regarded the evidence of his sources at the gurdwara as reliable, if he did not ask them how they knew that the claimant was involved in the attack. He said that people heard a conversation involving committee members whose names they could not give him, saying that they were going to teach Navpreet a lesson. Then he said that his sources (plural) heard the claimant talking to friends, saying that he would teach Navpreet a lesson. Later, when taken to paragraph 18 of his witness statement (which refers to one particular person having told him that it was the claimant's 'appointed thugs' who had attacked Navpreet), he said that person had been the only person who had claimed to have heard the claimant saying he would teach Navpreet a lesson. It had not been several people, but one. I asked Mr Bholowasia how it was that he had not mentioned before, either in his witness statement or in evidence, that his sources, whether one or several, had implicated the claimant himself. His answer was that he had been asked for more detail, so he was giving it. He was asked again: why had this not been mentioned before? He answered that it was in his article. That, of course, was not right; there is no suggestion in any of the articles that people mentioned the claimant as having said anything of the kind: indeed, at the time Mr Bholowasia had not even known the claimant's correct name. He said that people referred to the brother-in-law of the president, not to the claimant by name.
Mr Bholowasia is plainly an intelligent man. He would have understood how important it would have been to have spelled out, in his witness statement and in his defence, that the claimant had been heard saying that he would teach Navpreet a lesson. Yet he did not put it to the claimant, nor mention it at all, even when questioned at length about his evidence for the claimant's alleged involvement in the attack, until a late stage of his cross-examination. I am sorry to have to say that I was quite unable to believe his evidence to the effect that his sources (singular or plural) had told him that the claimant, or even committee members, had been overheard saying anything of the kind, and I reject it. If that evidence had been true, he would have mentioned it in his witness statement and in his defence, and he would have mentioned it at the start of his evidence.
Mr Bholowasia was asked how, if his sources had spoken to Navpreet, his whereabouts could be unknown: they must have known how to contact him. He replied that when he said that Navpreet's whereabouts were unknown, he meant unknown to him. People who were close to him knew where he was.
Mr Bholowasia was asked about the gurdwara's internal investigation. He knew that it was going to take place, he said, but no-one rang him to give him dates until he got the date from a witness. He said that he might have rung Dr Garcha or Himmat Singh Sohi to ask if he could attend, but he could not remember. He did not wait for its conclusions, he said, because he did not know when it would take place. He accepted, in answer to a question from me, that he did not ask when it was going to take place. But had he been told that it was going to be held in the next few days, he would have waited. Had he known of the outcome of the investigation he would have included it in the article.
Mr Bholowasia was asked what his evidence had been for suggesting, in the first three articles, that Dr Garcha had behaved badly, in the sense that he had 'taken advantage' of being a doctor to obtain Navpreet's discharge from hospital before Navpreet had been fully treated. He answered that Dr Garcha had brought Navpreet away from the hospital, that on the CD he had told the doctor at the hospital that he would take Navpreet, and that Navpreet was recorded on the CD as saying that he was in pain. That plainly does not amount to evidence that Dr Garcha took advantage of his position as a doctor to obtain Navpreet's premature discharge, which is what the first three articles say.
The elements of Reynolds privilege
The necessary elements of the defence of Reynolds privilege are that there must be a real public interest in the matter about which the material is published; it must have been reasonable to include the material complained of as part of the overall story; and the steps taken to gather and publish the information must have been responsible and fair (in other words, the journalism involved must have been responsible).
In Reynolds v Times Newspapers Ltd [2001] 2 AC 127 at 205, Lord Nicholls set out his non-exhaustive list of circumstances which would be relevant to the question of whether, in a particular case, the standards of responsible journalism had been met. The ten listed factors were as follows:
i) The seriousness of the allegation. The more serious the charge, the more the public is misinformed and the individual harmed, if the allegation is not true.
ii) The nature of the allegation, and the extent to which the subject matter is a matter of public concern.
iii) The source of the information. Some informants have no direct knowledge of the events. Some have their own axes to grind, or are being paid for their stories.
iv) The steps taken to verify the information.
v) The status of the information. The allegation may have already been the subject of investigation which commands respect.
vi) The urgency of the matter. News is often a perishable commodity.
vii) Whether comment was sought from the plaintiff. He may have information others do not possess or have not disclosed. An approach to the plaintiff will not always be necessary.
viii) Whether the article contained the gist of the plaintiff's side of the story.
ix) The tone of the article. A newspaper can raise queries or call from investigation. It need not adopt allegations as statements of fact.
x) The circumstances of the publication, including the timing.
It is necessary to remember that in Jameel v Wall Street Journal Europe SPRL [2006] UKHL 44, [2007] 1 AC 359 at [53], the House of Lords warned that the so-called Nicholls factors should be approached in a practical and flexible manner, with due deference to editorial discretion. The factors should not be seen as a series of hurdles to be negotiated by the defendant, with the defence lost if one hurdle is knocked over. But they are a starting point, as Lord Brown observed in Flood v Times Newspapers Ltd [2012] UKSC 11, [2012] 2 AC 273 at [113], in determining the single question which he stated lies at the heart of Reynolds privilege, namely: could whoever published the defamation, given whatever they knew (and did not know) and whatever they had done (and had not done) to guard so far as possible against the publication of untrue defamatory material, properly have considered the publication in question to be in the public interest? In deciding that question, as Lord Brown stated, a host of different considerations are in play, depending on the facts of the case.
This is not, of course, a case of reportage, that relatively rare form of Reynolds privilege where (as Lord Phillips put it in Flood at [77]) it is not the content of a reported allegation that is of public interest, but the fact that the allegation has been made. In that situation, the publisher is protected if he has taken proper steps to verify that the allegation has been made, and as long as he does not adopt it. This case is very different, because it is a case where the public interest in the allegation lies in its content, not in the fact that it was made. In the words of Lord Phillips at [78]-[79]:
In such a case the public interest in learning of the allegation lies in the fact that it is, or may be, true. It is in this situation that the responsible journalist must give consideration to the likelihood that the allegation is true. Reynolds privilege absolves the publisher from the need to justify his defamatory publication, but the privilege will normally only be earned where the publisher has taken reasonable steps to satisfy himself that the allegation is true before he publishes it. Lord Hoffmann put his finger on this distinction in Jameel's case [2007] 1 AC 359, [62] when he said
'In most cases the Reynolds defence will not get off the ground unless the journalist honestly and reasonably believed that the statement was true, but there are cases ('reportage') in which the public interest lies simply in the fact that the statement was made, when it may be clear that the publisher does not subscribe to any belief in its truth.'
Thus verification involves both a subjective and an objective element. The responsible journalist must satisfy himself that the allegation that he publishes is true. And his belief in its truth must be the result of a reasonable investigation and must be a reasonable belief to hold.
Lord Phillips went on to ask what the responsible journalist had to do to discharge his obligation. In a Chase level 1 case, such as this one, he had to satisfy himself, on reasonable grounds, that the claimant had in fact been guilty of theft and of conspiring to assault Navpreet Singh, and that he was at least partly responsible for threats to kill Navpreet and his family. In Lord Phillips' words, the journalist's defence cannot "get off the ground" unless he reasonably believed in the claimant's guilt.
Conclusions on Reynolds privilege
The factors relevant to the question of responsible journalism in this case seem to me to be these. I focus for this purpose on the first three articles, since they contain the most damaging material and they were the precursors of the articles that followed. I will refer primarily to the first article, since the second and third were in essence duplicates.
The article asserted both the theft from the golak, and the claimant's guilt of it. It did not describe the theft, or the claimant's responsibility for it, in terms of allegations; it stated them as established fact. Yet as at 11 May, when the first article was published, there was no reliable evidence for the proposition that any money had been stolen, let alone that the claimant had stolen it. Mr Bholowasia relied on what he had been told by people at the gurdwara, none of whom, as he conceded, had first hand knowledge. As far as he was concerned, none of them had any basis other than gossip for what they were telling him. They were depending on nothing more than rumour and hearsay. Mr Bholowasia had of course received the letter from Gursewak Singh, which stated that Navpreet had caught the claimant stealing, after which Navpreet was threatened and then attacked, but he never made contact with Gursewak Singh to ascertain how he knew this information and how reliable it was. He did not even go round to his accommodation in order to talk to him, and was unable to say why not. Mr Bholowasia had heard part at least of the CD of the meeting involving Dr Garcha, which contained the assertion of a person who was probably Navpreet that money had been stolen by the president's brother-in-law. It was clear that an allegation of theft had been made against the claimant, but in my judgment there was no evidence on which Mr Bholowasia could reasonably have relied that money had in fact been stolen or that the claimant had stolen it. By contrast, he had the evidence of the president of the gurdwara that no theft had taken place, and (more importantly, because he had been a important player on 23 April) the statement of Bahadur Singh Keila that there had been no theft. He did not report Mr Keila's statement, and he reported the president's denial that theft had taken place with the words "there is no evidence and the CCTV was also off". That was a wholly inadequate way of stating the president's denial that a theft had taken place. Indeed, the words suggested that because the CCTV was off there was no evidence one way or the other.
The article stated the claimant's guilt of conspiracy to assault Navpreet Singh. Again, the conspiracy was stated not as allegation but as established fact. The 'sources' from which Mr Bholowasia gleaned the allegation were people who, so far as he knew, had no direct knowledge of that of which they spoke. He admitted that he did not ask them how they knew that the claimant had been behind the attack. They were doing no more than peddling rumour. I discount Mr Bholowasia's belated claim that at least one of his sources claimed to have overheard the claimant discussing the need for an attack on Navpreet Singh, because, as I have said, I regard it as wholly incredible. The CD on which he placed great reliance (but the authenticity of which he did not confirm with Dr Garcha) did not contain any evidence, even double hearsay evidence, that the claimant had been behind the assault.
Moreover, the conspiracy alleged was between the claimant and Himmat Singh Sohi. Mr Bholowasia gave evidence about the content of his calls to Mr Sohi. He did not suggest that he had even put to Mr Sohi the allegation that he had conspired with the claimant to assault Navpreet Singh.
Mr Bholowasia did not contact the claimant for his side of the story. His attempts to do so were limited to asking Mr Sohi to get the claimant to call him, which he described as the best he could do. He does not seem to have thought it necessary to seek the claimant out directly, which would hardly have been beyond the ability of a normal responsible journalist. How he can have failed even to ascertain the claimant's correct name, given his conversations with Mr Sohi, is very difficult to understand.
Mr Bholowasia did not suggest that he attempted to speak to any of those who had been present in the counting room, apart from Mr Keila.
As at 11 May, when the first article was published, Mr Bholowasia knew that an internal investigation was under way into the allegation of theft. He seems to have made little if any effort to find out when it was to take place: he did not ask, and he said that no-one rang him to give him the date. He could not remember if he had asked Dr Garcha or Mr Sohi if he could attend the hearing. The hearing did in fact take place on 15 May, before the defendants published the second and third articles, yet Mr Bholowasia apparently did not know that it had taken place or what its findings had been. That can only have been because he made no effort to find out.
It does not bear directly on the claimant, but in my judgment it is a pointer to Mr Bholowasia's preparedness to make serious allegations without adequate evidence to support them, that he felt it right in the first three articles to accuse Dr Garcha of taking advantage of his position as a doctor to obtain Navpreet's discharge from hospital before he could have been properly treated, on the basis of evidence that did not begin to justify any impropriety on Dr Garcha's part. When asked what the evidence was that Dr Garcha had behaved improperly, it was simply that Dr Garcha arrived at the hospital and brought Navpreet back, and that Navpreet said on the CD that he was in pain.
Mr Bholowasia said that he regarded the story that he published about the theft and the assault on Navpreet Singh as being in the public interest, because it concerned a serious breach of trust at the gurdwara and a betrayal of its devotees. Moreover, even having heard all the evidence, he stated in cross-examination that what he wrote was true. But of course it is not determinative that Mr Bholowasia regarded the story as being in the public interest or that he believed it to be true. The public interest in learning of such allegations lies in the fact that they are, or may be, true. If they were, or might have been true, then in principle their publication would have been likely to have been in the public interest, for the reason that Mr Bholowasia gave. The question then is whether he took reasonable steps to satisfy himself that the allegations were true. In my judgment, for the reasons which I have attempted to state above, he wholly failed to conduct a reasonable investigation, and if, as I think he was saying, he believed that the allegations were true, then it was not a reasonable belief to have held. Expressed in terms of the Nicholls factors, Mr Bholowasia had no reason to believe that his informants had direct knowledge of the events to which they referred; the steps which he took to verify the information which he received were wholly deficient; very little effort was made to obtain comment from the claimant; the articles failed to set out the gist of the claimant's side of the story – that there was no theft and that he was not involved in the events which followed – despite the fact that Mr Bholowasia had learned from two sources that there had been no theft, and (in the case of the second and third articles) despite the conclusions of the internal inquiry on 15 May 2013; and the tone of the articles was wholly one-sided, adopting the allegations as established fact. I asked Mr Bholowasia whether he had considered running the articles in a way which reported the allegations neutrally, or at least in a more balanced way, but he did not appear to me to understand what I was suggesting. In the end, his answer was that he had considered that approach but the news had, he said, already spread through the community.
So far I have focused on the first three articles. The fourth, which was an advertisement placed by others, repeated the allegation of theft and was published in the same issue as the second and third articles; the fifth (also published in the same issue) alleged, without any evidence at all, that the claimant was involved in sending gangsters to steal copies of the second defendant newspaper; and the sixth repeated the allegation that the claimant was a thief. There are no considerations which cause me to take a different view of the availability of Reynolds privilege as far as these articles are concerned.
In short, I reject the defence of Reynolds privilege. If journalism of this calibre merited the protection of a public interest privilege, a defence of truth would be otiose.
DUTY/INTEREST QUALIFIED PRIVILEGE
I mentioned above that the plea of privilege in the defence was confused. I have taken the plea at paragraph 33 (and paragraphs 31-32) of the defence to be a defence of Reynolds privilege, and that was the way in which it was approached by Mr Bholowasia both in his opening and in the course of the trial. His written skeleton argument did not make the position any clearer. However, I note that at paragraph 20 of his skeleton argument, under the heading 'Defence of qualified privilege', sub-headed 'Moral and/or social duty', a contention is advanced which was not, to the best of my recollection, advanced during the hearing. It reads as follows:
"The defendants had a moral and/or social duty to publish the articles. There was no malice intended by the defendants. The alleged theft and violence concerned a public matter, therefore it was a matter of public policy and the common convenience and welfare of society that the defendants published the articles. In undertaking their moral duties, the defendants informed police of the complaint letter received and also the CD. See correspondence between the defendants and the police …"
Separately, after a paragraph asserting that the defendants carried out extensive research before publications, two paragraphs appear under the heading 'Defence that publication was in the public interest', which refers to Reynolds v Times Newspapers, Jameel v Wall Street Journal and Flood v Times Newspapers. Those paragraphs appear to be advancing a Reynolds defence, and I therefore assume that paragraph 20 of the skeleton argument must be intended to put forward a vestigial duty/interest qualified privilege, arguably heralded by the confused pleading of paragraph 33 of the defence. It should have been explored, of course, by request for further information. Had that been done, it would have been clear before trial what exactly the defendants' case was and on the basis of what factual background they advanced it, and if the case had been shown to be clearly unsustainable, it would have been struck out.
Nonetheless, I ought to deal with this issue if I can. It is pleaded that "the words published related to matters of public and/or general concern, particularly in the community to which the words were published". Pausing there, there was no evidence as to the composition of the community to which the words were published. It is also pleaded that "when published the matters remained of current concern to the readership and the defendants had a moral and/or social duty to publish the words complained of and the public had a corresponding legal interest in receiving the information".
Apart from privilege at common law for reports of the proceedings of the courts and Parliament, the common law world was not receptive to an extension of qualified privilege to publication in the press and broadcast media until the decision in Reynolds v Times Newspapers. As far as classical duty/interest privilege was concerned,
The fundamental principle was that a statement was protected by privilege only if the publication of it was to persons who had a proper interest or duty in the matter with which it was concerned, and the public as a whole was not generally regarded as having a relevant interest or duty. The media defendant (or other defendant who caused his statement to be published in that way) was in no different position from anyone else and had to show the relevant reciprocity of duty and interest. Such a duty only arose:
'where it is in the interests of the public that the publication should be made, and will not arise simply because the information appears to be of legitimate public interest'.
A privilege for publication to the world at large was, in English law, the exception rather than the rule, even if the subject matter was politics or public affairs. (Gatley on Libel & Slander, 12th ed., para 14.1, citing Cantley J in London Artists v Littler [1968] 1 WLR 607 at 619).
The nearest that the pre-Reynolds common law came to extending qualified privilege to media publication is probably the decision in Blackshaw v Lord [1984] QB 1, where the Court of Appeal rejected a plea of privilege seeking generic protection for fair information on a matter of public interest stated in a newspaper report. The conclusions of the court were obiter, for it was unnecessary to revisit the trial judge's ruling on qualified privilege, but the court was persuaded nonetheless to consider it. Stephenson LJ considered the authorities at some length and stated, at pp26-27:
"I cannot extract from any of those authorities any relaxation of the requirements incorporated in that question. No privilege attaches yet to a statement on a matter of public interest believed by the publisher to be true in relation to which he has exercised reasonable care. That needed statutory enactment which the Committee on Defamation refused to recommend: see paragraphs 211-215. "Fair information on a matter of public interest" is not enough without a duty to publish it and I do not understand Pearson J.'s ruling in Webb v Times Publishing Co [1960] QB 535 that a plea of a fair and accurate report of foreign judicial proceedings was not demurrable, was intended to convey that it was enough. Public interest and public benefit are necessary … but not enough without more. There must be a duty to publish to the public at large and an interest in the public at large to receive the publication; and a section of the public is not enough.
The subject matter must be of public interest; its publication must be in the public interest. That nature of the matter published and its source and the position or status of the publisher distributing the information must be such as to create the duty to publish the information to the intended recipients, in this case the readers of the "Daily Telegraph." Where damaging facts have been ascertained to be true, or been made the subject of a report, there may be a duty to report them (see, e.g., Cox v Feeney 4 F&F 13i; Perera v Peiris [1949] AC 1 and Dunford Publicity Studios Ltd. v. News Media Ownership Ltd. [1971] N.Z.L.R. 961), provided the public interest is wide enough: Chapman v Ellesmere [1932] 2 KB 431. But where damaging allegations or charges have been made and are still under investigation (Purcell v. Sowler, 2 C.P.D. 215 ), or have been authoritatively refuted (Adam v Ward [1917] AC 309), there can be no duty to report them to the public.
….There may be extreme cases where the urgency of communicating a warning is so great, or the source of the information so reliable, that publication of suspicion or speculation is justified; for example, where there is danger to the public from a suspected terrorist or the distribution of contaminated food or drugs; but there is nothing of that sort here."
Dunn and Fox LJJ reached similar conclusions. At p42, Fox LJ expressed his views shortly. He referred to the wide principle stated by Pearson J. in Webb v Times Publishing Co [1960] 2 QB 535, 570, that "As the administration of justice in England is a matter of legitimate and proper interest to English newspaper readers so also is this report [of foreign proceedings] which has so much connection with the administration of justice in England. In general, therefore, this report is privileged". Having referred to that principle, Fox LJ went on:
"I think that states the principle rather too widely. It is necessary to a satisfactory law of defamation that there should be privileged occasions. But the existence of privilege involves a balance of conflicting pressures. On the one hand there is the need that the press should be able to publish fearlessly what is necessary for the protection of the public. On the other hand there is the need to protect the individual from falsehoods. I think there are cases where the test of "legitimate and proper interest to English newspaper readers" would tilt the balance to an unacceptable degree against the individual. It would, it seems to me, protect persons who disseminate
"any untrue defamatory information of apparently legitimate public interest, provided only that they honestly believed it and honestly thought that it was information which the public ought to have" (See London Artists v Littler [1968] WLR 607, 615)".
As is well known, the House of Lords in Reynolds v Times Newspapers extended the scope of qualified privilege to the publication of defamatory material to the world at large, where the publication was on a matter of public interest and it was the product of responsible journalism, a test which (in sharp contrast to classical qualified privilege) involved consideration of all the circumstances of the publication including the nature, status and source of the material.
In this case, I have considered and rejected the defence based on Reynolds. On the face of it, it would be remarkable if there were still available a defence of qualified privilege for media publication which could base itself on duty and interest without concerning itself with the difficult questions of responsible journalism, and in my judgment the weight of authority tends strongly against such a conclusion: see for instance Hays plc v Hartley [2010] EWHC 1068 (QB) at [69] and Seaga v Harper [2008] UKPC 9, [2009] 1 AC 1 at [15], where the Board rejected an argument by the defendant that if (as the trial judge had found) there was inadequate care to justify a finding of Reynolds privilege for publication to the world at large, there was a defence of traditional qualified privilege:
Their Lordships consider that this was a misconceived argument. The Reynolds test is more easily satisfied, being a liberalisation of the traditional rules, and it is more difficult to bring a case within the latter. They are satisfied that the publication was not covered by traditional qualified privilege, for the element of reciprocity of duty and interest was lacking when the defendant knowingly made it to the public at large via the attendant media. If privilege was to be successfully claimed, it could only be under the Reynolds principles and, as they have said, those principles applied to the case.
Even if such a defence could be said to have survived Reynolds and its successor cases, it would certainly need to concern a matter of the gravest and most urgent public importance, in circumstances where there was a duty to communicate the matter to the readership as a whole.
There was little evidence about the readership of Pardes Weekly. It was accepted that each of the 8000 copies distributed was seen by about ten people, and Mr Bholowasia gave evidence that each copy had three sections, written in English, Punjabi and Hindi, with the same material albeit written differently for different community interests. In fact, it seems likely that the first article was published only in English. The second and third (both in the same edition) were in Punjabi and English respectively, and the fourth to sixth in Punjabi only – or at least, not in English. Beyond Mr Bholowasia's evidence that the same material was generally covered in each of the three languages, there was no specific evidence about publication of the words complained of in Hindi, no doubt because the claimant, for whatever reason, did not complain of it. The newspaper was distributed to many different outlets in Southall, including shops and at least one Hindu temple, and it was free. No doubt it was read by many Sikhs, whether they spoke English or Punjabi or both, but it will also have been read by Hindi speakers, who if religious are likely to have been members of the congregation at a Hindu temple rather than a Sikh gurdwara, and by English speakers who may or may not have had any interest in the administration of the gurdwara. It may well be that the articles complained of would have been of great and legitimate interest to members of the gurdwara sangat, but there would also have been a substantial readership for whom the internal goings on at the gurdwara will have been of little or no interest.
Given that the subject matter of the articles would only have been of interest only to a part of the readership (there is no evidence as to how big a part), referred to allegations which were still under investigation by police (and, as at 11 May, by the gurdwara; but refuted by 18 May), and could not be said to have been of the gravest immediate concern to the public at large, there would have been no prospect whatever of a classical plea of duty/interest privilege succeeding even before the Reynolds jurisprudence developed. Still less could it possibly succeed now that a distinct jurisprudence has been developed which is designed to accommodate the reasonable requirements of the press and media.
MALICE
As I have said, there is a plea of malice, which is only of any relevance to the plea of duty/interest qualified privilege, which I have found to be hopeless. It would therefore be disproportionate to state my conclusions on malice at any substantial length.
The case on malice is pleaded in very bald and general terms in the Reply. It is said that the defendants acted irresponsibly (which would not be enough), recklessly and with malice. The particulars are hardly much fuller. It is pleaded (1) that the defendants made very serious criminal allegations but made no serious attempt to carry out even basic lines of enquiry and investigation before publication; (2) that their conduct amounts to a wanton disregard for the truth and any sense of fair enquiry or fair play; (3) that no reasonable newspaper or newspaper proprietor would publish such gravely serious allegations against an individual, given its severity, without conviction or other adjudication of guilt; and (4) that the real ulterior and malicious motive behind Mr Bholowasia's allegations was his personal animosity and wish to oust the incumbent committee of the gurdwara, of which the claimant's brother in law, Mr Sohi, was president.
I heard very little argument from either side about malice, I surmise because (at least as far as the claimant's camp was concerned) it was thought to be a remote fall-back in the unlikely event of the defendants succeeding on duty/interest qualified privilege. However, that has not made my task any easier.
The traditional approach to malice since Horrocks v Lowe [1975] AC 135, is that it is for the claimant in a libel action to prove the defendant malicious, in the sense of demonstrating that the dominant motive in publishing the words was not to use the occasion of privilege for its proper purpose but to damage the claimant's reputation. That motive would be inferred from proof that he had no honest belief in the truth of the words complained of. Recklessness can be enough. Thus, malice can be demonstrated if a claimant proves the defendant to have been genuinely indifferent to the truth or falsity of the defamatory allegations. In that event, he would be treated as if he knew them to be false. Even a positive belief in the truth of what was published might not be enough to negative malice if it could be proved that the defendant misused the occasion for some improper purpose, for example to give vent to personal spite or ill-will, or (as is suggested here) to give vent to his animosity against the then current gurdwara committee.
In this case, it is not suggested that Mr Bholowasia knew that the allegations were false. The suggestion is of an unparticularised recklessness – in other words, an indifference to the truth or falsity of the allegations.
It is important to understand what indifference to the truth does and does not entail. In Horrocks v Lowe at p150 Lord Diplock dealt with the issue thus:
"… indifference to the truth of what he publishes is not to be equated with carelessness, impulsiveness or irrationality in arriving at a positive belief that it is true. The freedom of speech protected by the law of qualified privilege may be availed by all sorts and conditions of men. In affording to them immunity from suit if they have acted in good faith in compliance with a legal or moral duty or in protection of a legitimate interest the law must take them as it finds them. In ordinary life it is rare indeed for people to form their beliefs by a process of logical deduction from facts ascertained by a rigorous search for all available evidence and a judicious assessment of its probative value. In greater or less degree according to their temperaments, their training, that intelligence, they are swayed by prejudice, rely on intuition instead of reasoning, leap to conclusions on inadequate evidence and fail to recognise the cogency of material which might cast doubt on the validity of the conclusions they reach. But despite the imperfection of the mental process by which the belief is arrived at it may still be honest, that is, a positive belief that's the conclusions they have reached are true. The law demands no more."
Mr Bholowasia told me that he did not know the claimant and had no animus towards him. That is not determinative of the issue, but so far as it goes, I accept it. After all, he did not even know the claimant's name.
In my judgment, Mr Bholowasia was, and remains, convinced of the truth of the allegations which he published, notwithstanding the paucity of evidence for them. His belief is based on the letter which he received from Gursewak Singh, buttressed by what I regard as an erroneous interpretation of the CD, and set in stone by the evidence of Prem Singh Randhawa, who contacted him many months after the articles were published. He is certain that the evidence of the claimant's witnesses has been fabricated to cover up what he regards as the claimant's wrongdoing. No amount of evidence will change his mind: for him, every piece of evidence is all fabricated with the same end in view. That mindset is prejudiced and irrational, but I cannot find that it amounts to malice.
It was put to Mr Bholowasia in cross-examination that his true object was to cause damage to the then ruling committee and its president, Mr Sohi. That was why, Ms Kumar suggested, he was not concerned to get the claimant's name right: what mattered was that he was the brother-in-law of the president, because the mud he was throwing was aimed at the president, not the claimant. Mr Bholowasia denied that, and I see no reason not to accept his denial. There was no cogent evidence to the contrary. I did not regard the photographs of him being honoured by the new committee which came to power in 2014 as showing that he was their creature, but even if they did demonstrate an association on his part with the Lion Group (which he denied), that would not be enough: they did not show, and it could not be inferred from them, that his motive in publishing was to damage the chances of the incumbent faction. I was, I confess, troubled by the tone of an article which he published in February 2008, during an earlier election campaign, which referred to what he called the 'Sohi thug family', but he insisted that he was simply reporting (albeit in florid terms) the fact that a member of the Lion group had been attacked. Ultimately, I have to remember that – in Lord Diplock's words – qualified privilege would be illusory, and the public interest that it is meant to serve defeated, if the protection which it affords were lost merely because a person, although acting in compliance with a duty or in protection of a legitimate interest, disliked the person whom he defamed (in this case, the Sohi group rather than the claimant) or was indignant at what he believed to be that person's conduct and welcomed the opportunity of expressing it.
My conclusion is that there is insufficient evidence to convict the defendants of malice.
QUANTUM
I now turn to the assessment of damages. I will first briefly summarise the claimant's evidence about the libel and its effect on him.
Unhappily, the claimant and his family were already under great stress as at 23 April 2013. His brother-in-law's mother died the next day; his sister had been diagnosed with cancer and was in and out of a hospice; and his mother was seriously ill in hospital. The article was brought to his attention by a family member: he did not normally read Pardes Weekly himself. It was his evidence that in the Sikh community, to accuse someone of stealing from the golak is one of the most terrible things that could be said of them. The other accusations were bad enough, but to accuse him of stealing from the holy donation box was incredibly hurtful, and he found that he had to try to take his mind off it to relieve the mental pain which the accusation caused.
He felt that his and his family's long-standing reputation of volunteering in the Sikh community had been ruined by the allegations against him. He felt traumatised and paranoid that everyone was talking about him and pointing their fingers at him; he found acquaintances intentionally ignoring and avoiding him; and he had to explain what had happened to members of his family from across the United Kingdom and Canada, who rang to ask. On one occasion his 11-year-old granddaughter came across the article (I believe he meant the first article) on the Internet, and he found it one of the most difficult and distressing experiences of his life to have to explain to her that he was not a thief, and that the things that people were saying about him were lies. He felt a great loss of energy, and he suffered feelings of despair. He felt that the period since the publication of the articles had been one of the worst periods of his life.
My task is to award the claimant general damages for libel. An award of general damages for libel serves three functions: first, to act as a consolation to the claimant for the distress and embarrassment which he has suffered from the publication of defamatory words, secondly, to compensate for the injury to his reputation; and thirdly, to act as vindication for his reputation: see most recently Cairns v Modi [2012] EWCA Civ 138, [2013] EMLR 8 at [21ff]. I bear in mind the overriding principle that, in order to comply with Article 10 of the European Convention on Human Rights, an award of damages must be proportionate to the legitimate aim of compensating the claimant for the injury and distress which he has suffered and of providing him with vindication.
The need for damages to provide vindication was explained in the case of Broome v Cassell [1972] AC 1027 at p.1071 by Lord Hailsham LC who said: "Not merely can (the libel plaintiff) recover the estimated sum of his past and future losses, but, in case the libel, driven underground, emerges from its lurking place at some future date, he must be able to point to a sum awarded by a jury sufficient to convince a bystander of the baselessness of the charge."
That tendency of 'percolation', as it has been called, has been given new force by the internet, which creates the potential for libels to spread 'virally'. That is of significance here, in the light of the claimant's evidence that his son has told him that people were calling him a thief on various websites, including Twitter and Facebook. The percolation factor was agreed by the Court of Appeal in Cairns v Modi at [27] to be a legitimate factor to be taken into account in assessing damages.
It has been said that in some circumstances a reasoned judgment may provide degree of vindication: see Purnell v Business Magazine Ltd [2008] 1WLR 1. Laws LJ, who gave the main judgment, held that a prior narrative judgment rejecting a defence of justification was capable of providing some vindication of a claimant's reputation. However, in Cairns v Modi the Court of Appeal was disinclined to accept any such general principle, regarding it as unlikely that most lay observers would read a detailed judgment: they would be more interested to find out the amount awarded by way of damages. It seems to me that this is not a case where most people are likely to read a detailed analysis of the judgment of the court, although it may be that there will be some reporting of it in the local press. I give little weight, therefore, to the impact of a reasoned judgment.
Factors which may be relevant to the level of general damages include the position and standing of the claimant and the gravity of the allegation, especially insofar as it closely touches the claimant's personal integrity and his reputation. As Sir Thomas Bingham MR said in John v MGN [1997] QB 586 at p.607:
"The successful plaintiff in a defamation action is entitled to recover, as general compensatory damages, such sum as will compensate him for the wrong he has suffered. That sum must compensate him for the damage to his reputation; vindicate his good name; and take account of the distress, hurt and humiliation which the defamatory publication has caused. In assessing the appropriate damages for injury to reputation the most important factor is the gravity of the libel; the more closely it touches the plaintiff's personal integrity, professional reputation, honour, courage, loyalty and the core attributes of his personality, the more serious it is likely to be. The extent of publication is also very relevant: a libel published to millions has a greater potential to cause damage than a libel published to a handful of people. A successful plaintiff may properly look to an award of damages to vindicate his reputation: but the significance of this is much greater in a case where the defendant asserts the truth of the libel and refuses any retraction or apology than in a case where the defendant acknowledges the falsity of what was published and publicly expresses regret that the libellous publication took place. It is well established that compensatory damages may and should compensate for additional injury caused to the plaintiff's feelings by the defendant's conduct of the action, as when he persists in an unfounded assertion that the publication was true, or refuses to apologise, or cross-examines the plaintiff in a wounding or insulting way. "
Far from apologising, Mr Bholowasia has asserted the truth of the allegations in the course of cross-examination of the claimant, and he has stated that even after hearing all the evidence, he still regards his allegations as being true.
I must take into account the degree of distress caused to the claimant, judged objectively. The claimant gave his evidence with a quiet calm and dignity, and is not, I judge, a man who wears his heart on his sleeve. But I entirely accept his evidence about the impact of these allegations upon him, and the immensely stressful experience that he has been through, an experience which can only have been made worse by Mr Bholowasia's persistence with his plea of justification and his assertions, even at trial, of the truth of the allegations. However, I bear in mind that mere persistence in a plea of justification which is run in a reasonable way but fails, even if the court regards it as not only wrong but weak, is not enough to justify an award of aggravated damages: the plea would have to be completely insupportable (Oriental Daily Publisher v Ming Pao Holdings Ltd [2012] HKFCA 59, [2013] EMLR 7 at [132]). It would not be right to characterise the plea as insupportable in this case, given the evidence of Prem Singh Randhawa on the central issue of theft.
I have dealt with the extent of readership of the articles, which is likely to have been some 80,000. Others will have read them online, but I have no evidence about the numbers involved. That is a large number, although small compared with the readership of a national newspaper. Nonetheless, the damage appears primarily to have been done among the claimant's own Sikh community, and publication outside that group is probably of less concern to the claimant than publication to those with whom he has daily dealings.
The conventional ceiling for libel damages, taking into account the uplift generated by the Jackson reforms, is now of the order of £300,000 (see Cairns v Modi at [25] and Simmons v Castle (No.2) [2012] EWCA Civ 1288, [2013] EMLR 4).
The court is entitled to have regard to previous awards made by judges sitting alone. It is true, of course, that the facts of each case vary to such a degree that unless another first instance decision is almost on all fours with the facts of the case being considered, such comparators are rarely helpful. However, Ms Kumar referred me to three cases:
i) In Miller v Associated Newspapers [2012] EWHC 3721 (QB), the claimant sued on a story in the Daily Mail that he was a willing beneficiary of improper conduct and cronyism because of his friendship with the deputy commissioner of the Metropolitan Police over the award of a multi-million pound contract to his management consultancy. The defence of justification failed at trial, and there was no apology. Damages were assessed at £65,000.
ii) Cambridge v Makin [2011 EWHC 12 (QB) was a case in which the claimant was accused in an email sent to about 1000 members of her own profession of abusing her position as a director of a not for profit company, which administered a register of professional linguists for public sector bodies, by granting a licence from which she stood to gain personally, in conflict with the interests of those whom as a director of the company she was bound to protect. Malice was established. Damages were assessed at £30,000, which took account of a settlement of £30,000 already received from the second defendant.
iii) Finally, Ms Kumar referred to Flood v Times Newspapers Ltd [2013] EWHC 4075 (QB), where the claimant police officer sued on an article published in The Times Online over a two year period to the effect that there were strong grounds to believe that he had abused his position as a police officer with the Metropolitan Police Extradition Unit by corruptly accepting £20,000 in bribes from some of Russia's most wanted suspected criminals in return for selling them highly confidential Home Office and police intelligence about attempts to extradite them to Russia to face criminal charges, and had thereby committed an appalling breach of duty and betrayal of trust, as well as a very serious criminal offence. Nicola Davies J awarded him £45,000 by way of general damages, together with £15,000 for aggravation by reason of the defendant's conduct.
Mr Bholowasia has given evidence about his slender means. His means are irrelevant to this exercise, but it may well be that the quantification of damages will be to some degree academic. In any event, I have to approach the question of damages in the same way as a jury would, giving a verdict in effect without a reasoned judgment. Taking everything into account and looking at it in the round, it seems to me that a proper award of general damages for these libels is £50,000. That is the award which I make. |
INTRODUCTION
In this libel action, the claimant is Mr Akbar Singh Rai, a man of 61 and a practising adherent of the Sikh religion, who is married with three children and six grandchildren. He came to the UK in 1966 from the Punjab, and since arriving here has been a member of the congregation of the Sikh temple, or gurdwara, in Southall.
The defendants are Mr Jaskaran Bholowasia, a man of 54, and Pardes Weekly (UK) Ltd, which appears to be a company limited by guarantee. Its only director is Mr Bholowasia's wife, and it is the publisher of a newspaper which, as I understood it, is distributed free to shops and other outlets, I presume primarily in the Southall area. According to Mr Bholowasia, who edits the newspaper, some 8000 copies are distributed, but its readership is approximately ten times that. There is - or was at the relevant time - also an online edition, but no figures were available for the readership of that edition. The newspaper is printed in three sections - English, Hindi and Punjabi. Mr Bholowasia told me that each section generally contains the same material. That is clearly not always the case, as is apparent from the articles complained of in this action, one of which (the first) seems to have been published only in English, while later articles appeared in Punjabi and not English.
Mr Bholowasia represented himself and the second defendant at trial. He has been represented by solicitors during most of the proceedings, and was represented on 15 January when, through his solicitor, he applied for the adjournment of the trial on medical grounds and also on the basis that he wished to put in further evidence, for which he needed time. I dismissed the application for a number of reasons, one of which was that there was no reason to suppose that his medical condition was likely to improve if an adjournment was granted, and that it appeared that his condition could be accommodated if he was given frequent breaks as required. In the event, every request by Mr Bholowasia for a break or for an early adjournment of the day's proceedings was immediately granted, which inevitably meant that the trial overran its 3-5 day estimate. Although his movements appeared to a degree constrained, he was attended every day by two helpers and appeared both physically and intellectually capable of conducting his defence and of robustly challenging the claimants' witnesses. I wish to pay tribute to his unfailing politeness, moderation and courtesy in his conduct of the defence.
The backdrop of this trial has been the Sikh gurdwara, or temple, in Southall, or to give it its proper name, the Gurdwara Sri Guru Singh Sabha. The gurdwara has at least three separate premises, two temples (at Park Avenue and Havelock Road) and a school at Norwood Hall. It is run by an elected committee, assisted by many volunteers who give their time and energies to the common good; and it also has a number of paid staff. Many thousands of people will attend the gurdwara every week, contributing very large sums of money by way of donations and offerings. It is the handling and counting of those offerings that have been at the centre of this trial.
THE PUBLICATIONS COMPLAINED OF
Article 1
The first article was published on 11 May 2013, apparently only in English. It reads as follows:
BROTHER-IN-LAW OF SRI GURU SINGH SABHA SOUTHALL'S PRESIDENT FOUND RED-HANDED STEALING GOLAK'S MONEY
Serious assault on brave Navpreet Singh and life threats given to him & his family
Majority of committee members trying to cover up the matter - CCTV off
Southall (Pardes Bureau): With great disappointment we have to report that those chosen devoted people on whom we repose our trust and confidence as gatekeepers of our faith have today deceived us with their insatiable thirst for greed and ravenousness. They have chosen to become poachers while we thought them are to be gatekeepers of our places of worship. When the congregation puts trust in people and hands over the keys of the Gurdwara and the same trusted people fill their own pockets with the Golak money, then what worse could we ever expect in life? Today we are facing a crisis of deceit from people whom we trusted not only with our devotion but also with God's money.
Whilst this has been going on for a long time but last week when Gurdwara donation money box (Golak) was being counted than Navpreet Singh, an employee appointed by the current committee, saw this he could not ignore it. This Gursikh took courage and held Onkar Singh's (brother- in-law of Sri Guru Singh Sabha Southall's president) wrist while putting money in his pocket and handed him over to Bahadur Singh Keila (Acting Treasurer whose wife is the Treasurer of the Sabha). To hide the fact from other people over there Bahadur Singh took Onkar Singh to the office on the first floor and got the money out of Onkar's pocket. After this Onkar Singh disappeared from there but when some honest people in the committee raised this matter then the keys were taken from Onkar Singh and since then he is hardly seen around.
According to the information received Onkar Singh did not let the matter end here, he conspired with his brother-in-law and others and came up with a plan and in accordance with this plan sent four thugs to teach Navpreet Singh a lesson. Three of these thugs had covered their faces except for a tall young man. These four thugs waited outside 11 Beaconsfield Road and as soon as Navpreet Singh came out from his residence at about 4:45 am to go to join his duties at Park Avenue Gurdwara they attacked him causing severe injuries to his head, arm and legs. Ambulance and police had to be called. Soon after Dr Parvinder Singh Garcha, the Sabha's General Secretary with a number of his confidants. They followed the ambulance and reached Ealing Hospital.
At the hospital Dr Garcha took used advantage of being a doctor, impressed upon the nurses and brought Navpreet Singh with him before he could have received full treatment. He was threatened by various people that he would lose his life and even told him that they would do that even in India. After these threats Navpreet whereabouts became unknown. When "Pardes Weekly" received a heart touching letter from a friend of Navpreet Singh's friend, "Pardes Weekly" immediately contacted Met Police Commissioner to ensure Navpreet Singh's safety and security. Police informed "Pardes Weekly" that they have two reports and are in contact with Navpreet Singh. The thugs have threatened Navpreet Singh so much that he is too scared to fully brief the police about his own as well as his family's safety. Ealing Police Spokeswoman said that "We can confirm police were called by London Ambulance Service at approximately 0510 hours on Saturday 27 April to reports of an assault in Southall, UB1. The victim, a 26 year old man, walking along Park Avenue, when he was set upon by around for unknown of Asian males. He was treated at the scene for non-life-threatening injuries. He was taken to a West London hospital and has since been discharged. There have been no arrests and enquiries continue." Anyone with information is asked to call police on 101.
When "Pardes Weekly" contacted Himmat Singh Sohi, the Sabha's President, to make enquiries he stated that there is no evidence and the CCTV was also off. It is worth observation and very obvious that when everything from Gurdwara keys to Golak keys (money box) and even from CCTV footages to offenders themselves - are hand in gloves with each other - then could we expect for any form of evidence to emerge?
When Bahadur Singh was contacted about this, he made an excuse stating he was very busy so we should contact Dr Garcha, the General Secretary.
It is not surprising that Himmat Singh Sohi's brother-in-law Onkar Singh was caught stealing red-handed but amazingly surprised to note that so- called volunteers are shamelessly trying to cover up the matter.
"Pardes Weekly" also contacted the Trustees and they said that whilst they have received information about this but they can only comment after making enquiries. You must remember that "Pardes Weekly" is the only paper which fearlessly reports thuggery and dishonesty at Gurdwaras to safeguard the Gurdwara interests and will continue to do so.
Article 1 is illustrated with three photographs. One is that of HS Sohi; one is of Dr Garcha; and the other is a photograph of the claimant, captioned 'Thief: Onkar Singh'.
The claimant was wrongly named as Onkar Singh throughout the article. His true name is Abkar Singh Rai. It is pleaded, and admitted in the professionally pleaded Defence, that Article 1 was understood to refer to the claimant, given his photograph and the fact that the claimant is (as 'Onkar Singh' was said to be) the brother-in-law of the President of the gurwara, Mr HS Sohi. It is also pleaded, although not admitted, that the claimant was identified by a large but unquantifiable number of readers as the person referred to, and that three particular individuals did so - Tajinderpal Singh Johal, Harjit Singh Rai, and Daljit Singh Hayer. All three gave unchallenged evidence that they read the article and identified the claimant as the person referred to. I have no doubt that he will indeed have been identified by very many readers as the person erroneously referred to as Onkar Singh.
The pleaded natural and ordinary meanings of Article 1 (Particulars of Claim, para 6) are that the claimant was one of the worst kind of thieves, and a criminal, by reason of the fact that
(1) he was caught 'red-handed' stealing money whilst in a position of immense trust and duty to his faith and his community; a position which demanded utter integrity, but in breach of which he stole money from the holy donation box;
(2) he conspired with others to arrange for four 'thugs' to carry out a serious assault, causing severe injuries to the head, arms and legs, to the man who had seen and reported the claimant for the theft from the donation box;
(3) he was involved in and/or partly responsible for threats to kill the man and his family, who had seen and reported the claimant for the theft, which caused this man (Navpreet Singh) to be too scared to fully 'brief' the police for fear of his own and his family's safety.
Those meanings are admitted in the Defence, on the seemingly mistaken basis that they represent what the defendants intended to say. I do not think that matters. In my judgment there could have been no seriousargument about the true meanings of Article 1, which are sufficiently well stated at sub-paragraphs 6(l)-(3) of the Particulars of Claim, set out above.
There is technically an issue on the pleadings as to whether the words of Article 1 are defamatory of the claimant. They unarguably are. The same is true of each of the other articles complained of.
There is also a legal innuendo meaning, namely that the claimant was completely devoid of any social, moral, or religious values or principles. The particulars of innuendo are that a substantial but unquantifiable number of unidentifiable readers would have known that the 'golak' was the Temple donation box, to be treated with utter reverence and respect, and that any act of stealing from it, especially by someone trusted to count the money as a volunteer, was deeply sacrilegious and disrespectful and offensive to the Sikh community.
The innuendo meaning is admitted, except that the defendants did not admit the level of readership. In other words, the adjective 'substantial' is not admitted. It seems to me inescapable that any reader who attended the gurdwara or was familiar with its institutions, which would no doubt have been a very substantial number, would have known the facts pleaded as giving rise to the innuendo.
Although of course the innuendo meaning technically represents a separate cause of action, I doubt, given the clear terms of Article 1, which explain the significance of the golak and the gravity of any theft from it, that it adds much if anything to the natural and ordinary meanings.
Articles 2 and 3
The second and third articles complained of were published on 18 May 2013. They are a re-print of Article 1. Mr Bholowasia told me that he reprinted the original article because he had information that copies of the newspaper containing the first article had been removed from shops by people apparently acting on behalf of the gurdwara.
The difference between Article 2 and Article 3 is a factor of the different languages used. Article 3 is a simple re-print, in English, of Article 1. Article 2 is a Punjabi version, and the claimant has perfectly properly pleaded an English translation which may (I do not know) be literally correct (its correctness as a translation is not formally in dispute on the pleadings), but is not rendered in good contemporary English. By way of one of many examples, Navpreet Singh is referred to in a strapline as 'Youngman', as if that were a surname. Unfortunately, the result is that there are two different versions of what is in fact the same article, one version in English and the other in Punjabi but translated into English. However, it does not matter very much, because the translated article is not so different from the English version as to affect the meanings.
Article 2
The words complained of are as follows:
BROTHER-IN-LAW OF SRI GURU SINGH SABHA'S SOUTHALL PRESIDENT FOUND RED HANDED STEALING CHARITY CASH BOX (GOLAK)
Serious assault and life threat to a person who disclosed the incidence
Sufferer Youngman is in police contact
Majority of committee members are trying to cover up the matter
According to the president, there is no proof
With great regret I have to write that when the guards start to rob then only God is the saviour. When Sangat (congregation) trusted devotees and placed their confidence in them and handed over the keys to the charity cash box to look after it, if those people put the donated money in their own pockets then who will be the vanguard.
According to the information this activity has being going on for a long time. This time their own employee Navpreet Singh saw this happening. He could not help it, he took courage and got hold of Onkar Singh in front of the persons who are counting money. He handed over him to Bahadur Singh Keila, husband of the treasurer of the committee. To hide the fact from other people, Bahadur Singh took Onkar Singh to the office on the first floor and got the money out of his pocket. After this Onkar Singh disappeared from the scene. When other honest persons who were there raised their voice, then keys of the charity box were taken from Onkar Singh Rai. He felt ashamed and has never shown his face in the Sangat.
According to the information Onkar Singh did not stop here. He made a plan in collaboration with his brother-in-law Himmat Singh Sohi to teach a lesson to Navpreet Singh. So according to the plan they sent four musclemen, among these four, three of them covered their faces but the fourth tall person did not cover his face. These four persons were waiting for him in front of No. 11 Beaconsfield Road Southall in morning. When Navpreet Singh at 0445 left the house to take up his duties, they attacked him and he was seriously injured, his head, arm and hip was badly hurt. Ambulance and police were called. By the time the general secretary Parvinder Singh Garcha arrived there were some men and followed the ambulance and reached at Ealing Hospital. Arriving at hospital Mr Garcha took undue advantage of his GP status. He pursued the nursing staff and took Navpreet Singh back with him. He did not even received proper treatment. He was so much threatened, that he will lose everything here and in India. After receiving these threats Navpreet disappeared.
When a friend of Navpreet wrote this tragic story to the Pardes Weekly then considering the safety and security of Navpreet, Pardes Weekly contacted the Met police. In response, police revealed that they have two reports concerning Navpreet and Navpreet is also in touch with the police. The police also told that they have been already informed by the ambulance. They disclosed that the investigation is going on regarding this matter but there is no arrest. Police also announced to the people, if anyone got any information about this case, the person should immediately inform the police by dialling 101. On the other side Navpreet is so much frightened and in view of his and his family's security, he is not telling the story explicitly.
When Pardes Weekly asked the president, Himmat Singh Sohi, about this matter, he replied "There is no proof of it, and CCTV was also not on". It is worth mentioning that they own CCTV, charity cash box, keys also with them and thief also belongs to them then how the proof can be traced. When Bahadur Singh was asked about this, he made an excuse that he is too busy, so general secretary Mr Garcha can be contacted.
It is not surprising that Himmat Singh Sohi's brother-in-law Onkar Singh was caught stealing, astonishing thing is that in the garb of a perfect sikh, these so-called Gursikh volunteers are covering the matter. Pardes Weekly has also talked to the trustees but their reply was that they can only say something after the enquiry. We have some information about his. Remember that Pardes Weekly is the only paper which in the interest of the gurdwara dauntlessly reports about dishonesty and hooliganism to the Sangat and will continue to do so.
Article 2 was illustrated with the same three photographs as Article 1, including a photograph of the claimant with the caption 'Thief - Onkar Singh'.
The same case on reference, natural and ordinary and innuendo meaning is made as in the case of Article 1, In my judgment, the meanings borne by the translation (again, they are admitted) are the same as those borne by Article 1, and my conclusion on reference is the same. Plainly, the article is defamatory of the claimant.
Article 3
Article 3 was identical to Article 1. My conclusions on meaning and reference are the same.
Article 4
The next article complained of was also published in the 18 May edition of Pardes Weekly. According to Mr Bholowasia, it was an advertisement, placed by the Lion Group, the then opposition party in the gurdwara, which took power in October 2014. That, of course, has no bearing on the defendants' liability for publishing it, if the conditions for liability are otherwise satisfied. It was printed only in Punjabi, and again there is an English translation.
The parts of the article which are complained of are as follows:
DEAR CONGREGATION
[There follows a Sikh greeting which is not translated]
Theft of Gurdwara's charity box cash box (Golak) news came to light through last week's Pardes Weekly. This unfortunate incident must be condemned as much as possible....
.... We the Lion Group demand an independent enquiry committee of theft of charity cash box and also advise that Sohi group and all members to resign on ethical grounds. If they do not resign then we request trustees that they should use their powers to dismiss the committee. Until the new election and report of the theft enquiry committee comes out. Till that time independent receiver should be appointed. We are, Lion Group.
No natural and ordinary meaning is pleaded for article 4. An innuendo is pleaded, namely that the claimant had committed an act which should be condemned as much as possible, namely the theft of the golak's cash box, which was so serious that the whole committee should resign or be dismissed. The particulars of innuendo, which are admitted except for the number of readers, assert that a substantial number of readers would have read Articles 1, 2 and 3, which identified the claimant as the thief. It is also said (and not admitted) that the claimant was identified as the individual referred to in Article 4.
I do not doubt that he would have been identified as the person referred to, but it does not seem to me that Article 4 adds anything of substance to Articles 2 and 3, which were published in the same edition of the newspaper. To identify the claimant as the target of Article 4, a reader would have had to read the other articles, which in terms of defamatory content are considerably more serious.
Article 5
This also was published in the 18 May 2013 edition of Pardes Weekly, but only in Punjabi.
The words complained of, as set out in an English translation which is far from colloquial but not in dispute, are as follows:
SRI GURU SINGH SABHA'S THIEVES HAVE STOLEN THE PARDES WEEKLY PAPER FROM THE SHOPS
Pardes Weekly Chief Editor's life was threatened
It is so sorry to write that last week Sri Guru Singh Sabha's committee sent the hired gangsters to take away Pardes Weekly paper. This misdeed revealed their real face. This proves that is not only President's brother-in- law is a thief but this is a gang of thieves.
They have stolen the paper from all the shops by saying that they need this paper for Gurdwara. They tried every way to snatch paper from people and took away papers from the van as well.
Due to their activities and on demand of readers we are repeating the news again. These disgusting activities at some places are captured by the CCTV and it has been reported to the police.
They have become so mean, that they are threatening to kill Jaskaran from Pakistan on telephone.
Scotland Yard is taking this matter seriously and will soon find out the facts so that Pakistani links can be brought to light.
Only a legal innuendo meaning is pleaded. It is that the claimant was a thief and was involved in gangster activity and threats to kill; including threats to kill the first defendant, by telephone calls made from Pakistan which Scotland Yard were taking seriously.
The particulars of innuendo are that a substantial number of readers would have read the articles reporting the theft and criminal activity by the defendant referred to in the first three articles, in which his photograph and the fact that he was the president's brother-in-law were given. No explanation is given as to how the readers would have realised that 'Jaskaran' was the first defendant, but that probably does not matter.
The meaning and the particulars of innuendo are admitted, apart from the number of readers who would have understood the meaning and the reference. The meaning is, in my judgment, broadly correct, even if others might have pleaded it differently. I do not doubt that a substantial number of readers would have made the necessary connections.
Article 6
Article 6 was published in the edition of Pardes Weekly for 15 June 2013. It was published in Punjabi only, which I have no doubt a substantial number of readers could understand, and the English translation relied upon (again very poor but not in dispute) is as follows:
THE TALE OF SRI GURU SINGH SABHA GOLAK THEFT
Have I told an untruth, no I have not, no I have not
Pardes Weekly, in the last few days Sri Guru Singh Sabha golak theft stories have been published. Once again this has caused uproar. Those who are against us in exposing this have used various methods to disguise the truth.
Since the theft was caught it is from that day they have organised a cover- up by publishing in other Southall papers. They have published leaflets of this and distributed them within the gurdwaras. They cross the limits when they sent these leaflets to all members homes. To cover their tracks they have spent an enormous amount of sangat's Golak monies. To top it all they have collected Pardes Weekly papers in order to stop this distribution of news. They have published in other papers advertisement in order to justify their claims of being truthful.
They have written in other papers that Pardes Weekly spreads untruths. Dear loving readers please note we only write the truth and will only ever write the truth.
Their untruthfulness came to light when Pardes Weekly office received a CD of their misdeeds. The contents of this CD of 27 April is a recording of the conversation of Dr Garcha and the victim which separates the water from the milk. In this CD the general secretary of Sir Guru Singh Sabha admits whatever happened should not have taken place and by his own admission accepts responsibility and we are ashamed. In gurdwaras no such incidences should take place and he also asked the boy not to give anyone a statement.
He also accepted that he has two cameras CCTV footage and the thief has been removed from his duty at the gurdwara, however the truth is that the keys of the gurdwara are still with the brother-in-law of Himmat Singh, Onkar Singh aka Upkar Singh aka Abkar Singh.
In this CD, Deepa of Norwood Green Hall's making a scheme is identified. The police have come to Pardes Weekly and collected this CD.
Pardes Weekly has received many threats regarding this matter because Pardes Weekly has brought to light of the sangat the theft and thuggery going on at the gurdwara, but they are using all means legal and illegal to cover up this matter.
Dear loving readers you all know that we always support the truth and will continue to do so. We are always willing to stand up for the truth and respond to tit for tat.
Golak theft exposing CD has arrived at Pardes Weekly office.
The natural and ordinary meaning pleaded is that the claimant was a thief, by reason of the facts that
(i) there is a CD of a recording of 27th of April between a Dr Garcha, the
General Secretary of the Temple, in which he admits to a victim that the thief has been removed from his duty at the Temple but that the keys to the Temple are still with him (ie the claimant is named as being the key holder and therefore the thief);
(ii) the claimant is involved in or implicated in the threats being made to
the defendant's staff following the revelation of a theft by the claimant and revelation of the thuggery going on at the Temple.
That meaning is admitted. It is not, in my judgment, well pleaded. For instance, it is plainly not right, or at least not necessary, to plead that the claimant is a thief by reason of the fact that he was said to be (if he was said to be) involved in the making of threats. The allegation that he is a thief, or the thief, is made in express terms, and does not depend on any involvement in threatening behaviour. However, it seems to me that the pleaded meaning that the claimant was a thief - or rather, the thief of the money stolen from the gurdwara - sufficiently states the sting of the words for it not to be necessary for me to re-formulate the meaning when there is no issue between the parties.
There is also an innuendo meaning, namely that the claimant was a thief and was involved in or implicated in the threats being made to the defendants' staff following the revelation of theft by the claimant and revelation of the thuggery going on at the Temple. The particulars of innuendo are that a substantial number of readers would have read the articles which reported the theft and 'criminal activity' by the claimant, in some of which the claimant's photograph and the fact that he was the president's brother-in-law were prominently published. The pleader plainly means to refer to Articles 1 to 3. It is pleaded that the claimant was identified by a large but unquantifiable number of readers of the words complained of as the individual referred to in Article 6. The meaning and the particulars are admitted, except that the number of readers ('substantial' and 'large') is not admitted.
I do not doubt that a large number of readers would have been aware of the facts relied on. The article plainly means that the claimant is a thief, and no innuendo is needed for that, but in my judgment the allegation of involvement in the threats to the defendants is sustainable as a legal innuendo by reason of the allegations in Articles 1-3 that the claimant was part of a conspiracy to arrange an assault on Navpreet Singh and was involved in threats to kill him.
DEFENCES
The causes of action accrued before the commencement of the relevant sections of the Defamation Act 2013, so the old common law defences continue to apply in this case.
The defences pleaded are justification (defence paragraph 30) and Reynolds qualified privilege (paragraph 33). There is also a brief passing reference to honest comment, and a suggestion of a traditional duty-interest privilege.
Justification
It appears that the intended Lucas-Box meanings, that is to say the meanings in which the defendants intended to justify the words complained of, are that money was taken from the Golak, that the claimant was the thief, and that he was involved in a conspiracy to harm Navpreet Singh and to remove copies of the defendants' newspapers.
Unfortunately, the defence pleads the evidence by which the facts relied upon are to be proved, rather than the facts themselves. The material on which the defendants are said to rely is as follows:
(i) The defendants' receipt of a letter from a person who described himself as Navpreet Singh's friend, which confirmed the danger facing Navpreet, a worker at the gurdwara who witnessed the claimant take money from the Golak;
(ii) A witness statement (not served) from an un-named person who worked alongside Navpreet and provided 'compelling evidence' confirming the claimant's 'repeated thefts' from gurdwara funds;
(iii) Reports made to the police, apparently by the first defendant;
(iv) The contents of a CD containing recordings of Navpreet Singh in various conversations with senior executive members of the gurdwara and a friend; and
(v) The theft of the newspapers on 11 and 12 May 2013 from a Hindu temple in Southall and a shop on King Street, Southall, and witness evidence of those who observed the theft.
The pleaded defence of justification is fundamentally flawed. However, as far as I am aware no application was made to strike it out, possibly because at least one witness statement was eventually served which was capable of supporting the case that the claimant did indeed steal the money.
Privilege
At paragraph 33 of the defence there is what appears to be a plea of Reynolds privilege. It is pleaded that the words complained of were published on an occasion of qualified privilege and made pursuant to the defendants' journalistic duties, and the particulars given are as follows:
(1) The words published related to matters of public and/or general concern, particularly in the community to which the words were published;
(2) The steps taken to publish were fair and reasonable;
(3) By the time they were published, extensive research had been undertaken into the matters alleged;
(4) On receipt of the information, the allegations were corroborated as far as possible and attempts made to put the allegations to the claimant and obtain a response;
(5) When published, the matters remained of current concern to the readership and the defendants had a moral or social duty to publish the words complained of and the public had a corresponding legal interest in receiving the information.
I should also refer to paragraphs 31 and 32 of the defence, the significance of which is not altogether clear.
At paragraph 31, it is pleaded that the defendants published the articles complained of only after having exhausted attempts to verify the facts with the claimant and with the gurdwara committee, and that the defendants between 6 and 10 May 2013 sought to speak with the claimant and/or the committee to seek comments on the proposed publication. It is said that the defendants were told throughout that the matters complained of - whatever is meant by that - would be raised with the committee. It is pleaded by way of further information that the first defendant telephoned Mr Sohi, the president, Mr Bahadur Singh, and Dr Garcha (the general secretary). Mr Sohi denied that any thefts had taken place, Mr Bahadur Singh refused to comment, asking for the matter to be referred to Dr Garcha, and Dr Garcha 'did not provide any sort of reply'.
I regard that paragraph as supporting the plea of Reynolds privilege. That, as I understood him, was the way in which it was deployed by the first defendant at trial.
Paragraph 32 pleads as follows:
"... that even if the attempts to speak to those individuals had not been made, the defendants were still justified in making the publications on grounds of the extremely serious nature of the disclosures. The publications were justified as they related to the conduct of individuals in a public office, or closely related to individuals in a public office. They were fair comment in that they related to matters of a compelling public interest and the defendants believed that to be the case at the time of publication."
Notwithstanding the references to the defendants being 'justified', I do not understand this paragraph as going to justification. I regard the first two sentences as going to the plea of privilege.
There is a degree of confusion in the plea of privilege, as to whether it is simply a plea of Reynolds privilege, or whether it is also intended to be a plea of traditional duty-interest qualified privilege, and with a view to covering that possibility there is a brief plea of malice which appears to be founded on recklessness. I will return to the question of malice later.
Honest comment
The final sentence of paragraph 32 of the defence appears to be an embryonic plea of honest comment. It should have been explored by way of request for further information, or have been made the subject of an application to strike out, because as it stands it is hopeless, failing as it does even to identify the comment relied upon. The first defendant made the bare assertion in his skeleton argument that the articles were honest comment, but this contention was not developed during the trial. I did not encourage him to do so, because it did not appear to me to be a defence with any prospect of success. It seems to me that I can deal with this very shortly. The central allegations made in articles 1-3, namely that the claimant stole the money from the Golak, and that he was party to a conspiracy to assault Navpreet Singh and involved in the making of threats to kill the man, are indisputably allegations of fact. Those articles contain the most serious allegations against the claimant. Nor can I identify any passages in articles 4-6, defamatory of the claimant, which are even arguably comment.
THE EVIDENCE: JUSTIFICATION
The witness statements stood as evidence in chief, although I allowed both parties some leeway in asking additional questions. In Mr Bholowasia's case, I allowed him to amplify his witness statement at very considerable length.
The first and most important witness for the claimant was the claimant himself, Mr Akbar Singh Rai. He had the interpreter beside him, but rarely needed his services, for he spoke good English. He seemed to me to be a mild and patient man. He made no attempt to gild his evidence or to exaggerate. I found him a reliable and patently honest witness.
Mr Rai came to the United Kingdom in 1966 from the Punjab, as I have said, to join his father, and ever since has been a member of the congregation, or sangat, of the Gurdwara Sri Guru Singh Sabha in Southall. His father was one of the founders of the gurdwara, and held a number of posts on the executive committee. Mr Rai worked as a senior supervisor in a machine shop until 1982, when he bought and ran a newsagent's shop. Over many years, he invested in a buy-to-let property portfolio, and in 2000 bought a small hotel. His sons now run and manage the hotel, and he has been fortunate enough to be able to retire from full time work.
Mr Rai is, of course, a practising member of the Sikh religion. It is one of the tenets of the Sikh faith that its adherents should engage in selfless voluntary service. He gave unchallenged evidence that he and his family have volunteered at the gurdwara and made substantial financial donations to it over very many years. When he retired in 2000, he gave all his time to carry out volunteer work at the gurdwara seven days a week. In 2002, he was elected to the management committee, on which he served for two further consecutive terms from 2004 and 2006. His voluntary work appears to have involved a very substantial commitment. He volunteered full-time at the gurdwara from 5:30 am to 6 pm seven days a week until March 2008. At that point, a new committee was elected, and he was informed that he would not be required to carry out his duties any longer, but in March 2011 the previous committee was re-elected, and he returned to his duties once again.
His work would include opening the office, giving the priests their daily programme; giving staff the daily list of bookings; doing the fresh vegetable shopping or the cash-and-carry shopping; looking after repairs and maintenance of kitchen equipment; keeping an eye on the cleaning staff and other volunteer workers; taking material from one gurdwara to the other; and dealing with many other issues in the kitchen, washrooms, and car parks at both gurdwaras and at Norwood Hall, the gurdwara school. Once a year, his family cooks and provides food for the school camp which takes place in August. That involves feeding 500 children and 100 helpers. His family also cooks and provides food once a week for the homeless shelter in Slough.
Mr Rai held keys to the office and the office safe, where there could be £4000 at any one time. In cross-examination, he explained that he held the keys for the counting room, the grocery store and three rooms upstairs in the Park Avenue gurdwara, one of which, I take it, was the office. When his duties required him to make purchases on behalf of the gurdwara, he would obtain cash from the secretary, purchase the goods, and account for all that he had spent, providing a receipt for all his purchases.
The gurdwara received very substantial amounts of money by way of donations from the sangat, or congregation. Mr Rai's duties extended to the counting room, where the receipts were counted on Mondays and Tuesdays. On Mondays, he would collect the money received at Havelock Road and at Norwood Hall, and take it to Park Avenue, where the money would be counted. He would then take the money to the bank.
On Tuesdays, the donation money placed by the congregation at both gurdwaras in the golak, the large collection box in the main prayer hall, was brought to Park Avenue, counted and taken to the bank. Mr Rai was always involved in the process of counting the golak money. In the counting room, off the main hall of the Park Avenue gurdwara, there were a number of machines, one of which sorted the coins into the different values, and the others of which counted the coins and put them into bags for the bank. Mr Rai's job was to operate the machine which sorted the coins. After the money had been counted, the relevant paperwork was done and the money was taken to the bank.
23 April 2013: the alleged theft
This case concerns Tuesday 23 April 2013. On that day, Mr Rai's duty was, as usual, to put the coins in the sorting machine which would then separate the coins into their different values. His evidence was that he remembered six other people being in the counting room that day. They were Narinderpal Singh Johal, Ajit Singh Ojla, Bahadur Singh Keila, Gurdev Singh Jandor, Darshan Singh Dokal and Sohan Singh Shahdara. All were volunteers, as opposed to paid employees of the gurdwara. His evidence was that there was nothing unusual about that morning's counting until after the job was done.
Navpreet Singh had not been in the counting room, and Mr Rai did not even see him outside the room when he had finished counting. But he knew Navpreet: their relationship had in the past been good. Navpreet had volunteered at the gurdwara on a part-time basis, and Mr Rai himself had put Navpreet's name forward to the committee as a suitable candidate for an employed position.
Mr Rai said that once the counting had finished on 23 April, he left the counting room to go upstairs to the office where he kept his shoes, so that he could take the money that had been counted to the bank. As he was on his way up the stairs, he heard his name being called. He looked round and saw Bahadur Singh Keila and Navpreet Singh behind him. He stopped and waited for them on the landing. He recalled Mr Keila saying that someone - he did not hear Mr Keila say who - had accused him of taking a bag of £2 coins from the golak. He was very shocked and surprised. He went into the kitchen with Mr Keila and emptied out his pockets. He had some loose change and a set of keys. He had no £2 coins, and no bag of coins, in his possession. He recalled that Mr Keila apologised to him and turned to Navpreet Singh, to whom he said something. He then realised that it must have been Navpreet Singh who had made the allegation. Navpreet Singh left and Mr Rai did not see him again that day. Mr Rai continued with his duties, even going to the bank to deposit the money that had been counted.
In short, Mr Rai's evidence was that he did not steal the money and that he was not a thief. He regarded the allegations in the articles complained of that he had stolen from the golak, and then arranged for Navpreet Singh to be beaten up, making threats to kill him and his family, as totally outrageous.
Asked why Navpreet Singh should have made a false allegation against him, he speculated that it might have been prompted by anger at Mr Rai's reluctance or inability to help him to extend his visa, which Navpreet had asked him to do several times. He said that Navpreet's work had not been good at the time, and he had been obliged to pull him up on many occasions, so their relationship was not as good as it had been. He also speculated about a political motive.
The court also heard the evidence of four other volunteers who were working in the counting room that day.
Darshan Singh Dokal, a mild-mannered Sikh, gave evidence that he had read the articles complained of in their Punjabi versions, and was able to identify the person named 'Onkar Singh' as being the claimant, Mr Abkar Singh Rai. Mr Dokal had known the claimant as a sevdar, or volunteer, at the gurdwara for over 15 years, and said that the claimant worked seven days a week and had always carried out his duties in an honest and respectful manner. Mr Dokal was vice-president of the gurdwara as at 23 April 2013. He was a member of the committee, and had been treasurer for 10-12 years.
He told the court that he was in the counting room on 23 April 2013, and said that nothing suspicious occurred. He went to the gurdwara every day at around 0830, or earlier if he was counting, and afterwards would go to his shop. It was put to him that he had not been present that day, but he insisted that he had been: he was there every day.
Mr Dokal was asked to show by reference to a plan where everyone had been working, and he said that the claimant had been on the sorting machine, as he always was. On his left had been Gurdev Singh Jandor and Sohar Singh Shahdara; beyond them had been Bahadur Singh Keila and Ajit Singh, working together on counting the notes; and he and Narinderpal Singh Johal had been on another counting machine at the bottom right on the plan.
He saw nothing suspicious happen, and as far as he was concerned no incident occurred. Neither Navpreet Singh nor Prem Randhawa were in the room. He had seen Navpreet there on occasions, because he would bring money from the golak, but he was not there that day. Similarly, Prem Randhawa would occasionally bring money to the counting room, although his duty was looking after the shoes of the members of the congregation. After counting the money, several of them would take it to the Bank of Baroda in a van to save the cost of employing security staff.
Narinderpal Singh Johal required the assistance of an interpreter. He had read the articles complained of in Punjabi, and was able to identify 'Onkar Singh' as the claimant. He was in the counting room on 23 April 2013. He had never been on the committee of the gurdwara, but he had counted the money for 5 or 6 years. That day, the others present were the claimant, Sohan Singh Shahdara, Ajit Singh, Bahadur Singh Keila, Gurdev Singh Jandor and Darshan Singh Dokal. Asked to state by reference to the plan of the room where everyone had been, he placed everyone where Mr Dokal had, except that he said he and Mr Dokal had been on a machine between the two men counting the notes and Mr Jandor and Mr Shahdara, not (as Mr Dokal had said) at the bottom right of the plan. He had never seen Navpreet Singh or Prem Singh Randhawa in the counting room, although they might have brought the money on occasions; but they did not stay. The room was too small and there was nowhere to stand. He saw nothing suspicious take place.
Gurdev Singh Jandor was an elderly gentleman who also needed the help of the interpreter. He also had read the articles complained of in Punjabi and had recognised the claimant as the person accused. He had been in the counting room on 23 April 2013. He agreed with Mr Johal (and the claimant) about the men who had been in the room that day and where they had worked. He did not see Mr Rai take any money. He had not seen Navpreet Singh or Prem Singh Randhawa in the room, although he said he had seen Prem help with bagging the money sometimes during the counting. He had not seen Navpreet do so. He went home after counting the money.
The statement of Ajit Singh Ojla was introduced as hearsay evidence without objection, Mr Ojla being unwell. His statement said that he also had read the articles complained of in Punjabi and had been able to identify Mr Rai as the person being accused. He had been in the counting room that day counting the money. He saw nothing suspicious; nor did he see Navpreet Singh or Prem Randhawa in the room.
Next the court heard the important evidence of Bahadur Singh Keila, a driving instructor by occupation. He spoke excellent English, he was plainly very intelligent, and he gave his evidence with a cheerful candour. I found him a very impressive witness.
Mr Keila generally does voluntary work at the gurdwara until 12 noon on Tuesdays, and goes on other occasions as a member of the congregation. He had been involved with the gurdwara since he came to the UK in 1960. He was assistant treasurer for 13 years from 1994, and took over the treasurer's duties for the last year. In 2013, his wife was the treasurer.
Mr Keila explained that he was present in the counting room on the morning of 23 April 2013 between about 0800 and about 1050. The claimant had been operating the coin sorting machine, which Mr Keila called the Jet Sorter. Mr Keila explained that the coins are routed into bags, and then tipped into buckets before being put into the counting machines. He did not really recall, he said, who was there, except that he himself was working on the notes with Ajit Singh. He did not recall that either Navpreet Singh or Prem Randhawa were in the room. Asked whether Navpreet helped with the counting, he said that he generally helped by bringing the money from the golak into the counting room. The room, he said, is small, and ought to be bigger. There is a camera which shows the end of the room where the claimant works, and the images are shown on a TV screen so that he can see what is happening at the far end of the room. In other words, while he was working he could see the claimant. The screen was working that day, so he supposed that the camera must have been working also.
When the counting was nearly finished, Mr Keila had to go to the door because someone wanted some change. Navpreet Singh came up to him and said that he wanted to speak to him. Mr Keila said that he would see him in about 10 minutes when the counting was finished. When Mr Keila came out, Navpreet Singh told him that he had seen the claimant putting what he thought was a bag of £2 coins into his pocket. Mr Keila was shocked and saw the claimant walking ahead of him, so said to Navpreet Singh, "Let's find out".
He approached the claimant on the upstairs landing and said that someone had accused him of putting money in his pocket. He suggested that they should go into the kitchen, and once in the kitchen he said that he would have to ask the claimant to empty his pockets. He did so, and Mr Keila could see only some loose change and keys. Navpreet Singh was with him. Mr Keila asked him: "Where is the bag of £2 coins?" Mr Keila said that he turned pale, and walked away.
Mr Keila apologised to the claimant but explained that Navpreet had accused him of stealing money. He said it was okay. Both of them, Mr Keila said, were shocked, and stood there for a few minutes. Mr Keila was reflecting, he said, on the fact that the claimant was someone he knew so well, who was a dedicated volunteer, a man who, when asked by him to go to buy something for the summer camp, would always bring the right change and a receipt, and who with his family had every year for 1-2 days donated the food and drink for 500-600 people at the summer camp, at a cost which Mr Keila estimated at £1500-£2000.
He was asked why, if the claimant was so honest, he approached him on the say so of a worker such as Navpreet. His answer was that it was charity money for which he was responsible. He would have asked his own wife to empty her pockets in the same circumstances.
After he had finished with the claimant, Mr Keila did not recall where he went. He never did the banking: he filled in the slip which gave the total sum, and others took the money to the bank. He would normally have gone upstairs with the foreign currency. At that point, he thought that they still used Lloyds Bank although the gurdwara later switched to the Bank of Baroda. It matters little, but he was plainly right about that, for Mr Bholowasia produced a Lloyds Bank statement which showed that £31,115 had been paid in to the gurdwara's account on 23 April.
Mr Keila said that he reported the incident. He spoke to the president, Himmat Singh Sohi, when he had a gap between driving lessons, and told him that the claimant had been accused of stealing. Mr Sohi said that he would inform the committee. He also met Daljit Singh Hayer, a member of the committee, whom he knew to be a member of the committee set up to investigate the incident, and told him what had happened. He also told the investigation committee as a whole at a meeting in Norwood Hall. Mr Bholowasia referred him to the minutes of the meeting of the investigation committee, which met on 15 May 2013. The minutes recorded his evidence, which accorded with the evidence which he gave to this court. I note that a member of the committee asked him the pertinent question, How could Navpreet Singh make his allegation if he was not, as Mr Keila said he was not, in the counting room? Mr Keila replied to the committee that Navpreet had made an allegation, and it was better to clear everything there and then. Had he not asked the claimant to empty his pockets, Navpreet would have said that he was protecting him. Mr Keila said that he trusted the claimant and knew he would not mind, and that Navpreet would be proved wrong, as turned out to be the case. The claimant, he added, was never out of his sight after he left the counting room.
The investigation committee was chaired by Daljit Singh Hayer, a young man whom I found a very open and straightforward witness. I accepted his evidence without reservation. He told the court that he was asked by Dr Garcha to chair the investigation, and he did so. He asked Mr Dhillon to take on the task of speaking individually to the men who had been in the counting room and asking them for their version of events. Mr Dhillon did so, and reported to Mr Hayer. Mr Hayer, with two members of staff, watched the CCTV of the counting. The CCTV was functioning in that it had recorded footage of the morning's counting, although there was a technical problem which meant that the footage could not be copied onto a CD. He watched the footage for 3 to 4 hours, with stopping and pausing. The footage showed seven or eight men involved in the count. He concentrated on the claimant, and saw no wrongdoing whatever and nothing to give rise to suspicion. He did not see Navpreet Singh in the counting room. He did not know Prem Singh Randhawa, a witness called by the defence as to what took place in the counting room, so was unable to say whether he had been in the room. He produced the minutes of the meeting of the investigation committee on 15 May 2013, and told the court that for him the evidence of Bahadur Singh Keila (to the same effect, as I have said, as his evidence to the court) had been conclusive, and that the unanimous conclusion of the committee had been that the allegations were unfounded and mischievous, and that the motivation behind the making of the allegations was likely to have been political, 'given Akbar Singh Rai's familial association with the President, as there have been many failed attempts to implicate the President in wrongdoing in the past'. It should be noted that, contrary to Mr Bholowasia's assertion in his closing speech that the committee chose not to invite Navpreet to give evidence (an assertion for which there was not a shred of evidence), Mr Hayer's evidence, which I accept, was that the committee did invite, Navpreet to give evidence, but that he did not turn up at the hearing.
Prem Singh Randawa was the last witness able to help the court on the issue of what happened in the counting room on 23 April 2013. He was called by Mr Bholowasia. He was a Sikh man who looked much older than his 55 years. He could not speak English so had the services of the interpreter.
His witness statement stated that he had been a paid employee of the gurdwara between 2007 and 21 July 2013. His main duty was to look after the shoes of the visitors, but he was also asked to do other work from time to time. Among those duties was assisting on Tuesdays in the counting of the donation money collected from the golak. He claimed that he was involved in the counting every Tuesday, even on his days off, when he came in specially to carry out this duty. When he was helping in the counting of the donation money, he would often see the claimant put donation money in his pocket, and go outside to put the money in his van, which was usually parked in the gurdwara car park. On every single Tuesday that he and the claimant took part in the counting of the donation money, he saw the claimant put money from the donation box into his pocket. He did not tell anybody about it because he was afraid of losing his job, and he was afraid of the people who were them members of the committee of the gurdwara.
According to his witness statement, on 23 April 2013 he was counting the donation money as usual. The claimant and Navpreet Singh were also there. He said that he and Navpreet Singh saw the claimant take money from the donation box while it was being counted, but that he did not say anything. However, Navpreet Singh decided to speak out: when the claimant walked out of the room, Navpreet Singh grabbed the claimant's hand and said to Mr Keila, who was in charge of counting the money that day, 'Uncle ji, search him, he has stolen money and is going'. After that, he said, Mr Keila and Navpreet Singh took the claimant out of the room. He said that he felt ashamed for not having spoken up earlier. He said that he spoke to Navpreet Singh later that morning, and that Navpreet told him that when Mr Keila searched the claimant, he found lots of £1 and £2 coins in his pocket. Navpreet also said, according to Mr Randhawa's witness statement, that Mr Keila had told him to keep the matter quiet, and that he would inform the committee of what had happened.
Later, Mr Randhawa explained in his witness statement, after he saw the articles about the claimant in Pardes Weekly, he decided that he should go to tell Mr Bholowasia what he had seen.
I allowed Mr Bholowasia to ask some supplementary questions in chief. Mr Randhawa said that he was a priest at the gurdwara. There had been no reference to that role in his witness statement, where he had said that his chief responsibility was looking after visitors' shoes. His duties as a priest, he said, included doing anything that the committee asked him to do. He was not acting as a priest on 23 April.
He told the court that those present in the counting room on 23 April, apart from himself had been the claimant, Gurdev Singh Jandor, Bahadur Singh Keila, Navpreet Singh, and two men whose names had not been mentioned before, Amendeep Singh and Santokh Singh. There were other people also, whose names he did not know, but as for Darshhan Singh Dokal, Sohan Singh Shahdara, Najinderpal Singh Johal and Ajit Singh Ojla, none of them had been present. He claimed to have been working with Santokh Singh on the first machine on right on entering the room, helping him to bag the money. As for the others, he maintained that Amandeep Singh was on the machine at which the claimant's witnesses had unanimously placed Narinderpal Singh Johal and Darshan Singh Dokal (neither of whom, on Prem's evidence, were there at all); Gurdev Singh Jandor was working on the middle machine with Navpreet (not, as all the claimant's witnesses had said, with Sohan Singh Shardara); and a man called Shera was present helping the claimant by putting coins into the sorting machine that the claimant was operating.
He asserted that he saw the claimant take money out of his machine and put it in his pocket: he was able to see the claimant from where he was standing. He maintained that everyone could see what he saw, but no-one would say anything, and all the witnesses had been lying. He insisted that Navpreet seized the claimant's hand while it was in his pocket, and while they were both inside the room. He had seen the claimant do this on every occasion when he was counting. He accepted that it was his duty as a priest to report such behaviour, but he was afraid of losing his job.
He was asked about the form which is signed after the money has been counted. The form signed on 23 April was shown to him, and he was asked where his name appeared. He said that it did not, because employees do not sign. But he was acting as a volunteer that day, he was reminded, not as an employee. Nonetheless, he said, he was in fact an employee. For the same reason, he said, Navpreet Singh's name was not on the form. It was pointed out to him that on his account Shera, Santokh and Amandeep had been in the room that day; they were volunteers; yet their names did not appear. That, he said, was because the committee did not ask them to sign. He knew that, he said, because people who live in the gurdwara do not sign. But, it was pointed out, Santokh did not live in the gurdwara: why did he not sign? Because he left before the signing, the witness said. Then he said that Santokh did not sign because he was 'illegal' and was not asked to sign.
The form bears the names of Narinderpal Singh Johal and Ajit Singh. Mr Johal had not been asked how it was that his name appeared on the form if, as the defence contended, he had not been present. However, Sohan Singh Shahdara was recalled to be asked if his signature appeared on the form, and he confirmed that it did: he signed in his usual manner as Sadrha SS. (Plainly there are difficulties of transliteration of names as between Punjabi and English).
Prem Singh Randhawa was asked about his second witness statement, made on 11 January 2015 in support of Mr Bholowasia's application for an adjournment. In his statement, he said that he had new evidence that would support the defence case, which he wished to collate and bring to the attention of the court. He had not explained what that evidence was, which was one of the reasons for the refusal of the adjournment. He was asked about the evidence which he had wished to put before the court, and eventually, after a number of unsatisfactory answers which suggested that he was stalling or, at best, was being very obtuse, told the court that it concerned ordinary people, to whom he had spoken on the phone from India and who had told him that the claimant's family were 'beating too much', by which I took it that he meant that they were using violence. Asked what he meant by collating the evidence, he said that he could have done it on his return from India but could not get it. He returned from India on 25 December 2014.
I am sorry to say that I found Prem Singh Randhawa a less than impressive witness. He sat looking down throughout his evidence, his eyes almost closed, and never looked at the person questioning him. He repeatedly answered questions with remarkable obtuseness: for example, he would be asked whether he was able to help the court with a particular matter, and would simply answer 'yes', so that on each occasion he would then have to be prompted to give the answer. I found his explanations for the absence of the signatures of the three volunteers who he claimed had been present at the counting very unconvincing, and I was concerned that there seemed to have been little if any substance in the claim that he made in his witness statement that he had new evidence supporting the defence case. But even if I put those considerations on one side, I have no hesitation whatever in preferring the evidence of the claimant and Mr Keila, in particular, and that of the other men - Narinderpal Singh Johan, Gurdev Singh Jandor, Darshan Singh Dokal and Sohan Singh Shahdara - who gave evidence as to who was and was not in the room that day, and whose signatures appeared on the form which recorded the total sum counted.
I should mention that Mr Bholowasia belatedly (after the claimant's witnesses had given their evidence) produced a selection of receipt forms for other days when the money had been counted. He suggested that they showed that an unusual number of people had signed the form on 23 April, thus proving that they had added their names to buttress the claimant's case. I was not impressed by that argument. The numbers of signatories varied, and there seemed to me to be nothing particularly unusual about 23 April.
My conclusion is that neither Navpreet Singh nor Prem Singh Randhawa was in the counting room on 23 April 2013, and that for whatever reason, Navpreet Singh made an unfounded accusation of theft against the claimant. I accept without hesitation the evidence of the claimant that he did not take anything, and the evidence of Mr Keila that he asked the claimant to turn out his pockets and found no stolen money there. The suggestion is that a man wealthy enough to be able to take early retirement and to devote all his time and energies to the gurdwara which his own father had helped to found, and a man who, with his family, gave very substantial sums each year to the gurdwara and particularly to its summer youth camp, should at the same time have been pilfering from its collection box. The suggestion is also that each of the claimant's witnesses, all of them long-standing volunteers dedicated to the gurdwara, has lied about who was present and what took place in the counting room. Strong evidence would have been necessary to make such a case, and it was wholly lacking.
The assault on Navpreet Singh and threats made against him
What evidence was there that the claimant had anything to do with the assault on Navpreet Singh? It was the claimant's evidence that the accusation, which he denied, was totally outrageous.
Mr Bholowasia relied on a CD which, according to him, had been produced by a friend of Navpreet who took a surreptitious recording of a meeting between Navpreet and Dr Garcha. The status of the CD and its transcript was unclear: it had been disclosed by the defendants on their list of documents, but the claimant's solicitors had served notice requiring the defendants to prove its authenticity at trial. That notice was not complied with. The CD was simply produced by Mr Bholowasia as if it proved itself. However, Ms Kumar did not take any point on it, and there was no issue as to the transcript or the translation, so I treated the translated transcript as being an accurate account of what was said at a meeting between (at least) Dr Garcha, the general secretary of the gurdwara, and the head priest, Balwinder Singh Patti. They were the only two voices that Mr Bholowasia was able to identify. The person who made the transcript seems to have concluded that the other voices included a committee member named Baljinder Singh Dhillon, Navpreet Singh and his friend, who may be the person who made the recording. I should say that the claimant was asked whose voices he had heard when he listened to the CD, and maintained that he did not recognise any of them. There was no admissible evidence before me as to the identities of the others present. But the context suggests that the person said to be Navpreet had been attacked, so I shall proceed for present purposes on the assumption that the words are correctly attributed to him, and that Mr Dhillon and Navpreet's friend are also correctly identified. I should add that I had great difficulty in making sense of the translation, which was extremely poor.
Mr Bholowasia took me to a number of passages in the transcript. At page 3, Navpreet is recorded as saying that he does not know who assaulted him. At pp3-4, he is recorded as saying that a 'small disrespect in the presence of the Holy Guru Granth Sahib happened, which I have tried to explain you ... but the result is I was to be punished with that I will be beaten'. That, Mr Bholowasia said, was a reference to the theft. Mr Bholowasia placed great emphasis on a passage at page 6 in which Navpreet is recorded as saying 'In the morning they were beating up and saying, you are alleging us of theft? Alleging us of theft? They were speaking loudly that you are alleging us of theft?' As I understood him, he regarded that as evidence that the attackers had been sent by the claimant. At page 8, Dr Garcha is recorded as saying that a five member committee would investigate the allegation, because he could not say what had happened or not happened, but whatever happened he felt ashamed that it happened in God's house; and at the bottom of that page, Navpreet's friend is recorded as referring to the fact that 'he' (Mr Bholowasia says this is a reference to the claimant) is the president's relative, and that there is too close a relationship, but then concedes that the decision of a five member committee would be acceptable. At page 9, Dr Garcha is recorded as saying that an apology might be acceptable. At page 10, Navpreet's friend is recorded as saying that the president's older brother in law had been caught. At page 11, Mr Dhillon is recorded as urging 'Navpreet' to give evidence to the investigating committee, which Navpreet is said to have agreed to do. At pl6, Mr Patti appears to encourage Navpreet to run away to escape the people whom he called bandits.
What emerges from the transcript of the CD is that the person said to be Navpreet is standing by his allegation that the claimant was the thief. Dr Garcha's view is that the allegation must be properly investigated, The person assumed to be Mr Dhillon wants Navpreet to give evidence, and Dr Garcha suggests that it might be enough for the person identified as the culprit to apologise. The closest that anyone comes to suggesting that the claimant was behind the attack on Navpreet is Navpreet's statement that his attackers suggested that he was being beaten up because he had accused 'them' of theft. What that does not amount to, of course, is evidence that the claimant ordered them to act as they did, or had any knowledge of what they intended to do.
It was clear to me in the course of the evidence that there are different factions that compete for control of the gurdwara, and that there is a very distinct and very political character to the management of the gurdwara and the elections to it. For instance, the claimant was on the committee from six years from 2002 to 2008, when there was an election and he was informed that the new committee would not require him to carry out further duties. He resumed his voluntary work in 2011, when a new committee was elected. Similarly, he again stopped volunteering in October 2014, when a new committee was elected which had used the Pardes Weekly articles in the course of their campaign. He speculated that Navpreet might have made a false allegation against him for political reasons. Similarly, the gurdwara committee that investigated the allegation of theft concluded that the allegations might have been made for political reasons. Plainly, there was very strong feeling among different factions at the gurdwara, so strong that a tireless volunteer who gave substantial amounts of time and money to the gurdwara was asked to stand down when a new committee took over.
It seems to me that the likely explanation for the words attributed by Navpreet to his attackers is that young hotheads who supported the then current committee took it upon themselves to punish Navpreet for making such an accusation against one of their faction.
Whether or not I am right about that, it certainly is not evidence that the claimant had anything to do with the attack, and I accept his evidence that he did not. Similarly, there is no evidence at all that the claimant was involved in making any threats against Navpreet.
I ought to refer briefly to Mr Bholowasia's closing submission that on 23 April 2013 and until the CD was released, which must have been on or after 27 April, only three people knew of the alleged theft - the claimant, Navpreet and Mr Keila. That, he says, means that the claimant must have arranged the attack, and of course only he, says Mr Bholowasia, had a motive for doing so. That submission, I am afraid to say, is arrant nonsense. It was Mr Bholowasia's own evidence that there were people outside the golak room on 23 April who saw what happened, and that the news spread like fire; and that at least one person heard the claimant say that he would teach Navpreet a lesson. Moreover, he said that he himself learned of the alleged theft on 24 April when four or five people from the sangat, or congregation, called him to say that the president's brother in law had been caught stealing money. Afterwards he had more calls, and he spoke to the president about it on 26 April, when the president told him that there had been no theft. Plainly, the president knew (indeed, the first three articles assert that he was in a conspiracy with the claimant to assault Navpreet), and if Mr Bholowasia was rung by several people with the news on 24 April, it is a fair assumption that many others knew who did not call him.
For the sake of completeness, I should mention that in his closing submissions, Mr Bholowasia asserted that it was significant that the claimant had said in evidence that he had been told about the attack on Navpreet by telephone an hour after it happened, that is to say at 0600, but that he could not remember who had called him. That was not the effect of my note or Ms Kumar's. Mine read that Mr Bholowasia asked him if he heard about Navpreet being beaten up, and the claimant replied that he had asked someone where Navpreet was that morning and he had been told that Navpreet had been beaten up. I therefore listened to the tape, which was not very clear, but I was able to transcribe it as follows:
Question: When did you hear of the beating to Mr Navpreet Singh?
Answer: When I asked one [inaudible] at the Park Avenue gurdwara where was Navpreet this morning, he told me he's got beaten up in the morning - that's when I heard.
Question: On 27th?
Answer: I don't know [inaudible] exactly what day, the day that he was beaten up, that morning. It was half past six, or something [inaudible]. I asked somebody where is Navpreet, he said he was beaten up.
Unfortunately, the words after 'half past six' are not clear, but the context suggests that the claimant was saying that half past six was the time when Navpreet was beaten up, not the time he was told; but in any event, he learned of it when he asked someone at the gurdwara, at a time when he had noticed that Navpreet was not there. It was not a question of him being telephoned. In the circumstances, it did not seem to me that Mr Bholowasia's submission had any force.
Removal of copies of Pardes Weekly
A witness statement of Kewal Singh Randhawa was put in as hearsay by Mr Bholowasia without objection by Ms Kumar, the witness being unable to attend court. He is a shopkeeper. He said that on 11 May, two people got out of a white van, entered his shop and took away all the copies of Pardes Weekly. He asked them why they were doing this, and they replied that they had been sent by the gurdwara to collect them, because there was news in the newspaper which the committee did not like, and their instructions were to collect as many copies as possible.
Similarly, Mr Bholowasia himself told the court that copies of his newspaper were taken from shops, Hindu temples and Sikh gurdwaras to which they had been distributed.
That evidence suggests underhand behaviour by some elements at the gurdwara, but there is no evidence whatever which implicates the claimant in what was done. Indeed, Mr Bholowasia himself eventually accepted in cross-examination that this was so.
Threats to defendants
There was no evidence whatever that the claimant had been involved in making or causing any threats to Mr Bholowasia or the staff of Pardes Weekly.
Police investigations
It is worth noting that, as the claimant's unchallenged evidence made clear, he was never even approached by the police about any of these matters, let alone questioned by them.
Conclusion on justification
For those reasons, the plea of justification fails.
REYNOLDS PRIVILEGE
The evidence
Mr Bholowasia's evidence was that he learned of the alleged theft - or the theft, as he always referred to it - on 24 April, when members of the congregation, or sangat, called him. They did not give their names, but said that someone had caught the president's brother-in-law stealing money. Most curiously, he did not ask them the name of the president's brother-in-law.
He carried out his own investigations into the matter. In his witness statement, he says that he is aware of his responsibilities as a journalist, and made sure through his own investigations what had occurred at the gurdwara before he wrote any articles. However, most of the people that he spoke to did not want to give their names, claiming that they were afraid of the claimant, who was a powerful man. One of his contacts told him that it was the claimant's thugs who had attacked Navpreet Singh. He also learned that the gurdwara committee had not let the police investigate the theft but instead had appointed its own colleagues to form a subcommittee to investigate the matter. He found that an astonishing and biased way to proceed.
He contacted the president, Himmat Singh Sohi, on 26 April. He spoke to him for 3 minutes and 26 seconds. In the course of their conversation, the president told him that no theft had taken place, and there had had been no CCTV working. He claimed that he put Mr Sohi's comments in the first article. That was a reference to the sentence in the third column of the article where it was said that Mr Sohi 'stated that there is no evidence and the CCTV was also off'. Mr Bholowasia regarded the published statement that there was no evidence as meaning that there had been no theft.
Between 23 April and 7 May 2013 he went to the Park Avenue gurdwara to make enquiries. Many members of the congregation and some volunteers told him that the theft had taken place and that because of it, Navpreet had been beaten up. None of them had first-hand knowledge, Mr Bholowasia conceded. The news had, as he put it, spread like fire.
In late April 2013, according to Mr Bholowasia's witness statement, many copies of the CD recording of the conversation between Dr Garcha, Navpreet Singh and others were distributed by what he called 'well- wishers' of the gurdwara, to expose the theft and the attack on Navpreet Singh. He said that people rang him and told him to listen to the CD, which as I understood him was played to him down the phone, at least in part. He did not get hold of a copy until about 6 June. He had been trying to, but had not succeeded. It is not clear why, given the thousands of copies which he said were in in circulation, and the calls that he received from people with copies, he had been unable to obtain one earlier. In his view, the CD shows that it was acknowledged that the theft of the donation monies had occurred. As I have already explained, I do not think that is right.
Mr Bholowasia gave evidence that a letter was put through his letter b6x on 6 May 2013. In translation, the letter, which gave the author's telephone number and address, read as follows:
To the chief editor: I feel hurted while writing these words as I am a worker of gurdwara and being an employee of gurdwara I am trying to do my duty.
On 23rd of April 2013, at the time of counting charity box money, Onkar Singh, brother-in-law of President Himmat Singh Sohi, picked money and put in his pocket. This was going on for a long time but this time Navpreet Singh, friend of mine who is an employee of gurdwara, could not bear it. He held Onkar Singh's wrist. Bahadur Singh who is a husband of the treasurer took him to the office and made him to take the money out his pocket and tried to close the chapter then and there. Navpreet Singh was threatened that if he disclosed this news outside, he will be sacked from his job and threatened that he could lose his life. His visa is going to finish soon and he will not be spared in India as well.
On 27th of April 2013, when Navpreet as usual left his house for workplace at 5:00 AM, five gangsters attacked him and bashed him badly and threatened that if he uttered his name again, they will kill him. I am writing this, because this sort of scandalous behaviour and theft of charity box should not prevail. Please keep it as secret.
Your obedient
Gursewak Singh
11 Beaconsfield Road, Southall.
11 Beaconsfield Road was the address where Navpreet had lived, and it seems to have been a kind of hostel for gurdwara employees.
Mr Bholowasia said that he was shocked by the letter and at once contacted the local police. Not content with that, he also decided that the matter was fit for the attention of the Metropolitan Police Commissioner. In fact, he did not contact the police at once: he did so on 9 May, when he asked for comments from the police with a view to publication on 11 May.
He claimed in evidence that he called Gursewak Singh on the day he received the letter, but he did not answer, and later the phone went dead. He did not visit 11 Beaconsfield Road to make contact with this important source. Asked why not, he said that he did not know.
In his witness statement, Mr Bholowasia said that on 8 May 2013 he contacted Bahadur Singh Keila for comments, but that Mr Keila had replied that he had no comment to make, and that he should speak to Dr Garcha, the general secretary. Mr Keila gave evidence about this conversation. He said that Mr Bholowasia called him when he was teaching a pupil, and asked him if there had been a theft. His response had been, "No, there was no theft, but you should talk to the management committee". Mr Bholowasia had wanted to carry on talking but Mr Keila had to apologise and say that he did not have time. I have no doubt that Mr Keila did tell him that there was no theft. I have already explained that I found Mr Keila a most impressive witness. He had been upset by the injustice of the allegation against the claimant, given in particular the service that the claimant had given to the gurdwara, and I am confident that he would have wanted to make it quite clear to a journalist that no theft had taken place. I believe that Mr Bholowasia is mistaken in his recollection of that exchange. There is considerable significance in the point, because Mr Keila's denial of theft was not reported in the published articles. It is regrettable that Mr Bholowasia did not take notes, as I assume he did not, given that his list of documents does not include any reference to journalistic notes as being or having been in his control.
When he did call Dr Garcha, whom he knew personally, he says that Dr Garcha made no comment. In any event, he said in cross-examination, he had to think of his phone bills, and it was enough to have spoken to the president.
Mr Bholowasia says in his witness statement that he also called the president, Himmat Singh Sohi, but that he made no comment either. That was plainly not correct, for in his oral evidence he said that he spoke to Mr Sohi for 7½ minutes on 7 May, and asked him where Navpreet was and whether he was safe, to which Mr Sohi said he did not know. He asked for Navpreet's number, and Mr Sohi said that he did not have it. He asked again about the theft and Nr Sohi said that there was no evidence of theft, which - if true - was rather different from his answer on 26 April, namely that there had been no theft. Mr Bholowasia explained that his reference in his witness statement to obtaining no comment from Mr Sohi had been to the occasion after he had spoken to Mr Keila.
Cross-examined, Mr Bholowasia accepted that he was an experienced journalist. To him, responsible journalism meant that when people pass him information, he always double checks it and makes sure that the contents are correct. He wrote articles which had particular interest to the Sikh and Hindi speaking communities.
He accepted, as he had to, that he had got the claimant's name wrong, despite having spoken to his brother-in-law, Mr Sohi, about the matter during several telephone conversations. He said that the correct name of the person who took the money was not his main concern: his main concern was the safety of Navpreet. He believed that Onkar Singh was the person's name. It is unclear, and not at all easy to understand, how he managed to have conversations with Mr Sohi about the claimant without it* becoming crystal clear that he had got his name wrong.
He was asked why he did not call the claimant to ask for his comments. His answer was that he asked Mr Sohi to get the claimant to call, but did not hear from him. That, he said, was the best he could do.
Asked about the steps that he took to contact Navpreet Singh, he said that he tried to contact Gursewak. He did not have Navpreet's number. He asked the police to find out his number but they could not give it out. He went to the gurdwara to ask people but was told that his whereabouts were unknown. He claimed to have tried to contact Navpreet in Amritsar, India, and, as he put it, 'sent some people' to his address, but he had disappeared. However, he did not go to 11 Beaconsfield Road, where Navpreet had lived and Gursewak Singh still resided.
He was asked what evidence he had, when he published the first three articles, that the claimant was involved in the assault on Navpreet Singh. He replied that his evidence was mainly the CD recording of the meeting with Navpreet (which, as I have already observed, did not show that the claimant had ordered the attack). In addition, 'various people' told him that the attack might (my emphasis) have been planned by the claimant. He was asked why when he heard the CD he did not call Dr Garcha to ask him whether it was genuine, and he said that he thought he tried to do so and left messages for him to call, without success.
When he was asked further about his sources and what they had told him, his evidence seemed to have firmed up: he said that various sangat people - worshippers attending the gurdwara - and workers told him that the claimant had (my emphasis) organised the attack. He did not ask them how they knew that he had done so. Then he said that the claimant had been upset by the allegation of theft and 'might' harm Navpreet. He added that his sources had spoken to Navpreet, and he had told them. But how, he was asked, would Navpreet know? The answer was - the CD: in other words, the evidence relied on came back to the words said by Navpreet, if it was his voice on the CD, to have been spoken by the attackers.
Further questioned to the effect that he did not, when he first published, have good evidence that the claimant was involved in the theft, or in the assault on Navpreet Singh, his answer was that as far as he was concerned there was good evidence: his newspapers were stolen and he got threatening telephone calls, so 'it was the claimant or his associates'. That answer may be very important. It is understandable that he should believe that others of the same party as the claimant should have been behind the theft of the newspapers and threatening telephone calls, and for that matter (given what Navpreet apparently said about what his attackers said to him) the assault on Navpreet. But it simply does not follow that the claimant had any inkling of what was being done.
The question of what Mr Bholowasia learned from people at the gurdwara was explored further. I asked him why he regarded the evidence of his sources at the gurdwara as reliable, if he did not ask them how they knew that the claimant was involved in the attack. He said that people heard a conversation involving committee members whose names they could not give him, saying that they were going to teach Navpreet a lesson. Then he said that his sources (plural) heard the claimant talking to friends, saying that he would teach Navpreet a lesson. Later, when taken to paragraph 18 of his witness statement (which refers to one particular person having told him that it was the claimant's 'appointed thugs' who had attacked Navpreet), he said that person had been the only person who had claimed to have heard the claimant saying he would teach Navpreet a lesson. It had not been several people, but one. I asked Mr Bholowasia how it was that he had not mentioned before, either in his witness statement or in evidence, that his sources, whether one or several, had implicated the claimant himself. His answer was that he had been asked for more detail, so he was giving it. He was asked again: why had this not been mentioned before? He answered that it was in his article. That, of course, was not right; there is no suggestion in any of the articles that people mentioned the claimant as having said anything of the kind: indeed, at the time Mr Bholowasia had not even known the claimant's correct name. He said that people referred to the brother-in-law of the president, not to the claimant by name.
Mr Bholowasia is plainly an intelligent man. He would have understood how important it would have been to have spelled out, in his witness statement and in his defence, that the claimant had been heard saying that he would teach Navpreet a lesson. Yet he did not put it to the claimant, nor mention it at all, even when questioned at length about his evidence for the claimant's alleged involvement in the attack, until a late stage of his cross- examination. I am sorry to have to say that I was quite unable to believe his evidence to the effect that his sources (singular or plural) had told him that the claimant, or even committee members, had been overheard saying anything of the kind, and I reject it. If that evidence had been true, he would have mentioned it in his witness statement and in his defence, and he would have mentioned it at the start of his evidence.
Mr Bholowasia was asked how, if his sources had spoken to Navpreet, his whereabouts could be unknown: they must have known how to contact him. He replied that when he said that Navpreet's whereabouts were unknown, he meant unknown to him. People who were close to him knew where he was.
Mr Bholowasia was asked about the gurdwara's internal investigation. He knew that it was going to take place, he said, but no-one rang him to give him dates until he got the date from a witness. He said that he might have rung Dr Garcha or Himmat Singh Sohi to ask if he could attend, but he could not remember. He did not wait for its conclusions, he said, because he did not know when it would take place. He accepted, in answer to a question from me, that he did not ask when it was going to take place. But had he been told that it was going to be held in the next few days, he would have waited. Had he known of the outcome of the investigation he would have included it in the article.
Mr Bholowasia was asked what his evidence had been for suggesting, in the first three articles, that Dr Garcha had behaved badly, in the sense that he had 'taken advantage' of being a doctor to obtain Navpreet's discharge from hospital before Navpreet had been fully treated. He answered that Dr Garcha had brought Navpreet away from the hospital, that On the CD he had told the doctor at the hospital that he would take Navpreet, and that Navpreet was recorded on the CD as saying that he was in pain. That plainly does not amount to evidence that Dr Garcha took advantage of his position as a doctor to obtain Navpreet's premature discharge which is what the first three articles say.
The elements of Reynolds privilege
The necessary elements of the defence of Reynolds privilege are that there must be a real public interest in the matter about which the material is published; it must have been reasonable to include the material complained of as part of the overall story; and the steps taken to gather and publish the information must have been responsible and fair (in other words, the journalism involved must have been responsible).
In Reynolds v Times Newspapers Ltd [2001] 2 AC 127 at 205, Lord Nicholls set out his non-exhaustive list of circumstances which would be relevant to the question of whether, in a particular case, the standards of responsible journalism had been met. The ten listed factors were as follows:
(1) The seriousness of the allegation. The more serious the charge, the more the public is misinformed and the individual harmed, if the allegation is not true.
(2) The nature of the allegation, and the extent to which the subject matter is a matter of public concern.
(3) The source of the information. Some informants have no direct knowledge of the events. Some have their own axes to grind, or are being paid for their stories.
(4) The steps taken to verify the information.
(5) The status of the information. The allegation may have already been the subject of investigation which commands respect.
(6) The urgency of the matter. News is often a perishable commodity.
(7) Whether comment was sought from the plaintiff. He may have information others do not possess or have not disclosed. An approach to the plaintiff will not always be necessary.
(8) Whether the article contained the gist of the plaintiff's side of the story.
(9) The tone of the article. A newspaper can raise queries or call from investigation. It need not adopt allegations as statements of fact.
(10) The circumstances of the publication, including the timing.
It is necessary to remember that in Jameel v Wall Street Journal Europe SPRL [2006] UKHL 44, [2007] 1 AC 359 at [53], the House of Lords warned that the so-called Nicholls factors should be approached in a practical and flexible manner, with due deference to editorial discretion. The factors should not be seen as a series of hurdles to be negotiated by the defendant, with the defence lost if one hurdle is knocked over. But they are a starting point, as Lord Brown observed in Flood v Times Newspapers Ltd [2012] UKSC 11, [2012] 2 AC 273 at [113], in determining the single question which he stated lies at the heart of Reynolds privilege, namely: could whoever published the defamation, given whatever they knew (and did not know) and whatever they had done (and had not done) to guard so far as possible against the publication of untrue defamatory material, properly have considered the publication in question to be in the public interest? In deciding that question, as Lord Brown stated, a host of different considerations are in play, depending on the facts of the case.
This is not, of course, a case of reportage, that relatively rare form of Reynolds privilege where (as Lord Phillips put it in Flood at [77]) it is not the content of a reported allegation that is of public interest, but the fact that the allegation has been made. In that situation, the publisher is protected if he has taken proper steps to verify that the allegation has been made, and as long as he does not adopt it. This case is very different, because it is a case where the public interest in the allegation lies in its content, not in the fact that it was made. In the words of Lord Phillips at [78]-[79]:
In such a case the public interest in learning of the allegation lies in the fact that it is, or may be, true. It is in this situation that the responsible journalist must give consideration to the likelihood that the allegation is true. Reynolds privilege absolves the publisher from the need to justify his defamatory publication, but the privilege will normally only be earned where the publisher has taken reasonable steps to satisfy himself that the allegation is true before he publishes it. Lord Hoffmann put his finger on this distinction in Jameel's case [2007] 1 AC 359, [62] when he said
'In most cases the Reynolds defence will not get off the ground unless the journalist honestly and reasonably believed that the statement was true, but there are cases ('reportage') in which the public interest lies simply in the fact that the statement was made, when it may be clear that the publisher does not subscribe to any belief in its truth.'
Thus verification involves both a subjective and an objective element. The responsible journalist must satisfy himself that the allegation that he publishes is true. And his belief in its truth must be the result of a reasonable investigation and must be a reasonable belief to hold.
Lord Phillips went on to ask what the responsible journalist had to do to discharge his obligation. In a Chase level 1 case, such as this one, he had to satisfy himself, on reasonable grounds, that the claimant had in fact been guilty of theft and of conspiring to assault Navpreet Singh, and that he was at least partly responsible for threats to kill Navpreet and his family. In Lord Phillips' words, the journalist's defence cannot "get off the ground" unless he reasonably believed in the claimant's guilt.
Conclusions on Reynolds privilege
The factors relevant to the question of responsible journalism in this case seem to me to be these. I focus for this purpose on the first three articles, since they contain the most damaging material and they were the precursors of the articles that followed. I will refer primarily to the first article, since the second and third were in essence duplicates.
The article asserted both the theft from the golak, and the claimant's guilt of it. It did not describe the theft, or the claimant's responsibility for it, in terms of allegations; it stated them as established fact. Yet as at 11 May, when the first article was published, there was no reliable evidence for the proposition that any money had been stolen, let alone that the claimant had stolen it. Mr Bholowasia relied on what he had been told by people at the gurdwara, none of whom, as he conceded, had first hand knowledge. As far as he was concerned, none of them had any basis other than gossip for what they were telling him. They were depending on nothing more than rumour and hearsay. Mr Bholowasia had of course received the letter from Gursewak Singh, which stated that Navpreet had caught the claimant stealing, after which Navpreet was threatened and then attacked, but he never made contact with Gursewak Singh to ascertain how he knew this information and how reliable it was. He did not even go round to his accommodation in order to talk to him, and was unable to say why not. Mr Bholowasia had heard part at least of the CD of the meeting involving Dr Garcha, which contained the assertion of a person who was probably Navpreet that money had been stolen by the president's brother-in-law. It was clear that an allegation of theft had been made against the claimant, but in my judgment there was no evidence on which Mr Bholowasia could reasonably have relied that money had in fact been stolen or that the claimant had stolen it. By contrast, he had the evidence of the president of the gurdwara that no theft had taken place, and (more importantly, because he had been a important player on 23 April) the statement of Bahadur Singh Keila that there had been no theft. He did not report Mr Keila's statement, and he reported the president's denial that theft had taken place with the words "there is no evidence and the CCTV was also off". That was a wholly inadequate way of stating the president's denial that a theft had taken place. Indeed, the words suggested that because the CCTV was off there was no evidence one way or the other.
The article stated the claimant's guilt of conspiracy to assault Navpreet Singh. Again, the conspiracy was stated not as allegation but as established fact. The 'sources' from which Mr Bholowasia gleaned the allegation were people who, so far as he knew, had no direct knowledge of that of which they spoke. He admitted that he did not ask them how they knew that the claimant had been behind the attack. They were doing no more than peddling rumour. I discount Mr Bholowasia's belated claim that at least one of his sources claimed to have overheard the claimant discussing the need for an attack on Navpreet Singh, because, as I have said, I regard it as wholly incredible. The CD on which he placed great reliance (but the authenticity of which he did not confirm with Dr Garcha) did not contain any evidence, even double hearsay evidence, that the claimant had been behind the assault.
Moreover, the conspiracy alleged was between the claimant and Himmat Singh Sohi. Mr Bholowasia gave evidence about the content of his calls to Mr Sohi. He did not suggest that he had even put to Mr Sohi the allegation that he had conspired with the claimant to assault Navpreet Singh.
Mr Bholowasia did not contact the claimant for his side of the story. His attempts to do so were limited to asking Mr Sohi to get the claimant to call him, which he described as the best he could do. He does not seem to have thought it necessary to seek the claimant out directly, which would hardly have been beyond the ability of a normal responsible journalist. How he can have failed even to ascertain the claimant's correct name, given his conversations with Mr Sohi, is very difficult to understand.
Mr Bholowasia did not suggest that he attempted to speak to any of those who had been present in the counting room, apart from Mr Keila.
As at 11 May, when the first article was published, Mr Bholowasia knew that an internal investigation was underway into the allegation of theft. He seems to have made little if any effort to find out when it was to take place: he did not ask, and he said that no-one rang him to give him the date. He could not remember if he had asked Dr Garcha or Mr Sohi if he could attend the hearing. The hearing did in fact take place on 15 May, before the defendants published the second and third articles, yet Mr Bholowasia apparently did not know that it had taken place or what its findings had been. That can only have been because he made no effort to find out.
It does not bear directly on the claimant, but in my judgment it is a pointer to Mr Bholowasia's preparedness to make serious allegations without adequate evidence to support them, that he felt it right in the first three articles to accuse Dr Garcha of taking advantage of his position as a doctor to obtain Navpreet's discharge from hospital before he could have been properly treated, on the basis of evidence that did not begin to justify any impropriety on Dr Garcha's part. When asked what the evidence was that Dr Garcha had behaved improperly, it was simply that Dr Garcha arrived at the hospital and brought Navpreet back, and that Navpreet said on the CD that he was in pain.
Mr Bholowasia said that he regarded the story that he published about the theft and the assault on Navpreet Singh as being in the public interest, because it concerned a serious breach of trust at the gurdwara and a betrayal of its devotees. Moreover, even having heard all the evidence, he stated in cross-examination that what he wrote was true. But of course it is not determinative that Mr Bholowasia regarded the story as being in the public interest or that he believed it to be true. The public interest in learning of such allegations lies in the fact that they are, or may be, true. If they were, or might have been true, then in principle their publication would have been likely to have been in the public interest, for the reason that Mr Bholowasia gave. The question is whether he took reasonable steps to satisfy himself that the allegations were true. In my judgment, for the reasons which I have attempted to state above, he wholly failed to conduct a reasonable investigation, and if, as I think he was saying, he believed that the allegations were true, then it was not a reasonable belief to have held. Expressed in terms of the Nicholls factors; Mr Bholowasia had no reason to believe that his informants had direct knowledge of the events to which they referred; the steps which he took to verify the information which he received were wholly deficient; very little effort was made to obtain comment from the claimant; the articles failed to set out the gist of the claimant's side of the story - that there was no theft and that he was not involved in the events which followed - despite the fact that Mr Bholowasia had learned from two sources that there had been no theft, and (in the case of the second and third articles) despite the conclusions of the internal inquiry on 15 May 2013; and the tone of the articles was wholly one-sided, adopting the allegations as established fact. I asked Mr Bholowasia whether he had considered running the articles in a way which reported the allegations neutrally, or at least in a more balanced way, but he did not appear to me to understand what I was suggesting. In the end, his answer was that he had considered that approach but the news had, he said, already spread through the community.
So far I have focused on the first three articles. The fourth, which was an advertisement placed by others, repeated the allegation of theft and was published in the same issue as the second and third articles; the fifth (also published in the same issue) alleged, without any evidence at all, that the claimant was involved in sending gangsters to steal copies of the second defendant newspaper; and the sixth repeated the allegation that the claimant was a thief. There are no considerations which cause me to take a different view of the availability of Reynolds privilege as far as these articles are concerned.
In short, I reject the defence of Reynolds privilege. If journalism of this calibre merited the protection of a public interest privilege, a defence of truth would be otiose.
DUTY/INTEREST QUALIFIED PRIVILEGE
I mentioned above that the plea of privilege in the defence was confused. I have taken the plea at paragraph 33 (and paragraphs 31-32) of the defence to be a defence of Reynolds privilege, and that was the way in which it was approached by Mr Bholowasia both in his opening and in the course of the trial. His written skeleton argument did not make the position any clearer. However, I note that at paragraph 20 of his skeleton argument, under the heading 'Defence of qualified privilege', sub-headed 'Moral and/or social duty', a contention is advanced which was not, to the best of my recollection, advanced during the hearing. It reads as follows:
"The defendants had a moral and/or social duty to publish the articles. There was no malice intended by the defendants. The alleged theft and violence concerned a public matter, therefore it was a matter of public policy and the common convenience and welfare of society that the defendants published the articles. In undertaking their moral duties, the defendants informed police of the complaint letter received and also the CD. See correspondence between the defendants and the police ..."
Separately, after a paragraph asserting that the defendants carried out extensive research before publications, two paragraphs appear under the heading 'Defence that publication was in the public interest', which refers to Reynolds v Times Newspapers, Jameel v Wall Street Journal and Flood v Times Newspapers. Those paragraphs appear to be advancing a Reynolds defence, and I therefore assume that paragraph 20 of the skeleton argument must be intended to put forward a vestigial duty/interest qualified privilege, arguably heralded by the confused pleading of paragraph 33 of the defence. It should have been explored, of course, by request for further information. Had that been done, it would have been clear before trial what exactly the defendants' case was and on the basis of what factual background they advanced it, and if the case had been shown to be clearly unsustainable, it would have been struck out.
Nonetheless, I ought to deal with this issue if I can. It is pleaded that "the words published related to matters of public and/or general concern, particularly in the community to which the words were published". Pausing there, there was no evidence as to the composition of the community to which the words were published. It is also pleaded that "when published the matters remained of current concern to the readership and the defendants had a moral and/or social duty to publish the words complained of and the public had a corresponding legal interest in receiving the information".
Apart from privilege at common law for reports of the proceedings of the courts and Parliament, the common law world was not receptive to an extension of qualified privilege to publication in the press and broadcast media until the decision in Reynolds v Times Newspapers. As far as classical duty/interest privilege was concerned,
the fundamental principle was that a statement was protected by privilege only if the publication of it was to persons who had a proper interest or duty in the matter with which it was concerned, and the public as a whole was not generally regarded as having a relevant interest or duty. The media defendant (or other defendant who caused his statement to be published in that way) was in no different position from anyone else and had to show the relevant reciprocity of duty and interest. Such a duty only arose:
'where it is in the interests of the public that the publication should be made, and will not arise simply because the information appears to be of legitimate public interest'.
A privilege for publication to the world at large was, in English law, the exception rather than the rule, even if the subject matter was politics or public affairs. (Gatley on Libel & Slander, 12th ed., para 14.1, citing Cantley J in London Artists v Littler [1968] 1 WLR 607 at 619).
The nearest that the pre-Reynolds common law came to extending qualified privilege to media publication is probably the decision in Blackshaw v Lord [1984] QB 1, where the Court of Appeal rejected a plea of privilege seeking generic protection for fair information on a matter of public interest stated in a newspaper report. The conclusions of the court were obiter, for it was unnecessary to revisit the trial judge's ruling on qualified privilege, but the court was persuaded nonetheless to consider it. Stephenson LJ considered the authorities at some length and stated; at pp26-27:
I cannot extract from any of those authorities any relaxation of the requirements incorporated in that question. No privilege attaches yet to a statement on a matter of public interest believed by the publisher to be true in relation to which he has exercised reasonable care. That needed statutory enactment which the Committee on Defamation refused to recommend: see paragraphs 211-215. "Fair information on a matter of public interest" is not enough without a duty to publish it and I do not understand Pearson J.'s ruling in Webb v Times Publishing Co [1960] QB 535 that a plea of a fair and accurate report of foreign judicial proceedings was not demurrable, was intended to convey that it was enough. Public interest and public benefit are necessary ... but not enough without more. There must be a duty to publish to the public at large and an interest in the public at large to receive the publication; and a section of the public is not enough.
The subject matter must be of public interest; its publication must be in the public interest. That nature of the matter published and its source and the position or status of the publisher distributing the information must be such as to create the duty to publish the information to the intended recipients, in this case the readers of the "Daily Telegraph." Where damaging facts have been ascertained to be true, or been made the subject of a report, there may be a duty to report them (see, e.g., Cox v Feeney 4 F&F 13i; Perera v Peiris [1949] AC 1 and Dunford Publicity Studios Ltd. v. News Media Ownership Ltd. [1971] N.Z.L.R. 961), provided the public interest is wide enough: Chapman v Ellesmere [1932] 2 KB 431. But where damaging allegations or charges have been made and are still under investigation (Purcell v. Sowler, 2 C.P.D. 215 ), or have been authoritatively refuted (Adam v Ward [1917] AC 309), there can be no duty to report them to the public.
... .There may be extreme cases where the urgency of communicating a warning is so great, or the source of the information so reliable, that publication of suspicion or speculation is justified; for example, where there is danger to the public from a suspected terrorist or the distribution of contaminated food or drugs; but there is nothing of that sort here.
Dunn and Fox LJJ reached similar conclusions. At p42, Fox LJ expressed his views shortly. He referred to the wide principle stated by Pearson J. in Webb v Times Publishing Co [1960] 2 QB 535, 570, that "As the administration of justice in England is a matter of legitimate and proper interest to English newspaper readers so also is this report [of foreign proceedings] which has so much connection with the administration of justice in England. In general, therefore, this report is privileged". Having referred to that principle, Fox LJ went on:
I think that states the principle rather too widely. It is necessary to a satisfactory law of defamation that there should be privileged occasions. But the existence of privilege involves a balance of conflicting pressures. On the one hand there is the need that the press should be able to publish fearlessly what is necessary for the protection of the public. On the other hand there is the need to protect the individual from falsehoods. I think there are cases where the test of "legitimate and proper interest to English newspaper readers" would tilt the balance to an unacceptable degree against the individual. It would, it seems to me, protect persons who disseminate
"any untrue defamatory information of apparently legitimate public interest, provided only that they honestly believed it and honestly thought that it was information which the public ought to have" (See London Artists v Littler [1968] WLR 607, 615).
As is well known, the House of Lords in Reynolds v Times Newspapers extended the scope of qualified privilege to the publication of defamatory material to the world at large, where the publication was on a matter of public interest and it was the product of responsible journalism a test which (in sharp contrast to classical qualified privilege) involved consideration of all the circumstances of the publication including the nature, status and source of the material.
In this case, I have considered and rejected the defence based on Reynolds. On the face of it, it would be remarkable if there were still available a defence of qualified privilege for media publication which could base itself on duty and interest without concerning itself with the difficult questions of responsible journalism, and in my judgment the weight of authority tends strongly against such a conclusion: see for instance Hays plc v Hartley [2010] EWHC 1068 (QB) at [69] and Seaga v Harper [2008] UKPC 9, [2009] 1 AC 1 at [15], where the Board rejected an argument by the defendant that if (as the trial judge had found) there was inadequate care to justify a finding of Reynolds privilege for publication to the world at large, there was a defence of traditional qualified privilege:
Their Lordships consider that this was a misconceived argument. The Reynolds test is more easily satisfied, being a liberalisation of the traditional rules, and it is more difficult to bring a case within the latter. They are satisfied that the publication was not covered by traditional qualified privilege, for the element of reciprocity of duty and interest was lacking when the defendant knowingly made it to the public at large via the attendant media. If privilege was to be successfully claimed, it could only be under the Reynolds principles and, as they have said, those principles applied to the case.
Even if such a defence could be said to have survived Reynolds and its successor cases, it would certainly need to concern a matter of the gravest and most urgent public importance, in circumstances where there was a duty to communicate the matter to the readership as a whole.
There was little evidence about the readership of Pardes Weekly. It was accepted that each of the 8000 copies distributed was seen by about ten people, and Mr Bholowasia gave evidence that each copy had three sections, written in English, Punjabi and Hindi, with the same material albeit written differently for different community interests. In fact, it seems likely that the first article was published only in English. The second and third (both in the same edition) were in Punjabi and English respectively, and the fourth to sixth in Punjabi only - or at least, not in English. Beyond Mr Bholowasia's evidence that the same material was generally covered in each of the three languages, there was no specific evidence about publication of the words complained of in Hindi, no doubt because the claimant, for whatever reason, did not complain of it. The newspaper was distributed to many different outlets in Southall, including shops and at least one Hindu temple, and it was free. No doubt it was read by many Sikhs, whether they spoke English or Punjabi or both, but it will also have been read by Hindi speakers, who if religious are likely to have been members of the congregation at a Hindu temple rather than a Sikh gurdwara, and by English speakers who may or may not have had any interest in the administration of the gurdwara. It may well be that the articles complained of would have been of great and legitimate interest to members of the gurdwara sangat, but there would also have been a substantial readership for whom the internal goings on at the gurdwara will have been of little or no interest.
Given that the subject matter of the articles would only have been of interest only to a part of the readership (there is no evidence as to how big a part), referred to allegations which were still under investigation by police (and, as at 11 May, by the gurdwara; but refuted by 18 May), and could not be said to have been of the gravest immediate concern to the public at large, there would have been no prospect whatever of a classical plea of duty/interest privilege succeeding even before the Reynolds jurisprudence developed. Still less could it possibly succeed now that a distinct jurisprudence has been developed which is designed to accommodate the reasonable requirements of the press and media.
MALICE
As I have said, there is a plea of malice, which is only of any relevance to the plea of duty/interest qualified privilege, which I have found to be hopeless. It would therefore be disproportionate to state my conclusions on malice at any substantial length.
The case on malice is pleaded in very bald and general terms in the Reply. It is said that the defendants acted irresponsibly (which would not be enough), recklessly and with malice. The particulars are hardly much fuller. It is pleaded (1) that the defendants made very serious criminal allegations but made no serious attempt to carry out even basic lines of enquiry and investigation before publication; (2) that their conduct amounts to a wanton disregard for the truth and any sense of fair enquiry or fair play; (3) that no reasonable newspaper or newspaper proprietor would publish such gravely serious allegations against an individual, given its severity, without conviction or other adjudication of guilt; and (4) that the real ulterior and malicious motive behind Mr Bholowasia's allegations was his personal animosity and wish to oust the incumbent committee of the gurdwara, of which the claimant's brother in law, Mr Sohi, was president.
I heard very little argument from either side about malice, I surmise because (at least as far as the claimant's camp was concerned) it was thought to be a remote fall-back in the unlikely event of the defendants succeeding on duty/interest qualified privilege. However, that has not made my task any easier.
The traditional approach to malice since Horrocks v Lowe [1975] AC 135, is that it is for the claimant in a libel action to prove the defendant malicious, in the sense of demonstrating that the dominant motive in publishing the words was not to use the occasion of privilege for its proper purpose but to damage the claimant's reputation. That motive would be inferred from proof that he had no honest belief in the truth of the words complained of. Recklessness can be enough. Thus, malice can be demonstrated if a claimant proves the defendant to have been genuinely indifferent to the truth or falsity of the defamatory allegations. In that event, he would be treated as if he knew them to be false. Even a positive belief in the truth of what was published might not be enough to negative malice if it could be proved that the defendant misused the occasion for some improper purpose, for example to give vent to personal spite or ill-will, or (as is suggested here) to give vent to his animosity against the then current gurdwara committee.
In this case, it is not suggested that Mr Bholowasia knew that the allegations were false. The suggestion is of an unparticularised recklessness - in other words, an indifference to the truth or falsity of the allegations.
It is important to understand what indifference to the truth does and does not entail. In Horrocks v Lowe at p150 Lord Diplock dealt with the issue thus:
... indifference to the truth of what he publishes is not to be equated with carelessness, impulsiveness or irrationality in arriving at a positive belief that it is true. The freedom of speech protected by the law of qualified privilege may be availed by all sorts and conditions of men. In affording to them immunity from suit if they have acted in good faith in compliance with a legal or moral duty or in protection of a legitimate interest the law must take them as it finds them. In ordinary life it is rare indeed for people to form their beliefs by a process of logical deduction from facts ascertained by a rigorous search for all available evidence and a judicious assessment of its probative value. In greater or less degree according to their temperaments, their training, that intelligence, they are swayed by prejudice, rely on intuition instead of reasoning, leap to conclusions on inadequate evidence and fail to recognise the cogency of material which might cast doubt on the validity of the conclusions they reach. But despite the imperfection of the mental process by which the belief is arrived at it may still be honest, that is, a positive belief that's the conclusions they have reached are true. The law demands no more.
Mr Bholowasia told me that he did not know the claimant and had no animus towards him. That is not determinative of the issue, but so far as it goes, I accept it. After all, he did not even know the claimant's name.
In my judgment, Mr Bholowasia was, and remains, convinced of the truth of the allegations which he published, notwithstanding the paucity of evidence for them. His belief is based on the letter which he received from Gursewak Singh, buttressed by what I regard as an erroneous interpretation of the CD, and set in stone by the evidence of Prem Singh Randhawa, who contacted him many months after the articles were published. He is certain that the evidence of the claimant's witnesses has been fabricated to cover up what he regards as the claimant's wrongdoing. No amount of evidence will change his mind: for him, every piece of evidence is all fabricated with the same end in view. That mindset is prejudiced and irrational, but I cannot find that it amounts to malice.
It was put to Mr Bholowasia in cross-examination that his true object was to cause damage to the then ruling committee and its president, Mr Sohi. That was why, Ms Kumar suggested, he was not concerned to get the claimant's name right: what mattered was that he was the brother-in-law of the president, because the mud he was throwing was aimed at the president, not the claimant. Mr Bholowasia denied that, and I see no reason not to accept his denial. There was no cogent evidence to the contrary. I did not regard the photographs of him being honoured by the new committee which came to power in 2014 as showing that he was their creature, but even if they did demonstrate an association on his part with the Lion Group (which he denied), that would not be enough: they did not show, and it could not be inferred from them, that his motive in publishing was to damage the chances of the incumbent faction. I was, I confess, troubled by the tone of an article which he published in February 2008, during an earlier election campaign, which referred to what he called the 'Sohi thug family', but he insisted that he was simply reporting (albeit in florid terms) the fact that a member of the Lion group had been attacked. Ultimately, I have to remember that - in Lord Diplock's words - qualified privilege would be illusory, and the public interest that it is meant to serve defeated, if the protection which it affords were lost merely because a person, although acting in compliance with a duty or in protection of a legitimate interest, disliked the person whom he defamed (in this case, the Sohi group rather than the claimant) or was indignant at what he believed to be that person's conduct and welcomed the opportunity of expressing it.
My conclusion is that there is insufficient evidence to convict the defendants of malice.
QUANTUM
I now turn to the assessment of damages. I will first briefly summarise the claimant's evidence about the libel and its effect on him.
Unhappily, the claimant and his family were already under great stress as at 23 April 2013. His brother-in-law's mother died the next day; his sister had been diagnosed with cancer and was in and out of a hospice; and his mother was seriously ill in hospital. The article was brought to his attention by a family member: he did not normally read Pardes Weekly himself. It was his evidence that in the Sikh community, to accuse someone of stealing from the golak is one of the most terrible things that could be said of them. The other accusations were bad enough, but to accuse him of stealing from the holy donation box was incredibly hurtful, and he found that he had to try to take his mind off it to relieve the mental pain which the accusation caused.
He felt that his and his family's long-standing reputation of volunteering in the Sikh community had been ruined by the allegations against him. He felt traumatised and paranoid that everyone was talking about him and pointing their fingers at him; he found acquaintances intentionally ignoring and avoiding him; and he had to explain what had happened to members of his family from across the United Kingdom and Canada, who rang to ask. On one occasion his 11-year-old granddaughter came across the article (I believe he meant the first article) on the Internet, and he found it one of the most difficult and distressing experiences of his life to have to explain to her that he was not a thief, and that the things that people were saying about him were lies. He felt a great loss of energy, and he suffered feelings of despair. He felt that the period since the publication of the articles had been one of the worst periods of his life.
My task is to award the claimant general damages for libel. An award of general damages for libel serves three functions: first, to act as a consolation to the claimant for the distress and embarrassment which he has suffered from the publication of defamatory words, secondly, to compensate for the injury to his reputation; and thirdly, to act as vindication for his reputation: see most recently Cairns v Modi [2012] EWCA Civ 138, [2013] EMLR 8 at [21ff]. I bear in mind the overriding principle that, in order to comply with Article 10 of the European Convention on Human Rights, an award of damages must be proportionate to the legitimate aim of compensating the claimant for the injury and distress which he has suffered and of providing him with vindication.
The need for damages to provide vindication was explained in the case of Broome v Cassell [1972] AC 1027 at p.1071 by Lord Hailsham LC who said: "Not merely can (the libel plaintiff) recover the estimated sum of his past and future losses, but, in case the libel, driven underground, emerges from its lurking place at some future date, he must be able to point to a sum awarded by a jury sufficient to convince a bystander of the baselessness of the charge."
That tendency of 'percolation', as it has been called, has been given new force by the internet, which creates the potential for libels to spread 'virally'. That is of significance here, in the light of the claimant's evidence that his son has told him that people were calling him a thief on various websites, including Twitter and Facebook. The percolation factor was agreed by the Court of Appeal in Cairns v Modi at [27] to be a legitimate factor to be taken into account in assessing damages.
It has been said that in some circumstances a reasoned judgment may provide degree of vindication: see Purnell v Business Magazine Ltd [2008] 1 WLR 1, Laws LJ, who gave the main judgment, held that a prior narrative judgment rejecting a defence of justification was capable of. providing some vindication of a claimant's reputation. However, in Cairns v Modi the Court of Appeal was disinclined to accept any such general principle, regarding it as unlikely that most lay observers would read a detailed judgment: they would be more interested to find out the amount awarded by way of damages. It seems to me that this is not a case where most people are likely to read a detailed analysis of the judgment of the court, although it may be that there will be some reporting of it in the local press. I give little weight, therefore, to the impact of a reasoned judgment.
Factors which may be relevant to the level of general damages include the position and standing of the claimant and the gravity of the allegation, especially insofar as it closely touches the claimant's personal integrity and his reputation. As Sir Thomas Bingham MR said in John v MGN [1997] QB 586 at p.607:
The successful plaintiff in a defamation action is entitled to recover, as general compensatory damages, such sum as will compensate him for the wrong he has suffered. That sum must compensate him for the damage to his reputation; vindicate his good name; and take account of the distress, hurt and humiliation which the defamatory publication has caused. In assessing the appropriate damages for injury to reputation the most important factor is the gravity of the libel; the more closely it touches the plaintiff's personal integrity, professional reputation, honour, courage, loyalty and the core attributes of his personality, the more serious it is likely to be. The extent of publication is also very relevant: a libel published to millions has a greater potential to cause damage than a libel published to a handful of people. A successful plaintiff may properly look to an award of damages to vindicate his reputation: but the significance of this is much greater in a case where the defendant asserts the truth of the libel and refuses any retraction or apology than in a case where the defendant acknowledges the falsity of what was published and publicly expresses regret that the libellous publication took place. It is well established that compensatory damages may and should compensate for additional injury caused to the plaintiff's feelings by the defendant's conduct of the action, as when he persists in an unfounded assertion that the publication was true, or refuses to apologise, or cross-examines the plaintiff in a wounding or insulting way.
Far from apologising, Mr Bholowasia has asserted the truth of the allegations in the course of cross-examination of the claimant, and he has stated that even after hearing all the evidence, he still regards his allegations as being true.
I must take into account the degree of distress caused to the claimant, judged objectively. The claimant gave his evidence with a quiet calm and dignity, and is not, I judge, a man who wears his heart on his sleeve. But I entirely accept his evidence about the impact of these allegations upon him, and the immensely stressful experience that he has been through, an experience which can only have been made worse by Mr Bholowasia's persistence with his plea of justification and his assertions, even at trial, of the truth of the allegations. However, I bear in mind that mere persistence in a plea of justification which is run in a reasonable way but fails, even if the court regards it as not only wrong but weak, is not enough to justify an award of aggravated damages: the plea would have to be completely insupportable (Oriental Daily Publisher v Ming Pao Holdings Ltd [2012] HKFCA 59, [2013] EMLR 7 at [132]). It would not be right to characterise the plea as insupportable in this case, given the evidence of Prem Singh Randhawa on the central issue of theft.
I have dealt with the extent of readership of the articles, which is likely to have been some 80,000. Others will have read them online, but I have no evidence about the numbers involved. That is a large number, although small compared with the readership of a national newspaper. Nonetheless, the damage appears primarily to have been done among the claimant's own Sikh community, and publication outside that group is probably of less concern to the claimant than publication to those with whom he has daily dealings.
The conventional ceiling for libel damages, taking into account the uplift generated by the Jackson reforms, is now of the order of £300,600 (see Cairns v Modi at [25] and Simmons v Castle (No.2) [2012] EWCA Civ 1288, [2013] EMLR 4).
The court is entitled to have regard to previous awards made by judges sitting alone. It is true, of course, that the facts of each case vary to such a degree that unless another first instance decision is almost on all fours with the facts of the case being considered, such comparators are rarely helpful. However, Ms Kumar referred me to three cases:
(1) In Miller v Associated Newspapers [2012] EWHC 3721 (QB), the claimant sued on a story in the Daily Mail that he was a willing beneficiary of improper conduct and cronyism because of his friendship with the deputy commissioner of the Metropolitan Police over the award of a multi-million pound contract to his management consultancy. The defence of justification failed at trial, and there was no apology. Damages were assessed at £65,000.
(2) Cambridge v Makin [2011 EWHC 12 (QB) was a case in which the claimant was accused in an email sent to about 1000 members of her own profession of abusing her position as a director of a not for profit company, which administered a register of professional linguists for public sector bodies, by granting a licence from which she stood to gain personally, in conflict with the interests of those whom as a director of the company she was bound to protect. Malice was established. Damages were assessed at £30,000, which took account of a settlement of £30,000 already received from the second defendant.
(3) Finally, Ms Kumar referred to Flood v Times Newspapers Ltd [2013] EWHC 4075 (QB), where the claimant police officer sued on an article published in The Times Online over a two year period to the effect that there were strong grounds to believe that he had abused his position as a police officer with the Metropolitan Police Extradition Unit by corruptly accepting £20,000 in bribes from some of Russia's most wanted suspected criminals in return for selling them highly confidential Home Office and police intelligence about attempts to extradite them to Russia to face criminal charges, and had thereby committed an appalling breach of duty and betrayal of trust, as well as a very serious criminal offence. Nicola Davies J awarded him £45,000 by way of general damages, together with £15,000 for aggravation by reason of the defendant's conduct.
Mr Bholowasia has given evidence about his slender means. His means are irrelevant to this exercise, but it may well be that the quantification of damages will be to some degree academic. In any event, I have to approach the question of damages in the same way as a jury would, giving a verdict in effect without a reasoned judgment. Taking everything into account and looking at it in the round, it seems to me that a proper award of general damages for these libels is £50,000. That is the award which I make.
HH Judge Richard Parkes QC
Reading, 16 February 2015 |
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