LITIGATION THAT WAS “TOTALLY OUT OF PROPORTION”: THE CLAIMANT SHOULD HAVE CUT THEIR CASE TO SUIT THEIR CLOTH: (SOMETHING ABOUT BUNDLES TOO)

In White Winston Select Asset Funds LLC & Anor v Mahon & Anor [2019] EWHC 1381 (Ch) HHJ Simon Barker QC had some telling words about the manner in which the claimant had conducted litigation.  What is remarkable about this case is the way in which, in the early stages of case management,  the claimant initially avoided a valuation of the case – asserting $3.3 million had been invested, coupled with the consequent (and unbudgeted) spending of £600,000 to pursue a case worth (at best £50,000 – £100,000).

D1 characterised this litigation as oppressive. I regard the scale of this litigation as completely out of proportion. I do not regard this to be the wisdom of hindsight”

THE CASE

The claimant brought an action claiming damages (between £50,000 – £100,000) for the defendant’s breach of duty and breach of confidence. The defendant had been a tailor and the director of a company that had gone into administration.   The defendant contacted a number of customers informing them that the claimant had gone into administration and informing them that he intended to start a new business in the near future.  The judge found that the defendant had breached his duty, but only to a very narrow and time- constrained extent.

CASE MANAGEMENT

The judge went on to make some observations about case management, the conduct of the trial and – bundles.
    1. Thus, there is a time-constrained and limited basis for finding that D1 was in breach of fiduciary duty and in breach of his duty to ECL as a director. This finding (as identified in paragraphs 31, 32, 34 and 35 above) is narrower in ambit than, and is accepted by Cs as adding nothing to, the finding already made in respect of the breach of confidence claim. It is also much narrower than the finding sought by Cs.
    2. This brings me on to case management of these proceedings. The claim form put the estimate of damages at £50K to £100K and the court issue fee was paid on that basis. The particulars of claim are commendably clear and succinct, running to less than seven pages including one page for the relief claimed. The defence is also brief, running to five pages of narrative. No expert evidence was envisaged or required on liability issues.
    3. The appropriate forum was addressed at the outset of the costs and case management conference on 12.4.18 by the procedural judge, Deputy Master Collins, who asked for a rough estimate of Cs’ claims and was told that C1 had “invested” US$3.3million in, essentially, goodwill and that Cs put the value of the claim at £2million. On that basis the Deputy Master put aside consideration of transfer to the County Court. The value Cs attributed to their claim was not elaborated upon and was very different from the stated value of the claim when issued and the level of issue fee paid – at which time, of course, Cs knew full well how much they had invested in, or lent to, ECL and should be taken to have factored that into their estimate of the value of their claim when issuing proceedings. What Cs’ submission may also have done is deflect the Deputy Master from any consideration of a transfer to the Intellectual Property Enterprise Court (‘IPEC’). A four day trial on liability issues was listed because Cs anticipated, at that stage, “a raft of contentious issues”. The transcript of the debate as to disclosure reveals a very wide casting of the net by Cs with some objections fairly made and the Deputy Master expressing concerns at the breadth of the disclosure sought by Cs.
    4. On the topic of costs budgets, Cs’ position was that considerable sums were being spent on the litigation because C1 would not have invested US$3.3million in a business unless it was expected to provide a return on that investment. Consideration of Cs’ costs budget was then postponed generally. At various stages during the hearing the Deputy Master did attempt to raise and focus on what might constitute or amount to Cs’ loss but was diverted onto the wrong track by reference to the amount that Cs, or C1, had “invested”. In my view, neither the amount of C1’s investment nor C1’s expectation should drive or justify the costs budget for this litigation. This is not a case about misrepresentation in relation to or breach of warranty in relation to ECL’s business and business assets; it is primarily a case about short term misuse of a customer list in breach of an obligation of confidence. The driver for costs is reasonable and proportionate expenditure necessary to bring the real issues in the case forward for a just determination, either by ADR or at trial. Relevant factors to proportionality include the amount of money involved, i.e. at stake in the claim, the importance of the case, the complexity of the issues, and the financial position of each party. Moreover, saving expense is a fundamental tenet of the overriding objective.
    5. Subsequently, there were delays on Cs’ part in finalising its witness evidence. This was attributed to D1’s inadequate disclosure. The point here is that Cs were concerned to establish whether D1 had contacted more than the 19 and the 109 customers on ECL’s lists to whom emails were sent on 21.8.17 and 4.10.17 respectively. Disclosure was finally resolved at the PTR on 23.1.19, after consideration of applying the BPC disclosure pilot, by a specific disclosure order.
    6. The upshot was a trial bundle comprising 35 lever arch files. The chronological bundle, comprising 28 files, contains more than 8,000 pages. If I understand it correctly, the structure appears to be that 19 files, labelled F1-F19, contain documents from Cs’ disclosure and Ds’ disclosure before the PTR. These total some 6,000 pages[1]. Of these pages, very many are in colour, not a few pages are wholly redacted and are entirely black or blank, and others have redactions rendering them unintelligible or useless as evidence. There are also a number of photographs, including photographs of tailors having nothing to do with these proceedings, which are of no assistance to the issues in this case. There is a very substantial volume of information about ECL’s finances, and also records of the names of customers and the work and value of orders in particular years. The remaining chronological files, labelled F20-F28 are, or appear to be, drawn from D1’s disclosure following the disclosure order made at the PTR. These files contain more than 2,000 pages and consist almost entirely of email communications between D1 and customers.
    7. The other files in the trial bundle comprise files containing some 200 pages of statements of case, disclosure lists, orders and witness evidence; a further file contains full transcripts of all interim and procedural hearings running to another 200 pages; and, a yet further file contains some 200 pages of inter partes correspondence.
    8. During the trial reference was made to something in the order of 200 to 250 pages from the 8,000 in the chronological files and approximately a further 200 pages from the other files, being predominantly the statements of case and witness statements.
    9. I do not suggest that the trial bundle could or should have been limited to 450 pages. However, when pre-reading, throughout the trial, and when preparing this judgment, I have been at a loss to understand the thinking behind this trial bundle. During submissions Mr Reed, Cs’ counsel, referred several times to an extensive “de-duping” exercise by which many repeat documents were weeded out and excluded from the trial bundle. Inevitably that exercise was not infallible and doubtless it was costly. However, the real point is that it suggests a thinning down from everything approach whereas what was needed was a building up from nothing approach.
    10. One point that emerges very clearly from a scan of the index to and the financial documents in the chronological bundle is that scale of business operations achievable by D1 simply could not have made or make any significant use in the bespoke and made to measure market of a customer list comprising some 5,000 names and email contact details. Certainly, D1 sent an email to MW on 20.9.17 stating :

“I’m sure you can understand that it’s a bit of a concern to contact 5k of customers, plan to visit the US in November and then change our story a month later”.

However, I read that as D1 being equivocal about contacting a large number of customers on ECL’s lists. Moreover, D1’s business after leaving ECL was a start-up with a few loyal staff and very little capital backing. This reality was recognised by Mr Reed in his closing submissions when he characterised the 5,000 names on ECL’s lists as “a rainy-day pot as and when the funding comes along”. It would have been a relatively simple disclosure exercise to establish that D1 never had funding let alone sight of a pot at the end of a rainbow. It is also abundantly clear that D1 regards himself as having suffered much more than badly burnt fingers as a result of dealing with commercial funders to expand his business; the relevance of this is as to the likelihood of D1 even considering seeking such funding for his new business. Returning for a moment to the case management conference, adopting a reality check approach was a course the Deputy Master tried to encourage Cs to take by suggesting disclosure focussed on D1’s business records.
  1. D1 characterised this litigation as oppressive. I regard the scale of this litigation as completely out of proportion. I do not regard this to be the wisdom of hindsight. C1, through its principal witness, TE, and others connected to Cs, had dealt with D1 for over two years and, as business financiers, C1 and TE will have been no novices at assessing the financial standing of businesses in which C1 takes an interest. C1 may fairly be assumed to have paid attention to ECL’s accounts and affairs and TE was a client as well as a partner in ECL’s commercial funder. ECL’s level of operations must have been readily apparent from ECL’s annual ‘Income by Contact’ schedules, which may reflect cash flow rather than sales[2]; one example in the trial bundle, for the year to 30.9.16, details funds from C1 totalling £393K and income from customers – fewer that 100 – and all other sources, including VAT refunds, totalling £347K. At the material times, bespoke suits cost more than £2K each and made to measure suits more than £500 but less than £1K each. It must have been obvious that the genuine customer base was to be measured in the low hundreds of people, not thousands.
  2. The content of the previous 10 paragraphs is relevant to costs, which are yet to be considered, but it is also relevant to a judgment on the trial. As already noted, no costs budget was considered or approved by the court. Cs’ revised costs budget for the case through to conclusion of the liability trial prepared shortly before the PTR totalled more than £600K before VAT (if applicable). That is a very substantial sum to expend on a straightforward claim in which the claim form estimates likely entitlement to recovery at £50K to £100K.