COURT TAKES UNUSUAL “GRADATED” APPROACH AND DEFERS APPLICATION FOR RELIEF FROM SANCTIONS FOR LATE SERVICE OF WITNESS STATEMENTS – & IT COULD COST THEM $58 MILLION (I SUPPOSE THAT EVERY LITTLE HELPS…)
In Manning & Napier Fund, Inc & Anor v Tesco Plc  EWHC 2106 (Ch) Mr Justice Hildyard took the unusual step of deferring the claimants’ application for relief from sanctions in serving witness statements late.
“Much or all of this is the consequence of the MLB Claimants’ mistaken assumption, compounded by a failure to acknowledge and deal with its consequences head-on and immediately”
The claimants bring an action against Tesco alleging that misstatements made by Tesco led to their purchase of its shares and that they have suffered losses as a result. The trial was initially listed for June 2020 but deferred until October 2020. In July 2020 the claimants served new witness statements dealing with a damages claim based on the argument that their money would have been invested elsewhere.
THE CLAIMANTS’ STANCE
The new witness statements were served outside the time allowed for the exchange of witness statements. Nevertheless the claimants’ initial arguments that they did not need relief from sanctions.
“Initially, and indeed until 22 July 2020, the MLB Claimants’ position was that they did not require relief from sanctions in relation to the supplemental evidence: all they required was permission to rely on evidence out of time. “
THE LATE SERVICE OF EVIDENCE OF LOSSES
With $58 million at stake one might expect the claimants to be quite keen and focused in relation to service of evidence on these issues. However they were not. Evidence on this head of damages was served out of time.
This second application relates to a claim that will be established only if the MLB Claimants establish Tesco’s primary liability. This claim, which was in substance pleaded from the beginning, is based on an allegation that but for the alleged misstatements, the MLB Claimants would have made alternative investments with the funds which they used to buy Tesco shares (the “Lost Profits Claim”). The MLB Claimants seek to measure the Lost Profits Claim according to the average rate of return for each of the Claimants. So calculated, it is a substantial claim in the amount of some $58 million. It is the fact that the Lost Profits Claim depends on a prior finding of liability and is, in a sense, part of the calibration of overall loss which may have given rise to the misunderstanding that has led to this application (as explained below). However, although issues of quantification may also arise, the Lost Profits Claim gives rise to prior questions of reliance and causation.
Notwithstanding that the Lost Profits Claim has always been part of the MLB Claimants’ case, until late on 20 July 2020, no witness evidence had been served in support of it and there had (and has) been no disclosure in relation to this part of the case either. As elaborated below, the MLB Claimants have sought to explain this as the consequence of the fact that they mistakenly considered that all issues relating to the Lost Profit Claim were to be determined not at the first (main) Trial (Trial 1) but at the second (quantum) trial (Trial 2). They have explained that they assumed that Tesco shared that understanding; and that they only sought to file evidence for Trial 1 when Tesco made clear that it considered that the orders previously made clearly required all aspects of such a claim except its mathematical calculation to be dealt with at Trial 1.
Having belatedly appreciated that the issues of reliance and causation relating to the Lost Profit Claim were (and Tesco expected them to be) matters for Trial 1, under cover of a letter dated 20 July 2020, the MLB Claimants provided to Tesco revised supplemental statements from Mr Donlon and Mr Andreach (both of whom are existing witnesses), which now address the Lost Profits Claim.
The difficulty for the MLB Claimants is that this supplemental evidence is well out of time, and that though it is accepted that there would be disclosure to make, none has been given. Accordingly, if they are to rely on this supplemental evidence, they must not only obtain permission to do so, but also satisfy the requirements for the grant of relief from sanctions as a precursor. The latter is a considerable hurdle to surmount so late in the day.
THE RELEVANCE OF THE DENTON CRITERIA
Somewhat “grudgingly” the claimants accepted that the court had to consider the Denton criteria when seeking permission to rely on witness statements served late.
Thus, prior to the hearing, the MLB Claimants’ acceptance of the need to comply with the criteria for relief from sanctions was rather hesitant, even grudging. However, at the hearing itself, when I questioned him, Mr de Verneuil Smith QC accepted “in broad terms” that his clients did need relief from sanctions as a precondition of permission to rely on the evidence; but he refined this later to say that he accepted (having regard to R (Hysaj) v Secretary of State for the Home Department  1 WLR 2472 and Canning v Network Rail  EWHC 2104 (QB)) that this issue “is governed by principles equivalent to those of relief from sanctions and that that is the approach you should adopt.”
Principles as to the grant of relief from sanctions
There was in consequence no dispute as to the principles to be applied: they are authoritatively explained by the Court of Appeal in Denton v TH White Limited  1 WLR 3926, which specified a three-stage test in addition to the requirement that any application for relief from sanctions must be supported by evidence and made promptly.
(1) Was the failure to adduce evidence on this topic serious and significant?
(2) Was there a good reason for the failure to adduce such evidence?
(3) In all the circumstances, should the MLB Claimants be granted relief from sanctions (having regard to the specific factors identified in CPR 3.9)? See Denton v. TH White Limited  1 WLR 3926, §24.
THE JUDGE’S DECISION ON THIS ISSUE
The judge deferred a decision on the relief from sanctions issue to allow further disclosure to take place so an assessment could take place of the impact on the defendant and on the likely trial.
I have not found the balance easy. My attempts to find a Goldilocks solution have prompted the crafting of proposals and counter-proposals which suit their proponents but do not, at least without revision, provide a resolution of the issue of prejudice. Further, there is force in, and weight to be given to, Tesco’s objection that any substantial exercise will inevitably distract them from trial preparation.
Notwithstanding my reluctance to make an order which may deprive an otherwise successful claimant of full recovery, I have concluded that the MLB Claimants’ application should be refused unless and until I am satisfied that (a) the MLB Claimants can and do provide sufficient disclosure in a digestible form by no later than 14 August 2020, (b) the resulting extra work for Tesco in processing the disclosure is fairly and proportionately manageable and (c) the disclosure does not result in a justified need for expert evidence.
Accordingly, I propose to order in the first instance that, assuming the MLB Claimants continue to press for the admission of the supplemental evidence having regard to the feasibility and costs of the exercise, the MLB Claimants provide by 14 August 2020 disclosure in accordance with their proposals but amended (and thus extended) as follows:
(1) The Relevant Period shall run from the earlier date of 5 October 2009, as Mr Sharp himself had envisaged in his sixth witness statement on behalf of the MLB Claimants;
(2) If, as Tesco understands, the cash position of the funds was monitored weekly, weekly account statements should be provided: if monitoring was monthly, monthly statements will suffice, subject to (3) below;
(3) If there are account statements for the 11 specified dates on which Tesco’s weighting was changed and those were considered by any of the relevant groups or teams they too should be provided;
(4) Paragraph 3(4) should extend to both requests for instructions and the instructions actually given for the reasons identified by Tesco;
(5) The key words should be extended as proposed by Tesco and set out in Appendix 1 and these should be applied to the custodians who are members of any team or group responsible on behalf of the MLB Claimants for considering investment proposals for the investment or retention of cash (which shall be confirmed by a witness statement expressly stating each team, their constitution and their roles, to be provided by the MLB Claimants to Tesco within 7 days);
(6) Likewise, the minutes of any team responsible on behalf of the MLB Claimants for considering investment proposals for the investment or retention of cash should be disclosed, and the amendments to the MLB Claimants’ proposal proposed by Tesco to paragraph 4(2) shall be adopted;
(7) I do not require the additional key word searches proposed by Tesco in paragraphs 4(4) and (5) of their amended draft;
(8) As to the matters proposed to assist Tesco in the task of reviewing such disclosure, I consider that:
(a) The MLB Claimants must first have reviewed such documents for relevance and must only disclose documents which fall within the categories identified in this order and which are relevant to the issues in dispute.
(b) The MLB Claimants must provide unredacted copies of documents previously disclosed in redacted form by way of replacement versions, not as new versions of the documents. Reproduced versions should maintain their original Bates numbering.
(c) The MLB Claimants must disclose documents in full families with placeholders for documents that MLB consider to be irrelevant.
(d) The documents must be disclosed with full metadata.
(e) It would be preferable if the MLB Claimants organise the disclosure so as to show the paragraph of this order under which they have been disclosed.
(f) It would also be preferable if the MLB Claimants can deduplicate the disclosure as against documents already disclosed in the proceedings.
(g) Neither (e) or (f) was discussed at the hearing; and if either is not possible within the time-scale, the MLB Claimants must explain why that is so, and I will give formal directions.
Once disclosure is provided, Tesco must have a limited time (I have in mind 14 days) to determine and set out in a witness statement (a) whether they have any further objections or require further disclosure and (b) whether they consider that expert evidence would be necessitated. The MLB Claimants may respond within 7 days. The MLB Claimants will no doubt bear in mind that any deficiencies in disclosure will affect the reliability of their supplemental evidence; and Tesco will no doubt have that in mind also.
After disclosure and these exchanges, the matter must then be restored to me. I make no order for relief from sanctions until then. I propose finally to determine the matter according to whether after the exercise is achieved I consider that the disclosure is sufficient to enable Tesco to test the Loss of Profits Claim so that it may be determined justly, and that further expert evidence is not necessary.
I appreciate that this cautious, incremental approach is burdensome. It is also burdensome for the court. It is regrettable: but it is the consequence of my view that although I do not regard the MLB Claimants’ error and subsequent conduct as entirely disqualifying them, and although in my view, the task of processing well-ordered disclosure on what is in the end a fairly discrete part of the case has been rather exaggerated by Tesco and I consider that I can fairly expect Tesco and its impressive array of lawyers to deal with limited dislocation, I must not in all the circumstances I have described admit supplemental evidence if thereby material prejudice to Tesco in testing it will be caused, or if it becomes clear then that it would necessitate expert evidence which would dislocate the trial timetable.
Much or all of this is the consequence of the MLB Claimants’ mistaken assumption, compounded by a failure to acknowledge and deal with its consequences head-on and immediately. It seems to me to be likely that the MLB Claimants will have to pay the costs, though I defer adjudication of costs to be dealt with at the hearing which I have indicated will be required, or on paper if the matter is resolved between the parties without the need for one.