JUDGES REFUSES TO GRANT RELIEF FROM SANCTIONS FOR DEFENDANTS WHO HAD “BURIED THEIR HEADS IN THE SAND”

In Vitrition UK Ltd v Caine & Ors [2022] EWHC 51 (Comm) HHJ Davis-White QC, sitting as a judge of the High Court, refused the defendants application for relief from sanctions following their failure to comply with an unless order in relation to disclosure. Consequently judgment was entered for the claimant.  The judgment has some important observations on the nature, scope and duty of disclosure.

“… there is no explanation as to why the Defendants took the course that they did of leaving things to the last minute and relying on a part-time litigation agent and ad hoc input from Counsel.”

THE CASE

The judge was considering an application for relief from sanctions made by the defendants.  Disclosure orders had been made in the course of the litigation. Following failures by the defendants the court made an order that the defendants give disclosure by the 27th November 2020 or the action would be struck out.

The judge found that the defendants had failed to comply and considered whether relief from sanctions should be granted.

THE JUDGMENT ON RELIEF FROM SANCTIONS

The judge refused the defendants application for  relief from sanctions.

The Defendants: breach by each, relief for each?

1. 1. Technically the position of each Defendant should be considered separately. However, the Defendants have all put forward a case where they stand or fall together. Further, it is clear from the evidence that disclosure was left to the First Defendant, at least up and until 27 November 2020. No submissions were made trying to distinguish between different Defendants, either in terms of breaches of my order or in terms of relief from sanctions. Accordingly, I consider the Defendants as a group and disclosure by them and relief from sanctions against them on a group basis rather than on an individual basis.

1. 1. I also note what was said by Blackburne J in Arrow Trading v Edwardian Group Limited [2005] 1 BCLC 696 which has resonance both so far as concerns disclosure (adapted of course to the current Practice Direction) and to the circumstances of the evidence before me put forward by Mr Robinson:

“[43] The two lists and disclosure statements to which I have referred fall short of what is required for each of the four reasons set out in Mr Lightman’s skeleton submissions at para 30, namely, (1) none of the parties giving disclosure (other than Jasminder Singh) has deposed that he or she is aware of and understands the duty of disclosure; (2) none of them (other than Jasminder Singh) appears personally to have carried out that duty; (3) it is not clear what, if any, search any of the shareholder Respondents has made to locate documents which are to be disclosed; and (4) it is not clear which documents have been (and have not been) disclosed by each of the shareholder Respondents.

[45] I do not agree with Miss Nicholson that the non-compliance is a mere technicality in this case…The purpose of the rule is to bring home to each party his or her individual responsibility for giving standard disclosure. Except to the extent permitted by the rules, it requires the party himself to make the disclosure statement. This clearly has not happened. The Petitioners are entitled to complain that it is not. It is not a mere technicality. It follows, therefore, that this part of the Petitioners’ application succeeds.”

Relief from sanctions

1. 1. The principles to be applied derived from the Denton case (Denton v T H White [2014] EWCA Civ 906; [2014] 1 WLR 3296) were not disputed. Essentially the court has to consider three matters:

(1) Is the relevant breach serious and/or significant;

(2) Why did the relevant breach or default occur?

(3) If the breach was serious and/or significant and there is an inadequate reason for the default then the court must consider all the circumstances to decide whether or not relief should be granted or not. In so doing the court will give weight to the need for litigation to be conducted efficiently and at proportionate cost and the need to enforce compliance with rules practice directions and court orders.

1. 1. It seems to me that the three categories of the Denton test are not watertight: the reasons why the breach occurred may also be relevant to the seriousness of the breach. Similarly, the reasons why the breach occurred, if not sufficient of themselves to justify relief from sanctions, are part of the matrix that has to be considered when the court considers “all the circumstances”.

1. 1. Mr van Heck properly conceded that the breach in this case was serious and significant because of the “drip feed” (as it was put by Mr Budworth) of further document disclosure up to 16 February 2021. That conclusion is reinforced by my conclusions as to (a) the reasons why there was default and (b) the fact that I am not satisfied that full disclosure had been given by the Defendants even by the time of the hearings before me.

1. 1. I turn to the reasons for the breach. In his written closing dated 10 May 2021, Mr van Heck submitted that:

“The writer’s instructions are that the “drip-feeding” (as it is referred to by Mr Budworth) of that further disclosure was due to advice being given by Mr Robinson and the writer on an ongoing basis and due to further disclosable documents coming into Ds’ control.”

1. 1. As regards this, it is unsatisfactory that “instructions” rather than evidence have to be relied upon. However, I consider that there is adequate evidence before me that the reason that disclosure by the Defendants continued up to 16 February, was indeed because they had simply failed to engage and take obvious advice that they needed to. Another aspect of this led to the making of the unless order in the first place: which was the delay in instructing an expert to deal with the searches of the documents on the platform and those images not on the platform but which were retained by MD5. (I was told, somewhat ironically, that at the end of the day the searches on the documents retained by MD5 were carried out by MD5 and not by the Defendants’ proposed expert.) In short, the Defendants appear to have buried their heads in the sand.

1. 1. As regards to “further disclosable documents coming into the Defendants’ control”, I do not accept this. As regards Tracmil the position on the evidence remains contradictory. Either the Defendants did not have access to and control over documents held by Tracmil (which documents they have never clearly identified) or, as has been said on their behalf more recently, they did. However, even on the first hypothesis the Defendants have to accept that when they sought access it was granted. There is no reason why that could not have been sought earlier and indeed the location of the documents and any potential difficulties identified. As regards certain LinkedIn messages, the ability to restore deleted messages may have come to their attention late but there is no reason why the disclosure of the existence of such documents as a class should not have been made earlier even if the individual messages could not be produced. That is what the Practice Direction envisages.

1. 1. In a number of respects there is a suggestion that the blame for non-disclosure is that of Mr Robinson. For example, he claims that he did not realise until advised by Mr van Heck that since Beautycoll’s records had been within its control prior to its trademarks being acquired by Tracmil they should be included in the Defendants’ extended disclosure. As regards this I make the following points:

(1) Any initial belief does not forgive continued failure to give full disclosure after that belief has been exploded.

(2) Paragraph 11 of Mr Robinson’s second witness statement dated 31 |December simply reports that he held this belief and that the First Defendant had the same belief. He does not suggest that the First Defendant’s belief was as a result of anything said or advised by Mr Robinson: simply that their beliefs were found to be in alignment when the issue was (belatedly) raised. In short, the point only emerged when legal advice was belatedly sought.

(3) The stated beliefs (of both Mr Robinson and the First Defendant) are incredible. As regards Mr Robinson, his belief seems irrelevant but is extraordinary given his position as a consultant to a firm apparently offering litigation advisory services. The concept that disclosure covers documents formerly within a party’s possession or control is no new one and (as I set out below) is fully and clearly set out in the current Practice Direction. As regards the Defendants themselves, they never confirmed nor denied that competent disclosure advice was given to them by their original solicitors at the time of the handing up of devices or subsequently and it beggars belief to assume that no such advice was given.

(4) As I have said the Practice Direction makes clear that control is the key concept which includes both present and past possession, rights to possession and rights to inspect or take copies (see paragraph 1.1 and 1.4 (definitions of control and disclose) Appendix 1 to the Practice Direction and e.g. paragraphs 2.8, 3, 12.3 and the form of Disclosure Certificate itself).

(5) Even if I am wrong and the First Defendant did genuinely hold the belief attributed to him, that does not deal with the other Defendants (who, the evidence appears to show, left disclosure to the First Defendant, at least up until signing separate Disclosure Certificates) and such belief was quite simply unreasonable in the light of (4) above.

1. 1. As a generality, Mr van Heck’s submission was that the disclosure was “a mammoth exercise, undertaken by litigants in person, supported by a part-time litigation agent with ad hoc input from Direct Access Counsel”. I do not accept that the exercise was that mammoth: what was required, though broken down into different issues, was fairly clear and related to business apparently carried on by the Defendants while or after parting from employment/engagement by the Claimant. In any event, and going back to his overall point and as Mr van Heck properly conceded, for that reason alone the Defendants were at fault. I add that there is no explanation as to why the Defendants took the course that they did of leaving things to the last minute and relying on a part-time litigation agent and ad hoc input from Counsel.

1. 1. I do not accept that the disclosure order was “wide and general” such that this helps explain why the Defendants had difficulty in compliance: it contained carefully constructed issues which the Defendants had agreed and was determined at a hearing at which Mr van Heck represented the Defendants. There was no appeal and no attempt to apply to the court to vary, to determine searches or to seek guidance. I also reject the submission of Mr van Heck that the problem was in part a lack of any judicially directed searches or that the Claimant took a unilateral approach to the exercise or that anything the Claimant did either materially contributed to any difficulties in compliance with the court order by the Defendants or that it amounted to some form of unjustified unilateral approach.

1. 1. In short, in my judgment the failings were down to the Defendants themselves and are wholly inexcusable with no material mitigation.

1. 1. I therefore turn to all the circumstances.

1. 1. Apart from the overall history and the situation regarding the breaches and apparent continuing failure to give full disclosure, Mr Budworth submitted that the application for relief was made at a late stage and that that should weigh in the balance against the Defendants. I reject that submission. Once the Defendants (belatedly) started making further disclosure, apart from an ill-founded assertion that there was no need to seek relief from sanctions, the application for relief was mounted. There were problems about the availability of Mr Robinson (busy dealing with funerals and the sad death of a colleague) and Mr van Heck (in the course of getting married) and as a consequence LF indicated that they considered that the application should be launched by 16 December 2020. By the 18 December, Mr Robinson indicated that he was ready to issue the application (with witness statement) but then there was a delay until 31 December. During that period there was further disclosure and the Christmas holidays. Although the evidence is somewhat unsatisfactory about this delay, in the circumstances I do not consider that delay in issuing the application is a factor which has any weight in this case.

1. 1. Mr Budworth also invited me to take into account that the Defendants’ previous solicitors accepted (by letter dated 12 November 2018):

” In general terms it is admitted that Mr Tim Caine, Emma Caine and Jack Caine have been in breach of obligations that they owed to the Vitrition UK Limited. However, all will say that any loss to Vitrition UK Limited as a result of any such breach is nominal.

Insofar as it is alleged, if at all, Mrs Joanne Caine has not misused, disclosed and copied company know-how and confidential information for the use and benefit of Beautycoll and/or Sachetpak.

Insofar as it is alleged if at all Mr Daniel Clay has not misused, disclosed and copied company know-how and confidential information for the use and benefit of Beautycoll and/or Sachetpak.

Insofar as it is alleged, if at all, it is denied that Sachetpak as ever traded and as such has ever misused confidential information and/or company know-how belonging to Vitrition UK Limited.”

1. 1. I accept the limits on this admission, relied upon by Mr van Heck including its general terms, the time it was made (before service of the amended particulars of claim), the limit on the parties admitted to be in default and the denials of particular breaches, nevertheless it is a relevant factor that weighs in the balance as it appears to detract from or mitigate the prejudice of the sanctions taking effect.

1. 1. Mr van Heck relied heavily upon what he says were the difficulties faced by the Defendants and I have addressed those points.

1. 1. Mr van Heck’s main point however was that the Defendants’ disclosure was complete and that the Claimant’s disclosure was not. I have already said that I am satisfied that the Defendants’ disclosure was not complete.

1. 1. As regards the Claimant’s disclosure and the Defendants’ disclosure, my judgment is that the failings in question are of quite a different nature and magnitude. Disclosure by the Claimant after 27 November 2020 did not arise from any serious misunderstandings of the disclosure process, cavalier failure to address disclosure in a timely manner or failure to engage promptly and act appropriately when issues arose. This contrasts with the Defendants’ failings as to which the exact opposite applied.

1. 1. On the whole the Claimant’s extra disclosure arose in respect of disclosure issues that were on the periphery and were either straightforward points that were rectified by immediate production of (a) document(s) or were points that related to width of searches, as to which a sensible approach was suggested and if necessary guidance from the court could have been sought. On the other hand, the Defendants’ failings relate to wide tranches of obviously disclosable documents (most notably in relation to the trading of Beautycoll but also covering their personal positions) which were key areas of disclosure that had to be given.

1. 1. Finally, and most worryingly, I have held that the Defendants’ disclosure still remained incomplete on the state of the evidence before me and the Defendants put forward no proposals to deal with the same or any indication of when the matters could be dealt with.

1. 1. The different position regarding disclosure means that I do not consider that the disclosure sought against the Claimant has much weight in considering relief from the sanctions imposed against the Defendants.

1. 1. It was suggested that the trial date could have been retained if relief was granted. In my judgment that would not have been possible. The trial was due to take place in November 2021 over 15 days. There was a considerable amount of outstanding trial preparation as at June 2021 which hinged on disclosure. Indeed, trial proximity and the need for further pre-trial procedural steps was one of the reasons for the original unless order.

1. 1. I also take into account the past delays in this case by the Defendants which HH Judge Klein criticised and when he indicated that early applications should be made.

1. 1. I also take into account the manner in which there was a drip feed of disclosure and the state of and lack of clarity of the Defendants’ evidence and instructions as referred to me earlier.

1. 1. I have considered whether the sanction remains proportionate in the light of all the circumstances and have concluded that it does.

1. Weighing all relevant circumstances, my firm view is that this is a case where relief from sanctions should not be given and I dismiss the application for such relief. It seems to me that judgment on liability should follow, as the parties appeared to be agreed before me. My preference would be for an order to be agreed as far as possible. To the extent that the order is not capable of being agreed, there should be a short further hearing to deal with the order dealing with the immediate ramifications and effect of my judgment. If further ongoing directions are required about any inquiry as to loss or account of profits then that can be handled by a further CMC.