England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM WINCHESTER COUNTY COURT
(Mr Recorder Dixon)

		Royal Courts of Justice Strand London WC2 Monday 12 November 2001

Monday 12 November 2001

1. LORD JUSTICE MAY: This is a renewed application for permission to appeal on behalf of a claimant against the dismissal of its claim against the first and second defendants, Mr Millard and Mr Taylor, by Mr Recorder Dixon in the Winchester County Court. This was a decision after a five-day trial, or thereabouts. The order was made on 19 July 2001. I refused permission on paper, giving short written reasons, and this is Mr Beglan's renewal of that application.
2. The factual story is really quite complicated, and this is a necessarily very simplified version. I have, however, as well as reading the other papers in the case, read the judgment now on two separate occasions and the simplification is just necessary for the purpose of this judgment.
3. The claimant is a small company whose proprietors are Mr and Mrs Holden. The company is concerned with the design, manufacture and supply of specialist paper handling equipment for the bulk mailing industry. The first defendant and the second defendant, Mr Millard and Mr Taylor, were, until the unhappy events which gave rise to these proceedings, senior employees of the company. Mr Millard was the general manager, Mr Taylor was the workshop manager. The claim against a third defendant, Mr Bayliss, was compromised at some stage and he does not enter very largely into the story. The essence of the claim was that all three defendants conspired to leave their employment to set up business together in competition with the claimant. The eventual claim depended on the content of conversations in Mr Millard's office which were covertly recorded between 27 October and 15 November 1999. These conversations were transcribed. The claimant said that they evidenced a conspiracy or, at any rate, breaches of contract by these two defendants.
4. On 15 November 1999 the claimant applied for and was granted a search order of the defendants' homes, expecting to find there a large amount of the claimant's physical and intellectual property and know-how. The searches revealed some company property but not as much as was expected. On 16 November the defendants were suspended and on 30 November they were told that there would be disciplinary interviews. Solicitors were involved. There was correspondence about supplying the tape recordings. The interviews were to have been on 20th December 1999 but Mr Millard resigned on 17 December. Mr Taylor's interview was postponed to 7 January but he resigned on that day. After they resigned they both went to work for a company called Pressure Seals Systems Ltd. That company makes pressure seals equipment for the bulk sealing of stationery. It was managed by a Mr Baldwin, who had previously been a business partner of Mr Holden but they had parted company in 1992.
5. The claimant alleged causes of action in conversion, conspiracy and breach of contract. The damages claimed were quantified at £26,740.85, a distressingly small amount for the litigation and the costs which it had generated. In a skeleton argument Mr Beglan, on behalf of the claimant, also raised an allegation of deceit which the recorder gave permission to add by amendment. The claim for deceit was on the unpromising basis that the defendants never intended to attend the disciplinary hearing and dishonestly prolonged their employment, receiving their salary in the meantime. The recorder dismissed this claim on the facts and there is no attempt to revive it on appeal.
6. The claimant's counsel also wanted to add a claim for exemplary damages, said by the recorder to have been quantified at £10,000, against Mr Millard; and for inconvenience, which was quantified at £2,500. The recorder refused permission to add the claim for exemplary damages against Mr Millard but Mr Beglan tells me (and this is borne out by the terms of the amendment) that he gave permission for such a claim to be added in relation to Mr Taylor in circumstances that I shall briefly come to.
7. There are substantial passages in the recorder's long and careful judgment in which he describes the company, its work and Mr Millard's and Mr Taylor's positions in it. They were both valued employees who had become part of the senior management. The reason why the secret tape recordings were made was that Mr Holden had become suspicious of Mr Millard when and after they were both at a trade exhibition in Chicago in September 1999. When he returned, Mr Holden reckoned that something was amiss with the company. The recorder again carefully considered why and concluded, among other things, that all was not entirely well before September 1999. One incident which the recorder held to have been important was that in Chicago Mr Holden had been given by a customer a business card of Mr Millard's giving the name "Pentus Systems" with Mr Millard's home address. Mr Holden was suspicious but unfortunately, as the recorder thought, did not confront Mr Millard about this and ask for an explanation. Instead he decided to bug Mr Millard's office. By 15 November, Mr Holden said, he was convinced that there was a conspiracy to take property of the company.
8. In the litigation the parties agreed that the tape recordings were crucial. The recorder considered the important parts in detail. The claimant said the tape recordings evidenced a conspiracy. The defendants said that they did not, and in so far as there were suggestions that the defendants might leave, those suggestions went no further than preliminary possibilities for a pipe dream. Mr Millard referred to it as "messing about" or "hypothetical chit-chat". The recorder said that at the conclusion of Mr Millard's evidence he was not wholly convinced by Mr Millard's explanation of the conversations. He noted that it was Mr Taylor who most often initiated talk of leaving.
9. The case, however, took a different complexion when Mr Taylor for the first time in cross-examination admitted that he was encouraging Mr Millard to leave not, as was the claimant's case, so that he might leave with him but because he himself wanted Mr Millard's job. The tape conversations were, according to Mr Taylor, an elaborate charade of which he had told no one until his cross-examination. Notwithstanding this superficially unmeritorious position of Mr Taylor, the recorder, having carefully considered his evidence in the light of the rest of the evidence, found as a fact that Mr Taylor's true intentions were indeed to facilitate the departure of Mr Millard so that he could put himself into a position to take over Mr Millard's job as general manager. That short and bald account I am sure sounds surprising, but the recorder gave extended, and to my mind persuasive, reasons for reaching the conclusion which he did, in particular in paragraph 60 of his judgment.
10. The recorder's conclusion then was that there was no sufficient agreement between Mr Millard and Mr Taylor to support the alleged conspiracy because, whatever Mr Millard may have been doing, Mr Taylor was not in truth acting in agreement with him. He then went on to hold that, even if he were wrong in his assessment of Mr Taylor's evidence, he would still not have found there was ever a concluded agreement between Mr Millard and Mr Taylor. This was essentially a factual assessment of the contents of the tapes in the light of the rest of the evidence. Accordingly the conspiracy claim failed, and Mr Beglan tells me this morning that he does not seek to re-open that on this appeal.
11. The conversion claim also failed. There was a memorandum of 15 May 1999 saying that it was company policy that employees should not take company property or work home. The search pursuant to the search order had revealed that these defendants had taken some property home, although not as much as Mr Holden had suspected. The recorder was satisfied that Mr Millard and Mr Taylor turned a blind eye to the May 1999 memorandum, but he was not satisfied that they intended to deprive the company of the property, nor to use it against the interests of the company. So the conversion claim failed and Mr Beglan does not seek to resurrect it in the proposed appeal.
12. As to breach of contract, the recorder was not satisfied that Mr Millard was laying firm plans to leave the company. The tape recordings did not so indicate. He did not accept that Mr Taylor harboured a serious intention to leave the company, nor did he think that the discussions disclosed actionable disloyalty. As to the Pentus Systems business card, Mr Millard admitted that he had built himself computers in his spare time. There was a dispute as to the extent to which Mr Holden knew about this. The recorder held that what Mr Millard did did not seriously interfere with his obligations to the company.
13. As to Mr Taylor, he concluded that on his own evidence he was in breach of his duty of fidelity in encouraging Mr Millard to leave, as to which the recorder said this at paragraph 86 of his judgment:

"That leaves whether Mr Taylor was in breach of his duty of fidelity by encouraging Mr Millard to leave and set up in competition. Regarded objectively, his conduct, and his admission, was a plainly disloyal act. That he did not consider it to be and did not intend it to be is, in my view, beside the point. Despite initial doubts, however, I am not persuaded that the Claimants get home on the issue. That is because, however deviously Mr Taylor may have behaved, what he did was not in any way effective. Even if I am wrong about that I would have no hesitation in finding that his breach of contract did not cause any loss to the Claimants. The Claimants have clung tenaciously to their primary case that there was a conspiracy between the Defendants from the moment Mr Holden heard the tapes and they have maintained it right through the trial, even beyond Mr Taylor's evidence."

14. There is a further sentence in that paragraph to which Mr Beglan has referred me, but he concedes that the main thrust of the paragraph is that part of it which I have just read.
15. The recorder summarised his assessment of this strange case at paragraph 88 of his judgment in these terms:

"At the heart of this case is an unhappy lack of communication between all those involved. In my judgment, Mr Millard buried his dissatisfaction when he could have talked to Mr Holden. Mr Taylor certainly acted stupidly and according to his own secret strategy. Mr Holden was not fully sensitive to the dissatisfaction amongst his senior staff and overreacted to the discovery of the 'Pentus Systems' card in Chicago. Once he formed the suspicion that Mr Millard was acting disloyally he interpreted everything he subsequently heard or saw in that light. Whilst he was justifiably suspicious having heard the tape recordings I do not think that he could seriously countenance any explanation other than one which pointed to guilt. I think that he convinced himself that there was a serious rebellion amongst his most valuable employees and, being the decisive man that he is, was determined to set out to substantiate it rather than to investigate whether there really was a problem of the magnitude that he led himself to believe. I am quite sure that once he sets his sights on that target he became unstoppable and the Defendants ultimately gave in to the pressure and resigned. Whether Mr Holden would have stopped had Mr Taylor told him what he told the court is speculative, however, I do not believe that Mr Holden would easily have accepted Mr Taylor's explanation."

16. Whilst that is a summary at the end of the judgment, it seems to me that it contains, in summary form, the recorder's decisions of fact as to causation in relation to why these two employees in the end left.
17. So the case failed. A decision on damages did not arise, but the judge said this at paragraph 90:

"In the light of my decision the question of damages does not arise. However, had I found any part of the Claimants' case proved I would not have found that they had established any loss. At the conclusion of the trial the Claimants abandoned item 2 in the Schedule of loss. That left as items of damages -

(1)fees paid to inquiry agents for investigation of the Defendants' conduct. I would not have been satisfied that this expense was caused by the Defendants' conduct. It resulted from the suspicions of Mr Holden and was incurred in discovering whether there was a breach of contract not as a result of any breach.

(2)fees paid to Genisys Technical Services for removing inappropriate material from Mr Millard's computer.

I would not have found that this loss resulted from the Defendants' conduct. This would have been a necessary expense in any event on the departure of Mr Millard.

(3)The lost Economailer project.

I heard extensive evidence about this. I would not have been satisfied that this project was lost as a result of the Defendants' conduct. I accept, as was submitted by Mr Beglan, that the Claimants only have to show that their conduct was a cause, rather than the sole cause of the loss, but I would have found that the loss of the project was due to delays by Steve Puddick of SJP Draughting Services rather than to the actions of the Defendants. Even if I had considered that the Defendants were partly to blame there was no evidence of an actual lost contract for the Economailer machine and the extrapolated figures for lost profit were, in my view, too speculative.

(4)Recovery of lost wages to the Defendants.

For the reasons given in my judgment I do not consider, even if the Defendants had acted as the Claimants contended, that they would have been entitled to recover salary already paid to the Defendants. The Defendants had a contractual right to a disciplinary hearing even where the Claimants had grounds for dismissal on the grounds of gross misconduct and therefore the contracts could not be deemed to have been terminated until the hearing had taken place."

18. The grounds of the proposed appeal, as summarised by Mr Beglan in his written skeleton argument and elaborated before me this morning are, firstly, that the recorder should have found that Mr Taylor was in breach of contract in encouraging Mr Millard to leave. I wrote when I refused permission on paper that I accepted that this was reasonably arguable for the purpose of my decision, but there was the finding that this caused no loss. Secondly, he submits that the recorder's reasoning in paragraph 86 was inadequate or flawed. I am not persuaded that it was. Mr Taylor did not succeed in persuading Mr Millard to leave. He left because Mr Holden was persuaded that he was being disloyal and Mr Holden took steps whose consequence was that relations broke down between them so that Mr Millard resigned - essentially that which the recorder set out in paragraph 88 of the judgment. The recorder was in any event entitled to find that no loss was in fact caused. Thirdly, he submits that the recorder failed to draw appropriate inferences from the defendants' failure to produce copies of e-mails which they conceded had existed and which they agree concerned the formation of a new enterprise; alternatively, the recorder failed to give adequate reasons for not drawing adverse inferences. I am quite unpersuaded that this goes any way to undermine the recorder's judgment, which I have now considered in full on two separate occasions. It was a very detailed and careful judgment, and plainly shows that the recorder was taking account of all the matters put before him. Judges are not required to plod through every single matter that the parties choose to rely on. I do not consider there is any real prospect of the defendants persuading the full court that the recorder's fact-finding process was in this respect flawed.
19. Fourthly, and this is perhaps the main burden of Mr Beglan's submissions today, he says that the recorder's tests for breach of contract and conspiracy - but he concentrates today on breach of contract - were set too high. On the facts he should have found both proved. It was not necessary for the claimant to establish a firm concluded agreement in all its manifestations. Mr Beglan submits that, even on accepted facts indicating, from the tape recordings, that if they were to leave, they would have to do so by the end of 1999 in order to establish a business by about March of 2000, the recorder should have made findings that there was a breach of contract. I think that Mr Beglan makes some headway here but, in the end, it was in my judgment a matter of fact and degree. The recorder heard all the evidence and considered the tapes in detail and I think he was entitled to reach the essentially factual conclusion which he did. In any event, with regard to conspiracy, which Mr Beglan does not pursue, on Mr Taylor's strange account, which the recorder accepted, there was no true agreement between Mr Millard and Mr Taylor. There is also the trouble that, as the recorder found, there was no loss caused by these matters. As I indicated to Mr Beglan (and I think he broadly accepted this) the factual substratum for the conspiracy and the factual substratum for the breach of contract were essentially the same.
20. Fifthly, Mr Beglan attacks the recorder's contingent findings about damages. He says that if the case was reheard the claim for exemplary damages would need to be considered. I wrote, when I refused permission on paper, that I did not consider that there was any real prospect of the court awarding exemplary damages in the absence of special damages in this case. I maintain that view. This is not, in my view, the sort of case where a court is really likely at all to award exemplary damages because, in reality, it was an economic contest.
21. As to the claim for the loss of the Economailer project, Mr Beglan says that the recorder failed to consider this adequately and failed to give adequate reasons for rejecting it or to consider the loss of a chance. He says that this is a point of law. In the circumstances that the claim failed on liability the recorder was, I think, entitled to express his conclusions on damages briefly. I do not accept that in the circumstances of this case this was a defective judgment on damages. The recorder found that this claim failed on the facts, on the question of causation. The quality of the rest of his judgment convinces me that this was a factual finding capable of the same persuasive reasoning as that to be found in the rest of the judgment.
22. As to the fees paid to Genisys, Mr Beglan writes that these were caused by Mr Millard's departure which was in breach of contract. On the recorder's findings, even if Mr Millard was in breach of contract his departure was not caused by that breach. Mr Beglan says that the fees paid to the inquiry agent would have been recoverable on a finding that a breach predated the installation of the recording equipment. Perhaps; but the recorder found that there was no such breach. He was in my view entitled to do so. Finally, Mr Beglan seeks permission to appeal parts of the recorder's costs order. The recorder found that Mr Holden was justifiably suspicious and should, it is submitted, have awarded the claimant the costs of the search order. But the basis for the search order was not on the recorder's finding made out. Mr Beglan also says that the recorder should have made a costs order more favourable to the claimant against Mr Taylor than he did and in particular he submits that he should have given the claimant an indemnity against the costs which he accepts in the result were properly awarded against the claimant in favour of Mr Millard. Mr Taylor, he submits, until he was cross-examined conducted his case on a deliberately misleading basis. The order made was that Mr Millard should get his costs and that there should be no order in relation to Mr Taylor.
23. I have some general sympathy with this because it does appear that Mr Taylor conducted his case in a very strange way and indeed the outcome was, surprisingly perhaps, factually in his favour. But the recorder also found that the claimant persisted in its conspiracy case even after Mr Taylor changed his position. There was a proper basis for the exercise of discretion in that although Mr Taylor won, he was not awarded his own costs and I do not think that there is any real prospect of persuading the full court to make a different costs order.
24. In summary, Mr Beglan has made points about liability and I grant there is something to say about them. He has made submissions about causation which I do not find at all persuasive in the light of the recorder's findings of fact. He has made submissions about the contingent dismissal of the claim for damages which I do not find persuasive and it seems to me that the proposed appeal, whilst there is something to say on some of the points, has such an accumulation of serious hurdles to overcome that it has no real prospect of success in the result. Accordingly, I refuse permission to appeal.
ORDER: Application refused