England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE HONOURABLE MRS JUSTICE WHIPPLE DBE
[2017] EWHC 383 (QB)

		Royal Courts of Justice Strand, London, WC2A 2LL
		12/07/2018

Lord Justice Longmore:

Introduction

1. This interlocutory appeal is said to raise the question whether successful claimants who have obtained a judgment on liability can "expand" their claim on an assessment of damages. That largely depends on whether the claim as expanded is a new claim or merely an additional way of putting the claim in respect of which judgment on liability has already been given.
2. The first defendant ("Brakes"), which is no longer part of the action since it has reached a settlement with the claimants, is a food and produce supplier to the retail trade. It has thousands of employees who enjoyed employment benefit packages and health insurance (compendiously "EBPs") arranged for Brakes by the claimants, pursuant to an exclusive contract between Brakes and the claimants, through the medium of the claimants' key contact, a Mr Mark Eaton, the fourth defendant. In 2011 Mr Eaton and a number of other employees of the claimants left the claimants' employment, formed the second and third defendant companies and sought to agree with Brakes that those companies rather than the claimants should provide EBPs for Brakes' employees. Negotiations with Brakes took place in early 2013 and a non-exclusive contract was signed on 5th April 2013 which (it was later agreed) would take effect as from January 2014 after the expiry of the contract between Brakes and the claimants.
3. On 21^st February 2014 the claimants began proceedings for misuse by the defendants of the claimants' confidential information; they claimed an injunction, damages and interim relief. The defendants say that these proceedings were by the end of the trial limited to a claim that the defendants had, by using the claimants' confidential information, enticed individual Brakes employees to switch their allegiance from the claimants to the second to fourth defendants (hereafter "the defendants") and the damages claim was thus similarly limited to a claim that the claimants had lost the right to provide benefits for individual identifiable employees. The claimants, however, say that their claim included a claim that, by using the confidential information, the defendants had caused the claimants to lose the exclusive contract they had with Brakes which would otherwise have continued and that they are entitled to the profit they would have made from the contract if it had indeed continued for another 10 years until 2024. I shall refer to these claims as "the narrow claim" and "the wide claim" respectively. Master Davison has held that the damages hearing should be confined to the narrow claim. His decision was set aside by Whipple J who held that the hearing could encompass a claim to damages in the form of the wide claim.

The Trial

4. On 7th April 2014, in response to the application for interim relief, the defendants gave undertakings not to use the claimants' confidential information, to return certain documents and delete all copies of them from their computers pending trial. It was recognised on all sides that a speedy trial would be in everyone's interest and a 3-4 day trial was fixed for 15^th July 2014 in the Queen's Bench Division. This proved a very tight timetable and it became clear during that trial that, despite the defendants' submissions to the contrary, the claimants were, for good reason, not ready for any inquiry as to damages. The good reason was largely that the defendants had allegedly not given proper disclosure of the steps taken to entice Brakes employees to switch their allegiance from the claimants to the defendants. His Honour Judge Curran QC sitting as a judge of the Queen's Bench Division of the High Court accordingly proceeded to determine liability only. On 24^th October he handed down a 237 paragraph judgment in favour of the claimants holding that the defendants had misused the claimants' confidential information and granting the claimants an injunction restraining the defendants from using that confidential information. With regard to damages he said this:-

"205. The claimants invite the court to adjourn the assessment of damages in the case. They point to the best evidence of actual damage which was only to be found in the late disclosure of the recordings in which Mr Wilson, in particular, made use of the List [a document provided by Brakes to the defendants in May 2013]. Counsel for the defendants submitted that given the limited numbers of policyholders who might conceivably have been involved, and whose loss to the claimant companies should be compensated by damages, to have further disclosure and a further hearing would be "totally disproportionate." If it were suggested that there was some form of wider dissemination of the List than was being suggested, he submitted that Mr. Pardoe had not been challenged on his evidence about its being disseminated any more widely than he had said in his evidence. Nor was there any other evidence to suggest that it was disseminated any more widely.

206. In my view the balance of convenience on this point favours the claimant companies. I have found that they have been the subject of unlawful and potentially injurious competition by the defendant companies. The extent of that competition in terms of actual damage is probably much less then they originally feared. However, they are entitled to have time to consider the evidence disclosed recently and to formulate their claim more precisely. It may very well be that when their re-considered claim is formulated, little dispute over quantum may result."

and

"237. In my view there is evidence that the claimant companies will to some degree have suffered loss. As I have said, I consider that such loss is probably smaller than they originally feared. For the reasons given by counsel, however, the evidence of the extent of such loss is neither clear nor complete, partly as the result of late disclosure of the audio recordings. With all respect to Mr Lee's submission that adequate evidence was given at the hearing on the issue of damages, I consider that the claimant companies are entitled to make further enquiry into the matter, and I decline to assess the quantum of damages at this stage."

5. HHJ Curran QC then made an order for the assessment of damages and an order that the defendants give further disclosure. In due course Master Eastman ordered Points of Claim for the purpose of the further hearing. After those were served, the claimants on 12^th July 2016 asked for disclosure in relation to (inter alia) the period before the defendants made their contract with Brakes on 5^th April 2013. That prompted the defendants to make an application to confine the assessment of damages hearing to the narrow claim and to exclude the wide claim.

The pleadings

6. The second, fourth and fifth grounds of the defendants' appeal assert that the wide claim is a "new claim on liability". Master Davison agreed with this assertion; Whipple J did not. It is therefore necessary to see what was alleged in the original Particulars of Claim. Those Re-Amended Particulars of Claim at the beginning of the trial asserted among many other things:-

1) Brakes served notice of termination of the (exclusive) contract between Brakes and the claimants with effect from 16^th December 2013 (para 11);

2) the amount of premiums payable by each of Brakes' employees and/or the deductions from pay made by Brakes in respect of such premiums attracted a duty of confidence (para 18);

3) Mrs Reader of Brakes on 27^th February 2013 sent to Mr Eaton of the defendants information about the contractual arrangements which existed between the claimants and Brakes (para 18A);

4) Mrs Reader on 29^th May 2013 in breach of Brakes' duty of confidence sent to Mr Eaton a list of Brakes employees with the amounts deducted from their pay in respect of premiums (para 19);

5) the commercial value of the information in the list included the amount of deduction each employee was paying (para 19B);

6) the defendants used the list to target Brakes' employees to seek to persuade them to change provider from the claimants to the defendants (para 20A);

7) the defendants obtained an unlawful "head start" in their attempts to solicit the business of the employees on the list (para 21C); and

8) "by reason of the matters aforesaid" the claimants suffered loss and damage and sought compensatory damages (para 22).

7. A Schedule of Loss was annexed to the Re-Amended Particulars of Claim. It stated that it was to be read with paragraphs 20A to 22 of the Re-Amended Particulars. It stated this in the second paragraph on the first page:

"It is the Claimant's primary case that but for the [Defendants'] breach of confidence in using the List provided by Brakes on 29 May 2013 in the manner set out in those paragraphs, the [Defendants] would have been unable to poach the business of those Brakes employees with the Claimant's EBPs, and certainly not to the extent that occurred".

8. The Schedule here thus described the claimants' claim as a claim for damages consequent on a poaching allegation. The primary claim was that the defendants would not have been able to poach the business of any Brakes employees who had policies with the claimants but for their possession of the list. The alternative claim was that the defendants would have been less successful in poaching such employees but for possession of the list.
9. The Schedule continued:-

"Since at least 1^st January 2014, the [Defendants have] been actively seeking to persuade Brakes employees with the Claimant's insurance policies to take out replacement [Defendants'] policies. On the Claimant's case, this competition was unlawful by reason of the [Defendants'] misuse of the Claimant's confidential information in the form of the list.

The Claimant's damages claim is for loss of profits arising from the loss of insurance premium income caused by the Brakes employees switching to [Defendants'] policies".

10. The Schedule went on to state that the claimant's annual premium income from Brakes employees was £193,000 and that the claimants would expect some attrition decreasing over time. But the claimants asserted that they had seen a much greater attrition rate, which "[they] can attribute only to the unlawful poaching of Brakes employees" by the defendants. The Schedule continued:

"The Claimant's loss is the profit it would have made on the premium income it has lost as a result of the Claimant's poaching of Brakes' employees".

11. The claim was then illustrated in a table of figures. The Schedule set out certain notes and assumptions which underpinned the figures. The first column set out the "Previous Position", which started with the figure of £193,000 for the year to January 2014 and then applied a percentage lapse rate (i.e. assumed attrition) for every year to 2024, to arrive at an overall projected income of £1,087,543, representing the total hypothetical income the claimants would have generated from the Brakes contract, assuming it had been renewed on 1 January 2014 and thereafter. The second column set out the "Current Position", which showed projected actual income for 2014-2018 from premiums paid by Brakes employees who remained with the claimants, in the total amount of £466,768 shown. That projected income ceased in 2018 due to the compromise reached between the claimants and Brakes. The difference was £526,924, which was the amount of the claim. Damages were therefore claimed for the drop in income, being the difference between hypothetical projected income but for termination of the Brakes contract and actual projected income in light of the termination of the Brakes contract.
12. There can be no doubt that the Schedule advanced a claim for damages on the basis that the claimants no longer had an exclusive contract with Brakes. Further, the Schedule asserted that yearly attrition in excess of historic expectations was attributable to the unlawful use of the claimants' confidential information. As Whipple J said, that was a generic claim based on generic evidence. It was not a claim which was limited to showing that any identified individual had been unlawfully induced to switch provider.
13. The measure of claimed losses, moreover, was the gap in income assuming that the Brakes contract had been renewed from 1st January 2014: this is what the table shows. That assumption may or may not be sound, but it was how the claimants put their case. It was, therefore, a claim predicated on the loss of the exclusive contract which the claimants had with Brakes. It is what I have above called "the wide claim".
14. Neither the wide claim nor the narrow claim was finally determined by HHJ Curran QC, but the findings of fact in his judgment go to both claims. It may fairly be said that the wide claim and the narrow claim were not clearly distinguished, but the wide claim was undoubtedly there.
15. When the claimants served their Points of Claim for the assessment of damages hearing it included this paragraph 35:-

"The claimants' primary case is that, if it were not for the use of the information comprised in the list, Gee 7 would not have entered into the Service Agreement, would not have provided EBPs to Brakes employees under the Services Agreement, or have contracted with any of the claimants' policyholders employed by Brakes. In short, the claimants would have continued to provide EBPs to Brakes employees on an exclusive basis as it had done under the Contract since 2008."

No doubt this clarified the claimants' case but it was a case that had been pleaded from the beginning. The Points of Claim attached as Appendix 1 an updated claim in the same form as that attached to the original pleading but now claiming a loss of £918,529.

The hearings below

16. Although Master Davison had earlier quoted "a small part of the schedule to the Re-Amended Particulars of Claim", he said (para 11) that the Points of Claim directed by Master Eastman and served on 29^th January 2016

"enlarged the damages claim to include not just the poaching or flipping of employees but also the switching of the Services Agreement from the claimant to the defendants."

He then said (para 16) that the claim as reformulated was "an impermissible departure from the terms of reference for the assessment". He went on to order that the damages hearing was to be confined to the misuse of the confidential information contained in the list provided by Brakes on 29^th May 2013.

17. Whipple J said that there were two separate misapprehensions by Master Davison. In the first place there was no "enlargement" of the damages claim; it had been there all the time. In the second place no terms of reference had been set for the assessment; if they had been, no dispute about what was properly within or outside the reference could have occurred.
18. She then held that, whether or not it was correct to call Master Davison's decision a case management decision, it could not stand and had to be set aside. She then proceeded to come to her own conclusion on the matter. For my own part, I would not regard a decision about the scope of a hearing as a case management decision of a kind which should attract a self-denying ordinance of an appellate court. Such a decision can have a major impact on the litigation as a whole, as in this very case in which the defendants are seeking to confine the claim to a claim for £18,529 rather than a claim (as originally put) for £526,924 or (as now put) for £918,529. But, as the judge said, even if it is a case management decision, a decision reached under two substantial misapprehensions has to be set aside. The first ground of the defendants' appeal is that the court should uphold the Master's decision as a case management decision, an appeal from which should only review (and not rehear) his decision. I cannot accept that since, once the Master's decision had to be set aside, Whipple J had to come to her own conclusion on the matter. I would therefore reject the first ground of appeal.
19. The remaining grounds of appeal attack the substance of Whipple J's judgment. This determined that the wide claim had been pleaded, that there was no limitation on the scope of the assessment of damages hearing, that the purpose of adjourning the damages hearing was to permit the claimants to reformulate their case and that it was not abusive to allow the claimants to do so since the defendants were not being vexed twice in relation to the wide claim but seeking not to be vexed at all. In answer to the submission that the claimants' case was not reasonably arguable because the list of employees was provided in May 2013 after the contract was made between Brakes and the defendants on 5^th April 2013 and there was therefore no causal connection between the provision of the list and the making of that contract, she pointed out that HHJ Curran QC had said (para 142) that the defendants and Brakes were party to a "continuing dialogue" which had been taking place before 5^th April 2013. She also emphasised that the Gee 7 contract was concluded as part of a "continuing dialogue" and in the expectation of receipt of the list of employees.

Submissions in this Court

20. Mr Temmink QC for the defendants made his submissions under four broad heads:-

1) the claimants' assertion that the defendants' misuse of confidential information had caused the claimants to lose their exclusive contract with Brakes was "entirely new";

2) if it was not "entirely new", it should have been (but was not) the subject of determination by HHJ Curran QC and it was too late for it to be determined now;

3) the claim was, in any event, wholly specious and was bound to fail; and

4) the judge was wrong to interfere with what was either a case management decision or a multi-factorial evaluation by the Master.

21. Mr Stafford QC for the claimants submitted:-

1) the wide claim had always been on the pleadings;

2) it was effectively determined by HHJ Curran's QC decision that the defendants had misused information confidential to the claimants;

3) neither side should be precluded from adducing evidence (if they wished to do so) on what was essentially an issue of causation and thus part of any adjudication on quantum but the findings of the judge would probably be sufficient; and

4) any argument that the wide claim would fail was a matter for the tribunal assessing damages.

New Claim?

22. I have already said that, in my view, the claim advanced in the Points of Claim ordered by Master Eastman is not a new claim in the sense of not having been pleaded in the original Particulars of Claim. It may be slightly misleading to categorise it as a claim for losing the Brakes contract since, as Mr Temmink pointed out, the contract between Brakes and the defendants was not an exclusive contract and the claimants could, if they wished, continue to canvass Brakes' employees and endeavour to persuade them to obtain EBPs through the claimants. What the claimants lost, by Brakes not renewing the claimants' contract, was the exclusivity which that contract conferred so that the claimants could no longer rely on Brakes to exclude other providers (such as the defendants) from canvassing their employees. But if the advantage of exclusivity enjoyed by the incumbent was removed by the defendants misusing the claimants' confidential information, that lost advantage is something which can be valued and there is no reason why a tribunal determining the damage to which the claimants are entitled should not conduct that valuation.
23. Mr Temmink submitted that the original pleading had put forward only two claims as set out in paragraphs 20A and 20B of the Particulars of Claim namely a claim that Mr Wilson had used the confidential list obtained in May 2013 to target Brake's employees (the narrow claim) and a claim for wholesale poaching by means of a wholesale transfer of employees EBPs to a company called Amlin. This latter claim was later abandoned leaving only the claim in paragraph 20A.
24. This submission, however, ignores the other paragraphs of the pleading which I have summarised in paragraph 6 above as well as the Schedule of Loss which makes it clear that the alleged misuse of the claimants' confidential information created a yearly loss of income diminishing each year by more than the usual attrition rate. Mr Temmink sought to argue that this way of putting the claim was abandoned together with the abandonment of the Amlin claim but there is no indication of any intention by the claimants to abandon their Schedule of Loss.
25. I am therefore satisfied that Master Davison did proceed under the misapprehension that the claimants were seeking to put forward a new claim and that his decision to confine the damages hearing to the loss caused by the misuse of the confidential information contained in the list provided by Brakes in May 2013 was reached as a result of that misapprehension.

Now too late to rely on the wide claim?

26. Mr Temmink submitted that the judge had made no findings in relation to the wide claim and, if it was permitted to go ahead, there would have to be a fresh liability inquiry which, on Henderson v Henderson (1843) 3 Hare 100, 67 ER 313 principles, was impermissible since at a liability hearing a party had to bring forward all matters relevant to liability which it wished to have decided.
27. Mr Stafford submitted that HHJ Curran QC had adjourned all questions of quantum because he accepted the claimants' submission that the extent of the defendants' use of the claimants' confidential information had not been sufficiently explored at the liability hearing, largely as a result of the late disclosure of audio recordings in the defendants' possession which recorded discussions with Brakes' employees about the kind of cover which they wanted and were prepared to pay for. He pointed out that HHJ Curran QC had made relevant findings in paras 138-147 of his judgment, particularly the finding that the sending of the May 2013 list was part of a "continuing dialogue" between Brakes and the defendants in the course of which information confidential to the claimants had been passed by Brakes to the defendants. This was part of the context in which HHJ Curran QC decided to adjourn all questions of quantum.
28. Mr Temmink riposted that the liability trial had been confined to issues arising from the May list and that, if the claimants were going to assert that information passed by Brakes to the defendants before and at the time when the defendants concluded their contract with Brakes had the quality of confidence it would be necessary to revisit the three requirements for liability set out by Megarry J in Coco v A. N. Clark (Engineers) Ltd [1969] RPC 41, 47. That was something which should have been done at the original liability hearing and it would be abusive for it to be done at the hearing on quantum.
29. In Johnson v Gore Wood & Co [2002] 2 AC 1, 31 Lord Bingham of Cornhill set out the correct approach to arguments based on Henderson v Henderson namely that it should be

"a broad, merits-based judgment which takes account of the public and private interests and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all circumstances, a party is misusing or abusing the process of the court in seeking to raise before it the issue which could have been raised before."

30. In the present case the issue of the loss of the advantage of having an exclusive contract was before HHJ Curran QC and he gave no indication that the assessment of damages was to be anything other than at large. In those circumstances a broad, merits-based approach led Whipple J to conclude that the wide claim should be part of the assessment of damages. I would not differ from that conclusion, which was, in my judgment, based in an evaluation of all the relevant factors in this somewhat intricate case.

Claim bound to fail?

31. Mr Temmink submitted that the wide claim was bound to fail because the loss of exclusivity suffered by the claimants occurred at the time when the defendants agreed with Brakes that the defendants could provide their employees with EBPs and Brakes served notice of termination of the claimants' exclusive contract. That was well before the defendants abused the claimants' confidence by their use of the May list.
32. On an application to determine the scope of a damages hearing, it would not normally be appropriate to assess the prospects of success of any particular submission unless the defendants have what one may term a "killer point". The point made is by no means a killer point in the light of HHJ Curran's QC holding that the proviso of the May list was part of a "continuing dialogue" between Brakes and the defendants in the course of which confidential information was being passed to the defendants. As Whipple J said (para 56(v)):-

"that argument, advanced with considerable energy before me, seems to miss the claimant's point that the Gee 7 contract was concluded as part of the "continuing dialogue" and in expectation of receipt of the List. This needs to be adjudicated."

Re-hearing or review of the Master's decision?

33. Mr Temmink submitted that Whipple J ought only to have reviewed Master Davison's decision and not conducted a re-hearing. This raises the question whether the Master was engaged in what can truly be called a case management exercise. I have already indicated my view that it was more than a case management exercise since the determination of the scope of a damage hearing goes to the heart of the claimants' case and their entitlement to damages. Whipple J was correct to hold that the Master had proceeded under the misapprehension that the claimants were advancing a new claim when they were not. In those circumstances she was right to set aside the Master's decision. Having done that, she had to come to her own conclusion on what 1 have already called a multi-factorial evaluation and make what Lord Bingham called a broad, merits-based judgment. That is exactly what she did and I see no reason to interfere with it.

Conclusion

34. I would therefore dismiss this appeal and uphold Whipple J's order of 15^th March 2017.

Lord Justice Peter Jackson:

35. I agree.

Lady Justice Asplin:

36. I also agree.

Case n^o.: A2/2017/0948

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

THE HON. MRS JUSTICE WHIPPLE DBE

Before the Right Hon. Lord Justice Longmore, the Right Hon. Lord Justice Peter Jackson and the Right Hon. Lady Justice Asplin DBE

B E T W E E N :-

(1) PERSONAL MANAGEMENT SOLUTIONS LIMITED

(2) PERSONAL GROUP BENEFITS LIMITED

Claimants/Respondents

-and-

(1) BRAKE BROS. LIMITED

(2) GEE 7 GROUP LIMITED

(3) GEE 7 WEALTH MANAGEMENT LIMITED

(4) MARK EATON

Defendants/Appellants

_______________________________________________________ ORDER _______________________________________________________

UPON the 2^nd and 3^rd Defendants' appeal against the Order of Whipple J. dated 15^th March 2017 ("the Appeal")

AND UPON hearing Leading Counsel for the Claimants and Leading Counsel for the 2^nd and 3^rd Defendants

IT IS HEREBY ORDERED AND DIRECTED:

37. That the Appeal is dismissed.
38. That the 2^nd and 3^rd Defendants shall pay the Claimants' costs of the Appeal, which costs shall be the subject of a detailed assessment forthwith on the standard basis if not agreed. By 1600hrs on 26^th July 2018, the 2^nd and 3^rd Defendants shall pay to the Claimants the sum of £65,000 on account of such costs.
39. That the case shall be listed for a Case Management Conference on the first available date after 1^st October 2018. Time estimate: 2.5 hours (including pre-reading). All procedural steps in the claim shall be stayed until the Case Management Conference.

Dated: 12^th July 2018