England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		CLAIM No: HC05C01651 Royal Courts of Justice The Strand London WC2A 2LL
		17 October 2008

1. DEPUTY MASTER MATTHEWS: I have to give judgment in the applications which I have heard. These applications arise from in the context of an enquiry as to damages following a judgment by Mr Justice Briggs dated 8 December 2006 in favour of the claimants on the issue of liability in a passing-off action against the defendants. The enquiry itself is currently fixed to be heard in January 2009.
2. There are two applications, one made by notice dated 18 August 2008 and divided into four parts. It is made by the eighth to tenth defendants, whom I shall call the defendants, for, first, specific disclosure of documents, secondly, inclusion of the tenth defendant into an existing confidentiality club covering professional advisors and experts, third, orders for further information of statements of case and, fourth, consequential directions for trial.
3. The other application is made by the claimants for an order for further information of a statement of case and was made by a notice dated 9 September 2008.
4. All these applications were for hearing on 15 October 2008 with one day set aside. In the event, this was not enough time and only part of the defendant's application for specific disclosure of documents and the whole of the application for the inclusion of the tenth defendant into the existing confidentiality club were heard on that day. The remainder of the applications was adjourned to be heard by me on the first available date to be fixed through counsel's clerks with a time estimate of one day maximum. Mr Douglas Campbell, instructed by DMH Stallard appeared for the defendants and Mr Thomas Moody-Stuart, instructed by Herbert Smith, appeared for the claimants.
5. I have been very much assisted by their careful, directed and moderate submissions. It was clear to me that they had taken the opportunity to seek to agree that which could be agreed.
6. I was taken to parts of the judgment of Mr Justice Briggs, his order, the statements of case in the enquiry, the witness statements of Mr TJW Ashdown and Mr RP O'Beirne, (who made two statements) for the defendants, and Mr JB Smith and Mr KS Wilson for the claimants, as well as to the draft order prepared by the defendants and a reference to the expert report of Mr Bezant.
7. At the end of the hearing, I allowed each party until 10.30 on the next day, 16 October, to send me by email: (1) in the case of the defendants, a short witness statement on the question whether there was anyone else within the defendants, other than the tenth defendant himself, to whom the confidential information could be disclosed and (2), in the case of the claimants, details of any authority on the question whether disclosure ordered by the courts could or would amount to an offence or other wrong under competition law. In the event, I subsequently received and have taken into account as to (1), a statement from Sarah Birkbeck of the defendants' solicitors and a submission from Mr Moody-Stuart, counsel for the claimants on that evidence, and as to (2), a short submission from Mr Moody-Stuart.
8. The action is one for passing off the defendants' extended warranty services in respect of satellite television hardware as those of the claimants. The details of the action are set out in more detail in the judgment of Mr Justice Briggs. However, in fact the claimants do not provide such services themselves but instead license another company, Domestic and General Group PLC, which I shall call D & G, to offer and carry out those services in return for certain considerations towards the claimants. The claimants succeeded at trial in proving acts of passing off, which preceded a proportion, decreasing over time after undertakings were given by the defendants, of sales or renewals by the defendants of warranty contracts with satellite television subscribers.
9. An enquiry as to damages was ordered. The Particulars of Claim in the enquiry assume in paragraph 4 that the claimants would have obtained a hundred per cent of the sales which were preceded by an act of passing off. This assumption is denied by the defendants.
10. They go on to put the claimant's case for damages on three alternative bases: first, under paragraph 6 there is a claim for fees lost from D & G under the agreement between the claimants and D & G. It is asserted that losses would be likely to be greater from a lost renewal than from a lost sale, so the claim is made on the basis that every lost sale or renewal is a lost sale.
11. Again, this is assertion is denied by the defendants.
12. Next, paragraph 8 in the alternative claims a reasonable royalty payment for each lost sale or renewal, but given that the only comparable is the D & G agreement, payment would be on the same basis as the sales and renewals.
13. Thirdly, paragraph 9 in the further alternative claims a proportion of the business that was obtained by the defendants by passing off on the basis of the claimant's market share at the time, which is claimed to be 50 per cent.
14. Annexes to the points of claim set out in tabular form various forms of data which it is said enable the monetary value of the claims for damages to be calculated. The defence is a mixture of denials and non-admissions.
15. Turning, then, to the application for specific disclosure, the application notice seeks an order in the terms of a draft attached. The draft order to be found in an amended format at tab 50 in the bundle sets out the relevant order at paragraph 1 and in a schedule sets out various categories of document of which specific disclosure is sought.
16. Because the time set aside was insufficient, I heard argument only on the general principles and on the first of these categories. That category is set out at page 1035 of the bundle and is as follows:

"All documents recording or relating to lost revenue from a lost renewal, as defined by the claimant, the costs associated therewith and the net profit thereon and all documents recording or relating to lost revenue from a lost sale as defined by the claimant, the costs associated there with and the net profit thereon," but since there were arguments made on both sides which will be common to all the categories of documents sought, it is convenient for me to deal with my views on the general principles as well as my decision on category one. To some extent, as we will see, these are mixed up.

17. Specific disclosure is governed by CPR rule 31.12, which reads:

"(1) The court may make an order for specific disclosure or specific inspection.

(2) An order for specific disclosure is an order that a party must do one or more of the following things:

(a) disclose documents or classes of documents specified in the order;

(b) carry out a search to the extent stated in the order;

(c) disclose in the documents are located as a result of that search.

(3) An order for specific inspection is an order that a party permit an inspection of the documents referred to in rule 31.3(2)."

18. In his skeleton argument, counsel for the claimants asserts that for an order to be made under rule 31.12, "The documents must also be disclosable under the general rule under CPR rule 31.6." I am not aware of any such requirement as a matter of law, although in practice it is likely that disclosure specifically ordered under rule 31.12 will also fall under rule 31.6 but, in any event, in this case I am satisfied that certainly the underlying documents from which the schedules were compiled can properly be regarded as documents upon which the claimants rely within rule 31.6. If they rely on the schedules themselves, as they do, they must rely on the original documents from which the information contained in the schedules is drawn because otherwise there is no point in the schedules.
19. The evidence of Mr O'Beirne's first witness statement at tab 15 in the bundle, pages 343 to 44, paragraphs 27 to 30, supports the claim to this category of documents. It reads:

"(27) The defendants have requested all documents recording or relating to lost revenue from a lost renewal as defined by the claimant, the costs associated therewith and the net profit thereon and all documents recording or relating to lost revenue from a lost sale as defined by the claimant, the costs associated therewith and the net profit thereon. This request arises directly out of paragraph 6 of the points of claim.

"(28) The claimants state that the request is premature and will be dealt with in their factual evidence and in their expert's report.

"(29) The claim is based on an assertion that each lost renewal or a lost sale result in a claimed loss of profit. Schedule 1 requests they provide all relevant documentation relating to that claim.

"(30) The claimant must have had some basis for the assumption they made in their paragraph 6 and hence should have such documentation in their possession. The request is not premature, it is necessary to assess the claim. Documents necessary to evaluate the case should be produced now and not held back to be produced as part of either expert or factual evidence at a later stage." I add that further factual evidence and the claimants' expert report has now been served.

20. The evidence of Mr Smith at tab 36, paragraph 81, page 495 resists the claim. He says -- and this applies not just to category 1 but to other categories as well:

"Categories 1, 3, 5, 6, 7 and 8, 9 to 18 and 20. These are dealt with fully by the factual evidence served on 20 August 2008 and in particular paragraphs 34 to 41 and exhibits KSW/11 to 23 of the second witness statement of Kenneth Sparks Wilson. The claimants' expert report to be served shortly uses this data to provide the expert's opinion upon the appropriate level of damages. It would be disproportionate for the defendants to seek further information over and above that which is relied upon by the claimants when the defendant/s' case is simply to deny that every sale held by the judge to be proceeded by an act of passing-off constitutes a sale which would otherwise have been made by the claimants or D & G, paragraph 5 of the defence."

21. Mr Wilson, whose evidence is referred to by Mr Smith, is the Managing Director of D & G. His evidence, at tab 20, paragraphs 34 to 41, pages 405 to 407 in the bundle, explains how the data was provided by D & G to the claimants' experts, enabling them to prepare the annexes to the points of claim. It does not, however, disclose or exhibit any of the underlying documents sought by the defendants under category 1.
22. Mr O'Beirne's second witness statement at tab 46, paragraphs 28 to 29, page 928 in the bundle explains why, in his view, the documents sought are necessary for the defendants. He says:

"(28) Mr Bull says at paragraph 61 of his redacted witness statement that renewals are more profitable than an initial sale for the reason which Sky/D & G does not incur the initial outlays associated with the selling of a new customer. He goes on to say that Sky are only claiming for new sales as lost sales and are likely to be underestimating their loss. The difficulty is that the claimants does not allow for any such initial outlays in their claim. At paragraph 5.16 to 5.18 of the expert report, the expert addresses the issue of costs in a rather dismissive manner. He says that whilst Sky experiences costs and lost revenues, the claimants are not claiming for lost revenues and other costs addressed at 5.16 to 5.18 of his report are not incremental and therefore he leaves it at that. The point for the defendants is that they need to know the level of these costs because the defendants would be entitled to subtract those from the calculation of any damages to which the claimants may be entitled. This sum could be significant. It is both my and the claimants' expert's understanding that only new sales, not the renewals of existing SRPs are included in the profit sharing calculation, appendix 3-10 to Mark Bezant's report. In treating all sales as initial sales rather than renewals, the claimants increase their profit share claim to the maximum.

"(29) In the light of the above, the defendants still require disclosure of all documents in category 1."

23. Counsel for both parties made a number of general points before addressing the particular category of disclosure sought. The matters addressed included the background to the litigation, the character of the tenth defendant, Mr Reynolds, taking me through the schedules to the Particulars of Claim, going through the Particulars of Claim themselves and the defence. I was in particular addressed on the question of proportionality. My views on these matters appear, I think, sufficiently in the comments which I shall make now in relation to the first category of documents.
24. Mr Smith, in his evidence at paragraph 22 of the witness statements from which I have already quoted, describes the application made by the defendants as, "A classic fishing expedition by the defendants for wider tactical reasons in the litigation."
25. This, of course, refers to the whole application and not just to this category. However, in so far as this relates to this category, but of course without prejudice to the further categories that will have to be debated hereafter, my judgment is that this is not only not a classic fishing expedition but that it is not a fishing expedition at all. On the contrary, it is simple justice that the defendants require to see the documents upon which the claimants rely in making their claim.
26. The evidence of Mr O'Beirne's first witness statement at paragraph 26 is that the request was first made by a letter from the defendant's solicitors dated 20 March 2008 but that the request was refused by reply dated 2 April 2008. The most that the defendants can be accused of in this case, therefore, is, in my judgment, of being rather too gentlemanly in waiting until August before making a formal application.
27. Mr O'Beirne explains in his evidence why he, as an expert, needs to see the underlying documents. He is not a defendant, nor an employee of the defendants, but an independent expert from a highly reputable firm, albeit instructed by the defendants. I should be slow to substitute my opinion as a non-expert for his. But, in fact, he satisfies me, for the reasons he gives, that the underlying documents exist, that they are relevant and that there is a good basis for needing to see those documents.
28. Were it not for the schedules, and if the claimants had claimed simply a global sum as stated in the pleading, there is no doubt that the defendants would be entitled to disclosure of the underlying documents which were relevant to the calculation of the sum claimed by the claimants. The question is whether it is different because the claimants have, by their experts, gone through a considerable number of underlying documents in order to produce the tables which are annexed to the Particulars of Claim and, in one form or another, are also found in other evidence in this case.
29. The claimants say it is disproportionate to make them disclose documents underlying the schedules when no prime facie case has been made that any of the figures in the schedules is wrong. In my judgment, this mistakes the nature of the disclosure obligation. It is true that they did not have any obligation to produce these tables, but I do not think that this can by itself take away the obligation of a party to give disclosure where otherwise such an obligation would exist.
30. In my judgment, it is not the law that a party who would otherwise have to give disclosure of documents can decide to produce a document summarising, as he sees it, the effect of those documents and thereby remove the obligation to give disclosure, whether by invoking disproportionality or anything else. The opposing party is entitled in principle to see the documents themselves. A summary compiled by the party to give disclosure is just that, a summary.
31. In my judgment, the evidence, therefore, makes out the case for the defendants for an order under this category. However, the category of documents requested is too wide as it stands. In the first instance, it should be restricted to (1) documents relating to incremental costs, as in fact the defendants agreed during the hearing, and to (2) the documents which were available to the experts acting for the claimants when they compiled the schedules because the schedules are claimed to summarise accurately and completely the effect of all such documents.
32. During the argument, it was accepted by the claimants that this at least reduced the category of documents sought to more manageable proportions. This was an entirely proper concession because it could hardly be supposed that that which the experts of the claimants had available to them was unmanageable, given that they produced schedules which were then put forward by the claimants as accurate and complete. It also disposes of the disproportionality argument.
33. In this way, the expert for the defendants will have an equal opportunity to the experts for the claimants to consider the calculations for the claim put forward by the claimants. That is only fair. If, having considered these documents, the expert for the defendants considers that he needs more, then he can make a further application for that. Whether that application will succeed will depend upon whether he can justify it in the ordinary way.
34. During the argument, some question was raised as to whether these documents may be in the hands of the claimants or in the hands of third parties, namely D & G. On the face of it, looking at the evidence of Mr Wilson, it appears that the relevant documents were supplied to the claimants' experts by the third parties. Without wishing to prejudge any further question that may arise, on this evidence it seems to me that the document are or at least were in the control of the claimants.
35. If that should turn out not to be the case, then two consequences will follow. The first is that the claimants may be in a position to respond to the order by saying that, having checked and considered the position and so on, they have and have had no such documents in their control. The defendants will then have to consider what to do about that.
36. The second point is that it may be that the defendants will be in a position to bring an application for third party disclosure against D & G under rule 31.17 of the Civil Procedure Rules. On the face of it, but of course without having considered the matter in any detail -- and it was not debated in argument -- and without the assistance of any argument from the third parties, it seems to me that the defendants would have a strong case under that rule. But of course I cannot and do not decide that point, the third party not being present.
37. The second application made on behalf of the tenth defendant is that he should, in effect, be included in the confidentiality club that already exists. During the hearing, an application was made to amend this application to include the witness statement exhibits as well as the annexes to the Particulars of Claim. As I understand it, the claimants did not object to this application for amendment, which I allowed.
38. Accordingly, this application is now one to admit the tenth defendant to the confidentiality club in relation not only to the annexes to the Particulars of Claim, but also to the exhibits to the witness statements.
39. The tenth defendant is not a mere third party or even a witness. He is a defendant in his own right. In addition, he is also the beneficial owner and moving spirit of the corporate eighth and ninth defendants. Ultimately, it is he who gives instructions on behalf of those companies. The argument is put that the defendants are hampered in their conduct of this litigation and in particular in their ability to assess the prospects of settlements and to take any meaningful steps in relation to settlements by the lack of knowledge on the part of the tenth defendant, whose responsibility ultimately it is to make those decisions. The defendant's expert himself, Mr O'Beirne, complains in his evidence that he needs to discuss various matters with the tenth defendant but is unable to do so because the tenth defendant is outside the confidentiality club.
40. In my judgment, we start from the position that a defendant in proceedings is prima facie entitled to know the case against him and this includes an entitlement to see all the disclosure given in the case: Otherwise, a defendant is fighting with one arm tied behind his back.
41. Article 6 of the European Convention of Human Rights did not feature very much in the argument, although brief reference was made to it, but as is well-known, Article 6 requires a fair and public hearing.
42. In my judgment, this does not, in fact, add anything to the common law on this subject, as applied in this case, but it does underline the need for a strong justification for withholding important information made as part of the allegations against the defendant from him.
43. In my judgment, therefore, it is for the claimants to justify the withholding of such information from the tenth defendant. The claimants pointed out that the judge at the trial found that the tenth defendant had been guilty of passing off. That is true, although it is also true that the acts of passing off diminished significantly at the end of period A once the tenth defendant had given instructions that the institutional passing-off, if I may so call it, should cease.
44. After that time, there is no finding of deliberate wrongdoing by the tenth defendant. During the hearing the claimants declined to make the so-called "Demon King" argument against the tenth defendant. But the claimants also asserted that the tenth defendant was such a commercial businessman that he would be unable to abide by the terms of the confidentiality club and would, unconsciously, make use of the information for his own commercial benefit.
45. Having considered this matter, in my judgment the claimants have not made out any such case. There is no evidence here that the tenth defendant has knowingly breached any confidentiality obligation willingly undertaken.
46. The same problem arises in relation to almost every case where confidential information is in play and commercial businessmen are parties to litigation. Such businessmen are constantly allowed to see such information, sometimes on the strength only of the usual implied obligation on disclosure, but on other occasions on the basis of being brought into confidentiality clubs. In the latter case they may choose to be party to the confidentiality agreement and willingly accede to the onerous risk of sanctions they breach those terms, or they may decide to stay out. It is a matter for them.
47. The fact in this case is that because the only other members of the confidentiality club are lawyers and professionals who have no interest in breaching the terms of the agreement, the tenth defendant will know that if any information does leak out the finger will clearly be pointed at him. He therefore takes that risk.
48. During the hearing I was referred to the well-known passage from the judgment of Mr Justice Aldous in Roussel-Uclaf v ICI [1990] FSR 25 29-30 as follows:

"Each case has to be decided on its own facts and the broad principle must be that the court has the task of deciding how justice can be achieved, taking account of the rights and needs of the parties. The object to be achieved is that the applicant should have as full a degree of disclosure as will be consistent with adequate protection of the secret. In so doing, the court will be careful not to expose a party to any unnecessary risk of its trade secrets leaking to or being used by competitors. What is necessary or unnecessary will depend upon the nature of the secret, the position of the parties and the extent of the disclosure ordered. However, it would be exceptional to prevent a party from access to information which would play a substantial part in that case, as such would mean that the party would be unable to hear a substantial part of the case, would be unable to understand the reasons for advice given to him and in some cases the reasons for the judgment. Thus what disclosure is given necessarily entails not only practical matters arising in the conduct of the case, but also the general position that the party should know the case he has to meet, should hear matters given in evidence and understand the reasons for this judgment."

49. Having considered all the circumstances of this case, including the nature of the information, the position of the parties and so on, I consider that the implied undertaking or obligation on disclosure and the confidentiality club agreement are, in all the circumstances, as much protection as the claimants are entitled to.
50. A further point was urged on me by the claimants and this was that there was a danger that information supplied by the claimants to the tenth defendant could offend against competition law by distorting competition. Mr Smith's witness statement had something to say about this at paragraphs 13 to 20, but I shall not lengthen this judgment by setting out those paragraphs here.
51. During the argument I expressed the view that I would be surprised if compliance with an order by the court that information be supplied by a party to litigation against the will of the supplier could be held to offend against competition law. However, I asked to know if there was any authority bearing on this point. The claimants' counsel, who pointed out that he was not an expert in the competition law field, was kind enough to look at the position overnight and by email to inform me that he had not been able to find any such authority. However, the claimants reiterated the submission that it was undesirable in principle, and so a matter to be taken into account in the exercise of the court's discretion, to order provision of information to a competitor that would be likely to distort competition and so unlawful if carried out voluntarily.
52. In the absence of authority compelling a different conclusion, I reject this submission. There is a world of difference between information supplied voluntarily, whether as part of a cartel or some ad hoc agreement and information which is supplied because the court so orders in furtherance of the objective of greater justice as between the parties. Of course, positive law can so prohibit because positive law can change anything, but if there is no such positive law then we are left with the common law position.
53. In argument, there was also some debate as to whether there was anyone else within the defendants who could carry on the interface with the experts in relation to the confidential information. This was the subject of further evidence from Sarah Birkbeck and the submissions of the claimant from the claimants' counsel.
54. Whilst I see the force of at least some of the criticisms made by counsel for the claimants of that evidence, at the end of the day I do not think that this matters. The burden is not on the tenth defendant to show that there is no one else within the defendants who can give instructions. The burden is on the claimants to show that a defendant in these proceedings should not know some of the important information which is part of the allegations against him and so be able to give informed instructions and make informed decisions in the litigation.
55. Accordingly, I consider that the tenth defendant is entitled to the order sought, which I will make. I will now discuss with counsel how to go about drawing up the order and hear any consequential applications.