England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		16th September 2016

HIS HONOUR JUDGE RICHARD PARKES QC :

1. On 21 December 2015, on the defendant's application, I ordered that this action should not go to trial, because it would have been disproportionate to allow the time of the court to be taken up, and substantial expenditure to be incurred, to so little purpose: see [2015] EWHC 3698 (QB).
2. However, the action was not struck out ab initio, nor was there any suggestion that it should be struck out as having no real prospect of success. The success of the defendant's application does not necessarily carry with it an entitlement to the costs of the action: see for instance Cammish v Hughes [2012] EWCA Civ 1655; [2013] EMLR 13 at [60]. I invited submissions on the terms that should apply, particularly as to costs. I have now heard that argument. I set out the background only to the extent necessary to make sense of my conclusions. Otherwise, the facts and the opposing contentions can be found in the earlier judgment.
3. The starting point is that the claim was an entirely proper one, brought against the defendant because it was discovered by the claimant, which carries on the business of online spread betting, that the defendant was in possession of highly confidential information about the claimant's spread betting clients. That information had originally been sent by him to the Office of the Information Commissioner (ICO) in hard copy form when he was an employee of the claimant, working as a network service engineer. He had alleged that the information was evidence of data security breaches. That disclosure to the ICO was not complained of in these proceedings.
4. After the defendant's dismissal, he began proceedings against the claimant in the Employment Tribunal (ET). In the course of those proceedings he asked the ICO for any personal information which it held about him, and in particular for correspondence with the ICO sent from his email address and by post. The ICO seems to have treated this as a subject access request, and on 16 January 2013 it sent him an email which contained scanned electronic copies of the confidential documents which he had sent to the ICO in hard copy form while he was still an employee. The defendant disclosed this material to the claimant in the course of disclosure in the ET proceedings, upon which these proceedings were issued.
5. The claimant was understandably concerned to discover that its dismissed former employee was in possession of such highly confidential material, so applied for and was granted interim relief on 15 August 2013. In the course of that hearing, the defendant told the judge, Singh J, that even if an order was made, he could renew his request to the ICO for the information, and that the information was in the public domain. There was plainly a serious issue to be tried; damages would not have been an adequate remedy for the claimant; and the balance of convenience lay in favour of making the order sought. The judge made (inter alia) an order for delivery up of all documents and confidential information belonging to the claimant that were in the defendant's possession or under his control, an order for the immediate deletion of material held on electronic storage media, an order that he should retain no copies, and an injunction restraining him until trial from making any use or disclosure of any confidential information concerning the claimant's business, subject only to a proviso enabling the fair conduct of the ET proceedings. The defendant was ordered to pay the costs of the hearing in front of Singh J, in the sum of £2500. The defendant obtained legal representation, but no attempt was made to appeal or set aside the judgment of Singh J. There is no suggestion, as far as I am aware, that the defendant failed to comply with the orders of the judge.
6. The defendant put in evidence about the circumstances in which he came into possession of the confidential information. He insisted that he had not realised that he had been sent confidential material, as opposed to the letters and cover sheets which he had originally sent to the ICO with the hard copy documents. There was a live issue as to whether he had received the confidential information with or without knowledge of what it was that he had been sent, and a related issue as to what exactly he had done with the information in terms of copying or moving the files. These issues involved technical evidence obtained from a jointly instructed expert, Navigant, which did not report until November 2015. Plainly, the defendant should not have been sent the information and was not entitled to have it, although he would have been entitled to (and did receive) disclosure of a redacted version for the purposes of the ET proceedings.
7. The defendant then took the point that the claimant's use of the disclosed material for the purposes of these proceedings was a breach of the implied undertaking not to use disclosed documents except for the purpose of the proceedings in which they were disclosed: CPR r.31.22. He applied for an order prohibiting the claimant from suing on the material obtained on disclosure and striking out the claim. The application was granted by Tugendhat J on 11 December 2013, but the claimant's appeal was allowed by the Court of Appeal on 31 July 2014. It had been necessary for the claimant to obtain leave to make use of the disclosed documents, but retrospective permission should have been granted. The court was of course unable to reach a concluded view on the merits but felt it wrong to suppose, on the then present material, that there was no issue to be tried, that there was no useful purpose in the continuance of the proceedings, or that the claim for a permanent injunction was of no utility.
8. The defendant was ordered to pay 75% of the costs of the appeal and of the costs of the application. The claimant's solicitors estimated those costs at £40,604 (letter 10 March 2015). Mr Mayall suggested in argument, without dissent from Mr Hirst, that in broad terms the effect of the costs order was that the defendant would be ordered after detailed assessment to pay the claimant around £25,000. Whether or not that is correct, it will certainly be a very substantial sum.
9. Thereafter, there was a case management conference on 12 March 2015, at which directions were given for the instruction of a joint IT forensic expert (Navigant), for disclosure and for exchange of witness statements, and at which a trial window was set between 5 October and 21 December 2015. The trial would have taken place in mid to late December 2015, with a three day estimate. The Master ordered the defendant to pay the costs of an application by the claimant dated 26 November 2014 for default judgment (a matter that I need not go into), and to serve a defence by 16 January 2015. A Reply was served on 20 April 2015.
10. On 5 October 2015, the claimant issued an application notice which was to be heard on 4 December 2015, the date when I heard the defendant's application to put an end to the action. It was concerned primarily with the excision of allegedly inappropriate material from the defendant's witness statements. As I understand the position, the excisions were conceded. However, there was also a res judicata question, arising from the dismissal of the ET proceedings, which was live and not argued. So it cannot be said that the application was wholly conceded. But given that it was not heard, the amounts involved will have been small.
11. The joint report by Navigant was received by the parties on 6 November 2015. It enabled the parties to be confident that the copies of the confidential information received by the defendant from the ICO were scanned copies of the hard copy material which had been sent by the defendant to the ICO while still an employee of the claimant. In other words, it appeared that the confidential information in the defendant's possession had not been taken away by him from his employment (the main premise of the claimant's pleaded claim in breach of contract), but obtained from the ICO. Notwithstanding the Particulars of Claim, it appears that in reality that had not been substantially a live issue (see the Reply). The report also provided at least partial support for the defendant's contention that he had not realised that he had received the claimant's confidential information, although the issue remained very much live. But at the same time it also showed that the files containing the confidential information had been transferred from the defendant's i-Phone to his Macbook and then to Dropbox, a program that the defendant had not previously mentioned in terms. In short, the Navigant report did not lend conclusive support to either side.
12. On 20 November 2015, the defendant's solicitor, Mr Spyrou, was informed by the ICO that all copies of the file from which the defendant had been supplied with the confidential documents had been automatically deleted at the start of 2015, with the result that there was no longer any possibility of the defendant obtaining further copies from the ICO. That information was included in Mr Spyrou's witness statement of 30 November 2015, when the defendant issued the application to strike out the claim. As I understand it, the first that the claimant knew of that development was when it was served with Mr Spyrou's witness statement.
13. Each side relies on open offers.
14. The defendant offered by letter dated 3 September 2013 to give a formal (and presumably permanent) undertaking embodying evidence contained in his witness statement of 27 August 2013, if the claimant would discontinue the case and repay to him the costs which had been ordered against him by Singh J. The claimant responded on 6 September, making the point that had the defendant responded to the requests for undertakings before the application was made to Singh J, the need for the application could have been avoided, and offering to discontinue on payment by the defendant of £5000 by way of contribution to its costs, and on provision of the undertaking which the defendant had offered.
15. Mr Hirst submits that all that really remained in issue was whether the claimant could establish a past wrong – namely whether the defendant had knowingly received confidential material. That, he argues, was not going to entitle the claimant to a permanent injunction, because there was no evidence of any intention to obtain or use the confidential information in the future. So the 3 September 2013 offer was crucial. He submits that the defendant's offer should have been accepted as a matter of commercial sense, and that the claimant could have accepted the undertaking and applied to the court to determine the issue of costs. The difficulty with that submission is that the undertaking was not offered without strings, but only as part of a package; and it could equally be said that the defendant should have offered the undertaking and left the court to determine costs. If the defendant was right to assert, as he did, that he did not know that he had received confidential information, and that in any event his only use for the material supplied by the ICO was for purposes of the ET proceedings, which he withdrew only 6 days later, it is very difficult to see what prevented him from offering a permanent undertaking in terms satisfactory to the claimant. He had no legitimate interest in using the information and no right to do so.
16. Mr Mayall describes the 3 September offer as blackmail: Singh J had found that the defendant was in wrongful possession of the confidential information, and it would have been wrong for the claimant to pay him to do that which he had been ordered to do. The claimant therefore made its counter-offer, which was not accepted.
17. On 10 March 2015 the claimant offered to accept £8000 on account of its costs and a permanent injunction to replace the interim order of Singh J. That, as Mr Mayall submits, was considerably less than the sums which the defendant was in any event bound to pay. In other words, the claimant was offering to forgo substantial costs to which it was already entitled by court order. He could not have done better, and has not done better, than he would have done had he accepted that offer, and there was no possible reason for him not to agree to a permanent injunction. Mr Hirst offers reasons for the defendant's decision not to accept the offer – in particular, he was threatening to strike out the claimant's claim under the Copyright and Rights in Databases Regulations 1997, he believed that he would be exonerated by the expert evidence that was likely to be ordered at the CMC, and he believed that he would succeed at trial. In other words, the defendant took a gamble. It appears from the Directions Questionnaire that there may have been another reason - that the defendant was simply unable to afford to pay the sum sought. The claim under the 1997 Regulations was indeed discontinued at the CMC, and the claimant accepts that it must pay the costs of and occasioned by that aspect of the claim, which are not likely to be substantial. There appears to have been no reply to the 10 March letter.
18. It is not easy to determine where costs should properly fall in a case which has been stayed before the issues are determined at trial. There is no doubt that the claimant had some strong material for cross-examination of the defendant, which might have persuaded the court to be sceptical of the defendant's account of his state of knowledge and of his actions from receipt of the information until August 2013. In that event, the prospect of the claimant obtaining a permanent injunction at trial cannot be discounted, despite the lack of evidence that the defendant had retained or misused any of the material since August 2013, although that prospect diminished when it became clear on 30 November 2015 that there was no possible prospect of his obtaining it again. But I cannot go further than that, and it would be wrong to undertake any kind of mini-trial.
19. What I can say is that, absent the offer of a permanent undertaking from the defendant, the claimant had little choice but to take the action to trial. I am reluctant to criticise the claimant for rejecting the defendant's offer of 6 September 2013, which would have been difficult for any litigant to stomach following the events of August and the outcome of the hearing before Singh J. Nor do I find it as clear as Mr Hirst suggests that the offer should have been accepted as a matter of commercial common sense, given the signals to other similarly minded employees that acceptance might have sent out.
20. My inclination is less to find fault in the claimant's refusal of the offer than to wonder why the defendant did not offer an unconditional undertaking, given that he insisted that he had no wish to use the information for any purpose except the ET proceedings, which were dismissed in September 2013. He had no conceivable legitimate interest in making any use of the claimant's information after that point. Rightly or wrongly, his concern must have been for the costs consequences of giving an undertaking. By contrast, the claimant was faced with the fact that the defendant had obtained highly sensitive unredacted client-confidential information from the ICO, information which could not have been properly used for any purpose, and had given an account of the circumstances of its receipt, his knowledge of what he had received and his understanding of his entitlement to obtain it again, which, to put it no higher, gave rise to real grounds for concern. The claimant cannot be criticised for having applied for an interim injunction, to which it was plainly entitled given the seriousness of the issue to be tried. Having obtained that order, it could not sit on its hands, but in the absence of an offer of a satisfactory undertaking was bound to prosecute the case to trial (see CPR 25.10.1).
21. I place some weight on the claimant's offer of discontinuance on terms on 10 March 2015, if only as an indicator of the defendant's attitude to compromise. The defendant was being offered the chance to get out of the litigation for a sum which on any view was substantially less than that which he was already bound to pay the claimant as a result of the costs order made by the Court of Appeal. He took a calculated gamble in refusing that offer. Mr Mayall submits that since the defendant has failed to do better than he could have done had he accepted the offer, he should be regarded as the unsuccessful party. I am not sure that is right, since the question whether he has done better has not been determined at trial. But the defendant's behaviour in rejecting the offer, and in failing to offer an undertaking, nonetheless seems to me to have been unreasonable: on any rational view, he was being offered a sensible and heavily discounted way out, which he refused for no good reason.
22. Looking at matters in the round, it seems to me that a fair way to reflect these circumstances is that the claimant should have three quarters of its costs of the action on the standard basis, to be subject to detailed assessment if not agreed, down to the date of the application before me on 4 December 2015. I except from that the costs flowing from the claimant's discontinuance of its claim under the 1997 Regulations, which should be paid by the claimant to the defendant. I see no justification for an order for indemnity costs.
23. There is one other matter pre-dating 4 December 2015 to be determined, and that is the costs of the claimant's application for judgment in default of defence, which was withdrawn by consent and which resulted in an order by the Master that the defendant should pay the costs thrown away, the application to be restored for summary assessment if not agreed. It was not agreed, and the duty Master ordered that the assessment should come before me on 4 December, when it was not reached. I have not had the benefit of any submissions as to that assessment, nor even, so far as I am aware, any statement of the claimant's costs that appears on its face to relate to it. Those costs will have to be dealt with as part of the detailed assessment of the claimant's costs.
24. Mr Spyrou's discovery that (with the deletion of the confidential material by the ICO) there was no longer any means by which the claimant could obtain further copies of the confidential information was of great significance, and fuelled the defendant's 4 December application, in which he succeeded. He should have his costs of that, which I assess summarily at £12000 including VAT.
25. I should mention in that context that Mr Hirst, for the defendant, suggested that the claimant could and should have contacted the ICO at a much earlier stage with a view to ensuring that no further confidential information was released, which he described as a claimant mitigation failure. However, as he himself accepted, it was not until the Navigant report was received that it became clear that the defendant had obtained the confidential material from the ICO. It was in that context that Mr Spyrou's discovery that the documents had been deleted by the ICO assumed particular significance.
26. As for the hearing on 7 June 2016, the claimant has substantially succeeded in its arguments as to where costs should fall, and should have three quarters of its costs. I assess that figure summarily at £6000 including VAT.
27. For the avoidance of doubt, the existing costs orders in the action will of course stand.
28. There is no need for counsel to attend the handing down of this judgment. If there are any consequential applications, I hope that they can be made to me in writing and determined on paper.