England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		The Rolls Building 7 Rolls Building Fetter Lane London EC4A 1NL
		23rd November 2012

 


MR JUSTICE AKENHEAD:

1. There are two matters for consideration today. The first is whether there should be a split trial, broadly with Tranche 1 of the trial dealing with all matters of liability and principles relating to quantum, and all other matters relating to quantum be adjourned for a second hearing. There is an application by the claimants for specific disclosure of one class of documents, and I will deal with that second.
2. This case relates to the purchase by the claimants of a company which was previously owned, and I am paraphrasing in simple terms, by some of the defendants; at least two of the defendants are said to be parties who guaranteed warranties given under the agreement for sale. There is no issue that there were warranties provided by the defendants, at least some of them, in relation to a number of matters relating to the power station which was the subject matter of the transfer.
3. The claimants, having acquired the company, say that within two years or so problems were uncovered which led them to the view that the defendants, or at least some of them, had acted in breach of warranty. The claim was originally put forward on the basis of about five or six heads of complaint, of specific technical complaints, but three of those remain following a series of amendments. Much of what is in issue relates to outages, that is, once the alleged problems were discovered, power or steam ceased to be generated. There were outages, which meant that steam and/or power could not be generated, and the claimants had to take steps to put right, they say, the underlying problems, and as a result lost business, or may have done so.
4. The proceedings were issued as long ago as May 2010, and there have been a number of amendments that have been made. Almost a year ago I gave directions to bring this matter to a trial of liability and quantum, and I provided for a 12-week trial. That was based I recall largely on the parties' estimates that there should be disclosure by the claimants by 16 February 2012. There was a discussion at that stage also about disclosure by non-parties, which one or other party could try to secure, and it was ordered that the parties would exercise their best endeavours to ensure disclosure by non-parties made by 2 March 2012. A mediation was to take place in the summer of 2012 and witness statements were to be served by 6 July, with supplementary statements by 24 August. As to experts (of which at least at that stage there seemed to be quite a number) of different disciplines, there were to be without prejudice agreed preliminary list of issues for the experts. By 11 September 2012 the experts would hold discussions, with a view to producing a joint expert statement by 28 September. The expert reports were to be filed and served on 23 November. Supplementary expert reports would be filed and served by 9 January 2013. It is common ground that that timetable has slipped, and that disclosure by the claimants, at least to some extent, was not provided in full by those dates. There is no complaint made about the defendants' disclosure, save in the respects covered by the specific disclosure application.
5. Witness statements were behind, as I understand it, by several months, and there remain outstanding what are called the insurance witnesses. I should have said that one of the issues in the case relates to warranties given in relation to certain insurances held by the company that was being purchased; when one or more of these outages happened, a claim was made on the insurance, and following a period of liaison, investigation and involvement by insurers, loss adjusters and other experts, the insurers declined to accept liability on the grounds of alleged (at least) material non-disclosure. Therefore the claimants seek to say that there was another breach of warranty; in effect, the warranty, it is said, being in effect that there had been no material non-disclosures. Again I paraphrase.
6. It is clear that either party could have sought to secure the insurance documents and there is no complaint, and cannot be any complaint that the insurer's documents, including their loss adjusters' files, expert reports prepared for the insurers in connection with the claim and other insurance documents are within the control of the claimants. What has happened is, and it is certainly unfortunate, that it has taken until literally today, or possibly yesterday evening, for the claimants to secure a substantial amount of documents, I am told about 1,000 documents, from the insurers, which electronically they then transmitted to the defendants' solicitors. Whether that is complete or not I know not because the defendants have not yet had an opportunity to go through these documents in any detail to see what may be missing. Therefore, undoubtedly, I will attach certainly no fault at this stage anyway for the late provision, or the belated provision of those documents by the claimants' solicitors.
7. The insurer's solicitors, Messrs Clyde, are preparing witness statements on behalf of the insurance personnel, or those retained by the insurers, to address, I assume, arguments about material non-disclosure, although they may go further than that; they may seek, for all I know, to explain what the insurers did historically, and the documents, or the witness statements to come, may disclose other matters which may be of interest to the claimants and the defendants in these proceedings.
8. However the court is told that those witness statements to be provided are unlikely to come before 9 January 2013. Although it is said that there could be 15 insurance witnesses, I cannot at the moment see that the timing of the provision of these statements will necessarily give rise to any undue prejudice. If however when they do arrive they raise issues which prejudice any trial date which I may fix, then it will of course be open to either party, and the defendants possibly in particular, to revert to the court with an application to adjourn if that is necessary. At the moment I cannot see firstly that conceivably 15 witness statements are required, secondly whether they will not all duplicate each other, which I suspect they will, and thirdly that they are going to add an enormous amount more than the substantial amount of documents which will already have been disclosed. Maybe they will, but they will have to be reviewed when they arrive; certainly looking at the matter from now, I cannot see that they are necessarily at least going to give rise to any serious problem which cannot readily be dealt with by competent solicitors and counsel in time for a trial.
9. When it comes to considering the question of whether to order a split trial, the court has a wide discretion, and the recent decision of Mr Justice Hildyard in Electrical Waste Recycling Group Ltd & Anor v Philips Electronics UK Ltd & Ors [2012] EWHC 38(Ch), where he, at paragraphs 3, 5, 6 and 10 in particular, set out a number of general considerations. He does not I think suggest that the considerations he lays down in that case are exclusive, but they certainly include a number of factors which I think it is appropriate to take into account. One of those factors is that it may be difficult to draw the boundary between liability, causation and quantum with sufficient clarity to make it worthwhile to split liability and quantum.
10. The Re-Re-Amended Particulars of Claim were served relatively recently, I think the final version is dated 12 November 2012, albeit that there was an earlier version which was served. There was no objection taken to permission to re-re-amend being granted, and indeed the defendants have put in a Re-amended Defence nominally, a day later, on 13 November 2012. They clearly had the draft document for a substantial time before, a number of weeks before. In the Re-Re-Amended Particulars of Claim the claimants put their money claim for breach of warranty on four alternative, albeit somewhat linked, bases, and these relate to different methods of valuing the company in the light of the events, or matters of which they complain, compared, they say, in effect with the price they paid for it, which they seek in effect to argue represented the warranted value of the company.
11. The Re-Amended Defence, deals in detail with the issues of liability. It goes into some detail for instance about the insurance claim and why that is, or may, not be justified; when it comes to considering the four alternative bases, at paragraph 161(b) they plead this: "The sellers,' that is the defendants effectively, 'note the buyer's,' that is the claimants, 'explanation of their approach to quantification using the primary approach, the secondary, tertiary and the seller's approach." They then go on to say this:

"The buyer's explanation here, and in the amended response to requests 24 and 25, namely the defendants' requests for information dated 9^th August 2010, and otherwise by letter dated 19^th October 2012 consists of a mixture of submission and expert evidence which will be addressed in the appropriate way and not in this defence."

12. The further information referred to is a re-amended response to a request for further information dated 9 August, and the information, the amended information, was provided in November 2012; again reading between the lines, the substance had been provided somewhat earlier, in Annex 3 to that further information the claimants indicating this where, they are asked to identify each and every assumption to which an amendment was made, and to explain the nature of each amendment made. They then look at the assumptions that were made, and it is true that in some respects equivocal language is used, so for instance in paragraph 2 it says: "These assumptions are approximations…" There are then set out over a not insignificant number of pages the various assumptions that are made to support the various valuations that are put forward. There has been provided, I am told, although I have not seen, substantial electronic explanation of the four different approaches to quantum that have been put forward, and I am told by Mr Haydon, counsel for the defendants, that some of that, and these are my words and not his, is relatively impenetrable. It contains a lot of assumptions and it is believed that many of the assumptions are not particularly material, and within the many, many assumptions that are made there will be, he says, and he is probably right, a number of key assumptions.
13. In my view what needs to happen is for the relevant experts, either by discipline or different disciplines together, to meet to identify on a without prejudice basis initially, although they can put it into an open joint statement if they wish, the material assumptions that are made, or need to be made. It may be that there will be a difference between the experts: one side may say that the material assumptions are 1 – 12, the other side may say they are only 1 – 9, and assumptions 20 – 23 are material, but at least experts, who owe a duty to the court, will be able to do that. Again I think it is most unlikely that each and every assumption put into the calculations for the four approaches will be significant, but there will be some which are much more significant than others, which are more likely to be affected by alterations to those assumptions. I do not see why the experts can not, and should not, get together soon to narrow the issues. That is what experts are supposed to do, if they conceivably can. I have no reason to believe that they will not be able to do so if they get a move on. I do not criticise either side's experts to date, but there is no reason to hold back now if there has been any holding back to date.
14. Now it is said, and I have no reason to doubt, that the model, that is the software model that has been used for the basis of these calculations by the claimants, has been available to the defendants for several years, and that in 2011, in the disclosure that was provided at a relatively early stage by the claimants, the assumptions upon which the model was being based were disclosed. It seems to me it cannot be said that these assumptions, or many of the assumptions, should be taking the defendants by surprise. Maybe they had not thought about them, but that they had the opportunity to consider and review them seems to be to be reasonably clear.
15. Insofar as any problems associated with the insurance documentation, it is of course unfortunate that they have been provided yesterday or today, at a relatively late stage, but they consist of 1,000 documents, which, in the context of litigation of this sort, and certainly in this court, is not an enormous amount, and it should readily be capable of being looked at and considered within a relatively short period. I have already addressed the logistic issues relating to insurance witnesses and I have made it clear that if the statements, when they arrive, are such that either party is unduly embarrassed in terms of trial preparation there can be permission to apply to the court.
16. An argument is put forward by Mr Haydon, and, with respect to him, acting doubtless on instructions, I doubt it was his best point, which related to capital expenditure. He says there is, or may be, a lot of work involved in considering the capital expenditure which, the claimants assert, and indeed have asserted for some time now, was incurred to overcome the alleged problems which are said to have given rise to the outages. There is no complaint that there has been any late disclosure of the documentation relating to that, and again I cannot see that that is a reason for carving out quantum. What actual money has been spent can be relatively easily, albeit tediously, identified, and a very simple way of doing that is that the relevant quantum experts could work together and to run through the list, possibly prepared by the claimants' expert, together with any relevant backup documentation, to tick off those that are established and possibly identify those which are not established as a matter of accounting. There can then be arguments of course about whether the work in question was necessary or was related to the events which gave rise to the outage. I cannot see that that will be, or should be, a problem.
17. Now I suggested in argument that one possible alternative, to give the defendants some more time, and indeed some further four or five months to get ready, would be to defer the start of the trial to October 2013. That very much is a secondary position; the claimants indicated that they would be prepared to accept that, although their preference is very much for the trial to start in May. I put to Mr Haydon that suggestion. He made it clear on instructions that that would be unfortunate, and that they have retained Mr Mark Howard QC, who has been involved from an early stage and has been giving advice, and indeed his name is on one or two of the pleadings that I have seen, although it may be that the bulk of the work was done by junior counsel. He is not available due to other commitments, other than in May, June and July of 2013, until April 2014, and so Mr Haydon, I think reluctantly, indicated that their preference strongly would be that if there was going to be a deferment for the case to be deferred to April 2014.
18. I have to say that weighing everything up, in the interests of both parties, and the overriding objective of trying to get matters dealt with as reasonably expeditiously as is practicable, I am not willing to defer this matter to April 2014. For proceedings that were issued in the middle of 2010, in this court, perhaps particularly, it is not acceptable, generally, if ever, for a case, no matter how complex, for it to take four years to get to trial, and when the reason for the deferment is important but nonetheless is the convenience of counsel, in my view the convenience of counsel is not outweighed by the importance of bringing the matter on as soon as is reasonably practicable. Therefore Mr Haydon's client's solicitors were given the choice, and I will still hold the choice open to them until the order is drawn up if they want to consider it again, but it does seem to me that it should be possible to get this matter ready for trial in May 2013. The trial was originally listed for mid-April, but it has been agreed between the parties in any event that it should go back a month, and that that additional time should be sufficient to provide a sufficient period for the parties to get this matter ready for trial. Of course it is open to the parties if other matters happen, and things become more complex than I anticipated, or other difficulties arise, always to apply again to the court, and the court will always consider applications for adjournments carefully, and if justified, sympathetically. However it does seem to me that this matter can be got ready for trial within this timetable. I should say one more thing, and it relates to quantum. In this court, as in many, the quantum expert evidence, and indeed all the expert evidence, will come after the witnesses of fact have been heard. Therefore there will be some additional time for counsel at least finally to hone their cross-questioning preparation. Indeed it is likely that the quantum experts will come after the liability and causation experts, so they will be coming in the last week or two of the trial.
19. I have also considered the time allowed, because there are concerns expressed by Mr Haydon that there may be insufficient time on the claimants' proposed timetable, starting in mid-May, which was to allow for eight weeks to hear everything. I have my doubts that eight weeks is enough, and therefore to be safe I will allow an additional two weeks which would take the matter up to the end of the summer term, if needed,.
20. Therefore I am not prepared, at least at this stage, on the arguments and evidence that have been presented, to split the trial. It is unfortunate at the very least that there was not an application somewhat earlier than this, but on the other hand the issues have been properly raised, and the court is not going to refuse to consider the issue simply because there has not been an application issued. Whether the court office will expect its application fee I know not.
21. I now come to specific disclosure. The claimants have issued an application for specific disclosure, and they seek, broadly, documentation, internal documentation from the defendants of documents by which they internally valued the company, Teeside Power Limited, for the purposes of the sale, and broadly that is the class of document sought. There are many issues between the parties. In paragraph 136 of the Re-Amended Defence in relation to quantum, going in effect to the diminution in value claim, which is one of the primary claims put forward, this is pleaded:

'No admissions are made, save that: (1) The measure of damages for breach of any warranty is the difference between the value of TPL as warranted and the true value of TPL assessed as at the date of the sale…(3) It is not admitted that the value of TPL as warranted was the value of TPL as calculated by the first claimant,'

and it goes on to explain why that is the case.

22. Now it seems to me this is a relatively simple matter. In effect the defendants are putting in issue, clearly, the value of TPL as it has been pleaded as warranted by the claimants; so they are putting the claimants to proof of that, and they are quite entitled to do that, but it will be no doubt part of their case, and it may well be their expert's position, unless he or she says absolutely nothing about it, that the value as warranted was something different from what the claimants are suggesting. Therefore it does seem to me directly relevant for the defendants to disclose the documents which they themselves have. There is no issue that they have the documents, by which they calculated, or assessed, or guessed, whatever it was, the value of the company they were selling. It seems to me to be obviously relevant. Mr Haydon has sought to argue, strongly, that when you analyse the case as put forward by the claimant, it is completely irrelevant what elements at least of the value actually were, or as warranted, were. He may be right about that, but it has been put in issue on the pleadings, unequivocally, in his own pleading, on behalf of his client. It may be the case, I know not, that the documents, when disclosed, will not assist, but that they might well do so is reasonably clear. I am told that there could be up to 1,000 documents that fall into this category, but again, in the context of trials within this court, that is not an enormous amount and I cannot see that it will take an enormous amount of effort, or a disproportionate effort, for those documents to be extracted, looked at, to see that there is no privilege or obviously completely irrelevant material involved, and disclosed. I do not think it has been strongly argued that it would be disproportionate for disclosure to be ordered, and if, as Mr Haydon argued, almost contrary to the non-admission in his pleadings, albeit not quite, that it all turns out to be irrelevant, well so be it, but his clients have put it in issue, and therefore the position that at least internally his clients were taking at the time as to the value must be material. Therefore there should be disclosure of that.
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