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

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

		Rolls Building Fetter Lane London EC4A 1NL
		5 March 2012

MR JUSTICE AKENHEAD:

1. The background to the claim and counterclaim in these proceedings is that the defendants, Dr Ho and Dr Gover, were retained by Phaestos Ltd, Mindimaxnox LLP and/or IKOS CIF Ltd; I will call them Phaestos, Mindi and CIF. There are some issues, I think, about the involvement of CIF as an employer of one of these defendants.
2. There was a longstanding employment relationship between the Claimants and the Defendants. They had been retained since about 1994. On the same day, just before Christmas 2008, Dr Gover and Dr Ho were dismissed, one for redundancy and one for breaches of contract; that is as alleged by the parties in the pleadings.
3. There has been a long history of various claims being started, with the Defendants initially instituting proceedings in the employment tribunal in this country and CIF commencing proceedings against CIF in Cyprus, these being later stayed. Proceedings against Dr Ho were commenced here in 2009 by a number of the Claimants and proceedings were started against Dr Gover in April 2011. Those proceedings were in effect consolidated and consolidated Particulars of Claim were prepared by the Claimants and served in June 2011 to be responded to in August 2011 by a consolidated Defence and Counterclaim.
4. Mr Justice Ramsey heard an application for the matter to be transferred from the general list in the Queen's Bench Division to the TCC, and he decided that the consolidated proceedings should be transferred to the TCC, save in relation to matters which were still the subject of issues awaiting a decision from Mr Justice King. Mr Justice King's judgment on those matters is awaited.
5. The issue as to whether there should be a split of liability and quantum was considered before Mr Justice Ramsey, who required by Paragraph 32 of his order of December 2011:

"The claimants' solicitors will write to the defendants' solicitors to make any proposal they wish to make in relation to a split trial by no later than 4 pm on 19 December 2011."

6. The Claimants' solicitors did that, saying that there should be a split, and the Defendants responded about a month later saying that, no, there should not, broadly, although there was some indication in that letter of 19 January that possibly elements, at least an account of profit, could be deferred.
7. In effect, that issue is the one I have to deal with this afternoon. Mr Goulding QC's note for the hearing, upon which he has based his oral submissions, has identified the primary quantum issues as being the Claimants' claims relating to the Defendants' alleged poor performance, the Claimants' claims relating to the Defendants' breaches of confidentiality obligations; the Defendants' claim for an account of profit; the Defendants' claim for a profit share or bonuses; and the Defendants' claims relating to surveillance.
8. In relation to the latter matter, the surveillance counterclaim, I am in the process of, and indeed 30 pages into, writing a judgment on whether the surveillance claims on one or more grounds should be struck out or there should be summary judgment. I hope to deliver that judgment in draft before the end of the week.
9. What I might call the usual reasons have been advanced in support of splitting liability from quantum. I should say that it is now clear, or clearer now, that the Claimants' claims against the Defendants are very substantial. It is not possible from the Particulars of Claim, or indeed from some very recent further information, to determine with any precision what the overall loss is, but it could be anything between £40 million to £50 million and £100 million. It may be less, but, doing the best that I can, it seems to be in that sort of area.
10. The "usual" reasons advanced are that the trial and its preparation are more manageable if there is a split; it removes or minimises the risk of wasted costs incurred in preparing unnecessary quantum evidence and a split preserves confidential and commercially sensitive information from unnecessary disclosure. Added to that, there are points made that, once there has been a decision on liability, the parties, depending on who has "won" or "lost", can then concentrate on pursuing only those aspects of quantum on which they have been individually successful. All of those are matters which are often taken into account when deciding whether or not to split liability and quantum.
11. It is, I think, necessary, first of all, to consider the level of particularity which the Claimants have presented by way of pleadings. It has to be said that there is, and certainly was, before the further information that was provided a very real dearth of information about what the claimants' quantum was and how it was caused.
12. One might have thought that this was surprising for claimants, who no doubt believe in the integrity and validity of their claims. One might have thought that Claimants in that position would be in a position to quantify their loss and damage and pursue it with some vigour. I am told by Mr Goulding QC that the Claimants have not yet retained quantum experts, or certainly accounting experts. That may explain, at least in part, why there has been little by way of particularity.
13. So, for instance, against half a dozen sets of allegations against Dr Ho and Dr Gover for breach, the loss and damage claim is pleaded simply like this:

"34. By consequence of the above the Claimants have suffered loss and damage to be assessed.

"35. Though the Claimants are entitled to and seek a declaration if any of them are found liable to any other person for loss or damage caused by the abovementioned breaches, Mr Ho and/or Mr Gover as appropriate will be liable to the relevant claimant in the sum to fully reflect and cover its liabilities."

That is the loss and damage that is claimed in relation to the primary breaches of contract alleged against Dr Ho and Dr Gover.

14. There is a claim set out between Paragraphs 36 and 53, which is a claim relating to bonus and ownership. That is effectively challenging in advance the likely bonus counterclaim that was going to come in, and indeed did come in, from the Defendants and there is a claim between Paragraphs 54 and 61 for the repayment of bonus sums paid in or in respect of 2005 and 2006, which is £6 million in total against each of Dr Ho and Dr Gover.
15. Within the breaches part of the consolidated Particulars of Claim, there are some indications of what the loss might be. They come before Paragraphs 34 and 35, which I have read out, and an example is at Paragraph 26.10, which pleads a causation case in part, at least, in relation to Dr Ho's breaches of duty. It says that, by reason of the matters set out in Paragraphs 26.1 to 26.9, and one then comes to Paragraph 26.10 where this is pleaded:

"The cumulative effect of these issues has contributed significantly to the negative performance of the IKOS Equities Strategy minus 10 per cent for the IKOS Equity Too USD Fund Class. This resulted in direct losses of management and performance fees for 2008 which arose from a reduction of over 50 per cent in assets under management for the IKOS Equity Too USD Fund Class in 2008 and over 35 per cent for the Equity Hedge USD Fund Class in the same year. Losses of fees in subsequent years due to investor redemptions made during 2008 and continued loss of investor confidence due to the losses suffered in 2008."

16. No particulars are given there as to what the actual losses claimed are, and, as has been properly pointed out, prior to Paragraph 34 of this pleading there is no suggestion in pleading terms that the Claimants or any one of them actually incurred any of these losses. I have set out in relation to Paragraph 34 above, there is an assertion that the Claimants have suffered loss and damage by consequence of the various breaches set out before.
17. One then comes to the response by the Claimant to the Defendants' Requests for Further Information, which I ordered as a final order to be served on or by Friday of last week, 2 March. It is of interest that when one comes to the particulars under Paragraph 34, in which a relatively simple request is made of the assertion that the claimants have suffered loss and damage, the request is:

"Full and proper particulars of any loss or damage alleged."

All that is said in answer is this:

"The total assets under management fell from US$3.391 billion on 1 July 2007 to US$1.6569 billion on 31 December 2008. Damages caused by draw-downs and the defendants' errors and omissions will be assessed."

18. That is clearly, with respect, nowhere near adequate particulars of the loss or damage claimed. It is accepted that the loss is not the difference between those two figures, but presumably there would have to be some calculation to identify what losses were actually suffered by these Claimants, or any one of them, as a result of what is asserted.
19. It is, again, of interest that there is no suggestion that these Claimants have themselves suffered any loss and damage. It may well be that they have suffered some loss and damage, but they do not say it there.
20. Then, when one goes to the particulars related to paragraph 26.10:

"Of: '... the negative performance of the IKOS Equity Strategy ...'

"71. Give full particulars of the performance of the IKOS Equity Strategy showing the relevant period and the performance of all equity funds.

"Answer.

"See following Answers 72-74.

"Of: '... direct losses of management and performance fees for 2008 which arose from a reduction of over 50 per cent in assets under management for the IKOS Equity Too USD Fund class in 2008, and of over 35 per cent for the Equity Hedge USD Fund class in the same year ...'

"72. Give proper particulars of the lost management and performance fees.

"Answer.

"In relation to performance and losses of management and performance fees, during the period 2008-2011 (inclusive), the lost management fees from the reduction in AUM of the IKOS Equity Too Fund USD (due to redemptions in 2008) amounted to USD 5,324,000. During the same period, the assets redeemed in 2008 would have generated USD 1,181,000 in performance fees if they had remained in the fund. Additional lost performance fees are to be assessed.

"In relation to performance and losses of management and performance fees, during the period 2008-2011 (inclusive), the lost management fees from the reduction in AUM of the IKOS Equity Too Fund USD (due to redemptions in 2008) amounted to USD 14,705,000. During the same period, the assets redeemed in 2008 would have generated USD 8,011,000 in performance fees if they had remained in the fund. Additional lost performance fees are to be assessed.

"73. Give proper details of the AUM for the IKOS Equity Too USD Fund at the beginning and end of 2008, and clarify or explain whether the reduction in AUMs were attributable to losses or a withdrawal of funds; if a withdrawal of funds state when and how much was withdrawn, and by whom.

"Answer.

"The IKOS Equity Too USD Fund dropped from USD 84,742,855.51 on 31 December 2007 to USD 40,112,431.69 on 31 December 2008. Of this, 83 per cent of the reduction was attributable to net redemptions and 17 per cent was attributable to Fund losses.

"74. Give proper details of the AUM for the Equity Hedge USD Fund at the beginning and end of 2008, and clarify or explain whether the reduction in AUMs were attributable to losses or a withdrawal of funds; if a withdrawal of funds state when and how much was withdrawn, and by whom.

"Answer.

"The Equity Hedge USD Fund dropped from USD 265,858,051.37 to USD 162,520,283.34 in the period 31 December 2007 to 31 December 2008. Of this, 76 per cent of the reduction was attributable to net redemptions and 24 per cent was attributable to Fund losses.

"Of: 'losses of fees in subsequent years due to investor redemptions made during 2008 ..."

"75. Give proper particulars of any lost fees.

"76. Identify each and every investor redemption relied on, stating:

"a. the date of each such redemption;

"b. the amount redeemed;

"c. the identify of the investor;

"d. the reason or reasons given (if any) by that investor;

"e. whether such reason or reasons were given orally or in writing; if in writing supply copies of any relevant document or documents. If orally, state when, where, by whom and to whom any reasons were given, and the words or gist of the words used.

"Answer 75-76. Not entitled. This is a request for evidence. The total amounts of the redemptions can be worked out from Answers 73 and 74 above."

21. But, again, there is no attempt to identify whether these Claimants or others have suffered any loss and damage, and certainly it is somewhat difficult, even from the answers that have been given, to determine what the losses claimed actually are or even may be.
22. I accept the broad point made by Mr Tozzi QC for the Defendants that it is very difficult for the Court to make a decision on whether or not liability should be split from quantum and, if so, in respect of what claims, unless and until the parties, and in particular here the Claimants, provide proper particulars of what their losses actually are. That is important for a number of reasons: (a) so the court can make a decision on a split hearing and (b) as I pointed out in earlier hearings, so that the party against whom the quantum is claimed knows what case is being made against it.
23. I emphasise that particularly in relation to the argument a few weeks ago about the response to the Request for Further Information, I made it clear that almost, at the very least, particulars of loss needed to be provided. Unfortunately, little has been provided by way of particularisation in the further information.
24. So I start from a position of some real judicial reluctance to split liability and quantum, at least at this stage, unless and until the Claimants can provide clear and adequate particulars and the best particulars they can of their loss in relation to the individual claims, whether in fact the Claimants have incurred it or not themselves; if not, they would need to spell out on what legal or corporate basis they claim the losses so that the Court can make a much more informed decision as to whether or not all or part of the quantum should be deferred.
25. Mr Tozzi QC makes another group of points, but they amount broadly to this, that a number of the allegations that are made in relation to breach will involve at least some consideration of quantum matters. One of the matters is in relation to whether or not the Defendants are entitled to payment of any bonuses. Part of their Counterclaim relates to an alleged entitlement, to a profit share, and on their claim (as most lately amended in draft), that relates to a 5 or 10 per cent share of the profits in the IKOS group.
26. But in the alternative, if and to the extent they fail on that claim, they seek the payment of what is called a discretionary bonus. It is not accepted by the Defendants that it is necessarily discretionary, but it is the Claimants' case that, if there is any entitlement, it is discretionary; therefore it becomes material to consider the circumstances in which there would or might be an entitlement to a bonus.
27. They plead in paragraph 184, and this is not wholly unusual, that if the payment of any bonus was discretionary, their respective contracts of employment were subject to certain implied terms, namely that the Claimants would not behave perversely, arbitrarily, capriciously or inequitably in matters concerning remuneration, and in deciding how to exercise their discretion as to the award of a bonus payment, the Claimants would behave in a way that preserved the trust and confidence that an employee should have in his employer. One sees that the Claimants dismissed Dr Ho or Mr Gover shortly before a year end, it is allged, with the intention of depriving them of the bonus.
28. They go on to say that there are breaches of those implied terms and they say that the Claimants behaved perversely, arbitrarily, capriciously or inequitably in failing to pay the defendants' bonuses for 2007 and 2008. That is all very much in issue, as appears from the Reply and Defence to Counterclaim. Whether the claim is a good one or not, the Court will have to determine whether the Claimants behaved perversely, arbitrarily, capriciously or inequitably.
29. Part of the argument may well be that the figures for the year were not good enough to justify any bonus. It may be that it will be said that the Defendants are not entitled to bonuses because they were significantly or seriously in breach of their contracts of employment, and there are a number of other matters put forward in the Reply and Defence to Counterclaim in this regard.
30. But it seems to me that it would be very difficult to deal with liability in respect of the alleged bonus entitlement in the counterclaim without considering, broadly, how the Claimants were doing financially in the years in question, and therefore liability is very much concerned with quantum matters in that regard.
31. There are other parts of the complaints which are referred to, the claims made against the Defendants, for instance, Paragraph 25.9 of the consolidated Particulars of Claim plead breaches of duty against Dr Ho, who worked as head of research, and this is said in the particulars of breach:

"Between July and October 2008, Mr Ho caused or failed to prevent an overall long position in the Japan equities portfolio by failing to adjust the system to account for a $5 million long hedging position on Nikkei contracts. As a result, the overall portfolio was not neutral to the Japanese equities market as it should have been within a narrow 5 per cent margin, resulting in a loss of 47 per cent in the Japanese equities portfolio when the Nikkei index suffered a steep decline."

32. It seems to me that, apart from the fact that the Claimants have positively pleaded this within an allegation of breach, it is or may well be material to see what was happening on the Japanese equities market in the period in question to see whether Mr Ho can be criticised for allegedly causing or failing to prevent an overall long position in that market.
33. I am of the view, therefore, that this is the sort of allegation which is going to involve looking into aspects of quantum and certainly very much in the quantum area. There are other comparable points made in Paragraphs 25.7 and 25.8 and 25.10, which, due to the hour, it may be inappropriate to go into in any great detail. I will just take one more example: paragraph 25.10. This is pleaded as a breach against Dr Ho:

"During 2008, the following models were underperforming in that their performance impacted negatively on the performance of the risk characteristics of the overall portfolio 'impact', 'LIQ', 'LTV' and in Japan and the US 'MOM'. Mr Ho failed adequately to review these models and/or to report the underperformance to the investment committee so that they might be improved or retired."

34. That presupposes that (a) there was an underperformance; (b) that Mr Ho should have picked it up; (c) that he should have reviewed it adequately; and (d) that he should have reported it to the investment committee.
35. It seems to be clear, although perhaps not 100 per cent clear, that the underperformance in question is or may impact on the quantum. But that one has to go into the underperformance of that particular market or models does seem to me to be inevitable. Therefore, there certainly is something in what Mr Tozzi QC says in this regard.
36. I certainly at this stage am not prepared to split liability and quantum. It does seem to me that it is important that both parties, but in particular the Claimants, get on with pleading their quantum case in a way that is comprehensive and comprehensible. It is simply not acceptable to the Court to allow a party that is pursuing a very large claim against two individuals to continue to withhold proper particularisation of their quantum claim. Unless and until they do, then it is very difficult for the Court to make any decision on whether to split liability and quantum. There is very little evidence as such being put forward by either side as to how difficult or expensive it is going to be to defer or not to defer, as the case may be.
37. But certainly one factor I am very concerned about is that if there is a liability and quantum split, then it is unlikely that there will be a full, detailed, reasoned judgment on liability until May or June of next year. The trial is going to run from mid January to about mid March, and if there was no adequate particularisation of the quantum claim before then, there would have to be a pleading in the light of the judgment; there would then have to be further disclosure; experts, if they had not already been retained, would have to be retained; and there is a very real risk, it seems to me, that the trial of quantum will go off for much too long a period.
38. If there was a focused application following particularisation of quantum to defer aspects, maybe substantial aspects, of quantum, that is of course something that the Court will consider, but it does seem to me it would be inappropriate at this stage in any event to defer it.
39. There are other proceedings, which are due to start in the Chancery Division, broadly involving, directly or indirectly, Ms Ambrosiadou and her actual or former husband, Mr Coward, either separately or through company vehicles. I have not seen the pleadings in that case. It is said that this will place immense pressure, undesirable and unfair pressure, both on her and a Mr Polymenakos, who is a key member of the claimants' team, or the IKOS team in any event, and this places them in extreme difficulty.
40. The Claimants are applying to the Court of Appeal for permission to appeal against the decision of Mr Justice Ramsey to fix the trial in this current matter to start at the beginning of the term in January 2013. That application has not, I am told, yet been dealt with.
41. Until and unless that is dealt with, it would be inappropriate to take a decision based on the problems suggested by Mr Goulding QC in relation to those two individuals because, as I apprehend, those difficulties were matters considered by Mr Justice Ramsey, at least potentially, and, as I understand it, they formed part of the basis, if not the entire basis, for seeking permission to appeal from the date fixing decision of Mr Justice Ramsey.
42. Obviously, if the trial does go off because of what the Court of Appeal may decide, then the point becomes a less pressing or material one. If it does not, then it may also be immaterial because the Court will then have decided that Mr Justice Ramsey's judgment or decision on that would stand. So it seems to me, although I wholly understand the point, it is not something that I should become particularly involved in because at the moment the directions that have been given do not split liability from quantum and it is simply a question of providing directions so as to ensure that this matter does come on for trial.
43. On that basis, I am not minded to split liability and quantum. As I indicated to Mr Goulding QC in argument, when he stood up in reply, I was against him generally. I would not defer quantum in relation to the surveillance allegations if and to the extent they remain alive, following my consideration of the striking-out summary judgment application; they would need to be dealt with and that would require, sooner rather than later, I apprehend, that the Defendants provide particulars of any quantum that they are permitted to claim over and above general damages.
44. But the parties will have to await my decision as to the extent to which the allegation made by way of amendment to add a claim for what appears to be called special damage is to be pursued.