Dinsdale Moorland Services Ltd v Evans & Ors [2014] EWHC 2 (Ch)

[2014] EWHC 2 (Ch)Case No 2LS 30458
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue LEEDS DISTRICT REGISTRY
The Court House
Oxford Row
Venue Leeds LS1 3BGDate 16 January 2014
Before
His Honour Judge Behrenssitting as a Judge of the High Court in Leeds
Between
DINSDALE MOORLAND SERVICES LIMITEDClaimant(1) GARETH MARK EVANSDefendants(2) STUART ALEXANDER EVANSDefendant(3) JAMES VINCENT DEMPSEYDefendant(4) INTRACUITY LIMITEDDefendant(5) CONSERVEFOR LIMITEDDefendant
David Uff (instructed by Abbey Solicitors) for ClaimantJames Boyd (instructed by AWB Charlesworth LLP) for First Second and Fifth DefendantsHearing Hearing dates: 17 th, 18 th December 2013
JudgmentJudge Behrens :1 Abbreviations
[1]In this judgment I shall adopt the following abbreviations: Dinsdale Moorland Services Ltd DMS Gareth Mark Evans Gareth Evans Stuart Alexander Evans Stuart Evans James Vincent Dempsey Vince Dempsey Intracuity Ltd Intracuity Conservefor Ltd Conservefor Ground Penetrating Radar System GPR Knowledge Transfer Partnership KTP Gareth Evans, Stuart Evans and Conservefor The Relevant Defendants 2 Introduction[2]There are before the court a number of applications in the litigation between the parties. In summary DMS seeks a declaration that the defences of the Relevant Defendants have been struck out as a result of a breach of an unless order made by DJ Jordan on 17th June 2013. In the alternative DMS seeks summary judgment in relation to a number of issues in the claim.[3]The Relevant Defendantsdeny that they are in breach of the “unless order”. If they are they seek relief from sanctions. They contend that there are serious issues to be tried in relation to all of the issues upon which DMS seek summary judgment. Accordingly they seek dismissal of the application for summary judgment.[4]There are a number of ancillary applications. Thus DMS seeks an order for specific disclosure and the Relevant Defendants apply for an order that witness statements be exchanged. I have heard no argument on these applications which are, of course dependent on the result of the other applications. I shall say no more about them in this judgment. 3.1. The parties DMS[5]DMS is a small/medium sized company specialising in peat moorland conservation and restoration, building/maintaining countryside infrastructure. It was incorporated on 17.12.04 to continue the family business which was formerly carried on by John Dinsdale and his son, Mathew Dinsdale who unfortunately died on 16th January 2008. The shares were held as 75% by Matthew Dinsdale and 25% by John Dinsdale. Following Matthew Dinsdale’s death his shares passed to his widow Julia Dinsdale. Gareth Evans[6]Gareth Evans and Stuart Evans are brothers. Gareth Evans was employed by DMS as Managing Director from 2 June 2008 until he was summarily dismissed on 16 December 2011.[7]Gareth Evans’ contract is dated 30th June 2010. The date may be of some importance. In his witness statement John Dinsdale says that Gareth Evans was employed on the faith of the restrictive covenants in the contract. In view of the fact that the contract was signed some 2 years after Gareth Evans’ appointment this assertion is hard to follow. In any event the contract contained a number of clauses which are relied on in these proceedings. They include: [Gareth Evans] should have the general control and responsibility for the management of the business of DMS. [Gareth Evans] should do all in his power to promote, develop and extend the business of DMS. [Gareth Evans] should not without the prior written consent of the board of DMS (not to be unreasonably withheld or delayed) be concerned or interested in any other business of a similar nature to or competitive with that carried on by DMS (as at the date of this Agreement) or which is a supplier of DMS. [Gareth Evans] should not (except in the proper course of his duties) during or at any time after the period of his employment divulge to any person or otherwise make use of (and shall use his best endeavours to prevent the publication or disclosure of) any confidential information of DMS (as therein defined) or any of its suppliers, agents, distributors or customers.[8]The contract also contained a complicated and long clause containing restrictive covenants. It is unnecessary to set it out in full but the relevant part reads: [Gareth Evans] undertakes that he will not (without the previous consent in writing of DMS) for the period of 9 months immediately after the termination date (as therein defined and referred to herein as “the material time”) whether as principal or agent, and whether alone or jointly with, or as a director, manager, partner, shareholder, employee or consultant of any other person, directly or indirectly a) carry on or be engaged, concerned or interested in any business within the United Kingdom which is similar to and competes with any business being carried on by DMS at the termination date (as therein defined) and with which he was involved in the course of his employment at any time during the period of 12 months immediately preceding the termination date (referred to herein as “a relevant business”); [20.5] [Gareth Evans] agrees that, having regard to all the circumstances, the restrictions contained in this clause are reasonable and necessary for the protection of DMS and that they do not bear harshly upon him and the parties agree that …[9]It will be necessary to consider the clause in more detail later in the judgment but it is to be noted that the restriction applies to the whole of the United Kingdom.[10]As Managing Director of DMS Gareth Evans owed the fiduciary duties set out in the Companies Act 2006. Stuart Evans[11]Stuart Evans was employed by DMS from its inception as contracts manager. He had been employed by the family business in a similar capacity. He, too, was summarily dismissed on 16 December 2011.[12]Stuart Evans’ contract terms are contained in two documents – a statement of main terms and an Employee Handbook. There are no restrictive covenants such as those set out above in respect of Gareth Evans. In the Particulars of Claim (paragraph 28) DMS rely on a number of implied terms such as a duty of fidelity, and a duty not to place himself in a situation where his interests conflict with the interests of DMS. There is (on page 11 of the handbook) an extremely wide definition of confidential information and an obligation on Stuart Evans not to disclose such information at any time during or after the employment. The definition extends to “all information acquired by Stuart Evans in the course of his employment relating to DMS’ business that has not been made public” Vince Dempsey[13]Vince Dempsey is the director of Dempsey Precision Limited which carries on business providing agricultural services and ancillary computer hardware/software solutions. DMS had historically sourced its information technology needs from Dempsey Precision including the supply from time to time of hand held GPS devices. Intracuity[14]Intracuity was incorporated on 6January 2011. The original directors were Vince Dempsey, his wife Diane Dempsey and DMS. Vince Dempsey was the registered holder of 85 of the 100 issued shares. DMS held the remaining 15 shares. On 12 November 2011 DMS ceased to be a director of Intracuity and DMS’ shares were transferred to Diane Dempsey.[15]The circumstances surrounding the incorporation of Intracuity are central to the issues in this case. DMS contend that 34 or 35 of Vince Dempsey’s shares were held on trust for Gareth Evans and Stuart Evans and that this interest was not disclosed to DMS. This is said to be the making of a secret profit by Gareth Evans and Stuart Evans. It was this secret profit that led directly to their summary dismissal on 16 December 2011. Gareth Evans and Stuart Evans accept that they considered taking a shareholding in Intracuity but they each contend that they withdrew before completion. At no time were any shares held on trust for them. As they put it – they dipped their toes in the water but they did not ever swim.[16]It will be necessary to look at the documents relating to the incorporation and to the shareholding of Gareth Evans and Stuart Evans in more detail later in this judgment. Conservefor[17]Conservefor was incorporated on 26 January 2012. Stuart Evans is the registered director and the holder of 180 of the 200 issued shares in Conservefor. The remaining 20 shares are held by Anna Howarth.[18]It is not in dispute that Conservefor operates a business that competes with DMS. It is held out as specialising in peatland and moorland management/restoration, GPR and GPS mapping and surveying (focusing on detecting peat pipes and management), countryside consultancy, access and rights of way. It is equally not in dispute that, at least from 16th July 2012 Gareth Evans has been involved or concerned with the business of Conservefor. 90 of the 180 shares owned by Stuart Evans were transferred to Gareth Evans in December 2012. DMS contend that Gareth Evans has been involved with Conservefor from its inception.[19]If the restrictive covenants are valid Gareth Evans was plainly in breach between 16th July 2012 and 16th September 2012. It is also alleged that Conservefor successfully tendered for a number of contracts where DMS had also submitted tenders prior to the dismissal of Gareth Evans. It is suggested that those successful tenders were obtained as a result of misuse of confidential information by either Gareth Evans or Stuart Evans. 3.2 Confidential Information[20]There is a dispute between the parties as to the extent of the confidential information in this case. A number of areas are relevant: GPR[21]There is a dispute as to the extent to which the GPR technology was confidential to DMS. The principal use of GPR was to survey underground in order to determine the location of peat pipes. This is important because a peat pipe allows water and contaminants to collect and cause blockages.[22]However GPR is still in its infancy. Currently 4 separate data computers are used to analyse the data from the GPR. It is suggested by the Relevant Defendants that there is no confidential information in the current use of GPR. In so far as there is any confidential information it does not belong to DMS.[23]DMS submitted a grant application as part of the KTP for a collaboration with Leeds University for the analytical programming of a single unit against the 4 data separate computers currently being used. The KTP would address the challenge of design, manufacture and analysis of the data.[24]It is Vince Dempsey’s case (paragraph 43 of the Amended Defence) that he wished to derive some benefit (in common with DMS) from the GPR system which he had introduced to DMS and developed and progressed with DMS. He intended that Intracuity would benefit through data processing contracts using data produced by DMS.[25]Mr Boyd showed me an email from Vince Dempsey to Gareth Evans and Stuart Evans dated 23rd November 2009 which included: The Company will purchase or rent the hardware for the service … I will transfer the intellectual rights of the process to the Company … The data will be processed by the Company and deliver to [DMS] for client. The product will give exclusive marketing rights to [DMS].[26]To my mind there are clear triable issues as to the extent of any confidential information owned by DMS in relation to the GPR system. 4 The litigation[27]These proceedings were issued on 1August 2012. For the purpose of this judgment it is only necessary to summarise the allegations that are made.[28]In paragraphs 9 and 10 of his skeleton argument Mr Uff identifies 4 broad subject headings and 16 issues

The subject headings comprise:

[1]The contract of employment of Gareth Evans (the restrictive covenants) - issue 1.[2]The dealings by Gareth Evans and Stuart Evans with Intracuity. Those dealings took place during the employments of Gareth Evans and Stuart Evans and give rise to claims for breach of the employment contracts and breach of fiduciary obligations - issues 2 to 7.[3]The dismissal from employment (the lawfulness of the dismissals) - issues 8 and 9.[4]The dealings by Gareth Evans and Stuart Evans with Conservefor. Those dealings took place following the termination of the employments of Gareth Evans and Stuart Evans and give rise to claims for breach of the employment contracts and breach of fiduciary obligations - issues 10 to 16.[29]It was Mr Uff’s case that in order to determine the question of whether there is a breach of the unless order it is necessary to consider the issues in the summary judgment application in more detail than the bare outline set out above. I therefore propose to deal with the facts relating to the issues before considering the disclosure. 5 The test for summary judgment[30]In his skeleton argument Mr Boyd helpfully referred me to the guidance given by Lewison J (as he then was) in Nigeria v Santolina Investment Corporation and others [2007] EWHC 437 (Ch) “4. The courts have now given guidance on the principles to be applied in deciding whether or not to give summary judgment. For present purposes I summarise the relevant ones as follows: i) The court must consider whether the defendant has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 2 All ER 91; ii) A "realistic" defence is one that carries some degree of conviction. This means a defence that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8] iii) In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman iv) This does not mean that the court must take at face value and without analysis everything that a defendant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10] v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550; vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63; vii) Although there is no longer an absolute bar on obtaining summary judgment when fraud is alleged, the fact that a claim is based on fraud is a relevant factor. The risk of a finding of dishonesty may itself provide a compelling reason for allowing a case to proceed to trial, even where the case looks strong on the papers: Wrexham Association Football Club Ltd v Crucialmove Ltd [2006] EWCA Civ 237 at [57].” 6 The Restrictive Covenant issue.[31]I have set out the restrictive covenant in section 3 above. In summary it prevents Gareth Evans from being concerned or interested in any competing business within the United Kingdom for a period of 9 months from the termination of the contract of employment.[32]If it is enforceable it is not in dispute that Gareth Evans was in breach for a period of 2 months.[33]The principal issue is whether the restriction is enforceable. Mr Boyd challenges the restrictive covenant on two grounds:[1]He submits that the summary dismissal was unlawful with the result that DMS repudiated his contract of employment on 16th December 2012. In those circumstances the restrictive covenant is unenforceable.[2]He submits that the restrictive covenant is unenforceable as being in restraint of trade. In particular he submits that it is arguable that which extends to the whole of the United Kingdom is too wide in that it is more extensive than is reasonably necessary to protect the legitimate interest of DMS.[34]Mr Uff accepts that if DMS repudiated the contract of employment it is, to put it no higher, well arguable that DMS cannot rely on the restrictive covenants. However he contends that it is plain that DMS was entitled to dismiss Gareth Evans summarily and that there was, accordingly no repudiatory breach by DMS.[35]Mr Uff contends that it is not realistically arguable that the covenant is unenforceable. First he submits that Gareth Evans is estopped from arguing that the covenant is too wide. He relies on clause 20.5 which I have set out above. He referred me to Springwell Navigation v JP Morgan Chase [2010] EWCA Civ 1221 as an analogous where the Court of Appeal held in effect that there was such an estoppel.[36]If there is no estoppel he argues that it is plain that the covenant in this case is enforceable. He relies on a number of matters in support of this submission. He submits that the parties were of equal bargaining strength, that the contract was negotiated over a lengthy period, that each had the benefit of legal advice. He drew my attention to one of the drafts of the contract which shows that at one time the parties were negotiating over a period of 12 months and a radius of 100 miles from DMS. The contract was a compromise agreed by both parties. Discussion and Conclusion.[37]It is convenient to discuss Mr Boyd’s first submission later in the judgment after considering whether there is a triable issue on the question of whether the summary dismissal was justified. Estoppel[38]Springwell is a complicated case. One of the issues was whether a party could be estopped by agreement from asserting that there were pre-contract (mis)representations on which he relied. The Court of Appeal held that he could. I was referred to paragraphs 143, 144, 154 and 156 of the judgment of Aikens LJ. I shall not lengthen this judgment by setting out the passages in full. They include:143. Before I examine Lowe v Lombank and subsequent cases on this issue, I will try and analyse the matter from principle. If A and B enter into a contract then, unless there is some principle of law or statute to the contrary, they are entitled to agree what they like. Unless Lowe v Lombank is authority to the contrary, there is no legal principle that states that parties cannot agree to assume that a certain state of affairs is the case at the time the contract is concluded or has been so in the past, even if that is not the case, so that the contract is made upon the basis that the present or past facts are as stated and agreed by the parties. …144. So, in principle and always depending on the precise construction of the contractual wording, I would say that A and B can agree that A has made no pre-contract representations to B about the quality or nature of a financial instrument that A is selling to B. Should it make any difference that both A and B know at and before making the contract, that A did, in fact, make representations, so that the statement that A had not is contrary to what each side knows is the case? 154. In Grimstead (EA) & Sons Ltd v McGarrigan, [1999] CA Transcript 1733 Chadwick LJ stated that an acknowledgement of “non-reliance” by parties to a contract was capable of operating as an evidential estoppel if the legal requirements of an estoppel were fulfilled. In that case he held they were not. Page 28 of the transcript. He also pointed out the commercial utility of enforcing such estoppels when the parties to a contract were of equal bargaining power. Pages 32 and 35 of the transcript. Chadwick LJ also gave the leading judgment in Watford Electronics Ltd v Sanderson CFL Ltd. [2001] 1 All ER (Comm) 696 He referred to his analysis in Grimstead and to Lowe v Lombank. [39] and [40]. Neither Peter Gibson LJ nor Buckley J made further comments on this point. However, in neither case did Chadwick LJ make any analysis of the remarks of Diplock J quoted above.[39]As I have noted Mr Uff submits that the principles there set out apply just as much to a covenant in an employment contract as they do to a pre contractual misrepresentation. He again points to the fact that the parties were of equal bargaining strength.[40]To my mind there are significant differences between a pre-contractual representation and a covenant in restraint of trade. The law relating to such covenants depends on public policy and was summarised in the judgment of Sir Christopher Slade in Office Angels v Rainer Thomas [1991] IRLR 214: The relevant principles of law applicable to covenants in restraint of trade such as this are more or less common ground. It is the application of those principles to the facts of the present case which has given rise to the dispute. I will now summarise certain of the relevant principles:(1) If the Court is to uphold the validity of any covenant in restraint of trade, the covenantee must show that the covenant is both reasonable in the interests of the contracting parties and reasonable in the interests of the public: (see for example Herbert Morris Ltd. v. Saxelby [1916] A.C.688 at p.707 per Lord Parker of Waddington).(2) A distinction is, however, to be drawn between (a) a covenant against competition entered into by a vendor with the purchaser of the goodwill of a business, which will be upheld as necessary to protect the subject matter of the sale, provided that it is confined to the area within which competition on the part of the vendor would be likely to injure the purchaser in the enjoyment of the goodwill he has bought, and (b) a covenant between master and servant designed to prevent competition by the servant with the master after the termination of his contract of service: (see for example Kores Manufacturing Co. Ltd. v. Kolok Manufacturing Ltd. [1959] Ch.109 at p.118 per Jenkins L.J.).(3) In the case of contracts between master and servant, covenants against competition are never as such upheld by the Court. As Lord Parker put it in Herbert Morris Ltd. v. Saxelby (supra) at p.709: “I cannot find any case in which a covenant against competition by a servant or apprentice has, as such, ever been upheld by the Court. Wherever such covenants have been upheld it has been on the ground, not that the servant or apprentice would, by reason of his employment or training, obtain the skill and knowledge necessary to equip him as a possible competitor in the trade, but that he might obtain such personal knowledge of and influence over the customers of his employer, or such an acquaintance with his employer's trade secrets as would enable him, if competition were allowed, to take advantage of his employers' trade connection or utilise information confidentially obtained.” [On this appeal we are not concerned with trade secrets. The plaintiff's Staff Handbook contained special provisions (in clause 4.3) dealing with Confidentiality, but no issue concerning confidentiality has been raised in this court].(4) The subject-matter in respect of which an employer may legitimately claim protection from an employee by a covenant in restraint of trade was further identified by Lord Wilberforce in Stenhouse Ltd. v. Phillips [1974] A.C. 391 (at p.400) as follows: “The employers' claim for protection must be based upon the identification of some advantage or asset inherent in the business which can properly be regarded as, in a general sense, his property, and which it would be unjust to allow the employee to appropriate for his own purposes, even though he, the employee, may have contributed to its creation.”(5) If, however, the Court is to uphold restrictions which a covenant imposes upon the freedom of action of the servant after he has left the service of the master, the master must satisfy the Court that the restrictions are no greater than are reasonably necessary for the protection of the master in his business: (see Mason v. Provident Clothing & Supply Co. Ltd. [1913] A.C.724 at p.742 per Lord Moulton). As Lord Parker stressed in Herbert Morris Ltd. v. Saxelby (supra) at p.707 , for any covenant in restraint of trade to be treated as reasonable in the interests of the parties “it must afford no more than adequate protection to the benefit of the party in whose favour it is imposed” (Lord Parker's emphasis).[41]It is to be noted that the covenant must be reasonable both in the interests of the parties and in the public interest. To my mind this feature distinguishes restrictive covenant cases from misrepresentation cases. It seems to me to be by no means fanciful to suggest that the parties cannot themselves agree that such a clause is reasonable in the public interest. Certainly I think the point is sufficiently arguable not to be suitable for determination in a summary judgment application. It is to my mind pertinent that Mr Uff was unable to provide me with a single authority where such an argument has succeeded in relation to a restrictive covenant.[42]It follows that I decline to give summary judgment based on the estoppel argument. The covenant[43]I acknowledge that the covenant as agreed was the result of negotiations between two parties advised by lawyers. I am not in a position to comment on whether Gareth Evans and DMS were of equal bargaining strength though I acknowledge they may have been. I also accept that clause 20.5 is relevant (though not decisive) in determining the enforceability of the covenant. I am, however, far from satisfied that it is plain that this covenant is enforceable.[44]It will be noted from Sir Christopher Slade’s summary of the law that it is for DMS to identify some advantage or asset inherent in the business which can properly be regarded as, in a general sense, its property, and which it would be unjust to allow Gareth Evans to appropriate for his own purposes. Furthermore DMS must establish that that the restrictions are no greater than are reasonably necessary for the protection of DMS in its business.[45]The evidence in relation to these matters is, at the moment sparse. DMS is said to be a small/medium size company based in North Yorkshire. It is said to have 80 to 100 repeat customers including large institutions such as Yorkshire Water. [See paragraphs 2 and 3 of the Particulars of Claim ]. Gareth Evans was the Managing Director and was no doubt aware of DMS’s customers and business methods. The witness statement of John Dinsdale deals with this issue in paragraphs 24 to 26 of his witness statement. Other than to assert that Gareth Evans was DMS’ most senior employee with general responsibility for the management of the business he does not begin to attempt to say why a restriction involving the whole of the UK is reasonably necessary for the protection of DMS in its business.[46]To my mind there is a clear triable issue on this issue and I would reject summary judgment on this issue. Disclosure[47]I shall deal with disclosure later in this judgment. For the moment I note Mr Uff criticised the documents disclosed by Gareth Evans as they did not include the documents which comprise the contractual negotiations leading up to the execution of the contract. These documents were, of course at all times in DMS’ possession and were not included in their original list either. 7 The issues relating to Intracuity[48]As is clear from Mr Uff’s skeleton argument there are 6 issues (issues 2 to 7) under this heading. However the two principal issues are whether(1) Gareth Evans and/or(2) Stuart Evans were in breach of fiduciary duty and/or the duty of fidelity owed to DMS by becoming a shareholder of Intracuity without disclosing it to DMS and thus making or potentially making a secret profit.[49]The Defence to these allegations is both stark and simple. Both Gareth Evans and Stuart Evans deny that they ever concluded an agreement to become shareholders of Intracuity. They accept that they entered into negotiations with Vince Dempsey but they deny that the negotiations were ever concluded.[50]In pursuing the claim for summary judgment in the face of these denials Mr Uff submits that this is one of those cases where the court should not take at face value the denials of Gareth Evans and Stuart Evans. He submits that it is one of those cases where it is clear that there is no real substance in the denials in the light of the contemporaneous documents.[51]As Mr Boyd pointed out it is to be noted DMS does not allege or put its case on the basis that merely to negotiate would be a breach of fiduciary duty/ and or the duty of fidelity. This is, to my mind, understandable. Plainly no secret profit could arise unless the negotiations were concluded by Gareth Evans or Stuart Evans becoming shareholders at least in equity.[52]There is no direct oral evidence to support DMS’s case for a concluded contract. The Court is, however invited to reach that conclusion from the contemporaneous documents: The documents[53]The email trail starts in August 2009 with an exchange of emails between Gareth Evans on behalf of DMS and Robert Whiting on behalf of Leeds University. It is apparent that there was a meeting on 11th September 2009 when a “wish list of projects” was discussed. On 15th October 2009 Gareth Evans emailed Robert Whiting instructing him to proceed with the development of a mobile GPR system to measure/calculate the volume of peat and stored carbon on moorland.[54]On 23rd November 2009 Vince Dempsey emailed Gareth Evans and Stuart Evans. The email has already been referred to above. Vince Dempsey proposed setting up a company with 4 or 5 shareholders. These were(1) Vince Dempsey – 50%,(2) Gareth Evans – 17% (held by a nominee, (suggested himself)),(3) Stuart Evans – 17% (held by a nominee)(4) DMS – 14% and (possibly) Joseph Holden (of Leeds University) – 2%. As already noted the proposed Company would process the data and deliver it to DMS.[55]On 1st February 2010 Vince Dempsey sent an email to Gareth Evans and Stuart Evans with a suggestion for the name of the Company (Intracuity) and for the product.[56]Gareth Evans replied on 10th February 2010 agreeing the name of the Company and calling the product Geopeat. The email suggested a meeting to discuss a number of matters such as what equipment was needed, and what it would cost.[57]On 13th August 2010 Vince Dempsey sent an email to his solicitor (Stephen Mackinder at Thorpe & Co in Malton) seeking advice on the setting up of Intracuity. The email stated that the Company would have 4 shareholders - Vince Dempsey (50%), DMS (15%), Gareth Evans and Stuart Evans (each 17.5% to be held by a nominee – himself subject to legal advice). The email continued: The reason for the nominated shareholders situation is that they are employees of the Company that will undertake the marketing of the service. They do not want the directors of the Company to know of their interest. [Gareth Evans] is MD of [DMS] and will act on the Company’s behalf. Is all this feasible?[58]The email was copied to Gareth Evans and Stuart Evans. There is no evidence at the moment as to what advice Mr Mackinder gave to Vince Dempsey. Gareth Evans and Stuart Evans point out that they are not the authors of the email.[59]Mr Uff points out that there is equally no evidence that they demurred from this email and that it is not credible that it did not represent their position.[60]As already noted Intracuity was incorporated on 5th January 2011. The Directors are shown as Vince Dempsey, Diane Dempsey (his wife) and DMS. There are 100 authorised shares. 85 shares were allotted to Vince Dempsey and 15 shares to DMS.[61]At 15.02 on 7th January 2012 Vince Dempsey emailed Gareth Evans and Stuart Evans. He informed them that the Company had been formed. The email continued: I now need to sell you both 17 shares each, this will be in the form of a private sale certificate between ourselves, witnessed.[62]Gareth Evans replied at 16.17 the same day: What’s the value of the shares and when do you want paying?

[This email did not appear in Gareth Evans’ list of documents.]

[63]At 8.56 on 18th February 2011 Stuart Evans sent an e-mail from his mobile phone to Vince Dempsey which reads: [Gareth Evans] would like you to turn his shares in the Company over to me so there is no conflict with DMS and for DMS to retain its 10%. Sorry for the messing about but this is the final conclusion for the Company as we see it.[64]Mr Uff had a number of comments to make about this e-mail. First he did not accept it was genuine. Unlike the other emails it did not appear on the DMS server. Furthermore he noted a difference in the way in which “sent using BlackberryR from Orange” was typed which he submitted was significant. Second he submitted that it was remarkable that Gareth Evans and Stuart Evans should think that it resolved the conflict of interest. Third he submitted that it showed that Vince Dempsey held the shares on behalf of Gareth Evans and Stuart Evans.[65]There are a number of other documents which are relevant to the issue:[1]Gareth Evans’ and Stuart Evans’ defence is set out in paragraph 7 of their Amended Defence. In that document they admit that there were discussions between themselves and Vince Dempsey with regard to their having a personal shareholding in Intracuity but they deny that they have ever been shareholders of Intracuity. They expressly deny that Vince Dempsey has ever held any category of shares in Intracuity as nominee for either of them.[2]In paragraph 18 of his witness statement in opposition to the summary judgment application Gareth Evans repeats the denial contained in the Defence and asserts that there are triable issues.[3]Following the summary dismissal on 16th December 2011 both Gareth Evans and Stuart Evans prepared written statements for the purpose of their appeals. In those statements they maintain a denial that they had personally held shares in Intracuity. They also allege that John Dinsdale had phoned Vince Dempsey who had also denied that any shares were held as nominee for Gareth Evans and Stuart Evans. At the appeal hearing Gareth Evans repeated that he rejected the offer.[4]In his Defence Vince Dempsey expressly denies that he held any shares in Intracuity on trust for Gareth Evans or Stuart Evans.[5]In the disclosure list of Vince Dempsey and Intracuity Vince Dempsey has disclosed 2 documents of potential relevance They are described as: A handwritten agreement for the issue of shares in Intracuity to [Gareth Evans] and [Stuart Evans] which was destroyed when they were dismissed from their employment with the Claimant. Handwritten share transfer forms representing an agreement by [Vince Dempsey] to transfer 17 shares each to Gareth Evans and Stuart Evans which were destroyed by [Vince Dempsey] in or about February 2012. Discussion and Conclusion[66]I agree with Mr Uff that the emails give rise to grave suspicions. Furthermore there appear to be some inconsistencies between the emails and the case presented by Gareth Evans and Stuart Evans at the appeal hearing. At that time Gareth Evans and Stuart Evans were suggesting that they rejected the offer when it was made. The emails suggest that matters went far further than that. Gareth Evans’ email of 7th January 2011 strongly suggests that the agreement was proceeding at that stage. Stuart Evans’ of 18th February 2011 equally suggests that Stuart Evans was to be the beneficial owner of shares. At the moment neither Gareth Evans nor Stuart Evans have attempted to explain these emails.[67]As against that there is the fact that both Gareth Evans and Stuart Evans deny that the agreement was concluded. If the matter goes to trial it can reasonably be expected that Vince Dempsey will support this evidence. Furthermore as Mr Boyd points out none of the emails actually establishes that the agreement was concluded. Equally the documents disclosed by Vince Dempsey leave as many questions unanswered as answered.[68]I have not found the resolution of the two principal issues easy. In the end I have decided that it is not possible to say that there is no realistic prospect that the defences will succeed. In my view Gareth Evans, Stuart Evans and Vince Dempsey are entitled to their day in court. No doubt they will be subject to close and detailed cross-examination. I cannot however at this stage predict the result of that cross-examination.[69]Accordingly I have decided that on this central issue there are triable issues and I would reject the claim for summary judgment. The 4 subsidiary issues.[70]To my mind there are plain triable issues on each of the four subsidiary issues. As Mr Uff recognises they are linked. Once it is accepted that there are triable issues on whether Gareth Evans and Stuart Evans are in breach of their fiduciary duty or duties of fidelity there must be similar issues in relation to them. I can thus deal with them briefly. Procurement of the incorporation of Intracuity[71]In my view there is a triable issue as to whether Gareth Evans “procured” the incorporation of Intracuity at all. The documents suggest that it was incorporated by Vince Dempsey. Even if it was there is a triable issue as to whether the incorporation was in breach of his fiduciary duty.[72]Precisely similar issues arise as to whether Stuart Evans procured the incorporation of Intracuity. Accessory Liability of Gareth Evans or Stuart Evans/Conspiracy[73]Apart from any other defences to these allegations they are plainly dependent on a finding of breach of fiduciary duty or a duty of fidelity by Gareth Evans and Stuart Evans. If there is a triable issue on that issue there must be a triable issue on the accessory liability and conspiracy allegations. Relief[74]As liability has yet to be established it follows that the question of relief raises triable issues. 8 The Dismissals of Gareth Evans and Stuart Evans[75]There are 2 issues (issues 8 and 9) under this heading. In effect the issues are whether the dismissals on 16th December 2012 were lawful.[76]In his skeleton argument Mr Boyd raises a number of possible defences to the summary dismissals. In paragraph 10 he suggests that the Court will need to determine the real reason for Gareth Evans and Stuart Evans’s dismissal. He submits that the disciplinary hearing was unfair and that the real reason may have been that John Dinsdale held a grudge against them.[77]However neither of these reasons seems to me to be sufficient to justify a trial. As Mr Uff pointed out it is important not to confuse the statutory remedy of unfair dismissal which is dealt with by the Employment Tribunal and the common law concept of summary dismissal which is at the heart of this case. The allegation that the disciplinary hearing was unfair may be relevant to the unfair dismissal proceedings but is unlikely to be so in these proceedings.[78]Furthermore at common law it is well established that a party accused of wrongful dismissal may justify the dismissal if there were at the time facts in existence which would have provided a good reason even if he did not know of them at the time of the dismissal. [See Chitty on Contracts 31st Ed Vol 1 paragraph 24-014 and the cases cited at footnote 104 including Boston Deep Sea Fishing v Ansell (1888) 39 Ch D 339 which was cited by Mr Uff at the hearing.][79]However the matter does not end there. The sole reason for the dismissal was the acquisition of a secret shareholding by Stuart Evans and Gareth Evans in Intracuity. For reasons set out above I am satisfied that Gareth Evans and Stuart Evans have a realistic prospect of defending the allegation that they acquired a secret shareholding in Intracuity.[80]If they succeed on that issue it seems to me that that they have realistic prospects of establishing that the summary dismissal was wrongful. Mr Uff referred me to paragraph 39-180 of Vol 2 of Chitty where the test is stated to be: The general rule is that if the employee does anything which is incompatible with the due or faithful discharge of his duties to his employer he may be dismissed without notice.[81]It seems to me to follow that the issue of whether the summary dismissal was lawful depends on a finding that that Gareth Evans and Stuart Evans acquired a secret shareholding in Intracuity.[82]It follows that Gareth Evans and Stuart Evans have realistic prospects of success on issue 8 and 9.[83]If Gareth Evans and Stuart Evans establish that the summary dismissal was unlawful it is not seriously in dispute that DMS itself repudiated the contracts of employment. In those circumstances there is plainly a serious issue to be tried as to whether the restrictive covenants in Gareth Evans’s contract survive DMS’ repudiatory breach. The matter is mentioned in the cases cited in footnote 270 to paragraph 24-050 of Chitty and involves a consideration of the extent of the decision of the House of Lords in General Billposting v Atkinson [1909] A C 116. It is plainly not suitable for an application under Part 24. 9 The dealings by Gareth Evans and Stuart Evans with Conservefor.[84]It is not in dispute that Conservefor approached customers of DMS within the 9 month period of Gareth Evans’ restrictive covenant. It is equally not in dispute that Conservefor has won contracts for which DMS was invited to quote. This is said to give rise to 7 issues (issues 10 – 16) in respect of which DMS is entitled to summary judgment.[85]In the light of my views on issues 1 to 9 it is possible to deal with these issues relatively briefly. For convenience I shall take the 7 issues from Mr Uff’s skeleton argument Issue 10: Whether Gareth Evans acting in combination with (at least) Stuart Evans procured the incorporation of Conservefor for the purpose of carrying on business in competition with DMS in breach of the restrictive covenants in his contract of employment with DMS.[86]To my mind there are clear issues as to the extent to which Gareth Evans was involved in the incorporation of Conservefor. More importantly for the reasons given above there are clear issues as to the enforceability of the restrictive covenants. Issue 11: Whether Gareth Evans acting in combination with (at least) Stuart Evans and Conservefor carried on business in competition with DMS or otherwise acted:- i) in breach of the restrictive covenants in his contract of employment with DMS;[87]There are clear issues as to when Gareth Evans starting working for Conservefor. More importantly there are issues as to the enforceability of the restrictive covenants. ii) by exploiting any property, information or opportunity in breach of his continuing fiduciary duty to DMS under s.170(2) Companies Act 2006;[88]There are issues as to the extent to which Gareth Evans was involved in any of the contracts which are complained of. There are also issues as to the extent to which any information used by him was confidential. iii) by misusing confidential information or trade secrets of DMS in breach of his continuing fiduciary duty to DMS;[89]There are issues as to the extent to which Gareth Evans was involved in any of the contracts which are complained of. There are also issues as to the extent to which any information used by him was confidential or amounted to a trade secret iv) by misusing confidential information or trade secrets of DMS in breach of his continuing (express) contractual duty to DMS.[90]In addition to the issues identified in ii) and iii) there is the further issue as to how far the contractual duty survived the alleged repudiatory breach by DMS of the contract of employment. Issue 12: Whether there is accessory liability in(i) Stuart Evans and(ii) Conservefor:- i) for intentionally inducing breaches by Gareth Evans of the restrictive covenants in his contract of employment with DMS; ii) For dishonestly assisting breaches by Gareth Evans of his continuing fiduciary duty to DMS under s.170(2).[91]It was not clear how far Mr Uff sought to advance issue 12. If I understood his oral submissions he accepted that it added little or nothing to his other submissions. In any event there are clearly triable issues on any accessory liability in a case where there is a triable issue on the primary liability of Gareth Evans. It is also clear from the passage from Lewison J’s judgment in Nigeria that an allegation of dishonesty may provide a compelling reason for allowing a case to go to trial Issue 13: Whether Stuart Evans carried on business in competition with DMS or otherwise acted:- i) by misusing confidential information or trade secrets of DMS in breach of his continuing fiduciary duty to DMS;[92]Stuart Evans was not a director of DMS. He was a senior employee. Mr Uff helpfully referred to the masterly judgment of Elias J inUniversity of Nottingham v Fishel [2000] ICR 1462, 1491 where he said:
“…the essence of the employment relationship is not typically fiduciary at all. Its purpose is not to place the employee in a position where he is obliged to pursue his employer's interests at the expense of his own. The relationship is a contractual one and the powers imposed on the employee are conferred by the employer himself. The employee's freedom of action is regulated by the contract, the scope of his powers is determined by the terms (express or implied) of the contract, and as a consequence the employer can exercise (or at least he can place himself in a position where he has the opportunity to exercise) considerable control over the employee's decision making powers. This is not to say that fiduciary duties cannot arise out of the employment relationship itself. But they arise not as a result of the mere fact that there is an employment relationship. … Rather they result from the fact that within a particular contractual relationship there are specific contractual obligations which the employee has undertaken which have placed him in a situation where equity imposes these rigorous duties in addition to the contractual obligations. Where this occurs, the scope of the fiduciary obligations both arises out of, and is circumscribed by, the contractual terms; it is circumscribed because equity cannot alter the terms of the contract validly undertaken.”
[93]In paragraph 97 of his skeleton argument Mr Uff submitted that the role entrusted to Stuart Evans in respect of the KTP and GPR imposed the necessary requirements of trust and confidence on him to impose a fiduciary duty on him. I do not accept that submission. In the light of the evidence of Vince Dempsey and of the lack of detailed evidence so far produced on behalf of DMS it is, to my mind, an open question as to what was or was not confidential information and as to whether there were any fiduciary duties imposed on Stuart Evans.[94]There are, to my mind clear triable issues on these issues and as to the extent to which Stuart Evans used any confidential information. ii) by misusing confidential information or trade secrets of DMS in breach of his continuing (express) contractual duty to DMS.[95]In addition to the issues identified above there is the question whether the contractual duty survives the alleged repudiatory breach of contract by DMS. Issue 14: Whether there is accessory liability in(i) Gareth Evans and(ii) Conservefor:- i) for dishonestly assisting breaches by Stuart Evans of his continuing fiduciary duty to DMS not to misuse confidential information or trade secrets of DMS; ii) intentionally inducing breaches by Stuart Evans of his continuing (express) contractual duty not to misuse confidential information or trade secrets of DMS.[96]My comments on issue 12 apply equally to issue 14 Issue 15: Whether(i) Gareth Evans(ii) Stuart Evans and(iii) Conservefor conspired together to injure DMS by unlawful means.[97]To my mind an application for summary judgment is not an appropriate place for the difficult questions that arise in relation to the law of conspiracy and which were discussed somewhat briefly in argument. In any event in the light of my views on the other issues there is a triable issue on whether the means used were unlawful Issue 16: Whether DMS is entitled to:- i) an account of the profits derived by reason of the breaches of fiduciary duty and/or the dishonest assistance against(i) Gareth Evans,(ii) Stuart Evans and(iii) Conservefor; ii) damages for breach of contract against (i) Gareth Evans, (ii) Stuart Evans; iii) damages for inducing breach of contract against (i) Gareth Evans, (ii) Stuart Evans and (iii) Conservefor; iv) damages for conspiracy against (i) Gareth Evans, (ii) Stuart Evans and (iii) Conservefor.[98]As this is relates to relief and there are triable issues on liability Issue 16 does not give rise to a right for summary judgment. 10 Conclusion on the application for summary judgment.[99]It follows that the application for summary judgment fails. In my view there are realistic prospects of success on all of the 16 issues raised by Mr Uff. Furthermore as there are allegations of dishonesty against both Gareth Evans and Stuart Evans that is a further powerful reason for permitting a trial. It is further to be noted that the determination of the issues on summary judgment has come to close to a “mini trial”. I have been provided with 5 bundles of documents , a core bundle and a large number of authorities. The application was issued very late and had the effect of causing the vacation of the trial date. 11 Disclosure.[100]The matter does not, of course, rest there because it is necessary to consider in detail the application for a declaration that the defence has been struck out as a result of the failure by the Relevant Defendants to comply with an “unless order” and the cross-application for relief if the defence has in fact been struck out. 11.1 Early Chronology[101]DMS commenced these proceedings without the courtesy of any pre-action correspondence on 1st August 2012. At that time there were existing proceedings in the Employment Tribunal for unfair dismissal. Defences were served on 7th September 2012. The claim was amended by consent following a hearing on 26th November 2012 and the Amended Defences filed on 14th January 2013. 11.2 Disclosure[102]On 15th January 2013 D J Jordan ordered the parties to complete the electronic disclosure questionnaire by 8th February 2013, to give standard disclosure by 22nd February 2013 and inspection by 4th March 2013[103]It would appear that there was some slight slippage in the dates in that one list was served on behalf of the Relevant Defendants on 18th March 2013. On 11th April 2013 Abbey, the solicitors for DMS, wrote to AWB Charlesworth who were acting for the Relevant Defendants. In the letter Abbey complained that there ought to have been separate lists for each of the Relevant Defendants and also the list should also hav specified the locations searched.[104]Chasing letters were sent on 22nd April 2013 and 6th June 2013. In that letter Abbey also complained (without giving any details) that the list was inadequate. It stated that Counsel was preparing an application for specific disclosure.[105]On 7th June 2013 AWB Charlesworth sent a substantive reply. The letter made the point that if separate lists were to be provided many of the documents would be duplicated. The letter points to the additional costs that will be incurred if separate lists were to be sent. The letter goes on to ask for a list of specific documents that DMS believe ought to have been disclosed. This was said to be normal practice to provide such a breakdown before an application for specific disclosure is made. Mrs Chamberlain, the author of the letter stated that she would take instructions on any documents so specified.[106]On 12th June 2013 Mrs Chamberlain wrote a further letter to Abbey. She served 3 further copies of the list she had already served. However the lists were signed by Gareth Evans, Stuart Evans and Stuart Evans on behalf of Conservefor. The new lists specified the locations where searches had been carried out. She went on to give further reasons why she thought it inappropriate to prepare separate lists on behalf of each of the Relevant Defendants. These mostly related to the additional costs involved in preparing separate lists. The letter stated that the Relevant Defendants were aware of their duty of disclosure and that if further documents came to light they would be dealt with in a separate list.[107]Mr Kirkby on behalf of Abbey replied on 13th June 2013. He disagreed with Mrs Chamberlain’s assessment. He stated that DMS would be inviting the Court to order further lists. He accepted that Abbey had not specified the documents it wished to see but reminded Mrs Chamberlain of the obligation on the Relevant Defendants to produce all material documents rather than those that Abbey ask for. He referred her to the Amended Particulars of Claim.[108]The matter came before D J Jordan as part of the case management hearing on 20th June 2013. As foreshadowed in the correspondence the main argument centred on the form of the lists that had been provided, that is to say whether there should be 3 separate lists rather than one composite list. However Mr Uff, who appeared at the CMC also made a general complaint about the content of the list. He accepted, however, that he did not give any details of his complaint.[109]D J Jordan accepted Mr Uff’s submissions and made an unless order in the follow terms: Unless the 1st, 2nd and 5th Defendants give standard disclosure of documents by list in accordance with CPR 31 by 4 p.m on 1 July 2013 they will be debarred from defending the claims against them and their defence will be struck out.[110]There was no written application for an unless order prior to the hearing and Mr Uff told me that he did not draw to D J Jordan’s attention any authorities on the making of unless orders. For example in Re Atrium Training Services Henderson J on 7th June 2013 imposed an unless order in relation to a search by the liquidators in relation to disclosure. He explained his decision thus:
“64. I accept that an unless order should normally be regarded as one of last resort, or perhaps more accurately as one of penultimate resort, since even after an unless order has taken effect it is always open to the party in default to seek relief from sanctions under CPR 3.9: see generally Marcan Shipping (London) Limited v Kefalas [2007] EWCA Civ 463, [2007] 1 WLR 1864. I also accept that, before making an unless order, the court should always carefully consider whether the sanction imposed for non-compliance is appropriate in all the circumstances of the case. I consider, however, that the stage has been reached in the present case where it is appropriate to make such an order in the Atrium proceedings, and that the sanction for non-compliance should be for the claims in those proceedings to be struck out, subject to the right of the Liquidators to apply (if they can) for relief from sanctions. The main factors which have weighed with me in coming to this conclusion are: (a) the long and unsatisfactory history of disclosure in the Atrium proceedings before November 2012; (b) the deficiencies to which I have drawn attention in the Liquidators’ attempts, through Isadore Goldman, to comply with the November order; and (c) the increased emphasis which the court is now obliged to accord to compliance with court orders under the amended overriding objective.”
[111]As it seems to me this is not a case of repeated or deliberate disobedience to the order dated 15th January 2013. Mrs Chamberlain attempted to comply with the order but she thought (wrongly as D J Jordan held) that she could comply with it by the provision of a composite list rather than the 3 lists that were required by the rules. She had explained her reasoning in the correspondence. Furthermore neither Abbey nor Mr Uff had chosen to particularise their allegation that the list was inadequate.[112]To put it no higher it must be doubtful if it was appropriate to make an “unless order” with the sanction of debarring the Relevant Defendants from defending the claim in those circumstances. However, there was no appeal against D J Jordan’s order and Mr Boyd did not suggest that I ought to go behind it.[113]On 1st July 2013 lists on behalf of each of the Relevant Defendants were served on Abbey. In the covering letter Mrs Chamberlain drew attention to additional documents that had been included in the lists. The list on behalf of Gareth Evans indicated that a search had been carried out at 3 locations (including Gareth Evans’ home address) and contained some 97 items in Appendix A. Stuart Evans’s list also identified 3 locations (including Stuart Evans’ home address) and contained 106 items in Appendix A. Conservefor’s list included the same 3 locations as Stuart Evans and identified some 75 items in Appendix A. 11.3 Chronology subsequent to disclosure.[114]On 3rd July 2013 Mr Kirkby wrote to Mrs Chamberlain asking to inspect some of the documents on the list.[115]On 25th July 2013 Mr Kirkby wrote letters to Mrs Chamberlain and also the solicitor acting for Vince Dempsey and Intracuity stating that DMS was not satisfied with the disclosure. He therefore wished to extend the time for witness statements which had been specified in the order of 17th June 2013. He indicated that Abbey was in the process of collating an application in respect of disclosure. Thus no particulars were given of the alleged deficiencies.[116]Both firms of solicitors replied promptly complaining that Abbey should not make any such application without giving details of its concerns so that they could respond.[117]On 5th August 2013 Mrs Chamberlain sent a chasing letter to Mr Kirkby asking for DMS’ proposals for a revised date for the exchange of witness statements and asking whether DMS intended to make an application to Court without setting out its concerns to the other parties.[118]On 9th August 2013 Mrs Chamberlain sent a further chasing e-mail to Mr Kirkby. In it she drew his attention to the duty of the parties to co-operate sensibly in the litigation process and the need to strive to keep the costs and time proportionate to the litigated issues.[119]There was no reply to the email. On 19th August 2013 Mr Davidson on behalf of AWB Charlesworth sent a further chasing email to Mr Kirkby. In it he made the point that in the absence of a reply by 21st August 2013 the Relevant Defendants would make an application for an order for the exchange of witness statements.[120]The parties agreed to an exchange of witness statements by 6th September 2013. On 3rd September 2013 Mr Kirkby wrote to Mrs Chamberlain stating that DMS were not in a position to exchange by 6th September 2013. The director of DMS was ill. Furthermore DMS had further documents to disclose relating to the employment contract of Gareth Evans.[121]On 6th September 2013 Mr Kirkby wrote to Mrs Chamberlain. In the letter he disclosed documents relating to the negotiations of Gareth Evans’ contract. These documents were said to be fundamental to the issue of the validity of the restrictive covenants. As the documents had not been disclosed by Gareth Evans it was alleged that all three of the Relevant Defendants were in breach of the unless order and had been struck out. Thus there would be no exchange of witness statements. It was suggested that the proper course was for an assessment of quantum.[122]It is not necessary to set out the correspondence following this bombshell in any detail. Suffice to state that Mrs Chamberlain was confused by the volte face by DMS who had been prepared to exchange witness statements until 6th September 2013 but was now asserting that the defence was struck out. She did not accept that the Relevant Defendants were in breach of the unless order. It is also to be noted that no other alleged breaches of the unless order were identified until the application which was not made until 26th November 2013. 11.4 The Law Unless Orders[123]I was referred to two cases on the effect of an “unless order” – Hytec v Coventry City Council [1997] 1 WLR 1666 and Marcan Shipping v Kefalas [2007] 1 WLR 1864.[124]In Hytec Auld LJ said at 1677F that: … that the essential notion in play is whether a party's failure to comply with an order is without fault or is inexcusable, the latter in the sense of being without a reasonable excuse. In my judgment, there is no need to confine the test to that of an intentional disregard of a court's peremptory order, whether or not it is characterised as flouting, contumelious, contumacious, perverse, obstinate or otherwise. Such an intent may be the most usual circumstance giving rise to the exercise of this jurisdiction. But failure to comply with one or a number of orders through negligence, incompetence or sheer indolence could equally qualify for its exercise. It all depends on the individual circumstances and the existence and degree of fault found by the court after hearing representations to the contrary by the party whose pleading it is sought to strike out.[125]In Marcan the Court of Appeal made clear that in accordance with CPR 3 the sanction embodied in an “unless” order took effect without the need for any further order if the party to whom it was addressed failed to comply with it in any material respect. I was referred to paragraphs 34 to 36 of the judgment of Moore-Bick LJ:34. In my view it should now be clearly recognised that the sanction embodied in an “unless” order in traditional form takes effect without the need for any further order if the party to whom it is addressed fails to comply with it in any material respect. This has a number of consequences, to three of which I think it is worth drawing particular attention. The first is that it is unnecessary, and indeed inappropriate, for a party who seeks to rely on non-compliance with an order of that kind to make an application to the court for the sanction to be imposed or, as the judge put it, “activated”. The sanction prescribed by the order takes effect automatically as a result of the failure to comply with its terms. If an application to enter judgment is made under rule 3.5(5), the court’s function is limited to deciding what order should properly be made to reflect the sanction which has already taken effect. Unless the party in default has applied for relief, or the court itself decides for some exceptional reason that it should act of its own initiative, the question whether the sanction ought to apply does not arise. It must be assumed that at the time of making the order the court considered all the relevant factors and reached the decision that the sanction should take effect in the event of default. If it is thought that the court should not have made an order in those terms in the first place, the right course is to challenge it on appeal, but it may often be better to make all reasonable efforts to comply and to seek relief in the event of default.35. The second consequence, which follows from the first, is that the party in default must apply for relief from the sanction under rule 3.8 if he wishes to escape its consequences. Although the court can act of its own motion, it is under no duty to do so and the party in default cannot complain if he fails to take appropriate steps to protect his own interests. Any application of this kind must deal with the matters which the court is required by rule 3.9 to consider.36. The third consequence is that before making conditional orders, particularly orders for the striking out of statements of case or the dismissal of claims or counterclaims, the judge should consider carefully whether the sanction being imposed is appropriate in all the circumstances of the case. Of course, it is impossible to foresee the nature and effect of every possible breach and the party in default can always apply for relief, but a conditional order striking out a statement of case or dismissing the claim or counterclaim is one of the most powerful weapons in the court’s case management armoury and should not be deployed unless its consequences can be justified. I find it difficult to imagine circumstances in which such an order could properly be made for what were described in Keen Phillips v Field as “good housekeeping purposes”. Relief from sanctions[126]In 2 recent cases – Mitchell v Newsgroup Newspapers Ltd [2013] EWCA Civ 1537 and Durrant v Chief Constable of Avon [2013] EWCA Civ 1624 – the Court of Appeal has sent out a clear message requiring a robustness of approach in granting relief from sanctions in the post Jackson era and the importance of the need for litigation to be conducted efficiently and at proportionate cost and to enforce compliance with rules practice direction and orders.[127]In Mitchell the Court of Appeal upheld the decision of a Master who had refused to grant relief from sanctions in a case where a solicitor had failed to file a costs budget on time.[128]In paragraphs 45 and 59 of the judgment of the Court the Master of the Rolls said: 45. On an application for relief from a sanction, therefore, the starting point should be that the sanction has been properly imposed and complies with the overriding objective. If the application for relief is combined with an application to vary or revoke under CPR 3.1(7), then that should be considered first and the Tibbles criteria applied. But if no application is made, it is not open to him to complain that the order should not have been made, whether on the grounds that it did not comply with the overriding objective or for any other reason 59. The Master did not misdirect herself in any material respect or reach a conclusion which was not open to her. We acknowledge that it was a robust decision. She was, however, right to focus on the essential elements of the post-Jackson regime. The defaults by the claimant’s solicitors were not minor or trivial and there was no good excuse for them. They resulted in an abortive costs budgeting hearing and an adjournment which had serious consequences for other litigants. Although it seems harsh in the individual case of Mr Mitchell’s claim, if we were to overturn the decision to refuse relief, it is inevitable that the attempt to achieve a change in culture would receive a major setback.[129]In Durrant the Court of Appeal allowed an appeal where a judge a granted relief against the failure to comply with an “unless order”. The “unless order” related to the filing of witness statements and the sanction was that the Defendant would not be able to rely on any witness evidence not served in accordance with the order. In paragraph 38 of the judgment of the Court Richards LJ said: 38. The judgment in Mitchell reiterated (at para 52) that this court will not lightly interfere with a case management decision. It quoted the observation of Lewison LJ in Mannion v Gray [2012] EWCA Civ 1667, para 18, that “it is vital for the Court of Appeal to uphold robust fair case management decisions by first instance judges”. Equally, however, if the message sent out by Mitchell is not to be undermined, it is vital that decisions under CPR 3.9 which fail to follow the robust approach laid down in that case should not be allowed to stand. Failure to follow that approach constitutes an error of principle entitling an appeal court to interfere with the discretionary decision of the first instance judge. It is likely also to lead to a decision that is plainly wrong, justifying intervention on that basis too. We do not share Mr Payne’s concern about this leading to an increase in appeals and thereby undermining the efficiency benefits of the Jackson reforms. As is stated at para 48 of the Mitchell judgment, “once it is well understood that the courts will adopt a firm line on enforcement, litigation will be conducted in a more disciplined way and there should be fewer applications under CPR 3.9. In other words, once the new culture becomes accepted, there should be less satellite litigation, not more”. Unless orders in relation to disclosure[130]I was referred to two authorities – Realkredit Danmark v York Montagu reported in Westlaw at [1998] WL 104421 and Re Atrium [2013] EWHC 2882.[131]Realkredit involved the dismissal of a claim for failure to comply with an “unless order” for discovery. A list was provided within the relevant time but it was alleged to be deficient. At first instance it was held that the list was woefully inadequate. There was no evidence that satisfied the judge that it had been undertaken in careful fashion and large gaps remained. Accordingly he held there was a failure to comply with the “unless order” and struck the case out. The Court of Appeal allowed the appeal. A number of passages from the judgment of Toulson LJ show the basis of the decision: There was nothing unclear about the order made in this case, in that it required service of a list of documents. But a list was served so, prima facie , the order was complied with. Interestingly there is no reported case of an action being struck out as a result of a list being incomplete. But there is in the much litigated field of Further and Better Particulars where, in Reiss v Woolf [1952] 2 QB 557, at pages 559–560, the Court of Appeal approved a passage from the judgment of Devlin J who said: “So construed, ‘default’ refers to default in the delivery of a document within the specified time. I do not, of course, mean that any document with writing on it will do. It must be a document made in good faith and which can fairly be entitled ‘particulars’. It must not be illusory; … That is the test, in my judgment, and not as the plaintiff contends, whether each demand for particulars has been substantially met.” … In the present case the court was only concerned with whether the unless order had been complied with. The lenders had conceded that the valuers' affidavits would have justified the making of an order for specific discovery. But no such order was sought or made. Had the judge been asked to make such an order he would have had to consider in relation to each category of documents identified in the application the arguments about relevance and necessity which are deployed at length in the skeleton arguments for this appeal and were deployed before the judge.… Applying the language of Reiss v Woolf , I think the lenders' list could fairly be described as a list. It was not illusory. It would still be a list even if a subsequent application for specific discovery had elicited further documents. So I think the judge was persuaded to adopt the wrong approach and applied the wrong test to the valuers' application to dismiss the claim and therefore his decision cannot stand. This was not simply an exercise of the judge's discretion. In my judgment if he had approached the question he had to decide in the way I think he should have done he would have decided that the lenders had complied with the unless order. I do not think that the conclusion I have reached will mean that unless orders for discovery are worthless. In many cases where they are made no list is served at all. Both counsel conceded, rightly in my judgment, that a court could infer lack of good faith where it was obvious from patent deficiencies in the list that it had been prepared in apparent but not real compliance with the obligation to give discovery.[132]Re Atrium involved an unless order in relation to an unless order requiring the liquidators to conduct a search for documents falling within CPR 31.6 by a specified date. In the course of his judgment Birss J referred to a classification of the authorities by Counsel which he did not, in the end find helpful. In paragraph 30 he referred to the decision in Realkredit and pointed out it had been followed in two subsequent Court of Appeal cases. In paragraph 31 he explained Realkredit thus: There the Court held that since a list had been served, prima facie the relevant order had been complied with. The remedy, if a party is dissatisfied with a list already provided, was an application for further disclosure. The question of compliance with the court order was not simply an exercise of the court’s discretion. In the case before the court the list provided could not be called illusory.[133]In paragraphs 33 and 40 he made the point that in order to determine if there is a breach one needs to determine exactly what the order requires the party to do. He had to consider whether the liquidators had carried out a reasonable search. This could be done on inference but the deficiencies would have to be so significant that it could be said that a reasonable search had not been carried out. 11.5 Mr Uff’s complaints[134]The requirement in D J Jordan’s order was to give “standard disclosure by list”. Accordingly lists were provided by the due date. Thus there was prima facie compliance with the order unless DMS can show the lists were not made in good faith or could not fairly be described as “ a list”. They must not be illusory[135]Mr Uff’s complains about a number of deficiencies in the lists. The negotiations which led up to the execution of Gareth Evans contract of employment.[136]I am far from satisfied that these documents are relevant to the question whether the covenant was enforceable. They are plainly not relevant to its construction. The fact that the agreement was reached as a result of negotiations does not in my view require the whole of the negotiations to be disclosed. All of these documents were in any event in DMS’ possession. To my mind the failure to disclose these documents does not begin to show that Gareth Evans’ list was not made in good faith or that the list was illusory. The Schedule of Loss in the Employment Tribunal[137]I have great difficulty in understanding the relevance of this document to the question of whether the restrictive covenant is enforceable. It is not contemporaneous and does not address any of the relevant issues. It contains one sentence which refers to the restrictive covenants. For my part I do not see how that assists either party as to the whether the restrictive covenant was enforceable. Again this was a document in DMS’ possession as it had been served.[138]To my mind the failure to disclose this document does not begin to show that Gareth Evans’ list was not made in good faith or that the list was illusory. The email at 16.17 on 7th January 2012.[139]It is not in dispute that this e-mail should have appeared in Gareth Evans’s list. According to Gareth Evans it was omitted by inadvertence. He points out that it was already in the possession of DMS and had been disclosed in its list. The share transfer forms and agreement for transfer[140]These documents were not in the possession of either Gareth Evans or Stuart Evans as they were in the possession of Vince Dempsey until they were destroyed. However if they were ever in Gareth Evans’s or Stuart Evans’ possession they should have been included as documents that had been at one time in the possession of Gareth Evans or Stuart Evans.[141]DMS was aware of the documents. In his witness statement Gareth Evans apologises for the omission. Risk assessment and COSHH forms[142]These are said to show that DMS’s documentation has been taken/ copied by the Relevant Defendants. In his reply Gareth Evans says that he did not believe that the document was relevant to the dispute. It seems to me there is considerable force in that comment. There is no pleaded allegation of breach of copyright Redaction[143]Mr Uff complains that a number of the documents which have been disclosed have had redactions made to them. The redactions relate to commercially sensitive pricing information. He referred me to CPR 31.19(3) and (4) and made the point that if the Relevant Defendants had intended to redact any part of a document the grounds upon which the redaction was to take place should have been stated in the list. It was not. It may be that Mr Uff is correct that there is a breach of CPR 31.19(4). To my mind this does not begin to show that the list was illusory or not made in good faith.[144]Gareth Evans says the redactions took place because the documents were commercially sensitive and after taking legal advice. Other documents[145]Mr Uff suggests that there are a number of documents in relation to the contracts made by Conservefor which should have been disclosed. I do not intend to lengthen this already long judgment by going through them individually. In many cases Gareth Evans does not accept that it is relevant to the proceedings. In some cases he says that he thought it had been disclosed and its omission was an oversight. In practically every case the document is already in DMS’ possession. 11.6 Discussion and conclusion.[146]I propose to follow the approach of the Court of Appeal in Realkredit. This is a case where lists have been provided. It is plain that there are some defects in the lists. However the fact that an application for specific disclosure would or might elicit further documents does not mean it is not a list. I am not satisfied that there was a lack of good faith by the Relevant Defendants in preparing the lists. Equally I am not satisfied that the lists are illusory. The final test suggested by Toulson LJ is whether “it was obvious from patent deficiencies in the list that it had been prepared in apparent but not real compliance with the obligation to give discovery”.[147]To my mind it is far from obvious that this is the case. In forming that view I have taken into account the correspondence both before and after the order of D J Jordan. The criticism of the lists before D J Jordan was that there were not separate lists for each of the Relevant Defendants. It is to my mind relevant that Mrs Chamberlain sought to co-operate with Mr Kirkby in relation to disclosure, that despite requests Mr Kirkby did not particularise the respects in which the list was defective until 6th September 2013 when he raised one of the matters relied on at the hearing. It is relevant that detailed particulars of alleged breaches were not given until 26th November 2013. It is relevant there was no suggestion that there was a breach of the unless order until 6th September 2013 and that between 1st July 2013 the Defendants had been actively preparing for trial. For my part I would have expected any application for a declaration that the defence had been struck out to have been brought promptly. It is relevant that despite references in the correspondence no actual application for specific disclosure was made.[148]In all the circumstances the Claimant’s application for a declaration that the has been struck out is dismissed.[149]In the light of the recent authorities on relief from sanctions, if I had found that the list was illusory or not brought in good faith or obviously defective as explained by Toulson LJ it is most unlikely that I would have been able to grant relief from sanctions. I would not however have awarded DMS all its costs because of its conduct between July and September 2013. However none of that arises as the action has not been struck out.[150]It is unfortunate that this application was brought. It has incurred significant costs and significantly delayed the trial. If DMS believed it was entitled to summary judgment the application should have been brought earlier. Equally it should not have waited until November 2013 to seek the declaration that the defences had been struck out.

Cited in 4 later judgments