Hedrich & Anor v Standard Bank London Ltd & Anor

A cigarette packet carries the warning that smoking can kill you. Solicitors’ standard terms of business should carry a warning that litigation can cost you. For litigation is an inherently risky business: there are no certain winners; and very often even the fruits of success are never recovered. This is just such a case. The moral is caveat litigator.

The appellant, Standard Bank London Ltd, (“the Bank” or “SBL”) was the defendant to a claim brought by Mr Burkhard Hedrich (“the claimant”) and his consultancy firm for damages of at least $382,857 for breach of a consultancy agreement, alternatively a claim for quantum meruit. It was only late in the course of the trial before His Honour Judge Overend, sitting as a Judge of the High Court, that full disclosure was given by the claimant to the Bank. His solicitors, Messrs Zimmers, (“Zimmers”), then came off the record, the claimant served notice of discontinuance and his claim came to an end. On 5th December Judge Overend said this:

“The view that I have come to in this case, although I have not been asked to give a judgment, is that I agree that there have been continuing problems with disclosure which has been dealt with on a most unsatisfactory basis. As it transpired, as more and more documents have been extracted from the claimant and the claimant’s team, it has demonstrated the increasing nature of the unsatisfactory evidence that has been given in this case by Mr Hedrich. There have been a number of inconsistencies which have been shown to have existed between him and Mr Tusder, and it is quite frankly a case which is wholly unsatisfactory.

Why it has taken this length of time to come to the conclusion that it should no longer go on, I do not know. The indication seems to be that it was a try-on which has eventually come to grief. That is a circumstance which, in my judgment, entitles the defendant to say properly that there should be an indemnity costs order, which is the order that I make.”

Those costs were later assessed in the sum of £362,015.38 but the claimant, who lives in Hamburg, has not paid a penny piece nor a single cent. By all accounts he is totally impecunious. The Bank turned its attention to the claimant’s solicitors and some 15 months later on 22nd March 2007 made an application for a wasted costs order against Zimmers and sought to recover from them £342,917.08 being the wasted costs incurred by the Bank from 7th July 2005 on the ground that:

“Zimmers’ negligent conduct of the disclosure process caused the defendant to incur substantial and unnecessary costs and in all the circumstances it is just to order that Zimmers compensate the defendant for the relevant costs.”

On 18th July 2007 Field J. dismissed that application but ordered that the Bank and Zimmers should each bear their own costs of the application. He concluded that:

“… although there is a good prima facie case for Mr Zimmer to answer that he acted negligently and in breach of his duty to the court with respect to disclosure in this case, I am bound to conclude that it is not sufficiently likely on the evidence before me that if this case is unanswered a wasted costs order will be made. In short, I am not satisfied that SBL [the Bank] have made out the necessary causation element in their application. This conclusion is fatal to SBL's application.”

The Bank now appeal against that order with permission granted by Lord Justice Moses. Zimmers seek to uphold the judgment and put forward alternative grounds for doing so and they also appeal with the Lord Justice’s permission against the order that they should bear their own costs.

Before I sink in the morass of detail which is a blight on this case, let me summarise the law so that these beacons of certainty will enable me to pick my way through the quagmire.

Section 4 of the Courts and Legal Services Act 1990, enacted with effect from 1st October 1991 introduced a new section 51 to the Supreme Court Act 1981 to deal with wasted costs, the material parts of which provide as follows:

“1.

Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in …

(b)

the High Court

…

shall be in the discretion of the court.

…

6.

In any proceedings mentioned in sub-section (1), … the court may disallow or (as the case may be) order the legal or other representative concerned to meet the whole of any wasted costs or such part of them as may be determined in accordance with rules of court.

7.

In sub-section (6), “wasted costs” means any costs incurred by a party —

(a)

as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative or any employee of such a representative; or

(b)

which, in the light of any such act or omission occurring after they were incurred, the court considers it is unreasonable to expect that party to pay …

So far as is material, CPR 48.7 provides as follows:

“(2)

The court must give the legal representative a reasonable opportunity to attend a hearing to give reasons why it should not make such an order.”

The Practice Direction defines the procedure in 48 PD.4 as follows:

“53.5

The court will give directions about the procedure that will be followed in each case in order to ensure that the issues are dealt with in a way which is fair and as simple and summary as the circumstances permit.

53.6.

As a general rule the court will consider whether to make a wasted costs order in two stages –

(1)

in the first stage, the court must be satisfied –

(a)

that it has before it evidence or other material which, if unanswered, would be likely to lead to a wasted costs order being made; and

(b)

the wasted costs proceedings are justified notwithstanding the likely costs involved.

(2)

at the second stage (even if the court is satisfied under paragraph (1)) the court will consider, after giving the legal representative an opportunity to give reasons why the court should not make a wasted costs order, whether it is appropriate to make a wasted costs order in accordance with paragraph 53.4 above.”

The leading authority, Ridehalgh v Horsefield [1994] Ch. 205 is by now well-known and I shall endeavour simply to summarise the salient points which seem to me to be these:

Ridehalgh was endorsed by the House of Lords in Medcalf v Mardell [2002] UKHL 27, [2003] 1 A.C. 120. Lord Bingham commented, however, at [13]:

“It does however appear, from material laid before the House, that the clear warnings given in that case have not proved sufficient to deter parties from incurring large and disproportionate sums of costs in pursuing protracted claims for wasted costs, many of which have proved unsuccessful.”

With the benefit of that experience he emphasised two matters in particular:

“[23] First, in a situation in which the practitioner is of necessity precluded (in the absence of a waiver by the client) from giving his account of the instructions he received and the material before him at the time of settling the impugned document, the court must be very slow to conclude that a practitioner could have had no sufficient material. Speculation is one thing, the drawing of inferences sufficiently strong to support orders potentially very damaging to the practitioner concerned is another. … The second qualification is no less important. The court should not make an order against a practitioner precluded by legal professional privilege from advancing his full answer to the complaint made against him without satisfying itself that it is in all the circumstances fair to do so. … Even if the court were able properly to be sure that the practitioner could have no answer to the substantive complaint, it could not fairly make an order unless satisfied that nothing could be said to influence the exercise of its discretion. Only exceptionally could these exacting conditions be satisfied. Where a wasted costs order is sought against a practitioner precluded by legal professional privilege from giving his full answer to the application, the court should not make an order unless, proceeding with extreme care, it is (a) satisfied that there is nothing the practitioner could say, if unconstrained, to resist the order and (b) that it is in all the circumstances fair to make the order.

[24] … Save in the clearest case, applications against the lawyers acting for an opposing party are unlikely to be apt for summary determination, since any hearing to investigate the conduct of a complex action is itself likely to be expensive and time-consuming. The desirability of compensating litigating parties who have been put to unnecessary expense by the unjustified conduct of their opponents' lawyers is, without doubt, an important public interest, but it is, as the Court of Appeal pointed out in Ridehalgh v Horsefield at page 226, only one of the public interests which have to be considered.”

The admonition to ensure that the remedy is not more painful than the disease has been stressed many times, but, as the House was at pains to point out in Medcalf, disaffected litigants are not always heeding the advice. I can pick out but a few of the warnings. In Wall v Lefever [1998] 1 F.C.R. 605, 614, Lord Woolf M.R. said:

“The wasted costs jurisdiction is salutary as long as it is not allowed to be a vehicle which generates substantial additional costs to the parties. It should not be used to create subordinate or satellite legislation, which is as expensive and as complex as the original litigation. It must be used as a remedy in cases where the need for a wasted costs order is reasonably obvious. It is a summary remedy which is to be used in circumstances where there is a clear picture which indicates that a professional adviser has been negligent etc.”

In Re: Freudiana Holdings (unreported) CA 28th November 1995 Rose L.J. said:

“Unless wasted costs proceedings can take place in summary form, on or soon after delivery of judgment, they are unlikely to be appropriate.”

Millett L.J. said:

“The jurisdiction to make a costs order is a summary jurisdiction. It follows, first, that the hearing should be short; secondly, that the procedure followed should not be unduly elaborate; and thirdly that the jurisdiction should only be exercised in reasonably plain and obvious cases. As I have already pointed out, it is clear that that the summary hearing should normally be before the original judge. This is because he is the most suitable person to hear the application, just as he is the most suitable person to have made the order for costs inter partes at the end of the trial and to decide what standard of taxation should be applied, whether standard costs or indemnity costs. He has, after all, heard the case, and he is entitled to rely on his own impressions and opinions whether costs have been incurred reasonably or unnecessarily. He is best placed to decide how long the trial ought to have taken; whether allegations which were made were really germane to the case and of substance, and if only marginal relevance; whether they ought to have been raised or suppressed and whether the legal representatives acted in a proper, professional manner in the conduct of the case before him. Of course, any impressions he may have obtained during the hearing of the trial itself will have been provisional only, since he will not have heard any explanation of their conduct which the legal representatives may offer.”

We did not have much argument addressed to us with regard to a solicitor’s duty on disclosure. CPR 31.6 requires a party to disclose only the documents on which he relies and documents which adversely affect his own case. Adverse affect is normally assessed by reference to the pleadings but there may be no reason to restrict the concept that narrowly. A party is required by CPR 31.7 to make a reasonable search for those documents adversely affecting his case. It seemed to be common ground between the parties that the duties of solicitors was correctly stated in chapter 14 of the third edition of Matthews and Malek on Disclosure.

“14.02

A solicitor’s duty is to investigate the position carefully and to ensure so far as is possible that full and proper disclosure of all relevant documents is made. [Myers v Elman [1940] A.C. 282.] This duty owed to the court is “one on which the administration of justice very greatly [depends], and there [is] no question on which solicitors, in the exercise of their duty to assist the court, ought to search their consciences more” [citing Practice Note [1944] W.N. 49 and the Solicitors’ Practice Rules 1990 R.1 (F)].

14.03

The solicitor’s duty extends to explaining to his client the existence and precise scope of the disclosure obligation and the need to preserve documents. …

14.07

The solicitor has an overall responsibility of careful investigation and supervision in the disclosure process and he cannot simply leave this task to his client [Myers v Elman [1940] A.C. 282, at 322, 325, 338.] The best way for the solicitor to fulfil his own duty and to ensure that his client’s duty is fulfilled too is to take possession of all the original documents as early as possible. The client should not be allowed to decide relevance – or even potential relevance - for himself, so either the client must send all the files to the solicitor or the solicitor must visit the client to review the files or take the relevant documents into his possession. It is then for the solicitor to decide which documents are relevant and disclosable. … Again where the solicitor knows that his client has concealed relevant documents with a view to their not being disclosed, the solicitor must not act so as to suggest that full disclosure has been or will be given, and this may lead to his ceasing to act. …

14.09

Once the documents have been produced by the client, the solicitor should carefully go through the documents disclosed to make sure, so far as is possible, that no documents subject to the disclosure obligation are omitted from the list. … A solicitor must not necessarily be satisfied by the statement of his client that he has no documents or no more documents than he chooses to disclose. If he has reasonable grounds for suspecting that there are others, then he must investigate the matter further, but he need not go beyond taking reasonable steps to ascertain the truth. He is not the ultimate judge and if he has decided on reasonable grounds to believe his client, criticism cannot be directed at him. …

14.10

If a solicitor is or becomes aware that the list of documents or any verifying affidavit or statement of truth is inadequate and omits relevant documents or is wrong or misleading, he is under a duty to put the matter right at the earliest opportunity and should not wait till a further order of the court. His duty is to notify his client that he must inform the other side of the omitted documents, and if this course is not assented to he must cease to act for the client. If the client is not prepared give full disclosure, then the solicitor’s duty to the court is to withdraw from the case.”

Myers v Elman [1940] A.C.282 is to the point. Lord Atkin said at p.304:

“What is the duty of the solicitor? He is at the early stage of the proceedings engaged in putting before the court on the oath of his client information which may afford evidence at the trial. Obviously he must explain to his client what is the meaning of relevance: and equally obviously he must not necessarily be satisfied by the statement of his client that he has no documents or no more than he chooses to disclose. If he has reasonable ground for supposing that there are others, he must investigate the matter; but he need not go beyond taking reasonable steps to ascertain the truth. ”

Rule 1(f) of the Solicitors’ Practice Rules 1990 emphasises that a solicitor should not do anything in the course of practising as a solicitor which compromises his duty to the court. This is stressed in the Guide to the Professional Conduct of Solicitors 1999 at 21.01 to the effect that solicitors who act in litigation, whilst under a duty to do their best for their client, must never deceive or mislead the court.

The claimant is a German banker specialising in the area of international trade finance, his business being the financing of exports so that when German companies want to export their goods he looked for ways of financing the purchase price that was to be paid by the customers so that the letters of credit opened by a foreign bank would be confirmed by his employing bank. He was involved in the buying and selling of financing deals. In that way he had contact with the Standard Bank London and on 17th May 2001 entered into a Consulting Agreement with the Bank. Under that Agreement the Bank retained the claimant as a consultant for the term of the Agreement which was expressed to end on 31st December 2001 but which was renewed from time to time until it finally expired on 31st July 2002. The claimant’s duties were to provide such advisory and consulting services for the purpose of “(i) developing and promoting SBL’s business in Germany and (ii) the introduction of potential customers to SBL.” Clause 4 stipulated that “provided that [he] has complied with all the terms of this agreement”, he was to be paid a monthly retainer and share of any trading profits earned by the Bank on transactions generated by him. Clause 9 required that during the term the consultant should not, without the prior consent of the Bank, enter into the employ of or render services or advice to any person which competed with the Bank. The parties agreed to submit to the exclusive jurisdiction of the courts of England.

In June 2004, almost two years after the termination of the consultancy, the claimant arranged to see the Bank to discuss business and at the end of that meeting called for payment of commission in respect of a transaction the Bank had entered into with a Turkish company, the so-called “Metis transaction”. The Bank rejected his demands.

Consequently the claimant, who at all times has lived in and operated from Hamburg, instructed Messrs Zimmers to act for him. Zimmers is a small firm practising from London NW11. Mr Gunter Zimmer is the sole principal. He is qualified both as a German lawyer and a solicitor of the Supreme Court. He employs four qualified legal staff and his practice primarily consists of acting for clients in Anglo-German commercial matters, whether contentious or non-contentious. Forty per cent of his practice relates to litigious matters.

On 22nd November 2004 the claimant brought his claim for his “profit and fee share pursuant to the contract in transactions the claimant facilitated between the defendant, Metis Construction and Trade Company Incorporated, in Ankara, Turkey and the Central Bank of Libya, in Tripoli, Libya.” The alternative claim for a quantum meruit was based on the claimant’s introducing Metis to the Bank. The original defence alleged only that upon a proper construction of the agreement the claimant’s consultancy services were confined to developing business in Germany.

In its reply the claimant contended that the geographical origin of potential customers was completely unqualified and that Metis was accordingly a potential customer. The claimant alleged that from the very outset the claimant proposed potential customers who are not based in Germany and provided particulars in a table attached to the reply marked Table A.

The Bank contends that upon close analysis it can be demonstrated that whosoever compiled Table A must have had access to the original or copies of the original e-mails. It referred to “enclosures” which suggested that other documents were available to the draftsman. Despite that, Zimmers wrote on 25th February 2005:

“In preparation of the reply of the defence we tried to get hold of the e-mail correspondence exchanged between the parties before July 2002. Our client used until 1st July 2002 an e-mail programme of T-Online. The e-mail correspondence of this programme has been lost and although our client made every effort to recover the correspondence he failed even with the help of an expert.”

The Bank can now point to the fact that the expert, a Mr Kaul, apparently accessed and retrieved the materials and copied or downloaded the entire contents of the claimant’s computer onto a CD Rom (the “Kaul CD Rom”) on 28th February 2005. A crucial issue is when Zimmers first learnt of that and when they received the CD Rom into their possession.

On 18th May 2005 Master Leslie gave directions for standard disclosure by list by 30th June, subsequently extended by agreement to 7th July, with the trial to take place in the Michaelmas term 2005. The claimant’s list was dated 21.6.2005 and simply listed six categories of documents including “documents relating to letter of credit in favour of Metis and related documents”. There was no reference to missing e-mails. In response to a complaint about the deficiencies in relation to that disclosure Zimmers sent a revised and expanded list dated 22nd July containing 123 documents but there did not appear to be any further documents relating to Metis. This led to a further protest about deficiencies with the disclosures. Mr Zimmer said he would see his client in Germany on 16th August but that had to be postponed until the end of the month. This should have given him the chance for a thorough investigation of his client’s documents, both those electronically stored and those on paper. Even after that visit, the revised list dated 13th September contained 171 documents, only some of which related to Metis. When it was pointed out to him that some of these documents referred to enclosures which were not themselves disclosed, Mr Zimmer said he would review the matter.

In his evidence filed in his application to come off the record, Mr Zimmer revealed (though why this privileged information was disclosed is unclear) that there was a conference with counsel on 3rd October when the claimant gave instructions that he had not acted for third parties or otherwise in breach of the consultancy agreement. We do not know much more than that about what took place on that occasion.

The Bank sought an adjournment on grounds that the claimant’s disclosure was incomplete, the case was not ready and the time estimate was too short. The Bank indicated that they had become concerned to make wider enquiries into facts and matters until then unknown to the Bank, particularly the claimant’s dealing with a Mr Tusder which might have been in breach of the Agreement. They gave notice of the possibility of a counterclaim to plead repudiation. The Bank also stated that it intended to disclose further documents – “we envisage a significant amount of further documentation will be produced once the Bank’s further diligent and rigorous enquiries are complete.” I mention this because in an appeal wholly based on Zimmers’ failures, there may be, I say no more, a little element of the kettle calling the pot black, at least at this stage in the litigation.

Silber J. refused to adjourn the matter and ordered on 21st October 2005 that there be mutual supplementary standard disclosure by 4 pm on Friday 4th November 2005 in relation to the issues to be tried at the hearing set to commence on 21st November 2005. Such disclosure was to include the provision of e-mails and other documents relevant to the issues.

A few days later Mr Zimmer met with the claimant and Mr Kaul in Hamburg. His priority was to finish the claimant’s witness statement. During the visit Mr Zimmer was shown a mass of documentation contained in clear plastic wallets piled on the claimant’s desk, floor and other furniture. On looking through some of this material it appeared to him that all of these papers related to matters before the period of the consultancy or after its expiry and for that reason he did not consider them to be relevant in the action. Whilst there he took instructions from Mr Kaul because he had been told by the claimant that Mr Kaul had managed to retrieve all of the T-Online e-mails from the claimant’s computer. He took a witness statement from him which was served in the trial and Mr Kaul was called as a witness. Mr Zimmer was told by Mr Kaul that he had copied the complete hard drive from Mr Hedrich’s computer onto his, Mr Kaul’s, laptop, including the e-mail files which he had been able to open using T-Online software.

On 4th November 2005 both parties gave the supplementary disclosure pursuant to the order of Silber J. Zimmers also served a witness statement of Mr Kaul and a CD Rom entitled “e-mail correspondence claimant-defendant”. (This is not the Kaul CD Rom.) In a letter of 8 November Zimmers wrote:

“3.

We have taken instructions again and our client confirmed that the e-mails we have disclosed in this cd-rom are the only ones our client has on his system relating to METIS. We hope to receive by fax today the e-mails as our client prints them out in Hamburg and sends them to us by fax. This should show the date and time of the original e-mail.

4.

At the outset our client was not able to access the e-mails which were later recovered. As far as he was concerned they were gone. That is the basis of his original instruction to us. You are welcome to cross-examine him on this point at trial if you wish.”

Later about 1600 hard copy pages were delivered in four arch lever files.

Such was the muddle and confusion over disclosure and what was an original document and what was a copy that the trial which had been fixed for 21st November had to be adjourned, with both parties being given permission to amend. On 24th November the Bank for the first time pleaded the case on which they eventually succeeded, namely the repudiation by the claimant working for others in conflict with his duties to the Bank. Unusually, but understandably in the light of that confusion, Mr Zimmer was ordered on 29th November, the second day of the trial, to file an affidavit stating with precision in relation to each document when it arrived, how it was dealt with and how it was disclosed.

A significant event had meanwhile occurred. On 14th November 2005 Zimmers received in the post from Mr Kaul the Kaul CD Rom containing the whole contents of the claimant’s computer which Mr Kaul had accessed in February. It was not in fact disclosed until 30th November 2005, day 3 of the trial, the day after Mr Kaul had given evidence. It needed the help of a specialist to gain access to the material. That exercise was conducted on 1st December when an IT employee of Zimmers attended at the Bank’s solicitors’ offices together with a computer and the Kaul CD Rom. The entirety of what Mr Kaul had retrieved from the claimant’s computer was printed and amongst these documents were some which showed that the claimant had worked for others in breach of the exclusivity clause of the Agreement.

On 1st December the court was told of the attempts to obtain from Germany the seven files (“the Hamburg packets”) and there were the first hints of a conflict between the claimant and Zimmers being unresolved. Mr Kimbell, counsel for the claimant, sought permission to speak to his client even though he had not completed his evidence, saying, “Although he will be the recipient of some advice, he needs to be able to respond to questions that I have for him about a number of things.”

The Hamburg packets arrived that evening and when the trial resumed on Friday 2nd December, Mr Kimbell indicated they would be made available, saying:

“Perhaps I should say that the position, so far as I am concerned and so far as Zimmers is concerned, is that we are still working on the assumption that the documents that have arrived will not be relevant.”

The judge granted a short adjournment to “get the potential representation problem out of the way first”. The court adjourned for an hour. When the hearing resumed Mr Kimbell informed the judge that McCombe J. had made an order under CPR 42.3 declaring that Zimmers were no longer acting on behalf of the claimant and they withdrew. When the matter resumed on Monday 5th December, the claimant discontinued.

In his affidavit sworn on 2nd December 2005 to support his application to come off the record, Mr Zimmer explained that during the claimant’s cross-examination the previous day, 1st December 2005, a conflict of interest arose because certain facts had not been disclosed to Mr Zimmer prior to the trial. The claimant had made various allegations as to the disclosure of documents in particular that certain documents were located in Zimmers’ offices and that Mr Zimmer had suppressed that evidence. The claimant also alleged that certain original documents relevant for the trial had been scrutinised by Mr Zimmer in the claimant’s offices but had been treated as irrelevant. Mr Zimmer’s position was that all documents that were made available to him and relevant to the trial had been disclosed. Mr Zimmer referred to the conference with counsel on 3rd October 2005 when the claimant had stated he had never acted for any other company in breach of the exclusivity clause yet during the hearing on 1st December documents appeared to suggest that he had done so. Mr Zimmer stated:

“In conference with counsel on 1.12.2005 5:00 pm Counsel referred the claimant to the various points regarding the conflict of interest and the difference between his witness statement/the oral evidence given in Court and the documents that were produced by the Defendant. The Claimant accepted the conflict of interest points and the fact that he had not disclosed relevant facts to his solicitors.”

On 16th December 2005 Mr Zimmer swore an affidavit to comply with a direction made by Judge Overend on 29th November for clarification of the way disclosure had taken place. This was amplified in correspondence and it was there agreed that the Bank wished Zimmers to explain:

“so far as we are able from our own knowledge, and in the light of the fact that Mr Hedrich gave evidence that he sent us “all” his relevant e-mails and Word documents in about May 2005, when these documents were first seen by Mr Zimmer, how they were transmitted to our offices (if they were) and any other information about their disclosure history that we can properly give in order to explain the difficulties which arose in the course of the trial which we can properly disclose without breaching privilege.”

He was also to deal with the disclosure of Mr Kaul’s CD Rom. Mr Zimmer deposed that:

“18.

I understand that Mr Hedrich, in his evidence, suggested that he had sent us “all” of his e-mails by about May 2005. In fact, all the e-mails described in the lists of 22nd July 2005 … and 12th September 2005 … were received by us from Mr Hedrich in hard copy. He explained to us, on numerous occasions that he did not have any e-mails relating to the Metis transaction in electronic form, because of problems he had had with his computer, notably virus attacks, and because of his various office moves. Accordingly, I was satisfied, when I drew up the list, that I had received all the relevant e-mail in the only form (namely copies printed out by Mr Hedrich) to which Mr Hedrich appeared to have access.

…

43.

… I interviewed Mr Kaul 24th October 2005 and prepared a witness statement for him. When we took the witness statement it was not discussed that we could also get a CD Rom from Mr Kaul. It was only in a subsequent telephone conversation on or about 7th November 2005 when he mentioned whether it would help to see the weird format of the e-mails and that he could put these on a CD Rom. He sent this CD Rom by post together with the original witness statement and both arrived on 14th November 2005 in our office. This CD Rom, I believed, contained only a copy of the .zip files containing the .bin files in which the e-mails were contained. I did not check whether it contained any additional files at this stage because I had not been told they were there, and because I would not have been able to open the .bin files anyway.

44.

In the meantime, I had asked Mr Hedrich on or about 4th November 2005 to forward to me all the e-mails which related to the Metis transaction. He did so on 4th November 2005 in the morning and he sent it to the e-mail of Ms Claudia Westphal [his assistant].

…

46.

… When we printed the e-mails out in our offices, for some reason each of them gave the date and time that they were received into our system i.e. Claudia Westphal as the recipient on 4th November 2005, and not the original date. I have no idea why this happened but I believe it to be a feature of the software.

47.

We took further instructions from Mr Hedrich and he again confirmed that we had now received all the relevant e-mail correspondence he held electronically.

…

51.

I reiterate that as far as I can remember it was not until October 2005 when Mr Hedrich told us about Mr Kaul’s efforts to rescue his T-Online e-mails earlier in the year that we had any reason to believe that Mr Hedrich actually had access to his e-mails electronically. I only knew until then that he had some problems with his computer and that he also had a virus. His instructions, up to that point were that apart from the few printed out e-mails he had shown to us, and which we had disclosed previously, the e-mails related to Metis and relevant to the transaction were lost as a result of his computer problems and moves.

…

The Kaul CD

69.

I went to Hamburg in October, as I have described. I intended to interview Mr Kaul as well as Mr Hedrich. I did so and produced a draft of his witness statement. I received a copy of the “Kaul CD” on 14th November 2005 from Mr Kaul together with his original witness statement by post. When he had finalised his statement he asked me whether he should copy the e-mails on a CD Rom. I agreed because I thought it might be necessary just to show to the court that indeed the e-mails were stored in a weird format. I did not look at the CD when it arrived because I thought it only contained files (the .zips of the .bin files which were the e-mails) which I would not be able to open because I did not have the software T-Online.

70.

I was by this time aware that Mr Hedrich’s e-mail archive was available, but I did not have any reason to believe, because of my client’s instructions, that there would be any further relevant material in the e-mail archive. I did not make the connection on 8th November 2005 when I received the three e-mails by fax from Mr Hedrich. In fact, it did not appear to me until 28th November, when Mr Hedrich was cross-examined about the 10th April and 29th April e-mails that there was a problem with the e-mail disclosure, because I had not noticed until then that there were two versions of those e-mails. I was not told that the CD in fact contained more information from Mr Hedrich’s computer. I do not think I realised this until Mr Kaul gave evidence at the trial and then we investigated and found that it did.”

When Mr Zimmer swore that affidavit he was unaware that any claim for wasted costs would be made against him. It is a noticeable fact that the application had not been made to Judge Overend as one might have expected if there was clear evidence of the negligent conduct of the disclosure process. The best person to be able to judge that question was the trial judge and it should have been raised with him. On the last day of the hearing on Monday 5th December, Mr Auld pressed for Mr Zimmer’s affidavit as to disclosure because “further questions [could] arise, for example wasted costs orders in the future.” The judge said: ”You mean you want to go against Mr Zimmer for wasted costs” and all Mr Auld could say in reply was, “My Lord, we may do.” Judge Overend was the only one able to deal with a stage one enquiry in a matter of hours (or even minutes) as the authorities suggest. So far it has taken me days. In fact the claim for wasted costs was not intimated until Jones Day, who have throughout acted for the Bank, wrote on 10th October 2006 threatening this application for wasted costs. They added that the costs incurred by the Bank since the end of the trial amounted to a staggering £203,885.79. The Bank “invited” Zimmers to make payment of no less than £565,901.12, spent, I cannot refrain from wryly commenting, defending a claim for $382,857 or thereabouts. Messrs Eversheds, acting for Mr Zimmer wrote to Mr Hedrich seeking a waiver of privilege but on 10th November 2006 Mr Hedrich repeated his earlier refusal to waive that privilege. On 22nd March 2007, fifteen months after the conclusion of the trial, this claim for wasted costs was launched.

The matter first came before Walker J. listed for two hours. He did not have the time to hear it. In a note prepared for the parties the judge observed that the application had to surmount the difficulty that Hedrich had not waived privilege. So the matter came before Field J. on 25th June 2007. He reached these conclusions:

“32.

For the purposes of this application, I must accept Mr Zimmer's evidence as to when and how he came to be in possession of the [Kaul] CD ROM which contained the damaging documents and what he believed was contained on the disk.

33.

The case advanced against Zimmers has at its core the contention that Zimmers should have obtained the CD ROM made by Mr Kaul which contained all the files on Mr Hedrich's computer and examined the contents thereof very much earlier than 1st December 2005 when the contents were printed off in Jones Day's offices. …

34.

Mr Auld submitted that if these duties [the solicitor’s duties on disclosure set out by Matthews and Malek] had been discharged by Zimmers, Zimmers would have obtained the CD ROM made by Mr Kaul before even the letter before action, dated 11th October 2004, and if not by then, by the time disclosure by list was first made on 7th July. Although it is no doubt best practice for a solicitor either to take possession of the client's files which have a potential bearing on the dispute or to visit the client and inspect such files, I do not think that a failure to take these steps, whatever the circumstances, means that the solicitor is in breach of duty to his client or to the court. A solicitor must carefully explain the obligation of disclosure to the client, but if the client tells him certain categories of documents have been lost he is entitled to accept these instructions unless there are matters which cast doubt on the instructions or in any event require further investigation. It follows, in my opinion, that Mr Zimmer was entitled to accept Mr Hedrich's instructions in February 2005 that the whole of the T On-line emails had been lost, and in my opinion Mr Zimmer was not in breach of duty for not discovering that the entirety of Mr Hedrich's computer files were on a CD ROM by reason of not enquiring into what documents lay behind Table A in the Reply, or into the two emails which he had been sent on 11th July 2005. It was not inevitable that Table A had been produced from emails as distinct from other hard copy documents and nor was it obvious that the emails of 6th November 2001 and 7th May 2002 had been accessed from the computer on 11th July.

35.

In my opinion, the crucial question is whether when he met him on 24th October 2005, Mr Zimmer should have asked Mr Kaul to provide him with access to the contents of Mr Hedrich's hard drive, which Mr Kaul told him he had downloaded on to his computer. …

36.

… I think it is strongly arguable that Mr Zimmer was duty bound to ask to be provided with access to the contents of Mr Hedrich's hard drive and in my judgment there is an irresistible inference that if Mr Zimmer had made this request he would have been given the CD ROM which Mr Kaul sent across on 14th November 2005. Inspection of the material on the disk would not have taken long. In my judgment, Mr Zimmer would have discovered the damaging documents by 4th November 2005, at which point he would have been obliged to advise Mr Hedrich that these documents had to be disclosed or he could no longer act for him.

37.

If Mr Hedrich had permitted disclosure, I am satisfied that the case would have been discontinued or SBL would have obtained summary judgment by about 18th November 2005 by when, according to a schedule annexed to SBL's skeleton argument showing when SBL's costs were incurred, SBL would have incurred costs in the sum of £213,325. If, as he may have done, Mr Hedrich had refused to allow Mr Zimmer to disclose the damaging documents, Mr Zimmer would have had to have come off the record.

38.

It is vital to SBL's case that it can be shown that the proceedings would have ended before they had incurred a significant amount of the costs they did incur. However, I am unable to say whether it is likely that Mr Zimmer’s coming off the record would have saved SBL from the costs they in fact incurred. Mr Hedrich might have discontinued or he might have fought on, either with another solicitor from whom he suppressed the damaging documents, or on his own, and he might or might not have obtained an adjournment of the trial. This means that although there is a good prima facie case for Mr Zimmer to answer that he acted negligently and in breach of his duty to the court with respect to disclosure in this case, I am bound to conclude that it is not sufficiently likely on the evidence before me that if this case is unanswered a wasted costs order will be made. In short, I am not satisfied that SBL have made out the necessary causation element in their application. This conclusion is fatal to SBL's application.

39.

I would add, that I have grave misgivings as to the proportionality of these wasted costs proceedings. I say this having regard to: (1) the statement in Jones Day's letter of 10th October 2005 to Zimmers that the cost incurred by SBL since the end of the trial amounted to the remarkable sum of £203,885.79; (2) the very substantial cost that must have been incurred in this application given the very many documents which have been put before the court, the hearing before Walker J and the hearing before me, which lasted the best part of a day with the deployment of detailed skeleton arguments and summaries of case; and (3) the cost of the second hearing to determine finally if a wasted costs order should be made.”

The judge also dealt with costs in a subsequent judgment handed down on 16th July 2007. He said:

“1.

Zimmers succeeded in SBL’s application overall. However, CPR 44.3(4) directs that in deciding what order (if any) to make about costs the court must have regard to all the circumstances including (a) the conduct of the parties; and (b) whether a party has succeeded on part of his case, even if he has not been wholly successful.”

He concluded Mr Zimmer had lost on the first issue of negligence but succeeded on the second issue of causation, the first issue involving considerably more costs than the second. He considered that the failure of Mr Zimmer to acquire from Mr Kaul the disk containing the contents of the claimant’s computer was conduct that ought to be taken into account against him in deciding the question of costs. On the other hand the Bank’s application had failed on a crucial point. Consequently he concluded that each side should bear their own costs.

When giving permission to appeal Moses L.J. observed that “The skeleton and paper needs to be reduced dramatically.” He gave directions that once the respondent’s skeleton argument had been received a joint written application for directions as to the minimum number of documents which were essential to the pursuit of the appeal and any revision of the time estimate of one day should be given. Those directions met with no or very little success. We have twelve ring binders of various density, some unopened. The appellant’s so-called grounds of appeal, twenty one pages of single type would have done justice as an elaborate skeleton argument but it failed to state in numbered paragraphs on a separate sheet attached to the appellant’s notice precisely and concisely what the grounds were. I was not much wiser about the grounds of appeal by the time I had read the sixty page skeleton argument. The respondent’s skeleton argument was not much better: this was forty-three pages long. Although the notice of application did at least attach a draft order which would have declared that the court was satisfied that wasted costs were incurred on or after 7th July 2005, the written arguments ranged far and wide and the negligence complained of began with the alleged failure of Zimmers to obtain the whole of their client’s documentation, hard copies and those electronically stored by the time of the letter before action and the breaches continued thick and fast at every stage from the bringing of the claim to its final collapse, effectively on 2nd December. I am reminded of Lord Templeman’s remarks, which apply with equal force with reference to grounds of appeal and skeleton arguments, which he made in Ashmore v Corporation of Lloyd’s [1992] 1 W.L.R. 446, 453:

“The parties and particularly their legal advisers in any litigation are under a duty to co-operate with the court by chronological, brief and consistent pleadings which define the issues and leave the judge to draw his own conclusions about the merits when he hears the case. It is the duty of counsel to assist the judge by simplification and concentration and not to advance a multitude of ingenious arguments in the hope that out of 10 bad points the judge will be capable of fashioning a winner. In nearly all cases the correct procedure works perfectly well. But there has been a tendency in some cases for legal advisers, pressed by their clients, to make every point conceivable and inconceivable without judgment or discrimination.”

I am, therefore, critical of the way this case has been presented to us. But in fairness to counsel, I do pay them the tribute of confining their oral advocacy to the essentials and doing so with charm and stoical forbearance when under judicial fire.

The hearing lasted one day but it has taken me days to read into the case sufficiently to do it justice. Distilled to its essence, these are the arguments.

The nub of Zimmers’ case is this:

Having pinned the Bank’s colours to the mast, the crucial question is whether the Bank can make good a strong prima facie case that Zimmers were negligent in that having received, one way or another the CD Rom, electronically or otherwise, the whole contents of the claimant’s personal computer as was burnt onto the Kaul CD Rom, the solicitors in breach of their duty to the court failed to ascertain the contents of the material thus received and failed on 7th July to ensure that their client disclosed it. There are many peripheral points, like whether or not Table A to the Reply should have alerted the solicitors to their client’s access to e-mails despite an earlier assertion in February that it was not possible to gain access to the computer.

In my judgment it is necessary for the Bank to show a reasonably obvious case and no clear picture can emerge if the wasted costs application is required to investigate the minutiae of conduct in a complex action. We are to look at the big picture, not the detailed brush-work. The disclosure given by Mr Hedrich may have been defective, as was conceded. But that is not the issue. The issue is whether Zimmers were clearly and obviously in breach of their duty to the court to ensure that the client properly discharged his duty to give proper disclosure.

So the focus is correctly on whether or not Zimmers were in possession of the information contained on the Kaul CD Rom by 7th July. The Bank has to rely on the evidence given at the trial by Mr Kaul and by Mr Hedrich and so, in order to capture the flavour of this rapidly changing case, I will try to highlight the salient points that emerged from 286 pages of transcripts.

On the first day of the trial, 28th November, Mr Hedrich was cross-examined about his disclosure statement signed on 21st June 2005 and his revised disclosure served in September. There was this cross-examination (transcript p. 62 et seq.):

“Q. Can you please explain the position in relation to your e-mails at that date? Why did you not disclose them? Because you had access to them, did you not? Because your banking friend in February of this year got access to your computer, he downloaded from your hard disk onto his computer, and gained access to your e-mails.

A. Yes. …

Q. … Very recently, we had 1600 pages of e-mail documents given to us. Those documents, or at least the e-mails which were printed into those documents, existed at the date of each of these lists, and you did not disclose any of them, and I want to know why, please.

A. All these e-mails and data has been transferred early this year, if I do remember correctly, it was in May this year, from my PC to Mr Zimmer’s PC. [Mr Auld would wish to add the emphasis.]

…

Q. But you can give no explanation as to why this was not done, and why they were not referred to, in each of the lists that you signed, disclosure lists, which I have referred you to?

A. Again, in May, I transferred all this e-mail correspondence to the computer of my solicitors …

…

Q. And from February then in Hamburg you had the e-mails on your system, and Mr Zimmer had them downloaded on his system from May, is that right?

A. Mm.”

Moving to p. 96:

“Q. As I understand it, you printed hard copies of e-mails in May, is that not what you said …

A. No, I do not print any e-mails in May, I sent all my e-mails in my data to my solicitor. … if you have many, many own data, in my own system, I do have a specific data for Standard Bank, also for the customer, Metis, and all this data have been sent in May to my solicitor, and my solicitor, as per information, created a respective CD Rom at that time.”

On Day 2, 29th November, Mr Kaul gave evidence which the judge described at the end of it as “illuminating”. This was his evidence. At p. 41:

“Q. Right, so you went on 26th/27th February this year, you went into his computer and you copied across or downloaded –

A. Right, everything, his whole –

Q. You downloaded everything on the hard disk, did you?

A. I did …

Q. Was it everything on the hard disk that you downloaded?

A. Yes, as far as I remember, I copied everything from his hard disk onto my laptop.

Q. Right, and what was that, do you know, I mean in general terms, what did it comprise, a series of different files?

A. Yes, a lot of files, private, correspondence, there were files Standard Bank, there were files Metis, all types of clients worldwide where he dealt with and also e-mail zip files, all types of files.”

At p. 44 he said:

“But I made a copy of all of those, I burnt a CD Rom at that time which is with our solicitors.

Q. What, Zimmers?

A. Right.

Q. Would you now be able to help us by producing a CD Rom which showed his Lordship the information which you have referred to, and the files which you refer to, could you now do it from your computer?

A. I have it on my computer, but not here, at home. I can do it, yes, I can make a copy, yes.

Q. Perhaps I can ask you directly, will you please do it for us when you get back to Germany?

A. But it is available here as I already explained, I gave the solicitors and Mr Burkhard [Hedrich] a copy of this – well there is only one burned CD with all the infos which were available at that time, and this is with Zimmers.” (The emphasis is added by me.)

The rest of the day was taken up with the cross-examination of other witnesses including a Mr Tusder.

On Day 3, 30th November, the CD Rom was produced and Mr Hedrich resumed his cross-examination. As an indication of the conflicts which eventually led to Zimmers coming off the record, Mr Hedrich said at p. 20:

“Everything has been provided to Mr Zimmer and the two personal meetings in Hamburg in my office.

Q. So they [certain faxes] were in the original file and someone at Zimmer has lost some of them?

A. This is your opinion or your personal view, I do not share this. So if you are telling me that Mr Zimmer has lost, this is not correct. You can ask Mr Zimmer but not me. I have handed over all of my documentation again. We can discuss this tomorrow, again and again. I have disclosed everything to Mr Zimmer personally, in original form, as clearly stated yesterday and also in copied form.”

At p. 80 questions were asked about the Hamburg packets.

“Q. Is that [a fax transmission report] part of the 7 files we have never seen? I do not understand where we are with this one?

A. Yes. Would you like me to repeat it again? We had 7 files, documentation in original form with papers, papers, papers. It is not my decision, so if we have run through all these files and Mr Zimmer took over these files to London for additional security and we have also been able to provide him with a respective Word programme including the whole correspondence from Hedrich Consult and everything from Hedrich Consult and Mr Hedrich personally, this is the situation.”

At the end of the afternoon Mr Kimbell told the court:

“I am in a rather awkward position and I would rather not say anything about the 7 files. … If they do exist and they contain what I think the transcript says they contain then the originals of some of the documents for which we only have printed out copies, then Mr Zimmer is in very very serious breach of his obvious duties of disclosure. There are various references in the transcript about inspection of them and having been brought to London and they now appear to be in Hamburg. So if that is the position, it creates a potential conflict between Mr Hedrich and Mr Zimmer which may have one particular result, I just do not know yet. The position is I need to take instructions from Mr Hedrich on precisely where he says the 7 files are in his office, what physical form they are in, what colour they are, where they are to be found and, once I have those, and if they contain what it is said they contain, then of course my learned friend ought to have access to them, there is no question about that. But I am in the rather awkward position that I cannot tell your Lordship, oh, yes, they are there and you can have a look at them.”

On Day 4, 1st December, the court was told that there were difficulties in accessing the information on the Kaul CD Rom but that Zimmers’ I.T. expert was assisting Jones Day with special software that would enable the disk to be “read”. Mr Auld continued his cross-examination and began to explore the matters relating to the counterclaim that the claimant was guilty of repudiatory conduct in dealing with others in conflict with his duty to the Bank. There may not have been much to go on. This exchange took place:

“Q. Really, Mr Hedrich, you are sitting at your desk, retained by Standard Bank as a full-time consultant and you are carrying on business at the same time for Convena Trade Finance on behalf of competitive banks.

A. I see it differently, as I have expressed many times already. I can only repeat myself, but I have already said that before.

…

Q. No, I am talking about fundamental obligations of trust and duty between professional people, Mr Hedrich. There is an obvious conflict of interest, is there not, in your acting for two banks at the same time?

A.

I clearly do not see it that way.”

Subject to whatever emerged from the Kaul CD Rom, that concluded Mr Hedrich’s evidence and Mr Kimbell informed the judge:

“I obviously have to take instructions from Mr Hedrich on a number of matters and I urgently need to advise him of a number of things, not least given the course of the cross-examination. So I would request that he be released from – that he be treated as if his evidence is over for the moment, so I have full freedom to speak to him in the normal way. … I am afraid he cannot be just the passive recipient of advice from me, although he will be the recipient of some advice; he needs to be able to respond to questions that I have for him about a number of things.”

On that ominous note the day ended in court but, as we know from paragraph 35, there was a conference that evening when the differences between his witness statement and his oral evidence and the documents which were produced by him were explored and he apparently accepted that he had not disclosed relevant facts to his solicitors.

Day 5, 2nd December, began with the court being informed that the Hamburg packets had arrived the previous evening. Some of the contents was clearly privileged. The endeavours to access the Kaul CD Rom had continued until 8 pm the previous evening and were continuing that day. The judge allowed a short adjournment and when he resumed he was told that Mr Justice McCombe had allowed Zimmers to come off the record.

When the trial resumed on Day 6, Monday 5th December, Mr Hedrich served his notice of discontinuance. Mr Auld indicated that the Bank may wish to seek an order for wasted costs but that was not an application the Bank was making there and then. The Bank sought an order for indemnity costs against the claimant, Mr Auld observing in that regard:

“There are clear and serious inconsistencies in the evidence of both Mr Hedrich and Mr Tusder, who was his principal supporting witness. … This case should not have been started in the first place. It has now very properly been discontinued.”

Indemnity costs were duly ordered.

Although the Practice Direction suggests in 53.6(1)(a) that the task at the first stage of the enquiry is to consider the evidence and other material without regard to the respondent’s answer to it, this is no more than the general rule and the procedure is clearly capable of adaptation to meet the circumstances and needs of the particular case. Here voluminous evidence and supporting documentation has been filed by both sides and it would be closing one’s eyes to the realities if we were to ignore what answer Mr Zimmer has proffered to the charges against him. So I analyse his response.

His case, as set out in his letter of 25th February (paragraph 22 above), is that the claimant had lost the e-mail correspondence and the inference must be that if this correspondence could not be retrieved by the expert, everything on the computer had also been lost. I see no reason why he should have doubted the accuracy of those instructions.

Mr Kaul’s evidence was that he had solved the problems some days later and had burnt a CD Rom of the whole contents of the claimant’s computer. What is, however, significant is the fact that he only made one copy and that he kept it and did not give it to the claimant. It remained with him until he, not Mr Hedrich, sent it to Zimmers on 14th November. If and, in so far as he may be suggesting that he sent the CD Rom then Mr Hedrich is plainly in error.

If that is so, the question is whether he could have sent the whole contents of his computer electronically in or by May. In his disclosure affidavit of 16th December (set out at paragraph 36 above) Mr Zimmer deals with the evidence given by Mr Hedrich – see paragraph 18 of the affidavit. He denies receiving any e-mails electronically: they were all sent in hard copy. Note how Mr Zimmer deposes to the fact that his client had explained to him “on numerous occasions” that he did not have any e-mails relating to the Metis transaction in electronic form because of the problems he had had with his computer. Then follows the vital sentence worth repeating:

“Accordingly, I was satisfied when I drew up the list that I had received all the relevant e-mail in the only form (namely copies printed out by Mr Hedrich to which Mr Hedrich appeared to have access.” (Emphasis added by me.)

In paragraph 51 of that affidavit he repeats that until the October meeting “his instructions … were … that the e-mails relating to Metis and relevant to the transaction were lost as a result of his computer problems and moves.”

In his witness statement Mr Zimmer was more coy, taking refuge behind the cloak of privilege and saying with reference to “e-mails transferred in May”, the Bank’s case, simply that:

“Zimmers cannot explain whether Mr Hedrich’s recollection is correct.”

It is quite apparent that as Mr Hedrich gave evidence so Mr Zimmer’s concerns increased. Hence counsel’s first hint of conflict at the end of Day 3 and the more direct reference at the end of Day 4 to the claimant having to respond to questions to be put to him by counsel in conference “about a number of things”. We know from the affidavit sworn the next day to come off the record (see paragraph 35 above) that the dispute between solicitor and client centred on the conflict between Mr Hedrich’s evidence and the documents produced and that:

“The claimant accepted the conflict of interest points and the fact that he had not disclosed relevant facts to his solicitors.”

In the light of all that evidence, I find that the Bank cannot establish a strong prima facie case that Zimmers had received the Kaul CD or some other electronic transfer of the whole contents of the claimant’s computer by 7th July as the Bank contend. The evidence of Mr Kaul that he kept the only copy of the CD until he sent it to Zimmers in November satisfies me that the probability is that Zimmers did not receive this information in any shape or form before that date. Mr Hedrich admitted as much in conference on 1st December.

One must not forget the supreme irony of the Bank’s case. The Bank spent days successfully cross-examining Mr Hedrich up hill and down dale, not just on the curiosities of his disclosure but of essential conflicts between him and his witness Mr Tusder. They painted him to be a liar and they were successful in that endeavour. In doing so they have destroyed Mr Hedrich’s credibility and they cannot in those circumstances succeed in establishing as a strong prima facie case that his word should be preferred to that of Mr Zimmer, a solicitor of the Supreme Court. In my judgment the case which the Bank set out to prove to establish their claim to wasted costs from 7th July fails.

The salient facts here are these. Rightly or wrongly we know that at a conference held on 3rd October (see paragraph 25) the claimant’s instructions were that he had not acted for third parties in breach of the agreement. We know from the evidence already recited that Mr Zimmer had been instructed that the e-mails on his computer had been lost. That was hardly an allegation that should have been challenged and he cannot be held to have been negligent to have accepted that assertion.

In that knowledge and with those expectations Mr Zimmer went to Hamburg later in October. We can pick up the story from his disclosure affidavit (paragraph 36 above, paragraph 43 of the affidavit). It was at that meeting with Mr Kaul in October that Mr Zimmer learnt that, contrary to his previous instructions, Mr Kaul had managed to gain access to the e-mails – see paragraph 51 of the affidavit. In paragraph 70 of the affidavit he deals with the CD Rom and says – and it is again worth repeating, with the emphases added by me:

“I was by this time aware that Mr Hedrich’s e-mail archive was available, but I did not have any reason to believe because of my client’s instructions that there would be any further relevant material in the e-mail archive. … In fact it did not appear to me until 28th November when Mr Hedrich was cross-examined about the 10th April and 29th April e-mails that there was a problem with the e-mail disclosure because I had not noticed until then that there were two versions of those e-mails. I was not told that the CD in fact contained more information from Mr Hedrich’s computer. I do not think I realised this until Mr Kaul gave evidence at the trial and then we investigated and found that it did.”

In the light of that evidence, which is credible, or at least not inherently incredible, the Bank cannot in my judgment establish a strong prima facie case that Mr Zimmer knew by that October meeting, or by 4th November (the judge’s date) that the CD Rom might contain material information. His account ties in with the way the trial developed. As soon as the penny dropped, the CD Rom was produced.

The negligence which the Bank must establish lies in the breach of the duty to the court to have failed to discover before this late stage in the trial that the CD Rom existed or that other access to the whole of the contents of the computer and that the computer contained other files than the Metis-related transaction which proved the breach of fiduciary duty.

I make some preliminary observations:

We have to judge negligence by the standards of a solicitor of ordinary competence, the competence, that is, of a typical, reasonably well-informed high street solicitor, just like Mr Zimmer, not the Rolls Royce standards which the big City firms like Jones Day must and do uphold. In my judgment it exceeds the required standard of care to be taken in these circumstances to expect a solicitor to challenge the assertions, at first that the e-mails had been lost and later, that the e-mails in fact recovered by Mr Kaul, were all e-mails of relevance to the litigation.

There is no evidence before us to suggest that Mr Zimmer failed to explain to his client the need to produce adverse documents and Mr Zimmer was in my judgment reasonably entitled to accept his instructions that everything relevant had been disclosed. We know what his instructions were because he wrote to Jones Day on 8th November (see paragraph 29 above) that he had taken instructions again and that the client confirmed that the e-mails were the only e-mails relating to Metis – I add the emphasis. Note the invitation in that letter to cross-examine Mr Hedrich, an invitation avidly and productively accepted by Mr Auld. In the light of that cross-examination the truth began to dawn on Mr Zimmer. The fact that Zimmers withdrew from the case as they did supports the assertion that they were in fact taken by surprise and in my judgment they were reasonably entitled to be surprised by the turn of events. A strong prima facie case that they ought to have become aware in October of the existence of this other incriminating material is not established to my satisfaction.

Much play has been made about two e-mails, copies of which were sent by Mr Zimmer to Jones Day in November. The copy sent is headed “Zimmers”. It purports to have come from the claimant, sent on 4th November 2005 at 10.57, to Claudia Westphal, an assistant in Mr Zimmer’s office. The subject was “Sight L.C. to be opened by Central Bank of Libya”. It relates to the transaction for which the claimant was claiming his remuneration and it was sent by him. The strong point made by Mr Auld, taking it from paragraph 11.3.5 of his skeleton argument is that:

“Each of the e-mails states the date of virus checking when they were received by Mr Zimmer’s personal computer or Zimmers’ computer at the relevant time. The date shown is in the American format 05/11/2005, namely 11th May 2005.”

If that is right, then there is great force in the Bank’s case that Zimmers had received in May this, and by inference, other electronic transfer of the e-mails that were on the claimant’s computer. It is, if the contention is sound, strong corroboration of Mr Hedrich’s evidence that he had transferred all his data electronically to his solicitors in May. It is, therefore, a crucial part of the Bank’s case.

The relevant words at the end of the e-mail read:

“No virus found in this incoming message.

Checked by AVG Free Edition.

Version: 7.1.362/Virus Database: 267.12.8/162-Release Date: 05/11/2005.”

Mr McPherson had two points in answer to this powerful submission.

This is supposed to be a stage 1 enquiry. The wealth of evidence submitted has taken it a little beyond that though, heavens help us, both sides seem avidly anxious to extend that range of enquiry even further if we are to get to stage 2. I ask myself simply whether the evidence laid before us satisfies me that a wasted costs order would be likely to be made and that the proceedings are justified notwithstanding the likely costs involved.

Far from being satisfied that a strong prima facie case has been made that Zimmers were in possession of the Kaul CD Rom by 7th July, I am totally satisfied that the strong prima facie case is on the contrary that Zimmers did not receive that CD Rom until Mr Kaul sent it to them on 14th November.

In the light of the attack on Mr Hedrich’s credibility, I would look for something to support his assertion that Mr Zimmer had all his data downloaded on his system from May. As just noted, the request made in November is inexplicable if all these e-mails were already in his possession. The dawning realisation during the course of the trial of the evidence being given both by his client and by Mr Kaul speaks eloquently to me of Mr Zimmer’s ignorance of the truth. Far from there being some support for Mr Hedrich, there is none and all the probabilities point to the truth of what Mr Zimmer was asserting. The strong prima facie case is that he did not have the whole of the contents of the claimant’s computer electronically transferred to him.

The restraint of privilege is a clear inhibition on Mr Zimmer’s ability to set out what advice he gave, what response he received, and why disclosure proceeded in the chaotic way it did. There is no doubt that the process of disclosure was in fact inadequate. That does not answer whether that state of affairs was produced by the negligence of the solicitor. In so far as he has lifted the cloak the privilege and as we can infer from his contemporaneous instructions, Zimmers were told in February of the inability to access the computer, that their instructions remained that way until October and that Kaul’s magical work was only then revealed to them. No negligence can be established before October. For reasons set out above, I do not see a prima facie case made out that it was negligent not to have accepted what was then being told to them, namely that all relevant e-mails were now on the e-mail disk which was promptly disclosed.

Given the difficulties in reading the Kaul CD Rom and given the reasonable expectation that it contained nothing which was material, I am not satisfied that it was negligent to have left this unopened until the information coming out of the trial made its relevance plain.

Contrary, therefore, to the finding of the judge, I am not satisfied that Zimmers were negligent at all. They produced the Kaul CD Rom when its relevance was reasonably obvious. By then all the costs had been incurred and causation is not established.

I cannot emphasise strongly enough the established authority that this is a summary remedy which should be capable of being dealt with in hours rather than days. It would be impossible properly to get to grips with this case within that timescale. Even with the case confined to the essentials as Mr Auld was forced by us to confine it, getting to grips with the case has taken me an inordinately long time. It should not have done. Mr McPherson’s first cheap point is well made in my judgment. If this case had been as obvious as the Bank now try to persuade me it is, then I would have expected that the question of wasted costs would not have been raised as a possible claim to be made but as one which given what may only be described as a “shambles” at the trial was an application which cried out to be made. As the authorities make clear, there are two competing public interests in play: on the one hand that litigants should not suffer loss from the misconduct of litigation by legal representatives, but on the other hand that this form of satellite litigation is to be rigorously confined. This is, and always was, inappropriate relief to seek and, despite my sympathy for the Bank who have spent a fortune in this sorry litigation, I am quite satisfied that its appeal must be dismissed.

Since the claim should never have been brought in the first place, there is no justification for denying the respondent its costs and the cross-appeal must, therefore, be allowed so that the claim should stand dismissed with costs to be assessed if not agreed on a standard basis.

I agree.

I also agree.