Hanco ATM Systems Ltd. v Cashbox ATM Systems Ltd & Ors

This judgment arises out of the hearing before me on 19th June 2007. On that day I heard the application by the First and Second Defendants for permission to appeal and if permission was granted to consider the appeal. The appeal arises out of an application for summary judgment and an interim payment brought by the Claimant against the First and Second Defendants (“Cashbox” and “Mr Thomas”). That application was issued on 23rd December 2005 and was heard by Master Bowles on 3rd, 4th and 5th May 2006. He gave judgment on 3rd August 2006.

That judgment was considered by Master Bowles on 21st February 2007. On that day he:-

He refused Cashbox and Mr Thomas permission to appeal and ordered them to pay the costs of the action insofar as those costs related to matters in respect to which judgment had been entered, ordered they pay 60% of the Claimant’s costs of the summary judgment application dated 23rd December 2005 and ordered them to pay on account of the costs orders referred to above an interim payment of £150,000 by 4pm on 4th April 2007.

The Claimant made an application on 5th February 2007 for specific disclosure against Cashbox and Mr Thomas under CPR 31.12 in order to assist making its election as to remedy and for pre-action disclosure against Cashbox PLC under CPR 31.16.

Those applications were listed before me but were not dealt with and have been adjourned to enable the parties to come to an agreement over them if possible.

The Claimant also made an application for an interim payment. That was also due to take place before me but was by agreement by the parties adjourned pending the outcome of the present outstanding application. It is accepted that if the Defendant’s application for permission to appeal and the appeal succeeds that application will fall away. It has been fixed for hearing on 30th July 2007 before me and I made directions for the serving of further evidence (at the risk of the Claimants being liable for the costs of that hearing).

The Defendants’ application initially came before Mr Justice Warren on paper and he adjourned it for further consideration in court. That matter came before me and it seemed to me that the time allocated was not sufficient properly to consider all of the arguments raised by the Defendants. I therefore directed the present hearing with the Claimants as Respondents. In the event the matter has been fully argued and the parties accept in effect that if I decide the case is appropriate for permission to appeal, it will be on the basis not merely that the appeal has prospects of success but also whether or not the appeal succeeds so that there is one hearing only.

As I have said above the hearing before Master Bowles lasted 3 days. He took time over his judgment and clearly delivered a careful judgment running to some 67 pages.

I remind myself of the nature of the hearing before me.

Under CPR 52.3 (6) permission to appeal may be given only where (a) the court considers that the appeal would have a real prospect of success; or (b) there is some other compelling reason why the appeal should be heard.

The appeal is limited to a review of the decision of the Lower Court unless (inter alia) in the circumstances of an individual appeal it would be in the interest of justice to hold a rehearing (which I do not believe to be the case here). The appeal will be allowed when the decision of the Lower Court was (a) wrong; or (b) unjust because of a serious procedural or other irregularity in the proceedings in the Lower Court. It is not suggested that the latter is the case.

The Appeal Court can draw an inference of fact which it is considered justified on the evidence (CPR 52.11).

The concept of “review” was considered by the Court of Appeal in EI Du Pont Nemours & Co v ST Du Pont [2006] 1 WLR 2793 (summarised at SCP 52.11.1 page 1549). The important point for the purpose of this appeal is that appropriate respect is to be accorded to the decision of the Lower Court the nature of the Lower Court and its decision making process.

The concept of the word “wrong” in CPR 52.11 (3) (a) is meant to infer that the Lower Court either erred in law, erred in fact or erred (to the appropriate extent) in the exercise of its discretion. That latter point is designed to show that where a discretion is exercised it should be challenged only on the basis that no reasonable tribunal with the material before it could have come to the decision being challenged on appeal.

The Claimant’s application was for summary judgment.

The application against Cashbox and Mr Thomas was wide ranging. In addition to the claim for breach of contract of employment and fiduciary duty as against Mr Thomas and the dishonest assistance claim against Cashbox which succeeded the Claimant sought tortious claims for breach of confidence inducing breach of contract, unlawful interference and conspiracy against both of them.

Some of those were watered down and Mr Millett QC (who appeared for the Claimant both before me and below) at the commencement of the hearing before Master Bowles limited his application as against Mr Thomas as to breach of contract, breach of confidence and unlawful interference with the Claimant’s economic interest and conspiracy with Cashbox and breach of fiduciary duty. As against Cashbox he sought liability on breach of confidence, unlawful interference with the Claimant’s economic interest, conspiracy with Mr Thomas and dishonest assistance to Mr Thomas to breach his fiduciary duties.

Master Bowles concluded that Mr Thomas had committed (amongst other things) a breach of fiduciary duty and he also concluded that Cashbox had dishonestly assisted in that breach of fiduciary duty. These are strong decisions for a Judge to make. They are even stronger when made at the summary judgment stage. It is well understood by older practitioners that summary judgment was not open to a Plaintiff where there was an allegation of fraud. That did not necessarily preclude a claim for breach of fiduciary duty see for example Guinness v Saunders [1990] 2 AC 663 H.L. However the courts quite properly looked at very serious allegations in the context of a summary judgment application and were careful to avoid the risks of a summary application shutting out a Defendant at an early stage and thus potentially causing an injustice when it was possible that all the material was not before the Judge at that preliminary stage.

The restriction on fraud as a prohibition for summary judgment was removed in the CPR. CPR 24.2 provides that the court may give summary judgment against a Defendant if (a) he considers that the Defendant has no real prospect of successfully defending the claim or issue; and (b) there is no other compelling reason why the case or issue should be disposed of at trial.

It is important to appreciate that a summary judgment application is not a summary trial. There is nothing new in that see for example under the strike out provisions under the RSC Wenlock v Maloney [1965] 1 WLR 1238. That is not to say that the suitability of the case should be judged by the bulk of the documents or even the length of the hearing. It is too easy for a Defendant to throw up a smoke screen by producing a large number of documents and a large number of issues (on the “Micawber” principle) and hope that something comes out which makes the matter go to trial. Equally however one clearly must resist becoming embroiled in a mini trial for obvious reasons. If a mini trial is necessary it is wrong to conduct a mini trial at an interim stage when there has not been full and complete deployment as between the parties of witness statements and (more importantly) disclosure.

Equally one should not necessarily accept everything that is said in a witness statement as raising issues that ought to go to trial see National Westminster Bank v Daniel [1993] 1 WLR 1453. Merely because a Defendant denies that he has been in breach of fiduciary duty or dishonest does not mean that the Court has to accept that.

In a clear case whatever the nature of the claim it is incumbent upon the Court if the matters raised by the Defendant have no real prospect of success and there is no other compelling reason for a trial to give a Claimant early judgment. That was one of the underlying premises of the civil procedure rules to speed up the access to appropriate justice.

In this context I should refer to paragraph 552 of my own judgment in AG of Zambia v Meer Care & Desai (relied upon by the Defendants in paragraph 40 of their skeleton). In that paragraph I said:-

“In that context I should set out again what I said at the start of the trial. In view of the serious allegations that were made it was important that every person at the receiving end of such allegations should be given a fair opportunity to confront those in cross examination. I made it clear that I would not entertain criticism of the truth of a witness in closing speeches based on matters that had not been put to that witness. It is important because without such matters it unfairly deprives the witness of an opportunity to persuade me by his own answers and demeanour that he is an honest person and is to be believed. The converse is also equally applicable; it deprives me of an opportunity to assess a witness in that light. It is fashionable to suggest that the live evidence of a witness has less importance nowadays. If by that it is meant to assert it is often the situation that the result generally turns upon contemporaneous documents I would not dissent from it. If it is intended to suggest the importance of live evidence subject to vigorous cross examination is less important I would fundamentally disagree. This case has demonstrated graphically the need for people to present their case and for that presentation to be tested”

That “context” was a lack of documentary evidence indicating that a particular Defendant was a party to a conspiracy and allegations of bad accounting and breach of the Solicitor’s Rules made in the opening to support inferences of dishonesty which were abandoned and not put to him in cross examination. My judgment was in the context of a trial not in the context of summary judgment. If the case at the summary judgment stage satisfies the requirements of CPR 24.2 in that the Defence has no prospect of success and there is no other compelling reason that part of my judgment does not mean there has to be a trial. For there to be a trial there must be an issue upon which the Defendant has a right to give evidence for his credibility to be assessed. For him to have that “right” at the Part 24 stage the Court must accept that the Claimant has failed to persuade it that the threshold of requirements of CPR 24.2 have been satisfied. Of course where there are serious allegations the Court scrutinises the case closely but such scrutiny should occur in all cases.

The test has been covered by the Court of Appeal in Swain v Hillman [2001] 1 All ER 91 namely that “real prospect” means a prospect which is realistic as opposed to fanciful and that Part 24 should not be meant to dispense with the need for a trial where there are issues which should be investigated and there should be no mini trial. It was extensively considered by the House of Lords in Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1 at pages 260-261 per Lord Hope of Craighead. It is a question of considering each case on its merits. If issues are raised which are more than fanciful then the matter goes to trial. Even if issues are raised which are fanciful there might still be a compelling other reason as to why the case should go to trial. As Lord Hope made clear “In the event that a trial of the facts would be a waste of time and mone,y and it is proper that the action should be taken out of Court as soon as possible. In other cases it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of fact is contradicted by all the documents or other material on which it is based. The simpler the case the easier it is likely to take that view and resort to what is properly called summary judgment. But more complex cases are unlikely to be capable of being resolved in that way without conducting a mini trial on the documents without discovery and without oral evidence”.

The Defendants referred me to the decisions of the Court of Appeal in Esprit Telecoms UK Ltd v Fashion Gossip Ltd [2000] LTL 27/07/00 and Doncaster Pharmacuticals Group Ltd v The Bolton Pharmacutical Company 100 Ltd [2006] EWCA Civ 61. The former of those decisions was cited to Master Bowles and he considered it in paragraph 6 and 13 of his judgment. As he rightly observed that decision did not preclude a judgment at summary stage involving dishonesty and fraud; Judge LJ clearly had a feeling of unease about that case. It should be borne in mind that whilst the Judge granted summary judgment he also concluded that the Defendants should have permission to appeal. This is unfortunately paradoxical for a first instance Judge. It is difficult on a logical basis in my view to determine a Defence has no prospect of success and simultaneously grant permission to appeal on the basis that an appeal has a real prospect of success. I do not see that the Esprit case does anything more than require the Courts to scrutinise at Part 24 stage an application based on a finding of dishonesty and fraud which is strongly denied. As I have said above a Court is not bound to accept a denial however strongly worded or presented; it is entitled to assess that denial and its worth against other evidence which is before it or facts which are not in dispute.

The Doncaster case was not cited to the Master because it was delivered after the hearing. In it Mummery LJ gave guidance in respect of summary judgment applications. Once again I do not see that guidance as being anything other than the common sense application of judicial caution at the summary judgment stage. Thus at paragraph 10 Mummery LJ observes “Everyone would agree that the summary disposal of rubbishy Defences is in the interest of justice. The Court has to be alert to the Defendant, who seeks to avoid summary judgment by making a case look more complicated or difficult than it really is”.

Conversely he observed (paragraph 11) “the Court also has to guard against the cocky Claimant, who, having deciding to go for summary judgment, confidently presents the factual and legal issues as simpler and easier than they really are and urges the Court to be “efficient” i.e. produce a rapid result in the Claimant’s favour”.

He also observed that the Court should exercise caution in granting summary judgment in certain kinds of case. He gave as a classic instance a case where there were conflicts of fact on relevant issues which have to be resolved before a judgment can be given and that a mini trial on the facts conducted under CPR 24 without having gone through normal pre trial procedures must be avoided as it runs a real risk of producing summary injustice. Finally he observed (paragraph 18) “In my judgment, the Court should also hesitate about making a final decision without a trial where, even though there is no obvious conflict of fact at the time of the application, reasonable grounds exist for believing that a fuller investigation in to 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”.

Lewison J delivered a concurring judgment. In the subsequent case of The Federal Republic of Nigeria v Santolina Investment Corporation [2007] EWHC 437 Lewison J considered the suitability of a Part 24 application on the case before him. In paragraph 4 (dealing with Part 24) he summarised under seven headings the principle applicable to the hearing of summary judgment applications. Factors (iv) – (vii) are plainly applicable to the present case. On the one hand one does not accept necessarily factual assertions made by a Defendant when there is no real substance in them and if they are contradicted by contemporaneous documents. Against that if it is believed a fuller investigation at trial could alter or add to the evidence, that is a relevant factor, and a 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. On the case before him he concluded that it would not be right to grant summary judgment because part of the case would have to go to trial and the substratum of the evidence would be the same (paragraph 72). This he considered a compelling reason. In addition, although it was a strong case in view of the allegations, there were reasonable grounds for believing that a fuller investigation of the facts would alter or add to the evidence available to the trial Judge and so affect the outcome of the case.

This case also was of course not cited to the Master.

The Defendants contend in their grounds of appeal (paragraph A) that the Master was wrong to accept the case was in principle suitable for summary judgment. This criticism is based upon the contention that there were substantial complexity, summary judgment sought on a multiplicity of issues many of which involved complex and fact sensitive principles of law and could not be dealt with adequately in a summary judgment application and that the Claimant advanced several express allegations of dishonesty and a case in dishonest assistance which required proof of actual subjective dishonesty. In addition (like the Republic of Nigeria case) it was contended that the Master was wrong to hold that there was no other compelling reason bearing in mind that there were claims against D3-D5 which would have to be disposed of at trial and there were residual claims against Mr Thomas and Cashbox (based upon the Master’s rejection of summary judgment on the basis of proprietary steps and the tortious claims of inducing breach of contract and unlawful interference).

Finally it is suggested that an outstanding application to amend the Particulars of Claim and the possible joinder of a Mr Peter Harvey (see below) were further reasons why there should be no summary judgment as it necessitated more matters which might be brought at trial.

The Defendants amplified this ground in their skeleton argument (paragraphs 28-44). It is not suggested that the Master misapplied the law. Given paragraphs 15-16 of his judgment it is clear that the Master knew and understood the necessary approach of the Judge when dealing with summary judgment applications in general and applications in particular in respect of the allegations before him. The Defendants in their skeleton (paragraph 39) point out that the hearing lasted 3 days, involved 11 lever arch files, 150 pages of witness evidence and 4 files of authorities. They also observed that it was necessary to digest no less than 68 pages of submissions in the parties skeleton arguments and that the Master’s draft judgment took 3 months to prepare. Notwithstanding that, they pointed out that the Master in paragraph 18 (13) of his judgment expressed the view that the case was neither factually nor legally complex, which they submit was surprising. For reasons which I will elaborate on in this judgment, I do not accept the criticisms of the Master’s judgment are justified. Indeed I agree with him.

In order to make that out it is necessary to set out the factual background and identify the areas that are in dispute and those that are not in dispute. Equally it is important to appreciate that whatever the length of the submissions and the paperwork generated by this application and the judgment the Claimants failed on many issues which had to be addressed by the Master in his lengthy judgment. It is wrong to give the impression that the entirety of the submissions and the paperwork leading to the judgment and the judgment itself involved only the issues on which the Claimant was successful.

These are summarised in paragraph 8 of his judgment and they are not in dispute. The Claimant was incorporated in January 2000 and operates as a distributor of Automatic Telling Machines (“ATM”). Its management structure consists of a board of three Company Directors, a so called Managing Director, a Human Resources/Office Manager, a so called Finance Director, Mr Thomas (the so called Corporate Sales Director), a so called Customer Services Director, a so called Independent Sales Director and a so called Projects Director. Only the three senior management officers of the Claimant were actually directors pursuant to the Companies Act and owed fiduciary duties as such.

Mr Thomas as a member of the senior management team was in receipt of a salary which with bonuses was worth up to £120,000 per annum together with other benefits. He was the head of the Claimant’s sales operation, responsible for meeting the corporate sales target that was stipulated in the Claimant’s business plan. He was the manager of the corporate sales team which included D3-D5 (corporate sales managers) and 6 corporate surveyors.

There would be regular meetings of the Claimant’s board every Monday morning which Mr Thomas attended. In his role as corporate sales director Mr Thomas had access to sensitive business information relating to the Claimant’s customers including sales orders and instructions of when and where ATMs had to be installed when supply or lease agreements fell to be renewed and pricing arrangements and payment terms.

There was an issue as to whether or not he signed his contract of employment but it was accepted that he did sign a copy of a staff handbook containing certain employment terms and he did so in recognition that he was bound by them. Those clauses contained a restriction on disclosure of knowledge or information of a sensitive nature (clause 11) and (more importantly) clause 12 which provided:-

“You shall not be associated in any capacity with a business that carries out work of a similar nature to the Company’s without the Company’s prior approval. Subject to the above provisions, if you choose to take up additional employment outside your normal working hours this will be accepted by the Company unless such additional employment is felt to have an adverse effect on the performance of your normal duties with the Company”

It was argued that provision enabled Mr Thomas to do the acts which are complained of as set out in this judgment. In my view that is an impossible argument and the Master was right to reject it (paragraph 33). I simply cannot accept that the clause would enable Mr Thomas without committing a breach of contract or breach of fiduciary duty to bid against his own employer for the same contract which is what he did. It seems to me to be self evident that at the very least that is work of a similar nature and is in effect bound to have an adverse effect on the performance of the normal duties. That latter point is clearly established when one looks at what happened to the Claimant’s bid.

In paragraphs 8, 9 and 10 the Master set out the implied terms and conditions of Mr Thomas’s employment and his duties as Corporate Sales Director which the Claimant alleged that he owed to it. The first category were implied terms requiring him to work solely full time and in the interest of the Claimant and that he would not without reasonable or proper cause conduct himself in a manner which was calculated or likely to destroy or undermine the relationship of mutual trust and confidence and that he would honestly and faithfully serve the Claimant’s interests and not compete with it whilst employed.

The fiduciary duties alleged were a duty to act in honesty and good faith in the best interests of the Claimant, not to put himself or allow himself to remain in a position whereby his personal interests conflicted with those duties, a duty to report his own wrongdoing or that of other employees of the Claimant and a duty to notify the Claimant of the impending departure of the Corporate Sales Managers (D3-D5) and the Corporate Surveyors. The Master referred to these further in his judgment.

It is instructive in this case in my view to consider a number of undisputed facts.

None of the above facts are in dispute. Thus whilst still in the employment of the Claimant Mr Thomas set in train the incorporation of Cashbox including the acquisition of premises, stationery and the main website, the prospective employment of Mr Harvey by Cashbox, and its incorporation. All of this he did whilst an employee of the Claimant.

In addition whilst still an employee he submitted a bid for a contract competing with the Claimant which he himself had submitted on behalf of the Claimant. On 1st July 2003 he attended a meeting with Mr Harvey to discuss the Claimant’s bid and handover. By this time Mr Harvey had orally accepted Cashbox’s offer of employment.

Unsurprisingly Mr Thomas did not tell his employer before or during the meeting of 1st July 2003 that he had under bid his own employer. Nor did he tell his employer that the company which he had formed to make the rival under bid had offered Mr Harvey, Theshers negotiating representative a contract which Mr Harvey had accepted.

None of those facts are in dispute.

On 10th July 2003 Mr Thomas submitted a revised tender on behalf of Cashbox. He was still an employee of the Claimant’s. Mr Harvey telephoned him on 17th July informing him that he had successfully won the tender on behalf of Cashbox and Mr Thomas confirmed this in a letter from him to Mr Harvey dated 19th July 2003.

On 29th – 30th July 2003 there was an exchange of emails between Mr Thomas and D5 confirming that “we” (i.e. Cashbox) had got the Thresher deal and discussing whether or not D3 should be “left” at the Claimant for another month to let the dust settle and to make sure that he was ready for the “who is Cashbox question”. This was because of concern about D3’s possible interrogation by the Claimant’s hard man (whoever they might be). On 5th August 2003 Mr Thomas sent an email to Todd Hannon recounting a conversation he had had with Mr Harvey “who could really not talk and would tell me who had the deal but said he could have a better chat later but did tell me that the deal was as we thought at a price below £3000. He also said that if the Claimant was prepared to move at all from the proposal offered down to those levels he would offer to manouver it into the conversation. He said that that was worth checking because a £10,000 bonus would come in very handy”

It is impossible in my view to read this email in an honest light. He plainly knows that he already has the contract in Cashbox’s pocket. He pretends that he does not know who the successful bidder is. Mr Hannon replied on 6th August 2003 expressing the view that he thought another bidder had been successful namely Cardpoint. This was in response to an email from Mr Thomas expressing the view that he thought Paypoint had won the bid. This too was of course an untruth.

By this time of course Mr Thomas had departed from the Claimant and this evidence is not evidence of any breach of duty by him as it is post contractual but it does show that he was willing to lie on occasions. I do not think it has any great significance at this stage because it would not be appropriate to grant summary judgment if there was a need to assess the veracity of the statement made by Mr Thomas on the basis of his credibility when he has told lies on other occasions. That is the kind of thing which ought not to be dealt with in a Part 24 application unless the position was clear and uncontestible.

In paragraph 11 of his judgment he identified 4 matters which the Claimant focused upon:-

In the next part of his judgment he dealt with Mr Hochhauser QC’s submissions concerning the unsuitability of the application for summary judgment. He rejected the Defendant’s submissions. In my view he was correct to do so and I do not accept that his reasonings which are set out extensively in paragraph 18 can be said to be wrong. He demonstrated in my view in those paragraphs a clear understanding of the principles and a clear application of those principles to the facts of this case. The Defendants in their skeleton argument expressed the view that they were surprised at the assessment by the Master at paragraph 18 (13) of the judgment that the case was neither factually nor legally complex. I disagree with them. Stripped of all the paraphernalia of the Claimant’s overly ambitious Part 24 application when one looks at the factual matters necessary to decide liability on the part of Mr Thomas and Cashbox they can be drawn from the uncontestable facts which I have set out above.

I find it impossible to see any basis for Mr Thomas to be able to say that he was entitled whilst still an employee to submit a rival bid, attend an evaluation of the bid on behalf of the Claimant with Mr Harvey with whom he was conducting clandestine negotiations to employ him in Cashbox whilst at all times knowing that he had underbid his employers own submission. He of course had prepared and submitted that bid.

I asked Mr Hochhauser QC how that could possibly be regarded as acceptable conduct. Mr Hochauser QC was unable to give me any convincing reply. It is well demonstrated by the simple question “if what he was doing was open and above board why did he not tell the Claimant what he was doing?” The obvious answer (and the only answer in my view) is that he did not tell them because he knew what he was doing was improper.

That conduct as summarised above would be a breach of his duties of fidelity as an employee let alone a breach of any fiduciary duty which he might owe as a senior employee of the Claimant. The Defendants accept that Mr Thomas whilst an employee owed an implied duty to carry out honestly and reasonably competently the reasonable instructions of the Claimant following in the scope of his employment. I agree with the Master’s observation (paragraph 23) that that concession substantially understates the impact or effect of the implied contractual obligations of fidelity owed by Mr Thomas whilst employed. It is clear from his judgment that the Master well understood the difference between the duties of an employee and the duties owed by a fiduciary and the potential overlap between them. As he said in paragraph 25 it is the clearest law that an employee has a duty of good faith and in the context of that duty he must not whilst employed compete for business with his employer or solicit the existing customers of his employer’s business for his own future competing business. I also agree with the Master’s analysis that that duty would also be broken if whilst still employed he encouraged fellow employees to leave the employer’s business thereby undermining the employer’s business in order to join his business.

The Master then (paragraph 34) went on to consider whether in addition to the duties of an employee Mr Thomas was regarded as owing fiduciary duties. He set out his reasoning and his conclusion at paragraph 42 was that the unchallenged facts as regards his role in the Claimant (paragraph 37) led him to conclude that Mr Thomas was under an obligation to act in the interest of the Claimant and act loyally towards it subjugating his own interest to those of the Claimant. This led him to conclude that Mr Thomas in forming and nurturing relationships with the Claimant’s potential clients and seeking new business was a fiduciary owing fiduciary duties and was therefore under a duty to act with single minded loyalty towards the Claimant, to act in good faith and in the exclusive interests of the Claimant and not to profit from his fiduciary position not to place himself in a position where his interest in the Claimant’s position might conflict. In so concluding he had regard to the case Item Software (UK) Limited v Fassihi 2005 ICR 450. This led him to conclude that he also had a duty to inform the Claimant of the impending departure of fellow employees in the event that those departures might threaten or interfere with the Claimant’s ability to secure new corporate sales business.

Nevertheless the Master was careful to analyse the facts. Thus he set out all the preparatory works which Mr Thomas did from February/March 2003. He rejected Mr Thomas’s contention that the work carried out constituted no more than a feasibility study. That in my view was inevitable when one analyses the material set out above. He correctly drew a distinction between the fiduciary’s/employee’s duties continuing in his employment (paragraph 63) and an assessment of whether the preparatory acts were such that it could be determined on a summary basis that they were done with the intent of competing whilst an employee/fiduciary. In paragraph 65 he gave Mr Thomas the benefit of the doubt and concluded that he was not able to discount the real possibility that when Mr Thomas carried out the various preparatory acts he did so not with the intention of commencing a competing business whilst employed or whilst owing fiduciary duty but rather with the intention of commencing a competing business only after he had left the Claimant. That shows in my view the careful and considered way in which the Master approached this case. He also did not reject Mr Thomas’s evidence that he did not intend until very late to bid via Cashbox for the further Thresher’s contract. He took the same view concerning the steps to set up Cashbox. In that context having analysed the cases on preparatory work he also concluded (paragraph 86) that Mr Thomas had raised a prospect of success in answer to the suggestion that he encouraged co-employees to leave the Claimant and join Cashbox. He therefore accepted that Mr Thomas had a real prospect of success in respect of items (a) and (b) of the four issues which he had identified in paragraph 11 of his judgment.

He then went on to consider item (c) which he considered (correctly again in my view) should be the most serious allegation namely the conduct of Mr Thomas in procuring the further Thresher’s contract for Cashbox. He concluded that Mr Thomas would be in serious breach of his fiduciary duty in respect of the nurturing and securing of new business if he solicited via Cashbox for the further Thresher’s contract. I agree with his observations “it is very hard to think of a more obvious example of the conflict of duty and interest and where a person having the duty to act in the best interest of a company and to procure business for that company actually competes with that company for the business he is charged to procure”.

Mr Thomas does not dispute that is precisely what he did. I agree with the Master’s conclusion. I cannot see how Mr Thomas can possibly have any legitimate argument that what he did was not the plainest breach of his duties as an employee and his duties as a fiduciary. Far from concluding that the Master’s judgment and conclusions in this regard were wrong I am of the view that not only were they correct they were inevitable. Once again however it must be borne in mind that the Master very carefully distinguished between the other allegations, separated them out and gave Mr Thomas the benefit of the issues which he had raised. The acts relied upon are summarised in paragraphs 93-95. Mr Thomas’s evidence does not provide any defence. Equally the Master was correct in effect to reject the evidence of Mr Harvey. He has apparently been threatened with proceedings by the Claimant. He ultimately produced a witness statement on behalf of the Defendants dated 6th March 2006. He admits receipt of the Cashbox proposal before the vital meeting on 1st July 2003. In paragraph 52 he says simply “I told [the Claimant] that they were not the best offer and they had to improve their offer if they were to gain this new business. Mr Hannon made very clear that [the Claimant] would not improve the financial terms it offered. He simply, and rather arrogantly, repeated that [the Claimant] offered the best service. I replied that I was entirely confident that all suppliers could offer a suitable level of service…”

What is of course missing from that paragraph is the fact that both he and Mr Thomas knew that the most likely successful bidder who had offered better terms was Cashbox. Mr Harvey by that time was well advanced as I have set out above in becoming a prospective employee of Cashbox. Mr Harvey’s witness statement does not assist the Defendants in any way because it confirms (if anything) the plainest breach of Mr Thomas’s contract of employment and his fiduciary duties as exemplified by his participation in that meeting on behalf of the Claimant without revealing that he had made his own rival and cheaper bid. Accordingly the Master’s conclusion at paragraph 103 was in my view the correct and only conclusion he could have come to. It is important to appreciate that whilst the Master took into account the post contractual termination correspondence in August 2003 (paragraph 102) he did not take it into account as evidence of Mr Thomas being a liar but merely as evidence to show that the Claimant remained actively interested in the Thresher’s contract and Mr Thomas was actively and successfully hiding the fact that Cashbox had bid for and had been awarded the contract. No other interpretation of that correspondence is possible.

I reject the First and Second Defendants’ submissions that clause 12 of the Claimant’s staff book enabled Mr Thomas to bid for the Thresher contract. It is not an argument that has any credibility.

I do not accept that there was any live factual dispute of any sufficient nature that could prevent the Master from concluding on the facts as set out in his judgment that Mr Thomas was sufficiently senior to owe a fiduciary duty. He correctly in my view considered the case of University of Nottingham v Fishel [2000] ILR 471 (see in particular paragraphs 81-98). The issue over the contract of employment does not in my view have any impact on that nor any other alleged obscurities of the nature and scope of Mr Thomas’s duties and responsibilities either. Mr Hochhauser QC pressed me hard with the decision of Helmut Integrated Systems Limited v Tunnard [2007] IRLR 126 in which Moses LJ gave the leading judgment. In drawing an analysis as to whether or not an employee also owed fiduciary duties he approved of Elias J’s judgment in the University of Nottingham case. He identified the observation of Elias J that the Defendant in that case might have been in breach of a fiduciary duty had he treated patients at a competing clinic (see paragraph 37 of the Helmut case). The case failed because the Court of Appeal determined that the Defendant’s works were done solely for the purpose of preparing himself for competition on leaving. The case provides no guidance for the issues raised here because contrary to that decision Mr Thomas did compete with the Claimant and admitted he did so. It is true that the competition was in respect of a contract that he would take up after he ceased to be employed by the Claimant but the work he did was actually positively bidding against his own employer whilst an employee. Mr Thomas’s fundamental difficulties are created by that plain fact. He clearly went beyond preparatory acts and became an active competitor whilst still in employment and whilst owing a fiduciary duty to the Claimant.

In my view there is no justified criticism of the Master’s rejection of other compelling reasons as a basis for not granting judgment. I do not see that the fact that the Claimant did not apply for summary judgment against D3 to D5 nor had sued Mr Harvey has any impact on the judgment against Mr Thomas and Cashbox for their particular breaches. Those in my view are established on the uncontested facts summarised earlier in this judgment. As regards Mr Thomas those facts lead to only one possible conclusion namely that he is liable as found by the Master. The other Defendants’ evidence and Mr Harvey’s position cannot effect what Mr Thomas admitted he did and the consequences of those facts in the light of his duties. Given that it is inevitable that the Claimant ought not to be deprived of its judgment against Mr Thomas when those facts lead to that inevitable conclusion.

The Defendants criticised the Master for referring to the Item Software case. It is submitted that that decision is not authority for the proposition that Mr Thomas owed a duty to report his own breaches because it was limited to the duties of a director and Mr Thomas was not a director. Whilst it is true the decision was based upon a director’s duty it is plain that they considered that an employee who owed a fiduciary duty would be in breach of that fiduciary duty if he failed to disclose his own wrongdoing or the intended departure of other employees (ground E). This can be discerned from paragraphs 40, 59 and 60-62 of the judgment of Arden LJ. It is in my view in line with Sybron Corporation v Rocham Limited [1983] IRLR 253 CA and my decision of Tesco Stores Limited v Pook [2004] IRLR 618. Whilst it was not necessary for the purpose of the Court of Appeal decision in Item Software to analyse the position of an employee who owed fiduciary duties it is clear from the passages of the judgment to which I have referred that where the issue involved such an employee he would owe as part of his fiduciary duty a duty to disclose his own wrong doing and the intended departure of other employees. In my view the law in this area is clear and the Master was entitled to rely upon the Item Software case and the parts of the judgment that I have identified as the basis for those two findings. There is of course no factual dispute which affects that liability. Mr Thomas was plainly in breach of those duties because he failed to disclose his own wrongdoing and he failed to disclose the intended departure of other employees (see for example the exchange of emails referred to above and the preparation of the business cards for all of the relevant employees as early as May 2003).

The Master was clearly mindful of the need to be careful in shutting out a Defendant when allegations of dishonesty are made against him.

Nevertheless what Mr Thomas did in bidding against his own employer in the circumstances set out above when he was also owed a fiduciary duty was plainly done knowingly and without any credible justification for it put forward. Merely because Mr Thomas denies that he is dishonest it does not follow that is a sufficient reason alone that the Claimant should not have judgment. In my view the Master was quite correct in his conclusion that Mr Thomas’s conduct was dishonest (paragraphs 134 and 136). He also concluded that Mr Thomas and Cashbox appreciated that the conduct was dishonest. He relied upon the emails in June 2003 referred to above and the August emails passing between Mr Thomas and Todd Hannon in August 2003 (paragraphs 138 and 139). His conclusion at paragraph 145 was that Cashbox has no realistic answer to the claim of dishonest assistance.

He came to this conclusion in applying the two stage test set out in the House of Lords decision of Twinsectra Limited v Yardley [2002] 2 AC 164 and Royal Brunei Airlines v Tan [1995] 2 AC 378. The former of those decisions had attracted a lot of controversy and had to be reconsidered in the light of later decisions of Barlow Clowes International Limited v Eurotrust International Limited [2006] 1 WLR 1476 and Abou-Rahma & Ors v Abacha [2006] EWCA Civ 1492. I reviewed these authorities and other cases and Articles in the AG of Zambia case (paragraphs 332-371). The Master applied what was considered to be the two stage test set out in the Twinsectra case. As my judgment in the AGZ case shows in my view the later authorities have considered that test is no longer appropriate. The thrust of the Defendants submissions is that it is impossible at a Part 24 stage to determine Mr Thomas’s subjective dishonesty. I do not agree. The facts speak for themselves and it is quite possible for a court at this stage to infer that the only possible conclusion is that Mr Thomas was subjectively dishonest in the second stage of the Twinsectra sense. That is what the Master concluded in paragraphs 134 and 136 of his judgment. He also as I have said concluded that he also subjectively knew that what he was doing was dishonest. I do not see how he could have come to any other conclusion. I do not see that this provides any material that means that Mr Thomas is entitled to go to trial to have his subjective intentions tested by his evidence. There is no point in that exercise because in my view (like the Master) I do not see that he can usefully say anything in live evidence which can possibly lead to a conclusion that he was not dishonest. His conduct was thoroughly dishonest and nobody could believe it was not dishonest.

In any event for the reasons that I have set out in the AGZ case I do not believe that the current test is a two stage test. As I applied the later cases and the academic articles in my view Mr Thomas was plainly dishonest. As I also observed in the AGZ case in most cases it will not matter which test is applied. The Master applied the harder test as set out in Twinsectra. Therefore whatever the test Mr Thomas has broken it.

Mr Thomas was the sole director of Cashbox. His knowledge of his own dishonesty is vicariously attributed to Cashbox by virtue of his office. There is thus no doubt therefore that Cashbox knows equally that it is dishonest to assist Mr Thomas in breach of his fiduciary duties. That was the conclusion of the Master and it was plainly and inevitably correct.

This addresses the Master’s determination of issue (d) the use of five items of the Claimant’s documents. He concluded that of the documents only the use of the Claimant’s terms of trading was actionable because it was confidential and a trade secret relying on Faccenda Chicken Limited v Fowler [1987] 1 Ch 117 see paragraph 157. There is no doubt that Mr Thomas used those terms and conditions when he made the Cashbox bid.

Mr Thomas in his evidence (paragraph 137) said that most clients in the ATM industry were prepared to make details of their existing contractual arrangements with the ATM suppliers public in order to stimulate competitions. It is complained that the Master did not deal with this point. It is also asserted that the Master failed to appreciate that the Claimant did not advance an argument in respect of the terms and conditions under this head. The allegation of the use of (inter alia) the terms and conditions is to be found in 12.2.1 (b) of the Particulars of Claim. That is an allegation against the ex-employees; it is not an allegation against Cashbox. It is however an allegation against Mr Thomas as well as D3-D5. It is true that the claim is proposed to be widened in the amended Particulars of Claim. There is however no plea against Cashbox in my view in the unamended Particulars of Claim of receipt and use of the terms and conditions in breach of confidence. The Master indicated that he would hold the Claimant to its pleaded case and not go outwith it. There is no appeal against that and I therefore conclude that the finding against Cashbox in that regard is not sustainable on the Claimant’s pleadings. I should say however that that is likely to be a Pyrrhic victory on the part of the Defendants because I can see no grounds for them resisting an amendment to include it and summary judgment following that amendment.

By contrast it is pleaded against Mr Thomas as an ex-employee and there are no grounds for disturbing that self evidently inevitable conclusion that Mr Thomas used the terms and conditions in breach of confidence.

As regards the substantive appeals therefore in my judgment none of them has any prospect of success. The Master’s judgment in my view was a masterly survey of all of the material before him and his conclusions were carefully considered and dealt with on a correct basis. In the light of my conclusion I refuse the First and Second Defendants permission to appeal as it would be pointless because any such appeal has no prospect of success.

The First and Second Defendants were ordered by the Master to make a payment on account of the costs ordered to be paid by them under paragraphs 4 and 5 of the order of 22nd February 2007 in the sum of £150,000. The costs under paragraph 4 are the costs of the Claimant insofar as they relate to the First and Second Defendant limited to the liability established under paragraphs 1 and 2. The remainder of the costs including the substantive costs of the search and seizure order remain at large for adjudication. I should say there is an outstanding application on the part of these Defendants to discharge the search and seizure order. This will have a significant impact because the Claimant’s costs of that exercise appear to be in excess of £1,000,000. The costs under paragraph 5 were 60% of the Claimant’s costs of the summary judgment application.

I have been provided with a transcript of the Master’s reasoned judgment on 21st February 2007. The draft bill of costs produced by the Claimant in support of its costs was criticised by the Master as an unreliable guide to the costs in relation to (i) a summary judgment application (ii) the costs of the action in respect of which the Claimant had actually obtained summary judgment. The lengthy bill of costs shows the Claimant’s total costs to be £1,224,896.94 profit costs and £544,117.28 disbursements (total £1,769,014.22). Mr Cowper the Defendants’ solicitor criticised the bill of costs extensively in his fourth witness statement dated 19th February 2007. In paragraph 53 of his witness statement he deposed that the Defendants’ costs were approximately £600,000 for the entire proceedings to date. The size of the Claimant’s costs bill is undoubtedly daunting. The Defendants’ criticism is twofold. First (this appeared in the oral submissions) the Defendants submitted that the Master failed to apply the decisions of Mars UK Limited v Teknowldge Limited [1999] 2 CLR 44 and Allason v Random House UK Limited [2002] EWHC 1030 to the effect that the amount a party should have as an interim payment should be the absolute minimum that he is likely to recover on an assessment. It is important to appreciate those cases in their context. The important point is that the court should balance the clear intention behind the CPR that as regards costs the parties should be kept out of pocket when successful for a little a period as possible with the obvious need not to over compensate such a party. Any view of an interim payment for costs in advance of a detailed assessment is necessarily provisional and without a detailed consideration of the material. Therefore one has to be conservative in awarding the interim payment. I do not regard those cases as setting a binding principle. However it is important to take into account all the circumstances including the unsuccessful party’s wish to appeal, the relative financial position of each party and the need to deal with cases justly. One should not overlook the power to order repayment with interest if the interim payment is too large.

The Master started with the unhelpful bill of costs of the Claimant at £1,769,014.22. Second he then took into account the fact that the First and Second Defendants had estimated their costs of the litigation to be approximately £600,000. I should say that the Defendants have not provided any schedule of costs either for the Master or for me.

Next the Master concluded that he had no reason to believe that there was anything unreasonable or disproportionate about the Defendants’ £600,000 expenditure. He accordingly used that as he said as a yardstick for the costs of the litigation overall on the Defendants’ part and to infer that however it was analysed or reduced or criticised the Claimant’s costs although high were highly unlikely to be a significantly lesser figure.

He then dealt with the fact that the costs figure appertained to the whole litigation whereas he made costs orders only in respect of the application and the claims for which he gave summary judgment. He concluded therefore that the £600,000 figure which was used as a yardstick would go down to a lower figure but was likely to be in the order of £300,000- £400,000.

He also observed that the Claimant was owned by RBS and therefore did not have necessarily a pressing need for the costs. He then reminded himself that he had given the Claimant 60% of the costs of the application which led him to conclude that there would be perhaps £300,000 potentially recoverable under that head and no more which was no more than half the Defendants’ costs of the action. He also bore in mind that some costs of the Defendants would appertain to the search and seizure orders and were therefore outwith the applications before him. Should therefore be a discount to take that into account. Finally he took the view that he should not embarrass the Defendants in their search for an appeal and that the litigation was between two competitive companies. This led him to a conclusion that he would order a payment of £150,000.

It is plain in so doing that he had in mind both the Mars underlying decision and the Allason case (see paragraph 27 where the Allason case is wrongly transcribed as “Oysoh” case).

The second criticism of the Defendants is that this was not a proper use of the material which the Master had. The Claimant it was submitted ought to have provided a proper bill to cover the areas in respect to which they had won alone. The figure it was submitted was therefore not a correct figure and the reasoning processes of the Master were not a correct application of the Mars and Allason principles.

I asked Mr Hochhauser QC what figure he thought was appropriate and he declined to say observing that the burden was on the Claimant to prove their entitlement and if they failed to produce any material then the right order was that they should receive nothing. I do not regard that stance as being particularly helpful under the CPR. The reality is that the Defendants were keeping their own costs close to their chest and were not assisting either the Master or me in working out what would be a fair interim order to pay.

In fact I see nothing wrong in the way in which the Master approached the issue. The totality of the Claimant’s costs in their costs schedule is £1,700,000 and his interim order is less than 10% of that figure. In working out the process he was perfectly entitled in my view to have regard to the Defendants’ comparable costs as a conservative yardstick. He then built in a number of deductions to take into account the areas of recoverability and to reflect the 60% order only. In my view it cannot be said that this thought process was so unreasonable that no reasonable Master could have come to the conclusion he did in this way. In fact it is precisely the same way I would have approached it with the material in front of him. It would have been unjust to make no order.

I therefore conclude that the appeal on this final head also has no prospect of success and therefore I refuse permission to appeal.

It follows therefore that I refused the Defendants’ permission to appeal on all grounds save the non pleaded point as against Cashbox. In that regard I will grant permission to appeal and allow the appeal but I will hear submissions on that in the light of my observation about amending the pleadings and the consequences.