Bilta (UK) Ltd v Nazir & Ors

Bilta (UK) Limited was ordered to be wound up on the petition of Her Majesty's Revenue and Customs ("HMRC"). HMRC claims that Bilta owes it very large sums of money for VAT. The VAT was payable on sales of carbon credits. HMRC's case was that the transactions under which the carbon credits were bought and sold, were part of a fraudulent scheme for evading VAT. Bilta, acting through its liquidator, now sues the alleged participants in the fraud.

Its claim against Jetivia, a Swiss company, is that Jetivia knowingly received property belonging to Bilta which had been diverted away from Bilta by its former directors. It also alleges that Jetivia dishonestly assisted those directors in breaches of their fiduciary duties to Bilta.

The transactions in question took place for the most part in June 2009. Jetivia says that these claims are not justiciable in the High Court because there is an arbitration agreement in place between it and Bilta which covers the claims made against it. Jetivia has applied under section 9 of the Arbitration Act 1996 for a stay of the claims against it.

The application came before Sales J on 5 April 2010. He delivered a reserved judgment on 17 May. Jetivia's application for a stay was opposed on a number of grounds. One of the grounds was that Bilta had never entered into the arbitration agreement and that Jetivia's allegation to the contrary had no real prospect of success.

Sales J dealt with this ground of objection in paragraphs 12 to 16 of his judgment. He referred to the evidence of Mr Vito Cardinale, employed by Jetivia in its Emissions Trading and Advice Department. He says of that evidence:

The judge then referred to a number of criticism which the liquidator had made of the evidence of Mr Cardinale and recorded the submission of counsel then appearing on Bilta's behalf, that the evidence was so weak that the court could be satisfied to the standard required for summary judgment that no such agreement was ever made. Sales J said:

Having considered a number of other matters which arose on that application, Sales J directed that two issues be tried as preliminary issues, the first of which was whether there was an arbitration agreement as Jetivia alleged. Trial of these issues is due to take place in a trial window of 7 to 9 December 2010, with a time estimate of one day.

In anticipation of the trial, each party has given disclosure by list. Jetivia's list was served on 11 June 2010. In addition to the evidence of Mr Cardinale that was before Sales J, Jetivia has served two further witness statements from him and a witness statement from his assistant, Mr Elbro. On 1 November 2010, Bilta issued an application for an order striking out Jetivia's application for a stay or, in the alternative, summary judgment in its favour on that application. The ground for the strike out was that Jetivia had either destroyed or failed to preserve relevant documents with the result that it was no longer possible to have a fair trial of the preliminary issues. The ground for the application for summary judgment was that Jetivia's application had no real prospect of success. As a fall-back, Bilta also ask for an order that Jetivia give further disclosure in relation to its computer and email records and their destruction.

As Sales J recorded, Mr Cardinale's evidence before him was that he sent the Framework Agreement to Bilta, both by email and by post some time in March 2009. In his second witness statement made on 12 July 2010, he repeated this, although this time he sent the documents to Bilta on or around 4 March 2009. In his third witness statement, made on 15 October 2010, he says that he cannot be sure that he sent a copy of the agreement by post in March 2009 but that his assistant, Mr Elbro, sent a copy by post on 11 May 2009. Mr Elbro confirms in his witness statement that that is what he did. The transactions in issue all took place after May 2009.

Jetivia's disclosure statement disclosed no emails passing between Mr Cardinale and Bilta. It said that Jetivia had had in its possession, but no longer had, documents that it had destroyed in the ordinary course of business or emails that had been deleted. It also said that Jetivia had not searched databases, back-up tapes, mobile phones, notebooks, servers, laptops or offsite storage. No specific complaint about disclosure was made by Bilta until October 2010.

A letter from Millnet, who are IT consultants, exhibited to Miss Constantis' witness statement dated 26 October 2010, says that Jetivia had instructed them that Jetivia has no policy about retention of emails and that each employee manages his own files. They were also told that Jetivia upgraded its computers in April or May 2010, that the upgrade did not involve the copying of files from previous computers to new ones, and that the previous computers had been destroyed. Thus there were no, or almost no, digitally stored documents to disclose. Millnet said that there were no potential sources of electronic documents that were likely to yield documents of relevance.

The letter also said that Mr Sartor, the in-house IT employee at Jetivia, had discussed with them his approach to searching for potentially relevant electronic documents. Mr Sartor had told them that he inspected emails within Outlook and used the search functionality integrated into Outlook and Windows Explorer for searching the computers and file server for potentially relevant emails.

In a subsequent witness statement, Mr Mackie, the partner in MacFarlanes in charge of the conduct of Jetivia's case, has amplified the position. Again, this is based on instructions that he has been given by Jetivia. The salient points that he makes are as follows.

Mr Parker QC, appearing on behalf of Bilta, relies on the principle laid down in a number of cases that a failure to comply with an order for disclosure may result in the entry of judgment against the party who fails to comply with the order, if the result of non-compliance has rendered a fair trial impossible. He accepts that a search was made for documents before the hard drives in the present case were wiped. However, he points out that Jetivia did not apparently search either for deleted emails or for the metadata which would not have been recoverable through the processes used by Mr Sartor.

The practice direction accompanying Part 31, which was in force at the time, included both deleted emails and metadata within the definition of "electronic documents" for the purpose of disclosure. Now that the hard drives have been wiped, Bilta has been deprived of the opportunity to search for deleted documents and/or for metadata.

In LogicRose Limited v Southend United Football Club Limited (5 March 1988) Millett J considered an application for an action to be dismissed on the ground that a director of the claimant had suppressed the existence of a crucial document in his possession. The application was made at the conclusion of his evidence and after he had been cross-examined. Millet J said:

The principle was endorsed by the Court of Appeal in Arrow Nominees Inc v Blackledge [2002] 2 BCLC 167. The case was concerned with a petition alleging unfair prejudice in the conduct of the company's affairs. At pre-trial application to strike out the petition was made on the ground that a Mr Tobias, the controller of one of the petitioners, had forged documents. Mr Tobias had admitted the forgery. Evans-Lombe J heard and dismissed the application. During the course of the trial itself, evidence was led on the question whether the documents had been forged. Mr Tobias was cross-examined on the basis that his forgeries were more extensive than he had admitted. Evans-Lombe J, who was also the trial judge, said that he was not satisfied that Mr Tobias had given him a truthful account. Nevertheless, he refused to strike out the petition. The Court of Appeal reversed his decision. Chadwick LJ said:

He continued in the following paragraph:

I draw attention in particular to Chadwick LJ's reference to the "object" of the person in suppressing or falsifying evidence. I draw attention to that because of the submission which Mr Parker made in relation to the case of Landaur Limited v Cummings & Co (4 May 1991) that inadvertent destruction of documents may have the same consequences visited as deliberate destruction. The authoritative statement of the principle is, in my judgment, that to be found in Arrow Nominees v Blackledge and it is plain from the way in which Chadwick LJ put the point, that he was concerned with deliberate destruction or, in that case, falsification of documents with a view to preventing a fair trial.

A similar application was made in Douglas v Hello [2003] EWHC 55 Ch, Sir Andrew Morritt V-C, struck out certain paragraphs in Hello's Defence on the ground that those in control of Hello had destroyed relevant documents. He reached that conclusion having heard four witnesses cross-examined, and in the light of admissions that Hello had destroyed relevant documents. The Vice-Chancellor commented that there was no evidence but that the destruction took place before the proceedings had begun, and in the case of documents destroyed before the commencement of proceedings, the Vice-Chancellor followed Australian authority in holding that the correct test is whether the destruction of documents amounted to an attempt to pervert the course of justice. He concluded that the deletion of emails before the commencement of proceedings could not justify the court's intervention. As regard documents destroyed after the proceedings had begun, he held that there had been deliberate destruction such as to justify a striking out of parts of the Defence.

What is striking about all these cases is that the court has been satisfied, on the ordinary civil standard of proof, either on admissions or after cross-examination, that material documents have been destroyed or deliberately falsified after the beginning of proceedings. If I were to reach that conclusion, it would, I think, entail disbelieving Mr Mackie's evidence that all the documents that have been destroyed in the present case were routinely destroyed before proceedings were begun. Since neither he nor the persons from whom he has taken his instructions have been cross-examined, that is, in my judgment, an impossible conclusion at this stage.

So far as the wiped hard disks are concerned, although the practice direction does refer to deleted documents and metadata, as included within the category of electronic documents, I do not consider that a party who is required to give standard disclosure is automatically required to subject hard drives to expensive forensic recovery techniques. It is in all cases a question of proportionality.

At the hearing before Sales J, counsel then appearing for Bilta envisaged that Jetivia's disclosure would consist of one or two documents or an explanation of what has become of them. There was no suggestion at that stage from Bilta that expensive forensic recovery should be undertaken, although it is fair to say that Mr Charkham, appearing then (as now) for Jetivia, did suggest that an expert would examine the hard drive in order to reconstitute it.

It is also pertinent to note that the missing email is one which, if it existed, would have given strong support to Jetivia's case. This is not then a case in which it can be said that Jetivia has suppressed documents that undermine its case. Mr Parker says that production of emails from 4 March 2009 or thereabouts with the absence of the vital email would be powerful evidence in his client's favour that the email upon which Mr Cardinale relies never existed.

The problem with that submission, as it seems to me, is that, even if the search had been carried out before the hard drives had been wiped which would have been nearly a year after the email is said to have been sent, the experts agree that there is no guarantee that a search at that time would have recovered all the emails. Mr Parker's point, namely that a complete run of emails without the email alleged to have been created on or about 4 March prove the absence of the email, only really works, as it seems to me, if one can be sure that a full set of emails has been recovered by interrogating the computer. If only partial fragments can be reconstituted, then the point is not made.

This is not, in my view, therefore, a case in which it can be said that Jetivia has deliberately destroyed material and relevant documents. It is also worthy of note that Bilta itself has not disclosed any relevant electronic documents. The reason, it says, is that the hard drive of the only computer which the liquidators have recovered from Bilta, has been deliberately corrupted. I have no reason to doubt that that is so, but the point is that the lack of evidence is not therefore down to Jetivia alone. It is true that the liquidators themselves have nbot destroyed documents. But the action is being brought in the name of the company itself; and it is the company which, according to the liquidators, has destroyed documents.

In the result, I have not been persuaded that the consequence of Jetivia's action in wiping the hard drive is that a fair trial is no longer possible, or that there is a substantial risk that a fair trial is no longer possible. Accordingly, I refuse to strike out the application.

The application for summary judgment is, in effect, a re-run of the application made to Sales J which he refused. Mr Charkham argued that the fact that Sales J dismissed that application created a res judicata. I do not agree that that is so. In Woodhouse v Consignia Plc [2002] 1 WLR 2558, the Court of Appeal held that, although the policy underlying the principle in Henderson v Henderson has relevance as regards successive pre-trial applications for the same relief, it should be applied less strictly than in relation to a final decision of the court, at any rate where the earlier pre-trial application has been dismissed. Brooke LJ gave the following example:

In the present case, it is true that there is more material before me than there was before Sales J, and it is also true that the paucity of documents is clearer now than it was then. However, the essence of the application is the same, namely that Mr Cardinale's account should not be believed. In my judgment, that issue is not suitable for a summary judgment, particularly where, as here, a submission to that effect has already been rejected. I do not consider that the change in Mr Cardinale's evidence or the position as regards the documents has changed so radically that it must lead to the conclusion that he is not to be believed. In other words, I do not consider that it has been, to use Brooke LJ's words, "categorically demonstrated that the new material was indeed conclusive of the case". Mr Parker will, of course, be entitled to argue at trial that, since the alleged email on which Mr Cardinale relies has been deleted and has not been recovered, adverse inferences should be drawn against him and that he should be disbelieved. But, in my judgment, that is a matter for the trial not for today.

In addition, Mr Elbro's evidence provides a possible foundation for a different way of putting Jetivia's case. There is, I think, force in Mr Parker's criticism that Jetivia cannot simply have a case which floats at large and that they must be required to set down somewhere the full extent of their case, even if it is a series of alternatives. But that is a matter for directions. On the application, I dismiss the renewed application for summary judgment.

That leaves Bilta's fall-back position, namely the application for disclosure. Miss Constantis points out in her witness statement that the factual question is whether Bilta and Jetivia contracted on the terms of the framework agreement. The question then is one of offer and acceptance. However, Mr Cardinale's evidence does not allege a written acceptance, nor indeed an oral one, nor did Mr Elbro's. What they both seem to say is that the offer was accepted by conduct, in the case of Mr Cardinale by Mr Bilta entering into its first trade on 5 May 2009. Mr Cardinale has produced purchase orders from Bilta from about that date. The alternative way of putting the case comes from Mr Elbro's statement, namely that the Framework Agreement was sent in May and Bilta continued to trade. I agree with Mr Charkham that the issue that has been ordered to be tried is a narrow one, and that disclosure should be kept to what is proportionate and necessary for that issue to be fairly tried. After all, one of the principal objectives of the Woolf reforms of civil procedure was precisely to cut down the ambit and expense of disclosure. Bilta is not, therefore, in my judgment, entitled to disclosure which goes to the underlying merits of the claim, rather than to the narrow issue of whether an arbitration agreement exists.

Leaving aside documents where Bilta accepts that requests have been overtaken by events, the disputed categories of documents are as follows. First, Framework Agreements signed by other customers. Bilta say that, because Mr Cardinale's evidence is that the Framework Agreement contained Jetivia's standard terms of trading and was sent to all its other customers, Bilta is entitled to see all Framework Agreements sent to all other customers together with associated letters and emails. Jetivia have now provided five samples of the Framework Agreement sent to other clients, although, as I understand it, with the client's name redacted in each case. I cannot believe that if the issue is whether there are standard terms and conditions, a trader is required to disclose every single trade he has made with every single customer. In my judgment, the provision of this sample is sufficient and proportionate disclosure on that topic.

Second, document relating to trading between Jetivia and Bilta. Bilta say that because the acceptance relied on is an acceptance by conduct, it is relevant to see the extent to which Bilta and Jetivia conducted themselves on the basis of the Framework Agreement. If they did not comply with its terms, that points to the conclusion either the alleged agreement was never made or, if it was, then it ceased to be binding. However, the Framework Agreement provided that it was an open-ended agreement once made. Whether the agreement was made is the only relevant issue that Sales J ordered to be tried. In my judgment, the subsequent conduct of the parties is not part of that issue.

The third category is documents relating to third parties. Bilta say that the money that was paid to Jetivia did not come direct from Bilta but was diverted book debts. Thus Bilta wishes to know who the third parties were and where the money came from. Once again, whether the agreement was made is the only relevant and narrow issue that Sales J ordered to be tried. In my judgment, the subsequent conduct of the parties is not part of that issue. For the same reasons, I do not consider that the fourth category of documents, namely Jetivia's bank statements from the period from April to June 2009 should be ordered to be disclosed.

The last category of documents relates to tape recordings of conversations between Jetivia and Bilta and between Jetivia and third parties. Miss Constantis says that no tape recordings exist as regards Jetivia and Bilta, and Mr Charkham says on instructions that no other tape recordings exist either. Consequently, I refuse the application for specific disclosure.

Mr Parker has also applied for an order that Mr Hines, a computer expert, be permitted to take the hard drive of Mr Cardinale's old computer and also an image of the file server in order to examine it for fragments of deleted documents and emails and metadata. Both the hard drive and the file server would, as it seems to me, contain a mass of irrelevant and confidential information, which it would be inappropriate for the claimant or their experts to assess. It is also the case that Millnet consider the file server is unlikely to yield anything. I refuse to make that order also.