Manning & Napier Fund, Inc & Anor v Tesco Plc

There has been a pleaded issue as to the existence of the alleged agency relationship ever since Tesco first served its Defence in January 2017.

However, until 8 June 2020, the MLB Claimants had not given disclosure or adduced any witness evidence in relation to the alleged agency relationship.

On 8 June 2020, the MLB Claimants sought permission to rely on a witness statement from Ms Sarah Turner (“Turner 3”) which (a) explained an error as to the name and identity of the Advisor and (b) exhibited certain Advisor agreements between the investment managers and the MLB Claimants which had not previously been disclosed.

The newly-disclosed documents included an Investment Advisory Agreement which makes clear that ETC, in its role as trustee of the relevant funds, had a significant supervisory and directional role over the activities of the Advisor.

although the original order for disclosure in these proceedings was made in

The MLB Claimants have made no allegation that ETC itself read or relied on Tesco’s published information or made any relevant investment decision: only the Advisor did;

It follows, they submitted, that documents evidencing consideration by ETC itself of the Tesco investment decisions can shed no light on whether the Advisor relied on Tesco’s published information or on whether or how it would have acted differently if that published information had not contained misstatements;

There can be no reason to suppose that any general discussions by ETC could have any relevance to the issues of reliance and causation; and

The question whether the Advisor was acting as ETC’s agent must turn on the nature and scope of its powers to deal in securities on ETC’s behalf, which are set out clearly and definitively in the Investment Advisory Agreement, which is thus the only evidence required.

In short, the documents sought by Tesco are not relevant to the issues in dispute. Moreover, producing these documents would impose a substantial and disproportionate burden on the MLB Claimants at a time when they are heavily engaged in preparing for trial. In the circumstances, the Defendant had failed to establish that the proposed order is necessary for the just disposal of the proceedings, and reasonable and proportionate: and so it should be rejected accordingly.

the issue as to the true nature of the relationship between ETC and the Advisor, and in particular whether it is one of agency and whether the investment decisions made in relation to the relevant Tesco shares were taken by the Advisor in reliance on published information, is an important one capable of being determinative;

the MLB Claimants’ confirmation that they rely solely on the investment decisions made in relation to the Tesco shares by the Advisor without involvement by ETC highlights rather than disposes of the issues of (a) agency and (b) reliance and causation. The Investment Advisory Agreement is not necessarily definitive of the legal characterisation of the relationship;

the Investment Advisory Agreement expressly stipulates that the Advisor is to be subject to the supervision of the Trustees (ETC) (see clause 2.2), that it is for ETC to set investment guidelines and procedures (see clause 2.2(a)) which the Advisor must comply with (see clause 2.3), and that ETC must establish and maintain “auditable records as to its compliance with the foregoing procedures”,including its obligation to supervise the Advisor’s determination of investments (see Attachment A). Those provisions invite rather than foreclose enquiry as to how and by reference to what information, guidance or criteria the investment decisions in relation to Tesco shares were made;

documentation relevant to such matters is likely to be relevant to the issues of agency, reliance and causation identified above;

the requirement to establish and maintain “auditable records” should mean that there is an available corpus of documents which (though the MLB Claimants told me no-one had ever asked to see them) should be readily accessible; and more generally, I would in any event expect a trustee responsible ultimately for the supervision of the Advisor, the development of investment guidelines and procedures to be adhered to by the Advisor, and the conduct of at least annual reviews, to maintain and keep accessible the documentation necessary to enable that to be done, and record that it has been done;

accordingly, it is appropriate and proportionate the MLB Claimants should collate and disclose all documents within their possession or control for the period 5 November 2009 to 31 December 2014 evidencing ETC’s supervision of the relevant investments in Tesco shares (as required by clause 2.2) in accordance with the Trustee’s duty to maintain substantial investment responsibility in relation to those assets (as acknowledged by clause 2.3), including (but not limited to)

However, bearing in mind the imminence of trial, and the requirement of proportionality and reasonableness, I do not consider that for the purpose of identifying documents which the MLB Claimants are required to disclose pursuant to paragraph 2 of this Order, the MLB Claimants should be required to undertake any ‘key word’ search of any documents.

Prior to the first CMC in this matter (“CMC1”), in November and December 2017, the SL Claimants (who were the claimants in a concurrent trial against Tesco but whose claims have been settled on confidential terms) proposed a split trial whereby all issues of fact relating to reliance, causation and loss would be dealt with at a second trial, with the first trial focussing only on the allegations of falsity and dishonesty, together with certain issues of law relating to reliance, causation and loss.

The MLB Claimants initially supported that proposal, but they then changed tack during the hearing and pressed for a single trial of all issues.

At CMC1, the Court decided to order a single trial but to reserve the question whether “quantum calculation issues” should be decided separately: CMC1 Judgment, §78 and CMC1 Order, §9.

I think it is clear from the wording of the CMC1 Order, and consistent with what I understood to be the consensus at CMC1 between the MLB Claimants and Tesco in this context, that all issues of reliance and causation fell within the scope of Trial 1. That included the issues of reliance and causation relating to the Lost Profits Claim: there was no suggestion or intention of dividing up the issues of reliance and causation, such that only some of them were the subject of evidence at the first trial.

At the second CMC (“CMC2”), between 23 and 25 October 2018, the Court revisited the question as to the appropriate split, and ordered that “issues of quantum calculation shall be dealt with at a subsequent hearing, if necessary”: CMC2 Order, §14(2). The MLB Claimants did not suggest at that time that issues of reliance and causation relating to the Lost Profits Claim were an “issue of quantum calculation” that fell to be determined (if necessary) at a subsequent trial. Tesco made clear to me at the present hearing that any such suggestion would have been opposed because (amongst other things) it would have given rise to a prospect of the same witnesses giving evidence in relation to reliance and causation on two separate occasions.

Accordingly, the issues of reliance and causation relating to the Lost Profits Claim, if they were to be pursued at all, ought to have been addressed in the MLB Claimants’ witness statements served in July 2019. As it was, those witness statements said nothing about such issues.

The Lost Profits Claim was not addressed in the MLB Claimants’ first set of supplemental witness statements either. In their covering letter to Tesco’s solicitors, dated 3 April 2020, the MLB Claimants acknowledged that the issue had not been addressed in those statements and asked Tesco to confirm (for the first time) that “this is a matter for Trial 2”. (The MLB Claimants maintained that they assumed that Tesco shared this understanding and they were simply seeking confirmation of that “out of an abundance of caution”.)

In its letter of 1 May 2020, Tesco indicated that it disagreed with the MLB Claimants’ construction of the CMC2 Order, on the ground that all issues of reliance and causation fell to be determined at the first trial, and that if the MLB Claimants contended that “but for the alleged misstatements, they would have invested their funds elsewhere, it was incumbent upon [them] to lead the evidence needed to establish such a case”.

The MLB Claimants responded with a suggestion that all parties should agree to all aspects of the Lost Profits Claim being deferred to Trial 2. Tesco rejected that proposal on 3 July 2020 (which would, of course, have required the Court to depart from its previous orders). The MLB Claimants then indicated in a letter dated 7 July 2020 that they were willing to proceed on the basis that these issues are within the scope of Trial 1. In that letter, the MLB Claimants said that they would provide the relevant witness statements “as soon as possible and in good time before the PTR”.

In the event, the further supplemental witness statements on which the MLB Claimants now seek to rely at Trial 1 were not served until late on 20 July 2020.

Tesco was not in a position to complain about the lack of disclosure: Tesco had never previously raised the issue of disclosure nor sought to explain what disclosure could sensibly be given in support of the Lost Profits claim: it was “extremely unfortunate that Tesco had waited this long to do so…and thereby prevented meaningful discussions taking place between the parties as to what disclosure can be given in relation to the lost profits claim”;

Given that the MLB Claimants do not advance a case that, absent the investment in Tesco, they would have invested in specific, named investments, but rather seek to contend by the evidence of Messrs Donlon and Andreach, that excess cash would have been invested but it is impossible to say precisely what investments would have been acquired, any disclosure exercise could not be confined to specific proposed alternative investments. It would be potentially an enormous task since searches “would have to be undertaken in relation to all actual and proposed investments made by the MLB Claimants in the period of approximately five years from 2009 (the date of the first investment in Tesco) until 2014 (when the MLB

Accordingly, giving disclosure now “is likely to be impracticable and would not be in accordance with the overriding objective, in that (i) providing such disclosure would be an immense task which would inevitably cost hundreds of thousands, if not millions, of pounds, but (ii) it is unlikely that this would produce evidence of any significant value;”

Further, even if it might be possible to frame the disclosure searches more narrowly, Tesco had “effectively prevented this from happening by failing to engage in a disclosure discussion in relation to this claim until the PTR.”

In such circumstances, either (a) the MLB Claimants should be permitted to rely on the supplemental evidence without further disclosure and “if necessary” granted relief from sanctions for that purpose; or (b) if disclosure should be thought necessary, the orders made at CMC1 and CMC2 should be varied to direct that the Lost Profit Claim should be deferred until Trial 2 “where it can properly be case managed”.

Was the failure to adduce evidence on this topic serious and significant?

Was there a good reason for the failure to adduce such evidence?

In all the circumstances, should the MLB Claimants be granted relief from sanctions (having regard to the specific factors identified in CPR 3.9)? See Denton v. TH White Limited [2014] 1 WLR 3926, §24.

The MLB Claimants do not have a history in these proceedings of non-compliance:

The MLB Claimants have conducted this large scale financial litigation with a high degree of co-operation with Tesco and it was and remains reasonable for them to have expected that if Tesco was concerned about the absence of disclosure in respect of a pleaded issue in Trial 1 it would have raised it much sooner than it did;

Although the Loss of Profits claim is large in value, the supplemental evidence goes to a very narrow issue, being (a) whether there is a loss of opportunity head of claim and, if so (b) whether the average rate of returns (excluding from Tesco shares) is an appropriate measure. Tesco has not advanced a case that no claim for loss of opportunity can arise in principle, and it has simply not admitted (without any positive averment) that average rates of return are an appropriate measure for that loss;

Tesco’s complaint that substantial disclosure would be required if the supplemental statements were to be admitted rings hollow in circumstances where (a) Tesco has never suggested that any disclosure was necessary in respect of this claim which was pleaded at the outset; (b) Tesco has known from the disclosure already provided what the MLB Claimants’ parameters of investment are, and in particular known that the series and CITs consist of pure equities in some, and a mix of equities and fixed income in others. The suggestion implicit in its submissions that it needs suddenly to know the precise proportions should be given little weight or credence; (c) in any event, the disclosure now said to be required is not likely to be probative but would be an enormous and disproportionate task;

Tesco’s further suggestion that expert evidence would or might also be needed is unfounded, and Tesco, which has been able to see from the MLB Claimants’ schedule of loss what percentages have been calculated in respect of average returns, has never previously suggested its need, nor did it raise the issue at CMC2 when the scope of expert evidence was determined, as it should have done if it thought it potentially necessary;

Whereas Tesco would be able to make submissions to the effect that the MLB Claimants’ case is too speculative to justify this head of claim, and/or that average rate of returns is not a suitable proxy, without reference to further evidence and would not be materially prejudiced, the MLB Claimants would be significantly prejudiced if the evidence is not permitted to be relied on. The supplemental statements are short but important to the MLB Claimants in setting out the evidential basis for the contention that their investment managers cannot know what precisely would have happened, and cannot sensibly advance a case as to how any cash surpluses would have been allocated, but can say that they would have been re-invested. Whilst the MLB Claimants do not accept that their case would fail entirely without that evidence, it will be weaker and “significantly damaged if this evidence is not permitted” and given the monetary size of the claim that would be highly prejudicial;

It would in any event be more efficient to defer the Loss of Profit claim to Trial 2, so that it can be considered in the light of findings at Trial 1 (especially as to when the Tesco shares would have been sold) and with orderly exchange of evidence and disclosure.

The application had been made promptly as soon as it was clear that no agreed solution (in particular, deferring the claim to be dealt with in Trial 2) could be achieved.

The question whether to have a split trial had been carefully considered at CMC1 and the directions had been refined at CMC2, after some months had elapsed; the orders made at each stage were clear.

There was no good reason for the mistake. There was no circumstance preventing or impeding adherence to the directions ordered. Misunderstanding or overlooking the effect of a clearly expressed direction was an explanation but not a good reason for failing to comply. The MLB Claimants’ apparent attempt to shift the blame for their misunderstanding of the clear provisions of the orders on to Tesco was entirely misplaced and reflected badly upon them. Tesco was entitled to take it that the MLB Claimants were treating the availability of the head of claim as being a legal issue and the selection of an appropriate measure as requiring no evidence, and it was not obliged to assist the Claimants to prove their case or point out any deficiencies.

Nor was there any good or sufficiently good reason for revising the directions at CMC1 and CMC2. The ‘split’ between Trial 1 and Trial 2 was not only clear but plainly sensible and sustainable (as well as long and carefully considered). The court’s view that only matters of quantum calculation should be deferred was reasonable and sensible and clearly expressed. Amending the directions to provide for some parts of reliance and causation to be tried at Trial 1 and others at Trial 2 would cause its own difficulties and there was no lack of certainty, latent confusion or change of circumstances which would begin to justify it. It was not an appropriate basis for amending an order that a party should be saved from its own mistake.

The MLB Claimants, upon discovering their mistake and a deficiency in their evidence, had shilly-shallied and sought to resolve the matter by bundling up issues plainly appropriate for Trial 1 into Trial 2, rather than candidly accepting it and immediately seeking relief. The application for relief from sanctions should have been made, with candid acceptance of a mistake, very soon after 3 April 2020, rather than, with little contrition, on 22 July, after exchange of skeleton arguments.

Once the need for evidence was identified, the need for disclosure whereby to test it was clear and could not fairly be avoided. It would plainly be prejudicial to Tesco to permit the MLB Claimants to rely on evidence late and without disclosure if, had the evidence been adduced earlier, it would have been recognised to necessitate disclosure.

The court should also bear in mind the prejudice to Tesco inherent in having at such a late stage to consider and respond to such late evidence and assess any disclosure.

The further possibility of the supplemental evidence and disclosure requiring additional expert evidence was difficult to measure: but it might be necessary in order to explore the validity of the counter-factual case (what would have happened if the MLB Claimants had not invested); and if it transpired that it was necessary because of the supplemental evidence and disclosure it would plainly be prejudicial to Tesco if the pressures of time meant that it could not be brought forward.

In short, refusing the application would admittedly be harsh; but allowing it would be harsher still on Tesco; and the MLB Claimants would still have an alternative claim for statutory interest.

the test. I am fortified in that by further factors which compounded the initial error, and especially:

the delay since 3 April 2020 when the omission now sought to be cured was identified by the MLB Claimants;

the (to my mind) unsatisfactory justification for that further delay (the suggestion that the MLB Claimants were hoping for consent appearing to be thin, given the existence of a clear court order);

the consequences of the delay, including the somewhat frenzied context in which the MLB Claimants have had to bring forward proceedings after their previous shilly-shallying and the resulting increased difficulty of determining their adequacy;

the fact that but for the deferral of the trial date in consequence of the pandemic and its effects the MLB Claimants would have had no realistic prospect at all of introducing supplemental evidence for Trial 1; and of course

the imminence of trial and the legitimate interest of Tesco in proceeding with its preparation for it without unexpected dislocation.

to great weight: for the overriding duty of the court is to deal with the application justly, having regard also to the effect that it will have on the proceedings.

documents recording the policies and/or practices governing the levels of cash that could or should be held by each Fund;

monthly account statements recording the levels of cash actually held by the Funds; and

any meeting minutes recording requests for instructions, and the instructions actually given, for the purposes of reducing the cash position of the Fund;

in respect of any reductions in the cash position of the Funds which arise from an instruction to reduce the cash position of the Funds not disclosed at (3) above the documents constituting the instruction. The search for such documents shall be by key words “cash” and “reduction” or “reduce” or “weight” or “target” applied to the custodians who are members of the SRG or Portfolio Objectives Group across the Relevant Period (but so that for the purposes of this paragraph a reduction in the cash position of the Funds excludes reductions caused by the payment of fees or other administrative expenses).

Unredacted minutes of the most recent meeting of the senior research group (“SRG”) or, as applicable, the core team (the “Core Team”) at which investment proposals were considered;

Copies of all documents recording investment proposals considered by the SRG or, as applicable, the Core Team, at that meeting;

Documents recording the investment decisions in relation to those investment proposals.

It is unrealistic to expect the parties to begin a new disclosure exercise now, some two months before written openings are due to be filed, and unfair to expect Tesco to process, review and digest such disclosure in the six-week period between 14 August 2020 and 2 October 2020 (when Tesco’s written opening is due);

Because the MLB Claimants have left it so late, the proposed disclosure exercise has been fashioned in haste and there is a real risk that it would be repented at leisure: it would be wholly unsatisfactory if the disclosure were to prove inadequate, particularly since there will be no time for any further specific disclosure, leaving Tesco to defend a claim for $58 million or more on the basis of incomplete disclosure.

In any event, it is already plain that the proposals are inadequate in a number of respects, and would need to:

The MLB Claimants must first have reviewed such documents for relevance and must only disclose documents which fall within the categories identified in this order and which are relevant to the issues in dispute.

The MLB Claimants must deduplicate the disclosure as against documents already disclosed in the proceedings.

The MLB Claimants must provide unredacted copies of documents previously disclosed in redacted form by way of replacement versions, not as new versions of the documents. Reproduced versions should maintain their original Bates numbering.

The MLB Claimants must disclose documents in full families with placeholders for documents that MLB consider to be irrelevant.

The MLB Claimants must organise the disclosure so as to show the paragraph of this order under which they have been disclosed.

The documents must be disclosed with full metadata.

Further, there is force in, and weight to be given to, Tesco’s objection that any substantial exercise will inevitably distract them from trial preparation.

The Relevant Period shall run from the earlier date of 5 October 2009, as Mr Sharp himself had envisaged in his sixth witness statement on behalf of the MLB Claimants;

If, as Tesco understands, the cash position of the funds was monitored weekly, weekly account statements should be provided: if monitoring was monthly, monthly statements will suffice, subject to (3) below;

If there are account statements for the 11 specified dates on which Tesco’s weighting was changed and those were considered by any of the relevant groups or teams they too should be provided;

Paragraph 3(4) should extend to both requests for instructions and the instructions actually given for the reasons identified by Tesco;

The key words should be extended as proposed by Tesco and set out in Appendix 1 and these should be applied to the custodians who are members of any team or group responsible on behalf of the MLB Claimants for considering investment proposals for the investment or retention of cash (which shall be confirmed by a witness statement expressly stating each team, their constitution and their roles, to be provided by the MLB Claimants to Tesco within 7 days);

Likewise, the minutes of any team responsible on behalf of the MLB Claimants for considering investment proposals for the investment or retention of cash should be disclosed, and the amendments to the MLB Claimants’ proposal proposed by Tesco to paragraph 4(2) shall be adopted;

I do not require the additional key word searches proposed by Tesco in paragraphs 4(4) and (5) of their amended draft;

As to the matters proposed to assist Tesco in the task of reviewing such disclosure, I consider that:

have described admit supplemental evidence if thereby material prejudice to Tesco in testing it will be caused, or if it becomes clear then that it would necessitate expert evidence which would dislocate the trial timetable.