McParland & Partners Ltd & Anor v Whitehead

This was a disclosure guidance hearing (“DGH”) under the CPR’s Practice Direction 51U: Disclosure Pilot for the Business and Property Courts (“PD51U” or the “Disclosure Pilot”). At the DGH, the parties sought “guidance from the court by way of a discussion with the court in advance of … a case management conference, concerning the scope of Extended Disclosure”. Paragraph 11(1) of PD51U provides that such a hearing can take place where (i) the parties have made real efforts to resolve disputes between them, and (ii) the absence of guidance from the court before a case management conference (“CMC”) is likely to have a material effect on the court’s ability to hold an effective CMC.

At the start of the hearing, I explained to counsel that I intended, unusually for a DGH, to deliver a reserved judgment in order to clarify some aspects of the way in which the Disclosure Pilot is intended to work. In particular, the case presented questions on the approach to disclosure issues which gave the court the opportunity to provide guidance for other users of the Business and Property Courts.

In this case, initial disclosure was provided by the parties in accordance with paragraph 5.1 of PD51U. (Footnote: ¹) The issues on which the parties were unable to agree concerned the way in which Extended Disclosure was to be given under paragraphs 69 of PD51U. The watchword is contained in paragraph 6.4 of PD51U, which provides that an order for Extended Disclosure in all cases “be reasonable and proportionate having regard to the overriding objective including” certain factors, namely:-

These factors demonstrate that the provisions of the Disclosure Pilot are intended to apply across a wide range of cases stretching from the highest value business cases to the lowest value ones, and from the most complex, lengthy and document intensive to

Before dealing with the issues that were considered at the DGH, it is necessary to set out the parts of PD51U that are relevant to this case, a brief overview of the factual background, the procedural history, and the disclosure issues that were ultimately agreed between the parties.

Paragraph 3.2 of PD51U sets out the legal representatives’ duties in relation to disclosure, in addition to the parties’ duties provided for in paragraph 3.1, including continuing duties of preservation and honesty, but also a duty “(3) to liaise and cooperate with the legal representatives of the other parties to the proceedings (or the other parties where they do not have legal representatives) so as to promote the reliable, efficient and cost-effective conduct of disclosure, including through the use of technology”.

Paragraphs 7.1 and 7.2 of PD51U provide for the timing of the agreement of Issues for Disclosure. Paragraph 7.3 explains the meaning of the term as follows:- “Issues for Disclosure means for the purposes of disclosure only those key issues in dispute, which the parties consider will need to be determined by the court with some reference to contemporaneous documents in order for there to be a fair resolution of the proceedings. It does not extend to every issue which is disputed in the statements of case by denial or non-admission”. Paragraph 7.4 makes clear that “[t]he claimant should seek to ensure that the draft List of Issues for Disclosure provides a fair and balanced summary of the key areas of dispute identified by the parties’ statements of case and in respect of which it is likely that one or other of the parties will be seeking Extended Disclosure”.

Paragraphs 7.5-7.9 make provision for the way in which agreement is to be reached. Paragraph 7.6 provides that: “[i]n advance of the first case management conference, the parties must discuss and seek to agree the draft List of Issues for Disclosure”, and that “[t]hey should consider whether any draft Issue for Disclosure can be removed”, and that the parties should indicate at this point, which Model of Extended Disclosure is sought for each party, and “[w]here Model C Disclosure is contemplated the parties should discuss the requests that might apply for the purpose of that disclosure”.

Paragraph 8 of PD51U deals with the Extended Disclosure Models. Paragraph 8.2 states clearly that “[t]here is no presumption that a party is entitled to Extended Disclosure, and in particular to Model D or Model E disclosure”, and that “[n]o Model will apply without the approval of the court”. Paragraph 8.3 explains that although “[t]he court may order that Extended Disclosure be given using different Disclosure Models for different Issues for Disclosure in the case”, “[i]n the interests

Model A confines disclosure to known adverse documents. Model B limits disclosure and expressly explains that it applies “where and to the extent that they have not already done so by way of Initial Disclosure, and without limit as to quantity”. The limitation is to “(a) the key documents on which [the parties] have relied (expressly or otherwise) in support of the claims or defences advanced in their statement(s) of case; and (b) the key documents that are necessary to enable the other parties to understand the claim or defence they have to meet; and in addition to disclose known adverse documents in accordance with their (continuing) duty under paragraph 3.1(2)”. No new search is required under Model B.

Model C is “[r]equest-led search-based disclosure” “of particular documents or narrow classes of documents relating to a particular Issue for Disclosure, by reference to requests set out in or to be set out in Section 1B of the Disclosure Review Document [“DRD”] or otherwise defined by the court”.

Model D is “[n]arrow search-based disclosure, with or without Narrative Documents”, which are defined by paragraph 1.11 of Appendix 1 as documents which are “relevant only to the background or context of material facts or events, and not directly to the

Finally, Model E is “[w]ide search-based disclosure” or what is more commonly known as “train of inquiry” disclosure. It is stated to be exceptional and is not relevant to this case. Where an order for Model B, C, D or E Extended Disclosure is made on one or more Issues for Disclosure, any adverse documents to be disclosed in compliance with the duty under paragraph 3.1(2) above and not already disclosed must be disclosed at the time ordered for that Extended Disclosure.

Paragraph 9.5 of PD51U again states expressly that “[w]hen it is necessary to decide any question of what is reasonable and proportionate under a particular Disclosure Model, the court will consider all the circumstances of the case including the factors set out in paragraph 6.4 above and the overriding objective”. Paragraph 9.6 provides that where searches are to be undertaken: “the parties must discuss and seek to agree, and the court may give directions [on certain stated matters] with a view to reducing the burden and cost of the disclosure exercise”.

Paragraph 10 of PD51U deals with the completion of the DRD. It emphasises the need to adjust the process depending on the complexity of the case, and the need for cooperation. Paragraph 10.3 provides that “[i]f a party fails to co-operate and constructively to engage in this process the other party or parties may apply to the

Paragraph 11 of PD51U deals with DGHs as follows:-

“11.1

The parties may seek guidance from the court by way of a discussion with the court in advance of or after a case management conference, concerning the scope of Extended Disclosure or the implementation of an order for Extended Disclosure, where—

(1)

the parties have made real efforts to resolve disputes between them; and

(2)

the absence of guidance from the court before a case management conference is likely to have a material effect on the court’s ability to hold an effective case management conference …

11.3

At a Disclosure Guidance Hearing the court will generally expect a legal representative with direct responsibility for the conduct of disclosure to be the person who participates on behalf of each party in the discussion concerning the scope of Extended Disclosure or the implementation of an order for Extended Disclosure.

11.4

The guidance given at a Disclosure Guidance Hearing will be recorded in a short note, to be approved by the court. Whilst the primary function of the Disclosure Guidance Hearing is to provide guidance, for the avoidance of doubt the court may, where appropriate, make an order at a Disclosure Guidance Hearing.

11.5

Unless otherwise ordered, the costs of a Disclosure Guidance Hearing are costs in the case and no order from the court to that effect is required”.

Finally, paragraph 20.2 provides for sanctions including those for non-cooperation as follows: “[i]f a party has failed to comply with its obligations under this pilot including by … failing to cooperate with the other parties, including in the process of seeking to complete, agree and update the Disclosure Review Document, the court may adjourn any hearing, make an adverse order for costs …”.

McParland & Partners Limited, the first claimant, (“MPL”) is a company that provided financial planning and advisory services. Mr Stuart Whitehead (“Mr

On 23^rd August 2013, the terms of Mr Whitehead’s employment by MPL were allegedly recorded in a written Service Agreement. The Service Agreement contained a clause providing for confidentiality (clause 18), and a 12 month non-compete clause to take effect immediately on the termination of his contract of employment (clause 26.2).

On 18^th June 2014 MPL allegedly entered into an Enterprise Firm Agreement

On 15^th December 2015, Mr Whitehead incorporated Whitehall Wealth Management Limited (“WWM”),

On 1^st February 2016, FFML sold shares in MPL to Fairstone Holdings Limited under a Downstream Buyout Agreement, and on 1^st March 2016, Fairstone Holdings Limited acquired the remaining shares in MPL.

On 16^th March 2016, Mr Whitehead resigned from MPL’s employment. MPL says that he was obliged under his Service Agreement to give 6 months’ notice expiring on 15^th September 2016. Mr Whitehead says that his employment must be taken to have terminated in July 2016, when MPL procured FFML to revoke his Financial Conduct Authority (“FCA”) permissions.

On 8^th April 2016, Mr Whitehead allegedly emailed MPL’s client database to a personal email address in the name of WWM. In mid-April, Mr Whitehead became ill and went on sick leave.

On 12^th April 2016, PNM Financial Management Limited’s (“PNM”) solicitors wrote to the claimants attaching a list of 18 clients, who had previously had funds under management with MPL, now said to be clients of PNM. By this time, Mr Whitehead allegedly had some working connection with PNM.

At the end of August 2016, Mr Whitehead was certified fit for work. MPL contends that he agreed with MPL that he would remain on garden leave until his notice terminated on 15^th September 2016.

Mr Whitehead’s employment with MPL and (if relevant) FFML ceased either in July 2016, if Mr Whitehead is right, or on 15^th September 2016, if MPL is right. Either way, the one-year non-compete clause, if valid, ran from one of those dates.

According to the claimants, on 30^th June 2017, MPL transferred its assets and business to FFML and MPL ceased trading on that date. Mr Whitehead contends that he did not become aware of that fact until these proceedings were well under way.

The claim form was issued by MPL alone on 15^th November 2018. It alleged breaches of the non-compete and confidentiality clauses in the Service Agreement, saying that MPL could not know the full extent of Mr Whitehead’s wrongdoing in advance of disclosure.

On 11^th January 2019, Mr Whitehead filed a defence asserting the unenforceability of the confidentiality and non-compete clauses in the Service Agreement, and denying the alleged breaches and any loss to MPL.

On 20^th February 2019, DJ Khan transferred the claim from the Business and Property Courts in Manchester to the Preston Combined Court Centre. On 2^nd March 2019, DJ Anson allocated the case to the multi-track and listed a CMC for 23^rd April 2019. He ordered the parties to file a chronology, statement of issues, and case summary, all of which was duly done.

On 23^rd April 2019, counsel attended the CMC before DJ Anson in Preston. Mr Nigel Grundy appeared for Mr Whitehead on that occasion, as he did before me. He explained to me why DJ Anson had transferred the claim back to the Business and Property Courts in Manchester. Apparently, Mr Whitehead had just discovered that MPL had stopped trading, and that it was intending to apply (i) to join FFML as a second claimant, and (ii) to call expert evidence. Mr Grundy suggested the trial of a preliminary issue as to the validity of the contractual terms. The District Judge thought the complexities made it inevitable that the case would have to be tried in the Business and Property Courts in Manchester, and included in the order an exhortation that the parties should “communicate with each other more effectively concerning the management of the claim and, in particular, any discrete applications which are to be made”.

On 31^st July 2019, DJ Matharu gave MPL permission to join FFML as a second claimant and to amend the claim form and the particulars of claim. The amendments were, in the event, made late on 16^th August 2019, and included further allegations of breaches of the Adviser Contract, and of losses being sustained by FFML, as well as by MPL. All parties provided initial disclosure broadly in accordance with the requirement of PD51U.

On 31^st October 2019, DJ Richmond made a consent order adjourning the CMC because the parties had been “unable to agree key matters of disclosure and experts and the Court is unlikely to resolve these matters within the allotted time of 1 hour”. The DGH was listed for 1 hour on 7^th February 2020.

The parties have now agreed 16 Issues for Disclosure, which they have included in section 1A of their DRD. I set out those issues in their entirety as they are relevant to what I have to decide:-

The parties also agreed the appropriate models for disclosure to be given in relation to 9 of these 16 issues. They could not, however, agree the appropriate models for issues 2, 5, 10, 11, and 14-16.

In the course of the DGH, I indicated that, despite my reservations about the issues that had been agreed, which I intended to express in this judgment, I was content for disclosure to be provided by reference to the issues that the parties had agreed. In that way, further delay to this already much delayed action would be avoided.

After discussion at the DGH, model B (limited disclosure) was agreed for all issues apart from issue 2 (for which model C – request-led search-based disclosure - was agreed), and issues 5, 10, 11, and 14-16 (for which model D – narrow search-based disclosure - was agreed). The issues for which model B was agreed were issues that were generally covered by the initial disclosure that had been given by the parties. None was likely to be contentious. It may be noted also that initial disclosure in this case was most helpful in identifying the necessary scope of the Extended Disclosure that was truly necessary.

In effect, this meant that the only issue for which requests had to be directed related to MPL’s relationship with FFML, and the circumstances in which it carried on business in succession to MPL. The rationale for this approach was that the claimants would undoubtedly have many documents relating to the takeover of MPL by Fairstone companies, but those would be unlikely to bear upon the issue in this case, which was whether one or other of the claimants had a real claim for loss of business against Mr Whitehead as a result of his alleged breaches of contract and confidence. The specific requests that were agreed (and are included in the order agreed by the parties) allowed the claimants to redact commercially sensitive information from the contractual documentation.

The issues for which model D was ultimately agreed represented the core of the dispute. They related, in broad terms, to breach and loss. After encouragement from the court, the parties agreed that there was little point in salami slicing these issues in a case of this kind. There was significant mistrust between the parties. Narrow search based disclosure was appropriate, because it was known that (i) the defendant’s case was that the customers that had left the claimants would have done so without solicitation or use of confidential information, and (ii) the claimants doubted the defendant’s veracity as to the actions he took in leaving the claimants’ business and joining PNM. Loss was critical for these reasons too, and disclosure of documents relating to the business lost by the claimants and the business gained by the defendant was central to achieving a mediated settlement in due course.

I have considered whether the model D disclosure should include Narrative

Finally, the court encouraged the parties to proceed to a privately arranged mediation as soon as disclosure had occurred, since both sides agreed that it was necessary to see from disclosure whether their suspicions were justified before a useful mediation could take place. The claimants suspected more extensive breaches by the defendant, and the defendant suspected an absence of loss of business by the claimants. In this connection, I mentioned the recent Court of Appeal decision of Lomax v. Lomax [2019] EWCA Civ 1467 (“Lomax”) to the parties. The question in Lomax was whether the court had the power to order parties to undertake an early neutral evaluation under CPR r.3.1(2)(m). It was held that there was no need for the parties to consent to an order for a judge-led process. I mentioned that Lennox inevitably raised the question of whether the court might also require parties to engage in mediation despite the decision in Halsey v. Milton Keynes General NHS Trust [2004] EWCA Civ 576; [2004] 1 W.L.R. 3002. In the result, the parties fortunately agreed to a direction that a mediation is to take place in this case after disclosure as I have already indicated.

There are a number of areas in which the parties in this case have misunderstood how the Disclosure Pilot is intended to work. I do not say that by way of criticism, since I believe that the solicitors have tried on each side to comply with the pilot. It will hopefully help parties in other cases if I explain the misunderstandings that have arisen here. They are in three categories as follows:-

The starting point for the identification of the Issues for Disclosure will in every case be driven by the documentation that is or is likely to be in each party’s possession. It should not be a mechanical exercise of going through the pleadings to identify issues that will arise at trial for determination. Rather it is the relevance of the categories of documents in the parties’ possession to the contested issues before the court that should drive the identification of the Issues for Disclosure.

I can give an example from this case. Issue 13 was agreed as being “[t]he date on which [Mr Whitehead’s] employment with [MPL] and his engagement with [FFML] terminated”. The parties both accept that Mr Whitehead wrote to MPL terminating his employment on 16^th March 2016. They also agree that, under clause 22.1 of the Service Agreement, 6 months’ notice of termination was required (terminating on 15^th

It can be seen, therefore, that Issues for Disclosure are very different from Issues for Trial. Issues for Disclosure are issues to which undisclosed documentation in the hands of one or more of the parties is likely to be relevant and important for the fair resolution of the claim. That is why paragraph 7.3 of PD51U provides that Issues for Disclosure are “only those key issues in dispute, which the parties consider will need to be determined by the court with some reference to contemporaneous documents in order for there to be a fair resolution of the proceedings” (emphasis added). Paragraph 7.3 goes on to explain, as I just have, that Issues for Disclosure do “not extend to every issue which is disputed in the statements of case by denial or nonadmission”.

This explanation demonstrates that, in many cases, the Issues for Disclosure need not be numerous. They will almost never be legal issues, and they will not include factual issues that are already capable of being fairly resolved from the documents available on initial disclosure.

In this case, there are, in the simplest possible terms, really only 3 Issues for Disclosure: (1) What was the commercial relationship between MPL and FFML and how and when did FFML succeed MPL as the trading entity engaging Mr Whitehead, (2) What did Mr Whitehead do between March 2016 and (say) March 2018 that was in breach of his obligations to the claimants, and (3) What losses did one or other of the claimants suffer as a result of those breaches? That first issue equates to issue 2 agreed between the parties. The second issue equates to issues 5, 10, 11, 14, and 15 agreed between the parties. The third issue equates to issue 16 agreed between the parties. I have suggested March 2018 for the end date in the second issue because that is 6 months after the end of the latest possible non-competition year. It may be that the parties would have suggested a different date. Identifying it would depend on their detailed knowledge of what documents each side actually possessed. It is at least possible that documents after the end of the year of supposed non-competition would bear on what had happened during that year. I repeat for the sake of emphasis that Issues for Disclosure do not need to be detailed or complicated, particularly in a relatively straightforward dispute like the present one.

Finally, I might mention that the Issues for Disclosure have an important function beyond the CMC. Having framed the scope of the documents to be located and reviewed by the disclosing party, they enable the review of documents to be conducted in an orderly and principled manner. Under standard disclosure, the test

An example from this case also neatly demonstrates how this process should be approached. Issue 2 that I reframed as the first issue above asked: what was the commercial relationship between MPL and FFML, and how and when did FFML succeed MPL as the trading entity engaging Mr Whitehead? In this case, the Fairstone takeover of MPL was plainly a complex and longwinded affair. It no doubt generated much documentation, most of which would have no relevance to Mr Whitehead’s specific position or to this dispute. Mr Whitehead’s solicitors did, however, reasonably request further documentation, beyond what had already been provided by way of redacted copies of some of the agreements including the EFA between FFML and MPL. They framed questions to reflect their requests but were met by the answer that redaction was an issue raised by inspection, not disclosure. That was an unhelpful response. In the result, this issue was a classic one for model C disclosure. The detailed requests have now been agreed, but the principle is clear.

Likewise, the second reframed issue: what did Mr Whitehead do between March 2016 and (say) March 2018 that was in breach of his obligations to the claimants, provides a further good example. The parties proposed a variety of models C and D for their breach issues 5, 10, 11, 14, and 15. That approach over-complicated the process. As I have said, there was mistrust between the parties, and neither trusted the other to have provided complete initial disclosure. The simplest and most appropriate course was to agree model D disclosure for the breach issue(s), since that makes up the central nub of the dispute. The same goes for the third loss issue. Much time and expense would have been saved if the parties had approached their task in this way. This is, as I have said, a fairly straightforward case, and the Disclosure Pilot does not require compliance to be time-consuming or costly. It just requires the parties to consider what documents they are likely to hold and to what issues those documents are relevant.

I should mention also that, whilst the parties can agree different models for different parties in relation to the same issue, that is not a requirement. The breach issue here could perhaps have attracted model D for the defendant, but model B or C for the claimant. In fact, however, that might have been unfair, as the claimants are perhaps as likely to have documentation showing that clients wanted to leave them, as the defendant is to have documents showing he breached his contracts.

I have, as I have said, no intention of criticising the parties in this case. Nonetheless, I do wish to emphasise the need for a high level of cooperation between the parties and their representatives in agreeing the Issues for Disclosure and completing the DRD. The Disclosure Pilot is built on cooperation as its terms make clear (see paragraphs 2.3, 3.2(3), and 20.2(3) of PD51U). This is not intended to be mere exhortation.

It is clear that some parties to litigation in all areas of the Business and Property Courts have sought to use the Disclosure Pilot as a stick with which to beat their opponents. Such conduct is entirely unacceptable, and parties can expect to be met with immediately payable adverse costs orders if that is what has happened. No advantage can be gained by being difficult about the agreement of Issues for Disclosure or of a DRD, and I would expect judges at all levels to be astute to call out any parties that fail properly to cooperate as the Disclosure Pilot requires.

The Disclosure Pilot is intended to operate proportionately for all kinds of case in the Business and Property Courts from the smallest to the largest. Compliance with it need not be costly or time-consuming.

The important point for parties to understand is that the identification of Issues for Disclosure is a quite different exercise from the creation of a list of issues for determination at trial. The Issues for Disclosure are those which require Extended Disclosure of documents (i.e. further disclosure beyond what has been provided on initial disclosure) to enable them to be fairly and proportionately tried. The parties need to start by considering what categories of documents likely to be in the parties’ possession are relevant to the contested issues before the court.

Unduly granular or complex lists of Issues for Disclosure should be avoided. Likewise, the models chosen should simplify the process rather than complicate it. Here model C was appropriate for an issue where vast documentation was likely to exist, most of which was irrelevant to the actual dispute, and model D was appropriate to the two central issues of breach and loss, in which there was significant mistrust between the parties. No Extended Disclosure at all was required for other issues.

Cooperation between legal advisers is imperative. The Disclosure Pilot must not be used as an opportunity for litigation advantage. If that is attempted, the parties responsible will face serious adverse costs consequences.

I have approved the order agreed between the parties reflecting the discussion that took place at the Disclosure Guidance Hearing.