First Subsea Ltd v Balltec Ltd

I must now deal with two applications, one relating to the claimant's evidence and the other to the defendants' statement of case.

The barest background for someone not actually involved in the case itself is this: BSW was formerly the employer of Mr Emmett. When Mr Emmett ceased to be an employee, he founded another company called Balltec, in which process a Mr Halstead assisted.

Mr Lang was also formerly an employee of BSW, and he became an employee of Balltec. Mr Emmett and BSW fell out. That led to proceedings in Manchester in which Mr Lang gave a witness statement in support of Mr Emmett and Balltec.

The present proceedings are between (a) BSW and (b) Mr Emmett and Balltec and others. They were opened as a claim for damages for conspiracy to injure by unlawful means. The unlawful means are breaches of obligation by defendants and by others. The claim began in 2010. As part of an extensive amendment of the claim on 3 December 2012, three months before trial, BSW pleaded that amongst the unlawful means were breaches of obligation by Mr Lang (who is not a party to the action).

It is sufficient to give two examples of the way the case is put. In paragraph 9 it is said that in November 2003, Mr Emmett solicited others, including Mr Lang, to assist him in setting up and thereafter promoting a competing business. In doing so, it is said Mr Emmett induced others, including Mr Lang, to breach their fiduciary duties or their contracts of employment.

In paragraph 19.1, there are alleged breaches of duty by Mr Emmett. Amongst the breaches of duty alleged are “concealment”. The acts of concealment alleged include leading BSW to believe that Mr Lang was not acting in breach of contract, when in fact he was so acting.

It is accordingly incumbent on the claimant, BSW, to establish those breaches of obligation by Mr Lang.

As I have indicated from my short citation from the BSW statement of case, there are no particulars of the breaches of obligation alleged to have been committed by Mr Lang. They are referred to in general terms. In relation to others who are alleged to have been in breach of obligation, the statement of case refers to the evidence on which reliance will be placed, including reliance upon evidence that was given in the Manchester proceedings. In Mr Lang's case, the statement of case does not plead any reliance on the evidence which he gave in Manchester. The case against Mr Lang therefore has to be grounded on what other people who are going to be witnesses say about what Mr Lang did. Witness statements were exchanged. BSW did not call Mr Lang, for they were unlikely to get anything helpful out of him, since he was in the opposing camp. The defendants did not call Mr Lang for the very sound reason that they had no wish to assist BSW’s case by providing a witness for the claimant to cross-examine, when the claimant had led no direct evidence against Mr Lang. So the matter rested until an application was made in the course of the trial.

The application is for a ruling, a declaration, that there is no need for BSW to give any notice of its intention to rely on the evidence which Mr Lang gave in the Manchester proceedings. In the alternative, if some notice is necessary, there is an application for an extension of time within which to serve a Civil Evidence Act notice identifying the relevant passages in Mr Lang’s Manchester evidence.

The relevant passages are four passages from the witness statement which Mr Lang gave to the Balltec/Emmett camp in the Manchester proceedings, and which are said to constitute admissions by him of his wrongdoing, by reference to what he said he did at particular dates.

I am warned by the decision of the Court of Appeal in Favor Easy Management v Wu [2010] EWCA Civ 163 about the dangers of making interlocutory rulings concerning evidence outside the context of a specific application. It is unusual to be asked to make a declaration as to a particular evidential matter in the course of the hearing, and I approach the invitation with a great deal of caution.

It is, however, in this case, coupled with an application for an extension of time in relation to the service of a Civil Evidence Act notice. Whilst I think that must be the focus of any ruling that I make, it is only right to address the arguments which have arisen which suggest that the Civil Evidence Act notice is itself unnecessary (in respect of which the declaratory relief is sought.

The basis for the argument is the terms of the Practice Direction to Part 32. Paragraph 27 is headed "Agreed Bundles for Hearings", and paragraph 27.1 says that the court may give directions requiring the parties to use best endeavours to agree a bundle of documents for use at the hearing. The heart of the argument lies in paragraph 27.2. This says:

BSW's point is that Mr Lang's witness statement in the Manchester proceedings was disclosed and is included by agreement in the bundle. BSW therefore says that the statement is evidence of its contents i.e. the events which it recounts, even if Mr Lang is not going to be called to give live evidence at this hearing by anybody.

In effect, what the claimant says is that the provisions of PD 32, paragraphs 27.2 override the requirements of the Civil Evidence Act and in effect “trump” CPR 33.2, (which deals with the giving of notice in relation to hearsay evidence to be adduced at trial).

Mr Marshall QC for BSW says that he has two persuasive authorities from the Court of Appeal to the effect that indeed PD 32 paragraph 27.2 does override the statute.

The first is Sunley v Gowland White [2003] EWCA (Civil) 240. This was a professional negligence claim against surveyors and valuers relating to the failure to give advice to the purchaser of a petrol filling station, which was later discovered to be subject to underground contamination. As part of their evidence, the claimants sought to adduce a draft soil report from experts in soil contamination, which draft had been prepared shortly after completion took place. That report stated that there was underground contamination and that it would cost some £30,000 to eliminate.

A question arose as to whether that report could be relied on in the negligent proceedings, and if so, in what way. The trial judge said the report was admissible.

The Court of Appeal identified two ways in which the report might be relied on. First, the claimants could have relied on the fact that the report had been made and the fact that it expressed the view that the land was contaminated and that the cost of the remedial work would have been £30,000. In the light of that, the claimants could argue that if the surveyors had not been negligent, then the soil contamination experts would have been instructed earlier, would have reported as they did, and the existence and contents of the report (whether in fact right or wrong) would have affected the view formed by valuers. That was the first way in which the report could be relied on.

Second, the report could have been relied on was reliance by the claimants as evidence of opinion (and perhaps of fact) as to what the true state of the petrol filling station was at the date of completion i.e. to rely on the report as hearsay evidence of its contents.

The Court of Appeal grounded its decision upon the holding that there was no reason why the report was not admissible on the first of those bases. There was no reason why the claimant should not be entitled to rely on the facts that the soil contamination report had been made and that its contents were such as were set out in the report, and to allege that that might have affected a valuation tendered by a valuer. In this circumstance, the question was not whether the contents of the report were objectively true, but how professional valuers would have reacted to such report in forming a view as to the valuation of the property.

So that was the ground of the decision. But the court went on to consider the second basis and to express two alternative ways in which the report could have been deployed. The first of those alternative grounds was that it could have been deployed as hearsay evidence under the Civil Evidence Act 1995, and the court expressed the view that the fact that no notice had been formally given of reliance upon the report for this purpose should not have stood in the way of its being used. But it is the second of the alternative grounds on which Mr Marshall relies. Having ruled on admissibility under the Civil Evidence Act In paragraph 46 of its judgment, the Court of Appeal then referred to paragraph PD 32 27.2 and Clarke LJ said:

Mr Marshall says that this is persuasive authority that paragraph 27.2 overrides the requirements of the Civil Evidence Act 1995 and demonstrates that the contents of the soil contamination expert report could have been relied on in support of the fact that the objective facts on the ground were such as were recited in the report as hearsay evidence notwithstanding the failure to give a CEA notice.

From the report, it is not possible to know what arguments were in fact addressed on PD 32 paragraph 27.2 or as to the prominence that reliance upon that ground played at the hearing.

The second of the decisions is that of the Court of Appeal in Charnock v Rowan [2012] EWCA Civ 2. The material in this case was a doctor's report. The issue in the case was whether the claimants’ case for injury arising out of a road traffic accident was genuine. It was apparent from the doctor's report that the claimants had said something to the doctors that was different from what they were saying in the conduct of their case. The Court of Appeal decided that in fact the judge had treated the doctor's report in an entirely proper way, and so they said that it was not necessary to adjudicate on arguments advanced by the parties on the procedural requirements for the admissibility and admission of hearsay evidence contained in documents. But the court did, in an obiter passage, address PD 32 para 27.2.

Sir Stephen Sedley, giving the leading judgment, said:

He went on to say that the key background matter was that the relevant issues should be pleaded, and added:

The consequences of this view, (namely, that the inclusion of a statement in a disclosed document which is not the subject of specific challenge means that there is admissible evidence before the court of a fact stated in that statement) is that in the instant case, although BSW has (a) pleaded in general terms that Mr Lang was in breach of fiduciary duty and in breach of contract but given no particulars, (b) has not pleaded reliance on the so-called admissions made in the Manchester proceedings, (c) has not given any notice of intention to rely on those admissions, and (d) has not drawn attention to the evidence in their skeleton argument in opening, they could nonetheless in closing and after the defendants have closed their case, say, "Well, there is evidence on which we wish to rely to prove that Mr Lang was in breach of his obligations, because you can find these statements on these pages in one of the many volumes of documents running to thousands of pages in this case".

It seems to me that PD 32 para 27.2 has to be read in the context of the Civil Procedure Rules as a whole. Whatever the Practice Direction may literally say, there is no doubt that the Civil Procedure Rules contain, in CPR 33.2 and following, express reference to the requirements of the Civil Evidence Act as to the adduction of hearsay evidence. Those provisions are there for a purpose I would be reluctant to read paragraph 27.2 as completely overriding those other provisions of the CPR, and indeed the statute itself. I accept that there are two expressions of view in the Court of Appeal that it might have that effect in the circumstances of the cases before the court. But for present purposes it seems to me that the guidance which is provided by CPR PD 32 paragraph 27.2 falls to be applied in each individual case by reference to the CPR as a whole, to the existence of the evidential requirements of the Civil Evidence Act, and in particular to the overriding objective. It seems to me that it would not be “just” in many cases to rely upon paragraph 27.2 as relieving a party seeking to use it of the obligation of giving fair and proper notice of the matter that is in issue and the evidence that will be used to prove it.

In the instant case, I would not have been content (if this point had been raised without notice in closing) to have permitted BSW to use a statement in an agreed document in a large trial bundle as the evidence to prove an unparticularised allegation in the statement of case. I think that parties who rely on paragraph 27.2 for the adduction of evidence of an issue central to the establishment of liability are likely to find that the court will view such conduct as not acceptable, and I would not have done so in this case. But I am relieved of the decision, because in fact BSW has given notice in a belated application to extend time for the service of a Civil Evidence Act notice, indicating in clear terms the reliance that is going to be placed on Mr Lang's statement in the Manchester proceedings.

Mr Marshall QC has submitted that now the application has been made, there is no jurisdiction to exclude the evidence which he seeks to adduce. In this respect he adopts a contrary stance to that which he adopted on the first limb, by saying that the provisions of the CPR cannot override the provisions of the Civil Evidence Act 1995.

CPR 32.1 confers upon the court the power to control evidence by giving directions as to the issues on which it requires evidence, the nature of the evidence it requires to decide those issues, and the way the evidence is to be placed before the court. CPR 32.1(2) says that the court may use its power under this rule:

Mr Marshall submits that the effect of section 2(4) is that once he has made his application to adduce the evidence, it is not open to me to say that it shall not be admitted and admissible.

On the other side, Mr Cavender QC relies on a decision of Mr Justice Morison in the case of Cottrell v General Cologne Re UK Ltd [2004] EWHC 2402 (Commercial) as an example of the refusal to admit hearsay evidence in circumstances where it would be unfair to do so.

In that case, it appeared that the defendants had taken a deliberate decision not to adduce evidence from a Mr Hinchcliff, who had attended a vital meeting. They then sought to adduce a hearsay statement from Mr Hinchcliff and sought to do so out of time. The judge refused them permission to adduce the evidence because it would be unfairly prejudicial to the claimants. The defendants had deliberately taken the choice not to put in a witness statement. They now sought to obtain the benefit of a witness statement, without tendering Mr Hinchcliff for cross-examination and in circumstances in which the other party did not have a fair opportunity to test the evidence.

I do not accept Mr Marshall's submission that there is no power to exclude the hearsay evidence once he has applied out of time for its admission. I take the same view of part 32.1(2) as did Mr Justice David Richards in the Daltel case [2005] EWHC 749 (Chancery), where at paragraph 56 he said this:

Cottrell’s case was one of those rare examples Mr Lang's evidence is relevant to the issues for decision. It is correct that the application to adduce it has come late and without adequate explanation. Mr Cavender QC, says that the matter at issue is whether in closing he should be able to say that there was “no evidence” of Mr Lang's wrongdoing and so no unlawful means for the conspiracy, or whether he is reduced to saying that Mr Lang's evidence “lacked particular weight”. I do not think the contrast is quite that stark, in the sense that, in considering what to do with Mr Lang's evidence, I am not obliged to give it any weight at all if I do not think it right to do so. I do not consider that this is one of those rare cases where a party is, for example, reversing a conscious tactical decision. I propose to admit Mr Lang's evidence. Mr Cavender is free to comment upon it. He is also free, it seems to me, though I do not prejudge the application, to make an application to admit a Civil Evidence Act statement from Mr Lang, if Mr Lang wishes to qualify any statement of his which is to be found in the bundle of documents which have been agreed for the purposes of these proceedings.

I shall accordingly admit Mr Lang's evidence, and give it such weight as I think right, having regard to the circumstances in which and time at which it has been introduced into this hearing.

The second application is an application by the defendants to amend their pleadings. The case was extensively repleaded on the claimant's side in December 2012, and that led to a repleading on the defendants' side in the third re-amended defence.

Following those re-amendments, there was an order for disclosure consequent upon the issues as reformulated. That order for disclosure was made by Mr Justice Sales on 13 February 2013, and it required BSW to give disclosure in relation to an issue that had been significantly repleaded relating to a contract which they obtained from an entity called Technip concerning a project called “Dalia”, but in relation to which they said they had achieved a lower contract price than would have been achieved absent the existence of competition from Balltec.

The disclosure order accordingly required BSW to use all reasonable endeavours to give disclosure of documents relating to the Dalia bid by 4 pm on 15 February, and to complete disclosure of such documents by 4 pm on Wednesday, 20 February, itself not many working days before the opening of the trial window.

Although the claimant did provide some disclosure they were still continuing the disclosure process as late as 27 February 2013, which was the day before the opening of the trial window. On that day, they gave a disclosure list of documents. Behind one of the disclosed documents was an email passing between the management of BSW relating to the circumstances in which BSW's price for the Dalia bid was fixed.

The email was what is described as an aide memoire, and took BSW's Dalia bid stage by stage, relating it to the Balltec bid that had been put in in competition. What emerged from the email (but had not emerged from anything else) was this statement:

In other words, BSW knew not only that Balltec was a competitive bidder, but knew the exact price which Balltec had offered to Technip. I say at once that I have yet to form a view what those words in the email actually mean in the light of the evidence which I have heard in this case. But on Balltec’s case, on which I have yet to adjudicate, BSW were told by Technip, who were conducting the Dalia bid, exactly what Balltec's price was.

Balltec’s case is that BSW can only have obtained that information if Technip broke its obligations of confidence to bidders participating in the bidding process, and that BSW must have known that it acquired full details of Balltec's price in breach of confidence. The argument is that, insofar as BSW now seeks equitable compensation for breach of fiduciary duty on the part of Mr Emmett in putting in that competing bid, it does not come to the court with “clean hands”, because it is taking advantage of confidential information which it wrongfully acquired. This point was not taken in the skeleton argument on behalf of the defendants. That would have been the earliest point at which it could have been taken, although it must be recognised that the very late disclosure of the document, so closely before the commencement of the trial, would have been difficult to accommodate in the skeleton argument lodged with the court.

In the course of cross-examining the first of the claimant's witnesses, Mr Cavender QC plainly began to explore the “clean hands” case, at which point Mr Marshall took the pleading point, namely that there was no reference in the Defence to the “clean hands” argument. Informal notice was given by BSW that the point would indeed be taken and pleaded, and an amendment was provided during the course of the trial before the claimant's second witness came to be cross-examined.

There were difficulties on BSW’s side in assessing the impact of the terms of the proposed amendment. Such difficulties inevitably arise in the course of a complex trial such as this. The form of the amendment, which I will not recite, is such as to take three points in elaboration of paragraph 60.4 of the existing Third Amended Defence.

The first is to take a causation point, namely that the price reduction which BSW says it was forced to make was caused, not by the existence of Balltec's competing bid, but by the disclosure to BSW of the exact price at which Balltec had bid, and it was the disclosure of the exact price that in fact impelled the reduction in BSW's price.

Secondly, the amendment puts BSW to proof that it acted with “clean hands” in relation to the transaction, if it is to seek equitable compensation in relation to the price at which the transaction proceeded.

Thirdly, the amendment then pleads a positive case that BSW knowingly and wrongfully exploited its knowledge of Balltec's confidential tender price in order to obtain the contract in relation to the Dalia transaction.

Mr Marshall opposes the making of this amendment, which was admittedly late. I have already referred in dealing with an application to amend the claimant's statement of case with the guidance as to amendments now contained in the decision of the Court of Appeal in Swain-Mason v Mills and Reeve [2011] EWCA (Civil 14), and I record that I have reminded myself of the terms of paragraph 72 of Lord Justice Lloyd's judgment.

This is a case in which I take the view that the amendment arises out of late disclosure by BSW. The question is whether the amendment ought not to be allowed on other grounds.

The first of the grounds relied on by Mr Marshall is that the amendment is not legally coherent. The amendment proceeds on the footing that Balltec did act in breach of fiduciary duty in putting in a competing bid. It is upon that basis that it is argued (a) on that the full details of that competing bid were disclosed in breach of duty to BSW, and (b) that BSW has deployed knowledge so acquired wrongfully to secure its own bid.

But, submits Mr Marshall, there is no confidence in iniquity. The disclosure that Balltec had put in a competing bid cannot be the subject of any obligation of confidence on the part of Technip and the Dalia team.

The rule itself is not in doubt. But Mr Cavender submits that the iniquity with which Balltec is charged in the particulars of claim is putting in a bid in breach of fiduciary duty and putting in a bid in breach of a covenant against competition. He does not seek to say that that alleged iniquity was the subject of a duty of confidence breach of which engages the “clean hands” doctrine. Both of these complaints are commented on in the evidence and are readily apparent not only from the witness statements in this action but also the witness statements that were adduced on an application for pre-action disclosure that was made in this case.

Mr Cavender says that because he does not say that the fact of the Balltec bid was confidential, means that it is not surprising that the “clean hands” point did not arise earlier. What he says is confidential is the exact price at which Balltec bid. The exact price at which Balltec bid was something that was confidential and is not in any way tainted by the alleged iniquity of Balltec putting in a bid at all. His complaint is about the disclosure of the actual price. The actual price was plainly, he says, confidential, and in those circumstances there is room for him to run a “clean hands” doctrine to the extent that BSW relies on its knowledge of the actual price as informing the bid price at which it arrived with Dalia.

Now, this argument about the extent of the iniquity and of the confidence, if any, which arises in the light of that iniquity is an argument which has to be addressed before the relevant facts are found. I am approaching this application for an amendment on an interlocutory basis. It seems to me that before the actual facts are found, if I assume the facts in Balltec's favour, then their case for the application of the “clean hands” doctrine cannot be dismissed as fanciful or legally incoherent. Whether it succeeds when the facts are found is a different matter, My only concern at present is whether the pleading could be sustained if the facts were found in a particular way, and at this juncture I think it can.

Accordingly, I do not accept the argument that the amendment is legally incoherent, and should not be allowed on that ground.

Mr Marshall's second point proceeds on the assumption that there was an obligation of confidence and that it was broken by BSW. His argument then is that BSW does not need to rely on any wrongdoing in order to make its case good. He says that in those circumstances this argument about “clean hands” or alleged illegality is all beside the point, and the amendment ought not to be allowed. He refers to the decision in Tinsley v Milligan [1994] AC 340 and in particular to passages in the judgment of Lord Browne-Wilkinson at page 371 H, and 375 B through to 376 E, which it is unnecessary for me to set out in extenso.

It seems to me that the fundamental question is whether BSW can make its case for equitable compensation in the sum pleaded in the Particulars of Claim without leading evidence that it was the knowledge of Balltec's bid price that caused the actual reduction made, rather than mere knowledge that Balltec had put in some sort of bid at an unknown price. So put, it seems to me that Balltec’s defence of wrongdoing on the part of BSW cannot be dismissed as fanciful. It must, of course, depend on the facts as found. But once again, it seems to me that if the facts are found in a particular way, then it is open to the Balltec to argue that BSW is bound to argue that the true cause of BSW's price reduction was its knowledge of the exact price gained in breach of an obligation of confidence on the part of Technip. So that does not seem to me to provide a legal objection to the amendment, which is the only question to be answered.

The third ground relied on by Mr Marshall is that there is no evidential basis for the obligation of confidence, or indeed for its breach. I can deal with this ground very shortly, because again this is an application which has to be ruled upon in the course of the trial itself, where I have heard some but not all of the claimant's evidence and none of the defendants' evidence.

Mr Marshall says that the obligation of confidence has not been acknowledged by the claimant's witnesses. He says that on a reading of the relevant email, in the light of the evidence actually tendered on the subject by Mr Green, there is no evidence of a breach of any such obligation of confidence. He says that, insofar as there is reliance upon an implied term in the tender process implying an obligation of confidence owed by Technip and Dalia to BSW and Balltec, there is no evidence of what the usual practice in such tendering processes is and that there is no evidence in what the BSW has produced in written and oral evidence to support an acknowledgement of any such duty.

This seems to me the sort of point that ought to be made in closing, and is not a proper ground for refusing an amendment. The facts remain yet to be found. This amendment has to be approached on the footing that the defendants do indeed establish the facts which they allege. On that ground, I would not refuse permission to amend on the footing that there is no evidence to support the amendment.

The final and, to my mind, most troubling ground was one of discretion. Mr Marshall submitted that there was a fundamental unfairness in seeking to make an amendment after the evidence of the witnesses, and in particular their cross-examination, had been concluded. I accept that there is a real risk of unfairness in those circumstances. Once again, I find myself in agreement with the judgment of Mr Justice David Richards, this time in McKillen v Misland [2012] EWHC 1156 (Chancery).

The judge there was faced with an application to amend in the course of trial, and after the evidence of the witnesses had been obtained in cross-examination. Mr Justice David Richards took the view that it was essential that the issues on which witnesses were cross-examined should have been clearly set out in the pleadings and that:

I find myself in complete agreement with that. But it is not, in my judgment, in truth the position in which I find myself in this trial. The genesis of the amendment is late disclosure by BSW, for which no explanation has been provided. The disclosure was timed at a particularly difficult time for Balltech to assess its significance and to respond to it, namely the commencement of the trial. At an early stage in the trial, notice was given that the point was being taken, and a serious effort was made to put a formulated amendment before the claimant's legal team, before their second witness (and the one who was principally involved in the relevant transaction) was cross-examined. The position is not ideal, but I do not think that any unfair or tactical advantage has been taken by the defendants. A party who has given late disclosure is not in a strong position to object to late amendment Balltec have a case which is arguable in law to the requisite standard, and I would not, on the grounds that they formulated the amendment late, exclude that amendment.

I shall accordingly permit the defendants to amend their case in the way sought.

I therefore dispose of both applications by permitting the adducing of Mr Lang's evidence and by permitting the amendment of the defendants' case.