Hedrich & Anor v Standard Bank London Ltd

This is the first stage of an application under section 51 (6) of the Supreme Court Act 1981 for a wasted costs order. The applicant is Standard Bank London Limited (“SBL”). The respondent is Messrs Zimmers, a firm of solicitors, the sole partner in which is Mr Gunter Zimmer.

In August 2004 Mr Zimmer was retained by Mr Burckard Hedrich in respect of a claim brought in Mr Hedrich's personal name and in his trading name against SBL for commission under a Consultancy Agreement (“the Agreement”) made between Mr Hedrich and SBL dated 17th May 2001 and which expired on 31st July 2002. Under the Agreement Mr Hedrich agreed to promote SBL's business and introduce potential customers in exchange for a monthly fee, plus a commission on all transactions he introduced, provided he had complied with the Agreement. By clause 9, during the term of the Agreement Mr Hedrich was not to render any services or provide advice to any of SBL's competitors.

Mr Hedrich claimed that whilst the Agreement was on foot he had been instrumental in introducing a transaction involving a Turkish company, Metis, in which SBL had a participation, and in respect of which he was entitled to a commission under the Agreement, alternatively by way of a quantum meruit.

The date fixed for trial was 21st November 2005 and by order of Master Leslie dated 18^th May 2005 there was to be disclosure by lists by 30th June 2005, with inspection seven days thereafter. The trial began on the due date, but was adjourned for seven days because of the unsatisfactory state of the disclosure made by Mr Hedrich. Documents had been made available in a decidedly piecemeal fashion and there had been a mix-up over what were originals and what were copies. When the trial resumed the trial judge, His Honour Judge Overend, who was sitting as a Deputy High Court Judge, ordered Mr Zimmer to swear an affidavit explaining why documents had not been disclosed when they should have been.

As the trial continued and whilst Mr Hedrich was giving evidence Zimmers provided SBL's solicitors, Jones Day, with a CD ROM containing the entire contents of Mr Hedrich's computer, which included numerous documents showing that Mr Hedrich had provided services and advice to competitors of SBL in breach of the Agreement.

The following morning, 2nd December 2005, Zimmers obtained ex parte an order from McCombe J permitting them to come off the record. Some of the recently revealed documents were put to Mr Hedrich in cross-examination and he admitted that he had indeed been providing services to others in breach of the Agreement.

On 5th December 2005 Mr Hedrich served a notice of discontinuance. The Judge described the claim as a “try on” and ordered Mr Hedrich to pay SBL's costs on an indemnity basis and to make an interim payment of £175,000 within 14 days.

SBL's costs were subsequently assessed in the sum for £362,015.33. None of this sum, however, has been recovered from Mr Hedrich who has proved to be impecunious --- hence this application in which SBL seeks a wasted costs order against Zimmers in respect of the whole of their costs of the action in the said sum of £362,015.33.

Paragraphs 53.4 and 53.6(1) of the Part 48 Practice Direction provide:

It was held by the Court of Appeal in Ridehalgh v Horsefield [1994] Ch 205 that for the purposes of section 51(6) and (7) of the Supreme Court Act "unreasonable" describes conduct which is vexatious being designed to harass the other side rather than advance the resolution of the case and "negligent" is to be understood in a non-technical way to denote failure to act with the competence reasonably expected of ordinary members of the legal profession.

In Persaud v Persaud [2003] EWCA Civ 394, the Court of Appeal said:

The requirement for the additional "abuse of process" element was not accepted by the Court of Appeal in Dempsey v Johnstone [2003] EWCA Civ 1134, and in Morris v Roberts [2005] EWHC 1040 Lightman J followed Dempsey v Johnstone in preference to Persaud v Persaud. I propose to take the same approach as did Lightman J.

Mr Hedrich has declined to waive privilege. Accordingly, I must decide this application without knowing the terms of the advice Mr Zimmer gave Mr Hedrich concerning disclosure or the instructions Mr Hedrich gave Mr Zimmer in respect of documents, save to the extent that these are revealed in open correspondence and/or in Mr Zimmer's two affidavits, the one to support the application to come off the record, the other in compliance with Judge Overend's order.

Ordinarily an application for a wasted costs order after a trial should be determined by the trial judge. However, HHJ Overend had retired by the time SBL's application came to be made and thus the application is being heard by a different judge.

The application first came before Walker J on 3rd May 2007 when it was decided that it would have to be adjourned because it could not be determined within the two hours available. When ordering the adjournment Walker J directed that summary statements of case be served and a chronology be agreed.

Stripped to its bare essentials, SBL's case is that Mr Zimmer handled the process of disclosure negligently and/or unreasonably. Instead of providing Jones Day with a CD ROM containing the contents of Mr Hedrich's computer on the fourth day of the trial, Mr Zimmer should have gained access to the information on that disk and inspected it for its relevance well before the date set for trial and should then have disclosed the documents showing that Mr Hedrich had acted in breach of the Agreement, in which case the claim would have been dropped or SBL would have obtained Part 24 judgment and SBL would not have incurred the costs they did.

The disclosure story (to the extent relevant to this application) starts with a letter from Zimmers to Jones Day dated 25th February 2005, the first paragraph of which reads:

One of the points taken in SBL's Defence was that the Agreement applied only to German transactions and the Metis transaction, being a Turkish transaction, was therefore outside the Agreement.

On 18th March 2005 Zimmers served the claimants' Reply which included a Table A which itemised a list of transactions involving SBL which were alleged to be non-German transactions but which had been treated as falling within the Agreement. It is plain that Table A had been produced on the basis of contemporaneous documents. The document also refers to “enclosures”, but no enclosures were served with the Reply or at any time. Disclosure lists were served by both sides on 7th July 2005. The claimants' list set out a number of categories of documents. The inadequacy of this list was pointed out by Jones Day and on 22nd July 2005 Zimmers served a list referring to 123 documents which list was criticised by Jones Day for apparently being inconsistent with the list served on 7th July 2005. As is revealed in Mr Zimmer's second affidavit, Mr Zimmer had received from Mr Hedrich on 11th July 2005 two printed out T On-line emails to representatives of SBL dated 6th November 2001 and 7th May 2002 respectively. At the bottom of these emails appeared the date 11th July 2005 suggesting that they had been accessed on that date. Both emails were included in the revised list served by Zimmers on 22nd July 2005.

On 4th August 2005 Mr Zimmer told Mr Donnelly of Jones Day that he was going to visit Mr Hedrich in Hamburg to sort out disclosure with his client whose papers were very disorganised. On 22nd August 2005 Mr Zimmer told Mr Donnelly he had had to postpone his trip to see Mr Hedrich and would speak to Mr Donnelly after the weekend of 27th and 28th August. On 1st September 2005 Mr Zimmer confirmed to Mr Donnelly that he had met with Mr Hedrich, but he says nothing about this meeting in either of his two affidavits or in his witness statement served for the purpose of this application. On 13th September 2005, Zimmers served a further revised list, which now referred to 171 documents, including 52 documents relating to the Metis transaction which had not been included in the list served on 22nd July. Copies of these documents were provided to Jones Day on 16th September 2005, many of which referred to a large number of other documents which had not been disclosed.

On 3rd October 2005 Mr Zimmer and Mr Hedrich attended a conference in London with counsel, Mr Kimbell, at which Mr Hedrich gave clear instructions that he had not acted for any other company during the currency of the Agreement. On 13th October 2005 Jones Day suggested to Zimmers that the trial be adjourned due to the state of the claimants’ disclosure. Zimmers rejected the suggestion and Jones Day wrote to them the next day drawing attention to a number of matters, including the fact that, although Zimmers had said in their letter of 25th February 2005 that Mr Hedrich had lost all of his email correspondence on T On-line, the claimants’ disclosure contained a significant number of emails from T On-line, and one dated 6th November 2001 appeared to have been accessed on 11th July 2005.

In a witness statement dated 20th October 2005 in response to SBL's application for an adjournment, Mr Zimmer said, inter alia, that his firm was seeking to find out whether all the attachments and letters or faxes from the claimants had been preserved or not and would have an answer by 28th October.

On 21st October 2005 Silber J refused to adjourn the trial and ordered that there be further mutual disclosure by 4th November.

Mr Hedrich used his home in Hamburg as his office. On 23rd October 2005 Mr Zimmer visited him there. His priority was to finish Mr Hedrich's witness statement. During the visit Mr Zimmer was shown a mass of documentation contained in clear plastic wallets piled on Mr Hedrich's desks, floor and other furniture. Mr Zimmer looked through the piles of these plastic wallets and it appeared to him that all of these papers related to matters before the period Mr Hedrich had worked as a consultant for SBL and after the expiry of the Agreement, and for that reason he did not consider them to be relevant in the action.

Whilst in Hamburg Mr Zimmer took instructions from a Mr Kaul because he had been told by Mr Hedrich that Mr Kaul had managed to retrieve all of the T On-line emails from Mr Hedrich's computer. Mr Zimmer took a witness statement from Mr Kaul which was served in the trial and Mr Kaul was called as a witness. Mr Zimmer was told by Mr Kaul that he had copied the complete hard drive from Mr Hedrich's computer on to his (Mr Kaul's) laptop, including the email files which he had been able to open using T On-line software.

On 4th November 2005 Zimmers served two disclosure statements each signed by Mr Hedrich and two lists of documents disclosed by the claimants and a list provided by a third party connected with the Metis transaction. Zimmers also served Mr Kaul's witness statement and a CD ROM which contained all the emails between Mr Hedrich and SBL which related to the Metis transaction. This CD ROM had been forwarded to Mr Zimmer by Mr Hedrich at Mr Zimmer's request.

On 10th November 2005 Zimmers served 1600 hard copy pages of emails between Mr Hedrich and SBL, including emails that did not relate to the Metis transaction. Mr Zimmer had asked Mr Hedrich to print off these emails and send them to London on 8th November 2005.

The trial began on 21^st November, but as I have said it was adjourned for seven days by the judge. On the resumed hearing, Mr Kaul gave evidence in the course of which he told the court that over the last weekend in February 2005 he had retrieved all of the contents of Mr Hedrich's computer and burnt the same onto a CD ROM.

On 1st December an IT employee of Zimmers attended at Jones Day's offices with the CD ROM and a laptop computer and printed out the entirety of what Mr Kaul had retrieved from Mr Hedrich's computer. As I have said, included amongst these documents were documents which showed that Mr Hedrich had worked for others in breach of the exclusivity provision in the Agreement, including in particular a company called Convena.

Mr Kaul said in evidence he helped Mr Hedrich gain access to all of Mr Hedrich's computer files by downloading the files from Mr Hedrich's computer onto his (Mr Kaul's) laptop and that he did this over the weekend of 26/27th February 2005. He went on to say that he burnt a CD ROM at that time which was with "our solicitors". He later said that there was only one CD ROM which was available at this time and this was with Zimmers. This evidence suggests, although far from clearly, that the CD ROM was provided to Zimmers shortly after the end of February 2005.

Mr Zimmer's evidence of how he came into the possession of the CD ROM is contained in paragraphs 43 and 69 of his second affidavit:

For the purposes of this application, I must accept Mr Zimmer's evidence as to when and how he came to be in possession of the CD ROM which contained the damaging documents and what he believed was contained on the disk.

The case advanced against Zimmers has at its core the contention that Zimmers should have obtained the CD ROM made by Mr Kaul which contained all the files on Mr Hedrich's computer and examined the contents thereof very much earlier than 1st December 2005 when the contents were printed off in Jones Day's offices. Mr Auld QC for SBL relied on a number of propositions set out in Matthews and Malek on Disclosure including:

Mr Auld submitted that if these duties had been discharged by Zimmers, Zimmers would have obtained the CD ROM made by Mr Kaul before even the letter before action, dated 11th October 2004, and if not by then, by the time disclosure by list was first made on 7th July. Although it is no doubt best practice for a solicitor either to take possession of the client's files which have a potential bearing on the dispute or to visit the client and inspect such files, I do not think that a failure to take these steps, whatever the circumstances, means that the solicitor is in breach of duty to his client or to the court. A solicitor must carefully explain the obligation of disclosure to the client, but if the client tells him certain categories of documents have been lost he is entitled to accept these instructions unless there are matters which cast doubt on the instructions or in any event require further investigation. It follows, in my opinion, that Mr Zimmer was entitled to accept Mr Hedrich's instructions in February 2005 that the whole of the T On-line emails had been lost, and in my opinion Mr Zimmer was not in breach of duty for not discovering that the entirety of Mr Hedrich's computer files were on a CD ROM by reason of not enquiring into what documents lay behind Table A in the Reply, or into the two emails which he had been sent on 11th July 2005. It was not inevitable that Table A had been produced from emails as distinct from other hard copy documents and nor was it obvious that the emails of 6^th November 2001 and 7^th May 2002 had been accessed from the computer on 11th July.

In my opinion, the crucial question is whether when he met him on 24th October 2005, Mr Zimmer should have asked Mr Kaul to provide him with access to the contents of Mr Hedrich's hard drive, which Mr Kaul told him he had downloaded on to his computer. When Mr Zimmer made his visit to Hamburg he knew that Jones Day had raised questions about the accessibility of Mr Hedrich's emails to SBL and had been told by Mr Hedrich that Mr Kaul had obtained the emails from his computer. He knew too that the question whether Mr Hedrich had acted in breach of the exclusivity provision in the Agreement was an issue in the action, although he had been told by Mr Hedrich that there had been no such breach.

Mr Zimmer also knew that his clients had produced documents piecemeal. Indeed, down to 1st July 2005 Mr Hedrich had produced to Mr Zimmer only two documents which related to Metis and had then sent between 2nd and 7th July a further 54 documents and yet further documents by 22nd July, so that the September list served by Zimmers referred to 171 documents which now included 52 documents relating to the Metis transaction. Mr Hedrich also sent Zimmers three documents on 23rd October and 30 documents which arrived on 26th October. In the light of this background, I think it is strongly arguable that Mr Zimmer was duty bound to ask to be provided with access to the contents of Mr Hedrich's hard drive and in my judgment there is an irresistible inference that if Mr Zimmer had made this request he would have been given the CD ROM which Mr Kaul sent across on 14th November 2005. Inspection of the material on the disk would not have taken long. In my judgment, Mr Zimmer would have discovered the damaging documents by 4th November 2005, at which point he would have been obliged to advise Mr Hedrich that these documents had to be disclosed or he could no longer act for him.

If Mr Hedrich had permitted disclosure, I am satisfied that the case would have been discontinued or SBL would have obtained summary judgment by about 18th November 2005 by when, according to a schedule annexed to SBL's skeleton argument showing when SBL's costs were incurred, SBL would have incurred costs in the sum of £213,325. If, as he may have done, Mr Hedrich had refused to allow Mr Zimmer to disclose the damaging documents, Mr Zimmer would have had to have come off the record.

It is vital to SBL's case that it can be shown that the proceedings would have ended before they had incurred a significant amount of the costs they did incur. However, I am unable to say whether it is likely that Mr Zimmer’s coming off the record would have saved SBL from the costs they in fact incurred. Mr Hedrich might have discontinued or he might have fought on, either with another solicitor from whom he suppressed the damaging documents, or on his own, and he might or might not have obtained an adjournment of the trial. This means that although there is a good prima facie case for Mr Zimmer to answer that he acted negligently and in breach of his duty to the court with respect to disclosure in this case, I am bound to conclude that it is not sufficiently likely on the evidence before me that if this case is unanswered a wasted costs order will be made. In short, I am not satisfied that SBL have made out the necessary causation element in their application. This conclusion is fatal to SBL's application.

I would add, that I have grave misgivings as to the proportionality of these wasted costs proceedings. I say this having regard to: (1) the statement in Jones Day' letter of 10th October 2005 to Zimmers that the cost incurred by SBL since the end of the trial amounted to the remarkable sum of £203,885.79; (2) the very substantial cost that must have been incurred in this application given the very many documents which have been put before the court, the hearing before Walker J and the hearing before me, which lasted the best part of a day with the deployment of detailed skeleton arguments and summaries of case; and (3) the cost of the second hearing to determine finally if a wasted costs order should be made.

Accordingly, for the reasons I have given these wasted costs proceedings are dismissed.