Axa Sun Life Services Plc v Cannon & anor

The defendants were each employed by the Claimant (“Axa”) as managers when, in late 2002 or early 2003, they formed the idea of setting up their own business in partnership. This was to be as advisers appointed to be Axa's agen for the promotion and sale of their financial products. An agreement between Axa and the defendants was entered into with effect from 21^st July 2003 on Axa’s standard printed form entitled Advisor Appointment Agreement (“the Agreement”). On 28^th September 2005 Axa gave notice of termination in accordance with the agreement. That took effect on 28^th November 2005.

Pursuant to the agreement Axa had paid to the defendants a sum known as a Development Allowance amounting to £99,000. This was to fund the start up of the new business, and was in effect an advance against commissions which were to be earned pursuant to the agreement. The agreement included provisions for the repayment of advances in the event of termination in accordance with formulae set out in the agreement. On 20 July 2005 Axa sent to the defendants a letter of demand for repayment. The defendants did not comply with this. On 18January 2006 Axa commenced these proceedings in which they claimed £116,160.69 in accordance with the agreed formulae.

The calculation of the sum due to Axa, subject to the defence and counterclaim, is not in dispute. The defence and counterclaim as originally served is dated 12 May 2006, and, as amended is dated 8 September 2006. The gist of the defendants' case is that their project to set up in business as agents of Axa was based on utilising the existent client base, numbering about 900 clients, of a Mr Mike Kipping who was at that time authorised by Axa in the capacity of Company Representative (“CR”). He had gone to live in France and this gave rise to problems with his status with the Financial Services Authority (“FSA”) and with Axa themselves. His foreign residence led to difficulties with him in complying with requirements for training, meeting clients and other matters.

While still employed by Axa, the defendants entered into negotiations with Axa for the setting up of the new business to be known as Beacon Financial Solutions (“BFS”). A business plan was prepared and discussed. On the basis of this, the amount of commission they would receive was calculated, as were the sums of money to be paid by Axa to assist in the start up of the business. The defendants' case is that representations or warranties were made on behalf of Axa to them about the position of Mr Kipping which were false or not fulfilled. Alternatively, the defendants claim that Axa were in breach of terms implied in the agreement in failing to cooperate with the defendants so as to ensure the availability to the new business of Mr Kipping's client base. It is said that in breach of contract and for no good reason Axa “took about 14 months to carry out the simple task of approving Kipping’s second application so that the value of the client list became negligible”. The counterclaim, which is also relied upon by way of set off, is for wasted costs and lost income in sums exceeding the amount claimed.

The terms which the defendants submit are to be implied into the agreement include that Mr Kipping had been redesignated and that his clients were available to the Defendants, that the parties would co-operate to ensure the performance of the contract and that Mr Kipping’s clients and/or orphan clients were, or would be available to the defendants, and that Axa would not prevent performance by asserting that Mr Kipping had not been redesignated and/or by failing promptly either to redesignate him, or to transfer his clients to the defendants. Alternatively, it is submitted that there were representations by Mr Paul Fleming for Axa, alternatively there was a collateral contract, to substantially the same effect. “Orphan” is the term used to refer to clients of Axa who have at sometime been the responsibility of an agent of Axa but whose agent is no longer working for Axa.

Axa put the defendants to proof of the statements allegedly made which the defendant say constitute the misrepresentations and breach of contract. They have not adduced any evidence from the other employees of Axa with whom the defendants were negotiating in 2003. I am told that changes in the structure of Axa's business have led to the people who could have given material evidence moving to other employers. Axa also dispute reliance, and causation and the amount of the sums claimed as damages by way of counterclaim.

In addition Axa rely on an entire agreement clause, clause 24, in their standard conditions of contract. The standard conditions were changed, and a new Advisor Appointment Agreement entered into between the parties on 31^st October 2004. The differences between the two forms of agreement are not material to the issues in this action and I shall take clause 24 as it appears in the second version:

“This agreement and the Schedules and documents referred to herein constitute the entire agreement and understanding between you and us in relation to the subject matter thereof. Without prejudice to any variation as provided in clause 1.1, this agreement shall supersede any prior promises, agreements, representations, undertakings or implications whether made orally or in writing between you and us relating to the subject matter of this agreement but this will not affect any obligations contained in any such prior agreement which are expressed to continue after termination”.

Accordingly Axa submit that there can be no liability for misrepresentation, and that there can be no terms implied into the agreement.

Mr Brant, counsel for Axa, invited me at the start of the trial to try as a preliminary issue the question whether the entire agreement clause precluded the defendants from advancing the counterclaim and set off which they rely on. Having heard argument I decided that that would not be the right course to follow. During the argument on that issue, Mr Goodbody, counsel for the defendants, submitted that if, which he contested, that clause was apt to exclude a liability for misrepresentation, then under the Misrepresentation Act 1967, s.3 (as amended) it was for Axa to establish that such an exclusion was reasonable, and they had not attempted to plead any basis for that. Following that submission Mr Brant prepared a draft amendment to paragraph 3 of the Reply and Defence to Counterclaim in which there was pleaded an averment that clause 24 is reasonable in all the circumstances including four matters which are set out. Mr Goodbody did not oppose this application to amend, and I granted permission.

The provision of financial services is, of course, subject to very extensive and detailed regulation by law. The standard forms prepared by Axa are drafted in the light of that regulatory background. It has not been necessary to refer in detail to these regulatory provisions, but they form the background of the events the subject of this trial.

The provisions of the Advisor Appointment Agreement material to this action can be summarised briefly. Clause 1 effects the appointment of the defendants as Axa's agent to provide the services defined in the Agreement. Clause 3 is headed “Your Obligations” and sets out these in 17 sub paragraphs over more than three pages. Included in the obligations, by clause 3.5, is a requirement that the defendants comply with the Handbook (defined as a document published from time to time by the Financial Services Authority) and various books, standards, guides, manuals and other documents issued from time to time by Axa. By clause 3.5.2 the defendants were also required to comply “with all instructions we… give you from time to time concerning this Agreement”.

By clause 4 it is provided that the defendants “warrant, represent and undertake” that the information provided by them to Axa was true and accurate. It is to be noted that there was no corresponding provision in relation to any information provided by Axa to the defendants.

Clause 5 deals with commission payable pursuant to the agreement and repayable in the event of termination. By clause 7 and schedule 4 Axa undertook to provide the Development Allowance and the defendants agreed to repay it, or parts of it, on termination, in accordance with the provisions of the schedule. The allowance was set at £99,000 and was related to Annual Commission Targets. These are large figures. In the first year the annual Target was £244,950, in the second year £326,600 and so on making a cumulative total in the first five years of £1.685 million.

By clause 13 it was provided that the agreement would continue for 5 years subject to either side having a right to terminate the agreement at anytime upon giving not less than two months written notice. It was pursuant to this clause that the Agreement was terminated and not on the basis of any alleged breach by the defendants.

By clause 17 it is provided that where the consent, agreement, approval, authority or permission of Axa is required under the Agreement, that may at Axa's absolute discretion, as the circumstances require, be given, withheld or be subject to any condition or conditions. It is not necessary to refer to any of the other numerous provisions in the agreement or in the documents referred to in it.

Mr Piper had joined Axa in 2001. He had worked in the financial services industry since 1989 and has many qualifications, including the equivalent of a 2:1 honours degree. His job at Axa was Regional Development Manager, which was a senior position. Eleven development managers reported to him, each of these having to look after businesses similar to BFS. His responsibility was development and compliance. The businesses each had one or more CR who had to undergo training and certification to be authorised to sell Axa financial products. CRs were retested each year. They were continuously monitored and their performance, if unsatisfactory, recorded on spreadsheets known as Span of Control (“SPOC”) lists. Mr Piper reported to Mr Simon Coll, the Regional Director. Mr Fleming also reported to Mr Coll. Mr Cannon was one of the Development Managers who reported to Mr Piper.

Mr Piper and Mr Cannon were both aware that Axa had a problem with Mr Kipping, arising out of his move to France. Mr Cannon was based at Axa's then Eastbourne office. There was based there Southern Home Counties, which was the Approved Representative to which Mr Kipping was attached.

The difficulties of Mr Kipping resulted in him appearing on the SPOC list. The defendants considered that Mr Kipping had a good portfolio of customers. Mr Cannon was Mr Kipping's Development Manager, and was tasked with finding a solution to the problem. The defendants' first idea was to engage Mr Kipping as a CR. Another possibility was to downgrade Mr Kipping to the status of Introducer. That would permit him to pass on clients to a CR to whom the Introducer is attached, but not to deal with the sale to the clients. Mr Kipping would then earn a part of the commission earned by the CR.

It was Mr Piper's understanding that this change of status would be a simple paper exercise and would at most, in his experience, take a couple of weeks. The defendants proposed that if this could be done, then he could be attached to BFS. The defendants discussed this with Mr Coll, who spoke to Mr Fleming. He approved the proposal in principle, sending them a template of the Axa Business Plan. Mr Cannon went to France to discuss the plan with Mr Kipping. Mr Kipping was enthusiastic and discussed with Mr Cannon the practical arrangements for the transfer of his clients.

The chronology of the main events thereafter to which I have been referred is as follows. On 26^th February 2003 the defendants prepared a Business Plan on a template prepared for that purpose by Axa. They did so with the assistance of Paul Fleming, who was then Axa’s senior sales and marketing manager. Only the odd pages are in the bundle. Although the defendants plead that this was formulated by Mr Fleming and that the defendants relied upon it, there can be no doubt that it was in fact the defendants’ plan prepared with the assistance of Mr Fleming. The representations it contained were to be the basis upon which Axa would give the approvals and the funding that might be required. Nevertheless, I accept that Mr Fleming did agree with what was stated in the document, as he subsequently made clear in the manner described below.

On 28^th March 2003 Mr Kipping completed and signed a 16 page document in one of Axa's standard forms, of which only the even pages are in the bundle. The document is completed to refer to Beacon Financial Solutions and appears to be an application by Mr Kipping to be authorised to act as a representative of that firm.

On 7^th April 2003 BFS entered into a remuneration agreement with one of the CRs the defendants were recruiting, Mr Joseph. They also made arrangements with two others, Mr Stone and Mr Stokes. Mr Fleming attended at least some interviews. The recruits were at the time employees of other firms, and were to be self employed at BFS. There was discussion at the interviews of the source of their commission at BFS, and Mr Fleming and Mr Piper discussed with them how they would have access to Mr Kipping's clients.

On 9^th April 2003 the defendants completed a second version of their business plan, again with the assistance of Mr Fleming. That document stated the commencement of business to be 1^st July 2003. It described the business activities that were to be undertaken. Under the heading “Describe How Business is Generated and What Future Resource You Have” the plan stated that the firm would commence with 5 selling company representatives, that the two defendants, currently development managers for Axa, would participate and the document named three individuals who had been recruited as Company Representatives. The document included the words: “and will also move Mike Kipping from SHC [the department of Axa to which he was then attached] to Beacon on the new single contract”. On the next two pages there are five references to “existing client base” which the defendants submit is a reference to Mr Kipping's client base because at that stage Beacon Financial Solutions had not started to trade and had no client base, as Axa knew. I accept that that is what is referred to.

Accompanying the Business Plan was a document “Marketing and Lead Generation Strategy”. There were five headings: Mike Kipping, Yellow Pages, Thomson Local, BRG Direct and CR Client Banks. Under “Mike Kipping” it read:

“Mike Kipping has been an advisor since 1992 (based until last year at Southern Home Counties, Eastbourne) and has a substantial client bank (circa 900) based in Sussex. Mike now lives in France and is converting to introducer status on appointment of the firm [ie BFS]”.

It is to be noted that this document gave no indication of the amount of business was expected to be done with those clients, whether by numbers of clients or by the value of their business. By contrast, the entries under Yellow Pages, Thomas Local and BRG the document included estimates of the numbers of appointments per week expected, or the “hit rate” from cold calling the BRG client bank. In respect of the 3 CRs recruited to work for BFS, the document gave the client base of each one, the total being 280. The document concluded by saying that the Mr Cannon “(selling principle)” has already lined up clients to sell to.

There was also a section of the business plan headed “Axa Support” which sets out the Business Consultancy Support required from Axa. This included a reference to “orphans”. Mr Fleming had discussed orphan clients with the defendants and made clear that they would have some.

Appendix 2 to the Business Plan sets out the breakdown of the £99,000 finance required from Axa. The first stage to 1^st July includes funding for the income of the company representatives and Mr Kipping.

On 24^th April 2003 Axa sent to the defendants the first version of a Provisional Offer of Contract stating, among other things, that they could provide a Development Allowance of £121,000 and setting out the basis proposed for commission and commission targets. On 8^th May 2003 Axa sent the second Provisional Offer of Contract letter which included similar provisions save that the sums were reduced, in the case of the Development Allowance to £99,000.

A proposal such as the defendants were putting to Axa at this time required consideration by, and approval from, a number of different departments within Axa's organisation. It is plain that there must have been extensive documentation relating to this within Axa, but very little indeed has been disclosed on disclosure. One document that has found its way into the trial bundle is dated 10^th May 2003. This is a memorandum from Mr Fleming to a person at Sales Recruitment in Coventry. This encloses what is referred to as the “completed application pack” and states that there are a number of key points that need to be considered in full regarding this application. There follows some nine bullet points, including one referring to Mr Kipping. It records that he is currently at Axa in Eastbourne but lives in France and there is a reference to "internal transfer”. It states that he is approved to sell within the Axa advisor network.

There is a document bearing the same date, 10^th May 2003, and which may be one of the enclosures forming part of the completed application pack. This is a document in Form A of the FSA's standard documentation. It is headed “Application to perform controlled functions under the approved person’s regime”. Mr Kipping is given as the candidate and Beacon Financial Solutions as the name of the firm. It is an eighteen page document of which only the cover page and the signature pages are included in the bundle.

On 11^th May 2003 Mr Coll, the Regional Director of Axa, signed a document known as “Individual Company Representative Application Form” in respect of Mr Kipping. It states that he did so having had an in depth discussion with Mr Fleming and having verified the SPOC management details with the Mr Piper. This was, of course, a reference to the Mr Piper in his capacity as Regional Development Manager of Axa, which he still then held. Only the odd pages of that document are in the bundle.

In May Mr Piper noticed that Mr Kipping's name no longer appeared on the SPOC list. This was consistent with his having changed his status, and Mr Piper assumed that his status had changed to Introducer. In fact it had not changed to Introducer. Early in May the defendants had had to resubmit forms for Mr Kipping's transfer of status. It has been suggested by the defendants that this was a representation that Mr Kipping had been made an Introducer. That is reading too much into the SPOC list. In any event, the SPOC list was prepared for Axa’s internal purposes, and not with the intention of inducing the defendants to enter into any agreement.

On 4^th June 2003 Mr Coll sent an email to each of the defendants addressed to them at their internal email addresses with Axa headed “Beacon F S – New A[pproved] R[epresentative]”. It is a long message of which it is only necessary to quote the following:

“Following discussion with both Paul and Carole I have met with the principles and have agreed the following actions:

1.

Mike Kipping will be an introducer to the firm, paperwork to follow. He will effectively now not be a CR for the firm so that the complexities of supervision, etc. are now removed…”

In my judgment it is apparent from the reference to paperwork that Mr Kipping was not yet an Introducer.

It seems likely that this document was submitted to the defendants for their approval before being forwarded internally within Axa, and that the defendants are the persons referred to as “the principles”.

On 26^th June 2003 there was prepared an internal document for Axa. It records the application documents received in respect of Beacon Financial Solutions and contains detailed comments on the Business Plan, including the strengths and risks and outstanding questions. It records that Mr Kipping “who is currently with SHC Eastbourne will no longer be a CR but will be an Introducer instead”. There are other references to Mr Kipping including references to property he owned and his country of residence for tax purposes.

On 15^th July 2003 a fax was sent to the Compliance Department of Axa by Mr Stokes on paper headed Beacon Financial Solutions. It enclosed a draft of a letter to be sent in the name of Mr Kipping to each of his clients, notifying the clients that he was now operating under the umbrella of Beacon Financial Solutions. It includes the paragraph “as you are aware that since my move to France face to face meetings have become more difficult, therefore in your best interests my colleagues at Beacon Financial Solutions have agreed that where necessary they will meet with you on my behalf”. In the fax Mr Stokes states that Mr Kipping is currently still working for Axa at their Eastbourne office, that the Eastbourne office has agreed to take the responsibility of posting these letters, and that Beacon Financial Solutions were expecting authorisation as Approved Representatives of Axa that same week. The Effective date of the Advisor Appointment Agreement was indeed very shortly afterwards, 21^st July 2003.

During July Axa advised Mr Cannon that BFS could not contact Mr Kipping's clients because, so Mr Cannon understood, he was not yet authorised as an Introducer.

At the end of July Mr Piper went on sick leave from Axa . He did not return to work at Axa, although he remained employed until January 2004. Nor was he able to attend to BFS business during that period. But in his statement he states that it became apparent in October that Axa wanted yet more paperwork for Mr Kipping that Mr Cannon dealt with, and that Mr Cannon was chasing Axa over the delay.

There is a gap in the documentation from that date until 10^th March 2004. The fact that there is a gap is clear because there is in the bundle an email dated 20^th April 2005 from Elizabeth Gummery of Axa to Caroline Rigby, which she forwarded internally to Caroline Chadwick, all three of those persons being employees of Axa. The email encloses an attachment with the file name “Mike Kipping.Doc” which Ms Gummery states was compiled by one of her colleagues. That document, as printed out, covers six pages containing a chronology of events or documents relating to Mr Kipping. There are 48 different headings, each them a date.

The first dated heading is 21^st July 2003 and the last is 6^th April 2004. Under each of these headings the document refers expressly or by implication to a source document which is sometimes an email, sometimes a letter, and sometimes what must be a written record of a conversation. None of the documents referred to in that chronology have been disclosed. Mr Goodbody objected to that document being treated as evidence on the basis that it is hearsay, and apparently multiple hearsay. His objection was related to the fact that the contents of the document (if true) tended to show that Axa had been having considerable problems with Mr Kipping. The document refers to some communications with Mr Cannon which are not in dispute.

Mr Cannon met Mr Fleming at the beginning of September. Mr Cannon understood at that meeting that there was a problem with Mr Kipping. Mr Cannon chased Mr Kipping who said that the information required of him had been provided. But the position was still unresolved in October and November 2003 and Mr Cannon continued to press Mr Fleming and others at Axa and Southern Home Counties.

On 10^th March 2004 the defendants sent an email to three persons at Axa including Mr Fleming with the heading “Mike Kipping's clients”. It reads as follows:

“When we first decided to look at setting up our AR, we had Mike Kipping's clients as very much an integral part of our plan. We arranged for Mike himself to come over to Beacon from the South of France. We then put together a business plan which involved Mike and ourselves contacting all his clients with a view to ensuring continuity for his clients and the ability to give them the service they deserved. Based on this we also employed a CR who had no customer base, His specific job was to closely liaise with Mike Kipping and contact and sell to a large proportion of his clients.

Here we are in March 2004 eight months later and we are no further forward with this. This has subsequently caused all of us some severe problems as Mike Kipping has been unable to refer any clients to us and we have had to look for other methods of raising business.

We have been told that the concept has been agreed but we still seem to be unable to get closure on this matter.

We find it very hard to understand that this issue is taking so long as Axa and ourselves are losing huge amounts of potential business from a large and loyal (in 2003) customer base. This as stated earlier is in direct contravention of that which was agreed at the outset of our discussions with Axa.

We would appreciate an early explanation as to why this has taken so long as this was signed off by Paul Rogers at the time our AR was agreed. Caroline Chadwick actually made the point that the release of Mike Kipping`s clients were a major part of the finance being released to ourselves”.

There is a reply to this email from Mr Fleming, sent the same date in which he says “ Correct in your statements, I have contacted Sat and Pam to back up the original plan”. Mr Piper in his evidence stated that he had placed particular reliance on what is referred to in the last sentence about the release of finance. He understood when the finance was released (which was after the Agreement had been executed) that Axa were satisfied that Mr Kipping's client were available to BFS.

On 17^th June 2004 the defendants emailed Mr Kipping saying “today we have received sign off from Axa it has only taken 14 months”. The email then goes on to suggest that Mr Kipping should get together with Mr Stone to discuss the best method of dealing with “the now semi-cold data base”.

Unhappily the business of Beacon Financial Solutions did not prosper and the targets were not met.

On 9^th March 2005 the defendants wrote a detailed letter to Axa. They stated that access to the nine hundred strong client bank of Mr Kipping was “absolutely key” to their decision to recruit the three Company Representatives they had recruited, that a week after their own appointment they had been informed by Axa that under no circumstances could these clients be contacted until the formalities surrounding changing Mr Kipping to an Introducer had been completed, and that in fact it had taken 13 months. They wrote that in fact they had been informed that it would take a maximum of two to three weeks to resolve. They attributed missing their target to “a significant breach of contract” by Axa.

In September there followed the termination letter dated 28^th September as already noted.

In his statement Mr Piper attributes to the lack of business from Mr Kipping the expenditure on a website and on Yellow Pages.

A misrepresentation is a false statement of fact, past or present. It includes a statement that the representor holds an opinion, intention or belief. It is to be distinguished from a promise.

The defendants contend that the statements made by Mr Fleming amount to representations. I accept that they do. But in my judgment the representations of Mr Fleming were that he intended and expected that Mr Kipping's clients would become available to BFS. I also have no hesitation in finding that this was a true representation of his state of mind, that he conveyed to the defendants. Clearly those giving approval on behalf of Axa to the payment to BFS of the substantial Development Allowance would have had to have believed that BFS would be in a position to earn the commission from which the repayment of that Allowance was to be made. Otherwise there would have been no good reason for advancing the money.

Accordingly, in so far as Mr Fleming made representations, I find that they were true. The fact that Mr Kipping's clients did not become available to BFS for many months does not make the representations false. What matters was his state of mind when he made the representations he did make before the Agreement was entered into.

There is no need on this finding to consider whether the defendants relied upon Mr Fleming's representations. But I would find that they did rely on them.

On my finding that the representations were true, the fact that Mr Kipping's clients did not promptly become available to the BFS would only give the defendants a counterclaim or set off if Axa had given a warranty. A warranty is a promise that they would become available. I cannot read anything said or done by any person on behalf of Axa as a promise to that effect. Everyone at Axa, including the defendants was aware that any approval of a representative or Introducer had to be given not only by Axa but also by the FSA. So Axa would in practice only submit to the FSA for approval persons who they thought met the FSA's requirements.

In the event, as became clear at the trial, Mr Kipping was never approved as an Introducer. The reason why he was never approved did not emerge. When his clients were made available to BFS it was, I infer, on the footing that by then they had become orphan clients.

There is no evidence before me as to what went wrong. It might have been expected that if Axa had been responsible for the failure of Mr Kipping to get approval, he would have said something to the defendants. Mr Kipping stood to gain financially from the arrangement which Mr Cannon and he had discussed for Mr Kipping’s association with BFS. Just as there is no evidence from those involved on behalf of Axa, so there is no evidence from Mr Kipping either. There is not even evidence from the defendants by way of hearsay from Mr Kipping as to any explanation he might have given to them.

On this state of the evidence the defendants invite me to infer that Mr Kipping did not get approval as the result of some act or omission by or on behalf of Axa, which they say was a breach of warranty or contract. I cannot infer from this absence of evidence that there was any act or omission on the part of Axa about which the defendants can complain.

If there were evidence from which I could find that the failure of Mr Kipping to obtain approval was the result of an act of omission on the part of Axa, I would have to consider whether it was also a breach of warranty or of some term to be implied in the Agreement. Since I can make no finding as their being any such act or omission, I do not need to consider further whether, if there had been, there would have been any implied term or warranty of which there was a breach.

There is nothing that I have heard that Mr Fleming said or did, or that anyone else for Axa said or did, that could amount to a warranty. All the individuals concerned understood that whether Mr Kipping obtained approval depended on his ability to meet the criteria of Axa and the FSA. No one could reasonably have understood anything said on behalf of Axa as a promise that Mr Kipping would meet those criteria. That would depend on what Mr Kipping himself said and provided by way of answer to the questions he was asked.

It follows that what was said on behalf of Axa could not be a collateral agreement by Axa, which was a further alternative way in which the defendants put their case.

The statement by Caroline Chadwick to Mr Piper that the release of Mike Kipping's clients were a major part of the finance being released to Axa cannot be a misrepresentation which induced the contract. The release of the finance took place after the Agreement had been concluded. In any event, I do not accept that it was a statement made to Mr Piper with the intention of inducing him to enter into the Agreement. It was made to him while he was still a fellow employee of Axa with Ms Chadwick as part of a routine discussion about the proposal. At most it was a statement about Axa's view of the proposal at the time, and as such there is nothing to suggest that it was an untrue statement.

I do not therefore need to consider the scope of the entire agreement clause, nor the effect of clause 17 of the Agreement. I should not be taken as expressing any view as to whether clauses 17 and 24 have the wide effect that Mr Brant contended for when he was submitting that I should dismiss the case on a preliminary issue. I do not need to rule on their effect, and I do not do so, one way or the other.

The counterclaim and set off fail on the facts. It follows that the claim must succeed, subject to certain adjustment to the figures which are not in dispute.

At the start of the trial Mr Brant for Axa made a second preliminary point. He asked me to refuse permission to the defendants to rely upon their witness statements because they had not been exchanged in accordance with the order of the court dated 8 January 2007. This required exchange of witness statements to be by 14^th March. No witness statements were in fact made available until just before the trial. The defendants produced theirs just before the trial. Axa's witness statements are also dated long after the date for exchange specified in the orders: 8^th May and 10^th July. It followed that each side required the permission of the court to rely on the evidence they needed. I saw no injustice in allowing the late admission of the oral evidence and gave leave to both sides.

The oral evidence for Axa was given by Mr McKillop who had had no personal involvement in the matters relating to the defendants. The figures were proved by an accountant who was not required to give oral evidence.

At the end of the hearing Mr Goodbody recognised that the evidence for the defendants on damages fell short of what would be required to prove the damage claimed in the counterclaim. He asked for an adjournment of that part of the trial to give the defendants an opportunity to adduce the evidence they would require. He had sought an adjournment on that basis at an earlier stage of the trial, and I refused it then. I said that I would rule on the second application for an adjournment in my judgment. In the light of my findings the issue of damages does not arise.

During the hearing I asked Mr Brant for an explanation of the clear absence of disclosable documents from Axa. Axa’s List of documents is dated 24 November 2004. The box for documents no longer in Axa’s possession contains only the formal entry referring to the originals of any copy documents referred to in the Schedule. The boxes ticked show that there had been no search of back up tapes or off site storage, amongst other locations. The name of the signatory is illegible.

Mr Brant took instructions overnight and informed me that those instructing him had given the appropriate advice but received only the documents that were in the file.

In my judgment there were documents which would show why Mr Kipping did not receive the approval that he sought (and that both the defendants and Mr Fleming and others on behalf of Axa must have expected that he would receive). That is clear from the document with the file name Mike Kipping.doc.

Much of the documentation that had been in the possession of the defendants was lost to them when they surrendered their laptops, which were the property of Axa, on the termination of the Agreement. They had not kept paper copies of their exchanges with Axa about Mr Kipping.

If the documents that should have been, but have not been, disclosed by Axa had been disclosed, then there are at least two possibilities. Either these documents would have supported the defendants’ case, or they would not. If they had supported the defendants’ case, to the extent that the defendants ought to have succeeded, then an injustice has resulted. There is no reason to believe that that is the case, but it cannot be excluded. Alternatively, if the documents would have supported Axa’s case, then it seems to me at least a possibility that proper disclosure by Axa might have had the result that this case would have been disposed of by agreement following disclosure, and without the expense and delay of a trial.

I shall invite submissions on these, and any other possibilities there may be, after this judgment has been handed down, in connection with any application for costs.

Meanwhile, I recall the passage in the White Book which sets out the obligations of the parties and their solicitors in relation to disclosure, at note 31.10.16. It is follows, and deserves repetition:

“Obligations of solicitors in respect of disclosure and of production by their clients

It is necessary for solicitors to take positive steps to ensure that their clients appreciate at an early stage of the litigation, promptly after the claim form is issued, not only the duty of disclosure and to produce for inspection which will arise if disclosure is agreed or ordered by the Court and of the extent of such duty but also the importance of not destroying documents which might possibly have to be disclosed (per Megarry J. in Rockwell Machine Tool Co Ltd v E.P. Barrus (Concessionaires) Ltd [1968] 2 All E.R. 98 (Note)). Moreover it is not enough simply to give instructions that documents be preserved. Steps should be taken to ensure that documents are preserved (Infabrics Ltd v Jaytex Ltd [1985] F.S.R. 75 where, because a defendant had not preserved documents affecting the quantum of damage, the maxim omnia praesummuntur contra spoliatorem was applied against him).

"It cannot be too clearly understood that solicitors owe a duty to the court, as officers of the court, carefully to go through the documents disclosed by their client to make sure, as far as possible, that no relevant documents have been omitted from their clients' [list]", per Salmon J. (as he then was) in Woods v Martins Bank Ltd [1959] 1 Q.B. 55 at 60.

See too comments on duty to notify court and/or to withdraw in the event of client not complying with proper advice in respect of disclosure in Myers v Elman [1940] A.C. 282 at 293-4, 300-301 and 322-323.

See also para.31.11--Duty of disclosure continues during proceedings.”