Case Nos: HT-11-459 and HT-11-461
Royal Courts of Justice
Strand, London, WC2A 2LL
Before:
MR JUSTICE AKENHEAD
Between:
(1) PHAESTOS LIMITED (2) MINDIMAXNOX LLP | Claimants |
- and - | |
PETER HO | Defendant |
(1) IKOS CIF LIMITED (2)PHAESTOS LIMITED (3) MINDIMAXNOX LLP | Claimants |
- and - | |
TOBIN MAXWELL GOVER | Defendant |
Paul Goulding QC and Catherine Callaghan (instructed by Herbert Smith LLP) for the Claimants
Nigel Tozzi QC (instructed by Wragge & Co) for the Defendants)
Hearing date: 13 July 2012
JUDGMENT
Mr Justice Akenhead:
This judgment relates to two applications both issued by the Claimants, one by which the Claimants seek to amend their damages claim and the second for extensions of time to comply with orders already made for disclosure. The historical background to these proceedings is set out in previous judgments delivered by me in this case. The proceedings against Dr Ho were issued in November 2009 and against Dr Gover in April 2011, with the proceedings being consolidated with Consolidated Particulars of Claim being served in June 2011 and a Consolidated Defence and Counterclaim served in August 2011.
The Background to the Current Applications
The chronology relating to the two applications is as follows:
17/8/11 Request for Further Information ("RFI") of Consolidated Particulars of Claim served.
18/8/11 Wragge & Co (W&C) sent their proposals regarding the Claimants' disclosure
to the Claimants' former solicitors Bird & Bird (B&B).
4/10/11 B&B write to W&C stating that they are "investigating the issues" raised in the RFI and "undertaking a detailed review" of the Defendants' disclosure proposals.
14/10/11 W&C respond to B&B in relation to disclosure; B&B reply on same day.
21/10/11 B&B write to W&C stating that the Claimants are "continuing to work" on the RFI.
8/12/11 Case is transferred to the TCC. Trial date of January 2013 fixed. Ramsey J orders:
7 The Claimants' response to [the RFI] is to be filed and served no later than
4pm on 3 February 2012.
15 The Claimants' response to the Defendants' disclosure proposals is to be filed and served no later than 4pm on 10 February 2012. This is to include the Claimants' response to the Defendants' annexed "Draft Disclosure Order: Claimants" and the Defendants' annexed "Draft Disclosure Order: Defendants".
16 The parties are to seek to agree the terms of a disclosure Order by 5 March 2012.
17 If the parties are unable to agree the scope of the disclosure exercise, a further hearing shall be held on 5 March 2012 to make an appropriate Order. Any other outstanding matters of case management are also to be dealt with at that hearing.
18 Disclosure and inspection shall take place in stages. The "longstop date" by which the final disclosure stage is to be completed is to be no later than 4pm on 2 July 2012.
19 The last date by which inspection is to be completed is 4pm on 16 July 2012.
3/2/12 The Claimants apply for an extension of time to respond to the RFI.
10/2/12 The Claimants' detailed response regarding the Defendants' disclosure proposals is sent to W&C.
17/2/12 Court orders (final) that Claimants are to serve their Response to the RFI by 2 March 2012 and that unless that order is complied with by 16 March 2012 the Claimants' claims would be struck out; Court observes that quantum particulars were obviously due.
27/2/12 The Defendants' detailed response regarding the disclosure proposals is sent to B&B.
28/2 to 5/3 Discussions between W&C and B&B re: disclosure.
2/3/12 Claimants' Response to the RFI served, wholly inadequate in relation at least to quantum.
5/3/12 Hearing before Akenhead J. Disclosure not dealt with (insufficient time). Outstanding issues at that stage:
The list of custodians, key words and date range filters;
An explanation of the sources of documents which the Claimants propose to search;
The arrangements for the Claimants' disclosure of "the Code" and a testing environment;
The scope of the Defendants' disclosure.
8/3/12 Further hearing before Akenhead J. Some discussion of the proposed Disclosure Order and a Ruling on disputed custodians, but insufficient time to deal with other disputed areas. Judge directs solicitors to meet and sort out differences. Order (final) that the Claimants serve Further Information in relation to Requests 77, 143 and 165 by 27 March 2012.
8+9/3/12 Discussions B&B / W&C re: electronic disclosure.
10/3-14/3 B&B fail to respond to further attempts by W&C to discuss the form of Disclosure Order.
14/3/12 Further hearing before Akenhead J. The Claimants resisted dealing with disclosure and announced that Herbert Smith (HS) would be taking over from B&B on 16 March 2012. The Judge expressed dissatisfaction, suggested further meetings and concluded by saying:
" … I do expect the solicitors to meet at least on the phone and start going through this. This has been the subject matter of discussion for a long time now. It is important that both parties focus with a view to getting resolution. But the parties should be in no doubt that I will make decisions, one way or the other, about electronic disclosure, on Friday morning."
Extension of time for serving Further Information due on 27 March 2012 refused. Judge said that the Claimants had to articulate their quantum case, which they simply had not done to date and that the Claimants "just simply, in the vernacular, must get their act together."
Orders also made by consent in relation to other Further Information requested in the Defendants' RFI.
14-16/3 W&C sought to have further meetings with B&B to finalise the Disclosure Order, but to no avail..
15/3/12 HS came on the record for the Claimants and wrote to W&C setting out the Claimants' position in relation to disclosure, putting forward some proposals in order to seek to limit the scope and cost of the exercise and suggesting that some further time (2-3 weeks) should be allowed in order for HS to discuss the scope of the exercise with W&C. Part of the letter explained that HS had difficulties having just come on board but also highlighted that the disclosure job was foreseeably a very substantial one. That letter included a proposed regime by which Ms Ambrosiadou's emails would be disclosed.
16/3/12 Further hearing before Akenhead J. The Claimants sought (unsuccessfully) to have the hearing adjourned. Following that Ruling the Court then considered the form of the Disclosure Order, and Counsel for the Claimants made some submissions on various points, albeit that most of the Order was not opposed by the Claimants.
Disclosure Order made. In relation to the Claimants, 20 email custodians were identified (including Dr Ho, Dr Gover, his twin brothers, Ms Ambrosiadou, and Mr Constantinides); 256 search terms set out; hardcopy documents, emails and other electronic documentation to be disclosed. Disclosure was ordered to be by way of monthly tranches commencing on 1 May 2012 for the Defendants and on 15 May 2012 for the Claimants.
At that time, document management consultants ("DMC") retained by the Claimants, Kroll, already had raw data from 11 of the 20 custodians listed in the Order.
22/3/12 Judgment on Claimants' partial strike-out application (refused) and Defendants'
security for costs application (granted).
27/3/12 Further Information ordered (on 8 March 2012) is supplied by Claimants.
5/4/12 Claimants provide answers to Further Information requests ordered by consent on 14 March 2012. However, investor details are not provided in response to questions numbered 76.c, 154.c, 155.a and 156.a.
HS write that they "will be applying to vary the Order, such that investor names are not provided and that all other information is provided on an anonymous basis."
6-9/4/12 Easter weekend.
10/4/12 HS seek quotations from DMCs.
11/4/12 Mr Constantinides of IKOS attends IKOS Board meeting and (he says) it came to his attention that the provision of investor names by the Claimants could amount to a criminal act under Cayman Island Law.
17/4/12 Court orders Claimants to notify codenames for surveillance operations.
18/4/12 Advice obtained by IKOS AM and the IKOS Fund from Cayman lawyers about such possibility of criminality.
20/4/12 HS receives DMC quotations.
24/4/12 Defendants issue application for an unless order that the Claimants provide Further Information against the questions numbered 76.c, 154.c, 155.a and 156.a in the RFI; hearing fixed for 18 May 2012.
3/5/12 IKOS CIF confirm that the mailboxes of 4 of custodians (Aloneftis, Coward, Drescher, Jones) held by Kroll could be released to HS for review.
7/5/12 IKOS CIF requested Kroll to provide access to the HS team.
8/5/12 HS provide Kroll with a list of the relevant individuals at HS.
9/5/12 HS provided with user accounts and log in details to access Kroll Inview and database.
9/5/12 Claimants instruct NERA, quantum experts - none instructed before.
10/5/12 Access difficulties with Kroll Inview and database resolved, at which point HS has access to review the documents of 4 of the custodians.
11/5/12 HS complete review of Drescher documents.
14/5/10 HS write for the first time telling Defendants of unspecified "complex issues of Cayman law" and asking for adjournment of 18 May 2012 hearing.
15/5/12 1st tranche of Claimants' Disclosure: 267 documents disclosed from mailboxes of Drescher and Jones; 37 discloseable documents held back, and still yet to be disclosed.
Cayman lawyers tell Claimants that they should engage separate Cayman counsel to provide the opinion sought (these Cayman lawyers being counsel for the IKOS Fund/IKOS AM).
16/5/12 Cayman lawyer instructed by IKOS CIF provides advice about legality of providing investors' names.
17/5/12 Claimants seek extension until 15 June 2012 to provide Further Information sought in the RFI questions numbered 76.c, 154.c, 155.a and 156.a.
18/5/12 Court dismisses Claimants' extension application and orders that unless the order of 14 March 2012 is complied with (re: requests 76c, 154c, 155c and 156c) by 28 May 2012, various parts of the Claimants' pleadings are to be struck out.
Review of Jones mailbox completed. HS start review of Aloneftis mailbox.
21/5/12 Kroll instructed by IKOS CIF to provide HS with access to mailboxes of 6 further custodians: David Burns, Julian Gover, Lucien Gover, Sam Gover and Peter Ho. Kroll run search terms producing 311,632 documents for review.
HS provided with access to documents falling into category 5.1(a) of the Order.
23/5/12 The Claimants provided documents to HS falling into category 5.1(p) of the Order, which is non email electronic documentation.
24/5/12 HS provided with access to documents falling into category 5.1(f) of the Order (Cyprus Team Leader meetings).
25/5/12 2nd tranche of Claimants' Disclosure: 248 documents disclosed from mailbox of Jones; 22 discloseable documents held back and still yet to be disclosed.
HS instruct HS Belfast team.
28/5/12 18 May 2012 "unless" order not complied with and major part of Claimants' quantum case struck out.
4-5/6/12 Jubilee public holidays.
8/6/12 HS Belfast team take over primary disclosure review exercise.
First draft NERA report reviewed by Claimants' legal team.
10/6/12 Kroll instructed by IKOS CIF to collect the mailboxes of 5 further custodians: Chari, Papakokkinou, Pittaras, Polymenakos, Vossikas.
11/6/12 Primary review of Aloneftis mailbox completed by HS.
15/6/12 Belfast team begin review of documents from the mailbox of Julian Gover.
20/6/12 Kroll run amended searches across the mailboxes to which HS had access.
21/6/12 Kroll confirmed to HS that HS had access to the results of the searches against the 5 further custodians.
Claimants issue application to re-amend its quantum case on basis of attached NERA report of 20 June 2012.
22/6/12 3rd tranche of Claimants' Disclosure: 897 documents disclosed from mailbox of Aloneftis.
HS provided with access to the emails of Eyal Cohen.
25/6/12 Belfast team begin review of documents from the mailbox of Lucien Gover.
27-28/6/12 Two HS associates visit 3 locations in Cyprus to identify hard copy documents for disclosure.
27/6/12 Letter from HS to W&C seeking extension for completion of disclosure to 2 August 2012.
29/6/12 W&C agree extension for completion of disclosure to 16 July 2012
2/7/12 Longstop date by which Disclosure should have been completed.
Consent Order extending time for Claimants to complete their disclosure to 16 July 2012
3/7/12 IKOS CIF provided documents to HS falling into categories 5.1(b) and 5.1(n) of the Order.
5/7/12 Kroll imaged server holding mailboxes of Englishby and Davey.
6/7/12 Review of documents from the mailbox of Lucien Gover completed.
The Claimants provided documents to HS falling into categories 5.1(c), 5.1(g) and 5.1(q) of the Order.
Letter from HS to W&C seeking changes to 6 agreed search terms.
9/7/12 Belfast team increased from 20 to 35; primary review completed of mailboxes of Papakokkinou, Vossikas, Polymenakos.
10/7/12 Mailbox of Constantinides in the process of being uploaded to Kroll.
Mailbox of Ambrosiadou is being uploaded to Kroll in tranches.
Application by Claimants for an extension of time for disclosure until 17 August 2012 (with inspection by 31 August 2012) and for certain Further Information (in relation to questions numbered 101, 171 and 177 of the RFI) until 17 August 2012 (ordered on 14 March 2012 to be supplied by 2 July 2012). Also a variation of search terms sought.
W&C response to HS letter re: changes to search terms.
12/7/12 Images of hard copy disclosure from Cyprus visit uploaded to Kroll.
Letter W&C to HS agreeing to delete "Asset! Under management", and vary search terms for "DDQ" and "Capital/Fund & Fund/Risk".
Completion of uploading of Constantinides mailbox and searches applied returning approx. 24,000 documents.
Completion of uploading Elena Ambrosiadou emails.
Additional background to this chronology is to be found in the judgments of the Court. On 8 March 2012, the Court said when making a final order in respect of the provision of quantum particulars:
"It is accepted that the request for further information relating to quantum -- and they have been broadly identified -- should be further particularised and I have made it clear in a number of the rulings I have already made in this matter that it is important that the defendants know where they stand so far as quantum is concerned and also so that the court can make an informed decision on what, if any, aspects of the case should be split between liability and quantum. The court is impeded in that by not actually knowing how in any detail the claimants put their case in quantum. This is a matter that is due for trial in January of next year. The claimants still have not provided any real particularisation of what their loss is. The most general remarks have been made in the pleadings and…the response to the request for further information that has been provided. As I have indicated, that's not acceptable…The parties came back before the court in mid-February to deal with this. I made…a final order that there be a response provided by last week. I emphasize[d that] it was a response not necessarily that all the requests had to be answered but those which justified responses should be responded to within that time. That order has been disregarded so far as quantum [is concerned]. There comes a time when the court's patience begins to expire. I hasten to say that the court's patience has not yet expired. Mr Ciumei for the claimants has indicated on instructions that his clients need until 27 March to answer the requests relating to quantum. I accept that the claimants should have until then but we are getting into the area which in the Wild West would be called the last chance saloon and I'm going to make that order a final one. I don't think we have quite got to the stage that an unless order should be made but we are getting to that stage and I would expect the fullest particulars to be provided. Mr Ciumei has indicated that his offer of the date, which is undoubtedly put forward in good faith, may be subject to the fact that they haven't yet got fully on board, if at all, forensic accountants. I have to say I don't regard that on the information currently available to the court as a very good excuse. These proceedings were started against Mr Ho in 2009 and damages were claimed against him. Further proceedings in England were started against Mr Gover in April 2011, almost a year ago, and there has been plenty of time for forensic accountants to be retained and I do bear in mind that the claimant organisations and those behind them are, I strongly suspect -- whatever else their other qualities, numeracy is very high on their capability and they themselves will have a pretty good idea of what they think their loss is. There is still time, even now, to retain independent accounting experts at least to give some provisional advice and if that is the route that the claimant wants to go down, then they need to get on with it and it is very important that that is done. What this court is not prepared to do, although I'm sure it is not intended by those in court today, is to have the timetable for this trial upset and it is important that the court's timetable is stuck to. That would be the final order for the provision of adequate information in relation to quantum."
Again in relation to the provision of quantum particulars, the Court said on 14 March 2012:
On 2 March 2012, in nominal compliance with that order, a response to the Request for Further Information was provided. I have already ruled that in relation to quantum this response was not and did not begin to be acceptable or to comply. What I understand a proper response should have been to the request was either to provide the further information that was requested or to show good reason why the request for further information was not justified.
On the last occasion, or it may have been the one before last, I heard what the parties had to say and, in particular, the Claimants were saying that they needed some more time to deal with particularising the quantum. Mr Ciumei asked for 30 March. I decided that 27 March would be the appropriate date. I was almost persuaded at that stage to make an unless order but I decided that the Claimants should be given one last chance to produce proper and effective answers to the requests and, in particular, stating what loss they have incurred or will incur and how it has been caused by the breaches alleged against the Defendants.
So I made that order, a final order, but, although it will not appear on the face of the order, I made it clear that that was a final, final order. There would be no more final orders, unless some unforeseeable or supervening event beyond the control of the Claimants occurred, and what would follow would be an "unless" order if the particulars were not provided…
There is a very real problem in deferring the issue of the provision of particularisation of the quantum by the Claimants and that is the very serious upset that that will or may cause to the management by both parties, and by the Court, of the trial process.
I have already ruled, in yet another ruling in this case, on an application by the Claimants for there to be a split between liability and quantum. I felt unable, for the reasons which I gave, to allow the application unless and until there had been proper particularisation of what the quantum claim was; then the Court can then get a much greater feel for whether this is an appropriate case to split liability and quantum.
Until and unless that happens the court is in very real difficulty. The parties will continue to prepare on the basis that liability and quantum will be dealt with; it is important that the particulars are provided and they are provided promptly. I have already identified the reason that the Defendants are entitled to know on what basis many, many millions of pounds are being claimed against them. That must be something they are entitled to know and sooner rather than later.
The other way that it impacts upon the management of the trial process is that it will affect disclosure. Until the Claimants identify what their quantum case is, there will be much greater uncertainty and less focus, frankly, on the disclosure process, particularly in relation to quantum. It should not be the case that the Claimants necessarily have to disclose each and every document relating to money had and received by them or the IKOS Group. It should necessarily be focused on the quantum that they are actually claiming for or relating to that quantum at the very least. Therefore it is a very important part of trial preparation which can be very costly unless the parties focus on the real issues. It is very important that the Claimants articulate their quantum case.
The other problem is that the later these particulars are provided, the later everything else such as, disclosure, the provision of expert reports and the like will be. I am sure that the Claimants are not deliberately working towards this end, but one might be forgiven for thinking, unkindly I am sure, that there may be a process going on by which the trial date gets adjourned in any event, irrespective of what the Court of Appeal may do. That would not be an acceptable approach or outcome, although I am not suggesting that is the tactic or strategy being adopted by the claimants. But it is very important that the Court maintains control of these proceedings…
I understand that that may be a difficulty, but what the Claimants have to do is to identify what its case is. If it is unable to link the loss to the breaches, but if there is a way, by inference or otherwise, sufficiently to link it on a legal and causal basis, then that will and will have to be their pleaded case. The Court is not expecting to have blood extracted from a stone, but what the particulars have to show, in sufficient detail, is what the case actually is. They have had six months since the request to provide that information; it will be almost seven months by the end of this month. The trial is due in nine months time. This is something which simply cannot be left on a partial "back burner".
The Claimants were effectively warned by the Court in mid February 2012 that this further information relating to quantum had to be provided and it has not yet been. Again, I have said that this is not acceptable. For the reasons I have indicated, I am not prepared to change the order I have already made from 27 March 2012.
The Claimants just simply, in the vernacular, must get their act together. If they do not, they will increasingly run the risk that the Defendants will seek from this Court further and even more extreme sanctions."
The Disclosure Extension Application
It is important that all parties to litigation are aware that they are bound by the overriding objective (CPR Part 1) because the Court is seriously hindered in dealing with cases justly unless the parties and their legal advisers act in a way to enable them to do so.
The pleadings were closed in this case (subject to any amendments) in mid September 2011 when the Consolidated Reply and Defence to Counterclaim was served by the Claimants. This was always a case in which the burden of disclosure would fall more greatly on the Claimants not only because their case is complex, raises difficult technical computer engineering and management issues and covers a period of about 14 or more years, but also because the Claimants were putting forward a very substantial claim for damages in effect for alleged negligence or incompetence on the part of the Defendants. There is no issue also that the Claimants retained most and possibly all of the electronic files of the Defendants, albeit that it is also alleged (and to a limited extent accepted by the Defendants) that they retained some (possibly extensive) electronic information.
The Claimants and those advising them therefore should have been considering and preparing for the disclosure exercise in 2011. They received extensive proposals in August 2011 from the Defendants as to a way forward in relation particularly to electronic disclosure which was always likely to be extensive. They reacted, in practice, not at all to those proposals in 2011. There was no justification for this behaviour. Faced with Mr Justice Ramsey's order of 8 December 2011, they served their proposals on 10 February 2012. No problems in terms of complying with the timetable were highlighted at that stage (as none had been until the latter half of June 2012). It is a fair inference that careful consideration had been given by that time by the Claimants and their advisers as to the mechanics and logistics of the electronic disclosure exercise.
The chronology after 10 February 2012 demonstrates a level of prevarication on the part of the Claimants (or less likely their legal advisers) in going through the required exercise of trying to agree with the Defendants as far as possible on the scope and mechanics of electronic disclosure. Faced with a level of impasse, I made it clear on 8 March 2012 that solicitors, on instructions, simply had to identify what they agreed and disagreed promptly, failing which I would make orders; indeed I required them to meet on the following day; there was unfortunately a failure on the part of B&B effectively to respond (although initially they did go some way to agreeing elements of the Disclosure Order). I was told however by Leading Counsel for the Claimants on that occasion that "an enormous amount has been done by" his solicitors. When I was given an update on 14 March 2012, I encouraged the parties to continue with the process, failing which "the parties should be in no doubt that I will make decisions, one way or the other, about the electronic disclosure" two days later. There was little or no further cooperation from B&B, albeit it is difficult to see that it was their fault, given the clear absence of instructions from their clients.
At this time, the Claimants decided that they would change solicitors from B&B to HS. Of course, a party is entitled to be represented by solicitors of its choice. The reason given to the Court for the change had nothing to do with any alleged incompetence or misconduct on the part of B&B; the reason was said to be because HS was Ms Ambrosiadou's solicitor on some broadly related litigation against her former husband which is due for trial in March 2013 and therefore a rationalisation was called for. I made it clear both before and indeed afterwards that, if a party voluntarily changes solicitors partway through litigation, it is that party's risk and indeed responsibility to overcome any hiatus caused by the change. I pointed out, so far as I can recall, during discussions about disclosure in court that a sensible solution might involve continuing to retain B&B to conduct the disclosure exercise, particularly since they had detailed knowledge about the case and had clearly been applying their mind with some (albeit) belated assiduity; this would have overcome the potential difficulty of HS "getting up to speed" with the case in general and the disclosure exercise in particular.
The unexpected approach put forward by (the then) Junior Counsel for the Claimants on 16 March 2012 was to seek yet further time for the parties to agree matters relating to electronic disclosure, notwithstanding the failures to cooperate on the part of his clients or their advisers in this regard over the preceding two weeks. I refused his application and then surprisingly he was instructed in effect not to offer any opposition to the order sought for electronic and other disclosure, even on the basis put forward by his new solicitors the day before. That said, there were in the event a number of points raised by him which the Court was able to resolve.
The order was made on that day. There was no application for permission to appeal and until recently there had been no hint that any application to vary the Disclosure Order would be made.
It is clear that the Claimants had already retained at least for some time a DMC, Kroll, by 16 March 2012, there being evidence that Kroll already had the raw electronic data from 11 of the 20 custodians who were to form the subject matter of the electronic disclosure order made on that day. Little or nothing happened for the next six weeks in terms of the Claimants' electronic disclosure exercise; the chronology suggests at best a lack of urgency on the part of the Claimants (or less likely HS or Kroll). From 16 March to 3 May 2012, solicitors did not even apparently start themselves on any disclosure exercise as it was only on the latter date that some limited documents were released by Kroll to HS. Even then there was a further week's delay due to what are said to be "access difficulties", which I have assumed are electronic difficulties in gaining access to the documents so released.
It was only on 21 May 2012 that IKOS CIF decided that Kroll could "release" further electronic files relating to 6 individuals to HS. No explanation or excuse has been offered by the Claimants for this or indeed why all the electronic files were not released both to Kroll and to HS weeks before.
It is unnecessary to review the remainder of the period up to date because one can only form the view in logic that the lack of activity on the part of the Claimants (or possibly Kroll or HS) can be explained only by gross carelessness or a reckless disregard or deliberate flouting of the Court orders: I can not decide which. This is evidenced by the following:
Mr Justice Ramsey's order of 8 December 2011 was predicated upon the basis of there being a rolling disclosure exercise in stages with a longstop date of 2 July 2012. This was somewhat expanded upon in the Disclosure Order made on 16 March 2012. Clearly, these orders needed sensibly to be construed as meaning that sensible quantities of documents were to be provided between March and early July 2012. What was obviously not envisaged was for a relatively few documents to be provided earlier with 90-99% provided on or after the last day.
The lack of any urgency on the part of the Claimants over the first 6 weeks of the post-16 March 2012 order exercise (see above).
What has actually happened is that only some 1400 documents out of many, many thousands still to be disclosed have currently been disclosed. It seems that the documents of at least four custodians have, even now, not been released by Kroll to HS for review and Kroll themselves have not had the documents for very long. Again, no excuse or explanation has been provided as to why the Claimants have not released their documents for uploading by Kroll many months ago. What is currently unexplained is why, if Kroll had the documents of 11 of the 20 custodians in mid-March 2012, they could not have been processed promptly thereafter.
The deployment by HS of its "Belfast team" (initially 20 personnel) suggests that HS had seriously underestimated the exercise. I do not however criticise HS for this as it is unclear what if anything they were advised by or they asked of their clients as to the likely scope of the exercise. Either way, as between the Claimants and their advisers, there has been a serious underestimate. The only other possible explanation, which I could not infer against HS, is that the Claimants were and must have been aware how substantial the exercise was likely to be and did not inform their team accordingly (or certainly early enough). Essentially, either the Claimants and/or their legal and document teams did foresee the extent of the exercise and either dragged their feet deliberately or carelessly or they did not plan the exercise properly.
This is exacerbated by the fact that it was only as late as 9 July 2012 that the Belfast team was increased to 35.
Extraordinarily, there has been no hard copy disclosure at all by the Claimants and there can be no excuse, none being offered. This was not dependent upon Kroll and HS personnel visited Cyprus belatedly in late June 2012, only a few days before the long stop date. I can only assume that the Claimants did not make it available until then.
There is a large category of "other electronic documentation" with specific documents or classes of documents referred to (such as a report by a Mr Burns); this is in Paragraph 5.1 of the 16 March 2012 order. Again, there can be little or no excuse for these documents not yet to have been disclosed; no such excuse let alone any explanation is offered.
One only has to look at the product of the Claimants' efforts to date: some 1400 documents listed which can only be a very small percentage of the discloseable documents.
It is clear that there has been a deliberate decision to hold back the disclosure exercise in relation to Ms Ambrosiadou who I believe it is accepted is a key witness for the Claimants. In one sense, it could be said that the Claimants could disclose in whatever order they wished but it might have been a lot more helpful and more in line with the overriding objective if there had been disclosure of the more important witnesses' documents early in the process.
It seems probable that what the Claimants had been doing is vetting the electronic documentation before it is or was released to Kroll; Kroll then take some time to upload the documents and then, presumably, they do some rationalisation exercises such as de-duplication and the application of key words, before releasing them to HS who then have to go through the documents. This is an avoidably slow process which must have been capable of speeding up.
Essentially, the Claimants through their Counsel argue that logistically it is simply not possible or at least practicable to complete the exercise in the time available. They point to there being 350,000 documents to be reviewed, of which by 13 July 2012 HS had only reviewed 96,000 of them. They point to the fact that the enlarged Belfast team of 35 can only review 7,500 documents a day which equates to some 214 documents per reviewer (the reviewers being a mix of solicitors and paralegals). They point to 6 of the search terms (out of 256) as giving rise to a disproportionate number of documents being consequently turned up. 350,000 documents (in a case such as this) is not exceptional and that sort of amount could and should have been readily foreseen from an early stage. There is nothing in the Claimants' evidence for its application which identifies clearly that the disclosure exercise actually embarked on was significantly or unforeseeably any greater than was anticipated. I am very surprised that competent document reviewers could not get through substantially more than an average of 214 documents per day; even if they only work an eight hour day, a not insignificant number of electronic documents will be relatively short e-mails, some of which will be repeated later in e-mail trails. Nothing is said about requiring a double shift or overtime to secure compliance or better compliance with the Court orders.
The reality is that the problem with disclosure is very largely, if not entirely, of the Claimants' own making (or possibly that of their advisers). The exercise even on the chronology (mostly provided by Mr Constantinides of the Claimants) did not really start for about six weeks after the Disclosure Order was made; this is compounded by the fact that little or no effective preparation was made, apparently, for the exercise well before the 16 March 2012 order.
The real problem for the Court is what to do in the circumstances in which the Claimants have caused, through their own fault, the hiatus in which they now find themselves. The Defendants argue through their Counsel that they pragmatically have already consented to a two-week extension of time for the exercise to be completed (that is up to 16 July 2012); he argues that there should be a limited further extension of just over two weeks (until 3 August 2012) but on an unless basis. The Claimants' Counsel say that the Claimants simply could not comply and they would then be struck out and be unable to pursue their case or their defences to the Counterclaims; that they argue would be very unfair; they argue that it would be unfair without there being first a final order, followed only then by an "unless" order.
What I remain concerned about is the impact of the continuing and culpable failures of the Claimants to comply with their disclosure obligations under Court orders on the Court's timetable. If a simple or even a final order for disclosure, only, was made until 17 August 2012 and for inspection within 2 weeks thereafter (as sought by the Claimants), that takes matters well into the (Olympics dominated) vacation with the difficulties in terms of judicial availability for the Court then closely controlling the disclosure process. It is wholly foreseeable that there will be issues as to whether there has been compliance or not. The programme for the remaining steps will become concertinaed. In particular, the production of witness statements is most likely to be impacted because, for instance, much of the documentation to be disclosed by the Claimants (a good example being the Defendants' own e-mail accounts and other documents to which they had access whilst employed by the Claimants) will need to be reviewed by solicitors for the Defendants finalising and in some cases drafting parts of those statements.
In my judgment, the Claimants deserve little sympathy for a problem which is substantially of their or their professional teams' own making. However, having regard to the overriding objective, it is clear, and indeed (albeit reluctantly) accepted by the Defendants, that a final extension should be allowed. Weighing that against the need to give the Claimants a little more time before they are struck out and a final opportunity to avoid being struck out, I will make an order (already indicated to the parties after the argument on 13 July 2012) that the Claimants shall disclose by list and provide for inspection (as they are disclosed) their electronic documents and hard copy documents on a rolling basis but by no later than 4 pm on 3 August 2012 (by way of a final order); further, that if the Claimants have not complied with such order by 4 pm on 10 August 2012 their claims and defences to the Defendants' claims in these proceedings shall be struck out and the Defendants will be at liberty to enter judgment in the full amount of the Counterclaims. I indicated to Counsel that the usual understanding in relation to final orders would apply in that an extension would only be allowed if there were good reasons, such as unforeseeable or unforeseen matters or matters beyond the control of the Claimants and that I would expect any application for an extension to be submitted to be heard no later than the week ending 3 August 2012. There will therefore be permission to apply also.
As to the six key words which the Claimants seek to have removed from the list in the order of 16 March 2012, there was agreement upon three of them and the parties' solicitors were belatedly in discussion about the remaining three. I have adjourned this part of the application so that the parties can agree, failing which the matter can be restored this week.
Application to Amend
The Claimants seek permission to amend their quantum as set out in a draft Paragraph 165 to the Consolidated Further Response to the RFI. Paragraph 165 sought to provide particulars of a wholly un-particularised Paragraph 34 of the Amended Consolidated Particulars of Claim:
"By consequence of the above, the Claimants have suffered loss and damage, to be assessed".
The first attempted particularisation of this was provided following a final order of this Court on or by 27 March 2012. The loss was identified under five heads: (1) Loss of fees paid per investor due to redemptions, (2) Loss of fees due to potential investors not investing, (3) Wasted management time and in-house resources, (4) Expert and forensic costs and (5) Damages as a result of use of confidential information and the Code. The first of these heads was predicated on the basis of 90 investors redeeming their investments in IKOS in full leading to a loss of fees of some $11.5m and the second head on a loss of fees (some $8.9m) in respect of investors who would have invested but did not, this being based on the estimated number of investors (266) as at 31 December 2011. These were relatively brief particulars and no investors were named.
However, by 5 April 2012, the Claimants through their solicitors HS gave notice of an intended application based on confidentiality issues to the effect "that investor names are not provided and that all other information is provided on an anonymous basis". This application as such was never made because, so Mr Constantinides of IKOS CIF has said, it came to his attention that the provision of investor names by the Claimants could amount to a criminal act under Cayman Island law given that the IKOS Fund is a Cayman Island entity as is IKOS AM which is the investment manager of the IKOS Fund. The Claimants retained NERA as their new and apparently first quantum expert on 9 May 2012. It was only on 17 May 2012 that they applied in effect for relief against the provision of information which would require them to identify investors' names.
The Court addressed this application and indeed an application from the Defendants issued on 24 April 2012 for an "unless" order in relation to the provision of this quantum information on 18 May 2012. I found at Paragraph 22 of my Judgment following that hearing that there had been no excuse for not providing proper particulars under Paragraph 30 in respect of which the Claimants had previously agreed to provide particulars. I stated:
"In considering each of these two applications, the Court needs to consider not only what has happened but what is likely to happen in the future in relation to the provision of the Further Information still outstanding. So far as what has happened, there is little if anything to excuse the Claimants' admitted failure to comply with the Court's order of 14 March in relation to Requests 154 to 156 let alone the delay in responding to the Defendants' application or in making their own application. My reasons for concluding this are:
The Claimants have had the RFI since August 2011 and supposedly were working on it in the autumn of last year. Their response on quantum in early March 2012 was vestigial and wholly inadequate.
Their response by the time of Herbert Smith's letter of 5 April 2012 was as accepted by their Counsel again inadequate. Having agreed that investors' names were to be provided but subject to a reasonable and agreed level of confidentiality the Claimants for no good reason reneged on that agreement. Their given reason that they had concerns that the Defendants would use information about the investors for their or Martin Coward's benefit does not seem a good one. This is because they obviously did not feel any such concern when they agreed the consent order only three weeks before that the Defendants would misuse the investor information and because the Defendants and Mr Coward must have fairly good recall as to who at least many of the investors were at least up to 2008. This reason was not effectively advanced by the Claimants as justifying the non-compliance.
The Claimants did not act with any expedition to vary the consent order as their solicitors suggested they would and indeed have never done so.
Whilst Mr Constantinides described concern about the possible breach of Cayman criminal law being raised on 11 April and advice being reasonably promptly secured from Appleby on such law by 18 April, nothing happened for another nearly four weeks. It was hinted by the Claimants' Counsel that Appleby was or might have been retained only by IKOS AM and the IKOS Fund but not by CIF, but that is not what Mr Constantinides has actually said; it is not credible that IKOS AM and the IKOS Fund would not release that advice to IKOS CIF. Effectively, it is said that the Appleby advice was "under active consideration" after its receipt but the only proper inference is that the consideration was either inactive or lacking in any urgency.
The Claimants knew that the Defendants' "unless" application was due to be heard on 18 May 2012 but only discovered that Appleby would not provide a letter about Cayman law on 15 May 2012; that suggests a wholly non-urgent approach.
Their latest reason for being unwilling to comply with the consent order (potential breach of Cayman criminal law) forms the basis for their own application in effect to have until 15 June 2012 to see if they might be able to amend their quantum claim to plead a basis of loss which does not need to rely upon lost investors. The Court has now on at least three occasions in February and March 2012 made it absolutely clear that the Claimants needed to get a "move-on" in a number of respects, not least of which was the effective quantification of their money claims.
As Mr Constantinides has said, it was only on 9 May 2012 that the Claimants instructed quantum experts, NERA, although the claim against Dr Ho has been proceeding since 2009 and that against Dr Gover for about a year. I specifically mentioned in February 2012 the concern felt by the Court that such experts had not then been retained and yet it took about three months for such experts to be instructed. The difficulties experienced by the Claimants in terms of concerns over revealing the identities of investors would have been revealed many months ago if the Claimants had proceeded with reasonable expedition and planning many months ago."
At Paragraph 25 of the judgment, the Court dismissed the Claimants' application and at Paragraph 26 in relation to the Defendants' application, the following was said:
"I then turn to the Defendants' application. It is now rightly accepted by the Defendants that it would be disproportionate to make the sanction for non-compliance with the proposed "unless" order striking out of the whole of the Claimants' claim. In my judgement, it is appropriate, sensible and proportionate to make an "unless" order to the effect that if the order is not complied with those parts of the Amended Particulars of Claim and the Further Information thereto to which the order relates (together with the inevitably related parts) should be struck out. My reasons are as follows:
The Claimants have effectively now had about nine months to answer the RFI and even more than that properly to quantify their money claims relating to the breaches of contract pleaded against the Defendants in Paragraphs 25 to 33 of the Amended Particulars of Claim.
They have failed to comply with the order of 14 March 2012; this breach runs now to some six weeks over and above the three weeks which they themselves agreed was sufficient.
This was a consent order, agreed to by the Claimants, who should have been alive to not only what was practicable but also to what they were prepared to do.
The Claimants have repeatedly been warned by the Court that they needed "to get their act together" in relation to their quantum claim; this warning has seemingly been neglected if not ignored.
The Claimants have made it clear that they have no intention now of complying with the order. Whilst I understand the commercial reasons given, this is on analysis only indirectly related to the position under Cayman law. Although the law prescribes arguably the divulging of investors' names, there is under that law a procedure to secure such a course of action which would stand a good chance of succeeding. However, the Claimants have made the commercial decision not to do so.
There is no point in reality therefore refusing the application because, not only do the Claimants intend not to provide the requisite information which they have undertaken and been ordered to provide, but also they are intending to abandon the claims to which the unrequited part of the order relates and possibly seek to substitute some alternative claim. It is not a case in which the Claimants could or should be granted the indulgence of a mere "final" order."
I made it clear that the claim for loss of fees relating to investors would be struck out unless the requisite Further Information was provided. It was not so provided and so the investor losses claims were struck out with effect from 28 May 2012.
I was told during that hearing that it was expected that the NERA expert (Dr Okongwu) would produce his report by 25 May 2012. This draft timetable suggested by the Claimants was ultimately not achieved and Dr Okongwu did not produce a draft to HS for review until 8 June 2012. Mr Constantinides has said in a second statement that the Claimants and legal advisers worked with him to consider the report and draft amendments to the pleadings. The application to amend was issued on 21 June 2012, accompanied by the proposed amendment of the Consolidated Further Information and by Dr Okongwu's report dated 20 June 2012. There does not appear to have been any or much detailed advance notice of this application or of the likely nature of the amendment. The application was not accompanied by a witness statement, although that was partly corrected by the service of a further witness statement from Mr Constantinides submitted in support of the belated disclosure application on 10 July 2012 which also provides some information about the amendment application.
The basic principles relating to the exercise of the discretion to allow a party to amend its pleadings are well established. CPR Part 17 governs amendments to statements of case. CPR r.17.1(2) provides that a party may amend only "with the permission of the court." The CPR is silent as to the principles governing the exercise of the Court's discretion to permit amendments to statements of case. The relevant principles are that, in accordance with the overriding objective, amendments should be permitted where this is just and proportionate. The proper approach to the exercise of the Court's discretion to allow amendments is contained in Cobbold v London Borough of Greenwich, unreported, 9 August 1999, Court of Appeal (decided post-CPR), where Peter Gibson LJ stated:
"It is, of course, important that trial dates, when they are fixed, should be adhered to, but I fear that [the first instance judge in that case] may have let that factor dictate his approach to the question of amendment. The overriding objective is that the court should deal with cases justly. That includes, so far as practicable, ensuring that each case is dealt with not only expeditiously but also fairly. Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon provided that any prejudice to the other party or parties caused by the amendments can be compensated for in costs, and the public interest in the efficient administration of justice is not significantly harmed. … There is always prejudice when a party is not allowed to put forward his real case, provided that that is properly arguable."
It is appropriate on an application for permission to amend a statement of case to consider whether or not the amended claim would have a real prospect of success. The test to be applied is the same as that on a summary judgment application under CPR Part 24. A real prospect of success entails that it is properly arguable, and is to be contrasted with a 'fanciful' prospect of success. As Lord Hobhouse noted in Three Rivers DC v Bank of England (No 3) [2001] 2 All ER 513 at 568:
"The criterion which the judge has to apply under CPR Pt 24 is not one of probability; it is absence of reality."
The Court can and indeed should also have regard to the likely impact of an amendment on the trial programme and also to whether an application to amend could or should have been made much earlier. Of course, a balance must be struck between the importance of a party being able to put forward a properly arguable case by way of amendment and such other factors.
The proposed amendment in Paragraph 165(4) is entitled "Loss of fees" and highlights that IKOS CIF (the alleged employer of Dr Gover) derives its income from IKOS AM based on the number of investors in IKOS Funds and Managed Accounts. The new claim is predicated upon the loss of investors because "if the number of investors fails to increase in line with the expected returns or assets under management, IKOS CIF suffers a direct loss of such fees". The proposed amendment then goes on:
"But for the Defendants' breaches of duties pleaded in paragraph 25-29 of the Amended Consolidated Particulars of Claim, the returns of the IKOS Financial Fund would have been better, the assets under management of the IKOS Futures Strategy would have been greater, and there would have been more investors in the IKOS Futures Strategy than was the case after August 2007 ("the but-for investors")."
Loss and damage is claimed for fees lost or not earned between August 2007 and December 2011. This is represented by the difference between the fees actually due to IKOS CIF during this period compared with the estimated number of but-for investors. Damages between $17.8 million and $22.8 million are claimed in the alternative. The Claimants seek to rely upon the expert report of Dr Okongwu of 20 June 2012.
The NERA report advances a claim based on alternative statistical bases. Firstly, Dr Okongwu says that the IKOS Financial Fund out-performed most of its competitors between 1 July 2002 and 31 July 2007 ("Period 1"), but that between 1 August 2007 and 31 May 2010 ("Period 2") it under-performed most of its competitors. He estimates what the returns in Period 2 would have been if the out-performance of Period 1 had continued, producing a figure of about 31%, which compares with the actual performance of about 8%. He then goes on to estimate statistically what effect this 23% drop in performance would have had on the number of investors, and says that there were approximately 143 fewer investors than there should have been. This equates to $22.8m lost fees to IKOS CIF. His alternative approach involves saying that the IKOS Financial Strategy increased its assets under management nine-fold between 1 March 2004 and 31 July 2007 ("Period A") whereas its peers only increased their assets under management threefold. Dr Okungwu then says that between 1 August 2007 and 31 May 2010 ("Period B") IKOS lost about a third of its assets under management whereas its peers increased their assets under management by one third. Dr Okungwu then estimates how many more assets IKOS would have had if this asset raising had continued from Period A to Period B, and comes up with about $2 billion more. He then estimates IKOS's average investor size, and says this equates to 64 more investors, or $17.8m in lost fees to IKOS CIF.
The Claimants' Counsel explain in their skeleton submissions what the changed case was:
Under the previously pleaded case, the Claimants sought to establish point (3) by reference to specific investors either redeeming their investments or not investing further or at all. Under the draft amended case, instead of relying on specific investors, the Claimants will seek to establish point (3) by showing that, but for the Defendants' breaches of duties, the returns of the IKOS Financial Fund (which is representative of the IKOS Futures Strategy as a whole) would have been better, the assets under management of the IKOS Futures Strategy would have been greater, and there would have been more investors in the IKOS Futures Strategy than was the case after August 2007 ("but-for investors"). (August 2007 is the significant turning point because the Claimants allege that the Defendants' negligent actions culminated in the events of 26-27 July 2007.) IKOS CIF has therefore suffered loss and damage, being the difference between the actual fees due to IKOC CIF for the period August 2007 to December 2011 (US $57.8m) and the fees that would have been due based on the estimated number of but-for investors ($75.6m to $80.6m), namely the sum of $17.8m to $22.8m.
The draft amended pleadings rely on statistical analysis contained in the expert report of Dr Okongwu to evidence the decline in performance of the funds and investor numbers, and the resultant loss of fees. The expert report seeks to compare the performance (in terms of returns, assets under management and number of investors) of the IKOS funds against comparable hedge funds in the periods before and after the negligent acts of the Defendants: see paragraphs 3 and 20-39... Dr Okongwu's report shows that, had the performance of the IKOS Financial Fund and Futures Strategy remained equivalent to the comparable hedge funds in the period August 2007 to May 2010, then by December 2011 the IKOS Futures Strategy would have had more investors than it actually had, and investor-related fees due to IKOS CIF would have been $17.8 – 22.8m greater than the actual fees received: see paragraphs 4 and 40-77..."
The Claimants seek to justify this amendment as giving rise to a properly arguable basis of claim because they say (broadly correctly) that causation is a matter of common sense, that the breaches relied upon need only be one effective cause of the loss, that this new quantum case can alternatively be considered as a "loss of opportunity" case (albeit, applying a dictum of Lord Justice Stuart-Smith in Allied Maples Group Limited v Simmons & Simmons [1995] 1 WLR 1602 , 1614H, where the loss of opportunity depends on the act of a third party (investors in this case) that must be a "matter of inference", taking into account that in "many cases direct evidence from a third party will not be available") and that the Court will assess damages as best it can if it is clear that the Claimant has suffered substantial loss even if it is difficult to quantify. Most of this is broadly unexceptionable.
This amendment has been put forward on the basis, so it is argued, that the Claimants will not have to disclose the identity of any of the investors who ceased to invest with IKOS or indeed of any investors who might have invested but did not.
The application is opposed by the Defendants on three grounds, the first being that the statistical approach presented by Dr Okongwu does not explain causation which is in any event inadequately pleaded in the amendment. The second ground is that there will have to be provision of the names of the investors at least by way of disclosure. Thirdly, it is argued that this application is too late and, if allowed, it will jeopardise the trial programme and the date of the trial.
In the Amended Consolidated Particulars of Claim, Paragraph 25 is taken up with breaches of contract alleged against Dr Ho; these breaches include allegations of carelessness in making changes to the Code and in failing to ensure access to "a secure segregated server". Specific allegations are made relating to specific events on 26 July 2007 in relation to a fall in the futures portfolio, to failing to take appropriate steps in relation to the setting of limits to imbalances in the equity portfolios between August 2005 to April 2007 and to specific complaints from October 2007 to December 2008. Paragraph 26 pleads against him the consequences of the breaches pleaded in Paragraph 25 which include a worse performance of the equities portfolios, the decline in the number of securities, a significant loss between July and October 2008 in respect of the Japanese index futures and the significant contribution to the negative performance of the IKOS Equities Strategy.
In relation to Dr Ho, the proposed amendment adds nothing because the Claimants' case against him asserts that he was not employed by IKOS CIF and the amended claim pleads losses incurred by IKOS CIF. This was accepted by Leading Counsel for the Claimants.
The allegations against Dr Gover of breach in Paragraph 27 include failures to monitor the performance of models, to report on the performance to the Investment Committee, to ensure that models were given an appropriate weighting, to monitor that weighting, to cause or prevent "the erroneous placement of the Relevant Futures Contracts in the no-trade file", to ensure testing procedures were in place, to conduct research, to upgrade projects, to introduce trend following models, to bring about appropriate versioning, to hire new employees, to secure that a newly hired portfolio analyst had received sufficient training, and going and staying on leave on 26 and 27 July 2007. Paragraph 28 pleads the alleged consequences:
The Investment Committee could not properly supervise and direct research into amendments into the Code, with the result that the futures portfolios performed worse than they would otherwise have performed.
Insufficient or insufficiently trained employees managed the futures contract trading systems with the result that the futures portfolios performed worse than they would otherwise have performed.
Because none of [the Claimants] have a full record of the amendments which were made to the Code…IKOS CIF was forced to establish a project to document the Code…
There was a significant loss in respect of the trading of Interest Rates and Bond Futures asset classes.
The TAA Models operated incorrectly, resulting in a material increase in investment risk causing losses and/or increased volatility in the trading of futures contracts.
During the period from 2005 (or earlier) until mid-2010, an uncorrected distortion in the pricing of securities occurred when ever there was an error in the provision of data and whenever a futures contract was delisted. This caused distortions in the output of the modelling system that resulted in reduced performance and/or increased portfolio volatility.
The performance of the securities portfolio was reduced and/or the volatility of the securities portfolio was increased by reason of the above.
The cumulative effect of Mr Gover's breaches was that there is a greater likelihood that errors were introduced into the Code than should have been the case if Mr Gover had taken the steps set forth… and/or that the Claimants were exposed to a greater risk of adverse events (such as errors or system crashes) than should have been the case if Mr Gover had taken the steps [pleaded]."
Paragraph 29 under a heading "Mr Ho and Mr Gover" pleads this:
"As a result of Mr Ho's and/or Mr Gover's breaches of the [pleaded duties], respectively:
Amendments were made to the Code without proper testing, causing the computer system to crash, including on the following dates: 29 November 2007, 20 February 2008, 9 May 2008, 15 October 2008.
The de-leveraging process of 27 July 2007 failed to work properly. A Bank Platform Managed Account ("BPMA") in fact increased in leveraged. This error caused and/or contributed to the BPMA account losing approximately US$4,000,000 on 27 July 2007. The error caused one investor in the BPMA to redeem its existing investments and to decide not to make further planned investments of US$100 million. Further, another BPMA investor threatened to redeem its position and, in August 2007, was paid around $200,000 in compensation to prevent that from occurring."
I have already indicated to the parties that I would be dismissing the Claimants' application for permission to amend. My reasons in relation to case and trial management are as follows:
There is no good excuse for this application to have been made a mere six months before the trial. These proceedings have been going on almost 3 years in the case of Dr Ho and in their more current form against Dr Gover for over one year.
The Claimants chose initially not to quantify their losses, although they are and were always said to be substantial. They failed adequately or at all to respond to the Defendants' RFI in relation to quantum in relation to investor losses. They have always been aware that information about their investors was at the very least highly confidential. It is surprising, if it is the case, that they only discovered in April 2012 that it might be a criminal offence in the country in which they set up the IKOS Fund (Cayman) to disclose the identity of investors without that Court's permission. In any event, it was for commercial reasons that they decided apparently as late as May 2012 not to seek the Cayman Court's permission to reveal the names of investors.
The only reasons that the Claimants find themselves in the position of having to make a late but substantial amendment are entirely of their own making. They decided not to quantify their losses until subjected to Court orders; they agreed initially in the Consent Order of 14 March 2012 to identify the investors who had ceased to invest allegedly as a result of the Defendants' breaches; they decided then not to reveal the names of the investors; they decided not to seek the Cayman Court's approval to reveal investors' names; they decided to try to seek belatedly an approach on quantum which might not require the identification of the investors.
Disclosure is not yet even 5% completed by the Claimants. The reasons for this, which were all within the control of the Claimants, are set out above. Realistically, and assuming that the Claimants comply with disclosure orders, the Defendants and their experts will not see the bulk of the documents let alone those relating to quantum until sometime in August. That assumes that the experts do not have holidays or time off booked during this holiday and Olympic season.
It is inevitable that the Claimants will through disclosure have to disclose the names of the investors who have ceased to invest since whenever the date is said to be from which investor numbers began to decrease below even what Dr Okongwu says the numbers should have been. This is because it must be a legitimate line of enquiry for the Defendants in response to this new amended claim to undermine it on the basis that the reason for the investors dropping out had nothing to do with either the alleged breaches of duty or the decline in performance of the relevant IKOS funds. For instance, investors may have left by reason of financial difficulties following the collapse of Lehman, the banking crisis or recession in many parts of the globe. They may have left, as the Defendants already argue, because they were concerned as to the stability of the IKOS funds by reason of the departure of personnel such as Mr Coward and others. It must be the case that the Defendants should be able to identify the investors who have left and to ascertain either from disclosed documents or from securing witness evidence whether their departure had anything to do with what is alleged against them. It would not be enough for documents to be redacted to disguise who the investors were because the Defendants might then not be able to ascertain or guess who they were or then be in a position to challenge the new quantum thesis.
The Claimants through their Counsel and otherwise have maintained their stance that they will not disclose any documentation which reveals the names of investors. In so doing, I hasten to say that they are not being deliberately contumelious of the Court's orders; this is simply their commercial position which they have indicated they will not depart from. If the amendment was allowed, it would have to be on terms that documentation revealing the names of the investors was to be disclosed. Either on that basis the amendment would be withdrawn (in which case there would be no problem) or the Claimants will change their minds and there would or could be substantial further delay. It could be however that the consequent failure to disclose such documentation would result in a non-compliance with the "unless" order which I am making in relation to disclosure by the Claimants and the striking out of the Claim and Defence to Counterclaim. That would be an unfortunate consequence for the Claimants.
Counsel for the Defendants has made it clear, on instructions, that they have not yet retained an expert in Dr Okongwu's discipline; indeed the Claimants seek permission to amend Mr Justice Ramsey's order limiting experts to two per side in other disciplines by adding an expert in a new discipline. He says, and I accept, that experts in the specialist statistical discipline which would have to be deployed are not available in quantities and there is a real risk that it would be difficult to retain such an expert within the timetable envisaged by the Court. The experts were supposed to have been nominated by mid-February 2012 and an agreed list of expert issues produced by early April 2012. Experts would produce their joint statements by 10 September 2012 and provide reports by 27 November 2012. It would be very difficult for the new expert to catch up in time. Dr Okongwu has taken six weeks to produce his report and that is with the benefit of documents as yet undisclosed to the Defendants.
A real problem relates to the adequacy of the amendment, incorporating as it does a large but also intellectually dense report. It might well be the case that Further Information will have to be sought about it which will delay matters further.
Witness Statements are due to be exchanged by 10 October 2012 with supplemental statements by 9 November 2012. With the added disadvantage of the culpably late disclosure by the Claimants and the need to address the Okongwu based amendment, there is little prospect that this timetable can be kept to. If that timetable is not kept to, the expert reports would have to be postponed because the experts would need to see and understand what the witnesses say.
Thus, it is likely that the trial date (14 January until 7 March 2013) will have to be postponed. Whilst this is what the Claimants had made no secret of always wanting, the problem from the Court's point of view is when a further eight week hearing can be readily accommodated. It could not easily be accommodated until about October 2013.
There is thus very real prejudice to the Defendants. These are private individuals who, having funded their respective pieces of litigation personally since about 2009 (in small part assisted by a personal loan to them of US $100,000 in 2010), have recently agreed CFAs with their solicitors and one of their counsel, Mr Kibling, which I was told did not include disbursements (which would cover experts and other Counsel) and which do not result in solicitors' services being provided for free (even pending the outcome) An adjournment would mean that they would have this serious and very costly litigation hanging over their heads for much longer than it should have done. They will be required to find the funds to pay for a new expert who in this specialist statistical accounting field will probably be expensive and for whom they have not budgeted.
The Claimants had made it clear that if I was to grant them permission to amend their pleading as they request but with the condition that their disclosure should provide un-redacted documents so as to identify those investors who ceased to invest during the relevant loss period (which seems now to be 2007 to 2011) or indeed those investors who have remained, they would feel unable to comply with that condition. In those circumstances, and for the reasons given above, that represents an additional reason for refusing permission because there is no point in posting a condition which will not be met.
One then needs to review whether the amendment as pleaded either does not meet the sufficiently arguable or some prospect of success threshold or is insufficiently pleaded as it stands. It is often, and certainly in this case is, unsatisfactory to plead a case on the basis that it is particularised in a substantial expert report. It would suffice to say that this approach is particularly theoretical and it is largely based on a comparison of where IKOS was and was going on or before 2007 with other supposedly comparable hedge funds with an analysis in part in relation to supposedly comparable index returns both before and after. It is a complex report which raises a lot more questions than it answers.
The case on causation is wholly inadequately pleaded. There is no attempt to link what is pleaded in Paragraphs 28 and 29 of the Amended Particulars of Claim which cover an earlier period than that now avowed through the amendment. The Claimants have refused to particularise the reduction in the performance of the securities portfolio (Paragraph 28.7). Particulars given under Paragraph 29.2 identified that the $4 million loss pleaded is not actually claimed from the Defendants; similar answers seem to be given in relation to the other losses identified there. It is not obviously pleaded anywhere in any detail what losses or actual reductions in investment occurred as a result of the breaches pleaded against Dr Gover. The causation case is further undermined by the fact that Paragraph 29 is based on both Defendants' alleged breaches, although it is expected that this Okongwu type loss can not be claimed from Dr Ho.
It is therefore the case that the new pleading by way of amendment is inadequately pleaded in that it does not seek to link or explain adequately or in some cases at all how the statistically calculated drop in investors is attributed to the breaches of contract. This is partly attributable to the fact that much of the remainder of the relevant parts of the Claimants' pleading on related aspects of causation is inadequately and incompletely pleaded but any application for a late amendment should be putting right such deficiencies. All that is said in the proposed amendment is that "but for the Defendants' breaches of duties pleaded in paragraph 25-29 of the Amended Consolidated Particulars of Claim, the returns of the IKOS Financial Fund would have been better, the assets under management of the IKOS Futures Strategy would have been greater, and there would have been more investors in the IKOS Futures Strategy than was the case after August 2007". That is an inadequate way of pleading particularly a belated amendment at a stage in the timetable when at the very least a clear and carefully drafted pleading would be essential.
I do not go as far as to say that the basic approach put forward by Dr Okongwu could not form an appropriate basis for a claim, although it is theoretical and statistical and involves the court making an assumption ultimately that the drop in investor numbers (which allegedly brings fees to IKOS CIF) can be attributed to any breaches which are established against Dr Gover. It could be however a difficult job for the Court to have any great confidence in any sum selected for any damages award if there was literally no evidence from the Claimants (either documentary or by way of witness evidence) as to which investors had left, when and why. The Court might be put in a position of having ultimately to limit or possibly even disallow any such claim in the absence of such evidence because it would involve assuming something which could have readily been proved (if true) by "better" evidence.
For the above reasons, the Claimants' application to amend is refused.
Costs
The only issue is whether the Claimants should pay the costs of its unsuccessful applications on an indemnity or a standard basis. There is no difficulty in relation to the disclosure application because the need for it was attributable primarily to the serious failures of the Claimants to comply with previous orders or to plan properly so as to be able to comply. In relation to the amendment application, this was again attributable to the continuing failures of the Claimants to (colloquially) "get their act together" on quantum as this Court has been encouraging them to do for many months now. The Claimants for no obviously good reason did not try to quantify their main claim until March 2012 and they clearly did not think about it carefully until about Easter 2012. They took almost 3 months after the question of a quantum expert was raised in court in February 2012 to appoint such an expert. Their whole approach on this aspect of the quantum has been dictated by their commercial unwillingness to disclose the names of investors but that unwillingness must or should have been appreciated when the various Particulars of Claim were put together. This was a late application that, if justified at all, should have been made many months ago and the Claimants must have been aware that putting it forward at this relatively late stage in the timetable was bound to disrupt the timetable and to place an unacceptable burden, if allowed, on the Defendants. In my view, therefore the costs of and occasioned by the amendment application should also be on an indemnity basis.
It is accepted that on a summary assessment on an indemnity basis 90% of what is set to out in the Defendants' summary costs bill should be paid. It should be within 14 days.