August 12, 2022
On 29 July 2022, Mrs Justice Smith handed down judgment in the case of Cabo Concepts v MGA Entertainment.
A 4-week trial had been due to commence on 27 June 2022 concerning Cabo’s allegations of a secret anti-competitive campaign against it on the part of MGA. As Cabo had no visibility of MGA’s alleged anti-competitive conduct, proper conduct of the disclosure process by MGA was of the upmost importance. 3 weeks before the trial, MGA informed the court that it had missed approximately 84,000 documents during disclosure. By the time of this judgment the figure had increased to 800,000 documents (40% of the total disclosure).
An Order was made on 9 June 2022 adjourning the trial and requiring service of evidence explaining what had gone wrong and why MGA should not be required to pay costs to Cabo. The new trial is fixed to commence on 1 October 2024.
At a hearing on 20 July, various orders were made including for the repetition of MGA’s disclosure exercise in conjunction with an independent e-disclosure provider (July Order). Full judgment was given on 29 July in relation to 3 issues, being:
- Whether Cabo should be entitled to recover its costs thrown away due the adjournment on an indemnity basis;
- Whether MGA should be subject to an “unless order” in respect of compliance with its disclosure obligations arising under the July Order; and
- Whether Cabo should be entitled to an order for costs on account in relation to the costs thrown away due to the adjournment and, if so, at what level.
The judge ruled in Cabo’s favour and made a substantial costs award against MGA.
Costs on an indemnity basis
The court has jurisdiction to make an award of costs on an indemnity basis. Such awards are not subject to requirements of proportionality and any doubt as to whether costs were reasonably incurred must be resolved in favour of the receiving party, with the court having regard to all circumstances including the conduct of the parties. Indemnity costs are justified where the conduct of the parties “or other particular circumstances” of the litigation take the situation “out of the norm”.
Smith J followed the approach of Teare J in Suez Fortune Investments Ltd v Talbot Underwriting Ltd. This approach is that indemnity costs can be awarded not only where there is unreasonable conduct to a high degree but also where there is an “aggregation of factors”, one of which may be unreasonable conduct.
Smith J agreed with Cabo that MGA acted out of the norm or unreasonably to a high degree. She said that the norm
- Involves disclosure exercises being carried out without extensive and serious defects;
- Involves the parties ensuring (especially in cases involving such large amounts of documentation) that best practice is followed in harvesting documents, to avoid errors and ensure compliance with the Civil Procedure Rules;
- Does not involve the collapse of a substantial trial at the last moment because the disclosing party cannot confirm that the court can have full confidence in its disclosure exercise.
Such events fell outside the ordinary and reasonable conduct of proceedings.
The themes and issues here which were outside the norm or unreasonable to a high degree were:
- MGA’s insistence on the e-disclosure being conducted in-house.
- Inadequate supervision of the e-disclosure process by Fieldfisher (MGA’s solicitors).
These were two sides of the same coin.
- Fieldfisher’s suggestions as to the approach to take were not followed,
- The individuals involved in the process had little to no experience of the disclosure requirements in this jurisdiction and
- Tools used, such as Microsoft Outlook, were not appropriate for this kind of e-disclosure exercise.
A suite of technical failures during the e-disclosure process.
Many technical failures occurred including:
- the inappropriate use of Microsoft Outlook and Microsoft 365;
- failure to follow Microsoft’s guidance; and
- a lack of appropriate levels of quality assurance and control.
A failure to identify red flags.
- During the e-disclosure process, an email was identified that had not been disclosed or harvested from the relevant custodians. Smith J held that there was no sound basis for parking the investigation into why this email had been missed from previous searches.
- Later, an email was sent to Fieldfisher attaching relevant emails and no cross check was undertaken to ensure they had been captured in disclosure.
- Thirdly, a batching error occurred meaning that 389 documents were inadvertently omitted.
The defective nature of re-harvesting process undertaken after the deficiencies came to light and MGA’s conduct in the lead up to the hearing.
- As part of the re-harvest process, an independent e-disclosure specialist expressed the view that the process was robust.
- Within 24 hours this was shown to be inaccurate.
- Further issues included:
- a filter not working;
- a proper audit trail still not existing; and
- emails being missed.
These issues showed a lack of proper attention to detail and highlighted the continuing failure of the disclosure process. Smith J therefore awarded costs on an indemnity basis.
Cabo sought an order that unless MGA complied with the terms of the July Order as to disclosure, MGA’s Defence should be struck out and Cabo entitled to judgment.
Cabo contended that MGA’s failures and conduct caused loss of business and stress from a claim that was made approximately 2 years prior to the failures.
Whilst Smith J had sympathy for Cabo’s position, she refused an unless order. The trial was two years away and there was no reason to suggest an independent provider would fail to carry out the disclosure exercise appropriately, so there was nothing to suggest the errors would occur again.
Costs on account
It was accepted that the court should not undertake a summary assessment of Cabo’s costs thrown away. Recoverable costs are for work done that will have to be repeated for the relisted trial. If an element of the costs incurred remains as a benefit of that party at a subsequent hearing then it will not have been thrown away.
Prior to the hearing, Cabo advanced evidence that the total wasted costs were £1,285,431.49, being £977,000 for counsel’s brief fees, £245,290 for their solicitors fees for trial preparation and £63,141.49 for miscellaneous disbursements. Following admission that Cabo’s position was overstated, the court had no genuine or realistic estimate before it. It could have refused to make an order but considered that to be contrary to the overriding objective of dealing with cases justly including compensating innocent parties.
As costs were awarded on an indemnity basis, there was no requirement for Cabo’s costs to be subject to a reduction for proportionality. Smith J held that much of Cabo’s counsel’s brief fees were fully incurred and a considerable amount of work undertaken by experts and solicitors would need to be undertaken a second time. There was no dispute raised in relation to miscellaneous disbursements.
As there was no detailed assessment, Smith J had to estimate the sum to be awarded and considered a payment on account of 45% of the total sum incurred, £578,444.17, to be reasonable. This figure provided an appropriate margin for error.
Smith J’s judgment reiterates to parties to litigation that the disclosure exercise is an extremely important task and when this is dealt with outside of the expected norm, it can be costly for the erring party. An expert on disclosure should be involved throughout the process to ensure that the work is carried out in an appropriate manner and any issues that arise should be dealt with comprehensively and immediately. Failure to do so can have significant cost implications for the party at fault.
Written by Zander Stephen & Catriona Smith