Cabo Concepts Ltd v MGA Entertainment (UK) Ltd
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Joanna Smith |
| Judgment Date | 29 July 2022 |
| Neutral Citation | [2022] EWHC 2024 (Pat) |
| Docket Number | Case No: HP-2020-000016 |
| Court | Chancery Division (Patents Court) |
[2022] EWHC 2024 (Pat)
Mrs Justice Joanna Smith
Case No: HP-2020-000016
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INTELLECTUAL PROPERTY LIST (ChD)
PATENTS COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Ronit Kreisberger QC, Nicholas Bacon QC and Alfred Artley (instructed by Spector Constant & Williams (“SCW”)) for the Claimant
Victoria Wakefield QC, Jennifer MacLeod and Richard Howell (instructed by Fieldfisher LLP (“Fieldfisher”)) for the Defendants
Hearing dates: 20 July 2022
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
COVID-19 Protocol: This judgment has been handed down by the judge remotely by circulation to the parties' representatives by email and released to The National Archives for preservation and public access. The date for hand-down is deemed to be 29 July 2022.
The four-week trial in this matter was due to commence on 27 June 2022. On 6 June 2022, just 3 weeks before the trial, the Defendants (“ MGA”) informed the court that they had missed something in the region of 84,000 documents during the data collection process underlying their disclosure. This led to an Order of 9 June 2022 by Bacon J (the assigned trial judge) adjourning the trial and providing for the service of evidence explaining what had gone wrong with disclosure and why MGA should not be required to pay the costs thrown away by the adjournment (“ the June Order”).
The new trial is now fixed to commence on 1 October 2024, with an increased time estimate of six weeks.
Following the service of substantial quantities of evidence, I heard argument on 20 July 2022 as to the consequential matters arising from the adjournment of the trial. I made various orders at the hearing, including orders that essentially required the repetition of MGA's disclosure exercise in conjunction with an independent e-disclosure provider, together with orders designed to set a new timetable leading up to trial (“ the July Order”).
However, there was insufficient time to give judgment in respect of three important issues that were raised: first, whether the Claimant (“ Cabo”) should be entitled to recover its costs thrown away by reason of the adjournment of the trial on an indemnity basis; second, whether MGA should be subject to an “unless order” in respect of compliance with its disclosure obligations arising under the July Order; and third whether Cabo should be entitled to an order for costs on account in relation to its costs thrown away by reason of the adjournment and, if so, at what level.
In respect of the first and third issues, I indicated at the end of the hearing that I would make an order for costs on an indemnity basis and that I was prepared to award costs on account of 45% of Cabo's total costs incurred in preparation for the trial (those costs having been identified in the seventh witness statement of Mr Spector, Cabo's solicitor, dated 14 July 2022 in the sum of approximately £1.3 million). These are my written reasons for that decision.
In respect of the second issue, I indicated to the parties that I wished to consider the issue further. Having now done that, I also set out my decision on that issue in this judgment.
The nature of the Claim and the identification of the deficiencies in MGA's Disclosure
In this matter, Cabo, a UK toy start-up, claims damages and declaratory relief against MGA, a leading supplier of toys around the world, in respect of alleged breaches of statutory duty (including abuse of a dominant position and unjustified threats of patent infringement proceedings) which are said to have caused the failure of Cabo's business.
The nature of the claim and, in particular, the nature of the conduct of which Cabo complains, is of importance in understanding the significance of the disclosure failures that emerged shortly before trial. In a nutshell, Cabo alleges a secret anticompetitive campaign on the part of MGA to stifle the launch by Cabo of collectable toys marketed under the “Worldeez” brand which were likely to compete with one of MGA's own blockbuster brands. Cabo only became aware of the conduct of MGA when certain emails dating back to May 2017 between Mr Laughton (senior vice president of MGA UK) and The Entertainer, a leading toy retailer in the UK, were passed to Cabo by representatives of The Entertainer.
Key disclosure custodians, including Mr Laughton and Mr Larian (MGA's Chief Executive Officer), are said to have been the main protagonists in the collusive and unlawful conduct alleged against MGA, which unlawful conduct was principally implemented and/or recorded in emails sent by MGA and telephone calls made to leading toy retailers. It therefore appears to be no exaggeration to say that competition law infringements and unlawful threats under IP law are capable of being evidenced by individual emails. It is also no exaggeration to say that, with the exception of the emails that were passed to them by The Entertainer, Cabo had no visibility around the conduct of MGA. In the circumstances, it was inevitable that the proper conduct of the disclosure process by MGA would be of the utmost importance.
Against that background, the revelation shortly before trial that MGA's disclosure exercise was defective was of the utmost concern to Cabo. As Mr Spector explains in his sixth statement dated 8 June 2022, Cabo reluctantly concluded that despite the passage of 5 years since the events with which its claim was concerned, there was now no prospect of a fair trial and an application to vacate the trial was necessary. Although MGA was initially ‘neutral’ in the face of this application, it ultimately consented, acknowledging that the trial had to be vacated because (as Fieldfisher explained in a letter to the court of 8 June 2022): “…it appears that, pending further explanation [as to the deficiencies in the disclosure exercise], the parties and the Court cannot have full confidence in the exercise conducted by [MGA]”.
Further to the June Order, a substantial volume of evidence has been served by MGA designed to identify and explain the deficiencies in its disclosure. I shall return to some of the detail in a moment, but for present purposes I note that it now appears to be common ground that approximately 40% of documents were missed by MGA at the harvesting stage (just over 1 million documents were harvested with something in the region of 800,000 documents having been missed), that nearly half of all potentially relevant documents were never even reviewed and that a number of warning signs were (inadvertently) overlooked. MGA presently believes that a major cause of the deficiencies was an indexing error in Microsoft Outlook when harvesting former employees' emails, meaning that larger data sets, in particular, failed to filter correctly. MGA has also identified issues with the harvesting of current employee's emails, albeit that the lack of any audit trail means that it has not been able to explain why the data was incomplete.
There is no suggestion that the deficiencies in disclosure were deliberate, but there is no question that they were serious. By way of example, the original document harvest for Mr Laughton produced 204,950 documents whereas a recently conducted re-harvest has produced 657,996, an increase of over 200%. The deficiencies led, at the eleventh hour, to the collapse of the trial and to Cabo finding itself in the unenviable position of having another two years to wait for determination of its claim.
Pursuant to the July Order, the harvesting exercise and application of keyword searches will be repeated by an independent e-disclosure provider engaged by MGA for that purpose. Any additional documents which the independent provider identifies as responsive to keyword searches (i.e. documents not already reviewed) will then be reviewed by Fieldfisher and disclosed to Cabo. Once the exercise has been completed, reports will then be filed by the independent provider and by Fieldfisher identifying the documents harvested and confirming compliance with the terms of the July Order. No doubt very substantial further costs will be expended on all sides.
I now turn to deal with the outstanding three issues requiring determination.
Indemnity Costs
The Law
The court's jurisdiction to make an award of costs on an indemnity basis arises from CPR 44.3(1)(b). Whereas costs on the standard basis must be proportionate and any doubts as to whether the costs were reasonably and proportionately incurred must be resolved in favour of the paying party, costs on the indemnity basis are not subject to the requirements of proportionality and any doubt as to whether costs were reasonably incurred must be resolved in favour of the receiving party. In deciding what order to make about costs, the court will have regard to all the circumstances of the case including the conduct of the parties (see CPR 44.2(4) and (5)).
Subject to one caveat, the principles to be applied by the court on an application for indemnity costs are not in dispute. They were clearly articulated in the leading authority of Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879 by Lord Woolf CJ at [31]–[32] and by Waller LJ at [39]. In summary, the court has a “wide and generous discretion” in making orders about costs. An order for indemnity costs will be justified where either the conduct of the parties or “other...
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