Kings Security Systems Ltd v Anthony Douglas King

JurisdictionEngland & Wales
JudgeMr Justice Miles
Judgment Date09 November 2020
Neutral Citation[2020] EWHC 2996 (Ch)
CourtChancery Division
Docket NumberCase No: HC-2017-002379
Date09 November 2020

[2020] EWHC 2996 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

BUSINESS LIST (ChD)

Royal Courts of Justice

Rolls Building

Fetter Lane

London EC4A 1NL

Before:

Mr Justice Miles

Case No: HC-2017-002379

Between:
Kings Security Systems Limited
Claimant
and
(1) Anthony Douglas King
(2) Stephen John James Evans
Defendants

Paul Downes QC (instructed by Teacher Stern LLP) for the Claimant

Robert Howe QC and Christopher Newman (instructed by Walker Morris) for the First Defendant

Hearing dates: 30 October and 2 November 2020

Mr Justice Miles
1

This judgment concerns an issue argued at a pre-trial review for a trial to last seven sitting days with a hearing window starting in late November 2020. The issue is whether certain negotiations said by the Claimant to have been conducted without prejudice are admissible in evidence at the trial.

2

The background may be stated shortly. The Claimant provides security services. Before 2013 its parent company was owned by Mr King (the First Defendant), his parents, and a family trust. In 2013 the business required funding and an arrangement was reached with an outside investor, Primekings, to invest in the equity in the Claimant's parent company. Primekings became (eventually) a 60% shareholder in the parent.

3

In 2015 the King family sued Primekings for fraudulent misrepresentation in connection with the 2013 investment. The trial came before Marcus Smith J in May 2017. After the Kings' witnesses (including Mr King) had given evidence the solicitors for the Kings and members of his family advised them that they could not continue to act. The Kings agreed to discontinue the action and to pay Primekings' costs on the indemnity basis. They were ordered to pay £1.7 million on account of those costs. The Kings later brought a complaint before the ombudsman against their solicitors and eventually the solicitors' insurers met the £1.7 million costs order. The Kings have since brought proceedings against the solicitors.

4

Returning to 2017, Mr King left as an employee of the Claimant soon after the discontinuance of the misrepresentation case. The parties entered a settlement agreement on 19 May 2017. The Claimant agreed to make a termination payment of £70,000 and there were releases of claims.

5

The Claimant says that soon after the settlement agreement its directors discovered the existence of arrangements entered into in 2015 between Mr Evans, a director of the Claimant, and its main fleet car supplier, TCH. These concerned two top-end Range Rovers supplied by TCH to Mr King and Mr Evans for their personal use. The Claimant's case is that Mr Evans agreed in return for the supply of the Range Rovers that the Company would give up certain sums (called profit-shares) payable by TCH to the Claimant, give TCH exclusivity, and increase the hire rates for fleet cars leased by TCH to the Claimant. It alleges that Mr King authorised Mr Evans to enter these arrangements or turned a blind eye to them. It says that they amounted to a bribe or a misappropriation by Mr King and Mr Evans.

6

The Claimant issued the proceedings in August 2017 against Mr King and Mr Evans. The Claimant has since settled the claim against Mr Evans. The remaining amount claimed is in the order of £40,000. The Claimant also seeks rescission of the settlement agreement, which would put an end to its obligation to pay the £70,000 termination fee.

7

In his original Defence, Mr King denied that he authorised Mr Evans to enter into the impugned arrangements with TCH or knew about them or turned a blind eye. Mr King says that Mr Evans was the person who dealt with TCH and that he left those dealings to him. He also alleges that other employees of the Claimant knew of the terms on which TCH had supplied the Range Rover and that nothing was hidden.

8

In August 2018 Mr King made an application to amend his Defence. There are two material amendments which have featured in the present application. By para 63(b) Mr King applied to plead this:

63(b). Further and in any event, at some time in 2017, after 25 May but before December, at a meeting attended by Bob Forsyth and Mark Pownall, TCH offered to KSSL [ sc. the Claimant] the Profit Share in full, plus compensation, with the amount offered being in the region of £60,000–£70,000. KSSL either accepted this offer and mitigated its losses, or failed or refused to accept this offer, and KSSL has unreasonably failed to mitigate its alleged losses. Accordingly, KSSL's alleged losses, if (which is denied) they were incurred at all, fall to be reduced by the amount of this offer. Since this sum exceeds the losses pleaded, KSSL have not suffered the alleged or any recoverable loss.

9

Mr King sought, second, to amend to introduce a counterclaim under the principles in Grainger v Hill, alleging that the Claimant had abusively issued and pursued the proceedings for a collateral and improper purpose – i.e. to enable Primekings to obtain the shares in the Claimant's parent company held by the King family at a gross undervalue by using the proceedings to place stress, distraction and pressure on Mr King and to ruin his reputation. The matters relied on by Mr King include alleged pre-action threats, the absence of any pre-action correspondence about the claim, the disproportion between the amounts claimed in the action and the Claimant's projected costs (said to be more than £500,000), the allegation (by inference) that the Claimant had used the proceedings to bring allegations of wrongdoing to the attention of third parties, and in paragraph 83(e):

83(e). Further, Mr King has learned that when KSSL raised its concerns with TCH, TCH offered to pay a substantial sum, in the region of £60,000 to £70,000, which KSSL either accepted (but brought this claim without disclosing or giving credit for the sum received), or unreasonably failed to accept.

10

The application for permission to amend was heard by Deputy Master Arkush in November 2018. The Claimant contended that the proposed amendments at paragraphs 63(b) and 83(e) should not be allowed as the negotiations referred to were without prejudice. The Claimant also contended that, as a matter of law, the Claimant was under no duty to mitigate as the losses claimed against Mr King were the same as those claimed against TCH and the Claimant was entitled to choose which party to pursue. The Claimant contended, third, that the Grainger v Hill counterclaim was not properly arguable.

11

The parties served evidence for the amendment application concerning, among other things, the status of the negotiations and whether they were without prejudice.

12

Both parties were represented at the hearing of the application by counsel. Including the time needed for judgment it took almost two days. The Deputy Master directed himself by reference (among other things) to the test for summary judgment. He concluded that the new pleadings had a realistic prospect of success and were properly arguable. He made an order on 21 November 2018 giving Mr King permission to amend.

13

The Claimant responded to para 63(b) of the Re-Amended Defence and Counterclaim as follows in para 21aa. of its Amended Reply:

21aa. As to paragraph 63b:

(1) The meeting to which paragraph 63b. appears to refer was a without prejudice meeting and its contents are thereby protected from disclosure and are inadmissible in evidence. Accordingly, save as set out below, KSSL is not able to plead to the same.

(2) For the avoidance of doubt (and without waiting the said privilege) KSSL has not entered into any agreement with TCH relating to the loss claimed in these proceedings.

(3) It is denied that KSSL has failed to mitigate its loss whether as alleged or at all.

14

The Claimant made a similar plea in relation to para 83(e) of the Amended Defence and Counterclaim.

15

More generally in response to the Grainger v Hill counterclaim the Claimant pleaded the following at paras 31.1 and 32.1 of the Re-Amended Reply:

31. As to paragraph 81:

31.1 It is denied that KSSL commenced and pursued these proceedings for collateral and/or improper purposes whether as alleged in paragraph 81 or at all.

31.2 In fact, the decision by KSSL to initiate and pursue these proceedings was taken:

31.2.1 by KSSL's non-executive directors, Geoffrey Zeidler, Emma Shaw, Robin Fisher and Barry Stiefel in about July 2017 with the full knowledge of the executive directors.

31.2.2 in the best interests of KSSL for the proper purposes of seeking compensation from both Defendants for the losses suffered by KSSL: vindicating KSSL's rights as against both Defendants and protecting KSSL's reputation in the security industry by publicly demonstrating that KSSL would not tolerate conduct of the kind perpetrated by the Defendants.

16

Disclosure was given by the parties in July 2020. A few days afterwards the Claimant's solicitors wrote to Mr King's solicitors saying that document no. 7912 in its list, which referred to the content of the July 2017 meeting, had been inadvertently disclosed, and sought its return. The parties' solicitors then corresponded to try to find a way of dealing with the issues raised by the disclosure of document 7912. Mr King's solicitors agreed not to provide the document to Mr King without first notifying the Claimant's solicitors. The document was, however, later provided to Mr King by his legal team's IT providers. The Claimant's counsel accepted that that was an error and was not deliberate.

17

In the event the parties were unable to agree a regime for dealing with document no. 7912 or the wider question of the disclosability or admissibility of any without...

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    ...to the judge's acceptance that exception (6) applied, I will mention Miles J's judgment in Kings Security Systems Ltd v King [2020] EWHC 2996 (Ch) ( King), given after the Roth J's decision under 71 The claimant company in that case brought proceedings against a former director for relief ......

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