Phaestos Ltd and Another v Peter Ho
| Jurisdiction | England & Wales |
| Judge | Mr Justice Akenhead |
| Judgment Date | 22 March 2012 |
| Neutral Citation | [2012] EWHC 662 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Case Nos: HT-11-459 and HT-11-461 |
| Date | 22 March 2012 |
[2012] EWHC 662 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Akenhead
Case Nos: HT-11-459 and HT-11-461
Paul Goulding QC, Charles Ciumei and David Scorey (instructed by Bird & Bird LLP) for the Claimants
Nigel Tozzi QC and Sean O'Sullivan (instructed by Wragge & Co) for the Defendants)
Hearing dates: 28–29 February 2012
There are primarily two applications before the Court, the first being that of the Claimants to strike out those parts of the Defendants' Counterclaim which relate to what has been called the "surveillance claim". The other application is that of the Defendants for security for costs.
The Background
The facts as set out in this and the following parts of the judgment are based on the evidence and information put before the Court and are not intended to bind the trial judge.
Elena Ambrosiadou (" EA") and Martin Coward ("MC") met at Cambridge University and in time married. Together they were instrumental in setting up one or more hedge funds, which came to be known as "IKOS", albeit this was and now is also operated and owned through a variety of companies and trusts. Peter Ho, who has a doctorate, in or about 1994 came to work for IKOS; Sam Gover who also had a doctorate (in digital signal processing) also came to work for IKOS at about this time. Initially, Dr Gover was retained as a programmer but was later promoted to being Portfolio Manager. Dr Ho was initially retained as a trading systems strategist which required him to write computer codes for trading programmes as well as doing mathematical research and data analysis; he later became head of research which is said to have included responsibility for analysing, developing and conducting diagnostic work on the existing mathematical models used in relation to equities portfolios.
IKOS was established in about 1991 and is essentially a hedge fund business. It has developed what is called "quantitative investment management" and in its 20 or more years has attracted numerous investors. The funds managed by what I will call the "IKOS Group" are invested in financial instruments such as equities and futures. It uses sophisticated mathematical models and complex computer systems to forecast market moves. Investment decisions are not, at least generally, made by human portfolio managers pursuing traditional trading strategies. Instead they are made by computers (albeit under human supervision and monitoring) which use statistical analysis techniques and complex computer programmes to make decisions about what to buy and sell and when. Those decisions are or can then be executed automatically using special high speed trading software, which interacts directly with the financial exchanges around the world. This type of investment management is sometimes referred to as "black box" trading.
The software is and has been referred to as the "Code" and it comprises trading analysis software which makes the investment calculations and execution software which carries out the trades. This software is said to be a closely guarded trade secret and the very foundation of the IKOS Group's business. It is common ground that both Dr Gover and Dr Ho played a material part in the development and indeed writing of parts of the Code and at least part of their employment obligations extended to dealing with the Code on a regular and possibly frequent basis.
Phaestos Ltd ("Phaestos") is an English Company and was originally called IKOS (UK) Ltd. Dr Ho was until April 2008 employed by Phaestos. Dr Gover was also employed by Phaestos at least for 12 or 13 years. Phaestos was the main partner in IKOS Partners an SFA-regulated partnership providing fund investment and investment management services. Phaestos is said to have provided technical research and other services to the IKOS Group. It is common ground that Dr Ho's employment was transferred to a limited liability partnership known since as Mindimaxnox LLP ("Mindi") in April 2008. Mindi was formerly known as IKOS Research (London) LLP; there remains some doubt as to whether Mindi is technically part of the IKOS Group. There is an issue as to whether Dr Gover's employment was effectively transferred to IKOS CIF Ltd ("CIF"), a Cypriot company between July 2006 and April 2007. CIF is said to be "the sub-investment manager of the funds equity strategy of the IKOS Group". From about 2005, the IKOS Group transferred all or at least much of its operation to Cyprus.
Phaestos is said to be owned or substantially controlled by EA. It is not readily apparent who the partners in Mindi are but the following appear to have some material involvement: Michael Constantinides (a Cypriot national), Wellently Ltd (a Cypriot company), Panglobe Nominees Ltd (which is or provides one or more directors to Wellently Ltd) and Panglobe Group Ltd (another Cypriot company). CIF has apparently a much more complex ownership structure which comprises Cypriot, British Virgin Islands and Cayman Islands companies.
At some stage in the period leading up to the end of 2008, the marital relationship between EA and MC broke down and it is not contentious that they are now involved in various proceedings around Europe against each other either personally or via various corporate or similar entities. There is no doubt that EA has a major involvement in all the many companies, trusts and other vehicles which make up the IKOS Group. More than that, it is not possible to form any view at this stage as to precisely what she owns or controls within that Group.
On 23 December 2008, Dr Gover's employment was terminated on the grounds of alleged misconduct whilst Dr Ho's employment was terminated on the grounds of redundancy on the same date.
On 23 December 2008, CIF and a company called Felix Holdings Ltd issued proceedings against Dr Gover in Cyprus and these were served on 19 January 2009. The Cypriot court dismissed these proceedings in May 2010 for lack of jurisdiction. On 20 March 2009, Dr Gover and Dr Ho issued proceedings in England before the Employment Tribunal against Phaestos, Mindi and IKOS Partners. Further proceedings in the Employment Tribunal were issued by them on 8 May 2009 in relation to alleged unpaid contractual bonuses. These proceedings have all been stayed since 7 December 2010 pending the outcome of the High Court proceedings.
On 24 November 2009, Phaestos and Mindi commenced proceedings against Dr Ho which have since become consolidated with proceedings commenced against Dr Gover by the same two Claimants and CIF on 7 April 2011. These two sets of proceedings were consolidated on 19 April 2011 whilst the proceedings were still in the Queen's Bench Division, general list. Consolidated Particulars of Claim, a Consolidated Defence and Counterclaim and a Consolidated Reply and Defence to Counterclaim have been exchanged.
It is unnecessary to review all the procedural twists and turns which these proceedings have taken. Suffice it to say that there have been a number of judgements including one handed down by Mr Justice Eady (on 8 April 2011) ordering that certain allegations regarding "without prejudice" communications be struck out of Dr Ho's pleadings. Another judgement, that of Mr Justice Ramsey, in December 2011 ordered the transfer of the consolidated proceedings to the TCC. A further judgement is awaited from Mr Justice King following hearings concluded in September 2011 on issues as to whether or how the Defendants should provide computerised information said to belong to one or more of the Claimants. The trial in the consolidated proceedings has been fixed to commence in January 2013 for eight weeks, although, arguably surprisingly, this is the subject matter of an application to the Court of Appeal for permission to appeal.
The Claimants in these proceedings issued on 20 January 2012 an application for summary judgment alternatively for striking out in relation essentially to two sets of allegations raised in the Consolidated Defence and Counterclaim. The first related to an alleged 12% equity interest and profit share in the IKOS Group to which Drs Ho and Gover claimed entitlement and the second relates to what have come to be called the "surveillance" allegations. On or by 3 February 2012, the Defendants had served a Notice of Discontinuance and a draft Amended Consolidated Defence and Counterclaim by which they abandoned the 12% equity interest and profit share claims and it is now accepted that there can be judgement in favour of the Claimants and a declaration that the Defendants have no legal or beneficial interest in the Claimant organisations or any of the IKOS Group companies or in any associated company or holding company. The Claimants pursue their application in relation to the "surveillance" allegations.
The Defendants issued on 20 January 2012 also two applications, one to amend the Consolidated Defence and Counterclaim and the other is seeking security for costs. The actual draft amendments, supplemented by a redrafted Counterclaim handed in by Leading Counsel for the Defendants, are not controversial, save for two amendments. I will deal separately with these applications.
THE SUMMARY JUDGMENT AND STRIKING OUT APPLICATIONS
This arises out of the "surveillance" complaints. Mr Tozzi QC for the Defendants described the history to which these complaints relates as like something "out of a thriller" and indeed this type of background does not frequently arise in straight construction cases. They are raised in the Counterclaim and,...
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