Porton Capital Technology Funds & 3 Others v 3M UK Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE CHRISTOPHER CLARKE,Mr Justice Christopher Clarke |
| Judgment Date | 02 February 2010 |
| Neutral Citation | [2010] EWHC 114 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2008 FOLIO 877 |
| Date | 02 February 2010 |
[2010] EWHC 114 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: Mr Justice Christopher Clarke
Case No: 2008 FOLIO 877
Mr J. Onions QC & Mr S. Hossain (instructed by Mcdermott, Will and Emery) for the Claimants
Mr S. Salzedo (instructed by Simmons & Simmons) for the Defendants
Hearing date: Friday 22 nd January 2010
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.
Mr Justice Christopher Clarke:
Facts
The claimants are investment funds incorporated in the Cayman Islands specialising in the commercialisation of technology including medical technology. They were approximately 47% shareholders in a company called Acolyte Biomedica Ltd (“Acolyte”). Acolyte's main product was an MRSA detection device for use in hospitals called “BacLite MRSA”. Pursuant to a Share Purchase Agreement (“the SPA”) of 14 th February 2007 the shareholders of Acolyte, including the claimants, sold their shares to 3M UK Holdings Limited (“3M”), the first defendant. The second defendant is 3M's holding company. The first defendant agreed to pay the vendors an “earn out” payment being the Net Sales of Acolyte products (principally BacLite) in the year to 31 st December 2009 subject to a cap of £ 41 million, and undertook certain obligations to develop and market BacLite and to seek regulatory approval to the extent required in the USA, the EU, Canada and Australia.
According to the defendants, despite 3M's endeavours, BacLite was not a success either in passing clinical trials or finding a market and for that reason minimal revenues were generated in 2009. The dispute concerns the adequacy of 3M's steps to obtain regulatory approval for BacLite in the USA and to market BacLite in various territories. The claimants' claim is for damages amounting to a 43.48% share of £ 41 million for the earn-out they say they would have received if the obligations to develop and market BacLite had been complied with. One of the claimants' complaints is that the defendants preferred a product named Fastman over BacLite and other Acolyte products.
The defendants' counterclaim is for damages for the claimants' allegedly unreasonable refusal from July 2008 onwards to permit them to cease developing or marketing BacLite. The SPA provided that Acolyte should not cease such development without the vendors' consent, not to be unreasonably withheld. 3M reached the conclusion by mid 2008 that there was no reasonable prospect of achieving within a reasonable time and at a reasonable cost sufficient improvement to enable BacLite to obtain FDA approval and be competitive with the other MRSA products sold in the US (Defence para 13).
Two potential witnesses
Mr. O'Hara was an employee of Acolyte who became an employee of a 3M subsidiary. He was closely involved in the technical development of BacLite. Mr. Collier was a consultant to Acolyte who also became an employee of the same subsidiary. He was closely involved in the marketing of BacLite. Both have now left the 3M subsidiary's employment. The claimants' solicitors, McDermott Will & Emery (“MWE”) wish to speak to both individuals in order to obtain factual evidence as to the manner in which 3M developed and marketed BacLite, or failed to do so, and whether it complied with its obligations in the SPA; and as to whether the reason for dissatisfaction with the BacLite product lay in its inherent characteristics or 3M's method of marketing.
Both Mr O'Hara and Mr Collier (“the two individuals”) are bound by post-employment confidentiality covenants to 3M's subsidiary which prevent them from disclosing confidential information. It is unnecessary to consider the details of those covenants.
The background to the dispute
By a letter of 7 th September 2009 MWE asked Simmons & Simmons (“S & S”), 3M's solicitors, to confirm that the defendants did not object to MWE approaching the two individuals (and two others) for the purpose of the present proceedings and would release them from any extant confidentiality restrictions arising out of their employment agreements for the purpose of the provision of information to MWE in relation to the proceedings. MWE has confirmed (in Mr Moss' third witness statement) that it will only use any information obtained for the purposes of these proceedings.
By a letter of 25 th September S & S told MWE that they were free to contact any of the four individuals, but that 3M would not waive the confidentiality provisions and that MWE should not encourage or assist any breach of them.
Mr Moss of MWE contacted Mr O'Hara by telephone on 13 th November. Initially he agreed to meet Mr Moss – it seems on 8 th December the day that S & S were also due to meet him. But on 28 th November he sent an e-mail to MWE which read:
“I had a call from Daryl from 3M [Daryl Jones, a senior legal adviser at the 3M subsidiary which used to employ him] the 2 days after you called me. I told them I had been asked for a witness statement from yourselves and planned to be in London on Tuesday 8th December to provide a witness statement. They informed me that I was bound by a confidentiality agreement and could not provide a witness statement on this and would contact you to make that clear. Clearly I am caught between the 2 parties and need you both to clarify the conflicting legal position before I can provide a witness statement”
In a letter of 30 th November MWE referred to this response and wrote:
“What 3M have done is a clear attempt to interfere with our clients' preparation of this litigation by using totally unjustified and unfounded suggestions of continuing interests of confidentiality coupled with threats to use the undoubted might of 3M against individuals who cannot possibly be expected to stand out against such intimidation. That is simply not acceptable.”
On 2 nd December S & S replied saying that Mr Jones had confirmed to them that he had never told Mr O'Hara that he could not provide the claimants with a statement; he had said that Mr O'Hara could speak with MWE but must be “mindful of his confidentiality obligations” to 3M. S & S reported that they had offered Mr O'Hara, on behalf of their clients, independent advice at their clients' expense.
On 16 th December S & S wrote to MWE to say that they had conducted interviews with the two individuals and that their clients intended to call them both as witnesses, and that both had agreed to provide them with witness statements and to give evidence on behalf of the defendants.
The latest position of Mr Collier and Mr O'Hara is that both are willing to speak to MWE regarding the substantive issue subject to the issue of confidentiality being resolved.
On 14 th December S & S sent MWE copies of the defendants' electronic disclosure. This consisted of around 7,000 documents relating to the development and marketing of BacLite. Disclosure of other documents in hard copy had taken place on 30 th October.
On 17 th December the claimants issued an application for certain orders. The orders sought have undergone some modification since the application was first brought. What are presently sought are orders that:
a. Information in relation to the matters in dispute is not confidential as between the parties for the purposes of these proceedings and accordingly MWE may seek such information from the two individuals in relation to the matters in dispute for the purpose of these proceedings and the two individuals may provide such information without either of them being thereby in breach of their confidentiality obligations to the defendants; alternatively
b. An order staying 3M's counterclaim until it waives the confidentiality obligations to the defendants of the two individuals (and those of any other relevant ex-employees/consultants of 3M or Acolyte to whom MWE may wish to speak for the purposes of these proceedings) in respect of the matters in dispute as between the parties for the purposes of the proceedings; that
c. If and so far as 3M's order for a confidentiality club (see para 15 below) is granted such order is to be subject to the condition that the two individuals (and any other ex-Acolyte or ex-3M employees or consultants to whom MWE may wish to speak for the purposes of the proceedings) are within that club and that any duties of confidentiality that they may owe to the defendants in relation to the matters in dispute be waived as between the parties for the purpose of these proceedings.
The defendants have an application of their own which is for the establishment of what has come to be known as a “confidentiality club”. They seek an order that all disclosure documents (other than the hard copy documents disclosed on 30 th October 2009 and the electronic versions thereof) are to be treated as confidential by the party receiving them and that the receiving party is not to provide access to, copies of, or disseminate any of them except to a limited range of persons (the receiving party's solicitor, counsel, a person responsible for instructing solicitors, a witness intended to be called to give factual or expert evidence, and a person assisting such an expert) and then only if that person has first signed a confidentiality undertaking.
In his submissions Mr Jeffrey Onions, QC, for the claimants indicated that what he principally sought was the first or third order since it was by one or other of those routes that he would secure that the two individuals...
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