The Persons Identified in Schedule 1 of the Claim Form (the “SL Claimants”) v Tesco Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hildyard |
| Judgment Date | 03 December 2019 |
| Neutral Citation | [2019] EWHC 3315 (Ch) |
| Date | 03 December 2019 |
| Docket Number | Claim No. FL-2017-000001 |
| Court | Chancery Division |
[2019] EWHC 3315 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND
AND WALES
FINANCIAL LIST (Ch D)
Rolls Building
7 Rolls Buildings
Fetter Lane
London
EC4A 1NL
THE HONOURABLE Mr Justice Hildyard
Claim No. FL-2017-000001
Claim No. FL-2016-000019
Richard Mott and Simon Gilson (instructed by Stewarts) appeared on behalf of the SL Claimants
Peter De Verneuil Smith QC and Dominic Kennelly (instructed by Morgan Lewis & Bockius UK LLP) appeared on behalf of the MLB Claimants
David Mumford QC, Michael Watkins and Niranjan Venkatesan (instructed by Freshfields Bruckhaus Deringer LLP) appeared on behalf of the Defendant.
Hearing dates: 5 th November 2019 – 7 th November 2019
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.
Scope of this judgment and my rulings
In these two actions, the Claimants in FL-2017-000001 (“the SL Claimants”) and the Claimants in FL-2016-000019 (“the MLB Claimants”) claim against the Defendant company (“Tesco”) under section 90A and Schedule 10A of the Financial Services and Markets Act (“section 90A”, “Schedule 10A” and “ FSMA” respectively) to recover substantial losses in respect of their investment decisions in relation to shares in Tesco which they made in alleged reliance on information published by Tesco and falling within Schedule 10A.
These are my rulings on the matters in dispute at the fourth CMC (“CMC4”) in these proceedings, which are fixed to come on for trial commencing in June 2020.
I do not address any of the numerous matters which were to be debated but which were sensibly agreed by the parties, either before the hearing of CMC4 or in some cases during it; but I record my thanks for the co-operative manner in which these issues were addressed. Even with that assistance, CMC4 occupied the Court for three sitting days and one reading day. The 24 bundles prepared for the hearing amounted to well over 7,000 pages; and two files of authorities were also provided. This is indeed litigation on a grand scale. But even in such a context, proportionality and an appreciation of finite resource, and what is possible at this stage in the proceedings without dislocating preparations for trial and indeed the trial itself, must temper the natural wish of the parties not to leave any stone unturned; and those considerations have informed my approach, as will be apparent.
Issues in dispute at CMC4
In broad terms, the issues in dispute at CMC4 can be described as follows:
(1) the SL Claimants' specific disclosure applications so far as have not been agreed;
(2) Tesco's specific disclosure application so far as it has not been agreed;
(3) Tesco's application to strike out part of the SL Claimants' pleadings;
(4) the case management of the Rathbones claimants' claim in the SL Proceedings;
(5) Tesco's two applications for Letters of Request;
(6) the adequacy of the current trial time estimate; and
(7) other matters.
Preliminary observations as regards applications for specific disclosure
I would make four preliminary points in relation to the applications for specific disclosure. First, and most fundamentally, a new pilot scheme for disclosure in the Business and Property Courts has been introduced (as CPR PD51U), and (having commenced as and from 1 January 2019) is applicable in the Financial List and to these proceedings (except that pre-existing orders for disclosure are left undisturbed unless varied or set aside). It is not disputed that wide search-based disclosure under Model E of PD51U, rather than any other model, is appropriate now as it has been in the past in a case of this magnitude and complexity. But it is of importance to note that the pilot provides that extended disclosure can only be justified if it is necessary for the fair resolution of an “Issue for Disclosure” as set out in a Disclosure Review Document or identified by the court, and will only be given if it is reasonable and proportionate having regard to the Overriding Objective and its specific factors adumbrated in paragraph 6.4 of the PD.
Secondly, and as emphasised by Mr David Mumford QC on behalf of Tesco, it is relevant and complementary to both the above points that the disclosure exercise thus far undertaken by Tesco has been in intended compliance with a basic scheme and architecture set out in a document entitled “Defendant's Proposals for Defendant's Disclosure” to which all the parties contributed and in effect agreed. Mr Laurence Rabinowitz QC on behalf of Tesco described this as a “top down” approach, the central objective being disclosure of documents which in the RBS case I described as going to the “real stuff of the case”, rather than disclosure of every document relating to the myriad accounting transactions whatever the degree of granularity. Whatever else, the pilot does not introduce or encourage a more generous or less focused disclosure regime than previously; and at this stage of proceedings departure from the agreed architecture is liable for obvious reasons to be disruptive and thereby disproportionate and inefficient.
Thirdly, in accordance with the scheme or architecture described in the preceding paragraph, Tesco has already carried out a very substantial disclosure exercise in these proceedings. As at September 2019, it had searched over a total population of some 7,500,000 documents (before the application of search terms and date ranges) involving 86 custodians, reviewed over 1,000,000 documents and produced some 30,000 documents to the Claimants across 22 tranches over 20 months. Any further disclosure needs to be justified taking into account the detail already provided.
Fourthly, the only issues as to disclosure arise between the SL Claimants and Tesco. No such issues arise between the MLB Claimants and Tesco. Whilst there are differences between the two proceedings, there is much more that is common to them than separates them, especially as regards the need for the Claimants in both to prove (a) the nature and extent of the overstatements of profit and expected profit on which the Claimants rely and (b) that the alleged PDMRs had knowledge of them, which is the focus of almost all the disclosure issues. Whilst I must and do consider necessity and proportionality by reference to the particular proceedings, the fact that in one set no further specific disclosure has been considered necessary is of some relevance in the general consideration of necessity and proportionality.
SL's applications for specific disclosure
Application for documents held other than by custodians
Turning then, with those factors in mind, to the particular areas of dispute, I shall deal first with the SL Claimants' application for documents for the period 19 September 2014 to 22 April 2015 “relevant to the knowledge of…individuals at the level of Category Director or above in the UK Commercial Function” (disclosure already having been given or agreed to be given in respect of the knowledge of some 33 persons nominated as disclosure custodians by reason of their pleaded involvement in the accounting practices said to have resulted in overstatements of trading profit).
On behalf of the SL Claimants, Mr Richard Mott's essential justification for seeking disclosure of documents going to the knowledge of individuals beyond the existing custodians and lower (as it were) in the hierarchy was that they would or might demonstrate what he described as the “endemic” knowledge “throughout the UK commercial and commercial finance functions within Tesco” and/or a “corporate culture” of practices alleged to constitute wrongful accounting. If, for example, even the “large number of the members of buying teams beneath the category directors” had such knowledge, that would demonstrate it to be such common knowledge as must have been shared by those higher in the hierarchy, and especially the pleaded PDMRs.
Mr Mott referred also to a report dated 15 March 2017 (referred to as “the Remediation Report”) prepared by Tesco's new management to provide a better understanding of what had gone wrong in Tesco and to assist a “process of renewal and change” and the strengthening of Tesco's compliance framework to ensure that the overstatement revealed “can never happen again”. The Remediation Report does record that one of the matters that had become apparent was “that there was evidence of involvement in the practices that led to the overstatement at a more junior level within the Company” which Mr Mott prayed in aid as supporting enquiry at a lower level in the corporate structure than the scheme of disclosure previously agreed had envisaged.
Mr Mumford on behalf of Tesco objected to this extension of the ambit of disclosure. He characterised the plea of “endemic” practices and knowledge as “inherently vague” and disclosure of documents going to the knowledge or involvement of buyers or more junior employees as an enormous task which could not be justified: the documentation would be insufficiently relevant; the search would be disproportionate; “endemic” practices or knowledge is not of itself a central issue; and the proposed laborious exercise would be a departure from the basis scheme of agreed disclosure referred to above. Such a departure was not justified by the Remediation Report: the same report stated that others more senior had “driven the conduct”...
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