Cabo Concepts v MGA – lack of disclosure supervision brings indemnity costs order

What is a sensible approach to commenting on a judgment? You have to read it first, obviously, then try and distil two or three points from it which may have some value for the reader. I like to include a couple of quotations – there’s nothing like primary source material. I look around to see if anyone else has made some commentary which I don’t want to duplicate. I try to draw one or two conclusions of a long-term value. Not least, I often observe that discovery / disclosure is a difficult job and I urge people not to throw stones from the illusory comfort of their own greenhouses.

So, I thought, I’ll have a quick look at Cabo Concepts v MGA and knock out a quick article about it. Here’s the judgment… Crikey!

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Even the first step – just reading the thing – proved quite difficult. This was nothing to do with Mrs Justice Joanna Smith’s prose, which is as lucid as one could hope for, but with the display of judgments on the National Archives site to which they have been moved. Somebody seems to have decided that there is money to be saved by using very small print. I don’t follow the logic of this, but this is the first web page which I have ever had to magnify using my browser’s zoom function.

It was not too difficult to identify the main subject – a trial postponed for two years because of disclosure failures – and the judgment clearly sets out the key topics with a brief procedural history, a summary of the circumstances in which indemnity costs are payable, a series of disclosure failings grouped under five neat headings, a discussion about Unless orders, and the award of 45% of the claimed indemnity costs allegedly thrown away by the very late postponement of the trial.

So, I thought, let’s just pick out a few sentences which summarise the story and carry some points of principle. I quickly decided that I could copy/paste most of it, or pick sentences at random, and still not adequately report on the defects uncovered in the judgment. It became tempting simply to invite you to read the whole thing, together with the article by Doug Austin on the E-Discovery Today site and the one by Legal Futures.

The procedural matters consequent upon the adjournment had already been dealt with, and this hearing was solely about the costs of the adjournment. That necessarily involved a history of the disclosure exercise – there was no real argument about whether costs were payable by the party responsible for the delay, but it was necessary to consider the circumstances in which those costs were payable on an indemnity basis. How bad must conduct be to warrant this extreme remedy?

Background to the claim and the disclosure deficiencies

Paragraphs 7-14 summarise the story thus far. The claim was of a kind where the claimants “had no visibility around the conduct of MGA”, making proper disclosure all the more important.

Approximately 40% of documents were missed at the harvesting stage, and “nearly half of all potentially relevant documents were never even reviewed”. “..the lack of any audit trail means that [MGA] has not been able to explain why the data was incomplete.”

This was cock-up rather than conspiracy or, in more judicial terms “There is no suggestion that the deficiencies in disclosure were deliberate, but there is no question that they were serious.”

The exercise must be repeated and “No doubt very substantial further costs will be expended on all sides.”

I don’t intend to go through the whole judgment at this level of detail, but I give you this much to indicate that you might want to read it. How is it possible that, with no ill-intent, a party with good representation can miss so many documents and end up with an interim costs bill – interim! – of this size (just shy of £580,000 apparently?)

Indemnity costs

This section, from paragraphs 15-23, is also worth commenting on. The right to indemnity costs, arising from CPR 44.3(1)(b), is summarised thus by the judge:

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.

Once you see this, and recall that a £170m claim had run almost to trial, and you note the judge’s comment that “No doubt very substantial further costs will be expended on all sides”, you begin to see how you can reach £580,000 as an interim payment.

The principles (paragraph 16 et seq) require conduct or circumstances which take the situation “out of the norm”, meaning “outside the ordinary and reasonable conduct of proceedings”. The right does not depend on “lack of moral probity”, and the award is “not penal but compensatory” (paragraph 17). The conduct must be “unreasonable to a high degree.

The conduct and circumstances relied upon by Cabo

This section, inevitably, makes up the bulk of the judgment (paragraphs 24-67). I do not intend to summarise it for the reasons given above – it is all meat, and I think you will want to read it yourself. I give you two tasters only.

In paragraph 24, the judge summarised “five overarching themes”. I set them out as bait to entice you to read the judgment.

(i) MGA’s original insistence on e-disclosure being conducted in-house; (ii) inadequate supervision of the e-disclosure process by Fieldfisher and its in-house document review provider, Condor Alternative Legal Solutions (“Condor”); (iii) the suite of technical failures that occurred during the e-disclosure process; (iv) the failure to identify “red flags”, i.e. indicators that the disclosure exercise was defective (Ms Kreisberger also described this as “turning a blind eye” to the deficiencies); and (v) the defective nature of the re-harvesting process which has been undertaken since the deficiencies in MGA’s disclosure exercise have come to light, together with MGA’s subsequent conduct in the lead up to this hearing.

In paragraph 33, we get to the nub of the thing – the need for skilled and independent advice in eDiscovery / eDisclosure matters.

It is clear that had anyone with independent expertise in eDisclosure been engaged by Fieldfisher to consider the appropriateness of the approach that MGA was intending to take to the harvest of documents … it would quickly have emerged that the approach proposed by MGA did not accord with best practice.

Cabo’s independent expert was Martin Nikel of Kroll Associates, whose report gave…

…his opinion there was an inadequacy of oversight, a lack of defined process and audit trail, and a misplaced faith that the technologies would work as intended.

Martin Nikel’s report included this:

“The sum of the issues in Collection and Production, both performed by MGA alone, demonstrate that neither is a result of the work of individuals experienced enough in the performance of tasks relating to eDisclosure. These issues could have been avoided if Fieldfisher had insisted on the engagement of an external eDisclosure expert, either to perform the task fully, or to guide MGA in their performance of the tasks. There are general statements noting experience in litigation processes on behalf of MGA, but nothing specifically showing the experience of Mr Tiongco and Mr Key in producing documents to another party in accordance with the Civil Procedure Rules”.

I don’t know what such an expert would have cost, but it would have been a trivial sum when set against £580,000 in interim costs.

Bringing together her summary on indemnity costs and her account of the defects and their consequences, the judge concluded (paragraph 68):

For the reasons set out above and looking at all of the circumstances of the case as a whole, I consider that MGA’s conduct in connection with the disclosure exercise was out of the norm in that it was outside the “ordinary and reasonable conduct of proceedings”…. Accordingly it is just to make an order for indemnity costs.

Unless order and payment on account

The judgment has two further points worth mentioning without elaboration here. The judge considered whether she should she make an Unless order (paragraphs 69-77). She decided that this would not be “proportionate or fair” given that the rules provide other mechanisms for enforcing orders. Was it right to order a payment on account (paragraphs 78-90)? Her conclusion was that “45% of the total sum incurred in costs by Cabo in respect of the aborted trial, namely £578,444.17, being 45% of £1,285,431.49, is a reasonable sum.”

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There is a lot to see here, even without any attempt on my part to report on what actually happened. Over the years, I have picked out cases in which the whole claim or defence was struck out for disclosure failures, without any consideration of the actual issues. The derailment of an imminent trial because of botched disclosure, and the resulting costs and two-year delay, are serious enough, but at least the parties live to fight another day.

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About Chris Dale

I have been an English solicitor since 1980. I run the e-Disclosure Information Project which collects and comments on information about electronic disclosure / eDiscovery and related subjects in the UK, the US, AsiaPac and elsewhere
This entry was posted in Discovery, eDisclosure, eDiscovery, Electronic disclosure. Bookmark the permalink.

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