The High Court has shown that it is willing to make an order for indemnity costs where a party’s inadequate in-house conduct of a disclosure exercise leads to an adjournment of trial.
A judge can make an order for indemnity costs if the conduct of the ill-performing party takes the situation “out of the norm”, or rather “outside the ordinary and reasonable conduct of proceedings”.
In Cabo Concepts Ltd v MGA Entertainment (UK) Ltd and another [2022] EWHC 2024 (Pat) poor in-house management of a disclosure exercise led to an order for the ill-performing party to pay costs on the indemnity basis. So it is important that in-house solicitors ensure their organisation has suitable IT and technical expertise to carry out disclosure internally, especially if there are lots of documents involved and no external supervision.
Cabo Concepts Limited (“Cabo”), a UK toy start-up, is claiming damages against MGA Entertainment (UK) Limited (“MGA”) for alleged abuse of a dominant position in the toy market. Cabo claims that MGA engaged in an anti-competitive campaign to hinder the launch of Cabo’s competing toy.
As MGA’s in-house IT team had no experience of disclosure in England, Cabo expressed concerns at MGA’s decision to carry out disclosure in-house. Cabo wanted MGA to be independently supervised by e-disclosure specialists. MGA insisted that such supervision was unnecessary as the technical process of harvesting documents would be overseen by MGA’s lawyers and their own e-disclosure specialists.
Unfortunately (to quote from the judgment) “the technical process of harvesting documents was not subject to any such supervision”. It seems MGA’s IT team lacked the experience and knowledge required to carry out a disclosure exercise involving more than 1 million documents. The judge commented that “this lack of supervision appears to lie at the root of the problems that then occurred”.
Shortly before the trial was due to start it transpired that MGA had failed to collect around 40% of all documents (around 800,000). Almost half of all potentially relevant documents were never even reviewed by MGA’s lawyers. The trial was adjourned until 2024. Cabo incurred substantial costs leading up to the aborted trial and requested MGA pay these wasted costs.
Yes. The judge ordered MGA to pay Cabo’s wasted costs on an indemnity basis because of: (i) MGA’s insistence on conducting disclosure in-house; (ii) inadequate supervision by MGA’s lawyers; (iii) the technical failures that occurred in the disclosure exercise; (iv) the failure of MGA’s lawyers to identify red flags which would have revealed such failures; and (v) the continuing lack of supervision at the re-harvesting stage even once the shortcomings became apparent.
If you have any queries about this article please contact Rory Mac Neice or Jessica Hedges (Trainee Solicitor) in the Commercial Disputes team.
