Quadrant Constructions Pty Ltd v Morgan Stanley Smith Barney Australia Pty Ltd
[2011] VSC 164
•29 April 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2007 7750
| QUADRANT CONSTRUCTIONS PTY LTD (in liquidation) (ACN 005 417 658) | Plaintiff |
| - and - | |
| MORGAN STANLEY SMITH BARNEY AUSTRALIA PTY LTD (formerly Citi Smith Barney Pty Limited) (ACN 009 145 555) | Defendant |
REASONS FOR DECISION
JUDGE: | MUKHTAR, AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 15 April 2011 | |
DATE OF JUDGMENT: | 29 April 2011 | |
CASE MAY BE CITED AS: | Quadrant Constructions Pty Ltd v Morgan Stanley Smith Barney Australia Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 164 | |
PRACTICE AND PROCEDURE ― Pleadings ― Complaint of vague and embarrassing allegations ― Sufficiency of particulars ― Strike out application after case fixed for trial with orders for witness statements ― Whether expected contents of witness statements sufficient to clarify or particularise allegations ― Facilitating the “just, efficient, timely and cost-effective resolution of disputes”― Civil Procedure Act 2010 (No 47 of 2010), s 7,9.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr I G Waller SC with Mr C Young | Slater and Gordon Limited |
| For the defendant | Mr A J Myers QC with Mr S Rubenstein | Mallesons Stephen Jacques |
HIS HONOUR:
This is a strike out application. It is unusual, and an awkward situation has been obtained.
The plaintiff has sued the defendant as its stockbroker and investment advisor for losses suffered in trading in share options on the stock exchange. The plaintiff says the defendant wrongfully recommended a continuation of such trade, when circumstances were such that it should have recommended instead a conservative investment strategy to accumulate a balanced, diversified, and a predominantly “blue chip” portfolio of shares.
The defendant has applied to strike out parts of a statement of claim contending that they are vague to the extent that they prejudice, embarrass or delay the fair trial of the proceeding. But the case has come a long way. Pleadings closed quite a while ago. There has been discovery. An (appealed) order for security for costs was made. An unsuccessful mediation has occurred. Subpoenas have been filed, and objections made. Moreover, this application is made months after the Court fixed the case for trial (on 24 October next on an estimated duration of 12 days) with pre-trial directions including the exchange of lay witness statements and the sequential delivery of expert witness statements. Despite that, the defendant complains that allegations in two elements of the claim are too vague and lacking in detail to enable it to properly prepare its witness statements. Strictly speaking, particulars cannot cure a bad statement of claim, but the defendant says if the Court will not strike out the allegations, it should order further particulars.
This application, earnestly pursued and resisted, and preceded by altercating correspondence, raises a number of questions. Is it too late for the defendant to be complaining about the pleadings now? In any event, are the allegations sufficiently clear to enable the defendant to know the case it has to meet in order to prepare its witness statements? If the allegations are lacking in detail, will that not be overcome through the medium of exchanging witness statements and if necessary the defendant can file witness statements in reply? Hovering above all these questions are the commandments under the Civil Procedure Act. The statutory overarching purpose, to which this Court is bound to give effect, is to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute.
Resolution of a strike out would usually depend on no more than a textual examination of the impugned allegations in a pleading. The principle is elementary. Pleadings are there to serve a basic requirement of procedural fairness that a party should have the opportunity of meeting the case against it, and, incidentally, to define the issues for decision: see Banque Commerciale SA v Akhil Holdings Limited.[1] The circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their rights and liabilities.
[1](1990) 169 CLR 279 at 286 per Mason CJ and Gaudron J.
Before going to the particular allegations, I am bound to say a little about the case as a whole and its procedural history, and refer selectively to the antecedent correspondence. That helps I think to inform the just and convenient solution to this application. At the outset I should state my conclusions. They are:
(a) There will be no strike out. The defendant can, and has, without embarrassment pleaded to the impugned allegations some time ago.
(b) The question is whether further particulars truly are needed to enable the defendant to prepare its witness statements. For that purpose, it is not too late to ask for further particulars because, for reasons I cannot revisit, the case was fixed for trial by an Associate Justice with a real and simmering dispute about particulars and, as I see it, an expectation or supposition that particulars could still be pursued.
(c) Of course, any defendant is entitled to be told the material facts of the case put against it before thought turn to evidence ― but not an explication and certainly not the evidence. The degree of detail depends on the nature of the case and whether facts are uniquely in the possession of a party. It is not unknown for particulars to be sought to confine the other side case to the parameters of a case, or to indirectly test the sustainability of its case. I sense all of these factors are present.
(d) The pleading concerning the alleged breach of retainer and the “manner “of options trading (that is, paragraph 22 and dependant paragraphs 23, 25 and 28) is unclear to a degree that I can accept the defendant’s apprehensions or quandary on such a critical allegation, although the defendant really should have moved the Court very much earlier. The pleading does not stipulate how or in what way the “manner “of options trading was wrongful according to the plaintiff. I think the defendant is entitled to know this with some precision. It is not enough, or not to the point, for the plaintiff to say “You as my stockbroker know what trading you undertook”.
(e) The pleading concerning the plaintiff’s loss of opportunity (paragraphs 15 and 29) is sufficient to show its nature. It is contiguous to the case for breach of retainer. That is, instead of being directed by the defendant to trading in share options, the plaintiff is saying on its pleadings that it should have been directed to trading in blue chip shares or some balanced portfolio which was risk aversive.
(f) Judging by the combative history of this case, to order further particulars at this advanced stage of the case is likely to be productive of delay, more paper, and more disputation about adequacy. Although as a rule, witness statements are no substitute for inadequate particulars, I think in the way this case has been conducted, the course that is least productive of delay, angst and accretion of legal labours is, as I suggested in argument, to modify the pre-trial directions and order sequential lay witness statements consonant with the order for expert witness statements. Let the plaintiff and its expert witnesses state the evidence about the retainer, the instructions, the “manner” in which the defendant conducted trading for the client, and how that was wrongful or a misfeasance by the defendant, the risks incurred, the financial damage caused, and how things could have been different had a conservative investment strategy been deployed. The defendant can then respond, and maybe the plaintiff will reply. That is one less lay witness statement than contemplated by the current directions.
(g) I think a sense of deprivation (for the plaintiff) of the forensic equality of an exchange of non expert witness statements is more perceived than real. A good part of this case will, as I see it, come to depend on expert evidence on the “manner” of trading and the alternative conservative share trading opportunity, for which there will be sequential delivery of witness statements anyway. If the case is that the plaintiff should not have been put into options trading at all in the first place, then the defendant can respond now. But to the discerning eye, the problem is that the case conspicuously spreads across to saying it was the defendant’s manner of conducting options trading that caused the loss. To that the defendant cannot respond now without seeing the particulars, in the form of the proposed evidence. But again, the defendant should have pursued this much earlier.
What is the case about?
The defendant Morgan Stanley Smith Barney Australia Pty Ltd is sued in two associated proceedings in this court. The first case is brought by Kenneth William Walker. The other is this one brought by Quadrant Constructions as trustee of the Walker Unit Trust of which the beneficiaries were Mr Walker and his relatives. In essence, each case is a claim for damages or equitable compensation (under the fiduciary principle) against Morgan Stanley as their stockbroker, securities dealer and investment adviser for losses suffered by them as clients under options trading undertaken between 2000 and 2003. For present purposes, both proceedings can be treated as having the same claims and factual substratum by nature and raising the same questions on the strike out.
The essential allegations are as follows. Walker says that in 2000 Morgan Stanley knew that he and Quadrant were clients of HSBC Securities Australia Ltd which had advised them about options trading, and carried out options trading for them on a discretionary basis. This was known, Walker says, by a stockbroker Mr David Sedgwick at Thonemann Robertson Pty Ltd, who had already been advising him and handling his share trading at a stockbroker. That organisation was acquired by HSBC Securities, and ultimately the stockbroking business came to form part of Morgan Stanley.
Walker also alleges that Morgan Stanley knew (through Sedgwick) that: Quadrant was established to protect Walker’s assets; that he had a strategy to buy “blue chip” shares and to “sit on them”; and that he had little or no direct experience of options trading and did not understand options trading. Yet, so the case goes, Morgan Stanley advised and recommended to him that he should “continue” to trade in options, should continue to use borrowed moneys “so to trade”, and should retain Morgan Stanley for that purpose. Walker says his retainer of Morgan Stanley was partially constituted by conversations in September 1995 in which Sedgwick said that options trading would not put him at risk of losing his shares because if the options “went bad” they could be rolled over and he “couldn’t lose”. It is said that Morgan Stanley’s advice necessitated Walker and Quadrant maintaining their portfolio of shares as collateral security to the Options Clearing House for options trading. That meant their portfolio of shares was exposed to trading losses incurred by options trading.
The advice given to Walker is alleged to have lacked a reasonable basis, or to have been misleading and deceptive, thus contravening various provisions of the Corporations Act. The first case for both Walker and Quadrant is that a competent and prudent securities adviser, having regard to their investment objectives, financial situation and particular needs, would have recommended that they cease options trading and undertake a conservative investment strategy to accumulate a balanced, diversified, predominantly blue chip portfolio of shares.
Walker alleges that before the termination of the retainer in July 2003, he became aware that his portfolio of shares, valued at about $3.5m had been lost by the exercise of security rights against it by HSBC Bank in consequence of options trading. One species of his loss and damage is the “lost opportunity to derive reasonable returns from other investments”. So pausing there, the opening and straightforward case under the Corporations Law is that options trading of itself should not have been recommended for this particular client.
Apart from those statutory causes of action, the balance of the case is based upon an action in contract law for breach of retainer; a breach of a tortious duty to exercise reasonable care skill and diligence; and a breach of fiduciary duty in not acting in the client’s best interests and not with good faith or fidelity.
The procedural history
The fact is that when the matter was fixed for trial there had been three spirited requests for further particulars by the defendant, and two more before this application was filed. Avoiding details, this is the potted history of the case:
(a)in August 2007 a writ was filed with a general endorsement;
(b)an appearance was filed in August 2008, and in September 2008 a statement of claim was filed and served;
(c)the first request for further particulars was dated October 2008 to which the plaintiff responded in November 2008, but the defendant regarded the response as inadequate;
(d)the defendant made a second request for further particulars in November 2008 with robust assertions that the pleading was flawed;
(e)in December 2008 a perfunctory or holding defence was filed, that is, mainly denials and saying nothing by way of countervailing allegations;
(f)in December 2008 the plaintiff Quadrant gave some particulars,
(g)soon after that, the defendant changed its solicitors and the plaintiff furnished but did not file a “consolidated” statement of claim which inserted additional particulars;
(g)in February 2009 there was a third request for further particulars to which the plaintiff responded in April 2009;
(h)in June 2009 the defendant applied for security for costs which was allowed but only for a much smaller amount than sought, which was increased on appeal in September 2009 up to the stage of mediation.
Pausing there, by that stage there had been three requests for further particulars each of which were responded to in a way that the defendant regarded as still not overcoming the defects in the pleading. Thereafter the following steps occurred –
(a)in June 2010 an amended statement of claim was filed. In essence, it introduced the causes of action of the Corporations Act and introduced the case under the fiduciary principle. The claim under the Corporations Act included loss and damage by reason of “Quadrant’s lost opportunity to derive reasonable returns from other investments, including property development investments.” Otherwise, the allegations which are the subjects of the strike out remained the same.
(b)A defence was filed in July 2010.
(c)Mediation occurred in September 2010.
(d)Associate Justice Daly made orders on 12 October 2010 fixing the matter for trial with pre-trial directions.
When the cases were fixed for trial, I am told there was a debate before her Honour whether witness statements ought be exchanged or ordered to be sequential. The defendant complained then, as it does now, that certain important allegations were too vague and it was unfair or wrong in principle to have to file simultaneous witness statements without really understanding the case put against the defendant. It is said by the defendant, and not disputed, that although her Honour made an order for the exchange of lay evidence “… at the time it was made her Honour noted that particulars of the claim could be requested to allow [the defendant] to be able properly to prepare its evidence in the Proceeding.”[2]
[2]See letter dated 4 November 2010, which is exhibit CMM-7. See also exhibit CMM-9 at para 3.
I think it is idle to dwell upon utterances or assumptions at the time the matter was fixed for trial. Judging by the correspondence, it seems that senior counsel for the plaintiffs in urging the Judge to order an exchange of lay statements rather than sequential filing, said the defendant could request particulars in order to clarify the matters pleaded thus allowing the defendant to prepare its evidence for exchange.[3] What matters, so I conclude, is that after that pre-trial directions hearing, it was accepted or supposed all round that the defendant could persevere with its requests for further particulars ostensibly in order to prepare its witness statements.
[3]See letter dated 11 April 2011, which is exhibit JH 10.
Bearing in mind that the last request for particulars had been made in April 2009 and the statement of claim was amended in June 2010, in November 2010 the defendant sought further particulars of paragraphs 8, 13, 14, 15, 17, 18, 21, 22, 23, 24 and 28. That was the fourth request. It was a red blooded request and was squarely put on the basis that the particulars were “woefully inadequate” and improvement was necessary to refine the issues and enable the preparation of evidence. The defendant also pressed for further particulars in instances where the pleading had said “further particulars will be provided after discovery”.
Generally speaking the request was met with resistance on the grounds that the existing particulars were sufficient, and a contention that the defendant was in truth looking to a revelation of the evidence. Correspondence then became even more argumentative. Come 23 December 2010, the defendant pressed its fourth request, in effect making a fifth request for particulars. A deadline was imposed failing which the defendant said it would move to strike out.
By letter dated 23 December 2010, Quadrant responded to each of those requests. In essence, Quadrant said the allegations were adequately particularised, gave a few more facts to augment pre‑existing particulars, made reference to some documents but otherwise informed the defendant that information would be given by expert evidence. More correspondence followed, largely argumentative, to which I will not refer.
The conclusion I draw from all this is that the defendant’s application is legitimate if it goes no further than seeking particulars. A course has been set where a strike out is too late and not called for. The defendant quite rightly wants to prepare replete witness statements, and the case was fixed for trial on the basis that further particulars could be requested to enable the defendant to do so. That was done I suppose to minimise delay. The plaintiff declines to give particulars on the grounds the requests probe into matters of evidence, and that all will be revealed in the witness statements. The defendant contends the pleadings are paramount and that it is not acceptable in legal principle to use witness statements to cure an under-particularised statement of claim. That really is the question in this application.
The effect of the correspondence was to concentrate on two aspects of the claim: the breach of retainer and the claim for lost opportunity.
The breach of retainer claim
The claim under the Corporations Act pleads the retainer as having been induced by the defendant’s advice that the plaintiff should continue to trade in options. Based on that retainer, paragraph 17 then commences a case in contract based upon an agreed investment strategy. Paragraph 17(a) alleges an express term of the retainer that the defendant –
… would on Quadrant’s behalf…and on a discretionary basis according to Sedgwick’s judgment, trade options within the Australian Stock Exchange so as to derive premium income and a net earnings from such trading (“the Strategy”).
The strategy is alleged to have emanated from conversations between Sedgwick and Walker in particular in about September 1995. Sedgwick allegedly told Walker that that trading in options would not put Quadrant at risk of losing its shares, because if the options “went bad” they could be “rolled over” and Quadrant “couldn’t lose”.
At paragraph 17(b), the plaintiff alleges an express terms that the defendant would ensure that the trading would not place the shares owned by Quadrant at material financial risk from implementing the strategy. An attack was made by Mr Myers on the imprecision of some of the language but I think paragraph 17(a) and (b) are tolerably clear. When linked back to the terms of the laconic conversation between Walker and Sedgwick, the plaintiff’s case is that based on Sedgwick’s advice, the agreed strategy was to trade in options to gain high returns without placing the plaintiff’s share portfolio at material financial risk.
Paragraph 17(c) puts an implied terms case that Morgan Stanley would exercise all reasonable care, skill and diligence. A contract can of course give rise to concurrent duties of performance in tort, but I perceive legal tension between 17(a) and 17(c) because, as I observed in argument, 17(a) seems akin to a contractual warranty carrying an absolute promise of ensuring net positive earnings, yet 17(c) introduces notions of reasonable care. Even so, that divergence is more a matter of sustainability or legal compatibility rather than a source of pleading embarrassment.
Paragraph 18 alleges the implementation of a strategy between 2000 and 2003 in telephone instructions between Walker and Sedgwick. Paragraph 19 alleges that “Sedgwick wrote options to open share transactions and bought options to close share transactions within the ASX and undertook associated share acquisitions and sales.” Annexed to the amended statement of claim is a substantial schedule of spread sheets giving copious details of all share and option trading done for Quadrant. As I read the pleading, those are the transactions that were carried out in order to implement the strategy of trading in options. So far, the pleading is clear enough.
The problem, and the defendant’s attack, comes with the allegation of wrongdoing in paragraph 22 which connects with paragraph 23 25 and 28. Paragraph 22(a) says that in breach of the retainer the defendant did not derive net earnings from the strategy. The particulars say that the options trading activities undertaken by the defendant resulted in losses totalling $2.629m. The losses are referrable to Schedule 1. At a glance, as I read that schedule, it shows for each transaction in red whether the options trade resulted in a net loss.
Paragraph 22(b) alleges that the defendant did not trade shares and options “in such a manner as would not place at material financial risk the shares owned by Quadrant”. The phrase “in such a manner” is uninformative. The particulars say that “Expert evidence will be provided prior to, and adduced at trial” which is another way of saying airily “It needs an expert to explain, and we shall tell you later.” That is unacceptable under pleading principles. Yet, that allegation was always there (that is, even before the amendment in June 2010) and it could have been challenged.
Paragraph 22(c) alleges a lack of reasonable care, skill and diligence in implementing the strategy. There is a body of particulars, with some jargon, which in essence says that Sedgwick engaged in the writing and selling of certain trades, described as Naked Options and Spread Trades which were not appropriate to retail investors such as the plaintiff, and which exceeded the underlying value of his share portfolio and gave rise to excessive gearing.
I can quite understand the defendant seizing on paragraph 22. The defendant wants to know with precision what it has done wrong, before adducing primary evidence about it. As the case stands, the defence alleges that it acted only as stockbroker, under a written stockbroking agreement; that Walker had more than 10 years experience in exchange traded options or derivatives and was well aware of the risks; and that Sedgwick placed orders and made trades on an execution only basis, that is, on receipt of instructions from Walker to do so.
The defendant complains that there are no particulars given in support of the assertion that the shares and options were not traded “in such a manner” as would not place at material financial risk the shares owned by the plaintiff. They say there is no identification of the manner in which the shares were traded or the options were traded. The defendants ask: does the plaintiff allege that the profitable trading was in breach of retainer or only the losing trade? If only specific trading of shares or options, then which ones, and in which period? Simply put, the defendant asks how and in what manner did the defendant trade shares and options such that the shares of the plaintiff were put at material financial risk, and what shares and options is the plaintiff referring to?
I can see the force of the defendant’s attack. The case put for the breach of the Corporations Act is that it was wrong of the defendant to recommend the continuation options trading at all, and had the plaintiff not been put options trading it would have had the opportunity of deriving reasonable returns from other investments. When it comes to the case in contract under the retainer, the allegation of breach is not so much the very idea of putting Quadrant into options trading, but trading in shares and options “in such a manner” as placed Quadrant at material financial risk. That segment of the case seems to attack not the phenomenon of options trading but the particular type of options trading. As I read the case, the plaintiff is not saying “You should not have put me into options trading at all; but you conducted options trading in such a way as to cause me loss.”
If a broker is going to be sued for the manner in which he conducted trades for a client, then I can quite see the unfairness in the broker not knowing by reference to particular transactions how and what way his action was unlawful.
The response so far in the correspondence is to say that there is no necessity for particularising the inappropriateness of any individual trade, transaction or optioning positioning because the claim is that the strategy was inappropriate in itself. On that basis, the defendant has requested the plaintiff to confirm by an amendment whether it is only asserting that the overarching strategy of trading options was inappropriate, and they were not seeking to rely upon the manner of trading.[4] But the plaintiff has refused to amend the pleadings to say that. In the written submissions in this application, the plaintiff says that “…it is not a claim that this trade or that trade was in breach of the retainer but the whole manner of the options trading contravened the retainer as alleged.”
[4]See letter dated 14 February 2011, which is exhibit CMM-16.
I have read and re-read the allegations concerning the retainer and the breach. If I was the trial Judge, I would understand them only to be saying that the manner in which the options trading was carried out was in breach of the strategy. I do not read the allegations to be saying that the very idea of trading in options was a breach of the retainer because paragraph 17 explicitly alleges that “the Strategy” included trading in options. But the problem remains: what is meant by the “whole manner”?
This problem also infects I think the related paragraphs 25 and 28 which pleaded breach of a duty of care in tort but the factual substratum seems to be the same. That is, assuming the strategy truly did involve trading in options, if the allegation is that trading in options was wrongful, or careless, then the defendant needs to understand how, when or in what way certain trades were negligent. That is, unless the plaintiff is saying that the act of trading in options simpliciter was negligent, it is only right for the defendant to be told how and in what way it was negligent in the whole manner in which it conducted trades.
The loss of opportunity claim
Paragraph 15 alleges that Quadrant lost the opportunity to derive reasonable returns from other investments, including property development investments. In a letter dated 4 April 2011, the plaintiff foreshadows amending this so that it reads –
Quadrant’s lost opportunity to derive reasonable returns from other investments, including investments in securities, on the advice of the competent, prudent securities advisor to cease options trading and undertake a conservative investment strategy to accumulate a balanced, diversified, predominantly blue chip portfolio of shares.
The same loss of opportunity is pleaded in paragraph 23 for the breach of the retainer and in paragraph 29 for the breach of the fiduciary duty and for the breach of the duty of care.
The law awards damages for loss of any chance or opportunity which can be causally linked to a breach of contract. The ambit of recovery extends to a loss of a chance that would have been created by performance of the contract; that is, damages for loss of chance may be recovered whenever that loss is foreseeable as a probable result of the breach: see generally Chesire and Fifoot’s, Law of Contract.[5] That means, I think, it can be a case of consequential loss on Hadley v Baxendale lines.
[5]9th Australian ed. At 23.14 cf.
Where a case is properly characterised as a loss of opportunity or loss of chance then as the defendant submitted it is not enough legally for a plaintiff to assert the bare existence of opportunities. The plaintiff must plead that a particular opportunity existed; that the opportunity would have been pursued but for the relevant conduct of the defendant; and the particular opportunity would or might have been achieved: see Adelaide Petroleum NL v Poseidon Ltd;[6] F & G Nominees Pty Ltd v Verdell Pty Ltd[7] and Commonwealth v Amman Aviation Pty Ltd.[8]
[6][1988]FCA 350 (at first instance per French J). See Sellars v Adelaide Petroleum (1994) 179 CLR 332
[7][2003] VSCA 290 at [135].
[8](1991) 174 CLR 332.
Maybe the point is semantic, but I have my doubts whether the expression “loss of opportunity” is really the correct way to cast, or analyse, the claim here. It seems to me the plaintiff is alleging that had it been properly advised or had the retainer been performed in accordance with its terms or had the tortious duty been not carelessly performed, he would have derived returns from other investments in a balanced and diversified investment strategy. The plaintiff is saying no more than he was deprived of the opportunity to have his investments made in a balanced, diversified, blue chip portfolio of shares. Put another way: instead of investments in that portfolio of shares, his money was wrongfully applied in options trading. It really is a deprivation of a chance of avoiding loss.
What I can accept is that properly pleaded, the plaintiff should have set out with precision the financial composition of this part of its case. How will the plaintiff model, and with what data, the case of what would have happened fiscally had the defendant not recommended options trading but a conservative share portfolio? That is something truly calling for expert presentation and appraisal, and I can only suppose that explains why expert witness statements were ordered to be served sequentially.
The “just, efficient, timely and cost effective resolution” of this dispute
For the plaintiffs, Mr Waller contends that there is an injustice in bringing this application after so much has happened on the faith of the pleadings now sought to be impeached. He contends the pleadings disclose the case that Morgan Stanley must meet, and a defence has been filed according to which the defendant’s lay witness statements can presumably be prepared. In any event, he submits there would be inefficiency and delay in striking out, or ordering of further particulars. The just and constructive course he submits is for the parties to proceed to exchange lay witness statements as has already been ordered by the Court. That will enable the defendant to file its own lay witness statements based upon the pleadings including its own defence; and for Morgan Stanley to then file any reply statements after it sees the plaintiff’s lay witness statements.
I will accept there would be inefficiency and delay in striking out or ordering further particulars. I will accept the course has been set for sequential expert evidence which seems to cover the troublesome expression “manner of trading” and the so called loss of opportunity modelling and computations. I see no injustice in the defendant in effect getting the particulars in the form of evidence and then responding to them. As for the lay witness statements, I cannot prognosticate, but it may well be they will be largely directed at matters such the history of the relationship between Walker and Sedgwick, the conversations giving rise to the retainer, the conception of “the Strategy”, and the way that strategy was executed as between client and advisor.
True it is, as Mr Waller says, Sedgwick can give his side of the story before receiving Walker’s, and then file a reply statement and in effect join issue. But as I see it, this case is mainly about the “manner” of trading. To my mind it is not right in principle for to expect a defendant to prepare its evidence by saying: “I do not yet know how or in what way it is said I have breached the retainer, but this is why I think I have done nothing actionably wrong.” The defendant needs to be told by Walker and the experts, in the witness statements, what it is precisely that Sedgwick has done wrong in his manner of trading by reference to the trades. I realise in effect that amounts to witness statements replicating the role of particulars but at the stage this case has reached, I think it is the practical course.
And that is why I think the just and convenient solution is to alter the directions previously made so as to order the sequential service of lay witness statements consonant with the order for expert witness statements. I am told that no witness statements have been filed. They were due on 21 February 2010. More delay. That means the dates in the directions (but not the trial date of course) will have to be re-set. I ask that the parties attempt to reach agreement on that.
As for costs of this application, I will of course hear argument. It seems to me no side has really won. The outcome is driven by the Court’s desire to advance the litigation for the parties’ mutual benefit.
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