BAILII [Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

Scottish Court of Session Decisions


You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> THORNTONS INVESTMENT HOLDINGS LTD AND OTHERS AGAINST RORY MATHESON AND OTHERS [2023] ScotCS CSOH_63 (21 September 2023)
URL: http://www.bailii.org/scot/cases/ScotCS/2023/2023_CSOH_63.html
Cite as: [2023] CSOH 63, [2023] ScotCS CSOH_63

[New search] [Context] [View without highlighting] [Printable PDF version] [Help]


OUTER HOUSE, COURT OF SESSION
[2023] CSOH 63
P426/23
OPINION OF LORD SANDISON
In the Note of
(FIRST) THORNTONS INVESTMENT HOLDINGS LIMITED; (SECOND) MATHESON
CONSULTING LIMITED; and (THIRD) THORNTONS WEALTH MANAGEMENT
LIMITED
Noters
against
(FIRST) RORY MATHESON; (SECOND) LISA MATHESON; (THIRD) MARGARET
McINTOSH; (FOURTH), ROBERT McINTOSH; and (FIFTH) GRANITE WEALTH
CONSULTING LIMITED
Respondents
Noters: MacColl, K.C., Ower; Thorntons Law LLP
First and Second Respondents: McIlvride, K.C.; Blackadders LLP
Third and Fifth Respondents: Tosh; Mackinnons Solicitors LLP
21 September 2023
Introduction
[1]
This is a Note within a pending petition process which was brought to obtain orders
in terms of section 1 of the Administration of Justice (Scotland) Act 1972. The Noters (the
petitioners in the petition process) ask the court to excuse their use, without prior
permission, of documents recovered by way of "dawn raids" authorised by the court under
section 1 of the 1972 Act, and to grant permission for those documents to be used for certain
purposes other than that for which the section 1 order was granted. The first and second
2
respondents maintain that no such orders should be granted. The third and fifth
respondents go further and ask the court not only to refuse the prayer of the Note, but to
sanction the Noters for their unauthorised use of the documents in various ways.
Statutory Provision and Rules of Court
[2]
Section 1(1) of the Administration of Justice (Scotland) Act 1972 is in the following
terms:
"1.-- Extended powers of courts to order inspection of documents and other property, etc.
(1) Without prejudice to the existing powers of the Court of Session, of the Sheriff
Appeal Court and of the sheriff court, those courts shall have power, subject to the
provisions of subsection (4) of this section, to order the inspection, photographing,
preservation, custody and detention of documents and other property (including,
where appropriate, land) which appear to the court to be property as to which any
question may relevantly arise in any existing civil proceedings before that court or in
civil proceedings which are likely to be brought, and to order the production and
recovery of any such property, the taking of samples thereof and the carrying out of
any experiment thereon or therewith."
[3]
Chapter 64 of the Rules of the Court of Session 1994 deals with applications for an
order under section 1 of the 1972 Act made where a cause is not depending before the court
in which the application is made, and inter alia provides as follows:
"64.3 The petitioner shall lodge with the application ­
...
(b) an undertaking by the petitioner that he ­
(i) will comply with any order of the court as to payment of compensation if it
is subsequently discovered that the order, or the implementation of the order,
has caused loss to the respondent or, where the haver is not the respondent,
to the haver; and
(ii) will bring within a reasonable time of the execution of the order any
proceedings which he decides to bring; and
(iii) will not, without leave of the court, use any information, documents or
other property obtained as a result of the order, except for the purpose of any
proceedings which he decides to bring and to which the order relates.
Modification of undertakings
64.4 The court may, on cause shown, modify, by addition, deletion or substitution,
the undertaking mentioned in rule 64.3(b)."
3
Factual Background
The Parties
[4]
The Noters are a group of companies involved in the business of the provision of
investment advice and financial planning. The ultimate owners of the group are present and
former partners in the firm of solicitors presently known as Thorntons Law LLP. Until
December 2020 the third Noter was not part of the group, but was owned by the first and
second respondents, Rory and Lisa Matheson, and was known as Matheson Financial
Consulting Limited. It changed its name in December 2022 to Thorntons Wealth
Management Limited, and it now trades as "Thorntons Wealth", but I shall refer to it as
"MFC", an abbreviation of the name by which it was known during the period when most
of the events relevant to this dispute occurred. The Mathesons sold their shares in MFC to
the group in December 2020 and entered into certain restrictive covenants aimed at
preventing them from competing with the business of MFC, or attracting away its clients, for
a three-year period after the sale. Mr Matheson also remained employed by MFC on terms
which prevented him disclosing confidential information to others during and after his
employment. The third respondent, Margaret McIntosh, was also an employee of MFC and
her terms of employment likewise contained anti-competition and confidentiality
provisions. The fourth respondent, Robert McIntosh, is Margaret's husband, but his
involvement in the events in issue in the Note is limited and he did not lodge answers or
otherwise participate in the Note process. The fifth respondent, Granite Wealth Consulting
Limited, is a company set up in May 2022, owned by Mrs McIntosh and to which
Mr McIntosh is the company secretary, and which is alleged by the Noters to have been
4
intended as a vehicle for Mrs McIntosh, with the backing of Mr Matheson, to compete with
MFC and lure away its clients.
The Section 1 Petition
[5]
In April 2022 Mrs McIntosh gave notice of her intention to resign from her
employment with MFC. The following month, Chris Forde, Head of Financial Planning for
MFC, claims to have received a package in the mail from an anonymous sender enclosing a
copy of an email between Mr and Mrs McIntosh suggesting that Mr Matheson was
attempting to put Mrs McIntosh in touch discreetly with an accountant in connection with a
proposal to set up a new company for her to carry on business in the financial services
sector. Later in May 2022, Stephen Webster, the Noters' Chief Executive Officer, is said to
have received a further anonymous package consisting of a note warning him that plans
were well established to transfer clients to a new entity set up, funded and staffed by current
employees, together with emails bringing to light the connection between the McIntoshes
and Granite Wealth and implying that Mr Matheson was providing that company's initial
capital by way of loan to Mrs McIntosh. Documents bearing to be a timeline and business
plan for the new enterprise were also provided, suggesting that it was proposed that other
employees of MFC would in due course leave it and join the new venture, and that existing
clients of MFC would be lured to it as soon as Mrs McIntosh's restrictive covenants expired.
[6]
The Noters, instructing Thorntons Law LLP as their solicitors, then all petitioned this
court under section 1 of the Administration of Justice (Scotland) Act 1972 narrating that they
intended to bring proceedings against the Mathesons based on their alleged breaches of the
restrictive covenants in their share sale contract, and against Mr Matheson and
Mrs McIntosh in respect of their alleged breaches of their employment contracts, as well as
5
against Granite Wealth, for damages or an account of profits. They narrated that those
intended proceedings would also seek interdict against wrongful actings, and orders for
delivery up of confidential material. It was claimed that, in order to allow the proposed
proceedings to be properly pled, certain types of documents and property should be taken
into the possession of the court, and to that end that authority should be given to
commissioners of the court to enter the homes of the Mathesons and the McIntoshes without
prior notice, to search for and seize material of the relevant description, and to deliver it to
the custody of the court. The material in question was, broadly speaking, any hard copy or
electronic document containing information relating to the business of the Noters obtained
by Mr Matheson or Mrs McIntosh in the course of their employment with MFC; information
confidential to MFC or Matheson Consulting Limited (including client details, terms of
business, financial information, and business, strategy and marketing plans); the identities
of any third parties to whom such confidential information had been disclosed, and the
nature of any such disclosure; the terms on which the Mathesons had provided financial
backing to the McIntoshes or Granite Wealth to facilitate the establishment or operation of
the latter; and generally any communications amongst the Mathesons and the McIntoshes in
connection with the incorporation of Granite Wealth, or communications with clients in
connection with investment, wealth management or financial planning services.
[7]
On 23 June 2022 the court was persuaded to grant the orders sought. It appointed
one senior member of the Bar to attend at the Mathesons' house, and another to attend at the
McIntoshes'. In accordance with Rule of Court 64.3(b)(iii), the Noters were required to
undertake to the court as a pre-condition of the order being made that they would not,
without the court's leave, use any information, documents or other property obtained as a
result of the order, except for the purpose of any proceedings which they decided to bring
6
and to which the order related - in other words, for the purposes of the particular
proceedings which they had told the court in the section 1 petition they intended to bring, as
described above. That undertaking was given on their behalf by Scott Milne, a solicitor and
partner in Thorntons Law LLP and a member of the boards of directors of all three Noters.
Implementation of the Section 1 Order and its Aftermath
[8]
"Dawn raids" took place at the homes of the Mathesons and the McIntoshes on
24 June 2022. A solicitor from Thorntons Law LLP was present at each raid, as was an IT
expert appointed to assist the relevant commissioner to identify any electronic devices and,
if possible, ascertain on the spot whether those devices contained any material falling within
the terms of the court's order. In the event, electronic devices were seized from the
Mathesons' home so that they might, with the leave of the court, subsequently be examined
in order to ascertain whether they contained any such material. Such devices were seized
from the McIntoshes' home for the same purpose, as were hard copy documents.
Mr McIntosh initially asserted a claim to confidentiality in respect of the contents of a mobile
telephone and a laptop seized from him and used for the purposes of his (unrelated)
employment, but then withdrew that claim. Each of the commissioners subsequently
reported to the court. The commissioner who had attended at the McIntoshes' home
initially did so on 29 and 30 June 2022. Each of his reports was submitted, not only to the
court, but to Thorntons Law LLP. The report of 29 June 2022 outlined in general terms what
had been seized from the McIntoshes' home, both documents in hard copy and electronic
devices, but did not disclose any detail of the content of those items. The report of 30 June
2022 slightly amended the inventory of electronic devices seized and noted the results of an
initial professional examination of Mrs McIntosh's mobile telephone, which suggested that
7
some deletion of call logs may have taken place, or else that it was not the only such
telephone used by her.
[9]
On 8 July 2022, on the application of the Noters, the court allowed them to inspect,
borrow and take copies of the hard copy documents listed in the McIntosh commissioner's
report of 30 June 2022, and allowed the electronic devices seized during the raids in respect
of which Mr McIntosh had withdrawn his initial claim of confidentiality to be sent to the IT
expert for analysis. It is important to note that the court was not asked to, and did not, allow
the hard copy documents to be used for any purpose other than that specified in the
section 1 petition, viz., for the purpose of raising proceedings against the respondents along
the lines set out in the petition. Equally, the court was not asked to, and did not, allow the
petitioners to have any access to the content of the electronic devices sent in the first instance
for analysis. Rather, it expected the analyst to report to the relevant commissioner, who
would in turn report to the court, which itself would decide, in the absence of consent on the
part of those from whom the material had been seized, whether any of it should be released
to the Noters.
[10]
In his capacity as solicitor to the Noters, Mr Milne attended at court on 8 July 2022
and borrowed the hard copy documents to which the Noter had been allowed access. He
also uplifted the electronic devices in respect of which confidentiality had initially been
asserted to be sent to the IT expert, who already had the other devices seized during the
raids for analysis.
[11]
On 12 July 2022 the Matheson commissioner reported to the Court, identifying the
electronic devices seized from the Mathesons and noting that they were in the possession of
the IT expert in order that he could search them for any material falling within the terms of
8
the court's original order. He stated that he believed that he had exhausted the court's
commission to him.
[12]
On 14 July 2022 Mr Matheson lodged answers to the section 1 petition. He opposed
a further motion made by the Noters to be permitted to examine the material seized by the
Matheson commissioner, and given that the petition was now a contested one, the court on
4 August determined that any access to that material should wait until the determination of
a hearing on the petition and answers, which was fixed for 27 September.
[13]
The IT expert carrying out the examination of the remaining electronic devices seized
in both raids reported his findings to the commissioners on 11 September 2022. That report
not only stated, inter alia, that material falling within the court's order had been found on
certain devices, but also indicated the nature of that material. Thorntons Law LLP became
aware that this report had been sent to the commissioners and emailed them both on the
morning of 12 September asking to be shown the expert report as soon as possible and
enquiring whether the court's permission was required to achieve that. The McIntosh
commissioner issued a further report dated 12 September, which effectively simply brought
to the court's attention the entirety of the IT expert's report and thus disclosed not only the
existence, but also the nature, of material falling within the court's order found on the
electronic devices seized in the raids. That report was sent to the court and also to
Thorntons Law LLP. The commissioner stated in an email to Thorntons Law LLP that he
did not think it necessary to seek the court's permission to access the content of the expert's
report but that it would be best to check that matter directly with the court. The Matheson
commissioner stated in an email to Thorntons Law LLP that, insofar as he had any
remaining jurisdiction, he was content that the IT expert's report might be released to the
Noters. Thorntons Law LLP then decided, seemingly having consulted counsel, that it
9
would be in order to disclose the commissioners' reports, incorporating the IT expert's
report, to the Noters without further recourse to the court. The reports were disclosed by
Mr Milne to other solicitors at Thorntons Law LLP, and to Mr Webster and Mr Forde of the
Noters. In consequence of that disclosure, instructions were received for Thorntons Law
LLP to raise on behalf of the Noters the litigations against Mr Matheson, Mrs McIntosh and
Granite Wealth contemplated in the section 1 petition. The petition proceedings were sisted
and the hearing in them scheduled for 27 September did not take place. Summonses in the
actions contemplated by the section 1 petition passed the Signet on 17 October 2022, and are
being defended. The Noters intend to make use of the material recovered in the section 1
petition in those litigations, although objection is taken by at least some of the defenders in
those actions to that use. No attempt was made by any party to obtain an express ruling
from the court in that connection in these proceedings.
Improper Use of Recovered Material
[14]
Winding back the clock for a moment, on the same day as the dawn raids were
carried out, 24 June 2022, Mr Matheson and Mrs McIntosh were suspended from their
employment by MFC (Mrs McIntosh already being on gardening leave after having given in
three months' notice of her intended resignation in April). Matthew Strachan, Chief
Investment Officer with MFC, was charged with carrying out an investigation into
Mr Matheson's conduct in light of the concerns raised by the content of the anonymous
deliveries already said to have been received. Mr Strachan had available to him the
information contained in the recoveries made under the section 1 petition and appears to
have made unauthorised use of it, to an extent that remains uncertain (since the court did
not hear from him), for the purposes of his investigation. Mr Matheson was in due course
10
summoned to a meeting with Mr Strachan to address matters of concern, but immediately
prior to that meeting, on 3 November 2022, he resigned from his employment with
immediate effect. In January 2023 he raised proceedings in the Employment Tribunal
against MFC, claiming to have been constructively unfairly dismissed and referring in that
regard to the dawn raid having been carried out at his home at MFC's instance, and to the
action raised against him by the Noters, which he maintained was unjustified. In response
to those proceedings, MFC, again acting through Thorntons Law LLP, stated in its defences
to the Employment Tribunal proceedings that:
"A Section 1 petition is not granted lightly - there has to be a strong prima facie case
on the basis of the evidence before the court which is presented on an ex-parte basis
and the court also has to be satisfied that there is a likelihood of proceedings being
raised against the respondent (in this case, the Claimant). The petition being granted
demonstrates that there was such a prima facie case."
It also maintained in those defences that Mr Matheson's suspension had proceeded upon the
anonymous material received:
"and also data, client records, telephonic documents, the business plan and other
data held in digital format, including communications with the Claimant, recovered
from Ms McIntosh's property".
That statement carried the implication that the material seized from Mrs McIntosh was apt
in some unspecified regard to justify the suspension of Mr Matheson. The solicitors at
Thorntons Law LLP who stated that defence did so because they were informed by
Mr Milne that such was the case. In fact, as already narrated, Mr Matheson was suspended
on 24 June 2022 before any recoveries from the dawn raids had been considered. Counsel
reviewing the Employment Tribunal proceedings realised that the claim made by MFC
therein that Mr Matheson had been suspended at least in part because of the content of the
recoveries could not be true. On 21 April 2023 Thorntons Law LLP wrote to the
Employment Tribunal withdrawing MFC's claim that Mr Matheson had been suspended, at
11
least in part, as a result of the nature of the recoveries made in terms of the section 1 petition,
but went on to state:
"However, whilst this information was not taken into account as part of the
Respondent's decision to suspend the Claimant, and the Claimant resigned prior to
the disciplinary investigation actually taking place, the Respondent considers that
some of this information is relevant to the Respondent's Polkey and contributory fault
arguments (narrated in paragraph 20 of the attached version of the ET3 paper apart).
Therefore, the Respondent would intend to include this information in the bundle.
However, the Respondent does not currently have permission from the Court of
Session to use them for the purposes of this Employment Tribunal claim.
Accordingly, it is seeking such permission now."
That communication plainly carried at least an implication as to the nature of the material
recovered, namely that it was considered by MFC to support a "Polkey" defence (i.e. an
argument that any award to Mr Matheson in respect of unfair dismissal should be
discounted in order to reflect that he might in any event have been fairly dismissed) and to
support a contributory fault argument.
[15]
On 23 April 2023, MFC applied to the court by motion for permission to use the
section 1 recoveries in the defence of the Employment Tribunal proceedings. Given that that
application required to take into account relatively complex facts and was hotly disputed, it
was directed to proceed by way of the present Note. A substantive hearing in the
Employment Tribunal scheduled for May 2023 was postponed to enable the Note
proceedings to be concluded first.
[16]
In respect of Mrs McIntosh, she was also put under investigation pursuant to MFC's
disciplinary processes. On 7 July 2022 Mr Webster wrote to her, stating:
"An external investigation continues following the Discovery Process, and we await
the final report on findings (`the external report') which we anticipate may take up to
4 weeks.
Once we have received the external report, our internal investigation will commence
which forms part of our Disciplinary Procedure. In that regard, we have appointed
Matt Strachan to lead and conduct the disciplinary investigation. The aim of the
12
investigation is to establish the facts of the matter by gathering as much relevant
information as possible and his investigation will take into account the external
report following the Discovery Process."
The external report referred to in that letter must have been either of both of the
commissioner's anticipated final report to the court, or the IT expert's report on the content
of the recovered devices (the release of which to the Noters the court had not authorised).
Mr Strachan produced a summary report on his disciplinary investigation on 5 October
2022. It noted that his terms of reference were:
"Physical documents and files and digital data (including phone and mail records)
recovered from Margaret McIntosh's home on 24th June 2022 during authorised
Section One recovery process".
The summary report contained an extensive narration of the content of material recovered
by way of the section 1 petition process and stated Mr Strachan's view that it justified the
commencement of disciplinary proceedings. Those proceedings were carried out by
Edward Rosengarten, a non-executive director in the Noters' group. They also relied
extensively on the content of the recoveries. Mrs McIntosh did not participate in the
disciplinary proceedings, which found on 19 October 2022 that she had breached various
duties of fidelity and confidentiality incumbent on her. She was dismissed from MFC's
employment, but on 11 November 2022 appealed that dismissal in terms of its domestic
processes. Her appeal specifically complained of the unauthorised use of the section 1
recoveries for the purposes of the investigation and disciplinary processes which had been
maintained against her. The hearing of that appeal has been overtaken by the current
dispute and the appeal has not yet been determined.
[17]
Further, MFC, Mr Matheson and Mrs McIntosh are subject to regulation by the
Financial Conduct Authority. MFC formed the opinion, assisted by external advice by
compliance consultants, that it required to notify the FCA of the commencement of
13
disciplinary proceedings against those individuals. On 13 July 2022. Stephen Webster, the
Chief Executive Officer of MFC (to whom, it will be recalled, Mr Milne had shown the
material recovered in terms of the section 1 petition) notified the FCA of those proceedings,
and in doing so stated:
"At the time of writing this notification the court representatives are conducting their
inspections of the various devices and documents seized. I was invited by the court
officials on the 8th July 2022 and 11th July 2022 to inspect two boxes of documents
which were acquired from the home of Margaret McIntosh during the
implementation of the section one order. The boxes contained a significant amount
of client personal and financial information belonging to our firm which has been
taken without knowledge and consent of the business."
Mr Webster also repeated to the FCA the opinion of the IT expert, referred to in the report of
the McIntosh commissioner of 30 June 2022, that Mrs McIntosh's mobile telephone may have
had certain logs deleted from it before being surrendered to the commissioner.
[18]
On 20 October 2022 MFC responded to a request for an FCA regulatory reference for
Mrs McIntosh which it had received earlier that month from a third party. It referred to
Mr Webster's previous report to the FCA and added that:
"following completion of our investigatory process, it was determined that the
individual had committed gross misconduct during her employment and had she
not already left the Company's employment by the date of that determination she
would have been summarily dismissed."
On 28 October 2022 Mr Webster again wrote to the FCA, informing it of the outcome of the
disciplinary proceedings against Mrs McIntosh (which, as already noted, had proceeded
largely on the basis of the section 1 recoveries). He was not aware (because he had not been
told by Mr Milne) that use of the recovered material without the court's permission for the
purposes of reporting to the FCA or giving a regulatory reference was contrary to the
undertaking given to the court on behalf of the Noters in order to enable the dawn raids to
take place in the first place.
14
[19]
According to affidavits sworn by Mr Milne, there was no deliberate attempt on his
part or on the part of the Noters or their employees to circumvent the undertaking given to
the court. He apologises to the court for what he refers to as a lack of proactivity on his part
which might have avoided a breach of the undertaking.
Noters' Submissions
[20]
On behalf of the Noters, senior counsel moved the court to excuse the unpermitted
previous use of the section 1 recoveries and to permit their use by the Noters in the
Employment Tribunal proceedings and in correspondence with the FCA. The Noters
accepted that their use of the recovered documentation in those contexts should not have
occurred without prior permission of the court: Iomega Corporation v Myrica (UK)
Limited 1998 SC 636, 1999 SLT 796. Although the use of the content of the IT expert's report
for the purposes of the litigations contemplated by the section 1 proceedings had not, strictly
speaking, been in breach of the undertaking given by the Noters to the court, and had
occurred in consequence of what the commissioners had said and done, it was accepted that
the court had not formally pronounced any order permitting the Noters to have access to
that material, and that accordingly its use, even for those purposes, should not have
occurred. The Noters, their representatives and, in particular, Mr Milne, tendered their
sincere apologies to the court for those inadvertent lapses or mistakes on their part. There
had been a failure on the part of Mr Milne to clarify to the Noters the exact uses to which the
recovered material could and could not properly be put. He had not been conscious, when
he provided the Noters with the recovered material, that any use other than the one
contemplated by the section 1 proceedings was under consideration or might come to be so.
The court could now allow such collateral use of the recovered material as appeared to it to
15
be in the interests of justice: Duff & Phelps Ltd, Minuter [2022] CSOH 16, 2022 SLT 450
at [4] - [6].
[21]
In respect of the Employment Tribunal proceedings, it was accepted that the Noters
had acted in breach of their undertaking to the court. However, Mr Matheson had chosen to
raise those proceedings and to found upon the events of the section 1 petition process as one
of the principal bases of his claim. MFC wished to refer, in its written pleadings, and in any
hearing which took place, to the documents which were recovered in terms of the section 1
order. Reference to those documents was both necessary and in the interests of justice,
because consideration of them gave useful context to whether the execution of the order
gave rise (or could have given rise) to any breach of contract on the part of MFC. It was
likely that, had the Noters sought the court's permission in advance for collateral use of the
recoveries in the Employment Tribunal proceedings, such permission would have been
granted. No true prejudice had been caused to Mr Matheson by the use of those materials.
It was both sensible and desirable that the materials in question should be placed before the
Tribunal.
[22]
In relation to the Financial Conduct Authority, it was equally accepted that the
Noters had acted in breach of their undertaking to the court. However, they were under a
regulatory obligation to inform the FCA if any regulated individual became subject to a
disciplinary investigation. Mr Webster's reference to certain of the recoveries in his
notification to the FCA followed the advice of the Noters' compliance consultants that the
fact that disciplinary and court proceedings based on highly credible and incriminating
allegations had been instituted was sufficient to trigger the notification requirements of the
FCA in relation to potential breaches of its Code of Conduct for those whom it regulated. It
was accepted that Mr Webster's use of the documentation recovered under the order was a
16
breach of the undertaking given to this court, but again that breach was an inadvertent
mistake. Mr Webster had been unaware that there were limitations on the use of the
recovered material because Mr Milne had failed to explain the matter to him. Again, it was
likely that a prospective application to the court for such use of the recovered material
would have been granted. It would be artificial to cause the Noters to withhold from the
FCA that which it had a proper interest to know, and it was competent for the court to allow
that to happen.
[23]
It was submitted that it was necessary, both in order for the Noters to defend the
Employment Tribunal proceedings and in order for them to continue to comply with their
obligations to the FCA, that they should be permitted to refer to the documents recovered in
terms of the order. The Tribunal and the FCA should be provided with the material
necessary to enable them to perform their functions properly. The respondents had no
proper interest in preventing that. The court should (a) excuse the use, without prior
permission, of the documents recovered in terms of the order, for purposes other than the
use contemplated in the section 1 petition; and (b) grant permission for the use by the
Noters of the documents recovered in terms of the order, including in particular all of the
commissioners' reports, and the recoveries and inventories referred to therein, for the
purposes of the Employment Tribunal proceedings and in order to ensure that the Noters
continued to comply with their obligations to the FCA. It was a matter for the court's
discretion whether to impose conditions on such future use of the recoveries. These were
not appropriate proceedings in which to decide any issue of contempt of court which might
arise.
17
Respondents' Submissions
[24]
On behalf of the Mathesons, senior counsel submitted that the Noters were not
entitled to the orders sought, and the prayer of the Note should accordingly be refused. The
application for permission to use all of the documents recovered under the order and all of
the commissioners' reports was premature in relation to any documents recovered from
Mr Matheson and any reference to such documentation in the commissioners' reports,
because pending the determination of the section 1 petition which he had opposed, the court
had granted no order entitling the Noters to inspect, copy or otherwise intromit with any
documents or electronic devices recovered from him.
[25]
In any event, the wide-ranging orders sought by the Noters should be refused. The
court should conclude that the Noters had deliberately and consciously breached the terms
of the undertaking, or at least that they had acted with wilful disregard of those terms and of
the obligations owed by them to the court. Their actions amounted to an egregious breach
of the undertaking on the basis of which they obtained the order ex parte, and to a contempt
of court. Such conduct should not be excused.
[26]
The starting point in considering the application for permission for future use of the
recovered material for purposes other than those contemplated by the section 1 petition was
that the court should preserve the integrity of the undertaking given to it. It was for the
Noters to persuade the court that it was necessary in the interests of justice for any collateral
use to be permitted. The Employment Tribunal proceedings were not proceedings of the
same or similar character to those contemplated by the section 1 petition, although it was
accepted that at least some of the recovered material was prima facie relevant to the
determination of those proceedings and that a prospective application to the court for
permission to use it in that context might well have been successful. Reference was made to
18
Iomega, per Lord President Rodger at 641E and 646A - D, Lord Kirkwood at 651D - E and
Lord Caplan at 654C - D and 656C - D, and to the discussion of various factors of potential
relevance to the grant of prospective permission in Cobra Golf Inc v Rata [1996] FSR 819
at 830 - 832.
[27]
So far as the Noters' application for what in effect was retrospective permission to
use the recovered materials for purposes not contemplated by the section 1 petition was
concerned, there was no Scottish authority on whether the court had power to grant such
permission. In Miller v Scorey [1996] 1 WLR 1122, Rimer J had pointed out at 1132 A - B that
in English law unpermitted use of recoveries of the kind in issue here involved a contempt
of court and in consequence amounted to an abuse of the process of the court. The same
conclusions ought to be drawn in Scotland. That characterisation of prior unpermitted use
of recoveries made it difficult for the court in effect to accede to the suggestion that an abuse
of its processes should be treated as nugatory. In Miller, Rimer J had not found it necessary
to decide whether the court had power to grant retrospective leave for the unpermitted use
of recovered material, observing merely at 1132 C - D that any such jurisdiction could
properly be exercised only in rare circumstances.
[28]
In Lakatamia Shipping Co Ltd v Su [2020] EWHC 3201 (Comm), [2021] 1 WLR 1097,
Cockerill J had concluded at [61] under reference to Miller and to Shlaimoun v Mining
Technologies International Inc
[2011] EWHC 3278 (QB),
[2012] 1 WLR 1276 that a jurisdiction
to grant retrospective permission existed, but would be exercised only in limited
circumstances. In Shlaimoun, Coulson J had considered that questions of whether the breach
of undertaking was inadvertent or not, whether permission would have been granted if
sought prospectively, whether prejudice had been caused to other litigants, and where the
requirements of proportionality lay were relevant to the potential grant of retrospective
19
permission. In Lakatamia, Cockerill J had adopted a similar approach, noting that the other
proceedings in which retrospective permission to use recoveries was sought were closely
related to the proceedings in which their use was already permitted, and indeed only existed
as separate proceedings by happenstance. The allegations in the other proceedings were
very serious in nature and it was in the public interest that they be tested by consideration of
all relevant evidence, the recoveries being plainly relevant to that exercise. Her Ladyship
noted that the breach of undertaking in that case, though serious, had not been deliberate,
and that no prejudice or harm had been caused by the unpermitted prior use. In those
circumstances, it had been concluded, narrowly, that retrospective permission should be
granted, albeit with a costs sanction and a public admonition to those responsible for the
breach. In the present case, however, if the court was considering the grant of retrospective
permission, it should conclude at the very least that the breaches of the undertaking in this
case, and the unpermitted use of the content of the IT expert's report, were egregious in
nature and the product of reckless indifference to the duties of the Noters and the rights of
the Mathesons and McIntoshes. Mr Matheson had plainly suffered prejudice by the prior
unpermitted use, in that the allegations made to the FCA had resulted in him being unable
to work in the financial services sector for the foreseeable future. In such circumstances the
only effective sanction was for the court to refuse to grant retrospective permission for the
prior use of the recoveries in question.
[29]
On behalf of Mrs McIntosh and Granite Wealth, counsel invited the court to refuse
the Noters the orders they sought and instead to find them in contempt of court and to have
abused the court's processes. He agreed with, and in general terms adopted, the
submissions made for the Mathesons.
20
[30]
The Noters should be sanctioned for their wrongful use of the material recovered in
terms of the order. In particular:
(i)
the Noters should be ordained to return to the court and to delete all material
recovered in terms of the order;
(ii)
the actions raised against Mrs McIntosh and Granite should be dismissed or
at least the Noters should be ordained to delete any averments which had been made
in reliance upon material recovered in terms of the order;
(iii)
the Noters should be ordained to make reasonable reparation to
Mrs McIntosh for the breach of the undertaking given to the court and the wrongful
use of material recovered in terms of the order and information derived from that
material, and to that end Mrs McIntosh should be appointed to lodge a schedule of
damages and, if necessary, inquiry should be allowed to determine the quantum of
damages;
(iv)
the Noters should be ordained to retract the disclosures made to the FCA
insofar as they wrongly relied upon material recovered under the order or
information derived therefrom;
(v)
MFC should be ordained to allow Mrs McIntosh's appeal against the finding
of gross misconduct made in the disciplinary proceedings brought against her and
thereafter to discontinue those proceedings;
(vi)
interdict should be pronounced against the Noters prohibiting them from
making any further use of material recovered in terms of the order;
(vii)
the Noters should be ordained to take such steps as the court considered
reasonably necessary to draw the terms of that interdict to the attention of their
officers, employees and other staff or contractors;
21
(viii)
the Noters should be found jointly and severally liable to Mrs McIntosh and
Granite in the expenses of the Note, the section 1 petition, and the action directed
against Mrs McIntosh and Granite on a solicitor-client, client paying basis; and
(ix)
a written judgment should be handed down to give publicity to the court's
decision.
It was clear on the Noters' own averments and from the documents produced to the court
that they had used documents and other property recovered under the section 1 order, and
information derived therefrom, for a number of collateral purposes, namely:
(i)
to carry out an internal investigation into allegations against Mrs McIntosh;
(ii)
to defend a claim brought by Mr Matheson against MFC in the employment
tribunal;
(iii)
to seek advice from external compliance consultants;
(iv)
to prosecute disciplinary proceedings against Mrs McIntosh;
(v)
to make a series of disclosures to the FCA; and
(vi)
to issue a regulatory reference in respect of Mrs McIntosh to a prospective
new employer.
Each of those uses amounted to an obvious breach of the undertaking the Noters had given
to the court. It was clear from Mr Webster's letter to Mrs McIntosh dated 7 July 2022 that the
Noters had intended to use material recovered under the order for such collateral purposes
from a very early stage. Indeed, given that that letter had been issued before the Noters had
been allowed to inspect any of the recovered items, it might reasonably be inferred that the
order was sought, in part, for one or more of the collateral purposes to which the documents
recovered were then in fact put.
22
[31]
Although the Noters ought to have been aware from the outset that their use of
documents recovered under the order for such collateral purposes was not permitted by the
court and that such use amounted to a breach of the undertaking they had given to the
court, those matters were in any event drawn specifically to their attention in
Mrs McIntosh's appeal, submitted on 11 November 2022, against the outcome of the
disciplinary proceedings brought against her. Those proceedings had nonetheless not been
discontinued, despite the fact that she had given notice of her resignation on 4 April 2022
and her employment had thus in any event terminated on 3 July 2022. That might be
contrasted with the position in relation to Mr Matheson, into whose actions an investigation
by MFC had been terminated upon his resignation. The disclosures made to the FCA about
Mrs McIntosh and the regulatory reference provided to her prospective new employer had
stymied her efforts to secure alternative employment in any FCA-regulated role or
organisation.
[32]
The Noters had in addition originally sought to secure an order for use of material
recovered in terms of the section 1 order by motion, without disclosing that they had already
made use of that material, other than for the purposes of the actions they had raised,
without the permission of the court. The motion failed to acknowledge that the Noters
were, in fact, seeking retrospective permission.
[33]
Further, the Noters' use of information extracted from electronic devices seized in
the dawn raids for the purposes of the actions raised against Mr Matheson, Mrs McIntosh
and Granite Wealth was without the permission of the court. All the court had allowed was
for those devices to be examined by the IT expert. It had never allowed the Noters to
inspect, borrow or copy any forensic image or analysis extracted from those electronic
devices. The IT expert's report should not have been incorporated into the McIntosh
23
commissioner's report of 12 September 2022 and, despite having been so incorporated,
should not have been used by the Noters. The commissioner had indicated to Thorntons
Law LLP that the court's permission for such use might be required, but no heed had been
paid to that observation, without adequate explanation.
[34]
None of these matters supported the Noters' present position that their unauthorised
use of the material recovered in terms of the section 1 petition was inadvertent or that they
genuinely regretted what had happened. On the contrary, the court should conclude in all
the circumstances that the breaches were contumacious and the apology circumspect.
[35]
Where a company gave an undertaking or became subject to an order prohibiting it
from doing certain acts, the company had a duty to take all reasonable steps to ensure that
its relevant employees and agents were made aware of the requirement to comply with the
undertaking or order. Where the undertaking or order had been breached, the onus rested
on the company to show that it had taken all reasonable steps to ensure that the undertaking
or order was complied with. Where the undertaking or order had been breached as a result
of a failure to do so, the company would have committed a contempt of court. It was not
necessary for any person to have acted with the intention of breaching the order or
undertaking: Beggs v Scottish Ministers 2005 1 SC 342, 2005 SLT 305 at [39]; Smith v Scottish
Ministers
[2015] CSOH 15,
2015 SLT 131 at [13]. The Noters admitted several breaches of the
undertaking that they had given to the court. Other breaches were not admitted but
nonetheless clear. Accordingly, the Noters bore the burden of showing that they took all
reasonable steps to ensure that their undertaking and the court's orders were complied with.
They had failed to discharge that burden. Mr Milne, the experienced solicitor conducting
the section 1 proceedings on behalf of the Noters, accepted in his affidavits that he had
spoken only to Mr Webster about the recovered material, and that he had not advised
24
Mr Webster that it could not properly be used for purposes other than the raising of the
litigation contemplated in the section 1 petition, without the permission of the court. No
explanation had been given about what steps were, had since been, or in future would be
taken to draw the terms of the undertaking or order to the attention of other directors or
staff of the Noters who had used documents or property recovered under the order, or
information derived from those documents, for a range of collateral purposes. The Noters
had instead, at least in part, tried to blame the commissioners for what had happened. No
attempt had been made to obtain the havers' consent for what the Noters proposed to do
with material belonging to them; the havers had not even been told what was proposed. No
attempt had been made to withdraw what had been said without authority to the FCA.
Against that background, the Noters' approach to ensuring compliance with the
undertaking and order had been "so slipshod and lackadaisical, as ... to constitute heedless
indifference and recklessness": R (Bempoa) v Southwark LBC [2002] EWHC 153 (Admin)
at [46]. The undertaking and order had simply not been taken seriously enough: cf Beggs
at [50]. What was done plainly fell far short of the requirement to take all reasonable steps
to procure compliance contemplated by Beggs. Such failings threatened the right to privacy
and the public interest in the administration of justice engaged by section 1 proceedings:
Lakatamia at [47] - [48]. In those circumstances, it was appropriate that the Noters be found
in contempt of court and punished accordingly for their abuse of the great privileges which
the grant of a section 1 order bestowed.
[36]
Collateral use of documents recovered under the order also constituted an abuse of
process: Cobra Golf at 830 (point 5); Iomega 1998 SC 636 per Lord Caplan at 654C. The court
could exercise its inherent jurisdiction in the case of an abuse of process by way of a
procedural sanction such as dismissal or expenses: Moore v Scottish Daily Record and Sunday
25
Mail Ltd
[2008] CSIH 66,
2009 SC 178 at [14]. In the circumstances, it was appropriate that
the Noters be found to have committed an abuse of process and that appropriate sanctions
be imposed for that abuse.
[37]
Separately, the court could also order an inquiry as to damages: Moore at [14];
Bempoa at [56] - [57]. Whether a right to damages for contempt of court or abuse of process
arose at common law did not require to be determined. The Noters had expressly
undertaken to comply with any order of court as to payment of compensation if it was
subsequently discovered that the order or implementation of the order caused measurable
loss to the respondents.
[38]
The Noters presented their application as one for both retrospective and prospective
permission to use documents recovered under the order, but in reality, their application was
one for retrospective permission. They had already used the documents and property
recovered under the order, or information derived therefrom, in the Employment Tribunal
proceedings and to make disclosures to the FCA. Mrs McIntosh's interests had been grossly
prejudiced by the FCA disclosures, which effectively and immediately prevented her from
continuing to be employed in the financial services sector despite the allegations against her
remaining unproven. In essence, the Noters were asking the court to permit them to carry
on and finish what they had already started.
[39]
The court could (at least prospectively) grant permission for the use of material
recovered for use in other proceedings. In deciding whether to grant such permission and if
so on what conditions, the court was exercising a discretion and the guiding principle in the
exercise of that discretion was the interests of justice in the circumstances of the particular
case. It was not for a party resisting such an application to advance reasons why permission
should be refused. It was for the party seeking permission to demonstrate cogent and
26
persuasive reasons why permission should be granted. The various considerations
discussed in Cobra Golf at 830 - 832 and in Iomega at 1998 SC 646B - D and 651B - E were
instructive. There was no compelling reason in the present case to grant the orders sought
by the Noters. That the Noters would find the orders they sought useful for their own
purposes came nowhere near an adequate justification for their grant. They would suffer no
injustice by being kept to the default position in section 1 applications. On the other hand,
the injustice to the respondents were their documents to be used for purposes not
contemplated by the section 1 proceedings was obvious.
[40]
If the court was vested with a power to grant permission retrospectively (which was
not clear on the Scottish authorities), it would be proper to exercise that power only in rare
circumstances, particularly where there had been or would be prejudice to any party.
Whether permission would have been granted, if sought prospectively, was important, but
not sufficient: Miller at 1133C - H; Lakatamia at [61] - [63]. As a general proposition, the
nature and extent of the breaches of the undertaking and order which had already occurred
were sufficient to warrant refusal of the Noters' application. The Noters had shown
repeatedly that they could not be trusted to comply with the terms of the undertakings they
had given or the orders granted by the court.
[41]
In any event, even without having regard to the various previous breaches of the
undertaking, the relief sought by the Noters should be refused. They should not be granted
permission to use the material recovered in the Employment Tribunal proceedings, at least
until the final determination of the litigations which had been brought by them.
Mrs McIntosh and Granite intended to object to the admissibility of any of that material for
the purposes of proof in those litigations on the grounds that the material used to obtain the
order (i.e. that which was said to have been provided anonymously to the Noters) had been
27
unlawfully obtained and that, as a result, the material recovered in the section 1 proceedings
was similarly tainted and inadmissible. That objection would be defeated or seriously
undermined if the Noters were entitled to examine Mr and Mrs McIntosh in the
Employment Tribunal about the material recovered before they had had the opportunity to
have their objection considered and determined. It was not in the interests of justice for the
permission sought to be granted at this stage.
[42]
The Noters were not entitled to permission (either prospective or retrospective) to
provide information to the FCA. Quite apart from the fact that it was wholly unclear what
further disclosure to the FCA might be called for, the court's power was confined to
permitting the use of material recovered for the purposes of other civil proceedings:
1972 Act, section 1; Iomega; cf Cobra Golf at 831, point 11(b). Any disclosure to the FCA
would not be made in or for the purposes of any proceedings (civil or otherwise). The
Noters' application was, in this respect, incompetent. The position might be different once
the substantive litigations contemplated by the section 1 proceedings had concluded, at least
if the material in question had by then been properly canvassed in open court and findings
relevant to the proper exercise of the FCA's functions had been made.
Decision
Proper Conduct of the Section 1 Process
[43]
The events disclosed by this Note indicate a serious and apparently widespread
misunderstanding of the proper function of a "dawn raid" authorised in terms of section 1
of the 1972 Act. The sole purpose of that process is to take documents or property in relation
to which the court considers a question may relevantly arise in an action likely to be brought
into the custody of the court without giving those in possession of such material an
28
opportunity to conceal or destroy it. Nothing that is recovered by way of a "dawn raid" is to
be disclosed to or put into the possession of the petitioner in a section 1 application, or the
petitioner's agents, without the consent of the person from whom it was recovered or an
order of the court. The court places considerable trust in petitioners, their agents, and its
own commissioners, to respect that basic principle and all that flows from it. It appears that
that trust may on occasion at least have been misplaced.
[44]
For example, in the present case, Mr Milne states in one of his affidavits that a good
deal of material was recovered from Mrs McIntosh's address and that the solicitor
representing the petitioners at the raid "with the Commissioner's consent, had the
opportunity to view most of that material during the execution of the orders". It is vital to
the proper conduct of a "dawn raid" that the court's commissioner should be, and should
throughout be seen to be, wholly independent of the petitioner and its agents. The sole
purpose for which a representative of a petitioner is permitted to attend a "dawn raid" is to
provide the commissioner, if he or she is in doubt, with more specialised knowledge which
may assist in determining whether or not a particular item being examined by the
commissioner does or does not fall within the description of the material which the court has
ordered may be taken into its custody. Solicitors in attendance at a dawn raid on behalf of a
petitioner should not routinely be shown items which the commissioner is considering
seizing, and should not under any circumstances be shown items which he or she has
already decided to seize. Any examination by the solicitor of a petitioner of an item under
consideration by the commissioner should be limited to the extent strictly necessary in order
to provide the assistance just described. Any knowledge gained by such examination
should be regarded as subject to a duty of confidence to the person originally in possession
of the item. It may be that the court has in the past been too ready to authorise the
29
attendance of petitioners' representatives on these occasions, and should in future require a
clear demonstration that specialised knowledge may be required, and can be provided by
such a representative, before such authorisation is given.
[45]
Likewise, the court authorises the attendance of IT specialists at "dawn raids" for the
purpose of assisting the commissioner to examine or image, on the spot, electronic devices
or data repositories for the presence of material to which the court's order relates. If no such
examination or imaging takes place, and devices are simply seized and taken away for later
analysis, it is difficult to see that the attendance of such specialists is justified. That is a
matter of concern because the very considerable cost of a dawn raid, particularly if swollen
by the attendance of unnecessary personnel, can easily become an instrument of oppression
in the underlying dispute. Again, that is something in relation to which the court may need
to develop a more robust attitude than has to date been apparent.
[46]
Further, although it is a minor issue in light of the sequence of events which
subsequently ensued, in the absence of agreement from those from whom the electronic
devices had been seized, it should have been one or other of the commissioners, and not the
Noters' solicitor, who ought to have facilitated the transmission of the electronic devices
initially in the custody of the court because of the assertion of confidentiality in relation to
them to the IT expert once that assertion was withdrawn and the court had permitted their
examination by that expert. While there is no suggestion that anything untoward was done
in respect of those devices during that transmission, they simply should not have been in the
custody of the Noter's solicitor at all before they had been released to the Noters by the
court. That they were again betokens a failure to understand the basic principles upon
which the section 1 "dawn raid" facility depends.
30
[47]
More seriously, when the IT expert reported to the commissioners in
September 2022, by way of a report which contained details of the analysis (and thus of the
content) of the seized electronic devices, that report should not have been provided by the
commissioners to Thorntons Law LLP, but should have been provided to the court alone.
The Noters ought then to have enrolled a motion for disclosure of the expert's report (and
the relevant material) to them, which the court would have determined after giving those
respondents who had entered appearance in the petition process (and, at its discretion,
potentially other interested parties) the opportunity to object. That the IT expert's report
was simply handed over to Thorntons Law LLP with no more than a mild suggestion that
someone might like to check with the court whether that was in order represented a serious
error on the part of the commissioners. That error ought to have been appreciated by
Thorntons Law LLP, who should have returned the report unread to the commissioners, and
it ought to have been appreciated by counsel whom they apparently consulted on the
matter. The question was not an arcane or difficult one; the material seized in the dawn
raids was in the custody, and subject to the control, of the court. Absent the consent of those
from whom it had been seized, no material obtained in the execution of the section 1 order
should have been released to the Noters or their agents without an order of the court
permitting that to occur. That so many of those involved in the process apparently did not
understand its basic principles suggests the existence of a systemic misunderstanding of the
court's procedures which is deeply concerning.
The Noters' Treatment of the Material Released to Them
[48]
It was against that background that the Noters proceeded (a) to use the hard copy
documents seized from the McIntoshes' home for purposes other than the court had
31
permitted in its interlocutor of 8 July 2022, in breach of their undertaking to the court; and
(b) to use the material in the IT expert's report dated 11 September 2022, without having
been given any permission at all by the court to do so. The uses to which that material was
put included its use for the purposes of the internal investigations into the behaviour of
Mr Matheson and Mrs McIntosh, and the disciplinary proceedings against the latter; for the
defence of the Employment Tribunal proceedings brought by Mr Matheson against MFC,
and for and in connection with the report to the FCA and the regulatory reference given in
respect of Mrs McIntosh.
[49]
It is said by the Noters that these uses of the material in question were "inadvertent",
and are all ultimately referable to the failure of Mr Milne to advise Mr Webster of the
limitations on the use to which material recovered in a section 1 process could properly be
put. However, the suggestion that this was an isolated failure on the part of Thorntons Law
LLP is difficult to reconcile with the series of events in the execution of the section 1 process
set out above. In any event, it is euphemistic in the extreme to describe Mr Milne's failure to
remind the Noters of the content of the express undertaking which he had signed on their
behalf as merely inadvertent. While I do not accept that the suggestion that he deliberately
facilitated the Noters' breach of undertaking or other unpermitted use of the section 1
recoveries, or that he acted recklessly - that is to say, without care for the consequences - in
that regard, his actions were undoubtedly careless, and indeed grossly so.
[50]
Moreover, the error into which the Noters had fallen was pointed out to them
explicitly by Mrs McIntosh in November 2022. That provoked, however, no outward
recognition that any mistakes had been made, nor any outward change in the Noters'
position. It was not until April 2023 that they approached the court to ask permission for
future use of the recovered material, and even then they did not expressly acknowledge that
32
there was an unresolved issue about its previous impermissible use by them. At around the
same time, while withdrawing from the Employment Tribunal their claim on behalf of MFC
that Mr Matheson had been suspended in part because of the content of the recoveries,
Thorntons Law LLP stated to the Tribunal that MFC considered that the recovered material
was relevant to its Polkey and contributory fault arguments. That was a further breach of
MFC's undertaking to the court, which extends not only to use of recovered material itself,
but also to use of the content of that material (Duff & Phelps at [6], Cobra Golf at 830).
[51]
More generally, the attitude taken by the Noters to the issue of previous unpermitted
use of the recoveries has very much been to downplay its significance, and to suggest that
the matter should be regarded as minor and technical in nature - which it certainly is not.
There is, further, an apparent lack of insight into the undesirable consequences of the
Noters' choice to instruct Thorntons Law LLP in connection with their dispute with the
respondents. The Noters are closely connected with that firm. There is a considerable
overlap in the ownership of the four entities. Mr Milne, who gave the undertaking to the
court on behalf of the Noters, and then failed to give them the advice necessary to enable
them to comply with its terms, is a member of the firm and of the boards of each of the
Noters. It is very difficult to see, in that situation, how an appropriate degree of professional
independence can be shown to have been exercised in the relationship between the firm and
the Noters in connection with the matters in issue. None of these considerations supports
any sort of conclusion that serious consideration has been given by the Noters or Thorntons
Law LLP as to why matters went awry, or as to how repetition of the errors made is in
future to be avoided. While I accept that Mr Milne's apology to the court is a genuine one, it
does not go nearly far enough to meet the situation which he created. The conduct of
Thorntons Law LLP in general, and its member Mr Milne in particular, throughout the
33
sequence of events in issue, falls far short of meeting the standards to be expected by the
court of its officers. That conduct merits the court's severe censure.
Retrospective Permission/Excusal
[52]
I have no doubt that, in an appropriate case, the court has power retrospectively to
grant permission in respect of the prior use of material recovered under section 1 of the
1972 Act for purposes not initially allowed. That is because the undertaking which restricts
the use of recovered material is one required by the court in the public interest and given to
it rather than to any interested party: cf Iomega, per Lord President Rodger at 641F - G,
646C - D. It is for the court to determine, both at common law and in terms of RCS 64.4,
whether any modification of the standard undertaking is justified, and any modification
may be prospective or retrospective.
[53]
In Lakatamia, Cockerill J also decided at [61] that, in English law, the court had
jurisdiction to grant permission retrospectively, but observed that that jurisdiction would be
exercised only in limited circumstances. I consider that that statement equally represents
the law of Scotland. In Shlaimoun, Coulson J indicated that whether another litigant had
been prejudiced by the unpermitted use, whether that use was inadvertent, whether a
prospective application would have been granted, and where the requirements of
proportionality lay, would be likely to be material to any decision to grant permission
retrospectively. I agree that these may well be matters of significance in determining
whether to grant retrospective permission, but stress that the starting point, even in an
application for prospective permission, will be to recognise the need to preserve the
integrity of the undertaking (Iomega, per Lord President Rodger at 646B - C, following
Lord Oliver of Aylmerton in Crest Homes plc v Marks [1987] 1 AC 829 at 857H) and that a
34
correspondingly heavy onus will lie on any party seeking retrospective permission. The
same point is made in a slightly different way by Rimer J in Miller v Scorey at 1133C - D.
In the present case, I have already concluded that to describe the unpermitted use of the
recoveries as the result of mere inadvertence would be inadequate. It may be that, had the
Noters been misled by faulty legal advice taken from an independent solicitor, they would
have been better placed to ask the court to grant retrospective permission. Something of
that sort appears to have influenced Cockerill J in Lakatamia at [137]. However, the
unpermitted use by the Noters in the present case occurred despite Mr Milne, a member of
their boards, indeed the person who signed the undertaking on their behalf, being aware of
the restrictions on the use of the recoveries and failing to pass that knowledge on to those
within the organisations who were to be dealing with them. There is no basis for the actions
of the Noters to be regarded as separate and distinct from the actions of Mr Milne in such
circumstances. Prejudice appears also to have been caused to Mr Matheson and
Mrs McIntosh in the form of the reports to the FCA proceeding upon the recovered material,
and the consequent adverse regulatory reference made in respect of Mrs McIntosh. The
Noters come nowhere near to discharging the heavy onus on them in respect of a
retrospective application for permission.
[54]
Perhaps recognising the difficulties inherent in a frank application for retrospective
permission, the Noters adopt the slightly different approach, at least in point of form, of
asking, not for retrospective permission, but to be "excused" in respect of their prior
unpermitted use of the recoveries, leaving the question of whether they are to be permitted
to continue to use the recoveries already unlawfully deployed by them to be dealt with by
the second and prospectively-directed element of the prayer of the Note. It appears that
their request to be excused in respect of the prior use amounts to a request that they should
35
not be exposed to adverse consequences in respect of that use. Whether that amounts to
anything substantially different to a request to be given retrospective permission seems
debatable at least. In any event, for the same reasons as have already been set out, their
request to be so excused cannot properly be granted. They are not excused, and the prayer
of the Note will to that extent be refused.
Future Use of the Recoveries
[55]
In Iomega, Lord President Rodger observed at 646C - D in the context of prospective
applications for permission to use recoveries that:
"In deciding whether to grant permission and, if so, on what conditions, the court is
exercising a discretion and the guiding principle in the exercise of that discretion will
be the interests of justice in the circumstances of the particular case."
The interests of justice are not, however, considered in a vacuum. The default position is
that the rights of a haver to the peaceful possession of his documents and property is only to
be infringed to the extent necessary to satisfy competing public interests, primarily but not
perhaps entirely exclusively in the determination of civil rights and obligations involving
the haver. As the matter was put by Lord Keith of Kinkel in Home Office v Harman
[1983] 1 AC 280 at 308:
"Discovery constitutes a very serious invasion of the privacy and confidentiality of a
litigant's affairs. It forms part of English legal procedure because the public interest
in securing that justice is done between parties is considered to outweigh the private
and public interest in the maintenance of confidentiality. But the process should not
be allowed to place upon the litigant any harsher or more oppressive a burden than
is strictly required for seeing that justice is done."
(See also Iomega, per Lord Caplan at 654D - F, and Laddie J in Cobra Golf at 824 - 825.) Such
considerations result in the principles already mentioned, that the preservation of the
integrity of the undertaking is in itself an important element of the interests of justice, and
36
that, accordingly, permission is likely to be granted only where there are "special
circumstances which constitute a cogent reason for permitting collateral use" (per Jackson LJ
in Tchenguiz v Director of Serious Fraud Office [2014] EWCA Civ 1409 at [66]). Each of the
judges in Iomega (the Lord President at 646D, Lord Kirkwood at 651D - E, and Lord Caplan
at 656D) commended the list of factors capable of influencing the relevant decision set out
by Laddie J in Cobra Golf.
[56]
In Cobra Golf at 831, Laddie J re-iterated that the court had a discretion to grant
permission prospectively for collateral use of recoveries and went on to observe, so far as
relevant for present purposes, that:
"11. The circumstances which may be taken into account include the following:
(a) The extent to which relaxation of the undertaking will cause injustice to the party
which provided the discovery.
(b) Whether the proposed collateral use is in court proceedings or outside litigation
(e.g. for disclosure to the press as in Harman). Prima facie if it is for use outside
litigation, it is not the court's function to release for that purpose.
...
(d) In so far as the satellite proceedings are in this country:
...
(ii) If the collateral use is for civil proceedings, the court should take into
account:
(a) whether the hub proceedings and the satellite proceedings are
similar in character;
(b) whether the parties in the two sets of proceedings are the same;
(c) the extent to which the party seeking relaxation of the undertaking
would be able to obtain discovery by another route and, if so, which
route is likely to be cheaper or quicker;
(d) whether the effect of the relaxation of the undertaking will have
the effect of generating new proceedings or whether it will merely
help in pursuing a claim or defence which already exists or could be
run anyway;
(e) prima facie it is not in the interests of justice to hinder a party from
advancing a good claim or defence in other proceedings;
..."
In Duff & Phelps at [5], Lord Tyre made the additional point that the court could attach
conditions to any grant of permission for collateral use in the exercise of its discretion.
37
[57]
In the present case, permission is firstly sought for the future use of the recovered
material in the Employment Tribunal proceedings raised by Mr Matheson against MFC.
Those are other domestic civil proceedings which are already in existence. They arise out of
the employment relationship between those parties and bear a close relation to the subject-
matter of the litigations contemplated in the section 1 petition, although there is no exact
correspondence between the two disputes. The recovered material may well be relevant in
the Employment Tribunal proceedings, in that it may cast a certain light on Mr Matheson's
claim that the section 1 petition directed against him was a breach of the relationship of
mutual trust and confidence between him and MFC, or in any event enable MFC to state a
defence to his claim which it might not otherwise be able to maintain. I understood counsel
for the Mathesons to concede that the court might well have permitted at least some
recovered material to be used in the Employment Tribunal proceedings had an application
to do so been made prospectively, an assessment with which I agree. In these specific
circumstances I consider that cogent reasons exist for permitting the use of an element of the
recovered material, in the interests of justice, in the Employment Tribunal proceedings.
However, that conclusion relates only to material seized from the Mathesons, and not from
the McIntoshes or Granite Wealth. It is Mr Matheson who has raised the proceedings in the
Employment Tribunal and thus put in issue the question of whether the section 1 petition as
directed against him was in breach of an implied term of his employment contract. That
consideration overrides any claim to claim to peaceful possession of his own documents
insofar as their content may cast light on the proper resolution of the claim which he has
stated and insisted upon. While I appreciate that material recovered from the other
respondents may also be relevant to the just disposal of Mr Matheson's claim, those other
respondents have done nothing to waive their right to peaceful possession of their
38
documents and property outwith the context of the litigations contemplated by the section 1
petition. Further, given the unfortunate history of the use by the Noters of the recovered
material without permission, I do not consider it appropriate to allow the material seized
from the Mathesons to be used, even within the context of the Employment Tribunal
proceedings, for whatsoever purpose may ultimately commend itself to the Noters, That
material is only be used in that context, and then only for the purposes of defending the
claim made by Mr Matheson against MFC and for providing the Tribunal with the means
necessary to determine the quantum of any sums properly due to him by MFC in respect of
that claim.
[58]
In relation to communications between the Noters and the FCA, I reject the
submission made on behalf of Mrs McIntosh and Granite, that the court has no power to
permit recoveries to be used other than for the purposes of civil proceedings. Although the
court has to be persuaded before granting a section 1 order outwith the context of existing
proceedings that the material sought is material in respect of which a question may
relevantly arise in civil proceedings which are likely to be brought, once that material is in
the custody of the court it may be used for such purposes as the court sees fit, in accordance
with the principles already discussed. I accept, however, that an application for permission
to use such material other than for the purposes of civil proceedings is inherently likely to
face greater difficulty in furnishing the court with the cogent reasons required to enable it to
conclude that collateral use should be permitted in the interests of justice, or in the public
interest more widely. That is the point which I understand Laddie J to have been making at
point 11(b) in Cobra Golf at 831, set out above. That is the position in respect of the Noters'
application to be permitted to use the recoveries in this case for the purposes of regulatory
correspondence with the FCA. Properly viewed, there is no regulatory requirement
39
incumbent on the Noters to furnish the FCA with material or views formed on the basis of
material which is either not lawfully in the possession of the Noters at all, or else is in their
possession for a strictly circumscribed purpose not including the fulfilment of any
regulatory reporting duties which might otherwise be incumbent upon them. There was no
need for the Noters to report to the FCA as they did, and there remains no such need. There
are no cogent reasons, whether in the interests of justice, or in the public interest more
generally, justifying such a collateral use of the recovered material in advance of a
determination by the court in the course of the litigations already before it as to exactly what
conclusions of potential relevance to the FCA that material justifies. The Noters' application
to be permitted meantime to use the recoveries for the purposes of communication with the
FCA is refused. Indeed, as a function of my refusal to excuse the Noters in respect of their
prior unpermitted use of the recoveries, they shall be ordained to write to the FCA within
two weeks of the date of issue of this opinion stating that their prior communications,
insofar as based on those recoveries, were in breach of their obligations to the court, and that
they unreservedly withdraw such communications. They shall be ordained to write in
similar terms and within the same timeframe to the party to whom they provided the
unfavourable regulatory reference in respect of Mrs McIntosh. The terms of those
communications shall be agreed amongst the parties, which failing shall be settled by the
court.
Remedies Sought by the Third and Fifth Respondents
[59]
I deal with the remedies sought by Mrs McIntosh and Granite as follows:
(i)
That the Noters be ordained to return to the court and to delete all material recovered
in terms of the order.
40
An order in such wide terms would not be justified. Material properly in the hands
of the Noters (i.e. the hard copy materials seized by the McIntosh commissioner and
listed in his report of 30 June 2022) may ­ subject to resolution of the objection to
such use on different grounds which Mrs McIntosh and Granite have stated ­ be
retained and used by them for the purposes of the litigations contemplated by the
section 1 petition and currently in dependence before the court. The further material
seized from the Mathesons which I have determined the Noters shall be allowed to
be used for the specific purposes identified above in the context of the Employment
Tribunal proceedings may be retained by them for those purposes. Any material not
falling within those categories shall be returned by the Noters to the custody of the
court, and no copies in any format shall be retained, nor shall the content of such
material be used in any manner by them.
(ii)
That the actions raised against Mrs McIntosh and Granite be dismissed, or at least
the Noters should be ordained to delete any averments which had been made in reliance upon
material recovered in terms of the order.
Dismissal of the substantive action raised against those parties would be a
disproportionate response to the Noters' actions. However, it is only the material
properly in the hands of the Noters, as identified above, which is capable of being
used for the purposes of that action (and the related action against Mr Matheson) as
matters stand. Insofar as there are averments in those actions which flow from other
recoveries, the Noters shall apply for permission to use those recoveries in those
actions, if so advised, within two weeks of the date of issue of this opinion, failing
which the court shall, on the application of the relevant respondents, strike such
41
averments from the relative Record. I further observe that any residual issue as to
the extent to which the Noters may competently use recovered material in these
actions should be resolved in advance of the proof diets in them, by way of motion at
the instance of any interested party.
(iii)
That the Noters be ordained to make reasonable reparation to Mrs McIntosh for the
breach of the undertaking given to the court and the wrongful use of material recovered in
terms of the order and information derived from that material, and to that end Mrs McIntosh
should be appointed to lodge a schedule of damages and, if necessary, inquiry should be
allowed to determine the quantum of damages.
I understand that this remedy is said to flow from the submission that unsanctioned
collateral use of section 1 recoveries constitutes an abuse of process and a contempt
of court (see Cobra Golf, at 830 point 5), which in turn justifies the court in ordering
the payment of a sum of money to a haver who has suffered loss in consequence of
the making or implementation of a section 1 order (cf RCS 64.3(b) (i)).
However, there are a number of problems with that submission. Firstly, this Note is
not an appropriate vehicle for reaching any final conclusion about whether the
Noters ought to be regarded as being in contempt of court. That is a matter which
ought to proceed on the basis of a form of process specifically directed at the issue
(such as a further Note in the section 1 petition process), so that averments may be
made and answered in that specific context. It certainly appears from what was said
in Beggs and re-iterated in Smith (both of which were specific contempt processes)
that, were the pleadings in the present Note to be replicated in such a process, there
would be little answer to a complaint that a contempt had been committed. One of
42
the consequences of my refusal to excuse the Noters in respect of their unpermitted
prior use of the recoveries is that it remains open to the respondents to make such a
complaint.
Further, although there has been a ready identification in English law between the
commission of this type of contempt and an abuse of process, it is less than clear to
me that the same conclusion would necessarily fall to be drawn in Scots law. In
particular, it is not immediately obvious to me that one can abuse the processes of the
court other than deliberately or recklessly. I would require much more detailed
submission, again in proceedings specific to the issue, before being able to decide
whether the Noters have abused the processes of the court.
Even had I been prepared to find the Noters in contempt of court and to have abused
its processes, there would still have remained the question of whether such contempt
and abuse can result in a liability to pay damages to havers in the position of the
respondents. I do not find any support for the suggestion that it does in Moore,
where the court at [14] indicated that an order for payment of money, other than
expenses, to a party to an action was a matter of substantive right rather than a
procedural sanction. Nor does RCS 64.3(b)(i) assist. It contemplates a situation in
which the making of a section 1 order, or its implementation, has caused loss, and the
court makes an order for compensation in respect of that loss. It is not clear to me
that that rule was intended to deal with a situation where the limits on the use of
properly recovered material are exceeded by a petitioner, as opposed to the
situations where the order is obtained in breach of a petitioner's obligations of
candour in the ex parte application for its grant, or where the execution of the order
exceeds what it was intended to encompass, for example in the seizure and
43
potentially lengthy retention of electronic devices which were not reasonably
supposed to contain material of interest to the enquiry. None of these matters was
the subject of detailed argument before me. In the event, I shall do as Munby J did in
Bempoa; identify issues which require resolution, decide nothing, and leave it open to
the respondents to bring forward a specific application in this regard if they so wish
and argue the matter fully.
(iv)
That the Noters be ordained to retract the disclosures made to the FCA insofar as they
wrongly relied upon material recovered under the order or information derived therefrom.
What is to occur in this regard has already been set out.
(v)
That MFC be ordained to allow Mrs McIntosh's appeal against the finding of gross
misconduct made in the disciplinary proceedings brought against her and thereafter to
discontinue those proceedings.
Again, I do not consider that such an order would be necessary or proportionate.
The Noters are aware that their prior use of the recovered material for the purposes
of Mrs McIntosh's disciplinary process was unpermitted and remains unexcused,
and that their future actions in connection with the use of that material will be the
object of intense scrutiny, if necessary by the court. It will be for the Noters in the
first instance to decide to what extent the disciplinary process against Mrs McIntosh
has been tainted by the unpermitted use of the recoveries, and what should be done
in that regard. They will do so in the knowledge that the court will be
metaphorically looking over their shoulder and will not hesitate to intervene
decisively if the wrong decisions are made.
44
(vi)
That interdict be pronounced against the Noters prohibiting them from making any
further use of material recovered in terms of the order.
For the reasons just mentioned, I do not consider that any further order of that kind
is presently justified. Should it transpire that the Noters continue to act in disregard
of their obligations to the court, a condign response may be expected.
(vii)
That the Noters be ordained to take such steps as the court considered reasonably
necessary to draw the terms of that interdict to the attention of their officers, employees and
other staff or contractors.
The same considerations, leading to the same conclusion, apply in this context.
(viii)
That the Noters be found jointly and severally liable to Mrs McIntosh and Granite in
the expenses of the Note, the section 1 petition, and the action directed against Mrs McIntosh
and Granite on a solicitor-client, client paying basis.
I shall find the Noters jointly and severally liable to the respondents in the expenses
of this Note on an agent and client, client paying basis. Decisions on the awards of
expenses in the section 1 petition and the substantive litigations will be for the judges
ultimately disposing of those causes to make, and the actions of the Noters herein
described may or may not be considered relevant to those decisions as and when
they require to be made.
(ix)
That a written judgment be handed down to give publicity to the court's decision.
This is that judgment.
45
Conclusion
[60]
For the reasons stated, I shall grant the prayer of the Note in part, and otherwise
refuse it. Ancillary orders as set out above will also be made.


BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII
URL: http://www.bailii.org/scot/cases/ScotCS/2023/2023_CSOH_63.html