Even by Ocado’s turbulent standards, 2019 could be the most eventful year yet.

There was the devastating fire in February that burnt one of its futuristic, fully automated CFCs to the ground. And the £750m joint venture with Marks & Spencer.

But the most sensational chapter surrounds attempts by Ocado’s co-founder Jon Faiman - a friend of Ocado CEO Tim Steiner since nursery school - to set up a rival online business, with the help of Ocado logistics development and engineering director Jonathan Hillary, called Today Development Partners.

And the latest developments, revealed in a civil lawsuit published in the High Court of Justice last week, are the most explosive yet.

Like something out of a spy thriller, Ocado has accused Faiman and Hillary of engaging in industrial espionage, smuggling documents in a rucksack, and proposing the use of so-called ‘burner’ phones and windowless meeting rooms with potential clients to cover their tracks.

And when Ocado smelt a rat and issued search orders, they deleted files, or smuggled them out from under the noses of acting solicitors, it is alleged.

The ‘unlawful conduct’ dates back to at least June 2018, when Hillary is alleged to have supplied secret financial, operational and strategic information about the Ocado business.

Using this information, Faiman and Hillary met M&S CEO Steve Rowe in July 2018 to propose an online venture that would be ‘an improved version of the Ocado platform’, it is alleged. The documents also allege that in meetings with M&S Faiman:

Told M&S he had up-to-date confidential information about Ocado’s business, and showed a spreadsheet including Ocado’s costs for acquiring new customers, as well as operational numbers.

Presented an ‘immediacy proposition’ ‘very similar’ to the Ocado Zoom service announced in February this year, which at the time was confidential.

Asked everyone except M&S strategy director Melanie Smith to leave the room at a meeting in September 2018, and offered to show her ‘current financial and management information relating to the Ocado business’, which Smith declined.

After talks with M&S ended and the Ocado jv was announced, TDP turned its attention to working with Waitrose, and on 16 May, it was announced that a new venture had been established to help Waitrose to triple online sales to £1bn, more than offsetting the £400m it was set to lose in sales from Ocado’s switch to M&S supply.

Just a month earlier, Hillary had supplied Faiman with a ‘backpack full of confidential documents relating to the Ocado business’, and indeed, when Ocado issued two search orders against TDP, on 3 and 4 July, it’s alleged that Faiman was ‘in possession of highly sensitive Ocado documents’ while on his way to a meeting with Waitrose, including a draft copy of the Ocado/M&S contract, which was ‘highly confidential’.

It is also alleged that:

  • Faiman asked the supervising solicitor to walk round the block with him to explain the search order - while Faiman’s driver placed two cases into his car and drove away.
  • The driver gave a laptop and documents ‘within the scope of the search order’ to a receptionist at the hotel at which Faiman was staying.
  • Hillary was in possession of documents that ‘should have been returned to Ocado when he handed in his notice around six weeks earlier’.
  • Hillary reset his mobile phone to wipe the contents before returning it to Ocado.
  • A lawyer acting for TDP deleted an ‘entire communications platform used by a small number of individuals’ including Faiman and Hillary.
  • Ocado is seeking ‘damages and/or equitable compensation’ along with ‘an account of profits earned by the defendants as a result of their breaches of confidence’.

Faiman and TDP refute the allegations, claim the search orders were wrongly obtained, using information from M&S in breach of a non-disclosure agreement, and are countersuing Ocado for ‘hundreds of millions’ in damages over the termination of TDP’s contract with Waitrose in July.

(Ocado has countered that any loss is not a consequence of an NDA breach but of TDP’s ’wrongdoing’.)

If Faiman/TDP and Hillary lose the case they are potentially liable for significant damages, according to Matthew McGoldrick, an associate at law firm CMS.

If a criminal complaint is raised, either in parallel with or after the civil complaint, it raises the further possibility of a potential jail sentence of two to six years “at the very highest level,” adds McGoldrick, “though the burden of proof would need to be higher”.

There’s no indication Ocado will pursue a criminal case - but the civil one is anything but civil, and is expected to run for some time to come.

 

TDP’s defence 

  • The search orders were wrongly obtained on the basis they were needed to ‘avoid very serious harm to their business’, even though Ocado could ‘not at the time of the search orders identify any harm’.
  • The information on which the search orders were granted was ‘unlawfully obtained from M&S’, since the negotiations were subject to NDAs.
  • The pseudonyms were provided by M&S. Ocado’s counters that these were at Faiman’s request.
  • ‘The ground floor of M&S’s Paddington offices is largely glass, and Mr Faiman may have requested a meeting on one of the other floors to keep the discussions confidential’.
  • Faiman advised M&S CEO Steve Rowe to ‘be cautious in his communications’ because M&S was simultaneously in talks with Ocado, and market rumours suggested Ocado CEO Tim Steiner had previously monitored Waitrose’s calls. In its reply Ocado denies any such rumour existed and calls it an attempt by Faiman ‘to cast Mr Steiner in as poor a light as possible’.
  • Steve Rowe advised that he and M&S chairman Archie Norman should acquire ‘burner phones’ (‘pay-as-you-go’ phones without a named account). M&S refute this allegation and have stated that neither Steve Rowe nor Archie Norman purchased or used any type of phone as alleged. 
  • Hillary provided a folder of documents, including the M&S contract, in or around April 2019, in response to a request by Faiman for ‘general assistance and/or advice in relation to how a third party supplier agreement with Waitrose might be structured’, and denied the information was of ‘any commercial value’.
  • The communications platform was deleted because it was ‘much less effective than had been hoped, and the system was very rarely used’.
  • Ocado has been unable to show any significant loss or damage arising from the complaint nor how the defendants made any profit from it.
  • TDP’s technology would not have been a version of Ocado’s as it ‘suffers from a number of serious deficiencies’. Ocado’s reply says this has not been demonstrated.
  • Ocado has not made it clear what material in the documents was confidential.
  • Information about customer behaviour such as average items per basket, average basket value and number of customer orders per week is published in annual report and accounts. Not all the information contained in the documents was publicly available, Ocado counters.

     

     

Hillary’s defence

  • Admits to breaching his contract of employment and duties of confidence owed to Ocado by disclosing its confidential documents to Faiman
  • The actions have caused Ocado no loss and Hillary has made no profit.
  • Hillary agreed in May 2019 to work as TDP’s COO as soon as he was ‘lawfully able to do so’ but has not to date taken up the role and was dismissed by Ocado on 1 August.
  • Said ‘nothing of significance’ in the M&S meeting in July last year, did not consider himself to be representing Faiman or TDP, and did not know why pseudonyms were used.
  • Reset his phone before returning it to Ocado to ‘clear personal data’.
  • Ocado documents were retained inadvertently following his resignation.

 

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