HP-2020-000016 - [2025] EWHC 1451 (Ch)

Fecha: 16-Jun-2025

The Decision Tree Model (DTM)

The Decision Tree Model (DTM)

58.

The DTM was, over the course of the trial, a central tool for the parties and their experts to use, to set out their respective primary and alternative positions on the quantum modelling, and for the court to use, to understand the implications of the different approaches addressed in the expert evidence on each side.

59.

The purpose of the DTM was to allow the court to calculate Cabo’s losses based on the variety of different assumptions that were disputed as between the economics and valuation experts. It operated through two basic functions. First, it enabled the court to select different primary input options from the alternatives presented by the experts, to model (in terms of cashflows) the likely success of Worldeez in the counterfactual scenario in which the impugned conduct of MGA had not occurred, as well as the parties’ alternative estimates of Cabo’s costs. Secondly, the DTM provided probabilistic functionality, enabling the court to adjust the key inputs for domestic and international sales, licensing, and the development of further products, by reference to an assessment of the probability of Worldeez achieving the success levels modelled by the experts.

60.

In broad outline, the DTM worked as follows:

The DTM started with two input points requiring an assessment by the court. The first input point was an estimate of the cashflows which Cabo would have generated in the UK market but for MGA’s conduct, derived by reference to the various quantum models provided by Mr Colley and Mr Parker. The models available for selection under this input point changed during the course of the trial, with the parties’ cases evolving as described further below. A probabilistic adjustment enabled the court to calibrate the cashflow model selected, by selecting a probability of that outcome of less than 100%. (For this and the other probability adjustors described below, there was no mechanism for adding in a model regarded as reflecting the remaining probability, if a probability of less than 100% was selected. The adjustments were therefore not true probabilistic adjustments in a mathematical sense, but simply a means of reducing the cashflow figures which had been selected on the basis of the input option chosen by the court.)

ii)

The other starting input in the DTM was the cost stack for UK costs, with options to select between Cabo’s cost stack and two versions of MGA’s cost stack (one with the average wholesale prices assumed by Mr Parker, and one with the average wholesale price set to £1.20).

iii)

The DTM then provided for the input of various assumptions as to the likelihood of international expansion, licensing revenues and the development of further products (i.e. beyond the Worldeez range). The cashflows predicted for each of those followed mechanically from the initial selection of the appropriate quantum model, but the DTM (again) allowed for the court to discount the cashflows arising under each of those elements on the basis of a probabilistic assessment of the likelihood of each of those being achieved by Cabo.

iv)

Further options allowed for the input of actual losses, an adjustment of the agreed discount rate for the small company risk premium, and the selection of simple or compound interest.

Once all relevant input options were selected, the DTM calculated damages on the basis of undiscounted cashflows up to the date of demise of Cabo (agreed for the purposes of the DTM to be January 2018), plus cashflows thereafter discounted back to the date of demise with an agreed discount rate of 11.19%, reflecting the inherent uncertainty of cash flows after the demise of Cabo.

61.

The DTM was a very useful analytical tool during the trial, because it enabled the parties to interrogate, with the experts, the implications of different permutations of the model, and to explain those implications in their submissions to the court. It also had the benefit of enabling the outputs of the experts’ modelling to be presented to the court on a consistent and (reasonably) accessible basis. While I have not ultimately needed to use the DTM to calculate the quantum of Cabo’s losses, in light of my conclusions as to the likely profitability of Worldeez, that does not, however, diminish the helpfulness of the model as a tool for understanding the parties’ positions. I am grateful for the care taken by the experts and counsel to construct it and then to update it during and after the trial.