Many potential litigants are making use of the court’s power to order the disclosure of documents by a party who is "likely to be a party to subsequent proceedings".
Recent case law provides some insight as to when and whether the courts will exercise their discretion to grant pre-action disclosure and how the courts have interpreted the requirements set out for the granting of such orders. Financial advisers who receive an application or request for documents pre-action, need to consider carefully whether they are obliged to give the disclosure. They may have grounds to resist such an order being made against them.
Under the Civil Procedure Rules ("CPR") 31.16, prior to granting any such pre-action disclosure, the applicant is required to satisfy the court that:
1. Both the applicant and the respondent are likely to be parties to the subsequent proceedings;
2. Were proceedings to be commenced, the respondent’s duty by way of standard disclosure would extend to those documents being sought by the applicant under the pre-action disclosure application;
3. Pre-action disclosure is desirable in order to dispose fairly of the anticipated proceedings; assist in the resolution of the dispute without proceedings or to save costs.
In Bermuda International Securities Limited v. KPMG (a firm) [2001] EWCA CIV 263, the Court of Appeal held that the appropriate test was that the applicant had enough evidence to plead a prima facie case but required pre-action disclosure in order to particularise it. The Court of Appeal cautioned, however, that: "the circumstances spelt out by the rule show that it will "only" be ordered where the court can say that the documents asked for will be documents that will have to be produced at the standard disclosure stage. It follows from that, that the court must be clear what the issues in the litigation are likely to be, i.e. what case the claimant is likely to be making and what defence is likely to be being run, so as to make sure the documents being asked for are ones which will adversely affect the case of one side or the other, or support the case of one side or the other." Accordingly, "there may be cases where the court will not be able to (be) confident that the documents sought on pre-action disclosure will necessarily relate to issues to which standard disclosure will be bound to apply. Indeed there may be cases where, without pleadings and detailed analysis of the issues which can only take place at the management conference, it will not be possible to contemplate exercising the power to order pre-action disclosure."
In Herbert Black and others v. Sumitomo Corporation and others (2001) EWCA Civ 1819, the Court of Appeal, in overturning the original order permitting pre-action disclosure, held that: "At a general level, there are clearly concerns that allegations of dishonesty are not lightly made, that a defendant to an allegation of dishonesty knows plainly what it is that is alleged against him, and also that dishonesty does not spread its cloak over the means by which it can be detected and revealed. It is not plain how these concerns are to be reconciled in any particular case in the context of pre-action disclosure, but it would seem to me that a court which is asked to grant such disclosure should be careful to pay proper regard to each of them. In any event it cannot be right that an allegation of fraud should assist the potential claimant to obtain pre-action disclosure, unless his allegations carry both some specificity and some conviction and his request for disclosure is appropriately focused."
In the unreported Queen’s Bench decision of Medisys Plc v. Arthur Andersen (a firm) (Unreported, 26 October 2001), Cooke J, in dismissing the applicant’s request for pre-action disclosure under CPR 31.16, concurred with the decision of Dyson J in Burrells Wharf Freehold Limited v. Galliard Homes Limited (1999) 65 Construction Law Reports 1, that the ordinary meaning of the words "that the applicant and respondent are likely to be party to the subsequent proceedings" (CPR 31.16(3)(a) & (b)) needed to be considered and that pre-action disclosure should only be granted where litigation between the parties was "likely" and where there were real issues between them.
In dismissing the applicant’s application, Cooke J made it clear that the purpose of CPR 31.16 "was to bring about efficient management of the claim which will be made and not to permit a fishing expedition to ascertain whether or not a claim is to be made". Accordingly, what was required to be shown was that there was a real issue between the parties and that the parties had shown, by their conduct or correspondence, that they intended to litigate and that, accordingly, there was a real likelihood that they would be embroiled in future legal proceedings.
As the applicant in Medisys had failed clearly to specify what its case against the respondent, Arthur Andersen, was, or was likely to be, despite persistent requests from Arthur Andersen to do so, the court refused to grant pre-action disclosure on the grounds that it was difficult to determine whether "the applicant and respondent are likely to be parties to subsequent proceedings". The correspondence merely suggested that there might be a claim but did not indicate a clear intention to pursue any clearly defined claim. Since the issues were not clear, it followed that the scope of disclosure could not be determined.
Cooke J was adamant that "unless and until the applicant confirms what his case is, in the shape of a pleading or at least a draft pleading", he did not consider it desirable nor cost effective to grant pre-action disclosure.
The decision in Medisys is also interesting in that the applicant was attempting not only to obtain pre-action disclosure of documents in the hands of Arthur Andersen but also of those in the hands of its purported agents, Arthur Andersen (Albuquerque) ("AAA"). The Applicant argued that, as AAA were the agents of Arthur Andersen, all documents in the hands of AAA were, effectively, under the control of and available for disclosure by Arthur Andersen, as principal. The applicant, however, failed to produce any evidence in support of its allegation that an agency relationship existed between Arthur Andersen and AAA and, accordingly, Cooke J also refused to order pre-action disclosure of the documents held by AAA.
It is therefore possible for a party to obtain disclosure, prior to commencement of proceedings, from the likely respondent to such subsequent proceedings and also indirectly from such respondent’s agents, provided the applicant successfully proves the existence of an agency relationship. Whether or not an agency relationship exists will be dependent on the facts of each case. However, a contractual arrangement between the likely respondent and its purported agent that the respondent had "neither possession, custody nor control of the documents and cannot compel (the agent) to transfer its work papers to it" would appear to militate against a finding of an agency agreement (as was the case in Medisys where the engagement letter between Arthur Andersen and AAA contained such express terms). However, even if the applicant was successful in proving the existence of an agency relationship, it would still need to satisfy the requirements set out under CPR 31.16 before a court would consider allowing pre-action disclosure on the part of the likely respondent.
When faced with a request for pre-action disclosure, the respondent should, therefore, carefully consider whether the court would make an order for such disclosure. As the cases above illustrate, it is not a foregone conclusion that it would do so, or that it would do so in respect of all the categories of documents sought.
Financial advisers should also be aware that, although pre-action disclosure is not available against non parties, they may become indirectly involved if it can be successfully argued that their documents are in the control of their client, the respondent.
© Herbert Smith 2002
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