UK: Disclosure Pilot: High Court Clarifies Test For Varying Disclosure Orders And Encourages Use Of Disclosure Guidance Hearings

Last Updated: 26 July 2019
Article by Anna Pertoldi, Maura McIntosh and Jan O'Neill

The High Court has considered applications relating to a disclosure order made under the disclosure pilot scheme which has applied in the Business and Property Courts since 1 January 2019: Vannin Capital PCC v RBOS Shareholders Action Group Ltd [2019] EWHC 1617 (Ch).

The decision clarifies that, in applying to vary a disclosure order under the pilot rules, there is no need to satisfy the so-called Tibbles criteria, ie that there has been a material change of circumstances or the order was based on misstated facts. The test set out in the rules is that the variation is necessary for the just disposal of the proceedings and is reasonable and proportionate. Where the variation sought is to reduce, rather than expand, the scope of disclosure, the decision suggests that the question of proportionality will be addressed on the basis of whether the existing order is disproportionate, so that a variation of the order would be proportionate.

In giving judgment the deputy judge also took the opportunity to encourage parties to make use of the procedure established under the pilot for disclosure guidance hearings of no more than 30 minutes. These are intended to allow parties to obtain the assistance of the court, in a relatively informal way, to resolve issues relating to the scope of disclosure or implementation of a disclosure order. Anecdotal evidence suggests they are not being widely used, which may suggest some scepticism on the part of court users as to their potential for saving time and costs.

Background

The underlying dispute relates to Vannin's funding of the claims of certain claimants in the RBS Rights Issue Litigation, which settled in 2017, and Vannin's claim to be entitled to a share of the settlement proceeds. The defendants include 46 corporate shareholders and some 8000 retail shareholders.

The current decision relates to an order for extended disclosure made in February 2019 under the disclosure pilot, the rules for which are set out at CPR PD51U. The order required that disclosure be provided in the form specified in the parties' Disclosure Review Document (DRD), and that the parties use all reasonable endeavours to agree a final form of Appendix 1 to the DRD identifying the individual defendants who were to provide the necessary disclosure. The parties agreed the terms of Appendix 1, which included all 46 of the corporate shareholder defendants and nine of the retail shareholder defendants.

The claimant then applied for an order that the defendants be required to conduct further searches to comply with the disclosure order. The defendants applied to vary the order so as to exclude one of the corporate defendants, SG UK, from Appendix 1 on the basis that it did not meet the 200,000 share threshold that had been agreed in selecting the retail defendants who were to give disclosure.

Decision

The High Court (Joanna Smith QC sitting as a deputy High Court judge) granted the claimant's application and rejected the defendants' application.

Disclosure guidance hearings

Before addressing the detail of the applications, the deputy judge noted that there had been no attempt by either party to fix a disclosure guidance hearing under paragraph 11 of PD51U before making formal applications to the court.

Paragraph 11 provides that the parties may "seek guidance from the court by way of a discussion with the court... concerning the scope of Extended Disclosure or the implementation of an order for Extended Disclosure", where they have made real efforts to resolve disputes and the absence of guidance is likely to have a material effect on the court's ability to hold an effective case management conference, or the parties' ability to carry out the court's case management directions effectively. A disclosure guidance hearing will be for a maximum of 30 minutes, with pre-reading of no more than 30 minutes, and evidence will not normally be required.

The deputy judge commented that, while applications to vary an order for extended disclosure "do not appear to be contemplated as suitable" for disclosure guidance hearings, applications concerning the scope of extended disclosure are mentioned expressly in paragraph 11.

The approach in this case, where there were lengthy skeleton arguments and detailed submissions which took more than half a day of court time, seemed "both undesirable and contrary to the spirit of the Disclosure Pilot which requires the parties to cooperate so as to promote the reliable, efficient and cost-effective conduct of disclosure". In the deputy judge's view, this was just the sort of situation where guidance could have been sought, at least as to whether the claimant's application fell within the scope of the existing disclosure order. That may have narrowed the issues arising on the hearing, saving time and costs.

Defendant's application to vary the disclosure order

Paragraph 18 of PD51U provides that the court may at any stage make an order that varies an order for extended disclosure, if the variation is "necessary for the just disposal of the proceedings and is reasonable and proportionate".

The deputy judge rejected the claimant's submission that the court could not exercise its discretion to vary its own order unless the criteria identified in Tibbles v SIG Plc [2012] 1 WLR 2591 were met – in particular that there had been a material change of circumstances or the order was based on misstated facts. That case concerned the court's general jurisdiction to revoke or vary its own orders and had to give way to the specific requirements of paragraph 18 of the disclosure pilot which expressly sets out a different test.

The deputy judge did, however, note that the wording of paragraph 18 applies more naturally to variations to expand existing orders for disclosure than variations to restrict their scope – in particular the reference to the variation being "proportionate". The defendants' submissions in the present case proceeded on the basis that, where a party sought a variation to narrow the scope of the order, the question was whether the existing order was disproportionate, so that it would be proportionate to make the variation. The deputy judge said she approached the application in that way.

Applying the test in paragraph 18, the deputy judge was not satisfied that the exclusion of SG UK from Appendix 1 was necessary for the just disposal of the proceedings and was reasonable and proportionate. Her reasons included:

  1. The defendants had agreed at the CMC that extended disclosure should be provided by each of the 46 corporate defendants, without reference to the number of shares held.
  2. The corporate defendants were probably the best-informed members of the Action Group, and could be expected to have better record keeping and document retention than many retail defendants with a similar sized shareholding, and so were more likely to have relevant internal documents.
  3. As less than 1% of the defendant entities were giving disclosure, the deputy judge considered that a further reduction in numbers could prejudice the claimant and thereby adversely affect the just disposal of the proceedings.
  4. The defendants' evidence suggesting that SG UK's costs of disclosure were likely to exceed its maximum gross settlement recovery in the RBS Rights Issue Litigation (ie £70,000) was not sufficient to establish that the disclosure order was disproportionate. There was no satisfactory explanation as to the extent of the costs of SG UK conducting searches or why it would need advice from its own solicitors rather than the legal team acting for the defendants.
  5. The defendants' disclosure costs to date were said to be around £450,000. Even a further £70,000 or so would not, in the deputy judge's view, make the overall costs disproportionate in light of the value of the claim (reported to be around £14 million), which was made against the defendants jointly and severally.

Claimant's application for further searches

The claimant sought an order that the defendants carry out a search of board minutes, and other documents provided to or created by their boards of directors, for documents relating to certain disclosure issues set out in the DRD, namely whether the defendants had ratified the litigation funding agreements (in circumstances where the defendants had put in issue their knowledge of those agreements).

In respect of these disclosure issues, the categories of documents identified in the DRD included "internal authorisations and documents and records created in relation thereto", and the claimant's skeleton argument for the CMC identified the types of documents that would fall within this category as "memoranda, board presentations and minutes".

The defendants argued that to the extent the boards had received any relevant information it would have been received from the custodians they had identified, and therefore there was no need for separate searches of board minutes or meeting packs. The deputy judge rejected that argument. Board minutes and associated materials were within the scope of the DRD and the defendants were required to carry out proper searches for those documents. The selection of custodians had to be determined by reference to the scope of disclosure ordered; it could not be used to limit the scope of disclosure. And a hard copy search could be conducted if the relevant documents could more readily be captured that way.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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