Simcocks recently obtained the dismissal of a claim not on the merits but because of defects in disclosure by their legally represented opponents.
Advocates Emily Johnson and Chris Brooks, who together acted in this matter at Simcocks, discuss disclosure obligations generally and in particular the sanction available should a party fail to comply.
The dispute centred around a building contract with a value of approximately £1 million. The Claimant was one of several professional companies involved in the build and was aware that the Defendants had employed a professional project administrator to administer the work on their behalf. In order to resolve the dispute, the Claimant argued, and the court agreed, that it was essential the parties had access to all of the project documentation, such as plans, minutes of meetings and the contracts relied upon, relevant to this particular phase of the build, to establish the scope of the contract in the first place and the extent to which the project developed whilst it was being undertaken.
The Defendants were supposed to provide a list of documents in February 2019. A list was provided but it was very short and appeared incomplete. We requested copies of the documents to check this and the documents were provided via dropbox, not sub divided or otherwise grouped. On reviewing the documents, it became apparent that a large proportion were only extracts of larger documents or drafts of documents, such as contracts, which ought to have been signed and retained.
Following discussions around disclosure, a directions hearing was held on 10 May 2019 and the court ordered that the Defendants were to provide a replacement list of documents within 28 days. A further attempt at disclosure and inspection was made during this 28 day period, but we continued to view the documents provided as inadequate and the Defendants' reasoning for failing to disclose all documentation as fundamentally flawed.
An application was made on 21 June 2019 for an order that, unless adequate disclosure were provided by a specified date, the Defendants' counterclaim should be struck out ("the Unless Order"). This was granted by the court at a hearing on 8 July 2019, where the court provided some guidance as to what was expected from the disclosure process. In particular, it was emphasised that the Defendants ought to be able to provide a full copy of each contractor's file of papers, which should give the Claimant and the court a complete record of the pre-contract discussions, the contracts themselves and subsequent discussions around variations or problems which arose.
An updated list was provided and in excess of eight Lever Arch folders of documents received by way of disclosure within the period stipulated in the Unless Order. However, upon review, it became apparent that the documents were in no discernible order, incomplete in some cases and that there were material documents, such as the signed contracts under which the works were undertaken, omitted from the documentation.
Therefore, the Court enforced the Unless Order and struck out the Defendant's Counterclaim, granting the Claimant judgment.
Conduct of the application
Initially, the application to enforce the Unless Order envisaged an administrative review on the papers, as per the procedure in England and Wales. However, the court determined at the first hearing of the application that it would be inappropriate to activate the Unless Order administratively in a situation where there had been some compliance and the question for the court to determine was whether such compliance was sufficient to satisfy the order. Instead, the court ordered that a full application hearing take place, with both parties afforded the opportunity to submit witness evidence as to compliance.
Activation of Unless Orders and material non-compliance
His Honour Deemster Needham's judgment is a useful collation of existing case law on the question of activation of Unless Orders generally and material non-compliance particularly.
As to the former, it reminds litigants of the subtle distinction between the threshold to be applied by the court in an application for a strike out and an application to activate an Unless Order. It approves previous Court of Appeal guidance (Marcan Shipping (London) Ltd v Kefalas  EWCA Civ 463) in England and Wales on the subject and accepts that the court ought to take a more robust stand in circumstances where an Unless Order is at play (paragraph 22).
In respect of material non-compliance, it tackles head on a seemingly contradictory line of authority from England and Wales about the applicability of good or bad faith in determining whether the Unless Order ought to be activated. Following considerable discussion and analysis of the various authorities (paragraphs 25 to 33), His Honour ultimately concludes that "it seems to me that the application of Realkredit in the regime of the "new" rules goes towards whether there has been a material breach in the way applied in Re ASA Resource group  EWHC 3441" (paragraph 34). He goes on to cite Deputy ICC Judge Frith's judgment:
"55....I have to be satisfied that a court could infer a lack of good faith where it was obvious from the patent deficiencies in the list that it had been prepared in apparent but not real compliance with the obligation to give discovery, (as it was described in those days).
- Mr Dougherty described the test as requiring an assessment as to whether the obligation to give disclosure had been materially complied with, such that the sanction should take effect without the need for further order. To do that, I have to find that there had been a failure to comply with the obligations in a material respect."
This suggests that the courts will assess whether the omissions in disclosure are material and, if they are, will infer a lack of good faith by the simple fact of the omissions. It appears, although not expressly elucidated, that the court takes the view that material non-compliance does not require evidence of bad faith and simply requires evidence of a lack of good faith, which can be inferred as detailed above.
His Honour is quick to make it clear that the fact of material non-disclosure is entirely case specific and expresses himself prepared to accept individual omissions which are potentially credibly explained, suggesting the threshold to establishing material non-disclosure is a high one. However, he also explains that non-compliance should be assessed in the round in circumstances where there are multiple allegations of non-compliance and that the court will be less ready to accept seemingly plausible omissions in circumstances where there is a significant omission which cannot be plausibly explained or an extensive list of seemingly plausible omissions (paragraph 53 (i) (a)).
The interplay between Unless Orders and relief from sanction
It is quite clear from the tenor of the judgment that in considering whether to activate an Unless Order, the Manx courts will have half an eye upon the availability of relief from sanctions, whether or not a formal application in this regard has been submitted, and that, in order to apply to activate an Unless Order, an applicant must attend the final hearing expecting to argue this point.
However, if no application has been made formally by the defaulting party, such relief is only to be exercised exceptionally (paragraph 34). Ultimately, His Honour concluded that such exceptional relief should be reserved for matters where, for example, good explanations for the failures had been forthcoming and attempts had been made to remedy breaches (paragraph 59).
A reminder of the disclosure principles
In ascertaining what amounted to non-compliance, the court was of course required to consider the basic principles of standard disclosure and this serves as a timely reminder to litigators of the basic disclosure obligations and what the court does and does not deem acceptable (paragraphs 16 to 20). An often overlooked provision is the extension of the disclosure process to documents which a litigant has a right to possess or take copies of, which can extend far further than first envisaged (paragraph 18).
There is also the fundamental requirement for a "person giving disclosure to do so in a logical and ordered way. I accept Mr Brooks' submission that it is not enough for a party to litigation to give to the other party "the keys to the warehouse" (paragraph 20). Indeed, this was one of the main criticisms levied at the Defendants in this case; they hadn't disclosed several key documents, but even those which had been disclosed were disclosed in such a chaotic manner that it was impossible to place them into context.
This submission was accepted by the court (paragraph 53 (ii) (e)) and His Honour reiterated that "diligence in compilation of an accurate and comprehensive list is fundamental". Furthermore, the court emphasised that, particularly in complex or document heavy claims, it is essential that the parties give sufficient thought to the issues in the claim, so as to narrow the issues, yet ensure all material disclosure is provided (paragraph 53 (xiii) (c)).
His Honour also takes the opportunity to reiterate a message which has been a theme throughout this claim. Disclosure is not merely a formality and is rarely adequate where a party has undertaken the exercise alone, without the oversight of an advocate. Such commentary is plain in warnings such as:
"the court stated that it expected the parties' advocates to deal professionally with any request for disclosure. I indicated my view that really the Defendants' advocate should have prepared the list. Expanding on that point, it seems to me that where legal representation is present, although a client may prepare a draft list, advising on finalising the list is really a job for the advocate, particularly in a case where the documentation is complex and the sources of documents are multiple." (paragraph 8)
"It suffices to say that I expressed concern as to the delays and emphasised the need for expedition and concentration by the Defendants in preparing a comprehensive list of documents bearing in mind the relatively wide scope of the matters substantively in issue. I indicated that the lack of disclosure was holding up obtaining the expert evidence and the expert needed to be able to see what had happened on the project specific to the material the Claimant has been involved in producing and who did what with it." (paragraph 12)
Points to note
In conclusion, therefore:
- As a matter of practicality, the court will not activate an Unless Order administratively in circumstances where there has been purported compliance. A full application hearing with evidence will be necessary;
- The threshold for activation of an Unless Order is slightly lower than the threshold applied by the court on an application to strike out a claim and the Manx courts will follow the English line of authority in this regard;
- In assessing material non-compliance, the court can infer a lack of good faith from the omission of documentation which ought to have been included in disclosure. It is not necessary to prove bad faith on the part of the party preparing the documentation for disclosure;
- It is inevitable in an application for activation of an Unless Order that the court will consider the question of whether relief from sanctions ought to be granted and parties should be prepared to argue this point;
- An accurate and comprehensive list of documents is vital in any claim;
- Preparation of a list of documents is not a formality and must be subject to a clear and coherent thought process which identifies the key issues in the claim;
- Ultimately, the responsibility for preparation of the list lies with the advocate and the advocate should ensure they have sufficient oversight to manage the client's disclosure obligations properly.
A link to a full copy of His Honour's judgment is available here (https://www.judgments.im/content/J2674.htm ).
If disclosure is not undertaken properly, the court will take steps to impose sanctions proportionate to the defects upon the defaulting party.
Originally published 09 August, 2020
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.