HAVE YOU COMPLIED WITH AN "UNLESS ORDER"? GUIDANCE IN THE CONTEXT OF E-DISCLOSURE

A hearing on the question of whether a party has complied with an unless order is always a fraught one. The stakes are high, particularly for the party alleged to be in breach.  Here we look at compliance in relation to an order for “e-disclosure”. It contains lessons of general relevance.

E-disclosure as a topic is dealt with extensively in Chris Dale’s blogs (see the link below).  To many this may appear a rarefied subject. However when the issue of e-disclosure is coupled with an application to strike out and relief from sanctions I start to take an interest.  This is going to be an area rife for dispute.  In most cases where e-disclosure takes place the stakes are very high indeed. If a party can obtain a speedy end to the action by arguing non-compliance this will be an attractive option.  Further, given the stakes, a litigator may be bound to take these arguments in order to protect his client’s interest (and prevent an action in negligence).

A CASE IN POINT

In Re Atrium Training Services Ltd [2013] EWHC 2882 (Ch) Mr Justice Birss considered the issue of whether a party had been struck out for failure to comply with an order for e-disclosure. The case raises issues of interest in relation to disclosure generally.

BACKGROUND TO THE APPLICATION

Atrium is an action brought by liquidators against former directors of a company.  The court made a peremptory order

“(1) unless the Liquidators comply with paragraph (2) below, the Liquidators claims against the Respondents in proceedings No 3878 of 2011 and No 3879 of 2011 (“the Atrium proceedings”) shall be struck out without further order of this Court and the Respondents shall be at liberty to enter judgment for their costs, such costs to be subject of a detailed assessment if not agreed.

(2) In the Atrium Proceedings, the Liquidators shall by 4.00pm on 28 June 2013:

i) conduct a search for documents falling within CPR 31.6, in compliance with the requirements set out in CPR 31.7; and

ii) provide Mr McNally and Mr MacLean and Mr Dick with a list of documents identifying the documents located as a result of the search described above, in compliance with the requirements set out in CPR 31.10

(3) Requests for inspection (or copies) of documents shall be made by 4:00pm on 5 July 2013 and complied with by 4.00pm on 12 July 2013″.

The liquidators’ disclosure exercise was completed using the Unified e-disclosure platform and the list was served within the required time along with a disclosure statement by the liquidators signed with a statement of truth. There are about 6,000 documents in the list, consisting of about 22,000 pages.

THE RESPONDENT’S ARGUMENTS IN RELATION TO NON-COMPLIANCE

Despite the list being served in time the Respondents argued that the list was defective and applied for judgment. The liquidators, whilst arguing that there had been compliance, applied for relief from sanctions in the alternative.

ALLEGED MISSING DOCUMENTS

 The Respondents argued that relevant documents were missing from the list.

There is an interesting discussion by the judge of the relevant legal test:

29.  “When considering an unless order for disclosure Mr Alexander referred to the cases, some of considerable antiquity, in which the court had been reluctant to go behind the disclosure affidavit or statement at an interlocutory stage. He submitted that there were two categories of case involving unless orders for disclosure. One class was when the breach was admitted or it was plain and obvious that a breach had occurred. In such a class the sanction had been allowed to take its effect and the action struck out. In this class he placed Marcan Shipping (London) v Kafalas [2007] 2 AllER 365 and Plextek v Lockway (Judgment of James Munby QC sitting in the Chancery Division on 15^th July 1997). In both cases the breach of the disclosure order was admitted, the sanction of the unless order took effect and no relief was granted. This is the class into which Mr Alexander submitted the present case fell.

30. The other class consisted of cases in which no breach was admitted nor was a breach plain or obvious. The party alleging default could not provide clear evidence of default and will be inviting the court to infer that additional relevant documents exist which have not been disclosed. Typically the party allegedly in default will be denying the allegation of non-disclosure. In those cases the court will be reluctant to go behind the disclosure statement or affidavit and to succeed the party alleging default will have to go as far as establishing that the list of documents served is illusory or made in bad faith. In this category Mr Alexander placedFrankenstein v Gavin’s House to House Cycle Cleaning [1897] QB 62 (Court of Appeal) (not about an unless order), Realkredit Danmark v York Montagu [1999] CPLR 272 (Court of Appeal),Morgans v Needham (unreported 28^th October 1999, Court of Appeal) and Verjee v Miller [2004] EWHC 2388 (Ch). In each of the last three cases referred to the court overturned a decision by a lower court finding a disclosing party in breach of an unless order for disclosure.

31. It is worth explaining Realkredit in a little more detail. There the Court held that since a list had been served, prima facie the relevant order had been complied with. The remedy, if a party is dissatisfied with a list already provided, was an application for further disclosure. The question of compliance with the court order was not simply an exercise of the court’s discretion. In the case before the court the list provided could not be called illusory. Tuckey LJ said this:

“I do not think that the conclusion I have reached will mean that unless orders for discovery are worthless. In many cases where they are made no list is served at all. Both counsel conceded, rightly in my judgment, that a court could infer lack of good faith where it was obvious from patent deficiencies in the list that it had been prepared in apparent but not real compliance with the obligation to give discovery.”

32. In Morgans and Verjee the court followed the same approach as in Realkredit.

33. Although it is possible to classify the cases in the manner proposed by Mr Alexander, I do not find the classification to be a useful one for the purpose of deciding the case before me, beyond serving to emphasise the point that a vital question is whether the order has indeed been breached. For that one needs to examine exactly what the order obliges the party to do.

34. None of the cases mentioned involve the alleged breach of an order like the order in the present case, which obliges the disclosing party to conduct a search for documents falling within CPR 31.6, in compliance with the requirements set out in CPR 31.7. A search compliant with CPR r31.7 is a reasonable search as defined in that rule and the criteria to be applied in determining whether a document is to be disclosed are laid down in r31.6. These two rules are as follows:

“Standard disclosure – what documents are to be disclosed

31.6 Standard disclosure requires a party to disclose only–

(a) the documents on which he relies; and

(b) the documents which –

(i) adversely affect his own case;

(ii) adversely affect another party’s case; or

(iii) support another party’s case; and

(c) the documents which he is required to disclose by a relevant practice direction.

Duty of search

31.7 -(1) When giving standard disclosure, a party is required to make a reasonable search for documents falling within rule 31.6(b) or (c).

(2) The factors relevant in deciding the reasonableness of a search include the following –

(a) the number of documents involved;

(b) the nature and complexity of the proceedings;

(c) the ease and expense of retrieval of any particular document; and

(d) the significance of any document which is likely to be located during the search.

(3) Where a party has not searched for a category or class of document on the grounds that to do so would be unreasonable, he must state this in his disclosure statement and identify the category or class of document.

(Rule 31.10 makes provision for a disclosure statement)”

35. Most of the cases cited above were decided under the old RSC discovery regime which was different. In Nichia v Argos [2007] EWCA Civ 741 the Court of Appeal referred to standard disclosure and the reasonable search and emphasised the difference between this approach to disclosure under the CPR and the former approach to discovery under the RSC. The two cases referred to above which were decided under the CPR i.e. Marcan and Verjee, did not involve the question was what was a reasonable search under r31.6.

36. Mr Davenport contended that his clients had complied with CPR Part 31 and in particular that the methodology employed by the liquidators’ solicitors and explained by Mr Gibbs was a reasonable search within the meaning of CPR 31.7. He submitted that by limiting the search to what is reasonable there was necessarily a risk that certain documents may be omitted. Mr Davenport argued that as long as a reasonable search had been conducted, there was nothing in the CPR which provided that the fact a document could be shown to have been omitted renders the party in breach of the obligation to conduct a reasonable search. The mechanism to obtain further documents was an order for further disclosure.

Assessment

37. The starting point has to be the terms of the order in question. As I have said, that order referred to a search compliant with r31.7 for documents falling within r31.6 and to the provision of a list (r31.10) which identified the documents located as a result of the search. Thus the primary obligation on the liquidators under this order was to conduct a reasonable search and list the relevant documents which were found in that search. By “relevant” I mean in the sense of complying with r31.6. Such a search requires the party to identify and then collate potentially relevant documents, to review the collated potentially relevant documents in order to identify which ones are actually relevant and to produce and serve an appropriate list of those relevant documents. All of this is to be done in a reasonable manner, reasonableness depending on the factors in r31.7(2). A search not carried out in good faith would not be a reasonable search. However a search which was conducted in good faith and was fair and proportionate to the case in hand, given the number of documents involved, the nature and complexity of the case, the ease and expense of retrieval and the significance of any document likely to be located, would be a reasonable search and would be one which complied with the order.

38. As Morgan J said in Digicel (St Lucia) Ltd v Cable & Wireless [2008] EWHC 2522 (Ch) (a case not cited to me by the parties but referred to at 31.7.1 of the White Book) the rules do not require no stone to be left unturned (paragraph 46). As Morgan J also held in Digicel, the task of deciding what is a reasonable search is a task given to the court by the rules (paragraph 51 – 52) and is not simply a matter of reviewing the decisions of the solicitor as if the case was a judicial review of the decision making process.

39. In my judgment in order to establish that the disclosing party is in breach of an order drafted in this way, by reference to these rules, it is not enough merely to show that the disclosing party did have within its control (within the meaning of r31.8) documents which fall within r31.6 but which were not mentioned in the list.

40. In this case a list was served in time. To prove a breach of the order, it would have to be established that a reasonable search did not take place. That could be done on inference (c.f. Realkredit) but it is important not to lose sight of the nature of the inference which would have to be drawn. The deficiencies relied on have to be so significant that it can be said that a reasonable search simply had not happened.”

THE APPROPRIATE TEST

It is worthwhile setting out the appropriate test, set out in paragraph 40 above. If the list is served in time:

(1) It had to be established that a reasonable search did not take place.

(2) A court can infer this.

(3) To make such an inference the deficiencies relies upon would have to “be so

significant that it can be said that a reasonable search simply had not happened.”

On the facts of the case the judge could not draw that inference:

“This is a substantial case involving very serious allegations. It justifies an extensive disclosure exercise from the point of view of proportionality. However even looking at the exercise with the benefit of hindsight, I can see no justification for saying that it was not a reasonable search. It was very extensive. It was plainly carried out in good faith. It was explained in detail in advance to Mishcon de Reya and indeed was based on a methodology which had been ventilated in court before Henderson J when the unless order was made. It was completed within the time specified by the order. It is true that two classes of relevant documents were missed but there is no suggestion that this was the result of bad faith and I am satisfied that the fact these two classes were missed does not support an inference that the exercise itself was not a reasonable search. In my judgment the liquidators are not in breach of the order of 7^th June 2013 on that ground.”

THE ARGUMENT THAT THE LIST WAS DEFECTIVE

The Respondents put forward a second argument that the list was defective.

“The nature of the list

46. I now turn to the other point taken by the former directors, the nature of the list which was provided on 28^th June and whether it complies with CPR r31.10. It will be recalled that compliance with CPR r31.10 was part of the order of 7^th June.

47. The relevant parts of r31.10 are:

“Procedure for standard disclosure

31.10 (1) The procedure for standard disclosure is as follows.

(2) Each party must make and serve on every other party, a list of documents in the relevant practice form.

(3) The list must identify the documents in a convenient order and manner and as concisely as possible”.

48. So by r 31.10(3) the list must identify the documents in a convenient order and manner and as concisely as possible. Rule 31.10(3) is explained further in Practice Direction 31A para 3.2:

“3.2 In order to comply with rule 31.10(3) it will normally be necessary to list the documents in date order, to number them consecutively and to give each a concise description (e.g. letter, claimant to defendant). Where there is a large number of documents all falling into a particular category the disclosing party may list those documents as a category rather than individually e.g. 50 bank statements relating to account number _ at _ Bank, _20_ to _20_; or, 35 letters passing between _ and _ between _20_ and _20_”.

49. Mr Alexander submits that the liquidators’ list fails to comply with r31.10(3) because the list fails to properly identify the documents in it. The submission is that the information provided is inadequate and is not compliant with the rules, and so the order has been breached on this basis.”

THE ALLEGED DEFECTIVE LIST

The list was produced by e-disclosure software.   The respondents argued that this had no practical utility. The liquidators responded that it complied with Practice Direction 31B.  Although this may lead to a party not knowing whether a document was worthy of inspection or not this was not a major burden. With the e-disclosure documentation there was no need to ask for inspection. The parties had access to the relevant database and the uploaded documents could be accessed using the software.

The argument that the Electronic Documents Practice Direction did not apply

The Respondents had a further argument that the Electronic Documents Practice Direction did not apply to the case. The documents being disclosed were hard copy documents which had been scanned into the database for the purpose of the disclosure exercise.

The relevance of the practice direction

 The judge held that the list complied with the Electronic Documents Practice Direction.   Normally the Practice Direction would not apply.

56. I agree that the Practice Direction is concerned with electronic documents. A document which is held in the control of a party as a piece of paper is not an electronic document. Thus the Practice Direction would not ordinarily apply to the bulk of the disclosure in the Atrium case. If the liquidators had unilaterally taken it upon themselves to use an electronic disclosure approach of the kind they did, without prior notice to the other parties and were then using the terms of the Practice Direction as a means for covering up a serious inadequacy in their disclosure then they could expect little sympathy from the court. But that is not what happened in this case.

However the use of the e-disclosure had been agreed between the parties and the court in previous hearings as a system being beneficial to all concerned.

“In these circumstances it would be absurd to say that PD 31B did not apply to this exercise, despite the fact that strictly speaking the underlying documents were not originally “Electronic Documents”

FURTHER ARGUMENTS IN RELATION TO THE NEED FOR A FURTHER PEREMPTORY ORDER

The Respondents argued that irrelevant documents had been disclosed and some relevant documents should have been.  It was argued, therefore, that the liquidator should be subject to a further unless order requiring them to file a further list compliant with CPR 31 within seven days, failing which the action should be struck out.

The judge accepted that this was a possible course of action but there was a high burden on a party making such an application.

“I do not say that it would never be possible to approach a question like this in the manner proposed by the family members but I am not persuaded that I should do so in this case. In order to justify an unless order in a case like this it is necessary to show the party is in breach of the previous order and that that breach is inexcusable (Hytec). To be satisfied of that I would need to be taken to the documents concerned in order to see exactly what they were and understand each side’s submissions about it. It would be incumbent on the party alleging that the documents are truly irrelevant to bring proper examples before the court and make out its case. That has not been done.”

CASE MANAGEMENT ORDERS MADE

The judge ordered the liquidators to use their reasonable endeavours to provide better descriptions of the documents, with the injunction that this was not a reason to delay the parties examining the documents in the interim.  Further directions were made in relation to the liquidators considering the relevancy of some documents.

THE JUDGE’S CONCLUSION

Although the judge made some practical case management directions he:

(1) Found that the liquidators were not in breach of the peremptory order and the action remained in being.

(2) There was no need to consider the matter of relief against sanctions.

(3) The applications for a further unless order were dismissed.

PRACTICAL GUIDANCE: CANDOUR  ALWAYS HELPS

One telling feature of this case was the judge accepted the evidence (candidly given by the liquidators) that there had been innocent mistakes and oversights.

It is clear that the reason for these mistakes and oversights were explained, in detail, in a witness statement. There was evidence before the judge to enable him to understand the reason for these mistakes and find that they were honest and understandable errors.

This led to his conclusion “that a serious effort was made on the liquidators behalf to perform a proper disclosure exercise.”

This demonstrates the importance of putting evidence before the Court and, if mistakes have been made, admitting them and providing material which explains how those mistakes were made.

RELATED POSTS

None from me but the e-disclosure Information Project is at http://chrisdale.wordpress.com/

RELATED CASES AND PRACTICE DIRECTIONS

The case can be found at http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Ch/2013/2882.html&query=atrium&method=boolean

The e-disclosure Practice Direction is at

http://www.justice.gov.uk/courts/procedure-rules/civil/rules/part31/pd_part31b