THE DISCLOSURE PILOT: GUIDANCE GIVEN AS TO HOW IT SHOULD WORK: NOT A STICK WITH WHICH TO BEAT YOUR OPPONENT

There are two recent cases where the disclosure pilot is considered in detail.  In McParland & Partners Ltd & Anor v Whitehead [2020] EWHC 298 (Ch)  Sir Geoffrey Vos. Chancellor of the High Court set out some definitive guidance as to how parties should approach the pilot .  The pilot in the context of a second application for disclosure was considered by Mr Justice Birss in Conversant Wireless Licensing SARL v Huawei Technologies Co. Ltd & Ors [2020] EWHC 256 (Pat).

 

“It is clear that some parties to litigation in all areas of the Business and Property Courts have sought to use the Disclosure Pilot as a stick with which to beat their opponents. Such conduct is entirely unacceptable, and parties can expect to be met with immediately payable adverse costs orders if that is what has happened”

“Cooperation between legal advisers is imperative. The Disclosure Pilot must not be used as an opportunity for litigation advantage.  If that is attempted, the parties responsible will face serious adverse costs consequences.”

THE CASE IN MCPARLAND

The Chancellor was conducting a disclosure guidance hearing (DGH) under the Disclosure Pilot. There were a number of areas of agreement, but there were issues relating to Extended Disclosure.

THIS DECISION IN MEANT TO GIVE GUIDANCE

This decision in meant to give guidance on the practical application of the Disclosure Pilot. The Chancellor stated.

2. At the start of the hearing, I explained to counsel that I intended, unusually for a DGH, to deliver a reserved judgment in order to clarify some aspects of the way in which the Disclosure Pilot is intended to work. In particular, the case presented questions on the approach to disclosure issues which gave the court the opportunity to provide guidance for other users of the Business and Property Courts.

THE OPERATION OF THE DISCLOSURE PILOT

The judgment  gives general guidance on the Disclosure Pilot.

The operation of the Disclosure Pilot
  1. There are a number of areas in which the parties in this case have misunderstood how the Disclosure Pilot is intended to work. I do not say that by way of criticism, since I believe that the solicitors have tried on each side to comply with the pilot.  It will hopefully help parties in other cases if I explain the misunderstandings that have arisen here.  They are in three categories as follows:-
    • The identification of Issues for Disclosure;
    • The approach to choosing between disclosure models; and
    • Cooperation between the parties.
The identification of Issues for Disclosure
  1. The starting point for the identification of the Issues for Disclosure will in every case be driven by the documentation that is or is likely to be in each party’s possession. It should not be a mechanical exercise of going through the pleadings to identify issues that will arise at trial for determination.  Rather it is the relevance of the categories of documents in the parties’ possession to the contested issues before the court that should drive the identification of the Issues for Disclosure.
  2. I can give an example from this case. Issue 13 was agreed as being “[t]he date on which [Mr Whitehead’s] employment with [MPL] and his engagement with [FFML] terminated”.  The parties both accept that Mr Whitehead wrote to MPL terminating his employment on 16th March 2016.  They also agree that, under clause 22.1 of the Service Agreement, 6 months’ notice of termination was required (terminating on 15th September 2016).  They disagree about whether the revocation of Mr Whitehead’s FCA permissions by FFML in July 2016 amounted to an immediate termination of both the Service Agreement and the Adviser Contract.  The issue raised by these pleadings is, therefore: when did (a) the Service Agreement, and (b) the Adviser Contract, terminate?  But, had the parties thought the point through, they would have realised that that issue is one of law or construction of agreed actions, and not one to which any documents, beyond those already produced on initial disclosure (i.e. the contracts themselves and the pleaded letters and emails), will be relevant.  Accordingly, whilst the issue would properly appear in the list of issues for trial, there was no reason in this case for it to appear in the list of Issues for Disclosure.  The parties effectively acknowledged that to be the case by choosing model A for issue 13.  In fact, as I say, it was not an issue that needed to appear on the list of Issues for Disclosure at all.  Further examples of this include all those issues for which the parties eventually agreed model B, namely issues 1, 3-4, 6-9, and 12.
  3. It can be seen, therefore, that Issues for Disclosure are very different from Issues for Trial. Issues for Disclosure are issues to which undisclosed documentation in the hands of one or more of the parties is likely to be relevant and important for the fair resolution of the claim.  That is why paragraph 7.3 of PD51U provides that Issues for Disclosure are “only those key issues in dispute, which the parties consider will need to be determined by the court with some reference to contemporaneous documents in order for there to be a fair resolution of the proceedings” (emphasis added).   Paragraph 7.3 goes on to explain, as I just have, that Issues for Disclosure do “not extend to every issue which is disputed in the statements of case by denial or non-admission”.
  4. This explanation demonstrates that, in many cases, the Issues for Disclosure need not be numerous. They will almost never be legal issues, and they will not include factual issues that are already capable of being fairly resolved from the documents available on initial disclosure.
  5. In this case, there are, in the simplest possible terms, really only 3 Issues for Disclosure: (1) What was the commercial relationship between MPL and FFML and how and when did FFML succeed MPL as the trading entity engaging Mr Whitehead, (2) What did Mr Whitehead do between March 2016 and (say) March 2018 that was in breach of his obligations to the claimants, and (3) What losses did one or other of the claimants suffer as a result of those breaches? That first issue equates to issue 2 agreed between the parties. The second issue equates to issues 5, 10, 11, 14, and 15 agreed between the parties.  The third issue equates to issue 16 agreed between the parties.  I have suggested March 2018 for the end date in the second issue because that is 6 months after the end of the latest possible non-competition year.  It may be that the parties would have suggested a different date.  Identifying it would depend on their detailed knowledge of what documents each side actually possessed.  It is at least possible that documents after the end of the year of supposed non-competition would bear on what had happened during that year.  I repeat for the sake of emphasis that Issues for Disclosure do not need to be detailed or complicated, particularly in a relatively straightforward dispute like the present one.
    1. Finally, I might mention that the Issues for Disclosure have an important function beyond the CMC. Having framed the scope of the documents to be located and reviewed by the disclosing party, they enable the review of documents to be conducted in an orderly and principled manner. Under standard disclosure, the test was whether a document supported or adversely affected a party’s “case”. This was far too general.  Under the Disclosure Pilot the reviewer has defined issues against which documents can be considered. The review should be a far more clinical exercise.
The approach to choosing between disclosure models
  1. An example from this case also neatly demonstrates how this process should be approached. Issue 2 that I reframed as the first issue above asked: what was the commercial relationship between MPL and FFML, and how and when did FFML succeed MPL as the trading entity engaging Mr Whitehead?  In this case, the Fairstone takeover of MPL was plainly a complex and longwinded affair.  It no doubt generated much documentation, most of which would have no relevance to Mr Whitehead’s specific position or to this dispute.  Mr Whitehead’s solicitors did, however, reasonably request further documentation, beyond what had already been provided by way of redacted copies of some of the agreements including the EFA between FFML and MPL.  They framed questions to reflect their requests but were met by the answer that redaction was an issue raised by inspection, not disclosure.  That was an unhelpful response.  In the result, this issue was a classic one for model C disclosure.  The detailed requests have now been agreed, but the principle is clear.
  2. Likewise, the second reframed issue: what did Mr Whitehead do between March 2016 and (say) March 2018 that was in breach of his obligations to the claimants, provides a further good example. The parties proposed a variety of models C and D for their breach issues 5, 10, 11, 14, and 15.  That approach over-complicated the process.  As I have said, there was mistrust between the parties, and neither trusted the other to have provided complete initial disclosure.  The simplest and most appropriate course was to agree model D disclosure for the breach issue(s), since that makes up the central nub of the dispute.  The same goes for the third loss issue.  Much time and expense would have been saved if the parties had approached their task in this way.  This is, as I have said, a fairly straightforward case, and the Disclosure Pilot does not require compliance to be time-consuming or costly.  It just requires the parties to consider what documents they are likely to hold and to what issues those documents are relevant.
  3. I should mention also that, whilst the parties can agree different models for different parties in relation to the same issue, that is not a requirement. The breach issue here could perhaps have attracted model D for the defendant, but model B or C for the claimant.  In fact, however, that might have been unfair, as the claimants are perhaps as likely to have documentation showing that clients wanted to leave them, as the defendant is to have documents showing he breached his contracts.
Cooperation between the parties
  1. I have, as I have said, no intention of criticising the parties in this case. Nonetheless, I do wish to emphasise the need for a high level of cooperation between the parties and their representatives in agreeing the Issues for Disclosure and completing the DRD.  The Disclosure Pilot is built on cooperation as its terms make clear (see paragraphs 2.3, 3.2(3), and 20.2(3) of PD51U).  This is not intended to be mere exhortation. 
  2. It is clear that some parties to litigation in all areas of the Business and Property Courts have sought to use the Disclosure Pilot as a stick with which to beat their opponents. Such conduct is entirely unacceptable, and parties can expect to be met with immediately payable adverse costs orders if that is what has happened.  No advantage can be gained by being difficult about the agreement of Issues for Disclosure or of a DRD, and I would expect judges at all levels to be astute to call out any parties that fail properly to cooperate as the Disclosure Pilot requires.
Conclusions
  1. The Disclosure Pilot is intended to operate proportionately for all kinds of case in the Business and Property Courts from the smallest to the largest. Compliance with it need not be costly or time-consuming.
  2. The important point for parties to understand is that the identification of Issues for Disclosure is a quite different exercise from the creation of a list of issues for determination at trial. The Issues for Disclosure are those which require Extended Disclosure of documents (i.e. further disclosure beyond what has been provided on initial disclosure) to enable them to be fairly and proportionately tried.  The parties need to start by considering what categories of documents likely to be in the parties’ possession are relevant to the contested issues before the court.
    1. Unduly granular or complex lists of Issues for Disclosure should be avoided. Likewise, the models chosen should simplify the process rather than complicate it.  Here model C was appropriate for an issue where vast documentation was likely to exist, most of which was irrelevant to the actual dispute, and model D was appropriate to the two central issues of breach and loss, in which there was significant mistrust between the parties.  No Extended Disclosure at all was required for other issues.
  3. Cooperation between legal advisers is imperative. The Disclosure Pilot must not be used as an opportunity for litigation advantage.  If that is attempted, the parties responsible will face serious adverse costs consequences.
  4. I have approved the order agreed between the parties reflecting the discussion that took place at the Disclosure Guidance Hearing.

THE DISCLOSURE PILOT IN THE PATENTS COURT

The disclosure pilot was also considered by Mr Justice Birss in Conversant Wireless Licensing SARL v Huawei Technologies Co. Ltd & Ors [2020] EWHC 256 (Pat) when considering an application for disclosure which, the respondent to the application, argued had already been refused.

CONSIDERATION OF THE DISCLOSURE PILOT

The judge considered the relevance of the disclosure pilot to this second application.

    1. The defendants, Huawei and ZTE, object to this course on a number of grounds. The first issue that I need to address is the legal setting in which this question has to be decided. Unsurprisingly Huawei and ZTE rely strongly on the judgment of HHJ Hacon and argue that this disclosure has already been asked for once and refused, and nothing significant has changed. The order should be the same. That reasoning is couched in terms of the principles laid down in Tibbles v SIG Plc [2012] 1 WLR 2591 concerning the application of CPR Part 3 rule 3.1(7).
    2. However this case is part of the disclosure pilot specified by PD 51U and this application is governed by paragraph 18 (18.1 to 18.4). Conversant are applying for an order under para 18.1 and Paragraph 18.2 applies to it. These provisions provide as follows:

“18.1 The court may at any stage make an order that varies an order for Extended Disclosure. This includes making an additional order for disclosure of specific documents or narrow classes of documents relating to a particular Issue of Disclosure.

18.2 The party applying for an order under paragraph 18.1 must satisfy the court that varying the original order for Extended Disclosure is necessary for the just disposal of the proceedings and is reasonable and proportionate (as defined in paragraph 6.4).”

    1. Paragraph 6.4 in the disclosure pilot highlights various factors one should have regard to within the overriding objective including the nature and complexity of the proceedings; the likelihood documents will have probative value; and dealing with the case expeditiously, fairly and at a proportionate cost. (That is not all the factors.)
    2. In Vannin Capital PCC v RBOS Shareholders Action Group Limited [2019] EWHC 1617 (Ch), Ms Joanna Smith QC, sitting as Deputy Judge of the High Court, addressed the effect of that provision in proceedings under the pilot. In particular she was faced with a submission by the opponents to an application for additional disclosure that the correct principle to apply was the rule in CPR rule 3.1(7) and Tibbles v SIG Plc [2012] 1 WLR 2591, essentially that one needs a material change of circumstances before one could vary an order of the kind made in that case (and this one). The judge rejected that. I refer to paragraphs 9 and 10 of her decision:

“9. On the applicability of Tibbles v SIG Plc, I reject Mr Harris’ submission. That case concerned the general (apparently broad and unfettered) jurisdiction of the court under CPR 3.1(7) to revoke or vary its own order. It is, as the notes in the White Book, Vol 1 at 3.1.17 record, an ‘omnibus provision‘, designed to deal with orders which, in the ordinary course, would not be revisited. In contrast, the Disclosure Pilot expressly contemplates the potential for orders for Extended Disclosure to be varied and sets out the requirements that a party making such an application must satisfy. In my judgment, the circumstances in which an order may be revoked or varied under CPR 3.1(7) must give way to the specific requirements of paragraph 18 of the Disclosure Pilot, which expressly sets out a different test.

“10. Furthermore, I note that Rix LJ made it clear in Tibbles v SIG Plc that ‘successful invocation of [CPR 3.1(7)] is rare. Exceptional is a dangerous and sometimes misleading word: however, such is the interest of justice in the finality of a court’s orders that it ought normally to take something out of the ordinary to lead to variation or revocation of an order, especially in the absence of a change of circumstances in an interlocutory situation‘ [39(vii)]. There is nothing in the Disclosure Pilot to suggest that applications to vary orders for Extended Disclosure will only be granted where something out of the ordinary has occurred. If the draftsmen of the Disclosure Pilot had intended to import the criteria set forth in Tibbles, it is to be expected that they would have made that clear. In circumstances where they have identified a different test in paragraph 18, I can only infer that they had no such intention.”

  1. I respectfully agree with Ms Smith QC. The provisions of the disclosure pilot expressly apply a test, different from the one in rule 3.1(7) and Tibbles, to applications for disclosure which would have the effect of varying a previous order for Extended Disclosure.
  2. The two questions which I have to ask myself are whether the order I am now being asked to make, which varies the original order, is necessary for the just disposal of the proceedings, and is reasonable and proportionate.
  3. Nevertheless it seems to me that the fact that essentially the same thing has been asked for and refused once, is bound to be a relevant factor that the court will take into account. It may not be an element in the assessment of necessity but it certainly will be highly relevant to whether the order is reasonable and proportionate.
  4. In paragraph 11 of her judgment Ms Smith QC considered factors that applied specifically to the case before her, which was a different one from the case before me. She was not concerned with a case like this one in which more or less the same application had been made and refused, and then the court was faced with an attempt to argue it again.
  5. Mr. Hinchliffe submits, first, that the decision of Judge Hacon was wrong and, second, that in any case, applying the factors as they are today, the court should make the order. He submits that circumstances have changed between July and today. Conversant rely on two matters. First they refer to the point based the rule in Hollington v Hewthorn, the potential impact of which, rightly or wrongly, had not been focussed on in July. Coupled with this is an issue about the 2017 Huawei – Nokia licence. Although in July Conversant thought it might be difficult to deal with the 2017 licence, the evidence before me now, says Mr. Hinchliffe, is that that these difficulties have eventuated. He contends, based on the evidence of the valuation expert for Conversant, Mr. Bezant, that it really is very difficult to unpack the 2017 licence and to work out how comparable that licence really would be. (The concept of unpacking a licence is explained in Unwired Planet.) Combining the two points, Mr. Hinchliffe explains that his clients are concerned about a scenario in which the argument on the rule in Hollington v Hewthorn succeeds in the way that Huawei contend it should, so that effectively Conversant’s approach to calculating the royalty rate does not work at all, but Conversant succeeds in demonstrating that the Huawei-Nokia 2017 licence is not a good comparable. In that case he argues one is left with very little evidence on which to assess the relevant FRAND royalty rate.
  6. So, Mr Hinchliffe submits, the right thing to do is now (and in fact was then in July), to order the disclosure sought. Recognising that there are formidable case management difficulties in dealing with all this between now and the trial as are expressed by the evidence of Dr. Lawrance, the solicitor for ZTE, and Mr. Ridgway, the solicitor for Huawei, and very much as a fallback Mr. Hinchliffe submits that I do not have to make an order for sixteen further licences. Instead he contends one could take a smaller number instead of four, say three; and possibly not order anything in relation to ZTE because their approach is based on a “top down” approach, not a “bottom up” approach. So this would cut down the number of licences that need to be addressed.
  7. I am quite satisfied that I should not make this order. The reason why not is because it would not be reasonable and proportionate to do so, having regard to the timetable for this case. Purely on case management grounds, if I made an order requiring production of sixteen licences that would add a very significant extra amount of evidence into the case. Even based on Conversant’s fall back, say one got it down to something like six licences, which would be three from Conversant, three from Huawei and nothing at all from ZTE, that would still add significant extra evidence.
  8. I also note there is it no pleading supporting any of this. The fundamental thing is that it would put the parties to a great deal of difficulty. There would be confidentiality issues to deal with, although I think those would be overcome in the time. However the critical problem would be that in order for both sides to prepare fairly with at least six further licences is just something which cannot be done between now and holding on to the trial date on 27th April. Holding on to the trial date is something which I intend to do my utmost to achieve.
  9. It is not for me on this application to say that the decision HHJ Hacon made was wrong. That would be a matter for an appeal. I do not propose to analyse that decision in the context in which it was made. What I will say however, is that based on the evidence and submissions before me now – which are not the same as they were before the judge –and particularly having regard to the scenario Conversant rely on, had I been dealing with this in July 2019 I might well have made a different order. I seriously doubt an order for sixteen licences would ever be proportionate but a much lower number might have been.
  10. In Unwired Planet I came to the conclusion that the third party granted licences were of very little help on the facts of that case, but this case as explained before me now is different. There is much less evidence in this case of the kind that there was in the Unwired Planet case, of licences from the portfolio from which the patents are taken. In that case it was Ericsson and in this case it is Nokia. Faced with the situation as it is put before me now, if it had been possible to make an order of the kind sought without massively disrupting the timetable (which I am quite satisfied it would not be) then I can only say that I might well have made a different order and ordered some measure of disclosure of third party licences.
  11. I do not accept the submission from Huawei and ZTE that third party licences in which companies in the defendant’s group are licensees in principle ought never to be disclosed in FRAND cases or are not capable of having evidential value. They are capable of having evidential value. It is secondary to the value of licences of the portfolio in issue or a larger portfolio from which that portfolio is taken, there is no doubt about that; but depending on the pleaded cases and the nature of the evidence available to the court, it may be that it would be appropriate to order a measure of that disclosure in a different case. That is all I intend to say.