Angela Milner (Senior Associate, Knowledge Development Lawyer) examines the key case law and guidance that has emerged from the courts in relation to the Disclosure Pilot Scheme since January of this year. She also provides an overview of potential reforms on the horizon.

The Disclosure Pilot Scheme (the “DPS”), which has been in force since 1 January 2019, was originally intended to finish at the end of December 2020. However, it has now been extended for another year (i.e. until the end of 2021). Below is an overview of the key cases and developments since our previous round-up of the DPS in January 2020. Unless otherwise defined in the article below, the terms in capital letters have the same meaning as those definitions used in the Disclosure Pilot Scheme.

Our previous round-up. (which covered key cases from the pilot’s inception until the end of 2019) can be found here.

Continued emphasis on proportionality

The case of Maher v Maher & Anzor [2019] EWHC 3613 (Ch) (heard in 2019 but only reported this year) builds upon previous case law that emphasises the more robust and pragmatic approach that the courts are taking to disclosure under the DPS. It highlights that even where a party should have given disclosure of certain documents (and has failed to comply with a disclosure order by refusing to do so), the court will not necessarily order that the documents be disclosed. The key consideration for the court is proportionality. As noted by the court, the DPS does “not require every stone to be turned over, still less for a whole pile of more stones to be imported from a neighbouring quarry” (para 21). Similar sentiment has been echoed in numerous cases since, including AAH Pharmaceuticals Limited and Jhoots Healthcare Limited [2020] EWHC 2524 (Comm), in which the court noted that “disclosure is a process…the results will not, and cannot, be perfect” (para 27). Proportionality is key.

Robust guidance from the court regarding the duty to cooperate (and the consequences of failing to do so)

In McParland & Partners Ltd and another v Whitehead [2020] EWHC 298 (Ch), Sir Geoffrey Vos (Chancellor of the High Court) used a disclosure guidance hearing (“DGH”) as an opportunity to provide guidance on how the DPS should work in practice. He offered clarification on the correct approach that should be taken to (i) identifying Issues for Disclosure (ii) choosing disclosure models and (iii) cooperation between the parties.

The key takeaway points are as follows:

• not every issue to be determined at trial should feature in the List of Issues for Disclosure. Parties should ask themselves whether – if the issue is one of fact – it can be resolved from the documents already disclosed (e.g. with Initial Disclosure). If the answer to this is “yes”, then it should not feature in the List of Issues for Disclosure at all (though it should feature in the List of Issues for Trial). Likewise, if the issue is purely a legal issue, it should not feature in the List of Issues for Disclosure (but, again, should be addressed in the List of Issues for Trial);
• when choosing which disclosure model to use, parties should refrain from over-complicating the process; and
• the emphasis in Practice Direction 51U (“PD 51U”) on cooperation is not intended to be “mere exhortation” (para 53). Parties who use the pilot “as a stick with which to beat their opponents” (para 54) can expect to be met with immediately payable adverse costs orders.

In the most robust statement made by the court to date on the duty to cooperate, Sir Geoffrey Vos concluded by issuing a call to arms, telling judges to be “astute” (para 54) and quick to “call out” (para 54) any parties that fail to cooperate in accordance with the ethos of the pilot.

Parties have been left in no doubt that they can expect both increased vigilance on the part of the judiciary with regards to cooperation, as well as draconian costs consequences for failures in this regard.

Pre-action disclosure

The case of A v B [2019] 10 WLUK 65 suggests that it may well be harder for parties operating within the DPS to obtain pre-action disclosure (as compared with the position in cases that do not fall within the scope of the DPS).

The dispute in this case arose out of the applicant’s attempts to acquire an economic interest in hotels owned by the respondent (the applicant wished to recover monies spent pursuing the possibility of acquiring the interest, as they alleged that the respondent never had any intention and/or ability to sell such an interest to them).

The applicant applied under CPR 31.16 (a provision that is expressly retained by PD 51U) for pre-action disclosure of (i) board minutes and (ii) communications between the respondent and various financial institutions (which the applicant considered went to the intention/state of mind of the respondent in terms of whether or not they planned to sell).

The court’s decision to dismiss the application was based on numerous factors. However, of particular force was the fact that the DPS provides a mechanism once proceedings have commenced for issues between the parties to be narrowed (by requiring parties to complete a Disclosure Review Document (“DRD”) and to select the appropriate model for each issue). The availability of this “forward path” (para 11) had a lot to commend it when compared to the alternative (i.e. wide-ranging pre-action disclosure under CPR 31.16) proposed by the applicant. Thus, although PD 51U makes it clear that the test for pre-action disclosure is that outlined in CPR 31.6, the application of that test in practice, in the context of cases involved in the pilot, appears to be more stringent than if disclosure were taking place under Part 31.

Initial Disclosure

The court has stressed that the threshold for documents that must be included in Initial Disclosure is high. In the case of Peter Breitenbach and Others – and – Canaccord Genuity Financial Planning Limited [2020] EWHC 1355 (CH), the claimants sought Initial Disclosure of some documents which were considered necessary to understand certain aspects of the defendant’s defence. However, the court declined to rule that these documents fell within the scope of Initial Disclosure. Although these documents were necessary to “evaluate and weigh the prospects of success of [the defence], they were not necessary in order to understand the defence that the claimants have to meet and answer” (para 11), which is the wording used in PD 51U. As such, the court declined to order that the documents be disclosed as part of the Initial Disclosure process.

Similarly, in the case of The State of Qatar – and – Banque Havilland SA [2020] EWHC 1248 (Comm), the court was keen to stress that it is only “really very necessary documents” (para 18) that should be provided for the purpose of Initial Disclosure. As noted by the court, “the purpose of the pilot is to streamline and not to complicate disclosure and so it would be unlikely that what was had in mind by the drafters of the disclosure pilot was a scheme whereby initial disclosure required something more than really very necessary documents” (para 18).

The meaning of “control”

In the case of Pipia v Bgeo Group Ltd [2020] EWHC 402 (Comm), the court provided guidance on the meaning of “control” in the context of CPR 31.8 and the pilot. This case emphasises that (i) simply being a parent company is not, of itself, enough, to result in the parent being regarded as having “control” over the documents of the subsidiary. Rather, the court will consider whether (i) there is an existing arrangement in practice which provides the parent with a right of access to documents held by the subsidiary and/or (ii) whether the parent company has a legally enforceable right to obtain the documents from its subsidiary. This is useful guidance on a commonly encountered issue (though whether this criteria is satisfied will be looked at on a case-by-case basis).

Varying an order for extended disclosure under PD 51U, paragraph 18: the significance of the trial date

In the case of Conversant Wireless Licencing v Huawei Technologies Co Limited and others [2020] EWHC 256, the court declined to vary a disclosure order given that trial was just over two months away. This case makes it clear that “holding on” (para 21) to the trial date will be a key consideration when deciding whether or not to vary an order for disclosure.

The difference between the tests under paragraph 17 and paragraph 18 of PD 51U

As mentioned in our previous DPS round-up, the case law addressing the differences between the tests under PD 51U paragraph 17.1 and paragraph 18.1 has, at times, been contradictory. However, the case of Astra Asset Management UK Limited and Musst Investments LLP [2020] EWHC 1871 puts it beyond doubt that the test under PD 51U paragraph 18 (varying an order for Extended Disclosure: making an additional order for disclosure of specific documents) is, in fact, more onerous than that under PD 51U paragraph 17 (failure to comply with an order for Extended Disclosure). That’s because, under paragraph 17, the court need only consider whether making an order is “reasonable and proportionate”. However, under paragraph 18, the court must also establish that the order is “necessary for the just disposal of proceedings”. As this case makes clear, a court will not revisit an order for disclosure that has already been made unless there is a “good reason” (para 22) to do so.

Redactions

An area on which considerable guidance has now been given is the correct approach to take to redactions under the DPS. In Astra Asset Management UK Limited and Must Investments LLP [2020] EWHC 1871 (also discussed above), the court considered the requirement under PD 51U for parties to explain the basis upon which redaction has been made. It explained that “it is not realistic to expect that each redaction should be given a separate explanation if it would merely be repetitive or would risk identifying data that is claimed to be irrelevant and confidential” (para 20). However, on the “other hand, a highly generalised formula will not suffice unless it provides an accurate and complete explanation as to why data has been redacted” (para 20). A pragmatic and sensible approach to redactions should therefore be taken.

The court also made it clear that in circumstances whereby a party challenged the redactions of the other side, the court would be slow to look at the unredacted version of the document(s) in order to form a view as to the appropriateness of the redactions. Although this option is open to the court, it would place a considerable burden on it. Further, judges often lack the necessary understanding of the full context in which issues arise and the reasons why some data may be confidential. In many instances, the court will be in a less good position than the redacting party to undertake a review of this nature.

This case suggests that challenging redactions made by another party will not be an easy task.

Known adverse documents

PD 51U explicitly states that known adverse documents (“KADs”) are those documents of which a party is “actually aware (without undertaking any further search for documents than it has already undertaken)” (PD 51U, para 2.8). However, the case of Castle Water Limited v Thames Water Utilities Limited [2020] EWHC 1374 (TCC) shows the court adopting a broad interpretation of the rules regarding KADs. The court in this case concludes that “a party must undertake reasonable and proportionate checks to see if it has or has had known adverse documents and that, if it has or has had known adverse documents, it must undertake reasonable and proportionate steps to locate them” (para 12). The court maintains that it is drawing a “clear distinction” (para 11) between “carrying out checks and carrying out searches” (para 11).

Despite paying lip service to a distinction between “carrying out checks” (which you do have to do under the rules) and “searches” (which the rules themselves say you do not need to do) (para 11), the court appears to suggest that if the outcome of the checks if that there is a KAD, you should take proportionate steps to “locate” (para 12) that document.

This judgment has been viewed by many as muddying the waters/creating confusion as to what exactly clients (and those representing them) need to do with regards to KADs. However, for practical purposes, it may be that the obligation to conduct checks would be fulfilled provided that clients are asked at a relatively early stage in proceedings whether they think they have any adverse documents out there. If the client answers this in the negative, arguably, there is no obligation to conduct wide-ranging speculative searches for such documents. However, should the client state that they do believe there are adverse documents out there, at that stage, “reasonable and proportionate” (para 12) steps should be taken to locate those documents. As noted by the court, “it would be absurd if a party were able to say ‘I know I have an adverse document, but I don’t know whether it is in the left-hand drawer or the right’” (para 11).

It is worth noting that “in a case of any complexity at all or an organisation of any size, reasonable steps to check whether a company or organisation has ‘known adverse documents’ will require more than a generalised question that fails to identify the issues to which the question and any adverse documents may relate. Similarly, it will not be sufficient simply to ask questions of the leaders or controlling mind of an organisation, unless the issue in question is irrelevant to others” (para 10). No doubt the court will give further guidance on this area in due course. However, in the meantime, the way in which the “checks” (para 11) are framed, and to whom they are put, will need to be considered carefully by those involved in litigation.

Disclosure guidance hearings

The recent case of AAH Pharmaceuticals Limited and Jhoots Healthcare Limited [2020] EWHC 2524 (Comm) demonstrates that the court will not shy away from ordering parties to attend a DGH if it considers that this would be helpful. On the facts of the case, parties who had engaged in protracted correspondence regarding keywords (and then failed to reach a resolution, which resulted in one of the parties proceeding unilaterally with an approach that had not been agreed) were ordered to (i) have another go at reaching agreement and, failing that, (ii) return to the court in two to three weeks’ time for a DGH.

The court also made it clear that its strong preference was for the parties to conduct discussions face-to-face rather than in correspondence: “a weekly telephone call would be a minimum in the current situation. It is important to have some record about what is being done, and for arguments to be put…set-piece letters are not always the best way of promoting a collaborative process…speaking to each other is more likely to promote cooperation. It is also quicker than writing a long letter” (para 27).

Clearly, addressing thorny disclosure issues “face-to-face”/by way of telephone/Zoom would be a significant cultural shift for lawyers, who are used to setting out their arguments on these issues in detailed correspondence.

Clarifications to the scheme and proposals for reform

As mentioned in our previous DPS round-up, PD 51U contains numerous grey areas.

Clarifications
The disclosure working group (“DWG”) responsible for the pilot has recently provided that the following points be expressly clarified in PD 51U:

• confirmation that where only Model A, or Model B Extended Disclosure is sought, parties will not need to complete the DRD;
• clarification on the timing of providing KADs (i.e. within 60 days of the first CMC/at the same that the remainder of Extended Disclosure is given, depending on the model); and
• confirmation that (i) DGHs can be used for guidance on a wide range of topics (as opposed to issues stemming from Extended Disclosure only) (ii) there is some flexibility with regards to the time limit and (iii) the court could decide to give guidance “on the papers” (i.e. without a hearing).

Changes
Numerous changes have also been proposed by the DWG, following extensive feedback from the legal industry. These are as follows:

• refinement of the duty to contact employees/former employees (making it more narrow so that clients will only need to contact those relevant employees who they have reasonable grounds to believe have documents in their possession that the company does not have);
• making it easier for parties to dispense with Initial Disclosure (by enabling documents that the other side already has in their possession to be taken into account for the purpose of calculating the 1000 page/200 document limit);
• Explanatory Notes on the pilot to be set out in a separate document (with more detail on various aspects of the pilot, including when and when not to use Model C);
• a plea to parties to think carefully about whether Model C is really the most appropriate Model (and to consider whether a combination of other Models might be more appropriate);
• even more emphasis on the need for parties to cooperate in the preparation of the DRD and, importantly, instructions to parties to try and agree the DRD by engaging in regular phone/video conferences as opposed to engaging in extensive correspondence.

The clarifications and proposed changes outlined above are currently being considered by the Civil Procedure Rule Committee (the “CPRC”). Although there are no guarantees that the CPRC will approve these changes, we think it is highly likely that they will. Further, we anticipate that lawyers will be expected to adapt quickly and that they will be given relatively little notice to do so. Lawyers would be well advised to familiarise themselves with these proposed changes now, with a view to being able to hit the ground running in due course

You can see a full list of our current securities litigation cases and investigations here.

You can find further information regarding our expertise, experience and team on our Securities Litigation pages.

If you require assistance from our team, please contact us or alternatively request a call back from one of our lawyers by submitting this form.

Subscribe – In order to receive our news straight to your inbox, subscribe here. Our newsletters are sent no more than once a month.