Privy Council considers entitlement to costs of preparing to comply with a third party disclosure order

The liquidators of two companies sought third party disclosure of PwC's working files in Bermuda. An order was obtained (pursuant to a Bermudian statute) and PwC applied to discharge that order. That application was refused but the judge extended time for compliance with the order. The disclosure order was subsequently quashed by the Bermudian Court of Appeal. PwC then sought to recover its costs of preparing to comply the order before it was quashed (some USD 250,000, said to derive from about 1,500 hours of staff work).

The Privy Council has now dismissed that application.

It rejected an argument that the judge should have ordered the liquidators to give an undertaking for PwC's costs of complying with the disclosure order, against the possibility of a successful appeal. The Privy Council pointed out that undertakings are voluntary, being the "price" the applicant pays in order to be granted the relevant order.

Nor was the disclosure order defective because it did not contain provision for PwC's costs of compliance. PwC had sought to draw an analogy with applications for eg a Norwich Pharmacal order, where it is established practice for the third party's costs of complying with the order to be protected. The Privy Council pointed out that this was not a Norwich Pharmacal case, since there was no suggestion that PwC was mixed up in any tort, and there was no authority dealing with this sort of situation.

There was some sympathy with the view that the third party should be entitled to the costs of compliance with the order, but here, no actual compliance ever took place, because the order was set aside on appeal. It was held that "PwC are seeking precisely what they never asked for at the time, that is, not the costs of compliance, but protection in respect of preparatory costs thrown away as a result of a successful appeal which meant that they did not have to comply. Such protection is achieved, if at all, by appealing, seeking an extension of time for compliance or a stay of execution pending the determination of the appeal, and, if this is resisted, insisting as a condition of the refusal of an extension or stay, on an undertaking in damages to cover costs wasted".

COMMENT: Accordingly, the Privy Council has explained the correct course of action for a third party served with a disclosure order which it seeks to appeal. Should no appeal be brought, the Privy Council has also confirmed that the third party should probably be entitled to its costs, just as it would be in respect of a Norwich Pharmacal order. One further point of interest: the Privy Council clearly proceeded on the basis that the correct test for a Norwich Pharmacal order is whether or not the third party is mixed up in the wrongdoing. However, that test has been the subject of some judicial debate recently (not referred to by the Privy Council), Mann J in in Various Claimants v News Group Newspapers , having held that the only requirement is that the respondent should not be a mere witness.