[2010] EWHC 2455 (TCC)

On 25 May 2008 Countrywide took out a professional indemnity policy of insurance. Travelers was the lead underwriter. It appeared that hundreds of potentially fraudulent valuations may have been carried out by certain employees. As a result there was a possibility that Travelers would seek to avoid the policy for misrepresentation and/or non-disclosure. Accordingly, Travelers sought disclosure of documents from Countywide in order to assess whether or not to seek to avoid the policy. The documents were relevant to the extent to which the possibility of fraud as opposed to allegations of incompetence was known to Countrywide at the time the policy was agreed. They also related to the circumstances surrounding the individual’s dismissal.

In response to threats of an application for pre-action disclosure pursuant to CPR 31.16. Countrywide provided a large number of documents. However, Travelers maintained that there were more. Countrywide argued that the Court did not have the necessary jurisdiction to make the order sought, because the power to order pre-action disclosure does not extend to a situation where the dispute between the parties will be determined via arbitration. The Judge accepted that the overall purpose of the exclusion provision in the policy was to ensure that the policy was not avoided because of an inadvertent misrepresentation or non-disclosure. However, this condition specifically included an arbitration agreement in contrast with the general provisions of the policy which stated that all other disputes under the policy will be dealt with in the courts. Therefore Mr Justice Coulson held that the arbitration agreement had to apply and would thereby deprive the Court of the power to make an order for pre-action disclosure.

The Judge refused the application with "a certain amount of regret" and it should be noted that had the arbitration clause not applied, the outcome would have been different. The documents sought, particularly those relating to the decision as to what information to provide to Travelers and what information not to provide, would be disclosable on standard disclosure if and when this dispute came before a tribunal. The early provision of that documentation would plainly narrow the issues and reduce costs and there was a real chance that, if all the information sought was provided, Travelers would take the view that there had not been fraudulent intent, so that the issue would never even arise. In any event, the early production of information would allow Travelers to make an informed decision as soon as possible, on the basis of the fullest available information. And that result would have been in everybody’s interests.