The recent case management decision in Harlequin Property (SVG) Ltd and Another v Wilkins Kennedy  EWHC 3050 (TCC) considered an application by the Defendant to withhold documents from inspection on the basis of confidentiality. The documents in question fell into two categories, namely: (i) documents created in the course of an investigation into the Claimants by the Serious Fraud Office ("SFO"); and (ii) documents that were confidential to the Defendant's third party clients.
The Court refused the Defendant's application to withhold either category. In a short judgment, Mr Justice Coulson explained his rationale that:
- in this highly contentious case, the administration of justice and need to dispose fairly of the issues outweighed any public interest in withholding the documents generated by the SFO investigation; and
- in relation to documents containing confidential information of third party clients:
a. where the clients in question were involved in the critical issues in dispute, there would be a real risk that these issues could not be disposed of fairly without inspection of these documents; and
b. even where the clients in question were unrelated to the case, the entire group of documents should be offered for inspection notwithstanding that it was "highly likely" they would be irrelevant. This approach was said to be justified on an "entirely pragmatic" basis, if the documents were indeed irrelevant then there would be no prejudice caused (save for costs, which could be dealt with by way of costs order).
We consider this decision in further detail below.
1. Factual Background
The Claimants raised money from investors for construction of a property development in Buccament Bay in St Vincent and the Grenadines (the Buccament Bay resort), with investors paying deposits of up to 30% of the purchase price of an apartment or room in the resort. The Defendant provided auditing and accountancy services to the Claimants for the Buccament Bay resort. However, the Defendant firm also provided financial advice to the contractors employed to undertake the construction of the resort (the ICE Group), resulting in what the Claimants alleged was a clear conflict of interest.
Construction of the resort was severely delayed and remains on-going. During this time the SFO undertook an investigation into the investment scheme. Several other sets of proceedings have been initiated by unhappy investors, some of which have sought to put the Claimants into liquidation.
The Claimants make various allegations of breach of contract and other duties on the part of the Defendant, many of which centre on the Defendant's relationship with the ICE Group (who are also at the centre of fraud allegations). The Claimants' allegations against the Defendant amount to a case that the Defendant was responsible for (i) the excessive costs and delays in the construction of the resort; and (ii) the Claimants' losses incurred because of the alleged fraudulent conduct by the ICE Group, the total sum claimed being more than US$60 million.
There was a case management conference on 23 October 2015 at which several applications were brought before the Court (including an application by the Claimants to vary a previous agreement in relation to security for costs which is not discussed further here). Most significantly, the Defendant made an application to withhold certain documents from inspection on the basis of confidentiality under CPR.19(5). The documents in question fell into two categories:
- documents created in the course of an investigation into the Claimants by the SFO, including statements and draft statements from a partner and an employee of the Defendant (the SFO joined with the Defendant to bring this application); and
- documents that were confidential to the Defendant's third party clients.
The Court dismissed the Defendant's application and ordered the Defendant to provide the documents in question to the Claimants for inspection.
Confidentiality: the relevant provisions
The Court re-stated the relevant provisions of the CPR that deal with confidentiality, namely CPR 31.3 and 31.19. CPR 31.3(1)(b) states that a party will not have a right to inspect a disclosed document where the party disclosing the document "has a right or a duty to withhold inspection of it". CPR 31.19(1) states that a person may apply for an order "permitting him to withhold disclosure of a document on the ground that disclosure would damage the public interest".
SFO investigation documents
The exercise of the Court's discretion under CPR 3.19 is a balancing act for which the ultimate test is whether disclosure and inspection of documents is necessary for disposing fairly of the proceedings (Science Research Council v Nasse  AC 1028 at 1066A-B). In relation to the SFO, this balance is between the "public interest in ensuring that the SFO is able to conduct a proper investigation on a confidential basis" and the "public interest that the administration of justice should not be frustrated". The Court held that the need to dispose fairly of the issues in this “highly contentious” case outweighed any public interest in withholding the documents for the following reasons:
a. the Court had reviewed the documents and found them to be highly relevant to the issues in dispute;
b. at the hearing the SFO lawyer confirmed that the SFO did not consider there to be any public interest in withholding these documents;
c. although one employee of the Defendant objected to the documents being disclosed, these objections were "non-specific and unpersuasive"; the Court also noted that this employee had been willing to help the SFO in its investigation into the Claimants and so could not now complain if the documents generated by his involvement were disclosed to the Claimants.
Consideration was given to the Defendant's argument that different rules may apply to draft witness statements than to final statements, on the basis that the dominant purpose test may be met with regard to the drafts (presumably on the basis that litigation privilege attached to the draft statements). However, the Court found that in this case no distinction needed to be made and that the drafts should be disclosed for inspection by the Claimants alongside the final versions.
In relation to the documents that the Defendant stated were confidential to its third party clients, the Court considered separately those which: (i) related to the ICE Group; and (ii) related to other third parties. Turning first to the ICE Group documents, the Court noted that one of the main allegations made by the Claimants related to a conflict of interest due to the Defendant acting for and advising the ICE Group as well as the Claimants. Accordingly, the documents generated by the relationship between the Defendant and the ICE Group lay at the heart of the case and should "plainly and obviously fall to be disclosed and offered for inspection".
In relation to documents containing confidential information belonging to other clients of the Defendant that were unrelated to the subject matter of the proceedings, the Court took a different approach. Given the large volume of documents involved in the disclosure exercise to date and to save time and costs, disclosure had taken place using keyword searches without undertaking a review of the results of those searches to identify disclosable documents. The Court held that in keeping with this approach (which he commended) the entirety of the third party documents should be offered for inspection for "entirely pragmatic" reasons. The Court reasoned that if these documents were irrelevant (which it accepted seemed highly likely) then that would be the end of the matter, save for any costs orders.
This decision represents a very wide and permissive approach to the inspection of confidential material. Whilst the basis upon which relevant material ought to be available for inspection is plain, it may be appropriate for genuinely confidential materials to be subject to a confidentiality club, which limits the circulation of the documents. Moreover, the approach to the second category of third party documents (given the low likelihood of identifying disclosable documents) is surprising and marks a significant departure from other recent decisions, in which the Court has refused disclosure/inspection of irrelevant confidential material.
Most notably, in Decura IM Investments LLP v UBS AG  EWHC 3476 (Comm) the Court stated that "the idea that this court would order any party to produce documents which were not relevant to the issues in dispute between the parties is absurd". In light of the large volume of material, one would have thought that the better approach would have been to refuse to require inspection on grounds of proportionality (i.e. because it would be costly and unlikely to yield disclosable documents). In relation to disclosure of SFO documents, inTchenguiz v Serious Fraud Office  EWCA Civ 1409 the Court of Appeal held that certain documents did not need to be disclosed by the SFO "on the basis that the strong public interest in protecting the documents from wider use outweighed the public interest in establishing the truth" in the matter at hand.
More broadly, adopting such an approach is similar to the "key to the warehouse" approach used in the US (whereby a party provides all its documents for the opponent to review and choose which it wishes to use). In the US, this approach is coupled with a clawback agreement (in which the parties set out the terms on which they will return privileged documents), meaning that is not quite as onerous as the approach the TCC has adopted in this case. The status and enforceability of these agreements is uncertain under English law, but there is scope for argument that CPR 31.B(3)(f) envisages this type of arrangement. It provides that, where appropriate, the parties should discuss and agree the methods to be used to identify privileged documents and other non-disclosable documents, and for dealing with privileged or other documents that have been inadvertently disclosed. Interestingly, the TCC's e-disclosure protocol also provides for the use of clawback agreements (although they were not used in the instant case).
This permissive approach was suggested as an option for disclosure in English proceedings (after first removing privileged documents) by Lord Justice Jackson. See our blog post on the Jackson Reforms here. However, there are risks associated with this sort of approach. In particular, the inadvertent disclosure of privileged material and/or disclosure of prejudicial documents that may assist/inform other potential claims. Protection is offered by CPR 31.22(1), which provides that disclosed documents can only be used by the opposing party for the purpose of the proceedings for which they were disclosed, although once a document is referred to at a public hearing it loses that benefit and there is nothing to suggest from the case that the Court placed any limitation on the use of irrelevant documents. CPR 31.22(2) provides a means for the Court to in any event restrict the use of such a document, balanced with the Court's usual considerations of public policy/interest. However, this may offer little comfort to parties involved in multi-party complex financial litigation.