Jurisdictional test for pre-action disclosure considered by the High Court

Flaux J in Alan Kneale v Barclays Bank plc [2010] EWHC 1900 (Comm) has taken a robust approach to an application for pre-action disclosure of a credit agreement which he said "smacked of 'Micawberism', the hope that something will turn up, rather than necessity."

The judge took the opportunity to review the authorities on the test for pre-action disclosure under CPR 31.16 and considered the apparently conflicting views of the Court of Appeal expressed in Black v Sumitomo and Rose v Lynx Express as to the jurisdictional threshold in 31.16(3)(a) and (b). Flaux J preferred the lower requirement suggested in Black v Sumitomo that the applicant is only required to demonstrate a prima facie substantive claim, not an arguable claim with a real prospect of success as found in Rose v Lynx Express.

The judgment also summarises the usual costs consequences on applications for pre-action disclosure.

Facts

Kneale (the Applicant) was a credit card customer being pursued by the Bank for an outstanding balance who had made requests under section 78 of the Consumer Credit Act 1978 for a true copy of the original executed credit agreement for his debt. It was determined in the 2009 test case Carey v HSBC [2009] EWHC 3417 (QB) that a creditor can discharge its section 78 duty by supplying a reconstituted version of the executed agreement which may be from sources other than the actual signed agreement itself. The Bank did this by providing pro forma copies of the terms and conditions and application form that were in place at the time the Applicant had entered into the agreement.

The Applicant sought, and obtained from the Chester County Court, an order for pre-action disclosure of the original executed agreement or a direct copy of it, the court having been persuaded that it was essential for him to see the original in order to establish whether the agreement was enforceable. The Bank appealed.

Decision

Flaux J overturned the first instance decision finding that the application failed the jurisdiction test under CPR 31.16 and that the judge had erred in his exercise of discretion.

The leading Court of Appeal authority on pre-action disclosure, Black v Sumitomo [2002] 1 WLR 1562, had emphasised the importance of keeping the questions of jurisdiction (ie the four conditions in CPR 31.16(3)) and discretion distinct, whilst recognising that on various issues the two will merge. Flaux J noted that even where the jurisdiction test is established, the court should only exercise its discretion to make an order where there is some aspect of the case which takes it out of the ordinary run.

In considering the jurisdictional test in CPR 31.16(3)(a) and (b) (that the applicant and respondent were likely to be parties to subsequent proceedings), Rix LJ in Black v Sumitomo had decided that this did not require it to be likely that proceedings will be issued, but that if proceedings are issued, it is likely that the respondent and applicant will be parties to those proceedings. "Likely" in this context meant no more than "may well". Rix LJ did not seek to define this jurisdictional threshold by reference to any particular degree of arguability of the applicant's possible claim, though Flaux J considered that his summary of pre-CPR authorities had suggested that there was a requirement for at least a prima facie arguable case.

In a conflicting decision, the Court of Appeal in Rose v Lynx Express Ltd [2004] 1 BCLC 455 (seemingly without considering Black v Sumitomo) stated that the applicant had to demonstrate that his substantive claim is properly arguable with a real prospect of success. This formulation of the jurisdictional threshold was rejected in BSW Limited v Balltech Limited [2006] EWHC 822 (Ch) but followed in Pineway Limited v London Mining Company Limited [2010] EWHC 1143 (Comm).

Flaux J preferred the lower test suggested in Black v Sumitomo, requiring the applicant to show "some sort of prima facie case which is more than a merely speculative punt." He felt that it cannot be right for an applicant at the pre-action stage to be required to establish a case which has a "real prospect of success" in the sense which that phrase has when used elsewhere in the CPR, in relation to setting aside default judgments and in summary judgment applications. On the present application, the Applicant did not satisfy this threshold.

On the requirement for desirability under CPR 31.16(3)(d), on the facts of the present application, Flaux J could not see that it was necessary for the Applicant to see a copy of the executed agreement in order to ascertain whether that agreement was enforceable: if he had an arguable case, he could articulate it from the materials already provided by the Bank. In this regard, Flaux J was critical of the Applicant for having relied solely on generic arguments (apparently provided by a claims management firm) that there had been publicity that a large percentage of credit agreements issued before April 2007 were unenforceable, without putting forward any evidence as to whether he had signed an agreement when he opened his account or whether he accepted the pro forma terms and conditions provided by the Bank. In the absence of such evidence, Flaux J considered the case to be wholly speculative and lacking in merit: the requirement for desirability was therefore not satisfied.

Turning to discretion, Flaux J considered that the Judge had paid scant regard to the speculative nature of the application and to the fact that pre-action disclosure was not necessary in order for the Applicant to ascertain whether the agreement was enforceable.

Costs

The court also reviewed the rules on costs in pre-action disclosure applications.  The usual rule is that the applicant pays all the costs in an application for pre-action disclosure (CPR48.1(2)(a)).  At first instance, Chester County Court ordered the bank to pay all of the Applicant's costs. Judge Flaux commented that there was "nothing in the bank's opposition which was so unreasonable as to warrant a departure from the normal order, let alone an order that the bank should pay all the costs."

The judge found that the bank's opposition to the application was not unreasonable since it was on a point of principle. In any event, the judge was of the view that even if the bank's conduct had been unreasonable, the worst sanction was that it should pay its own costs, not that of the Applicant (applying SES Contracting Limited v UK Coal Plc [2007] EWCA 79).

This means that lenders will usually be able to recover their costs unless it is clearly unreasonable for the respondent to oppose the application or where the manner of opposition is so unreasonable as to make it appropriate to require him to bear the whole of both parties costs.

Comment

Whilst the case is clearly very helpful for banks dealing with pre-action disclosure requests for original copies of credit agreements where they are able to reconstruct the terms of the agreement from other sources, it will also be of much wider interest.

Flaux J's judgment provides a useful review of the cases on pre-action disclosure and a reminder of the principle in Black v Sumitomo that the court must follow a two-stage process to determine jurisdiction and then consider the exercise of its discretion.

The case expressly prefers the Court of Appeal's approach to CPR 31.16(a) and (b) in Black v Sumitomo to that in Rose v Lynx Express, Flaux J's view being that the applicant is only required to demonstrate a prima facie substantive claim, rather than an arguable claim with a real prospect of success. Given that there is nothing in the language of CPR 31.16 requiring the applicant to demonstrate a real prospect of success - a test that has a distinct usage elsewhere in the CPR - that view would appear correct.