Court of Appeal finds clear breach of unless order for e-disclosure

The Court of Appeal has held that claimant liquidators were in breach of an "unless order" for e-disclosure, overturning the High Court's decision that there was no breach despite the mistaken omission of certain important categories of documents from the list: Smailes v McNally [2014] EWCA Civ 1296. The result was that the liquidators' claim was struck out. (Note: The case was decided at the end of July but the transcript has only recently become available.)

The High Court's decision in this case had suggested that the court might be slow to find a breach of an unless order for disclosure based on omissions from the list. In particular, it seemed to indicate that so long as a search for disclosable documents was carried out in good faith and was fair and proportionate, the court was unlikely to find there was a breach just because some documents were missed. In contrast, the Court of Appeal has concluded that the omission of a highly relevant category of documents, which the liquidators knew were disclosable and had promised to disclose, was a clear breach of the order. The absence of bad faith did not necessarily mean that the order was complied with; the question was whether a reasonable search had been conducted.

The Court of Appeal's decision suggests the courts might be readier than it had seemed to find that a party is in breach of an unless order for disclosure. However, it remains unlikely that showing some documents have been missed will be enough, in itself, to establish a breach, particularly where there are disputes about the existence or relevance of further documents. This case was quite unusual in that the liquidators had admitted that important documents existed and had promised to disclose them. James Farrell and Maura McIntosh outline the case below. 

James Farrell Partner +44 20 7466 2097

Background

The background is explained in more detail in our post on the first instance decision. Briefly, the claimant liquidators were subject to an "unless order" requiring them to conduct a reasonable search for documents falling within their obligation to give standard disclosure and provide a list identifying the documents located as a result of the search. A list containing approximately 6,000 documents was served by the time specified in the order.

The defendants alleged that the liquidators were in breach of the unless order, including because certain highly relevant categories of documents known as "scripts" had been omitted from the list due to an oversight. The defendants claimed that the action had been struck out automatically as a result of the breach and applied for judgment on that basis.

The High Court dismissed the application, finding that there was no justification for saying the liquidators had not conducted a reasonable search. It was very extensive. It was plainly carried out in good faith. It was based on a methodology explained to the respondents’ solicitors and which had been ventilated in court when the unless order was made. The fact that two classes of documents were missed did not, in the judge's view, support an inference that the exercise was not a reasonable search.

Decision

The Court of Appeal allowed the appeal. Lewison LJ gave the lead judgment, with which Rimer and Christopher Clarke LJJ agreed. He said:

"In short, in my judgment, what it comes to is this. [The liquidators' solicitor] knew about the importance of the scripts and knew that their disclosure had been promised ... , yet he failed to check that they had been delivered to [the e-disclosure provider]. That they had not been uploaded was apparent on checking the database; and that should have alerted him to the need to find them. In my judgment he made no search for these critical documents let alone a reasonable search."

The High Court's decision was a case management decision in the sense that it was a procedural decision, but it was not discretionary: either the order was complied with or it was not. That was a question of interpretation of the order and the rules and their application to the facts. In the Court of Appeal's judgment, the omission to list the scripts was a clear failure to comply with the order.

The fact that the search was carried out in good faith was not relevant: a party could conduct a search in good faith but still fail to comply with its disclosure obligations. Whether a party had acted in good faith might be relevant to the question of whether it had made the right decision about what ought to be disclosed, but here there was no dispute about that; the liquidators had accepted that the scripts should be disclosed. It might also be relevant to the question of whether relief from sanctions should be granted, but here the judge had not got to that stage as he had concluded there was no breach.

The court noted that when the scripts were ultimately disclosed, the liquidators also disclosed a large number of other documents which had come to light. The defendants relied on the late disclosure of those documents as itself showing there had been a breach of the order. Lewison LJ said he found that submission "less persuasive" and did not rest his decision on that ground.

The result was that the proceedings stood struck out and the liquidators were ordered to pay the defendants' costs of the action (estimated at £2.5 million). The Court of Appeal refused to stay its orders on the basis of the liquidators' proposed undertaking that they would issue an application to the High Court for relief from sanctions. The liquidators may or may not be entitled to do that, but as the proceedings had come to an end it was not appropriate to stay the orders which, the court said, ought properly to be made.