Gwelhayl Ltd v Midas Construction Ltd and Another

Approved Judgment

A. Introduction

On 27th August 2008 the claimant, Gwelhayl Limited (“Gwelhayl”), issued an application for pre-action disclosure pursuant to CPR 31.16. The application was originally made against two respondents, Midas Construction Limited (“Midas”), who were the contractors engaged by Gwelhayl to carry out a building project at Gull Rock in Cornwall, and Bailey Partnership Limited (“Bailey”), who were Gwelhayl's contract administrators and quantity surveyors on the same project. Very recently, Gwelhayl and Midas have agreed that the claim for pre-action disclosure against Midas will be referred to arbitration pursuant to the standard form of building contract into which they entered. Accordingly, other than issues of costs, Midas are no longer directly involved in this application.

I propose to set out in section B below a summary of the principles relevant to the application under CPR 31.16 for pre-action disclosure. At section C, I analyze as best I can the nature of the proposed claim by Gwelhayl against Bailey before, at section D, setting out my conclusions on the different issues raised by the application. At section E, I then go on to deal with the separate application, made by way of amendment which I permitted today, for delivery up of the documents (or some of them) pursuant to CPR 25.

B. Principles

So far as is relevant, CPR 31.16 provides as follows:

“(1) This rule applies where an application is made to the court under any Act for disclosure before proceedings have started.

(2) The application must be supported by evidence.

(3) The court may make an order under this rule only where –

(a) the respondent is likely to be a party to subsequent proceedings;

(b) the applicant is also likely to be a party to those proceedings;

(c) if proceedings had started, the respondent's duty by way of standard disclosure, set out in rule 31.6, would extend to the documents or classes of documents of which the applicant seeks disclosure; and

(d) disclosure before proceedings have started is desirable in order to –

(i) dispose fairly of the anticipated proceedings;

(ii) assist the dispute to be resolved without proceedings; or

(iii) save costs.”

The parties are agreed that the principal authority dealing with these provisions is Black and others v. Sumitomo Corporation [2002] 1 WLR 1562. In a lengthy judgment, Rix LJ went through these provisions and explained that in general terms an applicant had to do two things: first, to demonstrate that each of the four elements of CPR 31.16(3) were in place; and secondly to persuade the court that it was appropriate in all the circumstances to exercise its discretion in favour of granting an order for pre-action disclosure.

The requirement as to standard disclosure was considered by Waller LJ in Bermuda International Securities Limited v. KPMG [2001] Lloyds Rep PN 392 at 397 when he said:

“The circumstances spelt out by the rule show that it will 'only' be ordered where the court can say that the documents asked for will be documents that will have to be produced at the standard disclosure stage. It follows from that, that the court must be clear what the issues in the litigation are likely to be i.e. what case the claimant is likely to be making and what defence is likely to be being run so as to make sure the documents being asked for are ones which will adversely affect the case of one side or the other, or support the case of one side or the other.”

The requirement of desirability was addressed at paragraphs 81 and 82 of the judgment of Rix LJ in Black. He said:

“It is plain not only that the test of 'desirable' is one that easily merges into an exercise of discretion, but that the test of 'dispose fairly' does so too. In the circumstances, it seems to me that it is necessary not to confuse the jurisdictional and the discretionary aspects of the sub-rule as a whole. In Bermuda, Waller LJ contemplated that paragraph (3)(d) may involve a two-stage process. I think that is correct. In my judgment, for jurisdictional purposes the court is only permitted to consider the granting of pre-action disclosure where there is a real prospect in principle of such an order being fair to the parties if litigation is commenced, or of assisting the parties to avoid litigation, or of saving costs in any event. If there is such a real prospect, then the court should go on to consider the question of discretion, which has to be considered on all the facts and not merely in principle but in detail.”

The importance of the overriding discretion was the subject of paragraph 88 of the judgment of Rix LJ when he said:

“That discretion is not confined and will depend on all the facts of the case. Among the important considerations, however, as it seems to me, are the nature of the injury or loss complained of; the clarity and identification of the issues raised by the complaint; the nature of the documents requested; the relevance of any protocol or pre-action inquiries; and the opportunity which the complainant has to make his case without pre-action disclosure.”

In the light of the point taken by Mr. Lee on behalf of Bailey, it is important to highlight what the cases have said about the court's investigation into the merits and clarity of the underlying issues of the claim that might one day be brought by the applicant against the respondent. In that connection I note the following:

(a) The passage from Bermuda International Securities set out above in which Waller LJ said that the court must be clear what the issues in the investigation are likely to be.

(b) Two further passages from the judgment of Rix LJ in Black in which, at paragraph 71, he made the point that, for jurisdictional purposes under CPR rule 31.16(3)(a) and (b), the rules required that the parties concerned in an application were parties “who would be likely to be involved if proceedings ensued” but that that did not mean to say that the proceedings themselves had to be likely. He contrasted the jurisdictional position with the court's overriding discretion at paragraph 83 of his judgment, because there he emphasized that, whilst the jurisdictional test could be met by the prospect that costs would be saved, the crossing of that jurisdictional threshold, as he put it:

“… tells you practically nothing about the broader and more particular discretionary aspects of the individual case or the ultimate exercise of discretion. For that, you need to know much more: if the case is a personal injury claim and the request is for medical records, it is easy to conclude that pre-action disclosure ought to be made; but if the action is a speculative commercial action and the disclosure sought is broad, a fortiori if it is ill-defined, it might be much harder.”

(c) In Snowstar Shipping Company Ltd v Graig Shipping Plc [2003] EWHC 1367 (Comm) Morison J noted that, “… the more speculative a claim the less inclined the court is to grant the application and its weakness is a factor which I take into account when considering whether a pre action disclosure order should be made.”

(d) In Rose v Lynx Express Ltd [2004] EWCA Civ 447; [2004] 1 BCLC 445 Peter Gibson LJ, in giving the judgment of the court, said:

“A court should be hesitant, in the context of an application for pre-action disclosure, about embarking upon any determination of substantive issues in the case. Accordingly, it would normally be sufficient to found an application under CPR 31.16(3) for the substantive claim pursued in the proceedings to be properly arguable and to have a real prospect of success, and it would normally be appropriate to approach the conditions in CPR 31.16(3) on that basis.”

I note that the test as to 'a real prospect of success' is therefore the same or very similar to the test relevant for the setting aside of a default judgment under CPR Part 13 and summary judgment under CPR Part 24.

(e) In Total E&P Soudan SA v Philippe Edmonds, Andrew Groves and White Nile Limited [2007] EWCA Civ 50, Tuckey LJ said that the judge should take a broad view of the merits of a potential claim but should not investigate in too much detail a legally complex claim or defence.

Although counsel cited a number of other decisions dealing with the jurisdiction under CPR 31.12 it seemed to me that they did not add anything to the principles which I have outlined above. I therefore need say no more about them

C. The Nature of the Underlying Claim

It appears that, in June 2007, Gwelhayl were becoming increasingly concerned about the costs of the ongoing project in Cornwall and they brought in Mr. Peter Stone to assist with the final account negotiations with Midas. In Gwelhayl's letter of 6th June 2007 to Mr. West of Bailey, Mr. Tyson of Gwelhayl announced the arrival of Mr. Stone and said this:

“I would like to clarify that Peter's appointment does not have any impact upon the terms of your appointment as set out in our letter of 8th September 2004 which will remain unaffected.

However, I will be grateful if you could ensure that Peter inputs into and approves any agreement you make on our behalf going forward. Please also copy Peter in on any correspondence in and out relating to this project.”

This...