Robert Derek Smailes and Another v John Henry McNally and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Christopher Clarke,Lord Justice Rimer |
| Judgment Date | 30 July 2014 |
| Neutral Citation | [2014] EWCA Civ 1299 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No. A3/2013/3166-A3/2013/3168 |
| Date | 30 July 2014 |
[2014] EWCA Civ 1299
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
(MR JUSTICE BIRSS)
Royal Courts of Justice
Strand
London, WC2
Lord Justice Rimer
Lord Justice Lewison
Lord Justice Christopher Clarke
Case No. A3/2013/3166-A3/2013/3168
Mr J Crow QC & Mr S Robins (instructed by Mischon de Reys) appeared on behalf of the Applicant
Mr S Davenport QC & Mr D Lewis (instructed by Isadore Goldman) Appeared on behalf of the Respondent
The issue on this appeal is whether the claimant joint liquidators of Atrium Training Services Ltd have complied with an Unless Order made by Henderson J in connection with disclosure in an action they have brought against two former officers of the company. Birss J decided that they had. He did not therefore find it necessary to go on to consider whether on the assumption that they had not relief against sanctions should not be granted. We are only concerned with the question of compliance with the order. We are not concerned with the question of relief against sanctions.
Birss J described the underlying litigation and its procedural history. The joint liquidators alleged that the former officers, Messrs McNally and Maclean, are liable for fraudulent trading, contrary to section 213 of the Insolvency Act 1986; and trading whilst insolvent, contrary to section 214 of that Act. What is in issue is an alleged underpayment of tax to HMRC amounting to some £45 million. The events in question took place between 2003 and 2005. The action itself began in May 2011.
In July 2011 Registrar Barber gave directions by consent which included provision for statements of case, disclosure by 20th January 2012, witness statements, experts' reports and a trial not before 1st November 2012. The timetable slipped substantially and further orders for directions were made including the deferral of the disclosure date some three times. On 18th April 2012 Registrar Barber gave fresh directions with the former officers' defences to be served on 20th April, subject to an Unless Order, disclosure by all parties to take place on 8th June 2012 and a pre-trial review in January 2013. The trial was then due to take place in February 2013. The former officers gave disclosure by the due date. No complaint is made about that.
Although the liquidators also served a purported disclosure list on that date, they had made no attempt to select what documents might be relevant to the action but had, in the judge's words, listed "every conceivable document" offered simply by reference to the boxes in which they were stored.
It is common ground that exercise failed to comply with the CPR. As Jacob LJ said in Nochia Corporation v Argos Ltd [2007] EWCA Civ 741, [2007] Bus LR 1753, massive over disclosure carries a substantial risk that the important documents will be overlooked. Mischon de Reya, the former officers' solicitors, raised concerns about the way in which the disclosure process had been carried out.
In June 2012 the former officers applied for an Unless Order requiring the joint liquidators to carry out a reasonable search in accordance with CPR Part 31.7 and to serve a list of documents complying with CPR Part 31.10. They also asked for an affidavit from the liquidators explaining what search had been carried out and giving details of the chain of custody of documents.
In response to that application Mr Smailes, one of the joint liquidators, made a witness statement dated 21st November 2012. He said in that statement it was his position that full disclosure of all relevant documents had been given.
Despite that evidence the liquidators' solicitors conducted an extensive further search about which Mischon de Reya had not been informed. That search had begun in August 2012 but had not completed by the time the application came before Henderson J on 28th November.
The parties had by then managed to agree a new order, which required the liquidators to conduct a search for documents and to provide the former officers with a list by 2nd April 2013. The order was not in the "Unless" form. The trial date was vacated and a direction given for a trial to take place on the first available date after 4th October 2013.
In giving judgment on the question of costs Henderson J said:
"In my view this is a case where actions speak louder than words and the actions of the liquidator since August do appear to me to evince a recognition of wholesale inadequacy in the way in which schedules C and D have previously been dealt with."
He did not therefore accept the liquidators' stated position that all relevant documents had been disclosed.
The 2nd April was looming and on 28th March 2013 the liquidators applied for a further extension of time and by way of cross application the former officers applied for an Unless Order. Those applications came before Henderson J on 22nd May leading to a judgment on 7th June 2013.
On that occasion Henderson J made the Unless Order under appeal. It is not suggested that he was wrong to make the Unless Order. In view of what he described "the lamentable history" of disclosure and his judgment that even after November 2012, when there had been a change of solicitors the liquidators' new solicitors, Isadore Goldman & Co, had shown insufficient urgency in "getting a grip on the situation". He said:
"The main factors which have weighed with me in coming to this conclusion are: (a) the long and unsatisfactory history of disclosure in the Atrium proceedings before November 2012; (b) the deficiencies to which I have drawn attention in the Liquidators' attempts, through Isadore Goldman, to comply with the November order; and (c) the increased emphasis which the court is now obliged to accord to compliance with court orders under the amended overriding objective."
The relevant parts of the order that he made were as follows:
"(1) Unless the Liquidators comply with paragraph (2) below, the Liquidators' claims against the claims the Respondent in proceedings No 3878 of 2011 and No 3879 of 2011 ('the Atrium Proceedings') shall be struck out without further order of this Court and the Respondents shall be at liberty to enter judgment for their costs such costs to be the subject of a detailed assessment if not agreed.
(2) In the Atrium Proceedings, the Liquidators shall by 4.00 pm on 28 June 2013.
i) conduct a search for documents falling within CPR 31.6, in compliance with the requirements set out in CPR 31.7; and.
ii) provide Mr McNally and Maclean and Mr Dick with a list of documents, identifying the documents located as a result of the search described above, in compliance with the requirements set out in CPR 31.10.
(3) Requests for inspection (or copies) of documents shall be made by 4.00 pm on 5 July 2013 and complied with by 4.00 pm on 12 July 2013."
This was the sixth disclosure deadline that had been set.
CPR 31.6 describes standard disclosure in the following terms:
"31.6 Standard disclosure requires a party to disclose only–
(a) the documents on which he relies; and
(b) the documents which –
(i) adversely affect his own case;
(ii) adversely affect another party's case; or
(iii) support another party's case; and
(c) the documents which he is required to disclose by a relevant practice direction."
We were told there is no relevant Practice Direction, so that the only category of document with which we are concerned are those in sub rules (a) and (b).
CPR 31.7(1) says:
"(1) When giving standard disclosure, a party is required to make a reasonable search for documents falling within rule 31.6(b) or (c)."
There is, on the face of it, a slight mismatch between 31.7(1) which requires a search to be made only for documents falling within 31.6(b) and (c) and 31.6 itself which requires under sub paragraph (a) a party to describe the documents on which he himself relies. That discrepancy (such as it is) is however ironed out by paragraph 1.2 of Practice Direction 31A which provides:
"In order to give standard disclosure the disclosing party must make a reasonable search for documents falling within the paragraphs of rule 31.6."
It was therefore common ground that documents falling within rule 31.6(a) were within the scope of the Unless Order.
It is also common ground that the liquidators had in fact in their possession highly relevant documents known as "scripts". Scripts are weekly reports of the amounts paid to individual operatives, setting out gross pay for each operative and where the individual was an employee, giving details of the deductions for PAYE and NIC; and, when the individual was billed through a service company, details of gross pay and deductions of VAT and corporation tax. These were secondary documents, in the sense they had been complied from expenses claims, time sheets and load sheets. Since the underlying claim in the action is based on an allegation of under payment of tax documents showing what tax was paid in respect of what are obviously vital.
Mr Gibbs of Isadore Goldman had spoken to Mr Meadows, an administrator in the liquidators' firm. That conversation took place on 25th January 2013, nearly 6 months before Henderson J made the Unless Order. He asked whether the liquidators had any documents. Mr Gibbs undertook a search of his office and located some documents. These included copy bank statements and copy schedules....
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