Cadogan Petroleum Plc & Ors v Tolley & Ors

This judgment is in respect of 2 applications which were heard on 24th November 2009. The first issued by the First and Second Defendants on 19th November 2009 seeks specific disclosure and inspection of a Settlement Agreement dated 15th October 2009 entered into between the Claimants and the former Ninth, Tenth, Eleventh and Twelfth Defendants (“the Settlement Agreement”). The second is an application in substantially the same terms also made on 19th November 2009 issued by the Fourth and Fifth Defendants.

Both applications were made pursuant to CPR 31.12 and sought an order requiring the Claimants to disclose the Settlement Agreement. The applications were not addressed to the former Ninth – Twelfth Defendants. They were of course no longer parties to the action it having been dismissed as against them as a result of the terms of settlement.

The Claimants did not oppose the disclosure of the Settlement Agreement but indicated that the former Defendants (“the former GPS Defendants”) would do so.

The former GPS Defendants were served as Additional Respondents to the two applications. This arose out of my dismissal with indemnity costs of the Applicants earlier applications on 17th November 2009 for reasons set out in the judgment I delivered that day.

This ruling is to determine whether or not I should accede to the applications as a matter of principle. If I do so accede the parties have agreed that the mechanism for inspection of the Settlement Agreement will have to be agreed between them or in default result will have to be ordered by the Court. The Settlement Agreement was provided to me during the course of the hearing but it has not been disclosed to the Applicants.

As I said above the Claimants did not oppose the application. Indeed initially the applications were only issued against them and they had indicated that they would provide full disclosure of the Settlement Agreement. The former GPS Defendants did not agree but were not initially made a party to the applications. They were made parties as a result of the determination of the previous applications made by the applicants on 17th November 2009.

In order to understand the basis for the applications it is necessary for the nature of the litigation to be summarised briefly.

The Ninth and Tenth Defendants were sued by the Claimants as members of the GPS group of companies which sold two gas processing plants to the Third and Fourth Claimants. It was alleged in the proceedings that the gas processing plants were sold at an excessive price. The Claimants allege that the Ninth and Tenth Defendants paid bribes to the First and Fifth Defendants and contend that the Ninth and Tenth Defendants were liable to account for all such payments as money had and received. They also allege that the Eleventh and Twelfth Defendants dishonestly assisted the First and Fourth Defendants in an alleged breach of fiduciary duty. Finally the Claimants allege that the First to Fifth and Ninth to Twelfth Defendants conspired to defraud the Claimants.

The Ninth Defendant issued a Claim on 8th October 2009 against the Second Claimant claiming the sum of $10,958,560 was due and owing under the Gas Plant Agreements.

The GPS settlement was announced on 15th October 2009. There was a press release issued announcing the resolution of the dispute as against the former GPS Defendants and referring to terms that were said to be part of the Settlement Agreement. To that extent some parts of the settlement had gone into the public domain as the Claimants acknowledged.

As a result of the announcement the Applicants sought disclosure of the entirety of the Settlement Agreement. That was refused. As part of the settlement the action was dismissed as against the former GPS Defendants as I have set out above.

In addition the Claimants have freezing orders against the remaining Defendants.

First the Applicants assert that the terms of the Settlement Agreement are potentially relevant to the maximum amount of loss allegedly suffered by the Claimants in respect of the purchase of the gas plants from the former GPS Defendants. Second it is asserted the Settlement Agreement is potentially relevant to consideration of whether the Claimants have properly mitigated the alleged losses. Third the Settlement Agreement could in certain cases (see the conspiracy claim) have the effect of releasing joint tortfeasors and finally it is possible that contribution issues might arise between the Defendants who remain in the action. They cannot of course be prevented by the Settlement Agreement from seeking contribution from the former GPS Defendants. At the moment there is no such application and of course the former GPS Defendants are no longer parties to the proceedings.

As I have said the Claimants do not oppose the application and but for the opposition of the former GPS Defendants would have disclosed the Settlement Agreement as part of their documents in disclosure in the normal way. There is a confidentiality clause in the Settlement Agreement but it is subject to an exception (inter alia) in respect of a need to comply with any legal or regulatory obligations placed upon them.

The former GPS Defendants accept that some of the terms of the Settlement Agreement might well be relevant to the action for the reasons set out by the Applicants. However they contend that that does not entitle the Applicants to inspection of the Settlement Agreement; they only need to be advised of any clauses that are relevant to any aspect of the litigation. To that aim their solicitor Mr Oliver signed a witness statement on 20th November 2009. In that witness statement he confirmed (paragraph 6) the stance of the former GPS Defendants as regards disclosure of matters already in the public domain and matters that are potentially relevant to issues in the proceedings.

He also set out that the former GPS Defendants believe that there is confidential material which is irrelevant to the issues in the ongoing proceedings but if disclosed to the Applicants will give them an opportunity to take advantage of that knowledge where the prohibition of misuse by them of the material may in reality offer no protection. All the Applicants are outside the jurisdiction and are scattered around the world in the Seychelles, Delaware, the Ukraine and Australia. It is also asserted that Mr Tolley the First Defendant and former managing director of the Claimants is actually on the high seas and is alleged to be in contempt in relation to freezing orders obtained against him. That is a matter that concerns the Claimants but as I have said they actually do not oppose the disclosure of the document to Mr Tolley despite that allegation and have not yet issued any application in respect of any alleged contempt. I therefore disregard that factor as being not presently relevant.

Mr Oliver in paragraph 8 confirmed that he had considered the terms of the Settlement Agreement and that none of them save those set out in his witness statement is relevant to the action. The former GPS Defendants therefore rely upon the disclosure by Mr Oliver as being determinative of the issue. This in my view is not satisfactory. I am not criticising Mr Oliver but the possibility cannot be ignored that some provisions might be disclosable but Mr Oliver might have inadvertently omitted them. I cannot for the moment see that if the principle of disclosure is upheld (as I believe it should be for the reasons I set out in this judgment) then the Applicants are entitled to the disclosure of the relevant parts of the Settlement Agreement. The second stage will be to devise a mechanism whereby the identification of the relevant clauses can be resolved in a way which protects the former GPS Defendants from their genuine concerns as to confidentiality. There are a number of ways this can be achieved but I will say nothing about that until the second stage of this exercise is constituted.

The general provisions as regards disclosure and inspection are uncontroversial. They have been restated recently by the Court of Appeal in Canadian Imperial Bank of Commerce v Beck [2009] EWCA Civ 619:-

“In our judgment, the law on disclosure of documents is very clear, and of universal application. The test is whether or not an order for discovery is necessary for fairly disposing of the proceedings. Relevance is a factor but it is not, of itself, sufficient to warrant the making of an order. The documents must be of such relevance that disclosure is necessary for the fair disposal of the proceedings. ”

It seems self evident to me that absent any other principle or restriction the Settlement Agreement is disclosable by the Claimants. The former GPS Defendants are no longer parties. An application for disclosure could be made against them under CPR 31.17 with the appropriate protection as regards confidentiality and costs. No such application has been made but in my view it would be quite wrong to contemplate making an order that the Claimants provide disclosure (they indicating their willingness) when it was known that the former GPS Defendants did not agree to disclosure.

No party can resist disclosure of information on the basis solely that it is confidential: see Science Research Council v Nasse [1980] AC 1028 per Lord Wilberforce at page 1065.

Nevertheless Lord Wilberforce did acknowledge that the confidence, whilst not an absolute bar, could in certain circumstances be a relevant bar; it is a matter of discretion for the Court. It must not be forgotten that the Applicant failed to obtain disclosure in the Nasse case.

It seems to me that if disclosure is sought against a non party the consideration of confidentiality of the non party should be even higher when the Court is faced with an application under CPR 31.17.

There is no clear right to paramountcy of any factor but what must be borne in mind at the end of the day is that the Court must ensure that every party has an opportunity for a fair disposal of the proceedings in which it is involved. That seems to me to be paramount. It is well demonstrated by this case. If the Applicants do not have access to the material which is germane to their liabilities that they face in the action there is a potentially serious miscarriage of justice.

I observe that the former GPS Defendants assert the confidentiality vigorously. It is nevertheless surprising that the Claimants who have the same benefit of confidentiality in respect of the same proceedings do not seek to rely on any such confidentiality. It might be that the former GPS Defendants are more concerned about the commercial matters.

In this context I should refer to the well known book of “Documentary Evidence (10th Edition)” of Charles Hollander QC. In paragraphs 9-07 to 9-08 he deals with the issue of confidential disclosure as against parties and as against non parties. He is right to note that the House of Lords in the Nasse case rejected an argument that the Court was required to undertake a balancing exercise between the interests of the litigant and the interests of the third party. Relevance is not sufficient but the guiding principle is one of justice as regards the trial. If without the material the Applicants have a reasonable apprehension that they might not have a fair trial that should outweigh any questions of confidentiality. The confidentiality could be preserved by appropriate means but ultimately if that was not effective then the disclosure must nevertheless be ordered. It is difficult to believe that a system of confidentiality could not be put in place - see for example the regime put in place (for similar but different reasons) in the case of The Attorney General of Zambia v Meer Care & Desai & Ors [2007] EWHC 952. A method of proceeding at the second stage was recently set out by Ramsey J in Atos Consulting Ltd v Avis PLC 2 [2007] EWHC323 at paragraph 37.

That procedure is a starting guide as to how the application should be dealt with.

It seems to me that the Applicants should have disclosure of such parts of the Settlement Agreement as are necessary for them to be able to conduct their defences fairly at the trial. There remains to be determined the question of how that right is carried out in the light of the clear justified stance of confidentiality as regards parts of the GPS Settlement Agreement raised by the former GPS Defendants. As I said earlier in this judgment that should be determined between the parties if possible and if not determined by me. It might involve the Applicants instructing separate Counsel to see the Settlement Agreement as a whole.

In so determining I should make clear that I am not ordering disclosure of the entirety of the Settlement Agreement; it is only that part which the Applicants need to be able to deal with the proceedings fairly and reasonably. The exercise therefore will be limited solely to ascertaining which parts of the Settlement Agreement fall within that designation. I do not accept that the Applicants have any wider grounds for seeing the entirety of the Settlement Agreement.

As part of the discussion post inspection procedures should be in place to preserve the continued confidentiality. That might extend as far as trial and how these documents are deployed in the proceedings. I will hear further representations on that when the second stage is considered.

Finally I should make reference to a decision of Healds Foods Ltd v Hyde Dairies Ltd 1 December 1994 (Potter J) and the Court of Appeal 6 December 1996. In that case the plaintiffs and the Defendants entered into an agreement in writing whereby the plaintiffs purchased a business and assets of the Defendants for a sum subject to a later adjustment of the purchase price. The final balance of the price due was subject to adjustment as determined by an expert accountant. The Independent Accountant was appointed as an expert not an arbitrator and his decision was said to be final and binding on the parties thereto (save in respect of manifest error). The parties disputed the figures arrived at by the Independent Accountant. Under the appointment of the expert the parties agreed “the [parties] hereby agree that they shall not require the expert to give evidence either orally or in writing in any legal proceedings which may be pursued by them arising out of the sale and purchase of the business and assets”.

To circumvent that the plaintiffs issued a subpoena against the expert. The expert and the Defendants applied to set aside the subpoena and Potter J acceded to that application. The appeal was dismissed. In setting aside the subpoena Potter J said this:-

“I accepted the submissions of Mr Mackie and Mr Hollander and set aside the subpoena. It seemed to me that the issue of the subpoena was a bold but misplaced effort to set at nought the restrictions which the law places upon the ability of the parties to call in question the decision or determination of a person such as Mr Evans who has been appointed to act as an expert rather than arbitrator and whose determination parties argue should be final and binding upon them. The extent to which a party may impune such a decision before the Court is tightly circumscribed”.

In saying that Potter J was referring to the well known decision of Jones v Sherwood Computers [1992] 2 All ER 170.

The Court of Appeal dismissed an appeal but there was no appeal on the question of the subpoena.

It might be that in the exceptional circumstances of the case namely that the parties agreed that “x” should provide an expert determination on certain terms which precluded him being required to give evidence that the decision is right. However it seems to me that in so far as such an agreement prevents the disclosure of documents which are necessary for a fair disposal of a trial such a provision in my view would be void and contrary to public policy. I cannot accept that parties can agree in effect to restrict the discretionary power of a Court to order the disclosure of documents where appropriate so as to enable there to be a fair and just disposal of an issue. The decision might have been correct on the facts but for my part I do not accept it is correctly decided in so far it is put forward as a general proposition.

Accordingly I determine that the Applicants are entitled to disclosure of such parts of the Settlement Agreement as are necessary to obtain a fair and just disposal of the trial. However such right to disclosure does not necessarily extend to unlimited inspection. I fully accept that the former GPS Defendants are entitled to preserve their confidentiality. For the moment therefore the document should go in the second part of the list for disclosure but should not be inspected until the parties agree or the second stage is determined pursuant to this judgment.