Hadaway v DB (UK) Bank

I have before me an appeal from a decision of Deputy Master Lloyd dated 28 May of this year in which he dismissed an application by the Defendants for disclosure of one document known as the Credit Process Guide (or “CPG”).

The action is a claim by DB (UK) Ltd, part of the Deutsche Bank Group, against a firm of solicitors who acted for it in relation to three buy-to-let loans to the same borrower, Mrs Brenda Graham, in relation to three residential properties in Leeds. Each loan was made in or about April 2007.

Certain admissions of liability have been made by the Defendant. In particular, the Defence includes a plea in these terms at paragraph 27:

There are, however, defences that have been pleaded, in particular a defence of causation. In other words, it is said that even if the Defendants had reported to the Claimant at the time what they admit they should have done or what the Claimant manages to prove they should have done, the Claimant would still have made the loans in question.

Mr Patrick Lawrence QC, who appeared for the Defendants, showed me various material which suggested that there have indeed been criticisms of Deutsche Bank’s lending during the period of 2006 to 2008, on the basis of which he submitted that this was a genuine live issue or, rather, if there were a trial it would be a genuine live issue. And Mr Cyril Kinsky QC, who appeared for the Claimant, did not suggest otherwise.

The Defendants also plead contributory negligence, but Mr Lawrence’s submissions before me were very much focused on the issue of causation.

In the course of pre-action correspondence the Claimant disclosed what was described as “a copy of our client’s lending policy”. This was a document called the DBM Business Underwriting Guidelines, which set out underwriting guidelines for DB mortgages (“the BUG”) and at the very beginning of this document in paragraph 1 (under Introduction and 1.1 General Considerations) it says as follows:

Unsurprisingly, having seen in a disclosed document described as the Claimant’s lending policy reference to another document described as the key credit policy document and, indeed, one which in the event of conflict would apply, the Defendants took the view that in order to understand fully the Claimant’s lending policies they needed to see that other document. They regarded it as obviously relevant to the issues and in particular to the issue of causation which they had pleaded. They, therefore, asked for it several times in correspondence. The Claimant has consistently refused. It is true to say that it is only one document and one that would not cause it any great time or expense to disclose, but Mr Kinsky has explained to me that it is regarded as a commercially very sensitive document; that it is effectively DBM’s blueprint for how to run its business and it does not wish to disclose it unless it is obliged to do so.

Mutual exchange of disclosure lists took place on I believe 8 February 2013, but consistently with its stance the Claimant refused to include the CPG and it was not listed in the disclosure list. I am not, of course, concerned with the commercial considerations which have led the Claimant to take the view that it does not wish to disclose a document, I am only concerned with the legal question as to whether it should have disclosed it and should now do so.

Before the Deputy Master the evidence for the Defendants was contained in a witness statement of Mr Phillip James Murrin, a member of DAC Beachcroft LLP, the solicitors for the Defendants. Among other things, he referred to a number of references in the BUG to the CPG, not only the one which I have already read out in paragraph 1 referring to it as the key policy document, but a number of other references in the body of the BUG which it is not necessary for me to refer to one by one.

The evidence for the Claimant is contained in a witness statement of Helen Mary Thirkettle, a solicitor of Rosslyn King LLP, the Claimant’s solicitors. She referred to the CPG and she said it was a high level business modelling document, and she said this at paragraph 5:

She then dealt in turn with each of the references to the CPG in the BUG which had been picked up in Mr Murrin’s witness statement and explained why she did not regard them as relevant to the issues in the case. I take as possibly the best example of what she says, paragraph 7.2. There she refers to paragraph 15.1 of Mr Murrin’s statement which reference paragraph 1.3 of the BUG. At this point it is convenient to read paragraph 1.3 of the BUG which provides as follows (under the heading, General Underwriting Principles):

Going back to Ms Thirkettle’s witness statement, she says:

The Deputy Master in his decision dealt with each of the references to the CPG which Mr Murrin had picked up from the BUG, dealt in each case with what Ms Thirkettle said about those, and concluded as follows:

On appeal Mr Lawrence makes the point that Ms Thirkettle’s witness statement left an evidential gap. As he put it, the point was not how these loans were in fact processed, namely automatically; but on how the applications for the loans would have been processed if the report which should have been made had been made. In other words, instead of looking at the actual position in relation to these loans what the court will be concerned with in dealing with the causation question is the hypothetical position that would have taken place had the appropriate reports been made.

In response to that the Claimant accepted that the evidence indeed did not deal with this point. There was some dispute between the parties as to whether that was because the point had not been taken before or whether it was because the Claimant’s evidence did not cover it, but it is not necessary for me to resolve that. In any event, the Claimants have served a second witness statement of Ms Thirkettle in which she covers that point and it is not objected to by Mr Lawrence and therefore I will in exercise of the powers which I have under CPR 52.11(2) admit evidence which was not before the lower court.

On appeal Mr Kinsky’s first point was that the decision of the Deputy Master was a Case Management decision and that an appellate court should not interfere lightly with a Case Management decision. For that he cited the well-known statement of Lawrence Collins LJ (as he then was) in Walbrook Trustee (Jersey) Ltd v Fattal & Ors [2008] EWCA Civ 427, which at paragraph 33 contains this statement:

He showed me a reference in Practice Direction 52A to the fact that Case Management decisions include decisions about disclosure and one finds that in paragraph 4.6 of that Practice Direction and I am quite prepared to accept that a decision about disclosure - which is not the determination of any issues of the case, but is a determination of how the issues in the case should be tried - is indeed a Case Management decision.

Nevertheless, there are two reasons why in this particular case I do not think that it is a complete answer simply to say that unless the Master took into account irrelevant material or applied incorrect principles or went outside the generous ambit of his discretion, the Appeal Court is unable to intervene. Firstly, the case of Walbrook v Fattal (and like every other statement of principle Lawrence Collins LJ’s statement in that case must be read against the background of the particular issues in the case) was one where the Case Management decision in question, which was the order in which certain issues which had been pleaded in two actions should be tried -- whether they should be tried together or one after the other and the like – was plainly a decision which is a pure exercise of judicial discretion. I do not accept that the disclosure question with which I am faced in this case is a purely discretionary decision in the same way. Disclosure decisions may involve the exercise of discretion, for example if the Court is asked to order in a particular case more than standard disclosure or to limit disclosure or make various other orders which are available to it under Part 31, but the issue which was before the Deputy Master and which is before me has been argued on the basis of whether the document in question, the CPG, should have been disclosed as part of standard disclosure. That does not seem to me to be on analysis really a discretionary decision at all, but is a decision as to whether on the evidence which has been filed the Court is satisfied that it does or does not come in the category of documents referred to within rule 31.6 as falling within standard disclosure. I therefore do not think that the guidance given by the Court of Appeal in Walbrook v Fattal is of direct relevance to the issue which I have to decide or at any rate, the main issue I have to decide, which is that arising under CPR 31.6. I have not overlooked the fact that there is a subsequent issue under CPR 31.12 which I will come to.

In any event, as I have already explained, the argument and the evidence before me has taken a slightly different course from that below, so this is not a case where it is adequate for the appellate court simply to examine the Master’s reasons. Inevitably, once the Court has, as I have by consent, admitted new evidence it will be necessary to undertake an exercise which is more akin to a rehearing rather than a simple review. I need not decide if technically the exercise remains a review oo consideration of new evidence or whether it is technically a rehearing. The substance is that I have to decide whether on the evidence before me the CPG falls within CPR 31.6 or not and although I have read with great interest the Master’s decision and will give such weight to it as is appropriate, in the end it seems to me I must make up my own mind on that question.

In relation to the approach that the Court should adopt to applications under CPR 31.6 I was helpfully referred by Mr Kinsky to the case of Shah v HSBC Private Bank Ltd , a decision of the Court of Appeal [2011] EWCA Civ 1154. In that case the claim was a claim by a client of a bank for non-payment of monies. The bank’s defence was that it suspected that the monies were proceeds of crime and therefore it had made a disclosure to the Serious Organised Crime Agency and the first question raised by the appeal (as set out in paragraph 7 of Lewison LJ’s judgment) is whether the bank’s obligation to make standard disclosure required it to reveal the names of bank employees who reported suspicions of money laundering to a nominated officer within the bank. The entirety of Lewison LJ’s judgment is of interest, but I will confine myself to the following citations, firstly at paragraph 20 where he said:

Are the names of the employees relevant?...”

Then at paragraph 21 where he refers to a passage cited from the judgment of Sir Thomas Bingham in Taylor v Anderton , a pre-CPR judgment in which Sir Thomas Bingham had referred to the litigant suffering no litigious disadvantage by not seeing the document and gaining no litigious advantage by seeing it.

Lewison LJ then referred at paragraph 22 to the well-known Peruvian Guano test which applied in pre-CPR days. At paragraph 23, he said this:

At paragraph 27 he referred to another pre-CPR case, GE Capital Corporate Finance Group Ltd v Bankers Trust, where the specific point was in relation to covering up part of the document, but he did cite from the judgment of Hoffman LJ (as he then was) in that case as follows:

I was also shown passages from the judgments of Munby LJ and Pill LJ both of whom concurred in the result. Both of them had some comments about Taylor v Anderton and whether it continued to be relevant. I will not read those out, but they are at paragraphs 53, 58 and 59. It does not seem to me, interesting though it is, that anything which I have to decide turns on the precise characterisation of how Sir Thomas Bingham’s judgment should now be regarded. What I do take from Lewison LJ’s judgment is that the test is not one strictly of relevance, but is one that is to be determined by reference to the precise wording of CPR 31.6, that it is to be decided on the evidence before me, and that the evidence before me can only be rejected if I am satisfied that that evidence must be wrong on the basis of the matters referred to by Lewison LJ by reference to the GE Capital case in paragraph 27, namely that it can be seen either from the documents produced, or from anything in the affidavit, or by any admission by him in the pleadings, or necessarily from the circumstances of the case, that the affidavit does not truly state that which it ought to state.

The argument before me centred by way, I think, not of exhaustive reference but as being Mr Lawrence’s best example which he put at the forefront in his case, on paragraph 1.3 of the BUG which I have already read. In effect, Mr Lawrence said that one can tell from the terms of 1.3 itself that there must be further material in the CPG which is relevant to the issues in the case, particularly the issue of causation. However, Ms Thirkettle’s second witness statement at paragraph 8 had this to say:

That too must be accepted once one has accepted that the CPG does not contain any reference to subsales. Ms Thirkettle goes on:

It seems to me that it is not possible to go behind what Ms Thirkettle says in paragraph 8 of her second witness statement, so the question comes down to this: do the statements which the CPG does contain, according to Ms Thirkettle, as to what kind of authority is required to approve a loan, in circumstances where criteria such as loan to value and rental income have not been complied with (those being matters which she says the CPG does deal with) – do those statements cast any real light on how the Claimant would have reacted to the report which it is accepted by the Defendant should have been made?

If the evidence had been along these lines: “in circumstances in which the loan to value ratio is exceeded it can nevertheless be departed from if the following criteria which constitute good business are satisfied”, then I can see that the answer to that might very well be yes. But reading paragraph 8 of Ms Thirkettle’s witness statement, together with what paragraph 1.3 of the BUG itself says and going back to what it says in the relevant sentences, namely “authority to approve such cases lies with dbm underwriters where full referral details and written confirmation of acceptance must be retained on the file. For further details refer to sections 4 and 5 of the CPG”, it seems to me that I have to proceed upon the basis, as Ms Thirkettle said, that the CPG does not contain any such material because it does not address the question of what is to be considered good business in spite of non-compliance with any other criteria. What, taking the evidence as a whole, it addresses is what are the procedures for obtaining authority, and requirement for the full referral details and written confirmation of acceptance to be retained on the file in circumstances where those criteria are exceeded, and it does not seem to me that material of that type is material which helps to answer the question: would the Claimant, had the report that should have been made, been made have nevertheless gone ahead with these loans on the basis that, despite the transaction involving subsales and despite the other matters which should have been reported, it was nevertheless to be considered good business? It does not seem to me that in those circumstances the CPG has been shown to be something which helps the Defendant’s case or which adversely affects the Claimant’s case. I accept Mr Kinsky’s submission that material that falls within rule 31.6 is narrower than anything which a cross-examiner might be able to make some use of in cross-examining a witness. Material which affects the case is, in my submission, material which tends to prove or disprove one of the issues in the case in itself and that is a narrower, and deliberately narrower, test than the sort of material which a cross-examiner might find very helpful to have in his hands when challenging a witness. It is, in my judgment, material that helps to demonstrate (in the particular circumstances of this case) that if the report of the subsales and the significant uplift in relation to these three loans had been made, nevertheless the Claimants would have gone ahead with it.

In my judgment the evidence that is before me on this application does not establish that there is or probably is any material in the CPG which sheds light on that issue. I do not accept the submission that was made to me by Mr Lawrence that anything which could be said to demonstrate the bank’s appetite for risk generally is relevant to this issue and discloseable under an order for standard disclosure. It would, as I said to him in argument, in principle mean that every lending decision that had been made by the bank was discloseable. He accepted that that would be disproportionate, but that is not in my submission a complete answer as Mr Kinsky said if such material was prima facie discloseable it would prima facie have to be listed. That is not what, so far as I can see, CPR 31.6 is designed to do and in the light of the guidance from the Court of Appeal in Shah’s case, it seems to me that it must be confined quite narrowly to documents which do directly affect one party’s case or the other in the way that I have tried to explain. In my judgment, therefore, the Master came – albeit that the argument and evidence before him was different -- to the correct decision on the question whether the CPG fell within CPR 31.6(b) and was discloseable as part of standard disclosure.

As I have briefly mentioned before, there was a second application under CPR 31.12 which is an application for specific disclosure. I can deal with it very shortly, as did the Master. If the material is not within the ambit of standard disclosure there must be some good reason demonstrated for saying it has to be produced anyway, as ex hypothesi it does not directly support the Defendant’s case or adversely affect the Claimant’s case. This was, I think, a discretionary decision of the Master and although the material I have seen is somewhat different from the material he saw, here I think that deference to his decision in paragraph 25, in which he said:

I do endorse what the Deputy Master said in paragraph 26 of his judgment where he left open the possibility that if the banking experts thought that it would be a useful document to see, the application could be renewed. Nothing I say should cast any doubt on that. I therefore will dismiss this appeal.

I add a postscript on the structure of the rules in CPR 31. I have said enough to dispose of this application, but the consideration of the rules with the benefit of two leading counsel has revealed some uncertainty as to precisely how the application fits within the structure of the rules. It is not necessary for the purposes of dealing with the appeal to form any concluded views on these matters, but I will briefly mention what the point is. The starting point is CPR 31.2 which says that:

To those familiar with the practice of disclosure and inspection, one might be forgiven for thinking that to disclose a document is to include it in the disclosure list formally as a document of which disclosure was being given, but it is apparent from the note at 31.2.2 in the current White Book that the Court of Appeal in a case called SmithKline Beecham v Generics (UK) Ltd [2003] EWCA Civ 1109 has stated that disclosure only means stating that a document exists or has existed and that Aldous LJ for the Court of Appeal in that case held that “no distinction is sought to be drawn between a document obtained from third parties and no limitation is placed on the way that the statement is made. In my view a reference by a party to a document in a witness statement is a statement that the document exists”.

There has been no attempt by the Claimant to deny that the CPG exists and there are before the court numerous statements, both in correspondence and in Ms Thirkettle’s two witness statements, which make it perfectly clear that the CPG does exist. It seems to me, therefore, that technically the Claimant has disclosed the document, bound as I am by the Court of Appeal in SmithKline Beecham .

It follows that the application before me is not really, as it was formulated by the Defendants in their Application Notice, an application for disclosure of the CPG, which was the only relief that was in fact sought in the Application Notice, because disclosure has already taken place. If that is right, then it raises the question of how this issue, which is plainly an issue which the court must have jurisdiction to decide and which has important practical consequences for the parties, is to be dealt with in terms of the rules. Here one runs up against this difficulty. What one would have imagined was the appropriate application to make in circumstances where a document had been disclosed, but the non-disclosing party had not seen it, would be an application for specific inspection. The rules do indeed contain provision for an application for specific inspection; that is in CPR 31.12. CPR 31.12(1) provides that the court may make an order for specific disclosure or specific inspection, but 31.12(3) goes on “an order for specific inspection is an order that a party permit inspection of a document referred to in rule 31.3(2)”. That takes one back to CPR 31.3(2). CPR 31.3(2) is quite a limited rule which provides that “where a party considers that it would be disproportionate to the issues in the case to permit inspection of documents within a category or class of document disclosed under rule 31.6(b) (a) he is not required to permit inspection of documents within that category or class; but (b) he must state in his disclosure statement that inspection of those documents will not be permitted on the grounds that to do so would be disproportionate”. That is plainly not an apt heading under which to bring this application. The Claimant has not suggested, nor could it suggest, that it would be disproportionate to the issues in the case to permit inspection of the CPG. The Claimant’s position is that it is not obliged to provide inspection of the CPG because it does not fall within CPR 31.6 as a document discloseable under standard disclosure.

There is no other very easy place to find in the rules provision for an application of the type which is before me. The best fit would appear to be as follows. CPR 31.3(1) provides that “a party to whom a document has been disclosed has a right to inspect that document except where...” Then four subparagraphs are set out and (b) provides “the party disclosing the document has a right or a duty to withhold inspection of it”. That triggers CPR 31.19. CPR 31.19 contains a number of provisions. CPR 31.19(1) deals with the ability of a party to seek to withhold disclosure of a document on the grounds that disclosure would damage the public interest. That has no application here. But CPR 31.19(3) deals with a person who wishes to claim that he has a right or a duty to withhold inspection of a document. He has to state in writing that he has such a right or duty and the grounds on which he claims that right or duty and that statement must be made, by subrule (4), either (a) in the list in which the document is disclosed; or (b) if there is no list to the person wishing to inspect the document. It can be seen that neither of those really fits this case because there is no list in which this document has been disclosed, it not being referred to in the Claimant’s disclosure list. Nor is this a case in which there is no list. In order to make sense of it I think one must read CPR 31.19(4)(b) as meaning “if there is no list in which the document is disclosed” which would then fit this case. But it can be seen that the draftsperson of the rules does not seem to have addressed the particular circumstances of this case in any clear way. Nor do the editors of the White Book seem to think that this situation, which must be not wholly uncommon, is what CPR 31.19 and CPR 31.3(1)(b) is dealing with because the examples they gave of a right or duty to withhold inspection are: legal professional privilege, privilege against incrimination, privilege on the grounds that inspection would be injurious to the public interest or other grounds of privilege (see note at 31.3.2). This is not a case where any privilege is invoked; it is simply a case where the Claimant says that the document should not be inspected because it was not obliged to disclose it under standard disclosure.

The curiosities of the drafting of the rules does not end there. CPR 31.14, as Mr Lawrence very fairly pointed out to me, provides that a party may inspect a document mentioned in a statement of case, a witness statement, a witness summary or an affidavit. The CPG is clearly mentioned in a witness statement; indeed, two witness statements. That rule on its face does not contain the same provisions for a party to withhold inspection as are in CPR 31.3 and CPR 31.19. Mr Lawrence disavowed any suggestion that that meant that he was entitled as of right to inspect the document. It would be nonsensical, he said, that just because someone said “I am not disclosing this document because it is not within standard disclosure”, the very act of saying that would trigger a right to inspect it. He appears to have been right about that because there is a note in the supplement to the current White Book at 31.14.1 which says:

That statement, if it is an accurate report of what was decided, again commits what one must take to be a solecism in referring to “disclosure” where the fact that the document has been said to exist in a witness statement means it has already been disclosed.

I do not propose to take up any more time investigating the curiosities of the drafting of the rules. There must in my judgment be an inherent right in the court to control the ambit of disclosure and to decide the question which has been argued before me as to whether a document does or does not fall within a party’s standard disclosure obligations. If necessary, I will be prepared to treat that as simply an exercise of the Court’s inherent Case Management powers.

For the reasons that I have given, this document does not fall within the obligation of standard disclosure on the Claimant. However much at first sight it seemed obvious that it was relevant, the evidence before me, as I have sought to demonstrate, does not support that submission and for these reasons I will dismiss this appeal.