Harlequin Property (SVG) Ltd & Anor v Wilkins Kennedy (A Firm) (No. 2)

INTRODUCTION

This case concerns a property development in the Caribbean which went wrong. Harlequin SVG (the first claimant) was the developer and Harlequin Hotels (the second claimant) was to operate the resort; Wilkins Kennedy (the defendant) were part of their professional team; and the contractors were the ICE Group. At the heart of the allegations in these proceedings is an alleged conflict of interest arising out of the giving of financial advice by the defendant to both the claimants and to the ICE Group. Further background is set out at paragraphs 4-9 of my earlier judgment [2015] EWHC 1122 (TCC).

At a hearing on Friday 23 October 2015, I dealt with and decided a variety of case management issues, arising out of a number of applications by the claimants in respect of disclosure and inspection. Broadly speaking, I allowed those applications. In addition, I considered, and refused, an application by the claimants to vary the previous order as to security for costs.

It was agreed that I would provide a short written Judgment dealing, first, with my reasons why the application in respect of security for costs failed and, secondly, with my conclusions as to the confidentiality issues, which were central to the claimants’ disclosure/inspection applications. Beyond that, it was agreed that I did not need to provide written reasons for the resolution of the detail of the disclosure applications, because I had set those out orally at the end of the hearing.

THE CLAIMANTS’ APPLICATION IN RESPECT OF SECURITY FOR COSTS

In March/April this year, I dealt with defendant’s application for security for costs pursuant to CPR 25.12 and 25.13. It was not disputed that the claimants should provide security; and it was not disputed that, at that time, the relevant amount of the security should be £2.75 million. That figure reflected the defendant’s likely recoverable costs up to the end of the trial. The dispute between the parties at that time was whether security could be given in the form of the claimants’ ATE insurance policy. In the Judgment cited above, I concluded that, as a matter of principle, security could be given in that form, but that there were particular difficulties with the precise wording of the policy which meant that, as it then stood, it was not adequate security.

Very sensibly, the parties then negotiated further and the policy was amended and completed in an agreed form. That amended and agreed policy therefore constitutes the defendant’s security for costs.

The overall value of the policy is £3 million. Out of that, the claimants carved £250,000 by way of disbursements, leaving £2.75 million as the security available to the defendant. By their application dated 13 August 2015, the claimants seek an order that they be entitled to a further £250,000 by way of disbursement funding, with the result that the security available to the defendant would reduce to £2.5 million.

In support of the application, Mr Davidson QC argued that, because the disclosure process had cost more than had been anticipated, the court should permit the claimants to increase their disbursement funding to £500,000, in circumstances where, so he said, the defendant would retain proper security. He submitted that, since the £2.75 million was in respect of the entirety of the costs which the defendant was going to incur, the court could achieve the additional funding sought for the claimants’ disbursements by recording that the £2.5 million would provide ample security up to, say, the PTR, when the costs position could be reviewed.

In response, Mr Fenwick QC said that the court could not interfere with the policy that had been agreed between the parties and that, since the figure of £2.75 million had been fixed months ago, and there was no appeal, that was the end of it. He also argued that the claimants knew at the time that the £2.75 million figure had been fixed that they had spent much more on disclosure than they originally intended, so there was no change of circumstances. Finally he argued that, whilst it was common in cases where money was paid into court for security to be provided by reference to the stages of the litigation, in order that the party giving security was not kept out of excessive sums in the early phases, this was a case where security was being provided by way of the ATE policy, and it was therefore reasonable for the security to relate to the costs of the case as a whole.

At the end of the hearing, I indicated that I would not allow the claimants’ application. I said that there were a number of reasons for that conclusion. I set them out briefly below.

First, I accept Mr Fenwick QC’s submission that this is an unusual case, where security for costs has been provided by way of an ATE policy which, following my earlier Judgment, was the subject of negotiation and finally agreement between the parties. I consider that the claimants are now asking me to change the terms of that policy and I do not believe that I have the power to do so. Neither do I have the power to go behind the agreement that the parties reached, nor the order that I made which was based on that agreement, to the effect that adequate security was represented in the sum of £2.75 million.

Secondly, I consider that, on analysis, what the claimants are seeking to do is to change the basis on which security was ordered to be provided in this case. At present, security has been provided on the basis of the costs of the case as a whole, down to the end of the trial. Now the claimants are seeking to vary that order, such that the security would only be provided down to, say, the PTR. I can see no reason for changing the basis on which security should be provided. Everyone was agreed that the right thing to do was for security to be provided to the defendant down to the end of the trial. This is not a case in which the claimants are paying into court and so are being kept out of their money. It is therefore not a case in which it would be appropriate to go behind the agreement (and the court order) that security should be provided down to the end of the trial.

Mr Davidson QC argued that, at £2.75 million, the defendant was over-secured. But that is only right if one only considers the costs down to the start of the trial preparations and not beyond. Moreover, his submission presupposes that, when that stage of the case is reached, further security will need to be provided, or the defendant will be under-secured. There is no evidence that further security could be provided at that stage, and as Mr Fenwick QC pointed out, nothing to say that the claimants would have any further funding available at that point.

Thirdly, it is plain from reading the lengthy witness statements that both sides complain that the disclosure exercise has cost them more than they had anticipated. In those circumstances it seems to me to be wrong in principle for the court to reduce the amount of the defendant’s security, when the only information available to the court is that, if anything, the amount of their security is potentially too low because of the additional costs spent on disclosure. It would also be wrong to establish some sort of principle or precedent in this case that, if one part of the preparation exercise costs the claimants more than they expected, the defendant should be penalised by having the level of its own security reduced.

Fourthly, there is no evidence of any attempts made by the claimants to obtain any additional funding for their disbursements, or for anything else, in any other way. There is no reference to the claimants borrowing such sums, or the funds being provided by the claimants’ key director, Mr Ames. In those circumstances, it would again be inappropriate to alter the provisions relating to security.

When I gave judgment on the question of security, and the parties were then able to agree terms, I had anticipated that all questions of security for costs had been dealt with once and for all. I thought that this was one of the benefits of the agreement which the parties eventually reached. It is also, I think, one of the general benefits if security is given by way of an ATE policy, as in Geophysical Service Centre Co v Dowell Schlumberger (ME) Inc [2013] EWHC 147 (TCC). Therefore, I should reiterate that, in my view, the question of security for costs can only now come back to court if there is some exceptional event which renders the assumptions made by either side back in April 2015 fundamentally misplaced.

CONFIDENTIALITY: THE RELEVANT PROVISIONS

The relevant provisions of the CPR dealing with confidentiality are Rules 31.3 and 31.19.

Rule 31.3 provides as follows:

“Right of inspection of a disclosed document

31.3

(1)

A party to whom a document has been disclosed has a right to inspect that document except where –

(a)

the document is no longer in the control of the party who disclosed it;

(b)

the party disclosing the document has a right or a duty to withhold inspection of it;

(c)

paragraph (2) applies; or

(d)

rule 78.26 applies.

(Rule 31.8 sets out when a document is in the control of a party)

(Rule 31.19 sets out the procedure for claiming a right or duty to withhold inspection)

(Rule 78.26 contains rules in relation to the disclosure and inspection of evidence arising out of mediation of certain cross-border disputes.)

(2)

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.

(Rule 31.6 provides for standard disclosure)

(Rule 31.10 makes provision for a disclosure statement)

(Rule 31.12 provides for a party to apply for an order for specific inspection of documents).”

Rule 31.19 provides as follows:

“Claim to withhold inspection or disclosure of a document

31.19

(1)

A person may apply, without notice, for an order permitting him to withhold disclosure of a document on the ground that disclosure would damage the public interest.

(2)

Unless the court orders otherwise, an order of the court under paragraph (1) –

(a)

must not be served on any other person; and

(b)

must not be open to inspection by any person.

(3)

A person who wishes to claim that he has a right or a duty to withhold inspection of a document, or part of a document, must state in writing –

(a)

that he has such a right or duty; and

(b)

the grounds on which he claims that right or duty.

(4)

The statement referred to in paragraph (3) must be made–

(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.

(5)

A party may apply to the court to decide whether a claim made under paragraph (3) should be upheld.

(6)

For the purpose of deciding an application under paragraph (1) (application to withhold disclosure) or paragraph (3) (claim to withhold inspection) the court may –

(a)

require the person seeking to withhold disclosure or inspection of a document to produce that document to the court; and

(b)

invite any person, whether or not a party, to make representations.

(7)

An application under paragraph (1) or paragraph (5) must be supported by evidence.

(8)

This Part does not affect any rule of law which permits or requires a document to be withheld from disclosure or inspection on the ground that its disclosure or inspection would damage the public interest.”

The defendant has identified a possible duty to withhold disclosure of certain documents on the grounds of confidentiality. There are two distinct categories of confidentiality in the present case. The first category comprises certain documents identified by the defendant, but which have not been offered for inspection because of the possibility of a public interest objection by the Serious Fraud Office. The second category comprises the many thousands of documents held by the defendant which are confidential to their third party clients. I set out in turn below my reasons why the documents in both these categories must be offered to the claimants for inspection.

THE SERIOUS FRAUD OFFICE

A number of the documents in the control of the defendant are documents created as a result of an investigation by the SFO into the claimant companies. The documents include statements and draft statements from Mr MacDonald, who was a partner in the defendant firm, and Mr Garside, who was a salaried partner (and therefore an employee). Mr MacDonald does not object to the disclosure of the material, but Mr Garside has expressed concern and has not consented. In those circumstances, the SFO have raised the possibility that it may be in the public interest to withhold the documents, and they and the defendant seek the decision of the court under r.31.19(5) as to whether the documents should be made available to the claimants for inspection.

The exercise of the court’s discretion under r.3.19 is a balancing act. There is a clear public interest in ensuring that the SFO is able to conduct proper investigations on a confidential basis. But that should be balanced against the public interest that the administration of justice should not be frustrated: see Barrett v Ministry of Defence [1995] 1 WLR 1217. The ultimate test relevant to the exercise of the court’s discretion is whether disclosure and inspection of the documents is necessary for disposing fairly of the proceedings: see Lord Wilberforce in Science Research Council v Nasse [1980] AC 1028 at 1066A-B.

I have concluded that, in the present case, the administration of justice, and the need to dispose fairly of the issues in this highly contentious case, outweighs any public interest in the withholding of the documents generated by the SFO investigation. My reasons are these. First, I have reviewed the documents and I am in no doubt that they are relevant (even highly relevant) to the issues in this case. Secondly, when questioned during the hearing, the SFO lawyer fairly confirmed that the SFO did not consider that there was any public interest in the withholding of the documents. Thirdly, I note that Mr MacDonald, the partner principally involved with this project, does not object to those documents being disclosed, whilst Mr Garside’s objections are non-specific and unpersuasive. Moreover, I am bound to conclude that, since Mr Garside was happy to help the SFO in connection with their investigation into the claimant companies, he can hardly now complain if the documents generated by his involvement are disclosed to the claimants.

On behalf of the defendant, Mr Fenwick QC did raise the point that different considerations may apply to draft, as apposed to final, versions of the witness statements. That would be on the basis that, in connection with the drafts as opposed to the final versions, the dominant purpose test may be met. I have considered that point, although it was not a point taken by the SFO. In my view, in this case, having looked at the documents, no distinction needs to be drawn, and all of the documents that were the subject of the SFO objection are to be disclosed and offered for inspection.

THIRD PARTY CONFIDENTIALITY

The second area of confidentiality concerns those documents which have been disclosed by the defendant but have been withheld from inspection because they are confidential to the defendant’s third party clients. The defendant therefore has a duty to withhold such documents from inspection unless the court orders otherwise. These documents are of two types: those where the confidentiality relates to Mr O’Halloran and the ICE group; and those where the clients appear to be unrelated to the subject matter of the claim.

As to the documents which may be confidential to Mr O’Halloran or the ICE group, I consider that those documents must be disclosed in these proceedings. I note that Mr O’Halloran, who is aware of the application, has made no objection to the inspection of these documents by the claimants.

One of the central allegations made by the claimants against the defendant is that there was an ongoing and serious conflict of interest, because the defendant was not only acting for and advising the claimants, but also acting for and advising the contractors, the ICE group owned by Mr O’Halloran. Accordingly, the documents generated by the relationship with the ICE Group lie at the heart of this case. They plainly and obviously fall to be disclosed and offered for inspection; otherwise there is a very real risk that the critical issues between the parties will not be determined fairly or at all.

As to the second type, it seems to me that these documents should also be disclosed and offered for inspection for reasons which are entirely pragmatic, and based on how the disclosure exercise has been undertaken thus far. Because of the sheer scale of the documents involved in this case, the parties have undertaken disclosure on the basis of electronic word searches based on keywords, without an intervening and costly review for relevance. I commend that approach. Documents of this type have been listed because they have been responsive to the word search process. Adopting the pragmatic approach of the parties, I consider that this group of documents should therefore be offered for inspection, even if they would appear to relate to other clients of the defendant. If of course they are irrelevant, which seems highly likely, then that will be the end of the matter, save for any costs orders (on which the defendant has reserved its position).

COSTS

The costs of the applications relating to disclosure/inspection will be reserved. That leaves the costs of the claimants’ unsuccessful application in respect of security for costs.

The defendant sought an order that those costs be assessed on an indemnity basis pursuant to CPR 44.3(1)(b). I indicated at the end of the hearing that, whilst I agreed that the claimants were liable for the costs of that application, it seemed to me that the assessment should be on the standard, rather than the indemnity, basis.

Although the application could fairly be described as optimistic, there was no improper or unreasonable conduct on the part of the claimants in making or pursuing the application. There was nothing which took the situation away from the norm: see Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnson [2002] EWCA Civ 879. The high degree of unreasonableness (Noorani v Calver [2009] EWHC 592 (QB)) necessary for an order for indemnity costs was absent. In the round, I conclude that it would not be appropriate to order the assessment on anything other than the standard basis.

The claimants’ costs for all of the various applications on 23 October were £51,787.50, together with disbursements and VAT, making a total of £104,766. The defendant’s draft bill relating to security alone (ie excluding the various disclosure/inspection applications) was in the sum of £51,230.50. However it included items, such as attendance at the hearing for 6 hours, which actually related to all of the applications I dealt with at the hearing, not just the security application. Reductions are therefore required on that basis alone.

I consider that the sum of £51,230.50 was excessive and disproportionate for costs incurred on the application to modify the existing order relating to security for costs. The argument on that application took less than an hour. I consider that every element of the draft bill is inflated. The telephone attendances were unnecessary, and the preparation of documents should have been minimal. Counsel’s fees were also too high for such a straightforward application, even if some additional allowance for fees is justified because of the claimants’ erroneous insistence in August that the application was urgent. In my view, a reasonable sum for the defendant’s costs of this application could not be more than £35,000. I therefore summarily assess the defendant’s costs of the security application in that figure.