Disclosure Duties and Penalties

An interesting judgment in the Mercantile Court highlights the importance of getting disclosure right, and the costs penalty that might apply if you get it wrong.

In Earles v Barclays Bank plc [2009] EWHC 1 (Mercantile) HHJ Simon Brown QC, a judge with a well deserved reputation for knowing about e-disclosure, has made a number of comments on the failures of the Bank in respect of disclosure and includes considerable criticism of the legal team representing them. 

The relatively complex claim turned on whether or not certain phone calls were made giving instruction to Barclays Bank. Not all relevant records were sought. As Simon Brown J observed:

The lack of disclosure by the Bank of the phone records, the Transfer Sheets and e-mail account of Mr Leech cannot be ascribed to a lack of understanding of the duties of disclosure and how to procure retrieval of electronic "documents" by the Bank's first class legal teams, both in and out house, and document storage managers as demonstrated by the correspondence referred to above. The explanation that the void occurred because Mr Leech had retired from the Bank's employment is a lame excuse- an expert in information technology, either in house or a consultant, could easily have been instructed to retrieve ESI from various back up sources one would have thought but no such expert appear to have been instructed to do so. One expects a major high street Bank in this day and age of electronic records and communication with an in house litigation department to have an efficient and effective information management system in place to provide identification, preservation, collection, processing, review analysis and production of its ESI in the disclosure process in litigation and regulation. However, even though the failure to disclose such critical information to assist the Court is surprising and to be deplored, there is no evidence that it has been done deliberately or constitutes spoliation in order to gain a tactical evidential advantage at the trial. None of the Bank's personnel such as in house counsel Elizabeth Freeman who undertook the bank's disclosure have been challenged on that. Accordingly, I decline to make any adverse inferences against the Bank either. The Bank's telephone databases and back up tapes as well as the Transfer Sheets should have been disclosed but I do not believe it has been established that these have been deliberately withheld to avoid its own case being undermined. In my judgment this was a decision made by the Bank's legal team on the erroneous grounds of relevance and proportionality, not as part of any tactical move to gain an evidential advantage in the litigation. (emphasis added) 

As this extract hints, the Bank won its case and was thus the successful defendant. But that was by no means the end of the story when it came to costs. When considering his order for costs, the judge returned to the failures in disclosure mentioned above: 

  1. I have been critical of the 'conduct' by the Bank of its disclosure and its electronic disclosure.
  1. As regards disclosure, the Bank failed to give disclosure of the Transfer Sheets referred to in paragraph 53 of the witness statement of Katharine Shelley. They were clearly relevant under the narrow test of CPR 31.6 to the primary issue in the case. The very fact that they were referred to in the carefully crafted witness statement proves that and it ought to have been obvious to the Defendant’s lawyers. Their absence made the task of the Court immeasurably harder to the extent that it considered lengthy submission as to whether or to draw adverse inferences against the Bank itself. I am satisfied that it was a decision of the legal team on the erroneous grounds of disproportionality.
  1. As regards electronic disclosure, the Bank, through its in-house counsel, Elizabeth Freeman, should have procured and retained Mr Leech's e-mail account and phone records for the period covered by the three transactions questioned in the letter before action from Lodders dated 18th October 2007. In house Counsel should not have simply accepted Mr Leech's word that there were no relevant e-mails. His lap top should have been retained in 2007 and certainly ascertained upon his leaving the Bank in November 2008. This earlier non disclosure of the e-mail records should have featured in the disclosure statement. It is accepted that it was strictly under no procedural duty to do so in civil procedure law. However, "conduct' before proceedings can be taken into account in dealing with costs under CPR 44.3 (5).
  1. Secondly, the Bank's litigation lawyers should have "discussed" with the Claimant well "prior to the case management conference" the electronic disclosure of both Mr Earles and Mr Leech's phone and e-mail records as expressly provided by CPR 31PD.2A2 . It did neither but did rehearse the issue of disclosure with the Claimant two years later in August 2009 shortly before trial. This was far too late with the result that the witnesses and the court have had to deal with a case with critical contemporaneous documents missing. This is contrary to the Overriding Objective of "ensuring" that the case is "dealt with expeditiously and fairly."
  1. It might be contended that CPR 31PD 2A and electronic disclosure are little known or practised outside the Admiralty and Commercial Court. If so, such myth needs to be swiftly dispelled when over 90% of business documentation is electronic in form. The Practice Direction is in the Civil Procedure Rules and those practising in civil courts are expected to know the rules and practice them; it is gross incompetence not to.
  1. This is long established. In Fletcher & Son v. Jubb, Booth & Helliwell [1920] 1 K.B. 275 at page 280, Scrutton LJ approved a passage from a judgment of Tindal CJ in Godefroy v. Dalton (1830) 6 Bing. 460:

"It would be extremely difficult to define the exact limit by which the skill and diligence which an attorney undertakes to furnish in the conduct of a cause is bounded or to trace precisely the dividing line between the reasonable skill and diligence which appears to satisfy his undertaking, and the crass negligentia or lata culpa mentioned in some of the cases, for which he is undoubtedly responsible. The cases, however, which have been cited and commented on at the bar, appear to establish, in general, that he is liable for the consequences of ignorance or non-observance of the rules of practice of this court; for the want of care in the preparation of the cause for trial; or of the attendance thereon with his witnesses and for the mismanagement of so much of the conduct of a cause as is usually and ordinarily allotted to his department of the profession [emphasis added]

  1. As regards "disclosure" (and this includes electronic disclosure), it is worth repeating here what was said in Woods v. Martins Bank Ltd [1959] 1 Q.B. 55 at 60, where Salmon J. said "It cannot be too clearly understood that solicitors owe a duty to the court, as officers of the court to make sure, as far as possible, that no relevant documents have been omitted from their client's list".
  1. The disclosure of only the key documents in a case is absolutely essential to a Court if it is to achieve the accurate and efficient fact finding sought by the parties to civil litigation.
  1. In my judgment, the 'conduct' of electronic disclosure by the Bank and its lawyers fell far below the standards to be expected of those practicing in the civil courts and I am going to take that into account under CPR 44.3 in the award of costs to the successful party.
  1. In my judgment, if disclosure of these records had taken place two years ago on August 2007, there was a reasonable prospect that this matter would not have proceeded to trial and so incurred the legal costs it has. The Bank's case, on my judgment, would have been unanswerable but of course the Claimant's attitude may have been to ignore that. However, if the documents had been disclosed then a Summary Judgment application might well have been successful.
  1. In my judgment, there were reasonable prospects of saving the main body of these itemised costs which are mainly those for trial but I accept that the additional work on proper disclosure would have added to the itemised bill before me. In my judgment, a fair assessment of this would be to award the successful party 50% of its costs against the unsuccessful Claimant.  

This was no doubt intended to be an expensive lesson for the Bank and their solicitors (£202,000 in costs turned, for a variety of reasons, into a costs order against the unsuccessful claimant of only £38,000). But the reality in all probability is that the Bank were never going to see any costs from the defendant, who appears to be highly insolvent. Nevertheless, the comments from HHJ Simon Brown QC should reverberate around the premises of all in-house legal departments and need to be carefully ingested by all litigation lawyers too.

Published: 2009-10-11T13:30:24

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