Don't let disclosure 'cost you your claim

In Suez Fortune Investments Limited and Piraeus Bank AE v Talbot Underwriting Ltd and others [2015] EWHC 42 (Comm), despite clear advice from its lawyers and repeated court orders, the first claimant placed 'a crucially important repository of evidence' beyond its legal control.

As a result, it was unable to comply with an unless order
and, despite an application for relief from sanctions under Civil Procedure Rule (CPR) 3.9, its claim (said to be worth $100m including interest) was
struck out.

The loss related to a vessel owned by the first claimant. When its agent ceased trading at the end of 2014, the electronic documents it held were put on a USB flash drive for safekeeping. However, the first claimant was apparently concerned that the wide variety of material on the USB might have consequences in other ongoing disputes, or even give rise to criminal proceedings.

The court ordered Peruvian Guano (or train of enquiry) disclosure, widening the scope of material which the first claimant was required to provide to the other parties. The first claimant failed to provide the drive to its lawyers, and ultimately placed it beyond its legal control in the hands of a lawyer acting for its agent.

No criticism was made of the solicitors in this case. The first claimant's lawyers obviously struggled to obtain clear instructions from their client,
but kept both the court and other parties informed as far as possible on the position and never slipped into papering
over the fairly distressing cracks.
They had, the court recognised, advised the owners of their disclosure obligations at an
early stage.

Early data review

So, what lessons can be learned from this case?

In an ideal world, lawyers should collect all potentially relevant data at an early stage. Securing an image of the server from the client, following a forensically sound methodology, at the outset of the claim is best practice. This will allow the lawyers to establish the scope of the disclosure exercise and advise the client before agreeing to any search terms or date limitations, and of course ensure that the solicitors' obligations to the court are met.

This need not be expensive - a five-terabyte hard drive can be picked up for around £100. This is the storage equivalent of five servers, or around 300,000 lever arch files. Appropriate filters can be applied before processing the data to narrow the amount of material being hosted.

Alternatively, key custodians' data could be processed first to build up a picture of appropriate search terms or date filters, which can be used to narrow the remaining data.

Of course, all clients should be advised at the outset of a case (and reminded from time to time) of their obligations regarding document preservation. However, there is still some reluctance among lawyers and clients alike to take steps (and incur costs) on disclosure until after all statements of case have been exchanged. This delay may well add to costs in the long term, as the scope of document review required may be narrowed significantly by a preliminary analysis of the data.

There may also be advantages in having identified key documents, and potential witnesses, before the statements of case are settled.

The tactical advantages to beginning the data review early, and the fact that there is little to no saving to be made by delay, mean that data collection and preliminary review should be considered pre-action costs and clients should be advised accordingly.

Lessons learned

In Suez Fortune, the insurers' counsel suggested the owners might have felt that a claim struck out for failing to disclose the archive was preferable to serious adverse findings being made against them, which might lead to criminal proceedings.

The court noted that, because the reason for their refusal was not known, it could not make any assumptions in favour of the owners. The existence of disclosable material which would destroy a claim is not a unique situation. The lawyers requesting a copy of the USB stick at the outset might have merely brought the owners' refusal to provide it to light sooner, but ultimately there accrued no benefit to the first claimant by its prevarications. Had the lawyers been able to obtain the material, they could have assessed the risks to the client of continuing the action, explained that the material would have to be disclosed,
and perhaps even sought a settlement. If nothing else, the earlier capture of the material could have saved the owner the wasted costs of its ultimately doomed claim.

Sadly, the lesson learned may simply be reinforcing the already well-established principle that the earlier you can begin document review, the better you can advise your client. We now have a very stark warning to provide to any reticent clients in future.

Chris Wilkes is a partner and Kate Pert, pictured, a solicitor in the global group at DAC Beachcroft @DACBeachcroft www.dacbeachcroft.com