Disclosure and inspection of documents - Application for disclosure

Cattles Ltd and another company v Pricewaterhousecoopers LLP: Queen's Bench Division, Commercial Court (Mr Justice Eder): 1 November 2011

The background to the case was an intended claim for substantial damages by the intended claimant companies (the companies) against the intended defendant company (the defendant) arising out of the defendant's audit of the companies, which were lenders in the sub-prime mortgage market in the years 2005, 2006 and 2007. The companies alleged that there had been a gross misstatement at the heart of the accounts, for the years 2005 to 2007, in relation to the impairment provision for bad debt.

They claimed that loans which were in long-term arrears and which should have been treated as impaired, had been the subject of rewrites which were ostensibly about debt collection but were in practice buckets for bad debt. Once the misstatement became clear, the group could not continue trading and became worthless.

The companies made a request for the defendant's working papers in April 2011. In July 2011, solicitors acting for the companies (Ashurst), wrote a letter to the defendant (the letter of claim) with a request for disclosure that attached a schedule describing the documents requested. Those included the defendant's audit working papers for the period 2005 to 2008. In August, dissatisfied with the defendant's reply, the companies issued an application for pre-action disclosure. In a letter dated 8 September, solicitors acting for the defendant indicated that the defendant was willing to disclose its 2007 audit papers provided that the companies agreed to reciprocal disclosure of specific documentation relating to the conduct of their management at the time of the 2007 audit.

On 21 September, Ashurst replied to the letter of 8 September stating that it was inconsistent of the companies to offer the 2007 audit papers while withholding the 2005 and 2006 papers. The next day, on 22 September, the companies made a without prejudice offer to drop their application for disclosure in return for the 2005, 2006 and 2007 audit working papers. That offer was rejected. On 28 September, the defendant issued its own application for pre-action disclosure. At the hearing on 15 October, the judge ordered the defendant to disclose its audit working papers for 2005 and 2006 but not for 2008. The costs of both applications for pre-action disclosure then fell to be decided. The issue concerned the liability in costs for the two applications.

The court ruled: (1) The general rule under CPR 48.1 implicitly recognised that it was not usually unreasonable for a respondent in an application for costs to require the applicant to satisfy the court that it ought to be granted the relief which it sought. However, one might expect to find an order that the respondent pay the applicant's costs where it had been clearly unreasonable for the respondent to oppose the application or where the manner of its opposition was so unreasonable as to make it appropriate to require it to bear the whole of both parties' costs (see [15] of the judgment).

The defendant was entitled to the costs of the companies' application up to and including 30 September 2011, but thereafter the companies were entitled to their costs, including the costs of the hearing. Although the companies' request in regard to the 2007 audit was set out in some detail in the letter of claim, the same could not be said in relation to their claim regarding the earlier years. That lack of detail was not addressed by Ashurst until their letter dated 21 September.

The defendant was entitled to a reasonable time to consider Ashurst's response, which, in those circumstances, was no more than seven working days. Further, the offer made on 22 September was a relevant and important circumstance which could be taken into account, and the defendant was entitled to a reasonable time to consider and to respond to it. Again, in those circumstances, a reasonable time was seven working days. In those circumstances, it could not be said that the defendant had acted unreasonably prior to the expiry of that period, and so, in accordance with the general rule, it was entitled to its costs of the companies' application up to at least 30 September.

After that date, however, it became unreasonable for the defendant to refuse to disclose the documents requested at least as so far as the 2005 and 2006 audit years were concerned. The companies were accordingly entitled to their costs after 30 September (see [20]-[23], [25], [34] of the judgment). SES Contracting Ltd v UK Coal plc [2007] All ER (D) 410 (Jul) followed; Bermuda International Securities Ltd v KPMG (a firm) [2001] All ER (D) 337 (Feb) considered; Total E & P Soudan SA v Edmonds [2007] All ER (D) 303 (Jan) considered; Kneale v Barclays Bank Plc [2010] All ER (D) 271 (Jul) considered.

(2) The companies were entitled to the costs of the defendant's application and the costs of complying with the pre-action disclosure. The companies had responded quickly and reasonably to the defendant's requests for documents. At no stage had they refused to produce the documents requested.

There were no other circumstances that would have justified the court departing from the general rule and making a different order (see [32]-[34] of the judgment).

Jonathan Gainsman QC and Rebecca Sabben-Clare (instructed by Ashurst LLP) for the claimants; Justin Fenwick QC and Alexander Polley (instructed by Taylor Wessing LLP) for the defendant.