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Legal Update

Defendants Aren't Always Required to Disclose Documents Referred to in their Pleadings – Moulin v. Olivia Lee

29 July 2013
Mayer Brown JSM Legal Update

In Moulin Global Eyecare Holdings Limited (In Liquidation) v. Olivia Lee Sin Mei, the Court of Appeal dismissed the plaintiff's appeal for an order that the defendant disclose her insurance policy despite the fact it was referred to in her affidavit.

Background

Prior to Olivia Lee Sin Mei's (Ms. Lee) appointment as a director of Moulin Global Eyecare Holdings Limited (Moulin) between 2000 and 2004, she was a legal advisor to Moulin and continued to hold this post during her directorship at Moulin. Liquidators were appointed shortly after issues with the financial statements of Moulin group of companies arose. In 2008, Moulin commenced legal proceedings against Ms. Lee alleging that she was in breach of her duties as a director of Moulin. Proceedings were also brought against other parties for damages overlapping those claimed from Ms. Lee. Settlement agreements were entered into between Moulin and those other parties and such agreements were disclosed to Ms. Lee pursuant to a court order. That order limited the parties to whom the settlement agreements might be disclosed to members of a "confidentiality club" which included her solicitors and counsel. Ms. Lee then made an application to expand the confidentiality club to include her insurers, XL Insurance Company Limited, and in that application she made reference to and set out extracts from her insurance policy.

In the Court of First Instance, Moulin was unsuccessful in its application for an order under Order 24, rules 10 and 11 to have Ms. Lee make the insurance policy available for inspection and provide copies of it (O. 24 r. 10 permits a party to seek production of any document referred to in the other party's pleadings, affidavits or witness statements). The judge held that the content of the insurance policy was not relevant to the underlying dispute but only to her application to include XL Insurance in the confidentiality club, and that production of the policy would be prejudicial to Ms. Lee in that it would give Moulin a tactical advantage by providing it with knowledge of the details of her insurance arrangement, including the limit of cover.

On appeal to the Court of Appeal, it was argued that the judge in Court of First Instance erred in applying the legal test and that it was contrary to the underlying rationale of O.24, r.10. (that the rule was established with the intention to give the opposite party the same advantage as if the document had been fully set out in the interests of fairness and equality of information).

Test for an Order for Production for Inspection

In dismissing the appeal, the Court of Appeal held that the legal test was correctly applied. Any order for production for inspection under O.24, r.10 is subject to rule 13(1). Primarily, two stages are considered. First, the onus is on the party resisting disclosure to show good cause why an order for production should not be made. Second, and independent of the first stage, the applicant seeking an order for production bears the burden to show that the order is necessary either for disposing fairly of the cause or matter, or for saving costs. The court reiterated that O.24, r.13 allows for broad discretion, which reflects the underlying rationale stated above. However, exceptions to the general rule are allowed, such as irrelevance and privilege.

The Court of Appeal did not agree with Moulin's contentions that the judge's exercise of discretion was flawed in taking into account irrelevant considerations such as that Moulin would gain a tactical advantage to the prejudice of Ms. Lee if the policy were disclosed and that the policy was irrelevant to the issues between the parties in the main action. Agreeing with the First Instance Court, the Court of Appeal was of the view that disclosure of the policy would provide Moulin with a windfall and manifest advantage. The court also held that the judge was entitled to take into account the issue of relevance of the policy to the main action.

Conclusion

This case is quite unusual in that for most cases the fact that a party has referred to a document in his pleading will be a strong indicator of the relevance of the document and also of the necessity for its production. It is curious to note that it was not really necessary for Ms. Lee to refer to the insurance policy in her affidavit.

Nevertheless, as this case has shown, it does not always follow that a party served notice pursuant to O. 24 r. 10 is required to make documents available that are referred to in one's pleadings. It should be remembered that the court has broad discretion and looks into balancing the advantages and disadvantages of ordering the documents concerned to be disclosed. The issue of relevance of the insurance policy to the underlying dispute was a material consideration for the court in this case. But the court was also concerned about not conferring a tactical advantage if the plaintiff had the benefit of details of Ms. Lee's insurance coverage. In this respect, the decision raises an interesting debate as to whether or not insurance policies should be discovered in litigation. On the one hand, a case could be made that the plaintiff should be entitled to know about the extent of the defendant's insurance coverage (especially in the context of a claim by a liquidator). On the other, however, a respectable argument can be made that the defendant's insurance position is irrelevant and disclosure of the insurance policy will inevitably impact on its negotiation power. In that respect, insurers can breathe a sigh of relief.

Authors

  • Tow Lu Lim
    Partner
    T +852 2843 4490
  • Jenny W. Y. Yu
    T +852 2843 4445

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