When conducting complex litigation, important issues can arise during the conduct of the case, in addition to the issues for trial. Disclosure, specifically the confidentiality of potentially discloseable documents, can raise problems for any financial institution that finds itself embroiled in litigation, due to the sheer volume of data present in modern litigation (generated from even the most simple financial transactions). Fortunately, the recent judgment of Mr Justice Hildyard in SL Claimants and MLB Claimants v Tesco PLC  EWHC 3315 (Ch) has served to remind litigants of a number of points in relation to disclosure on complex disputes, especially in light of the overriding objective.
Following the Tesco accounting scandal of 2014, two actions against the multi-billion pound grocer were launched by the Claimants in FL-2017-000001 (the "SL Claimants") and in FL-2016-000019. The SL Claimants, who made their claims under section 90A and Schedule 10A of the Financial Services and Markets Act ("FSMA"), are seeking to recover the substantial losses they claim to have suffered on their investments in Tesco, which they allege were made in reliance on the misleading financial information that Tesco published.
In the latest of four Case Management Conferences held in these proceedings1, the Court ruled on a number of issues relating to disclosure. While the judgment may not raise any new points of law, it does offer some practical guidance that can be implemented, including in relation to:
- the interaction between a loss in confidentiality and the loss of privilege over information contained in a document referred to in open court;
- the continued importance of proportional disclosure under the new Disclosure Pilot (set out in Practice Direction 51U of the Civil Procedure Rules), even for wide-ranging disclosure under Model E of the Disclosure Pilot; and
- the tension between the right to receive proper disclosure in a way that allows a party to test the other side's case against the legitimate commercial desire to protect highly confidential information, processes and materials.
The judgment also briefly highlighted the importance of making applications for letters of request (which are issued by the English Court to Courts in other jurisdictions with a view to obtaining documents from those jurisdictions) in a timely manner. Whilst this update does not deal with letters of request, parties making such requests should always be mindful of the practical implications that obtaining information from a foreign jurisdiction may have on the timetable and date for trial. For further guidance on letters of request and issues of "relevance" please also see: https://www.mayerbrown.com/en/perspectives-events/publications/2019/03/english-courts-dealing-with-letters-of-request-from-foreign-jurisdictions--ensure-the-client-is-prepared.
Loss of confidentiality in a document is a question of degree
A point of some importance considered by the Court was whether the SL Claimant's application for the production of the "Majid Note" was valid. The Majid Note contained a "first account" given to Tesco's external lawyers of how Ms Kay Majid (a senior lawyer at Tesco) came to know of the accounting practices that led to Tesco's alleged commercial income overstatements. It was the view of the SL Claimants that the Majid Note contained information that would help to support their allegations that the alleged wrongful practices were well known to certain senior management staff for a significant period of time prior to the August 2014 trading update. In the separate criminal proceedings the Serious Fraud Office ("SFO") had brought against former Tesco executives regarding the overstatements (all of whom were acquitted), Tesco had provided the Majid Note to the SFO pursuant to a limited waiver of privilege.
For the purposes of this hearing, it was accepted by the parties that the Majid Note was originally subject to legal professional privilege. The issue before the Court was whether confidentiality in the Majid Note had been lost during the criminal proceedings brought by the SFO. During those criminal proceedings Sir John Royce, the trial judge, was invited by the defence to read the first three pages of the Majid Note to himself, which he did. Further, counsel for the defendants and counsel for Tesco quoted small extracts of the Majid Note, and it was summarised (without specific reference to its contents) in open court.
The SL Claimants contended that as a result the Majid Note was no longer privileged. They advanced two arguments: first that "sufficient publicity" had been given to the contents of the Note such that the information in it could no longer be regarded as confidential; secondly the references to the Note in open court, though not of themselves sufficient to destroy confidentiality, engaged the principle of "open justice", which gave the SL Claimants a right of access to it so that the basis on which the matter had been decided could be properly understood. The SL Claimants argued that both tests were satisfied in this case.
Tesco on the other hand argued that whilst confidentiality might have been lost over the specific information that was referred to in Court (which in these circumstances was limited), this did not amount to a loss of confidentiality, or waiver of privilege, over the whole document. Tesco further argued that in accordance with the Criminal Practice Directions disclosure on the basis of "open justice" only applies to parts of a document actually read aloud, and does not give any access as of right to the document itself.
Mr Justice Hildyard agreed with Tesco and determined that:
- There is a distinction between the information contained in a document and the document itself. Confidentiality in the document is lost as a matter of degree – and in this case the references in public did not constitute a loss of confidentiality in the Majid Note itself.
- It was unlikely that an application under the Criminal Rules would have led to disclosure of the Majid Note (and he saw no reason why the civil rules should be different), as it was not necessary to:
a. understand what was going on, or
b. enable the public to understand the Court's approach as to whether or not to resolve a related issue in the criminal proceedings, namely whether to issue a witness summons to produce a similar note recorded by Mr Morris (General Counsel at Tesco).
- As a consequence, confidentiality in the document was not lost.
Practically speaking parties should be advised to continue to take extreme care in referring to privileged material in proceedings (or at all), as the judgment also highlights potential pitfalls parties may fall into. For example, while the Court did not accept the "open justice" argument on the facts of this case, the judgement left the door open for the Court ordering disclosure on this basis, even in circumstances where the "degree" of publicity given to the information in the document would not normally amount to loss of confidentiality over the document as a whole.
The continued importance of proportionality
The judgment is also notable for Mr Justice Hildyard's comments that disclosure under Model E of the new Disclosure Pilot should at all times be true to the principles of proportionality and reasonableness, even in a case of this "magnitude and complexity".
The key point from Mr Justice Hildyard's treatment of the parties' approaches to disclosure under the Disclosure Pilot in these proceedings is that the parties have to be able to show that the scope of disclosure sought is not only proportionate in terms of time and cost but also necessary to determine the point in question. Practically therefore, parties should be aware that the selection of Model E disclosure is not going to be a "blank cheque" to apply for significant volumes of information during disclosure. This emphasises that parties should take great care when agreeing the original parameters of disclosure.
Confidentiality vs. the right to proper disclosure – an unavoidable tension?
The judgment also touches on the delicate balance that the Court has to strike between allowing parties to maintain confidentiality over commercially sensitive material and the burden on the parties to give full and proper disclosure to the other side.
A crucial aspect of the claim is reliance – namely, whether investors relied on statements made by Tesco when deciding to invest in Tesco. From Tesco's perspective, it was therefore important to understand what factors investors took into account when deciding to invest. To this end, Tesco requested disclosure of the underlying formulae contained in an investment model used by the investment manager for one of the SL Claimants, the Frankfurt Trust. Tesco wanted to run its counterfactual scenarios through the model to determine whether it would return a buy, sell or hold result. The SL Claimants did not dispute that Tesco was entitled to disclosure of the model but, because of its highly sensitive nature, they were only willing to disclose it under circumstances where they could ensure its confidentiality.
The SL Claimants had therefore proposed that Tesco could submit the information for the counterfactuals that it wants to run, which the SL Claimants would review for relevance, then the Frankfurt Trust would run the experiments via recorded video link with both parties present. The results of the experiments would form the basis for a witness statement or an agreed set of facts between the parties. Tesco rejected this approach on the grounds that (i) it deprives them of the flexibility they are entitled to have to test the model with its various counterfactual inputs, and (ii) the supervision of this process by the SL Claimants would amount to their "peering in" to Tesco's preparations, which would otherwise be privileged. They also noted that no other claimant that had used a computer model had refused disclosure and that as a claimant – which had voluntarily engaged the court process – the Frankfurt Trust was bound to abide by the rules of the Court.
The judge concluded that on balance he did not consider that the proposal put forward was sufficient to discharge the burden that is on the SL Claimants, and in particular the Frankfurt Trust, to give proper disclosure. While he emphasised that parties should not be required, as the price of vindicating their rights, to prejudice their proprietary rights, he considered that less intrusion and greater flexibility needed to be afforded to Tesco. The judge, having suggested the use of a trusted third party as a potential solution, left it to the parties to re-address the balance between these competing rights and agree a way forward. He noted that if that was not possible, he would have to adopt the "blunt and binary approach left to the court".
Complex litigation can raise important issues during the life of the claim; particularly where there is a tension between the conflicting rights of the parties. Sometimes the tension is a question of degree, such as the issue of when confidentiality in a document is lost such that it becomes discloseable. In such cases, the parties will often have no option other than to invite the Court to decide the point. However, where the tension is a question of practicality the Court will normally prefer that the parties work collaboratively to reach a mutually acceptable solution where possible - such as on the issue of complying with disclosure obligations whilst seeking to preserve proprietary rights.
This judgment of the High Court underlines not only the overriding objective of the CPR, that cases must be dealt with justly and at proportionate cost, but also the explicit obligation in the CPR that the parties "are required to help the court further the overriding objective" – which the parties must not lose sight of even whilst they are engaged in serious and complex litigation.