BERMUDA INTERNATIONAL SECURITIES LTD v KPMG (A FIRM)

Pre-action disclosure under rule 31.16 of the Civil Procedure Rules 1998 requires sufficiently clear anticipated issues and documents falling within the respondent’s prospective standard disclosure obligation. Once those jurisdictional conditions exist, the court must decide whether disclosure would promote a specified purpose and whether, after balancing all relevant considerations, an order is desirable.

The applicant ordinarily bears the costs of providing disclosure. The court may depart from the usual costs order for the application where the respondent has resisted it unreasonably.

An investment trust manager anticipated professional negligence proceedings against the trust’s former auditors and tax agents. It alleged failures concerning systems for monitoring the trust’s compliance with tax-related investment limits. Timothy Walker J ordered disclosure of specified documents from the audit and tax files under section 33 of the Supreme Court Act 1981 and rule 31.16 of the Civil Procedure Rules 1998, but made no costs order in favour of the prospective defendant.

The prospective defendant appealed against both pre-action disclosure and the costs decision. The central questions were whether the jurisdictional requirements had been satisfied, whether disclosure was desirable, whether the documents were sufficiently specified, and whether the usual costs rules should apply.

1. Appeal dismissed, subject to agreed variations. Waller LJ held that the judge had correctly exercised his discretion to order pre-action disclosure. Clarke LJ agreed with Waller and Rix LJJ. Rix LJ agreed with Waller LJ and added reasons concerning pre-action protocols.

2. Rule 31.16 permits an order only where the documents sought would fall within standard disclosure if proceedings had begun. The court must therefore be sufficiently clear about the likely claim, defence and issues to determine whether the documents would adversely affect or support either party’s case.

3. The court must then assess whether disclosure would dispose fairly of the anticipated proceedings, assist resolution without proceedings or save costs. Even where one of those purposes would be served, the word “desirable” requires a further balancing exercise. An order may, for example, be undesirable if it would impose an unfair burden on the prospective defendant.

4. The judge had identified the likely issues and confined disclosure to documents concerning the central dispute over compliance with the relevant investment limits and management agreement. Disclosure could reduce pleading and amendment costs and could promote settlement or abandonment of an unsustainable claim. KPMG had already reviewed the material, so production imposed no material additional burden. The possibility that later case management might narrow disclosure did not invalidate the order.

5. Rix LJ held that the likely issues and the documents or classes of documents were identified with sufficient precision for section 33(2) of the Supreme Court Act 1981 and rule 31.16(4)(a). Subsequent fine-tuning of the order did not undermine jurisdiction.

6. The Court declined to formulate general guidelines at this early stage of the rule’s operation. The range of potential cases made development through judicial case management and relevant approved protocols more appropriate.

7. Rule 48.1 created a presumption that the applicant would pay both the costs of the application and the costs of compliance. The judge could deprive KPMG of its application costs because it had resisted disclosure unreasonably. BISL nevertheless had to pay the costs of producing the documents. The order was also clarified and given an end date for the tax documents.

1. Court of Appeal (Civil Division): Dismissed the challenges to pre-action disclosure and application costs, but varied the order so that BISL would pay the costs of producing the documents and so that its scope and end date were clarified.
2. High Court, Queen’s Bench Division (Commercial Court): Timothy Walker J ordered pre-action disclosure on 9 June 2000 and declined to award KPMG the costs of the application or compliance. He refused permission to appeal.