Snowstar Shipping Company Ltd. v Graig Shipping Plc & Anor

Pre-action disclosure is discretionary and requires strict compliance with the conditions in rule 31.16. The applicant must identify a sufficiently credible prospective claim, the likely parties, and documents which would fall within the respondent’s standard disclosure obligation if proceedings had begun. Commercial applications are approached with particular caution where the claim is speculative, allegations of fraud are hinted at, or the request is broad and imprecise. The court must be clear about the likely issues and may refuse disclosure where privilege, commercial sensitivity or ordinary disclosure would make pre-action disclosure inappropriate.

Snowstar sought pre-action disclosure from Graig Shipping plc and Fortis Bank concerning a proposed purchase of a vessel using a UK tax lease structure. The transaction did not proceed after the relevant tax lease documentation was not completed. Snowstar contemplated arbitration claims in contract, misrepresentation and negligent misstatement, and sought documents passing between Graig, its representatives and the tax authorities.

The application was opposed on the grounds that the proposed claims were speculative, that the documents sought would not fall within standard disclosure, and that privilege and commercial sensitivity were engaged. The central issue was whether the conditions in rule 31.16 were satisfied and, if so, whether disclosure should be ordered.

1. The application was dismissed. Conditions (a) and (b) of rule 31.16 were satisfied because Snowstar and Graig were likely to be parties to subsequent proceedings. Condition (c), however, was not satisfied, and the court would in any event have refused disclosure in the exercise of its discretion.
2. Following Black v Sumitomo Corporation [2001] 1 WLR 1562; [2001] EWCA Civ 1819, there was no requirement that a claim itself be likely to be made. Nevertheless, the court had to approach a speculative commercial claim with caution. An allegation or hint of fraud did not assist an application unless supported by allegations possessing appropriate specificity and conviction.
3. The proposed contractual claim was accepted as passing the minimum credibility threshold, but it was thin and fragile. Questions remained whether the re-cap created a contract with Graig or with a Fortis-nominated entity, and whether the numerous contractual subjects permitted any obligation of reasonable endeavours to be identified.
4. The proposed misrepresentation claim was also speculative. Difficulties included attributing the brokers’ knowledge and state of mind to Graig and interpreting the communications as representations that tax approval was merely procedural or that prior contact with the tax authorities had occurred.
5. The request was wide and imprecise. Rule 31.16 requires an application to be crafted with care and limited to what is strictly necessary. The request included confirmation of dates which the court could not order, and sought material likely to be privileged or commercially sensitive. The issues concerning privilege and the extent of any disclosure obligation were better dealt with in ordinary disclosure after proceedings had commenced.
6. The principles concerning clarity of the prospective issues, stated in Bermuda International Securities Ltd v KPMG [2001] Lloyd’s Rep PN 392, were not met. The court could not be satisfied that the requested documents would fall within the respondent’s standard disclosure obligation. The decision in The Blankenstein [1985] 1 Lloyd’s Rep 93 showed that nomination arrangements could permit a contract with principals followed by novation, but it did not resolve the contractual issues on this application.
7. The application was therefore refused because condition (c) was not fulfilled and because disclosure was not considered appropriate in the circumstances. The parties were to be heard on costs.