McKillen v Misland (Cyprus) Investments Ltd & Ors

Where a party’s pleaded case depends on the ability to obtain finance, that issue remains subject to disclosure while it forms part of the case, even if the alleged financing was never completed. Standard disclosure may extend to funding discussions, proposed security and lending terms, together with financial documents relevant to a lender’s assessment of the party’s ability to service and repay a personal loan. The court should control the exercise by narrowing unnecessarily broad categories, managing timing, and protecting commercial confidentiality. A party must give a complete account of both actual discussions and discussions it says it would have pursued.

The petitioner claimed that shares held by one respondent should have been offered to other shareholders under pre-emption provisions. He pleaded that, if offered, he would have acquired some or all of those shares, using external finance if necessary.

The respondents applied under Civil Procedure Rules 1998, CPR 18.1 and CPR 31.12, for further information and specific disclosure. The application concerned the identity of potential funders, the amount and terms of proposed finance, security, and documents concerning the petitioner’s financial circumstances and previous funding attempts. The central issue was whether those matters were relevant and proportionate while the petitioner’s pleaded case remained that he could have completed the purchase.

1. Application granted in principle. The ability to raise finance was an issue in the pleaded case. It therefore attracted the disclosure provisions in CPR 31 while it remained part of the case, regardless of whether the petitioner could succeed on other issues without proving it.
2. The petitioner was required to provide a complete statement of his case. The requested information was to cover whether he had, or would have had, discussions with particular third parties or categories of third parties, their identity, the amount sought, proposed security, and the interest and fees he would have been prepared and able to pay. The hypothetical character of the uncompleted transaction did not remove the relevance of information about actual funding discussions and redacted term sheets.
3. Disclosure was required under CPR 31.6 for documents relating to attempts since the start of 2011 to fund either the purchase of the relevant parcel of shares or the purchase of all outstanding shares. Documents concerning indebtedness, substantial creditors and defaults, existing security, potentially available security, and security over the petitioner’s shares were relevant because the evidence concerned a personal loan and prospective lenders would be expected to assess serviceability, fees, repayment and bankruptcy risk.
4. The order had to remain proportionate. The court limited the categories to those identified in the draft order and required the broad category concerning general indebtedness to be narrowed. Timing was to be managed so that the discrete funding issue could be dealt with later in the trial, although documents concerning funding discussions had to be produced promptly.
5. The documents and information were to be subject to a confidentiality regime restricting access to the parties’ solicitors and counsel. Any relaxation, including access for an expert, required appropriate confidentiality undertakings or further court order.