Smailes & Anor v McNally & Ors

For an unless order requiring standard disclosure, the relevant question is whether the ordered reasonable search was conducted, not merely whether documents within the party’s control were later shown to have been omitted. A search is reasonable where it is conducted in good faith and is fair and proportionate, having regard to the number and complexity of the documents, the ease and expense of retrieval, and the significance of documents likely to be found.

A disclosure list need not contain information which does not exist or cannot reasonably be ascertained. Where parties have agreed, or knowingly accepted, an electronic disclosure methodology, the electronic disclosure practice direction may apply even though many underlying documents were originally in hard copy.

The liquidators brought proceedings concerning alleged fraudulent trading, wrongful trading and transactions involving Atrium Training Services Ltd, Kimberly Scott Services Ltd and Connor Williams Ltd. Earlier disclosure failures led Henderson J to order the liquidators to conduct a search compliant with CPR rules 31.6 and 31.7 and to provide a compliant list under rule 31.10, failing which the Atrium claims would be struck out.

The liquidators served a substantial electronic disclosure list, later supplemented by further documents. The former directors alleged breach of the unless order because relevant documents had been omitted and the list contained sparse descriptions. Respondents in the Connor Williams proceedings raised similar objections and sought an unless order. The central issues were whether the searches were reasonable, whether the lists complied with rule 31.10, and whether the scripts required formal disclosure in the Connor Williams proceedings.

1. The Atrium application was dismissed. The liquidators had complied with the order of 7 June 2013. The Atrium action was not struck out, and the court dismissed the application for judgment.
2. The order required a reasonable search for documents falling within CPR rule 31.6, conducted in accordance with rule 31.7, and a list identifying documents located by that search. A reasonable search requires identification, collation, review and listing of relevant documents, all undertaken reasonably in light of the factors in rule 31.7(2). Good faith is essential. The omission of documents later found to have been within the party’s control does not, without more, establish breach.
3. The court must assess whether a reasonable search occurred. It is not conducting a judicial review of the solicitor’s decision-making. The deficiencies must be sufficiently significant to support the inference that no reasonable search took place. The liquidators’ extensive, proportionate and good-faith exercise, although it missed scripts and bank statements through an innocent error, satisfied the order.
4. The Atrium disclosure list complied with CPR rule 31.10(3). The requirement to identify documents does not require a party to create information which does not exist or cannot reasonably be ascertained. Practice Direction 31B applied to the electronic disclosure exercise because the methodology was known and accepted by the parties, notwithstanding that most documents had originated in hard copy. The same conclusion applied in the Connor Williams proceedings, where the disclosure also included material from an electronic server.
5. The objections based on allegedly irrelevant documents were rejected because the applicants had not examined sufficient underlying documents to establish breach. However, the scripts were relevant to the value of Kimberly Scott Services Ltd and therefore required formal disclosure in the Connor Williams proceedings. No further unless order was imposed. The court made no determination on relief from sanctions and reserved further case-management directions.