DEREK JOSEPH PARRY AND ANOTHER v. NICHOLAS BRYAN BENTLEY AND ANOTHER

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H E A D N O T E

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Implied undertaking not to use documents disclosed in discovery for collateral or ulterior purpose - defendant's attempt to use letters disclosed as basis of new and separate action by counterclaim.

Held, in dismissing appeal, that leave was required releasing defendant from implied undertaking.

IN THE COURT OF APPEAL

1992, No. 184
(Civil)

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J U D G M E N T

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Nazareth, J.A. :

Introduction

1. The 1st plaintiff and the 1st defendant are both financial advisers. The 1st plaintiff is a director and shareholder of the 2nd plaintiff, and, likewise, the 1st defendant of the 2nd defendant. Each runs a business in Hong Kong as financial and investment advisers through his company. The 1st defendant is also a director and shareholder of an United Kingdom company which is a member of the Financial Intermediaries Managers and Brokers Regulatory Association ("FIMBRA"). In their statement of claim, the plaintiffs complain that the defendants libeled them in their bulletin dated 15th February 1990 by an article that suggested that parties seeking to use FIMBRA membership as some sort of credential which set them above other companies in Hong Kong, were misleading the public in Hong Kong. They aver that the words complained of meant and were understood to mean that the plaintiffs were deceitful and/or not trustworthy and that the 1st plaintiff had acted in an unprofessional and/or unethical manlier. They also aver that the statement was published maliciously. As one of only two FIMBRA members carrying on business in Hong Kong, they aver they suffered damage. In relying on malicious falsehood, the plaintiffs refer to the publication by the 1st defendant of a circular dated 1st August 1987. Publication of that circular did not lead to the actual institution of legal proceedings as the 1st defendant paid the plaintiffs legal costs of ￡250 and published a clarification.

2. The defendants in the present action plead justification of the words and meaning complained of, and fair comment. In January 1992 and later in May 1992, the plaintiffs on legal advice disclosed two letters dated 10th February 1988 and 28th January 1988 written by the plaintiffs with a view to dissuading FIMBRA from admitting the 1st defendant's company as a FIMBRA member. In those letters the 1st defendant was described in allegedly defamatory terms and the 1st plaintiff further suggested that there was clear documentary evidence to support his allegations, a suggestion which the plaintiffs contend the 1st defendant was not able to substantiate. The 1st defendant accordingly decided to counterclaim against the plaintiffs on the basis of those letters and express malice. In order to be able to rely on those letters he applied to the Master to be released from his implied undertaking not to use for a collateral or ulterior purpose documents that had been produced by the plaintiffs on discovery. Master Gold granted the application on the 1st September 1992. The 1st plaintiff appealed against that decision and on the 9th November 1992 Kaplan J. allowed the appeal, set aside Master Gold's order and refused to give the 1st defendant the leave he sought.

3. The 1st defendant now appeals and seeks the reversal of the order of Kaplan J. and that it instead be declared that the 1st defendant does not require leave to rely upon the two letters, or alternatively, that the order of Master Gold be reinstated and the 1st defendant be granted such leave.

The Law

4. A convenient statement of the fundamental principle involved, which principle Kaplan J. correctly identified, is to be found in paragraph 12.01 of Matthews and Malice on Discovery :

"Any party on whom a list of documents is served or to whom documents are produced on discovery or pursuant to an order of the Court impliedly undertakes to the Court that he will not use them..... for a collateral or ulterior purpose, without the leave of the Court or consent of the party providing such discovery."

The relevant authorities are detailed in the footnote relating to that paragraph. That principle was not disputed before us and we see no necessity to canvass the authorities relating to it.

Whether the 1st defendant requires leave

5. In contending that he does not require leave to use the two letters, the 1st defendant in his notice of appeal relies upon the grounds that the judge erred in law in holding that he "required leave frown the Court before he can use the letters disclosed by the Plaintiffs in raising a cause of action by way of counterclaim", and "in equating a counterclaim with the institution of fresh proceedings". Mr John Griffiths, Q.C. for the defendants, who did not appear below, pursues those grounds in the following way. He submits that it has never been considered as a collateral or ulterior purpose for a party to rely on documents disclosed by the other party to formulate an additional cause of action or defence in the action. On the contrary, the authorities suggest that a party can use documents obtained from discovery (or by way of subpoena duchess mecum) to formulate an additional cause of action against a party making discovery or against other parties provided this is done in the same litigation. He cites in support the following authorities. First, paragraph 12.15 of Matthews and Malice on Discovery, in which it is stated that:

"It is not a collateral or ulterior use to use documents disclosed on discovery for the purposes of adding new causes of action or parties to the action in which the documents have been disclosed. Joinder of additional parties as a consequence of discovery is a common procedural occurrence."

In respect of the latter sentence Sybron Corp. v Barclays Bank Plc [1985] 1 Ch.299 at 328, is cited as authority in the footnotes. However, Scott J. in stating in that case that "Joinder of additional parties as a consequence of discovery is a common procedural occurrence" was addressing the question whether leave to use discovered documents should be granted, and not whether that purpose was ulterior or collateral. Clearly what he was saying was not that leave was not required, but that for the purpose of joinder of additional parties in consequence of discovery, leave should be granted; and likewise that leave should be granted "...if, instead of joinder, a new action is started, the substance of the situation [not seeming to him to be] relevantly different". Paragraph 12.15, therefore, in our view does not avail the 1st defendant.

6. In Riddick v Thames Board Mills [1977] QB 881, upon which Mr Griffiths also relied, the plaintiff in his first action sued his employers for wrongful dismissal, and secured discovery of a memorandum dealing with the circumstances of his dismissal. Upon the strength of that memorandum he subsequently successfully sued his employers for defamation. In allowing the employers' appeal, the Court of Appeal held that the plaintiff was not entitled to use the memorandum as the basis for the subsequent defamation action. Stephenson LJ at pp.902 - 903 said this:

"There may be cases in which a plaintiff would be justified in bringing an action on a document disclosed in an earlier action. I do not say it could never be done without abusing the process of the court. But generally speaking it will be an abuse of its process and in the circumstances of this case the plaintiff's use of this memorandum is an improper use which the court should not countenance. I see no reason why he could not have done justice to himself - and to the company - by amending his writ in the 1969 action to add the claim which he delayed in making until he pleaded .... his statement of claim in the 1972 action and is making in this action."

Mr Griffiths seeks to rely upon the latter part of the foregoing passage. However, as pointed out by Kaplan J., it is in the first place obiter. Secondly, it appears to be equally consistent with the additional claim being proceeded with only upon the basis of leave to be obtained from the court. That this passage was relied upon by the editors of Gatley on Libel and Slander, 8th ed. para.1210 and that it did not attract any adverse comment in Harman v Secretary of State for the Home Department [1983] AC 280, as urged by Mr Griffiths, does not in our view take the matter any further.

7. Mr Griffiths also referred to Marcel v Metropolitan Police Commissioner [1992] Ch.225 at pp.230, 233 and 252. The defendant in that case had to rely on documents obtained under a subpoena, to reamend his defence and counterclaim so as to raise new allegations of fraud, which he would not have been able to formulate without the documents obtained. Mr Griffiths points to the absence of any challenge by the plaintiff or suggestions by the Court of Appeal or trial court that there was any impropriety in the defendant seeking to rely on those documents. We do not think very much can be made of this; the point simply does not seem to have been taken.

8. In Harman v Secretary of State for the Home Department, their Lordships referred variously to the implied obligation not to make use of the documents discovered for any purpose or use other than "the proper conduct of the litigation in the course of which the order was made." (Lord Keith at p.307F); "in the litigation" (Lord Scarman at p.313E); "in furtherance of the litigation between them", and "in the litigation against the party who has disclosed and produced them" (Lord Roskill at p.323B and C). The implication of these expressions that is relied upon, i.e. that the document can be used without leave so long as such use is in the same litigation, is too facile. Their Lordships were not addressing the question here i.e. whether the documents could be used without leave to mount a new and quite separate action, simply by bringing it in the same litigation. We do not read those passages as being authority for the proposition sought to be implied.

9. We take a similar view of Wilden Pump and Engineering Company v Fusfeld [1985] FSR 581, upon which Mr Griffiths also relied. Falconer J. having there reviewed the authorities including Harman, at p.605, concluded -

"... the implied undertaking given by a solicitor to a party, in civil litigation, to whom discovery had been given by the other party, to be that the disclosed documents will only be used for the purpose of the proper conduct of the litigation in furtherance of his client's case and that he will not himself use or allow his client or anyone else to use the disclosed documents for any collateral or ulterior purpose not reasonably necessary for the proper conduct of the litigation on his client's behalf."

He held that the use of the documents disclosed in the litigation to commence another action which was in furtherance of the case in the first litigation was not a breach of the undertaking. We here are of course concerned with use within and not outside the present litigation. In our view, what is significant in the conclusion Falconer J. expressed in the foregoing passage, is that the implied undertaking is that the "documents will only be used for the purpose of the proper conduct of the litigation in furtherance of his client's case" i.e. in the instant case the 1st defendant's defence to the plaintiffs' claim, which relates to the libel alleged by the plaintiffs and not the separate and different libel alleged by the 1st defendant. Even if for argument it be assumed, and it is not necessary here to do more, that the numerous references in the relevant authorities to the "litigation" or "action" were intended to confine the use of document to the litigation or action in which they were discovered, that does not mean that they could be used for a collateral or ulterior purpose in such litigation or action. In our view a counterclaim by the defendant, particularly one that is almost totally unrelated to the plaintiffs' claim, must at least be collateral or ulterior to the latter. It is not and cannot be pleaded as set-off (see Axel Johnson Petroleum v M.G. Mineral Group [1992]1 WLR 270). Nor is the counterclaim pleaded as a defence; it would, for example, not fall away with abandonment of the plaintiffs' claim, but would survive as the independent action it is, enabled to be brought alongside the plaintiffs' action by relatively recent amendment to the Rules of the Supreme Court.

10. Reverting to Mr Griffiths' submissions, even if we were persuaded that a plaintiff can without leave rely on documents produced on discovery (or subpoena) to plead an additional cause of action against the defendant or other parties, a matter upon which we do not find it necessary to make any finding, we do not think it would necessarily follow that the defendant must likewise be entitled to rely on documents so obtained to plead an additional cause of action in a counterclaim. However that may be, the appropriate conclusion may not be that the defendant should likewise be entitled to rely upon additional causes of action, but rather that the practice of permitting plaintiffs to do so should be examined in relation to the fundamental principle addressed in this appeal. As to there being no reason why a defendant should not amend his existing counterclaim to plead an additional cause of action based on documents discovered or, having pleaded a defence based on such documents should not plead a counterclaim as well, which Mr Griffiths also urges, again we think that these also are matters that are to be weighed in granting leave and not such as take the use of the documents outside the categorisation of collateral or ulterior.

11. Mr Griffiths pointed also to the following manner in which the judge dealt with the matter at pp.10 and 11 of his judgment:

" There is no getting away from the fact that the counterclaim which Mr Bentley wishes to raise could have been raised as an independent action. The counterclaim in this case is an independent action. The cause of action in the claim and the proposed counterclaim are not identical. Rules of Court permit the counterclaim to be made in this action, although it relies on a completely different event. I have no doubt that if Mr Bentley wished to institute fresh proceedings based upon this material, he would have to obtain the leave of the court to use it. It does not seem to me to make any difference that by Rule of Court he is permitted to raise this cross-action in this action itself. It seems to me that the principle that I have outlined above must apply equally to this situation as it would to a fresh action.

I have given very careful consideration to the way in which Mr Yu has attractively put his case, but I am quite satisfied that leave is required in this action. This is not one of those cases where the disclosed material assisted the party in relation to an action already commenced. Use of the disclosed material is the only way in which the Defendant can maintain his counterclaim which is, as I have said, an independent cross-claim."

Mr Griffiths submits that the reasoning is a non sequitur. For the reasons we have already given, we do not find it necessary to say more than that in our judgment the judge was right in concluding that the defendant is not entitled to use the letters disclosed in support of his counterclaim without the leave of the court. It may be that in reaching our conclusion we have not followed entirely the same route.

Whether leave was rightly refused

12. The second limb of the 1st defendant's appeal is that the judge erred in the exercise of his discretion in refusing leave. In recognition of the limited scope for interference on appeal with the exercise by the judge of his discretion (see Hadmor Productions v Hamilton [1983]1 AC 191) this ground is pursued on three bases, that the judge erred first, in failing to take into consideration certain relevant matters; second, in taking into consideration certain other matters; and third, in attaching too much weight to the fact that the use of the disclosed documents by the 1st defendant in the counterclaim will be a disincentive to full and frank discovery by the plaintiffs.

13. It is not in dispute that the court does have power to grant leave (Crest Homes v Marks [1987]1 AC 829). But it is contended on the 1st defendant's behalf that in Crest, the two actions were in substance a single set of proceedings; that similarly in Sybron v Barclays Bank [1985]1 Ch 299 the second action has to be instituted entirely for technical reasons; and that likewise here there are not two actions but only one. We are not able to agree that the claim and the counterclaim can be regarded as one action. The plaintiffs' libel alleged in the 1st defendant's counterclaim, and the defendants' libel alleged in the statement of claim are clearly separate and distinct, and the linkage in the animosity between the parties and its origins in no way warrant the two matters being regarded as the same action in substance. Nor, in our view, would the claim and the counterclaim being made in the same proceedings or litigation, warrant leave being readily given, particularly if the causes of action were in fact substantially unrelated. However that may be, the second limb of the appeal falls to be determined by reference to the individual matters relied upon in support of the three grounds upon which this Court is invited to upset the exercise of the judge's discretion. Kaplan J. listed six matters by reference to which he exercised his discretion in refusing leave; we address them seriatim in the same order as Mr Griffiths.

(1) "If leave were to be granted, it would act as a disincentive to full and frank disclosure upon which our system so heavily depends".

Mr Griffiths submitted that this consideration cannot be taken too far. If one party can rely on the disclosed documents to formulate an additional cause of action, which in itself is a disincentive to full and frank disclosure, why, he asked, should not the other party be entitled to do so. The judge, he submitted, evidently attached too much weight to this factor.

14. However, there does not appear to us to be any evidence or clear indication of undue weight having been given to this factor. Clearly the judge did give it some weight. In our view he was entitled to do (see e.g. Riddick at pp.896, 912; Dory v Wolf [1990]1 FSR 266 at 271).

(2) "The plaintiff would suffer substantial prejudice. Not only would his action be delayed but he would have to face a defamation action with the risk of damages and costs being awarded against him. For this situation to arise where he has, on advice, made disclosure of these documents in the light of the undertaking would amount to a serious prejudice to the Plaintiff."

It was submitted that the judge was clearly wrong. The plaintiffs themselves had introduced the 1987 publication and then disclosed the two letters which were only concerned with that matter. Whether they did so on advice is irrelevant. Since they rely on the letters it is not unfair that they should have to meet a claim founded upon them. Finally, the delay arises out of the plaintiffs' late discovery.

15. There is obviously something in these complaints. But having considered them, we are not persuaded that the judge was wrong in concluding that there would be serious prejudice to the plaintiffs and in having regard to such prejudice.

(3) "Although there is the nexus of animosity between these parties, nevertheless the 2 alleged libels are separated by 2 years and were published in different jurisdictions."

Mr Griffiths submitted that the judge was also wrong here and failed to consider relevant facts or misapprehended them. Again we are not persuaded that this is so nor, in relation to the separation by two years of the alleged libels, that the judge failed to bear in mind that it was the plaintiffs that introduced the earlier publication, as Mr Griffiths complained.

(4) "The facts of the case before me are totally different to those in Crest and Sybron."

As we have already indicated, we think that the judge was right.

(5) "There are no special circumstances here other than that the Defendant would like to counter attack on the basis of documents he would never have seen were it not for the Plaintiff's full and frank disclosure. The desire of the Defendant to obtain redress is not a sufficiently important fact to override the undertaking."

The grounds relied upon here were the same as those in relation to (2) above. Again, we agree with the judge.

(6) "To permit use of these documents to found an otherwise unsustainable cause of action would so undermine the effect of the undertaking that a most unfortunate precedent would be set."

It was submitted that the Court should exercise its discretion by reference to what is just and fair and should not refrain from doing so by considerations of whether it would set an unfortunate precedent.

16. In our view the basis of this complaint is largely somatic and has no merit in substance.

Conclusions

17. In our judgment therefore, there is no substance in the foregoing specific complaints. Neither they nor Mr Griffiths' submissions generally provide any ground that would entitle this Court to interfere with the judge's exercise of his discretion to refuse leave.

18. To sum up, we do not accept that as a matter of law, a defendant is entitled to use, without the leave of the court, documents disclosed by the plaintiff in discovery, to mount in effect a new and separate action even if it be by way of counterclaim in the same action. In our view the judge was entitled to refuse leave; indeed we think he was right to do so particularly in the light of the very tenuous connection between the two causes of action.

19. For the reasons we have endeavoured to give, we dismiss the appeal and make an order nisi that the plaintiffs are to have their costs of this appeal.