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Contempt: The perils of legal discovery

24 August 2017 by Paul Harris

Contempt: The perils of legal discovery - Read more

A recent action for trademarks and competition illustrates the risks around contempt proceedings and proper use of disclosure.

The convoluted case of Grosvenor Chemicals Ltd and Ors v UPL Europe Ltd and Ors involved three sets of parties.

First, the UPL parties, who were the claimants in the pre-existing main claim, but defendants in the contempt proceedings; second, the ACA parties, defendants only in the main claim who played no part in the contempt proceedings; and lastly the C&W parties, who were the claimants in the contempt proceedings, joined defendants in the main claim.

Restricted use

In an action for trademark infringement and effectively unfair competition (the ‘main claim’) against the ACA parties, the UPL parties sought a pre-action disclosure order against a potential new defendant, the C&W parties, who were later joined.

That disclosure order contained a specific undertaking from the UPL parties that any discovery documents located could only be used ‘for the purposes of these proceedings (including adding further respondents) or commencing civil proceedings in relation to the same or related subject matter to these proceedings or obtaining evidence’.

A subsequent consent order agreed between the parties omitted these restrictions. However, Civil Procedure Rules (CPR) r31.22 contains a specific restriction that disclosure of any document in proceedings may only be used for the purposes of the proceedings for which it was disclosed.

This puts into effect procedurally the ‘implied undertaking’ given by solicitors to the court not to use discovery documents for any ‘collateral purpose’.

“According to the UPL parties’ solicitors, the email was proof that the C&W parties were selling counterfeit product”

For many months following disclosure by the C&W parties, the solicitors acting for the UPL parties failed to realise the significance of the contents of some of the documents disclosed – or so they say.

One email passing between the C&W parties made reference to an ex-UPL employee, who was aware of the UPL parties’ agrichemical formulation and who appeared to have told the C&W parties about a specific formulation.

This is because the email stated: ‘We [and the ex-employee] went through our formulation and we have been selling it as a direct match.’

According to the UPL parties’ solicitors, the email was proof that the C&W parties were selling counterfeit product and the ex-employee had divulged confidential information about the formulation of their product.

The UPL parties’ solicitors wrote letters to the C&W parties, and to the ex-employee threatening him with ‘new’ proceedings. At the time (late November) there were only a few months left until the April trial date in the main claim. As those letters formed the basis of the application for permission to bring contempt proceedings, the judge considered them carefully.

Letters of the law

First, as is often the case, the solicitors made various accusations about the status of the ex-employee, his knowledge and what it was that the UPL parties also knew, or should have known.

Next, the solicitors required various information and disclosure, including the chemical formula of the alleged infringing product, which they claimed was counterfeit. The solicitors’ letter contended that further applications for specific disclosure would be made and ended by reserving all their client’s rights.

The letter to the ex-employee was similarly forthright and required them to divulge certain information. Unfortunately for the solicitors, the letter concluded with threats about bringing proceedings, stating the ex-employee should seek independent legal advice, but making clear proceedings would be issued against him – but not that he would be joined in the existing proceedings.

This showed the disclosure of the documents in the main claim was being used for the possibility of bringing new proceedings against the ex-employee for breach of confidence, a cause of action not in the main claim.

“Unfortunately for the solicitors, the letter concluded with threats about bringing proceedings”

The C&W parties’ solicitors wrote back robustly, pointing out such use was a breach of CPR r31.22. Accordingly, as there were no grounds, UPL parties’ solicitors were required to notify the ex-employee as such – in the absence of any court order granting permission for such use.

The response from the UPL parties’ solicitors was to provide amended pleadings to the main claim, adding the cause of action and also adding the ex-employee to the proceedings. The UPL parties’ solicitor’s letter also pointed out that it was not ‘collateral use’ to seek to add a new cause of action.

However, they acknowledged that if the court considered that separate proceedings were required, then they would need the court’s permission to use the documents. To avoid this, the solicitors sought agreement to what they were seeking to achieve and considered there would be no ‘prejudice’ in preparation of this part of the claim – despite there being less than three months until the trial.

Increasingly heated correspondence then ensued between the lawyers and only then did the UPL parties’ solicitors see that an apology might be warranted to quell the growing threat of contempt proceedings.

Needless to say, that apology was considered to be too little, too late and the proceedings were launched – with the UPL parties seeking permission to use the documents, if this was needed.

Beneath contempt

Perhaps unnecessarily, the C&W parties’ solicitors made two pointed barbs in respect of the UPL parties’ solicitors’ belated apology, saying:

‘These are all crocodile tears expressed now it is apparent that the correspondence will be put before the court because the 10 January letter has not done the trick. I therefore dismiss the 26 January letter as a mere exercise in hypocrisy.’

Similarly, in respect of the late-seeking of the court’s permission to use the documents, they commented it was ‘surely like putting the money back in the till after one has been caught with one’s hand in it’.

Against that backdrop, the judge considered the approach to be taken as to whether to give permission to commit a party for contempt. First, there must be a deliberate or reckless breach of CPR r31.22, in other words knowing the disclosed documents are subject to it, but ignoring that fact.

Second, this must be proved beyond reasonable doubt by the party seeking committal.

The court also had to consider whether it was in the public interest to order committal proceedings because important lessons will be learned, as well as the relative strengths of the case.

“The late-seeking of the court’s permission to use the documents, they commented, was ‘surely like putting the money back in the till after one has been caught with one’s hand in it’”

The judge pointed out it was often the case after disclosure that an additional cause of action would be sought to be added, or an additional party joined in. But as ‘new proceedings’ had been threatened against the ex-employee, use of the disclosed documents was a breach of CPR r31.22, even though the letter to the C&W parties was not.

The judge concluded that the UPL parties’ solicitor’s breach was not deliberate, because the partner’s evidence showed he truly believed the use fell within the ambit of CPR r31.22. There was also no public interest in allowing contempt proceedings in this case. The application was therefore dismissed.

No clear winner

The most likely satisfied party with the outcome, despite seemingly losing, is the C&W parties. The reason is that their tactic meant that the trial in the main claim took place without the confidential information claim being heard.

It is true that the UPL parties did not want this added as it stood at the time, but it will have robbed them of the chance to have the ex-employee in the witness box.

If, as they would have expected, he was shown to be a ‘bad egg’, that smell would have tainted the C&W parties’ defence in the main claim and meant success for the UPL parties. Having this put off, therefore, benefitted the C&W parties the most.

The case highlights the importance of disclosure, but equally that a parties’ openness on disclosure should not be abused, and without the court’s express permission the documents should not be used for other purposes.

Equally, it shows the dilemma sometimes faced by judges to do justice to a situation. Here, the judge considered the UPL parties’ solicitor’s position only from the angle of whether his action was deliberate.

Given the test refers to ‘reckless’, the judge also should have considered that. The question the judge should have asked, given the lawyer was aware of a risk of falling foul of CPR r31.22, was whether in the circumstances known it was unreasonable to take the risk. That answer is less clear.

Paul Harris is a partner at Venner Shipley

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