Strike Out: the ultimate sanction for deficient discovery
- The Royal Court has, in recent decisions on appeal from the Master, affirmed the central importance of compliance with discovery obligations. Failure to give proper discovery can lead to a case being struck out without trial.
- In two 2021 decisions, Huda v Minister for Health and Social Services  JRC 196 and Sheyko v Consolidated Minerals Limited  JRC 267, the result of appeals to the Royal Court was that one party’s case was struck out for serious discovery failings. In a third, Hard Rock Limited v HRCKY Limited  JRC 172, the Royal Court upheld the Master’s decision not to strike out.
- Baker & Partners acted for Mr Sheyko, the plaintiff in the second of those two cases. In that case the Master’s decision in 2020 to strike out the defence case was upheld by the Royal Court on appeal in 2021. The Court of Appeal refused leave to appeal that decision. An application to the Privy Council for permission to challenge the strike out decision by way of a petition of doléance was refused in November 2022.
- These cases are stark reminders of the importance of adherence to the Practice Directions on Discovery (RC17/07) and on Discovery of Documents held in Electronic Form (17/08), which require parties to take immediate steps to preserve documents once litigation is in prospect. PD17/08 states:
Preservation of Documents
- As soon as a party is aware that litigation is contemplated, that party must immediately take all reasonable steps to ensure that potentially discoverable Electronic Documents are preserved.
- As soon as a party retains a legal representative, that legal representative must inform its client of the need to preserve all potentially discoverable documents including Electronic Documents.
- The party and its legal advisers in either case shall take all reasonable steps to ensure that no potentially discoverable document is destroyed pursuant to any document retention policy or otherwise in the ordinary course of business.
- The party and its legal advisers may be required to provide information to the Court and the other parties to demonstrate it has fulfilled its obligation to preserve documents by reference to the questions set out in schedule 1 to this practice direction.
- In both Huda and Sheyko the claims arose from disputes arising from an employment contract, and there were serious deficiencies in discovery arising from the failure to preserve material.
- In Huda the defendant employer failed to take steps to preserve emails of other employees and former employees, with the result that important emails were deleted some time after litigation began. Master Thompson held that while there had been a breach of an unless order to give discovery, nevertheless a fair trial was still possible so the case should continue. He found the decision to be finely balanced, but after analysing the impact of the missing emails he concluded that there was sufficient material available from other email accounts to enable a fair trial to take place. He declined to strike out the defence case.
- However on appeal Le Cocq, Bailiff held that the balance fell the other way. He declared that where the breach was of an unless order, and may have prejudiced the other party, then other than in the most exceptional circumstances the defaulting party’s case must be struck out. Paragraph 53 of his judgment reads:
“It is always uncomfortable for a judge to strike a case out other than in the plain circumstances where it is without merit. However, orders of the Court are to be followed and in my judgment a breach of an unless order (which is already an extremely serious order and should have placed the Defendant on the highest possible alert to comply with it) which may have prejudiced the party who, in terms of the breach of the order, is the innocent party must it seems to me other than in the most exceptional circumstances be met with the natural consequences of that breach – namely that the pleading is struck out.”
- In Sheyko the Master struck out the Answer and Counterclaim at first instance, and entered judgment on liability in favour of the plaintiff, as a result of breaches by the defendant (“CML”) of discovery orders. CML had failed to preserve key communications between people central to the case, and had then sought to withhold discovery of material it had obtained. The Royal Court (Commissioner Clyde-Smith and jurats) upheld the strike-out decision on appeal.
- In Hard Rock, the Master concluded that there had been a deliberate breach of a discovery order by failure to disclose a relevant and important document, and that this amounted to an abuse of process. However because the defendant did eventually disclose the document, and had in other respects demonstrated a clear willingness to engage in the litigation process on an equal footing with the plaintiff, this was not a case where further proceedings would be rendered unsatisfactory or a fair trial could not be held. He declined to strike out the case. The Royal Court (Commissioner Clyde-Smith) approved that decision on appeal. The obvious difference from Huda and Sheyko was that the harm caused by the breach had been rectified, so the trial could proceed satisfactorily and fairly.
The test for striking out when discovery orders are breached
- There is more than one way to strike out a claim for breach of discovery orders. In both Huda and in Hard Rock the applications were founded on the breach of an unless order. In Huda, electronic discovery was not completed by the court-ordered deadline, which had been extended previously. It is not stated in the judgment, but it appears likely that the application was made under RCR 6/26(12), which provides, in relation to directions including those given in respect of discovery, as follows:
(12) If any party fails to comply with an order made under the provisions of this Rule, the Court may, of its own motion or on the application of any other party to the action, make such order as it thinks just including, in particular, an order that the action be dismissed or, as the case may be, that the answer or other pleading be struck out and judgment entered accordingly.
- The court considered the test for relief from sanction from the consequences of breach of a court order. In Newman v De Lima  JRC 155 the Master had applied an amended version of the Denton test applied in England under the CPR. In Huda he summarised the Newman test as requiring him, in essence, to identify and assess:
- The seriousness and significance of the failure to comply with any rule, practice direction or court order;
- Why the default occurred and whether it is excusable; and
- Whether a breach means that the case can still be dealt with justly and at a proportionate cost.
- The Master made clear in Newman that there could be cases where it would not be proportionate to strike out a claim for breach of an order, and that the question whether a fair trial could still be had was central:
“48. I also consider it may be possible to make orders which fall short of striking out the entire claim. Depending on the breach it may be possible to limit the sanction to striking out part of a case or that if a particular step is not complied with part of the case will be struck out or evidence may not be adduced on a particular issue. There is also the sanction of costs.
49. I have referred to these different possibilities available to the Court because they are all illustrative of the more general discretion available to the Court where a party has not complied with a Court order. In reaching this view, it should not be forgotten that procedure is a means to an end namely a trial or settlement and breaches should be kept in that context. The key issue is therefore the effect of any non-compliance and whether or not a fair trial can take place after a breach. I accept I have to also take into account, if it is right to impose a sanction for non-compliance, whether that non-compliance was either deliberate or there is no justification for it. In every case there will always come a point where the conduct of a party in ignoring Court orders will lead to the ultimate sanction of a case being dismissed even if a trial could still take place. This judgment should not therefore be taken as any indication that non-compliance of any Rules and Practice Directions is acceptable, will be tolerated, or will not, in appropriate cases lead to the ultimate penalty of a claim or answer being struck out.”
- In Huda the Bailiff said at paragraph 10 that he was applying these principles. It is not evident whether he considered that in paragraph 53 of his judgment (quoted above in paragraph 7) he was making any alteration to these principles by introducing a requirement for exceptional circumstances to avoid striking out for breach of an unless order that might cause prejudice, regardless of whether a fair trial was still possible.
- In the context of unless orders the Bailiff referred to the Master’s reliance on the following passage in the judgment of Birt, Bailiff in Leeds United Football Club v Admatch  JRC016A:
“I draw from the above authorities the conclusion that it is a strong thing to strike out a defence and there must be an abuse of process such as to render further proceedings unsatisfactory or prevent the court from doing justice or, to quote Page Commissioner, a party must have flouted or ignored the Court’s orders or persistently conducted himself in a way that evinces an unwillingness to engage in the litigation process on an equal footing with the other parties.”
- The Bailiff held in paragraph 51 of Huda that the Master had wrongly considered that in order to strike out a case the defendant must have been found to be unwilling to engage in the litigation process on an equal footing. The Bailiff noted that flouting a court order is in itself enough to justify striking out for breach of an unless order, on the basis of Admatch. Indeed he appears to have concluded that striking out will almost inevitably follow, absent exceptional circumstances.
- In Sheyko by contrast the application was brought not under RCR 6/26(12) but under RCR 6(13)(1)(d), which permits the court to strike out a claim for abuse of process.
- In Mr Sheyko’s case there had been no unless order, though the Master gave what the Royal Court described in its judgment dismissing the appeal as a “very clear warning”, when finally extending the discovery deadline in January 2020, that if there were any breaches CML ran the risk of being struck out. 
- CML contended that RCR 6/13(1)(d) did not provide the Master with jurisdiction to strike out a claim for abuse of process unrelated to the content of the pleading, arguing that RCR 6/13(1) is only concerned with defects in a party’s pleadings. The Royal Court rejected this argument, noting that the English equivalent of RCR 6/13(1)(d) in the pre-CPR rules covered abuse of process in the conduct of the litigation generally, as confirmed by the English Court of Appeal in Culbert v Westwell  PIQR P54 (CA), cited by the Master in Vieira v Kordas and MIB  JRC251:
“An action may also be struck out for contumelious conduct or abuse of process of the Court or because a fair trial of the action is no longer possible. Conduct is in the ordinary way only regarded as contumelious where there is a deliberate failure to comply with a specific order of the Court. In my view, however, a series of separate inordinate and inexcusable delays in complete disregard of the rules of court and the full awareness of the consequences can also properly be regarded as contumelious conduct or, if not that, to an abuse of process of the Court.
“The Court is concerned to see that its process is not abused and that justice is done. If it is abused by the plaintiff’s action, or if justice cannot be done if the trial goes forward, it matters not whether it is the plaintiff himself or his advisers who are to blame. The action cannot be allowed to proceed. To the extent that the blame is that of his advisers, he will no doubt have his remedy against them.”
- This formulation supports the contention that abuse of process involving deliberate breaches of court orders, or serious, repeated and inexcusable delays, could lead to a case being struck out even where a fair trial is still possible.
- The Royal Court in Sheyko expressly endorsed the Master’s approach in Newman, focusing on the potential for a fair trial to take place. It concluded that the application to strike out could properly have been brought under either RCR 6/13(1)(d) or 6/26(12), and that the result would have been the same: “… the key issue is the effect of any non-compliance and whether or not a fair trial can take place after a breach.” 
CML’s discovery failings
- As Sheyko is the only one of the three cases which the Master struck out, it is worth noting the nature of the discovery failings in that case.
- CML’s central discovery failings, as found by the Master and upheld on appeal, were twofold. First, it had failed to preserve and provide electronic communications between the key players in the management of CML, whose motivations and decisions were at the heart of the case. These persons were mostly in China, where the evidence was that most business communications are conducted not via email but using a mobile phone app called WeChat. There was evidence that WeChat was widely used among the Chinese-speaking staff and management at CML.
- CML had delayed significantly in commencing collection of material from China, and had sought more than one extension of time before Covid intervened. It did not even begin data collection in China until December 2019, a year and a half after proceedings began, and this fact was not revealed to the court when an extension of time was sought in November 2019. 
- CML’s IT consultants collected computers and emails from offices and email accounts around the world. However the key Chinese management figures, including Mr Jia, the ultimate beneficial owner and Chairman of CML, refused to permit access to material stored on their mobile phones, so nothing was collected from those devices. These people were custodians from whom the court had ordered the collection of material for discovery purposes. There was evidence that some had in the meantime deleted material from their phones. As a result, while CML spent millions of dollars on collecting data from sources in various countries and having it analysed for relevance, internal communications between the key figures were withheld from the entire process.
- The second important breach was CML’s decision to withhold from inspection thousands of the documents that were collected in China, on the basis that allowing them to leave China gave rise to a risk of prosecution for breaching China’s state security, trade secrets or data protection laws. The combined impact of this and the failure to collect anything from the phones of key players in the first place was that no WeChats were disclosed in the Chinese discovery.
- Only one senior manager agreed to make her phone available, but her WeChats were then withheld on the ground of Chinese secrecy laws. The Master held, and the Royal Court agreed, that CML had failed to make out a case for withholding these documents: the schedules of withheld documents failed to give a sufficient description to assess the claim to withhold, and the evidence on Chinese law was wholly insufficient to demonstrate a real risk of prosecution.
- As for the first breach, CML argued on appeal that all that could be expected of it was to ask its directors if they would make their phones available for discovery purposes, and if they refused there was nothing more CML could do, so there was no breach of the order to give discovery. CML sought to rely on an English Court of Appeal decision, in Phones 4U Ltd (in Administration) v EE Ltd and others , in support of that contention.,
- The Royal Court disagreed. It noted that both parties were agreed that, following Fairstar Heavy Transport NV v Adkins and others ,  employers have an enforceable right to the content of communications of an employee or agent in the context of the employer’s business, regardless of who owned the device where which the message was held. Thus, work-related content on directors’ personal mobile phones was under CML’s control for the purposes of discovery, even though the devices themselves were not. CML was entitled to insist on having access to the material on the devices for discovery purposes.
- The issue that had arisen in Phones 4 U was whether it was permissible for a court to order a defendant to write to employees asking them to make their devices available for discovery purposes, by permitting an IT company to download data and then process it for discovery in accordance with a protocol to safeguard private content. The English Court of Appeal held that it was. It did not however say that that was the only way to proceed; nor did it say that in the event of a refusal there was nothing more that could be done. The approach adopted in that case was a pragmatic first step, but further applications could be made to secure access to the material on the devices. As the Royal Court noted:
“The true position is that under English law, which is persuasive in this jurisdiction, a corporate litigant has control (in the sense of power) of any documents on the personal devices of its employees or agents that were sent or received in relation to the business of the company.
“Such documents are in no special position as regards the orders that can be made against a litigant for disclosure. The litigant can simply be ordered to disclose the documents, notwithstanding that they are not in its immediate physical possession or custody, just as he can be ordered to do in relation to any other document in his power but not his immediate custody.” 
- As the court noted, the unusual feature of this case was that:
“… we are concerned in substantial part with access to work related documents held by directors of CML itself. How can CML, which it is acknowledged has a right of access to work related documents held on the devices of its own directors, claim in these proceedings that all it is required to do is make a request to those directors for access to those documents and to meekly accept a refusal, when it is those very same directors (including Mr Jia who is also the ultimate beneficial owner) who manage and exercise all of CML’s powers?” 
- As for the claim to withhold documents on secrecy grounds, the court followed the test in Bank Mellat v HM Treasury ,  set out in part below. The court has a discretion whether to permit withholding from inspection, balancing the reality of the risk of prosecution against the need for justice to be done by making documents available:
“(iv) When exercising its discretion, this Court will take account of the real – in the sense of the actual – risk of prosecution in the foreign state. A balancing exercise must be conducted, on the one hand weighing the actual risk of prosecution in the foreign state and, on the other hand, the importance of the documents of which inspection is ordered to the fair disposal of the English proceedings. The existence of an actual risk of prosecution in the foreign state is not determinative of the balancing exercise but is a factor of which this Court would be very mindful.
v) Should inspection be ordered, this Court can fashion the order to reduce or minimise the concerns under the foreign law, for example, by imposing confidentiality restrictions in respect of the documents inspected.
vi) Where an order for inspection is made by this Court in such circumstances, considerations of comity may not unreasonably be expected to influence the foreign state in deciding whether or not to prosecute the foreign national for compliance with the order of this Court. Comity cuts both ways.”
- The Master had required CML to file evidence from a Chinese law expert to support the claim to withhold. In striking out the claim he held that that evidence was deficient: not only was it not sup ported by the expert’s declaration as he had required, but it was generic in nature, setting out the laws that exist in China regarding document confidentiality or secrecy without explaining why they would apply to the specific documents withheld. It said nothing about the likelihood of there being any prosecution for allowing the documents to leave China, and the laws cited appeared largely to cover cases where illegal methods were used to obtain or transmit the data, which did not apply here. There was no consideration of redaction of documents nor of the application of the principle of comity. Thus there was a breach of the order to provide discovery. The Royal Court agreed.
- The Royal Court concluded that a fair trial was not possible because of the failure to collect documents in China, and the refusal to disclose some of those that were collected. It agreed with the Master that the appropriate remedy was to strike out the defence case, as there was no prospect that the deficiencies would be remedied if CML were given more time: the central figures’ phones would not be provided, and even if they were the relevant material would no longer be there.
182. … we agree with Mr Sheyko that here, there is no other appropriate remedy. This is not a case where giving CML more time to fix things could possibly make any difference. The devices have not been searched and the material has not been preserved (and it is accepted that the custodians have deleted material). We agree that the defects are incurable.
183. We find that the Master correctly considered the right test and applied it. He found:
- That documents held by senior individuals within China are very relevant to the issues for trial (para 228).
- That discovery from these individuals was therefore at the heart of the case and a fair trial could not be had without them (para 229).
- That the position would not change if CML were given more time to remedy the position (paras 230-241) because of a number of factors …
184. The Master was justified in taking CML’s default as seriously as he did. There have been multiple serious breaches of the Discovery Orders which have deprived Mr Sheyko of relevant documents that go to the core issues. It is manifestly unfair to him to be subject to a trial in those circumstances.
185. This is not a case of the Court seeking perfect justice by requiring every relevant document to be considered, nor is it a case of inadequate disclosure where the Court would be able fairly to conduct the trial. Discovery from the China based custodians is, as the Master said, at the heart of this case and a fair trial cannot be held without it. The paucity of documents disclosed from China is glaring and CML’s failures in this respect amounts to an abuse of process preventing the Court from doing justice.
- The court held that the Master had given a very clear warning in early 2020 that a failure to comply with his Discovery Orders could lead to the claim being struck out, and yet CML had done nothing to remedy its deficiencies since the Master’s judgment in January 2021.
- Those facing litigation must ensure that they take immediate reasonable steps to ensure potentially relevant documents are not destroyed. If they delay in doing this, and as a result documents are unavailable for trial, they could find their case struck out – no matter how much they may have spent on overall discovery, and no matter what the merits of their underlying case may be.
- Legal advisers need to hammer home this message to their clients. They need to realise that the court will not tolerate poor excuses for failing to preserve and collect relevant documents. The focus is on the importance of a fair trial and compliance with court orders.
 Denton v TH White Limited  1 W.L.R. 3926
 In refusing leave to appeal (see  JRC 219) the Bailiff rejected an argument that he had ignored the Newman principles, in particular whether the case could continue justly and at proportionate cost.
 Paragraph 187(iii)
 Paragraph 109
 Paragraph 19
  EWCA Civ 116
  2 CLC 272 at paragraph 56
 Paragraph 125
 Paragraph 126
  EWCA Civ 449