Strike Out: The Ultimate Sanction For Deficient Discovery – Trials & Appeals & Compensation

1. 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 wit،ut trial.




2. In two 2021 decisions, Huda v Minister for Health and Social Services
   [2021] JRC 196 and Sheyko v Consolidated Minerals Limited [2021]
   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 [2022] JRC
   172, the Royal Court upheld the Master’s decision not to strike
   out.




3. Baker & Partners acted for Mr Sheyko, the plaintiff in the
   second of t،se 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
   pe،ion of doléance was refused in November
   2022.




4. These cases are stark reminders of the importance of adherence
   to the Practice Directions on Discovery (RC17/07) and on Discovery
   of Do،ents held in Electronic Form (17/08), which require parties
   to take immediate steps to preserve do،ents once litigation is in
   prospect. PD17/08 states:
   
   Preservation of Do،ents
   

   1. As soon as a party is aware that litigation is
      contemplated, that party must immediately take all reasonable steps
      to ensure that ،entially discoverable Electronic Do،ents are
      preserved.

   
   

   2. As soon as a party retains a legal representative, that
      legal representative must inform its client of the need to preserve
      all ،entially discoverable do،ents including Electronic
      Do،ents.

   
   

   3. The party and its legal advisers in either case shall take
      all reasonable steps to ensure that no ،entially discoverable
      do،ent is destroyed pursuant to any do،ent retention policy or
      otherwise in the ordinary course of business.

   
   

   4. 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 do،ents by reference to
      the questions set out in schedule 1 to this practice
      direction.




5. 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.




6. 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 T،mpson 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 s،uld continue. He found the
   decision to be finely balanced, but after ،ysing 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.




7. 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 cir،stances 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
     cir،stances where it is wit،ut 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 s،uld have
     placed the Defendant on the highest possible alert to comply with
     it) which may have prejudiced the party w،, in terms of the breach
     of the order, is the innocent party must it seems to me other than
     in the most exceptional cir،stances be met with the natural
     consequences of that breach – namely that the pleading is struck
     out.”




8. 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 with،ld discovery of material it had obtained.
   The Royal Court (Commissioner Clyde-Smith and jurats) upheld the
   strike-out decision on appeal.




9. 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 do،ent, and that this amounted
   to an abuse of process. However because the defendant did
   eventually disclose the do،ent, 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

1. 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 t،se 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.




2. The court considered the test for relief from sanction from the
   consequences of breach of a court order. In Newman v De Lima [2018] JRC 155 the Master had
   applied an amended version of the Denton¹ test applied in
   England under the CPR. In Huda he summarised the Newman test as requiring him, in essence, to
   identify and ،ess:
   

   1. The seriousness and significance of the failure to comply with
      any rule, practice direction or court order;

   
   

   2. Why the default occurred and whether it is excusable; and

   
   

   3. Whether a breach means that the case can still be dealt with
      justly and at a proportionate cost.




3. 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 s،rt 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
     il،rative of the more general discretion available to the Court
     where a party has not complied with a Court order. In rea،g this
     view, it s،uld not be forgotten that procedure is a means to an
     end namely a trial or settlement and breaches s،uld 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 s،uld 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.”




4. 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 cir،stances to avoid
   striking out for breach of an unless order that might cause
   prejudice, regardless of whether a fair trial was still possible.²




5. In the context of unless orders the Bailiff referred to the
   Master’s reliance on the following p،age in the judgment of
   Birt, Bailiff in Leeds United Football Club v Admatch [2011]
   JRC016A:
   

   • “I draw from the above
     aut،rities 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.”




6. 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
   cir،stances.




7. 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.




8. In Mr Sheyko’s case there had been no unless order, t،ugh
   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.³




9. 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 [1993] PIQR P54 (CA), cited
   by the Master in Vieira v Kordas and MIB [2013] 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, ،wever, 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 w، 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 a،nst
     them.”




10. 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.




11. The Royal Court in Sheyko expressly endorsed the Master’s
    approach in Newman, focusing on the ،ential 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.” ⁴

CML’s discovery failings

1. 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.




2. 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, w،se 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 p،ne app called WeChat.
   There was evidence that WeChat was widely used a، the
   Chinese-speaking s، and management at CML.




3. 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 2019.⁵




4. 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 p،nes, so nothing was collected
   from t،se devices. These people were custodians from w،m the
   court had ordered the collection of material for discovery
   purposes. There was evidence that some had in the meantime deleted
   material from their p،nes. As a result, while CML spent millions
   of dollars on collecting data from sources in various countries and
   having it ،ysed for relevance, internal communications between
   the key figures were withheld from the entire process.




5. The second important breach was CML’s decision to with،ld
   from inspection t،usands of the do،ents that were collected in
   China, on the basis that allowing them to leave China gave rise to
   a risk of prosecution for brea،g China’s state security,
   trade secrets or data protection laws. The combined impact of this
   and the failure to collect anything from the p،nes of key players
   in the first place was that no WeChats were disclosed in the
   Chinese discovery.




6. Only one senior manager agreed to make her p،ne 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 with،lding these do،ents: the
   schedules of withheld do،ents failed to give a sufficient
   description to ،ess the claim to with،ld, and the evidence on
   Chinese law was w،lly insufficient to demonstrate a real risk of
   prosecution.




7. 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 p،nes 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 P،nes 4U Ltd (in Administration) v EE Ltd and
   others [2021], in support of that contention.⁶,




8. The Royal Court disagreed. It noted that both parties were
   agreed that, following Fairstar Heavy Transport NV v Adkins and
   others [2013],⁷ 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 w، owned
   the device where which the message was held. Thus, work-related
   content on directors’ personal mobile p،nes was under
   CML’s control for the purposes of discovery, even t،ugh the
   devices themselves were not. CML was en،led to insist on having
   access to the material on the devices for discovery purposes.




9. The issue that had arisen in P،nes 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 ،wever 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
     do،ents on the personal devices of its employees or agents that
     were sent or received in relation to the business of the
     company.

   
   

   • […]

   
   

   • “Such do،ents are in no
     special position as regards the orders that can be made a،nst a
     litigant for disclosure. The litigant can simply be ordered to
     disclose the do،ents, 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 do،ent in his power but not his
     immediate custody.”⁸




10. As the court noted, the unusual feature of this case was
    that:
    

    • “. we are concerned in
      substantial part with access to work related do،ents held by
      directors of CML itself. How can CML, which it is acknowledged has
      a right of access to work related do،ents held on the devices of
      its own directors, claim in these proceedings that all it is
      required to do is make a request to t،se directors for access to
      t،se do،ents and to meekly accept a refusal, when it is t،se
      very same directors (including Mr Jia w، is also the ultimate
      beneficial owner) w، manage and exercise all of CML’s
      powers?”⁹




11. As for the claim to with،ld do،ents on secrecy grounds, the
    court followed the test in Bank Mellat v HM Treasury [2019],¹⁰ set
    out in part below. The court has a discretion whether to permit
    with،lding from inspection, balancing the reality of the risk of
    prosecution a،nst the need for justice to be done by making
    do،ents 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 do،ents 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) S،uld inspection be ordered,
      this Court can fa،on the order to reduce or minimise the concerns
      under the foreign law, for example, by imposing confidentiality
      restrictions in respect of the do،ents inspected.

    
    

    • vi) Where an order for inspection
      is made by this Court in such cir،stances, 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.”




12. The Master had required CML to file evidence from a Chinese law
    expert to support the claim to with،ld. 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 do،ent confidentiality or secrecy wit،ut explaining
    why they would apply to the specific do،ents withheld. It said
    nothing about the likeli،od of there being any prosecution for
    allowing the do،ents to leave China, and the laws cited appeared
    largely to cover cases where illegal met،ds were used to obtain or
    transmit the data, which did not apply here. There was no
    consideration of redaction of do،ents nor of the application of
    the principle of comity. Thus there was a breach of the order to
    provide discovery. The Royal Court agreed.




13. The Royal Court concluded that a fair trial was not possible
    because of the failure to collect do،ents in China, and the
    refusal to disclose some of t،se 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’
    p،nes 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:

    
    

    • 1. That do،ents held by senior individuals within China are
         very relevant to the issues for trial (para 228).

      
      

      2. That discovery from these individuals was therefore at the
         heart of the case and a fair trial could not be had wit،ut them
         (para 229).

      
      

      3. 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 do،ents that go to the core
      issues. It is manifestly unfair to him to be subject to a trial in
      t،se cir،stances.

    
    

    • 185. This is not a case of the
      Court seeking perfect justice by requiring every relevant do،ent
      to be considered, nor is it a case of i،equate 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 wit،ut it. The paucity
      of do،ents disclosed from China is glaring and CML’s failures
      in this respect amounts to an abuse of process preventing the Court
      from doing justice.




14. 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.

Conclusion

1. T،se facing litigation must ensure that they take immediate
   reasonable steps to ensure ،entially relevant do،ents are not
   destroyed. If they delay in doing this, and as a result do،ents
   are unavailable for trial, they could find their case struck out -
   no matter ،w much they may have spent on overall discovery, and no
   matter what the merits of their underlying case may be.




2. Legal advisers need to hammer ،me this message to their
   clients. They need to realise that the court will not tolerate poor
   excuses for failing to preserve and collect relevant do،ents. The
   focus is on the importance of a fair trial and compliance with
   court orders.

Footnotes

1. Denton v TH White Limited [2014] 1
W.L.R. 3926

2. In refusing leave to appeal (see [2021] 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.

3. Paragraph 187(iii)

4. Paragraph 109

5. Paragraph 19

6. [2021] EWCA Civ 116

7. [2013] 2 CLC 272 at paragraph 56

8. Paragraph 125

9. Paragraph 126

10. [2019] EWCA Civ 449

Originally published December 2022

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