Pre-Action Disclosure – Moving Beyond the U.K.'s Borders

A weapon of value to litigants in England is the ability to seek disclosure of documents from a likely party to litigation before proceedings begin. The benefits of such disclosure are numerous; the applicant can obtain crucial information at an early stage, which may save costs and enable any subsequent claim to be advanced more precisely, and the disclosure may, in some cases, lead to an early resolution of the dispute.

Placed against this backdrop, the recent decision in ED&F Man Capital Markets LLP v Obex Securities LLC, Randall Katzenstein (ED&F v Obex) is a significant one for prospective claimants in cross-border litigation which is to be heard before the English courts. The Court found that pre-action disclosure may be available against parties to a potential dispute who are located outside of England and Wales.

Case Facts

ED&F v Obex concerned an application for pre-action disclosure brought by ED&F, a global brokerage business within the ED&F Man Group, against: (i) Obex, a financial services provider based in New York, and (ii) Randall Katzenstein, the President and CEO of the Obex Group, of which Obex was a part.

ED&F and Obex had entered into an Introducing Broker Agreement, by virtue of which Obex introduced a number of clients to ED&F. A dispute arose following these introductions, in particular following an introduction made to Platinum Partners Value Arbitrage Fund LP (Platinum). ED&F later suffered losses due to Platinum going into insolvency, and claimed that Obex had been aware of Platinum’s financial difficulties and impending insolvency when making the introduction. As a result, ED&F claimed that Obex had made false representations as to Platinum’s solvency.

The Court, finding in ED&F’s favour, exercised its discretion to permit ED&F’s application for pre-action disclosure to be served on Obex in New York.

Obtaining Pre-Action Disclosure

To obtain an order for pre-action disclosure in England, an applicant must show all of the following:

1. The respondent is likely to be a party to any subsequent proceedings.
2. The requested documents would have been disclosable under the English disclosure rules at the usual stage of disclosure, if proceedings had been commenced.
3. Pre-action disclosure is desirable in this case, for instance because it would save costs or enable the dispute to be resolved more fairly.

However, where the respondent is based outside of the jurisdiction of the English Courts, the applicant must obtain the Court’s permission to serve them with an application, and must come within the remit of one of the jurisdictional “gateways”.

To obtain the Court’s permission, the applicant must show all of the following:

1. There is a serious issue to be tried on the merits of the application against the foreign party;
2. There is a good arguable case that the application falls within the grounds of the English court rules for service out of the jurisdiction; and
3. England and Wales is the most appropriate forum for the dispute to be heard, and the Court ought to exercise its discretion to permit service out of the jurisdiction.

The Legal Issue

ED&F argued that its application for pre-action disclosure fell within the “Claims under various enactments” gateway, where a claim is made under an enactment which allows proceedings to be brought.

Obex responded that an application for pre-action disclosure did not constitute “proceedings” as referred to in the CPR, as these rules applied only when substantive proceedings had been commenced by issue of the claim form. They sought to rely on an earlier decision, AES Ust-Kamenogorsk Hydropower Plant LLP v Urst-Kamenogorsk Hyrdopower Plant JSC [2011], in which the Court of Appeal considered whether the Senior Courts Act 1981 was an enactment which allowed proceedings to be brought.

The Court rejected the arguments advanced by Obex, finding instead that there was nothing binding the Court to a decision that a pre-action disclosure claim does not come within the definition of a “proceeding”. The Court also concluded that the earlier decision within AES was not authority for a proposition that an application prior to commencement of action would not itself be a “proceeding”. As such, an application for pre-action disclosure constitutes “proceedings” for the purposes of service outside of the jurisdiction. The Judge added that if this were decided otherwise, the restricted application of language would create an unwanted “lacuna” in the system, disadvantaging litigants in dispute with certain foreign defendants.

The Impact of ED&F v Obex on Prospective Litigants

English Courts remain a popular choice for the settlement of international disputes, and included within the factors that appeal to litigants is the ability to obtain wide-ranging disclosure from opponents. The recent decision of ED&F v Obex enhances the appeal of English Courts as the chosen jurisdiction in such cross-border cases. By permitting litigants in certain cases to obtain pre-action disclosure against non-resident parties, the Court in ED&F v Obex sought to avoid unfairly disadvantaging litigants in dispute with certain classes of foreign defendant, and this trend towards enabling disclosure is likely to be welcomed by prospective claimants in international cases.