Not a fishing expedition: PFI contractor obtains pre-action disclosure in dispute that was to be subject of adjudication

24 September 2014


Obtaining relevant documentation at an early stage from a potential opponent can help resolve claims without the need to issue proceedings, or narrow the issue between the parties, so as to save costs.

Where litigation is anticipated, such information can often be obtained during the pre-action protocol stage. However, where there is to be an adjudication, there is no such procedure but an application to court for pre-action disclosure can be made in the right case.

Specified criteria must be met, and even if met, the court retains a discretion whether or not to grant the order. Often it will not. However, in the case of Ensign Highways Limited v Portsmouth City Council, Ramsey J did make an order for pre-action disclosure in a dispute that was to be adjudicated.

This case:

  1. highlights the usefulness of pre-action disclosure as a tool that can be used in conjunction with adjudication if the requirements for making the order under the Civil Procedure Rules (CPR) Part 31.16 can be satisfied; and also
  2. raises questions in the PFI arena as to the balance of power between contractors and local authorities.

Background

Ensign Highways Limited (Ensign) entered into a PFI contract with Portsmouth City Council to upgrade and maintain highways in and around Portsmouth over 15 years. As is typical in these types of contracts, services points were awarded against Ensign if it failed to fulfil specified obligations, with the local authority being entitled to terminate the contract if Ensign obtained 250 service points within a specified period. There was also a term requiring mutual co-operation and good faith.

A review after eight years of the contract indicated that Ensign's performance was good. Two years later, after a failed attempt on the part of the local authority to renegotiate the contract following budgetary constraints, Ensign claimed that the local authority had sought to accumulate service points against it so it could terminate the contract. The 250 service point threshold had either been reached or was very close to being reached.

An adjudicator was to decide whether the local authority had acted in accordance with the contract in applying the service points in the manner it had. Ensign relied on an email from a local authority employee which stated that it had to have 250 by a certain date. Ensign also sought disclosure of documents relating to the local authority's approach to monitoring performance after a specified date, plus documents that would result from using specified key word searches of electronic documents of certain local authority employees who had been involved in the matter.

Shortly before the hearing the local authority offered disclosure of 150 documents but maintained that it was not obliged to provide disclosure.

Ramsey J held that the criteria in CPR 31.16 had been met:

  1. were Ensign and the local authority likely to be parties in subsequent proceedings? Yes;
  2. if proceedings had started would the local authority be required to disclose those documents by way of standard disclosure? Yes, the documents sought went to the issue of whether the local authority had properly applied the criteria for awarding service points; and
  3. was pre-action disclosure desirable to allow the anticipated proceedings to be disposed of more fairly, or avoid the need for proceedings or save cost? Yes, this was very likely.

Exercising his discretion in Ensign's favour, Ramsey J ordered that the 150 documents already identified should be disclosed as well as the documents found using specified key word searches (such as " 250", "good faith" and "termination"). The local authority should also conduct a limited search by asking specified local authority employees about documents allegedly held by them.

Pre-action disclosure and adjudication

In 2011, Akenhead J made it clear in PHD Modular Access Services Ltd v Steele GmbH that he was strongly of the view that parties who are adjudicating, or who are thinking about adjudicating, must not see CPR 31.16 as some sort of procedural support or tactical weapon for the purpose of the adjudication.

However, clearly there are circumstances, as evidenced by the decision in Ensign, where it is possible to satisfy the requirements of Part 31.16 and pre-action disclosure can be obtained. Ensign heeded the messages from PHD v Steele and ensured that the ambit of its disclosure application was narrow, clearly defined and related to the dispute - essential points to bear in mind if making a pre-action disclosure application.

It should also be noted that where an application for pre-action disclosure is made in conjunction with an adjudication it brings with it the potential for adverse costs orders. Adjudicating parties are used to each party bearing their own costs.

PFI - redressing the balance

Last year the audit rights of employers in large complex contracts were considered in the case of Transport for Greater Manchester v Thales Transport & Security Ltd.

The court made it clear that it would not permit an employer to go on a "fishing expedition" under wide audit rights any more than it would allow "fishing expeditions" under pre-action disclosure. The courts are reluctant to allow requests that are not aligned with the purpose of the audit clause itself but the Thales case gave the possibility for a very broad nature of information/documentation being caught by an appropriately worded audit provision.

This, together with the fact that the audit could be carried out long before any pre-action disclosure, allowed the audit to be viewed by some as a powerful bargaining tool. Audit clauses are commonly found in PFI contracts but perhaps the judgment in Ensign has to some limited extent redressed the balance in reminding contractors that a pre-action disclosure application may be open to them.

Was the situation in Ensign an isolated instance of a PFI contractor being concerned that a local authority is seeking to engineer termination of a PFI contract in order to procure services at a lower cost? If it is not, local authorities would be wise to proceed with caution in order to avoid being on the receiving end of a costly pre-action disclosure application where the facts are similar to those in Ensign.


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