England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand. London, WC2A 2LL
		5th February 2007

The Honourable Mr Justice Wyn Williams :

1. This is application for pre-action discovery. The Applicant is a charitable organisation known as Independent Froebel Educational Institute acting by the Governing Body of Ibstock Place School. The Respondent to the application is Sodexho Education Services Limited.

The Background

2. The Respondent carries on business as a provider of catering and other services to educational establishments. By an agreement in writing concluded in April 1990 the Applicant entered into an agreement with a company known as Gardner Merchant Limited [Gardner]. Under the agreement Gardner agree to provide certain catering services. Upon a date which is not important the Respondent assumed the rights and obligations of Gardner under that agreement. For many years, apparently, the Applicant and Gardner and then the Respondent enjoyed an amicable trading relationship.
3. The written contract contained the following terms. Under the heading Contract Arrangements the following terms appeared; -

"(i) Gardner Merchant Limited (the Caterer) to be responsible for the following aspects of the Catering Service at Ibstock Place School.

a) The procurement of the necessary goods, foodstuffs and articles at or below normal wholesale or trade prices from our nominated suppliers.

b) The provision of a choice of good quality meals and refreshments, at agreed times and at agreed tariffs and providing confectionery and miscellaneous goods for resale as agreed.

c) The provision of such staff as may be required and the administration and payment of their wages and associated costs.

d) The preparation of annual budgets. "

Under the heading "Generally" the following provision appeared:-

"3a. The contract will run for an initial 12 months period from the commencement of the catering service and will then continue until terminated by either party giving not less than one full term's of notice in writing."

Under the heading "Financially" the contract provided:-

"4a. The caterer will discharge all outgoings and render at four or five weekly intervals an invoice. This will show cash receipts, the total expenses including but not limited to the cost of foodstuffs, confectionery and other consumer commodities, cleaning materials, protective clothing, stationery, equipment replacement as agreed and the cost of wages (including national insurance and pension .contributions, sickness and other statutory payments), training charges, redundancy payments and staff termination costs (arising from changes initiated or agreed by the client, or at the termination of this agreement) advertisements for staff postages, telephone calls, laundry, sundry expenditure, and the Management Fee. The amount due after deduction of any standing order payment, is to be paid within 14 days of submission of the invoice.

b. The Management Fee as set out in the proposals of £4,831 is reviewable
with effect from each anniversary of this Agreement.

c. At the commencement of trading you will make a payment on account by
Bankers Order at monthly intervals of £6,653 which is a sum representing
one twelfth of the estimated annual operating costs and its value will be
reviewed on each anniversary of the agreement. "

4. As can be seen from a recital of the terms contained under the heading "Financially" the parties agreed that Gardner would be reimbursed its actual outlay in providing its service and also paid a management fee. The written agreement is silent as to any other form of remuneration. However I should say at the outset of this judgment that I am quite satisfied for the purposes of this application that the parties to the agreement understood that first Gardner and then the Respondent would also receive discounts from its suppliers in relation to the supply of food and that it would retain those discounts for itself.
5. Every year after 1990, as was anticipated by the written agreement, a budget was prepared and every year that budget was agreed between the parties.
6. In 2004 a change occurred. That change is best explained by the letter dated 19^th December 2003 sent by Mr Wheeler of the Respondent to the Applicant and by a further letter dated the 6^th of January 2004. The first of those letters appears at page 90 of Bundle 1. The relevant parts read as follows.

"Dear Ruth

/ would like to clarify the financial proposal that we discussed and

agreed.

As from March 1^st 2004 we will change our purchasing structure from gross prices to net, and Ibstock Place will benefit greatly from the reduced prices.

However we will increase the daily food cost to 80p per person to enable Donna and her team to achieve budget.

In order to offset some of Sodexho's loss, we will increase your management fee from £7,971 to £16,000 plus VAT.

The outcome of the above changes, will result in your annual catering costs being reduced by approximately £17,500.

I do hope that these initiatives demonstrate Sodexho's commitment to Ibstock Place School, as well as our desire to maintain our partnership with you."

7. The second letter to which I referred appears at page 652 bundle 2. Its relevant parts read:

"Dear Ruth

.... The net cost of catering has been calculated at £339,929 with VAT implications

The basis of revision is detailed below:

i) Annual Management Fee increasedfrom £7,971 to £16,000, effective from 1^st March 2004.

ii) All food supplies to change from gross pricing to net pricing, therefore, a reduction of 21%, effective from 1^st March 2004.

iii) All food costs, previously set at 90p per head, now changed to 80p, effective from 1^st March 2004.

Please call me, should you wish to discuss this budget. Please would you confirm to me in writing at the address below your acceptance of this revised budget."

8. As I understand this as from the 1^st of March 2004 the trading arrangements between the School and the Respondent proceeded upon the basis of these letters.
9. At some point in time, which it is unnecessary to pinpoint for the purposes of this application, the School became suspicious that the Respondent was overcharging. The Bursar began correspondence with the Respondent in which it is said he raised a number of queries which were not answered satisfactorily. In consequences solicitors became involved on both sides.
10. The School issued this application. on the 9^th November 2006. There had been a significant exchange of correspondence beforehand in which the School's solicitors raised possible causes of action against the Respondent and sought documentation from the Respondent.

The Respondent

11. The Respondent is part of a complicated corporate structure. In simple terms it is a wholly-owned subsidiary of a company known as Sodexho Holdings Limited. The Sodexho companies, as a whole, are known as the Sodexho Group. Sodexho Holdings Limited either owns or is closely associated with two other companies namely Sodexho Services Group Limited and Sodexho Limited.
12. I mention this corporate structure only because during the course of the hearing it became apparent that the Respondent may not have in its possession any of the documents sought by the Applicant.

The Application

13. The application seeks disclosure pursuant to CPR 31.16. The class of documents sought by the application was set out in paragraph 6 of a witness statement dated the 2^nd November 2006 and made by Mr Robert Patrick Boyd, the Applicant's solicitor. He identified five classes of documents as follows:-

i) Price lists between Sodexho and its suppliers used to supply the Applicant;

ii) Invoices between Sodexho and its suppliers used to supply the Applicant;

iii) Statements of account between Sodexho and its suppliers used to supply the Applicant;

iv) To the extent not revealed by the documents referred to above, documents showing the net pricing arrangements between Sodexho and the Applicant;

v) To the extent not revealed by the documents referred to above, documents showing the discount arrangement between Sodexho and its suppliers in relation to items supplied to the Applicant.

14. The Respondent filed three statements in support of its resistance to the application. One of those statements was a statement by Michelle Hanson, the Managing Director of the Respondent. She made her statement on the 8^th of January 2007. The . Respondent also served a statement from its solicitor, Mr David Pollitt. He made his statement on the 5* January 2007.
15. In paragraph 25 of Mr Pollitt's statement he says:-

"In any event, as can be seen from the witness statement of Michelle Hanson (see, in particular, paragraph 58), the documents that Ibstock seeks disclosure of do not in fact exist (at least in the form that Ibstock appears to envisage) and, properly categorised, Ibstock's application is a request for information, which is not permitted under CPR 31.16, "

16. In paragraph 58 of Ms Hanson's statement she deals, sequentially, with each category of document which was referred to in the witness statement of Mr Boyd, t summarise her evidence. She said that the first category of documents sought, namely, price lists between Sodexho and its suppliers used to supply Ibstock did not exist "at least in the form that appears to be envisaged by Ibstock." What she said that did exist were price lists of prices for food items negotiated at a high level within Sodexho which were not within the control of the Respondent. She went on to say that no invoices existed between Sodexho and its suppliers used to supply Ibstock. What did exist were invoices "at a composite level for any discounts that Sodexho was entitled to." Again, however, such documentation was not within the control of the Respondent.
17. She indicated that Statements of Accounts produced by "our huge number of suppliers weekly" did exist and that they showed the delivery and payment details as between Sodexho and the suppliers but these documents did not refer to a particular unit or client and so were not specific to the Applicant. Finally, she said that the documents specified as categories (iv) and (v) in the statement of Mr Boyd did not exist.
18. Faced with this evidence Mr Randolph, Counsel for the Applicant, effectively abandoned the disclosure application as identified in the witness statement of Mr Boyd. He abandoned his claim to documents within categories .(hi), (iv) and (v) completely. He did not pursue documents in categories (i) and (ii) as originally identified but he did seek disclosure of documents which Ms Hanson had admitted existed when she was dealing with those first two categories in her witness statement.
19. The upshot is that I have to determine whether or not two classes of documents as identified in paragraph 58.1 and 58.2 of Ms Hanson's witness statement should be disclosed to the Applicant.

CPR 31.16

20. Applications for disclosure before action are governed by CPR 31.16. Sub - Rule
    (3) provides as follows:-

"The court may make an order under this rule only where -

a) The respondent is likely to be a party to subsequent proceedings;

b) The applicant is also likely to be a party to those proceedings;

c) If proceedings had started, the respondent's duty by way of standard disclosure, set out in rule 31.6, would extend to the documents or classes of documents of which the applicant seeks disclosure; and

d) Disclosure before proceedings have started is desirable in order to-

i) dispose fairly of the anticipated proceedings;

ii) assist the dispute to be resolved without proceedings; or

iii) save costs."

21. There was no dispute between Counsel as to the relevant legal principles upon which the court should act in the light of that rule. Three conditions must be satisfied before a court can consider exercising its discretion to order disclosure. If the conditions are satisfied, the court must then weigh all the relevant factors in the case in order to decide whether to exercise its discretion. The first condition is that Applicant and Respondent are likely to be parties to subsequent proceedings and that those proceedings must be properly arguable. The second condition is that if proceedings had started the Respondent's duty by way of standard disclosure would extend to the documents or classes of documents of which the Applicant seeks disclosure. The third condition is that pre-action disclosure must be desirable in order to (i) dispose fairly of the anticipated proceedings (ii) assist in the dispute to be resolved without proceedings or (iii) save costs. As I understand it in this third condition it is sufficient if any one of the three criteria specified is made out. To repeat, if, but only if, the three conditions are met the court may then turn to consider whether, in the exercise of its discretion, it should order disclosure. As did the parties in their submissions to me I deal with each of the conditions in turn.

Are the Applicant and Respondent likely to be parties to a subsequent claim that is arguable?

22. Although Mr Goodall made some points in his written skeleton about whether the Applicant and Respondent would be likely to be parties to any claim, it seems to me that it is an inevitable conclusion that the Applicant and Respondent do fall into that category. The real focus, in my judgment, in relation to condition (i) is whether the Applicant has a claim that is at least arguable.
23. The nature of the Applicant's proposed claim is set out in a draft Particulars of Claim which has been provided in this application. The crucial paragraphs of that draft pleading are paragraphs 13 and 14. In paragraph 13 the Applicant alleges as follows:

"It is the School's case that Sodexho has breached the terms of the 1990 Agreement both as originally agreed and as subsequently amended as of 1^st March 2004. Taking the amended Agreement first, Sodexho was clearly under an obligation to supply foodstuffs at net prices and the company's sole income was to be derived from the enhanced Management Fee. It is equally clear that Sodexho breached that obligation, as can be seen from the examples given in the Bursar's letter of the 5^th January 2006 referred to above. The extent of the overcharge cannot be presently evaluated because of the refusal by Sodexho to provide the relevant documentation. "

In paragraph 14 it is alleged:

"As to the position prevailing prior to 1^st March 2004, Sodexho agreed to provide foodstuffs at or below normal wholesale or trade prices from its nominated suppliers. The School cannot prove at present that Sodexho breached that obligation. However, from the limited information made available to date, there would appear to be a strong case that food was not provided to the School at or below normal wholesale or trade prices. The refusal by Sodexho to provide the relevant data as to pricing not only compromises the school's ability to progress its claim, but also appears to be contrary to the "Open Booh Policy" set out in the 1990 proposal referred to above."

In my judgment those paragraphs contain a specific allegation of breach of contract in one respect. I refer to paragraph 13 where it is alleged that the Respondent was under an obligation to supply foodstuffs at net prices to the Applicant but failed to do so.

24. The evidence relied upon, at this stage, to support that allegation is, essentially, that which is contained in the letter referred to in the draft pleading namely the letter of 5^th January 2006 from the Applicant's bursar to the Respondent. I refer, in particular, to the second page of the letter (Bundle 1 page 190) where the bursar provides to the Respondent examples of cases where the Respondent charged the Applicant prices which, at least arguably, were above net prices. That same letter appears to suggest a basis for an allegation that food was not provided by the Respondent to the Applicant at or below normal wholesale or trade prices.
25. In his skeleton argument Mr Goodall advances substantial grounds why he says this alleged claim is doomed to fail. Those grounds are set out in paragraph 16 of his written skeleton argument and it would be otiose for me to repeat what he says.
26. Despite those points I am not persuaded that I should conclude that the Applicant's potential claim is so bereft of merit that it should be categorised as fanciful as opposed to arguable. Essentially, I accept what Mr Randolph says that the letter of the 5^th January 2006 calls for a detailed and reasoned response and to date, that has not been forthcoming. I stress that does not mean that the Respondent does not have an answer to the points raised in the letter. It simply means that I can see a basis for the claim which the School wishes to pursue.
27. Although I was not asked to consider any evidence on the issue of quantum (and, indeed, Mr Goodall suggested that no loss could be proved even if a breach of contract was established) the School wished to maintain a claim, which, if successful, would be substantial. (The high^water mark, in quantum, appears to be around £500,000 but, even allowing for the distinct possibility that is an over-estimate, a claim, if successful, may run to many thousands of pounds.)

If proceedings had started would the Respondent be required to disclose the document sought?

28. I repeat that the documents now sought are those referred to in paragraphs 58.1 and 58.2 of the witness statement of Ms Hanson. Mr Randolph, on behalf of the Applicant, has abandoned his claim to any other class of documents.
29. I have reached the clear conclusion that such documents would not be disclosable as standard disclosure.
30. Standard disclosure is governed by CPR 31.6. That provides:-

"standard disclosure requires a party to disclose only ~

a) the documents on which he relies; and

b) the documents which

i) adversely affect his own case;

ii) adversely affect another party's case;

iii) or support another party's case;

c) the documents which he is required to disclose by a relevant practice direction."

31. The notes to the Rule in the current addition of Civil Procedure contains the
    following:

"Categories of documents

Documents may be divided into the following four categories:


 


i) The parties' own documents: These are documents which a party relies upon in support of his contention in the proceedings.

ii) Adverse documents: These are documents which to a material extent adversely affect a parties own case or support another party'scase.

iii) The relevant documents: These are documents which are relevant to issues in the proceedings, but which do not fall into categories (i) or (ii) because they do not obviously support or undermine either side's case. They are part of the "story" or background. The category includes documents which, though relevant, may not be necessary for the fair disposal of the case.

iv) Train of enquiry documents: these are documents which may lead to a train of enquiry enabling a party to advance his own case or damage that of his opponent.

Rule 31.6 provides that "standard" disclosure is limited to documents falling within categories (i) and (ii)."

32. The documents identified by Ms Hanson in paragraph 58.1 may not, in fact, be in proper documentary form on the basis of Mr Goodall's instructions. Leaving that aside, however, it is clear that the documents are likely to be meaningless as documents. I have no doubt that very substantial explanation would be necessary as to their meaning before it could be said that they were relevant. The same applies, in my judgment, to the documents identified in paragraph 58.2.
33. It does not seem to me to be remotely possible to categorise those documents as documents which adversely affect the Respondent's case or advance the Applicant's case on their face. If anything the documents identified by Ms Hanson fall into either category (iii) or (iv) of the categories specified in the notes to the Rule as set out above.
34. I also have in mind that there is clear authority for the proposition that CPR 31.16 cannot be used as a vehicle to extract information. See Snow Star Shipping Company Ltd v Graig Shipping PLC f2003] EWHC 1367 fCommV
35. The reality of the application, in my judgment, as it is now advanced, is that the Applicant is making a request for information. To repeat, the documents that do exist are likely to be meaningless in the absence of copious explanation.
36. That is a conclusion which I make on the basis of Ms Hanson's evidence. This application has proceeded on the basis that I should treat Ms Hanson as a truthful and reliable witness. On that basis no other conclusion about these documents seems remotely possible.
37. It follows that the Applicant has failed to establish one of the necessary conditions for the making of an order under CPR31.16.
38. I should add for completeness that it seems very likely that the documents are not disclosable because the Respondent does not have and has not had physical possession of the documents and it has no right to possession of them nor a right to inspect or take copies of them. Since, however, that is a point not pressed on behalf of the Respondent I do not found my decision upon it. To repeat, my conclusion is that the documents in question are not those which would be the subject of standard disclosure. Although this conclusion, of itself, is sufficient to dispose of the application out of deference to the arguments of the parties I deal with the remaining issues which were canvassed before me.

Is there a real prospect that disclosure would dispose fairly of the anticipated proceedings., assist the dispute to be resolved without proceedings or save costs?

39. I do not consider that the Applicant can establish any one of those criteria. The plain fact is that the documents identified by Ms Hanson are, in my judgment, incapable of providing an answer, one way or the other to the issue of whether or not there has here been a breach of contact. If, therefore, they were disclosed, it would be inevitable in my judgment that they would be followed by significant requests for information and explanation. In that way, in my judgment, there would be a serious escalation of costs even before proceedings commenced. This application, sadly, demonstrates how costs can escalate in what might be termed "satellite litigation".
40. On the basis of the evidence before me there is no likelihood, in my judgment, that the disclosure of the particular documents identified by Ms Hanson would lead the Respondent to make any kind of substantial offer in settlement. The Respondent seems intent upon resisting this claim, so far as I can determine. I appreciate, of course, that the Respondent would be reluctant to disclose information to the Applicant which it regards as confidential and, in that sense, it might prefer to enter into settlement negotiations. It would seem to me, however, to be wholly improper to take considerations of that kind into account.
41. I gained the strong impression that if the documents showed, conclusively, that there was no basis for a claim the Applicant, thereafter, would cease to pursue one. From all that I have been told, however, the documents would not, of themselves, provide the answers which the Applicant seeks. I fear that the effect of an Order for disclosure would be to escalate costs. Further I do not think that disclosure would make it likely the proceedings would be avoided or that the dispute would be settled.

Discretion

42. The Applicant's application has been in gestation over very many months. It is correct that I observe that during the gestation period its cause of action has been put in a variety of ways. Even during the course of the hearing before me new ways of establishing a significant claim were being canvassed. It is extremely unlikely that the documents sought would throw much light upon how the Applicant should formulate its claim.
43. In terms of the claim set out in the draft Particulars of Claim it seems to me that the Applicant is in as good a position to plead its case based upon breach of contract now as it would be if the documents which it seeks were disclosed. Further it is extremely unlikely that it could be any more precise about the quantification of its claim were the documents to be disclosed at this stage.
44. In my judgment there is force in Mr Goodall's complaint that the Applicant has sought disclosure and information from the Respondent, but has been slow to reciprocate in providing information sought by the Respondent.
45. Mr Randolph asked me to consider the application on the basis of the draft Particulars' of Claim. He invited me to ignore Mr GoodalPs submission relating to the possibility that alternative causes of action would be advanced in the future. I accede to that submission.. The result is, however, that I find myself quite unable to understand how the Applicant's case of an alleged breach of contract would be substantially advanced if I ordered disclosure of the two classes of documents which Mr Randolph now seeks. That being so, as a matter of discretion and taking into account the many points made by Mr Goodall in paragraph 26 of his skeleton (save for his points about alternative causes of action) I am firmly of the view that as a matter of discretion disclosure should not be ordered.

Conclusion

46. I have reached the clear conclusion that I should reject this application. I do so on the basis that the documents now sought would not be documents which the Respondent would have to disclose during the process of standard disclosure. I also reject the application on the basis that there is no real prospect that disclosure would dispose fairly of the anticipated proceedings, or assist this dispute to be resolved without proceedings, or save costs. As I have indicated in the preceding section I would also have exercised my discretion against an order for disclosure even if the conditions for disclosure set out in CPR31.16 (3) had all been established.