Attempting to escape disclosure is a risky business

One of the unexpected outcomes of the decision in (1) Suez Fortune Investments Ltd, (2) Piraeus Bank AE v Talbot Underwriting Ltd and others [2016] EWHC 1085 (Comm), in which the court confirmed the striking out of the first claimant's insurance claim for constructive total loss of the tanker Brillante Virtuoso, was the attitude taken by the court to solicitors' obligations.

The background to the case is that the first claimant (S) was the vessel's owner, which was insured against 'war risks' under an insurance policy underwritten
by the defendants. The second claimant (P) was the vessel's mortgagee and was co-assured under the same policy. In 2011, armed pirates boarded the ship and detonated an explosive device on board, causing significant damage. The figures were substantial - US$77m -
so there was much at stake for
the parties.

With the cost of repairs exceeding the insured value of the Brillante Virtuoso, S served a notice of abandonment on the defendants, declaring the vessel
a 'constructive total loss' within the meaning of section 60 of the Marine Insurance Act 1906. The defendants rejected the notice, arguing that S was not entitled to any payment under the policy due to its decision to stop at a port within the Gulf of Aden, an area prone to piracy. Ironically,
the ship put to port specifically for a security sweep before going through the Gulf.

The trial before the court was divided into two stages. The first stage was heard in January 2015, and concerned S's arguments, namely that:The vessel was a constructive total loss; and

• S had not acted inconsistently with the continued intention to abandon the ship by selling it (since the defendants were aware of the sale and did not object to it despite having had the opportunity to do so).

The court decided in favour of S, holding, in accordance with section 60(2)(ii) of the Marine Insurance Act 1906, that the vessel had been 'so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired'.

At the second stage,
the court was to hear the defendants' arguments as to why no payment should be made under the policy. It was here that the problem for S's instructing solicitors arose. During the standard disclosure process, the defendants requested S provide, via its solicitors, a copy of an electronic archive containing certain relevant documents. S refused on the basis that the archive contained details of an unrelated matter in which its solicitors had acted against it.

The defendants obtained an unless order requiring S to deliver the archive to its solicitors or the defendants', or have its claim struck out. S failed to comply
with the order. However, shortly before the expiry of the deadline for compliance, S applied to the court for:

• An extension of time to comply with the order, or alternatively relief from sanctions; and

• Variation of the order's terms
  to substitute for the obligation to deliver the archive, an obligation on S to use best endeavours to obtain the archive and deliver it to its solicitors. This was made on
  the basis that S had given the archive to the owner of the third-party company, who
  was refusing to return it.

The court dismissed S's applications, finding that the claimant had deliberately breached the order and sought to mislead the court by knowingly putting the archive in the hands of a third party in an attempt to argue that it was no longer within its legal control. In addition,
the court held that relief from sanctions could only be granted where the breach had either
been cured or compliance could be dispensed with. In this case, the breach had not been cured
and, as the relevant rule was
an unless order, it was unlikely that compliance could ever be dispensed with.

Lawyers should also note that the court confirmed a previous ruling that the scope of standard disclosure is capable of extending to documents in the hands of
a third party. This highlights
that standard disclosure is increasingly broad, while attempts to escape it are increasingly limited and risky.

This approach may well cause some difficulties for solicitors, who, while having a duty to act in their client's best interests, have an overriding duty not to mislead the court. Solicitors should take care when acting for clients who refuse to disclose documents that are relevant to the proceedings.

Consequently, where it can be established that the client may be in breach of standard disclosure obligations, solicitors need to recognise the scope of those obligations, but also their overarching professional obligations. Where these are likely to conflict, it may be necessary to cease acting on
the matter to protect your own position. Though unlikely to endear you to your clients it is something to keep in mind at
all times.

Jonathan T R Silverman is a partner at Silverman Sherliker