High Court refuses to order bank to disclose its Credit Process Guide

A recently published decision of the High Court demonstrates that a court will examine closely whether a document comes within the test for standard disclosure. References to the document in another disclosed document will not be sufficient, nor is it enough that it might prove helpful for the purposes of cross examination: Ward Hadaway v DB (UK) Bank [2013] EWHC 4538 (Ch) (decided in November 2013).

Background

The case concerned proceedings brought by part of the Deutsche Bank Group against a firm of solicitors for failing to inform the bank that three property purchases they were funding involved back to back sub-sales with price uplifts. Breach of contract and negligence were admitted by the solicitors, but causation was contested, the solicitors alleging that the bank would still have made the loans in question if the full facts had been available to it. The solicitors also pleaded contributory negligence on the part of the bank.

In the course of pre-action correspondence, the bank disclosed its underwriting guidelines for DB mortgages (the “BUG”). There were a number of references in the BUG to a Credit Process Guide (“CPG”), including for example statements that the BUG had to be read in conjunction with the CPG, that the CPG was the key credit policy document for the relevant business, and that in case of any conflicting messages between the BUG and the CPG the CPG would apply.

Further reference was made to the CPG in paragraph 1.3 of the BUG:

“These Underwriting Guidelines have been written to outline and explain dbm’s underwriting criteria. All applications should be processed in line with this policy. However, it is acknowledged that there will be mortgage applications that do not comply, but are still viewed as ‘good business’. Authority to approve such cases lies with dbm underwriters, where full referral details and written confirmation of acceptance must be retained on file. For further details refer to sections 4 and 5 of the [CPG].”

Unsurprisingly, the defendants sought disclosure of the CPG. The bank resisted on the basis that it did not come within the test for standard disclosure and they were not prepared to provide it voluntarily as it was in their view commercially very sensitive, indeed the blueprint for how to run its business.

The bank’s evidence was that the CPG was a high level business modelling document and wasn’t intended to be used on a day to day basis by underwriters. It asserted that the loans made were subject to the BUG and even if the true facts had been disclosed, the CPG did not deal with when a transaction involving a sub-sale might nevertheless be considered ‘good business.’

The test for standard disclosure under CPR 31.6, so far as relevant here, requires a party to disclose documents which adversely affect his own case or support the other party’s case. This is a narrower test than pre CPR and is not strictly one of relevance. Based on Court of Appeal authority, the evidence of the party claiming that the document does not satisfy the test is normally conclusive; it can only be rejected if it can be seen from the documents produced, the evidence adduced, any admission in the pleadings or the circumstances of the case generally that that party’s evidence must be wrong.

Decision

The judge (Nugee J) refused to order disclosure. He considered whether on the evidence before him from the bank, which he had to take at face value, it had been shown that the CPG would throw light on whether the bank would have made the loan if the true facts had been known to it. He decided that it did not. He rejected an argument that anything which could be said to demonstrate the bank’s appetite for risk generally was discloseable as that would in principle mean that every lending decision made by the bank was discloseable. He also commented that material which affects the case was in his view material which tended to prove or disprove one of the issues in the case in itself and that is a narrower and deliberately narrower test than the sort of material which a cross examiner might find very helpful to have in his hands when challenging a witness.

The judge also rejected an application for specific disclosure – if the document was not within the ambit of standard disclosure then there must be some good reason demonstrated for saying it has to be produced anyway and none had been made out. He left open the possibility, however, as had the deputy master before him, of the application being renewed if the parties’ banking experts considered the CPG would be a useful document to see.

This case is a good example of how the post CPR rules differ from the old Peruvian Guano test of relevance and how they can lead to very different results if strictly applied. This is neatly demonstrated in the judge’s concluding comments: ‘For the reasons that I have given, this document does not fall within the obligation of standard disclosure on the Claimant. However much at first sight it seemed obvious that it was relevant, the evidence before me….does not support that submission….’

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