Disclosure - Anan Kasei Co. Ltd v Neo Chemicals & Oxides

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Jane Lambert

Patents Court (Mr Justice Mellor) Anan Kasei Co. Ltd and another v Neo Chemicals & Oxides (Europe) Ltd and others [2021] EWHC 1972 (Pat) (13 July 2021)

Much of the expense of civil litigation in England and Wales arises from disclosure and inspection of documents.  "Disclosure" means stating whether a document exists or has existed.  With a number of exceptions. CPR 31.3 (1) entitles a party to whom a document has been disclosed to inspect that document. Unless the court orders otherwise, each party must disclose the documents on which it relies and the documents that adversely affect its own case, adversely affect or support another party’s case or documents that are required to be disclosed by a relevant practice direction (see CPR 31.5 (1) (b) and CPR 31.6).  "Document" for these purposes means "anything in which information of any description is recorded" ( CPR 31.4).

The Disclosure Pilot
Since 1 Jan 2019,  a pilot scheme for disclosure has operated in the Business and Property Courts.  It is governed by Practice Direction 51U - Disclosure Pilot for the Business and Property Courts. According to the White Book, the pilot scheme is intended to remedy a number of problems with disclosure and to ensure that a new, proportionate, culture of disclosure is embedded into the litigation process. Disclosure is to be focused on the key issues so as to strike a better balance between wider disclosure where appropriate, and the aim of reducing the amount of unnecessary documentary disclosure because it is either irrelevant or peripheral to the dispute.

Principles

Para 2.1 of Practice Direction 51U states that:

"Disclosure is important in achieving the fair resolution of civil proceedings. It involves identifying and making available documents that are relevant to the issues in the proceeding"

Parties and their legal representatives are expected to cooperate with each other and to assist the court so that the scope of the disclosure, if any, that is required in proceedings can be agreed or determined by the court in the most efficient way possible.    

Parties' Duties
There is a duty under para 3.1 of that practice direction for each party:

"(1) to take reasonable steps to preserve documents in its control that may be relevant to any issue in the proceedings;
(2) once proceedings have commenced against it or by it , to disclose, regardless of any order for disclosure made, known adverse documents, unless they are privileged. The latest time(s) for disclosing known adverse documents are those set out in paragraphs 9.1 to 9.3);
(3) to comply with any order for disclosure made by the court;
(4) to undertake any search for documents in a responsible and conscientious manner to fulfil the stated purpose of the search;
(5) to act honestly in relation to the process of giving disclosure and reviewing documents disclosed by the other party; and
(6) to use reasonable efforts to avoid providing documents to another party that have no relevance to the Issues for Disclosure in the proceedings."

Legal Representatives' Duties
Para 3.2 imposes the following duty on legal representatives:

"1) to take reasonable steps to preserve documents within their control that may be relevant to any issue in the proceedings;
(2) to take reasonable steps to advise and assist the party to comply with its Disclosure Duties;
(3) to liaise and cooperate with the legal representatives of the other parties to the proceedings (or the other parties where they do not have legal representatives) so as to promote the reliable, efficient and cost-effective conduct of disclosure, including through the use of technology;
(4) to act honestly in relation to the process of giving disclosure and reviewing documents disclosed by the other party; and

(5) to undertake a review to satisfy themselves that any claim by the party to privilege from disclosing a document is properly made and the reason for the claim to privilege is sufficiently explained."

Initial Disclosure

With a number of exceptions, each party is required by para 5.3  to provide to all other parties at the same time as its statement of case or pleading an Initial Disclosure List of Documents that lists and is accompanied by copies of:

"(1) the key documents on which it has relied (expressly or otherwise) in support of the claims or defences advanced in its statement of case (and including the documents referred to in that statement of case); and
(2) the key documents that are necessary to enable the other parties to understand the claim or defence they have to meet."

That is known as "initial disclosure."

Extended Disclosure

Any disclosure that is additional to or in substitution of initial disclosure is known as "extended disclosure".  Para 6 of the practice direction provides for extended disclosure.  Extended disclosure must take the form of one of the following disclosure models:

• Model A: Disclosure confined to known adverse documents
• Model B: Limited disclosure
• Model C: Disclosure of particular documents or narrow classes of documents
• Model D: Narrow search-based disclosure, with or without Narrative Documents, and
• Model E: Wide search-based disclosure,

An order for extended disclosure must be reasonable and proportionate having regard to the overriding objective including the following factors:

"(1) the nature and complexity of the issues in the proceedings;
(2) the importance of the case, including any non-monetary relief sought;
(3) the likelihood of documents existing that will have probative value in supporting or undermining a party’s claim or defence;
(4) the number of documents involved;
(5) the ease and expense of searching for and retrieval of any particular document (taking into account any limitations on the information available and on the likely accuracy of any costs estimates);
(6) the financial position of each party; and
(7) the need to ensure the case is dealt with."

Lists of Issues for Disclosure

Within 28 days of the final statement of case, each party is required by para 7.1 to state in writing, whether or not it is likely to request search-based extended disclosure to include one or more of Models C, D or E on one or more issues in the case.  If one or more of the parties indicates that it is likely to request search-based extended disclosure, the claimant must within 42 days prepare and serve on the other parties a draft List of Issues for Disclosure unless an agreed list of issues for trial already exists and the parties agree that it is suitable (with or without adaptation) to be used for disclosure.   The List of Issues for Disclosure should be as short and concise as possible,   The claimant should seek to ensure that the draft List of Issues for Disclosure provides a fair and balanced summary of the key areas of dispute identified by the parties’ statements of case and in respect of which it is likely that one or other of the parties will be seeking search-based extended disclosure.   

Disclosure Review Document
At the same time as serving a draft List of Issues for Disclosure, the claimant should identify for each issue which model it proposes for each party. If the claimant proposes Model C for any issue it should indicate in a Disclosure Review Document, how the particular documents or narrow class of documents it proposes should be defined for that purpose. 

A party served with a draft List of Issues for Disclosure and proposals on models should indicate in the Disclosure Review Document whether it agrees with the proposals. If the party served with the proposals does not agree, or wishes to propose alternative or additional issues for disclosure, other models and/or other Model C proposals, it should set out its alternative or additional proposals in Sections 1A and 1B of the Disclosure Review Document.

Limiting Disclosure

Before the first case management conference, the parties must discuss and seek to agree 

• the draft List of Issues for Disclosure, 
• the models identified for each issue for disclosure, and 
• the wording of any Model C proposals. 

They should also consider whether any draft issue for disclosure can be removed.    if agreement cannot be reached after such efforts the List should be concluded by showing the areas of disagreement. 

The parties should consider seeking disclosure guidance from the court at an early stage as a means to help resolve the differences between them. One situation in which such guidance should be considered is where one party believes the other is proposing a list of issues that is far too complex to serve as a List of Issues for Disclosure.

Disclosure Guidance from the Court

Para 11 of the practice direction entitles a party to seek guidance from the court on any point concerning the operation of the pilot in a particular case, where: 

(1) there is a significant difference of approach between the parties;
(2) the parties require guidance from the court in order to address the point of difference between them without a formal determination; and
(3) the point is suitable for guidance to be provided either on the papers or, other than in substantial claims, within the maximum hearing length and maximum time for pre-reading.

At a disclosure guidance hearing, the court will generally expect the legal representative with direct responsibility for the conduct of disclosure to be the person to participate on behalf of his or her party.   The guidance given by the court will usually be recorded in a short note to be approved by the court but the court may make an order where it considers it appropriate to do so. Unless otherwise ordered, the costs of an application for disclosure guidance are costs in the case and no order from the court to that effect is required.

The Hearing before Mr Justice Mellor

In Anan Kasei Co. Ltd and another v Neo Chemicals & Oxides (Europe) Ltd and another [2021] EWHC 1972 (Pat) (13 July 2021), the parties sought disclosure guidance from Mr Justice Mellor.  The guidance was sought in relation to an inquiry as to damages for patent infringement. Mr Roger Wyand QC found that European patent 1,435,338 had been infringed in Anan Kasei Co. Ltd and another v Molycorp Chemicals & Oxides (Europe) Ltd [2018] EWHC 843 (Pat) (23 April 2018) and the Court of Appeal upheld his judgment in Anan Kasei Co Ltd and another v Neo Chemicals & Oxides Ltd and another [2019] WLR(D) 553, [2019] EWCA Civ 1646.  I discussed both judgments in Patents - Anan Kasei Co Ltd and another v Neo Chemicals and Oxides Ltd. in NIPC Law on 19 Oct 2019.

The Procedural History
The claimants served their points of claim on 26 June 2020 and the defendants their points of defence on 11 Sept 2020.  Each side should have given initial disclosure on those dates.  It appears from para [6] of Mr Justice Mellor's judgment that Mr Justice Fancourt gave directions for the preparation of a Disclosure Review Document and ordered the claimants to disclose an agreement with a customer relating to the supply of high surface area cerium oxide products, and a financial document underlying its claimed lost profit margins to the defendants' solicitors and forensic accountants as part of initial disclosure in December 2020.  The claimants served their draft List of Issues for Disclosure on 23 Dec 2021 and the defendants served theirs on 20 Jan 2021.  The parties exchanged draft lists on 10 Feb 2021.

The Disclosure Review Document

Mr Justice Mellor said at para [19] of his judgment that the Disclosure Review Document had identified issues in the action, but not issues for disclosure. Categories of documents or types of documents that were sought had been identified in relation to some of the issues but not in respect of others.  He observed at [21]:

"What has happened in the lead up to this hearing illustrates the problems caused by listing in the DRD issues in the action and not issues for disclosure. Instead of focussing on what types of documents would be likely to contain the required information, the debates focussed on whether very particular points had or had not been pleaded or admitted, and Neo continued to make arguments of this nature during this hearing."

The parties had gone astray because they had failed to take due account of the judgment of the then Sir Geoffrey Vos in McParland & Partners Ltd v Whitehead [2020] EWHC 298

The McParland Judgment

Mr Justice Mellor identified the following key points from McParlainsd at [22]:

"(a) First, the importance of properly identifying the issues for disclosure, and not simply listing out in the DRD the issues in the action (see [46] and [49]). It is a quite different exercise from the creation of a list of issues for determination at trial (see [56]);
(b) Second, compliance with the Disclosure Pilot need not be costly or time-consuming (see [55]). In this case, it is likely that if the parties had properly identified the issues for disclosure, there would have been far fewer than the 33 originally listed, probably fewer than 10. The disputes would then have been easier to resolve;
(c) Third, unduly granular or complex lists of Issues for Disclosure should be avoided (see [57]). See the preceding point.
(d) Fourth, the need for a high level of cooperation between the parties and their representatives in agreeing the Issues for Disclosure and completing the DRD (see [53]). This means the parties have to think cooperatively and constructively about their dispute and what documents will require to be produced for it to be fairly resolved (see [4]). Co-operation between legal advisers is imperative (see [58]). It seems to me that in 'hard fought' litigation, the need for cooperation between representatives is even more important. Unfortunately in this case, the cooperation which was required was hindered by the fact that the parties set off on the wrong foot in their identification of the issues for disclosure. This led to the disputes over what had or had not been pleaded, when in fact those disputes could and should have been more easily resolved if attention had been focussed on what documents were likely to exist and which were required to resolve the issues in this inquiry. The lack of proper cooperation led to the disclosure disputes being debated in expensive and lengthy correspondence. Some of this could have been avoided if the parties' representatives had met to discuss these disputes."

He added at [23] that the disclosure pilot does require a general sea change in thinking which this application illustrated had not yet come about.

Issues 9, 11, 14 and 19

These related to different heads of damage.  The claimants sought Model D disclosure and the defendants Model B.  The defendants argued that there were no issues in dispute because the defendants had admitted the claim against them and all the key documents had already been produced.   The claimants took the judge through a number of points on the pleadings to demonstrate there were facts in dispute on causation that required disclosure to resolve them fairly, including the following:

"(a) Whether Neo's acts in the UK were the cause of the sales made overseas;
(b) Whether it was the infringing Development Samples or the non-infringing ones which were part of the development of C100N.
(c) Did JMI provide feedback to Neo on the infringing Development Samples? If so, what was it?
(d) What was the role of the C100N which was supplied in small quantities prior to the agreement on the specification of C100N?
(e) Is it correct, as Neo alleges, that the PPAP supplies were instrumental in the foreign sales?
(f) Is it correct that there were no PPAP supplies in the UK?"

Applying para 6.4 of the practice direction, his lordship was satisfied that Model D disclosure (without narrative documents) from the defendants on causation was appropriate for the following reasons:

"(a) The issues of causation in this damages inquiry are highly fact-specific and factually complex;
(b) This case is important because the value of Rhodia's claim is considerable (even if the indication of the likely value is confidential);
(c) It is highly likely that Neo has documents with a high probative value. Mr Copeland gave as examples: documents concerning the provision of Development Samples to JMI for testing, feedback from JMI, documents concerning the provision of C100N to JMI to allow it to qualify the product, negotiations over the supply of C100N to JMI;
(d) Although the Model D disclosure sought will involve some expense on Neo's side, the expense in the context of this inquiry is reasonable and proportionate. Neo gave some overall estimates as to the cost of disclosure, but, as Mr Copeland pointed out, these were made before the disclosure issues narrowed.

(e) Both parties are well able to bear the costs of disclosure. Neo has already had to pay Rhodia hundreds of thousands of pounds in costs and Neo expended large sums in costs on its WA and SJ applications."

He added at [34] that there was significant mistrust between the parties, the litigation had been hard fought and it was to be assumed that the defendants would take every possible point open to it.

The Mixed Oxide Licences Issue

The claimants had pleaded that they would only license their high surface area cerium oxide products at a rate equal to their profits. The defendants asked for disclosure of licences relating to other mixed oxide products on the grounds that those licences were comparable to the high surface area cerium even though they resulted from different technology and were not substitutable. The claimants replied that those licences related to an entirely separate mixed oxide patent family about which the parties were in separate litigation. The learned judge declined to order disclosure of the mixed oxide licences. He was not persuaded that disclosure of those licences was reasonable or proportionate or that those licences were sufficiently relevant.

Issues 6 and 17
These were concerned with whether the defendants had imported into the UK and/or kept commercial products and/or infringing development samples and subsequently supplied those items to customers outside the UK within the limitation period. The claimants contended that their patent would have been infringed by a decision to export those products while they were in the jurisdiction. This was a contentious point upon which the only authority was a decision of the Court of Appeals in Barcelona. Nevertheless, Mr Justice Mellor decided that this was a situation in which decisions were certainly made as to the destination of patented products. The claimants could not know what decisions had been made and when or where they had been made without seeing the defendants' internal documents. The judge was therefore satisfied that the disclosure sought by the claimants was necessary.

Issue 5

The claimants sought documents concerning negotiations over price on the ground that the documents were relevant to the issue of a reasonable royalty. They argued that the documents would reveal whether the defendants pressed for a higher price and were 'batted down' or did not press, or reveal that there were different approaches taken to different customers. It was said that it would shed light on the extent to which the defendants would have been able to charge a higher price, including the reasonable royalty. The judge refused the request on the ground that it was too speculative, disproportionate and unnecessary as the claimants could give evidence of the state of the market.

R & D Samples

The claimants requested disclosure relating to R&D samples on the ground that these were supplied on a different basis to development samples and commercial products. His lordship accepted that that might be true but if the claimants failed to show loss caused by the supply of commercial products and development samples they were unlikely to show loss arising from the supply of R&D samples.

Contracts with Third Parties

I mentioned above that Mr Justice Fancourt had ordered the claimants to disclose an agreement with a customer relating to the supply of high surface area cerium oxide products to the defendants' solicitors and accountants but not to their chief operating officer. Mr Justice Marcus Smith modified the order allowing the document to be disclosed to the chief operating officer if the claimants' customers did not object. However, one of those customers did object.  Mr Justice Mellor directed a hearing to consider the third party's objections.

Order
The learned judge asked the parties to record his guidance in an order.

Further Information

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