11 October, 2018
The strength of your case depends on what evidence you have to substantiate your claims. Discovery applications are often used by litigants to enable them to obtain documents which are relevant to their case, but are in the possession, custody or power of their opponent.
Discovery applications are typically made after a suit has already been commenced in court.
However, there are instances where a discovery application may be done before the filing of a legal suit. Prior to the Rules of Court 2012, there was no express mechanism for a party to apply for discovery before commencing a suit. Pre-action discovery was therefore governed by the limited scope of case law under the Norwich Pharmacal principles (derived from the House of Lords’ decision in Norwich Pharmacal Co v Customs and Excise Commissioners [1973] UKHL 6, [1974] AC 133). Under the Norwhich Pharmacal principle, discovery may be obtained against a third party if the information sought is necessary to identify a wrongdoer, or to find/preserve evidence that may support an action against an unknown wrongdoer.
In 2012, the Malaysian Rules of Court were amended to include Order 24 Rule 7A, which allows parties to apply for pre-action discovery. This article will examine the ambit of a pre-action discovery application under Order 24 Rule 7A.
Purpose of Pre-Action Discovery
Imagine this situation: you enter into a contract with X, whereby in exchange for services rendered, X agrees to give you 20% of the proceeds from the sale of his assets. After your services are rendered, you notice that Y is now in possession of X’s assets. You therefore suspect that X has sold his assets to Y and you are entitled to 20% of the proceeds pursuant to the contract. However, when you press X, he refuses to tell you whether he sold his assets, or how much he sold his assets for. You are aware that a certain amount of money may possibly be owing to you from X, but you have no idea how much because X doesn’t want to tell you the purchase price or even confirm the sale. You could potentially file a suit against X, but because you don’t know how much is owing to you or when the liability arose (if at all – what if X never sold his assets to Y and you made a wrong assumption?), your suit may be vague and lacking in material particulars.
Pre-action discovery may be applied for where one party (the applicant) requires documents or information from another party in order to:
- decide whether the applicant has a cause of action;
- identify a wrong-doer; or
- obtain necessary information and documents to properly frame or quantify a claim
Legal Requirements
Generally, a litigant must demonstrate the following requirements if they want to be granted pre-action discovery:
- State the material facts pertaining to the intended proceedings;
- Whether the person against whom the order is sought is likely to be a party in the subsequent proceedings
- The documents sought are relevant to an issue arising or likely to arise out of the future claim to be made;
- Identify the persons likely to have or had the documents in his possession custody or power for the Order to apply upon.
Of the four criteria above, the most “controversial” is the relevancy test. The test of relevancy was explained in Ahmad Zahri Mirza v Pricewatercoopers Capital Sdn Bhd & Ors [2015] 7 CLJ 930, whereby it held that a document would be relevant if it contained information which either directly or indirectly allows the requestor to advance his own case or to damage the case of his adversary, or otherwise fairly lead him to a train of inquiry. In short, a document may be deemed relevant if it would help strengthen a proposed case or negate a defence.
In the Ahmad Zahri Mirza case, the Plaintiff was entitled under a contract to receive a cut of the purchase price from the acquisition of shares in a certain company. He applied for pre-action discovery to obtain the valuation report so he could assess and quantify the amount due to him under the contract. The Court granted pre-action discovery since without the valuation report, the Plaintiff would not know how to quantify the exact amount owing to him:
Without knowing the valuation … as a whole, the plaintiff would be in no position to find out the price per share … and hence would not be able to calculate the purchase price due to him for the disposal of his shares… His claim though, founded on a breach of the sale of shares contract, would be lacking in material particulars with respect to the amount of balance purchase price that is due to him from Megawisra. Indeed the plaintiff would not even be in a position to issue a letter of demand much less to reasonably and rationally negotiate for a settlement and failing which then, to proceed to file an action.
Should the plaintiff proceed to claim for the payment of purchase price to be ascertained, that would be embarrassing to him and he might even suffer his claim to be struck out for being vague and lacking in material particulars. Should he then wring his arms in despair, having on one hand a valid cause of action and on the other hand not being able to know the balance purchase price due to him and hence not being able to proceed?
Additional Considerations
Merits of the Future Action
A party may try to resist an application for pre-action discovery on the grounds that the applicant intends to file a baseless suit, ie: even if discovery is granted and the applicant files a claim, that claim will not succeed. As such, the Court should not waste their time granting a pre-action discovery.
It has since determined that there is no such requirement for an applicant to prove that the case it intends to file is a good or strong case. The Court of Appeal in Infoline Sdn Bhd Benjamin Lim Keong Hoe [2017] MLRAU 1 held that a prospective litigant does not need to show in advance that he has a good cause of action in order to succeed in a pre-action discovery application. This is because the very purpose of pre-action discovery is to enable a plaintiff to find out before he starts his action whether he has a good cause of action or not. The object of pre-action discovery would be defeated if the Plaintiff must first demonstrate, before he saw the documents, that he has a good case.
Similarly, in Archer Recruitment Pte Ltd v Savills Project Management Sdn Bhd [2018] 1 LNS 703 the High Court held that it ought not be concerned with the merits of the Plaintiff’s intended claim as the merits of the future action are not relevant to an application for pre-action discovery. The Court in a pre-action discovery was not required to delve into merits or demerits of Plaintiff’s intended action against the Defendant. On appeal, the Court of Appeal agreed with the High Court’s decision and maintained the order for pre-action discovery.
It can therefore be surmised that so long as an applicant can meet the legal requirements set out in Order 24 Rule 7A, pre-action discovery may be granted (subject to the other considerations mentioned here). The applicant does not need to demonstrate the strength of their future claim, so long as their application is also not a “fishing expedition” (ie: hunting for addition information to merely strengthen their case or to find out more wrong doings which they were previously unaware of).
Confidentiality
It is also not uncommon for a party to object to pre-action discovery on the basis that the documents sought are confidential. In this context, courts have held that the right to confidentiality must also be properly balanced with the interests of the applicant in enforcing his rights. On its own, confidentiality is not a bar to pre-action discovery since the Court may impose a condition in the discovery order that the applicant cannot use the information disclosed for any purpose other than for the intended action.
Equitable Considerations
The Court of Appeal in its recent (June 2018) judgment (Bandar Utama Development Sdn Bhd & Anor v Bandar Utama 1 JMB [2018] 4 MLRA 345) has also clarified that pre-action discovery is an equitable remedy. Being an equitable remedy, it is not granted “as of right”. As such, if there is an alternative remedy available that must be resorted, or if an action can be filed without pre-action discovery, that action ought to be filed and subsequently discovery orders should be obtained through the normal process. In the Bandar Utama case, there was a dispute between parties relating to delivery of strata titles. The Court of Appeal refused to grant pre-action discovery because the applicant’s concerns and relief should have been dealt with at another forum, ie: the Strata Management Tribunal, as provided under the Strata Management Act 2013. Since an alternative remedy/forum was available to the applicant, the Court of Appeal found that the pre-action discovery approach was inappropriate.
Pre-action discovery applications, if utilised correctly, can result in significant time and costs savings for all parties. In some situations, after receiving the necessary documents, litigation may be avoided. Even if litigation is unavoidable, pre-action discovery may help reduce time and costs by identifying the real issues, whether existing or anticipated.
For further information, please contact:
Donovan Cheah, Partner, Donovan & Ho
donovan@dnh.com.my
