Introduction
Imagine investing a substantial sum in a company after being told how your money would be deployed.
The company later fails to repay your investment and is eventually wound up. You suspect that the investment monies may not have been used for their stated purpose, but the documents needed to verify that suspicion are not in your possession. They are held by the company and its banks.
Can you obtain those documents before deciding whether to commence proceedings against the persons responsible?
The answer is yes, in an appropriate case.
Order 24 rule 7A of the Rules of Court 2012 allows the Malaysian Courts to order discovery before proceedings are commenced. The remedy may assist a prospective claimant to determine whether there is a sustainable cause of action, identify the proper parties to be sued, and frame the proposed claim with the necessary particulars.
Recently, our firm successfully obtained a pre-action discovery order on behalf of an investor requiring the disclosure of bank statements belonging to a company in liquidation. The documents were sought to determine how the investor’s funds had been used and whether there was a proper basis to commence proceedings against the company and its directors or former directors.
The decision illustrates both the usefulness and the limits of pre-action discovery. It is not a licence to search generally for wrongdoing. However, where specific documents are necessary to determine whether a claim exists or to identify the persons against whom it should properly be brought, the Court may intervene before
What Is Pre Action Discovery
Discovery ordinarily takes place after legal proceedings have commenced. The parties may be required to disclose relevant documents within their possession, custody or power so that the real issues can be fairly determined.
Pre-action discovery reverses that sequence. It allows a person who is considering litigation to seek specified documents before filing the proposed action.
The remedy is particularly useful where the prospective Plaintiff knows that something may have gone wrong but cannot responsibly plead the proposed case without documents controlled by another person. Depending on the circumstances, the documents may be required to:
- determine whether a cause of action exists;
- identify the persons who may properly be made parties;
- understand the relevant transactions;
- frame the claim with sufficient particulars; or
- avoid commencing speculative or unnecessary proceedings.
The underlying purpose is practical. A Plaintiff should not be forced to commence proceedings blindly merely to gain access to documents which are necessary to decide whether those proceedings ought to be brought in the first place.
The Legal Framework
The relevant provision is Order 24 rule 7A of the Rules of Court 2012.
Under rule 7A(1), an application for discovery before the commencement of proceedings must be made by originating summons. The person against whom discovery is sought must be named as a defendant to that originating summons.
The supporting affidavit must set out the grounds for the application and the material facts relating to the intended proceedings. It must also specify or sufficiently describe the documents sought and show that:
- the documents are relevant to an issue likely to arise in the intended proceedings, or to the identity of the likely parties;
- the person against whom the order is sought is likely to have, or previously have had, the documents in his possession, custody or power; and
- discovery is necessary for the fair disposal of the contemplated dispute or for saving costs.
Rule 7A(5) further recognises that an order may be made with a view to identifying possible parties to future proceedings where the Court considers it just to do so.
The Court nevertheless retains a discretion. Order 24 rule 8 requires the Court to refuse discovery if it is not necessary for disposing fairly of the matter or for saving costs.
Relevance And Necessity
The documents sought must be connected to a real prospective dispute. It is insufficient to ask for wide categories of documents in the hope that something actionable may emerge.
In Ahmad Zahri Mirza v PricewaterhouseCoopers Capital Sdn Bhd & Ors [2015] 7 CLJ 930, the Court explained that a document may be relevant where it would directly or indirectly enable the applicant to advance the proposed case, damage an opposing case, or fairly lead to a train of inquiry producing either result.
Relevance alone is not the end of the inquiry. The applicant must also establish necessity. The Court will consider whether the proposed action can fairly be commenced without the documents, whether the documents have been identified with sufficient precision and whether discovery before suit would genuinely save time or costs.
This is why pre-action discovery must be distinguished from a fishing expedition. The applicant is not entitled to demand every document connected with a person or transaction merely to see what might be found. The application should be directed to identifiable documents which address a defined uncertainty affecting the proposed proceedings.
Must The Applicant Already Prove A Strong Case
No.
In Infoline Sdn Bhd (sued as trustee of Tee Keong Family Trust) v Benjamin Lim Keong Hoe [2017] 6 MLJ 363, the Court of Appeal recognised that a prospective litigant should not be required to prove in advance that he already has a good cause of action. Such a requirement would undermine the very purpose of pre-action discovery, which may be to enable the applicant to determine whether a viable action exists.
However, this does not mean that a bare suspicion is sufficient. The applicant must still place before the Court the material facts concerning the contemplated proceedings, explain the relevance of the documents and demonstrate why disclosure is necessary.
The Court is not deciding the eventual merits of the proposed claim at this stage. It is deciding whether the documents should be disclosed so that the applicant can make an informed decision about the proposed litigation.
When Pre Action Discovery May Be Inappropriate
Pre-action discovery is an equitable and discretionary remedy. It is not available as of right.
In Bandar Utama Development Sdn Bhd & Anor v Bandar Utama 1 JMB [2018] MLJU 697, the Court of Appeal cautioned against using pre-action discovery where an identifiable cause of action has already arisen and the appropriate course is to commence proceedings and seek discovery in the ordinary way. The availability of another suitable remedy or forum may also weigh against granting the application.
The distinction is important. Pre-action discovery should not be used merely to strengthen a case which can already be properly pleaded. Its legitimate function is to resolve a material uncertainty which prevents the applicant from determining whether to sue, identifying the correct parties, or formulating the proposed claim responsibly.
Can Bank Statements Be Disclosed
Bank statements are confidential, but confidentiality does not by itself make them immune from a discovery order.
The Court will closely examine why the statements are sought, the period covered, the accounts identified and the relationship between the transactions and the contemplated claim. A request framed too broadly may be refused as disproportionate or speculative.
Where the use and movement of funds are central to the contemplated proceedings, however, bank statements may be the most direct evidence available. They may reveal whether monies were applied for their stated purpose, transferred to related parties or individuals, or dealt with in a manner capable of giving rise to a claim.
The order remains directed at disclosure for the purpose of the contemplated proceedings. It does not amount to a finding that any person has committed fraud, breached a duty or incurred liability. Those questions, if pursued, must be proved in the subsequent action.
Our Recent Success
In a recent matter handled by our firm, our client subscribed for Islamic redeemable preference shares issued by a company.
The investment materials represented that the funds would be deployed for identified investment or business purposes. Our client later issued a notice seeking redemption of the investment, but the redemption was not completed. The company was subsequently wound up.
Our client had grounds to be concerned about how the investment monies had been used. However, the relevant transactions were not within his knowledge. The company’s bank statements were held by the company and the financial institutions maintaining its accounts.
Before seeking pre-action discovery, we obtained leave under section 471 of the Companies Act 2016 to commence the necessary proceedings against the company in liquidation.
We then applied under Order 24 rule 7A for disclosure of the relevant bank statements. The application identified the accounts and financial institutions concerned, the relevant period and the purpose for which the documents were required.
The High Court granted the pre-action discovery sought.
The order enables our client to examine the movement and use of the investment monies before deciding whether there is a sustainable basis to commence substantive proceedings and, importantly, who the proper defendants to those proceedings should be.
The decision does not predetermine liability. It permits the evidence to be examined so that any subsequent action is brought on a proper factual basis rather than conjecture.
Why The Decision Matters
Cases involving suspected misuse of corporate or investment funds often present an evidential imbalance. The prospective claimant may know the amount paid and the representations made, but not what occurred after the monies entered accounts controlled by the company.
Without the underlying records, the claimant faces two unsatisfactory choices: commence proceedings based on incomplete facts, or abandon a potentially legitimate claim because the critical evidence is controlled by others.
Pre-action discovery can address that imbalance. Properly used, it allows the claimant to investigate a defined issue, avoids claims against persons who should not be sued and assists in pleading any eventual action with greater precision.
It also protects the persons from whom discovery is sought. The requirements of relevance, specificity and necessity prevent the process from becoming an unrestricted investigation into their affairs.
Key Takeaways
Several practical points arise.
First, pre-action discovery may be available where essential documents are required to determine whether a viable claim exists or to identify the correct parties to the proposed proceedings.
Secondly, the documents sought must be specified or described with sufficient precision. Wide or speculative requests are vulnerable to being characterised as fishing expeditions.
Thirdly, the applicant does not need to prove the eventual claim at the discovery stage. Nevertheless, the material facts, the contemplated issues and the connection between those issues and the documents must be clearly explained.
Fourthly, bank confidentiality is not necessarily an absolute answer to a properly framed application. Where fund flows are central to the contemplated claim, bank statements may be ordered to be disclosed.
Finally, where the relevant company has been wound up, leave under section 471 of the Companies Act 2016 must first be required before proceedings are commenced against it.
Conclusion
Order 24 rule 7A of the Rules of Court 2012 provides an important mechanism for prospective litigants who require specific documents before they can responsibly decide whether and against whom to commence proceedings.
The remedy is not intended to facilitate a general search for wrongdoing. The Court will require a clearly defined prospective dispute, specifically identified documents, a demonstrated link between those documents and the issues likely to arise, and a proper explanation of why disclosure is necessary.
Where those requirements are satisfied, pre-action discovery can prevent speculative litigation, identify the correct parties and place any subsequent claim on a sound evidential footing.
If you are considering legal proceedings but critical documents are held by a company, financial institution or other third party, legal advice should be obtained at an early stage. The scope and framing of the application will often determine whether pre-action discovery is granted.
