Meridian Global VAT Services LTD v Lindelauf Consultancy BV & Ors (Approved)

Factual and Procedural Background

The Plaintiff, a software developer of a VAT automation package, entered a consultancy agreement in 2010 with the First Defendant, a Dutch company controlled by the Second Defendant, to provide services critical to the software's development. The Plaintiff alleges that the Defendants were bound by confidentiality obligations and that the Plaintiff owns the copyright in the developed material.

In late 2019, the First and Second Defendants sought to end the consultancy agreement. The Plaintiff later discovered that the Second Defendant had joined the Third Defendant, a tax technology solutions provider, which was offering a VAT solution allegedly using the Plaintiff's confidential information and copyright material. The Plaintiff claims this infringes their rights, while the Defendants robustly deny the allegations, describing the claim as baseless and without evidential foundation.

The Defendants filed a defence raising preliminary objections and threatening to seek costs and counterclaims for alleged malicious abuse of court process.

Procedurally, the court made a discovery order on 19th February 2021 requiring the Defendants to produce certain documents, including Category 6 documents related to the Third Defendant's VAT offering development from 26th June 2019 onwards. The Defendants now apply to vary this order under Order 31 Rule 12(11), contending that compliance with Category 6 is significantly more burdensome and costly than anticipated.

Legal Issues Presented

1. Whether there is good reason to revisit and vary the existing discovery order under Order 31 Rule 12(11) based on the disproportionate burden and cost of compliance.
2. Whether the Defendants’ proposed alternative, involving a supervised system demonstration, limited discovery of code snapshots, and restricting document discovery to a core group of personnel, is an adequate substitute for the original discovery order.
3. The application of principles of proportionality and good faith in discovery obligations in complex commercial litigation.

Arguments of the Parties

Defendants' Arguments

• The Defendants argue that the discovery order, particularly Category 6, imposes an unforeseen and disproportionate burden and cost (estimated at approximately €710,000) due to the scale of documents and custodians involved.
• They contend that at the time of the February 2021 order, they had not fully appreciated the volume and technical difficulties in complying with Category 6.
• The Defendants propose an alternative discovery approach consisting of: (1) a supervised demonstration of their VAT system to the Plaintiff's experts; (2) production of text files of relevant backed-up code on specific dates; and (3) limiting document discovery to a core group of eight personnel plus the Second Defendant.
• They assert that their proposal would reduce costs and burden while still enabling the Plaintiff to effectively interrogate the development of the VAT offering.

Plaintiff's Arguments

• The Plaintiff submits that the Defendants should have anticipated the burden and cost at the time of the February 2021 hearing by conducting appropriate investigations, and thus no good reason exists to revisit the order.
• They argue that Category 6 is crucial to their claim as it relates to the core issue of alleged misuse of confidential information.
• The Plaintiff contends that the Defendants’ alternative proposal is inadequate, particularly because: (a) the proposed system demonstration is not equivalent to discovery; (b) the production of text files without metadata will hinder proper review and understanding of the code’s functionality; and (c) limiting discovery to a core team risks excluding relevant documents held by other personnel.
• The Plaintiff emphasizes that discovery serves not only evidentiary purposes but also ensures transparency and honesty, which the Defendants’ proposal undermines.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by acknowledging the Defendants’ application under Order 31 Rule 12(11) to vary the discovery order on grounds of unanticipated burden and cost. It reviewed the factual background and the scope of Category 6 discovery, noting the Defendants’ estimate of €710,000 cost and the identification of 65 custodians with an enormous volume of documents (approximately 3.3 million documents or 700 million pages).

The court examined the principles set out in precedent, emphasizing that a party seeking to vary discovery bears the burden of showing that the obligation has genuinely exceeded what could have been anticipated in good faith, and that the variation is reasonable and proportionate.

It found that the Defendants had failed to undertake adequate preliminary investigations before the February 2021 hearing, particularly steps of identifying custodians and estimating document volume, which were obligations recognized in Thema v HSBC. The Defendants’ failure meant no good reason was established to revisit the order, consistent with the rationale in Hireservices Ltd v An Post and STT Risk Management v Transdev.

Regarding proportionality, the court acknowledged the very significant estimated cost but found the Category 6 documents to be highly relevant and central to the Plaintiff’s claim. The court rejected the Defendants’ alternative proposal as inadequate because:

• The proposed system demonstration does not substitute for comprehensive discovery and risks denying the Plaintiff full access to relevant documents.
• Limiting discovery to text files without metadata would impair the Plaintiff’s ability to search and understand the code’s functionality.
• Restricting custodian scope to a core group risks excluding relevant material held by other personnel, with insufficient detail to justify such limitation.

The court also noted the absence of independent expert evidence to corroborate the Defendants’ technical claims and found unresolved conflicts in affidavits on key issues.

Finally, the court observed that the Defendants’ costs and burden, while substantial, are part of litigation costs and that the Defendants may recover costs if they succeed in defending the action. The court concluded that the discovery order as made was not disproportionate and no sufficient good reason existed to vary it.

Holding and Implications

The court REFUSED the Defendants’ application to vary the discovery order made on 19th February 2021 with respect to Category 6.

The direct effect is that the Defendants remain obligated to comply with the original terms of discovery, including the extensive production of documents under Category 6. No new precedent was established; the decision reinforces the established principles that parties must undertake reasonable preparatory steps before discovery hearings and that discovery obligations will not lightly be varied absent good reason and proportionality considerations.