Disclosure obligations override foreign criminal law breach

Iranian bank, Bank Mellat (the Bank), brought proceedings in the English court against HM Treasury (HMT) claiming that sanctions imposed by HMT in 2009 (the 2009 Sanctions), subsequently found by the Supreme Court to be unlawful, had cost it a number of transactions that would otherwise have completed.  The Bank produced redacted customer banking data in thousands of documents on the basis that it had a “right or duty to withhold” inspection pursuant to CPR Part 31.19(3), because they contained confidential information.  HMT subsequently sought – and was granted – an order (the Order) that unredacted versions of these documents be produced for inspection (through a confidentiality club) with each customer’s details replaced with a cipher, along with a master list of the customers to whom each cipher related.  This master list would be provided only to members of the confidentiality club and not used in open court. The Bank appealed, on the basis that complying with the Order (in particular, providing the master list that would enable the customers to be identified) would place it in breach of criminal law in Iran.  

The Court of Appeal unanimously dismissed the appeal (Gross LJ giving the leading judgment). The principal issues on the appeal were: (i) the actual risk of prosecution faced by the Bank in Iran should it comply with the order; (ii) the importance of production of the documents in unredacted form to the fair disposal of the trial; and (iii) the discretionary balancing exercise for the Court, weighing the risk under (i) against the need for the documents under (ii).

No actual risk of prosecution

It was common ground that providing the unredacted documents and master list would place the Bank in breach of Iranian law; however, the question for the court was whether there was an actual (not hypothetical) risk that this breach would lead to prosecution.  The likelihood of any subsequent sanction arising from prosecution was not a relevant factor.

The Court was critical of the Bank’s expert, whose evidence about whether production of the unredacted documents would be a breach of Iranian law was not sufficient to support his conclusion that this would carry a “very real” risk of prosecution, when no relevant examples of prosecution were cited.  The court also doubted the expert’s expertise in relation to the “real risk” point.  Further, there was “no reason to suppose” that the Iranian prosecuting authorities lacked discretion as to whether to prosecute, and the court observed that it “cannot be overlooked” that compliance with the Order “would assist in the prosecution of the Bank’s very substantial claim.”  As such, it expected a “consideration of this nature to weigh with the Iranian prosecution authorities”.

The Court concluded that, in the circumstances, there was an actual risk of prosecution that was more than “purely hypothetical” (in contrast with authorities on the ‘French Blocking Statute’, which prohibits the use of certain documents as evidence in foreign proceedings but has been held by the English court to present only a hypothetical risk of prosecution).  Nonetheless, the Court agreed with the High Court that this actual risk was less serious than suggested by the expert.  Even if there had been compelling evidence to the contrary, it would not necessarily have been determinative.

Production of unredacted documents necessary for fair disposal of trial

Much of the Bank’s case against HMT related to some 2,361 transactions it said it had lost because of the unlawful sanctions.  There was a vital need for HMT to be able to test the claim against it, by establishing whether the 2009 Sanctions were indeed the reason that certain transactions did not complete.  The court accepted that unredacted customer information would help HMT test whether in fact some of the transactions did not complete for other reasons, which may have been customer-specific (such as insolvency) or related to other sanctions, or alternatively to discover whether some of the transactions did in fact complete but by other means or with other companies in the same group.  Given the vast number of documents involved and the likely need for sampling, the trial would be “fraught with risk” if only ciphers and no  master list were disclosed, and such a decision would be almost impossible to undo should it later transpire that the customer identities were essential.  The court concluded that “the fair disposal of this trial cries out for production of the Iranian documents unredacted”.

Striking the right balance: unredacted documents should be produced

The Court of Appeal upheld the Order finding that, while there was an actual risk, this did not outweigh the need for the documents to be produced to ensure a fair trial.  In reaching this decision, it stressed that it took “comity very much into account” and intended no disrespect for the relevant principles of Iranian law.  Among the features of the case particularly relevant to the court’s conclusion were the following:

• With regard to the actual risk of prosecution, particularly since no evidence had been adduced to show that the Iranian prosecuting authorities lack discretion as to decisions to prosecute.  In addition, the Iranian court could override confidentiality by a domestic court order.

• The Order provided for a confidentiality club which meant that the unredacted information would not be ventilated in open court.

• The need for production of the documents arose from procedural requirements to ensure a fair disposal of the trial.  Such procedural requirements are a matter for the law of the forum, and the court was entitled to conclude in this case that its procedural requirements should not be overridden by foreign law.

COMMENT

In deciding this appeal, the Court of Appeal was unapologetic about the primacy of English procedural law in the English court proceedings and the need for parties engaged in litigation in this jurisdiction to play by the “rules of the game”.  This case serves as a useful reminder of the principles that will guide the court’s decision to exercise its discretion in these situations.  In particular:

• disclosure is a procedural matter, and foreign law cannot be allowed to override the English court’s ability to conduct proceedings in accordance with English procedural law;   
  

• while the court will carefully weigh the actual risk of prosecution against the importance of the documents to the proceedings, the existence of an actual risk will not necessarily be enough to persuade the court not to order disclosure: it will, however, be “mindful” of it in the balancing exercise; and

• an order that would put a party in breach of foreign criminal law will not be made lightly by the English court, but the important message is that it is certainly not precluded from doing so.

Expert evidence of foreign law played an important role in this case.  Foreign parties seeking to challenge the production of documents on this basis should consider at the outset any potential consequences in their home jurisdiction which may be relevant, and bear in mind the importance of adducing factual evidence of past prosecutions that goes beyond the theoretical breach of foreign law.  

Parties in this position should also consider ways in which an order for production could be tailored to address their concerns about foreign law breach.  In this case the court noted, disapprovingly, that the Bank had adopted an “all or nothing” approach and had not engaged with HMT in relation to the creation or constitution of a confidentiality club.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  If you wish to receive this publication, please contact Amy Edwards, amy.edwards@allenovery.com.