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Risk of prosecution by foreign regulator no excuse for defendant's failure to disclose in English litigation

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Amy Edwards

Senior PSL - Litigation

London

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Joseph Worndl

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London

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24 June 2020

The High Court rejected a defendant’s application to vary an order for standard disclosure, notwithstanding that such disclosure would have exposed the defendant to a breach of its regulator’s requirements, and a risk of prosecution, in Saudi Arabia.   As a result of the defendant’s failure to comply with the court’s disclosure order, its defence was struck out save for issues on which the claimants were not disadvantaged by the defendant’s lack of disclosure.  This judgment highlights some of the challenges which face litigants when caught between English disclosure rules and foreign regulatory requirements: Byers v Samba Financial Group [2020] EWHC 853 (Ch)

The claimants started breach of trust proceedings in England against Samba Financial Group (the Bank) in 2017. The court originally ordered standard disclosure.  The Bank later sought to vary the court’s order for standard disclosure, to discharge the Bank from its outstanding disclosure obligations.  The Bank argued that it was unable to comply fully with the order as it did not have the consent of its regulator (the Saudi Arabian Monetary Authority – SAMA) to comply.  The Bank asserted that SAMA had refused to give consent to any further disclosure and that non-compliance with SAMA’s decision would create a real and substantial risk of prosecution in Saudi Arabia with severe penalties. It was, the Bank argued, having to choose between “defying the express requirements of its regulator, SAMA (breach of whose rulings is a criminal offence), and acting contrary to the orders of the English court”. The claimants applied for the defence to be struck out on the basis of the Bank's failure to complete disclosure.  

The court granted the claimants’ application to strike out the defence (apart from selected issues which were not affected by the disclosure breach) and rejected each of the Bank’s applications, which included requests for the court’s assistance in petitioning the Saudi Arabian Government and for a split trial.

No material change in circumstances

Assessing whether to exercise its jurisdiction to vary the disclosure order, the court considered whether there had been a material change in circumstances since the standard disclosure order was originally made. 

The court found that there was no evidence of a material change in circumstances, merely evidence that the Bank did not comply with SAMA’s requirements and did not adequately communicate with SAMA.  The Bank did not appear to have produced a complete list of disclosure documents for SAMA to consider (as SAMA had requested in deciding whether to provide its consent to disclosure).  It had also not received a decisive refusal of consent from SAMA. The Bank was instead relying on an undisclosed letter from SAMA stating that the court must petition Saudi Arabia’s Ministry of Foreign Affairs for consent and a further letter from SAMA, prepared at the Bank’s request, setting out the legal consequences of making disclosure before obtaining consent.

The Bank was criticised for not having done more to ensure that a complete (or at least fuller) picture of its interaction with SAMA was placed before the court. There was no convincing reason why the Bank’s correspondence with SAMA could not have been disclosed (as was previously ordered by the court) as a confidential exhibit. 

A balancing act: Bank Mellat applied

The Bank argued that the consequences of complying with the standard disclosure order would be so serious for the Bank that the court should relieve it from the dilemma of having to act contrary to Saudi Arabian law.  The court considered Bank Mellat v HM Treasury1, which is the leading authority on the extent to which the risk of prosecution of a foreign litigant in its home state is a material consideration when the English court is making or enforcing an order for disclosure or inspection of documents.  Bank Mellat states, inter alia, that the court should balance the actual risk of prosecution in the foreign state triggered by compliance with an English disclosure order against the importance of the disclosure to conducting a fair trial.

Fancourt J was “unable to conclude that there is a strong likelihood of prosecution” but did accept that there would be a risk, if the Bank were to give standard disclosure.  The Bank’s witnesses, the court found, had overstated the risk.  Despite this risk, Fancourt J found the balancing exercise still favoured ordering disclosure. The claimants would be significantly disadvantaged by a lack of disclosure, and the Bank had gained a considerable advantage through the claimants’ full disclosure. The Bank had also sought the variation of the order very late. 

Striking out the defence

The court deemed the Bank’s breach of the standard disclosure order to be both serious and deliberate. Although the breach of the order was not “wholly inexcusable” due to the Bank’s genuine concern about prosecution in Saudi Arabia, the breach was inexcusable to the extent that “the Bank has wrongly failed to do what it should have done to persuade SAMA to relent so that it could comply”.

The court granted the claimants’ application for striking out the defence, except the issues where the claimants were not disadvantaged by the lack of disclosure.  At the time of writing, the Bank is seeking permission to appeal.

Comment

The strike-out order in Byers highlights the potential ramifications of failing to comply with English disclosure obligations.  The case confronts the dilemma faced by a litigant whose disclosure obligations under English law conflict with the laws of a foreign jurisdiction. Fancourt J’s opinion signals that the balancing test in Bank Mellat will continue to be influential and that a court will not be quick to vary a disclosure order.  The applicant will need to demonstrate a real risk of prosecution by a foreign government but even that will not guarantee a variation – it is a question of balancing the risk of prosecution against the requirements for a fair trial.  As Fancourt J said, “the outcome for the Bank will not serve to encourage other litigants to advance colourable claims of inability to comply with the Court’s orders. The Court will, as ever, be astute to detect and prevent any such abuse”.

The decision in Byers comes after a pair of high-profile cases which highlight the English courts’ robust attitude to enforcing English court disclosure rules in the face of competing foreign law considerations.  The court ruled against the collateral use of documents disclosed in English proceedings to obtain foreign legal advice2 and to comply with a U.S. subpoena3.

The court’s observation that the Bank may not have been presenting the “full picture” also provides practical case management guidance for litigants facing similar circumstances. The litigant should be able to demonstrate proactive steps, taken expeditiously, to obtain the appropriate consents, together with evidence that it has done what has been asked of it in order to obtain consent.  The court here was plainly not impressed with the Bank’s efforts to obtain SAMA’s consent, and the amount of time that had elapsed between the original disclosure order and the application for a variation.

 

Footnotes:

1 Bank Mellat v HM Treasury [2019] EWCA Civ 449.

2 The ECU Group v Plc v HSBC Bank Plc [2018] EWHC 3045 (Comm).

3 ACL Netherlands BV (as successor to Autonomy Corporation Ltd) & ors [2019] EWHC 249 (Ch).

 

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.