Supreme Court of Ireland Decisions

 


THE SUPREME COURT

371/2003

McGuinness J.

Hardiman J.

Fennelly J.

BETWEEN

PATRICK VON GORDON

Plaintiff/Respondent

and

HELABA DUBLIN LANDES BANK HESSEN-THURINGEN INTERNATIONAL, HELABA INTERNATIONAL FINANCE PLC, LANDES BANK HESSEN-THURINGEN GIRONZENTRALE

and HELABA FINANCE BV

Defendants/Appellants

JUDGMENT delivered on the 17^th day of December, 2003 by FENNELLY J. [Nem Diss]

This appeal is now restricted to resolving disputed discovery in respect of a small number of documents. The action is due to be heard in January. A quick decision is, therefore, required.

The plaintiff has at all material times been the General Manager or Manager Director of the first three defendants. All the defendants are part of a German banking group. Only the first three defendants are relevant. The fourth-named defendant is a Dutch subsidiary of the German parent. For present purposes, it is unnecessary to distinguish between the first three defendants. I refer to them collectively as the defendants. They are, respectively, either Irish subsidiaries of the German parent or the Irish branch of a German banking subsidiary of the same parent. They carry on banking business, under licence, at the Financial Services Centre in Dublin.

The dispute concerns the plaintiff's employment contract. The plaintiff complains that the defendants have, over a period of time, operated the Irish banking business by putting lending business artificially and irregularly through the Irish branch or subsidiaries, principally in order to benefit from lower Irish corporation taxation. Large lending transactions were, he claims, put through an Irish subsidiary which breached its lending limit with the result that a special guarantee had to be furnished by the German parent. He complains that these practices infringed both Irish and German law.

The defendants deny any such irregularity. They say that their Irish enterprises are licensed for international business; they are not permitted to carry on normal Irish banking business.

The plaintiff says that he reported his concerns about these irregularities to higher management, but that they were ignored. By way of a vivid example of this, he says that he prepared a report for a special meeting in Frankfurt but that, not only was his report rejected, but all copies of the report were torn up.

The plaintiff says that, instead of taking his complaints seriously, the defendants demanded that he withdraw them under pain of disciplinary proceedings, potentially leading to his dismissal. His pay and other benefits were stopped. He says that he has suffered, as a result, from personal injury consisting of headaches, depression and psychiatric illness.

The plaintiff, having instituted these proceedings, sought and obtained interlocutory relief. Specifically, the defendants have been ordered to continue paying his salary and other benefits. Kelly J, in the High Court, decided to adopt "case-management" measures. These included setting dates for discovery applications and the completion of discovery.

The present appeal is taken from limited parts of the subsequent decision of Smyth J in the High Court ordering discovery of a large number of categories of documents. The Court has been informed that agreement has been reached in respect of a large number of aspects of the discovery. Discovery has not, however, yet taken place.

I will now set out the disputed categories.

Categories (b) and (c)

Categories (b) and (c) ordered to be discovered by the learned High Court judge are as follows:

"(b) A copy of the Landesbank Hessen-Thuringen Girozentrale ("Helaba Frankfurt") Board Resolution plus respective memoranda from Human Resources in Helaba Frankfurt concerning Mr Ulrich Gnath's premature termination as managing director (in or around May 1997) of the first and second named Defendants.

(c) Memorandum of Mr Werner, then head of Human Resources of Helaba Frankfurt, to Mr Schaefer, then Chief Executive of Helaba Frankfurt concerning the termination of Mr Ernst Van Beek, Deputy Managing Director of the first and second named Defendants dated August 2000 together with a copy of the Helaba Frankfurt Board Resolution plus respective memoranda, notes, attendance notes and correspondence from Human Resources in Frankfurt on the matter and meetings with Mr Van Der Beek in Frankfurt.'"

These two categories relate to the employment history, with the defendants, of two other named former high-level executives. The plaintiff says that these two persons made similar complaints to those he had made and that they were, as a consequence, dismissed. He wishes to show that, within the defendants, there was a pattern of premature termination of senior personnel who raised complaints similar to those made by the plaintiff. The defendants say that each of the two named executives was employed on a three-year fixed-term contract, which were simply not renewed.

The defendants argue on the appeal that this is an attempt by the plaintiff to obtain discovery of evidence of "similar facts" and that discovery should, for that reason, be refused. They cite Thorpe v Chief Constable of Manchester [1989] 2 All E.R. According to Neill L.J. in that case:

"Evidence of 'similar facts' is relevant both in criminal and in civil cases to rebut defences such as accident or coincidence or sometimes to prove a system of conduct. Such evidence is not admissible, however, merely to show that the party concerned has a disposition to commit the conduct alleged."

In Berger v Raymond Sun Ltd [1984] 1 WLR 625, Warner J excluded similar fact evidence on the basis that it would be oppressive to the defendants in that case. He directed himself at p 632 that in deciding how to exercise his discretion in relation to the admission of evidence "the court should at least take into consideration the probable probative value of the evidence sought to be adduced and the extent to which it will complicate and prolong the trial".

The plaintiff, in response, cites the observation of Lord Denning MR in Mood Music Publishing Co v De Wolfe Ltd [1976] Ch 119, 127 that in civil cases the courts have followed a similar line to that pursued in criminal courts, but that they have not been so chary of admitting it. He said:

"In civil cases the courts will admit evidence of similar facts if it is logically probative, that is, if it is logically relevant in determining the matter which is in issue: provided that it is not oppressive or unfair to the other side; and also that the other side has fair notice of it and is able to deal with it."

At this stage, the Court is required only to decide whether the documents sought should be discovered. If there were a clear rule excluding from evidence the type of material sought by the plaintiff, discovery would, no doubt, not be ordered. However, the question of admissibility seems, on the authorities, to involve the exercise of judicial discretion in balancing competing considerations of relevance, probative value and oppression. That will be entirely a matter for the trial judge. I express no opinion on the admissibility of the proposed evidence. I say only that discovery should not be refused in circumstances, such as the present, where to do so would prejudge that issue.

One of the two former executives of the defendants, though living outside the jurisdiction, will, we were informed, attend voluntarily at the hearing. Counsel for the defendants pointed out that there is no allegation in the statement of claim that there was any pattern of "premature termination" such as is alleged in the discovery application. However, it is not clear, at this stage, that this is necessary. The plaintiff wishes to call evidence that the defendants treated other employees similarly to what he alleges in his own case. Even the issue of the sufficiency of the pleading will be a matter for the trial judge to decide. Counsel also alleges that the introduction of these other cases of dismissal would be oppressive, since the plaintiff will have to demonstrate that the account of the reasons for the termination of the other employments was correct and that of the defendants false. I am not satisfied that this demonstrates any sufficient likelihood of oppression so far as the defendants are concerned. The burden of proof on the substantive issue will be on the plaintiff. The defendants should be in possession of the facts. Only two former employees are involved. Any additional potential inconvenience to the defendants does not amount, in my view, to such oppression as would justify refusing the plaintiff discovery of these documents.

I would refuse the appeal in respect of these two categories.

Category (l)

This is described as follows in the letter seeking discovery:

"Details of the loan in breach of paragraph KWG in favour of Dr X [named in the request] from Germany."

The reason supplied to justify this request is as follows:

"AND TAKE NOTICE that the reason for which such documentation is required arises from the Plaintiff's assertion that the first named defendant was required to book a loan in breach of paragraph 18 of KWG. The first named Defendant took on this loan as the borrower, Dr X refused to comply with legal requirements in Germany. In response the Defendants then booked the loan in Dublin. Thus this documentation is required to support the Plaintiff's assertions and pleadings as outlined in paragraph 5(e), (f), (s), (u) and (v) of the Statement of Claim."

The defendants object that there is no specific allegation in the Statement of Claim regarding this transaction. However, at the hearing, the complaint was rather that there was no apparent justification for selecting this particular transaction over all others. On affidavit, the defendants say that the individual in question is a well-known person in Germany of "high net worth." It is claimed that the plaintiff can only have selected this name in order to bring improper pressure to bear on the defendants to settle his claim. Counsel for the plaintiff objects strenuously to this suggestion.

The avowed justification for seeking discovery of documents relating to this one transaction is that it is relevant to a number of cited allegations in the Statement of Claim. They are:

"(e) Operating the first, second and third named defendants as no more than a back-office or booking-office for the booking of business of the German parent bank, Landesbank Hessen-Thuringen Girozentrale, for no other reason than tax advantage in breach of the German AO.

(f) Failing to implement properly or at all, the recommendations of the report of December 16, 1997 of Coopers & Lybrand, Frankfurt concerning the operations of the defendants in Dublin on the lack of independence and the non-compliance with arms length procedures.

…

(s) Causing, allowing or permitting the Defendant's Dublin operations to book loans routed from Landesbank Hessen-Thuringen Girozentrale without carrying out any sufficient or adequate independent analysis of each credit and risk.

…

(u) Causing, allowing or permitting the Dublin office of the defendants to book loans which did not comply with German banking regulations including Kreditwesengesetz (KWG) paragraph 18 and further utilising the guarantee of Landesbank Hessen-Thuringen Girozentrale to ensure that the Irish Central Bank and the auditors of the first named defendant did not enquire into the quality of the relevant credit.

(v) Causing, allowing or permitting the credit department of the parent, in cases, to override the independent judgment of the Irish credit departments in relation to the booking of credits in Dublin by any means of the provision of guarantees for these loans by Helaba Frankfurt."

Clearly, these allegations are of an extremely broad and far-reaching character. Their implications are indisputably profoundly serious for the defendants. They amount to no less than a suggestion that the defendants' banking operations in Ireland are used fictitiously to conduct German lending business. It is, however, notable that the plaintiff has sought discovery in respect of only one specific lending transaction. The plaintiff modified his stance significantly at the hearing of the appeal. He said through his counsel that this transaction is the only one of which he knows relating to the alleged infringement of Article 18 of the German Kreditwesengesetz (KWG). This does not sit easily with the Statement of Claim, which alleges, at paragraph 5(u) that the defendants allowed the Dublin office to book loans, in the plural, which did not comply with this German law. Furthermore, it is also put forward as an example of the even more broad-ranging allegation of using the first three defendants "as no more than a back-office or booking-office for the booking of business of the German parent."(paragraph 5(e)). The plaintiff has not sought discovery of documents relating to any other specific loan.

Discovery of documents of a particular lending transaction concerns, in addition to and over and above the parties, the confidential business of a third party. When considering whether to order to discovery of such documents the court will balance the interests of persons not party to the litigation. (see judgment of Kelly J, in the High Court in Cooper-Flynn v RTE [2000] 3 I.R. 343). In this case, it can be inferred that the plaintiff does not find it necessary to seek discovery of particular lending transactions to prove the generalised allegations made in the paragraphs of the Statement of Claim other than paragraph 5(u). That seems correct. His case is that lending to German nationals by the Irish branches or subsidiaries needed to comply with German law. The defendants say that this is not correct. It is not necessary for the trial judge to have access to the individual loans to decide that essentially legal issue. Moreover, to advance details of only one transaction implies that the plaintiff does not consider it necessary, in order to prove his case, to have access to the actual details of particular loans.

I would allow the appeal in respect of category (l).

Categories (y) and (z)

The following are the documents sought under these headings:

"(y) All documents showing support for the Defendants assertion at paragraph 36 of the defence that the loss and injury which the Plaintiff claims is as a result of his own fault in contract or was contributed to by his negligence and breach of contract.

(z) All documents showing the Plaintiff's allegations are false and scandalous and that he is guilty of unconscionable conduct as pleaded by the Defendants in paragraphs 39 and 40 of their defence."

These requests nee to be considered in the light of the three paragraphs of the Statement of Claim which are put forward to justify the requests. They are:

"36. It is admitted that the Plaintiff was absent from work but it is denied that it was as a result of a stress related injury or otherwise attributable to any fault on the part of the Defendants, which fault is again denied and the Plaintiff is put on full proof thereof. It is furthe denied that the Plaintiff ever communicated to the Defendant that his alleged absences from work were as a result of stress or otherwise attributable to the conduct of the Defendants, either as contended for or at all. In the premises, such loss or injury as the Plaintiff has suffered is wholly as a consequence of the Plaintiff's own fault in contract and in negligence or alternatively was contributed to by the Plaintiff's negligence and breach of contract.

…

39. It is pleaded that the allegations made by the Plaintiff at that time and in these proceedings are wholly false and scandalous. The said allegations were made by the Plaintiff only when he failed to obtain a termination payment from the Defendants in excess of his contractual entitlements and it is contended that the Plaintiff made the said allegations for the purpose of attempting to force the Defendants to make such a payment to him.

40. In the premises the Plaintiff is guilty of unconscionable conduct."

Paragraph 36 seems implicitly to accept, at least as a hypothesis, that the plaintiff has been ill and absent from work, as he alleges. The significance of the last sentence is that it denies any responsibility of the defendants. In this context, I do not think this sentence can be read as raising a new allegation of fault on behalf of the plaintiff and it certainly does not suggest that the defendants have any relevant documents in their possession.

The use of the words, "wholly false and malicious" in paragraph 39 should be seen in the same light. Discovery should not be ordered merely in respect of a denial. The addition of the word, "scandalous" is not normally found in a defence merely denying liability. In this case, however, the plaintiff's claim is that the defendants have been operated very generally in such a fashion as, putting the matter at its lowest, not to comply with German and Irish banking law and regulation. The defendants see that as a false and, because false, scandalous allegation. The reference to the plaintiff's conduct as "unconscionable" is to be seen in the same light. These are not substantive positive pleas, but emphatic denials, the emphasis being justified by the nature of the allegations.

The plaintiff should, given his intimate knowledge of the defendants' banking business be able to make his case with regard to their alleged illegal behaviour without the additional discovery which he seeks under headings (y) and (z).

I would allow the appeal on respect of those categories.