Supreme Court of Ireland Decisions

Between/

Judgment of Mr. Justice Clarke delivered the 25th January, 2013.

1. Introduction
1.1 Many significant commercial enterprises operate through large, and frequently complex, groups of companies often involving different corporations incorporated in different jurisdictions and sometimes involving entities which provide specialist services across all or significant parts of the relevant group. There are many reasons both of commercial advantage, limited liability, taxation or administrative convenience why such structures are put in place. Where disputes arise involving one company within such a structure a range of legal complications can, however, emerge. One such difficulty, being the availability for disclosure in the litigation process of documentation held not by a party to the relevant litigation but by other companies within the structure, lies at the heart of this appeal. To what extent can an Irish court require disclosure through the discovery process of documents which are held by a connected company, which is not party to the Irish proceedings concerned and is not, by virtue of not having a sufficient presence in or connection with Ireland, ordinarily amenable to orders of the Irish courts?

1.2 That general question arises in these proceedings which are part of a series of cases before the Irish courts arising out of the collapse of the empire associated with Bernard Madoff. The plaintiff ("Thema") operates a fund established in Ireland under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2003 (the "UCITS Regulations"). The defendant ("HTIE") is the custodian of Thema pursuant to a custodian agreement entered into in its original form on the 30th May, 1996. Such a custodian has, amongst other things, a specified statutory role under the UCITS Regulations. HTIE is a part of the HSBC group. A company associated with Bernard Madoff being Bernard L. Madoff Investment Securities LLC acted in a number of capacities in relation to the fund. Mr. Madoff has been sentenced in the United States having admitted operating a so called "ponzi" scheme whereby newly subscribed monies, instead of being, as clients believed and were informed, invested, were simply used to pay off other existing clients who wished to have their investment returned. On that basis it would appear that much of the assets which, it would appear, ought to have been available to the investors in Thema have disappeared and are, at least to a significant extent, unlikely to be recovered. In that context, Thema alleges various failings on the part of HTIE in the manner in which HTIE carried out its obligations as custodian. Relying on that alleged wrongdoing Thema seeks recovery of the notional value of its funds being €483,144,279.24 and US$498,799,662.15 together with interest on both those sums. On that basis the total claim probably exceeds €1 billion.

1.3 These proceedings, together with other proceedings involving HTIE and Thema arising out of the same general circumstances, have been collectively case managed by the High Court. These proceedings are listed for trial in early course. As part of the case management process the question of discovery arose. An order of the court of the 11th November, 2010 providing for discovery by HTIE was made by agreement between the parties. However, in circumstances which it will be necessary to address, a dispute arose between the parties as to the precise obligations of HTIE to make discovery in respect of documents held by other companies within the HSBC group. That dispute ultimately came before Charleton J. who made an order (dated the 27th July, 2012), to which more detailed reference will be made in due course, requiring a level of further discovery to be made by HTIE of documents held within certain specified companies within the HSBC group. It is against that order of Charleton J. that HTIE appeals to this Court. In order to fully understand the important issues which arise on this appeal, it is necessary to say a little more about the procedural history of the discovery process in this case.

2. Procedural History
2.1 The genesis of the specific issue which this Court now has to consider can be traced back to the original request for discovery sent by Thema to HTIE. In that request Thema defined the term "defendant" (by reference to which discovery was sought) to include not just HTIE but also any other HSBC group entities. In response, HTIE refused to agree to produce documents held by any other HSBC entity. As a result a motion was brought before the High Court on the 5th October, 2010, which sought to resolve that question.

2.2 Ultimately that motion was compromised, with the court being informed by counsel that the parties had agreed the jurisprudence which was applicable. However, it seems clear from subsequent correspondence that there had been no true meeting of minds and that there were different views between the parties as to the precise application of the relevant jurisprudence.

2.3 HTIE delivered its affidavit of discovery, sworn by a Mr. Ronnie Griffin, on the 13th March, 2012. That affidavit makes clear that HTIE had obtained documents from four other HSBC entities namely:

(a) HSBC Security Services (Ireland) Limited;

(b) HSBC Bank plc;

(c) HSBC Security Services (Luxembourg) SA and

(d) HSBC Bank Bermuda Limited.

Those documents were included in the discovery made.

5.2 The recent decision of this Court in Johnson v Church of Scientology [2001] 1 IR 682 is a useful guide to the law in this area. In that case, the plaintiff sought discovery of documentation from the Irish Church of Scientology, which documentation was in fact in the custody of the English Church of Scientology. The Court held that the two bodies were legally separate and that there was no evidence to support a finding of a relationship of agency between them. Therefore, there was no basis for holding that the documentation was in the power or possession of the Irish Church and an order for discovery was refused. Johnson v. Church of Scientology was, of course, decided under the old version of the rule.

5.3 In her judgment in Johnson v Church of Scientology, Denham J. referred to, but distinguished, the High Court decisions in Northern Bank Finance Corporation v. Charlton and Yates v. Ciba Geigy Agro Ltd. In both of those cases, an order for discovery was granted in circumstances where documentation was held by a separate legal entity. Those cases were described as “rare exceptions” to the rule, as it then was, that a party need only discover documents in his possession or power and that they were “examples of the judge in his or her discretion in the circumstances of a particular case, making a determination on the facts”.

5.4 In Northern Bank Finance Corporation v. Charlton, discovery was sought of a certain category of documents in the possession of a company which was not a party to the proceedings, relating to its ownership. However, the directors of that non-party company held shares as nominees of the plaintiff company. Operating under the assumption that there was no reason to believe that a request for such specific documents would be refused, it was held that the documentation was prima facie within the procurement of the plaintiff. It must be noted, however, that the court suggested that if a request was made and refused, it would be open to the party concerned to make a further application and that different considerations might potentially apply at that point.

5.5 Similarly, in Yates v. Ciba Geigy Agro Ltd, discovery was sought of an internal memorandum in the possession of the defendant’s parent company, which was based outside of the State. Again, the Court, citing Northern Bank Finance Corporation v. Charlton, focused on the fact that “there was no reason to suppose that a request for such documents by the defendant would be refused” in circumstances where the memorandum had already been made available to the defendant for the purposes of the preparation of the defence. Barron J. did again acknowledge that the Court would be obliged to reconsider its ruling if the parent company alleged privilege over or prejudice arising from the disclosure of the documents.

5.6 It does need to be emphasised that, at least so far as the existing jurisprudence is concerned, the only two cases in which the court has gone beyond requiring discovery of documents in respect of which a legal entitlement existed in the party required to make discovery were cases where a single or small number of specified documents, known to exist, were directed to be disclosed in circumstances where the court was satisfied that there was no reason to believe that any difficulty would be incurred in securing the documents concerned. There is a very significant difference indeed between those circumstances and what was ordered in this case being that a connected company, not directly within the jurisdiction of the Irish courts, would be required itself to search through its own documents for the purposes of making documents available to HTIE so that, in turn, those documents could be included in HTIE's discovery.

5.7 The scope of what was ordered in this case goes far beyond anything that has been previously required in this jurisdiction. Against that background it is also appropriate to consider the position in other common law jurisdictions.

5.8 The traditional approach in respect to discovery can be seen in the decision of in Lonrho Limited v Shell Petroleum (1980) 1 WLR 627 which is cited in the case law of a number of common law jurisdictions. Order 24, r.3 of the English Rules of the Superior Courts, as was then in effect, provided: “…the court may order any party … to make and serve on any other party a list of the documents which are or have been in his possession, custody or power relating to any matter in question in the cause or matter,…”

5.9 In that context, Lord Diplock defined the term “power” to mean:

“…a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else. Provided that the right is presently enforceable, the fact that for physical reasons it may not be possible for the person entitled to it to obtain immediate inspection would not prevent the document from being within his power; but in the absence of a presently enforceable right there is, in my view, nothing in Order 24 to compel a party to a cause or matter to take steps that will enable him to acquire one in the future.”

“(a) possession of the document; or

(b) a right to possess the document; or

(c) a right, otherwise than under these rules, to inspect or copy the document”

5.11 In this case, the applicant sought documents from Nissan New Zealand, which were said to be in the possession of its parent, Nissan Japan. Venning J initially stated:

“Prima facie, given that Nissan New Zealand is a wholly owned subsidiary of Nissan Japan there is no apparent basis upon which it, as a subsidiary, would have the right to possession or the right to inspect or copy documents held by its parent company. In this context the leading authority on the common law concepts of possession, custody or power of Lonrho Ltd v Shell Petroleum Ltd is still applicable”.

5.13 In Sabre Corporation Pty Ltd v Russ Kalvin's Hair Care Company and Ors, the respondents sought a number of orders intended to ensure the production to them of documents which recorded various aspects of certain hair care products. Those documents were in the possession of an overseas third party manufacturer (Joico) who had an exclusive distribution agreement with the applicant. In making a determination in favour of the respondents, the Federal Court of Australia (Lockhart J.) said at para 21:-

“In my opinion the Court has power to direct a party to take steps to obtain access to and discover documents which are in the possession, power or control of a third party where there is a real likelihood that the party to the proceeding would be given access to the documents upon request. Section 23 of the Federal Court of Australia Act confers ample power upon the Court to make orders of the kind sought in paragraph (2) of the notice of motion, namely, an order that the applicant be required to request Joico to take steps to obtain access to and discover documents in the possession, power or control of Joico (the third basis relied on by the respondents and mentioned earlier). Section 23 provides:

"The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate."”

5.15 Again, in Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd [2002] FCA 581, a “Sabre Order” was made where Tamberlin J. in the Federal Court found that there was a real likelihood that a request to related companies outside Australia for the relevant documents would be successful. However, that request was, in fact, refused by the related group companies. The Court then took the view that, in the circumstances, all reasonable steps had not been taken but, despite that, felt itself helpless to order a stay. The Court went on to say at para. 16:-

“On the present state of the law in Australia it is not open to this Court to pierce the corporate veil or to treat the Australian subsidiary as part of an overall entity in order to compel discovery of overseas documents from the subsidiary. Indeed, the provisions of the Convention indicate that there may be difficulties if this procedure were followed and compulsory production was sought by way of Letter of Request. It cannot be said in Australia that documents in the possession of a parent company can be taken to be within the control of the subsidiary for discovery purposes. Indeed, it has been held that documents which may possibly be relevant and are in the possession of a subsidiary company, depending on the corporate structure, may not be within the control or power of the parent company.”

“This Court will not make futile orders. Unless the Court can be satisfied there is a real likelihood the request would be complied with, the Court will not make an order. To do so would effectively be to set the respondent up to fail. It would be neither fair nor reasonable, under the threat of a sanction such as an unless order or a striking out or stay of the respondent’s defence for non compliance, that a party in the position of the applicant could effectively obtain an order requiring discovery from an overseas non-party when there is no express jurisdiction in the rules to do so.”

“The documents which the plaintiffs seek discovery of cannot be said to be within the control of Nissan New Zealand. There is no basis under the rules for the order sought. Nor is there any evidence of likely compliance if a more general order requiring Nissan New Zealand to request the documents from Nissan Japan were made. Indeed, the evidence is to the contrary. So even if there is any jurisdiction for an order of the Inverness nature a pre-condition of such an order, namely that the respondent could reasonably be expected to gain access to the relevant documents following such a request is not made out on the evidence. The application for further discovery is declined.”

5.19 The position adopted in most of the common law jurisprudence to which reference has been made and also adopted under the former rule in this jurisdiction under Johnson v Church of Scientology has, in my view, the considerable merit of certainty. A party either has documents in its possession or has the legal entitlement to require possession. In those circumstances the document must be discovered. In all other circumstances, the document does not have to be discovered. Subject to the argument, to which I will now turn, concerning whether the addition of the word "procurement" to the rule has altered that situation I do not see any basis in principle for deviating from the law as stated in Johnson v Church of Scientology.

6. Does the Addition of "Procurement" Change Things?
6.1 In its original form Order 31, r.12(1) provided as follows:-

“Any party may, without filing any affidavit, apply to the Court for an order directing any other party to any cause or matter to make discovery on oath of the documents which are or have been in his possession or power, relating to any matter in question therein….”

“Any party may apply to the Court by way of notice of motion for an order directing any other party to any cause or matter to make discovery on oath of the documents which are or have been in his possession, power or procurement relating to any matter in question therein….”

6.3 First it should be noted that, in many respects, even under the previous rule which did not use the word "procurement", the case law frequently adopted the phrase "possession, power or procurement". A number of examples will suffice.

6.4 At para.16 of his judgment in G.S. v Minister for Justice, Equality and Law Reform, [2004] 2 I.R. 217, Peart J. states:

“…it is therefore necessary that the applicant for discovery must clearly identify a document or documents or a category of documents which he knows is or are in the possession or power of procurement of the other side and which either will or could assist him in making his case, or hinder that of his opponent.”

“As a matter of justice and proper proportion and having regard to the issues joined between the parties on the pleadings, discovery should be limited under this category to all documents, files, notes records, correspondence and, memoranda in the power, possession or procurement of the defendants…”

“Firstly, before the court can make an order under it it must be satisfied that "it is likely" that the notice party has or had in its possession power or procurement documents which are relevant to an issue that is likely to arise in the action.”

And again at p. 410:

“The defendants have not adduced any evidence by which I can conclude that it is likely that the notice parties have in their possession power or procurement documents which record…”

“I do not, however, consider that r. 29 can be construed as imposing upon a party seeking an order for discovery pursuant to it an obligation, not only to establish that the person against whom the order is sought has or is likely to have in his possession or procurement documents which are relevant to an issue arising in the cause or matter, but also to establish specific documents as distinct from categories of documents which prima facie are relevant.”

6.9 While it might be said that the rules committee, in adding the word "procurement", must have intended to change the scope of the rule, it can equally (and perhaps with greater strength) be argued that, in the unusual circumstances of this case where the phrase "possession, power or procurement" was in common use and appeared in much of the case law, the rule change was designed simply to bring the form of the rule into conformity with normal usage rather than being intended to bring about any change of substance in the scope of the rule.

6.10 There is, in my view, a further reason for coming to that latter view. The term "procurement" was added to Order 31, r.12(1) which is the rule which applies to the obligation on a party to swear an affidavit of discovery specifying relevant documentation. However, it is interesting that no similar amendment was made to Order 31, r.14 which allows the court to order the production of documents in the "possession or power" of a party. In addition, Order 31, r.15 allows a party to serve a written notice to produce any document included in, amongst other things, an affidavit of discovery, for the purposes of inspection and the taking of copies. However, if there is non-compliance with such a notice the requesting party is entitled to bring an application before the court for an order for inspection but in that regard is required to file an affidavit asserting that the documents concerned are "in the possession or power" of the other party.

6.11 If the inclusion of the words "procurement" were to extend the class of documents subject to discovery beyond those to which the phrase "possession or power" applied then there would be a wholly anomalous situation whereby any additional documents which could be said to be within the "procurement" of a party but not within that party's "power or possession" would be required to be included in an affidavit of discovery, could not be the subject of an order for production under r.14, could be included in a notice requiring inspection and the taking of copies, but could not, in the event of a refusal to provide for inspection or copying, be the subject of an order for inspection and copying.

6.12 It seems to me to follow that the Rules Committee, and the Minister in approving the rules, did not consider that there was a material difference to be brought about by the inclusion of the word "procurement" and were merely, by its inclusion, bringing the phraseology into conformity with existing usage.

6.13 If the radical and far-reaching changes to the rules, which are urged by Thema in this case, were truly intended to be brought about by the 2009 amendment, then it is highly surprising that the changes were not made at each point where the phrase "power or possession" appeared in the rule.

6.14 For those reasons I am not satisfied that any material change in the scope of discovery was brought about by the 2009 amendment and for that reason it seems to me that the law remains as described by this Court in Johnson v Church of Scientology.

6.15 On that basis, it seems to me that the discovery ordered in this case goes beyond the scope of that which the rule permits. Whatever may be the case in the sort of situation where there is a single or small number of readily identifiable documents in respect of which there is good reason to believe that production can be procured, I am satisfied that the court does not have jurisdiction to order discovery which would require a third party (even where that third party is a related company of a party to the proceedings) to itself engage in what would be a form of delegated discovery. On that basis I am satisfied that the appeal should be allowed and the order for further and better discovery made on the 27th July, 2012, discharged. However, before concluding this judgment, I would wish to make some additional observations.

7. Some Additional Observations
7.1 First, it should be noted that third party discovery is available against any company (including, of course, a company within the same group as a party to the proceedings) which is amenable to the jurisdiction of the Irish courts. While, strictly speaking, a party would be entitled to require its opponent to bring an application for third party discovery in the event that its opponent wished to obtain disclosure of relevant documents held by a related (although non-party) company, it seems to me that a party who imposed on its opponent such a cumbersome procedure, without there being some good reason, could well find that the court would be unsympathetic to applying the usual costs regime which applies in respect of true third party discovery involving orders against entities which have no connection with the parties.

7.2 Second, I am mindful of the fact that there could always be a risk that parties would seek to hide behind the separate corporate identities of parties within a group for the purposes of attempting to gain inappropriate tactical advantage in the context of litigation. In the case of large corporate structures it will frequently be the case (as was the case here) that companies delegate, either formally or informally, certain of their functions to other companies within the same group. It may be that, strictly speaking, the delegating party might not have, at least in all circumstances, a legal right to require the production of documents produced on foot of such delegation, although it would, it has to be said, be surprising and require explanation, if a company were to delegate functions without retaining an entitlement to obtain documents or materials related to the carrying out of the delegated functions. In any event a party who places reliance on any such lack of legal right needs to understand and address the possible consequences of placing such reliance.

7.3 It would, in my view, be an abuse of process for a party to decline to make discovery of documents held by another company within the same group on the basis of not having a power to obtain the documents concerned and then seek, without having given prior disclosure of the relevant documents, to place reliance on those documents at the trial. It follows that where a party intends to place reliance on documents in respect of which it does not have a legal entitlement but which it hopes to be able to secure, there is an obligation on that party to make all appropriate enquiries as to the availability of such documentation in advance of swearing its affidavit of discovery so that any documents which are, in fact, going to be relied on are included in the affidavit of discovery even though such documentation may not, originally, have been in the possession, power or procurement of the party concerned.

7.4 Third, it should be noted that such a practice could itself lead to potential abuse. A party might be selective as to those of the documents held by related companies which it sought and obtained and, thus, was obliged to discover. It does not seem to me that that difficulty can be remedied at the discovery stage. A party is only obliged to discover documents within its possession, power or procurement including, for the reasons just analysed, such documents as it may be able to secure from related companies and on which it wishes to place reliance. However it seems to me that it will always be open to a trial judge to take whatever steps are appropriate, in all the circumstances, to deal with a situation where the trial judge feels that a selective view of the documentary record is being placed before the court by virtue of the fact that a party has chosen to secure some but not all of a relevant set of documents from associated corporate entities. In such circumstances, it would be open to the trial judge, in an appropriate case and in the light of all relevant facts, either to decline to admit in evidence a selective part of a relevant documentary record or, while admitting such documents in evidence, to draw any appropriate inference from the absence of the remainder of the same set of documents. It would, of course, be necessary, in considering what, if any, course of action to adopt, for the trial judge to pay appropriate regard to any explanation tendered for the selective nature of the documents produced.

7.5 Finally, and in like vein, it is also open to a trial judge to draw any inference which may be appropriate in all the circumstances from any unexplained failure to make documents, which it is established are likely to exist and of significant relevance to the case, available for consideration at the trial. Parent companies and related companies are, of course, entitled to stand on their rights and not make documents available to connected companies involved in litigation in this jurisdiction. However, if they do so without good cause, they may well place the related company which is involved in litigation in Ireland in a difficult position if, as a consequence, the trial judge is of the view that there are pieces of the jigsaw missing and no legitimate explanation as to why that may be so. The trial judge will, of course, have to decide the case on whatever evidence is ultimately presented. However, if that evidence is incomplete and if the trial judge views any explanation for its lack of completeness as being inadequate, then, in an appropriate case, adverse inferences may be drawn.

7.6 However, as these observations make clear, questions such as the ones which I have addressed are matters to be dealt with by the trial judge in the context of the evidence actually led at trial or in the light of potential evidence which it might have been reasonably expected could and should have been so led. Those considerations do not, it seems to me, provide a basis for altering the conclusions previously reached about the scope of the formal discovery process.

7.7 Finally, and having regard to the views which I have formed on the scope of discovery, it seems to me that the questions of necessity and proportionality which were also the subject of this appeal do not require to be determined in this case.

8. Conclusion
8.1 It follows for those reasons that I am satisfied that the amendment to the Rules of Court brought about in 2009 did not extend the scope of the documents which require to be discovered and that the law in this jurisdiction remains as stated by this court in Johnson v Church of Scientology.

8.2 On that basis, I am satisfied that, for the reasons set out, the discovery order under appeal goes beyond the scope of that permitted by the rules. It follows that the appeal should be allowed and the order of the High Court of the 27th July, 2012, be discharged.