Jersey Unreported Judgments

Companies - written reasons relating to application by the plaintiffs to limit discovery.

[2017]JRC188

Royal Court

(Samedi)

8 November 2017

Before     :		Advocate Matthew john Thompson, Master of the Royal Court.
Between	CMC Holdings Limited		First Plaintiff
	CMC Motors Group Limited		Second Plaintiff
And	Martin Henry Forster		First Defendant
	RBC Trust Company (International) Limited		Second Defendant
	Regent Trust Company Limited		Third Defendant
And	Martin Henry Forster Jeremiah Kiereini Charles Mugane Njonjo The Estate of Prahlad Kalyani Jani RBC Trust Company (International) Limited The Regent Trust Company Limited		Third Parties

Advocate J. M. Sheedy for the Plaintiffs.

Advocate J. M. Dann for the First Defendant.

Advocate J. P. Speck for the Second and Third Defendants.

CONTENTS OF THE JUDGMENT

		Paras
1.	Introduction	1
2.	Background	2-6
3.	The Plaintiffs' approach to discovery	7-23
4.	The Second and Third defendants' position	24-30
5.	Decision	31-40

judgment

the master:

Introduction

1.        This is the sixth judgment I have issued in relation to these proceedings.  This judgment concerns an application by the plaintiffs to limit discovery, which was granted by me on 25^th September, 2017.  Initially the parties did not require written reasons for this decision but the second and third defendants, as they are entitled to, have since exercised their right to appeal the decision I made.  This judgment therefore contains my written reasons for limiting discovery.

Background

2.        The general background to this dispute is set out in previous judgments and it is not necessary to repeat the same for the purposes of this judgment beyond noting that a key issue was whether the scheme was known about and authorised by the plaintiffs through their then directors.  The first defendant expressly pleads this as a defence, which position has subsequently been adopted by Mr Kiereini and Mr Njonjo.  In Mr Njonjo's case, his position is set out in his answer.  Mr Kiereini's position is set out in the affidavit filed in support of his recent, unsuccessful application to dismiss the proceedings brought against him.

3.        In relation to discovery, at the same time as convening various third parties, including Mr Njonjo and Mr Kiereini, by an Act of Court dated 23^rd January, 2017, I also made orders for the plaintiffs and the defendants to provide discovery to each other, which discovery was to be provided by 16^th June, 2017.  The rationale for this order was that while it was going to take time to effect service on the third parties, and while there might be challenges to the joining of the third parties, those steps should not delay the plaintiffs and the defendants in the meantime from preparing their own discovery. 

4.        By paragraph 8 of an Act of Court dated 31^st May, 2017, (which Act of Court primarily dealt with the position of Le Gallais & Luce Executors Limited, in its capacity as executor of the estate of Mr Jani outside Kenya), the obligation to provide discovery was extended to 15^th September, 2017.  However, in respect of certain documentation described in more detail later in this judgment, I ordered at paragraph 9 as follows:-

"9.       the obligation at paragraph 8 of this order shall not apply to any discoverable documentation contained in the storerooms of the Plaintiffs described in the affidavit of Sally Patricia Mukabana sworn on 26th May, 2017, which discoverable documentation shall be provided by 5.00 p.m. Friday, 17th November, 2017, unless the Plaintiffs before 5.00 p.m. Friday, 15th September, 2017 have made an application to limit any discovery to be produced contained in the said storerooms.  If any such application is made, and limited discovery is ordered, subject to any further order of the Court, such limited discovery shall still be provided by 5.00 p.m. Friday, 17th November, 2017"

5.        It was pursuant to paragraph 9 that the plaintiffs applied to limit discovery which led to the following orders on 25^th September, 2017:-

"1.       the Plaintiffs be given leave to undertake a limited search for discoverable documents limited to a sampling as described in the second Affidavit of Sally Patricia Mukabana sworn in September 2017 of not less than 10% of the documents contained in the storerooms of the Plaintiffs as described in the First Affidavit of Sally Patricia Mukabana dated 26th May, 2017;

2.        the Plaintiffs shall give discovery of any relevant documents arising from the limited search by 17^th November, 2017;

3.        notwithstanding paragraphs 1 and 2 of this order, liberty to the Defendants to apply to require the Plaintiffs to carry out a more extensive search following receipt of discovery produced pursuant to this order; or alternatively to make an application for specific discovery, in either case if advised to do so."

6.        It is these orders that the second and third defendants now seek to appeal.

The plaintiffs' approach to discovery

7.        The plaintiffs' approach to discovery was firstly set out in three affidavits.  The first of these was sworn by Sally Patricia Mukabana, the company secretary of the first plaintiff.  Her first affidavit was sworn on 26^th May, 2017, and led to the orders made by me on 31^st May, 2017.

8.        At paragraph 12 of her first affidavit, she deposed as follows:-

"12.     I have read the Answers of Mr Forster and RBC and Regent in the Jersey proceedings. I am told Mr Forster's case is that the Scheme was known about, authorised by and benefited the Plaintiffs. SPM/1 Tab 2, page 55, para 10. I am told RBC and Regent's case to be that they understood that the Scheme was known about and authorised by the Plaintiffs and therefore they did not dishonestly assist the Core Defaulting Directors in their breaches of duty. SPM/1 Tab 2, page 68, para 67.C"

9.        She further went on to depose at paragraph 14 as follows:-

"14.     The approach that has been adopted to identify potentially discoverable documents is to search for documents that support the Defendants' case (and undermine the Plaintiffs' case) that the Scheme was known about and authorised by the Plaintiffs. I cannot say what documents exist within CMC's archives that would support the Scheme being known about or authorised by CMC."

10.      The first affidavit of Ms Mukabana also explained that the minute books for the highest level of decision-making within the plaintiffs had been obtained and there was no reference in these to the alleged scheme.  There was also no reference to payments being made under the scheme to Jersey or the keeping of bank accounts in Jersey in the plaintiffs' financial statements.  She had also reviewed the relevant personnel files of senior management as well as obtaining hard drives from individuals alleged to be involved in the scheme, including the first defendant, to look for documentation.

11.      Ms Mukabana's first affidavit further explained that the plaintiffs did not have any discernible or consistent document retention policy.  Instead they maintained eight storerooms, which operated as the plaintiffs' archives.  These rooms were not indexed and there appears to be no formal process of storing documents or allocating space for storage. 

12.      The affidavit then explained that a team of English counsel had been retained to index the filing in the storerooms and assess their contents for relevance.

13.      Her affidavit then went into detail to explain what was generally contained in each of the storerooms as far as had been ascertained and the approach taken to identify the material stored in each room. 

14.      It was the sheer volume of the material described as being held in the eight storerooms in Ms Mukabana's first affidavit which led me to order that any documentation contained in the storerooms only had to be provided by 17^th November, 2017, but leaving it open to the plaintiffs to apply to limit discovery.

15.      Ms Mukabana's second affidavit, sworn in September 2017, explained that a team of English counsel with experience in large-scale discovery exercises had been engaged through May, June and July in indexing, searching and reviewing files in the storerooms.  They had not worked in August or September because of fears of disturbances due to the presidential elections that were to and did take place in August in Kenya.  This affidavit also contained a description of the approach the plaintiffs had taken to searching for documents.  The approach taken can be summarised as follows:-

(i)        The plaintiffs searched for "responsive" documents within lever-arch files.  What was meant by "responsive" was that if any file contained a potentially relevant document the entirety of that file was set aside for scanning even if other material in the same file was unlikely to be relevant.

(ii)       The entirety of the files in rooms 1, 7 and 8 had been reviewed apart from files described as containing servicing records in room 1.  The plaintiffs had removed eight boxes of files from room 1 and 13 boxes from rooms 7 and 8 for scanning.

(iii)      Rooms 2 and 6 were said to contain considerably more material.  As far as possible, the origin of each of the individual files was determined and then files were reviewed on a sampling basis.  The approach taken was to review 10% of the files on each shelf as well as reviewing a selection of any loose paper files at random.  What was meant by 'random' was described in paragraph 9 of the second affidavit of Ms Mukabana as follows:-

"9.       However, I understand that the files were not randomly selected in the strict mathematical sense of the word "random":

a.        Where a  file looked  as  though  it  might  be  relevant,  the  team  would review the file, otherwise the files were selected at random.

b.        Whenever a relevant file was located, an additional file in its physical proximity was reviewed in order to give some confidence that the shelf was not full of relevant files.

c.        Loose papers on the shelves were boxed for scanning, unless they could be grouped together as related material or were clearly not relevant. Again, this slowed the review process as there was little order to any of the loose papers, other than the ledgers and lever-arch files on the shelf."

(iv)      In room 6, 15 boxes of responsive material had so far been obtained consisting of the following:-

"a.       Documentation pertaining to loans from Corival 1996 Limited to CMC subsidiaries.

b.        Documentation pertaining to loans from Conrico Overseas Incorporated to CMC subsidiaries.

c.        Limited   documentation   pertaining   to   the   potential   overcharging   of overseas suppliers.

d.        Limited references to an "unapproved pension scheme""

(v)       There was still further work to be carried out to complete sampling of the remainder of room 6.

(vi)      Room 5 appeared to contain personnel files which were said not to be relevant.

(vii)     Room 4 contained servicing records.  These files were not seen as being relevant because the commissions alleged to have been paid in secret were in relation to the supply of vehicles into Kenya, rather than to onward sales or servicing.

(viii)    Room 3 appeared to contain material similar to that stored in room 6.

(ix)      A team of between 5 and 10 individuals would need a further 21 days to complete the sampling process.

16.      The plaintiffs also filed an affidavit sworn on 21^st September, 2017, by Katherine Margaret Ferbrache, a legal assistant employed by Baker and Partners, explaining that the plaintiffs had retained a London based e-discovery and document management service provider, Millnet, who had been engaged to upload and electronically search the potentially relevant material obtained from Kenya, including from the storerooms.  Miss Ferbrache explained that, of the 45,604 documents identified and scanned on the basis of the searches carried out in Kenya and applying certain keywords, only 101 documents appear to refer to any aspect of the alleged scheme.

17.      At the hearing itself, Advocate Sheedy further explained the following.  Firstly his client was concerned about proportionality.  Despite the extent of the work carried out to date very few relevant documents had been identified.  This was clear from the affidavit of Miss Ferbrache.

18.      Secondly, Baker and Partners had been involved extensively in the discovery process.  Advocate Sheedy had personally undertaken five trips to Kenya, each lasting around a week, and Advocate Thomas had been to Kenya once.  This was Baker and Partners discharging their duties as advocates to ensure that the plaintiffs' discovery obligations were met.

19.      Thirdly, in addition to the costs of Baker and Partners being involved in discovery, the cost of Millnet alone was in the region of £250,000.  The English counsel retained by the plaintiffs to review documents in Kenya had a range of post-qualification experience, but all were familiar with cases involving fraud or dishonesty.  They were therefore able to identify material relevant to the central issue of whether or not the alleged scheme was approved by the then directors of the plaintiffs.  Advocate Sheedy explained that the difficulty for the plaintiffs in this case was that they had to prove a negative; that the alleged scheme had existed, but had not been approved or authorised.

20.      Fourthly, where possible the plaintiffs were using technology and keyword searches to identify relevant documents.  A cautious approach had been taken to identifying in Kenya what might potentially be relevant as described in the affidavits. 

21.      Fifthly, the difficulty of reviewing files in the storerooms in light of the conditions in those storerooms, and the lack of any real methodology or process applicable to the plaintiffs' archives could not be underestimated.

22.      Finally, the plaintiffs had not been able to find any reference to the alleged scheme in the audited accounts of the plaintiffs. In particular, there was no reference to bank accounts of companies in Panama or Liberia.  What the plaintiffs had looked at did not show the existence of such a scheme.

23.      If the first defendant had indicated where relevant documents had been stored this might have been of assistance.  The context of this observation was that according to the plaintiffs they became aware of the alleged scheme when the first defendant was replaced by a Mr William Lay as group managing director.  His affidavit sworn on 22^nd August, 2012, was provided to me for the judgment reported at CMC v Forster & Regent [2016] JRC 149 and is referred to at paragraph 7 of that judgment.  In his affidavit, Mr Lay deposed that he was given access to a safe by the first defendant, which contained material relating to the offshore bank accounts (see paragraphs 8 to 17 of Mr Lay's affidavit) and the alleged scheme.

The second and third defendants' position

24.      In correspondence filed in advance of the application and in particular in two letters from Mourant Ozannes dated 18^th September, 2017, the second and third defendants were critical of the following:-

(i)        How long it was taking the plaintiffs to produce discovery;

(ii)       The keyword searches adopted by the plaintiffs (which were too narrow);

(iii)      Too narrow an approach had been taken in respect of determining relevance;

(iv)      Who had oversight of the discovery process and what was the involvement of Baker and Partners;

(v)       There was a failure to obtain discovery from third parties;

(vi)      The lateness of the application; and

(vii)     The sampling approach of 10% was random and illogical.

25.      The second letter sought a detailed request for further and better particulars of the plaintiffs' order of justice.  In relation to this letter I observed at the hearing firstly that no application for further and better particulars was before me and therefore I was not going to consider the same.  Secondly, the requests appeared to be requests for evidence or information in the possession of third parties (described as manufacturers or traders).  Thirdly, I was concerned about the relevance of the requests.

26.      The concerns set out in the second and third defendants' first letter of 18^th May, 2017, were repeated in the plaintiffs' skeleton argument.  In addition, the second and third defendants sought details by affidavit of which third parties the plaintiffs had approached to obtain documents.

27.      In his oral submissions Advocate Speck accepted that discovery had to be reasonable and proportionate as a matter of principle.  He described the difficulty as being that until the oral submissions of Advocate Sheedy, his clients had not been in a position to understand what steps were being taken by the plaintiffs in relation to discovery, who was involved in undertaking those steps, and how far Baker and Partners were discharging their discovery obligations.  The information had only been forthcoming in response to questions from the court, rather than a proper explanation being received in advance of the application.

28.      Having heard the explanation orally, Advocate Speck did not argue against the orders being granted but rather left maters in the hands of the Court, albeit reserving the right to make an application for further searches to be carried out once the result of the present searches was known and his clients had received a detailed affidavit setting out the methodology adopted covering the matters described orally by Advocate Sheedy during the hearing.

29.      Advocate Dann in response indicated that it was not his client's responsibility to assist the plaintiffs to produce discovery given that he was being pursued for breach of duty. 

30.      In respect of this issue, Advocate Sheedy reserved his client's position if the lack of cooperation from the first defendant meant that the discovery process was more costly and more time consuming than it otherwise might have been, had assistance been provided by the first defendant as to where the relevant documents might be located.

Decision

31.      There was no dispute between the parties that an obligation to provide discovery can be limited as set out in Rule 6/1(7) of the Royal Court Rules 2004, as amended.  This is not a power that has been altered by recent changes to the Royal Court Rules.  However, the expected approach of parties to discovery has been clarified in two Practice Directions: RC17/07 relating to discovery generally, and RC17/08 relating to discovery documents held in electronic form.

32.      Paragraph 10 of the Practice Direction RC17/07 states as follows:-

"1.      In giving discovery, a party is required to make a reasonable search for documents.  What is meant by reasonable is determined having regard to:-

a.        The overriding objective;

b.        The number of documents involved;

c.        The nature and complexity of the proceedings;

d.        The ease of retrieval of any particular document;

e.        The significance of any document which may be located during the search;

f.         The likely expense of carrying out any search."

33.      Paragraph 11 expressly applies this Practice Direction to a decision whether or not to limit discovery.

34.      Paragraph 14 of Practice Direction RC17/08 in relation to searching for electronic documents states as follows:-

"1.      The extent of the reasonable search required for Electronic Documents shall be determined having regard to the general factors listed in Practice Direction RC17/07 at paragraph 10 relating to discovery together with the following:-

a.        the accessibility of Electronic Documents;

b.        the location of Electronic Documents;

c.        the likelihood of locating relevant Electronic Documents;

d.        the cost of recovering any Electronic Documents;

e.        the cost of providing inspection;

f.         the likelihood that the Electronic Documents could be materially altered in the course of recovery, disclosure or inspection;

g.        the availability of documents or contents of documents from other sources; and

h.        the significance of any document which is likely to be located during the search."

35.      In this case I was satisfied it was appropriate to limit discovery having regard to the statements contained in Practice Direction RC17/07 and RC17/08 for the following reasons:-

(i)        By reference to the affidavits filed and the oral submissions of Advocate Sheedy, I was satisfied that the plaintiffs are taking their discovery obligation seriously.  However, it would have been helpful if the approach described to me orally had been explained to the second and third defendants earlier and in advance of the application, rather than it having to be extracted by me through questions at the hearing.  I also expect the plaintiffs when they file their affidavit of discovery to file a detailed affidavit setting out the approach taken.

(ii)       Secondly, I agree with the plaintiffs that what is at the heart of this case is whether or not the alleged scheme was approved by the plaintiffs, or whether it was a secret scheme.  While the scheme is said to have operated over many years, the key issue is who knew about it and who authorised it.  Given the affidavit of Mr Lay, to which I have referred above, and how those now responsible for directing the plaintiffs say they came to be aware of the alleged scheme, I am not surprised that limited documentation is being found in relation to who knew about the scheme.  While the plaintiffs have reviewed board meetings, personnel records of the individuals involved, financial statements and certain hard drives, the fact that these reviews have only produced limited documentation does not surprise me given how and where documents about the alleged scheme were discovered by Mr Lay and the nature of the plaintiffs' allegations that this was a secret scheme.  This means I am satisfied that it would be disproportionate for the plaintiffs to have to look through every piece of paper it holds in order to prove, as Advocate Sheedy described, a negative; namely that the plaintiffs did not know about the alleged scheme, but rather knowledge of it was restricted to a few individuals.

(iii)      At this stage, I am also satisfied that the approach being taken is proportionate.  The records at the premises where the plaintiffs' group carries out its operations have been reviewed.  What is therefore being looked for in the storerooms is material that might be found in the historical records of the plaintiffs.  I am satisfied that the plaintiffs' approach is cautious and is not based on a purely random sampling of files.

(iv)      In relation to this approach I consider I am entitled to take into account the realities of the storage processes of the plaintiffs and just how difficult it is to carry out searches in light of the conditions in which documents are stored.  When this is linked to the likelihood of relevant documents being identified, given the very few relevant documents that have been identified so far (see the affidavit of Ms Ferbrache referred to above), I regard the plaintiffs' approach as one that is reasonable and proportionate.

(v)       In reaching this view, I have not forgotten or ignored the fact that serious allegations are made against the defendants.  However, in the case of the first defendant, while his stance is understandable because he is being pursued, this stance means it is difficult for him to complain about the approach being taken if he elects not to indicate where relevant documents might be stored in support of the position he has adopted.  In relation to the second and third defendants, they have extensive records of their role in relation to the operation of the alleged scheme.  Their defence is far from being solely reliant on the plaintiffs producing documents.

(vi)      Furthermore, the plaintiffs have searched the obvious sources where you would expect knowledge to be contained; i.e. the minutes of the relevant companies, the personnel files of the individuals said to be involved, and servers/hard drives.  While of course the sampling approach may mean that some documents are missed, the sampling approach is limited to general records to see whether there might be relevant material which ended up in one or more storerooms used to keep other irrelevant material and where any archive methodology was either rudimentary or non-existent.

(vii)     The plaintiffs through their advisors in my view are taking an appropriate approach to ascertain if there is some potentially relevant material in the storerooms as it would have been wrong to exclude these storerooms altogether from any search.  Equally, in my view it would be wrong in the sense of being disproportionate and unjust to require every piece of paper held by the plaintiffs to be reviewed.  Such an obligation would be to apply a counsel of perfection.  In my judgement, in this day and age to require such a search goes too far.  The parties and the Royal Court, if this matter proceeds to trial, will have significant material to evaluate the rival contentions put forward by the parties.  Putting it another way, the sampling approach taken by the plaintiffs in my judgement will not prevent a fair trial taking place or the issues at the heart of this case from being determined.

(viii)    In particular, applying the factors set out in paragraph 10 of Practice Direction RC17/07:-

(a)       There are a huge number of documents involved, most of which I consider are likely to be irrelevant;

(b)       These are proceedings where effectively dishonesty is alleged.  Any findings of dishonesty may well be made on the basis of what is not contained in documents or based on inferences the Royal Court is invited to draw at trial;

(c)       The ability to retrieve relevant documents from the storerooms is on any view not easy.  Indeed, I would go further would describe it as particularly challenging;

(d)       A review of all documents would be an extremely expensive process which might not produce any material of significance for the reasons already given; and

(e)       The cost of the exercise already carried out and to be carried out shows that significant monies have or will be spent by the plaintiffs in support of the approach they have taken.

This is therefore exactly the sort of case which in my view justifies discovery being limited.

36.      My conclusion does not mean, however, that the door is closed to further requests for discovery made by the second and third defendants once they have received the fruits of the plaintiffs' enquires together with a detailed explanation of the searches carried out.  It may be that either applications for specific discovery are justified, or that further enquires in certain parts of the storage facilities which may have thrown up some relevant material might be necessary or justifiable.  I expressly did not close that door to the defendants to make such an application because, while I was satisfied about the approach being taken by the plaintiffs to date, there is always a risk of an area being overlooked due to a sample approach always having a random element about it.

37.      In respect of the timing of the plaintiffs' application, I am of the view that the application was left a little late in the day, made, as it was, shortly before the deadline expired for making such an application.  Given that the plaintiffs were carrying out extensive enquiries in May, June and July, the application might have been made earlier.  Initially, I was also concerned that the plaintiffs had only started the discovery process after the order made in May of this year.  However, I was satisfied by Advocate Sheedy that preparatory work had been carried out to ascertain where records were stored and to make arrangements to retain Millnet and for the barristers to attend in Kenya.  Nevertheless, the plaintiffs could have provided the information that emerged during the hearing at an earlier stage to the second and third defendants. 

38.      However, given the remaining issues to be resolved about progressing the third party claims, I was not satisfied that the timing of the application could be said to cause any real or substantial prejudice to the second and third defendants because they had already delayed the progress of this matter to trial by convening the third parties; the subsequent challenges that have arisen have meant that directions to progress this case to trial will not now be given until early in 2018. 

39.      Finally, in relation to the suggestion by the second and third defendants that the plaintiffs should have obtained discovery from third parties and should provide detailed discovery of the process pursuant to which payments were made by requests of those parties was not an approach I was sympathetic to at this stage for the following reasons:-

(i)        Firstly, documents held by such third parties are (other than the plaintiffs' own banks) are unlikely to be in the possession, custody or power of the plaintiffs.

(ii)       Secondly, the precise process pursuant to which payments were transferred is not what is at the heart of this case.  In my view, what is at the heart of this case is approval and/or knowledge of the payment of commissions and the total amount of commissions paid in particular to the parties to the present proceedings (including the third parties) not the precise mechanism adopted for each payment.

40.      Finally, in respect of costs, both because the ultimate outcome of the plaintiffs' approach was not known at this stage and because further discovery applications might be made I left over the question of the costs of this application, either to be determined by me following any further discovery applications made to me or failing that by the trial judge.

Authorities

CMC v Forster & Regent [2016] JRC 149.

Royal Court Rules 2004, as amended.