Potential Criminality Under Foreign Law Not a Bar to Disclosure of Documents in English Civil Proceedings

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Bank Mellat v HM Treasury [2019] EWCA Civ 449

Synopsis

Obligations of confidentiality arising under a foreign legal system do not automatically entitle a party litigating in England to withhold documents from disclosure. The Court has discretion whether to order production of the documents. Where it is contended that the disclosure of documents would expose the disclosing party to legal penalties in a foreign state, how real the risk of foreign prosecution in the foreign state is will be relevant to the Court’s exercise of discretion.

On the facts of Bank Mellat v HM Treasury1, the Court of Appeal held that the trial Judge had been entitled to make the following conclusions: (1) she had a discretion whether to make an order for production and inspection in light of how real any risk of prosecution was likely to be and, on the facts of the case in hand, no real evidence had been submitted that evaluated any risk to Bank Mellat as a result of it complying with an order to disclose unredacted documents; (2) the documents sought were not just relevant to the issues in the claim but would have a probative influence on a number of those issues; and (3) on balance it was appropriate to order disclosure, notwithstanding that disclosure would breach Iranian law.

Facts

Bank Mellat (the “Bank”) pursued a claim for damages against HM Treasury (“HMT”) in respect of loss that it claimed to have suffered as a result of the Financial Restrictions (Iran) Order 2009 (“2009 Order”) which was held to be unlawful by the Supreme Court in 20132. The quantum of the Bank’s claim was broadly divided into two parts. The first part, the quantum of which was said to be in the order of US$31.7 million, related to specific transactions i.e. letters of credit, bank guarantees and penalties. The second and far larger part, the quantum of which was estimated to be approximately US$800 million, related to the Bank’s share of the Iranian foreign currency letters of credit market. The Bank contended that its share of the market in October 2009 was approximately 25% and, but for the 2009 Order, that that share would have been maintained and increased to approximately 35%. 

In the course of the proceedings the Bank disclosed in redacted form some 12,500 documents. The Bank contended that it had a “right or duty to withhold” inspection of the unredacted documents on the grounds that they contained confidential information relating to identifiable customers, the production of which in unredacted form would expose the Bank to the risk of criminal prosecution under, inter alia, Iranian law3. The Bank contended that the needs of the trial could be met by disclosure of the redacted documents utilizing ciphers to represent the identity of the customers.

Upon application by HMT, Mrs Justice Cockerill (the “Judge”) ordered the Bank to produce the unredacted documents to members of a confidentiality club, in ciphered form, with a master list of cipher codes being available to members of the confidentiality club (but not for use in open court hearings). The confidentiality club was widely drawn, including ministers, employees or contractors of HM Government, the Government Legal Department, HMT’s expert accountants and counsel instructed in the proceedings.

The Bank appealed to the Court of Appeal (“CoA”). The issues on appeal were (1) the actual risk of prosecution faced by the Bank (or its employees) in Iran should it comply with the English Court’s order (“Risk”); (2) the importance of production of the documents in unredacted form to the fair disposal of the trial (“Need”); and (3) the discretionary balancing exercise i.e. how to strike the right balance between Risk and Need (“Balancing Exercise”).

Relevant Legal Framework

Role of the legal expert

As a matter of English Private International Law, the content of foreign law is a question of fact to be proved by a duly qualified expert in the law of that foreign country. The expert’s function extends to both the interpretation and application of the foreign law. The burden of proof rests on the party seeking to establish the proposition of foreign law in question, in this case the Bank. The English Court will scrutinize the evidence adduced but it will not undertake its own research into questions of foreign law, any more than it will into other questions of evidence. When scrutinizing evidence of foreign law, as on any other question of evidence, the English Court is not inhibited from using its own intelligence and common sense. Where expert evidence on foreign law is uncontradicted, the Court "should be reluctant" to reject it and is not entitled to do so on the basis of its own research4. The English Court will normally accept such evidence unless it is obviously false, obscure, extravagant, lacking in obvious objectivity and impartiality, or patently absurd, or if the expert never applied his mind to the real point of law, or if the matters stated by the expert did not support his conclusion according to any stated or implied process of reasoning.

The Risk

Foreign law cannot be permitted to override the English Court’s ability to conduct proceedings in England in accordance with English procedures and law. The English Court has jurisdiction and discretion to order production and inspection of documents. It is not in any sense precluded from making an order where compliance would entail a party to English litigation breaching criminal law in the “home” country of the party subject to the order. However, such an order will not be made lightly. Whether there is a real – in the sense of the actual – risk of prosecution in the foreign state is not determinative of the discretionary balancing exercise, however, the Court will be especially mindful of this factor.

The Need

Orders for production and inspection are matters of procedural law, governed by the lex fori, in this case English law. Disclosure and inspection cannot be refused by reason of the confidentiality of the documents in question alone; instead, confidentiality is a relevant factor for the Court’s consideration. In the exercise of its discretion, the Court may properly have regard to the question of whether inspection of the documents is “necessary for disposing fairly of the proceedings” in question.

The Balance

When the English Court conducts its balancing exercise, it will weigh the actual risk of prosecution in the foreign state, “Risk," against the importance of the documents in question to the fair disposal of the English proceedings, “Need." The English Court must also strike a just balance between the competing interests of those involved (i.e. the party asserting an entitlement to inspect the documents and the party claiming confidentiality in the documents). 

The Decisions 

The CoA held that the Judge had addressed the correct question, namely what was the actual risk of prosecution under Iranian law. This evaluation involves an inquiry that is clearly distinct from assessing the content of Iranian law itself. The judge was, on the facts, entitled to reach the conclusion she did, namely that the risk was more than purely hypothetical risk but less serious than the Bank’s expert had suggested5.

On a fair reading of the Bank’s expert’s report, the Judge was right to conclude that the report did not go beyond the view that unredacted production, absent a permissive order from the Iranian Court, would give rise to a breach of Iranian criminal law and moreover, that the report did not deal with the actual risk of prosecution in Iran. The Bank’s expert gave evidence that it was possible under Iranian law for an application to be made to the Iranian Court for recognition and enforcement of the English Court’s order. However, he expressed the view that the Iranian Court would not grant such an order because the Iranian constitution protects Iranian citizens' right to privacy and it would likely regard the English Court’s order as contrary to public order/morality. The expert’s evidence on actual risk of prosecution was described as “anything but compelling” and the one example cited was very far removed from the Bank’s position. It was also notable that compliance with an English Court’s order would assist in the prosecution of the Bank’s very substantial claim and therefore, would be of indirect benefit to the Iranian Government which had a very substantial shareholding in the Bank. This indirect benefit would likely hold significant weight with the Iranian prosecution authorities when deciding whether or not to prosecute the Bank. In this regard, it was notable that the Bank’s expert did not suggest that the Iranian prosecutor had no prosecutorial discretion in deciding which cases to prosecute.

The CoA dismissed the Bank’s submission that the Judge had anything other than the criterion of “fair disposal of the trial” in mind when she concluded that the unredacted documents were not just relevant but that they may have a “probative influence on some of the issues in the claim." Gross LJ (who gave the lead judgment) noted that the Bank’s claim was “a massive claim” and “of very considerable complexity” and that there was “an air of unreality in attempting to try a claim for loss of custom without knowing who the customers were, together with when and why the business had been lost6."

The following (non-exhaustive) reasons were identified as sufficient, either individually or cumulatively, to demonstrate the need for production of the unredacted documents for the fair disposal of the claim: (i) the reason for a specific transaction not completing might not be attributable to the 2009 Order but instead be customer-related (e.g. insolvency); (ii) HMT were entitled to explore whether a transaction did not complete as a consequence of the 2009 Order or whether it was in fact completed by other routes with the Bank obtaining a share of profits or commissions. Any such instances would reduce the Bank’s overall claimed loss. It was not obvious that such enquiry could be conducted without customer identities; (iii) HMT was entitled to probe whether any transactions were linked to attempts to evade lawful sanctions and it was unrealistic to suppose that this exercise could be conducted without customer identities; (iv) the customer identities might demonstrate links between the two parts of the Bank’s claim; and (v) if the proceedings were confined to ciphers, the use of front companies or group companies together with minor variations in names would be missed.

As to the balancing exercise between “Risk” and “Need," the Court held on the facts of this case that the Court’s ability to conduct its proceedings in accordance with its own law and procedures should not be overridden by foreign law. The Court had unquestioned jurisdiction to order disclosure and production and as a matter of discretion the Judge was entitled to reach the conclusion she did.

Take Away

Foreign parties litigating in England should be alive to the fact that disclosure restrictions arising under their domestic laws will not necessarily enable them to avoid or withhold relevant documents from their opponent in litigation.

Parties seeking to rely on foreign law restrictions should endeavor to produce robust expert evidence which addresses not simply the existence of the restrictions under foreign law but also the risk of prosecution. 

Parties would also be well advised to engage with their opponents' proposals regarding confidentiality clubs. In this case the Bank mounted a root and branch opposition to HMT’s application and did not engage with the suggestion and/or proposed composition of the confidentiality club. The result was that the club was widely drawn including ministers, employees or contractors of HM Government, the Government Legal Department, HMT’s expert accountants and counsel instructed in the proceedings.

Footnotes

1) [2019] EWCA Civ 449.

2) Bank Mellat v HM Treasury (No.2) [2013] UKSC 38.

3) There were also claims relating to confidentiality obligations arising under the laws of Turkey and South Korea. The Turkish aspect of the case became academic as the Bank indicated that it did not intend to pursue its claim for losses allegedly suffered by its Turkish branch and the Bank did not pursue an appeal in respect of the judge’s ruling relating to the South Korean documents.

4) Dicey, Morris & Collins at para 9-016.

5) Paragraph 72 of the Judgment.

6) Paragraph 78 of the Judgment.

 

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