High Court refuses to set aside or vary disclosure order despite risk of foreign criminal or regulatory sanctions

The High Court has refused to set aside or vary an order for standard disclosure where a defendant bank maintained that production of documents would contravene foreign criminal law or regulations, with the result that the bank’s defence was struck out and it was debarred from defending the claims: Byers & Ors v Samba Financial Group [2020] EWHC 853 (Ch).

The defendant bank was one of the largest banks in Saudi Arabia.  It alleged that complying with the disclosure order would give rise to a serious risk of prosecution by the Saudi Arabian Monetary Authority (“SAMA”) resulting in the possibility of being fined, having its banking licence withdrawn and senior employees being imprisoned.

The decision highlights the difficulties faced by financial institutions, and other regulated persons, when caught between conflicting obligations to the court and an overseas regulator. However, the facts of the instant decision were extreme and the court was critical of the bank’s failure to demonstrate that it had adequately communicated with the regulator, or complied with the regulator’s requirements to enable it to consider the disclosure issue.

In circumstances where disclosure might result in some sanction being imposed by a third party (particularly one based in a foreign jurisdiction), it is essential to take reasonable steps to seek necessary consents in good time. Where consent is not forthcoming, it would be wise to document the steps taken (ideally in contemporaneous communications with the third party, which can be disclosed to the court) and to make any applications to the court in a timely manner, if required.

The decision provides some helpful guidance on the exercise of the court’s case management discretion in cases of this type. In particular:

1. Generally speaking, the court’s discretion to vary or revoke interim orders is governed by CPR 3.1(7) and is limited to where there has been a “material change in circumstances since the order was made” (Tibbles v SIG plc [2012] EWCA Civ 518).
2. However, there may be other circumstances in which the court is justified in varying or revoking a previous order, and the decision in Tibbles should not be read as if it were statute. Paragraph 18 of the Disclosure Pilot (PD51U) provides a general power to vary an order for extended disclosure, but the party applying for the variation must satisfy the court that it is necessary for the just disposal of the proceedings, is reasonable and is proportionate. This accords with the court’s previous decision in Vannin Capital PCC v RBOS Shareholders Action Group Ltd [2019] EWHC 1617 (Ch) (see our blog post on this decision).
3. The court may use its case management discretion to vary or revoke a disclosure order where there is a real risk that the disclosing party may face criminal or regulatory sanctions in a foreign jurisdiction if it complies with its disclosure duties (Bank Mellat v HM Treasury [2019] EWCA Civ 449, see our blog post on this decision). The court confirmed that this risk should be assessed in light of the actual risk of prosecution, and balanced against the importance of the relevant documents to a fair trial.
4. Where the court’s balancing act comes out in favour of disclosure, the court may impose the draconian sanction of striking out a party’s case where there has been a serious and inexcusable breach of the disclosure order, as in the present case.
5. It is noteworthy that the court held it would be wrong in principle to issue a letter of request to a third party in a foreign jurisdiction, seeking consent to the disclosure of documents by a party to the proceedings. The court’s jurisdiction to issue a letter of request is exercised for the purpose of securing material evidence. Where a party to the litigation is ordered to give disclosure, the court has all the power it needs to enforce the order. It would be inappropriate for the court to take on a diplomatic role to assist a party.

To put the judgment in its wider commercial context, the decision arises from the activities of Mr Al-Sanea and the Saad Group, which have resulted in significant litigation before the English courts, most notably in Golden Belt 1 Sukuk Company BSC(c) v BNP Paribas [2017] EWHC 3182 (Comm) (see our blog post: High Court finds duty of care owed by arranger of capital markets transaction to investors) and the Supreme Court’s decision in Singularis Holdings Ltd (In Official Liquidation) v Daiwa Capital Markets Europe Ltd [2019] UKSC 50 (see our blog post: Supreme Court upholds first successful claim for breach of the so-called “Quincecare” duty of care).

Background

The underlying claim was brought by the liquidators of Saad Investments Company Limited (a Cayman Islands company that was part of the Saad Group and indirectly controlled by Mr Al-Sanea) against a Saudi Arabian bank (the “Bank”) for knowing receipt and breach of trust.

The court ordered both parties to provide standard disclosure (the “Disclosure Order”). The timetable provided a period of almost a year to complete disclosure, because of the Bank’s concern that the majority of its disclosure would be dependent on obtaining permission from a third party, namely SAMA, the banking and financial regulator in the Kingdom of Saudi Arabia (“KSA”).

The Bank subsequently obtained an extension of time to complete its document search and obtain SAMA’s consent, although the Bank insisted that the claimant meet the original disclosure deadline.

The Bank then made a further last-minute application for an extension of time, despite having failed to provide any disclosure since the last application. The Bank said that SAMA had refused consent for disclosure and therefore the Bank could not give disclosure without putting itself in breach of Saudi Arabian law and exposing itself to regulatory/criminal penalties. It said that SAMA had suggested that the proper course was for the court to approach the Ministry of Foreign Affairs in the KSA (the “Ministry”) to seek its assistance regarding disclosure.

The Bank’s application for an extension of time was rejected by the court. In the alternative, the Bank sought (in particular):

• A direction that the court issue a letter to the Ministry, requesting that it direct SAMA to permit the Bank to disclose certain documents.
• A variation of the Disclosure Order, in particular to dispense with the requirement to disclose documents for which third party permission would be required but could not be obtained.
• A trial of certain preliminary issues, which in the Bank’s view could be fairly tried before the Bank needed to give further disclosure.

The claimants issued an application to strike out the Bank’s defence and to debar the Bank from defending the claim.

Decision

The court refused all of the Bank’s applications and made an order to strike out the Bank’s defence and debar the Bank from defending the claim, save in relation to five discrete issues where the court found the claimants would not be adversely affected by the Bank’s non-disclosure.

The key reasons for the court’s decision are set out below.

Application for letter of request to the Ministry of KSA

The court held that it would be wrong in principle to issue a letter of request concerned with obtaining disclosure. It distinguished the scenario in Panayiotou v Sony Music Entertainment UK Ltd [1994] Ch 142 where the court was asked to send a request to a third party to obtain evidence that was material to an issue at trial, on the basis that disclosure and evidence are fundamentally different. It noted that – where a party to a case is ordered to give disclosure – the court has all the power it needs to enforce its order. The court also emphasised that it did not have diplomatic relations with foreign governments.

The court added that there was no credible evidence that the Ministry would act on such a letter of request, and that even if there was a positive response, it would almost certainly be far too late for a fair trial to take place in October 2020 as planned. The Bank’s late disclosure would put unfair pressure on the claimants in their preparations for trial.

Application to set aside the Disclosure Order

The court noted that although its discretion under CPR 3.1(7) to revoke or vary orders is wide, the application of this discretion is generally limited to cases where there has been “a material change in circumstances since the order was made” (see Tibbles). In considering this test, the court made the following observations:

• There had been no material change in circumstances since the Disclosure Order. The court was made aware at the CMC that third party consent was required and had given generous time limits to reflect this issue.
• The Bank did not comply with SAMA’s requirements or adequately communicate with SAMA. SAMA gave conditional approval to the start of the disclosure process in June 2019, subject to it being provided with all the documents in question. However, the Bank had not completed this process; it only sent SAMA an incomplete list of documents, not a complete set of the documents intended to be disclosed. The Bank failed to explain its obligations properly to SAMA.
• Even if there had been a material change in circumstances, the court was required to consider whether revoking or varying the Disclosure Order would be just. The court said that such an order would not be just in circumstances where the Disclosure Order was made almost 18 months prior to the application; and where the claimants had fully complied with it yet the Bank had not, and so a fair trial could not take place.
• The decision in Tibbles should not be read as if it is statute, and there may be other circumstances in which the court is justified in varying or revoking a previous order. The court noted that paragraph 18 of the Disclosure Pilot (PD51U) provides a general power to vary an order for extended disclosure, but the party applying for the variation must satisfy the court that it is necessary for the just disposal of the proceedings, is reasonable and proportionate.

Looking at other circumstances in which the court could be justified in varying or revoking the Disclosure Order, the court considered the decision in Bank Mellat, which is the leading authority on the court’s case management discretion where there is a risk of prosecution of a foreign litigant in its home state which conflicts with its disclosure duties. The court assessed the importance of the disclosure of the Bank’s documents for a fair trial as against the risk of prosecution of the Bank in KSA. The court concluded that the balancing exercise came down in favour of refusing to revoke the Disclosure Order.

The key factors that influenced the court’s conclusion were as follows:

1. The Bank’s documents were likely to be highly important for a fair trial of the claim and the factual issues.
2. The Banks application was made very late.
3. The claimants would be severely disadvantaged in their conduct of a fair trial if proceedings continued in the absence of these documents, given that the Bank had already obtained a considerable advantage in having access to the claimants’ disclosure and reviewing its own documents, without having to reveal any of its own documents to the claimants.
4. The risk to the Bank of regulatory action or criminal prosecution in KSA was not likely to be as severe as the Bank contended (i.e. the most likely consequence would be a fine rather than imprisonment, revocation or a suspension of the Bank’s license). However, there was a residual, real risk of prosecution.
5. Any such risk arose out of the Bank’s failure to engage appropriately with SAMA and explain why disclosure was obligatory and required to defend the claim.
6. On the facts, the importance of disclosure for a fair trial outweighed the reality of the risk to the Bank in complying with the Disclosure Order.

Application to strike out the defence

The court noted the severity of a strikeout and debarring order, stating that it would be “the ultimate sanction that the court can impose for a breach of its order that does not amount to a contempt of court” and that it was only appropriate for “a serious and deliberate breach”.

The court considered that the Bank’s breach was deliberate, serious and inexcusable. The court concluded that the just and proportionate response in the circumstances would be to debar the Bank from defending all issues except a very limited number where the claimants would not be disadvantaged by the Bank’s breach of the Disclosure Orders.

Note: In October 2020, the Court of Appeal dismissed an application for permission to appeal.