English High Court sets aside Bankers Trust disclosure orders against Australian banks

The English High Court has set aside Bankers Trust disclosure orders made against two Australian banks at a without notice hearing, which required the banks to disclose certain information regarding two of their Australian customers to the claimants. In doing so, the judge reiterated that the English court should only make disclosure orders against foreign banks in exceptional circumstances, because of the strong likelihood that compliance with such an order would put the foreign bank at risk of being in breach of local laws or regulations: Scenna v Persons Unknown and Others [2023] EWHC 799 (Ch).

In order for the English court to make a disclosure order against a foreign bank, the claimant will need to show, amongst other things, that the application falls within one of the "jurisdictional gateways" in Practice Direction 6B of the Civil Procedure Rules (CPR). There was previously some uncertainty as to whether any of the "jurisdictional gateways" applied to applications for disclosure orders, but this was resolved by the amendment of the CPR, with effect from 1 October 2022, to introduce a new "jurisdictional gateway" in respect of such applications. This amendment has been relied upon in a number of recent cases in which the English court has made disclosure orders against foreign cryptocurrency exchanges (see, for example, LMN v Bitflyer Holdings Inc [2022] EWHC 2954 (Comm), considered here).

Following the amendment to the CPR, it is now clear that the English court could, in an appropriate case, make a Bankers Trust disclosure order against a foreign bank. However, the present decision is a helpful indication that it will not routinely do so and that such orders will still only be made in exceptional circumstances. The English court will be particularly reluctant to make a disclosure order against a foreign bank where there is a real risk that providing the disclosure would result in a breach of local law, and where there is an alternative method for obtaining the disclosure through the local courts.

We consider the decision in further detail below.

Background

The claimants, a Canadian individual and his company, were victims of an alleged fraud pursuant to which they transferred money to two bank accounts in Australia and a bank account in Hong Kong. At a without notice hearing on 6 October 2022, the claimants obtained Bankers Trust disclosure orders requiring the Australian and Hong Kong banks to disclose certain information in relation to the accounts to which the money was transferred. The information ordered to be disclosed included the deposit and withdrawal history, the final balance of the account, KYC information, and copies of access logs and details of approved devices.

The Australian banks applied to set aside the disclosure orders on the basis that, amongst other things, providing the disclosure pursuant to an order of the English court, rather than an Australian court, would put them in breach of their obligations under Australian law.

The claimants also asserted substantive claims against the banks in relation to the receipt of the money. The Australian banks successfully challenged the jurisdiction of the English court in relation to those claims but we do not consider that aspect of the decision in this blog post.

Decision

The court considered the five criteria for making a Bankers Trust order as set out in Kyriakou v Christie Manson and Woods Ltd [2017] EWHC 487 (QB).

1. There must be good grounds for concluding that the property in respect of which disclosure is sought belongs to the applicant.
2. There must be a real prospect that the information sought will lead to the location or preservation of the relevant property.
3. The order should not be wider than necessary.
4. The interests of the applicant in getting the disclosure must be balanced against the detriment to the respondent.
5. Appropriate undertakings must be given in respect of the use of the disclosed information and/or documents.

In this case, there was no dispute that the first to third criteria and the fifth criteria were met (or could be met by an appropriately worded order). The real issue was in relation to the fourth criteria (seeking to achieve a balance between the interests of the applicant and respondent).

The court noted that where the respondent to the disclosure order is a foreign bank, additional and special considerations apply when conducting the balancing exercise. While regard should still be taken of the Kyriakou criteria, because of the strong likelihood that compliance with such an order would put the foreign bank at risk of being in breach of local laws or regulations, an order should only be granted in exceptional circumstances (applying the decision of Hoffman J in Mackinnon v Donaldson, Lufkin & Jenrette Corp [1986] Ch 482). One example of where such exceptional circumstances might exist is in cases of urgent necessity or "hot pursuit".

In conducting the balancing exercise required by the fourth Kyriakou criteria, the court took account of two main factors:

• First, there was a real risk that compliance with the disclosure order would place the banks in breach of Australian law and thereby expose them to financial and/or reputational damage. There was a real risk that the banks would suffer significant prejudice and detriment and this was a significant factor to be taken into account in the balancing exercise.
• Second, there was an alternative and broadly equivalent remedy available in Australia. The banks had confirmed that they would not oppose an application to the Australian courts and that they would comply with any order made. While discharging the disclosure order might cause the claimants some inconvenience and increased cost, it would not cause them to suffer any irremediable damage in their pursuit of the alleged underlying fraudsters, because they could apply for and would probably be granted the same relief in Australia.

In respect of whether there were exceptional circumstances, the court found that this was not a case of "hot pursuit" and that, at best, the pursuit could be described as "lukewarm". The alleged fraud had taken place in March/April 2022, it had been discovered in June 2022 and the proceedings were issued in October 2022.

The court also considered the recent case of LMN, which concerned an application for Bankers Trust disclosure orders against various foreign cryptocurrency exchanges. In LMN, Butcher J found that the approach in Mackinnon was inapplicable and granted the disclosure orders. The court distinguished the reasoning in LMN from the present case on the basis that, in LMN, it was not known where the relevant documents were located, such that the applicants did not know in which jurisdiction to make an application. In the court’s view, it would have been impractical and contrary to the interests of justice to require victims of an alleged fraud to make speculative applications in different jurisdictions. That was different from the present case where it was known that the information was in Australia, there was a very significant risk that compliance with the order would breach Australian law, and the Australian courts offer a similar remedy which would probably be granted.

The court held that there were no exceptional circumstances to justify a departure from the general rule that a disclosure order should not be made against a foreign bank. On the contrary, the balancing exercise came down clearly in favour of discharging the disclosure orders.