COURT OF APPEAL UPHOLDS DISCLOSURE ORDER DESPITE RISK OF PROSECUTION IN IRAN

The Court of Appeal has upheld a first instance decision requiring the claimant Iranian bank to produce customer documents in unredacted form, subject to measures to protect their confidentiality, despite the fact that compliance would put the claimant in breach of Iranian law: Bank Mellat v HM Treasury [2019] EWCA Civ 449.

This case gives a helpful illustration of the court’s approach where a party asserts that the production of documents under its disclosure obligations will contravene foreign criminal law. The court will balance the actual risk of prosecution in the foreign jurisdiction against the importance of the documents to the fair disposal of the trial. While the risk of prosecution will be a factor to weigh in the balance, it will not be determinative.

It is interesting to compare the High Court’s similar decision, albeit in a contrasting context, in the recent case of ACL Netherlands BV v Lynch (considered here). In that case the court declined to grant a party permission to use documents received on disclosure in the English litigation in order to comply with a US grand jury subpoena. Both decisions deal with a scenario where documents are required for proceedings in one jurisdiction but production will put the party in breach of its obligations under the (civil or criminal) law of another jurisdiction. Both decisions highlight the difficulties that may be faced by a party that finds itself caught between conflicting obligations in this way.

Background

The claimant Iranian bank (the Bank) brought the present proceedings against the defendant HM Treasury (HMT) for damages under the Human Rights Act 1998. In the proceedings the Bank claimed for losses it had allegedly suffered as the result of the Financial Restrictions Iran Order 2009, which was made by HMT and was subsequently found to be unlawful by the Supreme Court. The issue to be determined at a trial fixed for June 2019 is whether the alleged losses were caused by the 2009 Order.

The Bank produced certain documents to HMT in redacted form, claiming that it had a “right or duty to withhold” inspection pursuant to CPR Part 31.19(3). The redacted information included customer identities in respect of which it was common ground that disclosure would constitute a breach of Iranian law.

The Bank’s case was that the needs of the trial could be catered for by way of ciphers representing the customer identities. HMT contended that the unredacted documents should be produced 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.

The High Court (Cockerill J) ordered the Bank to produce the documents in unredacted form but subject to confidentiality provisions as proposed by HMT. The Bank appealed.

Decision

The Court of Appeal dismissed the appeal, Gross LJ delivering the lead judgment with which Peter Jackson and Coulson LJJ agreed. The principal issues on appeal were:

Issue I (Risk): The actual risk of prosecution faced by the Bank (or its employees) in Iran if it complied with the order.

Issue II (Need): The importance of production of the documents in unredacted form to the fair disposal of the trial.

Issue III (Striking the right balance): The discretionary balancing exercise for the court in weighing the factors at I and II above.

There was no significant dispute as to the principles to be applied where a party asserts a right or duty to withhold inspection of documents because a failure to do so would contravene foreign criminal law. Gross LJ summarised the position as follows:

• The English court has jurisdiction to order production and inspection regardless of whether compliance would or might entail a breach of foreign criminal law in the “home” country of the party subject to the order.
• Orders for production and inspection are matters of procedural law, governed by the lex fori, English law. Foreign law cannot be permitted to override the court’s ability to conduct proceedings in accordance with that law.
• Whether or not to make such an order is a matter for the court’s discretion. An order will not lightly be made in such circumstances, not least with considerations of comity in mind, but the court is not in any sense precluded from doing so.
• When exercising its discretion, the court will take account of the actual risk of prosecution in the foreign state. A balancing exercise must be conducted, weighing the actual risk of prosecution against the importance of the documents to the fair disposal of the English proceedings.
• If inspection is ordered, the court can fashion the order to reduce or minimise the concerns under the foreign law, for example, by imposing confidentiality restrictions.
• Where an order is made, considerations of comity may not unreasonably be expected to influence the foreign state in deciding whether to prosecute the foreign national for compliance with the court’s order, as “comity cuts both ways.”

Issue I: Risk

The question was the risk of prosecution, not the risk of subsequent sanction. The judge concluded that, although production of the documents in unredacted form would constitute a breach of Iranian law, the risk of prosecution (and sanction) was “not as serious” as suggested by the Bank’s expert witness on Iranian law (which was uncontradicted as HMT could not find an Iranian law expert willing to assist).

The Court of Appeal rejected the Bank’s arguments that the judge had addressed the risk of sanction rather than prosecution, and that she had strayed outside her remit and impermissibly imposed her own thinking in the face of the uncontradicted expert evidence. That evidence did not preclude the judge reaching the conclusion to which she came, including because: it was not clear that the actual risk of prosecution in Iran fell within the expert’s expertise; even if it did, the burden was on the Bank to establish the relevant risk and the court was entitled to use its own intelligence in scrutinising the evidence; and the expert’s evidence on this point was “anything but compelling” as it contained only one example of prosecution which was far removed from the facts of the present case.

Issue II: Need

The Court of Appeal rejected the Bank’s argument that the judge had applied the wrong test. Although she may not have referred expressly to the need for the unredacted materials to ensure a fair trial, it was clear that this was the criterion she had in mind.

Gross LJ agreed that the fair disposal of the trial “cries out” for production of the documents in unredacted form, commenting that he would be deeply concerned as to the prospect of proceeding without the production of customer identities. The information was necessary, inter alia, so that HMT could test the Bank’s case that transactions had failed to complete due to the 2009 Order rather than other reasons.

Issue III: Striking the right balance

The court was satisfied that the judge exercised her case management discretion lawfully and appropriately in striking a balance between risk (Issue I) and need (Issue II) and reaching the conclusion she had. If it was necessary for the Court of Appeal to exercise the discretion afresh, then it would exercise it in the same manner as the judge had done.

The court emphasised that it did not reach that conclusion lightly and that it took comity “very much into account” and did not intend any disrespect for the relevant principles of Iranian law. However, having regard to the degree of risk of prosecution in Iran, the court was in no doubt that the need for the production of the documents unredacted should trump the concerns as to Iranian law. On the facts of this case, Gross LJ said, the court’s ability to conduct its proceedings in accordance with its own law and procedures should not be overridden by foreign law.