High Court refuses permission for collateral use of disclosed documents and witness statements to respond to US grand jury subpoena

In a decision illustrating the court's strict approach to the rule prohibiting the use of disclosed documents and witness statements for a collateral purpose, the High Court has refused a party permission to provide disclosed documents and witness statements to the US Federal Bureau of Investigation (FBI) for the purpose of complying with a US Grand Jury subpoena: ACL Netherlands BV v Lynch [2019] EWHC 249 (Ch).

The court's permission was required because under CPR 31.22 (in relation to disclosed documents generally) and 32.12 (in relation to witness statements), a party may only use disclosed material for the purpose of the proceedings in which it is disclosed, subject to certain exceptions including where the court gives permission.

On the facts of the case, the court held that the applicant had not established cogent and persuasive reasons in favour of granting permission, as it was required to do. The court also considered that the grant of permission might have occasioned injustice, particularly given that the trial in the civil proceedings was imminent.

The decision highlights that the fact that a party may be facing legal compulsion to produce documents is not a "trump card" leading necessarily to the grant of permission (although in any event the court was not satisfied here that compulsion had been established). Courts considering such applications will not apply a mechanistic approach and will consider all the circumstances in weighing the competing public interests involved. That is the case even if refusing permission may result in a party finding itself effectively stuck between a rock and a hard place, unable to comply with a legal demand from an enforcement or regulatory agency – though that will be a relevant factor.

Background

The proceedings arose from the acquisition of the first claimant by the second claimant. The claimants alleged that the defendant individuals had fraudulently manipulated the first claimant's accounting records, leading to a substantial overpayment on the acquisition. The proceedings, which had attracted substantial press reporting in both the US and the UK, had been listed for a nine month trial.

Criminal proceedings in connection with the same allegations had been commenced in the US. A subpoena had been issued in the name of a Grand Jury of a US district court, addressed to the claimants' US-based parent company and naming all the claimant companies as persons required to produce documents. The documents required by the subpoena included all documents and witness statements produced in the present proceedings.

CPR 31.22 provides that disclosed documents may be used only for the purpose of the proceedings in which they are disclosed, except where:

• the document has been read or referred to at a public hearing;
• the court has given permission; or
• the parties who disclosed the document / to whom the document belongs have agreed.

CPR 32.12 sets out a broadly similar rule in respect of served witness statements.

The test that a court must apply on any such application for permission is well established and was not in dispute in the present case. The party applying for permission bears the burden of establishing both (a) special circumstances constituting “cogent and persuasive reasons” for giving permission and (b) that the release of the material will not occasion injustice or the risk of it (Crest Homes Plc v Marks [1987] A.C. 829).

The claimants' principal argument was that permission should be granted because they should not be put in the position of being unable to comply with the US Subpoena, which they contended would put them in potential contempt of the US court.

Decision

The High Court (Mr Justice Hildyard) refused the application for permission.

The court noted that underpinning the rules against collateral use is a recognition that the process of document disclosure and exchange of witness statements in civil litigation constitutes an invasion of litigants' right to privacy and confidentiality, in the interests of the administration of justice. To limit that invasion as far as possible, and thereby also promote compliance with the rules, the court has controlled the use that may be made of such material. Accordingly, while CPR 31.22 and 32.12 are procedural in form, they give effect to important public policy, of which the court must be protective. Establishing "cogent and persuasive reasons" for the grant of permission will usually require the court to be satisfied that that policy is outweighed by some other public policy.

Hildyard J also observed that a more restrictive approach should be taken to the collateral use of witness statements prior to trial than to disclosed documents generally, particularly when the trial was imminent. That was because, prior to a witness being called, a witness statement is not a public document and does not have the status of evidence. It is merely an indication of the evidence that the witness might give if called.

The court cited with approval various authorities to the effect that the fact that a party is under some form of compulsion to disclose material does not, of itself, establish a cogent and persuasive reason for granting permission for collateral use. The test is whether the use for which permission is sought justifies any exception to or erosion of the relevant public interest. Hildyard J therefore rejected what he perceived as a submission to the effect that the court's discretion was effectively constrained in such cases of compulsion.

In any event, on the facts, it was by no means clear to the court that the claimants were technically under compulsion. It seemed likely that the legal obligation fell only on their parent company, and also that it did not have legal control of the documents (sufficient to trigger the obligation under US law) given that they could not be produced without the court's permission.

The court did accept that, even in circumstances not involving compulsion, it was relevant to take into account the important public interest in the investigation and prosecution of fraud and, in cases of cross-border fraud, in favour of mutual international assistance. However, in assessing the weight to be given to that factor, it was relevant for the court to consider whether there was in fact a real and immediate need for the material for the purposes of the criminal investigation and prosecution. The court was not satisfied that this had been demonstrated, particularly given that the subpoena was couched in such broad terms that it was not possible from the face of the documents to link the material sought to any issue or area of investigation. It was also relevant that, although the subpoena was in the name of the Grand Jury, the US court out of which it was issued had had no substantive judicial input into it.

Finally, the court concluded that, even if the facts had established "cogent and persuasive reasons", it would have denied permission on the basis of the likelihood of prejudice (that is, under the second limb of the test in Crest Homes). First, at least one of the defendants would potentially suffer prejudice in the US proceedings by the release of the witness statements (though less probably the disclosed documents), as the prosecutors would gain the "advantage of peering into [the defendant's] case and brief" in a way that they could not do under normal US procedure. Further, in the English civil proceedings, the court accepted that there was a risk that some of the defendants' proposed witnesses (who had expressed objection to their statements being released) would withdraw their witness statements. The court also expressed concern that the work involved in providing the material would interrupt and distract from the preparations for the imminent trial, which was itself prejudicial and could work injustice.