When will pleading "special circumstances" permit collateral use?
Having taken a strict approach when considering what constituted "collateral use" in Tchenguiz v Grant Thornton UK LLP, the Commercial Court has moved quickly to clarify the test for "special circumstances" in applications for permission to use previously disclosed documents in The Libyan Investment Authority v Société Générale SA and others.
In 2014, The Libyan Investment Authority (LIA) filed proceedings against Société Générale SA (SocGen) in the High Court, seeking to have a number of derivatives transactions set aside on the grounds they were "procured by fraud, bribery and corruption".
The claim was settled in May 2017, in resolution of "all matters between both parties concerning five financial transactions entered into between 2007 and 2009 that have been the subject of legal action in the English High Court". Although the terms of the settlement were confidential, the bank issued a public apology and confirmed that it was to pay €963m to the sovereign wealth fund. In concurrence with the settlement, claims against Mr Walid Mohamed Ali Al-Giahmi and Person B, two individuals joined to the same proceedings, were also discontinued.
The LIA continued to investigate five similar transactions entered into with other financial institutions (referred to in proceedings as the Questionable Trades) and claimed it had reason to believe that both Mr. Al-Giahmi and Person B had acted in the same manner in relation to these transactions as in those specified in the SocGen proceedings.
On these grounds, the LIA sought permission, under CPR 31.22, to review documents disclosed to it by the defendants during the action against SocGen in order to determine whether it might seek to use any of these for separate proceedings which may be brought in relation to the Questionable Trades. Whilst the bank consented to the request, Mr. Al-Giahmi and Person B opposed. Mr. Al-Giahmi also submitted that the receiver, appointed to conduct the proceedings on behalf of the LIA, lacked authority to make the present application.
In the Commercial Court, the judge dismissed the application on the grounds that the appointed receiver had not been granted authority to make applications beyond the scope of the LIA's action against SocGen; however he went on to consider the question of judicial discretion in his obiter remarks.
The judge noted that case law states that "a party to civil litigation may be released from the prohibition on collateral use where there are special circumstances which justify such release and no injustice would be caused to the other party". Typically, special circumstances arise when there are conflicting public interests and the court determines that one takes precedence over the other.
In this matter, the competing public interests advanced were:
- The public interest in investigating potential fraud, bribery and corruption; and
- The public interest in encouraging disclosure of only material documents in civil or criminal litigation by enforcement of the collateral use restriction.
It had been submitted by counsel for Mr. Al-Giahmi that, as a private body rather than a public one "charged with the investigation and prosecution of the criminal offence of fraud", the LIA could not avail itself of the former public interest. The court held that, although the status of the claimant entity was not the defining factor of the claim, it did prevent the claimant from relying on the precedent established in Marlwood v Kozeny, which also compared these two interests.
Citing Tchenguiz v Director of the SFO, he noted that there was a "strong public interest in facilitating the just resolution of civil litigation" and, as such, that it was for the court to conduct an examination of the facts of the case before determining whether "special circumstances" had in fact arisen.
Factors influencing the court's discretion
The judge addressed a number of submissions made on behalf of Mr. Al-Giahmi; concluding that, on balance, the LIA has shown "special circumstances":
Was there a prima facie case of fraud, bribery and corruption?
Although the existence of a prima facie case would strengthen any application, and the lack of one a relevant factor to be considered by the courts, there was no reason to deny permission as the claimant had set out (to the extent possible without breaching the relevant restriction on collateral use) its reasons to believe that Mr. Al-Giahmi was involved in Questionable Trades.
What was the outcome of the previous action?
It was submitted that Mr. Al-Giahmi G found it "outrageous" that the LIA sought permission to use certain documents despite its decision to voluntarily discontinue the original proceedings. However, the court found that, whilst unexpected, the request could not be regarded as unfair in these circumstances; the previous settlement related only to claims made in relation to the SocGen dispute, there was "no settlement of all claims which the LIA may have" against the defendant.
Has there been an abuse of process?
Following the settlement of the dispute with SocGen, the LIA sought permission from the Serious Fraud Office to retain documents which would otherwise have been destroyed pursuant to the terms of the confidentiality club under which they were disclosed. The assertion that it was an abuse of process to seek further use of these documents on the basis that they would otherwise have been destroyed was rejected by the court, as the documents were still in existence with "good reason".
Is there a reasonable prospect of harm?
Mr. Al-Giahmi believed that granting permission would allow an "unrestricted" group of people to review the documents; including certain dangerous individuals who may cause serious harm to the defendant. The judge noted that limits on those who may conduct the review can be incorporated into an eventual order. The prospect of serious harm should be considered, however in this case the individuals in question already had access to the documents pursuant to the original matter. Documents which "may give rise to a risk of life and limb" may also be protected by a confidentiality club.
Has the claimant sought permission?
Citing Tchenguiz v Grant Thornton UK LLP, the judge considered that the claimant's decision to make an application for permission to use the documents, and the content of that application, was evidence enough that the collateral use prohibition had not been breached.
Has a claim already been issued?
The judgement concludes that, where there is no clear evidence of a potentially viable claim, the public interest in facilitating the just resolution of civil litigation is not as strong as it would be were there a prima facie claim which had already been issued. However, it was found that the substantial cost already incurred in pursuing investigation of the Questionable Trades suggested there was almost certainly loss incurred, and the potential to at least make a claim established.
Is there any evidence that the review is necessary?
Although no evidence was advanced which proved that the review was necessary, the court found that, as there was a sufficiently strong public interest, it was enough that any review might identify documents which would prove the case against the institutions.
Is the relief sought proportionate?
As the burden of any additional review sought lies with the party making the application, issues regarding scope of review were not considered in detail. The assertion that Mr. Al-Giahmi would be outside the jurisdiction of the court's authority to grant third party disclosure was also dismissed on the basis that the LIA already held all relevant documents. However, it was confirmed that the availability of relief under CPR 31.17 should be considered in applications of this nature.
Whilst each application will be considered on its merits, the judgment in The Libyan Investment Authority v Société Générale SA and others offers invaluable insight into the court's decision making process. The judge's analysis, whilst not binding in this instance, illustrates clearly how the court may balance a number of factors when considering whether to grant its permission to use documents other than for the purpose set out in CPR 31.22.
The obiter comments show that settlement of the original matter will not be fatal to an application and, that providing the applicant can demonstrate evidence that disclosure is likely to reveal documents which give rise to a prima facie case which should be resolved in the public interest (without breaching the restriction), the courts are less likely to dismiss the review as a "fishing expedition". Potential applicants should bear in mind, however, that the public interest grounds for this application may have been considered particularly strong, given the widely reported terms of the SocGen settlement.Undoubtedly, the decision in Tchenguiz will give rise to an increased volume of applications of this nature, however, the Commercial Court have moved quickly to clarify that approaching the collateral use restriction process in the proper way will be looked upon favourably.