Marlwood Commercial Inc v Kozeny

This appeal concerns the resolution of a conflict between the public interest in proper disclosure of documents in civil litigation on the one hand and the separate public interest in the investigation of allegations of serious fraud on the other hand. The conflict in this case arises in an international context on both sides of that conflict, for the documents in question have been brought into this jurisdiction from abroad by a foreign litigant, and the investigation in question is being conducted abroad from where the request for assistance in the production of those documents originates.

The request for assistance dated 18 December 2002 was made by the New York District Attorney (the “Attorney”) to the Foreign Office in connection with the Attorney’s investigation into the affairs of Mr Viktor Kozeny, who is a defendant in these proceedings. That request has led to the Secretary of State, acting under section 4(2A) of the Criminal Justice (International Co-operation) Act 1990 (the “1990 Act”), to request the Director of the Serious Fraud Office (the “SFO”) to exercise her powers under section 2 of the Criminal Justice Act 1987 (the “1987 Act”) to obtain the evidence requested by the US authorities, here the Attorney. That in turn has led to the service of notices on behalf of the Director of the SFO on the solicitors to the parties in these proceedings: a notice dated 5 March 2003 which has been served on the claimants’ solicitor, Mr Charles Lloyd of Macfarlanes, and a further notice dated 4 April 2003 which has been served on the defendants’ solicitor, Ms Catherine Bailey of SJ Berwin. The documents in question are those which have been disclosed by Mr Kozeny, and companies said to be controlled by him, as defendants in these proceedings. Thus Mr Lloyd possesses those documents as solicitor to the claimant parties to whom they have been disclosed; and Ms Bailey possesses them as solicitor to the defendants who have brought them within this jurisdiction for the purpose of disclosure.

The SFO notices have led to two applications. Mr Lloyd, on behalf of the claimants asks the court for permission pursuant to CPR 31.22(1)(b) to produce the documents to the SFO pursuant to its notice. Ms Bailey, on behalf of the defendants, asks the court to direct both Mr Lloyd and herself not to comply with the notices respectively issued to them. Moore-Bick J has granted the first application, that of Mr Lloyd pursuant to CPR 31.22, and has refused the second application. Permission to appeal has been granted by Clarke and Wall LJJ, following an oral hearing, not so much on the prospective merits of the appellant defendants but because their appeal raises questions of principle of potential importance to a significant number of future cases.

The Criminal Justice Act 1987 is described as an “Act to make further provision for the investigation of and trials for fraud”. Section 1 makes provision for the setting up of the SFO and the appointment of its Director. Section 1(3) states that the Director may investigate “any suspected offence which appears to him on reasonable grounds to involve serious or complex fraud”. Section 2 provides for the Director’s investigation powers and contains, as amended, inter alia the following provisions:

“(1)

The powers of the Director under this section shall be exercisable, but only for the purposes of an investigation under section 1 above, or on a request made by an authority entitled to make such a request, in any case in which it appears to him that there is good reason to do so for the purpose of investigating the affairs, or any aspect of the affairs, of any person.

(1A) The authorities entitled to request the Director to exercise his powers under this section are…

(b)

the Secretary of State acting under section 4(2A) of the Criminal Justice (International Co-operation) Act 1990, in response to a request received by him from an overseas court, tribunal or authority (an “overseas authority”).

(1B) The Director shall not exercise his powers on a request from the Secretary of State acting in response to a request received from an overseas authority within subsection (1A)(b) above unless it appears to the Director on reasonable grounds that the offence in respect of which it has been requested to obtain evidence involves serious or complex fraud…

(3)

The Director may by notice in writing require the person under investigation or any other person to produce at such place as may be specified in the notice and either forthwith or at such time as may be specified any specified documents which appear to the Director to relate to any matter relevant to the investigation or any documents of a specified description which appear to him so to relate…

(9)

A person shall not under this section be required to disclose any information or produce any document which he would be entitled to refuse to disclose or produce on grounds of legal professional privilege in proceedings in the High Court, except that a lawyer may be required to furnish the name and address of his client…

(13)

Any person who without reasonable excuse fails to comply with a requirement imposed on him under this section shall be guilty of an offence and liable on summary conviction to imprisonment for a term not exceeding six months or to a fine not exceeding level 5 on the standard scale or to both.”

One important issue debated on this appeal is as to the width of the exception there provided of “reasonable excuse”.

Section 3(3) also provides a qualified exception to obligations of secrecy imposed by enactment:

“Where any information is subject to an obligation of secrecy imposed by or under any enactment other than an enactment contained in the Taxes Management Act 1970, the obligation shall not have effect to prohibit the disclosure of that information to any person in his capacity as a member of the Serious Fraud Office but any information disclosed by virtue of this subsection may only be disclosed by a member of the Serious Fraud Office for the purposes of any prosecution in England and Wales, Northern Ireland or elsewhere and may only be disclosed by such a member if he is designated by the Director for the purposes of this subsection.”

A submission has been made on behalf of the Director of the SFO, who has been given permission to intervene in these proceedings, that section 3(3) overrides the need for any permission to be obtained from the court under CPR 31.22 for the use of disclosed documents outside the proceedings in which they have been disclosed.

Part I of the Criminal Justice (International Co-operation) Act 1990 makes provision to enable the United Kingdom to co-operate with other countries in criminal proceedings and investigations. Section 3 is concerned with overseas evidence for use in the United Kingdom, and section 4 is concerned with the reverse situation which is the subject-matter of this present appeal. It provides inter alia as follows:

“(1)

This section has effect where the Secretary of State receives –

(a)

from a court or tribunal exercising criminal jurisdiction in a country or territory outside the United Kingdom or a prosecuting authority in such a country or territory; or

(b)

from any other authority in such a country or territory which appears to him to have the function of making requests of the kind to which this section applies,

a request for assistance in obtaining evidence in the United Kingdom in connection with criminal proceedings that have been instituted, or a criminal investigation that is being carried on, in that country or territory…

(2A) …if the Secretary of State is satisfied –

(a)

that an offence under the law of the country or territory in question has been committed or that there are reasonable grounds for suspecting that such an offence has been committed; and

(b)

that proceedings in respect of that offence have been instituted in that country or territory or that an investigation into that offence is being carried on there,

and it appears to him that the request relates to an offence involving serious or complex fraud, he may, if he thinks fit, refer the request or any part of the request to the Director of the Serious Fraud Office for him to obtain such of the evidence to which the request or part referred relates as may appear to the Director to be appropriate for giving effect to the request or part referred…

(5)

In this section “evidence” includes documents and other articles.”

CPR 31.22 provides:

“(1)

A party to whom a document has been disclosed may use the document only for the purpose of the proceedings in which it is disclosed, except where –

(a)

the document has been read to or by the court, or referred to, at a hearing which has been held in public; or

(b)

the court gives permission; or

(c)

the party who disclosed the document and the person to whom the document belongs agree.”

The rule there laid down supersedes the common law implied undertaking not to use documents disclosed in the course of civil litigation save for the purpose of the proceedings in which they were disclosed, save with the permission of the court or the consent of the document owner: see Harman v. Secretary of State for the Home Department [1983] AC 280. A majority of their Lordships in Harman held that the implied undertaking was not brought to an end by the reading of the documents in open court: CPR 31.22(1)(a) (and, before it, RSC Order 24, rule 14A) reverses that rule.

These proceedings arise out of agreements for investment in instruments related to the privatisation of the Republic of Azerbaijan’s state owned undertakings including the state-owned oil and gas industry. Azerbaijan’s government issued vouchers to its own nationals entitling them to subscribe for shares in the privatisation offerings. These vouchers were freely transferable, save that foreign investors who wished to purchase them had first to buy options from the state to entitle them to obtain a corresponding number of vouchers in the market.

The claimants (here the respondents) are companies incorporated in the British Virgin Islands which act for investment funds based in New York. In 1998 they entered into agreements with two companies said to be controlled by Mr Kozeny to acquire such options and vouchers with a view to taking substantial holdings in the privatised undertakings. Mr Kozeny (the first defendant) is resident in the Bahamas. His two companies (the third and fourth defendants) are also incorporated in the British Virgin Islands. The agreements were expressly governed by English law. Pursuant to them, the claimants paid Mr Kozeny’s companies some $180 million. In 1999 and 2000 they brought these proceedings (there are two separate actions which have been consolidated) in England pursuant to England’s long-arm procedures. They complain that they were induced to enter into the agreements and to transfer funds by fraudulent misrepresentations, that some of those funds were misapplied, and that the options and vouchers purchased were worthless. There were four defendants, Mr Kozeny, the two companies said to be controlled by him, and (the second defendant) a Mr Charles Towers-Clark, but the proceedings against him have been settled.

In their defence, served in March 2001, the defendants pleaded illegality, viz bribery of the Azeri authorities with the full knowledge and consent of the claimants. That complicity is denied by the claimants.

In November 2000 and March 2001 the defendants disclosed 82 files of documents pursuant to their CPR Part 31 obligations. The documents were brought to this country from abroad.

The Attorney’s request to the Secretary of State named Mr Kozeny as the person under investigation. The Secretary of State in response to that request referred the matter to the Director of the SFO who in turn decided to accede to the Secretary of State’s request. The notices on the Director’s behalf stated that there appeared to be good reason to exercise the powers conferred by section 2(3) of the 1987 Act and called for production of the following documents as appearing to be relating to matters relevant to the investigation: -

“Copies of any documents, excluding those to which legal professional privilege attaches, disclosed by the First, Third and Fourth defendants to the Claimants by Lists of Documents in the High Court of Justice, Queen’s Bench Division, Commercial Court (Action numbers 1999 Folio No 1515 and 2000 Folio No 199).”

On receipt of the notice by Mr Lloyd, Macfarlanes wrote to SJ Berwin to ask for the defendants’ agreement to the production of the requested documents. In its absence, Mr Lloyd applied for the court’s permission under CPR 31.22. On receipt of the second notice sent to Ms Bailey, she indicated that while her personal position was neutral, her clients were applying for an order, grounded in considerations of public policy, to prevent either Mr Lloyd or herself from providing documents which prosecuting authorities in New York could use against Mr Kozeny. She pointed out that the Grand Jury in New York had indicted Mr Kozeny in relation to the same matters as had been alleged against him in the English proceedings.

The validity of the notice was not in issue.

On behalf of the defendants, Mr Huw Davies submitted that the court had to balance the public interest in investigating fraud against the public interest in full disclosure as an element in the obtaining of a fair trial for all parties to litigation. Just as section 2(13) of the 1990 Act provided a defence in terms of “reasonable excuse”, a broad expression which could easily encompass the public interest in the due administration of justice, so the jurisprudence on CPR 31.22 and the previous common law rules relating to use of disclosed documents outside the proceedings in which disclosure is made demonstrate the importance of the rule in favour of restricting their collateral use and the need for “special circumstances” to override that rule. Given the importance of the principles at stake, affirmed by this court in giving permission to appeal, we should be prepared not merely to review the decision below, but even to hold a rehearing and to exercise a fresh discretion, if indeed the judgment below depended upon the judge’s discretion. If an error on the part of the judge was, however, needed, it could be found in his assumption that the public interest relied upon by the defendants was founded only in the confidentiality of documents produced under compulsion, whereas in truth it extended to the due administration of justice as a whole. For, if parties, and especially foreign parties whose documents were not even in this jurisdiction, could not be relied upon to make full and proper disclosure, safe in the knowledge that their documents would only be used for the purpose of the litigation in question, then the foundations of a fair trial and of the administration of justice for all parties concerned in the litigation were in peril. In these circumstances, this court should say that the judge was wrong to conclude that the interests of a foreign criminal investigation should take precedence over the public interest in civil justice in this country, especially in a case which concerned a foreign litigant. In any event, there was no need to favour the foreign request for co-operation in the absence of evidence relating to the Attorney’s ability to seek co-operation from the Bahamas, where Mr Kozeny is resident: either the documents are available there, in which case there is no need for the intervention in this country; or they are not available there, in which case there is still less to be said for using their compulsory production in litigation here for collateral purposes.

On behalf of the Director of the SFO, on the other hand, Mr Khawar Qureshi submitted that the judge had in any event taken the public interest in the administration of justice into account, and had nevertheless rightly said that the preference in favour of international co-operation in the investigation of serious fraud was to be derived from the statute itself. “Reasonable excuse” was to be limited to rare circumstances such as national security, diplomatic relations and the administration of central government (see In re Arrows [1992] Ch 545 at 552D per Hoffmann J), or what he described as instances of public interest immunity. As for the fact that Mr Kozeny resided abroad, that reflected the realm of merely private rights and did not compete with the public considerations in issue. In any event, the main concern of this appeal was not so much in the result, but in the setting of guidelines for future cases. In that connection, this court should make it clear that, subject to such rare and extreme examples of public interest immunity, it was essentially a matter for the Secretary of State’s discretion whether to make a request of the Director and of the Director’s discretion whether to serve a notice: it was in the statutory considerations which underlay the exercise of those discretions that the person under investigation was protected (and there was no complaint on that score in the present case). Moreover, CPR 31.22 was irrelevant, for two reasons: first, compliance with the notice of the Director of the SFO was not “use” of the documents for which permission was required; and secondly, section 3(3) of the 1987 Act in any event overrode any statutory obligation of secrecy.

On behalf of the claimants, Mr Dominic Dowley QC adopted a neutral stance, save to submit that they were entitled to come to court for it to exercise its judgment for the purposes of CPR 31.22 and/or section 2(13): it should not be left to a litigant to have to decide for itself what, on pain of criminal sanction, should be regarded as a “reasonable excuse”.

The 1987 Act imposes on a person served with a notice under section 2(3) a statutory duty, sanctioned by the criminal law, to provide the documents in question unless he has a “reasonable excuse” for failing to do so (section 2(13)). There is no statutory definition of reasonable excuse. Subject to the Director’s submission that section 3(3) overrides the restriction now contained in CPR 31.22, it might seem that that restriction, subject to its being lifted, could and should amount to a reasonable excuse.

It will be instructive therefore to see what the authorities have to say both about reasonable excuse for the purposes of section 2(13) of the 1987 Act and about the circumstances in which the court has been willing to release a party from the restriction which used to be imposed by an implied obligation and is now governed by the rules of court.

In In re Arrows Ltd [1992] Ch 545 the issue was whether a section 2 SFO notice should take precedence over a liquidators’ examination of a managing director under section 236 of the Insolvency Act 1986, or whether on the other hand a court direction under rule 9.5(4) of the Insolvency Rules that no disclosure should be made of the record of that examination should provide reasonable excuse for failure to respond to the notice. Hoffmann J held that it was in the public interest that the secrecy of the examination should be preserved, that the balance came down in favour of preserving that public interest in preference to the public interest in the investigation of fraud, and that the giving of the direction was a reasonable excuse under section 2(13). In reaching these conclusions Hoffmann J had to consider a submission made on behalf of the SFO that the defence of reasonable excuse was a narrow one, limited to the express exceptions acknowledged in section 2 itself, in particular the unqualified exception in favour of legal professional privilege contained in section 2(9), and otherwise only extending to some personal explanation, such as illness: “It was not a vehicle through which the court could create new general exceptions” (at 551E).

Hoffmann J rejected that submission as being “too extreme”, continuing (at 551F):

“It requires one to hold that, with the sole exception of legal professional privilege, Parliament intended to sacrifice every aspect of the public interest which might require confidentiality to the overriding needs of the investigation of fraud”

and ruling (at 552A) that –

“a “reasonable excuse” in section 2(13) must include any case in which a person is required or entitled under some other rule of law to withhold the information.”

Moreover, even though section 3(3) itself overrode every statutory obligation of secrecy imposed under any enactment other than the Taxes Management Act 1970, that was because such statutes were expressed in absolute terms, whereas the concepts of public interest implicit in the commonlaw still remained to permit a more nuanced approach to what had ultimately to be a matter of balance. Hoffmann J expressed this thought in the following paragraph (at 552D/F):

“I do not think that the answer is quite so simple. Section 3(3) deals with statutory obligations of secrecy but not, in my judgment, the heads of public policy which may justify non-disclosure. When one considers the various heads of public policy, such as national security, diplomatic relations and the administration of central government, which have been held to justify non-disclosure even for the purposes of justice, I find it impossible to suppose that the only public interest which Parliament thought capable of taking precedence over the investigation of fraud was the efficient collection of the revenue. The reason, in my judgment, why section 3(3) overrides most statutory obligations of secrecy is that these are expressed in statutory terms, or at any rate in terms which permit no exception for the needs of the S.F.O. But the doctrine of public policy, which may well underlie some of the statutory provisions, permits a balance to be struck between the public interest in preserving secrecy and the public interest in the investigation of fraud. There was no reason why these heads of public policy should have to be excluded from the concept of “reasonable excuse” and in my judgment section 3(3) does not have this effect.”

Ultimately, that balance was struck in that case in favour of the liquidators’ examination. The remainder of the judgment was concerned with the consideration of the factors which went into the weighing of that balance. Hoffmann J concluded (at 554C):

“It thus seems to me that the balance comes down clearly in favour of the direction being given. Put shortly, the liquidators may be assisted thereby and the S.F.O. have nothing to lose. I should in conclusion point out two differences from the balancing exercise which Phillips J. had to perform in Reg. v. Clowes. First, this is not a “class action”. The considerations of public interest relate to this specific liquidation and this specific examination. Secondly, we are not concerned here with the protection of the liberty of the subject, which is seldom outweighed by any other considerations of public interest.”

In Hamilton v. Naviede [1995] 2 AC 75 the SFO made a similar submission about the overriding nature of section 3(3), to the effect that the court had no discretion to prevent the SFO from using transcripts of a liquidators’ examination in a criminal trial. The House of Lords rejected that submission. Lord Browne-Wilkinson cited Hoffmann J’s analysis in In re Arrows with approval, saying (at 100G) –

“Section 3(3) overrides statutory obligations of secrecy expressly imposed by the statute: it does not override obligations arising under the general law on the grounds of policy.”

However, in the meantime it had already been held in R v. Director of Serious Fraud Office, ex parte Smith [1993] AC 1 that the 1987 Act had by implication overridden the common law privilege against self-incrimination.

Turning to the authorities on the principle underlying the decision in Harman, we note first of all that although their Lordships were divided on the point whether there could be any contempt of court in collateral use of disclosed documents once they had been read aloud in court, a point on which first RSC Order 24, rule 14A and now CPR 31.22 has reversed the decision of the majority, they were at one as to the underlying rationale of the implied obligation in the overall interests of justice. Thus Lord Diplock (who was of the majority) said (at 300A):

“The use of discovery involves an inroad, in the interests of achieving justice, upon the right of the individual to keep his own documents to himself; it is an inroad that calls for safeguards against abuse, and these the English legal system provides, in its own distinctive fashion, through its rules about abuse of process and contempt of court”;

Lord Keith of Kinkel (also of the majority) said (at 308G):

“The implied obligation not to make improper use of discovered documents is, however, independent of any obligation arising under the general law relating to confidentiality. It affords a particular protection accorded in the interests of the proper administration of justice”;

and Lord Scarman (who was of the minority) quoted Lord Denning MR in Riddick v. Thames Board Mills Ltd. [1977] Q.B. 881 at 896 as follows (at 312C) –

“Compulsion [to disclose] is an invasion of a private right to keep one’s documents to oneself. The public interest in privacy and confidence demands that this compulsion should not be pressed further than the course of justice requires”

The House of Lords revisited the subject in Crest Homes plc v. Marks [1987] AC 829 for the purpose of considering the circumstances in which the implied obligation, being owed to the court, could be released by the court. The claimant brought separate proceedings in two successive years against the same defendant, alleging breach of copyright, and obtained Anton Piller orders in each action. The defendant’s disclosure in the second action provided evidence of contempt of court on his part in the first action. The claimant applied for permission to use that disclosure for the purpose of contempt proceedings. The House of Lords granted permission. Lord Oliver of Aylmerton said (at 859G) that it was for the party seeking release from the implied undertaking “to demonstrate cogent and persuasive reasons” for such permission; and at 860B he continued:

“[these authorities]…illustrate no general principle beyond this, that the court will not release or modify the implied undertaking given upon discovery save in special circumstances and where the release or modification will not occasion injustice to the person giving discovery. As Nourse L.J. observed in the course of his judgment in the instant case (ante, p.840G), each case must turn on its own individual facts. In the instant case, the determinative point to my mind is that it is purely adventitious that there happened to be two actions.”

So far none of these authorities raise any special problem or provide any special insight into what we understand to be the real gravamen of Mr Davies’ submissions, which is to focus on the transnational aspect of Mr Kozeny and thus his documents becoming subject to this jurisdiction. The next two authorities do, however, consider certain aspects of such a situation. Thus in Bank of Crete SA v. Koskotas (No 2) [1992] 1 WLR 919 the plaintiff bank obtained disclosure in England against an English and several foreign banks with branches in England in connection with allegations of large-scale fraud against the defendant. The Bank of Greece appointed a special investigator to inquire into the affairs of the plaintiff bank, so that misappropriated funds could be traced. The plaintiff bank applied for permission to use the disclosed material to enable it to comply with its duties under Greek law for the purposes of the investigator’s report. Permission had been previously given to allow use of the documents in any civil proceedings arising out of the disclosure, as well as to rebut false evidence given by the defendant in criminal proceedings in Greece. Millett J extended permission to embrace the purposes of the new application. He reasoned (at 926D and 926H/927B) as follows:

“Save in exceptional circumstances, it would not be right to authorise the bank voluntarily to make use of the material for any other purpose…However, voluntary disclosure is one thing; disclosure under compulsion of law is another. By enabling the bank to obtain information which it needs for the successful prosecution of its civil remedies, the court should not place the bank in an impossible position in which it must either infringe its undertaking to this court or find itself in breach of its duties under Greek law…

“If the governor [of the Bank of Greece] obtains them, it will be a matter of Greek law to determine whether or not he should provide them to the examining magistrate and what use if any the examining magistrate should make of them. Such questions involve considerations of public policy, but in my judgment they are questions of Greek public policy, and they should be determined accordingly without the restraining hand of this court. If under Greek law, either the Governor of the Bank of Greece or the examining magistrate can compel the production of the audit reports, so be it. It is frequently the case that material obtained by a party to English civil proceedings may be required to be produced in criminal proceedings in England. By a parity of reasoning, I see no reason why the English court should be astute to prevent a party who has obtained material in this country by the use of the coercive powers of the English court from producing such material in a foreign jurisdiction if compellable to do so.”

In Attorney-General for Gibraltar v. May [1999] 1 WLR 998 the foreign claimant obtained a freezing order against the English defendant and an affidavit of assets. The defendant was extradited to Gibraltar on charges inter alia of conspiracy to defraud. The Attorney-General applied for permission to use the affidavit of assets as part of the evidence for the prosecution in Gibraltar. The defendant resisted the application on the basis that it would unfairly prejudice him in Gibraltar, where he would have had a privilege against self-incrimination. The court of appeal allowed the Attorney-General’s appeal against the judge’s acceptance of that argument. Hirst LJ said that he fully recognised the great importance of the privilege against self-incrimination, but –

“At the end of the day it seems to me that the Gibraltar court will be in a much better position than we are to give appropriate weight to all relevant considerations, telling either way, including not only the full and proper protection of the first defendant against any injustice, but also the importance of ensuring, subject always to fairness, that all relevant material is available to the jury in the criminal trial.”

Neither of those two cases was concerned with documents brought from abroad into this jurisdiction by a foreign defendant. That appears to be the novel feature of the present appeal. Moreover in Bank of Crete the competing duty requiring disclosure, since it originated from abroad, was not one which the English court could control. In the present case, on the other hand, it is in the power of the English court to prefer one obligation to the other. Nevertheless, both authorities suggest, if only implicitly, that the English court will give considerable weight to the needs of a foreign jurisdiction in the investigation or prosecution of fraud, and will, in the absence of positive evidence of injustice or unfairness, trust the foreign court and foreign law to protect the disclosing party against undue prejudice.

A discussion in the context of ancillary relief family proceedings of the preference for the public interest in the investigation of unlawful conduct over the public interest in non-disclosure may be found in A v. A; B v. B [2000] 1 FLR 701, noted in Civil Procedure, 2004 Vol I, at 31.22.1 in the notes under CPR 31.22.

Moore-Bick J began by dealing with the argument that a decision permitting or enforcing production of the documents to the SFO would be against the public interest in that it would deter foreign litigants first from choosing this country as a forum for resolving their disputes and secondly from bringing their documents to this country for the purpose of making proper disclosure. He rejected the first half of that submission as a matter of fact and also on the ground that, if there is a conflict between international co-operation in the investigation of fraud and enhancing the attraction of this country as a forum for international litigation, it was a matter for Parliament to decide rather than the courts. As for the submission’s second strand, the judge rejected the notion that the foreign litigant was in any different position from that of domestic residents: in the case of both resident and foreign litigants alike it was clear that the 1987 Act overrode any right to confidentiality in documents. In any event, the public interest in disclosure was “one which the courts are well equipped to protect”; litigants of all kinds sometimes failed to comply; in the case of fraud there was already a powerful incentive to suppress disclosure; and there was no reason to think that knowledge of the SFO’s powers under section 2 would make much difference.

In other words, the judge considered that in practical terms there was no real difference of substance between foreign and domestic litigants in relation to the obligation of disclosure, and that in principle the 1987 Act had made the choice for the courts in preferring the investigation of fraud to the confidentiality of private documents. He then emphasised this latter point in the following reasoning (at para 27 of his judgment):

“The 1987 Act makes it clear that the public interest in investigating serious fraud, and in assisting the authorities of other countries in their investigations into serious fraud, much of which is international in character, is so great that it takes priority over almost all statutory obligations of secrecy and almost all private rights of confidentiality. It is sufficient to take priority over the privilege of self-incrimination and must equally be sufficient to take priority over the public interest in ensuring that litigants comply with the duty of disclosure. Although one can contemplate situations in which the public interest in maintaining the confidentiality of information might be so great as to override the interest in the investigation and prosecution of serious fraud, so that public policy would favour withholding the relevant information, such situations are likely to be rare and each case will have to be considered on its merits. It is not suggested, however, that there are any special features of this case that would justify that conclusion.”

The judge then dealt with a specific factual argument which has not resurfaced on this appeal, which was that it would be unfair to permit the enforcement of the section 2 notice in circumstances where the New York investigations and indictment had been instigated by the claimants in these proceedings following on from their access here to the defendants’ documents. The judge considered that there was an insufficient basis for suggesting that the claimants had acted in any improper manner; and that in any event it was for the Secretary of State to decide whether there were proper grounds for asking the Director to act, and for the foreign court to decide what use to allow the foreign prosecuting authorities to make in evidence of documents provided to them.

The judge therefore considered that the fact that Ms Bailey had possession of the documents as the defendants’ solicitor did not amount to reasonable excuse for refusing to accede to the Director’s notice to her; and similarly that the court ought to grant permission under CPR 31.22 to Mr Lloyd, as the claimants’ solicitor, to comply with the notice served on him.

In the latter respect, the judge rejected the Director’s submission that no such permission was needed. Compliance with the notice involved “use” of the documents, and section 3(3) did not itself expressly override the obligation imposed by CPR 31.22, since that was an obligation restricting use rather than imposing an obligation of secrecy.

We would pay tribute to the judge’s analysis, but seek to put the matter in our own words as follows, with here and there a somewhat different emphasis.

First, if we put out of mind for the moment the fact that the defendants are foreign litigants in these courts, and concentrate only on the conflict between the public policy expressed by the 1987 Act and the public policy expressed by what is now encapsulated in CPR 31.22, we are doubtful that the matter is simply resolved by Parliament’s decision. That would of course be the case if the SFO were right to say, as Mr Qureshi has submitted again on the Director’s behalf, that section 3(3) directly overrides the CPR 31.22 rule. However, we agree that it does not, for reasons which we will revert to below, but essentially for the reason that the CPR 31.22 obligation, like the implied undertaking which it has replaced, is an obligation owed to the court rather than to the disclosing litigant. It is owed to the court because, as was made clear in Harman, it protects not merely the confidentiality of the litigant’s documents but reflects the due administration of justice itself. We do not think that CPR 31.22’s overruling of the precise point in dispute in Harman has changed that basic consideration, as the citations from the speeches including that of Lord Scarman demonstrate.

The position remains therefore that there are two public interests involved, which may come into conflict: that in the investigation of serious fraud (and the requirement that the suspected fraud must be serious or complex is built into the fabric of the 1987 Act), and that in the due administration of civil justice. The public interest in the latter is not overridden by the 1987 Act, any more than the public interests exemplified by Hoffmann J in In re Arrows. Moreover, we reject Mr Qureshi’s submission that it is only in the rare cases of what Hoffmann J there described as “national security, diplomatic relations and the administration of central government” that a reasonable excuse may be found. Hoffmann J was only giving examples (he used the expression “such as”) and was in any event perhaps concerned to give obvious examples of public interest immunity in order to make his point that the demands of the 1987 Act were not all-encompassing. His decision in In re Arrows itself shows that a reasonable excuse may be found in considerations of the public interest which go wider than the trilogy of his examples.

In any event, it can hardly be said that the due administration of civil justice is not in itself a weighty public interest. Its importance can be gauged by the fact that the courts have said that where permission is sought for release from the obligation imposed by the rule against collateral use of disclosed material, it is for the applicant to make good his case, cogently and persuasively, that there are special circumstances which justify such permission and that permission will not occasion injustice to the person giving disclosure (see Crest Homes). If permission is needed and would not be granted, we cannot see why that would not amount to reasonable excuse in the case of a person who thus remained bound by the obligation expressed in CPR 31.22.

Secondly, the two cases of Ms Bailey and Mr Lloyd are intertwined. If the fact that the documents have only come into this country from abroad is a relevant consideration, then it should bear equally on both cases. It is true that, in Ms Bailey’s case, since she holds the documents as the defendants’ own solicitor, the rule against collateral use is not directly relevant. Nevertheless it is not far away, for it appears to be common ground that the only reason why the documents have been brought to this country is for the purpose of disclosure in these proceedings.

Thirdly, there is no element in this case, other than the fact that the defendants are foreign litigants and the documents have therefore been brought here from abroad for the purpose of disclosure, which is relied on as entering into the justice of the decision balancing the two public interests concerned. For example: it is not said that there is any particular reason for anticipating some element of injustice in the use to which the documents may be put by the Attorney; nor is it said that there is some special factor which arises either under the law of New York or under the law of the Bahamas or under the reciprocal arrangements, such as they may be, between New York or the USA and the Bahamas, which would make compliance with the Attorney’s request and the Director’s notice unjust or unfair; nor is it said that disclosure of the documents to the Attorney would prejudice the defendants in their litigation in England. Since ultimately the public interest in the due administration of justice is based on the interests of justice, and all the authorities considered in this judgment speak of the need to balance the two public interests in play, the absence of any special reason for fearing injustice is an important consideration. If any argument had been founded on the danger of injustice, questions might have arisen as to whether the law of the foreign jurisdiction could be safely left to determine questions, for instance of admissibility: and Bank of Crete and Attorney-General of Gibraltar would suggest that in principle it could be. As it is, such issues do not arise.

Fourthly, the balancing exercise is thus left as an essentially pure one in which the public interest in the investigation of fraud reflected in the 1987 Act, coupled in this case with the public interest in mutual international assistance reflected in the 1990 Act, has to be balanced against the public interest in the administration of justice reflected in CPR 31.22, coupled in this case with the consideration that the defendants and their documents have been brought to this country from abroad. There are no authorities which determine the outcome of that balancing exercise.

If that last factor, the defendants’ residence abroad, were left out of account, there would be a straightforward question whether an English litigant could resist compliance with a section 2 notice, whether in other words he would have a reasonable excuse for failing to produce his documents, simply on the ground that the documents in question had been previously produced on disclosure to another litigant in English proceedings. In our judgment, it is impossible to think that he would. He would be in any event amenable to the requirements of a section 2 notice. There would be nothing to counter-balance the policies of the 1987 and 1990 Acts. If on the other hand the notice happened to be served on the party to whom he had disclosed his documents, that party could in theory rely on CPR 31.22 as a reasonable excuse: but in effect his only argument would be that permission to disclose should not be granted where the Director of the SFO could just as easily obtain the documents from their owner, an argument which it is difficult to imagine would hold much weight. In any event, there is every reason for supposing that (in the absence of any special factor) in the individual case the public interest in the investigation and prosecution of serious fraud outweighs the general concern of the courts to control the collateral use of documents produced compulsorily on disclosure. Thus the very fact that the document owner would be amenable to the requirement to produce would lead the court to give permission under CPR 31.22(1)(b).

We have considered the question whether the fact that an SFO notice is served on a solicitor rather than his client would or should give that solicitor or his client some special protection. In principle we do not think so. Section 2(3) of the 1987 Act says that the notice may require “the person under investigation or any other person” to produce the specified documents. It is often the case that a person’s documents are kept for him by his agent. A solicitor is one among a number of such agents who keep documents for their principals. In particular, in a case where, as here, the specified documents can be defined by reference to disclosure lists in litigation, solicitors may be the most convenient and practical source of such documents. They may well be holding the originals. They will be able to tender advice on what comes within or outside the section 2(9) exception in favour of privileged documents. Solicitors can be relied upon to keep the required documents safe.

We come then to the case where the litigant whose documents are sought is a foreign defendant, made subject against his will to the jurisdiction of these courts only by England’s long-arm statute. (We observe in passing that this is the extreme case of the foreign litigant in England. Some may be claimants, who thus invoke the jurisdiction themselves. Some, like the third and fourth defendants in the present case, as we understand the matter, have at any rate agreed that their contractual rights should be decided by English law. Others again may have entered into English jurisdiction clauses. Still other cases will be covered by international convention, such as the Brussels and Lugano Conventions.) In such a case it is classical doctrine that great care should be taken in bringing before the English court a foreigner who owes no allegiance here, indeed it is for that very reason that in recent decades the English courts have developed the doctrine of forum non conveniens (Seaconsar Far East Ltd v. Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438 at 455D/E). It follows that we do not think that the Director could serve a notice on the defendants in this country directly, for they have no presence here other than as parties to the litigation in question. That is why, no doubt, the notices in this case have been served instead on the parties’ solicitors. In such circumstances, we consider that it is clearly relevant to the court’s overall consideration of where the balance of public interest and public policy lies that the case concerns a foreign litigant whose documents have only come within the jurisdiction under the compulsion of the rules relating to English jurisdiction and disclosure.

On balance, however, we are firmly persuaded that, in the absence of other factors, the court’s discretion should, as a matter of principle, prima facie be exercised in favour of compliance with the section 2(3) notice: that is to say that, by itself, the additional factor that the documents have been brought here for the purposes of disclosure by a foreign litigant himself brought compulsorily before the English court should not be regarded as a reasonable excuse for non-compliance with the notice; and the courts should be prepared to grant permission under CPR 31.22 for their collateral use in production to the Director of the SFO, even following the request of a foreign authority to the Secretary of State under the 1990 Act. We say this for the following reasons.

Ex hypothesi, there is suspicion of serious or complex fraud. The 1990 Act and the bilateral treaties which lie behind it reflect the well-understood fact that in today’s world such fraud is often international in its ramifications and can only be investigated by co-operation between the authorities of the international community of nations. There are safeguards built into the operation of the 1987 and 1990 Acts. Thus upon a request to the Secretary of State from a foreign tribunal or authority, the Secretary of State can only refer that request to the Director of the SFO if he is satisfied of certain matters, eg that an offence has been committed in the foreign country in question or that there are reasonable grounds for suspecting that such an offence has been committed and that either proceedings for that offence have been instituted there or that an investigation into that offence is being carried on there. The Secretary of State also has to be satisfied that the request relates to an offence involving serious or complex fraud. Under the 1987 Act, the Director of the SFO can only investigate a suspected offence which appears to him on reasonable grounds to involve serious or complex fraud. Moreover, he can only exercise his section 2 powers, even on a referral of a request from foreign authorities by the Secretary of State, if it appears to the Director that there is good reason to do so for the purpose of investigating the affairs of a particular person; and if he wishes documents to be produced he must specify them.

In such circumstances, and in the absence of any other factors argued to constitute some injustice, it seems to us again that the public interest in the investigation or prosecution of a specific offence of serious or complex fraud should take precedence over the merely general concern of the courts to control the collateral use of compulsorily disclosed documents. If such an offence had been suspected of having been committed in this country, the public interest would be in seeing that it could be investigated here if this is where the relevant documents were. And if the offence had been committed abroad, the same interest in the comity of nations and the same respect which one sovereign has for another, which in the general context of long-arm jurisdiction might operate in favour of the foreign resident, in such a case operate against him. In such circumstances the public interest in proper disclosure in civil litigation does not require that documents necessary to the investigation or prosecution of serious fraud should be unavailable. Moreover, as Moore-Bick J reasoned below, the court’s exceptional permission for relaxing the rule against collateral use in cases of serious fraud in the international context does not give cause for thinking that proper disclosure in the general run of cases will be undermined.

We have again considered whether the fact that the notices in this case have been served on the parties’ solicitors is significant or critical. It would have been critical if such notices could not be served on solicitors rather than their principals, but for the reasons we have expressed in paragraph 48 above, that is not the position. Nevertheless, we have treated this fact as significant for the reasons already referred to in paragraph 49 above: the parties themselves are not present within this jurisdiction, and the only reason why the documents have been brought within it is for the purpose of the parties’ litigation here.

In the present case it is submitted that the documents could be obtained in the Bahamas, and that therefore there is no need for the Director’s notice in England. Alternatively, it is submitted that, if the documents could not be obtained in the Bahamas, there is no reason why the US authorities should side-step such difficulties by applying to the Secretary of State in England. In truth, however, nothing whatsoever is known about the position in the Bahamas. If it be the case that the documents could be obtained there, and the presumption must be that the law in the Bahamas is the same as it is here, then there would seem to be no reason why they should not be obtained here. In any event, there is no evidence that the law in the Bahamas would present any impediment to the documents being obtained there.

Finally, there is Mr Qureshi’s submission that section 3(3) overrides CPR 31.22. If that were the case, then no question of balancing public interests arises. However, we would reject that submission for the same reasons as appealed to the judge. First, the court’s control under CPR 31.22 is against collateral use, not merely in favour of secrecy. Thus in Harman at 304G Lord Diplock spoke of the implied undertaking as being –

“that he himself will not use or allow the documents or copies of them to be used for any collateral purpose”

Secondly, since the obligation under CPR 31.22 is owed to the court, it is not merely an obligation of secrecy: it is, as stated above, a rule giving control of the documents to the court (or the parties) in support of the due administration of justice.

In sum, we would dismiss this appeal.