Warner v Verfides & Anor

The applicant ("the trustee") is the trustee in bankruptcy of the estate of the late Rene Rivkin ("the deceased bankrupt"), who took his own life on 1 May 2005. After his death, the Australian Taxation Office (“the ATO”) made a claim on his estate for more than AU$30 million in unpaid taxes. A bankruptcy order was made in respect of the deceased bankrupt's estate by the Federal Magistrates Court in Sydney on 7 November 2006.

On 18 May 2007 this Court made an order recognising the Australian bankruptcy proceedings as foreign main proceedings for the purposes of the UNCITRAL Model Law on Cross-Border Insolvency (as that law appears in Schedule 1 to the Cross-Border Insolvency Regulations 2006 - "the Model Law").

On 17 August 2007 the trustee applied under Article 21(1)(d) of the Model Law for an order that the respondent, then known as Fortis Intertrust Limited but now known as Verfides ("Verfides"), provide copies of documents relating to dealings between the deceased bankrupt and Laira Investment Company and/or Laira Consulting Company (together “Laira”). In the affidavit supporting his application, the trustee said that Laira is a Scottish limited partnership with which the deceased bankrupt may have been involved as shareholder, director or other officer and through which he may have held assets in the United Kingdom.

Before issuing his application, the trustee and his solicitors had corresponded with Verfides and had established that Verfides would not object to the disclosure sought. In fact, the categories of document specified in the trustee's disclosure application had been drafted in consultation with Verfides, and Verfides had stated that it would not object to the order sought.

However, on 31 October 2007 an application (replacing an earlier application dated 16 August 2007) was issued by Benno Hafner, a Swiss lawyer, and Hafner & Hochstrasser, the firm in which he is a partner (together "the interveners"), seeking to be joined to the application. The interveners claimed to be "interested persons" within the meaning of Article 22 of the Model Law by virtue of the fact that they had had dealings with Verfides on behalf of some 60 clients since 1992; and they feared that the making of the order sought by the trustee might be in breach of their confidence or that of their former and/or existing clients, and might be an unjustified infringement of their rights, and those of their former and/or existing clients, under the European Convention on Human Rights. On 17 January 2008 an order was made by consent joining the interveners to the application.

The interveners also sought an order that the trustee's application be adjourned or stayed until after the outcome of separate Mutual Legal Assistance proceedings ("the MLA proceedings ") brought pursuant to the Crime (International Co-Operation) Act 2003 by the Australian Securities and Investment Commission ("ASIC") in the City of Westminster Magistrates Court. ASIC has for some years been conducting an investigation into the affairs of the deceased bankrupt and two other people, and the purpose of the MLA proceedings is to obtain documents to assist in that investigation. The interveners, who have similarly intervened in those proceedings, assert that the documents in the possession of Verfides are some of the documents sought by ASIC in the MLA proceedings, which themselves seek information from Verfides; and their expressed concern has been that any documents obtained by the trustee may find their way to ASIC without the interveners being able to object.

Whether or not the interveners did in fact have any status sufficient to justify their joinder to the trustee's application, and whether or not they have conducted their resistance to it properly, are issues which are considered later in this judgment. By the time the matter came on for hearing by me on 18 July 2008, however, the position that had been reached was as follows. Consequent upon an order made by the Registrar on 27 May 2008, Verfides delivered into the custody of the Chancery Division the documents which it then considered fell within the scope of the trustee's disclosure application. Towards the end of June 2008 the interveners and their lawyers inspected those documents and came to the conclusion that they objected to production of only seven pages, one of which they wanted removed altogether and the rest redacted. At the beginning of the hearing before me, I inspected the documents in the light of confidential submissions which the interveners had (with the consent of the trustee) made to me. I concluded that the seven pages contained information that clearly fell outside the terms of the order sought by the trustee, and that that information should be excluded from the disclosure that I was otherwise prepared to order. Although the matter had of course been drawn to my attention by the interveners, my decision to exclude the information from the disclosure to be given to the trustee depended solely on the fact that the seven pages contained material that did not answer the description in the trustee's application, not on any right of the interveners to object to that disclosure.

Once the documents had been suitably redacted, they were delivered up to the trustee at my direction. The interveners' concern that they might find their way to ASIC was dealt with by imposing terms that the trustee might not without prior leave of this Court provide the documents or the information they contained to ASIC or to the ATO, and that if either of them requested that information he would forthwith notify Verfides and the interveners.

In the result, therefore, the trustee's application succeeded in large measure, the interveners' objection to it having largely disappeared following their inspection of the documents and the satisfaction of their concern about the position in relation to ASIC and the ATO.

In these circumstances, all that remains to be considered is how the costs of the interveners' intervention in the trustee's application are to be borne. Two issues arise: first, did the interveners have a sufficient interest to intervene at all? secondly, if so, have they conducted their opposition to the application in such a way that they should be penalised wholly or partly in costs?

The first issue raises an interesting point of principle. Article 22 of the Model Law provides that, in granting or denying relief under Article 21 (under which the trustee's application is brought), the court must be satisfied that the interests of creditors "and other interested persons" are adequately protected. Although, as I have mentioned in paragraph 5 above, the interveners initially claimed to be interested persons in consequence of their own and of their clients' confidence and human rights, at the hearing before me they claimed only to have sufficient standing by virtue of the rights secured to them by the European Convention on Human Rights.

Article 8 of the Convention is in the following terms:

The interveners claim that their Article 8 rights are engaged by the trustee's application. They say that a large proportion of the documents constitute correspondence between themselves and Verfides, and that many of them - in particular those related to banking relationships - constitute business communications with Verfides that were plainly communicated in circumstances of confidentiality and fall within the scope of protection of private life as interpreted by the European Court of Human Rights.

The interveners have already established that their Article 8 rights are engaged in the MLA proceedings. On 5 March 2008 the Divisional Court upheld the interveners' request for judicial review of a decision of the City of Westminster Magistrates Court that Article 8 was "not engaged in any way, shape or form". In the course of his judgment, the Lord Chief Justice said the following:

“21.

For reasons that we are about to give, there can be no doubt that the compulsory acquisition of documents and information conveyed by the claimants [i.e. the interveners] to MPI [i.e. Verfides] in confidence, and the communication of that information to a third party, namely ASIC, engages the claimants' Article 8 rights. It is regrettable that District Judge Purdy gave no reasons for his conclusion to the contrary, although he was invited to do so.

22.

We endorse the following propositions of law made by Mr Gardner in his skeleton argument:

(i)

the fact that the correspondence is of a business character does not exclude the protection of Article 8 in respect of both ‘private life’ and ‘correspondence’: Funke v France (1993) 16 EHRR 297 and Niemietz v Germany (1992) 16 EHRR 97.

(ii)

The fact that the documents are sought in proceedings in which the claimants were not initially concerned does not exclude the protection of Article 8: Z v Finland (1997) 25 EHRR 371.

(iii)

Public authorities which obtain documents by compulsion engage the right for respect for private life and correspondence in respect of each step of such measures (i.e. obtaining, storage and subsequent use of the material): Amann v Switzerland (2000) 30 EHRR 843.”

It is of course the case that the trustee was not a party to the judicial review application or the MLA proceedings, and he is not bound by the Divisional Court's decision. He is entitled to, and does, dispute that the interveners' Article 8 rights are engaged; and in particular he asserts that the Divisional Court's decision failed to have regard to two decisions of the European Commission on Human Rights, which established that documents ceased to constitute "correspondence" once they were received by their intended recipient.

Those two decisions are G, S and M v Austria App No 9614/81; 34 DR 119 and AD v Netherlands App No 21962/93; 76A(E)/B DR 157. The first of those cases concerned among other things a complaint by G and S that the offices of their lawyer, M, had been searched, and certain documents seized, in contravention of their Article 8 rights. M had also complained of that, but his claim was ruled inadmissible because he had not exhausted his domestic remedies. That is significant, because it meant that the only part of Article 8 that was potentially relevant to the complaint by G and S, whose premises had not been searched, was the right to respect for their correspondence. As to that, the Commission said that "they cannot invoke the protection of ‘correspondence’ provided by Article 8 of the Convention, as the business documents seized had already reached their addressee and did no longer constitute ‘correspondence’ within the technical meaning of the term". Their claim was accordingly dismissed as manifestly ill-founded under Article 27 (2) of the Convention. The second case, which concerned a complaint by a teacher that letters he had written to a former pupil had been disclosed by the pupil's mother to the police and the education authorities, is to similar effect. The Commission said this:

Neither of these cases gives any indication how the term ‘correspondence’ comes to have a technical meaning in Article 8. To construe the term as applying only to letters still in the possession of the writer or in the process of transmission to the intended recipient appears unduly restrictive. In ordinary parlance, the term would be expected to apply to exchanges of letters in whosever hands they happened to be. Nevertheless, unsatisfactory as I find these decisions, I am obliged by section 2 (1) (c) of the Human Rights Act 1998 to take them into account so far as, in my opinion, they are relevant. Relevant they plainly are: indeed, on the face of it they are determinative against the interveners' contention that any of the documents in the hands of Verfides amounts to their correspondence. However, in my view they cannot stand with the decision of the European Court of Human Rights in Niemietz v Germany, referred to by the Divisional Court in the judicial review application. That case, too, concerned a search of a lawyer's office, in which the police searched filing cabinets containing data concerning clients and a number of files. In the course of a discussion of the meaning of ‘private life’, which I consider further in the next paragraph, the Court said (paragraph 32): " those conducting the search examined four cabinets with data concerning clients as well as six individual files …; their operations must perforce have covered ‘correspondence’ and materials that can properly be regarded as such for the purposes of Article 8. In this connection, it is sufficient to note that that provision does not use, as it does for the word ‘life’, any adjective to qualify the word ‘correspondence’". It is inconceivable that the filing cabinets and files did not contain letters that the lawyer had both written and received; and it is evident that the interpretation given to the expression ‘correspondence’ by the European Court of Human Rights is much wider than that given to it by the Commission. I prefer the Court's interpretation. In my view, there is no reason why documents created by the interveners and sent to Verfides should have ceased to be ‘correspondence’ on receipt by Verfides; and on that ground I hold that the interveners' Article 8 rights were engaged by the trustee's application for disclosure of such documents.

I also consider that the interveners’ right to protection in respect of their ‘private life’ is engaged by the application. As I have indicated, that expression was considered by the European Court of Human Rights in Niemietz, where it was held to extend also to business life. The topic is addressed in paragraphs 26 to 33 of the judgment, all of which are relevant; but the following passage from paragraph 29 gives a sufficient flavour of the reasoning:

For these reasons, I, like the Divisional Court in relation to the MLA proceedings, consider that the interveners' Article 8 rights are engaged by an application for production of documents in the hands of Verfides that were generated in the course of, or otherwise relate to, the interveners' business activities. Many of the documents the subject of the present application come within that category.

It was objected on behalf of the trustee that, if that were so, applications for the production of documents in any bankruptcy, whether foreign or domestic, would be complicated almost to the point of impossibility by the necessity to have regard to the interests of any person who had generated any of the documents. I do not agree. A court considering any such application need in ordinary circumstances do no more than have regard to the collective rights of those persons who have produced the documents of which disclosure is sought. Again in ordinary circumstances, it is likely to take the view that the interests of a trustee in bankruptcy justify interference with those rights under paragraph (2) of Article 8 - a view encouraged by the European Court of Human Rights in Niemietzat paragraph 31:

“More generally, to interpret the words ‘private life’ and ‘home’ as including certain professional or business activities or premises would be consonant with the essential object and purpose of Article 8, namely to protect the individual against arbitrary interference by the public authorities … Such an interpretation would not unduly hamper the Contracting States, for they would retain their entitlement to ‘interfere’ to the extent permitted by paragraph 2 of Article 8; that entitlement might well be more far-reaching where professional or business activities or premises were involved than would otherwise be the case".

The availability to the trustee of Article 8 (2) formed a subsidiary ground for the trustee's claim to have the costs of the application. He contended that it was clear that, even if (as I have found) the interveners' Article 8 rights were engaged, there was plainly no answer to an invocation of Article 8 (2). I incline to the view that Article 8 (2) would have justified the trustee's application in relation to all the documents except the seven pages had the issue been put to the test; but it seems to me that the interveners could not have known until they inspected the documents what the strength of their objections was, and I do not think they can be criticised for having failed to concede the Article 8 (2) point from the outset. That is particularly the case because, in relation to the seven pages, their objections were justified.

That brings me to the second issue, namely whether the manner in which the interveners have conducted their resistance to the trustee's application means that they should be penalised in costs. On this issue, the trustee's case is that it has taken nearly a year to reach a position in which, apart from a small handful of documents, his application has been granted; that he has from the outset been prepared to make sensible arrangements to prevent the documents falling into the hands of ASIC or the ATO; and that the interveners' general approach has been designed to ensure that there should be no resolution of the trustee's application until after the conclusion of the MLA proceedings, that approach meaning that it was not until the Registrar ordered that the Verfides documents be lodged in court that the interveners condescended to specify what rights they asserted.

I was encouraged by the trustee's counsel to take a broad brush approach to this issue. That seems to me to be right: it is not appropriate where the only issue is one of costs either to try to assess what the outcome of the application would have been if the interveners had not largely withdrawn their opposition or to investigate minutely the positions taken by the parties either in correspondence or otherwise.

I consider that there is much force in the trustee's assertion that the interveners' initial objective was to prevent the trustee's application being determined until the MLA proceedings had concluded. Indeed, as I have mentioned in paragraph 6 above, the interveners applied for a stay or adjournment of the trustee's application pending the outcome of the MLA proceedings. That aspect of their application was, however, refused by the Registrar on 27 May 2008, and the interveners were ordered to pay the costs on an indemnity basis. That costs order seems to me sufficient reflection of the court's disapproval of the interveners' attempt to delay this application. On the same occasion, the Registrar ordered that the Verfides documents be lodged in court; and from that time onwards it does not seem to me that the interveners can properly be criticised for having failed to approach the application appropriately. As I have already said, they could not be expected to decide how far to press their objections until they had had an opportunity to inspect the documents; and within a reasonable time after doing so they identified that their concerns related only to the seven pages. They also identified their additional concern about the release of documents to ASIC; and although the trustee was in principle prepared to accommodate that concern, it was not in fact until the hearing before me that a form of words acceptable to both sides was achieved.

In these circumstances, it seems to me that the position is as follows. The interveners had identified from the outset, both in the evidence supporting their application and by sending a copy of their claim form in the judicial review application to the trustee on 17 August 2007, that their claim to be interested persons was based, at least in part, on their Article 8 rights. Their reluctance to have to establish those rights both in the MLA proceedings and in this application is understandable; but the trustee's concerns were different from those of ASIC and the ATO, and he was entitled to have his application dealt with promptly. That view no doubt influenced the Registrar's indemnity costs order, and I do not think that any further adverse costs order in respect of the time prior to that order would be appropriate. From that time onwards, the interveners seem to me to have conducted their opposition properly. The trustee's application has succeeded in large part, but not entirely; and but for the interveners' participation he would have obtained information that fell outside the scope of his application. Taking these matters into account, it seems to me that the appropriate order is that the trustee and the interveners are to bear their own costs of the trustee’s application (so far as it relates to the interveners) and of the application to intervene, except to the extent that those costs have previously been dealt with; and I so direct.

I refer, by way of postscript, to one additional matter. Much of this judgment was drafted by me shortly after the hearing on 18 July 2008 in the expectation - discussed at the conclusion of the hearing - that it would be delivered before the long vacation. In the event, it was not possible to reconvene the parties. However, on 21 October 2008 I received from the trustee's solicitors a ring binder of additional documents, in which the parties have discussed in correspondence the implications of the fact that Verfides has now discovered that it has additional documents falling within the scope of the trustee's disclosure application. I make it clear that I have had no regard to that correspondence in reaching the conclusions set out in this judgment. If the parties wish, they may have a limited opportunity to discuss this development when this judgment is handed down.