Kahn & Ors v Whirlpool (UK) Ltd & Anor

This is an application made pursuant to section 236 of the Insolvency Act 1986 by the Joint Liquidators of Comet Group Limited, (Comet), for information and documents which they contend they require to enable them to investigate and decide whether or not to pursue a claim in damages against the Respondents, Whirlpool (UK) Ltd, (Whirlpool UK), and Embraco Europe srl, (Embraco).

The background to the matter is that Comet used to be one of the largest electrical retailers in the UK and one of its main lines was refrigerators. For reasons which do not matter, it got into business difficulties and is now insolvent with an estimated total current deficit of over £300 million.

Whirlpool UK is a private company incorporated in the UK and a subsidiary of Whirlpool Corp, a public company incorporated under the laws of Delaware, USA, and the ultimate parent of a number of Whirlpool companies. Whirlpool UK carries on business in the UK as a supplier of white goods including fridges and freezers manufactured by entities in the Whirlpool group. It was a supplier of such goods to Comet.

Embraco is a private company based in and with its registered office in Italy. It is a manufacturer and supplier of refrigeration compressors for use as components in fridges and freezers. Embraco is a supplier of such items to manufacturers within the Whirlpool group who supply fridges and freezes to Whirlpool UK.

Embraco is a subsidiary of Whirlpool SA which itself is a subsidiary of Whirlpool Corp. Thus both Respondents are part of the same corporate group and I was told the group comprises some 169 companies operating in about 60 different countries.

The possibility of Comet’s claim in damages arises out of a Decision of the European Commission dated 7 December 2011 according to which it was found that, in conjunction with other named parties, and as had been admitted, Embraco and Whirlpool SA had infringed Article 101 of the Treaty on the Functioning of the European Union and Article 53 of the European Economic Area Agreement by participating in a cartel in relation to refrigeration compressors during the period 13 April 2004 to 9 October 2007. The geographic scope of the infringing cartel and admitted wrongdoing extended to the whole of the EEA. The Commission Decision records that Embraco and Whirlpool SA were fined €54,530,000 after certain leniency reductions.

Comet’s claim, if any, arises out of the fact that Embraco supplied refrigeration compressors, at prices believed to be inflated by the cartel activity, to entities in the Whirlpool group who used them in the manufacture of refrigerators which Whirlpool UK supplied to Comet.

The matter was argued before me on the basis that Whirlpool UK was the manufacturer of the refrigerators which it sold to Comet.

The Liquidators assert that they need disclosure from the Respondents in order to investigate whether (and, if so, to what extent) Comet suffered recoverable loss as a result of the cartel and to decide (for the benefit of Comet’s creditors) whether or not to commence formal proceedings for compensation. They point out that it is notoriously difficult to prove causation in cases of this kind and they seek an order pursuant to section 236 of the Insolvency Act 1986 for:

First, sales data showing: (1) the total price per unit of each specific model/specification of Refrigeration Compressor (as defined in a WS) and (2) the unit pricing of Refrigeration Compressor components within fridges, freezers sold as finished products and all other finished products which contain them; and which in either case were produced by the Respondents and sold to each of their customers (with a breakdown by customer) and to spot markets during the operation of the cartel (from April 2004 to October 2007) and in the 12 months preceding and the 24 months following the operation of the cartel, with the total price data per customer broken-down by month.

The Applicants are prepared to accept a summary of this data in a form to be discussed with the Respondents and based on their systems, providing such data is suitably verified by their directors and/or auditors.

Secondly, data detailing the Respondents’ total input costs for the production, or where relevant purchase, of Refrigeration Compressors by model/specification (so that the information may be correlated to the sales data requested above) during the operation of the cartel (from April 2004 to October 2007) and in the 12 months preceding and the 24 months following the operation of the cartel. For the avoidance of doubt, this information will itemise all individual input costs included in the total input costs so that there is clarity as to what they comprise and will also identify the specific input costs for copper and steel.

The Applicants would accept an independently verified summary of this information rather than, for example, the provision of all underlying contemporaneous documentation.

Thirdly, documents containing or showing the Respondents’ pricing methodology for Refrigeration Compressors and fridges, freezers and/or all other products containing these components, from time to time during the operation of the cartel (from April 2004 to October 2007) and in the 12 months preceding and the 24 months following the operation of the cartel.

The relevant parts of Section 236 and 237 of the Insolvency Act are in these terms:

It was common ground that the leading authority on the jurisprudence surrounding orders under these sections is In re British & Commonwealth Plc [1993] AC 426. In that case the respondents sought and obtained an order that the appellants produce all books, papers or other records:

There is helpful guidance in the following passages from the speech of Lord Slynn of Hadley, first at 438 C-F:

Robert Walker J in Re BCCI v Bank of America [1997] BCC 561, 570 C-E observed that the last 10 lines of this citation cover many of the essential points and I found it a particularly useful summary.

The background to this application is that on 3 June 2013 the Applicants’ solicitors wrote a detailed letter before action to the Respondents stating that they had committed serious competition infringements by participating in a cartel and that the Applicants had a claim for the financial impact and losses they had suffered as a consequence of the cartel. The letter went on to quantify Comet’s claim in the sum of approximately £49.25 million and said that steps would be taken to issue proceedings in the event that a satisfactory response was not received. The letter met with a response to the effect that the claim was misconceived. It also stated that Embraco was prepared to demonstrate that even direct customers of compressors were not harmed by the cartelist conduct. Further correspondence followed, including a request for disclosure from the Respondent because of an alleged ‘obvious asymmetry of information’ but the request got nowhere so far as the Applicants are concerned. The Respondents took the view that the jurisdiction of the English courts was not engaged and they invited the Applicants to agree in principle to providing security for costs in accordance with CPR 25.12 in the event that proceedings were commenced. Moreover it declined to respond positively to the requests made by the Liquidators for documents or information. With respect to Embraco’s offer to demonstrate that its infringement has not caused any harm even to direct customers, the Liquidators contend (with some justification) that Embraco has steadfastly refused to demonstrate anything of the kind. Subsequently this application was made and it has been resisted on every front.

The Respondents resist the grant of the order sought both on grounds of jurisdiction and on grounds of discretion. With respect to jurisdiction the argument was put forward under three heads.

First it was submitted that there is ‘no jurisdiction to order production of anything extending beyond material relating to the company itself or to its promotion, formation, business, dealings, affairs or property’, and reliance was placed on the wording of section 236 itself. The Respondents point to paragraph 1 of the Schedule and the request in relation to sales data showing the price per unit of compressors sold by the Respondents to each of their customers, by way of example, contending that this third party pricing information cannot possibly relate either to Comet itself or to its business, dealings, affairs or property. The Respondents conceded that such information may be relevant for the purposes of assessing damages in due course but that did not mean it related to the company itself or to its business, dealings, affairs etc within section 236.

I do not agree with this contention. In particular, it seems to me that in a cartel damages claim of the kind with which the Liquidators are concerned, the prices at which compressors are sold to others may very well bear directly on the business and affairs of Comet. In reaching this conclusion I bear in mind the purpose of section 236 as explained by Buckley J in the passage cited above from Lord Slynn’s speech in British & Commonwealth. That passage suggests the section should be not be construed over narrowly and that so long as the documents have some connection with the business or affairs of the company and are relevant to the proper carrying out by a Liquidator of his statutory functions, then they are within its ambit for jurisdiction purposes.

Second it was submitted that there is ‘no jurisdiction to order production of anything other than books, papers or other records’. There are a number of sub-points within this submission and the first was in relation to the jurisdiction to order the provision of information.

Counsel for the Liquidators accepted that he was not seeking an order to interrogate either of the Respondents or any officer or servant thereof (either by oral examination or the issue of interrogatories) but he said it was common for orders under section 236 to be made for the supply of information in the context of a request for documents. He was unable to draw my attention to any authority supporting such an argument and said the reason for that was that it was too plain to need any authority.

Counsel for the Respondents, by contrast, said that it was unheard of to seek an order for information under section 236 outside the confines of interrogatories, oral examination or via affidavits. Further, he drew my attention to the enforcement powers under section 237(4) and also to the form and content of an application for an order prescribed by Part 9 of The Insolvency Rules 1986, in particular §9.2 which is in these terms:

From a consideration of sections 236 and 237 together with Part 9 of the Insolvency Rules, it seems to me that it is not appropriate to mix up requests for information and documents without making the matter clear. The Rules provide means for obtaining information (Footnote: ²) and, if information is what is wanted, then those means should be used.

Thus I conclude there is no jurisdiction to order the supply of information other than pursuant to a summons to appear or via interrogatories or the submission of affidavits (i.e. in accordance with the Rules) and that an application to produce documents cannot be a disguised request for information.

It became apparent during the hearing that the Liquidators would be content if the words “documents containing” were inserted prior to “sales data” in the first line of paragraph 1 and prior to “data” in the first line of paragraph 3 of the Schedule and the final sentence of paragraph 3 of the Schedule deleted. If that were done, with equivalent amendments to the substantive part of the order, this objection to jurisdiction falls away.

In this context, however, it is also said that the Schedule should be framed by reference to particular books, papers or other records held by the Respondents, for without that particularity the task is almost impossible to address. The difficulty I have with this submission is that the Respondents know which documents they have and the Liquidators do not. Accordingly if this were a fundamental flaw, as the Respondents contend that it is, there would rarely be a section 236 order where third parties are involved. If a section 236 applicant does not know the identity of the particular documents he wishes to see but does adequately describe them by reference to the subject matter they contain, this, in my view, could be sufficient. It is one of the factors which goes into the mix when addressing discretion. It does not, in my view, go to jurisdiction.

Third it was submitted that there was ‘no jurisdiction to order the production of books, papers or other records which are not in the possession of or under the control of the respondent’. I accept this point either as a matter of jurisdiction or as being an almost decisive factor in the exercise of discretion. But since the order sought does not extend to such documents, the point is of no substance.

Before leaving the issue of jurisdiction, and because of what was said in argument, I wish to make clear that I consider the term ‘books, papers or other records’ to include documents in electronic form. The reason I wish to make this clear is that I perceived that the Respondents did not accept the point, although when it was put at the hearing that documents in electronic form were included, there was no real argument to the contrary.

The second ground for resisting the application was based on discretion and there were two main heads.

First it was said that the information/documents sought were not reasonably required for the purposes for which the Liquidators contended (see paragraph 9 above). The Respondents point to the correspondence referred to in paragraph 14 above and submit that it is clear from what was said that the Liquidators have already decided to issue proceedings, and that they cannot now resile from that position. The Respondents invite the court to conclude that the true motive behind this application is that the Liquidators seek early disclosure of documents without having to provide security for costs in any litigation and in order to place pressure on the Respondents to settle the claims and/or to obtain an unfair advantage in the proceedings. The Respondents drew my attention in particular to a passage in the judgment of Robert Walker J in Re Atlantic Computers [1998] BCC 200, 208:

I have looked again at the previous correspondence between the parties and the evidence in this case (including in particular the evidence of Mr Lewis, an economist, who explains the rationale behind the identification of the documents sought) and I have taken into account the asymmetry of information between the parties as well as the well known difficulties of proving causation in cartel damages cases. I am satisfied that the Liquidators are being truthful, reasonable and fair and conclude that they have established on the evidence that they reasonably require to see the documents in order properly to carry out their functions and obligations. That being so, I must turn to whether or not the production of the documents would impose an unnecessary and unreasonable burden on the Respondents.

The first point to note is that the Liquidators have sought to make it easier for the Respondents by providing in the order that they will accept a summary of the documents relating to Sales Data and Input Cost Data in place of the documents themselves. The Respondents have countered by saying they are not interested in providing any such summary, that I have no jurisdiction to oblige them to provide a summary and that the question of oppression or inconvenience must be tested by a consideration of the request for the documents themselves.

I accept that, pursuant to a request for production of documents, I have no jurisdiction to order a party to summarise the content of the documents. But I do not think I must ignore completely the fact that offers of help to minimise inconvenience and burden have been rejected. This, though, must be a point of rather little weight since I do not know why the offer of assistance was rejected. It may have been because the Respondents wanted to be as obstructive as possible or it may have been because their task was relatively easy and assistance was not needed or it may have been for some other reason.

In submitting that the production of documents would be oppressive the Respondents relied on a number of factors.

First they relied again on the fact that the Liquidators have already made a decision to commence cartel damages claims. I have already reached a conclusion on this matter. However, in reaching my overall conclusion on discretion I will bear in mind the correspondence already referred to and to the fact that the Liquidators have asserted in the past (although they do not do so now) that they intend to issue proceedings for recovery of compensation in relation to cartel infringements.

Secondly, the Respondents submitted that there would be a clear and unfair advantage to the Liquidators if they were to have available now documentation or information which ordinarily would only become available at a later stage in the disclosure process and/or be ordered to be dealt with through witness evidence in the litigation. Moreover, it was urged upon me that it cannot be assumed that the English courts would have jurisdiction to hear and determine any cartel damages action against Whirlpool UK and Embraco. It was urged that Whirlpool UK have not admitted any wrong doing and that, as a mere customer of the Whirlpool group, it was unlikely to have been mixed up with the cartel even though it, like Embraco, is a subsidiary within the Whirlpool Group. It seems to me that these are two separate points and I address each in turn.

I see some force in the first point but do not regard it as very persuasive in the light of the admitted infringement by Embraco of the anti-cartel provisions and the fact that the only alleged benefit is early sight of the documentation. Indeed, it might be argued that, in a case like the present where there has been an admitted infringement by one of the Respondents, an early assessment of the documentation might lead to a saving of costs.

With regard to the second point, I agree that it goes into the mix and is an important factor to consider when carrying out the balancing exercise, especially bearing in mind that if there is no claim against Whirlpool UK, Article 6(1) of the Judgments Regulation would preclude a case in the English courts against Embraco (Comet not being a direct victim of the tort– see Dumez France v Hessische Landesbank Case C-220/88 [1990] ECR I- 49).

Thirdly, it is submitted that the order sought is extremely and unjustifiably wide and is in the context of a long period of time and that the production of the documents would be burdensome and costly. Mr Kelly, a partner in the firm of solicitors acting for the Respondents has given some evidence on this point and, to my mind, it is not very impressive. He appears only to have had ‘preliminary discussions’ with the Respondents about the matter, which is slightly surprising in view of the fact that the matter has been in issue for some considerable time, and he does not really condescend to detail with respect to any matters. Moreover he does not address at all the Liquidators’ detailed evidence to the effect that the Respondents must already have collated the relevant documentation bearing in mind the circumstances of the admitted unlawful activity and the various claims arising out of the same which the Whirlpool Group including, in particular, Embraco, has faced to date. That evidence effectively went unchallenged.

Moreover, the Respondents have done nothing to help themselves in this matter, for example by responding to any of the requests for information or documents. Of course, the Respondents are entitled to adopt the position they have adopted, but I have to balance the matter from both parties’ points of view in the actual circumstances which present themselves.

In connection with the question of whether or not the documents are sufficiently identified and the Respondents’ contentions thereto (which were made in the context of jurisdiction but are just as apposite to discretion), I regard the classes of documents sought to be sufficiently described by reference to their subject matter.

Thirdly it is said (relying on something said by a witness on behalf of the Liquidators) that a cartel damages claim is a variety of fraud and that the courts have always been astute to require claimants alleging fraud to prove their case. In this context I was referred to the observations of Sir Nicholas Browne Wilkinson VC in Cloverbay [1991] Ch 90, 104G-H to the effect that to order pre-trial depositions from parties suspected of fraud or dishonest behaviour is very oppressive and that to use section 236 so as to run contrary to the requirement of requiring a claimant alleging fraud to prove his case is also oppressive. This is plainly a matter to be taken into account, but it must be taken into account in context. And that context is that Embraco has admitted being party to an infringing cartel. It was urged upon me that Embraco (or Whirlpool SA) could not tar Whirlpool UK and, in the absence of a decisive influence (for which there must be evidence), that may be right (Footnote: ³). It seems to me that this is another important matter that goes into the mix, especially in relation to Whirlpool UK.

Fourthly it is said that Whirlpool UK and Embraco are third parties qua Comet and my attention was again drawn to Cloverbay [1991] Ch 90 where it was pointed out that a section 236 order will be more readily made against an officer or former officer of the company than a third party. I accept this point but set against it is the fact that price fixing manufacturers’ cartels are aimed at achieving profits at the expense, usually, of retailers or consumers. It goes into the mix but does not, in my view and in this case, carry as much weight as some of the other points made.

I have to conduct a careful balancing exercise taking all relevant matters into account and being careful not to impose an unreasonable burden on the Respondents. I have carried out that exercise and have reached the conclusion that it is appropriate to make the order sought (as amended in accordance with paragraph 23 above). Moreover, I have reached the conclusion that the benefit likely to be gained by the Liquidators as a result of making the order substantially outweighs the burden likely be imposed on the Respondents.