Property Alliance Group Ltd v The Royal Bank of Scotland Plc

In this judgment I give the reasons for making an order at a case management hearing on 11^th February 2015 about a document called Attachment C.

The Claimant (PAG) is a property developer with a portfolio worth about £200 million. This case concerns four interest rate derivatives or swaps which were entered into by PAG and the Defendant (RBS) between 2004 and April 2008. Each of the products used 3 month GBP LIBOR as a reference rate. One of the important aspects of this case is an allegation by PAG that various misrepresentations were made by RBS in connection with the setting of LIBOR which induced the swaps or that the swaps themselves contain implied terms in connection with the conduct of RBS relating to LIBOR.

As is now well known, a number of banks have been found to be involved in the manipulation of LIBOR rates. RBS is one of those banks. RBS has reached settlements with a number of regulators and prosecuting authorities including the US Department of Justice (DoJ) and the UK Financial Services Authority (as it then was). There is a Deferred Prosecution Agreement (DPA) between RBS and the US DoJ dated 5^th February 2013 which came before the US District Court for the District of Connecticut on 12^th April 2013 before The Honourable Michael Shea, US District Judge. In the DPA RBS has admitted misconduct relating to the Japanese Yen and Swiss Franc LIBOR. The details are set out in Attachment A to the DPA.

In its Defence in these proceedings, RBS has formally admitted misconduct relating to Japanese Yen and Swiss Franc LIBOR in the same terms as that admitted in Attachment A to the DPA. In its Defence in these proceedings, RBS has denied any misconduct in relation to the setting of GBP LIBOR, including 3 month GBP LIBOR.

Given the nature and complexity of this dispute, the parties submitted that the case management of the proceedings would be best undertaken by a docketed judge. I was assigned to carry out that task and the first case management conference before me took place on 24^th November 2014. Directions were given to bring the dispute to a trial in a window between May and July 2016.

At that stage (24^th November) a major issue was the scope of the disclosure obligation applicable to RBS. I decided ([2014] EWHC 4308) that given the wide scope of PAG’s pleaded case, the disclosure obligation included all LIBOR currencies and tenors and was not limited to 3 month GBP LIBOR or to GBP LIBOR generally. Further consideration of disclosure was adjourned to a hearing to be fixed in early February 2015 with directions for RBS’s legal team to carry out various tasks relating to disclosure in the meantime. The key difficulty appeared at that stage to be that RBS has in its possession a very large number of documents (tens of millions) which would need to be reviewed if one was to carry out a full scale standard disclosure exercise on the relevant issues. A full standard disclosure exercise appeared to be necessary and proportionate in respect of 3 month GBP LIBOR, since that was the rate and tenor which was the subject of the swaps and in practice that exercise would cover GBP LIBOR generally (i.e. all tenors). However neither party nor the court had any appetite for requiring RBS to embark on a similar exercise dealing with all the other currencies.

It seemed in November that a way forward would be for RBS to disclose internal reports, reviews and summaries relating to the allegations of LIBOR misconduct. There was no doubt these so called “high level documents” existed given the nature of the LIBOR manipulation itself and the regulated environment in which the bank operates. They would allow the parties and the court to direct a more focussed disclosure exercise in the light of the information revealed in them. A disclosure exercise could be properly tailored to the case in a proportionate manner.

RBS carried out the necessary review and produced a disclosure list signed by Paul de Gruchy, Senior Legal Counsel of RBS on 12 January 2015. This list includes a number of high level documents of the kind envisaged. However the only documents which RBS has produced for inspection by PAG from that list are ones which do not include any summary, report or review of any manipulation or misconduct relating to LIBOR at all. There are other high level documents in the disclosure list but they are all covered one way or another by objections to inspection taken by RBS. A party disclosing documents is entitled to take proper objections of this kind (see CPR r31.3 and r31.19) but one way or another such objections are open to scrutiny by the Court in appropriate circumstances.

Appendix B to the disclosure list summarises the documents in RBS’s list for which an objection to inspection is taken. The appendix is divided into 5 sections. The objection taken in sections 1, 2 and 3 is on the ground of legal privilege: legal advice privilege in section 1, litigation privilege in section 2 and without prejudice privilege in section 3. PAG reserves all its rights to challenge these privilege claims and a further hearing has been scheduled ideally in late March or early April 2015 to deal with the application PAG is going to make on that issue. One of the matters I dealt with at this hearing was a direction that RBS must file a Further and Better List addressing the privilege claims. Currently they refer to regulatory investigations but only in an unspecific way. Those references need to be more specific in order for the court and PAG to understand the nature of the claims to privilege (cf. Beatson J in West London Pipeline v Total [2008] EWHC 1729 (Comm) at paragraph 86, particular 86(1)). That is why the Further and Better List is required. RBS will also be free to supplement any other aspects of its privilege claims if it wishes.

Sections 4 and 5 of Appendix B deal with reports submitted by RBS to two foreign regulators. RBS objects to inspection of those documents as a result of the obligations it believes it owes to the foreign regulators in question. PAG does not accept that RBS is entitled to withhold inspection of any of those documents. A separate judgment also given today deals with the documents in section 4. That hearing was held in private having regard to a letter from the relevant foreign regulator. The dispute about section 5 has been adjourned to allow the parties to investigate it further.

This judgment deals with the status of Attachment C to the DPA. That attachment is a list of benchmark rates in addition to Japanese Yen (JPY) and Swiss Franc (CHF) which are (or at least were at the relevant date) the focus of an ongoing investigation by the US DoJ.

Attachment C will indicate which other benchmark rates are the subject of ongoing investigation by the DoJ. That would be of real significance in this case and Attachment C therefore is clearly a document which would and should be listed in a standard disclosure list from RBS encompassing all LIBOR rates and tenors. Moreover and in addition, the document would be likely to assist this court and the parties in focussing the future disclosure exercises relating to other currencies beyond JPY and CHF.

A satellite dispute before me was whether Attachment C should have been listed in the disclosure list produced on 12 January 2015. The parties could not agree whether the order I made on 24^th November should have expressly referred to Attachment C in that 12 January list. I do not have to resolve that dispute and I decline to do so.

What is clear is that the obligations of disclosure (documentary discovery) of RBS in this action which I ruled upon on 24^th November 2014 are such that Attachment C ought to be in a disclosure list from RBS at some stage in these proceedings. RBS objects to inspection of Attachment C and so, recognising the scope of its disclosure obligations, brought an application before me in relation to Attachment C to resolve the issue of inspection. The application is for an order that RBS is not required to permit inspection of the document. PAG resists the application. This judgment deals with it.

RBS believes that it is obliged by its obligations to the US DoJ to object to inspection of Attachment C and that to allow inspection would put RBS at risk of being in criminal contempt of an order of Judge Shea in the US.

The applicable legal principles are common ground and can be found in Health Secretary v Servier Laboratories [2013] EWCA 1234 (Civ) (Court of Appeal). Orders for discovery of a document in this court (or for inspection of a document already disclosed) are procedural in nature and the law governing them is the lex fori, i.e. the law of England and Wales. The fact that a party objects to disclosure or inspection on the ground that to comply with such an order would put the party at risk of prosecution under a foreign law provides no defence to the making of the order. The English court retains jurisdiction under its local law to make such an order although it has a discretion whether to do so in the particular circumstances. The English court is entitled to take into account the risk of prosecution. In the two cases under consideration the judges who made the orders requiring disclosure had done so having found that a prosecution was highly unlikely. The Court of Appeal upheld those decisions.

The parties also referred to the judgment of Neuberger J in Morris v Banque Arab et Internationale d’Investissement [2000] C.P. Rep. 65 in which the same conclusion was reached. The parties had exchanged lists of documents but one side objected to inspection of a number of them on the ground that it would put them in breach of French law. The judge held that there was discretion to be exercised and ordered inspection bearing in mind the relevance of the documents and very small risk of prosecution.

To assess the position of RBS if inspection is ordered I will start with the provisions of the DPA itself. The DPA is a lengthy document and its details are not germane to the issues I have to decide. Under the DPA, RBS admits responsibility under US law for the acts of its staff set out in Attachment A (that is the admitted misconduct relating to JPY and CHF). RBS admits the facts set out in Attachment A are correct. The agreement is for a term of two years from the date the Information is filed with the court (i.e. April 2013). There are provisions for extension in certain circumstances. RBS will pay a monetary penalty of $150,000,000 to the US Treasury in connection with its guilty plea and plea agreement.

Footnote 1 in paragraph 2 of the DPA states:

“Although not addressed in Attachment A, this Agreement also encompasses RBS’s submissions for the additional benchmark rates listed in Attachment C, which is also incorporated into this Agreement. The rates listed in Attachment C are the focus of an ongoing investigation and, for that reason, Attachment C will be held in confidence by the parties to this Agreement, will not be included in the public filing of this document, and will not be made available to the public unless and until the Department of Justice, in its sole discretion, determines that such information can and should be disclosed. ”

Thus the footnote in terms provides that Attachment C will be held in confidence by the parties. However the footnote is not the only place in which confidentiality is referred to in the DPA. PAG pointed out that clause 10, which relates to RBS strengthening its compliance and internal controls and to ongoing investigations into the matters in Attachment A and Attachment C, expressly contemplates that material which might otherwise remain confidential could be required by law to be made public. PAG’s point is a fair one although for what it is worth I do not believe clause 10 itself expressly refers to Attachment C. That clause is referring to information and reports provided to the DoJ by other agencies.

Of more significance is the point made by PAG that confidentiality itself, as opposed to legal privilege, is not a sufficient basis for withholding disclosure or inspection, citing Science Research Council v Nassé [1980] AC 1028. RBS did not dissent from this submission, which is no doubt why the argument before me did not focus on the terms of the DPA itself but rather on the stance of the DoJ and the position arising from what took place before Judge Shea.

The criminal Information was filed at the US District Court on 12^th April 2013. Counsel for RBS and the DoJ were present as were corporate representatives of RBS. In the course of the hearing Judge Shea said as follows:

“I understand there’s a written deferred prosecution agreement. I’ve received a copy of that agreement and I’ve reviewed it. I should also note that notwithstanding footnote 1 of the deferred prosecution agreement, the parties have provided me with a copy of Attachment C, which I have received, reviewed and which I will maintain in my custody, under seal, pending resolution of this matter. ”

The judge then took care to ensure that RBS understood that his decision to maintain Attachment C in his custody was different from the terms described in footnote 1.

Although no formal court order was drawn up, RBS submits that here the judge has ordered that the document is to be kept under seal. It submits that for RBS to provide inspection of Attachment C in this jurisdiction would put it at risk of being in wilful breach of the order of Judge Shea which put the document under seal and at risk of criminal contempt proceedings before the US Court. I have a witness statement from Mr David Raskin, a partner in Clifford Chance in New York and an experienced US lawyer, in which he expresses that opinion. He gives detailed reasons in support of it, dealing with the four elements necessary for the matter to be criminal contempt, all of which he believes could be satisfied (i.e. a reasonably specific order, knowledge by RBS of the order, violation of the order, including its spirit and purpose, and violation which could be deemed wilful). Mr Raskin cites numerous US decisions including in particular a decision of the Federal District Court of Illinois in Grove Fresh Distributor v John Labatt Ltd 888 F. Supp. 1427 (N.D. Ill 1995). Mr Raskin was one of the representatives of RBS before Judge Shea.

At this stage I need to refer to the letter of 15^th January 2015 from the DoJ. In that letter the DoJ states that it understands that the plaintiff in the UK (i.e. PAG) has requested RBS to produce Attachment C and that RBS has opposed the request. The letter refers to the fact that the DPA provides that Attachment C will be held in confidence by the parties and refers to the order of Judge Shea placing the document under seal. The DoJ explains that it continues to have an interest in maintaining the confidentiality of the information contained in Attachment C because it relates to the Department’s criminal investigation into alleged manipulation of certain benchmark interest rates. Maintaining the confidentiality of Attachment C is in accordance with the Department’s usual policy of declining publicly to identify the specific subject matter involved in its criminal investigations.

From PAG I have a witness statement from Jonathan New dated 6^th February 2015 which addresses Mr Raskin’s opinion and the DoJ letter. Mr New is a partner in the New York law firm Baker & Hostetler and an experienced US lawyer. His view is that while the seal order prevents RBS from publicly disclosing the stamped filed copy of Attachment C (i.e. the court record) there is no authority suggesting that disclosure of RBS’ own copy of Attachment C, the one it obtained from the US Government prior to entry of the seal order and independent of submission to the US Court, would violate the seal order. He considers Grove Fresh in detail and expresses the view it is distinguishable. The case related to misbehaviour by an attorney in a case in which there was a seal order and a protective order requiring discovery material to be stamped “confidential”. The attorney had repeatedly disclosed the contents of documents marked “confidential” and protected by the seal without adhering to the advance notice provisions in the protective order. The court interpreted the scope of the seal order by viewing it in conjunction with the protective order.

On the question of the risk of criminal contempt, on the footing the seal order would be breached, Mr New again disagrees with Mr Raskin. Mr New accepts that wilful violation of a clear order would subject RBS to liability for criminal concept but he does not regard the risk as high. Essentially Mr New’s point is if an order made by this court does indeed put RBS at risk then RBS can and should seek clarification from the US court and moreover Mr New believes it is likely that the Connecticut court would, if asked, permit RBS to produce the document in the English proceedings having regard to the English court’s rule that documents disclosed in English proceedings may only be used for the purposes of the proceedings and may not be used for other purposes.

The English court’s rule Mr New refers to is CPR r31.22(1) which provides that a document disclosed in proceedings may only be used for the purposes of those proceedings. It is subject to three exceptions: (a) if the document is read to or by the court or referred to in a public hearing; (b) if the court gives permission and (c) if the parties agree. A further important element is r31.22(2) whereby the court may make an order restraining or prohibiting use of a disclosed document even if sub-paragraph (a) applies.

Finally I should mention a proposal from RBS, which was that if anyone should apply to the US Court, it is PAG rather than RBS, since it is PAG who wishes to see the document.

I have decided that I will order RBS to produce the document for inspection in this action. This order will take effect four weeks from the date on which it is made (11^th February 2015). In addition to the provisions of CPR r31.22(1) which will necessarily apply to the document I will make a special further order at this stage providing that until further order, neither party may refer to the document in open court without permission obtained in advance.

My reasons for making the order in these terms are as follows.

First, as I have already explained, the document is potentially of real significance in this action and its disclosure is likely to assist PAG and this court in dealing with the case.

Second, I am sure that Attachment C is a confidential document. The terms of the DPA itself and the DoJ’s letter make that clear, but confidentiality is not a reason not to order disclosure and inspection (Science Research Council v Nassé). Confidentiality may justify making case management orders dealing with the status of the document in the proceedings but that is a different matter.

Third, I find Mr New’s opinion about US law to be more persuasive that Mr Raskin’s on the question of whether the seal order itself actually prohibits RBS from producing its own copy of Attachment C. I am not satisfied that requiring RBS in this jurisdiction to produce its own copy of Attachment C would breach the seal order at all.

Fourth, while I recognise that my view about the scope of the seal order may be wrong and therefore production of the document could be a breach of the order, I regard the risk of RBS being found to be in criminal contempt by the US Court in that circumstance as a low risk. RBS’s position before me has been a properly and firmly advanced objection to inspection of the document before this court. While, as Mr New accepts, that does not preclude a US court from finding criminal contempt, the US courts adopt a balancing approach. The four week period I have set before the inspection is required to take place is designed to give RBS the ability, if it is advised to do so, to take any steps it wishes before the US Court.

I reject the submission that PAG should be required to apply to the US Court. It is RBS which is required to disclose the document in the English proceedings. If it wishes to make an application to the US Court, it is RBS which should do so.

Fifth, if RBS did apply to the US Court relating to Attachment C I have formed the view that that court would be likely to permit RBS to fulfil its obligations to the English court given the procedural safeguards which are inherent in English court procedure which I have explained and given the specific procedural safeguard I have put in place which requires permission before the document is referred to in open court. I should make clear that in expressing this view I am in no way seeking to bind Judge Shea or any other US judge from exercising their jurisdiction in the matter.

Sixth, I also bear in mind that the two year term of the DPA itself will expire in April 2015 albeit that that does not mean that the investigations into the benchmark rates in Attachment C will necessarily come to an end at that time and may well continue afterwards.

Seventh, I recognise the desire of the US DoJ to keep Attachment C out of the public domain pending its investigations. Nonetheless it is the case that the DoJ’s letter is written in general terms and by reference to its usual policy. The letter does not articulate any specific risk of prejudice or other concerns arising from the particular circumstances of this case.

Furthermore, the order I have made, given CPR r31.22(1) and the specific further restriction I have included, does not make the attachment public. Nevertheless I should make clear that the order is intended primarily to regulate the case management stage of these proceedings. A year from now, when the case is approaching trial, it may well be appropriate to consider whether to vary the further restriction and permit reference to the document in open court. But that is a long way off and by then the position may look very different for many reasons, not least that disclosure from RBS will have been completed. The DoJ’s investigations may be complete. The matter can be reviewed then. I wish to make clear that I regard it likely that the balance of factors when considering whether a document like Attachment C should be referred to in open court at trial is much more likely to come down in favour of publicity, but that is for another day.

Mr Lord for PAG objected to the step of adding a requirement for permission before a reference to Attachment C is made in open court. He referred me to the strong and fundamental principle of open justice in English law citing: Scott v Scott [1913] AC 417, AG v Leveller Magazine [1979] AC 440, Article 6 of the European Convention on Human Rights, CPR r39 which provides that the general rule is that hearings are in public (subject to r39(3)), the Practice Guidance (Interim Non-Disclosure orders) [2012] 1 WLR 1003 given by Lord Neuberger which explains the wholly exceptional nature of derogations from the principle of open justice.

Mr Lord also referred me to the comments by Flaux J in Graiseley Properties v Barclays Bank [2013] EWHC 67 (Comm) at paragraph 61 where the judge observed that there was an obvious and compelling public interest in establishing the true extent to which financial institutions had been engaged in the manipulation of LIBOR. I respectfully agree with Flaux J’s comments. Nevertheless the application before Flaux J was a different one from the application before me. Flaux J was being asked to make an order whereby the names of individuals involved in alleged manipulation of LIBOR only be referred to in open court both at the interim stage and at trial using a code. He rejected that application on a number of grounds including that it was an unwarranted derogation from the principles of open justice. The application before me relates to a document which is confidential and for which the confidentiality relates to ongoing criminal investigations by a competent authority in a foreign state. That authority has specifically asked for the document to remain confidential and a copy of it has been placed under seal by the US court. The concerns of the DoJ and the possible effect of the seal order can be addressed by the order I have made, which, as explained already, relates primarily to the case management stage of these proceedings.

In many cases a document forming part of disclosure would be unlikely to be read or referred to in open court before the trial in any event. However given the complexity of these proceedings there are likely to be a number of further case management hearings. It is likely that even if this document played a part in the case management stage, RBS’s obligations to the US DoJ would lead to an application under CPR r31.22(2) to maintain the restriction on the use of the document for the purposes of these proceedings, which would be likely to be granted at least pending trial.

PAG’s preparation for trial and its ability to advance its case at these interim case management hearings will not be seriously inconvenienced by the restriction. The restriction facilitates the hearings taking place in public. The public will be able to understand the proceedings and understand what is going on.

For the reasons explained, I will order RBS to provide inspection of Attachment C to the DPA in the terms referred to.