Law Debenture Trust Corporation (Channel Islands) Ltd. v Lexington Insurance Company & Ors

This is an application for disclosure to HIH, which is not a party to these proceedings, of the pleadings and written opening submissions in these proceedings in so far as they relate to particular allegations of fraud. The application raises issues which are important because they are likely to re-occur in future commercial litigation.

The application is made by HIH because it is believed by its legal advisors that the contents of the pleadings and written submissions may provide information on the basis of which HIH could in other pending proceedings raise similar allegations of fraud against JLT (the Second Defendants in these proceedings).

The present proceedings have now settled. They have become known as “Hollywood 4 and 5”. They involved issues of considerable complexity. However, in brief and very broad outline they involved a claim by the trustee insured under a contract of insurance, which was designed to cover the risk that the revenue engendered by various projected films and television programmes would not be sufficient to meet sums payable to the beneficiary investors in certain financial packages which had been marketed to them as investments in the film industry.

The insurers under the policies issued in the present proceeding were the first defendants, Lexington, and the brokers who had placed the risk were the second defendants, JLT. The primary originator and orchestrater of these financial transactions was a corporation called Flashpoint. For this purpose it worked closely with JLT.

Lexington’s pleaded defence to the claim on its policy included certain allegations of fraudulent misrepresentation and non-disclosure of material facts by JLT as well as allegations of non-fraudulent breaches of duty as placing brokers in the somewhat unusual circumstances of the setting up of the financing operations in this case. The non-disclosure case pleaded by Lexington included allegations of fraud by JLT and Flashpoint in similar film financing transactions, not the subject of these proceedings, in which JLT had also acted as placing broker.

The proceedings in which HIH are presently involved, to which I refer as “Hollywood 1 to 3”, arise out of film financing transactions similar in structure to those in the present proceedings relating to three “slates” of films (7.23, Rojak and Award). The insurer was HIH, but the originator was Flashpoint and the brokers were JLT. HIH paid out the primary assured under its policies and it then endeavoured to recover from its reinsurers, to whom it had laid off most of the risk. It having been decided by David Steel J., and confirmed by the Court of Appeal, in the course of the trial of preliminary issues, that the contracts of reinsurance included warranties as to the number of films to be made and further that the policy wording excluded avoidance for non-disclosure or misrepresentation, in November 2001, HIH joined JLT as co-defendant. HIH alleged that in negligent breach of duty and/or breach of contract JLT failed to obtain reinsurance which met HIH’s requirements and/or to advise HIH about the warranties as to the number of films to be made and their effect and/or to procure the reinsurers’ agreement to reduction in the number of films to be made and/or to inform HIH that such agreement had not been given. The total amount claimed exceeded US$55 million.

Shortly after JLT had been joined in Hollywood 1-3 one of the reinsurers, AxA, obtained summary judgment against HIH dismissing its claim in respect of Hollywood 1 and 2 (7.23 and Rojak) on the grounds of breach of warranty as to the number of films to be made. That led HIH to abandon its other claims against the reinsurers under Hollywood 1-3, leaving only its claim against JLT.

As presently pleaded, Hollywood 1-3 includes no allegations of fraud and in particular no allegation similar to those raised in Hollywood 4-5 involving dishonest projections of revenue or failure to disclose dishonesty in the course of similar transactions on the part of Flashpoint or JLT. It follows that documents in JLT’s possession relating to such allegations raised in this case would not be disclosable in Hollywood 1-3 because they would not be relevant to any pleaded issue. Consequently, the only possible routes by which HIH can obtain access to such documents is by means of its present application. For this purpose it relies on CPR 5.4(2)(a) and/or (c) and/or CPR 31.22 and/or CPR 32.13 or the inherent jurisdiction of the court. Although the applications, as originally framed, covered a wide spectrum of documents in Hollywood 4 and 5, including disclosed documents relating to the fraud case and any witness statements or expert reports addressing the fraud case against JLT and Flashpoint, Mr Julian Flaux QC on behalf of HIH, has confirmed that his clients’ application can at least at this stage be treated as confined to the pleadings and written openings to the extent that they relate to any allegation of fraud against JLT/Flashpoint in relation to any of the three slates comprising Hollywood 1-3.

JLT objects to the disclosure to HIH of any of the written openings, did not object to disclosure of allegations against JLT in the pleadings but did not consent to disclosure of allegations against Flashpoint in the pleadings of such part of the pleadings as contained allegations of fraud against JLT or JLT and Flashpoint, in relation to Hollywood 1-3, as distinct from allegations against Flashpoint alone.

CPR 5.4(1) provides for the supply to any party to proceedings from the records of the court of a copy of any document relating to those proceedings. CPR 5.4(2) provides as follows:

Since these proceedings comprise not only the claim form but also the defence and reply and perhaps replies to requests for information, the permission of the court is necessary under CPR 5.4(2)(c).

The purpose for which HIH require access to these pleadings is an entirely appropriate one. They wish to consider whether to make similar allegations of fraud against JLT in Hollywood 1-3 which clearly relates to similar film finance transactions to those involved in Hollywood 4-5 and in which Flashpoint was also involved.

As I see it, there can be no public policy in withholding access to such documents in so far as there is some basis for their relevance. The particulars of claim in Hollywood 4 and 5 do not contain allegations that JLT were fraudulent in relation to Hollywood 1 or 2, although there are allegations only against Flashpoint. The only allegations of fraud against JLT in Hollywood 1-3 are in respect of the Award slate, Hollywood 3. In these circumstances, HIH has an entirely legitimate interest in inspecting the pleadings to the full extent necessary to follow the allegations of fraud against JLT and Flashpoint in respect of Hollywood 1-3 and if those allegations overlap with the allegations of fraud against Flashpoint, to that extent there should be access also to the allegations of fraud against the latter.

The allegations of fraud made in the written opening by Lexington are wider than in the pleadings, in as much as they extend to Hollywood 1 and 2. Those allegations of fraud, unlike those pleaded in respect of Hollywood 3, were not to be deployed by way of defence under the policy or for the purpose of founding a claim against JLT, but, according to leading counsel for Lexington, Mr David Railton QC, for the purpose of attacking the veracity of JLT’s case in relation to the other (pleaded) allegations of fraud. When Mr Railton was about to open these points to the court, leading counsel for JLT, Mr Geoffrey Vos QC, objected that it was wrong for these allegations to be raised in opening or alleged at the trial when they had not been pleaded. It was left on the basis that these matters should be the subject of further argument when the hearing resumed. It never did resume because the case settled and the question therefore remained unresolved.

Upon these applications it is submitted on behalf of HIH as follows:

On behalf of JLT, Mr Vos QC challenges these submissions on the following grounds.

The only possible basis for this application can be under the inherent jurisdiction of the court. That is because CPR 5.4(2) clearly relates to “documents from court records” and opening written submissions are merely tools of advocacy and, unlike pleadings, or case memoranda or case management questionnaires, are not part of the court records. A copy is provided to the judge to facilitate presentation of the case and there is no requirement for filing or the keeping of a copy in the Registry. Indeed, the skeleton argument is normally sent to the Commercial Court Listing Office or, to save time, direct to the judge’s clerk, for passing on to the judge. At the end of the trial, it is usually destroyed by the judge or returned to the parties. Further, CPR 31.22 has no application because its function is confined to documents in the possession or control of a party which have been provided to other parties in the course of disclosure. Written submissions do not fall within this class of document, they belong to counsel, not their clients. CPR 32.13 relates exclusively to witness statements.

It is therefore necessary to investigate the principles upon which the jurisdiction relating to such documents as skeleton arguments ought to be exercised.

Before coming to the principles, however, it is right to explain the precise function of the written opening submissions in Hollywood 4 – 5.

This was a multi-party action of unusual complexity. There were very many issues, many of them interlocking. The documentation on the policy issues alone was immense. Its presentation to the court presented a real problem. Its presentation by counsel, by reference to specific issues, was clearly going to be an essential feature of the trial. The written openings, particularly that of Lexington, were therefore designed to take the court through the key documents on each of the many allegations in the insurers’ case. Providing the court with such a document both gave a comprehensive overview of the case to be run by each party, so that before the start of the trial the judge could gain some grasp of the matters of emphasis in the evidence, and provided a reference companion to the documents as they were opened in detail by counsel. Although these submissions were very long and comprehensive, they gave the court both an efficient introduction to the case before it started and a very useful means of following the opening of the documents at trial. With the settlement of the case after five days this latter function was arrested after counsel for the claimant assured had opened everything except its position as to the fraud allegations and after counsel for Lexington had analysed only part of its fraud, misrepresentation and non-disclosure case – that relating to a transaction known as “The New Professionals” – but had not yet opened its fraud case, pleaded or unpleaded, on Hollywood 1-3.

Gio Services v. Liverpool and London, supra, is the authority which is closest on its facts to the present case. It involved an application by a non-party for disclosure of various classes of documents, including a written opening skeleton argument or submissions to which reference was made by the judge together with any document referred to in such an opening, argument or submission. The non-party applicant wanted access to these documents to assist it in assessing what defences and/or claims against third parties it might have in a closely related action in which the same brokers and sub-brokers were involved in placing certain reinsurance. Before the trial started there had been a settlement between the plaintiff reinsurers and the defendant reassured and there had also been a settlement between the assured and the third party brokers. That left for trial claims over by the head brokers against two third party sub-brokers. After short oral openings by counsel for the head brokers and sub-brokers respectively placed before the judge lengthy written openings and invited him to read them following which they would deal with any queries and the trial could proceed. The trial was then adjourned for five days to give the judge reading time. In the course of this period the claimant head brokers settled with one of three sub-brokers, leaving in issue its claim against the other two sub-brokers. These latter did not appear and accordingly, when the trial resumed, the judge went on to prepare and two days later to deliver judgment on that claim. In the meantime the non-party had made its disclosure application.

The judgment of the Court of Appeal delivered by Potter LJ. is concerned with the application for access to witness statements and primary disclosed documents as well as to skeleton arguments, but it is in relation to the latter that its approach is particularly relevant. It may be summarised as follows.

At pages 995 to 996 Potter LJ put the position thus:

At pages 996-997 he added:

It is to be observed, as emphasised, by Mr Vos QC, on behalf of JLT, that in Gio the written openings were an effective part of a trial process culminating in a judgment. The judge never had to determine a substantial part of the issues existing at the start of the hearing because that part of the case had settled. Those issues must clearly have been dealt with in the written submissions to which access was ordered by the Court of Appeal.

Gio has been referred to in other Court of Appeal decisions without any suggestion that it is wrong in principle. None of those appeals have been concerned with applications for access to written submissions. In SmithKhine Beecham Biologicals SA v. Connaught Laboratories [1999] 4 All ER 498, where the application was concerned only with disclosed primary documents and reports, Lord Bingham CJ, in the course of a judgment in which the court allowed an application for access to such documents referred to in the reading guide provided to the judge and in the skeleton argument, said this at the close of his judgment:

Although that case was concerned with disclosed documents and in particular with the application of RSC Order 24 rule 14A, Lord Bingham’s reasoning at pages 509-510 needs to be taken into account:

Thus the substance of this passage is that if there had been no effective hearing save for the purpose of obtaining from the judge an order which reflected the parties’ settlement of their dispute, the application for access to disclosed documents, which the judge had been invited to read and had read before the hearing, would have been refused because the trial never reached the stage where his consideration of such documents was in substitution for their having been read out to enable him to take a judicial decision. On the facts of that case, however, the trial did commence; there was a very short hearing because the application to revoke the patent was not conceded but not opposed and the judge used his familiarity with the documents in question to arrive at his order of revocation.

It is thus essential for a court invited to exercise its inherent jurisdiction to grant to a non-party access to written skeleton or outline submissions to investigate what part they are playing or have played in the trial. For example, there can be little doubt, in my judgment, that if a case settles before the hearing commences but after the judge has read the submissions, the jurisdiction should not be exercised in favour of access. In such a case no observer of a public hearing would have been denied knowledge of submissions made at that hearing by reason of their having been committed to writing.

Where, however, the hearing commences and counsel provides the judge with written submissions which are not read out in court or not fully read out and the hearing ends in a judgment, there can equally be little doubt that the court’s discretion ought to be exercised in favour of access. The non-party observer will otherwise have been deprived of the whole or part of that which was submitted to the judge. The result would be the same if, by the end of the trial, certain issues had been abandoned.

But what happens where the trial begins, where the judge has read the submissions, but where the whole case is settled before judgment, perhaps after many days of hearing? In order to resolve this question it is necessary to answer one essential question of principle. Is the existence of a judgment or other judicial decision of the court a pre-requisite of the exercise of the jurisdiction in favour of access? For if it is, the absence of such a judgment or decision would lead to the conclusion that every time the settlement of a case intervened before the application for access was decided, further public scrutiny of written submissons would be closed off.

In the passage which I have already cited from the judgment in Gio, at page 996 F-G, the Court of Appeal expressly contemplated “an application from the press or the public in the course of the trial” being granted there and then. That was not what happened in that case where, by the time when the application came to be heard, a judgment had been given, albeit not determining issues between the claimant brokers who had already settled but whose submissions were previously included in the submissions provided to the judge in the course of opening.

Although it is clear that in SmithKhine Beecham v. Connaught Laboratories, supra, the court reached its conclusion on the grounds of there ultimately being a judicial determination of the revocation issue by contrast with that issue having been resolved without a hearing by consent, I do not read Lord Bingham’s reasoning as necessarily involving existence of such a judgment in cases where the trial has already commenced and the written submissions have already been deployed at the hearing in substitution for, or as auxiliary to, oral argument. There had in that case never been a hearing at which the submissions could have been so deployed. Access to them only became justifiable because the use which the judge ultimately made of them to arrive at his decision was to proceed as if there previously had been a hearing at which the case had been orally opened or at least at which counsel had, as in Gio, put in the submissions after orally introducing the issues. There would thus never have been a process of relevant substitution but for the effect of the judge’s reliance on the submissions to reach his conclusion.

In this analysis, it is clear from the authorities that the essential purpose of granting access to such documents is to provide open justice, that is to say to facilitate maintenance of the quality of the judicial process in all its dimensions, so that the public may be satisfied that the courts are acting justly and fairly and the judges in accordance with their judicial oath. That, however, does not involve merely the perceived quality of final judgments with reference to the evidence, the submissions and the law, but the quality of judicial control of the trial on a day to day basis. There may be in the course,even of the first few days of a potentially long and complex hearing numerous occasions for judicial decision-taking with regard to the conduct of the hearing. These are all part of the public judicial function. The judge’s knowledge of the issues may be and often is of vital relevance to such decision-taking. Once he has read the written submissions he may well be better equipped to perform this vital function. In this way, the submissions play an active role in facilitating the conduct of the trial from the very moment when they have been read and the trial has commenced. It is for this reason, that in my judgment, the public policy of openness requires that the outside observer should be given access to these materials in the course of the hearing before judgment, as envisaged in Gio. If such an order is appropriate before judgment in an on-going trial, there is no logical objection to such an order where, as in the present case, the hearing proceeded for several days and then settled.

Does this approach require qualification on the grounds that the oral submissions advanced in parallel with the written submissions never got as far as a particular point in those written submissions? In principle, the answer to this question must be No. The hearing was proceeding at the time of settlement and the written submissions had by then been read by the court in order to facilitate the conduct of that hearing. The fact that the parallel oral opening had not covered the whole ambit of those written submissions does not mean that they had not been relied upon by the court to inform itself of the totality of the issues for the purposes of the conduct of the hearing so far at it proceeded.

There is however another consideration. That is the objection raised by JLT’s counsel in the course of the Hollywood 4 and 5 hearing to the development in opening of the unpleaded allegations of fraud against his client in respect of the Hollywood 1 and 2 slates. Mr Vos QC advanced the argument that because these allegations had not been pleaded they were inadmissible for any purpose in Hollywood 4 and 5 and therefore should not be permitted to be opened by counsel for Lexington, although included in his outline submissions. He submitted that the admissibility of these allegations should be decided before they were opened in public because they were potentially seriously prejudicial to his client’s reputation. In the event the hearing was adjourned over the Whit vacation and the case settled before the hearing was resumed. Had it been decided at that stage that those allegations were indeed inadmissible and should not be raised in public in the course of the opening and there had then been an application from a non-party for access to the outline submissions, that application would, in my judgment, have been refused. The decision of the court would have been that because they were as a matter of law, irrelevant, Lexington should not ventilate them in public. In those circumstances the potentially prejudicial effect would clearly outweigh the public policy of open justice which might, absent such potential prejudice, have called for open access.

However, the issue of admissibility never having been decided in that case, does the applicable principle require that access should be given? It is inappropriate that I should decide the issue of admissibility for the purpose of this application and the decision as to the exercise of this jurisdiction must therefore be taken on the basis that the allegations might have been excluded had Hollywood 4 and 5 not settled when it did. That being so, it would, in my judgment, be unfair to JLT to permit these allegations against it to be exposed to a non-party. In view of the unresolved issue as to whether they should have been ventilated in public at all the public policy of openness does not demand that my jurisdiction should be exercised on the assumption that JLT’s objections in Hollywood 4 and 5 were unsustainable.

Accordingly, I conclude that HIH is entitled to access to such parts of Lexington’s and other parties’ written openings as they have applied for except those passages which raise allegations of fraud against JLT in relation to Hollywood 1 and 2. This conclusion may require an exercise of some intricacy in redacting those parts of the submissions which have been excluded. However, it should be clearly understood that this exclusion is limited to allegations against JLT and does not extend to any allegations of fraud against Flashpoint in connection with Hollywood 1 and 2. These allegations were part of the pre-reading which the court was invited to complete for the purposes of conducting the hearing and they are allegations which had they not been in written form would have had to be opened orally for that purpose.

Accordingly, HIH is entitled to an order for access to the Hollywood 1-3 opening submissions to the extent applied for confined to those parts, which do not allege fraud against JLT in respect of Hollywood 1 and 2.