Fiesta Hotels and Resorts SL & Ors v Deutsche Bank AG & Anor

DAME CLARE MOULDER DBE: This is the judgment of the court on the application by the defendants (“Deutsche Bank”) dated 22 April 2022, for, firstly, additional disclosure from the claimants pursuant to paragraph 18 of Practice Direction 57AD (the “Application for Further Disclosure”), in the alternative third party disclosure from Saranac Partners Limited (“Saranac”) (the “Third Party Disclosure Application”).

By the draft order Deutsche Bank seek an order that the claimants or Saranac should search for and give disclosure of all audio recordings and calls, including conference calls, between representatives of the claimants and representatives of Saranac between 1 January 2018 and 31 March 2020 (the “Saranac Recordings”). I note that Deutsche Bank no longer seek to qualify the order sought by the words “relevant to one or more Issues for Disclosure identified in Section 1 of the Disclosure Review Document”.

In support of the application, I have the first witness statement dated 22 April 2024 of Mr John Corrie, partner at Herbert Smith Freehills LLP (“HSF”), on behalf of Deutsche Bank, and his fourth witness statement dated 31 May 2024.

In response I have the seventh witness statement of Mr Leo Kitchen, partner in the firm of Quinn Emanuel Urquhart & Sullivan UK LLP (“QE”), for the claimants, dated 24 May 2024.

For Saranac I have the witness statement of Mr Steven Baker, a partner at Proskauer Rose (UK) LLP (“Proskauer”), dated 24 May 2024 and a witness statement from Mr Gurvinder Bains, head of technology at Saranac dated 24 May 2024.

I need not go into the detailed background of these proceedings. Suffice it to say that they arise out of a trading relationship between the claimants, known as Palladium Hotel Group (PHG), and Deutsche Bank. The relationship began in late 2012 when Deutsche Bank marketed to the claimants a set of transactions referred to in these proceedings as the Haven transactions which were entered into by three of the claimants in January 2013 and subsequently, between 2014 and 2019, Deutsche Bank sold to the claimants a large number of derivative transactions (the “Transactions”).

The claim form was issued in November 2020, and the original Particulars of Claim were served in September 2021.

Claims in negligence advanced by the claimants have since been amended to introduce allegations of fraud. In summary the claimants allege that Deutsche Bank fraudulently, alternatively negligently, misled them in relation to its fees for the Haven Transactions. Secondly, the claimants allege that Deutsche Bank fraudulently, alternatively negligently, misled and/or acted in breach of duty to them regarding its fees in connection with restructurings of the Transactions (the “Restructurings”).

The claimants allege that Deutsche Bank, amongst other things, made a number of express and/or implied representations relating to the impact and/or the effect of the Restructurings which were relied upon by the claimants until August 2018.

There is a third allegation in relation to the fourth claimant which is not relevant to these applications.

For the purposes of the Application for Further Disclosure the relevant provisions now relied upon by Deutsche Bank are paragraph 18 of the Practice Direction 57AD:

Paragraph 6.4 provides:

In relation to the Third Party Disclosure Application, the application is made pursuant to CPR 31.17 which provides (so far as material):

In relation to the Application for Further Disclosure, the first issue is whether PHG has practical control over the Saranac Recordings.

It was Deutsche Bank’s position before the Court today that, in the light of the explanation given in the witness statement of Mr Baker, Deutsche Bank no longer contends that PHG had legal control, but Deutsche Bank contends that PHG has practical control over the Saranac Recordings. It appeared to be common ground that practical control suffices under PD 57AD, even absent a legally enforceable right of control.

Deutsche Bank relied on the decision of Robin Vos in Berkeley Square Holdings & Ors v Lancer Property Asset Management Ltd & Ors [2021] EWHC 849 (Ch). Deutsche Bank acknowledged that the principles in that case were applied in The Public Institution for Social Security v Al-Wazzan [2024] EWHC 480 (Comm) at [28], with the caveat that the nature of the relationship “may be relevant but is not determinative”.

It was submitted for Deutsche Bank that the circumstances give rise to a clear inference that there is an arrangement or understanding that Saranac will search for relevant documents, or make them available to be searched by PHG, giving PHG practical control over the Saranac recordings. It was submitted that the previous provision of documents on request is highly relevant especially where the provision is recent (unlike in Al-Wazzan).

There have been a number of recent authorities which have summarised the general principles referred to conveniently at paragraph 22 of Al-Wazzan.

I note from Berkeley Square at [46] that:

I note however the qualification in Al-Wazzan at [23], referring to Various Airfinance Leasing Companies and anor v Saudi Arabian Airlines Corpn [2021] EWHC 2904 (Comm), that:

I also note the following passages from the judgment of Males J in Ardila Investments NV v ENRC NV [2015] EWHC 3761 (Comm) referred to at [25] of the judgment in Al-Wazzan:

It is clear that for practical control to be established there must be evidence of an arrangement or understanding, or that the circumstances must allow the court to draw such an inference.

For the claimants it was submitted that the nature of the relationship may well be relevant and here it was a relationship of client and independent professional advisor as in Al-Wazzan at [28]:

The history of the provisions of the recordings to date is set out in the witness statement of Mr Baker. I note in particular paragraphs 24 and 25:

It was submitted for Deutsche Bank that Mr Baker confirmed that Saranac "has, to date, complied in full with all requests", that it "did not resist or refuse those requests", has been "highly cooperative" and has "not withheld” any documents.

However, in my view, the selective quotes from the witness statements of Mr Baker need to be read in context. I note in particular paragraphs 27 to 30 of Mr Baker's witness statement:

It was submitted for Deutsche Bank that PHG relied on the fact that Saranac instructed its lawyers, Proskauer, to review the Saranac Recordings for relevance, and initially objected to providing certain other documents, but that the initial objections evaporated when PHG did not agree with them, and that this was an indication that PHG has practical control.

In my view, the fact that Saranac initially instructed Proskauer to review the documents indicates that it did not regard the claimants as having a right of access, and there was no agreement or understanding for access. As was submitted for the claimants, the approach which Saranac took in employing its lawyers was close to a “shadow” non-party disclosure application. The view taken by the claimants can be seen in the correspondence between QE and HSF:

The fact that Saranac subsequently allowed the claimants to have additional recordings without further review does not change the inference that Saranac was providing the recordings voluntarily, and regarding the process as equivalent to a third party disclosure application. The subsequent absence of review merely reflects the fact that Saranac subsequently took the view that they were not best placed to determine the relevance.

It was submitted for Deutsche that the “practical reality” is that Saranac was willing to provide the Saranac Recordings, and it is unsurprising that an advisor would agree to provide its client with the Saranac Recordings.

In my view, the willingness of Saranac to co-operate with PHG as its client was subject to the limitations set out in the evidence of Mr Baker referred to above and, as the claimants submitted, it thereby potentially sought to avoid the need to go to court. This is not the same as having an arrangement or understanding that the claimants could access the Recordings.

The cooperation was clearly on terms that it was through its lawyers and with its costs being paid. I refer in particular to the email of Ms Johal, Saranac’s Head of Legal, on 30 November 2023 which implicitly refers to the requirements of CPR31.17:

Further, the correspondence shows that the Saranac Recordings were being provided on a voluntary basis, and this was the approach that was reflected in the correspondence between the lawyers for the claimants and Deutsche Bank.

I note in particular the correspondence at page 679, 683 and 724 of the application bundle and the fact that subsequently Deutsche Bank took the view that if there was no cooperation on a voluntary basis, a court application might be brought:

It was submitted for Deutsche Bank that Mr Baker had not disputed in his evidence that PHG has practical control, rather, he said:

In my view it is understandable that Saranac did not feel it necessary to address in its evidence the argument of practical control, which is clearly relevant to the application against the claimants but not of direct relevance to Saranac's response to the Third Party Disclosure Application.

Nevertheless, in the Saranac evidence (as referred to above) there is clear evidence as to the circumstances in which the recordings were made available, and thus to the extent to which it could be said there was practical control.

In the context of responding to the Third Party Disclosure Application against it, I note that Saranac have raised practical objections to further recordings being searched for as well as that the conversations will contain irrelevant material. That, in my view, does not suggest an understanding or arrangement to allow the claimants access.

In my view, having regard to the principles stated in the authorities, but noting that each case is fact-specific, there was no arrangement or understanding in this case that the claimants should have access to the Saranac Recordings.

There was no relationship, other than that of client and professional advisor, from which to infer any arrangement or understanding. Saranac is an independent, private investment office, serving high net worth individuals and families. Its task and its role is to provide advice to its clients.

Saranac were co-operative, but that cannot be said to have resulted in the creation of an arrangement or understanding that the claimants had a right to access the Saranac Recordings in the sense of being able to exercise practical control. Saranac made it clear that their rights were expressly reserved and the Saranac Recordings were provided in the spirit of cooperation. Saranac were not prepared to give unfettered access.

For all these reasons, as discussed above, I therefore find that the claimants do not have practical control over the Saranac Recordings.

Accordingly, it is not necessary for me to consider whether the test in paragraph 18.2 is satisfied. However, if I were wrong on the issue of control, I would have refused the Application for Further Disclosure as not reasonable and proportionate.

I note that originally the Application for Further Disclosure was made under both paragraphs 17 and 18 of the Practice Direction, but that only paragraph 18 was pursued orally. Pursuant to paragraph 18, there are two limbs to the test: the court must be satisfied that the further order for disclosure is "necessary for the just disposal of the proceedings” and is “reasonable and proportionate", having regard to the factors which are set out in paragraph 6.4 of the Practice Direction.

Looking at those factors in paragraph 6.4, I accept that this is a complex case, that it is an important case, with a very significant amount at stake. However, the court is also required to consider “the likelihood of documents existing that will have probative value in supporting or undermining a party’s' claim or defence”, the number of documents involved, and the ease and expense of searching for and retrieval of any particular document.

As to the likelihood of documents existing that will have probative value in supporting or undermining a parties' claim or defence, Deutsche Bank submitted that the documents are clearly relevant, and submitted that this had been conceded in correspondence. Deutsche Bank stressed that the issue of sophistication on the part of the claimants was an important component of the case.

It was submitted for Deutsche Bank that the Saranac Recordings would also be relevant to other issues in the DRD such as issues of causation, and to the financial position of the claimants (paragraph 44 of the Particulars of Claim).

It was accepted for Deutsche Bank that the misrepresentations that were alleged were only until August 2018 but it was submitted for Deutsche Bank that they are still relevant to the earlier period and that “unguarded” audio recordings of calls could be “pivotal”. Deutsche Bank submitted that for example a transcript which has been disclosed (a call between Salvador Ortiz and Maria Jose Porta on 2 August 2018) shows that PHG was aware of the fees implicit in a transaction, and thus it should be able to get other documents on this key point.

It was submitted for Deutsche Bank that some documents which have already been disclosed are clearly relevant to the issue of sophistication and the documents sought may be relevant to other issues such as causation and the financial position of the claimants. However, the order which is now sought for further disclosure is, in effect, concerned with the balance of the documents which have not yet been disclosed. Relevance is not enough to satisfy the test under the Practice Direction. There must be a likelihood of those documents existing which have probative value. In this regard I take into account the process which has already been undertaken and which is described in Mr Kitchen's witness statement.

The process commenced in November 2023, when QE provided Saranac with the numbers of all the claimant representatives listed in the Joint Disclosure Review Document. This is described as the most expansive list of telephone numbers of the claimants' representatives that QE had at that time. The witness evidence (Kitchen paragraph 33) is that Saranac located the recordings that were then requested and searched for the calls across the call recording platforms available to it across the full period. The further searches are set out in paragraph 49 of Mr Kitchen's witness statement.

The overall process is summarised at paragraph 68 of Mr Kitchen’s witness statement:

Having regard to the searches that have already been carried out, I am not persuaded that the further order sought can be said to reasonable and proportionate. The KYC compliance matters and purely administrative conversations are not, in my view, likely to have probative value. Although there may be other calls which are relevant to the issue of sophistication, the likelihood has to be weighed against the searches already carried out. The fact that documents which are relevant and may have probative value have already been identified does not, in light of the nature of the searches already carried out (and described in the evidence referred to above) establish a likelihood that further calls with probative value will be identified. I am not persuaded that on the evidence before the court, that the likelihood of documents existing which have probative value in relation to the other issues has been established.

I also have regard to the evidence of Mr Bains. It seems to me that there is the very practical issue on the evidence, which has ramifications in terms of time and costs, as to how further searches for calls could be proportionately carried out over and above the searches which Saranac have already made. The submission for Deutsche Bank that Saranac could be ordered to seek information on calls made from a third party telecom provider goes beyond searches for documents that are within its control and beyond the scope of the current application for disclosure of the Saranac Recordings.

In order for an order to be made under the Practice Direction paragraph 18.2, the court also has to be satisfied that an order is necessary for the just disposal of the proceedings. There is an overlap with the issues referred to above as to whether in the light of the searches already conducted, documents exist which are relevant to the issues in this case. I also note in relation to the time periods that Saranac only became involved in 2018. This does, in my view, affect the potential relevance of the documents. Although it may be relevant to the period around 2018, it is difficult to see that it will be relevant to the earlier periods which date back as early as 2013 and 2014.

For these reasons, had it been necessary to decide the further issue of whether or not the order should be made under paragraph 18, I would have dismissed the Application for Further Disclosure on the basis that Deutsche Bank has not satisfied the court that the order is necessary for the just disposal of the proceedings or that it is reasonable and proportionate in the circumstances, but in any event the Application for Further Disclosure fails on the issue of control.

Turning to the Third Party Disclosure Application, I note that Saranac expressed itself to be a neutral party, and stated that, in principle, it did not object to being ordered to conduct a reasonable search; however, it raised questions with the court as to whether or not the order sought did in fact comply with CPR 31.17.

Subparagraph (3) of CPR 31.17 states:

It was common ground that third party disclosure is the exception and not the rule and that the word “likely” in this context means “may well” (Three Rivers (No 4) [2003] 1WLR 210 per Chadwick LJ at 32).

Counsel for Saranac submitted that where disclosure of a class of documents is sought, each document in the class must satisfy the threshold condition of CPR 31.17(3): Three Rivers (No. 4) at [38]:

Counsel for Saranac also referred the court to the commentary in Hollander on Documentary Evidence (Fourteenth edition) at 3-13, in relation to the proposition that each document in the class must satisfy the threshold requirement:

It was submitted for Saranac that there will inevitably be numerous recordings amongst the Saranac Recordings that cannot assist Deutsche Bank, or adversely PHG, and therefore do not satisfy the test in subparagraph (3)(a). Saranac referred to the witness statement of Mr Baker at paragraph 40:

It was submitted for Saranac that the range of services provided by Saranac were listed by Mr Corrie in his first witness statement: Strategy (Planning, governance and oversight), Investments (Allocation and deployment of capital), Financing (Access to diverse sources of capital) and Corporate Advisory.

It was submitted for Deutsche Bank that the test is whether each document in the class “may well” be relevant: that test can be met even if it is likely that some will turn out not to be. Failed calls are de minimis and can be put aside. Calls addressing KYC issues or trades with other banks are likely to (may well) be relevant to the issue of sophistication or to issues such as the claimants’ financial position.

It was submitted for Deutsche Bank that in Parker v Skyfire Insurance [2024] EWHC 1060(KB) Dias J did not express any concern that non-party disclosure of audio recordings should be refused because the category might include some calls with no individual intrinsic relevance.

It seems to me that the issue in this case is not the degree of likelihood and whether the documents “may well” support Deutsche Bank’s case but whether all the documents sought can be said to be relevant at all. Whilst it may be the case that the conversations that relate to failed calls or calls between receptionists and secretaries may be disregarded as de minimis, in my view it is doubtful whether those calls which are said to relate to administrative matters, including KYC compliance matters, satisfy the test. More significantly I cannot see that calls which do not relate to derivatives trading at all satisfy the test that the documents may well support/adversely affect Deutsche Bank’s case. It seems to me that on the evidence, Saranac's role in relation to PHG clearly went beyond advice in relation to derivatives trading and extended to a number of other matters. Skyfire does not provide authority for the proposition that where the class of documents includes documents that are irrelevant to the issues, disclosure can nevertheless be ordered under CPR 31.17. In my view this is the exception identified in Three Rivers:

In my view Deutsche Bank has not demonstrated that the relevant test (that the documents of which disclosure is sought are likely to support the case of the applicant or adversely affect the case of one of the other parties) has been met. For the reasons discussed above, I reject the submission that the Saranac Recordings can be regarded as a class of documents which should be available as a whole.

Turning to the requirement in subparagraph 3(b) (disclosure is necessary in order to dispose fairly of the claim) the considerations here reflect the earlier observations in relation to the Application for Further Disclosure against the claimants.

The main phone numbers, if not all the phone numbers, have already been identified and disclosure made. Extensive searches, in my view, have already been made, for calls across the relevant period.

Deutsche Bank submitted that there should be more, pointing to the number of recordings that have been disclosed. It seems to me that no support can be derived from a purely numerical analysis in light of the approach that has been taken to identify the relevant numbers and the dates of the calls.

Even if both limbs were satisfied, the court has a discretion, having regard to all the circumstances, and in this case it seems to me there is the very practical issue on the evidence, which has ramifications in terms of time and cost, as to how further searches could be proportionately carried out over and above those searches which it is clear Saranac has already done.

In all the circumstances, therefore, I am not satisfied that the test for third party disclosure in subparagraph (3) of CPR 31.17 has been met and, even if it were, I would exercise the court's discretion and decline to make the order sought.

The Third Party Disclosure Application is therefore refused.