National Westminster Bank Plc v Rabobank Nederland [2006] EWHC 218 (Comm)

2004 Folio No 68[2006] EWHC 218 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Date 3rd February 2006
Court No 4
TCC Court
St Dunstans House
London EC4A 1HD
Before
MR JUSTICE AIKENS
Between
NATIONAL WESTMINSTER BANK PLCClaimant-v-
Between
RABOBANK NEDERLANDDefendant
Computerised Transcript ofSmith Bernal Wordwave Limited190 Fleet Street London EC4A 2AGTel No: 020 7404 1400 Fax No: 020 7831 8838(Official Shorthand Writers to the Court)
Anthony Zacaroli Esq (instructed by Travers Smith ) for claimantJeffrey Chapman Esq (instructed by Morgan Lewis) for defendantDaniel Toledano Esq (instructed by Barlow Lyde & Gilbert ) for intervener Price Waterhouse and Coopers & Lybrand UK and US
JUDGMENT3rd February 2006
[1]I have to deal with an application by Price Waterhouse and Coopers & Lybrand UK and US, dated 6th January 2006. By this application, the UK firms, Price Waterhouse and Coopers & Lybrand and the US limited liability partnership of PriceWaterhouseCoopers LLP, ask the court to restrain the defendant in these proceedings, who I will call Rabobank for short, from permitting the claimant, who I shall call NWB for short, from inspecting various categories of document identified in the schedule to the draft order.[2]The relevant categories are now limited to five that are in dispute. Categories 1 and 2 relate to audit documents of Coopers & Lybrand. Categories 4 and 5, relate to depositions of Coopers & Lybrand witnesses in proceedings in California. Category 6 relates to evidence and underlying documents of an expert in the same Californian proceedings.[3]This application is made pursuant to an order that I made, dated 2nd December. It arises out of affairs which go back to 1996.[4]I described the background to the current action in a judgment I gave on an application for summary judgment in this case, which judgment I gave in June last year. I will therefore describe the background only insofar as I need to for the purpose of the current application.[5]These proceedings arise out of loans which were originally made by Rabobank and NWB to a group of companies called the Yorkshire Food Group in 1996. I will call that group YFG. YFG defaulted on the loans. The two banks put YFG into what was described as "workout mode". The dispute with which I am currently concerned arises out of what did or did not happen whilst YFG was in "workout mode" in the period from November 1996 to September 1997.[6]Eventually, Rabobank New York bought out all of NWB's share in the interest of the original loan. That was all done in a Deed of Transfer dated 15th October 1997. Rabobank then tried to save YFG but it failed to do so and YFG went into receivership in December 1997. Rabobank lost a lot of money in consequence of YFG failing. Those losses have given rise to a number of sets of litigation.[7]First, there was litigation by Rabobank and an associated bank, Utrecht, against NWB in California. That raised a large number of claims. All of those were eventually dismissed on the merits, save for one which was dismissed on forum non conveniens grounds by the California courts.[8]Secondly, NWB sued Utrecht in England. The object of those proceedings was to restrain the Californian proceedings. Mr Peter Gross QC, as he then was, refused to grant a stay. His judgment was upheld by the Court of Appeal.[9]Thirdly, there is the present action which was begun by NWB on 30th January 2004. That claimed an indemnity against Rabobank in respect of the costs of the Californian proceedings. Rabobank counterclaimed in this action and it is Rabobank's counterclaim which gives rise to the current application.[10]There was a fourth set of proceedings in California which were between Rabobank and the current applicants, that is to say PW, CLUK and PWCUS. In those proceedings, documents were disclosed or generated in that litigation, which took place in San Francisco. Those proceedings have now been settled. The documents with which I am concerned in the current application are all covered either by a protective order issued by the court in the San Francisco proceedings, or by an express duty of confidentiality agreed contractually between Rabobank and the applicants. The protective order grants confidentiality but there is, as it were, a "let-out" clause in that the documents may be produced if there is a compulsory order of a court.[11]Going back to the current proceedings and the counterclaim of Rabobank, as I have said, the allegations which Rabobank raise concern the "workout" period in late 1996 to about October 1997. Rabobank alleges that the two banks, in working together for a common goal of trying to resuscitate YFG, owed each other fiduciary duties. Therefore, Rabobank alleges, each bank owed the other a duty to give full and fair disclosure of all information relevant to those common goals. Rabobank alleges that, contrary to this duty, NWB decided that it would not disclose to Rabobank or to Price Waterhouse, its accountants, a large number of facts and matters.[12]These matters revolved around the setting up and financing of almond farms in the United States of America by YFG subsidiaries in the United States and by the directors and officers of YFG. It is alleged by Rabobank that the directors of YFG were involved in actual or potential breaches of duty towards their companies. In particular, it is alleged that there were breaches of duty in that the directors used money of YFG subsidiaries to fund the purchase of the almond farms for the benefit of the directors themselves.[13]Particulars have been given in relation to this allegation. They are set out in the most recent document, which is dated 16th December 2005, at paragraph 26.5. Other allegations are made, but I do not think that I need to go through those for present purposes.[14]Rabobank asserts that as a result of this failure of NWB to inform it of these matters which it asserts NWB knew, Rabobank was lulled into a false sense of security and it went ahead and gave money to NWB and entered into the Deed of Transfer. The consequence of that, Rabobank asserts, is that it has lost a huge sum of money. On the current count, the claim is for something over 200 million United States dollars.[15]After the application for summary judgment by NWB which I dismissed in June 2005, I gave orders for the progress of the case towards a trial. That included an order as to discovery.[16]The question of what should happen in relation to documents which had been produced in the proceedings between Rabobank and the current applicants was raised and dealt with at a CMC that I held on 2nd December 2005. On that occasion, Mr Toledano, who represents the applicants today, also appeared. The arrangement that was put in place was that Rabobank should list all "relevant" documents that had been produced in those proceedings, by which I mean relevant to issues in the current trial. Then the applicants should have the opportunity to ask the court to make an order which would restrain the production and inspection of those documents, if they were so advised to do. That is how the application of 6th January 2006 comes about.[17]Rabobank's solicitors have produced various versions of a list as to what documents are relevant in the current proceedings. The first list was produced on 26th October 2005. That list alone was 210 pages long in relation to one set of documents and 250 pages in relation to another set. A second list was produced on 9th December 2005, which was much reduced. A third list was produced under cover of a letter from Rabobank's solicitors, Morgan Lewis, on 31st January 2006. That is only some 23 pages long. I am told by Mr Chapman, who appears on behalf of Rabobank today, that that is the relevant list and that the documents referred to consist of some 1,800 pages in all. That equals six ring binder files of documents.[18]Those documents are the audit documents of Coopers & Lybrand. They only concern a small area of work by Coopers & Lybrand. In effect, they relate only to two US subsidiaries of YFG, that is YFI and Treehouse, and the transactions concerning those companies.[19]Now, it is said on behalf of Rabobank that it was right to list those documents as being relevant, because those documents prove a negative. The documents demonstrate, Rabobank says, that the breaches of duty by directors of YFG were not recorded in the audit work relating to any Yorkshire company. This, it is said, is relevant because it establishes that Rabobank, in contrast to NWB, did not know that such payments were made to fund and develop the almond farms and Rabobank could not have found this out by reviewing the audits. Therefore, it is said by Rabobank, these documents are relevant in this way.[20]NWB, who is anxious to have inspection of any relevant Coopers & Lybrand documents, says that these documents will be relevant in another way. They say the documents will be relevant to the question of the purpose for which various payments were made. If the purpose was one which was for the benefit of a Yorkshire company itself, then that will demonstrate that there was no breach of fiduciary duty by directors. On the other hand, Mr Zacaroli, who appears on behalf of NWB, accepts that if the documents were to reveal that there were some other purpose, which was for the benefit of YFG directors, then that would tend to demonstrate that there was a breach of fiduciary duty.[21]The problem is that the documents themselves have not, so far as I can see, been analysed in any detail. I do not blame Morgan Lewis for this, because there are a vast number of these documents. However, in their letter of 31st January 2006 to Barlow, Lyde & Gilbert, who are the solicitors for the applicants, Morgan Lewis say this, at the second page of the letter:
"The suggestion by Travers Smith that there are documents relevant to the almond farms in the audits is incorrect. The documents as we explained in our letter dated 12th January 2006, merely confirm a negative, namely that the payments in respect of the almond farms are not in the audits."
[22]I infer from this that, insofar as Morgan Lewis have examined the 1,800 pages in the list of 31st January, they have not discovered any documents which are relevant to payments made in respect of the almond farms which are said to found the allegation of breach of fiduciary duty by directors of the Yorkshire companies.[23]Now, that is the state of play so far as the documents are concerned. How should I approach this application? Under the order which I have made, the parties are to give standard disclosure. Standard disclosure requires a party to disclose only the documents on which it relies and the documents which adversely affect his own case, or adversely affect another party's case or support another party's case; that is according to CPR, 31.6. Accordingly, Rabobank are obliged not to disclose any document on which they do not rely, or which do not adversely fact their own case, or which do not adversely affect another party's case, or which do not support another party's case. Once there has been disclosure of relevant documents in the sense I have just described, then the other party is entitled to inspect that document under CPR 31.3. However, there are exceptions to that rule, in particular, under 31.3(1)(b) of the CPR where the party disclosing the document has a right or a duty to withhold inspection of it.[24]The argument here of the applicants is that Rabobank has a duty to withhold inspection of it because of the duty of confidentiality to which I have already adverted. If such a point is raised, then the court has to deal with it under CPR 31.19. Normally, this is in the context of a party claiming to withhold inspection, but CPR 31.19 (vi) does permit the court to invite any persons, whether or not a party, to make representations. And it is effectively under that rule that the applicants are here today. Mr Toledano accepts that effectively, what he is seeking is an injunction to uphold the confidentiality right.[25]Now, in those circumstances, it seems to me that the first question I have to ask is: are the documents which Rabobank has listed and which it wishes to disclose and produce for inspection, and which NWB wishes to inspect, relevant to any issues in the proceedings?[26]The basic issue in the case (for these purposes) is whether or not NWB failed to tell Rabobank of breaches of duty by directors of the Yorkshire Group companies.[27]There is no allegation in the pleadings that Coopers & Lybrand were, as it were, to be regarded as part of NWB for this purpose. It is not suggested that the knowledge of Coopers & Lybrand is to be imputed in some way, or attributed in some way, to NWB.[28]Therefore, these audit documents can only be relevant if in some way they can demonstrate both that there was a breach of fiduciary duty, and that somehow, NWB learned of it and then failed to disclose it. On what I have been told of these documents in the audit files, it seems to me highly unlikely that they can be relevant to those issues.[29]I emphasise that I have not seen these documents, of course. Rabobank has, and Coopers & Lybrand know what they are. NWB has not. I must therefore be guided by what I have been told is in these documents. In that respect, I must rely, it seems to me, on the Morgan Lewis letter of 31st January 2006. That says in plain terms that there are no documents relevant to the almond farms in the audit.[30]Accordingly, I cannot see how these documents are relevant. It is suggested that they may be relevant because these documents may have something in them which is along the following lines:(1) Those doing the audits for Coopers & Lybrand found that there were various payments made in relation to the almond farms, or that there were assignments by YFI in relation to almond farms, or that there were leases in relation to those properties.(2) It is suggested that it may be that there is something in those documents which indicates that the auditors asked questions of various people, including directors, about these activities.(3) It is suggested that maybe there is something in the documents which indicates what the auditors were told and the auditor's reaction to it. That, it is argued, may help on the question of whether or not there was a breach of duty.[31]However, that seems to me to be fanciful. I say it is fanciful for two reasons. First of all, because of the statement in the Morgan Lewis letter. Secondly, because if there was anything of that nature, it would have turned up in the audit statements that were made. But nothing does; and that is common ground.[32]I appreciate there have been long proceedings in California about the competence of Coopers & Lybrand in conducting the audits, but short of there being wholesale fraud on the part of Coopers, it seems to me that if there were those kind of statements in the underlying papers, they would be bound to be reflected in the audit reports unless there was a wholly satisfactory statement from the directors and even then, I would have thought that that is something that would be reflected in the audit statements.[33]Accordingly, on the evidence that I have, I have come to the conclusion that in relation to categories 1 and 2, those documents are not relevant to issues which are pleaded.[34]Even if I had thought they were, it is the court's duty when considering the question of an application for disclosure, to consider the question of proportionality. That is plain from a decision of the Court of Appeal in the case of Simbatola v Trustees of the Elizabeth Fry Hostel and others. In the judgment of

Lord Justice Keen at paragraph 22, the learned Lord Justice says:

"Proportionality is an important principle in the area of disclosure as one can readily see from the expressed reference to it in part 31.3.2. In accordance with that principle the court, in exercising its discretion under part 31, may properly take into account the fact that the document sought would provide no additional information or no significant amount of additional information beyond that readily available to the other party and to the court. It would not be proportionate to order a disclosure and inspection of documents which, insofar as they are relevant at all, very largely duplicate what is already available."
[35]That, I am certain, is a matter which I should take into account in the context of the present application, which is one where Mr Toledano submits that the balance should be in favour of maintaining the documents' confidentiality; and that balance can only be overcome by the parties to the action demonstrating that these documents are not only relevant but it is proportionate to give inspection.[36]For the reasons I have given, neither of those tests is satisfied.[37]So far as categories 4 and 5 are concerned (the depositions), it seems to me that those are at one stage removed from the underlying documents. If the underlying documents on which the depositions are based are not relevant or they should not be inspected, then it seems to me the same must be true of the depositions. Proportionality perhaps is an even more important element here.[38]So far as the evidence of the expert, Mr Regan, is concerned (that is category 6), in my view that category should not be inspected. First of all, his own opinion is going to be utterly irrelevant in the present context. Secondly, insofar as there are underlying documents on which he based his opinion, it is common ground that if those are YFG documents, then they must be disclosed anyway. I cannot see that any other documents which are work product of Mr Regan could possibly be relevant in the present case.[39]The last category is category 7, which is the settlement agreement. It is agreed that the amount of the settlement is relevant and should be inspected.[40]There is an issue about how the amount of the settlement is apportioned in respect of different causes of action which were asserted in the Californian proceedings. I understand that that issue can be dealt with in a way that is satisfactory to all parties. And that is what I will assume will be done.[41]For those reasons, therefore, except to the small amount I have indicated concerning the settlement agreement, the application of the Coopers & Lybrand succeeds and is granted.