|
|
Lord Justice Rix:
|
| 1. |
This is an appeal
about pre-action disclosure. It arises in the context of heavy prospective
litigation in the Commercial Court concerning a possible claim for unlawful
conspiracy to manipulate markets and/or breach of articles 81/82 of the Treaty
of Rome. The prospective claimants, Mr Herbert Black and his companies ("Mr
Black"), say that they have suffered losses amounting to at least $126 million.
|
| 2. |
In the court
below Michael Brindle QC, sitting as a deputy high court judge, ordered 9
categories of pre-action disclosure against prospective defendants Sumitomo
Corporation and other companies in the Sumitomo group ("Sumitomo"). Sumitomo
appeals.
|
| 3. |
The power to
order pre-action disclosure arises out of section 33(2) of the Supreme Court
Act 1981, as amended in by the Civil Procedure (Modification of Enactments)
Order 1998 pursuant to the Civil Procedure Act 1997Acts so as to extend the power
from cases in respect of personal injury or death to all cases. The extension
was recommended by Lord Woolf's report on Access to Justice (July 1996, see
section III paras 47/52) and came into force at the same time as the CPR regime
in general on 24 April 1999. The procedure is now governed by CPR 31.16.
|
| |
Section
33(2) of the Supreme Court Act 1981Acts
|
| 4. |
Section 33(2)
provides as follows:
|
| |
| |
"On
the application, in accordance with rules of court, of a person who
appears to the High Court to be likely to be a party to subsequent proceedings
in that court, the High Court shall, in such circumstances as may be
specified in the rules, have power to order a person who appears to
the court to be likely to be a party to the proceedings and to be likely
to have or to have had in his possession, custody or power any documents
which are relevant to an issue arising or likely to arise out of that
claim--
| | |
| (a) |
to
disclose whether those documents are in his possession, custody
or power; and
| | (b) |
to
produce such of those documents as are in his possession, custody
or power to the applicant..."
|
|
|
| |
CPR
31.16
|
| 5. |
CPR 31.16 provides
as follows:
|
| |
| "(1) |
This
rule applies where an application is made to the court under any Act
for disclosure before proceedings have started.
| | (2) |
The
application must be supported by evidence.
| | (3) |
The
court may make an order under this rule only where--
| | |
| (a) |
the respondent is likely to be a party to subsequent proceedings;
| | (b) |
the applicant is also likely to be a party to those proceedings;
| | (c) |
if proceedings had started, the respondent's duty by way of standard
disclosure, set out in rule 31.6, would extend to the documents
or classes of documents of which the applicant seeks disclosure;
and
| | (d) |
disclosure before proceedings have started is desirable in order
to--
| | |
| (i) |
dispose fairly of the anticipated proceedings;
| | (ii) |
assist the dispute to be resolved without proceedings; or
| | (iii) |
save costs..."
|
|
|
|
| |
The
Hamanaka affair
|
| 6. |
The background
to these proceedings is the Hamanaka affair. On 13 June 1996 Sumitomo, the
world's largest copper trader and a major user of copper in its own operations,
announced that it had dismissed its chief copper trader, Mr Yasuo Hamanaka,
the general manager of its non-ferrous metals division, on the ground of his
unauthorised trading activities. Sumitomo said that over the previous ten
years such activities had lost it US $1.8 billion. It is not clear whether
that figure represented only liquidated losses to date or included an estimate
of the cost of unwinding Sumitomo's current copper positions, but probably
the latter.
|
| 7. |
Those positions
were huge. Mr Hamanaka had in effect attempted to corner the world's copper
market. There is evidence that as of that time Sumitomo was "long" (ie was
the net purchaser) of about 1 million tonnes (40,000 lots) of copper futures
and warrants and had also sold put options for a further 1 million tonnes.
The sale of a put option gives its buyer the right but not the obligation
to sell copper at the strike price. These totals, albeit they represented
obligations running into the future, dwarfed the amount of physical stocks
held in the warehouses of the world's leading copper markets such as the LME.
A subsequent report by the CFTC (USA's Commodity Futures Trading Commission)
dated 11 May 1998 put the matter like this:
|
| |
| |
"Sumitomo
through its agent or agents intentionally acquired and maintained a
dominant and controlling position in both the physical supply of deliverable
LME warehouse stocks and in maturing LME futures positions. At various
times within the period in question Sumitomo owned virtually all deliverable
LME copper stocks. These positions were not intended to meet Sumitomo's
legitimate commercial needs. The intent motivating the acquisition and
control of both the cash market positions and the futures market positions
was expressly to create artificially high absolute prices. Sumitomo
deliberately exploited its market dominance in order to profit when
market prices became artificially high as Sumitomo had foreseen and
planned."
|
|
| 8. |
Although Mr
Hamanaka's dismissal was announced on 13 June 1996, the regulatory authorities,
the CFTC and in the UK the SIB (Securities and Investment Board), had began
to investigate the manipulation of copper prices in October 1995. Those investigations
led to Sumitomo's suspension of Mr Hamanaka on 8 or 9 May 1996. In early June
he confessed to his ten-year rogue trading scheme and revealed the positions
which he had hidden from his management. On 13 June there was a meeting, convened
at Sumitomo's request, in Washington DC with representatives of the CFTC and
the SIB. Sumitomo's evidence is that at that meeting Sumitomo explained "the
three pillars" of its policy: full cooperation with government authorities;
the maintenance of orderly markets; and reduction of Sumitomo's positions
without severe market disruption. The regulators were equally concerned to
maintain orderly markets. The regulators recommended Sumitomo to seek professional
guidance about liquidating its positions. The press announcement of that day
was agreed. It spoke of Sumitomo's intention to cooperate with the authorities
and to help to ensure "a stable and orderly copper market in consultation
with the London Metal Exchange". In a further press release made the same
day Sumitomo confirmed, at CFTC's request, that it would honour all Mr Hamanaka's
dealings, regardless of whether they were authorised. Sumitomo retained Goldman
Sachs to assist in the liquidation process, and on 18/20 June transferred
the majority of its open positions to a special Goldman Sachs account. At
the regulators' further request, an open and direct line of communication
was authorised between the regulators and LME on the one hand and Goldman
Sachs on the other, so as to permit the former to monitor the liquidation
process.
|
| 9. |
On 11 May 1998
Sumitomo and the FSA (the Financial Services Authority, as the SIB had by
then become) entered into an agreement under which the FSA agreed not to proceed
further against Sumitomo and Sumitomo agreed voluntarily to pay £5 million
"towards the FSA's time, effort and expense". The agreement annexed an agreed
press statement which contained the following passage:
|
| |
| |
"In
reaching today's agreement, the FSA recognises that Sumitomo has given
prompt, valuable and extensive co-operation following Hamanaka's confession
in June 1996. Sumitomo agrees to assist the FSA in the finalisation
of its investigations.
| | |
"The
FSA has also received substantial co-operation in investigating and
dealing with the Hamanaka affair from relevant authorities on a world-wide
basis, in particular from the [CFTC] in the USA and from the Tokyo District
Public Prosecutor's Office in Japan; and in the UK from the Securities
and Futures Authority ("SFA") and the [LME]."
|
|
| 10. |
Also on 11 May
1998 the CFTC published its findings in relation to the Hamanaka affair in
the form of an order. The order recorded that Sumitomo's conduct had satisfied
all the requisite elements of the offence of price manipulation, and while
acknowledging Mr Hamanaka's acts of deception and the losses suffered by Sumitomo
amounting by then to $2.6 billion, agreed with the Japanese court which had
sentenced Mr Hamanaka to eight years imprisonment that Sumitomo's inadequate
management control had been one of the causes of the debacle. Sumitomo offered
to pay and was ordered to pay a civil monetary penalty of $125 million plus
a further $25 million to be available as restitution of damages caused to
private claimants prior to 30 June 1996. The order also commended Sumitomo's
substantial cooperation and provision of information.
|
| 11. |
In a further
order dated 20 May 1999 the CFTC made allegations concerning co-conspirators
in the manipulation. They included a company based in New York called Global
Minerals and Metals Corp ("Global") and its principal Mr David Campbell. The
order charged that the conspirators were knowingly assisted in their scheme
by Merrill Lynch. The order set out detailed allegations as to the mechanisms
of the manipulation. By an order dated 30 June 1999 Merrill Lynch settled
the proceedings against it, without admission or denial, on payment of $15
million.
|
| 12. |
The Hamanaka
affair has led to many private suits against Sumitomo, numbering something
more than 20. Sumitomo has also been a claimant in still further proceedings,
eg in this country in Sumitomo Corporation v Credit Lyonnais Rouse Ltd[ [2001] 2 Lloyd's Rep 517]. A passage in this court's judgment in that
case describes the state of Sumitomo's documentation and thus is relevant
to the present appeal:
|
| |
| "6. |
From late December 1995 to mid-June 1996 PW [Sumitomo's US attorneys]
assembled a large amount of documentation to assist Sumitomo and its
US subsidiary in responding to the CFTC subpoena. This process continued
following Mr Hamanaka's confession. It included what was described in
evidence as "a comprehensive document collection exercise" at Sumitomo's
offices in Tokyo and at its subsidiaries' offices in New York, Hong
Kong and London. This exercise resulted in the assembling of some 6.9
million pages of documentation, mostly in Japanese. The next step was
for a team of about 30 lawyers from PW, assisted by translators, to
carry out a review of each document in this collection to determine
whether and to what extent it was or might become relevant to the current,
or any future, investigations and proceedings arising out of Mr Hamanaka's
unauthorised activities. Based upon this review, PW lawyers selected
certain documents for inclusion in a computerised litigation database
("the PW database"). About 4 per cent of the totality of the documentation
was imaged onto the PW database.
| | "7. |
As part of this review process, which continued until 1998, PW commissioned
English translations of some 5,000 selected documents (about 30,000
pages, representing some 0.4 per cent of the totality of the documentation)..."
|
|
| |
Mr
Black's prospective claim
|
| 13. |
Mr Black is
a Canadian metal dealer and copper trader and in this court is the respondent.
He controls one of the largest scrap metal recycling businesses in Canada
(his co-applicant, American Iron & Metal Company Inc). In 1996 he was
an active trader in the LME and Comex copper markets. In early July 1996 he
appears to have given an interview which is reported in Toronto's Financial
Post for 6 July and Dallas's Morning News for 7 July. He is said there to
have sold copper in December 1995 and March 1996 and to have suffered losses
as the price continued to rise. Then in May 1996 he sold again with greater
success. It will be recalled that Mr Hamanaka was suspended about 8 May. The
spot price of copper was then $2840. Mr Black is reported to have made sales
about 17 May. After the announcement of 13 June he made further sales. "I
just felt copper was heading for a fall. I've closed my positions now and
I did well." His profit was "many millions". (A report in The Independent
for 29 June 1996 illustrates the volatility at this time, stating that the
price had collapsed to a 30 month low of $1745 on 25 June but had recovered
to $1943 by 28 June.) He is also reported as saying that his belief was that
the bulk of copper's decline was over for the present and that he expected
three month copper to trade between $1800 and $2200 through to the end of
1996. In early October Mr Black was in London for its annual "Metals Week",
where he addressed a trade lunch, reported in The Guardian for 8 October.
The price on 7 October was around $1920. He is said to have claimed to have
made $30 million selling copper following the announcement of Mr Hamanaka's
unauthorised trading in June and to have predicted that the price of copper
would continue to fall to around $1600 in 1997 and $1400 in 1998. I bear in
mind that such reporting is not necessarily accurate.
|
| 14. |
If
it is true that Mr Black was an unsuccessful short seller of copper in December
1995 and March 1996, he has so far as I am aware brought no claim against
Sumitomo for such losses. His evidence is that following the emergence of
the Hamanaka affair he offered to buy copper from Sumitomo in June 1996, but
that it refused to deal with him. The court has no details of that allegation.
At any rate it gave rise to no claim against Sumitomo at that time.
|
| 15. |
Over four years
later on 21 December 2000 his solicitors wrote a long letter out of the blue
to Sumitomo. It has been referred to as a letter before action. It refers
to the Hamanaka affair and then complains that in the period of June to September
1996 ("the relevant period"), by which I think is meant during that period
following the appointment of Goldman Sachs in mid June, six named individuals
at Sumitomo and a further six named individuals at Goldman Sachs conspired
together to devise and implement a "Plan" amounting to a serious manipulation
of the copper market. In brief what is said is that Sumitomo and Goldman Sachs
continued with the Hamanaka strategy for controlling the market: by taking
delivery of Sumitomo's near term purchases so as to keep the market short
of supply, and by withholding the vast majority of its positions and being
prepared to lend to the market only distantly dated goods, it was able to
maintain the market price at artificially high and manipulated levels, to
Sumitomo's profit and the loss of others in the market such as Mr Black who
had adopted a strategy based on short selling. The letter said that Goldman
Sachs itself made $40 million on its own account, plus its fees of $25 million.
It was "a conspiracy intentionally to injure the business interests of all
market participants who had short positions during the period". The conspiracy
was unlawful because it employed unlawful means in breach of section 47(2)
of the Financial Services Act 1986Acts (which makes it a criminal offence to engage
in "any course of conduct which creates a false or misleading impression as
to the market...for the purpose of creating that impression and of thereby
inducing another" to act in the market in some way). In addition there were
breaches of articles 81 and 82 of the Treaty of Rome because of abuse of the
conspirators' dominant position and collusion to distort competition within
the European Union. The letter then stated Mr Black's financial claim to damages
in a sum of at least $126 million. This was premised on the allegation that
in the absence of manipulation the price of copper would have fallen to at
least $1400 by September 1996. The $126 million was made up in the main of
the loss of the profits of $130 million which Mr Black would have made if
the price had fallen to $1400. In addition there was a claim of nearly $14
million in respect of the losses actually made; but Mr Black was prepared
to allow a credit of over $18 million in respect of losses on "option trading"
which it is said that Mr Black would have incurred if the price had fallen
to $1400.
|
| 16. |
It follows that
the claim is essentially for the failure to secure speculative profits rather
than for realised losses. The reference to an unmanipulated price of $1400
by September 1996 does not sit very easily with what is reported to have been
Mr Black's public predictions as of early July and again as of early October
1996 (see para 13 above).
|
| 17. |
The letter ended
with a request for discovery under CPR 31.16 for "all documents" under various
headings. One of those headings related to the so-called "China Deal", a reference
to an allegedly sham contract between Sumitomo and China for "sale" to China
of 90,000 tonnes ex LME warehouses but in reality for storage out of the way
in Sumitomo's name in China. The requests in effect covered documentation
relating to all Sumitomo's positions and dealings from 1 June to 30 September
1996. I shall have to refer to the China deal in further detail below, because
it is put forward as Mr Black's best evidence of the continuation of market
manipulation into the post-Hamanaka period.
|
| 18. |
The last paragraph
of the letter, headed "Time Limit", requested a response by 31 January 2001
|
| |
| |
"failing which Mr Black will, without further notice, issue either an application
for disclosure under Rule 31.16 ... or a claim form."
|
|
| 19. |
The question
has arisen as to why it took Mr Black over four years to raise this complaint.
It is said on his behalf that it was only in 2000 that he was able to obtain
by means of the US Freedom of Information Act documents which have enabled
him to formulate his case against Sumitomo. On its part, Sumitomo is concerned
lest the timing of Mr Black's complaint has anything to do with the recruitment
of Mr Dennis O'Keefe into Mr Black's employment as of about 12 December 2000
as General Counsel of an affiliate of American Iron & Metal. Up to that
date Mr O'Keefe had been employed as an attorney by the CFTC, where he had
been its lead investigator into the Hamanaka affair. He was the main contact
of Sumitomo's US lawyers throughout the period from June 1996 to late November
2000 pursuant to Sumitomo's commitment to cooperate with the regulatory authorities.
Sumitomo and its lawyers are concerned about the possibility that Mr O'Keefe
has violated US law or his obligations of confidentiality as a lawyer. Mr
O'Keefe has stated that he is well aware of his obligations and that the concern
raised is absolutely baseless. On the other hand the evidence filed on behalf
of Mr Black also confirms that Mr O'Keefe has been assisting in relation to
potential claims and that he "is likely to be reliable and well informed".
|
| |
The
China deal
|
| 20. |
The judge said
that he had detected a coyness on the part of Sumitomo in giving any worthwhile
details about the China deal; and that there were non-fanciful grounds to
suspect that the transaction may not have been a genuine sale at the time
it was entered into nor when subsequently adopted by Sumitomo and Goldman
Sachs. He said it seemed most peculiar and called for explanation.
|
| 21. |
Documentation
concerning the China deal put forward on behalf of Mr Black in support of
his application before the judge appears to date from the period just before
Mr Hamanaka was suspended. A manuscript document contemplates a "Copper Transaction
for China". The significance of the proposal is somewhat opaque but appears
to be as follows. A total of 90,000 tonnes was to be shipped to Shanghai in
May/June 1996, of which 65,200 tonnes were to be supplied initially by Global
to Sumitomo. The delivery to China was to be within the period of June to
December 1996. The cost price to Sumitomo from Global and the sales price
to China would be the LME average price for the relevant month of delivery
or the price for a specified day, but China's purchase was to be spread over
the period from June to December 1996, and it was to have no obligation to
purchase unless the LME price for 3 month futures was $2500 or less. In the
meantime the shipment cost was to be at China's expense on Chinese flag vessels,
and the cost of warehousing in Shanghai pending the take-up of the copper
and the interest on the price were to be at the sellers' risk unless and until
China completed the purchase. If the purchase was not completed, then the
cost of reshipping the copper to Singapore, the warehousing cost in Shanghai
and the burden of interest would all fall on the sellers, Global or Sumitomo,
in proportion to the origin of the goods. The total risk of such sums was
calculated at $14.7 million to Global and $5.6 million to Sumitomo. In addition
there was the risk for the sellers that the price of copper would fall from
its present spot price of $2800 to just above $2500 without China being obliged
to purchase. It was suggested that the deal was a sham, "an attempt to drive
up copper prices by reducing apparently available stocks".
|
| 22. |
It is not clear
to me on the basis of this document why it was suggested in the evidence adduced
on Mr Black's behalf that the China deal there contemplated had actually gone
ahead. Presumably Mr Black had some further information. At any rate, the
response of Sumitomo's evidence came from Mr Vigrass, a partner in its London
solicitors. He said that that the deal had its origin in March 1996 when China
had expressed an interest in purchasing a large volume of refined copper in
the form of LME warrants. There were market rumours that in April 1995 China
had sold 85,000 tonnes of copper to LME warehouses out of its stockpiles and
that China therefore had a real need for copper. A sale had been concluded
for 90,000 tonnes and physical delivery had been taken by China for the whole
of that quantity.
|
| 23. |
In response
to Mr Vigrass's witness statement there was complaint that Sumitomo had not
disclosed any documents to support his evidence that physical delivery had
been taken by China. It was suggested that disclosure of such documents was
desirable to save costs "since, if the Applicants' contentions in relation
to the China Deal are incorrect, that issue will not be pursued any further".
Moreover, China's need for copper was questioned on the basis of a fax dated
29 May 1996 (obtained through the Freedom of Information Act) written to Global
by a senior manager of Sumitomo: this referred to a forthcoming meeting with
the Chinese set for 31 May and to the fact that "we do not have a firm commitment
from CNIEC [the Chinese entity involved] to take copper". I am not sure that
I follow the point being made: perhaps the inference intended was that the
sale was a sham, or possibly that there was no sale.
|
| 24. |
Among the documents
put into evidence at this stage on behalf of Mr Black was a lengthy note of
22 pages of a meeting of 30 May 1996 held at the offices of the SIB. The note
was prepared by representatives of the SIB present at the meeting. Also present
was Mr O'Keefe. Among the items discussed was "a projected sale of approximately
90,000 metric tons to China". It is described as "brought to Sumitomo" by
Global. The note continues:
|
| |
| |
"Sumitomo
is hoping acquire from Global, for onward sale to the Chinese. However,
[Martin London, a partner of Paul Weiss Rifkind Wharton & Garrison,
Sumitomo's US attorneys] stressed that Sumitomo was not guaranteeing
any part of this deal. Rather, it is purely a purchaser and seller of
the copper.
|
|
| 25. |
The note was
briefly referred to in Mr Black's evidence. An additional request was made
for disclosure of any documents disclosing the China deal to the regulatory
authorities.
|
| 26. |
In a second
witness statement Mr Vigrass returned to the subject of the China deal. He
said that it was entered into before June 1996, I suppose thereby indicating
that it fell outside the "relevant period". He also said that, whether profitable
or not, it was an important transaction for Sumitomo since it was eager to
establish and develop a relationship with China and to gain an insight into
its overall trading strategy. He repeated that China had taken physical delivery
of all 90,000 tonnes.
|
| 27. |
When the judge
came to order pre-trial disclosure from Sumitomo he included three categories
of documents specifically related to the China deal, viz (a) documents evidencing
it, (b) documents disclosing it to the regulatory authorities and (c) documents
evidencing physical delivery to CNIEC.
|
| 28. |
There has been
a further round of evidence concerning the China deal, starting on this occasion
with Sumitomo, in the period between the judge's decision and the hearing
of this appeal. Mr Kameoka, who on 9 May 1996 had replaced Mr Hamanaka as
general manager of Sumitomo's non-ferrous products and metals division and
who had also been the author of the fax dated 29 May 1996 referred to in para
23 above, made a detailed witness statement. He said that the deal had been
under negotiation from March 1996, that although Sumitomo would not make a
profit from it, it was a highly coveted opportunity to make a customer of
China and to benefit from a broader relationship with it in the future. It
was concluded in response to CNIEC's request to purchase copper, to replenish
its strategic reserves. It was a legitimate business transaction and not an
attempt to manipulate prices. The contract was executed on 22 May 1996 and
a copy of it was exhibited. 91,000 tonnes was actually delivered under it.
The copper was shipped to Shanghai, where it was stored and called off by
CNIEC in ten instalments between August and December 1996. The instalments
were priced by reference to the LME price on various settlement dates (plus
fixed premiums by reference to the source of the copper) varying between $1959
and $2235. Documents evidencing the calling off of these instalments were
exhibited, and also documents evidencing the reconciliation of accounts between
Sumitomo and Global.
|
| 29. |
The China deal
sales contract exhibited was for a quantity of "approximately" 90,000 tonnes
of LME grade and registered brand copper to be delivered in a Shanghai warehouse
between 1 June and 31 December 1996 provided that CNIEC had first priced the
quantity to be delivered (in quantities of any multiple of 25mt) by reference
to the LME cash settlement price (presumably on a specified day) plus the
premium and had obtained customs clearance. The contract was subject to the
prior receipt of CNIEC's letter of credit. Sumitomo was to bear the warehouse
rent until the tenth day after presentation of negotiable documents and CNIEC
was to bear such rent from 1 January 1997 in any event. There was an addendum
also dated 22 May 1996 dealing with terms which it is not relevant to mention
here.
|
| 30. |
Mr Kameoka's
evidence led to a further witness statement from Mr Rabinowicz, a partner
in Mr Black's London solicitors. The main purpose of this evidence was to
annex a further document obtained by Mr Black by means of the US Freedom of
Information Act. This was a fax dated 16 June 1996 from CNIEC to Sumitomo
headed "Draft Text of Addendum" and annexing the draft in question. The draft,
which was headed with the contract number and date (22 May 1996) of the China
deal contract exhibited by Mr Kameoka, began with the following clauses:
|
| |
| "(1) |
Buyer must accept and pay for all tonnage delivered into bonded warehouse
Shanghai and/or Bayuquan by no later than December 31, 1996, provided
that the LME Grade A copper three month selling price averages US$2500.00m/t
or lower for any consecutive thirty (30) days period after August 1,
1996.
| | "(2) |
In the event of a major, unforeseen disruption of supply that results
in higher LME prices for Grade A copper, Buyer and Seller will discuss
in good faith, but without any obligation, an adjustment in the price
at which buyer must accept and pay for the actual quantity delivered
into bonded warehouse in China by no later than December 31, 1996."
|
|
| 31. |
The covering
fax from CNIEC proposed altered language for the draft, and indicates that
critical elements of the contract were still under negotiation. That was also
indicated by Mr Kameoka's fax to Global of 29 May 1996 which had pointed out
that "we do not have firm commitment from CNIEC to take copper" and from the
SIB note of the meeting of 30 May 1996 which had referred to a "projected
sale" to China. Mr Rabinowicz made such points in his witness statement, and
also referred the $2500 price condition back to the manuscript note about
the structure of the deal passing between Sumitomo and Global shortly before
Mr Hamanaka's suspension. Mr Rabinowicz complained that Mr Kameoka had not
produced "proof" that the copper was in fact paid for by the Chinese, and
submitted that it raised "yet further suspicions" and had failed to establish
that the China deal had had a legitimate commercial purpose.
|
| 32. |
This further
evidence since the hearing below has been admitted in this court by common
consent of the parties.
|
| 33. |
I would mention
in passing that documents exhibited at various stages in the evidence produced
on behalf of Mr Black as having been obtained by means of the Freedom of Information
Act bear on them a legend beginning "CFTC-FOIA-DOCS". Examples are the note
of the SIB meeting of 30 May 1996 and the CNIEC fax of 16 June 1996. I would
infer that such documents have been in the possession of the CFTC.
|
| 34. |
I have referred
to the evidence relating to the China deal in some detail because the China
deal appears to have been at the root of the judge's decision to order disclosure,
because on appeal it has been at the core of Mr Vos QC's submissions on behalf
of Mr Black, and because there has been further evidence on the subject since
the hearing below.
|
| |
Mr
Black's evidence
|
| 35. |
At the time
of the opening of the hearing below Mr Black had not personally submitted
any evidence to the court. Evidence had been produced on his behalf by his
solicitor, Mr Rabinowicz. At the hearing the judge had required Mr Black to
verify the letter before action and a witness statement was produced to which
the judge referred in his judgment. In it Mr Black verified both the letter
of 21 December 1996 and Mr Rabinowicz's first two witness statements. He also
stated that had the market not been manipulated following Mr Hamanaka's dismissal
in June 1996 then the price of copper would have fallen significantly: and
that at the time everyone had believed that the manipulations of the Hamanaka
period were no longer in the system.
|
| |
The
judgment below
|
| 36. |
The judge addressed
himself to four questions in turn: (1) Are proceedings (between the parties)
likely? (2) Do the documents sought fall within the scope of standard disclosure?
(3) Is pre-action disclosure "desirable" for any of the three reasons set
out in CPR 31.16(3)(d)? (4) Should the court order disclosure in the exercise
of its discretion?
|
| 37. |
Rule 31.16(3) begins "The court may make an order under this rule only where..." What follows
sets out the jurisdictional thresholds to an order under the rule, and when
those thresholds have been crossed, there remains an exercise of discretion:
see Bermuda International Securities Ltd v KPMG[ [2001] EWCA CIV
263], a decision of this court cited by the judge. Thus these four questions
were intended to address the three jurisdictional thresholds mentioned (1)
in sub-rule (3)(a) and (b), (2) in sub-rule (3)(c), and (3) in sub-rule (3)(d)
respectively; and finally to address (4) the ultimate issue of discretion.
|
| 38. |
The judge spent
most of his judgment (paras 9/31) addressing the first question. He concluded,
on the guidance of authorities on section 33(2) in its pre-amended form, at
the time when it was dealing with pre-action disclosure only in the case of
personal injury claims, that the test of proceedings being "likely" was that
the prospective claimant has a "reasonable basis" for making a claim against
the prospective defendant: but that in this context such a claim meant not
a prima facie claim nor even one that could resist being struck out, but rather
a claim which was not merely based on irresponsible allegation or speculation
or hope, which was not a merely fishing claim. This much appears to have been
common ground below. He appears to have also accepted, in the light of the
earlier authorities, that a claim might have a reasonable basis in the sense
required if
|
| |
| |
"in
cases where a prima facie cause of action does not yet exist...there
is a reasonable basis for believing that it might do if disclosure could
first be ordered" (at para 17)
|
|
| 39. |
In this context
he dealt with conflicting submissions on whether a case of fraud fell to be
considered any differently from any other case. For these purposes he was
treating a case of fraud as extending to any case in which allegations of
dishonest or criminal conduct were being made, such as the case being advanced
by Mr Black before him. He concluded that there was no essential difference:
a case of fraud might fall foul of the disapproval of speculative or ill-founded
allegations or of mere fishing, but if there was a reasonable basis for the
allegations, then the court should be cautious about letting possible fraudsters
escape down the "black hole" of the absence of documentation which made it
impossible for the claimant to plead his case. Indeed, it might be said that
"the inhibitions on pleading fraud in English law and practice militate in
favour of allowing pre-action disclosure..." (at para 17).
|
| 40. |
He therefore
turned to the facts to consider "whether or not there is a reasonable basis
for an allegation of...conspiratorial or anti-competitive behaviour" and concluded
that there was, but only because of the evidence relating to the China deal.
Thus at paras 21/25 he said--
|
| |
| |
"Plainly
Sumitomo were dealing with very large copper positions in futures and
options, almost any trading in which was bound to affect the market
in some way or another...I think that Mr Vos and his clients face real
difficulties in framing an arguable claim against Sumitomo arising out
of these activities...Most of the facts and matters relied upon by Mr
Vos seem to me at this stage to be at least capable of reasonable explanation
by Sumitomo. When, however, the evidence relating to the "China deal"
is added, it seems to me that a different picture is suggested."
|
|
| 41. |
As to that,
he thought that Sumitomo was being coy, and that there were "non-fanciful
grounds to suspect that the transaction may not have been a genuine sale"
(at para 27). "The deal seems most peculiar and calls for explanation" (para
28). He said (at para 29):
|
| |
| |
"I
therefore conclude that it is "likely" that Mr Black and his companies on
the one hand and Sumitomo on the other will both become parties to litigation,
which litigation will have a reasonable basis along the lines of the authorities
cited to me..."
|
|
| |
It
is to be observed that at this stage the judge had merely answered the first
question as to his jurisdiction, and had decided, on a narrow basis, that
litigation between the parties was "likely". He had not as yet undertaken
an exercise of discretion.
|
| 42. |
The judge then
proceeded to the second question, as to standard disclosure (at para 32).
That was effectively dealt with by an agreement between the parties that,
if disclosure was ordered, it would simply be limited in the order itself
to standard disclosure. Therefore there was no consideration of the issues
which were likely to arise in any proceedings and whether standard disclosure
would extend to the documents demanded. It may be noted that at the end of
para 32 the judge stated "The order will be limited accordingly." Of course,
he had not yet determined that an order for disclosure would be made.
|
| 43. |
At para 33 the
judge considered the third question and concluded that it would be desirable
to order disclosure not only in relation to the China deal but also generally.
"I have also been persuaded that disclosure should not be limited to the China
deal." He appears to have thought that that each of the three limbs of sub-rule
31.16(3)(d) had been met. There was "a real possibility" that early disclosure
would dispose fairly of the anticipated proceedings or assist the dispute
to be resolved without proceedings; as for the saving of costs, he was "not
convinced", but there was a very real prospect that it would occur in one
way or another – either by Mr Black withdrawing without commencing proceedings,
or by the resolution of such proceedings by agreement, or by Sumitomo being
inclined not to contest the claim. This hurdle was dealt with in a single
paragraph, without, it was submitted on behalf of Sumitomo, much if anything
in the way of reasoning, and without any reasons for extending disclosure
beyond the China deal.
|
| 44. |
At para 34 the
judge dealt with the fourth and final stage, the ultimate exercise of his
discretion. He covered this in a few lines:
|
| |
| |
"Once
the test of desirability is met, it is unlikely (although possible)
for an order to be refused altogether. It is clear from what I have
said above that an order should be made and I exercise my discretion
to do so, subject to issues of oppression."
|
|
| 45. |
Under the heading
of oppression, the judge found that a real case had been made on behalf of
Sumitomo, based on the enormous number of documents, not chronologically ordered,
which would have to be looked through if an order were granted in the terms
sought. He thought, however, that he could overcome this danger by limiting
the disclosure that he was prepared to order even beyond concessions that
had been made by Mr Vos in the course of the hearing.
|
| |
The
order made
|
| 46. |
Ultimately the
judge made an order in the following terms:
|
| |
| "1. |
Statements showing copper warrants held by or on behalf of the Respondents
(or any of them) throughout or at any time during the period 1 June 1996 to
1 October 1996.
| | 2. |
Daily trading statements showing copper futures positions, copper options,
or any other copper positions, held, granted, purchased and/or sold by or
on behalf of the Respondents (or any of them) throughout or at any time during
the period from 1 June 1996 to 1 October 1996 on or through the LME and/or
COMEX.
| | 3. |
Documents containing or evidencing any agreement between the Respondents or
any of them and Goldman Sachs (or any part of Goldman Sachs) relating to the
advice given or action taken by Goldman Sachs (or any part of Goldman Sachs)
in relation to Sumitomo's copper positions on the LME and/or COMEX during
the period 1 June 1996 to 1 October 1996.
| | 4. |
Documents evidencing the China Deal (referred to in paragraph 19 of Mr Vigrass'
first statement) and made between GMMC, CNIEC and/or the Respondents (or any
of them).
| | 5. |
Documents disclosing the China Deal (referred to in paragraph 4 above) to
the regulatory authorities.
| | 6. |
Documents evidencing the physical delivery of Copper to CNIEC as referred
to in paragraph 19 of Mr Vigrass' first statement.
| | 7. |
Judgments or pleadings in civil or regulatory actions brought since June 1996
by or against the Respondents (or any of them) relating to or involving allegations
in respect of the China Deal (referred to in paragraph 4 above) and/or to
manipulation of the copper market between 1 June 1996 and 1 October 1996.
| | 8. |
Written communications from the Respondents (or any of them or any person
on their behalf) to CFTC, SIB, SFA or LME and/or notes of meetings between
the Respondents (or any of them or any person on their behalf) and CFTC, SIB,
SFA or LME between 1 June 1996 and 1 October 1996 relating to the disclosure
of Sumitomo's intentions and activities in relation to the unwinding of its
copper positions.
| | 9. |
Any transcripts and/or minutes of the meeting of 28 June 1996 referred to
in paragraph 15 of Mr London's statement."
|
|
| |
The
submissions
|
| 47. |
Detailed written
and oral submissions were made on all aspects of the evidence, on the pre-CPR
authorities which had influenced the judge, on the background to CPR 31.16,
on the role of disclosure in the CPR era, and as to the breadth or narrowness
of the disclosure ordered. In particular, Mr Vos continued to emphasise the
loose ends in the evidence concerning the China deal. As to the circumstances
of the case, the position remained what it had been before the judge, with
Mr Hollander QC (who appeared for Sumitomo) describing this as an archetypal
fishing exercise, and Mr Vos calling it a paradigm case for disclosure. Ultimately,
the essential difference between the parties on this appeal was that Mr Hollander
submitted that the judge had never really stood back to take account of the
circumstances of the case for the purpose of an exercise of discretion, whereas
Mr Vos submitted that the judge had taken everything into account and that
his decision on what in the end was a matter for his discretion was unassailable.
|
| 48. |
Mr Hollander
also drew attention to a feature of the appeal which he submitted was in stark
contrast to the position below. As appears from the judge's judgment, Mr Black's
case had been regarded primarily as one about a dishonest conspiracy to manipulate
markets, a case akin to fraud (with anti-competitive behaviour under articles
81/82 as an alternative). I will also use "fraud" as the handle for such a
primary case. Moreover, Mr Black was determined to sue, unless perhaps pre-action
disclosure satisfied him that he had no case. The judge said that he had "a
clear settled intention to sue" (at para 6), a description of which Mr Vos
made some complaint, but in my judgment it reflects the evidence and I have
no reason to think that it did not accurately reflect the way in which the
matter was put before the judge. On appeal, however, Mr Vos went a long way
to suggest a very different scenario. He put anti-competitive behaviour under
articles 81/82 rather than fraud at the forefront of his argument. He also
suggested that, whatever his client's wishes, Mr Black might find it hard
to obtain counsel's signature to a pleading of fraud on the current material
available to Mr Black and in the absence of something more revealing emerging
out of pre-action disclosure.
|
| |
Access
to Justice
|
| 49. |
In his final
report on Access to Justice, in July 1996, Lord Woolf made his proposals on
the subject of disclosure of documents. He recommended that the process of
disclosure within litigation should be curtailed, save in the exceptional
case, to what he called "standard disclosure", a term which has been adopted
in the CPR. That recommendation was made because "the process had become disproportionate,
especially in larger cases where large numbers of documents may have to be
searched for and disclosed, though only a small number turn out to be significant"
(at section III, para 37). On the other hand, in the context of pre-action
disclosure, he recommended that the court's power to make such orders should
no longer be confined to potential claims in respect of personal injury or
death but should extend to all cases. He wrote (at section III, paras 49/50):
|
| |
| "49. |
There may be some apprehension about the unforeseen consequences of such an
extension. In relation to claims for injury or death, it was fairly clear
against which categories of potential defendants such applications were likely
to be made. When the jurisdiction to make pre-action orders was first introduced,
applications for medical records tended to be hard-fought and often acrimonious.
I understand that it is now rarely necessary even to make such applications,
since documents are usually provided directly in response to a reasonable
request. I have no doubt that the recent protocol prepared by the Civil Litigation
Committee of the Law Society for use in this context will have helped further
to simplify the process. This involves the use of standard forms of request
and response, and has been approved by the NHS Management Executive.
| | "50. |
Opening up the range of cases in which pre-action applications may be made
obviously widens the range of potential defendants who might be subject to
such applications. But it must be remembered, first, that any such application
would have to be in respect of specific documents which will have to be shown
to be in the possession of the respondent; secondly, that there is a likelihood
that the respondent would indeed be a defendant if proceedings were initiated;
and, thirdly, that the documents sought are relevant to a potential claim...[T]he
court would apply a rigorous cost-benefit analysis...I believe that its effect
would be that the court would invariably not allow disclosure [beyond standard
disclosure] at a stage when issues had not been fully elaborated between the
parties..."
|
|
| 50. |
In the event,
CPR 31.16 is not limited to applications in respect of "specific documents",
because sub-rule (3)(c) speaks of "documents or classes of documents". Otherwise,
Lord Woolf's recommendations are reflected in the new rule.
|
| |
Protocols
and fraud
|
| 51. |
In the passage
quoted above from Access to Justice, Lord Woolf referred to the protocol then
recently prepared for use in personal injury litigation. The existence of
a protocol is not without relevance to the question of pre-action disclosure:
it may indicate that documents of a certain class, such as the paradigm case
of medical records in clinical disputes, should as a matter of course be disclosed
before service of a claim form. But protocols have, at any rate so far, been
developed in areas of litigation, such as personal injury claims, clinical
disputes, construction and engineering disputes, and professional negligence
disputes, where familiarity with the nature of such disputes and/or the inter-relationship
of the parties indicate the way forward: see the discussion of such protocols
in Bermuda v KPMG, since when the professional negligence protocol
has been formally published in September 2001. Outside those areas and CPR
31.16 itself the guiding principle of practice is that set out in the
Protocols Practice
Direction (Civil Procedure at C1-001ff) para 4 of which
reads as follows:
|
| |
| |
"In
cases not covered by any approved protocol, the court will expect the parties,
in accordance with the overriding objective and the matters referred to in
CPR 1.1(2)(a), (b) and (c), to act reasonably in exchanging information and
documents relevant to the claim and generally in trying to avoid the necessity
for the start of proceedings."
|
|
| 52. |
In this context
it is necessary to stand back for a moment and ask oneself what, if anything,
the nature of the current dispute and the inter-relationship of its parties
indicate as to the proper role of pre-action exchange of information and documents.
Mr Black's claim does not arise out of any contractual dispute or any professional
relationship. It does not arise out of the relationship inherent in a situation
where one party owes a duty of care to another (his "neighbour", in Lord Atkin's
formula) breach of which has resulted in personal injury or death. If there
has been any fraud or manipulation, it has not been between parties to a contract
but affects Mr Black only in as much as he was part of a world-wide market.
I would accept Mr Hollander's submission that in terms of the current dispute
Mr Black and Sumitomo are in essence strangers. Mr Vos's response is that
they are not total strangers in that Mr Black is well-known in the world of
copper trading; and he also relies on the unparticularised allegation that
Sumitomo refused to sell to Mr Black in the aftermath of the Hamanaka affair.
Nevertheless, for over four years Mr Black remained silent. His public utterances
spoke only of his gains and of anticipated price levels which are inconsistent
with his present claim. Thus unlike a personal injury claimant who has suffered
some undoubted misfortune, but needs disclosure to investigate the mechanism
of his misfortune, Mr Black's losses are themselves a matter of uncertainty
and dispute. No complaint was made to the regulatory authorities which he
knew were investigating the situation.
|
| 53. |
Mr Black says
that until his recent acquisition of documents by means of the Freedom of
Information Act, he was unable to proceed. That raises the question of the
extent of material in or potentially in the public domain and available to
Mr Black. Mr Vos has submitted that pre-action disclosure is necessary in
this case to ensure that dishonesty is brought to light. But Mr Black's case
is based on documents which he has himself obtained from public sources. Mr
Black, perhaps for understandable tactical reasons, has not disclosed in one
go all such documents as he currently possesses. Thus he has responded to
Sumitomo's first round of evidence on the China deal by putting forward the
fax dated 29 May 1996 from Sumitomo to Global and the note of the SIB meeting
of 30 May 1996; and he has responded to Sumitomo's post-judgment disclosure
by putting in evidence the fax dated 16 June 1996 from CNIEC to Sumitomo.
The judge thought that Sumitomo was being coy about the China deal; but this
is not a case in which Mr Black has started by putting all his cards on the
table either. In this connection Mr O'Keefe's role is uncertain: on the one
hand he has been faithful to his obligations, but on the other hand that has
not prevented him from assisting in relation to potential claims in respect
of information where he is "likely to be reliable and well informed".
|
| 54. |
Mr Vos has sought
to play down the case of fraud raised in Mr Black's letter before action and
in his evidence and to emphasise instead the case of anti-competitive behaviour
under articles 81 and 82. On the other hand the judge below and this court
were pressed by him with the problems which an allegation of fraud presents
at the pre-action stage. At a general level, there are clearly concerns that
allegations of dishonesty are not lightly made, that a defendant to an allegation
of dishonesty knows plainly what it is that is alleged against him, and also
that dishonesty does not spread its cloak over the means by which it can be
detected and revealed. It is not plain how these concerns are to be reconciled
in any particular case in the context of pre-action disclosure, but it would
seem to me that a court which is asked to grant such disclosure should be
careful to pay proper regard to each of them. In any event it cannot be right
that an allegation of fraud should assist the potential claimant to obtain
pre-action disclosure, unless his allegations carry both some specificity
and some conviction and his request for disclosure is appropriately focused.
|
| 55. |
Traditionally
at any rate, English law has been cautious about the allegation of dishonesty.
Thus Mr Hollander relied in this context on Hytrac Conveyors Ltd v Conveyors International Ltd [[1982] 3 All ER 415], where the plaintiffs, who wished
to advance a case of conspiracy to infringe their copyright, applied for an
extension of time to serve their statement of claim pending the obtaining
of interlocutory injunctions. This court, in refusing the application, said
this, per Lawton LJ, at 418d:
|
| |
| |
"It
has to be remembered by all concerned that we do not have in this country
an inquisitorial procedure for civil litigation. Our procedure is accusatorial.
Those who make charges must state right at the beginning what they are
and what facts they are based on. They must not use Anton Piller orders
as a means of finding out what sort of charges they can make.
|
|
| 56. |
In RHM Foods v Bovril Ltd [[1982] 1 WLR 661] the plaintiffs, in a passing off action,
sought disclosure in advance of pleading their statement of claim. They alleged
a deliberate intent to deceive the public. The judge acceded to the application.
This court acknowledged the jurisdiction to make such an order, but considered
that the exercise of that jurisdiction would require an exceptional case and
that it would be unfair to the defendants to order disclosure against them
before the plaintiffs had pleaded their serious allegations. Oliver LJ said
(at 668H/669A):
|
| |
| |
"I
do not say that there cannot be such a case, for the court has a wide power
to order discovery where the justice of the case demands it, but it must be
very rare. Like Lawton L.J., I remain, despite Mr. Hoffmann's powerful advocacy,
wholly unconvinced that this case, on the unparticularised allegations of
his deponents' individual beliefs, is a case where the discovery sought at
this stage is necessary for fairly disposing of the matter and I too, therefore,
would allow the appeal."
|
|
| 57. |
Those cases
were decided under the former regime of the RSC and I do not consider them
to be formally binding in the context of the CPR, a new code with its overriding
objective, its greater flexibility, its statements of truth, and its new principles
of disclosure, favouring both more limited disclosure and earlier disclosure.
Nevertheless, in my judgment it is not to be supposed that in the modern context
allegations of fraud have become just like any other allegations. There is
still the obligation on counsel pleading fraud to satisfy himself that he
can properly do so: Mr Vos has himself relied on that obligation, to hint
that without the pre-action disclosure which his client seeks, he might find
himself unable to sign a statement of case which pleads fraud. There is still
the obligation (see 16PD at 9.2) to "specifically set out" any allegation
of fraud.
|
| 58. |
Moreover, if
the opportunity provided by CPR 31.16 is set against the background of the
prospective parties' obligation in any case not covered by a protocol "to
act reasonably in exchanging information and documents relevant to the claim"
and if consideration is given to the question of what the extent of that obligation
is in a case of alleged fraud, it is hard to think that a prospective claimant
could easily say that his allegedly fraudulent prospective defendant had failed
to cooperate by refusing widespread disclosure in response to unspecific and
unverified (because unpleaded) allegations.
|
| |
The
previous authorities on section 33(2)
|
| 59. |
Although the
judge did not regard those authorities as binding, he did nevertheless derive
assistance from them on the question of the application of the jurisdictional
test that the applicant and the respondent were "likely" to be parties to
subsequent litigation. Mr Vos, who had relied on them before the judge (without,
it may be said, much opposition) to support his submissions as to the meaning
of "likely", in the end himself accepted that they were of doubtful value
since they turned on the meaning of a phrase ("likely to be made") which has
now dropped out of the sub-section.
|
| 60. |
In the circumstances
it is unnecessary to consider those authorities on the basis that they are
binding precedents: but, since they provided support for the judge's approach
and also because they illustrate a point of real difficulty about the way
in which the opportunity for pre-action disclosure is to be applied, I will
deal with them to see what if any value they have in the present circumstances.
|
| 61. |
Section 33(2)
was originally enacted as section 31 of the Administration of Justice Act
1970, and used to read as follows:
|
| |
| |
"On
the application, in accordance with rules of court, of a person who
appears to the High Court to be likely to be a party to subsequent proceedings
in that court in which a claim in respect of personal injuries to
a person or in respect of a person's death is likely to be made,
the High Court shall..."
|
|
| |
The
words in italics were removed by the amendment. It will be observed that the
deleted phrase ends with the words "likely to be made". Those are the words
which the previous authorities had to construe.
|
| 62. |
The first case
on the meaning of those words was Dunning v United Liverpool Hospitals' Board of Governors[ [1973] 1 WLR 586]. Mrs Dunning was admitted to hospital
with a cough for investigation but otherwise in good health, but while there
became gravely ill. The hospital refused to release the hospital case notes.
Mrs Dunning obtained legal aid to bring proceedings against the hospital,
despite her medical expert's report to the effect that, while assessment
had been hampered by the absence of the notes, the hospital was probably not
at fault. However, he also said that the failure to release the notes had
unreasonably prolonged the litigation and he urged their release so that he
could determine whether or not they confirmed his opinion. The difficulty
in the case was that because more than six years had passed since Mrs Dunning's
stay in hospital, leave was needed to bring the proceedings for which legal
aid had been granted. The application for leave was adjourned, for in the
light of the expert's opinion and the hospital's continuing refusal to disclose
the notes there was no basis for an action at a time when there was no provision
for pre-action disclosure. Section 31 then came into force and Mrs Dunning
applied under it for pre-action disclosure of the notes. The question was
whether a claim was "likely to be made": if it was, then of course Mrs Dunning
and the hospital were likely to be parties. Stamp LJ dissented on the ground
that in the light of the expert's opinion proceedings were unlikely, since
disclosure was unlikely to produce anything to justify it (591F, 592C). Lord
Denning MR, however, thought that "likely" merely meant "may" or "may well
be made" dependent on the outcome of the disclosure. The object of the statute
would be defeated if the applicant had to show in advance that he already
had a good cause of action (590F). James LJ thought that a claim was "likely"
if there was a "reasonable prospect" of one: and on the facts he pointed out
the evidence of the sudden dramatic change in Mrs Dunning's health and the
expert's report with its express need to see the hospital records (at 593G/594A).
|
| 63. |
In the next
case, Shaw v Vauxhall Motors Ltd[ [1974] 2 All ER 1185], the applicant
was injured driving a truck at work. There was a dispute with his employers
about whether the truck was defective. The applicant wanted disclosure of
the maintenance records of the truck to see whether the braking system was
defective. The application was made on the advice of counsel to enable him
to advise the legal aid committee: it was made clear that if the records supported
the complaint that the system was defective, litigation would ensue, otherwise
it would not. The judge refused disclosure, but it was ordered by this court.
The judgments make it clear that it was common ground that there was jurisdiction
under section 31 to make the order sought, and the argument was whether it
should be made as a matter of discretion. All three judgments were agreed
that it should be. The rule of court in question was RSC Ord 24, r 8, which
put on the respondent the burden of showing that discovery was "not necessary
either for disposing fairly of the cause or matter or for saving costs". Lord
Denning MR thought that in such a case it should be the general practice to
order disclosure as it enabled each side to know the strength or weakness
of the case before embarking on litigation: "It is particularly useful in
a legal aid case..." (1188c). Buckley LJ said that the power to order pre-trial
disclosure "is certainly not one which should be used to encourage fishing
expeditions to enable a prospective plaintiff to discover whether he has got
a case at all" (at 1188h), but that there were two special grounds in favour
of the order in that case: one was that it was in the public interest that
advisers of legally aided parties should have early information on matters
which may affect the parties' position in the litigation; and the other was
that the applicant had conceded that if the records showed that the truck
was not defective, the claim would be dropped (at 1189a/d). Ormrod LJ agreed
with both those factors, and also stressed the importance of a letter before
action in which the applicant should commit himself as to how the accident
happened or else state that he did not know (1189j, 1190b).
|
| 64. |
Although Shaw
was a case on discretion, Lord Denning repeated his view in Dunning
that the words "likely to be made" mean "may" or "may well be made" dependent
on the outcome of the discovery and said that that was what Dunning had
decided (at 1187g).
|
| 65. |
The third case
considered below and cited to this court was Burns v Shuttlehurst[
[1999] 1 WLR 1449]. This was still concerned with the unamended section 33(2).
The underlying facts were similar to those in Shaw, that is to say
the applicant had been injured while driving his employers' vehicle. He had
already obtained judgment against his employers, but now wanted to recover
against their insurers under the Third Parties (Rights against Insurers) Act
1930: he therefore sought pre-action disclosure against the insurers of the
employers' insurance policies. It was held that a claim under the 1930 Act
against insurers was not a claim for personal injuries within section 33(2);
but also that in any event the applicant had no cause of action until his
claim against the employers had been quantified and therefore a claim against
the insurers was both premature and not "likely". The only reasoned judgment
was given by Stuart-Smith LJ. He interpreted Dunning somewhat differently.
Having pointed out that Lord Denning had interpreted "likely to be made" as
meaning " may" or "may well be made" dependent on the outcome of the discovery,
he went on to say that both James LJ and Stamp LJ had formulated the same
test "namely, at the time of the application there must be shown to be a worthwhile
action or a reasonable basis for the intended action", albeit they had differed
on what the facts had shown (at 1457F/H). He then said that in Burns there
was probably just enough to show a reasonable basis for an intended action,
if the applicant otherwise had a complete cause of action (at 1458A); but
he did not. He went on to accept that, once the applicant's judgment against
the employers had been quantified the documents would clearly be discoverable
(at 1459H), but that in the meantime there was no cause of action and thus
"I do not see how it can be said that a claim is likely" (at 1459D). It would
seem, therefore, that the temporary absence of any legal basis for a claim
(Post Office v Norwich Union Fire Insurance Society Ltd [[1967] 2 QB
363] had made that established law) prevented it being said that a claim was
"likely".
|
| 66. |
The phrase "a
claim...is likely to be made" is no longer part of the amended section 33(2)
and therefore on any view these authorities are no longer binding. If, however,
it matters, my own interpretation of these authorities is as follows. In Dunning
both Lord Denning and James LJ agreed that the word "likely" in that phrase
did not mean "more likely on the balance of probability than not" in the absence
of disclosure but meant "may" or "may well" or "reasonable prospect" if disclosure
was granted. It is harder to say what Stamp LJ thought "likely" meant, for
he did not gloss its meaning: but he too agreed that in deciding whether a
claim was likely it was permissible for the court to consider, on the evidence
before it, whether disclosure was likely to produce "a worthwhile and catchable
fish" (at 591G). He added that "The word "likely" must in my view be read
as connoting that the respondent to the application is likely to be a party
to a worthwhile action by a litigant not acting irresponsibly" (at 591F).
I do not myself believe that Stamp LJ was there construing the section – and
certainly not the word "likely" which is repeated in that sentence without
being glossed – so much as laying down a principle as to the exercise of discretion.
If, however, he was construing the section, then in my respectful opinion,
he was alone in doing so in this way. James LJ, in a passage picked up and
cited by Stuart-Smith LJ in Burns[, said (at 593G)]:
|
| |
| |
"In
order to take advantage of the section the applicant for relief must
disclose the nature of the claim he intends to make and show not only
the intention of making it but also that there is a reasonable basis
for making it. Ill-founded, irresponsible and speculative allegations
or allegations based merely on hope would not provide a reasonable basis
for an intended claim in subsequent proceedings."
|
|
| |
That,
however, as it seems to me, is clearly not an attempt to construe the section
but a statement of principle as to the exercise of its discretion. That is
shown by a similar discussion in Shaw, which was a case entirely about
discretion, for jurisdiction was there common ground. As to construction,
which was therefore not in issue, Lord Denning there stated his view that
in Dunning this court had held that the phrase meant "may" or "may
well be made" dependent on the outcome of the disclosure. That was an obiter
dictum, but it seems to me that it was entirely correct.
|
| 67. |
As for Burns,
it is possible that Stuart-Smith LJ (with the approval of the other members
of the court) did intend to adopt, on his reading of Dunning, the test
of "a worthwhile action or a reasonable basis for the intended action" as
having been laid down by James and Stamp LJJ as the test for deciding whether
a claim was "likely to be made": but if so, it follows from what I have said
above that I would respectfully disagree with that interpretation. If that
was his intention, the question might arise, although the amendment to section
33(2) makes the possibility a theoretical one, whether the interpretation
of Dunning found in Burns is part of the ratio of the latter
case and binding on this court, whatever Dunning said. Happily, however,
that question need not trouble the determination of the present appeal.
|
| 68. |
What, however,
these authorities on the unamended section in my judgment reveal, and usefully
so, is as follows. First, that at any rate in its origin the power to grant
pre-trial disclosure was not intended to assist only those who could already
plead a cause of action to improve their pleadings, but also those who needed
disclosure as a vital step in deciding whether to litigate at all or as a
vital ingredient in the pleading of their case. Secondly, however, that (as
what I would call a matter of discretion) it was highly relevant in those
cases that the injury was clear and called for examination of the documents
in question, the disclosure requested was narrowly focused and bore directly
on the injury complained of and responsibility for it, and the documents would
be decisive on the conduct or even the existence of the litigation. Thirdly,
that on the question of discretion, it was material that a prospective claimant
in need of legal aid might be unable even to commence proceedings without
the help of pre-action disclosure.
|
| |
The
amended section 33(2) and the current rule of court.
|
| 69. |
I now turn to
the amended section 33(2) and the current rule of court, and will consider
first of all the jurisdictional thresholds which have to be passed ("only
where") in order to vest a court with discretion to make an order for pre-trial
disclosure.
|
| |
CPR
31.16(3)(a) and (b): "likely to be a party".
|
| 70. |
The application
has to be made by "a person...likely to be a party to subsequent proceedings"
against "a person...likely to be a party to the proceedings" (section 33(2))
and those requirements are reflected (in reverse order) in CPR 31.16(3)(a)
and (b). There is no longer any statutory requirement that "a claim...is likely
to be made".
|
| 71. |
Of course, in
one sense it might be said that a person is hardly likely to be a party to
subsequent proceedings whether as a claimant or otherwise unless some form
of proceedings is itself likely to be issued. Two questions, however, arise.
One is whether the statute requires that it be likely that proceedings are
issued, or only that the persons concerned are likely to be parties if
subsequent proceedings are issued. The other is whether "likely" means
"more probably than not" or "may well". As to the first question, in my judgment
the amended statute means no more than that the persons concerned are likely
to be parties in proceedings if those proceedings are issued. That was what
Lord Woolf had in mind when he wrote of the requirement that "there is a likelihood
that the respondent would indeed be a defendant if proceedings were initiated"
(in section III, para 50, of his final Access to Justice report, quoted in
para 46 above). The omission of any language which expressly requires that
the initiation of proceedings itself be likely, which could have been included
in the amended section, appears to me to reflect the difficulties which the
earlier authorities had explored in the sort of circumstances found in Dunning.
What the current language of the section appears to me to emphasise, as does
the rule of court, is that the parties concerned in an application are parties
who would be likely to be involved if proceedings ensued. The concern is that
pre-action disclosure would be sought against a stranger to any possible proceedings,
or by a party who would himself be unlikely to be involved. If the statute
and rule are understood in this sense, then all difficulties, which might
arise where the issue of proceedings might depend crucially on the nature
of the disclosure sought and where it is impossible at the time of making
the application to say whether the disclosure would critically support or
undermine the prospective claim, disappear.
|
|
| 72. |
As to the second
question, it is not uncommon for "likely" to mean something less than probable
in its strict sense. It seems to me that if I am wrong about the first question,
then it is plain that "likely" must be given its more extended and open meaning
(see Lord Denning in Dunning), because otherwise one of the fundamental
purposes of the statute will have been undermined. If, however, I am right
about the first question, the second question is of less moment. Even so,
however, I am inclined to answer it by saying that "likely" here means no
more than "may well". Where the future has to be predicted, but on an application
which is not merely pre-trial but pre-action, a high test requiring proof
on the balance of probability will be both undesirable and unnecessary: undesirable,
because it does not respond to the nature and timing of the application; and
unnecessary, because the court has all the power it needs in the overall exercise
of its discretion to balance the possible uncertainties of the situation against
the specificity or otherwise of the disclosure requested. Clearly, the narrower
the disclosure requested and the more determinative it may be of the dispute
in issue between the parties to the application, the easier it is for the
court to find the request well-founded; and vice versa.
|
| 73. |
On this basis,
I think that the judge was led into error by the fact that before him there
had been a large degree of common ground about seeking to derive from the
earlier cases a complicated formula as to the meaning of "likely". In my view,
apart from the two issues of principle which present themselves and which
I have sought to answer in this section of my judgment, the word itself presents
no difficulties. Temptations to gloss the statutory language should be resisted.
The jurisdictional threshold is not, I think, intended to be a high one. The
real question is likely to be one of discretion, and answering the jurisdictional
question in the affirmative is unlikely in itself to give the judge much of
a steer as to the correct exercise of his power.
|
| |
CPR
31.16(3)(c): "duty by way of standard disclosure...would extend to the documents"
|
| 74. |
Any dispute
before the judge as to whether the duty of standard disclosure in any proceedings
between Mr Black and Sumitomo would extend to the documents which ultimately
might become the subject matter of the judge's order was surmounted by the
agreement that disclosure of such documents would be limited to standard disclosure.
That agreement tended to obscure and perhaps to obliterate any argument as
to whether any of the categories of documents requested were inherently outside
the regime of standard disclosure.
|
| 75. |
In the circumstances
it seems to me that no question of jurisdiction or principle can arise on
this threshold in this case.
|
| 76. |
In general,
however, it should in my judgment be remembered that the extent of standard
disclosure can not easily be discerned without clarity as to the issues which
would arise once pleadings in the prospective litigation had been formulated.
This court touched on the question in Bermuda v KPMG[ when Waller LJ
there said (at para 26)] that--
|
| |
| |
"The
circumstances spelt out by the rule show that it will "only" be ordered
where the court can say that the documents asked for will be documents
that will have to be produced at the standard disclosure stage. It follows
from that, that the court must be clear what the issues in the litigation
are likely to be i.e. what case the claimant is likely to be making
and what defence is likely to be being run so as to make sure the documents
being asked for are ones which will adversely affect the case of one
side or the other, or support the case of one side or the other."
|
|
| 77. |
It also seems
to me to follow that if there would be considerable doubt as to whether the
disclosure stage would ever be reached, that is a matter which the court can
and should take into account as a matter of its discretion.
|
| 78. |
In any event,
all issues of discretion remain. The fact that the jurisdictional threshold
under sub-rule (3)(c) was dealt with by agreement tended, in my judgment,
to obscure the necessity for clarity as to the issues in the prospective litigation.
The importance of such clarity was illustrated in this appeal when the focus
of submissions were turned from fraud onto anti-competitive conduct.
|
| |
CPR
31.16(3)(d): "desirable"
|
| 79. |
This is a difficult
test to interpret, for it is framed both in terms of a jurisdictional threshold
("only where") and in terms of the exercise of a discretionary judgment ("desirable").
|
| 80. |
Three considerations
are mentioned in sub-rule (3)(d): disposing fairly of the anticipated proceedings;
assisting the dispute to be resolved without proceedings; and saving costs.
The first of this trio obviously contemplates the disposal of proceedings
once they have been commenced – in that context the phrase "dispose fairly"
is a familiar one (see eg RSC Ord 24, r 8); the second as clearly contemplates
the possibility of avoiding the initiation of litigation altogether; the third
is neutral between both of these possibilities.
|
| 81. |
It is plain
not only that the test of "desirable" is one that easily merges into an exercise
of discretion, but that the test of "dispose fairly" does so too. In the circumstances,
it seems to me that it is necessary not to confuse the jurisdictional and
the discretionary aspects of the sub-rule as a whole. In Bermuda v KPMG
Waller LJ contemplated (at para 26) that sub-rule (d) may involve a two-stage
process. I think that is correct. In my judgment, for jurisdictional purposes
the court is only permitted to consider the granting of pre-action disclosure
where there is a real prospect in principle of such an order being fair to
the parties if litigation is commenced, or of assisting the parties to avoid
litigation, or of saving costs in any event. If there is such a real prospect,
then the court should go on to consider the question of discretion, which
has to be considered on all the facts and not merely in principle but in detail.
|
| 82. |
Of course, since
the questions of principle and of detail can merge into one another, it is
not easy to keep the two stages of the process separate. Nor is it perhaps
vital to do so, provided however that the court is aware of the need
for both stages to be carried out. The danger, however, is that a court may
be misled by the ease with which the jurisdictional threshold can be passed
into thinking that it has thereby decided the question of discretion, when
in truth it has not. This is a real danger because first, in very many if
not most cases it will be possible to make a case for achieving one or other
of the three purposes, and secondly, each of the three possibilities is in
itself inherently desirable.
|
| 83. |
The point can
be illustrated in a number of ways. For instance, suppose the jurisdictional
test is met by the prospect that costs will be saved. That may well happen
whenever there are reasonable hopes either that litigation can be avoided
or that pre-action disclosure will assist in avoiding the need for
pleadings to be amended after disclosure in the ordinary way. That alternative
will occur in a very large number of cases. However, the crossing of the jurisdictional
threshold on that basis tells you practically nothing about the broader and
more particular discretionary aspects of the individual case or the ultimate
exercise of discretion. For that, you need to know much more: if the case
is a personal injury claim and the request is for medical records, it is easy
to conclude that pre-action disclosure ought to be made; but if the action
is a speculative commercial action and the disclosure sought is broad, a fortiori
if it is ill-defined, it might be much harder.
|
| 84. |
In the present
case, I think with respect that the judge fell into this error. Thus he dealt
with sub-rule (d) in a single paragraph (para 33) in which he decided that
disclosure relating to the China deal and generally was desirable and should
be made. He said that his reasoning or much of it was already dealt with under
the heading of the "likelihood of proceedings". There, however, he had in
turn applied the wrong test; and even though in doing so he had considered
matters which properly belonged to the question of discretion, by dealing
with them for the different purpose of asking himself whether proceedings
were likely, he was led into thinking that having decided that proceedings
were likely, therefore pre-action disclosure should be made. That is demonstrated
by his very next paragraph (headed "Discretion", para 34) where he simply
says that "It is clear from what I have said above that an order should be
made..."
|
| 85. |
In effect, the
judge never stood back, having dealt with the jurisdictional thresholds, and
asked himself whether this was a case where his discretion should be exercised
in favour of disclosure. It cannot be right to think that, wherever proceedings
are likely between the parties to such an application and there is a real
prospect of one of the purposes under sub-rule (d) being met, an order for
disclosure should be made of documents which would in due course fall within
standard disclosure. Otherwise an order for pre-action disclosure should be
made in almost every dispute of any seriousness, irrespective of its context
and detail. Whereas outside obvious examples such as medical records or their
equivalent (as indicated by pre-action protocols) in certain other kinds of
disputes, by and large the concept of disclosure being ordered at other than
the normal time is presented as something differing from the normal, at any
rate where the parties at the pre-action stage have been acting reasonably.
|
| 86. |
It is to be
observed that because of the way in which he proceeded, the judge decided
the question of discretion even before considering the breadth of the discovery
requested or the allegation of oppression.
|
| |
Discretion
|
| 87. |
Therefore it
seems to me that this court is entitled to exercise its discretion anew.
|
| 88. |
That discretion
is not confined and will depend on all the facts of the case. Among the important
considerations, however, as it seems to me, are the nature of the injury or
loss complained of; the clarity and identification of the issues raised by
the complaint; the nature of the documents requested; the relevance of any
protocol or pre-action inquiries; and the opportunity which the complainant
has to make his case without pre-action disclosure.
|
| 89. |
In the present
case, the loss complained of is a speculative market loss of $126 million.
Apart from one element in the claim which is put as costs of $14 million actually
incurred, almost the entire claim is made up of a lost opportunity for gain
calculated at $130 million. As a claim, it was unknown for four years during
which Mr Black made no complaint about Sumitomo. When the letter before action
of 21 December 2000 was written, it came out of the blue. This was despite
the fact that throughout those years it was well known that Sumitomo was having
to deal with its on-going responsibility for Mr Hamanaka's market manipulation.
Indeed the publicity regarding the Hamanaka affair was the very catalyst for
Mr Black's copper speculations. The quantification of the loss is entirely
dependent on Mr Black and his own documents. Prima facie its calculation is
inconsistent with public expressions of Mr Black's own market predictions
back in 1996.
|
| 90. |
That is the
injury or loss for which Mr Black seeks a remedy. I am far from saying that
there is no basis for a complaint that Mr Black has suffered such a loss,
which remains to be seen. That, however, is not the question save in the sense
that if it could be said that there was no real prospect of such a loss having
been suffered then this application would fail at the very outset. This, therefore,
is not a case where the prospective claimant has suffered some reasonably
plain injury or loss, at any rate on the face of things – such as following
medical treatment, or following an accident at work or on the roads, or because
of the sale of unfit goods, or non-delivery, or some other breach of contract.
|
| 91. |
The loss complained
of is one thing; the cause or causes of action by which Mr Black seeks a remedy
and the clarity with which the legal issues are raised by such a cause of
action are the next matters for consideration. The complaint is one of dishonest
market manipulation and/or anti-competitive behaviour in breach of articles
81/82. Again, the question is not whether such causes of action exist in the
legal repertoire, for they do, nor whether there is a reasonable basis for
the complaint, for the judge found that there was and I am prepared to assume
for present purposes that he is right. Mr Black can point to the established
and admitted background of the Hamanaka affair and to the possibility that
in its immediate aftermath Sumitomo, although newly advised by Goldman Sachs,
was unable or perhaps even unwilling to avoid doing things with its inherited
market positions which might call for censure. That, however, with the possible
exception of the China deal to which I will come below, is the essential limit
of the complaint. The matter can be tested by considering the recitation of
the issues allegedly "made clear" in Mr Black's letter before action and application:
see para 10 of Mr Vos's skeleton argument before the judge. Eight questions
are there raised, the essence of which is whether there was any legitimate
commercial motivation for Sumitomo's market dealings in the relevant period,
whether there was a conspiracy between Sumitomo and Goldman Sachs to injure
market participants, whether that conspiracy used unlawful means, and whether
such market dealings were in breach of articles 81 or 82. There is no draft
pleading. That is, it seems to me, an utterly jejune identification of the
issues which might arise in any litigation. Again with the possible exception
of the China deal, an exception if only because it is a specific transaction
which has been identified and condemned by Mr Black, it seems to me that the
complaint, its factual and legal basis, and the issues which it raises, are
speculative in the extreme.
|
| 92. |
In such circumstances,
unless there is some real evidence of dishonesty or abuse which only early
disclosure can properly reveal and which may, in the absence of such disclosure,
escape the probing eye of the litigation process and thus possibly all detection,
I think that the court should be slow to allow a merely prospective litigant
to conduct a review of the documents of another party, replacing focused allegation
by a roving inquisition.
|
| 93. |
This then is
the importance of the China deal, for it is Mr Black's attempt to make a focused
attack on Sumitomo's honesty or anti-competitive conduct during the relevant
period. Moreover the China deal appears to have been in very large part the
sole basis of the judge's decision to order any disclosure at all. To a certain
extent the position has moved on from what it was below, since in the meantime
Sumitomo has given disclosure of the contract with CNIEC and of the delivery
orders which CNIEC gave to Sumitomo pursuant to that contract. Those delivery
orders appear prima facie to show that the contract was not a sham, and that
the copper was delivered to CNIEC in the six months during which the contract
allowed CNIEC to call the copper off. Further evidence on behalf of Mr Black
and Mr Vos's submissions have since been devoted to raising further questions
about this disclosure in the light of new material which Mr Black has obtained
by means of the US Freedom of Information Act: but I am not particularly impressed
by this. If Mr Black had such information or could obtain such information,
it throws into doubt his need for disclosure from Sumitomo. It is wholly unclear
to me to what extent Mr Black already has documentation, or could obtain documentation,
or could legitimately obtain information from Mr O'Keefe, which would enable
him either to plead his case that the China deal was dishonest manipulation
or to recognise that the contract was genuine. Mr Black now complains that
he has no Sumitomo documentation to prove that CNIEC paid for the copper:
but he did not request and the judge did not order such disclosure. What the
judge ordered was "5. Documents evidencing the physical delivery of Copper
to CNIEC..."; and that is what Sumitomo has disclosed. In any event, documents
disclosed by Sumitomo relating to the reconciliation of payments as between
Global and itself would seem to evidence the payment by CNIEC for the copper
delivered.
|
| 94. |
I come next
to the nature of the documents requested. Mr Black's request for disclosure
went extremely wide. It was not confined to documents, such as medical reports,
or the maintenance reports of an item of equipment, or some other category
of internal reports, which could be said at one and the same time to be reasonably
narrowly focused and to relate directly to a loss or injury plainly sustained.
It was not confined, as in Bermuda v KPMG, to documents which were
directly related to professional work alleged to have been negligently performed
by a prospective defendant for a prospective claimant. It was not confined
to documents which a protocol had identified as the sort of material one party
should be disclosing at an early stage to another. Even after the judge had
limited the disclosure which he was willing to entertain, the categories stated
in his order indicate the width of the disclosure required. Thus he ordered
"Statements showing copper warrants held" by Sumitomo throughout the relevant
period, as well as "Daily trading statements showing copper future positions,
copper options or any other copper positions" throughout the same period.
He also ordered disclosure of any documents containing or evidencing any agreement
between Sumitomo and Goldman Sachs relating to the advice given or action
taken by Goldman Sachs during the relevant period; any judgments or pleadings
in any civil litigation brought against Sumitomo relating to or involving
any allegations in respect of the China deal or to manipulation of the copper
market during the relevant period; and any documents relating to the disclosure
to the regulatory authorities of Sumitomo's intentions and activities in relation
to the unwinding of its copper positions. Mr Vos submitted that such disclosure
was not wide and represented the least that was necessary to police the allegations
made. In my judgment, however, such disclosure was very wide indeed. I am
sceptical that the disclosure of daily trading statements throughout the period
fell within standard disclosure in any event: they seem to me to be in effect
"train of enquiry" or at any rate merely background documents. It would in
any event be difficult to assess this question without a pleaded statement
of case. Or, to put the matter another way: if such documents were to fall
within standard disclosure, that fact would itself indicate the width of the
allegations made.
|
| 95. |
In my judgment,
the more focused the complaint and the more limited the disclosure sought
in that connection, the easier it is for the court to exercise its discretion
in favour of pre-action disclosure, even where the complaint might seem somewhat
speculative or the request might be argued to constitute a mere fishing exercise.
In appropriate circumstances, where the jurisdictional thresholds have been
crossed, the court might be entitled to take the view that transparency was
what the interests of justice and proportionality most required. The more
diffuse the allegations, however, and the wider the disclosure sought, the
more sceptical the court is entitled to be about the merit of the exercise.
|
| 96. |
In this connection,
the difficulties which the retrieval of the documentation requested would
cause to Sumitomo is also a relevant factor. The judge accepted that a "real
case" of oppression had been made on Sumitomo's evidence (at para 35). However,
he thought that the tailoring of his order would avoid the danger of anything
oppressive or unreasonable. It is of course relevant that the cost of such
disclosure falls, as a general rule, upon the party requesting it (CPR 48.1(2)).
Even so, it is evident that it is only because the judge had already determined
that in principle he would order disclosure that he was not deterred from
doing so, at any rate to the extent that he did so, by the difficulties of
the exercise. I can understand that conclusion. If, however, the court is
yet to be persuaded of the justice of disclosure, a "real case" of oppression
hardly makes it any easier to order it. It is after all the applicant who
bears the burden of persuasion, even if, once he has shouldered that successfully,
he must also bear the burden of the costs of disclosure. The burden of disclosure
still rests on the respondent.
|
| 97. |
In the present
circumstances, the expressed determination of Mr Black to commence proceedings,
and the avenues open to him to obtain documentation or (as it seems) information
from other sources, militate against him.
|
| 98. |
In this connection,
as this case demonstrates, there is considerable danger of a request for pre-action
disclosure leading to what must be expensive satellite litigation in connection
with proceedings which have not yet been initiated.
|
| 99. |
It is possible
that Sumitomo's reaction to Mr Black's request for disclosure could be criticised.
In effect, having indicated in answer to the 21 December 2000 letter before
action (which demanded a response by 31 January 2001) that a considered answer
would be forthcoming by 16 March 2001, it failed to meet that date. A letter
dated 21 March 2001 from Mr Black's solicitors indicates that in a telephone
conversation with Sumitomo's London solicitors it was said that Sumitomo was
very busily involved in litigation in the United States and that Mr Black's
request had not yet made it on to an agenda for discussion. The result was
Mr Black's almost immediate issue of this application, which is dated 30 March
2001. In subsequent evidence on behalf of Sumitomo, Mr London, a partner of
Paul Weiss, Sumitomo's US attorneys, explains that an additional difficulty
is Sumitomo's concern over the role of Mr O'Keefe. It is difficult to evaluate
these matters and this court has yet to be addressed on them in relation to
a question of costs. In the circumstances I would revert to the underlying
situation: which is that Mr Black's claim emerged out of the blue after a
period of four years; that he claimed damages of at least $126 million based
on lost opportunities for speculative profits; that Mr Black and Sumitomo
are essentially "strangers", not contract partners, nor "neighbours"; that
the claim was originally premised on a dishonest conspiracy with Goldman Sachs,
who had not previously been involved with Sumitomo during the Hamanaka affair;
that the alleged conspiracy occurred in a period when Sumitomo was cooperating
with the regulatory authorities in the full glare of the exposure and admission
of Mr Hamanaka's manipulations; that in this court the focus on fraud has
switched to a focus on anti-competitive behaviour, despite Mr Black's evidence
verifying the complaint of fraud and despite the complete baldness (and width)
of the anti-competitive behaviour alleged; and that I am not persuaded that
Mr Black will be deterred by the absence of pre-action disclosure from putting
his claim to the test of the courts.
|
| 100. |
If the matter
had stood where it did before the judge, it is possible that a pre-action
disclosure order limited to the China deal alone would have been justified.
That would have been to take the China deal as representing Mr Black's "best
case" for testing the theory of unlawful market manipulation. The judge in
fact ordered documents evidencing the China deal, documents evidencing physical
delivery of copper to CNIEC pursuant to it, and documents disclosing it to
the regulatory authorities. Of course, the judge also went well beyond that
point in his overall order for disclosure. In the light of Sumitomo's disclosure
of at any rate part of what the judge ordered in respect of the China deal,
and in the light of Mr Black's evident ability to obtain documents relating
to the China deal for himself without Sumitomo's assistance, I can see no
virtue in maintaining a small part of the judge's original order. Mr Black's
evidence was that if disclosure showed that his contentions about the China
deal being a sham were incorrect, the issue "will not be pursued any further"
(see para 23 above). Disclosure has shown, prima facie, that the copper under
the China deal was sold and delivered to the Chinese and was not a sham. It
may well be that the documents at present before the court raise new questions
which have yet to be answered. I suspect that more documents would raise more
questions. I would prefer at this stage to know clearly what Mr Black is saying
about the China deal: whether it was a sham; whether delivery never took place;
or whether, despite being a genuine transaction (as it appears prima facie
to be), it was nevertheless used in some way dishonestly or anti-competitively
or otherwise unlawfully to manipulate the market, and if so, how.
|
| 101. |
In the circumstances,
I would allow this appeal and set aside the judge's order for pre-action disclosure.
|
| |
Lord Justice May:
|
| 102. |
I agree that
this appeal should be allowed for the reasons given by Rix LJ.
|
| |
Lord
Justice Ward:
|
| 103. |
I also agree.
|