Adam Cloherty and Timothy Sherwin successful in strike out application in major fraud claim

16 April 2020

Adam Cloherty and Timothy Sherwin successful in strike out application in major fraud claim

Adam Cloherty and Timothy Sherwin acted for the Claimants in Byers v Samba Financial Group [2020] EWHC 853 (Ch). This major new judgment sets out important principles relating to the striking out or debarral of parties in breach of the court’s order, as well as the circumstances in which a court will permit foreign law to override its disclosure process, and when a letter of request may be sent.

The background

The Claimants are the liquidators of a company in liquidation, together with the company itself. They claim that the defendant (“Samba”) received over US$300 million worth of shares from a then director of the company in circumstances where Samba knew or was sufficiently aware of the fact that a director held the shares on trust for the company. It is therefore a large and complex claim in knowing receipt, raising a number of factual issues as well as interlinked issues of fact and law. Samba is a major Saudi Arabian bank.

The parties were ordered to give standard disclosure. The Claimants have done so. However, during the course of the disclosure process Samba asserted that it required the permission of its regulator, the Saudi Arabian Monetary Authority (“SAMA”) to give disclosure. This gave to a number of last minute applications by Samba to extend time for compliance with the disclosure order, the last of which was rejected by Fancourt J (see [2019] EWHC 3690 (Ch)). In those circumstances, Samba applied to be relieved of its standard disclosure obligations; further or alternatively, that a letter of request be sent by the English court to the Saudi Arabian ministry of foreign affairs.

The Claimants applied for Samba’s defence to be struck out and for it to be debarred form defending the claim based on its failure to give disclosure.

The application to vary the disclosure order

Samba’s application to vary the disclosure order was based on its allegations that SAMA had hitherto refused its consent for disclosure in England, and that there was a serious risk of severe sanctions from SAMA if Samba gave disclosure anyway. It was therefore an application to vary an English court’s order to avoid alleged criminal sanctions for compliance with that order which were said would be imposed in a foreign jurisdiction.

The court considered that, where the disclosure order had been made in November 2018 and Samba waited until the last minute to seek to vary the order, it had lost its chance since, “[t]here is in my judgment no evidence of a material change in circumstances, merely evidence that the Bank did not comply with SAMA’s requirements and did not adequately communicate with SAMA, with the consequence that the risk of which the Bank was aware throughout has come to fruition” (at [86]).

Nonetheless, even if that were wrong, the court would have refused to exercise its discretion to revoke the disclosure order. On the principles set down in Bank Mellat v HM Treasury [2019] EWCA Civ 449, the court had to weigh all the circumstances, including the actual risk to Samba of prosecution by SAMA.

Fancourt J held that disclosure was crucial in a very large fraud claim (at [93]). Set against that was a “residual, real risk of prosecution” (at [105]) albeit Samba had seriously overstated that risk (at [106]). Weighing the need for a fair trial, Samba’s late application, the need for international comity on the part of SAMA as well as the English court, and the risk of prosecution, the court held that “balancing exercise that the Bank Mellat case requires to be carried out clearly comes down in favour of refusing to vary the disclosure order” (at [107]).

The application for a letter of request

Samba also contended that a letter of request should be sent to the Saudi ministry of foreign affairs to ask it to in turn request SAMA to approve Samba giving disclosure.

Fancourt J held that it is “clearly established that the court’s inherent jurisdiction to issue a letter of request is exercised for the purpose of securing evidence that is material to an issue at trial. The distinction between evidence and disclosure is fundamental…” (at [67]). He therefore refused the request as being “wrong in principle” since “attempting to engage the support of a foreign government to remove an obstacle to a foreign litigant’s compliance with an order for disclosure is not a request for assistance from a foreign court to secure material evidence. This court does not have diplomatic relations with foreign governments” (at [68(i)]).

In any event, the court considered that there was no good evidence that the letter of request was likely to work in practice, and it was too late for it be attempted given the looming trial (at [68(ii)]-[68(iii)]).

The application to strike out Samba’s defence and debar it from defending

In those circumstances, the court went on to assess whether Samba’s defence should be struck out and it should be debarred from defending the claim.

Fancourt J summarized the legal position as follows: “[t]he court must have regard to the circumstances of the individual case and do what is necessary and proportionate to mark the seriousness of the breach of its order in a way that is consistent with the interests of justice and the overriding objective. The seriousness of the breach, the extent if at all to which it is excusable and the consequences of the breach will be very important factors, but the overriding criterion is the requirement for the sanction to be proportionate and just.” (At [123]). Further, he considered that “[i]n my judgment, the Court can properly except certain issues from a debarring order if it is satisfied, first, that such issues can fairly be tried without the Bank’s disclosure; second, that such an exception would be in the interests of justice and fair to both parties; third that the conduct of the Bank is not so inexcusable that a full debarring order is deserved and is proportionate, and fourth that making exceptions from the debarring order in that way does not undermine the authority of the Court. There must clearly also be some sensible purpose served by having a trial of certain issues only.” (At [124].)

The court found that “[a]s for the conduct of [Samba], it is clear that its breaches are deliberate” (at [125]), but that “there is nonetheless genuine concern at the Bank about what SAMA might do if the Bank were to give disclosure in the face of the 1 January letter, and that in consequence the Bank will not do so unless SAMA changes its mind. In that sense, the breach could be said to be excusable because the reason for noncompliance is fear of the possible consequences rather than defiance of the court… However, the breach is inexcusable to the extent that the Bank has wrongly failed to do what it should have done to persuade SAMA to relent so that it could comply. This is therefore a case in which the breach is serious and culpable rather than wholly inexcusable” (at [127]).

Those findings led the court to conclude that “the harm that has been done to the prospects of a fair trial will have been sufficiently averted by preventing the Bank from defending issues apart from those where it is clear that the Claimants cannot be prejudiced by the Bank’s default”; but, “[i]f there are issues that can fairly be tried notwithstanding the absence of disclosure from the Bank, and such issues would – if determined in the Bank’s favour – enable it to establish a defence, in whole or in part, to the claim, those issues should in principle be tried.” (At [131]). Fancourt J’s position was that “[t]he sanction [of striking out Samba’s defence] is therefore a severe one but proportionate to the Bank’s breach and the harm caused by it. In my judgment, the outcome for the Bank will not serve to encourage other litigants to advance colourable claims of inability to comply with the Court’s orders. The Court will, as ever, be astute to detect and prevent any such abuse” (at [132]).

The court went on to assess whether there were any “issues that can fairly be tried notwithstanding the absence of disclosure from the Bank”, and held at [186] that there were five such issues, including quantum. It accordingly gave Samba permission to defend on those issues only, the remainder of its defence being struck out, and it being debarred from defending on all other issues.

Conclusion

This is an important judgment on the scope of the court’s power to strike out a statement of case in whole or in part. It suggests that the court will take a conservative approach, looking to see what if any of a defaulting party’s claim can be tried given the circumstances of the breach.

However, it is clear that where a party, like Samba here, is in serious and deliberate default of the court’s orders, the court will not hesitate to punish it. That will include the striking out of most, if not all, of the defaulting party’s case.

The judgment can be found here.

Adam Cloherty and Timothy Sherwin acted for the Claimants, instructed by Jonathan Wheeler of Morrison & Foerster (UK) LLP.

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