(1) Sumitomo Corporation v (1) Herbert Black
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE RIX,Lord Justice Ward,Lord Justice May |
| Judgment Date | 03 December 2001 |
| Neutral Citation | [2001] EWCA Civ 1819 |
| Date | 03 December 2001 |
| Docket Number | Case No: B1/2001/1919 |
| Court | Court of Appeal (Civil Division) |
[2001] EWCA Civ 1819
Lord Justice Ward
Lord Justice May and
Lord Justice Rix
Case No: B1/2001/1919
IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr Michael Brindle QC, sitting as a Deputy
High Court Judge)
Royal Courts of Justice
Strand, London, WC2A 2LL
Geoffrey Vos QC, Joe Smouha and Andrew Twigger (instructed by Teacher Stern Selby for the Respondents)
Charles Hollander QC and Orlando Gledhill (instructed by Ashurst Morris Crisp for the Appellants)
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 1997 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 1981
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…”
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...
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