G E Capital Corporate Finance Group v Bankers Trust Company and Others
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE LEGGATT |
| Judgment Date | 29 July 1994 |
| Judgment citation (vLex) | [1994] EWCA Civ J0729-10 |
| Docket Number | CHANI 943/0184/B |
| Court | Court of Appeal (Civil Division) |
| Date | 29 July 1994 |
[1994] EWCA Civ J0729-10
(Mr. Justice Ferris)
Before: Lord Justice Dillon Lord Justice Leggatt and Lord Justice Hoffmann
CHANI 943/0184/B
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
(ON APPEAL FROM THE HIGH COURT)
(CHANCERY DIVISION)
MR. M. BARNES QC (instructed by Messrs. Freshfields, London) appeared on behalf of the Appellants.
MR. D. UNWIN (instructed by Messrs. Herbert Smith, London) appeared on behalf of the Respondents.
HOFFMANN L.J: This is an appeal from an order of Ferris J. refusing to allow the plaintiff (''G.E.'') to cover up on the ground of irrelevance parts of certain documents which had been disclosed on discovery. This court (Farquharson and Hirst L.JJ.) gave leave to appeal on the ground that the case might raise a point of practice of general importance on which different views have been expressed in the Commercial Court and the Chancery Division.
The action arises out of a disastrous investment by G.E. as a member of a syndicate of lenders which financed a management buy-out in 1989 of a company referred to as Magnet. The statement of claim alleges misrepresentation and negligence against various parties including Arthur Andersen who prepared two reports on Magnet on which G.E. says it relied. Arthur Andersen's defence denies negligence and pleads a disclaimer of liability. It also denies reliance on the reports by G.E. and alleges contributory negligence. In short, its says that a prudent lender in G.E.'s position would have made far more extensive inquiries than G.E. did and having done so would not have lent the money.
G.E. served its list of documents on Arthur Andersen's solicitors, Messrs Herbert Smith, on 30 September 1992 and its solicitors, Messrs Freshfields, drew attention, in an accompanying letter, to the fact that in some cases they had disclosed copy extracts of documents. In the edited versions Freshfields had blanked out passages which they said were privileged or "commercially sensitive and irrelevant to the issues in this action." Herbert Smith pressed for greater particularity as to the individual reasons for each blanked-out passage. In the documents with which we are concerned in this appeal, there are no claims to privilege. The blanking out is solely on grounds of irrelevance. All the blanked-out passages contain the names, amounts or other details of other financing transactions undertaken by G.E., which it says do not "relate to any matter in question between [the parties] in the action'': Ord. 24, rule 2(1).
Arthur Andersen applied for an order (presumably under Order 24, rule 11(1)) permitting them to inspect the complete documents. The judge granted the order. He said that in a case in which the whole document was said to be irrelevant, the oath of the party giving discovery was prima facie conclusive. But in this case, he said, the "documents themselves" were agreed to be relevant and therefore prima facie the other party was entitled to see the whole. The documents were not like account books or minutes, inherently likely to contain records of unrelated transactions. They were internal documents which dealt with the Magnet transaction in a context which included references to other transactions. They were potentially relevant and, starting from the proposition that Arthur Andersen were prima facie entitled to see the whole, the judge was unwilling to accept as "self-evident and clearly established" the claim that they were irrelevant.
In my view the basic distinction from which the judge began, namely the distinction between a claim on affidavit that a document is wholly irrelevant and that only a part is irrelevant, was wrong. As the judge introduced this proposition with the words "as I recollect'', it would appear that he was not referred to any authority. It has long been the practice that a party is entitled to seal up or cover up parts of a document which he claims to be irrelevant. Bray's Digest of the Law of Discovery (2nd ed. 1910) at p. 55 puts the matter succinctly:
''Generally speaking, any part of a document may be sealed up or otherwise concealed under the same conditions as a whole document may be withheld from production; the party's oath for this purpose is as valid in the one case as in the other. The practice is either to schedule to the affidavit of documents those parts only which are relevant, or to schedule the whole document and to seal up those parts which are sworn to be irrelevant.''
The oath of the party giving discovery is conclusive -
unless the court can be satisfied —not on a conflict of affidavits but either from the documents produced or anything in the affidavit made by the defendant or by any admission by him in the pleadings or necessarily from the circumstances of the case, that the affidavit does not truly state what it ought to state.''(per Cotton L.J. in Jones v. Andrews (1888) 58 L.T. 601).
Can one in this case see "from the documents produced" that the affidavit must be wrong in claiming that the blanked-out passages do not "relate to any matter in question'', in accordance with the Peruvian Guano test ? I take the document which Mr Unwin, who appeared for Arthur Andersen, said was his best example. It is an internal G.E. memorandum headed "Due Diligence" written after the Magnet investment had gone sour. It says that there has been a review of G.E. procedures in the Magnet transaction and another transaction of which the name is blanked out. In both cases it is said that G.E. was "less than well served by the investigation work carried out by the reporting public accountants''. It recommends the improvement of G.E.'s procedures in instructing accountants and following up and going through their reports with them. This might require the employment of an in-house accountant with investigatory skills "to second-guess the work that is being done by the outside firm." It then says:
''we now have had two perhaps untypical situations where, irrespective of their actual legal liability, we have been badly misled. [About 6 to 10 words blanked out] and as you know in Magnet's case there was no sense of the management information systems being as weak as they clearly are.''
The inference I draw from this quotation is that the missing words deal with the shortcomings of the accountants in the other transaction. How can this, or the name of the party involved, be relevant to the issues in this case ? Mr Unwin says that other transactions may enable Arthur Andersen to assemble a general picture of G.E.'s investment strategy and invite an inference that G.E. was so anxious to become a big player on the London market that it was willing to lend money recklessly, paying little or no attention to accountants' reports and failing to make prudent inquiries.
In my view there is no reason to think that the omitted passages would begin to support such a defence. The document already reveals that someone at G.E. thought that Magnet and another transaction showed that it was desirable to improve due diligence procedures. I cannot see how the name of the other transaction or the alleged deficiencies of a different accountant's report can be relevant. Nor can they be regarded as "leading to a train of inquiry" on the ground that they will enable the other transaction to be identified and investigated in greater detail. It is in my judgment inconceivable that the judge at the trial will be willing to admit evidence of collateral...
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