Genira Trade & Finance Inc. and Another v CS First Boston & Standard Bank (London) Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE WALLER |
| Judgment Date | 21 November 2001 |
| Neutral Citation | [2001] EWCA Civ 1733 |
| Docket Number | Case No: A2/2001/1732 |
| Court | Court of Appeal (Civil Division) |
| Date | 21 November 2001 |
[2001] EWCA Civ 1733
Lord Phillips M.r.
Lord Justice Schiemann and
Lord Justice Waller
Case No: A2/2001/1732
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
His Honour Judge Playford QC (Sitting as a High Court judge)
IN THE MATTER OF THE EVIDENCE (PROCEEDINGS IN
OTHER JURISDICTIONS) ACT 1975
AND IN THE MATTER OF ORDER 70 RSC 1965
AND IN THE MATTER OF PART 34 CPR 1998
AND IN THE MATTER OF A CIVIL MATTER NOW PROCEEDING BEFORE
THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW
YORK ENTITLED
Royal Courts of Justice
Strand
London
WC2A 2LL
Alan Steinfeld QC and Geoffrey Zelin (instructed by Messrs Sheridans) for the Refco Companies, Appellants Stephen Smith QC (instructed by Messrs Gouldens) for the Banks, Respondents
This is a judgment of the court.
Introduction
Once again time and money is being spent in the English courts over Letters Rogatory requesting the English court to order the production of documents and oral deposition from third parties to litigation in the United States of America. That time and money would be unnecessary, if those seeking the request from the United States Court appreciated the differences between the attitude of the United States Courts to the making of "discovery" orders against non-parties, and the attitude of the English court to the making of such orders. The United Kingdom, when becoming parties to the Hague convention concluded in 1970, registered a reservation pursuant to Article 23 which became enshrined in the Evidence (Proceedings in Other Jurisdictions) Act 1975 making it clear that discovery against non-parties was something the English court would not provide because it simply was not part of its procedure. It is only that Act which gives the English Court the jurisdiction to make orders to assist foreign courts. A number of authorities of the House of Lords since the coming into force of that Act have emphasised the position. But still much time is taken up in our courts trying to give effect to Letters of Request, problems in relation to which could have been avoided if proper steps had been taken to bring to the attention of the foreign court the constraints under which the English court operates.
The facts
Genira Trade & Finance Inc and Binzer Enterprises Corporation (Genira and Binzer) are plaintiffs in an action in the Supreme Court of the state of New York against Refco Capital Markets Limited and Refco Group Limited (Refco). Genira and Binzer are sister companies. For eighteen months they had an account with Refco. During that eighteen month period Ginera and Binzer engaged in bond and equity securities transactions with Refco. The particular securities were called "Brady Bonds" and were high risk bonds.
Genira and Binzer were introduced to Refco by Mr Ramlal Melwani (RM). RM had previously introduced Genira to two banks, (the Banks), Credit Suisse (First Boston) Limited, (CS First Boston) and Standard Bank (London) Limited, (Standard) with whom Genira had engaged in a similar line of business. According to Genira and Binzer's now pleaded case RM had told Genira and Binzer that he and his firm would be compensated by CS First Boston "in accordance with industry custom and practice, which he said would be only a small fraction of the spread between the bid and asked price for each transaction". Genira and Binzer plead that they had the same understanding from RM concerning his compensation from Refco.
So far as the trading with Refco was concerned it ran into difficulties and Refco required margins which Genira and Binzer refused to pay. Refco then liquidated the plaintiffs' accounts. Genira and Binzer sued Refco, originally for breach of contract. In the course of the proceedings depositions were taken from, amongst others, RM a non-party to the action. During the taking of that deposition counsel for Genira and Binzer began to ask questions in relation to the basis on which RM was remunerated. Objection was taken to the questions but subject to there being a "standing objection" the questioning continued. The questioning probed both the basis of remuneration between RM and Refco, and as between RM and the Banks. In the result it became apparent that Refco had entered into certain commission or profit sharing arrangements with RM and his entities such as Dimension Managers Ltd (Dimension) an entity controlled by RM's father and other members of RM's family. Such entities we shall call "Melwani Entities".
In the result Genira and Binzer abandoned their contractual claims and pleaded claims in fraud. In essence they alleged that the sharing arrangements between Refco and the Melwani Entities were improper and that the payments made to the Melwani Entities were inducements or kickbacks in order to induce Melwani Entities to bring customers to Refco and to trade through Refco. Examples of the allegations are in Bundle 1 pages 126–130:
"42. As alleged in detail in the paragraphs and sections below, as bribes, kickbacks or secret commissions for Melwani influencing his clients to do business with Refco, Refco agreed with Melwani: (a) that Refco Capital would charge plaintiffs and certain of his other clients fees from which Refco Capital would then pay Melwani and the other accomplices 90% of those fees; (b) to empower Melwani to set the prices, including a markup or markdown, to be charged to or received by each of his clients in purchase and sale transactions with Refco Capital from which Melwani and accomplices would take a 90% share of the markup or markdown; and (c) to empower Melwani to set the rate of financing charged by Refco Capital to plaintiffs and Melwani's other clients, including a markup from which Melwani and accomplices would take a 90% share.
45. At the suggestion of Paul Scherer of Dimension Managers, Melwani, in breach of the fiduciary duty owed to plaintiffs, proposed to Refco, and Refco agreed, that Refco Capital would charge plaintiffs and certain other Melwani clients an annual "credit facility fee" of 0.1% of the facility extended to them and a "transfer fee" of 0.125% of the nominal amount of securities transferred from accounts at other financial institutions. It was further agreed that 80% of those fees received from plaintiffs would be paid to either Melwani or Dimension Managers or both and that 10% would be paid to Rocos.
53. As part of the scheme, in addition to the agreements to pay Melwani and accomplices 90% of the fees, Refco Capital made "Revenue Sharing Agreements" with Melwani and Dimension Managers in which Refco Capital agreed to pay each 75% of the "markup business," as is set forth in Exhibits 4-A and 4-B. Refco Capital also agreed to pay Rocos 15% of such "markup business." In the aggregate, 90% of the Refco markup business was to be paid to Melwani and the other accomplices.
54. Refco Capital also agreed to empower Melwani to set the price, including a markup or markdown, to be charged to or received by plaintiffs and each of his other clients in Brady Bonds purchase and sale transactions with Refco Capital. This agreement was implemented in the following manner: Anklesaria, on plaintiffs' behalf, would express an interest to Melwani in purchasing or selling a particular Brady Bond or When Issued Right. Melwani would then call Refco Capital to obtain a price for that transaction. Refco Capital would provide Melwani with its price on the proposed purchase or sale, including its own markup or markdown. Melwani would instruct Refco Capital as to the additional price markup or markdown that should be charged or credited in the transaction. Melwani would then call Anklesaria, misrepresent the true Refco Capital quote, and instead quote as Refco Capital's price the fully loaded price he had set.
55. By this means, with Refco Capital's agreement, and for the purpose of further increasing the amounts he and the other accomplices would receive as "revenue sharing," Melwani increased the amounts plaintiffs paid in purchasing Brady Bonds and When Issued Rights and decreased the amounts plaintiffs received in selling those securities."
Leave was given by the New York court to amend the claim to make the above allegations. It was resisted by Refco. One basis for the resistance was that further discovery would be necessary, including a further deposition from RM and possible depositions from the Banks. The basis on which Refco wished to depose the Banks was that they wished to ascertain and/or establish that the fee arrangements between the Banks and the Melwani Entities were little different from those as between Refco and the Melwani Entities. Refco wished to assert that the type of fee arrangements which Refco had with the Melwanis was in accordance with normal trading standards. Refco suggest that evidence of the Banks' trading arrangements will be evidence of such standards.
It is right to say that during the taking of the deposition of RM prior to any amendment, RM had been asked about the commission sharing arrangements with the Banks and had said that one Melwani Entity (Investment Services) had indeed revenue sharing agreements with CS First Boston and with Standard. In broad terms the split agreed between CS First Boston and Investment Services was 60/40 in favour of Investment Services, and so far as Standard was concerned the split was 75/25 in Investment Services favour.
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