Kaufmann v Credit Lyonnais Bank [ChD]
| Jurisdiction | England & Wales |
| Judge | Arden J. |
| Judgment Date | 20 December 1994 |
| Court | Chancery Division |
| Date | 20 December 1994 |
Chancery Division
Arden J.
John L Powell QC and Tom Lowe (instructed by Rabin Leacock Lipman) for the plaintiffs.
Iain Milligan QC and Duncan Matthews (instructed by Linklaters & Paines) for the defendants.
The following cases were referred to in the judgment:
Burmah Oil Co Ltd v Bank of England & AnorWLR [1979] 1 WLR 473 (CA); [1980] AC 1090 (HL).
Continental Reinsurance Corp (UK) Ltd v Pine Top Insurance LtdUNK [1986] 1 Ll Rep 8.
Conway v Rimmer & AnorELR [1968] AC 910.
Coventry Newspapers Ltd, ex parteELR [1993] QB 278.
Crompton (Alfred) Amusement Machines Ltd v C & E Commrs (No. 2)ELR [1974] AC 405.
D v National Society for the Prevention of Cruelty to ChildrenELR [1978] AC 171.
Dolling-Baker v MerrettWLR [1990] 1 WLR 1205.
Duncan & Anor v Cammell, Laird & Co LtdELR [1942] AC 624.
Lonrho plc v Fayed & Ors (No. 4)ELR [1994] QB 775.
MGN Pension Trustees v Invesco Asset Management Ltd (unreported, 14 October 1993, Evans-Lombe J).
Neilson v LaugharneELR [1981] QB 736.
R v Chief Constable of West Midlands Police, ex parte WileyELR [1995] 1 AC 274.
Waugh v British Railways BoardELR [1980] AC 521.
Zarro & Ors v Australian Securities Commission (1992) 10 ACLC 831.
Discovery — Public interest immunity — Documents prepared for regulatory body for protection of investors — Documents copied to Bank of England — Claim for negligence, breach of fiduciary duty and breach of rules of regulatory body — Whether disclosure of documents relevant and necessary — Whether Securities and Futures Authority entitled to claim public interest immunity — Whether documents attracted public interest immunity — Whether Bank of England entitled to claim public interest immunity — Financial Services Act 1986, s. 62, 180 — Rules of the Supreme Court, O.24, r. 11(1), 13(1).
This was an application for production of documents under RSC, O.24, r. 11(1), resisted on the ground of public interest immunity.
The plaintiffs brought an action for damages under s. 62 of the Financial Services Act 1986 against the defendant bank as discretionary manager of the plaintiffs' investments, alleging negligence, breach of fiduciary duty and breach of the rules of the Securities Association (the predecessor to the Securities and Futures Authority (“SFA”)). The SFA was a regulatory body, its primary responsibility being the protection of investors. On discovery the bank refused to disclose reports prepared by their solicitors to the SFA, a report by their auditors to the SFA and correspondence between the bank and the SFA, their solicitors and the SFA, and the auditors and the bank. The reports were copied to the Bank of England. The bank claimed public interest immunity for the documents as a class, defined as information disclosed to a regulator voluntarily and in confidence other than as a matter of routine, brought into being to enable the regulator more effectively to discharge its functions or duties, save where disclosure by the regulator was necessary for the proper performance of its functions and duties. The Bank of England claimed public interest immunity on its own behalf and supported the SFA's claim. The plaintiffs applied for the production of the documents in issue.
Held, ruling accordingly:
1 The documents sought on discovery were relevant and either necessary for saving costs or capable of being necessary for disposing fairly of the cause or matter within RSC, O.24, r. 13(1). Whether or not they were necessary for disposing fairly of the case could be verified on inspection.
2 Because of its statutory supervisory role of licensing and monitoring persons carrying on the business of giving investment advice on securities, the SFA operated in the public interest when it received information from member firms. It could accordingly assert a right to public interest immunity.
3 Copies of documents which were the subject of public interest immunity were immune from production when in the hands of a third party. It followed that, if any documents subject to public interest immunity in the hands of the bank would be immune from production.
4 The documents in question were not provided on the understanding that they would be entirely confidential to the SFA. The information might be required to be disclosed to the Securities and Investments Board (“SIB”) which could result in further disclosure by the SIB under s. 180 of the 1986 Act and other provisions. A class-based claim to public interest immunity might result in the withholding of information from investors when the object of the 1986 Act was the protection of investors. The need for such a class-based claim had not been clearly demonstrated and therefore failed. (R v Chief Constable of West Midlands Police, ex parte WileyELR[1995] 1 AC 274 (HL)applied; MGN Pension Trustees v Invesco Asset Management Ltd (unreported, 14 October 1993, ChD) not followed.)
5 Since the information supplied was to discharge an obligation owed to the SFA in a situation in which the Bank of England was not actively involved, if the bank were satisfied that the matter fell within the SFA's field of operation and was being dealt with appropriately by it, the bank's role was secondary. The documents could not attract public interest immunity merely by being copied to the Bank of England as a consequence of being prepared for the SEA.
Arden J:
In this matter Mr Powell and Mr. Lowe appear for the plaintiffs and Mr Milligan and Mr Matthews appear for the defendants and also for the Bank of England and the Securities and Futures Authority. This is the plaintiffs application for production of certain documents under O. 24, r. 11(1). The defendant (hereafter “Credit Lyonnais”) resists the application on the ground principally of public interest immunity.
The allegations in this action arise out of the conduct by Credit Lyonnais as discretionary manager of the plaintiffs' investments. Credit Lyonnais were authorised to conduct investment business by the Securities Association (“TSA”). The plaintiffs allege, inter alia, that in 1990 and in 1991 Credit Lyonnais acted in breach of the rules of the TSA and/or negligently and/or in breach of fiduciary duty owed to the plaintiffs and is liable in damages to the plaintiffs under s. 62 of the Financial Services Act 1986. Credit Lyonnais denies liability. At three of the meetings on which the plaintiffs rely in their statement of claim they were represented by Alexander Faulds (Mr Faulds) to whom I will refer later. One of the issues in the action was whether Credit Lyonnais maintained records of the transactions which it carried out on the plaintiffs' behalf.
The plaintiffs also contend that Credit Lyonnais in general failed to record the substance of the instructions given with respect to investment strategy. For example, Mr Kaufmann, the first plaintiff, contends that at a meeting in December 1989 with, inter alios, Mr Faulds he confirmed instructions already given that Credit Lyonnais should maintain a conservative investment strategy. In correspondence in 1992 Credit Lyonnais gave a different account of the discussion, but it has produced no contemporaneous record of the meeting. What Credit Lyonnais said happened in December 1989 was that Mr Kaufmann agreed that the plaintiffs' portfolio should be invested on a more speculative basis as that approach had produced a better return in 1989. Indeed, Credit Lyonnais have disclosed few records of any conversations with any of the plaintiffs on discovery.
Mr Powell QC for the plaintiffs drew my particular attention to the fact that the plaintiffs allege breach of fiduciary duty. He also referred to the consultation paper issued by the Law Commission on Fiduciary Duties and Regulatory Rules (Consultation Paper No. 124, HMSO 1992). I note that this states that a consequence of “the undivided loyalty rule” owed by a fiduciary is that “a fiduciary must make available to a customer all the information that is relevant to the customer's affairs.” (para. 2.4.9(iii)). No argument was addressed on this application to the effect if any of this aspect of the fiduciary's duties, and I accordingly express no view thereon. The allegation of breach of fiduciary duty. does highlight the differences that exist between the relationship of the investor and investment manager and of the bank and the creditor. In the latter situation it is only in very exceptional circumstances, if at all, that an allegation of breach of fiduciary duty could be made.
The documents which were disclosed in the list of documents served by Credit Lyonnais on discovery but production of which is resisted are: (1) a report dated 31 July 1992 and a supplemental report undated, in each case prepared by Linklaters & Paines, Credit Lyonnais' solicitors and addressed to the Securities and Futures Authority (hereafter the “SFA”); (2) a report by Ernst & Young, Credit Lyonnais' auditors, to the SFA (the evidence does not disclose the date of this report); (3) correspondence between Credit Lyonnais and the SFA and between Linklaters and the SFA and between Ernst & Young and Credit Lyonnais at or subsequently to those reports.
The following description of the documents in issue (hereafter “the disputed documents”) is taken from the first affidavit of David Gittings, director of the surveillance division of the SFA.
“During the course of 1992 Credit Lyonnais provided two reports (including various annexures) (‘the reports’) to the SFA relating to its private client banking department (‘the department’). The reports were provided voluntarily and contain a full and frank account of the operation and management of the department. There was also various correspondence between the SFA and Credit Lyonnais and its solicitors, Linklaters & Paines, in relation to the reports. Furthermore, Credit Lyonnais — as part of its review of the department — commissioned Ernst & Young to prepare a...
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