Real Estate Opportunities Ltd v Aberdeen Asset Managers Jersey Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice David Richards |
| Judgment Date | 15 December 2006 |
| Neutral Citation | [2006] EWHC 3249 (Ch) |
| Docket Number | Case No: HC05C01620 |
| Court | Chancery Division |
| Date | 15 December 2006 |
[2006] EWHC 3249 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice David Richards
Case No: HC05C01620
Jonathan Sumption QC, Helen Davies and Simon Birt (instructed by Lovells) for the Claimant
Mark Howard QC, Simon Salzedo and David Scannell (instructed by CMS Cameron Mckenna LLP) for the 1st and 2nd Defendants
Iain Milligan QC and Adrian Beltrami (instructed by Mayer, Brown, Rowe & Maw LLP) for the 3 rd Defendant
Hearing dates: 1 and 2 November 2006
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
MR JUTICE DAVID RICHARDS
The Honourable
By this application under CPR 31.19 (5), the claimant challenges the claim of the defendants to withhold inspection of certain documents under CPR 31.19 (3). The documents in question were for the most part sent to the defendants by the Financial Services Authority (FSA), and to the first and second defendants (Aberdeen) by the Jersey Financial Services Commission (JFSC), in the course of investigations undertaken by those authorities. The documents include in particular transcripts of interviews conducted by the FSA and the JFSC with employees or former employees of the defendants. The claims to withhold inspection are based on section 348 of the Financial Services and Markets Act 2000 (the Act) and similar legislation in Jersey, to which I shall refer. It is submitted that these provisions prohibit the disclosure of the documents and that disclosure would constitute a criminal offence. The FSA was notified of the application and provided with copies of the parties' skeleton arguments. It indicated that it did not wish to be heard.
The action relates to the flotation of the claimant Real Estate Opportunities Limited (REO) in June 2001 and the subsequent management of its "income portfolio". REO was floated with a split capital structure, comprising 300 million ordinary shares, 75 million zero dividend preference shares and £125 million convertible unsecured loan stock. Its assets comprised a property portfolio invested in real property in the United Kingdom and Ireland and an income portfolio invested in income-producing shares and other securities. Substantial investments for the account of the income portfolio were made in shares and securities issued by other split capital investment companies. Aberdeen was one of the leading fund managers of split capital investment companies. The third defendant (UBS) is an investment bank which had considerable experience in the market for such companies (the splits market).
It is REO's case that in the months preceding flotation the proposal to create and float REO was developed by Aberdeen with the assistance of others, including in particular UBS which was appointed as sponsor to the flotation. It contends that the defendants owed duties of care in tort and that Aberdeen owed contractual duties as regards the advice provided as regards the flotation, the financial model to be adopted by it and its investment objectives and policy and that they were in breach of these duties. The claims relate in particular to the substantial level of subscription for new ordinary shares and loan stock of REO made by split capital investment companies using shares in other such companies held by them in their portfolios.
Aberdeen was appointed by REO to provide investment management services and REO claims that, in the period after flotation, Aberdeen acted in breach of duty, in particular by making investments in securities of other split capital investment companies.
The collapse of the splits market in 2001 led to investigations by the FSA. It used its statutory powers to compel the attendance of witnesses, the provision of information and the production of documents. The investigations encompassed both firms as "authorised persons" under the Act and individual officers and employees of the firms as "approved persons". The areas of investigation included the level of public understanding of the risks associated with investing in split capital investment companies, the use of stock swaps on the flotation of such companies and the possibility of collusion among the principal investment managers specialising in the market. The period covered by the investigations was September 2000 to February 2002.
This process culminated in a settlement between the FSA and most of the firms involved in the investigation, including Aberdeen and UBS. It involved the creation of a £194 million fund to compensate investors in zero dividend preference shares, to which Aberdeen contributed about £74 million. Contributions to the fund were made expressly without admission of liability. The FSA made no determination of regulatory breaches and imposed no penalties on any of the firms or individuals involved. Certain individuals agreed to provide various undertakings to the FSA. These included Christopher Fishwick, the former chief executive of the second defendant Aberdeen Asset Managers Limited, who undertook not to apply for any controlled function for a period of seven years.
A number of employees and former employees of Aberdeen and UBS were interviewed by the FSA in the course of the investigation, mostly under statutory powers. Aberdeen has not disclosed the number or identity of its present or former employees who were interviewed, but in a recently served witness statement, Mr Fishwick has stated that he was interviewed. UBS has confirmed that four of its employees were interviewed, but has not disclosed their names, although REO believes that they are likely to include two directors who were personally involved in the REO flotation. In each case, transcripts of the interviews were supplied by the FSA to Aberdeen or UBS (as the case may be) as the present or former employers of the interviewees, presumably because the interviews related to the activities of those companies.
The JFSC conducted its own review relating to split capital investment companies administered or marketed in Jersey. As a result of this review, it appointed in January 2003 inspectors to conduct an inquiry and report. This inquiry related to eight Jersey-based investment companies, including REO, and to the first defendant which was the fund manager of each of the companies. The scope of the inquiry included matters relating to the issues in the present case, including in particular investment decisions as regards REO's income portfolio. In December 2004, the JFSC announced that the investigation had been settled as part of the settlement with the FSA.
An unspecified number of employees and former employees of Aberdeen were interviewed in the course of the JFSC's inquiry and the transcripts were supplied to Aberdeen. UBS was not involved in this inquiry.
The documents withheld from inspection by Aberdeen are described in its list of documents as: (a) transcripts and tapes of interviews conducted by the FSA or on behalf of the JFSC, (b) documents received from the FSA in connection with its investigation of Aberdeen's management of split capital investment trusts or from the JFSC and the inspectors appointed by the JFSC, and (c) correspondence between the FSA or the JFSC and Aberdeen and employees of Aberdeen containing confidential information within the meaning of the relevant legislation.
The equivalent documents held by UBS are described in its list as follows:
"Documents comprising confidential information received by the Financial Services Authority for the purposes and in the discharge of the FSA's functions and obtained by the Third Defendant and its legal advisers from the FSA in the course of the FSA investigation into the split capital investment trust market, including transcripts of interviews held by the FSA with the employees of the Third Defendant."
Aberdeen and UBS accept that the documents withheld from inspection are relevant to the issues in the present case and satisfy the criteria for standard disclosure in CPR 31.6. For its part, REO seeks inspection only so far as the documents relate to the dealings of Aberdeen or UBS with REO and to their activities in the splits market generally. It is not seeking inspection of documents relating exclusively to third parties.
The central issue which arises is whether section 348 of the Act prohibits inspection of the transcripts and other documents supplied by the FSA to the defendants even if those documents do no more than record information provided by employees or former employees of the defendants to the FSA, being information which came to their knowledge in the course of their employment. REO submits that section 348 does not apply in those circumstances, but accepts that to the extent that the transcripts and other documents contain information supplied to the FSA by third parties and not previously known by the defendants or their employees, inspection is prohibited by section 348 and the documents should to that extent be redacted.
Although all the defendants objected in their lists to inspection of the withheld documents on the grounds that it was prohibited by section 348, there is now a significant difference between the positions of Aberdeen and UBS. UBS fully maintains the objection. Principally in light of the decision of the Court of Appeal in Arbuthnott v Fagan [1996] 1 LRLR 143, as Mr Howard on behalf of Aberdeen explained, Aberdeen accepts that section 348 does not apply to information which Aberdeen already knew before the documents were...
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