Zeus Investors v HSBC Bank Plc

Hearing date: 24 th November 2020

APPROVED JUDGMENT

A. INTRODUCTION

The parties appeared before the court today on the hearing of the applications of the claimants, who are referred to in the application notice somewhat cryptically as “Zeus Investors”, as referred to in the claimants' application notice dated 8 June 2020 for orders pursuant to the Norwich Pharmacal jurisdiction and/or pre action disclosure under CPR part 31.18 seeking disclosure and inspection of the information specified in a revised draft order against HSBC UK Bank Plc, as successor to HSBC Private Bank (UK) Limited (which I shall refer to hereafter as HSBC), which the claimants allege is required in order to properly assess, formulate and plead their claim that is contemplated against HSBC.

In fact, CPR 31.18 simply provides that rules 31.16 and 31.17 do not limit any other power which the court may have to order disclosure before proceedings have started and disclosure against a person who is not a party to proceedings; and Rule 31.18 merely preserves the Norwich Pharmacal jurisdiction and does not modify it: see Mitsui & Co Limited v Nexen Petroleum UK Limited [2005] EWHC 625 (Ch), at [36].

In its skeleton argument, and despite not being within the scope of its application notice (which has not been amended), the claimant sought, in three brief paragraphs at the very end of its skeleton argument, to apply for pre action disclosure under CPR 31.16, albeit that little, if any, attempt was made in that skeleton to address the requirements of CPR 31.16. Such belated reliance on CPR 31.16 was, however, consistent with HSBC's case that the present case is not an appropriate one for Norwich Pharmacal relief, but if there were to be any basis for obtaining any of the documentation sought, it would have to be by way of pre action disclosure, under CPR 31.16 (albeit that HSBC submits that the claimants cannot begin to bring themselves within the requirements for pre action disclosure).

Although not entitled to advance any such case on the basis of the application notice, and despite it not being addressed in the witness evidence and only briefly touched upon in the claimants' skeleton, I indicated at the start of the hearing that I would hear argument on the point de bene esse which I considered was preferable from a case management perspective, rather than proceeding with a contested amendment application which would have been time consuming to hear and rule upon, and which would have jeopardised the completion of the matter within the existing time estimate.

In the event, during the course of the hearing, Mr Ramsden QC recognised, on behalf of the claimants, that if they were not going to succeed under the Norwich Pharmacal jurisdiction, they would not succeed under CPR 31.16 either. That was a realistic concession, but I will nevertheless have to say something about CPR 31.16 during the course of this judgment.

The central tenet of HSBC's position is that the claimants' Norwich Pharmacal application is fundamentally flawed and should never have been brought. Without engaging into the detail of the debate at this stage as to whether Norwich Pharmacal relief is appropriate in the present case, I would simply note at the outset that it might be thought it is a somewhat inauspicious start to an application for a Norwich Pharmacal relief against HSBC that, in the context of a contemplated action against HSBC itself, the supporting witness statement of Mr Nicholas Harvey, dated 8 June 2020, expressly states by way of evidence at paragraph 6 (under the heading “Purpose of the application”) that:

“ Whilst the documents that are available indicate a breach has occurred and may well be sufficient in their own right to support the claimant's prospective claims, disclosure of the categories of the documents set out in schedule 1 will, it is believed, provide a more complete picture of the nature and scope of the breach, such that claims for breach may be fully considered with investors, then particularised in detail.”

(emphasis added)

The applications are also set against the backdrop of paragraph B3.3 of the Commercial Court Guide which provides that:

“The parties to the proceedings in the Commercial Court are not required or generally expected to engage in elaborate or expensive pre action procedures and restraint is encouraged.”

And the claimants themselves expressly state in their skeleton argument that they are mindful of the recent observations in Carillion Plc (in liquidation) v KPMG LLP & Anor [2020] EWHC 1416 (Comm), of Jacobs J stating at [15] that “Pre action disclosure in the Commercial Courts are rare.” In that passage Jacobs J noted that the authorities to which he was referred contained no recent examples of successful applications.

It is also to be borne in mind, when contemplating an action being pleaded out in the Commercial Court, that paragraph C1.1 of the Commercial Court Guide provides that statements of case must be “… as brief and concise as possible” and “Particular care should be taken to set out only those factual allegations which are necessary to enable the other party to know what case it has to meet”, and “ evidence should not be included.” There is a 25 page limit for a statement of case, and it is also noted that the courts “… will only exceptionally give permission for a longer statement of case to be served.”

Whilst on procedural matters and what is within the scope of the application notice, it should also be noted that whether or not an application for a Norwich Pharmacal relief is likely to be uncontested (and in the present case the claimants well knew it would be contested from extensive pre-action correspondence with HSBC's solicitors, Norton Rose Fulbright) a first application should be made by claim form under Part 8 and not by way of an application notice, so that issues arising can be identified early and managed appropriately (see, amongst other authorities, Santander Bank Plc v National Westminster Bank [2014] EWHC 2626 (Ch), at [50] to [51], per Birss J.

The claimants have not followed that procedure, despite the need to do so having been pointed out by HSBC's solicitors. In the event, the parties were able to agree directions as to the service of witness evidence and the like, but that is beside the point. Whilst in the Norwich Pharmacal case itself an originating summons was used, it has long since been established that the correct procedure is to use a claim form, so that any such actions can be case managed by the court.

I was nevertheless prepared to hear the application, despite the inappropriate procedure adopted. The failure to use a claim form may, however, be of some significance in the context of the issues that have arisen as to who the claimants in fact are, which it will be necessary for me to address in some detail after first identifying the background to the current applications.

B. FACTUAL BACKGROUND

I take the factual background from the first witness statement of Nicholas Harvey, dated 8 June 2020, on behalf of the claimants; the witness statement of Katie Stephen, dated 16 September 2020, on behalf of HSBC; and the second witness statement of Nicholas Harvey, dated 13 October 2020. Much of what is said (or alleged) is not common ground between the parties and I simply recount the parties' respective versions of events and associated cases to place the applications in context.

The claimants/applicants are investors in a series of (mainly film production) tax mitigation schemes (the “Schemes”). According to the evidence of Mr Harvey, the prospective claim in respect of which disclosure is sought concerns approximately 200 claimants in a potential claim for damages believed to be in the region of a collective minimum sum of £50 million, against HSBC for what is alleged to be “breach of contract and/or negligence”.

The claim against HSBC arises out of claimed breaches of alleged duties on the part of HSBC to investors in regard to the sale of the Schemes. It is alleged that the Schemes were devised by HSBC, although that is denied in the witness evidence of Katie Stephen; a stance that the claimants characterise as “a highly controversial proposition” (which I might add is not the function of the present applications to resolve).

What is not controversial is that an agreement was entered into, dated 21 November 2007 (the “Agreement”), between an entity referred to as “Zeus Partners”, but which it would appear was, in fact, a limited liability partnership, Zeus Partners LLP (“Zeus”) and the respondent.

It will be necessary to return to the terms of the Agreement in more detail in due course, in considering the alleged wrongdoing and any alleged causes of action in the context of the applications that are made. At this stage, it suffices to note that the investors in any relevant tax mitigation schemes were not parties to that agreement; and clause 26 of the Agreement (the applicable law of which is English law) provides that:

“No person who is not a party to this agreement shall be able to enforce this agreement by virtue of the Contracts (Rights of Third Parties) Act 1999.”

Mr Harvey's evidence is that Zeus were, at all material times, the primary promotors of the schemes; that Zeus was a wholly owned subsidiary of Zeus Group Limited (“Zeus Group”) and that Zeus Group were a successful and...