Defying Peter to comply with Paul – English courts keep control over disclosure conflicts

The principle of comity holds that, as a starting point, the law of one jurisdiction should seek to recognise the law of another and, where necessary, promote and protect the other legal system’s interests.

This is all very well where the intersecting laws complement, or at least do not contradict, each other. But what weight does the principle carry when the laws of two jurisdictions are in conflict? In particular, what should a court do when the law of one jurisdiction exposes a person to criminal prosecution in respect of conduct that the law of the other jurisdiction obliges a person to perform?

This was the conundrum coincidentally faced in separate cases before the High Court and the Court of Appeal earlier this year. In both cases, foreign claimants in civil litigation sought to depart from the usual rules of disclosure in order not to commit a crime contrary to the laws of their home states. Perhaps less coincidentally, in both cases the English courts decided that the mere threat of criminal sanction under foreign law was insufficient to displace the domestic obligations imposed by the Civil Procedure Rules. This article examines those judgments and asks how they relate to the judgment of the High Court in KBR, which concerned the power of the Serious Fraud Office to compel the production of documents held overseas by foreign persons.

The first of these cases, ACL Netherlands BV and others v Lynch and another [2019] EWHC 249 (Ch) (“ACL“), was handed down in February 2019. The High Court heard an application by claimants in civil proceedings for permission to provide to the US Federal Bureau of Investigation the witness statements and documents disclosed by the defendants. This was necessary, the claimants asserted, in order to comply with a subpoena served on the claimants’ US parent company demanding the production of all witness statements and documents produced in the English litigation that were in the parent company’s control. Failure to comply with this subpoena would constitute a criminal offence contrary to US law.

Civil Procedure Rules 31.22 and 32.12 prescribe the circumstances in which a litigant can make ‘collateral use’ of documents disclosed and witness statements exchanged during the civil disclosure process. Two of the three circumstances under CPR 31.22(1) (disclosed documents) and 31.12(2) (witness statements) had no application because the documents had not yet been referred to in open court and the disclosing party had not provided its consent to onward disclosure. As such, the only route open to the claimants was to seek the court’s permission for the documents to be passed to the FBI.

In his judgment, Mr Justice Hildyard identified the relevant test as that articulated in Crest Homes Plc v Marks [1987] AC 829:

1. Can the applicant demonstrate ‘cogent and persuasive reasons’ for collateral use?
2. Will the collateral use cause injustice to the party giving disclosure?

The claimants argued that this test was made out, on the basis that:

• Generally, there is a strong public interest in the investigation and prosecution of fraud, which the court should seek to facilitate;
• Specifically, the claimants should not be put in the ‘invidious’ position of being unable to comply with its obligations under US law and risking criminal sanction as a result; and
• The English court could rely on the good judgment of its US counterpart to ensure that the defendants were not prejudiced by any use of the collateral disclosure.

The court was not convinced, concluding that ‘in reality, it will usually be difficult, if not impossible, to obtain permission for collateral use.’ The only exception was where there was a particular public interest in favour of collateral use that outweighed the general public interest that the CPR seeks to uphold (i.e. preserving confidentiality for litigants who are subject to the disclosure regime).

The court held that the subpoena was ‘couched in such broad terms as to make it difficult, indeed impossible, to tie the request to any identified issue or area of investigation.’  As such, the court was not persuaded that the specific documents sought had any real value to the US authorities, or that the FBI investigation would be significantly hampered by non-disclosure. Thus the public interest in upholding the CPR had not been outweighed, even though the claimants’ parent company might be prosecuted as a result of failing to comply with the FBI subpoena.

In March 2019, the Court of Appeal considered the same issues from a different perspective in Bank Mellat v HM Treasury [2019] EWCA Civ 449 (‘Bank Mellat’). This was an appeal against a High Court decision requiring the claimant bank to disclose confidential client information in civil proceedings, even though this disclosure would expose the claimant to the risk of criminal prosecution in Iran.

In refusing the appeal, the court confirmed that, although it should not do so lightly, an English court has the jurisdiction to order disclosure of documents, even where this might entail a breach of the criminal law of another state. In deciding whether to make such an order, the court should weigh the actual risk of prosecution overseas, taking into account any steps that could be taken to minimise this risk[1], against the importance of the disclosure to ensuring the fair disposal of the domestic civil claim.

In carrying out this balancing exercise, the Court of Appeal concluded that the first instance judge had been right. Whilst there was a theoretical risk of prosecution in Iran, this was not significant enough to dispel the need for un-redacted disclosure in order fairly to dispose of the English proceedings. In reaching this conclusion, the court noted that it was ‘not unreasonable’ to expect the Iranian authorities to have regard to comity (i.e. by respecting the right of the English court to protect its disclosure regime) when considering their discretion to prosecute. In particular, the Iranian Government was a significant shareholder in Bank Mellat, and so there was a clear public interest tending against prosecution.

Whilst each case turned on its specific facts, it is significant that in both ACL and Bank Mellat, the English courts considered that the prospect of criminal sanction in a foreign country was not in itself sufficient to displace the default obligations embedded in the CPR.

Although these were civil judgments, criminal lawyers will see an interesting parallel with the decision in R. (KBR Inc) v Director of the Serious Fraud Office [2018] EWHC 2368 (Admin) (‘KBR’). In KBR, the High Court concluded that section 2 of the Criminal Justice Act 1987 permits the Serious Fraud Office to compel the production of documents held by a foreign person, even where those documents are outside the jurisdiction, provided that the foreign person has a “sufficient connection” to the jurisdiction and that the section 2 notice is validly served on the foreign person.

Some commentators criticised this decision as undermining the Mutual Legal Assistance (‘MLA’) procedures which exist to facilitate the cross-border transfer of such documents. In particular, that it sought to circumvent the safeguards created by MLA, which uphold the principle of comity by ensuring that the foreign state, where the documents are located, has to be satisfied of the legitimacy of the request. Despite this, the High Court concluded that the implied intention behind the SFO’s section 2 regime created sufficient justification to permit extraterritorial application.

KBR is now subject to an appeal to the Supreme Court, but assuming that it remains good law, the SFO and other agencies vested with similar compulsory document production powers will likely be emboldened into serving increasing numbers of notices compelling the production of documents located overseas. That being so, how would a court rule on whether such a notice is enforceable particularly if the inevitable consequence of complying with it was the commission of a criminal offence in the foreign jurisdiction where the documents are located, and what arguments could the subject of such a notice deploy in opposition?

KBR was alive to the challenges posed by comity where such a conflict of laws arises, and in fact foreshadowed some of the arguments that would be put forward in ACL and Bank Mellat:

63. In approaching this question of statutory interpretation, my starting point is the principle that, unless the contrary intention appears, statutes have territorial but not extraterritorial application: Masri’s case [2010] 1 AC 90 . This principle accords with international comity; it is a strong thing for a statute of state A to infringe the sovereignty of state B, for example, by requiring a citizen of state B, on the territory of state B, to take action, under threat of criminal sanction in state A should the citizen of state B fail or refuse to comply…

Whilst departing from comity has always been recognised as a “strong thing”, the Privy Council in Brannigan v Davison [1997] A.C. 238 concluded that the privilege against self-incrimination would not automatically assist a subject in such circumstances. Allowing a witness to refuse to give evidence or disclose documents which he would otherwise be obliged to give or disclose under English law, on the basis of any risk of foreign prosecution (no matter how fanciful, or how minor the sanction) would essentially mean conceding primacy to foreign law. However, Brannigan was also clear that this balancing exercise between domestic and foreign laws must always be fact-specific. For example, where the risk of prosecution overseas of a compelled witness was real and involved significant sanctions, insisting on the primacy of English law would also be unacceptable. Some discretion should be retained to excuse such a witness if the risk of criminal sanction outweighed the public interest which the compulsory disclosure powers sought to promote.

In Brannigan, the Privy Council concluded that it was not necessary to exercise such a discretion, as the subject could raise a defence of having ‘sufficient cause’ or ‘just excuse’ if prosecuted for refusing to answer questions. Those familiar with the SFO’s section 2 powers, as examined in KBR, or the similar powers vested in other criminal law enforcement agencies, will recognise the parallel with the statutory ‘reasonable excuse’ defence available for non-compliance with requests under these regimes.

A person caught between a rock (compulsory disclosure to an English investigative agency carrying a sanction of contempt of court) and a hard place (criminal prosecution in another jurisdiction) would need to consider the application of the ‘reasonable excuse’ defence, rather than attacking the validity of the notice itself. This is not a hypothetical conundrum: many jurisdictions have “blocking statutes” or other laws creating criminal liability for disclosure overseas of information subject to data protection or professional secrecy obligations. However, the line of reasoning which runs from Brannigan to ACL and Bank Mellat suggests that such a defence would not automatically be available, even where it is agreed that disclosure could result in a criminal prosecution in the foreign jurisdiction. Rather, the court would weigh up the risk to the defendant (i.e. how likely is it that a prosecution will follow compliance with the notice, and what is the likely sanction?) against the public interest in providing the English agency with the material sought, in order to assess whether non-compliance truly amounts to a ‘reasonable excuse’.

Whilst ACL and Bank Mellat are examples of the English courts favouring the home team despite the criminal law consequences in other jurisdictions, there is still plenty of room to litigate. There may yet be occasions when an English court decides that, where compliance with our domestic disclosure regimes, whether in civil proceedings or criminal investigations, leads to the imposition of foreign criminal sanctions, comity demands that the risks created in the foreign jurisdiction outweigh the ordinary obligations of the lex fori.

[1]  For example, not referring to the documents in open court and limiting un-redacted access to an agreed ‘confidentiality club’.