Bank’s privilege not lost despite opponent obtaining copies of documents in foreign proceedings

The High Court has held that a defendant bank was entitled to maintain privilege over certain documents even though the claimant companies had obtained copies of the documents from a third party pursuant to subpoenas in Thailand: Suppipat v Siam Commercial Bank Public Company Ltd [2022] EWHC 381 (Comm).

The decision will be of interest to financial institutions as it suggests that where a party has lawfully obtained documents in a foreign state which (as a matter of English law) are obviously privileged, that does not necessarily mean they will be available for use in litigation in England – particularly where the documents in question were obtained from a third party rather than the party entitled to assert the privilege and without notice to that party.

The decision is also of interest for its discussion of how the courts will determine whether or not a document remains confidential for these purposes. It suggests that the question is not simply a matter of whether the document has entered the public domain – though if that has happened, it will be clear that privilege is lost. The question appears to come down to whether the document has been obtained in circumstances which import an obligation of confidence, meaning the document is not properly available for use. This will be the case where a party receives an obviously confidential document in error or through illegitimate means, but it is not limited to those situations. As the judge put it, whether confidence has been lost is a “contextual and factual” question.

For a more detailed discussion of the decision, please see our litigation blog post.

High Court orders banks to disclose documents under the Evidence (Proceedings in other Jurisdictions) Act 1975

The High Court has ordered a number of banks to provide disclosure to various foreign companies, following an application seeking disclosure in accordance with a letter of request (LOR) issued by a Canadian court. The application was issued in the context of certain Canadian civil proceedings alleging that a former foreign government minister and others orchestrated an international scheme to defraud the companies of USD 3.47 billion: Sakab Saudi Holding Co v Al Jabri & Ors, Re: HSBC & Ors [2021] EWHC 3390 (QB).

This decision will be of interest to financial institutions faced with applications under the Evidence (Proceedings in other Jurisdictions) Act 1975 (the 1975 Act) and CPR 34.17 for the disclosure of bank documents for use in foreign legal proceedings. The decision highlights that the English courts will, if they can properly do so, accede to LORs issued by foreign courts seeking evidence for use in foreign litigation. However, in deciding what response to make to a LOR, the English courts can have regard to the balance to be struck, under section 2(4) of the 1975 Act, between the legitimate requirements of foreign courts and the burden those requirements may place on the intended witness. If the LOR is irrelevant, or fishing, or speculative, or oppressive, the English court can refuse it.

In the present case, the High Court was satisfied that there were no grounds on which to refuse the disclosure requested from the banks. It could not conclude in respect of the evidence sought from the banks either that: (a) the requesting court had plainly not considered the question of relevance; or (b) it is clear to the English court, even on a broad examination, that the evidence is not relevant. It was also clear that the documents sought from the banks were not part of a fishing expedition; they had not merely been requested solely for investigative purposes, and they were clearly relevant to the Canadian civil proceedings. The High Court also did not consider that there was any basis to refuse disclosure on the grounds that the documents were too broadly drafted or were oppressive. The documents identified to be produced by the banks did meet the requirements of section 2(4) of the 1975 Act. No oppression was caused to the non-respondent party and none of the banks had suggested that it would be onerous to produce the documents.

We consider the decision in more detail below.

Background

In 2008, a former Saudi Arabian government minister (Dr Al Jabri) and others allegedly carried out an international scheme to defraud several Saudi Arabian companies (the Applicants) of the equivalent of $3.47 billion. Dr Al Jabri subsequently fled to Canada.

In 2021, the Applicants issued proceedings in Canada against Dr Al Jabri in relation to the fraudulent scheme. The Canadian court then made a Norwich Pharmacal order (the Norwich Order) against various third parties including three banks in England and Wales (the Banks), requiring the disclosure of certain categories of documents. The Norwich Order also requested the judicial assistance of the appropriate courts of the United Kingdom to give effect to the Norwich Order in their jurisdiction. Since the Norwich Order was not directly enforceable outside of Canada, and the Banks refused to provide voluntary disclosure, the Applicants issued a Notice of Motion asking that the Canadian court issue a LOR to the English court for the production of documents from the Banks. The Canadian court subsequently issued the LOR attaching the Norwich Order.

The Applicants then made an application to the English High Court for an order for the disclosure of the documents specified in the LOR from the Banks. The application was not opposed by the Banks; they indicated that they either remained neutral or had no comments.

Although not a party to the application, Dr Al Jabri contested it on a number of grounds.

Decision

The High Court found in favour of the Applicants and ordered that the documents requested from the Banks be disclosed.

The key issues which may be of broader interest to financial institutions are set out below.

General principles relating to LORs

The High Court, in its analysis, highlighted the following key principles relating to LORs:

  • The court’s power to make an order pursuant to a LOR from a foreign court derives from sections 1 and 2 of the 1975 Act and CPR 34.17. It may make such an order only if satisfied that: (i) the application is made in pursuance of a request issued by and on behalf of the requesting court; and (ii) the evidence to which the application relates is to be obtained for the purposes of civil proceedings instituted before the requesting court.
  • While it is ordinarily a respondent witness who will be concerned to object to a LOR, a non-respondent party to the underlying civil proceedings before the requesting court has locus standi to apply to set aside an order obtained ex parte under the 1975 Act (as per Boeing Company v PPG Industries Inc [1988] 3 All E.R. 839).
  • English courts should, if they can properly do so, accede to LORs issued by foreign courts seeking evidence for use in foreign litigation. This is particularly important in the context of litigation arising out of fraud practised on an international scale (as per First American Corp v Zayed [1999] 1 WLR 1154).
  • The authorities show that the burden is on the applicant to establish that a document sought by way of evidence does in fact exist, and the jurisdiction of the English courts under the 1975 Act is to obtain documents by way of evidence for trial rather than for investigatory purposes; section 2(3) of the 1975 Act is aimed at preventing general pre-trial discovery or ‘train of enquiry’ disclosure. However, the authorities made it clear that a dual-purpose request does not necessarily mean that the request will be refused (as per In Re State of Norway’s Application [1987] 1 QB 433).
  • The question of relevance of evidence is generally one for the requesting court, as the court seised of the proceedings (as per Rio Tinto Zinc Corporation v Westinghouse Electric Corp. [1978] AC 547, Re Asbestos Insurance Coverage Cases [1985] 1 W.L.R. 331 and First American). If the requesting court has itself considered questions of relevance, then the English court should not embark upon a close examination of questions of relevance. However, English courts may conclude that the intended witness should not be required to give evidence on a particular topic if two conditions are satisfied: (a) the requesting court has plainly not considered the issue of relevance; (b) it is clear to the English court on a broad examination that the evidence is not relevant (as per Galas v Alere Inc [2018] EWHC 2366 (QB)).
  • In deciding what response to make to a LOR, the court should bear in mind the need to protect intended witnesses from an oppressive request. There is a balance to be struck, under section 2(4) of the 1975 Act, between the legitimate requirements of foreign courts and the burden those requirements may place on the intended witness (as per First American). If the court considers that the request is irrelevant, or fishing, or speculative, or oppressive, the court should refuse it (as per Senior v Holdsworth, ex-parte Independent Television News Ltd [1976] QB 23).

Application of the LOR principles to the present case

(1) Relevance of evidence

The High Court said it would not refuse the order sought against the Banks on the grounds of relevance. It could not conclude in respect of the evidence sought from the Banks either that: (a) the requesting court had plainly not considered the question of relevance; or (b) it is clear to the English court, even on a broad examination, that the evidence is not relevant.

The High Court commented that the Canadian court did consider the issue of relevance in the Norwich Order, albeit in the context of an investigatory order rather than considering evidence for trial. The Canadian court also concluded in the Norwich Order that the documents ordered to be produced by the Banks were relevant for establishing the existence, nature, and extent of the alleged fraudulent scheme, and to trace assets. In the High Court’s view, both of those topics would also be relevant to the trial in Canada.

(2) Investigatory purposes/Fishing expedition

The High Court noted that the documents ordered to be produced under the Norwich Order were primarily ordered for an investigative purpose, but that the range of documents was cut down substantially in the LOR to comply with the requirements of the 1975 Act.

The High Court then said that it did not conclude that the documents sought from the Banks were requested solely for an investigative purpose. The LOR stated that the documents ordered ‘will be admissible and relevant at trial’. Given this, and the conclusion made in respect of the relevance of the documents for trial above, in the High Court’s view the documents requested could not be regarded as part of a ‘fishing expedition’ in the way the term is commonly understood.

(3) Request for documents drafted too broadly

The High Court said that it did not consider that there was any basis to refuse disclosure on the grounds that the documents were too broadly drafted or were oppressive.

The High Court commented that the documents identified to be produced by the Banks did meet the requirements of section 2(4) of the 1975 Act. No oppression to Dr Al Jabri was caused as he was not being asked to produce the documents and none of the Banks had suggested that it would be onerous to produce the documents.

The High Court also noted that the documents ordered from financial institutions in the Norwich Order would not have met the requirements of the 1975 Act. However, the documents requested in the LOR were far more narrowly drafted, and the LOR listed specific documents or categories of documents.

(4) Section 2(3) of the 1975 Act

The High Court said that it was apparent from its consideration of the other heads of challenge to the order sought that it considered that section 2(3) of the 1975 Act was satisfied in respect of the documents sought from the Banks.

Accordingly, for all the reasons above, the High Court found in favour of the Applicants and ordered that the documents requested from the Banks be disclosed.

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High Court finds accountants’ investigation report not protected by litigation privilege and considers requirements for obtaining disclosure under the Disclosure Pilot

The High Court has granted an application by a claimant state for orders that the defendant bank disclose an accounting firm’s investigation report (and associated documents) originally withheld from disclosure on the grounds of litigation privilege, as well as to disclose certain categories of documents on a Model E or “train of enquiry” basis and make further enquiries for “known adverse documents”: State of Qatar v Banque Havilland SA and others [2021] EWHC 2172 (Comm).

The decision does not establish new principles relating to litigation privilege, but is noteworthy as it underlines the difficulties caused by the dominant purpose test in establishing a claim for litigation privilege where documents were arguably produced for a number of purposes, including to deal with enquiries from regulators, rather than solely for the purpose of anticipated litigation.

The decision, in particular, illustrates the difficulties for financial institutions seeking to withhold or redact an investigation report (and associated documents) on the basis of litigation privilege where there is little evidence at the time the report was commissioned that: (i) adversarial proceedings were, or were regarded by the bank to be, reasonably in contemplation; and (ii) the sole or dominant purpose in commissioning the report was conducting, settling or avoiding litigation. However, the decision also appears to indicate that where an investigation report is found to be protected by privilege and has been provided to a regulator on a limited waiver basis, the courts will robustly resist any claims that privilege has been waived.

The decision also highlights that, even if disclosure has initially been ordered on a Model D basis (i.e. narrow search-based disclosure of documents which support or adversely affect any party’s case, similar to old-style standard disclosure) under CPR PD 51U (the Disclosure Pilot), the court may later order Model E disclosure (i.e. wide search-based disclosure, to include documents which may lead to a train of inquiry to result in the identification of other documents for disclosure) if appropriate in respect of specific issues.

It also provides useful guidance as to the requirement that a party to civil proceedings has an obligation to undertake reasonable and proportionate checks to enquire for known adverse documents with the relevant custodians, even if they have left the company. In particular, the court highlighted that a check to see if a custodian is aware of any known adverse documents is not satisfied simply by asking whether he or she used a personal email account to send or receive work related emails or a personal device to store work related documents. It was therefore necessary that the bank make further inquiries of certain custodians, as they may have been aware of adverse documents stored elsewhere.

We consider the court’s decision in more detail below.

Background

In mid 2017 several Arab nations severed diplomatic ties and took a number of other measures against the State of Qatar (the claimant). Allegedly at the time of the diplomatic crisis, a presentation was prepared by a former employee of a Luxembourg bank (the Bank), which referred to certain trading and public relations strategies aimed at causing financial damage to the claimant (the Presentation). In late 2017, the contents of the Presentation were featured in an article published on 9 November 2017 on a non-profit media website under the headline: “Leaked Documents Expose Stunning Plan to Wage Financial War on Qatar – and Steal the World Cup”.

Following the publication of the Presentation, the Bank, recognising that this was a serious matter which could have significant regulatory and legal consequences, notified its regulators, the Commission de Surveillance du Secteur Financier (the CSSF) and the Financial Conduct Authority (FCA), that it was investigating the matter. The Bank also (through its Luxembourg lawyers) instructed PricewaterhouseCoopers (PwC) to carry out a forensic investigation and prepare a report (the Investigation Report), which was issued in June 2018 and shared with the CSSF and FCA under a limited waiver.

In April 2019, the claimant brought a claim against the Bank and its former employee (together, the defendants) alleging that they had conspired with several Saudi Arabian and United Arab Emirates banks to attack the Qatari economy by manipulating its financial markets.

In March 2020, at the first CMC, the court gave directions for disclosure which was to be given in accordance with the Disclosure Pilot. Subject to certain exceptions, in most cases disclosure was to be given by the defendants by reference to Model D.

In January 2021, all the parties to the proceedings gave disclosure. The claimant subsequently applied to the court seeking orders that the Bank: (i) disclose the Investigation Report, any drafts and supporting documents prepared in connection with the Investigation Report; (ii) carry out further searches and/or further reviews of documents, including a more extensive review of certain telephone recordings by reference to Model E, due to the facts that had come to light since the first CMC; and (iii) make further enquiries with each of its custodians as to whether they were aware of any known adverse documents, and if so, that it take steps to locate such documents.

High Court decision

The court found in favour of the claimant and granted the orders sought.

The key issues which are likely to be of broader interest to financial institutions are summarised below.

1) The claim to privilege in the Investigation Report

The Bank submitted that it had been entitled to withhold from production or redact the Investigation Report and associated documents on the grounds of litigation privilege, stating that they were prepared: (i) at the time when adversarial proceedings by the claimant and/or the Bank’s regulators were reasonably in contemplation; and (ii) for the sole purpose of collecting evidence and enabling legal advice to be given to the Bank in connection with those anticipated proceedings. The Bank also argued that any waiver of privilege in providing the Investigation Report to the CSSF and FCA was only a limited waiver as it had been given to them under certain professional secrecy restrictions or mutual assistance provisions, which maintained the privileged nature of the document.

In addressing the Bank’s submission, the court considered the principles applicable to litigation privilege and limited waiver.

Litigation privilege principles

As the starting point, the court noted that Three Rivers District Council v Governor and Company of the Bank of England (No 6) [2004] UKHL 48 provided an authoritative summary of the scope of and the requirements for a claim of litigation privilege:

“communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation are privileged when the following conditions are satisfied: (a) litigation must be in progress or in contemplation; (b) the communications must have been made for the sole or dominant purpose of conducting that litigation; (c) the litigation must be adversarial, not investigative or inquisitorial.”

The court then went on to highlight the scope of each of the requirements in further detail:

  • Litigation must be in progress or in contemplation. Where litigation is not actually in progress at the time the relevant communications are made or procured, it was necessary to demonstrate that litigation was reasonably contemplated or anticipated. The “mere possibility” of litigation did not suffice for litigation privilege, nor was it enough that there was “a distinct possibility that sooner or later someone might make a claim”; but this did not necessarily mean that there must be a greater than 50% chance of litigation (as per United States of America v Philip Morris Inc. [2004] EWCA Civ 330).
  • Communication made for sole or dominant purpose of conducting litigation. What matters may not be the state of mind of the author of the communication but of the party that commissioned or procured it (as per Guinness Peat Properties Ltd v Fitzroy Robinson Partnership [1987] 1 WLR 1027). Although ordinarily the privileged status of a communication falls to be assessed at the time the communication is made, if what matters is the instigating party’s purpose, the best guide to his or her purpose may be to consider matters at the point in time when the relevant communication is procured, recognising, of course, that a party’s purpose may change. The court also highlighted that a communication made for the sole or dominant purpose of “conducting litigation” also embraces communications made for the dominant purpose of obtaining information or advice in order to settle or avoid litigation (as per WH Holding Limited v E20 Stadium LLP [2018] EWCA Civ 2652).
  • Litigation must be adversarial. It was important to consider whether particular types of proceedings are properly regarded as adversarial or as investigative or inquisitive. In the court’s view, what was required for litigation privilege is a contemplation of adversarial litigation, not an investigative or inquisitive procedure. However, the court commented that what may start as an investigation may develop into adversarial proceedings (as per Tesco Stores Ltd v Office of Fair Trading [2012] CAT 6).

Limited waiver principles

The court highlighted that where documents are shown or provided to regulators on a limited waiver basis, and despite the existence of legal rights or duties on the part of the regulators to use, act on or even publish the documents pursuant to their regulatory powers, there will be no waiver of privilege where there were express confidentiality and non-waiver agreements between a bank and a regulator (as per Property Alliance Group Ltd v Royal Bank of Scotland plc [2015] EWHC 1557 (Ch)).

However, the court noted that the absence of an express non-waiver agreement between a bank and a regulator is not necessarily fatal. The court underlined that the question of whether there has been a general or only limited waiver requires the court to have regard to all the circumstances, including what was impliedly communicated between the parties and what each must or ought reasonably to have understood (as per Citic Pacific Ltd v Secretary for Justice [2012] 2 HKLRD 701).

Application of litigation privilege and limited waiver principles to the present case

The court held that the Investigation Report was not protected by litigation privilege and must be produced for inspection. Litigation privilege also did not apply to any drafts of the Investigation Report and associated documents prepared in connection with it (to the extent that they were in the Bank’s control). Similarly any documents withheld or redacted on the basis that they referred to the Investigation Report or PwC’s engagement were also required to be produced for inspection.

The court commented that at the time the Bank instructed PwC there was little evidence that the CSSF’s position was, or was regarded by the Bank, as hostile or that adversarial regulatory proceedings were, or were regarded by the Bank to be, reasonably in contemplation. There was also little evidence of the anticipation of adversarial proceedings from the FCA. The court noted that the CSSF’s letter of 13 November 2017 asked a number of questions about the Intercept Article and the Presentation, but it was not particularly aggressive or adversarial and it made no threat of proceedings. There was also nothing in the Bank’s subsequent communications with the CSSF that suggested that the CSSF was adopting an adversarial posture towards the Bank. In the court’s view, it did not consider that the CSSF’s involvement went beyond the investigative stage, nor was there anything to suggest that it would do so. Matters could not be judged with hindsight but the position remained that no proceedings were ever commenced against, and no sanctions were ever imposed on, the Bank by the CSSF. The court also highlighted that the Bank had no contact with the FCA prior to 13 November 2017, and subsequent communications fell short of an anticipation of adversarial proceedings. There was also no evidence of any communication between the claimant and the Bank, or any intimation or fear of a claim by the claimant against the Bank, prior to 13 November 2017 when PwC was instructed.

The court said that, even if it were the case that the Bank reasonably contemplated adversarial litigation as at 13 November 2017 when PwC was instructed or at some later stage prior to June 2018, it was also not satisfied that PwC’s instruction, or the Bank’s request that PwC should produce a report, were for the dominant purpose of the anticipated litigation. In the court’s view, the two most prominent purposes behind PwC’s instruction were to: (i) find the facts, including how a copy of the Presentation had been obtained from the Bank’s files; and (ii) to satisfy the CSSF and put the Bank in a position where it could answer the CSSF’s questions.

Finally, the court said that, as it had found that the Investigation Report was not privileged, it was unnecessary to deal with the argument that privilege in the Investigation Report had been waived by the provision of the report to the CSSF and ultimately to the FCA. However, the court did underline that it would have required a good deal of persuading that the circumstances in which the document was provided to the regulators meant that privilege in the report had been waived generally.

2) Model E Disclosure

The claimant submitted that, whilst Model D may have been appropriate as at the first CMC, in the events that had happened since, a Model E review was now necessary and appropriate.

The court held that Model E disclosure was appropriate on a limited basis.

The court commented that it had not been satisfied at the first CMC that the evidence justified the application to the defendants’ disclosure of Model E to any of the issues for disclosure. Model E was intended to be used only in exceptional cases.

However, in light of the further material now available and what it revealed, it was appropriate to revisit this issue. In the court’s view, a Model E review limited to this particular category of documents (i.e. the telephone recordings) and to a particular issue for disclosure was reasonable and proportionate, and also necessary for the just disposal of the proceedings.

3) Adverse documents

The Bank submitted that the checks it had done or had agreed to do in relation to adverse documents were sufficient. It would contact disclosure custodians with a view to determining whether they used personal email accounts to send or receive work related communications, and whether they used personal devices to store work related documents.

The Disclosure Pilot principles

In its analysis of this issue, the court highlighted that the key principles from the Disclosure Pilot and related authorities to note in relation to known adverse documents were as follows:

  • All forms of extended disclosure include known adverse documents (as per paragraph 8.3 of the Disclosure Pilot).
  • Known adverse documents are defined as “documents (other than privileged documents) that a party is actually aware (without undertaking any further search for documents than it has already undertaken or caused to be undertaken) both (a) are or were previously within its control and (b) are adverse” (as per paragraph 2.8 of the Disclosure Pilot).
  • The circumstances in which a corporate entity, such as the Bank, is regarded as aware of known adverse documents will be when: “any person with accountability or responsibility within the company or organisation for the events or the circumstances which are the subject of the case, or for the conduct of the proceedings, is aware. For this purpose it is also necessary to take reasonable steps to check the position with any person who has had such accountability or responsibility but who has since left the company or organisation” (as per paragraph 2.9 of the Disclosure Pilot).
  • The Disclosure Pilot provisions impose an obligation upon a party to undertake reasonable and proportionate checks to see if it has, or has had, known adverse documents, and if so to undertake reasonable and proportionate steps to locate them. These include checks with persons with accountability or responsibility for relevant events even if they have left the company (as per Castle Water Limited v Thames Water Utilities Limited [2020] EWHC 1374 (TCC)).

Application of Disclosure Pilot principles to the present case

The court ordered the Bank to make further enquiries of its custodians about the existence of known adverse documents. The court commented that if an individual is a person with accountability or responsibility within the meaning of paragraph 2.9 of the Disclosure Pilot, then a check to see if he or she is aware of known adverse documents is not satisfied simply by asking whether he or she used a personal email account to send or receive work related emails or a personal device to store work related documents. In the court’s view, the individual custodians may have still been aware of adverse documents stored elsewhere.

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High Court strikes out claim for abuse of process and dismisses parallel disclosure application under Bankers’ Book Evidence Act 1879

The High Court has granted an application by a bank to strike out a misrepresentation claim by a property investment SPV, which repeated a similar claim that had been struck out by the court in previous proceedings due to a failure to comply with an unless order. The court also dismissed a parallel disclosure application by the SPV under CPR Rule 31 and the Bankers’ Book Evidence Act 1879 (the BBEA): 889 Trading Limited v Clydesdale Bank Plc & Ors [2021] EWHC 850 (Ch).

This decision is a reassuring one for financial institutions faced with claims which have been struck out in previous proceedings for failure to comply with a court order or with disclosure applications under the BBEA. The decision highlights the court’s scope to: (a) strike out such claims on the basis that there are no reasonable grounds for bringing such claims and if they are an abuse of the court’s process; and (b) dismiss disclosure applications where the documents requested do not properly fall within the definition of “Bankers books” or where an application for early extended disclosure is made in circumstances which are not exceptional.

In the present case, the court was satisfied that the claim form and particulars of claim ought to be struck out pursuant to CPR Rule 3.4(2) on the basis that the particulars of claim disclosed no reasonable grounds for bringing a claim against the bank’s former/current employees. The court also found that it was a clear abuse for the claimant to commence the present proceedings and that it would be manifestly unfair to the bank to subject it to a further claim. In addition, the court highlighted that on the basis of Meng v HSBC Bank Plc [2021] EWHC 332 (QB) (see our banking litigation blog post for further details on the background to this case and the High Court’s decision) the documentation sought by the claimant as part of its disclosure application fell outside the scope of s.7 of the BBEA as it did not properly fall within the definition of “Bankers books”. Also, an application for early extended disclosure will only be ordered if there are exceptional circumstances.

We consider the decision in more detail below.

Background

The claimant property investment SPV purchased a property in 2007 with funding from the first defendant bank (the Bank). Prior to the property purchase, the Bank sought and obtained a number of valuation reports (the Reports). The Bank relied on one of the Reports in making its lending decision. In 2017, the claimant failed to pay interest which had accrued and was due to the Bank. A formal demand for repayment was then made by the Bank, which was not met. The Bank subsequently appointed LPA Receivers over the property. In 2018, the claimant brought a claim against the Bank and the LPA Receivers in the court (the First Action). The claimant’s case was that the Bank had deliberately and dishonestly sought to give the impression that the property was worth more than it knew to be the case in order to induce the claimant to take out the loan with the Bank and to proceed with the purchase of the property. The claimant alleged that an employee of the Bank had made several misrepresentations relating to the Reports. Shortly after the issue of the First Action, the claimant also applied to the court for an injunction to restrain the proposed sale of the property; the court dismissed the application. The court then subsequently struck out the First Action on the basis that the claimant had failed to comply with an unless order to file a Directions Questionnaire; judgment was entered in favour of the Bank and the LPA Receivers.

The present decision is in connection with a second claim brought by the claimant against the Bank and former/current Bank employees. The allegations made largely overlapped with those made against the Bank and the LPA Receivers in the First Action.

The Bank applied to the court to strike out the claim form and particulars of claim on the basis that: (i) there were no reasonable grounds for bringing the claim; and (ii) they were an abuse of the court’s process or otherwise likely to obstruct the just disposal of the proceedings (the Strike Out Application). The Bank argued that the substance of the claim against the Bank as advanced in the present proceedings arose out of the same complaint made by the claimant since the appointments of the LPA Receivers over the property and repeated the claims from the First Action in relation to the alleged misrepresentations. The Bank also argued that to the extent that any claims did not overlap with those from the First Action they were pleaded in insufficient detail or did not correspond to any recognisable causes of action.

The claimant also applied to the court seeking the disclosure of certain documents (such as those concerning the alleged misrepresentations, in particular the contents of a memorandum and file note from 2007) pursuant to CPR Rule 31 and s.7 of the BBEA (the Disclosure Application).

Decision

The High Court found in favour of the Bank, granting the Bank’s Strike Out Application and refusing the claimant’s Disclosure Application for the reasons explained below.

The Strike Out Application

Principles relating to no reasonable grounds and abuse of process

The court noted that the principles to be applied in respect of strike out under CPR Rule 3.4(2)(a) were well established and included examples of cases falling within the description of where a statement of case failed to disclose reasonable grounds for bringing the claim.

As to CPR Rule 3.4.(2)(b) and the circumstances in which the court might strike out a statement of case on the basis that it is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings, the court highlighted the following key principles:

  • As per Tinkler v Ferguson [2021] EWCA Civ 18, the power to strike out for abuse of process is a flexible power unconfined by narrow rules. It exists to uphold the private interest in the finality of litigation and the public interest in the proper administration of justice and can be deployed for either or both purposes. The power must be used with care with a view to achieving substantial justice in a case where the court considers that its processes are being misused.
  • As per Harbour Castle Ltd v David Wilson Homes Ltd [2019] EWCA Civ 505, if a deliberate decision was taken not to comply with the unless order, that is liable to make the second action an abuse of process, at least if it can be said that the party in question ought to have used the opportunity provided by the first action to resolve its dispute with the other party.
  • It is necessary to consider with some care the circumstances in which the decision was taken not to comply with the unless order, as against the fairness or otherwise of subjecting the other party to the second action in those circumstances, the extent to which the second action might place a disproportionate burden on the court’s resources, and general considerations as to whether allowing the claimant to have a second bite at the cherry might be considered to bring the administration of justice into disrepute.

Application of no reasonable grounds and abuse of process principles

The court held that it was satisfied that the claim form and particulars of claim ought to be struck out pursuant to CPR Rule 3.4(2). The court agreed with the Bank that the particulars of claim disclosed no reasonable grounds for bringing a claim against the Bank’s former/current employees. The court commented that the allegations had been made without stating the facts necessary to formulate a complete cause of action; the Bank was entitled to know the case it had to meet.

The court also held that it was a clear abuse for the claimant to commence the present proceedings and that it would be manifestly unfair to the Bank to subject it to a further claim. In the court’s view, by pursuing the present proceedings, the claimant was essentially seeking to bring before the court the issues and the subject matter of previous proceedings which had been struck out in consequence of a failure to comply with an unless order. Although the claim was now more widely expressed in terms of conspiracy and the involvement of others, it was still essentially the same core complaint. The court also noted that the claimant had taken a deliberate decision not to pursue the opportunity provided by the First Action to seek appropriate remedies in relation to the matters now complained of in the present proceedings, and to adopt a different course. Also, the court said that the particulars of claim failed to set out sufficient facts to indicate what the claim was about, was incoherent, made no sense, and did not disclose any legally recognisable claim against the Bank.

Accordingly, the court struck out the claimant’s claim form and particulars of claim.

The Disclosure Application

Interpretation of s.7 BBEA and CPR Rule 31

The court noted some key principles relating to s.7 of the BBEA and CPR Rule 31:

  • s.7 of the BBEA can only be invoked on the application of a “a party to legal proceedings”.
  • The BBEA was of very narrow application, and did not extend to the categories of documents sought by the claimant. It is limited to “Bankers’ books”, which is defined by s.9 as “ledgers, tables, cash books, account books, and all other books used in the ordinary business of the bank” (as per Meng v HSBC Bank Plc).
  • Disclosure in the Business and Property Courts now falls within the Disclosure Pilot provided for by CPR Practice Direction 51U; the Disclosure Application in the present case was therefore to be regarded as one for early extended disclosure.

Application of interpretation of s.7 BBEA and CPR Rule 31

The court held that the basis for the Disclosure Application had not been made out and that it ought therefore to be dismissed. The court commented that on the basis of Meng v HSBC Bank Plc the documentation sought by the claimant fell outside the scope of s.7 of the BBEA as it did not properly fall within the definition of “Bankers books”. The court also said that so far as an application for early extended disclosure was concerned, the authorities are clear to the effect that disclosure in a general sense will only be ordered ahead of the close of pleadings in exceptional circumstances; the present circumstances could not properly be described as exceptional particularly bearing in mind that the claimant was already on notice of the essential contents of the documents of which they were seeking disclosure.

Accordingly, the court dismissed the Disclosure Application.

Simon Clarke
Simon Clarke
Partner
+44 20 7466 2508
Nihar Lovell
Nihar Lovell
Professional Support Lawyer
+44 20 7374 8000

High Court considers scope of jurisdiction and meaning of records under Bankers’ Book Evidence Act 1879

The High Court has dismissed an application (under the Bankers’ Book Evidence Act 1879) by the CFO of a telecommunications company for access to bank documents for use in Canadian extradition proceedings (initiated by US prosecutors who were seeking to join the CFO as a co-defendant to criminal proceedings in the US because she was alleged to have misled the respondent banks into processing transactions linked to Iran which were in contravention of US sanctions law): Meng v HSBC Bank Plc & Ors [2021] EWHC 342 (QB)

This decision is a reassuring one for financial institutions faced with applications under the Bankers’ Book Evidence Act 1879 (the Act) for disclosure of bank documents for use in foreign or domestic legal proceedings. Such applications may be made by parties to legal proceedings in addition to disclosure applications under the CPR and other avenues for obtaining disclosure, which may increase the administrative burden and cost of business for a financial institution. Despite the longevity of the Act, there is relatively little reported authority interpreting the Act. This decision highlights the narrow scope of the court’s jurisdiction, and helpfully limits the type of documents which may be obtained, under the Act. Additionally, the decision underlines the fact that even if certain conditions in the Act are met for ordering disclosure, the court still ultimately retains the discretion as to whether to order disclosure.

In summary, the court found that it had no jurisdiction under the Act to make the disclosure order sought by the applicant. The Act was limited to UK legal proceedings and did not extend to making orders for the purposes of foreign legal proceedings. The court also said that if even it had found in favour of the applicant on the jurisdiction issue, it would have still refused the application on the basis that the documents/records sought by the applicant did not fall within the scope of the Act (which was limited to transactional records and did not include non-transactional records, such as attendance notes or correspondence between a bank and its customer). The court also noted that even if the applicant had been successful on both the jurisdiction and the records issues, the court would not have not exercised its discretionary power to grant the application. A number of factors which the court took into account in declining to exercise its discretion included the express US prohibition order on the use of the documents in the Canadian extradition proceedings, the likelihood of the applicant having a fair trial before the Canadian courts and the failure of the applicant to link the documents requested sufficiently clearly to specific regulatory duties to maintain records.

We consider the decision in more detail below.

Background

The applicant was the CFO in a telecommunications company (Company), which had a banking relationship with a global banking group. Between 2007 and 2017, the Company, two of its subsidiaries, and the applicant allegedly deceived the global banking group which included the respondents and the US government as to the Company’s business activities in Iran. The employees of the Company are alleged to have made misrepresentations about the relationship of the Company with an unofficial subsidiary in Iran and to the effect that the Company had not violated any US laws or regulations relating to Iran.

In reliance on the misrepresentations by the Company, the global banking group and its US subsidiary in particular cleared more than USD $100 million of transactions relating to the Company’s unofficial subsidiary in Iran between 2010 and 2014; this was in contravention of US sanctions law and exposed the global banking group to potential civil or criminal penalties.

In 2019, US prosecutors brought criminal charges against the Company, the two subsidiaries involved and the applicant for financial fraud. The applicant had in the meantime been detained in Canada. The US government sought the applicant’s extradition to the US so that she could be prosecuted as a co-defendant in the US criminal proceedings.

The applicant subsequently applied to the English High Court under section 7 of the Act seeking disclosure from three UK subsidiaries of the global banking group (the respondent banks) of 13 categories of documents to support her arguments in the Canadian extradition proceedings. The applicant’s case was that the documents were held by the US government, emanated from within the global banking group and were not ‘discoverable’ in the Canadian extradition proceedings or through the US criminal proceedings.

Decision

The court found in favour of the respondent banks and dismissed the application. In summary, the court held that it had no jurisdiction to make the disclosure order sought by the applicant. The court also said that even if it had found in favour of the applicant on the jurisdiction issue, it would have still refused the application on the basis that the documents/records sought by the applicant did not fall within the scope of the Act. The court also noted that even if the applicant had been successful on both the jurisdiction and the records issues, the court would not have not exercised its discretionary power to grant the application.

We consider below some of the key issues considered by the court in relation to the application.

Issue 1: Jurisdiction

The applicant argued that the court had the necessary jurisdiction under section 7 of the Act to make the disclosure order sought on the basis that the Act also applied to foreign legal proceedings anywhere in the world, not just legal proceedings in the UK.

The court held that it had no jurisdiction to make the disclosure order sought by the applicant. The court commented that Parliament had intended that the scope of the Act be restricted to legal proceedings in the UK and that there were statutory schemes in place for foreign courts, public authorities and international authorities – not a private party or criminal defendant – to make a formal request for assistance in obtaining evidence. Such statutory schemes would in effect be bypassed in the case of entries in bankers’ books if the court acceded to the applicant’s submissions; however, the court did not accept that this could have been Parliament’s intention with respect to how the Act was intended to operate.

Issue 2: Documents/Records

The applicant argued that the references in the Act to “entries in” and “other records used in the ordinary business of the bank” included both transactional records and non-transactional records maintained for regulatory compliance.

The court said that even if it had found in favour of the applicant on the jurisdiction issue, it would have still refused the application on the basis that the documents/records sought by the applicant did not fall within the scope of the Act as they were not transactional records. The court underlined that “entries in” and “other records used in the ordinary business of the bank” meant transactional records and did not include non-transactional records maintained for regulatory compliance. The court noted that the Act was never intended to cover everything that a bank has, or does, or writes down, in the course of its ordinary business as a bank; for example, an attendance note of a conversation with a customer or prospective customer or correspondence between the bank and a customer or prospective customer will not fall within the scope of the Act.

Issue 3: Exercise of the court’s discretion

The applicant argued that the court should exercise its discretion to order the respondent banks to provide access to the 13 categories of documents sought in order to promote and ensure fairness in the Canadian extradition proceedings. The applicant said that: (i) the US prosecuting authorities’ case against her was clearly based to a significant extent on information provided to the US authorities by entities and individuals within the global banking group; (ii) the documents sought were plainly material to the Canadian extradition proceedings; and (iii) nothing would be forced on the Canadian courts who would still have to decide admissibility and relevance.

The court noted that even if the applicant had been successful on both the jurisdiction and the records issues, the court would not have not exercised its discretionary power to grant the application. The court said that the documents sought were subject to an express prohibition order, made in the US criminal proceedings, that they could not be used in the Canadian extradition proceedings; the court must therefore proceed on the basis that the express prohibition was lawful under US law. Also, in the court’s view, there was nothing to suggest that without those documents the applicant would be denied a fair hearing before the Canadian court. Finally, the court highlighted that the applicant had failed to provide a clear link between the particular documents sought and specific regulatory duties to maintain records; if it was correct that records for regulatory compliance did fall within the scope of the Act, the applicant was required to specify the records sought and reference them to a specific regulatory duty to maintain those records.

Simon Clarke
Simon Clarke
Partner
+44 20 7466 2508
Nihar Lovell
Nihar Lovell
Professional Support Lawyer
+44 20 7374 8000

Climate-related disclosures for issuers: further steps towards mandatory requirements?

In November 2020, the UK Joint Government Regulator TCFD Taskforce published its “roadmap towards mandatory climate-related disclosures”, which set out a vision for the next five years. As an initial step towards fulfilling that vision, in January 2021, the new Listing Rule 9.8.6(8) (LR) came into force. The LR requires premium-listed issuers, in their periodic reporting, to publish disclosures in line with the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations on a ‘comply or explain’ basis. However, the Financial Conduct Authority (FCA) has recognised that some issuers may need more time to deal with modelling, analytical, metric or data-based challenges.

This flexibility in the new LR’s compliance basis reflects the challenges and evolving experiences with working on data and metrics in the context of climate risk. Key stakeholders should now be redoubling their efforts to meet the challenges and with the promise of further TCFD guidance on data and metrics later this year and the recent launch of a Department for Business, Energy and Industrial Strategy (BEIS) consultation seeking views on proposals to mandate climate-related financial disclosures in line with the TCFD recommendations from 6 April 2022, the step to a mandatory climate-related disclosure regime may be closer than initially envisaged.

In light of the ever-evolving regulatory landscape, it is important issuers continue to monitor the impact of any changes to their disclosure requirements and to consider what, if any, litigation risks may arise (particularly, under s90 FSMA, s90A FSMA, or in common law or equity) in connection with their climate-related disclosures.

The key developments on data and metrics, as well as the key proposals from the BEIS consultation, are examined below. We also consider what these developments and proposals mean for issuers in terms of regulatory reporting requirements.

Climate Financial Risk Forum

Following its fifth quarterly meeting in November 2020, the Climate Financial Risk Forum (CFRF) noted the importance of progress in the development and understanding of climate data and metrics. In light of this, the CFRF announced that all of its working groups will focus on climate data and metrics in the next phase of work. This is a shift from the CFRF’s previous approach of allocating different focus areas to its working groups.

TCFD Financial Metrics Consultation

The TCFD has this month published a summary of the responses to its ‘Forward-looking Financial Metrics’ Consultation, which was conducted between October 2020 and January 2021. The consultation aimed to collect feedback on decision-useful, forward-looking metrics to be disclosed by financial institutions. The TCFD solicited feedback on specific metrics and views on the shift to, and usefulness of, forward-looking metrics more broadly.

46% of the 209 respondents were financial services firms from around the world, and over half of the respondents were EMEA based, with just over a quarter from North America.

These findings will inform the work on metrics and targets which the TCFD plans to tackle in 2021. The TCFD announced that it will publish broader, additional draft guidance for market review and consideration later this year.

BEIS Consultation

BEIS launched a consultation this month on mandating climate-related disclosures by publicly quoted companies, large private companies and LLPs. The consultation proposes that, for financial periods starting on or after 6 April 2022, certain UK companies with more than 500 employees (including premium-listed companies) be required to report climate-related financial disclosures in the non-financial information statement which forms part of the Strategic Report. Such disclosures are required to be in line with the four overarching pillars of the TCFD recommendations (Governance, Strategy, Risk Management, Metrics & Targets).

BEIS has stated that the proposed rules are intended to be complementary to the FCA’s requirement that premium-listed companies make disclosures in line with the four pillars and 11 recommended disclosures of the TCFD. BEIS proposes to introduce the new rules via secondary legislation which will amend the Companies Act 2006.

The Financial Reporting Council will be responsible for monitoring and enforcing the proposed rules, while the FCA will supervise and enforce disclosures within the scope of the LR.

The consultation is open until 5 May 2021.

Regulatory reporting requirements

The new TCFD guidance, once published, is likely to feed into the LR requirements. The new LR expressly refers to the TCFD Guidance on Risk Management Integration and Disclosure and the TCFD Guidance on Scenario Analysis for Non-Financial Companies published in October 2020. Additionally, the FCA’s Policy Statement dated December 2020, which accompanied the new LR, stated that the FCA would be considering how best to include references to any further TCFD guidance in the FCA Handbook Guidance. This is likely to be achieved through the use of the FCA Quarterly Consultation Papers.

The new LR is not a mandatory disclosure requirement and the new rules proposed by the BEIS consultation are yet to have legislative force. However, we are getting a clearer picture of the likely disclosure regime in the UK and in particular: the regulatory guidance around the compliance basis; the clear anticipated milestones this year relating to data and metrics guidance and best practice; and the forthcoming Consultation Paper by the FCA on the scope expansion (including compliance basis) of the new LR. That picture suggests the transition to mandatory climate-related disclosure requirements may well be a small step, rather than a giant leap.

Simon Clarke
Simon Clarke
Partner
+44 20 7466 2508
Nihar Lovell
Nihar Lovell
Professional Support Lawyer
+44 20 7374 8000
Sousan Gorji
Sousan Gorji
Senior Associate
+44 20 7466 2750

High Court dismisses disclosure application by a group of unidentified investors on the grounds that it amounted to a “fishing expedition”

The High Court has dismissed an application by a group of unidentified investors for Norwich Pharmacal relief (or, alternatively, pre-action disclosure under CPR 31.16) in relation to a potential GBP £50 million damages claim against the defendant bank for an alleged breach of contract/negligence in connection with the sale of various tax mitigation schemes: Zeus Investors v HSBC Bank plc [2020] EWHC 3273 (Comm).

This decision is a reassuring one for financial institutions faced with broad applications for disclosure before proceedings have been commenced by prospective claimants; especially from those who may not be parties to the contractual arrangement which is the subject of the dispute and who are not identified precisely in the applications. Such applications may be used tactically by claimants seeking to put pressure on defendant banks with requests that are time-consuming to deal with and/or seek disclosure of potentially confidential documents. The decision highlights the narrow scope of the court’s Norwich Pharmacal jurisdiction, with claimants being required to: (a) evidence the vital need for the documentation requested in order to be able to plead their case; (b) engage appropriately with the requisite pre-action protocols; and (c) identify upfront and precisely who the applicants are.

In the present case, the court was satisfied that the information sought by the claimants was not necessary in order to plead their claim, given the material already available to them. This did not suggest to the court that a missing piece of the jigsaw was required to be able to formulate their case. In addition, the court found that the claimants’ application was unfocused and over wide, providing all the hallmarks of a fishing expedition. In particular, the court drew attention to the electronic search terms proposed by the claimants, which would likely have generated a large number of responsive materials and required a manual review prior to disclosure. These search terms did not appear to the court to be formulated by reference to a potential claim, with the claimants instead seeking every document of the slightest relevance for a purported claim which would be particularised at a later date. It was therefore not in the interests of justice to order the disclosure sought.

The court also found that, had the claimants sought to pursue their application for pre-action disclosure under CPR 31.16, this application would similarly have been refused. Due to the wide nature of the disclosure sought by the claimants which went further than standard disclosure, the test under CPR 31.16(3)(c) was not met. The pre-action disclosure application was ultimately not pursued by the claimants, as they recognised that if they could not meet the conditions for Norwich Pharmacal relief, it would not be possible to meet the requirements of CPR 31.16.

Background

The claimants were investors in a series of tax mitigation schemes (Schemes) promoted by Zeus Partners LLP, a subsidiary of a UK brokerage (Subsidiary). These Schemes had allegedly been developed and masterminded by the defendant bank (Bank), pursuant to a 2007 agreement between the Bank and the Subsidiary (Agreement). The claimants were not parties to that Agreement, which also expressly provided that there were no third party enforcement rights.

By 2008 both the Treasury and HMRC had threatened taking legislative action against what they claimed to be aggressive tax management arrangements. Six investors in the Schemes were subsequently charged with conspiracy to cheat HMRC, with the Schemes reportedly having been designed and intended to illegally evade tax (the Criminal Proceedings). The Criminal Proceedings were discontinued and formally dismissed in June 2017.

Following the disclosure of certain internal Bank email exchanges by HMRC as part of the Criminal Proceedings, the claimants apparently became aware that the Bank in early 2008 became concerned that the Schemes were ineffective and high risk from a legal and regulatory perspective. But rather than providing cautionary advice to those who were owed advisory duties under the Agreement, the Bank purportedly instead chose to continue to allow the Schemes to be sold and profited from those sales.

The claimants (with a view to properly assessing, formulating and pleading their proposed claim against the Bank in relation to the Schemes) subsequently applied to the court seeking disclosure from the Bank of additional internal documents via a Norwich Pharmacal order. The claimants belatedly also applied, albeit through their skeleton arguments rather than amending the application notice, for pre-action disclosure under CPR 31.16. The claimants argued that the documents sought would form the bulk of what had only been seen in snippet form as a result of disclosure during the Criminal Proceedings.

Decision

The court dismissed the claimants’ application for Norwich Pharmacal relief. The court also said that if a formal application for pre-action disclosure had been made, it was satisfied that the application would have failed on its merits.

The key issues which are likely to be of broader interest to financial institutions are summarised below.

Application for Norwich Pharmacal relief

The claimants advanced a number of arguments in favour of Norwich Pharmacal relief. A key argument was that the disclosure of the documents sought from the Bank would provide a more complete picture of the nature and scope of the alleged breach of advisory duties. These documents were said to be required so that the investors in the Schemes could consider fully any breaches and particularise them in detail for any potential claims, avoiding the need for future amendments to their claim form.

The court rejected the claimants’ arguments and held that the requirements for Norwich Pharmacal relief had not been met.

In reaching its conclusion, the court cited the following factors, amongst others, as influential in its decision:

  • No contractual wrongdoing. On the evidence, there was no good arguable case of any contractual wrongdoing between the Bank and claimants. The services under the Agreement were provided by the Bank to the Subsidiary, the claimants were not a contractual party to the Agreement, and the Agreement expressly provided that there were no third party rights of enforcement.
  • Not necessary in interests of justice. The claimants failed to demonstrate that the Norwich Pharmacal order sought was necessary in the interests of justice. Certain documents were already available to the claimants (including the Agreement), which would allow the pleading out of an alleged tortious duty, breach and loss. The court added that this had even been acknowledged to a certain extent by the claimants’ own witness evidence, which showed it was already possible to plead a claim against the Bank without further disclosure. As a result, the court was not satisfied that the information sought was vital for a decision to sue the Bank or an ability to plead the claimants’ case. The claimants’ arguments regarding the need for the full picture in order to advance their claims or to avoid future amendments to the claim form were not proper justifications for Norwich Pharmacal relief.
  • Unfocused application. The claimants’ application was unfocused and over wide, which had the hallmarks and characteristics of a “fishing expedition”. In particular, the court drew attention to the claimants’ lengthy list of keywords, which were not proportionate and would not provide the necessary documentation in order to plead their claim. These electronic search terms would have generated a significant number of documents requiring a manual review prior to disclosure. The search terms were considered by the court as not being properly formulated by reference to the underlying claim and were not seen as absolutely necessary. The court found that the search terms were instead akin to a wish list of every document of even possible relevance to any purported claim the claimants may have chosen to particularise in the future. As such, there was a real risk that the claimants’ proposed search terms would have generated a mass of irrelevant documentation. The court noted that the disclosure sought was therefore not within standard disclosure, and would only rarely be ordered in an “exceptional case” under category E of the Disclosure Pilot.
  • Lack of pre-action protocol engagement. There had been little attempt by the claimant to engage in substantive pre-action correspondence. The claimants had not engaged with the necessary pre-action protocols and had made little attempt to obtain focused or specific documentation.
  • Unidentified claimants. There was continuing uncertainty as to the identity of the claimants. The court noted that there were estimated to be at least 200 investors in the claimant group; not all of them had been identified precisely. Also, the application sought information which had the potential to be confidential and which could only be used for a specific purpose. There was therefore a need to be clear as to who was applying for the information, who was receiving that information and who could use it so that it could be assessed whether they had an entitlement to such information and whether it was inappropriate to give them such information.

Interestingly, the court commented that even if the requirements for Norwich Pharmacal relief had been met, it still would not have considered it appropriate in the exercise of the court’s jurisdiction to have granted the relief sought. In the court’s view, such relief was neither vital nor necessary in advance of any action being commenced and the information sought was not required in order for justice to be done.

Application for pre-action disclosure under CPR 31.16

The claimants ultimately did not pursue their application for pre-action disclosure under CPR 31.16, recognising that if they did not meet the requirements for Norwich Pharmacal relief, it would not be possible to meet the requirements of CPR 31.16.

However, the court noted that it would not have been an appropriate case to permit the application for pre-action disclosure, on the basis that: (a) the application was not supported by evidence addressing the CPR 31.16 test; (b) the disclosure being sought by the claimants was wider than what would be ordered under the Bank’s duty of standard disclosure if the proceedings had already commenced (as required by CPR 31.16(3)(c)) and therefore a fishing expedition; and (c) such disclosure was not desirable and was not necessary to dispose fairly of the anticipated proceedings (which could properly and fairly be commenced without it), nor would it assist the parties in resolving their dispute without proceedings, nor would it save costs.

Ceri Morgan
Ceri Morgan
Professional Support Consultant
+44 20 7466 2948
Nihar Lovell
Nihar Lovell
Professional Support Lawyer
+44 20 7374 8000
Elizabeth Stephens
Elizabeth Stephens
Associate
+44 20 7466 6324

Climate-related disclosures for issuers: FCA publishes final rules

The Financial Conduct Authority (FCA) has published a Policy Statement (PS20/17) and final rules and guidance in relation to climate-related financial disclosures for UK premium listed companies.

Companies will be required to include a statement in their annual financial report which sets out whether their disclosures are consistent with the Task Force on Climate-related Financial Disclosures (TCFD) June 2017 recommendations, and to explain if they have not done so. The rule will apply for accounting periods beginning on or after 1 January 2021.

As well as some additional guidance, the FCA has made only one material change to the rules consulted upon in March 2020 (CP20/03) with the final LR 9.8.6(8)(b)(ii)(C) R requiring non-compliant companies to set out details of how and when they plan to be able to make TCFD-aligned disclosures in the future.

With regard to monitoring compliance with the new listing rule, the FCA confirmed in its Policy Statement that it will provide further information on its supervisory approach to the new rule in a Primary Market Bulletin later in 2021.

In light of this latest regulatory development, issuers may also want to consider what, if any, litigation risks may arise in connection with climate-related disclosures (and indeed other sustainability-related disclosures which are made in response to these regulatory developments). There may be an increased risk of litigation under s90 FSMA, s90A FSMA, or in common law or equity. This was considered in greater detail in our recent Journal of International Banking & Financial Law article (published in October 2020) in which we also examined the existing climate-related disclosure requirements, the impact of the FCA’s proposals on issuers and how issuers can mitigate against such litigation risks.

Our article can be found here: Climate-related disclosures: the new frontier?

For a more detailed analysis of the FCA’s Policy Statement, please see our Corporate Notes blog post.

Simon Clarke
Simon Clarke
Partner
+44 20 7466 2508
Nihar Lovell
Nihar Lovell
Professional Support Lawyer
+44 20 7374 8000
Sousan Gorji
Sousan Gorji
Senior Associate
+44 20 7466 2750

Climate-related disclosures for issuers: next steps from UK financial regulators outlined

This month, there have been some significant regulatory announcements in relation to climate-related disclosures. These announcements are a result of the increasing focus on climate change and sustainability risks across governments, regulators and industry and a continued move towards corporate compliance with the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations.

While not launching new developments or heralding the unexpected, these announcements are noteworthy for issuers as they mark a change in tone from the UK regulators regarding climate-related disclosures. Previously, the Financial Conduct Authority (FCA) and Prudential Regulation Authority took a cooperative and directional view, in recognising that issuers’ capabilities were continuingly developing in some areas which might limit their ability to model and report scenarios in the manner recommended by the TCFD. With the latest announcements, it seems increasingly likely that there will now be a shift away from voluntary climate-related disclosures towards mandatory TCFD aligned disclosures across the UK economy.

Key announcements

Recent key announcements include:

  • HM Treasury publishing the Interim Report of the UK’s Joint Government-Regulator TCFD Taskforce (the Taskforce) on the implementation of the TCFD recommendations and a roadmap towards mandatory climate-related disclosures;
  • the Governor of the Bank of England’s (BoE) speech reaffirming what the BoE is doing to ensure that the UK financial system plays its part in tackling climate change;
  • the FCA’s speech on rising to the climate challenge; and
  • the Financial Reporting Council’s (FRC) publication of its Thematic Review on climate-related risk.

Summary of key announcements

These announcements highlight the UK’s financial regulators’ strategy for improving and developing climate-related disclosures. The key points from these announcements include:

Taskforce

  • The Taskforce’s Interim Report highlighted the UK government’s commitment to introduce mandatory climate-related financial reporting, with a “significant portion” in place by 2023, and mandatory requirements across the UK economy by 2025. The Interim Report considered regulatory steps around tackling climate change, and also identified proposed legislative changes from the Department for Business, Energy and Industrial Strategy (which is intending to consult in the first half of 2021 on changes to the Companies Act 2006 to insert requirements around the TCFD recommendations on compliant disclosures in the Strategic Report of companies’ Annual Reports and Accounts, including large private companies registered in the UK).
  • The Taskforce strongly supports the International Financial Reporting Standards Foundation’s proposal to create a new global Sustainability Standards Board on the basis that internationally agreed standards will help to achieve consistent and comparable reporting on environmental and, social and governance (ESG) matters.

BoE

  • The BoE reaffirmed its commitment to driving forward the business world’s response to tackling climate change and reiterated the importance of data and disclosure in firms’ attempts to manage climate risk.
  • The BoE announced that the delayed climate risk stress test (its biennial exploratory scenario dubbed “Climate BES”) for the financial services and insurance sectors would be carried out in June 2021.
  • While the Climate BES will not be used by the BoE to size firms’ capital buffers, the BoE has put down the marker that it expects firms to be assessing the impact of climate change on their capital position over the coming year and will be reviewing firms’ approaches in years to follow.
  • The BoE also directed financial firms and their clients to the TCFD recommendations to encourage focus and drive decision-making, pointing to the benefits that the BoE has itself felt from reporting this year in line with the TCFD recommendations.

FCA

  • The FCA confirmed that from 1 January 2021 new rules will be added to the Listing Rules requiring premium-listed commercial company issuers to report in line with the TCFD recommendations. As anticipated by last year’s Feedback Statement, the new rule will be introduced on a ‘comply or explain’ basis. The general expectation is that companies will comply, with expected allowances for modelling, analytical or data based challenges. It is expected that these allowances would be limited in scope. The Taskforce’s Interim Report notes that the FCA is considering providing guidance on the “limited circumstances” where firms could explain rather than comply. A full policy statement and confirmation of the final rules are expected before the end of 2020.
  • The FCA is also intending to consult on “TCFD-aligned disclosure” by asset managers and life insurers. These disclosures would be aimed at “clients” and “end-investors”, rather than shareholders in the firm itself. The consultation is intended for the first half of 2021 and is stated that “there will be interactions with related international initiatives, including those that derive from the EU’s Sustainable Finance Action Plan” (it should be noted that such standards cover much more than climate disclosures). Current indications are that these disclosure standards would come into force in 2022.
  • The FCA is co-chairing a workstream on disclosures under IOSCO’s Sustainable Finance Task Force, with the aim of developing more detailed climate and sustainability reporting standards and promoting consistency across industry.

FRC

  • The FRC emphasised that all entities (boards, companies, auditors, professional advisers, investors and regulators) needed to “do more” to integrate the impact of climate change into their decision making. One of the FRC’s ongoing workstreams is investigating developing investor expectations and better practice reporting under the TCFD recommendations.

Regulatory reporting requirements and litigation risks for issuers

The recent announcements are a reminder by the UK’s financial regulators that issuers must look beyond the current Covid-19 crisis to the oncoming climate emergency. It is clear that not engaging is not an option, even as the regulatory environment continues to change. Issuers and firms will therefore want to consider the impact of those disclosure requirements/suggestions across the board, from investor interactions to regulatory reporting to meeting supervisory expectations.

As the sands shift, issuers may also want to consider what, if any, litigation risk may arise in connection with climate-related disclosures (and indeed other sustainability related disclosures that are brought out from the shadows with these regulatory developments). There may be an increased risk of litigation under s90 FSMA, s90A FSMA, or in common law or equity. This was considered in greater detail in our recent Journal of International Banking & Financial Law article (published in October 2020) where we also examined the existing climate-related disclosure requirements, the impact of the FCA’s proposals on issuers and how issuers can mitigate against such litigation risks.

Our article can be found here: Climate-related disclosures: the new frontier?

Simon Clarke
Simon Clarke
Partner
+44 20 7466 2508
Nish Dissanayake
Nish Dissanayake
Partner
+44 20 7466 2365
Nihar Lovell
Nihar Lovell
Senior Associate
+44 20 7374 8000
Sousan Gorji
Sousan Gorji
Senior Associate
+44 20 7466 2750

Climate-related disclosures: the new frontier?

Herbert Smith Freehills LLP have published an article in Butterworths Journal of International Banking and Financial Law on the Financial Conduct Authority (FCA)’s proposals for regulating climate-related disclosures and the litigation risks which may arise for issuers from such proposals.

Climate change has been part of the political and regulatory discourse for years. However, it is an issue which is gaining increasing prominence on the global stage. Over a thousand companies now support the Task Force on Climate-related Financial Disclosures (TCFD)’s recommendations, while shareholder activism in the climate arena is stretching beyond Greenpeace’s proposed resolutions at energy companies’ AGMs. Against this backdrop, both the EU and the UK have advocated for adapting their financial systems to address climate risks. Whilst the European Central Bank and Bank of England are addressing the risks from climate change in their financial systems, attention has also turned to how companies themselves can be affected by climate change, both in terms of risk assessment and management, and in terms of investor and market-facing disclosures. The current legal framework regarding issuer disclosure already provides some requirements for issuers to disclose climate-related risks in certain circumstances. However, the existing disclosure requirements fall short when it comes to consistent and meaningful disclosures. There are therefore systemic and policy drivers to increase transparency, reporting and potential regulation in this space.

The FCA has noted that voluntary adoption of the TCFD’s recommendations has been increasing. However, based on the feedback that the FCA received in response to a 2018 Discussion Paper, the FCA considers that there is evidence to support the case for it to intervene to accelerate such progress.

In our article, we examine the existing disclosure requirements for issuers, the FCA’s new proposals for regulating climate-related disclosures, the FCA’s reasons behind the proposals, how issuers will be impacted by the proposed regulatory change, the litigation risks which may arise for issuers and how issuers can mitigate against such litigation risks.

This article can be found here: Climate-related disclosures: the new frontier? This article first appeared in the October 2020 edition of JIBFL.

Simon Clarke
Simon Clarke
Partner
+44 20 7466 2508
Nihar Lovell
Nihar Lovell
Senior Associate
+44 20 7374 8000
Sousan Gorji
Sousan Gorji
Senior Associate
+44 20 7466 2750