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English Court refuses permission for collateral disclosure of evidence to the FBI

In ACL Netherlands BV and others v Lynch and another [2019] EWHC 249 (Ch) (“ACL“), the High Court said that an applicant is unlikely to be granted permission for collateral use of evidence  disclosed in English civil proceedings, unless there are special circumstances amounting to ‘cogent and persuasive reasons’.

The Case

The Claimants had commenced civil proceedings against the Defendant concerning allegations of fraud.

The Claimants applied to the Court for permission to provide the United States Federal Bureau of Investigation (“FBI“) with witness statements and the Defendants’ documents disclosed in the English proceedings. The FBI request, in connection with a US criminal investigation, was in the form of a Californian US Grand Jury subpoena addressed to the Claimants’ parent company, but naming the Claimants as a “recipient“.

The Claimants argued that the English Court should grant the required permission so that the Claimants could comply with the FBI order and avoid being in contempt of Court in the USA.

The Rules

The Civil Procedure Rules (“CPR“) codified a historic implied undertaking that ‘a party to whom a document has been disclosed may use the document only for the purpose of the proceedings in which it is disclosed’. There is also an identical rule specifically for witness statements, confirming that a party must only use a witness statement for the purpose of the proceedings in which it is served.

There are some limited exceptions to the general rules above, namely in circumstances when:

  1. the document has been read to or by the Court, or has been referred to at a hearing held in public; or
  2. the party who disclosed the document and the person to whom the document belongs agree to its collateral use; or
  3. the Court gives permission.

The Claimants relied on this final exception (pursuant to CPR 31.22(1) (b) and 32.12(2) (b)), in an attempt to obtain the Court’s permission to use the disclosed documents and witness statements and provide them to the FBI.

The Court’s approach to collateral disclosure

Ultimately, the Court did not grant permission to the Claimants.

The Court re-iterated that the leading guidance in this area remains the case of Crest Homes Plc v Marks [1987] AC 829; the Court has discretion to release or modify the restrictions on the collateral use of disclosed documents, but only when:

  1. the applicant can demonstrate cogent and persuasive reasons why the restrictions should be released or modified; and
  2. the release or modification will not occasion injustice to the disclosing party.

The burden of proof lies with the applicant.

The Court in ACL followed this overall approach and declined the Claimant’s request to release/modify the restrictions.

Public policy considerations

The Court in ACL explained that the reasoning behind the Crest Homes approach is to protect a litigant’s right to privacy and confidentiality: ‘in exercising its discretion to give permission for collateral use, the Court must be circumspect and protective of that policy.’ In order to grant permission, there must be serious public policy reasons in favour of the collateral use of the documents, which outweigh the factors in favour of preserving confidentiality.

If this cannot be proven, the Judge commented that the burden is such that, in reality, it will usually be difficult, if not impossible, to obtain permission for collateral use’. This burden is even higher in the case of witness statements due to the serious harm which could result for the serving party. This is especially the case where the pre-trial collateral use of witness statements is in question (as was the case in ACL). A witness statement is neither evidence nor public before the witness is called at trial. Accordingly, protecting the serving party is of even more importance in these circumstances.

The Court commented that parallel investigations concerning the investigation or prosecution of serious fraud or criminal cases could amount to such ‘cogent and persuasive reasons’. However, the Court cautioned that it must consider all the circumstances of the case in deciding whether the Crest Home test was satisfied.

In the circumstances of the ACL case, there was no ‘compulsion‘ on the Claimants, as the subpoena was not addressed directly to the Claimants but rather to the parent company (who did not have control of the documents). The Claimants sought to rely on the simple existence of the subpoena as a ‘trump’ card to override the usual disclosure rules (on the basis that it created a non-voluntary obligation to comply). However, this was not sufficient ‘compulsion’ from the Court’s perspective.

The Claimants also failed to establish the ‘necessity‘ of the disclosure of the particular documents for assisting the FBI investigation. There was a lack of sufficient evidence as to the importance of the particular disclosure sought. This was especially the case, given that the Court formed the view that the subpoena was “drawn in the widest possible termsas semantically possible“, seeking all documents that had been produced by the parties to the ACL case.

Conclusion

The ACL case is clear that applications concerning the implications of disclosure rules are a matter of English Law. The Court stressed its respect and high regard for the United States Court process, while affirming that it must apply English law in accordance with public policy considerations in refusing the Claimants permission to comply with the subpoena.

Although parallel overseas investigations concerning fraud and dishonesty could amount to sufficient public policy reasons for allowing collateral disclosure, the Court will consider all the circumstances of the case in assessing this. There is a high, if not insurmountable, evidential burden on applicants to demonstrate a shift of public policy factors in favour of collateral disclosure.

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Garon Anthony, Squire Patton Boggs, litigation attorney
Partner

Garon Anthony is a partner in the Litigation Practice Group. He has specialised in dispute resolution work since he qualified as a solicitor and has considerable experience in general corporate and commercial litigation work, acting for both private and public sector clients.

Garon regularly resolves disputes for clients in the financial services/insurance sector. That encompasses professional negligence, fraud issues/recovery processes, dealing with claims and complaints by customers of the mis-selling of retail products, handling insurance policy coverage disputes for corporate...

44 121 222 3507
Mariyam Harunah Debt Recovery Attorney Squire Patton Boggs
Associate

Mariyam regularly acts for a diverse client base, including, SMEs, FTSE 100 and 250 corporations, public bodies, developers, insurers and individuals.

Mariyam has experience advising on a wide-range of matters of both a contractual and tortious nature, including breach of contract, breach of warranty, misrepresentation, defamation, professional negligence, debt recovery and insurance.

Experience

  • Assisting on an approximately £160 million multi-action and multi-defendant claim following the sale of a company to investor clients.

  • Acting on a variety of disputes for clients seeking the recovery of unpaid monies owed pursuant to contract.

  • Acting on a portfolio of financial mis-selling claims for a leading international bank.

  • Advising a variety of clients upon termination of contract issues.

  • Acting for industrial manufacturers and suppliers in the defence of contractual and tortious disputes with technical complexities, arising out of the provision of allegedly defective products.

  • Assisting in the provision of bespoke and strategic advice to a national regulator dealing with persistent defamation and harassment.

  • Acting for a leading hire purchase provider in enforcement proceedings.

  • Assisting on a £500,000 negligence claim by a leading supermarket arising out of property damage and business interruption at one of its warehouses.

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