Court of Appeal allows inspection of documents despite the risk of foreign prosecution
07 May 2019
The Iranian bank, Bank Mellat, has lost its Court of Appeal bid to withhold customer documents from inspection in the English Courts despite the risk that this may expose the bank to prosecution in Iran.
The overarching and ongoing litigation in Bank Mellat v HM Treasury concerns the bank’s claim for damages under the Human Rights Act 1998 related to the Financial Restrictions Iran Order 2009, and the subsequent 2011 and 2012 Iran sanctions regimes, which the bank claims has caused it to lose its position as the pre-eminent underwriter of Letters of Credit in the Iranian market, causing damage totalling 4 billion US dollars.
Right or duty to withhold inspection
In the case management phase of the litigation, Bank Mellat claimed it had a “right or duty” under CPR 31.19(3) to withhold inspection of unredacted versions of certain documents in the case said to contain confidential banking data relating to identifiable customers. The bank argued that production of the documents in unredacted form would expose the bank to the risk of criminal prosecution in Turkey, Iran and South Korea.
In relation to the Iranian documents, the High Court judge made an order for disclosure and inspection subject to “confidentiality club” provisions and each document being referred to by a cipher code with the redacted information only being made available to confidentiality club members and the court. The bank appealed.
The Court of Appeal’s decision
The Court of Appeal held that the principles to be considered when deciding if a party has a right to withhold documents to avoid contravening foreign law are well established and, in summary, are that:
- The English court has jurisdiction to order production and inspection regardless of whether compliance would or might entail a breach of foreign criminal law in the “home” country of the party;
- Orders for production and inspection are matters of procedural law, governed by the “lex fori” (the law of the country in which an action is brought) – here, English law;
- Whether or not to make such an order is a matter for the court’s discretion. An order will not lightly be made where compliance would entail a party to English litigation breaching its own (i.e., foreign) criminal law, not least with considerations of comity of nations in mind – but the court is not precluded from doing so;
- When exercising its discretion, the court will take account of the real (i.e. actual) risk of prosecution in the foreign state. This must be balanced against the importance of the documents to the fair disposal of the English proceedings;
- If inspection is ordered, the court can fashion the order to reduce or minimise the concerns under the foreign law, for example, by imposing confidentiality restrictions; and
- Where an order for inspection is made, considerations of comity may influence the foreign state in deciding whether to prosecute the foreign national for complying with the English court’s order, as “comity cuts both ways”.
In this case the court weighed the actual risk of prosecution in Iran, assessed on the basis of the testimony of bank’s Iranian law expert, against the need to view the documents to settle the matters in issue. The Court of Appeal considered that the Iranian documents in question went to the heart of the issues in the case, and held that the High Court had struck the right balance between the risk of prosecution, which was judged to be low, and the ability of the court to assess the issues before it. On this basis the bank was ordered to produce the documentation for inspection subject to confidentiality club provisions that meant individual customers would never be mentioned in open court.
This case highlights that it may be difficult for international parties commencing proceedings in the English courts to withhold inspection of documents on which matters of importance in the case might turn – even where permitting such inspection may risk prosecution at home. Claimants should weigh up the risk of allowing inspection of documents held out of the jurisdiction against the value of the litigation to their business before a claim is commenced.
It is also important for all parties to litigation to consider where documents are held early on and before committing in their disclosure list to allowing inspection – it is not only in jurisdictions such as Iran that issues can arise; certain European countries have stringent laws that may impact on a party’s ability to comply with an order for disclosure made by the English Court. If necessary, an application can be made to the court as part of the management of the case to resolve any tension between the English law requirement for the inspection of documents and the provisions of foreign law in the country where the documents are held.