Companies - an appeal from an order of the Master of 17th January, 2019.
[2019]JRC202
Royal Court
(Samedi)
9 October 2019
Before :
|
T. J. Le Cocq, Esq., Deputy Bailiff, and
Jurats Crill and Christensen
|
Between
|
CMC Holdings Limited
|
First Plaintiff
|
|
CMC Motors Group Limited
|
Second Plaintiff
|
And
|
Martin Henry Forster
|
First Defendant
|
|
RBC Trust Company (International) Limited
|
Second Defendant
|
|
The Regent Trust Company Limited
|
Third Defendant
|
And
|
Martin Henry Forster
|
Third Parties
|
|
Jeremiah Kiereini
|
|
|
Charles Njonjo
|
|
|
The Estate of Jack Benzimra
|
|
|
The Estate of Prahlad Jani
|
|
|
RBC Trust Company (International) Limited
|
|
|
The Regent Trust Company Limited
|
|
Advocate S. C. Thomas for the Plaintiff.
Advocate S. J. Alexander for the First and Second
Defendants
judgment
the deputy bailiff:
1.
This is an
appeal from an order of the Master of 17th January, 2019, CMC and
Anor v Foster and Ors [2019] JRC 004A contained in his judgment of that
date (“the Master’s Judgment”). It is brought by RBC Trust Company
(International) Limited (“the Second Defendant”) and The Regent
Trust Company Limited (“the Third Defendant”).
2.
The order
made by the Master deals with the method of identifying documentation which
should be disclosed by the Plaintiffs to the Defendants in this case. It is not the first time that this issue
has come before this Court. For
reasons set out in a judgment of 8th November, 2017, (CMC
Holdings Limited –v- Forster and others [2017] JRC 188), the Master
made certain orders with regard to discovery in these proceedings. Those order were appealed to this Court
and the judgment of this Court on that appeal is to be found at CMC v
Forster and Ors [2018] JRC 078 (“the Royal Court Judgment”).
3.
The
background in this matter has been referred to at some length in the various
judgments of the Court including those referenced above. It is not therefore necessary to set out
full details of the background but the summary of the case set out in Royal
Court Judgment is in the following terms:-
“The nature of the case
10. Whilst it is not necessary to
go into the full details of the Plaintiffs’ claim and the nature of the
answer filed, it is necessary to gain some understanding in order to put the
orders for discovery made by the Master in context.
11. In general terms, the nature of
the case can be explained by quoting the summary of claims set out in the
Plaintiffs’ Order of Justice.
It is in the following terms:-
“1. The
Plaintiffs are long-established Kenyan companies. They import vehicles from overseas
vehicle manufacturers and supply them to the East African market. The Second Plaintiff is a wholly owned
subsidiary of the First Plaintiff.
2. The
Plaintiffs seek relief in respect of the Defendants’ participation in a
secret scheme (“the Scheme”) which operated from 1977 to 2011. Under the Scheme, funds properly due to
the Plaintiffs were diverted at the instruction of certain directors of the
Plaintiffs, in breach of fiduciary duty and in breach of trust. The directors responsible included the
First Defendant.
3. Those
directors were dishonestly assisted by the Second and Third Defendants who were
at all material times fiduciary and corporate services providers in
Jersey. In the alternative, the
Second and Third Defendants are vicariously liable for the dishonest assistance
rendered by their employees and agents in the directors’ breaches of
duty.
4. The
Scheme was funded by secret commissions paid by vehicle manufacturers that supplied
vehicles to the Second Plaintiff.
They were paid directly to bank accounts in Jersey operated by entities
unconnected with either of the Plaintiffs and without the knowledge or
authorisation of the Plaintiffs.
Funds paid into the Scheme were transferred between those entities,
invested, and over time substantially distributed to a small group of people,
including the First Defendant and other of the Plaintiffs’ directors who
were privy to the Scheme.
5. The
secret commissions paid into the Scheme and their proceeds were the result of
breaches of fiduciary duty and breaches of trust by directors of the
Plaintiffs, including the First Defendant.
The Plaintiffs seek orders that the First Defendant account to the
Plaintiffs for all sums that were paid into the Scheme as a consequence of his
breaches of fiduciary duty and breaches of trust. The Plaintiffs also seek an order that
he account to the Plaintiffs for his profit from the Scheme still in hand.
6. The
Plaintiffs also seek orders for the Second and Third Defendants to account to
the Plaintiffs for all sums paid into the Scheme on the ground of their
dishonest assistance in these breaches of fiduciary duty and / or breaches of
trust, wherein the alternative on the basis that they are vicariously liable
for the dishonest assistance provided by their agents and employees.”
12. Accordingly
insofar as it related to the Second and Third Defendants, the claim against
them is predicated upon there being a scheme, the funding of which was provided
by secret commissions paid by suppliers of motor vehicles to the Plaintiffs at
the request of directors of the Plaintiffs. The secret commissions were paid into
offshore companies and structures operated, so it is alleged, by the Second and
Third Defendants. It is alleged
that the payments were made by the directors of the Plaintiffs in breach of
their fiduciary duty and that the Second and Third Defendants dishonestly
assisted the directors in the Scheme.
The monies held in the Scheme from the secret commissions were
ultimately provided for the personal use of a group of directors of the
Plaintiffs.”
4.
On the
earlier occasion this Court overturned the decision of the Master and at
paragraphs 54 et seq of the Royal
Court Judgment said this:-
“54. However, it seems to us
that in the main this appeal turns upon one point, namely whether or not the
Master, in saying that “what is at the heart of this case is whether or
not the alleged Scheme was approved by the Plaintiffs, or whether it was a
secret Scheme. Whilst the Scheme is
said to have operated over many years, the key issue is who knew about it and
authorised it”, was correct.
If that were the determinative issue in the case then we can see
justification for the Master limiting discovery in the way that he has
done.
55. Whilst the Scheme as pleaded by
the Plaintiffs is not admitted by the Second and Third Defendants, it appears
to be common ground that some form of Scheme existed given the assertion to
that effect by the First Defendant in his answer. Is the existence of some form of Scheme,
whether in the form as pleaded by the Plaintiffs or accepted by the First
Defendant sufficient to limit discovery insofar as it might disclose, absent
limitation, documentation relating to the details of that Scheme? We can see, looking at the picture
overall, that the Master could legitimately form the view that he did. However, we are less confident in
holding that that must be the case.
56. There is no doubt that the
statement referred to above identifies one of the central issues to the
case. That does not mean, however,
that other issues are not equally important. Furthermore, to express the central
issue in those terms, appears to presuppose that a scheme in the form as
pleaded by the Plaintiffs existed.
That is, on the face of the pleadings, not of course a position that is
accepted by the Second and Third Defendants.
57. In our view, with some
reluctance, we think that the case against the Second and Third Defendants
must, in the light of the non-admittance contained in the pleadings, be proved
in all of its elements to the appropriate standard by the Plaintiffs.
…
61. Accordingly, whilst we fully
understand and sympathise with the Master’s desire to limit what was
otherwise a very substantial exercise in discovery, we do not feel able to
uphold his order.
62. We are not intending to suggest
that some appropriate limitation as to discovery process is not possible in
this case. In fact, we feel it
should be and is desirable. It may
be, for example, that review of documentation can be limited in some way,
perhaps to those where payments are known and set out in schedule 2 to the
Order of Justice. It may be that
this is not possible. Perhaps
service records could be excluded or sampled. We are not in a position to say because
we were not addressed about any alternative. We were asked to uphold the order of the
Master or to overturn it in favour of a full discovery exercise.
63. Without a greater
understanding, we are unable to offer any suggestions as to what may be
possible, and we are left, we think, with no alternative but to overturn the
order of the Master and to find that the normal discovery exercise should take
place. We wish to be clear that all
we are doing at this point is expressing the view that a 10% dip sampling
process will not, in our view, suffice to meet the justice of this case as it
is currently pleaded. However, were those parameters to alter, in other words
were the pleadings to change or some other method limiting the discovery process
to be identified, then we do not mean anything in this judgment to suggest that
it would be inappropriate to explore and order discovery in accordance with
those limitations.
64. We do not fault the Plaintiffs
for seeking to limit discovery. We
do not, however, agree that a 10% dip sampling approach meets the justice of
the case. In that sense, and for
that reason, we overturn the order of the Master. That being said, we also note the fact
that the limitation was not originally opposed before the Master by the Second
and Third Defendants. This appeal
in effect represents a change of position and we think that the costs before
the Master in connection with this matter and of this appeal should be costs in
the cause.”
5.
The matter
returned before the Master for further consideration on the basis of the
Plaintiffs’ application seeking an order that:-
“The Plaintiffs be given
leave to undertake a limited search for discoverable documents, limited to a
sampling of the documents contained in the storerooms of the Plaintiffs
…”.
6.
Following
further clarification, it was clear that what the Plaintiffs proposed was in
essence an identical order to that which this Court had overturned in the Royal
Court Judgment. They did so on the
basis that there had been a change of circumstances occasioned by the advent of
new evidence.
7.
It goes
without saying that unless there are highly persuasive reasons such as those
anticipated in the Royal Court Judgment at paragraph 63 quoted above, or
something that radically alters what might be the appropriate ambit of
discovery, then the decision made by this Court in the Royal Court Judgment
must remain unaltered.
8.
This
approach appears to have been accepted by the Master and recognised in his
letter to the parties of 14th August, 2018, in which he states:-
“If the [second application]
is essentially asking me to reconsider the same order I am concerned that the
[Royal Court Judgment] prevents me from doing so, in particular by reference to
paragraph 61 and 62… If on the other hand what is sought is a different
limitation on what discovery should be carried out, at present I do not
understand what the [second application] is asking for ... It is not therefore
clear what limitation is sought by the Plaintiffs by [the second application]. I expect this to be set out in any
further affidavit …”.
9.
The Master
made a further order on the 17th January, 2019, in effect acceding
to the Plaintiffs’ application to:-
“… be given leave to
undertake a limited search for discoverable documents, limited to a sampling of
the documents contained in the storerooms of the Plaintiffs, as described in
the affidavit of Sally Patricia Mukabana dated 26th May 2017.”
10. In his order the Master ordered, at paragraph
1, that:-
“Subject to paragraph 2 of
this order the Plaintiffs are not required to carry out any further searches
for discoverable documents contained in the storerooms as described in the
first affidavit of Sally Mukabana dated 26th May 2017.”
11. Paragraph 2 of the Master’s order related
to the requirement that the third parties provide each other and the Plaintiffs
and the Defendants with their discovery verified by affidavit within a specific
period.
12. It may be seen, therefore, that in essence the
Master’s order was almost identical to the order that had been appealed
to this Court and overturned on the earlier occasion. We must, accordingly, look to the
Master’s judgment to ascertain his reasons for taking what might be
considered an unusual course.
The Master’s judgment
13. The Master’s judgment is lengthy, running
to some 111 paragraphs. He sets out
the background and then lists a number of affidavits, at paragraph 7 of the
Master’s judgment, which were produced by the Plaintiffs “subsequent to the hearing of the
appeal before the Royal Court”.
These comprise four affidavits sworn by Advocate Sheedy who acts for the
Plaintiffs and, amongst other things, an affidavit sworn by the First Defendant
of 23rd July, 2018.
14. In the Master’s judgment he characterises
the application to limit discovery in paragraph 14 of his judgment in the
following terms:-
“Since the Royal
Court’s judgment there had been a clear change of circumstances, in
particular in terms of the first defendant’s evidence, which was now
available, and which was not available before the Royal Court. If I accepted the first
defendant’s evidence, which Advocate Thomas contended I should, there was
no reason to believe that there would be anything concerning the alleged scheme
in the plaintiffs’ warehouses.
According to Advocate Thomas, the first defendant was unmoveable in his
conclusion that there was nothing in the warehouses and was able to articulate
the reasons why.”
15. The Master’s judgment then sets out the
submissions made to him as to why the First Defendant’s evidence, on which
he had been cross-examined before the Master, should be accepted. He then went on to characterise the
detail given in the second affidavit of Advocate Sheedy (dated 13th
July 2018) as to the detail and process of disclosing documents and the nature
of the searches of the storerooms.
We will not set out that part of the Master’s judgment which
recites in extenso parts of that
affidavit.
16. The Master, at paragraphs 31 et seq of his judgment characterises
submissions before him to the effect that whether any scheme was in breach of
duty owed by the Second and Third Defendants was a matter for trial and did not
have to be established conclusively from the documents in the warehouses. The question of dishonesty was a
question of inference by reference to normally acceptable standards of honest
conduct. There was nothing, so it
was argued before the Master, inherently wrong or inappropriate in presenting a
case at trial based on inviting the Court to draw inferences of
dishonesty.
17. We pause at this point to reflect that we have
some difficulty with the thrust of those submissions. It is true that it is for the Plaintiffs
to establish their case and it is equally true that the Court may infer
dishonesty and/or determine a breach of duty on the facts as presented before
it. It is equally true, therefore,
that the Plaintiffs do not have to establish their case by reliance solely on
the documentation that has been disclosed by them or in the proceedings
generally.
18. However, those arguments do not to our mind dispose
of the question of the obligation to make sufficient discovery. One of the purposes of discovery is so
that the Court can be satisfied that it has all of the potentially relevant
information before it, whether or not it supports the Plaintiffs’ claim, so that it can make an adjudication on a
full appreciation of the evidence.
Documents that may show the form of the scheme, how it operated in
practice, and who was aware of it will be relevant to the Court. It would of course, not be open to a
Plaintiff (and we do not for a moment suggest that this is the
Plaintiffs’ approach in the instant case) to simply say we have decided
that we have enough information to prosecute our claims and therefore we are
not going to look for anything more.
That would, potentially, be highly disadvantageous to any Defendant who
may be denied access to documents that were exculpatory or, at the very least,
gave a different complexion as to what may or may not have been known by
relevant people from time to time.
As we have said we do not think that this is the Plaintiffs’
approach but this seems to us to illustrate the potential flaw in the
Plaintiffs’ submission as characterised in the Master’s judgment on
these points.
19. At paragraph 35 et seq of the Master’s judgment he went on to further reflect
some of the arguments put before him by the Plaintiffs and those put forward on
behalf of the Second and Third Defendants.
The Master’s judgment is in the following terms:-
“35. In terms of the extent of the searches carried out
the affidavit of Advocate Sheedy sworn on 12th December, 2017,
(which was not before the Royal Court) now meant that I was much more informed
of the extent of the searches carried out in the warehouses (see in particular
the table at paragraph 27), and by way of electronic discovery in addition to
the Phase 1 discovery.
36. Significant
resources had been spent on the discovery exercise resulting in over £1.4
million having been spent. This
justified the court taking a pragmatic approach based on the likelihood of what
would be discovered in the warehouses.
37. Advocate
Alexander for the second and third defendants firstly contended by reference to
paragraph 63 that the Royal Court had ruled that a 10% dip sampling process
would not meet the justice of the case.
Yet no different approach had been put forward and therefore the
application by the plaintiffs was an abuse of process because it was a rerun of
their previous application. The
affidavits of Sally Mukabana were before the court on the previous occasion. The affidavit of Advocate Sheedy sworn
on 12th December, 2017, could also have been placed before the
court.
38. In
relation to the first defendant’s evidence this was central to the
plaintiffs’ application.
Advocate Alexander contended that I should treat the first
defendant’s evidence with caution because the first defendant had
confirmed that he had no responsibility for the warehouses and no knowledge of
what documents were in the warehouses.
His awareness therefore of material in the warehouses was only based on
how he understood the Scheme was structured by Mr Jack Benzimra.
39. In
respect of the first defendant’s own evidence, Advocate Alexander
suggested that the affidavit of the first defendant was wholly unreliable and
there were several contradictions:-
(i) a
memo had been found in a warehouse which referred expressly to payments to a Mr
Ludin, and therefore the Scheme;
(ii) the first defendant did not know
what arrangements had been put in place with Land Rover or Leyland two of the
suppliers who had paid commissions (see the second and third defendants’
own records at exhibit KMF3);
(iii) he had to clarify his evidence in
respect of payments being received from New Holland;
(iv) He resiled from his position that
there was only paperwork in the CEO’s office and accepted that there were
other documents;
(v) he
did not understand the test of relevance; and
(vi) he had no understanding about where
pre-invoice documentation might be located.”
20. In the Master’s judgment, in the
paragraphs dealing with his decision, after reference to paragraph 58 of the
Royal Court judgment, the Master says this:-
“48. In relation to this summary, there have been two
significant developments material to the plaintiffs’ present application.
49. Firstly,
the second and third defendants are now required to make their case clear in
respect of monies paid in and out of the entities they administered (see
paragraphs 74-76 of my last judgment set out above). This is because although the second and
third defendants put the plaintiffs to proof of monies paid in and out of the
Scheme, in their amended answer at paragraphs 42 and 47 the second and third
defendants had pleaded that they “were aware of the fact and quantum of
all payments into and out of COI Panama COI Liberia”. This requirement on the part of the
second and third defendants to clarify how far they now dispute the
plaintiffs’ figures based on their own records is material to what
documents should be looked for in the warehouses. At present the second and third
defendants admit they were aware of the fact and quantum of payments in and out
of the entities they administered, but do not admit the amounts pleaded by the
plaintiffs. The second and third
defendants also do not admit the allegations as to where monies came from or to
whom monies were paid. In the near
future they will have to make their case clear in relation to monies paid into
and out of the entities they administered.
I should add in that regard that exhibited to the plaintiff’s
further affidavit of discovery dated 10th September, 2018, sworn by Katherine
Margaret Ferbrache (exhibit KMF3) were examples of documents from the second
and third defendants’ own discovery showing on their face receipts of
‘commissions’ from various vehicle manufacturers. Unless the plaintiffs have miscalculated
figures pleaded in their order of justice, in my view the issue of the
plaintiffs having to prove payment of monies to and from Jersey is unlikely to
be at the heart of this dispute and therefore does not justify further searches
in the warehouses.
50. Secondly,
there is new evidence filed, in particular that of the first defendant. In relation to the evidence of the first
defendant, this was not available either for the hearing in 2017 before me or
before the Royal Court. This
evidence is highly material both in relation to commissions being generated by
over invoicing and the Scheme being a secret and in breach of duty.
51. The
first defendant’s affidavit sets out his evidence as to which suppliers
paid commissions to accounts in Jersey, how commissions were paid, who arranged
for the payment of commissions, to what degree these were calculated, the
extent of any relationship between the suppliers invoices and commissions paid
and that it would be impossible to reconcile suppliers invoices with
commissions paid to Jersey. The
affidavit further explains that:
(i) the practice of suppliers paying commission to Jersey was not
documented in Kenya;
(ii)
records about the payments by suppliers were never kept;
(iii) all the documents about the Scheme were kept in the
CEO’s office;
(iv) he was told by Mr Jack Benzimra never to mention payments to
anyone;
(v) payments to and from accounts in Jersey were off the books; and
(vi) documents about payments out of the Scheme were on a one on one
basis between the Chief Executive and any recipient.
52. In
respect of his oral evidence, the first defendant at the outset of his
cross-examination was candid that he was unaware of what was in the warehouses
or how many documents were located there.
However, he was clear why documents about the Scheme would not be in the
warehouses; he was quite confident and remained so that there were no relevant
documents in the warehouses and to look through them was ‘a waste of
time’. In my view, the
cross-examination did not lead the first defendant to amend or alter his
conclusion in relation to documents of conversations with suppliers or with
recipients of monies based in Kenya under the Scheme. The fact that there were isolated documents
on personnel files (not kept in warehouses) did not affect his evidence.”
21. The First Defendant had been cross-examined on
his affidavit and the Master in effect viewed his evidence in his affidavit as
unshaken by that cross-examination.
He recorded the fact however that the First Defendant had admitted in
cross-examination that he was unaware of what was in the warehouses or how many
documents were located there.
22. In characterising his view of the evidence the
Master says, at paragraph 60 of the Master’s judgment:-
“In respect of his affidavit
I also agree with Advocate Thomas that it is appropriate to evaluate the first
defendant’s evidence in light of the fact that the affidavit might not be
said to be in the first defendant’s interests because the plaintiffs are
pursuing the first defendant. This adds more rather than less weight to the
first defendant’s evidence.”
23. At paragraph 63 of the Master’s judgment
he concludes, on the evidential picture:-
“63. The evidential picture that has now emerged is as
follows:-
(i) The relationship between the plaintiffs and the suppliers apart
from two emails ending the Scheme was not documented;
(ii) The limited documentation about payments out of the scheme
apart from the Ludin memo came from files at head office which have been
reviewed;
(iii) All the invoices ordering vehicles and related shipping
documents have been disclosed – these documents do not show any
commission arrangements on their face;
(iv) There is unlikely to be an evidential issue about what sums were
paid into the companies administered by the second and third defendants and
what sums were paid out.”
24. And, at paragraph 65, he goes on to say:-
“65. I therefore agree with Advocate Thomas that
whether or not directors acted in breach of duty is now a matter for witness
evidence and cross-examination at trial.
The most likely sources of documentary evidence about any knowledge of
the Scheme have been looked for in a manner that I regard as reasonable, namely
disclosure of board minutes, personnel files and available email accounts. The ambit of the plaintiffs’
approach also puts the remarks of the first defendant that reviewing further
documents in the warehouses would be a waste of time in a wider context. The obvious sources for documentation
showing knowledge of the Scheme have been reviewed and disclosed. While it is a matter for trial, I also
agree with Advocate Thomas that there is nothing inappropriate in inviting the
trial court to draw inferences that the directors did not know of the Scheme because
the obvious sources of documents make no reference to it.”
25. Lastly, at paragraph 76 the Master says:-
“76. I appreciate my conclusion means that in large
part I have confirmed the order I previously made. However, I have ordered a further
affidavit to be filed. In addition,
when the matter was before the Royal Court the full extent of the exercise
carried out in respect of Phase 1 discovery electronic discovery and the review
of the warehouses was not addressed in the evidence then filed. While perhaps some of the evidence could
have been provided, the full picture now before me addresses the concerns
raised previously before the Royal Court.
The Royal Court also did not have the benefit of the affidavit of the
first defendant tested on cross-examination; the pleadings of the second and
third defendants are also required to be modified as noted above. These differences in my view permit me
to reach my present conclusions.”
Submissions before us
26. The Second and Third Defendants’ case in
this appeal involved amongst other things a full attack on the credibility of
the First Defendant’s affidavit which, as can be seen from the above, was
highly significant in the Master’s decision. The background to the preparation of the
affidavit, so the Second and Third Defendants contend, was not known to the
Master before the affidavit was put before him nor was it further explained by
counsel in submissions to him.
27. The background came to be better known by a
further affidavit (with exhibits) sworn by Advocate Sheedy on the 1st
March 2019.
28. The exhibits and the affidavit disclose that
after two unsuccessful attempts in May and September 2017 to solicit the First
Defendant’s assistance in locating documents the First Defendant ceased
to be represented by Jersey legal advisers by reason of unpaid fees. He is, so it is understood, currently
unrepresented. On the 17th
January, 2018, the First Defendant wrote to persons involved in the ownership
of the Plaintiffs confirming that he was unrepresented, was ‘pushing 84’ and was unable
to meet legal fees. There then
followed a redacted segment of the letter finishing with the words ‘Your thoughts on this request would
be appreciated’.
29. Because of the redaction the nature of the
request is not revealed.
30. There then followed a series of without
prejudice communications between Advocate Sheedy and the First Defendant the
contents of which have been redacted on the basis of without prejudice
privilege. During the course of a subsequent
meeting between the First Defendant, Advocates Thomas and Sheedy and Sally
Mukabana (of the Plaintiffs) information was obtained from the First Defendant
on matters pertaining to his involvement with the Plaintiffs and details of the
alleged scheme. The meeting
apparently lasted for some 4½ hours.
31. On the 13th April, 2018, Advocate
Sheedy wrote to the First Defendant in the following terms:-
“Can I remind you that
you have agreed that the contents of our communications and conversations are
protected by ‘without prejudice’ privilege and must not be revealed
to anyone, including Mourant Ozannes, even if they are very insistent.”
32. The First Defendant’s response to
Advocate Sheedy on the 14th April, 2018, confirmed that:-
“It is certainly not in
my interest to jeopardize, in anyway, the recent progress I felt we made in
moving this case forward. The
document we jointly signed at the meeting is fully understood and will honour
my set obligations therein.”
33. On the 17th April, 2018, Advocate
Sheedy wrote to the First Defendant saying:-
“Tell Mourant Ozannes you are not at liberty
to discuss our meeting.”
34. The First Defendant responded to Advocate
Sheedy on the 24th April stating:-
“I wrote last week
requesting for a telephone conversation to fabricate an answer to RBC’s
lawyers on their inquiry as regards my meeting with CMC…”
35. Advocate Sheedy wrote back to the First
Defendant:-
“I note that in your
email you refer to ‘fabricating’ a response to RBC. No doubt this was a light hearted
comment written in jest and we have taken it in that vein. Nevertheless I should make it clear that
we would not encourage you to send any communication to RBC which is anything
less than the truth.”
36. There are other communications between the
First Defendant and Advocate Sheedy.
On the 9th May, 2018, the First Defendant confirms:-
“I was hoping by this
week I will have heard from yourself as a result of our meeting almost a month
ago. As you should imagine, I am
presently totally exposed and at your mercy.”
37. There was subsequent communication which we do
not think it necessary to detail.
Suffice to say that it does appear that the Plaintiffs’ legal
advisers had a significant hand in the preparation of the First
Defendant’s affidavit in as much as it was presented by the First
Defendant in draft on the 14th June, 2018, and Advocate Sheedy was
invited to ‘have a look and advise if in general order’. Advocate Sheedy raised a number of
queries. Later that month Advocates
Thomas and Sheedy met with the First Defendant. The meeting was, so it appears from the
record firstly to record Mr Forster’s answers to questions arising from
the contents of his draft affidavit in the form of a proof of evidence and,
secondly, in good faith to explore a potential settlement of the Jersey
proceedings as between the parties to the meeting.
38. Following that meeting on the 29th
June, Advocate Sheedy sent a draft affidavit prepared by Baker & Partners
and asked the First Defendant:-
“Can you please review
the attached draft affidavit? The
focus of this affidavit concerns the documentation of the scheme in
Kenya.”
39. The position, therefore, appears to be, so the
Second and Third Defendants contend, that the First Defendant’s affidavit
was the result of substantial input by Baker & Partners, the
Plaintiff’s legal adviser, derived in part during the course of the
meetings with the First Defendant at a time when the First Defendant, who was
in his own terms at the Plaintiffs’ mercy, discussing the possibility of
a settlement.
40. This, so the Second and Third Defendants
submit, undermines the credibility of the First Defendant’s affidavit and
would clearly have given the Master significant concern in relying upon
it. After the First Defendant had
been cross-examined he appears to have chased the Plaintiffs’ legal
advisers for further progress and complained that they had gone silent. In an email of the 6th
December, 2018, Advocate Sheedy wrote to him in the following terms:-
“Given that RBC are very
keen to suggest that we have in some way “rewarded” you for giving
evidence, we are keen for the Court to reach a conclusion about what is or is
not in the CMC warehouses before we continue our without prejudice discussions
with you. We don’t want to do
anything which might be taken as undermining your evidence.”
41. This paragraph illustrates to us that the Plaintiffs’
legal advisers recognised that the credibility of the First Defendant’s
affidavit was potentially undermined should it be realised that there had been
discussions between them. It does
appear from the documentation that we have reviewed that whatever was intended
by the Plaintiffs’ legal advisers, the First Defendant drew a connection
between his cooperation in providing information relating to the discovery
issues and the prospects of achieving a settlement with the Plaintiffs.
42. The Master did not during the course of the
hearing permit cross-examination of the First Defendant on the manner in which
the affidavit was procured. As the
Second and Third Defendants indicate,
the fact that the First Defendant had not been to the warehouses and was
unaware of what documentation was stored there was wholly absent from his
affidavit which, but for the Second and Third Defendants’ application to
cross-examine, would have been a matter wholly unknown to the Master.
43. It is accordingly the Second and Third Defendants’
case that the First Defendant’s affidavit is unreliable. They also point to inconsistencies and
inaccuracies in it. These are
summarised in the Second and Third Defendants’ skeleton argument:-
(a) The
First Defendant’s affidavit refers to documents from a subset of the
manufacturers alleged to have been involved in the Scheme and does not refer to
other manufacturers;
(b) The
First Defendant expressly admits he does not know where documents relating to
the alleged arrangement with Land Rover and Leyland might be in relation to the
Scheme. These are important
contributors.
(c) The
First Defendant’s affidavit identifies email communication purportedly
sent by him to Nissho Iwai and/or Land Rover terminating the over-invoicing
arrangements which have not been disclosed by the Plaintiffs or the First
Defendants.
(d) The
First Defendant’s statements relating to what documents might exist in
connection with ‘new commissions’ are contradicted by claims in the
Order of Justice.
(e) To
the best of the First Defendant’s recollection all of the documents that
were in Kenya which were relevant to the Scheme were left in a thin file in the
CEO’s office. This was false.
(f) The
First Defendant was also wrong when he suggested that the Scheme was not referred
to in anyone else’s personnel records.
44. The extracts put before us in connection with
the cross-examination of the First Defendant indicate that he had limited
knowledge of what documentation was kept in what files.
45. In summary, the Second and Third Defendants
contend that little, if any, weight should be placed on the affidavit of the
First Defendant as he clearly simply did not know what was and what might have
been in the warehouse nor elsewhere.
He was aware of documents that he created and he possessed but not of
documents that might have existed elsewhere. He is, so is argued by the Second and
Third Defendants, in no better position to say what might be in the warehouses
than are the Plaintiffs themselves.
46. The Second and Third Defendants also argue that
a number of documents have been disclosed within the proceedings by the
Plaintiffs which include documents found amongst the warehouse documents.
47. We do not think it necessary for the purposes
of our judgment to go into the detail of what has been found by the discovery
exercise thus far. A single example
will assist. An undated memorandum
sent by one F O Ludin to Jack Benzimra (Third Party Cited) makes express
reference to:-
(a) discussions that took place between Mr Ludin
and Mr Benzimra about ‘the need to
improve the offshore remunerations of our directors and expatriate staff’;
(b) the restrictions of the ‘exchange control regulations’ which impact upon
remittance that expatriate staff can make;
(c) the fact that ‘money is paid to Mr Lay and myself in the UK’;
(d)
an
invitation by Mr Ludin to ‘seriously
consider adequately compensating us for the drastic drop in our earning
power….. by a realistic adjustment in our offshore payments
retrospectively from January 1985’.
(e) the statement that ‘you might like to know
that the lowest paid expatriate in Leyland Albion in terms of offshore benefits
receives more than £10,000 per annum and I can assure you that, on
average, an expatriate will not these days consider coming to Tanzania unless
he is offered a lot more than that’; and
(f)
the
suggestion that ‘directors’
offshore remunerations are on an
appropriately higher level than the expatriates’ to compensate them for
the responsibilities of their office’.
48. That memorandum was to be found amongst the
warehouse documents.
49. It is not apparent, so the Second and Third
Defendants also argue, why the Master considered that the requirement that they
plead their case as to the payments in and out constituted a significant
development which touched upon the merits of the second application.
50. We do not set out extensively all of the
submissions made by the Second and Third Defendants but we have taken them into
account in reaching our determination in this matter.
51. We keep in mind, of course, Royal Court
Practice Direction RC17/07 which, at paragraph 10, provides:-
“In giving discovery, a party
is required to make a reasonable search for documents. What is meant by reasonable is
determined having regard to:-
(a) the
overriding objectives;
(b) the
number of documents involved;
(c) the
nature and complexity of the proceedings;
(d) the
ease of retrieval of any particular document;
(e) the
significance of any documents which might be located during the search;
(f) the
likely expense of carrying out any search.”
52. The Practice Direction goes on at paragraph 11
to say:-
“The factors set out in
paragraph 10 will also be taken into account in deciding whether or not to
limit discovery.”
53. The Plaintiffs point out that approximately
£1.4 million has already been expended in these proceedings and that in
seeking, as the Second and Third Defendants do, general discovery this will
occasion a substantial delay when there are elderly parties involved in the
proceedings.
54. The Plaintiffs question what more might be
achieved by any further steps relating to discovery and point out that we
should pay a high regard to the Master’s judgment who is, as the
Plaintiffs rightly say, well placed to understand the case and the issues.
55. The Plaintiffs remind us that the Royal Court
Judgment did not think that limiting discovery in this case was inappropriate
and indeed suggested to the contrary.
The Court had not dictated how the matter should proceed and therefore
the Master’s approach was entirely appropriate.
56. The Master had particular regard, so the Plaintiffs
argue, to Advocate Sheedy’s affidavit which had better informed him in
connection with the nature of the searches carried out. Indeed as a result of all that has been
submitted to us we are now ourselves better informed.
57. We were referred to Advocate Sheedy’s
second affidavit of discovery (dated the 12th December, 2017). In essence the methodology applied as
set out in that affidavit is as follows:-
(a) The
Plaintiffs commenced their search for discoverable documents following receipt
of the Defendants’ answers in October 2016. We immediately interject here that it is
surprising to us that a consideration and search for discoverable documents
only started after receipt of the answer.
For a case of this nature it might have been anticipated that the search
would have commenced rather earlier.
(b) Mr
Sheedy visited Nairobi in November 2016 and identified a number of categories
of discoverable documents but also noted that the Plaintiffs had a ‘very
substantial historic archive of hard copy material the contents of which could
not, at that stage, clearly be discounted as irrelevant’.
(c) Over
the ensuing months extensive searches were conducted at the Plaintiffs’
premises which revealed some eight warehouses described in the affidavits
referred to in the Master’s judgment and indeed in the Royal Court
Judgment.
(d) It
was determined that it would be impossible to remove the entirety of the hard
copy archive and because of the requirement for expertise in dealing with large
volumes of documentation it was determined that a team of UK lawyers with
suitable experience would be engaged to work in Nairobi.
(e) The
Plaintiffs’ legal advisers devised a process and a group of trained and
instructed individuals went through the documentation to determine whether they
were ‘responsive’.
Anything that was responsive was taken out for review and
discovery. Of the remaining
documents, those which were not responsive, there then was a 10% dip sampling
process which, if it disclosed that a document that had hitherto thought to be
non-responsive was in fact responsive then other documents in close proximity
to it would also be subject to scrutiny.
58. We were also taken through the nature of the
documentation that was deemed to be responsive and that which was deemed not to
be responsive.
59. As we understand the process of discovery was
divided into Phase 1 and 2. The
first phase dealt with documentation outside of the warehouses which was all
considered for discovery purposes and disclosed where appropriate. The warehouses were dealt with in the
way set out above but the dip sampling methodology was only adopted after all
of the documents in room 1 zone 2, room 7 and room 8 were reviewed in their
entirety. We were informed that because
of the volume of the documents in the other rooms dip sampling was
necessary. It was therefore put to
us that what was subject to dip sampling was 10% of the ‘run’ and
not the entirety of the documents.
This, it was urged upon us, should mean that few, if any at all,
documents that were relevant to the case would have been omitted from the
discovery process.
60. With regard to the evidence of the First
Defendant it was submitted to us that the Master was aware of the arguments
that the First Defendant had an ulterior motive to provide the evidence that he
did and we were specifically referred, amongst other documents, to a note of
the meeting with the First Defendant of the 18th June, 2018, which
identified that there were two sequential meetings. One was to deal with matters arising out
of the draft of the First Defendant’s affidavit and the second was to
proceed on a without prejudice basis, as we have indicated above, to explore a
potential settlement. We were
specifically referred to the penultimate line of the note which had been
countersigned by the First Defendant and Advocates Sheedy and Thomas to the
effect that:-
“The parties acknowledged
that a settlement of the Jersey proceedings is in no way conditional upon the
evidence that Mr Forster may give in the first meeting.”
61. Of the memo from Mr Ludin, the Plaintiffs
submit that this shows the effectiveness of the dip sampling method but asks
what the likelihood is of a ‘stash
of memos’ being found that need to be discovered.
62. It was pointed out to us that the Master had
assessed the evidence of the First Defendant in cross-examination and that we
should therefore be slow to overturn the findings of the Master in that
regard.
63. To that end we note that the cross-examination
took place by video link which, whilst almost certainly necessary in the
circumstances, is not always the best way of hearing live evidence which might
be highly contentious. Secondly,
the Master did not have before him the full detail that we have before us of
the exchanges between the Plaintiffs’ legal advisers and the First
Defendant prior to the evidence being given. Thirdly, the Master had for
understandable reasons limited the scope of the cross-examination of the First
Defendant. This in effect had
prevented the First Defendant from having the veracity of his affidavit
explored by reference to its drafting and motivation.
64. As to the argument that the Ludin memorandum is
evidence of the 10% dip sampling effectiveness, we are not sure that we can
with confidence take it that way.
The fact is that if dip sampling 10% of the remaining documentation
disclosed the Ludin memo which, prima
facie, may be of some significance, then all that illustrates as far as we
can determine is that it is possible that some documentation of relevance
exists in the documents not submitted to the full discovery exercise. A further document or many documents
might be disclosed if the sampling extended beyond 10%. We do not, of course, mean to suggest that
such a point is determinative of the matter before us, but what it illustrates
is that there may be documents of relevance in the body of documentation
generally not subject to the full discovery exercise.
65. In conclusion, essentially the Master made an
order which was effectively in the same terms as the order overturned in the
Royal Courts’ Judgment. The
reasons for overturning that order remain the same as set out in the Royal
Courts’ Judgment unless there is a material change in circumstances along
the lines foreshadowed in the Royal Courts’ Judgment or some other
development that is unforeseen. The
Master placed very substantial reliance on additional affidavit evidence
provided to him and, in particular, the evidence of the First Defendant both in
the First Defendant’s affidavit and in cross-examination.
66. Had the Master had before him the full details
of the genesis of the First Defendant’s affidavit we suspect that he
would not have been as confident in the evidence of the First Defendant as he
was in this regard. We do not have
full confidence in that evidence ourselves essentially because:-
(i)
On its
surface it is incomplete – for example it does not refer to the basis of
the First Defendant’s understanding of how the filing in connection with
what is described as the Scheme was carried out;
(ii) The First Defendant avowedly has no direct
knowledge of the warehouses, what they contained or might contain, had never
visited them, and had never been informed or notified of their contents;
(iii) The First Defendant could provide no clear, or
indeed any real, explanation as to how the Ludin memo – which appears to
refer to something very similar to the alleged Scheme – could be in the
warehouses which, on the First Defendant’s affidavit should have
contained no such documents;
(iv) The affidavit was clearly prepared to some
measure at least in conjunction with the Plaintiffs’ legal advisers.
(v) The suggestion that the affidavit was not
necessarily in the First Defendant’s interests is difficult to justify
against the background of what appears to be settlement negotiations between
the Plaintiffs and the First Defendant.
(vi) There was the possibility at least that the
First Defendant’s affidavit was tainted as a result of a conflict between
his desire to achieve a settlement because of the pressure that he was under
both financial and otherwise and his knowledge of what the Plaintiffs were
seeking to establish through the affidavit.
(vii) Any such conflict could not be explored, even
had the material been available to explore it because of the restrictions
placed on the ambit of cross-examination.
67. In making this assessment we accept that the
Plaintiffs and their legal advisers would have been confronted by a difficult
position in that the First Defendant was no longer legally represented and
therefore was not professionally helped in preparing an affidavit. We fully understand that as a result the
Plaintiffs’ legal advisers concluded that it would be helpful to the
First Defendant if they were to involve themselves in the preparation of an
affidavit to a greater extent that might otherwise have been the case. Unfortunately, against a back drop of
settlement negotiations with a man who was clearly under considerable pressure,
we cannot be satisfied that the end product was either complete or
reliable. To the extent that it was
unclear, that involvement should have been clarified.
68. In summary on this aspect, however, we do not
think that the First Defendant’s affidavit was sufficiently reliable to
be viewed as a material change in the circumstances between the Royal Court
Judgment and the hearing before the Master. Similarly, it is not clear to us why the
Master viewed the provision of further pleadings by the Second and Third
Defendants as a relevant change of circumstances. The same points to a very large extent
remain in issue that were referred to in the Royal Court Judgment.
69. We do not doubt Advocate Thomas’
assertion that the Plaintiffs’ team have undertaken an ‘intelligent approach’ to
dip sampling.
70. However, we are also not satisfied that the
Master was right in determining what the First Defendant meant where he wrote
in his affidavit that the warehouse stores would not contain any ‘directly relevant’
documents. We think that the First
Defendant gave too limited a meaning to that expression which again undermined
the force of his affidavit.
71. The existence of the Ludin memo to us
illustrates that potentially relevant material is available within the
un-reviewed documentation and our concern with regard to the 10% dip sampling
method remains as set out in the Royal Courts’ Judgment. In short we do not think that there was
a material change in circumstances.
72. Accordingly we overturn the order and judgment
of the Master in this regard.
73. That leaves us with the standard position with
regard to discovery but also with the conviction that this is a matter which
should be amenable to some limit placed on discovery.
74. We must, of course, ensure a fair trial and
that justice is done between the parties.
That does not, however, mean that there should be no limitation placed
on disclosure, rather there is a balance to be struck. All we are saying, as we did in the
Royal Court Judgment, is that a 10% dip sampling method does not in our view
strike that balance adequately.
75. Once again we are not urged to adopt any
different approach and we are given in the nature of the appeal before us a
binary choice between upholding the Master’s judgment or, as we have
done, overturning it.
76. We hesitate to send the matter back to the
Master not because we in any sense in the light of the indications that we have
given in this judgment, doubt his abilities to make appropriate orders but
because it seems inevitable, as the last two appeals have demonstrated, that
any order made limiting discovery will be the subject of a challenge before
this court.
77. In the circumstances unless the parties agree
that a further application with regard to discovery should be dealt with before
the Master, we propose that the issue of discovery and its ambit should be
dealt with by this court. At the
moment it seems to us that the sampling method may be the only way of
appropriately limiting discovery but in our view it would need to be higher
than the 10% dip sampling method.
78. We will, however, leave the question of further
discovery to be made before us by summons in the normal way. Should the Plaintiffs apply to limit
discovery we would expect the Second and Third Defendants to make constructive
proposals with regard to the limitation of discovery if that is at all
feasible.
Costs
79. As we have overturned the decision of the
Master we also overturn the order that he made for costs and order that costs
are in the cause.
Authorities
CMC
and Anor v Foster and Ors [2019] JRC 004A
CMC
Holdings Limited –v- Forster and Others [2017] JRC 188.
CMC
v Forster and Ors [2018] JRC 078