Loan - appeal against decision of the Master dated 10th January, 2013 regarding discovery.

[2013]JRC099

Royal Court

(Samedi)

23 May 2013

Before     :

J. A. Clyde-Smith, Commissioner, sitting alone.

 

Advocate M. H. D. Taylor for the Plaintiff.

Advocate A. D. Hoy for the Second and Fourth Defendants.

judgment

the commissioner:

1.        This is an appeal by the second and fourth defendants against the decision of the Master made on 10^th January, 2013, to order the second defendant to provide by way of post judgement discovery its latest accounts and a copy of the insurance policy of a château in France owned by the fourth defendant. 

2.        The final hearing in the substantive proceedings is due to commence on 24^th June, 2013, and to set the Master’s decision in context, a brief history of the matter is required. 

3.        In 1997, the plaintiff granted the second defendant (wholly owned by the first defendant as trustee) a facility of £4M to enable it to acquire investment properties in the United Kingdom.  The facility was guaranteed by the third defendant (who was subsequently declared bankrupt) and by the fourth defendant, the guarantee of the fourth defendant being secured over a château it owned in France.  The plaintiff’s computer system at that time was not able to process accounts in excess of £1M and as a consequence, the plaintiff set up some fourteen sub-accounts to manage the facility. 

4.        The facility was varied on 10^th November, 1999, to permit further draw-downs but difficulties arose over the calculation of the capital and interest due under the facility.  An agreement was entered into in September 2000, under which certain capital and interest sums were agreed as being due, but further attempts to agree the final position were unsuccessful.  This led the first, second and third defendants to take the unusual step in 2007 of bringing proceedings against the plaintiff, seeking an account and declarations as to the amount of capital and interest due under the facility.  That action was not actively pursued and was dismissed by the Master on 21^st September, 2010, under Rule 6/26/13 of the Royal Court Rules 2004 (“the Royal Court Rules”).  The first, second and third defendants were ordered to pay the costs of the plaintiff, which were subsequently taxed in the amount of £31,163.78, and which sum, pursuant to an Act of the Court of 10^th January, 2012, is now enforceable as a judgment debt. 

5.        In November 2010 the plaintiff commenced the current proceedings in which its claims can be summarised as follows:-

(i)        Under accounts 1-6, 8, 9 and 10 that the second defendant as primary obligor and the third and fourth defendants as guarantors owe £2,411,521.16, together with interest to 30^th June, 2010, of £4,630,713.01. 

(ii)       Under accounts 11-14 that the second defendant as primary obligor and the third and fourth defendants as guarantors owe £12,232.47 by way of capitalised interest. 

(iii)      Pursuant to the terms of the facility, that the plaintiff is entitled to recover the cost of certain proceedings it has taken in France to enforce the charge over the château, which proceedings were stayed pending the outcome of the Jersey proceedings. 

(iv)      A declaration that the charge over the château stands as security for the sums outstanding under accounts 1-6, 8, 9 and 10. 

6.        In their answer, the first, second and fourth defendants put the plaintiff to proof over the capital sums claimed and deny the interest claimed.  They deny the jurisdiction of the Court to make declarations in relation to the charge over the château and counter-claim for damages, costs and interest arising out of the alleged breach of duty of the plaintiff in the manner in which it managed these accounts. 

7.        During the course of the current proceedings, there have been three orders for costs against the first second and fourth defendants in favour of the plaintiff, namely on 1^st November, 2011, 15^th February, 2012, and 8^th November, 2012.  No bills have yet been produced by the plaintiff for taxation and therefore there is no amount due under any of those orders. 

8.        In inter-party correspondence in 2012, Voisins, for the first, second and fourth defendants, indicated that the second defendant had no assets.  The first defendant, which was acting as trustee, similarly had no assets in that capacity.  This prompted Bedell Cristin, acting for the plaintiff, to question how the directors of the second defendant were continuing to instruct Voisins.  The fourth defendant, which the plaintiff asserts is a wholly owned subsidiary of the second defendant (an assertion which appears to be denied in the defendants’ answer) clearly has assets in the form of the château.  Voisins indicated that they were preparing an affidavit setting out the financial position of the second defendant, but that has not been forthcoming.  Bedell Cristin also sought access for the plaintiff to the château to undertake a valuation and for confirmation that the château was insured and the plaintiff’s interest noted on the policy, but none of this was forthcoming. 

9.        A consent order in relation to discovery was made on the 7^th December, 2011, in the following terms:-

“5.       Each party serve on every other party a list of documents and file an affidavit verifying such list within 28 days of this order. 

6.        There be inspection of the documents within 14 days of the lists being served.”

10.      In November 2012 the plaintiff issued a summons for directions in which it sought the insertion of two new paragraphs under paragraph 5 of the consent order as follows:-

“3.       As to paragraph 5, it being noted that the plaintiff has already served on the defendants its list of documents and affidavit verifying such list, the defendant shall serve on the plaintiff its list of documents and affidavit verifying such list within 14 days of this Order. 

4.        There will be inserted a new paragraph 5A which provides that the defendant will when complying with paragraph 5 above ensure that any such disclosure includes up to date accounts in relation to the second and fourth defendants for the financial years 2010/2011 and 2011/2012. 

5.        There will be inserted a new paragraph 5B which provides that the defendant will when complying with paragraph 5 above ensure that any such disclosure includes confirmation that the château known as Château des Bois Mures, situate at 124 BD Emmanuel Rouquier, Grasse, France, and owned by the fourth defendant, remains insured and that the plaintiff’s interest continues to be noted on that insurance policy.  The defendant will disclose to the plaintiff a copy of the relevant insurance policy as evidence of this.”

11.      The Master made the order for general pre-trial discovery by the defendants pursuant to paragraph 3 above but adjourned the directions sought by the plaintiff in paragraphs 4 and 5 above for full argument.  That took place on 10^th January, 2013, and led to the following orders being made by the Master which are the subject of this appeal:-

“(1)      the second defendant shall within 14 days serve on the plaintiff copies of its latest financial accounts to be exhibited to a supporting affidavit, sworn by a director of the second defendant who shall:-

(1)        verify the content and accuracy of the accounts served;

(2)        confirm whether or not there have been any material changes in the financial position of the second defendant otherwise shown in the financial accounts served; and

(3)        confirm whether or not the second defendant remains in good standing;

(2)       the second defendant shall serve on the plaintiff a supplemental list of documents which shall include a copy of any insurance policy held by the second defendant in relation to Château des Bois Mures, situated at 124 BD Emmanuel Rouquier, Grasse, France together with an affidavit verifying such list;”

12.      In the hearing before the Master, Mr Taylor, for the plaintiff, did not seek to argue that the plaintiff was entitled to this disclosure under the principles applicable to general pre-trial discovery, even though it had clearly been presented as part of the pre-trial discovery process in the directions sought by the plaintiff.  Instead, he made it clear that the plaintiff’s application was based on the jurisdiction of the Royal Court to order post judgement discovery to aid in the enforcement of the costs awards.  He relied on the case of Leeds United Association Football Club Limited and Anor-v-The Phone-In Trading Post Limited [2011] JRC 159 and the various authorities referred to in that decision.  In that case, the Royal Court had granted judgment in the sum of £190,400 against the defendant following the striking out of its answer because of its failure to comply with certain interlocutory orders.  In his judgment, Birt, Bailiff, said this in relation to the jurisdiction of the Royal Court:-

“The Law

12.      The second plaintiff filed a skeleton argument referring to a number of Jersey cases concerning the Court’s inherent jurisdiction and to the relevant provisions in England which enabled the courts to require a judgment debtor to provide information as set out in the former Supreme Court Rules and now in the Civil Procedure Rules.  The cases referred to were contained in the bundles filed for the hearing. 

13.      However, it seemed to me on reading the papers that these arguments were beside the point.  The position in Jersey is clearly established by a line of cases of which the most recent is Jomair Leasing Limited v Hourigan [2011] JRC 042.  These cases had not been referred to by either side in their written material lodged with the Court and I supplied a copy of Jomair to Advocate Tracey and Mr Weston at the beginning of the hearing.  That case concerned an application that a bank in Jersey disclosed information about assets which it held for a judgment debtor against whom judgment had been granted in the State of Utah, United States.  I would quote the following extracts from the Court’s judgment:-

‘8.       This Court has in a number of cases made it clear that there is jurisdiction to grant an order for disclosure in order to aid enforcement of a judgment.  See Goldtron Limited v Most Investment Limited [2002] JLR 424 at paras 35-38; Apricus Investments v CIS Emerging Growth Limited [2003] JLR N 40, [2003] JRC 151 at paras 16-20; and Africa Edge SARL v Incat Equipment Rental Limited [2008] JLR N 41 [2008] JRC 175 at paras 8 – 10.

….

12.      In this case, the defendant has failed to satisfy the Utah judgment for over 8 years and this Court has now itself granted judgment in respect of the same matter.  We are quite satisfied that the interests of justice require disclosure of his assets in Jersey.  We note that disclosure is sought from the party cited rather than the defendant but this does not affect the position.  The essential principle remains that the Court can make disclosure orders whether against a defendant or third parties in order to aid in the execution of a judgment or award and the interests of justice would usually point in favour of ordering such disclosure.’

14.      In the Africa Edge case the Court ordered the defendants to disclose their world wide assets in order to aid in the enforcement of a judgment in Belgium which had been obtained many years before. 

15.      In the Apricus Investments case, Bailhache, Bailiff said at paragraph 16:-

‘It is well established that disclosure orders may be made even without being auxiliary to a Mareva injunction in order to assist a judgment creditor to obtain satisfaction.’

The Court went on in that case to make disclosure orders against the defendant to assist in the enforcement of an arbitration award against the defendant.

16.      The source of the power is undoubtedly the inherent jurisdiction of the Court to ensure that its orders can be enforced so that plaintiffs are not left holding empty judgments.”

13.      Mr Hoy contended that the plaintiff was trying to disguise the application as an application for discovery.  He submitted that the financial position of the second and fourth defendants and the insurance of the château were not issues in the substantive proceedings and could not be the subject of a discovery order.  Whilst he conceded that disclosure might be ordered in favour of a judgment creditor seeking to enforce a financial order, he contended that neither the judgment for costs in relation to the earlier proceedings nor the orders for costs in the current proceedings could possibly constitute the plaintiff a judgment creditor entitled to such relief.  He did not challenge the jurisdiction of the Master to order post judgment discovery following the authority of Leeds United. 

14.      The Master accepted Mr Taylor’s submissions, finding that the disclosure sought came within the ambit of the authority of the Leeds United case (i.e. post judgement discovery) and that he should exercise his discretion to accede to the plaintiff’s request.  In doing so, he took note of the fact that Voisins had indicated that they would provide the plaintiff with an affidavit in relation to the second defendant’s assets, from which position Voisins had since resiled.  Furthermore, he found Mr Hoy’s argument that the order for taxed costs in the previous proceedings did not constitute a judgment debt unsustainable.  I pause to comment that this is unquestionably correct as the Act of the 10^th January, 2012, states in terms that the amount of costs in the sum of £31,163.78 “shall be enforceable as a judgement debt”.  

15.      In relation to the insurance documents, he found that in any event, the same was clearly discoverable applying the general principles of pre-trial discovery and that he could order disclosure of the same on that basis.  Quoting from his judgement:-

“26     There was clearly some obligation on behalf of the fourth defendant to maintain insurance policies.  I consider it far too restrictive to suggest that on a narrow construction of the facility agreement the plaintiff was not entitled to know whether those obligations have been fulfilled and insurance continues to be in place.  The balance of justice clearly entitles the plaintiff, in my view, to the information which he seeks. It did not appear that providing the information would be an onerous task for the defendants. 

27       I also reject Advocate Hoy’s contentions that applying the general principles of discovery means that disclosure is not required.  He relied on the words set out in Rule 6/17 Royal Court Rules as restricting discovery to documents relating to a matter in question in the proceedings.  In my opinion that is far too restrictive a construction of discovery requirements.  The legal authorities establish clearly how discovery should be approached.  Documents must be disclosed if they will contain information which may enable a party to advice his case, damage that of his opponent or lead to train of enquiry which may have either of those consequences.  (See for example Hanby v Oliver [1990] JLR 337 at page 349, line 44 to page 350 line 3).  Applying the correct test I am surprised that no insurance documents were provided on discovery.  In my opinion, insurance policies and related documentation would clearly be discoverable and I could also order their disclosure on that basis”.

Decision

16.      It is well established that in an appeal from a decision of the Master the Court has to consider the matter afresh and reach its own conclusions whilst, of course, taking due account of the decision of the Master and the reasons for his decision (see Garfield-Bennett-v-Phillips 6^th November 2002 unreported 2002/214). 

17.      Mr Hoy’s case was simply that in making orders for post judgment discovery, the Master exceeded his jurisdiction.  Reluctant as I am to interfere in a case management decision made so close to trial, I agree that this is the case.  The Master is a delegate of the Judicial Greffier (pursuant to Article 9 of the Departments of the Judiciary and the Legislature (Jersey) Law 1965).  The Judicial Greffier is not a court exercising an inherent jurisdiction; his judicial functions are limited to those which are delegated to him by the Royal Court.  That delegation is made principally under the Royal Court Rules - see the judgement of the Judicial Greffier in Showlag-v-Mansour 12^th June 1991 unreported 91/16a.  

18.      Article 1/1(1) of the Royal Court Rules defined the Court as “any division of the Royal Court, the Bailiff or, except in the provisions of these Rules mentioned in Schedule 1, the [Judicial Greffier].”  There are limited rules under Part 11 for proceedings subsequent to trial (some of which are mentioned in Schedule 1), but there are no rules in relation to applications for post judgment discovery.  Following Leeds United, post judgment discovery is an exercise of the Royal Court’s inherent jurisdiction; a jurisdiction that has not been delegated to the Judicial Greffier whether by the Royal Court Rules or otherwise. 

19.      The Master went on to find that in the alternative the insurance documents were discoverable under Rule 6/17 of the Royal Court Rules (in respect of which the Judicial Greffier does have jurisdiction under the Royal Court Rules) and the order he made was couched in terms of pre-trial discovery.  He referred to the Court of Appeal judgment in Victor Hanby Associates Limited and Hanby-v-Oliver [1990] JLR 337 where at page 349 Chadwick JA said this:-

“A party seeking further discovery after an affidavit has been made following an order under r.6/16(1), must persuade the Court that, despite the affidavit, his opponent has not complied with the order.  It seems to us that it must be necessary, in these circumstances, for the party seeking further discovery to show, by evidence on oath, not only a prima facie case that his opponent has, or has had, documents which have not been disclosed, but also that those documents must be relevant to matters in issue in the action.  The court must be satisfied that the documents will contain information which may enable the party applying for discovery to advance his case, damage that of his opponent, or lead to a train of enquiry which may have either of those consequences.  It is not enough to show only that the documents may be relevant in the sense described.  A court faced with evidence which establishes no more than that the documents may or may not be relevant would not be entitled to disregard the oath of the party who, having (ex hypothesi) seen and examined the documents with the assistance of his advocate, has sworn, in effect, that they are not relevant. 

We should add that, even where a prima facie case of possession and relevance is made out, an order for specific discovery should not follow as a matter of course.  The court will still need to ask itself the question whether an order for specific discovery is necessary for disposing fairly of the cause or matter.  It must be kept in mind that O.24, r.7 of the English Rules of the Supreme Court is itself subject to r.8 of the same order, which makes this further requirement explicit.”

20.      In the case before me, the defendants had in December 2012 filed their lists of documents and affidavits verifying such lists in proper form, pursuant to the order of the Master of 8^th November, 2012.  The insurance documents were not included in those lists of documents discovered and each deponent had therefore sworn that they were not relevant.  Chadwick JA made it clear that this should be regarded as conclusive:-

“We have already expressed the view that the court ought to proceed on the basis that a list of documents which appears to have been prepared with the assistance of the party’s advocate and which is verified by an affidavit in proper form ought to be regarded as conclusive save in exceptional circumstances.  Those circumstances may include not only inherent evidence from the sources described in the passage which we have cited from the judgment of Brett, L.J. but also evidence which satisfies the test posed by Tomlin, J. in Astra-National Prods.  (1), that is to say evidence sufficient to displace the oath of the party who has verified the list, by making a prima facie case that there are in that party’s possession documents which are relevant to matters in issue in the action.  In this connection we note the practice direction given by the Deputy Judicial Greffier in his judgment in Jones v Atkinson 93) that – “…every application for an order for specific discovery must be supported by an affidavit stating that the deponent believes, with the grounds of his belief, that the other party has, or has had, in his possession, custody or power the document, or class of document, specified in the application and that it is relevant …”.

21.      The plaintiff’s application for disclosure of the insurance documents, to the extent it is treated as an application for pre-trial discovery, constitutes an application for specific discovery, but it was not supported by an affidavit.  The only evidence that I was shown filed on behalf of the plaintiff in support of its application was that of Rebecca Jayne McNulty, dated 5^th November, 2012, which was sworn for the purposes of the directions hearing on 8^th November, 2012, and before discovery was made by the defendants.  That affidavit gives a detailed account of the procedural history to that point and makes reference to the request by Bedell Cristin for the insurance documents.  It does not purport to make a prima facie case that the insurance documents are relevant to the matters in issue in the action.  

22.      Irrespective of this, I cannot see how the issue of the insurance of the château is relevant to any of the issues as disclosed by the pleadings.  It would appear that the second defendant is under an obligation to procure the insurance of the château (along with numerous other obligations set out in the facility letter) but no breach of that obligation is pleaded; indeed there is no reference in any of the pleadings to the insurance of the château.  Mr Taylor was unable to explain how the insurance documents would be relevant and conceded that there was no claim in the proceedings in relation to it.  The Master did not seek to find that the accounts of the second defendant are relevant to any of the issues in the action and they are clearly not. 

23.      I accept that the Master retains an ongoing jurisdiction over the current proceedings in so far as the Royal Court Rules provide and that costs orders can be an important case management tool.  It may well be that a failure to discharge costs orders in proceedings can lead to an application, for example, to strike out a defence under Rule 6/13 (see Leeds United Association Football Club and Others-v-Phone-In Trading Post Limited [2011] JLR Note 1), but the Master was not asked to exercise this or any other any jurisdiction delegated to him under the Royal Court Rules.  In any event there had been no failure on the part of the defendants to discharge the costs orders made in the current proceedings, as they had not been taxed. 

24.      I accept that the costs award made in the earlier proceedings constituted an enforceable judgment for the sum of £31,163.78, but any application for post judgment discovery in respect of that judgment will be a matter for the Royal Court. 

25.      For all these reasons, I must allow the appeal and set aside the Master’s orders of 10^th January, 2013. 

Authorities

Royal Court Rules 2004.

Leeds United Association Football Club Limited and Anor-v-The Phone-In Trading Post Limited [2011] JRC 159.

Garfield-Bennett-v-Phillips 2002/214.

Departments of the Judiciary and the Legislature (Jersey) Law 1965.

Showlag-v-Mansour 1991/16a.

Victor Hanby Associates Limited and Hanby-v-Oliver [1990] JLR 337.

Leeds United Association Football Club and Others-v-Phone-In Trading Post Limited [2011] JLR N1.