Detail needed from those arguing that disclosure would break foreign law, court says

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IN its latest judgment in Sheyko v Consolidated Minerals Ltd, the Royal Court has provided important guidance to parties seeking to limit their discovery obligations on the basis that to disclose certain material would generate a risk of prosecution in a foreign jurisdiction (in this instance the People’s Republic of China).

The defendant, CML, was also punished with an indemnity costs order, having been found to have misled the court at a hearing in November 2019 as to how it intended to conduct its discovery exercise.

This was the second time CML had misled the court. In 2018 it applied to vary an injunction on the basis of financial hardship while concealing a letter of comfort from its parent company. In the present case the Master of the Royal Court criticised CML’s conduct and made it clear that, should it continue, he was ready to consider striking out CML.

This would mean that CML would be unable to continue defending the claim, and Mr Sheyko could have judgment entered in his favour.

In June 2019, the Master gave the parties four months to complete their respective discovery exercises. Discovery is the process within civil proceedings in which, subject to certain exceptions, parties are required to disclose all relevant documents to each other.

The plaintiff had written to CML as early as September 2018 reminding it of its discovery obligations and had received an assurance from CML’s lawyers that ‘my client is aware of its disclosure obligations, and shall provide disclosure in accordance with the court’s procedure, at the proper time’.

The Master then wrote to the parties himself in January 2019 reminding them to consider their discovery obligations in accordance with the relevant practice directions.

In November 2019 CML sought an extension of time to complete its discovery. This was the first time Chinese law had been mentioned.

An extension was granted but, due to its conduct, CML was ordered to pay Mr Sheyko’s costs of the application. The Court gave further directions, including that discovery could be provided in multiple tranches, and listed a further hearing for 15 January 2020 to consider any further extension CML might seek based on Chinese law. CML duly sought such an extension.

CML claimed it might be unable to disclose certain material (or would need state permission to do so). The Master ordered that these documents must be listed in the usual way, and CML must describe as far as possible each document individually and explain why inspection was being withheld by reference to any applicable Chinese secrecy laws.

The purpose of the order was to enable Mr Sheyko to understand why documents were being withheld and take advice on CML’s approach. CML was further ordered to provide an affidavit from a suitably qualified Chinese lawyer to explain why any potentially relevant documents were being withheld. The Master described the present evidence of Chinese law as follows:

‘At present, the opinion from Ning Ren was simply a statement of the relevant statutes without an analysis as to why and how those statutes applied to the present case, or applied to categories of documents that would otherwise be disclosable. The plaintiff was entitled to know why documents were being withheld so that ultimately, if advised to do so, the court could be invited to rule on whether the defendant had made out any grounds relied upon to withhold documents.’

The Master made clear that this further evidence must be from a named lawyer (ie not just a firm) and comply with the relevant Jersey practice direction on expert evidence. He added the following general observation: ‘In reaching this conclusion, I wish to emphasise that no discourtesy is intended to the PRC or its laws. However, this is a case before the Royal Court of Jersey, where both parties have accepted the Royal Court has jurisdiction. The Royal Court is therefore entitled to determine, having regard to appropriate opinions from Chinese lawyers about whether or not grounds exist which might override the normal discovery rules, which grounds the Royal Court should recognise. It is therefore important that what the defendant intends to produce or
withhold and the reasons why are made clear.’

The Master went on to order that further breach of its orders would leave CML liable to be struck out: ‘I further made it clear that, if the orders I issued were not complied with, then the defendant was at risk of having its [sic] sanctions imposed including its answer struck out. While a strike out of an answer with judgment being entered is a serious step, if that is the only means by which the Royal Court can enforce compliance with its orders, then such a sanction may be an appropriate step for the court to take. Whether such a sanction is ordered in this case is of course a matter for another day, but I made it clear to the defendant’s advocates that they should be under no illusion that any non-compliance with orders I issued would be a very serious matter and could well attract significant sanction.’

The conduct of CML was further examined in respect of costs, with the Master concluding that its unsatisfactory approach had led to further delay. In particular, the Master referred to the following paragraph from an affidavit sworn by one of CML’s advocates in advance of the November hearing: ‘CML proposes thereafter to provide further tranches of 5,000 or 10,000 documents when ready, the first of which it is anticipated will be ready by 15 November, 2019. This will ensure that the pool of documents for the plaintiff and his legal team to review will be regularly replenished and that the plaintiff’s review of CML’s documents will be uninterrupted. As a result the plaintiff will suffer no prejudice by virtue of the extension of time being granted.’

Following this commitment, CML provided the first tranche of material referred to, but nothing further, and no explanation was provided to Mr Sheyko. The Master considered that this behaviour justified an indemnity costs order.

This judgment shows that parties who argue that they cannot disclose material because it might break foreign law must be ready to explain their position in detail, both in terms of the documents in question and the legal reasoning. And even if this threshold is met, the decision remains one for the Royal Court, to be determined in accordance with Jersey law. It is also a reminder that parties who mislead the court, and are responsible for inexcusable delay, will not continue to receive the benefit of the doubt and that their lawyers should be slow to make promises on behalf of their clients unless they are sure that they will be honoured.

Baker & Partners represents Mr Sheyko in the above proceedings.

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