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||Neutral Citation Number:  EWHC 37 (Ch)
||Case No: HC08CO1676
IN THE HIGH COURT OF JUSTICE
||Royal Courts of Justice
Strand, London, WC2A 2LL
||15 January 2009
B e f o r e :
Richard Sheldon QC
(sitting as a Deputy Judge of the High Court)
|| BNP Paribas
||- and -
||(1) TH Global Limited
(2) Spinaker Limited
(3) Kvaerner 2004 (No 2) Limited
Philip Marshall QC (instructed by Ashurst LLP) for the Claimant
Stephen Rubin QC (instructed by SJ Berwin LLP) for the Defendants
Hearing dates: 12 December 2008
HTML VERSION OF JUDGMENT
Crown Copyright ©
Richard Sheldon QC (sitting as a Deputy Judge of the High Court):
- This is the hearing of the Claimant's ("BNPP") Pt 8 claim seeking disclosure of documents and information pursuant to the jurisdiction established by Norwich Pharmacal v Customs & Excise Commissioners  AC 133.
- BNPP seeks disclosure in relation to various restructuring transactions that have been carried out in respect of TH Global Ltd, the First Defendant ("THG"), which BNPP suggests have had the apparent effect of removing assets of substantial value from THG to the significant detriment of BNPP as one of its preferential shareholders. More specifically BNPP contends that, as a result of what it says appears to have been a carefully prepared plan, receivables amounting to some £350.8m owed to THG by companies in the Kvaerner ASA Group which are listed on the Oslo stock exchange and are creditworthy have been transferred away in 2005 and replaced by receivables totalling £910.5m owed by the Second Defendant ("Spinaker"), a company formed on 20 December 2004 with a share capital of £1. BNPP contends that the Defendants appear to have been mixed up in a wrongful "asset stripping" scheme to the substantial detriment of THG stakeholders such as BNPP. The Defendants deny all the allegations of wrongdoing and say that BNPP have misunderstood the position.
- The following summary of the background facts is largely taken from the skeleton argument prepared by Philip Marshall QC for BNPP which is in turn based on a witness statement of Michael Gibbons, Head of BNPP's Special Situations and Distressed Debt Group, dated 17 June 2008 together with its exhibits.
- BNPP is a well known French retail and investment bank.
- THG was formerly known as Trafalgar House plc, a company listed on the London Stock Exchange, with interests in property, property development, construction, passenger shipping and engineering. THG has undergone a number of other changes of name.
- In 1995 THG posted large losses. In 1996 it was acquired under an agreed bid by Kvaerner ASA, a company listed on the Oslo Stock Exchange and the holding company of an international oil services, engineering and construction and shipbuilding group.
- In March 2005 BNPP acquired preference shares in THG. In the period leading up to this acquisition THG (either under its present or one of its former names) consistently reported in its annual accounts that it was a member of the Kvaerner Group.
- From the financial statements available at the time (for the year ended 31 December 2003) it appeared that THG had significant net assets on its balance sheet in the form of debts due to it from the Kvaerner group of companies. Note 18 to the 2003 Accounts showed that THG (or its subsidiaries) were owed £350.8m by a company or companies in the Kvaerner group and Note 21 showed that THG owed debts of £144.7m to companies in the Kvaerner Group resulting in net assets in the form of receivables due from group undertakings of £206.1m.
- Spinaker was incorporated in England and Wales on 20 December 2004. At all material times the issued share capital of Spinaker has consisted of 1 ordinary share of £1.00.
- The Third Defendant, Kvaerner (2004) No 2 Limited ("Kvaerner 2004") was also incorporated on 20 December 2004. At incorporation Kvaerner 2004's immediate parent was Spinaker which at that stage was a member of the Kvaerner group.
- THG's accounts for the period ending 31 December 2004 were signed on 30 March 2005 and disclosed a process of restructuring the THG group following a "reorganisation" of the Kvaerner group referred to in the 2003 Accounts. The 2004 Accounts, which carried an unqualified auditor's report, showed that in the period ending 31 December 2004 THG had net assets in the form of debts due to it from companies in the Kvaerner Group. Note 18 to the 2004 Accounts showed that THG (or its subsidiaries) were owed £669.7m by a company or companies in the Kvaerner Group and Note 21 showed that it owed £332.2m to group companies; producing net assets in the form of a net amount due from group undertakings of £337.5m. The 2004 Accounts showed that THG had considerable assets and its net asset position appeared to have improved since the date of the 2003 accounts.
- The changes in the structure of the Kvaerner group were also addressed in Kvaerner ASA's Annual Report for 2004 signed on 7 March 2005 and released to the market on or about 15 March 2005. This stated that: "Through an extensive restructuring process and, among other measures, the distribution of dividend shares, a completely new industrial structure has been established. Kvaerner today comprises a small number of operational businesses, financial investments and non operational commitments. The business is in a good position to resolve the outstanding challenges in the group in the best interests of shareholders and other stakeholders. The principal objective is to maximise the value of the group and distribute the net equity value within a short term period". The Kvaerner Annual Report went on to explain that the restructuring process would result in significant payments being made for the benefit of certain directors and in particular the principal director in Kvaerner, Kjell Inge Rokke.
- In about March 2005 a company called Medaura NV, incorporated in the Netherlands, was used as a vehicle by five former directors and managers of Kvaerner to acquire control of the parent company of THG. Between 11 April and 14 April 2005, and again in July 2005, BNPP acquired additional preference shares in THG. The preference shares held by BNPP were cumulative, meaning that whenever THG elected not to pay out a dividend the value of that unpaid dividend increased the value of the shares. According to Note 11 of the 2004 Accounts, no dividend on the preference shares had been paid since September 1995 and at that date the cumulative arrears for all preference shares in THG was £9.9 million. The proportion of cumulative arrears owed to BNPP as at the date of its purchase of shares in THG was approximately £1.57 million. When arrears are included the total value of BNPP's shares at the time of purchase is said by BNPP to have been approximately £5.17 million.
- In September 2005 representatives of THG indicated to BNPP that it was in the course of dealing with a deficit in the Kvaerner Pension Fund and with holders of its bonds maturing in 2006 and 2014 and would address the position of its preference shareholders thereafter. The Kvaerner Pension Fund issue was resolved in early 2006.
- On 26 April 2006 THG made a tender offer to settle some of its outstanding debt namely by repurchasing its 2006 and 2014 bonds. On 15 June 2006 THG published on its website an update for the 2006 and 2014 bondholders headed "High Level Group Structure at 31 December 2005". It disclosed that:
a. Spinaker was purchased by Medaura for £1.00 as part of the management buy-out;
b. Spinaker's only material assets at 31 December 2005 were tied cash deposits of £1.6m, shares in Kvaerner 2004 and KIN Holding AS (the holding company of THG), THG 2006 bonds with face value of £33.9m (plus accrued interest) and inter-company receivables due to it from Kvaerner 2004;
c. Spinaker's material liabilities at 31 December 2005 were external loans of £37.6m (plus accrued interest) and intercompany payables;
d. Kvaerner 2004 had no material assets or liabilities at 31 December 2005 other than intercompany balances; and
e. At the Spinaker level the inter-company balances would eliminate on consolidation with Kvaerner 2004.
The information included a diagram showing that £911m was payable to THG by Spinaker; THG owed £536m to Kvaerner 2004 and Kvaerner 2004 in turn owed this amount to Spinaker. The effect of this for THG was a net asset position of £374.4m in debts due to THG from Spinaker or its subsidiaries.
- On 21 June 2006 THG provided an update to the market. The update stated that THG was not in a position to deliver certificates of compliance in accordance with the terms of the 2006 and 2014 bonds; had extended indefinitely the deadline for acceptance of its offer to bondholders made on 26 April 2006; was unable to approve and publish its annual report and accounts for the year ended 31 December 2005 by 30 June 2006 and could not do so until the appropriate basis of preparation could be determined; and was in discussions with the respective trustees of the bonds.
- On 18 July 2006, THG released a further update to the market. This further update stated that THG was in discussions with its auditors in respect of the appropriate basis for the preparation of THG's 2005 Accounts and that Bingham McCutchen and BDO Stoy Hayward had been appointed as legal and financial advisers respectively to the 2006 and 2014 bondholders.
- On 21 August 2006 THG released further financial information to the market. The information consisted of draft and unaudited balance sheets for the year ended 31 December 2005 and showed that THG's receivables from Spinaker group companies were £910.5m and THG's payables were £536.1m; appearing to confirm a net asset position of £374.4m owed to THG by Spinaker group companies. These figures were confirmed in the audited accounts for that year signed on 21 September 2006. The auditor's report was unqualified but drew attention to note 1 to the financial statements indicating a material uncertainty which might cast doubt on the ability of THG and the THG group to continue as a going concern. In note 1 the main uncertainty was stated to be the completion of the settlement with the Kvaerner Pension Fund.
- From THG announcements dated 16 October 2006 and 21 June 2007, it appears that settlements were reached in relation to the buyback of the 2006 and 2014 bonds by THG at a discount.
- In THG's accounts for the period ending 31 December 2006, signed on 18 December 2007, the auditors report, which was again unqualified, drew attention to note 1 to the financial statements concerning THG's ability to continue as a going concern and stated:
The Company has net current liabilities, which include significant inter-company receivables the full recovery of which is uncertain and inter-company payables which are due on demand. These conditions… indicate the existence of a material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern.
Note 19 referred to a change in accounting policy which resulted in a prior year adjustment, including the creation of provisions against inter-group debts in the 2004 and 2005 accounts.
- Before the commencement of these proceedings BNPP made repeated requests for information from the Defendants. The history of this is set out in detail in the witness statement of Mr. Michael Gibbons, paragraphs 42 to 63. In summary:
a. Requests were made for information and documents regarding the restructuring at the annual general meeting of THG on 15 January 2007 but there was no response;
b. Requests for information were repeated by BNPP's solicitors, Ashurst, by letters dated 17 May 2007 and 19 June 2007 with the specific question being raised as to how the debt of Spinaker to THG arose and how Spinaker, effectively a shelf-company could service a debt of £910.5m. On 4 July 2007 THG refused to provide any information beyond its accounts or other information which was publicly available.
c. Ashurst thereafter continued to press for further documents and in particular a copy of a report produced by BDO Stoy Hayward, originally prepared for bondholders in THG in July 2006, and which contained some explanation concerning the purpose of the restructuring ("the BDO Report"). In letters dated 6 August and 27 September 2007 THG refused to provide a copy of the BDO Report claiming, among other things, that it could not release the report, that it was prepared on behalf of the bondholders and "specific to those negotiations" and that it was out of date in any event. BNPP has tried unsuccessfully to obtain a copy of the BDO Report from BDO Stoy Hayward itself.
d. In later correspondence during the early part of 2008, in response to letters before action, THG continued to maintain its stance that it would provide no further information and that BNPP had been provided with all information to which it had been properly entitled as a preference shareholder of THG. More specifically, in response to Ashurst's letter dated 6 February 2008, which summarised previous attempts to obtain information and threatened the current proceedings in the absence of a positive response, SJ Berwin for the Defendants declined to provide any further information and contended that BNPP was not entitled to Norwich Pharmacal relief.
- The claim form was issued by BNPP on 25 June 2008, seeking orders in the form of the draft order attached thereto. Orders were sought against each of the Defendants for provision of an affidavit and disclosure of documents. The orders now sought by BNPP have been slightly amended to take into account subsequent comments made by the Defendants on the detail of the terms of order (referred to below) and are typified by the following order which is sought against THG:
The First Defendant shall by 2 January 2009 serve upon Ashurst, the solicitors for the Claimant:
(a) an affidavit setting out the First Defendants' knowledge of and involvement with the transactions or agreements by which the Second Defendant became liable to pay debts to the First Defendant originally owed to the First Defendant by Kvaerner ASA; and
(b) a list of all documents within its possession, custody or control relating to the transactions or agreements under which:
(i) the First Defendant incurred debts to the Second Defendant of approximately £33.9 million;
(ii) the First Defendant incurred debts to the Third Defendant of approximately £540 million;
(iii) the Second Defendant became liable to pay the debts owed to the First Defendant by Kvaerner ASA (including without limitation in respect of the alleged discharge of a debt of £337.5 million owed to the First Defendant by companies in the Kvaerner ASA group as at 31 December 2004);
(iv) the Second Defendant incurred debts to the First Defendant of approximately £900 million (including without limitation in the sum of approximately £374.4 million as at 31 December 2005); and
(v) the Third Defendant incurred debts to the Second Defendant of approximately £550 million.
- The issue of the claim form led to a change of position on the part of the Defendants. On 21 July 2008 their solicitors, SJ Berwin, wrote stating:
As you are aware, we take the view that your client is not entitled to the information and documents sought and that your client's claim is misconceived for the reasons previously articulated in correspondence….
Nevertheless, and without prejudice to the above contentions, in an effort to seek to avoid protracted litigation, and to save costs, we are instructed that our clients will provide the information/documents sought (subject to the limitations set out in the enclosed draft order) on the basis that your client pays our clients' costs of undertaking this exercise.
The limitations set out in the draft order were concerned with the timing of disclosure, correcting certain alleged inaccuracies in the descriptions of classes of documents (but apparently not designed to limit the extent or ambit of disclosure), dealing with any objections of third parties with rights of confidentiality and dealing with the payment by BNPP of the Defendants' costs of the disclosure exercise. That position was confirmed by the Defendants in a witness statement of Marlene Rasanayagam dated 24 July 2008 served in response to the claim form and the evidence served in support.
- In seeking an extension of time to the end of September 2008 to give disclosure, Ms Rasanayagam referred to the fact that the disclosure exercise "will require an extensive amount of work to be undertaken by the Defendants" (para 12(i)).
- There was then further correspondence about the matter, including proposed provisions in the order as regards confidentiality and costs, and discussions took place on a without prejudice basis. On 10 November 2008, SJ Berwin wrote to Ashurst and, though reiterating the reservation that BNPP was not entitled to the information and documents sought, addressed outstanding issues (costs, details of terms of order, timing and confidentiality) so that a form of order could be agreed without the need for a hearing. At para 1.3 of the letter, S J Berwin wrote:
The information and the documents sought … will require an extensive amount of work to be undertaken by our clients (and its legal advisors). We estimate a month's worth of work.
In para 3.2 SJ Berwin suggested a period of 6 weeks from the date of the order for the information and documents to be provided if the terms of the order could be agreed.
- On 13 November 2008, SJ Berwin wrote with further suggested changes to the detail of the terms of the proposed order which were designed further to clarify the proposed terms so as accurately to reflect the underlying factual position, although, as stated earlier, not materially to alter the scope of the information and documents being sought by BNPP.
- On 27 November 2008, Ashurst responded to the letters dated 10 and 13 November 2008 raising issues as to costs of compliance and of the application, the terms of the order proposed, timing and confidentiality. They indicated that they intended to proceed to a hearing of the application and would seek an order in the form attached to the application.
- On 9 December 2008, only 3 days before the hearing of the application, the Defendants again changed their position in a witness statement from Runar Nilsen signed on that date. Mr Nilsen is the President and CEO of THG and a director of Spinaker and Kvaerner 2004. In that witness statement Mr Nilsen explains that the Kvaerner Group carried out a number of restructurings which he describes as being "extremely complicated in scope and extent". He says that the central allegation advanced by BNPP that there was a replacement of a solvent debtor by an insolvent debtor is incorrect and shows a serious misunderstanding of the transactions, events and circumstances. He provides a summary of the restructurings, the first which took place in 2001, the second in 2003/4, the third in December 2004 and the fourth the management buy out which took place in 2005. The allegations of wrongdoing are denied and at paragraph 40 he says that he does not believe that the preference shares held by BNPP had any greater value at the time they were acquired than they have now or in the intervening periods, and that without the restructurings he describes the shares would have been worthless. At paragraph 43 Mr Nilsen says that the Defendants remain willing to try to provide BNPP with information and explanations in an effort to satisfy it that there was no wrongdoing, but suggests that the orders sought are inappropriate. At paragraphs 44 to 48, he describes the extensive work which would be required to meet BNPP's disclosure requests. At paragraph 49, he says:
When the Defendants agreed to provide the Claimant with certain of the affidavit evidence/documents sought by them in July 2008, I had not properly appreciated the magnitude of the work to be done and costs involved. Nor do I believe that the Claimants can have properly understood or envisaged the size of the exercise they were proposing as they have reacted so adversely to the Defendant's estimates of the costs. Having now realised the sheer size of the task, I do not think that the orders proposed by either the Claimant or [SJ Berwin] in its letter of 13 November 2008 (which the Claimant has rejected in any event) are realistic especially as I believe there is a more sensible and economic way of managing this without shutting out the Claimant.
- The way forward proposed by Mr Nilsen was for:
(i) disclosure of the 92 page factual section of the BDO Report of July 2006 which, subject to certain manuscript amendments had been approved by the Defendants. Mr Nilsen explains that this section covers the four restructurings;
(ii) disclosure of "the large number of underlying transactional documents for the restructurings in 2003/4, December 2004 and the MBO in so far as these are already collated and contained in the respective transactional bundles" (para 51 of his witness statement).
- BNPP contends that from the financial information provided by THG it appears that there been a very significant deterioration in the asset position of THG as a result of the restructuring referred to above. Effectively credit worthy debtors of THG in the Kvaerner ASA group (a group listed on the Oslo stock exchange) owing the company some £337.5m have been replaced by Spinaker, a company that owes a net £374.4m but which has disclosed relatively few assets, and well below what is required to meet the debt.
- BNPP say that its attempts to obtain any explanation for this in both shareholder general meetings and in correspondence from THG and its solicitors have proved fruitless. No detailed explanation providing a commercial justification has been supplied.
- In the circumstances BNPP contends that it has, or may have, as matters stand, a claim for damages for conspiracy to defraud or injury caused to it by other unlawful means. Alternatively BNPP suggests it has grounds to bring a derivative action in the name of THG against those responsible for what appears to have been a wrongful asset stripping exercise. BNPP says that it does not know the identity of those responsible.
- BNPP contends that the requirements for the grant of relief under the Norwich Pharmacal jurisdiction are made out and that the court should exercise its discretion in its favour to grant such relief.
The Defendants' position
- The Defendants propose that any order I make should be limited to the proposals made in the witness statement of Mr Nilsen, namely disclosure of the factual section of the BDO Report and the transactional documents as described by Mr Nilsen. They submit that the orders sought by BNPP should not be made on the grounds that the requirements for the exercise of Norwich Pharmacal jurisdiction are not made out, alternatively that the court should exercise its discretion against making the orders sought.
- The main issue for decision is whether I should in principle limit the order to that proposed by the Defendants or make wider orders as sought by BNPP. Whatever my decision on this issue of principle, there will be a number of detailed points on the form of the order, to which I revert later in this judgment.
- The relevant principles governing the exercise of the Norwich Pharmacal jurisdiction are set out in the judgment of Lightman J in Mitsui & Co Ltd v Nexen Petroleum UK Ltd  3 All ER 511
; EWHC625 at paragraph 21. They are that:
(i) a wrong must have been carried out or arguably carried out by an ultimate wrongdoer;
(ii) there must be a need for an order to enable action to be brought against the ultimate wrongdoer; and
(iii) the person against whom the order is sought must be mixed up in the wrongdoing so as to have facilitated it and be able or likely to be able to provide the information necessary to enable the ultimate wrongdoer to be sued.
Even where these requirements are met the court has a residual discretion whether it is right that an order should be made in all the circumstances. In the course of his judgment, at paragraph 19, Lightman J stated that:
Relief can be ordered where the identity of the claimant (sic) is known, but where the claimant requires disclosure of crucial information in order to be able to bring its claim or where the claimant requires a missing piece of the jigsaw.
- Mr Rubin also drew my attention to provisions for pre-action disclosure in CPR 31.16. The conditions which have to be met in order to make an order under that rule include: (i) the respondent is likely to be a party to subsequent proceedings in which the applicant for the order is also likely to be a party; (ii) if proceedings had started, the respondent's duty by way of standard disclosure would extend to the documents of which the applicant seeks disclosure; and (iii) disclosure before proceedings have started is desirable in order to dispose fairly of the anticipated proceedings, assist the dispute to be resolved without proceedings or save costs. Even if these conditions are met, the court retains a discretion whether or not to make an order.
- Mr Marshall explained that he was not seeking an order under CPR 31.16 because the Defendants were not the principal targets (although he did not rule out the possibility that they might be defendants in subsequent proceedings): one of the purposes of the disclosure sought was to identify those who were responsible. BNPP is also seeking an order for the provision of an affidavit by each of the Defendants: that goes beyond the scope of the orders which can be made under CPR 31.16 which is limited to disclosure of documents.
Discussion and decision
- Mr Rubin submitted on behalf of the Defendants that the first and second of the threshold principles for the exercise of the Norwich Pharmacal jurisdiction which I have set out earlier are not made out. As to the first, he submitted that, relying on the evidence of Mr Nilsen, the allegation that there was a replacement of a solvent debtor by an insolvent debtor is incorrect and a misunderstanding of the transactions and events and that, in any event, the evidence adduced by BNPP does not support the allegation made nor show that there has been any wrongdoing. I am satisfied, taking into account the evidence filed as a whole, that the first threshold principle is made out. The evidence discloses a reasonable basis for concluding that BNPP may be a victim of wrongdoing . Mr Nilsen has said that the restructurings were complex and require detailed explanation (para 46 of his witness statement), but it is significant that that explanation has not been forthcoming in response to the numerous requests made by BNPP before these proceedings were commenced; and Mr Nilsen's witness statement only deals with the restructurings in general terms and does not purport to provide more than a general response to the central allegation made by BNPP.
- As to the second threshold principle, Mr Rubin submitted that there is no real need for the orders sought to enable BNPP to identify or bring claims against the alleged wrongdoers. He says that the claim can be pleaded now. Mr Marshall submitted in response that BNPP requires the information it seeks about the specific debt restructuring transactions in order for BNPP to assert its legal rights and in particular needs such information in order to identify any wrongdoers against whom a claim may be brought and, depending on the facts, the form of any claim. I accept Mr Marshall's submissions and am satisfied that the second threshold principle is made out.
- In his oral submissions, Mr Rubin focussed more on the exercise of the court's discretion in the event that the threshold principles were made out. He submitted that any order made should be limited to disclosure of the documents proposed by Mr Nilsen. Mr Rubin's resistance to the orders sought by BNPP essentially fell into two parts.
- As for the orders sought by BNPP for disclosure of documents, Mr Rubin submitted that:
(i) The size of the task which would have to be performed is very substantial. The order sought by BNPP is not proportionate to the claim or the stage the case has reached, bearing in mind that pre-action disclosure is sought;
(ii) The cost of the proposed exercise is very large, and unnecessary at this stage, especially given the more economical route suggested by the Defendants;
(iii) The proposed order would be too onerous to the Defendants. The documents sought extend beyond merely the transactional documents but cover any documents "relating to" an extensive series of reconstructions over several years including not just the documents documenting the restructuring transactions themselves but all internal notes, memos, correspondence and other documents connected to such extensive financial transactions. The search for such documents would have to be carried out at several locations and require additional staff to be employed.
- As for the orders sought by BNPP against each of the Defendants for the provision of an affidavit in the form exemplified by subparagraph (a) of the draft order quoted in paragraph  above, Mr Rubin submitted that:
(i) It would be unjust and oppressive to order intended defendants to a possible fraud claim to provide evidence to explain their actions before the claim against them has even been pleaded (cf Re British & Commonwealth Holdings plc  Ch 342 CA at 372D (decision upheld by HL,  AC 426); First American Corporation v Zayed  1 WLR 1154 at 1168 F-G, 1169 D-E);
(ii) To order corporate defendants to depose to their "knowledge of and involvement with" the restructurings would be unfair and inappropriate because (a) the knowledge would be the actual and/or imputed knowledge of several different persons; (b) it is unclear whose knowledge is to be taken, how inconsistent recollections or different states of knowledge could be reflected in the affidavit or whether the natural persons concerned are even still available; and (c) the same points apply to a lesser extent with the "involvement" of the Defendants.
- As for the orders sought by BNPP for disclosure of documents, I consider firstly the adequacy of the proposals made by the Defendants. It will be recalled that in earlier refusing to supply a copy of the BDO Report the Defendants described the Report as "specific" to the negotiations with the bondholders and that it was out of date in any event. Whilst I am satisfied that the factual section of the BDO Report which the Defendants propose should be disclosed will cast some light on the restructurings that occurred prior to its preparation, it is striking that Mr Nilsen in his witness statement does not suggest that it provides an explanation for the specific debt restructuring which forms the central basis of BNPP's complaint. Nor was Mr Rubin at the hearing able to suggest that this was the case: indeed he accepted that the debt restructuring occurred after the management buy out in 2005 which forms part of the restructurings described by Mr Nilsen in his witness statement. Accordingly, I am not satisfied, on the basis of the materials available to me, that the disclosure of the factual section of the BDO Report as proposed by the Defendants would provide an explanation for the central allegations made by BNPP. Mr Rubin opened his submissions by stating that the Defendants are willing to provide information on a workable basis which will provide an explanation for the transactions of which complaint is made. I am not satisfied that this would be achieved by the disclosure of the factual section of the BDO Report. (I should also record that I was told by Mr Rubin that BDO's consent to disclosure of the factual section of the BDO Report has not yet been obtained, although he invited me to make an order for its disclosure whilst giving BDO the right to apply to discharge it if they object.)
- Similar considerations apply to the proposed disclosure of "the large number of underlying transactional documents for the restructurings in 2003/4, December 2004 and the MBO in so far as these are already collated and contained in the respective transactional bundles" (para 51 of Mr Nilsen's witness statement). No further detail is given in Mr Nilsen's witness statement of what these documents comprise, but Mr Rubin explained that these essentially comprise a "bible" of restructuring documents. For the reasons already given in relation to the factual section of the BDO Report, it seems to me unlikely that these will shed much light on the specific debt restructurings of which complaint is made by BNPP.
- Accordingly I consider that the disclosure proposed by the Defendants is not adequate to meet the reasonable requirements of BNPP for the provision of information concerning the wrongdoing which they allege.
- I turn next to the issue of costs, which has been the subject of correspondence. In a letter dated 10 November 2008, SJ Berwin estimated that the costs of complying with the disclosure sought (including the provision of an affidavit) would be between £150,000 and £250,000, and in addition disbursements such as counsel's fees and the services of an electronic disclosure specialist. Although Ashurst's response dated 27 November 2008 seriously questioned these estimates, they accepted the general proposition that the applicant for a Norwich Pharmacal order would be liable to pay the respondent's reasonable costs of compliance with the order, a proposition which was repeated at the hearing by Mr Marshall. BNPP are on notice of the scale of the exercise if a disclosure order is made and have been given an estimate of the likely costs of compliance, yet have decided to pursue the application acknowledging that it will have to pay the Defendants' reasonable costs of compliance. In these circumstances, I do not accept Mr Rubin's submission that the likely costs of the disclosure exercise should deter me from making an order if I otherwise thought it right to make an order.
- As to the extent of the exercise that would be involved in providing disclosure of the documents sought, and whether it would be proportionate to make an order at this stage, the history of this matter shows that, prior to the issue of the claim form, the Defendants have been generally unresponsive to the requests for information made by BNPP. After the claim form was issued, the Defendants clearly considered over a period of several months the extent of the exercise which would be involved in providing the disclosure sought but were nevertheless, until Mr Nilsen's witness statement was served shortly before the hearing, prepared in principle to provide the documents sought by BNPP (albeit subject to agreeing the detailed terms and subject to the general reservation mentioned above). Had the Defendants been more forthcoming in their provision of information, it is quite possible that the scope of an order for disclosure (if any) could have been more limited than that sought by BNPP. In the light of the history of this matter, including what I consider to be the inadequate proposal now put forward by the Defendants, no viable alternative has been suggested. I am therefore satisfied that, notwithstanding the extent of the exercise involved in providing disclosure, it would in principle be appropriate to make an order for disclosure of documents as sought by BNPP at this stage.
- I am also satisfied that, by analogy with CPR 31.16, and had an application been brought under that rule, the requirements for the making of an order under CPR 31.16 (on the hypothesis that the defendants were likely to be parties to subsequent proceedings) would have been made out. In particular, I consider that if proceedings had started, the Defendants' duty by way of standard disclosure would in principle extend to the documents of which BNPP seeks disclosure.
- For these reasons, in principle I consider it appropriate to make orders for disclosure of documents as sought by BNPP. I say "in principle" because there may be detailed points on the wording of the orders sought by BNPP. The Defendants have suggested certain changes which they say correct certain alleged inaccuracies in the descriptions of classes of documents sought but are not designed to limit the extent or ambit of disclosure. I would hope that, in the light of this judgment, outstanding points on the detail of the wording of the proposed orders can be agreed.
- As for the orders sought by BNPP for the provision of affidavits, I do not consider it appropriate to make such orders at this stage. I take into account that the Defendants in response to the issue of the claim form initially proposed in principle to provide such affidavits. However, this was on the basis that all terms of the order could be agreed and put forward subject to the general reservation that BNPP was not entitled to the information and documents sought. No agreement was reached as to the terms of an order. I consider that the arguments put forward by Mr Rubin against the provision of affidavits have considerable force and that, at least at this stage, it is not appropriate or necessary to make such an order. The information sought by the provision of affidavits may well appear from the documents which I have ordered should be disclosed to BNPP. The order sought by BNPP for production of an affidavit is, I consider, too broad and unspecific and could well be oppressive since it is quite likely that the information required to produce such an affidavit would have to be provided by potential targets. I also take into account, by analogy, that the court's powers under CPR 31.16 would not extend to making the orders sought by BNPP in this respect. This, together with the cases on Norwich Pharmacal orders which I have been shown, suggests that the type of order sought by BNPP for provision by affidavit of the wide scope of information sought would not be appropriate at this stage. I do not rule out the possibility of the court being prepared to make some such form of order at a later stage, after the documents have been disclosed and in the light of any reasonable requests by BNPP for explanations and further information which have not been answered by the Defendants. Whether an order for production of an affidavit at some later stage would be appropriate will clearly depend on the facts as they exist at the time of any subsequent application.
- In conclusion, I consider it appropriate in principle to make orders for disclosure of documents as sought by BNPP but I decline to make the orders sought for the provision of affidavits.
- There are a number of matters which will need to be dealt with in the orders which I make. There is the question of duties of confidentiality owed by the Defendants to third parties in respect of the documents which will be required to be disclosed, and possibly also legal professional privilege, although Mr Rubin suggested to me that this might not be as great a difficulty as was once thought. Provision will need to be made in the order for third parties to be able to intervene to prevent disclosure of information which they claim to be their confidential information or protected by legal professional privilege (cf CHC Software Care Ltd v Hopkins & Wood  FSR 241 at 251). Provision will also need to be made for BNPP to pay the Defendants their reasonable costs of compliance with the order. I have already mentioned detailed points on the drafting. The timing of disclosure will also need to be considered. If these or any other outstanding points cannot be agreed, they will have to be the subject of further argument.
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