Disclosure of documents subject to implied undertakings

The recent case of The Official Receiver v Andrew Nathaniel Skeene and Junie Conrad Omari Bowers [2020] EWHC 1252 (Ch) (“Skeene”) is a good example of the crossover between insolvency related proceedings and criminal proceedings. In this case, the High Court considered the Official Receiver’s (“OR”) ability to disclose to the Serious Fraud Office (“SFO”) documents which had been obtained by the OR during the course of disqualification proceedings. 

For office holders, the case serves as a reminder of the restrictions contained in the Civil Procedure Rules (“CPR”) and the common law regarding use of documents disclosed by a party in one set of proceedings.  For directors and officers, the case is a stark reminder that misconduct will often give rise to more than one set of proceedings concerning the same conduct, which could include civil claims, directors’ disqualification and criminal proceedings.  In such circumstances, it is vital that advice is taken by a director at an early stage to avoid actions taken in one set of proceedings potentially damaging their position in other proceedings.

Facts

The defendants were directors of a company called GFI Consultants Limited (“GFI”).  GFI traded as Global Forestry Investments and promoted investment schemes in Brazil.  In 2014 GFI went into administration and in 2018 disqualification proceedings were commenced against the directors by the OR.  In those disqualification proceedings, it was claimed that the defendants had misled investors in relation to the investment schemes promoted by GFI, specifically as regards the security of the investments, the fixed returns, the exit strategy and the environmental and social benefits.  At first, the defendants opposed those proceedings.  An affidavit (the “Affidavit”) and an exhibit (the “Exhibit”) were filed by the first defendant (on behalf of both himself and the second defendant) to oppose the proceedings.  In the end, the defendants compromised the proceedings and gave disqualification undertakings for a period of 10 years each.

Separately, on 25 February 2015, the SFO announced that it had opened a criminal investigation into alleged fraud concerning GFI.  In the course of that investigation, on 23 November 2018, the SFO made a Data Protection Application 2018 to the OR for documents relating to the disqualification proceedings.  The OR resisted the application, on the basis that disclosure was not permitted without the approval of the court.  The OR then made an application to the court for permission to provide those documents.

The issues

The parties agreed that the court’s permission was required, pursuant to CPR 31.22, in order for the Exhibit to be released to the SFO.  However, the parties disagreed about whether the court’s permission was required to release the Affidavit.  Accordingly, the court had to consider two issues: (a) whether the OR required the court’s permission to provide the Affidavit to the SFO; and (b) if permission was required, whether it should be granted.

Decision

Prior to the CPR documents produced on discovery and witness statements for use at trial were subject to an implied undertaking that they could be used only for the purpose of the proceedings in which they were disclosed. Whilst this implied undertaking was codified in the CPR in respect of both disclosed documents (by CPR32.22) and witness statements (by CPR 32.21), CPR 32.15 which relates to affidavits is silent on the issue. In Skeene, the court had to consider whether the pre CPR law regarding implied undertakings, insofar as it related to affidavits, had survived.  The court held that in respect of affidavits produced under compulsion, the implied undertaking continued to apply i.e. they could not be disclosed.  Without such an implied undertaking, there would be no restriction on disclosure of an affidavit at all and an affidavit could be used for any purpose even if such use would breach the privacy of the person giving the affidavit.  The court held that this could not have been the intention of those who had drafted the CPR.

Having so held, the court considered whether the implied undertaking applied to the Affidavit  i.e. had the Affidavit been produced under compulsion?

The defendants argued that the Affidavit had been produced under compulsion, arguing that if they had wanted to defend the disqualification proceedings they had no choice other than to serve evidence.  The court disagreed.  A directions order had been made in the disqualification proceedings requiring the directors to give evidence if they wished to defend those proceedings.  Any such evidence would need to be adduced in the form of an affidavit for use at trial.  It was the choice of the defendants whether to defend the proceedings and, if they chose to do so, what information to include in their affidavit evidence. The first defendant had chosen to serve the Affidavit but had not been compelled to do so.

Therefore, as the Affidavit was considered to have been produced voluntarily, no undertaking was implied and the OR was free to disclose the Affidavit to the SFO.

As for the Exhibit, its disclosure was governed by CPR 32.22 which required the court to exercise its discretion on whether to grant permission for it to be disclosed in the interests of justice, having regard to all the circumstances of the case.  In the present case, the court held that it should exercise its discretion in favour of disclosure of the Exhibit on seven grounds:

1. The directors had been charged with very serious offences of fraud, forgery and perjury and it was clearly in the interests of justice to ensure the criminal proceedings against them were conducted properly with all relevant evidence before the court.
    
2. The Exhibit was likely to be highly relevant to those criminal proceedings.
    
3. The request for disclosure was part of the SFO’s continuing duty to investigate, including pursuing all reasonable lines of enquiry, whether or not the results of those enquiries supported actions against the suspects.
    
4. Disclosure would not circumvent the criminal rules.
    
5. The documents which comprised the Exhibit had been produced voluntarily with the Affidavit and the defendants therefore took the risk that the documents might be sought for another purpose other than the disqualification proceedings.
    
6. Having already found there was no restriction on disclosing the Affidavit, providing the documents referred to within it was less likely to be prejudicial.
    
7. Just because disclosure was permitted did not mean the documents could or would necessarily be used in criminal proceedings.  Admissibility would be a matter for the criminal court to decide in due course.  In that regard, the court noted that section 20 of the Companies Directors Disqualification Act 1986 provides that the Affidavit cannot be used in criminal proceedings, subject to certain exceptions.  The court held that such restriction must also apply to the Exhibit.

Comment

As noted above, for office holders, the case serves as a reminder of the restrictions contained in the CPR and the common law regarding use of documents disclosed by a party in one set of proceedings. 

Upon taking office, an office holder (whether the OR, liquidator, receiver, administrator or trustee in bankruptcy) has various reporting obligations, including under section 7A of the Company Directors Disqualification Act 1986 (“CDDA”) (provision of a conduct report regarding the actions of current and former directors to the Secretary of State); under section 218 of the Insolvency Act 1986 (the “1986 Act”) (reporting by liquidators if it appears that current or former directors have been guilty of an offence in relation to the company); and under section 305(3) of the 1986 Act (duty of a trustee to furnish to the OR information, records and assistance).

In complying with those duties, an office holder will need to be alive to, and take advice on, whether disclosure of certain documents or evidence needs to be withheld.  This will include obvious issues such as legal professional privilege and data protection.  It will also need to include whether documents obtained by the office holder in the course of their duties have been so obtained subject to any undertakings (implied or express) as to their use.  Breach of an undertaking is a serious matter and can amount to a contempt of court.  Accordingly, officer holders must ensure that they fully understand their obligations to the court (and to disclosing parties) before making any onward disclosure to third parties.  If in doubt, as the OR did in this case, an application will need to be made to the court for permission to disclose documents.