Suzanne Smith v SWM Ltd

• Jurisdiction: Jersey
• Court: Royal Court
• Judge: Matthew John Thompson
• Judgment Date: 17 February 2017
• Neutral Citation: [2017] JRC 26
• Date: 17 February 2017

[2017] JRC 026

ROYAL COURT

(Samedi)

Before:

Advocate Matthew John Thompson, Master of the Royal Court.

Between

Suzanne Smith

Plaintiff

and

SWM Limited

Defendant

Advocate H. Sharp for the Plaintiff.

Advocate O. A. Blakely for the Defendant.

Authorities

European Convention on Human Rights.

SWM Ltd -v- JFSC and AG [2016] JRC 014 .

SWM Ltd -v- JFSC [2016] JRC 094 .

Rocker v Full Circle Asset Management Limited dated 1 ^st December, 2016.

Café de Lecq Limited v Rossborough (Insurance Brokers) Limited [2011] JLR 182 .

Financial Services (Jersey) Law 1998.

Plummers Ltd v Debenhams plc [1986] BCLC 447 .

Phipson on Evidence 17th Edition.

W v JFSC [2016] JRC 231A .

Astex Therapeutics Limited v AstraZeneca AB [2016] EWHC 2759 (Ch) .

Business — reasons in relation to whether a claim for litigation privilege can be made in respect of a report the defendant was required to obtain.

CONTENTS OF THE JUDGMENT

		Paras
1.	Introduction	1
2.	Background	2–9
3.	The parties' arguments	10–26
4.	Decision	27–49
5.	Conclusion	50–51

THE MASTER:

Introduction

1 This judgment represents my detailed written reasons in relation to whether or not a claim for litigation privilege can be made out in respect of a report the defendant was required to obtain pursuant to powers exercised by the Jersey Financial Services Commission (the “Commission”).

Background

2 In summary the plaintiff's claim against the defendant is that the defendant failed to take reasonable care and skill in advising the plaintiff to enter into a particular investment product. It is alleged that the investment made was a high risk product suitable only for experienced investors not the plaintiff. There is a factual dispute between the parties as to the plaintiff's risk appetite and what investment risks the plaintiff was prepared to take.

3 It is also necessary to refer to an ongoing dispute between the defendant and the Commission which has led to two judgments of the Royal Court reported at SWM Ltd -v- JFSC and AG [2016] JRC 014 and SWM Ltd -v- JFSC [2016] JRC 094. It is the second of these judgments that is material to the present application. The judgment dated 11 ^th May, 2016, contained the Royal Court's reasons for granting a stay of a direction issued by the Commission.

4 At paragraph 3 of the judgment the Royal Court summarised the background to the dispute between the defendant and the Commission. In particular, reference was made to a report that the Commission had required the defendant to obtain from Grant Thornton (‘the Grant Thornton Report’) on the suitability of advice that the defendant is said to have given to 42 of its clients. According to the Royal Court judgment, the Grant Thornton Report concluded that the advice and the investments had been unsuitable. Although I have not seen the report, advice given to the plaintiff is one of the areas covered by the report.

5 It is also right to record that the findings of the Grant Thornton Report are disputed by the defendant.

6 As a result of the Grant Thornton Report the Commission issued a direction requiring the defendant to notify its clients of the Grant Thornton Report.

7 Paragraph 5 of the Royal Court's judgment is material and states as follows:–

“SWM seeks a stay of direction 1.3.2. The main basis for its application is that the direction from the Commission to SWM requiring it to write to its clients is, so SWM argues, premature. Inevitably the letter draws upon the findings of Grant Thornton which are extensively disputed by SWM as indeed is reflected in its “management response”. If a letter is sent to clients in the terms required by the Commission at this point then, so SWM argues, inevitably clients will believe that SWM has mis-sold investment advice which is a matter that is substantially disputed by SWM. SWM will lose the confidence of its clients, perhaps unnecessarily, and inevitably claims against SWM would be encouraged when they may not in fact be merited. SWM's argument, in essence, is that any letters sent to clients should be balanced and therefore should await a further independent report which SWM wishes to procure but which, in effect, the Commission is preventing by refusing SWM access to its funds to pay for such a report and by requiring that the letter is sent to clients at this point.”

8 Ultimately the Royal Court granted the stay and stated at paragraph 17 and 18 as follows:–

• “17. We understand the sensitivity of the Commission in the light of the Grant Thornton report which suggests that at least eight and very possibly significantly more clients of SWM have been sold by SWM investments which were unsuitable for them. However in our view it does not sit comfortably that SWM has effectively been blocked from seeking its own advice and counsel by the position taken by the Commission but, nonetheless, is required by the Commission to draw a damning report to the attention of its clients without the ability to challenge it .

• 18. We cannot see that there is any benefit in sending the letter required by the Commission at this stage. As we have already noted all of the investors will be aware of the loss that they have suffered — what they may not be aware of is that there is a report that suggests that in some manner SWM may be responsible to some extent for those losses. To send the letter now would, in our view, inevitably encourage claims against SWM where a fuller evidentiary picture may not.”

9 The position that has since developed is that the plaintiff has now brought proceedings. The plaintiff is also aware of the Grant Thornton Report and has expressly referred to it in her pleadings at paragraph 6 (i) of her order of justice. The existence of the Grant Thornton Report is not disputed by the defendant.

The parties' arguments

10 The main purpose of the hearing before me was to give directions. However, one of the directions sought by the plaintiff was disclosure of the Grant Thornton Report.

11 In advance of the hearing I indicated that I was not minded to order discovery of the Grant Thornton Report, if it was discoverable at all, in advance of general discovery. This was because firstly, I did not consider I had the power to order specific discovery of the Grant Thornton Report in advance of general discovery. Secondly, although the defendant had admitted the existence of the Grant Thornton Report, the defendant had not otherwise referred to it in its pleading and therefore in my view the power to order discovery of a document referred to in a pleading in Rule 6/17(5) did not apply.

12 By the time of the hearing, what had become clear was that the real issue between the parties was whether or not the Grant Thornton Report was privileged. Initially Advocate Blakeley had asserted this to be the case without saying what head of privilege applied. By the time of the hearing he had limited his argument to the report not having to be disclosed because it was subject to litigation privilege.

13 In view of the fact that the parties had prepared arguments on the issue of privilege, I considered it appropriate to rule on whether or not the Grant Thornton Report could be withheld on the basis of litigation privilege.

14 Advocate Sharp argued that a claim for litigation privilege could not be sustained. There were two elements to a claim for litigation privilege. Firstly, litigation had to be in contemplation. Secondly, the dominant purpose of the creation of the document had to be the obtaining of legal advice or the conduct of or aiding in the conduct of anticipated litigation.

15 In this case, even if the Court was satisfied that litigation was in contemplation, the defendant could not meet the dominant purpose test. The dominant purpose of the Commission, in requiring the Grant Thornton Report, was the Commission exercising its regulatory functions. The dominant purpose of the document was not for SWM Limited to obtain legal advice. The only issue that arose on discovery was relevance not privilege. This was clear from the approach taken by the Queen's Bench Division in Rocker v Full Circle Asset Management Limited, a decision of Judge Cotter Q.C. dated 1 ^st December, 2016. In the Rocker judgment the sole question the English High Court had to determine was whether or not a report the FSA had required the defendant (a regulated entity) to obtain was relevant or not. The significance of the judgment to the present application was that no question of privilege arose at all; had the report been privileged, there would have been no argument about relevance. Advocate Sharp submitted that the position was no different in Jersey, where the Commission was exercising its powers against a regulated entity.

16 He therefore submitted that the defendant, being a regulated entity, had to bear the responsibilities of being permitted to carry on regulated activity which included a requirement to cooperate with any powers the Commission as a regulator chose to exercise. The defendant was not therefore in the same position as a private individual.

17 Advocate Sharp further argued that the report was also disclosable because it had been referred to in open Court in the Deputy Bailiff's judgment to which reference had been made. Any privilege could not survive the report being referred to in a public hearing.

18 Advocate Blakeley in response firstly pointed out that the question of the report being referred to in open Court only arose if it was found that the report was privileged and therefore some form of waiver had occurred. He also suggested that the Commission had been wrong to refer the report to the Royal Court.

19 In relation to the Rocker case he argued that it was of no assistance because the question of privilege simply did not arise.

20 In relation to the report itself, he...