Redaction of documents in litigation involving loan portfolio sales

Where one party to litigation seeks sight of documents in the other party’s possession, he/she will generally seek an order for Discovery. In addition, a party can seek an order for Inspection and Production of relevant documents that are referred to in the other party’s pleadings or affidavits (other than discovery affidavits). Both applications are covered under the rules of court, and will only be ordered where the documents sought are relevant and necessary.

It is common case in proceedings involving loan portfolio sales that any loan sale agreement and transfer deed produced to the other side is heavily redacted. Whilst the entitlement to redact documents in such cases is generally accepted for reasons of commercial sensitivity and third party privacy rights¹, there has been little guidance around the permissible extent of redactions.

In 2019, a number of useful judgments were delivered by the Irish courts relating to the redaction of documents by parties embroiled in litigation involving loan portfolio sales. This note looks at those judgments and their wider practical implications. It also considers the courts approach to ordering discovery of pricing information in the aftermath of recent opposing High Court decisions.

1. Courtney -v- OCM EMRU DEBTCO DAC & O’Connor² (“Courtney”).

Courtney confirms that the wholesale redaction of documents under the cloak of confidentiality or commercial sensitivity will not be permitted.

The plaintiff’s loans and security were included in a loan sale from National Asset Loan Management Limited (“NALM”) to OCM EMRU DEBTCO DAC (“OCM”). OCM asserted it acquired the plaintiff’s facilities and security by virtue of a Loan Sale Deed and a Deed of Transfer (the “Loan Sale documents”). OCM appointed the second named defendant as receiver over the secured properties of the plaintiff. The plaintiff instituted proceedings challenging the appointment. She claimed that she had an equitable right to redeem the mortgage, and alleged breaches of fiduciary duty by the defendant in failing to consider her offer to purchase her loans. A number of interlocutory applications were instituted by the defendant, including an application restraining the plaintiff from interfering with the receiver. It was in the course of these applications that the Loan Sale documents were exhibited in redacted form to the defendant’s grounding affidavits.

The plaintiff sought production and inspection of an un-redacted copy of the Loan Sale documents, in particular the sections related to the price paid for the plaintiff’s connection (her relevant loans and security), and the price paid generally. The defendant resisted, arguing commercial sensitivity, confidentiality and irrelevance.

Haughton J commented that no leave of the court to exhibit redacted copies was sought prior to the swearing of the grounding affidavit and no explanation was given in the grounding affidavit itself for the redaction. The learned judge was critical of the general approach adopted in debt recovery and/or repossession proceedings which “invariably” involve extensive redaction by the deponent on behalf of the acquiring entity. He added such an approach “gives rise to suspicion, resentment, and contention.”

Applying the principles set out in Maye v Byrne Wallace Solicitors³ Haughton J summarised the position of the courts in relation to redaction:

(i) Where documents are relevant, confidentiality of itself (as opposed to privilege) is not a barrier to disclosure

(ii) The burden lies on the party seeking inspection to show it is necessary

(iii) Where a prima facie case for disclosure is made out, the burden switches to the party seeking redaction to justify it

(iv) Redaction can be practically difficult, not least because it is invariably client led, with no justifiable basis for redaction

(v) Addressing confidentiality arguments, Haughton J affirmed that the courts afford lesser protection to confidentiality than to privilege or commercial sensitivity, and such issues can be adequately protected by undertakings

(vi) Addressing commercial sensitivity, in the circumstances of this case, the plaintiff was not a competitor of the defendant, and so such information could be protected by appropriate directions limiting the persons to whom, and purpose for which, disclosure could be made.

Haughton J concluded that the documents were complex, multi-faceted and included interdependent clauses. He found that understanding the loan sale documents as a whole was relevant to the plaintiff’s claim and this was unfairly impeded by the redactions. In particular, the redacted parts relating to price, including the price paid for the plaintiff’s connection, were relevant to the plaintiff’ pleaded claims of breach of fiduciary duty in failing to consider her offer to purchase her connection, and the ultimate sale at a price lower than what she was prepared to pay⁴.

The extent of the un-redaction measures ordered in the case was significant and the general guidance from the court is welcomed. However, the case should be regarded as confined to its own facts, and in particular, the specific claims made by the plaintiff with respect to the price paid for the loans.

2. Everyday Finance DAC -v- Woods & Anor⁵

This case involved an application for an Order that the plaintiff produce certain documents referred to in its Summary Summons. The substantive proceedings sought repayment of c. €4m allegedly due to the plaintiff on foot of loan facilities advanced by Allied Irish Banks (“AIB”) to the defendants. The plaintiff claimed to be the successors in title to AIB by virtue of a Deed of Transfer, as amended and restated by a Deed of Amendment (the “Deed of Transfer”). This was disputed by the defendants. The defendants applied for inspection and production of certain documents, including the Deed of Transfer. McDonald J found that the question at issue in the case was the plaintiff’s title to sue.

McDonald J helpfully summarised the general approach by the courts to issues around redaction of documents. The relevant parts of the documents which evidence the assignment of the loans in issue will be considered necessary, and so it is reasonable for the balance to be redacted. If a defendant wishes to see more of the document, the burden rests on him/her to show why. Citing Courtney, McDonald J continued that if the defendant discharges that burden, it then shifts to the plaintiff to justify the extent of the redactions made.

In the circumstances of this particular case, McDonald J held the defendants would be at a serious litigious disadvantage if they did not see the relevant parts of the deeds evidencing the assignment of the loans and security. The court held that while the relevant parts of the deeds dealing with the assignment itself had been produced, those parts could not be understood without the relevant definitions. In the interests of fairness, the Court ordered that the definitions in question be unredacted. These views were expressed solely in the context of this motion and were not intended to be of relevance at the substantive hearing for summary judgment.

3. The approach of the Courts to discovery of pricing information

The approach by the courts in ordering production of pricing information in loan sale documents is unclear.

In Promontoria (Aran) v Sheehy⁶, the High Court ordered discovery of documents relating to the amount paid by the plaintiff for the transfer of loans originally entered into between Ulster Bank and the defendant. The case concerned a claim of unjust enrichment and so the court held it appropriate to make the order in that case.

Sheehy must be viewed in light of its own facts and should not be regarded as conclusive. This is particularly so given the recent refusal by the High Court in Wheelock v Promontoria (Arrow) Ltd & Tennant⁷ to order discovery of the price paid by Promontoria to NAMA for the transfer to it of the plaintiff’s loan and security. The judgment is helpful in that the court held that the purchase price was not relevant in terms of identifying any loss or expense in terms of deciding on the equities between the parties.

4. Conclusion

While the above decisions turn on their specific facts, it is fair to say that the courts remain vigilant against an abuse of the right to redact. The comments around the relevant tests and burdens should be borne in mind by parties and their legal advisors when redacting confidential or commercially sensitive information from documents to be produced in litigation. At the very least, redactions should not be made without prior legal advice.

The above cases are a timely reminder of the impact that the plea’s in a party’s pleadings⁸ can have when the court is considering redaction or discovery.

In the context of a loan portfolio sale transaction, the documents will typically contain extensive confidentiality provisions. It will be important for a buyer, when agreeing those provisions, to consider their impact on the ability to produce documentation relevant and necessary to any future litigation. It may be prudent, bearing in mind the principles set out above, for parties to agree a suite of transaction documents which can be used in any future litigation (including appropriate redactions) as soon as possible following completion