The Court of Appeal has reiterated the distinction between the broad discovery regime that applied before the introduction of the Civil Procedure Rules (“CPR”) in 1999 and the more limited requirements under CPR “standard disclosure”. In particular, the court held that the defendant bank was entitled to withhold the names of employees who had reported suspicions of money laundering on the part of a client, as their identities did not adversely affect the bank’s case: Shah and another v HSBC Private Bank (UK) Ltd [2011] EWCA Civ 1154.

Background

The issue arose in the context of an action by a customer of the defendant bank seeking damages for delay in executing certain transactions. The bank’s defence was that it suspected money laundering and therefore was required under the Proceeds of Crime Act 2002 (“POCA”) to report its suspicions to the Serious Organised Crime Agency before proceeding with the transaction. To defeat the claim, the bank had to prove that it did in fact have the suspicion it alleged.

The bank served evidence from a Mr Wigley, a manager in its Money Laundering Reporting Office (“MLRO”) who was responsible for making suspicious activity reports (“SARs”) under POCA. He explained the bank’s internal procedures, under which the MLRO would consider internal reports from employees who suspected money laundering and decide whether or not a SAR should be made. The evidence stated that the MLRO would never submit a SAR based solely on the suspicions of other employees; it would need to have its own independent suspicion about the activity before submitting a SAR.

The bank disclosed a series of memos and internal reports leading up to the submission of the SAR. With the exception of references to Mr Wigley, the identities of employees were redacted. The bank’s position was that the names of the individual employees further down the reporting chain did not need to be disclosed to fulfil the bank’s obligation to make standard disclosure, but even if they did the bank would be entitled to withhold the names on grounds of public interest immunity.

Decision

At first instance the judge found that the names of the employees did fall within the obligation to give standard disclosure, but the bank was entitled to withhold their identities on grounds of public interest immunity. The Court of Appeal reversed the judge’s finding on the first issue, and therefore the question of public interest immunity did not arise.

Relevance not enough

Before the judge it was common ground that the court had to decide whether the names of the employees were relevant. The Court of Appeal pointed out that this was “not quite the right question”. Under  the test for standard disclosure introduced by the CPR, the employee names would only be disclosable if they supported or adversely affected either party’s case. As Lord Woolf’s final report on Access to Justice made clear, the CPR test excluded two further categories which fell within the pre-CPR Peruvian Guano test for discovery: documents which were relevant as background, and documents which might lead to a “train of inquiry” enabling a party to advance his own case or damage its opponent’s.

The Court of Appeal concluded that the identfication of individual employees was “at best something that might lead to a train of inquiry that might adversely affect the bank’s case”. Disclosure might (possibly) have been appropriate under the Peruvian Guano test, but it did not meet the more stringent requirements of standard disclosure under the CPR. The claimants were on a fishing expedition based on “speculation and surmise”.

Redactions

Helpfully, the Court of Appeal also confirmed that the test for whether part of a document can be withheld from disclosure (redacted) is the same as for the whole document. It cited with approval a passage in the pre-CPR authority of GE Capital Corporate Finance Group Ltd v Bankers Trust Co [1995] 1 WLR 172 to the effect that relevant and irrelevant information may be contained in the same sentence, and a party is permitted to redact the irrelevant part so long as it can do so without destroying the sense of the rest or making it misleading. The court commented that the same approach applies in the changed landscape of the CPR. In other words, a party can redact information which does not meet the test for standard disclosure, so long as it does not render the remainder senseless or misleading.

For more on the implications of the decision for those within the money laundering “regulated sector” see our Anti-money laundering e-bulletin dated 24 October.