Thema International Fund Plc v HSBC Institutional Trust Services[1]

The Decision

The context of this decision was a procedural dispute in litigation arising out of the collapse of the Madoff Ponzi scheme. The plaintiff fund sought orders for discovery against the defendant custodian and its related companies within the HSBC group world-wide. These related companies were not party to the proceedings. The Rules of the Superior Courts provide that a party to a case may be subject to a discovery order to make available documents which are or have been “in his possession, power or procurement”. The question was: were documents held by related companies in the HSBC group discoverable because they may be capable of being “procured” by the defendant company?

The High Court ruled that such documents were discoverable on the basis that “there is no reason to suppose that a request for such documents [to the defendant's related company] would be refused”.

The Supreme Court, however, disagreed and set aside the High Court’s order. Following a review of authorities in the UK, Australia and New Zealand, it concluded that “a party either has documents in its possession or has the legal entitlement to require possession. In those circumstances the document must be discovered. In all other circumstances, the document does not have to be discovered.”

Comment

This judgment clarifies the scope of discovery orders against related companies and is grounded in the principle that companies have separate legal personalities with separate rights and obligations, regardless of whether they exist within the same group of companies.

However this decision is not a charter for companies to thwart discovery obligations by reference to complex company structures. The Supreme Court highlighted that relevant discovery from related companies could be obtained through the existing procedure for nonparty discovery, and the court would generally expect compliance with a request for nonparty discovery by a company related to the defendant without the necessity of a formal application to the court. Furthermore, if a defendant company relied upon a selective part of the documentary record of a related company, a trial judge could draw any appropriate inference from the absence of the remainder of the documents. The Supreme Court observed that, in appropriate cases, a trial judge may draw an adverse inference from an unexplained failure of a related company to make relevant documents available for consideration at trial.