Subpoena of Third Party’s Documents in Aid of Arbitration

Singapore International Arbitration Blog

The Singapore High Court recently examined the law relating to the subpoena of documents in aid of an arbitration. In The Lao People’s Democratic Republic v Sanum Investments Ltd and another and another matter, [2013] SGHC 183, the Lao People’s Democratic Republic (“Lao”) took out two subpoena applications against a partner at Ernst & Young (“EY”) who had produced a particular audit report.

The Honourable Justice Quentin Loh granted the applications.

The subpoena applications were sought in connection with two ICSID investment treaty arbitrations commenced by Sanum Investments Limited (“Sanum Investments”) and Lao Holdings NV (“Lao Holdings”) (collectively, the “Claimants”) respectively against the Laotian state (our primer on investment treaty arbitration and ICSID can be found here). Those arbitrations in turn arose out of a separate dispute between Sanum Investments and Lao Holdings on one side and the local partners to the casino investment on the other (collectively referred to as “ST”). The casino investment was known as the Savan Vegas project.

What was interesting about this application was that all the parties (save for the EY partner) were in agreement as to the necessity for the release of the audit report and related documents.

Background

ST had sought to obtain access to all of Savan Vegas’ financial and operational documents without restriction. Sanum Investments and Lao Holdings refused on the basis that these were “critical trade secrets”. ST eventually filed a lawsuit in the Laotian court to obtain access to the documents without restriction. On 10 April 2012, the Lao PDR Prime Minister’s Office ordered a government audit of Savan Vegas. Subsequently, the Laotian court granted ST access to all of Savan Vegas’ documents in May 2012 on an ex parte basis.

The audit was conducted by the Lao PD Ministry of Finance, local tax officials and members of Ernst & Young’s Singapore office (“EY”). An audit report dated 20 July 2012 was produced. Curiously though, counsel for Lao PDR informed the court that “while they had been provided with a copy of the report, they themselves were not sure that what they had was in fact the report actually produced” (see paragraph [7]).

As a result of the audit, the Claimants alleged that the Laotian central government issued demands for payments of various tax debts amounting to US$23,759,229 (see paragraph [8]).

The Claimants and Lao all agreed that “the documents relating to [EY’s] participation in the audit were relevant and material to the arbitration” (see paragraph [10]). As a result, all three parties agreed to make a joint request that EY provide various itemized documents or classes of documents (see paragraph [10] for the detailed list).

EY refused to do so unless the Lao Ministry of Finance approved of it. The High Court noted that this was despite a letter from the Lao Ministry of Planning and Investment which conferred Lao’s counsel with the authorization to make such a request for disclosure. Apparently, EY considered its client to be the Ministry of Finance and not the Ministry of Planning and Investment. The latter therefore did not have the authority to authorise the disclosure.

Lao took out the subpoena applications on 10 June 2013. In response, on 28 June 2013, counsel for the EY partner wrote to Lao’s counsel and stated that (see paragraph [12]):

(a) the applications were partly moot since Ministry of Finance had agreed to give the parties some of the documents requested;

(b) some of the documents requested were not relevant, namely “[EY]’s working papers, internal documents, correspondence and drafts to the arbitrations”; and finally,

(c) EY was not in possession of a certain class of documents.

Finally, on 11 July 2013, the Lao Ministry of Finance wrote to EY, including the relevant partner, to instruct them to release the documents to Lao’s solicitors (see paragraph [13]).

Decision of the High Court

Section 13 of the International Arbitration Act (Cap. 143A) provides that:

“Witnesses may be summoned by subpoena

13.—(1) Any party to an arbitration agreement may take out a subpoena to testify or a subpoena to produce documents.

(2) The High Court or a Judge thereof may order that a subpoena to testify or a subpoena to produce documents shall be issued to compel the attendance before an arbitral tribunal of a witness wherever he may be within Singapore.

(3) The High Court or a Judge thereof may also issue an order under section 38 of the Prisons Act (Cap. 247) to bring up a prisoner for examination before an arbitral tribunal.

(4) No person shall be compelled under any such subpoena to produce any document which he could not be compelled to produce on the trial of an action.”

Mr Lawrence Lai, the EY partner subject to the subpoena application, made his objections “on three broad grounds” (see paragraph [19]):

(a) the documents sought were not necessary for disposing of the cause or matter or for saving costs;

(b) the documents sought were not relevant and material to the arbitrations; and

(c) the subpoenas were not framed with sufficient precision as to the particular documents required to be produced.

Necessity, Relevance and Materiality

The High Court rejected the argument that the request for “emails, notes, memoranda and work papers… concerning the financial and accounting inspection or any potential inspection of Savan Vegas” were overly broad and could not have been relied upon by Lao in deciding to impose the relevant tax debts since those documents had never been released to the state in the first place.

The learned judge dismissed the argument on the following grounds (see paragraph [21]):

(a) The documents constituted contemporaneous records of the work done at the material time and “were relevant to showing the state of affairs of Savan Vegas at the time of the inspection for the purposes of the disposal of the arbitration”.

(b) The documents would also shed light on the propriety of the audit itself, an allegation raised by the Claimants. In particular, the Claimants had asserted “that the members of E&Y who were involved were selected by ST (presumably for a sinister motive), did not possess the relevant expertise, and that the conduct of audit itself was improper”.

The High Court also dismissed the argument that these documents did not fall for disclosure as they were the property of the accounting firm and not the client (see paragraph [22]). The High Court accepted that such documents were indeed the property of the accounting firm. The learned judge also accepted that the “the proprietary and confidential nature of an accountant’s working papers imposed on the court a duty to be utterly scrupulous in ensuring that it is satisfied as to the relevance of the documents”. These were factors to be taken into the court’s discretion. However, the documents were of such high relevance and materiality to the issues in the arbitration that the interests of justice outweighed the “invasion into the confidentiality and privacy of a third party”.

Sufficiency of Precision

This was an important consideration because the Singapore courts do not have power to order third party discovery in aid of arbitration. In this respect, “[a] subpoena to produce documents, if framed too loosely or generally, would in the circumstances amount to “an attempt to obtain discovery against a third party”: see Sunderland Steamship P and I Association v Gatoil International Inc (the “Lorenzo Halcoussi”) [1988] 1 Lloyd’s Rep 180 (“The Lorenzo Halcoussi”)” (see paragraph [23]).

The other important consideration was that a subpoena for documents could not be used as an attempt to achieve third party discovery. The High Court noted several reasons for this.

“First, the purpose of a subpoena is to bring evidence directly to the court. In contrast, an application for discovery is made at quite a different stage in the entire process of litigation…it is enough [in discovery] that the document might lead to a train of inquiry which might assist the party in his conduct of the litigation. In contrast, the test in the case of a subpoena to produce documents is more stringent, in that what is sought must be relevant, material, and necessary for the fair disposal of the matter. Secondly, a subpoena is backed by the coercive power of the state in that failure to comply with a subpoena amounts to contempt of court. As such, the law requires specificity so that the recipient of the subpoena knows exactly what the court expects of him.”

The High Court dismissed Mr Lawrence Lai’s counsel’s reliance on two English cases on the basis that unlike those cases (see paragraph [27]),

(a) The documents sought under subpoena here were relevant and material; and

(b) All the parties to the arbitration “argued strongly” for the issuance of the subpoena. This was not a case of opportunism where “the Claimants were seeking to have the documents produced in the hope that they could in the furtherance of their case prove impropriety with what they found in them”.

The learned judge considered that the application was precise enough for Mr Lawrence Lai to know what documents he had to adduce. In this respect, the High Court noted that Mr Lawrence Lai appeared to know what was expected of him to produce (see paragraph [28]),

“…there was no evidence to suggest that Lawrance Lai did not actually know the scope of what is sought from him. In all the previous correspondence between him and the parties and in the affidavits before me, it had not been denied that these documents were in existence and in his possession, and it had not been intimated that he did not know which documents in his possession he would be required to produce under the subpoenas”.

However, what the High Court did do was to narrow down the language of the application on the basis that it was overly inclusive and tended more towards a third party discovery application than a subpoena. The learned judge noted (at paragraph [29]) that,

“…the language used in a subpoena to produce documents may also be indicative of whether what is sought is correctly the subject of a subpoena or whether it is in truth an application for discovery in disguise. Thus, in The Lorenzo Halcoussi (at 185), the fact that the words “such documents to include (but not limited to)” were used suggested to Steyn J that the subpoena was in fact an attempt to obtain discovery against a third party”.

As a result, certain phrases “including…” or “any and all…” were deleted from the application even though the learned judge was satisfied that the subpoena applications were not really third party discovery applications masquerading as subpoena applications (see paragraph [29]).

Conclusion

This is a good and interesting example of how the Singapore courts can and will exercise its powers in aid of an arbitration. It is a good example of the importance of the courts assisting the process of arbitration while minimising curial intervention.

It is not altogether clear where these two investment treaty arbitrations were seated. Article 62 of the ICSID Convention provides that the seat of an ICSID arbitration shall be its Centre in Washington, D.C. unless parties provide otherwise in one of the arbitration institution centres which the Centre has entered into cooperation agreements with. The SIAC is one such institution. Nonetheless, the Singapore courts do have the power to grant interim and interlocutory relief in aid of arbitration, whether seated in Singapore or abroad.

More info here.

                       

Shaun Lee

Shaun Lee is an associate in Singapore and part of the Arbitration & Dispute Resolution practice at Olswang Asia LLP. Prior to joining Olswang, he has had experience working under one of Asia's foremost arbitrators and has worked as an associate in the local office of an international law firm… MORE >