GARPEG LTD. v. THE CHASE MANHATTAN BANK, N.A.

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JUDGMENT

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1. On the 30th July 1984 I dismissed with costs the applications of the Defendant Bank in these three actions for the discharge of orders made by me in all three actions on the 3rd April 1984 restraining the Bank until the trial of the actions or further order from disclosing to any of its offices outside Hong Kong or to the revenue authorities of the United States Government any documents, records or information connected with various Bank accounts maintained with the Bank in Hong Kong by each of the Plaintiff companies ("F.D.C.", "Vanguard" and "Garpeg"). My reasons for granting the injunctions were given in a written judgment delivered on the 24th April 1984. I now give my reasons for refusing to discharge the injunctions on the 30th July 1984.

2. The background of the actions is fully set out in my judgment delivered on the 24th April 1984. On the 3rd April 1984 when I granted the injunctions the situation was as follows. In the case of F.D.C. Goettel D.J. had on the 27th March 1984 in the District Court of the Southern District of New York made an order for the enforcement of an administrative summons issued to the Bank by the Internal Revenue Services of the United States Government ("I.R.S.") requiring the production of records and data concerning F.D.C. 's affairs including records in the Bank's branch at Kowloon.

3. On the 23rd March 1984 in the same District Court in New York Sweet D.J. had made an order for the enforcement of a similar modified summons served by the I.R.S. on the Bank relating to the affairs of Garpeg and including a requirement for the disclosure of records and data available to the Bank in Hong Kong.

4. In the case of Vanguard the position on the 3rd April 1984 was that a similar summons had been issued to the Bank on the 22nd August 1983 affecting Vanguard and including the requirement of disclosure of information available to the Bank in Hong Kong. The summons had been challenged by the Bank and by Vanguard and the relevant proceedings in New York had been suspended by an order of the court made on the 1st February 1984 at the instigation of the I.R.S. who were proposing to issue new summonses.

5. The position on the 3rd April 1984 was that noncompliance with the above mentioned enforcement order made by Goettel and Sweet D.JJ. would render the Bank liable to contempt proceedings at the instigation of the I.R.S. For reasons which appear in my earlier written judgment I accepted the evidence of the Plaintiff's two expert witnesses on United States law in relation to any contempt proceedings that might be brought against the Bank in the New York District Court if it complied with the injunction of this court. I declared that I was not satisfied that there was any real risk of contempt proceedings being brought at all or that the Bank would be in any real jeopardy if such proceedings should be instituted before the trial of these actions.

6. In substance I accepted the evidence of the Plaintiff's expert witnesses to the effect that if this court were to injunct the Bank from making the disclosure of the relevant information in Hong Kong, then contempt proceedings for non-compliance with the enforcement orders of the New York District Court could be successfully defended in reliance upon the "foreign compulsion" and "good faith" defence available to the Bank.

7. The Bank, whose appeal against this court's orders made on the 3rd April 1984 is due to be heard on the 24th September 1984, now applies for the discharge of those orders on the ground that there has been a change of circumstances which fundamentally affects the basis of my original judgment giving my reasons for granting the injunctions. It was common ground between the parties that the Bank was permitted to apply to the court for the discharge of the injunctions if good grounds for doing so are shown. If authority is required for that proposition it is to be found in Chanel Ltd. v. Woolworth & Co. [1981] 1 W.L.R. 485 at p. 490D. As Buckley L.J. observed at p. 493A in that case, the change of circumstances to be established by the applicant must be significant and it must be sufficient to justify the discharge for which the applicant applies.

8. The changed circumstances relied upon by the Bank are referred to in its counsel's written submissions and are as follows:-

9. Counsel for the Bank contended that in the light of these events subsequent to the orders of this court made on the 3rd April 1984 the Plaintiff's experts had been proved wrong and the Bank was the unfortunate party having to suffer the consequences. He stressed that this court's earlier finding that the Bank faced no real jeopardy was crucial and had been so described in the judgment and by counsel for the Plaintiff. He further contended that "this finding underpins the whole logic of the judgment."

10. Inverting the sequence of the American Cyanamid exercise and the sequence of my judgment he then contended that it was now impossible to say that there was no risk of jeopardy to the Bank and that this clearly undermined the earlier conclusion of this court that. the Plaintiffs had a "strong prima facie case". On the footing that it was therefore an open question whether the relevant information was confidential he argued that the court's proper approach must be to engage in a genuine balancing operation and that in such an operation the balance tilted entirely in favour of the Bank. He also resurrected the question of fortification in the light of the new evidence indicating a real threat of jeopardy to the Bank.

11. For my part I consider it my duty to reconsider my previous judgment in the light of the evidence of changed circumstances. However I do so in the same sequence as I adopted in my judgment in the light of Lord Diplock's guidelines in American Cyanamid v. Ethicon Ltd. [1975] A.C. 396 (H.L.). I can see no justification for the sequence adopted by counsel for the Bank, nor do I consider that his reference to "a strong prima facie case" was justified in the context of my previous judgment or the present application.

12. Before considering the effect of the changed circumstances it is important that I should consider further what those circumstances really are in the light of the evidence before me at the hearing and of information given to me by counsel for the Bank in the course of his argument.

13. There is no evidence before me regarding the actual summonses or enforcement orders, if any, affecting Vanguard. It is implicit from the letters passing between Mr. Kantor and Mr. Connick, which are exhibited to Mr. Kantor's affidavit, that proceedings are pending in relation to an I.R.S. summons affecting Vanguard. Mr. Connick has confirmed that no contempt proceedings have been commenced against that company but he asserts that "when such proceedings are commenced they will be before Judge Sweet."

14. In the case of F.D.C. Goettel D.J. heard the contempt proceedings against the Bank but, as yet, there has been no decision. Leading counsel for the Plaintiffs stressed that when delivering his opinion in the enforcement proceedings Goettel D.J. had indicated that in any subsequent contempt proceedings the Bank could raise the "foreign compulsion" and "good faith" defence.

15. It can no longer be said that there is no real risk of contempt proceedings being brought in the case of any of the companies but clearly the case in which the Bank is in the greatest jeopardy is that affecting Garpeg where Sweet D.J. has actually held the Bank to be in contempt. In assessing the degree of jeopardy in which the Bank is placed by Sweet D.J.'s recent order affecting Garpeg I have borne in mind the state of the proceedings in New York.

16. The order of Sweet D.J. made on the 23rd March 1984 (the formal order is dated 3rd April 1984) for the enforcement of the summons affecting Garpeg is the subject of a notice of appeal given on the 11th June 1984 by the Bank and Garpeg to the Court of Appeals. That appeal is still pending (as is a similar appeal by the Bank against the enforcement order made by Goettel D.J. on the 27th March 1984 affecting F.D.C.) and the evidence of Mr. Kimelman, a member of the American law firm representing Garpeg and Vanguard, is that in the appeal of the Bank and Garpeg against the enforcement order of Sweet D.J. oral argument will not occur until the week of the 27th August 1984 at the earliest.

17. Evidently with the appeal against the enforcement order in mind the second paragraph of the contempt order of Sweet D.J. dated the 10th July 1984 is as follows:-

 

"In view of the pending appeal in the Court of Appeals of the April 3, 1984 order, the thirty (30) day stay is without prejudice to a further application to stay imposition of the fine."

18. It therefore seems to be most unlikely that the District Court will refuse applications for a stay of the imposition of the contempt fine on the Bank beyond the present 30 day suspension, which expires on the 10th August, and it seems to me to be likely that the suspension will be continued beyond the 27th August which is the earliest possible date for the argument of the appeal against the enforcement order. It may well be that the hearing of the appeal will be delayed or at least prolonged by the proposed intervention of the Attorney General of Hong Kong.

19. Mr. Kimelman's evidence was to the effect that the Bank has already applied on the 24th July 1984 for a further stay of Sweet D.J.'s contempt order for another 30 days to the 10th September. That application, which is due to be heard on the 3rd August, was made the day before the present applications to discharge this court's injunctions but the Bank failed to disclose that the application had been made or the grounds for it. Counsel for the Bank informed the court that this omission was due to a failure of communication.

20. In his affidavit Mr. Kimelman deposes that he can think of no reason why Sweet D.J. should refuse the application for extending suspension to the 10th September 1984 and he expresses the view that if the further extension is granted a subsequent extension could be obtained from the judge to protect the Bank until the determination of the pending appeal to the Hong Kong Court of Appeal due to be heard on the 24th September 1984 against the orders of this court made on the 3rd April 1984. He expresses the view that in the extremely unlikely event of Sweet D.J. refusing the extension the Court of Appeals would grant it.

21. On the above evidence alone, I consider it to be likely that Sweet D.J.'s contempt order can be stayed until the determination of the appeal against this court's injunctions granted on the 3rd April 1984. There remains the important question whether the Bank proposes to appeal against the contempt order of Sweet D.J. It adduced no evidence on this question. When I asked counsel for the Bank if it had appealed or intended to appeal against the order he replied that the Bank intended to appeal and to apply for a stay but that the papers had not been prepared. When I pressed him on the same matter in the course of his reply to leading counsel for the Plaintiffs' submissions he informed the court that the Bank would appeal but it would not do so if the injunctions ordered by this court were discharged.

22. Mr. Kimelman's evidence was that the Bank had 30 days to appeal Sweet D.J.'s order. He deposed that in his opinion Sweet D.J.'s decision is wholly contrary to United States judicial precedent and represented the first departure from that precedent. In his view the contempt order would not survive a timely and prompt appeal by the Bank to the Court of Appeals and in the likely event of such an appeal being made the Bank would be entitled upon application to a stay of the contempt order under appeal.

23. Accordingly it seems to me against the above background that the Bank, which by its counsel has indicated that it intends to appeal against Sweet D.J.'s contempt order but only if this court's interlocutory injunctions are not discharged, is in a position to ensure, if the injunctions are not discharged now by this court, that Sweet D.J.'s contempt order will be stayed until after the hearing of the Hong Kong appeal due to begin on the 24th September 1984, until after the pending appeal of the Bank and Garpeg against the enforcement order made by Sweet D.J.'s and until after the future appeal by the Bank against Sweet D.J. contempt order which may well succeed. It is on that basis that I assess the degree of jeopardy that the Bank now faces in relation to the contempt order in the proceedings affecting Garpeg and the degree of immediate jeopardy is demonstrably less in the case of F.D.C. and Vanguard.

24. Leading counsel for the Plaintiffs contended that Sweet D.J.'s order made on the 10th July 1984 in the case affecting Garpeg was an attempt by the judge at judicial blackmail and that it flew in the face of the relevant authorities. It is not for this court to entertain an allegation of judicial blackmail against a member of the judiciary of a foreign state, nor is it for this court to purport to determine whether the order of Sweet D.J. would be sustainable on appeal to the U.S. Court of Appeals for the Second Circuit. Commonsense and comity preclude any such action. However, I will return later to the important question of this court's attitude to that order which was made in the face of the order of this court made on the 3rd April 1984 and the subsequent judgment giving the reasons for the latter order.

25. When considering whether the Bank has shown a significant change in its circumstances sufficient to justify the discharge of the injunctions I begin and end with the re-consideration of what I termed in my written judgment the ultimate question of balance of convenience. At that stage of my written judgment I accepted the evidence of the Plaintiffs' expert witnesses on the law applicable in the New York District Courts and considered the balance of convenience on the basis that if the Bank were injuncted by this court there was no real risk of contempt proceedings being brought at all against it in New York or of the Bank being in any real jeopardy if such proceedings should be instituted before the trial of the actions.

26. In the event contempt proceedings have been brought against Garpeg and F.D.C. and the present state of the proceedings in New York is as described above. I now have to weigh the jeopardy in which the Bank will now find itself if the injunction is not discharged as against the likelihood of disadvantage or relative injury to the Plaintiffs if the injunctions were to be discharged.

27. In my judgment the balance remains decisively in favour of the Plaintiffs. I have identified in my previous written judgment the injury which the Plaintiffs will be virtually certain to sustain if the injunctions are discharged. It amounts to the effective destruction of the main substratum of the actions and the elimination of the Plaintiffs' right to the trial of their claim to a permanent injunction. I described this disadvantage as being serious and irreparable and fundamentally unjust and one which could well produce the result that the actions would never proceed to trial and which I considered to be the decisive factor in tipping the balance.

28. In my judgment the degree of jeopardy facing the Bank now if the injunctions continue to run until the trial or further order is in relative terms a substantially less severe disadvantage. I accept the submissions of leading counsel for the Plaintiffs that the Bank has ample opportunity for the reasons I have given above, to secure a stay of the contempt order either from Sweet D.J. or the Court of Appeals. There is no immediate liability to any penalty for contempt and the Bank has by no means exhausted its rights to secure further stays of the contempt order. Indeed it has seen fit to hold its hand and not exercise its right to appeal and consequential stay until it knows the result of these applications and it has made no attempt to secure an early trial of the actions in which it has not yet filed its defences.

29. Accordingly I rejected the contention of the Bank's counsel that if the injunctions were not discharged there would be "immediate, severe and irreparable detriment" to the Bank "of being held to be in continuing contempt of the U.S. Court and being subjected to heavy continuing fines". In my judgment those terms are an exaggeration of the true position and the detriment to the Bank will be appreciablly less in relative terms if the injunctions continue than the detriment to the Plaintiffs if the injunctions are discharged.

30. Counsel for the Bank accepted in his written submissions that if the interlocutory injunctions were discharged there would be little point in the Plaintiffs' seeking injunctions at the trials of the actions, but he contended that they would not suffer any real detriment and should be left to seek to recover nominal damages for what he called the notional or theoretical loss of a chance to restrain disclosure of confidential information. There has been no relevant change in the circumstances of the Plaintiffs since the injunctions were granted on the 3rd April 1984 and I leave counsel for the Bank to attack my assessment of this detriment to the Plaintiffs in the Court of Appeal when the appeal against the granting of the injunctions is heard.

31. I am fortified in my conclusion on the ultimate balance of convenience by the attitude adopted by the English Court of Appeal in the recently reported case of Francome v. Mirror Group [1984] 1 W.L.R. 892 (C.A.) where the Master of the Rolls observed at p. 898E:-

"I stress, once again, that we are not at this stage concerned to determine the final rights of the parties. Our duty is to make such orders, if any, as are appropriate pending the trial of the action. It is sometimes said that this involves a weighing of the balance of convenience. This is an unfortunate expression. Our business is justice, not convenience. We can and must disregard fanciful claims by either party. Subject to that, we must contemplate the possibility that either party may succeed and must do our best to ensure that nothing occurs pending the trial which will prejudice his rights. Since the parties are usually asserting wholly inconsistent claims, this is difficult, but we have to do our best. In so doing, we are seeking a balance of justice, not of convenience."

32. In my judgment a balance of justice will most likely be achieved in all the circumstances if the Plaintiffs' right to trial of its claim to a permanent injunction is preserved. I considered this to be the overriding consideration when I granted the injunctions and I am of the same view now.

33. In his written submissions the Bank's counsel sought to mount an argument that since it was now impossible to say that there is no risk of jeopardy to the Bank if it is injuncted from disclosing the relevant information this undermines the conclusion of this court that the Plaintiffs have a strong case. I emphasise that my written judgment does not state that my tentative view that the Plaintiffs have a strong case was arrived at on the footing that the Bank was not in any real jeopardy of contempt proceedings in New York nor was that view intended to be based on any matters other than those appearing in the relevant part of the judgment.

34. On the question of fortification I do not consider that the change in circumstances of the Bank justify a change in the attitude of the court in the exercise of its discretion which was previously exercised against any order for fortification.

35. Moreover I consider that the time has come in these proceedings to make it clear to the I.R.S., the Bank and the New York District Court that this court will take a firm stand against any sanction imposed on the Bank that appears to be designed to bring pressure to bear on this court in relation to these proceedings in Hong Kong.

36. In this connection it is a matter of concern to this court that the Bank appears to have persuaded Sweet D.J. to suspend his contempt order for 30 days in the first instance in order to facilitate the present application for the discharge of the injunctions granted on the 3rd April 1984 prior to the Bank committing itself to an appeal against the contempt order. The request was made in the affidavit made on behalf of the Bank by Mr. Connick and, in his Opinion accompanying his order made on the 10th July 1984, Sweet D.J. onserved:-

"The thirty day period for compliance may obviate an application for a further stay depending upon whatever decisions are rendered in this and related cases, here and abroad."

37. I had hoped that I had made the attitude of this Court clear in jurisdictional matters in my previous written judgment when I indicated that my views were in accord with those expressed by Leggatt J. in X AG v. A bank [1983] 2 All E.R. 464. It is of course for the District Court in New York to take whatever action it thinks fit against the Bank notwithstanding the injunctions imposed by this court but, at this stage of these proceedings, I adopt the final words of Leggatt J. in the X AG Case (supra) where he observed as follows at p.480:-

"Any sanction imposed now on the bank would look like pressure on this court, whereas, as it seems to me, it is for the New York court to relieve against the dilemma, in which it turns out to have placed its own national, by refraining from holding it in contempt if contempt proceedings are issued."