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QUEEN'S BENCH DIVISION (COMMERCIAL COURT) [1988] 1 Lloyds Rep 180 HEARING-DATES: 12 November 1987 12 November 1987 CATCHWORDS: Arbitration -- Subpoena duces tecum -- Application to set aside -- Dispute between owners and charterers as to damage to cargo -- Charterers sought discovery of documents regarding recommendations made by P and I Club -- Arbitrators made no order -- Charterers served club with subpoena -- Whether application to set aside subpoena should be granted. HEADNOTE: On Jan 22, 1983 the owners let their vessel Lorenzo Halcoussi on a tanker voyage charter to Gatoil (the charterers) for the carriage of a cargo of crude oil from Sidi Kerir to Sidon. The charter also provided for an option in favour of the charterers to require the vessel to perform a second voyage and the charterers exercised this option. In February 1983 the vessel loaded a crude oil cargo. The charterers alleged that on the arrival of the vessel at Sidon the cargo was found to be contaminated by some 6000 barrels of water. The receivers rejected the cargo and discharge was refused at Sidon. The charterers alleged that the cargo had to be carried to Augusta, transhipped and eventually sold at considerable loss to the Egyptian buyers. The charterers commenced arbitration proceedings against the owners alleging that the cargo damage was caused by leakages between the ballast system and the cargo holds and cargo ducts. The owners disputed the cargo claim and put forward counterclaims for demurrage and detention. After formal pleadings were exchanged the process of discovery commenced. During the period September 1985 to November 1986 a series of applications were made by both parties to the arbitrators for specific directions as to discovery. The charterers in a letter dated Sept 25, 1985 asked to see all documents relating to the maintenance and repair of the vessel's cargo tanks, and documents relating to previous incidents of cargo contamination. Various orders were made by the arbitrators. The charterers sought discovery of documentation in the possession of the owners regarding recommendations made by the owners' P and I club, but the arbitrators made no order on this aspect. The charterers were dissatisfied with the extent of the discovery which had been made and the charterers invoked s 12(4) of the Arbitration Act 1950 which provided inter alia: Any party to . . . an arbitration . . . may sue out a writ . . . of subpoena duces tecum, but no person shall be compelled under any such writ to produce any document which he could not be compelled to produce on the trial of an action . . . The charterers caused a subpoena duces tecum to be issued against and served on the secretary of the club. The club applied to set aside the subpoena duces tecum. -- Held, by QB (Com Ct) (Steyn J), that (1) English law recognized that proper mutual discovery in litigation and arbitration was in the public interest in that it promoted settlement; it reduced a party being taken by surprise and it enabled the Judge to decide the case in the light of contemporary documentary material; the scope of discovery was wide but a Court might refuse to order discovery to the extent that the discovery was not necessary for fairly disposing of the matter and to the extent that it would be oppressive to order it; the general rule was that a party to litigation could not obtain discovery against a third party except in exceptional circumstances and the charterers were not entitled to discovery against the club; the charterers' procedural rights against the club were limited to issuing a subpoena under s 12(4) (see p 184, col 1); (2) since the purposes of the arbitral process were expedition, cost effectiveness and finality, it might fairly be said that in considering a subpoena duces tecum issued under s 12(4) of the 1950 Act, the Court would be vigilant to ensure that it was issued for a legitimate purpose and not cast too widely (see p 184, col 2); (3) the subpoena was cast in extravagantly wide terms; category 2 covered all documents relating to the condition of the vessel; category 2(a) covered internal documents of the club and agents which were prima facie inadmissible and irrelevant; category 3 covered incidents of cargo contamination or shortage over the whole period that the vessel had been entered with the club; the charterers had since made some concessions which simply underlined the fact that the subpoena was an attempt to obtain discovery against a third party (see p 185, col 1); (4) the subpoena duces tecum was to be regarded as the servant of the administration of justice and a Court had an inherent power to amend it in whatever form might be necessary and just (see p 185, col 2); (5) on the evidence even as recast categories 2(b) and 3 were too widely drawn; the subpoena failed to identify or specify the documents to be produced; the subpoena would be set aside in its entirety as an abuse of the process of the Court (see p 185, col 2; p 186, cols 1 and 2). CASES-REF-TO: Asbestos Insurance, In re (HL) [1985] 1 WLR 331; Burchard v MacFarlane, (CA) [1891] 2 QB 241; Elder v Carter, (CA) (1890) 25 QBD 194; Morgan v Morgan, [1977] Fam 122; Norwich Pharmacal Co v Customs & Excise, (HL) [1974] AC 133; Penn Texas Corporation v Murak Anstalt (No 2), [1964] 2 KB 647; Steele v Savory, (1891) 8 TLR 94. INTRODUCTION: This was an application by the plaintiffs, Sunderland Steamship P and I Association, that the subpoena duces tecum obtained by the defendant charterers, Gatoil International Inc, and served on the secretary of the club be set aside. The further facts are stated in the judgment of Mr Justice Steyn which was delivered in open Cort. COUNSEL: Mr S Ruttle for the plaintiffs; Mr Julian Cooke for the defendants. PANEL: Mr Justice Steyn JUDGMENTBY-1: Mr Justice STEYN JUDGMENT-1: Mr Justice STEYN: The question for decision is whether a subpoena duces tecum, which was issued and served pursuant to s 12(4) of the Arbitration Act, 1950, on a protection and indemnity club, ought to be set aside. The matter is of some importance for protection and indemnity clubs generally, and possibly also for insurers. Accordingly, I give this judgment in open Court. The point arises in a case which is of a type which frequently comes before the Commercial Court or London maritime arbitrators. On Jan 22, 1983, Alpha Maritime Services Inc, the owners of the vessel Lorenzo Halcoussi, chartered their vessel on a tanker voyage charterparty to Gatoil International Inc. I will refer to the parties as the owners and charterers respectively. The charter-party provided for the vessel to load a cargo of crude oil at Sidi Kerir for carriage to Sidon. That voyage was duly performed. But the charter-party also provided for an option in favour of the charterers to require the vessel to perform a second voyage between the same ports and in direct continuation of the first voyage. The charterers exercised this option. In February, 1983 the vessel loaded a crude oil cargo. The second voyage commenced. The charterers allege that on the arrival of the vessel at Sidon the cargo was found to be contaminated by some 6000 barrels of water. The receivers rejected the cargo, and discharge was refused in the port of Sidon. The charterers allege that the cargo had to be carried to Augusta, transhipped and eventually sold at considerable loss to Egyptian buyers. The charterers commenced arbitration proceedings against the owners during the course of 1983. The charterers rely on breaches of the United States Carriage of Goods by Sea Act or the Hague Rules as enacted in Egypt. They allege that the cargo damage was caused by leakages between the ballast system and the cargo holds and cargo ducts. The issues as to the cargo claim are helpfully summarized in an affidavit by Mr CJ Kidd, an assistant solicitor in the firm of solicitors acting on behalf of the charterers. He says: In the arbitration, three theories are being advanced to explain the presence of seawater in the cargo, as found on arrival at the discharing port: 1. There were leakages between the vessel's cargo ducts and her ballast system, most probably caused by cracking or by corrosion of the ballast pipes where they pass through the cargo ducts, as a result of which the cargo ducts contained substantial quantities of seawater when loading began. If this theory is correct, the likely conclusion is that the vessel was unseaworthy, and it would be difficult for the Owners to establish that they exercised due diligence, since the cargo ducts ought to have been inspected before the loading. 2. There were cracks in the vessel's plating between her cargo tanks and her ballast wing tanks which developed on or shortly before the voyage as a result of heavy weather. If this theory is correct the issue is likely to be whether the existence or likelihood of such cracks could have been prevented or discovered by the exercise of due diligence. 3. There was a "slug" of seawater in the loading line at Sidi Kerir, which was pumped on to the ship when loading began. If this theory is correct, the Owners would not be liable. The owners dispute the cargo claim and put forward counterclaims for demurrage, detention and so forth, but it is not necessary to give details of those counterclaims. After formal pleadings were exchanged, the process of discovery commenced. During the period September, 1985 to Nov. 28, 1986 a series of applications were made by both parties to the arbitrators for specific directions as to discovery. There were many recriminations in correspondence between solicitors. Only the discovery sought from the owners is material to the present application. The charterers' basic demand, in so far as it is relevant, is contained in pars 5 and 12 of Messrs Ince & Co's letter dated Sept 25, 1985. The relevant paragraphs read as follows: 5. The only other repair reports relating to maintenance of the vessel's cargo tanks, ducts and spaces are those dated 25.1.83 and 4.8.83. We would like to see copies of all communication notes, memoranda or other records which exist relating to the maintenance and repair of the vessel's cargo tanks, ducts and spaces for the three years prior to the subject voyage and the repairs subsequent to the subject voyage. These should include, but are not limited to, all reports of the reports of the vessel's chief engineer and Owners' superintendent. 12. Discovery provided by you refers to excessive water from cargo apparently being found in a shore tank after discharge on a previous voyage. Please provide discovery of all documents relating to previous incidents of cargo contamination and/or shortage on this vessel resulting from the vessel's cargo compartments not being oil tight and/or leakages between the ballast system and the cargo holds and cargo ducts. This discovery should include in particular, but not limited to, all correspondence, memoranda and notes evidencing the steps taken to monitor and remedy the problem and ensure proper segregation of cargo, all communications with repair yards, classification society in relation thereto and all instructions given by Owners, their managers or superintendents to those on board the vessel. There was a good deal of subsequent correspondence, and various orders were made by the arbitrators. A final request for further directions as to discovery was made by Messrs Ince & Co by a lengthy telex on Nov 27, 1986. The arbitrators gave their ruling by telex on the next day. The arbitrators' patience with the multiplicity of applications was clearly exhausted. Subject to a few immaterial exceptions, the arbitrators made no further orders which are relevant to the present proceedings. The charterers had sought discovery of documentation in the possession of the owners regarding recommendations made by the owners protection and indemnity club, Sunderland SS P and I Association, but the arbitrators made no order on this aspect. In this respect the arbitrators apparently considered that such discovery was not necessary for the fair disposal of the case. The charterers were dissatisfied with the extent of the discovery which had been obtained. The Court has a concurrent power to order discovery in an arbitration under s 12(6)(b) of the 1950 Act. No application for such an order was made. That was no doubt a wise decision because the making of such an order by the High Court is a rather exceptional step, and not one which is likely to be exercised in a case such as the present. Instead the charterers invoked s 12(4) of the 1950 Act. It reads as follows: Any party to a reference under an arbitration agreement may sue out a writ of subpoena ad testificandum or a writ of subpoena duces tecum, but no person shall be compelled under any such writ to produce any document which he could not be compelled to produce on the trial of an action, and the High Court or a judge thereof may order that a writ of subpoena ad testificandum or of subpoena duces tecum shall issue to compel the attendance before an arbitrator or umpire of a witness wherever he may be within the United Kingdom. This provision, it must be said at once, is a most beneficial part of the panoply of auxiliary powers of the English Courts to act in support of a just and effective arbitral process. Relying on this provision in s 12(4), the charterers caused a subpoena duces tecum to be issued and served on the Secretary of the Sunderland SS P & I Club ("the club"). It is now necessary to explain the position of the club. The club is, of course, a non profit making mutual assurance association. Members are liable to pay calls. And the affairs of the club are conducted by a committee of shipowners. Like a number of other protection and indemnity clubs, the Sunderland SS P and I Association has a separate "Freight, Demurrage and Defence Division" to cover inter alia legal expenses in defending cargo claims. Lorenzo Halcoussi was built in 1968 and has since 1981 been entered in the club's freight, demurrage and defence division. Not surprisingly, the club is in possession of a great deal of documentation relating to the vessel. On Dec 8, 1986, a few days after the arbitrators' final ruling on discovery, the charterers caused the subpoena to be issued against the secretary of the club. The subpoena commanded the secretary, Mr Killick, to attend on the first day of the hearing, which was due to commence on Dec 15, 1986, and thereafter until the end of the hearing. The subpoena commanded the production of documents under three main paragraphs. The first paragraph has by agreement fallen away. The subpoena duces tecum, in so far as it is material, reads as follows: And we also command you to bring with you and produce at the place aforesaid, on the date notified to you all documents relating to: . . . 2. The condition of the "LORENZO HALCOUSSI" between 1st January 1978 and 28th February 1985; such documents to include (but not limited to): (a) all internal correspondence, recommendations, memoranda, notes, reports and minutes prepared by the directors and/or officers and/or employees and/or agents of Sunderland Steamship P & I Association and/or their managers and/or agents; and (b) all correspondence, recommendations, memoranda, notes, reports and minutes passing between Sunderland Steamship P & I Association and/or their managers and/or agents and the Owners and/or managers and/or agents of the "LORENZO HALCOUSSI"; and 3. Incidents of cargo contamination and/or shortage on the "LORENZO HALCOUSSI"; such documents to include (but not limited to): (a) all internal correspondence, recommendations, memoranda, notes, reports and minutes prepared by directors and/or officers and/or employees and/or agents of Sunderland Steamship P & I Association and/or their managers and/or agents; and (b) all correspondence, recommendations, memoranda, notes, reports and minutes passing between Sunderland Steamship P & I Association and/or their agents and/or managers and the Owners and/or their managers and/or agents of "LORENZO HALCOUSSI". In response to this subpoena duces tecum, Mr Killick attended on the first day of the hearing with a vast volume of documentation, amounting to the contents of roughly two and a half standard sized suitcases. He took legal advice. On the day after the commencement of the arbitration the club caused an originating summons to be issued, seeking an order setting aside the subpoena duces tecum. That is the summons which came before me for hearing. It is now necessary to place the matter in context by giving a brief outline of the approach and principles of our law. It is well known that in the United States wide-ranging pretrial procedures are available for obtaining oral and documentary discovery from parties and non parties. In contradistinction the concept of discovery, even as between immediate parties to litigation or arbitration, is unknown in civilian systems. Our law adopts an intermediate position. It recognizes that proper mutual discovery in litigation and arbitration is in the public interest in that it promotes settlements; it reduces a party being taken by surprise; and enables the Judge to decide the case in the light of contemporary documentary material which is often more valuable than the oral testimony. On the other hand, our law also recognizes that no sensible civil justice system can be organized on the basis that time, money and inconvenience is irrelevant. Nevertheless, the scope of discovery even in England is wide. It extends to documents having only a minor or peripheral bearing on the issues, and to documents which may not constitute evidence but which may fairly lead to an enquiry relevant to the issues. But a Court may, of course, refuse to order discovery to the extent that the discovery is not necessary for fairly disposing of the matter, and to the extent that it would be oppressive to order it. It is against the background of these principles that the arbitrators in this case, who are experienced and well versed in such matters, made their rulings as to discovery. But it is clear that under our law a party to ligitation cannot obtain discovery against a third party except in certain exceptional cases: See Norwich Pharmacal Co v Customs & Excise, [1974] AC 133; Elder v Carter, (1890) 25 QBD 1984; Burchard v MacFarlane, [1891] 2 QB 241; Penn Texas v Murak Anstalt, [1964] 2 KB 647 at pp 667-668. Primary legislation led to the creation of an exception in the case of proceedings for personal injuries or death: s 34(2) of the Supreme Court Act 1981. It is, however, common ground that the general rule applies in the present case. The charterers are not entitled to discovery against the club. The charterers' procedural rights against the club were limited to issuing a subpoena under s 12(4) of the 1950 Act. At the outset it is right to bear in mind that a writ of subpoena ad testificandum or duces tecum or a combined writ of subpoena is backed by the coercive power of the state. Disobedience to a subpoena amounts to a contempt of Court. Yet in a case such as the present the subpoena will be issued out of the appropriate office as a ministerial act and without the leave of the Court. But the Court has an inherent power to set aside the subpoena and the party who caused it to be issued carries the burden of justifying its issue. That brings me to the circumstances in which a subpoena can properly be issued. Negatively, as I have said, it must not be an attempt to obtain discovery. It was conceded, and in my judgment rightly conceded, that the document or documents to be produced must be required as relevant and admissible evidence, or must at least arguably and on reasonable grounds come in that category. See Senior v Holdsworth, [1976] 1 QB 23 at p 34H-35A; Morgan v Morgan, [1977] Fam 122 at p 126; Regina v Cheltenham Justices, ex parte Secretary of State for Trade, [1977] 1 WLR 95. If the subpoena is challenged, the burden rests on the party who caused the subpoena to be issued to show that the document or documents to which it refers are necessary for the fair disposal of the case. If as between the immediate parties specific discovery of particular documents has been refused by the Court, that must operate as a cogent factor against treating such documents as necessary for the fair disposal of the case: Steele v Savory, (1891) 8 TLR 94. The subpoena must specify the particular documents required, and if it is too general in wording it will be set aside: see Halsbury, Laws of England, 4th Ed, Vol 17, par 250; and compare the terms of O 36, r 13. A compendious description of several documents may be sufficient provided that the exact documents are indicated: see In re Asbestos Insurance, [1985] 1 WLR 331 at p 337H. And, in line with the approach adopted under the Evidence (Procedure in Other Jurisdictions) Act, 1975, the burden is on the party defending the subpoena to show that it is not a mere fishing or speculative expedition, but that the subpoena relates to documents which are likely to exist: In re Asbestos Insurance, sup at p 338A. These principles, which I have set out, apply to Court proceedings. They certainly apply with no less rigour to arbitration proceedings. Since the purposes of the arbitral process are expedition, cost effectiveness and finality, it may fairly be said that in considering a subpoena duces tecum issued under s 12(4) of the 1950 Act, the Court will be vigilant to ensure that it was issued for the legitimate purpose only, and that it was not cast too widely. In the present case the subpoena is directed to Mr Killick whereas it should have been directed to the club: Penn Texas Corporation v Murak Anstalt (No 2), [1964] 2 KB 647 at p 663. Although it is described as a subpoena duces tecum, it commands Mr Killick to be present throughout the hearing. But I shall ignore these imperfections, and turn to the merits of the matter. The subpoena is cast in extravagantly wide terms. Category 2 covers all documents relating to the condition of the vessel. Even the kitchen is not excepted. Category 2(a) covers internal documents of the club and agents which are prima facie inadmissible and irrelevant. Category 3 covers incidents of cargo contamination or shortage over the whole period that the vessel has been entered with the club, ie some 15 or 16 years. Categories 2 and 3 of the subpoena are a transparent attempt to obtain discovery from the club. It was as plain a fishing expedition as can be imagined, and not surprisingly it caused Mr Killick to appear with the equivalent of two and half suitcases of documents at the hearing. If matters rested there, the subpoena obviously had to be set aside. But, having heard Mr Ruttle's submissions on behalf of the club, and in the light of some questions put by the Court, Mr Cooke, for the charterers, performed a dexterous retreat from the original scope of the subpoena. The concessions came in stages. First, in relation to both categories 2 and 3 he asked me to restrict the subpoena to documents dating between Jan 1, 1980 and Jan 1, 1983. Secondly, in relation to category 2 he asked me to substitute for the all-embracing words "the condition" of the vessel, the words "holds, ballast tanks and pipes". Thirdly, it was conceded that categories 2(a) and 3(a) cannot stand. But the charterers still sought to justify categories 2(b) and 3(b). Fourthly, in relation to both categories I was asked to delete the words "such documents to include (but not limited to)" and to substitute the word "namely". It is sufficient to say that Counsel was constrained to make these concessions because those features, which have now been abandoned, underlined the fact that the subpoena was simply an attempt to obtain discovery against a third party. As recast in terms of Counsel's concessions, and suggested amendments, the subpoena commands Mr Killick to produce all documents relating to: 2. The holds, ballast tanks and pipes of the "LORENZO HALCOUSSI" between 1st January 1980 and 1st January 1983, namely . . . (b) all correspondence, recommendations, memoranda, notes, reports and minutes passing between Sunderland Steamship P & I Association and/or their managers and/or agents, on the one hand, and the Owners and/or managers and/or agents of the "LORENZO HALCOUSSI", on the other hand. 3. Incidents of cargo contamination and/or shortage on the "LORENZO HALCOUSSI" between 1st January 1980 and 1st January 1983, namely . . . (b) all correspondence, recommendations, memoranda, notes, reports and minutes passing between Sunderland Steamship P & I Association and/or their agents and/or managers, on the one hand, and the Owners and/or their managers and/or agents of the "LORENZO HALCOUSSI", on the other hand. On behalf of the club Mr Ruttle submitted that, while a Court seized with an issue as to the width of a subpoena duces tecum, may use a blue pencil to delete what is excessive, it cannot amend the writ by the insertion of words of limitation or qualification. In my judgment, one must regard the subpoena duces tecum as the servant of the administration of justice, and a Court has an inherent power to amend it in whatever form may appear necessary and just. I will approach the matter on that basis, and I am prepared on the facts of this case to consider the subpoena as redrawn in argument by Mr Cooke on its merits. Category 2(b), of course, corresponds closely to par 5 of the basic request of Messrs Ince & Co for discovery, which I have quoted. It still spans an arbitrary three year period, which was selected in order to bring it into line with the earlier request for discovery in the arbitration. Admittedly, category 2(b) has been narrowed down to cover only documents passing between the respective camps of the club and the owners. But it still does not identify or specify the documents to be produced. Mr Cooke submitted, and I accept, that the person to whom the subpoena is directed is commanded to bring the documents falling within its scope: he need not analyse the issues in the arbitration. On the other hand, faced with a challenge to the subpoena, the person who caused it to be issued must show that the subpoena was necessary for the just disposal of the case, and that may, and often will, involve an examination of the need for the documents in the light of the issues in the case. The charterers readily concede that they have included in category 2(b) documents which they already have, such as survey reports from owners. They have also included in the subpoena a whole range of categories of documents customarily asked for on discovery, on the speculative basis that it may turn out that some may exist and if they do exist some of them may be relevant. Specifically, the affidavit served on behalf of the owners emphasized "recommendations" made by the club when forwarding survey reports to the owners of the vessel, and this point was also highlighted in argument before me. There is nothing to indicate that any recommendations were made. In any event, the arbitrators have not been prepared to order discovery of such material. No doubt they regarded the survey reports, produced by experts, as relevant but did not regard the club's non expert views as to the need for repairs as relevant or admissible. Even as recast, category 2(b) is simply a roving expedition for discovery. In any event, category 2(b) is far too widely drawn. Now I turn to category 3(b). Again, the subpoena fails to identify or specify particular documents. The "incidents" are not identified or specified except in the sense that "all documents relating to . . . incidents of cargo contamination and/or shortage" on the vessel must be produced, in so far as the arbitrarily selected period is concerned. It is not limited to a particular incident or incidents. It is plainly a fishing expedition to find out what possible incidents there were. Moreover, it extends to all "incidents" of contamination and/or shortage, whatever the size or cause of it may have been. And it requires "all documents relating to" it to be produced. That would cover the hotel bill of a surveyor sent by the club to investigate the incident. Sometimes it may be difficult to know where the line between discovery and production of particular documents is to be drawn. This case does not fall within any grey area. It is demonstrably on the wrong side of any reasonable line that can be drawn. The point does not merit further discussion: it is plainly an attempt to obtain discovery against a third party. In any event, category 3(b) is far too widely drawn. My judgment is squarely based on the terms of the subpoena, and the particular circumstances of this case. But it is right to point out that if I had upheld the validity of this particular subpoena duces tecum, my judgment would have been an open invitation for the service of such subpoena as a matter of course in cargo claims in Commercial Court proceedings and in maritime arbitrations. Although it is not necessary for my decision to do so, I should record that I am also satisfied that the service of this subpoena caused inconvenience to the club and disrupted the smooth running of its affairs. The club had to take legal advice, and a great deal of time has been spent on sorting out the documentation. For that the club has received a derisory sum in respect of Mr Killick's conduct money. It is, however, sufficient to say that I am satisfied that the subpoena must be set aside in its entirety as an abuse of the process of the Court. In recording the conclusion, I make perfectly clear, however, that I accept that those involved bona fide considered that they were acting within the rules. But they were mistaken, and the issue of the subpoena was misconceived. DISPOSITION: Judgment accordingly SOLICITORS: Elborne Mitchell; Ince & Co |