- This is an application made pursuant to section 236 of the Insolvency Act 1986 by the Joint Liquidators of Comet Group Limited, (Comet), for information and documents which they contend they require to enable them to investigate and decide whether or not to pursue a claim in damages against the Respondents, Whirlpool (UK) Ltd, (Whirlpool UK), and Embraco Europe srl, (Embraco).
- The background to the matter is that Comet used to be one of the largest electrical retailers in the UK and one of its main lines was refrigerators. For reasons which do not matter, it got into business difficulties and is now insolvent with an estimated total current deficit of over £300 million.
- Whirlpool UK is a private company incorporated in the UK and a subsidiary of Whirlpool Corp, a public company incorporated under the laws of Delaware, USA, and the ultimate parent of a number of Whirlpool companies. Whirlpool UK carries on business in the UK as a supplier of white goods including fridges and freezers manufactured by entities in the Whirlpool group. It was a supplier of such goods to Comet.
- Embraco is a private company based in and with its registered office in Italy. It is a manufacturer and supplier of refrigeration compressors for use as components in fridges and freezers. Embraco is a supplier of such items to manufacturers within the Whirlpool group who supply fridges and freezes to Whirlpool UK.
- Embraco is a subsidiary of Whirlpool SA which itself is a subsidiary of Whirlpool Corp. Thus both Respondents are part of the same corporate group and I was told the group comprises some 169 companies operating in about 60 different countries.
- The possibility of Comet's claim in damages arises out of a Decision of the European Commission dated 7 December 2011 according to which it was found that, in conjunction with other named parties, and as had been admitted, Embraco and Whirlpool SA had infringed Article 101 of the Treaty on the Functioning of the European Union and Article 53 of the European Economic Area Agreement by participating in a cartel in relation to refrigeration compressors during the period 13 April 2004 to 9 October 2007. The geographic scope of the infringing cartel and admitted wrongdoing extended to the whole of the EEA. The Commission Decision records that Embraco and Whirlpool SA were fined €54,530,000 after certain leniency reductions.
- Comet's claim, if any, arises out of the fact that Embraco supplied refrigeration compressors, at prices believed to be inflated by the cartel activity, to entities in the Whirlpool group who used them in the manufacture of refrigerators which Whirlpool UK supplied to Comet.
- The matter was argued before me on the basis that Whirlpool UK was the manufacturer of the refrigerators which it sold to Comet.
- The Liquidators assert that they need disclosure from the Respondents in order to investigate whether (and, if so, to what extent) Comet suffered recoverable loss as a result of the cartel and to decide (for the benefit of Comet's creditors) whether or not to commence formal proceedings for compensation. They point out that it is notoriously difficult to prove causation in cases of this kind and they seek an order pursuant to section 236 of the Insolvency Act 1986 for:
(1) the submission or production of all such information and/or books, papers, other records and documents as are in their possession or control and which fall within the terms of the attached Schedule and/or (2) any such order as the Court thinks fit.
The Schedule is in these terms:
SCHEDULE OF DOCUMENTS AND INFORMATION
This Schedule uses terms defined and explained in the supporting witness statements[1]:
[A] Sales Data
1. First, sales data showing: (1) the total price per unit of each specific model/specification of Refrigeration Compressor (as defined in a WS) and (2) the unit pricing of Refrigeration Compressor components within fridges, freezers sold as finished products and all other finished products which contain them; and which in either case were produced by the Respondents and sold to each of their customers (with a breakdown by customer) and to spot markets during the operation of the cartel (from April 2004 to October 2007) and in the 12 months preceding and the 24 months following the operation of the cartel, with the total price data per customer broken-down by month.
2. The Applicants are prepared to accept a summary of this data in a form to be discussed with the Respondents and based on their systems, providing such data is suitably verified by their directors and/or auditors.
[B] Input Cost Data
3. Secondly, data detailing the Respondents' total input costs for the production, or where relevant purchase, of Refrigeration Compressors by model/specification (so that the information may be correlated to the sales data requested above) during the operation of the cartel (from April 2004 to October 2007) and in the 12 months preceding and the 24 months following the operation of the cartel. For the avoidance of doubt, this information will itemise all individual input costs included in the total input costs so that there is clarity as to what they comprise and will also identify the specific input costs for copper and steel.
4. The Applicants would accept an independently verified summary of this information rather than, for example, the provision of all underlying contemporaneous documentation.
[C] Pricing Methodology
5. Thirdly, documents containing or showing the Respondents' pricing methodology for Refrigeration Compressors and fridges, freezers and/or all other products containing these components, from time to time during the operation of the cartel (from April 2004 to October 2007) and in the 12 months preceding and the 24 months following the operation of the cartel.
- The relevant parts of Section 236 and 237 of the Insolvency Act are in these terms:
s. 236 Inquiry into company's dealings, etc.
....
(2) The court may, on the application of the office-holder, summon to appear before it—
(a)any officer of the company,
(b)any person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or
(c)any person whom the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company.
The court may require any such person as is mentioned in subsection (2)(a) to (c) to submit to the court an account of his dealings with the company or to produce any books, papers or other records in his possession or under his control relating to the company or the matters mentioned in paragraph (c) of the subsection.
s. 237 Court's enforcement powers under s. 236
....
(3) Any person who appears or is brought before the court under section 236 or this section may be examined on oath, either orally or (except in Scotland) by interrogatories, concerning the company or the matters mentioned in section 236(2)(c).
- It was common ground that the leading authority on the jurisprudence surrounding orders under these sections is In re British & Commonwealth Plc [1993] AC 426. In that case the respondents sought and obtained an order that the appellants produce all books, papers or other records:
(a) relating to or having any connection with the 1987 year end audit of [A] . . . and the production of the audited accounts for [A] . . . including any material relating to its subsidiaries; (b) which relate to or have any connection with the acquisition by [B.
& C.] of [A] . . . including but not limited to the working capital review conducted by [the appellants] and the production of a working capital letter; (c) which relate to or have any connection with the 1988 year end audit of [A] . . . and the production of the audited accounts for [A] . . . including any material relating to its subsidiaries.
- There is helpful guidance in the following passages from the speech of Lord Slynn of Hadley, first at 438 C-F:
In my opinion, although there may be some difference in the wording of these sections, the position under section 236 of the Insolvency Act 1986 is broadly the same as that under section 268 of the Companies Act 1948 as explained by Buckley J. in In re Rolls Razor Ltd. [1968] 3 All E.R. 698 , 700, in a passage subsequently approved by the Court of Appeal in In re Esal (Commodities) Ltd. [1989] B.C.L.C. 59 , 64:
'The powers conferred by section 268 are powers directed to enabling the court to help a liquidator to discover the truth of the circumstances in connection with the affairs of the company, information of trading, dealings, and so forth, in order that the liquidator may be able, as effectively as possible, and, I think, with as little expense as possible . . . to complete his function as liquidator, to put the affairs of the company in order and to carry out the liquidation in all its various aspects, including, of course, the getting in of any assets of the company available in the liquidation. It is, therefore, appropriate for the liquidator, when he thinks that he may be under a duty to try to recover something from some officer or employee of a company, or some other person who is, in some way, concerned with the company's affairs, to be able to discover, with as little expense as possible and with as much ease as possible, the facts surrounding any such possible claim.'
Second, at 439C – 440A
At the same time it is plain that this is an extraordinary power and that the discretion must be exercised after a careful balancing of the factors involved - on the one hand the reasonable requirements of the administrator to carry out his task, on the other the need to avoid making an order which is wholly unreasonable, unnecessary or 'oppressive' to the person concerned. The latter was stressed by Bowen L.J. in In re North Australia Territory Co., 45 Ch.D. 87, 93:
'That is an inquisitorial power, which may work with great severity against third persons, and it seems to me to be obvious that such a section ought to be used with the greatest care, so as not unnecessarily to put in motion the machinery of justice when it is not wanted, or to put it in motion at a stage when it is not clear that it is wanted, and certainly not to put it in motion if unnecessary mischief is going to be done or hardship inflicted upon the third person who is called upon to appear and give information.'
Such an approach was stressed more recently by Brightman J. in respect of oral examination in In re Bletchley Boat Co. Ltd. [1974] 1 W.L.R. 630 . The protection for the person called upon to produce documents lies, thus, not in a limitation by category of documents ('reconstituting the company's state of knowledge') but in the fact that the applicant must satisfy the court that, after balancing all the relevant factors, there is a proper case for such an order to be made. The proper case is one where the administrator reasonably requires to see the documents to carry out his functions and the production does not impose an unnecessary and unreasonable burden on the person required to produce them in the light of the administrator's requirements. An application is not necessarily unreasonable because it is inconvenient for the addressee of the application or causes him a lot of work or may make him vulnerable to future claims, or is addressed to a person who is not an officer or employee of or a contractor with the company in administration, but all these will be relevant factors, together no doubt with many others.
- Robert Walker J in Re BCCI v Bank of America [1997] BCC 561, 570 C-E observed that the last 10 lines of this citation cover many of the essential points and I found it a particularly useful summary.
- The background to this application is that on 3 June 2013 the Applicants' solicitors wrote a detailed letter before action to the Respondents stating that they had committed serious competition infringements by participating in a cartel and that the Applicants had a claim for the financial impact and losses they had suffered as a consequence of the cartel. The letter went on to quantify Comet's claim in the sum of approximately £49.25 million and said that steps would be taken to issue proceedings in the event that a satisfactory response was not received. The letter met with a response to the effect that the claim was misconceived. It also stated that Embraco was prepared to demonstrate that even direct customers of compressors were not harmed by the cartelist conduct. Further correspondence followed, including a request for disclosure from the Respondent because of an alleged 'obvious asymmetry of information' but the request got nowhere so far as the Applicants are concerned. The Respondents took the view that the jurisdiction of the English courts was not engaged and they invited the Applicants to agree in principle to providing security for costs in accordance with CPR 25.12 in the event that proceedings were commenced. Moreover it declined to respond positively to the requests made by the Liquidators for documents or information. With respect to Embraco's offer to demonstrate that its infringement has not caused any harm even to direct customers, the Liquidators contend (with some justification) that Embraco has steadfastly refused to demonstrate anything of the kind. Subsequently this application was made and it has been resisted on every front.
- The Respondents resist the grant of the order sought both on grounds of jurisdiction and on grounds of discretion. With respect to jurisdiction the argument was put forward under three heads.
- First it was submitted that there is 'no jurisdiction to order production of anything extending beyond material relating to the company itself or to its promotion, formation, business, dealings, affairs or property', and reliance was placed on the wording of section 236 itself. The Respondents point to paragraph 1 of the Schedule and the request in relation to sales data showing the price per unit of compressors sold by the Respondents to each of their customers, by way of example, contending that this third party pricing information cannot possibly relate either to Comet itself or to its business, dealings, affairs or property. The Respondents conceded that such information may be relevant for the purposes of assessing damages in due course but that did not mean it related to the company itself or to its business, dealings, affairs etc within section 236.
- I do not agree with this contention. In particular, it seems to me that in a cartel damages claim of the kind with which the Liquidators are concerned, the prices at which compressors are sold to others may very well bear directly on the business and affairs of Comet. In reaching this conclusion I bear in mind the purpose of section 236 as explained by Buckley J in the passage cited above from Lord Slynn's speech in British & Commonwealth. That passage suggests the section should be not be construed over narrowly and that so long as the documents have some connection with the business or affairs of the company and are relevant to the proper carrying out by a Liquidator of his statutory functions, then they are within its ambit for jurisdiction purposes.
- Second it was submitted that there is 'no jurisdiction to order production of anything other than books, papers or other records'. There are a number of sub-points within this submission and the first was in relation to the jurisdiction to order the provision of information.
- Counsel for the Liquidators accepted that he was not seeking an order to interrogate either of the Respondents or any officer or servant thereof (either by oral examination or the issue of interrogatories) but he said it was common for orders under section 236 to be made for the supply of information in the context of a request for documents. He was unable to draw my attention to any authority supporting such an argument and said the reason for that was that it was too plain to need any authority.
- Counsel for the Respondents, by contrast, said that it was unheard of to seek an order for information under section 236 outside the confines of interrogatories, oral examination or via affidavits. Further, he drew my attention to the enforcement powers under section 237(4) and also to the form and content of an application for an order prescribed by Part 9 of The Insolvency Rules 1986, in particular §9.2 which is in these terms:
Form and contents of application
9.2. (1) The application shall be in writing, and be accompanied by a brief statement of the grounds on which it is made.
(2) The respondent must be sufficiently identified in the application. It shall be stated whether the application is for the respondent—
(a)to be ordered to appear before the court, or
(b)to answer interrogatories (if so, particulars to be given of the matters in respect of which answers are required), or
(c)to submit affidavits (if so, particulars to be given of the matters to which he is required to swear), or
(d)to produce books, papers or other records (if so, the items in question to be specified),
or for any two or more of those purposes.
(3) The application may be made ex parte
Counsel submitted that the application in the present case did not follow these rules very precisely, but since it was clear there was no request for anyone to appear or answer interrogatories or submit affidavits, then only documents could be ordered. Like counsel for the Applicant, he was unable to refer to any authority to support his submission and he too said the reason for that was that it was too plain to need any authority.
- From a consideration of sections 236 and 237 together with Part 9 of the Insolvency Rules, it seems to me that it is not appropriate to mix up requests for information and documents without making the matter clear. The Rules provide means for obtaining information[2] and, if information is what is wanted, then those means should be used.
- Thus I conclude there is no jurisdiction to order the supply of information other than pursuant to a summons to appear or via interrogatories or the submission of affidavits (i.e. in accordance with the Rules) and that an application to produce documents cannot be a disguised request for information.
- It became apparent during the hearing that the Liquidators would be content if the words "documents containing" were inserted prior to "sales data" in the first line of paragraph 1 and prior to "data" in the first line of paragraph 3 of the Schedule and the final sentence of paragraph 3 of the Schedule deleted. If that were done, with equivalent amendments to the substantive part of the order, this objection to jurisdiction falls away.
- In this context, however, it is also said that the Schedule should be framed by reference to particular books, papers or other records held by the Respondents, for without that particularity the task is almost impossible to address. The difficulty I have with this submission is that the Respondents know which documents they have and the Liquidators do not. Accordingly if this were a fundamental flaw, as the Respondents contend that it is, there would rarely be a section 236 order where third parties are involved. If a section 236 applicant does not know the identity of the particular documents he wishes to see but does adequately describe them by reference to the subject matter they contain, this, in my view, could be sufficient. It is one of the factors which goes into the mix when addressing discretion. It does not, in my view, go to jurisdiction.
- Third it was submitted that there was 'no jurisdiction to order the production of books, papers or other records which are not in the possession of or under the control of the respondent'. I accept this point either as a matter of jurisdiction or as being an almost decisive factor in the exercise of discretion. But since the order sought does not extend to such documents, the point is of no substance.
- Before leaving the issue of jurisdiction, and because of what was said in argument, I wish to make clear that I consider the term 'books, papers or other records' to include documents in electronic form. The reason I wish to make this clear is that I perceived that the Respondents did not accept the point, although when it was put at the hearing that documents in electronic form were included, there was no real argument to the contrary.
- The second ground for resisting the application was based on discretion and there were two main heads.
- First it was said that the information/documents sought were not reasonably required for the purposes for which the Liquidators contended (see paragraph 9 above). The Respondents point to the correspondence referred to in paragraph 14 above and submit that it is clear from what was said that the Liquidators have already decided to issue proceedings, and that they cannot now resile from that position. The Respondents invite the court to conclude that the true motive behind this application is that the Liquidators seek early disclosure of documents without having to provide security for costs in any litigation and in order to place pressure on the Respondents to settle the claims and/or to obtain an unfair advantage in the proceedings. The Respondents drew my attention in particular to a passage in the judgment of Robert Walker J in Re Atlantic Computers [1998] BCC 200, 208:
The width of the court's discretion has been emphasised by recent decisions of higher courts disapproving restrictions on the discretion which had been supposed to exist – the 'reconstruction of the company's knowledge' principle and (see Re Castle New Homes Ltd [1979] 1 WLR 1075 at p. 1089) the 'Rubicon' test. The latter test was a rule of thumb under which relief under s. 236 would be withheld if office-holders had already commenced proceedings against, or definitely decided (mentally crossed the Rubicon) to proceed against, the proposed witness (typically for misfeasance, breach of fiduciary duty as a director, or so on). That rule of thumb has been disapproved for the reason mentioned by Sir Nicolas Browne-Wilkinson V-C in Re Cloverbay Ltd (No. 2) [1990] B.C.C. 414 at p. 419; [1991] Ch 90 at p. 101. But it still contains a germ of truth, as Hoffmann J said in Re Bishopsgate Investment Management (No. 2) [1994] B.C.C. 732 at p. 739. The germ of truth springs naturally from the purposes for which the statutory jurisdiction is intended, and from the need to avoid exercising it unreasonably or oppressively. In Re Esal (Commodities) Ltd (No. 2) [1990] B.C.C. 708 at p. 722 Millett J said:
'The court has always been astute to prevent the liquidator himself making use of the s. 268 [of the Companies Act 1948 , the predecessor of s. 236 ] in order to gain an unfair advantage in litigation which he has already brought or which he has already decided to bring against the proposed examinee, even where the litigation is brought for the benefit of the insolvent estate: see Re Bletchley Boat Co Ltd [1974] 1 WLR 630 and Re Castle New Homes Ltd [1979] 1 WLR 1075 .'
On the same theme Mr Stadlen took me to the full and clear summary by Slade J, in Re Castle New Homes Ltd [1979] 1 WLR 1075 at pp. 1081– 1088, of earlier authorities going back to 1880. The decision of the Court of Appeal in Re North Australian Territory Co (1890) 45 ChD 87 is particularly illuminating. It supports Mr Clarke's submission that the statutory jurisdiction is not to be used for giving a litigant (just because he is an office-holder) special advantages in ordinary litigation. Brightman J in Re Bletchley Boat Co Ltd [1974] 1 WLR 630 at p. 637 said that it was not to be used 'to gain an advantage in the action … over and above the ordinary advantages available in an ordinary defendant and an ordinary plaintiff in litigation.' Slade J said in Re Castle New Homes Ltd [1979] 1 WLR 1075 at p. 1091 said that it was not to be used by an office-holder 'to bolster up his case'.
- I have looked again at the previous correspondence between the parties and the evidence in this case (including in particular the evidence of Mr Lewis, an economist, who explains the rationale behind the identification of the documents sought) and I have taken into account the asymmetry of information between the parties as well as the well known difficulties of proving causation in cartel damages cases. I am satisfied that the Liquidators are being truthful, reasonable and fair and conclude that they have established on the evidence that they reasonably require to see the documents in order properly to carry out their functions and obligations. That being so, I must turn to whether or not the production of the documents would impose an unnecessary and unreasonable burden on the Respondents.
- The first point to note is that the Liquidators have sought to make it easier for the Respondents by providing in the order that they will accept a summary of the documents relating to Sales Data and Input Cost Data in place of the documents themselves. The Respondents have countered by saying they are not interested in providing any such summary, that I have no jurisdiction to oblige them to provide a summary and that the question of oppression or inconvenience must be tested by a consideration of the request for the documents themselves.
- I accept that, pursuant to a request for production of documents, I have no jurisdiction to order a party to summarise the content of the documents. But I do not think I must ignore completely the fact that offers of help to minimise inconvenience and burden have been rejected. This, though, must be a point of rather little weight since I do not know why the offer of assistance was rejected. It may have been because the Respondents wanted to be as obstructive as possible or it may have been because their task was relatively easy and assistance was not needed or it may have been for some other reason.
- In submitting that the production of documents would be oppressive the Respondents relied on a number of factors.
- First they relied again on the fact that the Liquidators have already made a decision to commence cartel damages claims. I have already reached a conclusion on this matter. However, in reaching my overall conclusion on discretion I will bear in mind the correspondence already referred to and to the fact that the Liquidators have asserted in the past (although they do not do so now) that they intend to issue proceedings for recovery of compensation in relation to cartel infringements.
- Secondly, the Respondents submitted that there would be a clear and unfair advantage to the Liquidators if they were to have available now documentation or information which ordinarily would only become available at a later stage in the disclosure process and/or be ordered to be dealt with through witness evidence in the litigation. Moreover, it was urged upon me that it cannot be assumed that the English courts would have jurisdiction to hear and determine any cartel damages action against Whirlpool UK and Embraco. It was urged that Whirlpool UK have not admitted any wrong doing and that, as a mere customer of the Whirlpool group, it was unlikely to have been mixed up with the cartel even though it, like Embraco, is a subsidiary within the Whirlpool Group. It seems to me that these are two separate points and I address each in turn.
- I see some force in the first point but do not regard it as very persuasive in the light of the admitted infringement by Embraco of the anti-cartel provisions and the fact that the only alleged benefit is early sight of the documentation. Indeed, it might be argued that, in a case like the present where there has been an admitted infringement by one of the Respondents, an early assessment of the documentation might lead to a saving of costs.
- With regard to the second point, I agree that it goes into the mix and is an important factor to consider when carrying out the balancing exercise, especially bearing in mind that if there is no claim against Whirlpool UK, Article 6(1) of the Judgments Regulation would preclude a case in the English courts against Embraco (Comet not being a direct victim of the tort– see Dumez France v Hessische Landesbank Case C-220/88 [1990] ECR I- 49).
- Thirdly, it is submitted that the order sought is extremely and unjustifiably wide and is in the context of a long period of time and that the production of the documents would be burdensome and costly. Mr Kelly, a partner in the firm of solicitors acting for the Respondents has given some evidence on this point and, to my mind, it is not very impressive. He appears only to have had 'preliminary discussions' with the Respondents about the matter, which is slightly surprising in view of the fact that the matter has been in issue for some considerable time, and he does not really condescend to detail with respect to any matters. Moreover he does not address at all the Liquidators' detailed evidence to the effect that the Respondents must already have collated the relevant documentation bearing in mind the circumstances of the admitted unlawful activity and the various claims arising out of the same which the Whirlpool Group including, in particular, Embraco, has faced to date. That evidence effectively went unchallenged.
- Moreover, the Respondents have done nothing to help themselves in this matter, for example by responding to any of the requests for information or documents. Of course, the Respondents are entitled to adopt the position they have adopted, but I have to balance the matter from both parties' points of view in the actual circumstances which present themselves.
- In connection with the question of whether or not the documents are sufficiently identified and the Respondents' contentions thereto (which were made in the context of jurisdiction but are just as apposite to discretion), I regard the classes of documents sought to be sufficiently described by reference to their subject matter.
- Thirdly it is said (relying on something said by a witness on behalf of the Liquidators) that a cartel damages claim is a variety of fraud and that the courts have always been astute to require claimants alleging fraud to prove their case. In this context I was referred to the observations of Sir Nicholas Browne Wilkinson VC in Cloverbay [1991] Ch 90, 104G-H to the effect that to order pre-trial depositions from parties suspected of fraud or dishonest behaviour is very oppressive and that to use section 236 so as to run contrary to the requirement of requiring a claimant alleging fraud to prove his case is also oppressive. This is plainly a matter to be taken into account, but it must be taken into account in context. And that context is that Embraco has admitted being party to an infringing cartel. It was urged upon me that Embraco (or Whirlpool SA) could not tar Whirlpool UK and, in the absence of a decisive influence (for which there must be evidence), that may be right[3]. It seems to me that this is another important matter that goes into the mix, especially in relation to Whirlpool UK.
- Fourthly it is said that Whirlpool UK and Embraco are third parties qua Comet and my attention was again drawn to Cloverbay [1991] Ch 90 where it was pointed out that a section 236 order will be more readily made against an officer or former officer of the company than a third party. I accept this point but set against it is the fact that price fixing manufacturers' cartels are aimed at achieving profits at the expense, usually, of retailers or consumers. It goes into the mix but does not, in my view and in this case, carry as much weight as some of the other points made.
- I have to conduct a careful balancing exercise taking all relevant matters into account and being careful not to impose an unreasonable burden on the Respondents. I have carried out that exercise and have reached the conclusion that it is appropriate to make the order sought (as amended in accordance with paragraph 23 above). Moreover, I have reached the conclusion that the benefit likely to be gained by the Liquidators as a result of making the order substantially outweighs the burden likely be imposed on the Respondents.
