FEDERAL COURT OF AUSTRALIA

Suzlon Energy Ltd v Bangad [2011] FCA 1152

SECOND CROSS CLAIM

THE COURT ORDERS THAT:

1.    The thirteenth second cross defendant not be obliged to produce the documents referred to in the notice to produce dated 9 September 2011 served by the second cross claimants until further order.

2.    The fourteenth second cross defendant not be obliged to produce the documents referred to in the notice to produce dated 8 September 2011 served by the second cross claimants until further order.

3.    The fifteenth second cross defendant not be obliged to produce the documents referred to in the notice to produce dated 9 September 2011 served by the second cross claimants until further order.

4.    The second cross claimants pay the costs of the thirteenth, fourteenth and fifteenth second cross defendants of their respective interlocutory applications filed on 14 September 2011.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

SECOND CROSS CLAIM

REASONS FOR JUDGMENT

1    These are interlocutory applications by each of the three Swiss banks, Frankfurter Bankgesellschaft (Schweiz) AG (known as LB Swiss at relevant times), Merrill Lynch Bank (Suisse) SA (Merrill Lynch) and Credit Suisse AG (Credit Suisse) (collectively the Banks), which have been served as cross defendants, to set aside, or excuse each Bank from production of the documents sought under, notices to produce served on them by the Suzlon parties, who are the cross claimants. On 4 March 2011, I granted the Suzlon parties leave to serve each of the Banks in Switzerland under the provisions of O 8A of the now repealed Federal Court Rules 1979 (Cth) (the old Rules): Beluga Shipping GmbH & Co KS “Beluga Fantastic” v Suzlon Energy Ltd (No 5) (2011) 278 ALR 56.

2    Because of a misnomer by the Suzlon parties, Credit Suisse’s parent, Credit Suisse Group SA, was originally identified as the party to be served. Credit Suisse Group SA refused service in Switzerland, and then informed the Suzlon parties’ solicitors that it did not conduct any banking business. It later brought a motion seeking dismissal of the proceedings against it. I ordered that the misnomer be corrected by substituting Credit Suisse for its parent as fifteenth second cross defendant on 12 August 2011: Suzlon Energy Ltd v Bangad (Application of Credit Suisse Group SA) [2011] FCA 921. Later in August, the Suzlon parties served Credit Suisse at its Sydney offices.

3    Each of the Banks has filed a motion seeking:

    in the cases of LB Swiss and Merrill Lynch, that service on it be set aside on the ground that the Suzlon parties do not have a prima facie case for any relief against it (see O 8 r 3(2)(c) of the old Rules, now: r 10.43(4)(c) of the Federal Court Rules 2011 (Cth) (the new Rules));

    for each Bank, a stay of the proceedings against it on the ground that Australia is a clearly inappropriate forum;

    for each Bank, an order striking out the second cross claim as against it as defective or not disclosing any reasonable cause of action.

4    I described the bases of the Suzlon parties’ case against each of the Banks in Suzlon 278 ALR 56. In essence, the Suzlon parties contended that each Bank was liable to it on the basis that each had received the Suzlon parties’ moneys with notice that Mr Sridhar was a fiduciary or it had assisted him with knowledge in his dishonest and fraudulent design, within one or both of the “limbs” of the “rule” in Barnes v Addy (1874) LR 9 Ch App 244 at 251-252 per Lord Selborne LC; see Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 140-141 [111]-[113] per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ. I will continue to refer to the persons described in my earlier judgments using the same descriptions.

The present Issue

5    It is common ground that these applications should be dealt with under the new Rules. Rule 30.28 of the new Rules provides for notices to produce to be served and for the consequences of doing so as follows:

“30.28    Notice to produce

(1)    A party may serve on another party a notice, in accordance with Form 61, requiring the party served to produce any document or thing in the party’s control:

(a)    at any trial or hearing in the proceeding; or

(b)    at any hearing before a Registrar or any examiner or other person having authority to take evidence in the proceeding.

(2)    If the document or thing required to be produced under subrule (1) is not produced, the party serving the notice may lead secondary evidence of the contents or nature of the document or thing.

(3)    If a notice under subrule (1) specifies a date for production, and is served 5 days or more before that date, the party served with the notice must produce the document or thing in accordance with the notice, without the need for a subpoena for production.

Note    A party who fails to comply with a notice under subrule (1) may be liable to pay any costs incurred because of the failure.”

6    Each of the notices to produce requires the recipient Bank to produce, in effect, all the documents relating to any accounts that Mr Sridhar or his associates opened with it. The Banks argued that each notice to produce ought be set aside because:

    the Suzlon parties were not entitled to serve a notice to produce on LB Swiss and Merrill Lynch in respect of the establishment of a prima facie case to confirm service outside Australia on each of them;

    the documents sought were irrelevant to the interlocutory applications to stay or dismiss the proceedings on the ground that Australia was a clearly inappropriate forum and to strike out the second cross claim as against each Bank;

    if the Suzlon parties were entitled to serve them with a notice to produce, it was not appropriate to require LB Swiss and Merrill Lynch to produce documents that may assist the Suzlon parties in the establishment of a prima facie case to confirm service outside Australia against each of them;

    each notice to produce was too wide, being oppressive or an attempt to obtain discovery;

    to answer each notice to produce would require the respective Bank and its officers who would be involved in providing any response, to commit serious criminal offences in Switzerland in breach of Swiss banking secrecy laws.

The Suzlon parties’ submissions

7    The Suzlon parties argued that the Court had power to require the notices to produce to be answered. They contended that it was permissible to serve a notice to produce on a foreign party requiring production of further evidence in support of an applicant’s attempt to make out a prima facie case on an application to set aside or to confirm service out of the jurisdiction. They also submitted that the overarching purpose of the Court’s civil practice and procedure provisions identified in s 37M of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) supported their use of the notices to produce in seeking to conduct the proceedings as quickly, inexpensively and efficiently as possible. They denied that the notices to produce were too wide, oppressive or an attempt to obtain discovery.

8    The Suzlon parties argued that Swiss law did not prevent the Banks answering the notices to produce. (I will deal with the relevant content of Swiss Law later in these reasons.) They contended that a number of United States cases showed that Swiss banks had complied with court orders for discovery and that, despite Swiss Government disquiet, there was no evidence that anyone had been prosecuted for obeying the United States courts’ orders. The Suzlon parties argued that because the notices to produce had the coercive effect of a subpoena under r 30.28(3), the Banks were placed in a state of necessity within the meaning of Arts 17 and 18 of the Swiss Criminal Code and were thus able to answer them without contravening Swiss banking secrecy laws. They also argued that the documents sought in these notices to produce were capable of supporting the prima facie case requirement in respect of the extraterritorial service on LB Swiss and Merrill Lynch as well as in demonstrating that Australia was not a clearly inappropriate forum.

Consideration

(a)    Power to permit service of a notice to produce on a foreigner contesting extraterritorial service

9    I am satisfied that r 30.28 enables a party to serve a notice to produce on a foreigner in respect of an application to confirm or set aside service of process on the foreigner outside the jurisdiction. A party who has obtained an ex parte order for service out of the jurisdiction is entitled, in an appropriate case, to use a subpoena served within Australia to seek production of further documents tending to show that it has a prima facie case in support of the confirmation of, or to counter opposition to, service out of the jurisdiction after such service has occurred: WSGAL Pty Ltd v Trade Practices Commission (1992) 39 FCR 472 at 474 per Morling J, with whom Beaumont J at 475-476 and Hill J at 476 agreed.

10    In principle, that reasoning is equally apposite to a notice to produce and Giles CJ Comm D arrived at this conclusion in respect of a notice to produce served under analogous rules of court in News Corporation Ltd v Lenfest Communications Inc (1996) 40 NSWLR 250 at 258A-C, 259G-260B. A notice to produce is not an exact equivalent to a subpoena as his Honour noted in Lenfest 40 NSWLR at 256B-E. Importantly, however, as r 30.28(3) provides, a party served with a notice to produce sufficiently in advance of its return date, as was the case here, must comply with the notice by producing the documents (or things) in accordance with its requirement. That utilises the Court’s powers of compulsion to make those documents (or things) available for inspection and, if need be, use in evidence.

11    Relevantly, as Giles CJ Comm D observed in Lenfest 40 NSWLR at 260C, Pt 36 r 16(1) of the Supreme Court Rules 1970 (NSW) required the party to be served with a notice to produce to produce the document or thing in accordance with the notice “unless the Court otherwise orders”. The old Rules contained a similar qualification in O 33 r 12(1) which provided:

“(1)    Where a party to any proceedings serves on another party notice, in accordance with Form 45, requiring the party served to produce at any trial or hearing in the proceedings, … any document or thing for the purpose of evidence and the document or thing is in the possession, custody or power of the party served, the party served shall, unless the Court otherwise orders, produce the document or thing in accordance with the notice, without the need for any subpoena for production.” (emphasis added)

12    There is no similar qualification in the words of r 30.28. Nevertheless, the new Rules give the Court a general power in r 1.34 to dispense with compliance with any of the Rules. A similar power existed under O 1 r 8 of the old Rules.

13    A notice to produce is not a subpoena. That is because a subpoena is an order of the Court requiring the person to whom it is addressed to attend the Court to give evidence and or to produce documents. If a person disobeys a subpoena, he or she breaches that order of the Court and can be proceeded against for contempt. In contrast, a notice to produce under r 30.28 is not a Court order, although it gains its forensic authority as a requirement of the Court to produce a document or thing from r 30.28(3). In addition, an historical purpose for the issue of a notice to produce, still reflected in r 30.28(2), is that if the party served with it does not produce the document or thing called for, his or her opponent may lead secondary evidence of the contents or nature of the document or thing.

14    A notice to produce served pursuant to rules of court, such as r 30.28(3), has the same coercive effect as a subpoena. The party served with a notice to produce must comply with its requirement to produce the document or thing sought, unless excused by the Court: CCOM Pty Ltd v Jiejing Pty Ltd (1992) 37 FCR 1 at 3 per Cooper J; Trade Practices Commission v Abbco Iceworks Pty Ltd (1994) 52 FCR 96 at 132A-B per Gummow J; Microsoft Corporation v CX Computer Pty Ltd (2002) 116 FCR 372 at 380 [36] per Lindgren J; Cheung Kong Infrastructure Holdings Ltd v BlueScope Steel Ltd [2010] FCA 739 at [24] per LG Foster J. And, a party’s failure to comply with a notice to produce that has been served in accordance with r 30.28(3), is a default by that party for the purposes of rr 5.22 and 5.23 and s 37P of the Federal Court Act that can attract significant forensic and procedural detriment.

15    I am of opinion that the Suzlon parties were entitled to serve each notice to produce on the Banks in accordance with r 30.28. The Rules do not prohibit a party using r 30.28 for any proper purpose. That, however, does not mean that the Court should require the notices to produce to be answered in a case like the present.

(b)    Relevance to clearly inappropriate forum and strike out issues

16    It is unlikely that any document that might be produced in answer to any of the notices to produce would have any bearing on the argument as to whether Australia is a clearly inappropriate forum. Apart from an Australian domain email address allegedly used by Mr Sridhar, the Suzlon parties did not suggest that the notices to produce would be likely to reveal any documents that might relate to the issue of Australia’s appropriateness as a forum.

17    The strike out applications will be made pursuant to r 16.21(1)(e) and (f). Those applications will be based on the Banks’ arguments that the second cross claim does not disclose a reasonable cause of action against each of them or is otherwise defective. That aspect of the interlocutory applications ordinarily would not require any evidence since it will be directed solely to the adequacy of the pleading. It follows that the notices to produce do not appear to be relevant to any issue that presently arises in respect of the interlocutory applications to strike out the second cross claim: cp Imobilari Pty Ltd v Opes Prime Stockbroking Ltd (in Liq) (2008) 252 ALR 41 at 43 [4] per Finkelstein J.

18    Nonetheless, it would be premature to come to a final view on the relevance of the notices to produce to the strike out applications because, first, it is not clear that that aspect will be dealt with only after the challenges to the Court’s jurisdiction and its being allegedly a clearly inappropriate forum have been resolved. If, as sometimes happens, the arguments as to the establishment of a prima facie case and the adequacy of pleading overlap, a question may arise as to whether leave to replead ought be granted if it were found that an evidentiary basis for a claim existed but it had not been properly pleaded: cf Spencer v The Commonwealth (2010) 241 CLR 118 at 131-132 [23]-[24] per French CJ and Gummow J.

(c)    Enforcement of a notice to produce on a foreigner challenging extraterritorial service

19    LB Swiss and Merrill Lynch argued that the Suzlon parties should not be permitted to use the provisions of r 30.28 to require them to comply with the notices to produce in aid of establishing that the Court has jurisdiction over them, as Giles CJ Comm D said in Lenfest 40 NSWLR at 261E-262A. His Honour reasoned that it was fundamental to the Court’s exercise of jurisdiction over a foreigner served outside Australia, that the party bringing the claim show that the proceedings fall within a class of case for which the rules of court authorise service. He noted that a foreigner should not lightly be subjected to the Court’s extraterritorial jurisdiction and “… more important should not have imposed upon him one of the Court’s compulsory processes in aid of establishing the jurisdiction itself”: Lenfest 40 NSWLR at 261F. Ordinarily, when a court is invited to confirm, or set aside, service of its process in relation to the exercise of its extraterritorial jurisdiction, it will not require, through use of its powers of compulsion, the foreign party to assist in the establishment of the Court’s jurisdiction over that party which it is then challenging. His Honour’s reasoning was followed by Jacobson J in Armacel Pty Ltd v Smurfit Stone Container Corporation (2007) 164 FCR 123 at 124-125 [7]-[10].

20    A court must be cautious in exercising its local sovereignty over a foreigner. Generally, a court should only proceed to do so when the party who seeks to invoke that “long-arm” jurisdiction has established, by means other than the use of the court’s powers of compulsion against the foreigner, a proper basis in accordance with the procedural requirements in the forum. However, I do not think that Giles CJ Comm D or Jacobson J regarded this as an inflexible principle that invariably had to be applied in construing the relevant rule of court. Indeed, the wording of O 33 r 12 of the old Rules is different to r 30.28. Each of those provisions extends to all matters before the Court and supports the power to require compliance with a notice to produce served on any party, foreigner or not.

21    Rather, I think that their Honours were astute, and correct, to recognise that as a matter of principle, a court ordinarily should not require a foreigner challenging extraterritorial service on him or her to fill a gap in the serving party’s evidence necessary to establish the court’s jurisdiction over the foreigner: see too Stemcor (A/sia) Pty Ltd v Ocean Wave Line SA [2004] FCA 391 at [11]-[14] per Allsop J and the cases he cited. There may be situations, including, for example, ones involving the welfare of a child or person under a disability or the interests of justice, where it may be necessary to consider a departure from this general principle. Another possible exception may arise where a foreigner challenging extraterritorial service refers to a document in an affidavit he or she files but does not annex, exhibit or produce that document for inspection by the other parties when the court’s rules require a document so used to be produced in any event: cf Barach v University of New South Wales [2011] NSWSC 185 at [41]-[42] per Schmidt J. In that situation, the foreigner had an obligation under r 21.10(1)(a) of the Uniform Civil Procedure Rules 2005 (NSW)) (UCPR), when served with a notice under the rule, to produce a document referred to in an affidavit. In addition, r 21.11(1) of the UCPR required a party, unless the Court otherwise ordered, to produce to the other party within a reasonable time, a document or thing referred to in a notice to produce. Schmidt J refused to relieve the foreigner from compliance with a notice to produce the document he had referred to in his affidavit.

22    The Suzlon parties argued that I should follow Schmidt J’s approach. Her Honour considered that in Armacel 164 FCR 123 Jacobson J had taken a different approach to that of Giles CJ Comm D in Lenfest 40 NSWLR 250 to the issue of enforcing a notice to produce served on a foreigner at the time he or she was challenging extraterritorial service on him or her: Barach [2011] NSWSC 185 at [13]. For the reasons I have given, I consider that Jacobson J correctly applied the principle of restraint identified by Giles CJ Comm D. I do not agree with Schmidt J’s obiter view to the contrary. In any event, the earlier decisions and the present case are distinguishable from the situation in Barach [2011] NSWSC 185 where the foreigner voluntarily referred to a document in an affidavit in circumstances where the rules of court then required production of such a document.

23    The Suzlon parties also argued that in Armacel 164 FCR at 125 [12]-[14] Jacobson J erred in distinguishing Lloyd Werft Bremerhaven GmbH v Owners of Ship Zoya Kosmodemyanskaya (1997) 79 FCR 71 at 93D-E. There, Beaumont, Burchett and Lindgren JJ were considering whether jurisdiction had been established under s 19(b) of the Admiralty Act 1988 (Cth) over the owners of a ship that had been arrested as a surrogate ship for general maritime claims that the plaintiff had against three other ships. The plaintiff alleged that all four ships had a common beneficial owner on the date of the arrest. The question of common ownership was a jurisdictional fact that the owners of the arrested ship challenged. The Full Court held that a hearing of that question was final, not interlocutory, and the Court could not dispense with the rules of evidence as it could have on an interlocutory hearing.

24    A ship or res that is arrested in the jurisdiction is not in any analogous position to a foreigner served with court process outside the jurisdiction. A relevant person, such as the shipowners, can choose to enter an appearance by filing a notice of appearance under r 23(2) and in accordance with Form 9 of the Admiralty Rules 1988 (Cth) in a proceeding commenced in rem by an arrest: cf Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 at 538-539 per Gibbs J. Where shipowners come into the forum to challenge, as defendants, the jurisdictional facts on which the power to arrest their ship depends, such as common ownership of the arrested and other ships, the plaintiff must prove any jurisdictional fact on the balance of probabilities in light of all the evidence advanced in that issue: Owners of the Ship “Shin Kobe Maru” v Empire Shipping Company Inc (1994) 181 CLR 404 at 426 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ. There is no equivalent principle or practice of the kind identified in Lenfest 40 NSWLR 250 applicable in a proceeding challenging an arrest of a ship. Nor is there any justification for creating such a principle or practice in arrest proceedings. It follows that I agree with Jacobson J that Lloyd Werft 79 FCR 71 has no relevance to the present issue.

25    The Suzlon parties also relied on what Lander J said in Australian Competition and Consumer Commission v Prysmian Cavi E Sistemi Energia SRL [2011] FCA 938 at [246]-[248], [262]-[263]. There, his Honour accepted that a foreigner seeking to challenge service on it outside the jurisdiction could use the ordinary processes of the Court, including the right to serve a notice to produce, in aid of its challenge. That reasoning does not have any relevance for present purposes because the foreigners on these interlocutory applications are seeking to resist, not use, a notice to produce.

26    Nor do I not accept the Suzlon parties’ argument that the recent enactment of s 37M of the Federal Court Act warrants a new approach to the general principle discussed above. First, it is unlikely that the determination of whether a foreigner has been properly served outside the jurisdiction will be made as quickly, inexpensively and efficiently as possible, if the person who caused the foreigner to be served needs the Court to compel the foreigner to comply with a notice to produce to support its exercise of jurisdiction over him or her. Secondly, s 37M also includes the requirements that the resolution of disputes be just and accord with law. The safeguard provided by the general principle I have discussed is an important incident of the justice of cases involving local assertions of sovereignty over foreigners. I am of opinion that a dilution of that general principle would not be conducive to achieving the overarching purpose of the Court’s civil practice and procedure provisions.

27    It follows that in the present circumstances, each of LB Swiss and Merrill Lynch should not be required to answer the notices to produce served on it, at least until a time after service of the second cross claim on each of them has been confirmed.

(d)    Are the notices to produce too wide?

28    The Banks argued that the notices to produce were too wide, being oppressive or an attempt to obtain discovery. I reject this argument. Each notice to produce seeks documents relating to matters going to the issue of the prima facie case, including matters the subject of expert evidence, on which the Suzlon parties rely. It may also be that those documents could be relevant to the discretion to allow the second cross claim to be repleaded if it were found to be defective. In substance, the notices to produce seek production of the files and accounts of each Bank relating to Mr Sridhar and his associates. The descriptions of the documents sought are typical of those in subpoenas issued daily to banks. While the documents sought in the notices would also be likely to be discoverable, that does not mean that the Banks would have to undertake some burdensome search for evidence. I would not set aside any of the notices to produce on this basis.

(e)    The consequences of a conflict of laws with Swiss banking secrecy laws

29    The central problem now is to resolve the apparent conflict that may develop between each Bank’s positions under Swiss law and Australian law if it is required to produce documents in answer to the notice to produce served on it. Here, Swiss law creates serious criminal offences so as to facilitate its public policy of promoting banking secrecy.

(1)    Swiss Law

30    The Banks relied on an expert report of Michèle Wassmer, a Swiss lawyer whose practice was essentially oriented on Swiss banking law. For the purposes of deciding the issues of Swiss law arising in respect of the notices to produce I have accepted her unchallenged evidence in respect of the aspects of Swiss law summarised below. Swiss banking secrecy is promoted by a number of Swiss laws. The two principal provisions, each creating an offence punishable by up to three years’ imprisonment or a fine, are:

    Art 47 of the Swiss Federal Banking Act; and

    Art 273 of the Swiss Criminal Code.

31    The effect of Art 47 is to prohibit a bank, its present and former employees from disclosing any information in relation to any account that the bank’s present or former client’s have conducted with it. Swiss legislation does not define the precise extent of banking secrecy. However, generally, the obligation created by these two articles prevents disclosure of any information at all that the bank and its employees have obtained in the course of any relationship, even a one off transaction, between it and a client. The secrecy obligation requires the bank and its employees to keep confidential any information obtained in the course of the professional relationship with the client concerning the economic and personal affairs of the client (including the client’s identity and address), and information in relation to third parties and their transactions connected to the client’s affairs.

32    Relevantly, Art 47:

    prohibits a person divulging or inducing another to divulge a secret entrusted to him of which he became aware in his capacity as a management body, employee, agent or liquidator of a bank (Art 47(1));

    provides that the prohibition in Art 47(1) against violation of professional secrecy continues after the termination of any official relationship (between the bank and its client) or employment (Art 47(4));

    provides an exception that if the assistance of Swiss judicial authorities is sought and granted then the Swiss law governing a person’s obligations to testify will apply (Art 47(5));

    has extraterritorial effect, so that a disclosure outside Switzerland by a person in breach of Art 47 is an offence (see Art 8 of the Swiss Criminal Code, made applicable by Art 47(6)).

33    Next, Art 273 relevantly prohibits a bank, its officers and employees from disclosing confidential information to foreign judicial authorities. It also operates extraterritorially. Article 273 is intended to prevent infringements of Swiss sovereignty by foreign authorities using coercive powers to obtain information contrary to Swiss law and to protect Swiss economic interests. There are three exceptions to the general prohibitions in Art 47 and Art 273, namely, where:

    the client has consented freely to the disclosure;

    the disclosure is made in testimony to Swiss judicial authorities acting pursuant to a request for assistance that has been granted (Art 47(5));

    the disclosure is made by a person who is in a state of necessity, as defined in Arts 17 and 18 of the Swiss Criminal Code. Those provisions exculpate a person who commits what would be an offence because he or she is confronted by an imminent danger to himself or herself or another that is impossible to avoid otherwise than by so acting.

34    Ms Wassmer explained that Swiss courts take a strict view of the state of necessity exception. She illustrated this with a decision of the Court of Appeals of the Canton of Basel of 24 April 2009 that affirmed a conviction of a Swiss national for contraventions of Art 47 and Art 273. He had divulged information to German authorities while imprisoned in order to obtain a shortening of his sentence there. The Court of Appeals held that although the defendant had been under pressure to make disclosures to the German authorities, he had preferred to serve his own interests (to achieve a shorter sentence) by doing so, without an actual necessity existing that required him to make the disclosure.

35    Article 271 of the Swiss Criminal Code creates a criminal offence, punishable by up to three years’ imprisonment or a fine, for certain conduct by or on behalf of foreign States on Swiss territory that, in substance, infringes Swiss sovereignty. Article 271 prohibits anyone without authorisation from performing, or aiding or abetting the performance of, “acts for a foreign State” on Swiss territory that are “reserved to an authority or an official”. Ms Wassmer explained that when Art 271 refers to an act reserved to an authority or official, it comprehends a range of official actions such as taking written or oral evidence for foreign legal proceedings, arresting a person or undertaking police investigations. She referred to a decision of the Swiss Federal Court that found that a Swiss lawyer had contravened Art 271 in his office premises by taking evidence from witnesses for use in foreign legal proceedings.

36    Ms Wassmer gave examples of a number of submissions by the Government of Switzerland to courts in the United States of America as to the effect of orders made by those courts for Swiss banks operating there to disclose information that was governed by Swiss banking secrecy laws. She noted that the Swiss Embassy in Washington in 1983 had informed the Department of State that Switzerland regarded the case known as the St Joe Minerals decision (Securities and Exchange Commission v Banca della Svizzera Italiana 92 FRD 111 (1981: SDNY)) as being contrary to the principles of international law.

37    In that case, a United States District Court had ordered a Swiss bank to give discovery in proceedings brought by the Securities and Exchange Commission for violations of the United States legislation in respect of trading on a securities exchange. Milton Pollack J held that the then analogue of Arts 17 and 18 could provide a state of necessity defence to the bank if it complied with the order for discovery: St Joe Minerals 92 FRD at 118. Pollack J had indicated that he would order disclosure by the bank and enforce this with severe contempt sanctions. After the judge gave that indication, the Swiss bank obtained a waiver of its customer’s right to confidentiality and was thus able to comply with the order of the District Court. The Swiss Government later contended to the Department of State that the principles of international law prevented the District Court from creating a state of necessity that compelled individuals to commit breaches in Switzerland of its banking secrecy laws and that the judge had been wrong to hold to the contrary.

38    Subsequently, in 2009 the Swiss Government appeared as an amicus curiae in proceedings brought by the United States against UBS AG, a Swiss bank, in the United States District Court for the Southern District of Florida, Miami Division. Once again, Switzerland contended that the taking of evidence in its territory was an act of sovereignty exercisable only by its judicial authorities. It argued that an attempt by foreign authorities, such as the District Court, to compel the release of information from Switzerland without the participation or consent of its Government would be an infringement of Swiss sovereignty.

39    Ms Wassmer opined that an appropriate method for seeking the production of documents by the Banks would be through the Court using a letter of request to the Central Authority of Switzerland under Art 9 of the Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, done at The Hague on 18 March 1970: [1992] ATS 37. She noted that both Australia and Switzerland were parties to that Convention and that the Swiss authorities could act on a request under it to require production of documents within the exception contemplated in Art 47(5) of the Federal Banking Act.

(2)    The effect of Swiss banking secrecy laws

40    In the present circumstances, the Suzlon parties opposed the Banks’ applications to be relieved from answering the notices to produce based on the effect of Swiss law. The documents called for in each notice are highly likely to be held by the Banks in Switzerland. The Suzlon parties suggested that electronic documents could be kept on a server that is not in Switzerland. That suggestion is speculative and there is no evidence to support it. I am not satisfied that any officer of any of the Banks could access outside Switzerland, including from any server, any record sought in the notices to produce.

41    Ms Wassmer’s evidence of Swiss law suggests that there is a strong likelihood that if the Banks are required by this Court to answer the notices to produce, they, and the officers in Switzerland who assist in the production of documents, would breach Art 47 and or Art 273. That raises the question of what is each Bank to do? Should it obey this Court’s requirement in r 30.28(3) to produce the documents, or risk incurring a sanction, such as its interlocutory applications being dismissed and judgment being entered against it (see e.g. rr 5.22(a), 5.23(2), 1.32 and s 37P of the Federal Court Act)? And, if it does comply with the notice to produce, the Bank will be likely to have committed serious criminal offences in Switzerland, the place of its head office. As Lehane J said in Australian Securities Commission v Bank Leumi Le-Israel (Switzerland) (1996) 69 FCR 531 at 552G, Lockhart and ML Foster JJ agreeing:

“… it is no light matter to enforce Australian laws in circumstances which infringe the legislative policies of other countries …”

42    His Honour made clear that the Court retained a discretion to refuse specific relief if, by granting that relief against a person, he or she would be compelled to breach the law, including a foreign law: Bank Leumi 69 FCR at 545B-C; see too Bank of Valletta plc v National Crime Authority (1999) 164 ALR 45 at 57 [48], 59 [55] per Hely J, affirmed by the Full Court in Bank of Valletta plc v National Crime Authority (1999) 90 FCR 565 at 567 [10] per Wilcox, Whitlam and Lehane JJ. This reflects an important aspect of international law, namely, the caution or self restraint exercised ordinarily by one sovereign power in respect of the governmental powers of a foreign sovereign over who and what is in that foreign sovereign’s territory. In CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 at 395-396, Dawson, Toohey, Gaudron, McHugh, Gummow and Kirby JJ quoted with approval the following passage in which the Supreme Court of the United States explained this aspect of “comity” (Hilton v Guyot 159 US 113 (1895) at 163-164 per Gray J):

“ “Comity”, in the legal sense, is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and good will, upon the other. But it is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.”

43    The following principles of international law have been developed by English courts to avoid the risk of jurisdictional conflicts in respect of attempts to use court processes to obtain documents from international banks. I am of opinion that these principles are appropriate to apply in the present matter. I have taken the principles from obiter dicta in Société Eram Shipping Co Ltd v Cie Internationale de Navigation [2004] 1 AC 260 at 274-275 [22]-[23] per Lord Bingham of Cornhill, 286-287 [67] per Lord Hoffmann, with whom Lord Nicholls of Birkenhead at 277 [31], Lord Hobhouse of Woodborough at 287 [70] and Lord Millett at 299 [113], agreed. The principles are:

    save in exceptional circumstances, an order should not be made by a court in the forum to compel a bank to produce books or records held by it in a branch or office outside the forum; and

    a State (including courts exercising its judicial power) should refrain from demanding obedience by foreigners to its sovereign authority in respect of their conduct outside the jurisdiction.

44    Their Lordships approved the reasoning of Lord Denning MR, Shaw and Oliver LJJ in Reg. v Grossman (1981) 73 Cr App R 302 at 308-309 and Hoffmann J in Mackinnon v Donaldson, Lufkin and Jenrette Securities Corpn [1986] Ch 482. As Lord Bingham pointed out ([2004] 1 AC at 274 [22]), Hoffmann J in Mackinnon [1986] Ch at 493C-D identified a distinction between “personal jurisdiction, i.e. who can be brought before the court” and “subject matter jurisdiction, i.e. to what extent the court can claim to regulate the conduct of those persons”. In that case, a plaintiff obtained an order against an American bank in an English proceeding and served it on the bank’s London office requiring production of the bank’s books and papers held in its New York head office. Hoffmann J said ([1986] Ch at 493G-H):

“In principle and on authority it seems to me that the court should not, save in exceptional circumstances, impose such a requirement upon a foreigner, and, in particular, upon a foreign bank. The principle is that a state should refrain from demanding obedience to its sovereign authority by foreigners in respect of their conduct outside the jurisdiction.” (emphasis added)

45    His Lordship elaborated on the basis of the above principle of self-imposed limitation upon the sovereign authority of a State ([1986] Ch at 494 C-E) as follows:

“The need to exercise the court's jurisdiction with due regard to the sovereignty of others is particularly important in the case of banks. Banks are in a special position because their documents are concerned not only with their own business but with that of their customers. They will owe their customers a duty of confidence regulated by the law of the country where the account is kept. That duty is in some countries reinforced by criminal sanctions and sometimes by "blocking statutes" which specifically forbid the bank to provide information for the purpose of foreign legal proceedings: compare section 2 of our Protection of Trading Interests Act 1980. If every country where a bank happened to carry on business asserted a right to require that bank to produce documents relating to accounts kept in any other such country, banks would be in the unhappy position of being forced to submit to whichever sovereign was able to apply the greatest pressure.”  (emphasis added)

46    Hoffmann J had drawn on what Lord Denning MR said in Grossman 73 Cr App R at 307-308, namely, that while the English courts had jurisdiction to order the head office of a bank in London to produce books held in a branch in a foreign jurisdiction, the Isle of Man, that should not occur as a matter of discretion. Shaw LJ agreed and Oliver LJ, in a passage quoted by Hoffmann J, came to the same conclusion. And, pertinently, Hoffmann J said ([1986] Ch at 496D-E):

“The nature of banking business is such that if an English court invokes its jurisdiction even over an English bank in respect of an account at a branch abroad, there is a strong likelihood of conflict with the bank's duties to its customer under the local law. It is therefore not surprising that any bank, whether English or foreign, should as a general rule be entitled to the protection of an order of the foreign court before it is required to disclose documents kept at a branch or head office abroad.”

47    I do not consider that the principles identified by their Lordships are affected by the circumstance that in those cases each of the banks was served as a non-party with a subpoena: see too Bank of Valletta 164 ALR at 59 [55].

(3)    The impact of Swiss banking secrecy laws

48    The fact that Credit Suisse has a branch in Australia is not relevant for the purpose of considering whether the notice to produce served on it should be set aside or not enforced. The head office of Credit Suisse in Switzerland is the place where its books and papers that may be relevant to answer the notice to produce are kept. That office is governed by Swiss law: Mackinnon [1986] Ch at 493G-H. Accordingly, the same considerations apply in respect of each Bank in relation to setting aside or not enforcing the notices to produce.

49    The notices to produce require each Bank to produce to the Court books and records that are located in its Swiss offices. The notices use the authority of this Court, through the new Rules, to compel, albeit not as an order of the Court, obedience to the requirement that the Banks, through their officers or employees, gather the documents called for in their Swiss offices and cause them to be produced to the Court in Australia. If the Banks fail to produce the documents in their possession called for in the notices to produce when they are returnable, they will be in default. That would be because they disobeyed the requirement or command in r 30.28(3) that “the party served with the notice must produce the document or thing in accordance with the notice”.

50    I am satisfied that if the Banks were to comply with r 30.28(3) and produce the documents called for, there is a serious likelihood that they and their employees who participated in collecting and providing the documents, would contravene Art 47(1) of the Swiss Federal Banking Act and or Art 273 of the Swiss Criminal Code. First, it is likely that under Swiss law any Bank employee who collected and provided such documents would divulge information concerning its customer and, possibly, third parties, gained in the course of a present or past relationship with the Bank, contrary to Art 47. Secondly, it is likely that under Swiss law, each Bank, and any employee who assisted it, would contravene Art 273 by disclosing confidential information, in the sense of information protected by Swiss banking secrecy laws, to this Court if the documents were produced in answer to the notices to produce: cf Adsteam Building Industries Pty Ltd v Queensland Cement and Lime Company Ltd (No 4) [1985] 1 Qd R 127 at 143 per McPherson J who came to a similar view of the effect of Art 273, although on different evidence as to Swiss law.

51    It is a fundamental principle of the Australian common law that, in the absence of a statutory exception, a person cannot be compelled to incriminate himself or herself. Toohey, Gaudron, McHugh and Gummow JJ held in Reid v Howard (1995) 184 CLR 1 at 14 that there is simply no scope for an exception to the privilege against self-incrimination, other than by statute. While the Evidence Act 1995 (Cth) provides some safeguards for persons who are compelled under ss 128 and 128A of that Act to respond to questions the answers to which may incriminate them, those safeguards would be of no avail to anyone defending charges of contravening Art 47 or Art 273 in a Swiss court. And, as Lehane J said in Bank Leumi 69 FCR at 545C:

“It is, in general terms, unexceptionable, as an exercise of discretion, to refuse specific relief if that relief would compel a breach of the law: see, eg, Pottinger v George (1967) 116 CLR 328 at 337. Indeed, in Rowell v Pratt [1938] AC 101 at 106, Lord Wright said bluntly that a judge "cannot compel a man to commit a criminal offence". I cannot think it is a wrong exercise of discretion to take into account that specific relief, or relief having a similar practical effect, may compel conduct which is in breach of foreign law; thus I think that the judge was right in having regard to Swiss law in considering the appropriate remedy.”

52    The Suzlon parties argued that the state of necessity defence under Arts 17 and 18 of the Swiss Criminal Code would protect the Banks, their officers and employees from any prosecution. I reject that argument. As I have found, Swiss law does not accept that compliance with requirements of foreign authorities, that involves conduct either within Switzerland or outside it, falls within the scope of this defence. Moreover, Art 271 reinforces the evident public policy of Swiss law that foreign authorities, including courts, should not be able to cause persons in Switzerland to breach Swiss law involving banking secrecy, as would occur if compliance with the notices to produce were enforced in these proceedings. The Swiss Government has also asserted that this is indeed the effect of its banking secrecy laws.

53    The Suzlon parties also argued that some of the confidential material they seek in the notices to produce has already been accessed and used by them, such as materials they obtained, pursuant to subpoenas, from Mr Sridhar’s email account. They contended that there was no objection by Mr Sridhar to this course and he could thus be taken not to insist on keeping the material confidential.

54    That argument fails because, on the evidence, there are only three exceptions to the prohibitions against disclosure in Art 47 and Art 273. To the extent that the Suzlon parties already have copies of documents caught by the notices to produce, it is not presently necessary to require the Banks to produce further copies in circumstances where there is still a substantial risk that they and their employees would commit criminal offences in Switzerland by doing so. To the extent that the notices seek other documents to which the Suzlon parties have not yet had access, there is no basis to infer that they have ceased to be confidential or protected by Swiss banking secrecy laws. Mr Sridhar is in jail in India and I would not infer his silence in these proceedings as signifying his consent to any lifting of whatever protection or benefit he may have by reason of Swiss banking secrecy.

Conclusion

55    It follows from what I have said above that I am satisfied that, on the present evidence, I should not require the notices to produce to be answered for the moment. It may be necessary to reconsider this depending on how the hearing of the interlocutory applications challenging service, the appropriateness of Australia as a forum and the pleading of the second cross claim proceeds.

56    While I am satisfied that the Banks would be at risk of contravening Swiss law if they were ordered to produce the documents called for, the parties have not addressed the question of what, if any, forensic consequences would flow from an order relieving the Banks of any obligation to produce documents by reason of Swiss banking secrecy laws should it become appropriate for the Suzlon parties to call again on the notices during the hearing of the interlocutory applications or they remain parties to active proceedings in this Court after those applications have been determined: cf Bank of Valletta 90 FCR at 566-567 [9]-[10], 569 [17]. It may be that the Suzlon parties will contend that the Banks be treated, although excused from production, as if they had not answered the notices to produce for the purposes of r 30.28(2).

57    Accordingly, I will order that the Banks need not produce documents in answer to the notices to produce until further order: cf Lenfest 40 NSWLR at 262-263. The Suzlon parties should pay the Banks’ costs of the interlocutory applications to set aside, or excuse compliance with, the notices to produce.

Associate:

Dated:    7 October 2011

SCHEDULE

SECOND CROSS CLAIM

NSD 1670 of 2008

BETWEEN:

SUZLON ENERGY LTD

First Cross Claimant

SUZLON ENERGY AUSTRALIA PTY LTD

Second Cross Claimant

SUZLON INFRASTRUCTURE LIMITED (NOW KNOWN AS SYNEFRA ENGINEERING & CONSTRUCTION LTD)

Third Cross Claimant

SUZLON WIND ENERGY CORPORATION, USA

Fourth Cross Claimant

SUZLON STRUCTURES LTD

Fifth Cross Claimant

SE SHIPPING PTE LIMITED

Sixth Cross Claimant

AND:

SANJEEV BANGAD

Third Cross Defendant

SS OCEANWIND PTE LIMITED

Fifth Cross Defendant

GENUS SHIPPING SERVICES PVT LIMITED

Sixth Cross Defendant

RAJAGOPALAN SRIDHAR

Seventh Cross Defendant

BLUEWIND ENTERPRISES (UK) PTY LTD

Eighth Cross Defendant

SUNSHINE TRADE SERVICES LIMITED

Ninth Cross Defendant

S RAAM KUMAR

Tenth Cross Defendant

BIP HOLDINGS LIMITED (BC# 1419807)

Eleventh Cross Defendant

MANNING LIMITED (BAHAMAS COMPANY NO 15633)

Twelfth Cross Defendant

FRANKFURTER BANKGESELLSCHAFT (SCHWEIZ) AG (A SWISS COMPANY)

Thirteenth Cross Defendant

MERRILL LYNCH BANK (SUISSE) SA (A SWISS COMPANY)

Fourteenth Cross Defendant

CREDIT SUISSE AG (A SWISS COMPANY)

Fifteenth Cross Defendant