Phoenix Meridian Equity Limited v Lyxor Asset Management S.A and Scotiabank and Trust (Cayman) Limited

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IN THE GRAND COURT OF THE CAYMAN ISLANDS
CAUSE NO. 311 OF 2007
BETWEEN PHOENIX MERIDIAN EQUITY LIMITED
[A company incorporated under the laws of the
Cayman Islands]
AND
L YXOR ASSET MANAGEMENT S.A.
(a wholly owned subsidiary of
SOCIETE GENERAL E)
PLAINTIFF
[A company incorporated under the laws of France]
AND
SCOTIABANK & TRUST (CAYMAN) LIMTED
[A company incorporated under the laws of the
Cayman Islands]
IN CHAMBERS
BEFORE THE HON. CHIEF JUSTICE
The 3RD AND 6TH APRIL AND 22ND MAY 2009
1ST DEFENDANT
2ND DEFENDANT
APPEARANCES:
Mr. Colin McKie and Mr. Pennay of Maples and
Calder for the 1 st defendant
Mr. Graeme Halkerston and Ms. Hudson of Appleby
for the plaintiff
RULING
1.
This is an application by the first defendant ("Lyxor") for injunctive relief
restraining the plaintiff ("Phoenix") from continuing proceedings in the United
States instituted by Phoenix and in which certain persons resident in the United
States would be compelled to give depositions.

2.
Those persons are Samuel Rosenberg and Anthony Phlipponneau or any other
officer, director, managing agent or employee of SG Americas Securities LLC
("SGAS"), resident in the United States. SGAS is an affiliate entity of Societe
Generale ("Soc. Gen") and is incorporated in and operating in the United States.
3.
The background is as follows.
4.
Phoenix sues Lyxor in these proceedings before this COU1i in respect of what
Phoenix claims is the full value of its investment in a group of Phoenix
Investment Funds administered by Lyxor.
5.
The dispute is over the sum of approximately $100 million which Lyxor claims it
is entitled to withhold on behalf of its parent Soc. Gen. This large sum is in
respect of what Soc. Gen now claims as an "undisclosed margin" or profit to
which it is entitled for its part as investment advisor and leverage financier to the
Phoenix Funds.
6.
Lyxor's claim on behalf of Soc. Gen has only recently been clarified in the
pleadings. Until then, it was rather differently pleaded in terms of a penalty or
levy which Soc. Gen was entitled to impose because of Phoenix's early
redemption of its investments.
7.
Not surprisingly, Phoenix seeks to examine every aspect of Soc. Gen's claim and
has required, through the discovery process, full and frank disclosure of any
information in Lyxor's possession or control relating to Soc. Gen's claim. Lyxor
has provided extensive witness statements and/or affidavits from Mr. Rosenberg
in particular, in support of its discovery.
8.
A complicating feature of the case is that while Lyxor asserts the claim on behalf
of its principal Soc. Gen, the relevant institutional information is held by Soc. Gen
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which is itself not a party to this action. And, while Lyxor claims to have made
full and frank disclosure, the issues which Phoenix seeks to explore by way of the
depositions in the United States, are matters within the knowledge of Messrs.
Rosenberg and Phlipponneau (and perhaps others) who are officers of.SGAS (and
in the case at least of Mr. Rosenberg), of Soc. Gen itself; but not of Lyxor.
9.
That being the nature of the inter-relationships, the witnesses Rosenberg and
Phlipponneau are not immediately amenable to the process by which this Court
can compel officers of companies, which are parties to proceedings before it, to
submit to oral interrogation by way of discovery; that is:
Grand Court Rules
Order 24 Rule 16.
10.
Phoenix has therefore resorted to the discovery process available by way of notice
under Section 1782 of Title 28 of the United States Civil Procedure Code. By that
process Phoenix seeks to depose Messrs. Rosenberg and PhlippOlmeau on a wide
range of 11 separate topics relating to Soc. Gen' s business as investment adviser
and financier, not just of Phoenix Funds, but also - to the extent relevant to Soc.
Gen's claims - relating also to Soc. Gen's dealing with other clients.
11.
Phoenix argues that it should be allowed to pursue the depositions of Messrs.
Rosenberg and Phlipponneau because Lyxor has significantly changed its case in
a manner which is inconsistent with the earlier sworn affidavit of its chief witness
Mr. Rosenberg and that the deposition of Mr. Rosenberg and his colleague Mr.
Phlipponneau, will provide significant "litigation benefits" to Phoenix (and it is
hoped this Court) in the trial to take place here in this action.
12.
Lyxor objects to the Title 28 depositions on the grounds of oppression and
prejudice.
On its behalf, Mr. McKie argues that as Messrs Rosenberg and
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Phlipponneau have both given witness statements in these proceedings and will be
attending to testify at the trial, the proposed depositions are unconscionable for
three main reasons:
(i)
They will subject Mr. Rosenberg and Mr.
Phlipponneau to
unwarranted double cross-examination and the trial in this Court will
suffer from that unwarranted duplication. Such interrogation of the
proposed witnesses would be oppressive and could discourage them
from attending for trial out of concern for being submitted to the same
process agam.
(ii)
The parties are working flat out to prepare for this complex trial, albeit
,
now postponed from May 2009 to September 2009. It is unnecessary
and undesirable for there to be the distraction of depositions.
(iii)
The area of enquiry defined by the 11 topics is far too broad and
intrusive.
13.
Phoenix's surnn10ns now before me, by which it seeks to restrain Lyxor from
pursuing the Title 28 depositions, raises an impOliant issue of Cayman Islands
Civil procedure. This is whether the Cayman COUlis should intervene to prevent
depositions in the United States ordered by the United States court to be given by
deponents who are residents there and where the deponents are potential
witnesses in a Cayman action in respect of which it is clear that the Cayman Court
is the only appropriate forum for the ultimate trial of the action.
14.
While the case law on this point has developed in other places in the
Commonwealth, it is a point of first impression for this Court; the question
whether an anti-suit injunction should be issued to restrain foreign proceedings
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having been reported to have arisen before only in the context of cases where
there were disputes over the forum conveniens. See In Re Cotorro Trust 1997
CILR 1; Lemos v Coutts and Co. (Cayman) Ltd. 1992-;93 CILR 460 and Vni/ever
PLC v ABC International 2008 CILR 87. (In the first two of those cases, the
foreign proceedings were restrained on the basis that Cayman was the proper
forum. In the Vnilever case, arbitration proceedings in Paris were restrained on
the basis that the defendant, ABC International, a Cayman Islands company, was
seeking vexatiously to compel the plaintiff to submit to those arbitration
proceedings) .
15.
In the context of this application there are competing discernible issues of
principle involved.
Unlike the position in many other Commonwealth
jurisdictions including England; Cayman civil procedure does allow - pursuant to
OCR O. 24 R. 16 - oral discovery by way of depositions prior to trial. This is
however, as already noted limited to officers of companies which are parties to
proceedings before the Court. So while it may not be said that Cayman law is
hostile to witnesses being cross-examined prior to trial, such a procedure remains
unusual. No case concerning this procedure has been repOlted since O. 24 R. 16
. was amended in September 2003 to allow it.
16.
0.24. R.16 apart, there is, generally, no power by which the Cayman courts on
behalf of patties to actions before it, can compel persons who are not patties to
give a full measure of pre-trial discovery. That is: where discovery includes both
the disclosure and production for inspection and copying of documents, as well as
the giving of oral or written testimony. In this regard, Cayman law and procedure
5

differs essentially from that of several foreign jurisdictions, including the United
States.
17.
This Court must therefore be alive to natural concerns of practitioners about the
possibility of such pitfalls as duplication of effort and oppression arising from the
use of pre-trial depositions. These are considerations which are identified by
Lyxor here as militating against the Title 28 proceeding from the perspective of
the Court in ways which, perhaps, would not trouble the United States or other
foreign courts where such pre-trial depositions are routine.
18.
But the further issue of principle is the other side of the com:
it raises the
question to what extent is it desirable or appropriate, that a party to litigation
,
before our Courts, should be prevented from availing itself of a statutory right
which it may have under foreign law (here United States Federal law), to apply
for an order that persons resident in the foreign jurisdiction who are themselves
not parties to the action before this Court, and so not amenable to its process,
should give pre-trial discovery by way of deposition evidence relevant to the
issues in dispute before this Court.
19.
Framing the competing issues of principle in this way brings into stark relief the
competing and equally important concerns which must be considered. It is plain
from the outset, that where a party has a right to avail itself of a legitimate foreign
process, there must be a very compelling reason to prevent it from doing so -
something more than just the philosophical differences of approach to litigation
existing between jurisdictions.
20.
The way in which the English cOUlis have come to terms with the problem is, as
ever, of high persuasive value.
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21.
Dicta from the leading case of South Carolina Insurance Co. v Assurantie
Maatshappij "De Zeven Provincia" N. V. [1987J AC 24 HL. sets the now
classical framework for the consideration of the principles (per Lord Brandon at p
40 C-E):
" .. . the power of the High Court to grant injunctions is, subject to
two exceptions to which I shall refer shortly, limited to two
situations. Situation (1) is when one party to an action can show
that the other party has either invaded, or threatens to invade, a
legal or equitable right of the former for the enforcement of
which the latter is amenable to the jurisdiction of the court.
,
Situation (2) is where one party to an action has behaved, or
threatens to behave, in a manner which is unconscionable. "
22.
And at p 41 letter D:
"It is difficult, and would probably be unwise, to seek to define
the expression "unconscionable conduct" in anything like an
exhaustive manner. In my opinion, however, it includes, at any
rate, conduct which is oppressive or vexatious or which
interfered with the due process of the Court. "
23.
Here Lyxor, for the reasons already summarized above, does not rely on what
Lord Brandon describes as situation (1) but rather on situation (2).
24.
I will come below to more fully examine the arguments, but before so doing there
are further points of principle relevant to this application which may be gleaned
from Lord Brandon's speech from pages 41-43 .
They are conveniently
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summarized also in Nokia Corporation v Interdigital Technology Corporation as
adopted and applied by Pumfrey J (at para. 25 [2004] EWHC 2920):
"ea)
The English courts do not, in general, exercise any
control over the way in which a party obtains the evidence
which it needs to present to support its case ... "
[(and directly from Lord Brandon at p 41-42:
"Subject, however, to the help of the court in these
various ways [e.g. pursuant to Orders 24 and 38], the
basic
principle
underlying
the
preparation
and
presentation of a party's case in the High Court is that it
is for that party to obtain and present the evidence which
he needs by his own means, provided always that such
means are lawful in the countJy in which they are used. "]
"(b)
If a third party voluntarily assists a party by providing
evidence, there can be no objection to that evidence being
gfused by the party. The provision of material in this way
does not interfere with the court's control of its own
process.
(c)
Consequently, by exercising a right potentially available
to it under US law to obtain documents or evidence from
a third party, a party to litigation is not departing from or
interfering with the procedure of the English [(Cayman)]
court . ...
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(e)
It is for the US court hearing the 1782 appLication to
decide upon the merits of the application under US Law
and to determine the nature and scope of the relief to be
granted. The fact that a party is enabLed by exercising
those rights to obtain documents and evidence which
wouLd not otherwise be availabLe to it is not a ground for
interference by the English court. "
25.
With those ground rules in mind, the main question ansmg m the present
application is the question whether to allow the Title 28 deposition to proceed
would be "unconscionable" within the meaning identified by Lord Brandon's
situation (2).
26.
Mr. Halkerston on behalf of Phoenix refutes the suggestion of unconsionableness.
He emphasizes the fact that as neither Messrs. Rosenberg nor Phlipponneau is an
officer of Lyxor, Order 24 Rule 16 cmIDot be invoked by this Court in aid of
Phoenix's quest for information. He argues that there are several significant and
legitimate litigation reasons why Phoenix wishes to seek depositions from those
witnesses as officers of SGAS/Soc. Gen. These include:
(a)
Identifying how Lyxor's/Soc. Gen's valuation process of the Phoenix
Funds operated for the purpose of assisting Phoenix' expert witnesses to
complete their reports for the trial. As Lyxor's witnesses have had access
to Soc. Gen's witnesses and processes in compiling their evidence,
Phoenix should have the mutual benefit of access for the preparation of its
expert evidence. This access is said to be confined only to certain levels
of seniority of internal control at Soc. Gen.
9

(b)
Given the degree of urgency which attended the preparation for this trial
when the Title 28 proceedings was first instituted, exacerbated by the
recent and important amendment to Lyxor's defence; the taking of
depositions would be less prone to delay than the alternative means of
written interrogatories available through this Court's process. The taking
of depositions . would allow for the "drilling down" several levels of
questions in one day which would take several weeks, if not months, in the
interrogatories process pursuant to GCR Order 26 and would also save the
additional costs and Court time likely to be taken by the interrogatories
process.
(c)
Identification of the witnesses and documentation which would assist the
case. For example, the identification of other clients of SGAS/Lyxor who
may be expected to have had similar issues with this type of product
because Lyxor and Soc. Gen rely on market practice for the implication of
the right to charge the undisclosed margin. Finding this information out at
the trial in live evidence will not allow Phoenix the chance effectively to
marshall this further evidence before the Court.
(d)
Identifying the interaction between SGAS/Soc. Gen and third parties
involved in the Phoenix deal, particularly m relation to certain
"kickbacks" which were allegedly paid.
(e)
Identifying how the SGAS/Soc. Gen/Lyxor audit process was conducted
and the information which was or which was not available to PWC, the
auditors of the Funds.
10

27.
Lyxor's complaint, that the Title 28 depositions would be merely duplicative of
the testimony to be given at the trial, must be viewed in the context of what it is
that Phoenix hopes to achieve by the depositions.
28.
It is acknowledged by Lyxor that Messrs. Rosenberg and Phlipponneau are indeed
the officers who are privy to the kind of information to be elicited. While the
scope of the 11 issues is criticized for being too wide, there is no denial of their
general relevance to the trial.
29.
As the depositions are to be regarded as part of the discovery process - a concept
not yet readily embraced by Cayman lawyers - they may not be restrained simply
for being duplicative in and of themselves.
30.
Moreover, on the basis Of the South Carolina principles, and bearing in mind that
GCR Order 24 Rule 16 provides for pre-trial discovery by way of depositions, I
may not proceed on the basis that Cayman law regards double-cross-examination
as being, in and of itself, an abuse. Indeed, it is worth noting here again, that it is
well established that for the purposes of eliciting full answers to written
interrogatories, witnesses can be submitted to pre-trial cross-examinations, limited
though that may be. See GCR 0 26 R 5(2).
31.
While it has been intimated that Messrs. Rosenberg and Phlipponneau may be
daunted or discouraged by the Title 28 process from coming to testify again at the
trial, Mr. McKie did not positively assert that that would be so. Such an assertion
- given their seniority within SGAS and their importance as witnesses to Lyxor's
case - would be surprising to say the least.
32.
The fact that they remain amenable to giving evidence before this court does not,
however, diminish the concerns about unconsionableness.
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33.
There are proper concerns over the proportionality of what is sought by Phoenix
when compared to the obvious inconvenience, costs and potential oppressiveness
of the Title 28 deposition especially if framed as widely as proposed.
34.
Messrs. Rosenberg and Phlipponneau have both given extensive witness
statements (and/or affidavits) in this case and are required to attend the trial which
is now postponed from this month to September 2009.
35.
Between now and then, there is, arguably, time enough for Phoenix to be able, by
the written interrogatories process available through this COUli, to elicit the sworn
information which it may properly require to complete the discovery process
before the trial.
36.
Accordingly, while I am sympathetic to Phoenix' concern at having been met
with what it describes as the volle face of Lyxor's change of defence, that
circumstance must be weighed against allowing Phoenix to unleash the full brunt
of the Title 28 process against key witnesses upon whom Lyxor must rely for its
defence. The Title 28 process, if allowed to go unchecked, could result in the
kind of real forensic unfairness which was perceived by the English courts in
comparable circumstances in Omega Group Holdings Ltd. v Kozeny and
Benfield [2002} CLC 132 and Benfield Holdings Ltd. v Aon Ltd. [2007} EWHC
171.
37.
I have particularly in mind, as did Justice Langley in Benfield Holdings (at para.
23) that English (Cayman) procedures provide for proofs of witness statements or
affidavits which must contain the truthful account of evidence which witnesses
may give orally. Evidence to be relied upon must be disclosed beforehand in
statements or affidavits. Thus, Phoenix must be told just what evidence it is that
12

Lyxor relies upon for its (and Soc. Gen's) defence.
Like any other litigant,
Phoenix should be able to prepare for cross-examination by reference also to the
documentary disclosure which has been given.
If gaps in the evidence appear,
Phoenix should be able to put specific interrogatories to Lyxor requiring binding
responses or may put requests for specific further disclosure of documentary
evidence.
38.
In other words, it seems to me that I am obliged to consider whether a comparable
forensic objective to that sought by the Title 28 process, can be achieved by
means of the ordinary process of this Court without exposing the witnesses to
what is perceived to be the potential inconvenience, costs and oppres~ion of the
Title 28 process. The mere fact that witnesses have committed their positions to
witness statements is not in and of itself a bar to Title 28 depositions. The
question is whether there are proper concerns about vexatiousness and oppression.
39.
However, the United States courts are shown to be alive to such concerns. They
have the power to control the scope. They have determined that it must ordinarily
be a matter for them to control their own process. See Intel Corp. v Advanced
Micro Devices Inc. 542 U.S. 241 (2004). In the same vein, the United States
court will also be able to determine the extent, if at all, to which the application
should be curtailed for being "fishing" - another objection raised by Lyxor .
40.
And while the United States courts have no separate direct interest in the
application itself or the outcome of the proceedings in the Court to be assisted by
them, I may not proceed on the basis that they might fail to protect the witnesses
from oppression. The evidence on United States law indicates that very similar
13

objections to those raised by Messrs. Rosenberg and Phlipponneau before this
Court as to oppressiveness can be raised before the United States court.
41.
Mr. McKie, in his usual careful arguments, also points out - as was observed in
Intel- that where the parties to a Title 28 proceeding are the same as those in the
foreign proceedings, the need for assistance is not as apparent as it is when
evidence is sought from a non-pmiicipant in the matter arising abroad, when the
foreign tribunal can itself decide whether to order the parties to produce evidence.
42.
This view of the approach likely to be taken by the United States Court has been
recognised as a factor to be considered by the English courts when deciding
whether to injunct deposition proceedings: see Nokia (above, at para 22(i)).
,
43.
However, the involvement of Messrs. Rosenberg and PhlippOlmeau in these
proceedings as key witnesses on behalf of Lyxor seeking to advance what is
ultimately Soc. Gen's case, but being themselves not amenable to the process of
this court as officers ' of Soc. Gen, is a circumstance of a different kind. Treating
them as parties who are fully amenable as contemplated by the Intel case would
not be a realistic approach to take. Yet this is a premise upon which Lyxor bases
its objection to Phoenix's Title 28 application. It is, I conclude, a false premise.
44.
It was also proposed in the arguments that without Lyxor having the reciprocal
ability to examine Phoenix' witnesses, the Title 28 procedure must be inherently
unfair. While there is no case law authoritatively to that effect, one may accept
that, in broad terms, "equality is equity".
45.
In accepting this, Mr. Halkerston did offer that Phoenix' main factual witness - its
principal and director Mr. AI-Ibrahim - would make himself amenable, pursuant
to our local Order 24. R. 16.
14

46.
As Title 28 would not apply to him because he is not a resident of the United
States, that offer of reciprocity under Order 24. R. 16 can hardly be described as
unreasonable.
47.
In conclusion, I am not satisfied that Lyxor has established the threshold test of
unconscionability for the grant of the injunction so as to override Phoenix'
legitimate right to invoke the Title 28 procedure. On balance, in the exercise of
discretion, I therefore refuse the order for the injunction.
May 22 2009
15