The connection between some Pacific islands, emails, and Bernie Madoff’s Ponzi scheme may not seem obvious, but the golden thread running through this web is something lawyers call discovery.
These Pacific islands are an unlikely setting for Desert Island Discs , as they were covered in 15-metre-deep deposits of guano (seabird excrement), containing high levels of nitrogen, phosphate, and potassium from the seabirds' fishy diet.
Enormous demand in the 19th century for this fertiliser led to a war, and to a case before the court of appeal in London.
A dispute arose between two companies as to which of them had the right to sell guano in England from deposits in Peru. The net issue was whether the companies had sorted the dispute out and made an agreement on October 6th,1881, or whether negotiations had continued.
A court was asked to make orders that an agreement existed and that the parties should honour it. In preparation for the trial, the company seeking the orders was instructed to make a list of documents to do with the case and give this, on affidavit, to the other side. This might be called an early form of discovery.
The company’s minute book was on this list. Upon inspection, the minute-book mentioned papers that might show if negotiations had continued after October 6th, and so the defendant company sought to have these papers listed, and then inspected.
Difficulties
At this point a number of difficulties arose: the request was refused by a judicial official (the Master), then a judge granted it, but only for documents that existed before October 6th. Two judges then differed over the documents created after October 6th, and the matter eventually ended up in the court of appeal.
The court of appeal had to consider how a court should decide which documents have anything to do with a case in hand and which do not, and so decide which documents should be discovered.
This case is The Compagnie Financiere Et Commerciale Du Pacifique v The Peruvian Guano Company and is considered to be a key case in the development of tests for granting discovery.
In short, if documents are in the possession or power of a party to an action, and it is reasonable to suppose that these documents may, directly or indirectly, tend to advance the case of the party seeking discovery or damage the case of the other side, then the documents should be listed on affidavit to the party looking for them. If lawyers get to inspect the documents, and, as with the minute books above, these refer to other documents that satisfy the test, this may lead to a train of inquiry about the other documents.
Applying these tests, and the subsequent 133 years of case law and court rules refining the tests further, can lead to difficulties. Parties seeking discovery of documents might be tempted to cast their nets more widely than is thought reasonable, and a good deal of argument takes place on this, especially nowadays where classes of documents rather than particular documents may be listed. The more expansive requests for discovery are at times referred to as fishing expeditions.
Specific description
To the modern eye, an extraordinary feature of Peruvian Guano is that there were probably fewer than 20 documents mentioned in the company minute book, and most are very specifically described.
For example, “the letter from M de Germiny to M Homberg . . . dated the 3rd of November, 1881”. By contrast, litigation from 2009 in the Irish courts between Thema International Fund plc and HSBC Institutional Trust Services (Ireland) involved paper and electronic discovery estimated to cost in excess of €10 million, and one party had a team of 50 trained lawyers reviewing for months the documents that were discovered.
Securities fraud
Thema was part of the wider Bernie Madoff-related litigation caused by a securities fraud, in which the US court-appointed trustee estimated investors lost some $18 billion. Madoff was sentenced in the US to 150 years in prison, a sentence that attracted some attention here.
Thema is a case that keeps on giving, and a careful analysis of judgments in the High Court and in the Supreme Court perhaps points to a new landscape for discovery in Ireland: prior to proceedings, parties may be obliged to act to reduce the costs of subsequent discovery; courts may be unsympathetic to failures, delays and refusals in making discovery.
Solicitors might keep an eye on developments in the obligations placed on solicitors concerning discovery (disclosure) in England and Wales. Practitioners might consider recording in attendance notes the substance of discussions with clients about discovery, if orders may be contemplated. Should this be included in the terms of business letter?
John Evans is a barrister