Background
In these proceedings, Defender Limited, a British Virgin Islands registered investment fund, sued HSBC for $333 million claiming negligence and breach of contract in relation to HSBC’s alleged role as a custodian of monies which were lost through the €65 billion Ponzi scheme operated by Bernard Madoff. HSBC had previously been sued in a similar set of proceedings by a separate investment fund, Thema International Fund, in relation to the Madoff fraud. The Thema proceedings settled in November 2013 following 17 days of hearings in the High Court but before HSBC’s witnesses were called to give evidence in defence of the case. As the Thema proceedings ultimately settled, the witness statements served on Thema’s solicitors in advance of the trial were never adopted in court as evidence by HSBC’s witnesses.
Defender sought discovery of witness statements prepared by HSBC’s witnesses in the Thema proceedings and argued that their discovery was necessary in order to determine whether there were any inconsistencies between the evidence proposed to be given in these proceedings and the previous Thema litigation. In opposing the request for discovery, HSBC argued that the witness statements were protected by privilege until such time as they were adopted as evidence in open court.
Court Decision
Mr Justice Twomey ruled that witness statements retained their privilege until they are “put into the public arena” and become evidence as part of court proceedings. He concluded that the mere service of witness statements on the other side in advance of trial was not sufficient to defeat the assertion of privilege. In making his decision, Mr Justice Twomey highlighted the following points in particular:
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The service of a witness statement on one's opponent does not constitute putting the statement into the public arena; this will only take place once the witness adopts the statement when giving evidence in open court. A witness statement has no evidential value until it is adopted by the named witness in this way.
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While Irish court rules were silent on the privileged status of witness statements, civil procedure rules in operation in England and Wales placed clear restrictions on the use of witness statements for any purpose other than the court proceedings in respect of which the statement was made. These restrictions were based on policy objectives which considered that witness statements should be treated in a similar way to "without prejudice" communications until they are adopted in open court.
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One reason why parties will sometimes compromise litigation is because they do not wish for details of their dispute to be aired in public. It would be a disincentive to parties to settle litigation after a hearing had commenced if it was later possible for the content of a witness statement and sensitive details of the dispute to be disclosed publicly.
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There was a strong public interest in making every effort to encourage parties to settle their disputes with the consequent prospect of avoiding a waste of scarce court resources.
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Parties will often adopt a very frank approach to the preparation of their witness statements in the hope that this might encourage litigation to settle without the necessity for a court hearing. Parties will often adopt such an approach in the knowledge that the content of the witness statement will not lose its privileged status simply through having been served on the other side.
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In certain circumstances, it is possible that a witness statement which, although not adopted by the named witness as part of their evidence, may nonetheless lose its privilege. This may arise where either verbatim excerpts from or summaries of the witness statement are opened in court such that the witness statement is effectively "put into the public arena" and no longer privileged.
Comment
The Court's decision provides welcome clarification in relation to one aspect of the scope of litigation privilege which had not previously been considered by the Irish courts. The Court's approach is noteworthy in stressing the policy objective of encouraging and incentivising parties to settle litigation as the basis for extending litigation privilege to include witness statements which have not been adopted as evidence in open court.
